SEBI Hits a Wall on ₹76000-Crore Worth Dues in FY2023-24

SEBI Hits a Wall on ₹76000-Crore Worth Dues in FY2023-24

Sub: Eco

Sec: Capital Market

• Difficult to Recover (DTR) Dues:
  • SEBI has marked dues worth ₹76,293 crore as Difficult to Recover (DTR) at the end of FY2023-24.
  • This amount is 4.1% higher than the ₹73,287 crore recorded in the previous year.
  • DTR dues refer to amounts that could not be recovered even after exhausting all possible recovery methods.
• SEBI’s Recovery Powers:
  • Under Section 28A of the SEBI Act 1992 and corresponding provisions of the SCRA 1956 and Depositories Act 1996, SEBI is empowered to recover monies from individuals or entities that:
    • Fail to pay penalties imposed by an adjudicating officer.
    • Fail to comply with SEBI’s directions for refunding money.
    • Fail to comply with disgorgement orders or payment of fees due to SEBI.
• Pending Recovery Certificates:
  • As of March 31, 2024, a total of 6,781 recovery certificates were generated, of which 3,871 are still pending, amounting to ₹1.02 lakh crore.
  • 61.5% of this amount, or ₹63,206 crore, pertains to collective investment schemes and deemed public issue matters related to PACL and Sahara India Commercial Corporation.
  • A total of ₹95,346 crore is under parallel proceedings before various courts and court-appointed committees, including cases involving PACL and Sahara India Commercial Corporation.
• Impact of Insolvency and Bankruptcy Code (IBC):
  • SEBI’s recovery proceedings are often subject to directions and approvals from respective courts and committees.
  • In cases where the Insolvency and Bankruptcy Code (IBC) is invoked, SEBI’s recovery efforts are impacted by the IBC moratorium.
• Untraceable Category:
  • Out of the 140 DTR certificates classified under the untraceable category, 131 relate to individuals and 9 to firms.
  • These untraceable cases amount to ₹13.3 crore and ₹15.7 crore, respectively.
• Pending Court Cases:
  • There are 418 cases pending before various courts, tribunals, and authorities related to matters where recovery certificates have been drawn.
  • A majority of these cases are sub-judice before the Securities Appellate Tribunal.
  • Among the DTR cases, 380 companies have been classified as defunct, with an unrecovered amount exceeding ₹3,000 crore.

Insolvency and Bankruptcy Code (IBC) 2016

The Insolvency and Bankruptcy Code (IBC) 2016 was enacted to provide a unified and comprehensive framework for resolving insolvency and bankruptcy in India.

It replaced various fragmented laws with a uniform procedure, primarily aimed at addressing Non-performing Assets (NPAs) and debt defaults.

Aims and Objectives of the Insolvency and Bankruptcy Code:

• Consolidation and Amendment: Consolidate and amend all existing insolvency laws in India.
• Simplification and Expedition: Simplify and expedite the insolvency and bankruptcy proceedings in India.
• Protection of Interests: Protect the interests of creditors and stakeholders in the company.
• Revival of the Company: Ensure the revival of the company in a time-bound manner.

Terminologies under IBC 2016:

• Insolvency: A situation where a debtor is unable to pay their debts.
• Bankruptcy: A legal proceeding involving a person or business that is unable to repay their outstanding debts.
• Liquidation: The process of bringing a business or company to an end, involving the distribution of the company’s assets among creditors and other claimants.
• Haircut: The reduction in the value of an asset. For example, if the haircut is 80%, then 80% of the credit owed to its creditors will not be recovered.
• Moral Hazard: A situation where an economic actor has an incentive to increase its exposure to risk because they do not bear the full costs of that risk.

Institutional Framework of the IBC:

• Insolvency Professionals:
  • Role: Administer the resolution process, manage the debtor’s assets, and provide information for creditors’ decision-making.
• Insolvency Professional Agencies:
  • Role: Register insolvency professionals, conduct exams to certify them, and enforce a code of conduct.
• Information Utilities:
  • Role: Maintain records of debts given by creditors along with details of repayments or dishonors of debt.
• Adjudicating Authorities:
  • Role: Approve the initiation of the resolution process, appoint insolvency professionals, and approve creditors’ final decisions.
• National Company Law Tribunal (NCLT): Acts as the adjudicating authority for companies and limited liability entities.
• Debt Recovery Tribunal (DRT): Serves as the adjudicating authority for individuals and partnership firms.
• Insolvency and Bankruptcy Board of India (IBBI):
• Role: Regulates insolvency professionals, professional agencies, and information utilities established under the Code.