Introduction
Suppose a company is running at a huge loss. It is burdened with loans worth crores and is unable to repay its debt. The lenders (banks) then decide that, instead of shutting the company down, it should be handed over to a new investor who can make it profitable again. The investor formulates a Resolution Plan.
This plan outlines:
- How the company will be run.
- What will happen to the employees.
- How much the creditors will be paid.
- What the future business strategy will be.
Even after the NCLT approves this plan, the company does not immediately resume operations smoothly. The real problems begin after that. These are known as implementation challenges.
Mandatory Regulatory Approvals
Merely acquiring a company is not enough. One also needs to obtain permissions from various government authorities. Such as:
- Competition Commission of India (CCI)
- SEBI (if it is a listed company)
- RBI (if it belongs to the banking or financial sector)
- Ministry approvals
- Sector-specific regulators
Example:
If Tata acquires a telecom company, permission from the Department of Telecommunications might be required. If these approvals are delayed, it could take months to implement the resolution plan. Sometimes, the approval itself gets rejected. In such cases, the investor may face a financial loss. That is why regulatory approvals pose the biggest challenge.
Local Government Clearances
It is not just the central government. State and local authorities also grant permission.
Like-
- Factory licence
- Pollution Control Board clearance
- Fire Safety Certificate
- Building approval
- Municipal licence
- Electricity connection
- Labour Department permissions
Example:
A steel plant was purchased. However, clearance from the Pollution Board is pending. In that case, the factory cannot legally start production. That is why local approvals are equally important.
Post-Acquisition Litigation
This is a critical issue. Even after acquiring the company, pre-existing legal disputes do not simply disappear.
For instance:
- Employees might take the matter to court.
- The Tax Department could issue a notice.
- There might be pending environmental cases.
- A property dispute could be ongoing.
- Vendors might file lawsuits to recover payments.
An investor often assumes they are acquiring a company with a clean slate. However, new legal issues often surface after the purchase. This impacts the company’s business operations. It results in a waste of both time and money.
Practical Challenges
Implementing a resolution plan in real life is quite challenging. Even after receiving approval, companies often face various practical and legal hurdles. The primary challenge involves obtaining multiple regulatory approvals, as different authorities require distinct documents and compliance measures. Furthermore, delays in securing these approvals slow down the implementation process. Another issue is the lack of cooperation from the outgoing management. Often, the previous management fails to properly hand over records and assets, making it difficult for the new investor to take charge of the company. Employee resistance and pending litigation such as tax, labor, or property disputes also impact business operations. These legal and operational issues force the investor to incur additional time and costs. Such challenges can delay the implementation of the resolution plan and erode investor confidence. Therefore, efficient coordination and timely approvals are crucial.
Solutions / Recommendations
Merely approving a resolution plan is not enough; delays in implementation make reviving the company difficult. Therefore, the government and regulatory authorities need to introduce practical reforms.
(i) Single Window Approval System
Currently, investors have to approach various departments—such as the CCI, SEBI, RBI, Pollution Control Board, Municipal Corporation, Labour Department, and Electricity Department—to obtain permissions. If the government establishes a Single Window Clearance System, investors could apply for all necessary approvals through a single portal. This would reduce paperwork and accelerate the implementation process.
(ii) Time-bound Regulatory Approvals
Often, obtaining approvals takes 6–12 months. This delay holds up the Resolution Plan and can further deteriorate the company’s financial condition. Therefore, there should be a fixed time limit for every regulatory authority—such as granting approval or rejecting it (with reasons) within 30 or 60 days.
(iii) Digitalisation of Approval Process
Even today, many approvals involve manual processes requiring the physical submission of documents. Promoting online applications, digital verification, and e-signature systems would enhance transparency and reduce the scope for corruption. Investors would also be able to track the status of their applications online.
(iv) Faster Disposal of Pending Litigation
Many companies face pending tax disputes, labor disputes, or environmental cases. A new investor is often unable to properly start the business due to these legal disputes. Special benches or fast-track courts could be established to expedite the resolution of pending insolvency-related cases.
(v) Better Coordination Between Authorities
At times, there is a lack of proper coordination among the Central Government, State Government, and local authorities. If all departments share information and coordination improves, unnecessary delays and confusion can be minimized.
(vi) Legal Certainty for Resolution Applicants
An investor acquiring a company needs the assurance that, following approval, they will not face unnecessary problems arising from legacy legal disputes. A clear legal framework and a consistent judicial approach will boost investor confidence, encouraging more companies to participate in the resolution process.
Conclusion
The primary objective of a Resolution Plan is not merely to acquire the company but to successfully revive it. However, various legal and administrative challenges arise during practical implementation. Mandatory regulatory approvals, local government clearances, and post-acquisition litigation often delay the Resolution Plan. If approvals are not obtained on time or legal disputes remain pending for extended periods, investor confidence may erode, and the company’s revival process slows down. This has a negative impact on creditors, employees, and the economy alike. Therefore, it is essential for the government to streamline the approval process and make it time-bound, strengthen digital systems, and expedite the resolution of pending litigation. Additionally, better coordination among various regulatory authorities must be ensured.
References
- The Insolvency and Bankruptcy Code, 2016 (India).
- Insolvency and Bankruptcy Board of India (IBBI), Regulations, 2016.
- Insolvency and Bankruptcy Board of India (IBBI), Discussion Papers and Circulars.
- Ministry of Corporate Affairs, Government of India – Insolvency and Bankruptcy Code Resources.
- Competition Act, 2002 (where regulatory approval from CCI is required).
- Companies Act, 2013 (relevant provisions relating to corporate restructuring and approvals).
