Government of India Volume I: Analysis and Recommendations

RESOLUTION
Table of Recommendations 7.8 Winding-up proceedings
If a covered service provider has failed and needs to be liquidated or wound up, the draft Code on resolution must
allow for:
1. The process of liquidation to be carried out in accordance with the law of incorporation of the covered service
provider;
2. The resolution corporation to be appointed as the official liquidator by the court concerned; and
3. The resolution corporation to be the creditor of the first priority if the resolution corporation has utilised
proceeds from the fund towards meeting the expenses of liquidation.
7.8. Consequences of resolution
A resolution action by the resolution corporation may include the following:
1. Transfer of shares, property, rights and obligations in contracts;
2. Change in the management of the firm, even resulting in removal of certain workforce;
3. Compensation; and
4. Liquidation of the covered service provider.
To provide for compensation, the resolution corporation must be empowered to
carry out proceedings where persons or institutions to be compensated are identified
and awarded monetary compensation.
Compensation proceedings would cover the following process:
1. Identification of the persons or institutions affected by the actions of the corporation who are to
be compensated;
2. Evaluation of the amount of compensation to be carried out to each person or institution identified
for compensation; and
3. Payment of the award.
As a last recourse, the law would allow dissenting claimants to file appeal to the appellate
tribunal, beyond which the compensation proceedings would be final and conclusive.
Appeals would be restricted to establishing whether due process was followed in
the award of compensation.
An efficient resolution mechanism is one that ensures that those covered service
providers that have become unviable are wound up. This ensures that deterioration of
the financial health of a covered service provider does not affect other covered service
providers in the financial system.
Since the resolution corporation closely monitors the viability of a covered service
provider and works towards bringing the institution to a less riskier financial state, it is
best suited to determine when a covered service provider should be liquidated. As such,
if the resolution corporation determines that a covered service provider has failed, the
covered service provider would proceed to liquidation.
The Commission has decided that liquidation of a covered service provider would
only happen in accordance with the law under which the institution was incorporated.
However, this law must stipulate that the resolution corporation would be appointed as
the official liquidator of the firm. As mentioned earlier, there are certain special laws governing
public sector financial institutions that contain provisions which would restrict the
power of the resolution corporation to act as the official liquidator of those institutions.
The Commission recommends that such provisions of existing laws be amended immediately
to give effect to this power of the resolution corporation.
Table 7.8 states the position of the Commission regarding liquidation proceedings.
FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION 79