“Analysis of Corporate Debt Restructuring Mechanism in Indian Context & Its Practical Implications”



“It is not the strongest or the most intelligent who will survive but those who can best manage change.”   –  Leon C. Megginson


This paper will be dealing with Corporate debt restructuring mechanism in India , its evolvement,  meaning , how it’s being processed , main objectives,  scope, role of various authorities in restructuring and assessment of the company assets ,its relation with insolvency, what is the legal basis , legislations involved, the practical implications , problems , benefits , present scenario of CDR regimes , instances where CDR was implemented. This papers main objective is to make and increase the confidence of investors in these protection mechanisms so that they can continue to invest without any fear of incurring losses. Though it is an essential mechanism promoting the protection of investors but is bad for company health as there are various issues therefore the root causes for the loans going bad need to be identified and removed in order to prevent more CDRs from taking place in the times ahead.


In the era, where corporate governance is of utmost importance, survival of companies is a big question. When the survival of companies comes into question, not only it limits to company existence but also harms the interest of the stakeholders, the investors. These are the people who have invested on a basis of trust that they will get return. Therefore to protect their interest, all possible measures are taken to stop a company from being wound up.  Everyone’s intention is to save the company from winding up as it is the last option. In a list of long possible measures, there is a corporate debt restructuring method in which the assets of the company are being restructured to pay the outstanding debts which are difficult to payback. This is a voluntary, non-statutory mechanism where financial institutions and banks come together who are creditors to reduce the financial difficulties, increase the survival of the company or indirectly to protect their own interests. While it has proved to be fruitful in many cases, still there is a lot of scope for improvement.

Its objective according to the RBI given in its guidelines is “to ensure timely and transparent mechanism for restructuring the corporate debts of viable entities facing problems, outside the purview of BIFR, DRT and other legal proceedings, for the benefit of all concerned. In particular, the framework will aim at preserving viable corporates that are affected by certain internal and external factors and minimize the losses to the creditors and other stakeholders through an orderly and coordinated restructuring programme.”

The CDR Mechanism is a three-tier structure:

  1. CDR Standing Forum –

The CDR standing forum is the representative general of all banks or financial institutions. It is a self-empowered body which lays down policies and guidelines to be followed by the CDR Empowered Group and CDR Cell for debt restructuring and ensures their smooth functioning and adherence to the prescribed time schedules for debt restructuring.[2] It acts as an official platform for all the creditors and borrowers to develop effective policies and rules for the interest of all the people concerned. It acts as an authority who monitors the progress of CDR mechanism done in any Company. This forum has also an authority to give special treatment to some cases.

  1. CDR Empowered Group –

The empowered group deals with cases individually and comprises of Executive Director who is the representative of the Industrial Development Bank of India, Chief Executive officer is authorized by the financial banks of all institutions who all ae concerned with that company. The banks and financial institutions who are representing in an EG group have to first approve a panel of officers so that this mechanism can run smoothly and efficiently. They act as a standing members who facilitate the conduct of meetings voting in a meeting. The EG considers the preliminary Flash Report of all cases of requests of restructuring, submitted to it by the CDR Cell. After the EG decides that restructuring of a company’s debts is prima facie feasible and the concerned enterprise is potentially viable in terms of the policies and guidelines evolved by Standing Forum, the detailed restructuring package is worked out by the referring institution in conjunction with the CDR Cell.[3]  The decisions given by this EG are final and when restructuring of debt is approved by the EG then the company can start its restructuring.

  1. CDR Cell –

The CDR Cell makes initial scrutiny of the proposals received from the lenders/borrowers, in terms of the general policies and guidelines approved by the CDR Standing Forum, by calling for details of the proposed restructuring plan and other information and place for consideration of the CDR EG within 30 days to decide whether restructuring is prima facie feasible. If found feasible, the referring institution/bank takes up the work of preparing the detailed restructuring plan with the help of other lenders, in conjunction with CDR Cell and, if necessary, experts engaged from outside. If not found prima facie feasible, the lenders may start action for recovery of their dues.[4] It’s the third tier mechanism where all the references by the lenders and borrowers are being brought and where EG has to suggest some suggestions and modifications they are being to be brought within 90 days but this period can be extended for a period of 180 days by taking the reference from CDR cell in genuine cases.

CDR Mechanism Evolution

 In simple terms “Corporate debt restructuring” can be considered as the restructuring of the assets of the company to pay its debts but when a detailed study is done it’s not simple as it looks. It has developed its mechanism from the existing Insolvency Law. A study of the evolution of the mechanism would reveal that it has developed primarily in countries which have undergone a systemic crisis, where the existing bankruptcy law was found to be inadequate.[5] Insolvency law prescribes for distressed companies primarily two kinds of solutions. The first developed from the common law where the company is liquidated outright.[6]The second, based on the American approach, where the stakeholders in the process believe that the company is a viable entity which is capable of recovering from its current crisis and therefore the company goes in for a court approved restructuring i.e. the business is reorganized under a plan negotiated between the parties with the sanction of the court. In both these cases, however, the process is time consuming and tedious since it is a formal procedure where the interests of all the stakeholders have to be given due consideration.[7] Many of the countries adopted this mechanism because there were facing a heavy financial crisis and there economy was in a shutdown mode.

The Indian CDR mechanism is largely based on the London Approach, a mechanism formulated in the early nineties wherein out-of-court agreements and settlements were encouraged to be opted by the creditors for maximizing the value of the corporates as a going concern. The approach grew from the recognition that in a multi-creditor restructuring, the lenders would achieve better returns through collective and coordinated efforts to rescue a firm in distress, rather than force it into formal insolvency. [8]In India Corporate Debt restructuring Mechanism was being inserted by the Reserve Bank of India as well as detailed guidelines were issued by RBI in the year 2001 for Implementation of it by Banks. It is a voluntary and non-statutory mechanism which is based on Debtor-Creditor Agreement and Inter-Creditor Agreement and is only approved by majority of 75% creditors (by value) which makes it binding on the other 25% of the shareholders. This mechanism is only triggered by the person who is a creditor having minimum 20% shareholding or by the concerned corporate who is supported by bank or financial institution holding minimum 220% equity.

A Special Group was constituted in September 2004 with Smt.S.Gopinath, Deputy Governor, and RBI, as the Chairperson to review and suggest changes / improvements, if any, in the CDR mechanism. Based on the suggestions of the Special Group, and the feedback received on the draft guidelines, the CDR Guidelines have been further revised. The revised guidelines are in supersession of the extant guidelines outlined in the aforesaid circular dated February 5, 2003.

The legal basis to adapt this mechanism was to provide validity to Debtor- Creditor Agreement and Inter- Creditor Agreement to provide their validity and make it legally binding so that the effectiveness of CDR mechanism is improved, more shareholders who are other than the 75% are willing to participate according to their financial stability.

Impact of CDR Mechanisms

The guidelines issued by RBI for the CDR mechanisms have been used by both financial institutions and banks under the circumstances of financial crisis and economic turndown, however it turns out that implementation of CDR Mechanism and restructuring of the assets of the company is a bilateral decision between the financial institutions and the companies , it has provided a platform for both of them to work cooperatively and without any fear of incurring losses with a sense of economic security.  From an operational perspective, there can be two types of restructured accounts: the first those accounts which are restructured and classified as NPAs; the second type are those which are restructured, but the asset classification is retained as standard.[9] Hence the issue that whether an account is standard or upgraded is still not resolved.

From the perspective of Electro steel Steels Limited (ESL) case[10] where this company was engaged in setting up an integrated steel and ductile iron pipe which would produce wire rods, reinforcement bars in straight lengths, ductile iron pipes, commercial billets, and pig iron and was undergoing a project of setting up a) Greenfield Integrated Steel & DI Pipe Plant to produce 1.2 MTPA long product of steel, 0.27 MTPA commercial billet, 0.4 MTPA pig iron & 0.33 MTPA Ductile Iron Pipe. The estimated project cost was Rs 7,262 crore and for this project tie-up was being done with leading Chinese Consultation Agency for supply of technology & engineering based on successfully operating Integrated Steel Plants in various locations in China. The issue in this case was that there was an increase in cost project due to the delay in getting clearance for iron mines therefore the lenders have refer them to CDR cell for Rs. 7000 Crore. Thirty banks and financial institutions, including State Bank of India, Punjab National Bank, Canara Bank, UCO Bank, Life Insurance Corporation of India, SREI and HUDCO, have an exposure to ESL. There was an alternative option where bankers were saying that entire assets of the company can be pooled together, all the loans that will be extended by lenders participating in the CDR process would be secured by the pooled assets.

In an another case of Gammon India Ltd[11] which was a largest civil engineering construction company and also claimed to having built he maximum number of bridges in the whole common wealth. Gammon India has an exposure of Rs 14,000 crore to a consortium of eight banks led by ICICI Bank and Canara Bank. Banks of around Rs 10,000 crore of the debt is in the form of non-fund based exposure, and Rs 4,000 crore is fund-based exposure. The debt is supported by bank guarantees and letters of credit. Creditors have approved a Rs.13, 500 crore corporate debt restructuring (CDR) package for Gammon India Ltd, offering the engineering and construction company a breather from a crisis brought on by slower economic growth and project delays, but adding to the growing pile of restructured loans at banks, the CDR package has been approved provisionally subject to confirmation of the minutes by the CDR.

In both of these cases CDR mechanism was being adapted and the biggest of all companies were being saved from insolvency. Therefore it has become important nowadays to force companies to adapt CDR as corporates have been hit hard by slowdown , there is a decrease in global economy, tough market conditions have make corporates difficult to survive , probability of increasing the project costs due to delay in getting clearances and completing legal formalities, the problems of land acquisitions , no availability of good labour , delays in tie-up with the various institutions , not getting long term loans , investors are not able to trust corporates due to various scams occurring , lack of transparency. Therefore CDR has become a most important instrument which has become a boon to investors and they are able to invest their money securely and confidently and have preserve the values of large exposures of banks judicially. This mechanism is less expensive and is an alternative to bankruptcy.


The corporate debt restructuring has recently become buzzword in India, as in recent years there is a tremendous increase in cases which are being restructured by the banks with the help of this mechanism. According to the surveys[12] the total number of cases referred and approved have been increasing from the 2008 crisis. The total number of 622 cases been referred to CDR cells from its inception until March 2014, further, out of the total referrals received is 476 cases. However the referral of these cases and their approvals does not confirm that CDR is a guarantee of survival, but this does also not say that it is a failure of CDR mechanisms.

On an industry-wise analysis of the CDR cases, it may be seen that across all the years, a few sectors such as infrastructure, iron & steel, textile, power and telecom all of which are heavily leveraged and capital intensive, accounted for more than 60% of all the cases referred to CDR cell. Banks have reported that 10-15% of the restructured loans turn bad which is an increase from corresponding figures about 2-3 years back.[13]

Corporate Debt Restructuring has played a significant role for a long period, for both the borrowers and the lenders have been helped when they were facing financial crisis and economic downturn so it does not matter that it had failed in certain cases, there are many reasons such as company persistence, disagreement among the shareholders of the company and many other reasons. We require is to study this mechanism according to the changing conditions, one thing we know for sure is that these corporates will definitely face financial crisis and economic business turndown because they are prone to business cycles and it cannot be prevented because it is unpredictable. Therefore mechanisms like this act as a savior for both investors and entrepreneurs, by the help of these mechanisms existing which are governed by government norms will keep a check on the companies and will prevent them from to fraud with the investors which will eventually increase the confidence of investors and they will continue to invest without any fear of incurring losses. Even it consists some shortcomings , it has a long run in India’s market where its implementation helps entities in facing financial crisis , provides them a chance of recovery and to get back in business rather than wounding themselves by becoming insolvent.

[2] Anonymous, “Corporate Debt Restructuring Mechanism” , http://www.cdrindia.org/standingforum.htm , November 1, 2016 , 06:46PM

[3] ibid

[4] id

[5] Benjamin M. Friedman, National Bureau Of Economic Research (NBER) Working Paper Series : Debt Restructuring, Working Paper 722 http://www.nber.org/papers/w7722 , November 1,2016 , 06:19PM

[6] Patrick Bolton, Toward a Statutory Approach to Sovereign Debt Restructuring: Lessons from Corporate Bankruptcy Practice Around the World, IMF Staff Papers, Vol. 50, Special Issue , November 1,2016 , 6:21PM

[7] Lakshmi Ravindran , “Corporate debt Restructuring: Comparitive Analysis of different countries with Indian Perspective” , https://www.iiiglobal.org/sites/default/files/lakshmiravindran.pdf , November 1, 2016 , 06:26PM

[8] Anant Khandelwal, “The Phenomenon of Corporate Debt Restructuring in India: How Far Can It Go To Prevent Insolvency?” https://www.insol.org/_files/Turton%20Award/Richard%20Turton%20Award%202014.pdf , November 2, 2016 , 08:08PM

[9] Anonymous , “ Corporate Debt Restructuring with Case Study of 5 Companies” , http://dsfinancials2013.blogspot.nl/2013/09/cdr-corporate-debt-restructuring-with_8.html , November 2, 2016 , 08:38PM

[10] Axis Capital Ltd. (PAN: AAACU8367M); SBI Capital Markets Ltd. (PAN: AAACS7914E); Edelweiss Financial Services Ltd. (PAN: AAACE1461E) v. M/s. Electro steel Steels Ltd. (formerly M/s. Electro steel Integrated Ltd.) (PAN: AABCE6875H) Adjudication Order No. AK/AO- 8-12/2016]

[11] Vishwanath Nair, “Gammon India lenders to take control of company”, http://www.livemint.com/Companies/JjoO2QIiFyOUZqnQolymAL/Gammon-India-lenders-to-take-control-of-company.html , November 3, 2016 , 09:35PM

[12] CDR Cell & Outlook India

[13] Supra note at 9

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