Daily News Simplified - DNS

16 11 19
Notes
SL. THE HINDU
TOPICS
NO. PAGE NO.

1 ArcelorMittal’s takeover of Essar cleared by SC 01

2 Five-in-one 10

3 Centre drops plan to bring in changes to the Forest Act of 1927 13

4 Treating Education as a public Good 10

5 Crossed wires 10

6 Saving sparrows in Godavari, one nest at a time 08

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Title 1. ArcelorMittal’s takeover of Essar cleared by SC - (The Hindu, Page 10)

Syllabus Mains: GS Paper III- Indian Economy
Theme Implementation of IBC
Highlights Context:
The Supreme Court has recently delivered a landmark verdict which enables the World's
largest steel maker, ArcelorMittal to take over Essar Steel under the Insolvency and
Bankruptcy Code (IBC). This ruling of the SC is considered to be important for a number of
reasons. Firstly, this judgment of the SC has put to rest various legal issues which arose
with respect to the implementation of IBC and hence the judgment is set to expedite the
process of recovery of the NPAs. Secondly, the ruling would enable the banks to recover
around 85% of their bad loans which they had lent to Essar Steel as compared to the
average recovery rates of 53% in other cases. Thirdly, the SC has also decided to extend
the time limit of 330 days set under the IBC code for resolution of the cases.
Overall, this judgment of the SC is set to bring about a paradigm change in the resolution of
the cases under the IBC. Hence, let us understand in detail about the recent verdict of the
SC and its implications.

Basic Details about Insolvency and Bankruptcy Code (IBC)

Rationale: Earlier, there were multiple overlapping laws and adjudicating forums dealing
with financial failure and insolvency of companies and individuals in India. This led to undue
delays in the recovery of the NPAs by the Banks. Hence, the IBC Code was introduced to
consolidate all the existing laws related to Insolvency and Bankruptcy in India and to
simplify the process of insolvency resolution.
Institutional Mechanism:
Insolvency Professionals: A specialized cadre of licensed professionals would administer
the resolution process, manage the assets of the debtor, and provide information for
creditors to assist them in decision making.
Insolvency Professional Agencies: These agencies conduct examinations to certify the
insolvency professionals and enforce a code of conduct for their performance.
Information Utilities: The creditors would report financial information of the debt owed
to them by the debtor.
Adjudicating authorities: The proceedings of the resolution process would be
adjudicated by the National Companies Law Tribunal (NCLT), for companies; and the Debt
Recovery Tribunal (DRT), for individuals. The duties of the authorities will include approval
to initiate the resolution process, appoint the insolvency professional, and approve the final
decision of creditors.
Committee of Creditors (CoC) : During the insolvency resolution process, a committee
consisting of lenders would be constituted for taking decisions (by voting) on the resolution
process.
The CoC may either decide to restructure the debtor‘s debt by preparing a resolution plan
or liquidate the debtor‘s assets. However, such a decision has to be approved by at least
66% of the votes in the committee of creditors. ( Earlier, the voting threshold for the
approval was 75%, but it was reduced to 66% through the IBC amendment act, 2019)
Insolvency and Bankruptcy Board: The Board would regulate insolvency professionals,
insolvency professional agencies and information utilities set up under the Code. The Board
would consist of representatives of Reserve Bank of India, and the Ministries of Finance,
Corporate Affairs and Law.
Procedure to resolve Insolvency and Bankruptcy: The Code proposes two
independent stages:
Insolvency Resolution Process, during which lenders assess whether the debtor's business is
viable to continue and the options for its rescue and revival; and
Liquidation (Sale of Assets), if the insolvency resolution process fails .
Insolvency Resolution Process (IRP): When a default occurs, the resolution process
may be initiated either by the debtor or creditor before the adjudicating authority. The
NCLT appoints an insolvency professional to administer the IRP. The Resolution Professional
identifies the financial creditors and constitutes a Committee of Creditors (CoC). The CoC
would prepare the resolution plan for the restructuring the loans of the defaulted borrower
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which may be in the form of extending the maturity period of the loan, reducing the rate of
interest on loans etc. However, such a resolution plan has to be approved by at least 66%
of the votes in the committee of creditors.
Liquidation (Sale of Assets): If the Committee of Creditors fail to come up with a
resolution plan within the time limit of 330 days, then the proceeds from the sale of the
debtor‘s assets are distributed in the following order of precedence: i) insolvency resolution
costs, including the remuneration to the insolvency professional, ii) secured creditors,
whose loans are backed by collateral, dues to workers, other employees, iii) unsecured
creditors, iv) dues to government, v) priority shareholders and vi) equity shareholders.

Understanding the Background to the Supreme Court Verdict

In the year 2017, the Essar Steel defaulted on its payments to the tune of Rs 54,000 crores
to the financial and operational creditors. Financial creditors are those who provide long-
term capital in the form of loans whereas the Operational creditors are usually the suppliers
of raw materials, etc. In case of Essar Steel, the financial creditors included the Public
sector Banks such as State Bank of India while its operational creditors included companies
such as Bharat Petroleum, Indian Oil, GAIL, ONGC, NTPC etc. On account of default, the
Public sector banks led by SBI decided to initiate the insolvency proceedings against Essar
Steel.
During the process of resolution, the committee of Creditors approved the ArcelorMittal's
proposal to pay Rs 42,000 crores to the creditors for acquiring Essar Steel. According to
the proposal cleared, the financial creditors would be given higher preference over the
operational creditors for the recovery of their dues i.e. the financial creditors would recover
higher percent of their dues as compared to operational creditors.
However, such a proposal was challenged before the NCLAT by the operational creditors.
The Operational creditors argued that they need to be treated on par with the financial
creditors with respect to the recovery of their dues.
In response, the NCLAT ruled that recovered 42,000 crore would be divided in a manner
wherein both financial and operational creditors would be able to recover equal percent of
their dues. Accordingly, the financial creditors would get Rs 30,000 crores while operational
creditors would get Rs 12,000 crores and thus such a distribution would ensure that both
the categories of creditors would be able to recover 60% of their dues. Thus, the NCLAT
ruled that the financial creditors and operational creditors have to be treated equally with
respect to recovery of their dues. Thus, this ruling of the NCLAT was challenged before the
Supreme Court.

What is the Verdict of the Supreme Court on this issue?

Primacy of the Financial Creditors: The Supreme Court has stuck down NCLAT's ruling
which provided for equitable treatment of Financial and Operational Creditors. The SC was
of the opinion that the financial creditors are much more important as compared to
operational creditors. This is because the Financial creditors provide the working capital to
enable the companies to run their operations. Hence, equality principle cannot be stretched
to treat unequals equally.
Upheld the proposal cleared by Committee of Creditors (CoC): The SC has held that
the CoC has taken a decision in accordance with commercial wisdom and hence such a
decision has to be upheld. Accordingly, it stated that NCLAT should not interfere in the
business decision taken by the requisite majority of the CoC in conformity with the law.
Extension of deadline for Resolution: As stated before, the time limit for resolution
process is 330 days in all cases, failing which the defaulted company is liquidated. The SC
was of the opinion that sometimes the cases could be delayed due to delays in the Judicial
proceedings and hence the companies should not suffer unduly. Hence, the SC has decided
to extend the 330-day limit if the parties are able to prove that delay has been caused due
to delays in the judicial proceedings.

Way Forward
The much awaited SC judgment has laid to rest numerous points of law under the IBC. This
has significantly reduced the scope for long drawn litigations and would eventually lead to
faster resolutions of stressed assets. In all, the decision will help achieve the objective of
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IBC in true spirit.

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Title 2. Five-in-one (The Hindu, Page 10)

Syllabus Mains: GS Paper 2: International Relations
Theme About BRICS Summit
Highlight Context: Considering slowing down of world economy, problems in trade negotiations and
s legitimacy of WTO being questioned, 11th BRICS Summit of 2019 in Brasilia has come at an
opportune time. The editorial highlights that BRICS has proved its naysayers wrong since the idea
of grouping the world‘s ―five emerging economies‖ was coined by a consultant two decades ago.
The theme of the BRICS summit this year is "Economic Growth for an Innovative Future.”
About BRICS
 BRICS is the group composed by the five major emerging countries - Brazil, Russia,
India, China and South Africa - which together represent about 42% of the population,
23% of GDP, 30% of the territory and 18% of the global trade.
 The acronym BRIC was coined by Goldman Sachs in 2001 to indicate the emerging
powers that would be, alongside the United States, the five largest economies of the
world in the 21st century.
 In 2006, BRIC countries started their dialogue, which since 2009 takes place at annual
meetings of heads of state and government.
 In 2011, with South Africa joining the group, the BRICS reached its final composition,
incorporating a country from the African continent.
Highlights of the Editorial
 Despite slowdown in Brazil and South Africa in recent times and sanctions imposed on
Russia, India and China with their growth and optimistic economy has helped BRICS to
find its relevance and importance in this era of economic slowdown.
 Despite severe challenges on various fronts faced by these five countries, the group as a
whole has adapted to the challenging times and proven its resilience.
 Despite the fact that five countries are headed in different direction in terms of their
political aspirations, still they found ways to build a common vision for the world’s
economic future with an emphasis on multilateralism and a joint statement at
Brasilia that publicly denounced ―unilateral and protectionist‖ actions.
 BRICS countries, which acknowledged the weakening of global economic growth in the
statement, repeated their commitment to the WTO despite US reluctance.
 BRICS nations also presented a vision for ―rules-based, transparent, non-discriminatory,
open, free and inclusive international trade‖.
Importance for India
 The joint statement is equally important for India considering its sluggish economic
growth, increasing unemployment and recent unacceptability of RCEP trade agreement.
 However, for India, failure to resolve issues of RCEP with trading partners had raised
suspicion and questions as to whether India will reverse market liberalisation and
openness to trade which began in the 1990s.
 However, Prime Minister Modi and Chinese President Xi Jinping used the BRICS platform
wisely and continued talks on bringing India back into the RCEP fold.
 Both India and China also focused on resolving their trade issues through the recently
launched mechanism led by Finance Ministers.
Certain concerns
 Despite cumulative population of around 40% of BRICS countries, trade among BRICS
countries still is only 15% of the world trade.
 On this account, the editorial mentions that BRICS countries needs to take serious action
to improve trade among them.
 This will be good not only for increased trade among BRICS nations but will also help in
sustaining growth and creating jobs.
Prime Minister Modi on Intra-BRICS Trade
 Prime Minister wished that Intra-BRICS trade and investment targets should be more
ambitious and invited their suggestions to further reduce the cost of trade between the
BRICS countries.
 PM also suggested that by the next BRICS Summit, at least five areas should be identified
in which joint ventures can be formed between the BRICS countries on the basis of
complementarities.
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 Prime Minister said that Important initiatives such as innovation BRICS Network, and
BRICS Institution for Future Network will be considered for discussions during the summit
tomorrow. He requested the private sector to join these efforts focused on human
resources. He also suggested that the five countries should also consider a Mutual Social
Security Agreement.
Way Forward
 Thus, it is greater connectivity and more trade that will allow the BRICS countries to
claim their rightful space, and provide the leadership and energy that the global
economic order needs urgently.
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Title 3. Centre drops plan to bring in changes to the Forest Act of 1927– (The Hindu, Page
13)
Syllabus Prelims: Environment and Biodiversity
Theme Proposed changes to Forest Act, 1927
Highlights Context: The Union Environment Ministry has withdrawn a draft amendment that proposed
updates to the Indian Forest Act, 1927 as the draft was opposed by various sections of the
society. The Indian Forest Act, 2019, was envisaged as an amendment to the Indian Forest Act,
1927, and an attempt to address contemporary challenges to the country‘s forests. The draft law
was sent to the states for their comments.
Reserve Forest - The State Government may constitute any forest-land or waste-land which is
the property of Government, or over which the Government has proprietary rights, or to the
whole or any part of the forest-produce of which the Government is entitled, a reserved forest in
the manner hereinafter provided.
“forest-produce” includes–
(a) the following whether found in, or brought from, a forest or not, that is to say timber,
charcoal, caoutchouc, catechu, wood-oil, resin, natural varnish, bark, lac, mahua flowers,
mahua seeds,4 [kuth] and myrabolams, and
(b) the following when found in, or brought from a forest, that is to say
(i) trees and leaves, flowers and fruits, and all other parts or produce not herein
before mentioned, of trees,
(ii) plants not being trees (including grass, creepers, reeds and moss), and all parts
or produce of such plants,
(iii) wild animals and skins, tusks, horns, bones, silk, cocoons, honey and
wax, and all other parts or produce of animals, and
(iv)peat, surface soil, rock and minerals (including lime-stone, laterite, mineral oils,
and all products of mines or quaries);
Village Forest - The State Government may assign to any village-community the rights of
Government to or over any land which has been constituted a reserved forest, and may cancel
such assignment. All forests so assigned shall be called village-forests.
Protected Forest - The State Government may declare applicability of this Act to any forest-
land or waste-land which is not included in a reserved forest, but which is the property of
Government, or over which the Government has proprietary rights, or to the whole or any part of
the forest produce of which the Government is entitled. The forest-land and waste-lands
comprised in any such notification shall be called a ―protected forest‖.
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Title 4. Treating Education as a public Good (The Hindu, Page 10)

Syllabus GS Paper 2: Polity & Governance
Theme About Draft National Education Policy
Highlights Treating Education as a public Good
Positives of NEP
 It is a vast improvement over its earlier, almost-unreadable avatar.
 Good focus on school education; higher education; other key areas like adult education,
 Special attention given to technology and promotion of arts and culture;
 It also talks about an apex body and the financial aspects to make quality education
affordable for all.
 It talks about reetablishing teachers as the ―most respected members of our society.
 National Research Foundation (Proposal)
o To enable a culture of research to reach all our universities
Negatives
 Commitment to double the government expenditure on education from about 10% to
20% over a 10-year period is still insufficient, given the enormity of the challenge, it is
an unprecedented commitment to the sector.
 Treatment of education as a market good rather than a public good.
o Hence it should not be driven by profit motives
o Education policy, in essence, must aim to produce sensitive, creative and upright
citizens who are willing to take the less-travelled path and whose professional
―skills‖ will endure revolutions in thinking and technology.
 Example of foreign countries validates this:
o We have to be conscious and deeply aware that there is no developed country
where the public sector was not in the vanguard of school and higher education
expansion, in ensuring its inclusiveness, and in setting standards
Way forward suggested in the article
 We need radical and no ad-hoc changes in school education
o The anganwadis remain the backbone of an early childhood care system but
have suffered on multiple grounds, including lack of facilities and proper
training. This, as the report recognises, needs to change;
o The idea of volunteer teachers, peer tutoring, rationalisation of the system of
schools and sharing of resources does sound ominous. It is also not clear what
strategies will be adopted, nor what resources will be committed, to strengthen
the public sector, including the Kendriya Vidyalayas, the State government-run
institutions and the municipal schools.
 Categorization followed by NEP is not good:
o The division of colleges between research-intensive ‗premier‘ universities;
teaching universities; and colleges. The NEP suggests, ―three ‗types‘ of
institutions are not in any natural way a sharp, exclusionary categorisation, but
are along a continuum‖. But the advantage of these divisions, per se, is neither
intuitively nor analytically clear, given that high quality teaching and cutting-
edge research comfortably coexist in most universities of excellence.
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Title 5. Crossed wires (The Hindu, Page 10)

Syllabus GS Paper III: Indian Economy
Theme SC verdict on AGR of the Telecom Sector
Highlights Telecom Companies in Financial Stress
 Two leading and important players in the telecom industry — Bharti Airtel and Vodafone Idea —
have reported historic losses in the second quarter of this fiscal. Vodafone Idea has declared a
loss of Rs. 50,922 crore while Bharti Airtel has reported a loss of Rs. 22,830 crore.
 This loss has been registered because of definition of Adjusted Gross Revenue (AGR) which
has been approved by Supreme Court of India.
What is AGR?
 Telecom operators are required to pay licence fee and spectrum charges in the form of revenue
share to the Government. The revenue amount used to calculate the revenue share is known as
Adjusted Gross Revenue.
 Department of Telecom wants income earned by the operators from things such as bank
deposits included as part of AGR. Whereas telecom operators believe that the income earned
from telecom services should be counted.
 In their petition, DoT demanded interest, penalty and interest on penalty on the outstanding
amount. This amount accumulated to Rs. 92,641 crore.
 The definition of AGR has been a long standing issue between the DoT and the Telecom Service
Providers (TSPs), in particular, on some items that the TSPs strongly believe should not be
included while calculating AGR since these are not part of the core telecommunications services.
Concerns of telecom operators
 Both Vodafone and Bharti Airtel have said that if government does not help them on the
demand to pay arrears of revenue share along with interest and penalty (adding up to about
Rs. 80,000 crore between them), then their existence will certainly be in doubt and this might
result in collapse of these two companies.
 Vodafone in particular has said that it will exit India if concerns are not addressed. Now, this
will not only be an embarrassment for the government but will also impact jobs of thousands of
employees who are associated either directly or indirectly with the companies.
Rajiv Gauba Committee
 A Committee of Secretaries headed by Cabinet Secretary Rajeev Gauba is studying ways in
which the telecom industry can be bailed out.
Way Forward
 The government needs to revisit its policies on telecom sector including addressing the validity
of a licence fee in the form of revenue share so that the issues raised by the telecom operators
can be solved.
 The government also needs to look into the fairness of regulatory policies and approaches and
ensure that they are unbiased.
 The telecom industry is crucial to India‘s next wave of growth through digitisation and the
government should rather focus on balanced growth of the telecom sector rather than pursuing
single agenda of revenue earning.
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Title 6. Saving sparrows in Godavari, one nest at a time (The Hindu, Page 08)
Syllabus Prelims: Environment
Theme About House Sparrow
Highlights About the bird:
 Scientific name: Passer domesticus
 It is native to most of Europe, the Mediterranean Basin, and a large part of Asia. Its
intentional or accidental introductions to many regions, including parts of Australasia,
Africa, and the Americas, make it the most widely distributed wild bird.
 The house sparrow is strongly associated with human habitation, and can live in
urban or rural settings.
 It is the state bird of Delhi.
 The animal's conservation status is listed as ‗least concern‘ on the IUCN Red List.
 But nowadays its number is depleting.
 Factors leading to their decline are;
o rapidly changing cities that are inhabitable for the bird species,
o modern infrastructure that does not account for space for the sparrow to
nest,
o the sharp rise in radiation pollution caused by microwave towers.
o with increased usage of pesticides, pests are declining, thereby decreasing
prey for the bird.
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