[Medhashree Verma is a 2nd year B.B.A, LL.B. student at National Law University Odisha, Cuttack]
One of the main objectives behind the enactment of the Insolvency and Bankruptcy Code, 2016 (the “Code”) was to provide for a speedy system for resolution of stressed companies. A healthy insolvency regime requires fast insolvency resolution for minimising creditors’ losses and maximising the asset value of stressed companies. This can be achieved only by prescribing strict deadlines within which the insolvency framework should function.
Such a timeline has been provided under section 12 of the Code which prescribes a timeline of 180 days for completion of the corporate insolvency resolution process. This timeline can be extended for a maximum period of a further 90 days, and that too only upon satisfaction of the adjudicating authority, i.e., the National Company Law Tribunal (“NCLT”). Therefore, the outer limit for completion of the corporate insolvency resolution process is 270 days. This timeline was set in order to expedite the insolvency system; otherwise, the average time taken for insolvency resolution in India was approximately four years resulting in a slow and inefficient insolvency mechanism. Moreover, in Innoventive Industries Ltd. v. ICICI Bank, the Supreme Court observed that the time period prescribed under the Code is of essence to the resolution process. It is important for ascertaining whether the company can continue as a going concern or not.
However, the National Company Law Appellate Tribunal (NCLAT) in Quinn Logistics India Pvt. Ltd. v. Mack Soft Tech Pvt. Ltd laid down certain situations in which the time period intervening the insolvency resolution process period can be excused from the count of 270 days. The same are as follows:
- (1) if the resolution process is stayed by the adjudicating authority, NCLAT or the Supreme Court;
- (2) in case of lack of functioning of a resolution professional;
- (3) the period between the admission of insolvency application and the actual date from which the resolution professional takes charge of the matter;
- (4) when an order is reserved by the adjudicating authority, NCLAT or the Supreme Court;
- (5) when the NCLAT sets aside the corporate insolvency resolution process or when its decision is reversed by the Supreme Court.
- (6) any other situation that would justify the exclusion of a certain period from the 270 days count.
Although these exceptions are of practical importance, they pose a major challenge to the effective and fast administration of the new insolvency process in the country. Increased representations by the corporate debtor, shareholders, insolvency resolution professionals, committees of creditors and other interested parties before the adjudicating authorities delay the insolvency proceedings. This vitiates the Code’s objective of fast resolution of stressed assets in the economy. Moreover, there are chances of the corporate debtors and the interested parties making frivolous claims before the tribunal for delaying and diverting the resolution process in their favour.
Furthermore, the concern for timely insolvency resolution also arises from the recent cases of Bhushan Power and Steel, Jaypee Infratech, Binani Cements, Essar Steel, etc. that are pending before the NCLAT. It must be noted that the 270 days deadline in these matters has already been reached. These companies are at various stages of the resolution process which has either been put on hold by the appellate tribunal or has been made subject to its final order. While, it is argued that insolvency cases of big companies take time to get resolved, it nevertheless extends the deadline provided by the statute. This vitiates the very essence of the Code which envisages fast resolution of insolvency matters. It is precisely for this purpose that the Code provides a specific deadline.
Therefore, in order to implement the Code in its true spirit the 270 days deadline must be met. While exclusion of the intervening time period to meet the count of 270 days will help deal with several practicalities, the essence of the Code stands violated as the resolution process may take longer than what the Code actually requires. This has the risk of taking the new insolvency system back to the days when insolvency matters in India took an inordinate amount of time to get resolved. The problem requires immediate attention, failing which this will lead to a system of time-consuming litigation which is against the purpose of the Code.
Either the deadline provided under the Code must be extended through an amendment, or otherwise it is imperative that the judiciary admits post-admission petitions only on serious and substantial grounds. Moreover, reliance must be placed on the commercial wisdom of the committee of creditors and the insolvency resolution professionals in their dealings with an insolvent company. Also, creditors get the right to intervene in the company’s management once it becomes unable to pay its debts. Therefore, their decisions must be given utmost importance while resolving the company’s insolvency. Reduction of judicial interference in insolvency matters is important for expediting the insolvency resolution process and meeting the deadline provided under the Code.
– Medhashree Verma