Aftermath of country’s most high profile Essar Steel India¹ Insolvency case where Essar Group owed Rs 54,547 crore to its creditors², it was the need of the hour for the central government to come up with solutions to fix the voids in the Insolvency & Bankruptcy Code and galvanize it for the effective execution of CIRP in more discipline & time-bound manner. As per the reports of the World Bank issued in 2014, the average time to resolve bankruptcy in India is 4 years, which was comparatively very high³. And to heal this epidemic, the Insolvency and Bankruptcy Code (Amendment) Bill, 2019 was introduced in the parliament by our current Finance Minister, Ms Nirmala Sitharaman and became law on August 5, 2019.

These amendments appear to be a godsend for all the creditors facing procedural delay on account of the litigation period and extension of time during the insolvency resolution process under section 12. The chain of restructuring of IBC code was further joined by Pioneer judgement⁴ where petitioners had assailed the constitutional validity of the code by submitting that section 5(8) (f) of the IBC does not envisage such parity between these two categories, and on the other hand, the respondent had refuted the submissions made on behalf of the Petitioners. SC elucidates that there shall be an equal playing field for all the creditors and upheld the constitutionality of the code by empowering home- buyers as financial creditors who paid advances to a developer.

HIGHLIGHTS OF THE IBC AMENDMENTS 2019

The erstwhile code was prone to legal lacunas and it turned out to be contrary to various judicial pronouncements. A bench of SC comprising Justice RF Nariman and Justice Navin Sinha in one of the landmark judgments upheld that the code aims at preserving the corporate debtor and it ensures the maximum recovery for all creditors⁵. Therefore, IBC Amendment 2019 seeks to bring clarity regarding the preference of Financial Creditors over Operational creditors in the matter of assets distribution of the corporate debtor. The amended code aims at following different issues-

• Section 5(26) – Resolution may include merger/demerger
• Section 7(4) – It is now mandatory for the Adjudicating Authority to ascertain the existence of default within 14 days on receipt of the application and it is required to provide reasons in the event if there is a delay.
•  It strengthens provisions related to the time limits,
• It specifies the minimum payout to the Operational Creditors in Resolution Process i.e. the new amendment places the financial creditors ahead of operational creditors for the distribution of assets in case of liquidation of the debtor.
• Section 25A – An authorized representative representing various financial creditors shall cast his vote in respect of each Financial Creditor based on the instructions so received.
• Section 30 – Treatment of operational creditors and secured creditors under resolution plan – “fair and equitable”
• Section 31– Approved resolution plan to be binding on Governments/Government Authorities

TIME BOUND PROCESS

The prior to the amendment, IBC had been facing constant criticism and resulting in conflicting judgments, further resulting in erosion of investor’s confidence in Indian businesses. The average time to resolve bankruptcy in India according to a 2014 World Bank report was stated to be 4 years, which was comparatively very high⁶ against other countries, E.g. Singapore, it takes just 8 months and a year or so in London⁷. According to a report by  Crisil and Assocham which states that around one-third of the total 1143 cases under the CIRP were pending till March 2019, the time for resolution was consuming over 270 days. Factually, only 94 cases resolved under the code took an average resolution time of 324⁸ days.

Therefore, the central government reworked on section 12 of the IBC and ameliorates the sub-section (3), after the proviso, the following provisos have been inserted, namely:––

“Provided further that the corporate insolvency resolution process shall mandatorily be completed within a period of three hundred and thirty days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this section and the time taken in legal proceedings in relation to such resolution process of the corporate debtor:

Provided also that where the insolvency resolution process of a corporate debtor is pending and has not been completed within the period referred to in the second proviso, such resolution process shall be completed within a period of ninety days from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019⁹”.

Now, here it means that the time taken for concluding the CIRP shall complete within 180 days from the date of admission of the application to initiate such a process, and it shall not be extended more than 90 days, provided, such extension shall not be granted more than once. And most importantly the new insertion further states that the CIRP shall mandatorily be concluded within three hundred and thirty days from the insolvency commencement date, including:

1. Any extension of the period of CIRP
2. Including the litigation period
3. Any CIRP is pending or not complete within the statutory period shall be completed within 90 days from the commencement of the IBC (Amendment) Act, 2019.

It is pertinent to mention that the time limit prescribed i.e. 180 days which may extendable up to 90 days remains unchanged, and the additional time period of 60 days (330-270) are given for the purpose to cover legal proceedings, etc. up to the stage of the Apex Court, but imposition of such time limits including the period for legal proceedings appears absolutely vague & impractical step. The amendment, prima facie, does not include the time period during which the resolution process might have been stayed by any court/tribunal. 

Also, it is important to highlight that the amendment is ambiguous as to what exactly is the completion of the CIRP?

 1. Does completion of the CIRP also entail the approval of a resolution plan by the NCLT (section 33)?

Comment: Section 33 of the Code states that the NCLT shall pass an order of liquidation, before the expiry of the maximum period permitted for completion of the CIRP under Section 12 of the Code (i.e. 180 / 270 days as the case may be), a resolution plan is not received. This strongly implies that the CIRP is completed upon approval of the resolution plan by the Committee of creditors.

2. Does it mean that the CIRP is completed upon approval of the resolution plan by the committee of creditors (“COC” as per section 23)? 

Comment: the resolution professional shall continue to manage the operations of the corporate debtor, after the CIRP period, until an order is passed by the NCLT for either approval or rejection of the resolution plan. So here, does the time between the submission of the resolution plan & and the final order of the NCLT be counted as the part of CIRP(within 330 days)?

3. What would be that the moratorium period?

Comment: According to section 14 of the code states that the moratorium shall have an effect up to the completion of CIRP i.e. 180^th day or 270^th day. So here the new ambiguity arises that after the new amendment, the moratorium period would expire on 180^th /270^th day or it would have the effect till 330^th day as well. 

Therefore, it can be concluded that the new amendment would certainly be a strong catalyst to improve the pace of the CIRP in the country and improve the stability of the undergoing/future insolvency process, but it can not be ignored that the new code requires close examination as well. I believe that the foregoing questions containing haze would be cleared soon by the courts through their upcoming pronouncements and the expert discussions.

“The Defaulters’ paradise is lost. In its place, the economy’s rightful position has been regained¹⁰.”

~ Justice RF Nariman

Endnotes

1.   Company Appeal (AT) (Ins.) No. 242 of 2019

^2.  ET Explains: All about Essar Steel case and the latest twist in the tale Read more at: //economictimes.indiatimes.com/articleshow/70344568.cms?from=mdr&utm_source=contento finterest&utm_medium=text&utm_campaign=cppst

^3.  The Viewpoint – IBC Judgment: The Defaulter’s Paradise is Lost; Bar & Bench March 19, 2019

^4.  Pioneer urban land and Infrastructure Limited Vs UOI, WP 43, 2019

5.  Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors.; Writ Petition (Civil) No. 99 Of 2018

^6.   the Viewpoint – IBC Judgment: The Defaulter’s Paradise is Lost; Bar & Bench March 19 2019

^7.   A critical Analysis: Time-limits under Insolvency & Bankruptcy Code, 2016; by- Sakshi

^8.  Insolvency Resolution | Endless delays the Achilles heel of bankruptcy law; May 16, 2019, 01:35 PM IST | Source: Moneycontrol.com

^9.  The Insolvency And Bankruptcy Code (Amendment) Act, 2019; https://ibbi.gov.in/uploads/legalframwork/630af836c9fbbed047c42dbdfd2aca 13.pdf

10.  Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors.; Writ Petition (Civil) No. 99 Of 2018

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