Strict timelines distinguish the Insolvency and Bankruptcy Code, 2016, from previous insolvency regimes. The code prescribes a 180-day period for completion of the corporate insolvency resolution process (CIRP), which can be extended to 270 days, and does not provide for the extension of time beyond 270 days. These timelines were laid down to ensure timely resolution of a corporate debtor but, on the flip side, it can be argued that such stringent timelines may jeopardize the resolution of a viable company and force it to go into liquidation save for the intervention of adjudicating authorities.
In order to ensure compliance with these timelines, the legislature and the Insolvency and Bankruptcy Board of India (IBBI) have been taking various steps. The IBBI has prescribed a model timeline, which the resolution professional (RP) is to follow while conducting the CIRP.
A new clause inserted in section 5 by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (Second Amendment Act), provides that where the interim resolution professional (IRP) is not appointed in the order admitting the application, the 180-day period will commence from the date on which the IRP is appointed. This has been done with a view to ensure that time taken for appointment of the IRP is not included in the 180 days and the entire period is at the IRP’s disposal to protect the interests of all stakeholders.
The IBBI, via a circular dated 10 August 2018, has also directed that RPs, in every notice of meeting of the committee of creditors (CoC) or communication addressed to financial creditors, are to stipulate that the financial creditors must be represented in the CoC by persons who are authorized to take decisions on the spot. It was observed in many cases that delays were caused and time was wasted because financial creditors’ representatives in the CoC were not so authorized. The aim of this direction was to eliminate obstacles to achieving timely resolution.
Despite the efforts of the IBBI and legislature to ensure that the timelines are adhered to, in some cases the adjudicating authorities have directed that the CoC reconsider the resolution plan even after a lapse of 270 days.
In the case of Rave Scans, the resolution plan was rejected by a creditor representing 35% of the voting rights in the CoC without assigning any plausible reason. The National Company Law Tribunal, New Delhi, in the larger public interest and to maximize the assets of the corporate debtor, directed the CoC to reconsider the resolution plan even though the period of 270 days had lapsed.
In the case of Jaypee Infratech, over 600 homebuyers approached the Supreme Court to protect their interests. At the time, the homebuyers had no representation in the CoC, which was to consist only of financial creditors. The Supreme Court observed that the homebuyers’ interests were not adequately protected and no resolution plan was approved within 270 days. The court also recognized that liquidation of the company would not serve the homebuyers’ interests. An ordinance dated 6 June 2018 (now the Second Amendment Act) placed homebuyers within the category of financial creditors. The court, considering this change, and with a view to protecting the interest of the homebuyers, ordered on 9 August that period of 180 days for conclusion of the CIRP would commence afresh from the date of the order.
In the above cases, the adjudicating authorities have granted an extension beyond 270 days in the larger public interest and owing to the exceptional circumstances. Such instances compel one to reflect whether the timelines under the code are sufficient to protect the interests of all stakeholders. The adjudicating authorities must also question whether the grant of such extensions would set a bad precedent for future CIRPs.
The code is largely based on UK insolvency statutes and common law, which prescribe a much longer duration for completion of the administration process, which is similar to the CIRP under the code. Under the UK insolvency regime, the process of administration may continue for a period of one year, which can be extended by six months. This raises a question of whether the stringent timelines under the code fail to consider practical difficulties which large corporations may face and whether by resorting to an extension beyond 270 days, the adverse effects of liquidation could be avoided.
SNG & Partners has offices in Delhi, Mumbai and Singapore. Aniket Sawant is an associate and Medha Unadkat is a legal consultant.