This article is written by Kaushiki Brahma who is pursuing a Certificate Course in Insolvency and Bankruptcy Code from LawSikho.
The Preamble of the Insolvency & Bankruptcy Code, 2016 enumerates to make provision of timely, efficient, and impartial resolution of the insolvency process. The time-bound process helps to preserve economic value of the assets of the company. As per the Bankruptcy Law Reform Committee one of the main objectives of the Insolvency & Bankruptcy Code was “ensure that time value of money is preserved and the delaying tactics in negotiation between creditors and debtors should not extend the time set for negotiations at the start.”
As per the World Bank’s ease of doing business 2020 report India has jumped to 63rd position from 142nd position in a span of 5 years (2014-2019). India has leaped its ranking by 79 positions in these five years. The insolvency resolution DB 2020 rank has improved from 40 in 2019 to 60 in 2020. Insolvency & Bankruptcy Code (IBC) has played a major role in improving the ranking of Ease of Doing Business. The time-bound resolution process of stressed assets helps to contribute to the development of credit markets and encourage entrepreneurship. In this article, we will examine whether the mandatory timeline of the CIRP is a fact or fiction.
Mandatory Timeline of the CIRP in law
Previously the timeline for corporate insolvency resolution process (CIRP) timeline was prescribed to be completed within 180 days from the commencement date under section 12 of IBC. There could be extension of time by a maximum period of 90 days by the Adjudicatory Authority. But this 180-day timeline (extendible up to 90 days more) was proven to be unrealistic in Essar Steel CIRP matter which almost took over 800 days in CIRP and Bhushan steel stretched up to 18 months. The NCLAT while considering the case of JK Jute Mills v. Surendra Trading Company held that even the 14 days’ time for the Adjudicatory Authority to admit or reject an application is mandatory in nature. But the Hon’ble Supreme Court held that the nature of the provisions contained in Sections 7(5), 9(5) and 10(4) of IBC is directory not mandatory in nature.
Extension of Mandatory Timeline to 330 days
Section 12 of the IBC provides for an extension of 90 days apart from 180 days’ timeline. Further the IBC Amendment Act, 2019 introduced for revising the time limit to 330 days. By virtue of the amendment proviso was added under Section 12(3) of the Code stating that CIRP shall mandatorily be completed within a period of 330 days from the Insolvency commencement date and the time taken in litigation in relation to such Resolution Process of the corporate debtor to be included within the time period. The objective behind insertion of the proviso is to prevent delay in disposal of cases by the Adjudicatory Authority. It primarily focused on the revival of the Corporate debtor as the litigation time was included within 330 days’ timeline for avoiding inordinate delays in the insolvency resolution process.
Mandatory Timeline of the CIRP in Practice
In 2019, India had the biggest jump in ranking in “resolving insolvency” to 52nd rank from 108th when IBC was implemented. As of December 2019, 1.58 lakh crore were realizable in cases resolved under Corporate Insolvency Resolution Processes. The average timeline for the proceedings under IBC were about 340 days including the time spent on litigation in contrast with the previous regime where recovery process took about 4.3 years. Out of 2170 ongoing CIRPs, as on March 31, 2020, 34 % have taken 270 days or more, 22.8 % have taken between 180 to 270 days, 25.8 % have taken between 90 and 180 days and close to 17.4 % have taken under 90 days. But the average time taken for approval of resolution plans of 221 CIRPs was 415 days and for approval of liquidation in 69 cases was 270 days.
The Supreme Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta held Ordinarily the time taken in CIRP must be completed within the time limit of 330 days from the insolvency commencement date, including the time taken in litigation process. However, in few cases where it can be shown to the Adjudicating Authority and/or Appellate Tribunal under the Code that only a short time is left in completion of corporate insolvency resolution process beyond 330 days, and it would be interest of all stakeholders that the corporate debtor be put back on its feet instead of being sent into liquidation and that the time taken in legal proceedings is largely due to factors owing to which the fault cannot be ascribed to the litigants before the Adjudicating Authority and/or Appellate Tribunal, the delay or a large part thereof being attributable to the tardy process of the Adjudicating Authority and/or the Appellate Tribunal itself, it may be open in such cases for the Adjudicating Authority and/or Appellate Tribunal to extend time beyond 330 days. The conditions prescribed for extension of timeline were a) If it is advised by the Committee of Creditors (COC) by passing a resolution with the requisite majority provided under the IBC, and b) In cases which are exceptional.
In another Supreme Court judgment in Quinn Logistics India Pvt. Ltd v. Mack Soft-Tech Pvt. Ltd and ors held that objective behind timeline prescribe under section 12 of the Code is to prevent unnecessary delays in the completion of the CIRP. The extension of CIRP timeline under section 12(3) is subject to fair justification provided to the adjudicatory authority. The extension of the period of CIRP permitted only when the committee of creditors or the Resolution Professional justify their performance over 180 days.
In Ashish Chaturvedi Ex-Director, A to Z Barter Pvt. Ltd. V. Inox Leisure Ltd., NCLAT revoked the NCLT order wherein the Resolution Professional prayed for an extension by excluding the time period from the date of the initial order dated 12.12.2018 till date on the ground that the order was not communicated to him by NCLT. The NCLAT held Speedy is the gist for an effective, efficacious functioning of the Bankruptcy Code. As per Section 12(3) of the Code, the timeline of ‘CIRP is not to be extended more than once. The concerned authorities are required to adhere to the model 16 timeframe envisaged in Regulation 40(A) of IBBI (CIRP for corporate person) Regulations 2016 as far as possible. In an extraordinary circumstance(s), the ‘Adjudicating Authority’ can extend the ‘Corporate Insolvency Resolution Process’ beyond the time limit adumbrated in Section 12(3) of the Code. The extension of time can be only ade through an application by the Insolvency Resolution Professional based on ‘Committee of Creditors’ as mentioned in sub-Section 2 and 3 of Section 12 of the IBC, 2016.
The timelines of even 330 days fixed by the Statute has been breached in quite a few cases. The Insolvency and Bankruptcy Code, 2016 significantly tries to improve India’s ability to resolve insolvency efficiently and, in a time-bound manner. The insolvency timeline in the US and UK is approximately a year on average except pre-packaged insolvency resolutions. In India, initiatives are being taken to introduce pre-packaged insolvency to reduce the burden on NCLT. In pre-pack insolvency regime, the resolution plan is finalized prior to the commencement of insolvency proceedings. In this pre-pack process an agreement for CIRP is executed between secured creditors and the investors rather than going for a public bidding process which saves a lot of time. This is one way of dealing with corporate insolvency where a financial creditor or a corporate debtor, where the debtor can only propose prior to occurrence of a default, can initiate the insolvency resolution process by appointing an independent insolvency resolution professional.
The resolution professional will conduct the pre-packed insolvency resolution process while keeping the objectives of the Code in place and will try to maximize the value of the assets of the Corporate Debtor. In the UK once restructuring scheme is finalized the insolvency process gets completed in 6 weeks’ timeline. The pre-pack insolvency process is completed as soon as the administrator has been appointed. In the US there is prescribed timeframe for the completion of a non-prepackaged under Chapter 11 Bankruptcy proceedings. However, most cases typically have a plan confirmed within the 18-month period of plan exclusivity discussed above. In comparison to UK and US, Indian insolvency timeline for non-pre packaged insolvency is less as per IBC. To fasten the timeline and to lessen the burden of NCLT pre-pack insolvency regime are required to be introduced in India. As per MS Sahoo Panel report on pre-pack insolvency the timeline prescribed is 90 days.
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