ABSTRACT
The two main objectives upon which the code has been enacted are time bound resolution process and the maximization of the assets. Section 12 ofthe Code states that the CIRP is to be completed within a period of 180 days from the date of admission of the application which could be extended to 90 days. This has been further amended in the year 2019 stating that the CIRP shall be mandatorily be completed within a period of 330 days including the extension of time and the time taken in the legal proceedings. But there are ambiguities regarding the filing of application for extension and the instances which can be excluded from the counting of the period. Moreover the period of CIRP is still an ambiguity as the IBC is a young legislation and still interpretation of the legislature in many aspects is yet to be done. One of the instances is in which the court struck down the term mandatory in section 12 as it is arbitrary and violation of Article 14. The defects in the implementation must be analysed in order to make the CIRP a time bound process as recent trends have shown that only a few cases have been resolved within the said 330 period mandate. This adherence to the time becomes very much essential in order to have a better impact from the process.
TIMELINES UNDER IBC- A CRITICAL ANALYSIS
1. INTRODUCTION
The Insolvency and Bankruptcy Code has so far been one of the most thoughtful and well intentioned legislations in the Commercial Sector. The two main objectives upon which the code has been enacted are time bound resolution process and the maximization of the assets. This maximization of the value of assets is based on time as the value of assets erodes with the passage of time. When we take a deep insight into the CIRP process we find the maximum period provided for the completion of the process is 180 days which can be further extended to 90 days. A recent amendment of the code extended these 270 days to 330 days and states that the CIRP has to be mandatorily completed within this timeframe. But there are a lot of instances where the corporates with deep pockets have delayed the process and not adhering to the given timeline. Recent trends in the case of RComm industries and Essar Steels have shown that the judiciary has also been focusing upon the maximization of assets rather than making it a time bound process.
2. RESEARCH QUESTIONS:
1. How far adhering to the timeline under CIRP is possible?
2. Has the IBC been effective in attaining its objectives?
3. What are the instances in which the extension of time could be granted?
3 OBJECTIVES
This paper aims to provide an insight into the timelines under IBC with special focus on the CIRP process. This paper also aims to compare the current trends with the earlier legislations. Moreover the paper also analyses the interpretation of the time limit set by the courts through a series a cases.
4.LITERATURE REVIEW
In the article the “Pressing need to recode IBC” emphasis has been laid on the challenges that pose in the implementation of the code. In the article “Understanding the IBC and analyzing the developments in jurisprudence” the author examines the various cases and states how jurisprudence is being developed by focusing on the judicial interpretation of the legislation. In this paper the author tries to establish a concurrence among the articles as stated and also comes with recommendations to tackle the defects for the successful implementation of the code.
5.RESEARCH METHODOLOGY:
The doctrinal method of research is used in the research of this paper. Secondary sources such as articles, legal databases and books have also been referred for the research.
6. TIMELINES MANDATED FOR CIRP:
Section 12 of the Code states that the CIRP is to be completed within a period of 180 days from the date of admission of the application. This can be extended with a resolution passed by the COC to a period of 90 days. This has been further amended in the year 2019 stating that the CIRP shall be mandatorily be completed within a period of 330 days including the extension of time and the time taken in the legal proceedings.
The application for the initiation of CIRP must be admitted or rejected by the adjudicating authority must be done within 14 days of filing the application. The public announcement by the IRP has to be made within 3 days of his appointment. The public announcement may also contain the last date for the submission of proof of claims which is 14 days from the appointment of the IRP. The IRP shall verify the claims within 7 days from the last date of receipt of claims.The interim resolution professional shall file a report certifying constitution of the committee to the Adjudicating Authority on or before the expiry of 30 days from the date of his appointment. The first meeting of the committee of creditors shall be held within 7 days of the constitution of the committee of creditors. The committee of creditors may in the first meeting, by a majority vote of not less than 66% of the voting share of the financial creditors, either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional. A resolution applicant shall endeavor to submit a resolution plan prepared in accordance with the Code and the Regulations to the resolution professional, 30 days before expiry of the maximum period permitted under section 12for the completion of the corporate insolvency resolution process. Such resolution plan must be submitted to the Adjudicating Authority within a maximum of 330 days after the approval of the COC.
7. INTERPRETATION BY THE COURTS
Recent trends have shown that there are delays in the completion of the CIRP process. This is evident from the Reliance Communications industries case where the order of the NCLT has been stayed for a period of nearly 11 months in the NCLAT. Thus an amendment was made stating that the CIRP has to be mandatorily be completed within a period of 330 days including the time taken in the legal proceedings. There still prevails an ambiguity regarding what exactly constitutes the CIRP period. When a close look is taken into section 23 it states that the resolution professional shall continue to manage the affairs of the debtor after the CIRP period until an order is passed by the NCLT. Section 33 also states that the NCLT shall pass a liquidation order if before the expiry of a maximum period permitted under section 12 a resolution plan has not been received. This has not been amended in light of the amendment of the section 12. When section 12 implies that the CIRP period also includes the legal proceedings, section 23 and 33 implies that the COC must pass a resolution approving the plan within the CIRP period and the period in which the NCLT passes the order does not come under the scope of CIRP period as mentioned in section 12.
There are instances in which the process can be completed within the prescribed time in section 12. In the case ofSBI v. Jet Airways[1]the court held that even though 180 days is provided for the completion an effort should be made by the COC to expedite the process and not wait for the completion of the statutory period.
In the case of Quantum Limited v. Indus Finance Corporation[2]the question whether the application for the extension of the time period under section 12 must be filed within the expiry of 180 days has been addressed. The court held that the provision does not stipulate that such application is to be filed before the adjudicating authority within 180 days. But a resolution must be passed by the COC to extend the period within the 180 days. Moreover in the case of Arcelormittal pvt Ltd v. Satish Kumar Gupta[3] held that where a resolution plan is upheld or dismissed by the Appellate Authority the period taken in litigation is to be excluded. Further if an application is filed by the Resolution Professional or the COC for any justified reasons the Adjudicating Authority may exclude such certain period for the counting the total period of 180 days. In Quinn Logistics v. Mack soft Tech[4] certain grounds were laid which can be excluded in counting the period of 270 days.
- If the CIRP process has been stayed by the court such period is to be excluded
- The period when no resolution professional is functioning due to removal or other reasons.
- The period between the admission of application by the NCLT and the time on which the Resolution Professional takes charge.
- The period in which the CIRP has been set aside by the appellate tribunal and later when the Supreme Court has reversed such order or any other circumstances which justifies the exclusion of a certain period.
The Supreme Court in the case of Essar Steel India limited v. Satish Kumar Guptaand others[5] struck down the term mandatorily in section 12(3) of the code. While striking down the term mandatorily it also held that the time limit can be extended after the maximum of 330 days if it is shown that it is in the interest of all the stake holders that the corporate debtor to be put back on its feet instead of being sent into liquidation and that the time taken in legal proceedings is largely due to the factors owing to which the fault cannot be ascribed to the litigants before the Adjudicating Authority. The court also observed that the term mandatorily is arbitrary under Article 14 of the Constitution as it is an unreasonable restriction on the litigant’s right to carry on business under article 19(1)(g). Thus the court held that the general rule is that the CIRP must be completed within 330 days and in exceptional cases this period can be extended.
8. RECENT TRENDS AND CHALLENGES:
Recent trends have shown that most of the corporate debtors have not completed the resolution process within the mandated period under section 12. The Essar Steel which is a corporate debtor has taken about nearly 900 days to file the resolution plan to the Adjudicating Authority. The company at first challenged the insolvency petition which was dismissed. Later during the bidding phase it was found that one of the promotors had relationship with the bidder. In such cases the creditors lose their time value against the money as the commodity prices surge. Such cases are far from achieving the objectives of the IBC. This delay may also be attributed because of the less no of NCLT benches around 25 in the country.
Thus there are only a few numbers of companies which has been resolved under the process. A data shows that out of 2162 cases till June 2019 only 120 cases have been resolved under the IBC process and more than fifty percent of the cases were still ongoing. Thus implementation is where the IBC fails. This may be attributed to the less number and competency of the resolution professionals, the courts and most importantly resolution plan is delayed at the stage of bidding where there is less transparency.
The IBC has indeed shifted the balance of power to the creditor from the borrower. It has significantly increased the credit discipline. It has also been seen that recovering of debts under IBC has been more successful than other legislations such as SICA or SARFESI. The main reason lies that the IBC values the assets on ground rather than computing the assets that do not exist. But the concern is this value of assets dwindles over the passage of time. This results in losses to the creditors.
9. TIME MANDATED FOR FRESH START PROCESS:
The fresh start process is one of the methods for resolving the insolvency of the individuals and partnership firms. This sort of process will not apply to secured debts. Therefore it is seen that the code protects the secured creditors. It requires the filing of an application before the DRT if the debtor satisfies certain conditions. Within 7 days of filing the application by Resolution Professional it is forwarded to the IBBI. The Resolution Professional makes recommendations through a report which the Adjudicating Authority rejects or approves within 14 days of receiving the report. If it is admitted moratorium commences and extends to a period of 180 days. The order is forwarded to the creditors within two days. The creditor may file the objections if he is aggrieved by the order and this is examined by the RP and a decision is made. If the creditor or the debtor is aggrieved by such decision he may make an application to the Adjudicating Authority within 10 days of such decision. The RP may file a list of qualifying debts within 7 days before the end of the moratorium period. The Adjudicating Authority may pass a discharge order at the end of the moratorium period. The adherence to the timeline in fresh start process has so far been achieved in most cases. Such process may offer relief to small borrowers and eliminate the burden of litigation cost.
10. CONCLUSION:
The IBC is one of the most powerful and well intentioned one. The objectives of maximization of assets within the specified time will have far reaching implications on the economy if followed. Rather the time bound resolution process seems to be a thing that cannot be achieved with the current infrastructure and process. This is the major setback in the implementation of IBC. The creditors especially the financial institutions face losses with the delaying process and the passage of time. Moreover the new buyer will also have to keep the capital idle for a long period if such delays occur. One of the biggest positives for IBC is time bound resolution which is not true in absolute sense but in relative terms it is much better than winding up. IBC in relative terms is successful to its previous legislations
The delay as mentioned is attributed to the incompetency of Resolution Professionals and the less no of courts present. Moreover there arise problems in implementation because of less transparency in the process. Another reason for the delays is that there are issues that are not yet settled as the code is still a new legislation. Therefore the jurisprudence has not yet been created when it comes to the interpretation of the legislation. There are also other challenges such as the lack of clarity on priority of claims and limited number of information utilities.
11. SUGGESTIONS
The way to make IBC effective is to make time bound resolutions and to eliminate the delays in the process and to rectify the defects in implementation. Those include increasing the number of NCLT benches to deal with the existing large number of cases. It would also require identification of competent resolution professionals. One of the stages where there is a delay in implementation is the bidding phase which leads to legal disputes as in Essar Steel case due to less transparency. An e-bidding system may ensure transparency and effectiveness. Increasing the number of information utilities will also ensure a fast and a time bound resolution.
[1] CP2205(IB)/MB/2019
[2] Company Appeal no 35 of 2018
[3] 65 (IBC)05/2018
[4] 192 (IBC) 10/ 2018
[5] Civil appeal no 8766-67 of 2019
