The Gujarat High Court may have dismissed Essar Steel’s petition challenging the Reserve Bank of India’s direction to begin insolvency proceedings against the company, but some of the observations could be exploited by the litigious minded to delay resolutions process, said lawyers.
While the court has validated the Insolvency and Bankruptcy Code, its observation that the National Company Law Tribunal (NCLT) may proceed in accordance with law but there should not be undue pressure on it by administration ‘may give room to defy quick resolution.’
Some believe that the order could be used to postpone loan resolution and the very purpose of IBC may be defeated because of a portion of the order ‘not to act upon it (insolvency) mechanically and that all provisions may not be treated mandatory.’
“I am not sure whether the court took into account the preamble of the IBC which says resolution in a time bound manner for maximization of value of assets,” said Jayesh H, founding partner at Juris Corp. “It’s disappointing that the court has held that all provisions of IBC should not be treated as mandatory and if this is the case then it is a matter of time before IBC becomes same as DRT has been for years now and this defeats the whole purpose.”
The government pushed through the IBC to hasten up recoveries from defaulters as previous legislation like the SARFAESI Act and other civil recovery laws helped defaulters delay decision than help lenders recover dues.
