The Supreme Court on Monday said “judicial delay” was the main reason for the failure of the insolvency regime in India prior to the 2016 Insolvency and Bankruptcy Code (IBC), as it urged company law tribunals to “strictly adhere” to the timelines under the new law and clear pending resolution plans.
A bench of Justices D.Y. Chandrachud and M.R. Shah emphasised that the IBC mandates a 330-day outer limit for conclusion of the corporate insolvency resolution process (CIRP). Company law tribunals must therefore remain mindful that inordinate delays cause commercial uncertainty, degradation in the value of the corporate debtor and makes the insolvency process inefficient and expensive.
“Judicial delay was one of the major reasons for the failure of the insolvency regime that was in effect prior to the IBC. We cannot let the present insolvency regime meet the same fate,” said the bench, pointing out that a parliamentary panel report published last month stated that more than 71% cases have been pending before the tribunals for over 180 days.
“We urge the NCLT (national company law tribunal) and NCLAT (national company law appellate tribunal) to be sensitive to the effect of such delays on the insolvency resolution process and be cognizant that adjournments hamper the efficacy of the judicial process. The NCLT and the NCLAT should endeavour, on a best effort basis, to strictly adhere to the timelines stipulated under the IBC and clear pending resolution plans forthwith,” directed the top court.
Some major reasons for delays, noted the court, were attributable to the NCLT taking considerable time in admitting CIRPs, multiplicity of litigation and appeals to the NCLAT and the Supreme Court.
“Long delays in approving the resolution plan by the adjudicating authority (NCLT) affect the subsequent implementation of the plan. These delays, if systemic and frequent, will have an undeniable impact on the commercial assessment that the parties undertake during the course of the negotiation,” cautioned the bench.
The court order came while delivering a ruling that a resolution plan, once approved by the committee of creditors (CoC) and submitted to the adjudicating authority, cannot be modified or withdrawn at the behest of the successful resolution applicant.
The issue was crucial and required an authoritative pronouncement by the Supreme Court since the IBC is silent on the aspect of withdrawal of a resolution plan while the NCLT had taken a view in a judgement last year that an application to withdraw from the resolution plan was permissible.
Deciding a clutch of petitions involving the same question of law, the bench held: “The existing insolvency framework in India provides no scope for effecting further modifications or withdrawals of CoC-approved resolution plans, at the behest of the successful resolution applicant, once the plan has been submitted to the adjudicating authority. “
It noted that a submitted resolution plan is binding and irrevocable between the CoC and the successful resolution applicant in terms of the provisions of the IBC and the CIRP regulations. “Since the 330 days outer limit of the CIRP under Section 12(3) of the IBC, including judicial proceedings, can be extended only in exceptional circumstances, this open-ended process for further negotiations or a withdrawal, would have a deleterious impact on the corporate debtor, its creditors, and the economy at large as the liquidation value depletes with the passage of time,” said the court.