NCLT/NCLAT Should Strictly Adhere to IBC Timelines, Delays Cause Commercial Uncertainty: Supreme Court [READ JUDGMENT]

The Supreme Court has urged the National Company Law Tribunal (NCLT) / National Company Law Appellate Tribunal (NCLAT), the adjudicating and appellate authorities under the Insolvency and Bankruptcy Code, 2016 to strictly adhere to the IBC's timelines and to clear pending resolution plans as soon as possible.

According to the court, excessive delays cause commercial uncertainty, a decrease in the value of the Corporate Debtor, and make the insolvency process inefficient and costly.

The bench of Justices DY Chandrachud and MR Shah made these observations in the judgement Ebix Singapore Private Limited vs. Committee of Creditors of Educomp Solutions Limited, in which it held that the NCLT cannot permit modifications or withdrawals of CoC-approved Resolution Plans at the request of the successful Resolution Applicant once the plan has been submitted to it.

"It would also be sobering for us to recognise that, while this Court has declared the legal position to not allow a successful Resolution Applicant to withdraw or modify its Resolution Plan after submission to the Adjudicating Authority, long delays in approving the Resolution Plan by the Adjudicating Authority affect the subscribing parties. 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," the court stated in its decision.

This follows the court's observation of the resolution applicants' contention that the NCLT's inordinate delay in approving the Resolution Plan, combined with the outbreak of the COVID-19 pandemic, had a significant impact on it. They argued that the Plan should be withdrawn because of the Plan's severe and inordinate delay, which is prohibited under Section 12 of the IBC. In one of the cases, it was submitted that the approval application had been pending before the NCLT for 17 months, far exceeding the time frame specified in the Request for Resolution Plan (RFRP) and its Resolution Plan.

The court stated, in reference to the observations made in the thirty-second report of the Ministry of Corporate Affairs' Standing Committee on Finance (2020-2021) on the 'Implementation of Insolvency and Bankruptcy Code- Pitfalls and Solutions,' that: The Report noted in its observations that a delay in the resolution process, with more than 71% of cases pending for more than 180 days, is in violation of the IBC's original objective and timeline for Corporate Insolvency Resolution Process (CIRP). The delays were caused by: I the NCLT taking a long time to admit CIRPs; and (ii) the NCLT taking a long time to admit CIRPs, (ii) late and unsolicited bids by Resolution Applicants after the original bidder becomes public after the Plan's submission deadline has passed; and (iii) a profusion of litigation and the appeals process to the NCLAT and the Supreme Court. Such excessive delays create commercial uncertainty, reduce the value of the Corporate Debtor, and make the insolvency process inefficient and costly.

"We cannot allow the current insolvency regime to suffer the same fate," it stated.

The court noted that judicial delay was one of the major reasons for the failure of the insolvency regime that existed prior to the IBC.

We urge the NCLT and NCLAT to be mindful of the impact of such delays on the insolvency resolution process, as well as the fact that adjournments undermine the judicial process's efficacy. The NCLT and NCLAT should make every effort to strictly adhere to the IBC timelines and clear pending resolution plans as soon as possible.One of the major reasons for the failure of the insolvency regime in place prior to the IBC was judicial delay. We cannot allow the current insolvency regime to suffer the same fate.

The Court noted that Section 12 of the IBC provides for a time limit of 180 days, which can be extended up to 330 days, for the completion of the CIRP.

"It is worth noting that Section 12 sub-section (3) requires that the CIRP process, including legal proceedings, be completed within 330 days. This three-hundred-and-thirty-day period can be extended only in exceptional circumstances, such as when the process is nearing completion and serves the IBC's purpose ", the decision stated, referring to the precedent established in the Essar Steel case.

[READ JUDGMENT]