The Supreme Court on Monday called upon the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) to strictly adhere to the timelines (330 days outer limit) stipulated under the Insolvency and Bankruptcy Code and clear pending resolution plans forthwith as delays could have grave economic implications and impact the viability of the insolvency law.
The apex court also reiterated that a successful resolution applicant cannot withdraw or modify its resolution plan after its submission to the NCLT as permitting such open-ended process 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, thus “frustrates the core aim of the IBC.”
A Bench led by Justice DY Chandrachud said that “inordinate delays cause commercial uncertainty, degradation in the value of the corporate debtor and makes the insolvency process inefficient and expensive. We urge the NCLT and NCLAT 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 endeavor, on a best effort basis, to strictly adhere to the timelines stipulated under the IBC and clear pending resolution plans forthwith, it said.
It also noted that “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.”
While stating that the legislative intent of the statute cannot be overridden by the court, the judges said that “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 judgement came on a batch of appeals led by Ebix Singapore seeking setting aside of the NCLAT order that refused to allow Ebix to withdraw its takeover bid for Educomp Solutions, which owed lenders nearly `3,000 crore. Educomp was admitted into insolvency proceedings in 2017.
NCLAT had set aside the NCLT’s order that had allowed Ebix to withdraw its takeover bid, saying that the tribunal had no jurisdiction to entertain or to permit the withdrawal application filed by Ebix after approval of its resolution plan by the Committee of Creditors led by SBI.
While upholding the NCLAT judgment which said that a submitted resolution plan is binding and irrevocable between the lenders and the successful resolution applicant, the SC said that the existing insolvency framework in India provided no scope for effecting further modifications or withdrawals of CoC-approved resolution plans once submitted to the NCLT.
“A resolution applicant, after obtaining the financial information of the corporate debtor through the informational utilities and perusing the IM, is assumed to have analyzed the risks in the business of the corporate debtor and submitted a considered proposal,” the judgment stated.
Welcoming the judgment, senior counsel Nakul Dewan, who appeared for Resolution Professional in the case, said that “it is a great judgment because it brings about certainty in the process under the IBC and ensures that only those parties who are seriously interested in turning around a corporate debtor undergoing the CIRP process enter the fray. That is because once they throw their hat in the ring and their proposal is accepted by the CoC, they would be bound by their proposal.”
However in the case of Kundan Care, the SC as a one-time relief allowed modification of the resolution plan for Astonfield, as requested both by the resolution applicant and the CoC, due to the uncertainty over a PPA, cleared by the SC ruling in Gujarat Urja case.