NCLT/NCLAT Should Strictly Adhere To IBC Timelines; Delays Cause Commercial Uncertainty : Supreme Court

The Supreme Court has urged NCLT/NCLAT, the adjudicating and appellate authorities under Insolvency and Bankruptcy Code, to strictly adhere to the timelines stipulated under the IBC and clear pending resolution plans forthwith

The court said that inordinate delays cause commercial uncertainty, degradation in the value of the Corporate Debtor and makes the insolvency process inefficient and expensive.

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

"It would also be sobering for us to recognize that whilst this Court has declared the position in law to not enable a withdrawal or modification to a successful Resolution Applicant after its submission to the Adjudicating Authority, long delays in approving the Resolution Plan by the Adjudicating Authority 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.", the court said while concluding the judgment.

This is after the court noticed that the resolution applicants contention that inordinate delay in the approval of the Resolution Plan by the NCLT, along with the outbreak of COVID-19 pandemic, substantially affected it. They had contended that severe and inordinate delay is impermissible under Section 12 of the IBC and justifies the withdrawal of the Plan. In one of the cases, it was submitted that approval application had been pending before the NCLT for 17 months, much beyond the period envisaged in the RFRP and its Resolution Plan.

Referring to the observations made in 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', the court said:

In its observations, the Report noted that a delay in the resolution process with more than seventy-one per cent cases pending for more than 180 days is in deviation of the original objective and timeline for CIRP that was envisaged by the IBC. The delays were attributable to: (i) the NCLT taking considerable time in admitting CIRPs; (ii) late and unsolicited bids by Resolution Applicants after the original bidder becomes public upon passage of the deadline for submission of the Plan; and (iii) multiplicity of litigation and the appellate process to the NCLAT and the Supreme Court. Such inordinate delays cause commercial uncertainty, degradation in the value of the Corporate Debtor and makes the insolvency process inefficient and expensive.

We cannot let the present insolvency regime meet the same fate.

Judicial delay, the court noted, was one of the major reasons for the failure of the insolvency regime that was in effect prior to the IBC

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. 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.

The Court noted that the Section 12 of the IBC provides for a time bound period of 180 days extendable up to 330 days for the completion of the CIRP.

"It is pertinent to note that sub-Section (3) to Section 12 mandates that the CIRP process, including legal proceedings, must be concluded within 330 days. This three-hundred-and-thirty-day period can be extended only in exceptional circumstances, if the process is at near conclusion and serves the object of the IBC", the judgment noted, referring to the precedent laid down in the Essar Steel case.

Case: Ebix Singapore Private Limited vs. Committee of Creditors of Educomp Solutions Limited ; CA . 3224 of 2020
Citation: LL 2021 SC 447
Coram: Justices DY Chandrachud and MR Shah

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