The Statement of Objects and Reasons of the Insolvency and Bankruptcy Code, 2016 ('the Code') states that the Code is enacted with the aim to achieve insolvency resolution of corporate persons in : (i) a time bound manner; and (ii) while ensuring maximization of value of its assets. This aim is linked with the goal to promote entrepreneurship, availability of credit and balancing the interests of all the stakeholders.
In order to achieve the aforementioned object, the Hon'ble National Company Law Tribunal ('Adjudicating Authority') has a significant role to discharge. Upon the admission of an application for initiation of Corporate Insolvency Resolution Process ('CIRP'), the role of the Adjudicating Authority does not end. It is but natural that in the execution of such a complex process, there will arise occasions when interests will clash and conflicts will emerge amongst various competing stakeholders. The Code and the Regulations framed thereunder recognise this possibility and empower the Adjudicating Authority to adjudicate upon all such disputes and ensure the smooth execution of the CIRP proceedings.
The present Article, Part II of this Series, shall focus on the scope of jurisdiction and the role of the Adjudicating Authority during the CIRP proceedings and will illustratively deal with the following aspects:
The immediate initial steps taken by the Adjudicating Authority post admitting a Section 7, 9 or 10 application.
Timely implementation of the process – monitoring the extensions and exclusions of time period from the CIRP proceedings.
Optimisation of value – ensuring fairplay amongst the various stakeholders during the CIRP, which shall involve consideration of the following stages:
IMMEDIATE INITIAL STEPS TAKEN POST ADMISSION OF APPLICATION
- As per the Report of the Bankruptcy Law Reforms Committee of November, 2015 , upon admission of an application under Section 7 or 9 or 10 of the Code, in order to ensure an orderly and timely resolution of the Corporate Debtor, the Adjudicating Authority has to declare a 'calm period' with a definite time of closure that will assure both the debtor and creditors of a time-bound and level playing field in their negotiations to assess viability. The first steps that the Adjudicating Authority takes, at the time of passing the Order admitting the application itself, are enumerated below:
- Declaration of Moratorium: The Adjudicating Authority provides a breathing spell by declaring a moratorium in terms of Section 14 thereby : (i) prohibiting the stakeholders – be it the Promoter of the Corporate Debtor (restraint on the transfer of assets or any other beneficial interest in any property) or a Creditor (from initiating or pursuing or executing any decree or the enforcement of security interest agianst the Corporate Debtor); and (ii) directing that the Corporate Debtor be operated as a going concern and to keep the supply of goods and services uninterrupted.
- It is to be noted that criminal proceedings do not fall within the purview of such moratorium. It has been clarified by the Hon'ble Bombay High Court, in the matter of Tayal Cotton Pvt. Ltd. V/s The State of Maharashtra and Ors., wherein it was observed and held that since the Legislature has consciously not used the word 'criminal' as an adjective to 'proceedings' or to the noun 'Court of law', it appears that Section 14 is not applicable to criminal proceedings.
- Appointment of Interim Resolution Professional: An Interim Resolution Professional ('IRP') is appointed, as proposed by the applicant. Such IRP is vested with the management of the Corporate Debtor and has the duty to run it as a going concern till the appointment of a Resolution Professional under Section 22.
- Public announcement: The IRP, as one of the first actions it undertakes, makes a public announcement, within 3 days of appointment, inviting claims of liabilities as per Section 15 read with Regulation 16 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ('CIRP Regulations').
- Committee of Creditors: Upon collation of claims of all the Financial Creditors and their verification by the IRP in terms of Regulation 12 and 13 of the CIRP Regulations, the Committee of Creditors ('CoC') is constituted.
- Appointment of Authorised Representative: As per Section 21(6A)(b), in case a financial debt is owed to a class of creditors, an application is moved by the IRP accompanied by : (i) a list of all such Financial Creditors; and (ii) a name of an Insolvency Professional other than the IRP, to be appointed as an Authorised Representative of such creditors. Upon receipt thereof, the Adjudicating Authority shall appoint such professional as the Authorised Representative before the first meeting of the CoC is held.
- Appointment of Resolution Professional: As per Section 22 of the Code, in its first meeting, by an affirmative vote of not less than 66% of Financial Creditors, the CoC may resolve to appoint the IRP as the Resolution Professional or replace him with another Insolvency Professional. In the latter case, the CoC is required to move an application before the Adjudicating Authority for the appointment of a proposed Resolution Professional along with his/her written consent. The Adjudicating Authority then forwards such name to the Insolvency and Bankruptcy Board ('the Board') and appoints him as the Resolution Professional after obtaining confirmation from the Board. The same procedure is required to be followed in case of replacement of the Resolution Professional so appointed as stipulated in Section 27 of the Code.
60. Adjudicating Authority for Corporate Persons
x x x x
(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of--
- any application or proceeding by or against the corporate debtor or corporate person;
- any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and
- any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.
- Section 60(5)(c) opens with a non – obstante clause with respect to the jurisdiction of the Adjudicating Authority during the CIRP. The purpose of this is to ensure that the Adjudicating Authority alone has jurisdiction when it comes to applications and proceedings by or against a Corporate Debtor or its subsidiaries situated in India. The non-obstante clause, read with Section 238, makes it clear that no other forum has jurisdiction to entertain or dispose of such applications or proceedings. Section 60(5)(c) is in the nature of a residuary jurisdictional sweep vesting the Adjudicating Authority with all authority to decide all questions of law or fact arising out of or in relation to insolvency resolution or liquidation under the Code. Numerous applications are moved before the Adjudicating Authority under this Section.
- It is plausible that post the admission of an application, the CIRP process effectively involves five major players who participate in the proceedings to achieve the objective of the Code – i.e., (i) the Adjudicating Authority; (ii) the CoC; (iii) the IRP; (iv) the Resolution Applicant; and (v) the Corporate Debtor. The subsequent sections of this Article shall provide an overview of the interrelation of the above five players and the role of the Adjudicating Authority in ensuring that the entire CIRP proceedings are conducted in a fair and transparent manner while protecting the legitimate rights of all stakeholders.
EXTENSIONS AND EXCLUSIONS UNDER THE CODE
Extension of the CIRP Period:
- As per the mandate of the Code, the CIRP proceedings are to be concluded in a time bound manner stipulated under Section 12 read with Regulation 40 of the CIRP Regulations.
- Upon admission of an application, the initial period of 180 days is provided for the completion of the proceedings. [Section 12(1)]
- However, upon a resolution passed by the CoC, the Resolution Professional may make an application before the Adjudicating Authority for an extension. If the Adjudicating Authority is of the view that CIRP cannot be completed within 180 days, an extension of 90 days may be provided. [Section 12(3)]
Therefore, the CIRP proceedings were required to be completed within 180 plus 90 – i.e., 270 days. However, as has been explained @ 2 below, certain periods of exclusions, for good reasons, were being granted by the Adjudicating Authority. This resulted in the elongation of the time limit well beyod the prescribed period of 270 days and stuck at the root of of one of the principal goals of the Code – namely, the timely completion of the CIRP.
- Vide the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the second proviso to Section 12(3) was inserted according to which the CIRP proceedings are required to be "mandatorily" completed within a period of 330 days including the time period of extensions and legal proceedings. However, the Hon'ble Supreme Court of India, in the matter of Committee of Creditors of Essar Steel India Limited Through Authorised Signatory V/s Satish Kumar Gupta & Ors.  struck down the word "mandatorily" from the provision holding it to be manifestly arbitrary under Article 14 of the Constitution of India and an unreasonable restriction on the litigant's right to carry on business under Article 19(1)(g) of the Constitution. This judgement has been further discussed in 3.1 hereunder.
- The third proviso to Section 12(3) was also inserted vide the aforementioned Amendment Act. The third proviso concerned the pending CIRP proceedings and mandated that if the proceedings have not been concluded within 330 days, as at the date of the Amendment Act, the same shall be concluded within a period of 90 days from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019 – i.e., 16.08.2019. In pursuance to this Amendment Act, the Hon'ble NCLAT utilized the said proviso and granted an extension of 90 days to M/s Earth Infrastructure Ltd. i.e., the Corporate Debtor in the matter of M/s Alpha Corp Development Pvt. Ltd. V/s M/s Earth Infrastructure Ltd. (Through the Resolution Professional, Shri Aakash Shinghal) .
- If the proceedings are not concluded within the period stipulated under Section 12, the Adjudicating Authority is required to pass an order requiring the Corporate Debtor to be liquidated in the manner specified in Chapter III of the Code.
- The initial extension of 90 days and thereafter, 60 days may be granted by the Adjudicating Authority if it is satisfied of the reasons as to why the CIRP could not be concluded within the said time frame. However, an extension beyond the period of 330 days is only granted in exceptional circumstances as clarified by the Hon'ble Supreme Court in the matter of Committee of Creditors of Essar Steel India Limited Through Authorised Signatory V/s Satish Kumar Gupta & Ors., wherein it observed and held that if on the facts of the case, it can be shown to the Adjudicating Authority or the Hon'ble National Company Law Appellate Tribunal ('NCLAT') that only a short duration of time is left for completion of 330 days and that the Corporate Debtor can be put back on its feet instead of being put into liquidation and that the delay is on account of tardy legal process, it may be open for the Adjudicating Authority to extend the time period beyond 330 days. Similarly, if for the aforesaid reasons, the grace period of 90 days provided under the third proviso to Section 12(3) also expires, it may be extended. It was further clarified that the time period must be extended only in the aforesaid exceptional circumstances and an extension should not be handed down as a matter or routine.
Exclusion from the CIRP period:
- The Adjudicating Authority can, for valid reasons, exclude time from the mandated 270 days (180 + 90). The Hon'ble NCLAT in the matter of Quinn Logostics India Pvt. Ltd. V/s Mack Soft Tech Pvt. Ltd., observed and clarified that if an application is filed by the Resolution Professional or the CoC or any aggrieved person for justified reasons, it is always open to the Adjudicating Authority or NCLAT to exclude certain period for the purpose of calculating the total period of 270 days (180 plus 90). It further provides an illustrative list of unforeseen circumstances or reasons in which the exclusion may be granted which are listed below:
It is also pertinent to mention that if the CIRP is delayed on account of lackadaisical approach of the Resolution Professional, the Adjudicating Authority may take appropriate action or recommend that the Insolvency and Bankruptcy Board of India ('the Board') may initiate disciplinary proceedings against the Resolution Professional. It may be noted that while the proceedings may be initiated on the recommendation of the Adjudicating Authority, it does not exercise supervisory jurisdiction over such disciplinary proceedings. However, in the matter of Insolvency and Bankruptcy Board of India V/s Shri Rishi Prakash Vats & Ors., there was a delay in the proceedings due to inexplicable lackadaisical attitude of the Resolution Professional leading to the Adjudicating Authority passing a direction to the Board to initiate proceedings against him, the Hon'ble NCLAT observed and held that the Adjudicating Authority does not have the power to quash the proceedings initiated by the Board even though the same were initiated on the recommendation of the Adjudicating Authority.
ENSURING FAIR CONDUCT ON THE PART OF THE RESOLUTION PROFESSIONAL
Submission Of Claims
- A creditor is required to submit his claim, along with the proof thereof, on or before the last date mentioned in the public announcement in terms of Regulation 12 of the CIRP Regulations. As per sub-regulation (2) of Regulation 12, a creditor, who fails to submit claim with proof within the time stipulated in the public announcement, may submit the claim with proof to the IRP or the Resolution Professional, as the case may be, on or before the 90th day of the insolvency commencement date. However, the Adjudicating Authority has the jurisdiction to condone the delayed submission of claims on account of cogent and genuine grounds. The Adjudicating Authority in the matter of JBF Industries Ltd. V/s Anup Kumar Singh condoned the delay where the ground was that the creditor had no knowledge to submit the claim in Form C to the IRP. Upon being satisfied of the reason for late submission of claim, it was observed that since the CIRP is pending, the delay can be condoned but it is upon the Resolution Professional to admit or reject the same upon proper verification of the claim. Further, in the matter of Edelweiss Asset Reconstruction Co. Pvt. Ltd. vs. Adel Landmarks Ltd., the Adjudicating Authority observed and directed the Resolution Professionals to take a note of the fact that the rejection of claim on the ground of delay is not sustainable because the provision regarding submission and verification of claims has been held to be directory.
- As far as the quantum of claims is concerned, the Adjudicating Authority may direct the Resolution Professional to re-consider the claim, if it is of the opinion that the claim has been wrongly rejected or accepted. The said mandate of law has been observed in Mr. Navneet Kumar Gupta (Resolution Professional of Monnet Ispat Power Company Limited) V/s Bharat Heavy Electricals Limited. In this case, the Resolution Professional had wrongly disallowed a claim and the Adjudicating Authority directed the Resolution Professional to re-examine the claim of an operational creditor. The Hon'ble National Company Law Appellate Tribunal ('NCLAT') upheld the decision of the Adjudicating Authority.
Constitution of Committee of Creditors and conducting its Meetings
- Notice Requirement: In terms of Section 24(3) read with Regulation 19, a meeting of the CoC is called by giving not less than 5 days' notice in writing to the following participants, at the address they have provided to the Resolution Professional:
Upon receipt of an application by a creditor forming part of the CoC aggrieved by the violation of the aforementioned provision, the Adjudicating Authority may pass appropriate directions to the Resolution Professional to ensure that a fair and transparent procedure is adopted while conducting CIRP proceedings.
- Calculation of Voting Results: If at the time of calculation of voting results, the Resolution Professional resorts to erroneous methodology, the aggrieved stakeholder may approach the Adjudicating Authority for relief as the same can have the effect of jeopardizing its interests. The Adjudicating Authority may pass appropriate orders in order to prevent the same. Hence, the Adjudicating Authority ensures that the Resolution Professional properly calculates the voting share of the CoC for declaring whether a resolution has been passed or rejected.
- Proper Representation of Financial Creditors: It is pertinent to mention that the IRP or the Resolution Professional and the Authorised Representative who are appointed by the Adjudicating Authority are required to conduct the entire process in a completely transparent manner and without discrimination of stakeholders. In a situation where no proper representation is given to a class of financial creditors or their non-inclusion in the CoC meetings, the Adjudicating Authority has a significant role to play to ensure that the meetings are conducted in accordance with the provisions of law. The Adjudicating Authority in an application filed in the matter of Mr. Deepak Khanna V/s Earth Infrastructure Ltd., wherein the Resolution Professional and the Authorised Representative were engaged in improper conduct and failed to give proper representation to the financial creditors, stayed the subsequent meeting of the CoC and sought a detailed response from the Resolution Professional regarding his conduct.
Insolvency Resolution Process Cost
- It is imperative to highlight that as per Regulation 34 of CIRP Regulations, the CoC fixes the expenses to be incurred on or by the Resolution Professional and the expenses shall constitute the CIRP costs. As per the provisions of law and the observations of Adjudicating Authority and NCLAT, for claiming a certain CIRP cost, a Resolution Professional is required to obtain the approval of the COC.
- Moreover, Clause 25 of the Code of Conduct for Insolvency Professionals under the First Schedule to the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, clearly specifies 'remuneration to be charged as a reasonable reflection of the work necessarily and properly undertaken by an Insolvency Professional.' Further, a Resolution Professional must comply with Circular No. IP/003/2018 issued by the Board.
- The Adjudicating Authority may intervene in case exemplary and unjustifiable cost is claimed by the Resolution Professional. In the matter of Braj Bhusandas Binani and Ors. V/s Vijaykumar V. Iyer  wherein the Resolution Professional had incurred exemplary cost in violation of the provisions of the Code and the Circular, the Adjudicating Authority observed that the cost must be on the basis of the volume of work performed and complexity of the resolution process and held that by making unnecessary appointments, it inflicted more burden on an already sinking company and that the Resolution Professional had not taken proper care to ensure that the resolution costs are not reasonable.
Inviting Expression of Interest and Declaration of Prospective Resolution Applicants
(Role of Adjudicating Authority in interaction with Resolution Applicants)
- As per Regulation 36A of the CIRP Regulations, the Resolution Professional is required to invite Expression of Interest ('EOI') in Form G from the eligible Resolution Applicants. A Prospective Resolution Applicant ('PRA') who fulfils the requirements of invitation of EOI may submit their EOI within the time specified. On consideration of the EOI submitted, the Resolution Professional issues a provisional list of PRAs and subsequently, a final list of PRAs eligible to file a Resolution Plan for the Corporate Debtor.
- Further, as per Regulation 36B, the Resolution Professional is required to issue the following within 5 days of publishing the provisional list of PRAs:
Upon receipt of the Resolution Plan(s), the foremost duty of a Resolution Professional involves undertaking a thorough check and verification as to whether the Plans are compliant with the statutory requirements of Section 30(2), Regulation 37 to 39 of the CIRP Regulations. Subsequently, he is required to place the compliant Resolution Plans before the CoC for evaluation and voting.
Presentation of Resolution Plan to the Committee of Creditors
- Revised Resolution Plan: The CoC shall evaluate and consider the Resolution Plan in accordance with the Evaluation Matrix issued under Regulation 36B of the CIRP Regulations, the provisions of the Code, CIRP Regulations and the RFRP. The CoC has the right to negotiate with the PRAs and evaluate the best plans. By way of a clarification in the RFRP document, the CoC may reserve a right to negotiate better terms with the PRAs who have submitted their Resolution Plans. Granting more opportunity to the PRAs to submit revised financial offers is well within the rights of the CoC. It is not within the purview of the Adjudicating Authority to issue any directions to the CoC in this regard. The said position of law has been reaffirmed by the Hon'ble Supreme Court in the matter of Tata Steel Limited V/s Liberty House Group Pte. Ltd. & Ors. wherein Tata Steel Limited moved in appeal before the Supreme Court as one other PRA was allowed to submit improved financial offer which was later approved by the CoC. It was held that the CoC has absolute discretion to negotiate better terms with the PRAs including allowing them time to submit improved financial offers. The most viable and feasible Resolution Plan will be identified, and the CoC may approve the plan by a majority of not less than 66% vote, with such modifications as it deems fit. The PRA whose Resolution Plan is approved by the CoC would be identified as the Successful Applicant.
Participation in CoC Meeting:
- In this context, it is cogent to mention the provision contained in Section 30(5) of the Code. It states that the "Resolution Applicant may attend the CoC meeting in which the Resolution Plan of the applicant is considered". The proviso to this sub-section states that the Resolution Applicant shall not have a right to vote at the CoC meeting unless such Resolution Applicant is also a financial creditor. It is the Resolution Professional who conducts such meeting. Hence, it is incumbent upon him to comply with the above requirement.
- It transpires that Resolution Applicants are entitled to attend the CoC meeting in which their Resolution Plans are considered. Further, the participants of the CoC meeting are not supposed to attend the meeting as mere spectators. They do not have the right to vote but are entitled to express their views and such views are required to be taken into consideration by the COC while approving or rejecting a Resolution Plan. The reasons for approving or rejecting a Resolution Plan are also required to be recorded by the CoC in writing.
- The Hon'ble Adjudicating Authority has reaffirmed the above tenet of law in Nitrex Chemicals India Limited V/s Ravindra Beleyur and Ors. wherein it was observed that the CoC while approving or rejecting a Resolution Plan should follow such procedure which is transparent. The members of the CoC including the Resolution Applicant, though not entitled to vote, may express their views to the CoC to enable it to come to a conclusion. The Hon'ble NCLAT has reiterated the abovementioned tenet of law in ANG Industries Limited V/s Shah Brothers Ispat Private Limited and Ors. and in Rajputana Properties (P.) Ltd. V/s Ultra Tech Cement Ltd.
Filing of Resolution Plan before the Adjudicating Authority for approval
Finally, the Resolution Professional places the Resolution Plan approved by the CoC by a majority vote of not less than 66%, before the Adjudicating Authority for approval as required under Section 30(6) of the Code and sub-regulation 4 of Regulation 39 of the CIRP Regulations. This section has been dealt in the subsequent and concluding Article of this Series.
It is apparent that as far as interrelation between the Resolution Professional, the CoC and the Resolution Applicant is concerned, the Resolution Professional is a facilitator of the insolvency process whose administrative functions are overseen and supervised by the CoC and the Adjudicating Authority. Adjudication on any alleged unfair play by the Resolution Professional will fall within the jurisdiction of the Adjudicting Authority. However, while dealing with commercial or business matters, the commercial wisdom of CoC is given paramount status without any scope for judicial intervention. In a manner, the endeavour is to ensure that the process should be fair while being tied to the twin goals of ensuring completion of the process within the prescribed timelines and maximising value.
It is a well settled proposition of law that commercial and business decisions of CoC are not open to judicial review even by the Adjudicating Authority or NCLAT. There will be no second guessing on commercial decisions. However, it is plausible that the irregularities with regard to procedure or lack of transparency on the part of the CoC and the Resolution Professional may pinge on the integrity of the entire CIRP itself. This issue has time and again attracted the attention of the Adjudicating Authority and each time, the Adjudicating Authority has played a significant role in ensuring the smooth conduct of the CIRP proceedings. The endeavour has been to ensure that the process maintains a balance amongst all the competing interests while being tied to the time bound resolution of the Corporate Debtor.
Mr. Sandeep Bhuraria, is an accomplished legal professional with over 28 years of legal experience. He is a partner at Zeus Law and specialises in Corporate and Commercial Transactional Advisory in the field of Corporate Restructuring. He has deep knowledge and experience in the Insolvency and Bankruptcy Code and regularly appears before NCLT and NCLAT. Mahima Malhotra is an associate in the Corporate Restructuring team of Zeus Law and has worked extensively on corporate and commercial matters.
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- It is pertinent to mention that if a PRA submits an EOI later than the last date mentioned in Form G, the Resolution Professional might place an agenda before the CoC and the EOI shall be accepted only if the CoC passes a resolution to that effect. The Adjudicating Authority does not have any power to intervene into or question the commercial wisdom of the CoC.
- Receipt of Resolution Plan(s) by Resolution Professional: According to Regulation 39 of CIRP Regulations, such Resolution Plans are submitted along with the mandatory documents mentioned herein below: