Analysis of Time Limit under Section 12 of the Insolvency and Bankruptcy Code, 2016 for completion of CIRP

“Decoding the Code”

Analysis of Time Limit under Section 12 of the Code for completion of Insolvency Resolution Process

“IBC was enacted to provide for a timely resolution of the CIRP

1. Introduction

As per the Insolvency and Bankruptcy Code, 2016 (the Code), the procedure involved in the Corporate Insolvency Resolution Procedure(CIRP) should be completed within 180 days or within the extended period of 90 days and mandatorily be completed within 330 days including any extension and the time taken in legal proceedings. In short, the resolution procedure should be completed within 330 days, failing which the Adjudicating Authority will initiate liquidation procedure under Chapter III of the Code. This part of Decoding the Code decodes the Section 12.

The Preamble of the Code states as follows:

“An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.”

NCLAT in Office of the Asst. State Tax Commissioner, Maharashtra Vs. Shri Parthiv Parikh RP, M/s. Jaihind Projects Ltd. (2021) ibclaw.in 164 NCLAT held that the purposes of the moratorium include keeping the corporate debtor’s assets together during the insolvency resolution process and facilitating orderly completion of the processes envisaged during the insolvency resolution process and ensuring that the company may continue as a going concern while the creditors take a view on resolution of default and the moratorium on initiation and continuation of legal proceedings, including debt enforcement action ensures a stand-still period during which creditors cannot resort to individual enforcement action which may frustrate the object of the CIRP.

This part of Decoding the Code decodes following:

  • Time limit for completion of CIRP-Sec. 12(1)
  • Extension of the time limit-Sec. 12(2) & (3)
  • Cap on the time limit-Provisos to Sec. 12(3)
  • Exclude certain period from the time limit
  • Resolution plan not completed within the time limit
  • Model time line
  • Outcome from landmark judgments in the matter of Arcelormittal India Pvt. Ltd. Vs. Satish Kumar Gupta & Ors.
  • Important paragraphs of landmark judgments of Hon’ble Supreme Court
  • Amendments in Sec. 12
  • Notifications and Circulars issued for Sec. 12

2. Time limit for completion of CIRP [Sec. 12(1)]

Section 12(1):

“Time-limit for completion of insolvency resolution process:
12. (1) Subject to sub-section (2), the corporate insolvency resolution process shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process.”

As per Section 12(1), the CIRP shall be completed within a period of 180 days from the date of admission of the application to initiate such process. Date of admission of the application is mentioned under section 7(5) in case of application filed by Financial Creditor, under section 9(5) in case of application filed by the Operation Creditor and under section 10(4) where application filed by the Corporate Applicant.

The time period prescribed by the Code is the maximum time provided for the completion. There may be instances, where a resolution process can be completed before the maximum time period prescribed. NCLT, Mumbai bench in the matter of SBI Vs. Jet Airways (India) Limited (2019) ibclaw.in 20 NCLT held that it is also to be pointed out that that the IBC provision provides for 180 days for completion of the CIRP. But every effort should be made by the IRP/RP, and members of CoC to expedite the matter and try to finalise the resolution plan on the fast track mode and they should not preferably wait for the completion of the statutory period of 180/270 days timeline permissible under IBC. Further, in Prowess International Pvt. Ltd. v. Parker Hannifin India Pvt. Ltd. [2017] ibclaw.in 41 NCLAT, NCLAT observed that “thereafter, in case(s) where all creditors have been satisfied and there is no default with any other creditor, the formality of submission of resolution plan under section 30 or its approval under section 31 is required to be expedited on the basis of plan if prepared. In such case, the Adjudicating Authority without waiting for 180 days of resolution process, may approve resolution plan under section 31, after recording its satisfaction that all creditors have been paid/ satisfied and any other creditor do not claim any amount in absence of default and required to close the Insolvency Resolution Process. On the other hand, in case the Adjudicating Authority do not approve resolution plan, will proceed in accordance with law.”

 

3. Extension of the time limit [Sec. 12(2), (3) and First Proviso]

Section 12(2) & (3):

(2) The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of [sixty-six] per cent. of the voting shares.

(3) On receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied that the subject matter of the case is such that corporate insolvency resolution process cannot be completed within one hundred and eighty days, it may by order extend the duration of such process beyond one hundred and eighty days by such further period as it thinks fit, but not exceeding ninety days:

Provided that any extension of the period of corporate insolvency resolution process under this section shall not be granted more than once.

As per Regulation 40 of CIRP Regulations, 2016, the resolution professional may move an application before the adjudicating authority seeking extension of the aforesaid period, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of sixty-six per cent of the voting shares. The adjudicating authority may thereafter by order extend the duration of such process beyond 180 days by such further period as it thinks fit, but not exceeding ninety days. However, this is only a one time extension. The Regulation 40 is reproduced here:

“40. Extension of the corporate insolvency resolution process period.

(1) The committee may instruct the resolution professional to make an application to the Adjudicating Authority under section 12 to extend the insolvency resolution process period.

(2) The resolution professional shall, on receiving an instruction from the committee under this Regulation, make an application to the Adjudicating Authority for such extension.”

a. Application for extension of the time period u/sn 12 can be filed after expiry of 180 days

A question arises whether the application for extension of the time period under section 12 can be filed after expiry of 180 days of CIRP (i.e. applications were filed after the completion of the 180 day period). NCLAT in the matter of Quantum Limited Vs. Indus Finance Corporation Limited [2018] ibclaw.in 08 NCLAT held that the provision does not stipulate that such application is to be filed before the Adjudicating Authority within 180 days. If within 180 days including the last day i.e. 180th day, a resolution is passed by the committee of creditors by a majority vote of 75%(now 66%) of the voting shares, instructing the resolution professional to file an application for extension of period in such case, in the interest of justice and to ensure that the resolution process is completed following all the procedures time should be allowed by the Adjudicating Authority who is empowered to extend such period up to 90 days beyond 180th day.

b. Whether in exceptional circumstances the timelines prescribed under Section 12 of IBC can be relaxed to allow a Prospective Resolution Applicant to submit a Second/Revised Resolution Plan

In Panna Pragati Infrastructure Pvt. Ltd. & Anr. Vs. Amit Pareek & Ors. (2020) ibclaw.in 305 NCLAT, the Appellants informed the Committee of Creditors through Resolution Professional about its intention to file a revised Resolution Plan/ second Resolution Plan which actually came to be filed on 14th February, 2020, we deem it appropriate to dwell on the issue whether in exceptional circumstances the timelines prescribed under ‘I&B Code’ can be relaxed to allow a prospective Resolution Applicant to submit a second/ revised Resolution Plan, more so when it merely involves a small period like one or two days as in the instant case. NCLAT held that Appellants submitted the Resolution Plan only two days after the revised plan of Respondent No.4 and well within the 180 days of ordinary timelines of CIRP under ‘I&B Code’. There was no justification for its rejection by the Resolution Professional who was duty bound to place the same before the Committee of Creditors especially when the ordinary CIRP period of 180  days  was  still  subsisting.  Therefore,  the  ground  urged  on  behalf  of Respondents that the time could not be extended by the Adjudicating Authority or by this Appellate Tribunal in appropriate cases is not in tune with the law interpreted by the Hon’ble Apex Court more so as the same was within the ordinary timelines and subsequently the Resolution Professional himself had sought extension of 90 days from the Adjudicating Authority for placing the Resolution Plan approved by Committee of Creditors before it for approval.

d. Other important judgments

  • If the matter was pending before the Hon’ble High Court or before the Hon’ble Supreme Court and because of interim order of stay, the matter could not proceed, it is a fit case for exclusion of certain period u/s 12 – R.P. of SEL Manufacturing Company Ltd. Vs. Committee of Creditors of SEL Manufacturing Ltd. & Ors. [2019] ibclaw.in 192 NCLAT
  • NCLAT cannot extended CIRP beyond 270 days except advice for Sec. 230 of Companies Act, 2013 – Alliance Projects Vs. RP of Ind-Barath Power (Madras) Ltd. [2019] ibclaw.in 105 NCLAT
  • Only one Resolution Plan submitted before the consideration of the CoC has not been seriously dealt with in the time frame, no further extension beyond 270 days is to be granted in the like case – State Bank of India Vs. Coastal Projects Ltd. (2018) ibclaw.in 17 NCLT

See amendments at the end of this part.

 

4. Cap on CIRP time limit u/s 12- 330 days

The Insolvency and Bankruptcy Code (Amendment) Act, 2019 (Amendment Act), w.e.f. 16.08.2019, inserted two provisos to section 12(3) of the Code to provide for overall time limit as under:

“Provided further that the corporate insolvency resolution process shall mandatorily be completed within a period of three hundred and thirty days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this section and the time taken in legal proceedings in relation to such resolution process of the corporate debtor:

Provided also that where the insolvency resolution process of a corporate debtor is pending and has not been completed within the period referred to in the second proviso, such resolution process shall be completed within a period of ninety days from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019.”

(Emphasis provided)

Section 12 of the Code thus mandates that the CIRP of a Corporate Debtor must conclude within 330 days from the insolvency commencement date. This period of 330 days includes:

(a) normal CIRP period of 180 days,
(b) one-time extension, if any, up to 90 days of such CIRP period granted by the Adjudicating Authority, and
(c) the time taken in legal proceedings in relation to the CIRP of the CD.

It also mandates that a CIRP, which was pending and not completed within the aforementioned period of 330 days as on the date of commencement of the Amendment Act, that is, 16.08.2019, shall be completed within a further period of 90 days from such date, that is, by 14.11.2019.

a. The term “mandatorily” has been struck down

Important decision of Hon’ble Supreme Court in the matter of Committee of Creditors of Essar Steel India Limited Through Authorised Signatory Vs. Satish Kumar Gupta & Ors. [2019] ibclaw.in 07 SC where the Court held that while leaving the provision otherwise intact, the term “mandatorily” is struck down as being manifestly arbitrary under Article 14 of the Constitution of India and as being unreasonable restriction on the litigant’s right to carry on business under Article 19(1)(g) of the Constitution. The effect of this declaration is that ordinarily the time taken in relation to the CIRP must be completed within the outer limit of 330 days from the insolvency commencement date, including extensions and the time taken in legal proceedings. If the delay or a large part thereof is attributable to the tardy process of the AA and/or the NCLAT itself, it may be open in such cases for the AA and/or NCLAT to extend time beyond 330 days. It is only in exceptional cases that time can be extended, the general rule being that 330 days is the outer limit within which resolution of the stressed assets of the Corporate Debtor must take place beyond which it is to be driven into liquidation.

b. NCLAT extended CIRP time limit beyond 330 days of Section 12 exercising Rule 11 of NCLAT Rules

In Ritu Rastogi RP of Benlon India Ltd. Vs. Riyal Packers [2020] ibclaw.in 175 NCLAT, NCLAT held that this is a fit case for exercising the jurisdiction by this Appellate Tribunal being an exceptional case to depart from the general rule of 330 days being outer limit prescribed under the law for completion of the CIRP inclusive of period of judicial intervention. We are also of the considered opinion that failure to exercise discretion in a matter of this nature would have serious implications imperilling the legitimate interests of all stakeholders and inevitable conclusion would be to push the Corporate Debtor into liquidation which has to be avoided at all costs.

NCLAT in Mr. Ravi Sankar Deverakonda Vs. Committee of Creditors of Meenakshi Energy Limited (2021) ibclaw.in 155 NCLAT held that the exercise of power by the Adjudicating Authority to extend the time period under section 12(3) of the Code in negation of statutory provision of the Code may be desirable in an exceptional/extraordinary Circumstances of a given case by exercising sound Judicial discretion with a view to find a suitable Resolution Plan to prevent an aberration of justice.

NCLAT in Jalesh Kumar Grover Vs. Committee of Creditors of Akme Projects Ltd. (2021) ibclaw.in 73 NCLAT excluded the period of pending appeal for hearing before SC from CIRP time period 330 days.

In Committee of Creditors of Trading Engineers International Ltd.  Vs. Trading engineers International Ltd. Through Resolution Professional (2021) ibclaw.in 45 NCLAT, it was held that he discretion should have been exercised by the Adjudicating Authority in acceding to the request of the Resolution Professional in extending the time beyond 330 days, we are of the considered opinion that this being a fit case where indulgence of this Appellate Tribunal is warranted for extending the timelines to prevent the Corporate Debtor from being pushed into liquidation and a viable Resolution Plan being approved by the COC, allowing of appeal will promote the interest of justice. We accordingly allow the appeal and after excluding the period of judicial intervention viz. from 25th September, 2020 till today, grant extension of time by two weeks from today.

c. Although it is directory that CIRP can be completed upto a period of 330 days or so which is largely to consider the time frame of judicial process, practically all attempt be made to complete the CIRP within 270 days

NCLAT in Pioneer Rubchem Pvt. Ltd Vs. Vivek Raheja Resolution Professional, Trading Engineers (International) Limited [2020] ibclaw.in 60 NCLAT held that Section 12 of the IBC, 2016 provides for a time line of 180 days for completion of CIRP and even if we consider extended period it is another 90 days and hence within 270 days the CIRP should be completed. Although it is directory that CIRP can be completed upto a period of 330 days or so which is largely to consider the time frame of judicial process. Hence, practically all attempt be made to complete the CIRP within 270 days. In the present case already two Resolution Plans have been received and hence the aspect of competitive bidding is complied with, if we permit the present Appellant, it will open a floodgate for such applications & will derail CIRP & purpose of IBC, not only in this case but in other cases also. The Appeal is devoid of any merit. Hence, the Appeal is dismissed.

 

5. Exclude certain period for the purpose of counting the total period of 180/270 days

The Supreme Court in the matter of Arcelormittal India Pvt. Ltd. Vs. Satish Kumar Gupta & Ors. [2018] ibclaw.in 31 SC held that where a resolution plan is upheld by the Appellate Authority, either by way of allowing or dismissing an appeal before it, the period of time taken in litigation ought to be excluded.

NCLAT’s important judgment in Quinn Logistics India Pvt. Ltd. Vs Mack Soft Tech Pvt. Ltd. [2018] ibclaw.in 09 NCLAT where it was held that if an application is filed by the Resolution Professional or the Committee of Creditors or any aggrieved person for justified reasons, it is always open to the Adjudicating Authority/Appellate Tribunal to ‘exclude certain period’ for the purpose of counting the total period of 270 days, if the facts and circumstances justify exclusion, in unforeseen circumstances.

The exceptions carved out in the Quinn Logistics(Supra) case to extend the time period include i.e. for following good grounds and unforeseen circumstances, the intervening period can be excluded for counting of the total period of 270 days of resolution process:-

  1. If the corporate insolvency resolution process is stayed by ‘a court of law or the Adjudicating Authority or the Appellate Tribunal or the Hon’ble Supreme Court.
  2. If no ‘Resolution Professional’ is functioning for one or other reason during the corporate insolvency resolution process, such as removal.
  3. The period between the date of order of admission/moratorium is passed and the actual date on which the ‘Resolution Professional’ takes charge for completing the corporate insolvency resolution process.
  4. On hearing a case, if order is reserved by the Adjudicating Authority or the Appellate Tribunal or the Hon’ble Supreme Court and finally pass order enabling the ‘Resolution Professional’ to complete the corporate insolvency resolution process.
  5. If the corporate insolvency resolution process is set aside by the Appellate Tribunal or order of the Appellate Tribunal is reversed by the Hon’ble Supreme Court and corporate insolvency resolution process is restored.
  6. Any other circumstances which justifies exclusion of certain period.

However, after exclusion of the period, if further period is allowed the total number of days cannot exceed 270 days which is the maximum time limit prescribed under the Code.

a. Exclusion period of delay in appointing the Resolution Professional in place of the Interim Resolution Professional and the period during which the application remained pending before the Adjudicating Authority

NCLAT in the matter of Vandana Garg Vs. Reliance Capital Ltd. & Anr. [2019] ibclaw.in 111 NCLAT where CoC moved an application before the Adjudicating Authority for exclusion of 35 days of delay in appointing the Resolution Professional in place of the Interim Resolution Professional and the period during which different applications were pending. Prayer was rejected by NCLT. NCLAT  allowed the prayer and exclude the period of 35 days of delay in appointing the Resolution Professional in place of the Interim Resolution Professional for the purpose of counting 180 days or 270 days of Resolution Process. NCLAT also excluded the period of pendency of 18 days during which the application remained pending before the Adjudicating Authority. Thereby, we exclude the total period of 53 days for the purpose of counting 180 days or 270 days.

b. Excluded time period of CIRP due to delayed in communicating the order of the Adjudicating Authority to the IRP as well as to the Corporate Debtor by the office of the Adjudicating Authority

NCLAT in Ashish Chaturvedi(Ex-Director) Vs. Inox Leisure Ltd. [2020] ibclaw.in 187 NCLAT held that a glance of the impugned order dated 10.12.2019 indicates that the order of the Adjudicating Authority dated 05.12.2018 was not communicated to the IRP as well as to the Corporate Debtor by the office of the Adjudicating Authority (NCLT III New Delhi), due to inadvertence. In this connection, this Tribunal relatively pointed out that ‘Maxim’, ‘Actus’, ‘Curiae’, ‘Neminem’, ‘Gravabit’ i.e. Act of the Court shall harm no Home-Sapien. Owing to an inadvertent omission on the part of the ‘Registry’ of the ‘Adjudicating Authority’, the order dated 05.01.2018 of the said Authority was not communicated to the ‘IRP’ as well as to the Corporate Debtor. In this backdrop the ‘Adjudicating Authority’ (NCLT, New Delhi Bench –III) had rightly allowed the Application filed by the 2nd Respondent by passing the impugned order dated 10.12.2019, which is free from any legal infirmities.

c. The period of non-joining of the Interim Resolution Professional should be excluded for the purpose of counting the total period of 180 days or 270 days

NCLAT in Mr. Sharad Sanghi Vs. Ms. Vandana Garg & Ors. (2019) ibclaw.in 266 NCLAT held that:

  • In the case of Quinn Logistics India Pvt. Ltd.[2018] ibclaw.in 09 NCLAT which was affirmed by the Honble Supreme Court, this Appellate Tribunal observed that the period of non-joining of the Interim Resolution Professional should be excluded for the purpose of counting the total period of 180 days or 270 days.
  • In the present case, as the application was admitted on 4th July, 2017 and after signature it was uploaded on 12th July, 2017 i.e. eight days and the Interim Resolution Professional joined much thereafter, we are of the view that the Adjudicating Authority should have excluded at least eight days of period during which the order was passed, signed and subsequently uploaded. If the aforesaid period of eight days is excluded, then we find that the Resolution Plan was approved within 270 days which the Adjudicating Authority has failed to notice.
  • We have not counted the actual period, taking into consideration the date when the Interim Resolution Professional had joined. The order of admission having signed and uploaded on 12th July, 2017, after excluding eight days, we hold that the process was conducted within the period.

d. How the period of 180 days is to be counted for CIRP i.e. from the date of admission, as per the provisions of the Code or from the date of knowledge of the Resolution Professional(RP)? If there is a gap between knowledge of RP and the actual date of admission, then how such period is to be treated? Whether such period should be excluded for the purpose of counting the period of 180 days or additional time is to be allowed beyond 180 days for completing the Resolution Process?

In Velamur Varadan Anand Vs. Union Bank of India & Anr. (2018) ibclaw.in 209 NCLAT, after admission of the application the Resolution Professional was informed who took over the charge after 30 days of admission. In fact the case was admitted on 16th August, 2017 and on receipt the intimation, he took charge on 14th September, 2017. Following the decision in “Quinn Logistics India Pvt. Ltd.’ (Supra), NCLAT directed the Adjudicating Authority to exclude 30 days for the purpose of counting the period of ‘corporate insolvency resolution process’ and thereby allow the ‘Resolution Professional’ to complete the ‘corporate insolvency resolution process’ by 15th June, 2018.

e. Other Important judgments:

  • If Promoters are neither handed over the records nor the management of the Corporate Debtor to IRP & the IRP/IP subsequently resigned due to non co-operation, the period of IRP can be excluded from 270 days – Ramchandra D. Choudhary Vs. CoC (Maharashtra Shetkari Sugar Limited) [2019] ibclaw.in 83 NCLAT
  • Period from NCLAT set aside order of NCLT to Supreme Court set aside order of the NCLAT, restoring NCLT original order will be excluded from CIRP time limit – M/s. Shilpi Cable Technologies Ltd. Vs. Macquarie Bank Ltd. [2018] ibclaw.in 121 NCLAT
  • The period for which the orders were reserved by the Adjudicating Authority on the application is justifiably required to be excluded while counting and computing the period of CIRP – Anil Tayal, RP for M/s. Horizon Buildcon Pvt. Ltd. Vs. Committee of Creditors of M/s. Horizon Buildcon Pvt. Ltd. (2021) ibclaw.in 81 NCLAT
  • If there is an extra-ordinary situation when the law is silent & there is no guideline in law, certain period can be excluded from the CIRP as followed by SC in the case of Arcelormittal India Private Limited vs. Satish Kumar Gupta & Ors. – IDBI Bank Ltd. Vs. Mr. Anuj Jain Interim Resolution Professional, Jaypee Infratech Ltd. & Anr. [2019] ibclaw.in 121 NCLAT
  • Not taking a decision by the CoC without any reason will not become a reason for exclusion of the CIRP time period- First Step Ventures Ltd. Vs. Frontier Lifeline Pvt. Ltd. & Ors. [2019] ibclaw.in 90 NCLAT
  • AA should have allowed the intervening period i.e. the period when erstwhile RP stopped functioning till the subsequent RP took charge to place the application u/s 12A before the CoC- Daiyan Ahmed Azmi Vs. Rekha Kantilal Shah, Liquidator & Ors. [2019] ibclaw.in 50 NCLAT
  • Time has been taken for deciding the matter before Appellate Tribunal as also the Resolution Professional & the Adjudicating Authority, exclude for the purpose of counting the total period of 270 days- James Warren Tea Ltd. Vs. CA Kannan Tiruvengadam, R. P. of Assam Company India Ltd. [2018] ibclaw.in 33 NCLAT

6. Consequences if the resolution process does not get completed within the time limit prescribed under Sec. 12

If the Resolution professional fails to submit the resolution plan within 180 days or within 330 days including any extension (max. extension 90 days) and the time taken in legal proceedings, the Adjudicating Authority may initiate Liquidation procedure. Once the liquidation procedure is initiated the Company will be wound up and the steps will be taken for distribution of proceeds to creditors as per the provisions of the code. 

If the resolution process does not get completed within the 180/270/330 day period, serious consequences thereof are provided under Section 33 of the Code. As per that provision, in such a situation, the adjudicating authority is required to pass an order requiring the corporate debtor to be liquidated in the manner as laid down in the said Chapter. Related provision reproduced here:

CHAPTER III Liquidation Process

Initiation of liquidation
33. (1) Where the Adjudicating Authority, —

(a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution process under section 56, as the case may be, does not receive a resolution plan under sub-section (6) of section 30; or
(b) rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein, 

it shall—

(i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter; 
(ii) issue a public announcement stating that the corporate debtor is in liquidation; and
(iii) require such order to be sent to the authority with which the corporate debtor is registered.
(Emphasis provided)

Hon’ble Supreme Court in P. Mohanraj & Ors. Vs. M/S. Shah Brothers Ispat Pvt. Ltd. (2021) ibclaw.in 24 SC held that a cursory look at Section 14(1) makes it clear that subject to the exceptions contained in sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall mandatorily, by order, declare a moratorium to prohibit what follows in clauses (a) to (d). Importantly, under sub-section (4), this order of moratorium does not continue indefinitely, but has effect only from the date of the order declaring moratorium till the completion of the corporate insolvency resolution process which is time bound, either culminating in the order of the Adjudicating Authority approving a resolution plan or in liquidation.

a. After completion of statutory period of 270 days, the Adjudicating Authority having no option ordered for liquidation of the Corporate Debtor

NCLAT Sanjeev Shriya Vs. LML Ltd. & Ors. [2018] ibclaw.in 51 NCLAT held that The Shareholder of Corporate Debtor or the members of the Board of Directors never raised any objection about the proceeding before the Adjudicating Authority by filing application under Section 60(5) of the I&B Code nor such ground was taken before the Adjudicating Authority. After completion of statutory period of 270 days, the Adjudicating Authority having no option ordered for liquidation of the Corporate Debtor.

b. Whether Committee of Creditors(CoC) had jurisdiction to replace the Resolution Professional after completion of 270 days?

A above issue was raised in Sanjay Kumar Ruia Vs. Catholic Syrian Bank Ltd. & Anr. (2019) ibclaw.in 270 NCLAT, wherein After completion of 270 days of CIRP, the Adjudicating Authority can pass order under Section 31 of the Code, if a Resolution Plan has been approved by the CoC. In absence of any Resolution Plan, the Adjudicating Authority is bound to pass order under Section 33 by initiating liquidation proceeding against the Corporate Debtor.

NCLAT held that after completion of 270 days, the CoC ceased to exist and thereby they have no jurisdiction to replace a Resolution Professional under Section 22 of the Code. Even if the decision to replace the Resolution Professional is taken prior to 270 days, in absence of any order passed by the Adjudicating Authority, such decision cannot be entertained on completion of 270 days. However, the ground taken by the CoC can be looked into by the Adjudicating Authority to decide whether the same Resolution Professional should be allowed to continue as liquidator of the Corporate Debtor. The Issue is answered in negative.

 

7. Model Time Line for CIRP

The following Table presents a model timeline of CIRP on the assumption that the interim resolution professional is appointed on the date of commencement of the process and the time available is hundred and eighty days as prescribed under the regulation 40A of the CIRP Regulation, 2016.

Regulation: 40C. Special provision relating to time-line.

The Governing Board of the Insolvency and Bankruptcy Board of India decided on 27th March, 2020 to amend the CIRP Regulations, 2016 and inserted Regulation 40C which is reproduced here:

“40C. Notwithstanding the time-lines contained in these regulations, but subject to the provisions in the Code, the period of lockdown imposed by the Central Government in the wake of COVID19 outbreak shall not be counted for the purposes of the time-line for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process.”

In Federal Bank Ltd Vs. Sargam Builders Pvt Ltd [2020] ibclaw.in 48 NCLT, this MA/68/KOB/2020 has been filed by the Resolution Professional appointed by this Tribunal, under Section 40 (2) of Corporate Insolvency Regulation Process and as per Section 12 of IBC 2016 for extension of time period of Corporate Insolvency Resolution Process (CIRP).

NCLT held that in the light of the judgment of the Hon’ble Supreme Court, Suo Motu Writ Petition (CIVIL) No. 3/2020 and the amendment made on 29.03.2020 under CIRP Regulation 40C and also considering the averments made by the RP in this MA and on hearing the Resolution Professional through video conferencing, this Tribunal allow the prayer as follows: This Tribunal extend the time limit for CIRP till 29.03.2020. After 29.03.2020 the special provision relating to the time line issued vide notification dated 29.03.2020 will apply till the lockdown lifting notification is issued by the Government of India.

 

8. Outcome from the landmark judgment of Hon’ble Supreme Court in Arcelormittal India judgment

The Hon’ble Supreme Court settled several issues relating to CIRP under the Code in the landmark judgment of Arcelormittal India Pvt. Ltd. Vs. Satish Kumar Gupta & Ors. Decision of Apex Court on the time line prescribed under  section 12 as under:

1. Whether the timeline prescribed under Section 12(1) is mandatory ?

What is important to note is that a consequence is provided, in the event that the said period ends either without receipt of a resolution plan or after rejection of a resolution plan under Section 31. This consequence is provided by Section 33, which makes it clear that when either of these two contingencies occurs, the corporate debtor is required to be liquidated in the manner laid down in Chapter III. Section 12, construed in the light of the object sought to be achieved by the Code, and in the light of the consequence provided by Section 33, therefore, makes it clear that the periods previously mentioned are mandatory and cannot be extended.

In fact, even the literal language of Section 12(1) makes it clear that the provision must read as being mandatory. The expression “shall be completed” is used. 

2. Whether timeline of 180 days prescribed under section 12(3) can be extended ?

Sub-section (3) of section 12 makes it clear that the duration of 180 days may be extended further “but not exceeding 90 days”, making it clear that a maximum of 270 days is laid down statutorily. Also, the proviso to Section 12 makes it clear that the extension “shall not be granted more than once”. 

3. Whether the model timeline prescribed under regulation 10A is mandatory?

Regulation 40A of the CIRP Regulations presents a model timeline of the corporate insolvency resolution process, on the basis that the time available is 180 days.  It is of utmost importance for all authorities concerned to follow this model timeline as closely as possible.

4. Whether the time taken in litigation could be excluded from the outer time limit provided in the Code?

The Supreme Court held that “If there is a resolution applicant who can continue to run the corporate debtor as a going concern, every effort must be made to try and see that this is made possible. A reasonable and balanced construction of this statute would therefore lead to the result that, where a resolution plan is upheld by the Appellate Authority, either by way of allowing or dismissing an appeal before it, the period of time taken in litigation ought to be excluded. This is not to say that the NCLT and NCLAT will be tardy in decision making. This is only to say that in the event of the NCLT, or the NCLAT, or this Court taking time to decide an application beyond the period of 270 days, the time taken in legal proceedings to decide the matter cannot possibly be excluded, as otherwise a good resolution plan may have to be shelved, resulting in corporate death, and the consequent displacement of employees and workers.”

9. Important paragraphs of landmark judgments of Hon’ble Supreme Court

M/s. Innoventive Industries Ltd. Vs. ICICI Bank & Anr. [2017] ibclaw.in 02 SC

“31. The rest of the insolvency resolution process is also very important. The entire process is to be completed within a period of 180 days from the date of admission of the application under Section 12 and can only be extended beyond 180 days for a further period of not exceeding 90 days if the committee of creditors by a voting of 75% of voting shares so decides. It can be seen that time is of essence in seeing whether the corporate body can be put back on its feet, so as to stave off liquidation.”

Arcelormittal India Private Limited Vs. Satish Kumar Gupta & Ors. [2018] ibclaw.in 31 SC

64. The Code was passed after great deliberation and pursuant to various Committee Reports, as has been held in Innoventive Industries Ltd. v. ICICI Bank & Anr. (2018) 1 SCC 407 at paragraph 12. The Statement of Objects and Reasons, which is reproduced in the said paragraph, makes it clear that the existing framework for insolvency and bankruptcy was not only inadequate and ineffective, but resulted in undue delays in resolution. One of the primary objects of the Code, therefore, is to resolve such matters in a time bound manner. This would not only support the development of credit markets and encourage entrepreneurship, but would also improve ease of doing business and facilitate more investment, leading to higher economic growth and development.

66. The Committee then chose certain principles within which the new Insolvency and Bankruptcy Code would work. One of them is that the Code will ensure a time bound process, which will not be extended, to better preserve the economic value of the asset (see Principle No.8 set out at page 427 of Innoventive Industries (supra.).”

Arun Kumar Jagatramka Vs. Jindal Steel and Power Ltd. & Anr (2021) ibclaw.in 46 SC

“……Third, the IBC attributes a primacy to the business decisions taken by creditors acting as a collective body, on the premise that the timely resolution of corporate insolvency is necessary to ensure the growth of credit markets and encourage investment. …..(p40)”

Gujarat Urja Vikas Nigam Limited Vs. Mr. Amit Gupta & Ors (2021) ibclaw.in 44 SC

“56. The BLRC noted that speed is of the essence for the working of a bankruptcy code. From the point of the view of creditors, a good realization can be obtained when a firm is sold as a going concern. The decisions of this Court in Madras PetrochemInnoventive Industries and Arcelor Mittal (India) (Private) Limited emphatically advert to the failure of the statutory resolution machinery in the regime prior to the IBC. It was in this backdrop that the IBC was enacted to provide for a timely resolution of the CIRP. The primary focus of the IBC is to ensure the revival and continuation of the corporate debtor. The interests of the corporate debtor have been bifurcated and separated from the interests of persons in management. The timelines which are prescribed in the IBC are intended to ensure the resuscitation of the corporate debtor.

57. The enactment of the IBC is in significant senses a break from the past. While interpreting the provisions of the IBC, care must be taken to ensure that the regime which Parliament found deficient and which was the basic reason for the enactment of the new legislation is not brought in through the backdoor by a process of disingenuous legal interpretation. However, this is not to say that the interpretation given to the statutory provisions that existed prior to the enactment IBC is to be rejected in toto. The interpretation given to such statutory provisions that are textually similar to Section 60(5)(c) may be relevant, provided that such interpretation is in tandem with the objective of enacting the IBC, that is, inter alia, avoidance of multiplicity of fora and a timely resolution of the insolvency process.”

(Emphasis provided)

10. Amendments in the Section 12

Amendment under Section 12(2) by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, w.e.f. 06.06.2018 on recommendation by Insolvency Law Committee in Report published in March, 2018 which is reproduced here:

“11.6 After due deliberation and factoring in the experience of past restructuring laws in India and international best practices, the Committee agreed that to further the stated object of the Code i.e. to promote resolution, the voting share for approval of resolution plan and other critical decisions may be reduced from 75 percent to 66 percent or more of the voting share of the financial creditors. In addition to approval of the resolution plan under section 30(4), other critical decisions are extension of the CIRP beyond 180 days under section 12(2), replacement or appointment of RP under sections 22(2) and 27(2), and passing a resolution for liquidation under section 33(2) of the Code. Further, for approval of the other routine decisions for continuing the corporate debtor as going concern by the IRP/RP, the voting share threshold may be reduced to 51 percent or more of the voting share of the financial creditors.”(emphasis provided)

Amendment under Section 12(3) by the Insolvency & Bankruptcy Code(Amendment) Act, 2019 w.e.f. 16-8-2019:

Two more proviso to sub-section (3) of Section 12 inserted by an amendment in Aug’19. statement of objects and reasons reproduced here:

“The Insolvency and Bankruptcy Code, 2016 (the Code) was enacted with a view to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and
balance the interests of all the stakeholders including alteration in the order or priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India.

2. The Preamble to the Code lays down the objects of the Code to include “the insolvency resolution” in a time bound manner for maximisation of value of assets in order to balance the interests of all the stakeholders. Concerns have been raised that in some cases extensive litigation is causing undue delays, which may hamper the value maximisation. There is a need to ensure that all creditors are treated fairly, without unduly burdening the Adjudicating Authority whose role is to ensure that the resolution plan complies with the provisions of the Code. Various stakeholders have suggested that if the creditors were treated on an equal footing, when they have different pre-insolvency entitlements, it would adversely impact the cost and availability of credit. Further, views have also been obtained so as to bring clarity on the voting pattern of financial creditors represented by the authorised representative.

…..

(c) to amend sub-section (3) of section12 of the Code to mandate that the
insolvency resolution process of a corporate debtor shall not extend beyond three hundred and thirty days from the insolvency commencement date, which will include the time taken in legal proceedings, in order to prevent undue delays in the completion of the Corporate Insolvency Resolution Process. However, if the process, including time taken in legal proceedings, is not completed within the said period of three hundred and thirty days, an order requiring the corporate debtor to be liquidated under clause (a) of sub-section (1) of section 33 shall be passed. It is clarified that the time taken for the completion of the corporate insolvency resolution process shall include the time taken in legal proceedings;”

 

11. Notifications/Circulars on Sec. 12

IBBI issued notification vide CIRP-13011/1/2019-IBBI dated 11.11.2019   for compliance of amendment in Sec. 12(3) (w.e.f 16.08.2019) for Insolvency Professional.

 

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4 comments

  1. After publication of Form G, i.e.invitation of expression of interest, can we as financial creditor go for adjustment of dues with corporate debtor under one time settlement of dues or full payment of dues.

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