“Decoding the Code”
Analysis on time limit under section 12 of the Code for completion of insolvency resolution process
(Updated up to 30.05.2019)
As per the Insolvency and Bankruptcy Code, 2016 (the Code), the procedure involved in the Corporate Insolvency Resolution Procedure should be completed within 180 days or within the extended period of 90 days. In short, the resolution procedure should be completed within 270 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.
I. Legal Content of the Section 12
Legal content of the section 12 of the Insolvency and Bankruptcy Code, 2016 as under:
CHAPTER II Corporate Insolvency Resolution Process(CIRP)
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.
(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 1[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.
1. Substituted by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, for the word “seventy-five” in sub-section (2) of section 12 (w.e.f. 06.06.2018).
II. Time limit for completion of CIRP[Sec. 12(1)]
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.
III. Extension of the time limit[Sec. 12(2) &(3)]
As per Regulation 40 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) 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 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 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 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.
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)
IV. Exclude certain period for the purpose of counting the total period of 180/270 days
NCLAT in the matter of Quinn Logistics India Pvt. Ltd. Vs Mack Soft Tech Pvt. Ltd 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:-
- 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.
- If no ‘Resolution Professional’ is functioning for one or other reason during the corporate insolvency resolution process, such as removal.
- 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.
- 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.
- 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.
- 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.
V. 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 the extended period of 90 days 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 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,
(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)
VI. 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 Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, as under:
|Section / Regulation||Description of Activity||Norm||Latest Timeline|
|Section 16(1)||Commencement of CIRP and appointment of IRP||….||T|
|Regulation 6(1)||Public announcement inviting claims||Within 3 Days of Appointment of IRP||T+3|
|Section 15(1)(c) / Regulations 6(2)(c) and 12 (1)||Submission of claims||For 14 Days from Appointment of IRP||T+14|
|Regulation 12(2)||Submission of claims||Up to 90th day of commencement||T+90|
|Regulation 13(1)||Verification of claims received under regulation 12(1)||Within 7 days from the receipt of the claim||T+21|
|Regulation 13(2)||Verification of claims received under regulation 12(2)||T+97|
|Section 21(6A) (b) / Regulation 16A||Application for appointment of AR||Within 2 days from verification of claims received under regulation 12(1)||T+23|
|Regulation 17(1)||Report certifying constitution of CoC||T+23|
|Section 22(1) / Regulation 19(1)||1st meeting of the CoC||Within 7 days of the constitution of the CoC, but with seven days’ notice||T+30|
|Section 22(2)||Resolution to appoint RP by the CoC||In the first meeting of the CoC||T+30|
|Section 16(5)||Appointment of RP||On approval by the AA||……|
|Regulation 17(3)||IRP performs the functions of RP till the RP is appointed.||If RP is not appointed by 40th day of commencement||T+40|
|Regulation 27||Appointment of valuer||Within 7 days of appointment of RP, but not later than 40th day of commencement||T+47|
|Section 12(A) / Regulation 30A||Submission of application for withdrawal of application admitted||Before issue of EoI||W|
|CoC to dispose of the application||Within 7 days of its receipt or 7 days of constitution of CoC, whichever is later.||W+7|
|Filing application of withdrawal, if approved by CoC with 90% majority voting, by RP to AA||Within 3 days of approval by CoC||W+10|
|Regulation 35A||RP to form an opinion on preferential and other transactions||Within 75 days of the commencement||T+75|
|RP to make a determination on preferential and other transactions||Within 115 days of commencement||T+115|
|RP to file applications to AA for appropriate relief||Within 135 days of commencement||T+135|
|Regulation 36 (1)||Submission of IM to CoC||Within 2 weeks of appointment of RP, but not later than 54th day of commencement||T+54|
|Regulation 36A||Publish Form G||Within 75 days of commencement||T+75|
|Invitation of EoI|
|Submission of EoI||At least 15 days from issue of EoI (Assume 15 days)||T+90|
|Provisional List of RAs by RP||Within 10 days from the last day of receipt of EoI||T+100|
|Submission of objections to provisional list||For 5 days from the date of provisional list||T+105|
|Final List of RAs by RP||Within 10 days of the receipt of objections||T+115|
|Regulation 36B||Issue of RFRP, including Evaluation Matrix and IM||Within 5 days of the issue of the provisional list||T+105|
|Receipt of Resolution Plans||At least 30 days from issue of RFRP (Assume 30 days)||T+135|
|Regulation 39(4)||Submission of CoC approved Resolution Plan to AA||As soon as approved by the CoC||T+165|
|Section 31(1)||Approval of resolution plan by AA||T=180|
AA: Adjudicating Authority; AR: Authorised Representative; CIRP: Corporate Insolvency Resolution Process; CoC: Committee of Creditors; EoI: Expression of Interest; IM: Information Memorandum; IRP: Interim Resolution Professional; RA: Resolution Applicant; RP: Resolution Professional; RFRP: Request for Resolution Plan.
VII. Outcome from the landmark judgment of Supreme Court IN RE Arcelormittal India Pvt. Ltd. Vs. Satish Kumar Gupta & Ors.
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.
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