India: Development Of Insolvency Law – A Different Law Every Day!

Stability and predictability of the legal system is undeniably an essential component of the "Rule of Law" and in its absence, people have great difficulty managing their affairs effectively. The issue attains enormous proportion in the field of commercial law as there is nothing that the corporate enterprises fear more than uncertainty. There is an old management principle according to which "you can't manage what you cannot predict", which conversely implies that unless something is predictable, it cannot be managed. Corporate enterprises always want to tread the path where there is a fair amount, if not absolute, stability. Stability and predictability of the regulatory environment and the applicable laws rank high amongst the important variables enterprises consider while making investment decisions and hence, these factors have a direct bearing on the ease of doing business in a country.

Insolvency and Bankruptcy Code

The Insolvency and Bankruptcy Code ("the Code") is a new legislation to manage the Insolvency resolution process for corporate persons, individuals and partnership firms. The structure, functioning and even some of the provisions of the Code are of such kinds that have not existed before in any form and hence difficult to draw a pari materia with any existing provision of law.

In case of any new enactment, the law evolves and jurisprudence is settled over time. What is generally expected is that evolution of the law will relate to certain imminent clarifications to streamline the procedure and settle existing legal principles as applicable to the new enactment. However, in case of the IBC 2016, while the Code is a comprehensive piece of legislation wherein great effort has gone to detail every possible situation that may arise; the situation since its enactment is more like the goalposts are being shifted way too frequently, thereby, causing a lot of uncertainty and delay in what is proposed to be a time bound and simple process.

How the Law is 'Evolving'?

Here are some instances:

  • Flat Buyers under assured return: In Nikhil Mehta vs. AMR Infrastructure1, on 23.01.2017, while deciding the petition filed by flat buyers under an assured return program, the NCLT principal bench held that the flat buyers didn't fall in the definition of either financial or operational creditors and hence dismissed the petition. However, on 21.07.2017, the Appellate Tribunal held the flat buyers under the assured return program, to be financial creditors and directed the NCLT bench to admit the petition if complete otherwise.
  • Guarantors: In Schweitzer Systemtek vs. Phoenix ARC limited2, on 03.07.2017, the NCLT bench at Mumbai held that the moratorium in terms of Section 14 of the Code applies only to the proceeding against the corporate debtor and not to the proceedings initiated against its directors and other guarantors. In effect, recovery proceedings under DRT and SARFAESI against the guarantors would continue despite the Corporate Debtor being placed under insolvency. However, on 06.09.2017, the Hon'ble High Court of Allahabad, while deciding on Sanjeev Shriya vs. State Bank of India & Ors3, held that the moratorium would extend to the proceedings against the guarantors of the corporate debtors as well.
  • Right of Board of Directors: In Steel Konnect vs. Hero Fincorp4, on 29.08.2017, the NCLAT held that despite the board being suspended after the moratorium coming in place, the Board of Directors can initiate an appeal on behalf of the Corporate Debtor, against the insolvency petition being admitted. However, a few days later, the Hon'ble Apex court in Innoventive vs. ICICI5 held that an appeal by the Board of Birectors, on behalf of the Corporate Debtor, against the order admitting the insolvency application, would not be maintainable.
  • Power of attorney – In ICICI Bank v. Palogix Infrastructure6, on 12.04.2017, the NCLT bench at Kolkata held that specific power of attorney to initiate insolvency proceedings is required to be executed and a general power of attorney will not suffice. However, on 20.09.2017, while deciding on the appeal, the NCLAT held that power of attorney itself is not required to initiate insolvency petition and a mere authorization is good enough.
  • Limitation: In Deem Roll-Tech vs. RS Steel & Energy7, on 31.03.2017, the NCLT Principal held that the Limitation Act is applicable to the provisions of the Code. However, on 11.08.2017, in Neelkanth Township vs Urban Infrastructure Trustees8, the NCLAT held that nothing in the Code seems to suggest that the provision of the Limitation Act are applicable to initiate the Corporate Insolvency Resolution process.

Various NCLT benches across the country have taken different views on maintainability of insolvency process during pendency of winding up proceedings before Hon'ble High Courts. So much so that now a special bench has been constituted by the President of NCLT to decide on the issue. Similarly, various benches and the Appellate Tribunal have taken contrary views on several issues including Bankers Book of Evidence Certificate, Bankers Certificate regarding non-payment of debt in case of petition by operational creditor, and relaxation of 7 days period to cure defects. Recently, in Jaypee Infratech Ltd, the NCLT bench at Allahabad admitted the insolvency petition against Jaypee Infratech which, having several businesses, is a builder of residential apartments and had accepted deposits from individuals towards flats proposed to be constructed. However, in terms of priority for settling the claims, the flat buyers stood at the bottom of the pyramid i.e. below the workmen, secured creditors, statutory dues, employees and operational creditors. On a petition made by the concerned flat buyers, the Hon'ble Apex court initially suspended the insolvency proceedings only to reinstate it a few days later; however, not without a few riders i.e. deposit of 2000 crores by the parent company and submission of an interim resolution plan within 45 days. Though none of the two riders are under any existing provision of the Code, it is open to speculation if this will constitute precedence in future instances of builder-buyer disputes.

There are many more instances of such diametrically opposite stands which have been taken by various tribunals, the Appellate Tribunal and the Hon'ble High Courts on important issues of the Code and there is a fair chance that more will be witnessed by the time this article sees the light of the day. Not just the professionals involved in resolution process, but also the government of the day, the industry and even the public at large is keenly watching as to how the situation develops and how important aspects of the legislation are finally settled by the Hon'ble Supreme Court. For sure the journey will take time but it would an interesting journey nonetheless.

P.s. - It is interesting to note that not all reversals in settled principles have come while deciding appeals in the same matter. Ergo, in all likelihood multiple litigations are waiting to be triggered including instances where the resolution process is already underway. It will be interesting to watch as to how these instances are managed without compromising on the overall intent of the Code.

Footnotes

1 C.P No (ISB)-03(PB)/2017 at NCLT and Company Appeal (AT) (Insolvency) No. 07 of 2017 at NCLAT

2 T.C.P No. 1059

3 WRIT - C No. - 30285 of 2017

4 Company Appeal (AT) (Insolvency) No. 51 of 2017 5 CIVIL APPEAL NOs. 8337-8338 OF 2017

6 CP 37/2017at NCLT Kolkata and Company Appeal (AT) (InsoL) No. 30 of 2017 at NCLAT

7 Company Application No. (I.B.) 24/PB/2017

8 Company Appeal (AT) (Insolvency) No. 44 of 2017

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.