India: The Saga Of Unending Resolution Process Under IBC Part - III

Last Updated: 27 December 2018
Article by AMLEGALS  

Insolvency & Bankruptcy Code, 2016

THE SAGA OF UNENDING RESOLUTION PROCESS UNDER IBC PART - III

IN THE SUPREME COURT OF INDIA

ARCELORMITTAL INDIA PRIVATE LIMITED V. SATISH KUMAR GUPTA & ORS Civil Appeal Nos. 9402-9405 Of 2018 DATED: 04.10.2018

FACTS

The Honourable Supreme Court while deciding upon the issues of  CIR Process of ESSAR Steel had dealt with entire CIR Process under the Insolvency and Bankruptcy Code, 2016 (IBC 2016), as amended.

CORPORATE INSOLVENCY RESOLUTION PROCESS (CIRP)

  • BEFORE ADMISSION:
  1. NCLT has to first ascertain the existence of a default within 14 days of receipt of the application as per Section 7(4) of the IBC
  2. Defects can be rectified by the applicant within 7 days as per Section 7(5) of the IBC
  3. NCLT may admit or reject such an application.
  • COMMENCEMENT OF THE CIRP
  1. As per Section 7(6) of the IBC, the CIRP commences from the date of admission of the Application.
  2. As per Section 7(7) of the IBC, NCLT shall communicate the order either accepting or rejecting the Application within 7 days of such acceptance or rejection.
  • TIME PERIOD FOR COMPLETION OF THE CIRP
  1. Section 12 has set a time limit of 180 days for the completion of the Insolvency Resolution Process.
  2. As per Section 12(1) of the IBC, a period of 180 days from the date of Application is given for the completion of the entire process.
  3. The usage of the term "shall be completed" in Section 12 makes it clear that it must be read as a mandatory provision.
  4. As per Section 12(2) the statutory time period of 180 days is extendable by a period of 90 days if the Committee of Creditors chooses to do so, by a vote of 66%.
  5. In addition to the above, the NCLT must be satisfied that the CIRP cannot be completed within 180 days.
  6. As per Section 12(3), the time period can be extended only by an order of the NCLT, by a maximum period of 90 days.
  7. Section 12(3) specifically states that the extension of the statutory time period shall not be granted more than once. The Proviso to Section 12 provides that the extension in time period shall not be for more than 90 days. Hence, a maximum period is 270 days for the completion of the entire CIRP.
  8. The only EXCEPTION to this proviso is the third proviso to Section 30(4) which states that the time period of 180 days+90 days may be further extended for a maximum period of 30 days.
  • THE CONSEQUENCE OF THE EXPIRY OF THE STATUTORY TIME PERIOD
  1. Section 33 provides for a CONSEQUENCE if the statutory period provided by the IBC ends without receipt of a resolution plan or after rejection of a resolution plan under Section 31.
  2. Section 33 provides that when either of the abovementioned contingencies occurs, the Corporate Debtor is required to be liquidated in the manner laid down in Chapter III of the IBC.

This makes it clear that the time period of CIRP under IBC is mandatory and cannot be extended.

STEP-BY-STEP GUIDE TO THE CIRP

After admission of an application under Section 7 of the IBC by NCLT, the CIRP begins.

The process of CIRP are categorically laid down in a procedural manner as follows:

  • Sections 13 to 15:
  1. A moratorium is declared. It is basically a period during which initiation of any proceedings against the Corporate Debtor are temporarily stayed.

Additionally, no new legal proceedings may be initiated against the Corporate Debtor.

  1. Further, a public announcement of the initiation of the CIRP and call for submission of claims is to be made.
  • Section 16:
  1. An Interim Resolution Professional (IRP) is to be appointed by the NCLT within a period of 14 days from the date of admission of application under Section 7 for the commencement of insolvency proceedings.
  • Section 17:
  1. The IRP takes over the management of the Corporate Debtor and manages the affairs of the Corporate Debtor.
  2. Board of Directors (BOD's) of the corporate debtor shall stand suspended.
  3. All the officers and managers of Corporate Debtor shall report to IRP.
  • Section 18(1):
  1. The important duties of the IRP that need to be accomplished at the earliest are laid down herein such as:
  • To collect all information relating to the financial position of the Corporate Debtor.
  • To constitute a Committee of Creditors (COC).
  • Section 21:
  1. The IRP has to constitute COC and the COC is to comprise of financial creditors of the Corporate Debtor.
  2. All decisions of the COC are to be taken by a majority vote of not less than 51% of the voting share of each financial creditor.
  • Section 22:
  1. The first meeting of the COC is to be held within 7 days of its Constitution with the purpose of appointing a Resolution Professional (RP).
  2. The COC either continues with the IRP or replaces the IRP by a majority vote of 66%.
  3. The Application to replace the IRP is then sent to the NCLT who then forwards the same to the Insolvency and Bankruptcy Board of India (IBBI), for confirmation.
  4. Upon confirmation from IBBI the Adjudicating Authority then appoints the proposed RP.
  5. In case the IBBI does not confirm the name of the proposed RP within 10 days of receipt of the same, the Adjudicating Authority then directs the IRP to continue to function as the RP until such time as the IBBI confirms the appointment of the proposed RP.
  • Section 23:
  1. The RP so appointed under Section 22 is then supposed to conduct the CIRP which really begins at this stage.
  • Section 25:
  1. This Section lays down the duties of the RP which shall include:
  • To continue the business operations of the Corporate Debtor, subject to the prior approval of the COC over matters stated in Section 28.
  • To invite prospective Resolution Applicants to submit Resolution Plans.
  • Section 29:
  1. The RP is then supposed to prepare an information memorandum (IM) giving relevant information to the persons interested in formulating a resolution plan.
  • Section 30:
  1. This is one of the most important provisions pertaining to the CIRP. This Section provides that a resolution applicant may submit a resolution plan to the RP who then ensures that the proposed plan conforms to the requirements of Section 30(2).
  2. After the RP approves the conformity of the proposed plan, it is presented to the COC under Section 30(3).
  3. Section 30(4) provides that the proposed plan is to be approved by the COC by a vote of not less than 66%.
  4. It is pertinent to note that if the Resolution Applicant is ineligible under Section 29A, the COC cannot approve his/her proposed plan. In such a case, the RP has to invite a fresh resolution plan where no other resolution plan is available.
  • Section 31:
  1. Once the Resolution Plan is approved by the COC, the plan is submitted to the NCLT.
  2. The NCLT applies its judicial mind to approve or reject the resolution plan after ensuring that it is in conformity with the requirements mentioned under Section 30.
  3. An Appeal arising against the approval or rejection of a resolution plan is governed under Section 61 of the IB Code.
  • Section 33:
  1. The LIQUIDATION PROCESS gets initiated under this section in the event that either of the following contingencies occurs:
  • Resolution Plan is not submitted within the time frame specified under Section 12.
  • Resolution Plan is rejected by the Adjudicating Authority.
  • Prior to the approval of the NCLT, the RP intimates the NCLT about the decision of the COC to Liquidate the Corporate Debtor.
  • Resolution Plan approved by the NCLT is breached by the Corporate Debtor. Any person who has been prejudicially impacted by such a breach may also apply to the NCLT for the Liquidation of the Corporate Debtor. 

The Hon'ble Apex Court has also referred to Regulation 40A of the CIRP Regulations which presents a model timeline of the CIRP to be conducted within a period of 180 days.

The Hon'ble Court has also suggested that all concerned authorities must follow this model timeline as closely as possible to ensure that the CIRP is efficiently concluded as per the time frame.

This content is purely an academic analysis under "Legal intelligence series".

© Copyright AMLEGALS.

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Reade should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

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