India until the introduction of the present “Insolvency and Bankruptcy Code 2016” had offered a multi-pronged solution to the problem of recovery of debt/revitalizing the failing business. As many as 13 enactments (such as SARFASEI, RDB Act, SICA, Company law, etc.) dealing with insolvency and bankruptcy existed and there was no single law in India dealing with Insolvency and Bankruptcy. The framework for insolvency and bankruptcy as it existed prior to the enactment of Code of 2016 was causing undue delay in resolution on account of multiple enactments, multiple fora at times if not often resulting in conflicting judgments, which in turn was resulting in more than a further erosion of investor‟s confidence in Indian businesses. Under these circumstances, first, the recovery rates obtaining in India are amongst the lowest in the world. Secondly, the average time taken to resolve the issue in India is 4 years while in other countries say Singapore it takes just 8 months and a year or so in London. This emphasized the need to overhaul the then-existing insolvency framework and bring in one single code that could provide solutions to all such problems.
In the above backdrop on 28th May, 2016 parliament enacted a consolidated framework as “Insolvency and Bankruptcy Code 2016”. One of the key purposes of the code is to encourage the resolution of the issues in a time-bound manner. One of the objects of the enactment was to resolve the issue within the stipulated time to ensure the time value of money is preserved for maximization of assets‟ value. To cater to the difficulties of the prior arrangement, the code sets out the following objects for itself:
1. Low time resolution.
2. Low loss in recovery.
3. The higher level of debt financing across a wide variety of debt instruments.
Speed is of Essence Through various instances, an important paradigm change in the stance of the present arrangement is an endeavor to make the process bounded with certain time limits. However, the timely conclusion remains a distant dream on the ground and pragmatically does not score high on the pitch of Insolvency Courts. Broadly, the aim and object of the parliament while enacting the Act was to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals and to ensure results in a time-bound manner. To realize the object of speedy disposal, the Code under Section 12 mandates the time limit for approval of the resolution plan within 180 days where an extension of 90 days‟ is possible only with the approval of Adjudicating Authority.
Court intervention in the timeline provided under the insolvency code Now, to enforce the aim of speedy disposal the Code specifies single authority i.e. NCLT (as the AA of original jurisdiction) and NCLAT (as the AA of Appellate jurisdiction) and bestows these with the power to extend the said time limit and also to adjudicate the matter at hand. This is lucid from provisions of the Code, specifically Section 12 (which mandates the time limit of 180 days/ 270 days) when reading harmoniously with sections 63 and 64(2) of the Code. Section 63 expressly bars the jurisdiction of the civil court to grant an extension of 90 days supra. Further Section 64(2) dealing with “Expeditious disposal of applications” states that – “No injunction shall be granted by any court, tribunal or authority in respect to any action taken, or to be taken, in pursuance of any power conferred on the National Company Law Tribunal or the National Company Law Appellate Tribunal under this Code.”
the interest of justice NCLT may use its discretion to enlarge the periods fixed by these rules has expired under NCLT Rules, 2016. a) Rule 15 – Power to extend the time The Tribunal may extend the time appointed by these rules or fixed by any order, for doing any act or taking any proceeding, upon such terms, if any, as the justice of the case, may require, and any enlargement may be ordered, although the application, therefore, is not made until after the expiration of the time appointed or allowed. b) Rule 115 – Enlargement of time Where any period is fixed by or under these rules, or granted by Tribunal for doing of any act, or filing of any document or representation, the Tribunal may, in its discretion from time to time in the interest of justice and for reasons to be recorded, enlarge such period, even though the period fixed by or under these rules or granted by the Tribunal may have expired.
A pertinent question that arises: Does it mean that tribunal can extend the period beyond the time limit specified under section 12 of code under certain circumstances? The question is a million-dollar question! While considering various timeline attached to stages under the Code, NCLAT in the decision of “M/S J. K. Jute Mills Company Limited vs. M/S Surendra Trading Company” Company Appeal (AT) No. 09 of 20171 held that time period of 180 days/270 days is the mandated time-limit within which CIRP must be completed. It further pointed out that “time is the essence of the Code and all the stakeholders, including the Adjudicating Authority, are required to perform its job within the time prescribed under the Code except in exceptional circumstances, only if the adjudicating authority for one or other good reason fails to do so”.
In the case of Quantum Limited vs. Indus Finance Corporation Ltd (CA (AT)) (Insolvency) No. 35 of 20182, an application was moved for an extension of 90 days. By the time this application was moved, 180 days had already been exhausted, and in consideration of such a circumstance, the same was rejected by the Hon’ble NCLT. An appeal was preferred against the order where the Hon’ble NCLAT held that the provision of the Code does not require that application for an extension to be filed within 180 days. Specifically, it was observed that:
“From sub-section (2) of Section 12, it is clear that resolution professional can file an application to the Adjudicating Authority for extension of the period of the corporate insolvency resolution process (CIRP), only if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of 75% of the voting shares. 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% of the voting shares, instructing the resolution professional to file an application for extension of the 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 (AA) who is empowered to extend such period up to 90 days beyond 180th day.” Further, it held that: The extension shall be granted and the period between 181st day and the passing of this order shall not be counted for any purpose and is to be excluded for all-purpose. In another matter of Essar steel India Limited3 relying upon the decision of NCLAT in Quantum Limited vs. Indus Finance Corporation, it held that it is just and appropriate to exclude the period of litigation from CIRP. This also indicated to the well-recognized principle of law which is cited by the Hon‟ble Supreme court in Macquire Bank vs Shilpi Cable Technology: “The task of the judge when he looks at the literal language of the statue is not to interpret the provision as he likes but is to interpret provision keeping in mind parliament‟s language and the object that they had in mind. They are not the knight riders free to roam around in the interpretative world doing the way they like.”
It observed that the provision of section 12, 14, 15 of the Limitation Act, permits the exclusion of time consumed for legal proceedings pending before the court of law. Further by going through section 60(6) of the Code, the time prescribed for the legal proceeding by or against corporate debtor company is to be excluded from the consideration of time-limit of 180 days/ 270 days. So it may be noted that the time period consumed for litigation would not prima facie be part of the period prescribed for CIRP. Similarly, in the widely talked about the matter of Bhushan Power & Steel Ltd4, NCLT held that “In any case, the period which is consumed in the litigation would not prima facie be part of the period prescribed for CIRP under IBC”. In the matter of MBL Infrastructure Ltd.5, the resolution plan was submitted only after the expiry of 270 days and the question confronted by the adjudicating authority was that whether the time period consumed in litigation shall be excluded or not? Keeping in mind that the very object of the Code is to resolve to further the recovery for creditors so as to exude confidence in Indian economy (and not just to simply liquidate), AA relied upon the significant proposition of rule 15 and rule 153 of NCLT, Rules 2016 to extend the time in the interest of justice. Additionally, Hon’ble NCLT observed that exceptional circumstances occasioned which were beyond the control of the resolution applicant and if the time period consumed in litigation will not be excluded, grave injustice will be caused to the stakeholders and so it was held that period of litigation shall be excluded from the time-limit prescribed under the Code and therefore, the plan of resolution stand approved.
In Quinn Logistics India Pvt. Ltd. V/s. Mack Soft-Tech Pvt. Ltd. in Company Appeal (AT) (Insolvency) No. 185 of 20186 NCLAT held that: “From the decisions aforesaid, it is clear 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.” It goes on to lay down an inclusive list of such probable circumstances which may be considered just and reasonable and thus qualifies to be excluded from the mandated time-limit of 180 days/ 270 days. “For example, 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: (i) 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. (ii) If no „Resolution Professional‟ is functioning for one or another reason during the corporate insolvency resolution process, such as removal. (iii) The period between the date of an order of admission/moratorium is passed and the actual date on which the „Resolution Professional‟ takes charge of completing the corporate insolvency resolution process.
(iv) On hearing a case, if an 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. (v) 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. (vi) Any other circumstances which justify the exclusion of a certain period. However, after exclusion of the period, if a further period is allowed the total number of days cannot exceed 270 days which is the maximum time limit prescribed under the Code”. From the decisions highlighted above, it indicates that the stringent time limit of 180/ 270 days laid down by the code may become a dead letter. Excluding the days of litigation can make the matter endless & it defeats the very purpose of the act of resolving within the time-bound manner. In fact, the „time-bound‟ feature of the code distinguishes the Code from erstwhile legislation in this matter. In the entire process, there is uncertainty about the ownership of the corporation and if such a state of affair continues there is the likelihood that capital of corporation will diminish making resolution difficult and also a lot of stakeholders are involved in this process therefore delay will impact the economic growth.
Undoubtedly, above is just one side of the coin and if we look at the other side of the coin expediency shall not be allowed to make justice handicapped which remained one of the considerable factors for bringing in the Code in the larger public interest. A reasonable take maybe that an extension of time may be allowed if it is needed for the circumstances which occasioned for the reasons beyond the control of the defendant/ corporate debtor so as to prevent the miscarriage of justice. The power to extend time-limit can‟t be taken away in totality from the Adjudicating Authority but the same shall be used by adjudicating authority judicially and not arbitrarily as circumstances of the matter may demand. Needless, to say again that speed is the essence of the Code which should not be blotted out. Therefore, a thin line of differentiation has to be drawn between these two forces/ factors so that the value that the time-bound approach deserves is judicially conferred as the matter may reasonably demand. An extension shall not be allowed to become an ongoing process or household good for matters under the Code which may end up causing erosion of time, thus the loss of value of money.
So, there is an urgent need to create a balance between both the speedy disposal and the delivery of justice so that companies are not liquidated merely due to the expiry of the time frame. This problem wildly calls for a pragmatic evaluation of difficulties faced by the process before that the code is paralyzed.