Getting the Code back on track
The Supreme Court has set out how the corporate insolvency resolution process would work from inception while hearing the Essar Steel case, primarily with the objective of timely completion as cases are getting piled up at the tribunals.
Most of the big-ticket cases— Essar Steel, Bhushan Power & Steel, Binani Cement — have tripped on their original 270-day deadline. The 270-day period is the extended timeline for resolution professionals( RPs)tofi lea plan.
According to the Insolvency and Bankruptcy Code (IBC), 2016, the tribunals have a limited role but the rising number of litigations has increased its importance. The Supreme Court, hence, has laid down guidelines in an attempt to speed up the process of resolution.
Though part of the Essar order, the guideline from the apex court will have a far-reaching impact on all the cases under the IBC.
The court has sought to define the role of important cogs in the IBC wheel like RPs, committees of creditors (CoCs) and the tribunals.
In a bid to prevent litigation at every stage, the court has clearly laid down at which stage the resolution applicant could approach the adjudicating authority.
An RP, as mentioned in the order, will only "examine" and "confirm" resolution. In case a resolution plan is turned down at the threshold, he/she can invite fresh resolution plans if no other resolution plan has passed the muster. If a resolution plan is turned down at the threshold, a resolution applicant would have no right to ensure that his/her resolution plan be considered at this stage.
“It is clear that no challenge can be preferred to the adjudicating authority at this stage,” the order read.
N G Khaitan, senior partner, Khaitan & Co, said: "At the initial stage, one cannot challenge the exclusion, which is a very important point. Otherwise, it would be like a pandora's box. This is a very progressive judgment and has more positives than negatives."
Saurav Kumar, partner, IndusLaw, said: "The idea is to prevent litigation during the resolution process. Many of the applicants had approached the National Company Law Tribunal (NCLT) for guidance on interpretation issues. This will ease the burden on the tribunals."
In fact, the order mentioned that the NCLT is not invested with the jurisdiction to interfere at an applicant's behest at a stage before the quasi-judicial determination has been made by the authority. "Basically till the CoC decides, no person has the locus standi to file any litigation before the NCLT or NCLAT (National Company Law Appellate Tribunal), or any other forum," said Kumar.
That, according to resolution professional Sumit Binani, might just speed up the process. "Different NCLTs had interpreted the provisions of the Code in different ways and this again was challenged in the Appellate Tribunal, leading to excessive litigation and thereby, leading to delay in the resolution process," he said.
"The Supreme Court while laying down the process has laid to rest this endless litigation with an attempt to fast-track the process. This will surely promote speedy resolution and lessen litigation costs," Binani added.
However, there is apprehension on the empowerment of the CoC. "It leaves discretion and room for bias in the hands of the CoC, which is an interested party in the resolution," pointed out a legal expert.
"What happens to a bidder who is told on the 90th day that he is ineligible. Does he/she not have the right to challenge the decision till the resolution process is approved. When the Code has a subjective element of determination of eligibility at the stage of resolution plan submission, is it fair to take away the power of judicial review up to the stage of approval of resolution plan?" the expert asked.
Another important point that the order makes is that the NCLT alone has the jurisdiction when it comes to applications and proceedings by or against a corporate debtor covered by the code. No other forum has jurisdiction to entertain or dispose of such applications or proceedings.
Quite a few cases on the Reserve Bank of India's second list of non-performing assets (NPAs) have landed in high courts and got a stay on the IBC proceedings. In one of the cases, a high court has ordered a one-time settlement; some have obtained a stay, and at least in one, the resolution process has been put in abeyance.
But then some would agree that the IBC had fast-tracked resolution if compared to the pre-IBC regime.