Easing of deadline to serve interests of public, debtor: MCA secretary
The Ministry of Corporate Affairs has found comfort in the fact that the Supreme Court has not struck down the 330-day timeframe for completing the insolvency resolution process, but has simply done away with the “mandatory” clause for following the deadline.
“We respect the SC verdict. If there are extraordinary circumstances and it is in the interests of the corporate debtor and public, then the adjudicating authority can take some more time,” Injeti Srinivas, corporate affairs secretary, told Business Standard. The government, in the Budget session of Parliament, had passed several amendments to the Insolvency and Bankruptcy Code (IBC). That included bringing in a 330-day deadline for the insolvency resolution process while counting the time taken for litigation as well. Before that, a 270-day window was available for resolution, excluding the litigation process.
The top court called the amendment an “excessive and unreasonable restriction on the litigant’s right to carry on business under Article 19(1)(g) of the Constitution”. According to the verdict, the amendment goes against Article 14 of the Constitution, which says that the state cannot deny to any person equality before the law or equal protection of the laws within the territory of India.
“If the provision is struck down in its entirety, it would throw the baby out with the bath water, as the time taken in legal proceedings is certainly an important factor,” said Anshul Jain, partner, PWC India.
As of June 2019, there were 1,292 ongoing corporate insolvency cases, of which 335 had exceeded the 330 - day limit, according to government data.
While a grace period of 90 days was given to such cases, the committee of creditors (COC) can seek further extension after the permission of the adjudicating authority to avoid "compulsory liquidation."
The Supreme Court said in its order that the time taken in legal proceedings was largely due to tardy processes at the adjudicating authority or the appellate tribunal and not due to any fault of the litigants.
The Supreme Court ruled that if it could be shown to the Adjudicating Authority or the Appellate Tribunal that only a short period was left for completion of the insolvency resolution process beyond 330 days, it would be in the interest of all stakeholders that the corporate debtor be put back on its feet instead of being sent into liquidation.
The corporate affairs secretary also said the SC ruling had addressed all concerns of the government. “It clearly lays down the jurisdictions of the adjudicating authority and the committee of creditors. It states that you cannot substitute the commercial wisdom of the COC on your own.”
The government, while introducing the IBC amendments, had said time was of essence for IBC’S success as the cost of delay was huge.
The statement of object and reasons for IBC amendments said the delays due to “extensive litigation” may hamper value maximisation which goes against the spirit of the Code.
“Without strict timelines, there will be no pressure on the committee of creditors. While you cannot put a deadline on courts, the COC has to ensure that it comes up with bidding plans and takes a call on them in a timely manner,” a senior lawyer said.