Nationwide lockdown announced by several governments including the Indian Government has adversely affected the business resulting in an extensive market interruptions and relapse of consumption. Lately, the Fitch Ratings has condensed India's GDP growth forecast from 5.1% to 2%, making it the dimmest growth rate over the past 30 years. Subsequently, businesses are facing Spartan monetary distress. Although at present it is very difficult to anticipate the full impact on the economy, it is clear that no business, large or small will remain unaffected. At the regulatory level, the Indian Government has brought some amendments in the form of a relief to Covid-19 affected industries. The Government has issued several notifications under the Insolvency & Bankruptcy Code, 2016. The threshold limit to invoke the provisions of the Code provided under Section 4 of the Code has been increased to Rupees One Crore as against the earlier limit of Rupees One Lakh. Further, the lockdown period will not be counted for in the 330 days to complete the resolution process in all ongoing cases. The Government has also announced the suspension of insolvency proceedings under Section 7, 9 & 10 for a period of one year. However, there are still few grey areas discussed herein which should be addressed to serve its intended purpose post this pandemic.
DISRUPTIVE IMPACT OF COVID-19 ON THE RESOLUTION PLANS
As per the data provided by National Company Law Tribunal (NCLT), total 19,771 cases were pending with NCLT benches on 30.09.2019, which include 10,860 cases under Insolvency and Bankruptcy Code (IBC), 2016," Minister of State for Finance and Corporate Affairs Anurag Singh Thakur said in a written reply to the Rajya Sabha. The results achieved under the Code in respect of about 3,312 admitted as on 31.12.2019 cases are appalling. Out of 3,312 admitted cases, 1,961cases are ongoing under different stages of the resolution process, 780 cases have been approved for the Liquidation process, 135 cases have been withdrawn under Section 12A, 246 cases closed on Appeal/Review and in 190 cases the Resolution Plan is approved.
In current prevailing situations, revival of the corporate debtors is a challenging task. The assessment of the valuation of the Corporate Debtor is going to be very challenging. has been a general slowdown in all kinds of deals in 2019 as compared to 2018. According to the Report by Grant Thornton, deal values were down by 74% in 2019 whereas by volume they were down 11% as compared to 2018. This down fall will be increased this year also because of the economic slowdown.Further, the provisions of the Code require that the Resolution Plan shall identify the specific sources of funds that will be used to pay the CIRP cost and other dues as provided under Regulation 38 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.In view of the present situation amid Covid-19, it is going to be very difficult to revive the entity by infusing the funds for all those involved in the process. There will be a considerable fall in the value of the assets which will significantly impact the pending insolvency cases. Further, the Plan compulsorily needs to provide its term and implementation schedule, which is very uncertain in the present situation. Due to the global economic slowdown and all these difficulties, the bidders will look after to re-negotiate its offer. However, the situation is not the same for all the bidders as it depends on the stage of the CIRP.
BIDDERS JITTERY OVER COVID-19 SITUATION
There are as many as 1,961 cases ongoing in the CIRP. In these 1,961 cases, there exist cases where the Resolution Plans have not been approved by the CoC and the same is pending before CoC. There are cases where the Resolution Plans have been approved by the CoC and the same pending approval before the Adjudicating Authority. Further, there are cases where the Resolution Plans have been approved by CoC as well as AA and the same are undergoing implementation. All these plans will be affected by COVID-19 as the bidders will definitely try to re-examine the commercial viability of the resolution plan and its implementation by considering the ongoing pandemic situation. The Bidders may be permitted to withdraw or modify their application in the first stage where the Plans have not been approved or examined by the CoC and the bidders can easily re-examine their proposals and make necessary changes by providing reasonable grounds. However, it is very difficult in the other two situations where the Resolution Plans have been approved by the CoC and the same is pending approval before the Adjudicating Authority or where the Resolution Plans have been approved by CoC as well as Adjudicating Authority. In Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh[ii], the Supreme Court held that a resolution plan approved by the AA cannot be withdrawn by the resolution applicant. However, if the plan is in the second stage, i.e. it has been examined and approved by the CoC but not the AA, a question arises whether re-negotiations or withdrawal of the resolution plan should to be permitted. However, such a practice may be dejected, as it adversely affects the rights of the other resolution applicants, hereby frustrating the entire CIRP process. Although recently, in case of Deccan Value Investors L.P. and DVI PE (Mauritius) Limited v. Desutsche Bank AG & Ors.[iii], the AA, Mumbai Bench permitted the withdrawal of resolution plan at the second stage after approval by the CoC because the information supplied to the bidder was found to be incorrect and misleading. It can be concluded from the aforementioned case that withdrawal should be allowed only in reasonable circumstances when the bidder is not at fault.
CHALLENGESTO BE ADDRESSED SOON
Amid this challenging situation, there are several aspects that need to be addressed by the legislation or some judicial mechanism. As the Resolution Plan is the plan to resolve the Debtor and keep it is a going concern, the challenges that occurred for the Resolution Applicants need some remedy. The Resolution Applicants whose Plans are pending approval before the CoC may file an application before the AA for revision of the Resolution Plan and on the ground of non-consideration of the ongoing situation, the AA may allow the said applications. The Resolution Plans which have been approved by CoC and the same is pending approval before the AA, in such cases some protection is required to be given to the Applicants because in case the Applicant resile, there are penal provisions given under Section 74 of the Code which deals with the Punishment for contravention of moratorium or resolution plan. In the past, the AA had come heavily on the bidders in case they tried to resile. The very recent example could be of the Resolution Plan submitted by Reliance Communication Ltd. (RCOM) which was approved by CoC and the same has been filed before the AA for approval on 06.03.2020. The situation is a lot more difficult for the Applicants whose Resolution Plan has been approved by the CoC as well as the AA. They also need some protection as the situation is not favourable and it is very difficult to follow the implementation schedule provided by these Applicants. Very recently the Resolution Plan submitted by NBCC in the case of Jaypee Infratech has been approved by the AA wherein the NBCC had proposed to complete over 20,000 pending flats in the next three and a half years. However, post this pandemic, it is very challenging to meet the timelines as almost each and every sector will be adversely affected because of this deadly virus. Large cases like IL&FS, Dewan Housing Finance, Jaypee Infra, Bhushan Power & Steel, Alok Industries and Reliance Communication may now take longer to execute resolution plans. The Resolution Applicants may try for interpretation of the clauses of their Plans and may also take the assistance of the doctrine of Force Majure or Frustration of contract based on the facts and circumstances of their case.
On the basis of the above discussion, it comes out very clearly that the resolution applicants are finding it increasingly challenging to abide by the resolution plans submitted by them owing to the uncertainty in feasibility and valuation of businesses. Pondering the drastic change of situation, they may seek to either reduce the size of their investment or withdraw themselves from the insolvency resolution process, further knocking the doors of AA to consider their issues. If the legislature does not come up with some interim protection to these Applicants, there would be thousands of cases seeking revision of their plans or some protection from the penal provisions arguing the impossibility of implementation of their Resolution Plan due to COVID-19. All these litigations will also affect the timelines provided in the existing legal framework. Therefore, some amendments or regulations or a judicial mechanism is required to cover this grey area to serve the intended purpose of the Code post this pandemic.
Views Are Personal Only.
(Authors are practising Lawyers at Delhi High Court)
The Quarterly Newsletter of the Insolvency and Bankruptcy Code of India| October – December, 2019|Vol.13
2020 SCC OnLine SC 67
M.A. No.1271/2018 & M.A. No.956/2018 IN CP 1555 (IB)/MB/2017