27 Sep 2022 6:08 AM GMT
"Judicial delay was one of the major reasons for the failure of the insolvency regime that was in effect prior to IBC. We cannot let the present insolvency regime meet the same fate." -Justice DY Chandrachud in Ebix v. Educompp, 2022 The Insolvency & Bankruptcy Code, 2016 (IBC/Code) was enacted by the Government of India to eliminate the delays in resolving insolvency and to...
"Judicial delay was one of the major reasons for the failure of the insolvency regime that was in effect prior to IBC. We cannot let the present insolvency regime meet the same fate."
-Justice DY Chandrachud in Ebix v. Educompp, 2022
The Insolvency & Bankruptcy Code, 2016 (IBC/Code) was enacted by the Government of India to eliminate the delays in resolving insolvency and to enhance the ease of doing business in India. One of the primary objective of IBC is to resolve the insolvency in a timely manner that too within a period of 180 days. However, almost after 6 years of enactment, IBC is grippled with various delays and as per the research undertaken by the author, National Company Law Tribunals (NCLTs) are now taking an average of 296 days to approve a resolution plan despite the approval of resolution plan by the Committee of Creditors (COC) of the Corporate Debtor.
Initially, the stringent timelines provided under the Code did bring desirable results for the Government of India as it was noted in the Economic Survey, 2019 that the process which was earlier taking a period of 4.3 years is now getting completed within a period of 340 days. The success of the IBC also reflected in the World Bank ease of doing business ranking where India's rank in resolving insolvency jumped to 52nd Place in 2019 from 108th place in 2018.
However, due to the scant shortage of members at various NCLT Benches across the Country and the COVID-19 Pandemic, the Parliament Standing Committee on Finance in its 32nd report dated 31.08.2021 raised its concern that now the resolution process under IBC is taking a period of 570 days.
Statutory Timelines For Completion Of CIRP
Section 12 of the Code prescribes a period of 180 days for completion of CIRP which can further extended by a period of 90 days and Regulation 40A of the IBBI (CIRP) Regulations, 2016 states that the COC shall approve a resolution plan within a period of 165 days of the CIRP initiation date. Therefore, COC is entitled to consume more than 90% of the stipulated time period and the NCLT must ideally take only 10% of the total time period to approve a resolution plan.
Lacuna In The Existing Research Data
There are three components which aids the completion of the CIRP of a Corporate Debtor which are:
The existing data which is being published by the IBBI every quarter only provides for two components i.e., the date of initiation of the CIRP and the date of approval of the Resolution Plan by NCLT. Accordingly, the IBBI is computing the difference between these two dates and is finding that to be reflective of the total time taken for the completion of the CIRP.
As such, the IBBI's quarterly data is not publishing the date of approval of resolution plan by the COC and therefore, two important time periods are missing in the existing data which are:
Since, these two critical time periods are not mentioned in the existing data published by the IBBI, it is difficult to ascertain as to whether it is the COC or the NCLT which is causing delay in completion of CIRP of Corporate Debtor beyond the stipulated period under IBC. Ergo, in order to effectively address the delays under IBC, it is necessary that the time taken by NCLTs and COC is to be ascertained.
Time Taken By COC And NCLT To Approve A Resolution Plan
Considering that the date on which the COC approves a Resolution Plan is not available in the public domain, the author has analysed all the resolution plan approval orders passed by the NCLT during FY 2021-22 as all (except two) orders passed by the NCLT approving the resolution plans, in FY 2021-22 notes the date at which the CoC has approved the plan. In some cases, where the exact COC approval date is not mentioned in the order, the last date of voting has been considered as the COC approval date by the author.
The summary of the data as complied by the author from the IBBI quarterly newsletter and NCLT website is mentioned below in the table.
Quarter, FY 2021-2022
No. of Resolution Plans Approved
Average Time taken by COC
Average time taken by NCLT after COC
Note: The specific detail of each resolution plan approved in respective quarters is here. Source: IBBI & NCLTs Order
1st Quarter here 2nd Quarter here 3rd Quarter here 4th Quarter here
It is evident that both the COC and the NCLT are taking much more time than contemplated under the IBC for resolution of a company. Granted, the delay by COC can be justified due to the various factors/events which are required to be adhered to before approval of resolution plan by the COC such as appointment of valuers, transactional auditors, publication of Information Memorandum and most importantly submission of a resolution plan.
Though as per the timelines stipulated under the Code, COC is entitled to take 90% of the total time and NCLTs only 10% for approval of a resolution plan but the actual data portrays a completely different scenario.
Time % by COC
Time % by NCLTs
Stipulated under code
Actual during FY 2021-22
The time period of 296 days (almost 10 months) taken by NCLT is completely non-justiciable and is a serious deterrent to the success of the IBC. Once, the plan is approved by COC, the NCLT must approve/reject the same at the earliest. Even though in general, various objections to the approved resolution plan are filed before the NCLT after submission of plan, the same cannot be a justification to a momentous delay of almost 10 months in approving a plan.
IBBI is contemplating an amendment to IBC by fixing a time period of 30 days for the NCLT to approve a resolution but the research conducted by the author reflects that during the FY 2021-22 only two resolution plans (Coastal Oil & Gas Infrastructure Private Limited & Venkatadri Spinning Mills Private Limited) are approved within a period of 30 days after the COC approval. Consequently, the time period of 30 days for the NCLT to approve a resolution plan utopian.
In this regard, it is notable that the Supreme Court of India in the case of Ebix v. Educomp emphasised the need for timely approval of the resolution plan and urged the NCLT & NCLAT as follows:
"We urge the NCLT and NCLAT to be sensitive to the effect of such delays on the insolvency resolution process and be cognizant that adjournments hamper the efficacy of the judicial process. The NCLT and the NCLAT should endeavor, on a best effort basis, to strictly adhere to the timelines stipulated under the IBC and clear pending resolution plans forthwith."
Thus, considering the intent of the IBC and the concerns for timely resolution which has a direct bearing on not only the value of the corporate debtor but also the ease of doing business in the country, it is pertinent that the steps be taken to ensure that the NCLT is able to approve a resolution plan within a tighter time frame. While the deadline of merely 30 days seems too strict considering the various aspects that the Adjudicating Authority is required to consider while approving the plan, a colossal average of 10 months is liable to frustrate the object of the Code.
Akshay Sharma is a Delhi based Advocate practices specifically in the area of insolvency and restructuring . Author acknowledges assistance of Adv. Lavanya Pathak in conducting this study. Views are personal.