Timely Implementation Of Resolution Plan Is Crucial To Achieve IBC's Objective Of Protecting Assets Dissipation: Supreme Court

The Supreme Court bench comprising Chief Justice of India DY Chandrachud, Justice JB Pardiwala and Justice Manoj Misra held that unnecessary delay caused in implementation of the Resolution Plan would also lead to the assets of the corporate debtor diminishing in value. Therefore, there is no doubt that the timely implementation of the Resolution Plan is also one of the underlying objectives of the IBC, 2016. Importance Of Timely Implementation Of The Resolution Plan The IBC was enacted to consolidate and amend the existing laws pertaining to insolvency in India. The primary objective of the IBC is to resolve the insolvency of a corporate entity in a time bound manner. Timely resolution of the distressed assets is important to maximize the value of the assets. The Bankruptcy Law Committee which was constituted in 2015 based on which the IBC was enacted also recommended that it is crucial that the insolvency of the corporate entity is resolved in a timely manner so that it could be sold as a going concern or its assets could be preserved from being depreciated. The court, while referring to the Insolvency Committee Report, emphasised that time and speed are of the essence for the working of the Code. The report highlighted a major concern that if the ownership and control of the corporate debtor are not established, substantial decisions pertaining to the corporate debtor cannot be effectively taken. The court relying upon the findings of the committee observed that delays in establishing effective management lead to swift dissipation in the value of the assets of the corporate debtor. The importance of the speedy resolution has also been highlighted by the Supreme Court in Innoventive Industries Ltd. v. ICICI Bank (2019) wherein it was observed that one of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process. The court further observed that if the insolvency of the corporate debtor is not resolved in a time bound manner, it would lead to the depreciation in the value of assets of the corporate debtor. The court observed that a primary and predominant consideration behind minimizing delay is to ensure that the assets of the Corporate Debtor do not get frittered away or depreciated due to the time lag caused either during the CIRP or during the liquidation process overseen by the Liquidator. The court further observed that such a time bound action is also equally important and imperative while the Resolution Plan is being implemented by the successful resolution applicant. Unnecessary delay caused in implementation of the Resolution Plan would also lead to similar consequences of the assets of the corporate debtor diminishing in value. Therefore, there is no doubt that the timely implementation of the Resolution Plan is also one of the underlying objectives of the IBC, 2016. Limited Power Of Adjudicating Authorities To Grant Extension The court further noticed the rules of the NCLT and NCLAT Rules, 2016 which empower the Adjudicating Authority to extend the time limit for implementing the resolution plan. The court observed that Rule 15 of the NCLT and NCLAT Rules, 2016 grants power to the NCLT and NCLAT respectively, to extend the time limits for doing any act which have been fixed, either by the rules or by an order, as the justice of the case may require. The court further observed that such power must not be exercised mechanically without any application of mind. While one of the reasons supporting the grant of extension would be to ensure the successful revival of the corporate debtor, multiple extensions may seriously hamper the economic feasibility of the Resolution Plan and also lead to an increase in the debts of the corporate debtor. Whether Liquidation Can Be Ordered By Supreme Court Under Article 142 The court further referred to its own judgment in Ebix Singapore Private Limited v. Committee Of Creditors of Educomp Solutions Limited and Another (2022) to ascertain whether the present is a case where plenary powers under Article 142 of the Indian Constitution can be exercised. The court in the above case observed that any claim seeking an exercise of the adjudicating authority's residuary powers under Section 60(5)(c) IBC, NCLT's inherent powers under Rule 11 of the NCLT Rules, 2016 or even the powers of this Court under Article 142 of the Constitution must be closely scrutinised for broader compliance with the insolvency framework and its underlying objective. The adjudicating mechanisms which have been specifically created by the statute, have a narrowly defined role in the process and must be circumspect in granting reliefs that may run counter to the timeliness and predictability that is central to IBC. The court further referred to its own judgment delivered recently in...

Timely Implementation Of Resolution Plan Is Crucial To Achieve IBC's Objective Of Protecting Assets Dissipation: Supreme Court

Mohd Malik Chauhan

Tags