(A) BACKGROUND

The time period for the completion of the entire resolution process prescribed by the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the Code”), is the maximum time provided for the completion. As per Section 12(1), the CIRP shall be completed within a period of 180 days from the date of admission of the application to initiate such process.

On receipt of application filed by the Resolution Professional in terms of Regulation 40 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as “the Regulations”)], the Adjudicating Authority (i.e. NCLT), may by order extend the duration of such process beyond 180 days by such further period as it thinks fit, but not exceeding ninety days. However, this is only a one time extension.

The Hon’ble Supreme Court in the matter of Arcelormittal India Pvt. Ltd. Vs. Satish Kumar Gupta & Ors. (Civil Appeal Nos.9402-9405 Of 2018 & Civil Appeal No.9582 Of 2018) held that where a resolution plan is upheld by the Appellate Authority, either by way of allowing or dismissing an appeal before it, the period of time taken in litigation ought to be excluded.

(B) INSERTIONS OF PROVISOS TO SECTION 12(3) OF THE CODE W.E.F. 16.08.2019

The Insolvency and Bankruptcy Code (Amendment) Act, 2019 (Amendment Act), w.e.f. 16.08.2019, inserted two provisos to section 12(3) of the Code to provide for overall time limit. After this amendment, the procedure involved in the resolution process should mandatorily be completed within 330 days including any extension and the time taken in legal proceedings. The said period of 330 days includes:

• normal CIRP period of 180 days,
• one-time extension, if any, up to 90 days of such CIRP period granted by the Adjudicating Authority, and
• the time taken in legal proceedings in relation to the CIRP of the corporate debtor

(C) NOTIFICATION NO. IBBI / 2019-20 / GN / REG 059 DATED 29.03.2020 READ WITH PRESS RELEASE ISSUED (EFFECTIVE FROM 29.03.2020)

Section 196 of the Code provides powers and functions of the Insolvency and Bankruptcy Board of India (“Board”). Further, Section 240 of the Code empowers the Board to make regulations. In exercise of the powers conferred by clause (t) of sub-section (1) of section 196 read with section 240 of the Code, the Board has inserted Regulation 40C after 40B, which has been extracted hereunder for ease of reference

“40C. Special provision relating to time-line.

Notwithstanding the time-lines contained in these regulations, but subject to the provisions in the Code, the period of lockdown imposed by the Central Government in the wake of COVID-19 outbreak shall not be counted for the purposes of the time-line for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process.”

The relevant portion of the press release is also extracted hereunder for ease of reference:

“2. Government of India has declared a lockdown of twenty-one days with effect from 25^th March, 2020 as a measure to combat and contain the spread of COVID-19. It is difficult for the insolvency professionals to continue to conduct the process, for members of committee of creditors to attend the meetings, and for prospective resolution applicants to prepare and submit resolution plans, during the period of lockdown. Therefore, it may be difficult to complete various activities during a corporate insolvency resolution process within the timelines specified in the CIRP Regulations.

3. To address this difficulty, the IBBI amended the CIRP Regulations to provide that the period of lockdown imposed by the Central Government in the wake of COVID-19 outbreak shall not be counted for the purposes of the time-line for any activity that could not be completed due to the lockdown, in relation to a corporate insolvency resolution process. This would, however, be subject to the overall time-limit provided in the Code.

 (D) OUR COMMENTS

(i) Period of lockdown shall be excluded only for the purpose of timelines specified in the Regulations for undertaking various activities

(ii) Such lockdown period would not have any bearing on the outer limit (i.e., 330 days) within which the entire process must be concluded

(iii) Though NCLT is not functioning since 16.03.2020, however, the time period between 16.03.2020 to 24.03.2020 has not been excluded;

(iv) The Hon’ble Supreme Court in the matter of Committee of Creditors of Essar Steel India Limited through Authorised Signatory Vs. Satish Kumar Gupta & Ors. (CA-8766-67/2019-SC) held that-

• while leaving the provision (Section 12) otherwise intact, the term “mandatorily” is struck down as being manifestly arbitrary under Article 14 of the Constitution of India and as being unreasonable restriction on the litigant’s right to carry on business under Article 19(1)(g) of the Constitution;
• The effect of this declaration is that ordinarily the time taken in relation to the CIRP must be completed within the outer limit of 330 days from the insolvency commencement date, including extensions and the time taken in legal proceedings.
• If the delay or a large part thereof is attributable to the tardy process of the AA and/or the NCLAT itself, it may be open in such cases for the AA and/or NCLAT to extend time beyond 330 days;
• It is only in exceptional cases that time can be extended, the general rule being that 330 days is the outer limit within which resolution of the stressed assets of the CD must take place beyond which it is to be driven into liquidation;

(v)       In case resolution process is not completed within the outer limit of 330 days from the insolvency commencement date, the NCLT may allow additional time upon receipt of application(s) seeking extension due to COVID-19 outbreak;

(vi)      NCLT while granting additional time due to COVID-19 may consider various factors including but not limited to see whether there is a resolution applicant who can continue to run the corporate debtor as a going concern 

Disclaimer

The views expressed in this article are the personal views and for informational purposes only. The information which is summarized herein does not constitute a professional / legal advice. A detailed and thorough examination of the facts and circumstances of a particular situation are always needed for any legal opinion / advice.