In the recent news, the Supreme Court (SC) in India has resolved that under the Insolvency and Bankruptcy Code (IBC), any approved resolution plan submitted by the Committee of Creditors (CoC) to the National Company Law Tribunal (NCLT) cannot be altered. This follows the introduction of the Insolvency and Bankruptcy Code (Amendment Bill), 2021 in the Lok Sabha in July 2021.
Key Rulings by SC
The Supreme Court has made several key rulings pertaining to the modification and withdrawal of resolution plans approved by the CoC. The court stated that once a resolution plan is submitted to the adjudicating authority, it cannot permit alterations or withdrawals of the said plan at the request of the successful Resolution Applicant.
Further, the court emphasised that the Corporate Insolvency Resolution Process (CIRP) as defined under the IBC must be concluded within 330 days. This necessity for a timely resolution process was underscored by a report from the Parliamentary standing committee on finance, which revealed that 71% of cases under NCLT scrutiny were pending beyond 180 days.
Insolvency Resolution Process in India
The insolvency resolution process under the IBC applies to both private and public companies as well as Limited Liability Partnerships (LLPs). The IBC comes into action when a corporate debtor, typically a company that owes a debt, defaults on an amount exceeding Rs 1 Crore.
The process can be initiated by two classes of creditors – financial and operational creditors. While a financial creditor refers to any institution that gives money to the corporate entity in the form of loans or bonds, an operational creditor pertains to the entity that has a claim for providing goods, services, employment or Government dues.
Upon admission of the case by the NCLT, an Interim Resolution Professional (IRP) is appointed to manage the defaulting debtor. The IRP subsequently forms a Committee of Creditors (CoC), which consists solely of financial creditors.
Corporate Insolvency Resolution Process (CIRP)
The CoC is responsible for making decisions about the future of the outstanding debt owed to it. For a resolution plan to be implemented, it must be approved by at least 66% of the creditors in the CoC.
In cases where a resolution plan is not submitted or fails to gain approval from the CoC, the CIRP is deemed unsuccessful, thus commencing liquidation proceedings subject to the order of the tribunal.
Pre-Packaged Insolvency Resolution Process
The IBC (Amendment Bill), 2021 introduced an alternative insolvency resolution process specifically designed for Micro, Small and Medium Enterprises (MSMEs) with defaults up to Rs 1 crore, known as the Pre-packaged Insolvency Resolution Process (PIRP).
Challenges and Recommendations
To improve the implementation of the IBC, several issues should be addressed. This includes conducting timely colloquium for judges of NCLT and improving interaction between practitioners across jurisdictions. Higher priority needs to be allocated to applications related to avoidable transactions.
Moreover, frequent adjournments need to be curtailed to facilitate timeliness in the resolution process. Furthermore, it is crucial to inform various government and statutory authorities about the treatment of government and statutory dues under IBC. This can help limit litigation and consequent delays in the resolution of companies undergoing corporate insolvency.
