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Judicial delay and discretion: A contradiction to the legislative intent of IBC 2016

The authors are K Ashmeka and Anjali Nair, final year students at Symbiosis Law School, Pune.


Introduction


One of the many reasons for introducing the new legislation was the failure of the previous enactment to provide redressal in a swift manner, once the Board of Industrial and Financial Reconstruction was entered, the money was never recovered. Insolvency and Bankruptcy Code ("IBC") being enacted based on ten reform committees, aims to bring India to the centre of the International Economic and business savvy stage. In 2019, the code's fast-paced mechanism hit its first pragmatic snag and had to be amended to allow for more judicial discretion. As a result, the time restriction for completion of the Corporate Insolvency Resolution Proceedings (“CIRP”) was increased to 330 days from the former provision of 180 + 90 days in the code. Cases indicate that the expanded time period is still insufficient, and the delay brought in by judicial discretion still prevails, causing the provisions to remain flouted.


Background


Vidarbha Industries Power Ltd v. Axis Bank Ltd: The Landmark Judgement as propounded by the Supreme Court is with regards to the trigger clause for initiating CIRP proceedings under Section 7. The Lacuna in the law was further weakened when the judges mentioned that default is not the trigger clause rather the tribunal ‘may’ not admit applications even after the default exists.


Insolvency and Bankruptcy News – Quarterly Newsletter: The newsletter highlights the issue of vacancies that are faced by the National Company Law Tribunals(“NCLT”). The Tribunals’ functioning is plagued by delays in admission of cases and passing of resolutions by the Tribunal resulting in the pendency of 131710 cases worth over Rs.9,00,000 crores, 71% of which were pending for over 180 days. The article follows to evaluate the number of cases pending and the lack of adequate judges to ease the burden. As of July 12th, 2022, the Government invited applications for 8 judicial members along with 11 technical members.


IBBI proposes amendment in CIRP Regulations, 2016 – Consultation paper on issues related to reducing delays in the CIRP under IBC: The consultation speaks about the various causes of delays involved in the CIRP process. The paper analyses the various sections and the application of the same in court proceedings to trace the delay in the CIRP process followed by recommendations to rectify the same.


Adding mediation to India’s Corporate Resolution Process: The Article views the IBC Code through feminist values and is based on the theory of satisfaction of all the stakeholders involved in the process. Following the same, it suggests following Alternate dispute resolution mechanisms such as mediation that have been adopted in certain countries post the pandemic era.

Report of the Insolvency Law Committee: The committee recommended that the success of alleviating distress be used to gauge the IBC code's effectiveness. The committee argues that the time worth of money must be adequately taken into account and that excessive delays would result if the judiciary were overburdened. The paper went into detail on the mechanisms that should be used to test the IBC code's efficacy.


Research Question “Whether the judicial discretion employed is in line with the legislative intent of the Insolvency and Bankruptcy Code, 2016?”


Critical Analysis


Twin Objective: With the twin objective of the code being time-bound insolvency resolution and value maximisation of assets, IBC aims at promoting entrepreneurship and the availability of credit. The mechanism employed by IBC to achieve expeditious insolvency resolution had, initially, neglected the time taken by judicial discretion. However, the amendment (2019) brought in to rectify the same has still not resolved the issue of such delay.


Lacuna in the Interpretation and Legislative Intent: In the case of Committee of Creditors of Essar Steel Limited v. Satish Kunar Gupta & Ors, the Supreme Court interpreted Sec.12(2) of the code providing an ultimate time limit for the completion of the process which also included the time allotted for litigation. However, the achievement of the same becomes difficult especially when there is a dearth of Judicial authority in the tribunals.


Admission of Application denied when Default was Proved: In the case of Vidarbha Industries Power Ltd. v. Axis Bank, the apex court extended the discretionary power of the NCLT at the admission stage (insolvency application) and held that NCLT must consider any additional grounds that the corporate debtor may raise against such admission. While also enhancing the NCLT's discretionary authority, the judgement lays the path for the entire procedure to take longer than the allotted 330 days. According to research, the admission procedure for applications to start CIRP took 121 days longer than expected, thus failing the vision of the IBC for an expeditious resolution mechanism.


Need for Judicial Discretion: IBC stipulates 330 days to complete the entire procedure, including the time needed for litigation, however, this is not adequately supported by a pragmatic approach. The need for judicial discretion is demonstrated by the case of Jaypee Kensington Boulevard Apartments Welfare Association v. NBCC (India) Ltd. By issuing this ruling, the court classified homebuyers as financial creditors. The insolvency process in this instance, which began in 2017 and ended with a judgement in 2022, demonstrates the need for judicial discretion in some situations.


Problematic approach: However , pursuing such a protracted legal battle would ultimately render the implementation of the new legislation ineffective and identical to the outlawed old one. In order to achieve the goal of corporate debtor revival, the time-bound mechanism envisioned by the IBC is required. The term of 330 days, dismisses and disregards the subjectivities of the cases in front of the Tribunals. This lacunae in accommodative and curative adjudication may be resolved by incorporating the categorization of cases based on the subject matter, economic impact, socio-environmental impact, etc. with appropriately prescribed durations of judicial resolution.


Solutions-Based Approach: An operational model has been implemented by the Woolf Committee in England in the year 1998. The model was part of an overhaul envisioned by the Woolf committee to avert the time and resources litigants invest in resolving a dispute. The final report presented in this regard was later incorporated into the Civil Procedure Code of 1997 and the Civil Procedure Rules of 1998, which are employed by the courts in England and Wales. The model allows for a pliable and complaisant structure of resolution without a rigid Modus operandi. It constitutes a multifaceted array of tools like standardised regulations, pre-litigation examination and subjective case management, thereby ameliorating the effectiveness, accountability, and efficiency of the judicial machinery.


Recommendations


The Authors after analysing various works of literature and understanding the application of the Insolvency and Bankruptcy Code in India would like to recommend the following recommendations for the effective implementation of the code.


1. To address application delays caused by missing documents from the corporate debtor, the proposal suggests establishing specialised committees to admit and approve the required documents. These committees aim to expedite the process by ensuring prompt submission and verification of all necessary documentation, minimising delays in application processing.


2. It is being suggested that the guidelines for the Fast Track Corporate Insolvency Resolution Process be altered. Under the proposed revisions, financial creditors of a corporate debtor may choose and accept a resolution plan through an informal out-of-court process. They would engage with the adjudicating body only in cases where a moratorium is required or in where the plan has received final approval. This alternate technique will be used for Corporate Debtors with a specific asset size that must be established by the Central Government to resolve insolvency.


3. Currently, the pillars of IBC operate on different e-platforms. It is recommended these pillars are unified which will enable regulators and adjudicating authority to exert better control over their various domains of operation. This e-platform must offer a case management system, automated methods for submitting applications to adjudicating authority, notice delivery, the ability for Insolvency Professionals to interact with stakeholders, storage of records of Corporate Debtors undergoing the process, and incentives for other market participants to join the IBC ecosystem.


Conclusion


The IBC should set aside sufficient time that is achievable, and the NCLTs must make sure that the timetables envisioned in the code are carefully followed since delays in either admitting the case or the resolution process would only result in further erosion of asset values. Lastly, it is important to understand that the judiciary needs to balance all stakeholders involved in the resolution process and not providing adequate time to address the concerns of all stakeholders will put a single party into detrimental circumstances. Hence it is concluded that the Judiciary must take into consideration the various reports formulated and set up adequate measures and refer parties to mediation to adequately share the burden of cases piled up before the tribunals.

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