The Supreme Court on Thursday said that the Jet Airways case has been an eye-opener which has brought to light deficiencies in the Insolvency and Bankruptcy Code (IBC) which need to be addressed.
Hence, the Bench of Chief Justice of India (CJI) Chandrachud and comprising Justices JB Pardiwala and Manoj Misra suggested reforms to the IBC with respect to timelines, guidance to the Committee of Creditors (CoC) and constitution of a monitoring committee.
"This litigation is an eye opener for one and all and therefore, before we close this matter, we deem it absolutely necessary to bring to light certain deficiencies in the IBC, 2016 which require immediate attention," the judgment said.
The Court made the following suggestions while ordering the liquidation of defunct airline Jet Airways as per IBC.
Oversight committee for CoC
The judgment touched upon the importance of the commercial wisdom of CoC and how scope for judicial review of the decisions of the CoC are narrow.
The CoC is tasked with approving or rejecting resolution plans by organisations that are interested in reviving a company under insolvency.
On August 6, Insolvency and Bankruptcy Board of India (IBBI) had released guidelines for the CoC to carry out this task.
To ensure that these guidelines are implemented effectively, the Court urged the IIBBI and the Central Government to form an oversight committee.
"This will enable the guidelines to achieve some level of practical and operational relevance and also prevent any significant lapse in decision making on the part of the CoC," the Bench stated.
NCLTs, NCLAT should be strict on SRAs
The Court also highlighted the importance of timely implementation of the resolution plan, emphasising that it is a collaborative process that involves the cooperation of various stakeholders including the lenders.
"The IBC, 2016 is silent as regards the phase of implementation of the Resolution Plan by the Successful Resolution Applicant. This is mostly due to the fact that each Resolution Plan might be unique and customized to the specific needs of the Corporate Debtor and an excessive amount of statutory control over the implementation of the (resolution) plan may prove to be counterproductive to the cause of the Corporate Debtor," the judgment stated.
However, it noted that the Successful Resolution Applicants (SRAs) repeatedly approach the National Company Law Tribunals (NCLTs) or the NCLAT seeking relaxation in complying with the terms of the plan.
The judgment noted that NCLTs and NCLATs also end up giving such extensions.
The Court deprecated this practice.
"It is suggested that the authorities including the NCLT and NCLAT must not aid the successful resolution applicants in circumventing the strict mandates of the law by acceding to their requests to relax the terms of the plan itself."
NCLT should guide stakeholders
The Court suggested that the NCLT, while approving a resolution plan under Section 31 of the IBC, should record the next steps which are to be taken by the parties for commencement of implementation of the approved the plan.
"This will ensure that the parties are ad idem about the next round of their obligations that each of them is required to discharge under the approved Resolution Plan and that they do not delay the implementation by initiating any further litigation on this aspect," the Court opined.
IBC should provide for monitoring committee
The judgment said that the IBC should statutorily provide for the constitution of a monitoring committee once the plan has been approved, for a smooth handover of the corporate debtor to the successful resolution applicant.
"Presently, such a provision is absent in the Code and it is the Adjudicating Authority that orders for the constitution of a monitoring committee to ensure smooth implementation of the plan," the Court noted.
The Court said that CoC must be empowered to constitute the monitoring committee which may, by default, include the resolution professional and also include other nominees from the CoC and the resolution applicant respectively.
"Such a monitoring committee would be entrusted with the powers of monitoring and supervising the resolution plan till the expiry of the term of the resolution plan. The committee shall also be required to ensure all statutory compliances during the implementation of the plan along with updating the adjudicating authorities, financial and other creditors about the status of implementation of the resolution plan, on a quarterly basis," the Court suggested.
The Court directed its registry to forward a copy of the judgment to the principal secretary of Union Ministry of Finance and the chairperson pf IBBI with a request to look into the suggestions made by the Court.
The Supreme Court in its judgment ordered the liquidation of defunct airline Jet Airways as per the Insolvency and Bankruptcy Code (IBC).
The lenders were represented by Additional Solicitor General Venkatraman along with advocates Sanjay Kapur, Devesh Dubey, Divya Singh Pundir, and Arjun Bhatia.
Jalan Kalrock Consortium was represented by Senior Advocates Mukul Rohatgi and Gopal Sankaranarayanan and advocates Debmalya Banerjee, and Kartik Bhatnagar from law firm Karanjawala & Co.
[Read Judgment]