Death of the company not the goal of IBC, NCLAT Chairperson SJ Mukhopadhaya

A vibrant crowd of lawyers and judges convened on Saturday to attend a seminar on the theme Insolvency and Bankruptcy Code (IBC) – Emerging Trends, organised by the Bar Council of Tamil Nadu and Puducherry. Chairperson of the National Company Law Appellate Tribunal (NCLAT), SJ Mukhopadhaya was the special guest for the event..Apart from addressing the audience, Justice Mukhopadhaya also answered questions from the audience..Advocates need to engage in the Capacity Building process required by the IBC regime.The purpose of the seminar, said Senior Advocate E Omprakash in his introductory address, was to carry out a capacity building exercise. He pointed out that in order to implement the IBC, substantial capacity building is required. He said that it would be a substantial achievement if advocates also equip themselves as part of the capacity building process..“…as advocates what is the role you can play in this capacity building? If you are equipping yourself more towards this, that is the biggest achievement…”.He commented that at present most Resolution Professionals are Chartered Accountants, Cost Accounts or Company Secretaries. Insolvency Professional Agencies who train Resolution Professionals are registered are also run by such persons. He added that the Tamil Nadu Bar Council sought to create a platform to initiate the process of capacity building for advocates with the seminar..Infrastructural support necessary for the success of IBC.Advocate General for Tamil Nadu Vijay Narayan commented that the Government should invest in massive infrastructure to provide for more courts and staff to ensure that the bodies under the IBC regime do not suffer the same fate as the Debt Recovery Tribunal (DRT). He said,.“The main challenge is that the IBC and the NCLT and the NCLAT should not get stuck in the same situation that the DRT got stuck in. [When] a case comes before NCLT, there is a strict time limit…everything has to happen within a particular time. But lawyers, being what they are, they argue for hours together. And judges only have so much time… cases are bound to pile up before the NCLT and the NCLAT, thus leading to some kind of stagnation and delay ….Therefore, I think that the government should invest in massive infrastructure in making sure that the code succeeds by providing for more courts, more judges and all the support staff that are necessary for the implementation of the Act.”.The changed dynamic of Creditor and Debtor under the IBC.In his keynote address, Justice S Manikumar pointed out that the Code creates multiple bodies and multiple professionals to facilitate the process, unlike any other enactment. He proceeded to highlight that the Code provides a comprehensive mechanism that involves all stakeholders..He also commented that the IBC has brought about a change in dynamics between a creditor and a debtor.“… We always treat him [debtor].. as a person who doesn’t have any rights..But now the process has slightly changed because, in the process of insolvency resolution, there is always a chance for the protected company to be revived… this process certainly helps in the realisation of the money as well as the restructuring of the company.”.The goal of IBC is not death of the company.NCLAT Chairperson and former Supreme Court judge, SJ Mukhopadhaya emphasised in his special address that when it comes to the IBC, the goal is not the death of the company. Rather, it is the revival of the company. Creative metaphors deriving inspiration from the animal kingdom and Hindu epics were also used to drive home this message..“Who is the Vishnu [in the scheme of the IBC]?” he queried. He went on to explain..“The adjudicating officer is the Vishnu… He will trigger [the insolvency process] not for killing but for rendering [the sick company] senseless…”.Following the triggering, Brahma steps in, he went on to explain..“Who is the Brahma? He is the Resolution Professional who will collate all the claims and then create the human being. Who is the human being that would be created? – A Committee of Creditors – of Financial Creditors [and] in the absence of Financial Creditors, Operational Creditors..Now this human being will go for operation.”.Continuing with his analogy, he said that while the human being (the creditors) undergoes the operation (the resolution process), Vishnu (the adjudicating authority) will go into a yoga nidra of 180 days, during which time he is not to be disturbed..As for the operation process, Justice Mukhopadhaya commented that the aim is to keep the body (the company) intact, while removing the “bad soul” and substituting it with the good soul i.e. through a change in management..The process would involve discerning whether it is viable to keep the company running, keeping in mind the maximisation of assets and balancing the interests of all the stakeholders. The resolution plan formed following this process is then presented to the adjudicating officer, who is left to decide whether to accept the resolution plan to keep the company alive or to order it to be liquidated..Before he concluded his address, Justice Mukhopadhaya also endorsed the establishment of a permanent Bench of the NCLAT at Chennai..In her speech, Justice Anita Sumanth lauded the Bar Council for having organised the seminar, particularly given the tremendous evolution that has taken place under the IBC regime. Alluding to Justice Mukhopadhaya’s elaborate metaphor, she also pointed out that God Shiva did not feature in the analogy. This, she explained, was because Shiva is attuned to destroy what is bad, whereas the IBC regime prioritises revival..On the conflict between High Courts and Company Law Tribunals.Justice Mukhopadhaya also addressed concerns over the conflicting orders of the High Court and the Company Law tribunals, after Additional Advocate General Arvindh Pandian briefly highlighted the issue. In the backdrop of the Mahendra Kumar Khandelwal case, the AAG asked,.“A Constitutional court vis-a-vis a statutory tribunal – how are we to envisage? If the adjudicating authority does not follow the NCLAT’s order, it is in contempt. But if it follows the NCLAT order, it is in contempt of the High Court.”.In response, Justice Mukhopadhaya emphasised that the High Court is bound to follow the law. He said,.“If the law says that appeal goes to the appellate tribunals and the Supreme Court, the High Court cannot say, ‘I have power’ and not act in accordance with the law.”.Need to focus on the long-term benefits of the IBC regime.Among other features of the IBC regime highlighted by Advocate Sumant Batra in his address, he spoke of how unsecured creditors are also given a voice in the insolvency process now. He pointed out that this feature impacts access to credit in significant ways..“This is a very mature, in fact almost a fundamental shift, that has a bearing on how access to credit develops in a free market economy. If those lenders who lend money without any collateral do not have any voice in the insolvency process… they would always be reluctant to lend, or the price of the lending would be so high so as to mitigate the risk. As a result, the cost of credit also goes up in the market.“.Advocate Batra is the President of the Society for Insolvency Practitioners of India. He also cautioned against overestimating the benefits of the IBC regime in the short run..“I also am sometimes a bit concerned that we are creating an overhype about all this [the short term benefits of the IBC]. What we have ended up doing, is in a way created a trap for ourselves by raising the bar so high… about the impact and result, that this law is showing that today our expectations … are almost unrealistic in nature..… When it comes to the micro [level], yes results are there. You have some cases resolved. You will have some corrections in the market, even including behavioural changes.”.He went on to add that,.“Resolution is a long term subject…. One should not get microscopic about the number of cases that have been resolved… or how many recoveries have been made….… there are lots of macro benefits which one will only see two or three years down the line. And that’s where the real test of a mature economy lies.”.In his valedictory address, Justice R Subramanian emphasised that there must be a “sustained cooperation between the promoters, the Resolution Professionals and the creditors… to put this law to work.”.Among others, Justice (retired) M Venugopal, Justices N Kirubakaran and Abdul Quddhose of the Madras High Court and BSV Prakash Kumar, Judicial Member of the National Company Law Tribunal were also present for the seminar..Bar & Bench is available on WhatsApp. For real-time updates on stories, Click here to subscribe to our WhatsApp.