The Matter of Time under the Insolvency and Bankruptcy Code

Bar & Bench July 30 2018
Insolvency and Bankruptcy Code

By Harini Subramani

In a recent judgment, while upholding the legislative mandate for a time-bound completion of the insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (Code), the National Company Law Appellate Tribunal (NCLAT) has allowed some “free play in the joints”, by permitting the time spent to be excluded on matters which are beyond the control of parties.

India’s overburdened judicial system and its tryst with timelines, has been an unhappy one. This begs the question, must the timeline for the completion of an insolvency resolution process under S.12 of the Code be cast in stone?

The answers to this question on the timeline were rife with unpredictability, which did not augur well for an infant insolvency law that is labeled by many as a ‘game changer’.

Section 12 of the Code provides that the corporate insolvency resolution process (CIRP) shall be completed within a period of 180 days from the date of admission of the application. The adjudicating authority is empowered to extend the 180-day timeline by a further period “not exceeding” 90 days if it is satisfied that the nature of the case warrants an extension.

According to the World Bank, it takes an average of 4.3 years for completion of a CIRP (perhaps an optimistic timeline in itself). The Minister of Corporate Affairs, Mr. Arun Jaitley, had expressed the hope that the mandatory timelines under the Code would not go the path of CPC or the Civil Procedure Code, 1908.

Under the CPC, timelines have been held by Courts to be directory and not mandatory meaning courts have the flexibility to extend prescribed timelines which has contributed partly, to the endemic delays that plague expeditious resolution of civil cases.

There was an unpredictable approach in jurisprudence between the adjudication authority and the appellate body in the interpretation of Section 12 of the Code. Allowing the adjudicating authority to tinker with timelines under the Code without articulation of the compelling circumstances in which they may do so, is fraught with risks of setting at naught the Code’s core purpose of a speedy resolution of insolvency cases.

The issue of the timeline was highlighted early on as a passing reference/obiter, by the NCLAT, in the matter of JK Jute Mills Co. Ltd. vs Surendra Trading Co., in May 2017. NCLAT had referred to the 270-day (180+90) period provided under the Code as being mandatory in nature, and also observed that time was the essence of the Code, noting the ripple effect of non-compliance on section 33 (relating to liquidation) of the Code. NCLAT had not elaborated further on this observation. This was in fact, noticed by the Supreme Court too, when the same matter was taken on appeal In September that year, wherein the bench noted that the limit of 180 days “starts from the date of admission of the application”. This was reiterated by the Apex Court in the matter of Macquarie Bank Limited vs Shilpi Cable Technologies Limited. 

REVIVAL VS EXTENSION

Earlier this year, NCLT, Mumbai, while examining S.12 of the Code, had distinguished between ‘revival’ and ‘extension’ of an application. On appeal, NCLAT in its decision in the matter of Quantum Limited Vs. Indus Finance Corporation Limited and in the case of Amar Remedies Limited vs IDBI Bank Limited & Ors. in February and in March, respectively, set aside the order of NCLT, Mumbai.

NCLT, Mumbai, had ruled in both cases, that the applications under S.3 before the adjudicating authority were filed after the expiry of the timeline prescribed under the Code (i.e., applications were filed after the completion of the 180 day period). It would, therefore, be ultra vires to ‘revive’ the CIRP (meaning to say that the 270-day period had expired and applications filed outside of it was defined as a ‘revival’) and an extension was out of question due to the time when the applications were filed (as the application was not filed within the 270-day period).

Setting aside both these orders, NCLAT justified that the duty of the adjudicating authority was to extend the period “to find out whether a suitable resolution plan is to be approved instead of going for liquidation, which is the last recourse on failure of resolution process” and enlarged the period by another 90 days starting from the date of its order. The NCLAT further observed that NCLT had neither the subject matter nor the performance of the committee of creditors/insolvency professional were considered. 

EXCLUSION OF TIME PERIOD

The NCLAT’s ruling in Quinn Logistics India Private Limited vs Mack Soft Tech Private Limited in its order dated May 8, 2018, lends much-needed clarity. It “excludes” time periods from the 270-day ambit in the circumstances elaborated below, which is perhaps a divergence of sorts from NCLAT’s own order of last year (Re Quantum Limited and Amar Remedies).

The exceptions carved out in the Quinn Logistics case to extend the time period include:

  1. if the resolution process is stayed by the adjudicating authority, NCLAT or the Supreme Court;
  2. in case of lack of functioning of a resolution professional;
  3. the period between the admission of insolvency application and the actual date from which the resolution professional takes charge of the matter;
  4. when an order is reserved by the adjudicating authority, NCLAT or the Supreme Court;
  5. when the NCLAT sets aside the corporate insolvency resolution process or when its decision is reversed by the Supreme Court.
  6. any other situation that would justify the exclusion of a certain period from the 270 days count.

NCLAT’s order in Quinn Logistics (supra) provides selective instances including leaving the door open for exercise of discretion of facts, for when there can be a relaxation of the timeline under s.12 of the Code.

The NCLT benches of Kolkata and Chennai have, between the months of March and May this year, also deliberated on the subject matter of this article. While NCLT Kolkata has, in the case of RBL Bank Limited vs MBL Infrastructure Limited, categorically laid down that it cannot extend the timeline, but can ‘exclude’ the timelines, non-exclusion of which would cause severe prejudice to the applicant, NCLT Chennai (in Shah Brothers Ispat Private Limited vs Diamond Engineering Chennai Private Limited and S.Rajendran Vs NOCL) has excluded certain periods by extending the timeline. Whether the reasons for extension fall into any of the categories above, is unclear.

Exclusion appears to be a recent invention of the judiciary. Of course, to stand the test of time, each case must be weighed according to the facts circumstances, and in the interest of stakeholders.

The author would like to thank Advocate Pawan Jhabakh for his valuable insights on the topic.