In recent times, there have been multiple instances of delay in completion of the corporate insolvency resolution process (“CIRP”) as per the timelines prescribed under the Insolvency and Bankruptcy Code, 2016 (“Code”). This is primarily due to the filing of multiple legal proceedings by stakeholders, and their long continuing pendency.
The case of Reliance Communications Limited (“RComm”) exemplifies this issue. The National Company Law Tribunal (“NCLT”) admitted the petition against RComm by its order dated May 15, 2018, this therefore being the insolvency commencement date (“ICD”). The order of the NCLT was however stayed in appeal by the National Company Law Appellate Tribunal (“NCLAT”) by its order dated May 30, 2018. The stay came to be vacated 11 months later, on April 30, 2019.
Section 12 of the Code provides timelines for the completion of the CIRP within a period of 180 days extendible to a maximum of 270 days from the ICD. In the RComm case, even the maximum period of 270 days for completing CIRP (commencing from May 15, 2018) had sufficiently expired. Due to the order of stay passed by the NCLT, the CIRP was not conducted.
This resulted in an application before the NCLT, seeking exclusion of the period of stay for the purpose of calculating the 180 / 270 days CIRP period. The NCLT allowed this application.
Such is an instance where pendency of legal proceedings (appeal proceedings before the NCLAT) has disrupted the timelines for completing the CIRP.
In order to address situations such as the foregoing, the Code has been amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2019 (“Amendment Act”) to mandatorily restrict the time period within which the CIRP shall be completed. A proviso to sub-Section 3 of Section 12 has been inserted to state that the CIRP shall mandatorily be completed within a period of 330 days from the ICD, including any extension of the period of CIRP and the time taken in legal proceedings in relation to such CIRP.
While the above amendment seeks to impose strict timelines for the completion of the CIRP, there is still ambiguity as to what exactly completion of the CIRP means or entails. Does completion of the CIRP also entail the approval of a resolution plan by the NCLT, or does it mean that the CIRP is completed upon approval of the resolution plan by the committee of creditors (“COC”)?
Prior to the amendment, an application for approval of the resolution plan could have been filed even on the last day (i.e. 180th / 270th day as the case may be), which means that the CIRP stood completed upon approval of the resolution plan by the COC. This may be inferred from Section 23 of the Code, which provides that the resolution professional shall continue to manage the operations of the corporate debtor, after the CIRP period, until an order is passed by the NCLT for either approval or rejection of the resolution plan – indicating thereby that the proceedings for seeking approval of a resolution plan before the NCLT can continue after, and is not considered a part of, the completion of the CIRP.
Similarly, Section 33 of the Code provides that the NCLT shall pass an order of liquidation, if before the expiry of the maximum period permitted for completion of the CIRP under Section 12 of the Code (i.e. 180 / 270 days as the case may be), a resolution plan is not received. This further bolsters the view that the CIRP is completed upon approval of the resolution plan by the COC.
Crucially, Sections 23 and 33 have not been amended by the Amendment Act. In light of the same, whether the maximum period of 330 days for “completion of CIRP” includes the time that the NCLT may take for approval of a resolution plan, as it is a “legal proceeding” in relation to CIRP under the newly added proviso, requires close examination. In the affirmative, the NCLT may hypothetically be required to approve or reject a resolution plan on the same day as its filing for e.g. the 330th day.
Another related question that arises is whether the usage of the term “mandatorily” in the proviso applies to the NCLT, and thus requires it to approve or reject a resolution plan before the expiry of 330 days from the ICD. This appears to oppose the general principle that unless expressly stated otherwise, statutory provisions which limit the time within which a public authority must perform a duty are directory in nature.
The question of when CIRP is completed also arises from a viewpoint of the moratorium provision. Section 14 of the Code provides that the moratorium shall have effect up to the completion of CIRP. If CIRP is completed upon approval of the resolution plan by the COC, which appears to be the position upon reading Sections 23 and 33, is it open for creditors, pending NCLT’s approval of the plan, to initiate or continue with proceedings for recovery? Though technically affirmative, the same appears to conflict with the object and purpose of the Code and could render a potential resolution plan redundant.