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Corporate Insolvency Resolution Process (CIRP) provides a legal mechanism of recovery for creditors. In the current economic environment in India, where both public and private financial institutions are struggling with bad corporate debts, it is critical to analyse and understand how the courts are enabling implementation of the CIRP in the right spirit and supporting creditors, while ensuring that debtors do not take undue advantage of the process.
What is the time limit for completion of CIRP?
Section 12 of the Insolvency and Bankruptcy Code (IBC) mandates that the CIRP should be completed within 180 days from the date of admission of application to initiate the said process.
As per Regulation 40 of the Insolvency Resolution Process for Corporate Persons Regulations, 2016, the CIRP may be extended by a maximum period of 90 days on the passing of a resolution by the committee of creditors by a vote of 66% of the voting shares.
The Supreme Court in the case of M/s Surendra Trading Company v. M/s Juggilal Kamlapat Jute Mills Company Limited stated that no extension should be given beyond the period of 270 days and the time limit prescribed under Section 12 must be strictly adhered to.
What is the time limit for admission of claims of the creditors?
On reading Section 15 of the IBC with Regulation 12 of the IRP Regulations, it may be inferred that the claims of the creditors must be admitted within the 270 days period required for completion of the CIRP.
In practice, however, many creditors do not submit their claims within the prescribed time period and, as per law, their claims cannot be accepted. Importantly, the courts are mindful of the fact that the IBC is still relatively new and the rights of the creditors to their dues cannot be dismissed so summarily. As a result, they have in a catena of judgements sought to interpret these rules so as to provide relief to the creditors.
Which time periods are excluded by the adjudicating authority from the prescribed time limit?
It has been held in Quinn Logistics India Pvt. Ltd. vs. Mack Soft Tech Pvt. Ltd. and Ors. that the adjudicating authority has discretion to exclude certain specific periods of time from the maximum period of 270 days taken to complete the CIRP process.
These time periods, if excluded, will mean that the CIRP process is not over and additional days will be given to complete it. The claims of the creditors will be accepted in such additional periods as well.
For instance, the following periods may be excluded from the time limit prescribed under Section 12 of the IBC:
- The period for which the CIRP was stayed by a court of law.
- The period for which there was no Resolution Professional present while the CIRP took place.
- The period for which an order was reserved by a court of law while the CIRP took place.
In the case of ArcelorMittal India Private Limited vs. Satish Kumar Gupta and Ors. the Supreme Court has laid down that where a resolution plan is upheld by the Adjudicating Authority, the period of time taken in litigation must also be excluded from the counting of the time taken to complete the CIRP.
The court in this case also mentioned, as a side note, that the Tribunals should not be so stringent about the time taken to complete the CIRP, and must be flexible so as to accommodate the needs of the creditors.
The judges in the case of Vikram Bajaj vs. Committee of Creditors Anil Special Steels Industries Ltd. relied on the Quinn Logistics and Arcelor Mittal judgements and have laid down that any delay taken in approving the Resolution Plan must also be excluded from the CIRP.
Thus, from the aforementioned three judgements, it can be seen that depending on the circumstances, certain periods of time may be excluded from the CIRP process.
Can the claims in the books of accounts be Admitted even after the expiry of time limit?
The IBC lays down that claims of the creditors cannot be accepted after the time limit under Section 12 has expired. However, the judges in the case of Symphony Ltd. v. Chhaparia Industries Pvt. Ltd. and Ors. noted an exception to the said rule.
It was observed that even if the receipt of claims was beyond the statutorily accepted limit, the debt can still be repaid if it is mentioned in the books of accounts of the company undergoing the CIRP.
The court believed that if the claim was already part of the financial records of the insolvent company, i.e., the books of accounts, then the said company is liable to repay those debts irrespective of whether the creditors made a formal claim of the same within the 270 days time period.
It has also been seen in the case of SBI v. ARGL that the IRP even after submission of Resolution Plan and completion of the CIRP has been espoused with the duty to accept and collate more claims. Thus, the time limit is not sacrosanct and can be adjusted.
Why did the Union Cabinet extend the CIRP time limit to 330 days?
The original intent of the lawmakers who drafted the IBC was that the time limit under Section 12 be strictly followed. The reason for such a fixed cap was to ensure that the CIRP process does not get unnecessarily prolonged and that the creditors make a conscious effort to make their claims well in time.
However, they were not able to anticipate that there might be certain hinderances in the CIRP process, which could cause it to get delayed. The courts stepped in and laid down that all such delays must be excluded from the counting of the 270 days time period.
The courts had observed that such time limits cannot be mandatory but only directory. It is indeed essential to ensure speedy disposal of the CIRP, but in the process, the claims of a creditor cannot be ignored.
The makers of the IBC were not happy with the various loopholes in the law and the subsequent interpretations by the courts as it has led to inordinate delays in the completion of the CIRP process. Moreover, according to news reports, more than one-third of the ongoing CIRP cases have exceeded the time limit of 270 days.
Therefore, the Union Cabinet has recently approved a new time limit for the completion of CIRP. This time limit is of 330 days and is inclusive of any delay in litigation and other judicial processes. The aim of the Union Cabinet in making this change is to maintain the sanctity of the timelines and to maximize the outcomes envisioned in the code. The lawmakers clearly seek to ensure speedier resolution of cases involving corporate debtors.
All ongoing cases will be covered under the new amendment. A company could be sent for liquidation, if the resolution process takes more than 330 days. The only thing which now remains to be seen is whether the intent of the drafters gets materialised in the judgments of the courts, or whether the courts find any room for expansive interpretation beyond the intent of the lawmakers.
-This article is brought to you in collaboration with Aryan Vij from National Law Institute University (NLIU), Bhopal.