Author name: CBCL

[By Biprojeet Talapatra] The author is a student of Campus Law Centre, University of Delhi. Introduction Economic stability and prosperity in India require an effective insolvency resolution framework. With the enactment of the Insolvency and Bankruptcy Code (IBC) in 2016, India took a significant step in this direction. IBC was the first comprehensive law in India which addressed the insolvency of Corporate Persons and individuals. However, a law must be restructured over time to keep up with the times, therefore in 2019, rules for insolvency resolution and liquidation for individual insolvency were made applicable to personal guarantors (“PG”) to corporate persons. Following that, a distinct framework for pre-packaged insolvency resolution for micro, small, and medium-sized enterprises (“MSMEs”) was launched in April 2021. The Ministry of Corporate Affairs (MCA) has recently released a consultation paper outlining proposed changes to the Insolvency and Bankruptcy Code, 2016. The purpose of these changes is to improve transparency, reduce delays, and ensure efficient decision-making in insolvency proceedings. This article aims to highlight the key changes proposed in the paper.  Key changes proposed in the consultation paper To simplify the insolvency procedure, the MCA advocated the implementation of an E-platform in Insolvency Proceedings.The MCA believes that implementing an e-platform for insolvency proceedings will lead to a more efficient case management system, automated mechanisms for filing applications with Adjudication Authorities (AAs), notice delivery, and allowing Insolvency Professionals (IPs) to interact with stakeholders, among other benefits. By unifying and making information widely accessible, the e-platform will enable improved supervision of regulators and adjudicating authorities. The MCA advocates a greater dependence on data via Information Utilities (IUs), while also taking applications into account. Sections 7 and 9 of the code now provide that, in addition to the record of default kept by the IUs, further evidence can be provided to prove that a default has happened. It has now been recommended that the code should  be revised to allow the Adjudicating Authority to solely consider the default record from the Information Utilities when reviewing applications under sections 7 and 9 of the Code. Section 7 of the Code allows a financial creditor to apply for the commencement of the CIRP in relation to a Corporate Debtor (CD). The Supreme Court interpreted the usage of the word “may” in section 7(5) to mean that the Adjudicating Authority (hereinafter referred as AA) has the authority to accept or refuse the application despite the presence of a default. It is now recommended that an application submitted under Section 7 “shall” be allowed if a default is proved; the AA is only necessary to be satisfied regarding the existence of a default and the fulfilment of procedural requirements for this specific purpose (and nothing more). When a default is formed, the AA is required to allow the application and commence the CIRP. The proposals aim to give more power to the adjudicating authority by allowing mandatory admission of insolvency applications filed by financial creditors (FCs). The draft proposal also proposes a specialized framework for real estate to provide relief to allottees, as well as to broaden the scope of the pre-packaged bankruptcy scheme beyond MSMEs. The ministry also proposed that the 14-day timeframe in section 7 be read to apply exclusively to the ascertainment of default. However, it is also meant to apply to the AA’s decision under section 7(5) to admit or reject the application. As a result, it is proposed that a suitable adjustment be made to clarify the timeline’s application. The MCA has proposed removing the Corporate Debtor’s right to designate an Insolvency Resolution Professional (IRP). The draft proposal recommends that the IRP be appointed by the Adjudicating Authority (AA) based on the IBBI’s recommendations. As a result, this proposal seeks to limit the CD’s ability to propose an IRP.  The AA is now planning to have the power to penalize people who file frivolous or vexatious applications or fail to comply with the terms of the Code or any rules or regulations imposed thereunder. Furthermore, the AA’s minimum punishment for the aforementioned violations should not be less than one lakh rupees per day, with the maximum penalty being three times the damage incurred or illicit gain, whichever is greater. To ensure that corporate debtor promoters comply with their obligations and to prevent them from committing repeated or significant violations, the MCA has considered amending Section 29A of the Code to allow the AA to bar such a promoter from being a resolution applicant and submitting a resolution plan in the CIRP of any CD. During the liquidation process, Section 33 (5) of the Code prohibits the CD from instituting actions or legal processes against it without the permission of the AA. It does not, however, preclude the continuation of any ongoing action or legal procedure after the moratorium imposed during the CIRP is lifted. As a result, it is suggested that Section 33 (5) may be revised to restrict any legal procedures during liquidation, except for those authorized under Section 52. (i.e., Secured creditor in liquidation proceedings). To continue any legal processes involving a CD in liquidation, the AA’s consent should also be necessary. Changes recommended in the requirements for the Pre-Packaged Insolvency Resolution Process The 66 per cent requirement for unrelated FCs might be reduced to 51 per cent. This will allow for faster and more efficient decision-making. The need under section 54C(3)(c) to provide a declaration involving avoidance transactions or unlawful trading is repealed. These transactions are difficult for MSMEs to recognise. Changes in management under section 54J, conversion to CIRP, or liquidation under sections 54O or 54N are to be deleted. The major goal of this suggested adjustment is to ensure that genuine CDs intending to address insolvency through this method are not affected. Proposals for Streamlining the Insolvency Resolution Process The Fast-Track Corporate Insolvency Resolution Process (“FIRP”) is being considered to allow FCs to lead the insolvency resolution procedure for a CD outside of the judicial process while keeping some involvement of the AA to

[By Satwik Mohapatra] The author is a student of National Law University, Odisha. The National Company Law Appellate Tribunal (NCLAT), in Kalinga Allied Industries India v. CoC of Bindals Sponnge Industries Limited (Kalinga Judgment), set aside the order of the National Company Law Tribunal (NCLT). The Tribunal ruled that the Committee of Creditors (CoC) cannot consider the new Resolution Plan outside the scope of Corporate Insolvency Resolution Process (CIRP) and withdraw their approval of the first Resolution Plan. Additionally, a plan that is submitted to NCLT  with  requisite majority is irrevocable and binding between the CoC and the Successful Resolution Applicant (SRA). This judgment sheds light on the unrestricted power of the CoC to make decisions under the ambit of “commercial wisdom” and highlights the need for a standard practice code for the CoC amidst the recent ongoing debate to regulate them. The author  has discussed the facts of the case and analysed tribunal’s verdict in the light of Insolvency Bankruptcy Board of India’s (IBBI) suggestions  Brief Facts An application for the initiation of CIRP was admitted against the Corporate Debtor (CD), Bindals Sponnge Industries Ltd., and Expression of Interest was issued, pursuant to which Kalinga Allied Industries submitted its Resolution Plan. After many discussions, Kalinga Allied Industries submitted a revised Resolution Plan, which obtained the approval of the CoC with the requisite majority. Following which, an application under Section 30(6) of the Insolvency & Bankruptcy Code 2016 (Code) was filed before the NCLT for the approval of the Resolution Plan. During the pendency of the application, Hindustan Coils Ltd., a third-party that was not a part of CIRP, filed an application before the NCLT seeking consideration of the Resolution Plan submitted by them. Their plan offered a value 12% higher than the value offered by Kalinga Allied Industries, the SRA. The NCLT allowed the CoC’s application that sought direction to reconsider the resolution plan of Hindustan Coils or any other entity and approve a suitable plan. The SRA objected to this order and filed an appeal under Section 61 of the Code. Tribunal’s Verdict The Appellate Authority chalked out the issue in question as being whether the CoC, having already consented to a resolution plan, can seek direction to consider a third-party resolution plan that was not part of CIRP and withdraw their approval after more than 2 years. NCLAT had previously directed that an application by a person outside the ambit of CIRP will not be entertained and remanded the matter to the Adjudicating Authority. This was never challenged by the CoC and has since been final. Furthermore, the Appellate Authority rejected the CoC’s argument that their decisions are based on “commercial wisdom” and are therefore non-justiciable and supreme, as stated in K. Sashidhar v. Indian Overseas Bank & Ors., and observed that the issue pertains to NCLT’s authority to direct CoC to consider a resolution plan outside the scope of CIRP and the binding value of the resolution plan. The Appellate Authority relied on the Ebix Singapore Pvt Ltd  v. CoC of Educomp Solutions Ltd & Anr (Ebix Judgment) to answer the first question that NCLT has residuary jurisdiction under Section 60(5). Furthermore, NCLT cannot do what the Code specifically does not give it the power to execute. Moreover, allowing any sort of withdrawal or modification to the Resolution Plan would defeat the objective of the Code and result in unnecessary delay. Furthermore, the NCLAT stated that the effect of the CoC withdrawing an approved revival plan would be similar to the effect of the SRA withdrawing a resolution plan, as specifically discussed in the Ebix Judgement. NCLAT laid down that the current framework of the code lacks any scope for modification or withdrawal of the plan, which has received the requisite majority approval of the CoC. Furthermore, once submitted to the Adjudicating Authority, the resolution plan is binding and irrevocable. Moreover, belated submissions cannot be considered even if they provide for a higher value, as the same would have a detrimental effect on the timelines laid down in the Code as well as the already approved resolution plan. Analysis of Tribunal’s Verdict The precedent that had been set by the Ebix Judgment was that a Resolution Plan that has been presented before the Adjudicating Authority and received majority approval cannot be withdrawn from consideration  by the SRA. The apex court held that such withdrawal is not only not permitted under the framework of the Code but also defeats the time bound objective of the code. The Kalinga Judgment acts as an extension to the Ebix Judgment by holding that a Resolution Plan that has received the assent of the CoC cannot be withdrawn after it has been presented to the Adjudicating Authority, as the same has binding value. Withdrawal of the plan by the CoC would have the same consequences as those discussed by the Apex Court. As has been laid down in Gujarat Urja Vikas Nigam Limited v. Amit Gupta, a delay in the completion of the insolvency proceedings diminishes the value of the debtor’s assets and hampers the prospects of a successful reorganization. Therefore, CIRP cannot be allowed to continue for an indefinite period. Moreover, the withdrawal of the plan submitted to the Authority with the necessary requirements would result in another level of negotiations. The decision of CoC to withdraw its approval will not just affect the SRA but other stakeholders too. The purpose of an insolvency resolution process is to collectively address the claims of all stakeholders including secured and unsecured creditors, employees, other claimholders, etc. For instance, in the insolvency resolution of a big conglomerate with thousands of workmen depending on the company for their wages, such workmen and their dues would be delayed and would result in them being in a disadvantageous position due to unnecessary delays in approving the resolution plan. Apart from timely approving the resolution plan, the CoC is also tasked with the revival of the CD as a going concern. Being in the driver’s seat,

[By Prakriti Singh] The author is a student of Hidayatullah National Law University.   Introduction The Insolvency and Bankruptcy Code, 2016 was enacted to provide a speedy debt resolution mechanism and ensure value maximization of assets. The Code has provided legal recognition to the fact that business failures are normal and there should be effective remedies to rescue the Corporate Debtor. The Code brought an end to the prior existing defaulters’ paradise in India, introduced the Corporate Insolvency Resolution Process (CIRP) which provides a sound procedure for different stages from admission of default to the approval of resolution plan. The Code has brought a regime which prevents judicial intervention in commercial decisions, empowers the stakeholders and entrusts a duty upon the adjudicating authorities to uphold the spirit and procedural sanctity of the Code. The adjudicating authority is required to ensure that the Resolution Plan approved by the CoC is consistent with Section 30(2) of the Code. The Commercial Wisdom of the CoC is paramount in the CIRP. The judiciary itself has circumscribed its role in the CIRP and held that the CoC has the financial expertise to take financial decisions. However, it is the role of the adjudicating authority to ensure balance between stakeholders. The CoC, in exercise of its commercial wisdom, cannot waive off the obligations and statutory liabilities of the Corporate Debtor. In the case of Employees’ Provident Fund Organisation v. Dommeti Surya Rama Krishna Saibaba, (EPFO case) the Chennai Bench of NCLAT has set a dangerous precedent for the exercise of commercial wisdom of CoC. It refused to interfere with the approval of a Resolution Plan, which did not provide for the full payment of PF dues. This ruling failed to take note of the Jet Airways case and Rainbow Papers case. Through this article, the author intends to analyze the reasoning and impact of the recent ruling. Case Summary The Appellant was affected by the order of the Adjudicating Authority, wherein the Resolution Plan was approved on the grounds that the Resolution Plan is compliant with the procedure laid down under the Code and does not violate any provision. The Appellant challenged the order and contended that the Corporate Debtor failed to pay the ‘Employees’ Provident Fund’ (EPF) dues. The Adjudicating Authority had expressed satisfaction with the Resolution Plan. However, the exclusion of EPF dues is in contravention of Section 36 (4) (a) (iii) of the code, which prescribes that the sums owed to employee fund, including provident fund (PF) shall be excluded from the Liquidation Estate of the Corporate Debtor. Due to the approval of the Resolution Plan, the Corporate Debtor has got a waiver on the amount due to the Employees. The Appellate Authority dismissed the Appeal. It took note of the Apex Court ruling in Arun Kumar Jagatramka v. Jindal Steel and Power Limited and Another and held that the fulfilment of the objectives of the Code requires that the intervention of judiciary is kept at the minimum level. The NCLAT took note of the ruling in Vallal RCK v. M/s. Siva Industries and Holdings Limited and Others, that the CoC has the expertise to take the decisions in the CIRP and hence, circumscribing the intervention by judiciary and the authorities is justified.  Since the Adjudicating Authority was satisfied that the Resolution Plan does not contravene any provision of the Code, the Appellate Authority will not interfere in the commercial wisdom of CoC. Unsettling the Jurisprudence The Appellate Authority, in its ruling, referred to previous ruling under the Code giving paramount status to the CoC. However, it failed to take note of rulings which dealt with the payment of PF dues by a Corporate Debtor undergoing CIRP. In Jet Aircraft Maintenance Engineers Welfare Association v. Ashish Chhawchharia Resolution Professional of Jet Airways (India) (Jet Airways case), the Appellant had approached the Appellate Authority on similar grounds. Although the Resolution Professional failed to make complete payment of the PF and gratuity dues, the Adjudicating Authority had approved the Resolution Plan. The rationale behind excluding the gratuity and PF dues from the liquidation estate of the Corporate Debtor is that even in case of the insolvency of the Corporate Debtor, the interests of the workmen shall be safeguarded. The CIRP cannot be a medium to escape the obligations under labour laws. Although the Respondent contended that the Commercial Wisdom of the CoC cannot be subjected to judicial review, the Appellate Authority set up a remarkable precedent by scrutinizing the Resolution Plan and ensuring that the same does not contravene the Code. In K. Sashidhar v. Indian Overseas Bank, the Apex Court stressed upon the need to minimize judicial intervention to achieve a speedy resolution. Even in Committee of Creditors of Essar Steel India Limited Through Authorised Signatory v. Satish Kumar Gupta, the Apex Court had held circumscribing the role of Adjudicating Authority to be crucial for the Code. In Kalpraj Dharamrishi v. Kotak Investment Advisors Ltd, it was held that although the role of the Adjudicating Authority is minimal, it is bound to ensure that the procedure and spirit of the Code is upheld. In Jet Airways Case, the Appellate Authority balanced the Commercial Wisdom with its function of ensuring procedural compliance. Regulation 38(1A) of CIRP Regulations and Section 30(2) of the Code cannot be compromised due to the decisions taken in exercise of Commercial Wisdom of the CoC. As there was a statutory obligation upon the Corporate Debtor, the claim of PF dues made by the workmen were to be accepted. The Successful Resolution Applicant is bound to make the payment of the balance amount of PF. As the PF is excluded from the Liquidation Estate, the workmen are entitled to full payment of the same. The Adjudicating Authority must fulfill its role in the CIRP. Anything more or less than that would throw a spanner in the CIRP. Another case with similar facts, Tourism Finance Corporation of India v. Rainbow Papers Ltd was not referred to in the present ruling. In the Rainbow