IBC Bill: Pressure on NCLT benches as 330-day deadline for resolution looms

More than 500 corporate insolvency cases will have less than three months to complete their resolution or face the prospect of liquidating firms as soon as the proposed amendments to the three-year-old Insolvency and Bankruptcy Code (IBC) are passed in Parliament.

Big IBC cases such as those of Amtek Auto, Bhushan Power & Steel, Era Infra Engineering, and Jaypee Infratech have gone well beyond the 270-day deadline set under the IBC to finalise a resolution plan.

Concerned about extensive litigation, causing delays and hampering value maximisation, the corporate affairs ministry has proposed a fresh deadline of 330 days, putting pressure on National Company Law Tribunals (NCLTs) to resolve cases faster.

“It has a signalling effect that the government wants to make the system predictable. Separately, the productivity of NCLT members needs to be improved,” said Pratik Dutta, senior research fellow, Shardul Amarchand Mangaldas & Co.

The proposed amendment, introduced in Parliament on July 24, said the “corporate insolvency resolution process shall mandatorily be completed within a period of 330 days, including any extension... and the time taken in legal proceedings in relation to such resolution process of the corporate debtor”.

There are more than 1,140 ongoing IBC cases, of which 362 have crossed the 270-day limit. For such cases, the IBC Bill, 2019, has proposed completing the resolution process “within a period of 90 days from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019”.

“In many of these cases the committee of creditors (CoC) must have taken the decision of either approving the resolution plans or decided to liquidate the companies. The onus is on the NCLT/National Company Law Appellate Tribunal (NCLAT) or other courts where the case is stuck,” said Manoj Kumar, partner, Corporate Professionals.
 

Another 186 cases are within the zone of 180-270 days, according to the data of the Insolvency and Bankruptcy Board of India. 

“The CoC has to take a decision within 270 days if they have taken an extension from the NCLT and then the NCLT and other regulators and courts must finish litigation within the next 60 days,” Kumar added. 

According to legal experts, the NCLAT will not be authorised to extend resolution beyond 330 days because the deadline has been proposed to be made mandatory in the Act. NCLTs have been asked to accept or reject an insolvency application within 14 days and if they fail to do so, they have to give written reasons for it, according to the IBC (Amendment) Bill.

“The further stipulation of stricter timelines in the proposed manner reinforces the government’s intent on ‘value maximisation’ as against ‘value erosion’, which has recently been observed in a few big-ticket insolvency cases,” said Diwakar Maheshwari, dispute resolution partner, Khaitan & Co. There are 32 judicial members and 17 technical members in NCLTs. 

The Economic Survey this year pointed out while the various Benches of NCLTs and the NCLAT have facilitated the recovery of Rs 1.83 trillion (approximately) under the Corporate Insolvency Resolution Plan till April this year, the NCLT infrastructure requires to be scaled up.