The provisions of the Insolvency and Bankruptcy Code, 2016 (“IBCode, 2016”) casts onerous responsibilities and timelines for various activities under the Corporate Insolvency Resolution Process (“CIRP”) and Liquidation process. IBCode, 2016 specifies completion of CIRP activities within 180 days or extended period of 270 days or 330 days in appropriate cases. Aside this Adjudicating Authority (NCLT) generally allows exclusion of periods as per facts of the case.
The recent lockdown and disruption of business activities in India and globally due to anticipated spread and rise of novel corona virus cases i.e COVID-19 cases have posed a strict challenge for completing the CIRP and Liquidation activities and filing various proceedings before NCLT, NCLAT and Courts.
Recently, the Hon’ble Supreme Court of India, in terms of the order dated 23rd March, 2020, has extended the period of limitation for proceedings before all Courts/ Tribunals in India with effect from March 15th, 2020 till further order(s) of the Apex Court in Suo Moto Writ Petition (Civil) No(s).03/2020.
Addressing the difficulties in complying the various activities which is required to be completed within the timelines prescribed in the CIRP, the Insolvency and Bankruptcy Board of India (“IBBI”) on March 29th, 2020, has amended the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”) by inserting Regulation 40C which states that “Notwithstanding the time-lines contained in these regulations, but subject to the provisions in the Code, the period of lockdown imposed by the Central Government in the wake of COVID-19 outbreak shall not be counted for the purposes of the time-line for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process.”
The IBBI affirmed that subject to the overall time limit provided in the IBCode, 2016, the period of lockdown imposed by the Central Government in the wake of the Covid-19 outbreak, shall not be counted for the purpose of the timeline for any activity that could not be completed due to the nationwide lockdown, in relation to the CIRP.
The new regulation has come into effect from March 29th, 2020 due to which the stakeholders may get the breathing period till the period of lockdown imposed by the Central Government.
“It is a welcoming course of action taken by the Board (IBBI) by promptly sorting out the key issue of breaching the timelines for various activities during the CIRP and other issues faced by the Resolution Professional and stakeholders during the lockdown period which may facilitate for the efficient and meaningful resolution of the Corporate Debtor and taking the “Resolution Process” to its logical conclusion” said Pankaj Jain, Partner at Veda Legal.
Adding for clarity, after the amendment notification was passed by the IBBI, the National Company Law Appellate Tribunal (NCLAT) vide its order dated March 30, 2020 has taken a suo moto cognizance of the hardships being faced by various stakeholders in order to comply with various provisions and to adhere to the prescribed timelines under IB Code2016 due to the unprecedented situation arising out of the spread of Covid-19 virus. NCLAT in exercise of powers conferred by Rule 11 of National Company Law Appellate Tribunal Rules, 2016 r/w the decision of this Appellate Tribunal rendered in “Quinn Logistics India Pvt. Ltd. vs. Mack Soft Tech Pvt. Ltd. in Company Appeal (AT) (Insolvency) No.185 of 2018” wherein the court has opined that the intervening period can be excluded for counting of the total period of 270 days of the resolution process if the CIRP is stayed by a court of law or the Adjudicating Authority or the Appellate Tribunal or the Hon’ble Supreme Court.
However, the IBBI Chairperson M.S. Sahoo told the Press Trust of India (PTI) that the flexibility is subject to the overall time limit available under the Code. It is pertinent to state that there is a deadline of 330 days to finalise the resolution process, including litigation and other judicial processes. Failing which, the company will have to go to liquidation as inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2019 (Amendment Act), w.e.f. 16.08.2019, under a proviso to Section 12 to cap the CIRP time limit mandatorily 330 days. He further clarified that there is no change to the timelines given in the Code but the amendment is just the relaxation of timeline given in the Regulations.
Also the plain reading of the text is even referring to exclude the time for the purposes of timeline of any activity that could be completed during such lockdown which are prescribed under Regulation 40A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and other CIRP Regulations.
The order of the Hon’ble NCLAT may obviate and mitigate the hardships in adhering to the timelines as prescribed under Regulation 40A along with other CIRP regulations but now the question that arises is whether the Hon’ble NCLT has the power to extend the time limit even beyond the period of prescribed 330 days during the lockdown period. It is expected that IBBI may bring in separate notification for relaxing timelines for liquidation process.
“It appears that the IBBI press release dated 29.03.2020 deals with a part of the issue with regards to the timelines prescribed in the Regulations but restricts it to outer limits/timelines provided of 180/270/330 days in the IBCode, 2016 which is now addressed by the Hon’ble NCLAT in their order dated 30.03.2020 by allowing the exclusion of period during which the lockdown enforced by Central of Local Government, remained in force and CIRP process was disrupted.” said by Mr. Jain.
The Hon’ble Supreme Court of India in the matter of Essar Steel has provided to extend the time limit as prescribed under the IBCode, 2016 under the “exceptional circumstances” which empowers the Hon’ble NCLAT to extend the prescribed time limit of 330 days in the light of Essar judgment taking into consideration the time limit during the lockdown period due to Covid-19 outbreak and by considering the present scenario as the exceptional circumstance.
Overall, the Hon’ble Supreme Court & NCLAT orders and IBBI notification has granted the much needed reliefs to all concerned stakeholders in the CIRP/ Liquidation process against their concerns on limitation period and timebound compliances under IBCode, 2016 and thus remove hardships and need for too many individual application for timelines extension/ exclusion orders.
It appears that the financial distress due to COVID-19 would bring in wide spread default in payment of debts to the creditors and thus rise in CIRP cases going forward. Hence, the Government is also evaluating on deferring the initiation of CIRP under section 7, 9 or 10 of the IBCode, 2016 for a period of 6 months to give breathing time to the industry which is suffering the financial distress from COVID-19 and had already increased the cap for minimum default limit from Rs 1 lakh to Rs 1 Crore for triggering CIRP considering the interest of MSME sector.