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Fresh IBC suspension till March 2021 may put brakes on stressed asset insolvency resolution process
Suspension of fresh proceedings under the insolvency law as well as the NCLT and the appellate tribunal switching to virtual hearings due to the coronavirus pandemic seem to have put the brakes on the pace of resolution process for stressed assets and realisation for creditors.
To provide relief for entities impacted by the pandemic, the government has suspended fresh proceedings under the Insolvency and Bankruptcy Code (IBC) starting from 25 March 2020, when the nationwide lockdown was imposed to curb spreading of coronavirus infections. The suspension has been extended till March 2021.
While the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) are conducting virtual hearings with a new set of standard operating procedures, experts are of the opinion that the pandemic has caused an overall slowdown in the resolution process.
For most part of 2020, both the NCLT and the NCLAT functioned without a full time President or Chairperson, respectively. Besides, the need for more benches and adequate number of judicial and technical members along with presiding officers was also felt. A recent report said that creditors may realise just Rs 60,000-65,000 crore in the current fiscal through successful resolution plans under the IBC compared to about Rs one lakh crore realised in 2019-20, which will be a decline of around 40 per cent.
Legal experts have apprehensions that once fresh filings resume under the IBC, the NCLT and the NCLAT would witness a substantive jump in the number of fresh cases of default. The system needs to be ready to face the expected wave, there could be a tremendous rush. The tribunals would have to prioritise urgent matters for hearing given their present strength. Moreover, the number of benches should be increased and vacancies should be immediately filled after retirements. There may be taken up more urgent matters and some would be taken up later but unless there is increase in the number all over the place, it would be difficult to handle if there is a gap of a year-and-a-half of the non-filings and with pandemic leading to further insolvencies.
In 2020, the NCLAT did not get a regular Chairperson after Justice S. J. Mukhopadhaya retired on 15 March 2020. In October, the government had again extended the tenure of Justice B L Bhat as the officiating Chairperson of the NCLAT till the end of this year. Moreover, judicial functioning of the appellate tribunal was disrupted several times as some of its staff and members tested positive for coronavirus. The situation had also caught the attention of Supreme Court, which asked the NCLAT to find a way on how to resume online hearing while its functioning remains suspended and observed "the doors of justice cannot be closed".
The NCLAT passed more than 1,050 judgements this year in matters related to the IBC, Companies Act and Competition Act, as per its website. In 2021, the appellate tribunal is expected to pass orders on several ongoing insolvency matters such as those related to Bhushan Power & Steel, Jaypee Infratech and IL&FS.
This year, the NCLAT passed several key judgements, including setting aside the government's plea to supersede the board of 63 Moons Technologies and dismissing pleas of auditors in a case related to alleged fraud at IL&FS group firm IFIN. Among other matters, the appellate tribunal gave conditional go-ahead to NBCC for buying Jaypee Infratech under the IBC, upheld Adani group firm's takeover of Dighi Port and set aside some resolution plans.
The NCLAT also held that successful resolution applicants cannot be permitted to withdraw their offer. In another matter, it ruled that insolvency proceedings cannot be initiated once the debt is converted into capital. In an unprecedented move, a three-member NCLAT bench, in September, 2020, said a previous judgement passed by a five-member bench related to deciding the time frame for initiating insolvency proceedings against a company, was "contrary to settled law" and referred it for reconsideration. However, the five-member bench of the NCLAT turned down the reference terming it as "misadventure", "inappropriate" and crossing the red line.
Meanwhile, the NCLT—which has its principal bench in the national capital and fourteen other benches across the country—approved resolution for 78 corporate debtors as on 30 September 2020, according to data from the Insolvency and Bankruptcy Board of India (IBBI).