SC Has Stated That NCLT/NCLAT Must Follow IBC Timelines Precisely; Delays Cause Economic Uncertainty

NAME OF THE CASE AND CORAM

• NAME: Ebix Singapore Private Limited vs. Committee of Creditors of Educomp Solutions
• CORAM: Justices DY Chandrachud and MR Shah
• CITATION: LL 2021 SC 447

KEY TAKEAWAYS

• The failure of the insolvency procedure in place before the IBC is largely due to judicial delays.
• Excessive delays cause economic uncertainty, lower the value of the Corporate Debtor, and make the bankruptcy process more prohibitively expensive.

CASE BACKGROUND

• In Ebix Singapore Private Limited vs. Committee of Creditors of Educomp Solutions Limited, the Bench made the following observations: "NCLT cannot authorize modifications or withdrawals of CoC-approved Resolution Plans at the behest of the successful Resolution Applicant once the plan has been given to it."
• The court made the observation that the resolution applicants' allegation that the NCLT's unreasonable delay in approving the Resolution Plan, together with the emergence of the COVID-19 pandemic, had a significant impact on it. They argued that the Plan's withdrawal is justified because of the Plan's significant and excessive delay, as defined by Section 12 of the IBC. In one of the situations, it was claimed that the permit application had been languishing before the NCLT for 17 months, far longer than the RFRP and Resolution Plan had anticipated.
• The court stated that one of the important explanations for the catastrophic failure of the insolvency regime in place before the IBC was the judicial delays.
• The Court stated that Section 12 of the IBC imposes a time limit of 180 days for the fulfillment of the CIRP, which can be increased up to 330 days.

CASE RELEVANCE

• The Supreme Court ordered the NCLT/NCLAT, the adjudicating and appellate bodies under the Insolvency and Bankruptcy Code, to closely follow the IBC's schedules and clear pending resolution plans as soon as possible.
• According to the court, excessive delays create commercial uncertainty, reduces the value of the Corporate Debtor, and make the bankruptcy procedure cumbersome and costly.
• As a result of the precedent set in the Essar Steel case, it has become important to note that Section 12's sub-section (3) compels the CIRP procedure, including judicial processes, to be finished within 330 days. The three-hundred-and-thirty-day limit can only be extended in extraordinary situations, such as when the process is nearly finished and meets the IBC's purpose, according to the ruling.

Hope you enjoyed reading this. You may now be able to answer the following questions, let us know in the comments section

• Was it right to stop NCLT permitting modifications or withdrawals of CoC-approved Resolution Plans?
• Are judicial delays really responsible for the failure of the insolvency procedure in place before the IBC?