EXTENSION, EXCLUSION & WITHDRAWAL OF CORPORATE INSOLVENCY RESOLUTION PROCESS (CIRP) UNDER THE INSOLVENCY AND BANKRUPTCY CODE, 2016

Bankruptcy Law Reforms Committee had observed that speed is of essence of the Code. Delay in insolvency proceedings leads to destruction of value of Corporate Debtor and increases the chances of liquidation of the Corporate Debtor. Section 12 provides timeline for completion of Corporate Insolvency Resolution Process, which is as under:

12. Time-limit for completion of insolvency resolution process. –

(1) Subject to sub-section (2), the corporate insolvency resolution process shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process.

(2) The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of [sixty-six] per cent. of the voting shares.

(3) On receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied that the subject matter of the case is such that corporate insolvency resolution process cannot be completed within one hundred and eighty days, it may by order extend the duration of such process beyond one hundred and eighty days by such further period as it thinks fit, but not exceeding ninety days:

 Provided that any extension of the period of corporate insolvency resolution process under this section shall not be granted more than once:

 Provided further that the corporate insolvency resolution process shall mandatorily be completed within a period of three hundred and thirty days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this section and the time taken in legal proceedings in relation to such resolution process of the corporate debtor:

 Provided also that where the insolvency resolution process of a corporate debtor is pending and has not been completed within the period referred to in the second proviso, such resolution process shall be completed within a period of ninety days from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019.

The Corporate Insolvency Resolution Process has to be completed within a period of one hundred and eighty days from the date of admission of application to initiate such process. If Committee of Creditors passes a resolution with sixty six percent majority, the Resolution Professional can file an application to the Adjudicating Authority for extension of CIRP by 90 days. Such extension can only be availed once.

Vide Insolvency and Bankruptcy Code (Amendment) Act, 2019, a proviso was inserted to the effect that CIRP has to be mandatorily completed within a period of three hundred and thirty days from insolvency commencement date including any extension of the period of CIRP granted under this section and the time taken in the legal proceedings.

The said amendment was challenged before the Supreme Court in Essar Steel India Ltd¹. The Supreme Court has struck down the word “mandatorily” in the said amendment. Relevant para is as under:

Both these judgments have been followed in Neeraj Kumar Sainy v. State of Uttar Pradesh (2017) 14 SCC 136 at paragraphs 29 and 32. Given the fact that the time taken in legal proceedings cannot possibly harm a litigant if the Tribunal itself cannot take up the litigant’s case within the requisite period for no fault of the litigant, a provision which mandatorily requires the CIRP to end by a certain date – without any exception thereto – may well be an excessive interference with a litigant’s fundamental right to non-arbitrary treatment under Article 14 and an excessive, arbitrary and therefore unreasonable restriction on a litigant’s fundamental right to carry on business under Article 19(1)(g) of the Constitution of India. This being the case, we would ordinarily have struck down the provision in its entirety. However, that would then throw the baby out with the bath water, inasmuch as the time taken in legal proceedings is certainly an   important factor which causes delay, and which has made previous statutory experiments fail as we have seen from Madras Petrochem (supra). Thus, while leaving the provision otherwise intact, we strike down the word “mandatorily” as being manifestly arbitrary under Article 14 of the Constitution of India and as being an excessive and unreasonable restriction on the litigant’s right to carry on business under Article 19(1)(g) of the Constitution. The effect of this declaration is that ordinarily the time taken in relation to the corporate resolution process of the Corporate Debtor must be completed within the outer limit of 330 days from the insolvency commencement date, including extensions and the time taken in legal proceedings. However, on the facts of a given case, if it can be shown to the Adjudicating Authority and/or Appellate Tribunal under the Code that only a short period is left for completion of the insolvency resolution process beyond 330 days, and that it would be in the interest of all stakeholders that the Corporate Debtor be put back on its feet instead of being sent into liquidation and that the time taken in legal proceedings is largely due to factors owing to which the fault cannot be ascribed to the litigants before the Adjudicating Authority and/or Appellate Tribunal, the delay or a large part thereof being attributable to the tardy process of the Adjudicating Authority and/or the Appellate Tribunal itself, it may be open in such cases for the Adjudicating Authority and/or Appellate  Tribunal to extend time beyond 330 days. Likewise, even under the newly added proviso to Section 12, if by reason of all the aforesaid factors the grace period of 90 days from the date of commencement of the Amending Act of 2019 is exceeded, there again a discretion can be exercised by the Adjudicating Authority and/or Appellate Tribunal to further extend time keeping the aforesaid parameters in mind. It is only in such exceptional cases that time can be extended, the general rule being that 330 days is the outer limit within which resolution of the stressed assets of the Corporate Debtor must take place beyond which the Corporate Debtor is to be driven into liquidation.  

EXCLUSION OF PERIOD FROM CIRP

Provision of extension of application is available under Section 12 of the Code but there is no provision in the Code regarding exclusion of the period from the timeline of CIRP. There are circumstances like COVID 19 pandemic, litigation etc.  which are beyond the control of the Resolution Professional and in such circumstances, it will be unfair to push the Corporate Debtor to liquidation. 

NCLAT in Quinn Logistics India Pvt. Ltd² has held that for justified reasons it is always open for the Adjudicating Authority to exclude certain period. The Relevant para is as under:

9. From the decisions aforesaid, it is clear that if an application is filed by the ‘Resolution Professional’ or the ‘Committee of Creditors’ or ‘any aggrieved person’ for justified reasons, it is always open to the Adjudicating Authority/Appellate Tribunal to ‘exclude certain period’ for the purpose of counting the total period of 270 days, if the facts and circumstances justify exclusion, in unforeseen circumstances.

10. For example, for following good grounds and unforeseen circumstances, the intervening period can be excluded for counting of the total period of 270 days of resolution process:

1. If the Corporate Insolvency Resolution Process is stayed by ‘a court of law or the Adjudicating Authority or the Appellate Tribunal or the Hon’ble Supreme Court.
2. If no ‘Resolution Professional’ is functioning for one or other reason during the Corporate Insolvency Resolution Process, such as removal.
3. The period between the date of order of admission/moratorium is passed and the actual date on which the ‘Resolution Professional’ takes charge for completing the Corporate Insolvency Resolution Process.
4. On hearing a case, if order is reserved by the Adjudicating Authority or the Appellate Tribunal or the Hon’ble Supreme Court and finally pass order enabling the ‘Resolution Professional’ to complete the Corporate Insolvency Resolution Process.
5.  If the Corporate Insolvency Resolution Process is set aside by the Appellate Tribunal or order of the Appellate Tribunal is reversed by the Hon’ble Supreme Court and Corporate Insolvency Resolution Process is restored.
6. Any other circumstances which justify exclusion of certain period.

The NCLAT concurred with the judgment in Quinn Logistics of Hon’ble NCLAT in Sandip Chandana³ and also highlighted the difference between the “extension” of CIRP period and “exclusion” of CIRP period.

WITHDRAWAL OF APPLICATION ADMITTED

In the original code there were no provision for withdrawal of application, which has admitted under Section 7, 9 or 10.  In many cases after filing of application before the Adjudicating Authority, there used to be settlement between the parties despite that parties were not able to file application for withdrawal of application. The Supreme Court had to utilise its power under Article 142 of the constitution to approve settlement reached by the parties. The Supreme Court in Ultra Foods & Feeds Pvt. Ltd.⁴ recommended for amendment of relevant rules:

In an earlier order dated 24.07.2017, this Bench had observed that in view of Rule 8 of the I & B (Application to Adjudicating Authority) Rules, 2016, the National Company Law Appellate Tribunal prima facie could not avail of the inherent powers recogonised by Rule 11 of the National Law Appellate Tribunal Rules, 2016 to allow a compromise to take effect after admission of the insolvency petition. We are of the view that instead of all such orders coming to the Supreme Court as only the Supreme Court may utilise its 2 powers under Article 142 of the Constitution of India, the relevant Rules be amended by the competent authority so as to include such inherent powers. This will obviate unnecessary appeals being filed before this Court in matters where such agreement has been reached.

Section 12A was inserted in the Code vide IBC (Second Amendment) Act, 2018 with effect from 6^th June, 2018.  Section 12A is reproduced as under:

12A. Withdrawal of application admitted under section 7, 9 or 10. – The Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent. voting share of the Committee of Creditors, in such manner as may be specified.

After the said amendment, an application admitted under Section 7, Section 9, or Section 10 by the Adjudicating Authority can be withdrawn with approval of ninety percent voting share of the Committee of Creditors. Application for withdrawal can be made at any time during Corporate Insolvency Resolution Process.

CIRP Regulation 30A provides procedure of filing withdrawal application.

An application for withdrawal under Section 12 A may be made to the Adjudicating Authority before the constitution of Committee of Creditors by the applicant through the Interim Resolution Professional and after the constitution of Committee of Creditors through the Interim Resolution Professional or Resolution Professional as the case may be. In cases where the application is made after the issue of invitation for expression of interest, the applicant has to state the reasons justifying withdrawal after issue of such invitation.

The application for withdrawal has to be made in Form FA of CIRP Regulations.

In cases where application is being filed before the constitution of Committee of Creditors, such application has to be accompanied by bank guarantee towards estimated expense incurred on or by the Interim Resolution Professional for purposes of Regulation 33 till the date of filing of the application.  In such cases the Resolution Professional has to file application before the Adjudicating Authority within three days of receipt of application.

If application is being filed after the constitution of Committee of Creditors, such application has to be accompanied by a bank guarantee towards estimated expenses incurred under CIRP Regulation 31 (aa), (ab), (c), and (d). The Committee of Creditors has to consider the application within seven days of receipt. Where application is approved by Committee of Creditors with 90 percent of voting share, Resolution Professional has to file such application within three days.

The Adjudicating Authority by order may approve application by an order. In cases, where the application is approved, the applicant has to deposit an amount towards the actual expenses   incurred till the approval by the Adjudicating Authority determined by Interim Resolution Professional or Resolution Professional within three days of such approval in the bank account of the Corporate Debtor, failing which the bank guarantee submitted by the applicant will be invoked without prejudice to any other action permissible against the applicant under the Code.

In Vallal RCK⁵, the Supreme Court has held that if Committee of Creditors has taken a decision to withdraw the Insolvency Proceedings, the NCLT or NCLAT cannot sit in appeal over the commercial wisdom of Committee of Creditors.

24.When 90% and more of the creditors, in their wisdom after due deliberations, find that it will be in the interest of all the stakeholders to permit settlement and withdraw CIRP, in our view, the Adjudicating Authority or the appellate authority cannot sit in an appeal over the commercial wisdom of CoC. The interference would be warranted only when the Adjudicating Authority or the appellate authority finds the decision of the CoC to be wholly capricious, arbitrary, irrational and de hors the provisions of the status or the Rules.

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1. Committee of Creditors in Essar Steel India Ltd Vs. Satish Kumar Gupta; Civil Appeal No. 8766-67 of 2019

2. Quinn Logistics India Pvt. Ltd. Vs. Mack Soft Tech Pvt. Ltd.; Company Appeal (AT) (Insolvency) No. 185 of 2018

3.Indiabulls Housing Finance Ltd. Vs. Sandeep Chandna; Company Appeal (AT) (Insolvency) 619/2021

4. Ultra Foods & Feeds Pvt. Ltd. Vs. Mona Pharmachem; Civil Appeal No. 18520/2017

5.Vallal RCK Vs. Siva Industries and Holding Ltd. & Ors; Civil Appeal No. 1811-1812/2022