Ever Stretching IBC-CIRP Timelines And Need For Reform

Time bound process and profit maximization for all the stakeholders were two key objectives behind introducing the Insolvency & Bankruptcy Code, 2016 (IBC). Before introduction of the IBC it took an average of 4.3 years for resolution of distressed assets under the erstwhile schemes. Due to the time taken under the said schemes, value of the assets deteriorated significantly and often reached a position where company’s revival became unviable. 

IBC introduced a strict timeline of 330 days to complete the resolution process. It laid down principles to balance the interest of all stakeholders, keeping the revival of the company and value maximization as the focus. IBC has established a professional process and revamped the underlying philosophy towards treatment of stressed assets, from recovery oriented piecemeal sale to resolution as a going concern. Like any other financial legislation, IBC has also been a continuous work in progress and has gone through multiple amendments to account for the evolving markets, and to integrate learnings from the experiences. 

However, with time the recovery rates for the creditors have fallen from 43% in March 2019 to 32% in September 2023, and time taken for resolution has increased from an average of 324 days to 653 days, as against the 330 days provided in the IBC. It has been observed that from the admission stage to resolution plan approval and implementation stage, the process faces challenges from multiple stakeholders. Often challenges either are due to procedural limitations, or are repetitive in nature, which can be resolved by streamlining the process and making it more efficient. 

Regulation 12 of the CIRP Regulations provides that creditors are required to submit their claim with the resolution professional on or before the last date mentioned in the public announcement, or no later than the 90^th day from the commencement of insolvency proceedings. If any creditor submits its claim after the aforesaid timeline, the resolution professional rejects the claim, leaving the creditor with no choice but to approach the adjudicating authority to seek condonation of delay. This increases the number of litigations and adds an additional layer of complexity in the process. To address this issue, it has been recently proposed by the Bankruptcy Board that this timeline should be extended to 90 days from the insolvency commencement date or up to the date of issue of latest request for resolution plan, whichever is later. The amendment to modify timelines for submissions of the claim may allow increased flexibility to the creditors and may reduce the scope of litigation. However, it can also lead to delay in the resolution process if claims are not received on time, especially when said claims have a potential to change composition of the committee of creditors. Further, from time to time resolution professional herself should file a consolidated application to seek condonation of delay, which will in turn reduce the frequency of applications which require judicial interference.

Similarly, it has been observed that the resolution professionals, while rejecting claim do not give reasons for the rejection, which often leads to protracted litigation by the creditors. Thus, it is proposed that the resolution professionals be mandated to provide reasons for rejection of any claim. This will help the creditor understand the reasoning and make the process more transparent. There has also been a proposal to amend Form H (form in which resolution professional presents resolution plan for approval of the adjudicating authority), to include the minutes of the committee of creditors meeting where feasibility and viability of the resolution plan has been discussed. This will help the adjudicating authority to understand the underlying thought process and reasoning and expedite the approval process. Integration of artificial intelligence for monitoring of compliance and identification of preferential transactions can also help in making the process more efficient. 

One of the stages at which the process often gets stalled is at the resolution plan approval stage due to multiple objections to the resolution plan by various stakeholders. Stakeholders approach adjudicating authority objecting to the resolution plan even before resolution plan is approved by the creditors. Furthermore, often multiple stakeholders approach the adjudicating authority with similar objections. If the resolution plan approval hearing takes place first and all objections are consolidated and heard after the plan approval hearing but before the plan approval order is pronounced, it will expedite the process. It will also reduce the burden on the judiciary and will help in avoiding multiple indulgences on the same issues, without affecting the rights of any stakeholders.

In addition to the above, another reason which often ends up delaying the process is the limited sanctioned member strength for the tribunal and appellate tribunal, lack of expert members, and delay caused in disposal of cases. To tackle these issues, the sanctioned member strength should be increased, members getting appointed to the tribunal should undergo mandatory training, and new methods can be explored for selecting and appointing the members. Further, at the Supreme Court, a dedicated bench should hear the IBC matters on priority. NCLT’s should also have IBC dedicated benches which should take up admission cases on priority. These changes will increase transparency and efficiency, and limit the opportunities for the stakeholders to seek judicial interference. It will reduce litigations at various stages and help in expediting the process. 

The article has been penned down by Soummo Biswas, Partner and Yugal Jain, Principal Associate from Shardul Amarchand Mangaldas & Co.