The Supreme Court reaffirmed the IBC's core objective of asset preservation and efficient insolvency resolution through the timely implementation of resolution plans.
In a recent Supreme Court judgment, a bench led by Chief Justice of India D.Y. Chandrachud, along with Justice J.B. Pardiwala and Justice Manoj Misra, underscored the critical importance of the timely implementation of the Resolution Plan under the Insolvency and Bankruptcy Code (IBC), 2016. The Court held that unnecessary delays in executing the Resolution Plan would result in a depreciation of the corporate debtor’s assets, thus thwarting one of the IBC's foundational objectives. This judgment reaffirms that the IBC’s purpose is to resolve insolvencies efficiently, with the Bankruptcy Law Committee of 2015 initially emphasizing the need for expeditious resolutions to preserve asset value and ensure entities could either continue as going concerns or have their assets conserved.
The Court referenced previous rulings, notably Innoventive Industries Ltd. v. ICICI Bank and Another, REEDLAW 2017 SC 08563, where it was established that the IBC aimed to streamline the insolvency process. Further, it highlighted findings from the Insolvency Committee Report, which warned that delays in asserting ownership and management control could lead to a swift decline in asset value. Thus, the Court emphasized that timely management of both the Corporate Insolvency Resolution Process (CIRP) and Resolution Plan execution are essential to prevent value erosion.
The Court also examined the limited authority of Adjudicating Authorities, such as the NCLT and NCLAT, to grant extensions in implementing Resolution Plans. While Rule 15 of the NCLT and NCLAT Rules, 2016, empowers these bodies to extend time limits under certain conditions, the Court cautioned against unexamined or routine extensions. It noted that, while some extensions could support corporate revival, excessive delays might compromise the Resolution Plan’s viability and increase corporate debtor liabilities, ultimately harming creditors.
On the matter of liquidation, the Court considered its plenary powers under Article 142 of the Indian Constitution, referring to Ebix Singapore Private Ltd. v. Committee of Creditors of Educomp Solutions Ltd. REEDLAW 2021 SC 09523, where it ruled that any use of residual powers under Section 60(5)(c) IBC or NCLT’s inherent powers under Rule 11 must align with the IBC’s structure. It further cited Glas Trust Company LLC v. Byju Raveendran and Others, REEDLAW 2024 SC 10545, asserting that deviations from IBC procedures should be rare and justified by exceptional circumstances. In this case, the Court determined that due to prolonged delays, liquidation was necessary to ensure compliance with the IBC’s objective of timely resolutions.
Moreover, the Court clarified the duties and responsibilities of Successful Resolution Applicants (SRAs) and lenders in implementing the Resolution Plan. It ruled that SRAs, upon plan approval, are obligated to execute it, despite possible commercial infeasibility. Courts and tribunals have consistently required SRAs to exhibit resilience and adaptability, thus supporting the IBC’s corporate revival goals. Similarly, lenders must cooperate with SRAs, refraining from obstructing the Resolution Plan’s implementation to protect their own interests.
The Court advised that NCLT and NCLAT should reject repetitive requests by SRAs for modifications to Resolution Plan terms. It highlighted Section 74 of the IBC, which imposes penalties for deliberate contravention of plan terms, with punishments that include imprisonment and fines, reinforcing strict adherence to commitments made under the plan.
Lastly, the Court recommended establishing a Monitoring Committee under the Committee of Creditors (CoC) to oversee the Resolution Plan’s implementation, ensuring that SRAs and other stakeholders cannot abuse the judicial process for unwarranted relief. The proposed Committee, comprising CoC nominees and the Resolution Professional, would be responsible for monitoring, updating authorities, and ensuring compliance with statutory requirements. This proactive measure would enhance the accountability and efficiency of the Resolution Plan implementation, supporting the IBC’s core objective of timely and effective insolvency resolutions.
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