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  • Siddharth Jain, Sandeep Golani

Insolvency and Bankruptcy (Amendment) Bill 2019: Exigencies of Service

[Siddharth Jain and Sandeep Golani are students at National Law University, Odisha.]

On 1 August 2019, Parliament passed the Insolvency and Bankruptcy (Amendment) Bill 2019 (Bill). The Bill concerns itself with the specific provisions of the Insolvency and Bankruptcy Code 2016 (Code) that seem to be surrounded by dark waters and offers eight much-needed amendments in the principal code. In light of the same, this article scratches the surface to understand the origin of such lacunae and the consequences and reasonableness of few of the major amendments.

Time period for completion of corporate insolvency resolution process (CIRP)

“A deadline for completion of CIRP within an overall limit of 330 days, including litigation and other judicial processes.”

This amendment has pressed the time sensitive essence of the Code yet again. It propounds an all-inclusive time span of 330 days as against the 180 days’ period prescribed initially (with an extension of 90 days).

This was largely arising out of the muddle which the courts had created regarding the nature of the 90 days’ extension and the inability of the institutions to make the process reach the tail end within the specified time. The Code, by way of Section 33, specifically proffers liquidation as a consequence of non-completion of the resolution process within the established time frame. Yet, statistics confirms that by 2018, 238 cases witnessed a lapse of the 270 days’ time period without a resolution plan reflecting common consent. Additionally, 158 cases in the same year had completed the 180 days’ period and had requested utilization of the 90 days’ extension.

It was finally in M/s J. K. Jute Mills Company Limited v. M/s Surendra Trading Company that the National Company Law Appellate Tribunal (NCLAT) declared the 180 days’ time period (or 270 days) as mandatory, not directory. However, the directive was not taken well by the other National Company Law Tribunals (NCLTs). Notably, soon after the above-mentioned judgment was rendered, the NCLT in the case of M/s Rave Scans Private Limited ordered the creditors-committee to reconsider the plan even after the 270 days’ period, thereby going even beyond the extended time and bringing the debate right to square one.

In this light, the amendment is acknowledged with a green light as it reminds the audience that the subject of focus for the entire Code is not only time sensitivity, but also resolutions in the interest of justice. It is an established fact that, if extensions were not to be granted, established companies would be pushed for liquidation which would ultimately result in bitter bargain. Consequently, the extension aims at maximizing the value of assets so as to cater to every stakeholder’s interests.

Stake of financial and operational creditors in minority

“A specific provision that financial creditors who have not voted in favor of the resolution plan and operational creditors shall receive at least the amount that would have been received by them if the amount to be distributed under the resolution plan had been distributed in accordance with section 53 of the Code.”

Here, it is pertinent to note the waterfall mechanism as enshrined under Section 53 of the Code:

"(a) the insolvency resolution process costs and the liquidation costs paid in full;

(b) the following debts which shall rank equally between and among the following:

(i) workmen's dues for a period of twenty-four months preceding the liquidation commencement date; and

(ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52;

(c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date;

(d) financial debts owed to unsecured creditors;

(e) the following dues shall rank equally between and among the following: —

(i) any amount due to the Central Government and the State Government;

(ii) debts owed to a secured creditor;

(f) any remaining debts and dues;

(g) preference shareholders, if any;

(h) equity shareholders or partners, as the case may be.”

The amendment comes to the limelight after the blatant discrimination confronted by operational creditors in Standard Chartered Bank v. Satish Kumar Gupta, R.P. of Essar Steel Limited and Others (Satish Kumar). In this case, the NCLAT divided operational creditors into two slabs viz. a) creditors having debts more than INR 1 crore and those having debts less than the same. While the former got their dues, the later received negligible amounts against their debts. Simply put, the tribunal did not cater to the interests of operational creditors and ignored the fact that it is the financial creditors who decide the asset distribution in accordance with Section 53 of the Code under the veil of the committee of creditors.

In this light, the amendment is a welcome step for operational creditors as now they can at least get their claims under Section 53 of the Code if they are not satisfied with the proposed resolution plan. The amendment is expected to bring parity between financial and operational creditors and buries away the infamous tussle between such creditors.

Binding nature of resolution plan on government creditors

“[T]he plan shall be binding on all stakeholders including the Central Government, any State Government or local authority to whom a debt in respect of the payment of dues may be owed.”

Section 31 of the Code provides that the resolution plan shall be binding “on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders”. Though the Code contemplates the existence of two kinds of creditors- financial and operational, it does not create a separate category in the name of government creditors.

The issue regarding such creditors was first raised in the case of Pr. Director General of Income Tax (Admn. & TPS) v. M/s. Synergies Dooray Automotive Limited and Others. Here, the NCLAT was exposed to a situation where a government body, already a financial creditor to the company, demanded tax dues after the resolution plan was sanctioned. The issue which the NCLAT encountered was whether the government entities could demand dues in dual capacity- (i) through the resolution plan as financial creditors; and (ii) outside the resolution plan while discharging governmental functions. The NCLAT decided that tax dues are covered under the ambit of ‘operational debts’. Consequently, such operational creditors shall receive the debt only by way of resolution plan, not outside it.

Though the case temporarily cleared the air regarding their claims, it rang the bell apropos of the need to bring clarification, by way of codification, with regard to the position of governmental entities which offer credit. Ergo, this provision was sought to be inserted with the intent to not only bind the government entities by the resolution plan but also to prevent them from making separate claims for tax dues after the resolution plan is approved and sanctioned.

Escalation in the powers of the committee of creditors

“Inclusion of commercial consideration in the manner of distribution proposed in resolution plan, within the powers of the Committee of Creditors.”

Under the Code, all the decisions regarding corporate insolvency resolution process are taken by the committee of creditors. The committee comprises all financial creditors of a corporate debtor. The tasks of such committee include but are not limited to approval or rejection of resolution plan, liquidation of corporate debtor and seeking information from the resolution professional.

Examining the case of Satish Kumar from a different view, it was apparent that the NCLAT treated financial and operational creditors at par by providing for a recovery of 60.70% claims of such creditors. Treating such creditors at par violates the waterfall mechanism of asset distribution as enshrined under Section 53 of the Code. Thus, it was imperative that financial and operational creditors are treated as per their priority in the mechanism. It was to ensure this that additional powers were given to the committee of creditors.

The proposed amendment clears the air around the payment of stakeholders’ debts. It restores the hierarchy prescribed in Section 53 of the Code and reiterates the stance that operational and financial creditors must not be treated at par. Besides, as the Code does not provide any specifications with regard to the distribution of assets to creditors other than financial and operational creditors, such power acts as a North Star to the committee of creditors.


Giving due consideration to the surrounding facts and circumstances, it is expected that the amendment would clear the roadblocks surrounding the corporate insolvency resolution process by way of additional powers to the committee of creditors and the binding effect of the resolution plan over government creditors. Additionally, the changes are expected to lead to timely admission of applications and provide greater clarity on permissibility of corporate restructuring schemes, manner of distribution of amounts amongst financial and operational creditors and rights and duties of authorized representatives of voters.


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