Top court also stressed the need of "time-bound" disposal of corporate insolvency resolution process
The Supreme Court on Thursday said the time taken up by litigations during the corporate insolvency resolution process has to be excluded from the mandatory limit of 270 days in case company law tribunals uphold the plan to revive a debt-ridden company.
The top court, in an important ruling, also stressed the need of "time-bound" disposal of corporate insolvency resolution process saying it would not only support the development of "credit markets and encourage entrepreneurship, but would also improve ease of doing business and facilitate more investment, leading to higher economic growth and development".
A reasonable and balanced construction of this statute (the Insolvency and Bankruptcy Code) would "therefore lead to the result that, where a resolution plan is upheld by the Appellate Authority, either by way of allowing or dismissing an appeal before it, the period of time taken in litigation (in NCLT and NCLAT) ought to be excluded", said a bench of Justices R F Nariman and Indu Malhotra.
It dealt with several provisions of the Insolvency and Bankruptcy Code (IBC) and said that the timeline of 270 days to complete the resolution process of a corporate debtor firm should be ordinarily adhered to.
The observation came in a verdict in which it granted one more opportunity to steel and mining major ArcelorMittal and Russia's VTB Bank-promoted NuMetal to bid for Essar Steel, provided the two pay off the non-performing assets (NPAs) of their related corporate debtors within two weeks.
"The Code was passed after great deliberation and pursuant to various Committee Reports," it said, adding that "the existing framework for insolvency and bankruptcy was not only inadequate and ineffective, but resulted in undue delays in resolution".
The bench set out as to how corporate insolvency resolution process would work from inception to the last step and dealt with IBC provisions which require that either the corporate debtor be taken over by another management and run as a going concern or, if that failed, go into liquidation.
It said the time consumed in NCLT and NCLAT should not harm the litigants, but there was a need to strike a balance.
"Given the fact that both the NCLT and NCLAT are to decide matters arising under the Code as soon as possible, we cannot shut our eyes to the fact that a large volume of litigation has now to be handled by both the aforesaid Tribunals," it said.
"What happens in a case where the NCLT or the NCLAT decide a matter arising out of Section 31 of the Code beyond the time limit of 180 days or the extended time limit of 270 days? …the act of the Court shall harm no man…," it said.
The only reasonable construction of the Code is the balance to be maintained between timely completion of the corporate insolvency resolution process, and the corporate debtor otherwise being put into liquidation, it said.
"We must not forget that the corporate debtor consists of several employees and workmen whose daily bread is dependent on the outcome of the corporate insolvency resolution process", it said, adding that if there is a resolution applicant who can continue to run the corporate debtor as a going concern, every effort must be made to try and see that this is made possible.