A Critical Analysis of the Corporate Insolvency Resolution Process under IBC, 2016 with reference to the role of an Insolvency Resolution Professional.
By Meenakshi Singh and Arava Jerush Priyatham
The agenda behind enacting the Insolvency and Bankruptcy Code 2016 has been a twofold one. The former being the creation of a uniform Code that replaces the applicability of various overlapping legislations on insolvency & bankruptcy such as the Sick Industrial Companies (special provision) Act, 1985, SARFAESI Act, 2002, The Recovery of Debts due to Banks & financial institutions Act, 1993, Companies Act, 1956 as well as Companies Act, 2013.
To comprehend the latter, one needs to look into the circumstances prevalent before and at the time of passing of the Code. India faced a severe deficit of capital due to which it became a sine qua non to ensure that sick companies and bankrupt individuals do not cause a further drain of the country’s already scarce capital.  In 2016, it took approximately 4.3 years for an insolvency resolution process to conclude in India as compared to a meagre 1.7 years in the OECD countries. More stupefying was the fact that for every Dollar of credit provided by a secured creditor in India to an insolvent firm, only 25.7 cents could be recovered while in the OECD countries, close to 72.3 cents was recoverable. It was therefore no surprise that India ranked a deplorable 136 out of 189 countries in the “Insolvency resolution” category as per the World Bank’s Doing Business Report 2016. All these reasons contributed towards the enactment of the Insolvency & Bankruptcy Code, 2016.
The Code provides for the creation of modern institutional set ups that would facilitate the speedy and effective resolution of Corporate insolvency. One of these institutional set ups is the formulation of the post of an Insolvency Resolution Professional (RP). An RP is a licensed officer who is assigned the task of managing the entire insolvency and bankruptcy resolution process. An RP is regulated by Insolvency Professional Agencies (IPAs). Further, the Code also provides for the establishment of Information Utilities (IUs) that will serve as a database of financial information of various companies to facilitate insolvency resolution. Information Utilities will enable the bridging of information asymmetries during the corporate insolvency Resolution Process.  The setting up of potent adjudicatory authorities (AA) that look into the Insolvency & Bankruptcy cases is an important function of the IBC, 2016. Under the Code, the adjudication of insolvency resolution of companies, limited liability partnerships and other body corporates is carried out by the National Company Law Tribunal (NCLT). Appeals from NCLT go to the National Company Law Appellate Tribunal (NCLAT). Adjudication of insolvency resolution for individuals and unlimited liability partnership firms is carried out by The Debt Recovery Tribunal (DRT). Appeals from the DRT go to the Debt Recovery Appellate Tribunal (DRAT). Finally, the Insolvency and Bankruptcy Board of India (IBBI) will serve as the regulatory body in charge of performing legislative, executive and quasi-judicial functions relating to the Insolvency Resolution Professionals and the Information Utilities.
Objective 1:To give a brief description of the tasks to be carried out by an Insolvency Resolution Professional.
As per Section 3(19) of the Insolvency & Bankruptcy Code, an “insolvency professional” means a person enrolled with an Insolvency Professional Agency as its member and registered with the Board as an Insolvency Professional under Section 207.
An insolvency resolution professional carries out the tasks of a resolution professional for individuals, partnership firms and corporate persons, of a Bankruptcy Trustee for individuals and partnership firms, and that of a Liquidator for corporate persons.
First of all, the process of Insolvency Resolution is initiated with the filing of an application before the Adjudicating Authority for Insolvency either by the operational creditor or the corporate debtor under Sections 9 and 10 of the Insolvency & Bankruptcy Code respectively. Along with such an application, the name of an interim resolution professional (IRP) may also be proposed by the corporate debtor or financial creditor. If such a name is not proposed then the Adjudicating authority seeks a recommendation of the IBBI to be given within 10 days for appointment of an IRP. As per Section 13, an IRP shall be appointed by the Adjudicating Authority within 14 days of commencement of the insolvency process by following the procedure laid down in Section 16. The tenure of an IRP shall be 30 days from the date of his appointment. The duties and the tasks to be carried out by an IRP is mentioned from Section 17 – 21 of the Code. An IRP carries out the affairs of the corporate debtor and in that process, all the powers of the board of directors are vested in him.The corporate debtor is stripped of all his powers and these are in turn handed over to the Interim Resolution Professional.
The IRP determines the financial position of the corporate debtor by collecting all information pertaining to assets, liabilities, finances & operations. The IRP then constitutes the Committee of Creditors & manages the operations of the corporate debtor till a resolution professional is appointed. Meanwhile, all the information that an IRP collects is supposed to be filed with the Information Utility. The IRP is supposed to make all efforts to continue the management of operations of corporate debtor as a going concern thereby protecting the assets of the corporate debtor to a maximum possible extent. The interim Resolution Professional shall be paid his dues by the committee of creditors. The fees paid is in consonance with the work done by him.
As per Section 22, in the first meeting of the committee of creditors, the decision whether to continue the IRP as the Resolution Professional or to appoint a new Resolution Professional shall be taken and the same shall be informed to the IRP, the Adjudicating Authority and the corporate debtor.
The resolution professional then prepares an information memorandum consisting of pertinent information as prescribed by the IBBI for formulating an insolvency resolution plan. It is the duty of the Resolution Professional to submit this information memorandum to the committee of creditors within two weeks of his appointment and before the expiry of the fifty fourth day from the date of inception of the insolvency.The Resolution professional’s most important job is to submit the creditors consented resolution plan to the Adjudicating Authority at least fifteen days before the maximum period for completion of corporate insolvency resolution process under section 12. As per Section 208(2)(a) of the Insolvency & Bankruptcy Code, an insolvency professional is required to carry out his duties such as that of incurring expenses by exercising due diligence and reasonable care.
The appointment of an IRP is proven to significantly diminish the losses undergone by the businesses of the corporate debtors. For instance, the Assam Company India Ltd.’s loss reduced from INR 224,700,000 a year to INR 213,800,000 for the June quarter of 2017.
Objective 2: To address the conflicting stance taken up by the Code & the judiciary regarding time frame of concluding the CIRP & the need to bring about uniformity.
Section 12 of the Insolvency and Bankruptcy Code, 2016 says that the Corporate insolvency Resolution Process (CIRP) shall be completed in a period of one hundred and eighty days from the date on which the application for initiation of the CIRP was admitted by the adjudicating authority. However, in situations where the adjudicating authority is of the opinion that the CIRP cannot be concluded in one hundred and eighty days then post an application made to it by the resolution professional regarding the same, an additional time frame which does not extend beyond ninety days can be granted for wrapping up the process. The RP can make an application requesting the extension to the adjudicating authority only if he has been directed to do so once a resolution has been passed to that effect in the meeting of the committee of creditors by a vote of seventy – five percent of voting shares. The adjudicating authority is not at liberty to grant such an extension to the IRP more than once.
The extension of up to 90 days needs to be given by the adjudicating authority only on the request made by the creditors and that too post the recording of a satisfactory reasoning. However, these days, such extensions have become easily available and can be granted on mere asking for it.
Section 33 of the Code mentions the consequences of noncompliance with the provisions of Section 12. If before the expiration of the period mentioned under Section 12, an insolvency resolution plan as mentioned under Section 30 is not received by the adjudicatory authority, or if the resolution plan submitted does not comply with the requirements mentioned in the Code as per Section 31, then the adjudicatory authority can give orders to liquidate the corporate debtor in the manner provided in the Code. Notifications of such orders are also given to the authority under which the corporate debtor is registered such as the Registrar of companies (ROC). Public announcements regarding the same are also made.
In the case of M/s J. K. Jute Mills Company Limited vs. M/s Surendra Trading Company the NCLAT had held that the time period of 180 days (or 270 days in the case of extension), within which the CIRP must be completed has to be mandatorily followed and is not merely directory in nature.
In the case of M/s Rave Scans Private Limited, the committee of creditors by a creditor representing 35% of the voting rights as provided in Section 21 of the Insolvency & Bankruptcy Code, 2016 had declined the resolution plan presented by the Insolvency Resolution Professional without specifying valid reasons for it. The resolution plan had provided for a sum of INR 51 Crore whereas the liquidation value of the Company was just INR 36 Crore. The 270-day period allocated for CIRP had already lapsed but in order to uphold the larger interests of the general public and to meet the comprehensive goals of the Code, the NCLT directed the committee of creditors to reconsider the plan in spite of the expiration of the stipulated 270 days.
In another judgment by the NCLAT in the case of Quantum Limited vs. Indus Finance Corporation, it was held that it is not a mandate that the application of extension of 90 days has to be filed prior to the completion of the stipulated 180 days. In the instant case, the corporate debtor through the Insolvency Resolution Professional had filed for the extension only on the 180th day. The NCLAT held that the 90-day extension period for the Corporate Insolvency Resolution Process would be counted from the day of passing of the judgment and not from the day of expiry of the previous 180 days.
In the sub juice cases of Essar Steel India Limited, Bhushan Power and Steel Limited and Binani Cement the pertinent NCLT benches had prolonged the time limit prescribed in the Code. In the cases of Essar Steel and Bhushan Power, NCLT Benches at Ahmedabad & New Delhi has ordered that the period involved in litigation will not on the face of it be included into 270-day authorized time period for carrying out the CIRP under the Code. In the Binani Cement case, the term of the resolution professional was extended ‘till further order’ by the Tribunal.
In light of the judgments highlighted above, what the tribunals have done is essentially stopped the ticking clock during litigation and extended the time period for larger public interest of the general public. This amounts to outright violation of the language & essence of the Code. In fact, these orders result in disorder and diversity in the process and grounds for granting extension as per the Code. Consequently, several ongoing and future cases will be considerably influenced.
The already overburdened judiciary, deficient infrastructure and the small pool of untrained resolution professionals additionally assist this argument. The lack of clarity provided in the law and procedure only makes the 270 days target a challenge to meet.
· In order to terminate the contradicting positions of the judiciary as well as the IBC, 2016 in matters pertaining to the time frame of conclusion of CIRP, a solution that acts a bridging factor between both, needs to be adopted.
· The Code can be amended to increase the stipulated time period from the current 270 days to an additional 45 + 45 days in cases of extraordinary circumstances as 270 days is practicably an impossible time frame to wind up the CIRP.
· Therefore, the law can provide for a 180 + 90 + (additional 45 + 45) days’ time frame to resolve the Insolvency process.
· This additional time can be granted by the AA only after consulting the IBBI once it receives the application for extension by the Resolution professional along with valid reasons supporting claims of extraordinary circumstances.
· At the same time, Courts also need to be sensitive of the fact that in cases of insolvency & Bankruptcy Resolutions, time is of the essence and therefore unnecessary delays such as those seen in the above-mentioned cases needs to be minimized to a maximum possible level.
Objective 3: To identify the challenges faced by an Interim Resolution Professional & Resolution Professional under the IBC, 2016.
1. Short time frame for concluding the CIRP.
The provisions of the Insolvency and Bankruptcy code under Section 12 clearly lays down the fact that the Corporate Insolvency Resolution Process needs to be winded up within one eighty days from the date of initiation of the insolvency with an extension of a maximum period of 90 days that can be granted by the adjudicating authority. In such circumstances, the restricted time frame serves as a constraining factor for the resolution professionals from comprehending the management of the debtor company’s fundamentals thereby delaying thepreparation of a relevant resolution plan. Hence, it is evident that the short time frame prescribed under the Code serves as a burdening factor on the Resolution Professionals.
2. Intimidation/ threat from management of stressed companies.
It is seen through various cases that Interim Resolution Professionals appointed by the adjudicating authorities for the relevant sick companies often face threat or even intimidation from the promoters or the management of such companies/ businesses. In such situations, the timely intervention of the adjudicating authority to protect the IRPs becomes crucial.
Two such instances are the Rolex Cycles Pvt. Ltd and AML Steel Ltd cases.In the former, Rolex Cycles Pvt. Ltd was taken to the NCLT bench at Chandigarh by Hero Cycles Ltd as the IRP in this case was denied entry into the site premises and was prevented from assessing the company’s assets. In the latter case, the matter in front of Chennai bench of the NLCT was regarding the substantial opposition being faced by AML Steel Ltd from its debtors. The NCLT benches at both Chandigarh and Chennai took a critical stance against the bullying strategies adopted by promoters. 
As per the NLCT orders, warnings were issued to the promoters in both cases and police protection was provided to the Interim Resolution Professionals.
Hence the urgent need to set up adequate forums that exclusively deal with the hardships being faced by insolvency resolution professionals is the need of the hour. These forums will be capable of providing the necessary relief or protection to the IRPs and that same time it will help reduce the excessive burdening on the NCLT.
3. Lack of cooperation from management of stressed companies.
Section 19 of the Insolvency & Bankruptcy Code, 2016 provides that every personrelated to the management of the corporate debtor including the promoters will be under the obligation to provide all support and cooperation to the interim resolution professional while discharging his functions. 
If any personnel of the corporate debtor, its promoter or any other person associated with the corporate debtor fails to provide such assistance to the interim resolution professional then the IRP can approach the Adjudicatory authority to demand such enforcement. The Adjudicating authority can then order compliance of the instructions of the IRP. However, IRPs do not usually make use of this statutory remedy due to the strict time frame allocated to them to conclude the Corporate Insolvency Resolution Process. Rather than wasting scarce time on approaching the adjudicatory authority frequently on multiple issues, IRPs are suggested to utilize the questionnaire method to gain knowledge regarding the necessary information and documents from the promoters & directors of the stressed company. The adjudicating authority can be approached once for all on accounts of not providing any or multiple answers of the questions raised. 
Apart from this, Resolution professionals also face obstacles in the form of incomplete records and pending compliances. However, professionals working in the company such as company secretary, chartered accountants and forensic experts can always be consulted to tackle such issues.
4. Issues regarding discharge from functions as Insolvency Resolution Professionals or Resolution Professionals.
As per the recommendations of the Insolvency and bankruptcy Board of India in its discussion paper dated 21st June 2018, an insolvency professional needs to be discharged from his duties only on grounds of incapacitation from carrying out functions of an IRP or RP. This incapacitation further happens in two ways which are as follows:
(a) physical incapacitation: if he suffers from health problems which renders him unfit to carry out the process, to the satisfaction of the Adjudicating Authority, or
(b) legal incapacitation: if he becomes ineligible under the law.
In both the above cases of incapacitation, the consent of the Adjudicatory Authority is the mandate. If the resolution professional seeks to be discharged of his duties for any other reasons than the one prescribed by the Board then he may have to face debarment from taking up new assignments for a five-year period in future.This means that if at all an Interim Resolution professional experiences threat or intimidation in certain cases, then he does not even possess the freedom of opting out of such cases without facing the harsh repercussion for it which is debarment. This places immense pressure on IRPs to get accustomed to the environment of the debtor companies.
5. Issue of multiple regulated bodies regulating the work of an IRP
Independence of IRP to take decisions relating to CIRP not guaranteed.
Currently as per the Insolvency & Bankruptcy Code 2016, the Insolvency & Bankruptcy Board of India is the regulatory body regulating the functions of the Insolvency Professional Agencies. There are multiple Insolvency professional Agencies (IPA) in the country that in turn appoint the licensed insolvency Professionals thereby acting as their regulatory bodies. Due to the presence of multiple IPAs, a conflict of interest situation may arise between the objectives of various IPAs particularly the regulatory and competitive goals.That is to say, instead of efficiently carrying out their tasks of regulating the IRPs, IPAs may deviate from this and start competing amongst themselves to prove their superiority to each other. Therefore, it is suggested that a single uniform Insolvency Professional Agency that regulates the IRPs for the entire country be made. For example, Bar Council of India serves as the single regulator in the entire country regulating the enrolled advocates at the Bar.
6. Issue of vesting additional responsibilities of a Bankruptcy Trustee on IRP.
As per the provisions of the Insolvency & Bankruptcy Code, post liquidation, the distribution of assets of the corporate debtor is done on priority basis. That is to say secured creditors receive first priority and therefore would be the first ones to receive their entire outstanding amount. It is evident that the appointment of an IRP is done in order to protect the interests of the creditors and to ensure that they are duly paid back. Section 79(9) of the Insolvency and bankruptcy Code, 2016 says that a "bankruptcy trustee" means the insolvency professional appointed as a trustee for the estate of the bankrupt under section 125.Therefore, an insolvency professional, apart from carrying out the functions of insolvency resolution is also expected to carry out the tasks of a trustee thereby entrusting him with the additional duties & responsibilities of a trustee as mentioned in the Indian Trusts Act.
There arise two problematic situations due to such a set up under the Code. First of all, vesting additional duties on the IRP as a trustee only overburdens the already burdened IRP who is expected to carry out the unrealistic goal of concluding the Corporate Insolvency resolution process within a limited time frame of one hundred and eighty days. 
Furthermore, by appointing the IRP as a trustee of the assets of the debtor, he will essentially be made responsible towards all the stakeholders – creditors and debtors alike. The stakeholders become the beneficiary. This gives rise to a conflicting set of duties to be carried out by the IRP as the initially his task was to merely take care of the interests of the creditors. The first mention of such an organizational set up can be traced to the Bankruptcy Law Reforms Committee FinalReport (BLRC) which even though phrased in a converse manner, essentially refers to a similar end result. The report says that the Bankruptcy Trustee is responsible for administration of the estate of the bankrupt and for distribution of the proceeds on the basis of priority. This means that the bankruptcy trustee would be made in charge of carrying out the duties of an insolvency resolution professional. However, the rationale behind vesting the duties of an IRP on the Bankruptcy trustee or behind vesting the duties of a trustee on the IRP is neither explained in the final report of the BLRC nor in the Insolvency & Bankruptcy code itself. 
A more practical option would be the creation of the office of a bankruptcy administrator who would be capable of discharging his statutory duties and responsibilities and also be able to avoid the inadvertent application of the law of trusteeship on him.
Such a solution will also be able to resonate with the objectives of the Code.
· In order to tackle the issue of excessive burdening on the IRP, an additional time frame needs to be provided to the IRP to carry out the corporate insolvency resolution process. Apart from the 270 days an additional 45 + 45 days can be granted by Adjudicating Authority on satisfaction of extraordinary grounds such as in cases of huge companies.
· To tackle the problems being faced by the IRPs of threat/ intimidation or even insufficient cooperation from the stressed companies of the corporate debtors, an additional forum which could be of the nature of a quasi-judicial body that exclusively entertains cases pertaining to IRPS can be set up. Retired Judges of the National Company Law Tribunal can be made the presiding officers of such a forum. He can be assisted by a field expert possessing sufficient knowledge of the corporate world as well as an IRP expert (someone who has knowledge/ experience of carrying out the resolution process). This would also prove to be effective in reducing the burden on the NCLT and the Debt recovery Tribunal. The decision of such forums would be binding on the management of the stressed company / corporate debtor and such a forum shall be created as an additional body in every place consisting a bench of the NCLT. Appeals from such a forum may on consultation with the IBBI, directly lie in the Supreme Court.
· On receiving a case of intimidation of the IRP and on request of the IRP, if the forum is satisfied that sufficient risk lies to the life of the IRP, then the IRP should be discharged with immediate effect from his duties without suffering any debarment for it.
· A single nationalized Insolvency Professional Agency regulated by the IBBI that regulates all the Insolvency Professional Agencies should be made. This will create uniformity and there will be standardization across the country.
· Finally, in lieu of entrusting the duties of a trustee on the Insolvency Resolution professional, the designation of the office of a bankruptcy administrator who would be capable of discharging his statutory duties and responsibilities and also be able to avoid the inadvertent application of the law of trusteeship on him needs to be done.
Overall, it is seen that the Insolvency and Bankruptcy code 2016 is definitely a one of its kind, path breaking legislation. This revolutionary legislation is criticized to be overambitious, however, if at all the Code were to be backed by the right infrastructure and if the amendments suggested therein were to be implemented, the Code is definitely capable of meeting some of the far-reaching objectives that it seeks to achieve. Insolvency resolution would once upon a time take a minimum of a decade to conclude if it were to be initiated under the erstwhile Companies Act Of 1956. Today, approximately 2.5 years post the date of initiation of the Insolvency and bankruptcy Code 2016, circumstances have improved as it now takes anywhere between a year to a year and a half for the Corporate Insolvency Resolution Process to conclude. While this time taken is way more than the prescribed time period as per the Code, it is definitely surpassing the feat that the predecessors of the Code could manage. Post the enforcement of the Code, India’s rank in the Ease of Doing business as per the World Banks Doing Business Report 2019, is a remarkable 77 out of 190 countries as supposed to the rank of 136 out of 189 countries in the year 2016. This shows that India has jumped close to 53 positions in the last two years. It is thus no wonder that World Bank has recognized India as one of the top improvers for the year
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 Government of India, Ministry of Commerce and Industry, 31 Oct 2018