Swiss Ribbons Pvt. Ltd. V. Union of India: The Constitutionality of IBC Upheld, Understanding the Procedural aspect and the After-Effects – By Ms. Manisha Arora and Mr. Pranav Ashutosh

Swiss Ribbons Pvt. Ltd. V. Union of India: The Constitutionality of IBC Upheld

Understanding the Procedural aspect and the After-Effects

By Manisha Arora, 3rd; Damodaram Sanjivayya National Law University, Visakhapatnam, Andhra Pradesh and
Pranav Ashutosh, 3rd; Bharati Vidyapeeth Deemed University, Pune

ABSTRACT

The research analyzes the views of the Supreme Court while upholding the constitutionality of IBC in the landmark Swiss Ribbons case wherein the Court held that the preamble of the Code does not imbibe liquidation of the assets of a corporate debtor in any manner and treats it as a last resort only when resolution professional receives no resolution plan or if a resolution plan is not approved by either the creditors’ committee or NCLT. Moreover, IBC, since its inception, has gone repeatedly through legislative scrutiny and various significant amendments were made to the Code in November 2017, June 2018, August 2019 and March 2020. Also, amidst the COVID-19 crisis, the 2020 Ordinance has been promulgated on account of economic distress with an ultimate aim to protect the interests of the corporate debtor. This study firstly attempts to elucidate the holdings and interpretation of the Apex Court concerning various provisions of the Code and then details the post-Swiss Ribbons effects on the insolvency resolution process in India. Lastly, it includes concluding remarks and recommendations for enhancing governance frameworks.  

KEYWORDS

liquidation of assets, creditors, corporate debtor, constitutionality, insolvency, resolution

I. PRELUDE

India climbed fourteen positions in the World Bank Ease of Doing Business 2020 to rank at 63 out of 190 countries across the globe. It has been ranked among the top ten most improved countries for the third consecutive year.[1] Provided further, on the insolvency parameter the country’s ranking has achieved the biggest jump to 52^nd position from 108^th post-enactment of IBC.[2] The highly anticipated legislation called Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘IBC’ or ‘Code’) came into existence on May 28, 2016, and became effective from December 1, 2016. This Code seeks to consolidate the pre-existing laws dealing with insolvency, for example, Presidency Towns Insolvency Act 1909, Sick Industrial Companies Act 1985, etc. It became mandatory for bringing change in the existent obsolete insolvency regime that was fraught with unefficacious remedies resulting in skyrocketing of the Non-Performing Loans (NPLs) with less or no recoveries available for the creditors that were ought to be made by the corporate debtor. The definition of the corporate debtor has been added to IBC by the insertion of Section 3(8) which defines it as any person including Indian companies, limited liability partnerships, partnership firms, and also an individual, that owes a debt to some other person.[3]

The distressed companies can avail either of the two solutions prescribed under the insolvency laws of various jurisdictions. Firstly, for such a company, liquidation can be done outrightly. Secondly, adopting mechanisms for the revival of the debt holder if the stakeholders believe that the company has the potential to get recovered from its current crisis, for which they initiate a formal process and devise a negotiation plan to restructure corporate debt. In both the scenarios, the rights and interests of the creditors and debtors are equitably preserved.

The objective of the Code that is enshrined in its preamble identifies it as a law for resolution and reorganization of a corporate debtor by giving the control of the firm to its creditors. The assay that gauges the success of IBC is the maximization of the asset-value of a debtor and balance of interests of all the creditors. The data that has been released by Insolvency and Bankruptcy Board of India (hereinafter referred to as ‘IBBI’) underscores how the incorporation of the Code enormously changed the factum of the pending insolvency cases in the country. The data reveals that until the end of 2018, 1484 companies applied for the insolvency resolution out of which, 79 companies had successfully been resolved, for 302 companies the order for liquidation was passed by the competent authority, 142 registered cases were closed either by the judicial decision or by a settlement between the parties and the remaining insolvency cases are underway to resolution.[4]

II. DEMYSTIFYING THE PROCEDURE ESTABLISHED UNDER THE CODE

The introduction of this Code paved the way for streamlined, time-bound resolution process by incorporating a controlled regime empowering financial creditors with a right to vote in the Committee of Creditors (hereinafter referred to as ‘CoC’). Herein, IBC broadly incorporates two kinds of creditors known as the financial creditors (primarily the state-owned Indian banks) and the operational creditors (trade) depending on the nature of their debt. Financial debt is owed to the financial creditor and is defined under section 5(8) as the debt to be paid in consideration for the time value of money.[5] Whereas section 5(21) defines operational debt which is owed to the operational debtor who generally claims relief under the provisions of goods and services, that may include the debt of the employee and the taxes due to the government.[6] IBC is all-inclusive and rule-based legislation that governs the insolvent corporate entities. It lessens the judicial intervention and establishes separate institutions to exercise and regulate the insolvency practices within the country. The Code runs within the domain of four key pillars, they being:

1. The adjudicating body comprising of National Company Law Tribunal (hereinafter referred to as ‘NCLT’) and National Company Law Appellate Tribunal (hereinafter referred to as ‘NCLAT’) as an appellate body.
2. IBBI, a predominant supervisory body for the regulation of this Code.
3. Insolvency Resolution Professionals who have a significant role to play in the liquidation of the assets of the corporate debtor.
4. Information Utilities who maintains the record of financial statements of the corporate debtor.

The modus operandi of the Code is to rescue and resolve the debts of the corporate debtor. There is a framework contemplated under Section 4 which is a primary requirement to trigger the proceedings under IBC. It prescribes that insolvency proceedings can be initiated against the Corporate Debtor on making an application to NCLT by either the aggrieved creditor/s or the Corporate Debtor himself,[7] only in cases of payment default of at least one lakh which shall not exceed one crore, considering the surge in the rate of inflation by the Central Government in the future period.[8] Subsequently, the financial creditor under Section 7 can make an application before the adjudicating authority in the manner specified by the Code either severally or jointly with the other financial creditors.[9] The adjudicating authority i.e., NCLT then has to adjudicate within 14 days of the filing of the application and production of evidence and financial statement of the corporate debtor that whether or not there is a default in repayment of corporate debt.[10]

The Corporate Insolvency Resolution Process (hereinafter referred to as ‘CIRP’) commences on the date of the admission of the insolvency application by the adjudicating authority. A moratorium period is set in motion by NCLT on the admission of the application until the completion of the resolution process. Thereafter, NCLT appoints an insolvency professional as an Interim Resolution Professional who takes control of the assets of the corporate debtor and suggest the possible measures for the repayment of bad debts.[11] It mandates managing directors to report to the Insolvency Professional and give him access to all the vital documents as regards the corporate debtor. Among others, the Insolvency Professional calls upon the claims by the creditors and after due examination forms a CoC consisting of independent financial creditors who supervise the resolution process. The time for its completion as prescribed under the Code is 180 days to the maximum of 270 days depending on the need and circumstances of a particular case.[12] During this period the Insolvency Professional calls for resolution plans from the creditors. After approval from sixty-six percent of the total creditors,[13] the resolution plan is then placed before NCLT for its approval which if approved is binding on the stakeholders, creditors, and corporate debtor.[14] If a viable plan is not constituted by CoC in the stipulated time, then moratorium period comes to an end and NCLT thereby orders for liquidation as mentioned under Section 33(1) of the Code.[15] Besides, Section 9 prescribes the instigation of the insolvency proceedings by the operational creditor where the operational creditor delivers the demand of notice or the invoice demanding payment to the corporate debtor.[16]

III. UNFOLDING OF SWISS RIBBONS SAGA

IBC, since its inception, has gone repeatedly through legislative scrutiny and various significant amendments were made to the Code in November 2017, June 2018, August 2019 and March 2020.[17] Several provisions were incorporated off later, issues surrounding which were time and again debated and their need was desired by the judiciary. Not only this, but the Code has also qualified the muster of constitutional validity in 2019 which was challenged and upheld in the landmark case of Swiss Ribbons Pvt. Ltd. v. Union of India.[18] It shall not be an overstatement to say that in this particular case, the Apex Court has underpinned the insolvency law all over again.

The Apex Court, in its order dated 25-01-2019, rejected the arguments challenging the constitutionality of the Code by harmoniously constructing the legislative intent behind its enactment. The Court in the instant case observed that the preamble of the Code does not imbibe liquidation of the assets of the corporate debtor in any manner and treats it as a last resort only when resolution professional receives no resolution plan or if a resolution plan is not approved by either the creditors’ committee or NCLT. The resolution procedure protects and prioritizes the interests of the corporate debtor and is not merely a medium for the recoveries of the creditors. The Code ensures the revival of the defaulter and gives it protection from its management and liquidation. The Court while delivering its decision asserted, “the defaulter’s paradise is lost and in its place, the economy’s rightful position has been regained. The result is that all the petitions will now be disposed of in terms of this judgment.”[19]

Ten writ petitions and one special leave petition was filed before the Apex Court in 2018 assailing the constitutionality of the various provisions of the Code. However, the final judgment of this case dealt only with the question of law i.e., regarding the constitutional validity of the IBC, it did not discuss the individual facts of any case. The issues that arose, in this case, have been dealt with by the authors under individual heads as follows:

A. Order for the Establishment of Circuit Benches in Consonance with the Madras Bar Association Ruling

The petitioners in the instant case had successfully contended that the lone seat of NCLAT, as an appellate tribunal, at New Delhi, goes conflicting with the legal decision of the Apex Court in Madras Bar Association v. Union of India[20] where the Court while deciding on the constitutionality of NCLT/NCLAT under the National Tax Tribunal Act, 2005 held that it is obstructive and unreasonable to expect the aggrieved parties to travel for exercising their right to appeal, wherefore, to limit their hardship, an order was issued by the Apex Court directing the Union for the establishment of a bench within the jurisdiction of every High Court, if not feasible, at least a circuit bench to be constituted in every state to efficaciously render the remedy to the distressed. Therefore, having the only bench would defeat in itself the purpose behind the remedial approach as people would be compelled to travel from different states to New Delhi. The Supreme Court relying on its precedent directed the Union to establish the circuit benches within 6 months from the date of the judgment.

B. Appointment of Members of NCLT and NCLAT is as per the Madras Bar Association Ruling

In the case of Madras Bar Association v. Union of India,[21] issues concerning the constitution of NCLT/NCLAT, qualification of technical members and constitution of Select Committee were addressed by the Apex Court. The Court highlighted various defects in the procedure relating to their constitution and further issued directions to Union. It was again contended in Swiss Ribbons that Section 412(2)[22] remains a conflicting provision due to the difference in the number of judicial and executive members appointed in the Select Committee i.e., two judicial and three executive members. The Supreme Court observed that this discrepancy under Section 412 has already been resolved by the Companies (Amendment) Act, 2017, thereby bringing equality in their number.

C. Administrative Assistance to NCLT/NCLAT shall be Enlarged by the Ministry of Law and Justice and not the Ministry of Corporate Affairs

It has been categorically pronounced by the Apex Court in Union of India v. R. Gandhi, President, Madras Bar Association[23] that the administrative aid to the tribunals shall only be enlarged by the Ministry of Law and Justice and not by any other concerned parent ministry or department. It was brought to the notice of the Court in the instant case that regardless of its direction issued in 2010, NCLT and NCLAT are accessing administrative relief from the Ministry of Corporate Affairs. After reconsidering it, the Court directed the Union to adhere to the previous order in its ‘letter and spirit’.

D. The Differential Treatment of Financial and Operational Creditors is not Against the Constitutional Spirit but Instrumental to Meet the Ends of Justice

The differential treatment meted out by IBC to the creditors viz. financial and operational is not in conformity with Article 14 of the Constitution[24] as there exists no intelligible differentia was argued. They contended that there is no rational nexus in the classification of both the types of creditors with the object sought to be achieved by this Code on the following grounds, they being:

1. When an operational creditor sends a notice of default to the operational debtor, the latter can dispute the claim raised therein but the same option is not available to the financial debtor concerning the claim of a financial creditor.
2. The operational creditors are authorized to attend the meetings of CoC only if the amount of their debt is 10% of the aggregate debt to be paid to the creditors.
3. As per Section 21[25] and 24[26] of the Code, the operational creditors even after getting a place in CoC are not entitled to vote in its high stake decisions.

Wherefore, in the account of decision in the case of Shayara Bano v. Union of India[27] the distinction made in their treatment is arbitrary, thus, not in consonance with Article 14 of the Indian Constitution.

The Supreme Court of India after diligently examining the Bankruptcy Law Reforms Committee Report 2015, the Insolvency Law Committee report 2018 and several other regulations and decisions categorically made the classification between both the types of the creditors depending on the nature of their debt, their competency in financial terms and the adequacy in evidence needed from them to initiate the resolution proceedings against the corporate debtor. The Apex Court held that the differential treatment does not form any ground for discrimination or arbitrariness and therefore is in conformity with Article 14 of the Constitution.

The Apex Court observed that financial creditors are generally banks which are less in number while operational creditors are those which provide goods and services and are large in number, where the former is mostly secured and involves a large sum, the latter is mostly unsecured and deals with less quantum of money. Apex court remarked that both types of creditors are distinct in themselves, in nature, in the mode of operation, in the quantum of monetary value involved in business operation, in terms of resources and security. Two of them are a class apart in themselves as the financial creditors are engaged in accessing everything from the beginning of the transaction as they are the one that provides working capital, whereas, the operational creditors provides goods and services procured through the very working capital provided by the financial creditors.

Moreover, financial creditors are generally financial institutions such as state-owned banks having plentiful resources, deeper and better knowledge of the business as they have an affiliation that is mostly financial contract. Defaults made to the operational creditors in providing goods or services have to go through the tedious process before it is proved either in a court or in arbitration whereas in case of a financial institution like banks, debts are recorded in detail to the last penny and any default made can be verified quite conveniently. Keeping records is another pertinent point for their classification because financial creditors mostly have everything documented, however, the case is not the same with the operational creditors as they do not generally have many records to maintain.

These are some prominent pragmatic and lucid reasoning that forms the strong ground for distinction between the two creditors. The financial creditors like banks are equipped with techno-economic assessments and have access to financial projections that were made available to them at the time of advancement of loan, and therefore, are most trusted to adjudicate the corporate debtor when it comes to the feasibility and viability of his business. Moreover, IBC incorporates a certain supervisory provision that maintains checks and balances in the resolution procedure which mandates the minimum repayment to be made to the operational creditor on the sale of liquidation of assets[28], henceforth curtailing dominance of one class and counterbalancing it with the other.

About the financial debtor not able to dispute the claim of the financial creditor, the Court observed that there is a significant shift in the mechanism operating insolvency resolution from ‘inability to pay the debt’ to ‘determination of the default’. The Court further established the difference between ‘claim’, ‘debt’ and ‘default’ and based on it reasoned that the financial creditors are necessitated to prove the default in the repayment of their loan by the corporate debtor, whereas, the operational creditors merely claim their right concerning the amount due. The Supreme Court observed that it is unnecessary to direct the financial creditor to send notice to the financial debtor before the initiation of the insolvency proceedings as they are generally aware of their loan structure and also of the default which is made in its repayment. Furthermore, the necessary information can be accessed by the debtor through the information utilities which are in place. Whereas in case of the operational creditor, the notice to be sent to the operational debtor before the filing of the claim prevents premature initiation of insolvency proceedings which sometimes benefits him by settlement between the parties. Here, Section 7(5) of the Code also mandates a copy of the application made by the financial creditor before the adjudicating authority to be sent to the corporate debtor who can file a counterclaim provided that there is a fraudulent and absurd claim made by the creditor.[29]

The composition of CoC was challenged in the instant case and it was argued that there is no scope for operational creditors in the committee as they lack the power to vote. The Supreme Court while dealing with this issue quoted the Bankruptcy Law Reforms Committee Report 2015 and thereby stated that the entire purpose behind the enactment of this Code is the resolution of the corporate debtor without compromising with the rights of financial and operational creditors. The Court observed that financial creditors are generally banks which are engaged in assessing the viability of the corporate debtor and his projects since the beginning of the transaction, which is not very handy when it comes to operational creditors as they are small-time vendors. Moreover, the operational creditors are more concerned with the recovery of their money rather than the resolution of the corporate debtor. They will get out as soon as they recover their money but on the other hand financial creditors have to be with the corporate debtor during the long run because of their loan structure which needs a well-established procedure to be followed. Therefore, it is quite a genuine and legitimate rationale not giving operational creditors any power to vote. However, Section 21 of the Code authorizes the operational creditors to attend the meeting of CoC if their debt exceeds 10% of the total debt which is enough to counterbalance their right to not vote.[30] Further, Section 63(1) preserves the interests of the operational creditors by providing the right to appeal before NCLAT against the order made by NCLT on submission of the resolution plan.[31]

E. The Validity of Section 12A Upheld

Section 12A of IBC which deals with the procedure for withdrawal of applications[32] was challenged in the instant case on the ground that it permits CoC to dominate the proceedings by conferring on it uncanalised and unbridled powers exercising which it can reject such withdrawal if not agreed by at least ninety percent of the voting participants of CoC. Furthermore, there is no provision permitting the withdrawal of application after its admission by the adjudicating authority.

The Apex Court observed that once the insolvency proceedings are triggered under section 7 to 9 of IBC through creditor’s petition, the proceeding becomes collective proceeding and the same may not be axed by an individual creditor. Moreover, the Supreme Court made it quite lucid that notwithstanding the phase where NCLT been sought for withdrawal or settlement before the constitution of CoC it may allow or disallow the application for same under Rule 11 of NCLT, Rules 2016.[33] The Apex Court also clarified that in applicable conditions that are given that CoC unpragmatically discards a fair and impartial settlement or withdrawal claim, NCLT can set aside the decree of CoC.

F. Information Produced by the Information Utilities is a Prima Facie Proof and is Subjected to Rebuttal

It was argued by the petitioners in the present case that the certificate that is issued by the information utilities concerning the occurrence of default is similar to the preliminary decree which is passed without any adjudication.

The Apex Court scrutinized Regulations 20[34] and 21[35] of the IBBI(Information Utilities) Regulations 2017 and held that the information provided by the information utilities is merely a prima facie proof of default and, if required, can be rebutted by the corporate debtor.

G. Administrative and not the Quasi-judicial Functions Exercised by the Resolution Professional

It was contended by the petitioners in the instant case that the resolution professional exercises powers that are more of quasi-judicial nature than administrative. The Court examined Regulations 10, 12, 13 and 14 of CIRP Regulations along with Section 18 of IBC[36] and held that the resolution professional act as a facilitator in the resolution procedure and is under the continuous supervision of NCLT and CoC which has a right to replace him by two-third of its majority if not satisfied with his performance. Unlike resolution professional, the liquidator primarily acts as a quasi-judicial authority in the insolvency process who examines and adjudicate claims of the creditors.

H. Section 29A is Prospective and Constitutionally Valid

Since its inception the Code have been continuously under the judicial scrutiny and requirement of modifications is perceived by Courts in a myriad of cases. In November 2017, Section 29A was added to the Code which provides for substantial disqualifications for resolution applicant.[37] For instance, if a person is a willful defaulter under the provisions of RBI Regulation Act, 1949, is an undischarged insolvent, has been convicted for an offence punishable with imprisonment of more than 2 years, disqualified under Companies Act 2013 from acting as a director etc., would be disqualified from being a resolution applicant. It was argued that section 29A has retrospective application and thus it impairs the bestowed rights of former promoters to be a participant in the process of recovery and therefore leads to a multiplicity of pending litigations and delay in the resolution process.

A blanket ban on the eligibility of promoters of the corporate defaulter to act as a resolution applicant without embodying exceptions for the efficient promoters would render the Section arbitrary per se. Barring the relatives of the erstwhile promoters under Section 29A(j),[38] irrespective of the fact that they are barely associated with the business of the promoter is wholly unreasonable.

The Apex Court for this matter relied upon its ruling in the landmark case of Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta and Ors.[39] wherein the Apex Court observed that the resolution applicants by section 29A(c) have no bestowed right to put resolution plans.[40] Therefore, their conferred rights were not swayed with the retrospective application of Section 29A of IBC. A statue cannot be said to stem retrospective forces simply for it alters existing rights or for a portion of requirements for its action is derived from a time precursor to its passing.

Moreover, the Court answered on the contention relating to the arbitrariness of the Section as it imposes a blanket ban on promoters altogether and lumps both unethical and sincere promoter by stating it did not find argument pragmatic that the section reads unequal with equals as disqualification condition is not based only on malfeasance. The Court stated that it is very much cogent to exclude the person who is unable to service his own debts from proposing a resolution plan. Pertaining to this Section, it was also argued that the resolution process aims at maximization of asset and section 29A is contrary to the same. The Apex Court observed that the bar of the disqualified person continues over resolution as well as liquidation. Further, as far as the argument related to the ineligibility of the relatives is concerned, the Supreme Court stated that restriction mentioned under Section 29A(j) is applicable only when the relative essentially have a business connection with the resolution applicant.

I. Section 53 Passed the Litmus Test of Constitutionality for being Unarbitrary and Non-discriminatory

Section 53 of IBC that establishes the preference given to creditors in terms of repayment of their debt during the distribution of assets,[41] does not stand in conformity with Article 14 of the Constitution, as argued by the petitioners in the instant case. They contended that in the case of liquidation of the assets, the operational creditors are placed at the lowest stage of receiving anything as they rank below the other creditors including the unsecured creditors that happen to be the financial creditors.

It was observed by the Supreme Court that the distinction between that financial debts, that are secured debts and the operational debts, that are unsecured is of great significance while considering the object sought to be attained by the Code. The Court further stated that the repayment of the financial debts diffuses the flow of capital into the economy as the banks and other financial institutions can further lend the repaid money to the other companies and entrepreneurs for their business activities. This creates a genuine and legitimate rationale for the classification of the creditors for the distribution of assets. Traditionally the workmens’ dues which are a type of unsecured debt are placed above other such debts. Thus, an intelligible differentia can be established as there is a reasonable relationship between the grouping made and the object sought to be achieved by this Code. Henceforth, Article 14 is not violated.

IV. POST SWISS RIBBONS: THE IMPLICATIONS?

“There are decades where nothing happens, and there are weeks where decades happen”

-Vladimir Lenin

Trade & Commerce are dynamic as they depend upon several market-factors. Preceding to the decree of Swiss Ribbons the code has been amended twice, but for IBC to stay a useable piece of legislation and address the live issue of contemporary commerce, two more amendments were brought in it. The third amendment, which amended eight Sections of IBC, was ratified on August 5, 2019.[42] Among these amendments, the prominent amendment was of Section 12 which capped the time limit for the resolution process within three hundred and thirty days mandatory failing to which stressed asset has to go for liquidation. This mandatory time constrain was discarded in Essar Steel case. While pronouncing decree in Essar Steel, the Apex Court did acknowledge that the intent of the legislature is speedy resolution but concurrently also observed that the word ‘mandatorily’ is not in conformity with Article 14 and Article 19(1)(g) of the Constitution of India. The Supreme Court said that ordinarily resolution procedure has to be finalised within the aforesaid time limit but in exceptional cases, more time may be granted.[43]

The next amendment to the code was ratified on March 13, 2020.[44] Eleven sections were amended this time and Section 32A was inserted in IBC.[45] Amendment to section 7(1) created a threshold for initiating the resolution procedure. A submission to start resolution procedure against a defaulter may not be made unless there are one hundred creditors of the same class or one-tenth of the total number of such creditors of the same class, whichever is less. Thereby preventing IBC from becoming a mere recovery tool. The amendment provides that post-acquisition of the firm, the license and supply condition to remain intact which were originally available to the stressed assets. The amended Section 23 provides that resolution professionals will remain in the position to supervise the operation of the corporate debtor post expiration of the resolution process period until an order sanctioning the resolution plan or appointing of the liquidator, is passed. The prominent feature of this amendment was the insertion of Section 32A which provided immunity to the new promoters from hidden liabilities of erstwhile promoters. The immunity provision is not absolute rather it is conditioned. New promoters will not be accountable for any legal malfeasance committed by former promoters given new management holds no relation to the previous one. Section 32A not only incentivizes the bidders even for stressed companies that might be embroiled in legal complications but also aids to a conducive environment for hassle-free acquisition.

In view of COVID-19 crisis, most recently, the Central executive has promulgated an Ordinance and added Section 10A to the Code which precludes initiation of insolvency proceedings under Section 7, 9 and 10 for the period of six months commencing from March 25, 2020 thereby protecting the interests of corporate debtor.

V. CONCLUSIONS AND RECOMMENDATIONS

Undoubtedly, setting a law in motion which safeguards and prioritize the interests of a corporate debtor by impeccable adjudication and due process is highly applaudable. However, complexities arise by improper implementation and absurdity of language when it comes to its application in more practical scenarios. The pronouncement of law-changing decisions by the highest court followed by the four rounds of amendments brought up by the legislature has laid a new foundation of IBC altogether. The significance of the Code was perused when its constitutionality was called into question in Swiss Ribbons. While upholding the constitutional validity of IBC, the Apex Court focused on its objective for the resurrection of the corporate debtor and a vital role it plays in rebooting the economy by eliminating stagnancy caused by bad debts. Nevertheless, lacunae still exist in the Code that strongly requires to be scrutinized by the dedicated functionaries. A portion of the changes to the code that have been recommended by this study incorporates:

1. The threshold limit of default that is set in the Code to trigger CIRP is merely one lakh rupees. This is overburdening the tribunals as a large number of applications being filed for resolution. As IBC is a newly enacted legislation, authorized bodies comparatively take more time in disposing of the applications than they take in other established legislations, thereby, increasing the number of pending applications. Therefore, the Government shall rather increase this trigger value to a considerably greater amount without compromising with the right of the small-time vendors and operational creditors to apply.
2. The continuance of the resolution process beyond the stipulated time by the adjudicating authority drags the situation in turmoil. For this, the provisions shall be inserted in the Code for making the adjudicator accountable for the delay if he does not have adequate supporting reasons for doing so.
3. Principles of corporate governance shall be incorporated and adequate mechanisms such as advice from the experts across the globe shall be adopted for more efficiency in rendering remedies.
4. Although, cross borders disputes are covered within the purview of IBC but are not so efficient in their working. Cross border mechanisms shall be made fair, equitable and speedy to protect the interests of the foreign debt holders, thereby, facilitating ease of doing business.
5. Maintaining equality in the interest of the mortgagee and the mortgagor throughout the resolution process is vital to gauge its success. For example, the United States of America has adopted the model of pre-packaged insolvency resolution wherein after the negotiation between the parties, the plan gets forward to the Court where it scrutinizes to check whether the interests of all parties have been considered. Therefore, in the interests of the parties, there shall be a presence of supervising judicial authority to make the process more viable.
6. The immunity provided to new promoters from hidden liabilities under Section 32A leaves no scope for recovery of tax irregularities that might have been made by erstwhile promoters and acknowledged post-acquisition. The legislature needs to devise a solution for the same.

Before parting, it must be mentioned that prior to the inception of IBC there was a dearth of such facilitating economic law. The judgments pronounced in Swiss Ribbons and Essar Steel case played a pivotal role in accomplishing the settlements and resolutions in both pre-insolvency and insolvency scenarios. As the code is implemented it experiences issues and the government has been quick in addressing those issues. Each amendment in IBC is an attempt in staying relevant and addressing the live issues of the business world. As IBC strives and evolves to meet the dynamic challenges of the real world we may see more amendments in it in times to come.

Reference

[1] Doing Business 2020: Reforms Boost India’s Business Climate Rankings; Among Top Ten Improvers for Third Straight Year, The World Bank, available at: https://www.worldbank.org/en/news/press-release/2019/10/24/doing-business-india-top-10-improver-business-climate-ranking.

[2] India ranks 63 in World Bank’s Doing Business Report, Press Information Bureau Government of India Ministry of Commerce & Industry, available at: https://pib.gov.in/newsite/PrintRelease.aspx?relid=193994.

[3] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 3(8).

[4] The Quarterly Newsletter of the Insolvency and Bankruptcy Board of India, Insolvency and Bankruptcy Board of India, available at: https://ibbi.gov.in/QUARTERLY_NEWSLETTER_FOR_OCT_DEC_2019.pdf.

[5] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 5(8).

[6] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 5(21).

[7] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 6.

[8] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 4.

[9] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 7.

[10] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 7(4).

[11] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 16.

[12] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 12(3).

[13] Insolvency and Bankruptcy Code: Till Now and Beyond, Cyril Amarchand Mangaldas, available at: http://www.cyrilshroff.com/wp-content/uploads/2019/05/IBC-Till-Now-and-Beyond.pdf.

[14] Id.

[15] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 33(1).

[16] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 9.

[17] Richa Roy, Insolvency And Bankruptcy Code, 2016 : The Journey So Far Key amendments and landmark judgments, Cyril Amarchand Mangaldas, available at: https://www.wirc-icai.org/images/material/IBC-Journey-recent-amendments-RR.pdf.

[18] Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India [2019] ibclaw.in 03 SC

[19] Id., para. 121.

[20] Madras Bar Association v. Union of India, (2014) 10 SCC 1.

[21] Madras Bar Association v. Union of India, (2015) 8 SCC 583.

[22] The Companies (Amendment) Act, 2017 (Act 1 of 2018) s. 412(2).

[23] Union of India v. R. Gandhi, President, Madras Bar Association, (2010) 11 SCC 1.

[24] The Constitution of India, art. 14.

[25] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 21.

[26] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 24.

[27] Shayara Bano v. Union of India, (2017) 9 SCC 1.

[28] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 30.

[29] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 7(5).

[30] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 21.

[31] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. (1).

[32] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 2A.

[33] National Company Law Tribunal Rules, 2016, rule 11.

[34] Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, regulation 20.

[35] Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, regulation 21.

[36] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 18.

[37] The Insolvency And Bankruptcy Code (Amendment) Act, 2017 (Act 8 Of 2018), s. 29A.

[38] The Insolvency And Bankruptcy Code (Amendment) Act, 2017 (Act 8 Of 2018), s. 29A(j).

[39] Arcelor Mittal India Private Limited v. Satish Kumar Gupta and Ors., [2018] ibclaw.in 31 SC

[40] The Insolvency And Bankruptcy Code (Amendment) Act, 2017 (Act 8 Of 2018), s. 29A(c).

[41] The Insolvency And Bankruptcy Code, 2016 (Act 31 of 2016), s. 53.

[42] Supra note at 17.

[43] CoC of Essar Steel India Limited v. Satish Kumar Gupta, [2019] ibclaw.in 07 SC

[44] The Insolvency and Bankruptcy Code (Amendment) Act, 2020 w.e.f 28.12.2019, IBC Laws, available at:  https://ibclaw.in/the-insolvency-and-bankruptcy-code-amendment-act-2020-w-e-f-28-12-2019/.

[45] Id.