By Megha Mittal (email@example.com)
“With greater flexibility comes greater accountability”
The much awaited Insolvency and Bankruptcy Code Ordinance was promulgated by the Hon’ble President on 6th June, 2018 and mainly centred on balancing the interests of various stakeholders’ especially home buyers, MSMEs and most importantly promoting resolution over liquidation.
However, since the Parliament was not in session then, the Ordinance was promulgated by the Hon’ble President.
Now that the Monsoon Session of the Parliament is in function, the Insolvency and Bankruptcy Code, (Second Amendment) Bill, 2018 (herein after referred to as “Bill”) has been moved before the Lok Sabha.
The Bill once passed, shall be applicable retrospectively from 6th June, 2018 i.e. the date of promulgation of the Ordinance.
The Bill as proposed before the Lok Sabha, is essentially in line with the Ordinance earlier promulgated, except a few additions therein. In this Article, we shall briefly discuss about the amendments proposed in addition to the Ordinance.
The significant amendments in the Ordinance have been covered by Ms. Sikha Bansal in the following article:
Commencement of CIRP
Under normal circumstances, the IRP is appointed vide the same Order pursuant to which the application for initiation of CIRP is admitted by Adjudicating Authority. However, there might be some cases where the IRP is not appointed in the Order. Until now, CIRP was deemed to commence from the date of Order of the Adjudicating Authority, regardless of the fact whether the IRP was appointed or not.
However, the newly inserted proviso to sec 5(12) of the Insolvency and Bankruptcy Code, 2016 (“Principal Code/ Code”) provides that, in cases where the IRP is not appointed vide the same Order pursuant to which application for CIRP is allowed, CIRP shall commence from the date of appointment of IRP.
The intent behind providing this flexibility is to ensure achievement of the ultimate motive of promoting resolution over liquidation. As and when CIRP is initiated, the role of the Directors of the Company comes to an end and passes on to the hands of the IRP followed by the RP. Thus, the time gap between Order of initiation of CIRP and appointment of IRP is loss of valuable time in the already stringent moratorium period of 180/ 270 days.
Thus, deemed commencement of CIRP from the date of appointment of IRP is in harmony with the timelines as well as the spirit of the Code in its truest sense.
Approval of CCI prior to approval of CoC
In order to ensure a smooth and hindrance free execution of the Resolution Plan, the Ordinance provided that, the Resolution Applicant shall obtain all necessary approvals required for execution of plan, within one year of approval of Plan by the Adjudicating Authority.
While the Bill is in line with the above-mentioned requirement, it also provides that where a Resolution Plan contains a provision of any “Combination” u/s 5 of the Competition Act, 2002. The Resolution Applicant is required to take a prior approval from the Competition Commission of India (“CCI”) before the Plan is proposed to the Committee of Creditors (“CoC”) for approval.
The aforementioned amendments warrants for removal of ambiguity w.r.t. adherence of applicable laws and ensures synchronization amongst laws.
Despite the benefits that the requirement of this prior approval carries, a major loophole that lies herein is that the term “prior” does not denote any specific time period by which the approval of CCI must be obtained.
Another glitch that comes to light is that the fees for seeking approval of CCI in Form I and Form II is as high as Rs. 15 Lacs and Rs. 50 Lacs respectively. Hence, the question that arises here is that, in the present conditions where the odds of approval of a Resolution Plan is bleak, would it be viable for the Resolution Applicants to play a gamble of such high fees, keeping in mind the high uncertainty of approval of Resolution Plans?
Thus, a more practical approach is required to be adopted to ensure that laws that are being implemented are not just suited in text but also in spirit and can fit into the real-life practices.
The Road Ahead
The Ordinance shall now stand repealed and the if both the Houses agree in disapproving the issue of notification or both Houses agree in making any modification in the notification, the notification shall not be issued or shall be issued only in such modified form as may be agreed upon by both the Houses, as the case may be.