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Limits of the Limitation Law and IBC

-Megha Mittal

(resolution@vinodkothari.com)

The law of limitation revolves around the basic concept of fixing or prescribing the time period for barring legal actions beyond that period. A concept widely acknowledged, in India, the law of limitation is governed by the Limitation Act, 1963[1]. As stated in its preamble, the Limitation Act, 1963 (“Act”) is an act to consolidate the laws for the limitation of suits and other proceedings and for purposes connected therewith.

As observed in the 89th Report of the Law Commission of India[2], the laws of limitation are ultimately based on justice and convenience. An individual should not live under the threat of possible action for an indefinite period, and at the same time, should be saved from the task of defending a stale cause of action, as it would be unjust. The Report states, “all that has been said on the subject can be summarised by stating that the laws of limitation rest upon three main foundations – justice, convenience and the need to encourage diligence.” 

The very crux of having a limitation law in force is that a person cannot sleep over his rights[3] for an indefinite period and seek such remedy at a later stage. That being the tenet on which the law is based, there are several basic principles which the law states. These principles substantively affect the rights of parties. Recently, there has been a lot of commotion around the manner and the circumstances, in which the limitation law can be invoked in the context of the Insolvency and Bankruptcy Code, 2016 (‘Code’), though it is established now that the limitation law is applicable to the proceedings under the Code by virtue of section 238A.

In this article, we have made a humble attempt to analyse the various principles of the Limitation Act and its impact on the Code.

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Ablution by Resolution

The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019 seeks to wash out liability of corporate debtors resolved under IBC

-Sikha Bansal (resolution@vinodkothari.com)

 

Resolution under the Insolvency and Bankruptcy Code, 2016 (‘Code’) is a harbinger of fresh start of the corporate debtor, which passes into the control of a new management by the very application of section 29A. The fresh start would have no meaning if the corporate debtor or the new management thereof have to bear the brunt of offences which the corporate debtor or its officers committed prior to ablution under the Code – that is, one cannot be made to reap what they did not sow. As such, it was important to provide immunity to the corporate debtor and its assets, the successful resolution applicant and the new management personnel.

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Outstretching section 29A to realisations by secured creditors: Will it work?

-Sikha Bansal (resolution@vinodkothari.com)

Freedom is not worth having if it does not include the freedom to make mistakes.

                                                                                                                                                                    Mahatma Gandhi

If one collates all the discussion going on around section 29A of the Insolvency and Bankruptcy Code, 2016 (‘Code’), the concept has been outstretched so far that the idea of Mahatma, at least when applied to entrepreneurial traits, seems to be a distant dream.

In a recent ruling, State Bank of India v. Anuj Bajpai (Liquidator)[1], Hon’ble National Company Law Appellate Tribunal (‘NCLAT’) held that a secured creditor realising assets outside of liquidation under the Code cannot sell the assets to persons ineligible under section 29A. Read more

Personal Guarantors under IBC

-Megha Mittal

(resolution@vinodkothari.com)

The Ministry of Corporate Affairs, vide notification dated 15.11.2019, has notified sections 94-187 , read with section 60 of the Insolvency and Bankruptcy Code, 2016, dealing with insolvency resolution and bankruptcy process for non-corporate insolvency, insofar as they relate to personal guarantors to corporate debtors.  Further, the rules & regulations w.r.t. insolvency process of personal guarantors, along with regulations on bankruptcy process of personal guarantors have also been notified.

Our presentation on insolvency and bankruptcy process of personal guarantors to corporate debtors is here- http://vinodkothari.com/wp-content/uploads/2019/11/Personal-Insolvency-and-Bankruptcy-2019.pdf

 

Sectoral regulators empowered to petition insolvency of financial services providers: Central Govt notifies insolvency rules

Vinod Kothari

(resolution@vinodkothari.com

The Central Govt on 15th November notified rules of procedure for insolvency proceedings for financial services providers, thereby indicating that the resolution and liquidation process for financial services entities has been taken out from the proposed enactment dealing with distress of financial entities. Notably, the actions in case of distress of financial services firms is not limited to insolvency – regulators take prompt corrective action, depending on the severity of the distress.

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Group Insolvency: Moving from “Entity” to “Enterprise”

-Sikha Bansal (resolution@vinodkothari.com)

 

Recently, the Working Group led by Shri U.K. Sinha, submitted its Report on group insolvency, recommending a complete framework to facilitate insolvency resolution and liquidation of corporate debtors in a “group”. The Report was submitted by the working group on 23.09.2019.

See our presentation here on various aspects of group insolvency proceedings as suggested by the Working Group, and includes discussion on procedural coordination versus substantive consolidation along with case laws and case studies.

Timely Realisation of Assets by Secured Creditors- IBBI’s Discussion Paper on Liquidation Process Regulations

-Megha Mittal

(resolution@vinodkothari.com

The Insolvency and Bankruptcy Board of India (“IBBI”/ “Board”) has invited comments on its Discussion Paper on Corporate Liquidation Process[1], dated 03.11.2019 (“Discussion Paper”), which essentially deals with two issues which have been the focal point of contrasting opinions as well as judicial interpretation at various instances, i.e. (a) Relinquishment of Security Interest in Corporate Liquidation Process; and (b) Applicability of section 29A of the Code to Compromise and Arrangement.

In this article, the author has delved into the said issues based on the problem statement presented by the Board, and has also attempted to analyse the propose amendments in the Insolvency and Bankruptcy Code, 2016 (“Code”) w.r.t. relinquishment of security interest in corporate liquidation.

We shall discuss the applicability of section 29A of the Code to Compromise and Arrangement in a separate article.

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Schemes under Section 230 with a pinch of section 29A – Is it the final recipe?

-Sikha Bansal (resolution@vinodkothari.com)

Note: This article is in continuation of/an addition to our earlier article wherein the author discussed various aspects pertaining to schemes of arrangement in liquidation under section 230 of the Companies Act, 2013 read with various provisions of the Insolvency and Bankruptcy Code, 2016. The author has described various factors and principles which the judiciary may consider while sanctioning a scheme of arrangement for companies in liquidation, how a scheme is different from a resolution plan or a going concern sale, what constitutes ‘class’ in the context, whether the waterfall under section 53 will apply to such schemes, etc. The author also pointed out the lack of clarity as to applicability or inapplicability of section 29A on such schemes. However, very recently, NCLAT has clarified that persons ineligible under section 29A are not qualified to propose a scheme during liquidation. This Part discusses this ruling and ponders upon some questions which still remain open-ended/unanswered.


The conundrum as to whether section 29A of the Insolvency and Bankruptcy Code, 2016 (‘Code’) will apply to schemes under section 230 of the Companies Act, 2013 (‘Companies Act’) has been put to rest, at least for the time being, by a recent ruling of the National Company Law Appellate Tribunal (‘NCLAT’). In  Jindal Steel and Power Limited v. Arun Kumar Jagatramka & Gujarat NRE Coke Limited (Company Appeal (AT) No. 221 of 2018), vide order dated 24.10.2019, NCLAT held, while a scheme under section 230 is maintainable for companies in liquidation under the Code, the same is not maintainable at the instance of a person ineligible under section 29A of the Code. The NCLAT relied on the observation of the Hon’ble Supreme Court in Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors., WP No. 99 of 2018, that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation.

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