On December 28, the President of India promulgated an ordinance to amend the Insolvency and Bankruptcy Code. A corporate debtor will no longer be liable for any offence committed before the corporate insolvency resolution process. No action including attachment, seizure, retention or confiscation of property of the corporate debtor can be taken in relation to an offence committed prior to the commencement of CIRP. The corporate debtor would also not be prosecuted for any such offence from the date of resolution plan being approved by the adjudicating authority.
We had previously seen proposals to introduce a threshold value for a class of homebuyers to initiate insolvency proceedings against a real estate developer. The government also introduced through the ordinance, a minimum threshold of 100 or 10 per cent home buyers whichever is lower, required to take a defaulting developer to the NCLT for starting the liquidation process. Groups of homebuyers have filed several writ petitions challenging this and as of January 13, the Supreme Court has ordered the maintenance of status quo.
Some key changes were also made to the process of liquidation. The IBBI has prohibited secured creditors from selling the assets of a company to any person restricted from submitting an insolvency resolution plan. With these changes, promoters will not be able to regain control of their insolvent firms through liquidation proceedings. The amendment also allows a secured creditor, who proceeds to realise its security interest, to contribute its share of the insolvency resolution process cost, liquidation process cost and workmen’s dues, within 90 days of the liquidation commencement date.
Dewan Housing Finance Corporation Limited is all set to become the first financier to land up in India’s bankruptcy courts. The Reserve Bank of India superseded its board to initiate the process of resolution not long after the Union government had empowered the central bank to refer stressed NBFCs and HFCs having assets worth at least Rs 500 crore to insolvency court.
Even as experts welcomed the move to provide guidelines for the speedy resolution of stressed financial service providers, they are worried about the ambiguities in these laws.
DHFL’s financial creditors include banks, mutual funds, pension funds, and deposit holders. So-called shadow banks such as DHFL have been key drivers of lending growth in India with their consolidated balance sheet over 28 trillion rupees in 2018-19.
DHFL’s insolvency will be by far the largest process handled by tribunals in the three years since the IBC was enacted.
The single-biggest recovery so far under the IBC, is coming to a long-delayed conclusion after ArcelorMittal initiated payment for the acquisition of debt-ridden Essar Steel for Rs 42,000 crore.
Insolvency and Bankruptcy Board of India chairman M S Sahoo has said that work is on to amend the Insolvency and Bankruptcy Code 2016 to address cross-border insolvency.
Data from IBBI shows that 587 out of the 1045 cases closed till now (56%) have gone into liquidation. 24 of them have completed the liquidation process and an order of dissolution has been passed. The sale proceeds from these accounts have been less than Rs 16 crore.
From the Docket
In Union Bank of India v. Oriental Bank of Commerce, the NCLAT stayed an order of the National Company Law Tribunal (“NCLT”) directing the Union of India, Ministry of Corporate Affairs (MCA) to be a party to all IBC cases filed before the NCLT.
In Embassy Property Developments v. State of Karnataka, the Supreme Court held that the High Court can entertain a writ petition against an order passed by the NCLT under IBC. It held that ‘the NCLT, being a creature of a special statute to discharge certain specific functions, cannot be elevated to the status of a superior court having the power of judicial review over administrative action.’ It further held that that claiming a fraudulent initiation of CIRP cannot be a ground to bypass the alternative remedy of appeal under Section 61 of the Code and hence the NCLT had the jurisdiction to enquire into allegations of fraud and so does the NCLAT.
The NCLAT in the case of ArcelorMittal India v. Abhijit Guhathakurta, Resolution Professional of EPC Constructions India, held that the proviso to Section 31(4) of the Code is directory in nature and not mandatory. This proviso related to obtaining the approval of the Competition Commission in cases where the resolution plan contains a provision for combination (as referred to in Section 5 of the Competition Act, 2002).
These were the updates for December. We will back soon with more news from the new year!