Government considers time limit for withdrawal of cases under IBC

Government considers time limit for withdrawal of cases under IBC 

No Exit Route

Companies referred to bankruptcy courts may not be allowed to leave the process once bids have been invited or a resolution plan has been accepted. 

90% of the creditors vote is necessary withdrawal.

The government is considering setting a time limit for withdrawing cases admitted for insolvency resolution, ending ambiguity on a key aspect of the procedure. A 14-member law committee on the Insolvency and Bankruptcy Code had recommended allowing retraction of applications if 90% of the creditors voted in favour of withdrawal.

The government wants to set a clear cut-off time

However, the panel had not specified a time limit for withdrawal of such cases. The government now wants to set a clear cut-off time, after which a reference under the code cannot be withdrawn.

“After a resolution plan has been accepted, no such withdrawal should be allowed... even after you have received all bids, such a move should not be permitted,” a senior government official told ET. This means that a settlement outside the insolvency resolution process may not be allowed once bid have been invited.

 Binani Cement Insolvency case  & UltraTech Cement Ltd offer

The issue of withdrawal of applications came to the fore when Binani Industries Ltd. sought to pull its debt-ridden subsidiary Binani Cement from the insolvency resolution process after UltraTech Cement LtdNSE 1.19 %. offered to acquire the company and pay off creditors. The Supreme Court rejected the plan and the National Company Law Tribunal ordered the lenders last week to consider a revised bid by UltraTech for Binani Cement and allowed Dalmia Bharat, which had been declared the highest bidder to match its offer.

SETTLEMENT WITHIN TIME FRAME WORK

The IBC committee chaired by corporate affairs secretary Injeti Srinivas had noted that there were instances of cases being withdrawn following a settlement reached between the debtor and applicant creditor. While the idea is that such settlements should be allowed, they should be within a framework that does not undermine the resolution process where bids have been called. 

Proposed changes by the IBC committee

The changes proposed by the IBC committee are likely to be made effective soon after some fine-tuning, the senior official added. Besides recommending a voting threshold for withdrawal of cases, the panel revised the level of majority voting to 66% for important decisions such as approval of resolution plans and allowing liquidation and to 51% for approval of routine matters. 

Changer of Rules Soon

The committee took note of judgements by the NCLT and the appellate tribunals to recommend that rules may be amended to provide for withdrawal of cases with the approval of 90% of the committee of creditors votes. 

It also said those entering into any backdoor arrangement with corporate debtors formally or informally, directly or indirectly, should be barred from bidding for the insolvent company by bringing them within the scope of the definition of connected people. The government is likely to issue an ordinance to give effect to the changes.

Courtesy : The Economic Times 

NOTIFICATION OF SECTION 227 TO 229 OF IBC CODE 2016 BY CENTRAL GOVERNMENT OF INDIA

NOTIFICATION OF SECTION 227 TO 229 OF IBC CODE 2016 BY CENTRAL GOVERNMENT OF INDIA

Central Government hereby appoints the 1st day of May, 2018 as the date on which the provisions of Section 227 to Section 229 of Insolvency and Bankruptcy Code, 2016 shall come into force.

POWER OF CENTRAL GOVERNMENT TO NOTIFY FINANCIAL SERVICE PROVIDERS, ETC.

227. Notwithstanding anything to the contrary examined in this Code or any other law for the time being in force, the Central Government may, if it considers necessary, in consultation with the appropriate financial sector regulators, notify financial service providers or categories of financial service providers for the purpose of their insolvency and liquidation proceedings, which may be conducted under this Code, in such manner as may be prescribed.

ANNUAL BUDGET TO BE PREPARED BY IBBI

228. The Board shall prepare, in such form and at such time in each financial year as may be prescribed, its budget for the next financial year, showing the estimated receipts and expenditure of the Board and forward the same to the Central Government.

ANNUAL REPORT TO BE PREPARED BY IBBI

229. (1) The Board shall prepare, in such form and at such time in each financial year as may be prescribed, its annual report, giving a full account of its activities during the previous financial year, and submit a copy thereof to the Central Government.

(2) A copy of the report received under sub-section (1) shall be laid, as soon as may be after it is received, before each House of Parliament.

An insolvency professional who has been issued a show cause notice shall not accept any fresh assignment- IBBI

An insolvency professional who has been issued a show cause notice shall not accept any fresh assignment- IBBI

Commencement of Disciplinary Proceeding

The Insolvency and Bankruptcy Code, 2016 (Code) envisages that an insolvency professional may be appointed as interim resolution professional, resolution professional, liquidator, or a bankruptcy trustee if no disciplinary proceeding is pending against him. Some of these provisions are extracted at Annexure A. 2.

Issue of Show Cause Notice

The Code, however, does not define ‘disciplinary proceeding’. Section 219 envisages issue of show cause notice following an inspection or investigation and section 220 envisages constitution of a disciplinary committee for consideration of the inspection or investigation report. 

Various regulations made under the Code envisage issue of show cause notice based on findings of an inspection or investigation or on material otherwise available on record. They also envisage constitution of disciplinary committee for disposal of show cause notice.

Disposal by Disciplinary Committee

A show cause notice is issued after application of mind to the material available on record or on consideration of the inspection or investigation report. The disciplinary committee disposes of the show cause notice by a reasoned order in adherence to principles of natural justice.

reasoned order

The reasoned order carries the determination of contravention, if any, of the provisions of the Code, the rules and regulations, or guidelines, directions or orders issued by the Insolvency and Bankruptcy Board of India.

INSOLVENCY PROFESSIONAL CANNOT ACCEPT NEW ASSIGNMENTS

Thus, a disciplinary proceeding commences with the issue of show cause notice and concludes with the disposal of show cause notice by a reasoned order.

 It is, therefore, clarified that

(i)             a disciplinary proceeding is considered as pending against an insolvency professional from the time he has been issued a show cause notice by the Insolvency and Bankruptcy Board of India till its disposal by the disciplinary committee; and

(ii) An insolvency professional who has been issued a show cause notice shall not accept any fresh assignment as interim resolution professional, resolution professional, liquidator, or a bankruptcy trustee under the Code.

WHETHER LIMITATION ACT,1963 IS APPLICABLE TO IBC ,2016?

WHETHER LIMITATION ACT,1963 IS APPLICABLE TO IBC ,2016?

LIMITATION ACT ,1963

The Limitation Act, 1963, proposes a time limit for diverse suits within which an injured party can approach the court. The purpose of limitation laws is as follows:

·       To force a litigant to be meticulous in pursuing remedies in a Court of law; and

·       To circuitously penalize those who are not active i.e. who did not approach the Court and/ or did not initiate legal action to recuperate their dues.

The importance of the Limitation Act is not to extinguish the privileges but it is originated on public policy setting a life period for legal relief for over-all welfare. An aggrieved person who did not quickly react to claim his privileges should lose them as shale claims makes the court no time to attend sharply to more current and crucial matters.

Article 137 of the Limitation Act 1963

According to the Article 137 of the Limitation Act 1963 ‘The period of limitation for any other application for which no period of limitation is provided elsewhere in this Division is three years and the limitation commences from the date when the right to apply accrues’.

Deem Roll-Tech Limited v. M/S R.L. Steel & Energy Ltd

In Deem Roll-Tech Limited v. M/S R.L. Steel & Energy Ltd, NCLT held that in the absence of any specific bar in the IBC to the application of the Limitation Act, 1963 coupled with the provisions of Sec. 433 of the Act as contained in the Companies Act 2013 which makes Limitation Act applicable to this Tribunal the debt as claimed by the petitioner is barred by limitation and hence cannot be the basis for invoking IBC before this Tribunal"

In Black Pearls Hotels Pvt. Ltd. vs Planet M Retail Ltd 

The consideration that arose was whether the application preferred by Appellant-operational creditor (Black pearls hotel Pvt ltd.) was barred by limitation. The appellant contended that Insolvency and Bankruptcy code, 2016 came into force with effect from 1st December, 2016. Therefore the right to apply under I&B code accrues only on or after 1st December, 2016, and not before the said date thus the application cannot be said to be barred by limitation.

The judgment of the Appellate tribunal was appealed by the corporate debtor before the Supreme Court by way of a civil appeal, the Supreme Court dismissed the appeal while keeping the question on the applicability of Limitation Act to the Code open, which once again leaves the question unanswered. 

NCLAT in Neelkanth Township held that limitation Act does not applicable to IBC 2016

Nevertheless, the position seems to have now been changed with the ruling given by Appellate Tribunal NCLAT in Neelkanth Township and Construction Pvt. Ltd. v. Urban Infrastructure Trustees Limited.25The NCLAT held that there is nothing on the record that Limitation Act, 1963 is applicable to I&B Code. There is no provision of the I&B Code which suggest that the Law of Limitation is applicable.

B.K Educational Services Pvt Ltd vs. Parag Gupta & Associates, 

Where Supreme Court stayed the order of National Company Law Appellate Tribunal which stated that the provisions of the limitation act were not applicable for initiation of Corporate Insolvency Resolution Process under Insolvency and Bankruptcy code. The matter came up in an appeal filed by B.K Educational Services Pvt Ltd against the order of NCLAT contending that the NCLAT failed to consider various decisions of the Supreme Court wherein the court had held that the Limitation Act was based upon the policy to fix a life span of legal remedy for the purpose of general welfare. 

Where Supreme Court in this case stayed the order of National Company Law Appellate Tribunal which stated that the provisions of the limitation act were not applicable for initiation of Corporate Insolvency Resolution Process under Insolvency and Bankruptcy code. 

Speculum Plast Pvt. Ltd. vs. PTC Techno Pvt. Ltd

NCLAT held that the Limitation Act is not applicable for initiation of CIRP. law is settled in terms of the judgment of NCLAT that Limitation Act is not applicable to proceedings under the Code in absence of any authoritative pronouncement by Hon’ble Supreme Court

SUPREME COURT YET TO DECIDE WHETHER LIMITATION ACT IS APPLICABLE TO IBC 2016

The Hon'ble Supreme Court, in the appeal filed against the Neelkanth Judgment, has not decided the question of the limitation being applicable to insolvency proceedings and kept the same open, there is presently no conclusive position on the controversy as on date.