YEAR IN REVIEW: INSOLVENCY. Changes, challenges ahead for Insolvency and Bankruptcy Code

The year 2017 was a watershed year for the Insolvency and Bankruptcy Code (IBC) which was notified in late 2016. The first insolvency petition was filed by ICICI Bank in December 2016. It was foreseeable that this laudable and long-overdue legislation, would undergo its share of trial by fire throughout 2017.

In the case of Innoventive Industries, the Supreme Court held that once an interim resolution professional (IRP) takes charge of the insolvent company, the directors lose any right to prefer an appeal on its behalf.

The judgment in Mobilox Innovations removed all ambiguities regarding the extent to which the Adjudicating Authority can investigate the veracity of a “dispute” for the purposes of a notice under Section 8. In Macquarie Bank,the Supreme Court made a purposive interpretation while empowering an advocate to send a demand notice on behalf of an Operational Creditor.

In Lokhandwala Kataria Construction, NCLAT held that, under IBC, financial creditors cannot withdraw insolvency application by mutual settlement after admission, to the detriment of the interests of other creditors.

However, the Supreme Court, exercising its inherent powers under Article 142, allowed such withdrawal pursuant to mutual settlement between the parties.

In June, the RBI issued a press release asking banks to initiate insolvency proceedings against 12 large corporate debtors who cumulatively owed a debt of 1.9 lakh crore.

Essar Steel challenged the circular before the Gujarat High Court which was ultimately dismissed. But the RBI, in the meanwhile, amended the press release where it had asked the NCLT to accord priority to the12 firms.

While the matter is pending resolution, one interesting twist was the challenge by home buyers to the insolvency proceedings against Jaypee, before the Supreme Court. The Supreme Court has now undertaken the exercise to restore equity in favour of the home buyers by ensuring them refund of money or delivery of homes.

August witnessed the approval of the first insolvency resolution scheme by the NCLT in the Synergies-Dooray Automotive case.

In November, the Insolvency and Bankruptcy (Amendment) Ordinance was passed which prevented promoters of an insolvent company from bidding for the assets of the same. This was challenged before the Punjab and Haryana High Court by RMS Pvt Ltd and other debtors before various high courts. In December, in Unigreen Global and Leo Duct Engineers case, the National Company Law Appellate Tribunal (NCLAT) held that the Adjudicating Authority, while admitting a Section 10 Application for voluntary insolvency resolution, cannot go beyond the records which had to be submitted in Form 6 (Rules).

RCom now faces an insolvency petition filed by China Development Bank. Also, according to the RBI mandate, banks will refer 24 more stressed accounts for insolvency resolution.

Year 2018 promises to be full of interesting developments vis-à-vis the IBC, particularly on the fate of the Insolvency Ordinance, fruition of the insolvency proceedings of the 12 large debtors, further developments in the Jaypee and RCom cases and what would be the fate of the 24 accounts identified by the RBI.

According to news reports, the government plans to make further amendments to the IBC. This development will also be interesting.

(Monish Panda is Founder, Monish Panda and Associates, where Amit Bhattacharya is an Advocate).