Amendments to existing lawsLegislation Updates

The Union Cabinet has approved the proposal to make amendments in the Insolvency and Bankruptcy Code, 2016 (code), through the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019.

The amendments aim to remove certain difficulties being faced during the insolvency resolution process to realise the objects of the code and to further ease doing of business.

Details of the Proposal

The Amendment Bill seeks to amend Sections 5(12), 5(15), 7, 11, 14, 16(1), 21(2), 23(1), 29A, 227, 239, 240 and insert new Section 32A in the Insolvency and Bankruptcy Code, 2016 (Code).

Impact

  1. Amendments to the Code to remove bottlenecks, streamline the CIRP and protection of last-mile funding will boost investment in financially distressed sectors.
  2. Additional thresholds introduced for Financial Creditors represented by an authorized representative due to large numbers in order to prevent frivolous triggering of the Corporate Insolvency Resolution Process (CIRP).
  3. Ensuring that the substratum of the business of the corporate debtor is not lost, and it can continue as a going concern by clarifying that the licenses, permits, concessions, clearances, etc. cannot be terminated or suspended or not renewed during the moratorium period.
  4. Ring-fencing corporate debtor resolved under the IBC in favour of a successful resolution applicant from criminal proceedings against offences committed by previous management/promoters.

Cabinet

[Press Release dt. 11-12-2019]

[Source: PIB]

Hot Off The PressNews

It may be recalled that in exercise of powers under Section 45-IE (5) (a) of the Reserve Bank of India Act, 1934, the Reserve Bank had, on November 22, 2019, constituted a three-member Advisory Committee to assist the Administrator of DHFL in the discharge of his duties. The members of the Committee are:

  1. Dr Rajiv Lall, Non-Executive Chairman, IDFC First Bank Ltd.
  2. Shri N.S. Kannan, MD & CEO, ICICI Prudential Life Insurance Company Ltd.
  3. Shri N.S. Venkatesh, Chief Executive, Association of Mutual Funds in India.

2. Upon admission of the petition for insolvency resolution process by the NCLT in respect of DHFL vide order dated December 3, 2019, the Reserve Bank has decided that the above mentioned three-member Committee shall continue as the Advisory Committee constituted under Rule 5 (c) of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019. The Advisory Committee shall advise the Administrator in the operations of the DHFL during the corporate insolvency resolution process.


Reserve Bank of India

[Press Release dt. 04-12-2019]

Amendments to existing lawsLegislation Updates

As reported by ANI, Parliament has approved the Insolvency and Bankruptcy (Amendment) Bill, 2019 which will amend the Insolvency and Bankruptcy Code, 2016.

To fill the critical gaps in the corporate insolvency framework, Insolvency and Bankruptcy Code (Amendment) Bill, 2019 has been introduced.

The critically analysed 7 seven amendments that will be incorporated are as follows:

(a) to amend clause (26) of Section 5 of the Code so as to insert an Explanation in the definition of “resolution plan” to clarify that a resolution plan proposing the insolvency resolution of corporate debtor as a going concern may include the provisions for corporate restructuring, including by way of merger, amalgamation and demerger to enable the market to come up with dynamic resolution plans in the interest of value maximisation;

(b) to amend sub-section (4) of Section 7 of the Code to provide that if an application has not been admitted or rejected within fourteen days by the Adjudicating Authority, it shall provide the reasons in writing for the same;

(c) to amend sub-section (3) of Section 12 of the Code to mandate that the insolvency resolution process of a corporate debtor shall not extend beyond three hundred and thirty days from the insolvency commencement date, which will include the time taken in legal proceedings, in order to prevent undue delays in the completion of the Corporate Insolvency Resolution Process. However, if the process, including time taken in legal proceedings, is not completed within the said period of three hundred and thirty days, an order requiring the corporate debtor to be liquidated under clause (a) of sub-section (1) of Section 33 shall be passed. It is clarified that the time taken for the completion of the corporate insolvency resolution process shall include the time taken in legal proceedings;

(d) to insert sub-section (3A) in Section 25A of the Code to provide that an authorised representative under sub-section (6A) of Section 21 will cast the vote for all financial creditors he represents in accordance with the decision taken by a vote of more than fifty per cent. of the voting share of the financial creditors he represents, who have cast their vote, in order to facilitate decision making in the committee of creditors, especially when financial creditors are large and heterogeneous group;

(e) to amend sub-section (2) of Section 30 of the Code to provide that–

(i) the operational creditors shall receive an amount that is not less than the liquidation value of their debt or the amount that would have been received if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priorities in Section 53 of the Code, whichever is higher;

(ii) the financial creditors who do not vote in favour of the resolution plan shall receive an amount that is not less than the liquidation value of their debt;

(iii) the provisions shall apply to the corporate insolvency resolution process of a corporate debtor–
(A) where a resolution plan has not been approved or rejected by the Adjudicating Authority; or
(B) an appeal is preferred under Sections 61 or 62 or such appeal is not time-barred under any provision of law for the time being in force; or
(C) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan;

(f) to amend sub-section (1) of Section 31 of the Code to clarify that the resolution plan approved by the Adjudicating Authority shall also be binding on the Central Government, any State Government or any local authority to whom a debt in respect of payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, including tax authorities;

(g) to amend sub-section (2) of Section 33 of the Code to clarify that the committee of creditors may take the decision to liquidate the corporate debtor, in accordance with the requirements provided in sub-section (2) of Section 33, any time after the constitution of the committee of creditors under sub-section (1) of Section 21 until the confirmation of the resolution plan, including at any time before the preparation of the information memorandum.

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A two-member bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Justice Bansi Lal Bhat, Member (Judicial) dismissed an appeal filed by the Corporate Debtor against the initiation of Insolvency Resolution Process.

The Financial Creditor had granted a loan of Rs 1.02 crores to the Corporate Debtor which they were unable to repay. The Financial Creditor took recourse to arbitration and an award was passed favouring the Financial Creditor. The Corporate Debtor failed to comply with the award. Consequently, the Financial Creditor triggered the Insolvency Resolution Process. The appellant – a shareholder of Corporate Debtor – assailed the initiation of the process on the ground that there was an internal dispute among the directors which was pending adjudication under Section 241 and 242 of the Companies Act, 2013 before National Company Law Tribunal, New Delhi.

The Appellate Tribunal perused the entire scheme of the Insolvency and Bankruptcy Code regarding the Insolvency Resolution Process. It was observed that internal dispute among directors of the Corporate Debtors does not construe a valid defence to triggering of the process. Furthermore, it could not be defeated by taking resort to pendency of matter before the NCLT under Companies Act. The Code is a special law having an overriding effect on any other law as mandated by Section 238. The factum of default and non-compliance with arbitral award was not disputed by the Corporate Debtor; and thus, the Financial Creditor was well within its right to initiate the process. The appeal was held to be frivilous and costs amounting to Rs 1 lakh were imposed. The appeal was, thus, dismissed. [Jagmohan Bajaj v. Shivam Fragrances (P) Ltd.,2018 SCC OnLine NCLAT 413, dated 14-08-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal: Order of the Adjudicating Authority rejecting the application filed by the petitioners under Section 7 of the Insolvency and Bankruptcy Code 2016, was set aside by a two-member bench comprising of S.J. Mukhopadhaya, Chairperson and Bansi Lal Bhat, Judicial Member.

The petitioners were financial creditors of the respondent company. They filed an application under Section 7 for initiating the insolvency resolution process. However, such an application was rejected by the Adjudicating Authority observing that the application did not disclose ‘dates of default’. The petitioners were in appeal against the said order of the Adjudicating Authority.

The NCLAT after considering the record held that the impugned order was not sustainable. The application was rejected on technical grounds. As stated by the petitioners, there was only a typographical defect as to the dates mentioned in the application, which could have easily been corrected. The Tribunal held that before rejecting petitioners’ application, the Authority must give opportunity to the applicants to rectify defect. In absence of such an opportunity, the impugned order was set aside. Appeal was accordingly disposed of. [Satyaprakash Aggarwal v. Vistar Metal Industries (P) Ltd., 2018 SCC OnLine NCLAT 264, dated 21-05-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, New Delhi: In the order passed by INA Malohtra (Judicial Member), S.K. Mohapatra (Technical Member), for the petition filed under Section 9 of Insolvency and Bankruptcy Code, 2016 in regards to seek the payment of his fee for services rendered by him towards the respondent stands allowed. The plaintiff mentioned that despite his repeated demands for payment, for the services rendered in the course of May 2016 and July 2016, the respondent failed to liquidate his liability. Satisfied by the claims of petitioner, the Tribunal held that the petitioner is entitled to initiate the ‘Insolvency Resolution Process’ against the respondent for payment of his dues.

The Tribunal issued a moratorium, to come into effect as per Section 14 of the Code, with the following directions-

1. Prohibition of institution of suits against respondent in any court of law, tribunal, arbitration panel or authority

2. Prohibition of transferring any of the assets of the respondent

3. Prohibition of recovery through security interest created by the respondent

4. Recovery of property owned or in possession of the respondent

Also, the Tribunal further directed that the services being rendered to the respondent shall not be terminated during the moratorium period, and that the Interim Resolution Professional should take necessary steps as per Sections 15, 17 and 18 of the Code. Furthermore, on account of the petitioner, the Tribunal observed that, documents submitted including the certification that proves that there is no disciplinary proceeding against him, is admissible, hence concluding to allow the petition, since it fulfilled all the required criterion for invoking the Resolution Process. [Toll Global Forwarding Private Ltd. v. Sarash Exports Services Private Ltd., 2017 SCC OnLine NCLT 2000, decided on 22-11-2017]

Legislation UpdatesStatutes/Bills/Ordinances

The promulgation of the Banking Regulation (Amendment) Ordinance, 2017 inserting two new Sections (viz. 35AA and 35AB) after Section 35A of the Banking Regulation Act, 1949 enables the Union Government to authorize the Reserve Bank of India (RBI) to direct banking companies to resolve specific stressed assets by initiating insolvency resolution process, where required. The RBI has also been empowered to issue other directions for resolution, and appoint or approve for appointment, authorities or committees to advise banking companies for stressed asset resolution.

This action of the Union Government will have a direct impact on effective resolution of stressed assets, particularly in consortium or multiple banking arrangements, as the RBI will be empowered to intervene in specific cases of resolution of non-performing assets, to bring them to a definite conclusion.

The Government is committed to expeditious resolution of stressed assets in the banking system. The recent enactment of Insolvency and Bankruptcy Code (IBC), 2016 has opened up new possibilities for time bound resolution of stressed assets. The SARFAESI and Debt Recovery Acts have been amended to facilitate recoveries. A comprehensive approach is being adopted for effective implementation of various schemes for timely resolution of stressed assets.

Ministry of Finance

THE BANKING REGULATION (AMENDMENT) ORDINANCE, 2017

No. 1 of 2017

Promulgated by the President in the Sixty-eighth Year of the Republic of India.

An Ordinance further to amend the Banking Regulation Act, 1949.

Whereas the stressed assets in the banking system have reached unacceptably high levels and urgent measures are required for their resolution;

AND WHEREAS the Insolvency and Bankruptcy Code, 2016 has been enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets to promote entrepreneurship, availability of credit and balance the interest of all the stakeholders;

AND WHEREAS the provisions of Insolvency and Bankruptcy Code, 2016 can be effectively used for the resolution of stressed assets by empowering the banking regulator to issue directions in specific cases;

And WHEREAS Parliament is not in session and the President is satisfied that circumstances exist which render it necessary for him to take immediate action;

NOW, THEREFORE, in exercise of the powers conferred by clause (7) of Article 123 of the Constitution, the President is pleased to promulgate the following Ordinance:—

1. Short title and commencement.– (i) This Ordinance may be called the Banking Regulation (Amendment) Ordinance, 2017.

(2) It shall come into force at once.

2. Insertion of new Sections 35AA and 35AB.–In the Banking Regulation Act, 1949, after Section 35A, the following sections shall be inserted, namely:—

35AA. Power of Central Government to authorise Reserve Bank for issuing directions to banking companies to initiate insolvency resolution process.– The Central Government may by order authorise the Reserve Bank to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016.

Explanation.—For the purposes of this section, “default” has the same meaning assigned to it in clause (12) of section 3 of the Insolvency and Bankruptcy Code, 2016.

35AB. Power of Reserve Bank to issue directions in respect of stressed assets.– (1) Without prejudice to the provisions of Section 35A, the Reserve Bank may, from time to time, issue directions to the banking companies for resolution of stressed assets.

(2) The Reserve Bank may specify one or more authorities or committees with such members as the Reserve Bank may appoint or approve for appointment to advise banking companies on resolution of stressed assets.’.

PRANAB MUKHERJEE,

President.