Increment in the threshold would be directly proportional to the reduction in filings before NCLT (Tribunal) and it would unburden the Tribunal substantially.
Factoring in the outbreak of COVID-19, the fret of becoming NPA has been at the pinnacle for small and medium-sized business industry. From the struggles in paying salaries to the employees to seeking deferment of repayment of loans & GST, the same has been mirroring the effects of the pandemic over the industry. Consideration of the prevailing unprecedented scenario wherein the spread of pandemic has created a situation of hue and cry globally, the Legislature, Executive and the Judiciary, in order to mitigate its adverse consequences, are consistently aiming to bring amendments in-laws, orders, notifications, and circulars.
Aiming protection to these business holders the MCA vide its notification dated 28.03.2020 has tried to relieve these entities by increasing the threshold limit for claim from Rs 1 lakh to Rs 1 crore, i.e. now insolvency proceedings cannot be triggered against the corporate debtor unless there is a minimum default of Rs 1 crore. With this in mind, the companies can now focus on stabilizing the business operations rather than being under the constant fear of inevitable insolvency.
It is imperative to understand the indispensable role played by the Apex Court and the NCLAT. The Apex Court vide its order dated 23.03.2020 in the “Suo moto writ petition(civil) 03/2020” has taken the cognizance of the probable hurdles and extended the period of limitation for proceedings before all Courts/Tribunals in the country with effect from 15.03.2020 till further order(s) which is having a direct implication in the matters pertaining to the insolvency. Thereafter, the IBBI in a move relieving various stakeholders including the RP has amended the CIRP Regulations vide notification dated 29.03.2020 by inserting Regulation 40 C excluding the period of the lockdown for the purposes of calculating the timeline for any activity.
Furthermore, NCLAT in its order dated 30.03.2020 in “Suo Moto – Company Appeal (AT) (Insolvency) No. 01 of 2020” taking reference of the dictum in “Quinn Logistics India Pvt. Ltd. vs. Mack Soft-Tech Pvt. Ltd” held that the period of lockdown shall be excluded for the purposes of CIRP and has ordered the continuance of the interim/stay order in any appeal under Companies Act, 2013 or Competition Act, 2002 passed by the Tribunal until the next hearing.
Similarly, the RBI in its notification dated 27.03.2020, mitigated the burden of debt by deferment of repayment of EMIs and Loan amount for a period of three months after the moratorium period from March 1, 2020, to May 31, 2020, on their outstanding.
It is imperative to point out the predominant challenges in the domain of IBC which includes overburdened Tribunal adversely affecting the disposal of the cases, though the government in order to mitigate took an initiative to increase the benches by appointing more Judicial and Technical Members. Despite these efforts, the harsh reality is that the number of pending cases is at zenith, causing a delay in disposal, directly affecting the economy of the country.
Another challenge requiring utmost attention is the adjudication of the resolution plan approval applications filed before the Tribunal. In simple terms, once the resolution plan is approved by the CoC, an application is to be filed before the Tribunal seeking approval of the same resulting in the takeover of the stressed corporate debtor by the resolution applicant on the going concern basis. However, it is unfortunate that such applications that require expeditious disposal are kept pending for a very long time adversely affecting the resolution applicant. Another challenge which is faced by the RP is the non-cooperation from the suspended BOD, the CoC, difficulty in implementing the business decision and adherence/compliance of strict timelines and compliances amounting to the derailment, creating an opportunity for the competitors to be way ahead of the Corporate Debtor and deterioration in the value of assets.
The way forward
Undoubtedly, the orders passed by the Hon’ble Supreme Court, Hon’ble NCLAT along the notification passed by the IBBI unequivocally grant the much-needed relief to all the stakeholders by taking measures such as extending the period of limitation and excluding the period of lockdown and also, it shall minimize the hardships which would have otherwise been faced by the Resolution Professional in complying with the various statutory requirements.
If we look and analyze these measures, it can be evidently deduced that increment in the threshold would be directly proportional to the reduction in filings before NCLT (Tribunal) and it would unburden the Tribunal substantially and thus it shall be taken as an opportunity by the Tribunal to focus on the speedy disposal of the pending cases so that the Corporate Debtor can run their business again. To an extent it shall prevent the fall of the economy by increasing employment rate since now it is highly probable that the pending cases pertaining to the approval of the resolution plan shall be dealt with expeditiously. Thus, if the NCLT gears up and decides on all pending resolution plans, then there will be an opportunity for jobs for the people in the Indian market.
(By CA Ramchandra D. Choudhary, Founder, Sun Resolution Professionals Pvt Ltd, and expert in the field of insolvency and bankruptcy laws)
Disclaimer: The author’s views are personal.