The verdict of the Supreme Court on 15 November 2019, in the case of Committee of Creditors of Essar Steel India Limited through Authorised Signatory v Satish Kumar Gupta & Ors, has brought clarity to various key questions of law relating to the Insolvency and Bankruptcy Code, 2016 (IBC), such as the role to be played by the Committee of Creditors in the Corporate Insolvency Resolution Process, the scope of interference of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) in the decisions made by the Committee of Creditors, the manner of utilization of the profits of the corporate debtor during the corporate insolvency resolution process, the liability of the guarantors, the powers and constitution of a sub-committee by the Committee of Creditors, and the principal of equality between the secured and unsecured creditors.
By virtue of this landmark judgment banks will not only be able to recover most of their dues from Essar Steel but also from other borrowers, as the Supreme Court has unerringly identified the difference between the secured and unsecured creditors, which is of crucial importance to the banking sector in India for recovery of their dues.
While trying to satisfy the needs of all the creditors of the Committee of Creditors, the Supreme Court has definitely achieved the objective of resolution over liquidation of the IBC. If objectives of the IBC are to be achieved in a harmonious and holistic manner, then it is imperative to recognize that the wisdom of the financial creditors in the Committee of Creditors should supersede the tribunals or any other persons’ wisdom, unless there is a grave violation of any law/ regulation. This is because financial creditors generally have a better understanding of the business, and the viability of the corporate debtor, on account of information gathered by them prior to lending and a long-term interest based on the large amount of credit facilities that are given to the corporate debtor.
With the Supreme Court striking off the mandatory requirement of completing the corporate insolvency resolution process within 330/420 days, it may be noted that this would hamper the timely resolution objective of the IBC. A delay on account of any factor, whether ascribable to the fault of the litigants or not, should be minimized/eliminated by all means as it would otherwise thoroughly impact the value maximization and timely resolution objective of the IBC.
At the same time, with respect to the amendment to section 6 of the IBC Amendment Act, 2019, it would be incorrect to state that this is an amendment that lacks constitutional backing. This is because this amendment is beneficial for operational creditors and financial creditors, as they are now to be paid a certain minimum amount, which was not the case earlier.
Assistant Manager (legal), Axis Bank
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