Rule change urged to allow insolvency proceedings halt

The Insolvency and Bankruptcy Code, 2016, primarily aims to achieve reorganization and insolvency resolution in a time-bound manner for maximizing the value of assets of insolvents. The National Company Law Tribunal (NCLT), the adjudicating authority under the code, works to that end. However, being a creature of statute the NCLT must function strictly within the parameters of powers conferred upon it by the code and the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (I&B Rules). This poses a challenge which, for the moment, has been resolved by the Supreme Court.

While it is settled law that winding up and liquidation proceedings under the Companies Act regime are not a substitute for debt recovery proceedings, time and again creditors moved for winding up of companies in the hope that the threat of liquidation would compel the companies to pay up. The high courts (exercising jurisdiction under the Companies Act) permitted the companies concerned to pay off the debts claimed in instalments as agreed between the parties at the pre-admission stage. Liquidation orders were passed only if the companies failed to pay according to the agreed schedule. Where the liquidation petition had been admitted and the company yet was able to settle with creditors, the high courts would permit such settlements but only after issuing notice to and hearing creditors.

Deepak Biswas is a partner and Sneha Jaisingh is a senior associate at Bharucha & Partners.