Critical Analysis on Insolvency and Bankruptcy Code, 2016

NCLT i.e. Adjudicating Authority (Section 5(1)) has recently held that after admission of petition, nature of petition changes to representative suit and the lis doesn’t remain only between operational creditor and operational debtor. Therefore, operational creditor and operational debtor alone have no right to withdraw the petition after admission. It also observed that after admission of the petition under IBC, 2016, the petition cannot be dismissed on the basis of compromise between Operational Creditor and Operational Debtor, because other creditors of the company have also right to file the claim.

The proceedings before the National Company Law Tribunals i.e. Adjudicating Authority across the country under Insolvency and Bankruptcy Code, 2016 are sometimes frightening. The Lawyers and professionals have to live up to the occasion to safeguard the interests of not only the Company, its creditors, shareholders and the entire gamut of stakeholders but also public interest which is essentially National Interest.

Corporate Debtor shall appoint an Insolvency Resolution Professional (IRP) for restructuring and revival of the company under section 10 of the Insolvency and Bankruptcy Code, 2016. Similarly, an Operational Creditor may and Financial Creditor shall also appoint an IRP for recovery of money leading to winding up of the company u/s 9 of the IBC?

There are many questions of law regarding the jurisdiction of Adjudicating authority and the insolvency resolution process. Some questions of law are being addressed by Hon’ble NCLAT and some of the questions remains impalpable.

QUESTION OF LAW:

1. Whether the Adjudicating Authority exercising its jurisdiction under the Insolvency and Bankruptcy Code, 2016 admitting the application for insolvency resolution, declaring moratorium, appointing an insolvency professional and directing public announcement of the insolvency resolution process at the instance of Operational Creditor simultaneously by the same Order is vulnerable, assailable, unreasonable and unjust?

2. Whether the Adjudicating Authority can violate basic mandate of law enunciated in section 20 of the Insolvency and Bankruptcy Code, 2016 grossly prejudicing its going concern status despite being a solvent company?

3. Whether the Adjudicating Authority can supersede principle of natural justice to admit an application for Insolvency Resolution under section 9(5) of the Insolvency and Bankruptcy Code, 2016 ex-parte without giving any notice/ opportunity of hearing to the Corporate Debtor?

4. Whether the Adjudicating Authority can surpass the basic principles of natural justice mandated and set forth by the  Hon’ble Apex Court in Maneka Gandhi vs. Union of India(AIR 1978 SC 597) pursuant to section 9(5) of the Code within 14 days of the receipt of the Application or even post admission hearing after admission of the an Application but before Appointment of an Interim Insolvency Professional pursuant to section 16 within 14 days after such admission and direction for public announcement pursuant to section 15 of the Code through the IRP, despite scope for complying under the same under the Code?

5. Whether the Adjudicating Authority bar the going concern status of the Corporate Debtor in its failure to issue a mandatory notice to the Corporate Debtor pursuant to section 9(5) (i) of the Insolvency and Bankruptcy Code, 2016 after admission but before appointment of an Interim Resolution Professional pursuant to the provisions of section 16 and directing him to make a public announcement of the corporate insolvency resolution process against the Corporate Debtor?

6. Whether the Adjudicating Authority has jurisdiction to admit an application under section 9(5) of the Code, declare a moratorium under section 14 of the Code, cause public announcement of the initiation of corporate insolvency resolution process and call for submission of claims under section 15 of the Code and appoint an interim resolution professional under section 16 of the Code all simultaneously by the same Order despite provision of 14 days of further time under section 16(1) of the Code from the date of insolvency commencement date i.e., the date of admission under the provisions of section 9(5)?

7. Whether the Adjudicating Authority has jurisdiction to refuse withdrawal of petition filed by an Operational Creditor after settlement of dues despite admission of an application for Initiation of Corporate Insolvency Resolution Process under the Code by an ex-parte Order?

8. Whether the Adjudicating Authority has jurisdiction to cause a public announcement for initiation of Corporate Insolvency Process and call for the submission of claim under section 15 by an ex-parte order?

9. Whether the Adjudicating Authority has power to allow the Interim Resolution Professional to continue even after 30 days, in the absence of Committee of Creditors resolving and referring him pursuant to the provisions of section 22 (2) of the Insolvency and Bankruptcy Code, 2016 to continue as a Resolution Professional or appoint someone else in his stead?

10. Whether the proceedings as enumerated from section 9 to Section 31 in the Code shall continue unabated even if a Corporate Debtor is found solvent?

11. Whether the resolution process will continue even after no creditors have made any claims against the public announcement to the Interim Resolution Professional except the banker/s of Corporate Debtor who certifies the account of the Corporate Debtor as standard?

12. Whether the Insolvency Resolution Process shall continue even after resolution plan is approved by the sole creditor i.e. banker of the Corporate Debtor, which declared the account of the Corporate Debtor as standard and certifies a cash flow statement and also statement of debtors and creditors of Corporate Debtor wherein the realizable debtors of the Corporate Debtor are more than of its valid creditors?

13. Whether the Operational/Financial Creditor has absolute right to withdraw the petition of corporate insolvency resolution process?

14. Whether the Corporate Debtor has basic legal right to represent itself in the proceeding of Insolvency Resolution Process to defend its case even after appointment of an Interim Resolution Professional or a Resolution Professional as the case may be, as envisaged under section 16 and section 22 of the Insolvency and Bankruptcy Code, 2016 respectively?

15. Whether it is a trite proposition of law continuing even after the adoption of Insolvency and Bankruptcy Code, 2016 that it is not enough merely to show that the Company has omitted to pay the debt despite service of statutory notice, it must further be shown that the Company omitted to pay, without reasonable excuse and conditions of insolvency in the commercial sense existed?

The way in which the Code is currently being executed prima facie seems to focus more on expeditiously functionalizing the law rather than effectively executing it. These concerns, if not addressed suitably, will defeat the purpose of enacting a new insolvency law to improve the recovery rate in order to promote the development of credit markets and entrepreneurship specially start-ups.