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SC boost for NCLT PDF Print E-mail
Tuesday, 05 September 2017 04:07
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It underlines the need for speedy resolution of bad debts

Though the Supreme Court (SC) dismissed Innoventive Industries Limited’s appeal against the National Company Law Tribunal (NCLT) admitting the insolvency petition filed against it on grounds of national laws trumping state laws—Innoventive had argued it enjoyed protection under the Maharashtra Relief Undertaking Act—its import is far greater. At a time when most companies that have been unable to pay their debts are trying to approach the courts to slow down insolvency proceedings against them, the apex court chose to use the Innoventive case to make a larger point about insolvency proceedings in the country; in the words of the court, since “this is the very first application that has been moved under the (Insolvency and Bankruptcy) Code, we thought it necessary to deliver a detailed judgment so that all Courts and Tribunals may take notice of a paradigm shift in the law”.

The court held that adherence to the timelines specified in the Insolvency Code and the speed of the resolution process were critical to the effectiveness of the process. As the court pointed out, the objective of the insolvency law was to bring all processes under a single umbrella. “As per the data available with the World Bank in 2016, insolvency resolution in India took 4.3 years on an average … the World Bank’s Ease of Doing Business Index, 2015, ranked India as country number 135 out of 190 countries on the ease of resolving insolvency based on various indicia”. While giving its ruling, the court ruled that existing managements of defaulter companies simply had to be removed till a resolution was reached—with this ruling, no companies will be able to argue against the existing management being replaced by insolvency professionals. The judgment also quoted finance minister Arun Jaitley as saying the big difference between India’s Code and the US’ Chapter 11 is that the latter put powers in the hands of the debtor—and it is this type of protection that allowed debtor companies in India to pile up debt for decades instead of repaying creditors. If India has to move ahead in addressing the twin balance-sheet problems that plague both the banking and corporate sector, more powers in the hands of creditors is critical—and the SC has just reaffirmed its support for that line of thought. Tuesday’s SC stay in the Jaypee insolvency case, in favour of flat-owners, of course presents a new challenge that will have to dealt with.

 

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