The year has seen significant developments in insolvency jurisprudence under the Insolvency and Bankruptcy Code, 2016 (IBC). Both the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) have played pivotal roles in shaping the interpretation and application of the IBC, ensuring a balance between creditor recoveries, corporate revival, and adherence to procedural fairness. This article exploresthe key trends and landmark rulings by NCLT/NCLAT over the past year and their implications for stakeholders.
Strengthening the Creditor-In-Control Framework
One of the cornerstones of the IBC is the principle of “creditor in control,” which vests decision-making power with the Committee of Creditors (CoC). NCLT/NCLAT rulings this year have consistently reinforced the supremacy of the CoC in approving resolution plans.
- Judicial Non-Interference with Commercial Wisdom: The appellate tribunal reiterated that judicial authorities must not interfere with the CoC’s commercial decisions unless these violate fundamental principles of the IBC. For example, in Pratap Technocrats Pvt Ltd v. Monitoring Committee of Reliance Naval & Engineering Ltd., the NCLAT upheld the CoC’s resolution plan approval, emphasizing that courts should not substitute their judgment for that of the creditors.
- Valuation and Haircuts: There has been a clear stance that while the quantum of “haircuts” for creditors may be debated, it is not within the tribunal’s purview to assess whether a resolution plan offers adequate value, as long as the plan adheres to statutory requirements. This has further strengthened the IBC’s intent of timebound resolutions.
Evolving Jurisprudence on Personal Guarantors
The liability of personal guarantors to corporate debtors has been a major area of focus this year. With the Supreme Court’s decision in 2021 upholding the validity of personal guarantor provisions under the IBC, the NCLT/NCLAT have dealt with several cases clarifying the extent of personal guarantors’ liabilities.
- Initiation of Insolvency Proceedings: Tribunals have held that creditors can simultaneously proceed against both the corporate debtor and its personal guarantor. In State Bank of India v. Anil Ambani, the NCLAT upheld the initiation of insolvency proceedings against the personal guarantor of Reliance Communications Ltd.
- Rights of Personal Guarantors: A related issue was the treatment of personal guarantors’ claims in resolution plans. Tribunals have sought to balance creditors’ rights with procedural fairness for guarantors, ensuring their inclusion in the resolution process. Notably, clarity is emerging on the interplay between personal guarantees and asset attachment under the SARFAESI Act, ensuring creditors don’t double-dip on recoveries.
Addressing Delays and Procedural Bottlenecks
While the IBC mandates a 330-day timeline for resolution, delays remain a recurring challenge. Over the past year, NCLT and NCLAT have taken a stricter stance against avoidable delays, emphasizing adherence to statutory timelines.
Expedited Hearings: Tribunals have proactively prioritized insolvency matters and discouraged adjournments, except in extraordinary circumstances. In Jaypee Infratech Ltd., the NCLAT directed the CoC to ensure timely resolution by actively engaging with resolution applicants, reducing the scope for litigation-induced delays.
Accountability for Delays: In cases like Committee of Creditors of Essar Steel v. Satish Kumar Gupta, tribunals highlighted the need for efficient coordination between stakeholders to prevent prolonged litigation. Additionally, rulings encouraged CoCs and resolution professionals (RPs) to streamline processes, such as quicker invitation and evaluation of bids.
Cross-Border Insolvency and Group Insolvencies
While India is yet to formally adopt the UNCITRAL Model Law on CrossBorder Insolvency, NCLT/NCLAT rulings have shown a growing willingness to address cross-border complexities and group insolvencies.
Recognition of Foreign Proceedings: In the case of Jet Airways (India) Ltd., the NCLAT upheld cooperation between Indian and Dutch insolvency professionals, signaling progress toward cross-border insolvency norms. This case exemplifies the potential for harmonizing insolvency frameworks across jurisdictions, even in the absence of formal legislative mechanisms.
Group Insolvencies: Tribunals have also dealt with cases involving insolveing corporate groups, where they emphasized the importance of consolidated resolution plans to maximize asset value. For instance, in the insolvency of Amtek Group companies, NCLT encouraged the CoC to develop holistic solutions rather than fragmenting the proceedings, to ensure coordinated recovery for stakeholders.
Pre-Packaged Insolvency for MSMEs
The introduction of the pre-packaged insolvency resolution process (PPIRP) for micro, small, and medium enterprises (MSMEs) has been a game-changer. NCLT has adjudicated several pre-pack cases this year, streamlining resolutions for distressed MSMEs.
Key Approvals: In some landmark approvals, NCLT stressed the importance of faster resolutions under PPIRP while ensuring compliance with transparency and procedural requirements. This has encouraged wider adoption of pre-packs by MSMEs.
Increasing Focus on Resolution Professional Accountability
The conduct of resolution professionals (RPs) has been under scrutiny, with NCLT/NCLAT emphasizing their fiduciary duty and accountability.
- Ethics and Transparency: In State Bank of India v. Metenere Ltd., the NCLT took strict action against an RP for failing to act in the best interests of stakeholders, reiterating that RPs must adhere to the highest ethical standards. Tribunals have also insisted on greater disclosures and proactive communication by RPs to ensure transparency in the resolution process.
- Professional Oversight: Tribunals have supported the Insolvency and Bankruptcy Board of India (IBBI) in penalizing erring RPs, ensuring greater discipline within the ecosystem. In multiple cases, the appellate tribunal directed the IBBI to audit RP performance and introduce measures for skill enhancement and capacity building.
Liquidation vs. Revival
Another key trend this year has been the tribunals’ nuanced approach toward liquidation cases. While resolution remains the preferred objective, NCLT/NCLAT have allowed liquidation where resolution is unviable.
- Liquidation as a Last Resort: In cases like Videocon Industries Ltd., tribunals underscored that liquidation should only be pursued when all avenues for resolution are exhausted. However, they also emphasized swift liquidation to maximize asset value.
- Sales as a Going Concern: Tribunals have encouraged sales of corporate debtors as a going concern during liquidation, preserving business value and employment.
Conclusion
The past year’s NCLT/NCLAT rulings highlight a maturing insolvency framework in India. These rulings reflect a consistent effort to uphold the objectives of the IBC while addressing evolving challenges, such as personal guarantor liabilities, cross-border insolvency, and procedural delays. Going forward, stakeholders can expect continued judicial guidance on complex insolvency issues, which will further strengthen the IBC’s role as a robust framework for corporate resolution and restructuring.