India: Commencement Of A New Era Of Corporate Insolvency Resolution- The Insolvency And Bankruptcy Code, 2016 Close To Being Fully Implemented

Introduction

With the fast paced release of notifications and rules one after the other in the last quarter of 2016, much of the Insolvency and Bankruptcy Code, 2016 (Code) has come into operation. Moving ahead, the Working Group 4 set up by the Ministry of Corporate Affairs to provide recommendations on regulation for Information Utilities (IUs) (Working Group for IUs), recently released its report on IUs, including the draft regulations thereon for public comments¹. These regulations are the final leg of institutional framework for insolvency resolution and liquidation of corporate persons. Simultaneously, the National Company Law Tribunal (NCLT), which is the adjudicating authority for corporate insolvency, passed an order on January 17, 2017² (Admission Order) admitting the first case for corporate insolvency in terms of the Code, thereby giving life to the new insolvency regime.

Admission order passed in the first case of corporate insolvency resolution

After the release of notifications on corporate insolvency along with the rules for making Application to Adjudicating Authorities, in November 2016, the first application for corporate insolvency resolution was taken up by the NCLT, Mumbai on December 22, 2016 by ICICI Bank Limited against an industrial undertaking, being Innoventive Industries Limited. This case was a subject of much scrutiny considering that it was the first matter under the new insolvency regime and was expected to kick start implementation of the corporate insolvency process under the Code. Even though as per section 10 (4) of the Code, the NCLT should have passed an order within 14 days of the receipt of the application, either accepting or rejecting such application, the order came to be passed only on January 17, 2017 whereby the NCLT, Mumbai admitted its first case under Part –II of the Code. It is reported that Innoventive Industries Limited has moved before the Bombay High Court by way of a writ petition challenging the constitutional validity of the power to initiate and admit corporate insolvency against a corporate debtor without giving notice or an opportunity of hearing to the said debtor as envisaged under the Code and also contending the in applicability of the new legal regime to defaults committed prior to the enforcement of the Code.³

Draft Regulations on IUs released

In addition to the above, by way of a press release dated January 17, 2017⁴, the Insolvency and Bankruptcy Board of India (IBBI) released the report of Working Group for IUs, which includes draft regulations on IUs and invited public comments on the same by February 7, 2017.

These draft regulations are the last leg of regulations required for setting up the institutional infrastructure envisaged under the Code. Earlier in November 2016, the IBBI had released the final regulations for Insolvency Professionals and Insolvency Professional Agencies.

The report of the Working Group for IUs⁵ is a detailed one, providing an insight into the legislative intent behind setting up of IUs vis-à-vis the objective of the Code. Considering that the information stored with IUs is of a highly confidential nature and will have a substantial evidentiary value before a court of law, strict guidelines have been prescribed for accepting, verifying, storing and publishing the information in a standardized manner by the IUs. Amongst other things, it is also observed that the Working Group for IUs has strongly recommended technology savvy methods for collecting data and encrypting it for preventing any leakage thereof, including assignment of a unique identity number for each debt.

Conclusion

The aforesaid developments have significantly added fuel to the machinery of legal regime on corporate insolvency under the Code. The dawn of a new era of insolvency resolution has arrived and it is reasonably predicted that in the coming few months the Code shall be fully operational with its complete institutional infrastructure in place. The biggest challenge that needs to be overcome to ensure the successful operation of the new regime is adherence to the stringent timelines prescribed under the Code. Additionally, the outcome of writ petition filed by Innoventive Industries Limited before the Bombay High Court for testing the constitutional validity of the provisions of the Code shall be critically awaited.

Footnotes

1 Report of the Working Group on Information Utilities available at http://www.ibbi.gov.in/wg-04report.pdf

2 Order dated January 17, 2017 passed by the Mumbai bench of NCLT in the Company Petition No. 01/I & BP/NCLT/MAH/2016 (ICICI Bank Ltd. v. M/s Innoventive Industries Ltd.), available at http://nclt.gov.in/Publication/Mumbai_Bench/2017/Others/Innoventive%20Industries%20Ltd..pdf

3 Sangita Mehta, 'Innoventive Industries moves Bombay High Court', article published in Economic Times, Mumbai on January 20, 2017 available at http://economictimes.indiatimes.com/markets/stocks/news/innoventive-industries-moves-bombay-hc/articleshow/56684499.cms

4 available at http://www.ibbi.gov.in/press_release17jan.html

5 supra at 1

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