For understanding the exact conceptread these two definitions:-
Defination1:-Insolvency Commencement Date = date of admission of application for initiating Corporate Insolvency Resolution Procedure(CIRP) by the adjudicating authority(NCLT) u/s 7, 9 or 10, as the case may be.
Defination2:- Insolvency Resolution process period = period of 180days from the date of insolvency commencement date.
As per Section 12 of the Insolvency and Bankruptcy code, the whole procedure involved in the Corporate Insolvency Resolution Procedure (CIRP) should be completed within 180 days. However, same can be duly extended up to 90 days. In nutshell, the resolution procedure should be completed within 270 days, failing to which the Adjudicating Authority will initiate Liquidation procedure under Chapter III of the Code.
The request for such extension of the corporate resolution process beyond 180 days can be made by the resolution professional to adjudicating authority on passing of a resolution by at least 66% of the voting shares of the Committee of creditors (COC). The resolution professional will file an application with the Adjudicating Authority who if satisfied that the said resolution process cannot be completed within the period of 180 days, itmay extend the time period but the same shall not exceed 90 days, totaling to 270 days.
Point to be noted:-Extension period once granted, it cannot be granted again. The grant of extension has to be applied in prescribed manner mentioned in NCLT Rules.
Concept become crystal clear with this flow chart:-
What Supreme court says on the importance of time under IBC?
The Supreme Court has also passed a judgement on this matter under the insolvency and Bankruptcy Code, 2016 in M/s Surendra Trading Co. v. JK Jute Mills Co. Ltd wherein it was held by Hon’ble Supreme Court that ‘Time is the essence of Insolvency and Bankruptcy code’.It was thus adjudged that non-completion of the proceedings within the stipulated time given under section 12 of the Code will result in liquidation proceedings under section 33 of the said code.
Taking into consideration the provisions laid under this code, it can be said that the resolution procedure needs to be completed within 180 days. It is mandatory and only on passing of resolution by approval of least 66% of the voting shares of the Committee of creditors, one can file application before the adjudicating Authority for extensionupto 90 days.
Intention of Government: – In nutshell from above
It clearly shows that intention of Government is to shift their approach from revival and rehabilitation of sick and defaulting entities to recovering the loans for overall development of the economy and divert the resources/capital of the sick/ defaulting company to a more viable and feasible organization by giving shorter periods for completion of insolvency procedures. Such procedures are in tune with international standards of time limit.
To develop more understanding on the subject you may read our other blogs on Insolvency and bankruptcy code. https://www.easylegaltax.com/?s=ibc
Disclaimer: –This article is for the general information and awareness of its readers, In-case of any legal matter in relation with readers, they are expected to have legal opinion before placing reliance on it. Further it contains completely author’s views on the subject and completely unbiased based on authors own experience, study and understanding.
Author:- CA Udit Aggarwal (FCA, LLB, BCOM) is Chartered Accountant and Legal Consultant, academically he is highly qualified and have gone through various certifications. He extensively speaks and writes on finance, taxation and legal matters. The author can be reached at email@example.com
CO-AUTHOR:- Rajul Jain (CA, MCOM, LLB, MBA, CNPO, CPFA, and NCFM) is Chartered Accountant and Legal Consultant, academically he is highly qualified and have gone through various certifications. He extensively speaks and writes on finance, taxation and legal matters. The author can be reached at firstname.lastname@example.org