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Time Limit For Completion of Insolvency Resolution Process Under IBC

By: Amrita Sachidanandan, Advocate

As per Section 12(1) of the Insolvency and Bankruptcy Code, 2016 (IBC), the Corporate Insolvency Resolution Procedure (CIRP) should be completed within 180 days from the date of admission of application of initiation of such CIRP process. However, Resolution Professional (RP) can file an application before the Adjudicating Authority to extend such CIRP process beyond 180 days provided that the Committee of Creditors (CoC) have passed a resolution by a vote of 66 (Sixty Six)% of voting shares. The CIRP process has to be mandatorily completed within 330 days, failing which the Adjudicating Authority will initiate a liquidation procedure under Chapter III of the Code.
The time period prescribed by the Code is the maximum time provided for the completion. There may be situations in which a resolution process can be finished earlier than the maximum time frame allowed. IBC regulation allows for 180 days for CIRP completion. Nonetheless, the IRP/RP and members of CoC should make every effort to move the situation along and strive to finalise the resolution plan in a timely manner rather than preferring to wait for the expiration of the statutory period of 180/270 days allowed by the IBC.

Extension of the time limit

As per Section 12(1) of Insolvency & Banking Code, 2016, CIRP shall be completed within a period of 180 days from the date of admission of the application to initiate such process.
As per Regulation 40 of CIRP Regulations, 2016, the RP may move an application before the adjudicating authority seeking an extension of the period mentioned above if instructed to do so by a resolution passed at a meeting of the CoC by a vote of sixty-six per cent of the voting shares. On receipt of an application, if the AA is satisfied that CIRP cannot be completed within 180 days, it may order to extend the duration of such process beyond 180 days, but not exceeding 90 days. However, any extension of the period of CIRP shall not be granted more than once.
Amendment to Section 12 of IBC requires the completion of the CIRP within a maximum period of 330 days, including any extension granted. Therefore, the time limit of 180 days + 90 days remains unchanged and the intent is to provide an additional period of 60 days (330-270). Where the IRP of the Corporate debtor is pending and has not been completed within the period of 330 days, such process shall be completed within a period of 90 days from the date of commencement of the IBC (Amendment) Act, 2019.

Hon’ble Supreme Court in the matter of Committee of Creditors of Essar Steel India Limited through Authorised Signatory Vs. Satish Kumar Gupta & Ors. [2019] where the Court held that while leaving the provision otherwise intact, the term “mandatorily” is struck down as being manifestly arbitrary under Article 14 of the Constitution of India and as being an unreasonable restriction on the litigant’s right to carry on business under Article 19(1)(g) of the Constitution. This declaration has the consequence that the period required for the CIRP must typically be completed within 330 days of the insolvency commencement date, including extensions and the time rn for judicial processes. It may be possible for the AA eedodto and NCLAT to extend time past 330 days in such circumstances if the delay, or a significant portion of it, is due to the AA’s de NCLAT’s tardy process. Time extensions are only possible in rare circumstances; as a general rule, the corporate debtor has 330 days to resolve its stressed assets, at which point the debtor would be forced into liquidation.

Section 12 of the Code thus mandates that the CIRP of a Corporate Debtor must conclude within 330 days from the insolvency commencement date. This period of 330 days includes:
  1. Normal CIRP period of 180 days,
  2. One-time extension, if any, up to 90 days of such CIRP period granted by the Adjudicating Authority, and
  3. The time taken in legal proceedings in relation to the CIRP of the CD.

Conclusion

The creditors believe the company will survive and that a late-stage recovery is still feasible. The moratorium period gives the corporate debtor some breathing room to restructure its operations. For this, enough time is needed to contemplate the appropriate steps. Hence, the CoC may adopt a resolution at their meeting authorising the RP to request a time extension from the relevant authority. When the relevant authority determines that an extension of time is appropriate in this situation, it is given. The tribunal can see how the dispute is being resolved while it determines whether or not to grant the extension. As a result, the tribunal’s role is crucial in removing any ambiguities. By means of Amendment 2019, two provisos were added to Section 12(3) of the Code. It required that the CIRP be finished within 330 days of the insolvency procedure starting. These 330 days include time spent in legal processes relating to the CIRP of the corporate debtor, which typically takes 180 days, plus a one-time extension of up to 90 days if granted by the adjudicating authority.