CORPORATE INSOLVENCY LAW AND PRACTICE

SEMESTER II

Academic Year: 2022-2023

CRITICAL ANALYSIS OF EXECUTION OF RESOLUTION

PLANS UNDER IBC

SUBMITTED TO

PROF. (DR.) M.S. SAHOO & (DR.) RAGHAV PANDEY

NLU, DELHI

KSHITIZ GARG (38LLM22) & SAURABH KUMAR (66LLM22)

 INTRODUCTION
The development of a nation's economy is significantly influenced by its legal system. A
country's standing will undoubtedly be robust on the international stage if its legal system is well
designed and put into practise. After enacting the Goods and Services Tax, the Insolvency and
Bankruptcy Code (IBC) of 2016 is India's second-most significant legal change. It's because the
IBC not only strengthens India's legal foundation but also provides it a new economic identity
and international legitimacy. The law governing the insolvency resolution process in India is
consolidated and amended by the Insolvency and Bankruptcy Code (IBC) of 2016.

A financially troubled corporation is a curse for its investors as well as the overall economy.
When a company can't keep its promises or fulfil its responsibilities, it is said to be in financial
crisis. inadequate performance, no earnings or very little profit, inadequate management, and
other signs of a financially distressed organisation are some of the warning signs. A business
must guarantee that it satisfies the demands of the general investing public in order to be
financially sustainable. Therefore, it is crucial to implement economic reforms and regimes to aid
a company that is in financial trouble. A landmark in Indian law is the Insolvency and
Bankruptcy Code, 2016 (hence referred to as the "Code"). The bankruptcy and Bankruptcy
Board of India reports that, with 3312 cases in 2019, the average number of cases granted to
India's bankruptcy courts grew to 30.29 percent. This information demonstrates that India, a
developing economy, has the ideal combination of insolvency rules and that an increasing
number of financially troubled enterprises are utilising the Code's protections. The concept of the
same is included in the Indian Code as "Resolution plan" under Section 5(26) of the Code. An
attempt to address the issue of the corporate debtor's insolvency and, consequently, its inability to
pay debts is known as a resolution plan. It is subject to the statutory requirements of the IBC and
must be approved by the committee of creditors ("COC"). Additionally, there is no restriction on
the quantity of Resolution Plans that may be created and submitted or the quantity of adjustments
that may be made to Resolution Plans. Some well-known and huge bankruptcies happened in the
last 10 years in India are:
 1. Dewan Housing Finance Ltd. (DHFL)
2. Reliance Communications
3. Jet Airways
4. Alok Industries
5. Essar Steel
6. Lanco Infra

The paper discusses the concept of insolvency and its regulation in the corporate world.
Insolvency refers to the state of being unable to confront debts, and when a company becomes
insolvent, there are questions about whether it can be rehabilitated or whether it should proceed
with liquidation. To govern insolvency proceedings, laws and regulations have evolved in two
important ways. There has been a theoretical shift from ex post responses to business crises to
how corporate actors handle insolvency risks. In recent years, there has been a significant
increase in the incidence of economic condition and bankruptcy cases, exposing inefficiencies in
legal regimes governing these matters across the world. The paper specifically discusses India's
experience with insolvency law. After the Constitution was made, Article 19(1)(g) allowed for
free trade, profession, and occupation, and Article 19(6) allowed entry and exit into the economic
sphere with certain limitations. The Companies Act, 1956, which was based on the Bhabha
Committee, detailed the resolution process. However, it was later found that the Companies Act
lacked efficiency in dealing with the "corporate insolvency regime." It neglected to give any
arrangement for consideration of insolvency cost and consigned most issues to courts, which in
turn delegated fair treatment to an authority that is basically a lawful expert designated by the
court with a very restricted comprehension of the organization's insolvency and often lacks
expertise.

The paper notes that the prospect of inferior recovery influenced parties from starting
disintegration procedures under the Companies Act. The ability to settle on benefits of
disintegration was allocated exclusively to the legal executive (jurisdictional High Courts) by
Companies Act, yet the courts were most certainly not furnished with any authoritative system to
evaluate merits. Absence of a supporting authoritative system brought about a disturbed
legitimate procedure with every High Court translating individual cases distinctively and
proclaiming orders. To fasten the recovery procedure, the government of India authorized the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993 ("RDDBI"). The RDDBI
Act came into the picture by the discoveries of the Goswami Committee that was taking a shot at
proposed upgrades to the regulatory structure for indebtedness. However, the RDDBI Act failed
to make any upgrades in the jumbled indebtedness scene, mainly because of the way that the
Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) had priority over RDDBI.
Finally, the Debt Recovery Tribunals (DRTs) were found to be overburdened with countless
pending cases.

The government of India recognized the urgency to reform insolvency law to improve the
country's ranking on the World Bank's Ease of Doing Business. The Bankruptcy Law Reforms
Committee (BLRC) was mandated to produce its recommendations urgently. The passage notes
that an efficient insolvency law is a prerequisite to rejuvenating the economy. In this regard, the
government initiated steps to reform the insolvency law on priority. The Reserve Bank of India
(RBI) significantly cracked down on the bad loans situation through an Asset Quality Review
process, highlighting the seriousness of the problem. Despite a number of reforms and measures
adopted, India continued to fare badly in the World Bank's Ease of Doing Business ranking. In
2010, India ranked at number 133 in the list of 189 countries, and it climbed up to 136 in 2016.
The passage notes that insolvency law is the constitution of economic laws and forms a key
structure within the monetary design of a country. Significantly for a rising economy, the
existence of efficient financial condition laws is essential for an effective insolvency regime

LITERATURE REVIEW

• Sumant Batra, “Corporate Insolvency Law & Practice (2017)”-:

The book makes clear the legislative background and development of India's insolvency
regime. He had looked at the legal processes for insolvency and criticised India's
inadequate regulations with reference to the rescue process. Based on industry standards
and lessons learned in other jurisdictions, the author also discusses some of the main
features of the new insolvency law.

• Ashish Makhija, “IBC (2018)”-:

The author had looked at how India's insolvency regime has changed over time. Further
explanations of the legislative intent, significant case law, and the value of corporate
 restructuring over liquidation have been made by the author. The author has provided a
clear explanation of the legal ruling pertaining to the rescue structure.

STATEMENT OF PROBLEM

The UNCITRAL Model Law has created a unique law model to promote universal laws regarding
insolvency and reconstruction. This new law model is available for domestic use in countries all
over the world. The previous law model, published in 1997, has only been used in 44 states in the
United States. The Indian Insolvency regime, which is only three years old, uses the term
"resolution plan" to refer to a plan proposed by a resolution applicant for the insolvency resolution
of a corporate debtor as a going concern. The paper discusses the success rate of corporate
restructuring plans with respect to present Insolvency and Bankruptcy Code, 2016 and judicial
pronouncements and attempts to provide a practical solution for insolvency restructuring in the
code with emphasis on the corporate rescue over liquidation.

HYPOTHESIS

The current mechanism available for insolvency isn’t viable enough and there’s a need for
Implementing the various procedures of other jurisdiction’s Insolvency Law into India’s
insolvency regime for increase in the success rate of revival of Indian companies(corporate
rescue).

RESEARCH QUESTIONS.

• Whether the concept of restructuring is being realized by the present Indian regime of
insolvency?
• What is the rationale behind the low success rate of corporate rescue in India?

RESEARCH OBJECTIVES
The major objectives of this research are-

• To examine the lacunae present in Insolvency Regime of India specially regarding

corporate restructuring and revival mechanism.
• To analyse the rationale behind the low success rate of corporate rescue in India
• To come up with suggestions and amendments in the present Insolvency and Bankruptcy
Code, 2016 to focus more on corporate rescue over liquidation.

METHODOLOGY
The methodology adopted in the present work is mainly doctrinal in nature. It involves in depth
study of source material, text reviews and case study. In other words, it springs from certain set of
rules and regulations, thus it is doctrinal. A comprehensive study of both the primary and secondary
available data is made. A lot of articles have been referred. Primary material consists of text of
laws, declaration statutory provisions, judicial pronouncements, provisions of various legislations,
Statutes, case laws, on the issue. Secondary materials include books, research papers, articles,
newspapers and magazines, law-journals, dictionaries, and Online database. The researcher has
analytically studied this present research topic in Indian aspect as such.

RESOLUTION PLAN IN INDIA: ISSUES AND CHALLENGES

The Insolvency and the Bankruptcy Code, 2016, which is India's new unified code for
insolvency, has caused a significant upheaval in the country's insolvency regime in recent years.
This particular statute altered and transformed the nation's whole system of insolvency
procedures. The law guarantees a quick process rather than a drawn-out one like the earlier laws
that included the regulation of insolvency. The full scope relating to the CIRP is outlined in
Sections 6-32 of Chapter II of the 2016 Insolvency and Bankruptcy Code. It stipulates that the
corporate resolution procedure may be started as described in chapter II of the Act in cases where
a corporate debtor has failed to make payments on debts that have become due and payable but
have not been repaid. A financial creditor, an operational creditor, or a corporate debtor may
initiate the resolution process, according to the Act, which highlights the importance of early
detection of financial difficulty for timely resolution. Financial creditors have the option to make
a request to the National Company Law Tribunal (NCLT), along with proof of default and the
name of a resolution specialist they hope will serve as the interim resolution professional. The
adjudicating authority will move forward as soon as it is confident that a default has occurred.
Because operational debts frequently have smaller balances than financial debts and often
recurrent in nature, the method for operational creditors differs from that for financial creditors.
The operational creditor is required to deliver a demand notice or a duplicate of the invoice if a
default occurs, demanding payments of the default debt. This prevents operational creditors,
who's debt obligations are typically smaller in value, from initiating the insolvency resolution
procedure for the corporate debtor early or for unrelated reasons. The chapter also specifies a
180-day deadline, extendable by an additional 90 days, for the conclusion of the corporate
insolvency process. The adjudicating body then assigns an interim resolution specialist who
plays a substantial role in the corporate resolution procedure within fourteen days of admitting
the application. He carries out a number of functions, including as gathering claims, learning
more about the corporate debtor, creating a committee of creditors, acting as the company's
temporary manager, and keeping an eye on assets until a resolution specialist is hired. After
being appointed, the resolution expert may plan to write an information note that will help a
resolution applicant create a resolution plan. A similar information memorandum is planned to be
created so that market participants can offer alternatives for dealing with the corporate debtor's
insolvency. Subject to adherence to the relevant legislation, there are no restrictions on who can
submit a resolution application. The creditors' committee will either approve or disapprove each
resolution plan that the resolution professional presents to them. If it is granted, it must then be
filed for approval by the adjudicating body; otherwise, the company will go into liquidation. A
very strong economic argument for the effectiveness of debt law is that it mimics the kind of
speculative agreement that lessees would have reached if they had anticipated their
disagreements with the person who holds the account and believed that the requirement for a
single authorization activity should be maintained for the advantage of all parties. The law is
designed to support the decision that a business's sole owner would make if it were in his greatest
interests, but in doing so in the interests of the company as a whole as well as its creditors.
Creditors would get the best returns since a single owner would use resources in the most
practical way. Rules that give creditors the best profits on their investments stimulate the
extension of credit. An improved version of this strategy acknowledges the role that insolvency
legislation plays in guaranteeing that capital is allocated to the most beneficial uses possible for
the economy.

SICA AND THE FAILED RESCUE PLANS

India has a lengthy history of businesses that failed to recover and eventually filed for
liquidation. At that time, the Reserve Bank of India created the Tiwari Committee to investigate
the obstacles to corporate rebirth. Continuously rising numbers for liquidation and winding-up of
companies were not a positive sign for a burgeoning economy like India. Additionally, the Tiwari
Committee advocated passing extraordinary laws to enable quick and effective action. As a
result, the Sick Industrial Companies Act was passed on January 8, 1986, with the President's
assent, taking into account all of the Tiwari Committee's recommendations. The Tiwari
Committee's recommendations and actions were practically the only ones covered by the Sick
Industrial Companies Act. A quasi-judicial organisation was created by the Sick Industrial
Companies Act to oversee and save the "sick industries." The Board for Industrial and Financial
Reconstruction (BIFR) served as the name of the quasi-judicial institution. Additionally, the Sick
Industrial Companies Act limited the ability of civil courts to intervene in BIFR cases. The
Appellant Authority for Industrial and Financial Reconstruction handled all BIFR appeals.
Following the director of the company's referral, the BIFR proceedings would begin. In order to
start a process, BIFR verifies that the company is "sick." Work sickness is used in place of
insolvency or bankruptcy under the Sick Industrial Companies Act. Under the Sick Industrial
Companies Act, a firm can only be deemed "sick" under two specific situations, and those
situations include: First, if the corporation has greater obligations (accumulated losses) than
assets, it must have been registered for at least five years. The first requirement was added
because it is important to give businesses the time to establish themselves in the marketplace.The
second phrase, however, suggests insolvency as a prerequisite, but by making insolvency a
requirement, the said clause violates the Sick Industrial Companies Act's stated purpose of
"immediate measures for revival." It is crucial to resuscitate sick companies before they enter
"mortuary" because insolvency is a period where there is almost no hope. Instead of intervening
in sick businesses after they enter "mortuary," it is important to do so now. The Sick Industrial
Companies Act has a framework for a moratorium as well, but the moratorium under that law has
drawn a lot of attention and criticism because it prevents creditors from exercising their normal
rights while legal action is pending.

When examining the BIFR's authority, it can be seen that it used a variety of Sick Industrial
Companies Act authorities, and its most significant decision included the rehabilitation process,
specifically whether a business needed rehabilitation or not. Both VDCS Enterprises Ltd v.
Union of India1 and Nasik People's Co-Operative Bank Ltd v. Data Switchgear2 and concluded
that the BIFR has broad powers. In order to determine whether a firm needs rehabilitation or not,
BIFR uses a two-step method. First, BIFR must determine if the company can recover on its
own. If it does, it will grant the company the time it needs to comply with Section 17(1). In
addition, BIFR will determine if the firm needs to be rehabilitated in the "public interest" and
will further order the agency (operating agency) to terminate the scheme in the event that it is
discovered that the company cannot be rehabilitated on its own. The idea of the public interest
and the expansive powers of BIFR have always been criticised.

The primary goal of the Sick Industrial enterprises Act was to revive the enterprises, but in
addition to failing abjectly, there was a paradigm change from BIFR-based resuscitation to
liquidation in the 1990s.

INSOLVENCY AND THE BANKRUPTCY CODE, 2016 AND THE

RESCUE CULTURE
The first consolidated code to cover insolvency-specific provisions was the Insolvency and
Bankruptcy Code, 2016 (IBC). The resolution plan, which offers a solution to struggling
corporations and corporate debtors, also emerged with the introduction of the IBC. Many people
felt relieved by it. Resolution plan is defined under Section 5(26) of the Code. The Insolvency
and Bankruptcy (Second Amendment) Act clarified the acceptance of corporate resolution plans
to be considered for the goal plan, maintained the highest standard of money-related loan bosses
with regard to the allocation of assets suggested by the goal applicant, and described the
significance of the goal plan in relation to each and every legal circumstance. The clarification

1
Nasik People’s Co-Operative Bank Ltd v Data Switchgear unreported decision of a divisional bench of the Delhi
High Court, 31 October 2007
2
VDCS Enterprises Ltd v Union of India 125 (2005) DLT 385 (Delhi).
that the goal plan contemplates rebuilding the corporate account holder by way of merger,
amalgamation, or demerger, and that the corporate owed person ought not be needed to give their
consent to the Merger Framework as recorded in the Organisations Act 2013 and Rules made
thereunder, was a significant victory for the Corporate Debtors and Resolution Applicants.
Managing opposing loan bosses is one of the main concerns while implementing Resolution
Plans. A goal plan must receive the support of 66% of the democratic component of the
budgetary loan bosses, as required by Section 30(4) of the Code, in order to be approved by the
adjudicating authority. The definition of "contradicting monetary banks" in the Indebtedness and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations,
2016 originally included financial lenders who had voted against the target plan approved by the
loan head panel.

Understanding the Corporate Insolvency Resolution Process (CIRP), which is outlined in

Chapter II of the Code, is essential to comprehending the rescue culture in India. The entirety of
the Corporate Insolvency Resolution Process is outlined in Sections 6-32 of Chapter II of the
2016 Insolvency and Bankruptcy Code. It stipulates that the corporate resolution procedure may
be started as described in chapter II of the Act in cases where a corporate debtor has failed to
make payments on debts that have become due and payable but have not been repaid. The Act
makes clear that early diagnosis of financial difficulty is essential for fast settlement, and it
specifies that a financial creditor, an operational creditor, or cd. Financial creditors have the
option to file a request with the National Company Law Tribunal, along with evidence of default
and the identity of a resolution specialist who will serve as an interim resolution professional.61
The adjudicating authority will move forward as soon as it is confident that a default has
occurred. Because operational debts frequently have smaller balances than financial debts and
are recurrent in nature, the method for operational creditors differs from that for financial
creditors. The operational creditor is required to deliver a demand notice or a copy of an invoice
if a default occurs, demanding payment of the default debt. The chapter also specifies a 180-day
deadline, extendable by an additional 90 days, for the conclusion of the corporate insolvency
process. The adjudicating body then chooses an interim resolution professional who is an
important player in the corporate resolution process within fourteen days of the application's
admission. He carries out a number of functions, including as gathering claims, learning more
about the corporate debtor, creating a committee of creditors, acting as the company's temporary
manager, and keeping an eye on assets until a resolution specialist is hired. After being
appointed, the resolution expert may plan to write an information note that will help a resolution
applicant create a resolution plan. A similar information memorandum is planned to be created so
that market participants can offer alternatives for dealing with the corporate debtor's insolvency.
Subject to adherence to the relevant legislation, there are no restrictions on who may institute a
resolution application. The creditors' committee will either approve or disapprove each resolution
plan that the resolution professional presents to them. If it is granted, it must then be filed for
approval by the adjudicating body; otherwise, the company will go into liquidation.

The resolution plan under the Insolvency and Bankruptcy Code of 2016 is basically a strategy for
assisting the struggling company's economic recovery. The resolution applicant, who is not
ineligible under Section 29 A, submits the plan to the resolution professional, who must ensure
that it complies with Section 30(2) of the Code and does not violate any other laws. The Hon'ble
Court has established a number of rules that should be followed by a resolution plan in the case
of Binani Industries Limited v. Bank of Baroda & Anr3, which includes:

• The Resolution Plan, as opposed to a sale, auction, recovery, or liquidation, essentially

resolves the Corporate Debtor as a going concern.
• By maximising profits and enhancing the balance of interests between debtors and
creditors, the Resolution plan's main goal is to eliminate the possibility of insolvency.
• The idea of a resolution plan should be distinguished from the idea of recovery.
Recovery is not permitted by the Insolvency and Bankruptcy Code, but resolution plans
are.
• A resolution strategy needs to be distinct from the idea of liquidation and demands
mental effort. A resolution plan is necessary for an expanding economy.
• A resolution plan should maintain equality among all parties; if it discriminates against
either financial creditors or operational creditors, it would violate the primary goal of the
adoption of Section 5(26) of the Code.

OTHER IMPORTANT CASE DISCUSSING RESOLUTION PLAN

3
Binani Industries Limited v Bank of Baroda & Anr (Company Appeal (AT) (Insolvency) No. 82 of 2018)
 • Arcelormittal India Private Limited v. Satish Kumar Gupta and Ors4.- The fundamental
rule for a company's recovery is a resolution plan, and resolution plans under the Indian
Insolvency Regime have a specific role to play in reorienting the Indian economy
towards greater heights
• Vijay Kumar Jain v. Standard Chartered Bank Ltd. &Ors. (August 2018)5 - Resolution
plans are confidential.

RESOLUTION APPLICANT
The Insolvency and Bankruptcy Code, 2016 ("Code") lists a number of individuals who are
ineligible to submit a resolution application in Section 29A. This rule prohibits the
acquisition or regaining of control of the Corporate Debtor by persons who, by their
wrongdoing, caused the Corporate Debtor's Defaults or are otherwise undesirable. In Arcelor
Mittal India Pvt. Ltd. v. Satish Kumar Gupta6, the Supreme Court provided a clear
interpretation of Section 29A's scope and application. Additionally, in Swiss Ribbons Pvt.
Ltd. v. Union of India7, the Supreme Court upheld the constitutional validity of this clause.
But the real issue is why section 29A was included to the Code in the first place. This has a
significant impact on the Code. Promoters, guarantors, and former members of the
management had the ability to bid on their own assets and purchase them back at low rates,
which harmed the financial interests of the creditors. Therefore, it was decided that the Code
must contain measures that would prevent particular groups of people from presenting their
resolution plans. As a result, section 29A was added to the Code. However, it was believed
that this item had a very broad scope and prevented anyone from submitting a resolution
plan, regardless of how closely they were tied to the corporate debtor. As a result, the
Insolvency Law Committee suggested various revisions that were subsequently adopted.

According to the Code, prospective applicants for resolution are invited to submit their
resolution plans for the corporate debtor. An individual who applied for a resolution in the

4
Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta, 2018 SCC OnLine SC 1733.)
5
Vijay Kumar Jain v. Standard Chartered Bank Ltd. &Ors. (August 2018)
6
Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta, 2018 SCC OnLine SC 1733.
7
Swiss Ribbons Pvt. Ltd. v. Union of India, 2019 SCC OnLine SC 73.
 past could have been a creditor, a promoter, a potential investor, an employee, or anybody
else. The promoters, guarantors, and/or former members of the corporate debtor's
management were able to bid on their own assets and purchase them back at extremely low
prices at the expense of the lenders. Thus, it became clear that the Code needed a clause that
would bar a particular group of people from presenting their resolution plans on behalf of the
corporate debtor. Section 29A was added to the Code as a result. The Insolvency and
Bankruptcy Code (Amendment) Ordinance, 2017, and the Insolvency and Bankruptcy Code
(Amendment) Act, 2018 (6 of 2018) (together, the "Amendment Act"), both inserted Section
29A. A list of those who are ineligible to apply for a resolution is provided in this section. It
was noted, however, that section 29A had a very broad definition and that anyone, regardless
of how closely related they were to the corporate debtor, was prohibited from presenting a
resolution plan.

The Insolvency Law Committee was given a case under the Code to use as an example of
how promoters of a corporate debtor might subtly dominate the Committee of Creditors
("CoC") by arranging to have the corporate debtor's debt assigned to them. Such promoters
allegedly undermine the CoC and propose resolution plans that involve a significant haircut
for the creditors. Synergies Dooray Automative Limited ("SDAL")8, a manufacturer of
automative parts, is the defendant in this lawsuit. The present case, which was the first to be
decided under the recently adopted Code, sparked numerous debates, led to numerous court
cases, and as a result paved the way for changes to the Code.

Section 29A of the Code was added, and it outlined in great detail the requirements for
prohibiting a certain group of people from taking part in CIRP. This would effectively shut
the door on errant promoters who are searching for other ways to retake management of the
corporate debtor. The corporate debtor, Wig Associates, filed an insolvency petition under
section 10 of the code in August 2017 in the case of Wig Associates Pvt. Ltd.9 before the
Mumbai bench of NCLT. A resolution plan for the continuing CIRP of Wig Associates was
submitted by Mr. Mahindra Wig, a relative of the company's director. But this was in
accordance with the addition of section 29A to the code. The issue that emerged before

8
Synergies-Dooray Automative Ltd. v. Edelweiss Asset Reconstruction Company Ltd., C.A. No. 123/2017 in CP
(IB) No. 01/HDB/2017.
9
Wig Associates Pvt. Ltd., CP No. 1214/I&BC/NCLT/MB/MAH/2017
 NCLT, Mumbai was whether Mr. Mahindra Wig's resolution plan could be upheld in light of
section 29A of the Code's provisions. Mr. Mahendra Wig would not be permitted to provide a
plan as a resolution applicant since he was a "connected person" under the terms of section
29A. The bench, on the other hand, observed that corporate insolvency resolution processes
are continuing and only come to a conclusion when an order is issued either approving a
resolution plan or initiating liquidation of the corporate debtor. This means that once the
corporate insolvency resolution procedure has started, it cannot be stopped, changed, or
modified until it is finished. The bench cited a number of recent Supreme Court decisions,
including Zile Singh v. The State of Haryana10 and Videocon International Ltd v. SEBI11, in
which it was decided that unless explicitly or implicitly stated otherwise, a statute that affects
the substantive or legal rights of an individual is presumed to be prospective in application.
In light of the aforementioned cases, the bench determined that the provisions of the
Amendment Act will not apply to the current circumstance, and as a result, the Resolution
Plan submitted by Mahendra Wig, the Resolution Applicant, may be accepted and approved
even after the insertion of Section 29A, despite his relationship to the Promoter Directors of
Wig Associates. The Supreme Court cleared up any ambiguity regarding the implementation
of section 29A in Chitra Sharma v. Union of India12 by specifically mentioning the Jaypee
Infratech Ltd. case and ruling that section 29A will take effect retroactively. According to the
Supreme Court, section 29A was created to facilitate corporate governance and serve the
greater good. The court has stated that the amendment to insert section 29A, which was
introduced to close the loophole, is intended to apply not only prospectively but also, to a
limited extent, retrospectively to resolution plans that may have been submitted before the
ordinance's promulgation but were not approved.

The intention behind the introduction of section 29A was to promote the greater good of the
public and facilitate corporate governance. The Supreme Court has emphasized that the
amendment to include section 29A was aimed at closing any existing loopholes and its
application is not limited to prospective cases only. In fact, the court has ruled that it can be
applied retrospectively to resolution plans that were submitted before the promulgation of the

10
Zile Singh v. The State of Haryana, 2016 SCC OnLine SC 558
11
Videocon International Ltd v. SEBI, 2015 SCC OnLine SC 24.
12
Chitra Sharma v. Union of India, 2017 SCC Online SC 1656
 ordinance but remained unapproved. It is worth noting that there are several provisions
within section 29A that outline the criteria for disqualifying potential resolution applicants.
This clause debars a person or a person acting jointly or in concert with such person who-

(i) has an account classified as NPA;

(ii) a promoter of a corporate debtor the account of which has been classified as NPA;

(iii) is in the management of a corporate debtor the account of which has been classified as
NPA;

(iv) is in control of a corporate debtor the account of which has been classified as NPA.

At least a period of 1 (One) year should have elapsed from the date of classification till the
insolvency commencement date.

The clause talks in particular about those persons whose account has been classified as a non-
performing asset and/or persons who are directly/indirectly related to such persons having
non- performing asset accounts. Any person whose account has been classified as a non-
performing asset in accordance with Reserve Bank of India guidelines issued under the
Banking Regulation Act, 1949, or guidelines issued by a financial sector regulator issued
under any other law currently in force, and a period of one year or and who has failed to
make the payment of all overdue amounts with interest thereon and charges relating to non-
performing asset before submission of the resolution plan is not eligible to be a resolution
applicant13.. However, such a person would be considered as an eligible resolution applicant
if prior to the submission of the resolution plan, he/she clears of all the debts due with regard
to the NPA.

With reference to this particular clause of section 29A, it would be relevant to discuss the
case of Arcelor Mittal Pvt. Ltd. v. Satish Kumar Gupta where the Supreme Court interpreted
this clause with regard to the ongoing CIRP of Essar Steel. As per the earlier clause (h) which
existed under section 29A prior to the Second Amendment Act, a resolution applicant could
not be a person who has executed an enforceable guarantee in favour of a creditor, in respect
of a corporate debtor against which an application for insolvency resolution made by such

13
Sumant Batra, Corporate Insolvency Law and Practice (2017)
 creditor has been admitted under the Code. With the assistance of the illustration below, this
may be explained.;

E.g.: “X” is the surety for the loans taken by “A Ltd.”. “Y” is the creditor. “Y” initiates
corporate insolvency resolution process against “A Ltd.”, and the application is admitted by
NCLT. “X” is disqualified from submitting resolution plan for another corporate debtor “B”.
In RBL Bank Ltd.v. MBL Infrastructures Ltd14., the Tribunal opined that clause (h) had a
very wide scope and it

would therefore be necessary to study its application in light of the statement and objectives
of the Ordinance that inserted section 29A into the code.

The statement and objectives read as:

“to prohibit certain persons from submitting a Resolution Plan who, on account of their
antecedents, may adversely impact the credibility of the processes under the Code”.15

The Tribunal took a view that there was no intent of the Government to debar all the
promoters, only for the reason for issuing a guarantee which is enforceable, unless such
guarantee has been invoked and not paid for, or the guarantor suffers from any other
antecedent listed in clauses (a) to (g). The intention of the legislature has not been to
disqualify the entire class of guarantors as it would be discriminatory and violative of Article
14 of the Constitution of India.

“The guarantors in respect of whom, a creditor has not invoked the guarantee or made a
demand under guarantee should not be prohibited. Therefore, no default in the payment of
dues by the guarantor has occurred, cannot be covered under clause (h) of Section 29(A). It
cannot be the intent of clause (h) to penalize those guarantors who have not been offered an
opportunity to pay by calling upon them to pay the dues, by invoking the guarantee.
Therefore, the words “enforceable guarantee” appearing in clause (h) are not to be
understood by their ordinary meaning or in the context of enforceability of the guarantee as

14
RBL Bank Ltd. v. MBL Infrastructures Ltd., C.A. (I.B.) NO. 270/K.B./2017.
15
Changes & Impact Under IBC Through Changes By Ordinance, AMLEGALS
 a legal and binding contract, but in the context of the objectives of the Code and Ordinance
in general and clause (h) in particular”.16

The Insolvency Law Committee, in its March 2018 report, agreed with the Tribunal and
proposed changes to clause (h) of section 29A, including the deletion of the term
"enforceable" and the requirement that the guarantee be invoked by the creditor and then
remain unpaid in part or in full for disqualification under this clause to be invoked. Clause
(h) of section 29A was amended vide the Second Amendment Act. It now reads as

“has executed a guarantee in favour of a creditor in respect of a corporate debtor against

which an application for insolvency resolution made by such creditor has been admitted
under this Code and such guarantee has been invoked by the creditor and remains unpaid in
full or part”.17

With the assistance of the illustration below, this may be explained; For example, “X” is the
surety for “A Ltd.'s” loans. The creditor is “Y.” “Y” starts a corporate insolvency resolution
action against “A Ltd.,” and NCLT accepts the application. The resolution plan for "B" will
not be rejected if "X" submits it. However, say if “Y” invokes guarantee but “X” defaults,
then “X” becomes ineligible to be a resolution applicant. This provision stipulates that a
"connected person" who is disqualified under sub-clauses (a) to (i) is also ineligible to file a
resolution application, thereby adding another layer of disqualified individuals. According to
the explanation provided for the above sub-clause, a "connected person" refers to a promoter,
a person in management or control of the resolution applicant, or someone who will be a
promoter, in management or control of the corporate debtor during the implementation of the
resolution plan. Additionally, a subsidiary, a holding company, an associate firm, or a related
party to such person would also be considered a connected person, resulting in another layer
of rejected candidates, according to the explanation. However, the term "related party" within
the context of the above provision has not been defined, leaving ample room for
interpretation and potential litigation. Although the definition of "related party" has been
provided in Section 5 (24), it is specific to the corporate debtor, specifying the individuals
who will be regarded as "related parties" of the corporate debtor.

16
RBL Bank Ltd. v. MBL Infrastructures Ltd., C.A. (I.B.) NO. 270/K.B./2017.
17
The Insolvency and Bankruptcy Code, 2016, § 29A (h), No. 31, Acts of Parliament, 2016 (India)
 Hence, where the persons referred to in clauses (i) and (ii) of the Explanation are persons
other than the corporate debtor, the definition under section 5(24) becomes irrelevant, and the
following may be noted-

– Where one of the persons is a company, “related party” shall be interpreted in terms of
section 2(76) of the Companies Act, 2013;

– Where none of the persons is a company, the definition of the term “related party” has been
left open. In the context of natural persons, generally the term “relative” is used.

Scheduled banks, asset reconstruction firms, and alternative investment funds, on the other
hand, are specifically excluded from the purview of section 29A. The constitutional validity
of section 29A was challenged before the Supreme Court in Swiss Ribbons Pvt. Ltd. v. Union
of India. The Supreme Court found no merit in the argument that the rights of the erstwhile
promoters have been infringed by the retrospective application of section 29A as the
fundamental assumption that the promoters had a vested right to be considered as resolution
applicants had already been negated in the case of Arcelor Mittal India Pvt. Ltd. v. Satish
Gupta18. The Supreme Court held that the criterion for ineligibility under section 29A is not
based on fault-based liability, so there is no reason to treat genuine and defaulting promoters
differently. The argument that unequal treatment is being given to equals is therefore weak. If
an entity is unable to service its debt for a year or more, it should be prevented from
submitting a resolution plan, in accordance with RBI guidelines for treatment of NPAs. It
would be unlawful to disqualify an otherwise eligible person from submitting a resolution
plan solely because they are related to an ineligible person, except in cases where the relative
is related through business activity.

The main goal of section 29A was to create an effective and efficient resolution plan for the
corporate debtor without interference from those who were previously part of the
management or in control of the debtor. This was meant to disqualify those who had
contributed to the debtor's downfall, but not all promoters had committed a default before the
CIRP and some genuinely want to regain control to implement a resolution plan. In cases
where such promoters offer a higher price than the highest bidder, they should not be

18
M/s. Innoventive Industries Ltd. v. ICICI Bank & Anr [2018]. 1 SCC 407
eliminated from the bidding process, as lenders would benefit from higher bids. The current
ineligibility criteria for all promoters, both genuine and erring, seems to go against the BLRC
Report's goal of distinguishing between malfeasance and business failure.

Section 29A has been the subject of many legislative debates since its introduction, with the
Supreme Court clarifying its interpretation. Its application is quite broad, and many persons
are disqualified from submitting their resolution plans. Amendments to the law have
narrowed its scope somewhat, bringing it closer to the BLRC Report's objectives. The
competitive bidding process for resolution plans benefits all stakeholders and prevents the
company from falling into the wrong hands.

IMPLEMENTATION OF THE RESOLUTION PLAN DURING

THE UNPRECEDENTED PANDEMIC

The ongoing flare-up of the Novel Coronavirus 2019 ("COVID-19") has caused significant
disturbances in the World, influencing even the most evolved countries, for example, United
States of America. The effect on the economy is more extreme than the 2008-2009 downturn,
in under about a month. Hon'ble Supreme Court of India took suo moto insight and passed a
request dated 23-March 2020 broadening the confinement endorsed under broad law,
regardless of whether condonable or not, with impact from 15 March 2020 till further
requests. The NCLT announced that all seats would be closed from 23rd March 2020 to 31st
March 2020, and only urgent matters would be considered during that period. The Insolvency
and Bankruptcy Board of India made a significant amendment to the CIRP Regulations on
29th March 2020, introducing Regulation 40C, which stipulates that the lockdown period
imposed by the Central Government during the COVID-19 outbreak would not be counted
for any action that could not be completed due to such lockdown. Although the NCLAT's
order dated 30th March 2020 and Regulation 40C would not aid the Resolution Applicant in
the procedure to be executed after the approval of the Resolution Plan by the Adjudicating
Authority as it does not fall within the meaning of "CIRP" under the existing bankruptcy
laws, the Successfully Resolution Applicant is still legally bound to implement the
Resolution Plan if the last date of the application falls within the lockdown period.
The Successful Resolution Applicant can either approach the Adjudicating Authority seeking
an extension of time under Section 60 (5) of the Code, 2016 or invoke the Force Majeure
clause under the Resolution Plan (if any) under Section 56 of the Indian Contract Act, 1872,
and claim difficulty in executing the transaction. However, with the NCLT's notification of
22nd March 2020 stating that "extension of time" would not be considered as critical, it may
not be a wise move to approach the Adjudicating Authority and be left with either no
extension of the time frame or dismissal of the plea. Although the extension of this time
period is not uncommon, establishing genuine difficulty in executing the Resolution Plan by
invoking the Force Majeure clause would be challenging to prove in a Court of law. Both the
Courts and Legislature have recognized the limitations posed by the lockdown and have,
therefore, excluded the lockdown period from the CIRP period and relaxed the timelines
prescribed under the laws. The Hon'ble Supreme Court of India has issued a temporary ex-
parte stay on both aforementioned orders, stating that the Government of India is fully aware
of the situation and will develop a legal mechanism to address concerns and difficulties.

AMENDMENTS TO INSOLVENCY AND BANKRUPTCY

CODE 2016 IN LIGHT OF COVID - 19
The legislature attempted to correct past errors by enacting the IBC, which simplifies and
expedites the winding up process while preserving the value of underlying assets. The IBC
aims to complete insolvency proceedings in a timely manner, but section 12 of the Code has
a 180+90 day time limit that may not be sufficient. Delays in the process can lead to value
destruction and lower recovery rates for creditors. The Essar Steels decision provided some
flexibility but did not address two important issues regarding the cause of delay and a limit to
extensions granted. Despite the intention of protecting creditors' interests, the IBC seems to
have taken a 180-degree turn during the Covid-19 pandemic. This can be seen through
landmark cases like Swiss Ribbon, Essar Steel, and Binani Cements.

Although the Essar Steels decision introduced some flexibility in the time period, it still
failed to address two key issues which are as follows : (1) The standard that has to be
satisfied in convincing the tribunal that they themselves have caused the delay in the CIRP
process; and (2) whether they can be a limit to the extensions which can be granted beyond
the 330 days limit. In the absence of a limitation, the objective of the 2019 amendment may
not be fulfilled. Hence, it may be observed through various landmark IBC cases like Swiss
Ribbon, Essar Steel, Binani Cements, etc., that one of the main intentions behind the
implementation of the IBC is to protect the interests of the creditors. However, it may be
interesting to note that during the current Covid-19 pandemic, the Insolvency law seems to
have taken 180 degrees turn.

In the current backdrop of Covid-19, new issues and challenges emerged on the Indian
insolvency laws, some of which are unlikely to be solved by the courts. In June 2020, section
10A and section 66(3) has been inserted in the Code trough the Insolvency and Bankruptcy
Code (Amendment) Ordinance, 2020. This 2020 ordinance is more of a Covid-19 relief
package. It primarily seeks to provide relief to the corporate debtor directly affected by the
Covid-19 pandemic, which has disrupted business operations across the countries. Section
10A makes it clear that creditors cannot drag any company to courts/insolvency proceedings,
which will be in effect for the next six months and can be extended by up to one year. This
clause overrides sections 7, 9 and 10 of the Code. Section 7 deals with financial creditors
initiating insolvency action, Section 9 deals with operational creditors initiating action.
Section 10 allows a defaulting company to approach the National Company Law Tribunal
(NCLT) to declare it insolvent. Therefore, fresh insolvency proceedings under the code
would be suspended for and would exclude all Covid-19 related debts from the definition of
‘default’. As per the new section 66(3) of the Code the resolution professionals will be barred
from initiating wrongful trading applications against directors of companies where the IBC
process is suspended. These measures clearly reflect the current need of the hour to prioritize
the continuity of businesses over resolution under the Code, which is already in damp market
conditions. The combined effect of this measures and the ordinances foreclose the
opportunity of the creditors to seek resolution under the Code for a significant period of time.
Additionally, this measure could also negatively affect the interests of the companies as they
would drastically reduce the possibilities of a company receiving any loans in this period.
Furthermore, the Reserve Bank of India has already provided a moratorium for a period of
six months which has already provided some relief to the corporate debtors.
To address the critical situation, the government has amended laws under the Insolvency and
Bankruptcy Code 2016 to safeguard companies from insolvency proceedings. These
amendments have been welcomed by companies during these troubled times, as the
government is taking steps to protect and sustain them from bankruptcy. This article outlines
all the amendments made due to the circumstances created by the coronavirus, and additional
amendments made in the past year to prevent the filing of new corporate insolvency
proceedings.

Furthermore, the parliament has cleared the ordinance bill 2019, which includes significant
amendments to the Insolvency and Bankruptcy Code 2016. The ordinance bill recognizes the
status of allottees of a real estate project as a financial creditor and empowers resolution
professionals to require suppliers to continue providing goods and services during the
moratorium period. The voting threshold of the committee of creditors has been reduced to
51% for most decisions, except for key decisions such as the appointment of a resolution
professional, approval of the resolution plan, and increasing the time limit for the insolvency
resolution process, which require a 66% vote. Additionally, the 2019 ordinance prohibits a
person whose account has been declared as Non-Performing Asset for more than one year, or
a guarantor of the defaulter, from becoming the resolution applicant. The resolution applicant
is the person who submits the resolution plan.

CONCLUSION AND SUGGESTIONS

The Insolvency and Bankruptcy Code (IBC) is a significant achievement in India's legal
system, as it was implemented on May 28, 2016, and provides a time-bound process for
resolving insolvency. The IBC has modernized the outdated system of debt and liquidation in
India and brought it in line with international standards. However, since the Code is still
relatively new, it needs to be implemented effectively to ensure its success. The current
rescue mechanism, which was introduced with the IBC, needs to be restructured to make it
clearer and more certain, as the rescue procedures are currently contained in the schedules,
making cross-referencing to the main Act provisions difficult.

Despite the IBC's positive impact on financially distressed companies, there are still lacunae
in the present insolvency regime in India. These gaps can cause significant damage to the
market position of the corporate debtor if a breach of the resolution plan becomes public
knowledge. To prevent such situations, the National Company Law Tribunal (NCLT) and
National Company Law Appellate Tribunal (NCLAT) need to be conferred with the
necessary powers to implement the resolution plan successfully. Additionally, there are
instances where the corporate debtor, creditors, and other relevant parties may lose the
struggle because the successful bidder fails to follow the Code's obligation. To address these
issues, it is essential to introduce stern and articulated provisions to ensure that the lacunae in
the insolvency regime are corrected.