Highlights of the Insolvency and Bankruptcy (Amendment) Act, 2019

Background

The Finance Minister, Nirmala Sitharaman the Insolvency and Bankruptcy (Amendment) Bill, 2019 in the Rajya Sabha in July 2019. The Bill was introduced as effort to curb the problem of increasing level distressed debt by providing for a time-bound process for resolving the insolvency disputes in India. The Essar Steel order serves as the backdrop of the 2019 bill. The Hon’ble Supreme Court had held that National Company Law Tribunal could not act as resolution professional and distribute funds and the matter was listed for further hearing when the bill was introduced in the parliament. The Bill received President’s assent on August 5, 2019.

Key Provisions

The Insolvency and Bankruptcy (Amendment) Act, 2019 allows the financial creditor to file an application before the National Company Law Tribunal and the Tribunal must find the existence of fault within 14 days. This provision makes the disposal of application a time bound process. However, the Hon’ble Supreme Court, in the case of J.K. Jute Mills Co. ltd. vs. Surendra Trading Co., held that this time period of 14 days is only directory and mandatory. Further, the Act discusses the constitution of Committee of Creditors consisting of financial order for the matter of insolvency resolution in case of a default. The Code had set a limit of 180 days for concluding the Corporate Insolvency Resolution Process with a maximum extension of 90 days whereas the Act sets out a time period of 330 days from the date of the insolvency commencement date. The Act provides for the appointment of resolution professional who will frame a resolution which will be need an approval from the Committee of Creditors. The Act benefits operational creditors as it states that they shall receive an amount which is higher than the amount that they would receive in case of liquidation and the amount receivable under the resolution plan. The Act aims at securing the creditors interests in order to ensure their maximum participation in the market. These provisions are applicable retrospectively to the that have not been approved or rejected by the National Company Law Tribunal (NCLT) that have been appealed to the National Company Appellate Tribunal or Supreme Court, and where legal proceedings have been initiated in any court against the decision of the NCLT.