The Promise of Innoventive
The first major judgement to interpret the Insolvency and Bankruptcy Code was Innoventive Industries, authored by Justice Nariman, whose name is now inextricably associated with the Code, because of the several further rulings that flowed from his pen. Reading that judgement now makes one smile, as the Supreme Court could not have had any inkling of the disruption that Section 29A was set to cause to the strict timeline of 270 days set by the Code for completion of the insolvency resolution process. (As per the Code, a failure to comply with this timeline means that the company has to mandatorily be sent to liquidation, with the corresponding catastrophic impacts on workmen, creditors and the economy.) With an air of finality reminiscent of a mediaeval emperor dropping the red handkerchief at a public execution, the Supreme Court had then said that the timeline had to be complied with, “or else the chopper comes down and the liquidation process begins.”
The Bomb Is Dropped
That was August 2017. A few months later, in November, the Government dropped the Section 29A bomb. The Section listed out a bunch of disqualifying conditions for prospective bidders, setting the ground for oceans of litigation between rival bidders who accused each other of being ineligible under one or the other sub-section of 29A. This made it impossible for the Tribunals to wrap up insolvency resolution processes, as they found themselves entangled in the deeply factual enquiries that the Section demands, such as whether the bidder is indirectly connected to a company that has defaulted on a loan.
TII (This Is India)
The Tribunals devised a novel solution – time spent litigating would not count at all towards the 270 day timeline; it would be excluded. After all, this is India, this is litigation, and the new order changeth, yielding place to the old.
It is hard to blame the Tribunals, as Section 29A is a wound inflicted on the insolvency resolution process not by them, but by Parliament.
An Autumnal Leaf
In Arcelormittal, the Supreme Court has given its imprimatur to the Tribunals’ innovative via media. In doing so, it has had to walk back its assertive language in Innoventive. Reflecting on the unfairness of subjecting a company to liquidation because of litigation, Justice Nariman now observed, “However, we cannot forget that the consequence of the chopper falling is corporate death… We must not forget that the corporate debtor consists of several employees and workmen whose daily bread is dependent on the outcome of the corporate insolvency resolution process. A reasonable and balanced construction of this statute would therefore lead to the result that…the period of time taken in litigation ought to be excluded.”
The end of the insolvency resolution process is therefore unlikely to be like a chopper falling, and is more evocative of the last autumnal leaf gently swaying and floating till it peacefully rests on the unswept sidewalk.
Conclusion
To conclude this brief exploration of Arcelormittal, the Supreme Court contradicted itself by disqualifying ArcelorMittal even for its “negative” control over an NPA after saying that only positive control attracted disqualification, sharpened the fangs of Section 29A by reading it as widely as possible, and read out the last rites for the timelines that the Code provides. It is up to Parliament now – amend the Insolvency and Bankruptcy Code to reverse the effect of this judgement, or face the consequences.
