Supreme Court extends CIRP timeline for Jaypee Infratech: Jaiprakash Associates Ltd vs. IDBI Bank Ltd (2019)

Introduction

Date of the Judgment: 6 November 2019

Citation: (2019) INSC 1025

Judges: A.M. Khanwilkar, J. and Dinesh Maheshwari, J.

Can a corporate insolvency resolution process be extended beyond the statutory time limit? The Supreme Court of India recently addressed this critical question in the case of Jaiprakash Associates Ltd vs. IDBI Bank Ltd. This case revolves around the insolvency of Jaypee Infratech Ltd. (JIL) and the complexities of the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016. The core issue was whether the National Company Law Appellate Tribunal (NCLAT) had the power to exclude a certain period from the CIRP timeline and allow for a fresh start with revised resolution plans.

Case Background

The case began when IDBI Bank initiated insolvency proceedings against Jaypee Infratech Ltd. (JIL) due to its status as a Non-Performing Asset (NPA). During the pendency of this application before the National Company Law Tribunal (NCLT), home buyers filed writ petitions in the Supreme Court concerning JIL’s projects.

On 9th August 2018, the Supreme Court in the case of *Chitra Sharma & Ors. vs. Union of India & Ors.*, issued several directions, including restarting the CIRP for JIL with a fresh 180-day period and reconstituting the Committee of Creditors (CoC) to include home buyers as financial creditors. The court also barred JIL and its promoters from participating in the CIRP, and allowed the Reserve Bank of India (RBI) to initiate CIRP against Jaiprakash Associates Ltd. (JAL), the parent company of JIL.

Following these directions, the Interim Resolution Professional (IRP) invited claims from all stakeholders, including home buyers. The IRP submitted a report to the NCLT, which showed the composition of the Committee of Creditors (CoC) as: 37.3% Financial Institutions, 62.3% Home Buyers, and 0.4% Fixed Deposit holders.

A home buyers’ association then filed an application before the NCLT on 17th September 2018, seeking clarification on how the voting percentage of the allottees (home buyers) would be calculated. Due to a difference of opinion between the NCLT members, the matter was referred to a third member, who passed an order on 24th May 2019.

Meanwhile, IDBI Bank applied to the NCLT to exclude the period during which the clarification on voting rights was pending from the 270-day CIRP timeline. The NCLT directed on 6th May 2019, to proceed with the CIRP, pending the clarification. Aggrieved by this, IDBI Bank appealed to the NCLAT, leading to the current dispute.

Timeline

Course of Proceedings

The NCLT initially heard the application for clarification on the voting rights of the home buyers. Due to a difference of opinion between the two members, the matter was referred to a third member. The third member eventually passed an order on 24th May 2019.

Meanwhile, IDBI Bank filed an application before the NCLT to exclude the period of pendency of the clarification application from the 270-day CIRP period. The NCLT, on 6th May 2019, ordered to proceed with the CIRP, subject to the outcome of the pending clarification.

Aggrieved by the NCLT’s decision to proceed with the CIRP despite the pending clarification, IDBI Bank appealed to the NCLAT. The NCLAT then considered both appeals together and issued the impugned judgment, allowing the exclusion of the period from 17th September 2018 to 4th June 2019 for calculating the 270-day CIRP period.

Legal Framework

The core legal framework in this case is the Insolvency and Bankruptcy Code, 2016 (I&B Code). Key provisions include:

• Section 7 of the I&B Code: This section deals with the initiation of the Corporate Insolvency Resolution Process (CIRP) by a financial creditor. In this case, IDBI Bank initiated CIRP against JIL under this section.
• Section 12 of the I&B Code: This section specifies the time period for completing the CIRP. Initially, it was 180 days, extendable by another 90 days. The judgment refers to the amendment which pegs the maximum period of CIRP to 330 days.
• Section 29A of the I&B Code: This section specifies who is ineligible to be a resolution applicant. As per the directions in *Chitra Sharma (supra)*, JIL and its promoters are ineligible to participate in the CIRP by virtue of this section.
• Section 30(5) of the I&B Code: This section deals with the approval of the resolution plan by the adjudicating authority.
• Section 31 of the I&B Code: This section deals with the approval of the resolution plan by the adjudicating authority. It also provides for liquidation of the corporate debtor if no resolution plan is approved.
• Section 12A of the I&B Code: This section enables the adjudicating authority to allow the withdrawal of an application filed under Section 7 or Section 9 or Section 10, on an application made by the applicant with the approval of 90% voting share of the CoC.

The judgment also refers to Regulation 36B(7) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which allows the Resolution Professional, with the approval of the Committee of Creditors, to reissue a request for resolution plans if the earlier plans are not satisfactory.

The Supreme Court also invoked Article 142 of the Constitution of India, which grants the court the power to pass any order necessary to do complete justice in any matter pending before it.

Arguments

The arguments presented before the Supreme Court can be summarized as follows:

Arguments by Jaiprakash Associates Ltd. (JAL)

• JAL contended that the NCLAT did not have the authority to exclude 90 days from the statutory CIRP period.
• JAL argued that once the resolution plans of Suraksha Realty and NBCC were rejected by the CoC, the NCLAT could not restart the CIRP by allowing the same bidders to submit revised plans or invite fresh plans.
• The appellant argued that there is no provision in the I&B Code that allows for exclusion of time from the CIRP period.

Arguments by IDBI Bank

• IDBI Bank sought exclusion of the period during which the clarification on voting rights was pending, arguing that this delay was beyond their control.
• IDBI Bank contended that the NCLT’s order to proceed with the CIRP despite pending clarification was incorrect.

Arguments by Home Buyers’ Association

• The home buyers’ association questioned the NCLAT’s power to disregard the mandatory provisions of the I&B Code and to invite fresh resolution plans after the expiry of the statutory period.
• They also suggested that the entire process be kept outside the I&B Code and be monitored directly by the Supreme Court.

The innovativeness of the arguments lies in the fact that the parties were seeking a way to salvage the situation without resorting to liquidation, despite the strict timelines prescribed by the I&B Code.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the NCLT or NCLAT has the power to exclude any period from the statutory CIRP period in exercise of inherent powers, without any express provision in the I&B Code.
2. Whether it is permissible to allow a bidder whose resolution plan has already been rejected by the CoC to submit a revised plan or to invite fresh resolution plans to be considered by the CoC after the statutory period for submission of such plans.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases

• Chitra Sharma & Ors. vs. Union of India & Ors. [2018 (9) SCALE 4903] (Supreme Court of India): This case provided the initial directions for the CIRP of JIL, including the reconstitution of the CoC and the commencement of a fresh 180-day CIRP period. The Supreme Court relied on this case to highlight that the revival of CIRP in relation to JIL is on account of this decision and would, therefore, be binding on all concerned.
• Quinn Logistics India Pvt. Ltd. vs. Mack Soft Tech Pvt. Ltd. & Ors. (Company Appeal (AT) (Insolvency) No.185 of 2018) (National Company Law Appellate Tribunal): In this case, the NCLAT had observed that certain periods can be excluded for the purpose of counting the total period of 270 days if the facts and circumstances justify exclusion. The NCLAT relied on this case to exclude certain period from the CIRP timeline in the present case.
• Arcelormittal India Private Limited vs. Satish Kumar Gupta & Ors. [(2019) 2 SCC 1] (Supreme Court of India): This case was cited by the NCLAT to support its view that certain periods can be excluded while counting the total period of 270 days.

Legal Provisions

• Article 142 of the Constitution of India: The Supreme Court invoked this article to exercise its plenary powers to do complete justice to the parties and to ensure that the CIRP is completed in a manner that serves the interests of all stakeholders.
• Section 7 of the Insolvency and Bankruptcy Code, 2016: This section was the basis for the initiation of the CIRP against JIL by IDBI Bank.
• Section 12 of the Insolvency and Bankruptcy Code, 2016: This section specifies the time period for completing the CIRP. The court noted the amendment to this section, which pegs the maximum period of CIRP to 330 days.
• Section 29A of the Insolvency and Bankruptcy Code, 2016: This section was used to bar JIL and its promoters from participating in the CIRP.
• Section 12A of the Insolvency and Bankruptcy Code, 2016: This section enables the adjudicating authority to allow the withdrawal of an application filed under Section 7 or Section 9 or Section 10, on an application made by the applicant with the approval of 90% voting share of the CoC.
• Regulation 36B(7) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016: This regulation allows the Resolution Professional to reissue a request for resolution plans if the earlier plans are not satisfactory.

Judgment

The Supreme Court did not explicitly answer the questions of law raised by the appellants regarding the power of NCLT/NCLAT to exclude time from the CIRP period or to invite fresh resolution plans after the expiry of the statutory period. Instead, the Court exercised its powers under Article 142 of the Constitution to do complete justice in the peculiar circumstances of the case.

The Court directed the IRP to complete the CIRP within 90 days from the date of the order. It allowed the IRP to invite revised resolution plans from Suraksha Realty and NBCC, the two final bidders, and to place these plans before the CoC for consideration. The Court clarified that it was not inviting fresh bids from other eligible persons.

The Court also emphasized that the directions were issued in an exceptional situation and should not be treated as a precedent.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the need to avoid liquidation of Jaypee Infratech Ltd. and to protect the interests of the large number of home buyers involved. The Court recognized that the CIRP process had been delayed due to genuine legal complexities and that the liquidation of JIL would cause more harm to the stakeholders.

The Court emphasized the following points:

• The extraordinary situation arising from the lack of clarity on the voting rights of home buyers.
• The fact that the project was partially implemented and a substantial number of home buyers had been put in possession.
• The recent legislative changes expanding the scope of resolution plans and the powers of the CoC.
• The unanimity among all stakeholders that liquidation must be avoided.

The Court’s decision was also influenced by the need to do complete justice under Article 142 of the Constitution, recognizing that strict adherence to the statutory timelines of the I&B Code would not serve the interests of justice in this case.

The Court’s reasoning was heavily influenced by the factual circumstances of the case, particularly the large number of home buyers and the partially completed project. While the legal provisions of the I&B Code were considered, the Court prioritized the need to do complete justice over strict adherence to the statutory timelines.

Logical Reasoning

The Court considered the alternative interpretation of strictly adhering to the statutory timelines of the I&B Code, which would have led to the liquidation of JIL. However, it rejected this interpretation as it would have been detrimental to the interests of the stakeholders, particularly the home buyers. The Court also considered the home buyers’ suggestion to monitor the process outside the I&B Code but rejected it based on the decision in *Chitra Sharma (supra)*. The final decision was reached by balancing the need to adhere to the legal framework with the need to do complete justice in the given circumstances.

Key Takeaways

• The Supreme Court has shown a willingness to use its powers under Article 142 of the Constitution to modulate the CIRP process in exceptional circumstances.
• The judgment highlights the importance of avoiding liquidation and protecting the interests of all stakeholders, particularly home buyers, in insolvency proceedings.
• The Court’s decision to allow the IRP to invite revised resolution plans from the original bidders sets a precedent for dealing with situations where resolution plans are rejected but there is a desire to avoid liquidation.
• The judgment emphasizes that the directions are specific to the facts of the case and should not be treated as a general precedent.
• The judgment also acknowledges the legislative changes made to the I&B Code and the need to address the problems faced in the implementation of the new legislation.

Directions

The Supreme Court issued the following directions:

1. The IRP is directed to complete the CIRP within90 days from the date of this order.
2. The IRP is permitted to invite revised resolution plans from Suraksha Realty and NBCC, the two final bidders.
3. The IRP shall place the revised resolution plans before the CoC for consideration.
4. The Court clarified that it is not inviting fresh bids from other eligible persons.
5. The Court emphasized that these directions are specific to the facts of this case and should not be treated as a precedent.