The Supreme Court’s ruling on the Essar Steel insolvency case will have far-fetched implications on the Insolvency and Bankruptcy Code (IBC) process and will quicken resolution, lawyers said.
“The judgment is significant in many ways. It will make the process more expedient and efficient,” Ajay Bhargava, Partner, Khaitan & Co, said.
He said, now that the Committee of Creditors (CoC) has the final say, it will lead to more certainty when a plan is accepted and there will be less challenge to the orders of NCLTs.
Mehul Bheda, partner, Dhruva Advisors said, “Prior to the SC ruling, banks and financial creditors’ faith in the resolution through IBC mechanism was on the verge of being lost because of fear that the adjudicating authority may alter the distribution of resolution proceeds at its own discretion.”
“[With] this judgment, the SC has restored the overarching object of IBC by upholding that it is the commercial wisdom of CoC which will determine the distribution of resolution proceeds. This will also facilitate speedier resolution of other IBC cases, since any litigation around treatment of operational creditors in the resolution plan should now be put to rest,” he said.
Vaibhav Bhure, advocate, Bombay High Court, said, “The recognition of superior right of the financial creditors in proportion to their security interest in an insolvency resolution process would show a positive attitude of such class of financial creditors in taking the insolvency resolution process to its logical end.”
He said the ‘equality for all’ approach would prompt secured financial creditors to vote for liquidation rather than for the resolution process, which would defeat the very object of the insolvency Code.
Makarand Joshi, partner, MMJC and Associates, said operational creditors will now have to find ways and means to secure their payments against supplies made to companies, as post this judgment; they will not be considered on par with financial creditors like banks.
“This landmark judgment, which in a way has given its approval to amendment made to IBC, will bring a paradigm shift in the way operational creditors now deal with companies for their supplies in the eventuality of default to secure their interest,” he said.
Since the SC has struck down the ‘mandatory’ time-limit of 330 days for completion of the resolution process, the decision will facilitate resolution, especially in cases where delays are caused due to capacity constraints of NCLT.
Anupam Dighe, partner at India Law Alliance said, “The rigidity of timelines which was faced in the closing process is also now interpreted to be more flexible so that the objectives of the code are achieved in true spirit.”
In all, the decision will help achieve the objectof the code in true spirit, he added.