In a judgment significant for India’s fledgling corporate resolution process under the Insolvency and Bankruptcy Code, the Supreme Court on Friday increased the time limit for corporate resolution to extend beyond the mandated 330 days.
As of now, the time limit for resolution process is mandatorily 330 days in all cases. If debts are not resolved and the bankrupt firm cannot be brought back to its feet within this time-frame, the only option left is liquidation of its assets to pay creditors. A Bench led by Justice Nariman, in the ArcelorMittal judgment, observed that many litigants suffer the prospect of liquidation for no fault of theirs. Delay in legal proceedings leads to the resolution process being dragged beyond the 330-day mark.
The court said the 330-day time limit was no longer mandatory. Justice Nariman said it would be arbitrary to let litigants suffer liquidation unnecessarily. The court held the mandatory nature of the 330-day mark as a violation of Article 14 (right to equal treatment) of the Constitution and an “excessive and unreasonable restriction on the litigant’s right to carry on business under Article 19(1)(g) of the Constitution”.
The court mellowed the provision saying the 330-day mark should be followed in the ‘ordinary course’. Extension of time should be granted by the NCLT if parties are able to prove there is very little time left in the resolution process and the delay has been caused by ‘tardy’ legal proceedings.