JUDICIAL DILEMMA IN INTERPRETING TIME- BOUND CIRP UNDER IBC : CHALLENGES

AND IMPLEMENTATION

RESEARCH PAPER OF IBC

Submitted by Submitted to
Name – Karishma Nagesia Mrs. Sanchita Tiwary
Roll No. – 1116 Assistant Professor

Semester- IX A NUSRL, Ranchi

NATIONAL UNIVERSITY OF STUDY AND RESEARCH IN LAW

RANCHI, JHARKHAND

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 TABLE OF CONTANT
I. INTRODUCTION ..................................................................................................................... 3
II. THE TIME BOUND FRAMEWORK OF CIRP UNDER IBC 2016 ........................................... 5
III. JUDICIAL INTERPRETATION OF TIME BOUND PROVISION ........................................ 8
IV. CHALLENGES IN MAINTAING STRICT TIME- BOUND CIRP ...................................... 10
V. BALANCING OF TIME BOUND PROCESS AND VALUE MAXIMIZATION ..................... 11
VI. FINDINGS AND RECOMMENDARION ........................................................................... 12
VII. CONCLUSION ................................................................................................................... 13

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 ABSTRACT
The Insolvency and Bankruptcy Code, 2016 (IBC), established a robust framework for the
timely resolution of corporate insolvency with the objective of maximizing value for creditors
and stakeholders. Courts and tribunals face a delicate balance between adhering to statutory
deadlines and accommodating the complexities of individual cases to ensure substantive
justice. While the Supreme Court and National Company Law Tribunals (NCLTs) have
emphasized the sanctity of statutory timelines, they have occasionally adopted a pragmatic
approach to allow flexibility, particularly in cases where strict adherence might lead to adverse
or inequitable outcomes.
This judicial dilemma raises concerns about maintaining the fine balance between procedural
expediency and value maximization, as well as ensuring compliance with the Code’s
underlying principles. The abstract explores the tensions inherent in interpreting time-bound
provisions under the IBC, evaluates judicial strategies to address these challenges, and
highlights the need for reforms, such as increased capacity in tribunals and clearer legislative
guidance, to facilitate effective implementation. Ultimately, it underscores the judiciary’s
pivotal role in upholding the integrity and purpose of the IBC while ensuring justice and equity
for all stakeholders.

I. INTRODUCTION
“The Insolvency and Bankruptcy code 2016 has introduced the concept of fresh start Process
whereby an individual by complying with the procedure given in the Code, can be adjudged
insolvent and can be discharged of his liabilities.”1

This Code was a welcoming step and need of an hour to enhance the ease of doing business in
India. It was enacted to facilitate a formal and time bound insolvency resolution process and
liquidation. “The law aims at insolvency resolution in a time-bound manner (initially 180 days,
extendable by another 90 days under certain circumstances but now extended to 330 days)
undertaken by insolvency professionals.”2 While this provision was designed to expedite the
process and maximize value for creditors, it has also created a complex legal landscape for
courts to navigate. Courts and tribunals have often encountered situations where strict
adherence to statutory timelines clashes with the practical realities of insolvency resolution,
stakeholder negotiations, and procedural fairness. This creates a judicial dilemma, balancing
the legislative intent behind the time-bound structure with the necessity of ensuring due process
and fairness. Instances of procedural complexities, delays in obtaining approvals from statutory

1
Anil Kumar Popli “Insolvency and bankruptcy Code 2016” ICAI journal on IBC, pg. 103- 105, Sept 2016
2
Saket Hishikar “A concise History of Bankruptcy, Insolvency, and Debt restructuring Laws in India” Sage
Journal, Vol 45 Issue 2, 15 Oct 2020

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authorities, and resistance from stakeholders have further complicated the effective
enforcement of these timelines.

This paper will delve into the challenges faced by the judiciary in interpreting the time-bound
nature of the CIRP under the IBC, examining the potential consequences of these
interpretations on the effectiveness of the insolvency regime. It explores the evolving judicial
stance in dealing with these challenges, the conflict between procedural efficiency and
substantive justice, and the potential implications for the insolvency regime. By analysing
relevant case laws and legal principles, the article seeks to shed light on the practical difficulties
and suggest possible reforms to enhance the effectiveness of the time-bound resolution
framework.

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 II. THE TIME BOUND FRAMEWORK OF CIRP UNDER IBC 2016
Time is the essence of processes under the IBC. As mentioned by the Bankruptcy Law reform
Committee “Speed is of essence for the working of the bankruptcy code, for two reasons. First,
while the ‘calm period’ can help keep an organisation afloat, without the full clarity of
ownership and control, significant decisions cannot be made. Without effective leadership, the
firm will tend to atrophy and fail. The longer the delay, the more likely it is that liquidation will
be the only answer. Second, the liquidation value tends to go down with time as many assets
suffer from a high economic rate of depreciation. From the viewpoint of creditors, a good
realisation can generally be obtained if the firm is sold as a going concern. Hence, when delays
induce liquidation, there is value destruction. Further, even in liquidation, the realisation is
lower when there are delays. Hence, delays cause value destruction. Thus, achieving a high
recovery rate is primarily about identifying and combating the sources of delay.” 3

Furthermore, emphasising the importance of time bound process, the preamble of the IBC
states that “…insolvency resolution of corporate persons, partnership firms and individuals in
a time bound manner for maximization of value of assets of such persons….”4

a. Time limit for completing CIRP

Section 12 mentioned about the time-limit completion of insolvency resolution process.

“12. (1) Subject to sub-section (2), the corporate insolvency resolution process shall be
completed within a period of one hundred and eighty days from the date of admission
of the application to initiate such process.

(2) The resolution professional shall file an application to the Adjudicating Authority
to extend the period of the corporate insolvency resolution process beyond one hundred
and eighty days, if instructed to do so by a resolution passed at a meeting of the
committee of creditors by a vote of [sixty-six] per cent. of the voting shares.

(3) On receipt of an application under sub-section (2), if the Adjudicating Authority

is satisfied that the subject matter of the case is such that corporate insolvency
resolution process cannot be completed within one hundred and eighty days, it may by

3
1f4d5f48bbc0d66b4b53ce6cb8220d08.pdf
4
Ibc footnoting

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 order extend the duration of such process beyond one hundred and eighty days by such
further period as it thinks fit, but not exceeding ninety days:

Provided that any extension of the period of corporate insolvency resolution process
under this section shall not be granted more than once.”5

The maximum time limit directed by the code is 180 days from the date of admission of the
application filed under section 7(5), 9(5) and 10(4) of IBC 2016. There may be instances, where
a resolution process can be completed before the maximum time period prescribed.

Under section 12 (2) and (3) of IBC 2016 read with regulation 40 of CIRP regulation 2016,
further extension of 90 days can be granted by the adjudicating authority. Regulation 40 is
provided as:

“40. Extension of the corporate insolvency resolution process period.

(1) The committee may instruct the resolution professional to make an application to
the Adjudicating Authority under section 12 to extend the insolvency resolution
process period.

(2) The resolution professional shall, on receiving an instruction from the committee
under this Regulation, make an application to the Adjudicating Authority for such
extension.”6

Furthermore, section 12 mandates the CIRP of corporate debtor to be concluded within 330
days from the insolvency commencement date, this includes

(a) normal CIRP period of 180 days,

(b) one-time extension, if any, up to 90 days of such CIRP period granted by the Adjudicating
Authority, and

(c) the time taken in legal proceedings in relation to the CIRP of the CD.

If the settlement process is not completed within the 180/270/330-day timeframe, substantial
sanctions are outlined under Section 33 of the Code. According to that provision, in such a
case, the adjudicating authority must issue an order requiring the corporate debtor to be
liquidated in the manner specified in the Chapter III. Further, after the issue of the invitation of

5
IBC2016 section 12
6
CIRP regulation 2016

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the EoI by the RP under Regulation 36A of the CIRP Regulations, it will be completely left to
the commercial wisdom of the CoC, through the RP, to accept EoIs and resolution plans under
the Code. As for the timeline after which no resolution plan can be accepted by the CoC,
Regulation 39(4) of the Code provides that the “resolution professional shall endeavour to
submit the resolution plan approved by the committee to the Adjudicating Authority at least
fifteen days before the maximum period for completion of corporate insolvency resolution
process under section 12…”. In addition to this, the Code must be amended to include an
express provision disallowing any acceptance of resolution plans after the expiry of the time
stated in Regulation 39(4).

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 III. JUDICIAL INTERPRETATION OF TIME BOUND PROVISION
in 2019 Supreme Court held that “While the provision is generally intact, the term
"mandatorily" is struck down as plainly arbitrary under Article 14 of the Indian Constitution
and as an unfair restriction on the litigant's ability to conduct business under Article 19(1)(g)
of the Constitution. This declaration has the effect of requiring the time taken in regard to the
CIRP to be completed within 330 days of the insolvency commencement date. If the delay, or
a significant portion of it, is due to the AA and/or the NCLAT's tardiness, the AA and/or NCLAT
may be able to extend the time beyond 330 days. Only in extreme situations can time be
extended; the conventional rule is that 330 days is the maximum time during which the
Corporate Debtor's stressed assets must be resolved, after which it will be forced into
liquidation.”7

In Ritu Rastogi RP of Benlon India Ltd. Vs. Riyal Packers (2020) 8 NCLAT determined that
this is an appropriate case for this Appellate Tribunal to exercise its jurisdiction, since it is an
extraordinary instance that deviates from the general rule of 330 days as the outer limit
provided by statute for completion of the CIRP, including the period of judicial intervention.
We are also of the considered opinion that failure to exercise discretion in a matter of this nature
would have serious consequences, endangering the legitimate interests of all stakeholders, and
would inevitably result in the Corporate Debtor being forced into liquidation, which must be
avoided at any cost. But in case of Pioneer Rubchem Pvt. Ltd Vs. Vivek Raheja Resolution
Professional, Trading Engineers (International) Limited NCLAT held Section 12 of the IBC,
2016 specifies a 180-day time frame for completing the CIRP, and even if we consider an
extended timeframe, it is another 90 days, thus the CIRP should be finished within 270 days.
Although it is stated in the directory that CIRP can be finished in approximately 330 days, this
is primarily due to the time limit of the judicial process. As a result, all efforts should be taken
to complete the CIRP within 270 days. In the current case, two Resolution Plans have already
been submitted, so the issue of competitive bidding is fulfilled with. If we allow the current
Appellant, we would open the floodgates for similar petitions and derail CIRP and the aim of
the IBC, not only in this case but in others as well. The appeal is devoid of merit. Hence, the
appeal was dismissed.

7
Committee of Creditors of Essar Steel India Limited Through Authorised Signatory Vs. Satish Kumar Gupta &
Ors. MANU/SCOR/43613/2019
8
Ritu Rastogi vs. Riyal Packers MANU/NL/0041/2020

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In Mr. Ravi Sankar Deverakonda Vs. Committee of Creditors of Meenakshi Energy Limited
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(2021), the NCLAT held that the Adjudicating Authority's exercise of power to extend the time
period under section 12(3) of the Code in defiance of statutory provisions of the Code may be
desirable in exceptional/extraordinary circumstances of a given case by exercising sound
judicial discretion with a view to finding a suitable Resolution Plan to prevent an aberration of
justice.

In Committee of Creditors of Trading Engineers International Ltd. Vs. Trading engineers

International Ltd. Through Resolution Professional10 it was held that the discretion should have
been exercised by the Adjudicating Authority in acceding to the request of the Resolution
Professional in extending the time beyond 330 days, we are of the considered opinion that this
is a fit case where indulgence of this Appellate Tribunal is warranted for extending the timelines
to prevent the Corporate Debtor from being pushed into liquidation and a viable Resolution
Plan being approved by the COC, allowing of appeal will As a result, we allow the appeal and
grant a two-week extension beginning today, excluding the period of court intervention

9
Mr. Ravi Sankar Deverakonda v. Committee of Creditors of Meenakshi Energy Ltd. MANU/NL/0522/2021
10
MANU/NC/3748/2021

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 IV. CHALLENGES IN MAINTAING STRICT TIME- BOUND CIRP
The number of cases submitted for CIRP has fluctuated significantly. From a modest beginning
of 37 cases in 2016-17, filings increased to 1989 in 2019-20. However, pandemic-induced
exemptions resulted in a decline to 536 cases in 2020-2021. Filings increased again, reaching
987 in 2022–23.

“The average time taken for concluding a CIRP is 683 days, which means the process typically
takes a minimum of two years.”11 Extending the Code's deadline indefinitely to examine newly
submitted resolution plans in the belief that they may deliver higher value to stakeholders
would contradict the Code's other goal, which is to address corporate debtor insolvency in a
timely manner. The longer it takes to resolve insolvency, the less valuable the corporate debtor's
assets become. Furthermore, whereas financial creditors in the CoC may be able to flout the
Code's deadlines in the hope of a higher recovery, this is not always the case for operational
creditors such as workers, micro and small firms. Delays in collecting their payments may force
them towards financial difficulties. Thus, it is imperative that the process has to end
somewhere.

Additionally, the maintenance of strict time-bound in Corporate Insolvency Resolution Process

(CIRP) in India is hindered by various challenges, including judicial delays, complex legal
procedures, lack of cooperation from stakeholders, valuation disputes, and the time-consuming
nature of the resolution process itself. These challenges often lead to delays in the completion
of CIRP, impacting the timely resolution of corporate distress and hindering the overall
effectiveness of the insolvency and bankruptcy framework.

Still, the question of when CIRP will be completed arises from the viewpoint of the moratorium
provision. According to Section 14 of the Code, the moratorium will remain in effect until
CIRP is completed. If CIRP is completed upon COC approval of the resolution plan, as appears
to be the case based on Sections 23 and 33, can creditors commence or continue recovery
proceedings pending NCLT approval of the plan? Though theoretically correct, this looks to
contradict the Code's intent and purpose, potentially rendering a resolution plan superfluous.

11
Mukash Chand “Revamping India's Insolvency Framework: Challenges, Trends, And Strategic
Improvements” Mondaq, 30 May 2024 < Revamping India's Insolvency Framework: Challenges, Trends, And
Strategic Improvements - Insolvency/Bankruptcy - Insolvency/Bankruptcy/Re-Structuring - India>

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 V. BALANCING OF TIME BOUND PROCESS AND VALUE MAXIMIZATION
“Valuation exercise is one of the critical activities under IBC and assumes importance towards
ensuring time-bound resolution, value maximization and balancing of rights of stakeholders.
Under the Insolvency and Bankruptcy Code, 2016 (“IBC”), valuation of assets is one of the
core features dealt with in a corporate insolvency resolution process (“CIRP”). The process of
valuation conducted by “Registered Valuers” or valuation professionals helps determine the
current value of the assets which are to be liquidated. The requirement of valuation under the
IBC is an important concern for Registered Valuers in all three asset classes: plant and
machinery (“P&M”), land and building (“L&B”), as well as securities or financial assets.”12

A time-bound approach emphasizes procedural efficiency, fostering predictability and

expediency in the resolution of disputes or processes. However, this focus must not come at
the expense of achieving substantive justice or economic optimization, as hasty decisions may
result in significant losses or inequitable outcomes for affected parties. prioritizing value
maximization necessitates a careful evaluation of assets, interests, or rights involved to ensure
that their full potential is realized. This approach may require flexibility in timelines to
accommodate complex assessments and negotiations, particularly when the stakes involve
significant public or private interests.

The Insolvency and Bankruptcy Code, 2016 (IBC) seeks to strike a delicate balance between
the time-bound resolution of corporate distress and the maximization of the value of the
corporate debtor's assets.

“While the Code mandates strict timelines for the completion of the Corporate Insolvency
Resolution Process (CIRP), it also emphasizes the need to achieve the best possible outcome
for all stakeholders involved. This necessitates a careful balancing act, as undue haste may
compromise value maximization, while excessive delays can frustrate the purpose of the
Code.”13

12
“Background Guidance on Valuation Process under Insolvency and Bankruptcy Code, 2016 – Best Practices”
IIPI, New Delhi, Last visit 25 Nov, 2019, < Background-Guidance-on-Valuation-Process-under-IBC-–-Best-
Practices.pdf>
13
“Analysis of Time Limit under Section 12 of the Insolvency and Bankruptcy Code, 2016 (IBC) for completion
of CIRP” Decoding the Code, IBC Laws , Last seen 20 Sept 2020 ,< IBC Laws - Analysis of Time Limit under
Section 12 of the Insolvency and Bankruptcy Code, 2016 (IBC) for completion of CIRP>

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 VI. FINDINGS AND RECOMMENDARION

The findings reveal that the time-bound framework of the Corporate Insolvency Resolution
Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC), while aimed at
efficiency and value preservation, faces significant challenges in practical implementation.
Procedural complexities, high case volumes, and stakeholder delays often impede strict
adherence to statutory timelines. Judicial interpretations highlight a persistent tension between
complying with these deadlines and ensuring equitable outcomes, with courts and tribunals
frequently exercising discretion to accommodate case-specific exigencies. However, the lack
of uniformity in these interpretations has led to uncertainty, undermining the predictability and
consistency of the CIRP framework. Additionally, institutional limitations, such as inadequate
resources and capacity constraints of the National Company Law Tribunals (NCLTs), further
exacerbate delays and inefficiencies.

To address these challenges, it is recommended that legislative amendments be introduced to

provide clear guidelines on permissible extensions and exceptions to statutory timelines,
ensuring consistency in judicial approaches. Strengthening the infrastructure and capacity of
NCLTs and appellate tribunals is imperative to manage the growing case load effectively.
Regular training for judges, insolvency professionals, and stakeholders should be prioritized to
enhance understanding and implementation of the Code. Streamlining procedural requirements
and leveraging technology for case management can significantly reduce bottlenecks and
improve adherence to timelines. Additionally, robust monitoring mechanisms should be
established to track CIRP progress and address systemic inefficiencies. These measures aim to
strike a balance between procedural efficiency and the equitable realization of the IBC’s
objectives, fostering a more predictable and effective insolvency framework.

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 VII. CONCLUSION

The time-bound Corporate Insolvency Resolution Process (CIRP) under the Insolvency and
Bankruptcy Code, 2016 (IBC), embodies the legislative intent to achieve procedural efficiency
and value maximization for stakeholders. However, the practical challenges and judicial
dilemmas arising from the implementation of this framework highlight the complexities
inherent in balancing statutory timelines with the principles of substantive justice and equity.
Judicial discretion, while crucial in addressing case-specific exigencies, must be exercised
within a predictable and consistent framework to preserve the sanctity of the Code’s objectives.

The government in 2019 considered establishing an online bidding mechanism with a limited
time period for resolution applicants to make their bids. In this process, resolution applicants
who fulfil some eligibility criteria will be allowed to bid online for a limited period, thereby
resulting in strict adherence to timelines. ach resolution plan requires significant discussions
with the members of the CoC who are tasked with selecting the plan which would be best suited
to take the corporate debtor out of insolvency. Further, such a mechanism, while resulting in
strict adherence to timelines, would tie the hands of the CoC in case a better plan is available
after a resolution plan has been selected through online bidding. The suggestions made in this
article would provide sufficient time for the CoC to explore different resolution plans that may
be offered- resulting in value maximization while also ensuring that the process remains time-
bound.

To this end, it is imperative that legislative refinements, institutional strengthening, and

procedural streamlining be undertaken to address the systemic issues undermining the
effectiveness of the CIRP. By providing clearer statutory guidance, augmenting tribunal
capacity, and leveraging technological advancements, the framework can evolve to ensure
timely and equitable resolution of insolvency cases. Ultimately, the successful implementation
of the IBC rests on the harmonious integration of procedural discipline and stakeholder-centric
justice, reaffirming its role as a cornerstone of India’s insolvency regime.

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