NCLAT in a bench consisting of Judge Anant Bijay Singh (Judicial Member) and Ms Shreesha Merla (Technical Member) in the case of Indiabulls Housing Finance Limited v Sandeep Chandnadrawing a distinction between “exclusion” and “extension” of time under the IBC, held that the approval of the creditors’ committee is not mandatory when requesting an exclusion of time under the regulations 40C of the IBBI (CIRP) Regulations 2016.
The appeal was brought by the appellant, who is a member of the debtor company’s creditors’ committee, challenging the order of the contracting authority which excluded 87 days from the calculation of 180 days by exercising its powers under the Rule 11 of the NCLT Rules, 2016 read together with Rule 40C of the IBBI Rules (CIRP), 2016 on an Interim Resolution Practitioner Preferred Application.
Factual background-
The Section 7 claim against Ambience Private Limited/Company Debtor has been admitted and the Corporate Insolvency Resolution Process (CIRP) has commenced. The debtor company challenged this order before the NCLAT.
The NCLAT, by its order, prevented the Committee of Creditors (CoC) from proceeding until the next hearing date. This order was challenged in the Supreme Court in Indiabulls Housing Finance Limited Vs. Raj Singh Gehlot & Ors. The Supreme Court issued an order staying enforcement of the NCLAT order.
The issue that arose for consideration in this case was whether CoC approval under Article 12(2) of the Code is mandatory to apply for ‘exclusion of time” even if requested for reasons of lockout/lost time during the period of any ‘stay’/standstill/or any other reason.
The appellant argued that since the percentage of assent was 20.3% and the percentage of dissent was 42.4% of the CoC members’ vote, the CoC rejected the item requesting the time exclusion. Therefore, the IRP could not have gone ahead and filed the petition with the contracting authority requesting the exclusion of the time limit and that this act of the IRP is contrary to the Code. Section 12(2) of the Code provides that the resolution professional must file an application with the contracting authority to extend the period of the company’s insolvency resolution process beyond one hundred and eighty days, if so charged by a resolution passed at a meeting of the creditors’ committee by a vote of sixty-six percent of the voting shares.
The respondent, on the other hand, argued that section 12(2) of the Code provides for the extension and not the exclusion.
They also relied on Regulation 40C of the IBBI Regulations (CIRP) of 2016 which provides for the exclusion from the central government imposed lockdown period as a result of Covid-19 for the purposes of the calendar of any activity which could not be completed due to this confinement, in relation to the CIRP.
NCLAT Decision
The NCLAT relied on Quinn Logistics Private Limited Vs. Mack Soft Tech Private Limited in which the Court excluded the interim period following the unforeseen pandemic.
The Tribunal observed that when the NCLAT adopted the order granting the status quo to the contracting authority’s order allowing the 87-day exclusion, the IRP interpreted it to mean that the status quo should be maintained. as it existed at the date of the order of the NCLAT, i.e. 87 days, shall be excluded in accordance with the order of the contracting authority.
In Bhim Sain Goyal Vs. The American Swan Lifestyle Co. Pvt. ltd (Under CIRP), it has been held that if an extension beyond 180 days is required, the resolution professional will be free to request the same from the awarding authority.
He ruled that Regulation 40C was introduced by the IBBI on 29.03.2020, i.e. after the pandemic, as opposed to the Supreme Court’s decision in Arcelormittal India Private Limited v Satish Kumar Gupta & Ors. regarding the “extension of deadlines” bearing in mind the strict deadlines to be observed under the Code, which predated the pandemic.
Rejecting the appellant’s assertions, the Tribunal held that there was a clear distinction between exclusion and extension and, in view of Rule 40C, the contracting authority correctly extended the period to maintain the business in operation.
He noted-
“In view of the fact that Rule 12(2) speaks of ‘extension of time’; Rule 40C of the Regulations speaks of ‘exclusion of time’; the fact that the contracting authority had exercised its discretion in under Rule 11 of the NCLT Rules, 2016, that the period sought to exclude the lost period of time is based on the reasons mentioned in the table in paragraph 10; the fact that if this period had not been excluded, the Company would have entered Liquidation, ‘Corporate Death’ stage should be the last resort as contemplated by the Honorable Supreme Court in a series of judgments; that, bearing in mind the scope, spirit and purpose of the Code and reading Article 12 with Regulation 40C and also the unforeseen pandemic in mind, the contracting authority was correct ‘excluded’ the period of 87 days from the CIRP period. “
The NCLAT therefore dismissed the appeal.
Case title:Indiabulls Housing Finance Limited v Sandeep Chandna
Counsel for the Appellant: Ms. Avni Sharma, Ms. Anjali Anchayil, Mr. Rudreshwar Singh, Mr. Jaiyesh Bakhshi, Ms. Sonali Jaitley Bakhshi, Mr. Ravi Tyagi, Mr. Kabir Chhilwar, Mr. Mayank Kumar, Ms. Manmilan Sindhu, Ms. Ria Chandra, Ms. Radhika Malik, Ms. Mayuri Shukla, Mr. Gaurav Yashwardhan and Mr. Manish Sharma, lawyers.
Counsel for Respondents: Dr. UK Chaudhary, Lead Counsel with Mr. Nikhil Kumar Verma, Mr. Mansumyer Singh and Mr. Rahul Sharma, Advocates (R1), Mr. Vijay Nair, Mr. Manoranjan Sharma, Ms. Sakshi Kapoor, Advocates (R2), Mr. Sandeep Chandna, lawyer (for IRP)
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