Exclusion of COVID-19 Lockdown Period in Insolvency Proceedings: Indiabulls Housing Finance Ltd v. Sandeep Chandna

Introduction

The case of Indiabulls Housing Finance Limited v. Sandeep Chandna was adjudicated by the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi on January 18, 2022. This landmark judgment addresses critical issues pertaining to the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC), particularly focusing on the exclusion of days from the statutory 180-day period due to unforeseen circumstances like the COVID-19 pandemic.

Parties Involved:

Appellant: Indiabulls Housing Finance Limited
Respondents: Sandeep Chandna (Interim Resolution Professional of Ambience Private Limited), Vistra ITCL (India) Limited, and Ambience Private Limited.

Key Issues:

Whether the exclusion of 87 days from the 180-day CIRP timeline due to COVID-19 is permissible without obtaining the Committee of Creditors (CoC) consent.
Whether the Interim Resolution Professional (IRP) acted within their discretionary powers under Rule 11 of the NCLT Rules, 2016.
Contempt proceedings against the IRP for allegedly violating the Tribunal's order to maintain the status quo.

Summary of the Judgment

The NCLAT, after thorough examination of the submissions from both the appellant and respondents, upheld the National Company Law Tribunal (NCLT) order that excluded 87 days from the 180-day CIRP period. This exclusion was granted under Rule 11 of the NCLT Rules, 2016, and Regulation 40C of the Insolvency and Bankruptcy Board of India (IBBI) CIRP Regulations, 2016, citing the unprecedented impact of the COVID-19 pandemic.

The Tribunal found that the IRP was justified in seeking the exclusion without explicit CoC approval due to the extraordinary circumstances posed by the pandemic, which impeded the regular functioning of the insolvency process. Additionally, the Contempt Case against the IRP was dismissed as the Tribunal found no willful disobedience of its orders.

Analysis

Precedents Cited

The judgment extensively referenced several key precedents that shaped the court's decision:

Quinn Logistics Private Limited v. Mack Soft Tech Private Limited – Addressed the exclusion of unforeseen periods in CIRP.
Bhim Sain Goyal v. The American Swan Lifestyle Co. Pvt. Ltd. – Emphasized the conditions under which time extensions could be sought.
Sudip Bhattacharya v. Reliance Naval and Engineering Ltd. – Highlighted the necessity for CoC approval in extending CIRP timelines.
Arcelormittal India Private Limited v. Satish Kumar Gupta & Ors. – Clarified the mandatory nature of CIRP timelines under Section 12.
Swiss Ribbons (P) Ltd. v. Union of India – Asserted the non-justiciability of CoC's commercial decisions.
K Sashidhar v. Indian Overseas Bank – Reinforced that CoC's commercial wisdom is non-justiciable.

Legal Reasoning

The Tribunal's legal reasoning was anchored on the interpretation of specific provisions within the IBC and the NCLT Rules:

Section 12 of the Insolvency and Bankruptcy Code, 2016: Governs the time-frame for the CIRP, mandating its completion within 180 days, extendable by 90 days with CoC approval.
Rule 40C of the IBBI CIRP Regulations, 2016: Allows exclusion of periods where activities couldn't be conducted due to extraordinary events like lockdowns.
Rule 11 of the NCLT Rules, 2016: Empowers the Adjudicating Authority to exercise discretion in exceptional circumstances to ensure justice and maintain the viability of the corporate debtor.

The Tribunal distinguished between 'extension' and 'exclusion' of time, emphasizing that exclusion pertains to periods where no progress could be made due to unforeseen events, whereas extension deals with lengthening the timeline based on CoC approval. In this case, the COVID-19 lockdown rendered the CIRP unfeasible during the specified 87 days, thereby justifying their exclusion.

Moreover, the Tribunal held that the IRP acted within its discretionary powers by excluding the lockdown period to preserve the corporate debtor as a going concern, aligning with the spirit and objective of the IBC.

Impact

This judgment has profound implications for future insolvency proceedings, especially in contexts involving force majeure events:

Flexibility in CIRP Timelines: The judgment provides a legal framework for excluding periods where CIRP activities are impeded by extraordinary events, ensuring that insolvency processes remain fair and just.
Role of IRP: Reinforces the authority and discretion of the IRP in managing CIRP timelines, even in the absence of unanimous CoC approval, provided the circumstances warrant such action.
Future Precedents: Sets a precedent for handling similar cases where external factors disrupt insolvency proceedings, thereby influencing judicial interpretations and regulatory guidelines.

Complex Concepts Simplified

1. Corporate Insolvency Resolution Process (CIRP)

CIRP is a structured process under the IBC aimed at resolving the insolvency of a corporate debtor, either by finding a viable resolution plan or by liquidating the company's assets to repay creditors.

2. Committee of Creditors (CoC)

CoC comprises the financial creditors of the corporate debtor. It plays a pivotal role in decision-making during CIRP, including the approval of resolution plans and timelines.

3. Interim Resolution Professional (IRP)

The IRP is appointed to oversee the CIRP, manage the debtor's assets, and facilitate communication between various stakeholders. The IRP acts as the facilitator of the insolvency process.

4. Extension vs. Exclusion of Time

Extension: Increasing the CIRP timeline beyond the statutory period (180 days) based on CoC approval. It adds extra days to complete the process.

Exclusion: Removing specific days from the CIRP timeline when circumstances prevent the continuation of the process, such as lockdowns during a pandemic.

Conclusion

The NCLAT's decision in Indiabulls Housing Finance Ltd v. Sandeep Chandna underscores the judiciary's adaptability in interpreting insolvency laws amidst unprecedented challenges like the COVID-19 pandemic. By permitting the exclusion of 87 days from the CIRP timeline without explicit CoC consent, the Tribunal reaffirmed the balance between rigid statutory timelines and the practical realities faced during crises.

Key takeaways from this judgment include:

The legal distinction between 'extension' and 'exclusion' of CIRP timelines.
Affirmation of the IRP's discretionary authority under exceptional circumstances.
Recognition of force majeure events as valid grounds for adjusting insolvency proceedings timelines.

This precedent will guide future insolvency litigations, ensuring that the IBC remains a robust framework capable of addressing both anticipated and unforeseen disruptions.