The Supreme Court held that Companies are typically formed with the goal of making a profit, but owing to financial constraints or other factors, situations may occur where the entity's survival becomes challenging. For decades, investors have struggled to save sinking enterprises or depart wrecked businesses. To address the issue of corporate insolvency, the Indian government adopted the Insolvency and Bankruptcy Code, 2016 (IBC), which is one of the most important pieces of bankruptcy legislation in the country. IBC has sparked both enthusiasm and fear in the sector, as it presents both opportunities and challenges.
In the instant case titled Kapil Gupta vs Indiabulls Housing Finance Ltd two issues were raised before the NCLT for clarification:
Can NCLT permit withdrawal of application under Section 7 of IBC after its admission?
Can the Creditors decide to liquidate the company in the first meeting of CoC?
With regard to the first issue, NCLT held that many cases were seen by the adjudicating authorities where parties reached a compromise or settlement after the resolution application was accepted. As a result, in order to accomplish the Code's goal, the legislature added a new clause that allows the Corporate Debtor to pay the claim even after the application is accepted and resurrected itself.
If 90% of the voting share of the Committee of Creditors consents to the withdrawal, the adjudicating authority may enable the application admitted under section 7 or section 9 or section 10 to be withdrawn. This also shows that the legislature intends to give the corporate debtor a second opportunity. Before this modification, an application could only be withdrawn prior to admission, not afterwards.
With regard to the second issue, NCLT held that according to Section 33, if the resolution professional submits to the tribunal the committee of creditors' decision to liquidate the company by the required majority at any time during the CIRP but before confirmation of a resolution plan, the tribunal may issue a liquidation order against the company.
NCLT concluded that The Insolvency and Bankruptcy Code, of 2016, was enacted with the goal of reviving failing businesses, and it is expected to make a significant difference in the country's overall ease of doing business. The Code also attempts to give creditor power in the event of debtor default, which is in direct opposition to previous actions and legislation. This Code is still being updated, and new provisions have been added as a result of amendments. The revisions are expected to strengthen the bankruptcy resolution framework and result in better resolution rather than liquidation results.