INTRODUCTION 

Background 

On November 15, 2019, the Supreme Court (the “Court”) ruled on several contentious aspects of the Insolvency and Bankruptcy Code, 2016 (the “Code”) and put an end to the long-drawn-out litigation in the insolvency resolution process of one of India’s largest steel manufacturers, Essar Steel India Limited (“ESIL”). This update highlights the key aspects of the Court’s decision.

Background

This is in succession to our previous con-call held on August 9, 2019. The Supreme Court in its judgment of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta dated November 14, 2019 (“Judgment”) has set aside the decision of the National Company Law Appellate Tribunal (“NCLAT”).

INTRODUCTION 

Various Indian judicial fora, including the Supreme Court, have affirmed that a creditor may proceed against a guarantor on failure of the principal debtor to repay a loan without first exhausting his remedies against the principal debtor.  

NCLAT has held that a secured financial creditor while opting out of liquidation process is barred from selling secured assets to promoters or its related party or persons who are ineligible in terms of Section 29A of I&B Code.

Tribunal in SBI v. Anuj Bajpai observed that even if Section 52(4) is silent on sale of secured assets to one or other persons, the explanation in Section 35(1)(f) makes it clear that assets cannot be sold to those who are ineligible under Section 29A.

The Ministry of Corporate Affairs (“MCA”) notified the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (hereinafter referred to as the “Rules”) on 15 November 2019. The objective of notifying the Rules was to provide a framework for insolvency and liquidation proceedings of Financial Service Providers (hereinafter referred to as “FSPs”) other than banks.

The Government of India introduced the Insolvency and Bankruptcy Code, 2016 (IBC) to simplify and consolidate various existing laws relating to insolvency and bankruptcy and to provide for a single legal framework to deal with all instances of insolvency and bankruptcy in India.

The Indian Insolvency & Bankruptcy Code, 2016 (IBC) has seen several challenges in recent times. The Indian Government has been proactive in responding to these. In response to the recent set of challenges, the Government intends to implement another round of amendments to the IBC. The key takeaways from this proposed amendment are discussed below.