Resolution process: Govt must address emerging gaps in the IBC framework

“Prima facie, we are of the view that the impugned judgment does not correctly consider the legal position as has been laid down by a catena of judgments,” remarked last week a Supreme Court Bench comprising Chief Justice of India B R Gavai and Justice Satish Chandra Sharma. It recalled the May 2 apex court judgment that declared the resolution plan for Bhushan Power & Steel Ltd (BPSL) illegal and ordered its liquidation. In the Supreme Court, something like this doesn’t happen often, but this extraordinary situation needed extraordinary action. The May 2 judgment had caused considerable discomfort, not only among the direct stakeholders but also in policy circles. If a resolution plan passed by the National Company Law Tribunal (NCLT) can be declared illegal after several years and a corporate debtor can be ordered to be liquidated, it would seriously undermine the basis of the Insolvency and Bankruptcy Code (IBC), with an extraordinary long-term cost to the economy.

 

While the final word on the case is not yet out, it should comfort stakeholders that Justice Gavai also addressed the ground realities in the context of the case and the fact that nearly ₹20,000 crore had been invested by the acquirer, JSW Steel. Moreover, thousands of jobs are at stake. He also noted that the commercial wisdom of the committee of creditors could not be interfered in, particularly when it has been upheld by the NCLT and the National Company Law Appellate Tribunal (NCLAT). The apex court’s intervention and the review of the May 2 judgment are positive, but it would also be critical that the matter is settled at the earliest. Any delay in the judgment could affect decision-making in the company, with potential loss of output or asset valuation, which the bankruptcy process intends to avoid in the first place.

 

Even as the matter is being heard in the court, the government would be well advised not to ignore the earlier judgment. There are several areas where the government needs to focus on and strengthen the bankruptcy process. It must be noted that the judgment under review practically questioned the process at every stage. The government should study it carefully and address the gaps to avoid a repeat of the situation. The implementation of the IBC is considered one of the biggest reforms in recent decades, and the government must always be ready to strengthen it. Further, it needs to immediately tackle the capacity issue in the NCLT and NCLAT. It is worth noting that the NCLT was constituted to administer the company law and has been given the responsibility of adjudicating bankruptcy cases without much improvement in capacity.

 

As reported by this newspaper, the Parliamentary Standing Committee on Finance recently contemplated the possibility of establishing a dedicated NCLT and NCLAT to improve the pace of insolvency resolution. All such possibilities must be explored. It is vital that the adjudicating authority has the capacity to perform the intended role. As things stand, the resolution process is taking far too long. The data from the Insolvency and Bankruptcy Board of India shows that close to 1,200 cases that have yielded a resolution plan till March 2025 took an average of 597 days. Cases that ended up in liquidation also took over 500 days. The time taken needs to be substantially reduced because delays can erode value. Finally, it is critical to decide the finality of the process. Every time a case gets dragged to the Supreme Court, it induces delays and undermines the process.