Not as simple as ABC, but miss IBC deadlines and liquidation looms
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The Supreme Court 's ruling in the JSW Steel-Bhushan Power & Steel case has put the spotlight on the slow pace of insolvency resolutions, with legal experts warning that many companies awaiting resolution may now be headed for liquidation . The court, in its May 2 order scrapping JSW Steel 's acquisition of Bhushan Power & Steel (BPSL), reaffirmed that the 330-day deadline for completing the proceedings-including time spent in litigation-is strict, with exceptions in rare cases."With many insolvency cases dragging on for over 1,200 days, the Supreme Court's reiteration of the 330-day ceiling sends a clear message: liquidation may soon become the default route," said VP Singh, senior partner and litigation head at AZB & Partners. "There are very few landmark cases like Bhushan Steel and Tata Steel, which were resolved well within this timeline," he added.Out of 6,302 Insolvency and Bankruptcy Code (IBC) cases pending before the National Company Law Tribunal NCLT ), 3,125 are over 330 days over, according to data from the Standing Committee for Finance Demand of Grants Report dated December 2024. They are now staring down the barrel of the liquidation gun. The top court in its ruling said the corporate insolvency resolution process (CIRP) of BPSL had already breached the statutory deadline before the resolution plan was even submitted in February 2019. The CIRP had commenced in July 2017 and any plan should have been resolved within the 330-day cap.Industry experts said the judgment will put added pressure on the committee of creditors (CoCs) of companies under CIRP to make quicker decisions and may lead to premature liquidations if timelines are not met."The judgment may dampen interest in acquisition of assets through CIRP," said Sudip Mahapatra, partner S&R Associates."Post the JSW Steel-BPSL order, if the lenders cannot submit a resolution plan within the specified deadline to the NCLT, they can either approach NCLT for an extension or initiate liquidation of the company," Mahapatra said. "Extension can only be granted in exceptional circumstances due to conditions that are beyond the control of the CoC."According to the latest data from the Insolvency and Bankruptcy Board of India (IBBI), 1,119 CIRPs that led to approved resolution plans took an average of 585 days to conclude, even after excluding tribunal-approved extensions.The SC ruling could mark a turning point in how tribunals and creditors treat insolvency timelines."If this judgment truly ensures that every case is resolved within 330 days, it could transform the system's efficiency," said RK Bansal former MD and CEO of Edelweiss ARC. "If CIRP has become a playground where a lot of payers are gaming the system, with lenders always losing, then maybe it is time to rethink the whole model. Lenders may be able to recover more by auctioning the unit upfront and be done in 90 days, rather than drag it for years?" While the IBC mandates a 330-day cap, with indicative timelines at each stage (including extensions), the average completion time reached 821 days during April-December 2024, according to IBBI's latest newsletter.
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