Real Threat To IBC Is Death By Delay: Outer Limit For Resolution Must Be Cut To 180 Days

The IBC needs an amendment.
  • The IBC needs an amendment in order to shorten the resolution period. The law says insolvency should be resolved in 180 days but allows the courts to extend this deadline to 270 days in case there is a good reason to do so.

    This is a serious roadblock.

If there is one real threat to the success of the Insolvency and Bankruptcy Code (IBC), it is death by delay. A few days ago, the first major resolution happened in the case of Bhushan Steel, but yesterday (22 May), the National Company Law Appellate Tribunal (NCLAT) – the last appeals court in insolvency cases before the Supreme Court – took up an appeal from operational creditors even though it did not stay the resolution.

Worse, in another case, the NCLAT also accepted cross-appeals by Arcelor Mittal and NuMetal, both bidders for Essar Steel, and posted the case for a hearing on 23 July – two months from now. Until then, the resolution professional (RP), the committee of creditors (CoC) and other contending parties cannot do anything. The company will be run by the RP for two more months, if not more, before a final resolution is attempted.

The case of Binani Cement, where Dalmia Bharat, the original highest bidder, and UltraTech Cement are in litigation, is another example of good assets being fought over endlessly until the deadline is breached.


These cases, and others, suggest that the 270-day outer limit for a resolution of IBC cases may soon become a dead letter, unless both the National Company Law Tribunal (NCLT) and the appellate tribunal (ie, NCLAT) take the deadline seriously. Excluding the days of litigation from the 270-day limit means litigation can stretch endlessly, defeating the very purpose of creating the insolvency courts. It can be nobody’s case that resolution should drag on for a year. It neither helps the company, nor creditors, nor the reputation of the courts.

The IBC needs an amendment in order to shorten the resolution period. The law says insolvency should be resolved in 180 days but allows the courts to extend this deadline to 270 days in case there is a good reason to do so. It is obvious that both the NCLT and the appellate tribunal are looking at the 270-day window as the real deadline, and even this can be sacrificed if bidders litigate.

This is a serious roadblock. It is typical human failure to see the exceptional deadline as the real deadline, and not the normal deadline of 180 days.


The amendment we need is to reduce the regular resolution period to 120 days (four months), with another 60 days being added in case of exceptional issues cropping up.

The changes we need to the IBC rules are the following:

One, as stated, the outer limit for resolution should be 180 days, and not 270 days.


Two, litigation days, if excluded from the 180-day outer limit, should be capped at a maximum of 30 days, so that even if there is a spillover, as in the case of Essar Steel, the total time period for resolution will not exceed 210 days (seven months). Now it has become 270-plus. If it takes a year to resolve the debt issues of one company, the IBC will soon be litigated out of effectiveness.

Three, the government should create more benches and appoint more judges in the appellate courts as soon as possible. If it does not do so, shortage of judges and officers will be cited as reasons for delays.

Fourth, the part of the IBC that is working wonderfully well is the fear of being dragged into insolvency. A Times of India report says that more than 2,100 small companies have cleared outstanding dues to banks worth more than Rs 83,000 crore merely to stay out of the insolvency procedures. It would be a pity if the early cases send out the message that bankruptcy courts can be used endlessly to avoid paying up.


IBC is a winner, but delays will kill it. If two ardent suitors want a steel company badly when global prices look good enough for investment in an acquisition, how does it suit anyone to delay matters and the bidding interest cools during the next recession?

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