STATE BANK OF INDIA & ORS  [APPELLANT(S)] Vs.  THE CONSORTIUM OF MR. MURARI LAL JALAN AND MR. FLORIAN FRITSCH & ANR  [RESPONDENT(S)]

CIVIL APPEAL NOS. 5023-5024 OF 2024

(3JB, DY Chandrachud, J.B. Pardiwala and Manoj Misra JJ., delivered by J.B. PARDIWALA, J.)

The Supreme Court of India recently underscored the critical importance of promptly implementing Resolution Plans under the Insolvency and Bankruptcy Code (IBC), noting that delays could cause corporate debtors’ assets to lose value. The bench, comprising Chief Justice DY Chandrachud, Justice JB Pardiwala, and Justice Manoj Misra, held that when the Resolution Plan is delayed, the assets of the corporate debtor could diminish, ultimately defeating the IBC’s objective of maximizing asset value for creditors.

The IBC was enacted with the intention of addressing corporate insolvency efficiently, providing a structured mechanism to resolve debts while protecting creditors’ interests. One of the primary goals of the Code is to ensure that a financially distressed company can be revived quickly. To accomplish this, strict timelines for the insolvency resolution process have been set by the Code. However, the Supreme Court has observed that in practice, these timelines are often exceeded due to procedural delays, legal challenges, or a lack of prompt decision-making by creditors and resolution professionals.

In its recent ruling, the bench emphasized that unnecessary delays are counterproductive to the entire resolution process, as they erode the value of the assets held by the corporate debtor. Delays may also discourage potential investors from participating in future bids if they see risks of prolonged litigations and procedural bottlenecks, leading to less competitive bidding and reduced asset realization. The Supreme Court pointed out that each day of delay further decreases the likelihood of successful revival of the distressed entity, as creditors lose value on their claims while operational assets may fall into disrepair or lose market relevance.

The Court’s decision also reflects its commitment to supporting the objectives of the IBC by maintaining strict timelines, as enshrined in the Code, for completing resolution processes. As per Section 12 of the IBC, a Corporate Insolvency Resolution Process (CIRP) must be completed within 330 days, including any litigation and extension. However, in many cases, stakeholders delay the process by contesting Resolution Plans through prolonged appeals and stay orders. In its ruling, the Supreme Court underscored the importance of adhering to these timelines, as they are not only crucial for maintaining asset value but are integral to protecting the larger economic interests of all parties involved.

To streamline the process and ensure timely completion of the CIRP, the Court suggested that all stakeholders should prioritize cooperation over litigation. The Court highlighted that once a Resolution Plan is approved by the Committee of Creditors (CoC) and subsequently sanctioned by the National Company Law Tribunal (NCLT), it is essential to enforce the plan promptly to achieve the Code’s objective of economic revival and asset preservation.

In cases where unnecessary delays occur, the Court warned that stakeholders might face penalties or other legal repercussions to ensure accountability and prevent needless prolongation of the resolution process. The ruling serves as a reminder that the IBC’s timelines are not merely advisory; they are binding guidelines essential to the successful functioning of the insolvency process. By stressing the need for speed and efficiency, the Supreme Court has reinforced the IBC’s primary goals of value maximization and timely resolution, thereby supporting a more effective insolvency ecosystem in India.