Parliament Makes The Law, Dear NCLAT

Economic Times, March 17, 2019

The National Company Law Appellate Tribunal (NCLAT) upheld the law while disallowing Essar’s challenge to the National Company Law Tribunal (NCLT)’s rejection of Essar’s offer to put up Rs 54,389 crore as a counter bid to Arcelor Mittal’s winning bid for Essar Steel under bankruptcy resolution while also saying that Essar could proceed with its objection to approval of the Arcelor Mittal bid.

While Essar Steel resolution has breached the 270-day limit envisaged under the Insolvency and Bankruptcy Code by a good 230 days, it cannot be said to be unacceptably delayed: IBC is still in its early stages of implementation, and legal challenges and decisions that set precedents are inevitable, and cause delay, but pave the way for easier passage of subsequent resolutions.

However, NCLAT has made some observations that are curious in themselves and seem to usurp the right of Parliament to make law. NCLAT has suggested that operational and financial creditors should be treated on par. This would seem to make a mockery of the distinction between secured and unsecured creditors. Even if the substance of NCLAT’s suggestion were materially valid, it would violate the provisions of IBC as it stands.

The Code has been passed by Parliament and approved by the President. Unless the Supreme Court rules that the law in its present form is ultra vires of the Constitution, it is the law of the land, whether anyone likes it or not, whether for good or for bad.

It is up to Parliament to amend the law or, pending its sitting, for the government to issue an ordinance amending the law. Those interpreting the law to operationalise it do not have the freedom to deem its provisions unfair and act to set things right on their own.

The IBC sends out an important message: it is no longer okay for large borrowers to pretend that if they do not repay their loans, it is the lender’s problem. This is good for the health of banking. It is also politically wholesome in an atmosphere in which people believe the system works only for the rich and is systematically rigged against the poor.

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