Dispute Resolution: Legal Milestones in 2019 and a Look Ahead at 2020

THE YEAR THAT WAS

2019 stood out as a year of landmark judgements, with the Supreme Court of India emphatically ruling in favour of greater certainty in enforcement of contractual rights through arbitration and progressive restructuring legislation recognising the primacy of the commercial wisdom of creditors.

2019 also witnessed several legislative changes brought about to facilitate effective resolution of corporate, commercial and consumer disputes in India. While a majority of the legislative amendments are curative in nature, a few amendments are changing the Indian legal landscape.

The Insolvency and Bankruptcy Code, 2016 (Code) was amended twice to enable a faster resolution of insolvency disputes by protecting the interests of creditors. The Arbitration and Conciliation Act, 1996, was also amended to introduce, among other things, a nodal arbitration agency to make arbitration procedures more robust and friendly. Sweeping amendments to the Consumer Protection Act, 1986 were also introduced to provide for timely and effective administration and settlement of consumer disputes.

MAJOR DEVELOPMENTS IN 2019

• Insolvency and Bankruptcy Code, 2016
  • Insolvency of Personal Guarantors

    Chapter III of the Code (relating to the insolvency and bankruptcy of individuals and partnership firms), to the extent that it relates to personal guarantors of a Corporate Debtor, was made effective from 1 December 2019. The government also notified the attendant rules and regulations governing the insolvency and bankruptcy of personal guarantors.

    The relevant rules define ‘Guarantor‘ asadebtor who is a personal guarantor to a corporate debtor.The prerequisites for initiation of insolvency against a Guarantor are (i) invocation of the guarantee by a creditor; and (ii) default in payment under such guarantee, either in part or full. The minimum default threshold for initiating insolvency is Rs. 1000.

    Insolvency of Guarantors has several distinctive features that set it apart from the insolvency of Corporate Debtors, some of which are listed below:

    • – Expansive role of Resolution Professional: The role of the Resolution Professional (RP) in a corporate insolvency process commences only after the admission of the insolvency application. On the other hand, in the case of insolvency of Guarantors, the Adjudicating Authority appoints the RP after the insolvency application is filed by the Guarantor or the Creditor. Post such an appointment, the RP makes a preliminary assessment on the validity of the insolvency application and submits a report to the Adjudicating Authority for approval or rejection of the insolvency application.
    • – Interim Moratorium: The concept of ‘Interim Moratorium‘ has been introduced. The moratorium kicks in as soon as the insolvency application is filed, preventing the enforcement of any debts of the Guarantor and staying related legal proceedings. The moratorium in a corporate insolvency process commences only post ‘admission‘ of the insolvency application.
    • – Repayment plan and veto powers of the Guarantor: Under the Code, a repayment plan is prepared by the Guarantor in consultation with the RP. Further, the Code does not permit any modification of the repayment plan, without the sole approval of the Guarantor, thereby providing the Guarantor veto rights for any modification.
• Other Significant Amendments to the Code
  • – Corporate Debtor can now initiate insolvency against another corporate person: The Code now permits a Corporate Debtor to initiate insolvency against another corporate person for defaulting on its dues.
  • – Expanded tenure of Resolution Professional: The RP’s tenure while managing the affairs of a Corporate Debtor has been expanded to cover the period between the conclusion of the insolvency process and implementation of the resolution plan/ commencement of liquidation.
  • – Essential goods and services A Corporate Debtor is protected from disruption of the supply of goods and services, which the RP considers critical to maintaining the Corporate Debtor as a going concern, subject to payment of dues by the Corporate Debtor.

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