The long and tumultuous journey of Amtek Auto’s insolvency process

(Representative image. Source: ShutterStock)

Any corporate insolvency resolution procedure ought to be completed strictly within the timeframe set out under the Insolvency and Bankruptcy Code (IBC) and any deviation from this would defeat the object of setting out such limit, the Supreme Court of India said in its recent judgment.

On December 1, the apex court disposed of the long-standing Amtek Auto insolvency case over four years after it was initiated. The Supreme Court set a four-week deadline ending this month for the successful resolution applicant—Deccan value Investors LP—to implement the resolution plan which has received all the necessary approvals.

But the top court’s remarks on the need to stick to the strict time frame do not come without good reason.

The IBC, which is at a rather nascent stage, sets an outer limit of a little short of one year to complete the resolution processes under Section 12 of the code. There are multiple reasons for this, including ensuring that the distressed companies are revived as going concerns while also looking to secure the interests of lenders. As such, this judgment is not the first time that the need for timely resolution has been stressed, but surely is the most opportune one since Amtek Auto’s is possibly the longest standing insolvency case thus far.

The beleaguered auto parts maker was among the first batch of bankrupt companies to be referred for insolvency resolution back in 2017 but the hurdles faced in this instant case made the road to revival a long and bumpy one.

So what caused the delay here?

When Amtek Auto was put on the block, US-based hedge fund DVI was among those that made a bid for the components maker. DVI, however, withdrew, and another bidder, Liberty House from the UK, was picked by the committee of creditors (CoC).

However, Liberty House was found to have been not acting according to the approved bid norms, leading to a fresh round of bids. In the second round, DVI was declared ineligible to place a bid and the resultant indecision, at one point, led to orders for liquidating Amtek Auto. The stakeholders moved the appropriate courts and sought permission to maintain the company as a going concern and after another long-drawn process, finally chose DVI as the successful bidder.

After the COVID-19 pandemic hit, DVI once again sought to withdraw its resolution plan, but this time the courts stepped in and refused to give the firm an out and stopped just short of initiating contempt proceedings against it.

Code of conduct for stakeholders?

Pratyush Miglani, managing partner at law firm Miglani Varma & Co., said the Amtek Auto case had highlighted the need for a code of conduct for the CoC as well as resolution applicants to prevent a similar situation from repeating. “As the IBBI (Insolvency and Bankruptcy Board of India) had observed in its discussion paper, the CoC, in particular, does undertake a sort of public function, yet works in a role that is largely unregulated under the IBC. A code of conduct would go a long way in ensuring that the mandate of the IBC is complied with and insolvency processes such as Amtek’s do not recur in the future,” he said.

The lenders’ panel comprises financial creditors of a corporate debtor and more often than not the commercial wisdom exercised by this panel is given a stamp of approval by the adjudicating authority on questions of the successful bidder and the resolution plan. With decision-making power that wide, Miglani’s backing of the IBBI’s idea of a code of conduct carries weight considering that any litigation after approval of a resolution plan only delays the process further.

One of the biggest gaps in the IBC that emerges from the back and forth by Amtek Auto’s bidders is that the IBC does not make it binding on a successful resolution applicant to see the resolution process through. The code is in fact quiet on this aspect.

In a separate case, when the question of whether successful plans can be modified or withdrawn, the Supreme Court had to examine the issue and set a precedent. While dealing with the case concerning Educomp Solutions’ insolvency, the court in September this year ruled that a successful resolution plan is binding between the CoC and the resolution applicant and cannot be modified or withdrawn after approval.

“This (judgment) should ensure that there are no backouts by successful resolution applicants whose plans have been approved by the committee of creditors,” said Ajay Shaw, partner at DSK Legal.

While laying down the precedent, the top court also noted that systemic and frequent delays in implementing resolution plans is an issue that needs to be viewed seriously and judicial delays must be avoided, underlining an aspect that contributed heavily to the delay in Amtek Auto’s resolution.

Long litigation and backlogs

The litigation pertaining to insolvency cases takes several months for disposal before insolvency courts and appellate tribunal. Experts have attributed the long list of pending cases and mounting backlog to a large number of vacancies in national company law tribunals as well as the appellate tribunal, which effectively make compliance of Section 12 deadline difficult.

With the Amtek Auto case also traversing through various forums right from the NCLT all the way up to the Supreme Court in multiple rounds of litigation, the delay in resolution was inevitable.

“NCLT and NCLAT should be adequately staffed to prevent a backlog,” said Shaw, who saw this as one of the most crucial steps in timely disposal of insolvency cases.

Sandeep Bajaj, managing partner at PSL Advocates and Solicitors, agreed, saying, “Unless the adjudicating authorities under the code are provided with adequate infrastructure with sufficient number of members and supporting staff, the sheer number of applications being filed under the code are bound to be overwhelming for the existing infrastructure and enough to cripple the IBC mechanism.”

The large number of vacancies was also a concern voiced by the Supreme Court itself recently when it asked the government to swiftly fill vacancies in the interest of the country's economic matters. This prompted the government to name a chairperson for the NCLAT as well as make appointments to several benches of the NCLT. “But much is still left desirable,” Bajaj rued.

Outlier case

The delay in resolution aside, Amtek Auto’s was a one-of-a-kind case which had the misfortune of facing all possible hurdles a corporate insolvency resolution could possibly face. Miglani said, “Given that the company’s insolvency process was especially difficult due to its massive operations across India and abroad and the troubled resolution process that followed, it should not be used as a benchmark for the efficiency of the IBC but rather as an outlier in itself.”