NCLT's Bold Move: The Controversial Appointment of a Monitor in CIRP – A Game Changer or a Costly Blunder?

Introduction

In a recent order issued by the National Company Law Tribunal (NCLT), a Monitor was appointed to oversee the Corporate Insolvency Resolution Process for Anand Infoedge Pvt. Ltd. and its associated companies. This decision introduces a new role not traditionally present within the framework of the Insolvency and Bankruptcy Code, 2016. The appointment of a Monitor has significant implications on the cost, efficiency, and trust in the CIRP, and raises questions about the extent of powers of NCLT.

Role and Fees of the Monitor as Stated in the Order

The order outlines the specific roles and responsibilities of the Monitor, including:

1. Oversight and Supervision: The Monitor is tasked with overseeing the actions of the Insolvency Professional and ensuring compliance with the CIRP process.
2. Reporting: The Monitor must report regularly to the NCLT on the progress of the CIRP and any deviations from the prescribed procedures.
3. Intervention: The Monitor has the authority to intervene in decisions made by the IP if they are found to be contrary to the objectives of the IBC.
4. Fees: The fees for the Monitor are to be borne by the Corporate Debtor, adding to the overall CIRP costs.
5. Appointment Term: Initially appointed for six months, the committee of creditors can take?a call as to continuation after six months.

Critical Examination

1. Absence in IBC Framework

The concept of a Monitor is not embedded within the IBC. The Code envisages the role of the Resolution Professional or Liquidator to manage the insolvency process. Introducing a Monitor deviates from this structure, potentially creating overlaps in authority and confusion in the management of the process.

2. Increase in CIRP Costs

Appointing a Monitor will undeniably increase the costs associated with the CIRP. These costs will ultimately be borne by the Corporate Debtor, which could reduce the amount available for distribution to creditors. The additional financial burden might discourage potential resolution applicants and affect the viability of the resolution process.

3. Doubts on the Functioning of IPs

The appointment of a Monitor implicitly questions the competence and integrity of the IPs. The IBC already has stringent regulations and a robust framework to monitor the actions of IPs, including oversight by the Insolvency and Bankruptcy Board of India (IBBI). Introducing a Monitor could undermine the authority and trust placed in IPs, potentially leading to conflicts and inefficiencies.

4. Jurisdiction and Powers of NCLT

The NCLT’s decision to appoint a Monitor raises concerns about the extent of its powers. The IBC does not explicitly grant NCLT the authority to introduce new roles or modify the existing framework of the CIRP. This action could be viewed as judicial overreach, setting a precedent that might be contested in higher courts.

5. Conflict with Supreme Court's Decision

This decision is notably at odds with the Supreme Court's ruling in?Arun Kumar Jagatramka vs Jindal Steel and Power Ltd.?on March 15, 2021. In this landmark judgment, the Supreme Court emphasized that "the need for judicial intervention or innovation from the NCLT and NCLAT should be kept at its bare minimum and should not disturb the foundational principles of the IBC." The appointment of a Monitor appears to contravene this principle by introducing a new element that was not envisioned by the framers of the IBC, potentially destabilizing the established insolvency resolution process.

Conclusion

While the intention behind appointing a Monitor might be to enhance oversight and ensure the efficacy of the CIRP, it introduces several challenges and complexities. The absence of this concept in the IBC framework, the increased costs, potential doubts on functioning of IPs, and questions about the NCLT's powers all suggest that this decision might not align with the objectives and streamlined processes envisaged under the IBC.

The focus should be on strengthening the existing mechanisms within the IBC to address any shortcomings in the CIRP, rather than introducing new roles that could complicate the process. The effectiveness of the CIRP hinges on clarity, efficiency, and trust in the established roles and responsibilities, which should be preserved to maintain the integrity of the insolvency resolution framework in India.