IBC provides best case scenario only for financial creditors, operational creditors losing: Om Prakash Ellanty

Senior Advocate Om Prakash Ellanty has been a member of the Bar for over two decades. A graduate of the Madras Law College, Ellanty is a name to reckon with in the arena of commercial disputes and civil litigation..In this interview with Bar & Bench's Ayesha Arvind, he speaks about the immense responsibility that the senior designation carries with it, shortcomings of the Insolvency and Bankruptcy Code, and more..Ayesha Arvind (AA): Did you always want to become a lawyer?.Om Prakash Ellanty (OP): Law was never a conscious chance for me as I had never had any exposure to the profession or to other lawyers while growing up. I had no pressure whatsoever to perform a certain way in academics, or to choose any particular profession. Like most others in the 1980s, I studied Science and Math in my 10+2 to keep the option of becoming an engineer or a doctor open. However, I had no idea really of what profession I would choose after school.I wrote all possible entrance exams at the time and cleared a few of them. I cleared the exam for admission to the five-year course at the Madras Law College and that meant I could stay in Chennai. Hence, I decided to join the Law College.But once I started studying law, there was no looking back. I decided on the first day itself that now that I was here, I was going to make the most of it..AA: The Madras Law College in the 80s was the centre for a lot of protests and political activism. What was your experience there?.OP: Yes, but it so happened that around 1987, which was the time that I started studying law, the College administration had cracked down on any form of protests inside the campus. So, in the five years that I was there, all we were left to do was attend class for one to two hours.This left us with a lot of time to read and to ideate. The Law College was right next to the Madras High Court. There was a low boundary wall dividing the two buildings and there was also a small access gate. We could see the lawyers and judges coming in and out all the time, some of them legends and doyens in the profession. This was enough to keep me motivated.A bunch of us formed a small group and decided to use all the free time that we had productively. We organised lectures and invited senior lawyers and judges to come talk to us..AA: And at the end of the five years at Madras Law College, you knew you wanted to work on the original side, doing commercial litigation?.OP: I never had a categorical idea that it is only banking or commercial matters that I wish to engage with. It so happened that my senior, Advocate T Ramalingam, whom I had first met as a student at the Law College, specialized in banking and commercial matters. Once I graduated from the College, I began to work with him. The office was a very democratic space where even young lawyers were given the opportunity to read briefs and argue in court if they were well prepared. So, that is how I began appearing in commercial matters..AA: You were designated as a Senior Advocate in 2017, by which time you had completed almost two decades of practice. Does the designation make any difference?.OP: Since I was appearing in matters pertaining to the DRT, SARFAESI Act etc, which were relatively new legislation, I slowly began to get some visibility and recognition. In 2017, before Chief Justice Sanjay Kishan Kaul was elevated to the Supreme Court, 16 lawyers were given the Senior Advocate designation. My name was also in this list.Once the senior designation came, I realised it was indeed a big change. The designation impacts a lawyer’s personal as well as professional life. While on the personal front, the change mainly pertains to how little time one has left for things other than work, on the professional front, the designation impacts a lawyer’s way of doing things. It brings along a great responsibility in terms of what a senior can now do for the institution, how they can impact the administration of justice, the next generation of lawyers, everything.A senior immediately needs to introduce some discipline in the way he or she works. For instance, you can no more deal with a client directly. You don't have a choice of setting out your own timelines.It also opens a lot of doors in terms of accessibility to certain kinds of matters or briefs. It gives you a kind of recognition as well as a standing. A judge is inclined to give you an audience. Not because you have become someone special now, but because the senior designation is a sign that you have spent a certain number of years honing your skills. That you have secured some expertise on the subject and the judge now expects that you will be able to throw light on the subject at hand and assist the court.This also mean that you have a greater level of accountability now, and you need to have a certain level of preparation.That is why I often say that the moment the designation happens, it is like a new beginning, with much more responsibility and accountability. A designated senior is expected to contribute towards the march of law, to innovate and apply the law for any particular situation, to assist in helping a new law take shape..AA: You are the Secretary of the Tamil Nadu Senior Advocates Forum, which has been at the forefront assisting lawyers in their times of need. Tell us about the TNSAF..OP: Actually, this was suggested by Justice Kaul at his farewell function when he was being elevated to the Supreme Court. He had said that seniors were a class by themselves and should form a body. So, at that very function, we formed TNSAF. We unanimously decided on PS Raman as our first convenor and Arvindh Pandian as our Secretary. From then on we organised meetings, invited judges who have retired but who have made some big impact. In the past, we have called Justice Subramonium Prasad, Justice Rajiv Shakdher and Justice Kaul, of course. Also, after the Forum came into place, there was a cyclone in 2019. The State was badly affected. At that time, we came together and pooled in money and channelled it through the Madras Bar Association (MBA) as it is a registered body and has a bank account and all that. Then came COVID-19. It affected the profession very gravely. Many lawyers struggled to make ends meet. Many people from the legal fraternity got infected. We heard of cases where they were not able to get into hospitals. My own office clerk passed away in the first wave of COVID. He left behind a school-going son and later we were told that he had constantly been asking the hospital staff to contact our office.We at the Forum decided then that no one from the fraternity should die or suffer for lack of money or resources. We started spreading word at hospitals and camps that if any lawyer was admitted, they must contact the MBA and TNSAF. We wanted all lawyers to know that we were there for help and they must reach out to us. The Bar Council also offered monetary help to young lawyers.The Forum also decided to keep lawyers engaged productively and held Zoom meetings and online lectures on law. Some seven or eight of us also formed what we called a ‘study circle’ to organise such discussions. We did a series of lectures on financial and commercial legislation including the Insolvency and Bankruptcy Code (IBC)..AA: How has the IBC has fared so far?.OP: We must start by noting that the IBC was a legislation brought into force after assessing what the society needed at the time. It was based on economic considerations and also on international conventions. Just as how our Arbitration Act is based on a model, the Prevention of Money Laundering Act (PMLA) again is based on international conventions, likewise IBC also came into force.It was brought into force in 2016 because the legislators realised that the DRT, SARFAESI Act etc did not bring the required results in terms of resolution of stressed institutions and companies.Prior to the IBC, insolvency and bankruptcy matters were not governed by a single law. Instead, they were addressed through several statutes such as SICA [the Sick Industrial Companies (Special Provisions) Act, 1985], the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, SARFAESI [the Securitization and Reconstruction of Financial Assets and Enforcement of Security]. This framework for insolvency and bankruptcy was time-consuming and cumbersome.The legislators ultimately found that the insolvency situation of companies always continues to be an insolvency. There was no turnaround. The government also wanted to project an ease of doing business environment conducive for foreign investments. So, taking all of this into consideration, the IBC came into place..AA: What are the immediate benefits of the IBC?.OP: The Code was thought necessary because the systems of dealing with insolvent companies that existed earlier had failed to deliver, with cases dragging on for years without result.There exists a consensus on the IBC's value in resolving the non-performing asset (NPA) crisis.Also, another significant change the IBC has brought is that we were earlier resolving based on the borrower or the promoter. They were always being given the benefit of running the company. But the IBC puts the company in the creditor's control. Today, if something happens under the IBC, the promoter is kept out of it. You get a professional to run the company.A labour dispute has to got to IBC. A supplier’s claim, a bank, a workman, all have to go via the IBC. It has come to a stage where even the government is finding it difficult because government dues are also have to go to IBC.The law mandates that local taxes, electricity dues, everything has to be addressed the moment the company is under corporate insolvency resolution process (CIRP). Only one forum, one process..AA: IBC litigation is fought before the NCLTs and the NCLATs alone. How have the tribunals lived up to this kind of responsibility?.OP: They are trying to live up to this kind of responsibility. But you need to empower them more. There is an imminent need to orient the tribunals towards what kind of disposal they are looking at, what kind of dispensation they need.To start with, today, the adjudication process across the tribunals is not uniform. You have one initiative at Chennai, and then you’ll have yet another judgment say by NCLT Bombay, or Kochi, which has a different perspective on the same issue. We look at what has the appellate court done in such a case. But in the case of IBC proceedings, the civil courts are completely kept out. It does not allow any alternate dispute resolution. Your regular reliefs under Articles 226, 227 do not exist.What the statutes say is that against the decision of NCLT you have to go to NCLAT, and then there is an appeal remedy before the Supreme Court directly..AA: Is that why members of the Bar here pushed for the NCLAT's Chennai Bench?.OP: Once the IBC came into place, so many matters began to be filed. And the stakes involved were huge. And if all of these people, industries and companies that were before the NCLTs were dissatisfied with the adjudication, the only way out for them was to go all the way to the NCLAT, Delhi. This was proving to be a challenge.During COVID, when the government ultimately suspended IBC proceedings for a year, we organised a seminar on IBC with the assistance of the then Advocate General Vijay Narayan. We invited Justice SJ Mukhopadhyay, who was the then Chairperson of NCLAT.And it so happened that at that very conference, Justice Mukhopadhyay mentioned that the government was thinking of an NCLAT Bench at Chennai. So, the moment we got an idea that some things were indeed happening, we decided to immediately capitalize on it. We quickly identified three or four places that could be made readily available for them for an inspection. We began to meet the State authorities to arrange for infrastructure, staff etc..AA: There is much debate on how the Code was not supposed to be a recovery tool, but was meant to allow a company to restructure its liabilities. Now, at the slightest of triggers, IBC proceedings begin. Is that really a problem?.OP: I will not say that it really is a problem, because the very purpose of the legislators bringing in the IBC was the failure of the DRT and the SARFAESI Act.The legislative intent is that the bank dues that keep piling up in terms of NPAs need to be checked. But, if you look at the present situation, particularly with respect to banks or financial institutions, it can be termed primarily as a recovery process.Today, every bank that finds itself in a situation of debt or default tries to invoke IBC proceedings. But that is only a fact situation. Besides, the Code has safeguards. The Code has in fact brought down the parameters of looking at only debt and default. Today, solvency is not a criteria as far as IBC is concerned. The moment there is a debt and there is a default, IBC can be triggered.The Code of course has a process saying that any cases where CIRP is commenced for reasons other than debt, default etc, that is to be treated as an offence and punishment can be invoked under the law. But the problem in such a situation is that the damage is already done by wrongful invocation. For wrongful invocation, a provision has been made, but invocation has already been made. There are no preventive checks and balances that exist currently for such a situation.Also, IBC as it exists today, comes mostly to the rescue of financial creditors, 80 per cent of which are banks..AA: Does this mean that the IBC tends to favour some categories of creditors over others?.OP: Yes. It won't be wrong to say that today, the IBC provides the best case scenario only for financial creditors.The other way around looking at this is that in the process, operational creditors are losing out. There are cases where these operational creditors, who are not basically lenders, but who are only persons who have provided services, who have supplied goods etc, end up in a situation where their claims get completely wiped off.There are many instances where the operational creditors get nothing. The Code is framed in such a manner that the financial creditors are the first to make a claim. So, they are paid at the first instance. Only if something is left after that, then it comes to other people..AA: What is the solution then?.OP: There is a way out only if this entire economic situation turns around, and over a period of time, you bring in a disciplined term and create a situation where you don't have accumulated dues for an operational creditor. The companies start settling their own debts. When you get into this frame of financial discipline over a period of time, then this problem might be solved.However, having said that, if you look at the overall picture, IBC is a big boon. IBC has created a transparent system in terms of the reporting mechanism, where even a simple report of payment not received for a batch of goods supplied can be reported. For any company, you can go online and check what are their dues.What will really help though, is having a mechanism to routinely assess the impact of new legislation, including the IBC.This is where the responsibilities of senior lawyers come into play..I recently read a book that narrated an incident where Justice VR Krishna Iyer in Jolly Verghese v. Bank of Cochin interpreted the law in an immensely humanising way, where his only aim was to do complete justice.The Code of Civil Procedure (CPC) says that if a person does not pay his or her debt, they can be put behind bars. Section 51 of CPC and Order 21 provides for filing an execution petition for arrest for non-payment of debt. So, one such petition was filed against a debtor. He was found to be in default of a decreed debt, therefore arrested. That judgment was confirmed by the Kerala High Court and it went to Supreme Court. It came before Justice Krishna Iyer, who, being the visionary and humanist that he was, said let me take a closer look at this and let me find if there is anything more.He ultimately found something from an international convention on human rights and found a chapter that said that no man shall be arrested only because he was not able to pay his debt. So, he imported that into his judgment and gave an interpretation that CPC provides for arrest, but there exists an international convention to which India is a signatory, which says otherwise. Justice Iyer finally held that the courts should not have merely said that he did not pay his debt and, therefore, he should be arrested. The courts should have examined if he had the means to pay off his debt and if he had the intent to pay off such debt.This is a great example of evolution of a law and its application in the context of what the needs of the society are. And Senior Advocates have a great degree of responsibility to contribute in this area.