Summary of NCLAT Judgement on IBC 2016 for April 2021

(690/2020)

§ CD availed financial facilities from L&T Infrastructure Finance Pvt. Ltd. vide Agreement dated 14.06.11 for Rs. 40 Crores which was payable in 10 years

§ The Appellant acquired/ took over the Financial Debt from L&T Infrastructure Finance Company Ltd. vide Assignment Agreement dated 30.12.2013.

§ Appellant filed a Winding up Petition before Hon’ble High Court of Gujarat, on 07.04.2015 against Default committed by R. (CD) which became NPA on 30.11.2013.

§ Subsequently, S. 434 sub-clause c of Clause 1 provided that ALL proceedings under the Companies Act, 1956 inter alia including proceedings relating to Winding-up of a Company which were pending shall stand transferred to the Tribunal. Amended Rule 5 of The Companies (Transfer of Pending Proceedings) Rules, 2016 stated that: “provided further that any party or parties to the Petitions shall after 15.07.2017 be eligible to file fresh Applications u/s 7 or 8 or 9 of IBC.

§ During the pendency of the Winding up proceedings, on 15.09.2017 Appellant filed Application u/s 7 of IBC.

§ R. filed reply on 22.02.2018 before AA objecting that Winding up Petition is pending therefore; Application u/s 7 of IBC could not be maintained as there were parallel proceedings.

§ Petition of Winding up came to be disposed of as withdrawn on 19.08.2019.

§ The issued raised by R. is that the Appellant is not the FC. It is claimed that M/s. L& T Infrastructure Finance Company Ltd. assigned the debt to “Phoenix Trust Fy-14-9” and Petition is filed in capacity of Trustee of Phoenix Fy-14-9 and so is not a FC.

§ NCLAT considered the description of the Assignor and Assignee in the Assignment Agreement and did not find any defect in the Application filed by the Appellant u/s 7 of IBC. Appellant is Assignee of FC and thus FC.

§ The other issue raised by R. is that the account had become NPA on 30.11.2013 & Application u/s 7 of IBC was filed on 15.09.2017 and thus the Application was time-barred. Further submits that if Balance-Sheet of the Company is considered to be acknowledgment of debt then in effect there would be no Limitation.

§ NCLAT holds that considering the law and S.434 read with Rule 5 legislature did not treat rights of Applicant to file Application u/s 7 of IBC as time barred which is within Limitation as Petition for Winding up was Pending giving them option to seek transfer if they desired.

§ NCLAT following the “Principles of Natural Justice” stated that if the debt was not time barred during pendency of Winding up Proceeding and in the parallel S. 7 of IBC Application which was filed and pending (which was permissible) S. 7 Application later cannot be rejected only because of Winding up Petition being withdrawn instead of transferring and merging with S. 7 Application already pending.

§ It appears to NCLAT that its well settled position of law that Annual Returns/ Audited Balance Sheets can be referred to and relied on to see if contents therein amount to ack. or not. Also the R. has not shown that while preparing the balance-sheets the Directors in their reports recorded denial or any reservation with regard to the debts shown by the CA to claim that they were time-barred.

§ NCLAT holds that the Application u/s 7 of IBC as filed by the Appellant to be within Limitation.

§ The appeal is allowed & disposed.

(1118/2020)

§ Account of CD became NPA on 31.12.2010 & Application filed u/s 7 was filed on 06.01.2020. Therefore, the Appellant argued that the Application is time-barred in view of Article 137 of Limitation Act, 1963.

§ The FC referring to the Hon’ble SC Judgement submitted that matter has observed that even the SARFAESI Proceedings can be considered while calculating period of Limitation by keeping in view provisions of S. 14 of the Limitation Act, 1963.

§ Further, the OTS Proposal dated 05.01.2012, the settlement request dated 09.08.2014 shows that the Application filed on 06.01.2020 was within Limitation.

§ FC submits that CD ack. the debt on 18.01.2017 by approving & filing the financials for the year 2014-15. Although, Appellant submits that these documents were not filed before the AA but in the Rejoinder there is no claim made by the Appellant denying the authenticity of these OTS Proposals and settlement offers.

§ The documents on record referred by the FC show series of Acknowledgments of debts by CD since date of NPA which extend period of Limitation if Section 18 of Limitation Act is considered. Considering Judgment of the Hon’ble SC, OTS Proposals and Settlement requests and balance sheet referred, we do not find that the Application under Section 7 could be said to be barred by Limitation.

§ The Appeal is dismissed by NCLAT.

(731/2020)

§ Appeal is filed by FC of the CD assailing the Order dated 27.02.2020 passed by NCLT, Ahmadabad Bench in which Appellant’s Application was held as non-maintainable with a view that the inter-se priorities amongst the Secured Creditors would remain valid and prevail in distribution of assets in Liquidation.

§ The Appellant was part of the CoC having voting share of 14.54% in CIRP & was unable to attend CoC meeting on 09.05.2019. In the said meeting, Liquidator distributed the sale proceeds among R2 & R3 without considering claims of Appellant. AA considered Appellant’s claim, of distributing the admitted claims in the total proceeds of Secured Creditors as per their voting rights, alleging that Liquidator has wrongly distributed, as non-maintainable.

§ Liquidator (R1) submits that Appellant was not entitled to any amount disbursed to the Secured Creditors as the Appellant was admittedly a second charge holder. R1 submits that the Secured Creditor being highest in the inter Creditor ranking is entitled to enforce his right for the realization of its debt out the secured asset. R2 submits that voting share during CIRP does not entitle the Appellant to get the same share in Liquidation. The two processes are entirely different as on Liquidation CoC comes to an end and voting rights do not subsist any longer. The Creditors would rank in Liquidation in accordance with their class and security held. It is further submitted that S. 48 of Transfer of Property Act gives precedence to first charge holder over a second charge holder in respect of an immovable property. S. 53 of IBC does not take away that right on relinquishment.

§ S.52 of IBC prescribes one of the two courses which, at its option, a Secured Creditor can adopt in Liquidation proceedings:

i. The Secured Creditor may relinquish its security interest to the Liquidation estate. If it does so, it shall be entitled to receive proceeds from sale of assets by Liquidator in accordance with the waterfall mechanism engrafted in S. 53; or

ii. The Secured Creditor may realize its security interest as provided in S. 52 of IBC. In the event of a Secured Creditor electing to realise its security interest but failing to realise the whole amount due to it would be entitled to distribution of assets u/s 53(1)(e)(ii) for any amount that remains unpaid following the enforcement of security interest thereby ranking lower in priority as compared to a Secured Creditor who has relinquished its security interest to the Liquidation estate and is entitled to distribution of assets under S.53(1)(b)(ii). Once a Secured Creditor elects to relinquish its security interest to the Liquidation estate, it ranks higher in waterfall mechanism under S. 53 to a Secured Creditor who has enforced its security interest but failed to realise its claim in full and for the unpaid part of its claim ranks lower to the Secured Creditor who has relinquished its security interest.

§ NCLAT held that sub- classification amongst Secured Creditors is impermissible cannot be accepted. First charge holder will have priority in realizing its security interest if it elects to realize its security interest and does not relinquish the same. However, once a Secured Creditor opts to relinquish its security interest, the distribution of assets would be governed by the provision engrafted in S.53(1)(b)(ii) where under all Secured Creditors having relinquished security interest rank equally and in the waterfall mechanism are second only to the insolvency resolution process costs and the Liquidation costs.

§ Therefore, the Appeal is allowed setting aside the IO with a direction to the Liquidator to treat the Secured Creditors relinquishing the security interest as one class ranking equally for distribution of assets u/s 53(1)(b)(ii) of IBC and distribute the proceeds in accordance therewith.

(718/2020)

The following three issues arises for consideration by NCLAT:

i. Whether alleged Debt is an Operational Debt?

As per the General Agency Agreement (GAA) dated 31.08.2003 between the OC (R1) & the CD (R2), the R2 acted as an agent of the former in India and collected various payments due to the R1 customers and remitted the same to the R1. The monies paid by R1 to R2 were advance payment for work to be done in the future. R2 referred to these amounts as advance payment in its audited accounts and the objection filed by it before the NCLT. It even claimed that the said amount was “adjusted towards various cost and expenses incurred by the R. Company in the course of business, without raising any doubt about the nature of the Debt. Hence, the amounts referred to as above cannot be treated as anything but Operational Debt under IBC. Since R2 was an agent and service provider of the R1 the amounts due under the transactions would fall within the ambit of Operational Debt as defined u/s 5 (21) of the IBC.

ii. Whether alleged Debt is barred by Limitation?

Mr. Andrea Colombo, holding Directorship of R2 for the period 18.03.2002 to 01.04.2019 & was removed w.e.f. 01.04.2019 for the non-compliances as he absented from all the meetings of the BOD held for the year 2018-19. The demand notice dated 12.06.2019 was issued.

The repayment of the Debt as demanded classified into 3 categories, namely, “unsecured loans” (part A), “payment towards Yacht (part B) and payment towards freight collections (part C). When the CD ack. the liability before the expiration of three years, from that point fresh period of Limitation u/s 18 of the Limitation Act starts. But such ack. must be before the expiration of the prescribed period of Limitation, including the fresh period of Limitation due to ack. of the Debt, from time to time for the institution of proceeding u/s 7 of IBC. In the audited balance sheet of the CD the amounts were ack. & reconciled on a yearly basis between R1 & CD. The GAA terminated unilaterally on 05.09.2018. The Limitation period started after the GAA termination, when demand was raised, and the Default was committed by the CD. Therefore, the Limitation period is regularly getting extended by implication of S. 18 of the Limitation Act. Thus it is clear that the Debt is not barred by Limitation.

iii. Whether the Petition filed u/s 9 of the Code is not maintainable on the pre-existing dispute’s ground?

R1 has claimed a sum of USD 12,23,927 towards the freight from 2004 to 2016, and the Yacht purchase invoice was raised in 2015, which is a time-barred claim of R1. Appellant contended that R1 has raised a false claim by producing fabricated freight invoice copies, forged copies of the debit note with the very intent to file the Petition & therefore it is not maintainable on the ground of pre-existing dispute. However, R1 submits that CD admits a certain sum of trade payable to the OC & no dispute was raised prior to the receipt of demand notice neither falsification of invoice was taken in reply dt 01.07.2019 by CD. It is a settled position of law that once the Debt and Default in question are proved, and the CD raised no prior dispute, it is mandatory for the AA in an Application filed u/s 9 of IBC admit the Petition for Initiation of CIRP. Hence, Appellant’s objection regarding the pre-existing dispute is not sustainable in the above circumstances.

§ Appeal is dismissed with finding no reason to interfere with the AA’s finding.

(1398/2019)

Brief facts of the case:

§ HBPL’ and Kaveri Sahakari Awas Samiti, (the ‘co-operative society’) entered into a Collaboration Agreement on 28.08.2012 for development of a residential complex on the land owned by the co-operative society. HBPL-Assignor & Horizon Concept Private Limited- Assignee (HCPL) executed an assignment Agreement dated 05.07.2013 assigning all its rights and liabilities with respect to marketing & sales of the Project. On 06.07.2013, ‘HBPL’ and ‘HCPL’ entered into a Marketing Agreement for marketing the Project. An Apartment Buyer Agreement (‘ABA’) dated 14.02.2014 was entered into between the Home Buyer/Allottee and ‘HCPL’, subsequent to which an Allotment Letter dated 25.02.2014 was issued by ‘HCPL’. The date of delivery of possession was three years i.e. 14.02.2017, from the date of the ‘ABA’. An amt. paid by the allottee was directly to HCPL & the same was not disbursed in the account of HBPL.

Contentions of Appellant:

§ HBPL & HCPL are two separate legal corporate entities. No tripartite between allottee, HCPL & HBPL was executed. Since money was not disbursed in the account of HBPL there is no privity of contract between the Allottee and HBPL & Allottee is not a FC of HBPL. Notice dated 23.09.2014 was issued by Noida to stop the construction, landowner challenged the notice in Allahabad High Court. The Court vide an Order dated 03.07.2015 observed that the construction may continue but only at the risk and peril of the co-operative society. Therefore, HBPL was effectively restrained from raising any construction at the Plot which subsequently delayed the construction of the Project. The Default in the Project cannot be attributed to HBPL and it is only an account of ‘‘Force Majeure’’

Issues for consideration in this Appeal are:

a. Whether the Flat Buyer is a FC vis-a-vis of HBPL.

b. Whether HBPL falls within the ambit of the definition of CD, as defined u/s 3(8) of IBC.

NCLAT findings:

§ HBPL as a Principal has created HCPL its marketing arm vide an Assignment Agreement dated 05.07.2013 and Marketing Agreement dated 06.07.2013 wherein HCPL was authorized to enter into Agreements on behalf of HBPL. ABA specifies that HBPL is the developer which has the Rights, Title and Interest in the said Project IRIDIA. Therefore, HCPL is the sole responsibility to construct and get the Project completed, is incorrect. The contention of Appellant is that the Project could not be completed on account of ‘Force Majeure’ is untenable as it stipulates a Notice to be issued informing the Allottee about the ‘Force Majeure’ conditions. IBC provides that in amounts raised from an Allottee under a Real Estate Project shall be deemed to be an amount having a commercial effect of borrowings. Further it provides that the term Allottee & Real Estate Project used in IBC shall have the meaning as provided under RERA. The clauses in all the Agreements reproduced evidence that HBPL is the developer, HCPL is its marketing arm and the amounts paid to HCPL is for and on behalf of HBPL and therefore, the amounts paid by the Home Buyers would fall within the definition of S.5 (8).

§ In the view of NCLAT, HBPL is the CD and R2 is the FC and the amount involved is the Financial Debt as defined under the Code. NCLAT found the AA Order as maintainable.

(508/2020)

i) A1 who is Licensee for an area of 10,000 sq.ft. of property situated at Ramrajtala, Howrah claimed that Order passed by AA has wrongfully & erroneously curtailed the rights of the A1 in respect of the property.

ii) A2 is aggrieved as being the owner of subject property will be evicted from their own property as the RP of CD has been allowed to take exclusive possession of the said property.

§ A2 is the owner of the property and M/s Avani Towers Pvt. Ltd, CD is a Developer of the Property in terms of the Development Agreement dated 16.06.2008

§ A1 has been provided space of 10,000 sq. ft. approximately on the said land by virtue of leave and license Agreement dated 11.08.2011 to keep its goods, movables, equipment, build temporary sheds and conduct business.

§ The CD had gone into CIRP on 15.10.2019. The RP, thereafter, has filed an Application before the AA being praying for recovery of exclusive possession of the subject premises.

§ The RP in Co Appeal No. 508 of 2020 has asserted that the Order passed by the AA was necessary to protect and preserve the sub-stratum of the CD & to ensure a positive outcome to the CIRP. The benefit of development right if not protected CD will be forced to go into Liquidation. It’s also submitted that the Development Agreement is subsisting and has not been terminated.

§ NCLAT held that S.14 of IBC is applicable till it reaches the stage of approval of Resolution Plan/Liquidation. However, the RP is to appropriately disclose the status of the ‘Property’ in the Information Memorandum and other documents as required in the IBBI Regulations, 2016. Further, as far as A1 is concerned by virtue of aforementioned Leave & License Agreement it is their privilege to use the land in terms of same leave and license Agreement and this is also not disputed by CD in Resolution through RP.

§ Hence, no infirmity in IO and Appeal deserves to be dismissed.

Resolution Plan or Liquidation.

(276/2020)

§ The account of CD was classified as NPA on 30.09.2016, and the Application is filed on 22.11.2019. CD on account of continuous Default issued revival letter dated 21.06.2017 wherein CD has ack. the debt. OTS was arrived between parties on 11.06.2019. Appellant has made payment between May, 2019-July, 2019 & subsequently the OTS was cancelled by the Bank on 15.11.2019.

§ After referring Judgements delivered by Hon’ble SC, NCLAT held that Article 137 of the Limitation Act, 1963 defining a period of 3 years will be computed after considering S. 18 or 19 of The Limitation Act, 1963 with a fresh period of Limitation in spite of these dates being after the date of NPA.

§ In the instant case, ack. of debt by the CD on 21.06.2017 ends the Limitation period on June, 2020 & considering the part payment which was made between May, 2019-July, 2019 then the Application is within the Limitation period.

§ The Appeal is dismissed.

(395/2020)

§ CD had taken loans in several tranches from FC. On failure of repayment account was declared as NPA on 30.09.2012. The date of Default claimed by CD is 01.01.2014 and an Application was filed u/s 7 of IBC on 03.10.2018. Thus, Appellant claimed that the Application was time-barred.

§ According to the Appellant, R1 wrongly relied on OTS issued by the CD on 20.01.2017 and rejection of the same, to claim extension of period of Limitation. Appellant further contended that in balance-sheet CD had admitted the amount due towards R1 with a qualification that the amounts are yet to be confirmed. Appellant argued that legislation excluded all other provisions of Limitation Act including S. 4 to S. 24 to file an Application u/s 7 of IBC. Appellant claims that S. 238 (A) of IBC which was included subsequently states that the Limitation Act “as far as may be” applied. Thus, the argument is that the intention to not to include S. 4 to S. 24 of the Limitation Act is that the date of Default is material and thus S. 4 to S.24 of the Limitation Act must be said to be excluded.

§ R1 submits that when IBC was enacted there was no provision with regard to Limitation. Subsequently, S. 238 A was inserted applying the Limitation Act, 1963 with effect from 06.06.2018. The Hon’ble SC has observed that the Limitation Act was applicable from the inception of the Code and that Article 137 of Limitation Act gets attracted and that “the right to sue” accrues when a Default occurs. The AA derives its power to dismiss Application as time-barred under this S.3 (1). The R1 argued that S.3 (1) is subject to provisions S.4 to S. 24. Reliance is also placed on S. 29 (2) of Limitation Act and it is argued that IBC has not excluded specifically or by implication any of these sections of Limitation Act and thus this Tribunal cannot ignore documents which amount to ack. in law.

Findings of A.I.S. Cheema Member (Judicial):

§ NCLAT holds that it is well settled position of law that Annual Returns/Audited Balance Sheets can be referred to and relied on to see if contents therein amount to acknowledgement or not. Even after referring to the Annual Reports/ Balance Sheets, there are instances where the contents are not relied on to conclude that there is acknowledgement of debt. Thus contents recorded in Balance Sheet/Financial Statements are to be looked into on case to case basis. Further, Article 137 of the Limitation Act applies to the Applications filed u/s 7 and 9 of IBC has already been held by the Hon’ble SC. IBC has not excluded Application of S. 4 to 24 while determining Period of Limitation and S.29 (2) appears to be applicable. This being so, S. 18 and S. 19 of Limitation Act must be said to be applicable.

§ In the instant case, the submission made by CD the amounts with qualification that the amounts are yet to be confirmed is not acceptable as not ack. Also the NPA is counted even from 30.09.2012, the balance sheets which were before the AA for year ending 2015- 2016 show ack. of debt and the Application u/s 7 filed on 03.10.2018 cannot be said to be time-barred. The Appeal is dismissed.

Findings of Dr. Ashok Kumar Mishra, Member (T):

§ CIBIL report dated 18.08.2018 filed by R1 reflects the Default and outstanding amount was never denied by Appellant. CD has requested the bank OTS vide its letter dated 20.01.2017 which also includes their earlier letters dated 12.04.2016 and 06.08.2016 regarding settlement/ resolution of the account of the Company. Both the above issues supplement the coverage u/s 18 of the Limitation Act, 1963. However, Balance Sheet cannot be treated as ack. of debt as held by this Tribunal in a larger Bench.

§ Based on above observation and detailed analysis made by Mr. Justice A.I.S. Cheema, it is proved beyond doubt that ‘Debt’, ‘Due’, ‘Default’ and within ‘Limitation’ all are existing in this case. Hence, I agree with his observation that there is no substance in the Appeal and the Appeal is dismissed.

(very important and detailed Judgement on Limitation)

(294/2021)

§ However, as per the settlement deed 27 cheques were issued by CD and had even agreed that if the cheques are not honoured, the proceedings can be revived.

§ Since only four cheques were honored, Appellant made an Application to AA but same was dismissed.

§ NCLAT held that there is difference between withdrawal simplicitor making statement that parties have settled. It is different when bringing the settlement on record, and making it a part of the Order of withdrawal liberty is taken and brought on record to restore the proceedings in case of Default.

§ IBC is not a recovery proceeding where because the money or part of it has not come, the party may repeatedly come to the Court. AA has rightly observed that no liberty to revive was there and so declined to interfere. The Appeal is dismissed.

(06/2021)

§ Appellant submits that Application u/s 7 of IBC, 2016 is not maintainable and that the Application was filed for ‘return of monies’ together with interest on the amounts advanced towards purchase of shares of the Appellant.

§ Appellant proceeds to point out that Petitioner in the Company Petition was disqualified with effect from 01.11.2016 till 31.12.2022 and it is the consistent plea of the Appellant that Deponent was not competent to project the said Application and that the Applicant is neither a FC nor an OC.

§ Appellant emphatically contends that the AA had reviewed its own Order disposing of the IBA /13/KOB/2020 by reserving liberty to the Applicant to file fresh Application and that there is no error apparent on the face of the record so as to ‘Review’ the said Orders.

§ Appellant contends that in the instant case on hand, on the basis of an offer given by the Appellant and on the basis of the Application filed, the said Company Application came to be disposed of and further that in the counter of the Respondent wherein the judgements were relied upon, are not applicable to the facts of the present case and in fact, in all those cases, the Petition was dismissed as withdrawn and the consent terms.

§ Respondent contends that after the said terms arrived at between the parties, the Appellant had not come forward to make payment towards Settlement which was due on 30.11.2020 and requested the Appellant not to present the cheque amounting to Rs.2,14,00,000/- dated 30.11.2020 on the said date and sought time on several occasions.

§ Respondent submits that only due to failure of the aforesaid settlement, the Respondent was perforced to file an Application under Rule 11 of the NCLT Rules, 2016 to restore the Petition vide IA No.2/ 2021 in IBA/13 /2020.

§ Respondent submits that the disqualification of the Directors for the Respondent’s Default was quashed by the Order passed by the Hon’ble High Court of Madras in Writ Petition No.18641 of 2020 dated 15.12.2020.

Findings of NCLAT

§ It is to be mentioned that an ‘inherent power’ of the Tribunal has its gross root in necessity and the said power can be exercised based on the rudimentary principle that an ‘act of Court shall prejudice no person’. Further, to meet the ends of justice an ‘inherent power’ of a Tribunal being ‘Co-extensive with need’ can be exercised to render justice to the litigants. Also that, IA No. 02/2021 filed by the Respondent/ FC to restore and Revive the Application IBA/13/KOB/2020 (filed u/s 7 of the Code) is not to be termed as one of ‘Review Application’ or to be confused with, in the considered opinion of this Tribunal.

§ AA has rightly allowed the IA No. 02/2021 and hence, same requires no interference. Appeal is dismissed.

(575/ 2019 & 576/ 2019)

Depicting the facts of the instant case:

§ CBI registered FIR on 25.10.2017 against M/s. Sterling Biotech Ltd. (SBL) CD is Sterling SEZ and Infrastructure Ltd & Sterling International Enterprise Ltd in Appeal no. 575 of 2019 & 576 of 2019 respectively. In Enforcement Case Information Report (ECIR) M/s SBL is arrayed as suspected accused along with Directors and others. Competent Authority of PMLA issued Provisional Attachment Order on 29.05.2018 and Corrigendum dated 14.06.2018. It is stated that inter alia properties of CDs in present matter were also attached. Application u/s 7 of IBC admitted on 16.07.2018. RP moved to NCLT, Mumbai when his request was not accepted by DOE to release the Provisional Attachment of the assets and properties of the CD & handover the charge. Provisional Attachment Order was confirmed by the AA under PMLA on 20.11.2018. DOC claimed that that SBL Group had obtained more than Rs. 5,000/- Crores from Banks and Financial Institutions and the loan turned into N.P.A. Appellant claims that forensic audit Report was taken from Andhra Bank and State Bank of India and use of the loan was made for non-mandated purposes, payments made to non-existent parties and unjustified payments to Directors. Appellant claimed that credit facility availed by M/s. SBL Group was declared as fraud account by the concerned banks.

Contentions of Appellant:

§ Since the proprieties were validly attached under the provisions of PMLA IO needs to be set aside. Further, claimed that there is no moratorium applicable in criminal proceedings. The Appellant is pointing out that the promoters of Sterling Biotech Ltd are beneficial owners of CD and have been declared to be “Fugitive Economic Offenders” under the Fugitive Economic Offenders Act, 2018 (FEOA in short). Appellant argued that AA under IBC did not have the powers to interfere with Provisional Attachment Order passed AA under PMLA. The RP could not have taken the short cut to go to AA under Section 60(5) of IBC should have gone to the Authorities under the PMLA. It is also argued that S. 32A of IBC which has been introduced by the Amendment Act is not applicable as the same bars the attachment only after the Resolution Plan has been approved subject to fulfilment of conditions as mentioned in the concerned Section. The matter has not reached the stage of acceptance of Resolution Plan or the stage of Liquidation. It also argued that Imposing of moratorium u/s 14 of IBC does not take away the powers of the Enforcement Directorate to attach proceeds of crime in possession of the CD under PMLA.

Contentions of Respondents:

§ The nature of attachment qua proceedings under PMLA is not compulsorily criminal in nature in every instance. Referring to SC Judgement, Respondents show that govt. accepted that under PMLA functions of AA are civil in nature & not criminal. It is argued that only when the trial is concluded and Special Court Orders confiscation title is lost. The property does not till that point of time vest with the Central Government. IBC and PMLA are both special statutes and IBC being subsequent with provisions like S. 238 IBC will prevail over provisions of PMLA. The object of S. 5 of PMLA of CIRP is to protect CD so that no third party rights are created. There is no conflict between the IBC and PMLA. Respondents are thus arguing that the IO should not be interfered with.

Finding of NCLAT:

§ After the attachment when matter goes before the AA under PMLA, proceeding before AA for confirmation would be civil in nature. Since the Provisional Attachment took place on 29.05.2018 and corrigendum was issued on 14.06.2018. The CIRP started on 16.07.2018. Once moratorium was Ordered, even if the Appellant moved the AA under PMLA, further action before AA under PMLA must be said to have been prohibited. S.14 of IBC will hit institution and continuation of proceedings before AA under PMLA. Alternatively, if S.14 would not help still S.238 of IBC will still apply the provisions of this Code would have effect notwithstanding anything inconsistent therewith contained “in any other law” for the time being in force. NCLAT viewed that there is no conflict between PMLA and IBC and even if a property has been attached in the PMLA which is belonging to the CD, if CIRP is initiated, the property should become available to fulfil objects of IBC till a resolution takes place or sale of Liquidation asset occurs in terms of S.32A. Therefore, Appeals are dismissed.

• Even if a

property has been attached in the PMLA which is belonging to the CD, if CIRP is initiated, the property should become available to fulfil objects of IBC till a resolution takes place or sale of Liquidation asset occurs in terms of S. 32A.

(823/2020)

§ OC was approached on October, 2016 for development of GST Portal & presentation of same to GSTN for grant of license as GSP. Therefore, OC built solutions for CD which continued till Nov, 2017.There were regular payments by CD till June, 2017, post that OC, discontinued the services on account of non-payment of bills.

§ CD raised unfounded & unreasonable issues via email dated 15.08.2017 to which the Appellant addressed it through its replies.

§ Appellant demanded payment on 04.11.2017 & 17.11.2017. After lapse of five months, two legal notices were sent by Respondent raising various issues which were raised in earlier email dated 15.08.2017 along with other concocted issues. Appellant did not reply to the same claiming those issues had been settled.

§ Demand Notice u/s 8 of IBC dated 22.05.2019 was issued by OC on which CD replied on 06.06.2019. An email was sent on 09.11.2017 by CEO of CD to OC & notices were sent in March & April, 2018 raising various issues including that OC failed to complete the project in time and whatever OC worked-the project was found not working.

§ NCLAT find that there is already pre-existing dispute between the parties with regard to services rendered therefore, do not find any reason to interfere with the IO. The Appeal is dismissed.

(417/ 2020 & 744/ 2020)

§ The main point for consideration in this Appeal is whether the Resolution Plan approved u/s 31 by the Ld. AA is in contravention with the scope and objective of the Code which is ‘Resolution’, ‘maximization of value of assets of the ‘Corporate Debtor’ and ‘promoting entrepreneurship’, ‘availability of credit and balancing interest of all stakeholders’.

§ Application u/s 10 of IBC was filed by CD which was admitted on 09.10.2018. In CoC meeting after going through various aspects of Resolution Plans of Appellant & R3 examining both plans in accordance with S. 30(2) and Regulations 37 and 38 of the CIRP Regulations and only after having been satisfied that they had complied the requirements under the Code and CIRP Regulations together, CoC approved the Resolution Plan of R3 with a majority of 70.5%.

§ Originally, CD was in the business of ‘Printing and Leasing’, the approved Resolution Plan included but not limited to transforming the existing infrastructure of CD to a Data Center by investing additional capital and converting the vacant lands for these Data Centers resulting in employment opportunities for about 150 people and consequently resulting in ‘maximization of value of the assets and stakeholders’ of R1.

§ Appellant vehemently contended that the Ld. AA has erred in approving a Resolution Plan which completely changed the nature of the business of the CD, from former printing & leasing, and is therefore, in contravention to the objective of the Code, which is ‘Resolution’, maximization of the value of assets of the ‘CD’, ‘promoting entrepreneurship, availability of credit and balancing the interests of the Stakeholders’.

§ Appellant claims that Resolution Plan is not compliant with the intent, object and purpose of the IBC, that the ‘Resolution’ is not a sale or an auction or a recovery or a Liquidation, but the Resolution of the ‘Corporate Debtor’ as a going concern; that the RP did not adhere to the duties mandated u/s 25 of the Code; that Reg. 39(3) mandates that the CoC at the time of approval of Resolution Plan shall record its deliberations on the ‘feasibility and viability’ of the Resolution Plan, which was not done in the instant case. Hence, sought for setting aside the IO passed by the Ld. AA.

§ NCLAT held that merely because the ‘Resolution Plan’ does not stick to the core printing business, in its truest sense, it cannot be said that the approved ‘Resolution Plan’ lacks the right vision and proposition specially in the light of the converging market forces and refocused business models. NCLAT envisages that any Appeal against an Order approving the Resolution Plan shall be in the manner and on the grounds specified in S. 61(3) of the IBC. Pertinently, the grounds, be it u/s 30(2) or 61(3) are regarding testing the validity of the Resolution Plan approved by the CoC. The enquiry in such an Appeal would be limited to the power authorized to the RP u/s 30(2) of the IBC, or at best, by the AA u/s 31(2) read with S. 31(1). This Tribunal can examine the challenge only in relation to the grounds specified in S. 61(3), which is limited.

§ NCLAT viewed that if the Resolution Plan contemplates a change in the nature of business to another line when the existing business is obsolete or non-viable, it cannot be construed that the Resolution Plan is not ‘feasible or viable’. It can be seen from the S. 30(2) & 31 and Regulations 37, 38 and 39 that there is nothing in the Code which prevents a ‘Resolution Applicant’ from changing the present line of business to adding value or creating ‘Synergy’ to the existing assets and converting an obsolete line of business to a more ‘viable and feasible’ option. The fact that there is no ‘material irregularity in the exercise of powers’ by the RP; and the approved ‘Resolution Plan’ is not in contravention of any law for the time being in force. Hence, IO is not set aside & Appeal is dismissed.

different from the erstwhile business of the CD.

§ The Appellant claims that the Appellant moved C. A. No. 1056 of 2020 in October, 2020 itself explaining the delay and requested the AA to get condone delay and direct accepting of the claim. It is stated that thereafter the IO was passed on 18.03.2021 which shows that the Application of the RP to extend CIRP Period was extended by 30 days till 16.04.2021 and the Application of the present Appellant came to be posted on 28.04.2021. The Appellant claims that this would frustrate the claim of the Appellant as the CIRP would end on 16.04.2021 and the R1 is the only FC who would only have a voice in the CoC and Appellant would not have a voice therein.

§ The grievance of the Appellant is that only because there was delay in submitting the claim Appellant is left out and thus the same is causing prejudice to the Appellant. It is stated that there were various difficulties due to Covid Situation and delay occurred.

Findings of NCLAT

§ The IBC has various provisions which are time bound. Stakeholders in IBC cannot act or proceed in such matters in a manner to convert it into any other Ordinary Civil Proceeding or cause destructive delays which plagued the process under Sick Industrial Companies (Special Provisions) Act, 1985

§ The Appellant has submitted that the Regulation 12 has been held to be directory. Even if the said Regulation is directory a few days delay in set of facts can be considered. However, in present set of facts the Appellant who was in the picture since beginning, did not file claim in time. Now Appellant wants to take exception to the RP taking six months to reject the claim and the delay which is taking place before the AA although the claim was actually filed after Lock Down stated in March, 2020. It was not filed earlier when things were normal. The benefit of Lockdown can rather weigh in favour of RP and AA.

§ Beneficiaries under the IBC cannot keep adopting the procedures and modes which would delay CIRP and progress in CIRP and defeat objects of IBC. In the present matter as there is already a Resolution Plan, giving directions to the AA would further delay the CIRP, which is already delayed. Hence, Appeal is dismissed.

(875/2019)

Ashish Mohan Gupta VS Hind Motors Ltd (In Liquidation) & Ors

(07/2020)

§ The Appellant moved the NCLT, Chandigarh Bench, proposing of scheme u/s 230 of Companies Act, 2013 submitting that the Application was filed with regard to not only M/s. Hind Motors India Ltd. (which is under Liquidation) but also for other two companies of the Appellant namely M/s. Hind Motors Ltd. (which is under Liquidation) and M/s. Hind Motors Mohali Pvt. Ltd. (which is under Liquidation) which are also undergoing Liquidation. NCLT observed in IO that one of the ground Application came to be rejected basically holding that the Appellant was hit and ineligible u/s 29A of IBC.

§ NCLAT finds that it is not necessary for us to push for further steps u/s 230 of the Companies Act, 2013 inter alia considering that basically S. 230 of the Companies Act is not part of the scheme of IBC where Liquidation is concerned. NCLAT observed that considerable delay leading to erosion of Value is taking place because of effort to push in provisions of S. 230 of the Companies Act at the stage of Liquidation. NCLAT did not decide the question of 29A in the instant matter.

§ Both the Appeals are dismissed.

(178/ 2021) & (179/ 2021)

§ An ex-parte Order was preceded solely on the basis of the submissions of the R. that the Notice has been served to CD, but there was no appearance. The AA dismissed on the ground that the Tribunal has no power to review or set aside its own Company Petition Admission Order u/s 7 of IBC, as per settled proposition of law.

§ NCLAT is of the considered view that the AA had the power to set aside an ex-parte Order provided, it is satisfied that there was sufficient cause with respect to service of Notice, as provided in Rule 49(2) of the NCLT Rules, 2016. Further, keeping in view of natural justice an opportunity may be given to the Appellant herein to file his reply and take part in the proceedings.

§ Hence, Appeal is allowed and the Order of AA is set aside.

(654/2020)

Factual matrix of the case

§ Corporation Bank, FC filed Application u/s 7 of IBC against the CD – Amtek Auto Limited & CIRP commenced on 24.07.2017. In the meeting of COC held on 02.04.2018 Resolution Plan of Liberty Housing Group (LHG) was approved & the same was allowed by AA on 25.07.2018. The Resolution Plan submitted by LHG was held to be not capable of implementation due to Default in adhering to the payment schedule. COC was restored for considering the plan of Appellant.

§ This Appellate Tribunal in Appeal, vide Order dated 16.08.2019 Ordered Liquidation of the CD. COC filed Appeal against the Order passed by this Appellate Tribunal before the Hon’ble SC which stayed the Liquidation proceedings vide Order dated 06.09.2019 also vide Order dated 24.09.2019 permitted RP to invite max five fresh offers from prospective Resolution Applicants. COC after evaluation of Plans submitted by four prospective Resolution Applicants declared Appellant as H1 bidder. The Appellant is the Successful Resolution Applicant by a majority of 70.07% votes in COC meeting held on 07.02.2020. Keeping in view the development, on 08.06.2020 the Hon’ble Apex Court passed Order relegating the matter to AA to consider and pass appropriate Orders which resulted into passing aforementioned IO.

§ The ground of challenge is that the Resolution Plan is contingent on the execution of a long term lease for the Ace Complex Land on acceptable terms defined in the Resolution Plan, i.e. with the prior written consent of Vistra, the mortgagee of Ace Complex Land.

§ Prior lease of CD expired on 31.03.2019. RP executed the said lease on 28.01.2020 without obtaining prior written consent of Vistra. Thus, the approval of the Resolution Plan is said to be without complying with the requirement of obtaining prior written consent of Vistra in respect of execution of the lease of Ace Complex Land and without obtaining approval of CCI. Appellant contended that the AA failed to satisfy itself whether the Resolution Plan was compliant as regards vital conditions and whether it had provisions for its effective implementation.

§ Appellant had file before Hon’ble Apex Court seeking withdrawal of its offer (Resolution Plan)..It was dismissed with a loud and clear message that any further attempt made by the Appellant to enact a U-turn and try to wriggle out of the obligations under the offer would be treated as contumacious conduct inviting action for Contempt of Court. It is therefore manifest that the Appellant would not be permitted to backtrack and seek exit from its Resolution Plan on any pretext whatsoever.

Finding of NCLAT

§ NCLAT is of the considered view that the execution of long term lease for the Ace Complex Land with Acceptable Terms was not a condition precedent in regard to approval of Resolution Plan but only in regard to effective date. Therefore, the Appellant would not be justified in assailing the IO.

§ The Appeal not only lacks merit but also is frivolous. Hence, Appeal is dismissed.

(02/2021)

§ CD & FC entered into a Lease Agreement dated 03.04.2017 availing Lease Finance Assistance to the CD in respect of Furniture and Fixture and which the CD was desirous to take for its business purposes on lease basis from the FC. The FC disbursed a sum of Rs.64,95,569/- on 05.04.2017 and Rs.42,81,245/- on 28.11.2017 to the CD’s architects M/s Interio and Architecture, Bangalore. On Default of making payments of Rs. 1,16,98,242,60/- by CD, FC issued Demand Notice dated 27.07.2018 to CD.

§ Appellant contended that the ‘Lease Agreement’ does not indicate the ‘Liability’ thereunder is in consideration for the ‘time value of money’ as the disbursal is against the supply of ‘Assets’ and against the usage of ‘Assets’ (Furniture and Fixtures) and not against the ‘time value for money’ and further that there is no indication in the ‘Lease Agreement’ that it is deemed as a ‘Financial or Capital Lease’ u/s 5(8) of IBC. Appellant takes a stand that the AA has failed to consider whether the R2 is qualified as ‘Financial Creditor’ u/s 5(7) of the Code.

§ The Tribunal bearing in mind the meaning of ‘Time Value’ that it is ‘the price associated with length of time that an investor must wait until investment matures or related income is earned’ (vide Black’s Law Dictionary) and also considered the fact that the FC had invested a sum of Rs.1,07,76,815.35/- under the ‘Lease Agreement’ dated 03.04.2017, in and by which a repayment schedule was mentioned as lease rental for a period of 36 months and at the end of the lease, the ‘Asset’ will be purchased by the CD at a value of Rs.21,65,190/- which was received by the FC as Security Deposit comes to an inevitable and inescapable conclusion that the disbursal of amounts to the CD’s architects comes within the requirement of ‘time value for money’.

§ Further, Tribunal pointed that that the ‘Lessor’ (R2) had offered to provide ‘Lease Finance Assistance’ to the ‘Lessee’ (CD) in respect of Furniture and Fixture (‘Asset’) and which the Lessee was desirous to take for its business purposes on lease basis from the Lessor on the basis of offer made. And also that, in Part IV of the Application ‘Particulars of Financial Debt’ it is mentioned that the CD had entered in to a Lease Agreement with the applicant company to avail financial assistance of Rs. 1,07,76,815/- to carry out interior work on 03.04.2017 and further that, the amount of Default was mentioned as Rs. 1,16,98,242.60/- which was not paid by the CD, as per the computation and statement of accounts annexed along with the Application. Therefore, it cannot be said that the FC had not pleaded in the Application about the Financial Lease in stricto sense of the term. Suffice it for this Tribunal to point out that requisite averments as required to the Application u/s 7 of IBC were furnished by the FC.

§ The Tribunal concludes that financial lease is financial debt as per section 5(8) of IBC and the Default being committed by the CD in terms of the ingredients of S. 3(12) of IBC.

§ The Appeal fails and IO is free from any legal flaws.

(23/2021)

§ The Resolution Plan submitted by M/s. KALS Group and Mr. Chava Suresh Babu was compared by RP. The Appellant plan was approved with an overwhelming 100% of votes and there was no reason commercially or in Law for rejection of its plan by the AA. It’s the Commercial decision of the COC in approving or rejecting a certain Resolution Plan. The AA cannot trespass into the ‘Commercial Wisdom’ of the COC and indeed, has a restricted power, of course, within the four corners of S. 30(2) of the IBC.

§ R. contends that the AA while directing the COC to invite fresh bids had completely lost site of the fact that the other unsuccessful resolution Applicants secured only 55.58% of the total voting share of the FC whereas the Appellant (Successful Resolution Applicant) had secured 100% of the total voting shares of the FC.

§ NCLAT holds that the direction issued to the COC to take fresh bids from the existing two Resolution Applicants to submit a Resolution Plan for its consideration are clearly unsustainable in view of the recent judgment of the Hon’ble S. NCLAT interferes with the IO dated 24.02.2021 and sets aside the same, in furtherance of substantial cause of justice. Consequently, the Appeal succeeds.

(847 of 2020)

& other connected 6 Appeals

§ The R. Companies in each of the three Appeals are family-owned companies owned by three brothers, with each brother and their siblings are one-third shareholder of each Company. The three brothers of Kanhiyalal Kewalramani (KK), Wadhuram Kewalramani (WK), and Parmanand Kewalramani (PK) have one-third of shareholding in each R. Co’s and, as such, enjoy control over the companies to that extent. The Appellants herein belong to the PK family (being Parmanand Kewalramani himself and his son, Sunil Parmanand Kewalramani and Manoj Permanand Kewalramani). The sons of PK had advanced loan to the R. Co’s in 2017 and demand the money back. The other Directors/Stakeholders of the Respondents Co’s were negligent in attending to the affairs of the Co’s therefore when Notices were issued it were responded to by PK and family member itself admitted that R. Co’s did not have sufficient funds.

§ The AA also dismissed the Application for taking action u/s 65, 72 and 75 of IBC against the Appellants.

§ These Appeals are filed mainly on the ground that;

i) The AA has failed to notice that there is no requirement of issuance of demand notices u/s 7 of IBC.

ii) The Ld. AA observation that there was any secret arrangement between the Appellant and the Respondent, which could be termed as collusive, could have been used to obtain a decision from the Tribunal sinister purpose, is without any basis.

iii) There were only unsubstantiated allegations against the Appellants without any evidence on record.

iv) The AA concluded that there was collusion between two parties. When one of them was not even a party in the respective Petitions, this itself is a ground to set aside the learned AA observation in the impugned Judgements. Since it is settled law that nobody shall be condemned unheard.

v) The conclusions regarding the Appellants having control over the R Co’s affairs are factually incorrect. That has arrived on account of false statements made by the R. on the affidavit.

vi) The AA has failed to consider that proceeding u/s 7 was filed by the Appellant in the FC’s capacity to exercise their legal right to do so.

vii) The AA has failed to consider that proceeding u/s 72 of the IBC could only be initiated after the Petition’s admission.

§ NCLAT held that there was no justification for the AA to conclude that there was collusion. Since R. did not claim any secret arrangement which could be termed as collusive and could have been used to obtain a decision from the AA a sinister purpose. Hence, there could not have been any collusion, as legally understood.

§ S. 72 pertain to the punishment for willful and material omission from statements relating to the CD’s affairs. Since the proceedings initiated u/s 7 of IBC in their capacity as FC. S.72 of IBC deals explicitly with the punishment for an officer of the CD’s delinquent act. He makes any material and wilful omission in any statements relating to the corporate debtor’s affairs. From the present case facts, there was no occasion for invoking S.72 of IBC.

§ Therefore, the AA authority observations were considered as invalid. Appeals were allowed & observations of AA deserved to be expunged.

(172/2020)

§ The questions that arises for NCLAT consideration are as follows:

i) Whether Authorization for filing a Petition u/s 9 of IBC before the commencement of IBC can be treated as a valid authorization?

ii) Whether AA instead of dismissal of the Petition should have given the opportunity to rectify the defects as per proviso to S. 9 (5) (ii)(a) of IBC?

§ Appellant contended that neither the Code nor any Rules and Regulations made thereunder mandates the authorisation post the enactment of IBC. Further, the AA should have granted the liberty u/s 9(5)(ii)(a) to the Appellant to rectify the defects within seven days if any.

§ Respondent contended that Authorization forms the foundation of entire proceedings under IBC. Since the authorisation issue goes to the root of the matter, the same cannot be treated as a “curable defect”. An incomplete or improper authorization vitiates the entire proceedings at inception, rendering legal action devoid of Authority.

§ NCLAT is of the considered opinion that the AA has erred in dismissing the Application for want of Authorization, without even providing an opportunity to rectify the defects in compliance with S. 9(5)(ii)(a) of IBC.

§ Hence, IO is set aside & Appeal is allowed.

without allowing the applicant to rectify the mistakes

(41/ 2021)

§ Appellant submits that the AA had committed an error in holding that the consideration of mere debt and Default in question without knowing/service of notice on the Respondent would be futile exercise and this was held by the AA despite the fact that the notices was served upon the respondent on 03.02.2020 and later on 08.01.2021 and ‘Affidavit of Service’ was filed before the Tribunal.

§ Appellant contends that it must be borne in mind that Rule 37 of NCLT Rules, 2016 speaks of that Tribunal shall issue notice to the Respondent to show cause against the Application or Petition on a date of hearing to be specified in the notice etc., Rule 38 deals with ‘service of notices and processes’. Rule 41 concerns with filing of reply and other documents by the Respondents. Rule 42 relates to filing of ‘Rejoinder’. Rule 45 pertains to ‘Rights of Party’ to appear before the Tribunal. Rule 49 deals with ‘Ex parte hearing and disposal’.

§ Appellant had come out with a categorical assertion that the notice was served upon the Respondent on 03.02.2020 and later 08.01.2021 and affidavit of service to that effect was filed before the Aa. When that be the fact situation, when the Respondent had failed to appear before the AA then, it is duty bound to record the absence/ there being no representation of the Respondent, to hold that ‘service was held sufficient’ and to proceed further, as per Rule 49 of the NCLT Rule, 2016 under the caption ‘Ex parte hearing and disposal’.

§ This Tribunal comes to an inevitable conclusion that the AA had committed an error in issuing slew of directions to the ROC, Bengaluru to examine whether the CD had complied with the statutory requirement and to take appropriate action etc., and suffice it for this Tribunal to make a relevant observation in the present Appeal that such directions issued by the AA cannot be countenanced in the eye of Law. Viewed in this perspective, this Tribunal, set asides the IO passed by the AA. Consequently, the Appeal succeeds.

(48/2021)

§ The Appellant contends that the CoC constituted presently by the IRP/RP in derogation of the Order passed by this Tribunal shall stand suspended and shall not exercise any of the Powers as provide under the Provisions of IBC, 2016.

§ Further, the Appellant submits that most of the Members who initially constituted the CoC in the year 2017, soon after the Order of admission of CIRP of the CD, are no longer Creditors of the CD as on the date of Order and hence, had committed an error in directing the RP to convene a CoC including such Members.

§ The other argument projected on the side of the Appellant is that the claim of R3/HDFC Bank dated 08.04.2021 should have been considered by the AA because of the fact that the R3/Bank is the present FC of the CD.

§ The Tribunal is of the considered view that the RP has no Adjudicatory Power under IBC and further that when once the CoC is/was formed, the RP cannot change the CoC. Suffice it for this Tribunal to make a pertinent mention that the R1/RP cannot constitute a CoC afresh, in negation of the earlier constituted CoC.

§ NCLAT concluded that that the observation made inter-alia to the affair that CoC constituted presently by the IRP/RP in derogation of the Order passed by it shall stands suspended and shall not exercise any of the powers as provided under the Provisions of IBC and the directions issued to the IRP/RP to comply with the directions therein within a period of 10 days from the date of the Order and to report before it about the outcome of the CoC meeting required to be called and convened are free from legal infirmities.

§ Hence, the instant Appeal fails.