Supreme Court Judgments related to IBC, 2016 – July- September, 2022
Vidarbha Industries Power Limited Vs. Axis Bank Limited [Civil Appeal No. 4633 of 2021]
The Hon’ble SC made the following observations:
- When AA is satisfied that a default has occurred and the application of an FC is complete in all respects as per requirements, it may by order admit the application. Legislature intended section 9(5)(a) to be mandatory as it uses the word ‘shall’ and section 7(5)(a) of the Code to be discretionary as Legislature has, in its wisdom, chosen to use the expression ‘may’ in section 7(5)(a) of the Code. Had it been the legislative intent that section 7(5)(a) of the Code should be a mandatory provision, Legislature would have used the word ‘shall’ and not the word ‘may’.
- In case of a section 7 application, the AA might examine the expedience of initiation of CIRP, taking into account all relevant facts and circumstances, including the overall financial health and viability of the CD. The AA may in its discretion not admit the application of a FC. If facts and circumstances so warrant, the AA can keep the admission in abeyance or even reject the It is certainly not the object of the Code to penalize solvent companies, temporarily defaulting in repayment of its financial debts, by initiation of CIRP.
- The SC noted a word of caution holding that even though section 7(5)(a) may confer discretionary power on the AA, such discretionary power cannot be exercised arbitrarily or capriciously.
The SC while dismissing the review petition filed in respect of the above judgement, observed that it is well settled principle that judgments and observations in the judgments are not to be read as provisions of statute. Judicial utterances and/or pronouncements are in the setting of the facts of a particular case. It clarified that the elucidations in its judgment were made in the context of the case at hand.
The SC observed that the time of 14 days in section 7(4) of the Code to ascertain the existence of a default is apparently directory not mandatory. An application to the AA under section 7, in the prescribed form, cannot be compared with the plaint in a suit, and cannot be judged by the same standards, as a plaint in a suit, or any other pleadings in a court of law. The application cannot be dismissed, without complying the requisites of the proviso to section 7(5) i.e., non-occurrence of default, or incomplete application and non-pendency of disciplinary proceedings against the IP.
As regards the limitation, the SC held that entries in books of accounts and/or balance sheets of a CD would amount to an acknowledgment under section 18 of the Limitation Act, 1963. Accordingly, if there were an acknowledgement of the debt by the CD before expiry of the period of limitation of three years, the period of limitation would get extended by a further period of three years. Further, there is no bar to the filing of documents at any time until a final order either admitting or dismissing the application has been passed.
The SC observed that the Customs Act, 1962 (Customs Act) and the Code act in their own spheres. In case of any conflict, the Code overrides the Customs Act. The Customs Act and the Code can be read in a harmonious manner wherein authorities under the Customs Act have a limited jurisdiction to determine the quantum of operational debt. The Code would prevail over the Customs Act, to the extent that moratorium is imposed in terms of sections 14 or 33(5) of the Code. Post assessment of tax, the customs authority has to submit its claims timely (concerning customs dues/ operational debt) in terms of the procedure laid down under the Code. The customs authority cannot enforce a claim for recovery or levy of interest on the tax due during the period of moratorium. They cannot transgress such boundary and proceed to initiate recovery in violation of sections 14 or 33(5) of the Code.
The IRP, RP or the liquidator, as the case may be, has an obligation to ensure that assessment is legal, and he has been provided with sufficient power to question any assessment, if he finds the same to be excessive. The IRP/ RP/liquidator, in any case, can immediately secure goods from the customs authority to be dealt with appropriately, in terms of the Code.
The SC considered two issues i.e., whether the liquidator was justified in discontinuing the second swiss challenge process for the sale of a part of the assets of the CD and opting for a private sale process through direct negotiations in respect of the composite assets of the CD? and if so, was the Appellate Tribunal justified in directing the liquidator to restart the entire process of private sale after issuing an open notice to prospective buyers instead of confining the process to those parties who had participated in the process earlier.
The SC noted that as per the anchor bid document and the second swiss challenge process document, the prospective bidders were informed that the liquidator had reserved the right to abandon/cancel/terminate/waive the said process and/or part thereof at any stage. The SC observed that anchor bidder has no vested right beyond the right of first refusal. The Code has left it to the discretion of the liquidator to explore the best possible method for selling the assets of the CD including private sale through direct negotiations for maximizing the value of the assets offered for sale. The insolvency regime introduced under the Code has placed fetters on the power of interference by the AA and the NCLAT. Courts may not question the judiciousness of the decision taken by the liquidator to enhance the value of assets of the CD. It was observed that once the liquidator applies to the AA for appropriate orders/directions, including the decision to sell the tangible assets of the CD by adopting a particular mode of sale and the AA grants approval to such a decision, there is no provision in the Code that empowers the NCLAT to suo motu conduct a judicial review of the said decision.
K. Parmasivam Vs. The Karur Vysya Bank Ltd. & Anr. [ Civil Appeal No. 9286 of 2019]
The SC, referring to its decision in the matter of Laxmi Pat Surana, held that the FC can proceed against the guarantor without first initiating CIRP in respect of the principal borrower.
An appeal was made against an order of the NCLAT, rejecting the application filed by the Sales Tax Officer and holding that the government cannot claim first charge over the property of the CD, as section 48 of the Gujarat Value Added Tax Act, 2003 (GVAT Act), which provides for first charge on the property of a dealer in respect of any amount payable by the dealer on account of tax, interest, penalty etc., cannot prevail over section 53 of the Code.
While setting aside the order of NCLAT, the SC observed that if the resolution plan ignores the statutory demands payable to any state government or a legal authority, altogether, the AA is bound to reject the resolution plan. If a company is unable to pay its debts, which should include its statutory dues to the government and/or other authorities and there is no plan which contemplates dissipation of those debts in a phased manner, the company would necessarily have to be liquidated and its assets sold and distributed in the manner stipulated in section 53 of the Code. Under section 53(1)(b)(ii), the debts owed to a secured creditor, which would include the State under the GVAT Act, are to rank equally with other specified debts including debts on account of workmen’s dues for a period of 24 months preceding the liquidation commencement date. The State is a secured creditor under the GVAT Act. Section 3(30) of the Code defines secured creditor to mean a creditor in favour of whom security interest is created. Such security interest could be created by operation of law.
Tech Sharp Engineers Pvt. Ltd. Vs. Sanghvi Movers Limited [Civil Appeal No. 296 of 2020]
The SC observed that proceedings in good faith before a forum which lacks jurisdiction may save limitation. Similarly, acknowledgment of liability may have the effect of commencing a fresh period of limitation. The SC noted that in the instant case, the last acknowledgment was in 2013 and the Madras HC wherein the winding up proceedings against the CD were filed on July 4, 2015 and there is continuous cause of action, the claim is within the period of limitation and did not suffer from any defect of jurisdiction. It held that the pendency of the proceedings in Madras HC, filed by the operational creditor (OC), saves the limitation for filing an application under section 9 of the Code.
Maitreya Doshi Vs. Anand Rathi Global Finance Ltd. and Anr. [Civil Appeal No. 6613 of 2021]
Relying on its decision in Lalit Kumar Jain v. Union of India, the SC held that the approval of a resolution in respect of one borrower cannot certainly discharge a co-borrower under the Code. If there are two borrowers or if two corporate bodies fall within the ambit of CDs, there is no reason why proceedings under section 7 of the Code cannot be initiated against both the CDs. If the dues are realised in part from one CD, the balance may be realised from the other CD being the co-borrower. Once the claim of the FC is discharged, there can be no question of recovery of the claim twice.
High Court Judgments related to IBC, 2016 – July- September, 2022
Vishnu Oil Mill Private Ltd. Vs. Union of India & Ors. [D.B. Civil Writ Petition No. 2507/2022]
The question for consideration was, whether a group of FCs can jointly trigger CIRP without adhering to the requirement of default threshold of Rs.1 crore in individual capacity? The Rajasthan HC observed that section 7 clearly stipulates that the application for triggering CIRP may be initiated by a FC either individually or jointly with other FCs. It can easily be envisaged that in cases of micro, small and medium enterprises (MSMEs), there may not exist FCs whose individual debt is ` 1 crore or above. It held that the statute and the amendment made therein makes it clear that the same was formulated in such a manner so as to provide a means of efficacious redressal to the smaller FCs and to give them an opportunity of availing the speedy remedy under the Code rather than being relegated to other onerous proceedings for securing their money. Therefore, a group of FCs can converge and join hands to touch the financial limit of ` 1 crore as stipulated under the Code so as to initiate a CIRP.
NCLAT Orders related to IBC, 2016 – July- September, 2022
Employees Provident Fund Organisation had filed an interlocutory application before the AA seeking an order in directing the RP to make provision in the IM and corresponding resolution plan if any, for the payment of claim due to the applicant by condoning the delay of 936 days in claiming the dues under the Employees Provident Funds & Miscellaneous Provisions Act, 1952. In appeal against AA order of rejection of such application, the NCLAT held that the law of limitation being harsh, will affect a litigant, but it has to be pressed into service with all its vigour and rigour. An unpardonable lackadaisical approach / attitude of the party in pursuing a matter before the Tribunal is not to be accepted. An application for condonation of delay undoubtedly creates a jurisdictional fetter against consideration of tangible / substantive matter on merits. While dismissing the appeal, it was observed that just because the appellant is a statutory organisation, no indulgence or latitude can be shown, since the law applies to one and all in a level playing field. The officials must act with as much diligence as is expected from a litigant.
Mr. Prashat Agarwal Vs. Vikash Parasrampuria & Anr. [Company Appeal (AT) (Ins) No. 690 of 2022]
The issue of maintainability of application on the grounds of threshold limit, came up for consideration. In this case, out of nine invoices raised by the OC, the CD had paid only three. The AA admitted the section 9 application for initiation of CIRP. The admission order was challenged on the grounds that principal amount of debt is only ` 97,87,220/- which is below the prescribed threshold limit. The NCLAT noted that all nine invoices clearly stipulated provision of interest on delayed payment, this will entitle for ‘right to payment’ as per section 3(6) and will form part of ‘debt’ under section 3(11) of the Code. It held that the interest on delayed payment gets included with the principal debt to form part of the total claim.
Pooja Finlease Ltd. Vs. Auto Needs (India) Pvt. Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 103 of 2022]
The NCLAT held that as one of the clauses in the settlement terms contemplated revival of CIRP in the event of any breach of the terms on the part of CD, the FC is entitled to revive the section 7 application in event of any breach of the settlement terms.
Dolphin Vintrade Private Limited Vs. Ashray Vyapaar Private Limited & Anr. [Company Appeal (AT) (Insolvency) No 320 of 2022 & I.A. No. 1066 & 1082 of 2022]
Order of admission passed by the AA in a section 7 application, was challenged on the grounds that CD was already under liquidation in terms of the provisions of the Sick Industrial Companies (Special Provisions) Act, 1986. The NCLAT while allowing the appeal and setting aside the admission order observed that CD was in liquidation and all its assets were custodial legis (in the custody of the law) and in the control and possession of the official liquidator. When liquidation process has commenced way back in 1997, how the default could have been committed by the CD? It held that although, pendency of winding-up petition before the HC may not preclude filing of section 7 application, but, when there are various orders passed by Company Judge, which has relevance and consequence on section 7 application, the orders passed in company petition ought to have been adverted by the AA before admitting the application. The NCLAT imposed a cost of ` 10 lakhs on the FC to be deposited with the official liquidator.
Sudip Dutta Vs. State Bank of India [Company Appeal (AT) (Insolvency) No. 807 of 2021]
The issues for consideration before the NCLAT in this case were, whether a personal guarantee stands extinguished, once the personal guarantor (PG) acquires foreign citizenship after execution of guarantee deed, and whether the Central Government was required under section 234 of the Code to enter into agreement for expediting the matter against the PG. The NCLAT while dismissing the appeal filed against order of AA admitting the application against the PG, observed that the statutory scheme of the Code does not contain any indication that the PG of a CD can escape from its liability under the personal guarantee deed merely on the ground that he is now residing in another country and acquired citizenship of another country and is no more an Indian citizen, as this will allow such PGs to wash off from their obligation under the guarantee deed. It further observed that the provision under section 60(1) of the Code makes it clear that the residence of PG is not taken into consideration when proceedings against the PG are initiated. When an application is filed against PG, whether residing in India or residing outside India, the jurisdiction shall be before the AA in whose territorial jurisdiction the registered office of the corporate person is located. As regards applicability of section 234, it was observed that applicability of section 234 arises only in a case where assets or property of PG are situated at any place in a country outside India.
CA Rita Gupta Vs. M/s. Shilpi Cable Technologies Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 10 of 2020]
The question that arose for consideration was, whether the liquidator has the jurisdiction to decide the fee of the RP as the CoC is no longer in existence? The NCLAT observed that by virtue of section 5(13)(e) of the Code, the fees and expenses incurred by the RP comes under the ambit of insolvency resolution process cost and therefore the liquidator cannot adjudicate upon the insolvency resolution process cost. Regulation 34 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations), specifies that the CoC shall fix the expenses which are incurred by the RP. The liquidator can only verify and adjudicate the claims as defined under the Code. The fees of an RP cannot be a ‘claim’ as defined under section 3(6) of the Code. Since the amount of fees payable to an RP is not a ‘claim’, the same cannot be determined or verified by the liquidator. It is the AA which has to decide fees in the absence of a CoC and the RP cannot be directed to prefer a ‘claim’ before the liquidator.
Rakesh Kumar Jain Vs. Jagdish Singh Nain & Ors. [Company Appeal (AT) (Ins.) No. 425 of 2022]
The NCLAT considered the issue, whether AA is competent to pass order under section 66 of the Code during the currency of moratorium under section 14. It held that section 14(1)(a) of the Code interdicts institution of suits and continuation of pending suits and proceedings against the CD including execution of any judgment decree or order of any court of law, Tribunal, Arbitration Panel or other authority. Thus, it prohibits institution and prosecution of any proceedings against the CD but does not prohibit passing any order by the AA during CIRP or liquidation process against CD and its suspended directors or related parties. No doubt prohibition is only against the proceedings in any other Courts or Tribunals etc. but not a prohibition against passing of any order in the pending CIRP or liquidation process against the CD. On the other hand, section 66 permits the AA to pass appropriate orders on application of any person when any transaction was entered into fraudulently. Further, the provisions of sections 14 and 66 are independent, incorporated for different purposes. Section 14 is intended to prevent fictitious claims by third parties to realise the amount by execution of the orders, decrees etc. whereas section 66 is intended to prevent fraudulent trading or business by CD through its RP or suspended directors, during CIRP or liquidation process. These two provisions have to be read independently to achieve the object of the Code.
Vikas Dahiya Vs. Arrow Engineering Limited & Anr. [Company Appeal (AT) (Insolvency) No. 699 of 2022]
The NCLAT held that principle of res judicata, though a part of Civil Procedure Code, would be applicable to a proceeding under the Code. This is to prevent the abuse of process of law and give a finality to any proceeding, or orders, and to avoid an endless litigation to frustrate the very object of enacting the Code. It was further observed that a judgment obtained by playing fraud on the AA or judgment or order passed without inherent jurisdiction is non est in the eyes of law and the same can be challenged in a collateral or incidental proceeding.
The CD entered into a licensing agreement with the OC, whereby the OC granted the license and right to use its trademark on the licensed products manufactured and sold by the CD, in lieu of Minimum Guaranteed Royalties (MGRs) as compensation. OC raised the invoices for an aggregate sum of Rs. 40,60,147/- towards the MGRs payable by the CD under the licensing agreement and in lieu of which the CD made the payment of Rs.17,69,835/-. On CD’s failure to pay the remaining balance, OC filed a section 9 application which was admitted by the AA. The NCLAT observed that section 7 of the Central Goods and Services Tax Act, 2017 permits the use or enjoyment of any Intellectual Property Right as a ‘supply of service’. The NCLAT noted that the CD was permitted to use the trademark in relation to its licensed products, so, there was temporary transfer/permission to use, constituting ‘provision of service’ rendered by the OC and, therefore, it falls within the definition of service and any amounts ‘due and payable’ arising out of such service is an ‘operational debt’ within the ambit of section 5(21) of the Code.
Adjoin Built & Developers Vs. Aditya Kumar & Ors. [Company Appeal (AT) (Insolvency) No. 769-770 of 2021]
The appeal in the case was filed by the IBBI against AA’s order directing the IBBI not to initiate any enquiry against an IP till further orders, and if any enquiry is initiated, the same be halted till further directions of the AA. The NCLAT placed reliance on the SC’s decision in K. Sashidhar v. Indian Overseas Bank & Ors., and its previous orders in the matters of Mohan Gems & Jewels Pvt. Ltd. v. Vijay Verma & Ors. and Insolvency and Bankruptcy Board of India v. Shri Rishi Prakash Vats & Ors. and set aside the order of the AA. It held that neither the Code, nor the rules framed thereunder confer any power to the AA to interfere with the process of inspection and investigation initiated by the Board, nor does it have the power to direct the Board to take or not to take actions.
Sumat Kumar Gupta Vs. Committee of Creditors of M/s Vallabh Textiles Company Ltd. [Company Appeal (AT)(Insolvency) No.1037 of 2022]
The NCLAT considered the issue whether RP should be given opportunity of being heard in case of his replacement? The NCLAT held that the scheme of section 27 of the Code does not indicate that RP is to be made party and is to be issued notice before taking decision to appoint another RP. The NCLAT relied on the judgement of Punjab National Bank v. Kiran Shah, IRP of ORG Informatics and held that the replacement of RP is complete when required decision is taken by the CoC in its meeting with requisite majority and held that the erstwhile RP is not entitled for hearing.
Shri Alok Kaushik, RP of Cheema Spintex Ltd Vs. Cheema Spintex Ltd & Ors. [Company Appeal (AT) (Insolvency) No.896 of 2022]
The issue for consideration was, whether RP was justified in carrying on CIRP and adding to CIRP costs during the pendency of the withdrawal application under section 12A of the Code. The NCLAT held that since the section 12A application was filed by the IRP before the AA, well before the constitution of the CoC, the IRP’s continuance with the CIRP without making adequate efforts to seek pointed clarification from the AA on whether to proceed with the CIRP or not, does not reflect well on his conduct. It observed that the IRP cannot afford to be unmindful of the fact that he is the driving force and the nerve-center in the resolution process and is expected to assist in the CIRP in a fair and objective manner in the best interest of all stakeholders. Simply by registering presence on each date of hearing before the AA without seeking clear guidance on CIRP modalities cannot in itself become a sufficient ground for the IRP to proceed with the CIRP in full throttle.
White Stock Limited Vs. Prajay Holdings Private Limited [Company Appeal (AT)(CH) (Ins) No. 271 of 2022 & I.A. Nos. 581 & 582 of 2022]
The question involved in this case was, whether the AA can refer section 7 application for mediation under section 442 of the Companies Act, 2013? Relying upon its judgment in Sodexo India Services Pvt. Ltd. v. Chemizol Additives Pvt. Ltd. in which it had held that under section 442 of the Companies Act, 2013, the AA cannot refer the parties to arbitration or mediation for the proceedings pending under the Code, NCLAT set aside the order of AA. It held that once the default is established, the AA does not have the power to refer the parties to an arbitration, since it becomes an in-rem insolvency proceedings and held that the proceedings under section 442 of the Companies Act, 2013 are limited to the Companies Act, 2013 and not to the proceedings under the Code.
Ocean Deity Investment Holdings Ltd. Vs. Suraksha Asset Reconstruction Ltd. [Company Appeal (AT) (Insolvency) No. 795 of 2021 & I.A. No. 1332 of 2022]
The order of admission passed by AA was challenged before the NCLAT on the grounds of debt being collusive in nature. The NCLAT found that in view of the overwhelming evidence and conclusion by statutory bodies which are independent agencies, the financial transactions have to be examined on the touchstone of the ratio laid down by the SC in Phoenix ARC Private Limited v. Spade Financial Services Ltd. & Ors., (2021) 3 SCC 475, wherein the SC has observed that ‘collusive transaction’ does not lead to a creation of ‘financial debt’ under section 5(8) of the Code. The NCLAT found that the subject commercial transactions were collusive in nature and do not fall within the ambit of the definition of ‘financial debt’ and therefore Suraksha, the Assignee, cannot be termed as a ‘FC’ as defined under section 5(7). It observed that – “The chequered history of the loan transactions and collusive arrangements indulged by Yes Bank demonstrate that the Term Loans disbursed in the name of Mack Star is an ‘eye-wash’ and Yes Bank has disbursed these loans with an ulterior motive. Having observed so, we hold that the Assignment to Suraksha is not a bona fide one, peculiar to the facts of the attendant case and the loan amounts do not satisfy the essential requisites of a ‘Financial Debt’ as envisaged under the Code. This Tribunal observed that the fundamental scope & objective of IBC is ‘Resolution’ and ‘Maximization of Assets’ and not ‘Recovery’ of loans which do not strictly fall within the definition of ‘Financial Debt’ as defined under Section 5(8) of the Code”.
Punjab National Bank Vs. Supriyo Kumar Chaudhuri & Ors. [Company Appeal (AT) (Insolvency) No. 657 of 2020]
The NCLAT considered as to whether margin money deposited by way of fixed deposit receipts against a letter of credit (LC) construes, a ‘security’ and whether this margin money can be appropriated by the bank during the period of moratorium on the ground that it does not form a part of the assets of the CD? LC Agreements, in this case, specified that the goods and services received by way of the LC transactions would be ‘security’ for the whole LC amount including margin money. It was observed that LC is akin to a contract of guarantee, as it is a contingent liability of the CD which gets crystallized on the happening of a future event. It was further observed that margin money has the character of the Trust for the benefit of the beneficiary as long as the LC is alive and the same cannot amount to an asset of the CD. The NCLAT held that margin money can in no manner be said to be a ‘security interest’ under section 3(31) of the Code, and the banks having appropriated the said money during the period of moratorium is justified as the amount is not an asset of the CD.
The AA allowed the request of the CD to pay the debt of FC within 45 days and has also granted liberty to the FC to continue with section 7 application if the amount is not paid within 45 days. FC challenged this order as it had expressed its unwillingness to settle the matter and the course adopted by the AA is impermissible. The NCLAT dismissed the appeal of the FC. It held that the AA has only given an opportunity to the CD to deposit the entire defaulted amount for which section 7 application was filed within 45 days with liberty, reserved to the FC to revive the section 7 application in event the amount is not deposited. It observed that – “In event, in consequence of the Order of the Adjudicating Authority, the Corporate Debtor deposits the entire defaulted amount whether still the Adjudicating Authority was required to necessarily admit the Section 7 Application. The answer would be obviously no. When the Corporate Debtor has complied to deposit the entire defaulted amount of the Financial Creditor as permitted by the Adjudicating Authority, no purpose and occasion shall survive to still proceed with the Insolvency Resolution of the Corporate Debtor”.
Namdeo Ramchandra Patil & Anr. Vs. Vishal Ghisulal Jain & Anr. [Company Appeal (AT) (Insolvency) No. 821 of 202]
The issue for consideration was whether allotment of flats and commercial units to the landowners, by virtue of arrangement between them and the developer falls within the definition of ‘financial debt’? The NCLAT held that the provision of section 5(8)(f) lays a pre-condition for ‘financial debt’, that is disbursement against the time value of money and when any amount is raised from an allotment under real estate, such transaction is covered under section 5(8)(f). The pre-condition for application of explanation (i) of section 5(8)(f) is raising of an amount from allottee. In the present case, no amount has been raised from the landowners/FCs. Hence, it does not make the present transaction of allotment of flats and commercial units a ‘financial debt’ within the meaning of section 5(8)(f) of the Code.
Prasanth Chandra Rath & Ors Vs. Surya Kanta Satapathy and Ors. [Company Appeal (AT) (Insolvency) No. 869 of 2022 with Company Appeal (AT) (Insolvency) No. 850 of 2022]
Suspended directors of the CD filed an appeal against the order of AA that held them responsible for the fraudulent and undervalued transactions under section 66 of the Code. The appellants contended that the application filed by the RP was not within the time limit prescribed under regulation 35A of the CIRP Regulations. Relying on the SC decision in Surendra Trading Company v. Juggilal Kamlapat Jute Mills Company Limited and Ors., the NCLAT held that regulation 35A of the CIRP Regulations is not mandatory and the requirement for approaching the AA for appropriate relief on or before 135th day of the ICD is only directory. The NCLAT noted that the delay was for various reasons like the CIRP having been stalled on the ground of the appellants’ entering into one-time settlement (OTS) with one of the creditors, lack of cooperation by the suspended directors, delay on the part of the CD to furnish requisite documents/registers to the transaction auditor and COVID-19 pandemic.
NCLT Orders related to IBC, 2016 – July- September, 2022
Infinity Infotech Parks Limited Vs. Electroparts (India) Private Limited & Anr. [I.A (IBC) No.907 /KB/2021 in C.P. (IB) No. 140/ KB/2021]
An interlocutory application was filed by the shareholder of the CD against the FC for obtaining the order of admission on the basis of fraudulent and manufactured documents for a fictitious and imaginary transaction in collusion with unknown third parties claiming to represent the CD without any authority. Besides, the admission was on the basis of default date being December 15, 2020 which is directly hit by section 10A of the Code. The AA observed that FC and the CD had obtained orders of CIRP fraudulently and in complicity with each other by filing a collusive petition and later on settled the matter by payment of ` 30 lakh through cheques, although given on behalf of the CD by some unknown person, were not encashed by the FC. In view of the glaringly fraudulent actions committed by FC and CD thereby committed fraud on the Tribunal in terms of section 65 of the Code, the AA imposed penalty of ` 50 lakh on FC and terminated the CIRP. Further the matter was referred to the Central Government.
Yadubir Singh Sajwan & Ors. Vs. M/s. Som Resorts Private Limited [Company Petition No. (IB)-67(ND)/2022]
In this real estate project case, petitioners deposited the money with the marketing agency (also a corporate entity) of CD on the strength of a builder buyer agreement whereby the home buyers to be given possession of the units within 36 months from the date of commencement of the construction of the project. However, CD neither delivered the possession of the units nor refunded the money deposited by the home buyers with marketing agency of CD. Subsequently, a memorandum of settlement was executed between the CD, its marketing agency and the homebuyers, on the assurance of the CD to construct the project within 18 months from the date of handing over of the property by the official liquidator and it was agreed to refund the entire amount along with an interest to the home buyers in case of failure to complete the project.
Home buyers filed application seeking to initiate the CIRP against the CD for its failure to honour its commitment. The AA noted that promoter of the CD was appointed as a director on the board of marketing agency and that the CD and marketing agency were being managed either directly or indirectly by the same person. Further, the home buyers are not privy to the agreement between the CD and its marketing agency and that they cannot be punished for the misdeeds of the marketing agency. It was observed that where CD fails to fulfil its legal obligations, piercing of corporate veil is vital to ensure that the principle of distinct corporate personality is not misused. The AA lifted the corporate veil of the CD and admitted the application. The ‘doctrine of distinct legal entity’ plea as claimed by the CD and its marketing agency with respect to non-refund of the money deposited by the home buyers could not be accepted.
State Bank of India Vs. Krishidhan Seeds Pvt Ltd [TP 82 of 2019 [CP(IB) 500 of 2018]
M/s. Krishidhan Seeds Pvt. Ltd. committed default of ` 89.42 crore and account slipped into NPA on June 10, 2014. FC filed section 7 application against the CD on September 19, 2018. The AA vide order dated September 16, 2020, rejected the application holding that the claim of the FC is barred by time. The AA’s order was challenged before the NCLAT, which dismissed the appeal. The SC by its order dated April 18, 2022 set aside both the orders directing AA to adjudicate afresh. FC contended that CIRP is being used for the welfare and benefit of the CD and only because the CD deposited ` 6 crores in OTS of one of the creditors is not sufficient to hold that the company started reviving back.
The AA noted that the CD had paid a debt of `Rs.2 crore to ICICI Bank and has also deposited a sum of Rs. 6 crore in the loan account of creditor towards the part payment of the settlement. The AA further observed that there are thousands of employees and workmen working with the CD and the CD has generated revenue of 175 crore in the last year. Placing reliance on the SC judgement in the Vidarbha Industries case and taking into consideration the submissions made by the CD that its management is trying hard to take the company out of the debt trap, the AA has kept the proceeding in abeyance for six months. The AA further observed that if the CD fails to settle the debts, it will pass further orders and directed it not to sale the mortgaged assets without consent of the FC.
IBBI Orders related to IBC, 2016 – July- September, 2022
During the quarter, the Disciplinary Committee/Authorised Officer of the IBBI disposed of 25 show cause notices issued to the IPs/RVOs for contravention of the provisions of law by passing suitable orders.
