Supreme Court

Kridhan Infrastructure Pvt. Ltd. Vs. Venkatesan Sankaranarayan & Ors. [CA No. 3299/2020]

As resolution plan was not implemented, the Adjudicating Authority (AA) ordered liquidation of the CD. On appeal, the NCLAT allowed the RA to make certain deposits within certain time. On failure to deposit the amounts, the NCLAT upheld the order of liquidation. While staying the order of the NCLAT on appeal, the Supreme Court (SC) observed: “Liquidation of the Corporate Debtor should be a matter of last resort. The IBC recognizes a wider public interest in resolving corporate insolvencies and its object is not the mere recovery of monies due and outstanding.” It allowed the RA further time to implement the resolution plan.

IBBI Vs. Lalit Kumar Jain & Ors. [TP (Civil) No. 1034/2020 with other TPs]

Government, in exercise of its power under section 1(3) of the Code, vide notification dated November 15, 2019, brought into force certain provisions relating to the personal guarantors (PGs) to CDs with effect from December 1, 2019. Several petitions were filed in different High Courts (HCs) challenging the said notification and related Rules and Regulations. IBBI requested for transfer of the petitions from HCs to the SC. While directing transfer of petitions, the SC noted that the Code is at a nascent stage and it is better that the interpretation of the provisions is taken up by it to avoid any confusion and to authoritatively settle the law. It directed that no further petitions involving the challenge to the said notification shall be entertained by any High Court.

Gammon India Ltd. Vs. Neelkanth Mansions and Infrastructure Pvt. Ltd. [CA No. D No. 13202/2019]

Section 62 of the Code provides a period of 45 days from the date of the receipt of an order of the NCLAT for filing an appeal. It empowers the SC to condone a delay of a further period up to 15 days for sufficient cause. Since the delay of 51 days is beyond the period of delay which can be condoned, the SC dismissed the appeal on the ground that it is barred by limitation.

M M Ramachandran Vs. South Indian Bank Ltd. & Ors. [CA No. 2951/2020]

The account of CD was declared NPA on December 31, 2015. An application for initiation of CIRP under section 7 was filed on April 10, 2019, much beyond the period of three years. The application was admitted on November 19, 2019. On appeal, the NCLAT held that the appellant had acknowledged the dues by an e-mail dated May 2, 2016 and letter dated May 30, 2016 and accordingly upheld the admission of CIRP. On further appeal, the SC did not find any merit.

Action Ispat and Power Pvt. Ltd. Vs. Shyam Metalics and Energy Ltd. [CA No. 4041/2020 arising out of SLP(C) N0.26415/2019]

The Division Bench upheld a Single Judge’s order transferring a winding up proceeding pending before the HC to the AA. On appeal, the SC observed that where the petition has not been served in terms of rule 26 of the Companies (Court) Rules, 1959, winding up proceeding is compulsorily transferable to the AA for resolution under the Code. Even post issue of notice but prior to admission, the same result would ensue. It is only where actual sale of the immovable or movable properties have taken place or the winding up proceedings have reached an irreversible stage, the HC must proceed with the winding up, instead of transferring the proceedings to the AA. Further, whether this stage is reached or not would depend upon the facts and circumstances of each case.

M/s. Kaledonia Jute and Fibres Pvt. Ltd. Vs. M/s. Axis Nirman and Industries Ltd. and Ors. [CA No. 3735/2020]

On a petition by second respondent (R2), the Company Court passed an order directing the winding up of the first respondent (R1) on the ground that it has been unable to pay its debts and that it was just and equitable to wind it up. Thereafter, the R1 filed an application for recalling the order of winding up. It paid the entire amount due to R2, who did not raise objection to the recall of the order. However, the official liquidator, who had already taken over the assets of R1, opposed the recall on the ground that the R1 owed money to various creditors and that unless the said amount was paid, the order of winding up could not be recalled.

Meanwhile, the appellant moved a section 7 application before the AA. It also moved an application before the Company Court seeking a transfer of the winding-up petition to the AA, which was rejected. On appeal, the SC allowed transfer of the winding-up proceedings before the Company Court to the AA to be heard along with its application under section 7. It observed that the entire object of the Code would be thrown to the winds if the Company Court proceeds with the winding up while the AA entertains section 7 application.”

High Courts

Kiran Gupta Vs. State Bank of India & Anr. [WP(C) 7230/2020]

The HC considered whether a bank can institute or continue with proceedings against a guarantor under the SARFAESI Act when proceedings under the Code has been initiated against the principal borrower. Noting that neither section 14 nor section 31 of the Code place any fetters on a bank from initiation and continuation of proceedings against the guarantor, it held that the liability of the principal borrower and guarantor remain co-extensive, and a bank is entitled to initiate proceedings against the personal guarantor under the SARFAESI Act during the continuation of the CIRP against the principal borrower.

CA V. Venkata Sivakumar Vs. IBBI & Ors. [WP No. 13229/2020]

Regulation 7A of the IP Regulations requires an IP to obtain an authorization for assignment (AFA) for taking up assignments under the Code with effect from January 1, 2020. Regulation 12A of the Model Bye-Laws Regulations empowers an IPA to issue or renew an AFA. An IP is eligible for an AFA if he has not attained the age of 70 years. An IP, if denied an AFA, can appeal within seven days of such denial. The constitutional validity of these regulations was challenged.

The HC, while dismissing the petition, observed that delegation of power is not in derogation of the principles laid down by earlier jurisprudence. It further observed that the existence of more than one authority with regulatory or disciplinary control over a professional is per se not a ground to hold that the impugned regulations are unconstitutional. It also observed that the criteria mentioned under regulation 12A are clearly not unreasonable or arbitrary but appear to be germane for deciding the eligibility of an IP for such AFA, as these measures are intended to regulate the profession and not to deprive a person of the right to practice the profession. However, it held the view that the time limit specified in regulation 12A(7) of the Model Bye-Laws Regulations may be revisited by the IBBI by considering an appropriate amendment either by providing for a larger time limit or by conferring power to condone delay for sufficient cause.

M/s Venus Recruiters Private Limited Vs. Union of India & Ors. [WP(C) 8705/2019]

The HC considered whether an application filed under section 43 of the Code for avoidance of preferential transactions survives beyond the conclusion of the CIRP and the jurisdiction of the NCLT and the role of the RP in relation to such an application, after the conclusion of the CIRP. It, inter 0li0, held as under:

(i) Avoidance applications cannot survive beyond the conclusion of the CIRP. It is meant to give benefit to the creditors of the CD and not to the CD in its new avatar, after the approval of the resolution plan.

(ii) The NCLT has the jurisdiction to deal with all applications and petitions ‘in relation to insolvency resolution and liquidation for corporate persons’. After the approval of the resolution plan and the new management has taken over the CD, no proceedings remain pending before the NCLT, except issues relating to the resolution plan itself, as permitted under section 60. It has no jurisdiction to entertain and decide avoidance applications, in respect of a CD which is now under a new management unless provision is made in the final resolution plan.

(iii) The RP cannot continue to act on behalf of the CD under the title of `Former RP’, once the plan is approved and the new management takes over. His continuation beyond the closure of the CIRP would in effect mean an interference in the conduct and management of the company.

(iv) The successful resolution applicant (SRA) cannot file an avoidance application, as it is neither for the benefit of the RA nor for the CD after the resolution is complete.

(v) Section 26 of the Code cannot be read in a manner to mean that an application for avoidance of transactions under section 25(2)(j) can survive after the CIRP. Once the CIRP process itself comes to an end, an application for avoidance of transactions cannot be adjudicated. If the CoC or the RP are of the view that there are any transactions which are objectionable in nature, the order in respect thereof would have to be passed prior to the approval of the resolution plan.

(vi) The above findings are only in the context of CIRP and would, however, not apply in case of liquidation proceedings, which has not been examined in this matter.

Gouri Shankar Chatterjee Vs. State Bank of India [CO 1257/2020]

By impugned order dated August 19, 2019, the AA admitted an application under section 7 of the Code. The HC set aside order of admission on the ground that the latter had no jurisdiction to admit an application under section 7, beyond the prescribed period of three years, as mentioned in Article 137 of the Limitation Act.

MRG Estates LLP Vs. Akash Shinghal, Liquidator, Amira Pure Foods Private Limited & Ors. [WP(C) 10023/2020]

The petitioner sought a direction to the Liquidator to hold e-auction for sale of assets of the CD by adopting the swiss challenge method. It also submitted that it is time for the IBBI to reconsider the Regulations in accord with the prevailing practices. The HC directed IBBI to consider the petition as a representation on the issue of adoption of swiss challenge method as a form of an auction under the Regulations.

Chennai Metro Rail Ltd. Vs. Lanco Infratech Ltd. (Represented by the Liquidator) & Ors. [Application No. 2826/2019]

A dispute between the applicant and the first respondent (R1) was under arbitration. In the meantime, CIRP and subsequently liquidation process was initiated against R1, which brought R1 under moratorium. The applicant contended that leave of the NCLT is required under Section 279 of the Companies Act, 2013 for continuance of arbitration proceeding. However, R1 took a stand that no leave is required under section 33(5) of the Code, which requires leave only for initiating new proceeding. The HC held: (i) Section 279 of the Companies Act, 2013 applies only in cases of winding up under the Companies Act, 2013 and not the Code; (ii) Section 279 of the Act deals with both pending suits and institution of new suits, while section 33(5) of the Code deals with new proceedings; and (iii)  Section 33(5) of the Code overrides section 279 of Act, by virtue of section 238 and by the principle ‘special law overrides general law’. It concluded that no leave is required to continue the arbitral proceedings.

National Company Law Appellate Tribunal

Ramesh Kymal Vs. M/s. Siemens Gamesa Renewable Power Private Limited [CA(AT)(Ins) No. 701/2020]

The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020, promulgated on June 5, 2020, barred filing of application for initiation of CIRP in respect of defaults arising after March 25, 2020. The AA declined to admit an application, in respect of a default arising after March 25, 2020, which was filed on May 11, 2020 when there was no bar. On appeal, it was contended that the bar applies to filing of applications, and not to application which were already filed before the Ordinance. While dismissing the appeal, the NCLAT held that the bar applies to defaults committed after March 25, 2020 and would not apply to defaults committed prior to March, 25, 2020 though such application was filed after March 25, 2020 but before June 5, 2020.

Madhusudan Tantia Vs. Amit Choraria & Anr. [CA(AT)(Ins) No. 557/2020]

The AA, by the impugned order dated May 20, 2020, admitted an application filed under section 9 in respect of default of ` 90 lakh. The appellant contended that in view of the notification dated March 24, 2020 enhancing the threshold for triggering insolvency proceeding from ` 1 lakh to ` 1 crore, the application should have been dismissed as the claim amount is less than ` 1 crore. The NCLAT held that the enhancement of threshold is prospective in nature and would not apply to the pending applications, filed prior to the issuance of the aforesaid notification, and dismissed the appeal.

Gujarat Urja Vikas Nigam Ltd. Vs. Yes Bank Limited & Anr. [CA(AT)(Ins) No. 601/2020]

Respondent 1 (R1) initiated proceedings and took possession of secured asset of the CD (Lanco Infratech Ltd.) under section 52 of the Code. The secured asset included a solar power plant, which was supplying power to the appellant, Gujarat Urja Vikas Nigam Ltd. in accordance with the Power Purchase Agreement (PPA) entered between the appellant and the CD. The appellant terminated the PPA. R1 submitted before the AA that the PPA was terminated without considering the fact that the secured asset is an independent, viable power generating asset and termination of PPA will be an obstacle for the secured creditors in exercising their rights under the Code. The appellant submitted before the AA that the liquidator was only liquidating the assets of the CD and it cannot be forced to continue the contract for the benefit of R1. The AA set aside termination notice and allowed R1 to dispose of security assets. While upholding the order of the AA on appeal, NCLAT noted that asset needs to be preserved during the process of resolution and liquidation so that the liabilities of creditors and other stakeholders are taken care of. The steady and assured revenue stream resulting from the existence of the PPA is the sine’ qua non for long-term economic and financial viability of the solar power project. The NCLAT upheld the order of the AA.

Volkswagen Finance Private Limited Vs. Shree Balaji Printopack Pvt. Ltd. & Anr. [CA(AT)(Ins) No. 02/2020]

The AA held the appellant to be an unsecured creditor in the absence of a charge. The appellant contended that hypothecation is a mode of creation of security and the AA failed to consider the same. The NCLAT noted that under section 52(3)(A), the Liquidator shall verify security interest, the existence of which may be proved either by the records of such security interest maintained by an IU or by such other means as may be specified. Regulation 21 of the Liquidation Process Regulations allows a creditor to prove security interest based on (a) the records available in an IU, if any, (b) certificate or registration of charge issued by the Registrar of Companies; or (c) proof of registration of charge with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI). The appellant does not have any of these three proofs. Accordingly, it held that the AA has correctly applied the law.

Mr. Bhaskar Vs. M/s. Sai Precious Traexim Pvt. Ltd. & Anr. (CA(AT)(Ins) No. 531/2020]

The AA, by the impugned order, admitted an application filed under section 7, without issuing any notice to the CD, though an advance copy of the application was served. The NCLAT observed that serving of advance copy of the application to the CD cannot be construed or deemed to be service of notice in the eyes of law and, therefore, the impugned order is unsustainable in the eyes of law. It set aside the impugned order, released the C D from the rigour of CIRP, and directed the AA to determine the fee and cost of CIRP, which shall be borne by the applicant.

Panna Pragati Infrastructure Pvt. Ltd. & Anr. Vs. Amit Pareek & Ors. (CA(AT)(Ins) No. 515/2020]

The AA, by impugned orders, approved one resolution plan and rejected an application seeking direction to RP to consider the revised resolution plan submitted by the appellant. On appeal, the appellant contended that the RP acted in violation of sections 25(2)(I) and 30(3) of the Code by not placing the revised resolution plan before the CoC especially when the CIRP period had not expired and the revised Resolution Plan provided higher upfront payment than the approved resolution plan. The NCLAT observed that it is a case of material irregularity in conducting the CIRP by the RP, who acted against the mandate of provisions contained in sections 25(2) and 30(3) of the Code, by not placing the revised resolution plan of the appellants before the CoC for consideration, which is contrary to the objective of maximisation of value of assets of CD. It directed to resume the CIRP from the stage of consideration of the resolution plans, while excluding the period of judicial intervention from computing the extended timelines of 270 days.

Micro Dynamics Vs. Cosmos Cooperative Bank Ltd. & Anr. (CA(AT)(Ins) No. 875/2020]

The NCLAT, while setting aside the order of admission passed by the AA, had directed the AA to close the proceedings. The AA, while closing the proceedings in the main petition, also closed the pending applications related to the complaint of perjury made by a Director of the CD. The appellant aggrieved by the same, preferred an appeal. The NCLAT observed that once the main application under section 7, which was the basic edifice for order of admission, was dismissed and proceedings emanating therefrom and consequential thereto were closed, the incidental and ancillary applications did not survive for further consideration. Inquiry in initiation of CIRP alleged to be fraudulent or with malicious intent would be preposterous when the closure of such proceedings is a consequence of allowing of appeal.

In the matter of Sudip Bhattacharya, RP of Reliance Naval and Engineering Ltd. (CA(AT)(Ins) No. 858/2020]

The AA granted extension of 90 days to complete the CIRP beyond 180 days but declined to exclude the lockdown period on the ground that 90 days period of extension was still in hand. On appeal, the NCLAT, having considered nationwide lockdown in the wake of COVID-19 from March 23, 2020 to May 29, 2020 and extension of lockdown in Maharashtra till August 31, 2020, directed that the period of lockdown from March 25, 2020 till August 31, 2020 shall be excluded while computing the period of CIRP.

State Bank of India Vs. Athena Energy Ventures Private Limited (CA(AT)(Ins) No. 633/2020]

The AA declined to admit an application against the corporate guarantor, as it was on the same set of facts on which CIRP of the CD was in progress. While allowing the appeal, the NCLAT observed that in the matter of guarantee, CIRP can be proceeded against the principal borrower as well as guarantor. It further observed that the law laid down by the HCs for respective jurisdiction and the SC for the whole country are binding.

Narinder Bhushan Aggarwal Vs. Little Bee International Pvt. Ltd. & Anr. (CA(AT)(Ins) No. 980/2020]

The Liquidator filed an appeal against the order of the AA wherein his remuneration was directed to be paid as per regulation 4 (2) and (3) of the Liquidation Process Regulations, instead of regulation 39D of the CIRP Regulations. The NCLAT observed that the fact that CoC has taken a decision regarding the liquidation costs, expenses, and the remuneration payable to the liquidator with the requisite percentage, brings it within the ambit of regulation 39D of the CIRP Regulations. It is not permissible to resort to any other provision if action of CoC falls within the purview of regulation 39D.

Shri Amit Katyal Vs. Mrs. Meera Ahuja & Ors. (CA(AT)(Ins) No. 1380/2019]

The AA admitted section 7 application made by an allotee. The admission was contested on several grounds on appeal. Dismissing the appeal, the NCLAT observed as under:

(i) The date of default cannot be the date when the allottee stopped paying the instalments. The default occurred when the CD failed to deliver possession of flat.

(ii) In case an allottee does not want to go ahead with its obligation to take possession of the flat, but wants to get back the monies already paid, by way of coercive measure, the use of section 65 is justified, as one allottee is misusing his position to stall the entire project. But it does not mean that an application satisfying the requirements of section 7 or 9 could be dismissed arbitrarily under the guise of section 65.

(iii) The Code provides stringent action under section 65 against the person who initiates proceeding fraudulently or with malicious intent, for the purpose other than the resolution of insolvency or liquidation.

UCO Bank Vs. G. Ramachandran (CA(AT)(Ins) No. 761/2020]

The appellant bank adjusted an amount of ` 2.27 crore from two fixed deposits made by the CD towards security for loan taken by two group of companies from the appellant. The AA directed the appellant to restore the credit to the CD. The bank submitted that as a secured creditor it could appropriate the FDs and that it was not aware of commencement of CIRP. The NCLAT observed that once CIRP was initiated and moratorium applied, such an adjustment by the appellant cannot be maintained. Lack of knowledge of initiation of CIRP is not irrelevant.

Seroco Lighting Industries Pvt. Ltd. Vs. Ravi Kapoor, RP for Arya Filaments Pvt. Ltd. & Ors. (CA(AT)(Ins) No. 1054/2020]

The AA turned down the prayer of the appellant for revision of the approved resolution plan. Dismissing the appeal, the NCLAT observed that the SRA cannot be permitted to withdraw the approved resolution plan, coupled with the fact in the instant case being the sole RA in the CIRP, which is an MSME and having knowledge of the financial health of the CD as a promoter or as a connected person cannot be permitted to seek revision of the approved plan, on the ground which would not be a material irregularity within the ambit of section 61(3) of the Code.

Newogrowth Credit Pvt. Ltd. Vs. Resolution Professional, Bhaskar Marine Services Pvt. Ltd. & Ors. [CA(AT)(Ins) No. 1053/2020]

The AA ordered the appellant to bear CIRP cost to the extent of 27% as per its share. The appellant assailed the order on the ground that it had withdrawn its claim and the RP had permitted it. The RP submitted that his decision allowing withdrawal has been set aside by the AA. The NCLAT observed that the direction requiring the appellant to bear 27% of the CIRP cost is in consonance with and proportionate to the share of the appellant and is arbitrary and unreasonable.

Lifestyle Magazines Pvt. Ltd. & Anr. [CA(AT)(Ins) No. 842­843/2020]

The AA declined to dispense with the meeting of the shareholders/ members of the transferor and the transferee companies seeking amalgamation. The NCLAT observed that since there are no secured or unsecured creditors in the appellant companies, the question of convening their meeting would not arise. All the shareholders of the transferor company and the transferee company had consented to and approved the scheme. It noted that convening meeting of the shareholders would only result in subjecting the appellants to heavy financial burden, which in the face of financial difficulties already faced by transferor company, will compound difficulty and hardship faced by it for its survival. It allowed appeal and remanded the matter back to the AA for considering the scheme without insisting upon convening of the meeting of the shareholders of the companies.

Edelweiss Asset Reconstruction Company Ltd. Vs. Mr. Vijay Kumar V. Iyer, Liquidator of Bharati Defence and Infrastructure Ltd. [CA(AT)(Ins) No. 1044/2020]

The AA reserved orders in the matter of the CD, and even after five months thereof, the order was not pronounced. The NCLAT, in view of the depreciating value of the liquidation estate of the CD, directed the AA to accord topmost priority to the matter and dispose of the same within one week.

Marappar Textiles Pvt. Ltd. Vs. Indian Overseas Bank [CA(AT)(Ins) No. 1030-1031/2020]

The application under section 10 was reserved for orders on September 2, 2020 by the AA. On November 11, 2020, when the order came to be passed, the AA adjourned the matter and directed it to be listed on December 17, 2020 for further clarification. The NCLAT observed that the procedure adopted by the AA does not conform to the provisions of the Code as the applications under sections 7, 9 and 10 are required to be disposed of by admitting or rejecting the same within 14 days of filing. It directed the AA to prepone and list the matter immediately and after according consideration on merit, dispose of the same by passing order of admission or otherwise as warranted under law. This is to be done within one week from the date of the order.

Maharashtra Seamless Ltd. Vs. State Bank of India & Ors. [CA(AT)(Ins) No. 1039/2020]

The NCLAT observed that the CIRP must be carried on in accordance with the Code which prescribes timelines. Although withdrawal of the applications based on the consideration by the CoC and settlement are part of the same process, whatever emerges should materialise within the prescribed timelines. In view of the same, it directed the AA to ensure that the CIRP is carried forward having regard to the prescribed timelines.

Anubhav Anilkumar Agarwal Vs. Bank of India & Anr. [RA(AT) No. 15/2020 in CA(AT)(Ins) No. 1504/2019]

The NCLAT considered an application filed for review of one paragraph in its judgement. It noted that power of review has not been conferred on it and the power under Rule 11 can only be exercised for correction of a mistake. It observed that acceding to the prayer of applicant would result in substituting the observations and findings recorded in the said para is beyond the ambit and scope of Rule 11 and would amount to substituting of finding by reappraisal of evidence, a power only exercisable by a competent court while sitting in appeal.

Anil N. Surwade & Ors. Vs. Prashant Jain, RP, Sejal Glass Ltd. [CA(AT)(Ins) No. 1006/2020]

The employees of the CD sought access to the proceedings before the CoC, which the AA declined on the ground that they have a limited interest. The NCLAT observed that it is absurd to put the employees at par with the erstwhile board of directors seeking information regarding resolution plan and proceedings before the CoC. It held that once their claims have been admitted, no role is ascribed to them in the deliberation of the CoC.

State Bank of India Vs. Krishidhan Seeds Pvt. Ltd. [CA(AT)(Ins) No. 972/2020]

The AA, by an order, declined to admit a section 7 application filed on September 19, 2018 on the ground of limitation as default occurred on June 10, 2014. The appellant assailed the impugned order stating that the limitation would run from November 6, 2015 when the debtor acknowledged the debt in a OTS proposal. While dismissing the appeal, the NCLAT observed that the date of default would not be shifted on account of acknowledgement made in the OTS proposal, particularly when, the appellant had already approached the DRT prior to the date of the OTS proposal.

A. Balakrishnan Vs. Kotak Mahindra Bank Limited & Anr. [CA(AT)(Ins) No. 1406/2019]

The NCLAT relying on the case of Digamber Bhondwe Vs. JM Financial Asset Reconstruction observed that date of limitation under section 7 of the Code, would run from the date of declaration of the NPA and not from the date of recovery certificate, issued consequently. It further observed that the AA is duty bound under section 3 of the Limitation Act, 1963 to suo moto consider whether the application under section 7 of the Code was within limitation by considering if the debt said to be in default was within limitation.

Promila Taneja Vs. Surendri Design Pvt. Ltd. [CA(AT)(Ins) No. 459/2020]

While dismissing an application under section 9 relying on Mr. M. Ravindrnath Reddy Vs. Mr. G. Kishan and Ors., the AA held that arrears of rent are not operational debt. The NCLAT observed that the legislature was conscious about liabilities arising from a particular type of lease, and it made specific provision to make it financial debt. It did not make such provision for operational debt.

Hindustan Oil Exploration Company Vs. Erstwhile CoC JEKPL Pvt. Ltd. & Ors. (CA(AT)(Ins) No. 969/2020]

The NCLAT observed that an unsuccessful RA has no locus to question any action of any of the stakeholders qua implementation of the resolution plan nor can it claim any prejudice on the pretext that any of the actions of SRA regarding its implementation has affected its prospects of being a SRA.

Facor Alloys Limited and Anr. Vs. Bhuvan Madan & Ors. (CA(AT)(Ins) No. 340/2020]

The appellant assailed the impugned order on the ground that resolution plan encompasses assets of third parties and not just of the CD which is violative of the Code and discriminates among FCs of the same class. The NCLAT, while upholding the resolution plan, observed as under:

(i) The RA after taking over the CD is entitled to exercise its right over its subsidiary company. Appellant’s objection regarding the inclusion of the subsidiary company of the CD in the resolution plan is not sustainable.

(ii) An approved resolution plan can deal with the related party claim and extinguish the same which will ensure that the SRA can take over the CD on clean slate.

(iii) The amendment to regulation 38(1) of CIRP Regulations which mandated priority in payment to dissenting FCs, which came into effect on November 27, 2019, is prospective.

(iii) The approved resolution plan is not discriminatory as it does not give differential treatment among the same class of FCs merely based on assenting or dissenting Fcs.

Vijay Kumar Singh Vs. Anil Kumar & Ors. (CA(AT)(Ins) No. 391/2020]

The RP filed an application for initiation of liquidation proceedings based on the decision of the CoC. Before the application was disposed of, the creditors in a joint lender’s forum decided to replace the RP. The AA, however, passed the order of liquidation and appointed the same RP as the liquidator. On appeal, the NCLAT observed that the AA should have considered appointing any other IP as liquidator when it was evident that the CIRP had not been conducted in a way desired. The AA should have first replaced RP and then passed liquidation order. It further observed that interest of FCs as well as other creditors is there even during liquidation proceeding and it would be inappropriate if there would be doubts regarding the way the liquidator is conducting the process.

Ratna Singh and Anr. Vs. Theme Export Pvt. Ltd. & Anr. (CA(AT)(Ins) No. 917/2020]

On an appeal against the order of liquidation, the NCLAT observed that an appeal against a liquidation order passed under section 33 may be filed on the grounds of material irregularity or fraud committed in relation to liquidation order and there is no material irregularity or fraud committed in relation to impugned order. It held that the Code is not for initiating proceedings for prevention of oppression and mismanagement but is armed with provisions for initiation of actions against wrong doers/illegal transactions, etc.

Singh Raj Singh Vs. SRS Meditech Ltd. & Ors. (CA(AT)(Ins) No. 522/2020]

The appellant, a member of the suspended board of directors of the CD challenged the impugned order approving resolution plan on the ground that certificate regarding the net worth of the SRA was fraudulent. The NCLAT observed that the law does not enjoin upon the appellant any right or power to challenge the commercial wisdom of the CoC in regard to approval of the resolution plan which is undergoing implementation. No material irregularity in resolution process has been brought up, which would render the whole exercise unsustainable. The appellant cannot be permitted to scuttle the process at this stage sans substantial grounds.

IIFCL Mutual Fund Vs. Committee of Creditors of GVR Infra & Ors. (CA(AT)(Ins) No. 938/2020]

The appellant, who voted in favour of the approval of the resolution plan filed an appeal assailing the approval of the resolution plan as regards distribution mechanism. While dismissing the appeal, the NCLAT observed that it is astonishing that while approving the resolution plan as an assenting creditor, the appellant should call in question the action of RP, who had no role to play when the resolution plan was put to vote by the CoC.

Naveen Kumar Jain Vs. Committee of Creditors of K.D.K Enterprises Pvt. Ltd. & Ors. (CA(AT)(Ins) No. 882/2020]

The RP appealed against his replacement in a CIRP. While dismissing the appeal the NCLAT observed that commercial wisdom of the CoC covers matters including replacement of the RP and it is neither under the limited scope of judicial review nor it is justiciable.

Anuj Khanna Vs. Wishwa Naveen Traders & Anr. (CA(AT)(Ins) No. 555/2020]

The NCLAT, while adjudicating on the ‘existence of a dispute’, observed that section 5(6) is an inclusive provision and does not confine the AA from considering the existence of a dispute from a broader angle. Therefore, dispute in terms of section 8(2)(a) of the Code shall not be limited to instances specified in the definition under section 5(6), as it has far arms, apart from pending suit or arbitration. It held that questions like dishonor of cheques and payments are disputed questions of law and facts and shall be decided by the appropriate forum as the AA cannot substitute the recovery forum.

Rajendra Bhai Panchal Vs. M/s. Jay Manak Steels & Ors. (CA(AT)(Ins) No. 592/2020]

Impugned order was appealed on the ground of mistake in demand notice. While dismissing the appeal, the NCLAT observed that a mistake in a demand notice does not necessarily mean it is defective, and if a CD wants to question the validity of the demand it must show that a prejudice was suffered as a result of defect. It further observed that if there is a mistake in the demand, but the creditor is clearly owed the statutory minimum figure or more, the fact that the amount of debt is misstated may not automatically invalidate the demand. It upheld the impugned order.

Mohan Lal Jain, in the capacity of Liquidator of Kaliber Associates Pvt. Ltd. Vs. Lalit Modi & Ors. (CA(AT)(Ins) No. 944/2020]

The Liquidator invoked the provisions of sections 43/66 for taking action in regard to preferential transactions and fraudulent trading/ wrongful trading. The AA, having regard to different versions in regard to such transactions emanating from parties, observed that it would be beyond the scope of its powers to look into the transactions. On appeal, the NCLAT clarified that the allegations of preferential transaction as also fraudulent trading/wrongful trading carried on by the CD during the insolvency resolution can be inquired into by the AA.

Rajnish Jain Vs. Manoj Kumar Singh, IRP & Ors. (CA(AT)(Ins) No. 519/2020]

Respondent 3 (R3) submitted claim as FC. On admission of the claim, it was included in the CoC. The appellant sought a declaration that the R3 was not an FC. While this was under consideration of the AA, the CoC resolved that R3 is an FC. The AA held the view that the CoC had voted in favour of R3 as an FC and thus suspended management as well as the RP has no locus to challenge the commercial wisdom and decision of CoC about determination of the R3 as FC. Accordingly, it declared R3 as FC. Subsequently, CoC passed a resolution declaring R3 as an OC. It also passed another resolution to eliminate the R3 from the CoC. The appellant challenged the order of the AA. The NCLAT held as under:

(i) The order of the AA is not correct which is based on the reasoning that the CoC has voted in favour of R3 as an FC.

(ii) The CoC has no role in deciding or changing the status of a creditor either as FC or OC and such decision of CoC can never be treated as an exercise under its commercial wisdom.

(iii) The RP is authorized to collate claim. He may add to existing claims or admit or reject further claims and update the list of creditors. But after categorization of a claim, he cannot change the status of a creditor.

(iv) R3 is a FC.

While dismissing the appeal, the NCLAT made following observations:

(i) The RP has failed to perform his obligation/duty to observe the Code, and the Rules and Regulations while conducting CIRP by taking up an agenda leading to illegal resolution of ousting R3 from the CoC.

(ii) It is surprising that the CoC recorded: “despite the Order passed by Hon’ble NCLT Allahabad the CoC is of the view that they no longer wish to continue R3 in the category of the “Financial Creditor” in the CoC. This is the danger due to which collation of claims is not left to CoC.

Bishal Jaiswal Vs. Asset Reconstruction Company (India) Ltd. & Anr. (CA(AT)(Ins) No. 385/2020]

With a 4:1 majority, a five-member bench of NCLAT had, in the matter of V. Padmakumar Vs. Stressed Assets Stabilization Fund and Anr., held that reflection of debt in the balance sheet could not be considered as an acknowledgement of debt under section 18 of the Limitation Act, 1963. A three-member bench of the NCLAT referred the said five-member judgement of the NCLAT for reconsideration, as it involved an issue of great importance.

The new five-member bench of the NCLAT noted that in Babulal Vardharji Gurjar Vs. Veer Gurjar Aluminum Industries Ltd. & Anr., the SC observed that section 18 of the Limitation Act would have no application to proceedings under the Code. Therefore, acknowledgement of liability in the balance sheet is irrelevant. The five-member bench also noted that there is no room for doubt that the date of default regarding application under section 7 is the date of classification of the account of CD as NPA. The date of default is extendable within the ambit of section 18 of Limitation Act based on an acknowledgement in writing made by the CD before the expiry of period of limitation.

National Company Law Tribunal

IDBI Bank Limited. Vs. Cyclo Transmissions Limited (IA No. 1053 of 2020 in CP(IB) No. 381/2018]

An RA filed an application seeking extension of time of 45 days beyond 330 days. Relying on Committee of Creditors of Essar Steel case, the AA observed that the time period can very well be extended beyond 330 days. It further observed that it will be in the best interest of the CD as well as the stakeholders if the resolution plan is considered, liquidation being the last resort. It allowed the application, considering the benefit of more than 150 employees of the CD.

Dy. Commissioner of Customs Vs. Jyoti Structures Limited & Ors. (IA 1218/MB/2020 in CP(IB) 1137/MB/2017]

The applicant filed an application seeking condonation of delay by 1111 days to submit the proof of claim and admit the claims, as the RP refused to admit claims on the ground that the CIRP period of 270 days was over and the resolution plan was also approved by the AA. It contended that the RP is duty bound to identify the liabilities of the CD and should have sent the notice to the applicant enabling it to file a claim. Disagreeing with the contention of the applicant, the AA observed that it is the responsibility of the creditor concerned to file claim within the time after the issue of public notice inviting claims by the RP. Accordingly, the AA rejected the application.

Autonix Lighting Industries Private Limited. Vs. Moser Baer Electronics Limited. (IA No. 412/2020 in CP No. (IB)-1265(ND)/ 2019]

An application was filed seeking directions necessary directions to the RP to deposit the provident fund with EPFO and release gratuity forthwith. It was submitted that the employees were forced to resign by the ex-management, but their dues were not settled citing financial instability. Relying on Alchemist Asset Reconstruction Co. Ltd. Vs. Moser Baer Limited case, the AA held that any shortfall in gratuity has to be made over by the RP and payments of the dues has to be paid outside the waterfall mechanism. It directed the RP to release the dues of the ex-employees and deposit the provident fund with EPFO and release gratuity forthwith.

Mr. Mandar Wagh, IRP of M/s. Synew Steel Private Limited (CP (IB) No. 96/BB/2020]

The RP submitted that all FCs are related parties and hence he is not able to constitute CoC. There are no assets except cash balance of ` 729 and hence RP is unable to carry out CIRP. There is no business in the past three years and hence there is no revenue. The entire capital is eroded. Considering the facts and legal provisions in sections 33(2), 54 and regulation 14 of the Liquidation Regulations and Rule 11 of the NCLT Rules, the AA observed that no purpose would be served to keep the CD under CIRP or place it under a liquidation process. It allowed dissolution of the CD.

Bank of Baroda Vs. M/s. Baghauli Sugar & Distillery Limited. (IA No. 116/2020 in CP(IB) No. 342/ALD/2018]

The CD, through suspended directors, submitted that after commencement of CIRP, the CD has offered settlement of the entire outstanding dues with FCs. The AA observed that the object of the Code is being fulfilled if the applicant settles and liquidates the outstanding dues which would save the company from death. To enable the applicant to have one final opportunity, the AA directed it to put forward a fresh proposal for settlement, to liquidate the entire outstanding dues, to the RP so that it may be placed before the CoC for consideration as the objective of the Code is to find appropriate solution for the stressed assets.

Bhavarlal M Jain & Anr. Vs. Metal Link Alloys Ltd. &Ors. (IA 361 of 2018 in CP(IB) 67 of 2017]

The AA passed an order of liquidation on May 11, 2018. The GST authority passed an order of assessment on June 18, 2018 and issued recovery notice on September 12, 2018. The NCLT considered whether the proceedings under GST laws is in contravention of the Code. It observed that the moratorium under section 14 of the Code comes to an end on passing of the order of liquidation. As per section 33(5) of the Code, the legal proceedings can be continued against the CD during liquidation.

Liquidator of Precision Fasteners Ltd. Vs. Siddhi Edible Pvt. Ltd. [MA No. 1512 and 47 of 2019 in CP (IB) No. 1339/NCLT/MB/2017]

The Liquidator filed an application seeking directions from the AA for vacation of the premises of the CD occupied by a tenant as well as for payment of rent due. The AA observed that the recovery of rent from the tenant and the eviction of tenant from the property of the CD is in exclusive domain of the civil courts and cannot be dealt by the AA by invoking section 60(5) and the jurisdiction lies with the Civil Court/Rent Control Court only. It also observed that on the guise that the Code is complete in itself, the AA can neither enlarge nor amplify its jurisdiction. While dismissing the application, it advised that the Liquidator can sell a property after taking possession of the same by the due process of law.

Alliance Broadband Service Private Limited Vs. Manthan Broadband Service Private Limited [IA No. 853/KB/2020 in CP (IB) No. 1634/KB/2018]

The RP approached AA seeking a direction to Canara Bank to reverse the debit entries made by the bank from the account of the CD in violation of the provisions of moratorium. The AA observed that once the moratorium is declared, it is not open to any person, including FCs, to recover any amount from the account of the CD nor can it appropriate any amount towards its own dues. It held the actions of the bank to be in violation of section 14 of the Code and directed it to reverse the amount along with any interest accrued as per the nature of the deposit.

M/s. Pani Logistics Vs. Sona Alloys Private Limited & Ors. [IA 397/2020 in CP(IB)586/NCLT/AHM/2019]

The Liquidator filed an application seeking substantive consolidation of the CD and five of the respondents into a single proceeding. The AA observed that though four respondents hold substantial share in the CD, they do not constitute group companies and the Code does not provide for any consolidation of CIRP when companies are holding substantial shares in one another. Dismissing the application, the AA held that substantial consolidation as remedy should always be treated as an exception rather than the rule.

Credit Suisse Funds Ag Vs. Himadri Foods Limited [MA No.3601MB.II/2019 in CP (IB) No. 389/MB.II/2019]

An application filed by an FC was disposed of in terms of settlement arrived at between the parties, after taking the settlement terms on record. However, the FC has now filed an application seeking restoration of the earlier application. They allowed restoration in exercise of its powers under Rule 11 of the NCLT Rules.

Mr. Abhilash Lal, RP of Sevenhills Healthcare Private Limited [IA No. 137/2020 in CP(IB) No. 282/7/HDB/2018]

The applicant filed an application seeking an exclusion/extension of the CIRP period as the facilities of the CD are being used as a dedicated COVID Hospital by the governing authorities due to which the prospective RAs are unable to access the site for inspection for submitting their resolution plans. The AA observed that extension of time period enabling for completion of CIRP would be in the interest of all stakeholders, to allow the completion of CIRP rather than going to liquidation of the CD. It approved the extension of the period by 90 days.

Oriental Bank of Commerce Vs. Lotus Auto Engineering Ltd. & Ors. [IB-31(PB)/2018]

While considering an application for extension of time in liquidation, the AA noticed that as against value of ` 100 crore under resolution plans during CIRP, the Liquidator is setting reserve price of ` 40 crore for selling the CD as going concern. The AA observed that though it is in the realm of the CoC to approve or reject a plan and of the liquidator to determine the value of the assets, such huge variations in values call for enquiry. Considering the fact that the CoC failed to approve a resolution plan valued double the liquidation value and the Liquidator set very low reserve price, the AA directed IBBI to enquire into as to why valuation has become so low after liquidation is ordered and the Oriental Bank of Commerce to enquire as to whether its representatives acted to maximise the value of the CD. It directed the Liquidator not to proceed with the sale of the assets until this matter is decided.

Prithiviraj Spinning Mill Private Limited Vs. Indian Overseas Bank, Coimbatore & Ors. [IBA/120/2020]

The change of name of CD from M/s. Prithviraj Spinning Mills Private Limited to M/s Marappar Textiles Private Limited was approved in its general meeting on September 9, 2019. An application under section 10 was filed on January 1, 2020 for initiation of its CIRP. The MCA approved the change of name by issuing a fresh certificate of incorporation dated March 31, 2020. The Board of Directors decided to shift registered office in its meeting held on May 5, 2020. However, the change of name and address were not amended in the application filed with the AA.

The order on the application was reserved on September 02, 2020. As one of the members of the bench demitted office on October 21, 2020, the matter was listed before a special bench on November 11, 2020 for dereserving and was adjourned to December 17, 2020. The applicant approached the NCLAT, which, vide order dated December 3, 2020 in the matter of M/s. Marappan Vs. IOB & Anr., directed the AA to dispose of matter within one week. Accordingly, the matter was listed on December 9, 2020 and order was dictated in the court.

The AA wonders as to why there is a change of name of the CD when it is filing section 10 application. It observed that the change of name of the CD and its registered office pending disposal of the application has great direct and indirect impact. If the application is admitted, being a proceeding in rem, it is binding upon the public at large. The stakeholders, who are not party to the application, would not be able to file their claims since they may not be able to identify the CD in its new name. The AA suggested that section 10 be tightened to avoid misuse such that when a company chooses to file an application under the section 10 it should maintain status quo as on date of filing of the application. The AA dismissed the application as it cannot pass an order of CIRP against Prithiviraj Spinning Mill Private Limited which is not in existence as on date.

Debt Recovery Tribunal

Keb Hana Bank Vs. Mr. Rohit Nath [IBC SR. No. 2643/2020]

The RP appointed by the AA filed a report under section 99 recommending approval of application filed under section 95 of the Code by KEB Bank against personal guarantors (PGs) to the CD. The defendant contended that this AA does not have the jurisdiction to entertain the application in terms of section 60 as he is a resident of Palavakkam which falls within territorial jurisdiction of DRT-3 Chennai. He also objected that the RP had not complied with the procedure as envisaged in section 99(2) which mandates the RP to require debtor to prove repayment of the debt claimed as unpaid by the creditor. The AA observed that since the proceedings are against the PG to the CD alone, section 60 has no application. As regards section 99(2), it observed that the word ‘may’ as in section 99(2) cannot be construed as a mandatory one and it only gives discretionary power to the RP and therefore non-compliance by the RP is unfounded. With these findings, the AA admitted the application.

The RP requested for providing a refundable advance of ` 4 lakh from the applicant to meet the insolvency resolution process expenses, refundable back to the applicant from realization of payments received on a priority payment as per the waterfall mechanism. The AA directed the applicant to provide a refundable advance of ` 4 lakh to the RP on proper receipt.

Securities Appellate Tribunal

Dewan Housing Finance Corporation Ltd. & Anr. Vs. Securities and Exchange Board of India [Appeal No. 206 of 2020]

This appeal was filed questioning the legality and validity of the order passed by the Adjudicating Officer (AO) under the SEBI Act, 1992 imposing a penalty of ` 20 lakh on the appellant, which was undergoing CIRP. The AO held that the moratorium declared under section 14 of the Code would not prevent him from determining the liability of the CD for the alleged non-compliance of the Regulations and that the moratorium declared is applicable to the enforcement/recovery of the determined liability. The Securities Appellate Tribunal (SAT), observed that section 14 is very clear and explicit, and there is no room for ambiguity. Further, the SC has categorically explained the effect of section 14 of the Code. Once moratorium is declared, SEBI/AO cannot proceed under the SEBI laws against a CD. Accordingly, the SAT quashed the impugned order.

Monnet Ispat & Energy Limited Vs. Securities and Exchange Board of India [Appeal No. 238 of 2020]

This appeal was filed against the order of the AO under the SEBI Act, 1992 imposing a penalty of ` 6 lakh on the appellant. It was contended that in view of the resolution plan approved by the AA, all financial liabilities, past or future, is deemed to have been extinguished and that no show cause notice or fresh proceedings against the appellant could be initiated nor any penalty could be imposed. The SAT observed that what could not be done by SEBI when the moratorium under section 14(1) was in force cannot certainly be done after a resolution plan is approved and becomes binding on all, including authorities. In view of the same, the appeal was allowed.

IBBI

The DC disposed of 30 SCNs during the quarter with a variety of the directions for various contravention of the provisions of the Code. Most of these related to taking assignment without having an AFA. The details of disposal of SCNs in respect of other contraventions are as under:

IBBI, as the Authority under the Companies (Registered Valuers & Valuation) Rules, 2017, disposed of a SCN issued to PVAI Valuer Professional Organisation that alleging enrollment of certain ineligible persons as members. Taking note of the corrective measures, it closed the SCN with an advice to take effective steps to improve the process of enrolling the members.

Special Courts

IBBI Vs. Rajive Kaul & Ors [Criminal Case /53/2020]

A complaint filed by IBBI sought prosecution of ex-directors of M/s NICCO Corporation Limited for contraventions of provisions of sections 19(1), and 34(3) read with section 70(1)(b) (non-co-operation and refusal to handover assets of the CD to the liquidator). The Special Court, vide order dated December 10, 2020 took congnizance of the matter and issued summons to the accused.

IBBI Vs. Om Prakash Khurana & Ors [COMA/35/2020]

A complaint filed by IBBI sought prosecution of ex-directors of M/s. Mahabir Techno Limited. On finding sufficient prima facie evidence on record that the accused have intentionally and willfully violated sections 68 (i) (a) (b) and (c) and 70 (i) (a) and (c) of the Code (non-disclosure of property, books, and papers of the CD and non-co-operation), the Special Court, vide its order dated December 24, 2020, summoned them to face prosecution.

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