Supreme Court
Ghanashyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited & Ors. [CA No. 8129/2019]
The Supreme Court (SC) held that the 2019 amendment to section 31 of the Code is clarificatory and declaratory in nature and is, therefore, effective from the date on which the Code came into effect. Even without the amendment, the Central Government, any State Government, or any local authority to whom a debt is owed, including the statutory dues, is covered by the term ‘creditor’ and in any case, by the term ‘other stakeholders’ as provided in section 3 I (1) and hence resolution plan is binding on them. The legislative intent of making the resolution plan binding on all the stakeholders is that after the approval of the resolution plan, no surprise claims should be flung on the successful resolution applicant. It should start with fresh slate based on the resolution plan approved. Once a resolution plan is duly approved by the AA under section 3 I (1), the claims as provided in the resolution plan shall stand frozen and will be binding on the CD and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors, and other stakeholders. On the date of approval of resolution plan by the AA, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan.
Asset Reconstruction Company (India) Ltd. Vs. Bishal Jaiswal & Anr. [CA No. 323/2021]
The SC observed that section 18 of the Limitation Act, 1963 extends the period of limitation where an acknowledgment of debt has been made in writing and signed by the CD in view of section 238A of the Code which uses the expression ‘as far as may be’ governing the applicability of the Limitation Act to the Code. It noted that there is a compulsion of law to prepare a balance sheet but no compulsion to make any admission of debt. It held that the acknowledgement of debt in the balance sheet extends the period of limitation under section 18 of the Limitation Act, 1963. However, it would depend on the facts of each case as to whether an entry made in a balance sheet qua any creditor is unequivocal or has been entered into with caveats, which would establish whether an acknowledgement of liability has, in fact, been made. Accordingly, the SC set aside the majority decision of the full bench of the NCLAT in V Padmakumar Vs. Stressed Assets Stabilisation Fund and held that the minority judgement has reached the correct conclusion.
Sandeep Khaitan, Resolution Professional Vs. JSVM Plywood Industries Ltd. &Anr. [Criminal Appeal No. 447/2021]
Based on an FIR by the RP to the effect that Z 32.5 lakh has been transferred, in violation of section 14 of the Code, by the former MD of the CD to the bank account of a related party (RI), the ICICI Bank created a lien upon said bank account. RI filed a petition under section 482 of CrPC challenging the FIR lodged by the appellant. The High Court (HC), by the impugned order, granted interim relief, lifting the lien on the bank account, subject to certain conditions. While allowing the appeal, the SC observed that the power under section 482 of CrPC may not be available to the Court to countenance the breach of a statuary provision. The words ‘to secure the ends of justice’ in section 482 of CrPC cannot mean to overlookthe undermining of a statutory dictate, which in this case is the provisions of sections 14 and 17 of the Code.
In Re Cognizance for Extension of Limitation [MA No. 665/2021 in SMW(C) No. 3/2020]
Taking suo mow cognizance of the situation arising out of the challenge faced on account of COVID- I 9, vide order dated March 23, 2020, the SC had extended the period of limitation prescribed under the general or special laws. On taking note of the country returning to normalcy, vide order dated March 8, 2021, it brought the extension of limitation to an end and excluded the period from March 15, 2020 till March 14, 2021 (pandemic period) from the limitation period.
Taking judicial notice of the extraordinary situation caused by the sudden and second outburst of COVID- I 9 virus, vide order dated April 27, 2021, in exercise of its powers under Article 142 read with Article 141 of the Constitution of India, the SC restored its earlier order dated March 23, 2020 and directed that the limitation prescribed under any general or special laws in respect of all judicial or quasi- judicial proceedings, whether condonable or not, shall stand excluded till further orders.
India Resurgence ARC Private Limited Vs. M/s. Amit Metaliks Limited & Anr. [CA No. 1700/2021]
A dissenting FC filed appeal on the ground that the resolution plan approved by the AA and the NCLAT failed the test of being feasible and
viable. It contended that after amendment of section 30(4) of the Code (with effect from August 16, 2019), the CoC was to ensure that the manner of distribution considers the priority and value of the security interest of a secured creditor; and the resolution applicant and the CoC having failed to consider the existing security interest in its favour, approval of the AA was not in accordance with law. The SC concurred with the observation of the NCLAT that amendment to section 30(4) only amplified the considerations for the CoC while exercising its commercial wisdom to take an informed decision regarding the viability and feasibility of resolution plan; and the business decision taken in exercise of the commercial wisdom of CoC does not call for interference unless creditors belonging to a class being similarly situated are denied fair and equitable treatment. It did not find denial of fair and equitable treatment or disregard of priority. It observed that once it is found that all the mandatory requirements have been duly complied with, the process of judicial review which remains limited within the four-corners of section 30(2) of the Code, cannot be stretched to carry out quantitative analysis qua a particular creditor or any stakeholder, who may carry his own dissatisfaction. In the scheme of Code, every dissatisfaction does not partake the character of a legal grievance.
While dismissing the appeal, the SC held that a dissenting secured FC like the appellant cannot suggest a higher amount to be paid to it with reference to the value of the security interest. It has not been the intent of the legislature that a security interest available to a dissenting FC over the assets of the CD gives him some right over and above other FCs to enforce the entire of the security interest and thereby bring about an inequitable scenario, by receiving excess amount, beyond the receivable liquidation value proposed for the same class of creditors. If the propositions suggested by the appellant were to be accepted, the result would be that rather than insolvency resolution and maximisation of the value of assets of the CD, the processes would lead to more liquidations, with every secured FC to stand on dissent. Such a result would be defeating the very purpose envisaged by the Code and cannot be countenanced.
Lalit Kumar Jain Vs. Union of India & Ors. [TC (Civil) No. 245/2020]
The SC held that the notification dated November 15, 2019, issued by the Central Government that brought into force the provisions relating to personal guarantors (PGs) to CDs, is legal and valid. There is no compulsion in the Code that it should, at the same time, be made applicable to all individuals or not at all. The Central Government has followed a stage-by-stage process of bringing into force the provisions of the Code, regard being had to the similarities or dissimilarities of the subject matter and those covered by the Code. The notification extended the provisions of the Code to PGs to CDs, as another category of persons. There was sufficient legislative guidance for the Central Government, before the 2018 Amendment was made effective, to distinguish and classify PGs separately from other individuals. Parliamentary intent is to treat PGs differently from other categories of individuals. The intimate connection between such individuals and corporate entities to whom they stood guarantee, as well as the possibility of two separate processes being carried on in different fora, with its attendant uncertain outcomes, led to carving out PGs as a separate species of individuals, for whom the AA was common with the CD to whom they had stood guarantee. The fact that the process of insolvency in Part III is to be applied to individuals, whereas the process in relation to CDs set out in Part II is to be applied to such corporate persons, does not lead to incongruity.
The SC further held that approval of a resolution plan relating to a CD does not operate as a discharge of the liabilities of its PG. Language of section 31 of the Code makes it clear that the approved plan is binding on the guarantor, to avoid any attempt to escape liability under the provisions of the Contract Act, 1872 and such approval does not ipso facto discharge a PG to CD of her/ his liabilities under the contract of guarantee. The release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process, i.e., by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract.
National Company Law Tribunal and Appellate Tribunal Bar Association Vs. Ministry of Corporate Affairs & Ors. [WPs (Civil) No(s). 510/2021]
The petitioners sought a direction to the MCA to fill up the vacancies of Chairman, NCLAT President of NCLT and Members of NCLT and to issue appointment letters to those who have already been selected. Vide its order dated May 24, 2021, the SC directed that the names recommended by the Selection Committee shall be finalized by the Government and appointments to the post of Members, NCLT shall be made forthwith. It also directed the Government to expedite the process for filling up the remaining posts without any further delay. It suggested that re-appointment of Members of NCLT who are about to retire should be considered at the earliest.
Vide its order dated May 31, 2021, the SC observed that since the Government has already initiated the process of reappointment by writing to the Hon’ble Chief Justice, it is expected that the reappointment process should be completed expeditiously, as there is no necessity of issuance of any advertisement for participation of other eligible candidates. Further, reappointment of members can be considered separately without waiting for the process of fresh appointments to commence. While directing the Government to complete the process at the earliest and not later than two months, it observed that the depleting strength of the members of the NCLT and NCLAT would be detrimental to the smooth functioning of the Tribunals.
High Courts
M/s. Ruchi Soya Industries Ltd. Vs. Union of India & Anr. [WP No. 31090/2015]
The petitioner had challenged the date of effect of a notification relating to rate of duty. It made an alternate submission that it has undergone CIRP during the pendency of the petition. Since the respondent did not participate in the said CIRP, all its rights stood extinguished. The Madras HC opined that a tax once determined in accordance with law is a sovereign debt. It can never be operational debt. Sovereign debt cannot be altered by any authority, whether by the Court or under a private arrangement. Corporate re-structuring under the Code cannot waive or extinguish sovereign debts. It, however, noted that the SC in Ghanashyam Mishra and Sons Vs. Edelweiss Asset Construction, has taken a different view and it is bound by the said view of the SC. It observed: “The entire tax administration of the country is now in a pell-mell. All the tax authorities will have to make a beeline before the NCLT every time to recover tax dues if under any circumstance, proceedings are initiated against corporate debtor under the Code. This was not the intention when the Act was enacted.”
Sirpur Paper Mills Limited Vs. I.K. Merchants Pvt. Ltd. [AP No. 550/2008]
The petitioner submitted that the proceeding under section 34 of the Arbitration and Conciliation Act, 1996 has become infructuous as the management of the petitioner company has been taken over by a new entity through CIRP. Relying on decisions of the SC in several matters, the Calcutta HC observed that pre-existing and undecided claims which have not featured in the collation of claims and consequent consideration by the RP shall be extinguished upon approval of the resolution plan under section 31 of the Code. It further observed that an OC who fails to lodge a claim in the CIRP literally missed boarding the claims-bus for chasing the fruits of an award even where a challenge to the award is pending in a Civil Court.
An authority constituted under section 5(1) of the Karnataka Protection of Interest of Depositors in Financial Establishment Act, 2004 initiated a proceeding under section 7 of the Act against the petitioner and attached all the properties of the petitioner since 2018. The petitioner sought a writ of certiorari to quash the said proceedings and direct the respondent to handover the properties to the RP of the CIRP which commenced on August 20, 2019. The Karnataka HC, relying on the decisions of the SC in several matters, held that the provisions of the Code have an overriding effect over other laws, in view of section 238 of the Code. Accordingly, it quashed the proceedings against the petitioner.
Union of India & Ors. Vs. M/s. Ruchi Soya Industries Ltd. [Writ Appeal No. 2575/2018]
The appellant was aggrieved by the judgment (of the Single Judge) that held that the reassessment of duty at 12.5% was illegal. The respondent sought dismissal of the appeal in view of interpretation of section 31 of the Code by the SC in the case of Ghanashyam Mishra. While dismissing the appeal, the Karnataka HC observed that if the resolution plan approved by the AA does not include a claim(s) of the Central/ State Government or local authority, the said claim stands extinguished. It noted that crown debts do not take precedence even over secured creditors, who are private persons. The provisions of the Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
Gouri Prasad Goenka Vs. State Bank of India [WPO No. 171/2021]
The petitioner challenged the show cause notices (SCNs) issued by SBI to him to show cause as to why he should not be declared as willful defaulter. He submitted that since no notice of willful default can be served on the CD in view of moratorium, no notice could be served on its suspended promoter/director. The Calcutta HC observed that the petition is premature as no right has been infringed by issuance of a SCN. It noted that section 14(3)(b) of the Code clearly carves out an exception for a surety in a contract of guarantee to a CD from the purview of moratorium. It held that moratorium creates no hindrance to a proceeding for declaration of a willful defaulter. An act of willful default is not obliterated automatically by commencement of CIRP. While dismissing the petition, it held that the impugned SCNs are not vitiated.
ABRJ Foods Pvt. Ltd. Vs. Supriyo Kumar Chaudhuri, Liquidator, JVL Agro Industries Limited & Ors. [WP (C) 5991/2021]
The petitioner sought a direction to the Liquidator to revise/extend the timelines for the e-auction sale of the old edible oil stock of the CD and to IBBI to issue necessary guideline/regulations for liquidators under section 196(1) of the Code regulating the process of sale of assets during liquidation process to deter Liquidators from issuing unreasonable terms, conditions, and timelines of sale. The Delhi HC noted that the e-auction process document states that any dispute arising out of or in relation to the e-auction process shall be exclusively subjected to the exclusive jurisdiction of the AA, courts, and tribunals at Allahabad. In view of clear jurisdiction of Allahabad Court, the HC at Delhi dismissed the petition.
National Company Law Appellate Tribunal
Technology Development Board Vs. Mr. Anil Goel & Ors. [CA (AT) (Ins) No. 731/2020]
The AA held that the inter-se priorities amongst the secured creditors would remain valid and prevail in distribution of assets in liquidation. On appeal, the NCLAT observed that whether a secured creditor holds the first charge or second charge is material only if it elects to realise its security interest. A conjoint reading of sections 52 and 53 of the Code leaves no room for doubt that the legislature in its wisdom thought it proper to provide an option to the secured creditor armed with a security interest to choose out of the two options, namely, either enforce security interest against the asset out of liquidation estate which is the subject of security interest or relinquish the same and claim as secured creditor in the manner set out under section 53(1)(b)(ii) ranking equal to other secured creditors. First charge holder will have priority in realising its
security interest if it elects to realise its security interest and does not relinquish the same. However, if it opts to relinquish its security interest, the distribution of assets would be governed by the section 53(1)(b)(ii) whereunder all secured creditors having relinquished security interest rank equally. It set aside the impugned order.
Note: The order of NCLAT has been stayed by the Hon’ble SC vide it’s order dated June 29, 2021.
The Directorate of Enforcement Vs. Sh Manoj Kumar Agarwal, RP & Ors. [CA (AT) (Ins) No. 575/2019]
The AA permitted the RP to take charge of the properties attached under the provisions of the Prevention of Money Laundering Act, 2002 (PMLA) and to deal with them under the Code as if there is no attachment order. The appellant submitted that since the attachment had been confirmed by the AA under the PMLA, the RP should have approached the Appellate Tribunal and not the AA. The NCLAT observed that the proceeding before AA under PMLA for confirmation of attachment is civil in nature and section 14 of the Code hits institution and continuation of proceedings before the said AA. While both PMLA and the Code are special statutes having an overriding effect, the Code, being a subsequent statute, will prevail. It held that there is no conflict between PMLA and IBC and where a property of the CD has been attached in the PMLA, if CIRP is initiated, the property should become available to fulfil objects of the Code.
Union of India Vs. Vijaykumar V. Iyer [CA (AT) (Ins) No. 733/2020]
The NCLAT answered the questions framed in the judgment dated September 1, 2020 of the SC in Union of India Vs. Association of Unified Telecom Service Providers of India: (a) Spectrum is a natural resource and the Government is holding the same as cestui que trust; (b) Spectrum, being intangible asset of the Licensee, can be subjected to insolvency proceedings; (c) Dues of Central Government under the licence are operational dues; (d) Defaults in payment of spectrum acquisition cost are operational dues; (e) Dues payable to licensor are operational dues; (f) Natural resource would not be available for use without payment of dues; (g) Triggering of CIRP by the CD with the object of wiping off of such dues, not being for insolvency resolution, but with malicious or fraudulent intention, is not permissible; (h) The Licensees have the right to use spectrum under licence granted to them. They cannot be said to be the owners in possession of the spectrum but only in occupation of the right to use spectrum. Ownership of spectrum belongs to people, with Government only being its Trustee. Possession correlates with the ownership right; (i) The IRP is bound to monitor the assets of the CD and manage its operations, take control and custody of assets over which the CD has ownership rights, including intangible assets, which includes right to use spectrum; (j) Trading in intangible assets like use of spectrum derives strength from the terms and conditions of the Licence Agreement, which vests in Licensee a right to transfer or assign the licence with prior written approval of the Licensor and subject to fulfillment of conditions, which include payment of past dues in full till the date of transfer; (k) While a licence can be transferred as an intangible asset of the Licensee under insolvency proceedings in ordinary circumstances, however as the trading is subjected to clearance of dues by seller or buyer, as the case may be, the transferor/seller or transferee/ buyer being in default, would not qualify for transfer of licence under the insolvency proceedings; (l) Spectrum cannot be utilized without payment of requisite dues which cannot be wiped off by triggering CIRP; (m) The defaulting Licensees cannot be permitted to wriggle out of their liabilities by resorting to triggering of CIRP, not for purposes of resolution but fraudulently and with malicious intent of withholding the huge arrears payable to Government, obtaining moratorium to abort Government’s move to suspend, revoke or terminate the licences and in the event of a resolution plan being approved, subjecting the Central Government to be contended with the peanuts offered to it as OC within the ambit of distribution mechanism; and (n) Having regard to the Tripartite Agreement according priority / first charge to Department of Telecommunications, the spectrum cannot be treated as a security interest by the lenders.
The appellant, who is the promoter and director of the CD, M/s. Hind Motors India Ltd., filed this appeal on several grounds inter alia that the Liquidator instead of reviving the CD through settlement under section 230 of the Companies Act, 2013 sought to close the business of the CD. On appeal, the NCLAT noted that considerable delay leading to erosion of value is taking place because of effort to push in provisions of section 230 of the Companies Act, 2013 at the stage of liquidation. It is apparent that the appellant and the management, who brought about the situation, where the three companies are in liquidation, is trying to take over these companies through a scheme where there is no infusion of additional funds, and the liabilities are sought to be discharged in the name of amalgamation. This is not in tune with expectations of a resolution under the Code. Accordingly, the appeal was dismissed.
Next Orbit Ventures Fund Vs. Print House (India) Pvt. Ltd. & Ors. [CA (AT) (Ins) No. 417/2020]
The Appellant submitted that the AA has erred in approving a resolution plan which completely changed the nature of the business of the CD. The NCLAT concurred with the appellant that resolution process is not an auction or a recovery proceeding. It held that the decision as to how the insolvency is to be resolved and the mode and manner of restructuring of debt will only emanate from the deliberations of CoC in response to the current economic and market scenario. It observed that ‘going concern’ does not mean that the nature of the business cannot be changed with an objective to ‘add value’ or ‘create synergy’. It held 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’. Accordingly, it dismissed the appeal.
New Okhla Industrial Development Authority Vs. Mr. Anand Sonbhadra, RP [CA (AT) (Ins) No. 1183/2019]
The AA decided that the lease entered between the appellant and the CD is not a financial lease and hence the appellant is not an FC. The NCLAT, in view of the Indian Accounting Standards, noted that when lease involves real estate (like land in present matter) with a fair value different from its carrying amount, the lease can be classified as a finance lease if the lease transfers ownership of the property to the lessee with substantially all the risks and also rewards incidental to ownership of the asset. In the present case, while the risks and liabilities were transferred to the lessee, the rewards incidental to ownership were not transferred. The appellant, even after creating the lease kept with itself all the rights to control and monitor the upcoming project. While dismissing the appeal, the NCLAT held that such lease does not fit in with the requirements of Indian Accounting Standards and cannot be considered as a financial lease.
M/s. Renganayaki Agencies Vs. Sreenivasa Rao Ravinuthala, RP [CA (AT) (CH)(Ins) No. 23/2021]
Even though the resolution plan of the successful resolution applicant has been approved by the CoC with 100% voting share, the AA held a view that there is scope for further improvement of the resolution amount and, therefore, directed the RP to take fresh bids from the two – successful and the unsuccessful – resolution applicants and select one of them. The NCLAT found this direction clearly unsustainable and set aside the same in furtherance of substantial cause of justice.
Directorate of Economic Offences Vs. Binay Kumar Singhania & Ors. [CA (AT) (Ins) No. 935/2020]
The AA had directed the appellant to de-attach all the properties of CD attached under the West Bengal Protection of Interest of Depositors in Financial Establishments Act, 2013 (WBPIDFE) and to restore possession thereof to the Liquidator. On appeal, the NCLAT observed that the WBPIDFE relates to fraudulent deposits accepted by a company, which fails to make repayment of deposit along with interest, while section 14 of the Code is not applicable to any criminal proceeding. In this mater
moratorium was declared after the properties were attached. It held that section 14 of the Code has no overriding effect on section 3 of the WBPIDFE. It further held that for invoking the bar against proceeding against property of the CD, there must be a resolution plan approved under section 31 of the Code, which is not the case in this matter.
Kanwar Raj Bhagat Vs. Gujarat Hydrocarbons and Power SEZ Ltd. & Anr. [CA (AT) (Ins) No. 1096/2020]
The corporate guarantor (CG) underwent CIRP, where resolution plan dealt with claims of the FC partly. The FC filed an application for initiation of CIRP of the CD, which was admitted. A former director of the CD and the successful resolution applicant of CIRP of CG preferred appeal against said admission. The NCLAT recalled that it has, in State Bank of India Vs. Athena Energy Ventures Pvt. Ltd., held that an FC can simultaneously or one after another initiate CIRP against the CD as well as CG. Therefore, application under section 7 against the CD for the same debt and default is maintainable. On perusal of the approved resolution plan of the CG, the NCLAT noted that it cannot be said that the FC accepted the amount in full and final settlement of all its dues. Therefore, application under section 7 is maintainable against the CD for the same debt and default and the FC can recover the remaining dues from the CD, though its right of recovery of debt against the CG is extinguished.
Regional Provident Commissioner Vs. Vandana Garg, RP & Anr. [CA (AT) (CH) (Ins.) No. 50/2021]
The AA approved the resolution plan of the CD which waives off a major portion of the provident fund dues owed by the CD. The appellant contended that waiving off the provident fund dues is not only the violation of section 11 of the Employees Provident Fund and Miscellaneous Provision Act, 1952, which lays down the priority of charge of Provident Fund dues but also violation of sections 36 (4) (a) (iii) and 30 (2) (e) of the Code which lay down that the provident fund dues are outside liquidation estate. The NCLAT noted that the appellant, despite filing a claim of ` 1,95,01,301, has raised a claim of ` 2,84,69,797, much higher than the amount claimed by it before the RP. Its claim admitted by RP had been considered in the resolution plan which has been approved by the AA in conformity with section 30 (2) of the Code. It has not provided any reason or justification for raising the enhanced claim of ` 2,84,69,797. Relying on Ghanashyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited, the NCLAT held that the claims as provided in the resolution plan shall stand frozen and will be binding on the CD and all stakeholders and on approval of the resolution plan, all such claims that are not a part of the resolution plan shall stand extinguished. Accordingly, the appeal was dismissed.
Union Bank of India Vs. Kapil Wadhawan & Ors. [CA (AT) (Ins) No. 370/2021]
The Administrator of DHFL filed an application with the AA seeking approval of resolution plan. Without deciding the application, the AA, by an order, directed the Administrator to place the 2 settlement proposal of promoters of the CD before the CoC for its consideration, decision, and voting and to inform the outcome of the same within 10 days to the AA. It also declined the request for stay of this order. On appeal, the NCLAT observed that the CIRP reached the stage of approval of resolution plan by the AA and there would be no end if such reversals are allowed. It stayed the impugned order with advice to the AA to dispose of application of the Administrator at the earliest.
Executive Engineer Uttar Gujrat VIJ Company Ltd. Vs. Mr. Devang P Samapat, RP [CA (AT) (Ins) No. 371/2021]
The appellant filed an application claiming recovery of electricity charges during CIRP. The AA observed that it is part of insolvency resolution process cost (IRPC) which shall be considered at the time of considering the resolution plan, if any, or at the time of liquidation of the CD and hence the application is not maintainable. While declining to admit the appeal, the NCLAT observed that if the supply is for managing the operations of the CD, the supply cannot be interrupted during moratorium except where CD has not paid dues arising from such supply during the moratorium. However, in this matter, supply was used for running of office and security of CD. Hence, charges for such supply will be part of the IRPC, which can be recovered when the resolution plan is approved or would be as per waterfall provisions in section 53 in the event of the liquidation.
Jayanta Banerjee Vs. Shashi Agarwal and Anr. (CA (AT) (Ins) No. 348/2020]
This appeal is against the order of liquidation of the CD. The NCLAT found several deficiencies and irregularities in CIRP: the CoC was constituted based on claims of FCs without verification; the CoC was constituted without admitting the claims of the FCs; the CoC included related parties who were assigned 77% voting share; the valuation of the assets of the CD was not conducted; IM was not prepared; transaction and forensic audit was not conducted; Form G inviting Expression of Interest (EoI) was not issued; etc. The NCLAT expressed grave concern that liquidation was approved by the CoC where related parties had 77% vote share. It held that CoC is a nullity in the eye of law and that has vitiated the CIRP. When the constitution of CoC is tainted, the decision of the CoC cannot be validated on the pretext of exercise of commercial wisdom. While setting aside the order of liquidation, it held that the RP failed to discharge his duties and responsibilities cast on him under the Code and the Regulations. Since the RP was not impartial in the conduct of the CIRP, it directed for change of the RP. It directed to send a copy of the order to IBBI for action(s), which may be deemed fit, against the RP.
Martin S.K. Golla Vs. Wig Associates Pvt. Ltd. & Ors. (CA (AT) (Ins) No. 121/2019]
The IBBI as a respondent opposed the process adopted by the appellant in conduct of CIRP. It submitted that the resolution applicant, who is a corporate guarantor, is ineligible under section 29A to submit a resolution plan. An OTS submitted by the resolution applicant was treated as resolution plan and approved by the CoC and then by the AA. Relying on Swiss Ribbons Private Limited and Another Vs. Union of India and Ors. and section 29A read with provision to section 30(4), the NCLAT observed that the settled law is that the ineligibility attaches at the time when the resolution plan is submitted by the resolution applicant. It held that the resolution plan submitted by the corporate guarantor could not have been acted upon and that the RP erred in presenting the same before the CoC. It quashed the impugned order and remitted the matter to the AA to pass an order of liquidation.
Earth Gracia Buildcon Pvt. Ltd. Vs. Earth Infrastructure Ltd. (CA (AT) (Ins) No. 351/2020]
The AA declined to admit an application filed under section 7, as it held that the transactions are sham and involved round tripping of the huge amount. The NCLAT upheld the findings of the AA with an observation that the transactions are sham in nature and do not qualify as financial debt.
The Assistant Commissioner of Central Tax Vs. Mr. V. Shanker, RP & Ors. (CA (AT) (Ins) No. 56/2021]
The appellant appealed against the approval of the resolution plan without inclusion of its claim. The NCLAT observed that the appellant did not file its claim within time. Even though advised by the RP to get delay condoned by moving the AA, the appellant sent a letter to AA. The NCLAT further observed that sending a letter cannot be said to be in compliance with Part III of the NCLT Rules, 2016, or section 60 of the Code or Rules and Regulations made thereunder. It accordingly dismissed the appeal.
Harish Polymer Product Vs. Mr. George Samuel, RP & Anr. (CA (AT) (Ins) No. 420/2021]
The AA declined to condone delay for submission of claims. On appeal, the NCLAT observed that if new claims keep popping up and are
entertained at belated stage when the resolution applicants are already before the CoC with their resolution plan(s), the CIRP would be jeopardized. Keeping in view the object of the Code which is resolution in a time bound manner to maximize value, it dismissed the appeal.
M/s. Manipal Media Network Ltd. Vs. M/s. Vishwakshara Media Pvt. Ltd. (CA (AT) (Ins) No. 369/2020]
The AA dismissed an application filed under section 9 on the ground of a pre-existing dispute. The NCLAT noted that while the precise amount of debt in default is disputed, the amount in default is more than ` 1 lakh, which is the threshold for maintainability of the application, is not in dispute. It observed that while there is dispute about the rate of interest claimed by the appellant, it does not significantly alter the quantum of unpaid debt, which remains above ` 1 lakh. It, therefore, held that the application is maintainable and remitted the matter to the AA for admission.
Dwarkadhish Sakhar Karkhana Ltd. Vs. Pankaj Joshi, RP & Anr. (CA (AT) (Ins) No. 233/2021]
The AA set aside the decision of CoC accepting the EoI of the appellant after due date and deprecated the conduct of RP. The NCLAT held that as per section 30 of the Code, approval of resolution plan by CoC considering its feasibility and viability is a commercial decision. However, the decision of CoC to allow the appellant to file EoI after due date is not a commercial decision. It observed that the RP failed to explain that his actions were bona fide. It is expected that an RP must act in a fair and balanced manner without getting influenced by the conflicting interest of the parties. As the RP suppressed the material facts and misguided the CoC to achieve the desired decision in favour of the appellant, the adverse remarks made by the AA against the RP are not baseless and uncalled for. Accordingly, the appeals were set aside.
National Company Law Tribunal
Basavaraj Koujalagi & 82 Ors. Vs. Sumit Binani, Liquidator of Gujarat NRE Coke Ltd. (IA No. 865/KB/2020 in CP (IB) No. 182/KB/2017].
Workers of the Dharwad Unit of the CD filed an application with two prayers, a direction to the Liquidator to pay the dues of the workers and employees in a regular and timely manner, and to restrain him from taking any coercive action for closing the operations of the plant at Dharwad. As regards the first prayer, the AA observed that it is satisfied that the Liquidator has made payments of wages of all workmen and employees in full till September 23, 2020 on the basis of wages sheet for August, 2020. Owing to limited cash flow, the Liquidator has paid `15,000 to employees drawing up to ` 30,000 and paid in full to employees drawing salary up to `15,000 for September, 2020. The Liquidator cannot be expected to foot the bill from his own pocket in the absence of adequate cash flows to the CD. As regard the second prayer, the AA observed that at some point of time, hard decisions are called for in the life of a company. Unviable units will have to be closed. An objective of the Code is to free up resources of unviable companies by permitting an easy exit. It cannot be misconstrued to keep unviable units afloat by some sleight of hand under the guise of keeping it as a going concern, thereby defeating a key objective of the Code. It directed the Liquidator to proceed with the sale of assets of the CD without further ado. It held that actions taken in good faith by a public servant always enjoy protection under the law, and the IBC is no different, providing for the same under section 233 of the Code.
IDBI Bank Limited Vs. EPC Constructions India Limited. (IA 1623/2019 in CP (IB) 1832/MB/C-II/2017]
The Monitoring Agency and the erstwhile RP, with authorisation by majority of members having 72.42% voting share in the erstwhile CoC, filed an application to initiate fresh CIRP for the CD and invite fresh resolution plans for consideration by the CoC as the resolution applicant has failed to implement the plan as approved by the AA. The AA observed
that if no resolution plan is approved by the CoC/AA within the prescribed timeline / the extended timeline; automatic next step is only liquidation of the CD. While dismissing the application, it ordered liquidation of the CD and appointed the RP as Liquidator.
Mr. Kapil Wadhawan Vs. The Administrator, Dewan Housing Finance Corporation Limited & Ors. (IA 2431/2020 in CP (IB) 4258/MB/C-II/2019]
A promoter of the CD sought a direction to CoC to consider its 2nd settlement proposal and take a decision thereon. The AA noted that the settlement proposal, which offers approximately Rs.91,158 crore, which is substantially higher (150% more) than ` 37,250 crore offered by the highest bidder, needs due consideration by the CoC. It observed that it is conscious of the fact that it has concluded hearing on the resolution plan of the successful resolution applicant (SRA). However, it would take some time to decide several IAs in the matter. It directed the Administrator, in the meantime, to place the 2 settlement proposal before the CoC for its consideration and report the decision within 10 days. It issued the direction in the interest of justice, equity, balancing of interest, interest of various stakeholders, and maximisation of value of assets of the CD, the special situation and to avoid further litigations by the applicant approaching appellate forums and smooth process of considering the plan.
SBER Vs. Varrsana Ispat Ltd. (IA No. 1014/KB/2020 in CP (IB) No. 543/KB/2017]
Varssana Employee Welfare Association filed an application with several prayers. The AA observed that the prayer for refund of fee has become infructuous as Mr. Anil Goel, Liquidator has refunded fee of Rs.1.5 crore taken by him into the account of the CD. It, however, noted that Mr. Goel did not refund the fee of ` 1.5 crore out of any change of heart but because of the order passed by the Disciplinary Committee (DC) of the IBBI, following a complaint. As regards prayer for inclusion of representative of the workmen and employees on the Stakeholders Consultation Committee (SCC), it held that there is no question of including a representative, since they do not have a subsisting claim. The list of stakeholders prepared by Liquidator in accordance with regulation 31 of the IBBI (Liquidation Process) Regulations, 2016 (Liquidation Regulations) cannot be populated with everyone and it is restricted to those who have an existing claim. On the next prayer relating to constitution of SCC, the AA found the constitution unlawful. It directed the Liquidator to take steps immediately to reconstitute the SCC in a manner consistent with regulations 31 and 31A.
M/s. UKG Steel Private Limited Vs. M/s. Erotic Buildcon Private Limited ((IB)/1050(PB)/2020]
While considering an application under section 7, the AA observed that the applicant is neither a Bank/NBFC nor a body corporate recognised by RBI for carrying out financial business. It found that the loan extended by the applicant was contrary to the limit prescribed under the Companies Act, 2013, which amounts to an ultra vires act. Hence, the loan advanced by the applicant is not a legally enforceable debt. The application was dismissed as misconceived.
M/s. National Agriculture Cooperative Marketing Federation Limited Vs. M/s. Synergy Petro Products Private Limited ((IB)/1106/(PB)/2020]
An application under section 7 was filed on the ground that the CD defaulted in repaying the arbitral award. The AA noted that the arbitral award was passed based on a rental agreement. Rental lease agreement can be operational debt but not financial debt. It dismissed the application as the applicant does not qualify to be an FC in relation to the CD.
STCI Finance Limited through Subash Chandra Modi, RP (IA No. 264/2021 in CP No. (IB) 4147/MB/2019]
The applicant submitted an application filed under section 12A for withdrawal of CIRP. The AA noted that the CoC has decided to postpone issue of EoI, Form G ten times and no approval for the same was obtained from AA. The CoC postponed it on the pretext of settlement, while the AA has already granted an exclusion of 135 days for completion of CIRP. The AA observed that as per the settlement agreement, the suspended directors will sell the assets of the CD, which is under moratorium, to settle the outstanding dues. Thus, they will be participating in the affairs of the CD which is prohibited when moratorium is in force. The AA held that by exercising the commercial wisdom, the CoC cannot avoid compliance with the provisions of the Code and Regulations thereunder. It accordingly dismissed the application.
The AA approved the resolution plan for the DHFL, the only financial service provider undergoing CIRP. The resolution plan provides a total resolution amount of ` 33,250 crore, comprising of a combination of cash and non-cash consideration. The AA, however, suggested to the CoC to consider better distribution for some creditors. It felt appropriate to appoint an Observer-Cum-Permanent Invitee in the Monitoring Committee to ensure smooth functioning and change over to the successful resolution applicant and accordingly appointed Mr. Ashok Kakkar for this purpose with an advice that he shall be suitably paid fee for his professional services and other fringe benefits be extended to him.
Siemens Financial Services Pvt. Ltd. Vs. Vinod Sehwag (IA 1774/ND/2021 in CP No. (IB)-116(ND)/2021]
An application was filed under section 95 for initiation of insolvency resolution process of the PG. The AA appointed the RP and directed him the order to examine the application and make recommendation along with the reasons in writing for acceptance or rejection of the same. The PG has submitted that the AA passed the order ex parte and without issuing notice to him. The AA held that initiation of the interim moratorium under section 96 causes no prejudice to the PG. It further held that the intention of legislature is not to make this AA a trial court at the time of appointing RP under section 97. The scheme of Part III of the Code does not warrant issuance of notice at the stage of appointing RP under section 97 and it does not amount to violation of the principles of natural justice.
M/s. State Bank of India Vs. Mr. Subrata M. Maity (IA/515/2021 in IBA/307/2019]
A member of CoC challenged the resolution plan, which was approved with 100% vote share, alleging procedural irregularities on the part of the RP. It submitted that it voted in favour of the plan ‘under protest’ to avoid liquidation. The AA held that the application is not maintainable as it has voted in favour of the resolution plan. There must be an absolute clarity from the CoC members, whether to vote for or against a resolution plan and there should never be any ambiguity on the viability of the plan. If the applicant is unable to arrive at a conclusion regarding the resolution plan, there is lack of clarity in the commercial wisdom of the applicant. The CoC members, who have acted in favour of the resolution plan cannot be allowed to come up with a new commercial wisdom regarding the viability of the plan and the procedural lapses of the RP. Such allowances would lead to absolute chaos and no resolution plan can be completed on time.
Ram Ratan Modi, RP Vs. ICICI Bank (IA No. 1477/KB/2020 in CP (IB) No. 184/KB/2018]
Two accounts of CD were frozen by the respondent in pursuance of notices issued by the Income Tax Authorities and EPFO. The AA directed the release of attachment and defreezing of account of the CD with immediate effect. It observed: “What pains us is to see such applications being filed so often even after the point of law stands settled in this regard. One of the objects of the Code is to conduct the CIRP in a time bound manner, therefore, to save the time, upon coming to knowledge of the order of admission of the corporate debtor into CIRP, the statutory authorities should withdraw their direction of attachment from the assets of the corporate debtor.”
In the matter of Videocon Industries Ltd. & Ors. [IA 196/2021 in CP (IB) 02/MB/C-II/2018]
Considering interdependencies of the CDs and obligor and co-obligor structure, the AA had passed an order directing consolidation of CIRP of the 13 CDs. The CoC approved resolution plan of Twin Star Technologies. The plan envisages merger of 11 CDs into Videocon Industries Limited and one company to be made its subsidiary. While approving the said resolution plan, the AA noted that the plan provides for only 4.15% of the total outstanding claims and the hair cut to creditors is 95.85%. It observed: “Therefore, the Successful Resolution Applicant is paying almost nothing and 99.28% hair cut is provided for Operational Creditors (Hair cut or Tonsure, Total Shave).” It requested both CoC and the successful resolution applicant to increase the pay-out amount for OCs.
The AA expressed doubt about the confidentiality of valuations. It advised the IBBI to examine this issue in depth to ensure the confidentiality clause is followed scrupulously. It also expressed a concern about 20 plus persons accompanying the RP to meetings of the CoC, in addition to his legal counsel, indicating either he is not fully prepared or to give monetary benefits (fees) to these persons. It advised the IBBI to examine this issue and issue appropriate guidelines in this regard. The AA felt it appropriate to appoint an Observer-Cum-Permanent Invitee in the Steering Committee to ensure smooth functioning and change over to the successful resolution applicant and accordingly appointed Mr. P. K. Agarwal for this purpose with an advice that he shall be suitably paid for his professional services and other fringe benefits be extended to him.
Ankit Agrawal & Ors. Vs. Devang Samrat, RP [MA No. 4004/MB/2019 in CP (IB) No. 619/MB/2018]
The members of the former management of the CD filed an application seeking payment of their salaries. The AA noted that it has already ordered liquidation of the CD and appointed Mr. Divyesh Desai as the Liquidator. In view of the order of liquidation, the applicants should approach the Liquidator with proper details of their claims in respect of the salary dues for the CIRP period. The claim relating to pre-CIRP period has to be filed as an OC and the Liquidator should consider the same in accordance with law.
Atul Rajwadkar, Liquidator Vs. Ranjan Agarwal & Anr. [IA No. 20/2021 in CP (IB) No. 1397/MB/2017]
The CD in liquidation is the owner of a mall, where the respondent was a licensee of a shop unit. Due to the nationwide imposition of lockdown, the Liquidator waived 90% of license fees. The respondent not only refused to make the payment but also claimed to terminate the agreement by invoking the force majeure clause. The Liquidator filed an application seeking direction to the respondent to handover the vacant possession of the shop unit. The AA observed that the detailed appraisal of the terms and conditions of the lease and their ramifications including application of the force majeure clause would require an incisive judicial enquiry. It would not be possible to go into an enquiry in a summary proceeding as the present one. Since the CD is under CIRP, it would not be appropriate for the respondent to continue in the lease premises as such continuance in the shop would thwart the resolution process and would frustrate the object of the Code. The AA accordingly directed the respondent to handover the vacant possession of the shop unit to the Liquidator. The Liquidator may approach the appropriate judicial authority for realisation of the outstanding rent, if any, from the respondent.
State Bank of India Vs. Jet Airways (India) Ltd. [IA No. 2081/2020 in CP (IB) No. 2205/MB/2019]
The AA approved the resolution plan voted by CoC with a majority of 99.22% voting share, subject to certain conditions and directions. In view of uncertainty in the effective date, it suggested the effective date to be 90 days from the date of its approval. As regards slots, it observed that the CD was not in operations on the date of commencement of CIRP and it was not run as a going concern during the CIRP. Therefore, the protection of the licenses and concessions from termination or suspension would not be available to the CD. It held that the guidelines indicate that the allotment of slots is not automatic and needs to be sought by the Airline twice a year respectively for the summer and winter seasons. Once the slots are not used by particular Airline or vacated by it, the same is immediately allotted to another in order to optimize airport capacity. A slot at airport could not be left idle. Therefore, though the slots are integral to the operation of an Airline, the same, however, cannot be held as assets of the Airline. Keeping in view the purpose of insolvency resolution, the AA, however, trusted that the authorities concerned, including the Government of India, shall take a holistic approach and provide necessary assistance to the SRA in terms of the guidelines in allocation of slots as and when they are sought, so that the Airlines takes off the ground and possibly regains its lost glory.
Sintex Plastics Technology Ltd. Vs. Zielem Industries Pvt. Ltd. & Anr. [IA 18 (AHM)/2021 in CP (IB) 759 (AHM) 2019]
While allowing an application of withdrawal, the AA concluded that in a situation where CoC is not formed after admission of CD into CIRP, rule 11 of NCLT Rules under the Companies Act, 2013, and not regulation 30A of the CIRP Regulations, shall apply to withdrawal of CIRP. It observed that a situation, which is not covered under section 12A, cannot be covered under regulation 30A of the CIRP Regulations. However, the AA can exercise inherent jurisdiction under rule 11 for a situation not covered under any provisions of the Code.
Kamla Industrial Park Limited Vs. Monitoring Committee of Corporate Debtor & Anr. [IA No. 1077/2020 in CP (IB) No. 1329/MB/2017]
On October 16, 2019, the AA approved a resolution plan. RoC insisted that SRA must file all previous annual returns and accounts. The SRA sought the waiver of the same. It also requested that it should not be required to use XBRL for filings which is a requirement for companies having share capital exceeding Rs.5 crore and its share capital has come down to Rs.1.05 lakh pursuant to the resolution plan. RoC submitted that it has no authority to waive the statutory compliances mandated in the Companies Act, 2013. The AA noted that it is settled that when the technical considerations are pitted against the substantial justice, the latter is preferred, and that procedure is the handmaid of justice and not meant to hamper the cause of justice. It permitted the SRA to approve the accounts and returns of CD for the prior period and file the same within three months. This shall not invite any penalty whatsoever from the RoC. Further, the RoC shall consider accepting returns and accounts in physical form.
Central Information Commission
Nipun Singhvi Vs. Central Public Information Officer, IBBI [CIC/NCLTD/A/2019/147403]
The appellant had sought names of IPs who are undergoing disciplinary proceedings. The CPIO declined to provide the information under section 8(1)(h) of the RTI Act, 2005. The appellant submitted that IPs being court officers, the parties have a right to know the names and any disciplinary proceedings initiated against any such officer should be known to public so that they are not appointed by any party as their IRPs. The Central Information Commission (CIC) found the order of the First Appellate Authority (FAA) is a very detailed and reasoned order that disciplinary proceeding is considered as pending against an IP from the time he has been issued a SCN till disposal by the DC and for such period the IP concerned is not allowed to take any new assignment under the Code. Thus, the concern that these IPs may be appointed by the AA is not valid. Further, sufficient checks have been built into the process to prevent such IPs from being appointed under the Code. Disciplinary proceedings are quasi-judicial in nature and any disclosure of the names of IPs against whom such proceedings are ongoing would impede the investigation process. The CIC upheld the order of the FAA.
Source- https://ibbi.gov.in
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