Supreme Court Orders

Sanket Kumar Agarwal & Anr. Vs. APG Logistics Pvt. Ltd. [Civil Appeal No. 748 of 2023]

The SC held that section 238A of the Code enable application of provisions of the Limitation Act, 1963. Rule 3 of the NCLAT Rules, 2016 is in line with section 12(1) of the Limitation Act, 1963 which stipulates that in computing the period of limitation the day from which such period is to be reckoned, shall be excluded. Accordingly, it held that for the purpose of computing limitation for filing of appeal under section 61(2) of the Code, the date on which the order was pronounced must be excluded.

Mars Remedies Pvt. Ltd. Vs. BDH Industries Ltd. [Civil Appeal No. 5170/2022]

This case relates to an intervention application filed by a financial creditor (FC) in the main appeal filed by the CD against the order of admission on the application of another FC. The SC held that two CIRPs cannot simultaneously go on against the same CD and the CD cannot be allowed to choose one of the best.

Moser Baer Karmachari Union through President Mahesh Chand Sharma Vs. Union of India [WP (C) No.42 I of 2019 and Ors.]

Moser Baer Karamchari Union, in this case – (a) challenged the validity of section 327(7) of the Companies Act, 2013 being arbitrary and violative of Article 21 of the Constitution of India; and (b) prayed for leaving the statutory claims of the `workmen’s dues’ out of the purview of waterfall mechanism under section 53 of the Code.

The SC observed that the waterfall mechanism under section 53 is based on a structured mathematical formula, and the hierarchy under section 236 of the Companies Act, 2013 is created in terms of payment of debts in order of priority with several qualifications. The unpaid dues of the workmen are adequately and significantly protected under section 53 in line with the objectives of the Code. Thus, the interests of workmen are protected whether secured creditor has relinquished his security interest or not.

It further observed that the Parliament in its wisdom made the provisions under the Code to keep out statutory workmen’s dues from the liquidation estate assets. The workmen’s salary for the period of 24 months preceding the liquidation commencement date shall rank equally between the workmen’s dues to the said extent and the dues to the secured creditor. By virtue of section 327(7) sections 326 and 327 of the Companies Act, 2013 shall not be applicable in the liquidation of a company under the Code.

M.K. Rajagopalan Vs. Dr. Periasamy Palani Gounder & Anr. [Civil Appeal Nos. 1682-1683 of 2022]

The SC observed that CD’s revised plan was not put before the CoC for a vote and that the resolution applicant was ineligible under section 29A of the Code. It emphasised that CoC in its commercial wisdom must consider every aspect of resolution plan, including financial arrangement and legality before the final approval.

Vistra ITCL (India) Ltd. & Ors. Vs. Dinkar Venkatasubramanian & Anr. [Civil Appeal No. 3606 of 2020]

CIRP was initiated against the CD i.e. Amtek Auto Limited. Vistra (Security Trustee) claimed to be a secured FC on the ground that shares were pledged as security interest against the short-term loan. The loan was extended for the ultimate interest of CD in its group companies. The issue was whether the security trustee can claim the rights and obligations of a secured FC? The SC acknowledged that Vistra held a security interest in the pledged shares but because CoC had already approved the resolution plan, the question requires consideration of a larger bench, as Vistra could not participate in voting as member of CoC. Thus, the rights of an FC couldn’t be bestowed upon it. It, however, allowed SRA the option to treat Vistra as a secured creditor, allowing it to retain the security interest in the pledged shares and receive the proceeds from their sale.

Indiabulls Asset Reconstruction Company Ltd. Vs. Ram Kishore Arora & Ors. [Civil Appeal No. 1925 of 2023]

FC filed an appeal in SC against the orders of NCLAT that had allowed project-wise CIRP of Spartech Limited i.e. Ecovillage 11 in Greater Noida West. The SC while declining to constitute CoC with respect to entire projects of CD, observed that greater inconvenience and irreparable injury to the home buyers would result if such an order is passed. It further noted that the infusion of funds by the promoter in different projects is to be treated as interim finance.

M. Suresh Kumar Reddy Vs. Canara Bank & Ors. [Civil Appeal No. 7121 of 2022]

On the scope of authority of AA to admit the application under section 7 considering the rationale laid down by the SC in the case of Vidarbha Industries Power Ltd. v. Axis Bank Ltd., SC made following important findings and observations:-

a. In the cases of Innoventive Industries and E.S. Krishnamurthy and others, the SC had held that in case CD commits default of financial debt, AA has to merely see the records of IU and other evidence produced by FC to satisfy that default has occurred.

b. Once AA is satisfied that the default has occurred, there is hardly any discretion left with AA to refuse admission under section 7 of the Code.

c. Even non- payment of a part of debt becoming due and payable will amount to default on the part of CD.

d. The SC in the Vidarbha Industries case has held that the AA cannot exercise discretionary power arbitrarily or capriciously unless the fact and circumstances warrant exercise of discretion in a particular manner.

e. The SC laid emphasis on the review petition observations that its decision in Vidarbha Industries case was in the setting of facts of the case and observations in the judgments are not to be read as provisions of statute.

f. The SC while dismissing the appeal observed that the decision in the case of Vidarbha Industries cannot be read and understood as taking a view which is contrary to the view taken in the case of Innoventive Industries and E.S.

Gluckrich Capital Pvt. Ltd Vs. The State of West Bengal & Ors. [Misc. Application No. 1302 of 2023 (IA No. 102537 of 2023)]

On the issue whether the RP/ SRA has remedy against a third party in a fraudulent transaction attracting section 66 of the Code, the SC clarified that the remedy against third party is not available under section 66 of the Code, and in such circumstances, it is for the RP or the SRA to take civil remedies against third party for recovery of dues payable to CD and the civil remedies which may be available in law are independent of the said section.

Anirudh Agro Farms Pvt. Ltd. Vs. The State of Telangana & Ors. [Writ Appeal No.414 of 2023]

The issue for consideration before the Telangana HC was whether a certificate of sale issued by the liquidator under the provisions of the Code/regulations is required to be filed or registered before the jurisdictional sub-registrar. In this case, the liquidator had issued a certificate of sale in favour of the highest bidder. The Sub-registrar office (SRO) however, declined to do the registration on the ground that there is no practice of filing certificate of sale of this nature in its office and in its communication directed that such filing would attract stamp duty at par with sale under Article 47A of the Indian Stamp Act, 1899. As the single bench of the Telangana HC did not interfere with the communication of the SRO, writ appeal was filed before the Division Bench of the HC. The Division Bench while disposing of the writ appeal, observed that once a direction is issued for the duly validated certificate to be issued to the auction purchaser with a copy forwarded to the registering authority to be filed in book, it has the same effect as registration and obviates the requirement of any further action.

Sanjay Kumar Agarwal Vs. Central Bureau of Investigation, Anti-Corruption Bureau Dhanbad [Cr. M.P. No. 1048 of 2021]

Jharkhand HC held that RP’s functions are in the nature of public duty. It was observed that RP is a ‘public servant’ under section 2(c) of the Prevention of Corruption Act, 1988 (PC Act) for the reason that definition of public servant as given under the PC Act is very wide and expansive. It is not limited to those serving under the Government or its instrumentalities and drawing salary from the public exchequer. Further, the Court noted that apart from the list of functionaries provided in section 2(c), the functional criteria laid down to include within its fold those who are discharging public duty, or any duty authorised by Court of justice in connection with the administration of justice. It observed that the RP plays a key role in the insolvency resolution process and has a duty to protect the assets of CD. The nature of assignment and duty his office performs entails performance of function which are in the nature of public duty; thus is covered in the definition of ‘public servant’ under the PC Act. Also, the appointment of RP is made by the AA under the Code.

Sunflag Iron & Steel Co. Ltd. Vs. J. PoonamChand & Sons [Misc. Civil Application No.374-2020]

During the pendency of CIRP application for admission, CD filed an application under section 11(6) of the Arbitration and Conciliation Act, 1996 (A&C Act) before Bombay HC for the appointment of an Arbitrator. The HC while disposing of the application for appointment of Arbitrator observed that there is no inconsistency between the provisions of the Code and the A&C Act. It held that triggering point of section 238 having overriding effect on the A&C Act, is the admission of application by the AA and not mere filing of application under the Code.

National Company Law Appellate Tribunal

Clicbrics Technologies Pvt. Ltd. Vs. Ansal Housing Ltd [CA (AT)(Ins)No. 1268 of 2022]

In this case, the operational creditor (OC) being a real estate agent filed an application under section 9 seeking initiation of CIRP against CD-M/s. Ansal Housing Limited. The application was dismissed by AA holding that the OC had approached it with malafide intention and not for genuine resolution. The NCLAT, while allowing appeal of OC observed that no material has been placed on record by CD to establish that the invoices were disputed by the CD prior to demand notice. The submission by CD that the OC by refusing to receive payment tried to use the provisions of the Code as a tool to coerce and intimidate the CD to succumb to his illegitimate demands, cannot be accepted. It held that the operational debt which had admittedly become due and payable, having not been disputed prior to issue of demand notice and not been discharged by the CD, is a fit case for admission of CIRR

Intec Capital Ltd. Vs. Uday Kumar Bhaskar Bhat, IRP of Atharva Auto Logistics Pvt. Ltd. [CA (AT) (Ins) No.361 of 2023]

Post admission of section 7 application, the FC filed claim for a sum of Z 6,52,42,330/-and the said amount was provisionally admitted subject to verification by the IRP. However, at the time of verification, the fact that the same FC had initiated arbitration award prior to the date of admission by AA, came to light after filing of claim and before verification. The RP reduced the claim amount to3, 1 6,90,306/- based on the arbitration. Aggrieved with the reduction of the claim amount, FC had filed an application before AA which got dismissed. In the appeal filed by the FC, the issue was whether an RP can reduce the claim once admitted in the process. NCLAT while upholding the order of AA, observed that in terms of regulation 14(2) of CIRP Regulations, RP has right to revise the amounts of the claim admitted as and when he comes across any additional information warranting such revision.

State Bank of India Vs. Hackbridge Hewittic and Easun Ltd. [IA. No. 614 of 2021 in CA (AT) (CH) (Ins.) No.05 of 2021]

The issue for consideration before NCLAT was whether the date of default to be considered from the date of proposal or acceptance or cancellation of approved OTS proposal. NCLAT held that the date of default automatically got extended from the date of OTS proposals submitted by obligants to the credit facilities. Thus, section 18 of the Limitation Act, 1963 is attracted and considering part payments made by CD, limitation got extended. NCLAT set aside the AA’s order and held that OTS proposal tantamount to acknowledgment of debt by CD.

Kanoria Chemical & Industries Ltd. Vs. Vijendra Kumar Jain & Ors. [CA (AT) (Ins.) No. 618 of 2021 & I.A. No. 1647 of 2021]

The appellant/ OC challenged the approval of the resolution plan by the AA on the grounds that — (a) the OC’s claim arising out of the arbitral award has not been considered in accordance with the provisions of section 30(2)(b) of the Code; and (b) the SRA was ineligible under section 29A. The NCLAT observed that the OC did not deserve ‘zero’ payment since there was no contrary order against the award. Therefore, OC’s claim should have been appropriately admitted by the RP and considered for payment in the approved resolution plan. On the issue of eligibility of SRA, it was observed that section 240A prescribes that the provision of clauses (c) and (h) of section 29A shall not apply in respect of CIRP of CD being an MSME and thus the SRA is permitted to submit a resolution plan.

Mukesh Kumar Jain, Liquidator Trans Gulf Frozen Food Containers Pvt. Ltd. Vs. Divyanshu Walia [CA (AT) (Ins.) No. 455 of 2023]

The issue before NCLAT was whether the son of the deceased liquidator has personal liability for supplying documents/ objects once all the documents have been handed over to the present liquidator. NCLAT held that there was no personal liability on the son of the deceased liquidator for supplying documents/objects as claimed by the present liquidator.

Adinath Jewellery Exports Vs. Mr. Brijendra Kumar Mishra, Liquidator of Shrenuj & Co. Ltd. [CA (AT) (Ins.) No.748 of 2022]

The appellant who claimed to be a tenant of the CD challenged the orders of AA whereby liquidator was directed to keep certain premises locked and sealed. The appellant contended inter alia that the Small Causes Court has jurisdiction under the Maharashtra Rent Control Act, 1999 to handle eviction matters and not the AA. NCLAT on the strength of leave and license agreement and other relevant communications between the appellant and the RP who had renewed the agreement during moratorium, noted that the relationship between appellant and the CD was that of a licensee and licensor, not a tenant and landlord. NCLAT while dismissing the appeal held that once a property is part of liquidation estate of CD, the provisions of Code are applicable regarding the assets which were in the ownership of the CD and section 238 of the Code shall have overriding effect on

the applicability of any other law which was inconsistent with the Code.

GVR Consulting Services Pvt. Ltd. &Anr. Vs. Pooja Bahry & Ors. [CA (Al) (Ins.) No. 405 with 369 and 412 of 2022]

The issue for consideration was whether the motive of the CD in transaction is the pivotal factor in deciding the preferential transaction and whether the sums arranged from relatives of the CD can be held to be preferential transaction. The NCLAT while disposing the appeal observed that intent and motive behind the transaction is not required to be looked into by the AA to term a transaction as preferential transaction. It was observed that taking financial assistance from related and non-related parties cannot be held to be in the ordinary course of business of the CD. Further, repayment by CD in a mortgage transaction in favour of related party falls within the scope of preferential transaction. Thus, CD arranging sums from relatives and other parties cannot be held to be part of an ordinary course of business or part of financial affairs.

Westcoast Infraprojects Pvt. Ltd. Vs. Mr. Ram Chandra Dallaram Choudhary, Liquidator of Anil Ltd. [CA (AT) (Ins.) No. 1258 of 2022]

The question for consideration before the NCLAT, was whether liquidator could forfeit the EMD amount deposited by highest bidder for want of payment of full consideration within time. Before the NCLAT, the bidder came up with a fresh argument that liquidator had no jurisdiction to forfeit the EMD. As per section 74 of the Indian Contract Act, 1872, liquidator ought to have filed a suit for recovery of the penalty by way of compensation. NCLAT while dismissing the appeal, differentiated between the auction conducted by liquidator under the Code and public auctions. It observed that section 74 of the Indian Contract Act, 1872 has no application in the case of auction conducted by the liquidator under the IBBI (Liquidation Process) Regulations, 2016.

Mr. Arun Chadha Liquidator of Pawan Buildwell Pvt. Ltd. Vs. Ramesh Kumar Suneja [CA (AT) (Ins) No.747 & 748 of 2021]

The issue before NCLAT was whether the creation of security interest by way of mortgage of the property is preferential transaction under section 43 or is covered under section 66 (transaction to defraud the creditors). NCLAT observed that while CD was in default, it mortgaged its property for the benefit of its related parties. Moreover, CD uploaded Form CHG-1 on website of MCA to create ‘first and exclusive charge’ over the mortgaged property. Further, NCLAT also took note of the independent auditor’s report indicating that CD gave advances and guarantees to its associates/related person in excess of 60% of its share capital and reserves & surplus and the CD has not received counter-guarantees of the equivalent amount from the respective related parties. NCLAT cancelled the mortgage and held that security interest created on mortgaged property in favour of related party infringes section 43.

IDBI Trusteeship Service Ltd Vs. Nirmal Lifestyle Limited [CA (AT) (Ins.) No. 117 of 2023]

Post admission of section 7 application, FC and CD entered consent terms with revival clause in the event of default to make payment of the sums by the CD. FC filed an application for revival of CIRP against CD for the failure to honour settlement terms. However, the same was rejected. On an appeal filed by FC, NCLAT held that the present case is not mere withdrawal simplicitor but consent terms were brought on record as part of the application under section 12A of Code. While allowing the appeal, it observed that rejection of revival is to deny the FC its rightful remedy.

Kapil Wadhawan Vs. Piramal Capital & Housing Finance Ltd. & Ors. [CA (AT) (Ins.) No.437 of 2023]

RBI initiated CIRP against Dewan Housing Finance Corporation Limited (DHFL/CD) and appointed an Administrator. During the CIRP the Administrator filed applications seeking the avoidance of certain transactions undertaken by DHFL. Subsequently, Piramal Capital & Housing Finance Ltd. emerged as SRA. The resolution plan included a clause stating that the SRA would pursue the avoidance applications filed by the Administrator. Thereafter, by the orders of AA, SRA was substituted in the name of Administrator in the avoidance applications. Appellant, the ex-promoter of CD, filed an appeal. The NCLAT, while dismissing the appeal held that the SRA should be permitted to pursue the avoidance applications, which were filed by the erstwhile Administrator and were pending before the AA. It further observed that as per section 26 of the Code avoidance applications do not affect the proceeding of the CIRP and can continue post completion of CIRR

Gurudeo Exports Corporation Private Limited (GECPL) and Ors. Vs. Akash Singhal Liquidator of Amira Pure Foods Pvt. Ltd. & Ors. [CA (AT) (Ins.) No. 301 of 2021& IANo.701,702 &703 of 2021]

NCLAT observed that since there is no evidence indicating payment of service tax or GST or TDS under Income Tax Act, 1961 and other supporting documents, claim of the appellants could not be considered. It held that the proceedings under the Code are summary in nature and not like Civil Courts ascertaining facts based on examination and cross examination. Trade practices carried on earlier occasion based on oral agreement and sometimes violating the relevant law viz., Companies Act, 2013, GST or TDS claims under Income Tax Act, 1961 cannot be accepted at the resolution/liquidation stage unless the claims are real and based on solid documentary evidence and in accordance with law. The claims based on indirect, or circumstantial or secondary evidence cannot be allowed in the processes underthe Code.

Naresh Kumar Aggarwal Vs. CFM Asset Reconstruction Pvt. Ltd. & Ors. [CA (AT) (Ins.) No.470 of 2023]

In January, 2021 SBI entered into an assignment agreement with an Asset Reconstruction Company (ARC) [registered under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act)] for debt owed by principal borrower which was guaranteed by CD. Thereafter, ARC filed a CIRP application against the CD in 2022 which got admitted in February, 2023. Aggrieved by the same, shareholder of the CD filed an appeal claiming that CIRP on the basis of unregistered assignment agreement, is not liable to be admitted. NCLAT while dismissing the appeal, observed that the assignment agreement was in accordance with section 5 of the SARFAESI Act, which provides that ARC shall be deemed to be the lender, and all rights of such Bank/ Financial Institution shall vest in the ARC.

SMBC Aviation Capital Ltd. Vs. Interim Resolution Professional of Go Airlines (India) Ltd. [CA (AT) (Ins.) No. 593,603,604 & 615 of 2023]

The lessors of the aircraft objected to the admission of the application of CD under section 10 on the ground that no notice to creditors was given and the corporate applicant filed the application with malicious intention. The AA while passing admission orders observed that the Code does not mandate serving notice to the creditors. It also held that section 65 application can be adjudicated even after admission. Aggrieved by the order of AA, the lessors filed appeal before the NCLAT. The main issues for consideration before NCLAT were whether

(a)  the service of notice to creditors prior to the orders of admission is mandatory,

(b) the opportunity to file an application under section 65 be afforded before admitting the application, and (c) If the lessors cancel the lease agreement with the CD before passing orders of admission of corporate applicant, will the moratorium under section 14 apply to the assets of the lessor yet to be transferred from the CD? The Appellate Tribunal, while disposing the appeal, observed that neither the Code nor regulations obligate the AA to issue prior notice to creditors; however, AA should hear the objectors at the time of admission before taking appropriate decision. It held that section 65 applications can be filed after admission of application of the corporate applicant into GIRD as no malicious or fraudulent intention can be established in the facts of the present case. Regarding the application of moratorium on the leased assets, the matter was reverted to AA for decision.

Union Bank of India (Erstwhile Corporation Bank) Vs. Dinkar T. Venkatasubramanian & Ors. [IA. No. 3961 of 2022 in CA (AT) (Ins.) No. 729 of 2020]

AA had approved the resolution plan in respect of the CIRP of Amtek Auto Ltd. However, the reliefs prayed for by the FC in the IA were rejected by AA. FC’s appeal against the AAs order before NCLAT without impleading the CoC was partly allowed. Subsequently, the review application filed by the FC was dismissed by the NCLAT holding that there is no provision for review under the Code and the FC may take recourse in accordance with law, if aggrieved. The FC filed the present IA before the NCLAT seeking to recall the order partly allowed by it. On a reference made by three-member Bench of the NCLAT, a five member Bench was constituted to decide on the questions: (a) whether the Tribunal not being vested with any power to review the judgment can entertain an application for recall of judgment on sufficient grounds? (b) whether judgment of NCLAT in

Agarwal Coal Corporation Private Limited v. Sun Paper Mill Limited &Anr. and Rajendra Mukhand Varma & Ors.v. ICL.1 Resources Ltd &Anr. can be read to mean that there is no power vested in it to recall a judgment? The five-member Bench held that the power of review is not conferred on the Tribunal; whereas the power to recall its judgment is inherent in it on sufficient grounds under rule I I of NCLAT Rules, 2016.

Actioncor Consultants Pvt. Ltd. Vs. Viprah Technologies Ltd. [CA (AT) (Ins.) No. 916/2019]

As per the investment agreement, the managing director (MD) and director of the CD had created a mortgage for securing the sums for repayment to secured creditors and to deregister the CD from the Board for Industrial and Financial Reconstruction (BIFR) within one year of the execution of the investment

agreement. One of the clauses in the agreement stipulated the settlement of disputes through mediation. Despite the failure to adhere to the terms of agreement, FC did not take steps to sell the property to recover the funds. Further, the CD is not a party to the investment agreement executed between the MD, the director of the CD, and the FC. The NCLAT, referred to the judgment of the SC in the case of Anuj Jain, IRP ofJaypee Infratech Limited v. Axis Bank and Ors. and held that to be construed as a ‘financial debt’, there should be a direct disbursal of the amount owed and there should be a direct transaction between FC and the CD. In the present case, there is no evidence on record substantiating disbursal of debt to the CD and the same has been acknowledged by the CD in their balance sheet as a ‘promise to pay’. It held that the MD and the director had admittedly taken the loan and the CD was never directly figuring in the transaction. It further held that the FC are at liberty to recover their dues from the sale of the property.

Hari Babu Thota, RP of Shree Aashraya Infra-Con Ltd. [CA (AT) (CH) (Ins.) No. 110 of 2023]

AA rejected the plan on the ground of disqualification of CD not having MSME registration. In the facts of the case, CD got registered under the Micro, Small and Medium Enterprises Development Act, 2006 as a micro, small and medium enterprise (MSME) entity post CIRP. Relying on its own judgment in Digamber Anand Rao Pingle v. Shrikant Madanlal Zawar & Ors., NCLAT observed that in the cases where the MSME certificate was obtained after commencement of the CIRP, such an unauthorised application cannot be considered to tide over ineligibility to submit resolution plan.

IFCI Limited Vs. Sutanu Sinha and Anr. [CA (AT) (CH) (Ins.) No. 108 of 2023]

The issue for consideration before the NCLAT was whether the compulsorily convertible debentures (CCDs) should be treated as ‘equity instrument’ or as a ‘debt’ and if the amount stated to be due and payable falls within the definition of ‘financial debt’. NCLAT observed that there is no condition in any of the agreements entered by the parties, which changes the nature of the CCDs on the ‘happening of any event’. It held that the investment was in the form of debentures which are convertible into equity. Merely because interest is payable on the CCDs, in the case of a default, it cannot be construed that the CCDs fall within the definition of ‘financial debt’ under section 5(8) of the Code. The terms and conditions of the CCD and the intention of the parties nowhere specify that the instrument would take the character of a ‘financial debt’. At the time of disbursal of the amount, it was to be treated as equity alone and not as debt.

Renuka Devi Rangaswamy, IRP of M/s. Regen Infrastructure and Services Pvt. Ltd. Vs. Mr. Madhusudan Khemka [CA(AT) (CH) (Ins.) No. 356 of 2022]

Several agricultural lands were purchased with the funds of the CD. However, the lands were purchased by a related party of the CD by virtue of having a common directorship in a different group company. NCLAT observed that, the intent to defraud requires that there must be high standard of proof to prove a fraudulent trading. Dishonesty is an essential ingredient of fraudulent trading and the same cannot be inferred in any manner. It further observed that ingredients for fraudulent trading, necessary materials are to be pleaded by a litigant/ stakeholder, by concrete proof in the light of facts. It held that the transaction in question made within the group will not fall within the meaning of fraudulent trading under section 66(1) of the Code.

Puissant Towers India Pvt. Ltd. Vs. Neueon Towers Ltd. [CA (AT) (CH) (Ins.) No. 181 of 2022]

AA rejected the CoC approved resolution plan holding that ARC cannot submit resolution plan, without the prior approval of RBI under section 10(2) of SARFAESI Act. NCLAT held that no prior permission is required for ARCs to participate in resolutions under the Code provided any of the activities undertaken by the ARC are not prohibited under SARFAESI Act. It further observed that section 238 of the Code, will prevail over any of the provisions of the SARFAESI Act, if it is inconsistent with any of the provisions of the Code.

V. Duraisamy IRP of H G S Dairies and Agro Ltd. Vs. Jeyapriya Fruits and Vegetables Commission Agent [CA (AT) (Ins.) No. 916 of 2019]

AA ordered initiation of section 9 application. Pursuant to public announcement the only claim was from the OC applicant. CIRP was admitted and CoC was constituted with sole OC. The IRP could not take possession of the asset of CD, as the same was locked on one hand and the name has been struck off from the MCA portal. As there were no prospects of continuing the CIRR the IRP filed application for dismissal of company petition which was dismissed holding that AA has no power of review or recall its own order. AA further directed the IRP to take steps for restoring the name of CD in the records of Registrar of Companies. On  appeal by IRE the NCLAT held that there is no provision in the Code for the constitution of CoC with a single creditor.

The issue before NCLAT was whether in the commercial wisdom of CoC, the revised plan can be submitted by the resolution applicants. NCLAT observed that decision to conduct the swiss challenge was approved by the CoC by requisite majority; further, the decision of CoC to conduct the challenge process is supported by terms of the request for resolution plan document. It held that CoC is empowered to negotiate after receipt of the plan on or before the plan is put to vote with the resolution applicants including a challenge process within its wisdom to take adecision.

National Company Law Tribunal

Brij Lal Kishore Kumar Vs. Tara Chand Rice Mills Pvt. Ltd. [IA No. 129/2022 in CP (IB)No.121/Chd/Hry/2017]

An order of liquidation was passed by the AA on February 12, 2019 against Tara Chand Rice Mills Private Limited (CD). The last date for submission of the claim in liquidation proceeding was March 14, 2019, whereas the IncomeTax Department filed its claim of Z 53,45,54,200/-on December 31, 2021, i.e. with a delay of 1023 days. As the liquidator rejected the claim on the ground of delay, the Income Tax Department filed an IA praying for condonation of delay and consideration of their claim in the liquidation. AA while disposing the application, relied on the judgment passed by the SC in case of State Tax Officer v. Rainbow Papers Limited, directed liquidator to re-distribute the proceeds from the realization of the liquidation process as per the provisions of section 53 of the Code by treating the Income Tax Department as a secured creditor.

Viswaroopa Info Services India Pvt. Ltd. Vs. SITI Visions Digital Media Pvt. Ltd. [(IB)-980 (ND) 2020]

OC had filed section 9 application against CD owing to unpaid invoices amount The authorised director of OC is wife of MD of CD and together they had held 9% of equity shares in CD. The issue for consideration before AA was, whether OC and CD are related parties in terms of section 5(24) of the Code and was there existing dispute between them. AA while disposing of the petition observed that in the absence of any corroborative material, assumptions cannot be drawn on the basis of husband and wife relationship between the applicant and the CD. AA dismissed OC’s application on the strength of emalls exchanged between the parties on OC withholding of assets of CD for maintenance and held that there was pre-existing dispute between OC and CD.

Tuf Metallurgical Pvt. Ltd. Vs. Albus India Ltd. [IA/1703/2023 in IB-I 089/PB/2018]

Post approval of resolution plan, erstwhile director of Albus India Ltd (CD) filed an FIR against FC and RP about serious allegations against erstwhile RE. Consequently, Police issued series of notices demanding information/documents related to the CIRE Aggrieved by the action of police, RP filed an IA seeking directions from AA to restrain police from harassing erstwhile RE valuers, SRA, FC. While disposing the application AA directed police not to take any coercive action against RP and held ‘…Section 233 of the IBC, 2016 grants immunity to the Resolution Professional for actions taken in good faith Further, jurisdiction with respect to offences committed under the IBC. 2016 is with Special Courts established in terms of Section 236 of the IBC. 2016. A proper procedure is laid down under the Code for filing complaint against the Resolution Professional. Chapter VI of the Code dealing with Inspection and Investigation lays down the proper procedure to file a complaint against the Resolution Professional. Section 217 clearly provides that any person aggrieved by the functioning of the Resolution Professional may file a complaint to the Board (1881). The 1881 is empowered to investigate such complaints’.

Other Authorities

Jet Airways (India) Limited Vs. Commissioner of Service Tax-V, Mumbai [Service Tax Appeal No. 86949 of 20 1 5] CD (M/s Jet Airways (India) Limited) and Revenue Department filed appeals before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) challenging the order passed by Commissioner of Service Tax which has confirmed the demands amounting to f 20,28,56,543/- along with applicable interest and penalty against CD. While disposing the appeal, CESTAT relied on the SC judgment in Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. and held that appeals have abated in view of approval of resolution plan by the AA. It also referred to the instructions dated May 23, 2022 issued by the Central Board of Indirect Taxes and Customs providing SoP for handling NCLT cases and reiterating the legal position that GST and customs authorities are required to submit their claims against the CD during the processes under the Code; and no demands can be raised once resolution plan is approved.

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November 2023