Orders
Supreme Court
A two-judge bench of the SC in Ruchi Soya has examined the issue as to whether the minimum value payable to a dissenting secured FC – DBS Bank in terms of section 30(2)(b)(ii) is required to be calculated on the basis of the voting share enjoyed by such creditor in the CoC of the concerned CD or on the basis of the value of the security interest enjoyed by such FC. The Bench took the latter view and held that the minimum value payable to a secured dissenting FC should be calculated by taking into account the value of the security interest enjoyed by such creditor. SC observed that its view is in conformity with the judgments given in the matters of CoC of Essar Steel India Ltd. v. Satish Kumar Gupta and Ors. and Jaypee Jaypee Kensington Boulevard Apartments Welfare Association & Others v. NBCC (India) Limited & Others which provide for the minimum entitlement of value of the security interest. However, on account of a differing view taken by another two-judge bench of the Hon’ble Supreme Court on this issue in the matter of India Resurgence ARC case, the Bench directed the matter to be placed before the Hon’ble Chief Justice for appropriate order for reference of the matter to a larger bench. Another issue before the Bench was whether the amended section 30(2)(b)(ii), amended by the entry into force of the Amendment Act of 2019, was applicable to the present case when it was being heard before the NCLAT. Relying on the judgment in the matter of CoC of Essar Steel India Limited v. Satish Kumar Gupta & Ors. (2020 8 SCC 531), the Bench held that since the proceedings were pending, the amended section 30(2)(b)(ii) should have been considered by the NCLAT.
Bharti Airtel Limited & Anr. Vs. Vijaykumar V. lyer & Ors. [Civil Appeal Nos. 3088-3089 of 2020]
In this case a two Judge Bench of the SC made observations regarding the right of a creditor to claim set-off of any amount that it owes to a CD against the debt owed by the CD to such creditor, post commencement of insolvency proceedings. During the course of business activity, Airtel and Aircel had entered into understanding for adjustment of some business entries. Owing to disputes in offsetting of charges between both the entities, Airtel approached the AA, who had held that the Airtel has a right to set off. On appeal preferred by RP NCLAT allowed the appeal holding that set-off is violative of the basic principles and protection accorded under any insolvency law. Airtel filed appeal before SC against the said order of NCLAT. The issue for consideration before SC was whether the right to claim set-off is available in the CIRP when the RP has proceeded to take immediate custody and control of all assets in terms of clause (a) to sub-section (2) of section 25 of the Code, 2016. SC made detailed analysis of the meaning, importance and types of set off and even highlighted the difference between set-off of transaction pertaining to period prior to CIRP during CIRP and during liquidation.
SC held that the provisions of statutory set-off in terms of Order VIII Rule 6 of CPC or insolvency set-off as permitted by regulation 29 of the IBBI (Liquidation Process) Regulations, 2016 (Liquidation Regulations) cannot be applied to the CIRP. The aforesaid rule would be, however, subject to two exceptions or situations. The first is where a party is entitled to ‘contractual set-off’ (where parties agree for set-off in a particular manner beforehand), on the date which is effective before or on the date the CIRP is put into motion or commences. The second exception will be in the case of ‘equitable set-off’ when the claim and counter claim in the form of set-off are linked and connected on account of one or more transactions that can be treated as one. Thus, SC keeping in view the provision of doctrine of pari-passu (same class of creditors should be given equal treatment) and anti-deprivation (common law rule that prevents creditors from being disadvantaged by contractual provisions that undermine insolvency laws) did not allow statutory set-off and insolvency set-off. Unlike the provisions of the Companies Act, 1956 or the Companies Act, 2013, IBC in the case of CIRP does not give the indebted creditors the right to set-off against the CD. In the case of partnerships and individual bankruptcies, section 173 of the IBC permits set-off. Section 36(4) permits the IBBI to specify assets which could be subject to set-off during liquidation process on account of mutual dealings between the CD and the creditor. Though regulation 29 of the Liquidation Regulations does not refer to section 36(4), it provides for mutual credits and set-off. However, the Liquidation Regulations are not applicable to Chapter 11 Part 11 of the IBC, which relates to the CIRP. SC while dismissing the appeal, held that IBC is a complete Code in itself relying upon the opening part of the enactment and sections 238 and 243 take care and nullified the argument raised by the Airtel that they are entitled to statutory set-off or insolvency set-off, in the CIRP
CIRP was initiated against the Ansal Crown Infrabuild Pvt. Ltd. – CD carrying on the activity of construction of homes. The Homebuyers’ Association of CD filed an execution application before National Consumer Disputes Redressal Commission (NCDRC) seeking execution of its previous order against the CD and suspended directors/ officers of CD. However, the NCDRC declined to execute its order, holding that the decree cannot be executed due to the operation of moratorium under section 14 of the Code. On an appeal filed by Homebuyers’ Association, SC while disposing of the appeal observed that it cannot be said that no proceedings can be initiated against the directors/ promoters of the CD because there is a moratorium in place under section 14 of the Code. Relying on the judgment passed by itself in the matter of P Mohanraj v. Shah Bros. !spat (P) Ltd., SC held that liability, if any of the directors/ officers of CD will continue and protection of moratorium in terms of section 14 of the Code is only available to the CD and shall not be applicable to the directors.
GNIDA provided a plot of land to the JNC Construction (P) Ltd (CD) on lease, for constructing residential flats. GNIDA submitted its claim of ? 43,40,31,951/- as FC towards unpaid instalments payable towards premium for the lease. However, the RP treated the GNIDA as an OC and, vide e-mail dated February 4, 2020, requested the GNIDA to submit its claim in Form B, as an OC of the CD. GNIDA did not submit its claim afresh as an OC. In the meantime, the resolution plan was approved. The dues shown payable to the GNIDA were 7 13,47,40,819/- as an OC, and they were proposed to be paid just 7 1,34,74,082/- under the plan. GNIDA approached AA for recalling of its order of approval of resolution plan. AA while dismissing the application held that GNIDA did not take any action against the decision of the RP inspite of the knowledge about the ongoing CIRP. GNIDA preferred an appeal contesting its right as FC, before NCLAT which was dismissed. Subsequently, GNIDA filed an appeal. Hon’ble SC while allowing the appeal of GNIDA, set aside the resolution plan and sent the same to CoC for resubmission after satisfying the parameters as set out by the Code. It observed that the resolution plan fails not only in acknowledging the claim made but also failed in mentioning the correct amount due and payable. The resolution plan did not specifically place GNIDA in the category of a secured creditor. It observed that once it is proved that GNIDA has submitted its claim with proof then it could not have been overlooked merely because it was in a different Form —’The use of the words “a person claiming to be an operational creditor” in the opening part of Regulation 7, and the words “a person claiming to be a financial creditor” in Regulation 8, indicate that the category in which the claim is submitted is based on the own understanding of the claimant. Thus, there could be a situation where the claimant, in good faith, may place itself in a category to which it does not belong.’ Generally, feasibility and viability of a plan are economic decisions best left to the commercial wisdom of the CoC. However, where the plan envisages use of land not owned by the CD but by a third party, such as GNIDA, which is a statutory body, there must be a closer examination of the plan’s feasibility. SC further pointed out that neither NCLT nor NCLAT while deciding the application /appeal took note of the fact that GNIDA had not been served notice of the meeting of the CoC. The entire proceedings up to the stage of approval of the resolution plan were ex parte to GNIDA which had submitted its claim, and was a secured creditor by operation of law, yet the resolution plan projected GNIDA as the one who did not submit its claim. SC held that resolution plan did not meet all the parameters laid down in sub-section (2) of section 30 of the IBC read with regulations 37 and 38 of the CIRP Regulations and the same shall be sent back to the CoC for re-submission after satisfying the parameters set out by the Code as exposited above.
High Court
CA V. Venkata Sivakumar Vs. IBBI & Ors. [Writ Petition Nos.! 6650 of 2020 and 14448 of 2021 & VV.M.P.No.24548 of 2020]
Two writ petitions (WPs) were filed before Madras HC by CA V. Venkata Sivakumar (RP). In one of the WF! RP challenged section 204 of the Code as being ultra vires to Article 14, 19 (1) (g) and 21 of the Constitution. In another WP the said RP challenged clause 23A of the IBBI (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 (Model Bye-Laws Regulations). The HC clubbed both the WPs as the petitioner herein was same RP The issue that arose for consideration was firstly, whether clause 23A of Model Bye-Laws Regulations is liable to be struck down as manifestly arbitrary, conferring unbridled, excessive power on Insolvency Professional Agencies (IPAs) and for violation of principles of natural justice? secondly, whether section 204 of Code is violative of Article 20(2) of the Constitution of India, in as much as it provides for disciplinary proceedings by two agencies namely, IPA and the IBBI with unbridled and excessive powers to the agencies? HC while disposing these WPs has upheld the validity of clause 23A of the Model Bye-Laws Regulations and held that IPAs do not exercise discretion as the suspension happens automatically once the disciplinary proceedings are initiated. The power of suspension is not a punishment but is an ad-interim measure. The purpose of suspension is immediately to keep the erring RP away from the office so that relevant material and evidences on record can properly be collected for an impartial and fair enquiry. It further observed ‘that mere hardship cannot be a ground for challenging the very regulation itself’ HC further clarified that petitioner had previously also filed WP challenging the other provisions of the same regulations and filing of the repeated WP would be barred by the principles of constructive res judicata. HC referring to the Bankruptcy Law Reforms Committee Report held that section 204 has been incorporated after due deliberations. RPs have been subjected under two-tier monitoring and control system with proper application of mind.
Deputy Commissioner (Works Contract), Kerala State Goods and Services Tax Department Vs. NCLT & Ors. [WP(C) NO. 39 I 85 of 2022]
Liquidation order was passed byAA as the resolution failed. Post liquidation order, Kerala State Goods and Services Tax Department issued an assessment order. An application seeking permission to file appeal against such assessment order was filed before AA by CD. AA while dealing with such application, has declared the assessment order as void ab initio, on the grounds of violation of the moratorium under section I 4( I )(a) of Code. WP was filed against AA before Kerala HC. While setting aside the order of AA, HC remitting the matter back for consideration, held that while the moratorium prohibits enforcement of claims, it does not prevent assessment or determination of tax liabilities.
Kunwer Sachdev Vs. IDBI Bank & Ors. [W.P.(C) 10599/2021 and CM Appls. 32697/2021 & Ors.]
Ex- director of CD/ Petitioner herein filed WP before Delhi HC seeking directions for IBBI, Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) to develop guidelines for effective monitoring and functioning of the CoC. HC observed ‘Considering the significant role which the CoC plays in the entire CIRP and the sanctity ofthe ‘commercial wisdom’ ofthe CoC which is protected by the legislative mandate from unnecessary interference, there is a compelling need for the code of conduct/ guidelines for the effective working of the CoC in order to fulfil the bonafide objectives ofthe Code’.
Nirmal Singh & Ors. Vs. State of U.P. & Ors. [WRIT — C. No. – 41110 of 2019 &Ors.]
NOIDA allotted land to M/s Hacienda Projects Private Limited (HPPL- SP Company) to build and develop a residential project ‘Lotus 300′ in Noida and executed a lease deed with HPPL. The promoters of HPPL had syphoned away 7 190 crore approx. out of 636 crore collected towards sale/booking of flats from the homebuyers. Instead of developing the project, the said sums were diverted from the CD and interest-free loans were given to other companies of the promoters. Homebuyers of the project lodged First Information Report i.e. FIR against the promoters of the CD. After negotiations, a memorandum of understanding was entered between homebuyers’ association and promoters on behalf of the CD for completion of the project. As the promoters failed to complete the activity, NOIDA sent a recovery notice of 63.65 crore. Aggrieved by the said notice, promoters filed WP before Allahabad HC with the prayer to quash the recovery notice. In the meantime, CIRP was also initiated against CD on FC’s application. The issue before HC was whether Code would provide any protection to the promoters/directors in terms of moratorium under section 14 of the Code, against the criminal liability for the prosecution of fraud? HC noted promoters have played a fraud on the homebuyers, NOIDA, FC as well as on the Court. It held that moratorium under the Code is confined only to the CD and the directors/ promoters shall continue to be liable and be prosecuted for such offence.
Shiv Charan & Ors. Vs. AA under the PMLA & Anr. and connected petitions [WP (L) No.9943 & 29111 of 2023]
In cross-writ petitions namely- ( 1 ) the successful resolution applicant (SRA) preferred a WP before HC seeking directions to Directorate of Enforcement (ED) to release the attached properties in view of approved resolution plan; (2) on the other hand, the ED also preferred WP inter alia praying to quash AAs order of approving the plan and direction for release of CD’s assets. The issues before HC were (a) can an attachment by ED continue over CD’s assets post approval of resolution plan under the scheme of IBC; and (b) whether the NCLT has the jurisdiction to direct the ED to release attached properties under section 32A? HC noted that proviso to section 31(1) of the Code requires the NCLT, while approving a resolution plan, to ensure that the resolution plan is capable of being effectively implemented. After approval of resolution plan, section 32A provides immunity to the CD from the liabilities/ offences committed by it prior to the commencement of CIRP. It observed that for availing such immunity, there must be a change in the ownership and control of the CD. However, the immunity under section 32A will not be available to the promoters/ KMP or related persons. HC upheld the AAs directions to release the CD’s attached assets and to ensure that the resolution plan approved in relation to the CD be implemented effectively. It further observed that once a resolution plan is approved and CD qualifies for immunity under section 32A, then it is incumbent upon quasi-judicial authorities such as the AA under the PMLA to take judicial notice of the same and release the properties attached on their own. It also held that section 32A of the Code having a non-obstante provision will prevail over the PMLA which is a subsequent legislation. It further held that AA is empowered in its jurisdiction under section 60(5) to decide any fact or law arising in or relating to insolvency proceedings.
DAE (SY 22) 13 Ireland Designated Activity Company Vs. Go Airlines (India) Ltd. [Cont. Case(C) 1767/2023]
A contempt petition was filed under section 12 of the Contempt of Courts Act, 1971 by one of the lessors of CD against RP for non-compliance of the Delhi HC order dated October 12, 2023, inter alia alleging non-compliance of directions passed in an earlier order regarding regular maintenance; monthly inspection of the Aircrafts and providing of aircrafts records and documents. RP submitted that steps were taken for compliance of the order but there were difficulties underlying in it. HC while issuing contempt notice to RP observed that he failed to comply with the earlier orders and cannot plead difficulties at a later point in time when contempt proceedings have already been filed.
CIRP against CD was initiated by order of AA. As per the findings of forensic audit conducted during CIRP a complaint was filed against CD and others by the Bank. In pursuance of which PM LA proceedings were initiated against them. Meanwhile, order dated February 9, 2021 was passed by AA in one IA declaring such audit report as unreliable. Based on same, aforesaid writ was filed seeking stay against ED investigation. Delhi HC along with other provisions of PM LA, relied on the second proviso to section 32A of the Code dealing with the liability for prior offences, and observed that ‘merely in view of order dated 26.10.2018 passed by NCLT, Ahmedabad bench in insolvency proceedings and reference of the same in order dated 08.12.2022 passed by learned Court ofSession, Greater Bombay in Anticipatory Bail Application No. 2546 of2022 preferred by petitioner, cannot lead to a conclusion at this stage, that petitioner is not associated with proceeds of crime. Neither the same takes away the jurisdiction to investigate the proceedings under PMLA, 2002’. In the result, HC dismissed the WP.
Gouri Prasad Goenka Vs. State Bank of India & Ors. [WPO No. 1487 of 2023]
Borrower-company entered into an One-time settlement (OTS) with the Bank towards payment of certain dues. However, the time for such repayment under OTS was getting extended. In the meanwhile, CIRP was admitted against borrower-company. Further, CD was declared as ‘wilful defaulter’ by the Reviewing Committee in terms of RBI Master Circular. Aggrieved by the order of Reviewing Committee, CD filed a writ before the Calcutta HC. Issues raised before HC was that the borrower company was under moratorium as well as Reviewing Committee has not taken into consideration of circumstances such as losses faced by it, certain agreements while deciding such order and merely relied upon the findings of the First Review Committee. HC relied on the judgment of B.C. Chaturvedi v. Union of India and others, reported at ( 1995) 6 SCC 749 and State of T.N. and another v. S. Subramaniam, reported at (1996) 7 SCC 509 and held that the HC would interfere in judicial review only if the impugned conclusion could not have been reached by a reasonable person. Thus, while dismissing the writ it observed that the moratorium under the Code was introduced to sustain the business of the company in the hands of the SRA. Notwithstanding the commencement of CIRP the directors, cannot be absolved of any wilful default committed by the borrower-company at the relevant juncture.
Atibir Industries Company Ltd. & Ors. Vs. Indian Bank [WPO No. 204 of 2024]
CD and its directors/guarantors had filed WP before HC praying to set aside the SCN issued by Indian Bank declaring the petitioners as wilful defaulters in terms of the Master Circular issued by RBI. HC held that a borrower is declared to be a wilful defaulter upon satisfying the criteria meant for declaring wilful defaulter in the RBI Master Circular, even without classification of the account as NPA. HC held that a wilful defaulter proceeding does not come within the contemplation of section 14 or section 96 of the Code, which primarily pertains to legal actions to foreclose, recover, or enforce security interest, or recovery of any property of the debt-in-question. It referred to SC judgment of P Mohanraj wherein, it has clarified ‘that the moratorium concerns not merely recovery of debt but any legal proceeding even indirectly relatable to recovery of any debt. Hence, the moratorium applies to recovery proceedings and proceedings which directly or indirectly “relatable” to such recovery. A wilful defaulter proceeding cannot, by any stretch of imagination, be said to be even remotely relatable to recovery of debt but is merely an off-shoot of the debt. The corpus of debt is not the subject-matter of a wilful defaulter proceeding, unlike a recovery proceeding, but is a mere stimulus to spur the wilful defaulter proceeding into motion’. While disposing the petition HC held that the SCN is valid, and cannot be set aside. As a part of fair relief, it directed the bank to provide forensic audit report to the petitioners as SCN relies extensively on the same.
National Company Law Appellate Tribunal
Jindal Power Limited Vs. Dhiren Shantilal Shah & Ors. [CA(AT)(Ins.) No. 1166- 1167 of 2023]
The issue for consideration before NCLAT is whether an unsolicited prospective resolution applicant (PRA)who did not figure in the final list of PRAs, could be allowed to submit a resolution plan for value maximization of the CD under the existing provisions of the Code and particularly regulation 39(IB) read with regulation 3613(7) of CIRP Regulations. NCLAT while dismissing the appeal observed that maximization of the value of the assets of the CD must be in alignment of the primary objective of the Code and cannot be accepted by giving a go by to the Code and regulations. It held that entertaining unsolicited plans from a person who did not figure in the final list of PRAs, would lead the CIRP of CD to be never ending.
Amar Nath Liquidator, Karan Processors Pvt. Ltd. (In Liquidation) Vs. Excise & Taxation Commissioner [CA (AT) (Ins) No. 221 of 2023 & I.A. No. 795, 796 of 2023]
Tax department had filed its claims before AA after the liquidation process was over, while the application for dissolution was pending. AA while allowing the application of tax department directed liquidator to ensure that the stakeholders, who have received any monies beyond their entitlement at the time of distribution, return the same, so that the department’s dues are paid. Liquidator challenged AAs order before Appellate Tribunal. NCLAT while allowing the appeal set aside AAs order. It further distinguished present matter with State Tax Officer v. Rainbow Papers Limited based on the stage of process and remanded the impugned order and directed AA to look into the practical difficulties for the purpose of recovering the amount from 29 stakeholders after the entire proceedings were over.
Kineta Global Limited vs. IDBI Bank Limited & Ors. [IA Nos. 639, 641, 640-2021, 92,97, 340,622, 942,1052-2022 & 417-2023 in Company Appeal (AT) (CH) (Insolvency) No.302-202I]
M/s Kineta Global Limited was declared as the H I bidder during the process of compromise or arrangement. The AA vide order dated November 17, 2021 set aside the valuation conducted during liquidation and ordered fresh invitation of schemes. The H I bidder filed an appeal before the NCLAT. The issues dealt in the appeal were (a) can a valuer ascribe ‘zero’ value to an asset merely because of disputes over it; (b) whether HI bidder can be ‘aggrieved person’ as per section 61 of the Code. The NCLAT, while dismissing the appeal, observed that valuing the property at zero value on the premise that it was under dispute, is not maintainable. Merely because the CD has no valid or marketable title , the ‘value of the property’ cannot be described as zero. The ‘assets of the CD’ are to be revalued in accordance with regulation 35 of the Liquidation Regulations. It further held that H I bidder cannot be an ‘aggrieved person’ as per section 61 of the Code; he has `no say’ in respect of matters, pertaining to the valuation of assets of the CD. HI bidder cannot claim, avested right, or any fundamental right to seek for an ‘approval of his plan’, and thereby claim to be a person ‘aggrieved’ in respect of the impugned order. It was pertinently noted that sharing of the valuation reports with the potential resolution applicants by the liquidator is quite contrary to regulation 34(4) of Liquidation Regulations and IP is to ensure that confidentiality of information is maintained in all processes.
ACRE — 81 Trust, through its Trustee Asset Care & Reconstruction Enterprises Ltd., & Ors Vs. Pawan Kumar Goyal IRP of SARE Realty Projects Private Ltd., & Ors. [CA (AT) (Ins) No. 447 of 2023 & I.A. No. 1475, 1476 of 2023]
AA while dismissing the application filed for liquidation of CD, issued SCN to the assenting CoC members jointly, who voted in favour of the liquidation of the CD without even exploring the possibility of CD’s resolution. On appeal by assenting members of CoC the issue before NCLAT was whether CoC can take decision for liquidation of CD without publishing Form-G, Eol etc? NCLAT while allowing the appeal observed that the CoC has the jurisdiction to pass agenda for liquidation of the CD by requisite majority of the voting share, but it should be before the approval of the resolution plan.
Ashmeet Singh Bhatia Vs. Pragati Impex India Pvt. Ltd. & Anr. [CA(AT) (Ins.) No. 1413 of 2023]
Ashmeet Singh Bhatia/Appellant, a homebuyer in one of the companies of the CD, namely, M/s. Granite Gate Properties Pvt. Ltd. undergoing CIRF? had filed an application under section 65 of the Code against FC for initiating insolvency against the CD with malicious intention to defraud. The said application was dismissed byAA holding that application under section 65 is maintainable once the petition is admitted and CIRP has been initiated. On appeal filed by the appellant, the issue for consideration was whether an application filed under section 65 of the Code is maintainable after the filing of the application under section 7, 9 or 10 of the Code or could be maintainable only after the admission of such an application? NCLAT while allowing the appeal held that the application under section 65 of the Code is maintainable any time after the filing of an application under section 7, 9 or 10 of the Code.
Paridhi Finvest Pvt. Ltd. Vs. Value Infracon Buyers Association and Anr.[ [CA (AT) (Ins) No. 654 of 2022]
In the CIRP of CD, Value Infra Buyers association (VIBA) constituting 97% voting share of CoC came forward for completion of the unfinished project and the resolution plan was approved by AA. The appellant, being the dissenting creditor, filed an appeal against the approved resolution plan. The issues raised were — (a) eligibility of VIBA to submit a resolution plan; (b) non submission of performance guarantee by VIBA; (c) appellant being dissenting FC is entitled for amount as per the security value, as it has equitable mortgage on 30 units / flats of the CD. NCLAT noted that AA vide order had extended the CIRP period as no resolution plan was received, VIBA has come forward to complete the project and the resolution plan submitted by them was approved by NCLT. Notably, CoC has not directed VIBA to submit performance security as they constitute 97% voting share. It further noted that section 30(2) of IBC provides that amount entitled to a dissenting FC shall not be less than the amount payable in the event of liquidation. As per the plan, the appellant is being paid 7 I crore, however, as per its voting share (2.38%), the amount payable becomes 7 99.19 lakh. Therefore, the appellant is not being paid less than the amount payable in the event of liquidation. NCLAT cited the order of Apex Court in the matter of India Resurgence ARC Pvt. Ltd. v. Amit Metaliks &Anr. (2021) SS Online SC 409, to establish that amount to be paid to different classes of creditors is commercial wisdom of CoC and a dissenting secured creditor cannot suggest a higher amount to be paid with reference to the value of security interest. NCLAT also cited its order in the matter of IOC Bank Ltd. v. BKM Industries Ltd., wherein, it was held that there is no scope of distribution of assets among FCs as per security interest. NCLAT concluded by stating that ‘It is well settled that the security holder cannot insist payment of amount as per security interest, when the CD is resolved through a resolution plan’.
Vijay Saini v Shri Devender Singh & Ors.[CA (AT) (Ins.) No. 1194 of 2023 & I.A. No.4200 of 2023 with other appeals]
In this case, RP challenged AAs order allowing withdrawal proposal under section I2A of the Code. NCLAT while allowing the appeal held that for computing voting with regard to section 12A of the Code, the same has to be done as per section 25A(3A) read with proviso to section 25A(3). It clarified that the voting under subsection (3A) which is cast by Authorised Representative (AR) on the basis of vote of more than 50% of the voting share of the FC in a class but the said provision was subject to the proviso that has created a different voting pattern for section 12A. As per section 25A(3), if AR represents several FC, then he shall cast his vote in respect of each FC in accordance with instructions received from each FC to the extent of his voting share. When the section 12A specifically provides for 90% voting percentage for section 12A proposal, then 90% of the voting share of the creditor in class have to be taken into consideration. Since voting by each homebuyer who represented creditor in class has to be computed as per his voting share and adding all vote shares of the creditor in class with any other FC if it is at least up to 90%, onlythen section I2A proposal is held to be approved.
Jaiprakash Associates Ltd. Vs. Jaypee Infratech Limited and Ors. [CA(AT)(Ins.) No. 548 of 2023 & IA No. 2643, 3702 of 2023]
An application under section 7 of Code was filed against CD and the same was admitted vide order dated August 9, 2017 of AA. Resolution plan of NBCC (India) Ltd. with some modification was approved by AA vide order dated March 3, 2020. Subsequently, after a round of litigation which travelled up to SC, the CoC approved the resolution plan and addendum submitted by Suraksha Realty on June 7, 2021 with a voting percentage of 98.66%. AA approved resolution plan of Suraksha Realty vide its order dated March 7, 2023. Subsequently, approved plan was challenged among others also by the holding company Jaiprakash Associates Ltd. (JAL) and Manoj Gaur, ex-director and PG to CD. JAL and ex-director averred that the resolution plan is contrary to the provisions of the law in terms of section 30(2)(e) of the Code and Suraksha Realty is being unjustly enriched by taking over an asset rich company at a hefty haircut while depriving JAL and PG to CD of their statutory rights of discharge under section 135 of the Contract Act, right to get possession of the securities under section 141, and their right to become creditors of Jaypee Infratech Limited. Issue for consideration before NCLAT is whether the resolution plan violates provision of section 30(2)(e) of the Code by removing the right of subrogation of the guarantors? NCLAT relied on judgment of SC in the matter of Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta, (2020) 8 SCC 531 which made a detailed analysis of contradictory precedents in this context and held that ‘The law is thus well settled that after approval of the Resolution Plan, the Personal Guarantors and Corporate Guarantors have no right of subrogation especially when in the facts of the present case under Clause 34.50 of the Resolution Plan, right of subrogation is expressly extinguished. The debt against the Corporate Debtor might have extinguished after approval of the Resolution Plan but said consequence shall not be with regard to the Corporate Guarantors and the Personal Guarantors’ NCLAT dismissed the appeal on the rationale that SRA cannot suddenly be faced with ‘undecided’ claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw PRA taking over the business of the CD into uncertainty.
EBIX Singapore Pte. Ltd. Vs. Mr. Mahender Kumar Khandelwal RP of Educomp Solutions Ltd &Anr. [CA (AT) (Ins.) No. 167 of 2024]
EBIX Singapore Pte. Ltd. (SRA) filed an appeal challenging approval of its own resolution plan on the ground that AA failed to look into the implementation of the plan. The issue before NCLAT was whether the subsequent events that transpired after the submission of the resolution plan namely, lapse of more than five years and deterioration of financial status of CD rendering the plan unimplementable, require consideration by AA. NCLAT while dismissing the appeal, observed that RP must examine that the resolution plan provides for implementation and supervision of the plan. Further, feasibility and viability of resolution plan is in the domain of commercial wisdom of CoC. CoC found the resolution plan feasible and viable, NCLAT held that SRA cannot ask the AA to look into feasibility and viability of the resolution plan.
Mr. Vikas Aggarwal Vs. Asian Colour Coated Ispat Limited and Ors. [CA(AT)(Ins.) No. 1104, 1105, 1107 & 1108 of 2020]
PGs have filed appeals challenging order of AA approving the resolution plan to the extent that it allows recourse to the FCs against the PGs of CD. As per the plan, entire debt of the CD owed to the FCs was assigned to Special Purpose Vehicle (SPV) of SRA. Issue for consideration before NCLAT was whether recourse to the guarantee, survive after the entire debt of the CD stood assigned in favour of the SPV by the FCs as per approved resolution plan. NCLAT observed that doctrine of subrogation allows PG to resume the rights or remedies of the FCs against the CD. But the issue becomes different if it falls within the domain of the Code. There are clear and express provisions and stipulations under the resolution plan safeguarding the right of the FCs to pursue legal remedies against the PG. It noted that objective of the Code is to revive and rehabilitate the CD; and as such the right to subrogation may not survive in such situation. Despite the provisions of section 140 and 141 of the Indian Contract Act, 1872, the PG cannot claim any relief in view of the non obstante clause under section 238 of the Code. NCLAT while dismissing the appeal held that extinguishment of PG’s right of subrogation is unavoidable and inaccessible fact in insolvency cases and any departure from such principles will have adverse impact on revival of the CD, interest of the FC and overall negative impact on the national economy.
SEL Manufacturing Company Ltd. Vs. Punjab Small Industries & Export Corporation Ltd. [CA (AT) (Ins.) No. 881/2022 (IA Nos. 2446, 2447 & 2449 of 2022]
Punjab Small Industries Export Corporation (PSIEC) executed a lease deed with CD for 99 years. The price of the plot of land was subject to variation with reference to the actual measurement of the plot and the cost of acquisition of land and enhancement of compensation on account of acquisition of land by the Court. PSIEC issued a demand notice for enhanced cost. In the meanwhile, the CD was pushed into CIRP. During the process PSIEC did not file any claims. Thereafter, the resolution plan was approved by AA. However, post approval of the resolution plan PSIEC issued a demand notice for the enhanced cost of land for the CD. On an application filed by CD, AA dismissed the same. However, CD preferred an appeal before NCLAT. While upholding AA’s order, NCLAT held that the land was not owned by the CD but was a leased property, and any transfer of the leasehold land required the respondent’s approval. NCLAT while dismissing the appeal, observed that rights of the state land development authorities over the assets cannot be overridden by the provisions of the Code and any transfer of rights under the resolution plan are subject to terms and conditions of the original allotment. It held that the ‘clean slate principle’ will not apply to the factual matrix of the present case, where there was prior demand from public sector land authority.
National Company Law Tribunal
Shree Krishna Recycling India Pvt. Ltd. Vs. Mr. Sanjay Gupta, Liquidator, Shamken Multifab Ltd. [IA No.68/ALD/2024 in CP (IB) No. I 33/ALD/20I7]
AA passed liquidation order against CD. In furtherance of the order, liquidator published a sale notice for sale of CD as going concern. After receipt of letter of intent, the successful bidder deposited 7 27.20 crore including initial amount towards Earnest Money Deposit and only balance consideration of 7.20 crore was payable within 30 days without interest and with interest beyond a specified date. Thereafter, successful bidder filed an IA before the AA seeking direction against the liquidator to treat the present sale as slump sale instead of going concern in view of certain eventualities faced by it. Issue was placed before SCC, wherein it was resolved to grant consent for considering the sale of the assets as on slump sale basis subject to the payment of the entire balance amount within three days from the date of approval by the AA. In the facts of the case, AA allowed the application on the strength of resolution passed by SCC and after considering the fact that substantial payment has already been paid by the successful bidder applicant.
Axis Bank Limited Vs. Karvy Forde Search Private Limited and Ors. [IA 490- 491 of 2024 in CP(IB) No. 249/7/HDB/2022]
Axis Bank Limited (Bank) filed section 7 application on behalf of FC on the strength of Power of Attorney. The issue before AA was whether a ‘power of attorney holder’ is distinct from an ‘authorised person’ if so, whether the agent under a power of attorney is disentitled to maintain an application under section 7 of Code? AA noted rule 4(1) of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, Notification issued by the Central Government dated February 27, 2019 and judgment of Hon’ble SC in Rajendra Narottamdas Sheth & Mr. V. Chandra Prakash Jain & Mr. which has clarified that unquestionably an agent of a power of attorney can maintain a petition under section 7 of the Code, provided such power of attorney is ratified by the Board of Directors of the company. AA while dismissing the petition of FC held that the requirement that such a power of attorney shall be accompanied by a duly passed Board Resolution’ is not a mere a ‘technicality’ but mandatory legal requirement, and the non-compliance of which renders the said agent of such power of attorney incompetent to file an application undersection 7 of Code.
IBBI
Disciplinary Orders
During the quarter, the Disciplinary Committee of the IBBI disposed of 9 SCNs issued to the IPs for contravention of the provisions of law by passing suitable orders.
