Supreme Court

Franklin Templeton Trustee Services Private Limited and another Vs. Amruta Garg and others etc. [Civil Appeal Nos. 498-501 of 2021 with other appeals]

The Supreme Court (SC) held that home buyers are to be treated as creditors till the ownership rights in the property are not transferred to them, but they do not take the risks and are not entitled to benefit of profits or suffer losses, like the unit holders in the mutual funds. To equate the unit holders with the creditors vril be unsound and incongruous.

N/s. Orator Marketing Pvt. Ltd. Vs. M/s. Samtex Dasinz Pvt. Ltd. [Civil Appeal No. 2231 of 2021]

The SC held that where no interest is payable, the outstanding principal loan would qualify as a ‘financial debt’ in section 5(8) of Code. Thus, the of an Interest free outstanding loan given for working capital requirements of the CD Is eligible to initiate CI RP under the Code.

Dena Bank (now Bank of Baroda) Vs. C. Shivakumar Reddy and Art., [Civil Appeal No. 1650 of 2020]

The SC held that (a) an application under section 7 of the Code would not be barred by limitation if there was an acknowledgement of the debt by the CD and from the date of such acknowledgement, the limitation period would get extended by a further period of three years.; (b) Section 18 of the Limitation Act, 1963 cannot be construed with pedantic rigidity in relation to proceedings under the Code. An offer of One Time Settlement (OTS) of a claim, made within the period of limitation would constitute an acknowledgment of debt under section 18; (c) a judgment or decree for money or the issuance of a Certificate of Recovery In favour of the financial creditor (FC), would give rise to a fresh cause of action to Initiate proceedings wider section 7, if the dues of the CD under the Judgment/ decree / Certificate of Recovery or any part thereof remained unpaid.

Kay Bouvet Engineering Ltd. Vs. Overseas Infrastrcture Penances (India) Private Limited [Civil Appeal No.1137012019]

The SC observed that so tong as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the Al has no other option but to reject the section 9 application. lt held that the AA had rightly rejected the application after finding that there existed a dispute. National Company Law Appellate Tribunal (NCLAT) has patently misinterpreted the factual as well as legal position and erred in reversing the order of the AA.

Pratap Technocrats (P) Ltd. & Ors. Vs. Monitoring Committee of Reliance Infratel Limited & Anr., [Civil Appeal No. 676 of 2021]

On the contention that treatment to operational creditor (OC) has not been fair and equitable, the SC held that the Code does not confer equity-based Jurisdiction won AA. The jurisdiction of AA with regard to the approval of a resolution plan under section 31 Is limited to determining whether the requirements specified in section 30(2) have been fulfilled. The AA, owing Its existence to the statute, must abide by the nature and extent of its jurisdiction as defined in the statute it self. The jurisdiction of the Appellate Authority under section 6 I (3), while considering an appeal against an or of the AA, is similarly structured.

Anjali Rathi and Others Vs. Today Homes & Infrastructure Pvt. Ltd. and [SIP (C) No. 12150 of 2019]

On plea of petitioners to attach the personal properties of the promoters of the CD, the SC observed that It would not be appropriate to Issue a direction of that nature, while the resolution plan is still to be approved by the Al. Relying on Its judgment in the matter of P. Mohanraj Vs. Shah Bros. Ispat (P) Ltd., the SC further held that the moratorium ender the Code is only in relation to the CD and not In respect of the directors/m of the CD, against whom proceedings could continue. It clarified the would not be prevented by the moratorium under section 14 of the Code from Initiating proceedings against the promoters.

Ebix Singapore Private Limited Vs. Committee of Creditors of Educomp Solutions Limited & Anr. [Civil Appeal No. 3224 of 2020 with other appeals]

The SC held that once the resolution plan is approved by CoC and submitted to the AA after due compliance with the procedural requirements and timelries, the successful resolution applicant (SRA) cannot withdraw or modify the resolution plan. it reemphasised that the speed of resolution, as contemplated in the Code, is sacrosanct and the adjournments in the proceedligs hamper the efficacy of the judicial process. It made some important findings and observations as under

(a) Any judicial creation of a procedural or substantive remedy that is not envisaged by the statute would not only violate the principle of separation of powers, but also run the risk of altering the delicate coordination that is designed by the IBC frameworic and have grave implications on the outcome of the Cd RP the economy of the country and the lives of the workers and other allied parties who are statutorily bound by the impact of a resolution or liquidation of a CD.

Latest Case Law Related to IBC – July-September, 2021

(b) The element of privity becomes inapplicable once the AA confirms the resolution plan under section 31(1) and declares it to be binding on all stakeholders.

(c) The resolution plan, even prior to the approval of the AA, is binding inter se the CoC and the SRA. The resolution plan cannot be construed purely as a ‘contract’ governed by the Contract Act, in the period intervening its acceptance by the CoC and the approval of the AA. The ability of the resolution plan to bind those who have not consented to It, by the way a statutory procedure, indicates that Ft is not a typical contract.

(d) The remedies such as liquidated and unliquidated damages, restitution, novation and frustration, unless specifically provided by the Code, are not available to the SRA whose plan has been approved by the CoC and is awaiting the approval of the AA.

(e) Common law remedies of withdrawal or modification on account of from or force majeure are not applicable to CoC approved resolution plans.

(f) Importing principles of any other law or statute like the Contract Act Into the IBC regime work! introduce unnecessary complexity into the working of the Code and may lead to protracted litigation on considerations that are alien to it.

(g) Withdrawal of the GRP is allowed only if it upholds the interests of the CoC, is time-bound, and takes into consideration how the expenses relating to the insolvency process up to withdrawal shall be borne.

(h) The absence of any exit routes being stipulated under the statute for a SRA is Indicative of the IBC’s proscription of any attempts at withdrawal at its behest The rule of casus omissus is an established rule of interpretation, which provides that an omission In a statute cannot be supplied by Judicial construction.

(i) The framework, as it stands, only enables withdrawals from the CIRP by following the procedure detailed in section I 2A of the IBC and regulation 30A of the CIRP Regulations and in the situations recognised in those provisions. Enabling withdrawals or modifications of the resolution plan at the behest of the SRA, once It has been submitted to the AA after due compliance with the procedural requirements and timelines, would create another tier of negotiations which will be wholly unregulated by the statute. Permitting such a course of action would either result in a downgraded resolution amount of the CD and/or a delayed liquidation with depreciated assets which frustrates the core aim of the Code.

(j) The NCLT and NCLAT should be sensitive to the effect of delays on the insolvency resolution process and be cognisant that adjournments hamper the efficacy of the judicial process. The NCLT and the NCLAT should endeavour, on a best effort basis, to strictly adhere to the timelines stipulated under the IBC and dear pending resolution plans forthwith. judicial delay was one of the major reasons for the failure of the Insolvency regime that was in effect prior to IBC. We cannot let the present insolvency regime meet the same fate.

National Spot Exchange Limited Vs. Mr. Anil Kohli, RP for Dunar Foods Limited [Civil Appeal No.6187 of 2019]

The SC observed that under section 61(2) of the Code, NCLAT cannot condone the delay beyond 15 days. It held that delay in filing appeal beyond time stipulated in the Code, cannot be condoned through indirect recourse to Article 142 of the Constitution.

K. N. Rajakumar Vs. V. Nagarajan & Ors. [Civil Appeal No. 1792 of 2021]

The SC observed that one of the principal objects of the Code is providing for revival of the CD and to make it a going concern and every attempt has to be first made to revive the concern, with liquidation being the last resort. Further, virtue of withdrawal of CI RP on settlement between the CD and FCs, the CD now is a going concern.

In Re: Cognizance for Extension of Limitation [Miscellaneous Application No. 665 of 2021 in SMW(c) No.3 of 2020]

The SC In view of its order dated March 23, 2020 that provided for extension of limitation period w.e.f. March 15, 2020,1ssued the following directions-

(a) In computing the period of limitation for any nit, appeal, application or proceeding, the period from March IS, 2020 till October 2, 2021 shall stand excluded. Consequently, the balance period of limitation remaining as on March 15, 2020, if any, shall become available with effect from October 3, 2021.

(b) In cases where the limitation would have expired during the period between Mardi 15, 2020 till October 2, 2021, notwithstanding the actual balance period of limitation remaking, all persons shall have a limitation period of 90 days from October 3, 2021. In the event the actual balance period of limitation remaking, with effect from October 3, 2021, is greater than 90 days, that longer period shall apply.

(c) The period from March IS. 2020 till October 2, 202 I shall also stand excluded in computing the periods prescribed wider sections 23 (4) and 29A of the Arbitration and Conciliation Act, 1446, section I 2A of the Commercial Courts Act, 2015 and provisos (b) and (c) of section 138 of the Negotiable Instruments Act, 1881 and any other laws, which prescribe period(s) of limitation for Instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings.

Kendra Narottamdas Sheth & Anr. Vs. Chandra Prakash Jain & Anr. [Civil Appeal NoA222 of 2020]

The SC held that authorisation, having been granted by way of a power of attorney pursuant to a resolution passed by the bank’s Board of Directors, does not impair the authority of such officer to fie an application under section 7 of the Code and the same is maintainable. It also observed that the burden of prima fade proving occurrence of the default and that the application under section 7 is filed within the period of limitation, is entirely on the FC, and, the decision to admit an application Is typically made on the basis of material furnished by the FC, but, the AA Is not barred from examining the material placed on record by the CD to determine the period of limitation.

High Courts

Ideal Surgicals Vs. National Company Law Tribunal and Ors. [WP (C) No. 8257 of 2021]

The OC filed instant writ petition on the premise that the appeals and stay petitions are not being taken up by the NCLAT and if the resolution process is continued, the appeals before NCLAT will WI be rendered infructuous. The High Court (HC) of Kerala dismissed the writ petition holding that the Interference by it under Article 226 of the Constitution will defeat the very objective of the Code.

M/s. Kotak Mahindra Bank Ltd. Vs. K. Bharathi & Ors. [W.P. No.12957 of 2021]

The petitioner had sought direction to NCLT, Chennai to dispose of the application filed by it under section 60(5) of the Code. The Madras HC observed that it is for the NCLT to decide whether the matter before it ought to be decided or not, whether any injunction operates or impedes the of the matter before it and the parties cannot be asked to approach HC for it to hand-hold the NCLT and guide it through its proceedings. Further, the NCLT would do well to confine Itself to its area of specialisation and deal with the matter In accordance with law without waking for any advice or assistance from the HC which, In any event, is not obliged to extend.

M/s. CFM Asset Reconstruction Pvt. Ltd Vs. Unison Hotels Private Limited and Ors. [IA No. 1 of 2021 in WP No. 22667 of 2021]

Tebngana HC ordered an Interim suspension of the AAs order dated September I, 2021 in the matter of Viceroy Hotels Ltd, that rejected the resolution plan approved by CoC.

National Company Law Appellate Tribunal

M/s. Orbit Electra Equipments Pvt. Ltd. & Anr. Vs. Mr. Kapil Dev Taneja & Anr. [CA (Al) (CH) (INS) No. 142 012021]

NCLAT held that AA had exceeded Its jurisdiction In remitting back the approved resolution plan to CoC for fresh consideration as it cannot suo moto direct the reconsideration of an already approved resolution plan because after the approval of the resolution plan, the CoC becomes functus officio. It also clarified that ‘under no circumstance on the failure of the approved resolution plan, CoC is empowered for fresh consideration’. and observed that the order of AA ‘bristles with legal infirmities’. The matter was remitted back to AA for passing reasoned order `de novo’.

Digambar Anandrao Pingle Vs. Shrikant Madanlal Zawar, Erstwhile RP of M/s. Pingle Builders Pvt. Ltd. & Ors. [CA (AT) (Ins) No. 43-43A of 2021]

The ex-director/promoter of the CD filed this appeal against liquidation order passed by AA claiming that the CD was an MSME and that he could file a resolution plan. NCLAT observed that as the application for MSME certificate was made after commencement of C1RF,’ such unauthorised application, after the CI RP had started, could not have been made. It further observed that -‘after CIRP was initiated former Promoter/ Director cannot suppress from IRP/RP and apply for MSME Certificate and tide over ineligibility under Section 29A.

Piramal Capital & Housing Finance Ltd. Vs. The Administrator, Dewan Housing Finance Corporation Ltd. & Anr. [CA(A1) (Ins) No.467 of 2021]

In view of the SC judgment in the Ghanshyam Mishro case, NCLAT substituted pare (II) of the AA’s order as follows: All the dues inducting the statutory dues owed to the Centro/ Government, any State Government or any focal authority. if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date the Adjudicating Authority was granting its approval under Section 3 I could be continued’.

Deputy Commissioner, CGST Gujrat Vs. M/s Gopala Polyplast Ltd. [CA (AT) (Ins) No. 477 of 2021]

The appellant contended that Rs.1,18,336 admitted In the approved resolution plan was too insufficient considering its claim of Rs.2,36,67,282/-. Relying upon the SC judgment in Ghanashyam Mishra case, NCLAT, while dismissing the appeal, held that-‘the Resolution plan approved is binding on the Central State Government, any local authority. Guarantors and other stakehoklers. Sufficiency or insufficiency of the amount is matter of Commercial Decision of the Committee of Creditors’.

Bank of Maharashtra Vs. Videocon Industries Ltd. & Ors. [CA (AT) (Ins) No. 503 with 505 of 2021]

The appeal was filed against order of AA dated June 8, 2021 approving the resolution plan for 13 group companies of Videocon Group. Considering the contentions, inter-alia that (i) the dissenting FC was paid less than the liquidation value, (II) the payment proposed Is mostly In form of non-convertible debentures as against cash, (ii) there was breach of confidentiality clause with regard to liquidation value, and (iv) the resolution plan provided a haircut of almost 40-9696, the NCLAT stayed the order of AA and directed status quo ante.

NTPC Limited Vs. Ram Ratan Modi, Liquidator of D C Industrial Plant Services Pvt. Ltd. [CA (AT) (Ins) No. 309 of 2021]

During CIRP, the appellant filed the claim in Form F and list of creditors was published by the RP Thereafter, when liquidation was ordered, appellant filed claim In Form G which was rejected by the Liquidator. The NCLAT observed that ‘it was inappropriate on the part of the Liquidator to inform the Appellant in the e-mail dated 4″ September, 2019 that because the corporate debtor had disputed the amount and the same did not reflect in the record of the corporate debtor, the claim filed by the Appellant was not admissible’. k was duty of the Liquidator to examine the claim as provided by Regulations and to come at ‘best estimate’ of the amount and give the benefit to the appellant. The Liquidator has avoided performing the duty as was required to be performed trader the Code and the performing the duty as was required to be performed under the Code and the Regulations. Therefore, it directed the Liquidator to look into the documents and come to the ‘best estimate’ and give the benefit to the appellant.

Ashique Ponnamparambath Vs. The Federal Bank Limited [CA (Al) (CH) (Ins) No. 22 of 202 I]

The appeal was filed claiming that the application under section 7 was not maintainable because the loan transaction is based on an inadequately stamped Term Loan Agreement which is inadmissible In evidence. The NCLAT observed that in addition to the Term Loan Agreement, the FC relies on demand promissory note, hypothecation letter regarding deposit of title deed, a certified copy of the bank statement, and many other documents filed along with the application. Therefore, the debt and default are proved beyond doubt

C & C Construction Ltd. Vs. Power Grid Corporation of India Ltd. [CA (Al) (Ins) No. 781 of 2019 & other IAs]

Relying on the SC Judgment In 931 Vs. Ramakrishnan, the NCLAT held that the bank guarantee Issued by the bankers is the responsibility of the bankers and on invocation, the fund will go from the bank and not from the CD. However, if such bank is liquidated during moratorium, it can be restricted to the full value the guarantee minus margin money provided by CD to the banker for taking that bank guarantee.

Anoop Kumar Chhawchharia Vs. M/s. Emgreen Impex Limited & Anr. [CA (T) (Ins) No. 350 of 2021]

AA order regarding admission of CIRP of the CD was challenged inter alit on the ground that CD Is a solvent company with turnover of 7 400 crave. The NCLAT upheld the order of AA and observed that the CD being a healthy company Is not substantiated by its corresponding balance sheet as they have not filed the same. Further, this cannot be a sole basis to substantiate that it does not require to go to CIRP High termer with positive net worth may reflect good fund flow but it does not substantiate a good cash flow.

Ranjit Kapoor Vs. Asset Reconstruction Company (India) Ltd. (ARCIL) & Anr. [CA (AT) (Ins) No. 542 012021]

Promoter of the CD fled appeal against the order of AA that directed the RP for taking appropriate steps for Inviting fresh Pol. The NCLAT observed that the appellant is not asking for liquidation order due to delay and is rather himself wanting to file resolution plan and is Interested In resolution of the CD. Therefore, it remitted the matter to the AA to consider if the extension of CIRP period was to be ordered and take a decision with regard to section 12 of IBC. However, it declined to decide whether the appellant is eligible to file a resolution plan.

Asset Reconstruction Company (India) Limited Vs. Mohammadiya Educational Society [CA (AT) (Ins) No.495 of 2019]

The NCLAT observed that the cooperative society is not a company or kited liability partnership (UP) and, thus, application under section 7 against a 000peradve society is not mairtainabka and that the Code would apply to any other person Incorporated with Ilmked liability under any law for the time berg In force after they are specified by the Central Government under section 2(d) of the Code.

Vipul dilip Shah & Ors. Vs. Parinee Developers Pvt. Ltd. through RP Subhash Chandra Modi &Anr. [CA (AT) (Ins) No.451 of 2021]

A settlement deed was drawn between parties post admission of the application by the AA and RP filed the withdrawal application ender section 12A. The AA dismissed the application on the grounds inter alia that the CoC has not compiled with the provisions of the Code as well as the CIRP Regulations. The NCLAT set aside the order of AA and held that none of the conditions of settlement was against the provisions of Code and Regulations. CoC has taken a commercial decision by voting share of 99.9%. It is not appropriate to dismiss the application on the ground that the CoC has not taken steps in a time bound manner.

BRS Ventures Investment Ltd. Vs. Registrar of Companies, Guwahati (CA(AT)(Ins) No. 1028 & 1042 of 2020]

RA filed an application to Increase the authorised share capital without paying any fees/stamp duty to the Registrar of Companies. The AA, while dismissing the application held that it does not see any reason that when a new company takes over CD and starts with a dean slate and take certain management decision then everything cannot be exempted at a later stage.

Abhijit Guhathakurta RP of Videocon Group Companies [CA (AT) (Ins) No. 569 of 2021]

An appeal was filed by the RP against the order of AA praying that certain remarks were passed against him in the order. The NCLAT observed that AA in its order has requested/suggested to the IBBI and the Central Government to examine if required, to frame appropriate Regulations, Rules and or Guidelines with respect to – (i) the liquidation value and market value be kept confidential and Information to be given to CoC only at the time of finalisation of the resolution plan; and (II) to fix the maximum number of authorised representative of the applicant and held that AA has not passed any remarks against the RP

M/s. Unicon Buildtech Vs. Aishwarya Mohan Gahrana RP, Durha Vitrak Private Limited [CA (AT) (Ins) Nos. 517 of 2021]

The appellant claimed that the CoC and the RP acted arbitrarily to suit the interests of creditors and in defiance of the objectives of the Code and rejected the resolution plan of the Appellant. The NCLAT while referring to the SC judgment in Arcelormittal case observed that there is no vested right of the RAto have its plan approved.

Anldt Goyat Vs. Sunita Agarwal & Anr. [CA (AT) (Ins) No. 1020 of 2019]

The NCLAT set aside the order of AA and held that the faces and circumstances peculiar to the case Indicate that the allottee sought benefit from a ‘lucrative agreement’ as he is ‘securing’ his money by way of the said agreement which gives him a lien over the flat In the agreement, the home buyer was given a choice to retain or to sell the earmarked unit. In a regular Builder Buyer Agreement, the home buyer does not have this option of exercising his choice of taking or not taking the possession of the subject wit and if the buyer does not accept the possession, the earnest money deposit is forfeited. In this case, the buyer gets his money plus 25% assured return even if he chooses not to retain the apartment. This Agreement is only a camouflage of actually financing the construction of the flat. It held that the home buyer sought to benefit from this ‘lucrative agreement’ and is squarely covered by the ratio of the SC judgment in Pioneer Urban Land and infrastructure Ltd. Referring to its decision in Binani industries Limited case , the NCLAT observed that the Code is not a recovery proceeding.

Mr. Parag Sheth IRP of Digjam Ltd. Vs. Mr. Sunil Kumar Agarwal RP for M/s. Digjam Ltd. do Ors. [CA (AT) (Ins) No. 1055 of 2020]

The NCLAT held that section 20 (2)(b) of the Code authorises the IRP to enter into such contracts which were entered into before the commencement of CIRP. In this case, there was a new contract of insurance after the commencement of CIRP. The IRP, being fully aware that he cannot take such decision, had circulated the quotations amongst the members of CoC along with comparison of their premium amount. The above provision does not authorise the IRP to renew the insurance policy at a higher premium rate without the approval of CoC. Although, there is no limitation prescribed for filing the application for IRP’s fees, there was no ground to interfere as the app was filed post approval of resolution plan.

Mn D.K. Mohanty Vs. M/s. jai Balaji Industries & Anr. [CA (AT) (Ins) No. 888 of 2020]

The NCLAT held that upon restoration of under section 37 of the Arbitration & Conciliation Act, 1996, the relates back to the original data of its filing. Thus, it can be a* construed that there was a dispute in existence prior to the issuance of the demand notice during arbitration proceedings. Accordingly, it set aside the admission order under section 9 of the Code.

Ranjeet Singh Vs. M/s. Karan Motors Private Limited [CA (AT) (Ins) No. 719 of 2020]

The AA rejected the applications of employees of CD for the reason that the admitted principal amount has already been paid by the CD, thus there is no occurrence of default. In absence of any claim between the parties, the applicants cannot claim interest at the rate of 18% through CIRP. Relying on the SC judgment in the case of Protap Technocrats (P) Ltd. & Ors. Vs. Monitoring Committee of Reliance Infratel Limited & Mr., the NCLAT observed that under Code, where there is no equity jurisdiction, both the NCLT and NCLAT are bound by the provisions of the Code while adjudicating the matters. If for delayed payment, the applicant(s) claim any interest, it will be open to them to move before a competent court for recovery, but initiation of CIRP is not the answer.

M/s. Mohan Gems & Jewels Private Limited Vs. Vijay Verma & Anr., [CA (AT) (Ins) No. 849 of 2020]

The NCLAT observed that from regulation 39C of the CIRP Regulations read with regulations 32, 32A and 45(3) of the Liquidation Regulations, it is clear that under regulation 39C, the CoC may recommend that the Liquidator may first explore sale of the CD as a going concern under clause (e) of regulation 32 or sale of the business of the CD under clause (f) of regulation 32. Regulation 32A provides that if the Liquidator is of the opinion that sale under clause (e) or (1) of regulation 32 shall maximise the value of the CD, he shall endeavour to sell under the said clauses. Regulation 32A(2) provides that for the purpose of sale under sub-regulation (1 ), the group of assets and liabilities of the CD, as identified by the CoC under regulation 32C(2) of the CIRP Regulations, shall be sold as a going concern. It held that:

a) The Code does not prevent the closure of liquidation process where the CD is sold as a going concern pursuant to regulation 32(e) following a closure report filed under regulation 45(3)(a) of the Liquidation Regulations. It would be contradictory to observe that closure of liquidation proceedings cannot be done and only dissolution is provided for under the Code. This would demolish the very spirit and objective of the Code. It can be safely construed that before the completion of 270 days, if no decision under regulation 39C of the CI RP Regulations is taken by the CoC, only regulation 32A of the Liquidation Regulations is to be followed.

b) Keeping in view the scope and spirit of the Code, read with section 54 of the Code, regulation 39C of CIRP Regulations, regulations 32(e) and (0, 32A and 45(3) of the Liquidation Regulations, the sale of the CD was carried out by the Liquidator in accordance with the Regulations and AA, has, apart from travelling beyond its jurisdiction in making observations regarding the power and functions of framing of Regulations by IBBI, has also not appreciated the ratio laid down by the SC in a catena of judgements that the Liquidation of the CD is to be seen only as a last resort and every attempt should be made to revive the CD and to continue it as a ‘going concern’.

Maitreya Doshi Vs. Anand Rathi Global Finance Ltd. & Anr. [CA (AT) (Ins) No. 191 of 2021]

Upholding the AA’s order of CIRP against co-borrowers, the NCLAT observed that where co-borrowers jointly applied and received loan in one of their accounts, who executed documents jointly with promise to pay, the liability invoked by FC is on the basis of CD being co-borrower and not merely pledgor. A co-borrower is as much a borrower like the other entity and is fully liable to repay the loan and it is immaterial as to in which account co-borrowers received the money.

M/s. Nitin Chandrakant Naik & Anr. Vs. Sanidhya Industries LLP & Ors. [CA (AT) (Ins)No. 257 of 2020]

The issue, whether CIRP against CD could be treated as resolution process against personal guarantors, so as to transfer personal properties of the personal guarantors, was considered by the NCLAT which observed that after coming into force of Part-Ill, one would have to proceed as per Chapter III of Part III of Code. It held that there would be no need of Part-III, if properties of the PGs could be simply included in the resolution plan for the CD and disposed of directing them to sign the transfer deed. In that case, the resolution plan would be a blank cheque given to proceed even with regard to any other property of the PGs, without resorting to appropriate proceedings against the PGs of CD which is an irregular exercise of powers.

M/s. Ergomaxx (India) Private Limited Vs. The Registrar, National Company Law Tribunal, Bengaluru Bench & Ors. [CA (AT) (CH) (INS) No.133 of 2021]

AAs order of rejection of section 9 application was challenged in this appeal on the ground that the order was not communicated to the Appellant through any of the mode prescribed under the NCLT Rules and besides this, the AA did not list the matter for pronouncement of order. The NCLAT held that the impugned order was never pronounced by the AA, there being a significant omission in regard to the pronouncement of an order by a ‘Tribunal’ and the pronouncement being an essential judicial act and hence it is declared nullity in the eye of law, apart from the crystalline fact is that the same was not listed for pronouncement and accordingly, it set aside the impugned order and directed AA to restore the main petition and to hear the matter afresh . It observed that pronouncement of an order is not an empty ritualistic formality. If a particular act is to be performed in a particular manner, then it has to be performed only in that way and not otherwise Indeed, a procedural wrangle cannot be allowed to be shaked or shackled with. Judicial function of a ‘Tribunal’ is to be transparent and per contra, it is not to be conducted in an ‘opaque’ manner.

Sai Peace and Prosperity Apartment Buyers Association Vs. ASK Investment Managers P Ltd & Ors. [CA (AT) (Ins) No. 252 of 2020]

The issue, whether participation of financial institution in the management of the CD on the strength of an investor agreement, would render them related parties in terms of section 5(24)(m) and 5(24)(i) of the Code was considered in this appeal. The NCLAT, while allowing the appeal, observed that 2nd proviso to section 2 I (2) of the Code is not applicable in the present case and does not ensure the benefit to Respondent who is an insider of the CD having substantial interest in the ownership of the CD, and thus, is a related party and is not entitled to participate in the CoC.

Mr. Jayesh N. Sanghrajka, Erstwhile R.P. of Ariisto Developers Pvt. Ltd. Vs. The Monitoring Agency nominated by the Committee of Creditors of Ariisto Developers Pvt. Ltd. [CA (AT) (Ins) No. 392 of 2021]

The NCLAT held that success fees charged by a RP is more in the nature of contingency and speculative, and it is not part of the provisions of the Code and the Regulations therefore, the same is not chargeable. It observed that if the RP seeks to have success fee at the initial stage of CIRP it would interfere with independence of RP which can be at the cost of CD. If success fee is claimed when the resolution plan is going through or after the resolution plan is approved, it would be in the nature of gift or reward. It is contrary to IBBI’s Circular dated January 16, 2018.   The fee has to be related to acts performed or to be performed for furtherance of the CIRP and for dues or expenses actually incurred. The role of the RP has to be like a dispassionate person concerned with performance of his duties under the Code for reasonable fees and it cannot be result oriented.

In the matter of Mr. Sundaresh Bhat Liquidator of ABG Shipyard Limited [CA (AT) (Ins) No. 398 of 2021]

The NCLAT observed that the laudable object with which clause 12 in Schedule I of the Liquidation Regulations was substituted is defeated by issuing circular dated August 26, 2019. When in an auction somebody has given a higher bid, if instead of 15 days, the person gets a breathing time of 90 days to make a payment, no other person gets affected. The amended clause 12 of Schedule 1 is an open ended provision relating to procedural law which in no way states that it will not apply to pending liquidation processes on the date of amendment. It must be held to be applicable to liquidation processes, which are pending, and the provision can be applied considering the stage of the process, irrespective of the date whether the liquidation process started before July 25, 2019 or on or after July 25, 2019 when clause 12 of Schedule I of was substituted. This is not to say that sales already cancelled before July 25, 2019 for default of payment under earlier existing clause 12 can be reopened. Liquidators can rely on the amendment at the time of issue of Auction Notice, irrespective of date of liquidation order of the AA. The NCLAT observed that: ‘The Circular doted August 26, 2019, we hold is not legally enforceable to interpret applicability. Such Circular cannot be in the nature of substituting existing Regulation in the name of guidelines. The guidelines which are inconsistent with the subordinate legislation would not be enforceable. If provision is clear, external aid, that too inconsistent, cannot be applied. The provision has to be enforced by Tribunal as it is’. It further observed that: ‘Power of Board under Section 196(1)(p) or (t) to issue guidelines cannot be expanded to interpreting provisions made. That is job of Courts to interpret and apply law’.

Mr. Keshav Agrawal Vs. Abhijit Guhathakurta, RP of Videocon Industries Ltd. & On. [CA (AT) (Ins) No. 610 of 2021]

A shareholder of CD filed appeal on the ground that the AA has, while approving the resolution plan, not ensured compliance of the provisions relating to reduction of share capital under section 66 of the Companies Act, 2013, NCLT Rules as well as the SEBI Regulations. Relying upon the SC judgment in Jaypee Kensington Boulevard Apartments Welfare Association and Ors., the NCLAT observed that as per explanation to section 30(2)(e) of the Code, if any approval of shareholders is required for implementation of actions under the approved resolution plan, such approval shall be deemed to have been given. In the scheme of the Code, only the CoC is entrusted with the task of dealing with and approving the plan of insolvency resolution; and the shareholders of CD, who is already reeling under debts, have not been provided any participation in the CIRP

Deepak Parasuratnan & Mr. Vs. Sripriya Kumar & Mr. [CA (AT) (Ins) No. 349 of 2020]

Prior to insolvency commencement date (ICD), CD entered into two agreements with Appellant No. 2, one of which included arranging for Long Term and Working Capital Debt for the CD on payment of commission. Pursuant to this, 65 lakh as commission was received by the Appellant No. 2 from the CD in three tranches. On CIRP being admitted against the CD, RP filed application before the AA under sections 43 and 66 of the Code. AA held that the impugned transfer of the funds is for fraudulent purpose. The NCLAT upheld the order of ,AA on the findings that office of Appellant No. 2 is located at the residence of promoter and director of CD, and both shared a common interest in another company. Further, no invoice was raised by Appellant No. 2 on the CD for such payment and no service tax or TDS was deducted by the CD for such payment.

Telangana State Trade Promotion Corporation Vs. A.P. Gems & Jewellery Park Private Limited & Mr. [CA (AT)(CH) (Ins.) No.54 of 2021]

The NCLAT upheld the decision of AA that the appellant having authority to nominate directors in the CD, having control in the management of CD, can be treated as related party as the nominee directors have a vital influence in regard to the working of the CD.

RVelu, Vs. Invent Assets Securitisation & Reconstruction Pvt Ltd. [CA (AT) (CH) (INS) No. 38 of 2021]

AA rejected the application filed by the RP praying for liquidation order owing to non-implementation of the resolution plan by the RA and completion of 330 days on the ground that it cannot recall its order of approval of the resolution plan and it has become functus officio post approval of the resolution plan. The NCLAT held that 330 days have expired and upon non-implementation of the plan by the RA, the AA ought to have passed the order of liquidation as the RP rightly moved the application under section 60(5). The NCLAT while setting aside the order of AA, directed it to pass liquidation order under the Code.

Dinesh Gupta Vs. Vikram Bajaj, Liquidator M/s Best Foods Ltd. [CA (AT) (Ins) No.276 of 2021]

Suspended director of the CD filed appeal against liquidation order, wherein the NCLAT observed that a resolution plan is not a recovery / sale / auction / liquidation. Through a resolution plan no individual is purchasing or selling the CD. The NCLAT while dismissing the appeal directed the Liquidator to explore the possibility of selling the company/business as a going concern, in order to save the livelihood of workers of the CD.

National Company Law Tribunal

In the matter of C. Ramasubramaniam (Liquidator) M/s. Aqua Designs India Pvt. Ltd. [CA/342/CAA/2020 in CP/1022/IB/2018]

An application was filed by the Liquidator under section 230 of the Companies Act, 2013 for approval of scheme. AA held that the Liquidator ought to do preliminary investigation of the scheme received by him before filing the application. Unless the person funding the scheme and the person who is willing to invest in the company are verified and only on being satisfied. the same ought to have been filed before this Adjudicating Authority for approval’. It observed that this case is an eye opener for policy makers, regulatory body and academicians.

Dinesh Sharma Vs. Peerless Fabrikernce Ltd. [LA. 2458/2020, I.A. 2381/2020, M.A. 3355/2019, M.A. 351/2020 In C.P.(IB)-506(MB)/2018]

AA observed that the conduct of the RP is sub-optimal in carrying out the CIRP and proceedings associated with it.

State Bank of India Vs. Mathur Sabapathy Viswanathan [MA/80(CHE)/2021 in IBA/578/2019]

July 9 Order: AA, on the application of CoC for replacement of RP on the ground of operational need, observed that the banks are keen on bringing their ex-employee as the RP or Liquidator, in most of the cases. AA suggested for placing this before IBBI to consider stricter and better regulations to run the CIRP.

July 15 Order: AA observed that it cannot be a rubber stamp to admit the decision of the CoC in the name of ‘collective commercial wisdom’. Every decision needs to be as per the Rules and Regulations and spirit of the Code.

Alpha Alternative Holdings Pvt. Ltd. & Anr. Vs. Union Bank of India & Ors. [IA/329(AHM)2021 in CP(IB) 497 of 2019]

AA observed that the plan has not been rejected by the CoC on the findings that it is not commercially viable but it has been rejected on technical grounds. Relying on SC judgement in CoC of Essar Steel India Limited Vs. Satish Kr. Gupta & Ors. it directed the RP and the CoC to call the applicant and allow him to resubmit the resolution plan and to consider if the plan is commercially viable.

Ram Niwas & Sons. Vs. M/s. Palm Developers Pvt. Ltd. [IA. I 742/ND/2021 in Company Petition No. (IB)-894(ND)/2019]

AA, on an application filed by IBBI, observed that the IRP has neither conducted any meeting of CoC despite clear direction and vacation of stay on functioning of CoC, nor taken concrete steps for carrying forward the CIRP. A period of 309 days have elapsed against the statutory initial timeline of 180 days. It held that ‘this a case of abuse of the process of the IBC/Tribunal and in order to protect the interest of the Corporate Debtor and its stakeholders, and for furtherance of the CIR Process, it has become inevitable to grant the prayer of 1881 for replacement of the present 1RP’. AA asked the IRP to show cause as to why contempt proceedings should not be initiated against him.

Bank of Baroda Vs. Varia Engineering Work Ltd. [IA/467(AHM)202 1 in CP(IB)/149(AHM)2017]

On an application filed by the Liquidator seeking direction to the Central Bureau of Investigation, AA observed that ‘as per section 233 of the IBC, the liquidator is protected against any coercive action provided his act during CIRP is a bona fide’. The AA further clarified that IBBI is the only authority to look into and inquire into any allegation against the Liquidator when he acted during the discharge of his duties as the Liquidator.

Sri Supriyo Kumar Chaudhuri, Liquidator of JVL Agro Industries Ltd. Vs. State Bank of India, Sarg & Ors. [IA No.19/2021, IVN. R 02/ALD/2020 In CP No.(IB) 223/ALD/2019]

AA, while considering the clarification sought by the Liquidator on the distribution of liquid assets, observed that the Liquidator can commence with the distribution once the list of stakeholders and asset memorandum have been filed with the AA. It further observed that ‘since the corporate debtor in liquidation is not a going concern and assets which are to be distributed are in the form of liquid assets and are non saleable’, the Code does not bar such distribution. Accordingly, it allowed the distribution to the stakeholders as per waterfall mechanism out of the accumulated cash profits, less any applicable withholding tax.

M/s. Advance Cargo Movers (India) Private Limited Vs. M/s. SBS Transpole Logistics Private Limited [l.A. 2084/ND/2021 in Company Petition No. (18)- 1373(ND)/2019]

AA noted that the Liquidator has not informed the shareholders that the representative shall be unanimously nominated by all the shareholders or the representative shall be decided on the basis of majority of shareholding in number or value. Therefore, the nomination of applicant cannot be rejected by the Liquidator on the ground that said nomination was not made unanimously by all shareholders. It observed that regulation 3 IA(3) of Liquidation Regulations is silent on both ‘the criteria as well as the process of nomination’ of a representative and advised OBI to notify clear guidelines regarding ‘criteria and process of nomination of Representatives of Stakeholders’ to avoid any ambiguity in future.

Central Bank of India Vs. KSM Spinning Mills Limited [IA Nos. 249/2020, 659/2020, 667/2020, 707/2020, 265/2020, 266/2020, 462/2020, 466/2020, 817/2020 & 816/2020 in CP (IB) No. 250/Chd/Pb/2018]

Applications raising allegations against the RP were filed by the suspended directors of the CD for his removal. The AA noted that a resolution plan was approved by CoC on November 13, 2020 and observed that as the CIRP has reached its finality and its approval is pending with AA, the role of RP has come to an end, and no further action is required to be taken by RP, unless the resolution plan is rejected by AA. It also observed that when allegations of mala fides or corruption or professional misconduct or any other sort are alleged against a RI? the same are to be adjudicated by the IBM and basing on the orders passed by the IBM, appropriate action would be taken by this Adjudicating Authority ‘.

BLS Polymers Limited Vs. M/s RMS Power Solutions Private Limited [Company Petition No. IB-340(ND)/202 I]

While deciding the applicability of notification dated March 24, 2020 by which the threshold limit for default was increased from Rs. 1 lakh to Rs. 1 crore, the AA observed that, once the default has occurred prior to the issuance of notification dated March 24, 2020 and demand notice was also delivered prior to that notification, the enhancement of the threshold limit is not applicable. Even in the matter where the default has occurred prior to the issuance of said notification and no demand notice was delivered prior to that notification, the same will not be applicable.

Onemax Yarn Merchants Private Limited Vs. Nandlal Kama! Kishore Vyapaar Private Limited [IA No.529/KB/202 I in CP (IB) No.1568/KB/2019]

On an application for exclusion of time filed by RP, AA observed that the discretion provided to it to enlarge the time for completion of CIRP is to be used sparingly and judiciously in cases where the CD is on the verge of achieving a resolution plan and it is in the interest of all stakeholders to put back CD on its feet instead of being sent into liquidation. AA dismissed the application observing that the ground adduced by the RP in the present application borders ludicrousness and the utter lack of seriousness on the part of the RP in discharging his duties under the Code is appalling.

Milan Sanyasi Vs. Rata BI & Big Data Analytics Pvt. Ltd. [l.A. No. 1197/2021 in C.P. No. 1370/1&BP/NCLT/MAH/2020]

Once the CIRP is initiated, it is no longer the proceedings only between the applicant/ creditor or the CD but is envisaged to be a proceeding invoking all creditors and debtors. The intent of the Code, is to discourage individual action for enforcement or settlement to the exclusion of the general benefit to all the creditors. The proceedings under the Code is the collective proceedings in rem.

Insta Capital Private Limited Vs. Ketan Vinod Kumar Shah [CP (IB)/ 1365/MB-IV/2020]

The issue for consideration was whether a FC can initiate CIRP against the PG in the absence of any resolution process/liquidation process against the CD. AA held that an application for insolvency resolution of the PG is not maintainable unless that CIRP/liquidation is continuing against the CD. Further, filing of application seeking resolution of PG without the CD undergoing CIRP would tantamount to vesting of jurisdiction on two course; one NCLT and another the DRT.

In the matter of LV Shyam Sundar (RP) M/s. Ultra Tile Pvt. Ltd. IA/558(CHE)/2021 in IBA/1263/2019

AA observed that CoC has utter disregard to the provisions of the Code and the IBBI Regulations and said: ‘It is very unfortunate in the present case, to see that

the sole member of the CoC, in the first instance without exploring the possibility of the insolvency resolution of the CD has directly pushed the CD into liquidation and the said act is being defended on the ground that the CoC has used their ‘commercial wisdom’ in order to arrive at such a conclusion’.

In the matter of M/s. Siva Industries and Holdings Limited [MA/43/CHE/2021 & 1A/647/1B/2020 & IA/586/CHE/2021 in IBA/453/2019]

AA observed that it is required to be vigilant in considering the settlement plan of promoter of CD under section I 2A and is required to permit only unprejudiced settlement plan to succeed. There is always a system of constant checks and balances where there must not be a capricious or arbitrary power given in the hands of CoC to accept or reject settlements. Once the CIRP is triggered in relation to a CD, the same is an order in rem and not in personam and that whether the CD is required to be wriggled out of the CIRP is to be decided by the AA by exercising its judicial wisdom and cannot be carried away by the commercial wisdom of CoC.

State Bank of India Vs. Tantia Constructions Limited [IA No.I 840-KB2019 in CP (1B) No.148/KB/2018]

On an application seeking inclusion of a claim, AA observed that there was a gross error of judgment on the part of the RP in not allowing the claim of the applicant bank when it was left remediless despite submitting claim and the same RP had acknowledged the liability in the books of accounts of the CD while functioning as RP. Therefore, it does not stand to reason as to how this claim could not be included with the dues payable to the OCs. It observed that: ‘We cannot conscientiously shut the doors of justice on a litigant who has diligently pursued his remedies under the law, and who is now being rendered remediless only on account of the approval of the Resolution plan. There cannot be a situation in law where a litigant is left remediless. The Hon’ble Supreme Court’s judgment Ghanashyam Mishra and Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. can only apply to a situation where a litigant has not filed his claim or agitated his grievances in a manner known to law. It would be a travesty of justice to apply the ratio of that judgment to the facts of the present case and leave the present applicant battered, bruised and none the wiser as to what went wrong in his pursuit ofjustice. The Resolution Professional’s obduracy in denying the applicant’s claim while at the same time admitting the liability in the capacity of Resolution Professional in the books of accounts, is completely inexplicable. If accounts were subject to verification and reconciliation, then this contingency should have been provided for, especially when the RP was a chartered accountant himself.

In the matter of Viceroy Hotels Ltd., [IA No. 281/2019 in CP No. IB/219/7/HDB/2017]

AA while rejecting the resolution plan approved by CoC observed that the entire CoC and RP have bulldozed the entire resolution process to favour one RA who is apparently not eligible to submit the resolution plan under the Code. (Telangana High Court has stayed this order)

In the matter of Wadhwa Buildcon LLP [LA. 1450/2021 in I.A. 1035/2021 in C.P. 2946/1&B/MB/2019]

On the issue, whether the landowners can be treated as homebuyers and FC of the CD in a joint venture, AA observed that as per the provisions of the Real Estate (Regulation and Development) Act, 2016 (RERA Act), the landowners are mandatorily classified as promoters and not as ‘allottees’ in a real estate project. RERA Act has distinguished and defined ‘allottee’ and ‘promoters’ very differently and they both cannot be treated as the same. It was held that landowners do not satisfy any of these prerequisites of section 5(8)(f) of the Code as under the Development Agreement, no amount was raised by the CD and no amount was ever disbursed against the consideration of ‘time value of money’. AA directed the RP to reconstitute CoC.

Nitin Jain, Liquidator of PSL Ltd. Vs. Luckly Holdings Pvt. Ltd., [IA/391(AHM)2021 in CP (1B) 37 of 2017]

PA allowed sale of CD as a going concern in liquidation. The successful auction bidder was granted the reliefs and concessions on the parallel line of an approved resolution plan, for the issues in relation to or arising out of liquidation proceedings of a CD. It observed that there is necessity that legislature should provide necessary framework for granting reliefs and concessions in specific manner in case of sale of CD as a going concern or its businesses as a going concern under liquidation process.

In the matter of JC World Hospitality Private Limited [Interlocutory Application No. 3857/ND/2021 in Insolvency Application No. 2562019]

PA while allowing the application for exclusion of time in the larger interests of homebuyers reiterated that the primary intent of the Code is resolution and not liquidation. AA warned the RP and CoC about their conduct of receiving and acting on resolution plans beyond 330 days against the permission of law.


Disciplinary Order

The DC has passed 6 orders in the present quarter against the IPs namely Mr. Anupam Tiwari, Mr. Prabhjit Singh Soni, Mr. Manish Kumar Gupta, Ms. Kumudini Paranjape, Ms. Charu Sandeep Desai and Mr. Pramod Kumar Sharma with a variety of directions for contraventions of the provisions of law. The contraventions included: (a) an IP abdicating his authority in favour of the CoC; (b) an IP raising invoice in the name of her Firm; (c) inclusion of legal fees of CoC in CIRP cost by IP; and (d) payment of success or recovery based fee to process advisor by IP; etc. The DC has disposed of 74 show cause notices issued against IPs till September, 2021.

Also Read- 

Latest Case Law Related to IBC – April 2021- June, 2021
Latest Case Law Related to IBC – January 2021- March, 2021
Important Judgments related to IBC, 2016 – Oct to Dec 2020
Latest Case Law Related to IBC – July 2020 to September 2020
Latest Case Law Related to IBC – October 2019 to Dec 2019

Source- IBBI

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January 2022