Introduction: Discover the most crucial developments in Indian insolvency law as we delve into key case law from July to September 2023. This analysis covers the Supreme Court and National Company Law Appellate Tribunal (NCLAT) decisions, providing insights into significant legal matters in the context of the Insolvency and Bankruptcy Code (IBC).

Supreme Court

Paschimanchal Vidyut Vitran Nigam Ltd. Vs. Raman Ispat Pvt. Ltd. & Ors. [Civil Appeal No. 7976 of 2019]

Paschimanchal Vidyut Vitran Nigam Ltd. (PWNL) entered into an agreement for supply of electricity to the CD. The agreement provided that outstanding electricity dues would constitute a charge on the assets of the CD. On default to pay electricity dues, PWNL attached the properties of the CD. Further, Tehsildar, Muzaffar nagar passed an order restraining transfer of property of the CD. Thereafter, CD got admitted into CIRP. On rejection of resolution plan by CoC, the Adjudicating Authority (AA) directed liquidation of the CD. During liquidation, the District Collector issued a notice for recovery of outstanding dues by auction of movable and immovable properties on default by the CD in payment of electricity dues. On challenging the same, the AA directed District Collector and Tehsildar to immediately release the property of the CD to enable sale of property in liquidation as per the Code. This order of AA was upheld by NCLAT. Aggrieved by the same, PWNL approached the SC.

While disposing of the appeal, SC inter-alia observed that considering the Electricity Act, 2003, regulations made thereunder and agreement between the parties, a charge was created on the assets of the CD. Therefore, PVVNL is a secured operational creditor (OC). It held that: –

  • Section 238 of the Code overrides the provisions of the Electricity Act, 2003 despite the latter containing two specific provisions which open with non-obstante clause (i.e. section 173 and 174).
  • The specific mention of other class of creditors whose dues are statutory, such as dues payable to workmen or employees, exclusion of the provident fund, the pension fund, the gratuity fund under section 36(4) clarifies that not all dues owed under statute are treated as ‘government dues’. Further, dues payable to statutory corporations, whose dues do not constitute government dues or those payable into the respective Consolidated Funds, stand on a different footing.
  • Dues payable or requiring to be credited to the treasury, such as tax, tariffs, etc. which broadly fall within the ambit of Article 265 of the Constitution are ‘government dues’ under section 53( I )(e) of the Code. Accordingly, dues of PVVNL do not fall within section 53(I)(e) but falls under section 53(1)(6) of the Code.
  • In the case of Tax Officer v. Rainbow Papers Ltd., it did not notice the waterfall mechanism in section 53 that the separate and distinct treatment of amounts payable to secured creditor on the one hand, and dues payable to the Government on the other hand clearly signifies Parliament’s intention to treat the latter differently i.e. having lower priority. The judgement has to be confined to the facts of that case alone.

Union Bank of India Vs. Financial Creditors of Amtek Auto Ltd. & Ors. [Civil Appeal No. 4620/2023]

SC has upheld the order passed by five judge bench of NCLAT which held that the power of review is not conferred on the Tribunal; whereas the power to recall its judgment is inherent in it under rule 11 of NCLAT Rules, 2016 on sufficientgrounds.

Employees Provident Fund Organization Vs. Fanendra Harakchand Munot & Anr. [Civil Appeal No. 5424/2023]

The Employees’ Provident Fund Organisation (EPFO) after the approval of resolution plan filed its claims before the AA which got rejected. EPFO filed an appeal before NCLAT which was dismissed on the grounds of inordinate delay in filing of the claim by the EPFO. Aggrieved by this order, EPFO preferred an appeal before SC. While dismissing the appeal, SC held that the Commissioner and employees of the EPFO must ensure that they comply with the timelines under the Code. It further observed that in case of failure to comply with the timelines, action must be taken against the erring employees.

Eva Agro Feeds Private Limited Vs. Punjab National Bank & Anr. [Civil Appeal No. 7906/2021]

In this case, the question before SC was, whether NCLAT was right in cancelling the e-auction held by the liquidator and directing to initiate fresh e-auction for CD’s assets? In the instant case, in e-auction sale conducted by the liquidator, the highest bidder (Eva Agro Feeds Private Limited – Appellant) was declared as successful auction purchaser on July 20, 2021. However, the next day, liquidator cancelled the auction and decided to hold auction afresh. Against which, the highest bidder filed an interlocutory application in which the AA, vide order dated August 12, 2021, directed the liquidator to proceed with the auction in favour of the auction purchaser. On the same date, the Punjab National Bank (financial creditor i.e. FC) filed appeal against this order of the AA before the NCLAT. However, the liquidator in compliance with AA order dated August 12, 2021 proceeded with the auction and issued sale certificate on September 15, 2021. Vide order dated November 30, 2021, the NCLAT set aside auction with the direction to the liquidator to re-conduct the e-auction. The auction purchaser filed appeal before SC against the said order of NCLAT.

SC while setting aside the order of NCLAT, restored the order passed by AA. SC also relied on Valji Khimji and Company v. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited & Ors and held that ‘if every confirmed sale can be set aside the result would be that no auction sale will ever be completed because always somebody can come after the auction or its confirmation offering a higher amount’. SC further held that that para 1(1 IA) in Schedule 1 to the Liquidation Regulations (w.e.f. September 30, 202 1 ) does not imply that an auction sale or the highest bid prior to September 30, 2021 could be cancelled by the liquidator without furnishing any reason.

Tata Power Western Odisha Distribution Limited (TPWODL) & Anr. Vs. Jagannath Sponge Private Limited [Civil Appeal No. 5556/2023]

The issue for consideration before SC was whether the OC/appellant was entitled for payment of arrears of electricity dues post approval of the resolution plan by AA. SC, while dismissing the appeal filed by OC against NCLAT order, whereby it had upheld order of the AA, observed that the electricity department cannot demand payment of arrears payable by the CD, from the successful resolution applicant (SRA) for restoration/grant of electricity connection. SC held that the ‘clean slate principle’ would stand negated, if SRA is asked to pay the arrears payable by the CD forthe grant of an electricity connection in its name.

RPS Infrastructure Ltd. Vs. Mukul Kumar &Anr. [Civil Appeal No. 5590 of 2021]

In this case the OC had filed arbitral claims after a delay of 287 days during the pendency of approval of resolution plan by AA. SC while dismissing the appeal of the OC, observed that it was not vigilant enough to find out that CIRP was initiated against CD. It observed that section 15 of the Code read with regulation 6 of CIRP Regulations mandates public announcement through newspapers, providing impetus to the concept of ‘deemed knowledge’ and that the plea of not being aware of the newspaper announcement, will not be available to a ‘commercial party’. It further held that merelythe fact that the AA has not approved a resolution plan, does not imply setting the clock back by making CIRP an endless process. In case, the belated claims are allowed there may be possibility that a claimant in similar situation may jump onto the bandwagon. It observed that, ‘We find it difficult to unleash the hydra-headed monster ofundecided claims on the resolution applicant’.

Axis Bank Limited Vs. Naren Sheth &Anr. [Civil Appeal No. 2085 of 2022]

The appellant challenged the order of NCLAT that had upheld the admission order passed by AA condoning the delay on the part of State Bank of India (FC). The issue before SC was whether FC be entitled to the benefit of section 18 of the Limitation Act, 1963? In the facts of the case, SC noted that the CD has submitted one-time settlement offers, thereby acknowledging the debt. SC relied on its own judgment in the matter of Dena Bank (Now Bank of Baroda) v. C. Sivakumar Reddy, and held that acknowledgments made by the CD, post declaration of non-performing asset (NPA) have given fresh limitation period in terms of section 18 of the Limitation Act, 1963 and FC was able to prove ‘sufficient cause’ as required under section 5 of the Limitation Act, 1963 for condonation of delay. It dismissed the appeal.

R. Raghavendran Vs. C. Raja John & Ors. [Civil Appeal No.2552/2022]

The limited question for examination by the SC was whether the CD being a micro, small and medium enterprise (MSME) would have to compete with other resolution applicants to retain control of the CD. SC while allowing the appeal of RP observed the fundamental principle of the Code being maximization of value of assets of the CD. Thereafter, it proceeds to discuss the scenario of a CD, which is an MSME, qua the ineligibility in terms of the inapplicability of section 29A (c) & (h) of the Code to a promoter. This, as one may say, is a special privilege for MSM Es. It is, in ‘exceptional circumstances’ if a CD is an MSME, not necessary for promoters to compete with other resolution applicants to retain control of the CD. SC held that, ‘The impugned judgment is predicated on a broad reasoning as ifipso facto there is no need to call other proposals if it is an MSME. In view of the larger context it would have, we clearly observe and hold that this is not the correct position of law’. SC set aside the NCLAT order.

Regen Powertech Private Limited Vs. Giriraj Enterprises & Anr. [Civil Appeal Nos. 5985 & 6001 of 2023]

AA, by a common order, dismissed the applications filed by CoC and customers of CD for consolidation of CIRPs of two interconnected CDs. On appeal filed by the customers of CD, for consolidation of two CIRPs, NCLAT had allowed the same. The RP of CD (which owned the subsidiary) filed the present appeals. In view of the facts and circumstances of this case, SC held that the RP should not have filed the appeals and should have maintained a neutral stand. It is for the aggrieved parties, including the CoCs of the CDs, to take appropriate proceedings or file an appeal before it. If required and necessary, the Court can take assistance and ascertain the facts from the RP in case an appeal(s) is preferred by the CoCs or a third party. SC dismissed the appeal.

ESL Steel Ltd. Vs. Principal Commissioner, CGST, Ranchi & Ors. [wpm No. 1995 of 2023]

On July 21, 2017, FC initiated CIRP against CD, and on April 17, 2018 the resolution plan was also approved by the AA. However, in the interregnum, the Government had introduced Goods and Services Tax (GST) and all assessees had to file form GST TRAN-1 to get their existing CENVAT credit transitioned into their GST portal as Input Tax Credit (ITC). During CIRP the CD also filed its TRAN- I form on September 27, 2017 i.e. before the resolution plan was approved. SRA after taking over the CD had filed a revised TRAN- I with the GST Department seeking to avail ITC on capital goods which was not availed earlier. However, instead of allowing the revised TRAN- I , the GST Department issued a show cause notice to SRA demanding of credit, interest and penalty which got subsequently confirmed by the Additional Commissioner of CGST, against which the SRA filed the writ before Jharkhand HC. The issue before the HC was – Firstly, whether proceedings for recovery of any alleged dues prior to approval of resolution plan can be continued and secondly, whether the balance amount of tax credit should be granted to the SRA or the same also gets expunged? On the first issue, HC held that past obligation of all dues gets extinguished after passing of the resolution plan byAA. On the second issue, it held that the ITC available to the CD will not be available to SRA in the new avatar.

Vineet Saraf Vs. Rural Electrification Corporation Ltd [W.P.(C) 3293/2023 & CM APPL 12815/2023]

The issue before Delhi HC was whether writ of prohibition can be issued against FC to prevent it from approaching NCLT against PG to CD? HC while dismissing the said writ petition held that NCLT is the proper forum having jurisdiction to adjudicate, and not the HC.

EDAC Engineering Ltd. Vs. Industrial Fans (India) Pvt Ltd. & Ors. [Application No.s 2080 and 4609 of 2021]

In this case, the arbitrator exercised his statutory lien for non-payment of his fees/costs by the CD. Aggrieved by action of arbitrator, CD filed an application before Madras HC seeking the direction to the arbitrator to release the lien on the arbitral award dated April 30, 2021 in view of the moratorium under section 14 of the Code. HC while dismissing the application of CD noted that arbitral award was passed on April 30, 2021, which was prior to the moratorium order dated August 8, 2023. HC held that the appointment of arbitrator having been done by the Court much prior to the initiation of CIRP the fee payable has to be treated as part of CIRP costs. It observed that moratorium under section 14 of the Code does not affect the payment of fees to the arbitrator for the award passed before the moratorium was declared.

KRBL Limited Vs. State of Gujarat [Ft/Special Civil Application No. 19804 of 2022]

The petitioner is the successful bidder for CD’s property in the auction conducted by the liquidator. Post auction sale, the State Goods and Services Tax (SGST) department had issued an order creating charge in the revenue records on the auctioned property towards the outstanding dues of GST. Successful bidder challenged order of SGST department before Gujarat HC. While allowing the petition of the successful bidder, HC noted that SGST department failed to lodge its claim during the stage of liquidation. Relying on the judgments of SC in the cases of Ghanshayam Mishra and Sons Private Limited and Paschimanchal Vidhyut Vitran Nigam Limited it held that once the resolution plan is approved, it becomes binding on the stakeholders including government OCs. It further observed that the SGST department having relinquished its interest under section 52, cannot continue insistence of maintaining the charge in the revenue records, rather will have to stand in order of priority under section 53. It further observed that charge in terms of section 100 of the Transfer of Property Act, 1882 cannot be enforced against any person in whose name the property has been transferred for consideration without notice.

National Company LawAppellate Tribunal

Edelweiss Asset Reconstruction Company Ltd. Vs. Anuj Jain RP of Ballarpur Industries Ltd. & Ors. [CA (AT) (Ins.) No.517 & 518 of 2023]

Yes Bank Ltd. granted two term loans to BILT Graphic Paper Products Ltd. (BGPPL/Principal Borrower) an affiliate company of Ballarpur Industries Limited (CD). Security for the loans was created in favour of the Security Trustee. To secure the loan facility availed by BGPPL, the CD created a charge on its immovable property. A corporate guarantee was also executed by the CD to secure Term Loan-II of BGPPL. Yes Bank Ltd. assigned its debt and underlying securities in respect of the BGPPL in favour of Edelweiss Asset Reconstruction Company Ltd. (ARC). BGPPL had not committed any default in repayment of its loan to its creditor/assignee. Later, the CIRP was initiated by the Finquest Financial Solutions Pvt Ltd. (FC) in respect of the CD. During the CIRP the ARC filed its claim as secured FC with respect to the Term Loan 11. RP rejected the claim of the ARC, stating that the default was not committed by the principal borrower and therefore, the ARC is placed in the category of other creditors. ARC has not challenged the rejection of claim and the notional value of 1/- allotted to its claim. While the IA filed by RP before AA for the approval of resolution plan, the ARC filed an IA praying for rejection of the resolution plan. However, the AA rejected the IA filed by the ARC and approved the resolution plan. Aggrieved by the aforesaid two orders, these appeals have been filed.

In this appeal filed by ARC, the Appellate Tribunal, relying upon SC judgement in Anuj Jain IRP Jaypee Infratech Ltd. v. Axis Bank Ltd. reiterated the distinction provided in Code with regard to a FC and a creditor who has only security interest. It observed that:-

  • After moratorium is declared, there is prohibition on enforcement of any security interest created by the CD in respect of its property. The prohibition from enforcement of any security interest by one or other creditor including secured FC or third party secured creditor is for a purpose and object. FC who is part of the CoC is prohibited from enforcing any security interest. Athird-party secured interest like that of the Appellant is equally bound by the provision of section 14(1)(c) and cannot claim any enforcement of security interest in the CIRP
  • In Committee of Creditors ofEssar Steel India Ltd. v. Satish Kumar Gupta & Ors., SC while considering the provisions of section 30, 50, 52 and 53 of the Code has held that provision of sections 52 and 53 are not applicable in the insolvency resolution process as they are applicable only during liquidation. Reference of section 53 under section 30(2) is for the purpose of computing the payment to OCs and dissenting FCs to which they may be entitled under section 53.
  • Regulation 37 of CIRP Regulations thus, is provision of the Code which is consistent to the Code and to carry out the provisions of the Code. Regulation 37(b) indicate that resolution plan shall provide for sale of all or part of the assets whether subject to any security interest or not. The use of expression ‘subject to any security interest or not’ makes it clear that the assets of the CD can be dealt with in the resolution plan whether it is subject to any security interest or not. The existence of security interest in assets of CD does not preclude the assets to be dealt with or sold in the resolution plan. Further, sub-clause (d) permits the resolution plan to contain provision for satisfaction or modification of any security interest. Thus, as per scheme of regulation 37, security interest in assets of the CD can be dealt with, modified, satisfied and there is no exclusion to the resolution plan regarding dealing of the security interest.
  • CIRP and liquidation are two different concepts with two different consequences. While in CIRP, the claim of FCs is dealt with, there is no cap to the effect that they are entitled to receive the amount equivalent to their debt which is owed by the CD. Despite FC having security interest in the assets of the CD, they can be dealt with in the resolution plan in any manner as per the commercial wisdom of the CoC. When the security interest of FC can be dealt with in the resolution plan in any manner, a third-party having security interest in the assets of the CD cannot claim any higher status or status different from the FC.
  • When any asset including security interest is part of the CIRP there is no constraint or prohibition in the Code or Regulations to deal with the said asset including a security interest. The claim was filed by the ARC, and it was part of the CIRF? hence, its security interest can very well be dealt with in the resolution plan. The scheme as delineated by regulation 37 of CIRP Regulations allows this.
  • The NCLAT concurred with Ms observations that for extinguishment of security interest of the Appellant, no prior consent of the Appellant was required. It further held that when there is no default by the principal borrower as in the present case and there is no actual loss to the ARC, and more so when its security interest has been extinguished by the RE it could demand the principal borrower to furnish additional security for better protection.
  • The Appellant at no point of time challenged the admission of its claim by RP as ‘other creditor’. The main distinguishing feature of present case with that of Jaypee Kensington Boulevard Apartments Welfare Association & Ors. v. NBCC (India) Ltd. & Ors. is that in Jaypee Kensington security interest of the lender of that case was not part of the CIRP but in the present case same was part of the CIRP

Manoj Stone Infra Pvt. Ltd. Vs. Railsys Engineers Pvt. Ltd. [I.A.No.2573/2023 in CA(AT)(Ins.) No. 763 of 2023]

Appeal was filed against the order of AA by which section 9 application was dismissed. There were three parties involved, OC who supplied goods to CD who in turn supplied goods to another company. CD made only part payment for the goods supplied, and for the remaining no payment was made citing poor quality as a reason. There existed a mutual business understanding between OC and CD that payment was to be made by CD to OC, subject to receipt of money from another company. The issue before the Appellate Tribunal was peculiar to the facts of the case that whether there was an operational debt which was due and payable. NCLAT held that since the claim of the OC arose out of a mutual business understanding of partnership, the debt claimed by it did not fall within the definition of operational debt. It was further observed that the claim must bear some nexus with the provision of goods or services irrespective of who is to be the supplier or receiver.

Mrs. Monica Jajoo Vs. PHL Fininvest Private Limited & Ors. [CA (AT) (Ins.) No. 1344 & 1345 of 2022]

PG to CD filed an appeal before NCLAT seeking to quash AAs order of CIRP against PG on the ground that another bench of AA is already dealing with the liquidation proceedings against the same CD. NCLAT while setting aside the order of AA, held that the words ‘a’ and ‘such’ used in section 60(2) clearly indicate that the said provision would be applicable only when a CIRP or liquidation proceeding of a CD was pending before same bench of AA. The objective was that when a CIRP or liquidation proceeding of a CD was pending before ‘a’ bench of NCLT, the application relating to insolvency process of a CD/PG should be filed before the same bench of NCLT.

Jaydip Ghosh & Ors. Vs. Niraj Agarwal & Ors. [CA (AT) (Ins.) No. 839 & 861/2022]

AA’s order approving the resolution plan was challenged by suspended directors of CD, and unsuccessful resolution applicant on the grounds of change in the nature of business of the CD proposed by the SRA. NCLAT while dismissing the appeal observed that suspended directors have no locus to file an appeal against the approved resolution plan. NCLAT, further held that change of nature of business can be permitted, as CoC in its commercial wisdom has accepted the plan, after examining various factors namely i.e. CD not carrying on business activity for a longtime, licence got lapsed and not renewed, etc.

Ashique Ponnamparambath &Anr. Vs. BMW India Financial Services Pvt. Ltd. [CA (AT) (CH) (Ins.) No.301/202I]

The issue for consideration was whether a co-borrower who has not been disbursed any amount of loan, fall under the definition of FC under section 5(8) of the Code? NCLAT while dismissing the appeal observed that the appellants have taken over all rights and liabilities along with co-borrower in respect of the facilities extended by the FC and the CD having passed a board resolution on February 23, 2018 consenting to assume the liability would cumulatively prove that the appellant is a co-borrower and section 7 application under the Code is maintainable.

Mahendra Kumar Agarwal Vs. PTC India Financial Services Ltd. & Anr. [CA (AT) (CH) (Ins.) No. 8 of 2023]

During the pendency of CIRP against the CD, AA admitted insolvency proceedings against PG to CD. While dismissing the appeal filed by the PG, NCLAT held that insolvency proceedings against the PG to CD can be initiated even when no CIRP is pending against the CD or continue to be pending.

Employees Provident Fund Organization Vs. CA. S. Prabhu [CA(AT)(CH)(Ins.) No. 176 of 2022]

AA dismissed the application of EPFO filed against the rejection of their claims by the liquidator holding that EPFO has failed to place on record any order passed under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. On appeal by EPFO, NCLAT noted that in terms of paras 35 and 36 of the Employees’ Provident Fund Scheme, 1952; employer-CD was required to prepare contribution card which reflects dues payable. Although the contribution amount was declared by the CD, remittance was made short of declared contribution as per the establishment ledger. Keeping in view the aforesaid provision and judgment of NCLAT in the matter of Jet Aircraft Maintenance Engineers Welfare Association v. Ashish Chhawchharia, Resolution Professional of Jet Airways (India) Ltd. & Ors. and judgment of SC it alan Fritsch Consortium v. Regional Provident Fund Commissioner and Anr., set aside the order of AA and permitted the liquidator to admit the claims on the basis of establishment ledger.

Anil Kumar Vs. Jayesh Sanghrajaka & Ors. [IA No. I 666 of 2023 in CA (AT)(Ins.) No. 513 & 753 of 2023]

In this, CoC withdrew its liquidation decision and approved a resolution plan received subsequently, after application was filed before the AA, without inviting it in Form G. Suspended director of the CD challenged the said decision that no fresh Form G was issued before allowing the resolution plan after decision of the liquidation. NCLAT after examining the facts of the case, held that, ‘Corporate Debtor is to be revived or not by acceptance of a particular resolution plan is essentially a business decision and hence should be left to the CoC so long as it musters more than 66% vote share’. It noted that no settlement offer from the appellant or resolution plan from prospective resolution applicants was available before the CoC and the extended CIRP period was also coming to an end. In the given circumstances, the decision of the CoC to entertain the resolution plan without publication of Form G cannot be viewed to be such a grave procedural non-compliance that the integrity of the entire resolution process was undermined. Further, no consequence of non-compliance to regulation 36A of CIRP Regulations has been provided. The language of CIRP Regulations must be read along with mandate and objective of the Code which clearly emphasizes reorganization and insolvency resolution of CD in a time bound manner. When the CoC has approved a resolution plan by 100% voting share after considering its feasibility and viability, such decision of CoC is a commercial decision. There can be no fetters on the commercial wisdom of the CoC.

Tenny Jose & Ors. Vs. Mr. Prathap Pillai, RP of M/s. Tenny Jose Limited [CA (AT) (CH) (Ins.) No. 95 of 2023]

AA directed the erstwhile directors to refund the excess salary drawn along with interest under section 66 of Code. The ex-directors challenged the order of AA contending that such remuneration was drawn when the CD was in good financial position and, thus, the same is not in nature of fraudulent transaction. Further, the inference made on the basis of forensic report dated June 4, 2022 i.e., after 206 days of commencement of CIRP which is beyond delay of 135 days as per regulation 35A. NCLAT while rejecting the appeal held that as soon as RP came to know about the ‘fraudulent trading’, she filed the application within 45 days of forensic audit report. NCLAT observed that ‘even, if there is any ‘ delay’ beyond 135 days prescribed under regulation 35A, considering the fact that the said regulation is ‘ Directory in Character’, the same is not ‘ Fatal”.

Carissa Investments LLC Vs. Indu Techzone Private Limited & Ors. [Company Appeal (AT)(CH) (Ins.) No. 124 of 2022]

A settlement agreement was executed between CD and an ARC, thereby the CD undertook to pay the amount to ARC in three tranches in full and final settlement of the debt. CD repaid part of sums in two tranches and defaulted to make payment for the third tranche as on March 31, 2020. In this background, the AA passed orders of admission of the application filed by ARC. On appeal filed by a shareholder of the CD, the issue before the NCLAT was whether the date of default admitted as March 31, 2020, is exempted under section 10A. NCLAT relied on the SC judgment in Ramesh Kymal v. M/s. Siemens Gamesa Renewable Power Pvt. Ltd and observed that the object of legislation was to suspend the operation of sections 7, 9 and 10 in respect of defaults arising on or after March 25, 2020 when the lockdown was disrupting the normal business operation. It held that section 10A shall not apply in respect of the defaults committed prior to March 25, 2020 as provided in the explanation to sectionl0Aand allowed the appeal.

Ocean Capital Market Ltd. Vs. Uday Narayan Mitra & Ors. [CA (AT) (Ins) No. 514 of 2023]

AAwhile rejecting the approval of resolution plan has allowed objections raised by dissenting FC because the personal and corporate guarantee extended to them were to be assigned in favour of SRA as per the resolution plan. It was proposed that an addendum be presented to CoC for approval, which will include the modification of resolution plan pertaining to assignment of securities to SRA. On appeal by SRA, NCLAT noted that SRA has submitted an affidavit that personal and corporate guarantees of the dissenting FCs shall not be assigned, and they will be allowed to retain their personal guarantees. While disposing of the appeal, it observed that to meet the ends of justice SRA be allowed to place an addendum which incorporated the conditions mentioned in the affidavit filed by SRA suggesting modification of resolution plan to not to assign the securities in favour of SRA, before CoC for approval; in case such addendum is approved by CoC then it must be placed before AA for consideration.

Peter Beck and Partner Vermogensverwaltung GMBH Vs. Sharon Bio­medicine Limited & Ors. [CA(AT)(Ins.) No. 912 of 2023]

Unsecured FC who abstained against the resolution plan, challenged the approved resolution plan before NCLAT on the grounds of discrimination in the payout between unsecured FC who voted in favour of the resolution plan and the one who did not vote. NCLAT while dismissing the appeal observed that Form H categorically allows different payments to above two categories. Further, the assenting FCs are entitled to payment as proposed in the resolution plan and dissenting FCs are entitled as per the minimum entitlement in terms of section 30(2)(b) of the Code.

Assistant Commissioner of Central Tax Vs. Mr. Sreenivasa Rao Ravinuthala &Anr. [CA(AT)(CH)(Ins.) No. 346 of 2021]

The Central Tax Department was provided 0.13% of the claims in the resolution plan approved by the AA, while the FC were provided higher amount. The Department filed appeal before NCLAT challenging resolution plan inter alia seeking to be treated as secured creditor in terms of section I I E of Central Excise Act, 1944 (Excise Act) considering the decision of SC in the matter of State Tax Officer v. Rainbow papers Ltd. The NCLAT, while upholding the order of AA, held that the dues claimed by the Department, cannot be treated as a secured creditor as the term ‘secured interest’ as defined under the Code excludes charges created by operation of law. It observed that dues under Excise Act would have charge only after the dues under the provisions of the Code are recovered.

Vijay Kumar Garg Vs. Deputy Commissioner of Customs & Ors. [CA(AT)(CH) ( Ins.) No. 259 of 2023]

CD furnished bank guarantees (BGs) and fixed deposit receipts (FDRs) in lieu of the payment of customs duty, in favour of Deputy Commissioner of customs, to procure raw material imported at the ports of Maharashtra. The issue before the NCLAT was, whether such BGs and FDRs be returned to liquidator for distribution of assets as per section 53 of the Code. NCLAT observed that invocation of BG, in the present case, ‘is not about recovery of any claim by customs authorities but is about revocation of surety provided by Corporate Debtor to customs authorities in the form of FDRs and BGs’. NCLAT, also relied on SC’s judgement State Bank of India v. Ramakrishnan & Anr and reiterated that ‘The assets of the surety are separate from those of the CD, and proceedings against the CD may not be seriously impacted by the actions against assets of third party like surety. BG can be invoked even during moratorium period issued under section 14 of the IBC in view of the amended provision under section 14 (3)(b)of the IBC’.

SVA Family Welfare Trust & Anr. Vs. Ujaas Energy Ltd. & Ors. [CA (AT) (Ins.) No. 266 of 2023]

CoC of M/s. Ujaas Energy Limited (CD) with requisite majority of 78.04% vote had approved the resolution plan which proposed a sum of 7 45,00,00,000/-towards the value of CD and 7 23,8 I ,75,744/- towards release of personal guarantees. AA in its order rejected the resolution plan holding that resolution plan contravenes the provision of section 30(2)(e) of the Code as CoC cannot extinguish right of another dissenting secured creditor to proceed against the PG of the CD. Against AAs order, SRA filed an appeal. The issue before NCLAT was whether a clause in the resolution plan providing for extinguishment of personal guarantee given to the FC is valid? NCLAT while allowing appeal, observed that relinquishment of personal guarantee was a commercial decision of the CoC. NCLAT relied on its own judgment in the matter of Edelweiss Asset Reconstruction Company Ltd. v. Mr. Anuj Jain, Resolution Professional of Ballarpur Industries Ltd. & Ors. and observed that resolution plan allocates a plan value for extinguishment of personal guarantee which has been accepted with 78.04%. votes of FC. NCLAT examined SC judgment in Lalit Kumar Jain v. Union of India and held that the judgment cannot be read to mean as laying down law that personal guarantee never can be discharged in a resolution plan. Resolution plan submitted by the SRA did not contravene section 30(2)(e) of the Code and directed AA to pass fresh order.

Rakesh Kumar Gupta & Ors. Vs. Straight Edge Contracts Pvt. Ltd. through its Resolution Professional & Ors. [CA (AT) (Ins.) No. 651, 370, 444, 602, 651 & 1397 of 2022]

The issue for consideration was, whether AA can recall the order of admission in application filed under section 9 in case of an active collusion between the parties? NCLAT while allowing the appeal filed by RP, held that the AA has the jurisdiction to recall its own order which has been obtained by playing fraud upon it.

K. Jayant Prabhu & Anr. Vs. Pankaj Srivastava Liquidator of M/s. Samruddhi Realty Ltd. [CA (AT) (CH) (Ins.) No. 254 of 2023]

Homebuyer entered into an agreement for sale and a construction agreement with CD, for purchase of a plot and construction of residential Villa. CD had given him permissive possession of the Villa pending completion of some interior work. Meanwhile, the CD went into insolvency on the application filed by an OC. During the liquidation, the Homebuyer filed an application before AA seeking direction to the liquidator for (a) exclusion of Villa from liquidation estate, (b) for registration of the Villa and (c) completion of the remaining work. The AA dismissed the application of Homebuyer holding that no sale deed was registered, resultantly no security interest was created in favour of the Homebuyer. NCLAT dismissed the appeal of the Homebuyer and observed that agreement to sell or being in possession of the property will not confer ownership rights to him.

Giriraj Enterprises Vs. Regen Powertech Pvt. Ltd. & Ors. [IA Nos. 667, 668 & 669-2021 in CA (AT) (CH) (Ins.) No. 323-2021]

In the facts of the case, customer companies entered into supply agreement with RPPL for procurement and supply of Wind Turbine Generators, and another agreement for operation and maintenance was entered into by them with RISPL which is a wholly owned subsidiary of RPPL. Both the companies RPPL as well as RISPL were admitted into CIRP on different dates of the same NCLT bench. The AA has approved the CoC approved resolution plan. However, while the CoC approved resolution plan was under consideration before AA, CoC and customers of RISPL filed applications before AA for consolidated CIRP of the CDs. It was also prayed that a single RP should be appointed for both the CDs. However, the applications were dismissed by AA by a common order. An appeal was filed by the customers before NCLAT for consolidation and simultaneous CIRP of both the CDs. The two issues before the NCLAT were whether (a) the customer companies are OCs; and (b) the consolidation of CIRP be done for the two CDs. The NCLAT referred to sections 5(2 I ) and 3(6) of the Code which defines ‘operational debt’ as ‘claim’ in respect of the provision of goods and services which in turn is the ‘right to remedy for breach of contract’. It relied on the judgment of the Hon’ble SC in the matter of Consolidated Construction Consortium Limited v. Hitro Energy Solutions Pvt. Ltd. and held that purchasers of goods and services will be treated as OCs under the Code since an ‘Operational Debt’ will include a debt arising from a contract in relation to the supply of goods and services from the CD.

On the issue of consolidation of CIRP of CDs, the NCLAT took into account the criteria for consolidation viz., interlinking between the two CDs in terms of economic unit, assets, liabilities, accounts, finances, compliances, control and such other factors. It observed that both the CDs had interconnected businesses and RISPL was created for operational convenience of RPPL. It clarified that intent of the Code is such that the ‘synergy and value addition of the assets ought to be the driving force’. Reference was also made to the Report of the Mediator dated April 23, 2021, wherein the Mediator had observed that there was unanimity that the resolution plan must be one for both the CDs and the efforts must be to identify a single entity for purchase of both. NCLAT also referred to the recommendations of the Working Group constituted by IBBI for facilitation of Group Insolvency Resolution and the executive summary published by the Ministry of Corporate Affairs (MCA). It concurred with the view that adoption of single entity approach in Group Insolvency create divergence in the economic realities of the group. Thus, the view implied impending need for Group insolvency for value maximization. NCLAT clarified that ‘there is no exercise of ‘Equity Jurisdiction’ in ordering Consolidation’. Reliance was placed on its decision in the matter of Radico Khaitan Ltd. v. BT & FC Pvt. Ltd. & Ors. and Oase Asia Pacific Pte Limited v. Axis Bank and other Financial Creditors’ and reiterated that because the parameters for consolidation have been fulfilled, the CDs can be treated as ‘single economic unit’.

Agarwal Polysacks Limited Vs. K.K. Agro Foods and Storage Limited [CA(AT)(Ins.) No. 1126 of 2022]

The AA rejected FC’s application under section 7 for failing to prove the financial debt based on written financial contract. NCLAT while allowing the appeal filed by FC held that the financial debt can be proved from other relevant documents, and it is not mandatory that written financial contract can be only basis for proving the financial debt.

Nitin Pannalal Shah & Ors. Vs. Vipul H. Raja [CA (AT) (Ins.) No. 379 of 2021 & IA No. 2204 of 2021]

Suspended director of the CD filed an appeal against admission order passed by AA on the ground that it is a stockbroker and not a corporate person under the Code. NCLAT, while setting aside the AAs order, held that that stockbrokers and financial service providers, are excluded from the scope of ‘corporate person’ in terms of section 3(7) of the Code. NCLAT while allowing the appeal observed, ‘Legislature was well aware of the intricate nature of the financial services and have purposely kept Financial Service Providers out of the procedure prescribed under the Code with exception of Notification on Financial Service Provider under Section 227 by the Central Government’.

Beetel Teletech Ltd. Vs. Arcelia IT Services Pvt. Ltd. [CA(AT)(Ins.) No. I 459 of 2022]

An appeal was filed against the order of AA dismissing section 9 application holding that the OC failed to establish the minimum threshold limit of 7 I crore. On appeal by the OC, the NCLAT while setting aside the order of AA, observed that although the default was committed prior to section 10A period, the liability continued during the section 10A period, interest accrued during such period should not be ignored while computing the threshold for initiating CIRR

Dauphin Cables Private Limited Vs. Praveen Bansal [CA (AT)(Ins.) No. 971, 972 & 973 of 2023]

The issue before NCLAT was whether shareholders of a CD can seek from RP, the details of documents and calculation based on which FC’s claim was admitted? NCLAT, while dismissing the appeal filed by the shareholder of CD, held that AA is fully empowered for calling information or evidence from the parties and clarified that the scheme of the Code does not indicate that all information collected by RP has to be shared with shareholders.

IDBI Trusteeship Services Limited Vs. Direct Media Distribution Ventures Private Limited [CA (AT) (Ins.) No. 850 of 2023]

CD issued non-convertible debentures (NCDs) for which the appellant (FC) acted as debenture trustee. On May 22, 2020, debentures fell due for redemption against which part of the sums were realised during September, 2020 in the form of shares. FC again sent a demand notice dated May I 3, 2022 for the remaining sums due under the NCDs. FC filed section 7 application for the non-payment of the NCDs, which was dismissed by AA on the ground of bar under section I OA of the Code. In this appeal filed by the FC, the NCLAT observed that on May 22, 2020 the NCDs fell due for redemption and CD defaulted in making payment of the principal amount and redemption premium, therefore the date of default Is hit by embargo under section 10A.

Kerala State Co-operative Bank Limited Vs. Mr. Aravindhalsahan Nair R & Ors. [CA(AT)(CH)(Ins.) No.276 0(2023]

The secured creditor challenged the auction sale of assets of CD by the liquidator, for want of maximisation of value. The AA rejected this request The secured creditor filed an appeal before NCLAT on the grand that the liquidator has proceeded with independent decisions overloolcingthe matters of maximising the value of the assets and has sold the assets at a diminished ‘Reserve Price’ without obtaining the requisite approval from Stakeholders’ Consultation Committee (SCC) and did not adhere to regulations 32 and 32A of the Liquidation Regulations. The NCLAT dismissed the appeal holding that the said diminished reverse price was well within the knowledge of the FC and It never objected such reduction during the SCC meeting and observed that the liquidator had followed the ‘Mode of Sale’ as specified under Schedule I of the Regulations.

Soneko Marketing Pvt. Ltd. & Ors. Vs. Girish Srirarn Jtrieja & On. [CA (AT) (Ins.) No. 807, 607, 724 & 735 of 2023 & IJI. P40.2721 of 2023]

Unsuccessful resolution applicant objected to the approval of resolution plan on the ground that CoC has approved the resolution plan before the Competition Commission of India (CO) granted its approval. The aforesaid objection was rejected by M, against which an appeal was flied before NCLAT. The NCLAT while dismissing the appeal held that the pro-condition is mandatory, however the dmdlne to obtain approval Is directory i.e. the approval from CCI can be obtained after approval of CoC but before AAs approval on the resolution plan.

Saptarshi Nath & Ors. Vs. Kepi! Der Taneja, RP of Exit 10 Marketing Pvt. Ltd. [CA(AT)(Ins.) No. 13560(2022]

AA directed the erstwhile directors to refund certain amount as they had indulged in preferential transaction. Ex-directors of the CD challenged the orders of AA before NCLAT on the ground that no such direction could be Issued to the erstwhile directors under section 44( I)(d) of the Code. The NCLAT while allowing the appeal observed that as per section 44( I )(d) direction can be she-en to a person who has received benefits from the CD, whereas a-editors were benefited in the preference transactions and not the CD. As such in the facts of the case, direction could be issued against the a-editors flotilla directors.

Vinod Kumar Kothari Vs. Smite Teelmo Equipments Private Limited [CA(AT)(Ins.) No. 316 of 2023 & IA No. 1079 of 2023]

AA held that the forfeiture of earnest money deposk (EMD) by liquidator Is not appropriate and directed him to return the amount of EMD with interest While dismissing the appeal filed by the liquidator, NCLAT observed that the amendment dated July 25, 2019 was in vogue as on July 8,2020. As such the terms and conditions provided by the liquidator in the expression of interest for repayment of the sale consideration; overlooking the terms and conditions as envisage in Schedule I of the Liquidation Regulations, was untenable.

In the matter of Go (Airlines) India Ltd. [I.A. No.2850, 2944, 3048, 3254, 3277 & 32820 of 2023 in CP (1B)-264(P8)/2023]

The aircraft lessors have filed the Its before AA for direction to CD to refrain the CD from operating or flying the aircraft; and prayed for granting necessary permissions to conduct inspection of the Four engines. AA while disposing of the [As held that in terms of section 14(I)(d) moratorium has been imposed on the CD and that physical possession of aircrafts are with CD, as such it would not be within the rights of aircraft lessors to claim possession of the alrcrafts/engines. Further, it was observed that as long as the aircrafts are registered, they can be used for flying to keep CD as agoing concern.

Inquest Flntech Pvt. Ltd. Vs. Ms. Maya Gupta Liquidator of Rain Automotive India Pvt Ltd.[ IA-35, 36 & 57/7022 in CP No. (IB)-1095(NDy2019]

During liquidation, the liquidator filed three separate avoidance applications wider section 45,50 and 66. Later, with the approval of the SCC, the liquidator assigned the actionable claims (Le. PUFEtransactions)for a total consideration oft 50,0001- after followiig the bidding process. Thereafter, a deed of assignment for asstnment of these actionable claims was entered Into between the liquidator and the assignee. When the assignee filed three [As before AA for inpleadment in the assigned matters, the AA denied the impleadment and imer-affo observed that (a) as there will be room for arbitrariness and the liquidator may assign not readily realisable assets (NRRA) for an arbitrary or meagre amixot in the absence of adjudication of PUFE proceedings byAlk, the proceeds of PUFE proceedings can only be recovered once such proceedings are concluded or determined and the entidement of the CD is crystalised, (b) RP/ liquidator cannot assign as section 43, 45, 50 and 66 talks of application by RP or liquidator only and there is no concept of assignee, (c) the intent

behind PUFE Is not recovery but maximizadon of the value ;Wessels of CD and if third party is allowed to pursue, it wil become a recovery forum and the liquidator herein by assigning the debt / NRRA of the CD total oft 26 crore for a meagre consideration oft 50,0001- is facikatingthe enrichment of assignee, if pendiig three applications are allowed by AA, and (d) a dispute between assignee and respondent of PUFE ‘is dehors the !solvency proceedings’ and accordingly, AA has no Jurisdiction until the PUFE proceedings are conduced.


Disciplinary Orders

During the quarter, the Disciplinary Committee/Authorised Officer of the IBBI disposed of 11 show cause notices issued to the IPs/Registered Valuers (RVs)/Registered Valuer Entitles for comravention of the provisions of law by passing suitable orders.

Corporate Processes

The data provided in this section regarding corporate processes is provisional, as it is getting revised on a continuous basis depending on the flow of updated information as received from1Ps orthe information in respect of process changes. For example, a process may ultimately yield an order for liquidation even after approval of resolution plan or may ultimately yield resolution plan even after an order for liquidation.

Insolvency Resolution

The provisions relating to CIRP came into force on December 1,2016. The detaiis of CIRP cases admitted and dosed, as atthe end of September, 2023 areglven in Table I and Figures 1-2. Sectoral distribution of CDs under CIRP is presented in Figures 3-6.

Table I: Details of CIRP cases as on September 30, 2023

CIRP cases Number
Admitted 7058
Withdrawn under section I 7A 947
Closed on appeal or review or settled 1053
Resolution plans approved 808
Liquidation orders passed 2249
Ongoing CIRP cases 2001

Corporate Insolvency Resolution Process

Note: These CIRPs are In respect of 6794 CDs.

This excludes ICD which has avowed directly from Board for Industrial and Financial Reconstruction (RIF R) to resolution.

Source: Compilation from website of the NCLT and fling by I F’s.

Mode of Closure of CIRPs

Also Read:

Latest Case Law Related to IBC – April to June 2023

Latest Case Law Related to IBC – October – December, 2022

Important Judgments related to IBC, 2016 – July- September, 2022

Latest Case Law Related to IBC – January to March 2022

Latest Case Law Related to IBC – October to -December 2021

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

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

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