Supreme Court
M/s. Jai Balaji Industries Vs. D.K. Mohanty & Anr. [Civil Appeal No. 5899 of 2021 with 5904 of 2021]
The Supreme Court (SC) observed that an operational creditor (OC) cannot use the Code for extraneous considerations or as a substitute for debt enforcement procedures;
and the object of the Code is to allow the insolvency process against the CD only in the case, where a dispute between the parties as to the debt does not exist. It held that moving an application for restoration of proceedings dismissed in default prior to receipt of demand notice and bringing it to the notice of the OC is sufficient to bring the matter within the four corners of pre-existing dispute. The SC observed that: “It is also significant to notice that as on the very day of filing of the applications under Section 9 by the appellant, i.e., 02.03.2020, the appeals were indeed restored by the High Court. The NCLAT took note ofthe fact that the applications, though sworn on 29.02.2020, were filed only on 02.03.2020. Thus, a wishful attempt of the appellant to use the default dismissal of appeals for initiation of CIRP had also lost its ground on the date of filing of the applications under Section 9 of the Code. The NCLT had proceeded from an altogether wrong angle and even while passing the order on 30.09.2020, did not pause to consider that the appeals stood restored on the date of filing of the applications under Section 9 and therefore, even the hyper-technical stance of the appellant was also knocked out.”
V Nagarajan Vs. SKS Ispat and Power Ltd. & Ors. [Civil Appeal No. 3327 of 2020]
The SC observed that sections 61 (1) and (2) of the Code consciously omit the requirement of limitation being computed from when the “order is made available to the aggrieved party”, in contradistinction to section 421(3) of the Companies Act, 2013. The aggrieved party is expected to exercise due diligence and apply for a certified copy upon pronouncement of the order it seeks to assail, in consonance with the requirements of rule 22 (2) ofthe National Company Law Appellate Tribunal Rules, 2016 (NCLAT Rules, 2016) and it is not open to a person aggrieved by an order under the Code to await the receipt of a free certified copy and prevent limitation from running. The tribunals and the courts may choose to exempt parties from compliance with this procedural requirement in the interest of substantial justice, but the discretionary waiver does not act as an automatic exception where litigants make no efforts to pursue a timely resolution of their grievance.
While quashing the order of NCLAT, the SC observed that the facts of the case make it clear that the alleged breaches noted in the termination notice were not a smokescreen to terminate the facility agreement because of the insolvency of the CD. SC held that the AA does not have any residuary jurisdiction under section 60 (5) of the Code to entertain the contractual dispute which has arisen de hors the insolvency of the CD, and in the absence of jurisdiction, the AA could not have imposed stay on the termination notice. The SC cautioned the AA and NCLAT regarding interference with a party’s contractual right to terminate a contract and observed that even if the contractual dispute arises in relation to the insolvency, a party can be restrained from terminating the contract only if it is central to the success of the CIRP.
Electrosteel Castings Limited Vs. UV Asset Reconstruction Company Limited & Ors. [Civil Appeal No. 6669 of 2021]
Post completion of resolution processes under the Code, the debt was assigned by FC to the respondent (assignee). The assignee took steps under the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) against the mortgaged assets of the appellant. The appellant filed civil suit followed by an appeal before the Madras High Court (HC) which dismissed the suit as well as the appeal. In second appeal before the SC, it held that there shall be a legally enforceable debt against the CD so far as the appellant is concerned even after the approved resolution plan against the CD. It also held that Debt Recovery Tribunal (DRT) is the competent court for such SARFAESI Act cases and not the civil court.
The SC observed that the approved resolution plan has to be implemented at the earliest and that is the mandate under the Code. The obligations under the approved resolution plan must be performed mutually and simultaneously by both the parties and the entire resolution process should be completed within the period stipulated under section 12 of the Code.
E S Krishnamurthy & Ors. Vs. M/s Bharath Hi Tech Builders Pvt. Ltd. [Civil Appeal No 3325 of 2020]
The SC held that the AA while dismissing section 7 application and allowing settlement, has acted outside the terms of its jurisdiction and it is empowered only to verify whether a default has occurred or not and must then either admit or reject an application. These are the only two courses of action which are open to the AA in accordance with section 7 (5). It also observed that while the AA and the Appellate Authority can encourage settlements, they cannot direct the parties by acting as courts of equity.
Ngaitlang Dhar Vs. Panna Pragati Infrastructure Private Limited & Ors. [Civil Appeal Nos. 3665 – 3666 with 3742-3743 of 2020]
The SC held that the procedure adopted by the Committee of Creditors (CoC) and RP, while rejecting the request of revision of bid and confirming the bid of another applicant so as to complete the CIRP within set timeline, was fair, transparent and equitable and they approved the said resolution plan only after material irregularity whatsoever. It accordingly set aside the order of the NCLAT which interfered with the commercial wisdom of CoC and reiterated that ‘commercial wisdom’ has been given paramount status without any judicial intervention and that it is not open to the AA or the NCLAT to interfere except on the limited grounds provided under sections 30 (2) and 61 (3) of the Code.
High Courts
Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) Vs. Union of India & Ors. [W.P. No. 19785 of 2021]
The Madras HC held that there is no exemption provided under the Companies Act, 2013 or the Code from applicability of the jurisdiction of the AA in insolvency proceedings with regard to a company which is substantially owned by the Government.
Dewan Housing Finance Corporation Limited Vs. Union of India [Writ Petition No. 3157 of 2021]
The Bombay HC quashed the order passed by CBI Court whereby it had declined to discharge Dewan Housing Finance Corporation Ltd (DHFL) and had permitted its prosecution through its erstwhile directors in respect of FIR against DHFL under various sections of the Indian Penal Code, 1860 and the Prevention of Corruption Act, 1988. It observed that approval of resolution plan by the AA had caused and resulted in change in management of CD which is in favour of persons who were not related party of CD. In view of this, immunities under section 32A of the Code cannot be denied to CD and discharged DHFL from all alleged criminal liabilities committed prior to commencement of CIRP.
The Delhi HC considered the issue as to whether the authorities under Prevention of Money Laundering Act, 2002 would retain the jurisdiction to proceed against a CD once it has gone into liquidation under the Code. It noted that the judgement in Directorate of Enforcement Vs. Axis Bank was passed prior to the insertion of section 32A in the Code and it is now eclipsed by the introduction of section 32A. It held that from the date when the AA approved the sale of the CD as a going concern, the cessation as contemplated under section 32A did and would be deemed to have come into effect.
After the CIRP with regard to the CD was admitted and a resolution plan was passed, the Income Tax Department issued notice to it on the ground that the income chargeable to tax for AY 2014-15 had escaped assessment. The Bombay HC observed that: “once the public announcement is made… it would be expected from all the stakeholders to diligently raise their claim. The Income Tax authorities in that sense, ought to have been diligent to verify the previous years’ assessment… and to raise the claim… In the present case, the Income Tax Authorities failed to do so and therefore, the claim stood extinguished.”
Adarsh Jhunjhunjwala Vs. State Bank of India & Anr. [WPO 1548 of 2021]
The Calcutta HC observed that there is no bar to proceed under Wilful Defaulter Guidelines of RBI and under section 95 of the Code for insolvency of the PG of CD as the purpose of two proceedings is completely different. The HC observed that the principles applied for moratorium in respect of corporate insolvency cannot be applied to personal insolvency. It is essentially for this purpose that the legislature has applied moratorium under section 14 to the CD as a whole and moratorium under section 96 is restrictively applied to the debt and its purpose is to facilitate repayment/resolution of the debt to all categories of debtors. It further observed that: “A plain reading of the two Sections would clearly indicate that the Moratorium U/s. 14 aims at protecting the “Corporate Debtor” and none else. The object and purpose is to protect the image of the juristic person to enable smooth passage of a Resolution Plan. The value of the Corporate Debtor must be protected and kept away from the acts and omissions of its promoters and shareholders. This would make the CD more attractive and would generate more interest in prospective suitors.” The HC also held that: “to stay wilful defaulter proceedings, criminal proceeding or quasi criminal proceeding under any Moratorium under Section 96 would defeat the object and purpose of the part III of the IBC”.
National Company Law Appellate Tribunal (NCLAT)
Damodar Valley Corporation Vs. Cosmic Ferro Alloys Limited & Anr. [Company Appellate (AT) (Insolvency) No. 110 of 2020]
The successful resolution applicant (SRA) had requested Damodar Valley Corporation (DVC) for (i) increase in the contract demand and (ii) waiver of security deposit for electricity supply, post the approval of the resolution plan. The NCLAT observed that “these requests only remain as proposals which have not been accepted or approved by specific order of the Adjudicating Authority while approving the Resolution Plan. Therefore, in our view in the absence of any specific orders, the Appellant is not obliged to grant any waiver of payment of security deposit over the next five years for increase in contract demand or supply of electricity by a 132 KV supply line.” It further opined that “any statutory or legitimate dues which might be demanded from the Successful Resolution Applicant (SRA) for supply of any services should be paid by the SRA and no waiver for any period of time for the future is not permissible.”
Gail India Ltd. Vs. Ajay Joshi (Resolution Professional of Alok Industries Ltd. & Ors.) [Company Appeal (AT) (Insolvency) 492 of 2019]
The order of AA was challenged on the ground that the approved resolution plan that provided for 100 percent payment to the OCs having dues less than 7 3 lakhs but ‘nil’ payment to the OCs having dues over 7 3 lakhs, is discriminatory as it creates a class within a class without any intelligible criteria. The NCLAT while dismissing the appeal, observed that there is no embargo for the classification of OCs into separate/different classes for deciding the way in which the money is to be distributed to them by the CoC which has the subjective final discretion of collective commercial wisdom in relation to the amount to be paid to a certain category or the incidental category of creditors.
The respondent filed a Goods and Services Tax (GST) claim on the basis of assessment orders issued prior to moratorium. The RP revised the admitted claim amount on the basis of books of account and electronic register of CD. The National Company Law Tribunal (NCLT) directed RP to file an appeal before Joint Commissioner for reassessment of the GST amount as claimed by him. In appeal, NCLAT observed that: “GST amount is an amount of tax levied under the assessment order as per the Goods and Service Act, 2017. It cannot be edited or reduced by the Resolution Professional himself. Even if the IRP/Resolution Professional was aggrieved by the said Order, they should have filed the Appeal under Section 107 of the CGST/SGST Act, 2017, read with Rule 108 of the GST Rules 2017. Any revision of assessment orders also cannot be made under the pretext of Section 238 ofIBC. Section 238 of Insolvency and Bankruptcy Code cannot be read as conferring any appellate or adjudicatory jurisdiction in respect of issues arising under other statutes.” It further observed that: “revision of the GST assessment order was beyond the jurisdiction of the IRP/RP. It is pertinent to mention that the IRP/RP was not having the adjudicatory power given by the GST Act. Regulation 14 of the CIRP Regulations only authorises the IRP/RP to exercise power where the claim is not precise due to any contingency or other reasons.” It held that the RP committed an error in exercising its power and exercised the powers of GST Authorities under the pretext of Regulation 14 of the CIRP Regulations.
Sach Marketing Pvt. Ltd. Vs. Resolution Professional of Mount Shivalik Industries Ltd., Ms. Pratibha Khandelwal [Company Appeal (AT) (Insolvency) No. 180 of 2021]
The NCLAT held that the payment of interest on the amounts borrowed by the CD is nothing but a consideration for the time value of money and hence the status of appellant is that of a FC in relation to the amount of security deposit and interest thereon as per section 5 (7) read with section 5 (8) of the Code.
S. Ravindranathan Vs. Sundaram BNP Paribas Home Finance Ltd. & Anr. [T.A. No. 40 of 2021 in Company Appeal (AT)(Insolvency) No.1087/2020]
The NCLAT observed that there is no impediment for an applicant to prefer an application under section 7 of the Code when the proceedings under the SARFAESI Act are already pending. It held that it is always open to a FC, in a given case, to take all possible steps that are available to the lender to recover the money lent by him to the borrower.
Agarwal Coal Corporation Pvt Ltd. Vs. Sun Paper Mill Ltd. & Anr. [I.A. No. 265/2019 in Company Appeal (AT)(Ins) No.412/2019]
The NCLAT observed that the power of review is a creature of statute. It cannot be gainsaid that there is no express provision for “review” under the NCLAT Rules, 2016. The applicant cannot fall back upon rule 11 of the said Rules, which provides for inherent powers and is not a substantive rule which showers any power or jurisdiction upon the Tribunal.
Jumbo Paper Products Vs. Hansraj Agrofresh Pvt. Ltd. [Company Appeal (AT) (Ins) No. 813 of 2021]
The NCLAT held that the threshold limit of 7 1 crore as stipulated in notification dated March 24, 2020 will be applicable for application filed under section 7 or 9 on or after March 24, 2020 even if debt is of a date earlier than March 24, 2020.
Committee of Creditors of Meenakshi Energy Ltd. Vs. Consortium of Prudent ARC Limited & Vizag Minerals and Logistics P Ltd. & Anr. [Company Appeal (AT) (CH)(Insolvency) No. 166 of 2021]
AA had held that the CoC has no business to extend RFRP beyond 330 days without specific approval of the AA. While setting aside the observations made by AA against the CoC and the RP, NCLAT made following observations:-
- The timeline is prescribed for the reason that liquidation proceedings otherwise should not be for an interminable period, thereby jeopardising the interest of all stakeholders;
- Where CIRP is pending and not completed within 330 days within which the resolution of stressed asset is to take place, only in an exceptional / extraordinary case, the outer time limit of 330 days can be extended with a view to secure the ends of justice;
- Tribunal/Appellate Tribunal are scrupulously bound by the discipline of statutory provisions, and they cannot traverse beyond the parameters of law;
- RP is not to be made liable because his perception is incorrect unless it is unreasonable; and
- Resolution plan furnished by one or the other RA is a confidential one and it can neither be disclosed to any competing RA nor any view can be taken, or objection can be asked for from other resolution applicants in regard to one or the other resolution plan.
Drip Capital Inc. Vs. Concord Creations (India) P. Ltd. [Company Appeal (AT) (CH) (Ins.) No. 167 of 2021]
The NCLAT observed that the AA should not take into account the reasons for the CD’s default, at the time of determination as to whether to admit or reject an application under section 7 of the Code. It held that the “Adjudicating Authority is not a ‘Court of Law’ and that ‘CIRP’ is not a litigation”. The decision of AA allowing the CD some more time to repay the debt is in negation of the principles laid down by the judgement of the SC in Innovative Industries Ltd. Vs. ICICI Bank. NCLAT set aside the order of AA, directing it to admit the application filed by the appellant.
Ananta Charan Nayak Vs. State Bank of India & Ors. [Company Appeal (AT) (Ins) No. 870 of 2021]
The NCLAT observed that the acceptance of the settlement proposal by the FC is a matter entirely in the ambit of the FC and that the proceedings before the AA should not have been held up and delayed, waiting for a response by the FC. It further observed that: “IBC does not provide for keeping the proceedings in abeyance and the application for admission has to be decided in a stipulated timeframe”.
Jitender Arora, Resolution Professional of M/s. Premia Projects Ltd. Vs. Tek
The NCLAT observed that if a CD has intricated financial relationship with another company which is controlled in an overwhelming manner by the same set of directors, as the CD and their businesses are inter-related, such companies should be looked at jointly, for matters related to insolvency resolution, as the financial revival of one company will be closely linked to the financial health of the other company. Further, a joint CIRP would be possible only if there is an application for admission of CIRP under the Code against the landowning entity and a strong case for undertaking joint CIRP. With these observations, the matter was remanded to the AA for admission and thereafter for consolidation of CIRP of both holding and subsidiary company.
Bhatpara Municipality Vs. Nicco Eastern Pvt. Ltd. & Ors. [Company Appeal (AT) (Ins) No. 714 of 2021]
The NCLAT held that the outstanding dues of the property tax relating to period prior to sale confirmation in liquidation are dues that are akin to claim of an unsecured creditor and should be discharged in terms of the properties regarding distribution of assets given in section 53, and the auction purchaser cannot be held liable to pay any such dues relating to period prior to confirmation of sale.
Shailendra Singh Vs. Nisha Malpani & Anr. [Company Appeal (AT) (Ins) No. 945 of 2020]
AA dismissed the contempt application against the RP for non-compliance of its order holding that the Code is devoid of contempt jurisdiction. In appeal, NCLAT held that if one is to give such a restricted interpretation that the AA has no jurisdiction of contempt, then its orders cannot be implemented and in fact, the Code will remain in ‘Black Letters’ without a tooth to bite. A conjoined reading of sections 408 and 425 of the Companies Act, 2013 will unerringly point out that the power to punish for contempt is vested with the AA in relation to matters under the Code.
L. Ramalakshmamma Vs. State Bank of India [Company Appeal (AT)(CH)(Insolvency) No. 220 of 2021]
The AA appointed interim resolution professional (IRP) in a petition under section 95 of the Code which was filed by the respondent against the Appellant (PG to CD), without seeking a confirmation of IBBI under section 97 read with rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. On appeal, the NCLAT observed that AA can exercise its judicial discretion in appointing a RP, in a given case, based on the facts and circumstances of the case. Also, if viewed from the object and purpose to be achieved by the Code, the word ‘shall’ in section 97(1) can only be construed as‘directory’and not mandatory.
Innovative Construventures Private Ltd & Anr. Vs. Brainer Trade and Fin-Tech Private Ltd & Ors. [Company Appeal (AT) (Insolvency) No. 470 of 2019 with 486 of 2019]
The NCLAT observed that the Code empowers the CoC to decide to liquidate the CD at any time after its constitution and before the confirmation of resolution plan. Referring to the SC judgment in the matter of ArcelorMittal India Pvt. Ltd. vs. Satish Kumar Gupta & Ors., it observed that there is no vested right or fundamental right in the RA to have its plan approved.
Invent Assets Securitisation & Reconstruction Pvt. Ltd. & Anr. Vs. Rajmal Labhchand Mogra & Ors. [Company Appeal (AT) (Insolvency) No. 709 of 2019]
The NCLAT held that when no order is passed by the AA allowing the IRP to continue under section 22(5) of the Code, his claim of continuance and entitlement to fees will be contrary to the statutory scheme. Regulation 17(3) of the CIRP Regulations cannot be read in a manner which may have effect of defeating the purpose and object of section 22(5) by allowing the IRP to continue without there being any order of the AA in that regard.
Bimalesh Bhardwaj & Ors. Vs. Value Infratech India Pvt Ltd & Ors. [Company Appeal (AT) (Ins) No. 112 of 2021]
The NCLAT dwelled on the factual position of the case wherein the appellants were homebuyers in the project developed by the CD and the CD along with two other sister companies of the same group, secured credit facilities from the FC. Subsequently, on default to pay the debt, the AA admitted the section 7 application of FC. Post constitution of CoC comprising of FC and homebuyers and appointment of AR, the RP submitted to the AA the decision of FC to liquidate the CD despite the objections raised by the AR. The objections of homebuyers are that RP has shown undue favour to the FC by adding up all the loans given to the sister companies of the group instead of the credit facility availed by the CD, thereby the voting share of FC was substantially increased and alleged that due procedure for Expression of Interest (EoI) was not followed. The NCLAT observed that: “It is surprising as to how the Resolution Professional could prepare an information memorandum without getting access to the records and documents of the Corporate Debtor”. In allocating huge voting shares in the CoC and not providing sufficient opportunity to AR, the RP has acted in haste and mala fide. It held that: “the CoC was not constituted in accordance with the provisions of IBC. In the matter, the CIRP was not pursued with fairness and due diligence by the Resolution Professional and the resolution for liquidation of the Corporate Debtor was taken in a meeting with an improper voting share”.
Mr. C. Raja John Vs. Mr. R. Raghavendran & Ors. [Company Appeal (AT) (CH) (Ins)No. 207 of 2021]
The RP rejected the resolution plan of promoter of CD being micro, small and medium enterprise (MSME) on two grounds i.e. (i) the eligibility norm of net worth of C2 crore was not met under section 25(2)(h), and (ii) the DIN was under default making him ineligible under section 29(A)(e). The AA observed that as the MSME certificate was obtained in 2020, the applicant was trying to play a fraud in order to gain backdoor entry to the assets of the CD in the guise of projecting it as an MSME. On appeal, the NCLAT noted that (i) an MSME certificate from State Government was issued to CD in 2013 and subsequently by Government of India in 2020, and (ii) the Madras HC in another matter had directed for reactivation of DIN of the promoter. Considering these facts, it observed that as “the Corporate Debtor is an MSME…. it is not necessary for the Promoters to compete with other Resolution Applicants to regain the control of the Corporate Debtor.” Accordingly, it (i) allowed the promoter to file/submit net worth certificate to the RP and submit a resolution plan, and (ii) observed that the appellant will not fall under section 29A(e) in view of the directions of the Madras HC.
Rajat Metaal Polychem Pvt. Ltd. Vs. Resolution Professional [Company Appeal (AT) (Ins) No. 979 of 2021]
An application was filed by the appellant raising the grievance that the RP has not accepted his claim in full and has discredited the interest amount. AA dismissed appellant’s application on the grounds that against the rejection of the claim by RP there is no provision to file an appeal and, after approval of the resolution plan the AA cannot direct the RP to accept or consider the claim of the applicant. On appeal, NCLAT noted that the resolution plan has not yet received approval by the AA and the same is under consideration before the AA against which an objection has already been filed by the appellant. NCLAT observed that when the resolution plan was submitted and pending consideration, the AA is not deprived of its jurisdiction to issue suitable direction. It was also observed that even if there is no right of appeal given to claimant, he is entitled to make grievances regarding any claim made against the CD by virtue of section 60(5)(b) of the Code.
Mr. T. Prabhakar Vs. Mr. S Krishnan & Ors. [Company Appeal (AT) (CH) (Ins) No. 217 of 2021]
The NCLAT held that debenture holders are undoubtedly the ‘financial creditors’ under the Code. There is no fetter in the law for the debenture holders, who are FCs, to file an insolvency resolution application seeking to initiate CIRP against the CD without adding the debenture trustee in the application, more so when the trust deed gives the right to them.
State of West Bengal Vs. Keshav Park Private Limited & Anr. [Company Appeal (AT) (Insolvency) No. 330-331 of 2020]
The NCLAT held that mere issuance of a letter by the CD calling the representative of the OC with all the papers to settle the dispute cannot be considered as an ‘acknowledgement of debt’in terms of section 18 of the Limitation Act, 1963.
Prakash Chandra Kapoor & Anr. Vs. Vijay Kumar Iyer, (Liquidator) & Anr. [I.A. 2484 of 2021 in Company Appeal (AT) (Insolvency) No. 140 of 2021 with other IAs]
The NCLAT noted that regulation 47 of the Liquidation Regulations being directory and procedural law should not be construed as an obstruction but as an aid to justice. Extension of time under liquidation may be allowed only on the satisfaction that there exist exceptional circumstances. It ordered extension of time to enable sale as a going 35(1)(e), is to carry on business for ‘beneficial liquidation’, the regulation, therefore, cannot override the objective of ‘beneficial liquidation’ provided under the Code.
The NCLAT observed that an application under section 7 of the Code is not akin to a plaint in a civil suit; it is a procedural requirement. The requirement in procedural rule is not to be read in a manner which may preclude an affected party from bringing other materials on record to bring home his point. Without amending the relevant column in section 7 application, the FC can bring relevant materials on record before the AA byway of supplementary affidavit, rejoinder affidavit and the additional affidavit as there is no statutory prohibition on the same.
Mr. Kushan Mitra Vs. Mr. Amit Goel & Anr. [Company Appeal (AT) (Insolvency) No. 128 of 2021 & I.A. 2340 of 2021 and 2413 of 2021]
The NCLAT noted that as can be seen from section 5 (8) of the Code and the principals laid down by the SC in Anuj Jain Case, consideration for time value of money is an essential element for the amount to fall within the ambit of ‘financial debt’. The debt may be of any nature but a part of it is always required to be carrying, or corresponding to, or at least having some traces for disbursal against consideration for time value of money. It observed that: “…the legislature has included such financial transactions in the definition of ‘Financial Debt’ which are usually for sum of money received today to be paid over a period of time in a single or series of payments in the future. In 8lack’s Law Dictionary the expression ‘Time Value’ has been defined ‘as the price associated with the length of time that an investor must wait until an investment matures or the related income is earned”. It held that in the instant case, refund of share application money, in the event of non-allotment of shares attracts interest as provided for under section 42 (6) of the Companies Act, 2013 and, therefore, qualifies the essential ingredients of definition of financial debt’ under section 5 (8) of the Code in terms of consideration paid for time value of money.
BSE Limited Vs. KCCL Plastic Limited [Company Appeal (AT) (Insolvency) No. 134 of 2021]
The Bombay Stock Exchange Limited (BSE) filed this appeal against the order of the AA whereby application to initiate CIRP under section 9 was dismissed on the grounds that certain pages in the agreement between the OC and the CD were blank, there was no seal/signature of the parties and therefore the agreement so filed is not valid in the eyes of law. The NCLAT upheld the order of the AA while also noting that the applicant is claiming ‘listing fees’ which comes under the ambit of ‘regulatory dues’ that are not to be covered under ‘operational debt’, as suggested by the Insolvency Law Committee.
Cotton Casuals (India) Private Limited Vs. Kanchan Dutta & Anr. [Company Appeal (AT) (Ins) No. 206 of 2021 with Contempt Case (AT) No.17 of 2021 in CA (AT) (Ins) No. 206 of 2021]
The appellant contended that he is not entitled to pay transfer fee to the West Bengal Industrial Development Corporation Ltd. for the transfer made by the liquidator on the grounds that transfer of assets under the Code is an involuntary transfer and that there is no mention of transfer fee under the invitation for EoI. The NCLAT noted that the scheme under the Code, especially section 35, reinforces the principle that sale by a liquidator under the Code is a sale on behalf of the CD and such sale cannot be termed to be an involuntary sale. The submission that transfers fee cannot be levied when sale is made by a liquidator under the Code was rejected. Further, invitation for EoI cannot be read like a statute; its intendment needs to be looked into. The document contains a clause where “all other duties payable in connection with purchase of Sale Assets” is to be paid by the transferee and the transferee cannot absolve himself from payment of liability to pay transfer fee.
Prerna Singh Vs. Committee of Creditors of M/s Xalta Food and Beverages Pvt. Ltd. & Ors. [Contempt Case (AT) No. 03 of 2020 in Company Appeal (AT) (Insolvency) No. 104 of 2019]
The NCLAT observed that as per regulation 31 of the CIRP Regulations, insolvency resolution process costs (IRPC) include amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under section 14(1)(d). Due to moratorium period, the lessor could not recover the possession of the property from the CD. Thus, the right of lessor to recover rent is affected on account of moratorium. Therefore, the lessor is entitled to recover the rent, and which shall be included in IRPC.
Axis Bank Limited Vs. Value Infracon India Private Limited & Anr. [I.A. No. 1502 of 2020 & I.A. No. 1503 of 2020 in Company Appeal (AT) (Insolvency) No. 582 of 2020]
The issue before NCLAT was as to whether the appellant bank can be considered as an ‘FC’ on account of its having sanctioned and releasing housing loans to some of the allottees who have purchased flats/units in the project floated by the CD. The NCLAT held that it is definitely not the scope and objective of the Code to consider banks/financial institutions which have advanced loans to homebuyers to be considered as FCs and include them in the CoC, specifically in the light of the fact that the liability to repay the home loan is on the individual homebuyers. This would defeat the very spirit and objective of the Code aiming at resolution and maximisation of the assets of the CD.
BSE Ltd. Vs. Asahi Infrastructure & Projects Ltd. [Company Appeal (AT) (Insolvency) No. 346 of 2019]
BSE filed an application under section 9 for default by the CD in payment of listing fees as per Listing Agreement. The AA rejected the application holding that dues of ‘regulatory fee’ cannot be termed as an ‘operational debt’. The NCLAT upheld the decision of AA in appeal and observed that: “When the Insolvency Law Committee has categorically in the Report,… held that ‘regulatory dues’ need not be included in the definition of ‘operational debt’, the said opinion of experts, cannot be brushed aside. The recommendations given by Insolvency Law Committee Report is in line with the object of the Code. In event, it is held that (for) all kind of dues including ‘regulatory dues’, the insolvency resolution process can be triggered, then the entire purpose of the object of the I8 Code will be lost and insolvency proceedings will turn into recovery proceedings for the dues of creditors, which is not the object ofthe I8 Code, as has been laid down by the Hon’ble Supreme Court in Swiss Ribbons Private Limited and Anr. (supra) and otherjudgments.”
In the matter of Krrish Reattach Private Limited [Company Appeal (AT) (Insolvency) Nos. 1008, 1009 & 1010 of 2021]
On the issue as to whether the AA while considering application of pre-packaged insolvency under section 54C of the Code can hear objectors/interveners before admission, the NCLAT observed that there is no prohibition on hearing/giving opportunity to an objector or interveners to file their objections. However, hearing of objectors or interveners is not a matter of course and has to be limited to exceptional cases as the proceedings under the Code are time bound.
National Company Law Tribunal (NCLT)
Mr. Amish Jaysukhlal Sanghrajka & Anr. Vs. Akshar Shanti Realtors Private Limited [C.P (IB) No. 1726/MB/C-II/2017]
The AA observed that since the petitioners were allotted flats in the unregistered project of the respondents, the Real Estate (Regulation and Development) Act, 2016 does not apply to the petitioners, and they cannot claim that they are allottees falling within the definition of FC under the Code. AA also observed that the petitioner has failed to qualify the threshold limit of one hundred or10 percent as an allotee to initiate CIRP under the purview of section 7 of the Code.
Bank of India Through its Authorised Representative Chandra Pal Vs. Naren Sheth RP for Jaybharat Textiles & Real Estate Ltd. [IA 296 of 2020 in CP(IB) 266 of 2019]
The AA held that the interchange of the managerial personnel between various legal entities inter-se without any association with the CD is not a valid basis to hold that such parties fall under the category of related party of the CD, though they may be belonging to the same group. AA also observed that object of provisions relating to exclusion of related parties from CoC is to maintain the independence of CoC in the interest of all stakeholders but that does not mean that parties who were related at some point of time and now they are not related parties, should be excluded from CoC merely because of this reason unless it is shown, they extinguished their related parties status just to dominate CIRP and to gain undue advantage in CIRP.
Magnate Industries LLP Vs. Safal Developers Private Limited [CP (IB) No.1167/MB-IV/2020]
The AA considered the question as to whether a refundable security deposit given by a joint developer constitutes a ‘financial debt’. AA noted that memorandum of understanding entered between the joint developer and the respondent is undated, unstamped and unregistered and it cannot be relied upon by that Tribunal as a valid document to proceed against the respondent. Also, as no disbursement was made by the petitioner to the respondent, AA held that the petitioner is not entitled to file an application against respondent under section 7 of the Code as FC. Dismissing the application, AA concluded that the refundable security deposit given by a joint developer does not constitute a ‘financial debt’ as per section 5 (8) of the Code.
Vikas Prakash Gupta, Resolution Professional, Man Tubinox ltd Vs. Vinod Kuwadia & Anr. Dena Bank [IA 1235/2020 in C.P.(IB)-4348/(MB)/2018]
RP filed an application for reversal of illegal transaction whereby the property of the CD was handed over to the respondents (related party of the CD) during the moratorium period. AA found that the suspended directors of the CD were aware that insolvency petition was reserved for orders and just before the insolvency commencement date (ICD), when they knew that there is no reasonable prospect of avoiding the CIRP in respect of the CD, they carried on fraudulent transactions with the intent of defrauding the creditors of the CD by sub-leasing a large chunk of the only asset of the CD to a related party who happens to be the son-in-law of one of the suspended directors. AA also found that the suspended directors were fully aware of the impending CIRP and also knew that restrictions under section 14 of the Code would kick in. Therefore, just before the commencement of the CIRP, in total violation of section 66 of the Code, they entered into a Tripartite Agreement with a related party to sub-let the assets of the CD. They also concealed from the Madhya Pradesh Industrial Development Corporation (MPIDC) that the sub-lease is null and void as the CD which has sub-leased the property is no longer with the original promoters but with the IRP. AA held that director/ promoter have violated provisions the Tripartite Agreement executed during the moratorium period; (b) directed the MPIDC to cancel its registration of the Tripartite Agreement as suspended director/promoter had fraudulently and without any authority of the RP; and (c) imposed a fine of C5 lakhs on each of the ex-director/ promoter to be credited to the bank account of the CD within five working days.
TDB Spinners Pvt. Ltd. Vs. Jalesh Kumar Grover Resolution Professional of GPI Textiles Ltd. [CA Nos. 259/2019, 261/2019 & 650/2019 in CP (IB) No. 35/Chd/HP/2018]
The applicants (OCs) filed applications under section 60 (5) against decision of RP in rejecting their claim pursuant to award given in their favour against the CD by the Madhya Pradesh Micro and Small Enterprises Facilitation Council (Facilitation Council). The petition filed by CD challenging the award under section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) was pending till date of the order and no stay on the award was granted.
(a) CA No.259 and 261 of 2019 – The RP had rejected the claim on the ground that since as per the books of the CD no due was shown against the applicant, the claims of the applicants were not entitled for admission. AA held that once it is shown that the claim of the applicant is backed by an award passed by Facilitation Council and that there was no stay against the same either in the appeal filed under Arbitration Act or from any other court, the action of the RP in rejecting the claim of the applicants on the ground that there was no due shown in the books of the CD against the applicant is unsustainable.
(b) CA No.650 of 2019 – The RP claimed that the applicant had not furnished a copy of the award and that the claim of the applicant was belated and hence, there is no illegality in its action in rejecting the claim. AA observed that in view of the settled principle of law that the time prescribed for submission of the claims is not mandatory whereas it is only directory, it directed the RP to consider the claim of the applicant.
Beacon Trusteeship Limited Vs. Neptune Ventures and Developers Private Limited [CP (IB)993/MB/C-IV/2020]
On CD’s default on payment to debenture holders as per the debenture trust deed cum indenture of mortgage, the debenture trustee initiated CIRP against the CD. AA observed that as per the terms of the debenture trust deed cum indenture of mortgage, an English mortgage was created in favour of the debenture trustee for the benefit of debenture holders through which the title, ownership, possession, interest, benefits, claim and demand including and lease hold rights for the mortgaged units were transferred to the debenture trustee absolutely. AA observed that under the given factual matrix, upon non-payment of dues under the debenture trust deed, there is no default and it cannot initiate any action under section 7 of the Code as the petitioner had agreed to recourse as envisaged under registered debenture trust deed cum indenture of mortgage and sell the mortgaged assets and recover the money due.
South Delhi Municipal Corporation Vs. MEP Infrastructure Developers Limited [IA 1670 of 2021 in CP (IB) 246/MB/2021]
The question, whether a debt arising under a toll tax collection agreement falls in the realm of the ‘operational debt’, was examined by AA. It observed that amount recoverable as arrears of tax is different from tax arising under statute and emphasised that section 5 (21) of the Code covers the dues which are arising under the statute and not dues which are recoverable as arrears of tax. AA held that the claim is based on an agreement where the petitioner has appointed the respondent as a contractor to collect toll tax from commercial vehicles which shows that petitioner is not providing any goods or services to the respondent and therefore, is not covered under the definition of ‘operational debt’.
Bohra Industries Limited through its Resolution Professional Vs. National Stock Exchange of India Ltd., Through its Senior Manager (Listing Compliance) [IA No.208/JPR/2020 in C.P. No.-(I.B)-157/7/JPR/2019]
Application was filed by RP seeking to set aside the respondent’s letter that levied fine on the CD for the delay in making certain compliances in terms of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015. Keeping in view the moratorium declared in terms of section 14 of the Code and the fact that RP made certain compliances subsequently, AA held that the impugned order of respondent is unsustainable. AA observed that burdening the CD with imposition of fines is against the interest of the CD and against the object of the Code.
Transit Geo System Integrators Private Limited Vs. Stahl Tecniks Private Limited [(IB)-265/ND/2021]
The issue, whether the sales tax demand paid by the applicant can be claimed as reimbursement from a CD as an ‘operational debt’, was considered by AA. AA noted that the tax demand has been raised by the sales tax department against the applicant and not against the CD. It was further observed that the payment of tax demand made and discharged by the applicant to the State Government will not result in automatic assignment or transfer of such payment/debt to the CD and therefore, OC cannot claim the same as reimbursement from the CD as an ‘operational debt’. AA held that the amount is neither arising out of provision of goods and services nor is a claim in respect of employment nor it represents the dues payable to the Government, and it is not an ‘operational debt’ and therefore, the applicant is not an OC under section 5(20) of the Code.
Bank of India Vs. Tirupati Infraprojects Pvt. Ltd. [C.A. No. 719(PB)/2020, C.A. No. 1247 (PB)/2019 and C.A. No. 1090 (PB)2020 in IB-104 (PB)/ 2017]
(a) C. A. No. 719(PB)/2020, C.A. No. 1247 (PB)/2019 – SRA filed an application praying for certain clarification on order whereby resolution plan was approved and for extension of time for implementation of resolution plan. AA observed that the applicant cannot come before AA with an intention to get extension of time for the payment schedule or on any other pretext or even to put any condition post approval of the resolution plan. It further observed that the approved resolution provided that it is unconditional and thus, the applicant cannot raise an objection or try to modify at this stage post approval by filing this application. It referred to the NCLAT order in the matter of R.G.G.Vyapaar Pvt. Ltd. Vs. Arun Kumar Gupta and Anr. decided on 31.08.2018 wherein it was held that the AA has no jurisdiction to reopen resolution process under section 31 of the Code. AA rejected the application, holding that the applicant even after lapse of time from the date of approval of the resolution plan has failed to honor and adhere to the terms of the resolution plan and thereby defaulted in making the payment.
(b) C. A. No. 1090 (PB)/2020 – RP filed an application before AA to issue directions against the SRA for contravening the terms of resolution plan. While allowing the application, AA noted that the very same RA is the SRA in the case of Oriental 13ank of Commerce Vs. Allied Strips Ltd 8, Ors., and it can be understood from the conduct of the SRA that it is not interested in implementing the plan nor it is capable of implementing the resolution plan for the reason that the company has poor financial condition. AA cancelled the approval given to the SRA for the approval of the resolution plan, directing the CoC to be reconstituted and the matter be considered a fresh in its own wisdom. AA also referred the matter to IBBI for taking appropriate action under section 74 (3) of the Code.
Bank of India Vs. B.B. Foods Pvt Ltd [IA No.201/2020 in CP No. (IB)349/ALD/2018]
The AA, while disposing of interlocutory applications filed by the RP, observed that the IBBI has been made respondent in the application when there was absolutely no need for the RP to do so. Due to such inclusion of IBBI in the array of parties, the AA had to issue notice to the IBBI although IBBI is not concerned with the relief sought. The AA ordered a cost of C 25000/- on the RP personally for unnecessarily making the IBBI, as a party.
Sabu K.V. & Anr. Vs. Shri. Ravindra Chaturvedi Liquidator of Excel Glasses Limited [MA/221/KOB/2020 & MA/222/KOB/2020 in IBA/258/2019]
The appeals were filed before the AA as a result of rejection of partial claims involving statutory dues like gratuity of the employees. AA held that benefit of claims accruing to the employees shall be subject to submission of relevant documents on record unless otherwise proven with sufficient evidence. It further observed that:-“Section 36(2) of the I8,13 Code 2016 provides that the Liquidator shall hold the Liquidation Estate in fiduciary for the benefit of all the Creditors. The Liquidator has no domain to deal with any property of the Corporate Debtor, which is not the part of the Liquidation Estate. It is clear that in terms of sub-Section 4)(a)(iii) of Section 36 all sums due to any workman or employees from the Provident Fund, Pension Fund and the Gratuity Fund, do not form part of the liquidation estate/liquidation assets of the ‘Corporate Debtor”. It held that claim of wages cannot be sanctioned unless the statutorily constituted forums have rendered decisions under the provisions of the Industrial Dispute Act, 1947 the Payment of Wages Act, 1936 and the Payment of Bonus Act, 1965.
Hubtown Limited Vs. GVFL Trustee Company Pvt. Ltd. [MA 2411/2019 in C.P. 4128/I&B/MB/2018 and other MAs]
The CD filed an application under section 60(5) of the Code challenging the maintainability of the section 7 petition filed by GVFL claiming to have invested in shares of CD with internal rate of return calculated at 26 percent of the principal; and CD having defaulted when ‘put option’ byway of exit was exercised. The issue before AA in the application was whether GVFL is a FC and whether the debt claimed in the petition is a ‘financial debt’ as per the Code. While dismissing the section 7 petition, AA observed that a shareholder is different from a lender. The shareholder undertakes the risk by investing in shares and derives its return byway of profits in the form of dividends and appreciation in the value of shareholding, i.e., capital gains. In contrast, the lender gives loans for which the payment is by way of interest. AA noted that the money paid by GVFL to acquire the shares with voting rights cannot be construed as a consideration for time value of money. Further, internal rate of return cannot be equated with interest payments.
Mr. Ashutosh Agarwala Vs. Joint Commissioner of State Tax & Ors. [IA 2422/2020 in C.P.(IB)- 2640/(MB)/ 2019]
The AA, on the application of RP filed against the orders of State Tax Authorities of West Bengal and Maharashtra attaching all the bank accounts of CD and seeking directions against the tax authorities from issuing any further notices/seizure/ attaching of assets of CD without leave of the Tribunal and giving access to the RP for bank accounts of CD, observed that section 14 of the Code, inter alia, bars any institution of suits, continuation of pending suits or proceedings against CD including execution of any judgment, decree or order in any court of law, tribunal or overriding effect on all other laws which includes State GST Act and Central GST Act which are in contravention to the Code.
Seaview Merchants Private Limited Vs. Ashish Vincom Private Limited [C.P (IB) No. 2011/KB/2019]
The AA while rejecting section 7 application, observed that inter-corporate deposits are financial debts but in a transaction of a deposit of money or a loan, a relationship between the parties must come into existence. Mere transfer of money from one account to another would not constitute loan/deposits unless the intention of the parties are considered and substantiated with valid documents. Further, as envisaged under rule 3 (d) of the NCLT Rules, 2016, a “financial contract” would encompass setting of the terms of the financial debt, including the tenure of the debt, interest payable and date of repayment. FC has failed to satisfy about existence of financial contract between the parties. It observed that: “the trend of granting unsolicited Inter Corporate Deposit by the Creditors and earning large slab of interest thereon, as compared to the normally charged interest rate and then taking the passage under the Code for recovering the interest and principal dues on default of payment of interest would make the Adjudicating Authority wear the hat of a debt-recovery mechanism.”
Union Bank of India Vs. Ms. Vandana Garg (Erstwhile RP/Monitoring Committee Chairperson of Jyoti Structures Limited) & Ors. [IA 2025 of 2021 in CP No. 1137/MB/2017]
Applications were filed by the dissenting and abstaining FCs praying that the discrimination in payment under the resolution plan on the basis of the assenting and dissenting/abstaining FC be modified to the extent that all secured FCs inter alia be treated equally for payment of plan value subject to their individual exposure with the same terms as that of assenting FCs. The AA observed that section 30 (2) (b) of the Code provides for the payment of debts of the dissenting FCs in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with section 53 (1) of the Code in the event of liquidation. Explanation 1 to section 30 (2) (b) of the Code further clarifies that distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors. It further observed that any increase in the claim amount of the assenting FCs due to the invocation of Bank Guarantee (BG) cannot be a ground for challenge by the dissenting/abstaining FCs on the grounds of discrimination. BG invocation and the revision in the amounts of assenting FCs is as per the terms of the resolution plan and the decision to include the invoked amount of the BG to the fund-based debts is a commercial decision of the CoC.
Special Court
| Sl. | Complaint Details | Special Court | Contraventions |
| 1. |
Insolvency Bankruptcy Board of India Vs Om Prakash Rajgarhia & Ors, CC/796/2021 |
Dwarka |
Ex-Directors and Key Managerial Personnel of overnite Express Limited, for failure to furnish details of assets of the Corporate Debtor, deliver books of of account and to extend necessary assistance and cooperation to the IRP which is in contravention of sections 70 (1)(a), (b), (c) and 74 (1) and 235 A of the Code. |
| 2. |
Insolvency and Bankruptcy Board of India Vs. Vishesh Goyal & Anr., CC/964/2021 |
Dwarka |
Ex-Directors and Key Managerial Personnel of Kelvin Recruiters Limited, for failure to handover the records and books of accounts of Corporate Debtor and details of its assets to the IRP which is in contravention of sections 68 (I), 70 (1) (a), (b), (c), (e) and 235A of the Code. |
| 3. |
Insolvency and Bankruptcy Board of India Ms. Ambik.a. Prasad &Abr., CC/1092/2021. |
Dwarka |
Et-Directors and Key Managerial Persorrel of Horizon Buildcon Pvt. Ltd, for failure to furnish details of assets of the Corporate Debtor, deliver books of account and to extend necessary assistance and cooperation to the RP which is in contravention of sections 70 (1) (b) and (c) read with sections 19 (1) and 34 (3) and 235 A of the Code. |
| 4. |
Insolvency and Bankruptcy Managerial Personnel Board of India India Vs. Priyanka Chahal & Anr., CC/1249/2021, |
Dwarka |
Ex-Directors and Key of Chahal Parivahan Private Limited, for failure to furnish details of assets of the Corporate Debtor, provide custody of assets/ information/ documents and to extend necessary assistance and cooperation to the IRP which is in contravention of sections 68, |
| 5. |
Insolvency and Bankruptcy Board of India Vs. Kash Steel & Trading Pvt. Ltd. & Ors., CC/963/2021 |
Dwarka |
Directors and Key Managerial Personnel of Krish Steel & Trading Pvt. Ltd., SRA for failure to comply with the terms of resolution plan, which is in contravention of sections 31 (1) and 74 (3) read with section 235 A of the Code. |
IBBI
Disciplinary Orders: The Disciplinary Committee (DC) passed a few orders with a variety of directions for contraventions of the provisions of law
| Sl. |
Order against (IP/RV) |
Professional Member of | Contraventions Found | Directions |
| 1 |
Mr. Pawan Kumar Garg, IP |
IIIP ICAI |
No contraventions found |
No directions |
| 2 |
Mr. Fanendra Harakchand Munot, IP |
IIIP ICAI | No contraventions found | No directions |
| 3 | Mr. Jaswant Singh, IP | ICSI IIP |
IP outsourcing his primary duty of verification of claims to an independent professional and including it as a separate CIRP cost. |
Penalty equal to the fee paid to independent professional be deposited within 45 days |
| 4 |
Mr. Vimal Kumar Grover, IP |
IIIP ICAI |
Inaction and neglect of the IP in conducting the CIRP by not complying with moratorium, non- submission of documents and disclosures, delay in progress report, non- constitution of CoC and the on not taking adequate steps for filing section 19(2) application before the AA. |
Cancellation of the registration and debarred from seeking fresh registration or service under Code for one year. |
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Source- IBBI
