Orders
Supreme Court
Rajratan Babulal Agarwal Vs. Solartex India Pvt. Ltd & Ors. [Civil Appeal 2199 of 2021]
While placing reliance on the Mobilox Innovations Private Limited v. Kirusa Software Pvt. Ltd. judgment, the SC observed that Code does not enable the operational creditor (OC) to put the CD into CIRP prematurely. It is for this reason that it is enough that a dispute exists between the parties. It further observed that AA cannot be oblivious to the limited nature of examination of the case of the CD projecting a pre-existing dispute.
The SC observed that all that AA is required to see is whether there is a plausible contention that need to be investigated. A ‘patently feeble’ legal argument may not be a plausible dispute. The AA need not go to the extent of finding that the CD is likely to succeed. The examination of the merits need not transcend the limited extent which is to find that the case of the CD is not to be brushed aside as spurious, hypothetical or illusory. It observed that: “The standard, in other words, with reference to which a case of a preexisting dispute under the IBC must be employed cannot be equated with even the principle of preponderance of probability which guides a civil court at the stage of finally decreeing a suit Once this subtle distinction is not overlooked, we would think that the NCLT has clearly erred in finding that there was no dispute within the meaning of the IBC.” The SC also observed that overlooking the boundaries of the jurisdiction can cause a serious miscarriage of justice besides frustrating the object of the Code.
Ashok Kumar Sarawagi Vs. Enforcement Directorate & Anr. [Special Leave Petition (Civil) Diary No(s). 30092/2022]
CIRP was admitted against the CD in November, 2019 and thereafter the Enforcement Directorate (ED), on December 30, 2021 issued an order of provisional attachment of the immovable and movable properties of the CD under the Prevention of Money Laundering Act, 2002 (PMLA). Pending challenge against the order of the ED, the SC directed that the CIRP of CD to be conducted on ‘as is where is’ and ‘whatever there is’ basis. It also cautioned that the resolution plan shall not be approved by the AA without the express permission of the SC.
High Court
Kirankumar Moolchand Jain Vs. TransUnion CIBIL Ltd. & Ors. [Arb. O.P. (Com. Div) No. 86 of 2022]
The HC considered the issue as to whether the disputes pertaining to accuracy of credit information under Credit Information Companies (Regulation) Act, 2005 are arbitrable and whether an arbitral tribunal be constituted, while an interim moratorium is in place under section 96(1)(b) of the Code. The HC observed that when a dispute arises between borrower/client and credit information company/credit institution with respect to accuracy or completeness of the credit information collected, processed or collated, the same qualifies a dispute relating to the business of credit information and such dispute may be referred for arbitration.
As regards arbitration during interim moratorium under section 96 of the Code, it observed that section 96(1)(b) of the Code mentions that interim moratorium applies ‘in respect of any debt’ and not for ‘recovery of a debt’. This section clarifies that the interim moratorium applies not only to proceedings for recovery of a debt but to proceedings in which the liability of the borrower and guarantor are determined in relation to the credit facility. Accordingly, it held that an arbitral tribunal cannot be constituted while an interim moratorium under the Code is in existence. It further observed that once the moratorium ends and if the petitioner succeeds in the proceedings before the AA, it may initiate arbitration proceedings.
Axis Trustee Services Ltd. Vs. Brij Bhushan Singal & Anr. [CS (Comm) 8/2021 and other applications]
The issue in this case was whether interim moratorium under section 96 of the Code for one of the guarantors would apply in respect of a co-guarantor. The HC held that effect of the interim moratorium is only in respect of the debts of a particular debtor and by no stretch of the imagination can it be said to include other independent guarantors in respect of the same debt of a CD. Further, merely because an interim moratorium under section 96 is operable in respect of one of the co-guarantors, the same would not ipso facto apply to other co-guarantors.
During CIRP, the Enforcement Directorate (ED) passed provisional attachment orders against the CD. Aggrieved by the orders, RP filed an application seeking directions to restrain the ED from proceeding further from taking any action during the pendency of the CIRP. The HC held that the
attached property under the PMLA comes to vest in the Union Government only upon the passing of an order by a special court under the provisions of the PMLA and therefore, the provisional attachment of properties does not violate section 14 of the Code.
It observed that assets, which may have been obtained by the commission of a scheduled offence cannot be accorded exemption or immunity from the rigours of the PMLA which is not subservient to the moratorium provision comprised in the Code. The PMLA seeks to subserve a larger public policy imperative and is an enactment representing “a larger public interest, namely the fight against crime and the debilitating impact that such activities ultimately have on the society and the economy of nations as a whole”. It also relied upon following observation in the 2020 Report of the Insolvency Law Committee, in Para 8.11: “…the moratorium provision is not liable to be interpreted as barring all possible actions “especially where countervailing public policy concerns are involved”. It also took note of laws prevailing in different jurisdictions which permit regulatory actions which though not aimed at collecting moneys for the estate protect other vital and urgent public interests”.
Insolvency and Bankruptcy Board of India Vs. State Bank of India & Ors. [W.P. (C) 10189/2018 & CM APPL. 39715/2018]
The IBBI filed a writ petition challenging the order of AA which had held that regulation 36A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) is ultra vires of section 240(1) of the Code. The HC held that in terms of section 60(5), the categories of cases which can be adjudicated by the AA have been clearly enumerated, and the jurisdiction to deal with the validity of the regulations framed under the Code is not conferred upon the AA. The AA being a creature of the Code, cannot assume to itself the power of declaring any provisions of the Code or the regulations framed there under as illegal or ultra vires.
Brilltech Engineers Pvt. Ltd. Vs. Shapoorji Pallonji and Co. Pvt. Ltd. [ARB. P. 790/2020, IA 12493/2020, IA 3888/2021]
An application for appointment of arbitrator was filed before the HC. Subsequently, an application under section 9 of the Code was also filed before the AA. The issue was as to whether the dispute will become non-arbitrable merely because the OC has filed a section 9 application. The HC observed that it is a settled proposition of law that jurisdiction of NCLT can be invoked only in respect of determined debts. It further observed that: “though a proceeding may have been initiated by the petitioner before the NCLT asserting that there is an admitted debt…. but a mere assertion would not make it into an admitted liability especially when the respondent has been refuting it at every forum and in every proceeding”. The HC held that merely because an OC filed section 9 application before the AA before seeking appointment of arbitrator, it can’t be said that he was indulging in forum shopping. As there were arbitrable disputes, the HC appointed an arbitrator to adjudicate the disputes between the parties.
Alliance Broadband Services Pvt. Ltd. Vs. Manthan Broadband Services Pvt. Ltd. [IA No. GA/3/2022 in CS/54/2019]
The FC had filed a civil suit praying for a decree with respect to the equity shares of the respondent in its possession. Subsequently, FC also filed an application under section 7 which was admitted by the AA. As the CD was under liquidation, FC apprehending that the liquidator will take control and possession of its equity shares, approached the Calcutta HC. The HC held that NCLT and NCLAT are constituted under sections 408 and 410 of the Companies Act, 2013 but without specifically defining the power and functions. While there is no provision in the Companies Act, 2013 exclusively dealing with the jurisdiction and powers of NCLT, section 60 of the Code gives an indication about the powers and jurisdiction of the AA. Section 60(4) states that the AA will have the powers of debt recovery tribunal (DRT) as contemplated under part III of the Code for the purpose of sub-section (2).
The HC observed that as per section 60(5) of the Code, the petitioner can approach the AA instead of the HC. It held that the object of section 60(2) of the Code is to group together, (a) CIRP or liquidation proceedings of a CD, and (b) insolvency resolution/ liquidation/ bankruptcy proceedings of the corporate guarantor or personal guarantor of the same CD before a
single forum. This is to ensure that the CRIP of the CD and the insolvency resolution of the individual guarantors of the very same CD do not proceed on different tracks, before different forum, leading to conflict of interest, situations, or decisions. The HC held that section 238 of the Code has an overriding effect on any other law for the time being in force. Section 430 of the Companies Act, 2013 itself provides an additional bar that no injunction shall be granted by any civil court in respect of any action taken or to be taken in pursuance of any power conferred on the NCLT by the Companies Act, 2013. It observed that the matter in issue in the suit can be more appropriately and effectively decided and adjudicated by the AA.
DLF Ltd. Vs. IL&FS Engineering and Construction Company [2022/ DHC/005697]
The issue for consideration before Delhi HC was whether arbitration is permissible with regard to claims arising after October 15, 2018 i.e., cutoff date in view of order dated October 15, 2018 of the NCLAT. It noted that during the resolution process of a company, its creditor is obligated to necessarily lodge claims before the RP, as a successful resolution applicant (SRA) cannot suddenly be faced with undecided claims after the resolution plan submitted by him has been accepted. This would amount to a ‘hydra-head popping up’ which would throw into uncertainty amounts payable by a prospective resolution applicant who successfully takes over the business of the CD. The effect of the order of the NCLAT is primarily akin to moratorium under section 14. The intent of the order of the NCLAT was to protect the assets of IL&FS and its group companies in order to make the resolution process effective and purposeful.
NCLAT
Mrs. Renuka Devi Rangaswamy Vs. M/s Regen Powertech Private limited and Ors. [Comp. (AT) (CH) (Ins) No. 357 / 2022 & IA/814/2022]
The issue that arose before the NCLAT was whether the transfer of assets within the group of companies would constitute a fraudulent trading as per section 66 of the Code. The NCLAT held that it must be borne in mind that whenever a fraud on a CD is committed, in the course of business, it does not necessarily mean that the business is being carried on with an intent to defraud the creditors. A higher degree of proof is required in regard to a fraudulent intent. That further the NCLAT held that it is the duty of the appellant to satisfy the NCLAT that an individual is carrying business with CD with dishonest intent. It held that the transfer of assets among the group companies ex-facie was not fraudulent.
The CoC’s decision to liquidate the CD was challenged on the ground of being arbitrary. The NCLAT observed that the CD has not been functioning for the last 19 years and all machinery had become scrap, even the building is in dilapidated condition and the CIRP would involve huge costs. In such case, CoC is empowered to take decision under the statutory scheme of the Code. The NCLAT upheld the decision of the AA for liquidation.
Punjab National bank Vs. Mr. Ashish Chhawchharia and Ors. [Company Appeal (AT) (Insolvency) No. 584 of 2021 & IA No. 2720 of 2021]
After initiation of CIRP against the CD, a FC filed a claim of `956 crore as per the Share Pledge Agreement. The RP admitted the claim for `956 crore and same was reflected in the list of creditors on January 15, 2020. On September 22, 2020, RP reduced the claim of the FC by `202 crore on the ground that on invocation of the pledged shares, the FC had become the owner of the pledged shares. The issue that arose for consideration was whether the RP had jurisdiction to review and revise an admitted claim. The NCLAT held that the RP had incorrectly reduced the FC’s admitted claim and directed the SRA to bear the liability of paying additional amount to FC from the amount reserved under resolution plan.
Jet Aircraft Maintenance Engineers Welfare Association Vs. Ashish Chhawchharia [CA (AT) (Ins) 752 of 2021]
In the approved resolution plan, employees and workmen were proposed a fixed sum of `52 crore towards settlement of all claims including provident fund, gratuity, and pension fund. On challenge, the NCLAT inter-alia observed that explanation to section 18 clarifies that provident fund, gratuity and pension fund are assets on which employees have rights and cannot be considered as assets of CD. It further observed that it was CD’s statutory duty to deposit provident fund and pay gratuity, and the amount towards statutory liability of the CD against provident fund and gratuity is to be paid by SRA.
The appeal was preferred by Assam Tea Employees Provident Fund Organization against the order of AA approving the resolution plan which had proposed payment of only partial amount of Rs.1.07 crore for the provident fund dues as against the total admitted claim of Rs.2.10 crore. The NCLAT relied on its earlier decision in Regional P.F. Commissioner v. Ashish Chhawchharia, Resolution Professional for Jet Airways (India) Ltd. & Anr. and held that provident fund dues are not the assets of the CD and they have to be paid in full. Accordingly, it directed the SRA to make payment of balance amount of provident fund, to save the resolution plan from invalidity.
Small Industries Development Bank of India (SIDBI) Vs. Shri Vijender Sharma [Company Appeal (AT) (Insolvency) No. 1027 of 2021]
On October 12, 2018, the AA directed liquidation of the CD. In November, 2018, SIDBI intimated the liquidator of its intention to realise its security interest and sent Form D. However, it did not (a) pay the amount payable under regulation 21A(2), and (b) provide the undertaking, as was required under the Liquidation Regulations. Accordingly, the liquidator approached the AA for necessary directions to SIDBI. As the liquidation process got delayed, the time-period of 15 months was excluded by AA in calculation of liquidator’s fee. Aggrieved against such exclusion of time period, the Appellant approached the NCLAT. The NCLAT observed that “compliance of regulations 2(ea), 2-A, 21-A and 37 of the Liquidation Process Regulations and Section 52/53 of the IBC are absolutely necessary even if the secured creditor proceeds to realise its security interest”. It further observed that: “the liquidator has carried out his responsibility with due diligence and without any prejudice to Appellant or any other stakeholder, and therefore, cannot be held responsible for delay that has taken place in pursuing the liquidation of the corporate debtor.”
Birla Financial Distribution Ltd. Vs. Shri Jagdish Singh Nain, Resolution Professional of HBN Foods Limited [Company Appeal (AT) (Ins.) No. 545 of 2022]
CD was originally incorporated as a private limited company on March 1, 2013 and later converted into a public limited company in July, 2013. The main objective of the CD was manufacturing of food products and beverages but deviating from its core objectives, it launched a collective investment scheme in August, 2013 for collecting money from public without registration with the Securities and Exchange Board of India. The investment scheme was stopped without repayment of the investment collected from public. The AA admitted the CIRP application in respect of CD. In the transaction audit report (TAR) for the period from the date of incorporation of the CD to the date of initiation of CIRP, it was highlighted that there were preferential transactions, undervalued transactions, extortionate credit transactions and fraudulent transactions. The AA admitted the avoidance application which was challenged by the CD. On examining the TAR, the NCLAT observed that there was lack of proper documents and due to which transaction auditor had admitted inability to comment on the transactions falling under sections 43, 45 and 50 of the Code. It remanded the matter to the AA for taking appropriate steps to conduct a detailed and in-depth investigation of the transactions in dispute to arrive at a conclusive opinion.
SLB Welfare Association Vs. M/s PSA IMPEX Pvt. Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 905 of 2022]
The NCLAT found that CIRP was initiated as an attempt to stop the implementation of the orders passed by the Real Estate Regulatory Authority and to take back the project. It found that the OC had fraudulently initiated the CIRP, for a purpose other than insolvency resolution. Accordingly, the admission order was set aside and a penalty of `25 lakh was imposed on the OC under section 65 of the Code.
On an assurance from the CD, a sum of `60 lakh was advanced for aviation related services. The advance payment was reflected in the balance sheet of the CD. However, there was no contract between the parties for providing aviation services. The issue for consideration was whether such the advance paid will fall within the definition of ‘operational debt’ under the Code. The AA rejected the application holding that advance payment made by OC to the CD does not fall within operational debt. On appeal, the NCLAT observed that the expression ‘in respect of’ in section 5(21) of the Code has to be interpreted in a broad and purposive manner and held that the advance payment of Rs. 60 lakh was clearly an operational debt.
Edelweiss Asset Reconstruction Company Ltd. Vs. Mohit Goyal, [Company Appeal (AT)(Ins) No. 583 of 2022]
The FC’s application for its non-inclusion in the CoC by RP, was disposed of by AA being infructuous as RP had subsequently included the FC in CoC. In appeal, the NCLAT observed that the 1st CoC comprised only the AR of the homebuyers with 100% voting power, the claims of which were provisionally admitted. It further observed that the claim of the FC was also provisionally admitted by the IRP yet he chose to exclude the FC on the ground that there was a need to verify the provisional claims submitted by the FC. It observed that “this conduct is unjustified in that the exclusion of Financial Creditor from the CoC or delayed inclusion of the Financial Creditor on the CoC is prejudicial to the best interests of the Corporate Debtor”. It further observed that various crucial decisions were taken in 1st CoC meeting such as confirmation of IRP as RP, appointment of professionals and raising of interim finance and the IRP/ RP was expected to take such decisions under the guidance and directions of a properly constituted CoC. It, therefore, ordered that the decisions taken in 1st CoC meeting shall not be implemented unless ratified / modified in the next meeting of the CoC.
Bank of Maharashtra Vs. Manjeet Cotton Pvt. Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 581 of 2022]
CIRP was initiated by the Bank of Maharashtra, acting for and on behalf of itself, State Bank of India and Vijaya Bank. As per the resolution plan, SRA undertook to pay `29.3 crore to the banks in case the live bank guarantees are invoked by them. After the approval of resolution plan by the CoC but before the approval of the resolution plan by the AA, the bank guarantees were invoked. The issue for consideration was, whether the banks were entitled to the payment by the SRA towards live bank guarantees invoked prior to the ‘Transfer Date’? As per the resolution plan, ‘Transfer Date’ relates to the date when the management of the CD goes in the hands of the SRA. Accordingly, as the bank guarantees were invoked prior to the ‘Transfer Date’, it was held that any purported liability falling on the SRA prior to ‘Transfer Date’ in respect of invocation of bank guarantees shall not be payable by the SRA.
Base Realcon Pvt. Ltd. Vs. Grand Realcon Pvt. Ltd. [Company Appeal (AT) (Ins.) No. 882 of 2022]
The AA dismissed the application of FC on the ground that only interest amount would not fall within the definition of ‘financial debt’, until and unless principal amount has also become due and payable. On appeal, the NCLAT observed that there was no dispute that the amount of interest became due and payable and relying on the SC observation in Innoventive Industries Ltd. v. ICICI Bank and Orator Marketing Pvt. Ltd. v. Samtex Desinz Pvt. Ltd., it held that the application filed under section 7 of the Code could be maintained relating to the component of interest which became due and payable, without asking for the principal amount which has not yet become due and payable.
The issue for consideration before NCLAT was, whether the approved resolution plan which provided 100% payments to the farmers as against
1% to the OCs, was discriminatory. The NCLAT observed that “there is no embargo for the classification of the ‘Operational Creditors’ into separate/ different classes for deciding the way in which the money is to be distributed to them by the CoCs”. It further observed that “… it is the final discretion of the ‘Collective Commercial Wisdom’ in relation to (1) The amount to be paid (2) The quantum of money to be paid to a certain category or the incidental category of Creditors, balancing the interests of the ‘Stakeholders’ and the ‘Operational Creditors’, as the case may be”. While dismissing the appeal, the NCLAT also urged the government and the IBBI to examine some minimum entitlement to the OCs based on the amount realised in the resolution plan over and above the liquidation value.
Darshan Gandhi Vs. USV Private Limited [Company Appeals (AT) (Ins.) No. 644 of 2019 & I.A. Nos. 2106, 2660, 4316, 2609 & 2614 of 2019]
The appeal was preferred by the CD against the admission order mainly on the ground that seeking execution of ‘decree’ does not define the first respondent as a FC and a decree holder can be defined as a ‘creditor’, but not a FC. The NCLAT held that as per section 5(10), the definition of ‘creditor’ in the Code includes a decree holder. If a section 7 application is filed for realisation of the decretal amount, it cannot be dismissed on the ground that no steps were taken for filing execution case in a civil court.
An OC filed an intervention application during pendency of approval to the resolution plan. The AA dismissed the application on the ground that OC had no locus standi. It was contended by the OC that all the OCs collectively formed 32.78% of the total debt and, therefore they should be part of the meetings and decision making in the CoC. The NCLAT observed that the OCs had filed their claims independently but there was no application filed forming the group or consortium of OCs. Further, placing reliance on the decision of the Hon’ble SC in Kalpraj Dharamshi & Anr. v. Kotak Investment Advisors Ltd. & Anr, it observed that the OCs were paid as per section 30(2)(b) and read together with regulation 38 of the CIRP Regulations, the OCs are entitled to receive only such money that are payable to them as per section 53 of the Code. It also observed that the OCs can attend meetings but cannot vote.
Income Tax Department Vs. M/s. Indianroots Shopping Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 32 of 2022]
In this case, CoC consisted only of OCs. The AA directed the Income Tax Department and the Excise and Taxation Department (Government of Haryana), the two major OCs having voting share of 96.75% in the CoC, to pay CIRP dues and expenses in proportion to their voting share in CoC. The order of AA was challenged on the ground that the CoC’s decision was taken in their absence and is not legal in view of the requirement of 51% of voting share in CoC decisions, as stipulated in section 21(8) of the Code.
The NCLAT dismissed the appeal and held that there was no illegality in holding of the meeting of CoC. The NCLAT found that RP took necessary care to ensure the presence of two most important members of the CoC. Both OCs had chosen not to participate in the CoC meeting making the compliance of section 21(8) impossible. The NCLAT further observed that both the OCs did not challenge the decision of the CoC and, thus, accepted it without any objection or demur. When the OCs did not pay their share of CIRP cost, the erstwhile RP later appointed as liquidator was forced to prefer IA seeking directions to the OCs to pay their respective share of the CIRP cost. It is at this stage that both the OCs raised the issue of illegality of the decision taken in the 7th meeting of CoC, which is after a lapse of substantial period. Accordingly, the OCs were directed to pay the CIRP costs.
Varrsana Employee Welfare Association Vs. Anil Goel Liquidator [Company Appeal (AT)(Insolvency) No. 544 of 2021]
The appeal was preferred by Varrsana Employee Welfare Association on the ground that the liquidator had to include one of the representatives
of the workmen/employees of the CD in the SCC irrespective of the fact that these employees have a subsisting ‘claim’ or not. The NCLAT held that regulations 31 and 31A of Liquidation Regulations have to be read together and interpreted in their truest sense keeping the objective of the Code. Read congruously, they specify that when the employees have no subsisting claim, they cannot be included in the list of stakeholders, thereby meaning that if the workers are not specifically included in the list of stakeholders, under regulation 31, they cannot be made a part of the SCC under regulation 31A(1). The NCLAT further held that claim of gratuity is payable only at a future date in the happening of any event like retirement, resignation, termination, death, etc., and therefore, it cannot be construed as a ‘claim subsisting’ to be included in the list of stakeholders and consequently seeking a place in the SCC.
Amardeep Singh Bhatia Vs. Abhishek Nagori & Ors. [Company Appeal (AT) (Insolvency) No. 671 of 2020 & I.A. No. 2116 of 2020] Promoters of the CD challenged AA’s order permitting liquidator to scrutinize the alleged avoidance transactions executed by the CD beyond two years from the commencement of CIRP. Liquidator submitted that that avoidance transactions were being carried out by the suspended management of the CD two years prior to the insolvency commencement date (ICD), and they were not cooperating contending that the transactions fell beyond the period of two years. The NCLAT held that AA has rightfully exercised its inherent powers under rule 11 of NCLT Rules, 2016 in the interest of justice by directing the promoters to provide the relevant information. It was observed that if liquidator was not in the possession of all the material documents, he could not determine whether they are undervalued transactions or preferential transactions, therefore, the CD could not deny the documents on the ground of look-back period. Further, it was observed that there is no provision in the Code for the appellant to invoke the clause concerning relevant period of two years solely on the ground of denying information directed to be given to the liquidator.
Ashok Mahindru & Anr. Vs. Vivek Parti [Company Appeal (AT) (Insolvency) No. 1324 of 2022]
CIRP was initiated under section 9 against the CD. During CIRP, avoidance applications were filed by the IRP and RP under section 19, 66 and 67 of the Code against the suspended directors of CD. Thereafter, proceedings were also initiated under section 95 against the appellants as a personal guarantor of CD. Against this, the Appellants moved an application for stay of proceeding under section 19(2) as well as under section 66 and 67 in view of the interim moratorium in insolvency proceedings. The issue for consideration before NCLAT was, whether proceedings under section 19(2) and section 66 and 67 shall be deemed to have been stayed by virtue of interim moratorium under section 96(1)(b)? It was held that interim moratorium shall be for such proceedings which relate to a liability or obligation due i.e., due on date when interim moratorium has been declared. Section 96(1)(b) cannot be read to mean that any future liability or obligation is contemplated to be stayed. Thus, stay of proceedings under section 19(2) and section 66 and 67 is not contemplated under section 96(1)(b) and the scheme of Code in no matter provide for stay of such applications.
Mr. Aroon Kumar Aggarwal Vs. M/s ABC Consultants Pvt. Ltd. [Company Appeal (AT) (Ins) No. 409 of 2020]
An ex-employee of the CD filed a section 9 application. The AA dismissed the application on the ground that since the service of the employee was terminated on the ground of fraudulent activities, forgery, etc., the amount claimed by him cannot be termed as an ‘operational debt’. Further, since criminal proceedings against the employee were pending, there was preexisting dispute. On appeal, the NCLAT held that the order of AA is illegal and allowed the appeal. It observed that section 8(2)(a) of the Code provides that the dispute must be in respect of the claimed amount and must not be referable to any other kind of dispute.
The NCLAT held that a Trust can be a resolution applicant under the Code. It observed that the word ‘person’, as defined in section 3(23)(d) of the
Code includes a trust, therefore, there is no fetter / embargo or a legal impediment, for a trust to be a resolution applicant.
The NCLAT observed that unlike other types of transactions provided under the Code, there is no specified look back period for fraudulent trading under section 66 of the Code. Hence, the RP is allowed to retrieve/ repossess without any limitation of time and correct all the wrong doings for any relevant point of time.
The AA rejected the application filed by OC stating that there existed a pre-existing dispute based on some emails/objections raised by the CD. On appeal, NCLAT observed that “…The dispute between the parties are not supposed to be decided, examined and adjudicated in IBC proceeding. Only question to be looked in Section 9 Application is as to whether the objection raised by the Corporate Debtor opposing claim of the Operational Creditor is not a moonshine defense”. It held that the issues raised in e-mails are not moonshine defense and the dispute was raised much prior to issuance of notice under section 8. The appeal was dismissed.
Rajesh Narang Vs. Durha Vitrak Pvt. Ltd. & Anr. [Company Appeal (AT) (INS) No. 612/2021]
The NCLAT observed that “…The basic object of the IBC is to see that even if there is financial crunch or a company is in default, the approach should be to get the said company/entity as going concern… a step for revival of the CD would be the first step…. In any event liquidation of a CD under the IBC Code is considered as last nail in a coffin. The object to keep a CD as going concern is a rule whereas carrying the CD for liquidation is exception.”
It further observed that once IRP/RP is appointed by the AA, he acts as a public servant and as a public servant it is expected that he will proceed in a fair and independent manner. In the facts of the case, the NCLAT found that RP had not taken any reasonable step to get the CD as going concern which he is mandated to do under section 25(2)(h) and section 24 of the Code. It noticed many infirmities and illegalities and directed the IBBI to conduct an enquiry regarding conduct of the RP.
Pramod Kumar Pathak Vs. ARFAT Petrochemicals Pvt. Ltd. [Company Appeal (AT) (Insolvency) No.312 of 2022]
On May 24, 2017, the Central Government issued a notification stating that a rehabilitation scheme sanctioned under implementation of section 18 of Sick Industrial Companies (Special Provisions) Act, 1985, shall be deemed to be an approved resolution plan under section 31(1) of the Code. Relying on the said notification, appellant was seeking CD’s liquidation on the ground that rehabilitation scheme has been breached, therefore CD be liquidated. The issue for consideration was, whether the approved rehabilitation scheme is a resolution plan within the meaning of the Code? It was held that sanctioned scheme of rehabilitation cannot be termed as resolution plan within the meaning of section 5(26) of the Code. The rehabilitation scheme not being resolution plan, there is no question of CD committing breach of implementation of the plan. The NCLAT relied on the decision of Apex Court in M/s Spartek Ceramics India Ltd. v. Union of India & Ors., which laid down that Notification dated May 24, 2017 travels beyond the scope of removal of difficulties order under Section 242 of the Code. It was observed that: “When the Notification dated 24.05.2017, is not a valid Notification, there is no occasion to accept the submission that approved Rehabilitation Scheme dated 07.01.2005, which is foundation of the Application filed by the Appellant under Sections 33 read with Section 34 can be treated as a Resolution Plan within the meaning of IB Code.”
Siti Networks Ltd. Vs. Assets Care and Reconstruction Enterprises Ltd. & Anr. [Comp. App. (AT) (Ins.) No. 1449 of 2022]
A loan sanctioned by FC to the CD was classified as non-performing asset (NPA), and CIRP proceeding was initiated. Subsequently, the FC assigned
the debt to another person and informed the CD. The issue was whether the assignee could be permitted to continue section 7 proceedings under the Code. The NCLAT held that there is no prohibition in the Code or the Regulations from continuing the proceeding by an assignee. Section 5(7) of the Code which defines ‘financial creditor’ includes a person to whom such debt has been legally assigned or transferred to. By virtue of assignment, an assignee becomes the FC and it has every right to continue the proceeding which was initiated by the original FC/assignor.
While approving the resolution plan, the AA modified the resolution plan to the extent that “if any member of Resolution applicants has entered into or stand as guarantor in the individual capacity, in that event, he shall not be covered with any immunity given under the Resolution Plan”. The NCLAT found that AA has exceeded its jurisdiction by modifying the resolution plan. It observed that if a resolution plan is submitted before the AA which is in compliance with section 31(1) as well as section 30, such resolution plan has to be approved by the AA since in section 31 word ‘shall’ has been incorporated with proviso that the AA must be satisfied that the resolution plan has provisions for its effective implementation. It is clear that mandate of legislation is either to approve the resolution plan or to reject. However, there is no provision for making alteration or modification in the resolution plan.
Nirmal Kumar Agarwal Vs. State Bank of India & Ors. [Company Appeal (AT) (Ins.) 983 of 2019]
The AA allowed the application under section 7 against corporate guarantor, who was a financial service provider under section 3(17) of the Code. On appeal, NCLAT set aside the order of AA and held that the application under section 7 was not maintainable as the corporate guarantor was registered as a non-banking finance company with the RBI. It relied on SC decision in Jagmittar Sain Bhagat v. Health Services, Haryana, wherein it has been held that if NCLT did not have the jurisdiction to initiate the proceedings then the said proceedings were non-est in the eyes of law.
Kalinga Allied Industries India Private Limited Vs. Committee of Creditors & Anr. [Company Appeal (AT) (Insolvency) No. 689 of 2021]
The CoC approved the resolution plan on November 11, 2019. Thereafter, CoC approached the AA for direction to consider a new resolution plan of a third party who was not a part of the CIRP proceedings and sought to withdraw its approval after more than two years of the approval of the first resolution plan. The AA allowed. In appeal, the NCLAT observed that “… it is crystal clear that any modification or a withdrawal (by SRA or otherwise) after approval by the CoC and submission to the Adjudicating Authority, ‘irrespective of the content’ of the terms envisaged by the Resolution Plan, would only lead to further delay and defeat the very scope and objective of the Code. The existing framework does not provide any scope for effecting any further modifications or withdrawals of the CoC approved Resolution Plan by the SRA or the Creditors. The Adjudicating Authority can interfere only if the Plan is against the provisions of the Code. Once the Plan is submitted to the Adjudicating Authority, it is binding and irrevocable as between the CoC and the SRA in terms of the provisions of the Code”. It further reiterated that “the ‘Maximisation of Value of Assets’ ought to be ‘within the specified time lines’ and if it is not a ‘timebound process’, the entire scope and objective of the Code would fail merely because there is another higher offer made by a third party, the CoC cannot consider another Plan of a third party who did not participate in the CIRP Proceedings…”.
Paramvir Singh Tiwana & Ors. Vs. Puma Realtors Pvt. Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 554 of 2021]
On challenge to the resolution plan providing differential treatment to OCs, the NCLAT held that differential treatment to OCs is solely based on the commercial decision of the CoC and any differential treatment between the class of creditors, based on the nature of business involved, cannot be construed as ‘material irregularity’. It observed that “so long as the provisions of the Code and the regulations have been met, it is the Commercial Wisdom of the requisite majority of the CoC which is to negotiate and accept the Resolution Plan, which may involve differential payments to different classes of Creditor, together with negotiating with a Prospective Resolution Applicant for better or different terms which may also involve differences in amounts of distribution between the different classes of Creditors”. It also suggested that the IBBI and the Government may take effective steps to make necessary amendments to protect the class of ‘FCs’ /Homebuyers from imposition of any haircuts, and likewise take essential measures to safeguard the interest of OCs in the resolution plans.
NCLT
Samith R. Arasa Vs. Bijendra Kumar Agarwal [C.P./IB/1118/MB/2019] The RP admitted the claim of FC during CIRP. However, during liquidation stage, FC filed a claim for compensation for failure of CD to vacate the premises within the lease period, which was rejected by the liquidator and only rent dues were admitted. It was held that AA has no jurisdiction to grant liquidated damages as a civil court and the appropriate remedy available is to approach the competent legal forum. It was further observed that there is no illegality or irregularity committed by the liquidator in rejecting the claim beyond the admitted rent.
Simplex Castings Limited Vs. Titagarh Wagons Limited [C.P (IB) No. 27/KB/2019]
The claim made by the OC against the CD was covered by a letter of credit opened by the CD through bank for `1.86 crore for supply of 90 bogies, out of which Rs. 98.32 lakh against the supply of 45 bogies was paid to the OC, and the payment for the remaining supply of bogies was due and payable. The AA rejected the CD’s submission that CIRP is a counterblast to a proceeding initiated by the CD against the OC. It was observed that the application before it pertains to the non-supplies of bogies, which is covered under the ambit of ‘operational debt’ and is not connected to the pending proceedings before the NCLT. The AA relied on a Supreme Court ruling in UOI v. Karam Chand Thapar & Bros. (Coal Sales) Ltd. & Ors., wherein it was held that the nature of equitable set-off is not available when the cross-demands do not arise out of the same transaction. Furthermore, the AA noted that the CD had accepted that the OC has a claim against it, arising out of separate transactions. The application was admitted.
A. P. C. System and Products Pvt. Ltd. Vs. Macmet India Ltd. [C.P. (IB)/2108/KB/2019]
Based on a money suit, OC filed an application for initiation of CIRP against CD. While dismissing the application, AA observed that “The petitioner herein has applied solely on the basis of the decree obtained by it in the said money suit. The same can be deduced from the fact that the demand notice was also issued on the basis of the said decree and the date of default has also been calculated on the basis of said decree. As such, it does not fall within the definition of the term ‘operational debt’ since the same is not on account of supply of goods or rendering of services”.
M/s Packwell (India) Ltd. Vs. M/s Emgee Cables and Communication Ltd. [IA No. 15/JPR/2022 in CP No. (IB)-601/ND/2018]
The liquidator filed an application before AA, seeking directions to carry out the auction of properties of the CD which were attached by the order of Deputy Director, Directorate of Enforcement. The AA directed to lift the order of attachment of the properties of the CD under the PMLA. The AA observed that “…the IBC creates a specific bar with respect to proceedings that may be initiated under the PMLA by virtue of the provisions contained in Section 32A. Moreover, Section 32A cannot possibly be read as being applicable prior to a Resolution Plan being approved or a liquidation measure being enforced. Further, it can therefore be construed that the objective and intention of the Code is providing a free hand to the creditors if the properties of the Corporate Debtor are attached then it will jeopardize the Liquidation Process”.
C Girdharlal Gheewala Vs. SK Masala & Food Ltd. [CP (IB) 468 of 2018]
On July 14, 2022, the liquidator had undertaken to file list of dates and events which was not filed till December, 2022. Also, no one appeared on behalf of liquidator, when the matter was listed twice before the AA. The AA also found that the proxy counsel who appeared in the matter on behalf of the liquidator, was not in a position to make submission as to whether the liquidator has received the copy of reply or not. The AA directed the IBBI to conduct inquiry against the liquidator for conducting liquidation process in such manner.
Source- IBBI
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