Insolvency and Bankruptcy News
Orders
IBBI Vs, Setyenereyan Bankadal Maki & On [Criminal Appeal No. 313.51 &UM]
On the issue of prisdktion of Special Court, the Bombay HC vide order dated February 14, 2022 had held that only the offences committed under the Companies Act, 2013 can be tried by Special court consisting of Unions Judge or Additional Swims Judge and that the offences other than the Companies Act, 2013 cannot be tried by the Special Court consisting of Sessions Judge or Additional Sessions Judge. On appeal filed by the Board against the order of HC, Hon’ble SC observed that any amendment to section 435 of the Companies Act, 2013, subsequent to enactment of IBC, would not have any effect on the reference to ‘special court’ referred in section 236(1) of the IBC as the same is a case of ‘legislation by incorporation’ and not of ‘legislation by reference’. SC while disposing the appeal held that all the complaints for offences under the Code will have to be filed before a Special Court comprising of a Session Judge or an Additional Sessions Judge, irrespective of the quantum of punishment.
Global Credit Capital Limited & Anr. Vs. Such Marketing Private Limited &Anr. [CA No. 1143 of 2022]
The CD had appointed the respondent viz., Such Marketing Private Ltd., as a sales promoter upon payment of monthly remuneration and entered into an agreement for deposit of huge sum with the CD on payment of interest. During the CIRP against the CD, RP categorized the claim of respondent partly as operational and partly as financial. Aggrieved by the categorization, the said sales promoter/ respondent herein filed an application before AA, which was rejected. Meanwhile, AA approved the resolution plan. On appeal, NCLAT set aside the order of AA and held that the claim of respondent creditor qualifies as “Financial Debt”. On appeal by the CD, SC observed that the written document cannot be taken at face value; rather it is necessary to ascertain the real nature of the transaction through a meticulous examination of the agreement. It noted that security deposit repayable with interest had no nexus with the performance of the other contractual obligation as a sales promoter for the CD. While delineating the services rendered to the CD, from the substantial security deposit sum made by the respondent, the obligation for payment of interest shows that there exists element for time value of money. It held that the transaction is covered within the definition of ‘financial debt’ under section 5(8)(f) of the Code.
High Court
Rajan Garg (RP), Truly Creative Developers Pvt Ltd. Vs. CEO, Slum Rehabilitation Authority (SRA) & Ors. [W.P. No. 1398 of 2024]
RP filed a WP challenging the validity of the acquisition proceedings initiated by the Slum Rehabilitation Authority under Maharashtra Slum Act against CD’s land for violating the moratorium under the Code. The issue before the HC was whether the provisions of the IBC to protect the CD’s assets, can prevail over a welfare statute and the concerns of citizens under the above Act? The HC while dismissing the WP observed that the provisions of the Code are not meant to defeat slum redevelopment and similar or allied statutes. It held that “Operation of a statute” could not be stayed by section 14 of the Code.
Amit Gupta Vs. Insolvency and Bankruptcy Board of India and Anr. [W.P. (Lodging) No. 34701 of 2023]
Bombay HC disposed of WP filed by IP inter alia challenging the IBBI Circular dated September 28, 2023 wherein the Board issued clarification with regard to regulation 4(2)(b) of the IBBI (Liquidation Process) Regulations, 2016 (Liquidation Regulations). The challenge was primarily on the ground that in the garb of clarifying certain terms contained in regulation 4(2)(b) of the Liquidation Regulations, IBBI has effectively amended the said regulations by stipulating new substantial requirements with retrospective effect. The HC upheld the clarifications issued by Board vide the above Circular except para 2.1 and para 2.5, which pertain to amount realised on sale of assets other than liquid assets; and exclusion of various time period for calculation of liquidator’s fee respectively.
Accipiter Investments Aircraft 2 Ltd. (Lessors) Vs. Union of India & Anr. [W.P.(C) 6569 of 2023 & CM APPL. 36850 of 2023 and other WPs]
The lessors filed various WPs challenging the rejection of deregistration applications of lessors by the Directorate General of Civil Aviation (DGCA). While setting aside the letters of DGCA declining de-registration, the HC observed that (i) the lease agreements were terminated before the imposition of moratorium under the Code, (ii) rule 30(7) of Aircraft Rules provides for mandatory cancellation of registration within five days of request for de-registration, (iii) the question of de-registration pertains to subject-matter of Aircraft Act / Rules, and the NCLT’s jurisdiction is limited to extent provided in IBC, (iv) where the dispute does not arise solely from or relate to insolvency, the legitimate jurisdictions of Courts and Tribunals cannot be usurped by NCLT/NCLAT, (v) the HC has jurisdiction as this case pertains to the applications for deregistration and export (in some cases) of the Aircraft, as CD has defaulted in fulfilling its obligations under lease agreements by nonpayment of lease rentals and the termination has not solely arisen out of insolvency, (v) the MCA notification dated October 3, 2023 has been issued to cure a lacuna in the existing law which will benefit the community and the legislative intent of the MCA Notification can be seen from references to the Cape Town Convention and Cape Town Protocol (vi) the words “aircraft, aircraft engines, airframes” ought to have been included in sub-section (3) of section 14 of the Code from the date the sub-section came into force, so as to ensure implementation of procedure set forth therein for remedies on insolvency in relation to Aircraft (vii) the MCA Notification was although delayed, but was a necessary adjunct to the Declaration of Accession of the Cape Town Protocol and is thus retrospective in its operation, (viii) a combined reading of Article XI-Alternative A of the Cape Town Protocol along with rule 30(7) of the Aircraft Rules reflects that aircraft, aircraft objects, airframes and aircraft engines are be kept out of the purview of other legislations, and the provisions in relation to insolvency as set forth in Article XI-Alternative A be applied in its entirety, (ix) the explanation (a) to section 18 of Code excludes assets owned by third party in possession of CD held under trust or contractual arrangement, and the aircrafts in question ceased to be property of CD upon termination on various dates prior to insolvency commencement date (ICD), (x) in view of the delay in deregistration of the aircrafts, India’s compliance rating of the Cape Town Convention and Cape Town Protocol has fallen from 3.5 to 2 out of 5, which is a significant drop and these compliance ratings have a long term impact on the aircraft industry in India and also to airlines operating in India, including a significant increase in lease rental payments charged by the petitioners/lessors.
Post initiation of CIRP against CD, group of banks who had provided credit facilities to the CD, i.e., Educomp Solutions Ltd, issued SCNs to the erstwhile director/guarantor of the CD as to why the account should not be categorised and reported as fraud. These SCNs were issued alleging fraud against CD on the basis of certain irregularities and violations with respect to agreed terms and conditions. But the FC/Banks did not provide copies of the relied documents. The erstwhile director filed a WP inter alia stating that full access to documents has not been provided by the FCs and in the absence of which they could not file proper reply to the SCNs. The Delhi HC while disposing the WP observed that if the relevant documents were not provided to a party, then, the whole procedure of issuance of SCN and filing a reply thereto, would be rendered an empty formality. Considering the principles of natural justice and fair play, the HC directed that the ex-director shall be allowed inspection of the records of the CD, as available with the lead FC. As certain record of the CD is also in the possession of the RP HC directed that the ex-director shall also be allowed to inspect the record of the CD as available with the RR
Uphealth Holdings, INC. Vs. Dr. Syed Sabahat Azim & Ors. [C.O. No. 241 of 2024]
In this case, during arbitration litigation pending before a trial Court between the above parties, an application was filed by Uphealth Holdings before the said Court seeking stay of proceedings due to the pendency of a bankruptcy proceeding and moratorium against it in USA. The trial Court while rejecting the application held that the moratorium order of the U.S. Bankruptcy Court is not applicable in India. Aggrieved by which Uphealth Holdings filed a revision petition before Calcutta HC. The issue before the HC was whether moratorium orders from a non-reciprocating country in terms of section 44-A of the Civil Procedure Code, like USA, will be applicable to Indian Courts. The HC while dismissing the revision petition observed that only orders from reciprocating countries like UK are executable in India in terms of section 44-A of the Civil Procedure Code, 1908. It held that moratorium orders issued by a non-reciprocating foreign Court may be considered, but they are not binding on Indian Courts to stay ongoing suits.
Sundaresh Bhat Vs. Insolvency and Bankruptcy Board of India [W.P.(C) 14389 of 2022]
On a WP filed by RP against the order passed by the Disciplinary Committee (DC) of IBBI, the Delhi HC noted that the RP’s action of appointment of professionals from the entity in which he is a partner and charging excess fees, was an attempt to increase his own earnings, which violated the integrity and purpose of the liquidation process. HC has upheld the findings of DC passed against the RP for appointing BDO Restructuring Advisory LLP in which IP himself is a partner, and paid more fees to it than what was paid to himself as the liquidator of the CD. As regards the suspension of registration of IF,’ HC modified the suspension order to 20 months considering the fact that IP has already undergone 20 months out of the 24 months. While disposing the WP the HC observed that “…..liquidator enjoys a significant degree of autonomy, they are bound to wield their power responsibly and ethically within the confines of the IBC framework. Upholding ethical principles and demonstrating unwavering commitment to fairness are paramount for an official liquidator to effectively discharge their duties under the IBC. At the same time, it is imperative that a liquidator is given the autonomy that is required to take decisions that may help in actualizing the real value of the assets or materials that are being liquidated.”
Farooq Ali Khan Vs. Bank of Baroda & Anr. MP No.6288 of 2024 (GM – RES)]
The promoter of CD filed WP seeking to prohibit the NCLT from entertaining proceedings against him under section 95 of the Code on the ground that the personal guarantee executed by him ceased to exist as he was no more an obligant. Karnataka HC after examination of the loan document and facility document, noted that the petitioner’s personal guarantee stood waived. While allowing the WP HC noted that the proceedings against an individual before the Tribunal would become maintainable, only if he was still a personal guarantor (PG) to any loan of a CD.
Reliance Infratel Limited Vs. State of Meghalaya & Ors. [W.P. (C) No. 238 of 2023]
In terms of the approved resolution plan, CD was taken over by the SRA, i.e., Reliance Projects and Property Management Solutions Ltd. (Reliance Telecom) during the year 2022. Thereafter, Reliance Telecom applied for a permanent electricity connection, which was rejected by the Meghalaya Power Distribution Corporation Ltd. The latter also sought recovery of electricity dues from the SRA for the periods prior to such takeover under the Code. SRA had filed a WP challenging the validity of the demand. Meghalaya HC while disposing of the WP observed that despite specific communication made to the electricity department during CIRP no claims was ever filed. Further section 238 of the Code has an overriding effect on all other laws including section 56 of the Electricity Act. Relying on the SC judgment in the matter of Ghanshyam Mishra v. Edelweiss Asset Reconstruction Co. Ltd., it allowed the WP and held that the legislative intent of making the approved resolution plan binding on all stakeholders, was that the SRA should start with a fresh slate on the basis of the said approved resolution plan, and that it need not be faced with surprise claims.
TANGEDCO (Electricity Department) / Operational creditor (OC) had disconnected the electricity supply for non-payment of electricity arrears by CD, even before passing of admission order by AA. However, Electricity Department after approval of the resolution plan by AA, had issued a demand notice on the SRA (CD – MSME) towards the pre-CIRP outstanding electricity charges/ arrears. Aggrieved by which SRA filed a WP before Madras HC for quashing of the demand notice on the ground that the claims of Electricity Department which are not part of resolution plan stands extinguished after the approval of resolution plan. HC while dismissing the WP held that the clean slate theory should protect resolution applicants from future claims; but should not be misused to shield fraudulent practices by the CD’s suspended board. The Court remarked that OCs are unfairly treated, and their rights are often sacrificed to benefit the FCs. It made adverse remark against the CD for not disclosing its past liability of Electricity Department during CIRP While dismissing the WI? the HC noted, “While the legislative intent to keep the corporate debtor as a going concern is appreciated, it should not come at the expense of others, especially given the potential for manipulation within the IBC framework” It further urged the Parliament to assess the efficiency of the IBC and questioned whether the Parliament has considered the general recovery percentage achieved from a successful resolution process.
National Company Law Appellate Tribunal
Ashok Dattatray Atre Vs. State Bank of India & Ors. [CA (AT) (Ins.) Nos. 221 and 222 of 2024]
SRA having failed to pay the 46 and 5th tranches within the timelines under the approved resolution plan, filed an application before AA seeking an extension of timeline for making the payments. On the other hand, FC filed another application for liquidation of CD in view of the SRA’s default in making payments as per terms of approved resolution plans. The AA while allowing the FC’s application for liquidation of CD, dismissed the SRAs application observing that extension of timelines for repayment would amount to modifying the terms of the approved resolution plan in absence of concurrence by the CoC. On an appeal filed by SRA, the issue for consideration before NCLAT was whether AA has the power to extend the payment timelines to SRA under a resolution plan without the concurrence of CoC? The NCLAT while allowing the appeal of SRA, set aside the liquidation order. It clarified that the AA has the power and jurisdiction to allow such extensions and observed that the extension of timelines for complying with financial commitments under the approved resolution plan does not constitute a modification of the approved resolution plan. While disposing of the appeal, it held that for any extension of timelines for payment beyond the period of implementation, the SRA would be liable to make payment of interest at the prevalent rates fixed by the FC.
Anil Matta Vs. Greater Noida Industrial Development Authority & Ors. [CA (AT) (Ins.) No. 1147 & 1519 of 2023]
Two appeals were filed before NCLAT against AA’s order challenging the status of Greater Noida Industrial Development Authority (GNIDA) as a secured OC in the CIRP of two CDs (Primrose Infratech Pvt. Ltd. and Zeal Developers Pvt. Ltd.) The common issue before the NCLAT was whether GNIDA could be regarded as a secured OC in the CIRP? The NCLAT while dismissing both appeals relied on the SC’s judgment in Greater Noida Industrial Development Authority v. Prabhjit Singh Soni & Anr., and observed that by virtue of section I 3-A of the Uttar Pradesh Industrial Area Development Act, 1976 (UP Act, 1976), any amount payable to the Authority under section 13 will constitute a ‘charge’ over the property and ‘registration of charge’ under section 77-78 of the Companies Act, 2013 is inconsequential. It held GN I DA as a secured OC.
Beacon Trusteeship Limited Vs. Jayesh Sanghrajka and Anr. [CA(AT)(Ins.) No. 1494-1495 of 2022]
In response to Form-G, one prospective resolution applicant (PRA) filed the resolution plan. The terms and conditions of ‘Request for Resolution Plans’ (RFRP) contemplated raising of interim finance and commencement of construction of the project. Accordingly, the resolution applicant submitted drafts of the construction management agreement and the master facility agreement along with the resolution plan. The said resolution plan was approved by CoC with 83.99% votes and was later approved by AA. Dissenting financial creditors (DFCs) challenged the approval of such resolution plan, on the ground that the same is in violation of section 30(2) of Code and is unfair as, DFCs, despite being secured creditors have been provided haircut of 93% whereas it provides 100% recovery to homebuyers by way of allotted units in the project without any haircut or price escalation. NCLAT analyses the specific clause of RFRP wherein providing up-front payment of Z 450 crore as interim finance, and its utilization towards payment of dues of the society, FSI premium to MCGM and commencement of construction of project. It laid reliance on the SC judgment in the matter of India Resurgence ARC Pvt. Ltd. and held that the extent of the amount receivable by a DFC is as provided in section 30(2)(b) of Code and that DFCs are not entitled to claim payment as per the amount of security interest in the asset of the CD. NCLAT while dismissing the appeal further clarified that as far as the payment to home buyers are concerned, CoC in its commercial wisdom has approved the resolution plan which does not require any interference.
In the CIRP of the CD, sole CoC member approved the resolution plan of SRA with 100% voting and the same was approved by AA. OC challenged the distribution proposed in the resolution plan on the pretext that the FC has been paid 100%, whereas OC has been paid meagre amount of 2.16% in cash and proposed payment of 49.96% as redeemable preference share; as such the same was not in compliance of section 30(2)(b). NCLAT, while disposing the appeal, placed reliance on SC’s judgment in Jaypee Kensington Boulevard Apartments Welfare Association and Ors. v. NBCC (India) Ltd. & Ors., and observed that when amount is distributed as per section 30(2)(b)(ii) and as per the priority under section 53(1) of Code by excluding the amount paid to the FC, Z 15 lakh for the government departments; and as no other creditors was on the record, the balance amount of the plan was to be distributed on pro-rata basis to the OCs. Relying on the said judgement of SC, NCLAT partly modified the resolution plan by directing the SRA to distribute the resolution plan amount to the OC on pro-rata basis as per section 30(2)(b)(ii) and as per priority under section 53(1) of the Code.
Delhi-RERA vide its order dated October 21, 2022 directed the CD to refund amount paid by the homebuyers along with interest. Homebuyers/FCs filed section 7 application before AA against the CD as it failed to comply with the order of Delhi-RERA. However, such application was rejected by AA on the ground that it does not fulfil the criteria laid down under section 7(2) of the Code as the same is filed by only four decree holders/FCs only, whereas the total strength of the allottees is 488. On appeal, the issue for consideration before NCLAT was whether homebuyers who have obtained decree are required to comply with the threshold requirement under the second proviso to section 7(1) of the Code. NCLAT, while dismissing the appeal, observed that when the underlying claim is in the form of a Court order or decree, that does not alter or disturb the status of the party. It held that appellants are ‘allottees’ and are required to comply with second proviso to section 7(1) of the Code.
Tulip Hotel Private Limited (The Suspended Board) Vs. JC Flowers Asset Reconstructions Private Limited [CA(AT)(Ins.) No. 1146 of 2023]
FC initiated CIRP against CD who was a corporate guarantor. Directors of CD preferred an appeal against admission order passed by AA on the grounds that the deed of guarantee was forged and executed without authority that too subsequent to the sanction of loan. NCLAT clarified that AA is not expected to rely on handwriting expert’s opinion and assessment contained therein in respect of the genuineness of the deed of guarantee. As regards the execution of deed of guarantee, which is corollary to terms of sanction of loan, the same is governed by section 127 of the Indian Contract Act, 1872 and is binding on the CD. Further, while disposing the appeal, NCLAT relied on the judgment of SC in the case of Laxmi Pat Surana v. Union Bank of India & Anr. and held that the liability of the guarantor is coextensive with the principal borrower.
Devarajan Raman Vs. Principal Commissioner Income Tax, (Mumbai-1) & Ors. [ CA (AT) (Ins.) No. 977 of 2023]
An application was filed by the liquidator before AA against the IT department which had set off the income tax refund of Z 90.42 lakh against the dues of the CD during the interregnum of passing liquidation order. Aggrieved by the dismissal of application by AA, the liquidator filed an appeal. The issue before the NCLAT was whether set-off exercised by the IT department, during the intervening period when the CIRP timeline period had expired and the liquidation order was to be passed, amounted to violation of the provisions of moratorium contained under section 14 of the Code. NCLAT, while allowing the appeal held that any adjustment of any tax refund amount during moratorium period is not permitted in terms of section I 4( I )(a), (b) and (c) of the Code. On the contention of the IT department that the set-off exercise was carried out by the department when neither was the resolution plan approved nor the liquidation order was passed, it observed that the set-off by IT department reduced the funds available to other creditors, giving the department an unfair advantage. It held that the department had no right to adjust past tax demands as the tax refund was part of the CD’s assets and should be included in the liquidation assets.
Yamuna Expressway Industrial Development Authority Vs. Monitoring Committee of Jaypee Infratech Ltd. through Anuj Jain, Secretary & Ors. [CA (AT) (Ins.) No. 493 of 2023 & I.A. No. 3017, 3703 of 2023 & 2535, 2548, 2660, 2669 of 2024]
In the resolution plan approved by AA on March 7, 2023, the claims of Yamuna Expressway Industrial Development Authority (YEIDA) towards payment of additional farmers compensation of Z1689 crore, was treated as operational debt and a sum of ZIO lakh was provided against the same. YEIDA had also claimed external development charges as secured claim. On appeal, NCLAT noted that payment of 64.7% additional farmers compensation has been upheld by Hon’ble SC in YEIDA v. Shakuntla Education and Welfare Society and Others [Civil Appeal Nos. 4178/4197 of 2022]. As per concession agreement between YEIDA and CD, the additional famers’ compensation is part of acquisition cost for land transferred on lease and the acquisition cost is to be borne by the concessionaire (CD). Further, as per section 13 of the UP Act, 1976 where any concession agreement has been executed, arrears and penalty can be recovered from the transferee including any default in the payment of any consideration money or instalment thereof or any other amount due on account of the transfer of any site or building by the Authority in case of default. Further the said law provides that in case of such default, the same shall constitute a charge over the property. Here, the additional farmers’ compensation is part of the acquisition cost, thus covered under section 13 of the UP Act, 1976. Accordingly, NCLAT held that YEIDA is secured OC to the extent of additional farmers’ compensation. NCLAT upheld the AAs order approving the resolution plan except to the extent it deals with claim of YEIDA of 21689 crore of additional farmers’ compensation. NCLAT directed SRA to make payment to YEIDA of its secured operational debt of Z1689 crore in ratio of 79%, over a period of four years similar to payment to other secured creditors by the SRA.
An appeal was filed by SRA against the order of AA sending back the resolution plan approved by CoC for reconsideration, holding that numerous procedural errors occurred while conducting the negotiation/ bidding process and that incorrect data was presented to the CoC. The issue for consideration before NCLAT was whether the AA made assumptions over the commercial wisdom of CoC. The NCLAT while allowing the appeal of SRA, held that the AA, without providing the CoC, RP and SRA an opportunity to explain the various terms and conditions of the resolution plan, incorrectly assumed that the RP had not presented relevant data to the CoC without taking any clarification from the RP and inappropriately substituted its own assessment over the CoC’s decision. Considering the SC’s reiteration of commercial wisdom of CoC in the CIR processes as paramount, it held that the orders of AA exceeded its jurisdiction under the Code by independently evaluating the factual matrix and financial data presented to CoC.
CIRP was initiated against Sunil Hitech Engineering Ltd. (CD) who had engaged a sub-contractor for certain fabrication works. Subsequently, when liquidation order was passed against CD, liquidator invited claims from creditors. The sub-contractor also submitted a claim of ?1,36,4 I ,854/- pertaining to fabrication and erection work at the CD’s project during the CIRP period and claimed it as CIRP cost. During the deliberations with creditors and erstwhile RE’ the liquidator determined that the said claim did not qualify as CI RP costs. Aggrieved by the decision of the liquidator, the sub-contractor filed an IA seeking a direction for treatment of its claim as CI RP cost and demanded immediate payment. AA directed the liquidator to admit the dues of sub-contractor as CIRP cost. An appeal was filed by the liquidator, the issue before the NCLAT was whether the costs claimed by sub-contractor would qualify as CI RP costs? NCLAT while setting aside the AAs order observed that in the facts of the case, the work performed by the sub-contractor on a terminated project did not ensure CD as a going concern. It held that unless the CoC has approved the dues and the costs which directly relate to CIRP the dues/claim cannot be classified as CI RP cost.
In this case, the maintainability of section 7 application filed by one group of 115 homebuyers was challenged by three CDs viz the one who held the land and the other two being developers. AA has, however, rejected the said applications by the CDs. On further appeals to NCLAT and SC, CD’s contentions were dismissed. Thereafter, two intervention applications were filed by another group of allottees holding 102 units in the project of the CDs, praying for dismissal of admission of CDs on the ground that petition under section 230 of the Companies Act, 2013 has been filed wherein a scheme has been proposed for completion of the project. AA rejected both the intervention petitions. On appeal, the issue of consideration was whether during the pendency of petition under section 230 of the Companies Act, 2013, AA can proceed with admission order. NCLAT while dismissing the appeal held that the petition filed under section 230 of the Companies Act, 2013 for a scheme proposed by the CD is independent proceeding; and filing of such petition cannot be a ground to not permit the proceeding under section 7 which are being halted and obstructed by CD and other applicants.
Chartered Finance Management Private Limited Vs. Roadways Solutions India Infra Ltd. [CA (AT) (Ins.) No. 1322 of 2023]
OC was engaged by CD to coordinate with the lenders for sanction of credit facilities and to complete certain projects including the construction of Vadodara Mumbai Expressway of N HAI on payment of fee. A mandate letter was also executed containing terms and conditions of appointment. Due to non-payment of the agreed fees, OC filed an application before the AA for initiation of CIRP against However, the said application was dismissed by the AA holding that there was a pre-existing dispute. In the appeal filed by OC against order of AA, NCLAT observed that in the facts of the case there were disputes pertaining to the payment of fee obligation being cast on the part of associate/group company and not by CD. Further, it observed that the IDBI Caps undertook the service of securing credit facilities to CD and not the OC. Accordingly, NCLAT while dismissing the appeal, applied the test of ‘existence of a dispute’ emerging from the SC judgment in the case of Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. wherein it was held that section 9 application cannot be admitted in the case of pre-existing dispute.
Peter Beck and Partner Vermoegensverwaltung GMBH Vs. Sharon Bio-medicine Limited & Ors. [CA(AT)(Ins.) No. 371 & 372 of 2024]
Post approval of resolution plan, the SRA had provided deposit Z 10 crore but failed to provide requisite bank guarantee in the internationally acceptable SWIFT format, despite several opportunities given by the CoC, AA and NCLAT. It also exhibited inability to meet the financial commitments as stipulated in the resolution plan. On an application filed by a FC seeking to allow resolution process afresh and forfeiture of the deposit, AA had allowed the prayer and referred the matter to IBBI for appropriate action against the SRA under section 74(3) of the Code. On the appeal filed by SRA, the NCLAT has upheld the forfeiture of the deposit; but on the issue of penal action, it has set aside the observations of AA.
Peanence Commercial Private Limited and Anr. Vs. Mamta Binani [CA (AT) (Ins.) No. 905 of 2024]
CIRP was initiated against Rolta India Limited (CD). During the process, among others, claim filed by Rolta Pvt. Ltd was admitted to the extent of Z 634.55 crore as FC by the RP However, Rolta Pvt. Ltd. being related party of CD was not permitted representation, participation and right of voting in the CoC. Subsequently, the related party entered into an MoU for assignment of debt on as is where is basis in favour of Peanence Commercial Private Limited-the appellant herein for Z 50 crore. On the request of related party seeking approval of assignment, RP informed that by way of assignment deed the nature of the debt would not change and therefore, assignee would not get any right to vote in the CoC. Challenging RP’s decision, the application filed by the assignee was dismissed by AA. On the appeal, the issue for consideration before the NCLAT was whether the assignment of claims by related party to assignee was bona fide or a strategic manoeuvre to circumvent statutory disqualifications? NCLAT noted that in fact there was no assignment of debt between the parties, but it was a mere agreement for assignment subject to the approval of RP for providing voting right in favour of the assignee in the CoC. It observed that the intent behind the assignment agreement was to confirm assignee as a non-related party and a secured FC with full voting rights in the CoC, effectively bypassing the statutory disqualification imposed on related parties under the Code. It held that the assignment agreement initiated by CD’s related party was a deliberate strategy intended to create obstacles and prolong the CIRP.
Slimline Realty Pvt. Ltd. & Ors. Vs. Mr. Jigar Bhatt [CA (AT) (Ins.) No. 690 of 2024 with CA (AT) (Ins.) No. 693 – 695 & 714 of 2024]
The NCLAT considered the issue whether the statutory requirement under proviso to section 33(5) of the Code to obtain
prior approval of the AA by the liquidator to institute a suit or proceeding on behalf of the CD is a mandatory requirement or only a directory requirement? The NCLAT observed that use of prohibitory and negative language, even if no consequences are provided, is treated as a mandatory requirement and therefore the requirement under section 33(5) is mandatory and cannot be held to be directory. The NCLAT further held that post facto approval granted by the AA with regard to continuation of proceedings already instituted by the liquidator which were instituted without obtaining prior approval shall make the proceedings authorized and competent from the date when post facto approval is granted. As regards giving an opportunity or notice to the party against whom proceedings are being instituted, the NCLAT held that the legislative scheme does not indicate any such notice or opportunity.
Chintan Jhunjhunwala Vs. Avani Towers Private Limited & Ors. [C.A (AT) (Ins.) No. 769 of 2024]
Suspended director of CD filed an appeal before NCLAT against the admission order. The issue for consideration for the appellate tribunal was whether refundable security deposit repayable with incidence of interest amounts to financial debt as defined under section 5(8)(f) of the IBC? The NCLAT while upholding the admission order had referred relevant clause of the development agreement between the CD and the respondent which categorically provide that any further sum subject to maximum of Z 3 crore, if advanced by developer shall form part of security deposit and interest at agreed rate of 18% p.a. compounded is payable quarterly. Further, on the issue of time barred claim, NCLAT noted that the acknowledgement of debt in the balance sheet of CD saved the limitation in terms of section 18 of the Limitation Act, 1963 and the same was rightly accepted by the AA. While dismissing the appeal, it relied on the SC judgment in the matter of Global Credit Capital Ltd v. Sach Marketing Pvt Ltd and held the amount advanced with a payment of 18% interest compoundable quarterly, constitute time value of money and therefore have commercial effect of borrowing. It further held that the real nature of transaction is required be found out, to ascertain the true nature of debt.
National Company Law Tribunal
Ashdan Properties Pvt. Ltd. Vs. Dr. Mamta Binani & Anr. [IA No. 1898 of 2024 in CP(IB) No. 530 of 2020]
Post admission order, during the CIRP RP issued RFRP wherein a RA (H I bidder) submitted the resolution plan. However, a process note was issued by RP in order to invite enhanced bids from other PRAs with the condition enabling the CoC to negotiate with the PRAs on the price line of H I bidder. After the conclusion of the negotiation process, the RP asked the PRAs to submit their final resolution plan. Aggrieved by the conduct of CoC and RR an appliation was filed by the HI bidder. The issue before the tribunal was whether the RP and the CoC were acting within their power when they invited enhanced offers from the PRAs? NCLT observed that CoC and RP’s conduct was in furtherance of maximization of the value of the assets of CD. Moreover, regulation 39(IA) of the CIRP Regulations empowers CoC to negotiate with as many PRAs in order to increase the value of the resolution plan, even after the completion of challenge mechanism. Relying on the judgment of NCLAT in the case of Vistra ITCL (India) Ltd. v. Torrent Investments Pvt. Ltd. & Ors., it held that CoC in its commercial wisdom and in terms of stipulations in the RFRP can decide to approve a resolution plan or renegotiate with all the resolution applicants in order to obtain an enhanced offer for the CD.
Jonah Jagivan Shah RP of Rainbow Infrabuild Pat LW. [LA. {Die.}/I4(AHM)/2024 in CP (IB)/7 (AHM)/2023]
Post constitution of CoC, RP Informed the CoC that despite repeated efforts For Invite: Ion for EOI, there was no response. Thereafter, RP in the subsequent meeting proposed liquidation of CD. However, CoC rejected the proposal of the RP and unanimously decided to proceed with the dissolution of the CD as there we no realisable assets to fall back for recovery and further to awe from incurring additional process costs. On the application flied by the RI AA comprehensively examined section 54 of the Code read with rogation 14 of the Liquidation Regulations and refracted the IA baking that “only the Liquidator” Is empowered to make an application cad on to the AA for the dissolution of the CD.
Pravin R. Navandar, Resolution Professional of the VOVL Ltd. Va. BPRL Venture RV [LA. No. 702 of 2024 & IA. No. 2717 of 2023 in CP (f B) NO. 2742/MB/2019]
A Joint venture was entered between Videocon Energy Brazil Limited (VEBL}, a step-down CD’s subsidiary with Brasilia Petroleo Limit–ado (BPRL} for hording of and gas blocks in Bad I in the name and style of IBV: In thin IBM Vide/scan Cl Ventures Limited (CD) held 17.85%th/rev Participating Interest (M. In terms or the IV, the inter se obligations between the parties pertaining to PI we governed by quota holders agreement which Inter &la provided tint In the event of change of quota, prior notice of 30 business days was required to be given to BPRL, for exercising its preemptive Right of Fist Waal (ROFR) for the 1755%. When CIRP was initiated against CD, RP was seeking offers for the sale of CD’s PI in oil and gas mete situated In Brazil, [Field In Campos Basin]. Resolution aplicant-PetroRio SA (PR.10). submitted ha offer for USD 325 million for acquisition of the entire Pi of VOVL and it was it the list of prospective resolution appellant’s list However, CoC decided to sail the PI In favour of BPRL Since, it was incumbent upon CoC to issue a notice giving BPRL the opportunity to exercise ROFR to purchase the quotas by matching the offer from PRJO. Only In the event BPRL does not reams ROFR, the CoC would be eligible to proceed with approval of the resolution plan/ offer of any other PRA/ bidder. RP issued notice to BPRI. to glare effect to its ROFR based on cumulative offers submitted by PRA. Whereas, In response BPRL expressed its interest to acquire the CD’s quota in IBV by matching the offer made by PRA. CoC after execrating the fact that CD’s substantive assets an the PIS held In the IV approved the BPRL offer with 99.96% rid further to liquidate residual assets of CD as per season 33 of the Code. In light of the above RP fled an application before AA seeking approval to conclude CIRP In terms of the BPRL offer, as approved by the CoC aggrieved by the arbitrary ouster of PRJO from the CIRP, it filed an intervention application before AA to intervene in the RP’s application. PRIG contested that BPRL offer is not a resolution plan wider the Code. AA dismissed PFIO application, which It challenged before NCLAT. NCLAT directed PRA to place its objections before A& AA by a common order disposed of the objections of PRIG, and approved the BPRL offer and ordered liquidation of CD In respect of other meta. While disposing of the application , It absented that “there may be tune cases. lace the instant one, where the objects of value a/admiration could not hove been possible in ordinary carte or procedure bird down an the Code and Regulation . Keeping ea view the peculiarity of rasa and &arraign.= of the case, the CoC In its commercial wisdom, has nightly adopted a come which not only preserves the valuable contractual rights of the parties and at the Dame time afforded a level fraying field to the participants.”
IBBI
Disciplinary Orders
During the quarter, the Died Disciplinary Committee of the IBBI disposed of 16 show cause notices issued to the IPs for contravention of the provisions of law by passing suitable orders.
