Summary of NCLAT Judgement on IBC 2016 for October 2021

♦ Application to initiate CIRP against Cosmic Ferro Alloys Limited (CD) was filed by Citibank and the same was admitted on 16/01/2018 by the AA.

♦ Appellant provides power supply to CD and claims that due to arrears in payment of dues, electricity supply was disconnected on 17/01/2018 after issuing prior disconnection notice.

♦ Also, Appellant claims to be unaware of CIRP during the disconnection of supply of electricity.

♦ CD through numerous letters has been making different requests regarding the quantum of increase of contract demand of electricity and wavier of security deposit to OC.

♦ CD promised to clear the arrears and requested to OC for reconnection on 18/01/2018 via letter signed by Director of CD instead of IRP. The Resolution Plan came to be approved on
11/10/2018 by AA.

♦ Appellant contends that it has already lost a large part of its claim in the resolution of CD & claims that dues of electricity supplied during the CIRP should be treated as part of CIRP costs.

♦ NCLAT observed that CD letters for increase & change in supply were given after approval of Resolution Plan. Hence, held a view that once reconnection has been provided by the Appellant at the previously held contract demand, any change in the contract demand or an enhanced power supply will not be covered under the provisions of the approved Resolution Plan.

♦ NCLAT holds that as AA did not pass any precise Order regarding 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 these requests only remain as proposals which have not been accepted or approved while approving the Resolution Plan. Hence, Appellant is not obliged for the same.

♦ NCLAT stated that the dues of electricity supplied during the CIRP period, if not paid, should be paid from out of CIRP costs and RP should ensure it.

♦ NCLAT concludes by setting aside the IO.

Utilities used by the CD during CIRP becomes part of the CIRP Cost.

♦ Appellant had paid Rs. 40 lakhs to CD in exchange of shares. However, on failure to allot any shares by CD, entire amt was refunded but without interest.

♦ Appellant alleges that CD defaulted in payment of interest on the financial debt occurred on 09/02/2018 & filed Application u/s 7 of IBC.

♦ Appellant contends on the ground that interest is payable to him by CD under Rule 17 of the Companies (Acceptance of Deposit) Rules, 2014.

♦ NCLAT after perusal of documents views that Appellant failed to provide any contract/
agreement wherein interest is explicitly covered under the definition of “financial debt” u/s 5(8) and that the Appellant is a FC u/s 5(7) of the IBC.

♦ NCLAT holds that there was no time value of money attached with the deposit which was established through a prior contract before the principal amount was deposited for purchasing of shares by the Appellant with the CD.

♦ Further, no document was submitted proving that the amount was used for the growth of enterprise.

♦ Hence, considering the above reasons NCLAT did not intervene with IO of AA and Appeal was dismissed.

Time value of
money & amt
to be used for growth of enterprise are vital for considering money as
financial debt.

♦ CIRP was initiated on filing an Application u/s 7 of IBC by SBI & Resolution Plan was approved AA on 08/03/2019.

♦ R1 points out that financial debt is of Rs. 29,523.86 crores & Operational Debt is of Rs. 1109.81 crores of CD whereas the liquidation value is of Rs. 4433 crores.

♦ Considering that upon an Application of waterfall mechanism u/s 53 of IBC, the entire liquidation value would be exhausted in payment of the CIRP Costs, Liquidation Costs, Workmen dues and Financial Creditors.

♦ As per the Gas Sale Agreement which pertains “take or Pay Obligation” which required CD to repay the bills of R within 15 days for the quantity of gas taken.

♦ RP rejected Appellant’s claim for Rs. 506.60 crores reasoning that Take or Pay obligation was not termed as Operational debt.

♦ Appellant alleges that AA failed to notice that the plan is at the threshold is discriminatory and creates a ‘class within a class’, which classification is without any intelligible criteria.

♦ NCLAT holds that IBC does not prohibit
classification of OC into different classes as CoC do have Commercial wisdom in amt to be paid and quantum of amt to be paid balancing the interests of all stakeholders.

♦ Further, it mentions that Appellant’s claim is not relatable to supply of goods or services to keep CD as a going concern.

♦ NCLAT concludes that IO does not suffer from any illegality.

Resolution Plan once
approved cannot be
challenged on any ground.

♦ CD in the year 2012/13 had obtain authorisation for 40 export promotion capital goods from Additional Directorate General of Foreign Trade (DGFT) for duty saved amount.

♦ That against said authorization, CD was
maintaining certain FD receipts (FDR) with R1 & R2.

♦ These FDRs were used as margin money against which certain Bank Guarantees were issued in favor of R3 & R4 which are due to mature on different dates in years 2021 and 2022.

♦ Application filed u/s 7 of IBC by FC was admitted on 30/05/2019 and the Resolution plan was approved by AA on 01/04/2020.

♦ SBI vide letter dated 07/04/2020 was requested to release FDR into the controlled account of CD but SBI failed to comply the same.

♦ Appellant citing a judgment of the Hon’ble SC passed in Committee of Creditors of Essar Steel India Limited V/s Satish Kumar Gupta and Ors. contends that no claims apart from those decided on merits by the RP can survive after plan approval.

♦ Hence, the liability of CD has been extinguished resulting the Bank Guarantees have no reason to stay alive and therefore, the margin money ought to be returned to the Appellant.

♦ Appellant filed an IA seeking directions against R1 & R3 for release of FDRs of CD.

♦ R1 & DGFT submitted that FDRs are rather bank guarantee along with margin money is an independent contract between the beneficiary and the Bank, though these are shown as FDRs, issued by SBI in favour of the beneficiary, it is not refundable to the CD unless the Bank is discharged.

♦ NCLAT agrees with AA in regard that margin money is construed as substratum of a trust created to pay to the beneficiary to whom the bank guarantee is given and cannot be treated as an asset of the CD.

♦ NCLAT referring S. 36(4) of IBC holds that assets held under Trust cannot be considered as the asset of the CD.

♦ Therefore, the instant Appeal is dismissed on lack of merits.

Assets held under trust cannot be considered as the assets of
CD.

• Appellant being aggrieved with the admission Order passed by NCLT, Kolkata Bench u/s 7 of IBC has preferred the present Appeal.
• CD had availed Term Loan from R1/FC in 2010 & 2012.
• NPA was declared on 05/11/2014.
• Application u/s 7 of IBC was filed on 13/12/2019.
• Appellant contends that the Application under Section 7 was time barred.
• Appellant submits that the B/s of CD for the year ending 31/03/2017 was erroneously relied upon as it does not have explicit, unequivocal
  acknowledgement nor it mentions name of FC.
• Also, no pleading or factual foundation for the extension of the limitation period has been set out in Form-1.
• FCs contention on the point that Balance Sheet extends limitation u/s 25(3) of Indian Contract Act, 1872 was found unsustainable due to FC laid no pleading or foundation in the Application about S. 25(3), also SC had held that the only delay that could be condoned would be in terms of the Limitation Act in the matter of B. K. Educational Services (P) Ltd. v. Parag Gupta & Associates.
• FC submits that vide letter dated 07/06/2016, CD has given OTS proposal, acknowledges liability.
• The burden of proving that the Application filed before AA is within limitation lies on FC as laid down by Hon’ble Supreme Court in the case of Rajendra Narottamdas Sheth & Anr.
• The B/s of CD is in accordance with CA, 2013 which does not provide for giving the specific name of every secured or unsecured creditor.
• The case of Asset Reconstruction Company (India) Limited v. Bishal Jaiswal settled those entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgement u/s 18 of the Limitation Act.
• NCLAT considering the OTS proposal made by CD & above-mentioned discussions concludes that the present Appeal is liable to be dismissed.

Limitation-
OTSadmission of liability

(785/ND/2021)

• An unsuccessful Resolution Applicant filed instant Appeal against an IO whereby an Application of Appellant was dismissed on the ground that it has been filed for consideration after the approval of the Resolution Plan by the CoC.
• RP invited EOI and the due date was 06/03/2021.
• Appellant’s EOI was sent to RP on 15/06/2021 but CoC rejected the same as the last date for submission had already expired.
• Last date of submission of Resolution Plans was 10/05/2021.
• CoC approved Resolution plan of Mr. Sarabjit Singh & same was allowed by AA on 08/07/2021.
• NCLAT, stated that Appellant had never
  participated in the EoI and granting reliefs in contra to timelines would be ultra vires.
• NCLAT referring the judgment of Hon’ble Supreme Court in ‘Ebix Singapore Pvt Ltd Vs. ‘Committee of Creditors of Educomp Solutions Ltd. & Anr. observed that once the Plan is approved by majority of the CoC as provided for u/s 30 of IBC, then no fresh plans may come in intervention of an already approved Plan.
• Therefore, both Appeals were dismissed.

Once Resolution Plan is approved by CoC no other fresh plans can be considered.

• Appellant being aggrieved with the IO whereby AA considered RP’s claim of classifying
  Appellant’s Financial Debt into Operational Debt.
• Sales Promotion Agreement was entered between parties for appointing Appellant as sales promoter.
• In accordance with agreement, Appellant made a security deposit on which CD agreed to provide an interest at 21% p.a.
• CD defaulted in interest payment on due date i.e. 31/06/2016 and admitted interest liability whereas Appellant paid tax on the net interest income earned by it on accrual basis.
• CD admitted into CIRP on 12/06/2018.
• Appellant submitted claim of Rs. 1,58,341/- as of ‘Operational Debt’ and Rs. 1,41,39,410/- as ‘Financial Debt’ including the interest amount.
• RP on the basis of AA Order intimated CD that the claim for ‘Financial Debt’ has been considered as an ‘Operational Debt’.
• Appellant contended that even as per the
  Insolvency Law Committee Report dated March 2018 any transaction structure as a tool or means for raising finance would be included as ‘Financial Debt’ u/s 5(8)(f) of IBC.
• CD/R argued that ‘Security Deposit’ does not fall within the definition of S. 5(8) of IBC to be categorized as a ‘Financial Debt’.
• Appellant entered into an arrangement with CD where the Appellant was required to arrange funds for meeting the daily expenses for the depot of CD & this amount was not even termed as ‘security’ in the Agreement.
• NCLAT needs to decide on whether this ‘Security Deposit’ and the interest thereon would fall within the ambit of the definition of ‘Financial Debt’ as defined u/s 5(8)(f) of IBC.
• A debt to be classified as financial debt when:

a) There is disbursal against consideration for time value of money and

b) It has a commercial effect of borrowing.

• ‘Security Deposit’ amount had an element of interest payable at 21% per annum and hence, can be construed as having commercial effect of borrowing.
• It was observed from an agreement that amounts were paid with a specific term and tenure which specifies the time periods.
• Payment of interest on amt borrowed is a
  consideration for the time value of money and the interest is being paid for using the borrowed money over a period of time.
• NCLAT considering the above discussion
  concludes that Appellant is a FC in regard to the amount of ‘Security Deposit’ as per S. 5(7) r/w S.5(8) of the IBC.
• NCLAT considering the Judgement of the Hon’ble Supreme Court in ‘M/s. Orator Marketing Pvt. Ltd Vs. ‘M/s. Samtex Desinz Pvt. Ltd. verdicts that the ‘debt’ in question is a ‘Financial Debt’.
• Hence, the Appeal is allowed and IO is set aside.

A debt to be financial debt
there should be disbursal against time value of money & it should have
commercial effect of
borrowing.

• The Appeal is filed against an IO passed by NCLT, Ahmedabad Bench whereby AA considered Appellant’s claim as other than
  Operational & Financial debt
• The question of law to be decided by NCLAT is whether the debt is to be considered as Financial Debt or otherwise.
• Appellant had disbursed Rs. 10 crores to CD in 2007 claiming it to be an Inter Corporate Loan out of which partially has already been repaid by CD in the year 2013.
• Appellant contends that it was not for a defined period and was recalled by the Appellant by notice dated 30/11/2018.
• R. submits that as per the ledger of Appellant, the amount disbursed was towards purchase of trucks.
• R. further submits that Appellant is unsure of the nature of transaction and same is evitable from response to CD balance confirmation letter & Form C filed by Appellant where terms Inter Corporate Advance and Inter Corporate Deposit were used respectively.
• A debt to be classified as financial debt when:

a) There is disbursal against consideration for time value of money and

b) It has a commercial effect of borrowing.

• In accordance to one of the documents attached to Appeal book it reflected that the said amt was paid by Appellant to CD for purchase of truck.
• NCLAT perused Annual Report of Appellant for 2015, 2016 & 2021 observed that Appellant’s business is not providing any banking or financial services rather it is engaged in crane rental and in infrastructure solutions providers.
• Appellate Tribunal concluded that the disputed debt is not a financial debt as the debt is not disbursed against the consideration for the time value of the money and does not meet any of the criteria as stated under IBC.
• Appeal is dismissed as devoid of merits.

A debt to be financial debt
there should be disbursal against time value of money & it should have
commercial effect of
borrowing.

• The Appeal is preferred against the IO passed by NCLT, Kochi Bench, whereby AA dismissed the Application of Appellant seeking clarification on the Order passed earlier in respect to the filing of the Appeal before the Joint Commissioner, SGST Department by IRP/RP.
• The Application of CIRP was admitted u/s 9 of IBC against CD on 16/10/2019.
• The claim submitted by R. of Rs. 28,41,59,349.06 in Form B was revised by RP to Rs. 1,06,09,299 on the ground that R. had charged GST on total turnover of CD without considering notification no. 9 of 2017 dated 28/06/2017 issued by GOI according to which the healthcare services by a clinical establishment are exempted from GST.
• R. being aggrieved by reduction made by RP preferred an Application before AA and AA was pleased to direct the Appellant to file an Appeal before the Joint Commissioner, State Sales Tax Department for a reassessment of the GST amount payable.
• RP based on resolution passed by CoC, filed an Appeal before Joint Commissioner for the reassessment of the GST liability of the CD which costed additional burden of pre-deposit as per S. 107 of GST Act.
• R. submitted that eighteen assessment Orders were issued against CD before moratorium & none of them were challenged hence, attained finality.
• NCLAT held that IRP/RP cannot edit or reduce GST amt which is levied under the assessment Order as per the GST Act, 2017.
• IRP/RP can only determine the amount of claim in a case where the amount claimed by the creditor is not precise due to any contingency or other reasons m based on the information available with him.
• NCLAT held that IRP/RP acted beyond
  jurisdiction while revising GST assessment Order in absence of any adjudicatory power under GST Act is unsustainable under law.
• Hence, Appeal sans merit and deserves to be dismissed.

An amt levied under GST Act, 2017 cannot be edited or reduced by RP. CoC can exercise commercial wisdom and not judicial power

• Appeal is filed by OC being aggrieved of the dismissal Order of NCLT, Allahabad Bench on the ground that debt is below threshold limit.
• OC supplied corrugated paper boxes/cartons to CD & dispute regarding quality or quantity was never raised by CD.
• Demand notice was issued on 31/07/2019 to which CD did not mention anything about pre- existing dispute but only sought time to clear the dues.
• Application u/s 9 was filed on 13/09/2020
  claiming default in debt since 27/05/2018 till 23/06/2018.
• MCA vide notification No. S.O 1205 (E) dated 24/03/2020 increased the threshold limit of debt from Rs. 1 lakh to Rs. 1 crore.
• Appellant contended that applicability of
  notification cannot be retrospectively & amt of debt predates notification issued date.
• NCLAT states that since it was not explicitly
  mentioned regarding retrospectively Application of notification the same cannot be implied.
• The notification will be applicable for Application
  filed u/s 7 or 9 on or after 24/03/3020 even if debt is of a date earlier than 24/03/2020.
• In the instant case, as the Appeal filing date is
  after issue of notification the threshold limit of Rs. 1 crore of debt will be applicable.
• Hence, the Appeal is dismissed.

The revised threshold limit set for debt of Rs 1 crore is applicable for
Application filed post 24/03/2020 even if debt is of prior to notification
date.

• The instant Appeal is filed against an IO passed by AA admitting an Application u/s 7 of IBC.
• A tri-parte agreement was executed between the Developer M/s Cal Express Construction (India) Pvt. Ltd, (R1/FC) & borrower (R2/CD) according to which loan raised from R1 would be directly paid to developer on a condition to create equitable mortgage over the Apartment proposed to be developed.
• A construction agreement was entered on 09/06/2019 between CD & Developer.
• Housing Loan Agreement was availed by CD from R1 for Rs. 3.78 crore repayable over 120 EMI.
• A notice u/s 13(2) of SARFAESI Act, 2002 was
  issued by R1 to CD alleging default in payment of EMI & declared NPA on 31/10/2016.
• A possession notice dated 04/04/2018 was issued
  by R1 to CD as per Rule 8(1) of SARFAESI Rules, 2002 & alleged to take physical possession of apartment being valued at Rs.5,05,89,202/-.
• R1 submits that no ‘physical possession’ was
  taken only ‘symbolic possession’ took place.
• Appellant contended that in spite of securing physical possession of CD assets, still Application was filed u/s 7 of IBC for default of sum of Rs. 2,74,49,023/- and that there existed no Financial Debt.
• NCLAT referring the decision of R.B. Synthetics V. Bee Ceelene Textile Mills Ltd. states that the issue of whether there is debt and default can be looked into only if the CD disputes the debt or takes a plea that there is no default though there is debt.
• CD can point out that a default has occurred or
  not.
• Guarantee Deed furnished by a different entity
  would not in any way relieve CD to pay R1 as Principal Borrower.
• AA is only confined to the act of deciding
  whether the Application is complete, and whether there is any debt or default.
• In the instant case, NCLAT viewed that Applicant
  contention of setting off outstanding by selling off the property physically owned by FC is not required for authority to decide on.
• The existence of ‘debt of the CD and default’,
  committed thereto, viewed that Application u/s 7 of IBC is valid and free from legal infirmities.
• Hence, Appeal is devoid of merits.

Conditions to be met for admitting an Application are as follows:

a) Existence of default.

b) It should be complete

c) No pending proceedings.

• Appeal was filed being aggrieved by the IO passed by NCLT, Indore Bench whereby Appellant’s Application u/s 9 of IBC was dismissed on the ground of ‘Pre-Existing Dispute & Limitation.
• Appellant supplied steam coal to R. Company on 14/11/2013 & 18/11/2014 to Mandideep & Nagpur plant respectively.
• Debit notes were issued on 01/04/2017 & 24/03/2017 for Mandideep & Nagpur plant respectively.
• Appellant states that no communication of any rejection of goods was received.
• Appellant, claims that if there would have been any dispute raised regarding quality of goods then
  R. would have not paid Rs. 15 lakhs on
  24/11/2014.
• Appellant submits that a mail was received from
  Mr. Diwarker Rege, on behalf of the R. on 05/08/2015 acknowledging some payment outstanding in favor of the Appellant.
• R. submits that the Debit Note dated 24/03/2017,
  the copies of Goods Received Note and copy of Laboratory Test Report of goods demonstrates
  that the goods were of inferior quality.
• R. states that Mr. Rege was on probation on the
  date of above-mentioned email sent & was not
  instructed to send the email.
• NCLAT observed that extension of period of
  limitation was not availed as last payment made for goods supplied was 25/11/2014, default date was 19/12/2014 & Application was filed on
  09/05/2018, no communication was between 2015-18.
• Hence, it was held that Application is barred by
  limitation.
• NCLAT after perusal of debit note, goods
  received notes and the laboratory test report
  indicates that there is a ‘Pre-Existing Dispute’,
  prior to the issuance of Notice u/s 8 of IBC.
• Hence, Appeal was dismissed.

Limitation & Pre-existing dispute.

• Appellant being a FC has filed an instant Appeal
  being aggrieved with the IO passed by NCLT,
  Delhi Bench whereby AA has erroneously held
  that the applicable rules are ‘The Insolvency and
  Bankruptcy (Application to Adjudicating
  Authority for Bankruptcy Process for Personal
  Guarantors to Corporate Debtors) Rules, 2019
  instead of “The Insolvency and Bankruptcy
  (Application to Adjudicating Authority) Rules,
  2016”.
• FC entered into a loan agreement with Principal
  Borrower & C.D.
• M/s ‘Eastern Overseas’ (Principal Borrower) is a
  partnership firm engaged in embroidery and
  similar activities got sanctioned two loans from Appellant who is NBFC.
• CD provided Corporate Guarantee (CG).
• A recall loan facility notice was issued to
  Borrower & CG.
• Dues of Rs. 2,10,57,036/- was claimed by
  Appellant against R/CD.

The issues to be considered are:

a) Is Respondent the Personal Guarantor of the Principal Borrower?

b) Whether Respondent is the Corporate Guarantor and therefore ‘Corporate Debtor’ of the principal borrower, as per S. 3 of IBC and the applicable Rules will be ‘Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016’?

• Appellant contends that the CG is a CD u/s 3(7) &
  (8) of IBC and not a “Personal Guarantor” in
  terms of S. 5(22) of IBC.
• Further contended that AA erroneously
  considered Respondent to be a PG while the
  Respondent is a CG.
• NCLAT referring the judgement of Laxmi Pat
  Surana V Union Bank of India & Anr. concluded
  that Respondent was the CG of the Principal
  Borrower and not a PG.
• Therefore, NCLAT was of considered opinion
  that the AA committed an error in holding that
  action should have been initiated against the PG
  of the CF u/s 95 of the IBC instead of proceeding against the CD and hence, Appeal was allowed.

Proceeding against the PG & CG can be initiated simultaneously with CD

• Appeal emanates from the IO passed by NCLT,
  Kolkata Bench whereby Application u/s 7 of IBC was admitted.·
• CD availed credit facilities from R1 on16/01/2012, in the nature of Cash Credit, TermLoan and Bank Guarantees.·
• Working Capital Consortium agreement was
  entered on 28/03/2012 between R1, Union Ban of India & CD.
• Also, on the same day two Term loan Agreements
  were entered between R1 & CD to avail more
  credit facilities.
• On failure of CD to make repayments, on Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances R1 declared CD as NPA on
  30/06/2014.
• R1 filed Application u/s 7 of IBC on 14/02/2019.
  AA admitted an Application on 17/01/2020.
• Appellant being suspended directors of CD opposed that the instant case was barred by limitation considering NPA date & CIRP
  initiation date.
• However, R1 submits an OTS letter dated
  04/01/2020 signed by the Appellant No. 1 which
  amounts to ack. of debt.
• NCLAT, in view of the judgment passed by
  Hon’ble Supreme Court in ‘Asset Reconstruction
  Company (India) Limited Vs. Bishal Jaiswal &
  Anr. holds that the Application u/s 7 of IBC is not barred by limitation.
• The Appeal is hereby dismissed.

Limitation

• Company Appeal 745 of 2019 has been preferred
  challenging the Order of Liquidation of CD and Company Appeal 818 of 2019 has been filed challenging the CIRP Order against the CD.

Issues for consideration

(i) Whether the BR dated 30.03.2017 is void ab-initio as it was passed without securing affirmative vote of the nominee director of the Appellant No. 3?

Resolution dated 30.03.2017 was passed in the presence of nominee director of NSL. It was argued on behalf of the R. that the presence of the nominee director and his consent to the BR dated 30.03.2017 satisfies the affirmative vote requirement. There is a specific distinction
between an affirmative vote and mere consent.

Affirmative vote matters provided in AoA generally to protect the rights of minority shareholders. Mere consent or presence of
nominee director of NSL cannot equated with the affirmative vote as provided in clause 107 of AoA. NCLAT held that on 30.03.2017 without affirmative vote of nominee director of NSL BR was passed for filing the application u/s 10 of IBC. Such application is not maintainable for want of affirmative vote of nominee director of NSL. For the said reason the application u/s 10 filed by the VR Chary the CFO of NDSL was not maintainable. NCLAT held that the BR dated 30.03.2017 is void ab initio as it was passed without securing affirmative vote of the nominee director of NSL

(ii) Whether the appeal against the order of admission is barred by limitation.

RP vide letter dated 25.09.2017 informed the Appellants in regard to the admission order dated 20.09.2017. Therefore, NCLAT was unable to convince with the arguments of Ld. Counsel for the Appellants that they were unaware and the Respondents have suppressed the admission order dated 20.09.2017. The Appellant have not placed on record any material to draw the inference that the Respondents have committed fraud with the Appellants in regard to admission order dated 20.09.2017. Appellant have argued that the
application u/s 10 of IBC was not maintainable. Therefore, the admission order dated 20.09.2017 is void ab initio. Hence, it can be challenged at any time. NCLAT found substance in this
argument and held that order can be challenged at any time even beyond the prescribed period of limitation. For this proposition of law NCLAT referred to the Judgment of Hon’ble SC in the case of State of M.P. V/s Syed Qamarali (Civil Appeal No. 248 of 1960 decided on 08.03.1961)

(iii) Whether material irregularity committed by RP in conducting the CIRP of the CD?

NCLAT held that the application u/s 10 filed by VR Chary authorised by the BOD, was not maintainable. Resultantly, the IO dated
20.09.2017 passed by the AA is set aside and in effect order(s) passed by AA appointing IRP declaring moratorium and subsequently passing order liquidation dated 03.06.2019, all such orders and actions are declared illegal and are set aside.

• The application preferred u/s 10 of IBC is
  dismissed. AA will now close the proceedings. The CD is released from all the rigour of law and is allowed to function independently through its BOD from the immediate effect.

Appropriate authorization is necessary to

initiate CIRP
by CD u/s 10 of IBC

• Appeal is filed assailing an IO passed by NCLT, Jaipur Bench whereby Appellants were held to be OC and not FC of CD.
• Though Appellants had filed their claims as FC but RP treated them as OC & same was upheld by AA., hence, the present Appeal.
• On Appeal filed by one of the Applicants i.e., Sach Marketing Pvt. Ltd. against an IO the coordinate bench of this Appellate Tribunal vide Order dated 07/10/2021 held that the said amount of debt is to be treated as a Financial Debt as CD had credited interest against the deposits accepted considering it to be time value of money & interest was being paid for using the money over a period of time.
• Hence, this Appellate Authority agreed with the view taken above and allowed the Appeals thereby treating debts of Appellant as financial debt u/s 5 of IBC.

Differentiating between financial and
operational debt.

• Appeal is filed by RP emanating from IO passed by NCLT, Delhi Bench whereby RP seeking exclusion of period during the on-going CIRP, was not allowed.
• CIRP was commenced on 05/11/2019.
• RP filed an Application u/s 19(2) of IBC on 05/11/2019 due to non-cooperation of the erstwhile Director of the CD in transferring books of accounts, records and assets.
• Further, RP was unable to carry out CIRP dues, due to imposition of lockdown
• RP Appeals to exclude entire period from
  05/11/2019 till the disposal of the Application u/s 19(2) of IBC.
• In CoC meeting held on 29/08/2020, resolution
  for extension of time was left on wisdom of RP.
• CIRP is time bound process, after a lapse of 180
  days from the commencement of CIRP, an Application to sought an extension of CIRP for 90 days should be filed.
• In case of failure to lead satisfactory resolution of CD consequence such as liquidation should follow.
• In the instant case, RP did not file any Application
  for extension of CIRP and waited for a decision on Section 19(2) Application.
• Therefore, NCLAT held a view that seeking
  extension of time period of CIRP in the garb of “exclusion of time period” cannot be permitted and dismissed the Appeal at admission stage.

Click here for the Judgement

Application for extension of
CIRP needs to be filed is the requirement of law.