Article copiles orders related to Insolvency and Bankruptcy Code of Supreme Court, High Courts, National Company Law Appellate Tribunal, National Company Law Tribunal, Special Courts and Insolvency and Bankruptcy Board of India.
A. Order of Supreme Court
In this matter, the CD, JIL had mortgaged its properties as collateral securities for the loans and advances made by the banks and FIs to its holding company, JAL. The AA held these as avoidance transactions (preferential, undervalued and fraudulent), which was set aside by the NCLAT. In appeal, the Supreme Court (SC) held as under:
(a) Preferential Transactions: A CD shall be deemed to have given a preference at a relevant time if: (i) there is a transfer of property or the interest thereof of the CD for the benefit of a creditor or surety or guarantor for or on account of an antecedent financial debt or operational debt or other liability; (ii) such transfer has the effect of putting such creditor or surety or guarantor in a beneficial position than it would have been in the event of distribution of assets in accordance with section 53; and (iii) preference is given, either during the period of two years/one year preceding the ICD when the beneficiary is a related/an unrelated However, such deemed preference may not be an offending preference, if it falls into any or both exclusions provided by section 43(3). Applying this ratio to the impugned transactions, the SC held that there had been transfers for the benefit of JAL, who is a related party of the CD; and the transactions have the effect of putting JAL in a beneficial position than it would have been in the event of distribution of assets being made in accordance with section 53. Thus, the CD has given a preference in the manner laid down in the Code.
(b) Look back period: It was submitted that the provisions of section 43, by their very nature, would come into operation at least one year after the enactment of the Code and else, it would be giving retrospective effect to these provisions which is not The SC observed that looking to the scheme of the Code and the principles applicable for the conduct of the affairs of a corporate person, it cannot be said that anything of a new liability has been imposed or a new right has been created. It cannot be said that the operation of the provision itself would remain in hibernation until such look-back period from the date of commencement of the provision comes to an end.
(c) Ordinary course of business: Section 43(3)(a) exempts transfers made in ordinary course of business of ‘the corporate debtor or the transferee’. This calls for purposive The expression ‘or’, appearing as disjunctive between the expressions ‘corporate debtor’ and ‘transferee’, ought to be read as ‘and’. Therefore, a preference shall not include the transfer made in the ordinary course of the business of the CD and the transferee. Further, the SC observed that the transactions in question could be in the ordinary course of business of bankers but on the given set of facts, these do not fall within the ordinary course of business of the CD. The ordinary course of business of the CD is not providing mortgages to secure the loans obtained by its holding company and that too at the cost of its own financial health.
(d) Duties and responsibilities of RP: The RP shall-
(i) sift through all transactions relating to the property/interest of the CD backwords from the ICD and up to the preceding two years;
(ii) identify persons involved in the transactions and put them in two categories: (1) related party under section 5(24), and (2) remaining persons;
(iii) identify which of the said transactions of preceding two years, the beneficiary is a related party of the CD and in which the beneficiary is not a related The sub-set relating to unrelated parties shall be trimmed to include only the transactions preceding one year from the ICD;
(iv) examine every transaction in each of these sub-sets to find out whether
(1) the transaction is of transfer of property of the CD or its interest in it; and
(2) beneficiary involved in the transaction stands in the capacity of creditor/surety/guarantor;
(v) scrutinise the shortlisted transactions to find, if the transfer is for or on account of antecedent financial debt/ operational debt/ other liability of the CD;
(vi) examine the scanned and scrutinised transactions to find, if the transfer has the effect of putting such creditor/surety/guarantor in beneficial position, than it would have been in the event of distribution of assets under section If answer is in the affirmative, the transaction shall be deemed to be of preferential, provided it does not fall within the exclusion under section 43(3); and then
(vii) apply to the AA for necessary orders, after carrying out the aforesaid volumetric and gravimetric analysis of the transaction.
(e) Undervalued and fraudulent transactions: As the transactions are held as preferential, it is not necessary to examine whether these are undervalued and/or fraudulent. In preferential transaction, the question of intent is not involved and by virtue of legal fiction, upon existence of the given ingredients, a transaction is deemed to be of giving preference at a relevant time, while undervalued transaction requires different enquiry under sections 45 and 46 where the AA is required to examine the intent, if such transactions were to defraud the creditors. The AA needs to examine the aspect of preferential, undervalued and fraudulent separately and distinctively.
(f) Lenders of JAL not FCs of JIL: The IRP rejected the claims of two lenders of JAL to be recognised as FCs of the CD on the strength of the mortgage created by the CD, as collateral security of the debt of its holding company, The AA approved this decision. However, it was set aside by the NCLAT. The SC observed that it is the FC who lends finance on a term loan or for working capital that enables the CD to set up and/or operate its business; and who has specified repayment schedules with default consequences. An FC is, from the very beginning, involved in assessing the viability of the CD who can, and indeed, engage in restructuring of the loan as well as reorganisation of the CD’s business when there is financial stress. Hence, an FC is not only about in terrorem clauses for repayment of dues; it has the unique parental and nursing roles too. In short, the FC is the one whose stakes are intrinsically inter-woven with the well-being of the CD. To be termed financial debt, consideration for time value of money is essential. Mortgages, being neither towards any loan, facility or advance to the CD nor towards protecting any facility or security of the CD, do not constitute financial debt within the meaning of section 5(8), though they could be, on the strength of the mortgages, secured creditors.
Maharashtra Seamless Limited Vs. Padmanabhan Venkatesh & Ors. [Civil Appeal No. 4242/2019 & Ors.]
Resolution plan providing for an upfront payment of `477 crore was approved. On an appeal, the NCLAT directed the resolution applicant to modify the plan to increase upfront payment to `598 crore, which is the average liquidation value, failing which the resolution plan approval would be set aside. On appeal, the SC decided: (a) there is no provision in the Code, or regulations which prescribe that the bid of any resolution applicant has to match the liquidation value; (b) the object behind prescribing the valuation process is to assist the CoC to take a decision on the resolution plan properly; (c) once the resolution plan has been approved by the CoC, the AA ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan itself; and (d) the exit route prescribed under section 12A is not applicable to a successful resolution applicant and is available only to the applicants initiating CIRP.
Rajendra K. Bhutta Vs. Maharashtra Housing and Area Development Authority and Another [Civil Appeal No. 12248/2018]
The CD had entered a Joint Development Agreement (JDA) with MHADA. On the CD getting into CIRP, MHADA issued notice to the CD for termination of JDA and to handover possession of the land and all structures. An application to restrain MHADA from taking possession was dismissed by the AA stating that section 14(1)(d) does not cover licences to enter upon land covered under JDA. On appeal, the NCLAT held that the land belongs to MHADA and cannot be treated as an asset of the CD under section 14(1)(d). While setting aside the order of NCLAT, the SC held that section 14(1)(d) speaks about recovery of property “occupied”. It does not refer to rights or interests created in property but only actual physical occupation of the property. The JDA has granted a license to the CD to enter upon the property, with a view to do all the things that are mentioned in it and hence the property is in possession of the CD. Therefore, the land is covered under section 14(1)(d). It reiterated that if there is any clash between the MHADA Act and the Code, the latter shall prevail.
The AA admitted an application for CIRP. The NCLAT dismissed an appeal against the admission. The appellant approached the SC on the ground that the CIRP was initiated in collusive manner. The SC held that the plea of collusion could not have been raised for the first time in the appeal. It relegated the appellant to the remedy before the AA.
In Re: Cognizance for Extension of Limitation [Suo Motu Writ Petition (Civil) No (S). 3/2020]
The SC took suo motu cognizance of the situation arising out of COVID-19 and resultant difficulties that may be faced by litigants as to period of limitation prescribed under general law of limitation or under Special Laws (both Central and/or State). In exercise of its powers under Articles 141 and 142 of the Constitution, it ordered extension of period of limitation for all proceedings, from March 15, 2020, until further orders, and also declared that the order is binding on all courts/tribunals and authorities.
B. Order of High Courts
Mr. Ajay Kumar Bishnoi Vs. M/s. Tap Engineering [CRL. OP No. 34996/2019 & Ors.]
During the pendency of a complaint under section 138 of the Negotiable Instruments Act, 1881, the CD underwent CIRP, which yielded resolution plan with change in management and control. The MD of the erstwhile CD sought quashing of the prosecution under section 138 in view of the approval of resolution plan. The HC reinforced what has been held in several matters that the moratorium under section 14 prohibits proceedings, but such proceedings do not include prosecution. It then considered whether the statutory effect of section 31(1) of the Code is the extinguishment of the criminal prosecution and answered it in the negative. It observed that the object of the Code is to provide insolvency resolution of CD in a time bound manner and not to provide succor to those who by their misconduct contributed to defaults of the CD. No clause in resolution plan can take away the power and jurisdiction of the criminal court to conduct and dispose of the proceedings before it. Where a company gets dissolved during pendency of prosecution, the directors and the other accused cannot escape by citing its dissolution. What is dissolved is only the company, not the personal penal liability of the accused.
Tata Steel BSL Limited & Anr. Vs. Union of India & Anr. [W.P.(CRL) 3037/2019]
The trial Court took cognizance of the offences punishable under the Companies Act, 2013 and the Indian Penal Code, 1860, based on a complaint filed by SFIO. The petitioner has submitted that it took over the CD through a resolution plan and section 32A of the Code discharges it from the proceeding before the trial Court. The HC held that the CD would not be liable for any offence committed prior to commencement of the CIRP. It also clarified that this order will not affect the prosecution of the erstwhile promoters or any of the officers who may be directly responsible for committing the offences.
Kotak Investment Advisors Limited & Anr. Vs. Mr. Krishna Chamadia & Ors. [WP (L) No. 3621/2019]
The petitioners challenged the process adopted by RP for approval of resolution plan. The AA dismissed the challenge, against which they approached the HC. The HC held that it would be highly unsafe to entertain the petition, all the more when the petitioners have an alternate efficacious remedy of filing an appeal against the impugned order under sections 32 and 61 of the Code. In the appeal, they can always raise all grounds, including that are raised in the present petition. Any interference in the process by way of writ jurisdiction would amount to scuttling an elaborate process of resolution of disputes arising during the course of applicability of the Code. The Code must be allowed to operate and run its full course. Merely because in exceptional cases, the HC can intervene in writ jurisdiction does not mean that it is obliged to intervene in each and every order.
C. Order of National Company Law Appellate Tribunal
Bijay Kumar Agarwal, Ex-Director of M/s Genegrow Commercial Pvt. Ltd. Vs. State Bank of India & Anr. [CA(AT)(Ins) No. 993/2019]
The NCLAT considered whether an FC can commence CIRP against the principal debtor as well as the guarantor, for the same set of claims. It observed that there is no fetter in the Code for projecting simultaneously two applications under section 7 against the principal borrower, as well as the corporate guarantor(s). However, for the same set of claims, if an application filed by the FC is admitted against either the principal borrower or the corporate guarantor, a second application filed by the same FC for the same set of claims cannot be admitted against the other. It clarified that a creditor cannot sue the principal borrower and claim the guarantor’s insolvency at the same time.
Santosh Wasantrao Walokar Vs. Vijay Kumar V. Iyer and Anr. [CA(AT)(Ins) No. 871-872/2019]
One of the issues was whether the claims that are not dealt with under the resolution plan can be extinguished under the Code. The NCLAT, relying on the Essar Steel judgment of SC, held that all claims must be submitted to and decided by the RP, so that a prospective resolution applicant knows exactly who has to be paid, for it to take over and run the business of the CD. Therefore, claims that are not submitted or are not accepted or dealt with by the RP and such resolution plan submitted by the RP is approved, then, those claims would stand extinguished.
Maharashtra State Electricity Transmission Company Limited Vs. Sri City Private Limited & Ors. [CA(AT)(Ins) No. 1401/2019]
The appellant had a bulk power transmission agreement with the CD to use the transmission network of the appellant for 25 years. It challenged the order of the AA approving a resolution plan of the CD on the ground that in the plan, there was an arbitrary provision amounting to ex-parte termination of said agreement. The NCLAT, relying on Essar Steel and section 238 of the Code, held that the resolution plan which has been approved by the CoC in its wisdom, cannot be found fault with.
Sh G Eswara Rao Vs. Stressed Assets Stabilisation Fund & Anr. [CA(AT)(Ins) No. 1097/2019]
The appellant challenged the order dated October 1, 2019 of admission as the debt was barred by limitation. The AA, taking into consideration that the DRT, by order dated August 17, 2018, had passed a decree for recovery of debt, held that the application for initiation of CIRP is not barred by limitation. The NCLAT set aside the order of the AA and observed that CD failed to pay the debt prior to 2004 which caused the application before the DRT. An decree passed by DRT or any suit is not an acknowledgement of debt and hence cannot shift the date of default. The limitation for initiation of CIRP runs from the date of default.
Flat Buyers Association Winter Hills-77, Gurgaon Vs. Umang Realtech Pvt. Ltd. through IRP & Ors. [CA(AT)(Ins) No. 926/2019]
The NCLAT held that CIRP against a real estate CD is project specific. It is limited to a project as per the plan approved by the competent authority and does not cover other projects which are separate at other places for which separate plans have been approved. The NCLAT noted peculiar nature of real estate projects from the perspective of CIRP that: (a) FCs (Banks/ Financial Institutions/ NBFCs) would not like to take the fats in lieu of the money disbursed by them; (b) FCs (allottees) cannot take a haircut of ats, and (c) the allottees do not have expertise to assess ‘viability’ or ‘feasibility’ of a CD or commercial wisdom as other FCs. Relying on the observations of the SC in Essar Steel, about experimentation in economic matters, the NCLAT experimented as to whether during the CIRP, the resolution can reach finality without approval of the third-party resolution plan. It opined that a ‘Reverse CIRP’ can be utilised in cases of real estate infrastructure companies in the interest of allottees and to ensure their survival and completion of the projects. It directed one of the promoters to disburse amount from outside as lender and the AA will complete the CIRP.
Liberty House Group Pte. Ltd. Vs. State Bank of India & Ors. [CA(AT)(Ins) No. 724/2019]
The AA approved resolution plans submitted by the appellant in the CIRPs of two CDs, namely, Adhunik Metaliks Limited and Zion Steel Limited. As appellant failed to implement resolution plans, the AA cancelled the resolution plans and passed orders of liquidation of CDs with direction to the Liquidator to liquidate the CD as a going concern. While appeal in the matter was pending, the appellant filed an affidavit to allow it to comply with the resolution plans and to set aside the orders of liquidation of both the CDs. Noting that the appellant has implemented both the resolution plans, the NCLAT by order set aside liquidation. It directed that the said order be served on IBBI to withdraw complaints, if any, made before the Special Judge.
Punjab National Bank Vs. Mr. Kiran Shah, Liquidator of ORG Informatics Ltd. [CA(AT)(Ins) No. 102/2020]
The lead bank in the CoC challenged the appointment of the liquidator after the AA passed the liquidation order. The NCLAT held that after the liquidation order, the CoC has no role to play and that they are simply claimants, whose matters are to be determined by the liquidator and hence cannot move an application for his removal.
Committee of Creditors, M/s. Smartec Build Systems Pvt. Ltd. Vs. B. Santosh Babu & Ors. [CA(AT)(Ins) No. 48/2020]
Based on the recommendations of CoC, the AA passed the liquidation order and directed the CoC to pay the fees and cost incurred by the IRP. The appellant has submitted that the fees and costs of the IRP is to be borne by the Applicant who filed application under section 9. The NCLAT rejected this submission as the OC, who moved application, may not receive any amount during liquidation. It also imposed a cost of `1,00,000 on the CoC for filing frivolous application.
Shameek Breweries Pvt. Ltd. Vs. Manoj Kumar Agarwal & Anr. [CA(AT)(Ins) No. 843/2019]
In the CIRP against ‘Sterling SEZ & Infrastructure Ltd.’, the promoters moved application under section 12A. The CoC approved the proposal and withdrawal was allowed by the AA. MCA moved an application that the promoters were absconding, and the ED had initiated proceedings against them. The AA recalled its earlier order and restored the CIRP of CD. One of the FCs appealed the NCLAT against the recall order with a prayer to direct the promoters, to provide clean money as per the terms of withdrawal. The NCLAT dismissed the appeal as promoters are not aggrieved by the recall order.
Navin Raheja Vs. Shilpa Jain & Ors. [CA(AT)(Ins) No. 864/2019]
Pursuant to an application by two allottees in a residential project, the AA ordered CIRP of the CD. The order was appealed alleging fraudulent and malicious initiation of CIRP with a purpose other than resolution. The NCLAT noted that despite offer of at, the two allottees wanted refund of the amount with more interest and refused to take the actual amount in terms of agreement. It set aside the order of the AA with an observation that the allottees filed application for CIRP fraudulently with malicious intent and are liable to penalty under section 65 of the Code. It further observed that considering such fraudulent applications by some allottees, the recently promulgated Ordinance requires the application to be filed jointly by a not less than one hundred of such creditors in the same class or not less than ten per cent of the total number of such creditors in the same class, whichever is less.
Reliance India Power Fund, Reliance Capital Vs. Mr. Raj Kumar Ralhan [CA(AT)(Ins) No. 318/2020]
The appellant submitted that in terms of section 35(1)(k), it is the duty of the liquidator to defend any suit, prosecution or other legal proceedings against the CD. While agreeing with the submission, the NCLAT held that the said duty includes any conscious decision that a liquidator may take whether, in the given set of facts, he needs to defend any proceedings.
Committee of Creditors of Metalyst Forging Ltd. Through State Bank of India Vs. Deccan Value Investors LP & Ors. [CA(AT)(Ins) No. 1276/2019]
After approval by CoC, a resolution plan was placed for approval of the AA. The resolution applicant, however, on demand of performance guarantee, wanted to withdraw the resolution plan. The AA refused to approve the plan and directed the RP/CoC to invite fresh bids. It held that the resolution applicant will not be entitled to refund of the amount of the bid bond guarantee in case fresh bid of the resolution applicant is not accepted. The CoC challenged the order of rejection of resolution plan. The resolution applicant also challenged the forfeiture of bid bond guarantee. The NCLAT held that that the Code does not confer any power and jurisdiction on the AA to compel specific performance of a plan by an unwilling resolution applicant. It, however, did not interfere with the forfeiture of the bid bond furnished by the resolution applicant.
Shyam Pradhan & Anr. Vs. Ananda Chandra Swain [CA(AT)(Ins) No.15/2020]
The appellant, who had insured the CD, wanted to terminate insurance. The AA directed the insurer to continue with the insurance as the CD is to continue as a going concern. The NCLAT upheld the direction of the AA.
JSW Steel Ltd. Vs. Mahender Kumar Khandelwal & Ors. [CA(AT)(Ins) No. 957/2019 & Ors.]
The NCLAT considered whether after approval of a resolution plan by the AA, it is open to the Directorate of Enforcement (ED) to attach the assets of the CD on the alleged ground of money laundering by erstwhile promoters. During the pendency of the proceedings, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 (Ordinance) was promulgated on December 28, 2019, which inserted section 32A in the Code. The NCLAT observed that section 32A suggests that the ED/other investigating agencies do not have the powers to attach assets of the CD, once a resolution plan stands approved and the criminal investigations against the CD stand abated. It further observed that it is ex facie evident that being clarificatory in nature, the Ordinance must be made applicable retrospectively. It held that the intent and purpose of section 32A is to provide certainty to the resolution applicant that the assets of the CD, as represented to him, and for which he proposes to pay value/ consideration in terms of the resolution plan, would be available to him in the same manner as at the time of submission of the resolution plan. It observed that mere assertion of the ED in its reply, that it needs to further investigate the matter to examine or comment if there has been any abetment or conspiracy by the Appellant, establishes that it has no reason to believe on the basis of material in its possession, as on date, for denial of immunity to the Appellant and the CD. It reiterated the position held by SC that the successful resolution applicant cannot be asked to face with undecided claims after the resolution plan accepted by the CoC as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant.
Hammond Power Solutions Private Limited Vs. Mr. Sanjit Kumar Nayak & Ors. [CA(AT)(Ins) No. 606/2019]
An OC challenged the approved resolution plan providing for payment of nil amount to OCs. The NCLAT, relying on the Essar Steel, observed that the decision of the CoC must reect the fact that it has taken into account maximising the value of the assets of the CD and the fact that it has adequately balanced the interests of stakeholders including OCs. It noted that minutes of the CoC do not reect any reason for giving nil amount to OCs. It remitted the matter back to the AA to send the resolution plan to CoC to resubmit the plan after satisfying the parameters laid down by the SC.
Punjab National Bank Vs. State Bank of India & Anr. [CA(AT)(Ins) No. 1484/2019]
The appellant claims that the CD had pledged stock of rice by a document of pledge dated September 29, 2015. The respondent claims that the CD had hypothecated the stock in its favour by a deed of hypothecation dated May 4, 2013. The CoC, which comprised appellant and respondent, decided to sell the stock, being a perishable commodity. The appellant objected that the RP cannot utilize the sale proceeds for conducting CIRP. The NCLAT held that the stock having been sold, there is no illegality if the RP uses the money for CIRP but rights and benefits accruing to the appellant for possessing security by way of pledge are open for consideration of the CoC when the resolution plan is put forth, and/or in case of liquidation.
D & I Taxcon Services Private Limited Vs. Mr. Vinod Kumar Kothari [CA(AT)(Ins) No. 1347/ 2019]
The AA dismissed an application challenging the actions of liquidator and imposed a cost of `100,000 on the appellant for levelling vague and baseless allegations against the respondent. The NCLAT observed that without having a locus, the appellant has been interfering with the process of liquidation and thwarting the liquidation process which ultimately will have deleterious effect on the rights of those who are entitled to the benefit of the distribution of sale proceeds of liquidation proceedings. It dismissed the appeal but dispensed with the cost having regard to the fact that the appellant is a victim of incident of fire.
Union of India Vs. Infrastructure Leasing & Financial Services Ltd. & Ors. [CA(AT)(Ins) No. 346/2018 & Ors.]
The Central Government approached the AA for appropriate orders against Infrastructure Leasing and Financial Services Limited (IL&FS) and its group companies for mismanagement. The AA changed the management but refused to grant moratorium on the ground that the provisions of the Code does not apply to IL&FS, a financial service provider, and also refused to give any interim orders under section 242 of the Companies Act, 2013. On appeal, the NCLAT granted stay of institution or continuation of suits or any other proceedings, any action under SARFAESI and other reliefs, and effectively a moratorium was imposed. It held that section 242(4) of the Act empowers the NCLT to pass just and equitable interim orders. Further, it is not correct to say that principles of the Code cannot be followed by the NCLT while dealing with a winding up matter under section 241 read with section 242 of the Act. It observed that moratorium under section 14 of the Code may be imposed under section 242(4) of the Act by an interim order if the tribunal deems fit. It also held that distribution under section 53 will not be followed as it would be against the public interest, as the shareholders had purchased shares by investing public money and accepted pro-rata distribution proposed by the Central Government.
Shri IRK Raju Vs. Immaneni Eswara Rao & Ors. [CA(AT)(Ins) No. 1058/2019]
The appellant challenged the admission of application under section 9 on the ground that debt claimed was not payable and the application was filed fraudulently for extracting money and not for resolution/liquidation. The NCLAT allowed the appeal and observed that demand notice was not as per section 8(1) of the Code, which allows for 15 days’ time to repay. It also held that the second respondent does not come within the meaning of OC for claiming reimbursement of customs duty, as a statutory due is only operational in nature when it is paid to the relevant authority and not when it is repaid to a party that has paid to such statutory authority. It observed that the respondent moved an application under section 9 fraudulently with malicious intent for extracting more amount, not for the liquidation or resolution, as covered by Section 65 and as such calls for penal action.
Radhika Mehra Vs. Vaayu Infrastructure LLP & Ors. [CA(AT)(Ins) No. 121/2020]
The appellant filed a writ before HC against the order of the AA initiating CIRP, which was dismissed as withdrawn. The appellant filed an appeal before the NCLAT, with an application seeking exclusion of time of proceeding bona fide spent in court without jurisdiction under section 14 of the Limitation Act, 1963. The NCLAT observed that said section relates to the period of limitation for any suit. Relying on section 238 of the Code, it held that section 61(2) of the Code shall override section 5 of the Limitation Act. As the appeal was filed after 45 days from the date of receipt of the order, it held that it has no jurisdiction to entertain the appeal.
Mr. M. Ravindranath Reddy Vs. Mr. G. Kishan & Ors. [CA(AT)(Ins) No. 331/2019]
In this appeal, the NCLAT considered whether a landlord, who has granted lease, is an OC. It observed that the Code recognises two types of debt, financial debt and operational debt, and accordingly FCs and OCs may make an application for initiating CIRP and no other creditor qualifies to make an application. It stated that for a debt to be classified as an operational debt, it must fall into one of the three following categories: (a) the debt amount should fall within the definition of claim under section 3(6), (b) such a claim should fall within the confines of the definition of a debt under section 3(11), and (c) such a debt should fall strictly within the scope of an operational debt under section 5(21) of the Code. It concluded that lease of immovable property cannot be considered as a supply of goods or rendering of any services and thus, cannot be considered as operational debt.
Kundan Care Products Ltd. Vs. Surya Kanta Satapathy & Ors. [CA(AT)(Ins) No. 11 & 75/2020]
The appellant submitted a resolution plan which was rejected by the RP, as it was ranked H6 and as per the RFRP, only top three resolution applicants would be invited to present their plans before the CoC. The appellant sought for an opportunity to negotiate or revise or enhance its bid, but it was denied. The NCLAT observed that it is a settled law that the resolution applicant has no right for re-negotiation or further negotiation. After submission of the plan, if it satisfies section 30(2) of the Code, the same must be placed before the CoC. The process of evaluation is guided by the criteria set out in the RFRP. It also observed that a plan can only be challenged on the grounds under section 61(3).
Bimalkumar Manubhai Savalia Vs. Bank of India and Anr. [CA(AT)(Ins) No. 1166/2019]
CIRP initiated on an application of an FC was challenged by the appellant for being time barred. It was contended that under an OTS, payments were made by the guarantors, which had the effect of extending the period of limitation. The FC had also initiated proceedings under SARFAESI, before initiating CIRP and claimed that the same would increase the period of limitation. While allowing the appeal, the NCLAT held that SARFAESI and DRT proceeding will not extend the period of limitation since those proceedings are independent and that the Code has overriding effect under section 238. Further, since the OTS was not accepted by the FC, it cannot be treated as an acknowledgement under section 18 of the Limitation Act, 1963.
Vijay Pal Garg & Ors. Vs. Pooja Bahry [CA(AT)(Ins) No. 949/2019]
Appeal was filed against the order of AA, which directed the Central Government to order an investigation into the affairs of the CD. The NCLAT observed that the AA is not empowered to order an investigation directly to be carried out by the Central Government. The AA (Tribunal) as competent authority under section 213 of the Companies Act, 2013 has an option to issue notice as to charges/allegations levelled after following the due procedure enshrined under section 213 of the Companies Act, 2013. Where a prima facie case is made out, the AA may refer the matter to the Central Government for investigation by an inspector, based on which, if any action is required, the Government, through the SFIO, may proceed in accordance with law. If an investigating authority after completion of investigation comes to a conclusion that any offence punishable in terms of section 213 read with 447 of Companies Act or under sections 68 to 73 of the Code is/are made out then, the Central Government, may refer the matter to the Special Court itself or may even require IBBI or to authorise any person as per section 236(2) of the Code to file a complaint.
State Bank of India Vs. Maithan Alloys Limited & Ors. [CA(AT)(Ins) No.1245-1247/ 2019]
R1 was successful bidder in the second round of e-auction for purchase of CD as a going concern and paid 25% of bid amount of `68 crore. R2 to R4, who did not participate in the e-auction, offered a higher amount of `70 crore. Considering the higher bid in tune with objectives of the Code, the AA ordered the liquidator to accept their offer. R1 requested the liquidator to return the amount it had paid. The AA directed the liquidator to return the amount with interest. On an appeal by an FC, the NCLAT observed that there was no need for the AA to direct the liquidator for considering the proposal R2 to R4, who approached the AA after due date of finalisation of auction. It directed R1 to complete the sale transaction. It imposed a fine of Rs. 10 lakh on R2 to R4 each for hampering and derailing the liquidation process.
Suo Motu [CA(AT)(Ins) No. 01/2020]
The NCLAT under rule 11 of the NCLAT Rules read with the decision in Quinn Logistics India Pvt. Ltd. Vs. Mack Soft Tech Pvt. Ltd. [CA(AT)(Ins) No.185/ 2018], took suo motu cognizance of the unprecedented situation arising out of spread of COVID-19 pandemic and ordered: (a) The period of lockdown ordered by the Central/State Governments including the period as may be extended either in whole or part of the country, where the registered office of the CD may be located, shall be excluded for the purpose of counting of the period for CIRP under section 12 of the Code in all cases where CIRP is pending before any AA or in appeal before NCLAT; and (b) Any interim order/stay passed by the NCLAT in any appeal under the Code shall continue till next date of hearing, to be notified later.
Mr. Vijaykumar Vs. Mr. Gopalsamy Ganesh Babu & Ors. [CA(AT)(Ins) No. 1207/ 2019]
The CoC resolved to liquidate the CD as it had only a trading business and there was no possibility of making it a going concern. In appeal challenging liquidation order, it was submitted that the dues of the only FC, four OCs and the liquidator have been settled. The NCLAT, in exercise of its inherent powers under rule 11of the NCLT Rules to do justice, set aside the order of liquidation considering that the object of the Code is resolution and that effort should be made to revive the CD rather than liquidate it.
Rajive Kaul Vs. Vinod Kumar Kothari & Ors. [CA(AT)(Ins) No. 44, 224 & 1518/2020]
The liquidator moved the AA to remove nominee directors of the CD for non- cooperation, active obstruction, breach of duty and breach of code of conduct. The AA held that the liquidator has the power to remove and appoint nominee directors. On an appeal, the NCLAT upheld the order of the AA and held it is an axiomatic principle in law that a company in liquidation acts through the liquidator and the liquidator steps into the shoes of the board of directors of the company under liquidation for the purpose of discharging its statutory duties. It further held that the liquidator is armed with requisite powers to remove the nominee directors and is entitled to nominate the directors, and the company is enjoined to act upon the replacement proposal of the existing nominee directors. He is not required to inform the reasons for replacing nominee directors.
Laxmi Pat Surana Vs. Union of India and Anr. [CA(AT)(Ins) No. 77/2020]
It was submitted that an insolvency proceeding can be initiated against a guarantor, where both the principal debtor and guarantor are corporate entities. In this matter, since an insolvency proceeding cannot be initiated against the debtor, which is a sole proprietorship firm, insolvency proceeding cannot be initiated against the guarantor company. The NCLAT observed that financial debt includes a debt owed to a creditor by a principal and guarantor. An omission or failure to pay the debt by guarantor, when principal sum is claimed, comes within the scope of default under section 3(12). Therefore, CIRP can be initiated by an FC who had taken guarantee from the corporate guarantor, who extended guarantee on behalf of a proprietorship firm.
Asset Reconstruction Company (India) Ltd. Vs. Corporation Ltd. & Ors. [CA(AT)(Ins) No. 418/2020]
The resolution plan, as approved by the CoC, was pending for approval of the AA, as it had ordered for fresh valuation. In appeal against the decision for fresh valuation, the NCLAT observed that no party has a right to question AA’s discretion to order further valuation before approval of the plan.
Rupesh Kumar Gupta Vs. Punjab National Bank & Anr. [CA(AT)(Ins) No. 1119/2019]
An appeal was filed against initiation of CIRP on the ground of limitation. The issue was whether minutes of meeting of the board of directors of the CD, which discussed the restructuring of the loan, can be termed as an acknowledgment of debt. The NCLAT held that from the minutes of meeting of the board, it is seen that there was an acknowledgement of debt by the CD as on the relevant date and initiation of CIRP was not time barred.
Punjab National Bank Vs. M/s Vindhya Cereals Pvt. Ltd. [CA(AT)(Ins) No. 854/ 2019]
An FC filed an application under section 7, after it had initiated a proceeding under the SARFAESI Act, 2002. The AA considered it to be forum shopping and directed the FC to show cause as to why it should not be penalised under section 65 of the Code. On appeal, the NCLAT held that an FC can proceed simultaneously under SARFAESI as well as the Code. However, in view of section 238, the provisions of the Code shall have overriding effect over other laws.
Indian Renewable Energy Development Agency Limited Vs. Mr. T.S.N. Raja [CA(AT)(Ins) No. 899/2019]
The RP rejected claim of a charge holder in the mortgaged property of the CD, as the CD had not defaulted in payment to the claimant. The appellant moved the AA which upheld the decision of the RP. On appeal, the NCLAT, directed the appellant to bring the existing contingent right to the notice of the resolution applicant through the AA.
Mr. Savan Godiwala Vs. Mr. Apalla Siva Kumar [CA(AT)(Ins) No. 1229/2019]
Appeal was against order of the AA directing the liquidator to pay gratuity to the employees even though the CD did not have separate funds allocated for the same. Relying on State Bank of India Vs. Moser Baer Karamchari Union and Anr., the NCLAT held that the PF, pension fund and the gratuity fund do not form part of the liquidation estate and therefore, the liquidator, who holds liquidation estate in fiduciary capacity, has no authority to deal with such funds.
Aashish Mohan Gupta Vs. Hind Inn and Hotels Ltd. & Anr. [CA(AT)(Ins) No. 1229/2019]
The NCLAT noted that retention money is a part of the bill which is retained by the CD, as per the terms of the work order, and the same is released after the defect liability period ends. Accordingly, it held that retention money falls within the definition of operational debt as defined in section 5(21) of the Code.
D. Order of National Company Law Tribunal
Clutch Auto Ltd. [CA-1432(PB)/2019 & CA-1433(PB)/2019 in (IB)- 15(PB)/2017]
The liquidator filed an application against the Municipal Corporation, Faridabad (MCF) to de-seal CD’s land and hand it over to him. The AA observed that the property was sealed by MCF during moratorium in violation of section 14. It directed MCF to de-seal the property and the liquidator to consider its claim relating to tax on the property sealed.
M/ s NN Enterprises Vs. Relcon Infra Projects Limited [CP(IB)3980/MB/C-IV/2018]
The issue was whether the applicant being an unregistered partnership firm can initiate CIRP in view of section 69 of the Indian Partnership Act, 1932. The AA held that section 69(2) of the Act applies to suits, and, therefore, cannot apply to proceedings under the Code.
M/s. Nathella Sampath Jewelry Private Limited [MA/1147/2019 & MA/547/2018 in CP/129/IB/CB/2018]
Post initiation of CIRP, the ED had provisionally attached certain immovable properties of the CD. Meanwhile, despite publishing EoI twice, no resolution plan was received. The AA ordered liquidation of the CD and appointed RP as the liquidator. It observed that ordering liquidation after completion of CIRP will not have any bearing on PMLA proceedings, as action against erring management will not be affected by the order of lqiuidation.
Unimark Remedies Limited [MA 1406/2019 in CP 197/I&B/NCLT/ MAH/2018]
Reference was made to a single member bench of the NCLT, Mumbai by the Principal Bench to adjudicate whether fresh valuation can be ordered since the two members of the Division Bench held different views. The single member bench observed that reasoning of the Valuers for ascribing the nil value is untenable in the interest of maximizing the assets of the CD. No legal rights of any of the parties is affected if fresh valuation is carried out, at best would assist the better valuation of CD as a going concern. It ordered the RP to take steps to appoint a fresh valuer with a limited scope of valuing the intangible assets considering the International Standards of Valuation.
M/s. Jain Mfg. (India) Pvt. Ltd. [CA No. 142/2019 in CP(IB) No. 422/ALD/2018]
Application was filed under section 60(5) by the promoter of the CD against declaration of one entity as an FC. The AA observed that as the CoC has voted in majority in favour of the entity as FC, the suspended management as well as the RP have no locus to challenge the commercial wisdom and decision of the CoC and held that the entity is an FC.
State Bank of India Vs. Videocon Industries Limited (VIL) and Ors. [MA 2385/2019 in CP(IB)-02/MB/2018]
Application was filed before the AA to direct the RP to treat all assets, properties, rights, claims, benefits of three group companies (having foreign oil and gas assets) of the CD as its assets and properties, and also to make moratorium applicable on foreign assets. While allowing the application, the AA observed that in case the assets are not considered to be the assets of a single economic entity, then the effective resolution of 13 CDs would not meet the objective envisaged under the Code and they will be forced into liquidation despite having sufficient assets to resolve the CD.
State Bank of India Vs. M/s. Metenere Limited [CP No. IB-639(PB)/2018]
The CD objected to the appointment of IRP on the ground that he was an ex- employee of FC from 1977 to 2016. While granting an opportunity to FC to substitute the IRP, the AA observed that the proposed IRP is unlikely to act fairly and cannot be expected to be an independent umpire.
Tecpro Systems Limited [CA 2683(PB)/2019 in CP No. (IB)- 197(PB)/2017]
There was inordinate delay in implementation of the approved resolution plan. The erstwhile members of the CoC approved liquidation of the CD with 99.28% of voting rights. The AA approved liquidation and directed forfeiture of performance guarantee of Rs. 5 crore.
Indian Overseas Bank Vs. M/s Rathi TMT Saria Pvt. Ltd. [(IB)- 938(PB)/2018]
The AA allowed the application filed under section 12(2) and (3) of the Code for a second extension of CIRP for further 30 days beyond 270 days, with the approval of CoC with 98.6% voting rights.
Jaiprakash Associate Limited & Ors. [CA No. 59/2019 & Ors. in (IB)- 77/ALD/2017]
The AA approved the resolution plan submitted by NBCC, with the following directions:
(a) Rs. 750 crore: When the money has been paid by JAL towards an obligation as per directions of the SC, it can no more be considered assets of JAL. Also, JAL is not under further obligation to complete construction of homes. The amount would be utilised for the cause of the creditors. Therefore, the amount shall be treated as the asset of the
(b) Resolution plan: It was held: (i) there was no need for separate protection from the PMLA proceedings; (ii) the Code does not prohibit two resolution plans being put to vote simultaneously; (iii) dissenting creditors are to be paid in cash equivalent to the liquidated sum they are entitled under section 53; (iv) the plan shall make provision to clear the dues of the FD holders, who have not made claims, as and when claims are made; (v) past liabilities of income-tax authority shall stand extinguished; (vi) any non-compliance arising out of claims prior to CIRP initiation shall not have any bearing on this CD; (vii) all claims placed before the RP and any criminal proceeding appurtenant to those claims are extinguished; and (viii) the IRP will not be held responsible with regard to discharge of his duty during
State Bank of India Vs. Adhunik Metaliks Ltd. [CA No. 118/CTB/ 2019 connected with TP No. 44/CTB/2019 in CP(IB)No. 373/KB/2017]
The liquidator filed application seeking clarity about the treatment of claims received between July 18, 2018 and July 7, 2019 when the CD was supposed to be revived under resolution plan approved on July 17, 2018. The AA held that the claims received during the period can neither be treated as part of insolvency resolution process costs nor do they fall under liquidation cost, and hence, cannot be accorded priority over other dues.
Gujarat NRE Coke Ltd. [IA(IB) No. 122, 305 & 194/KB/2020 in C.P. (IB) No. 182/KB/2017]
The liquidator sought direction of the AA against the secured creditors to either relinquish their security interest or to proceed under section 52. Considering the fact that liquidation process cannot be completed without the cooperation of all FCs, it directed that their security interests stand relinquished.
Infonet Asia Private Limited [MA/1397/2019 in CP/536/IB/ CB/2017]
The resolution plan provided for withdrawal of suit or application pending against the CD. While approving the plan, the AA modified it to the effect that for the claims treated in the plan, such proceedings shall be withdrawn but the CD shall remain liable to the outcome of the proceedings not finally determined by the court.
The RP filed application seeking directions against the Central Goods and Services Department (CGSD) to restore e-way facility so that the applicant can file returns on behalf of the CD, accept physical filing of returns and refrain from taking coercive measures against the CD. The AA observed that while the GST laws do not restrict deposition of GST for a month if the prior GST dues are not paid, the online portal restricts the same. It directed the CGSD to accept manual monthly returns along with physical GST deposits for the moratorium period and restore the e-way facility for filing of the GST returns.
E. Order of Special Courts
In the complaints filed by IBBI under section 236 of the Code before various Special Courts, the following orders were passed:
| Accused | Contraventions of sections | Order |
| Ex-directors and key managerial personnel of M/s. Amira Pure Foods Pvt. Ltd. | 70(1)(a)(b)(c) and (e) and section 19(1) read with section 235A | Cognizance taken |
| Resolution Applicant and Resolution Professional | 70(2), 29A read with section 235A | Resolution Applicant released on Bail; Bail application of RP served on IBBI for say. |
| Ex-directors and key managerial personnel of M/s. Jay Polychem India Ltd. | 68(1), 70(1)(a), 70(1)(c) and 19(1) read with section 235A | Cognizance taken |
| Ex-directors and key managerial personnel of Nibula Print and Pack Pvt. Ltd. | 68(1)(b), 70(1)(c), 74(1) and 19(1) read with section 235A | Cognizance taken |
| Ex-director and key managerial personnel of M/s White and Brown Alloy Castings Pvt. Ltd. | 69, 70, 74(1), 19(1) read with section 235A | Released on bail |
F. Order of IBBI
In the matter of Mr. Mukesh Kumar Rathi, RV (Order dated January 8, 2020)
Mr. Rathi registered a website with the domain name ‘www.ibbivaluer.com’ on March 21, 2019. He was registered as a valuer with the Board on August 23, 2019. He discontinued use of domain name on November 14, 2019 and surrendered the same on December 7, 2019. For misleading the stakeholders and the Board by using such a domain name even after his registration as a valuer, the Board suspended his registration for three months.
In the matter of Mr. Rashmi N. Thakeria, IP (Order dated January 24, 2020)
Mr. Thakeria obtained a certfiicate of registration as IP, suppressing facts that proceedings were pending against him before DRT. Finding him to be a person not fit and proper, the Board cancelled his registration.
In the matter of Mr. Tarun Jaggi, IP (Order dated March 20, 2020)
The DC observed that the Mr. Jaggi failed to make public announcement within the time prescribed under in the voluntary liquidation of processes of two companies and engaged an auditor, who were statutory auditors of the company before commencement of voluntary liquidation. It imposed a monetary penalty of Rs. 1,00,000 on Mr. Jaggi.
Source- https://ibbi.gov.in
