Supreme Court

JK Jute Mill Mazdoor Morcha Vs. Juggilal Kamlapat Jute Mills Company Ltd. through its Directors & Ors. [Civil Appeal No. 20978/2017]

In this matter, the AA did not admit application for CIRP filed by a trade union, which is not an OC under the Code. The NCLAT dismissed the appeal against the order of the AA stating that each worker may file individual application before the AA. While disposing of the appeal against the order of the NCLAT, the Supreme Court (SC) observed that a trade union is an entity established under a statute and, therefore, is a person under section 3(23) of the Code. A claim in respect of an employment, which is operational debt, can be made by a person duly authorised to make such claim on behalf of a workman. The SC held: “…the trade union represents its members who are workers, to whom dues may be owed by the employer, which are certainly debts owed for services rendered by each individual workman, who are collectively represented by the trade union. Equally, to state that for each workman there will be a separate cause of action, a separate claim, and a separate date of default would ignore the fact that a joint petition could be filed under Rule 6 read with Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, with authority from several workmen to one of them to file such petition on behalf of all.”

Dharani Sugars and Chemicals Vs. Union of India & Ors. [Transferred Case (Civil) No. 66/2018 in TP (Civil) No. 1399/2018]

Constitutional validity of sections 35AA and 35AB introduced by the Banking Regulation (Amendment) Act, 2017 and the RBI circular dated on 12th February, 2018 providing a revised framework for resolution of stressed assets were challenged. While upholding constitutional validity of the said sections, the SC observed that section 35AA enables the Central Government to authorise the RBI to issue directions to initiate CIRP in respect of ‘a default’. Therefore, what is important is that it is a particular default of a particular debtor that is the subject matter of section 35AA. The exercise of this power requires due deliberation and care and hence refer to specific defaults. Any direction, as provided in the circular, which are in respect of debtors in general is ultra vires section 35AA. Consequently, the circular and all actions taken under the said circular, including actions by which the Code has been triggered, fall along with the said circular. As a result, all cases where debtors have been proceeded against by FCs under section 7 of the Code, only because of the operation of the impugned circular, are non-est.

High Courts

The Deputy Director Directorate of Enforcement Delhi Vs. Axis Bank & Ors. [Crl. A. 143/2018]

The High Court (HC) considered the issue relating to confiscation of property acquired by a person through proceeds of crime under the Prevention of Money Laundering Act, 2002 (PMLA) against the lawful claim of the third party. It held:

(a) The objective of PMLA being distinct from the purposes of the RDBA, SARFAESI, and the Code, the latter three legislations do not prevail over the former.

(b) The PMLA, RDBA, SARFAESI and the Code (or such other laws) must co-exist, each to be construed and enforced in harmony, without one being in derogation of the other with regard to the assets in respect of which there is material available to show the same to have been “derived or obtained” as a result of “criminal activity relating to a scheduled offence” and consequently being “proceeds of crime”, within the mischief of PMLA.

(c) An order of attachment under PMLA is not illegal only because a secured creditor has a prior secured interest (charge) in the property, within the meaning of RDBA and SARFAESI. Similarly, mere issuance of an order of attachment under PMLA does not ipso facto render illegal a prior charge or encumbrance of a secured creditor, the claim of the latter for release (or restoration) from PMLA attachment being dependent on its bona fides.

(d) A party, in order to be considered as a “bonafide third party claimant” for its claim in a property being subjected to attachment under PMLA to be entertained, must show, by cogent evidence, that it had acquired interest in such property lawfully and for adequate consideration, the party itself not being privy to, or complicit in, the offence of money-laundering, and that it has made all compliances with the existing law including, if so required, by having the said security interest registered.

(e) If the order confirming the attachment has attained finality, or if the order of confiscation has been passed, or if the trial of a case under section 4 of PMLA has commenced, the claim of a party asserting to have acted bonafide or having legitimate interest will be inquired into and adjudicated upon only by the special court.

Amira Pure Foods Pvt. Ltd. Vs. Canara Bank & Ors. [WP(C) No. 5467/2019]

The DRAT had, vide its order dated 15th November, 2018, appointed two Joint Court Commissioners to take over the properties of the CD. Soon after CIRP of the CD commenced, the IRP approached DRAT for taking over the properties of the CD. The DRAT took the view that in view of the moratorium under section 14 of the Code, the continuation of proceeding against the CD is prohibited and therefore, the relief sought by IRP cannot be granted. The IRP submitted before the HC that moratorium prohibits proceedings against the CD and not the proceedings which are not against the CD. The HC observed: “…the DRAT was not powerless to modify its own order whereby the two court commissioners had been appointed to take over control of the assets of the petitioner/corporate debtor. In the facts of the case, the learned DRAT should have recalled its order so that the IRP/RP could take over the assets of the corporate debtor in the exercise of its mandate under the Insolvency & Bankruptcy Code, 2016.The HC set aside the order of the DRAT, recalled appointment of two Court Commissioners and permitted the IRP/RP to act under the Code.

National Company Law Appellate Tribunal

Bhavna Sanjay Ruia Vs. Insolvency and Bankruptcy Board of India [CA(AT)(Ins) No. 341/2019]

An appeal was preferred by an IP against an order passed by the Disciplinary Committee of IBBI. While dismissing the appeal, the NCLAT observed that it can entertain an appeal only against an order passed by the AA. No appeal is maintainable against order passed by IBBI, including its Disciplinary Committee. It clarified that the appellant may move before appropriate forum for appropriate relief.

Edelweiss Asset Reconstruction Company Limited Vs. Orissa Manganese and Minerals Limited & Ors. [CA(AT)(Ins) No. 437, 438, 444 & 500/2018]

In this matter, the CD had given guarantee to the appellant. The principal borrower had neither defaulted on payment to the appellant nor the appellant had invoked guarantee. The NCLAT considered the issue whether in such circumstances the appellant can submit a claim in the CIRP of the CD. It held that the claim of the appellant cannot be considered as the debt payable by the CD as on the date of the commencement of CIRP.

Rasiklal S. Mardia Vs. Amar Dye Chem Limited [CA(AT)(Ins)No. 337/2018]

By the impugned order, the AA held that liquidator alone was authorised to file a petition for compromise or arrangement in respect of the company. While setting aside the impugned order, the NCLAT observed that the judgement in the matter of National Steel & General Mills Vs. Official Liquidator makes it quite clear that Liquidator is only an additional person and not exclusive person who can move application under Section 391 of the old Act when the company is in liquidation.

Ms. Anju Agarwal, RP (Shree Bhawani paper Mills Ltd.) Vs. Bombay Stock Exchange & Ors. [CA(AT)(Ins) No. 734/2018]

The AA, vide its order dated 10th September, 2018, held that regulatory authorities are not covered under moratorium under section 14 of the Code. Therefore, SEBI and BSE are not prohibited from taking actions under the SEBI Act and regulations made there under against the CD. The NCLAT observed that section 28A of the SEBI Act, 1992 is inconsistent with section 14 of the Code. It held: “Section 28A of the ‘SEBI Act, 1992’ being inconsistent with Section 14 of the ‘I&B Code’, we hold that Section 14 of the ‘I&B Code’ will prevail over Section 28A of the ‘SEBI Act, 1992’ and ‘Securities Exchange Board of India’ cannot recover any amount including the penalty from the ‘Corporate Debtor’. The ‘Bombay Stock Exchange for the same very reason cannot take any coercive steps against the ‘Corporate Debtor’ nor can threaten the ‘Corporate Debtor’ for suspension of trading of shares.” It reiterated its decision in Maharashtra Seamless Ltd. Vs. Shri Padmanabhan Venkatesh & Ors., that the statutory dues come within the meaning of operational debt and may be claimed but cannot be recovered during the resolution process.

Cooperative Rabobank U.A. Singapore Branch Vs. Mr. Shailendra Ajmera [CA(AT) (Ins) No. 261/2018]

Being a holder of Bills of Exchange, the appellant claimed to be an FC, which was rejected by the RP as well as the AA. It submitted before the NCLAT that bill discounting is one of the modes of raising finance, a bill of exchange is an independent contract under the Negotiable Instruments Act, 1881, and time value of money is inherent in a bill. While dismissing appeal, the NCLAT noted that under section 5(20) of the Code, an OC is not only a person to

whom an operational debt is owed but also a person to whom such operational debt is assigned. It held: “…. it is clear that an ‘Operational Creditor’, who has assigned or legally transferred any ‘Operational Debt’ to a ‘Financial Creditor’, the assignee or transferee shall be considered as an ‘Operational Creditor’ to the extent of such assignment or legal transfer.” 

Mr. Bohar Singh Dhillon Vs. Mr. Rohit Sehgal (IRP) & Ors. [CA(AT)(Ins) No. 665/2018]

In this matter, the CD had collected money under unauthorised collective investment scheme. SEBI took action against the CD and attached its immovable properties. The issue for consideration was whether, in such circumstances, an application under section 7 of the Code is maintainable. The NCLAT held that application under section 7 is maintainable and till the period of moratorium, SEBI can neither recover any amount nor sell the assets of the CD. It, however, observed: “the ‘Resolution Professional’ is required to act in terms of Section 17(2) (e) of the ‘I&B Code’ for complying with the

requirements under the ‘Securities and Exchange Board of India Act’ and Regulations framed thereunder as well as the guidelines issued by the Regulatory Authority. It is also made clear that the ‘Securities and Exchange Board of India’ is however entitled to take action against individuals including the former Directors and Shareholders of the ‘Corporate Debtor’.”

Superna Dhawan & Anr. Vs. Bharati Defence and Infrastructure Ltd. & Ors. [CA(AT)(Ins) No. 195/2019]

An appeal was filed against the liquidation order of CD passed by AA. While dismissing the appeal against the impugned order, the NCLAT observed: “The Adjudicating Authority rightly observed that the ‘Resolution Plan’ should be planned for ‘Insolvency Resolution’ of the ‘Corporate Debtor’ as a going concern and not for addition of value with intent to sell the ‘Corporate Debtor’. The purpose to take up the company with intent to sell the ‘Corporate Debtor’ is against the basic object of the ‘I&B Code’.”

Prasad Gempex Vs. Star Agro Marine Exports Pvt. Ltd. & Anr. [CA(AT)(Ins) 469/2019]

While approving the resolution plan, the AA directed that all proceedings in the matter, whether civil or criminal, present or future, shall stand withdrawn and dismissed. While setting aside this direction of AA, the NCLAT held: “the Adjudicating Authority has no jurisdiction to pass any order with regard to any matter pending before the Court of criminal jurisdiction.”.

Ingen Capital Group LLC. Vs. Ramkumar S. V. & Anr. [CA (AT) (Ins) No. 795 of 2018]

The NCLAT noted that the Appellant was not in a mood to implement the resolution plan which was approved by the CoC and the AA. It directed the Central Government to take appropriate steps against appellant and its Managing Director and other Directors who tried to take advantage of the resolution process but later on failed to implement its proposal without any basis. It dismissed the appeal with a cost of Rs.I0 lakh to be paid by the Appellant in favour of the CoC within thirty days.

RMS Employees Welfare Trust Vs. Anil Goel [CA(AT)(Ins) No. 699/2018]

While approving the resolution plan, the AA noted that the resolution plan did not envisage any payment towards Government dues. It, however, observed that waiver of Government dues may be considered by the respective Government department. The NCLAT held: “The debt of the Central Government or the State Government arising out of the existing law being ‘Operational Debt’, the question of asking for waiver does not arise as per the ‘Resolution Applicant’ to decide how much to be paid to the Central Government or the State Government against the ‘Operational Debt’ (Income Tax or G.S.T or any other statutory debt), which should not be less than the amount to be paid to the ‘Operational Creditors’ in the event of a liquidation of the ‘Corporate Debtor’ under Section 53.”.

Industrial Services Vs. Burn Standard Company Ltd. & Anr. [CA(AT)(Ins) No. 141, 142, 179 & 208/2018]

The Appellants challenged the order passed by the AA approving a resolution plan submitted by the corporate applicant. The said plan did not provide for revival of the CD but its  closure and retrenchment of all the workmen. The NCLAT held: “…the ‘Resolution Plan’ is against the object of the Code and the application under Section 10 was filed with intent of closure of the ‘Corporate Debtor’ for a purpose other than for the resolution of insolvency, or liquidation, we hold that the part of the ‘Resolution Plan’ which relates to closure of the ‘Corporate Debtor’/’Corporate Applicant’ being against the scope and intent of the ‘I&B Code’ is in violation of Section 30(2)(e) of the ‘I&B Code’.” It directed the CD to ensure that the company remains a going concern and employees are not retrenched.

IDBI Bank Limited Vs. Mr. Anuj Jain, IRP, Jaypee Infratech Ltd. and Anr. [IA No. 1857 of 2019 in CA(AT)(Ins) No. 536/2019]

The NCLAT reiterated: “We make it clear that if any of the ‘Financial Creditor’ remains absent from voting, their voting percentage should not be counted for the purpose of counting the voting shares, as held by this Appellate Tribunal in ‘Tata Steel Ltd. vs. Liberty House Group Pte. Limited & Ors.”.

Jagmeet Singh Sabharwal & Ors. Vs. Rubber Product Ltd. & Ors. [CA(AT)(Ins) No. 405/2019]

The NCLAT held that the resolution applicant is required to provide the same treatment to all the OCs, who are equally situated. It observed:

“7. From the definition of the ‘Operational Debt’ it is clear that there are 3 types of’Operational Creditors’, namely: –

(i) Those who supplied goods and/or rendering services to the ‘Corporate Debtor’;

(ii) Employees of the ‘Corporate Debtor’; and

(iii) The debt payable under the existing law to the Central Government or State Government or local authority.

The ‘Operational Creditors’ who were supplying goods or rendered services including employees are investing money for keeping the company operational. Employees are also working to keep the company operational, therefore, they are class in themselves.

8. On the other hand, the Central Government or State Government, they do not invest any money nor render any services but derive advantage of operation by claiming of the debt on the basis of the existing law (statutory debt). Therefore, classification is made between – (i) those ‘Operational Creditors’ who were employees; (ii) those who were suppliers of goods or rendering services by investing money and (iii)  the Central Government or State Government or local authority, who only claim the statutory debt. Resolution plan cannot be arbitrary or discriminatory amongst class of such ‘Operational Creditors’. Only the same treatment is to be made.”.

Commissioner of Customs, (Preventive) West Bengal Vs. Ram Swarup Industries Ltd. & Ors. [CA(AT)(Ins) No. 563/2018]

The Commissioner of Customs filed appeal against order of AA which allowed removal of certain machineries of the CD which were in the custody of the customs authorities. The NCLAT observed: “As we have seen that the ownership rights of the machineries, in question, is of the ‘Corporate Debtor’ and not of a third party, explanation below Section 18 (I) (f) & (g) is not applicable. Therefore, the ‘Resolution Professional’ has right to take control and custody of any asset, though the Customs Authority is in possession of the same for the present”. It held: “.. during the period of’Moratorium’, the assets of the ‘Corporate Debtor’ cannot be alienated, transferred or sold to a third party.”

A.J. Agrochem Vs. Duncans Industries Ltd. [CA(AT)(Ins) No. 710/2018]

The AA, vide its order dated 5th October, 2018, rejected an application under section 9 on the ground that the provisions of the Code are not applicable unless the OC seeks consent of the Central Government, in view of section 16G(1)(c) of the Tea Act, 1953, which provides that no proceeding for winding up can be initiated except with the consent of the Central Government. The NCLAT noted that section 16G(1)(c) of the Tea Act, 1953 relates to winding up, while section 9 of the Code is for revival and continuation of the CD. Therefore, these provisions occupy different fields. The NCLAT noted that no permission of the Central Government is required for initiation of CIRP of the CD and allowed the appeal.

Committee of Creditors of Bhushan Power and Steel Limited Vs. Mahendra Kumar Khandelwal [CA(AT)(Ins) No. 562/2019]

The appellant submitted that the HC has issued certain orders directing the AA to follow certain procedure, by giving reference to the decision of the SC and holding that any order passed by the AA, which are in contravention, contradiction or derogation of the directions of the SC should not be taken into consideration. The NCLAT observed: “The Hon’ble High Court has jurisdiction under Article 226 of the Constitution of India and has also supervisory jurisdiction under Article 227 of the Constitution of India. We are not expressing any opinion as to whether they have the supervisory jurisdiction over all the Tribunals or not, but it is not clear as to how the Punjab and Haryana High Court can pass an order, which has no territorial jurisdiction over Delhi, where Principal Bench of National Company Law Tribunal, New Delhi is situated, who is considering the matter.“. It advised the AA to decide the case on merits in accordance with law and uninfluenced by any order except the decision of the NCLAT and the SC.

Bhasin Infotech and Infrastructure Pvt. Ltd. Vs. Gurpreet Singh [CA(AT)(Ins) No. 491/2018]

The appeal was preferred by the CD against order dated 10th August, 2018 passed by the AA directing the appellant to pay a lump sum fee of Rs.5 lakh to the IRP within a week. The CD challenged the impugned order on the ground that the said fee fixed by the AA for

performing duty for 27 days was excessive and arbitrary. The NCLAT noted that the appellant (FC) had not fixed the expenses to be incurred by the IRP. In such cases, as per sub-regulation (2) of regulation 33, the AA was required to fix the expenses, which includes the fee to be paid to the IRP and other expenses. It also noted that given that the IRP has performed duty only for 27 days, Rs.5 lakh allowed by the AA is excessive. It observed that an insolvency professional entity is not eligible or entitled to receive any fees or any cut or commission from the fees of the IRP. It allowed a fee of Rs.1.5 lakh to the IRP for his service for 27 days.

Dhinal Shah Vs. Bharati Defence Infrastructure Ltd. & Anr. [CA(AT)(Ins) No. 175/2019]

In its order dated 14th January, 2019, the AA had made certain adverse observations against the RP. NCLAT observed: “we find that the adverse observations were made against the  Ex-Resolution Professional-‘Dhinal Shah’ without issuing individual notice to him. In essence, no notice was issued to him to reply as to why adverse observations be not passed against him for any act of omission or commission. We are of the view that without such notice and without impleading Resolution Professional by name, the Adjudicating Authority was not competent to make any observation against the Resolution Professional. If there was any lapse on the part of Resolution Professional which has come to the notice of the Adjudicating Authority, he should have referred the matter to the Insolvency and Bankruptcy Board of India’ (IBBI) for taking appropriate action in accordance with law, which is the competent authority to take any action, after seeking explanation from the Resolution Professional.” Accordingly, it set aside the part of the impugned order as regards adverse observations against the RP.

M/s. Commune Properties India Pvt. Ltd. & Ors. Vs. Smt. Ramanathan Bhuvaneshwari & Ors. [CA(AT)(Ins)No. 592/2019]

The NCLAT allowed the appellant to implead the MCA and the IBBI to decide the following issues:

(a) Who is the person, whether the Adjudicating Authority or the Resolution Professional, is required to refer the matter to the Central Government or the IBBI to take action for alleged offence punishable under Chapter VII of Part II of the Code?

(b) Whether the accused alleged to have committed punishable offence under Chapter VII of Part II of the Code is required to be heard for making out a prima facie case by following similar procedure as prescribed under section 213 of the Companies Act, 2013 and the procedure under section 424 of the Companies Act, 2013 before referring the matter to the Central Government or the IBBI?

Sunil Jain Vs. Punjab National Bank & Ors. [CA (AT) (Ins) No. 156/2018]

The NCLAT held:

(a) Where the AA has approved a resolution plan that provides for taking over the shares of the promoters, it is not required to comply with the provisions of sections 56 and 57 of the Companies Act, 2013, which, being a formality, can be completed even after the approval of the resolution plan, at the stage of its implementation.

(b) If goods have been supplied during the CIRP period to keep the CD as a going concern, it is the duty of the RP to include costs on such goods in the Insolvency Resolution Process Cost. If it is not included, the resolution plan in question can be held to be in violation of section 30(2) (a) of the Code.

Varrsana Ispat Limited  Vs. Deputy Director, Directorate of Enforcement [CA (AT) (Ins) No. 493/2018]

The NCLAT held:

(a) Section 14 of the Code is not applicable to the criminal proceeding or any penal action taken pursuant to the criminal proceeding or any act having essence of crime or crime proceeds.

(b) The offence of money-laundering is punishable with rigorous imprisonment. It has nothing to do with the CD. It is applicable to the individual, who may include the ex-directors and shareholders of the CD and such individual cannot take any advantage of section 14 of the Code.

(c) As the Prevention of Money Laundering Act, 2002 relates to different fields of penal action of ‘proceeds of crime’, it invokes simultaneously with the Code, having no overriding effect of one Act over the other.

Damont Developers Pvt. Ltd. Vs. Bank of Baroda & Anr. [CA (AT) (Ins) No. 436-437/2019]

The AA by impugned order dated 4th February, 2019 rejected the impleadment application filed by the Appellant. While dismissing appeal, the NCLAT held: “Except the Corporate Debtor, no other party has right to intervene at the stage of admission of a petition under Section 7 or 9. However, an aggrieved party may prefer an appeal if the order of admission affects the person.”

National Company Law Tribunal

Bharti Airtel Limited & Anr. Vs. Vijaykumar V. Iyer [MA 230/2019 in CP No. 302/IBC/NCLT/MB/MAH/2018]

Bharti Airtel Ltd. and Bharti Hexacom Ltd. (Airtel entities) had entered into spectrum trading agreements with Aircel entities for transfer of right to use spectrum in favour of the former for a consideration of Rs.4023 crore.  To facilitate approval of DoT for the spectrum trading agreement, the parties entered into an understanding to the effect that Airtel entities will submit a bank guarantee of Rs.454 crore to DoT on behalf of Aircel entities, by retaining the said amount from the consideration of Rs.4023 crore. Under other arrangements / transactions, Aircel entities owed Rs.112 crore to Airtel entities.

The CIRP of Aircel Limited and Dishnet Wireless Ltd. (Aircel entities) commenced vide orders dated 12th March, 2018 and 19th March, 2018 respectively. The spectrum trading agreement went into problems, leading to an order of the TDSAT canceling the bank guarantee, which was confirmed by the Supreme court. Thus, the amount which was retained by Airtel towards bank guarantee became payable to Aircel. Airtel entities released Rs.342 crore after retaining Rs.112 crore, out of the bank guarantee amount of Rs.454 crore. The issue for consideration under section 60(5) of the Code was whether Airtel entities, who are ocp of Aircel entities, can set off the amount due to them, after moratorium, and pay the balance to the CD, as it may amount to the OC recovering its dues by jumping the queue of other creditors. The AA observed that the doctrine of set off or the accounting principle of netting off is an accepted principle to be adopted by the concerned parties. It noted that the amount of claim in Form B in CIRP Regulations is not the gross amount to be furnished by OC but only the amount after set off against respective claims. Therefore, Airtel’s claim is in order. It is entitled to set off the amount due while making a payment of the amount retained out of total consideration as per agreement.

Asset Reconstruction Company (India) Ltd. Vs. Shivam Water Treaters Pvt. Ltd. [CP(IB) 1882/MB/2018]

While considering the status report of RP, the AA noted that Mr. Gaurav Dave, Mrs. Ami Dave, Ex-directors and Mr. Vishal Dave, Business Head and Statutory Auditor of the CD had not provided any information pertaining to the assets, finance and operations of the CD and not extended their cooperation to the RP for taking control and custody of the CD, despite its directions under section 19 of the Code. Therefore, the AA imposed a penalty of Rs.10 lakh, under section 70 of the Code, on each of them, with direction to pay the same before the next date of hearing. It also directed that the Bank Accounts in the name of these persons, whether in the name of the individual or in the name of joint account in any Bank in India be frozen, with immediate effect.

Videocon Industries Ltd. Vs. State Bank of India & Ors. [MA 1300/2018 in CP(IB)-02/(MB)/2018]

The RP filed an application against a notice issued by the UoI demanding 100% of sale proceeds invoices in favour of the Government for recovery of US$314 million together with interest towards unpaid Government share of ‘Profit Petroleum’. The UoI contended that ‘Profit Petroleum’ is an asset of the Government, and out of the ambit of section 14 of the Code, and, therefore, the moratorium is not applicable in recovering its own asset. While holding that moratorium is applicable, the AA observed: “At the most, the Ministry of Petroleum can lodge its claim of any legally enforceable right of recovery to the appointed Resolution Professional, being not rendered remediless, as prescribed under The Code.”.

Yog Industries Limited [MA 1098/2018 in CP No.82/ IBC/NCLT/MB/MAH/2017]

The liquidator rejected the claim of an OC which was not filed before the due date. The OC filed an application before AA for condoning the delay in submission of claim and seeking directions against the liquidator for admitting and verifying the applicant’s claim. Referring to section 42 of the Code which enables a creditor to approach the AA and rules 177 and 178 of the Companies (Court) Rules, 1959, which allows a creditor to apply to the Court for relief, AA observed that the liquidation proceedings are yet to be finalised in the matter, no prejudice would be caused if the claim of the applicant is adjudicated and admitted. It condomed the delay in submission of the claim by the applicant and directed the liquidator to consider the claim.

SBI Global Factors Ltd. Vs. Sanaa Syntex Private Limited [MA 1123/2018 in CP No. 172/IBC/NCLT/MB/MAH/2017]

The AA dealt a few issues as under:

(a) Whether a secured FC is legally entitled to stay out of liquidation? The AA held:“…it is an undisputed assertion that the secured creditor’s rights have to be protected and respected. They must have the choice of taking their collateral and selling it on their own. Hence, the first question with respect to the secured creditor opting out of the liquidation estate, stands answered in affirmative.”

(b) Whether section 29A is applicable to liquidation proceedings in a situation when the secured creditor realises the security interest on its own? The AA held: “The defaulters disqualified U/s 29A should not get any benefit under this code. This is a clear message conveyed through S. 29A. A defaulter must not be benefitted by entering into those very assets through side doors, otherwise not permitted to enter from the front doors, for e.g.  by submission of resolution plan. Therefore, it is logical as well as legally justifiable to extend the scope of S. 29A while dealing with the liquidation of the assets a debtor company.” It observed: “This verdict of the Hon’ble Supreme Court has strictly dealt with the defaulters and therefore held that the provisions of S.29A continues to apply not merely to Resolution Applicants but to Liquidation also. S.52, therefore, is not out of Chapter III i.e. Liquidation Process, but within this chapter, hence ought to apply to the secured Financial Creditors if they exercise their option to liquidate an asset independently.

(c) Whether the secured creditor exercising his right under section 52(1)(b) of the Code has to make payment of workmen’s dues out of the amount realised from the sale of such secured assets as the EPF/workmen’s dues, which do not form part of the liquidation estate? The AA further observed: “the EPF dues are not being treated as the assets to be covered in the liquidation estate, however, the same are the liability of the Corporate Debtor which has to be paid by the liquidator as per S. 53 of the Code, and not by the secured creditor out of the proceeds from the sale of secured assets if exercised their option U/s 52(I)(b) of the Code. Hence, this prayer of the applicant is rejected on above findings. Question (iii) is answered in negative.”

M/s Rana Saria Poly Pack Pvt. Ltd. Vs. Uniword sugars Pvt. Ltd. [CA No. 146/2019 in CP No. (IB) 120/ALD/2017]

The RP filed an application seeking permission for the CoC to conduct further meeting to discuss and decide the urgent agenda, although the period of CIRP 270 days is already over and the application filed for liquidation order was still under consideration of the AA. The AA held the prima facie view that RP has not been discharged and hence, CoC cannot be treated to be a functus officio until a formal order of liquidation passed. Therefore, the RP and CoC may continue with the CIRP to safeguard the interest of the CD.

S. Muthuraju Vs. Commissioner of Police and Another [MA/504/2019 in CP /288/IB/2018]

A group of persons / mob threatened the liquidator with weapons and prevented him to enter the premised of CD, while he was performing his duties in pursuance of section 35 of the Code. The AA directed the Superintendent of Police to give adequate police protection to the liquidator to enable him to perform his duties.

Southern Investments Pvt. Ltd. [MA/330/2019 in CP/ 202/2018]

The applicant filed an application under section 60(5)(c) of the Code seeking certain directions to IRP. However, the CIRP had closed by then. The AA held: “.. for invoking provisions of Section 60(5) of the Code, the ‘insolvency resolution’ or ‘liquidation proceedings’ must be continuing against the CD”. It observed that in the instant matter since neither CIRP nor liquidation proceedings were subsisting against the respondent which stood closed and the role of RP was over, the application under section 60(5)(c) was not maintainable.

M/s. SBL Construction Private Limited Vs. M/s. IVRCL Limited [IA No. 403/2018 in CP (IB) No. 294/07/HDB/2017]

The issue before the AA was whether the claim of a party which is based on an arbitral award, against which an appeal was pending, is admissible or not. The AA noted that in view of moratorium in respect of the CD, the said appeal is stalled. It observed that the claim is based on a valid and legally issued award under the

Arbitration and Conciliation Act, 1996 and hence RP is not right in rejecting legally tenable claim of the applicant. Accordingly, it directed he RP to admit the claim, subject to the condition that the claimant submits an irrevocable undertaking to the effect that he will place back the amount in case the appeal relating to arbitration proceeding is decided against his favour.

SREI Infrastructure Finance Ltd. Vs. Sterling SEZ & Infrastructure Ltd. [MA 1181/2019, MA 1245/2019 and MA 250/2019 in C.P. (IB)-405 (MB)/2018]

RP filed an application under section 12A of the Code read with regulation 30A of CIRP Regulations for withdrawal, along with the approval of the CoC. While allowing the application, the AA noted that the members of the suspended Board of Directors are not contactable. In exercise of its powers under the Companies Act, 2013 AA appointed the RP as an Interim Administrator of the CD to run its business, if any, and protect the assets of the CD until the
restored Board of Directors are traceable and they take charge of the company. It prohibited the Interim Administrator from selling any of the assets of the CD or creating any liability. It authorised the FCs with whom the assets of the CD are charged to supervise the functioning of the Interim Administrator and, if necessary, nominate their own directors to constitute Interim Board of Directors, till the original Board of Directors take charge of the company from the Interim Administrator.

M/s Maharaja Theme Parks and Resorts Private Limited [CP/1314/IB/2018]

The CD had given guarantee to an FC for the loans granted to three principal borrowers who are partnership firms / proprietary concerns. The principal borrowers defaulted in repayment and the FC invoked the guarantee. CD failed to honour the guarantee. The FC filed an application for initiation of CIRP of the CD. CD opposed the application on the ground that it had not given guarantee for loans to companies. The issue for consideration before the AA was whether or not a creditor can initiate CIRP against the corporate guarantor when the guarantee is given for the loans granted to non-companies. The AA observed that the definition in section 5(5A) of the Code does not exclude the corporate guarantee given by a company to an individual. It held: “.. it makes no difference as to whether the Corporate Person stood as guarantor to an individual or a Corporate Person, and as so long as the obligation in respect of a claim is due from a Corporate Person falling within the definition of Financial Debt, then it is obvious that the Creditor can proceed under section 7 of the code against such Corporate Person, ..”.

Parabolic Drugs Ltd. [CA 206/2019 in CP (IB)-102/CHD/2018]

The applicant sought permission to lift the raw materials belonging to him, but in the possession of the CD, which is under control of the RP. It was argued that an asset owned by a third party but in possession of the CD which is held under a trust or under a contractual arrangement is out of the clutches of the provisions of 18(1)(f) as well as section 14 of the Code. The AA held that the applicant is entitled to take back the property from the possession of the RP.

V Hotels Limited [MA 693/2018 in CP No. 532/IBC/ NCLT/ MB/MAH/2018]

The HC had restrained from initiating any coercive steps against the CD. The issue before the AA was whether initiation of CIRP by filing an application before the AA amounts to a coercive step against the CD. The AA held that the Code is not a coercive measure for the CD but for the defaulting management. It observed: “…What is sought to be achieved in the code is not shutting down of the Corporate Debtor, but reviving it by ousting the defaulter promoter/directors who were in control and management of the company, which took it down on its knees.”.

Reliance Commercial Finance Limited Vs. Noble Resourcing Business and Solution Pvt. Ltd. [114(IB)-494(PB)/2017]

In a meeting of the CoC, a decision was taken that the expenses on CIRP shall be shared by the FCs proportionately. However, one of the FCs did not agree to that. After hearing the parties, the AA observed: ” … we are of the view that for effective continuation of the Corporate Insolvency Resolution Process, the financial creditor constituting the CoC has to contribute to the expenses, fee and other cost of the process. Otherwise, the whole process would come to a halt and cause unnecessary delay. If the financial creditor like Intec Capital Limited-non applicant is not inclined to contribute to the cost of the process, then we are doubtful as to how their claim could be considered in the whole process. Accordingly, we direct the non-applicant – respondent to contribute proportionately to the extent of 42.78% to the running CIRP cost as approved by CoC. If the non-applicant-respondent fails to contribute, then their claim in the CIR Process would not be considered.”.

IFCI Limited V. Era Housing & Developers (India) Ltd. [CA-69(PB)/2019 in (IB)-489(PB)/2017]

The RP filed an application for direction to an FC to defray its portion of the approved CIRP expenses. The AA observed that refusal to share CIRP expenses is unsustainable. It held: “…the decision of the CoC taken by requisite majority cannot be questioned by non-applicant respondent and no one is permitted to strangulate the CIRP Process by refusing to contribute their share of expenses by putting forward one excuse or the other.”

M/s. Ranajit Das & Ors. [(IB)-334(ND)2018]

The AA noted that despite issuance of the notice to Regional Manager of UPSIDC, none appeared and hence there has been a willful defiance of its directions. In order to secure his presence, it directed: “Bailable warrants in the sum of Rs.20,000/- be issued…”.

Everwin Textile Mills Pvt. Ltd. [MA/347/2019 in CP/422/ IB/2018]

The RP submitted that the applicants are barred under section 29A of the Code as CD is not an MSME. The AA observed: “In view of the Certificate of Micro, Small & Medium Enterprises that has been issued by the Ministry of Micro, Small & Medium Enterprises to the Corporate Debtor, there can be no valid objection to state that the CD is not MSME.” Therefore, clauses (c) and (h) of section 29A are not applicable to the CD.

M/s Tiffins Barytes Asbestos & Paints Limited [MA/632/2018 in CP/39/2018]

The issue for consideration was whether order passed for termination of mining lease violates the moratorium? The AA observed: “…The termination of the lease by the Respondents during the moratorium has taken away the interest created in favour of the Corporate Debtor/ Applicant in relation to the mining operations which certainly has resulted in taking away the property i.e., Iron ore to be extracted / already extracted in the mining area by the Corporate Debtor/ Applicant. Consequently, the Corporate Debtor / Applicant cannot carry on mining business as a going concern which frustrates the object of the CIR Process and there may not be any occasion for the CoC to consider any Resolution Plan, as no Resolution Applicant would come forward for revival of the business of the Corporate Debtor / Applicant due to the termination of lease.” It held that the action of the respondents in terminating the lease during moratorium is in violation of section 14(1)(d) as the interest created in favour of CD by virtue of the lease on which whole of the business was dependent, and declared the order of termination as null and void.

Reid and Taylor India Limited [M.A. 1392/2019 in CP No. 382/IB/MB/MAH/2018]

The AA dealt with two issues as under:

(a) Whether the applicant is entitled to realise their security interest in the manner specified under section 52(1)(b) read with regulation 37 of the IBBI (Liquidation process) Regulations, 2016? The AA held: “…only the first charge holder/the secured creditor with first pari-passu charge can stay outside the liquidation process by the Liquidator and realize his security interest in the manner provided under the above provisions of law…”.

(b) Whether the AA has jurisdiction to determine the issue of disputed question of fact as to who the first charge holder is? The AA held: “…in this particular case documents speak for themselves. There is not a single document which raises even an iota of doubt as to the question who the first charge holder is. When the entire documents are in favor of then Applicant, excepting a frivolous/untenable claim by the Edelweiss on the issue of first charge does not create a bar on this Tribunal to decide the issue as to who is the first charge holder on the basis of un-contradictable/ undisputable documentation.”

Deccan Chronicle Holdings Ltd. [IAs in CP(IB) No. 41/7/HDB/2017]

The issue for consideration was whether FCs holding security interest over the assets of the CD being given a higher amount in resolution plan than those who are not holding the security interest or holding security interest which is lower in value, is discriminatory or not. The AA held: “It is very clear from the proceedings that Financial Creditor holding security interest over the assets of Corporate Debtor were given higher amount from out of the Resolution Fund than those who are not holding the security interest or holding security interest which is lower in value. This grouping of Financial Creditors does not amount to any discrimination. The creditors who are having valuable assets are to be given higher percentage from out of the Resolution fund than those who are holding less value of the assets…”.

Precision Fasteners Ltd. [MA 1007/2018, MA 751/2019 in CP No. (IB)1339(MB)/2017]

The liquidator filed an application seeking possession of the flats. The respondent claimed that he had possession of the flat based on a letter issued by the CD. The AA noted that the said letter cannot be treated as valid document whereby the alleged property has been transferred to respondent. It ordered the respondent to vacate the flat and hand over the same to liquidator, failing which liquidator would be entitled to get the possession in accordance with law with the help of police.

IDBI Bank Limited Vs. Jaypee Infratech Ltd. [CAs in CP No. (IB) 77/ALD/2017]

The Reference Bench of the AA held as under:

(a) the CoC, taking into consideration section 21(2) of the Code, shall comprise of all FCs and must be construed as one and cannot be segmented class wise particularly for the purpose of computation of voting share;

(b) the voting share as are prescribed and required to be achieved under the respective provisions of the Code are mandatory in nature and cannot be held to be directory; and

(c) For the computation of voting share required to be achieved as prescribed in the Code, class wise voting of FCs, be it home buyers or lenders or otherwise and to treat the majority vote of that particular class in relation to a resolution, particularly by adding the voting share of those FCs who had abstained, as the will and vote of the entire class in the COC cannot be accepted.

M/s Empee Distilleries Limited [MA/496/20 1 9 in CP/280/IB/2018]

An application under section 60(5) was filed by the promoter-director of the CD on the ground that the issue of limitation was not raised at the time of admission of the application. The AA observed that after admission, it becomes functus officio and cannot rotate clock back, therefore, does not have review power. It held: “As to review jurisdiction is concerned, it is a statutory right that is given to the Court, therefore, Court especially the Adjudicating Authority cannot assume or appropriate jurisdiction which has not been explicitly provided under the Code. For review jurisdiction not being given, section 60(5) of the Code cannot be read as the provision providing review jurisdiction to this Bench. Therefore, we are of the view that this application is bereft of any jurisdiction.”.

State Bank of India Vs. Jet Airways (India) Ltd. [CP2205(IB)/MB/2019]

Application for initiation of CIRP of the CD for non-repayment of various credit facilities provided to it was admitted. During the hearing, it was submitted that insolvency proceeding had already been initiated against the CD by a foreign court. Mr. R. Mulder, Administrator in Bankruptcy of Jet Airways (India) Ltd in Noord Holland District Court filed a written submission in the capacity as Intervenor stating that vide judgement dated 21 st May, 2019, Hon’ble Noord Holland District Court, passed an order of bankruptcy against Jet Airways (India) Limited as per the provisions of Bankruptcy Act prevailing in the Netherlands. While noting that sections 234 and 235 of the Code are yet to be notified, the AA observed: “Therefore, we as the Adjudicating Authority are not empowered to entertain the order passed by the foreign jurisdiction in the case, where the registered office of the Corporate Debtor company is situated in India, and the jurisdiction specifically lies with this court. Therefore, we cannot pass any order to withhold the Insolvency proceedings pending in our court based on the order of insolvency passed by any other jurisdiction, which is not authorised to pass order for the company, which is registered in India and the jurisdiction solely lies with this court.” It clarified that the order of the foreign court is a nullity in the eyes of law and such order cannot be given effect. While admitting the application, the AA directed the IRP to proceed in the matter with immediate effect without being influenced by order of the Noord Holland District Court, Netherland. It advised that every effort should be made by the IRP/RP, and members of CoC to expedite the matter and try to finalise the resolution plan on a fast track mode and they should not wait for the expiry of the statutory period of 180/270 days.

M/s VMS Equipment Pvt. Ltd. Vs. M/s Primrose Infratech Pvt. Ltd. [(IB) 995(ND)/2018]

One IP had received initially consent of 94% of the claimants to act as their authorised representative. However, some of the claimants later on resiled and exercised their vote as NOTA. The AA observed: “We do not find any such right vested with the allottees under the Code. This bench therefore confirms the appointment of Mr. Navneet Arora as the AR to represent the home buyers.”

Rama Subramaniam Vs. M/s Sixth Dimension Projects Solutions Limited [MA No. 1626/2018 in CP(IB)587/ I&BP/ 2018]

The issue before the AA was whether it is open for the CoC to choose any person they like from the list of qualified RPs and appoint them or change them according to their whims and fancies, even when the AA finds a particular IRP as very competent and performing his duties with high integrity without fear or favour. The AA observed: “the COC has no absolute power to change the IRP / RP at their whims and fancies without any valid or tenable reasons. The change of RP must be rational/tenable/reasonable and not at the whims and fancies of the CDC.”

Rohit Ferro Tech Limited [CP (IB) No. 1214/KB/2018]

The AA considered whether SBI initiated proceedings on the basis of RBI circular dated 12th February, 2018 or the proceeding was

August, 2018 clearly indicates that the proceeding was initiated against the CD because there were clear guidelines from the RBI and those contained in its circular dated 12th February, 2018. It held that CIRP was not maintainable in light of judgement of the SC in the matter of Dharani Sugars & Chemicals Ltd Vs UoI & Ors.

Special Court

Insolvency and Bankruptcy Board of India Vs. Liberty House Group Pvt. Ltd. [CNR No. HR GR01-004401-2019) (CIS No. COMA/02/2019)]

IBBI filed a complaint under section 236(2) of the Code against the resolution applicant and its officers for knowingly and willfully

contravening the terms and conditions of the approved resolution plan. The special court took cognizance of the complaint and ordered that the respondents are prima facie liable to be prosecuted for commission of offences punishable under section 74(3) of the Code.

Foreign Courts

In the matter of Jet Airways (India) Limited

The following two foreign proceedings were initiated against the CD as under:

(a) The Noord-Holland District Court, vide its order dated 29th April, 2019, declared Jet Airways (India) Limited to be in a state of bankruptcy and appointed an administrator in bankruptcy. It noted that the CD has its registered office in India. However, it does pursue a profession or business in the Netherlands and has an office at Schipol so that the Court is competent to deal with the bankruptcy petition pursuant to section 2(4) of the Bankruptcy Act. It was prima facie clear from the claims made in the petition that creditors have a right of action and that there are facts and circumstances which show that the debtor is in the condition of having ceased to pay.

(b) The High Court of Justice Business and Property Courts of England and Wales, vide order dated 19th June, 2019 under the Insolvency Act, 1986, upon the petition of HM Revenue and Customs, ordered winding up of the Jet Airways (India) Ltd. It was contended that the company’s main interest is in the United

Kingdom. In the absence of any challenge to that the company’s centre of main interest is elsewhere, the Court accepted this contention.

IBBI

Mr. Sanjay Kumar Ruia, Insolvency Professional (Order dated 17th April 2019)

The Disciplinary Committee (DC) found that Mr. Ruia attempted to charge abnormally high fee in relation to the services. He acted mala fide by seeking increase of his fee after approval of fee by the AA and displayed professional incompetence by using stale information for decision making. The DC also found that Mr. Ruia contracted with the OC, who is not legally competent to appoint RP, to the effect that he would work as RP and he would work for a professional fee of Rs.12.5 lakh per month. This is an attempt to lock in his appointment as RP before the competent authority, that is, CoC is constituted thereby denuding the competent authority of its rights to choose a RP and fix his fees. An agreement with the applicant establishes his collusion, indicating compromise of professional independence. Mr. Ruia failed to provide material called upon by the Inspecting Authority, which amounts to non-cooperation with the Authority and hindrance to the work of the Board. As IRP, he filed applications for initiating CIRP of 14 CDs and proposed to appoint his spouse as IRP of all the 14 CIRPs. He failed to avoid conflict of interest and lacked integrity and independence. The DC observed: “When relationship triumphs over merits in professional matters, there is no place for independence, integrity and impartiality. A professional must be not only be impartial, but also appear to be impartial. Does a professional appear impartial if he gives 15 professional assignments at one go to his spouse? Any conduct, whether explicitly prohibited in the law or not, is unfair if it impinges on independence, integrity and impartiality of an IP or inconsistent with the reputation of the profession.”. It further observed: “It is evident from submission of Mr. Ruia that he is often defending himself on pretexts such as typographical error, wrong reporting, wrong classification, mistake, oversight, failure to provide records, reliance on stale information, etc. It is difficult to grant benefit of doubt to him for all such pretexts. If he is an embodiment of all these pretexts, it is doubtful if Mr. Ruia deserves to continue as an IP.”. The DC suspended registration of Mr. Ruia for two years and directed that Mr. Ruia shall (i) undergo the pre-registration educational course from his IPA, and (ii) work for at least six months as an intern with a senior IP, at any time during the period of suspension, to improve his understanding of the Code and the regulations made thereunder.

Source- The Quarterly Newsletter of the Insolvency and bankruptcy Board of India- April to June 2019

https://ibbi.gov.in/uploads/whatsnew/Final_NewsLeter_April_-_June,_2019.pdf

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