Series 1
Judicial Pronouncements
under
Insolvency and Bankruptcy Code, 2016
Insolvency and Bankruptcy Laws Group under
Corporate Laws & Corporate Governance Committee
and
Indian Institute of Insolvency Professionals of ICAI
The Institute of Chartered Accountants of India
(Set up by an Act of Parliament)
New Delhi
Series 1
Judicial Pronouncements
under
Insolvency and Bankruptcy Code, 2016
Insolvency and Bankruptcy Laws Group under
Corporate Laws & Corporate Governance Committee
and
Indian Institute of Insolvency Professionals of ICAI
The Institute of Chartered Accountants of India
(Set up by an Act of Parliament)
New Delhi
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Published in : July, 2018
Committee/Department : Insolvency and Bankruptcy Laws Group
under Corporate Laws & Corporate
Governance Committee
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August/2018/P2322 (New)
Message
The Insolvency and Bankruptcy Code, 2016 as we all know provides for
insolvency resolution process in a time bound manner. The effective and
timely functioning of the mechanism of insolvency resolution indeed depends
on the institutions involved in the implementation of the law.
This feature of the Insolvency and Bankruptcy Code will facilitate the growth
of society. In case of liquidation as per earlier laws, due to long term
litigations and other factors, protecting the interest of creditors and labourers
was a matter of concern and also due to efflux of time, cost of machinery
goes down and it was sold in scrap. With this Code in place, as there is a
time bound process, the payment of these creditors and labourers is to be
made in priority to others and also one of the aim of this Code is to maximise
the value of assets which will in turn help society to grow.
The Indian Institute of Insolvency Professionals of ICAI (IIIPI), the Insolvency
Professional Agency as formed by The Institute of Chartered Accountants of
India, promotes professional development of its members, who play a key
role in the conduct of the insolvency resolution process. IIIPI is taking various
initiatives towards capacity building of its members.
As more and more Corporates are being admitted into resolution process, the
Code is also evolving to take care of the emerging implementation issues.
The latest development in this direction is the promulgation of the Insolvency
and Bankruptcy Code (Amendment) Ordinance, 2018.
At this juncture, I am very happy that the Insolvency and Bankruptcy Laws
Group under Corporate Laws & Corporate Governance Committee of ICAI
and Indian Institute of Insolvency Professionals of ICAI have taken this joint
initiative of bringing out the first series of the publication "Judicial
Pronouncements under Insolvency and Bankruptcy Code, 2016" to help the
professionals for clear understanding of the Code.
I would like to specially thank the Insolvency and Bankruptcy Laws Group
(under CL & CGC) of ICAI under the Convenorship of CA. Nihar Niranjan
Jambusaria and CA. Ranjeet Kumar Agarwal, Deputy Convenor of the
Insolvency and Bankruptcy Laws Group under CL& CGC and also thank the
members of the Board of IIIPI, Shri I.Y.R.Krishna Rao, Shri M. Damodaran,
Shri Biswamohan Mahapatra, Shri M.D.Mallya for this joint initiative. I would
sincerely thank CA. Naveen N.D.Gupta, CA. Nilesh S. Vikamsey, CA.
Devaraja Reddy M and CA. Dhinal A. Shah- the Directors of IIIPI, for their
guidance and support in this endeavour.
I would like to appreciate the efforts put in by Ms. S. Rita, CA. Sarika Singhal
of the ICAI team and Shri Susanta Sahu of the IIIPI team in putting together
the Judicial pronouncements.
I am confident that this publication would be of immense help to the
professionals and other stakeholders.
Justice Anil R. Dave (Retd.)
Chairman, Indian Institute of Insolvency Professionals of ICAI
Date: 1st July, 2018
Place: New Delhi
Foreword
The implementation of the Insolvency and Bankruptcy Code, 2016 effectively
started with the enforcement of provisions relating to Corporate Insolvency
Resolution Process under the Code in December 2016. In a short span of
one and a half year, the Code has witnessed remarkable growth in terms of
its utilisation in the Indian debt resolution landscape.
With the withdrawal of various Stressed Assets Resolution processes viz.,
CDR, SDR, S4A etc. by the issuance of the Revised Framework by RBI, the
Insolvency and Bankruptcy Code (IBC) now becomes the central mechanism
for Corporate Insolvency Resolution. The number of cases for corporate
insolvency under the Code will rise considerably. Also when the insolvency
framework for Individuals and Firms will be introduced, there will be further
admission of cases under the Code from this sphere also.
The IBC, being a recent legislation, the various Judicial Pronouncements
under the Code are very important resource to understand the various
provisions of the Law.
I congratulate the Insolvency and Bankruptcy Laws Group under Corporate
Laws & Corporate Governance Committee (CL&CGC) and Indian Institute of
Insolvency Professionals of ICAI (IIIPI) in taking this initiative of bringing out
the publication "Judicial Pronouncements under Insolvency and Bankruptcy
Code, 2016" to facilitate professionals to appreciate the aspects of the Code.
I extend my sincere appreciation to the entire Group and specially appreciate
the efforts put in by CA. Nihar Niranjan Jambusaria, Convenor of the
Insolvency and Bankruptcy Laws Group under CL&CGC for initiating this
publication. I put on record my appreciation to CA. Ranjeet Kumar Agarwal,
Deputy Convenor of the Insolvency and Bankruptcy Laws Group under
CL&CGC, CA. Dhinal A Shah, Central Council Member and Director, IIIPI,
CA. K. Sripriya, Central Council Member and Member of the Group and CA.
(Dr.) Debashis Mitra, Chairman, Corporate Laws & Corporate Governance
Committee for bringing out this useful publication.
I am sure that this publication would be of great help to the members and
other stakeholders.
CA. Naveen N.D. Gupta
President ICAI
Director IIIPI
Date:1st July, 2018
Place: New Delhi
Preface
The Insolvency and Bankruptcy Code, 2016 (IBC) is one of the most
important and major economic reforms that took place in the country
recently. We are witnessing the implementation of Insolvency Resolution
Framework as established in the Code, which is focussed on revival of
businesses by resolution process. This will clearly bring the change in the
prospects of both creditors and debtors.
To strengthen the framework, further amendments are being made to the
Code and the Regulations. The Insolvency and Bankruptcy Code
(Amendment) Ordinance, 2017 was promulgated by the President in
November 2017. The Ordinance later got replaced by Insolvency and
Bankruptcy Code (Amendment) Act 2018 in January 2018. Recently
promulgation of the Insolvency and Bankruptcy Code (Amendment)
Ordinance, 2018 took place on 6th June 2018. Some of the Regulations
under the Code have also been amended.
It has been an year now since RBI identified 12 Accounts for Reference by
Banks under IBC. One case out of 12 has been resolved as of now. The
outcome of the other cases are been eagerly awaited by all stakeholders
involved in the proceedings. Besides these, the developments in the other
major cases are also been keenly watched.
Precedents in the form of some complex case laws may help the resolution
of cases in future. So the Judicial Pronouncements are of utmost importance
for the professionals and other stakeholders to understand the various
aspects of the Insolvency and Bankruptcy Law.
The Insolvency and Bankruptcy Laws Group under Corporate Laws &
Corporate Governance Committee (CLCGC), formed by the Institute with a
view to give specific focus on the Insolvency and Bankruptcy Laws, has
taken various initiatives towards creation of awareness and knowledge
dissemination about the new Code and the professional opportunities in this
new area of practice. The Group conducts Intensive training programmes/
webcast for preparation of IBBI Limited Insolvency Examination. The Group
also brings out publications to help members to understand the Code better.
In furtherance of all these initiatives, the Insolvency and Bankruptcy Laws
Group jointly with the Indian Institute of Insolvency Professionals of ICAI
(IIIPI) has decided to bring out a publication on Judicial Pronouncements
under Insolvency and Bankruptcy Code, 2016 in the form of a series. The
Series 1 is being brought out with this publication.
The publication would cover important Case Analysis based on the decisions
by Supreme Court, High Courts, NCLAT and NCLT on issues under the
Code.
We take this opportunity to thank the President of ICAI and Director IIIPI, CA.
Naveen N. D. Gupta and Vice President of ICAI, CA. Prafulla Premsukh
Chhajed for their encouragement and moral support in bringing out the
publication.
We express our sincere gratitude towards the Board of IIIPI comprising of
Hon' ble Mr. Justice Anil R. Dave (Retd.), Chairman of the Board and other
Directors, Shri I.Y.R Krishna Rao, Shri M. Damodaran, Shri Biswamohan
Mahapatra, Shri M.D. Mallya, CA. Nilesh S. Vikamsey, Immediate Past
President, ICAI and CA. M. Devaraja Reddy, Past President, ICAI for joining
in this initiative.
We would like to thank CA. (Dr.) Debashis Mitra, Chairman, Corporate Laws
& Corporate Governance Committee for his support in this initiative. We
would like to place on record our appreciation to all the Group Members for
their support and would like to appreciate the help extended by CA. Dhinal A
Shah, Central Council Member and Director, IIIPI and CA. K. Sripriya,
Central Council Member and Member of the Group in bringing out this
publication.
We would like to thank CA. Snehal Kamdar, CA. Apoorva Bookseller, CA.
Prasad Dharap, CA. Devang P Sampat, CA. Siddharth Mathur, CA. Viral
Doshi, CA. Pravin Navandar and CA. Ankit Sanghavi, for summarising and
analysing the Cases.
Our appreciation to the Group Secretariat and the Committee Secretariat
comprising of Ms. S. Rita, CA. Sarika Singhal, CA. Choshal Patil and to Shri
Susanta Sahu of IIIPI for their contribution and efforts in putting together the
Case Analysis.
We sincerely believe that the members of the profession, industries and
other stakeholders will find the publication immensely helpful.
CA. Nihar Niranjan Jambusaria
Convenor
Insolvency and Bankruptcy Laws Group, CLCGC, ICAI
CA. Ranjeet Kumar Agarwal
Deputy Convenor
Insolvency and Bankruptcy Laws Group, CLCGC, ICAI
Date: 1st July, 2018
Place: New Delhi
Contents
1. Orders passed by Supreme Court of India
S. No Case Page No
1. Chitra Sharma & Ors (Petitioner) Vs. Union of India 1-3
& Ors (Respondent)
2. Neelkanth Township and Construction Pvt Ltd 3-6
(Appellant/ Financial Creditor) Vs. Urban
Infrastructure Trustees Ltd. (Respondent/
Corporate Debtor)
3. Macquarie Bank Limited Vs. Shilpi Cable 6-9
Technologies Ltd.
4. Mobilox Innovations Private Limited 9-14
(Appellant/Corporate Debtor) Vs. Kirusa Software
Private Limited (Respondent/Operational Creditor)
5. M/s. Surendra Trading Company (Appellant) Vs. 15-16
M/s. Juggilal Kamlapat Jute Mills Company Limited
and Others (Respondent)
6. Alchemist Asset Reconstruction Company Ltd 16-18
(Petitioner/ Financial Creditor) Vs. Hotel Gaudavan
Pvt. Ltd. (Respondent/ Corporate Debtor)
7. M/s. Innoventive Industries Ltd. 18-26
(Appellant/Corporate Debtor) Vs. ICICI Bank & Anr.
(Respondents/Financial Creditor)
8. Lokhandwala Kataria Construction Pvt. Ltd. 27-28
(Appellant/Corporate Debtor) Vs. Nisus Finance &
Investment Manager LLP. (Financial Creditor)
9. Shivam Water Treaters Pvt. Ltd. (Petitioner) Vs. 28-28
Union of India (Respondent)
2. Orders passed by High Courts
S. No Case Page No
1. Sree Metaliks Limited and Anr. (Corporate Debtor) 29-31
Vs. Union of India & Anr.
2. Essar Steel India Limited & 1 Petitioner(s) Vs. 32-37
Reserve Bank of India & 3 Respondent(s)
3. Akshay Jhunjhunwala & Anr. Vs. Union of India 37-38
through the Ministry of Corporate Affairs & Ors.
4. Power Grid Corporation of India Ltd (Petitioner) 38-39
Vs. Jyoti Structures Ltd.(Respondent)
3. Orders passed by National Company Law Appellate
Tribunal
S. No Case Page No
1. Gurcharan Singh Soni & Kuldeep Kaur Soni Vs. 40-40
Unitech Ltd.
2. Palogix Infrastructure Private Limited (Appellant 41-44
/Corporate Debtor) Vs. ICICI Bank Limited
(Respondent / Financial Creditor)
3. S3 Electrical & Electronics Pvt. Ltd. (Appellant / 45-46
Corporate Debtor) Vs. Brian Lau (Respondent /
Financial Creditor)
4. Mack Soft Tech Pvt Ltd. (Appellant) Vs Quinn Logisti 46-52
5. Bharti Defence and Infrastructure Limited 53-55
(Appellant) Vs Edelweiss Asset Reconstruction
Company Limited (Respondent)
6. Ravi Mahajan (Appellant) Vs. Sunrise Denmark 55-56
A/S, Denmark (Respondent)
7. Nikhil Mehta and Sons HUF (Appellant) Vs. Amr 57-59
infrastructure ltd. (Respondent)
8. PEC Ltd (Appellant/ Financial Creditor) Vs. Sree 59-62
Ramkrishna Alloys Ltd (Respondent/ Corporate
Debtor)
9. Senthil Kumar Karmegam Vs. Dolphin Offshore 62-63
Enterprises (Mauritius) (P.) Ltd.
10. JK Jute Mills Company Limited (Appellant) Vs 64-66
Surendra Trading Company Limited (Respondent)
11. Kirusa Software Private Ltd. (Appellant/ 66-71
Operational Creditor) Vs. Mobilox Innovations
Private Ltd. (Respondents/ Corporate Debtor)
12. Black Pearl Hotels Pvt. Ltd. (Appellant/Operational 71-72
Creditor) Vs. Planet M Retail Ltd. (Respondent/
Corporate Debtor)
13. M/s. Ksheeraabad Constructions Pvt. Ltd. 72-74
(Appellant/ Corporate Debtor) Vs. M/s. Vijay
Nirman Company Pvt. Ltd. (Respondent/
Operational Creditor)
14. Shriram EPC Limited (Appellant /Corporate 74-76
Debtor) Vs. Rio Glass Solar SA (Respondent /
Operational Creditor)
15. Sobha Limited (Appellant) Vs. Pancard Clubs Ltd 76-77
(Respondent)
16. Philips India Ltd. Vs. Goodwill Hospital & Research 78-78
Centre Ltd. And Karina Healthcare Pvt. Ltd.
17. Ganesh Sponge Pvt. Ltd. (Appellant / Corporate 79-80
Debtor) Vs. Aryan Mining & Trading Corporation
Pvt. Ltd. (Respondent / Operational Creditor)
18. Labdhi Enterprises (Appellant / Operational 81-82
Creditor) Vs. Baramati Agro Pvt. Limited
(Respondent / Corporate Debtor)
19. Paramjeet Singh (Appellant / Corporate Debtor) 82-83
Vs. Maxim Tubes Company Pvt. Ltd (Respondent /
Operational Creditor)
20. Siddharth Nahata Director/ Shareholder of Tryst 83-84
Industries Private Limited. Appellants (appellant /
Corporate Debtor) Vs. Billets Elektro Werke Pvt.
Ltd. (Respondent / Operational Creditor)
21. M/s MCL Global Steel Pvt. Ltd. & Anr. (Appellant / 85-86
Corporate Debtor) Vs. M/s Essar Projects India
Ltd. & Anr. (Respondent / Operational Creditor)
22. Annapurna Infrastructure Pvt. Ltd. (Appellant/ 86-89
Operational Creditor) Vs. Soril Infra Resources
Ltd. (Respondent and Corporate Debtor)
23. Achenbach Buschhutten GMBH & Company 89-91
(Appellant) Vs. Arcotech Limited (Respondent)
24. Raj Hari Eswaran (Appellant) Vs. CMI India (P.) 91-93
Limited & Anr. (Respondents)
25. Paharpur Cooling Towers Limited (Appellant) Vs 93-95
Ankit Metal & Power Limited (Respondent)
26. Antrix Diamond Exports Pvt Ltd (Appellant / 95-97
Corporate Debtor) Vs. Bank of India & Ors
(Respondents/ Financial Creditor)
27. Unigreen Global Private Limited (Appellant 98-100
/Corporate Debtor) Vs Punjab National Bank and
others (Respondents / Financial Creditors)
28. Ameya Laboratories Limited vs. Kotak Mahindra 100-102
Bank, IDBI Bank Ltd. Asset Reconstruction
Company (India) Limited
29. Alpha & Omega Diagnostics (India) Ltd. (Corporate 102-103
Debtor) Vs. Asset Reconstruction Co of India Ltd.
(Respondents)
30. Schweitzer Systemtek India (P.) Ltd. (Appellant) 103-104
Vs. Phoenix ARC Private Limited (Respondent)
31. Quinn Logistics India Private Limited Vs. Mack Soft 105-107
Tech Private Limited
32. Quantum Limited (Corporate Debtor) (Appellant) 107-109
Vs. Indus Finance Corporation Limited
(Respondent)
33. State Bank of India (Appellant /Financial Creditor) 110-112
Vs. V. Ramakrishnan (Respondent / Director of
Corporate Debtor) and M/s. Veesons Energy
Systems Pvt. Ltd. (Respondent / Corporate
Debtor)
34. Dakshin Gujarat VIJ Company Ltd. 112-113
(Applicant/Petitioner) Vs. M/s. ABG Shipyard Ltd.
& Anr. (Respondent)
35. M/s. Innoventive Industries Ltd. 114-121
(Appellant/Corporate Debtor) Vs. ICICI Bank &
Anr. (Respondents/Financial Creditor)
36. M/s. Starlog Enterprises Ltd. (Appellant/Corporate 121-123
Debtor) Vs. ICICI Bank Ltd. (Respondent/Financial
Creditor)
4. Orders passed by National Company Law Tribunal
S. No Case Page No
1. M/s. Edelweiss Asset Reconstruction Co. Ltd. Vs 124-125
M/s. Murli Industries Ltd.
2. Hero FinCorp Ltd. Vs. Steel Konnect (India) Pvt. 125-126
Ltd.
3. State Bank of India / Standard Chartered Bank Vs. 126-133
Essar Steels Ltd. / Essar Steels India Ltd.
4. Edelweiss Asset Reconstruction Co. Ltd Vs. 133-134
Kalptaru Alloys Private Limited
5. ICICI Bank Ltd Vs. Innoventive Industries Ltd 134-136
6. Bank of Baroda Vs. Rotomac Global Pvt. Ltd and 136-137
Rotomac Exports Pvt Ltd
7. Alchemist Asset Reconstruction Co. Limited Vs. 138-138
Moser Baer India Limited
8. Punjab National Bank Vs. Rishi Ganga Power 139-140
Corporation Limited.
9. Parker Hannifin India Pvt. Ltd. (Applicant) Vs. 140-141
Prowess International (P) Ltd.
10. Prideco Commercial Projects Pvt. Ltd. Vs. Era 141-142
Infra Engineering Ltd.
11. Ashok Alco-Chem Ltd (Applicant) Vs. Unimark 142-143
Remedies Ltd.
12. Sanjaya Kumar Ruia Vs. Magna Opus Hospitality 144-145
Pvt. Ltd.
13. M/s. Alcon Laboratories (India) Pvt. Ltd. Vs. M/s. 145-147
Vasan Health Care Pvt. Ltd.
14. M/s. Nowfloats Technologies Pvt. Ltd. (Applicant) 148-149
Vs. M/s. GetitInfo services Pvt. Ltd. (Respondent)
15. Macquarie Bank Ltd.(Applicant) Vs. Shilpi Cable 149-151
Technologies Ltd
16. Annapurna Infrastructure Pvt. Ltd Vs. Soril Infra 151-152
Resources Ltd
17. Macquarie Bank Limited Vs. Uttam Galva 152-154
Metallics Limited
18. Mahendra Trading Co Vs. Hindustan Controls & 154-156
Equipments (P.) Limited
19. M/s. Incredible Unique Buildcon Pvt. Ltd. Vs. M/s. 157-158
Clutch Auto Ltd.
20. M/s. Sky Blue Papers Pvt. Ltd. (Corporate 158-159
Applicant)
21. Union Bank of India Vs. Raman Ispat Pvt. Ltd. 159-160
(Applicant)
22. M/s. Schweitzer Systemtek India Private Limited 160-162
Vs Phoenix ARC Private Limited
23. Punjab National Bank & others Vs. Unigreen 162-164
Global Pvt. Ltd. (Applicant)
24. Alpha & Omega Diagnostics (India) Ltd Vs. Asset 164-165
Reconstruction Co of India Ltd
25. Bank of Baroda Vs. Binani Cement Ltd 165-172
26. Corporation Bank Vs. Amtek Auto Ltd 172-173
27. Punjab National Bank Vs. Bhushan Power & Steel 174-177
Ltd
28. Standard Chartered Bank and State Bank of India 177-181
Vs. Essar Steel India Ltd (Numetal Limited,
Arcellor Mittal India Pvt Ltd)
29. Anshuman Chaturvedi, RP ( Applicant) 181-182
30. Punjab National Bank Vs. Siddhi Vinayak Logistic 182-186
Ltd
Chapter 1
Orders passed by Supreme Court of
India
SECTION-7
CASE NO. 1
Chitra Sharma & Ors (Petitioner)
Vs.
Union of India & Ors (Respondent)
Writ Petition(s)(Civil) No(s).744/2017
Date of order: 11-09-2017
Section 7 Application for Initiation of Corporate InsolvencyResolution
Process by Financial Creditor (IDBI Bank Vs Jaypee Infratech Ltd [JIL])
Facts:
Present case arose from the aforesaid popular case and was part of the said
case wherein the Supreme Court vide its order dated 04.09.2017 has stayed
the order passed by the National Company Law Tribunal, Allahabad. Learned
Attorney General for India appearing for respondent submitted that the order
passed by this Court (SC) on 04.09.2017 needs to be vacated or modified
because the consequence of the stay would be that the Management of
respondent No.3 Jaypee Infratech Ltd. would stand restored. This was not
a consequence intended by this Court. It is urged by him that if the erstwhile
Management of the said company continues, it will affect the rights of the
creditors and the consumers as well.
The court was informed that after the order of stay was passed by this Court,
the Interim Resolution Professional (IRP) has handed over records to
respondent No. 3 Jaypee Infratech Ltd. ("JIL"). It was submitted by learned
Attorney General that some time should be granted to the IRP to formulate at
least a preliminary scheme so that the interest of all stakeholders is
protected. He has also shown his concern for the interest of the home
buyers.
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
The learned Senior Counsel appearing for IDBI Bank Limited (respondent
No.6 in the writ petition) submits that under the statutory scheme, the IRP
has to take over otherwise the letter and spirit of the Act is likely to be
affected.
Learned counsel appearing for the home buyers, in contra, submits that they
belong to the lower and middle income group and have invested life savings
with JIL and with its holding company, Jai Prakash Associates Ltd.("JAL"). It
has been assiduously urged that the investments of flat purchasers are with
JIL and JAL and, therefore, the interest of the purchasers may be protected.
It is also argued that if the IRP is restored, there should be a representative
from the home buyers or this Court may appoint someone on this Committee
of Creditors and espouse the interests of the home buyers.
Decision:
Having heard learned counsel for the parties at length, in modification of the
order dated 04.09.2017, the court has issued the following directions:
a) The IRP shall forthwith take over the Management of JIL. The IRP
shall formulate and submit an Interim Resolution Plan within 45days
before this Court. The Interim Resolution Plan shall make all
necessary provisions to protect the interests of the home buyers;
b) Mr. Shekhar Naphade, learned senior counsel along with Ms.
Shubhangi Tuli, Advocate-on-Record, shall participate in the meetings
of the Committee of Creditors under Section 21 of the Insolvency and
Bankruptcy Code, 2016 to espouse the cause of the home buyers and
protect their interests;
c) The Managing Director and the Directors of JIL and JAL shall not
leave India without the prior permission of this Court;
d) JAL which is not a party to the insolvency proceedings, shall deposit a
sum of Rs.2,000 crores (Rupees two thousand crores) before this
Court on or before 27.10.2017. For the said purpose, if any assets or
property of JAL have to be sold, that should be done after obtaining
prior approval of this Court. Any person who was a Director or
Managing Director of JIL or JAL on the date of the institution of the
insolvency proceedings against JIL as well as the present
Directors/Managing Director shall also not leave the country without
prior permission of this Court. The foregoing restraint shall not apply to
nominee Directors of lending institutions (IDBI/ICICI/SBI);
2
Orders passed by Supreme Court of India
e) All suits and proceeding instituted against JIL shall in terms of Section
14(1)(a) remain stayed as we have directed the IRP to remain in
Management.
CASE NO. 2
Neelkanth Township and Construction Pvt Ltd
(Appellant/ Financial Creditor)
Vs.
Urban Infrastructure Trustees Ltd. (Respondent/ Corporate Debtor)
Civil Appeal no. 10711 of 2017
Date of Order: 23-08-2017
Facts:
The financial creditor was an investor and a debenture holder of `Optionally
Convertible Debenture Bond' payable on maturity which was issued by the
corporate debtor. The zero interest OCD bonds amounted to 1.27 crores,
1.24 crores and 48 crores each and matured as of 25.12.2012, 14.02.2013
and 30.04.2011. The liability to redeem the debentures on maturity along
with a redemption premium lay on the debtor which was not made. In
addition, 98% of the debtor company's funding was through these bonds.
Thus, principal amount claimed is 51 crores.
Initially, a CIRP application was filed by the financial creditor which was
dismissed by the adjudicating authority on the grounds that `default amount'
and `claim amount' are the same and not to be segregated.
Therefore, the present application has been filed by the creditor afresh
rectifying the defects against the debtor before NCLT Mumbai. NCLT
admitted the application declaring moratorium. Aggrieved by the order,
debtor appealed to NCLAT only to get further dismissal.
Contentions by Corporate Debtor (BEFORE NCLT AND NCLAT)
1. The application petition is incomplete since it has not complied with
the requirements u/s 7(3) of IB Code 2016 and record of evidence of default
is not as specified under the Board Regulations under Section 240 of IBC,
2016
3
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
2. Deficiency of stamp duty under S.35 of Indian Stamp Act 1899 will
invalidate the debenture certificates.
3. The 3-year limitation period for seeking remedy for the debenture
certificates is expired since the date of its maturity.
4. The creditor does not have a capacity to file the petition since they do
not come under the meaning of `financial creditor' and only an investor-cum-
shareholder in the company.
5. The application under Section 7 of IBC 2016 is time-barred as the debt
related to years 2011, 2012 and 2013.
6. The `debenture certificate' does not come within the term `financial
debt'.
NCLT Order:
NCLT vide its order dated 25.04.2017 put forth the following explanations for
the arguments of the debtor while admitting the application petition:
The debenture certificates and the balance sheets containing the transaction
details itself is enough and ascertain the overdue on part of the debtor
company.
The Rule 8 of IBBI (Insolvency for Corporate Persons) Rules 2016 is clear in
its words to mean that either one of the following requirements is enough
financial contract having debt claims, financial certificate or annual report
evidencing the default of debt or any court order adjudicating the same debt
claim. Subject to that, the financial statement and annual report of the
debentures produced by the creditor is enough to ascertain the debt.
Since debtor company is a private limited company and for these OCDs
cannot be transferred like in a public company. And further a non-payment
on its maturity takes way its marketable nature and does not require a stamp
duty under the Stamp Act 1899.
Question of time-barred debts is `ex-facie' and therefore such argument is
baseless. It need not be profoundly said that admission appearing in the
financial statement is an acknowledgement covered by S.18 of Limitations
Act. It is `in-rem' in nature and construed as existence of debt. The Limitation
Act does not apply to IB code proceedings.
4
Orders passed by Supreme Court of India
Pendency of arbitration proceedings will not have a bearing in this case.
There is no legal bar to be against the financial creditor and deprive of his
right to file a claim. More funding being made, he is competent to file CIRP
proceedings as a shareholder and a financial creditor
NCLAT Order:
NCLAT dismissed the appeal on the following grounds:
A procedural provision cannot override or affect the substantive obligation of
the adjudicating authority to deal with applications under Section 7 merely on
the ground that Board has not stipulated or framed any regulations with
regard to Section 7(3)(a).
Board has framed `Insolvency Resolution Process for Corporate Persons,
Regulations, 2016' where `Form-c' attached to the regulations relates to proof
of claim and under serial no.10, financial creditor is supposed to submit the
list of documents as given under R.11(2) of the same regulations. Therefore,
the stand that there are no regulations made by the board in case of Section
7(3) (a) cannot be accepted.
There is nothing on record that Limitation Act 1963 is applicable to IB Code
2016 and debtor failed to lay hand as to what provision which suggests such
applicability. IB code does not is not an Act for recovery of claims but relates
to CIRP proceedings. If there is a debt including interest and is in continuing
course of action, the argument that it is time-barred by limitation is baseless.
The arguments relating to `locus-standi' of financial creditor is invalidated by
the terms of `financial creditor' under Section.7. Being a debenture-holder
and shareholder of the company does make the creditor entitled to claim
debt amount.
With the debenture payable, as on the maturity date with interest, it was
disbursed against consideration for the time value of the money. Thus, it
cannot be said that debentures on maturity do not come under that purview
of Section 5(8)(c).
There is a liability to redeeming the debenture amount of 51 crores on part of
the corporate debtor by the provisions of Section 7, Section 5 and Section
3(11) & 3(12) and above grounds.
5
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Subsequent Development
The Corporate Debtor challenged the above judgment of Appellate Authority
before the Hon'ble Supreme Court of India.
1. The Hon'ble Supreme Court dismissed the appeal filed by Corporate
Debtor.
2. However, it observed that the question of law viz. Whether limitation
act is applicable to Insolvency proceedings is left open.
SECTION-8
CASE NO. 3
Macquarie Bank Limited
Vs.
Shilpi Cable Technologies Ltd.
Date of order: 15-12-2017
Sections 8, 9 and 238 of the Insolvency and Bankruptcy Code, 2016 read
with Rule 5 of the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016 read with Section 30 of the
Advocates Act - A fair construction of Section 9(3)(c), in consonance
with the object ought to be achieved by the Code, would lead to the
conclusion that it cannot be construed as a threshold bar or a condition
precedent - The non-obstante clause contained in Section 238 of the
Code will not override the Advocates Act as there is no inconsistency
between Section 9, read with the Adjudicating Authority Rules and
Forms referred to hereinabove, and the Advocates Act - A conjoint
reading of Section 30 of the Advocates Act and Sections 8 and 9 of the
Code together with the Adjudicatory Authority Rules and Forms
thereunder would yield the result that a notice sent on behalf of an
operational creditor by a lawyer would be in order.
The present appeals raise two important questions which arise under the
Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the
"Code"). The first question is whether, in relation to an operational debt, the
provision contained in Section 9(3)(c) of the Code is mandatory; and
secondly, whether a demand notice of an unpaid operational debt can be
issued by a lawyer on behalf of the operational creditor.
6
Orders passed by Supreme Court of India
The Supreme Court held as follows:
The true construction of Section 9(3)(c) is that it is a procedural provision,
which is directory in nature, as the Adjudicatory Authority Rules read with the
Code clearly demonstrate. The Code cannot be construed in a discriminatory
fashion so as to include only those operational creditors who are residents
outside India who happen to bank with financial institutions which may be
included under Section 3(14) of the Code. It is no answer to state that such
person can approach the Central Government to include its foreign banker
under Section 3(14) of the Code, for the Central Government may never do
so. Argument that such persons ought to be left out of the triggering of the
Code against their corporate debtor, despite being operational creditors as
defined, would not sound well with Article 14 of the Constitution, which
applies to all persons including foreigners. Therefore, as the facts of these
cases show, a so called condition precedent impossible of compliance
cannot be put as a threshold bar to the processing of an application under
Section 9 of the Code.
It is true that the expression "initiation" contained in the marginal note to
Section 9 does indicate the drift of the provision, but from such drift, to build
an argument that the expression "initiation" would lead to the conclusion that
Section 9(3) contains mandatory conditions precedent before which the Code
can be triggered is a long shot. Equally, the expression "shall" in Section 9(3)
does not take us much further when it is clear that Section 9(3)(c) becomes
impossible of compliance in cases like the present. It would amount to a
situation wherein serious general inconvenience would be caused to innocent
persons, such as the appellant, without very much furthering the object of the
Act, therefore, Section 9(3)(c) would have to be construed as being directory
in nature.
It is unnecessary to further refer to arguments made on the footing that
Section 7 qua financial creditors has a process which is different from that of
operational creditors under Sections 8 and 9 of the Code. The fact that there
is no requirement of a bank certificate under Section 7 of the Code, as
compared to Section 9, does not take us very much further. The difference
between Sections 7 and 9 has already been noticed by this Court in
Innoventive Industries Ltd. v. ICICI Bank & Anr., Civil Appeal Nos. 8337-8338
of 2017 decided on August 31, 2017. The fact that these differences obtain
under the Code would have no direct bearing on whether Section 9(3)(c).
A fair construction of penal statutes based on purposive as well as literal
interpretation is the correct modern day approach. Any arbitrary
7
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
interpretation, as opposed to fair interpretation, of a statute, keeping the
object of the legislature in mind, would be outside the judicial ken. The task
of a Judge, when he looks at the literal language of the statute as well as the
object and purpose of the statute, is not to interpret the provision as he likes
but is to interpret the provision keeping in mind Parliament's language and
the object that Parliament had in mind. With this caveat, it is clear that judges
are not knight-errants free to roam around in the interpretative world doing as
each Judge likes. They are bound by the text of the statute, together with the
context in which the statute is enacted; and both text and context are
Parliaments', and not what the Judge thinks the statute has been enacted
for. Also, it is clear that for the reasons stated by us above, a fair
construction of Section 9(3)(c), in consonance with the object ought to be
achieved by the Code, would lead to the conclusion that it cannot be
construed as a threshold bar or a condition precedent.
Supreme Court on Notice issued by Lawyer on behalf of Operational
Creditor:
Section 8 of the Code speaks of an operational creditor delivering a demand
notice. It is clear that had the legislature wished to restrict such demand
notice being sent by the operational creditor himself, the expression used
would perhaps have been "issued" and not "delivered". Delivery, therefore,
would postulate that such notice could be made by an authorized agent. In
fact, in Forms 3 and 5 of the Adjudicating Authority Rules, it is clear that this
is the understanding of the draftsman of the Adjudicatory Authority Rules,
because the signature of the person "authorized to act" on behalf of the
operational creditor must be appended to both the demand notice as well as
the application under Section 9 of the Code.
The position further becomes clear that both forms require such authorized
agent to state his position with or in relation to the operational creditor. A
position with the operational creditor would perhaps be a position in the
company or firm of the operational creditor, but the expression "in relation to"
is significant. It is a very wide expression, as has been held in Renusagar
Power Co. Ltd. v. General Electric Co., (1984) 4 SCC 679 at 704 and State
of Karnataka v. Azad Coach Builders (P) Ltd.(2010) 9 SCC 524 at 535, which
specifically includes a position which is outside or indirectly related to the
operational creditor. It is clear, therefore, that both the expression
"authorized to act" and "position in relation to the operational creditor" go to
show that an authorized agent or a lawyer acting on behalf of his client is
included within the aforesaid expression.
8
Orders passed by Supreme Court of India
The non-obstante clause contained in Section 238 of the Code will not
override the Advocates Act as there is no inconsistency between Section 9,
read with the Adjudicating Authority Rules and Forms referred to
hereinabove, and the Advocates Act.
Since there is no clear disharmony between the two Parliamentary statutes in
the present case which cannot be resolved by harmonious interpretation, it is
clear that both statutes must be read together. Also, we must not forget that
Section 30 of the Advocates Act deals with the fundamental right under
Article 19(1)(g) of the Constitution to practice one's profession. Therefore, a
conjoint reading of Section 30 of the Advocates Act and Sections 8 and 9 of
the Code together with the Adjudicatory Authority Rules and Forms
thereunder would yield the result that a notice sent on behalf of an
operational creditor by a lawyer would be in order.
The expression "an operational creditor may on the occurrence of a default
deliver a demand notice....." under Section 8 of the Code must be read as
including an operational creditor's authorized agent and lawyer, as has been
fleshed out in Forms 3 and 5 appended to the Adjudicatory Authority Rules.
Case Review: Judgement of NCLAT, set aside
SECTION-9
CASE NO. 4
Mobilox Innovations Private Limited (Appellant/Corporate Debtor)
Vs.
Kirusa Software Private Limited (Respondent/Operational Creditor)
Date of order: 21-09-2017
Section 9 read with Section 8 of the Insolvency and Bankruptcy Code,
2016 Application for initiation of corporate Insolvency resolution
process by operational creditor- The expression "and" occurring in
section 8(2)(a) may be read as "or" in order to further the object of the
statute and/or to avoid an anomalous situation - once the operational
creditor has filed an application, which is otherwise complete, the
adjudicating authority must reject the application under Section
9(5)(2)(d) if notice of dispute has been received by the operational
creditor or there is a record of dispute in the information utility - So
long as a dispute truly exists in fact and is not spurious, hypothetical or
9
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
illusory, the adjudicating authority has to reject the application - A
"dispute" is said to exist, so long as there is a real dispute as to
payment between the parties that would fall within the inclusive
definition contained in Section 5(6)
In terms of purchase order issued by the Appellant/Corporate Debtor the
Respondent/Operational Creditor provided certain services and raised
monthly invoices between December, 2013 and November, 2014. The bills
so raised were payable within 30 days of receipt by the appellant. It is
pertinent to note here that a non-disclosure agreement (NDA) was executed
between the parties on 26th December, 2014 with effect from 1st November,
2013. In view of non-payment of dues, a demand notice dated 23 rd
December, 2016 was sent by the respondent under Section 8 of the Code.
To this notice, the appellant responded that there exists serious and bona
fide disputes between the parties and that nothing was payable as the
respondent had been told on 30th January, 2015 that no amount would be
paid to the respondent since it had breached the NDA.
The NCLT rejected the application filed under section 9 of the Code on the
ground that the default payment being disputed by the Corporate Debtor and
that, the operational creditor has admitted that the notice of dispute has been
received, the claim made is hit by Section (9)(5)(ii)(d) of the Code.
On appeal the NCLAT set aside the order of the NCLT and remitted the case
for consideration with the following observation:
"In the present case the adjudicating authority has acted mechanically
and rejected the application under sub-section (5)(ii)(d) of Section 9
without examining and discussing the aforesaid issue. If the
adjudicating authority would have noticed the provisions as discussed
above and what constitutes `dispute' in relation to services provided by
operational creditors then it would have come to a conclusion that
condition of demand notice under sub-section (2) of Section 8 has not
been fulfilled by the corporate debtor and defence claiming dispute was
not only vague, got up and motivated to evade the liability."
On appeal, the Supreme Court held as follow:
The adjudicating authority, when examining an application under Section 9 of
the Act will have to determine:
(i) Whether there is an "operational debt" as defined exceeding Rs.1 lakh?
(See Section 4 of the Act)
(ii) Whether the documentary evidence furnished with the application
10
Orders passed by Supreme Court of India
shows that the aforesaid debt is due and payable and has not yet been
paid? and
(iii) Whether there is existence of a dispute between the parties or the
record of the pendency of a suit or arbitration proceeding filed before
the receipt of the demand notice of the unpaid operational debt in
relation to such dispute?
If any one of the aforesaid conditions is lacking, the application would have
to be rejected.
Apart from the above, the adjudicating authority must follow the mandate of
Section 9, and in particular the mandate of Section 9(5) of the Act, and admit
or reject the application, as the case may be, depending upon the factors
mentioned in Section 9(5) of the Act.
Another thing of importance is the timelines within which the insolvency
resolution process is to be triggered. The corporate debtor is given 10 days
from the date of receipt of demand notice or copy of invoice to either point
out that a dispute exists between the parties or that he has since repaid the
unpaid operational debt. If neither exists, then an application once filed has
to be disposed of by the adjudicating authority within 14 days of its receipt,
either by admitting it or rejecting it. An appeal can then be filed to the
Appellate Tribunal under Section 61 of the Act within 30 days of the order of
the Adjudicating Authority with an extension of 15 further days and no more.
Section 64 of the Code mandates that where these timelines are not adhered
to, either by the Tribunal or by the Appellate Tribunal, they shall record
reasons for not doing so within the period so specified and extend the period
so specified for another period not exceeding 10 days. Even in appeals to the
Supreme Court from the Appellate Tribunal under Section 62, 45 days time is
given from the date of receipt of the order of the Appellate Tribunal in which
an appeal to the Supreme Court is to be made, with a further grace period
not exceeding 15 days. The strict adherence of these timelines is of essence
to both the triggering process and the insolvency resolution process. One of
the principal reasons why the Code was enacted was because liquidation
proceedings went on interminably, thereby damaging the interests of all
stakeholders, except a recalcitrant management which would continue to
hold on to the company without paying its debts. Both the Tribunal and the
Appellate Tribunal will do well to keep in mind this principal objective sought
to be achieved by the Code and will strictly adhere to the time frame within
which they are to decide matters under the Code.
11
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
It is, thus, clear that so far as an operational creditor is concerned, a demand
notice of an unpaid operational debt or copy of an invoice demanding
payment of the amount involved must be delivered in the prescribed form.
The corporate debtor is then given a period of 10 days from the receipt of the
demand notice or copy of the invoice to bring to the notice of the operational
creditor the existence of a dispute, if any. The notes on clauses annexed to
the Insolvency and Bankruptcy Bill of 2015, in which "the existence of a
dispute" alone is mentioned. Even otherwise, the word "and" occurring in
Section 8(2)(a) must be read as "or" keeping in mind the legislative intent
and the fact that an anomalous situation would arise if it is not read as "or". If
read as "and", disputes would only stave off the bankruptcy process if they
are already pending in a suit or arbitration proceedings and not otherwise.
This would lead to great hardship; in that a dispute may arise a few days
before triggering of the insolvency process, in which case, though a dispute
may exist, there is no time to approach either an arbitral tribunal or a court.
Further, given the fact that long limitation periods are allowed, where
disputes may arise and do not reach an arbitral tribunal or a court for upto
three years, such persons would be outside the purview of Section 8(2)
leading to bankruptcy proceedings commencing against them. Such an
anomaly cannot possibly have been intended by the legislature nor has it so
been intended. One of the objects of the Code qua operational debts is to
ensure that the amount of such debts, which is usually smaller than that of
financial debts, does not enable operational creditors to put the corporate
debtor into the insolvency resolution process prematurely or initiate the
process for extraneous considerations. It is for this reason that it is enough
that a dispute exists between the parties. It is settled law that the expression
"and" may be read as "or" in order to further the object of the statute and/or
to avoid an anomalous situation.
In the first Insolvency and Bankruptcy Bill, 2015 that was annexed to the
Bankruptcy Law Reforms Committee Report, Section 5(4) defined "dispute"
as meaning a "bona fide suit or arbitration proceedings...". In its present
avatar, Section 5(6) excludes the expression "bona fide" which is of
significance. Therefore, it is difficult to import the expression "bona fide" into
Section 8(2)(a) in order to judge whether a dispute exists or not.
It is clear, therefore, that once the operational creditor has filed an
application, which is otherwise complete, the adjudicating authority must
reject the application under Section 9(5)(2)(d) if notice of dispute has been
received by the operational creditor or there is a record of dispute in the
information utility. It is clear that such notice must bring to the notice of the
12
Orders passed by Supreme Court of India
operational creditor the "existence" of a dispute or the fact that a suit or
arbitration proceeding relating to a dispute is pending between the parties.
Therefore, all that the adjudicating authority is to see at this stage is whether
there is a plausible contention which requires further investigation and that
the "dispute" is not a patently feeble legal argument or an assertion of fact
unsupported by evidence. It is important to separate the grain from the chaff
and to reject a spurious defence which is mere bluster. However, in doing so,
the Court does not need to be satisfied that the defence is likely to succeed.
The Court does not at this stage examine the merits of the dispute except to
the extent indicated above. So long as a dispute truly exists in fact and is not
spurious, hypothetical or illusory, the adjudicating authority has to reject the
application.
Facts:
According to the respondent, the definition of "dispute" would indicate that
since the NDA does not fall within any of the three sub-clauses of Section
5(6), no "dispute" is there on the facts of this case.
The Supreme Court held that:
First and foremost, the definition is an inclusive one, and that the word
"includes" substituted the word "means" which occurred in the first Insolvency
and Bankruptcy Bill. Secondly, the present is not a case of a suit or
arbitration proceeding filed before receipt of notice Section 5(6) only deals
with suits or arbitration proceedings which must "relate to" one of the three
sub clauses, either directly or indirectly. A "dispute" is said to exist, so long
as there is a real dispute as to payment between the parties that would fall
within the inclusive definition contained in Section 5(6). The correspondence
between the parties would show that on 30th January, 2015, the appellant
clearly informed the respondent that they had displayed the appellant's
confidential client information and client campaign information on a public
platform which constituted a breach of trust and a breach of the NDA
between the parties. They were further told that all amounts that were due to
them were withheld till the time the matter is resolved. On 10th February,
2015, the respondent referred to the NDA of 26th December, 2014 and
denied that there was a breach of the NDA. The respondent went on to state
that the appellant's claim is unfounded and untenable, and that the appellant
is trying to avoid its financial obligations, and that a sum of Rs.19,08,202.57
should be paid within one week, failing which the respondent would be forced
to explore legal options and initiate legal process for recovery of the said
amount. This email was refuted by the appellant by an e-mail dated 26th
13
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
February, 2015 and the appellant went on to state that it had lost business
from various clients as a result of the respondent's breaches. Curiously, after
this date, the respondent remained silent, and thereafter, by an e-mail dated
20th June, 2016, the respondent wished to revive business relations and
stated that it would like to follow up for payments which are long stuck up.
This was followed by an e-mail dated 25th June, 2016 to finalize the time and
place for a meeting. On 28th June, 2016, the appellant wrote to the
respondent again to finalize the time and place. Apparently, nothing came of
the aforesaid e-mails and the appellant then fired the last shot on 19th
September, 2016, reiterating that no payments are due as the NDA was
breached.
Going by the aforesaid test of "existence of a dispute", it is clear that without
going into the merits of the dispute, the appellant has raised a plausible
contention requiring further investigation which is not a patently feeble legal
argument or an assertion of facts unsupported by evidence. The defence is
not spurious, mere bluster, plainly frivolous or vexatious. A dispute does truly
exist in fact between the parties, which may or may not ultimately succeed,
and the Appellate Tribunal was wholly incorrect in characterizing the defence
as vague, got-up and motivated to evade liability.
According to the respondent, the breach of the NDA is a claim for
unliquidated damages which does not become crystallized until legal
proceedings are filed, and none have been filed so far.
The Supreme Court held that:
The period of limitation for filing such proceedings has admittedly not yet
elapsed. Further, the appellant has withheld amounts that were due to the
respondent under the NDA till the matter is resolved. Admittedly, the matter
has never been resolved. Also, the respondent itself has not commenced any
legal proceedings after the e-mail dated 30th January, 2015 except for the
present insolvency application, which was filed almost 2 years after the said
e-mail. All these circumstances go to show that it is right to have the matter
tried out in the present case before the axe falls.
Therefore, the appeal was allowed and the judgment of the Appellate
Tribunal was set aside.
Case Review: Order dated 24-05-2017 of NCLAT in Kirusa Software Private
Ltd. Vs. Mobilox Innovations Private Ltd, Company Appeal (AT) (Insolvency)
6 of 2017, set aside.
14
Orders passed by Supreme Court of India
CASE NO. 5
M/s. Surendra Trading Company (Appellant)
Vs.
M/s. Juggilal Kamlapat Jute Mills Company Limited and Others
(Respondent)
Civil Appeal no. 8400 of 2017
With
Civil Appeal no.15091 of 2017
(Arising out of Diary no. 22835 of 2017)
Date of Order : 19-09-2017
Section 9 Application for Initiation of Corporate InsolvencyResolution
Process by Operational Creditor
Facts:
The precise question of law which was framed by the NCLAT for its decision
is to the following effect:
"Whether the time limit prescribed in Insolvency &Bankruptcy Code, 2016
(hereinafter referred to as Code 2016) for admitting or rejecting a petition or
initiation of insolvency resolution process is mandatory?"
The question before the NCLAT was as to whether time of fourteen days
given to the adjudicating authority for ascertaining the existence of default
and admitting or rejecting the application is mandatory or directory. Further
question (with which this Court is concerned) was as to whether the period of
seven days for rectifying the defects is mandatory or directory.
The NCLAT has held that period of fourteen days prescribed for the
adjudicating authority to pass such an order is directory in nature, whereas
period of seven days given to the applicant/operational creditor for rectifying
the defects is mandatory in nature.
Decision:
Aforesaid provision of removing the defects within seven days is directory
and not mandatory in nature. However, the court said that it would like to
enter a caveat.
We are also conscious of the fact that sometimes applicants or their counsel
may show laxity by not removing the objections within the time given and
15
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
make take it for granted that they would be given unlimited time for such a
purpose. There may also be cases where such applications are frivolous in
nature which would be filed for some oblique motives and the applicants may
want those applications to remain pending and, therefore, would not remove
the defects. In order to take care of such cases, a balanced approach is
needed. Thus, while interpreting the provisions to be directory in nature, at
the same time, it can be laid down that if the objections are not removed
within seven days, the applicant while refilling the application after removing
the objections, file an application in writing showing sufficient case as to why
the applicant could not remove the objections within seven days. When such
an application comes up for admission/order before the adjudicating
authority, it would be for the adjudicating authority to decide as to whether
sufficient cause is shown in not removing the defects beyond the period of
seven days. Once the adjudicating authority is satisfied that such a case is
shown, only then it would entertain the application on merits, otherwise it will
have right to dismiss the application.
In fine, these appeals are allowed and that part of the impugned judgment of
NCLAT which holds proviso to sub-section(5) of Section 7 or proviso to sub-
section (5) of Section 9 or proviso to sub-section (4) of Section 10 to remove
the defects within seven days as mandatory and on failure applications to be
rejected, is set aside.
SECTION-14
CASE NO. 6
Alchemist Asset Reconstruction Company Ltd
(Petitioner/ Financial Creditor)
Vs.
Hotel Gaudavan Pvt. Ltd. (Respondent/ Corporate Debtor)
Civil Appeal No. 16929 of 2017
(Arising out of S.L.P. (C) No. 18195/2017)
Date of Order: 23-10-2017
Facts :
The Corporate Debtor was sanctioned term loan by SBI, and the repayment
for the same was defaulted continuously, despite of the fact that the
opportunity was given to the Corporate Debtor to regularize the account by
16
Orders passed by Supreme Court of India
means of restructuring the loan. Considering the default being for Rs. 33.93
crores inclusive of interests, SBI invoked the provision under the SARFAESI
Act for recovery of the loan. The initial petition was challenged successfully
by the Corporate Debtor with DRT and DRAT. SBI further in 2014, had
absolutely assigned all the rights, title and interest in the financial assistance
granted by him to the company, in favour of Alchemist Asset Reconstruction
Company Ltd. (Alchemist ARC)
Though initially rejected by the DRT and DRAT, a fresh notice issued under
the SARFAESI Act was allowed by the High Court when appealed to by
Financial Creditor.
Taking into the consideration the records produced by the Learned Counsel
for the Financial Creditor that the Corporate Debtor is heavily indebted not
only to it but also to other secured and unsecured creditors, confirmed that
there is clear case for initiation of the Insolvency Resolution Process as
contemplated under IBC for the benefit of all the stake holders.
An opportunity of being heard was given to the Corporate debtor, to which
the corporate debtor has filed objections with an intention to get the petition
rejected by Tribunal.
However, based on the facts presented and considering the decision given in
various cases in the similar matter, the Adjudicating Authority (National
Company law Tribunal), Special Bench, New Delhi admitted the application,
passed order of moratorium and appointed an `Interim Resolution
Professional' with certain directions.
Corporate Debtor filed Writ Petition before the Hon'ble High Court of
Rajasthan challenging the order passed, to which the Hon'ble High Court
refused to look into the merits of the order and left it open to be examined by
the Appellate Tribunal.
Thereafter, the Corporate Debtor along with another shareholder moved
before the Hon'ble Supreme Court in SLP(C) No.12606-12707 of 2017
against different orders passed by Adjudicating Authority which were also
dismissed on 26th April, 2017
The `Corporate Debtor' thereafter moved before the Arbitral Tribunal and
against such action the `Insolvency Resolution Professional' moved before
the Adjudicating Authority which decided the matter against the `Corporate
Debtor' on 31st May, 2017.
17
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
The Interim Professional Filed Contempt Petition against the Directors for
non-compliance with the order of the Adjudication Authority which was
passed on 29th July 2017.
The `Corporate Debtor' had filed an application under Section 8 of the
Arbitration and Conciliation Act, 1996 wherein certain orders were passed
against which the Appellant (s) preferred the appeal before the District
Judge, Jaisalmer, who admitted the appeal, issued notice to the
Respondents and passed interim orders.
Decision:
Against the said order, the Financial Creditor moved before Hon'ble Supreme
Court in Civil Appeal No. 16929 of 2017 (arising out of S.L.P. (C) No.
18195/2017 which was in favour of the Financial Creditor.
Hon'ble Supreme court set aside the order of the District Judge and further
stated that the effect of Section 14 (1) (a) is that the arbitration that has been
instituted after the aforesaid moratorium is non est in law.
Further, ongoing Criminal proceeding under F.I.R. No.0605 which was taken
in a desperate attempt to see that IRP does not continue with the
proceedings under the Insolvency Code which are strictly time bound was
quashed.
As a result, the appeal was allowed and the steps that have to be taken
under the Insolvency Code will continue unimpeded by any order of any other
Court.
SECTION-238
CASE NO. 7
M/s. Innoventive Industries Ltd. (Appellant/Corporate Debtor)
Vs.
ICICI Bank & Anr. (Respondents/Financial Creditor)
Date of Order: 31-08-2017
Section 238 of the Insolvency and Bankruptcy Code, 2016 read with
Section 4 of the Maharashtra Relief Undertaking (Special Provisions)
Act, 1958 read with Article 254 of the Constitution of India Provision
18
Orders passed by Supreme Court of India
of this Code to override other Laws - Once an insolvency professional
is appointed to manage the company, the erstwhile directors who are
no longer in management, obviously cannot maintain an appeal on
behalf of the company - The Insolvency and Bankruptcy Code, 2016 is
an Act to consolidate and amend the laws relating to reorganization and
insolvency resolution, inter alia, of corporate persons The Insolvency
and Bankruptcy Code is a Parliamentary law that is an exhaustive code
on the subject matter of insolvency in relation to corporate entities - On
reading of section 238 of the code it is clear that the later non-obstante
clause of the Parliamentary enactment will also prevail over the limited
non-obstante clause contained in Section 4 of the Maharashtra Act and
therefore, the Maharashtra Act cannot stand in the way of the corporate
insolvency resolution process under the Code - There would be
repugnancy between the provisions of the two enactments
In its order dated 17th January 2017 the NCLT held that the Insolvency and
Bankruptcy Code, 2016 (Code) would prevail against the Maharashtra Relief
Undertaking (Special Provisions) Act, 1958(Maharashtra Act) in view of the
non-obstante clause in Section 238 of the Code. It, has further, held that the
Parliamentary statute would prevail over the State statute and this being so;
it is obvious that the corporate debtor had defaulted in making payments, as
per the evidence placed by the financial creditors. Hence, the application
was admitted and a moratorium was declared. The second application with a
different plea filed by the Corporate Debtor was rejected by the NCLT vide its
order dated 23rd January 2017 on the ground that it was filed belatedly and
thus, not maintainable.
On appeal, the NCLAT upheld the order passed by the NCLT, however, held
that the Code and the Maharashtra Act operate in different fields and,
therefore, are not repugnant to each other and therefore, the appellant
cannot derive any advantage from the Maharashtra Act to stall the insolvency
resolution process under Section 7 of the Code.
The appellant/Corporate Debtor filed this appeal against the order of NCLAT
which had upheld the order passed by the NCLT before the Supreme Court.
On maintainability of the appeal the Apex Court held:
Once an insolvency professional is appointed to manage the company, the
erstwhile directors who are no longer in management, obviously cannot
maintain an appeal on behalf of the company. In the present case, the
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
company is the sole appellant. This being the case, the present appeal is
obviously not maintainable.
However, we are not inclined to dismiss the appeal on this score alone.
Because this is the very first application that has been moved under the
Code, we thought it necessary to deliver a detailed judgment so that all
Courts and Tribunals may take notice of a paradigm shift in the law.
Entrenched managements are no longer allowed to continue in management
if they cannot pay their debts.
After going through the Statement of Objects & reasons and various relevant
provisions of the Code the Supreme Court held as follows:
The Insolvency and Bankruptcy Code, 2016 has been passed after great
deliberation and pursuant to various committee reports. One of the important
objectives of the Code is to bring the insolvency law in India under a single
unified umbrella with the object of speeding up of the insolvency process.
The scheme of the Code is to ensure that when a default takes place, in the
sense that a debt becomes due and is not paid, the insolvency resolution
process begins. The Code gets triggered the moment default is of rupees
one lakh or more (Section 4). The corporate insolvency resolution process
may be triggered by the corporate debtor itself or a financial creditor or
operational creditor.
The scheme of Section 7 stands in contrast with the scheme under Section 8
where an operational creditor is, on the occurrence of a default, to first
deliver a demand notice of the unpaid debt to the operational debtor in the
manner provided in Section 8(1) of the Code. Under Section 8(2), the
corporate debtor can, within a period of 10 days of receipt of the demand
notice or copy of the invoice mentioned in sub-section (1), bring to the notice
of the operational creditor the existence of a dispute or the record of the
pendency of a suit or arbitration proceedings, which is pre-existing i.e.
before such notice or invoice was received by the corporate debtor. The
moment there is existence of such a dispute, the operational creditor gets out
of the clutches of the Code.
On the other hand, in the case of a corporate debtor who commits a default
of a financial debt, the adjudicating authority has merely to see the records of
the information utility or other evidence produced by the financial creditor to
satisfy itself that a default has occurred. It is of no matter that the debt is
disputed so long as the debt is "due" i.e. payable unless interdicted by some
law or has not yet become due in the sense that it is payable at some future
20
Orders passed by Supreme Court of India
date. It is only when this is proved to the satisfaction of the adjudicating
authority that the adjudicating authority may reject an application and not
otherwise.
The rest of the insolvency resolution process is also very important. The
entire process is to be completed within a period of 180 days from the date of
admission of the application under Section 12 and can only be extended
beyond 180 days for a further period of not exceeding 90 days if the
committee of creditors by a voting of 75% of voting shares so decides. It can
be seen that time is of essence in seeing whether the corporate body can be
put back on its feet, so as to stave off liquidation.
As soon as the application is admitted, a moratorium in terms of Section 14
of the Code is to be declared by the adjudicating authority and a public
announcement is made stating, inter alia, the last date for submission of
claims and the details of the interim resolution professional who shall be
vested with the management of the corporate debtor and be responsible for
receiving claims. Under Section 17, the erstwhile management of the
corporate debtor is vested in an interim resolution professional who is a
trained person registered under Chapter IV of the Code. This interim
resolution professional is now to manage the operations of the corporate
debtor as a going concern under the directions of a committee of creditors
appointed under Section 21 of the Act. Decisions by this committee are to be
taken by a vote of not less than 75% of the voting share of the financial
creditors. Under Section 28, a resolution professional, who is none other than
an interim resolution professional who is appointed to carry out the resolution
process, is then given wide powers to raise finances, create security
interests, etc. subject to prior approval of the committee of creditors.
Under Section 30, any person who is interested in putting the corporate body
back on its feet may submit a resolution plan to the resolution professional,
which is prepared on the basis of an information memorandum. This plan
must provide for payment of insolvency resolution process costs,
management of the affairs of the corporate debtor after approval of the plan,
and implementation and supervision of the plan. It is only when such plan is
approved by a vote of not less than 75% of the voting share of the financial
creditors and the adjudicating authority is satisfied that the plan, as
approved, meets the statutory requirements mentioned in Section 30, that it
ultimately approves such plan, which is then binding on the corporate debtor
as well as its employees, members, creditors, guarantors and other
stakeholders. Importantly, and this is a major departure from previous
21
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
legislation on the subject, the moment the adjudicating authority approves
the resolution plan, the moratorium order passed by the authority under
Section 14 shall cease to have effect. The scheme of the Code, therefore, is
to make an attempt, by divesting the erstwhile management of its powers and
vesting it in a professional agency, to continue the business of the corporate
body as a going concern until a resolution plan is drawn up, in which event
the management is handed over under the plan so that the corporate body is
able to pay back its debts and get back on its feet. All this is to be done
within a period of 6 months with a maximum extension of another 90 days or
else the chopper comes down and the liquidation process begins.
In answer to the application made under Section 7 of the Code, the appellant
only raised the plea of suspension of its debt under the Maharashtra Act,
which, therefore, was that no debt was due in law. The adjudicating authority
correctly referred to the non-obstante clause in Section 238 and arrived at a
conclusion that a notification under the Maharashtra Act would not stand in
the way of the corporate insolvency resolution process under the Code.
The Supreme Court observes its various judgments and yields the following
proposition:
(i) Repugnancy under Article 254 arises only if both the Parliamentary (or
existing law) and the State law are referable to List III in the 7thSchedule
to the Constitution of India.
(ii) In order to determine whether the Parliamentary (or existing law) is
referable to the Concurrent List and whether the State law is also
referable to the Concurrent List, the doctrine of pith and substance must
be applied in order to find out as to where in pith and substance the
competing statutes as a whole fall. It is only if both fall, as a whole,
within the Concurrent List, that repugnancy can be applied to determine
as to whether one particular statute or part thereof has to give way to
the other.
(iii) The question is what is the subject matter of the statutes in question
and not as to which entry in List III the competing statutes are traceable,
as the entries in List III are only fields of legislation; also, the language
of Article 254 speaks of repugnancy not merely of a statute as a whole
but also "any provision" thereof.
(iv) Since there is a presumption in favour of the validity of statutes
generally, the onus of showing that a statute is repugnant to another
has to be on the party attacking its validity. It must not be forgotten that
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Orders passed by Supreme Court of India
that every effort should be made to reconcile the competing statutes
and construe them both so as to avoid repugnancy care should be
taken to see whether the two do not really operate in different fields qua
different subject matters.
(v) Repugnancy must exist in fact and not depend upon a mere possibility.
(vi) Repugnancy may be direct in the sense that there is inconsistency in
the actual terms of the competing statutes and there is, therefore, a
direct conflict between two or more provisions of the competing
statutes. In this sense, the inconsistency must be clear and direct and
be of such a nature as to bring the two Acts or parts thereof into direct
collision with each other, reaching a situation where it is impossible to
obey the one without disobeying the other. This happens when two
enactments produce different legal results when applied to the same
facts.
(vii) Though there may be no direct conflict, a State law may be inoperative
because the Parliamentary law is intended to be a complete, exhaustive
or exclusive code. In such a case, the State law is inconsistent and
repugnant, even though obedience to both laws is possible, because so
long as the State law is referable to the same subject matter as the
Parliamentary law to any extent, it must give way. One test of seeing
whether the subject matter of the Parliamentary law is encroached upon
is to find out whether the Parliamentary statute has adopted a plan or
scheme which will be hindered and/or obstructed by giving effect to the
State law. It can then be said that the State law trenches upon the
Parliamentary statute. Negatively put, where Parliamentary legislation
does not purport to be exhaustive or unqualified, but itself permits or
recognises other laws restricting or qualifying the general provisions
made in it, there can be said to be no repugnancy.
(viii) A conflict may arise when Parliamentary law and State law seek to
exercise their powers over the same subject matter. This need not be in
the form of a direct conflict, where one says "do" and the other says
"don't". Laws under this head are repugnant even if the rule of conduct
prescribed by both laws is identical. The test that has been applied in
such cases is based on the principle on which the rule of implied repeal
rests, namely, that if the subject matter of the State legislation or part
thereof is identical with that of the Parliamentary legislation, so that they
cannot both stand together, then the State legislation will be said to be
repugnant to the Parliamentary legislation. However, if the State
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
legislation or part thereof deals not with the matters which formed the
subject matter of Parliamentary legislation but with other and distinct
matters though of a cognate and allied nature, there is no repugnancy.
(ix) Repugnant legislation by the State is void only to the extent of the
repugnancy. In other words, only that portion of the State's statute
which is found to be repugnant is to be declared void.
(x) The only exception to the above is when it is found that a State
legislation is repugnant to Parliamentary legislation or an existing law if
the case falls within Article 254(2), and Presidential assent is received
for State legislation, in which case State legislation prevails over
Parliamentary legislation or an existing law within that State. Here
again, the State law must give way to any subsequent Parliamentary
law which adds to, amends, varies or repeals the law made by the
legislature of the State, by virtue of the operation of Article 254(2)
proviso.
After going through the Maharashtra Act, the Apex Court held that there is no
doubt that this Maharashtra Act is referable to Entry 23, List III in the
7thSchedule to the Constitution. On the other hand, the Insolvency and
Bankruptcy Code, 2016 is an Act to consolidate and amend the laws relating
to reorganization and insolvency resolution, inter alia, of corporate persons.
There can be no doubt, therefore, that the Code is a Parliamentary law that
is an exhaustive code on the subject matter of insolvency in relation to
corporate entities, and is made under Entry 9, List III in the 7th Schedule
which reads as, "9. Bankruptcy and insolvency".
On reading its provisions, the moment initiation of the corporate insolvency
resolution process takes place, a moratorium is announced by the
adjudicating authority vide Sections 13 and 14 of the Code, by which
institution of suits and pending proceedings etc. cannot be proceeded with.
This continues until the approval of a resolution plan under Section 31 of the
said Code. In the interim, an interim resolution professional is appointed
under Section 16 to manage the affairs of corporate debtors under Section
17.
It is clear, therefore, that the earlier State law is repugnant to the later
Parliamentary enactment as under the said State law, the State Government
may take over the management of the relief undertaking, after which a
temporary moratorium in much the same manner as that contained in
Sections 13 and 14 of the Code takes place under Section 4 of the
24
Orders passed by Supreme Court of India
Maharashtra Act. There is no doubt that by giving effect to the State law, the
aforesaid plan or scheme which may be adopted under the Parliamentary
statute will directly be hindered and/or obstructed to that extent in that the
management of the relief undertaking, which, if taken over by the State
Government, would directly impede or come in the way of the taking over of
the management of the corporate body by the interim resolution professional.
Also, the moratorium imposed under Section 4 of the Maharashtra Act would
directly clash with the moratorium to be issued under Sections 13 and 14 of
the Code. It will be noticed that whereas the moratorium imposed under the
Maharashtra Act is discretionary and may relate to one or more of the
matters contained in Section 4(1), the moratorium imposed under the Code
relates to all matters listed in Section 14 and follows as a matter of course. In
the present case it is clear, therefore, that unless the Maharashtra Act is out
of the way, the Parliamentary enactment will be hindered and obstructed in
such a manner that it will not be possible to go ahead with the insolvency
resolution process outlined in the Code. Further, the non-obstante clause
contained in Section 4 of the Maharashtra Act cannot possibly be held to
apply to the Central enactment, inasmuch as a matter of constitutional law,
the later Central enactment being repugnant to the earlier State enactment
by virtue of Article 254 (1), would operate to render the Maharashtra Act void
vis-à-vis action taken under the later Central enactment.
On reading of section 238 of the code it is clear that the later non-obstante
clause of the Parliamentary enactment will also prevail over the limited non-
obstante clause contained in Section 4 of the Maharashtra Act. For these
reasons, we are of the view that the Maharashtra Act cannot stand in the way
of the corporate insolvency resolution process under the Code.
The appellant argued that the notification under the Maharashtra Act only
kept in temporary abeyance the debt which would become due the moment
the notification under the said Act ceases to have effect.
The Supreme Court however held that the notification under the Maharashtra
Act continues for one year at a time and can go upto 15 years. Given the fact
that the timeframe within which the company is either to be put back on its
feet or is to go into liquidation is only 6 months, it is obvious that the period
of one year or more of suspension of liability would completely unsettle the
scheme of the Code and the object with which it was enacted, namely, to
bring defaulter companies back to the commercial fold or otherwise face
liquidation. If the moratorium imposed by the Maharashtra Act were to
continue from one year upto 15 years, the whole scheme and object of the
Code would be set at naught.
25
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
The appellant then argued that since the suspension of the debt took place
from July, 2015 onwards, the appellant had a vested right which could not be
interfered with by the Code.
The Supreme Court however held that it is precisely for this reason that the
non-obstante clause, in the widest terms possible, is contained in Section
238 of the Code, so that any right of the corporate debtor under any other
law cannot come in the way of the Code. For all these reasons, we are of the
view that the Tribunal was correct in appreciating that there would be
repugnancy between the provisions of the two enactments. The judgment of
the Appellate Tribunal is not correct on this score because repugnancy does
exist in fact.
As regards to the rejection of second application the Tribunal as well as the
Appellate Tribunal it was held by the Apex Court that the Tribunal and the
Appellate Tribunal were right in not going into this contention for the very
good reason that the period of 14 days within which the application is to be
decided was long over by the time the second application was made before
the Tribunal. Also, the second application clearly appears to be an after-
thought for the reason that the corporate debtor was fully aware of the fact
that the MRA had failed and could easily have pointed out these facts in the
first application itself. However, for reasons best known to it, the appellant
chose to take up only a law point before the Tribunal. The law point before
the Tribunal was argued on 22nd and 23rd December, 2016, presumably with
little success. It is only as an after-thought that the second application was
then filed to add an additional string to a bow which appeared to the
appellants to have already been broken.
The obligation of the corporate debtor was, therefore, unconditional and did
not depend upon infusing of funds by the creditors into the appellant
company. Also, the argument taken for the first time before us that no debt
was in fact due under the MRA as it has not fallen due (owing to the default
of the secured creditor) is not something that can be countenanced at this
stage of the proceedings. In this view of the matter, we are of the considered
view that the Tribunal and the Appellate Tribunal were right in admitting the
application filed by the financial creditor ICICI Bank Ltd.
Case Review: Order dated 17thJanuary, 2017 and Order dated 23rd January,
2017 passed by NCLT, Mumbai Bench, Mumbai in ICICI Bank Ltd. Vs. M/s.
Innoventive Industries Ltd. (C.P. No. 1/I&BP/NCLT/MB/MAH/2016) and order
dated 15th May 2017 passed by the NCLAT in M/s. Innoventive Industries
Ltd. Vs. ICICI Bank Ltd., Upheld.
26
Orders passed by Supreme Court of India
RULE-8
of Insolvency and Bankruptcy (Application to Adjudicating Authority)
Rules, 2016
CASE NO. 8
Lokhandwala Kataria Construction Pvt. Ltd.
(Appellant/Corporate Debtor)
Vs.
Nisus Finance & Investment Manager LLP. (Financial Creditor)
Dated: 24-07-2017
Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016 read with Rule 11 of the National Company Law
Appellate Tribunal Rules, 2016 Withdrawal of Application - In view of
Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016, the National Company Law Appellate Tribunal
(NCLAT) could not utilise the inherent power recognised by Rule 11 of
the National Company Law Appellate Tribunal Rules, 2016.
An appeal was filed by the appellant/Corporate Debtor against the order
passed by the Adjudicating Authority (NCLT, Mumbai Bench) whereby the
application under section 7 of the Insolvency and Bankruptcy Code, 2016
(the Code) has been admitted. The parties have settled the dispute and part
amount has already been paid. The NCLAT held that such settlement cannot
be ground to interfere with the impugned order in absence of any other
infirmity. The NCLAT further held that Rule 11 of the National Company Law
Appellate Tribunal Rules, 2016 has not been adopted for the purpose of the
Code and only Rules 20 and 26 have been adopted in absence of any
specific inherent power and where there is no merit, the question of
exercising inherent power does not arise.
On appeal, the Supreme Court held that:
In view of Rule 8 of the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016, the National Company Law Appellate
Tribunal (NCLAT) could not utilise the inherent power recognised by Rule 11
of the National Company Law Appellate Tribunal Rules, 2016 to allow a
compromise before it by the parties after admission of the matter.
27
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Case Review: Order dated 13th July 2017 passed by the NCLAT in
Lokhandwala Kataria Construction Pvt. Ltd. Vs. Nisus Finance & Investment
Manager LLP. in CP (AT) (Insolvency) No. 95 of 2017, upheld.
CONSTITUTIONAL VALIDITY
CASE NO. 9
Shivam Water Treaters Pvt. Ltd. (Petitioner)
Vs.
Union of India (Respondent)
Petition(s) for Special Leave to Appeal (C) No(s).1740/2018
Date of Order : 25-01-2018
The said case is arising out of impugned final judgment and order dated 15-
01-2018 in SPLCA No.19808/2017 passed by the High Court of Gujarat at
Ahmedabad
Decision:
Having heard learned counsel for the parties, the Court was inclined to
request the High Court to address the relief limited to any action taken by the
respondents or any order passed by the National Company Law Tribunal.
Barring this, the High Court should not address any other relief sought in the
prayer clause. The High Court is requested not to enter into the debate
pertaining to the validity of the Insolvency and Bankruptcy Code, 2016 or the
constitutional validity of the National Company Law Tribunal.
Our present order does not debar the petitioner to challenge the validity of
composition of the National Company Law Tribunal and the validity or the
constitutionality of the Insolvency and Bankruptcy Code, 2016 before this
Court under Article 32 of the Constitution.
The special leave petition stands disposed of accordingly.
28
Chapter 2
Orders passed by High Courts
SECTION-7
CASE NO. 1
HIGH COURT AT CALCUTTA
Sree Metaliks Limited and Anr. (Corporate Debtor)
Vs.
Union of India & Anr.
W.P. 7144 (W) OF 2017
Date of Order: 07-04-2017
Section 7 read with section 61 of the Insolvency and Bankruptcy Code,
2016 read with Rule 4 of the Insolvency and Bankruptcy(Application to
Adjudication Authority) Rules, 2016 and Section 424 of the Companies
Act, 2013 Initiation of Corporate Insolvency Resolution Process by
Financial Creditor
Facts:
An application under section 7 of the Code of 2016 was filed against the first
petitioner (Corporate Debtor) before the NCLT Kolkata Bench. According to
the first petitioner it had received a notice from a firm of practicing company
Secretaries with regard to the filing of the Company Petition, however the
notice does not contain any information as to the date of hearing of the
company petition. The Corporate Debtor further contended that NCLT had
proceeded to admit the company petition without affording any opportunity of
hearing to it and therefore NCLT had acted in breach of the principles of
natural justice in doing so. The order of NCLT was assailed bythe Corporate
Debtor before the NCLAT. The Corporate Debtor submitted that it had no
objection to the admission of the Insolvency petition but objected to the
appointment of the IRP. However, it did not press the point of breach of the
principles of natural justice before NCLAT. The NCLAT disposed the appeal
and only replaced the IRP appointed by the NCLT.
A writ petition was filed before the Calcutta High Court by the corporate
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
debtor on the ground that Section 7 of the Insolvency and Bankruptcy Code,
2016 (Code of 2016) and the relevant Rules under the Insolvency and
Bankruptcy (Application to the Adjudicating Authority) Rules, 2016 are vires
as it does not afford any opportunity of hearing to a corporate debtor in a
petition filed under Section 7 of the Code of 2016.
Decision:
In the scheme of the Code of 2016, an application under Section 7 of the
Code of 2016 is to be first made before the NCLT. An appeal of the order of
NCLT will lie before the NCLAT. NCLT and NCLAT are constituted under the
provisions of the Companies Act, 2013 (Act, 2013). The procedure before the
NCLT and the NCLAT is guided by Section 424 of the Companies Act, 2013.
Section 424 of the Companies Act, 2013 requires the NCLT and NCLAT to
adhere to the principles of the natural justice above anything else. It also
allows the NCLT and NCLAT the power to regulate their own procedure.
Fretters of the Code of Civil Procedure, 1908 does not bind it. However, it is
required to apply its principles. Principles of natural justice require an
authority to hear the other party. In an application under Section 7 of the
Code of 2016, the financial creditor is the applicant while the corporate
debtor is the respondent. A proceeding for declaration of insolvency of a
company has drastic consequences for a company. Such proceeding may
end up in its liquidation. A person cannot be condemned unheard. Where a
statute is silent on the right of hearing and it does not in express terms, oust
the principles of natural justice, the same can and should be read into in.
When the NCLT receives an application under Section 7 of the Code of 2016,
therefore, it must afford a reasonable opportunity of hearing to the corporate
debtor as Section 424 of the Companies Act, 2013 mandates it to ascertain
the existence of default as claimed by the financial creditor in the application.
The NCLT is, therefore, obliged to afford a reasonable opportunity to the
financial debtor to contest such claim of default by filing a written objection or
any other written document as the NCLT may direct and provide a
reasonable opportunity of hearing to the corporate debtor prior to admitting
the petition filed under Section 7 of the Code of 2016. Section 7(4) of the
Code of 2016 requires the NCLT to ascertain the default of the corporate
debtor. Such ascertainment of default must necessarily involve the
consideration of the documentary claim of the financial creditor. This
statutory requirement of ascertainment of default brings within its wake the
extension of a reasonable opportunity to the corporate debtor to substantiate
by document or otherwise, that there does not exist a default as claimed
30
Orders passed by High Courts
against it. The proceedings before the NCLT are adversarial in nature. Both
the sides are, therefore, entitled to a reasonable opportunity of hearing.
The requirement of NCLT and NCLAT to adhere to the principles of natural
justice and the fact that, the principles of natural justice are not ousted by the
Code of 2016 can be found from Section 7(4) of the Code of 2016 and Rule 4
of the Insolvency and Bankruptcy (Application to Adjudicating Authority)
Rules, 2016. Rule 4 deals with an application made by a financial creditor
under Section 7 of the Code of 2016. Sub-rule (3) of Rule 4 requires such
financial creditor to despatch a copy of the application filed with the
adjudicating authority, by registered post or speed post to the registered
office of the corporate debtor. Rule 10 of the Rules of 2016 states that, till
such time the Rules of procedure for conduct of proceedings under the Code
of 2016 are notified, an application made under Sub-section (1) of Section 7
of the Code of 2017 is required to be filed before the adjudicating authority in
accordance with Rules 20, 21, 22, 23, 24 and 26 or Part-III of the National
Company Law Tribunal Rules, 2016.
Adherence to the principles of natural justice by NCLT or NCLAT would not
mean that in every situation, NCLT or NCLAT is required to afford a
reasonable opportunity of hearing to the respondent before passing its order.
In a given case, a situation may arise which may require NCLT to pass an
ex-parte ad interim order against a respondent. Therefore, in such situation
NCLT, it may proceed to pass an ex-parte ad interim order, however, after
recording the reasons for grant of such an order and why it has chosen not to
adhere to the principles of natural justice at that stage. It must, thereafter
proceed to afford the party respondent an opportunity of hearing before
confirming such ex-parte ad interim order.
In the facts of the present case, the petitioner submits that, orders have been
passed by the NCLT without adherence to the principles of natural justice.
The petitioner was not heard by the NCLT before passing the order. It would
be open to the parties to agitate their respective grievances with regard to
any order of NCLT or NCLAT as the case may be in accordance with law. It
is also open to the parties to point out that the NCLT and the NCLAT are
bound to follow the principles of natural justice while disposing of
proceedings before them.
In such circumstances, the challenge to the vires to Section 7 of the Code of
2016 fails.
31
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
CASE NO. 2
HIGH COURT OF GUJARAT
Essar Steel India Limited & 1 Petitioner(s)
Vs.
Reserve Bank of India & 3 Respondent(s)
Special Civil Application No. 12434 of 2017
Date of order : 17-07-2017
Section 35 (AA) and (AB) of the Banking Regulations Act, 1949 read
with Sections 7 and 9 of the Insolvency and Bankruptcy Code, 2016 and
Article 14, 19 and 226 of the Constitution of India Power of Reserve
Bank of India to give Directions
The petitioner Essar Steel India Limited has invoked jurisdiction of the Court
under Article 14, 19(1)(g) and 226 of the Constitution of India in the matter of
the provisions of Insolvency and Bankruptcy Code, 2016 (in short `IBC') by
challenging the Decision of the Reserve Bank of India (in short `RBI') vide
their Press Release dated 13.06.2017 directing banks to initiate proceedings
against 12 Companies including the Petitioner under the Provisions of IBC
and the decision of Consortium of Lenders to initiate Petition under Section 9
of The Insolvency and Bankruptcy Code, 2016 and failure of the Consortium
of Banks led By State Bank of India (in short `SBI') to implement the package
of debt restructuring approved by the Board of Directors of the Petitioner
Company.
The Gujarat High Court held as under:
Filing of insolvency proceedings would be a decision of the concerned
person, who is entitled to file such application and, therefore, to that extent, it
cannot be said either respondent No.2 (SBI) or 3 (SCB) can be restrained
from filing such application in accordance with law.
It is undisputed fact that filing of such application itself cannot be questioned
or that action cannot be quashed, but it goes without saying that such filing
would not amount to admitting or allowing the petition for insolvency without
offering reasonable opportunity to the company, which is requested to be
taken into insolvency by any such person. Therefore, the adjudicating
authority being NCLT herein, which is constituted in place of the Company
Court, needs to decide on its own based upon factual details that whether the
insolvency petition is required to be entertained as such or not.
32
Orders passed by High Courts
For the purpose, adjudicating authority, certainly requires to extend hearing
and reasonable opportunity to the company to explain that why such an
application should not be entertained. In other words, filing of an application
may not result into mechanical admission of application as seen and posed
by RBI in impugned press release. It would be a decision based on judicial
discretion by the adjudicating authority to deal with such application in
accordance with law and based upon facts, evidence and circumstance
placed before it.
Then, remains the only issue that whether RBI is empowered to publish
press release dated 13.6.2017 or not. So far as directions to the Bank to
initiate insolvency proceedings against companies, which are in debt to
certain level or extent, the amended provisions of the Banking Regulation
Act, 1949 in the form of Sections 35(AA) and (AB), certainly makes it clear
that, now, RBI has such powers to issue certain directions to certain Banks
and banking companies so as to see that there is proper recovery of public
money or for any other such purpose. Therefore, the issuance of press
release alone, cannot be quashed and set-aside.
The issue that remains is now limited to the scrutiny that whether such press
release is in accordance with law and whether it results into infringing any
fundamental right of anybody, more particularly, present petitioner and
whether it is arbitrary, discriminatory and without applying proper provisions
of concerned law.
The bare reading of Section 35(AA) makes it clear that the RBI is authorised
to issue directions to initiate insolvency resolution process in respect of a
default, and explanation makes it clear that the default has the same
meaning as assigned to it in Clause (12) of Section 3 of the Insolvency and
Bankruptcy Code, which means non-payment of debt when whole or any part
or instalment of the amount of debt has become due and payable and is not
repaid by the debtor or the corporate debtor as the case may be. Therefore,
when it is undisputed fact that the petitioner company has not paid its debt to
the tune of more than Rs.32,000 Crores at the end of 31.3.2017 and when
total debt is more than Rs.45,000 Crores, it is clear and obvious that RBI is
authorised to direct any banking company to initiate insolvency resolution
process.
When RBI has categorically confirmed that their decision is based upon the
advise received from their Internal Advisory Committee, and more
particularly, when decision is to the effect that the companies which have
outstanding debt with more than 60% non-performing accounts for more than
33
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
a year beyond Rs.5,000 Crores, the concerned Bank should initiate
insolvency proceeding at the earliest. It cannot be said that there is
classification of companies in any nature whatsoever. So far as identifying
disclosure in paragraphs 3 and 4 of press release dated 13.6.2017 as
classification is concerned, in fact there is no classification because in
paragraph 4 also, it is stated that for rest of the companies against whom
advise is issued for initiating insolvency resolution proceedings at the
earliest, wherein petitioner No.1 includes the concerned Banks, which
finalised a resolution plan within six months and if resolution plan is not
agreed upon by companies within six months, then in those cases also,
Banks are required to file insolvency proceedings. Therefore, practically,
there is no classification, but only time schedule is given that companies
whose debt is more than Rs.5,000Crores, which is totalling 25% of current
gross NPA of the country, insolvency proceedings need to be initiated at the
earliest and in rest of the companies, if resolution plan could not be finalised
within six months, then, insolvency proceedings should be initiated.
Therefore, there is no direction that insolvency proceeding is to be initiated
only against particular company(ies) and not to be initiated against any
particular company(ies). It goes without saying that any action is to be
started with someone and may not lie against all at the time. It also goes
without saying, as already recorded herein above that for filing any such
proceeding, none of the financial company or Bank requires either the
permission or direction from RBI for other agency or authority because it is
their independent and absolute right to initiate any such proceeding/s.
Therefore also, when respondents No.2 and 3 can initiate insolvency
proceedings irrespective of any such directions, either by RBI or by any other
authority, it cannot be said that direction by RBI or filing of petition by
respondents No.2 and 3 is unwarranted or arbitrary. However, as already
discussed herein above, filing of petition is different from admitting or
allowing the petition and to that extent, this Court has issued notice to
ascertain, affirm and reconfirm the position that it would be solely at the
discretion of the adjudicating authority either to admit the petition and to
proceed further in accordance with law or to refuse to admit the petition. It is
also clear that such decision of the adjudicating authority, would be a judicial
determination and, therefore, such authority has to deal with the rival
submissions and factual details on the subject before taking any decision.
Thereby, such adjudicating authority cannot be considered as mere
rubberstamp authority at the hands of RBI or any other institution. In view of
above facts, the petition needs to be disposed of with certain observations
when petitioner is not entitled to any relief/s as prayed in this petition.
34
Orders passed by High Courts
When petitioner has not challenged the provision of Insolvency and
Bankruptcy Code, I have not to deal with such issue at this stage except to
dispose of this petition, more particularly, when there is no scope of granting
interim relief in favour of the present petitioner. Refusal of interim relief is
obvious because petitioner company is in debt of more than Rs. 45,000
Crores for couple of years, its NPA was more than Rs. 32,000 Crores in last
year and more than Rs. 31,000 Crores in previous year. It is also clear that
when total debt is more than Rs. 45,000 Crores, there is no option, but to
leave the issue at the discretion of the lenders to take appropriate steps in
accordance with law, thereby, without interference of this Court under the
constitutional mandate. However, at the cost of repetition, it is made clear
that factual details and on-going process of restructuring plan and other
details would be taken care of by NCLT before taking any decision on merits.
Conclusion
(A) The Respondent No. 1 RBI has to be careful while issuing press
releases; it must be in consonance with the Constitutional Mandates,
based upon sound principles of Law, but in any case should not be in
the form of advise, guidelines or directions to judicial or quasi-judicial
authorities in any manner what so ever.
(B) Since the press release is referring the earlier press release dated May
22, 2017, and since in such press release there is reference of S4A -
Scheme for Sustainable Structuring of Stressed Assets, which is also
introduced on the same day i.e. 13.6.2017; it would be appropriate for
RBI to see that benefit of all its schemes is equally offered and
extended to all without any discrimination. It is quite clear and obvious
that Court has to see that there is no arbitrariness or discrimination by
State or its authorities.
(C) It cannot be held that directions under reference is in nature of
classification or such classification is irrational, unjust, arbitrary or
discriminatory; but it would be appropriate for RBI to see that benefit of
all its schemes is equally offered and extended to all without any
discrimination.
(D) It cannot be held that Banking Company is not entitled to initiate
insolvency proceedings without the directions of the RBI u/s 35AA of
BRA.
(E) It cannot be held that directives of RBI under reference by impugned
press release is binding upon SCB and therefore SCB is bound to
35
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
consider the restructuring proposal by the petitioner, wherein petitioner
has offered to start payment of dues only after 25 years and that too
only with 1 % interest. Therefore relief in terms of para 7(c) cannot be
granted.
(F) Only because SCB has corresponded to SBI for its proposal with
reference to JLF activities, it cannot be held that SCB could not have
initiated insolvency proceedings but it has done it only because of RBI
guidelines by way of press release.
(G) Provisions of IBC may be drastic to some extent, but since it is part of
statue which is yet not declared unconstitutional and therefore they are
to be followed, but in consonance with Constitutional mandate by all
concerned i.e.
(1) Not to act upon it mechanically and that all provisions may not be
treated mandatory but it could be treated directive only based
upon facts, circumstances and evidence available before the
authority (judgment dated 1.5.2017 in Company Appeal (AT)
No.09 of 2017 between J.K. Jute Mills Co. Ltd. v. M/s. Surendra
Trading Company by the National Company Law Tribunal);
(2) Without being guided by any advice or directions in any form or
nature viz: impugned press release. There is reason to say so
because RBI has tried to do so and changed its document when
called upon to explain their stand; and
(3) Thereby it is obvious that adjudicating authority may though
proceed in accordance with Law, there should not be undue
pressure on it by administration and period of pendency of present
petition can certainly be considered as reasonable ground to
count the time limit from the date of receipt of writ of this order.
(H) So far factual details of Petitioner Company with reference to its
activities and exercise of restructuring through JLF is concerned, it
would be appropriate not to enter into any determination on such point
since that would be the subject matter before the Adjudicating Authority
under IBC (i.e. NCLT) and therefore it is left open for it to consider it for
its determination in accordance with Law, to avoid any prejudice to
either party by discussion and determination on any such issue at this
stage by this Court, where core issue is whether there is reasonable
classification by the RBI and not that whether insolvency proceedings
should be admitted or continued or not.
36
Orders passed by High Courts
(I) For the same reason, issue of suppression of material facts or false
statement is not much material at this stage because to decide that
information or fact if at all suppressed or false is whether material or not
would require same exercise and that may prejudice either side.
Moreover, petition can be disposed of even without determining such
issue and therefore no determination is required on such issue.
(J) Pursuant to decision in Ionic Metaliks (supra), no writ can be issued
against SCB and therefore petition stands dismissed against
Respondent No. 3/SCB. Factual details between the Petitioner and SCB
has been avoided to be discussed further because this Court has not to
decide the validity or proprietary of action by SCB against the petitioner
when petition by SCB against petitioner is pending before the NCLT
and therefore discussion and determination on factual issues may
prejudice either side.
CASE NO. 3
HIGH COURT AT CALCUTTA
Akshay Jhunjhunwala & Anr.
Vs.
Union of India through the Ministry of Corporate Affairs & Ors.
W.P. No. 672 of 2017
Date of Order: 02-02-2018
Section 7, 8, 9 of the Act and its Constitutional Validity
Facts:
According to Petitioner distinction between a financial and an operational
creditor in respect of a corporate debtor does not have a rational and
intelligible basis. The differentiation between the two categories of creditors
being unintelligible and irrational, the provisions of Sections 7, 8 and 9 of the
Code of 2016 should be struck down. He has submitted that, undue
preference has been given to a financial creditor. A financial creditor has a
right to be in the Committee of Creditors (COC) of a corporate debtor in an
insolvency proceeding. An operational creditor, although such creditor may
have a claim far in excess than that of the financial creditor, will have no say
in the Committee of Creditors. In a given situation, a corporate debtor may
have only one financial creditor. Such financial creditor will constitute COC,
37
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
without any participation from any other category of creditors of a corporate
debtor including that of an operational creditor, although such operational
creditor in a given case may have a claim in excess of the financial creditor
and the number of operational creditors may exceed the number of financial
creditors. Such a distinction between two categories of creditors in respect of
the same financial debtor is unjust, unfair, impracticable, irrational and ought
not to be countenanced by the Court.
Decision:
The Bankruptcy Committee gives a rationale to the financial creditors being
treated in a particular way vis-à-vis an operational creditor in an insolvency
proceeding with regard to a company. The rationale is a plausible view taken
for an expeditious resolution of an insolvency issue of a company. Courts are
not required to adjudge a legislation on the basis of possible misuse or the
crudities or inequalities that may be perceived to be embedded in a
legislation. The rationale of giving a particular treatment to a financial creditor
in the process of insolvency of a company under the Code of 2016 cannot be
said to offend any provisions of the Constitution of India. The contentions of
breach of principles of natural justice were raised and considered in Sree
Metaliks Limited & Anr. and Innoventive Industries Limited. Such contentions
were found to be misplaced. Nothing is placed on record that, a different view
should be taken on the ground of breach of principles of natural justice in a
proceeding under the Code of 2016.
Constitutional Validity of The Code has been upheld.
SECTION-14
CASE NO. 4
HIGH COURT OF DELHI
Power Grid Corporation of India Ltd (Petitioner)
Vs.
Jyoti Structures Ltd.(Respondent)
O.M.P.(COMM.) 397/2016
Date of Order: 11-12-2017
Section 14 : Is section 14 moratorium applicable to all proceedings both
in favour & against Corporate Debtor or just against the corporate
debtor?
38
Orders passed by High Courts
Facts:
There was Arbitration proceeding under section 34 and pure money decree
was in favor of the corporate debtor (CD). During the pendency of these
proceedings under section 34 of the Act, an application under Section 7 of
the Insolvency and Bankruptcy Code 2016 (IBC) admitted against the CD.
The question now has arisen is if the present proceedings under Section 34
of the Act, (Beneficial to CD) need to be stayed, per Section 14 (1)(a) of the
Code?
Decision:
The continuation of these proceedings shall cause no harm to either party's
rights to seek determination of issues under section 34 of the Act and object
of the code shall be preserved rather than defeated.
Section 14(1)(a) viz., (a) "proceedings do not mean all proceedings .
Moratorium under section 14(1)(a) of the code is intended to prohibit debt
recovery actions against the assets of corporate debtor. The use of
narrower term "against the corporate debtor" in Section 14(1)(a) as
opposed to the wider phase "by or against the corporate debtor" used in
Section 33(5) of the Code further makes it evident that Section 14(1)(a) is
intended to have restrictive meaning and applicability.
39
Chapter 3
Orders passed by National Company
Law Appellate Tribunal (NCLAT)
SECTION-5(21)
CASE NO. 1
Gurcharan Singh Soni & Kuldeep Kaur Soni
Versus
Unitech Ltd.
Section 5 (21) - Home buyers can they be treated as operational
creditors ?
Company Appeal (AT) (Insol.) No. 55 of 2017
Date of Order: 23-08-2017
Facts:
Appellants have challenged the order dated 21 st March, 2017 passed by Ld.
Adjudicating Authority (National Company Law Tribunal), Principal Bench,
New Delhi in Company Petition No. (IB)-29(PB)/2017, whereby and where
under application preferred by Appellants-'Operational Creditor' has been
rejected in terms of order passed in "Sajive Kunwar v. AMR Infrastructure"
decided on 15th February, 2017 by the Adjudicating Authority.
Decision:
In view of the section 5 (21), held that there is a 'debt' due to the appellants
and there is default on the part of the respondents-'Corporate Debtor'.
However, the appellants do not come within the meaning of "Operational
Creditor".
Insolvency And Bankruptcy Code (Amendment) Ordinance 2018 treats
home buyers as financial creditors.
Orders passed by National Company Law Appellate Tribunal (NCLAT)
SECTION-7
CASE NO. 2
Palogix Infrastructure Private Limited (Appellant /Corporate Debtor)
Vs.
ICICI Bank Limited (Respondent / Financial Creditor)
Company Appeal (AT) (InsoL) No. 30 and 54 of 2017
Date of Order: 20-09-2017
Issue: Whether the 'Power of Attorney Holder' given power of attorney
prior to enactment of Insolvency & Bankruptcy Code, 2016, is entitled to
file an application under Section 7 or 9 or 10 of the Insolvency &
Bankruptcy Code, 2016.
Facts:
ICICI Bank Limited filed an application under section 7 of the Code for
initiation of 'Corporate Insolvency Resolution Process' ("CIRP") against
Palogix Infrastructure Private Limited.
The 'Financial Creditor' preferred the application under section 7 through
Power of Attorney Holder. Separate orders were passed by Kolkata bench of
the NCLT, one holding the application through Power of Attorney is not
maintainable (Member Judicial) and the other (Member Technical) held that
the application was maintainable as the Power of Attorney was given in
favour of the Legal Manager to initiate proceedings. The case was referred to
the Hon'ble President, NCLT exercising power under sub Section (5) of
Section 419 of the Companies Act, 2013 for constituting a larger Bench.
By majority judgment, the Adjudicating Authority held that for initiation of
CIRP, there should be specific authorization to the Power of Attorney Holder
to initiate the CIRP. The 'Financial Creditor' having not filed specific
authorization to initiate CIRP, was directed by the order dated 12th April,
2017 to rectify the defects.
The Corporate Debtor challenged the said order and made appeal before the
NCLAT.
Decision:
The Appellate Authority rejected the appeal based on following observation:
41
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
· Section 7 of the Insolvency & Bankruptcy Code, 2016 and Insolvency
and Bankruptcy (Application to Adjudicating Authority) Rules, 2016
(hereinafter referred to as "Adjudicating Authority Rules") and the 'form
and manner' in which an application under section 7 of the Insolvency &
Bankruptcy Code, 2016 is to be filed by a 'Financial Creditor' is provided
in 'Form-1' of 'Adjudicating Authority Rules' recognize that a 'Financial
Creditor' being a juristic person can only act through an "Authorised
Representative". Entry 5 & 6 (Part I) of Form No.1 mandates the
'Financial Creditor' to submit "name and address of the person
authorised to submit application on its behalf.
· Rule 2(6) of the National Company Law Tribunal Rules, 2016 (the
"NCLT Rules") defines an "authorised representative" to be a person
authorised in writing by a party to present his case before the NCLT as
the representative of such party, as provided under section 432 of the
Companies Act. Since the said rule had not been adopted under the IBC
or rules framed thereunder, the NCLAT was of the view that no reliance
can be placed on such rule. Order III of the Code of Civil Procedure,
1908 ("CPC") provides for recognised agents and pleaders, but the CPC
is not applicable for filing an application under the IBC.
· Section 179 of Companies Act empowers the board of directors to do all
such acts that a company is authorised to do. A company being a
juristic person is capable of initiating and defending legal proceedings
and, therefore, the board of directors is empowered to exercise such
rights on behalf of the company, or it may duly empower an authorised
representative to do so on its behalf. By this, the person authorised by
the board of directors is duly empowered to initiate or defend any legal
proceedings by or against the corporate debtor in any court of law,
including the matters relating to insolvency and bankruptcy
proceedings.
· A power of attorney is an authorisation by a `principal' to its `agent' to do
an act. A fortiori, such authorisation can only be of acts which are in the
contemplation and knowledge of the principal as on the date when such
authorisation is given. If the principal itself is unaware of an eventuality,
it cannot authorise its agent for such eventuality. For instance, in
situations where the financial creditor executed the power of attorney,
but it could not have visualised even remotely that the attorney would
be required one day to initiate a corporate insolvency proceeding under
42
Orders passed by National Company Law Appellate Tribunal (NCLAT)
section 7, the attorney cannot initiate the corporate debt resolution
proceedings as he lacks the requisite authority.
· Reliance were made on various judgements where by as per Section 2
of Power of Attorney Act, 1882, the donee of a power-of-attorney may, if
he thinks fit, execute or do any instrument or thing in and with his own
name and signature, and his own seal, where sealing is required, by the
authority of the donor of the power; and every instrument and thing so
executed and done, shall be as effectual in law as if it had been
executed or done by the donee of the power in the name, and with the
signature and seal, of the donor thereof. This section applies to powers-
of-attorney created by instruments executed either before or after this
Act comes into force. But Section 2 of the Power of Attorney Act, 1882
cannot override the specific provision of a statute which requires that a
particular act should be done by a party-in-person.
· The power of attorney holder is the agent of the grantor. When the
grantor, authorises the attorney holder to initiate legal proceedings and
the attorney holder accordingly initiates such legal proceedings, he
does so as the agent of the grantor and the initiation is by the grantor
represented by his attorney holder in his personal capacity.
· IBC is a completely new regime in place. The IBC is a complete code in
itself. It is settled law that a consolidating and amending act like the
present Central enactment forms a code complete in itself and is
exhaustive of the matters dealt with therein.
· It is a settled principle of law that the power of attorney needs to be
interpreted strictly, with the reason behind such principle being that the
powers given are not abused by agent, or that the actions are restricted
only to the extent the power is indicated or given. It was further held that
when the grantor of a power of attorney had authorised the attorney to
initiate suits, the attorney, being armed with such a power of attorney,
cannot initiate a winding up proceeding since a winding up proceeding
under the company law can never be equated with a suit.
· This apart, authorisation in the case of a company would mean a
specific authorisation by the board of directors of the company by
passing a resolution. Therefore, the application under section 7 of the
IBC, if signed and filed by a `general power of attorney holder' without
specific authorisation is not maintainable. Also, the pre- requisites under
the IBC are mandatory and they should be strictly construed; barring a
43
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
specific power of attorney, no application can be entertained. In this
regard, rule 10 of the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016 (the "Adjudicating Authority Rules")
states that until the time rules of procedure for conduct of proceedings
under the IBC are notified, an application made under section 7(1) shall
be filed before the adjudicating authority (i.e., the NCLT) in accordance
with rules 20, 21, 22, 23, 24 and 26 of Part III of NCLT Rules, 2016.
· Rule 23(1) permits an authorised representative to present an
application or petition before the tribunal. The form and manner in which
an application under section 7 is to be filed by a financial creditor is
provided in Form 1 of such Adjudicating Authority Rules. Upon perusal
of the aforesaid rules and Form 1, it may be duly noted that the IBC and
the rules thereunder recognise that a financial creditor being a juristic
person can only act through an "authorised representative". Entries 5
and 6 (Part I) of Form No. 1 mandate that the financial creditor submit
the "name and address of the person authorised to submit application
on its behalf" and requires the authorisation to be enclosed. Further, the
signature block of Form 1 requires the authorised person's detail to be
inserted and includes, inter alia, the position of the authorised person in
relation to the financial creditor.
· If a plea is taken by the authorised officer that he was authorised to
sanction loan and had done so, the application under section 7 cannot
be rejected on the ground that no separate specific authorisation letter
has been issued by the financial creditor in favour of such officer.
· Accordingly, it was held that a 'Power of Attorney Holder' is not
empowered to file application under section 7 of the Code but an
authorised person has power to do so. The Appellate tribunal had
rejected the appeal and the order of admission of application under
section 7 was affirmed.
44
Orders passed by National Company Law Appellate Tribunal (NCLAT)
CASE NO. 3
S3 Electrical & Electronics Pvt. Ltd. (Appellant / Corporate Debtor)
Vs.
Brian Lau (Respondent / Financial Creditor)
Company Appeal (AT) (Insolvency) No. 104 of 2017
Date of Order: 02-08-2017
Section 7 Application for Initiation of Corporate Insolvency Resolution
Process by Financial Creditor
Facts:
The respondent-Brian Lau, a resident of Hong Kong preferred an application
under Section 7 of the Insolvency and Bankruptcy Code, 2016 with a prayer
to initiate Corporate Insolvency Resolution Process against the appellant-
'Corporate Debtor'-S3 Electrical and Electronics Private Limited. Learned
Adjudicating Authority (National Company Law Tribunal), Principal Bench,
New Delhi, by judgement & order dated 28th June,2017, admitted the
application and the appeal was preferred by the corporate debtor, against the
said order.
According to the appellant-Andhra Bank were bankers of Corporate Debtor
and that there is no default shown in the account. The Andhra Bank is
satisfied with the performance of the 'Corporate Debtor'.
The appellant-'Corporate Debtor' has assailed the impugned judgement
mainly on the ground that:
(a) The Adjudicating Authority, Principal Bench, New Delhi passed the
impugned judgement & order without notice to the 'Corporate Debtor',
in violation of the rules of natural justice;
(b) The respondent, 'who claimed to be 'Financial Creditor' do not come
within the meaning of 'Financial Creditor' as defined under sub-section
(7) read with sub-section (8) of Section 3 of the I&B Code;
(c) The respondent failed to produce any record of default or such other
record or evidence of default as specified by the Insolvency and
Banking Board of India; and
(d) The notice under Section 8 was not issued by respondent but by his
Lawyer which is not permissible.
45
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Decision:
The Appellate Tribunal was of the view that though the learned counsel for
the respondent has produced some records and communications to show the
evidence of `Default' such documents cannot be taken into consideration for
the purpose of initiation for Insolvency Resolution Process under section 7 of
the I&B Code and also the order passed by the Adjudicating Authority without
notice to `Corporate Debtor' is in violation of rules of natural justice and
hence the said order is fit to be set aside.
CASE NO. 4
(Arising out of Order dated 11th August 2017 passed by the Adjudicating
Authority (National Company Law Tribunal) Hyderabad Bench, Hyderabad in
Company Petition (IB) No. 97/7/HDB/2017)
IN THE MATTER OF:
Mack Soft Tech Pvt Ltd. ....... Appellant
Versus
Quinn Logistics India Ltd. ....... Respondent
IN THE MATTER OF:
Logvis AG ....... Appellant
Versus
Quinn Logistics India Ltd. .... Respondent
IN THE MATTER OF:
Mecon FZE .... Appellant
Versus
Quinn Logistics India Ltd. ....Respondent
Company Appeal (AT)(Insolvency) No. 143 of 2017
Date of Order: 21-05-2018
Facts:
Mack Soft Tech Private Limited (`Corporate Debtor') was developing an office
complex by the name of `Q-City' in Hyderabad. While it was in developing
process, the `Quinn Logistics India Private Limited' (`Financial Creditor')
acquired the entirety/majority of the shareholding of the `Corporate Debtor'
for a total consideration of Rs.126.73 crores.
46
Orders passed by National Company Law Appellate Tribunal (NCLAT)
According to the `Quinn Logistics India Private Limited' (`Financial Creditor'),
`Mack Soft Tech Private Limited' (`Corporate Debtor') becomes subsidiary
Company of the `Financial Creditor'. During the period 2007-2010, the
`Financial Creditor' disbursed an interest free unsecured loan of Rs. 62.90
crores to the `Corporate Debtor' for development of `Q-City'. Such interest
free loan at the relevant time was permitted under the provision of Section
327A (8) of the Companies Act, 1956.
`Mack Soft Tech Private Limited' (`Corporate Debtor'), `Quinn Logistics India
Private Limited' (`Financial Creditor'), `Quinn Investments Sweden AB' and
`Quinn Logistics Sweden AB' were all part of a group of companies controlled
by an Irish businessman, Mr. John Sean Ignatius Quinn, and his family
("Quinn Family"). They were part of a group of Companies known as the
"Quinn Group". In April 2011, the "Quinn Group" defaulted in repayment of
loans amounting to 2.8 billion Euro taken from one Anglo Irish Bank Ltd.
(now known as Irish Bank Resolution Corporation (In Special Liquidation)
("IBRC"), which is controlled by the Minister of Finance for the Government of
Republic of Ireland in terms of the Irish Bank Resolution Corporate Act, 2013.
Part of default included default by `Quinn Investments Sweden AB' under a
guarantee furnished to IBRC in respect of such loans. It resulted in IBRC
initiating bankruptcy proceedings in Sweden against `Quinn Investments
Sweden AB'.
Subsequent to reserving of such order the Board of Directors of the
`Corporate Debtor' (Mack Soft Tech Private Limited) purported to show
dilution of the Respondent's shareholding in `Mack Soft Tech Private Limited'
by allegedly issuing 376,301 fresh equity shares to one `Mecon FZE', a
Dubai Company, for a consideration of only INR 40,71,578/- in the year
2011. Since then `Mack Soft Tech Private Limited'- (`Corporate Debtor')
ceased to be a subsidiary of the `Quinn Logistics India Private Limited'-
(`Financial Creditor').
On the date of such issue, the Board of Directors of the `Quinn Logistics
India Private Limited' (`Financial Creditor') was under control by the Quinn
Family as the Quinn Family was in control of the `Quinn Investments Sweden
AB' and the `Quinn Logistics Sweden AB'. Such issue of shares to `Mecon
FZE' is the subject matter of challenge in Suit No. OS21 of 2012 filed, inter-
alia, by the `Quinn Logistics India Private Limited'- (`Financial Creditor')
before the learned District Judge, Rangareddy Court, Hyderabad.
47
Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
The `Quinn Logistics India Private Limited'-(`Financial Creditor') by its letter
("Loan recalled notice") dated 15th June 2017, called upon the `Mack Soft
Tech Private Limited'- (`Corporate Debtor') to repay the alleged outstanding
loan amount of Rs. 62,90,45,905/- (Sixty-two crores ninety lakh forty-five
thousand nine hundred five only) on or before 30th June 2017.
In response to the letter, the `Mack Soft Tech Private Limited'- (`Corporate
Debtor') by letter dated 29th June 2017, sought time to verify its records to
clarify the position.
According to the `Mack Soft Tech Private Limited'- (`Corporate Debtor'), there
is no amount outstanding in the books of account of the `Corporate Debtor'
payable to the `Quinn Logistics India Private Limited'- (`Financial Creditor').
Having not received the amount, the `Quinn Logistics India Private Limited'-
(`Financial Creditor') filed an application under Section 7 of the Insolvency
and Bankruptcy Code, 2016 (hereinafter referred to as "I&B Code") for
initiation of the `Corporate Insolvency Resolution Process' before the
Adjudicating Authority against the Mack Soft Tech Private Limited-
(`Corporate Debtor').
On notice from the Adjudicating Authority (National Company Law Tribunal),
Hyderabad Bench, the `Mack Soft Tech Private Limited'-(`Corporate Debtor')
raised its objections. However, objections were not accepted by the
Adjudicating Authority. By impugned order dated 11th August 2017
("Insolvency Commencement Date") passed in CP (IB) No. 97/7/HDB/2017,
admitted the application, order of `Moratorium' was passed and `Interim
Resolution Professional' has been appointed with certain directions.
Arguments presented before the AA by Learned Senior Counsel for the
appellant:
Learned Senior Counsel for the Appellant- `Mack Soft Tech Private Limited'
(`Corporate Debtor') submitted that the Respondent- (`Financial Creditor')
was the parent company of the `Mack Soft Tech Private Limited'-(`Corporate
Debtor'). The books of account of the Appellant- (`Corporate Debtor') used to
be maintained by the Respondent- (`Financial Creditor') and the common
auditor. Since 2011, there being a change in control of shareholding and
management and the current shareholder took control of the `Corporate
Debtor' and therefore, the Respondent- `Financial Creditor' was no longer the
parent company of the Appellant- "Corporate Debtor".
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
It was submitted that at the time of takeover (since 2009) the balance sheet
showed a book entry of Rs. 62.9 Crores as owing to the Respondent-
(`Financial Creditor'). In the second suit they have casually referred to Rs. 62
Crores payable by the Appellant- (`Corporate Debtor') but had not sought to
recover the same in its prayer.
Further, according to the Appellant- (`Corporate Debtor'), in respect of books
of account entry of Rs. 62.9 Crores from 2011 to 2017, the Respondent-
(`Financial Creditor') did not treat it as a debt that was due and payable but
merely as a book entry.
It was submitted that the Appellant- (`Corporate Debtor') having realized that
there was no document in support of the accounts for this entry and in
absence of any correspondence, claim or demand the Appellant changed the
entry from its balance sheet and removed the name of the Respondent-
(`Financial Creditor'). Therefore, according to the Appellant- (`Corporate
Debtor'), as per the legal and accounting advice as the amount was required
to be kept on the books until the debt was time barred, after it became time
barred in the year 2016, the amount has not been reflected.
It was submitted that since 2016 there was no demand or correspondence
made by the `Financial Creditor' in respect of Rs. 62.9Crores alleged loan
and on legal advice the loan has been wrote-off. Even if any such loan was
given, it cannot be shown in the books as a claim, it being time barred.
Further, according to learned Senior Counsel for the Appellant on15th June
2017 a demand notice was sent but with no reference to any loan agreement
or document stating how the loan was repayable on the said date. The notice
was sent only with the malicious intention to initiate insolvency proceedings
against the Appellant- (`Corporate Debtor').
It was submitted that on 29th June 2017, the Appellant- (`Corporate Debtor')
informed the Respondent- (`Financial Creditor') that it requires two-three
weeks' time to verify its records. However, without waiting, in a premeditated
manner, they moved an application under Section 7 of the `I&B Code' on the
ground that the `Corporate Debtor' defaulted in payment of debt of Rs. 62.9
Crores.
In "M/s. Innoventive Industries Ltd. Vs. ICICI Bank & Anr.2017", the Hon'ble
Supreme Court raised the question of maintainability of the appeal by the
`Corporate Debtor' after initiation of `Corporate Insolvency Resolution
Process' and observed:
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
"According to us, once an insolvency professional is appointed to manage
the company, the erstwhile directors who are no longer in management,
obviously cannot maintain an appeal on behalf of the company. In the
present case, the company is the sole appellant. This being the case, the
present appeal is obviously not maintainable. Entrenched managements are
no longer allowed to continue in management if they cannot pay their debts."
According to the learned Senior Counsel for the Appellant-`Corporate
Debtor', the appeal under Section 61 was maintainable as it has been filed
through Director. Reliance has been placed on the decision of this Appellate
Tribunal in "Steel Konnect (India) Pvt. Ltd. V. M/s. Hero Fincorp Ltd.-
Company Appeal (AT) (Insolvency) No. 51 of 2017", wherein this Appellate
Tribunal held that after initiation of `Corporate Insolvency Resolution
Process', the aggrieved parties including the `Corporate Debtor' can prefer
the appeal under Section 61 of the `I&B Code'.
Grounds for appeal filed by the appellant:
Learned Senior Counsel for the Appellant challenged the impugned order on
the ground that the application did not satisfy the basic requirements of
Section 7.
A bare perusal of the statutory requirements would show that the same is
bereft of the information required statutorily to be provided under Section
7(2) and (3) of the `I&B Code'.
It was further submitted that the Respondent- (`Financial Creditor') has not
filed any documents "in order to prove the existence of financial debt, the
amount and the date of default", as it required in the statutory Form-1.
It was submitted that the Applicant in terms of Section 7(3) of the `I&B Code'
is required to provide clear proof of default, either maintained by an
Information Utility or any other additional documents to prove default of the
`financial debt', which they failed to provide.
NCLAT Observations:
NCLAT has heard the parties and also perused Form 1.Respondent-
(`Financial Creditor') has shown the amount disbursed byway of payments
made for, and on behalf of the Appellant- (`Corporate Debtor') between
October 2007 and July 2010.
The amount claimed to be shown as Rs. 62,90,45,905/- and the date of
default has been shown as 15th June2017, when the `Corporate Debtor'
failed to repay the outstanding loan amount in spite of notice.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
On bare perusal of the aforesaid Part V of Form 1, it shows that the Form is
complete and there is no infirmity in the same.
Learned Senior Counsel appearing on behalf of the Appellant-(`Corporate
Debtor') submitted that certain payments have been made in favour of the
`Indu Projects', which has been shown as debt of Appellant.
However, no detail deliberation is required to be made on such issue, as it
has been brought on record that the payments were made by the
Respondent- (`Financial Creditor') to Indu Projects on behalf of the
`Corporate Debtor', which is not in dispute.
In the present case, it is not in dispute that the Respondent-(`Financial
Creditor') given loan to the Appellant- (`Corporate Debtor') in connection with
`Q-City' project. The Appellant- (`Corporate Debtor') has taken plea that the
amount so paid is now time barred which is a different issue but the
Appellant- (`Corporate Debtor') had taken debt from the Respondent-
(`Financial Creditor') has not been disputed. It is not the case of the
Appellant- (`Corporate Debtor') that there is no debt, or no default has
occurred in a sense that the debt, which may also be included a disputed
claim is not true. The debt cannot be claimed to be not due being payable in
law and in fact the Appellant- (`Corporate Debtor') having accepted that it
obtained loan from the Respondent- (`Financial Creditor').
The default has occurred as evident from the fact that the Respondent-
(`Financial Creditor') asked for refund of the amount by notice dated 15th
June, 2017. In reply after asking for two weeks' time, the Appellant-
(`Corporate Debtor') failed to pay the amount.
This Appellate Tribunal in "M/s. Speculum Plast Pvt. Ltd. Vs. PTC Techno
Pvt. Ltd. Company Appeal (AT) (Insolvency) No. 47 of 2017" held that the
law of limitation is not applicable to `I&B Code' and observed as follows:
"In view of the settled principle, while we hold that the Limitation Act, 1963 is
not applicable for initiation of `Corporate Insolvency Resolution Process', we
further hold that the Doctrine of Limitation and Prescription is necessary to
be looked into for determining the question whether the application under
Section 7 or Section 9 can been tertained after long delay, amounting to
laches and thereby the person forfeited his claim."
If there is a delay of more than three years from the date of cause of action
and no laches on the part of the Applicant, the Applicant can explain the
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
delay. Where there is a continuing cause of action, the question of rejecting
any application on the ground of delay does not arise.
Therefore, if it comes to the notice of the Adjudicating Authority that the
application for initiation of `Corporate Insolvency Resolution Process' under
section 7 or Section 9 has been filed after long delay, the Adjudicating
Authority may give opportunity to the Applicant to explain the delay within a
reasonable period to find out whether there is any laches on the part of the
Applicant."
NCLAT Conclusion Remarks:
In the present case, there is a continuous cause of action which will be
evident from the books of account of the `Corporate Debtor', wherein it is
accepted the liability of loan payable to the Respondent- (`Financial
Creditor'). There being a continuous cause of action, the application under
Section 7 of the `I&B Code' cannot be held to be barred by limitation.
It is not in dispute that the Appellant- (`Corporate Debtor') was developing an
office complex by the name of Q-City Hyderabad. In the process of
developing such office complex on prescribed date, the Respondent-
(`Financial Creditor') acquired the majority of the shareholding of the
Appellant- (`Corporate Debtor') for a total consideration of Rs. 162.73 Crores.
Subsequently, in between 2007-2010,the `Financial Creditor' granted interest
free unsecured loan of Rs. 62.90Crores to the Appellant- (`Corporate Debtor')
for development of `Q-City'.
Grant of loan and to get benefit of development is object of the Respondent-
(`Financial Creditor'), as apparent from their `Memorandum of Association'.
Thus, we find that there is a `disbursement' made by the Respondent-
(`Financial Creditor') against the `consideration for the time value of money'.
The investment was made to derive benefit of development of `Q-City', which
is the consideration for time value of money. Thus, we find that the
Respondent- (`Financial Creditor') come within the meaning of `Financial
Creditor' and is eligible to file an application under Section 7, there being a
`debt' and `default' on the part of the `Corporate Debtor'.
For the reasons aforesaid, we are not inclined to interfere with the impugned
order dated 11th August 2017 passed by the Adjudicating Authority in CP
(IB)No. 97/7/HDB/2017. All other connected appeals being preferred by the
other shareholders of the `Corporate Debtor' against same very impugned
order dated 11th August 2017 also fail for reason aforesaid.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
CASE NO. 5
Bharti Defence And Infrastructure Limited (Appellant)
Vs.
Edelweiss Asset Reconstruction Company Limited (Respondent)
Company Appeal (AT) (Insolvency) No. 71 of 2017
Date of Order: 17-10-2017
[Arising out of Order Dated 6th June, 2017 passed by NCLT (Mumbai
Bench)]
Section 7 read with section 239 and section 240 and Chapter- V of Part
IV of the Insolvency and Bankruptcy Code, 2016 (IBC) Initiation of
Corporate Insolvency Resolution Process (CIRP) by Financial Creditor
Facts:
An Application under section 7 of the IBC was filed against the Appellant
before the NCLT Mumbai bench. The Application was admitted and the Order
was passed. This was challenged in this appeal.
Appellants Justification
The Appellant stated that the `Financial Creditor' failed to produce the record
of evidence of default in terms of section 7(3)(a) of the IBC, as by virtue of
Notification dated 30th March, 2017 the provisions contained in Chapter V of
Part IV of IBC relating to Information Utility have been notified. Under section
215 of IBC, a financial creditor is required to submit in prescribed form to the
`Information Utility', financial information and information relating to assets in
relation to which any security interest is created. As per the Appellant, in the
absence of record of the default recorded with the information utility[as seen
from SN 3 of Form 1 prescribed under Rule 4 of the Insolvency and
Bankruptcy (Application to Adjudicating Authority) Rules, 2016], no
application can lie before the Adjudicating Authority.
The Applicant further contended that no regulation has been framed by the
Insolvency and Bankruptcy Board of India (IBBI) through the power given in
sec 240(2)(f) for specifying "such other record of evidence of default" for the
purpose of sec 7(3)(a) and therefore in its absence the petition is not
maintainable.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
As per sec 239(2)(c ) of the IBC the power under the said section given to
Central Government cannot be construed to include specification of the
record of default, which are required to be submitted to the Adjudicating
Authority u/s 7 as it includes only the form, manner and fee for making the
application .
Therefore, power is conferred only with the Board under sec 240(2)(f) and no
regulation have been framed.
Further as per Regulation 8 of the Insolvency Regulations the records of
default to be submitted to the `Insolvency Resolution Professional' as a later
stage, cannot be made applicable in the pre-admission stage of furnishing
evidence before the Adjudicating Authority.
It was further stated that the details in terms of Form 1 is required to be
given, the provisions being mandatory. Merely writing not applicable against
the particulars at SN 3 of Part V of Form 1 of "whether the information is
contained in the Information Utility" is not justified.
Respondents Justification
The Respondent stated that the Adjudicating Authority is required to
ascertain only the existence of default from the documents filed u/s 7. It was
also mentioned that the application u/s 7 in Form-1 of the Adjudicating
Authority Rules along with all the annexures were complete.
Decision:
The Appellate Tribunal referred to the case of Neelkanth Township and
Construction Pvt Ltd Vs Urban Infrastructure Trustees Limited wherein it
was held that:
· The procedural provision cannot override the substantive obligation of
the adjudicating authority to deal with applications u/s 7 merely on the
ground that Board has not stipulated or framed regulations with regard
to sec 7(3)(a).
· In the absence of regulation framed by IBBI, "the documents", "record"
and "evidence of default" prescribed at Part V of Form 1, of
Adjudicating Authority Rules 2016 will hold good to decide the default
of debt for the purpose of Sec 7.
· Regulation 8 of Corporate Person Regulation, 2016 relate to claims by
`Financial Creditor'. Regulation 11(2) relates to `existence of debt due
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
to Financial Creditors' which is to be proved on the basis of document
mentioned therein.
· Therefore, the stand of the appellant that the Board has not framed
any Regulation, relating to sec 7(3)(a) cannot be accepted.
The Appellate Tribunal held that the Respondent had enclosed in the
Application under Section 7 in Form 1 the details of the record of debt and
record of default. Hence, since the application was complete, it was admitted.
CASE NO. 6
Ravi Mahajan (Appellant)
Vs.
Sunrise Denmark A/S, Denmark (Respondent)
Company Appeals (AT) (Insolvency) Nos. 141 & 146 of 2017
Date of Order: 06-12-2017
Facts:
Application u/s 7 is filed by Sunrise 14 A/S, Denmark a company
incorporated under Danish Law against M/S Muskan Power Infrastructure
Limited (Corporate Debtor).
NCLT, Chandigarh Bench vide order dated 28/07/2017 admitted the
application and declared moratorium and vide order dated 3/08/2017
appointed Interim Resolution Professional (IRP) and passed certain
directions.
Both the orders passed by NCLT, Chandigarh Bench are under appeal.
Ld. Counsel of the Appellant submitted that;
· As per section 7(3)(a) of IBC, record of default or certificate from
financial institution is to be furnished along with the application u/s 7
of IBC.
· In Part V of Form 1 submitted by the Respondent, it was mentioned
that these documents referred to record of default are not filed.
· Therefore, as no documents for record of default were submitted by
Financial Creditor, application is not maintainable as per section 7 of
IBC.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Ld. Counsel of the Respondent submitted that;
· Objections were not raised by Appellant before Adjudicating Authority.
· Adjudicating Authority should follow Golden Rule of Principles of
Interpretation to interpret existence of default. The Court should follow
the purposive interpretation to achieve the objective i.e. existence of
default to the satisfaction of the Appellate Authority which has been
done.
· Therefore it cannot be alleged that there is failure on the part of
Respondent to product record of default in terms of section 7(3)(a)
Appellate Authority on hearing both the parties and perusal of record
contented that;
· In part V of Form 1, details of financial contracts have been mentioned
to prove existence of financial debt and date of default, however no
record of default is recorded with information utility or any other
evidence of default has been enclosed as per IBC.
· Though the application is in the form and manner along with fees
prescribed as per section 7 (2), it is mandatory to comply with
subsection 3 of section 7 regarding record of default.
· As per Rule 6 of Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016, Financial Creditor has to make an
application u/s 7 in Form 5 accompanied with documents and records
required.
· Section 7(3) read with Rule 6/Form 5 of Adjudicating Authority Rules,
it is mandatory to provide relevant documents and enclose relevant
records of default to the application.
· In case of no enclosure or information, application shall be treated as
defective/incomplete and liable to be rejected.
· As the application is not complete as per section 7 of IBC and also
this has been filed by Mr Rohit Khanna, who is neither Authorized
Representative nor holds any position with or in relation to Financial
Creditor, the application is not maintainable.
· Hence impunged orders dated 28/07/2017 and 03/08/2017 cannot be
sustained and are set aside.
· The appellant company is released from the rigour of law and is
allowed to function independently from immediate effect.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
CASE NO. 7
Nikhil Mehta and Sons HUF (Appellants)
Vs.
AMR Infrastructure Ltd. (Respondent)
Company Appeal (AT) (Insolvency) No. 07 of 2017
Date of Order: 21-07-2017
Section 7 read with section 5(7)of the Insolvency and Bankruptcy code,
2016 read with rule 4 of the Insolvency and Bankruptcy ( Application to
Adjudication Authority) Rules, 2016 and section 424 of the Companies Act,
2013-Initiation of Corporate Insolvency Resolution process by financial
Creditor.
Facts:
The appellants entered into different agreements/Memorandum of
Understandings with Respondent/Corporate Debtor for purchase of 3 units in a
project developed by Respondent.
One of the unit was purchased by the appellant under the `Committed Return
Plan' as per which if the appellant pays a substantial portion of the total sale
consideration upfront at the time of execution of the MOU. The Respondent
would pay a particular amount to the appellant each month as committed
return/assured return each month from the date of execution of MOU till the time
of handing over the physical possession of the unit.
The Respondent started paying the committed returns to the Appellant as
per the MOU for some time, but stopped thereafter.
In view of the above, the appellants filed application under Section 7 of the Code
before the Adjudicating Authority which was dismissed vide the impugned order.
Respondent's stand
Respondent appeared but did not file any affidavit denying the averments made
by appellants.
Decision:
The Appellate Authority noted that following two questions arose before it for
consideration
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Whether the appellants who reached with agreements/ Memorandum of
Understandings with respondent for the purchase of three units being a
residential flat, shop and office space in the projects developed, promoted
and marketed by the respondent come within the meaning of 'Financial
Creditor' as defined under the provisions of subsection (5) of Section 7 of the
Code?
and
Whether an application for triggering insolvency process under Section 7 of
the Code is maintainable where winding up petitions have been initiated and
pending before the Hon'ble High Court against the 'Corporate Debtor?
As regards the first question, the Appellate Authority quoted the provisions of
section 5(7), section 5(8) and section 7 of the Code as well as the extracts of
the judgment passed by the Learned Adjudicating Authority with regard to the
appellants being Financial Creditors.
Thereafter, the Appellate Authority noted the relevant clause of one of the
MOU dated 12th April, 2008 executed between appellants and respondent.
After scrutinizing the above provisions, the Appellate Authority held that the
appellants are investors and had chosen the committed return plan.
The respondent in their turn agreed upon to pay monthly committed return to
the investors.
Thus, the amount due to the appellants came within the meaning of debt
defined under section 3(11) of the Code.
Furthermore, the Appellate Authority noted from the Annual Return and Form
16A of the respondent that the respondent had treated the appellants as
investors and borrowed amount pursuant to sale purchase agreement for
their commercial purpose treating at par with loan in their return.
Thus, the Appellate Authority held that the amount invested by appellants
came within the meaning of Financial Debt as defined under section 5(8)(f) of
the Code, subject to satisfaction of as to whether such disbursement against
consideration is for time value of money.
For determining time value of money, the Appellate Authority perused the
MOU between the parties providing for monthly committed returns to be paid
to the appellants.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
The Appellate Authority held that it was clear from the MOU that the amount
disbursed by appellant was against consideration of time value of money and
respondent raised the amount by way of sale-purchase agreement, having
commercial effect of borrowing.
This was clear from the annual returns of respondent wherein the amount so
raised/borrowed was shown as commitment charges under the head financial
cost.
Thus, the appellants were Financial Creditors under section 5(7) of the Code.
Accordingly, the Appellate Authority allowed the appeal and remitted the matter
to the Adjudicating Authority to admit the application subject to the condition that
other conditions of section 7 of the Code are satisfied by the appellants.
CASE NO. 8
PEC Ltd (Appellant/ Financial Creditor)
Vs.
Sree Ramkrishna Alloys Ltd (Respondent/ Corporate Debtor)
Company Appeal (AT) (Insolvency) No. 225 of 2017
Date of Order: 13-12-2017
(Arising out of Order dated 29.08.2017 passed by the Adjudicating Authority
(National Company Law Tribunal), Hyderabad Bench, Hyderabad in
Company Petition No. (IB)-39/7/HDB/2017)
Facts:
The Appellant- `M/s. PEC Ltd.' is a Government of India Enterprise, and is a
`Financial Creditor' of Respondent(s)- `Corporate Debtor(s)' of both the
appeals.
The case of the Appellant is that the Respondent- `M/s. Sree Ramakrishna
Alloys Limited' defaulted of Rs.15,16,26,907/- as on 6th March, 2017.
Initially, on demand, the Respondent- `M/s. Sree Ramakrishna Alloys Limited'
issued three cheques which have been bounced, three Criminal Complaints
under Section 138 of the Negotiable Instrument Act, 1881 has been instituted
against the said Respondent being Criminal Complaint No. 40156/2016,
Criminal Complaint No. 18535/2016 and Criminal Complaint No. 18399/2017
pending in Patiala House Courts, New Delhi.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
According to Appellant, the Respondent(s)- `M/s. Sree Ramakrishna Alloys
Limited' has also sold the goods pledged by the Appellant and has
misappropriated the sale proceeds of the stock of pledged goods for which
Criminal Complaints have also lodged by filing FIR before Station House
Officer (SHO), Parawada Police Station, Visakhapatnam-CII.
The Appellant- `M/s. PEC Ltd' filed an application under Section 7 of the
Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "I&B
Code") for initiation of `Corporate Insolvency Resolution Process' against
`M/s. Sree Ramakrishna Alloys Limited'. The said application on notice has
been admitted by impugned order dated 29th August, 2017, order of
moratorium has been passed and `Interim Resolution Professional' has been
appointed. The grievance of the Appellant is that though the application was
preferred by the Appellant under Section 7 of the `I&B Code', at the request
of the Respondent- `M/s. Sree Ramakrishna Alloys Limited' (`Corporate
Debtor'), the application has been treated to be an application under Section
9 of the `I&B Code', and order of admission has been passed.
Learned counsel appearing on behalf of the Appellant submits that in view of
the fact that the application under Section 7 of the `I&B Code' has been
treated to be an application under Section 9 of the `I&B Code', the Appellant
is now deprived of its right as `Financial Creditor' and cannot take part as a
member of `Committee of Creditors' which has a vital role to play. It was
further submitted that the application having filed under Form-1 of the
Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,
2016, (hereinafter referred to as "Adjudicating Authority Rules") the same
cannot be treated to be an application under Form-5 of the Adjudicating
Authority Rules, as per which different informations and records are to be
provided and enclosed.
From the record of both the appeals, we find that the agreement reached
between the Appellant-`M/s. PEC Ltd.' and respective Respondent(s) are
verbatim similar. For the said reason, we are referring one of the agreement,
language of both the agreements being same, except the name of one of the
party.
From relevant fact as pleaded we find that `M/s. Sree Ramakrishna Alloys
Limited' (`Corporate Debtor') by their letter dated 19th February, 2014
intimated the Appellant- `M/s. PEC Ltd.' that the said Respondent has
proposed to procure `M.S. Billets' as per the policies of the Appellant. So, the
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
Appellant was requested to approve and grant clearance for the purchase of
`M.S. Billets' through ILC for Rs. 4,99,97,493/- (Rupees Four Crores Ninety-
Nine Lakhs Ninety-Seven Thousand Four Hundred and Ninety-Three Only)
and enclosed the offer and proforma invoice with request to the Appellant-
`M/s. PEC Ltd.' to arrange an amount of Rs.63,75,000/- (Sixty-Three Lakh
Seventy-Five Thousand Only) towards the 12.5% margin money with
conditions as mentioned therein.
NCLAT Observations:
From the letter referred to above and the agreement, we find that the
Appellant-M/s. PEC Ltd. has disbursed the amount to `M/s. Sree
Ramakrishna Alloys Limited' against the consideration for the time value of
money. It is also clear that M/s. Sree Ramakrishna Alloys Limited by the
agreement dated 24th February, 2014 has borrowed money from the
Appellant-M/s. PEC Limited against the payment of interest. Thus, the
Appellant-M/s. PEC Ltd. come within the meaning of `Financial Creditor' and
is eligible to file an application under Section 7 of the `I&B Code' there being
a debt and default on the part of the Respondent.
Decision:
For the reasons aforesaid, we hold that the Adjudicating Authority failed to
appreciate that the application(s) preferred by Appellant under Section 7 of
the `I&B Code' cannot be treated as an application under Section 9 of the
`I&B Code' and the Appellant who is a `Financial Creditor' cannot be treated
as `Operational Creditor'.
Further, we hold that if an application is filed by a person under Section 7 of
the `I&B Code' and in case the Adjudicating Authority comes to the
conclusion that the Applicant is not a `Financial Creditor' in such case the
Adjudicating Authority has jurisdiction to reject the application under Section
7 of the `I&B Code', but the said Authority cannot treat the format of the
application under Section 7 of the `I&B Code' (Form-1) as an application
under Section 9 of the `I&B Code' (Form-5), nor can treat such person an
`Operational creditor', in absence of any claim made under Section 9 of the
`I&B Code'. Further, as the informations required to be given in Form-1 varies
from the informations as required to be given in Form-5 (As per Section 9),
including instructions made below the requisite form(s), no application filed
under Section 7 can be treated as an application under Section 9 of the `I&B
Code.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Further, for filing an application under Section 9 of the `I&B Code' it is
mandatory to issue a demand notice/invoice of payment under sub-section
(1) of Section 8, but no such requirement is there for filing an application
under Section 7 of the `I&B Code'. Therefore, in absence of a notice under
sub-section (1) of Section 8 of the `I&B Code', an application under Section 7
cannot be treated to be an application under Section 9.
In the present case, as the application preferred by the Appellant under
Section 7 in both the appeals are maintainable and have been admitted,
order of moratorium has been passed and `Interim Resolution Professionals'
have been appointed, no interference is called for against the impugned
order dated 29th August,2017 challenged in Company Petition No. (IB)-
39/7/HDB/2017 and the impugned order dated 29th August, 2017 challenged
in Company Petition No. (IB)-40/7/HDB/2017, except to modify the part of the
order whereby the Appellant is treated to be an `Operational Creditor'. Both
the applications for all purpose should be treated to be an application under
Section 7 of the `I&B Code' and the Appellant-`M/s. PEC Ltd.' in both the
cases should be treated as `Financial Creditor'. The `Interim Resolution
Professionals' are directed to treat the Appellant accordingly, and include the
Appellant as a Member of `Committee of Creditors' in both the cases for
taking decisions in accordance with law.
Both the appeals are allowed with aforesaid observations and directions.
SECTION-8
CASE NO. 9
Senthil Kumar Karmegam
Versus
Dolphin Offshore Enterprises (Mauritius) (P.) Ltd.
Company Appeal (AT) (Insolvency) No. 154 of 2017
Date of Order: 02-11-2017
Section 8 (1) -Can Advocate issue Notice
Facts:
Appeal against admission of application for initiation of `Corporate Insolvency
Resolution Process' & order of moratorium has been admitted on Grounds -
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
that the demand notice under sub-Section (1) of Section 8 was not issued by
the Operational Creditor but by an advocate (and not in prescribed forms 3 or
form 4) on behalf of the `Operational Creditor', which is not permissible.
Decision:
In view of provisions of I&B Code, read with Rules, as referred to above, we
hold that an `Advocate/Lawyer' or `Chartered Accountant' or `Company
Secretary' in absence of any authority of the Board of Directors, and holding
no position with or in relation to the Operational Creditor cannot issue any
notice under Section 8 of the I&B Code, which otherwise is a `lawyer's notice'
as distinct from notice to be given by operational creditor in terms of section
8 of the I&B Code.
In the present case as the demand notice has been given by an advocate
and there is nothing on record to suggest that the advocate in question holds
any position with or in relation to the respondent Dolphin Offshore
Enterprises (Mauritius) Pvt. Ltd. and the demand notice has not been issued
in mandatory Form 3 or Form 4, as stipulated, under Rule 5 of the Insolvency
and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, the
initiation of resolution process cannot be upheld.
In effect, order(s) passed by Ld. Adjudicating Authority appointing any
`Interim Resolution Professional' or declaring moratorium, freezing of
account, if any, and all other order(s) passed by Adjudicating Authority
pursuant to impugned order and action taken by the `Interim Resolution
Professional', including the advertisement published in the newspaper calling
for applications all such orders and actions are declared illegal and are set
aside. The application preferred by Respondent under Section 9 of the I&B
Code, 2016 is dismissed. Learned Adjudicating Authority will now close the
proceeding. The appellant company is released from all the rigour of law and
is allowed to function independently through its Board of Directors from
immediate effect.
Learned Adjudicating Authority will fix the fee of `Interim Resolution
Professional', if appointed, and the appellant will pay the fees of the Interim
Resolution Professional, for the period he has functioned.
Honorable Supreme Court of India
Macquarie Bank Limited vs Shilpi Cable Technologies Ltd an operational
creditor may on the occurrence of a default deliver a demand notice.....
under Section 8 of the Code must be read as including an operational
creditor's authorized agent and lawyer, in Forms 3 and 5 appended to the
Adjudicatory Authority Rules.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
CASE NO. 10
JK Jute Mills Company Limited (Appellant)
Vs.
Surendra Trading Company Limited (Respondent)
Company Appeal (AT) No. 09 of 2017
Date of Order: 01-05-2017
[Arising out of Interim Order Dated 9th March, 2017 passed by NCLT
(Allahabad Bench)]
Section 8 and section 9 of the Insolvency and Bankruptcy Code, 2016
(IBC) Initiation of Corporate Insolvency Resolution Process (CIRP) by
Operational Creditor
Question of Law:
Can AA on request of Operational Creditor grant order of status quo. ?
Whether the time limit prescribed in IBC for admitting or rejecting a petition
or initiation of insolvency resolution process is mandatory?
Facts:
An Application under section 9 of the IBC was filed against the Appellant
before the NCLT Allahabad bench. The OC as well as worker union
requested for grant of status quo, as the CD may alienate it's assets. The CD
oppose for grant of interim relief as there is no express provision in IBC. AA
vide its order dated 09.03.2017 held that Tribunal is conferred under section
11 of NCLT Rules, for providing a substantial justice and directed CD to
maintain status quo in respect of it's immovable property/ fixed assets until
further order. The said interim order is challenged before NCLAT by CD.
The Appellant stated that the petition u/s 9 was filed without following the
mandatory provision of Rule 6(2) OC sought time to rectify the defects, on
next hearing more time was sought by OC. Subsequently, a third party J K
Mills Majdur Sabha filed Misc. Application for intervention.
The CD submitted that the AA became `functus officio' (whose duty /
authority has come to an end) after the time period specified u/s 9 of IBC
therefore it has no power to grant stay on sale of assets.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
The Respondent stated that the time limit prescribed u/s 9 of IBC is directory
and not mandatory. The Court should avoid construction of an enactment
which will lead to an unworkable, inconsistent or impracticable result.
NCLAT Observations:
There are various timelines stated u/s 7, 9, 10, 12 and 16 and mentioned that
if an application is not disposed of or an order is not passed within a period
specified in the Code, the AA may record the reasons for not doing so within
the period specified and request the Hon'ble President of NCLT for extension
of time, who may extend the period specified in the Act but not exceeding 10
days as specified in sec 64(1). The time is the essence of the IBC, but it is to
be seen whether on failure to do so, the AA is competent to pass appropriate
order. If the resolution process is not completed within the time prescribed,
as per sec 33 it will lead to initiation of liquidation proceedings, which
otherwise was not required to be initiated.
The period of 14 days prescribed u/s 9(5) is to be counted from the date of
receipt of application. The word `date of receipt of application' cannot be
treated to be `date of filling of the application' Time taken by Registry needs
to be excluded and time should be counted form the date when such
application is presented before the AA, i.e. the date on which it is listed for
admission / order. The object behind the time period prescribed is to prevent
the delay in hearing the disposal of the cases. The AA cannot ignore the
provisions.
Decision:
In P.T. Rajan Vs. T.P.M. Sahir and Ors (2003), the Hon'ble Supreme Court
observed that it is a well settled principle of law that where a statutory
functionary is asked to perform a statutory duty within the time prescribed,
the same would be directory and not mandatory. Furthermore, a provision in
statue which is procedural in nature although employs the word "shall" may
not be held to be mandatory if thereby no prejudice is caused.
However, the 7 days period for rectification of defect as stipulated is required
to be complied whose application otherwise being incomplete is fit to be
rejected. The proviso to remove defect within 7 days are mandatory and on
failure application are fit to be rejected.
The Court held that the end result of Resolution Process is approval of
resolution plan or initiation of liquidation proceedings, hence the time granted
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
u/s 12 of IBC is mandatory. The term allowed to Interim Resolution
Professional u/s 16 for performance of the duties cannot be held to be
mandatory.
As in the present case, the application was found to be defective hence the
appeal was allowed.
SECTION-9
CASE NO. 11
Kirusa Software Private Ltd. (Appellant/ Operational Creditor)
Vs.
Mobilox Innovations Private Ltd. (Respondents/ Corporate Debtor)
Company Appeal (AT) (Insolvency) 6 of 2017
Date of Order: 24-05-2017
Section 9 read with sections 5, 7 & 8 of the Insolvency and Bankruptcy
Code, 2016 Application for Initiation of Corporate Insolvency
Resolution Process by Operational Creditor
Facts:
The only question arises for considered in this appeal is what does "dispute"
and "existence of dispute" means for the purpose of determination of a
petition under section 9 of the 'I & B Code'?
Decision:
In sub-section (1) of Section 8 of the 'I & B Code', though the word "may" has
been used, but in the context of Section 8 and Section 9 reading as a whole,
an 'Operational Creditor,' on occurrence of a default, is required to deliver a
notice of demand of unpaid debt or get copy of the invoice demanding
payment of the defaulted amount served on the corporate debtor. This is the
condition precedent under Section 8 and 9 of the 'I & B Code', before making
an application to the Adjudicating Authority.
Thus it is evident from Section 9 of the 'I& B Code' that the Adjudicating
Authority has to, within fourteen days of the receipt of the application under
sub-section (2), either admit or reject the application.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
Section 9 has two-fold situations in so far as notice of dispute is concerned.
As per sub-section (5)( 1 )(d) of Section 9, the Adjudicating Authority can
admit the application in case no notice raising the dispute is received by the
operational creditor (as verified by the operational creditor on affidavit) and
there is no record of a dispute is with the information utility.
On the other hand, sub-section (5)(ii) of Section 9 mandates the Adjudicating
Authority to reject the application if the operational creditor has received
notice of dispute from the corporate debtor. Section 9 thus makes it distinct
from Section 7. While in Section 7, occurrence of default has to be
ascertained and satisfaction recorded by the Adjudicating Authority, there no
similar provision under Sections 9.
Under Section 7 neither notice of demand nor a notice of dispute is relevant
whereas under Sections 8 and 9 notice of demand and notice of dispute
become relevant both for the purposes of admission as well as for and
rejection.
Though the words 'prima facie' are missing in Sections 8 and 9 of the Code,
yet the Adjudicating Authority would examine whether notice of dispute in
fact raises the dispute and that too within the parameters of two definitions -
'debt' and 'default' and then it has to reject the application if it apparently
finds that the notice of dispute does really raise a dispute and no other
factual ascertainment is required. On the other hand, if the Adjudicating
Authority finds that the notice of dispute lacks in particulars or does not raise
a dispute, it may admit the application but in either case, there is neither an
ascertainment of the dispute, nor satisfaction of the Adjudicating Authority.
Sub Section (6) of Section 5 defines "dispute", to include, unless the context
otherwise requires, a dispute pending in any suit or arbitration proceedings
relating to:
(a) existence of amount of the debt;
(b) quality of good or service;
(c) breach of a representation or warranty.
The definition of "dispute" is "inclusive" and not "exhaustive". The same has
to be given wide meaning provided it is relatable to the existence of the
amount of the debt, quality of good or service or breach of a representation
or warranty.
Once the term "dispute" is given its natural and ordinary meaning, upon
reading of the Code as a whole, the width of "dispute" should cover all
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
disputes on debt, default etc. and not be limited to only two ways of disputing
a demand made by the operational creditor, i.e. either by showing a record of
pending suit or by showing a record of a pending arbitration.
The intent of the Legislature, as evident from the definition of the term
"dispute", is that it wanted the same to be illustrative (and not exhaustive). If
the intent of the Legislature was that a demand by an operational creditor
can be disputed only by showing a record of a suit or arbitration proceeding,
the definition of dispute would have simply said dispute means a dispute
pending in Arbitration or a suit.
The statutory requirement in sub-section (2) of Section 8 of the 'I & B Code'
is that the dispute has to be brought to the notice of the Operational Creditor.
The two comes post the word 'dispute' (if any) have been added as a matter
of convenience and/or to give meaningfulness to sub-section (2) of Section 8
of the 'I & B Code'. Without going into the grammar and punctuation being
hapless victim of pace of life, if one discovers the true meaning of sub-
section (2)(a) of Section 8 of the 'I & B Code', having regard to the context of
Sections 8 and 9 of the Code, it emerges both from the object and purpose of
the 'I & B Code' and the context in which the expression is used, that
disputes raised in the notice sent by the corporate debtor to the Operational
Creditor would get covered within sub-section (2) of Section 8 of the 'I & B
Code'.
The true meaning of sub-section (2)(a) of Section 8 read with sub-section (6)
of Section 5 of the 'I & B Code' clearly brings out the intent of the Code,
namely the Corporate Debtor must raise a dispute with sufficient particulars.
And in case a dispute is being raised by simply showing a record of dispute
in a pending arbitration or suit, the dispute must also be relatable to the three
conditions provided under sub-section (6) of Section 5 (a)-(c) only. The
words 'and record of the pendency of the suit or arbitration proceedings'
under sub-section (2)(a) of Section 8 also make the intent of the Legislature
clear that disputes in a pending suit or arbitration proceeding are such
disputes which satisfy the test of subsection (6) of Section 5 of the 'I & B
Code' and that such disputes are within the ambit of the expression, 'dispute,
if any'. The record of suit or arbitration proceeding is required to demonstrate
the same, being pending prior to the notice of demand under sub-section 8 of
the 'I & B Code'.
It is a fundamental principle of law that multiplicity of proceedings is required
to be avoided. Therefore, if disputes under sub-section (2)(a) of Section 8
read with sub-section (6) of Section 5 of the 'I & B Code' are confined to a
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
dispute in a pending suit and arbitration in relation to the three classes under
subsection (6) of Section 5 of the 'I & B Code', it would violate the definition
of operational debt under sub-section (21) of Section 3 of the 'I & B Code'
and would become inconsistent thereto, and would bar Operational Creditor
from invoking Sections 8 and 9 of the Code.
Sub-section (6) of Section 5 read with sub-section (2)(a) of Section 8 also
cannot be confined to pending arbitration or a civil suit. It must include
disputes pending before every judicial authority including mediation,
conciliation etc. as long there are disputes as to existence of debt or default
etc., it would satisfy subsection (2) of Section 8 of the 'I & B Code'.
Therefore, as per sub-section (2) of Section 8 of the 'I & B Code', there are
two ways in which a demand of an Operational Creditor can be disputed:
(i) By bringing to the notice of an operational creditor, 'existence of a
dispute'. In this case, the notice of dispute will bring to the notice of the
creditor, an 'existence of a dispute' under the Code. This would mean
disputes as to existence of debt or default etc.; or
(ii) By simply bringing to the notice of an operational creditor, record of the
pendency of a suit or arbitral proceedings in relation to a dispute. In this
case, the dispute in the suit/arbitral proceeding should relate to matters
(a)-(c) in sub-section (6) of Section 5 and in this case, showing a record
of pendency of a suit or arbitral proceedings on a dispute is enough and
to intent of the Legislature is clear, i.e. once the dispute (on matters
relating to 3 classes in sub-section (6) of Section 5 of the 'I & B Code')
is pending adjudication, that in itself would bring it within the ambit of
sub-section (6) of Section 5 of the 'I & B Code'.
Thus the definition of 'dispute', 'operational debt' is read together for the
purpose of Section 9 is clear that the intention of legislature to lay down the
nature of 'dispute' has not been limited to suit or arbitration proceedings
pending but includes other proceedings "if any".
Therefore, it is clear that for the purpose of sub-section (2) of Section 8 and
Section 9 a 'dispute' must be capable of being discerned from notice of
corporate debtor and the meaning of "existence" a "dispute, if any", must be
understood in the context.
Mere raising a dispute for the sake of dispute, unrelated or related to clause
(a) or (b) or (c) of Subsection (6) of Section 5, if not raised prior to
application and not pending before any competent court of law or authority
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
cannot be relied upon to hold that there is a 'dispute' raised by the corporate
debtor. The scope of existence of 'dispute', if any, which includes pending
suits and arbitration proceedings cannot be limited and confined to suit and
arbitration proceedings only. It includes any other dispute raised prior to
Section 8 in this in relation to clause (a) or (b) or (c) of sub-section (6) of
Section 5. It must be raised in a court of law or authority and proposed to be
moved before the court of law or authority and not any got up or malafide
dispute just to stall the insolvency resolution process.
While sub-section (2) of Section 8 deals with "existence of a dispute", sub-
section (5) of Section 9 does not confer any discretion on adjudicating
authority to verify adequacy of the dispute. It prohibits the adjudicating
authority from proceeding further if there is a genuine dispute raised before
any court of law or authority or pending in a court of law or authority including
suit and arbitration proceedings. Mere a dispute giving a colour of genuine
dispute or illusory, raised for the first time while replying to the notice under
Section 8 cannot be a tool to reject an application under Section 9 if the
operational creditor otherwise satisfies the adjudicating authority that there is
a debt and there is a default on the part of the corporate debtor.
The onus to prove that there is no default or debt or that there is a dispute
pending consideration before a court of law or adjudicating authority shift
from creditor to debtor and operational creditor to corporate debtor.
The dispute as defined in sub-section (6) of Section 5 cannot be limited to a
pending proceedings or "lis", within the limited ambit of suit or arbitration
proceedings, the word 'includes' ought to be read as "means and includes"
including the proceedings initiated or pending before consumer court,
tribunal, labour court or mediation, conciliation etc. If any action is taken by
corporate debtor under any act or law including while replying to a notice
under section 80 of CPC, 1908 or to a notice issued under Section 433 of the
Companies Act or Section 59 of the Sales and Goods Act or regarding quality
of goods or services provided by 'operational creditor' will come within the
ambit of dispute, raised and pending within the meaning of sub-section (6) of
Section 5 read with sub-section (2) of Section 8 of I&B code, 2016.
From the reply of the respondent-corporate debtor to the notice under section
8 of the code it could be seen that it has not raised any dispute within the
meaning of sub-section (6) of Section 5 or sub-section (2) of Section 8 of I&B
Code, 2016 and in that view of the matter, merely on some or other account
the respondent has disputed to pay the amount, cannot be termed to be
dispute to reject the application under Section 9 of the I&B Code, 2016 as
was preferred by appellant-operational creditor.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
The requirement under sub-section (3)(c) of Section 9 while independent
operational creditor to submit a certificate from the financial institution as
defined in sub-section (4) of section 3 including Schedule Bank and public
financial institution and like which is a safeguard prevent the operational
creditor to bring a non-existence or baseless claim. Similarly the adjudicating
authority is required to examine before admitting or rejecting an application
under Section 9 whether the 'dispute' raised by corporate debtor qualify as a
'dispute' as defined under sub-section (6) of Section 5 and whether notice of
dispute given by the corporate debtor fulfilling the conditions stipulated in
sub-section (2) of Section 8 of I&B Code, 2016.
In the present case the adjudicating authority has acted mechanically and
rejected the application under sub-section (5)(ii)(d) of Section 9 without
examining and discussing the aforesaid issue. If the adjudicating authority
would have noticed the provisions as discussed above and what constitute
and as to what constitute 'dispute' in relation to services provided by
operational creditor then would have come to a conclusion that condition of
demand notice under subsection (2) of Section 8 has not been fulfilled by the
corporate debtor and the defence claiming dispute was not only vague, got
up and motivated to evade the liability.
Case Review: Order dated 27thJanuary, 2017 passed by NCLT, Mumbai
Bench, in Kirusa Software Private Ltd. Vs. Mobilox innovations Private Ltd.
(C.P. No.01/I &BP/NCLT/MAH/2017), set aside.
CASE NO. 12
Black Pearl Hotels Pvt. Ltd. (Appellant/Operational Creditor)
Vs.
Planet M Retail Ltd. (Respondent/ Corporate Debtor)
Company Appeal (AT) (Insolvency) No.91 of 2017
Date of Order: 17-10-2017
Section 9 of the Insolvency and Bankruptcy Code, 2016 read with
Article 137 of the Limitation Act, 1963 Application for Initiation of
Corporate Insolvency Resolution Process by Operational Creditor -
Insolvency and Bankruptcy Code, 2016 has come into force with effect
from 1st December, 2016 and therefore, the right to apply under this
Code accrues only on or after 1st December, 2016
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The applicant/Operational Creditor filed an application under section 9 of the
Code before NCLT, Mumbai Bench on the ground that the
respondent/Corporate Debtor (CD) had failed to pay its agreed dues. The
Adjudicating Authority by its impugned order dated 4thMay 2017 dismissed
the application on the ground that the application was barred by limitation.
On appeal, the NCLAT held as follows:
Insolvency and Bankruptcy Code, 2016 has come into force with effect from
1st December, 2016. Therefore, the right to apply under I&B Code accrues
only on or after 1st December, 2016 and not before the said date (1st
December, 2016). As the right to apply under section 9 of I&B Code accrued
to appellant since 1st December, 2016, the application filed much prior to
three years, the said application cannot be held to be barred by limitation.
In so far as the application under section 9 of the Arbitration and Conciliation
Act, 1996 preferred by appellant, it has been specifically pleaded by the
appellant and not disputed by the respondent that the appellant filed an
application to withdraw the application under section 9 of the Arbitration Act,
expressly reserving liberty to institute fresh proceeding for interim relief. In
such circumstances and as no arbitral dispute is pending, the application
cannot be rejected.
The Adjudicating Authority, Mumbai Bench was not correct in holding that the
application was barred by limitation. For the said reason the order rejecting
the application cannot be sustained.
Case Review: Order dated 04.05.2017 passed by the NCLT, Mumbai Bench,
in Black Pearl Hotels Pvt. Ltd, Operational Creditor Vs. Planet M. Retail Ltd,
Corporate Debtor, (C.P. No.464/I&BP/NCLT/MAH/201), set aside .
CASE NO. 13
M/s. Ksheeraabad Constructions Pvt. Ltd. (Appellant/ Corporate Debtor)
Vs.
M/s. Vijay Nirman Company Pvt. Ltd. (Respondent/ Operational Creditor)
Company Appeal (AT) (Insolvency) No. 167 of 2017
Date of Order: 20-11-2017
Sections 9 and 238 of the Insolvency and Bankruptcy Code, 2016 read
with Sections 34 & 36 of the Arbitration and Conciliation Act, 1996 -
Application for Initiation of Corporate Insolvency Resolution Process
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
(CIRP) by the Respondent - The provision under the 'I&B Code' with
regard to finality of an Arbitral Award for initiation of 'Corporate
Insolvency Resolution Process' will prevail the provisions of the
'Arbitration and Conciliation Act, 1996'. No person can take advantage
of pendency of a case under Section 34 of the Arbitration and
Conciliation Act, 1996 to stall 'Corporate Insolvency Resolution
Process' under Section 9 of the 'I&B Code'.
The question arises for consideration before the NCLAT is:
"Whether pendency of a case before a Court under Section 34 of the
Arbitration and Conciliation Act, 1996 can be termed to be 'dispute in
existence' for the purpose of subsection (6) of Section 5 of the 'I&B
Code'."
The Appellate Tribunal held as follows:
It is true that under Section 36 of the Arbitration and Conciliation Act, 1996,
an Arbitral Award is executable as a decree. It can be enforced only after the
time for filing the application under Section 34 has expired and/or, if no
application is made or such application having been made has been rejected.
Therefore, for the purpose of Arbitration and Conciliation Act, 1996, an
Arbitral Award reaches its finality after expiry of enforcement time or if the
application under Section 34 is filed and rejected. However, for the purpose
of 'l&B Code' no reliance can be placed on Section 34 of the Arbitration and
Conciliation Act, 1996, for the reasons stated below.
The 'I&B Code' being a Complete Code will prevail over all other Acts
including Arbitration and Conciliation Act, 1996. As per, Section 238,
provision of 'I&B Code' is to override other laws, including Arbitration Act,
1996. Therefore, the provision under the 'I&B Code' with regard to finality of
an Arbitral Award for initiation of 'Corporate Insolvency Resolution Process'
will prevail the provisions of the 'Arbitration and Conciliation Act, 1996'.
For the purpose of Section 9 of the 'I&B Code', the application to be
preferred under Form-5 of the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016 (hereinafter referred to as "Rules, 2016")
as per which, the order passed by Arbitral panel/Arbitral Tribunal has been
treated to be one of the documents/ records and evidence of default, as
apparent from Part V of Form 5.
The aforesaid provisions made in the Form-5 if read with subsection (6) of
Section 5 and Section 9 of the 'I&B Code' it is clear that while pendency of
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the suit or Arbitral Proceeding has been termed to be an 'existence of
dispute', an order of a Court, Tribunal or Arbitral Panel adjudicating on the
default (commonly known as Award), has been treated to be a "record of
Operational Debt".
In view of the aforesaid provisions of law and mandate of 'I&B Code', we hold
that no person can take advantage of pendency of a case under Section 34
of the Arbitration and Conciliation Act, 1996 to stall 'Corporate Insolvency
Resolution Process' under Section 9 of the 'I&B Code'.
Case Review: Order dated 29th August, 2017 passed by the NCLT,
Hyderabad Bench in Company Petition (IB) No. 100/9/HDB/2017), upheld.
CASE NO. 14
Shriram EPC Limited (Appellant /Corporate Debtor)
Vs.
Rio Glass Solar SA (Respondent / Operational Creditor)
Company Appeal (AT) (Insolvency) No. 133 of 2017
Date of Order: 02-11-2017
Issue: Whether the Demand Notice served by Advocate / Lawyers' firm
which is required to be given by Operational Creditor under Section 8(1)
of the Insolvency & Bankruptcy Code, 2016 is permissible Whether the
application under section 9 in Form 5 of the Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016 signed by the
"Power of Attorney Holder" is permissible Whether the certificate of
financial institution in India maintaining accounts of the Operational
Creditor confirming that there is no payment of an "Unpaid Operational
Debt" by the Corporate Debtor in terms of Section 9(3)(c) of Insolvency
and Bankruptcy Code is mandatory or directory -
Facts:
Rio Glass Solar SA preferred an application under section 9 of the
Insolvency and Bankruptcy Code, 2016 seeking to set in motion the
Corporate Insolvency Resolution Process against the appellant Shriram EPC
Limited.
NCLT, Chennai Bench admitted the application, ordered moratorium,
appointed "Interim Resolution Professional" with order of prohibition in terms
of Insolvency and Bankruptcy Code, 2016.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
The Corporate Debtor challenged the said order and appeal before the
NCLAT.
Decision:
The Appellate Authority accepted the appeal relying on various judgements
with following observations:
· Reliance has been placed on the decision of this Appellate Tribunal in
"Uttam Galva Steels Limited vs DF Deutsche Forfait AG &Other" wherein
following observations made
o Form -3 and Form -4 read with sub rule (1) of Rule 5 and Section 8
of the Insolvency and Bankruptcy Code, 2016, an Operational
Creditor can apply himself or through a person authorised to act on
behalf of Operational Creditor. The person who is authorised to act
on behalf of Operational Creditor is also required to state "his
position with or in relation to the Operational Creditor" meaning
thereby the person authorised by Operation Creditor must hold
position with or in relation to the Operational Creditor and only such
person can apply.
o In view of provisions of Insolvency and Bankruptcy Code read with
Rules, an "Advocate/Lawyer" or "Chartered Accountant" or
"Company Secretary" in absence of any authority of the Board of
Directors and holding no position with or in relation to the
Operational Creditor cannot issue any notice under Section 8 of the
Insolvency and Bankruptcy Code, which otherwise is a "lawyer's
notice" as distinct from notice to be given by operational creditor in
terms of section 8 of the Insolvency & Bankruptcy Code.
· Reliance has been placed on the decision of this Appellate Tribunal in
"Palogix Infrastructure Limited vs ICICI Bank Ltd" wherein following
observations made
o The Insolvency & Bankruptcy Code is a complete code by itself. The
provision of the Power of Attorney Act, 1882 cannot override the
specific provision of a statute which requires that a particular act
should be done by a person in the manner as prescribed thereunder.
Therefore, a "Power of Attorney Holder" is not competent to file an
application on behalf of a Financial Creditors or Operational
Creditors or Corporate Applicant.
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· Reliance has been placed on the decision of this Appellate Tribunal in
"Smart Timing Steel Ltd vs National Steel and Agro Industries Ltd"
Company Appeal (AT)(Insol) No.28 of 2017 wherein following
observations made
o Certificate from the "Financial Institution" maintaining accounts of
the "Operational Creditor" confirming that there is no payment of
unpaid operational debt by the Corporate Debtor, as prescribed
under Section 9(3)(c) of the code is mandatorily followed and it is
not empty statutorily formality.
· Reliance has been placed on the various decisions of Apex Court, for
determining the provisions being "directory" or "mandatory", it was held
that where statute itself provide consequences of breach or non
compliance, normally the provision has to be regarded as having
mandatory in nature. The importance of the provisions disregarded and
the relation of that provision to the general object intended to be
secured. The determination of the question whether a provision is
mandatory or directory would, in the ultimate analysis, depend upon the
intent of the law maker and that has to be gathered not only from the
phraseology of the provision but also by considering the nature, its
design and consequences which would follow from construing it in one
way or the other.
The application under Section 9 was not maintainable due to various
reasons, accordingly, the order was set aside and the fees of "Interim
Resolution Professional" appointed by Adjudicating Authority will be paid by
the Corporate Debtor for the period he has functioned.
CASE NO. 15
Sobha Limited (Appellant)
Vs.
Pancard Clubs Ltd (Respondent)
Company Appeal (AT) (Insolvency) No. 162 of 2017
Date of Order: 04-12-2017
Facts :
Application under Section 9 of the Insolvency and Bankruptcy Code, 2016
been rejected on the ground of `existence of a dispute' and in view of action
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
taken by the Securities and Exchange Board of India. Does SEBI Order
constitute dispute? Hence Appeal to Honorable NCLAT.
SEBI has passed an order, inter alia, directing the `Corporate Debtor' not to
alienate, dispose or sell any of the assets of the Company except for the
purpose of making refunds to its investors and the Ministry of Corporate
Affairs and to initiate the process of winding up of the Respondent.
Arbitration Proceedings under Section 11 of the Arbitration and Conciliation
Act, 1996 has been filed by parties before the Hon'ble High Court much prior
to service of notice under sub-section (1) of Section 8 of the `I&B Code' and
thereby, there is an `existence of dispute'. Prayer was made to dismiss the
application.
Decision:
Initiation of `Corporate Insolvency Resolution Process' under `I&B Code'
cannot be nullified by any order passed by SEBI nor can be a ground to
reject an application under Section 9 of the `I&B Code' but as there is an
`existence of dispute' with regard to the invoices raised by the Appellant-
`Operational Creditor', we hold that the application under Section 9 of the
`I&B Code' was not maintainable.
Sub Section (6) of Section 5 defines "dispute", to include, unless the
context otherwise requires, a dispute pending in any suit or arbitration
proceedings relating to:
(a) existence of amount of the debt;
(b) quality of good or service;
(c) breach of a representation or warranty.
The definition of "dispute" is "inclusive" and not "exhaustive".
SEBI Order of Refunding money to depositor does not constitute dispute.
Arbitration Proceedings under Section 11 of the Arbitration and
Conciliation Act, 1996 as regards amount of claim payable constitute
dispute.
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CASE NO. 16
Philips India Ltd.
Versus
Goodwill Hospital & Research Centre Ltd.
Karina Healthcare Pvt. Ltd.
Company Appeal (AT) (Insolvency) No. 14 of 2017
Date of Order: 31-05-2017
Facts:
Operational Creditor had preferred two separate applications for initiation of
Corporate Insolvency Resolution Process invoking provisions of Section 9 of
Insolvency and Bankruptcy Code, 2016 (IBC )for default in making payment
of Comprehensive Annual Maintenance Contract.
Decision:
Corporate debtor much prior to issuance of notice under section 8 had raised
a dispute relating to quality of service/maintenance pursuant to notice under
sections 433(e) and 434(1)(a) of the Companies Act, 1956 it can be safely
stated that there is `existence of dispute' about the claim of debt. Such
objection cannot be called mere objection for the sake of `dispute' and/or
unrelated to clause (a) or (b) or (c) of sub-section (6) of section 5. Where
adjudicating authority has accordingly refused to entertain application under
section 9 of the Code, no ground is made out for interference with such
orders.
Innoventive Industries Limited v. ICICI Bank Limited
Supreme court decision on dispute in this case needs to be noted.
The decision is on following points amongst others:
(i) The concept of default under the Insolvency Code and how it must be
ascertained
(ii) The scope and extent of enquiry at the admission of a insolvency
application;
(iii) The scope of hearing to be provided to a corporate debtor.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
CASE NO. 17
Ganesh Sponge Pvt. Ltd. (Appellant / Corporate Debtor)
Vs.
Aryan Mining & Trading Corporation Pvt. Ltd.
(Respondent / Operational Creditor)
Company Appeal (AT) (Insolvency) Nos. 124 & 125 of 2017
Date of Order : 23-08-2017
Section 9 Application for Initiation of Corporate InsolvencyResolution
Process by Operational Creditor
Facts:
Two issues were involved in the order passed by the Adjudicating Authority.
1. Adjudicating Authority rejected the joint application preferred by the
appellant and the respondent to withdraw the petition.
2. Appellant contended, that the application was defective; the notice under
Section 8 was not issued by the 'Operational Creditor' but by its lawyer
and also stated that there was `existence of dispute' regarding the quality
of goods.
Decision:
On First Fact:
Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016, which reads as follows:
"8. Withdrawal of application.--The Adjudicating Authority may permit
withdrawal of the application made under rules 4, 6 or 7, as the case may be,
on a request made by the applicant before its admission."
Thus it is clear that the learned Adjudicating Authority is empowered to
permit withdrawal of the application under Section 7, 9 or 10 of the I&B Code,
as the case may be, on the request made by the appellant before the
admission, but such withdrawal cannot be permitted once the application is
admitted. Thus, NCLAT in absence of any illegality found no ground to
interfere with the order of Adjudicating Authority
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On the Second Fact:
Reliance was placed on decision of Appellate Tribunal in "Macquarie Bank
Limited Vs. Uttam Galva Metallics Limited" - [Company Appeal (AT)
(Insolvency) No. 96 of 2017, order dated 17th July, 2017. the Appellate
Tribunal held as follows:
From bare perusal of Form-3 and Form-4, read with sub-Rule (1) of Rule 5
and Section 8 of the 'I & B Code, it is clear that the 'Operational Creditor' can
apply himself or through a person authorized to act on behalf of the
'Operational Creditor', who hold same position with or in relation to the
'Operational Creditor'. Thereby such person(s) authorized by 'Operational
Creditor', holding position with or in relation to the 'Operational Creditor' can
only apply.
In view of such provision we hold that an advocate/lawyer or Chartered
Account or a Company Secretary or any other person in absence of any
authority by the 'Operational Creditor', and if such person do not hold any
position with or in relation to the 'Operational Creditor', cannot issue notice
under Section 8 of 'I & B Code', which otherwise can be treated as a lawyer's
notice/pleader's notice, as distinct from notice under Section 8 of 'I & B
Code."
As regards the `Existence of Dispute' deductions for quality was already
made and the remaining outstanding balance was confirmed. So no dispute
remained on the date of notice.
In the meanwhile it was submitted that the parties have settled the dispute
and the due amount has already been paid.
However, NCLAT held that we are not deciding the question as to whether
the parties have settled the dispute or not, but in view of the fact that the
impugned order passed by the learned Adjudicating Authority on the
application under Section 9, which was not complete and the case of the
appellant is covered by decision of this Appellate Tribunal in 'Macquarie
Bank Limited Vs. Uttam Galva Metallics Limited (supra)', we set aside the
impugned order.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
CASE NO. 18
Labdhi Enterprises (Appellant / Operational Creditor)
Vs.
Baramati Agro Pvt. Limited (Respondent / Corporate Debtor)
Company Appeal (AT) (Insolvency) No. 195 of 2017
Date of Order : 10-11-2017
Facts:
The appellant filed an application under Sections 433, 434(e) and 439 of the
Companies Act,1956 before the Hon'ble Bombay High Court, Mumbai for
winding up the Respondent Company on the ground that the debtor
Company defaulted in making payment of Rs. 27,97,696/- to the Appellant.
Since by notification dated 7th December 2016, "The Companies (Transfer of
pending proceedings) Rules 2016" came into force. the petition under
Sections 439,434(e) and 439 of the Companies Act, 1956, which was
pending before the Hon'ble Bombay High Court was transferred to the
Tribunal, Mumbai Bench, Mumbai.
Respondent took plea that the claim was barred by limitation and holding this
contention the Adjudicating Authority refused to treat the Application under
Section of 9 of the I & B Code on one of the grounds that the Appellant failed
to show that the debtor Company acknowledged the debt due since last three
years from 27th April, 2010 when it was payable and thereby the debt is time
barred.
Decision:
The question as to whether the Limitation Act, 1963 will be applicable for
triggering incorporate resolution process under Sections 7 or 9 of the I &B
Code fell for consideration before the Appellate Tribunal in -"M/s Speculam
Plast Pvt. Ltd. Vs. PTC PTC Techno Private Ltd."-in Company Appeal(AT)
(Insolvency) No. 47/2017.In the said case this Appellate Tribunal, by
judgment dated 07thNovember,2017 held as follows:-
In view of the settled principle, NCLAT holds that the Limitation Act, 1963 is
not applicable for initiation of 'Corporate Insolvency Resolution Process', and
that the Doctrine of Limitation and Prescription is necessary to be looked into
for determining the question whether the application under Section 7 or
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Section 9 can be entertained after long delay, amounting to laches and
thereby the person forfeited his claim.
If there is a delay of more than three years from the date of cause of action
and no laches on the part of the Applicant, the Applicant can explain the
delay. Where there is a continuing cause of action, the question of rejecting
any application on the ground of delay does not arise.
From Article 137 of the Limitation Act, 1963, it is clear that the period of three
years' is to be counted from the date right to apply accrues to a 'Financial
Creditor' or 'Operational Creditor' or 'Corporate Debtor'.
For initiation of 'Corporate Insolvency Resolution Process', the right to apply
accrues under Section 7 or Section 9 or Section 10 only with effect from 1st
December, 2016 when 'I&B Code' has come into force, therefore, the right to
apply under Section 7 or Section 9 or Section 10 in all present cases having
accrued after 1st December 2016, such applications cannot be rejected on
the ground that the application is barred by limitation."
Thus the impugned order of Adjudicating Authority cannot be upheld and the
appellant is given liberty to file a fresh application under section 9 of I & B
Code in accordance with the other provisions of the law.
CASE NO. 19
Paramjeet Singh (Appellant / Corporate Debtor)
Vs.
Maxim Tubes Company Pvt. Ltd (Respondent / Operational Creditor)
Company Appeal (AT) (Insolvency) No. 150 of 2017
Date of Order: 20-11-2017
Section 9 Application for Initiation of Corporate InsolvencyResolution
Process by Operational Creditor
Facts:
This appeal was preferred by the appellant Paramjeet Singh, Director of M/s.
International Coil Limited against order dated 16thAugust, 2017 passed by
the Adjudicating Authority (National Company Law Tribunal), Special bench,
New Delhi in (IB)-120(PB)/2017 whereby and whereunder the application
preferred by the respondent under Section 9 of the Insolvency and
Bankruptcy Code, 2016 (hereinafter referred to as the `I&B Code') has been
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
admitted, order of moratorium has been passed and the Interim Resolution
Professional (IRP) has been appointed.
Earlier the NCLT has observed that, a strict onus is placed on `Corporate
Debtor' while raising the plea of dispute and that it must be genuine and
bona fide in order to avoid the debt, which is claimed by `Operational
Creditor' as due from the `Corporate Debtor' and in making payment of the
same. However, in the instant case no merit is found in the contention of the
`Corporate Debtor'. Thus there is no pre existing dispute. After having
considered other aspects and compliance of the I & B Code, the petition was
maintained.
Decision:
Admittedly, operational creditor issued notice under sub-section (1) of
Section 8 of I&B Code to the Corporate Debtor; in spite of receipt of such
notice, the Corporate Debtor had not disputed the claim nor submitted any
reply under sub-section (2) of Section 8 within a period of ten days. It was in
the aforesaid circumstances application under Section 9 was filed in Form5,
wherein it was specifically mentioned that `no objection has been filed by
Corporate Debtor under sub-Section (2) of Section 8. In the aforesaid
circumstances and in absence of any specific evidence brought on record,
we are not inclined to interfere with the impugned order dated 16thAugust,
2017. We find no merit in this appeal. It is accordingly dismissed.
CASE NO. 20
Siddharth Nahata Director / Shareholder of Tryst Industries Private
Limited. Appellants (appellant / Corporate Debtor)
Vs.
Billets Elektro Werke Pvt. Ltd. (Respondent / Operational Creditor)
Company Appeal (AT) (Insolvency) No. 199 of 2017
Date of Order: 03-11-2017
Section 9 Application for Initiation of Corporate Insolvency Resolution
Process by Operational Creditor
Facts:
The respondent claimed to be an Operational Creditor & initiated the
insolvency resolution process against the appellant (original respondent)
Corporate Debtor on the grounds of default.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
The respondent had sent Section 8 notice dated 22ndMay, 2017 and the
appellant replied raising dispute vide reply dated 7thJune, 2017. Reference
was made to earlier exchange of correspondence dated 20thJuly, 2016
and3rdAugust, 2017 and criminal complaint filed by appellant to show that the
amount was yet not due for reasons stated.
When the matter came up before the learned NCLT, parties for both sides
were heard but the learned NCLT did not find the dispute raised by the
appellant acceptable and was of the opinion that it was illusory and without
legs to stand upon. For reasons recorded the learned NCLT admitted the
Insolvency Resolution Process
Decision:
Now when this appeal has come up, learned counsel for the appellant as well
as the respondent both submit that the matter has been compromised
between the Operational Creditor and the Corporate Debtor and even the
necessary payments have been made as well as care has been taken
regarding the payments of the Insolvency Resolution Professional, who has
been appointed. Counsel for Appellant stated that there are no other
Creditors there.
A Compromise has taken place would not be material for the decision of this
appeal, once the process has been set into motion. We have to consider this
appeal on its own merits.
Looking to the record, we find substance in the arguments of learned counsel
for Appellant that indeed there was a prior existing dispute and the
application under Section 9 should not have been admitted. In view of the
above, the appeal is allowed. The impugned order admitting the Insolvency
Resolution Process is quashed and set aside. The further proceedings in
view of the impugned order are stopped.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
CASE NO. 21
M/s MCL Global Steel Pvt. Ltd. & Anr. (Appellant / Corporate Debtor)
Vs.
M/s Essar Projects India Ltd. & Anr. (Respondent / Operational Creditor)
Company Appeal (AT) (Insolvency) No. 29 of 2017
Date of Order: 31-05-2017
Section 9 Application for Initiation of Corporate Insolvency Resolution
Process by Operational Creditor
Facts:
Earlier the application by M/s Essar Projects India Ltd. & Anr, Operational
Creditor, was admitted by Adjudicating Authority, NCLT Mumbai vide its
order dated 06.03.2017 and the said order is now contested by the Appellant
M/s MCL Global Steel Pvt. Ltd. & Anr. on the following grounds:-
· The impugned ex parte order was passed by 'Adjudicating Authority
without prior notice or intimation of hearing to the Appellants- against
the principles of rules of natural justice.
· Learned 'Adjudicating Authority' has failed to notice that existence of
dispute between the parties which 'Operational Creditor' did not bring to
the notice of the 'Adjudicating Authority' while getting an ex parte order.
If notice would have been served on 'Corporate Debtor' this fact would
have been highlighted.
· The Respondents Operational Creditor has concealed material fact
that it has issued a winding up notice under Section 433 of Companies
Act 1956 which was duly replied by Appellant and wherein the claim
was denied. Also various emails during 2013, 2014 wherein concerns
regarding the quality of construction work and non-completion of work
within time frame clearly demonstrating the existence of `dispute'
between the parties were also not disclosed.
Decision:
In the present case as admittedly a notice was issued by Respondent -
Operational Creditor under Section 433(e) and 434 of the Companies Act
1956 which was disputed by Appellant - 'Corporate Debtor' objecting quality
of service and non-completion of the work within time which is much prior to
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enactment of 'I & B Code', 2016, and notice under Section 8 of the 'I & B
code', NCLAT held that there is an "existence of dispute" for which the
petition under Section 9 preferred by Respondent - Operational Creditor was
not maintainable.
Further, as the impugned order dated 6th March 2017 was passed by
Adjudicating Authority without notice to the Appellant - Corporate debtor in
violation of principle of natural justice and the Adjudicating Authority failed to
notice the relevant facts that there was a dispute raised and replied by the
Corporate Debtor, the impugned order passed by Adjudicating Authority
cannot be upheld.
CASE NO. 22
Annapurna Infrastructure Pvt. Ltd.
(Appellant/ Operational Creditor)
Vs.
Soril Infra Resources Ltd. (Respondent and Corporate Debtor)
Company Appeal (AT) (Insolvency) No. 32 of 2017
Date of Order: 29.08.2017
The appeal was filed by Appellant against the order of the NCLT, Principal
Bench, New Delhi (Adjudicating Authority) whereby the application under
Section 9 of the Insolvency and Bankruptcy Code,2016 (Code) filed by
appellant was dismissed by the Adjudicating Authority on the ground that
there was a existence of dispute pending adjudication between the parties.
Facts:
Disputes arose between Annapurna Infrastructure Pvt. Ltd. (Annapurna) and
SORIL Infra Resources Ltd. (SORIL) relating to non-payment of rent by
SORIL (the lessee) to Annapurna and others (the lessors). Arbitration clause
in the lease deed between the parties was invoked and an arbitral award was
passed in favour of Annapurna and others. The arbitral award was
challenged by SORIL in an application under Section 34 of the A&C Act,
which was dismissed by the Hon'ble High Court of Delhi.
Soon thereafter, the award holders, which included Annapurna, issued
Demand Notices on SORIL under Section 8 (1) of IBC as operational
creditors of SORIL, demanding the amounts stated in the arbitral award. A
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
reply was issued by SORIL under Section 8 (2) of IBC, stating that there is
an "existence of dispute" between the parties, principally on the ground that
an appeal under Section 37 of the A&C Act had been filed and was pending
against the Dismissal Order. It was also pointed out in the reply that
execution proceedings to recover the award amount were pending.
Subsequent thereto, Annapurna and others filed a Section 9 application
under IBC before the Learned National Company Law Tribunal, Principal
Bench, New Delhi (Adjudicating Authority), seeking initiation of CIRP of
SORIL.
The Adjudicating Authority dismissed the Section 9 application on the ground
that a dispute between the parties had already been subject to arbitration,
which had yet to attain finality (as the appeal against the Dismissal Order
under Section 37 of the A&C Act was still pending). The Adjudicating
Authority also observed that as execution proceedings had already been
initiated, a party could not invoke more than one remedy simultaneously and
indulge in forum shopping.
Decision:
Questions for determination of NCLAT
1. Whether there is an existence of dispute between the parties, the
award passed by Arbitral Tribunal having affirmed by the Court under
Section 34 of the Act?
2. Whether pendency of a proceeding for execution of an award or a
judgment and decree bars an operational creditor to prefer any
petition under the Code?
3. Whether the 1st Appellant is operational creditor within the meaning of
Section 5(20) r/w Section 5(21) of the Code?
Answer to Question 1 and 2 above
i. The NCLAT observed that a perusal of Section 8(2) (a) of the Code
shows that pendency of arbitration proceedings has been termed to
be an existence of dispute and not the pendency of an application
under Section 34 or Section 37 of the A&C Act.
ii. Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016 (Rules) required to be filled to apply under
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Section 9 of the Code indicates order passed by Arbitral Panel as one
of the document, record and evidence of default.
iii. Section 36 of the Act makes arbitral award executable as decree but it
can be enforced only after the time for filing application under Section
34 of the A&C Act has expired and no application has been made or
such application having been made, has been rejected.
iv. Thus, arbitral award reaches finality after expiry of enforceable time
under Section 34 and/or if application under Section 34 is filed and
rejected.
v. For the purpose of dispute as existence of dispute, only pendency of
arbitral proceedings has been accepted as one of the ground of
dispute whereas, as can be seen from Form 5 of the Rules, Arbitral
Award has been held to be a document of debt and non-payment of
awarded amount amounts to default debt.
vi. Therefore, NCLAT held that the observations of Adjudicating Authority
that, a dispute is pending, is not only against the provisions of law and
rules framed there under, but is also against the decision of NCLAT in
Kirusa Software Pvt. Ltd.
vii. Thereafter, NCLAT observed that the Code is an act to consolidate
and amend the laws relating to reorganization and insolvency
resolution of corporate persons in a time bound manner.
viii. Insolvency Resolution Process is neither a money suit for recovery
nor a suit for execution of decree or award.
ix. Thus, CIRP can be initiated for default of debt, as awarded under the
Act, however, the finding of the Adjudicating Authority that it is an
executable matter is against the essence of the Code.
x. The question of availing any effective remedy or alternative remedy, in
case of default of debt for an operational creditor was thus, held to be
not based on any sound principle of law.
Answer to Question 3
i. The NCLAT observed that the Adjudicating Authority had not
considered all the contentions of the Respondent to contend that the
appellant is not an operational creditor.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
ii. Having agreed with the above submission of the respondent, the
NCLAT remanded the matter back to Adjudicating Authority to decide
on the issue whether the appellant was an operational creditor or not.
iii. Accordingly, the appeal of the appellant was allowed on above two
questions.
iv. NCLAT held that if the Adjudicating Authority holds that the appellant
is an operational creditor, it would decide other issues whether the
application is complete or not and decide thereon.
CASE NO. 23
Achenbach Buschhutten Gmbh & Company (Appellant)
Vs.
Arcotech Limited (Respondent)
Company Appeal (AT) (Insolvency) No. 97 of 2017
Date of Order: 31-07-2017
Section 9 of the Insolvency and Bankruptcy Code, 2016 read with Rule 6
to initiate Corporate Insolvency Resolution Process in respect of
Corporate Debtor.
Facts:
The corporate debtor approached the operational creditor for purchase of
goods in the month of December 2014, which the petitioner agreed to sell.
Pursuant thereto, the parties entered into a sale and purchase agreement
dated 23 12.2014, where under respondent-corporate debtor accepted credit
terms of payment to be made within 360 days after the said agreement. The
goods were sent to the respondent-corporate debtor.
The total amount of debt to be default is said to be Euro 4,472,638.99
(equivalent to 31,41,13,436.26 calculated at the rate of 270.23 per Euro)
upto 02.03.2017 along with interest at the rate of 12% per annum.
Thereafter the petitioner-operational creditor submitted that before filing of
this petition, the operational creditor also sent a notice making a demand of
total amount of Euro 4,472,638,99 giving all the particulars. The notice
further states that if the respondent-corporate debtor raises the existence of
dispute or the amount of unpaid operational debt in default is paid, the
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respondent was asked to provide the same within 10 days of receipt of the
letter of the pendency of the suit or arbitration proceedings in relation to such
a dispute filed before the receipt of this notice. The authorized representative
stated that no notice was served by the corporate debtor raising a dispute in
relation to the existence or amount of the unpaid operational debt due to the
operational creditor.
The matter was listed before the Adjudicating Authority for the first time when
the learned counsel for the petitioner sought time to place on record the reply
received from the respondent-corporate debtor to the demand notice. The
matter was adjourned with a direction to file affidavit and also the copy of the
reply received supported by affidavit with the postal receipt and track report
of the postal department stating that the instant petition along with the entire
paper book was sent to the corporate debtor by a registered post.
In the reply the respondent has raised many serious issues which amount to
raising of dispute as intended by the Legislature in the definition of Section 5
(6) of the Code. It is stated in the reply that as per terms of the agreement,
the petitioner was under an obligation to dispatch the entire Mill within 11
months of signing of the agreement, but the petitioner failed to deliver the
same within the stipulated period. It is further stated that due to delay in
dispatching the said equipment, not only the objective of respondent to
purchase the same has been frustrated, but also the respondent has suffered
huge loss of money due to non-installing the same in time and commencing
the business. It was emphasized that on that account, the respondent was
not obliged to accept delivery, making the payment of the equipment and
rather, claimed the refund of the amount already paid.
Decision:
The appeal against the order dated 25th May 2017 passed by NCLT
Chandigarh Bench, Chandigarh in CP(IB) No. 21/Chd/Hry/2017 was further
challenged in front of NCLAT.
One of the plea taken by the learned counsel for the appellant is referring to
clause of arbitration, has not entertained the application on the ground that
there is an existence of a dispute. We are of the view that mere clause of
arbitration in an agreement cannot be termed to be an "existence of dispute"
pending before the Arbitral Tribunal for the purpose of refusal of an
application preferred under Section 9 of the I&B Code.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
Learned counsel for the respondent brought to our notice that the appellant
has not enclosed any certificate granted by the 'Financial Institution' as
stipulated under clause (c) of sub-Section (3) of Section 9 of the I&B Code.
From the record, we find that the appellant has enclosed one letter relating to
'confirmation of receipt of payment' from foreign institution known as
'Sparkasse Siegen'.
The question as to whether filing of a copy of the certificate from the
'Financial Institution', "maintaining accounts of the Operational Creditor
confirming that there is no payment of unpaid operational debt by the
Corporate Debtor" as prescribed under clause (c) of sub-section (3) of
Section 9 of the I&B Code is mandatory or directory, was considered by this
Appellate Tribunal in "Smart Timing Steel Ltd. Vs. National Steel and Agro
Industries Ltd.- [Company Appeal (AT) (Insolvency) No. 28 of 2017]".
Admittedly, the Bank in question is not a scheduled bank, nor is a 'financial
institution' as defined under Section 45-I of Reserve Bank of India Act 1934
(2 of 1934). The Bank aforesaid also do not come within the meaning of
'Public Financial Institution' as defined in clause (72) of Section 2 of
Companies Act 2013 (18 of 2013). The Central Government has also not
issued any Notification specifying the Bank in question for the purpose of
subsection (14) of Section 3 read with Section 9 of 'I & B Code'.
In the circumstances, we hold that the application preferred by the appellant
was not maintainable in the absence of record of 'Financial Institution' as
defined in sub-section (14) of Section 3 of the I&B Code.
We find no merit in this appeal and it is accordingly dismissed.
CASE NO. 24
Raj Hari Eswaran (Appellant)
Vs.
CMI India (P.) Limited & Anr. (Respondents)
Company Appeal (AT) (Insolvency) No. 248 of 2017
Date of Order: 28-11-2017
Section 9 of the Insolvency and Bankruptcy Code, 2016 read with Rule 6
to initiate Corporate Insolvency Resolution Process in respect of
Corporate Debtor.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Facts:
The Corporate Debtor placed various purchase orders during the years 2012-
13 and 2013-14 with the Operational Creditor for the supply of cables. The
Appellant is a Shareholder and Managing Director of the `Corporate Debtor'.
According to the Appellant, as per the purchase orders the Operational
Creditor was required to provide a warranty for 36 months, and that during
2015, the Corporate Debtor came to know that it was not going to be
possible for the Operational Creditor to provide the warranty.
According to Appellant, the Corporate Debtor clearly indicated the 1st
respondent that in case warranty was not possible, so the Operational
Creditor was free to take away the cables. However, in spite of that the
Operational Creditor' issued a legal notice on 15th September 2016 through
a lawyer calling upon the `Corporate Debtor' to pay the outstanding sum to
which the `Corporate Debtor' replied by letter dated 17th October 2016
denying any liability.
The Operational Creditor filed a Company Petition before the Hon'ble High
Court of Madras claiming the sum from the Corporate Debtor. After
constitution of the Tribunal, the case was transferred to Adjudicating
Authority, Chennai Bench.
On notice, the `Corporate Debtor' appeared on 13th June 2017 and disputed
the liability. On 31st July 2017, the `Corporate Debtor' filed reply. The
transferred application was treated to be an application under Section 9 of
the `I&B Code' and was admitted by impugned order dated 12th October
2017 giving rise to the present appeal.
Decision:
Admittedly, no notice was issued under sub-section (1) of Section 8 of the I &
B Code. As per Rule-5, other information were also not placed before the
Adjudicating Authority.
In effect, order passed by the Adjudicating Authority appointing `Resolution
Professional', declaring moratorium, freezing of account and all other order
passed by the Adjudicating Authority pursuant to impugned order and action,
if any, taken by the `Resolution Professional, including the advertisement, if
any, published in the newspaper calling for applications and all such orders
and actions are declared illegal and are set aside.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
The application preferred by the 1st Respondent is dismissed as abated.
Learned Adjudicating Authority will now close the proceeding. The 2nd
Respondent company (`Corporate Debtor') is released from all the rigour of
law and is allowed to function independently through its Board of Directors
from immediate effect.
The Adjudicating Authority will fix the fee of `Resolution Professional', and
the Appellant will pay the fees for the period he has functioned. The appeal is
allowed with aforesaid observation and direction. However, in the facts and
circumstances of the case, there shall be no order as to cost.
CASE NO. 25
Paharpur Cooling Towers Limited (Appellant)
Vs.
Ankit Metal & Power Limited (Respondent)
Company Appeal (AT) (Insolvency) No. 204 of 2017
Date of Order: 09.11.2017
Section 9 read with section 61 of the Insolvency and Bankruptcy Code,
2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to
Adjudication Authority) Rules, 2016 and Section 424 of the Companies
Act, 2013 Initiation of Corporate Insolvency Resolution Process by
Financial Creditor
Facts:
The petitioner has filed this application under Sec. 9 of the Insolvency &
Bankruptcy Code, 2016 read with Rule 6 of the Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016 for initiation of corporate
insolvency process against corporate debtor M/s. Ankit Metal & Power Ltd.
The petitioner has stated that pursuant to an agreement between the
corporate debtor and the operational creditor the corporate debtor has
agreed to appoint the operational creditor for supply, transportation, erection
and commissioning of Air Cooled Condenser. The respondent corporate
debtor has delayed in payment of the operational creditor for the goods
supplied and erection of the ACC system done by the operational creditor
and to the invoices raised by the operational creditor.
Corporate debtor has also promised to make payment of all instalments by
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issuing post dated cheque to the operational creditor to clear off the
outstanding dues. In breach of the contract the respondent has failed and
neglected to make any further payment to the operational creditor.
In view of coming into effect of the Insolvency and Bankruptcy Code, 2016 by
notification, winding up petition filed before the Hon'ble High Court was
transferred to NCLT. Then again demand notice was issued under I & B
Code, 2016. The petitioner has also stated that Company Secretary has
been authorized to act on behalf of the operational creditor. In support of its
contention the petitioner has also filed affidavit and the authorization letter
which shows that the petitioner company by its resolution had authorized
Chief Financial Officer and Company Secretary to file necessary suits,
petitions, applications, appeals and caveat with the appropriate Court of law
having jurisdiction on behalf of the applicant company. It is important to
mention that by the above-mentioned Board resolution no specific authority
was given to initiate corporate insolvency process. The above-mentioned
authorization letter does not indicate that the Board of Directors of the
applicant company had approved for initiation of corporate insolvency
process against corporate debtor under I & B Code, 2016.
Operational creditor has also filed an affidavit to the effect that no notice has
been given by the corporate debtor relating to a dispute of the unpaid part of
the debt. The applicant has further stated in the affidavit that corporate
debtor has failed to bring to the notice of the operational creditor an
existence of a dispute or the pendency of the suit or arbitration proceedings
filed before the service of the demand notice.
Decision:
This appeal has been preferred by M/s Paharpur Colling Towers Limited
(Operational Creditor) against the order dated 21st August 2017 passed by
the National Company Law Tribunal, Kolkata Bench whereby and
whereunder the Adjudicating Authority dismissed the application under
Section 9 of the Insolvency & Bankruptcy Code, 2016 on the ground that
there is `an existence of dispute' and Application was not filed directly by the
`Operational Creditor' but by its Company Secretary.
In this case, petitioner has filed resolution of Board of Directors but by that
resolution, the Company has not authorized its Company Secretary to initiate
corporate insolvency process against the corporate debtor. Therefore, it
cannot be treated as a valid demand notice under Sec. 8 of the I & B Code,
2016.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
Learned Counsel for the Appellant submits that the Appellant ought to have
been granted more time to remove the defect and requested to allow the
Appellant to file another Application under Section of 9 `I&B Code'. However,
permission cannot be granted as the application filed by the Appellant has
been dismissed also on the ground of existence of a dispute, even prior to
the issuance of the demand notice sub-Section (1) of Section 8 of the `I & B
Code'.
From the impugned order we find that the Respondents brought to the notice
of the Adjudicating Authority certain disputes. In reply, learned Counsel for
the Appellant referred to a letter issued by an Advocate on behalf of the
Appellant, but such stand has been disputed by the Respondent. However,
even after dispute of the amount if certain amount is admitted by the
Respondents but has not paid such amount the Appellant may prefer
application under Section 9 after notice to the Respondent under Sub-
Section (1) of Section 8 of the I & B Code giving a reference to such
undisputed debt, if defaulted.
For the reasons aforesaid, while we are not inclined to interfere with the
impugned order, we allow the Appellant to move before the appropriate
forum in respect of the admitted dues if any. The Appeal stands disposed of
with aforesaid observation.
SECTION-10
CASE NO. 26
Antrix Diamond Exports Pvt Ltd (Appellant / Corporate Debtor)
Vs.
Bank of India & Ors (Respondents/ Financial Creditor)
Company Appeal (AT) (Insolvency) No.107 of 2017
Date of Order: 12-01-2018
Section 10 of the Insolvency and Bankruptcy Code 2016 read with Rule
7 of the Insolvency and Bankruptcy (Application to Adjudication
Authority) Rules, 2016- Initiation of corporate insolvency resolution
process by corporate applicant- Reliance on facts which are not
relevant for adjudication under section 10 of the Insolvency and
Bankruptcy Code, 2016
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Facts:
M/s Antrix Diamond Exports Pvt. Ltd. filed an application u/s 10 of the
Insolvency and Bankruptcy Code, 2016 read with Rule 7 of the Insolvency
and Bankruptcy (Application to Adjudication Authority) Rules, 2016. The
application is complete and NCLT, Mumbai bench has accepted the same.
As per statements, the liability towards the Financial Creditors is Rs. 428.38
crores which are secured against the immovable properties, fixed deposits,
hypothecation of the stock in trade as well as personal guarantees of its
directors and others. A full bifurcation of the banks and amount due was
presented before the NCLT, Mumbai Bench. But the NCLT, Mumbai Bench is
of the view that it appears that the Corporate Debtor is eager to scuttle the
proceedings before the SARFAESI as the consequential moratorium imposed
u/s 14 of the code on admission of this Petition would automatically stay/stall
the proceedings vide which the personal properties offered as securities are
not enforced or taken possession of. The admission of the petition as
initiation of the proceedings by the Corporate Debtor shall cause irreparable
loss and injury to the Consortium of Banks, and an uncalled for protection to
the borrowers and various guarantors. So, the petition stands dismissed.
The corporate applicant has challenged the impugned order mainly on the
ground that the bench has relied on facts which are not relevant for
adjudication under section 10 of the Insolvency and Bankruptcy Code, 2016.
Decision:
Reliance has been placed on the decision of this Appellate Tribunal in the
case of "M/s Unigreen Global Pvt Ltd vs PNB & Others" on the similar issues
whereby -
· The Adjudicating Authority on hearing the parties and on perusal of
records, if satisfied that there is a debt and default has occurred and the
Corporate Applicant is not ineligible under Section 11, the Adjudicating
Authority has no option but to admit the application, unless it is
incomplete, in which case the Corporate Applicant is to be granted time
to rectify the defects.
· Section 10 does not empower the Adjudicating Authority to go beyond
the records and the information as required to be submitted in Form 6
subject to ineligibility prescribed under Section 11.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
· Any facts unrelated or beyond the requirement under Insolvency and
Bankruptcy Code or Forms prescribed under Adjudicating Rules are not
required to be stated or pleaded.
· Non disclosure of facts unrelated to Section 10 and Form 6 cannot be
termed to be suppression of facts or to hold that the Corporate
Applicant has some malicious intention except non disclosure of any
disqualification, if any, under section 11.
· Any action has taken by a "Financial Creditors" under Section 13(4) of
the SARFAESI Act, 2002 against the Corporate Debtor or a suit is
pending against the Corporate Debtor under Section 19 of DRT Act,
1993 before a Debt Recovery Tribunal or appeal pending before the
Debt Recovery Appellate Tribunal can not be a ground to reject an
application under Section 10, if the application is complete. In fact, any
such proceedings can not proceed in view of the order of moratorium as
may be passed.
· Case where a winding up proceedings has already been initiated
against a Corporate Debtor by the Hon'ble High Court or Tribunal or
liquidation order has been passed in respect of Corporate Debtor, no
application under Section 10 can be filed by the Corporate Applicant in
view of indelibility under Section 11(d) of Insolvency and Bankruptcy
Code, 2016. However, mere pendency of a petition for winding up,
where no order has been passed, cannot be ground to reject the
application under Section 10.
In present case,
· The application is complete as required under Section 10 read with
Form 6 as per Rule 7
· The NCLT has noticed extraneous factors unrelated to Corporate
Insolvency Resolution Process which are not required to be disclosed in
terms of Section 10 or Form 6
· The Corporate Applicant is not ineligible as prescribed under Section
10.
Case Review: Order dated 20th June, 2017 passed by NCLT, Mumbai
Bench, (C.P. No. 1104/I & BP/NCLT/MAH/ 2017), set aside.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
CASE NO. 27
Unigreen Global Private Limited (Appellant /Corporate Debtor)
Vs
Punjab National Bank and others (Respondents / Financial Creditors)
Company Appeal (AT) (Insolvency) No. 81 of 2017
Date of Order: 01-12-2017
Issue: Whether non-disclosure of facts beyond the statutory
requirement under the Code read with relevant form, prescribed under
the Insolvency and Bankruptcy (Application to Adjudicating Authority),
Rules, 2016 ("Rules") can be a ground to dismiss an application for
initiation of Corporate Insolvency Resolution Process - Whether the
penalty imposed by the Adjudicating Authority under Section 65 of the
Code is legal or not -
Facts:
Unigreen Global Pvt. Ltd., the Corporate Debtor filed an application under
Section 10 of the Code read with Form 6 of the Insolvency and Bankruptcy
(Adjudicating Authority) Rules, 2016 with the NCLT to initiate Corporate
Insolvency Resolution Process.
The NCLT opined that admission of the Corporate Insolvency Resolution
Process application would induce a moratorium on all other legal actions
under Section 14 of the Code. Consequently, the Financial Creditors would
unjustly be stayed from taking possession of the secured assets for a period
of at least six months. The application preferred by Corporate Debtor
seemed to be with the wrongful intention, and that the Tribunal would not
support any such mala fide actions of corporate debtors. Tribunal cannot be
a party to mala fide actions on the part of the corporate debtor, where there
is a clear case of abuse of process of law. Accordingly rejected the
application and imposed a penalty of Rs. 10,00,000/- on Unigreen and its
directors under Section 65 of the Code.
The Corporate Debtor challenged the said order and appeal before the
NCLAT.
Decision:
The Appellate Authority accepted the appeal and set aside the Adjudicating
Authority order on following observations:
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
Section 10 of the Code does not empower the Adjudicating Authority to go
beyond the records as prescribed under Section 10 and the information as
required to be submitted by a corporate debtor in Form 6 of the Rules subject
to ineligibility, if any, as prescribed under Section 11 of the Code. Section 11
of the Code prescribes conditions which make an applicant ineligible/
disqualified to make an application under the Code to initiate corporate
insolvency resolution process. An applicant is not required to disclose or
plead any fact which is unrelated or beyond the requirements of the Code or
forms prescribed under the Rules and thus non-disclosure of such facts
cannot be termed as suppression of facts by a corporate debtor.
Reliance placed on the judgment of the Supreme Court of India passed in the
matter of "Innoventive Industries Ltd. vs ICICI Bank and Others" dealing with
Section 7 of the Code.
A comparison made between Section 7 and Section 10 of the Code and
concluded that sub-section (4) of Section 7 is similar to sub-section (4) of
Section 10. Thus, the two factors which are common under Section 7 and 10
of the Code are (i) there should be a debt due; and (ii) there should be a
default in payment of such debt. Hence, another aspect to be seen by the
Adjudicating Authority is existence of debt and default in payment of such
debt.
Pendency of any Civil suits or any suits pending against the Corporate
Debtor under Section 19 of Debt Recovery Tribunal Act, 1993 before a Debt
Recovery Tribunal or appeal pending before the Debt Recovery Appellate
Tribunal can not be a ground to reject an application under Section 10 of the
Code, if the application is complete. Such suits cannot proceed in view of the
order of moratorium as may be passed.
Section 238 of Code shall have the effect notwithstanding anything
inconsistent therewith contained in any other law for the time being in force
including DRT Act, 1993; SARFAESI Act, 2002; money suits etc. Non
Obstante Clause is there in the Section.
In any winding up proceedings has been initiated against the Corporate
Debtor by the Hon'ble High Court or Tribunal or liquidation order has been
passed, in such case the application under Section 10 is not maintainable.
However, mere pendency for winding up, where no order of winding up or
order of liquidation has been passed, can not be ground to reject the
application under Section 10.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
With respect to imposing penalty under Section 65 of the Code, the
Adjudicating Authority on the basis of the record is required to form a prima
facie opinion that the person (Financial Creditor/Corporate
Debtor/Operational Creditor) has filed the application for initiation of
insolvency proceeding "fraudulently" or "with malicious intent" for the purpose
other than the resolution of the insolvency or liquidation or that voluntary
liquidation proceedings have been filed with the intent to defraud any person.
There is nothing on record that the Corporate Applicant has suppressed any
facts or has not come with the clean hands, Appellate Tribunal allowed the
appeal.
CASE NO. 28
Ameya Laboratories Limited (Corporate Applicant)
Vs.
Kotak Mahindra Bank
IDBI Bank Ltd
Asset Reconstruction Company (India) Limited
(Respondents)
Company Appeal (AT) (Insolvency) No.192 of 2017
Date of Order: 12.01.2018
[Arising out of order dated 21/08/2017 passed by NCLT Hyderabad
Bench]
Facts:
Ameya Laboratories ("Corporate Applicant") filed an application under
section 10 of ("IBC Code") for initiation of CIRP. NCLT Hyderabad Bench
vide order dated 21/08/2017 rejected the application on various grounds
including pendency of winding up proceeding.
Appeal against the order passed by NCLT Hyderabad Bench was filed with
National Company Law Appellate Tribunal, New Delhi by Corporate
Applicant.
Hon'ble High Court of Andhra Pradesh vide order dated 20/04/2015
concluded that Ameya Laboratories was unable to pay the debts and passed
the order of winding up the company under section 433 and 434.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
Corporate Applicant preferred an appeal against the order of winding up
wherein division bench of the Hon'ble Andhra Pradesh High Court vide order
dated 19/08/2015 granted interim stay.
Decision:
Learned Counsel of Corporate Applicant submitted that;
· There was no possibility of revival of the company;
· Application filed u/s 10 of IBC was complete in all aspects as per
section 10 of IBC and Form 6 of Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016
· Adjudicating Authority has no jurisdiction to look into the revival of the
company at the time of application u/s 10 of IBC.
· Therefore, Adjudicating Authority wrongly held that Corporate
Applicant has already suffered liquidation.
Learned Counsel of Respondent placed reliance on order dated 20/04/2015
passed by Andhra Pradesh High Court where it is held that corporate
applicant was unable to pay the debts and hence ordered winding up
process.
Further, Ld Counsel of Appellant placed reliance on the interim stay granted
by division bench of Andhra Pradesh High Court.
Further to this, Ld. Counsel of Respondent placed reliance on Supreme
Court decision of Shree Chamundi Mopeds Ltd Vs. Church of South
India Trust Association, where distinction between quashing of an order
and stay of operation of and order is made.
Quashing of an order means restoration of the position as it was on the date
of passing of the order which has been quashed.
Stay order means the order which has been stayed shall not be operative
from the date of passing of stay order. It does not mean that the said order
has been wiped out from existence.
In the given case, as an interim stay order is passed by division bench of
High Court, which means that the winding up proceeding is already initiated
by High Court but the same has become inoperative because of the stay
order. The fact however remains the same regarding that winding up
proceedings are initiated against the corporate applicant.
As per section 11(d) corporate debtor against whom liquidation order has
been made is not entitled to make application for CIRP u/s 10 of IBC.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
NCLAT New Delhi faced similar issue in case of M/s Unigreen Global Pvt
Ltd Vs. PNB and Others wherein it is contended that;
When and application is filed u/s 10 "Financial Creditor" or "Operational
Creditor" may dispute that there is no default or no debt is due or the
Corporate debtor is not eligible to make an application as per section 11 of
IBC.
Adjudicating Authority on hearing of the parties and perusal of record, if is
satisfied that there is debt and default has been occurred and Corporate
Debtor and Corporate Applicant is not ineligible as per section 11, the
Adjudicating Authority has to admit the application unless it is incomplete. In
case of incomplete application, Corporate Applicant shall be granted time to
rectify the same, but the same cannot be rejected. Adjudicating Authority has
no power to go beyond section 10 and Form 6 and reject the application.
Application can be rejected by Adjudicating Authority in case the applicant is
not eligible as per section 11 of IBC.
Conclusion:
As per section 11(d) of IBC, if any winding up proceedings are initiated
against the corporate debtor by High Court/Tribunal or liquidation order is
passed, then the application u/s 10 is not maintainable.
In the given case, as winding up order has been passed and is pending
against the corporate debtor, Application u/s 10 is not maintainable.
CASE NO. 29
Alpha & Omega Diagnostics (India) Ltd. (Corporate Debtor/ Appellant)
Vs.
Asset Reconstruction Co of India Ltd. (Respondents)
Company Appeal (AT) (Insol.) No. 116 of 2017
Date of Order: 31-07-2017
Facts:
An application under Section 10 of IBC 2016 was filed by the Corporate
Debtor before the NCLT Mumbai Bench.
Adjudicating Authority (National Company Law Tribunal) Mumbai Bench,
Mumbai, after notice to the 'Financial Creditor' and others passed impugned
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
order dated 10th July, 2017 in T.C.P. No. 11 17/I&BP/NCLT/MB/MAH/2017,
admitting the application subject to qualification, as quoted below:
Decision:
The issue was whether Moratorium will cover property not owned by
corporate debtor.
According to the appellant, the Moratorium should take into its recourse on
the subject matters and assets relating to its matters pending before the Debt
Recovery Tribunal (DRT) and under Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
(SARFAESI). However, we are not inclined to accept such submissions as
Appellant-Corporate Applicant has sought for "its" own insolvency resolution
process that will include only the assets of the Corporate Debtor and not any
assets, movable or immovable of a third party, like any director or other. In
so far as 'guarantor' is concerned, we are not expressing any opinion, as
they come within the meaning of 'Corporate Debtor individually', as distinct
from principal debtor who has taken a loan.
In the aforesaid background, if Ld. Adjudicating Authority, on careful reading
of the provisions has come to the definite conclusion that on commencement
of the insolvency process the "Moratorium" shall be declared for prohibiting
any action to recover or enforce any security interest created by the
'Corporate Debtor' in respect of "its" property, no ground is made out to
interfere with the said order.
NCLAT finds no merit in this appeal. It is accordingly dismissed.
CASE NO. 30
Schweitzer Systemtek India (P.) Ltd. (Appellant)
Vs.
Phoenix ARC Private Limited (Respondent)
Company Appeal (AT) (Insolvency) No. 129 of 2017
Date of Order: 09-8-2017
Facts:
The Appellant-Corporate Applicant has challenged the order dated 3rd July,
2017 passed by Ld. Adjudicating Authority (National Company Law Tribunal)
Mumbai Bench, Mumbai in T.C.P. No.1059/I&BP/NCLT/MB/MAH/2017,
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
whereby and whereunder the application preferred by appellant under
Section 10 of the Insolvency and Bankruptcy Code, 2016 (hereinafter
referred to as "I & B Code") has been admitted, an order of Moratorium has
been passed and Insolvency Resolution Professional has been ordered to be
appointed.
The grievance of the appellant is that the movable and immovable property
of Guarantor (promoter) has been attached pursuant to Corporate Resolution
Process initiated under section 10 against the Appellant-Corporate Applicant.
However, such statement has been disputed by the Ld. Counsel appearing
on behalf of 1st Respondent/'Financial Creditor'.
The main issue before the Tribunal was that "whether a property(ies) which
is/are not `owned' by a Corporate Debtor shall come within the ambits of the
Moratorium?
In the instant case the personal properties of the promoters have been given
as security to the banks while taking loans.
Ld. Adjudicating Authority observed that the Moratorium shall prohibit the
action against the properties reflected in the Balance Sheet of the Corporate
Debtor. The Moratorium has no application on the properties beyond the
ownership of the Corporate Debtor. As a result, the Order of the Hon'ble
Court directing the Court Commissioner to take over the possession shall not
fall within the clutches of Moratorium. Even otherwise, the provisions of The
Securitisation and Reconstruction of Financial Assets and Enforcement of
Securities Interest Act, 2002 (the SARFAESI Act) may be having different
criteria for enforcement of recovery of outstanding debt, which is not the
subject matter of this Bench. The SARFAESI Act may come within the ambits
of Moratorium if an action is to foreclose or to recover or to create any
interest in respect of the property belonged to or owned by a Corporate
Debtor, otherwise not.
Decision:
In view of the observations made above, the impugned order having passed
by Ld. Adjudicating Authority in accordance with law, we reject the prayer.
The appeal is dismissed. However, in facts and circumstances of the case,
the parties shall bear the respective costs.
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SECTION-12
CASE NO. 31
Quinn Logistics India Private Limited (Appellant)
V/s
Mack Soft Tech Private Limited (Respondent)
Company Appeal (AT) (Insolvency) No. 185 of 2018
Date of Order: 8th May 2018
Facts:
The Insolvency and Bankruptcy Code, 2016 ("Code") was put in place to
provide for a time bound process of insolvency resolution of various persons.
In cases of corporate persons, as per Section 12 of the Code, a strict
timeline of 180 days is required to be followed for completing the corporate
insolvency resolution process ("CIRP Process"). Though, the period of 180
days could be extended by another period of 90 days it can only be done if
an application is filed by the insolvency resolution professional upon the
instructions of the committee of creditors ("COC") with 75% of their votes.
The application for extension is filed under Section 12 of the Code with the
Adjudicating Authority, i.e. the National Company Law Tribunal ("NCLT")
which may or may not extend the period by a further 90 days. The proviso to
Section 12(3) provides that no further extension beyond the additional 90
days can be granted.
That being the position of law, the CIRP Processes were being hampered on
account of various applications and/ or appeals being filed by various
aggrieved persons such as the suspended directors, the resolution
applicants, resolution professionals, any member from the COC etc. Such
applications/appeals were filed for various reasons such as challenging the
initiation of the CIRP Process, or the constitution of the COC, or the
resolution plan, or the non-consideration. thereof, replacement of the
resolution professional etc. When such applications were taken up, the
NCLT would at times order a stay on the continuation of the CIRP Process.
This created confusion and uncertainty amongst the participants of the CIRP
Process as to the fate of the CIRP Process.
Insolvency Commencement Date: 11 Aug 2017
CIRP ends on: 07 Feb 2018
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AA vide its order dated 16 Jan 2018 extended the period of CIRP beyond
180 days for further period of 90 days.
AA vide its order dated 15 Sep 2017 directed the CoC to keep its
proceedings pending till the next date of hearing of the case.
AA vide its order dated 31 Jan 2018 directed the Resolution Professional not
to convene the CoC meeting till the next date of hearing
AA vide its order dated 28 Feb 2018 permitted the Resolution Professional to
go ahead with convening of ensuing meetings of CoC of the Corporate
Debtor and accordingly modified the interim order dated 31 Jan 2018.
Learned Counsel appearing for the FC and RP represented that for about
160 days the proceedings could not be taken up by the CoC in view of said
order and it virtually resulted in stay of the CIRP Process.
In the context, the Learned counsel appearing on behalf of CoC and FC
submitted that they have no objections if the CIRP period is extended till the
next date of hearing.
Learned Counsel appearing for the FC and RP represented that period of
litigation shall be excluded from the CIRP period from calculating the period
of 270 days
NCLAT decision:
It is clear that if an application is filed by the Resolution Professional or the
CoC or any person aggrieved person for justified reasons it is always open to
AA to exclude certain period for the purpose of counting the total period of
270 days.
The NCLAT then went on to point out some examples which would justify
extensions. They are as follows
· If the CIRP is stayed by a court of law or the AA or the NCLAT or the
HC or the Hon'ble SC
· If no Resolution Professional is functioning for one or other reason
during the CIRP such as removal
· The period between the date of order of admission/moratorium is
passed and the date of receipt of the certified order by the IRP (in this
case period between 11 Aug 2017 to 21 Aug 2017 is excluded-10 days
is excluded from 270 days)
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
· On hearing a case if order is reserved by the AA or the NCLAT or the
HC or the SC and finally pass order enabling the RP to complete the
CIRP
· If the CIRP is set aside by the NCLAT or order of the Appellant Tribunal
is reversed by the Hon'ble Supreme court and CIRP is restored.
· Any other circumstances which justifies exclusion of certain period.
With the guidelines laid down by the NCLAT in Mack Soft case, strict
timelines for completing the CIRP Process stand relaxed to the extent the
CIRP Process gets hampered due to forces external to the CIRP Process.
The time prescribed for filing legal proceeding by or against Corporate
Debtor is to be excluded for which an order of moratorium has been made.
CASE NO. 32
In the matter of:
Quantum Limited (Corporate Debtor/ Appellant)
Versus
Indus Finance Corporation Limited (Respondent)
Company Appeal (AT) (Insolvency) No. 35 of 2018
Date of Order: 20-02-2018
Facts:
This appeal was preferred by the Corporate Debtor through Resolution
Professional against order dated 18th December 2017 passed by AA,
Mumbai Bench. By impugned order the AA has rejected the application for
extension of time on the ground that there is no provision to file such
application after expiry of 180 days of the CIRP.
On the application moved by the Resolution Professional seeking extension
of CIRP period for another 90 days under section 12(2) of the IBC 2016.
It has been noticed by Bench that this application has been filed on 30th Nov
2017 on a resolution dated 24th Nov 2017 passed by CoC seeking extension
of time. By the time this application was moved by the Resolution
Professional 180 days of CIRP was complete by 25th Nov 2017.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
NCLT Observations:
On visiting the provision of law, Members have noticed that this application
shall be filed by the Resolution Professional for extension of CIRP period
before Completion of CIRP period, but this application has been filed after
expiry of the original period of 180 days of CIRP.
If at all this application is allowed it will be nothing but revival of CIRP period
which was completed on 25th Nov 2017.
Since there is no provision for revival of CIRP period to provide another 90
days' extension as mentioned under Section 12(2) of the IBC especially
when earlier 180 days period is complete, by the time application has been
filed before Adjudicating Authority, The members strongly believe that it will
become nothing but exercise of jurisdiction beyond the powers conferred
upon this Bench under Section 12 of the Code.
Since it is a Tribunal created by this Code itself, this Adjudicating Authority
has to be governed by the provisions of this Code. There can't be any doubt
to say that extension can't be construed as revival, revival can be after expiry
of period, whereas extension has to be given before expiry of original period.
"Since speed and time lines are hallmark of this Code and there being no
provision either for condonation or revival under any of the Provisions of this
Code, we are of the view that this Adjudicating Authority is devoid of
jurisdiction to revive the CIRP period already completed by 25.11.2017, i.e.
by the time this application has come before this Bench, therefore, we don't
find any merit in this application, whereby this application is hereby
dismissed."
Arguments presented by Learned Counsel appeared on behalf of the
Resolution Professional:
Learned counsel for the Resolution Professional submits that sub-section (2)
of Section 12 do not mandate that the application for extension of the time
should be filed before completion of 180 days.
It can be filed, if instructed to do so by a resolution passed in a meeting of
the committee of creditors by a vote of seventy-five per cent of the voting
share, within 180 days. (In present case the Resolution Professional passed
a resolution for extension of the CIRP within 180 days)
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
From sub-section (2) of Section 12, it is clear that resolution professional can
file an application to the Adjudicating Authority for extension of the period of
the corporate insolvency resolution process, only if instructed to do so by a
resolution passed at a meeting of the committee of creditors by a vote of
75% of the voting shares.
The provision does not stipulate that such application is to be filed before the
Adjudicating Authority within 180 days. If within 180 days including the last
day i.e. 180th day, a resolution is passed by the committee of creditors by a
majority vote of 75% of the voting shares, instructing the resolution
professional to file an application for extension of period in such case, in the
interest of justice and to ensure that the resolution process is completed
following all the procedures time should be allowed by the Adjudicating
Authority who is empowered to extend such period up to 90 days beyond
180th day.
In the present case, the Adjudicating Authority has not hold that the subject
matter of the case does not justify to extend the period. It has not been
rejected on the ground that the committee of creditors or resolution
professional has not justified their performance during the 180 days.
In such circumstances, it was duty on the part of the Adjudicating Authority to
extend the period to find out whether a suitable resolution plan is to be
approved instead of going for liquidation, which is the last recourse on failure
of resolution process.
NCLAT Conclusion:
For the aforesaid reasons, we set aside the impugned order and extend the
period of resolution process for another 90 days to be counted from today.
The period between 181st day and passing of this order shall not be counted
for any purpose and is to be excluded for all purpose.
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SECTION-14
CASE NO. 33
State Bank of India (Appellant /Financial Creditor)
Vs.
V. Ramakrishnan (Respondent / Director of Corporate Debtor)
and
M/s. Veesons Energy Systems Pvt. Ltd.
(Respondent / Corporate Debtor)
Company Appeal (AT) (Insolvency) No. 213 of 2017
Date of Order: 28-02-2018
Issue: Applicability of the imposition of moratorium under Section 14 of
the Code to the personal guarantors of the corporate debtors-
Facts:
Mr. V. Ramakrishnan, Director of M/s Veesons Energy Systems Pvt Ltd.
("Corporate Debtor") had given a personal guarantee and mortgagor of
collateral securities of his assets with the State Bank of India against the
facilities availed by the Corporate Debtor which comes within the meaning of
"Personal Guarantor" as defined under Section 5(22) of the Insolvency and
Bankruptcy Code 2016.
The State Bank of India invoked its rights under Section 13(2) of SARFAESI
Act, 2002 against the "Personal Gaurantor". The notice was challenged by
the Corporate Debtor before Hon'ble High Court of Madras, which was
dismissed with costs. Thereafter, the State Bank of India issued a
Possession Notice under section 13(4) of SARFAESI Act, 2002 and taken
symbolic possession of the secured assets.
The Corporate Debtor invoked Section 10 of Insolvency & Bankruptcy Code,
2016 which was admitted and order of "Moratorium" was passed and an
"Interim Resolution Professional" was appointed.
Even after declaration of the "Moratorium" the State Bank of India continued
to take measure under SARFAESI Act, 2002 and proceeded against the
property of the "Personal Guarantor" and issued a Sale Notice. Mr. V.
Ramakrishnan filed application before the NCLT, Chennai ("Adjudicating
Authority"), for stay of proceedings under SARFAESI Act, 2002, including
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
Auction Notice which the Adjudicating Authority by impugned order observed
that "Moratorium" prohibits transferring, encumbering, alienating or disposing
of by the "Corporate Debtor" any of its assets or any legal right or beneficial
interest therein.
In view of the provisions of Insolvency & Bankruptcy Code, 2016, Section
140 of the Indian Contract Act, 1872 and the decision of the Hon'ble High
Court of Madras, the Adjudicating Authority allowed the Interlocutory
Application preferred by Personal Guarantor and restrained State Bank of
India from proceeding against the Personal Guarantor till the period of
"moratorium" is over.
State Bank of India challenged the said order and appeal before the NCLAT.
Decision:
The Appellate Authority rejected the appeal based on following observations:
As per Part II, "Insolvency Resolution" and "Liquidation Proceedings" can be
initiated only against the "Corporate Persons" and not against an individual,
including "Personal Guarantor" as defined under Section 5(22) of the
Insolvency and Bankruptcy Code. For the purpose of Section 5(8) of the
Insolvency and Bankruptcy Code though counter-indemnity obligation in
respect of a guarantee, if disbursed against the consideration for the time
value of money comes within the meaning of "Financial Debt", no insolvency
and liquidation proceeding can be initiated against the Personal Guarantor
under Part II.
A "Financial Creditor" if intends to proceed against the Personal Guarantor of
the Corporate Debtor, may file an application relating to "Bankruptcy" of the
"Personal Guarantor" before the same Adjudicating Authority. Though Part III
of the Insolvency and Bankruptcy Code, 2016 has not yet notified but the
Adjudicating Authority is vested with all the powers of Debt Recovery
Tribunal (Adjudicating Authority under Part III) as contemplated under Part III
of the Code for the purpose of Section 60(4) of the Code.
Section 14(1)(b) of the Code prohibits not only institution of suits or
continuation of pending suits or proceedings against the Corporate Debtor
but also transfer, encumbrance, alienation or disposal of any of its assets of
the Corporate Debtor and / or any legal right or beneficial interest therein.
Section 14(1)(c) and (d) prohibits recovery or enforcement of any security
interest created by the corporate debtor in respect of its property including
the property occupied by it or in the possession of the Corporate Debtor.
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If "Resolution Plan" approved by Committee of Creditors under Section 30(4),
meets the requirements as referred under Section 30(2) and approved by
Adjudicating Authority, it is not only binding on the Corporate Debtor but also
on its employees, members, creditors, guarantors and other stakeholders
involved in the "Resolution Plan" including the "Personal Guarantor".
For the aforesaid reasons, the appellate authority held that the Moratorium
will not only be applicable to the property of Corporate Debtor but also on the
Personal Guarantor.
CASE NO. 34
Dakshin Gujarat VIJ Company Ltd. (Applicant/Petitioner)
Versus
M/s. ABG Shipyard Ltd. & Anr. (Respondent)
Company Appeal (AT) (Insolvency) No. 334 of 2017
Date of Order: 08-02-2018
Facts:
· The appeal was filed by Dakshin Gujarat VIJ Company Ltd.
("Appellant"), before National Company Appellate Tribunal ("NCLAT"),
raising the question whether the order of `Moratorium' will cover the
current charges for supply of water, electricity etc. payable by the
Corporate Debtor.
· Learned counsel appearing for the Appellant submitted that the order of
`Moratorium' will be applicable only in respect of the amount as is
payable by the Corporate Debtor to the Appellant towards supply of
electricity as was due for the period prior to passing of order of
`Moratorium' only and is not applicable to the current dues towards
supply of electricity during the period of `Moratorium'.
· On the other hand, learned counsel for the `Resolution Professional'
contended that in view of Regulation 31 & 32 of the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate
Persons) Regulation, 2016(`the Regulation'), the appellant is duty bound
to supply the essential goods and services, including the electricity,
water etc.
Earlier, on the application filed by the Resolution Professional
requesting to extend the time granted by NCLAT for payment of the
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
current charges for electricity, NCLAT vide order dated 15.01.2018, had
directed the Resolution Professional to pay the electricity charges for
the month of December 2017 by 7th February 2018, failing which the
Appellant was open to disconnect the electricity.
· Learned counsel of the Resolution Professional also contended that the
current electricity charge for the month of December 2017 have been
paid to the Appellant pursuant to the above stated order, however, for
the present, the Corporate Debtor had no funds to pay any further
amount.
The NCLAT, examined the relevant regulations 31 and 32 of the Regulation
and also the relevant provisions of the Code, including, section 14(2) and
5(13 ) and held that
· None of the aforesaid regulations or sections of the Code imposes any
prohibition or bar towards the payment of current charges of essential
services. Such prohibition is not covered by the order of "Moratorium".
· The Hon'ble NCLAT further held that Regulation 31 cannot override the
substantive provisions of section 14. Therefore, if any cost is incurred
towards the supply of the essential services during the "Moratorium", it
may be accounted towards `Insolvency Resolution Costs', but law does
not stipulate that the suppliers of essential goods including the
electricity or water to be supplied free of cost, till completion of the
`Moratorium' and that payment if made towards essential goods to
ensure that the company remains on-going as made in the present case
for the month of December, 2017, such amount can accounted towards
`Insolvency and Resolution Process Costs' but it does not mean that
supply of essential goods and services to be supplied free of cost. If the
Corporate Debtor has no fund even to pay for supply of essential goods,
in such case the Resolution Professional cannot keep the company on-
going just to put additional cost towards supply of electricity, water etc.
· The current dues if any payable may be adjusted in terms of Regulation
31 of the Insolvency Resolution Process for Corporate Persons.
· The Hon'ble NCLAT further held that during the `Moratorium' period i.e.
till the `Resolution Plan' is approved by or rejected, the appellant will not
disconnect the electricity connections of ABG Shipyard Limited.
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SECTION-60
CASE NO. 35
M/s. Innoventive Industries Ltd. (Appellant/Corporate Debtor)
Vs.
ICICI Bank & Anr. (Respondents/Financial Creditor)
Company Appeal (AT) (Insolvency) No. 1 & 2 of 2017
Date of Order: 15-05-2017
Section 60 read with sections 7,8 & 9 of the Insolvency and Bankruptcy
Code, 2016 read with Rule 4(3) of the Insolvency and Bankruptcy
(Application to Adjudication Authority) Rules, 2016 read with Section
424 of the Companies Act, 2013 and Section 4 of the Maharashtra Relief
Undertaking (Special Provisions) Act, 1958 Adjudicating Authority for
Corporate Persons
Facts:
Pursuant to default in payment of dues the financial creditor filed an
application under section 7 of the IB Code. The corporate debtor filed an
interim Application stating that the Industry, Energy and Labour Department
of Maharashtra has passed a relief under the provision of the Maharashtra
Relief Undertaking (Special Provisions) Act, 1958 (Bombay Act XCVI of
1958) (hereinafter referred to as MRU Act 1958) suspending the liabilities of
the Corporate Debtor and remedies against the debtor for one year from
22.7.2016 and therefore the financial Creditor could not have invoked this
relief till 21st July, 2017.
The Adjudicating Authority/Tribunal held that IB Code has come into
existence subsequent to MRU Act 1958 and therefore, Non-Obstante clause
in section 238 of IBC prevails upon any other law for the time being in force,
hence it could not be said that Notification given under MRU Act will become
a bar to passing order u/s. 7 of the IB Code. Moreover, the objective under
MRU Act, is to prevent unemployment of the existing employees of an
industry which is recognized as relief undertaking, but by passing an order
u/s. 7 it will not cause any obstruction to their employment until next 180
days, even if the company goes into liquidation, then also the rights of the
employees are protected to the extent mentioned under IB Code. The
Application filed by the Corporate Debtor was therefore dismissed. The
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
Tribunal also dismissed the plea of the corporate debtor that notice has not
been served on the ground that this plea pales into insignificance because
this Bench has already heard the Corporate Debtor's application which was
already been dismissed. The Adjudicating Authority/Tribunal on perusal of
the documents filed by the financial creditor found that the application under
section 7(2) is complete and therefore admitted the same declaring
moratorium. Aggrieved with the order of the Tribunal the appellant/corporate
debtor filed this appeal.
The questions involved in this appeal are:
(i) Whether a notice is required to be given to the Corporate Debtor for
initiation of Corporate Insolvency Resolution Process under IB Code
and if so, at what stage and for what purpose?
(ii) Whether MRU Act 1958 shall prevail over IB Code. In other words,
whether a Corporate Debtor who is enjoying the benefit of MRU Act,
can be subjected to IB Code? and
(iii) Whether in a case where Joint Lender Forum (JLF) have reached
agreement and granted permission to the Corporate Debtor prior
consent of JLF is required by financial creditor, before filing of an
application under Section 7 of the IB Code?
Decision:
Ist issue: After considering various decisions of the Supreme Court it was
observed that "useless formality" is another exception to the ratio of natural
justice. Where on the admitted or undisputed facts only one conclusion is
possible and under the law only one penalty is permissible, the Court may
not insist on the observance of the principles of natural justice because it
would be futile to order its observance. Therefore, where the result would not
be different, and it is demonstrable beyond doubt, order of compliance with
the principles of natural justice will not be justified.
Further from the decisions of Hon'ble Supreme Court, the exception on the
Principle of Rules of natural justice can be summarised as follows:-
(i) Exclusion in case of emergency,
(ii) Express statutory exclusion
(iii) Where discloser would be prejudicial to public interests
(iv) Where prompt action is needed,
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
(v) Where it is impracticable to hold hearing or appeal,
(vi) Exclusion in case of purely administrative matters.
(vii) Where no right of person is infringed,
(viii) The procedural defect would have made no difference to the outcome.
(ix) Exclusion on the ground of 'no fault' decision maker etc.
(x) Where on the admitted or undisputed fact only one conclusion is
possible - it will be useless formality.
There is no specific provision under the I&B Code, 2016 to provide hearing to
corporate debtor in a petition under Section 7 or 9 of the I&B Code, 2016.
I&B Code, 2016 empowers 'adjudicating authority' to pass orders under
Section 7, 9 and 10 of the Code, 2016 and not the National Company Law
Tribunal. It is by virtue of the definition under sub-Section (1) of Section 5
read with section 60 of the I&B Code, 2016, the National Company Law
Tribunal plays role of an "adjudicating authority".
As amended Section 424 of the Companies Act, 2013 is applicable to the
proceeding under the I&B Code, 2016, it is mandatory for the adjudicating
authority to follow the Principles of rules of natural justice while passing an
order under I&B Code, 2016. Further, as Section 424 mandates the 'Tribunal'
and Appellate Tribunal, to dispose of cases or/appeal before it subject to
other provisions of the Companies Act, 2013 or IB Code 2016 such as,
Section 420 of the Companies Act, 2013 was applicable and to be followed
by the Adjudicating Authority. Thus it is clear that sub-Rule (3) of Rule 4 of
I&B (Application to Adjudicating Authority) Rules, 2016, mandates the
applicant to dispatch forthwith, a copy of the application "filed with the
Adjudicating Authority". Thereby a post filing notice required to be issued and
not as notice before filing of an application. The purpose for the same being
to put corporate debtor to adequate impound notice so that the Corporate
Debtor may bring to the notice of Adjudicating Officer "mitigating
factor/records before the application is accepted even before formal notice is
received."
The insolvency resolution process under Section 7 or Section 9 of I&B Code,
2016 have serious civil consequences not only on the corporate debtor -
company but also on its directors and shareholders in view of the fact that
once the application under Sections 7 or 9 of the I&B Code, 2016 is admitted
it is followed by appointment of an 'interim resolution professional' to manage
the affairs of the corporate debtor, instant removal of the board of directors
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
and moratorium for a period of 180 days. For the said reason also the
Adjudicating Authority is bound to issue limited notice to the corporate debtor
before admitting a case under section 7 and 9 of the 'I & B Code', 2016.
The Adjudicating Authority is bound to issue a limited notice to the corporate
debtor before admitting a case for ascertainment of existence of default
based on material submitted by the corporate debtor and to find out whether
the application is complete and or there is any other defect required to be
removed. Adherence to Principles of natural justice would not mean that in
every situation the adjudicating authority is required to afford reasonable
opportunity of hearing to the corporate debtor before passing its order.
The Adjudicating Authority post ascertaining and being satisfied that such a
default has occurred may admit the application of the financial creditor. In
other words, the statute mandates the Adjudicating Authority to ascertain and
record satisfaction as to the occurrence of default before admitting the
application. Mere claim by the financial creditor that the default has occurred
is not sufficient. The same is subject to the Adjudicating Authority's summary
adjudication, though limited to 'ascertainment' and 'satisfaction'.
It is evident from Section 9 of the I & B Code that the Adjudicating Authority
has to, within fourteen days of the receipt of the application under sub-
section (2), either admit or reject the application. Section 9 has two-fold
situations insofar as notice of dispute is concerned. As per sub-section (5)(i)
of Section 9, the Adjudicating Authority can admit the application in case no
notice raising the dispute is received by the operational creditor (as verified
by the operational creditor on affidavit) and there is no record of a dispute is
with the information utility. On the other hand, sub-section (5)(ii) of Section 9
mandates the Adjudicating Authority to reject the application if the
operational creditor has received notice of dispute from the corporate debtor.
Section 9 thus makes it distinct from Section 7. While in Section 7,
occurrence of default has to be ascertained and satisfaction recorded by the
Adjudicating Authority, there no similar provision under Section 9.Under
Section 7 neither notice of demand nor a notice of dispute is relevant
whereas under Sections 8 and 9 notice of demand and notice of dispute
become relevant both for the purposes of admission as well as for the
rejection.
While ascertaining, the 'Adjudicating Authority' to comes to a conclusion
whether there is an existence of default for the purpose of section 7 or there
is a dispute raised by the corporate debtor and all other purpose whether an
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application is complete or incomplete, it is not only necessary to hear the
Financial Creditor/Operational Creditor but also the Corporate Debtor.
The different decisions of the Hon'ble Supreme Court and exception of
principles of natural justice as summarised in the preceding paragraphs is
not applicable to the insolvency resolution process as it is not a case of
emergency declared or prejudicial to public interest or that there is a
statutory exclusion of rules of natural justice or it is impracticable to hold
hearing. It is not the case that no right of any person has been affected, as
immediately on appointment of an Interim Resolution Professional, the Board
of directors stand superseded. There are other persons who are also
affected due to order of moratorium. Therefore, the 'adjudicating authority' is
duty bound to give a notice to the corporate debtor before admission of a
petition under Section 7 or Section 9.
In the present case though no notice was given to the Appellant before
admission of the case but it was found that the Appellant intervened before
the admission of the case and all the objections raised by appellant has been
noticed, discussed and considered by the 'adjudicating authority' while
passing the impugned order dated 17th January 2017. Thereby, merely on
the ground that the Appellant was not given any notice before admission of
the case cannot render the impugned order illegal as the Appellant has
already been heard. If the impugned order is set aside and the case is
remitted back to the adjudicating authority, it would be 'useless formality' and
would be futile to order its observance as the result would not be different.
Therefore, order to follow the principles of natural justice in the present case
does not arise.
However, in some of the cases initiation of Insolvency Resolution Process
may have adverse consequences on the welfare of the Company. Therefore,
it will be imperative for the "adjudicating authority" to adopt a cautious
approach in admitting Insolvency Application by ensuring adherence to the
principle of natural justice.
IInd Issue: The Schedule to the MRU Act specifies only certain acts to which
the restriction applies. Accordingly, the application of the MRU Act can only
be extended to such acts as specified in the schedule and no other
legislation. The legislations referred to in the 'schedule' to the MRU Act are
employment welfare related which is in consonance with the objects and
purposed of the MRU Act i.e. 'employment and unemployment'. The
protection under the MRU Act, therefore, cannot be extended to other
legislations especially to union legislation which is subsequent to the MRU
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
Act and related to insolvency resolution i.e. I&B Code, 2016. Section 4 of the
MRU Act, including Section 4 (iv), therefore, is limited in scope to the acts
listed in the schedule thereto.
The MRU Act operates in a different field from the I&B Code, 2016. MRU Act
is an Act to make temporary provisions for industrial relations and other
matters to enable the State Government to conduct or to provide a loan,
guarantee or financial assistance for the conduct of certain industrial
undertakings 'as a measure of preventing unemployment or of unemployment
relief.'
On the other hand the I&B Code, 2016 is an Act enacted to consolidate and
amend the laws relating to reorganization and insolvency resolution of
corporate persons, partnership firms and individuals in a time bound manner
for maximization of value of assets of such persons, to promote
entrepreneurship, availability of credit and balance the interest of all the
stakeholders including alteration in the order of priority of payments of
Government dues. The I&B Code, 2016, which is later act of greater
specificity, seeks to balance the interests of all stake holders.
Section 238 of the I&B Code, 2016 is non-obstante clause which overrides
the operation of the MRU Act. As per Section 238 of the I&B Code, 2016 the
provisions of the Code are to be given effect to notwithstanding anything
contrary contained any other law or any instrument having effect under such
law.
In view of the aforesaid objects of the two enactments it is apparent that the
two enactments operate in entirely different fields. This is further made clear
by the fact that the MRU Act is enacted under Entry 23 of List III while the
Code has been enacted under Entry 9 of the List III. The MRU Act has
received Presidential assent under Article 254(2) of the Constitution of India,
which is only required for statutes enacted by the State Government in
exercise of its legislative competence under the Concurrent List.
In light of the aforementioned non-obstante provision (which is a subsequent
Union Law), the provisions of the I&B Code, 2016 shall prevail over the
provisions of the MRU Act and any instrument issued under the MRU Act
including the Notification.
Following the law laid down by Hon'ble Supreme Court in Yogender Kumar
Jaiswal Vs. State of Bihar, (2016) 3 SCC 183 and Madras Pet Rochem
Limited and Another Vs. Board for Industrial and Financial Reconstruction
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
and Others," (2016) 4 SCC 1it was held that there is no repugnancy between
I&B Code, 2016 and the MRU Act as they both operate in different fields. The
Parliament has expressly stated that the provisions of the I&B Code, 2016
(which is a later enactment to the MRU Act) shall have effect notwithstanding
the provisions of any other law for the time being in force. This stipulation
does not mean that the provisions of MRU Act or for that matter any other
law are repugnant to the provisions of the Code.
In view above, it was held that the Appellant was not entitled to derive any
advantage from MRU Act, 1958 to stall the insolvency resolution process
under Section 7 of the I&B Code.
IIIrd Issue: The Tribunal has noticed that there is a failure on the part of
appellant to pay debts. The Financial Creditor has attached different records
in support of default of payment. Apart from that it is not supposed to go
beyond the question to see whether there is a failure on fulfilment of
obligation by the financial creditor under one or other agreement, including
the Master Restructuring Agreement. In that view of the matter, the Appellant
cannot derive any advantage of the Master Restructuring Agreement dated
8th September, 2014.
For initiation of corporate resolution process by financial creditor under sub-
section (4) of Section 7 of the Code, the 'adjudicating authority' on receipt of
application under sub-section (2) is required to ascertain existence of default
from the records of Information Utility or on the basis of other evidence
furnished by the financial creditor under sub-section (3). Under sub-section 5
of Section 7, the 'adjudicating authority' is required to satisfy:-
(a) Whether a default has occurred;
(b) Whether an application is complete; and
(c) Whether any disciplinary proceeding is against the proposed Insolvency
Resolution Professional.
Once it is satisfied that it is required to admit the case but in case the
application is incomplete application, the financial creditor is to be granted
seven days' time to complete the application. However, in a case where there
is no default or defects cannot be rectified, or the record enclosed is
misleading, the application has to be rejected.
Beyond the aforesaid practice, the 'adjudicating authority' is not required to
look into any other factor, including the question whether permission or
consent has been obtained from one or other authority, including the JLF.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
Therefore, the contention of the petition that the Respondent has not
obtained permission or consent of JLF to the present proceeding which will
be adversely affect loan of other members cannot be accepted and fit to be
rejected.
In the aforesaid circumstances the 'adjudicating authority' having satisfied on
all counts, including default and that the application is complete and that
there is no disciplinary proceeding pending against the Insolvency Resolution
Professional, no interference is called for against the impugned judgment.
Case Review: Order dated 17th January, 2017 and Order dated 23rd
January, 2017 passed by National Company Law Tribunal, Mumbai Bench,
Mumbai in ICICI Bank Ltd. Vs. M/s. Innoventive Industries Ltd. (C.P. No.
1/I&BP/NCLT/MB/MAH/2016), Upheld.
SECTION-61
CASE NO. 36
M/s. Starlog Enterprises Ltd. (Appellant/Corporate Debtor)
Vs.
ICICI Bank Ltd. (Respondent/Financial Creditor)
Company Appeal (AT) (Insolvency) No. 5 of 2017
Date of Order: 24-05-2017
Section 61 read with Sections 7, 9 & 75 of the Insolvency and
Bankruptcy Code, 2016 Appeals and Appellate Authority
Facts:
Financial Creditor/Applicant having failed to realise the outstanding dues filed
an application under section 7 of the Code before the Adjudicating
Authority/NCLT. The applicant filed proof for service of notice to the
corporate debtor. The NCLT satisfied that there was a default on the part of
corporate debtor and passed an ex parte order admitting the application filed
under section 7 of the Code declaring moratorium.
The corporate debtor/appellant filed an appeal against the order of NCLT on
the following grounds:
1. In absence of notice given to the Appellant before admitting the case
under Section 7 of the Code, the impugned order is violative of rules of
natural justice.
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2. The application under Section 7 by the Financial Creditor is incomplete,
misleading and being not bona fide was fit to be rejected.
3. The impact of the appointment of Insolvency Resolution Professional on
the business and management of the appellant was that in view of the
mismanagement the appellant has incurred financial losses as one of
its contracts was terminated and also suffered loss of several valuable
human resources.
Decision:
It is clear that before admitting an application under Section 9 of the Code it
is mandatory duty of the 'adjudicating authority' to issue notice. In the
present case admittedly no notice was issued by the 'adjudicating authority'
to the corporate debtor, before admitting the application filed under Section 9
of the Code. For the said reason the judgement order cannot be upheld
having passed in violation of principle of natural justice.
Showing an incorrect claim, moving the application in a hasty manner and
obtaining an ex-parte order from the 'adjudicating authority' which admitted
such an incorrect claim, the Financial Creditor cannot disprove its mala fide
intention by stating that the claim submitted is correct amount. The I&B Code
does not provide for any such mechanism where post-admission, the
applicant financial creditor can modify their claim amount.
In some of the cases, an insolvency resolution process can and may have
adverse consequences on the welfare of the company. This makes it
imperative for the 'adjudicating authority' to adopt a cautious approach in
admitting insolvency applications and also ensuring adherence to the
principles of natural justice.
For the reasons aforesaid, the appellate Tribunal set aside the ex-parte
impugned order passed by NCLT.
In effect the appointment of Interim Resolution Professional, order declaring
moratorium, freezing of account and all other order passed by 'adjudicating
authority' pursuant to impugned order and action taken by the Interim
Resolution Professional, including the advertisement published in the
newspaper calling for applications are declared illegal. The 'adjudicating
authority' is directed to close the proceeding. The appellant company is
released from the rigour of law and allow the appellant company to function
independently through its Board of Directors from immediate effect.
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Orders passed by National Company Law Appellate Tribunal (NCLAT)
The Tribunal imposed a penalty of Rs. 50,000/- on Respondent/Financial
Creditor.
Case Review: Order dated 17thFebruary, 2017 passed by NCLT, Mumbai
Bench, in ICICI Bank Ltd. Vs. M/s. Starlog Enterprises Ltd. (C.P.
No.12/I&B/NCLT/MAH/2017), set aside.
123
Chapter 4
Orders passed by National Company
Law Tribunal (NCLT)
SECTION-7
CASE NO. 1
Bench National Company Law Tribunal (NCLT), Mumbai Bench,
Mumbai
Financial M/s. Edelweiss Asset Reconstruction Co. Ltd.
Creditor
Corporate M/s. Murli Industries Ltd.
Debtor
Amount of 1365.40 Cr.
Default
Date of Order 05-04-2017
Relevant Section Section 7 of the Insolvency and Bankruptcy Code, 2016
read with Rule 4 of the Insolvency and Bankruptcy
(Application to Adjudication Authority) Rules, 2016
Initiation of corporate Insolvency resolution process by
Financial Creditor
Facts of the The corporate debtor entered into a master
Case reconstructing agreement with Bank of Baroda
(Monitoring Institution) and other Lender Banks. The
agreement says that the corporate debtor has requested
the lenders for various financial assistance for setting
up/implementation of the project and for other
requirements for its operations. The lenders sanctioned
the term loan and working capital facilities to the
corporate debtor and the corporate debtor from time to
time created security by way of hypothecation of its
moveable assets and/or mortgage of its immovable
properties. The corporate debtor requested the lenders
Orders passed by National Company Law Tribunal (NCLT)
for debt restructuring as the project under
implementation has come under strain due to various
internal or external reasons. Hence, the lenders and the
corporate debtor agreed to enter into the master
restructuring agreement to give effect to the corporate
debt reconstruction package.
Bank of Baroda which is a lead bank under consortium
arrangement issued a notice to the corporate debtor u/s.
13 (2) of the SARFAESI Act for recovery of Rs. 1365.40
crores due to the consortium banks. Bank of Baroda has
also issued a possession notice stating that it has taken
symbolic possession of the property owned by the
corporate debtor u/s. 13 (4) of the SARFAESI Act read
with Rule 9 of security Interest (Enforcement) Rules
2002. Further, auditor's report has stated that the
company has defaulted in repayment of dues to financial
institutions and banks amounting to Rs. 1896.65 crores.
The Edelweiss Asset Reconstruction Company Limited in
its capacity as financial creditor filed this petition for
initiation of corporate insolvency resolution process.
Decision of the This petition clearly reveals that there is a debt as
Tribunal defined in Section 3 (11) of the Code and also there is
default in this case within the meaning of Section 3 (12)
of the Code. Further, Section 5 (7) clearly provides that
an assignee of a financial debt is also a financial creditor
and hence the petition is well within the ambit of Section
7 of the Code.
The Tribunal therefore admitted the petition and
appointed an interim resolution professional.
CASE NO. 2
Bench National Company Law Tribunal (NCLT), Ahmedabad
Bench, Ahmedabad
Financial Creditor Hero FinCorp Ltd.
Corporate Debtor Steel Konnect (India) Pvt. Ltd.
Amount of Default 6.63 Cr.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Date of Order 19-04-2017
Relevant Section Section 7 of the Insolvency and Bankruptcy Code, 2016
read with Rule 4 of the Insolvency and Bankruptcy
(Application to Adjudication Authority) Rules, 2016
Initiation of corporate Insolvency resolution process by
Financial Creditor
Facts of the Case On the basis of Master Facility Agreement entered
between the Financial Creditor and the Corporate
Debtor a loan amounting to Rs. 7 Cr. was advanced. As
per the agreed terms, instalments were required to be
paid through ECS by way of Equated Monthly
Instalments. The Corporate Debtor defaulted in making
instalments and from November 2016 it had completely
stopped making payments. The Corporate Debtor
disputed that the claimed amount was not correct but
could not deny the default or the Loan Agreement.
Decision of the From the material placed on record, this Adjudicating
Tribunal Authority is satisfied that a default has been committed
by the Corporate Debtor in repayment of the loan
amount. The petition was therefore admitted and Interim
Resolution Professional was appointed.
CASE NO. 3
Bench National Company Law Tribunal (NCLT), Ahmedabad
Bench, Ahmedabad
Financial Creditor State Bank of India / Standard Chartered Bank
Corporate Debtor Essar Steels Ltd. / Essar Steels India Ltd.
Amount in Default 45000 Cr.
Date of Order 02-08-2017
Relevant Section Section 7 of the Insolvency and Bankruptcy Code, 2016
read with Rule 4 and 9 of the Insolvency and
Bankruptcy (Application to Adjudication Authority)
Rules, 2016 Initiation of corporate Insolvency
resolution process by Financial Creditor
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Orders passed by National Company Law Tribunal (NCLT)
Facts of the Case State Bank of India (SBI) and Standard Chartered Bank
(SCB) initiated Corporate Insolvency Resolution
Process (CIRP) under section 7 of the IBC against the
respondent corporate debtor/Essar.
The case of the ESSAR is that:
· The operations of the ESSAR are very complex
involving large number of stakeholders including
suppliers, creditors, employees, promoters,
customers, Government exchequer over and above
the financial creditors.
· ESSAR is on the path of improvement to carry on
the operations at 80% capacity.
· Debt Resolution Process was undertaken and there
were discussions between the Lenders and ESSAR
till 13th June, 2017 on the day on which Reserve
Bank of India (RBI) issued a Press Release.
· That the directions given by RBI to SBI triggered
the reference before National Company Law
Tribunal. According to ESSAR, Resolution Process
has two risks. First, the process of formulation of
Debt Resolution Process will have to be reinitiated
and further time will be lost due to fresh start. The
second one is potential risk to the operations and
value of the Company under the hands of IRP.
· ESSAR also stated that if the Company is in the
hands of IRP who is an individual person it is
difficult for him to oversee such complex operations
in a short period of 180 days.
· Further, the funding supported by the creditors and
suppliers which were available to the Company
under the stewardship of Board of Directors and
promoters may not be available to IRP. According
to the ESSAR, promoters, lenders, employees,
creditors, suppliers, customers have invested time,
efforts and resources to revive the Company and
implement a satisfactory Debt Resolution Plan and
if at this stage the Insolvency Resolution Plan is
invoked it would adversely affect the interest of the
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Company and all its stakeholders.
· It is further stated that in view of Section 13 and 16
of the IBC, the appointment of IRP shall be made
only after the admission of the petition within 14
days.
· Further, there are 4500 people working in the
Company and all would be affected in case of
commencement of Insolvency Resolution Process.
· That National Company Law Tribunal has got
discretion not to admit the petition in view of
language used in Section 7.
Decision of the There is no dispute about the proposition of law that in
Tribunal order to give appropriate meaning to the words "may"
and "shall" used by the Legislature, the intent of the
particular enactment and the attendant circumstances
must be taken into consideration.
This Adjudicating Authority is of the view that the order
of admission of an Application for initiation of Corporate
Insolvency Resolution Process is a judicial order which
should be according to the provisions of the Code,
principles of natural justice, and taking the
consequences of the order into consideration.
Therefore, there this Adjudicating Authority shall
exercise its discretion in either admitting or rejecting the
Insolvency Resolution Applications. It is needless to say
that discretionary power has to be exercised in a
judicious manner taking into consideration all the facts
and circumstances of the case, the provisions of the
applicable laws and the object of the Insolvency and
Bankruptcy Code. This Adjudicating Authority shall look
into the aspect of the occurrence of default, and, while
doing so, shall take into consideration various factual
and legal pleas raised by both parties in order to record
its satisfaction. Therefore, the argument that the word
"may" in Section 5(a) shall be read as "shall" and
therefore it is mandatory on the part of the Adjudicating
Authority to admit all the Insolvency Resolution
Applications filed by the Financial Creditors, if they are
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Orders passed by National Company Law Tribunal (NCLT)
complete, do not merit acceptance.
In the case on hand, from the material placed on record
by SCB and SBI, it is clear that it is established that
ESSAR has committed default in repayment of financial
debt to SCB and SBI. The Applications filed by the SCB
and SBI are complete in all respects. As can be seen
from the Written Communications of proposed Interim
Resolution Professionals filed by the SCB and SBI, no
disciplinary proceedings are pending against them.
Whether Debt Restructuring Process or Debt
Restructuring Plan is going to absolve the ESSAR,
Corporate Debtor from the Insolvency Resolution
Process?
From the material placed on record, it is in the year
2014 that Debt Reconstructing Process commenced.
For one reason or the other, the Debt Reconstructing
Process has not been finalised till today or till the date
of filing of the Applications. It is not a case where
ESSAR owed monies to Lenders in the previous year.
The Lenders are there from the beginning of the
ESSAR Company. As contended by ESSAR there are
several reasons that prevented it from discharging the
debts. No doubt, there are no allegations of siphoning
of funds, diversion of funds or fraud. But, the fact
remains that except showing a little progress in the last
financial year, there appears to be no scope for the
ESSAR to repay its debts till 25 years or in a span of 25
years. Therefore, the Debt Restructuring Process,
which is going on for the last two years, may not be a
factor not to enter into Insolvency Resolution Process.
It is pertinent to mention here, that even in the
Corporate Insolvency Resolution Plan, Debt
Restructuring Plan can be taken into consideration by
the Committee of Creditors as one of the Resolution
Plans, if submitted by any of the Resolution Applicants.
Therefore, commencement of Insolvency Resolution
Process cannot be construed as putting an end to the
Debt Restructuring Process which has been
commenced. The apprehension of ESSAR, that, to
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
again start Debt Restructuring Process would consume
lot of time, appears to be not acceptable for the reason
that Insolvency Resolution Plan is a time bound
programme. There is no scope for the stakeholders to
prolong the process without taking a decision and
without finalising the Resolution Plan. Therefore, on the
ground that when a Debt Restructuring Process is going
on there is no need to commence the Insolvency
Resolution Process under the IBC does not hold the
field. If Insolvency Resolution Process is commenced
by appointing Interim Resolution Professional, no doubt
the Board of Directors would be suspended. That does
not mean the entire machinery of the Company is
suspended. Even after appointment of IRP, all the
employees of the Company, top to bottom, would
continue to function under the control of IRP instead of
the Board of Directors. Therefore, the apprehension of
ESSAR that suspension of Board of Directors may
cause prejudice to the interest of the Company and the
stakeholders may not be correct. The Object of the IBC
is to chalk out a Resolution Plan to revive the
Company, but not to liquidate the Company
straightway. It is needless to say that a company like
ESSAR need not be liquidated and there are several
other alternatives to revive the Company. If all the
eligible Creditors sit together; evolve a Resolution Plan,
it would help not only the Company, its stakeholders,
Steel Industry, and ultimately the economy of India. In
chalking out such Resolution Plan, mainly the Lenders,
must sacrifice to a great extent which makes the
Company to revive. If a Resolution Plan is chalked out
with such objectives in mind, the Resolution Plan will
certainly help the Company and it would come out of
the present situation. Therefore, as opined by the
Hon'ble High Court of Gujarat (in Essar Steel India Ltd.
Vs. RBI & others, Special Civil application No. 12434 of
2017), taking all the material facts, and the Debt
Restructuring Plan, and the objects of the 1B Code, into
consideration this Adjudicating Authority is of the view
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Orders passed by National Company Law Tribunal (NCLT)
that it is only the Resolution Plan that would make the
ESSAR Company survive which course would
safeguard the interest of all the stakeholders of the
Company. Therefore, there is no need for an
apprehension that Resolution Plan is going to be
detrimental to the interest of the Company. The finding
of this Authority, after taking into all factual aspects, the
complex activities of ESSAR, the ongoing Debt
Restructuring Process, is that both Applications merit
admission.
In view of the above discussion, this Adjudicating
Authority is of the considered view that the Applications
filed by the SCB and SBI are complete, there is
occurrence of default in respect of financial debts, and
there are no disciplinary proceedings pending against
the Insolvency Resolution Professionals proposed by
both the Applicants, i.e., SCB and SBI. Hence, this
Adjudicating Authority is hereby admitting both the
Applications filed by SCB and SBI.
Whether there is no need to appoint Interim Resolution
Professional on the same day on which date admission
order is passed and it can be passed within 14 days of
the admission of the Applications?
In case of admission of an Application under Section 7
of the Code, the Corporate Insolvency Resolution
Process commences. Section 13 of the code says that
after the admission of the Application under Section 7,
the Authority shall declare moratorium, cause public
announcement of initiation of Corporate Insolvency
Resolution Process, and call for submission of claims
under Section 15 of the Code, and appoint Interim
Resolution Professional in the manner laid down in
Section 16.
No doubt, a reading of Sections 13, 14, 15 and 16 (1) of
the Code goes to show that Adjudicating Authority need
not appoint the Interim Resolution Professional on the
same day on which Application under Section 7, 9 or 10
is admitted. But, there is no provision which bars the
Adjudicating Authority from appointing Interim
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Resolution Professional on the same day on which the
admission order was passed and simultaneously with
the admission order. In an application filed under
Section 9, in case if the Operational Creditor did not
give the name of the IRP, then the Adjudicating
Authority, availing the 14 days' time provided under
Section 16(1), can appoint the Interim Resolution
Professional within 14 days from the date of admission
order. Suppose in a given case there is some omission
in the Written Communication or there is some difficulty
in the appointment of the recommended IRP, in such
Cases the Adjudicating Authority may appoint IRP even
in an application under Section 7 not on the date of
order of admission, but on a subsequent date, but
before 14 days from the date of admission. Therefore,
there must be facts and circumstances that warrant the
Adjudicating Authority to defer the appointment of IRP
in an application filed under Section 7 of the Code. In
the case on hand, no such circumstance exists which
warrant deferring the appointment of Interim Resolution
Professional to some other date but not on the date of
admission order.
No two stages or no two separate hearings are
contemplated under the Code, namely, the first stage is
admission and the second stage is appointment of
Interim Resolution Professional. The object of the Code
is to complete the entire process in a time bound
programme. When such is the object of the Code,
without any compelling circumstances, there is no need
to defer the appointment of Interim Resolution
Professional only to give an opportunity to the
Corporate Debtor to agitate the decision of this
Adjudicating Authority twice in two Appeals. The
Corporate Debtor is entitled to prefer an Appeal against
the order of admission and also against the
appointment of Interim Resolution Professional. If both
the orders, namely admission order and the order
appointing Interim Resolution Professional are made
separate, then the Corporate Debtor will file two
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Orders passed by National Company Law Tribunal (NCLT)
Appeals at two stages and thereby gain more time,
which is not the object of the Code. Therefore, the
Code enjoins upon this Authority to declare Moratorium;
to make public announcement of initiation of Corporate
Insolvency Resolution Process; and to appoint Interim
Resolution Professional on the date of commencement
of Insolvency Resolution Process as Rule and the
exception is differing the appointment of Interim
Resolution Professional to some other date that depend
upon the facts of the case.
CASE NO. 4
Bench National Company Law Tribunal- Ahmedabad Bench,
Ahmedabad
Financial Creditor Edelweiss Asset Reconstruction Co. Ltd
Corporate Debtor Kalptaru Alloys Private Limited
Amount of Default 46.75 Cr.
Date of Order 05-09-2017
Relevant Section Section 7 of the Insolvency and Bankruptcy Code, 2016
read with Rule 4 of the Insolvency and Bankruptcy
(Application to Adjudication Authority) Rules, 2016
Initiation of corporate Insolvency resolution process by
Financial Creditor
Facts of the Case Application was made under section 7 and was objected
by corporate debtor (CD) on following grounds that
nature & details of default not disclosed in application,
CD was not a party to assignment proceedings, Bank
has proceeded under SAFAESI Act and Corporate
Debtor is disputing Amount, CD has no information
about proposed Interim Resolution Professional.
Decision of the Can Asset Reconstruction Company (ARC) to which
Tribunal debt is assigned make Application as a financial creditor
under section 7.
Debt was assigned with knowledge of Debtor
(Assignment Deed), Certificate Under Banker's Book
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Evidence Act show default, Balance Confirmation falls
within Limitation Period. As per original Loan agreement
the CD had agreed to pay to the Bank or assignee (In
this case ARC).
Initiation of proceedings under SARFAESI Act by the
Bank is no bar for initiation of insolvency proceedings
under the Code in view of overriding effect given to
Section 238.
Form 2 was signed by proposed Interim Resolution
Professional. Hence the Application accepted.
CASE NO. 5
Bench National Company Law Tribunal (NCLT), Ahmedabad
Bench, Ahmedabad
Financial Creditor ICICI Bank Ltd
Corporate Debtor Innoventive Industries Ltd
Amount of Default 101.92 cr
Date of Order 17.01.2017
Relevant Section Section 7 of the Insolvency and Bankruptcy Code, 2016
read with Rule 4 of the Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016
Section 238 of Insolvency and Bankruptcy Code, 2016
Section 4 of Maharashtra Relief Undertaking (Special
Provisions) Act
Facts of the Case An application under section 7 of the Code of 2016 was
filed by the Applicant before the NCLT Mumbai Bench.
The Corporate debtor made an argument stating that on
the date of filing the application, the debts said to have
been existing against the Corporate Debtor have been
suspended under Maharashtra Relief Undertaking
(Special Provisions) Act for a period of one year
commencing on 22.07.2016 to serve as a measure of
preventing unemployment and direct that in relation to
section 4 such undertaking rights, obligations, liability
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Orders passed by National Company Law Tribunal (NCLT)
accrued or incurred before 22.07.2016 shall remain
suspended and any proceeding relating thereto pending
before any Court, Tribunal, Officers or Authority shall be
stayed.
Section 238 of Insolvency and Bankruptcy Code, 2016
also states of the non-obstante clause.
The Applicant referred to the case of JM Financial Asset
Reconstruction v/s State of Maharashtra 2016 SCC
stating that the notification issued u/s 4 of MRU Act is
limited to the enactment as specified in the Schedules to
MRU Act. The plain reading of section 4 of MRU makes
it clear that only the right, privilege, obligation or liability
accrued or incurred before the undertaking in so far as
the said right relates to availing of any remedy for
enforcement is suspended and not existence/
continuation of debt or default itself, therefore
suspension of indebtedness or default has not been
contemplated or provided under the MRU Act.
The Applicant also stated that as per sec 7 of the IBC
2016 only the fact of the event of default has to be
ascertained and the Tribunal is only required the
document specified under the Code if in the event of the
same are not sufficient or there is any defect in the
application. The Tribunal has discretion to direct the
applicant to rectify the same. The notification given by
the Industry, Energy and Labour Department of
Maharashtra, on 22.7.2016, will not have any bearing on
passing an order u/s 7 of the Code.
Decision of the It was observed that the non-obstante clause is present
Tribunal in both MRU Act and IB Code. But since the IB Code
has come into existence subsequent to MRU Act
therefore, notwithstanding clause in sec 238 of IBC
prevails upon any other law for the time being in force,
hence the Notification under MRU Act will not become a
bar to passing this order u/s 7 of the IBC 2016.
Moreover, the objective of MRU Act is to prevent
unemployment, but by passing an order u/s 7 it will not
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
cause any obstruction to their employment until next 180
days, even if the company goes into liquidation, then
also the rights of the employees are protected to the
extent mentioned in the IB Code.
The liability of the company has been dealt with by the
MRU Act and also by IBC but both have different
objectives. In MRU Act, it is to protect the interest of
employees and in IBC, it is for protecting the creditors
who have supplied fuel to the company to make it run.
Since the liability suspended under MRU Act being
inconsistent with the default occurred to the debt
payable to the creditor, this order will not be against the
ratio decided by Hon'ble Apex Court in Vishal N Kalsa v.
Bank of India and Others (2016) (para 113), therefore
the Application filed by the Corporate Debtor is
dismissed.
From the petition filed by the Financial Creditor as it was
evident that the Corporate Debtor defaulted in making
payment and has also placed the same on Information
Utility. It has also placed the name of Insolvency
Resolution Professional as Interim Resolution
Professional. Hence as the Application is complete as
per sec 7(2), it is admitted.
CASE NO. 6
Bench National Company Law Tribunal (NCLT), Allahabad
Bench, Allahabad
Financial Creditor Bank of Baroda
Corporate Debtor Rotomac Global Pvt. Ltd and Rotomac Exports Pvt Ltd
Amount of Default 553.78 cr
Date of Order 23-03-2018
Relevant Section Section 7 read with section 33(1)(a) of the Insolvency
and Bankruptcy Code, 2016
Facts of the Case Application u/s 7 of the Code was admitted against
corporate debtors before NCLT Allahabad Bench.
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Orders passed by National Company Law Tribunal (NCLT)
In the COC meeting held on 20.02.2018, Resolution
Professional stated that Corporate Debtor could not
attend the meeting as CBI raid was in process on the
Corporate Debtor. Resolution Professional also informed
the COC about period of CIRP of 180 days is about to
complete on 19/03//2018, hence recommended for
application to extend CIRP by 90 days. In the e-voting,
96.08% of CoC voted against in the matter of Rotomac
Global Pvt Ltd and 97.01% of CoC in Rotomac Exports
Pvt Ltd voted against the extension of CIRP.
Resolution Professional filed application u/s 33(1)(a) of
IBC for initiation of Liquidation process against
corporate debtors
Decision of the As per section 33(1)(a) of the Code, application can be
Tribunal filed for initiation of liquidation of Corporate Debtor as
per Chapter III of the Code in case no Resolution Plan is
received before the expiry of CIRP .
The Resolution Professional proposed to extend the
CIRP period for another 90 days on the ground that the
time left for completion of CIRP was very short. The
resolution for extension of CIRP failed As no Resolution
Plan was received within 180 days of initiation of CIRP
hence application under section 33(1)(a) for initiation of
Liquidation admitted against corporate debtor.
Further the order state as follows :-
A. Moratorium cease to effect.
B. Registrar to send copy of the order to ROC.
C. Approval of 33(5) shall not apply to a legal
proceeding about the transaction as may be
notified by the Central Govt.
D. Liquidation order shall be deemed to be an
intimation to discharge the officers, employees and
workers.
E. Liquidators shall be vested with all powers of the
Board of Directors, Key managerial personnel.
Liquidator is directed to submit the progress report of
liquidation process within 30 days.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
CASE NO. 7
Bench National Company Law Tribunal (NCLT), Principal
Bench, New Delhi
Financial Creditor Alchemist Asset Reconstruction Co. Limited
Corporate Debtor Moser Baer India Limited
Amount of Default 185.37 cr
Date of Order 14-11-2017
Relevant Section Section 7 read with Rule 4 of the Insolvency and
Bankruptcy Code, 2016 for initiating the insolvency
resolution process by Financial Creditor
Facts of the Case 1. The Financial Creditor has filed the instant application
with a prayer to trigger the Corporate Insolvency
Resolution Process in the matter of Moser Baer India
Ltd. It is appropriate to mention that the 'financial
creditor' is a body corporate that acquired the secured
debt of State Bank of Hyderabad (now merged with
State Bank of India).
2. In the application, the Financial Creditor has given the
details of financial debt granted to the 'Corporate Debtor'
with the dates of disbursement.
The 'financial creditor' has placed on record an
overwhelming amount of evidence to prove the amount
advanced to the Corporate Debtor.
Decision of the The Learned Counsel for the Corporate Debtor accepted
Tribunal the notice of the application and stated at the hearing
that filing of reply would not be necessary. Thus, it is
apparent that the Corporate Debtor does not oppose the
application of the Financial Creditor filed u/s 7 of IBC
and accordingly has nothing to say in respect of
commission of default.
Thus the petition admitted by the Tribunal.
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Orders passed by National Company Law Tribunal (NCLT)
CASE NO. 8
Bench National Company Law Tribunal (NCLT), Chandigarh
Bench, Chandigarh
Financial Creditor Punjab National Bank
Corporate Debtor Rishi Ganga Power Corporation Limited
Amount of Default 75.04 cr
Date of Order 25-01-2018
Relevant Section Section 7 read with Rule 4 of the Insolvency and
Bankruptcy (Application to Adjudicating Authority) Rules,
2016 for initiating the insolvency resolution process by
Financial Creditor
Facts of the Case 1. The respondent corporate debtor was incorporated
for setting up a hydro power project on Rishi
Ganga River. For the said purpose, the corporate
debtor applied to the petitioner Bank for the
sanction of term loan. It is further stated that the
corporate debtor was in need of further finances
and made a request for term loan for expansion of
business.
2. The corporate debtor applied for further finances
and made application for the grant of additional
term loan and overall facilities were increased.
Since the project was not finished and the
production had not started and that the repayment
of the loan was to begin, the corporate-debtor
made a request for the restructuring of the total
loan.
3. This request of the corporate-debtor was
considered by the petitioner Bank and the existing
term loan was restructured and repayment
schedule was changed and a fresh FITL was
sanctioned. It is stated that to secure various term
loans and FITL facilities sanctioned by the
Financial Creditor, various immovable properties
were equitably mortgaged with the Bank
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
4. The accounts of the corporate debtor became
irregular and the accounts were classified as NPA.
Thereafter, demand notice was issued to the
corporate debtor as well as guarantors, demanding
total amount including interest.
The petitioner bank also filed along with the
petition, the CIBIL Report
5. The financial creditor is also said to have
concealed factum of sanction of further loan to the
corporate debtor for removal of debris at the
project site. In fact, there was a cloud burst at the
project site which led to huge disaster to the project
of the company. This project was fully insured, and
the claim has been filed and they are likely to
receive the amount in due course.
Decision of the The petition was found to be complete and hence
Tribunal admitted.
SECTION-8
CASE NO. 9
Bench National Company Law Tribunal (NCLT), Kolkata Bench,
Kolkata
Operational Parker Hannifin India Pvt. Ltd. (Applicant)
Creditor
Corporate Debtor Prowess International (P) Ltd.
Amount of Default 45.73 Lakh
Date of Order 20-04-2017
Relevant Section Section 8 read with section 9 of the Insolvency and
Bankruptcy Code, 2016 Insolvency resolution by
Operational Creditor
Facts of the Case The applicant Operational Creditor in response to the
purchase order issued by the Corporate Debtor
manufactured and supplied certain materials. An amount
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Orders passed by National Company Law Tribunal (NCLT)
of Rs. 45.73 Lakh was still due out of invoices raised for
the amount Rs. 73.73 Lakhs. According to the
Operational Creditor the purchase order alongwith the
invoices constituted a legal, valid and binding contract
between it and Corporate Debtor.
Decision of the It appears from the record that all the documents filed by
Tribunal the applicant. It is clear that the Corporate Debtor has
committed default for not making payments of debt. The
Tribunal therefore admitted the Petition and appointed
the Insolvency Resolution Professional.
SECTION-9
CASE NO. 10
Bench National Company Law Tribunal (NCLT), Principal
Bench, New Delhi
Operational Prideco Commercial Projects Pvt. Ltd.
Creditor
Corporate Debtor Era Infra Engineering Ltd.
Amount of Default 68.23 lakh
Date of Order 12-04-2017
Relevant Section Section 9 of the Insolvency and Bankruptcy Code, 2016
read with Limitation Act, 1963 Application for initiation
of corporate Insolvency resolution process by
operational creditor
Facts of the Case The Operational Creditor has completed the project as
per work orders issued in 2009 by the Corporate Debtor.
The Corporate Debtor had issued seven post-dated
cheques in 2014 as a full and final settlement out of
which only one cheque was honoured.
On the issue whether the claim of the petitioner is
covered by the period of limitation as provided by the
Limitation Act, 1963 the petitioner submitted that the
issuance of post-dated cheques and its non-payment
would give a fresh lease of limitation period.
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Decision of the The Tribunal after going through the documents
Tribunal submitted by the Operational Creditor held that the
requirements of section 9 of the Code are substantially
fulfilled. The liability to pay has also not been disputed in
view of the facts that the Operational Creditor had
received seven post-dated cheques in lieu of full and
final settlement dated 21-01-2014.
As regard to the issue of limitation the Tribunal held that
the claim is within the period of limitation of three years
as the earliest cheque dishonoured was dated 15-03-
2014 and the present petition was filed on 01-03- 2017.
The Tribunal also persuaded to take the view that
issuance of a cheque amounts acknowledging the
liability to pay as per the Division Bench judgment of
Kerala High Court in the case of Ramakrishnan v.
Parthasatadhy, 2003 (2) KLT 613. The Tribunal
therefore admitted the Petition and appointed the
Insolvency Resolution Professional.
CASE NO. 11
Bench National Company Law Tribunal (NCLT), Mumbai
Bench, Mumbai
Operational Ashok Alco-Chem Ltd (Applicant)
Creditor
Corporate Debtor Unimark Remedies Ltd.
Amount of Default 61.36 lakh
Date of Order 04-04-2017
Relevant Section Section 9 of the Insolvency and Bankruptcy Code, 2016
read with Rule 6 of the Insolvency and Bankruptcy
(Application to Adjudication Authority) Rules, 2016
Application for initiation of corporate Insolvency
resolution process by operational creditor
Facts of the Case Insolvency resolution process under section 9 of the
Code was initiated on the ground of non-payment of
debt owed to Operational Creditor. The petitioner had
given statutory notice under section 433 and 434 of the
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Orders passed by National Company Law Tribunal (NCLT)
Companies Act, 1956 and filed winding up petition
before High Court. The debtor company raised an
objection that notice under section 8 of the code was not
issued before filing the petition.
The NCLT vide its order dated 24-02-2017 held that the
debtor company could not raise such objection as this
petition happens to be transferred from High Court by
virtue of jurisdictional change. The Tribunal further held
that the petitioner has complied all statutory
compliances and thus no dispute is in existence
between the financial creditor and the corporate debtor
in relation to the debt claim and admitted the petition
and appointed the Insolvency Resolution Professional.
The corporate debtor filed an application for
recalling/review the order dated 24-02-2017 on the
grounds that dispute between the parties has been
resolved and that the application has been filed before
the order has been communicated.
Decision of the When orders are passed in open court on the date of
Tribunal hearing after notice has been issued to the corporate
debtor, such order cannot be called ex-parte order, that
apart, it is not that this bench should not pass orders
unless corporate debtor appears.
Further this matter has been transferred from the
Hon'ble High Court on the basis of the notification dated
7th December 2016. On perusal of this notification dated
7-12-2016, it is understood that all applications that
have been transferred under this notification have to be
treated as application u/s 7, 9 or 10 of the Code.
Therefore, issuing another notice u/s 8 of the Code in
the transferred case is not necessary, because the
precondition of the issuing notice u/s 8 will not apply.
Further there is neither a section of law envisaged to
recall its own orders, nor a Rule set out to recall orders,
and moreover the moratorium being rem in nature, this
application is hereby dismissed in limine as not
maintainable.
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CASE NO. 12
Bench National Company Law Tribunal (NCLT), Mumbai
Bench, Mumbai
Operational Sanjaya Kumar Ruia
Creditor
Corporate Debtor Magna Opus Hospitality Pvt. Ltd.
Amount of Default 40.73 lakh
Date of Order 12-04-2017
Relevant Section Section 9 read with Section 8 & 5(21) of the Insolvency
and Bankruptcy Code, 2016 read with Rule 6 of the
Insolvency and Bankruptcy (Application to Adjudication
Authority) Rules, 2016 Application for initiation of
corporate Insolvency resolution process by Operational
Creditor
Facts of the Case The Operational Creditor, a Chartered Accountant had
provided professional services as well as Advisory
Services to the Corporate Debtor. The Corporate Debtor
defaulted in payment of professional services as well as
of Advisory service charges to the Operational Creditor.
In his support the petitioner submitted documents that
he had audited the accounts of the Debtor Company and
also a letter issued by the Debtor Company assigning
Advisory Services.
Decision of the Whether the `Professional Services' shall fall under the
Tribunal definition of `Operational Debt' as defined u/s 5(21) of
the Insolvency and Bankruptcy Code?
The term "Services" used in the definition of 5(21) has
not been defined under this Code. However the
expression "Services" as per Black Law Dictionary is
"the act of doing something useful for a person or
company, usually for a fees". Another meaning as per
the Dictionary is, "an intangible commodity in the form of
human effort, such as labour, skill or advises". Likewise,
meaning of "Service Charge" as per the Dictionary is a
charge accessed for performing a service. The Tribunal
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Orders passed by National Company Law Tribunal (NCLT)
therefore held that a Professional Service provided by a
Chartered Accountant definitely fall under the
expression "Services" as incorporated in the definitions
of "Operational Debt" u/s 5 (21) of the Code.
In the light of documents submitted by the petitioner the
Tribunal held that there is an existence of "debt" as
defined u/s 3 (11) of the Code and a "default" exists as
defined u/s 3(12) of the Code. Once it is established that
there was an existence of "Default" then the provisions
of Section 8 of the Code shall come into operation.
Although in sub-section 8(2) of the section a Corporate
Debtor is authorised to establish the existence of a
dispute within 10 days on the receipt of the Demand
Notice, but in the present case the "Operational Debtor"
had not responded at all. The Tribunal therefore held
that due to this reason the provision of section 9 of the
Code shall come into operation. Accordingly the petition
was allowed and the interim resolution professional was
appointed.
CASE NO. 13
Bench National Company Law Tribunal (NCLT), Chennai
Bench, Chennai
Operational M/s. Alcon Laboratories (India) Pvt. Ltd.
Creditor
Corporate Debtor M/s. Vasan Health Care Pvt. Ltd.
Amount of Default Rs. 94.74 Crore
Date of Order 21-04-2017
Relevant Section Section 9 of the Insolvency and Bankruptcy Code, 2016
read with Rule 6 of the Insolvency and Bankruptcy
(Application to Adjudication Authority) Rules, 2016
Application for initiation of corporate Insolvency
resolution process by operational creditor
Facts of the Case The Corporate Creditor had supplied various products to
the Corporate Debtor Company on credit basis in lieu of
various agreements entered between them. The
Corporate debtor used the products but defaulted in
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payments for some of the products. A milestone
agreement was entered between the parties where the
corporate debtor agreed to pay the pending amounts in
instalments. A hypothecation agreement was also
entered between the parties. However the corporate
debtor even failed to pay the first instalment. On notice
under section 8 the corporate debtor did neither bother
to pay the outstanding amount nor reply the statutory
notice.
Decision of the The objections of the corporate debtor are answered by
Tribunal the Tribunal as under:
1. Statutory notice was to be sent directly by the
operational creditor.
Tribunal: This objection is not sustainable for the reason
that Form-3 itself provides for the signature of the
persons authorized to act on behalf of the operational
creditor. Therefore, the operational creditor can
authorize any person to send the statutory notice on its
behalf.
2. Application not being in the Form prescribed.
Tribunal: It is seen that all the information required are
contained in the application filed under section 9 of IBC,
2016.Therefore, this objection is also not sustainable.
Following the decision of Bombay High Court in Pramod
Prabhakar Kulkani Vs. Balasaheb Desai Sahakari
Sakhar Karkhana Ltd, (2001) IIILLJ 741 Bom. the
Tribunal held that the `Forms' for notice and application
as prescribed under the Rules are for
providing/incorporating necessary information, which are
required under the law. Thus, the substance is more
important than the `Form' and moreover there is no
irregularity in the statutory notice sent and the
application filed.
3. The operational creditor are still under the
ownership as per hypothecation agreement.
Tribunal: It is a normal business practice being followed
that unless the entire payment/consideration is paid by
the buyer, the sellers will have lien over the goods
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Orders passed by National Company Law Tribunal (NCLT)
supplied, but that does not mean that the corporate
debtor is not under obligation to make the payment for
the supply of the goods to the supplier.
4. The `operational creditors' does not fall within the
definition of the `operational debt' as defined under
sub-section 21 of Section 5 of the Code.
Tribunal: Corporate debtor is misleading because the
word "goods" used in the definition is of wider import
and includes the machinery/equipment. Further it is on
record that more than half of the outstanding amount is
pertaining to the consumables supplied by the
operational creditor. The objection raised by the
corporate debtor is not tenable in the eye of law and
therefore, stands rejected.
5. The milestone agreement provides for resolving
the disputes through negotiations, failing which by
arbitration.
Tribunal: This does not bar the operational creditor to
file the application under section 9 of the Code against
the corporate debtor as the Code does not envisage
such a kind of bar for initiating the corporate insolvency
resolution process by the operational creditor.
6. Winding up petition is sub judice before the
Hon'ble High Court.
Tribunal: The pendency of the winding up petition
cannot be a bar under the Code for initiating the
corporate insolvency resolution process, because the
Hon'ble High Court has not passed any order for
winding up of the corporate debtor and no Official
Liquidator has been appointed. Therefore, this objection
is also rejected.
On facts, the Tribunal held that it is also an admitted fact
that the outstanding amount payable by the corporate
debtor to the operational creditor is not under `dispute'.
Since all the requirements under law have been fulfilled
in the instant case allowed the application of the
operational creditor and ordered the commencement of
the corporate insolvency resolution process.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
CASE NO. 14
Bench National Company Law Tribunal (NCLT), Special Bench,
New Delhi
Corporate M/s. Nowfloats Technologies Pvt. Ltd. (Applicant)
Creditor
Corporate Debtor M/s. GetitInfo services Pvt. Ltd. (Respondent)
Amount of Default 1.93 Cr.
Date of Order 11-04-2017
Relevant Section Section 9 of the Insolvency and Bankruptcy Code, 2016
read with Rule 6 of the Insolvency and Bankruptcy
(Application to Adjudication Authority) Rules, 2016
Application for initiation of corporate Insolvency
resolution process by operational creditor
Facts of the Case The respondent company and the applicant had entered
into a service agreement wherein the applicant company
had agreed to render certain IT related services to the
respondent company and that from time to time for the
services rendered invoices since the year 2014 had
been raised for the payment of service fee. However the
respondent company had been defaulting in the
payment of dues and that presently a sum of Rs.
1,93,37,105/- is due excluding interest payable by the
respondent company to the applicant.
In relation to the respondent company the Hon'ble High
Court of Delhi has appointed the Official Liquidator as
the provisional Liquidator in proceeding for winding up
initiated before it in terms of section 450 of the
Companies Act, 1956.
Decision of the The provisions of Companies Act, 1956 will govern in
Tribunal relation to the proceedings pending before the Hon'ble
High Court of Delhi and not the Companies Act, 2013 as
contended by the applicant. If that be so, no suit or other
legal proceeding shall be proceeded with, against the
company, except by leave of the Court which is seized
of the winding up proceedings. In the present instance
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Orders passed by National Company Law Tribunal (NCLT)
no leave has been obtained by the applicant to proceed
with present proceedings initiated by the applicant
company before this Tribunal and obviously the Tribunal
is therefore handicapped in proceeding further in
relation to the above company petition.
It is to be borne in mind that both winding up
proceedings under the erstwhile Companies Act 1956 as
well as the Insolvency Resolution Process is initiated for
the benefit of the general body of creditors and is a
representative action and not for the recovery of money
of the individual creditor for which necessarily claims are
required to be submitted to the Official Liquidator or the
Interim Resolution Professional as the case may be. In
the instant case in view of the matter pending before the
Hon'ble High Court of Delhi which has also thought it fit
to appoint the Official Liquidator as the Provisional
Liquidator of the respondent company, the Interim
Resolution Professional, if appointed will again be put
on a collusive course with the Official Liquidator even in
accepting the claims as may be filed as envisaged under
Section 21 of the Code.
Taking into consideration the above aspects and legal
position the Tribunal rejected the application.
CASE NO. 15
Bench National Company Law Tribunal (NCLT), Principal
Bench, New Delhi
Operational Macquarie Bank Ltd.(Applicant)
Creditor
Corporate Debtor Shilpi Cable Technologies Ltd
Amount of Default 19.55 Cr.
Date of Order 24-05-2017
Relevant Section Section 9 read with Section 8 & 5(20) of the Insolvency
and Bankruptcy Code, 2016 Application for initiation of
corporate Insolvency resolution process by operational
creditor
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Facts of the Case Macquarie Bank Limited being an assignee of the S.V.
Overseas Private Limited ("Supplier") has filed the
application under Section 8 and 9 of the Insolvency and
Bankruptcy Code, 2016 against Shilpi Cable
Technologies Limited for committing default in making
the payment of operational debt. The application has
been filed through its Power of Attorney holder who has
been duly authorised.
The debt originates from a transaction of supply of
Copper rods by the Supplier. Corporate Debtor agreed
to purchase the invoiced quantity of copper rods from
the supplier from time to time against the purchase
orders placed. The payment was to be made on demand
by the Corporate Debtor upon presentation of
commercial invoice by the Operational Creditor. If the
payment was not made by the Corporate Debtor within a
period of 180 days then it was to become due with
interest calculated at 1% per month.
The Corporate Debtors raised various objections on the
application filed by the Operational Creditor.
Decision of the Issue: Whether the assignee of the debt is
Tribunal Operational Creditor as defined in Section 5(20) of
the Code Existence of dispute whether the
amount of transaction is insured to be mentioned in
the application - Whether a demand notice of an
unpaid operational debt can be issued by a Power of
Attorney on behalf of the operational creditor -
· Section 5(20) of the Code defines the term
"Operational Creditor" which means a person to
whom an operational debt is owed and includes
any person to whom such debt has been legally
assigned or transferred. Therefore, an Operational
Creditor is a person to whom an operational debt is
owed and includes any person to whom such debt
has been legally assigned or transferred.
· The statutory provision under Section 8(1)(2)(a) of
the code provides that the dispute in the form of a
civil suit or arbitration proceedings is required to be
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Orders passed by National Company Law Tribunal (NCLT)
pending before the receipt of the demand notice or
invoice in relation to such dispute. Further to this,
the Operational Debt has not been disputed and
there is no pendency of any suit or arbitration
proceeding. A reference to arbitration notice or civil
suit has to be reached before the receipt on
demand notice in accordance to the expressed
provision of the code. In case there is genuine
dispute concerning quality and quantity then it may
be considered on merit by the Tribunal.
· In case of the operational debt covered under
insurance. The Operational Creditor has no privity
of contract with the insurance company and it is a
matter between the Corporate Debtor and the
Insurance Company. Therefore, there is no
suppression of material fact.
· The Applicant should have filled up the name and
address of the Power of Attorney which is
condonable fault and can not constitute the
defective application.
Accordingly, the application was admitted and
moratorium, appointment of Interim Resolution
Professional to be made as per code declared.
CASE NO. 16
Bench National Company Law Tribunal (NCLT), Principal
Bench, New Delhi
Operational Annapurna Infrastructure Pvt. Ltd
Creditor
Corporate Debtor Soril Infra Resources Ltd
Date of Order 24-03-2017
Relevant Section Application u/s 9 by Operational Creditor under
Insolvency and Bankruptcy Code, 2016
Facts of the Case Operational Debt is disputed. Appeal u/s 37 Arbitration
Act is under adjudication. Applicant has filed a caveat
and has also filed for execution of Award.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Decision of the It cannot be said Arbitration comes to end merely on
Tribunal dismissal of application u/s 34 of Arbitration Act as
sought to be canvassed by the Applicant (Operational
Creditor)
Appeal u/s 37 still pending. Respondent still has time to
appeal just because he has not filed appeal, Sec 9 of
IBC cannot be invoked.
Proceeding for execution of award has been initiated by
the Applicant in HC. Effective remedy is already availed
by Applicant.
Cannot allow more than one remedy simultaneously--
against principle of Judicial Administration. It would
promote forum shopping which is impossible.
Application does not warrant Admission. Dismissed with
cost Rs. 1.00 lacs.
CASE NO. 17
Bench National Company Law Tribunal (NCLT), Chandigarh
Bench, Chandigarh
Operational Macquarie Bank Limited
Creditor
Corporate Debtor Uttam Galva Metallics Limited
Amount of Default 43.11 cr
Date of Order 01-06-2017
Relevant Section Section 9 read with section 8 of the Insolvency and
Bankruptcy Code, 2016- Application for Institution of
Corporate Insolvency Resolution process by Operational
Creditor
Facts of the Case The Operational Creditor has filed the application to set
in motion the Corporate Insolvency Resolution Process
as per Section 9 of the Insolvency and Bankruptcy
Code, 2016 read with Rule-6 of the Insolvency and
Bankruptcy (Application to Adjudicating Authority) Rules
2016 in relation to Corporate Debtor.
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Orders passed by National Company Law Tribunal (NCLT)
The Counsel of the Debtor submitted that there is no
certificate from the Financial Institution maintaining the
accounts of the operational creditor, in terms of clause
(c) of sub-section (3) of section 9 of the code; for which,
learned counsel for the operational creditor sought time
to file the affidavit and the document.
The following issues arise for determination in the
instant petition:
1. Whether the instant petition has been filed on the
basis of a valid power of attorney?
2. Whether the petitioner is entitled to file this petition
as an assignee of the original supplier?
3. Whether there is non-compliance of clause (c) of
Section 9 (3) of the Code? If so, its effect?
4. Whether the petitioner had the notice of the
existence of the dispute, as defined in the Code?
5. Whether the petitioner does not have the locus-
standi to file the instant petition, having already
been reimbursed by the insurer of the goods?
Decision of the 1. The only remedy to a creditor against a company is
Tribunal to take steps for winding up of the company, for
which the appropriate recourse is provided under
Section 7 and 9 of the Code exclusively in respect of
the financial and operational creditors respectively.
2. The petitioner would definitely come within the
definition of the term `operational creditor', as
defined under Section 5(20) of the Code, as
meaning a person to whom an operational debt is
owed and includes the person to whom such debt
has been legally assigned or transferred.
3. In the instant case, there being non-compliance of
the mandatory requirement of Section 9 (3) (c) of
the Code, the issue is held against the petitioner
accordingly.
4. It is held that there was existence of dispute for
which, the petition under Section 9 preferred by the
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
operational creditor, was not maintainable and as
such, this issue is also held against the petitioner.
5. The right of the petitioner, if otherwise maintainable,
could be defeated solely on that ground, as the
corporate debtor cannot escape from its liability
under the contract, in case it has made a default in
payment of debt. The issue is accordingly held
against the respondent.
In view of the findings on the issues no. 3 and 4, the
instant petition is rejected.
CASE NO. 18
Bench National Company Law Tribunal (NCLT), Kolkata Bench,
Kolkata
Operational Mahendra Trading Co
Creditor
Corporate Debtor Hindustan Controls & Equipments (P.) Limited
Amount of Default 1.71 cr
Date of Order 19-01-2018
Relevant Section Section 9 of the Insolvency and Bankruptcy Code, 2016
read with Rule 6 to initiate Corporate Insolvency
Resolution Process in respect of Corporate Debtor.
Facts of the Case 1. The Operational Creditor has stated that the goods
were sold and delivered to the Corporate Debtor
under purchase invoices of different dates between
22nd June 2012 to 29th March 2017. A total amount
of outstanding debt has been calculated which is
payable by the Corporate Debtor on account of
supplies made by the Operational Creditor.
2. The applicant has further stated that demand
notice was issued to the Corporate Debtor on 18th
September 2017 by the Operational Creditor, which
was received on or about 22 September 2017 by
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Orders passed by National Company Law Tribunal (NCLT)
the Corporate Debtor, but no notice of dispute has
been issued by the Corporate Debtor till filing of the
application by the Operational Creditor. Even after
receipt of the demand notice, the corporate debtor
failed to make payment of the outstanding dues.
3. The Corporate Debtor has stated that demand
notice had been issued by only one of the partners
of the Operational Creditor no.1 and the said notice
is not in proper form and therefore has no
existence in the eye of law.
4. The Corporate Debtor has also stated that the
purported claim of Rs.1,51,17,694/- being a portion
of the claim as claimed in the instant application is
already a subject matter of arbitration pending
before the Arbitration Committee of The Calcutta
Electric Traders Association and the said arbitral
reference is pending since 31st August 2017, i.e.
before the issuance of the purported demand
notice.
5. In this context, the Corporate Debtor also
mentioned that at the request of the Operational
Creditor, a letter dated 31st August 2017, was
issued by the Calcutta Electric Trader Association
commencing arbitral reference. Therefore, the
instant application may not be entertained as the
same arbitral proceedings is a dispute as
specifically enshrined in the I.B. Code.
6. The Corporate Debtor has also submitted that the
claim of the Operational Creditor is illegally inflated
as the amount of dispute before the Arbitration
Committee was Rs. 1,51,17,694/- as on 31st
August 2017 whereas before the Tribunal, it has
been claimed as Rs.1,71,81,809/- as on 18th
September 2017. Moreover, the Corporate Debtor
has also raised objection to the extent that a
portion of the purported claim of Rs.1,71,81,809/-
is barred by the Limitation Act, 1963 as the same
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
arises out of invoices raised amounting to
Rs.27,66,630/ for the claim during the period 22nd
June 2012 to 20th March 2014.
7. It was further stated that as per the MOU, none of
the parties would take up any project or take any
step which would be prejudicial to the interest of
the parties. As per the MOU, the Corporate Debtor
took up several projects for various companies. But
the Operational Creditor no.3 was taking all the
decisions with regard to taking up and execution of
projects on behalf of the Corporate Debtor and was
practically in control of the Corporate Debtor, which
will be evident from the series of electronic mails
and letters sent by him to third parties.
Decision of the 1. All circumstances lead to a conclusion that
Tribunal there exist a genuine dispute prior to the filing of
the application and before the date of issuance of
the demand notice. The contentions taken by the
respondent are not feeble, mala fide or
hypothetical. Existence of MOU in between the
parties and pendency of Arbitral proceedings seen
not mentioned in the application. Existence of MOU
is an important document produced on the side of
the respondent. It deals with sharing of profits
and loss between Corporate Debtor and
Operational Creditor. Non-mentioning the above
said fact is therefore amount to suppression of
material facts.
2. Taking into consideration of the above said facts
and circumstances, and bare in mind the principle
laid down in the above-cited judgment, the
application has been rejected.
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Orders passed by National Company Law Tribunal (NCLT)
SECTION-10
CASE NO. 19
Bench National Company Law Tribunal (NCLT), Principal Bench,
New Delhi
Operational M/s. Incredible Unique Buildcon Pvt. Ltd.
Creditor
Corporate M/s. Clutch Auto Ltd.
Debtor
Amount of 12.88 Cr.
Default
Date of Order 10-04-2017
Relevant Section 10 of the Insolvency and Bankruptcy Code, 2016
Section read with Rule 7 of the Insolvency and Bankruptcy
(Application to Adjudication Authority) Rules, 2016
Initiation of corporate Insolvency resolution process by
Corporate applicant
Facts of the The `corporate debtor' company is in default for the last
Case more than 3 years. The list of `operational creditors'
which contains as many as 293 names and a total sum
owed to them is declared to be Rs.12,88,32266. The
petitioner has disclosed the details of property against
which the loan of the corporate debtor is fully or partially
secured along with details of the date of its creation, its
estimated value etc. A copy of the audited financial
statements of the `corporate debtors' along with other
relevant documents have been placed before the
Tribunal. A reference was filed before the BIFR and the
order of admission of reference passed in 2014 has also
been placed before the Tribunal.
Decision of the A perusal of Section 10 would show that a corporate
Tribunal debtor may file such application for initiating the
insolvency resolution process where it has committed a
default. A perusal of the paper book would show that
books of accounts and other attendant documents have
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
been filed. The petitioner itself has admitted default.
Accordingly, the Tribunal admitted the Petition and
appointed the Insolvency Resolution Professional. The
Tribunal dismissed the application filed by the operational
creditor under section 9 of the Code with the observation
that `operational creditor' may file its claim before the
Insolvency Resolution Professional.
CASE NO. 20
Bench National Company Law Tribunal (NCLT), Chandigarh
Bench, Chandigarh
Corporate M/s. Sky Blue Papers Pvt. Ltd. (Corporate Applicant)
Debtor
Amount of 18.29 Cr.
Default
Date of Order 07-04-2017
Relevant Section Section 10 of the Insolvency and Bankruptcy Code, 2016
read with Rule 7 of the Insolvency and Bankruptcy
(Application to Adjudication Authority) Rules, 2016
Initiation of corporate Insolvency resolution process by
Corporate applicant
Facts of the This is an application filed by a `Corporate Debtor'
Case company itself in Form 6 as prescribed by Rule 7(1) of
the Application to Adjudicating Authority Rules. The total
amount of default in respect of Financial and Operational
Creditors is Rs. 18.29 crores. Due to default in making
the payment of dues the Punjab National Bank has
issued notices under section 13(2) and also under
section 13(4) of SARFAESI Act, 2002.
Decision of the Section 10 of the Code confers a discretion on the
Tribunal Tribunal to either admit or reject the application and in
case of rejection, to give an opportunity to the applicant
before such rejection, to rectify the defects within seven
days from the date of receipt of such notice from the
Adjudicating Authority. The term `Corporate Debtor' has
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Orders passed by National Company Law Tribunal (NCLT)
been defined under Section 3 (8) of Part-I of the Code to
mean a Corporate Person, who owes a debt to any
person and `default' is defined under Section 3 (12) of
Part-I of the Code to mean "non-payment of debt when
whole or nay part or instalment of the amount of debt has
become payable and is not repaid by the debtor or the
`Corporate Debtor', as the case may be".
The Financial Statements of the company indicates the
losses and fall in revenue. It seems that the applicant
has fallen into debt trap and is competent to set in motion
the insolvency resolution process as contemplated under
the Code. On the basis of the Financial Statements of
the company the total debt raised by the `Corporate
Applicant' with regard to the financial and operational
creditors is Rs.18.48 crores and it is further represented
that the total amount of default is Rs.18.29 crores.
The Tribunal therefore held that petition deserves to be
admitted and accordingly appointed an interim resolution
professional.
The Tribunal however, observed that the Applicant
Company save some sketchy particulars has not given
any road map as to how it is going to keep itself afloat as
a going concern. However, Keeping in perspective the
objects for which the Code has been brought into force
and to balance the interest of all stakeholders, it is
satisfied that the instant application warrants to be
admitted to prevent further erosion of capital and to
safeguard the assets of the Applicant Company/
Corporate Debtor.
CASE NO. 21
Bench National Company Law Tribunal (NCLT), Allahabad
Bench, Allahabad
Financial Creditor Union Bank of India
Corporate Debtor Raman Ispat Pvt. Ltd. (Applicant)
Amount of Default 9.48 Crore
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Date of Order 11-04-2017
Relevant Section Section 10 of the Insolvency and Bankruptcy Code,
2016 read with Rule 7 of the Insolvency and Bankruptcy
(Application to Adjudication Authority) Rules, 2016
Initiation of corporate Insolvency resolution process by
Corporate applicant
Facts of the Case The applicant/corporate debtor failed to pay an amount
of Rs. 9.48 crore to the Bank and has mortgaged its
assets as security. The Bank has issued notice under
SARFAESI Act for taking possession of the mortgaged
property. Hence, applicant company filed this application
for insolvency resolution process.
Decision of the Corporate Debtor has complied with the provision of
Tribunal section 10 of the Code and therefore the petition
deserved to be allowed. The Tribunal declared
moratorium with consequential directions and appointed
interim resolution professional.
CASE NO. 22
Bench National Company Law Tribunal (NCLT), Mumbai
Bench, Mumbai
Corporate Debtor M/s. Schweitzer Systemtek India Private Limited
Financial Creditor Phoenix ARC Private Limited
Amount in Default 4.69 Cr.
Date of Order 03-07-2017
Relevant Section Section 10 of the Insolvency and Bankruptcy Code,
2016 Initiation of corporate Insolvency resolution
process by Corporate applicant
Facts of the Case The main issue before the Tribunal was that "whether a
property(ies) which is/are not `owned' by a Corporate
Debtor shall come within the ambits of the Moratorium?
In the instant case the personal properties of the
promoters have been given as security to the banks
while taking loans.
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Orders passed by National Company Law Tribunal (NCLT)
Decision of the This code of 2016 has prescribed certain limitations
Tribunal which are inbuilt and must not be overlooked. The
"Moratorium" indeed is an effective tool, sometimes
being used by the corporate debtor to thwart or
frustrate the recovery proceeding.
The plain language of the Section 14 is that on the
commencement of the Insolvency process the
`Moratorium' shall be declared for prohibiting any
action to recover on enforce any security interest
created by the Corporate Debtor in respect of "its"
property. Relevant section which needs in-depth
examination is section 14 (1) (c) of The Code.
There are recognised canons of interpretation.
Language of the Statute should be read as it existed.
This is a trite law that no word can be added or
substituted or deleted from the enacted Code duly
legislated. Every word is to be read and interpreted as
it exists in the statute with the natural meaning
attached to the word. Rather in this Section the
language is so simple that there is no scope even
to supply `casus omissus'. I hasten to add that the
doctrine of `Noscitur a Sociis' is somewhat
applicable that the associated words take their
meaning from one another so that common sense
meaning coupled together in their cognate sense
be interpreted. As a result, "its" denotes the property
owned by the Corporate Debtor. The property not
owned by the Corporate Debtor does not fall within
the ambits of the Moratorium. Even Section 10 is
confined to the Book of the Accounts of the Corporate
Debtor, due to the reason that section 10(3) has
specified that the Corporate Applicant shall furnish "its"
Books of Accounts. This Bench has no legislative
authority to expand the meaning of the term "its" even
under the umbrella of `Ejusdem generis'.
The outcome of this discussion is that the Moratorium
shall prohibit the action against the properties reflected
in the Balance Sheet of the Corporate Debtor. The
Moratorium has no application on the properties
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
beyond the ownership of the Corporate Debtor. As a
result, the Order of the Hon'ble Court directing the
Court Commissioner to take over the possession shall
not fall within the clutches of Moratorium. Even
otherwise, the provisions of The Securitisation and
Reconstruction of Financial Assets and Enforcement of
Securities Interest Act, 2002 (the SARFAESI Act) may
be having different criteria for enforcement of recovery
of outstanding Debt, which is not the subject matter of
this Bench. Before I Part with it is necessary to
clarify my humble view that The SARFAESI Act may
come within the ambits of Moratorium if an action is
to foreclose or to recover or to create any interest
in respect of the property belonged to or owned
Debtor, otherwise not.
The Application under section 10 of the Code is hereby
"Admitted".
CASE NO. 23
Bench National Company Law Tribunal (NCLT), Principal
Bench, New Delhi
Financial Creditor Punjab National Bank & others
Corporate Debtor Unigreen Global Pvt. Ltd. (Applicant)
Amount of Default Rs. 100 Crore
Date of Order 08-05-2017
Relevant Section Section 10 read with Section 65 of the Insolvency and
Bankruptcy Code, 2016 Initiation of Corporate
Insolvency Resolution Process by Corporate applicant
Facts of the Case The applicant/corporate debtor company filed this
application to initiate Corporate Insolvency Resolution
process. In compliance to the provision of the
Insolvency & Bankruptcy Code, 2016 (Code) it had
furnished the details of the financial creditors and the
operational creditors and also the list of immovable
properties held securities by the financial creditors
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Orders passed by National Company Law Tribunal (NCLT)
banks. As directed by the Tribunal the applicant served
notice to the financial creditors. The application was
objected by the lead financial creditor bank.
Decision of the The provisions of IBC, 2016 has predominantly been
Tribunal brought into force for the re-organization and insolvency
resolution of corporate persons and that too in a time
bound manner for the maximization of value of assets of
such persons to promote entrepreneurship and balance
the interest of all stake holders involved in relation to the
insolvent.
The corporate debtor to disclose all the facts including in
relation to the debts owed by it to its creditors as well as
securities offered to the creditors as well as of assets of
the corporate debtor. Since the process is self-initiated
in so far as the corporate debtor is concerned, all the
disclosures must be true and correct and must not be
made solely to scour for any concession it may get in
the process, including moratorium, with a view to deny
the recovery of bona fide and lawful debt owed to its
creditors, including financial and operational.
The Bank in its objection held that the corporate debtor
and directors also being guarantors are trying to avoid
making awful payments of the dues owed to the Bank
and also thwarting the Bankers from realizing the
securities by initiating several legal proceedings in
different courts and Forums with the sole motive of
removing their personal properties from the clutches of
law and that the instant action before this Tribunal is yet
another attempt in the same direction.
Considering the contentions of both the parties the
Tribunal held that once the instant petition by the
Corporate Debtor is admitted, then the admission goes
without saying will have a serious impact in relation to
the objectors, namely, the financial creditors as
whatever action which has culminated into taking
physical possession of the secured assets will be
automatically `stayed' for a period of at least six months
or even more depending upon the circumstances of the
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
process and seems to be the motivation for the
petitioner to approach this Tribunal under IBC, 2016
rather than put into to effect the avowed objects for
which IBC, 2016 has been enacted. The Tribunal cannot
be a party to such mala fide actions on the part of the
corporate debtor and this is a clear case of abuse of
process of law which should be discouraged at the
threshold.
Taking into above position and as the applicant have not
come with clean hands the Tribunal dismissed the
petition and with a view to discourage the parties from
abusing the process of Code the Tribunal imposed a
penalty of Rs. 10 Lacs toward costs as contemplated
under section 65 of the Code.
CASE NO. 24
Bench National Company Law Tribunal (NCLT), Mumbai
Bench, Mumbai
Corporate Debtor Alpha & Omega Diagnostics (India) Ltd
Respondent Asset Reconstruction Co of India Ltd
Date of Order 10.07.2017
Relevant Section Section 10 read with section 14 of the Insolvency and
Bankruptcy code, 2016 read with rule 7 of the
Insolvency and Bankruptcy (Application to Adjudication
Authority) Rules, 2016 and section 424 of the
Companies Act, 2013
Facts of the Case An application under Section 10 of IBC 2016 was filed
by the Corporate Debtor before the NCLT Mumbai
Bench. According to first petitioner, The Learned Chief
Metropolitan Magistrate vide Order (supra) dated
11.04.2017 has appointed a Court Commissioner to take
over the possession of the flats. The admitted position is
that the Flats in question are not under the Ownership of
the corporate Debtor. Even in the balance sheet of the
Corporate Debtor these flats are not reflected. It is
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Orders passed by National Company Law Tribunal (NCLT)
further evidenced that the documents annexed have
clearly demonstrated that the personal properties of the
Promoters have been given as a "Security" to the banks.
Decision of the The question is whether a property (ies) which is/are not
Tribunal `owned' by a Corporate Debtor shall come within the
ambit of the Moratorium.
The Moratorium shall prohibit the action against the
properties reflected in the Balance Sheet of the
Corporate Debtor. SARFAESI Act may come within the
ambits of Moratorium if an action is to foreclose or to
recover or to create any interest in respect of the
property belonged to or owned by a Corporate Debtor,
otherwise not.
The Application under Section 10 of the Code is hereby
"Admitted" subject to the exception as carved out supra.
SECTION-12
CASE NO. 25
Bench National Company Law Tribunal (NCLT), Kolkata Bench,
Kolkata
Financial Creditor Bank of Baroda
Corporate Debtor Binani Cement Ltd
Applicant 12 Applications filed u/s 60(5) , 30 and 31 of the
Insolvency and Bankruptcy Code, 2016
Amount of Default 97.7 cr
Date of Order 02.05.2018
Relevant Section Preamble of the code- Maximization of Value as the
objective of the code
Section 12 ,Section 24 Notice of the COC Meetings
Regulation 21(3)(a) of the CIRP Regulations Contents
of the COC meeting notice
Section 5(13) CIRP Costs
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Section 30 & 31 Resolution Plan
Regulation 37, 38&39 of the CIRP Regulations
Contents of the Resolution Plan
Sub regulation 7of schedule I of the IP Regulations
Facts of the Case Four Key points have been dealt with in the main
order
1. Whether RP exceeds his power in appointing other
professionals and outsourcing his work
2. Whether non consideration of revised offer from
Ultratech is violative of the provisions of IBC
3. Whether the Resolution plan is discriminative
against Unsecured Financial creditors
4. Whether RP has ignored claims of Operational
Creditors
1. Whether RP exceeds his power in appointing
other professionals and outsourcing his work
The first key point dealt with in the order considers
the circular No.IP/003/2018 issued by IBBI and
whether RP incurred exemplary costs in violation of
the code and the rules made thereunder:
Key Facts discussed in the order :
a) The RP had appointed approx. 22
representatives/ professionals for various
tasks it has been brought to the attention of
the NCLT that the RP had engaged in total 22
representatives for management of the affairs
of the Corporate debtor.
b) Employee / Management non co operation-
RP brought to the attention of the NCLT that
he had been facing employee non co
operation and the management and workmen
were non responsive in furnishing the
information
c) Discussions around issue of notices and
conduct of COC meetingsIssue of COC
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Orders passed by National Company Law Tribunal (NCLT)
notices, Conduct of the COC meetings and
rights of suspended board of directors has
been discussed in the order
Discussions in the Order :
RP not to incur exorbitant costs
Regulation 27 and Regulation 21(3) of the
CIRP regulations -The tribunal observed that
the costs incurred by the RP on engaging the
professionals was exorbitant. The costs for
the CIRP process need to be incurred keeping
in view the volume of work and complexity of
the resolution process. The NCLT observed
that thereby RP had violated circular
No.IP/003/2018 issued by IBBI. It is
noteworthy that all the appointments were
done after due approvals from the COC
members and the costs were also ratified by
the COC , which included COC counsel fees.
2. Whether non consideration of revised offer
from Ultratech is violative of the provisions of
IBC
Key Facts discussed in the order :
a) Ultratech submission of multiple bids
(revised thrice), consideration of only H1
bidder by the CoC- Ultratech cement rushed
to the AA for non consideration of its revised
bids and contended that the evaluation criteria
as applied was to result in more than one RA
coming close in the scoring has not been
permitted to participate further in the bid
process since COC decided to go ahead and
negotiate with only H1 bidder. The same is
violative of the mandate of the code for
maximizing the value
b) Ultratech's Bid value was much higher
than the bid approved by the CoC. The
COC approved the bid of Rajputana
Properties
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
c) The COC and the RP have adhered to the
process set out in the Process Document
d) The COC went ahead with the approval of the
plan submitted by Rajputana Properties
without according an opportunity to Ultratech,
which is claimed as unjust and arbitrary
e) Scoring not as H1 bidder was treated as a
disqualification in participating in the bid
process
f) RP acted on the advise of the CoC on the
identification of the bidders. Need for Process
advisors has been thus questioned
Discussions in the Order:
1. Negotiation only with H1 bidder not a test
under the code -The revised offer from
Ultratech is to be considered by the CoC and
non consideration of the revised offer is found
not legally sustainable and is against the
objective of maximization of the value as
provided in the code and violative of the
provisions of the code and regulations
discussed in the order.
2. RP To consider all plans -RP is duty bound
to consider all offers and place the same
before the COC for their consideration
3. RPs Independence from COC & process
advisors-RP is required to act independently
as per Sub Regulation 5 of Schedule 1 of the
IBBI IP Regulations 2016 and act independent
of external influences. Need for appointment
of Process advisors is questioned
4. Process document is not a sacrosanct
code -The process document is not legally
binding on the RP and cannot override the
objective of the code
5. RP Independence & R Plan to be fair
across category of creditors -RP is required
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Orders passed by National Company Law Tribunal (NCLT)
to take decisions independent of the
interference of the CoC. RP not to act under
influence of COC members having majority
voting share. The plan must take care of all
class of creditors alike without any
discrimination
6. Maximization of Value - RP and COC have
to work towards maximization of the value to
the stakeholders
7. Receipt on Email / incomplete plan not a
criteria of rejection or non placement
before COC-RP is duty bound to place before
COC the plans received ( even if they are
received on email, not received in stipulated
format etc.)
8. Non compliance with Process document is
a flimsy ground for denial -The premise that
the Process document prevents the RP and
COC to consider revised offer has no legal
force at all. The process document itself
contained provisions empowering the COC
and RP to modify, alter or delete certain
provisions.
9. Duty bound to place all plans that satisfy
requirements of Sec 30(2) -RP is duty bound
to place all the plans that meet the
requirements of section 30(2) to the COC, if
certain points require modification/ revision ,
he can demand the revisions and then place
the plans before the COC
10. Coc / IBA guidelines / Process document
cannot restrict the process of law i.e
maximization of value- In Bhushan Steel order
it has been already concluded that, a
guideline framed by COC can not impose
restrictions upon RA by denying them a
legitimate right to participate in the bidding
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
process and revise its offer till the bidding
process is completed
11. Any plan / bid submission till CIR Process
is not concluded is to be taken to its
logical conclusion
The NCLT observed that the offer containing
better revival of the Corporate debtor,
consideration of better operational and
unsecured financial creditors claim must be
considered by the RP and COC .in the
interest of justice, reconsideration of the
better resolution plans available to the RP.
3. Whether the Resolution plan is discriminative
against Unsecured Financial creditors
Key Facts discussed in the order :
Inequality in consideration of the claims of
Unsecured Financial Creditors One of the
unsecured Financial Creditor- SBI Hong Kong
alleged inequality in consideration of their claims in
the COC approved Resolution plan. SBI Hong
Kong alleged that the plan envisaged settlement of
their claims for 10% of the value giving them 90%
haircut. Restructuring of the debt in the COC
approved plan was questioned. One of the
Financial creditors Exim bank alleged that the plan
envisaged settlement of their claims at 72.59% and
a haircut of 27.41 %. Both the banks claims had
arisen out of Corporate Guarantee invocation.
Discussions in the Order :
NCLT observed that there has been discrimination
in consideration of the claims of the financial
creditors in the resolution plan and the Resolution
Plan accordingly needed modifications.
4. Whether RP has ignored claims of Operational
Creditors
Key Facts discussed in the order :
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Orders passed by National Company Law Tribunal (NCLT)
a) Ignorance of the Operational Creditors
claims 8 Operational creditors jointly raised
the issue with NCLT that their claims for
operational dues were totally ignored in the
Resolution Plan. The operational creditors
brought before NCLT that their claims
admission was pending with the RP.
b) Slab wise settlement for Operational
Creditors dues settlement in the Resolution
Plan the Resolution Plan submitted by
Rajputana Properties had proposed slab wise
settlement subject to maximum capping scheme
for the Operational creditors dues where
Verified Operational Creditors dues not
exceeding 1 Cr -100%
Verified Operational Creditors dues between 1 Cr
5 Cr -40%
Verified Operational Creditors dues between 5 Cr
10 Cr -25%
Verified Operational Creditors dues more than 10
Cr -5%
Discussions in the Order :
The NCLT observed that a reduction in the
amounts payable to operational creditors is
acceptable, however such reduction should be
applicable to all class of creditors. The same has to
be considered for each class of creditors like
Financial Creditors, Unsecured Creditors and
Operational creditors. Since the plan contained
settlement at various class of creditors differently,
the NCLT observed that the contention that the
Resolution Plan does not contravene any of the
provisions of the code is not found true. Such
reduction was not in accordance with the
regulations and in line with the objective of the
code
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Decision of the 1. The duration of Litigation period to stand
Tribunal excluded from Corporate Insolvency Resolution
period
2. RP is directed to consider the revised offer
from Ultratech within 3 days of the order and
place the same before the COC
3. COC is directed to consider the revised plan of
Ultratech
4. COC is directed to consider plan of RPPL if the
Resolution Applicant is willing to reconsider his
offer above the Ultratech offer
5. RP is directed to comply with provisions of the
code and regulations and in issuing notices to
the directors of the suspended board of the
Corporate Debtor
SECTION-14
CASE NO. 26
Bench National Company Law Tribunal, Chandigarh
Bench, Chandigarh
Petitioner/Financial Corporation Bank
Creditor
Respondent/Corporate Amtek Auto Ltd
Debtor
Applicant/RP Resolution Professional
Respondent Bank Indian Overseas Bank
Amount of Default 824.00 cr
Date of Order 13.10.2017
Relevant Section Under Sections 14, 17 (1) (d) read with Section 18,
20 & 74 of Insolvency and Bankruptcy Code,2016
read with Rule 11 of the NCLT Rules, 2016 for
appropriate directions
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Orders passed by National Company Law Tribunal (NCLT)
Facts of the Case The Interim Resolution Professional (IRP) asked
the Respondent Bank to freeze all debit
transactions until further communication and further
instructed the bank not to allow payment of any
cheque without the instructions of IRP. IRP also
requested for registering change in the signatory of
all the bank accounts maintained by the respondent
bank and instructed the bank to operate the bank
accounts in accordance with the instructions
contained therein. Later IRP instructed respondent
bank to transfer all the funds from the bank account
of the corporate debtor lying with it to the operative
account of the corporate debtor maintained with
another bank.
However the respondent bank replied and claimed
that amount available in the current account of the
corporate debtor is not an asset of the corporate
debtor inasmuch as the dues of the corporate
debtor in the books of respondent bank exceeds the
amount available in the balance in the current
account and therefore, they exercised the rights of
set off and appropriated the amount towards the
dues payable to the bank.
Decision of the Can Bank set off dues from funds lying in current
Tribunal account during moratorium against the instuructin
of resolution professional?
Amount lying in the current account of the corporate
debtor has to be placed at the disposal of the
resolution professional without any scope of an
adjustment in the manner, the respondent bank
tried.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
SECTION-18
CASE NO. 27
Bench National Company Law Tribunal (NCLT), Principal
Bench, New Delhi
Financial Creditor Punjab National Bank
Corporate Debtor Bhushan Power & Steel Ltd
Applicant Liberty House
Amount of Default 37,240.00 cr
Date of Order 23.04.2018
Relevant Section Section 18, Section 25 , Section 28, Section 30 sub-
section (4) of Insolvency and Bankruptcy Code, 2016
and Regulation 27, Regulation 35, Regulation 39,
Regulation 37, Regulation 38
Facts of the Case Sequence of Events:
i) The RP acted as per the bid process with respect
to issuance of EOI, floating RFP, Acceptance of
resolution plan. Liberty house had qualified the
eligibility criteria and the RP treated the applicant
to be qualified in terms of the eligibility criteria
ii) One of the Resolution Applicant, LHG submitted its
plan after the last date of submission of the
Resolution Plan. The last date for submission of
resolution plans was set in accordance with the bid
process duly approved by the COC.
iii) According to Resolution Applicant, non
consideration of its Resolution Plan due to delays
in submitting requisite resolution plan defeats the
very objective of the code value maximization.
iv) According to RA, it was duty of the Resolution
Professional to accept the plan, especially when
there was no Resolution Plan approved by the
COC yet. Further, there were considerable days
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Orders passed by National Company Law Tribunal (NCLT)
left for the CIR process to end. According to RA,
the deadlines put in place by RP/ COC were not
sacrosanct but procedural in nature. Hence,
rejection of RA's resolution plan by COC was
unwarranted and unjust.
v) Since CIR process is a time bound resolution
process as laid down in the preamble of the IB
Code, The COC had set in a bid process to ensure
a fair, open and transparent process. Allowing
resolution applicants to submit plans at the last
moment may force the existing resolution
applicants to withdraw their plans, thereby forcing
the corporate debtor to liquidation for want of no
successful resolution.
vi) The RP was entitled under the code to prescribe
the timelines for submission of the resolution
Plans. RP had sent numerous emails to RA
requesting several documents as required under
the bid process and wherever possible, the
deadlines were extended under the bid process.
vii) And hence, it was claimed that the acceptance of
Resolution plans from Liberty House would render
the whole process unfair and arbitrary.
viii) While COC and RP had filed their replies, one of
the Resolution Applicant Tata Steel also filed their
replies in the case and pleaded that such
allowance of late bid submission was complete
misuse of the process. Tata steel had filed their
EOI and plan well in time as per the bid process.
Tata had also written to the RP to cancel and reject
the bids submitted by Liberty House. To this reply,
Liberty house also filed its rejoinder.
IBC Timelines:
CIRP Start Date : 26th July 2017
CIRP End Date : 22nd April 2018
Key Developments:
EOI issued on 21st September 2017
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Last date for receipt of documents confirming
qualification criteria by RP 6th Oct 2017
RP receives 7 Expression of Interests (excluding Liberty
House)
Liberty House submits EOI 12th Nov 2017 (Liberty
House had missed the above date for submission of EOI
and requested the COC to accept its EOI and allow
them participation in the CIR Process)
COC meeting 17th Nov 2017
RP requests Liberty House to submit Confidentiality
Undertaking, MOA, AOA etc. for issuance of RFP. 20th
Nov 2017.
Last date for submission of the bids 8th Feb 2018( the
timelines were revised three times with last dates for
submission of the resolution plans being: 10th Jan 2018 ,
28th Jan 2018 and finally 8th Feb 2018)
Liberty writes to RP that its in process to submit a viable
Resolution Plan 13th Feb 2018
Liberty House submits Resolution Plan - 20th Feb 2018
COC meeting to examine all resolution plans 22nd Feb
2018
COC and RP refused to open the Resolution Plan
submitted by Liberty House citing delays in submission
22nd Feb 2018
Decision of the 1. Delays in bid process not to act as a bar :-The
Tribunal resolution plan of Liberty House was not to be
rejected on the ground of delay emanating from the
process document or any other document internally
circulated by the RP /COC. The rejection should be
on a substantive ground
2. RP to place the plan received from Liberty
House before the COC-The RP was directed to
place the unopened sealed cover containing the
resolution plan received from Liberty House before
the COC.
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Orders passed by National Company Law Tribunal (NCLT)
3. Exclusion of time The time spent during
litigation to be excluded from CIR Process.
4. COC is authorized to take commercial decisions
it was also ordered that since the resolution plan
was under consideration and yet to be decided by
the COC and since there was considerable time left
for completion of the resolution process it was
expected that COC would take appropriate
commercial decision in terms of the code and rules
and regulations framed thereunder to achieve the
objectives of the code.
SECTION-29A
CASE NO. 28
Bench National Company Law Tribunal(NCLT) Ahmedabad
Bench, Ahmedabad
Financial Standard Chartered Bank and State Bank of India
Creditors
Corporate Debtor Essar Steel India Ltd
Applicants Numetal Limited, Arcellor Mittal India Pvt Ltd
Amount of Default 37,280.00 cr
Date of Order 19.04.2018
Relevant Section Section 29A :- Eligibility of the Resolution Applicant,
Section 30 sub-section (3) :RP to present to the COC
for its approval Resolution Plans which confirm the
conditions referred in sub section (2).
Section 30 sub-section (4) :-The committee of
creditors to approve a Resolution Plan after considering
its feasibility and viability,
-- Of the Insolvency and Bankruptcy Code, 2016
Facts of the Case Sequence of Events:
ix) The COC acted as per the views on eligibility
expressed by the RP. RP has declared both
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Numetal and Arcellor as ineligible under section
29A of the IBC. The 29A background check for the
Resolution Applicants was still ongoing as on date
of concluding the RA ineligible.
x) Both Arcellor Mittal India Limited and Numetal
Limited claimed to be 29A compliant as per the
provisions of the IBC
xi) According to COC it's the duty of the RP to decide
the eligibility of the RA
xii) The COC acted on the report of the RP and invited
fresh bid since both the RA were found ineligible
for filing a valid Resolution plan in conformity with
Section 29A of the IBC
xiii) And hence, the Resolution plans received from
both the RA ( Numetal and Arcellor) were not
placed before the CoC
Relevant Facts as stated in the order for
consideration:
First Bid Process Timelines:
EOI issued on 6th /7th October 2017
Receipt of 7 EOIs by -23rd October 2017
Virtual Data room access granted First week
November 2017
RFP issued on 24th Dec 2017
Resolution Plans received from Arcellor and Numetal on
12th Feb 2018
Numetal:
a) Advertisement inviting EOI issued by RP on 6th
Oct 2017
b) EOI submitted on 20th Oct 2017
c) RFP issued on 24th Oct 2017, Amended on 8th
Feb 2018
d) Resolution submitted on 12th Feb 2018
e) RP declared Numetal as ineligible on 23rd March
2018
Numetal accordingly filed an application before Hon'ble
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Orders passed by National Company Law Tribunal (NCLT)
NCLT Ahmedabad to direct the COC and RP not to
reject the Resolution Plan and invite fresh bids for Essar
Steel Limited.
In another application filed by Numetal with the same
bench, it sought to declare Arcellor Mittal (Arcellor) as
ineligible u/s 29A (Arcellor being promoters and in the
management and control of KSS Petron and Uttam
Galva Limited being NPA accounts)and the sale of
shares of Uttam Galva and KSS would not render
Arcellor eligible u/s 29A
Hence it could be observed that Numetal did not only
seek remedies under the IBC in terms of their ineligibility
u/s 29A against the decision taken by RP and COC but
also sought directions from Hon'ble NCLT against
another Resolution Applicant Arcellor India Pvt. Ltd.
Its noteworthy that Numetal had submitted its EOI for
Essar Steel in a consortium with VTB Bank through
Crinium Bay Holdings Ltd (VTB), Indo international
Trading FZCO (INDO), JSC VO Tyazhpromexport (TPE)
and Aurora Enterprise Ltd (Aurora).
Arcellor :
a) Resolution submitted on 12th Feb 2018
b) RP declared Arcellor as ineligible on 23rd March
2018
Arcellor accordingly filed an application before Hon'ble
NCLT Ahmedabad to direct the COC and RP not to
reject the Resolution Plan and invite fresh bids for Essar
Steel Limited. And pass suitable orders to prevent the
COC and RP from proceeding with the current CIRP
process during pendency of the current application.
The Tribunal in its interim order Dt. 20th March 2018 had
shown its non-inclination towards stalling the meetings
of the COC nor to interfere in the Resolution Process but
asked the COC and RP to pass the resolutions if any or
taking a decision subject to final outcome of the present
applications.
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Fresh Bid Process:
Since The RP and COC found both Numetal and
Arcellor as ineligible on the process cut off date i.e 12 th
Feb 2018, they decided to go through fresh bid process
for Essar Steel Limited.
Numetal challenged the fresh bid process and sought
directions from NCLT for the RP and COC not to open
the Resolution Plans received under the fresh bid
process OR the NCLT directs the RP and COC to
receive the Resolution Plans received under the fresh
bid process pending disposal of their application but not
to open the same pending disposal of the application
The RP and COC filed an affidavit with the Hon'ble
NCLT and requested to vacate the interim directions
issued by NCLT and to allow the RP and COC to open
the fresh bids subject to pending outcome of the
pending interlocutory applications, since the last date for
CIRP was ending on 29th April 2018 and time was of
prime essence to resolve the case.
Decision of the 1. 30 days cure time to be allowed to cure NPA - If
Tribunal the RA are found ineligible under 29A (c ) , he shall
be allowed by COC such period not exceeding 30
days to make payment of the overdue amounts in
accordance with proviso to clause (c ) of section
29A
2. Follow procedure under sec 29A and Sec 30(4) -
The COC did not follow the procedure prescribed in
above stated sections of the code i.e Section 29A
(c) read with section 30(4) to afford reasonable
opportunity by making payment of the overdue
amount in order to remove such disability.
RP ought to have produced both the Resolution
plans before the COC along with his notes on
ineligibility for consideration before the CoC before
rejection by following procedure under section
29A(c ) and 30(4)
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Orders passed by National Company Law Tribunal (NCLT)
3. RP and COC to consider both the Resolution
Plans before fresh bids are invited - Matter is
remanded back to the RP and COC with a direction
to place all the Resolution plans as received by the
RP before initiation of fresh bid for consideration of
the CoC in light of provisions of section 29A(c ) and
30(4). The procedure as laid down in the code is of
paramount importance for the revival of the CD.
4. Same process to be followed even for the
second bid process :-The decision of the COC to
go for inviting fresh bid may appear prudent but is
not legally sound and valid. Even if the fresh bid is
allowed to be opened , there may be some
Resolution plans who may be ineligible under
29A(c) of the code, RP and COC are duty bound to
provide an opportunity not exceeding 30 days for
making payment of overdue amounts or to remove
disability as per section 30(4) of the code
5. Sufficient opportunity to the Resolution
Applicant to cure the defects-The RP and COC
not to act arbitrarily and discriminatively and follow
procedure under the code and by not providing
sufficient opportunity to the resolution applicant
under the proviso to section 30(4). Principles of
natural justice to be followed.
Exclusion of time The time lost between filing of the
applications and the pronouncement of the order to be
excluded from CIRP
SECTION-33(2)
CASE NO. 29
Bench National Company Law Tribunal- Ahmedabad Bench,
Ahmedabad
Financial Creditor IDBI Bank Ltd & Ors.
Applicant/RP Anshuman Chaturvedi , RP
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
Date of Order 09.02.2018
Relevant Section Section 33 (2) read with Section 34(4) of the Insolvency
and Bankruptcy Code, 2016 Seeking order of
liquidation
Facts of the Case Mr. Anshuman Chaturvedi (RP Asian Natural Resources
(India) Limited.) expressed his unwillingness to continue
as liquidator the company going into liquidation. COC
recommended name of Mr. Abhishek Nagori.
Decision of the As per Section 34 (4), the Adjudicating Authority shall by
Tribunal order replace the resolution professional, if
(a) the resolution plan submitted by the resolution
professional under section 30 was rejected for
failure to meet the requirements mentioned in
sub-section (2) of section 30; or
(b) the Board recommends the replacement of a
resolution professional to the Adjudicating
Authority for reasons to be recorded
Since Mr. Abhishek Nagori's name was in the list of
panel approved by IBBI, Adjudicating Authority
appointed Mr. Abhishek Nagori as liquidator under
section 34 (7).
CASE NO. 30
Bench National Company Law Tribunal, Ahmedabad Bench,
Ahmedabad
Financial Creditor Punjab National Bank
Corporate Debtor Siddhi Vinayak Logistic Ltd
Applicant Sunrise Polyfilms Private Limited
Date of Order 04.05.2018
Relevant Section Section 33(2) read with Section 7 of Insolvency and
Bankruptcy Code,2016
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Orders passed by National Company Law Tribunal (NCLT)
Facts of the Case The application filed under Section 7 of the IB code by
the Financial Creditor was admitted on12.09.2017 and
thereafter public announcement was made on
15.09.2017. The Committee of Creditors was
constituted, and the first meeting was held on
12.10.2017 and RP was appointed and confirmed as
Resolution Professional in the e- voting held on
17.10.2017.
In the second meeting held on 02.11.2017 the COC
decided to liquidate the corporate debtor company
without completing the resolution process and
accordingly the COC also voted in favour of this
decision.
In the third meeting of the COC held on 16.11.2017
wherein they resolved and allowed the resolution
professional to make application before the Adjudicating
Authority under Section 33 (2) of the IB Code on the
following grounds:
· The company has not been operating for the last
three years and the latest financial statement was
filed on 31.03.2014;
· The company is in the transport business and has
inventory of 5600 trucks spread all over India,
majority of the trucks are lying idle and in
deteriorated in value.
It is further alleged that the promoters of the company
have committed fraud and siphoned off the funds. The
creditors have raised complaint against the promoters
with, the CBI and ED.
It is further contended in the petition that the Corporate
Debtor has lost all its customers and the staff and
employees have left the company. It is not possible to
hire a large staff and revive the company in absence of
the resources and funds.
Under such circumstances and also in pursuant to the
decision taken by CoC in the meeting held on
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
16.11.2017, the instant application was filed for
liquidation.
Promoter of the instant company has filed objection
against the application filed under Section 33 (2) of the
IB Code denying the averments made by the applicant.
Said objection is filed on 13.02.20118 i.e. after more
than one month of filing of the application by the
Resolution Professional.
Objections raised by the promoter of the Corporate
Debtor:
· It is submitted that Corporate Debtor can easily be
converted into a going concern and creditors can
easily be paid more than liquidation value within a
reasonable period of time.
· Corporate debtor has further alleged that the CoC
has failed to understand the basic procedure
prescribed under Corporate Resolution Process
and have blindly without even exploring the
possibility of revival of corporate debtor has
decided to liquidate the company and settle for a
minimal 10% of total outstanding.
· Corporate debtor further alleged that the
Resolution Professional has failed to perform his
part of duty as he has failed to comply with majority
of his duties casted under Section 25 IB Code.
· During pendency of the proceedings, an
Intervention Application was filed on 15.02.2018 on
behalf of Sunrise Polyfilms Private Limited wherein
it is represented that the applicant has professional
relationship with the corporate debtor and has been
hiring their trucks for various projects and he
recently came to know that the corporate debtor is
under the Insolvency Proceedings. Further, he also
came to know on 21.11.2017 that CoC has decided
to initiate liquidation proceedings under Section 33
(2) of the IS Code by way of e- voting conducted by
the Resolution Professional.
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Orders passed by National Company Law Tribunal (NCLT)
· It is alleged by the intervener that the said decision
of liquidation process has been taken merely after
50-55 days of the order of moratorium and the
Resolution Professional has not invited any
application for resolution plan and have decided to
initiate the liquidation process in the second
meeting itself.
Decision of the · Admittedly CoC decided to liquidate the Corporate
Tribunal Debtor without compliance of the resolution
process prescribed under the provisions of IB
Code.
· As per section 25(2)(h)- Invite prospective
resolution applicants, who fulfil such criteria as may
be laid down by him with the approval of committee
of creditors, having regard to the complexity and
scale of operations of the business of the corporate
debtor and such other conditions as may be
specified by the Board to submit a resolution plan
or plans.
· Admittedly, Resolution Professional did not invite
application for resolution plan and straight away
decided to go for liquidation in its second meeting
itself held on 22.11.2017.
· The very object/intention of the Code is to revive a
company under the CIRP and not to liquidate it. In
the instant case it is clear that the resolution
professional has omitted to perform his statutory
duties and responsibilities nor the CoC seems to
have shown much interest and made efforts to
achieve the object of the Code for exploring the
possibilities for revival of the company specifically
when the suspended management of the company
has suggested that there is chance for revival of
the company and the company may be able to
fetch more than liquidation value without investing
extra money from bank and by investing other
investors as the company was having 75 contracts
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Judicial Pronouncements under Insolvency and Bankruptcy Code, 2016
of transportation for business and if considered the
CD company can be made as going concern.
· It is amply clear that the Resolution Professional
has not invited prospective resolution applicants as
per Section 25 of the IB Code. Therefore, the
Resolution Professional is hereby directed to act as
per Section 25 of the IS Code and give an
opportunity to the prospective resolution applicant,
if any, received by him and submit the same before
CoC as per mandate of the Code.
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