The enactment of the Insolvency and Bankruptcy Code 2016 (Code) has had significant ramifications on the corporate insolvency landscape. Over time, the Code has witnessed a manifold increase in litigation, and consequently in the number of decisions. This has made it difficult for insolvency practitioners to stay updated with developments in the field. This column fills this...
The enactment of the Insolvency and Bankruptcy Code 2016 (Code) has had significant ramifications on the corporate insolvency landscape. Over time, the Code has witnessed a manifold increase in litigation, and consequently in the number of decisions. This has made it difficult for insolvency practitioners to stay updated with developments in the field. This column fills this gap by providing brief summaries of latest decisions from the various fora dealing with Insolvency Law.
These case summaries are not an exhaustive review of the cases under the Code; only significant rulings on the Code in the month of October 2021 have been summarized. However, this does not negate the possibility of some important decisions being missed on account of human error. Further, since the purpose of this endeavor is to keep practitioners abreast of relevant developments, the decisions are summarized and not comprehensively analyzed.
I. SUPREME COURT
In M/s Jai Balaji Industries v. D.K. Mohanty & Another, the Supreme Court held that for the purpose of and in the scheme of the Code, even pendency of an application for restoration is sufficient to bring the matter within the four corners of a 'pre-existing dispute' in terms of Section 8 of the Code, and without a final decision on the prayer for restoration, the insolvency process at the instance of an operational creditor cannot be put into motion. The Supreme Court noted that it remains trite that when a suit or appeal is dismissed in default and is restored after the court is satisfied on the cause shown for default, such restoration would revive the proceedings to their status before default dismissal, and the doctrine of relation back would come into play in the manner that the proceedings shall continue in their original status, unless otherwise stated in the order of restoration or coming out by necessary implication.
In V. Nagarajan v. SKS Ispat and Power Ltd. & Others, the Supreme Court held that the import of Sections 61(1) and 61(2) of the Code and Section 12 of the Limitation Act, 1963, is to assign the responsibility of applying for a certified copy of the order on the aggrieved party filing an appeal. The Supreme Court further held that a person aggrieved by an order under the Code cannot await the receipt of a free certified copy under Section 420(3) of the Companies Act, 2013 read with Rule 50 of the National Company Law Tribunal Rules, 2016 (NCLT Rules) and prevent limitation from running. Furthermore, the Supreme Court held that the limitation to file an appeal under the Code commences from the date the order is pronounced and only excludes the time taken by the court to prepare a certified copy of the order after the party has applied for a certified copy of the order. The Supreme Court also relied on Rule 22(2) of the National Company Law Appellate Tribunal Rules, 2016 (NCLAT Rules) to reiterate that parties aggrieved with an order cannot automatically dispense with their obligation to apply for and obtain a certified copy for filing an appeal.
II. HIGH COURTS
In Adisri Commercial Pvt Ltd v RBI & Others, the Bombay High Court upheld the order of the Reserve Bank of India (RBI) under Section 45IE of the Reserve Bank of India Act, 1934 (RBI Act) superseding the board of directors of a non-banking financial company (NBFC). The High Court noted that the RBI intended to apply to the National Company Law Tribunal (NCLT) to initiate the corporate insolvency resolution process (CIRP) of such NBFC under the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019. The reasons for such supersession included poor financial condition of the NBFC and governance issues such as approval of a slump exchange despite non-receipt of no-objection from majority lending institutions, non-maintenance of minimum regulatory net owned fund and capital to risk asset ratio. The High Court noted that despite opportunity granted by the RBI to rectify the governance issues and improve the financial condition, the NBFC had failed to do so, and accordingly, the RBI had acted within its jurisdiction.
III. NATIONAL COMPANY LAW APPELLATE TRIBUNALS
In Gundeep Gurdeep Singh Sood & Another v. Corporation Bank & Another, the National Company Law Appellate Tribunal (NCLAT), New Delhi followed the decision of the Supreme Court in Asset Reconstruction Company (India) Limited v. Bishal Jaiswal & Another, to hold that admission of the debt in the financial statements, balance sheet and letter for one time settlement issued by the corporate debtor within the stipulated limitation period for an insolvency application, amounts to an acknowledgment of debt under the Limitation Act, 1963, and an application under Section 7 of the Code with respect to such debt would not be barred.
In Asset Reconstruction Company India Limited v. Mangesh Vitthal Kekre & Another, the NCLAT, New Delhi followed the decision of the Supreme Court in National Spot Exchange Limited v. Anil Kohli, to hold that it cannot condone delay of more than fifteen days from the date of completion of the thirty-day period specified for preferring an appeal under Section 61(2) of the Code. The NCLAT, New Delhi further held that a party aggrieved by an order appealable under the Code is expected to exercise due diligence and apply for a certified copy of the order and cannot await the receipt of a free certified copy under Section 421(3) of the Companies Act, 2013 read with Rule 50 of the NCLT Rules and prevent the limitation period from running.
In Gail India Limited v. Ajay Joshi (Resolution Professional of Alok Industries Limited) & Others, the NCLAT, New Delhi, while upholding the resolution plan providing hundred per cent payment to operational creditors with claims up to Indian Rupees Three Lakhs, held that there is no embargo for the classification of operational creditor(s) into separate/different classes to decide the manner in which the money is to be distributed to them by the committee of creditors (CoC). The NCLAT, New Delhi noted that the CoC does have the subjective final discretion of collective commercial wisdom in relation to: (i) the amount to be paid; (ii) the quantum of money to be paid, to a certain category or the incidental category of creditors, by balancing the interests of the stakeholders and the operational creditors, as the case may be.
In Jumbo Paper Products v. Hansraj Agrofresh Pvt. Limited, the NCLAT, New Delhi noted that the Ministry of Corporate Affairs' notification dated March 24, 2020, increasing the threshold limit for debt in default for initiating the CIRP from Indian Rupees One Lakh to Indian Rupees One Crore, will be applicable for applications filed under Section 7 or Section 9 of the Code on or after March 24, 2020 even if the debt is of a date earlier than March 24, 2020.
In Bijoy Prabhakaran Pulipra, Resolution Professional of PVS Memorial Hospital Private Limited v. State Tax Officer (Works Contract), the NCLAT, Chennai held that the interim resolution professional (IRP)/resolution professional (RP) in exercise of its powers under Regulation 14 (Determination of amount of claim) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations), cannot revise the claim in relation to goods and service tax (GST) dues, as the GST amount is an amount of tax levied under the assessment order as per the Goods and Service Act, 2017, and the revision of the GST assessment order is beyond the jurisdiction of the IRP/RP. The NCLAT, Chennai noted that if the IRP/RP is aggrieved by the assessment order, it should file an appeal before the appropriate forum. Consequently, the NCLAT, Chennai noted that the RP here committed an error by exercising the powers of GST Authorities under the pretext of Regulation 14 of the CIRP Regulations.
In MRA Associates (India) Pvt. Ltd. v. Red Fort Capital Advisors Pvt. Ltd., the NCLAT, New Delhi held that the powers of appeal, revision and review are creations of the legislature, and that these statutory powers, thus, cannot be exercised by the NCLTs unless and until they are provided for under the Code. The NCLAT, New Delhi further held that the 'power of review' is not an inherent power, and is required to be conferred either specifically or by necessary implication and that the Code does not have any provision(s) for the NCLTs/NCLATs to review their orders.
In Harish Raghavji Patel v. Shapoorji Pallonji Finance Private Limited & Another, the NCLAT, New Delhi dismissed a petition filed by the parties seeking to invoke the inherent powers of the tribunal under Rule 11 of the NCLAT Rules to allow an application for withdrawal or settlement in lieu of the CIRP initiated against the corporate debtor. The NCLAT, New Delhi held that the inherent powers of the tribunal can be exercised only after all other remedies are exhausted, and no specific remedy is provided under the statute. The inherent power cannot be exercised when it intends to bypass the procedure established by law. Sections 7, 9 and 10 of the Code prescribe procedure for the withdrawal of petition before the constitution of the CoC and Section 12A and Regulation 30A of the CIRP Regulations prescribe procedure for withdrawal after the constitution of the CoC, which ought to be followed rather than the inherent powers of the tribunal under Rule 11 of the NCLAT Rules.
In Amanat Randhawa Hotels Pvt. Ltd. v. Shashi Kant Nemani RP of Aryavir Buildcon Private Limited, the NCLAT, New Delhi dismissed the appellant's contention seeking quashing of the adjudicating authority's order approving the resolution plan of the successful resolution applicant on the grounds of non-consideration of its resolution plan. The NCLAT, New Delhi emphasised upon the legislative intent of Section 30 of the Code, wherein no new resolution plans may be admitted once a plan has been approved by the CoC by a majority of sixty-six per cent within the stipulated timelines. Admission of any new plans after the approval of the CoC (hundred per cent approval in the present case) would be ultra vires the scope and the objectives of the Code.
In Agarwal Coal Corporation Private Limited v. Sun Paper Mill Limited & Another, the NCLAT, New Delhi held that recalling of the judgment by the NCLAT is impermissible in law and the appropriate course of action open is to approach the Supreme Court against the judgement. The NCLAT, New Delhi noted that there is no express provision for 'review' under the NCLAT Rules, and that the applicant/appellant cannot fall back upon Rule 11 of the NCLAT Rules, which provides for 'inherent powers'.
In S. Ravindranathan v. Sundaram BNP Paribas, the NCLAT, Chennai, while observing that Section 238 of the Code gave it an overriding effect over the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), held that the pendency of proceedings under the SARFAESI Act will not be an impediment to the filing of an application under Section 7 of the Code.
In Committee of Creditors of Meenakshi Energy Limited v. Consortium of Prudent ARC Limited & Vizag & Another, the NCLAT, Chennai held that the resolution plan of the resolution applicant, who had submitted the plan after the due date, should not be considered by the CoC or the RP on the grounds that the contents of the resolution plans of the resolution applicants, who had submitted their plans prior to the due date, had already been disclosed to the CoC and were no longer confidential. The NCLAT, Chennai noted that the resolution plan furnished by a resolution applicant should remain confidential and cannot be disclosed to any competing resolution applicant nor any view can be taken or objection can be asked for from other resolution applicants in regard to one or the other resolution plan. The NCLAT, Chennai, while emphasising on the need to observe timelines and on 'speed' being the gist for an effective functioning of the Code, noted that a tribunal should follow the requirement and discipline of the Code, streamline the resolution of corporate insolvencies, bearing in mind that the relevant provisions of the Code are in public interest and to ensure good corporate governance.
IV. NATIONAL COMPANY LAW TRIBUNALS
In Jai Balaji Industries Limited v. BST Infratech Limited, the NCLT, Kolkata held that even if specific permission has not been sought to re-file the proceedings on the cause of action having arisen in favour of the operational creditor, the operational creditor will retain the right to file a petition for enforcing the settlement agreement once the corporate debtor has failed to comply with the terms and conditions fixed in the settlement agreement. The NCLT, Kolkata reasoned that the terms 'fresh notice' and 'fresh proceeding', demonstrated an intent on part of the corporate debtor to elongate and frustrate the proceedings. Therefore, it was held that the right to enforce the settlement agreement is retained by the operational creditor in such situations.
In M/s. M+R Logistics Pvt Ltd v. Indure Pvt Ltd, the NCLT, New Delhi held that for consideration of an insolvency application under Section 9 of the Code, the delay in delivery of goods by the operational creditor, in cases where such delay was a violation of the supply contract, fell within the purview of a 'dispute' with respect to the 'quality of goods or services' under Section 5(6) of the Code, and the disputed claim of the applicant/operational creditor regarding the enhancement of the rate at which goods were to be supplied, fell within the purview of a 'dispute' pertaining to the 'existence of the amount of debt' under Section 5(6) of the Code.
In IDBI Trusteeship Services Limited v. Saha Infratech Private Limited, the NCLT, New Delhi held that in view of the clarification to Regulation 16A(5) of the CIRP Regulations, which states that an authorised representative to a class of creditors (appointed under Section 21(6A) of the Code) does not play any role in the verification of claims, the creditors/allottees belonging to any class of creditors would also not have a role in the verification or rejection of claim of another creditor of such class. On this basis, the NCLT, New Delhi rejected the application of allottees of a project of the corporate debtor who had sought impleadment as parties in proceedings before the NCLT, New Delhi pertaining to challenge to partial rejection of claims of two other financial creditors of the same class and the declaration of one of them as a related party.
In Committee of Creditors, M/s Sintex Industries Limited v. M/s. Sintex Industries Limited through Mr. Pinakin Shah, the NCLT, Ahmedabad rejected the application of the CoC seeking replacement of the IRP, as there were no adverse comments by the CoC on the performance of the existing IRP and the CIRP period of one hundred and eighty days was also approaching. The NCLT, Ahmedabad directed the CoC to reconsider its decision and evaluate the performance of the IRP dispassionately. The NCLT, Ahmedabad noted that the CoC may file an application for change of the IRP only based upon the shortcomings in the performance of the IRP.
In Bank of India v. Naren Sheth, Resolution Professional for Jaybharat Textiles & Real Estate Limited, the NCLT, Ahmedabad held that the object of the provisions of the Code relating to exclusion of related parties from the CoC is to maintain the independence of the CoC in the interest of all stakeholders, and that it does not mean that parties who were related at some point in time and are not currently related, should be excluded from the CoC merely for this reason unless it can be demonstrated that they extinguished their status of related parties in order to dominate the CoC and to gain undue advantage in the CIRP.
In Mr. Amish Jaysukhlal Sanghrajka v. Mrs. Aparna Amish Sanghrajka, the NCLT, Mumbai held that in order to attract the provisions of the Code, a homebuyer needs to qualify as an 'allottee' under Section 2(d) of the Real Estate (Regulation and Development) Act, 2016 (RERA Act) and further held that in view of the Bombay High Court's judgment in Macrotech Developers Ltd. v. State of Maharashtra & Others, the provisions of the RERA Act cannot apply to a project that is not registered and completed. The NCLT, Mumbai further held that receipts of the transaction amount are not a substantial proof of a homebuyer's intent to take possession of the flat, and that the genuine interest of an allottee is an important factor to be borne in mind, in view of the decision of the NCLAT, New Delhi in Navin Raheja v. Shilpa Jain & Others.
In Axis Bank Ltd. v. Maharashtra Theatres Pvt. Ltd., the NCLT, Mumbai held that, in view of the specific bar under Section 10A of the Code, and suspension of the Code on account of the COVID-19 pandemic, any attempt to initiate the CIRP against a corporate debtor for a default occurring after the cut-off date of March 25, 2020 (in this case, a default alleged to have occurred on October 31, 2020) would be impermissible.
In Bhadrashree Steel & Power Ltd. v. Maharashtra Industrial Development Corporation and Another, the NCLT, Mumbai, while following the Supreme Court's judgment in Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction, held that claims of the creditor in relation to water charges and services charges arising before the initiation of the CIRP, stood extinguished on the approval of the resolution plan and in view of the fact that the creditor had not made a claim upon public announcement of the initiation of the CIRP against the corporate debtor.
In Bohra Industries Ltd. Through its Resolution Professional v. National Stock Exchange of India Ltd. Through its Senior Manager (Listing Compliance), the NCLT, Jaipur condoned the imposition of fine on the corporate debtor for non-compliance with certain provisions of the Securities and Exchange Board of India regulations, which had taken place prior to the initiation of the CIRP and during the CIRP. The NCLT, Jaipur observed that in view of the moratorium under Section 14 of the Code and in view of the fact that after the company was taken over by the RP, certain compliances were made and the RP had explained the impediments being faced by him with respect to other compliances, the impugned order imposing fines was unsustainable. The NCLT, Jaipur noted that the burdening of the corporate debtor with the imposition of fines is against its interest, and also against the object of the Code.
Karan Sangani is an advocate based out of Mumbai. Akshata Singh and Siddharth Sunil are advocates based out of Delhi. Shubhaankar Ray is pursuing his B.A., LL.B. (Hons.) programme at NALSAR University of Law. The present compilation represents the exclusive work of the authors in their personal capacities, and is not linked to any of the institutions/firms that they may be associated with.