Voting For Section 12A Proposal To Be Computed As Per Proviso To Section 25A(3A) R/w Section 25A(3) Of IBC: NCLAT Delhi

Case title: Vijay Saini v Shri Devender Singh & Ors

Case No.: Comp. App. (AT) (Ins.) No. 1194 of 2023

The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson) and Shri Barun Mitra (Technical Member), has held that for computing voting with regard to proposal under Section 12A of IBC, the voting has to be computed as per proviso to Section 25A(3A) read with Section 25A(3) of IBC. It has been further clarified that a proposal under Section 12A which statutorily requires 90% votes for approval, would not stand approved if majority (more than 50%) homebuyers/financial creditors vote in favour of it. The threshold of 90% votes must be met for approval of proposal.

Section 25A(3) of IBC provides that when the Authorised Representative represents several financial creditors, then he shall cast his vote for each financial creditor according to the instructions received from each financial creditor, to the extent of his voting share.

The Proviso to Section 25A(3A) of IBC states that when voting takes place in respect of proposal under Section 12A, then the Authorised Representative of Financial Creditor shall cast his vote in accordance with Section 25A(3).

“When the statute i.e. Section 12A provides 90% voting for approval of Section 12A proposal, 90% of the voting share of the creditor in class have to be taken into consideration. Since voting by each homebuyers who represented creditor in class has to be computed as per his voting share and adding all vote shares of the creditor in class with any other Financial Creditor if it is at least up to 90% only then 12A proposal is held to be passed”, the Bench held.

NCLAT Delhi: NCLT Has Jurisdiction To Decide The Issue Of Trademark U/S 60(5)(c) Of IBC

Case Title: Gloster Cables Ltd. vs. Fort Gloster Industries Ltd. and Ors.

Case No.: Comp. App (AT) (Ins) No. 1343 of 2019

The National Company Law Appellate Tribunal ('NCLAT') New Delhi, comprising Mr. Justice Rakesh Kumar Jain (Judicial Member) and Mr. Naresh Salecha (Technical Member) held that NCLT has the jurisdiction to decide the whether Trademark forms part of the assets of the Corporate Debtor under Section 60(5)(c) of IBC.

NCLAT Delhi: Liquidator Can Pursue Writ Petition On Behalf Of Corporate Debtor When NCLT Has Allowed Liquidator To Prosecute As Per Sec. 33(5) Of IBC

Case Title: CA Rajeev Bansal Liquidator of Isolux Corsan India Engineering & Construction Pvt. Ltd.

Case No.: Company Appeal (AT) (Insolvency) No. 1653 of 2023

The National Company Law Appellate Tribunal ('NCLAT') Delhi, comprising Mr. Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra (Technical Member), and Mr. Arun Baroka (Technical Member) held that the Liquidator can pursue a Writ Petition on behalf of the Corporate Debtor when the Adjudicating Authority has allowed the Liquidator to prosecute on behalf of the Corporate Debtor as per Section 33(5) of IBC.

NCLT

NCLT Kolkata: Corporate Debtor Can't Take Shelter U/S 186 Of Companies Act To Avoid CIRP When Loan Has Been Advanced In Breach Of Section 186(2) Of Companies Act

Case Title: EDCL Infrastructure Ltd. vs. Urban Infraprojects Pvt. Ltd.

Case No.: Company Petition (IB) No. 106/KB/2023

The National Company Law Tribunal ('NCLT') Kolkata, comprising Smt. Justice Bidisha Banerjee (Judicial Member) and Shri D. Arvind (Technical Member) held that the Corporate Debtor cannot take shelter under Section 186 of the Companies Act, 2013 to avoid Corporate Insolvency Resolution Process ('CIRP') under Section 7 of IBC, wherein the Financial Creditor has advanced loan in breach of Section 186(2) to the Corporate Debtor.

The Bench observed that the said provision serves as a safeguard for the shareholders/stakeholders of the Company, presently the Financial Creditor, ensuring that those managing the company cannot and do not exceed prescribed loan limits which would be in excess of their capacity and could lead the company into significant trouble in case of default. Thus, Section 186 of the Companies Act, 2013, mandates that if a company intends to provide a loan beyond the specified limits, it requires approval from shareholders through a special resolution.

In the event of a violation under Section 186(2) of the Companies Act, 2013, the affected parties would include the shareholders/stakeholders of the Financial Creditor and regulatory authorities. The Corporate Debtor cannot use such violations as a defense to refuse repayment of borrowed funds.

IBBI

IBBI Directs Resolution Professionals To Provide Copy Of Report Prepared Under Section 99 Of IBC To Creditors & Debtor

Ref. No. IBBI/II/66/2024

The Insolvency and Bankruptcy Board of India (“IBBI”) has issued a circular dated 12.02.2024, directing that the Resolution Professional shall provide the report prepared under Section 99 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) to both debtor and creditor.

The IBBI noted that in certain cases, the Resolution Professionals have not shared a copy of the report with both debtor and creditor, leading to a lack of equal information access among them. Therefore, the IBBI has advised that the Resolution Professionals shall provide a copy of the report to both debtor and creditor in all cases. This will ensure that the debtor and the creditor are well-informed about the evaluation and recommendations made by the RP, thereby promoting transparency and informed decision-making.

IBBI Directs Liquidator To Make Certain Declaration When Financial Service Provider Undergoes Voluntary Liquidation

Ref. No. IBBI/LIQ/67/2024

The Insolvency and Bankruptcy Board of India (“IBBI”) has issued a circular dated 13.02.2024, intimating that when a Financial Service Provider undergoes voluntary liquidation under IBC, then the Liquidator shall:

· Ensure that if the corporate person falls under the category of financial service provider, it shall declare that: (i) the category of Financial Service Providers has been notified by the Central Government under section 227 of IBC, and (ii) the corporate person has obtained prior permission from the appropriate regulator; and

· Submit a copy of Form H and the final report filed before the Adjudicating Authority as per Regulation 38, and the order for dissolution to the Board to the email ID: liqvol@ibbi.gov.in

Flat In Possession Of Allottee Not To Be Included In Liquidation Estate; IBBI Introduces Key Amendments To Liquidation Process Regulations

Ref. No. IBBI/PR/2024/07

The Insolvency and Bankruptcy Board of India (“IBBI”) has amended the IBBI (Liquidation Process) Regulations, 2016, with effect from 12.02.2024. Few of the key amendments are:

• The liquidator may reduce the reserve price by up to 25% for assets with existing valuation of the Corporate Insolvency Resolution Process (CIRP) on one occasion with the approval of the Stakeholders' Consultation Committee (SCC) at any time during the process. For assets where fresh valuation is conducted during liquidation, the reserve price can be reduced by up to 10% in subsequent auctions with SCC's approval.
• The liquidator may sell the assets of the corporate debtor (CD) by means of private sale only upon prior consultation with SCC, and the successful buyer shall be confirmed only after such consultation. Further, the option for the private sale of an asset, i.e., 'the asset is sold at a price higher than the reserve price of a failed auction' by the liquidator, has been removed.
• Liquidators are mandated to convene SCC meetings with a maximum interval of 30 days, to ensure timely decisions and over sight. However, the SCC may reduce the frequency of meetings if deemed necessary, provided that at least a minimum of one meeting is held per quarter. Decisions during these meetings are to be taken based on present and voting members.
• Wherever the corporate debtor has given possession to an allottee in a real estate project, such asset shall not form a part of the liquidation estate of the corporate debtor.
• Before initiating or continuing any legal proceedings, liquidators must consult the SCC, presenting the economic rationale.
• The liquidator, upon considering the viability, must consult the SCC before deciding to run the affairs of the corporate debtor as a going concern. Further, the sale of the CD as a going concern cannot be put on an auction exclusively after the first auction, and in case of a failed auction, the liquidator shall review the marketing strategy in consultation with the SCC.
• The liquidator shall file the proposal of compromise or arrangement only in cases where the Committee of Creditors made such a recommendation during the CIRP and such proposal shall not be filed after the expiry of thirty days from the liquidation commencement date.

Enhancing Transparency And Stakeholder Engagement In Liquidation Process – IBBI Issues Circular

Ref. No.: IBBI/LIQ/70/2024

The Insolvency and Bankruptcy Board of India (“IBBI”) has issued a circular dated 22.02.2024 on the enhancement of transparency and stakeholder engagement in the liquidation process. The IBBI has given the following directions to the Liquidators:

· Liquidator shall seek suggestions/observations of the members of the SCC while preparing the Preliminary Report under regulation 13 of IBBI (Liquidation Process) Regulations, 2016 ('Liquidation Regulations') and finalise the Preliminary Report after considering such suggestions /observations, and thereafter, submit it to the Adjudicating Authority (AA), Board and members of Stakeholders' Consultation Committee (SCC).

· Liquidator shall share the progress reports with the members of the SCC after receiving a confidential undertaking. Further, the liquidator shall submit the progress reports under Regulation 15 till the filing of the final report under Regulation 45 of Liquidation Regulations.

· Liquidator shall seek suggestions/observations of SCC members while preparing the Preliminary Report under Regulation 13 and finalise the Preliminary Report after considering such suggestions/observations, and thereafter, submit it to the AA, Board and members of SCC.

· Liquidator shall submit a copy of Form H along with final report filed before the Adjudicating Authority as per Regulation 45, and the order for process closure/dissolution to the Board to the email ID: liq.cirp@ibbi.gov.in