Supreme Court Half Yearly Digest 2022 (Jan - Jun) Insolvency and Bankruptcy Code, 2016

Companies Act, 1956 - Insolvency and Bankruptcy Code, 2016 - Legislative History with respect to workmen/employee's dues towards the wages/salaries including the amount due and payable towards provident fund, gratuity and pension fund - discussed. (Para 8.2) Sunil Kumar Jain v. Sundaresh Bhatt, 2022 LiveLaw (SC) 382 : AIR 2022 SC 1985

Insolvency and Bankruptcy Code, 2016 - Appeal challenging NCLAT order which reversed the order of the NCLT wherein it had held that the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was not time-barred - Allowed - The failure of the NCLAT as the first appellate authority to look into a very vital aspect such as this, vitiates its order, especially when NCLT has recorded a specific finding of fact - Remanded. S.V. Fashions Pvt. Ltd. v. Ritu Murli Manohar Goyal, 2022 LiveLaw (SC) 326 : 2022 (5) SCALE 442

Insolvency and Bankruptcy Code, 2016 – Difference between financial and operational creditors in the nature of their role in the Committee of Creditors - It is assumed the operational creditors will be unwilling to take the risk of restructuring their debts in order to make the corporate debtor a going concern. Thus, their debt is not seen as a long -term investment in the going concern status of the corporate debtor, which would incentivize them to restructure it, but merely as a one -off transaction with the corporate debtor for certain goods or services. (Para 32) Consolidated Construction Consortium Ltd. v. Hitro Energy Solutions Pvt. Ltd., 2022 LiveLaw (SC) 129 : 2022 (3) SCALE 155

Insolvency and Bankruptcy Code, 2016 – IBC proceedings should not become recovery proceedings - IBC not akin to a recovery legislation for creditors, but is a legislation beneficial for the corporate debtor. Consolidated Construction Consortium Ltd. v. Hitro Energy Solutions Pvt. Ltd., 2022 LiveLaw (SC) 129 : 2022 (3) SCALE 155

Insolvency and Bankruptcy Code, 2016 - Limitation Act, 1963; Section 18 - The provisions of Section 18 of the Limitation Act are not alien to and are applicable to proceedings under the IBC; and (ii) An acknowledgement in a balance sheet without a qualification can furnish a legitimate basis for determining as to whether the period of limitation would stand extended, so long as the acknowledgement was within a period of three years from the original date of default. (Para 13) State Bank of India v. Krishidhan Seeds, 2022 LiveLaw (SC) 497 : 2022 (8) SCALE 253

Insolvency and Bankruptcy Code, 2016 - NCLT/NCLAT must make a reasonable assessment of the fees and expenses payable to the Interim Resolution Profession and cannot pass an order in an ad-hoc manner. (Para 16) Devarajan Raman v. Bank of India Ltd., 2022 LiveLaw (SC) 24 : (2022) 3 SCC 254

Insolvency and Bankruptcy Code, 2016 - NOIDA is an operational creditor under the provisions of the IBC Code. New Okhla Industrial Development Authority v. Anand Sonbhadra, 2022 LiveLaw (SC) 491 : 2022 (7) SCALE 656

Insolvency and Bankruptcy Code, 2016 - The Court allowed withdrawal of Corporate Insolvency Resolution Process against a builder in an application filed by three homebuyers in view of a settlement plan agreed upon by the majority of them. In the larger interest of the homebuyers, the Apex Court exercised power under Article 142 to permit withdrawal of the CIRP proceedings and set aside all matters pending between the parties. Amit Katyal v. Meera Ahuja, 2022 LiveLaw (SC) 259 : AIR 2022 SC 1433

Insolvency and Bankruptcy Code, 2016 - The object and purpose of 14 the IBC is not to kill the company and stop/stall the project, but to ensure that the business of the company runs as a going concern. (Para 12) Amit Katyal v. Meera Ahuja, 2022 LiveLaw (SC) 259 : AIR 2022 SC 1433

Insolvency and Bankruptcy Code, 2016 - The provisions of the Code are essentially intended to bring the corporate debtor to its feet and are not of money recovery proceedings as such. Invest Asset Securitisation and Reconstruction v. Girnar Fibres, 2022 LiveLaw (SC) 423

Insolvency and Bankruptcy Code 2016; Section 5(8), 5(7) - A liability in respect of a claim arising out of a Recovery Certificate would be a "financial debt" - The holder of the Recovery Certificate would be a financial creditor and would be entitled to initiate CIRP, if initiated within a period of three years from the date of issuance of the Recovery Certificate - Affirmed the view taken in Dena Bank (Now Bank of Baroda) vs. C. Shivakumar Reddy (2021) 10 SCC 330. (Para 84-85) Kotak Mahindra Bank ltd. v. A. Balakrishna, 2022 LiveLaw (SC) 534 : AIR 2022 SC 2652

Insolvency and Bankruptcy Code, 2016; Section 5(13), 53(1)(b), 53(1)(c) - Insolvency resolution process costs - Dues towards the wages/salaries of only those workmen/employees who actually worked during the CIRP are to be included in the CIRP costs - The wages and salaries of all other workmen / employees of the Corporate Debtor during the CIRP who actually have not worked and/or performed their duties when the Corporate Debtor was a going concern, shall not be included automatically in the CIRP costs. Such dues will be governed by Section 53(1)(b) and Section 53(1) (c) of the Insolvency and Bankruptcy Code. (Para 9-10) Sunil Kumar Jain v. Sundaresh Bhatt, 2022 LiveLaw (SC) 382 : AIR 2022 SC 1985

Insolvency and Bankruptcy Code, 2016 – Section 5(20) and 5(21) - Operational Debt - Operational Creditor - A debt which arises out of advance payment made to a corporate debtor for supply of goods or services would be considered as an operational debt - The phrase "in respect of" in Section 5(21) has to be interpreted in a broad and purposive manner in order to include all those who provide or receive operational services from the corporate debtor, which ultimately lead to an operational debt. (Para 43, 45) Consolidated Construction Consortium Ltd. v. Hitro Energy Solutions Pvt. Ltd., 2022 LiveLaw (SC) 129 : 2022 (3) SCALE 155

Insolvency and Bankruptcy Code, 2016 - Section 9 – Limitation Act, 1963 – Article 137 – Limitation Act would apply to applications filed under Sections 7 and 9 of the IBC. Consolidated Construction Consortium Ltd. v. Hitro Energy Solutions Pvt. Ltd., 2022 LiveLaw (SC) 129 : 2022 (3) SCALE 155

Insolvency and Bankruptcy Code, 2016 – Section 9 – Limitation Act, 1963 – Article 137 – Limitation does not commence when the debt becomes due but only when a default occurs. As noted earlier in the judgment, default is defined under Section 3(12) of the IBC as the non -payment of the debt by the corporate debtor when it has become due. (Para 59) Consolidated Construction Consortium Ltd. v. Hitro Energy Solutions Pvt. Ltd., 2022 LiveLaw (SC) 129 : 2022 (3) SCALE 155

Insolvency and Bankruptcy Code, 2016; Section 12A - At any stage before a COC is constituted, a party can approach NCLT/Adjudicating Authority directly and the Tribunal may in exercise of its powers under Rule 11 of the NCLT Rules, allow or disallow an application for withdrawal or settlement - In an appropriate case and where the case is being made out and the NCLT is satisfied about the settlement, may permit/allow an application for withdrawal or settlement. Amit Katyal v. Meera Ahuja, 2022 LiveLaw (SC) 259 : AIR 2022 SC 1433

Insolvency and Bankruptcy Code, 2016; Section 12A - Regulation 30A of the CIRP Regulations, 2016 - This provision is held to be directory depending on fact of case. Amit Katyal v. Meera Ahuja, 2022 LiveLaw (SC) 259 : AIR 2022 SC 1433

Insolvency and Bankruptcy Code, 2016; Section 12A - When 90% and more of the creditors, in their wisdom after due deliberations, find that it will be in the interest of all the stake­holders to permit settlement and withdraw CIRP, in our view, the adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of CoC. The interference would be warranted only when the adjudicating authority or the appellate authority finds the decision of the CoC to be wholly capricious, arbitrary, irrational and de hors the provisions of the statute or the Rules. (Para 24) Vallal Rck v. M/s. Siva Industries and Holdings Ltd; 2022 LiveLaw (SC) 541 : AIR 2022 SC 2636

Insolvency and Bankruptcy Code, 2016 - Sections 13, 15 and 31 - The claim in respect of the demand was not lodged after public announcements were issued under Sections 13 and 15 of the IBC - On the date on which the Resolution Plan was approved by the NCLT, all claims stood frozen - No claim, which is not a part of the Resolution Plan, would survive. Ruchi Soya Industries Ltd. v. Union of India, 2022 LiveLaw (SC) 207

Insolvency and Bankruptcy Code, 2016; Section 14 - Negotiable Instruments Act, 1881; Section 138 and 141 - Moratorium - Liability of natural persons like a Director of the Company - The moratorium provisions contained in Section 14 of the Insolvency and Bankruptcy Code, 2016 would apply only to the corporate debtor and that the natural persons mentioned in Section 141 of the Act would continue to be statutorily liable under the provisions of the Act. Narinder Garg v. Kotak Mahindra Bank, 2022 LiveLaw (SC) 428 : 2022 (7) SCALE 162

Insolvency and Bankruptcy Code, 2016; Section 14, 238 - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - After the CIRP is initiated, all actions including any action under the SARFAESI Act to foreclose, recover or enforce any security interest are prohibited. (Para 24, 35) Indian Overseas Bank v. RCM Infrastructure Ltd; 2022 LiveLaw (SC) 496 : AIR 2022 SC 2687

Insolvency and Bankruptcy Code, 2016; Section 14, 60(6) - Section 60(6) does contemplate exclusion of the entire period during which the moratorium was in force in respect of corporate debtor in regard to a proceeding as contemplated therein at the hands of the corporate debtor - Present an order of Moratorium under Section 14, the entire period of the Moratorium is liable to be excluded in computing the period of limitation even in a suit or an application by a corporate debtor. (Para 25-28) New Delhi Municipal Council v. Minosha India Ltd., 2022 LiveLaw (SC) 469

Insolvency and Bankruptcy Code, 2016; Section 20 - Even if it is found that the Corporate Debtor was not a going concern during the CIRP despite best efforts by the resolution professional, it cannot be presumed that still the Corporate Debtor was a going concern during the CIRP period. It depends on the facts of each case. (Para 12) Sunil Kumar Jain v. Sundaresh Bhatt, 2022 LiveLaw (SC) 382 : AIR 2022 SC 1985

Insolvency and Bankruptcy Code, 2016; Section 29A(h) - The word "such creditor" in Section 29A(h) has to be interpreted to mean similarly placed creditors after the application for insolvency application is admitted by the adjudicating authority - What is required to earn a disqualification under the said provision is a mere existence of a personal guarantee that stands invoked by a single creditor, notwithstanding the application being filed by any other creditor seeking initiation of insolvency resolution process. This is subject to further compliance of invocation of the said personal guarantee by any other creditor. (Para 53) Bank of Baroda v. MBL Infrastructures, 2022 LiveLaw (SC) 62 : (2022) 5 SCC 661

Insolvency and Bankruptcy Code, 2016; Section 36(4), 53(1) - Section 53(1) of the IB Code shall not be applicable to dues of the workmen/employees on account of provident fund, gratuity and pension - They are to be treated outside the liquidation process and liquidation estate assets under the IB Code. (Para 13) Sunil Kumar Jain v. Sundaresh Bhatt, 2022 LiveLaw (SC) 382 : AIR 2022 SC 1985

Insolvency and Bankruptcy Code, 2016; Section 61 - An appeal against the order of NCLT shall be preferred within a period of 30 days from the date on which the order was passed by the NCLT. The Appellate Tribunal has the power to extend the period of limitation by another 15 days. Safire Technologies Pvt. Ltd. V. Regional Provident Fund Commissioner, 2022 LiveLaw (SC) 472

Insolvency and Bankruptcy Code, 2016; Section 238 - IBC is a complete Code in itself - The provisions of the IBC would prevail notwithstanding anything inconsistent therewith contained in any other law for the time being in force. (Para 25-27) Indian Overseas Bank v. RCM Infrastructure Ltd; 2022 LiveLaw (SC) 496 : AIR 2022 SC 2687