Insolvency & Bankruptcy Code : Important Judgments By Supreme Court In 2024

As the year 2024 nears its end, LiveLaw brings to you a summary of important Supreme Court judgments of the year rendered in connection with the Insolvency and Bankruptcy Code, 2016. The same are as follows:

1. IBC - Is Dissenting Financial Creditor Entitled To Minimum Value Of Security Interest? Supreme Court Refers To Larger Bench, Doubts Precedent

Case: DBS Bank Ltd Singapore v. Ruchi Soya Industries Ltd and another [2024 LiveLaw (SC) 6]

In this case, a bench comprising Justice Sanjiv Khanna (now CJI) and Justice SVN Bhatti referred to a larger bench the issue whether a dissenting financial creditor is to be paid the minimum value of its security interest as per the IBC. The bench differed from the view expressed by a coordinate bench in the 2021 judgment in India Resurgence ARC Private Limited v. Amit Metaliks Limited & Another which held that a dissenting secured creditor cannot challenge an approved resolution plan contending that higher amount should have been paid to it based on the security interest held by it over the corporate debtor.

2. IBC | Statutory Set Off Or Insolvency Set Off Inapplicable To Corporate Insolvency Resolution Process: Supreme Court

Case: Bharti Airtel Limited and Another v. Vijaykumar V. Iyer and Others [2024 LiveLaw (SC) 11]

In this case, a bench comprising Justice Sanjiv Khanna (now CJI) and Justice SVN Bhatti held that statutory set off or insolvency set off is not applicable to Corporate Insolvency Resolution Process proceedings under the IBC. Further, Regulation 29 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, which provides for mutual dealing and set off, does not apply to Part II of IBC (which deals with CIRP).

The Bench also carved out two exceptions to the application of statutory or insolvency set off to CIRP proceedings. First being, when a party is entitled to contractual set-off, on the date which is effective before or on the date of commencement of CIRP. Secondly, in cases of 'equitable set-off' when the claim and counter claim in the form of set-off are linked and connected on account of one or more transactions that can be treated as one.

3. IBC | Moratorium Under S 14 No Bar To Execute Decree Against Directors/Officers Of Corporate Debtor: Supreme Court

Case: Ansal Crown Heights Flat Buyers Association (Regd.) v. M/S. Ansal Crown Infrabuild Pvt. Ltd. & Ors. [2024 LiveLaw (SC) 63]

In this case, a bench comprising Justice Abhay S Oka and Justice Ujjal Bhuyan held that the imposition of moratorium under Section 14 of the IBC has no effect on the execution of a decree against the Directors or Officers of the Company (Corporate Debtor), which is undergoing CIRP under IBC.

4. IBC | Claim Submitted With Proof Cannot Be Overlooked Merely Because It Was Submitted In Wrong Form: Supreme Court

Case: Greater Noida Industrial Development Authority v. Prabhjit Singh Soni & Anr. [2024 LiveLaw (SC) 111]

In this case, a bench comprising former CJI DY Chandrachud and Justices JB Pardiwala, Manoj Misra observed that the claim submitted by Resolution Applicant under the CIRP cannot be rejected/overlooked merely on the fact that the claim submitted appears to be in a form other than the form in which the claim needs to be submitted.

It was observed that the Form in which a claim is to be submitted is directory in nature. What is necessary is that the claim must have support from proof.

The Court further observed that ordinarily feasibility and viability of a resolution plan is best decided by the commercial wisdom of the Committee of Creditors, however when the resolution plan envisages the use of asset/land not owned by the Corporate Debtor but by a third party, which is a statutory body, bound by its own rules and regulations having statutory flavor, then there has to be a closer examination of the plan's feasibility.

5. Process For IBC Offences To Be Issued By Sessions Court Despite Companies Act Amendment Vesting Jurisdiction On Judicial Magistrate: Supreme Court

Case: Insolvency and Bankruptcy Board of India v. Satyanarayan Bankatlal Malu & Ors. [2024 LiveLaw (SC) 317]

In this case, a bench comprising Justices BR Gavai and Sandeep Mehta interpreted Section 236(1) IBC to hold that the power to try offences punishable under IBC was vested in the Special Court by 'legislation by incorporation', meaning thereby the intention of the Parliament was clear to vest the power to issue summons upon the special court consisting of a person qualified to be a Sessions Judge or an Additional Sessions Judge. Thus, subsequent amendments to Section 435 Companies Act, 2013 authorizing judicial magistrates to issue summons for offences punishable up to two years under the IBC would not have any effect on Section 236 IBC.

6. When Does Debt Become Financial Debt & Operational Debt Under IBC? Supreme Court Explains

Case: Global Credit Capital Limited & Anr. v. Sach Marketing Pvt. Ltd. & Anr. [2024 LiveLaw (SC) 331]

In this case, a bench of Justices Abhay S Oka and Pankaj Mithal held that debt would be treated as an operational debt only if the claim subject matter of the debt has some connection or co-relation with the 'service' rendered by the creditor to the debtor.

According to the Court, the test to determine whether the debt is a 'financial debt' or 'operation debt' involves ascertaining the real nature of the transaction reflected in the written agreement. If the creditor is claiming the debt from the corporate debtor for rendering the 'service', then the debt would be considered an operational debt, however, when the debt is disbursed for the time value of value having the commercial effect of borrowing, then the debt would be treated as a 'financial debt'.

7. Insolvency Resolution Of Corporate Guarantor Won't Bar Creditor From Filing CIRP Against Corporate Debtor For Balance Debt : Supreme Court

Case: BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd. & Anr. [2024 LiveLaw (SC) 508]

In this case, a bench of Justices Abhay S Oka and Pankaj Mithal held that insolvency resolution of a corporate guarantor will not prevent the creditor from initiating another insolvency process against the corporate debtor for the balance debt. It was clarified that the insolvency resolution of the corporate guarantor will not result in the discharge of the corporate debtor towards the remaining debt.

The Court further observed that a holding company is not the owner of its subsidiary's assets and thus, subsidiary assets cannot be included in the holding company's resolution plan.

8. IBC | 'Auction-Purchaser Entitled To Benefit Of COVID Limitation Extension' : Supreme Court Refuses To Cancel Sale Over Delayed Deposit

Case: V.S. Palanivel v. P. Sriram CS Liquidator etc [2024 LiveLaw (SC) 662]

In this case, a bench of Justices Hima Kohli and Ahsanuddin Amanullah refused to cancel an e-auction despite the Auction Purchaser making a glaring default in making a deposit of the balance sale consideration on grounds that the subject matter of the auction has been utilized and the appellant failed to approach the court on time.

Further, the Court interpreted Rule 12 of Schedule 1 under Regulation 33 of the IBBI (Liquidation Process) Regulations, 2016 as mandatory in character. The said Rule relates to how assets of the Company (Corporate debtor) are to be sold by the Liquidator. It was also clarified that the advice offered by the Stakeholders Consultation Committee (SCC) constituted in liquidation proceedings is not binding on the Liquidator.

9. Free Copy Of NCLT Order & Copy Of Order Obtained On Paying Cost Are 'Certified Copies' For Filing NCLAT Appeal : Supreme Court

Case: State Bank of India v. India Power Corporation Ltd [2024 LiveLaw (SC) 766]

In this case, a bench of former CJI DY Chandrachud and Justice Manoj Misra set aside an order of the National Company Law Appellate Tribunal which refused to condone delay in filling an appeal because of the filling of a 'free copy' of the impugned order. It was held that there was no difference between a free certified copy of the order and a certified copy which is obtained after paying cost under Rule 50 of the NCLT Rules 2016.

10. 'Breaches Discipline Of Law Laid Down In IBC' : Supreme Court Disapproves Of HC Deferring CIRP Under Article 226

Case: CoC of KSK Mahanadi Power Company Ltd. v. Uttar Pradesh Power Corporation Ltd. and Ors. [2024 LiveLaw (SC) 815]

In this case, a bench of former CJI DY Chandrachud and Justices JB Pardiwala, Manoj Misra took exception to the Telangana High Court ordering the deferring of the CIRP in the exercise of powers under Article 226 of the Constitution. It held that the High Court was not justified in deferring the CIRP when the main relief sought in the writ petition to consolidate the CIRP of two companies was refused.

11. IBC | No Compulsion To Specify Names Of Creditors In Balance Sheet, General Entry Acknowledging Debt Sufficient To Initiate CIRP : Supreme Court

Case: Vidyasagar Prasad v. UCO Bank & Anr. [2024 LiveLaw (SC) 825]

In this case, a bench comprising Justices PS Narasimha and Sandeep Mehta observed that there is no compulsion for companies to specify name of every secured/unsecured creditor in their balance sheet. It was said that when debt entries exist in a corporate debtor's balance sheet, the debtor cannot deny its liability merely on the ground that there were no specific entries of the particular creditor in the balance sheet regarding the debt owed to that creditor.

12. Supreme Court Sets Aside NCLAT Order Which Closed Insolvency Process Against Byju's Based On Settlement With BCCI

Case: Glas Trust Company LLC v. Byju Raveendran [2024 LiveLaw (SC) 826]

In this case, a bench comprising former CJI DY Chandrachud and Justices JB Pardiwala, Manoj Misra set aside the order of the NCLAT which closed the insolvency proceedings against ed-tech company Byju's (Think and Learn Pvt Ltd) accepting a settlement between it and the Board of Control for Cricket in India (BCCI) for about Rs 158 crores.

The Court held that the NCLAT erred in allowing the withdrawal of the insolvency application by invoking its inherent powers under Rule 11 of the NCLAT Rules 2016. When there is a specific procedure provided for the withdrawal of insolvency applications, the NCLAT cannot invoke its inherent powers.

The Court further noted that as per the regulations, the application for withdrawal has to be submitted by the Interim Resolution Professional and not by the parties themselves. It is the IRP who takes charge of the affairs of the corporate debtor once an insolvency application is admitted. The Court also stated that the NCLT cannot be considered a post office that merely approves the application for withdrawal given by the parties.

13. 'IBC Prevails Over SEZ Act', Supreme Court Rejects Noida SEZ's Claim

Case: Noida Special Economic Zone Authority v. Manish Agarwal & Ors. [2024 LiveLaw (SC) 858]

In this case, a bench comprising Justices Abhay S Oka and AG Masih observed that IBC prevails over the Special Economic Zone Act due to the overriding effect of Section 238 IBC. "Section 238 of IBC 2016, which provides for the provisions of IBC 2016 to have an overriding effect over the other laws", the judgment noted.

14. Supreme Court Orders Liquidation Of Jet Airways On Failure Of Resolution Plan

Case: State Bank of India and Ors. v. Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch and Anr. [2024 LiveLaw (SC) 866]

In this case, a bench comprising former CJI DY Chandrachud and Justices JB Pardiwala, Manoj Misra invoked its extraordinary powers under Article 142 of the Constitution to order the liquidation of Jet Airways in view of the "peculiar and alarming" circumstance that the resolution plan has not been implemented for five years. Slamming the "growing tendency" of NCLT and NCLAT members to ignore orders of the Supreme Court, the Court stated that only persons of impeccable integrity should be appointed as the Tribunal Members. There should be no political appointment, it categorically remarked.

Further, it was observed that unnecessary delay caused in implementation of the Resolution Plan would lead to assets of the corporate debtor diminishing in value. Therefore, timely implementation of Resolution Plan is  one of the underlying objectives of IBC.

15. IBC | Moratorium Does Not Extinguish Claim : Supreme Court

Case: China Development Bank v. Doha Bank OPSC and others [2024 LiveLaw (SC) 1029]

In this case, a bench comprising Justices Abhay S Oka and Pankaj Mithal held that moratorium declared under Section 14 of IBC will not extinguish a claim. Noting that Section 14 bars the institution/continuation of legal proceedings against the corporate debtor, transfer of assets, enforcement of security interest etc., it said, "If the argument that the claims of all the creditors of the Corporate Debtor are extinguished once the moratorium comes into force is accepted, no creditor would be able to file a claim".

The Court also observed that default is not necessary for a debt to become a financial debt under IBC.

Other Supreme Court annual round-up stories can be read here.