When Claimant Fails To Substantiate Its Claim, No Error Committed By RP In Admitting Claim As Per Balance Sheet Of Corporate Debtor: NCLAT Delhi

Case Title: Engineering Mazdoor Parishad Devas Through Its General Secretary v Teena Saraswat Pandey

Case No.: Comp. App. (AT) (Ins.) No. 1200 of 2023

The National Company Law Appellate Tribunal (“NCLAT”), New Delhi Bench, comprising of Justice Ashok Bhushan (Chairperson) and Shri Barun Mitra (Technical Member), has held that a Claimant is obliged to substantiate its claim, failing which, the Resolution Professional’s decision to admit the claim based on the balance sheet of the Corporate Debtor cannot be faulted.

“It is the responsibility of the Claimant to bring all relevant record to substantiate the claim. The Resolution Professional having admitted the claim of Rs.96 lakhs and odd on the basis of balance sheet of the Corporate Debtor, no error can be said to have been committed by the Resolution Professional for accepting the claim of Rs. 96 lakhs and odd. The Adjudicating Authority also held that there are no documents filed to support the claim of the workmen.”

NCLAT New Delhi Sets Aside NCLT Order : Liability Of Interest Accrued During Section 10A Period Not To Be Excluded Aside

Case Title: Beetel Teletech Ltd. vs. Arcelia IT Services Pvt. Ltd.

Case No.: Company Appeal (AT) (Insolvency) No. 1459 of 2022

The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), has set aside an NCLT Order wherein it was held that the Corporate Debtor cannot claim the benefit of Section 10A of IBC since the default has been committed prior to the commencement of the excluded period under Section 10A of IBC. Further, the view that the liability of interest that accrued during the said period should not be computed for triggering CIRP is erroneous. As per Section 60 of the Indian Contract Act, 1872 when a debtor makes a payment without specifying how it should be allocated, the creditor has the discretion to decide how to apply it to clear any remaining debts and the creditor can use it to its maximum advantage.

NCLAT New Delhi: CIRP Application Barred By Time Should Be Rejected Even If No Defence Of Limitation Raised

Case Title: Sheetal Impex Pvt. Ltd. vs. Shree Swastic Sales Corporation Pvt. Ltd.

Case No.: Comp. App. (AT) (Ins.) No. 640 of 2023

The National Company Law Appellate Tribunal (‘NCLAT’), Principal Bench, comprising of Shri Mahendra Khandelwal (Judicial Member) and Shri Rahul Bhatnagar (Technical Member) has held that an application under Section 7 of IBC which is barred by time has to be rejected by the Court even if no Defence of Limitation was raised.

NCLT

‘Ordinary Course Of Business’ For Real Estate Industry Is Providing Construction Service, Doesn’t Include Entering Into Agreement For Investment In A Project: NCLT Delhi

Case Title: Pallavi Joshi Bakhru v Universal Buildwell Private Limited.

Case No.: Company Petition No. (IB)- 456(ND)/2018

The National Company Law Tribunal (“NCLT”), New Delhi Bench, comprising of Shri Ashok Kumar Bhardwaj (Judicial Member) and Shri L.N. Gupta (Technical Member), has held that the ‘ordinary course of business’ for a real estate industry would mean providing construction service. An agreement between two investors to invest into a project cannot be treated as an act done by them in an ‘Ordinary Course of Business’.

“The term ‘Ordinary’ means normal, natural and something what happens in routine either everyday or in general or traditionally. The term ‘Course’ means procedure, series, chain, link or string. The term ‘Business’ refers to an organisation or enterprising entity engaged in commercial, industrial, or professional activities. The term ‘Business’ also refers to efforts and activities undertaken by individuals to produce and sell goods and services for profit.”

NCLT Mumbai: Operational Creditors Must File GST Liability Claims Under CIRP On Time As No Claim Can Be Admitted After Resolution Plan Approved By CoC

Case Title: Abnco Vie Win Ent Private Limited vs. Steamline Industries Limited

Case No.: CP(IB)No. 3784/MB/C-II/2018

The National Company Law Tribunal (“NCLT”), Mumbai Bench comprising of Shri Kuldip Kumar Kareer (Judicial Member) and Shri Shyam Babu Gautam (Technical Member), dismissed an application filed by an operational creditor, seeking directions against the Resolution Professional make payment of GST liability of Rs. 60.34 Lakhs with the GST department and to file GSTR – 3B return for a stipulated tax period.

The NCLT held that the RP had issued a public notice to inform all interested parties and stakeholders about the commencement of the CIRP. It highlighted that the Applicant failed to submit its claim within the stipulated timeframe as per Regulation 12(2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Further, the claim cannot be accepted as the Resolution Plan has been approved by the Committee of Creditors (“CoC”).

NCLT Jaipur: Persons To Whom The Flats Are Sold After Completion, Shall Be Counted For Threshold Limit

Case Title: Gajraj Jain & Ors. vs. Shiv Gyan Developers Pvt. Ltd.

Case No.: IB No. 36/7/JPR/2018

The National Company Law Tribunal (“NCLT”), Jaipur Bench comprising of Shri Deep Chandra Joshi (Judicial Member) and Shri Atul Chaturvedi (Technical Member), allowed the application seeking impleadment of additional Financial Creditors to initiate Corporate Insolvency Resolution Process (“CIRP”) of Shiv Gyan Developers Pvt. Ltd. (Corporate Debtor) under Section 7 of IBC, as per the Supreme Court’s order in Gajraj Jain & Ors. Vs. Shivgyan Developers Pvt. Ltd..

The Supreme Court had allowed Gajraj Jain and two other Applicants (“Applicants”) to implead 10% of the homebuyers to the main application so as to comply with the requirements of the Code.

The Tribunal by placing reliance on the Supreme Court decision of Manish Kumar vs. Union of India held that persons to whom the flats have already been sold after completing construction, thereof, would still be allottees and would be included for computation of threshold limit under IBC.

NCLT Delhi: Unawareness About CIRP Is No Ground To File Claims At Belated Stage

Case Title: Toyota Financial Services India Limited vs. Mr. Suresh Kumar Jain

Case No.: CP IB NO. 1731/ND/2019

The National Company Law Tribunal (“NCLT”), New Delhi Bench comprising of Shri Mahendra Khandelwal (Judicial Member) and Shri Rahul Bhatnagar (Technical Member), has dismissed an application filed by a Financial Creditor seeking directions to the Resolution Professional to admit its belated claim. The Tribunal held that unawareness about the initiation of CIRP against the Corporate Debtor is not a ground to file claims at a belated stage.

IBBI

IBBI Amends Insolvency Professional Regulations W.E.F. 18th September 2023

Ref. No. IBBI/2023-24/GN/REG104

The Insolvency and Bankruptcy Board of India (“IBBI”) vide its notification dated 18.09.2023, has notified amendments to the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 (“IP Regulations”). The amendments are effective from 18.09.2023.

The key amendments are as under:

• Introduction of a unified enrolment and registration application form to enable submission of common application form for both enrolment and registration processes.
• The Regulation 5 provides eligibility criteria for individuals for their registration as Insolvency Professional. Now a time limit of 12 months (calculated from the date of payment of application fee) has been imposed on candidates to complete the pre-registration educational course from an Insolvency Professional after his enrollment as a professional member.
• Regulation 6(1) and 6(1A) have been amended to enable an individual to submit application to the IBBI through Insolvency Professional Agency (IPA) of which he/she is a member.
• Regulation 10(1) has been amended to add the additional instances where the IPA is required to inform the Board.

• A new Regulation 10A has been inserted which provides for the manner in which an Insolvency Professional can surrender its certificate of Registration.

• Another new Regulation 10B has been inserted which provides for special procedure for action on surrender or expulsion.

• The Form A and Form AA have also been amended.

IBBI Clarifies Interpretation Regarding Liquidator’s Fee Under Regulation 4(2)(B) Of Liquidation Process Regulations

Ref. No. IBBI/LIQ/61/2023

The Insolvency and Bankruptcy Board of India (“IBBI”) has released a circular dated 28.09.2023, clarifying the interpretation and computation of the Liquidators’ fee under Regulation 4(2)(b) of IBBI (Liquidation Process) Regulations, 2016 (“Liquidation Regulations”).

Clarification with respect to interpretations:

Upon perusal of records during the inspections and investigations, the IBBI found that certain terms in the Regulation 4(2)(b) of Liquidation Regulations are being interpreted differently. Thus, the following clarification has been given for such terms by the IBBI:

• Regulation 4(2)(b) provides that the fee shall be “as a percentage of the amount realised net of other liquidation costs, and of the amount distributed, for the balance period of liquidation….”

Clarification: “Amount realised” shall mean amount realised from assets other than liquid assets such as cash and bank balance including term deposit, mutual fund, quoted share available on start of the process after exploring compromise and arrangement, if any

• The term “Amount of Realisation (exclusive of liquidation costs)” given in the table in Regulation 4(2)(b) mandates that all liquidation costs are to be deducted from the realisation amount. However, as per regulation 4(2)(b), “other liquidation cost” is to be deducted from realisation. There is a gap in understanding in the market about what components of the liquidation cost are to be excluded from the liquidation cost to derive “other liquidation cost”.

Clarification: The “other liquidation cost” in regulation 4(2)(b) shall mean liquidation cost paid in priority under section 53(1)(a), after excluding the liquidator’s fee.

• Section 53 of IBC provides for order of priority for making distribution out of proceeds from sale of assets. Furthermore, the table in Regulation 4(2)(b) provides for liquidator’s fees to be calculated as a percentage of the ‘Amount Distributed to Stakeholders’.

Clarification: “Amount distributed to stakeholders” shall mean distributions made to the stakeholders, after deducting CIRP and liquidation cost.

• Different interpretations are being made for the words “Amount of Realisation /Distribution” used in table in the Regulation 4(2)(b). Though, most of them are interpreting it correctly to mean the cumulative value of assets realised till date, few are interpreting it to mean the value of assets realised during the first six months and then next six months and so on.

Clarification: “Amount of Realisation /Distribution” shall mean cumulative value of amount realised/ distributed which is to be bifurcated in various slabs as per column 1 and thereafter the same is to be bifurcated into realisation/ distribution in various periods of time and then corresponding fee rate from the table is to be taken.

• Period for calculation of fee - liquidators are suo-moto excluding various time periods such as stay by court on sale of a particular asset, delay in relinquishment by secured creditor, for the purpose of calculating the fee. However, since the liquidator works under the overall guidance of the Adjudicating Authority, any such exclusion should have stamp of judicial authority and should be only for the asset for which such exclusion has been granted.

Clarification: Exclusion for purpose of fee calculation is to be allowed only when the same has been explicitly provided by the Hon’ble NCLT/NCLAT or any other court of law and will operate only for the asset which could not have been realised during the excluded period.