Supreme Court Annual Digest 2023 - Insolvency And Bankruptcy Code

A company could not avail benefit of the Sabka Vishwas scheme as it was under moratorium under IBC - The Courts are meant to do justice and cannot compel a person to do something which was impossible for him to do - Directed that the payment of amount already deposited by the company be appropriated towards settlement dues under “Sabka Vishwas Scheme 2019 and the company be issued discharge certificate. 2023 LiveLaw (SC) 15

A resolution applicant cannot be rendered ineligible to submit a resolution plan under the IBC, by assuming his/her disqualification under Section 164(2)(b) of the Companies Act, 2013, unless a categorical order disqualifying him/her to act as a director of any company is passed by the competent authority. There is no concept of 'deemed disqualification' under Section 164(2)(b) of the Companies Act, 2013. 2023 LiveLaw (SC) 403

Admitting claims after a resolution plan has been accepted by COC would make CIRP an endless process. 2023 LiveLaw (SC) 773

Admitting claims after the Resolution Plan has been accepted by the Committee of Creditors (COC) under IBC even though the Adjudicating Authority has yet to approve the plan, would make the Corporate Insolvency Resolution Process (CIRP) an endless process. (Para 21) 2023 LiveLaw (SC) 773

Application under Section 12A for withdrawal of CIRP is maintainable prior to the Constitution of CoC. 2023 LiveLaw (SC) 250

Cannot ask successful resolution applicant to pay arrears payable by corporate debtor for grant/restoration of electricity connection. 2023 LiveLaw (SC) 788

Commissioner and employees of the Employees Provident Fund Organization (EPFO) must ensure that they comply with the timelines under the IBC. In case of failure to comply with the timelines, action must be taken against erring employees. 2023 LiveLaw (SC) 734

Delay in filing CIRP application condonable on sufficient reasons. 2023 LiveLaw (SC) 9

Development rights created in favour of the Corporate Debtor constitute “property” within the meaning of the expression under Section 3(27) of IBC -Since the expression “asset” in common parlance denotes “property of any kind”, the bundle of rights that the Corporate Debtor has over the property in question would constitute “asset” within the meaning of Section 18(f) and Section 25(2)(a) of IBC- these rights and interests in the immovable property are definitely liable to be included by the Resolution Professional in the Information Memorandum and the Resolution Professional is duty bound under Section 25(2)(a) to take custody and control of the same. (Para 37) 2023 LiveLaw (SC) 193

Doctrine of Election cannot be applied to prevent a Financial Creditor from approaching the National Company Law Tribunal (NCLT) for initiation of Corporate Insolvency Resolution Process (“CIRP”) against a Corporate Debtor. (Para 11) 2023 LiveLaw (SC) 914

EPFO employees must comply with the IBC timeline for filing claims; default officers must face action. 2023 LiveLaw (SC) 734

Exclusion of assets owned by a thirdparty, but in the possession of the Corporate Debtor held under contractual arrangements, from the definition of the expression “assets”, is limited to Section 18. In other words, the Explanation under Section 18 does not extend to Section 25. 2023 LiveLaw (SC) 193

For rejection of a resolution plan under Section 31(2), NCLT must pass a reasoned order. 2023 LiveLaw (SC) 1007

Homebuyers who secure RERA decrees can't be treated differently from other financial creditors under IBC. 2023 LiveLaw (SC) 894

IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 - Regulation 30 - NCLT as well as NCLAT were right in holding that the possession of the Corporate Debtor, of the property needs to be protected. This is why a direction under Regulation 30 had been issued to the local district administration. (Para 50) 2023 LiveLaw (SC) 193

IBC is a significant prong in economic reforms. It has radically reshaped the law relating to insolvency and bankruptcy. The manner in which the law is administered will have to keep pace with technology. Both the Union government in its rule making capacity and the administrative heads of tribunals must ensure a seamless transition to working in the electronic mode. A copy of this judgment shall be forwarded to the Chairperson of the NCLAT and to the Secretaries to the Union Government respectively in the Ministries of (i) Finance; (ii) Corporate Affairs; and (iii) Law and Justice for ensuring compliance and remedial steps. (Para 30, 31) 2023 LiveLaw (SC) 406

IBC overrides electricity act; dues to secured creditors at higher footing than electricity dues. 2023 LiveLaw (SC) 534

IBC was specifically introduced by Parliament for ensuring quick and time-bound resolution of insolvency of corporate entities in financial trouble, by first attempting to revive the Corporate Debtor, failure whereof would entail liquidation of the Corporate Debtor's assets, and no unnecessary impediment should be created to delay or derail the CIRP. (Para 29) 2023 LiveLaw (SC) 1007

If a modified resolution plan, carrying however minor modification/revision, is not finally approved by Committee of Creditors (CoC), then presentation of such modified plan before the Adjudicating Authority for approval is an incurable material irregularity. No modified resolution plan can be placed directly before the NCLT, without being finally approved by the CoC. 2023 LiveLaw (SC) 403

In the case at hand, we find that there was no occasion before the Adjudicating Authority- NCLT to be swayed only on the per se ground that the hair-cut would be about 94.25% and that it was not convinced that the fair value of the assets have been projected in proper manner as the bid of the appellant was very close to the fair value of the assets of ACIL. Ordering revaluation of the assets, by the Official Liquidator, Ministry of Corporate Affairs, Government of India, in-charge of the particular area, cannot be justified. (Para 29) 2023 LiveLaw (SC) 1007

Ineligibility of resolution applicant as per S.164(2)(b) Companies Act can't be presumed unless competent authority declares disqualification. 2023 LiveLaw (SC) 403

Insolvency of Reliance Home Finance Ltd (RHFL) - the Supreme Court allowed the Resolution Plan (RP) proposed by Authum Investments and Infrastructure Ltd. (AIIL) to cover the debenture holders of RHFL - the plan will not cover dissenting debenture holders - the dissenting debenture holders should be provided an option to accept the terms of the resolution plan who proposed such acquisition or they can pursue other legal remedies to recover their dues. 2023 LiveLaw (SC) 173

National Company Law Appellate Tribunal (NCLAT) Rules, 2016 - The Supreme Court has upheld the ruling of NCLAT fivemember bench, wherein it was held that NCLAT is empowered to recall its judgment but not to review them. The Supreme Court has affirmed the NCLAT's ruling and dismissed an appeal filed against the order. 2023 LiveLaw (SC) 589

NCLAT can 'recall' its judgment, can't 'review' them: Supreme Court affirms NCLAT ruling. 2023 LiveLaw (SC) 589

No casual interference with commercial wisdom of CoC: Supreme Court sets aside NCLT direction to reevaluate corporate debtor's assets. 2023 LiveLaw (SC) 1007

No modified resolution plan can be directly placed before NCLT without being finally approved by the CoC. 2023 LiveLaw (SC) 403

Once a resolution plan is approved, no modifications are permissible. 2023 LiveLaw (SC) 231

Once the Resolution Plan stands approved by the National Company Law Tribunal (NCLT), the Electricity Department cannot demand payment of arrears, which were payable by the Corporate Debtor, from the Successful Resolution Applicant for restoration/grant of electricity connection. The 'clean slate principle' would stand negated if the Successful Resolution Applicant is asked to pay the arrears payable by the Corporate Debtor for the grant of an electricity connection in her/his name. 2023 LiveLaw (SC) 788

Principle of 'Commercial Wisdom' of the Committee of Creditors (“CoC”) cannot brush aside the shortcomings of the CoC in cases where decision making was done in contravention to a law which is in force for the time being. 2023 LiveLaw (SC) 403

Principle of commercial wisdom not validate a decision taken by CoC in contravention of law. 2023 LiveLaw (SC) 403

Properties sold in auction sale before declaration of moratorium cannot be treated as liquidation asset. 2023 LiveLaw (SC) 1029

Recovery of Debts and Bankruptcy Act, 1993 - The enforcement mechanism for a recovery certificate is an independent course, which a financial creditor may opt for realisation of its dues crystalised under the 1993 Act, instead of chasing the mechanism under the 1993 Act. The IBC itself is not really a debt recovery mechanism but a mechanism for revival of a company fallen in debt, but the procedure envisaged in the IBC substantially relates to ensuring recovery of debts in the process of applying such mechanism. (Para 11) 2023 LiveLaw (SC) 914

Recovery of Debts and Bankruptcy Act, 1993 - The question of election between the fora for enforcement of debt under the 1993 Act and initiation of CIRP under the IBC arises only after a recovery certificate is issued. The reliefs under the two statutes are different and once CIRP results in declaration of moratorium, the enforcement mechanism under the 1993 Act or the SARFAESI Act gets suspended. In such circumstances, after issue of recovery certificate, the financial creditor ought to have option for enforcing recovery through a new forum instead of sticking on to the mechanism through which recovery certificate was issued. (Para 11) 2023 LiveLaw (SC) 914

Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2018, is binding upon the National Company Law Tribunal (“NCLT”). (Para 34) 2023 LiveLaw (SC) 250

Reliance Home Finance Insolvency: Supreme Court allows debenture holders to be covered under resolution plan of Authum Investments. 2023 LiveLaw (SC) 173

Resolution Plan could not have been approved by the NCLT on twin reasons, (i) ineligibility of Successful Resolution Applicant in view of Section 88 of the Indian Trust Act; and (ii) the failure of Resolution Applicant to place the revised resolution plan before the CoC prior to seeking approval of the NCLT. 2023 LiveLaw (SC) 403

Resolution professional entitled to take control of corporate debtor's rights in assets licensed to third parties. 2023 LiveLaw (SC) 193

Right of the Financial Creditor to invoke the mechanism under the IBC after issue of recovery certificate stood acknowledged as a valid legal course. (Para 11) 2023 LiveLaw (SC) 914

Sabka Vishwas Scheme: Supreme Court grants relief to company which missed deadline due to IBC moratorium. 2023 LiveLaw (SC) 15

Section 12A does not debar entertaining applications for withdrawal even before constitution of CoC; application cannot be kept pending for constitution of CoC. (Para 35) 2023 LiveLaw (SC) 250

Section 15 of the IBC and Regulation 6 of the IBBI Regulations mandate a public announcement of the CIRP through newspapers. This would constitute deemed knowledge on the appellant. In any case, their plea of not being aware of newspaper pronouncements is not one which should be available to a commercial party. (Para 20) 2023 LiveLaw (SC) 773

Section 238 - Real Estate (Regulation and Development) Act, 2016 - Section 238 of the IBC contains a non obstante clause which gives overriding effect to its provisions. Consequently, its provisions acquire primacy, and cannot be read as subordinate to the RERA Act. (Para 8) 2023 LiveLaw (SC) 894

Section 238 of the IBC overrides the provisions of the Electricity Act, 2003 despite the latter containing two specific provisions which open with non-obstante clauses (i.e., Section 173 and 174) - The provisions of the IBC which treat the dues payable to secured creditors at a higher footing than dues payable to Central or State Government. (Para 49-53) 2023 LiveLaw (SC) 534

Section 240A - Cut-Off date to determine resolution applicant's eligibility under Section 240A is date of submitting resolution plan. 2023 LiveLaw (SC) 1051

Section 240A - Even if MSME registration obtained post commencement of CIRP, promoter eligible to submit resolution plan. 2023 LiveLaw (SC) 1051

Section 31 - After passing of the Resolution Plan under Section 31 of IBC by the Adjudicating Authority and in the light of Section 32A of IBC, the criminal proceedings under Section 138 of the NI Act will stand terminated only in relation to the Corporate Debtor if the same is taken over by a new management. (Para 86) 2023 LiveLaw (SC) 195

Section 31 - Process under the IBC whether under Section 31 or Sections 38 to 41 cannot extinguish criminal proceedings under Section 138 NI Act 1881 against former directors of the corporate debtor. (Para 18) 2023 LiveLaw (SC) 195

Section 5 (7) & (8) - Real Estate (Regulation and Development) Act, 2016; Section 18 - Homebuyers cannot be treated differently from other "financial creditors" under the IBC just because they have secured orders from the authority under the RERA. (Para 8) 2023 LiveLaw (SC) 894

Section 53 - Not all dues owed under statute are treated as 'government' dues - Dues payable to statutory corporations which do not fall within the description “amounts due to the central or state government” such as for instance amounts payable to corporations created by statutes which have distinct juristic entity but whose dues do not constitute government dues payable or those payable into the respective Consolidated Funds stand on a different footing. Such corporations may be operational creditors or financial creditors or secured creditors depending on the nature of the transactions entered into by them with the corporate debtor. On the other hand, dues payable or requiring to be credited to the Treasury, such as tax, tariffs, etc. which broadly fall within the ambit of Article 265 of the Constitution are 'government dues' and therefore covered by Section 53(1)(f) of the IBC. (Para 46) 2023 LiveLaw (SC) 534

Section 53 - The 'waterfall mechanism' - The priority of claims: Firstly, insolvency resolution process costs and the liquidation costs; Secondly, workmen's dues for the period of 24 months preceding the liquidation commencement date and debts owed to a secured creditor in the event such secured creditor has relinquished security; Thirdly, wages and any unpaid dues owed to employees other than workmen for the period of 12 months preceding the liquidation commencement date; Fourthly, financial debts owed to unsecured creditors; Fifthly, any amount due to the central government and the state government and debts owed to a secured creditor for any amount unpaid following the enforcement of security interest; Sixthly, any remaining debts and dues; Seventhly, preference shareholders; and Eighthly equity shareholders or partners. This hierarchy or order of priority thus accords government debts [clause (e)] and operational debts [clause (f)] lower priority than dues owed to unsecured financial creditors. (Para 27) 2023 LiveLaw (SC) 534

Section 53 - The definition of secured creditor in the IBC does not exclude any Government or Governmental Authority. If a resolution plan ignores statutory demands payable to any state government or legal authority, it would be bound to reject the resolution plan. (Para 25, 26) 2023 LiveLaw (SC) 939

Section 53 - the distribution of the assets shall have to be made as per Section 53 of the IBC subject to Section 36(4) of the IBC, in case of liquidation of company under IBC - Exclusion of Sections 326 and 327 of Companies Act 2013 in the event of liquidation of company as per IBC not arbitrary. (Para 18) 2023 LiveLaw (SC) 386

Section 53 - Waterfall mechanism - Complete code - The waterfall mechanism is based on a structured mathematical formula, and the hierarchy is created in terms of payment of debts in order of priority with several qualifications, striking down any one of the provisions or rearranging the hierarchy in the waterfall mechanism may lead to several trips and disrupt the working of the equilibrium as a whole and stasis, resulting in instability. Every change in the waterfall mechanism is bound to lead to cascading effects on the balance of rights and interests of the secured creditors, operational creditors and even the Central and State Government. (Para 16) 2023 LiveLaw (SC) 386

Section 60(5) - Once the Resolution Plan stands approved, no alterations/modifications are permissible. It is either to be approved or disapproved, but any modification after approval of the Resolution Plan by the CoC, based on its commercial wisdom, is not open for judicial review unless it is found to be not in conformity with the mandate of the IBC Code. (Para 22) 2023 LiveLaw (SC) 231

Section 61(2) - Time taken by Tribunal to provide certified copy of order ought to be excluded from computation of limitation. (Para 28) Limitation Act, 1963; Section 12 - Insolvency and Bankruptcy Code, 2016; Section 238A - the date on which the order was pronounced must be excluded while computing limitation for filing of appeal against such order. The NCLAT erred in not excluding date of pronouncement of order while computing limitation. (Para 23) 2023 LiveLaw (SC) 406

Section 66 - the remedy against third party is not available under Section 66 of IBC, and in such circumstances, it is for the Resolution Professional or the successful resolution applicant to take such civil remedies against third party for recovery of dues payable to corporate debtor, and the civil remedies which may be available in law are independent of the said Section. (Para 10) 2023 LiveLaw (SC) 464

Section 9 - Limitation Act, 1963; Section 5 and Article 137 - The limitation period for initiating CIRP under Section 9, IBC is to be reckoned from the date of default, as opposed to the date of commencement of IBC and the period prescribed therefor, is three years as provided by Article 137 - The same would commence from the date of default and is extendable only by application of Section 5 Limitation Act - it is incumbent on the Adjudicating Authority to consider the claim for condonation of the delay when once the proceeding concerned is found filed beyond the period of limitation. (Para 23-24) 2023 LiveLaw (SC) 9

Section 9 - Pre-Existing Dispute - What is to be looked into is the existence or otherwise of a dispute and/or the suit or arbitration proceedings prior to the receipt of demand notice or invoice, as the case may be. (Para 34-38) 2023 LiveLaw (SC) 9

Section 9 - When a petition under Section 9 of IBC is filed based on several invoices and some of the invoices are time barred, then NCLT must consider the remaining invoices which are within limitation and whether they cross the minimum threshold of Rs. 1 Crore. The Section 9 petition cannot be dismissed on the sole ground that some of the invoices are time barred. 2023 LiveLaw (SC) 270

Section 95 to 100 - It cannot read an adjudicatory role into these provisions and that the entire process of timelines would be rendered negatory if the role of adjudicator is changed. For the Court to change the adjudicatory role envisaged under these provisions would amount to "rewriting the legislative functions. The Resolution Profession is just making a recommendatory report and it is not binding and the true adjudicating function commences at Section 100 after the submission of the report. 2023 LiveLaw (SC) 1010

Section 95 to 100 - The role of adjudicating authority commences under Part III after the submission of the recommendation report of Resolution Professional (RP). This is based on intelligible differentia of insolvency of corporates and insolvency of individuals and partnership firms. Though the ultimate report of RP is only recommendatory, the legislature has ensured that the recommendation is made after taking into account the information and explanation by the debtor. 2023 LiveLaw (SC) 1010

Section 95 to 100 - These provisions cannot be held as unconstitutional for not affording an opportunity of hearing to the personal guarantors before the insolvency petition filed by creditors is admitted against them and the moratorium is automatically applied against them as soon as the insolvency petition is filed. The statute (IBC) does not suffer from any manifest arbitrariness to violate Art 14 of the Constitution. 2023 LiveLaw (SC) 1010

Supertech Insolvency: Supreme Court approves 'project wise resolution' plan. 2023 LiveLaw (SC) 436

Supreme Court has declined to grant any interim relief in respect of order passed by the National Company Law Appellate Tribunal (“NCLAT”) directing 'project wise insolvency resolution process' of Supertech Ltd.'s Eco Village-II project. The Bench has observed that constituting Committee of Creditors (CoC) for all the projects of Supertech Limited would affect the ongoing projects and cause hardship to the homebuyers. The Bench has directed that during the pendency of the appeal, any process beyond voting on the Resolution Plan should not be undertaken without specific orders of the Supreme Court in respect to the Corporate Insolvency Resolution Process (CIRP) of Eco Village-II project. 2023 LiveLaw (SC) 436

Supreme Court upholds constitutionality of IBC provisions relating to personal guarantors; says adjudicatory role can't be read into Section 97. 2023 LiveLaw (SC) 1010

Tax and customs dues to be paid as per waterfall mechanism under Section 53. 2023 LiveLaw (SC) 952

There is no and there cannot be any concept of post facto approval of any resolution plan by CoC which had not been placed before it prior to the filing before the Adjudicating Authority. The requirement of CIRP Regulations, particularly of placing the resolution plan in its final form before the CoC, has to be scrupulously complied with. No alteration or modification in the process could be countenanced. We say so for the specific reason concerning law that if the process as adopted in the present matter is approved, the very scheme of the Code and CIRP regulations would be left open-ended and would be capable of inviting arbitrariness at any level. 2023 LiveLaw (SC) 403

Upholds the constitutionality of Section 327(7) of the Companies Act, which excludes workers dues from priority payment in the event of liquidation of a company under the Insolvency and Bankruptcy Code 2016 - The object and purpose of amending the Companies Act 2013 and to exclude Sections 326 and 327 in the event of liquidation of a company under IBC seem to be that there may not be two different provisions in respect to the winding up/ liquidation of a company. Therefore, in view of the enactment of the IBC, it was necessary to exclude the applicability of Section 326 and 327 of the 2013 Act, which cannot be said to be arbitrary, as contended on behalf of the petitioners. (Para 6) 2023 LiveLaw (SC) 386

When matter heard on a particular date but order pronounced later, NCLT not to affix date of hearing on order. 2023 LiveLaw (SC) 1060

Whether the delay in the filing of claim by the appellant ought to have been condoned by the Resolution Professional. Held, The IBC is a time bound process. There are, of course, certain circumstances in which the time can be increased. The question is whether the present case would fall within those parameters. The delay on the part of the appellant is of 287 days. The appellant is a commercial entity. That they were litigating against the Corporate Debtor is an undoubted fact. We believe that the appellant ought to have been vigilant enough in the aforesaid circumstances to find out whether the Corporate Debtor was undergoing CIRP. The appellant has been deficient on this aspect. The result, of course, is that the appellant to an extent has been left high and dry. (Para 19) 2023 LiveLaw (SC) 773