Supreme Court Half Yearly Digest 2023: Insolvency And Bankruptcy Code

Companies Act, 2013 - 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) Moser Baer Karamchari Union v. Union of India, 2023 LiveLaw (SC) 386 : 2023 INSC 479

Constitution of India, 1950; Article 142 - 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. Authum Investment and Infrastructure Ltd. v. R.K. Mohatta Family Trust, 2023 LiveLaw (SC) 173 : AIR 2023 SC 1459 : 2023 INSC 205

Delay in filing CIRP application condonable on sufficient reasons. Sabarmati Gas Ltd. v. Shah Alloys Ltd., 2023 LiveLaw (SC) 9: AIR 2023 SC 288 : (2023) 3 SCC 229 : 2023 INSC 10

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) Victory Iron Works Ltd. v. Jitendra Lohia, 2023 LiveLaw (SC) 193 : (2023) 7 SCC 227 : 2023 INSC 230

IBC - Ineligibility of resolution applicant as per S.164(2)(b) Companies Act can't be presumed unless competent authority declares disqualification. M.K. Rajagopalan v Dr. Periasamy Pal ani Gounder, 2023 LiveLaw (SC) 403 : 2023 INSC 486

IBC - No modified resolution plan can be directly placed before NCLT without being finally approved by the CoC. M.K. Rajagopalan v. Dr. Periasamy Palani Gounder, 2023 LiveLaw (SC) 403 : 2023 INSC 486

IBC - Once a resolution plan is approved, no modifications are permissible. SREI Multiple Asset Investment Trust Vision India Fund v. Deccan Chronicle Marketeers, 2023 LiveLaw (SC) 231 : (2023) 7 SCC 295 : 2023 INSC 251

IBC - Principle of commercial wisdom not validate a decision taken by CoC in contravention of law. M.K. Rajagopalan v Dr. Periasamy Pal ani Gounder, 2023 LiveLaw (SC) 403 : 2023 INSC 486

IBC - Resolution professional entitled to take control of corporate debtor's rights in assets licensed to third parties. Victory Iron Works Ltd. v. Jitendra Lohia, 2023 LiveLaw (SC) 193 : (2023) 7 SCC 227 : 2023 INSC 230

IBC | Application under Section 12A for withdrawal of CIRP is maintainable prior to the Constitution of CoC. Abhishek Singh v. Huhtamaki Ppl Ltd., 2023 LiveLaw (SC) 250 : 2023 INSC 308

Insolvency and Bankruptcy Code (Amendment) Act, 2021 - Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - 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. Shekhar Resorts Ltd. v. Union of India, 2023 LiveLaw (SC) 15 : AIR 2023 SC 276 : (2023) 3 SCC 220 : 2023 INSC 15

Insolvency and Bankruptcy Code 2016; 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) Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd., 2023 LiveLaw (SC) 195 : 2023 INSC 232

Insolvency and Bankruptcy Code 2016; 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) Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd., 2023 LiveLaw (SC) 195 : 2023 INSC 232

Insolvency and Bankruptcy Code 2016; 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) Moser Baer Karamchari Union v. Union of India, 2023 LiveLaw (SC) 386 : 2023 INSC 479

Insolvency and Bankruptcy Code, 2016 - 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. M.K. Rajagopalan v Dr. Periasamy Pal ani Gounder, 2023 LiveLaw (SC) 403 : 2023 INSC 486

Insolvency and Bankruptcy Code, 2016 - 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. M.K. Rajagopalan v Dr. Periasamy Pal ani Gounder, 2023 LiveLaw (SC) 403 : 2023 INSC 486

Insolvency and Bankruptcy Code, 2016 - 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) Abhishek Singh v. Huhtamaki Ppl Ltd., 2023 LiveLaw (SC) 250 : 2023 INSC 308

Insolvency and Bankruptcy Code, 2016 - 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) Moser Baer Karamchari Union v. Union of India, 2023 LiveLaw (SC) 386 : 2023 INSC 479

Insolvency and Bankruptcy Code, 2016 - 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) SREI Multiple Asset Investment Trust Vision India Fund v. Deccan Chronicle Marketeers, 2023 LiveLaw (SC) 231 : (2023) 7 SCC 295 : 2023 INSC 251

Insolvency and Bankruptcy Code, 2016 - the 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) Victory Iron Works Ltd. v. Jitendra Lohia, 2023 LiveLaw (SC) 193 : (2023) 7 SCC 227 : 2023 INSC 230

Insolvency and Bankruptcy Code, 2016 - The 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. Victory Iron Works Ltd. v. Jitendra Lohia, 2023 LiveLaw (SC) 193 : (2023) 7 SCC 227 : 2023 INSC 230

Insolvency and Bankruptcy Code, 2016 - The 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) Sanket Kumar Agarwal v. APG Logistics Pvt. Ltd; 2023 LiveLaw (SC) 406 : 2023 INSC 727

Insolvency and Bankruptcy Code, 2016 - the 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. M.K. Rajagopalan v Dr. Periasamy Pal ani Gounder, 2023 LiveLaw (SC) 403 : 2023 INSC 486

Insolvency and Bankruptcy Code, 2016 - the 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. M.K. Rajagopalan v Dr. Periasamy Pal ani Gounder, 2023 LiveLaw (SC) 403 : 2023 INSC 486

Insolvency and Bankruptcy Code, 2016 - The 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. Indiabulls Asset Reconstruction Company Ltd. v. Ram Kishore Arora, 2023 LiveLaw (SC) 436 : AIR 2023 SC 2273 : 2023 INSC 523

Insolvency and Bankruptcy Code, 2016 - 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. M.K. Rajagopalan v Dr. Periasamy Pal ani Gounder, 2023 LiveLaw (SC) 403 : 2023 INSC 486

Insolvency and Bankruptcy Code, 2016; Section 12A - 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) Abhishek Singh v. Huhtamaki Ppl Ltd., 2023 LiveLaw (SC) 250 : 2023 INSC 308

Insolvency and Bankruptcy Code, 2016; 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) Sanket Kumar Agarwal v. APG Logistics Pvt. Ltd; 2023 LiveLaw (SC) 406 : 2023 INSC 727

Insolvency and Bankruptcy Code, 2016; 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) Glukrich Capital Pvt. Ltd. v. State of West Bengal, 2023 LiveLaw (SC) 464

Insolvency and Bankruptcy Code, 2016; 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) Sabarmati Gas Ltd. v. Shah Alloys Ltd., 2023 LiveLaw (SC) 9 : AIR 2023 SC 288 : (2023) 3 SCC 229

Insolvency and Bankruptcy Code, 2016; 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) Sabarmati Gas Ltd. v. Shah Alloys Ltd., 2023 LiveLaw (SC) 9: AIR 2023 SC 288 : (2023) 3 SCC 229

Insolvency and Bankruptcy Code, 2016; 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. Next Education India Pvt. Ltd. v K12 Techno Services Pvt. Ltd., 2023 LiveLaw (SC) 270

Reliance Home Finance Insolvency: Supreme Court allows debenture holders to be covered under resolution plan of Authum Investments. Authum Investment and Infrastructure Ltd. v. R.K. Mohatta Family Trust, 2023 LiveLaw (SC) 173 : AIR 2023 SC 1459 : 2023 INSC 205

Sabka Vishwas Scheme: Supreme Court grants relief to company which missed deadline due to IBC moratorium. Shekhar Resorts Ltd. v. Union of India, 2023 LiveLaw (SC) 15 : AIR 2023 SC 276 : (2023) 3 SCC 220 : 2023 INSC 15

Supertech Insolvency: Supreme Court approves 'project wise resolution' plan. Indiabulls Asset Reconstruction Company Ltd. v. Ram Kishore Arora, 2023 LiveLaw (SC) 436 : AIR 2023 SC 2273 : 2023 INSC 523