In recent times, several noteworthy judgments have been rendered by the Indian courts and tribunals in matters involving the insolvency law framework. Some decisions rendered in the third quarter of 2021 that discuss the legal position concerning the interpretation and applicability of provisions of the Insolvency and Bankruptcy Code, 2016 been summarised below:
1. Dena Bank v. C. Shivakumar Reddy
Hon'ble Supreme Court
Citation: 2021 SCC Online SC 543
Decision dated: 4 August 2021
The non-payment of an amount awarded under a decree, judgment, or an arbitral award would be covered under the scope of "financial debt" and give rise to a fresh cause of action to initiate insolvency proceedings under the Insolvency and Bankruptcy Code, 2016.
There is no bar in law on amendment of pleadings, or on the filing of additional documents, in a petition filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 at any time before the passing of the final order.
Brief Facts: On 23 December 2011, Dena Bank (Appellant) sanctioned a term loan (Loan) in favor of the second respondent (Corporate Debtor) which was to be repaid in 24 quarterly installments two years after the date of disbursement. The Corporate Debtor defaulted in repayment of its dues under the Loan in September 2013. The account of the Corporate Debtor was declared a Non-Performing Asset (NPA) in December 2013. In December 2014, the Appellant issued a legal notice to the Corporate Debtor calling it to make payment of INR 521.2 million. The Corporate Debtor did not make the repayment. On 1 January 2015, the Appellant initiated proceedings before the Debt Recovery Tribunal, Bangalore (DRT) for recovery of its outstanding dues of approximately INR 521.2 million. By a letter dated 5 January 2015, the Corporate Debtor requested the Appellant to restructure the loan. Similarly, on 3 March 2017, the Corporate Debtor proposed a one-time settlement of the Loan which was rejected by the Appellant.
In March 2017, the DRT passed an order against the Corporate Debtor for recovery of outstanding dues. Accordingly, on 25 May 2017, the DRT issued a recovery certificate in favour of the Appellant. Thereafter, on 19 June 2017, the Corporate Debtor once again proposed a one-time settlement to mutually settle the loan amount. The unpaid dues of the Corporate Debtor were also reflected under liabilities in the annual reports for financial years 2016-2017 and 2017-2018. In October 2018, the Appellant filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). Thereafter, in January 2019, the Appellant sought to place on record additional documents, including the final judgment and order of the DRT dated 27 March 2017 and the recovery certificate issued on 25 May 2017. This request of the Appellant came to be allowed. The Corporate Debtor in February 2019 filed its preliminary objection to the petition filed by the Appellant contending that the same was barred by limitation. In March 2019, the Appellant once again sought to place on record additional documents which included the proposals for one time settlement, and financial statements of the Corporate Debtor from 2016 to 2018 which was allowed.
By an order dated 21 March 2019, the National Company Law Tribunal (NCLT) admitted the petition under Section 7 of the IBC. The objection of Corporate Debtor on grounds of limitation was heard at length but was rejected by the NCLT. The first respondent filed an appeal before the National Company Law Appellate Tribunal (NCLAT) against the decision of the NCLT. The NCLAT allowed the appeal and dismissed the petition filed by the Appellant under Section 7 of the IBC holding that the said application was barred by limitation. The matter eventually reached the Hon'ble Supreme Court where the moot questions were identified as follows:
- Whether a petition under Section 7 of the IBC would be barred by limitation on the sole ground that it was filed 3 years from the date of declaration of the loan account as NPA even though the Corporate Debtor might subsequently have acknowledged its liability?
- Whether the passing of a final judgment or decree of the DRT or issuance of a recovery certificate in favour of the financial creditor would give rise to a fresh cause of action to the financial creditor to initiate proceedings under Section 7 of the IBC?
- Whether there is any bar in law on amendment of pleadings in a petition under Section 7 of the IBC or on the filing of additional documents?
Held: At the outset, the Hon'ble Supreme Court in the instant matter referred to the object of the IBC. It was observed that the IBC is a beneficial legislation aimed at promoting inter alia investments and also resolution of insolvency of corporate persons. Reliance was placed on the decision in Swiss Ribbons Private Limited v. Union of India1 to reiterate that unlike coercive recovery litigation, the Corporate Insolvency Resolution Process (CIRP) under the IBC is not adversarial to the interests of the Corporate Debtor. Thus, the Apex Court held that the provisions of the IBC must be construed liberally in a purposive fashion to further the object of the IBC and not be given a narrow, pedantic interpretation which defeats the very purpose of the statute.
It was noted that a financial creditor was required to apply under Section 7 of the IBC, under statutory "Form 1" which allowed the applicant to fill only the specified particulars. Therefore, there was no scope for elaborate pleadings as in case of plaints in a suit. Consequently, the Hon'ble Supreme Court observed that a Section 7 petition could not be viewed through the same lens as a plaint in a suit. The provisions under Sections 7(2) to 7(5) were then referred to hold that the adjudicating authority is obligated to ascertain the existence of the default on the basis of the records of an information utility or evidence furnished by the financial creditor. It was clarified that the 14-day period stipulated in Section 7(4) to ascertain the existence of a default was only directory in nature and not mandatory. Based on these observations, the Hon'ble Supreme Court held that on a careful reading of the provisions of the IBC specifically Sections 7(2) to 7(5) with the Insolvency and Bankruptcy (Application to Adjudicating Authority Rules), 2016, there was no bar on filing of documents at any time until a final order either admitting or dismissing the application was passed. However, it was clarified that where there was an inordinate delay, the adjudicating authority may at its discretion decline the request to file additional pleadings or documents and proceed to pass a final order.
The Apex Court then clarified that the decision in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Private Limited2 was not an authority for the proposition that there can be no amendment of pleadings at the fag end of the NCLT proceeding. Moreover, it was observed that in the instant matter, the amendments were made within 2-3 months of the initiation of the proceedings before the admission of the Section 7 petition.
On limitation, it was observed by the Hon'ble Supreme Court that as per Section 18 of Limitation Act, 1963 (Limitation Act) an acknowledgement of a subsisting liability made in writing had the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. Such acknowledgement need not be accompanied by a promise to pay expressly or even by implication. However, the acknowledgement must be made before the relevant period of limitation has expired. The Hon'ble Supreme Court relied on the decision in Sesh Nath Singh v. Baidyabati Sheoraphuli Cooperative Bank Ltd.3 to reiterate that the IBC does not exclude the application of the Limitation Act. Therefore, there was no reason to suppose that Section 18 of the Limitation Act would not apply to proceedings under Section 7 or 9 of the IBC. Further, the Apex Court observed that it was well settled that entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgment under Section 18 of the Limitation Act.
The Hon'ble Supreme Court concluded that the finding of the NCLAT was not sustainable in law. The Apex Court relied upon the statement of accounts, balance sheets, and offer for one time settlement to hold that the petition under Section 7 was well within the limitation period of three years. Moreover, it was also noted that the Corporate Debtor had failed to pay the dues in terms of the recovery certificate issued by DRT in the instant matter which also gave a fresh cause of action to the Appellant. Resultantly, the Apex Court held that a final judgment, and/ or decree of any court or tribunal, or any arbitral award for money, if not satisfied would fall within the ambit of a financial debt enabling a financial creditor with a fresh cause of action to initiate proceedings under Section 7 of the IBC.
The Hon'ble Supreme Court concluded that the decision of the NCLT to allow the request of the Appellant for filing of additional documents with supporting pleadings, and to consider such documents and pleadings did not call for interference in appeal. Accordingly, the appeal was allowed and the order of the NCLAT was set aside.
2. Anjali Rathi and Ors. v. Today Homes & Infrastructure Pvt. Ltd. and Ors.
Hon'ble Supreme Court
Citation: 2021 SCC OnLine SC 729
Decision dated: 8 September 2021
A moratorium declared under Section 14 of the Insolvency and Bankruptcy Code, 2016 applies only to proceedings in respect of the corporate debtor and not its directors or management.
Brief Facts: Homebuyer agreements (Agreements) were entered into between the eleven petitioners and the first respondent. The Agreements envisaged that the possession of the apartments would be delivered within a period of 36 (thirty-six) months. The petitioners in the instant matter were aggrieved as the developer abandoned the project. As a result, several rounds of litigation ensued amongst the parties, including insolvency proceedings initiated by an operation creditor against the respondent. The National Company Law Tribunal (NCLT) admitted the petition under Section 9 of the IBC, following which the Corporate Insolvency Resolution Process (CIRP) was initiated and a moratorium was declared under Section 14 of the IBC. Thereafter, the petitioners participated in the proceedings before the resolution professional (RP) and the Committee of Creditors (CoC). The CoC approved the resolution plan submitted by the consortium of homebuyers, and the proceedings were pending before the NCLT awaiting further approval under Section 31(1) of the IBC. The petitioners urged that the Hon'ble Supreme Court should direct that the personal properties of the promoters be attached given the provisions contained in the resolution plan. Hence, the present matter.
Held: The Hon'ble Supreme Court, at the outset, held that the resolution plan is still to be approved by the NCLT under Section 31(1) of the IBC. Hence, at this stage, when the resolution plan awaited approval, it would not be appropriate to issue a direction allowing the personal properties of the promoters to be attached. Accordingly, the NCLT was directed to dispose of the approval of the application within six weeks from the receipt of a certified copy of the present order. Further, the Hon'ble Supreme Court held that since the moratorium under Section 14 of the IBC was declared in respect of the corporate debtor, no new proceedings could be undertaken or pending ones could be continued against the corporate debtor. However, the Apex Court clarified that the petitioners had the right to move against the promoters of the corporate debtor, even though a moratorium had been declared under Section 14 of IBC.
The Hon'ble Supreme Court referred to the judgment in P. Mohanraj v. Shah Bros. Ispat (Pvt.) Ltd.4 wherein it was held that the moratorium under Section 14 of the IBC was only in relation to the corporate debtor and not in respect of its directors and management, against whom proceedings could continue. However, as held earlier, the Apex Court could not issue such a direction relying on the resolution plan, given that it is still pending before the NCLT. The petitioners were granted the liberty to take recourse to the remedies available in law after the decision of the NCLT on the approval of the application under Section 31(1), and subject to the consequences thereafter.
3. Jayesh N. Sanghrajka erstwhile R.P. of Ariisto Developers Pvt. Ltd. v. Monitoring Agency nominated by Committee of Creditors of Ariisto Developers Pvt. Ltd.
Hon'ble Supreme Court
Case Number: Company Appeal (AT) (Insolvency) No. 392 of 2021
Decision dated: 20 September 2021
Brief Facts: The appeal in the instant matter before the NCLAT was filed by the RP (Appellant) of Ariisto Developers Pvt. Ltd. (Corporate Debtor). The respondent, monitoring agency of the Corporate Debtor is a formal party to the matter. The appeal was filed against the observations and findings of the National Company Law Tribunal, Mumbai Bench (NCLT/ Adjudicating Authority). By the impugned order, the Adjudicating Authority while approving the resolution plan of the successful resolution applicant denied the success fee of INR 30 million to the Appellant as decided by the Committee of Creditors (CoC). The Appellant being aggrieved with the order of the Adjudicating Authority, filed an appeal before the NCLAT. The Appellant contended that the approval of success fee was a commercial decision of the CoC and the NCLT could not have interfered with the same while approving the resolution plan and directing distribution of the amount set apart for success fees. The NCLAT appointed an advocate for assisting the court as Amicus Curiae (Amicus Curiae). The issue in the present matter was whether the Appellant could charge a success fee, more specifically in the manner that it was sought to be charged.
The Amicus Curiae referred to the chart of Corporate Insolvency Resolution Process (CIRP) expenses prepared for the CoC. The CIRP expenses carried an entry namely 'success fees' with an asterisk and a fine print footnote stating the amount of success fees was to be decided by the CoC. The Appellant in his appeal referred to various efforts made by him during the course of the CIRP. It was argued by the Appellant that the assets of the Corporate Debtor were worth INR 10.89 billion and the same were handled and safeguarded by the Appellant. The Appellant also stated that there were more than 20 hearings conducted before the NCLT, NCLAT, and the Hon'ble Supreme Court involving hundreds of financial creditors and homebuyers. The Appellant emphasized that he successfully convened CoC meeting and got the CoC's approval on the resolution plan. At most, the Appellant submitted that the issue could only be of reasonableness of success fees which could only be considered by the CoC.
The Appellant then placed reliance on a circular dated 12 June 2018 in which the IBBI invited suggestions for fee and expenses incurred for CIRP (Circular). Annexure B of the Circular stated that an insolvency professional may use, inter alia, a success or contingency fee to charge fee for carrying out different duties. The Appellant relied on the multiple decisions5 to contend that the NCLT or the NCLAT could not interfere with the commercial decisions of the CoC.
The Amicus Curiae submitted that in the IBC and the Regulations, there is no express provisions for grant of success fee. The Amicus Curiae submitted that an insolvency resolution professional could only charge renumeration in a transparent manner and such renumeration should be a reasonable reflection of the work performed and services rendered. It was against the principle of transparency if an insolvency resolution professional at the last moments of approval of a resolution plan squeezed a hidden fee into the resolution plan. Moreover, according to the Amicus Curiae, the Circular relied upon by the Appellant did not provide prescribe, recommend, promote, endorse, or sanctify the payment of success fee. In any case, the Circular could not be equated with the Rules and Regulations framed under the provisions of the IBC. The Amicus Curiae argued that the fee of an insolvency resolution professional had to be directly related to the acts done or expenses incurred which are necessary for the CIRP.
Held: The NCLAT, at the outset, observed that while approving the fee to be provided to the resolution professionals, the CoC must ensure that the same is reasonable under the provisions of the IBC and the Regulations, and it is justiciable. The NCLAT agreed with the submissions of the Amicus Curiae in this regard. It was observed that pushing in a big amount of fee at the last moment in the name of success fee and making it a part of CIRP costs does not make the same a commercial decision of the CoC. The NCLAT approved of the Amicus Curiae's reliance on the decision in Alok Kaushik v. Bhuvaneshwari Ramanathan & Ors.6 where the Apex Court held that the NCLAT had the powers to determine the fee and expenses payable to a professional. In view of the arguments presented by the Amicus Curiae, and the reasons recorded by the NCLAT, it was held that the success fee could not be charged in the instant matter. The NCLAT observed that even if it is said to be chargeable, the manner of approving the fee of INR 30 million at the last moment was held to be improper and incorrect. Accordingly, the appeal was dismissed.
4. Orator Marketing Pvt. Ltd. v. Samtex Desinz Pvt. Ltd.
Hon'ble Supreme Court of India
Citation: 2021 SCC OnLine SC 513
Decision dated: 26 July 2021
Interest free loans fall within the definition of 'Financial Debt' as defined under Section 5(8) of the Insolvency and Bankruptcy Code, 2016.
Brief Facts: In the instant matter, an interest free term loan of INR 16 million was disbursed to the corporate debtor for a two-year period. During the pendency of the loan, it was assigned to Orator Marketing Pvt. Ltd. (Appellant). According to the Appellant, the loan was due to be repaid in full by the corporate debtor within 1 February 2020. However, the corporate debtor failed to repay the loan payments and a total of INR 15.6 million remained outstanding. The Appellant filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The petition came to be rejected by a judgment and an order of the National Company Law Tribunal (NCLT) dated 23 October 2020. The NCLT referred to two cases7 and held that the loan disbursed by the Appellant to the corporate debtor was in nature of an interest free loan and was not covered by the Section 5(8)(f) of the Insolvency and Bankruptcy Code, 2016 (IBC). Aggrieved by the decision of the NCLT, the Appellant filed appeal before the National Company Law Appellate Tribunal (NCLAT) under Section 61 of the IBC. The appeal was dismissed by NCLAT which upheld the findings of the NCLT. The order of the NCLAT was then appealed before the Hon'ble Supreme Court. The moot question before the Hon'ble Supreme Court was whether interest free loans would fall within the ambit of a financial debt under Section 5(8)(f) of the IBC.
Held: The Hon'ble Supreme Court at the outset held that the NCLAT and NCLT misconstrued the definition of financial debt in Section 5(8) of the IBC, by reading the same in isolation and out of context. The Apex Court observed that in construing/ or interpreting any statutory provision, one must look into the legislative intent of the statute. The decisions in Innoventive Industries Ltd. v. ICICI Bank Ltd.8 and Swiss Ribbons Pvt. Ltd. v. Union of India and Ors.9 were referred to discuss the scheme of the IBC. It was reiterated that the scheme of the IBC was to ensure that when a default takes place, in the sense a debt becomes due and is not paid, the insolvency resolution begins. Default under Section 3(12) is defined in very wide terms as meaning non-payment of debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. The primary focus of the IBC is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from a corporate death by liquidation. The IBC therefore is a beneficial legislation.
The Hon'ble Supreme Court observed that the definition of financial debt under Section 5(8) of the IBC means "a debt along with interest if any which is disbursed against the consideration of time value of money and includes money borrowed against the payment of interest", as per Section 5(8)(a) of the IBC. The Apex Court opined that the NCLT and NCLAT overlooked the words "if any" which could not have been intended to be otiose. It was also noted that the NCLAT and NCLT failed to take notice of clause (f) of Section 5(8) in terms whereof financial debt includes any amount raised under any other transaction, having the commercial effect of borrowing. Furthermore, the Apex Court observed that sub-clauses (a) to (i) of Section 5(8) of the IBC were apparently illustrative and not exhaustive.
The Apex Court at the cost of reiteration held that the trigger for initiation of the Corporate Insolvency Resolution Process by a financial creditor under Section 7 of the IBC was the occurrence of a default by the corporate debtor. 'Default' means non-payment of debt in whole or part when the debt has become due and payable and debt means a liability or obligation in respect of a claim which was due from any person and includes financial debt and operational debt. The definition of 'debt' is also expansive and the same includes inter alia financial debt. The definition of 'Financial Debt' in Section 5(8) of IBC does not expressly exclude an interest free loan. 'Financial Debt' would have to be construed to include interest free loans advanced to finance the business operations of a corporate body.
Accordingly, the appeal was allowed. The judgment and order of the NCLAT were set aside. The petition under Section 7 was revived and left to be decided afresh in accordance with law and in light of the findings of the Apex Court.
5. Pratap Technocrats (P) Ltd. & Ors. v. Monitoring Committee of Reliance Infratel Ltd. & Anr.
Hon'ble Supreme Court
Citation: 2021 SCC OnLine SC 569
Decision dated: 10 August 2021
The jurisdiction of the National Company Law Tribunal and the National Company Law Appellate Tribunal does not extend upon business decisions made through requisite majority voting of the Committee of Creditors in its commercial wisdom.
Brief Facts: The matter revolves around the Corporate Insolvency Resolution Process (CIRP) initiated under the Insolvency and Bankruptcy Code, 2016 (IBC) against the Reliance Infratel Ltd. (RIL) vide order dated 15 May 2018 by the National Company Law Tribunal (NCLT). Upon the initiation of the CIRP, an interim resolution professional (IRP) was appointed and Committee of Creditors (CoC) was formed. The IRP was later replaced by one Mr. Anish Niranjan as the resolution professional (RP). The RP invited "expressions of interest" from prospective resolution applicants. The RP received resolution plans from four prospective resolution applicants namely: (i) Bharti Airtel Ltd.; (ii) Reliance Digital Platform and Project Services Ltd., through its division Infrastructure Projects, (iii) VSFI Holdings Pte Ltd.; and (iv) UV Asset Construction Company Ltd.
Upon discussions between the CoC and the prospective resolution applicants, the plan submitted by Reliance Digital Platform and Project Services Ltd. (Resolution Applicant) was approved by CoC with 100 per cent voting share based on feasibility, viability, and implement ability.
An application was submitted under Section 30(6) of the IBC by the RP seeking the approval of the resolution plan by the National Company Law Tribunal (NCLT). The resolution application came to be approved by the NCLT on 3 December 2020. In the process of deciding the impugned, the NCLT noted that a financial creditor namely Doha Bank had instituted proceedings challenging the admission of the claims of a few other creditors and the decision of the RP to recognize the indirect lenders of the corporate debtor as financial creditors. The NCLT held that the pendency of these proceedings would not come in way of approval of the resolution plan, particularly since it had been unanimously approved by the CoC. However, it was clarified that the distribution of payments to creditors, financial or operational, shall be subject to the orders which are passed in the interim applications, within the ambit of the IBC.
The operational creditors (Appellants) challenged the decision of the NCLT approving the resolution plan in appeal before the NCLAT. The grounds of challenge of the appellants included, amongst other things, grounds such as material irregularities in the accumulation and disbursal of funds that constituted the corpus of the corporate debtor. The NCLAT by its judgment rejected the appeal. The NCLAT held that there was no substance in the grievance that the Appellants had been unfairly or inequitably treated in regard to the distribution of funds. The NCLAT also clarified that the Appellants as operational creditors could not stand on the same footing as the financial creditors. The matter eventually reached the Hon'ble Supreme Court. The question before the Apex Court was whether the NCLT and the NCLAT had the jurisdiction of entering upon the merits of a business decision made through a majority of the CoC.
Held: The Hon'ble Supreme Court noted that the resolution plan was approved by the CoC, in compliance with the provisions of the IBC. The Apex Court held that the jurisdiction of the NCLT under Section 31(1) was to determine whether the resolution plan, as approved by the CoC complied with the requirements of Section 30(2). It was observed that the NCLT was within its jurisdiction in approving the resolution plan which accords with the IBC. The Apex Court reiterated that there was no equity-based jurisdiction with the NCLT, under the provisions of the IBC.
The Apex Court noted that in the present case, the resolution plan had been duly approved by a requisite majority of the CoC in conformity with Section 30(4) of the IBC. Whether or not some of the financial creditors were required to be excluded from the CoC was of no consequence, once the plan was approved by a 100 per cent voting share of the CoC. The jurisdiction of the NCLT was confined by the provisions of Section 31(1) of the IBC to determining whether the requirements of Section 30(2) had been fulfilled in the plan as approved by the CoC. As such, once the requirements of the statute have been duly fulfilled, the decisions of the NCLT and the NCLAT are in conformity with law.
6. Kay Bouvet Engineering Ltd. v. Overseas Infrastructure Alliance (India) Pvt. Ltd.
Hon'ble Supreme Court of India
Citation: 2021 SCC OnLine SC 570
Decision dated: 10 August 2021
Operational creditor's application under Section 9 of the Insolvency and Bankruptcy Code for initiation of insolvency proceedings can be rejected if a dispute between the operational creditor and the corporate debtor exists in fact supported by evidence, and is not spurious or illusionary in nature.
Brief Facts: The Government of India extended a USD 150 million to Republic of Sudan through Exim Bank of India (Exim Bank) for carrying out Mashkour Sugar Project in Sudan (Project) in two tranches of USD 25 million and USD 125 million. In furtherance of the Project, on 11 October 2019, a company namely Mashkour Sugar Company Ltd. (Mashkour) entered into an agreement with Overseas Infrastructure Alliance (India) Pvt. Ltd. (OIAPL). As per the agreement, Mashkour was to nominate a sub-contractor. A subsequent agreement was entered into on 14 April 2010, between Mashkour and OIAPL for payment of USD 25 million towards certain design and engineering works relating to the Project. In response to the invitation by Mashkour, Kay Bouvet Engineering Ltd. (Appellant) submitted its bid as a sub-contractor for supply, erection, and completion of the Sugar Plant at Sudan which was accepted by Mashkour. A tripartite agreement was executed between the three parties through which the Appellant was appointed as a sub-contractor for executing the whole work of designing and engineering the sugar factory plant for an amount of USD 106.200 million. Disputes emerged amongst the parties on account of various aspects. Eventually, on 15 June 2017, Mashkour terminated its agreement with OIAPL. Consequently, a suit was filed at the High Court of Bombay (High Court) by OIAPL seeking specific performance of the agreement and an order of injunction from appointment of the Appellant as the contractor for the Project. The prayer for the ad interim relief came to be rejected by the High Court. A demand notice under Section 8 of the IBC was served upon the Appellant by OIAPL claiming an amount of USD 106.200 million. In December 2017, OIAPL claiming itself to be an operational creditor, filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal (NCLT). In July 2018, NCLT dismissed OIAPL's petition. OIPAL carried the same in an appeal before the National Company Law Appellate Tribunal (NCLAT). The NCLAT by its impugned order allowed the appeal. Being aggrieved thereby, the Appellant approached the Hon'ble Supreme Court.
Held: The Hon'ble Supreme Court reiterated the law laid in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd.10 that one of the objects of the IBC qua operational debts was to ensure that the amount of such debts, which are usually smaller than that of financial debts, do not enable operational creditors to put the corporate debtor into the insolvency resolution process prematurely or initiate the process for extraneous considerations. The Apex Court opined that the adjudicating authority is required to see at the stage of admission of the petition whether there is a plausible contention which requires further investigation. It is for this reason that a mere existence of dispute between the parties was sufficient to derail the operational creditors attempt to initiate corporate insolvency resolution process. The Apex Court held that the dispute pointed out by Kay Bouvet in the instant matter could not be said to be spurious, illusionary, or not supported by evidence. In view of these findings, the Hon'ble Supreme Court concluded that the NCLT rightly rejected the Section 9 application of OIAPL. Accordingly, the appeal was allowed and impugned order passed by NCLAT was set aside.
1 Swiss Ribbons Private Limited v. Union of India, 2019 4 SCC 17.
2 Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Private Limited, 2020 SCC OnLine SC 647.
3 Sesh Nath Singh v. Baidyabati Sheoraphuli Coop. Bank Ltd., 2021 SCC OnLine SC 244.
4 P. Mohanraj v. Shah Bros. Ispat (Pvt.) Ltd., 12 (2021) 6 SCC 258.
5 Authorised Signatory v. Satish Kumar Gupta & Ors., Civil Appeal No. 8766-67 of 2019; K. Sashidhar v. Indian Overseas Bank and Ors, 2019 SCC OnLine SC 257.
6 Alok Kaushik v. Bhuvaneshwari Ramanathan & Ors., 2015 5 SCC 787.
7 Dr. B.V.S. Lakshmi v. Geometrix Laser Solutions Private Ltd., 2017 SCC OnLine NCLT 458; Shreyans Realtors Pvt. Ltd. and Anr. v. Saroj Realtors & Developers Pvt. Ltd., 2018 SCC OnLine NCLAT 945.
8 Innoventive Industries Ltd. v. ICICI Bank Ltd., 2018 1 SCC 407.
9 Swiss Ribbons Pvt. Ltd. v. Union of India and Ors., 3 (2019) 4 SCC 17.
10 Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., 2018 1 SCC 353.
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