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 first quarter of 2022 that discuss and set out the legal position concerning the interpretation and applicability of the provisions of the Insolvency and Bankruptcy Code, 2016 ("IBC") have been summarized below:


Decision dated: 18 January 2022

Citation: 2022 SCC OnLine SC 48

Guarantor barred from being a resolution applicant under Section 29A(h) of IBC if guarantee invoked and insolvency proceedings initiated by similarly situated creditors.

Brief Facts: The respondent, M/s. MBL Infrastructures Limited, had obtained credit facilities which it failed to repay in accordance with the repayment terms and conditions. On account of such default, the personal guarantee of the guarantor was invoked by the lenders. Additionally, the lenders issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 ("SARFAESI Act") and also filed an application under Section 7 of the IBC before National Company Law Tribunal ("NCLT") Kolkata bench, which came to be admitted. Two resolution plans were received by the resolution professional, one of which was submitted by the guarantor. In the meanwhile, a new provision under Section 29A was introduced under the IBC Amendment Ordinance of 2017, which enlists all the persons not eligible to be a resolution applicant ("RA"). The provision under sub-section (h) of Section 29 A states that a person who "has executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor under insolvency resolution process or liquidation under this code" is not eligible to submit a resolution plan.

In the instant case, when the NCLT, Kolkata bench held that the guarantor was eligible to submit a resolution plan under Section 29A(h) of the Code, two appeals were filed before the National Company Law Appellate Tribunal ("NCLAT"), which were subsequently withdrawn. The guarantor's plan got approved by the Committee of Creditors ("CoC") with a majority of 78.5% votes. As the NCLT approved the guarantor's resolution plan in April 2018, the lenders challenged NCLT's order approving the resolution plan before NCLAT. During the pendency of the appeal, section 29A(h) was further amended in 2018 to state that anyone who has "executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this code and such guarantee has been invoked by the creditor and remains unpaid in full or part" is a person who is not eligible to submit be a resolution application. Despite this amendment, in August 2019, NCLAT also approved the guarantor's plan and upheld NCLT's previous order on this issue. Pursuant to NCLAT's reaffirmation, the guarantor's resolution plan came into effect and a fundraising of INR 300 crores was approved of in MBL's annual general meeting. Aggrieved by the NCLAT's order, one of the lenders - Bank of Baroda challenged NCLAT's order before the Supreme Court. In the present case, while considering the facts of the case, it is also imperative to note that the guarantor's submission of a resolution plan took place alongside when the amendment was going on, and thus a judicial interpretation of Section 29A(h) of the IBC was also sought before the Supreme Court under this appeal.

Issue: Whether a guarantor can be eligible to be a resolution applicant and submit a resolution plan?

Decision: The Supreme Court held that the words "such creditor" under Section 29A(h) have to be interpreted to mean similarly placed creditors after the application for insolvency is admitted by the adjudicating authority. Therefore, the criteria for disqualification under the said provision is the invocation of a personal guarantee by a single creditor, even if the application for initiation of insolvency is filed by another creditor. Thus, once an application for insolvency resolution is admitted on behalf of 'a creditor' then the process would be one of rem, and thus, all creditors of the same class would have their respective rights at par with each other. The Apex Court also emphasised that its concern is only from the point of view of the corporate creditors and the corporate debtors. Any other interpretation would lead to an absurdity striking at the very objective of Section 29A, and hence, the IBC. Further, on the issue of whether the plan submitted by the guarantor is ineligible, the court held that the plan is put into operation since 18.04.2018, and as of now, the corporate debtor is a going concern. Therefore, the Court did not interfere with the guarantor's resolution plan while dismissing the appeal.


Decision dated: 5 January 2022

Citation: 2022 SCC OnLine SC 14

NCLT must make a reasonable assessment of the fees and expenses payable to the IRP, and not pass orders in an ad-hoc manner

Brief Facts: The appellant, is the resolution professional and Bank of India is the financial creditor. The appellant submitted a technical and financial bid for appointment as Interim Resolution Professional ("IRP"), and also filed a Section 7 application under IBC against the corporate debtor which was admitted by the NCLT with the appellant as IRP. However, the order was set aside on appeal, and the proceedings were remitted back to the NCLT to adjudicate costs of the Corporate Insolvency Resolution Process ("CIRP") that were to be paid to the appellant by the financial creditor. In pursuance of the order, the financial creditor reimbursed only INR 5,66,667 to the appellant, out of claimed total of INR 14,75,660. When the appellant approached the NCLT for the release of the remaining funds, the NCLAT allowed the application and directed the respondent to disburse funds to the appellant. The order of the NCLT was appealed against by the respondent before the NCLAT, which came to be rejected because expenses had been allowed in full and the consolidated amount allowed as the fee of the resolution professional for the entire period was not unreasonable. The NCLAT based its decision on the principle that fixation of fees is not a business decision depending on the commercial wisdom of the Committee of Creditors ("CoC"). Aggrieved by the same, the matter was brought before the Supreme Court in an appeal.

Issue: Whether the NCLT and NCLAT had considered the reasonableness of the fees claimed by the IRP?

Decision: The Apex Court noted that the appellant had previously submitted a technical and financial bid to the financial creditor, on the basis of which the assignment was awarded. It also made a note of the circular dated 12.06.2018 issued by the Insolvency and Bankruptcy Board of India ("IBBI"), according to which the insolvency professional had to ensure the reasonableness of fees payable to him. Even within the application filed with the NCLAT, the appellant had annexed a statement of costs, the amount which was reimbursed along with the balance dues. However, none of these aspects was considered by the NCLT, which only directed the respondent to pay an amount of INR 5,00,000 + GST towards the fee of appellant without considering the reasonableness or basis of the claim. Additionally, there were no reasons provided by either the NCLT or NCLAT for awarding the appellant the amounts as stated above. Thus, the Supreme Court observed that the NCLT and NCLAT had not adjudged the basis of the claim sufficiently, and set aside the orders of both NCLT and NCLAT and remanded the matter back to the NCLT for a fresh decision within an expedited timeline. It also noted that the tribunals must make a reasonable assessment of the fees and expenses payable to the IRP, and not pass orders in an ad-hoc manner; as an order without reasons would also amount to abdication of jurisdiction.

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