STATUTORY UPDATES

Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2022

  • The Insolvency and Bankruptcy Board of India (IBBI), in exercise of powers conferred under Section 196 read with Section 240 of the Insolvency and Bankruptcy Code, 2016, introduced the following amendments to the IBBI (Liquidation Process) Regulations, 2019 (Liquidation Regulations):
    • An explanation to the existing Regulation 2A (Contributions to liquidation costs) has been inserted which essentially states that the said regulation shall be applicable only to the liquidation processes commenced after the introduction of the Liquidation Regulations i.e. on or after July 25, 2019. The same reads as under:
      • 'Explanation: It is hereby clarified that the requirements of this regulation shall apply to the liquidation processes commencing on or after the date of the commencement of the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019.'
    • Similar amendments have also been made to Regulation 21A (Presumption of security interest) and Regulation 31A (Stakeholders' consultation committee). This has been further clarified by an explanation which states as under:
      • 'Explanation: In relation to the liquidation processes commenced prior to the commencement of the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019, the requirements of this regulation as existing before such commencement, shall apply.'

RECENT JUDGMENTS

Jasani Realty Pvt Ltd v. Vijay Corporation

NCLAT | Commercial Arbitration Application (L) No. 1242 of 2022 | Judgment dated April 25, 2022

Background facts

  • By way of a loan agreement dated April 23, 2015, Vijay Corporation (Respondent) granted a loan of INR 4.5 crore to Jasani Realty Pvt Ltd (Applicant).
  • Due to certain changes in the management of the Applicant, another agreement dated July 5, 2016 was executed between the parties, under which the date of repayment of the borrowing was extended from June 30, 2015 to March 31, 2017.
  • Due to the failure on the part of the Applicant to repay the loan amount, the Respondent approached the NCLT by initiating proceedings against the Applicant under Section 7 of the IBC. During the course of hearing, the matter was adjourned and no order for admission of petition under Section 7(5) had been passed.
  • In the interregnum, the Applicant invoked the arbitration clause as provided in the agreement signed between the parties and called upon the Respondent to agree to appoint an Arbitral Tribunal to adjudicate the disputes and differences between the parties under the said loan agreement.
  • As the Respondent failed to agree to appoint an Arbitral Tribunal, the Applicant filed an Application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (Act) seeking the appointment of an Arbitral Tribunal.
  • The said Application was objected by the Respondent primarily on the maintainability since an application for initiation of CIRP of the Applicant remained sub-judice before the NCLT.

Issue at hand?

  • Whether mere filing of a proceeding under Section 7 of the Insolvency and Bankruptcy Code, 2016, would amount to any embargo on the Court considering an Application under Section 11 of the Act to appoint an Arbitral Tribunal?

Decision of the Tribunal

  • The High Court (HC) allowed the application filed by the Applicant and held that mere filing of an Application under Section 7 of IBC cannot create an embargo on the Court considering an Application under Section 11 of the Act.
  • While arriving at this decision, HC relied on the decision of the Supreme Court in the matter titled Indus Biotech Pvt Ltd v. Kotak India Venture (Offshore) Fund1 (Indus Biotech), wherein it was held mere filing of the proceedings under Section 7 of the IBC cannot be treated as an embargo on the Court exercising jurisdiction under Section 11 of the Act, for the reason that only after an Order under Sub-Section (5) of Section 7 of the IBC is passed by the NCLT, the Section 7 proceedings would gain a character of proceedings in rem, which would trigger the embargo precluding the Court to exercise jurisdiction under the Act, and more particularly in view of the provisions of Section 238 of the IBC, which would override all other laws. However, till the time such application filed under Section 7 remains sub judice before the Adjudicating Authority, it cannot have an effect of a proceeding in rem.
  • HC held that the admission of the Petition for consideration of CIRP is the relevant stage to decide the status and the nature of the pendency of the proceedings, and mere filing of the Section 7 proceedings by a creditor cannot be taken to be any triggering of the insolvency process. Hence, the Court concluded that filing of Section 7 which is at pre-admission stage would not be an embargo for the Court to not entertain a Petition filed under Section 11 of Act, that too when there is an arbitration agreement between the parties and invocation of the arbitration agreement has been made.

Footnote

1 (2021) 6 SCC 436

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