Vidarbha Industries Power Limited v. Axis Bank Limited (Civil Appeal No. 4633 of 2021):
Previously there existed a mechanical role of the National Company Law Tribunal ("NCLT") in CIRPs initiated by a financial creditor under Section 7 of the Code. However, in this judgment, the Supreme Court held that there exists a discretionary power to admit or reject a petition despite the financial creditor satisfying the debt and default test or twin test.
In this case, Vidharbha Industries was a power generation company and there was a sum of INR 1,730 crores realisable by it in terms of the order of the Appellate Tribunal for Electricity ("APTEL"). In light of the order, the Supreme Court came to the conclusion that the amount receivable was more than the claim amount and therefore the touchstone for initiating the insolvency does not lie in a mechanical exercise of jurisdiction in the admission of CIRPs under Section 7 of the Code. Moreover, the Court also gave the reasoning that the literal interpretation of Section 7(5)(a) would indicate that the word "may" is used to indicate the discretion of the Court which is unlike the case in Section 9(5)(a) where the word "shall" is used.
The judgment of the Supreme Court should be read in the fact-specific context. Industrywatchers have criticised the judgment arguing that a general principle of this sort can certainly add to ambiguities and delays.
Rajiv Chakraborty, Resolution Professional of EEIL (Delhi High Court) (W.P.(C) 9531/2020):
The Delhi High Court gave a reasoning that the proceedings under the Prevention of Money Laundering Act, 2002("PMLA") would continue despite the moratorium applying to the Corporate Debtor. The Court held that the moratorium is imposed for the preservation of assets of the company, however, the PMLA operates in a different sphere that deals with attaching assets from the proceeds of a crime.
State Tax Officer v. Rainbow Papers Limited (Civil Appeal No. 1661 and 2568 of 2020):
The Supreme Court had to deal with an issue where the government sought the first charge on the property of the Corporate Debtor in lieu of the taxes, interest, and penalty due. Moreover, there was also an issue regarding whether other statutes providing the first charge can override Section 53 of the Code. The State Tax Officer had claimed the statutory dues according to Section 48 of the Gujarat Value Added Tax Act, 2003 ("GVAT Act"), which provides for the first charge on the property of a dealer in respect of any amount payable by the dealer.
The Supreme Court opined that if a resolution plan excludes the statutory dues payable, such a resolution plan is liable to be rejected by the NCLT. In the present case, the debt owed to a secured creditor was ranked equal to the security interest in favour of the government in lieu of the statutory dues under the GVAT Act.
NOIDA v. Anand Sonbhadra (Civil Appeal No. 2222 of 2021):
NOIDA was a lessor under Section 3 of the Uttar Pradesh Industrial Area Development Act, 1976 in respect of a plot leased to the Corporate Debtor on 30.07.2010 for a period of 90 years. Thereafter, CIRP of the Corporate Debtor was initiated wherein NOIDA initially filed its claim as an Operational Creditor. NOIDA filed another claim to be a Financial Creditor on the basis of the Lease Deed entered into between NOIDA and the CD while contending that the same is a Financial Lease.
The Hon'ble NCLT, New Delhi Bench held that the lease deed in question was not a financial lease according to the Indian Accounting Standards ("IndAS") and thus, the Appellant cannot be said to be an FC. The Supreme Court upheld the decision of the NCLT while interpreting Section 5 (7) and Section 5 (8) of the Code and clarified that NOIDA can only be considered as an operational creditor.
Bank of Baroda v. MBL Infrastructure Limited and Ors. (Civil Appeal No. 8411 of 2019):
There was a guarantee issued in favour of the creditor of a Corporate Debtor by the person who had executed a personal guarantee in favour of the creditor of the Corporate Debtor for its availed credit. The issue arose before the Supreme Court that whether such a person was eligible to present a resolution plan or the eligibility was hit by Section 29A(h) of the Code. The Court held that the mere existence of such an agreement of guarantee even if invoked by a creditor other than the one who initiated CIRP is enough to earn a disqualification.
M/s Consolidated Construction Consortium Limited v. Hitro Energy Solutions Private Limited (Civil Appeal 2839 of 2020):
There was an advance payment made by the Chennai Metro Rail Corporation to the respondent. However, on termination of the project, the Respondent defaulted, and the Supreme Court held that such an amount can be considered operational debt relying upon their ruling in Pioneer Urban Land and Infrastructure Limited v. Union of India (2019) 8 SCC 416.
Sundresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs (Civil Appeal No. 7667 of 2021):
The Supreme Court opined that the Customs Act, 1962 ("Customs Act") and the Code operate in parallel in their own spheres. In case of any conflict, the Code overrides the Customs Act as it is a special legislation. Hence, if a moratorium is imposed in terms of sections 14 or 33(5) of the Code, the moratorium will prevail and the customs authority should submit its claims timely in terms of the procedure laid down under the Code. The customs authority cannot enforce a claim for recovery or levy of interest on the tax due during the period of moratorium.
Amit Katyal v. Meera Ahuja and Ors. (Civil Appeal No. 3778 of 2020):
Some minority homebuyers had filed for the re-initiation of CIRP of the Corporate Debtor i.e., the developer. Earlier, there had been a withdrawal due to settlement by the majority of homebuyers. In the present case, 82 out of 128 homebuyers were against the CIRP.
The Supreme Court in light of the settled law that the homebuyers who are considered financial creditors in a class can initiate the CIRP only when they are 10% of total homebuyers or 100 aggrieved homebuyers of the Corporate Debtor. However, they applied Article 142 of the Constitution of India, 1950, stating that the threshold was an advantage to the homebuyers as the homebuyers are unsecured creditors and a CIRP of the Developer when the majority of homebuyers have agreed to a settlement, any tangential or mechanical approach cannot be to the benefit of homebuyers. `
Indian Overseas Bank v. RCM Infrastructure (Civil Appeal No. 4750 of 2021):
There was a parallel proceeding going under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFESI Act"), while the CIRP was ongoing under the Code and therefore moratorium under Section 14 of the Code was into effect. The Supreme Court in the case stated that since the moratorium was already in effect any order of foreclosure, recovery or any order of enforcement of security interest including the proceeds under the SARFESI Act cannot take effect as there was a moratorium that had come into play.
Further, the Supreme Court also held that even if the commencement of sale occurred prior to the initiation of CIRP, the date of completion of the sale in the exercise of powers conferred on it under Section 13(4) of the SARFAESI Act read with Rule 8 of the Security Interest (Enforcement) Rules, 2002 falls under moratorium period and thus could not be effected.
Asset Reconstruction Company Limited v. Tulip Star Hotels Private Limited and Ors. (Civil Appeal No. 84-85 OF 2020):
The Supreme Court observed that the timeline of fourteen days in determining the existence of default is a directory provision and not mandatory one. The applicability of limitation was also discussed in the present case. The entries in the books of accounts or acknowledgment in the balance sheet of the corporate debtor would mean that there is an existence of continuing liability and section 18 of the Limitation Act, 1963 would apply. The Supreme Court further clarified that for the purpose of calculating of limitation period of three years, each time the limitation would get extended when there is the existence of an acknowledgment of debt in any of the firms specified above.
Vallal RCK v. M/s Siva Industries and Holdings Limited and Ors. (Civil Appeal No. 1811-1812 of 2022).
In the present case, a CIRP had been initiated against the Corporate Debtor i.e., M/s Siva Industries and Holdings Limited. The validity of Section 12 A was upheld as was also done in Swiss Ribbons v. Union of India (2019) SCC Online SC 73. Further, it had to be decided whether a subsequent settlement agreement after an application of liquidation was made could be entered into. In the present case, there was a one-time settlement agreement passed by the CoC members. The Supreme Court gave reasoning that nothing in the Code disallows a settlement post admission of CIRP and the NCLT cannot sit over the commercial wisdom of the CoC , when it has decided to enter into such a settlement agreement.
Kiran Shah v. Enforcement Directorate (NCLAT) Company Appeal AT (Insolvency) No. 817 of 2021.
In Kiran Shah, the NCLAT held that a moratorium that was applicable to the Corporate Debtor does not affect the proceedings under the Prevention of Money Laundering Act, 2002 ("PMLA").
Kotak Mahindra Bank v. Kew Precision Parts Private Limited and Others. (Civil Appeal No. 2176 of 2020):
The Supreme Court while relying upon section 5 of the Limitation Act, 1963 and its precedent set in B.K. Educational Services (P) Ltd. Associates v. Parag Gupta (2019) 11 SCC 633 held that NCLT/ NCLAT has the discretion to entertain an application/appeal after the prescribed period of limitation and that the condition precedent for exercise of such discretion is the existence of sufficient cause for not preferring the appeal and/or the application within the period prescribed by limitation. It further reiterated the principle laid down in its earlier judgments that section 18 of the Limitation Act, 1963 would be applicable to applications filed under the IBC, and therefore, an acknowledgment made in writing within the period of limitation extends the period of limitation.
Mahendra Kumar Jajodia v. State Bank of India C.A. No. 1871-1872 of 2022
Supreme Court in the present matter and several other matters like Gurmeet Singh Sodhi v. Union of India and Ors. Writ Petition(s) (Civil) No(s).307/2022 issued an interim stay on personal guarantor insolvencies. Further, the constitutional challenge to these provisions of personal insolvency provisions under the Code is on the basis that the provisions violate principles of natural justice as they do not give opportunity to the personal guarantor to be heard before the appointment of insolvency petition and the appointment of Resolution Professional.
Axis Trustee Services Limited v. Brij Bhushan Singhal, CS(COMM) 8/2021
The Delhi High Court ruled that just because an interim moratorium was in effect with regard to one of the co-guarantors, that does not mean that all of the co-guarantors would fall under the provisions of interim moratorium of Section 96 of the Code.
Maitreya Doshi Vs. Anand Rathi Global Finance Ltd. and Anr. (Civil Appeal No. 6613 of 2021):
In a landmark ruling, the Supreme Court relying on the judgment of Lalit Kumar Jain v. Union of India 2021 SCC OnLine SC 396 held that the liability of the co-borrower is coextensive. It was held that when there are two borrowers and if such two borrowers being two corporate bodies fall within the ambit of corporate debtors, there is no reason why proceedings under Section 7 of the Code cannot be initiated against both the Corporate Debtors. Moreover, the liability cannot extinguish against the other co-borrower merely on the fact that a resolution was brought against the other co-borrower. Further, it was also stated by the Supreme Court the balance may be realised from the other Corporate Debtor being the co-borrower but it cannot be realised twice for the same amount. For instance, if all the claims of the Financial Creditor were discharged an excessive liability or a liability to double the claim cannot be considered reasonable.
Ashok Kumar Sarawagi v. Enforcement Directorate SPECIAL LEAVE PETITION (CIVIL) Diary No(s). 30092/2022
The Supreme Court in Ashok Kumar Sarawagi v. Enforcement Directorate held that in light of an order of provisional attachment of the immovable and movable properties owned by the corporate debtor under the PMLA the Resolution Professional can conduct the process of CIRP in accordance with IBC on "as is where is basis" and "whatever there is basis". However, it was specifically stated by the Supreme Court that even if a Resolution Plan is approved, the order of approval shall not be passed by the NCLT without the express permission of the Supreme Court. Earlier it has been held on various occasions by the NCLAT and the Delhi High Court that the moratorium under Section 14 of the IBC does not apply to the proceeds under the PMLA.
Ashok G. Rajani vs Beacon Trusteeship Ltd. (Civil Appeal No.4911 OF 2021):
The Supreme Court in this case asserted that there is no bar to the withdrawal of an admitted CIRP application before the constitution of the Committee of Creditors. A party can approach NCLT directly, which Tribunal may, in the exercise of its inherent powers under Rule 11 of NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement. This will be decided after hearing all the parties concerned and considering all relevant factors on the facts of each case."
In the present case, the applicant was justified in filing the application under Rule 11 of the NCLT Rules for withdrawal of the company petition on the ground that the matter has been settled between the parties.
M/S. Ruchi Soya Industries Ltd. v. Union of India & ORS. (Civil Appeal Nos. 447448 of 2013)
The debate in the Supreme Court arose from a notification issued by the Central Board of Excise and Customs, Union of India ("UOI"), imposing a tax on imported goods of M/s Ruchi Soya Industries Ltd., specifically 1647.414 metric tonnes of crude palm oil covered under the bill of entry for domestic consumption. The said notification was applicable to the CD and thus the CD was liable to pay the duties under the Code.
However, the Hon'ble Court in the present matter opined that since the claim was not filed before the resolution professional even after public notices were issued under Sections 13 and 15 of the Code, it could not be considered at the stage when the Resolution Plan is approved. The Supreme Court after hearing both the parties and relying upon the judgment of Ghanshyam Mishra & Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Company & Ors. held that the claim which was made by UOI was not a part of the resolution plan and hence, does not survive.
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