The following is a snapshot of the important orders passed by the National Company Law Appellate Tribunal ("NCLAT"), under the Insolvency and Bankruptcy Code, 2016 ("Code"), during the period between March 16, 2023 and March 31, 2023. For ease of reference, the orders have been categorized and dealt with in the following categories i.e., Pre-admission stage, Corporate Insolvency Resolution Process ("CIRP") stage, the Liquidation stage, and Miscellaneous.
PRE-ADMISSION STAGE
- In VRG Healthcare Private Limited v. VRG
Infrastructure Private Limited Company Appeal (AT) (Insolvency) No.
778 of 2020, the NCLAT held that the where the loan
granted by creditor was without any written agreement and was
silent regarding the loan term and repayment date, a petition under
section 7 was not maintainable basis such loan. The NCLAT further
went on to hold that consideration for time value is an essential
ingredient for classification of 'financial debt'.
- In East India Udyog Limited v. SPML Infra Limited
(Company Appeal (AT)(Insolvency) No. 256 of 2023), the
NCLAT held that, where a demand had been made seeking
reconciliation of accounts prior to issuance of demand notice, the
same along with the grounds of non-supply of goods; delay of
supplies; supply of defective goods clearly constituted as a
pre-existing dispute.
The NCLAT also observed that where arbitration proceedings have been preferred post the issuance of the demand notice, the same would not qualify as a 'pre-existing dispute'.
- In BNK Securities Private Limited v. Sebacic India
Limited (Company Appeal (AT)(Insolvency) No. 335 of 2023),
the NCLAT upheld rejection of a section 9 application for
realisation of success fee on the basis of pre-existing
dispute.
- In Jain Irrigation Systems Limited v. Pragyawan
Technologies Private Limited (Company Appeal (AT) (Insolvency) No.
311 of 2023), the NCLAT re-iterated that Adjudicating
Authority is not a forum for deciding and adjudicating contractual
disputes between the parties, and Section 9 proceeding cannot be
used for adjudication of disputes.
- The NCLAT, in Surinder Pal Singh & Ors v. Spaze Towers
Private Limited (Company Appeal (AT)(Insolvency) No. 354 of 2023
& I.A. No. 1157, 1195 of 2023), upheld the decision of
the Adjudicating Authority rejecting an intervention application
filed by a home buyer, during the pendency of another application
filed by a separate group of homebuyers.
- In Orbis Trusteeship Service Private Limited v. Nobal Buildtech Private Limited (Company Appeal (AT) (Insolvency) No. 1071 of 2022), the NCLAT, relying on the notification dated February 27, 2019 issued by the Ministry of Corporate Affairs, held that an application under section 7 preferred at the instance of a debenture trustee on behalf of debenture holders is maintainable.
CIRP STAGE
- In Minion Ventures Private Limited v. TDT Copper
Limited (Company Appeal (AT) (Ins) No. 572 of 2022 & I.A. No.
1530 of 2022), the NCLAT, upholding the rejection of a
Section 7 application, held that where pursuant to a tri-partite
invoice discounting agreement, the relevant seller has agreed for
discounting of invoice of the Corporate Debtor, as the customer for
the creation of rights and interests in the invoices, receivables
in favour of the financier, as no money was disbursed much less for
the time value as a financial debt to the Corporate Debtor, such
financier could only maintain a claim as an operational creditor in
relation to the invoices generated by the seller.
- In the matter of Deepak Modi v. Shalfeyo Industries Private Limited
and Another (Company Appeal (AT)(Insolvency) NO.1019 OF
2022), the NCLAT affirmed the order of the Adjudicating
Authority, admitting a Section 9 petition noting that the defence
of pre-existing dispute was a moonshine, as no dispute with regards
to the quality of the materials supplied by the Operational
Creditor was raised at the time of inspection and was only raised
after the goods were consumed by the Corporate Debtor.
- In M.K. Rajagopalan v. S. Rajendran and another (IA
No. 215 of 2023 in Company Appeal (AT) (CH) (INS) No. 58 of
2023), the NCLAT held that an unsuccessful resolution
applicant was not an 'aggrieved person' and lacked locus to
file an appeal against approval of the resolution plan.
- In Rupesh Anand v. Anup Tripathi and others (Company
Appeal (AT) (CH) (Ins.) No. 417 of 2022 & (I.A. No.
1021/2022)), the NCLAT remitted the matter to the
Adjudicating Authority after noting that the Adjudicating Authority
had failed to address the objections regarding the authenticity of
the authorization letter issued in favour of the petitioning home
buyers.
- The NCLAT, in Jindal Stainless Limited v. Mr. Shailendra Ajmera
(Company Appeal (AT) (Insolvency) No.356 of 2023),
observed that where none of the resolution plans were approved,
re-issue of RFRP was permissible.
- In the matter of Shri Baiju Trading and Investment Private Limited
v. Mr. Arihant Nenawati (Company Appeal (AT) (Ins.) No. 699 of
2021), the NCLAT noted that as per Section 66 of the Code,
the Adjudicating Authority can pass suitable orders if it is found
that any person has carried on the business of the Corporate
Debtor, with intent to defraud its creditors and noted that such
'fraud' can inter alia consists of money lent by the
Corporate Debtor which the Corporate Debtor has no intent of
receiving back.
The NCLAT further went on to observe transactions of huge amounts, to unconnected/unrelated parties and apparently without any security interest or bank guarantee as collateral security in favour of the Corporate Debtor and subsequent 'write-off' of the same from the book of accounts could only be termed as 'fraudulent transactions'.
Additionally, NCLAT held that forensic audit was not mandatory for determination of fraud.
- In Union Bank of India v. Mr. P.K. Balasubramanian
(Comp. App. (AT) (CH) (Ins.) No. 293 of 2022), the NCLAT
observed that with respect to Section 95 of the Code, the interim
moratorium commences from the date of filing of application, and
not the date of numbering of the application. It reiterated that
the Code does not contemplate multiplicity of the proceedings
against the same personal guarantor and also observed that no
prejudice is caused to a financial creditor, whose application
filed prior in time is overlooked in favour of an application filed
subsequent in time, as such financial creditor retains the right to
file its claim once the petition is admitted.
- In Ritu Agarwal v. Dinesh Kumar, IRP Lumata Digital
India Private Limited (Company Appeal (AT) (Insolvency) No. 200 of
2023), the NCLAT held that where the claim with the
original petitioning original creditor has been settled, the
withdrawal of such petition cannot be denied basis pendency of
claim of creditors seeking intervention.
- In Consolidated Finvest & Holding Limited v.
Subhash Kumar Kundra, Resolution Professional- CLC Industries
Limited (Company Appeal (AT) (Insolvency) No. 312 of
2023), the NCLAT rejected an appeal from a member of the
CoC, who did not effectively participate during the process,
challenging the manner in which the CIRP process was conducted.
Further, the NCLAT denied the applicant an opportunity to file a
fresh plan, when the appellant had filed any plan in response to
Form-G.
- In SKM Contractors & Services Private Limited v.
Jabalpur MSW Private Limited, (Company Appeal (AT)(Insolvency) No.
325 of 2023), the NCLAT reiterated that a Section 9
application can be revived upon breach of settlement
agreement.
This is in line with the NCLAT's judgement in Vinay Gupta v. Ashika Credit Capital Limited and Another (Company Appeal (AT) (Insolvency) No. 92 of 2023) which we have covered in our earlier newsletter, available here.
- In the Air Travel Enterprises India Limited v. Union Bank of India (Comp. App. (AT) (CH) (Ins.) No. 70 of 2023), the NCLAT held that date of declaration of NPA cannot be identified as a date of default, especially where subsequent time was given for discharge of debt.
LIQUIDATION STAGE
- In Mr. Karthikeyan v. R. Venkatakrishnan and G.C.
Logistics India Private Limited (IA No. 128 of 2023 in Company
Appeal (AT) (CH) (INS) No. 35 of 2023), the NCLAT held
that when the appellant had not pointed out any irregularity and
had not raised any objections pertaining to the liquidation process
of the corporate debtor before the Adjudicating Authority, it was
estopped from raising the same before the Tribunal. The NCLAT
further held that an operational creditor who is a member of a
stakeholder committee, is not a stakeholder in the liquidation
process and has no vested interest in the Corporate Debtor to be
able to maintain a challenge against going concern sale in the
liquidation process.
- In JFC Finance (India) Limited v. Anil Kohli (Company
Appeal (AT) (Insolvency) No. 239 of 2023), the NCLAT,
while rejecting appellant's (one of the bidders) contention for
setting aside the auction for corporate debtor's assets on
ground of technical glitch in submitting higher offer, held that
since the appellant raised the issue of technical glitch only after
he was informed about his unsuccessful bid, he could not be allowed
to make a higher offer later. The NCLAT further noted that allowing
such claim would stand against the principal of e-auction where
everybody has opportunity to give their bids and therefore, no one
could be allowed to offer higher bid at later stage.
- In Winsome Investor Welfare Association v. Mr. Amit
Gupta, Liquidator of M/s. Winsome Diamonds and Jewellery Limited
(Company Appeal (AT) (Insolvency) No. 181 - 182 of 2021),
the NCLAT, in absence of any genuine cause of illegality or
irrationality and also on grounds of delay in challenging the
appointment, rejected the challenge filed by a shareholder of the
Corporate Debtor to the appointment of the Liquidator.
- In Jagdish Kumar Parulkar v. Indore Steel &
Alloys Private Limited (Company Appeal (AT)(Insolvency) No. 802 of
2022), the NCLAT held that where lease was secured
directly from the lessor in a transparent manner and not
transferred from the corporate debtor (who was the erstwhile lessee
and had failed to execute the lease deed in accordance with the
provisions of the law and the lease deed) to the ultimate lessee,
the negligence on the part of corporate debtor not to have executed
lease deed cannot be allowed to become a ruse for fraudulent
transaction and that a mere possibility of a potential collusion
without material on record is not sufficient to persuade the NCLAT
to record any finding on preferential or fraudulent
transaction.
Further, the NCLAT held that liquidation has a fiduciary and legal responsibility to the Corporate Debtor, the creditors and the Court. The liquidator being an officer of the Court has to display high level of professional maturity and is not expected to show overzealousness or overreach in detecting traces of preferential/fraudulent/undervalued transactions in respect of interest in the property owned by a person who has acquired such interest from a public authority in good faith and for value.
- The NCLAT, in Cotton Corporation of India Limited v. G.
Gunasekaran (Comp App (AT)(CH) (Ins) No.80/2023 in I.A. No.290 of
2023 (For Exemption)), held that a new claim cannot be
entertained once liquidation process has been completed and entire
proceeds are distributed amongst the financial creditors.
- In Sree Ganesh Constructions v. IVRCL Limited (Comp.
App. (AT) (CH) (Ins.) No. 333 of 2021), the NCLAT held
that pending amount for work done by an operational creditor prior
to the CIRP period, for which the invoice was raised during the
CIRP period, shall not be treated as CIRP cost. For such pending
amount, the creditor is required to file a claim.
- In T. Johnson v. R. Venkatakrishnan and Another (IA No. 125 of 2023 in Company Appeal (AT) (CH) (INS) No. 34 of 2023), the NCLAT observed that a shareholder of the corporate debtor, who has not filed any claim as a creditor could not have challenged the extinguishment of his shares on the sale of the corporate debtor on a going concern basis.
MISCELLENOUS
- In Swastik Aqua Limited and Ors v. Jharkhand Bijli
Vitran Nigam Limited & Ors (Company Appeal (AT) (Insolvency)
No. 847 of 2022), the NCLAT held that the pre-CIRP dues
cannot be recovered from the successful resolution applicant where
claims in relation to such pre-CIRP dues was not filed during CIRP.
Further, the electricity of the corporate debtor cannot be
disconnected on the basis of such non-payment of such pre-CIRP
dues.
- In Diwakar Sharma v. Anand Sonbhadra (Company Appeal
(AT) (Ins.) No. 1446 of 2022 & I.A. No. 4551 of 2022),
the NCLAT did not grant condonation of delay beyond the period of
15 days, much less 45 days for filing appeal before NCLAT based on
the ground that the period of limitation was to be counted from
date of knowledge as opposed to date of order even where the
appellant was in jail and was not aware of the pronouncement of
order and received a copy of the order from the resolution
professional at a later date. The NCLAT held that there is no scope
for condonation of delay beyond the period of (30+15) days as there
is no window available for the NCLAT to exercise its jurisdiction
for condonation of delay under Section 61 of the Code.
Similarly, in Pushpa Builders Limited v. Paramveer Distributor Private Limited (Company Appeal (AT) (Ins.) No. 1371 of 2022 & I.A. No. 4282 of 2022), wherein the delay was caused due to medical reasons, the NCLAT held that delay beyond (30+15) days cannot be condoned even if delay to file an appeal was caused because of a fraud.
The update was first published on Bar & Bench.
Originally published 6 April 2023
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