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6 July 2023

IBC - NCLAT Fortnightly Summary (May 1, 2023 – May 15, 2023)

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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...
India Insolvency/Bankruptcy/Re-Structuring

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 May 1, 2023 and May 15, 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 and Miscellaneous.

PRE-ADMISSION STAGE

  1. In Manas Sarkar v. Indian Overseas Bank (Company Appeal (AT) (Insolvency) No. 701 of 2022), the NCLAT held that an application under Section 7 cannot be denied on the basis of pendency of adjudication and violation of Reserve Bank of India's priority sector norm. It further held that debiting the cash credit account of the corporate debtor for adjustment towards term loan could not be a ground to deny admission of Section 7 application.
  2. In Bajaj Rubber Company Private Limited v. Saraswati Timber Private Limited (Company Appeal (AT) (Ins) No. 1296 of 2022), the NCLAT noted that, even where liberty has been granted to revise an earlier application upon breach of a settlement, in the event such right is exercised belatedly, Adjudicating Authority shall have the discretion to deny restoration/revival of such application.
  1. In Zach System SPA v. Vivid Labs Limited (Company Appeal (AT) (CH) (Ins) No. 121/2023 (IA No. 410/2023)), the NCLAT held that e-mail informing the creditor to respond in future would not qualify as an acknowledgment to extend the period of limitation of filing Section 9 application in terms of Section 18 of the Limitation Act, 196
  1. In Ramesh Kumar Garg v. Buildmet Private Limited (Company Appeal (AT) (CH) (Ins) No. 124/2023 (IA Nos. 422, 423 & 424/2023)), the NCLAT held that unless there is sufficient cause to condone the delay, even if the appeal has been filed within the extended period of 15 days during which NCLAT has the right to condone the delay, such delay may be refused to be condoned.
  1. In Netafirm Agricultural Financing Agency Private Limited v. Baliraja Sakhar Karkhana Limited (Company Appeal (AT) (Insolvency) No. 408 of 2023), the NCLAT held that for computing the minimum threshold under Section 7 of the Code, even the interest component needs to be added to the principal.
  1. In J.C. Flowers Asset Reconstruction Private v. Deserve Exim Private Limited (Company Appeal (AT) (Insolvency) No.486 of 2023), the NCLAT held that for the determination of, if a section 7 application against a corporate guarantor would be barred under section 10 A of the Code, the date of default by the principal borrower is irrelevant and only the date on which the guarantee was invoked would be relevant. NCLAT further went on to hold that if the guarantee deed contains an indemnification provision, such indemnity can be enforced against the corporate debtor, but it cannot itself change the date of default on part of the guarantor.
  1. The NCLAT, in SPJ Cargo Private Limited v. Blossom Grocery & Foods India Private Limited (Company Appeal (AT)(Insolvency) No. 1374 of 2022), set aside the order of the Adjudicating Authority directing deposit of fee of Interim Resolution Professional observing that where the application is yet to be admitted, such admission cannot be made conditional upon deposit of such fee as directed in the order.
  1. In Subhash Chand Gupta v. Bhavesh Texo Fab Private Limited (Company Appeal (AT) (Insolvency) No. 816 of 2022), the NCLAT held that benefit of criminal proceedings cannot be taken by the corporate debtor, where such proceedings were initiated by the corporate debtor post receipt of demand notice under section 8 of the Code.
  1. In Ashok Kumar Bhasin v. ABB Power Products and Systems India (Company Appeal (AT)(Insolvency) No. 414 of 2023), the NCLAT held that the strict burden of proof under the Indian Evidence Act, 1872 cannot be made applicable to the proceedings under the Code, which are summary proceedings where pleadings are in proforma as prescribed in Rules and Regulations.

CIRP STAGE

  1. The NCLAT, in Venugopal Dhoot v. Divyesh Desai, Resolution Professional of Trend Electronics Limited & Another (Company Appeal (AT) (Insolvency) No. 540 of 2023 & I.A. No.1758 of 2023), held that any proposal for re-structuring cannot be treated to be a proposal for withdrawal of application under section 12A of the Code, which is required to be filed by the Resolution Professional with the consent of 90% of the committee of creditors.
  1. In BNK Power Solution Private Limited v. Ranjkumar Poddar (Company Appeal (AT) (Insolvency) No. 59 of 2022), the NCLAT held that where the operational creditor did not challenge the admission of a reduced amount against the submitted claim, the same could not be challenged after approval of the resolution plan. The NCLAT further held that while deciding if the interest of the stakeholders has been protected, the Adjudicating Authority/ NCLAT is only required to examine whether the resolution plan meets with the requirements of Section 30(2) and Section 31 of the Code.
  1. In VR Rail Nirman Private Limited v. Isuzu Motors Private Limited (Company Appeal (AT) (CH) (Ins) No. 120/2023 (IA No. 409/2023)), the Chennai bench of the NCLAT considered whether a revival application against a Section 9 application would lie post an order of restoration of the corporate debtor's name in the MCA records.

    In the present case, the respondent had filed a Section 9 application against the appellant, which was rejected by the Adjudicating Authority on the ground that the name of the appellant had been struck down by the MCA. The respondent, had preferred a Section 252(3) application before the Adjudicating Authority and post the restoration of the corporate debtor/appellant's name in the records of the MCA had filed for revival of the Section 9 application, which was allowed by the NCLAT on the grounds that the eclipse caused to the Section 9 application due to the corporate debtor's status was removed by the order of restoration and therefore there was no hindrance to the respondent to maintain and get an order on merits on the Section 9 application.
  1. In the matter of Mohd. Shadab v. Colorcity Homes Private Limited and Another (Company Appeal (AT) (Insolvency) No. 577 of 2023 & I.A. No.1902 of 2023), the NCLAT noted where the books of the corporate debtor had mentioned the debt amount as unsecured loan, even in the absence of any written agreement, it cannot be argued subsequently by the corporate debtor that the amount disbursed was for investment, and not for the purpose of loan.
  1. In the matter of NuFuture Digital (India) Limited v. Axis Trustee Services Limited, (Company Appeal (AT) (Insolvency) No.444 of 2023), the NCLAT held that Section 10A of the Code does not apply when the cause of action for default basis which the CIRP has been proposed to be initiated pertains to the period covered when prohibition under Section 10A of the Code, is not applicable. In this case, the NCLAT observed that the debt only included default committed after the period under Section 10A was over, and whilst the original claim of the financial creditor was higher, the debt accrued under the period covered under Section 10A of the Code had not been claimed by the financial creditor and therefore, Section 10A of the Code would not apply.
  1. The NCLAT, in Kapil Wadhawan v. Piramal Capital and Housing Finance Limited and Ors. (Company Appeal (AT) (Insolvency) No. 437 of 2023), considered whether a successful resolution applicant ("SRA") could continue the avoidance applications under the Code, by substituting the Resolution Professional. The NCLAT observed that the legislative scheme delineated under Section 26 of the Code, indicates the avoidance applications are not to affect the proceedings of the CIRP, and therefore it can even continue post the CIRP. Whilst noting that, applications under Sections 43, 45 and 66 have to be filed by the Resolution Professional, the NCLAT refused to agree with the contentions of the Appellant that the said applications become infructuous once the resolution plan is approved, specially considering in the instant matter, the resolution plan provided for the continuation of the avoidance applications by the SRA.

LIQUIDATION

  1. In Smt. Aruna Patel v. Punjab National Bank (Comp. App. (AT) (Ins) No. 526 of 2021 & IA No. 1974 of 2021 & 726 of 2023), the NCLAT held that the order of liquidation passed by Adjudicating Authority cannot be challenged on the ground that the statutory limit of 180 days for CIRP could have been extended, where the erstwhile-director failed to fulfil his commitment towards the OTS proposal and was making continuous efforts to delay the insolvency proceedings.
  1. In Arun Chadha (Liquidator of Pawan Buildwell Private Limited) v. Ramesh Kumar Suneja (Company Appeal (At) (Insolvency) No. 747 of 2021 & I.A. Nos. 1983 & 1984 of 2021), the NCLAT took up two separate appeals together and in connection with the appeal filed by the Liquidator set aside the order of the Adjudicating Authority, which held that the security interest created over the 'mortgaged property' by the corporate debtor is not a violation of Section 43, as erroneous and cancelled the Form CHG-1, and directed that the 'mortgaged property' become a part of the liquidation estate of the corporate debtor. The NCLAT noted that the lookback period for when the property of a corporate debtor for benefit of its related parties is in question, the lookback period is of 2(two) years from the date of initiation of the CIRP and therefore, in the instant case the transaction of the corporate debtor mortgaging the property for the benefit of its related parties falls within the scope of the lookback period.

    With respect to another appeal filed by the respondent related parties, the NCLAT observed that the corporate debtor had entered into an MoU with SAKS Developers, which was an entity governed by its related parties. Whilst, the NCLAT has raised issues regarding the veracity of such unstamped MoU, the NCLAT noted that the MOU had been purportedly executed between the period when NCLAT had dismissed the order of admission of the corporate debtor, and the order of the Supreme Court by which the said decision of the NCLAT was rejected. The NCLAT noted that whilst, moratorium was technically and legally not in force, the decision of the corporate debtor to transfer an amount of Rs.1,02,09,360 was done at a time hurriedly when the sword of insolvency was hanging over the corporate debtor. Further, the NCLAT considered even if the said could be treated as a bonafide transaction, the transaction would fall within the scope of a preferential transaction under Section 43, and therefore refused to interfere with the order of the Adjudicating Authority which had directed for the sum to be refunded to the corporate debtor.
  1. The NCLAT, in Sahyog Infrastructure Private Limited v. Anju Agarwal, (Company Appeal (AT)(Ins) No.1367 of 2022), took similar views that upon a perusal of Section 43(4) of the Code, and the relevant transactions were within the scope of two years lookback period, as the parties were related parties. The NCLAT rejected the arguments of the related parties, that such transactions were in the ordinary course of business and noted the guidance note prepared by the Institute of Company Secretaries of India, wherein the term 'Ordinary Course of Business' has been defined, could only have persuasive value but cannot be read in place of legal or statutory provisions. While arriving at the fact that the transaction was hit under Section 43 of the Code, the NCLAT noted that where parties to an agreement located at one state uses the stamp paper of a different state such instrument shall not relied upon to ascertain the veracity of the transaction.

MISCELLENEOUS

  1. In Apoorva Joshi v. Union Bank of India (Company Appeal (AT) (Insolvency) No. 500 of 2023), the NCLAT held that when submission of OTS is not in doubt, there need not be a separate plea of claiming extension of limitation period under Section 18 of the Limitation Act, 1963. Further, it was held that a conditional OTS in relation to the interest component, would not affect the acknowledgement of debt.
  1. The NCLAT, in Cloud9 Apartment Owners Association v. Mohit Goyal, Resolution Professional for Aadi Best Consortium Private Limited & Anr (Comp. App. (AT) (Ins) No. 573 of 2023 & I.A No. 1874 of 2023) held that the Adjudicating Authority does not have the jurisdiction to condone delay in filing the appeal beyond a period of 45 days even where such condonation has been directed by the High Court.
  1. In Sarbjit Singh Johal v. Jitender Lohia (Company Appeal (AT) (Ins.) No. 1224 of 2022 & I.A. No. 3727 of 2022), the NCLAT noted that the limitation period for filing of appeal starts from the date of pronouncement of order and not from the date of communication of order.
  1. In IP Sunil Kumar, Erstwhile Resolution Professional v. Ravi Bansal (Company Appeal (AT)(Insolvency) No. 1516 of 2022), the NCLAT held that where the resolution plan did not contain any provision as to who should pursue interlocutory application under Section 66 of the Code, the decision of Adjudicating Authority permitting the resolution applicant to pursue the application cannot be challenged by the resolution professional as the resolution professional cannot claim the sole right to pursue avoidance transaction.
  1. In Hydro Care Fluid Power Systems v. Larsen & Toubro Limited (Company Appeal (AT) (Insolvency) No.469 of 2023 & I.A. No. 1531 of 2023), the NCLAT held that the whole claim could not said to be within limitation period where the acknowledgement of debt was made for only a part of the claim.
  1. In Export India Bank of India v. Maneesh Pharmaceuticals Limited (Company Appeal (AT) (Ins.) No. 579 of 2022), the NCLAT held that the period of limitation for initiation of CIRP under the Code would run from the date of the repeal of Sick Industrial Companies (Special Provisions) Act, 1985 ("SICA") and the benefit of exclusion of period for computation of limitation when the corporate debtor was under SICA would be available even to the creditors who were not before the Board for Industrial and Financial Reconstruction.
  1. In IDBI Trusteeship Services Limited v. Nirmal Lifestyle Limited (Company Appeal (AT) (Insolvency) No. 117 of 2023), the NCLAT observed that the non-mention of specific liberty for revival of the company petition in the order granting withdrawal is inconsequential, when the consent terms provide for such revival and such consent terms is brought to the record of the Adjudicating Authority. While observing such the NCLAT made a distinction between withdrawal simplicitor making statement that parties have settled and bringing on record settlement, with the latter one obviating the requirement of any specific grant of any liberty, if the consent terms provide for such remedy.
  1. In the matter of Vishwajeet Subhash Jhavar v. IDFC First Bank Limited (Company Appeal (AT) (Insolvency) No. 08 of 2023), the NCLAT relied upon the principle delineated by the Hon'ble Supreme Court in Ashok G. Rajani v. Beacon Trusteeship Ltd. & Ors (2023 SCC OnLine SC 349) that that Settlement cannot be stifled before the Constitution of Creditors in anticipation of the claims against the Corporate Debtor from third persons and rejected the challenge filed by an intervenor, who had filed a claim before the interim resolution professional, to allow the settlement between the corporate debtor and the financial creditor basis whose application the CIRP was admitted.

The update was first published on Bar & Bench.

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