Corporate insolvency resolution process can be initiated separately and simultaneously against a corporate debtor and a corporate guarantor for the same debt and same default
In the case of BRS Ventures Investments Ltd. vs. SREI Infrastructure Finance Ltd. and Anr. 1, the Hon'ble Supreme Court of India held that simultaneous insolvency proceedings against a borrower and a corporate guarantor can be initiated for the same debt and default; and that assets of a subsidiary do not form part of the Corporate Insolvency Resolution Process ("CIRP") of its holding company.
For a detailed analysis, please refer to the JSA Prism of August 3, 2024.
Petition under Section 95 of the Insolvency and Bankruptcy Code, 2016 cannot be numbered or is maintainable against a partnership firm or its partners
On March 6, 2024, the Hon'ble High Court of Karnataka ("Karnataka HC"), in the case of M/S Manyata Realty vs. The Registrar and Ors2, held that the National Company Law Tribunal ("NCLT") does not have jurisdiction to entertain a petition filed under Section 95 of the Insolvency and Bankruptcy Code, 2016 ("IBC") against a partnership firm or its partners. The Karnataka HC declared the filing of the petition as non-est and illegal.
For a detailed analysis, please refer to the JSA Prism of August 14, 2024.
Clean slate theory cannot be used to extinguish known claims when the promoter of a micro, small and medium enterprise is a successful resolution applicant under IBC
The Madras High Court ("Madras HC") in its recent judgement National Sewing Thread Co. Ltd vs. Superintending Engineer TANGEDCO and Anr.3, has held that the Clean Slate Theory ("CST") does not extinguish undisclosed claims under the resolution plan of the erstwhile promoters or management ("Promoter Group"). The Madras HC has further held that in relation to such claims, the Promoter Group is jointly and severally liable. This judgement of the Madras HC is significant since it: carves out an exception for the CST, especially when the Promoter Group of micro, small and medium enterprises are the successful resolution applicant; protects the creditors who did not submit claims during the CIRP for want of knowledge and whose claims were deliberately excluded by the Promoter Group in the resolution plan; and fastens personal liability on the Promoter Group for suppression of claims.
For a detailed analysis, please refer to the JSA Prism of August 20, 2024.
NCLT, Hyderabad (upholding the interests of creditors) permits distribution of surplus funds generated by the corporate debtor during its ongoing CIRP, to its creditors
On August 5, 2024, the NCLT, Hyderabad Bench4 in the CIRP of KSK Mahanadi Power Company Limited ("Corporate Debtor"), has allowed an application filed by the committee of creditors seeking distribution of surplus funds generated by the Corporate Debtor to its creditors, in accordance with Section 53 of IBC5.
For a detailed analysis, please refer to the JSA Prism of August 20, 2024.
Footnotes
1 Civil Appeal No.4565 of 2021
2 Writ Petition No. 26977 of 2023
3 W.P. No. 29845 of 2022
4 In the matter of M/s. KSK Mahanadi Power Company Limited; Power Finance Corporation Limited, on behalf of the committee of creditors, vs. Mr. Sumit Binani, Resolution Professional. IA No.1365 of 2024 in CP (IB) No.492/07/HDB/2019
5 Section 53 of IBC – Distribution of Assets which, inter alia, provides for mechanism for distribution of proceeds from the sale of liquidation assets in order of priority specified in Section 53 (1) (a) – (h).
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