Restructuring & Insolvency Monthly Update | January 2025

Insolvency and Bankruptcy Board of India (IBBI) – Discussion Paper on amendments to IBBI (Liquidation Process) Regulations, 2016 and IBBI (Voluntary Liquidation Process) Regulations, 2017 dated November 19, 2024

• In this Discussion Paper, the Insolvency and Bankruptcy Board of India (IBBI) has proposed the following amendments in the IBBI (Liquidation Process) Regulations, 2016 (Liquidation Regulations) with the aim of enhancing the efficiency of Liquidation Processes and gaining stakeholder confidence.
  • Auction Framework under Schedule I of the Liquidation Regulations
    • Prospective Bidders shall be allowed to participate in the auction process on the basis of their affidavit of eligibility under Section 29A of the Insolvency and Bankruptcy Code, 2016 (IBC). In order to avoid misuse of this provision, it is also proposed that the Ernest Money Deposit (EMD) submitted by the bidder shall stand forfeited in case of false declaration under Section 29A.
    • Thereafter, the Liquidator shall conduct his due diligence and conduct verification of the eligibility of the H1 bidder within 3 days from its declaration and place the same before the Stakeholders Consultation Committee (SCC).
    • In the event the H1 bid (being above the reserve price) is not acceptable to the Liquidator, the Liquidator shall mandatorily consult with the SCC.
  • Compromise and Arrangement under Regulation 2B of Liquidation Regulations
    In order to streamline the process of approval of Scheme under Section 230 of Companies Act, 2013 with sale of a Corporate Debtor as a going concern and to ensure transparency in the process, the IBBI proposes that the Liquidator shall be required to file final report along with Form H before the Adjudicating Authority (AA) whenever any application for approval of Scheme under Section 230 of Companies Act, 2013 is filed.
  • Corporate Liquidation Account and Corporate Voluntary Liquidation Account
    Corporate Liquidation Account (CLA) and Corporate Voluntary Liquidation Account (CVLA) were opened by IBBI to deposit undistributed amount to the stakeholders (not traceable or otherwise) in order to facilitate the closure of the liquidation processes for the Corporate Debtor. Regulation 46 of the Liquidation Regulations and Regulation 39 of the Voluntary Liquidation Regulations mandate such CLA and CVLA to be opened within the Public Accounts of India. In order to improve overall management and response time to stakeholders, the IBBI proposes that the requirement of opening such CLA and CVLA account within the Public Funds of India be dispensed with, which otherwise leads to multiple hierarchical levels causing delay in distribution to its stakeholders.
  • Uncalled/ Unpaid Capital Contribution in IBBI (Voluntary Liquidation Process) Regulations, 2017 (Voluntary Liquidation Regulations)
    Regulation 33 of the Voluntary Liquidation regulations required the Liquidator to realise any amount due from any contributory to the corporate person before any distribution thereto. However, in order to avoid unnecessary delays in the process, considering that the Regulations already protect the interests of the stakeholders, IBBI proposes to amend Regulation 33 of the Voluntary Liquidation Process Regulations to allow the voluntary liquidation process to be completed even when there is still some uncalled capital for the corporate person.

Insolvency and Bankruptcy Board of India – Discussion Paper on Monitoring Committee under Corporate Insolvency Resolution Process (CIRP) dated November 19, 2024

• In order to strength the regulatory framework for governing the implementation of a resolution plan under the aegis of a monitoring committee and in line with the observations made by the Hon'ble Supreme Court in State Bank of India & Ors v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr, dated November 07, 2024, IBBI proposes to amend Regulation 38 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) which provides for the mandatory contents of a resolution plan, to include the following:
  • A Resolution Plan shall provide for constitution of monitoring committee till the competition of implementation of the Resolution Plan.
  • The monitoring committee proposed shall comprise of the resolution professional or another insolvency professional proposed by the committee (Chairman), nominees of Committee of Creditors (CoC) and equal nominees of the successful resolution applicant.
  • A resolution plan may also provide for replacement of a member in the monitoring committee, as may be deemed fit.
  • The monitoring committee shall be required to submit quarterly progress reports to the AA.
  • The successful resolution applicant shall bear the expenses of a monitoring committee.
  • The monitoring committee shall seek appropriate directions from the AA in case the implementation of the resolution plan is not in accordance with the terms thereof.

Sunil Kumar Sharma v ICICI Bank Limited & Anr. – NCLAT, New Delhi Bench

Judgment dated December 06, 2024 [Company Appeal (AT) (Insolvency) No. 1158-1162 of 2024]

Background facts

• This Appeal has been preferred by the suspended board of director of Jaiprakash Associates Limited (Corporate Debtor/ JAL) before NCLAT challenging the admission of Petition under Section 7 of the IBC filed by the Financial Creditor i.e., ICICI Bank Limited (ICICI).
• Briefly, ICICI Bank Ltd along with other financial institutions extended credit facilities to the Corporate Debtor. On March 31, 2015, the account of the Corporate Debtor had been declared as a Non Performing Asset (NPA).
• Thereafter, a Debt Realignment Plan (DRP) was approved by the lenders of the Corporate Debtor on June 22, 2017 in terms of which the debts and its businesses were divided into three buckets being Bucket 1, Bucket 2A and Bucket 2B.
• In the meantime, a Writ Petition being Chitra Sharma v Union of India bearing W.P. No. 744/2017 was filed before the Supreme Court (SC) by certain homebuyers of Jaypee Infratech Limited (JIL) (subsidiary of JAL), wherein an Interim Order was passed directing the Corporate Debtor to deposit a sum of INR 2000 Crores and that any Assets or Property of JAL is to be sold, prior approval of the Court must be obtained.
• Thereafter, RBI wrote to ICICI Bank Ltd (ICICI) directing it to file a petition under Section 7 of the IBC against JAL within 15 days. JAL filed a WP before the Allahabad High Court challenging the letter by RBI, which was dismissed by the High Court. This order was further affirmed by the SC.
• ICICI thereafter filed a Section 7 Petition against the Corporate Debtor before Hon'ble NCLT Allahabad Bench for a default of INR 1269.10 Crores.
• In the meanwhile, the First Motion for the Scheme for approval of DRP was approved by NCLT Allahabad on December 08, 2017, followed by the filing of the Second Motion on January 23, 2018. The Corporate Debtor filed applications in 2019 and 2023 to dismiss or adjourn proceedings, citing ongoing restructuring discussions with ICICI Bank. On May 29, 2024, a One-Time Settlement (OTS) proposal of INR 16,016 crores was submitted to ICICI Bank.
• On June 03, 2024, NCLT admitted the Section 7 Petition and rejected the deferment application. This order was challenged by the Appellant before the NCLAT.
• The Appellant argued that all debt of the Corporate Debtor had been waived/ extinguished in view of the execution of a Master Restructuring Agreement (MRA) and approval of first motion petition followed by filling of second motion petition before NCLT. The Appellant also argued that the RBI could not mandate any financial creditor to file any petition under Section 7 of the IBC against any debtor.
• It was also argued that various OTS offers have been submitted to the Creditors which have NOT been rejected till date by the creditors. Further, since the MRA specifically covers the six facilities alleged to be in default and the same having been executed, the debt in question stands extinguished.

Issues at hand?

• Whether the direction of the RBI to the ICICI to initiate CIRP process against the Corporate Debtor determines default of the Corporate Debtor under Section 3(12) of the IBC?
• Whether the MRA covers the 6 facilities claimed by the Section 7 Application of the ICICI Bank against the CD?
• Whether the Financial Creditor has proved debt and default on part of the Corporate Debtor?

The decision of the Tribunal

• The NCLAT affirmed the order passed by NCLT admitting the Corporate Debtor under CIRP noting that the Financial Creditor has been able to establish debt and default i.e., being the only two criteria needed to admit the Corporate Debtor under CIRP.
• The NCLAT Court emphasised on the following principles underlying the IBC for deducing a finding in respect of the issues raised and affirming the Order passed by the NCLT admitting the Corporate Debtor under CIRP.
  • The NCLAT noted the explanation to Section 35AA of the Banking Regulation Act, 1949 to state that it is a default within the meaning of the IBC which plays the foundation for issuing any direction by the RBI to initiate CIRP. In addition to this in Chitra Sharma v UOI as well the SC has allowed the RBI's application praying to initiate CIRP against JAL. The NCLAT agrees that it is the Adjudicating Authority who can determine default on the part of the Corporate Debtor which will form the foundation for passing an order for admission of Section 7 application. However, the issue at present is whether the directions issued by the RBI are relevant material on determining this question of default, which has been held in the positive under the statutory scheme under Section 35AA.
  • When a direction by the RBI, the regulator of banking companies, to issue CIRP against the Corporate Debtor then the same direction has to be seen as relevant material for determining an application under Section 7 including the determination of default as defined under Section 3(12).
  • The NCLAT concluded that the debt under the MRA which relates to Bucket 2A which was to be serviced by the Corporate Debtor is not relevant to the facilities for which the Section 7 application has been filed by the FC. Therefore, it is established that the approved Restructuring Plan did indeed create a scheme of arrangement to transfer the debt of INR 11833.55 Crore (including interest) to an SPV, namely Jaypee Infrastructure Development Ltd., which debt was referable to Bucket 2B, and the Section 7 application filed by the ICICI Bank related to debt of Bucket 2B only. Additionally, the MRA entered into between JAL and the lenders did not cover the facilities of which default is claimed by ICICI against the Corporate Debtor.
  • It is reasoned by the NCLAT that a scheme of arrangement with creditors filed by the Corporate Debtor before the NCLT which remains pending cannot stop default or cause any impediment in proceedings under Section 7. It is not relevant that there was no default on part of the Corporate Debtor qua the debt. The scheme of arrangement was to come into effect from July 01, 2017 yet it never did and the debt under Bucket 2B was never transferred to the SPV. Therefore, the debt continued with the Corporate Debtor and default in the debt was clearly made out.
  • The NCLAT reiterated that the interests of the corporate debtor must be detached from those of its promoters/those who are in management and accordingly, disposed of the Appeal.

NCC Limited v Golden Jubilee Hotels Pvt Ltd & Ors. – NCLAT, New Delhi

Judgement dated December 11, 2024 [Company Appeal (AT) (Insolvency) No. 426 of 2020, 430 of 2020, 432 of 2020, 710 of 2020]

Background facts

• These Appeals have been preferred by Operational Creditors and suspended board of directors of Golden Jubilee Hotels Pvt Ltd (Corporate Debtor) assailing the approval of the Resolution Plan submitted by BREP Asia II Indian Holding Co. II (NQ) PTE. Ltd (SRA) for the Corporate Debtor.
• While four Appeals have been filed by Operational Creditors having provided various services to the Corporate Debtor, the other two appeals have been filed by the suspended director/promoter of the Corporate Debtor challenging the approval of the Resolution Plan (R Plan) and its classification as a related party and Promoter of the Corporate Debtor.
• The Appellants argued that there was NIL payment provided in respect of their claims in the R Plan, which is contrary to law and therefore, the R Plan should not be approved. The NCLT held that the Appellant being an Operational Creditor had no locus to challenge the same.
• This order of the NCLT was challenge before the NCLAT wherein, the NCLT was directed to consider whether the Operational Creditors have been given the same treatment as the Financial Creditors under the R Plan and further directed that if the R Plan is found to be discriminatory, it shall be upon the NCLT to pass direction following the Supreme Court ( SC) judgment of Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors. in Writ Petition (Civil) No. 99 of 2018.
• The Appellants then moved to the NCLT objecting to the R Plan again on the grounds that the CoC approved R Plan discriminates between similarly situated Operational Creditors by creating a Special OCs class under the R Plan. It was submitted creation of a special category of OCs is beyond the scheme of the IBC. Relying on the SC judgment of Pratap Technocrats (P) Ltd. v. Reliance Infratel Ltd. (Monitoring Committee), [(2021) 10 SCC 623], it was submitted that there cannot be any further classification in the same category of OCs.
• It was also submitted that the R Plan was approved despite it being a Conditional RP wherein all payments are subject to the fulfilment of a condition precedent. This is despite the fact that in the 14th CoC meeting resolution applicants were requested to remove condition precedents from the R Plans
• The Respondents argued that Swiss Ribbons and the Preamble of the IBC are quoted to emphasize that the prime objective of the IBC is resolution of the Corporate Debtor. Further, the Respondents placed reliance on K. Shashidhar Vs Indian Overseas Bank & Ors in Civil appeal No. 10673 of 2018 with 10719 & 10971 of 2018 and SLP No. 29181 of 2018 and Essar Steel judgment to state that the commercial wisdom of the CoC is supreme and it may involve differential payment to different classes of creditors.
• The SRA submitted that differential treatment within the same class of creditors is legal and permissible and that distribution of dues to OCs can differ and as long as there is an intelligible differentia behind such a difference the same is just fair and reasonable.
• The SRA also argued that the sub-classification is based on valid, intelligible differentia and is correct in law.
• The NCLT rejected the objections by the Operational Creditors and relied on the case of Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta & Ors. [(2020) 8 SCC 531] for allowing creation of a sub-class of Operational Creditors.

Issue at hand?

• Whether a separate class of creditors within Operational Creditors can be created?
• Whether differential treatment inter-se the same class of creditors is permissible?
• Whether the NCLAT can direct redistribution without change in the R Plan and infringing on the commercial wisdom of the CoC?
• Whether a conditional R Plan violates provisions of IBC?

Decision of the Tribunal

• The NCLAT upheld the Order passed by the NCLT and rejected the Appeals filed by the Appellants, in view of the following observations.
  • The NCLAT noted that certain creditors play a pivotal role in keeping the Corporate Debtor as a going concern and hence, fair and equitable treatment does not necessarily mean equal treatment among all creditors within the same class.
  • The NCLAT reiterated the supremacy of commercial wisdom of the CoC in approving the R Plan including creditor categorization and prioritization.
• The NCLAT observed that creation of a special category of Operational Creditors was necessary for achieving resolution for the Corporate Debtor and was justified in view of their critical nature to the Corporate Debtor.
• Notably, the NCLAT referred the matter to the IBBI and suggested that instead of a straight jacket waterfall mechanism (as provided under Section 53 of the IBC), a calibrated waterfall could be introduced which would ensure that the Operational Creditors are also appropriately taken care of under any R Plan as at present, the recovery made by OC is only 10.57% while the recovery made by FC are at 34.80%.
• In terms of the above observations, the NCLAT disposed of the Appeals.

Indian Renewable Energy Development Agency Ltd. v Waaree Energies Ltd & Anr. – NCLAT, New Delhi

Judgment dated December 06, 2024 [Company Appeal (AT)(INS) No. 1380 of 2024]

Background facts

• This Appeal has been preferred by the Appellant before the NCLAT challenging the decision of the NCLT, New Delhi (NCLT) declaring the Respondent No. 1 i.e. Waaree Energies Ltd as a Financial Creditor of the Corporate Debtor.
• Briefly, it is the case of Respondent No. 1 that it financed the Corporate Debtor i.e. Taxus Infrastructure and Power Projects Pvt Ltd (Corporate Debtor) by subscribing 1 Lakh secured Compulsory Convertible Debentures (CCD) having face value of INR 1000/- each for a period of 65 months. However, the Respondent No. 1 did not receive the payment under the Project Agreement and hence initiated arbitration proceedings against the Corporate Debtor. Consequently, an Award in favour of Respondent No. 1 was passed.
• Vide Order dated October 10, 2022, CIRP came to be initiated in respect of the Corporate Debtor. Pursuant to the provisions of the IBC, the Respondent No. 1 filed its claim in Form C relying on the Arbitral Award, which was accepted by the Resolution Professional.
• However, certain objections were raised against the status of Respondent No. 1 as a Financial Creditor of the Corporate Debtor and the Resolution Professional obtained a legal opinion in that regard. In view of the Legal Opinion, the Resolution Professional took a view that the Respondent No. 1 is not a Financial Creditor of the Corporate Debtor since the Arbitral Award has not attained finality. The Resolution Professional also moved to the High Court under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside of the Arbitral Award.
• In the meanwhile, the Respondent No. 1 moved to the NCLT challenging the decision of the Resolution Professional rejecting its claim. The NCLT after hearing the parties observed that the Respondent No. 1 is a Financial Creditor of the Corporate Debtor. It further observed that the Award being in the favour of Respondent No. 1 could not have been ignored. Further, CCDs having an interest component signifies time value for money and has to be categorised as a Financial Debt.
• This order passed by the NCLT has been challenged by the Appellants on the basis of the following grounds:
  • No provision of redemption of CCDs.
  • Transaction of conversion into equity shares cannot be termed as a Financial Debt.
  • The investment had no time value of money.
  • Even the Arbitral Award is under challenge.
• The Respondent No. 1 refuting the submissions of the Appellant submitted that debenture is a Financial debt under Section 5 (8) of the IBC. The Respondent No. 1 relied on various clauses of the Debenture Subscription Agreement (DSA) to say that the transaction was in the nature of time value of money and is a Financial Debt of the Corporate Debtor.

Issue at hand?

• Whether the transaction entered into between the Corporate Debtor and the Respondent No. 1 by means of Debentures carry a time value of money and is a Financial Debt under Section 5 (8) of the IBC?

Decision of the Tribunal

• The NCLAT upheld the order passed by the NCLT holding that the Respondent No. 1 is a Financial Creditor of the Corporate Debtor under Section 5 (8) of the IBC and consequently, dismissed the Appeal filed by the Appellants.
• The NCLAT took note of various clauses under the DSA and observed that the investor has an option to request for conversion of CCD into equity, which option was to be exercised within a period of 65 months from the date of allotment. The NCLAT further noted that the Respondent No. 1 has already sought for payment of amount with interest and since no payment in lieu of such notice was made and no debentures were converted into equity shares, the same resulted in an event of default, entitling the Respondent No. 1 to claim 24% interest per annum. This shows that the transaction had a time value of money and is therefore, a Financial Debt under Section 5 (8) of the IBC.
• The NCLAT also took note of the judgement passed by the Hon'ble Supreme Court in IFCI Ltd vs Sutanu Sinha & Ors (2023) SCC OnLine SC 1529 and concluded that the best way to ascertain the nature of a transaction is the examination of clauses of the Agreement between the parties.
• The NCLAT therefore held that the clauses under the DSA showcase time value of money and the same amounts to Financial Debt under Section 5 (8) of the IBC.

Puneet P. Bhatia v ASREC (India) Ltd & Anr. – NCLAT, New Delhi

Judgement dated December 09, 2024 [Company Appeal (AT)(INS) No. 139 of 2024]

Background facts

• This Appeal has been filed by the suspended director of Barracks Retail India Pvt Ltd (Corporate Debtor) challenging the admission order passed by the NCLT, Mumbai Bench (NCLT).
• Briefly put, the Corporate Debtor is a garment manufacturing company incorporated under the Companies Act 2013.
• The Corporate Debtor availed certain financial facilities from Bharat Cooperative Bank through sanction letters dated March 21, 2017, August 14, 2018 and March 11, 2020. However, despite restructuring, the Corporate Debtor failed to meet its repayment obligations to the Bank.
• The Bank issued Loan Recall Notice dated December 07, 2020 and requested for clearance of the entire loan amount. The Bank also informed the Corporate Debtor that the RBI officials have classified the account of the Corporate Debtor as NPA on November 01, 2019.
• Later, vide Assignment Agreement dated March 25, 2021, the loans of the Corporate Debtor were assigned to ARSEC. ARSEC later filed an application under Section 7 of the IBC citing the date of default as October 31, 2020. This was objected by the Corporate Debtor in terms of Section 10A of the IBC.
• ARSEC later filed an application changing the date of default to 90 days prior to the declaration of account as NPA by RBI i.e., August 02, 2019. Later, vide Order dated January 09, 2024, the NCLT admitted the Company Petition filed by ARSEC initiating CIRP in respect of the Corporate Debtor.
• This Admission Order was challenged by the Appellant arguing that the Company Petition is barred by Section 10A of the IBC and therefore, the Impugned Order deserves to be set aside.
• On the other hand, the Respondents argued that the date of default is beyond the 10A period, as amended before the NCLT and therefore, the NCLT has correctly initiated CIRP in respect of the Corporate Debtor.

Issue at hand?

• Whether an amendment can be made in the date of default mentioned in a Company Petition?

Decision of the Tribunal

• The NCLAT upheld the order passed by the NCLT allowing the amendment in the date of default by the Petitioner.
• The NCLAT relied on the order passed by the Hon'ble Supreme Court in Dena Bank v C. Shivakumar Reddy & Anr, (2021) 10 SCC 330 holding that amendments to an application can be made before the passing of final order in a Section 7 Petition.
• The NCLAT further observed that the mere fact that the restructuring of debt occurred in March, 2020 does not in itself establish that the default arose during the 10A period and therefore, held that the date of default has been correctly identified by ARSEC, as affirmed by the NCLT.

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