The following are the key developments including some recent case-laws in the insolvency and bankruptcy law in India i.e. the Insolvency and Bankruptcy Code (hereinafter referred to as 'the Code'):

1. Increase in threshold under Section 4 of the Code

The Central Government vide Notification No. S.O. 1205(E) dated 24th March, 2020, in exercise of the powers conferred by the proviso to Section 4 of the Code has increased the minimum amount of default (under Part-II) from Rupees One Lakh to Rupees One Crore. This means that a Financial creditor or an Operational creditor of a Corporate debtor can now initiate the Corporate Insolvency Resolution Process ("CIRP") on the occurrence of a default of minimum of Rupees One Crore. The amendment has been made on account of the COVID-19 pandemic. However, what remains unclear as of now is the plight of the pending cases before the Adjudicating Authority, which have not yet reached the stage of admission. Given the existing practice under the Code, it may be possible that the cases which have been admitted would remain unaffected and those which have not yet been admitted, may be rejected on account of the above stated notification.

2. Preferential Transactions: Interpretation of Sections 43 and 44 of the Code

The Supreme Court in Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Limited Etc.,1 set aside the judgment dated 1st August, 2019 of the Appellate Authority in relation to avoidance of transactions under Sections 43, 45 and 66 of the Code, whereby the corporate debtor (JIL) had mortgaged its properties for the financial assistance taken by its holding company (JAL). In Anuj Jain, the Supreme Court for the first time laid down certain principles in relation to avoidance of transactions under the Code, which are discussed below:

  • In order to find as to whether a transaction of transfer of property or an interest thereof of the corporate debtor falls squarely within the ambit of Section 43 of the Code, ordinarily, the following questions shall have to be examined in a given case:
    1. Whether such transfer is for the benefit of a creditor or a surety or a guarantor?
    2. Whether such transfer is for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor?
    3. Whether such transfer has the effect of putting such creditor or surety or guarantor in a beneficial position than it would have been in the event of distribution of assets being made in accordance with Section 53 of the Code?
    4. If such transfer had been for the benefit of a related party (other than an employee), whether the same was made during the period of two years preceding the insolvency commencement date; and if such transfer had been for the benefit of an unrelated party, whether the same was made during the period of one year preceding the insolvency commencement date?
    5. Whether such transfer is not an excluded transaction in terms of sub-section (3) of Section 43?
  • With regard to transactions in question, the Supreme Court observed that it is true that there had not been any creditor-debtor relationship between the lender banks and corporate debtor JIL but that will not be decisive of the question of the ultimate beneficiary of these transactions. The mortgage deeds in question, entered by the corporate debtor/JIL to secure the debts of JAL, obviously, amount to creation of security interest to the benefit of JAL. JAL as holding company of corporate debtor, is a creditor and also surety of corporate debtor. It is a related party to corporate debtor. The corporate debtor owed antecedent financial debts as also operational debts and other liabilities towards JAL. The impugned transactions had been of transfers for the benefit of JAL, who is a related party of the corporate debtor JIL and is its creditor and surety by virtue of antecedent operational debts as also other facilities extended by it; and the impugned transactions have the effect of putting JAL in a beneficial position than it would have been in the event of distribution of assets being made in accordance with Section 53 of the Code. It was thus held that the corporate debtor JIL has given a preference in the manner laid down in sub-section (2) of Section 43 of the Code.
  • Look back period in terms of Section 43(4)
    By virtue of proviso to sub-section (3) of Section 1 of the Code, different dates can be provided for enforcement of different provisions of the Code; and in fact, different provisions have been brought into effect on different dates. However, after coming into force of the provisions, if a look-back period is provided for the purpose of any particular enquiry, it cannot be said that the operation of the provision itself would remain in hibernation until such look-back period from the date of commencement of the provision comes to an end. Therefore, the transaction commencing from 10.08.2015 until the date of insolvency commencement shall fall under the scanner. The contention of respondents that most of the mortgages were not creation of new encumbrance by JIL as the properties were already mortgaged and during that period they were only re-mortgaged, was rejected as the so called re-mortagage was made only as a fresh mortgage. Therefore, the transaction in question had been of deemed preference to related party JAL by the corporate debtor JIL during the look back period of two years and covered under Section 43(4).
  • Whether the transaction in question was made in the ordinary course of business
    An activity could be regarded as 'business' if there is a course of dealings, which are either actually continued or contemplated to be continued with a profit motive. Even when furnishing a security may be one of normal business practices, it would become a part of 'ordinary course of business' of a particular corporate entity only if it falls in place as part of 'the undistinguished common flow of business done'; and is not arising out of 'any special or particular situation'. The ordinary course of business or financial affairs of the corporate debtor JIL cannot be taken to be that of providing mortgages to secure the loans and facilities obtained by its holding company and that too at the cost of its own financial health. As noticed, JIL was already reeling under debts with its accounts with some of the lenders having been declared NPA; and it was also under heavy pressure to honour its commitment to the home buyers. In the given circumstances, it was held that the transfers in question were not made in ordinary course of business or financial affairs of the corporate debtor JIL.
  • Interpretation of Section 43(3) (a)
    With regard to interpretation of Section 43(3) (a), the Supreme Court inter alia held that, "we have no hesitation in accepting the submissions made on behalf of the appellants that the said contents of clause (a) of sub-section (3) of Section 43 call for purposive interpretation so as to ensure that the provision operates in sync with the intention of legislature and achieves the avowed objectives. Therefore, the expression "or", appearing as disjunctive between the expressions "corporate debtor" and transferee", ought to be read as "and"; so as to be conjunctive of the two expressions i.e., "corporate debtor" and "transferee". Thus read, clause (a) of sub-section (3) of Section 43 shall mean that, for the purposes of sub-section (2), a preference shall not include the transfer made in the ordinary course of the business or financial affairs of the corporate debtor and the transferee. Only by way of such reading of "or" as "and", it could be ensured that the principal focus of the enquiry on dealings and affairs of the corporate debtor is not distracted and remains on its trajectory, so as to reach to the final answer of the core question as to whether corporate debtor has done anything which falls foul of its corporate responsibilities."
  • Whether lenders of JAL could be categorised as financial creditors of JIL
    A person having only security interest over the assets of corporate debtor (like the third party securities), even if falling within the description of 'secured creditor' by virtue of collateral security extended by the corporate debtor, would nevertheless stand outside the sect of 'financial creditors' as per the definitions contained in sub-sections (7) and (8) of Section 5 of the Code.

3. Whether bid by a resolution applicant should match the liquidation value?

In Maharasthra Seamless Limited v. Padmanabhan Venkatesh & Ors.,2 appeal was filed by the Resolution Applicant (Maharashtra Seamless Ltd.) inter alia contending that the Appellate Authority has exceeded its jurisdiction by giving directions that the value of resolution plan should match the liquidation value. The Supreme Court inter alia observed in this regard that there is no such provision in the Code that requires that the bid of a Resolution Applicant shall be equal to the liquidation value. The valuation process as per the rules and regulations of the Code is only for assisting the Committee of Creditors to select a proper and efficient resolution plan.

4. Applicability of the Code to a Government Company (more specifically the NHAI)

In Hindustan Construction Company Limited & Anr. v. Union of India & Ors.,3 a constitutional challenge was made to the Code. It was contended that the provisions of the Code would operate arbitrarily on the Petitioner therein inasmuch as, on the one hand, an automatic-stay of arbitral awards in its favour would be granted under the Arbitration and Conciliation Act, 1996 as a result of which those monies cannot be used to pay-off the debts of Petitioner's creditors. On the other hand, any debt of over INR One Lakh owed to a financial or operational creditor which remains unpaid, would attract the provisions of the Code against the Petitioner making these provisions arbitrary, discriminatory and violative of Articles 14 and 19(1)(g) of the Constitution of India. It was thus contended that in order for the Petitioner to recover monies from Government Companies and NHAI, the definition of 'corporate person' contained in Section 3(7) of the Code should either be read without the words "with limited liability" contained in the third part of the definition, or have Section 3(23)(g) of the Code, which is the definition of 'person', read into the aforesaid provision.

The Supreme Court inter alia observed that the first part of 'corporate person', as defined in Section 3(7) of the Code, means a company as defined in Clause 20 of Section 2 of the Companies Act 2013. Sections 2(20) and 2(45) of the Companies Act, 2013, read as under:

"2(20). "company" means a company incorporated under this Act or under any previous company law;"

"2(45). "Government company" means any company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company."

The Apex Court held that from a reading of the aforesaid definition, it is clear that the three entities who owe monies under arbitral awards to the Petitioner No.1, being Government companies, would be subsumed within the first part of the definition. As regard applicability of the Code to NHAI, the Court held, "...what is clear is that NHAI is a statutory body which functions as an extended limb of the Central Government, and performs governmental functions which obviously cannot be taken over by a resolution professional under the Insolvency Code, or by any other corporate body. Nor can such Authority ultimately be wound-up under the Insolvency Code. For all these reasons, it is not possible to ... either read in, or read down, the definition of 'corporate person' in Section 3(7) of the Insolvency Code."

5. Reverse Corporate Insolvency Resolution Process

In Flat Buyers Association Winter Hills – 77, Gurgaon v. Umang Realtech Pvt. Ltd through IRP & Ors.,4 the 'Flat Buyers Association of Winter Hills -77, Gurgaon' and the original applicants (i.e. the allottees) wanted Corporate Insolvency Resolution Process for resolution but did not want approval of any plan of a third party (Resolution Applicant). In such circumstances, Uppal Housing Pvt. Ltd. (one of the promoters) was directed to cooperate with the Interim Resolution Professional and disburse amount (apart from the amount already disbursed) from outside as Lender (financial creditor) and not as promoter to ensure that the project is completed with the time frame given by it. The disbursement of amount which had been made by Uppal Housing Pvt. Ltd. and the amount as will be generated from dues of the Allottees (Financial Creditors) during the CIRP was directed to be deposited in the account of the company (Corporate Debtor) to keep the company a going concern.

It was further held that in CIRP against a real estate corporate debtor, if allottees (Financial Creditors) or Financial Institutions/Banks (Other Financial Creditors) or Operational Creditors of one project initiated CIRP against the Corporate Debtor (real estate company), it must be confined to the particular project, it cannot affect any other project(s) of the same real estate company (Corporate Debtor). Therefore, all the assets of the company (Corporate Debtor) are not to be maximized. The assets of the company (Corporate Debtor – real estate) of that particular project is to be maximized for balancing the creditors such as allottees, financial institutions and operational creditors of that particular project. It was therefore held that CIRP should be project basis, as per approved plan by the competent authority. Any other allottees (financial creditors) or financial institutions/ banks (other financial creditors) or operational creditors of other project cannot file a claim before the Interim Resolution Professional of other project and such claim cannot be entertained.

6. Interpretation of Section 32A

In JSW Steel Ltd. v. Mahender Kumar Khandelwal,5 in the CIRP of Bhushan Power & Steel Limited ('Corporate Debtor'), the resolution plan submitted by JSW Steel Limited ('Resolution Applicant') was approved by the Adjudicating Authority vide order dated 5th September 2019 with certain conditions. After the approval of the plan whilst the monitoring committee was monitoring the change of management, on 10th October, 2019, the Directorate of Enforcement of Central Government attached assets of the corporate debtor under Section 5 of the Prevention of Money Laundering Act, 2002. One of the questions that was raised before the Appellate Authority was whether after approval of a resolution plan under Section 31 of the Code, is it open to the Directorate of Enforcement to attach the assets of the Corporate Debtor on the alleged ground of money laundering by erstwhile Promoters. In this regard it was held that in view of Section 32A, the Directorate of Enforcement could not attach the assets of the Corporate Debtor after approval of the resolution plan. It was further held that the Directorate of Enforcement has not been empowered under the Code to decide the question whether JSW Steel Limited is ineligible under Section 29A or Section 32A (1) (a) and this can be determined by the Committee of Creditors/Adjudicating Authority.

It was also pleaded by the Directorate of Enforcement that Section 32A introduced w.e.f. 28th December, 2019 is prospective and would not apply to a resolution plan which has already been approved under Section 31 of the Code. The Appellate Authority rejected the said plea and inter alia held that a plain reading of Section 32A(1) and (2) clearly suggests that the Directorate of Enforcement/other investigating agencies do not have the powers to attach assets of a corporate debtor, once the resolution plan stands approved and the criminal investigations against the corporate debtor stand abated. Section 32A of the Code does not in any manner suggest that the benefit provided thereunder is only for such resolution plans which are yet to be approved.

Another issue was whether the resolution applicant was a related party of the corporate debtor? It was contended by the Directorate of Enforcement that under Section 32A (1), the liability of the corporate debtor shall not cease for the reason that JSW Steel Limited is a related party of the corporate debtor, for the reason that M/s. Bhushan Power & Steel Limited ('Corporate Debtor') and M/s. JSW Steel Limited are associated as shareholders holding 24.09% and 49% equity respectively in a Joint venture company namely M/s. Rohne Coal Company Private Limited. In this regard, the Appellate Authority noted that where a party for the purpose of its business, if mandated by the Central Government to join hands together and are forced to form a consortium or as joint associate, such person ('Resolution Applicant') cannot be held ineligible in terms of Section 32A (1) (a) on the ground of 'related party'.

7. NCLT has jurisdiction to enquire into allegations of fraud, but it is not vested with the power of judicial review over administrative action

In M/s Embassy Property Developments Pvt. Ltd v. State of Karnataka & Ors.,6 the Apex Court mainly dealt with two issues:

  1. Whether the High Court ought to interfere, under Article 226 or 227 of the Constitution, with an Order passed by the National Company Law Tribunal in a proceeding under the Code, ignoring the availability of a statutory remedy of appeal to the National Company Law Appellate Tribunal and if so, under what circumstances?
  2. Whether questions of fraud can be inquired into by the NCLT/NCLAT in the proceedings initiated under the Insolvency and Bankruptcy Code, 2016?

With regard to the facts of the case, the Supreme Court observed that the decision of the Government of Karnataka to refuse the benefit of deemed extension of lease, is in the public law domain and hence the correctness of the said decision can be called into question only in a superior court which is vested with the power of judicial review over administrative action. The NCLT, being a creature of a special statute to discharge certain specific functions, cannot be elevated to the status of a superior court having the power of judicial review over administrative action. The NCLT is not even a Civil Court, which has jurisdiction by virtue of Section 9 of the Code of Civil Procedure to try all suits of a civil nature excepting suits, of which their cognizance is either expressly or impliedly barred. Therefore, NCLT can exercise only such powers within the contours of jurisdiction as prescribed by the statute, the law in respect of which, it is called upon to administer. From a combined reading of sub-section (4) and sub-section (2) of Section 60 with Section 179, it is clear that none of them hold the key to the question as to whether NCLT would have jurisdiction over a decision taken by the government under the provisions of MMDR Act, 1957 and the Rules issued there-under. The only provision which can probably throw light on this question would be Sub-section (5) of Section 60, as it speaks about the jurisdiction of the NCLT. Clause (c) of Sub-section (5) of Section 60 is very broad in its sweep, in that it speaks about any question of law or fact, arising out of or in relation to insolvency resolution. But a decision taken by the government or a statutory authority in relation to a matter which is in the realm of public law, cannot, by any stretch of imagination, be brought within the fold of the phrase "arising out of or in relation to the insolvency resolution" appearing in clause (c) of sub-section (5).

While answering the second issue, the Supreme Court whilst referring to Section 65 of the Code (which specifically deals with fraudulent or malicious initiation of proceedings) observed that if, as contended by the Government of Karnataka, the CIRP had been initiated by one and the same person taking different avatars, not for the genuine purpose of resolution of insolvency or liquidation, but for the collateral purpose of cornering the mine and the mining lease, the same would fall squarely within the mischief addressed by Section 65(1). It was thus held that the NCLT has jurisdiction to enquire into allegations of fraud. As a corollary, NCLAT will also have jurisdiction. Hence, fraudulent initiation of CIRP cannot be a ground to bypass the alternative remedy of appeal provided in Section 61.

8. Whether Sole Proprietorship firm can file application under Section 7 or Section 9 of the Code?

The NCLT, New Delhi had earlier held in the matter of R.G. Steels vs. Berry Auto Ancillaries (P) Ltd. that a sole proprietorship firm would not be covered under the definition of "person" under the Insolvency and Bankruptcy Code. However, recently, in the matter of Neeta Saha v. Mr. Ram Niwas Gupta,7 the NCLAT reversed this decision and held that Section 2 of the Code would be applicable to sole proprietorship firms as well. It was also observed by the Appellate Authority that the definition of "person" in Section 3(23) of the Code is not exclusive, but an inclusive one.

9. Whether initiation of proceedings under SARFAESI Act precludes the Financial Creditor to initiate proceedings under Section 7 of the Code and whether filing of the insolvency petition in such a case attracts Section 65 of the Code?

In Punjab National Bank v. Vindhya Cereals,8 the Adjudicating Authority i.e. NCLT, Ahmedabad issued a show cause notice to the Chief Manager of the Financial Creditor to show cause why he should not be penalised under Section 65 of the Code as the Financial Creditor had already initiated parallel proceedings under SARFAESI Act, 2002. The Financial Creditor went in appeal against the said order of the Adjudicating Authority.

The NCLAT formulated the questions for consideration before it as below:

  1. Whether a Financial Creditor can initiate parallel proceedings under SARFAESI Act, 2002 as well as under the Insolvency and Bankruptcy Code; and
  2. Whether filing of parallel proceedings attracts proceedings under Section 65 of the Insolvency and Bankruptcy Code?

Reversing the NCLT's view, the NCLAT held that the Financial Creditor can proceed simultaneously under SARFAESI Act, 2002 as well as under the Insolvency and Bankruptcy Code. It observed that Section 238 of the Code provides that the provisions of the Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by the virtue of any such law. Thus, the non-obstante clause of the I&B Code will prevail over any other law for the time being in force.

The NCLAT further observed that the Financial Creditor has initiated parallel proceedings against the Corporate Debtor in SARFAESI Act as well as the Code. Only on this ground, it cannot be inferred that proceedings against the Corporate Debtor are fraudulent or malicious. Therefore, mere filing of parallel proceedings does not attract Section 65 of the Code.


1. Civil Appeal Nos. 8512-8527 of 2019 and other petitions.

2. [2020] 113 421 (SC).

3. WP(Civil)No. 1074/2019 with other Civil Appeals.

4. Company Appeal (AT) (Insolvency) No. 926 of 2019.

5. [2020] 114 428 (NCL-AT).

6. Civil Appeal Nos. 9170 to 9172 of 2019, decision dated December 3, 2019.

7. Company Appeal(AT) (Insolvency) No. 321 of 2020, decision dated February 25, 2020.

8. Company Appeal (AT) (Insolvency) No. 854 of 2019, decision dated February 26, 2020.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.