1. Notification u/s 4 of the Code raising the minimum default limit will do not apply to the applications pending for admission
Foseco India Limited Vs. Om Boseco Rail Products Limited
In the present case, the National Company Law Tribunal, Kolkata Bench ("NCLT") vide its order dated 20.05.2020 admitted the application filed under section 9 of the Insolvency and Bankruptcy Code, 2016 ("I&B Code") stating that the Central Government Notification u/s 4 of the Code dated 24.03.2020, raising the minimum default limit will do not apply to the applications pending for admission.
An application was filed by the Foseco India Limited ("Operational Creditor") under section 9 of the Code against Om Boseco Rail Products Limited ("Corporate Debtor") for the default of payment against the invoices raised by the Operational creditor. NCLT allowed the application by ex-parte order due to the absence of the Corporate Debtor with a direction to pay Rs. 1 lakh and directed to submit a reply within ten days from the date of order. Finally, when the matter was taken for final hearing on 13.03.2020, the Corporate Debtor requested seven days to settle the matter allowed by NCLT. During this time, COVID-19 Pandemic disrupted the working of the judicial work, and accordingly, this matter was taken up on 20.05.2020 through video Conference.
When the matter was taken up by NCLT through video Conference, the counsel for the Corporate Debtor argued that the amendment to Section 4 of the I&B Code vide Notification, where the minimum amount of default limit was increased from one lakh to one crore for initiating CIRP shall be considered as a retrospective and the application filed by the Operational Creditor should be dismissed for want of pecuniary jurisdiction as the amount involved was below one crore.
Accordingly, the question dealt before NCLT was whether the Notification u/s 4 of the I&B Code raising the minimum default limit will apply to the pending applications for admission. NCLT stated that it is well settled in law that the statue is presumed to be prospective unless it is held to be retrospectively given expressly or by necessary implication. It was further stated that the amendment made to Section 4 of the I&B Code nowhere mentioned that it would be applied retrospectively. Accordingly, the application was admitted.
2. The resolution plan approved by the COC is binding on all stakeholders, including the central state or local departments.
Ultra Tech Nathdwara Cement Ltd Vs. Union of India through the Joint Secretary, Department of Revenue, Ministry of Finance and Ors
[D.B. Civil Writ Petition No. 9480/2019]
The Hon'ble High Court of Rajasthan vides its order reaffirmed the supremacy of the Insolvency and Bankruptcy Code, 2016 (IBC) over any other law for the time being in force and categorically observed that the provisions of an approved resolution plan would be binding on all stakeholders of the corporate debtor, including statutory creditors.
In the present case, CIRP was initiated against Binani Cements Limited under the terms of Section 7 of the I&B Code, 2016 vide the order passed by the NCLT Kolkata Bench. Accordingly, Shri Vijay Kumar V. Iyer was appointed as the IRP. He collated and verified all the claims following the due process of law and with due diligence in which one the claims were of Revenue department amounting to INR 72.85 Crores.
Further, the resolution plan was also approved by the NCLAT vide its order dated 14.11.2018 which was further challenged by the Bank of Baroda (Financial Creditor) in the Apex court, but the apex court affirmed the order passed by the NCLAT thus giving finality to the approval of resolution plan .Pursuant to this order of Apex court, the petitioner (Ultratech Tech Nathdwara Cement Ltd Successful resolution applicant) took over the management of the Corporate Debtor and implemented the terms of the approved resolution Plan and made payments to all the creditors accordingly.
Despite the finality of resolution plan, the Revenue Department raised many demand notices in relation to the amounts and interest which became due and payable by the Corporate debtor prior to the date of commencement of its CIRP. The petitioner vide letter dated 26th November 2018 intimated to the Revenue Department that the due are paid according to the resolution plan. The residual debt will stand extinguished as per the policy. However, there was no positive response from the Revenue department on the same. Consequently, the petitioner filed a writ petition seeking to quash the demand notices and restrain them from raising any future demands from the petitioner towards the goods and service tax for the period before the resolution plan being finalized.
The petitioner argued that all the creditors' claims were settled as per the terms of the RP's approved resolution plan, which attained finality post the Apex court order. Accordingly, the Revenue Department does not have the jurisdiction to raise Demand Notices in relation to those debts which have already been settled under the terms of the resolution plan.
The Hon'ble High court observed that it is by virtue of the amended Section 31 of IBC that the Central Government, State Government, and local authorities have been put under the umbrella purview of the Approved Resolution Plan binding on them and their departments. The object of IBC is to ensure that industry under distress does not fade into oblivion and can be revived by virtue of the resolution plan and to secure this objective, and the IBC prescribes that the settlement of statutory dues as specified in an Approved Resolution Plan becomes binding on all such authorities to whom such dues are payable by the corporate debtor, and in this case, the Interests of the Department are better protected under the Ultratech Resolution Plan. Accordingly, it was held that the Department's action of addressing Demand Notices was illegal, arbitrary, and could not be sustained with that this writ appeal was allowed.
3. Statutory freeze under Section 14(1)(d) of the I&B Code shall also apply to the land possessed by the Corporate Debtor for development under Joint Development Agreement.
Rajendra K. Bhutta Vs. Maharashtra Housing and Area Development Authority And Another
[CIVIL APPEAL NO. 12248 OF 2018]
The Hon'ble Apex Court vide its judgment set aside the observations made by the NCLAT stating that Section 14(1)(d) of the I&B Code prohibits recovery of property "occupied," it does not refer to any rights or interests created in property, but the only actual physical occupation of the property will be considered.
The Hon'ble Apex Court rejected the contention of Maharashtra Housing and Area Development Authority ("MHADA") that it had executed a Joint Development Agreement ("JDA") with the Corporate Debtor to execute the necessary operations. It was only a license given to the Corporate Debtor w.r.t land and not the rights or interest was created therefore it can terminate such license during the CIRP process and is not barred under Section 14(1)(d) of the I&B Code 2016. The contention of MHADA was also upheld by Ld' NCLT, as well as NCLAT.
The Apex Court held that a bare reading of Section 14(1)(d) of the I&B Code, clearly states that it does not deal with any of the assets or legal right or beneficial interest in such assets of the corporate debtor and only refers to "recovery of any property." When recovery of property is to be made by an owner (in present case MHADA) under Section 14(1)(d), such recovery would be of property that is "occupied by" a corporate debtor which is barred.
4. Failure to hand over the unit's possession within the committed period due to force majeure doesn't make the corporate debtor liable.
Parvesh Magoo Vs. Ireo Grace Realtech Private Limited
[Company Appeal (AT) (Insolvency) No. 1141 of 2019]
In this case, Appeal was preferred by Parvesh Magoo - Financial Creditor against IREO Grace Realtech Private Limited ("Corporate Debtor/Respondent") who had booked a unit, No. 203, in Tower No. A6, having a super area of 1726.91 sq. ft., in the Real Estate project, being developed by the Respondent under the name of "The Corridors" situated at Sector 67A, Gurgaon, Haryana. Allotment letter was issued to the Financial Creditor on 7th August 2013 after collecting Rs.17,00,000/- (Rupees Seventeen Lacs Only) from him. Subsequently, Apartment Buyer's Agreement was executed on 3rd June 2014. As per Clause 13.3 of the agreement, the unit's possession was supposed to be delivered by July 2017 (i.e., 42 months from the date of approval of building plans). But the Corporate Debtor failed to deliver the possession as on that date.
Financial creditor paid all the installments promptly as per the terms of the agreement as and when the money was demanded, which is equal to Rs.1,59,29,016/- (Rupees One Crore Fifty Nine Lacs Twenty Nine Thousand and Sixteen only). Subject to failure to deliver the unit within the prescribed time Financial Creditor terminated the agreement vide e-mail dated 8th December 2018 and sought for a refund of the total amount which is paid along with the interest amount which equals to Rs.2,07,57,385/- (Rupees Two Crores Seven Lacs Fifty Seven Thousand Three Hundred and Eighty-Five only). Pursuant to that, Financial Creditor filed an Application under Section 7 of the I&B Code,2016, for initiation of the Corporate Insolvency Resolution Process, which was rejected.
NCLAT observed and noted that though the building plan's approval was received on 23rd July 2013, the said project could not be started as approvals from the Ministry of Environment and Fire Safety, which was mandatory before the commencement of construction, were not obtained. The Corporate Debtor obtained both the approvals on 12th December 2013 and 27th November 2014, respectively. Accordingly, the date of handover of possession was to be computed from the date of the grant of second approval. Therefore, the proposed time for handing over the possession, i.e., five years, was to expire on 27th November 2019.
Further, it was noted that the Corporate Debtor was supposed to handover the possession of the apartment within 60 months, i.e., 42 months (commitment period) + 6 months grace period + 12 months extended period from the date of approval of building plan and on fulfillment of the pre-conditions imposed thereunder as per the agreement. Before such said period, the letter for handing over possession was already issued to the Applicant.
The Bench referred to the judgment passed by the Hon'ble Supreme Court in Pioneer Urban Land and Infrastructure Limited &Anr. v. Union of India &Ors [WRIT PETITION (CIVIL) NO. 43 OF 2019] and stated that the Adjudicating Authority has to see whether the delay is due to the Corporate Debtor and in case the delay is not due to the Corporate Debtor, but force majeure as the situation, in this case, it cannot be alleged that the Corporate Debtor defaulted in delivering the possession.
The NCLAT held that the proviso inserted in sub-Section (1) Section 7 of the I&B Code, which came to be in force since 28th December 2019, though not applicable in this Appeal, the Adjudication Authority was required to take notice of the said provision. The Bench stated that it would be desirable to determine whether the allottees had come to claim the money or get their apartment by way of resolution. If the allottees' intention were only for recovery of the money and not for resolution for possession by apartment, the Developer would bring this to the notice of the Adjudicating Authority. Thus the NCLAT did not find any justification to interfere in the Impugned Order passed by the NCLT, and accordingly, the appeal was dismissed.
5. Adjudicating Authorities cannot go into the commercial wisdom of the COC.
Rai Bahadur Shree Ram and Company Pvt. Ltd. and Anr. Vs. Mr. Bhuvan Madanm Resolution Professional of Ferro Alloys Corporation Ltd and Ors
[CA(AT)(Ins) 207-208 of 2020]
In the above case before Hon'ble NCLAT, the Appellants pleaded for a judicial review of the Resolution Plan which was submitted by Sterlite Power Transmission Ltd. (SPTL) and duly approved by 95.15% of voting share of the Committee of Creditors (CoC) and which was further approved by the Ld' NCLT, Cuttack Bench. The Appellants also claimed that the settlement proposal emanating from the Appellants had been rejected by the Committee of Creditors with the requisite majority leaving no scope for the Adjudicating Authority to direct reconsideration of the settlement proposal. Appellants were of the view that NCLT failed to consider whether the approved Resolution Plan conformed with Section 30 of Insolvency and Bankruptcy Code, 2016 ("I&B Code"), and its objective i.e., maximization of value of assets of the Corporate Debtor.
The Hon'ble NCLAT was, however, of the view, "that Committee of Creditors acting based on the evaluation of Proposed Resolution Plan and assessment made by their team of experts, expressed their opinion after due deliberations in CoC Meetings through voting as per voting share which is a collective business decision. The commercial wisdom of the Financial Creditors individually or their collective decision is beyond the pale of the challenge before the Adjudicating Authority. The same has been made non-justiciable."
The Appellate Authority opined that the Committee of Creditors' commercial wisdom with the requisite voting majority is non-justiciable, and the discretion on Adjudicating Authority is circumscribed to the scrutiny of Resolution Plan as approved by the requisite majority voting share of the Financial Creditors. The inquiry postulated under Section 31 of the I&B Code is limited to matters covered under Section 30(2) of the I&B Code when the Resolution Plan does not confirm the stated conditions. The Hon'ble NCLAT did not find any material irregularity in the Corporate Insolvency Resolution Process as contended by the Appellants and held that the conformity of the approved Resolution Plan with the conditions stated in Section 32 of the I&B Code could not be questioned.
6. Claims which are not dealt with under the resolution plan would stand extinguished.
Santosh Wasantrao Walokar Vs. Vijay Kumar V. Iyer and Anr.
[CA (AT)(Ins) No. 871-872/2019]
The Hon'ble NCLAT, while dealing with appeals raised in the common impugned order dated 22.07.2019, passed by the Ld' NCLT, Mumbai Bench, which involves a common question of law, heard together and disposed of by this common judgment. One of the issues raised in the appeal was whether those claims that are not dealt with under the resolution plan could be held to be extinguished under the provisions of the I&B Code 2016.
The Appellant, the workers of the paper unit and solvent extraction industrial units of Murli Industries Ltd. ("Corporate Debtor") alleged that the NCLT has erroneously approved the Resolution Plan submitted by Dalmia Cement (Bharat) Limited ("Successful Resolution Applicant") vide the impugned order dated 22.07.2019. The approved Resolution Plan has been alleged to be discriminatory and threatening the livelihood of 1184 workers of the paper unit and solvent extraction industrial units of the Corporate Debtor by not paying outstanding wages and compensation for retrenchment. It is submitted by the Appellant that the claim has rejected by Vijay Kumar V.Iyer ("Resolution Professional"), inadvertently on account of lack of knowledge and proper advice, and the said claim was submitted in an incorrect form.
The NCLAT, relying on the Judgement, passed by the Hon'ble Supreme Court in Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors. And K.Sashidhar Vs. K. Sashidhar v. Indian Overseas Bank and Ors.C held that all claims must be submitted to and decided by the Resolution Professional so that a prospective resolution applicant knows precisely who has to be paid take over and run the business of the Corporate Debtor. The NCLAT also reiterated that NCLT should not be involved in the Committee of Creditors' commercial wisdom area, particularly in the approval of the commercial side of the Resolution Plan.
Accordingly, it was decided that the claims which have not been submitted to Resolution Professional or claims which have not been accepted or dealt with by the Resolution Professional in the resolution plan and such resolution plan submitted by the Resolution Professional have been approved, then such claims would stand extinguished.
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.