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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 September 1, 2023 – September 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
- In IDBI Trusteeship Services Limited v. Direct Media
Distribution Ventures Private Limited (Company Appeal (AT)
Insolvency No. 850 of 2023), the NCLAT held that where the
date of default fell within the period covered under Section 10A,
any subsequent payment made after the Section 10A period does not
shift the date of default to take the same outside the Section 10A
period for a Section 7 application to be maintainable. - In Beetel Teletech Limited v. Arcelia IT Services
Private Limited (Company Appeal (AT)(Insolvency) No. 1459 of
2022), the NCLAT held that where the default was committed
prior to the Section 10A period and such default continues during
such 10A period, any liability accrued during the aforesaid period
could be aggregated with the principal for meeting the threshold.
Notably, the same view was taken by NCLAT in Narayan Mangal v. Vatsalya Builders &
Developers Private Limited (Company Appeal (AT) (Ins.) No. 294 of
2023.The NCLAT, in the present case, further held that in light of
Section 60 of the Indian Contract Act, 1872, which gives the
creditor the discretion to appropriate the payment received against
the interest, the Adjudicating Authority cannot question the manner
of appropriation by the creditor where the debtor had not clearly
stated anything otherwise. - The NCLAT, in Vikram Kumar v. Aranca (Mumbai) Private Limited
(Company Appeal (At) (Insolvency) No. 836 of 2023), held
that a Section 7 application is not maintainable against a
corporate guarantor where the corporate guarantee was invoked
during the period specified under Section 10A of the Code. - In Venkat Rao Marpina v. Vemuri Ravi Kumar (Company
Appeal (At) (Ch) (Ins.) No. 134/2022 ), the NCLAT upheld the decision of the
Adjudicating Authority to admit the Section 7 petition, by
observing that the advances given by a real estate buyer to the
developer would be considered as a borrowing and such amounts
raised from real estate buyers would amount to financial debt
within the meaning of Section 5(8)(f) of the Code.Interestingly, it appears that the financial creditor here was a
sole homebuyer, and could not have maintained a Section 7 petition
without meeting the threshold prescribed under the second proviso
to sub-section (1) of Section 7 of the Code. However, it appears
that both the Adjudicating Authority and the NCLAT had failed to
give due attention to the said aspect. - In Avinash Totade & Ors. v. Sinew Developers
Private Limited (Company Appeal (AT) (Insolvency) No.1131 of 2023
& I.A. No. 3941, 3899 of 2023), the NCLAT held that a
Section 7 application is not maintainable solely for the recovery
of interest. - Whether a CIRP application lies on account of a breach of a
settlement agreement elicited two diametrically opposite views from
the Principal Bench and Chennai Bench of NCLAT.The Principal Bench, in Ahluwalia Contracts (India) v. Jasmine Buildmart
Private Limited (Company Appeal (AT) (Insolvency) No. 345 of
2023), held that breach of a memorandum of settlement
arising out of an underlying operational debt which only specifies
the mode and manner of payment is capable of sustaining a Section 9
petition.However, the Chennai Bench of NCLAT, in Maulik Kirtibhai Shah v. United Telecoms Limited
(Company Appeal (AT) (CH) (Ins) No. 268/2023 IA No.834/2023 –
For Exemption) took a different view. The Chennai Bench of
NCLAT held that a settlement agreement does not come within the
definition of operational debt and the claims arising under a
memorandum of understanding loses the character of operational debt
and becomes a debt simpliciter. It was further held that the
definition of ‘operational debt’ cannot be given a wide
interpretation to include any agreement between the parties which
does not specifically pertain to supply of goods or services. - In Anuratan Textiles Private Limited v. Amaira
International Pvt Limited (Company Appeal (At)(Ins)
No.856/2021), the NCLAT relied upon the decision of the
Supreme Court in Indus Biotech Private Ltd Vs Kotak India Venture
(Offshore) Fund (earlier known as Kotak India Venture Limited) and
others (Arbitration Petition (Civil) No. 48/2019), to
reject a decision of the Adjudicating Authority to direct the
parties to refer the matter to arbitration based on an application
filed under Section 8 of the Arbitration and Conciliation Act,
1996. The NCLAT observed that when a petition is filed to initiate
CIRP, before entertaining any application filed under Section 8 of
the Arbitration Act, it needs to first adjudicate on the
application filed under the Code by recording a satisfaction with
regard to debt and default. - In the matter of Agarwal Polysacks Limited v. K. K. Agro Foods and
Storage Limited (Company Appeal (AT) (Insolvency) No.1126 of
2022, while examining the issue of whether a written
contract is a pre-condition for proving a financial debt, the NCLAT
noted that the usage of the word ‘or’ in Regulation 8 of
Insolvency and Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016,
(“CIRP Regulations“) would indicate that
the said regulation does not contemplate execution of all the
documents mentioned in such regulation and that the existence of
debt can be proved by any of the documents referred to in
sub-regulation (2).Further, while noting that a financial debt could be proved from
other relevant documents, and not necessarily a written contract,
the NCLAT observed that Form 26AS entries could be used to prove
financial debt if it corroborates to the claim of the financial
debt.
CIRP STAGE
- The NCLAT, in Engineering Mazdoor Parishad Devas Through Its
General Secretary v. Teena Saraswat Pandey, Resolution Professional
of S & H Gears Private Limited (Comp. App. (AT) (Ins.) No. 1200
of 2023) held that the resolution professional was
justified in admitting the claim of workmen on the basis of the
amount specified in the balance sheet of the corporate debtor,
where the workmen failed to provide relevant records to
substantiate their claim. - In Mayuras Industrial Services v. S R Shriraam
Shekher (Company Appeal (AT) (CH) (Ins) No. 07/2023 (IA No.
45/2023), the NCLAT held that where the Committee of
Creditors (CoC) has approved withdrawal of CIRP with more than 90%
of voting share, such decision cannot be rejected by the
Adjudicating Authority. - In Dauphin Cables Private Limited v. Praveen Bansal
(Company Appeal (AT) Insolvency No. 971, 972 & 973 of
2023), the NCLAT relying upon Regulation 36 of CIRP
Regulations, held that shareholder is not entitled to ask for
documents and calculations on basis of which claim of the financial
creditor has been admitted. - In Deputy Commissioner, UTGST, Daman v. Rajeev
Dhingra (Company Appeal (AT) (Insolvency) No.1340 of
2022), the NCLAT held that the decision of resolution
professional or CoC to reject a belated plan which contained
various infirmities like non-submission of duly signed net worth
certificate, audited financial statements, etc. could not be
successfully challenged, even where such a plan was more viable
than the accepted resolution plan. The NCLAT further held that
where a plan is rejected by CoC, the Adjudicating Authority cannot
question the commercial wisdom of the CoC nor deal with the merits
of resolution plan unless it is found to be contrary to the express
provisions of law and against the public interest.Further, the NCLAT held that the decision of resolution
professional to not accept a delayed statutory claim filed after
the approval of the resolution plan by the CoC could not be
challenged as the CIRP Regulations do not enable the resolution
professional to admit a claim beyond the prescribed time
period. - While analysing the definition of a corporate person, the
NCLAT, in Nitin Pannalal Shah v. Vijay Raja (Company Appeal
(AT) (Insolvency) No. 379 of 2021), noted that an entity
which is registered as stock brokers under the SEBI Act, 1992 read
with the SEBI (Stock-Brokers and Sub-Brokers) Regulations, 1992
would qualify as a financial service provider and would be outside
the ambit of a corporate person defined under Section 3(7) of the
Code and a corporate debtor defined under Section 3(8) of the Code
for a Section 7 application to be maintainable against such
entity.Further, on the point of maintainability of appeals filed by the
NSE against an order of admission filed against a stockbroker, the
NCLAT noted that NSE being the market regulator had the locus to
maintain such an appeal. - In SAJ housing Private Limited v. Priyanka Chouhan
(Company Appeal (AT)(Insolvency) No. 1093 of 2022), the
NCLAT, relying upon the decision of the Supreme Court in Orator Marketing (P) Ltd. v. Samtex Desinz (P)
Ltd ( Civil Appeal No. 2231 of 2021), noted
that that the concept oftime value of moneywould also include a
transaction that does not necessarily culminate into money being
returned to the lender or interest being paid in respect of money
that has been borrowed and can include anything which is equivalent
to the money that has been loaned as long as commercial effect of
borrowing or profit as the aim is discernible. It, therefore, held
that a financial debt does not exclude an interest free
loan and merely because there was no interest associated, the
nature of financial debt would not change. However, eventually the
NCLAT noted that no financial debt existed as the amount was
invested as return of profit share.Further the NCLAT held that the decision of the CoC to approve
liquidation within 38 (thirty-eight) days of CIRP cannot be faulted
where the corporate debtor was not in a running condition, nor had
any employee or business activity. - The NCLAT, in Mr. Vijay Kumar Garg v. Power Grid Corporation of
India Limited (Company Appeal (AT) (CH) (INS.) No. 260 of
2023), reiterated the well settled principle that bank
guarantees are not assets or liabilities of the corporate debtor,
and held that invocation of a bank guarantee cannot be limited by
the moratorium, while refusing to interfere with a reasoned order
of the Adjudicating Authority.
LIQUIDATION STAGE
- In Pooja Deora v. Rajeev Sharma (Company Appeal (AT)
(Insolvency) No. 1288 of 2022), the NCLAT held that where
the CIRP period was coming to an end and there was no resolution
plan, the decision of the CoC to liquidate the corporate debtor
cannot be challenged.
The update was first published on
Bar & Bench.
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