IBC – NCLAT Fornightly Summary (November 16, 2023 – November 30, 2023) – Insolvency/Bankruptcy

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 November 16, 2023 – November 30, 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

1. In Mist Avenue Private Limited v. Nitin Batra
   (Company Appeal (AT) (Insolvency) No. 127 of 2023 & I.A. No.
   463 of 2023), the NCLAT held that a single application to
   initiate consolidated CIRP is maintainable against multiple
   corporate debtors (having the status of landowners and/ or
   developers) who have come together to develop a real estate
   project.

   The NCLAT further observed that as long as the threshold for
   initiating section 7 is met, it is irrelevant that (a) not all of
   the applicants individually meet the threshold; or (b) claims of
   some of the joint applicants is barred by limitation.

   Finally, the NCLAT observed that as long as the numerical threshold
   for maintaining a section 7 application by the allottees was met at
   the time of filing of application, such application cannot be
   challenged on the basis of subsequent settlement entered into by
   some of the allottees.

2. In Sanjay D. Kakade v. HDFC Ventures Trustee Company
   Limited (Company Appeal (AT) (Insolvency) No.481 of 2023),
   the NCLAT observed that the commercial effect of borrowing covered
   under sub-clause (f) of sub-section 5(8) of the Code would subsume
   within it, amounts raised under transactions which are not
   necessarily loan transactions so long as they have commercial
   effect of borrowing.

   The NCLAT went on to observe that even raising of an amount by
   corporate debtor through issuance of shares would amount to
   commercial borrowing, where the said transaction has direct effect
   with the business. The presence of put option in the transaction
   documents where the corporate debtor and the promoters were obliged
   to purchase the shares held by the claimant at a specified internal
   rate of return contained clear indication that investment was with
   an eye to earn profit and the investment was for consideration for
   time value of money.

   The NCLAT also went on to observe that the mere fact that a decree
   had been obtained by a financial creditor would not take him out of
   section 7 proceedings, if ingredients of financial debt are in
   existence.

3. In Sanil Prakash Sahu v. Kotak Mahindra Bank Limited
   (Company Appeal (AT)(Insolvency) No. 1281 of 2023), the
   NCLAT held that an entry in the balance sheet does not cease to be
   an acknowledgement for the purpose of Section 18 of the Limitation
   Act, 1963, merely basis the notes to accounts of the balance sheet
   and the appended directors report narrating different stages of
   subsequent litigation.

   The NCLAT further noted that solvency of corporate debtor was not a
   ground to deny an application under section 7 of the Code.




4. In Alcon Laboratories (India) Private Limited v. Emco
   Tech Equipments Private Limited (Comp. App. (AT) (Ins) No. 215 of
   2023), the NCLAT held that pendency of proceedings under
   Section 138 of the Negotiable Instruments Act, 1881 would not
   amount to existence of a dispute under the provisions of the Code
   to deny admission of section 9 application.

CIRP STAGE

1. In Tulip Star Hotels Limited v. Anish Kumar Nanavaty
   (Company Appeal (AT) (Insolvency) No.1114-1115 of 2023),
   the NCLAT held that a financial creditor cannot claim the rate of
   interest specified under the settlement agreement entered into with
   the corporate debtor, once the settlement arrangement has been
   revoked.

   The NCLAT remitted the matter back to the resolution professional
   for reverifying the claim by noting that the resolution
   professional was duty bound to take steps for determination of rate
   of interest if such interest has direct nexus with the admitted
   claim in the CIRP.

2. In Puro Naturals JV v. Warana Sahakari Bank (Company
   Appeal (AT) (Insolvency) Nos.661-663 of 2023), the NCLAT
   held that a resolution plan providing for extinguishment of
   security interest and the guarantees of the financial creditors
   including dissenting financial creditors is not contrary to the
   provision of Section 30(2) of the Code and Regulation 38 of the
   Insolvency and Bankruptcy Board of India (Insolvency Resolution
   Process for Corporate Persons) Regulations, 2016.

   The NCLAT further held that the resolution plan need not provide
   for upfront payment to dissenting financial creditor as long as the
   payment is being made “in priority over the financial
   creditors who voted in favour of the plan”.

3. In Mahal Hotel Private Limited v. Govindarajula
   Venkata Narasimha Rao (Company Appeal (AT) (CH) (INS.) No.225/2023
   (IA Nos. 733, 734, 735 & 736/2023), the NCLAT held
   that where the Adjudicating Authority has rejected a claim, the
   same issue could not have again been re-agitated before the
   Adjudicating Authority, and the only remedy against such
   determination was to file an appeal under section 62 of the
   Code.




4. In Yarlagadda Krishna Mohan v. Dantu Indu Sekhar
   (Company Appeal (AT) (CH) (INS.) No. 370/2023 (I.A. Nos. 1130 &
   1131/2023), the NCLAT held that where the appellant had
   not made any request for copy of the plan and was allowed
   participation in the meeting of the CoC for consideration of the
   plan, the appellant cannot claim of being prejudices merely on
   account of non-furnishing of a copy of the plan.




5. In Sahyog Mega Chits Private Limited v. Mandeep
   Gujral (Company Appeal (AT) (Insolvency) No. 1455 of 2023 &
   I.A. No. 5206 of 2023), the NCLAT held that resolution
   plan cannot be faulted for not allocating money to creditors, whose
   liquidation value is nil under section 53 of the Code.

LIQUIDATION STAGE

1. In Jagadish Prasad Sarda v. Indian Bank (Company
   Appeal (AT) (CH) (INS.) No. 359/2023 (IA Nos. 1089, 1090, 1091,
   1092/2023), the NCLAT held that in absence of any
   possibility to continue the corporate debtor as a going concern, no
   challenge lies against CoC’s decision to approve
   liquidation.

2. The NCLAT, in Punjab National Bank (International Limited) v.
   Perfect Day INC (Company Appeal (AT) (Insolvency) No.1427 of
   2022) held that a financial creditor holding a miniscule
   stake cannot complain against the reserve price fixed by the
   liquidator.

   The NCLAT also went on to observe that it is not necessary that the
   process documents should specify that reliefs and concessions will
   be granted to the successful auction purchaser as the question of
   reliefs and concessions arises only when successful resolution
   applicant requires certain reliefs and concessions to run the
   corporate debtor as going concern.

MISCELLENEOUS

1. In Nipan Bansal, Resolution Professional of KSM
   Spinning Mills Limited v. Employees Provident Fund Organization
   (Company Appeal (AT) (Insolvency) No. 1454 of 2023 & I.A. No.
   5204, 5158 of 2023), the NCLAT held that when an
   application for certified copy is filed beyond 30 days, the
   applicant would not be entitled to exclude the period which was
   taken in the preparation of the order. The NCLAT further held that
   its jurisdiction to condone delay in filling appeal under proviso
   to Section 61(2) is limited to 15 days.

2. In Koinonia Coffee Private Limited v. Vijay Kumar
   Iyer (Company Appeal (AT) (Ins) No. 572 of 2023 & I.A. No. 2718
   of 2023), the NCLAT held that the resolution professional
   has the power to change the board of the corporate debtor’s
   subsidiary to secure the corporate debtor’s interest.

3. In India Power Corporation Limited v. Ravi Shankar
   Devarakonda (Company Appeal (AT) (CH) (Ins) No. 389 of 2023 (IA
   Nos. 1180, 1181, 1182, 1183, 1184 & 1185 of 2023), the
   NCLAT held that consultation with counsel and internal management
   was not sufficient ground to condone delay beyond 45 days
   prescribed under section 61 of the Code.




4. In Gold Star Realtors Limited v. ANS Apartment
   Limited (Company Appeal (AT) (Insolvency) No.1409 of
   2023), the NCLAT held that in the garb of clarificatory
   order, the Adjudicating Authority cannot issue final direction
   without hearing all objections.

The update was first published on Bar & Bench.

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