IBC – NCLAT Fornightly Summary (December 16, 2023 – December 31, 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 December 16, 2023 – December 31, 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 R S Infra v. R P Infraventure Pvt. Ltd. (Company
   Appeal (AT) (Insolvency) No. 80 of 2023 & I.A. No.331 of
   2023), the NCLAT observed that TDS deduction does not
   imply acknowledgement of any liability as outstanding qua
   the operational creditor, to fasten the debt liability on corporate
   debtor. The NCLAT further observed that in a Section 9 proceeding,
   there is no need to enter into final adjudication with regard to
   existence of dispute as long as the defense raised is not a
   moonshine defense.

2. The NCLAT, in Hiren Meghji Bharani v. Shankheshwar Properties
   Private Limited (Company Appeal (AT) (Insolvency) No.446 of
   2023), had observed that, where the existence and default
   in relation to a financial debt could be established through other
   documents (such as admission of liability in the balance sheet and
   records of debt of National E Governance Services Limited), and the
   unstamped agreements/instruments was not relied upon, the mere
   presence or availability of such instrument would not render the
   entire admission process as non-maintainable.

CIRP STAGE

1. In the matter of Kolkata Municipal Corporation v. Bengal Shelter
   Housing Development Limited and Ors. (Company Appeal (AT)
   (Insolvency) No.81 of 2023 & I.A. No. 335 of 2023),
   the NCLAT held that where the corporate debtor had obtained
   possession and development right vis-à-vis a land parcel in
   breach of the transfer restriction contained in original title
   deed, such development right could not be treated as an asset of
   corporate debtor under Section 18 of the Code, nor could the
   moratorium be applied as a defense to deny regaining of possession
   of such land from the corporate debtor.




2. The binding nature of a plan upon
   the CoC, pending its approval by the Adjudicating Authority and
   permissibility of the plan being withdrawn or reconsidered by the
   CoC was considered by the NCLAT in cases involving (a) Jubilee Metal Pvt. Ltd. v. Mr. Surendra Raj Gang
   RP of Metenere Ltd. and Anr. (Company Appeal (AT) (Insolvency) No.
   1550 of 2023); and (b) Nivaya Resources Private Limited v. Asset
   Reconstruction Company (India) Limited & Anr. (Company Appeal
   (AT) (Insolvency) No. 1184 of 2022 & I.A. No. 3573 of
   2022).

   In both the cases, the NCLAT observed that the law is well-settled
   that the resolution plan approved by the CoC is binding on the CoC
   and except in exceptional circumstances, such decision cannot be
   reviewed or reconsidered.

   Examples of such exceptional circumstances which would allow
   reconsideration of approval of plan by COC was noted in Jubilee
   Metal (supra) where the NCLAT had observed that the
   restriction on reviewing such a decision would not apply where the
   resolution applicant itself has breached the terms and conditions
   of the plan in a manner resulting in the very basis and substratum
   of the resolution applicant, which led the CoC to approve the plan,
   being knocked out on account of change in control of the resolution
   applicant. Accordingly, the NCLAT allowed the application filed by
   the CoC for withdrawal of approved resolution plan upon the SRA
   changing shareholding pattern in a manner that the ultimate
   beneficial owner had changed.

   Similarly, in Nivaya Resources (supra), the NCLAT
   observed that examples of such circumstances, inter alia,
   include where the SRA acquires any ineligibility subsequent to the
   approval of the Resolution Plan or there is breach of any condition
   of the resolution plan which make the successful resolution
   applicant not entitled to implement the resolution plan. In the
   instant case, however, the NCLAT held that (a) downgrading of
   credit rating of the successful resolution applicant; and (b)
   freezing order against the parent company of the successful
   resolution applicant, would not be a ground for reconsideration of
   resolution plan.

3. In Jubilee Metal Pvt. Ltd. v. Mr. Surendra Raj Gang
   RP of Metenere Ltd. and Anr. (Company Appeal (AT) (Insolvency) No.
   1550 of 2023), while allowing the forfeiture of
   performance bank guarantee given by SRA in terms of RFRP, the NCLAT
   observed that while Regulation 36B(4A) of CIRP Regulations provides
   for such forfeiture after the approval of the resolution
   plan, such clause did not prohibit forfeiture of performance
   security prior to approval of plan by the Adjudicating
   Authority, where such forfeiture has been done in furtherance of
   provisions contained in RFRP.

4. In Nivaya Resources Private Limited v. Asset
   Reconstruction Company (India) Limited & Anr. (Company Appeal
   (AT) (Insolvency) No. 1184 of 2022 & I.A. No. 3573 of
   2022), the NCLAT observed that, while failure to implement
   another resolution plan requires disclosure of reasons of such
   failure under Regulation 38(1B) of IBBI (Insolvency Resolution
   Process for Corporate Persons) Regulations, 2016, such failure does
   not attract ineligibility in the manner Section 29A of the Code
   makes the person ineligible to submit a resolution plan.

5. In Masatya Technologies Private Ltd. v. Amit Agarwal
   (Company Appeal (AT) (Insolvency) No.1688 of 2023), the
   NCLAT held that the Adjudicating Authority was permitted to reject
   the plan approved by the CoC and issue direction for fresh
   publication of Form -G, when certain additional valuable assets of
   corporate debtor were identified subsequently and was not made part
   of information memorandum, inclusion of which could have increased
   valuation of the corporate debtor.

6. In IDBI Bank v. Sumit Binani (Company Appeal (AT)
   (CH) (INS.) No. 385 / 2023), the NCLAT held that the
   resolution professional is empowered to reject the CoC’s
   proposal for renewal of bank guarantees provided by the corporate
   debtor, prior to the initiation of the CIRP when such renewal would
   not lead to any advantage or any valuable gains.

7. In Harish Raghavji Patel v. Clearwater Capital
   Partners (Company Appeal (AT) (Insolvency) No.446 of
   2023), the NCLAT that when default is committed during
   Section 10A period, which continued even post Section 10A period, a
   Section 7 application is fully maintainable in relation to any
   default occurred subsequent to Section 10A period as long as the
   relevant threshold is met.

   The NCLAT further observed that presence of debenture trustee does
   not bar the debenture holder from initiating Section 7 in their
   individual capacity.

8. In Mukesh Kumar Jain v. Navin Kumar Upadhyay &
   Anr. (Company Appeal (AT) (Insolvency) No. 930-931 of
   2023), the NCLAT held that, stay of an admission of a CIRP
   would not require the resolution professional to hand-over the
   charge of corporate debtor to erstwhile management, as such step
   would be disastrous and adversely affect the creditors of the
   corporate debtor. It further went on to observe that, while the RP
   cannot take any further steps in the CIRP of the corporate debtor
   and has to stay his hand from proceeding any further in the CIRP,
   the RP would still be bound to take decision in his wisdom as to
   how the corporate debtor should be allowed to continue as a going
   concern without taking any steps in the CIRP.

9. In Mehul Parekh v. Unimark Remedies (Company Appeal
   (AT) (Insolvency) No. 839 of 2023), the NCLAT held that a
   resolution plan cannot be faulted for differentiating between a
   related party and other similar category creditors, nor can it be
   faulted for allocating nominal amount towards the employees, where
   liquidation value payable to such employees being nil in terms of
   section 53 of the Code.

   The NCLAT further observed that as Section 28 of the Code does not
   mandate the approval of CIRP cost by CoC, the Adjudicating
   Authority’s decision to task CoC with redetermination of CIRP
   cost was not valid.

   Finally, the NCLAT held that determination of CIRP cost and
   payment of CIRP cost to those who found entitled to receive the
   payments is an independent process from any recovery from
   promoters/ KMPs, and hence such determination and payment cannot be
   made subject to avoidance proceedings.

10. The NCLAT, in Jaipur Trade Expocentre Private Limited v. Metro
    Jet Airways Training Private Limited & Ors (Company Appeal (AT)
    (Ins.) No. 1224 of 2023) has observed that the decision of
    the CoC to liquidate cannot be arbitrary but has to be accompanied
    with reasons.

    Further, the NCLAT held that there is no bar in a single
    operational creditor constituting a CoC.

11. In The Consortium of Murari Lal Jalan & Florian
    Fritsch v. Ace Aviation VII Ltd. & Ors. (Company Appeal (AT)
    (Insolvency) No. 1517 of 2023), the NCLAT held that
    Section 60(5) of the Code empowers the Adjudicating Authority to
    have jurisdiction over any proceedings “arising out of”
    resolution process including implementing sale process, if
    contemplated under the resolution plan approved by it.

LIQUIDATION STAGE

1. In Mehulkumar Arvindbhai Patel and Anr. v. Vinod
   Tarachand Agarwal (Company Appeal (AT) (Insolvency) No.1598 of
   2023), the NCLAT held that the suspended directors are not
   required to be given notice nor are they necessary party to a
   liquidation application. It further observed that approval of
   liquidation cannot be recalled merely basis non-providing a notice
   of hearing to the suspended board when the directors were privy to
   all the developments on account of attending all the CoC
   meetings.

MISCELLENEOUS

1. In VO Chidambaranar Port Authority v. Shri Rajesh
   Chillale (Company Appeal (AT) (CH) (Ins) No. 412 of 2023),
   the NCLAT held that a bailee (claimant-port in the instant case)
   cannot claim to be a secured creditor on account of the provision
   contained under Section 171 of the Indian Contract Act, 1872, where
   the assets were not in possession of such bailee.




2. In Aar Kay Industries Prop. Indian Securities Ltd. v.
   Jatalia Global Venture Ltd. (Company Appeal (AT) (Ins.) No. 1428 of
   2023), the NCLAT held that a financial creditor filing
   section 7 application is fully entitled to amend the application
   and file additional documents for the first time even at the stage
   of appeal, although such documents were not filed with the
   Adjudicating Authority earlier.

The update was first published on Bar & Bench.

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.