Case Law Compilation- Vol.1

Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited Vs. Axis Bank Limited Etc. Etc. [Civil Appeal Nos. 8512-8527/2019 & other appeals]

The Hon’ble Supreme Court held that the impugned mortgage transactions are preferential and hence has to be avoided. The Hon’ble Court also laid down a guideline of sorts for the Resolution Professional to adhere to before resorting to file an application u/s. 43 of the IBC, 2016. The Supreme Court further clarified that for any debt to be a ‘financial debt’ under the Code, it ought to satisfy the condition of being disbursed against the consideration for time value of money and by any mode of disbursal prescribed for a financial debt under section 5 (8) the Code. Since mortgages are not expressly covered under the said definition, the same cannot be viewed as a financial debt.

The Court highlighted an interesting distinction between a person having ‘security interest’ and a financial creditor. The Court held that for a person to be a ‘financial creditor’ it needs to be shown that the corporate debtor owes a financial debt to such person. The Court further held that while every ‘secured creditor’ and every ‘financial creditor’ is a ‘creditor’, every ‘secured creditor’ may not be a ‘financial creditor’ for the purposes of the Code.

Beacon Trusteeship Ltd. Vs. Earthcon Infracon Private Limited & Anr. (CIVIL Appeal No (S).7641/2019 (Supreme Court)

Beacon Trusteeship Ltd. and Earthcon Infracon Private Limited entered into a Debenture Trust Deed (DTD). Subsequently, an Application under Section 7 of the IBC was filed by the instant Appellant before the Adjudicating Authority and the Respondent No.2 herein had filed a Section 9 under the Arbitration and Conciliation Act. The Section 7 Application was admitted by the Adjudicating Authority initiating the CIRP. Further on appeal, the NCLAT reversed the order of CIRP and hence this appeal in the Hon’ble Supreme Court.

Allegations under Section 65 of the IBC was looked into by the Supreme Court and the Apex Court felt it necessary for the Adjudicating Authority to go into the merits of the same as an allegation related to the collusion of the parties is being raised. The Court also observed that that this plea could not have been raised in the appellate forums directly. The Apex Court further observed that such an objection raised would have to result in an application to the said extent filed before the Adjudicating Authority itself and the same would have to be dealt in accordance with law.

The Court relegated the matter to be heard by the Adjudicating Authority and held that the Adjudicating Authority has to look into the proceedings to see if the same had been initiated in accordance with law and appropriate orders have to be passed, taking into consideration the facts and circumstances of the case. The Court without getting into the merits of the NCLAT Order set the same aside and disposed of the appeal in accordance with the aforesaid direction

Maharashtra Seamless Limited vs Padmanabhan Venkatesh & Ors. CIVIL APPEAL NO. 4242 OF 2019

An application under Section 7 of IBC was filed by Indian Bank against United Seamless Tubulaar Private Limited. The said application was subsequently admitted by National Company Law Tribunal, Hyderabad.

Two registered valuers were appointed by the RP, the Corporate Debtor was valued at Rupees 681 Crore and Rupees 513 Crore respectively. A third valuer was appointed which valued the Corporate Debtor at Rupees 352 Crore. Accordingly, the average of the two closest estimates of valuation of liquidation value was assessed to be Rupees 432.92 Crore. Further based on the Order of the NCLT it was revalued and revised from Rupees 432.92 Crore to Rupees 597.54 Crore.

The Resolution Applicant was asked to revise its offer to match the Liquidation value of the CD and an Application was filed before the NCLT and subsequently the NCLAT on appeal in the instant application and directed the Resolution Applicant to deposit the differential amount.

The Resolution Applicant filed an Application before the Apex Court seeking refund of the sum deposited in terms of the Resolution Plan along with interest as well as withdrawal of Resolution Plan due to inordinate delays in implementation.

The Supreme Court held that there is no provision in the Code or Regulations under which the bid of any Resolution Applicant has to match liquidation value arrived in the manner provided in Clause 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The Supreme Court further held that the object behind prescribing such valuation process is to assist the Committee of Creditors to take decision on a resolution plan properly. Once a resolution plan is approved by the CoC, the statutory mandate on the Adjudicating Authority under Section 31(1) of the Code is to ascertain that a resolution plan meets the requirement of sub-sections (2) and (4) of Section 30 thereof. The Hon’ble Court also felt that ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis alone. Thus, the Supreme Court did not find any breach of the said provisions in the order of the Adjudicating Authority in approving the resolution plan.

On the second issue, the Supreme Court held that the exit route prescribed in Section 12A is not applicable to a Resolution Applicant. The procedure envisaged in the said provision only applies to applicants invoking Sections 7, 9 and 10 of the Code.

Punjab National Bank Vs. Mr. Kiran Shah Liquidator of ORG Informatics Ltd, Company Appeal (AT) (Insolvency) No. 102 of 2020.

The Committee of Creditors of which Punjab National Bank is the lead Bank, decided to move an application for liquidation of the ‘Corporate Debtor. The Application filed by the RP u/s 33 and 34 of IBC, 2016 was accepted by the Adjudicating Authority Ahmedabad Bench, Ahmedabad vide order dated 20.11.2019. The Resolution Professional was appointed as Liquidator. Aggrieved by the Liquidator appointment Punjab National Bank preferred the instant appeal before the NCLAT.

The NCLAT ordered that it is not inclined to interfere with the impugned order as after the liquidation process commences the ‘Committee of Creditors’ has no role to play and they are simply a claimant whose matters are to be determined by the Liquidator. This order distinguishes the rights and power of the COC prior and post the order for Liquidation.

Flat Buyers Association Winter Hills – 77 Gurgaon Vs. Umang Realtech Pvt. Ltd through IRP & Ors. Company Appeal (AT) (Insolvency) No. 926 of 2019.

This is a case wherein the Flat Buyers Association of Winter Hills -77, Gurgaon and the Petitioning Creditors Mrs. Rachna Singh and Mr. Ajay Singh (Allottees) who want Corporate Insolvency Resolution Process for resolution, though they do not want approval of any plan of a third party Resolution Applicant. (REVERSE CIRP).

The Hon’ble NCLAT categorically for the first time held that the allottees/homebuyers are unsecured Financial Creditors.

The NCLAT further observed that the Infrastructure which is constructed for the allottees by Corporate Debtor (Infrastructure Company) is an asset of the Corporate Debtor and be transferred in their favour and not in favour of the Secured Creditors.

NCLAT also held that CIRP against a real estate company (Corporate Debtor) is limited to a project as per approved plan by the Competent Authority and not other projects which are separate at other places for which separate plans approved.

The NCLAT made it clear that even during the Corporate Insolvency Resolution Process, the Interim Resolution Professional can also sell the unsold flats/apartments, by way of a Tripartite Agreement between the Purchaser, Interim Resolution Professional/ Resolution Professional and Promoter (a Lender of sorts herein who was outside the purview of the CIRP process) who steps in only as a financial Creditor who pumps in money to ensure the completion of project.

The Hon’ble Court observed that a conventional CIRP process would not work herein and instead suggested that a ’Reverse Corporate Insolvency Resolution Process’ can be followed in the cases of real estate infrastructure companies in the interest of the allottees and survival of the real estate companies and to ensure completion of projects which provides employment to large number of unorganized workmen.

The proceeds as may be generated from such sale should be utilized for completion of the project and payment to Financial Institutions/Banks and Operational Creditors. Once the project is completed, the Interim Resolution Professional has been directed to move an application before the Adjudicating Authority with the report of completion and ask for disposal of application under Section 7.

Radhika Mehra Vs. Vaayu Infrastructure LLP & Ors. [CA(AT)(Ins) No. 121/2020]

A writ Petition was filed by the instant Appellant before the HC against the order of the AA initiating CIRP, which was dismissed as withdrawn. Subsequent to which the appellant herein filed an appeal before the NCLAT, and a prayer also seeking exclusion of time of proceeding bona fide spent in court without jurisdiction under section 14 of the Limitation Act, 1963.

The NCLAT observed that said section relates to the period of limitation for any suit. Relying on section 238 of the Code, it held that section 61(2) of the Code shall override section 5 of the Limitation Act. As the appeal was filed after 45 days from the date of receipt of the order, it held that it has no jurisdiction to entertain the appeal and the said appeal was dismissed. However, a liberty was given to the Appellant to intervene itself in another appeal which was pending against the same impugned Order and raise issues in support of the Appellant therein.

Santosh Wasantrao Walokar Vs. Vijay Kumar V. Iyer and Anr. [CA(AT)(Ins) No. 871-872/2019]

The most important issue that was considered by the NCLAT was whether the claims that are not dealt with under the resolution plan can be extinguished under the Code. The NCLAT, relying on the Essar Steel judgment of SC, held that all claims must be submitted to and decided by the RP, and a prospective resolution applicant knows exactly who has to be paid and how much, for it to take over and run the business of the CD.

It was held that the claims that are not submitted or are not accepted or dealt with by the RP and on approval of the resolution plan submitted by the RP before the Adjudicating Authority, those claims would stand extinguished.

Sh G Eswara Rao Vs. Stressed Assets Stabilisation Fund & Anr. [CA(AT)(Ins) No.1097/2019]

The appellant challenged the order of admission passed by the Adjudicating Authority claiming that the debt was barred by limitation. The NCLT, taking into consideration that d raise issues in support of the Appellant therein.the DRT, by order had passed a decree for recovery of debt, held that the application for initiation of CIRP is not barred by limitation.

The NCLAT set aside the order of the NCLT and observed that CD failed to pay the debt prior to 2004 which caused the application before the DRT. A decree passed by DRT or any suit is not an acknowledgement of debt and hence cannot shift the date of default. The NCLAT stressed on the fact that limitation for initiation of CIRP runs from the date of default.

In Re: Cognizance for Extension of Limitation [Suo Motu Writ Petition (Civil) No (S).3/2020]

The Hon’ble Supreme Court of India in exercise of its powers under Articles 141 and 142 of the Constitution, vide its Order dated 23.03.2020 took suo moto cognizance in the wake of the pandemic Covid-19 of the difficulties faced by the liigants. The Hon’ble Court ordered that in a bid to reduce the physical filings in courts and tribunals across the country, the period of limitation prescribed under the Arbitration and Conciliation Act, 1996 and under section 138 of the Negotiable Instruments Act 1881 shall be extended with effect from 15.03.2020 till further orders are passed by this Hon’ble Court in proceedings.

The Hon’ble Court also held that in case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown. The same shall be binding on all Courts/Tribunals and authorities.

Mr. Ajay Kumar Bishnoi Vs. M/s. Tap Engineering [CRL. OP No. 34996/2019 & Ors.]

The Hon’ble High Court of Madras has held that no clause in the Corporate Resolution Insolvency Plan even if approved by the AA/AT can replace the power and jurisdiction of the criminal courts to conduct proceedings or dispose of the same before it is in accordance with the provisions of the Criminal Procedure Code. It was held that the main object of Section 138 of the NI Act is to safeguard the credibility of commercial transactions and to prevent cheque bouncing by providing a personal criminal liability against the defaulter of the cheque in public interest. Therefore, even if the resolution plan was approved and made binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders under Section 31 of the IBC,2016, criminal proceedings under Section 138 NI Act shall not be slackened. The Hon’ble Bench was disinclined to invoke the inherent powers of the Court under Section 482 of Cr.PC in favor of the petitioner and refused to quash the complaint.

Reliance India Power Fund, Reliance Capital Vs. Mr. Raj Kumar Ralhan [CA(AT)(Ins) No. 318/2020]

It was submitted by the Appellant that as per Section 35(1)(k) of the Code, it is the liquidator’s duty to defend any legal proceedings, suits etc., being filed against the Corporate Debtor. The NCLAT has held that duty of the liquidator also includes any conscious decisions which the liquidator may have to take in the given situation that he may be in and it is of most importance that he defends any proceedings which may come his way while he is in-charge of the liquidation procedure with respect to that corporate debtor.

Mr Srikanth Dwarakanath Liquidator of Surana Power Limited Vs. Bharat Heavy Electricals Limited Company Appeal (AT) (Insolvency) No. 1510 of 2019

The NCLAT has relied upon enforcement of security interest as governed by Section 13 of the SARFAESI Act and specifically on Section 13(9) of the SARFAESI Act, 2002. Any steps to be taken on the realization of assets by the secured creditors requires confirmation from the creditors having at least 60% of the value of total debt. The NCLAT observed that all the secured creditors are on the same footing regardless of the mode of creation of charge.

The NCLAT thus, held that the secured creditors having 73.76% in value have already relinquished their security interest over specific assets into the liquidation estate. Thus, it would be prejudicial to stall the liquidation process at the instance of a single creditor having only 26.24% share (in value), over the same secured assets. The Respondent does not have a requisite 60% value in secured interest, therefore the Respondent does not have right to realize its security interest, because it would be detrimental to the liquidation process and the interest of the remaining secured creditors.

Shri Ramchandra D Chaudhary Vs. CIT [C.P(I.B) No.127/NCLT/AHM/2017]

The NCLT has held that time is of essence in the Code and the CIRP has to be completed in a time bound manner and if the attachment of bank account is not reversed by the Income Tax Commissioner then the object of the Code will get frustrated. Hence, when the respondent in the instant case has already filed their claim with the RP. Keeping in mind section 238 of the Code, the notice of the Income Tax Department under Section 226(3) of the Income Tax, 1961 shall not hold good and the Code shall subsist, hence concluding that the lien so made by the Income Tax Department does not hold good. The NCLT directed that the lien/attachment is to be reversed by the Income Tax Department.

M/s NN Enterprises Vs. Relcon Infra Projects Limited [CP(IB)3980/MB/C-IV/2018]

The issue was whether the applicant being an unregistered partnership firm can initiate CIRP in view of section 69 of the Indian Partnership Act, 1932. The AA held that section 69(2) of the Act applies to suits, and, therefore, cannot apply to proceedings under the Code. The Mumbai Bench of the NCLT stated that admitting the petition against the Corporate Debtor would cause grave prejudice to it. The NCLT also held that it may be prudent to leave the parties to work out their remedies under other laws before a civil court, rather than to decide the issue under summary proceedings, which the IBC contemplates. Admitting the petition in such circumstances would amount to gross misuse of the IBC and abuse of process of law. However, the Hon’ble Bench also stated the right of the petitioner before any other judicial forum shall not be prejudiced on grounds only of dismissal of the present petition.

State Bank of India Vs. Videocon Industries Limited (VIL) and Ors. [MA 2385/2019 in CP(IB)-02/MB/2018]

An application was filed before the Mumbai NCLT bench in the view that the AA would direct the RP to treat all assets, properties, rights, claims and benefits of three group companies of the corporate debtor as the assets and properties of the CD and also make moratorium applicable on foreign assets. The AA allowed the instant application and also stated that in case the assets are not considered to be the assets of a single economic entity, then the effective resolution of the 13 corporate debtors would not meet the objective envisaged under the Code and they will be forced into liquidation despite having sufficient assets to resolve the CD.

Disclaimer

This database has been made based on publicly available information. The readers are also requested to kindly seek independent professional advice on any matters relating to Insolvency and Bankruptcy Code, 2016 and any specific judgment thereof. The cases mentioned below is not to be construed as legal advice and the reader is advised to seek professional guidance in case of specific case related issues.