NCLAT Fortnightly: Important orders on IBC (June 1 - 15, 2023)

The following is a snapshot of important orders passed by the National Company Law Appellate Tribunal (“NCLAT”), under the Insolvency and Bankruptcy Code, 2016 ("Code”), during the period between June 1, 2023 and June 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.

1. In Narendra Rajani, erstwhile director v. Pegasus Assets Reconstruction Private Limited and Another (Company Appeal (AT) (Insolvency) No. 524 of 2023), the NCLAT held that an order of the Adjudicating Authority which takes into account pleadings that are not on record are patently illegal and remanded the matter back to the Adjudicating Authority to decide again without reference to such pleadings.

2. In SFO Technologies Private Limited v. Vanu India Private Limited (Company Appeal (AT) (CH) (INS.) No. 436 / 2022), the NCLAT held that the failure to produce any invoice to substantiate the existence of a debt is fatal as admission under Section 9 of the Code requires strict proof of debt and default.

3. In Paresh Rastogi v. Piramal Capital & Housing Finance Limited (Company Appeal (AT) Insolvency No. 743 of 2023 & I.A. No. 2513 of 2023), the NCLAT held that the fact that one of the projects of the corporate debtor was registered with Real Estate Regulatory Authority has no bearing on the maintainability of Section 7 application.

4. In Rajesh Kumar Tripathi v. Era Housing & Developers (P) Limited (Company Appeal (AT) (Insolvency) No. 357 of 2020 & I.A. No. 1925 of 2022), the NCLAT, while noting that only an aggrieved person could file an appeal against the order of the Adjudicating Authority under Section 61 of the Code, held that a homebuyer from a parent company could not be considered as creditor of a subsidiary company and did not have the locus standi to file an application under Section 61 of the Code. 

5. In Guruprasad V Hishobkar v. Shree Aashraya Souhard Credit Society Limited and Ors. (Company Appeal (AT) (CH) (Ins) No. 51/2021), the NCLAT held that once a default has been established to be over and above the threshold, the determination of the exact quantum of debt need not deter the admission of a Section 7 application, where both debt and default are established.   

6. In KK Ropeways Limited v. Billion Smiles Hospitality (Comp. App (AT) (CH) (INS.) No. 246 / 2021), the NCLAT held that a challenge to an ex-parte arbitral award under Section 34 of Arbitration and Conciliation Act, 1996 was a ‘pre-existing dispute’ and, thus, a valid ground for the rejection of a Section 9 application.

1. In Bhim Sain Goyal v. Myntra Designs Private Limited and Another (Company Appeal (AT) (Insolvency) No. 295 of 2023), the NCLAT held that no directions under Section 19(2) of the Code can lie for recovery of amounts owed to the corporate debtor.

2. In ShyamRathod v. Gopalsamy Ganesh Babu (Comp. App. (AT) (CH) (Ins.) No. 137/2023), the NCLAT held that a delay in filing a claim before the Resolution Professional could only be condoned if the delay was explained and the filing of a claim under the wrong category was not sufficient reason for the condonation of delay.

3. In Hari Babu Thota (Comp. App. (AT) (CH) (Ins.) No. 110 of 2023), the NCLAT observed that the erstwhile promoter of the corporate debtor would not be eligible to take the benefit under Section 240-A of the Code, where MSME registration is obtained post the initiation of the CIRP.

4. The NCLAT, in Puissant Towers India Private Limited v. Neueon Towers Limited and Ors. (Company Appeal (AT) (CH) (Ins) No. 181/2022), noted that no prior permission of the Reserve Bank of India (RBI) is required for an Asset Reconstruction Company (ARC) to act as a co-resolution applicant, where such ARC was not proposing to acquire any equity shareholding.

5. In Anheuser Busch Inbev India Limited v. Pradeep Kumar Sravanam (Comp. App (AT) (CH) (INS.) No. 12 / 2023), the NCLAT held that a claim could be kept in abeyance by the Resolution Professional where the arbitral proceeding and counter-claim for determining the liability and quantum of the claim is pending for adjudication.

1. In Renuka Devi Rangaswamy v. Madhusudan Khemka (Company Appeal (AT) (CH) (INS.) No. 356 of 2022), the NCLAT held that a transfer of assets among the group companies, ex-facie, would not come within the ambit of fraudulent trading under Section 66(1) of the Code.

2. In IFCI Limited v. Sutanu Sinha (Company Appeal (AT) (Ch) (Ins.) No. 108/2023), the NCLAT held that, if as on the date of the admission of CIRP, the outstanding compulsorily convertible debentures (“CCDs”) held by an investor had reached the compulsory conversion period, the CCD-holder cannot seek the status of a financial creditor on the basis of such CCDs, as post such conversion period, such CCDs would not have qualified as debt.

While the NCLAT could have based its decision on the basis of the aforesaid fact, it went on to further observe that fully convertible debentures would qualify as an equity instrument and not a debt. It placed reliance on the Master Direction on Foreign Investment in India, issued by the RBI, in support of the aforesaid proposition. In our view, such an observation may not be free from criticism as the reason for treating a compulsorily convertible instrument as an equity instrument, from the perspective of foreign investment, cannot be readily applied in the context of the Code. For instance, if the analogy is extended, a redeemable preference share, which is treated as debt under the FDI norms, could equally be considered to confer the redeemable preference shareholder the status of a creditor, which is definitely not what was intended.

3. In Kwality Catering Services v. Vineeta Maheshwari & Anr. (Company Appeal (AT) (Insolvency) No.737 of 2023), the NCLAT held that where an order sought to be challenged is passed ex-parte, instead of an appeal, the proper remedy lies in filing an application under Rule 49 of the NCLT Rules, 2016 before the Adjudicating Authority seeking the recall of the ex-parte order.

About the authors: Arka Majumdar is a Partner; Juhi Wadhwani is a Senior Associate; Vikram Chaudhuri and Ayush Chaturvedi are Associates at Argus Partners.