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 May 16, 2023 and May 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, Liquidation stage and Miscellaneous.
1. In Rajesh Kumar Modi v. Punjab National Bank (International) Limited and others (Company Appeal (AT) (Insolvency) No. 53 of 2023), the NCLAT held that even where the governing law of the term loan agreement is English Law, the creditor is entitled to maintain a Section 7 application before an Adjudicating Authority in whose jurisdiction the registered office of the corporate debtor is located.
2. In Naresh Kumar Aggarwal, Shareholder of Nikhil Footwears Private Limited v. CFM Asset Reconstruction Private Limited (Company Appeal (AT) (Insolvency) No.470 of 2023), the NCLAT, while reiterating that Section 7 proceedings can be initiated against both the principal borrower and the corporate guarantor simultaneously, held that a Section 7 application filed by an asset reconstruction company (“ARC”) cannot be questioned on the basis that the instrument pursuant to which the loan was assigned in favour of the ARC, in terms of Section 5 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI”), was unregistered. In our view, treating the registration requirement of an assignment deed pursuant to which a right over immovable property as security is transferred in favour of an ARC as a non-essential compliance only on the basis that the assignment had taken place in terms of Section 5 of SARFAESI may not be free from doubts. This is considering that under Section 5(1A) of SARFAESI, an assignment agreement has been exempted only from the payment of stamp duty in accordance with Section 8F of Indian Stamp Act, 1899 and no similar exemption has been made applicable vis-à-vis the registration requirement.
3. In Shivam Agrioils Private Limited v. Shree Krishna Vanaspati Industries Private Limited (Company Appeal (AT)(Insolvency) No. 982 of 2022), the NCLAT, while noting that the component of interest is not a sine qua non for bringing a debt within the fold of financial debt, held that the mere absence of a loan component and time of repayment in a transaction could not disqualify a debt from being a financial debt in terms of Section 5(8) of the Code.
The NCLAT further observed that as long as the lender visualizes an element of profit and enhancement of economic prospect in return for the money advanced for certain time period, the loan in question entails time value of money and acquires the colour of commercial borrowing.
4. In Mayur Suchak v. Catalyst Trusteeship Limited and others (Company Appeal (AT) (Insolvency) No. 448 of 2023), the NCLAT held that the locus standi of a debenture holder to file a Section 7 application could not be challenged on the basis of the independent right available to debenture trustees to initiate such proceedings.
5. In Smartworks Coworking Spaces Private Limited v. Turbot HQ India Private Limited (Company Appeal (AT) (Insolvency) No. 772 of 2022), the NCLAT held that where an agreement was admittedly executed and acted upon, the inadequacy of stamp duty in relation to the agreement cannot have adverse consequence vis-à-vis the claim filed by an operational creditor on the basis of unpaid license fees for the unexpired period of lock-in. Interestingly, this judgement seems to proceed on the basis that unpaid license fee for an unexpired lock-in period, which is nothing but in the nature of liquidated damages, would give rise to an operational debt, which raises more fundamental question about whether an unadjudicated claim on damages can be treated as operational debt.
6. In SMBC Aviation Capital Limited v. Interim Resolution Professional of Go Airlines (India) Limited, Abhilash Lal (Company Appeal (AT) (Insolvency) No. 593 of 2023), the NCLAT held that while filing a Section 10 application, a corporate applicant is not obligated under the Code to issue notice to its creditors. The NCLAT further observed that an objector cannot claim to have a right to file an objection to the proceeding. However, in appropriate cases where there is an application under Section 65 of the Code, even before passing an order under Section 10 application, the Adjudicating Authority may consider such an application and, if it is held and found that the initiation is fraudulent and malicious, reject the Section 10 application. It was further noted that there is no general proposition that wherever objection is raised in a Section 10 proceeding, the Adjudicating Authority would have to reject such Section 10 application.
7 In Vikash Kumar Mishra & Ors. v. Orbis Trusteeship Service Private Limited & Anr (Comp. App. (AT) (Ins) No. 246 of 2023), the NCLAT relied upon the judgement passed in Surinder Pal Singh & Ors. v. Spaze Towers Private Limited in Company Appeal (AT) (Ins) No. 354 of 2023 in IA No. 1157, 1195 of 2023 and Prayag Polytech Private Limited v. Hind Tradex Ltd. (Company Appeal (AT) (Insolvency) No. 535 of 2019), and held that before the admission of a Section 7 application, an intervention application is not maintainable and that the aggrieved party may move before the NCLAT if the Section 7 application is admitted, even when the intervention application was filed under Section 65 of the Code, which specifies that an application under Section 65 can be filed post the ‘initiation’ of the proceedings and not the ‘admission’ of the proceedings.
On the other hand, in the matter of Airwil Intellicity Social Welfare Society v. Ascot Projects Private Limited and Ors. (Company Appeal (AT) (Insolvency) No. 755 of 2021), the NCLAT held that an intervention application could be allowed when an allegation of fraud is raised under Section 65 of the Code, if such intervention was necessary to avoid miscarriage of justice.
1. In Dauphin Cables Private Limited v. Praveen Bansal Resolution Professional (Company Appeal (AT) (Insolvency) No. 634-636 of 2023), the NCLAT held that where the CoC is restructured due to the recategorization of a creditor, post the approval of the plan, such plan would have to be resubmitted to the reconstituted CoC for its re-consideration.
2. In Nitin Jain v. Universal Tutorial Private Limited (Company Appeal (AT) (Insolvency) No. 337 of 2021), the NCLAT held that the where the title of a corporate debtor over a property is not disputed, the Adjudicating Authority is empowered to pass an eviction order against a tenant who is not protected under the relevant rent act.
3. In State Bank of India v. MBL Infrastructure Limited (Company Appeal (AT) (Insolvency) No. 539 of 2022), the NCLAT held that exclusion of certain time period on account of pending litigations could not be construed as modification of resolution plan by the Adjudicating Authority and, therefore, it was not a ground to stop the implementation of a resolution plan. The NCLAT further held that it was obligatory for all stakeholders, including lenders, to take action for the implementation of the plan and that once the plan has been approved, the issue of viability and feasibility cannot be raised on account of delay in implementation.
4. In the matter of Hindustan Zinc Limited v. Mahindra Susten Private Limited (Company Appeal (AT) (Insolvency) No. 34 of 2023), the NCLAT noted that even where the application had reserved the right in favour of the operational creditor to claim further interest, no such interest can be claimed where the interest got crystallized post filing of the application. The NCLAT further went on to hold that where the principal amount has been paid, the Adjudicating Authority was incorrect to continue the Section 9 application on account of an unpaid interest claim.
5. In Jatinder Pal Builders Private Limited v. Mr. Sandeep Goel (Company Appeal (AT) (Insolvency) No. 613 & 614 of 2023), the NCLAT noted that the decision regarding distribution of claims among unsecured financial creditors, allocating the marks in the evaluation matrix before the ‘Swiss Challenge Method’, approval of the ‘resolution plan’ etc., normally fell in the commercial wisdom of the committee of creditors (CoC), which has been held to be paramount. The NCLAT further went on to observe that decisions taken by the CoC are not invalidated by a subsequent change in the composition of the CoC.
6. In Sunder Nagar Co-operative Housing Societies Union Limited v. State Bank of India and Ors. (Company Appeal (AT) (Insolvency) No. 1526 of 2022), the NCLAT relied upon M. Suresh Kumar Reddy v. Canara Bank & Ors. (Civil Appeal No. 7121 of 2022) and distinguished Vidarbha Industries Power Limited v. Axis Bank Limited (2022 SCC Online SC 1339), by noting that Vidarbha (supra) was not applicable to the instant case, considering that the debt was clearly acknowledged by the corporate debtor in a compromise petition and, therefore, the Adjudicating Authority would not have any discretion to reject the Section 7 application.
7. In the matter of G.L. Shoes v. Action Udhyog Private Limited (Company Appeal (AT)(Insolvency) No. 846 of 2022), the NCLAT considered whether an unsigned attachment to an electronic mail sent from the account of the corporate debtor could be treated as an acknowledgment of debt. Responding to the issue in the negative, the NCLAT observed that merely because a document is sent via electronic mode instead of physical mode, the legal and mandatory requirements of authentication of documents as well as the requirements of Section 18 of the Limitation Act, 1963 would not change and could not be dispensed away with. It was further observed that the proceedings under the Code being summary in nature, disputes of authenticity of the statements of accounts annexed to an email could not be adjudicated by the Adjudicating Authority.
8. In Rupinder Singh Gill v. Three C Universal Developers Private Limited Through Resolution Professional, Rakesh Kumar Gupta (Comp. App. (AT) (Ins) No. 729 of 2021), the NCLAT held that a copy of the resolution plan, which has been approved by the CoC, but which awaits the approval of the Adjudicating Authority, cannot be given to a person who is neither a claimant nor a creditor or a participant.
9. In AJR Infra and Tolling Limited v. Sutanu Sinha (Company Appeal (AT) (Insolvency) No.920 of 2022), the NCLAT upheld approval of a conditional resolution plan by noting that while a conditional resolution plan could be allowed, any condition which allows a resolution applicant to seek suitable modification to the resolution plan or withdraw the resolution plan are conditions that are unenforceable.
1. In Amit Ahirrao v. Anagha Anasingharaju and Others (Company Appeal (AT) (Insolvency) No. 842 of 2022), the NCLAT held that valuation obtained during the liquidation period at the behest of the stakeholders, cannot be the basis for reserve price in a public auction if the valuation report has not been obtained in compliance with Regulation 35(2) of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, which stipulates engagement of two registered valuers to ascertain the valuation.
2. In Gurudeo Exports Corporation Private Limited and Others v. Mr. Akash Singhal Liquidator of Amira Pure Foods Private Limited (Company Appeal (AT) (Insolvency) No. 301 of 2021), the NCLAT noted that oral agreements, while legally binding, and enforceable, could not be relied on in the instant case considering that experts appointed by the Adjudicating Authority, due to lack of documentary evidence/proof, could not hold the claims arising out of such oral agreement to be genuine. The NCLAT observed that at a liquidation stage, indirect, circumstantial or secondary evidence could not be relied upon, and the claims of the appellants could have only been accepted upon real and solid documentary evidence.
3. In Canara Bank v. Commercial Tax Department Circle 09, Indore, Madhya Pradesh & Anr (Company Appeal (AT) (Insolvency) No. 655 of 2023), the NCLAT held that a delay in filing an appeal against the decision of the liquidator under Section 42 of the Code that rejected the interest on the amount claimed during the CIRP is condonable under Section 5 of the Limitation Act, 1963.
1. The NCLAT, in Expo India International Through Its Sole Proprietor Shubham Yadav v. Vikram Bajaj (Company Appeal (AT) (Insolvency) No.638 of 2023 & I.A. No.2115 of 2023), held that exclusion of the period during which a certified copy was under preparation can be claimed only where an application for obtaining a certified copy of the order is made.
2. The NCLAT, in Ishrat Ali v. The Cosmos Cooperative Bank Limited & Anr (Company Appeal (AT) (Insolvency) No. 420 of 2023) upheld the rejection of a transfer application filed for recusal of a member of the Adjudicating Authority from the proceedings by observing that the Rule 62 of NCLT Rules, 2016 does not give a right to a litigant to ask a Member of the Adjudicating Authority to recuse himself.
3. In Indiabulls Housing Finance Limited v. Revital Realty Private Limited (Company Appeal (AT) (Insolvency) No. 994 of 2022), the NCLAT held that the limitation for filing Section 7 application on account of default under loan agreement cannot be linked with the first date of default as the non-filing of a Section 7 application upon first default does not have the effect of taking away the right to maintain an application for subsequent defaults, with each such subsequent default giving a fresh right and counting of the limitation period.
About the authors: Arka Majumdar is a Partner; Juhi Wadhwani is a Senior Associate; Vikram Chaudhuri and Ayush Chaturvedi are Associates at Argus Partners.