NCLAT at a Glance: November 2020

This monthly column seeks to cover the landmark judgments delivered by the National Company Law Appellate Tribunal and to offer a brief summary of the same in a capsule-form for the benefit of the reader.
NCLAT at a Glance: November 2020
NCLAT

The National Company Law Appellate Tribunal is the Apex Tribunal in the country dealing with all aspects of corporate law.

The judgments pronounced by the Appellate Tribunal in the areas of Insolvency, Competition and Company law regulate all elements of a company’s functioning in India; from its registration to its functioning, and operation to its interaction with the market and various stakeholders, to its insolvency and potential resuscitation. This monthly column seeks to cover the landmark judgments delivered by the National Company Law Appellate Tribunal and to offer a brief summary of the same in a capsule-form for the benefit of the reader.

The judgments of the National Company Appellate Tribunal (NCLAT) have been demarcated into those dealing with the provisions of the Insolvency and Bankruptcy Code, 2016 (Code), the Competition Act, 2002 and that of the Companies Act, 2013 (Companies Act).

The judgments dealing with the Code have been further categorized and dealt with in the following three stages i.e. Pre-admission stage, Corporate Insolvency Resolution Process (CIRP) stage and the Liquidation stage.

I. INSOLVENCY AND BANKRUPTCY CODE, 2016

A. PRE-ADMISSION STAGE

In Amrit Kumar Agrawal VS Tempo Appliances Pvt. Ltd., the NCLAT held that in a case wherein the guarantor of a financial debt had entered into a settlement agreement with the creditor qua the debts owed by the guarantor due to non-payment of the debt by the principal borrower, the creditor could not be construed to be a financial creditor of the guarantor as inter se the parties, there had been no disbursement against the consideration for the time value of money, particularly in light of the fact that the principal borrower was not a party to the settlement agreement.

The NCLAT in Piyush Periwal VS Stressed Assets Stabilization Fund (SASF), had to determine whether the time spent in the first reference to the Board for Industrial and Financial Reconstruction (BIFR) would have to be considered for purposes of exclusion limitation under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) on account of suspension of legal proceedings pending enquiry.

In the instant case, the first reference had been dismissed on the ground of being barred due to the reference being beyond the prescribed limitation period. It was argued by the Appellant that such a dismissal would result in the reference being deemed to be having never been made in terms of Regulation 19(7) of BIFR Regulations, 1987 and thereby, the time spent in deciding the first reference should not be excluded for the purposes of computing the limitation period.

The NCLAT after examining the fact that the first reference had been registered and assigned a case number and was also placed before the Hon’ble Bench of the BIFR, held that the reference had been registered and had been dismissed after consideration. It was furthermore held that in such a situation, Regulation 19(7) of BIFR Regulations, 1987 would not come into play and thereby, the period from filing of the first reference with the BIFR, would have to be excluded in computing the period of limitation in terms of Section 22 of the SICA.

The NCLAT in State Bank of India VS Krishidhan Seeds Pvt. Ltd., held that the date of default would not be extended on account of acknowledgement made in a proposal for One Time Settlement, particularly when, the Creditor had already approached the Debts Recovery Tribunal prior to the date of the proposal for One Time Settlement.

The NCLAT in Sanjeev Kumar VS Aithent Technologies Pvt. Ltd. & Anr., held that where the relationship between the creditor and the debtor is not that of a mere landlord-tenant relationship but also includes certain provision of service to the debtor such as electricity, diesel, sewer and water charges etc. and such dues are more than the pecuniary threshold i.e. Rs. 1 lakh, the debt would fall under the definition of an operational debt and an application under Section 9 of the Code would be maintainable.

The NCLAT in A. Balakrishana VS Kotak Mahindra Bank Ltd. & Anr., held that the passing of a decree or the issuance of a recovery certificate would not extend the period of limitation and give a fresh right to a creditor to invoke the provisions of the Code.

The NCLAT in State Bank of India VS Athena Energy Ventures Pvt. Ltd., disagreed with the view taken in “Vishnu Kumar Agarwal vs. Piramal Enterprise Ltd.” [CA (AT) (Ins.) No. 346 & 347 of 2020 dated 8th January, 2019] and held that CIRP could be initiated against the Principal Debtor as well as the Guarantor simultaneously.

The NCLAT in Promila Taneja VS Surendri Design Pvt. Ltd., reiterated that dues arising from lease would not fall under the category of operational debt.

The NCLAT in Amit Katyal VS Meera Ahuja & Anr., Rejected the contention of the Corporate Debtor / builder that the real estate allottee had defaulted on payments in the instalments to be paid under the construction linked real estate project. The NCLAT held that in the instant case, the mandatory condition of issuing notice through speed post or courier to the Allottee, at every stage of Construction as per Agreement had not been followed.

Therefore, in terms of the Agreement between the parties, it could not be said that the Allottee / Financial Creditor had committed default in paying the instalments, when due. It was further observed that it is an undisputed fact that the flat was to be delivered latest by 2nd week of February 2016, but construction work was still going on in the year 2018.

The NCLAT also noticed that despite fulfilling all the requirements for Section 7 and 9 of the Code, several petitions are rejected only on the pretext that the petition is filed for recovery of Debt and not for the resolution of insolvency. The NCLAT observed that it was necessary to keep in mind that Section 65 of the Code is not meant to negate the process U/s 7 or 9 of the Code.

Any penal action U/s Section 65 of the Code can be taken only when the provision of the Code has been invoked fraudulently, with malicious intent. The NCLAT clarified that in case an Allottee does not want to go ahead with its obligation to take possession of the flat / apartment under Real Estate (Regulations and Development) Act, 2016 but wants to jump ship and wants to get back the monies already paid, by way of this coercive measure, in such cases, the use of Section 65 of the Code is justified, because one ‘Home Buyer’ by misusing his position could not stall the entire Real Estate Project.

But it does not mean that any Insolvency Application satisfying the requirements of Section 7 or 9 of the Code, could be dismissed arbitrarily under the guise of Section 65 of the Code.

B. CORPORATE INSOLVENCY RESOLUTION PROCESS STAGE

The NCLAT in Hindustan Oil Exploration Company VS Erstwhile Committee of Creditors JEKPL Pvt. Ltd. & Ors., held that an unsuccessful resolution applicant has no locus to challenge the implementation of the approved resolution plan of the successful resolution applicant even if the terms of the approved resolution plan have been varied. Where the Committee of Creditors have not objected to such variation, the Hon’ble NCLAT held that the unsuccessful resolution applicant could not object to the same.

The NCLAT in The Dy. Commissioner of Customs DEEC Monitoring Cell VS Vandana Garg, upheld the decision of the National Company Law Tribunal (hereinafter referred to as the ‘NCLT’) rejecting an application by a creditor for acceptance of claim after approval of the resolution plan as not maintainable and held that when the claim had been filed at such a belated stage, such an application would be liable to be rejected.

The NCLAT in UCO Bank VS G. Ramachandran, held that once the CIRP had been initiated and moratorium had been declared, a Financial Creditor could not appropriate any sums belonging to the Corporate Debtor on the pretext of adjusting the same against the debts due to the Financial Creditor. It was further clarified that lack of knowledge of initiation of the CIRP would not be a ground to justify such appropriation in breach of the moratorium.

The NCLAT in Registrar of Companies West Bengal VS Goouksheer Farm Fresh Pvt. Ltd. & Anr., held that even if an application has been moved by the Interim Resolution Professional for restoration of the name of the Corporate Debtor which is undergoing CIRP, the NCLT while having the power to direct the restoration of the name, the NCLT cannot direct the Registrar of Companies to waive of any fee or penalty because the Corporate Debtor is undergoing CIRP.

The NCLAT in Toplight Corporate Management Pvt. Ltd. VS Bhuvan Madan Resolution Professional of Ferro Alloys Corporation Ltd. & Ors., held that a Corporate Debtor’s subsidiary company could also be dealt with in the resolution plan for the CIRP of the Corporate Debtor. The NCLAT also clarified that prior to the amendment in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 on 5th October, 2018, it was possible to differentiate between consenting and non-consenting Creditors.

However, after the amendment, it was held that it is no longer permissible to differentiate between consenting and nonconsenting creditors. The NCLAT also stated that the amendment would not have a retrospective effect.

C. LIQUIDATION STAGE

The NCLAT in Vijay Kumar Singh VS Anil Kumar & Ors., held that in a situation where an application has been moved by the Resolution Professional for initiation of liquidation proceedings on the decision of the Committee of Creditors and, before the liquidation order was passed, the creditors vide a joint lenders meeting resolved to replace the Resolution Professional, then the NCLT should first replace the Resolution Professional and then pass the liquidation order.

II. COMPANIES ACT, 2013

The NCLAT in held in Vintage Hotels (P) Ltd. & Anr. VS Ahamed Nizar Moideen Kunhi Kunhimahin, that under the law, a Company has no inherent power to refuse the transfer of shares and its registration so as to leave the matter in the hands of Company or its Directors at will. It was stated that the discretionary power to refuse ‘Transfer of Shares’ is not to be resorted to in a deliberate, arbitrary, fraudulent, ingenious or capricious fashion.

If the discretionary power is used in an arbitrary fashion, then the NCLT under Section 58(5) of the Companies Act may, after hearing the parties, dismiss or order that the transfer or transmission has to be registered by the Company within ten days. Furthermore, it was held that the NCLT has the power to direct rectification of the register or direct the company to pay damages to any party aggrieved.

The NCLAT in Chalasani Venkateswara Rao & Ors. VS United Telecoms Ltd. & Ors., held that the Power of Attorney Holder of a member can give consent for filing the petition under Section 241 and 242 of the Companies Act. Furthermore, it was held that the non-filing of the General Power of Attorney along with the petition would not ipso facto result in the dismissal of the petition.

The NCLAT in Positiveedge Technology Pvt. Ltd. & Anr VS Asmita Katdare & Anr., rejected the contention of the Appellant that the civil right of inheritance qua the shares held by the deceased members could only be adjudicated before a Civil Court and could not be adjudicated by the NCLT. The NCLAT took note of section 430 of the Companies Act, and held that the mechanism for transfer and transmission of securities is governed by the Companies Act and thereby, the Civil Court would not have the jurisdiction to decide such issues.

The NCLAT in Alanda Media & Entertainments Pvt. Ltd. VS V Ravi Prakash & Ors., held that non-filing of written consent of one of the Petitioners in a petition under Sections 241 and 242 of the Companies Act would not lead to an automatic dismissal of the petition and such defect can be cured subsequently, by filing the written consent of the members.

III. COMPETITION ACT, 2002

The NCLAT in Sundaram Brake Linings Ltd. & Ors. VS Competition Commission of India & Anr., held that in case an appeal has been filed against the Order of a Court or a Tribunal, such Court or Tribunal is to refrain from making changes in the Order which has been appealed against. It was observed that when the appeal is pending, the Appellant would be at liberty to point out any mistake or error apparent from the record to the Appellate Court.

Swaroop George
Swaroop George

The author is an advocate practicing at New Delhi.

Related Stories

Bar and Bench - Indian Legal news
www.barandbench.com