NCLAT Fortnightly: Important orders on IBC (July 16, 2023 – July 31, 2023)

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 July 16, 2023 to July 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.

1.In Gp. Capt. Atul Jain (Retd.) v. Tripathi Hospital Private Limited Company Appeal (AT)(Insolvency) No. 655 of 2020 & I.A No.3714, 4538 of 2022, the NCLAT noted that before admitting a Section 7 application, the requirement of the existence of a financial debt being owed by the corporate debtor to the financial creditor has to be satisfied. It was further observed that, while the record of information utility would be relevant to establish default under Section 3(12) of the Code, mere reliance on such record is not permissible where the status of creditor as financial creditor has not been established. In this case, NCLAT, after noting that the creditor had failed to establish the loan given by him to directors was utilized for the purpose of the corporate debtor, refused to lift the corporate veil to identify the corporate debtor as liable for repayment.

2. In Ashique Ponnamparambath & Anr. v. BMW India Financial Services Private Limited Company Appeal (AT) (CH) (Ins) No.301/2021 (IA Nos.638/2021, 84/2022), the NCLAT held that a Section 7 application is maintainable against an entity which has agreed to act as co-borrower in respect of certain loan facilities, regardless of whether any disbursement was made to it.

3. In Delta Total Facilities Private Limited v. Jyoti Structure (Company Appeal (AT) (Insolvency) No.1512 of 2022), the NCLAT held that if an agreement specifies a particular clause for interest, such interest component can be considered to ascertain the threshold for filing an application.

4. The NCLAT, in Mudhit Madanlal Gupta v. Supreme Constructions and Developers Private Limited (Company Appeal (AT) (Insolvency) No. 920 of 2023), held that even though the liability of a corporate guarantor is co-extensive with the principal borrower, if the guarantee deed requires invocation, the date of default by a corporate guarantor would be the date of invocation of corporate guarantee and not the date of default of the principal borrower.

1. In ABB India Limited v. Shailesh Verma (Resolution Professional of South East U.P. Power Transmission Company Ltd. & Ors.) (Company Appeal (AT) (Ins.) No. 1020 of 2022), the NCLAT held that a challenge by an operational creditor against notional admission of its claim and consequently the approval of the plan cannot be entertained, where the approved resolution plan provided nil payment to all operational creditors.

2. In the matter of Monica Jajoo v. PHL Fininvest Private Limited (Company Appeal (AT) (Ins) No. 1344 & 1345 of 2022), the appellant, who was a personal guarantor to a corporate debtor named Hema Engineering Industries Limited (“HEIL”), had challenged an order of Bench IV of the National Company Law Tribunal (NCLT), New Delhi admitting an application of personal insolvency against the appellant, inter alia on the ground that since liquidation proceedings against HEIL were pending before Bench III of the NCLT, the Bench IV of NCLT New Delhi lacked jurisdiction on account of provisions contained in sub-section (2) and (3) of Section 60 of the Code. In other words, the contention of the appellant was that a Section 95 application should have been considered and heard by the same bench of NCLT, New Delhi which was considering the liquidation proceedings regarding HEIL. The aforesaid submission found favour with NCLAT which took note of the fact that sub-sections (1) and (2) of Section 60 stipulated and mandated that an application relating to insolvency resolution and liquidation of the corporate debtor is required to be filed within “such” NCLT where a CIRP or liquidation proceedings of the “same” corporate debtor is pending. Accordingly, it held that Bench IV of NCLT, New Delhi lacked the jurisdiction to adjudicate upon the application and that it should have transferred the application to Bench III which was already considering the liquidation proceeding of HEIL under the Code.

In our view, it probably was not the intention of the legislature that proceedings would have to be heard by the “same” bench and as long as the proceedings were being heard by the same Adjudicating Authority/NCLT, the composition of the bench should not matter. A fallout of this decision could be, where there has been change in the composition of the bench on account of change in members, one could come and argue that the bench which was in seisin of the proceeding against the corporate debtor was not the “same” bench and hence lacks jurisdiction.

We also note that one of the factors which influenced the decision of NCLAT was that a transfer petition was filed before Bench IV, NCLT, New Delhi for the transfer of a petition to Bench III, NCLT, New Delhi, which application was ignored. In our understanding, such a transfer application could have only been filed before the president of NCLT in terms of rule 16(d) of NCLT Rules, 2016 and not before any other bench of NCLT. However, the NCLAT appears to have overlooked the technical requirement.

3. In Madhavi Edible Bran Oils v. Immaneni Eswara Rao (Company Appeal (AT) (CH) (Ins) No.388/2022 (IA Nos.924, 925 & 926/2022), the NCLAT, relying upon the decision of Hon’ble Delhi High Court in TATA Steel BSL Ltd. Vs. M/s Venus Recruiter Private Limited Vs. Union of India and Ors. (LPA 37/2021 and C.M. Nos. 2664/2021, 2665/2021 & 2666/2021), held that applications for avoidance is maintainable even post the approval of the resolution plan.

A similar view was reiterated by the NCLAT in Ravindra Beleyur, Erstwhile RP for Merchem Limited v. Merchem Limited, Company Appeal (AT) (CH) (Ins) No.200/2021 and in Barclays Bank PLC, Mumbai Bench v. Piramal Capital & Housing Finance Limited (Company Appeal (AT) (Insolvency) No.475 & 476 of 2023 & I.A. No. 1551 of 2023).

4. In Jaydip Ghosh and Others v. Niraj Agarwal and Ors. (Company Appeal (At) (Ins) No.839/2022), the NCLAT noted that it is a settled position of law that the suspended board of directors or an unsuccessful resolution applicant has no locus to file an appeal against the approval of the resolution plan by the committee of creditors and the Adjudicating Authority.

Further, the NCLAT, by relying upon Regulation 37 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016, held that a plan can provide for a change in business of the corporate debtor as part of the revival strategy.

5. In SK Constructions v. Employee Provident Fund Organisation, Company Appeal (AT) (Insolvency) No. 910 of 2023 & I.A. No. 3093 of 2023, the NCLAT held that, the EPF dues being statutory dues, have priority over all other creditors and would be payable by a successful resolution applicant, even if such dues did not form part of the Information Memorandum.

6. The NCLAT, in Technico Industries Limited v. Debashis Nanda, Liquidator of J.V. Srips Limited & Ors. (Company Appeal (AT) (Insolvency) No. 1166 of 2022), held that a failure to produce documents, combined with the absence of a cogent explanation to establish that discounts were given to the appellant in the ordinary course of business, within the look-back period of one year, infringes Section 45(2)(b) of the Code and that such a transaction would qualify as avoidable transactions as stipulated in Section 46(1)(i) of the Code.

7. In Simbhaoli Sugars Limited v. Pramod Kumar Sharma Resolution Professional of Uniworld Sugars Private Limited & Ors. (Company Appeal (AT) (Insolvency) No.776 of 2023), it was held that the distribution to the creditors in accordance with Section 30(2) of the Code is in the discretion of the committee of creditors and that the Adjudicating Authority and NCLAT have very little scope of judicial review with regards to the distribution.

The NCLAT further held that the provision relating to mutual credits and set off which is contained under Regulation 29 of the IBBI (Liquidation Process) Regulations, 2016 is not applicable in the context of approval of a resolution plan.

1. In Ravi Middha v. K.V. Developers Private Limited Company Appeal (AT)(Insolvency) No. 919 of 2023, the NCLAT, while refusing to condone a delay of 23 days, held that the limitation period for filing an appeal against an order approving the resolution plan begins from the date when the order is pronounced and not from the date when such an order is uploaded on the website. 

2. In Information TV Private Limited v. Amit Jain Company Appeal (AT) (Insolvency) No. 907580 of 2023, the NCLAT held that while computing the limitation period for filing an appeal against the order of an Adjudicating Authority, the time period consumed in the preparation of a certified copy could only be excluded when the application for a certified copy was made within 30 days of pronouncement of the order.

3. In Mr. G. Balasubramaniam and Another v. P. Eswaramoorthy and Another (Company Appeal (AT) (CH) (Ins) No.209/2023 IA Nos.694, 695 & 696/2023), the NCLAT observed that the limitation period for an appellant who is not a party to the original proceeding would have to be counted from the date of knowledge of the appellant, and not from the date of the order.

In our view, the aforesaid decision overlooks the decision of the Hon’ble Supreme Court in Safire Technologies Private Limited v. Regional Provident Fund Commissioner and Anr. (Civil Appeal No 2212 of 2021) where the contention that the period of limitation would start from the date of knowledge was expressly rejected.

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