NCLAT Fortnightly: Important orders on IBC (November 16 – November 30, 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 November 16, 2023 to November 30, 2023.

For ease of reference, the orders have been categorized and dealt with in the following categories, that is, pre-admission stage, Corporate Insolvency Resolution Process (“CIRP”) stage, liquidation stage and miscellaneous.

1. In Mist Avenue Private Limited v. Nitin Batra (Company Appeal (AT) (Insolvency) No. 127 of 2023 & I.A. No. 463 of 2023), the NCLAT held that a single application to initiate a consolidated CIRP is maintainable against multiple corporate debtors (having the status of landowners and/ or developers) who have come together to develop a real estate project.

The NCLAT further observed that as long as the threshold for initiating CIRP under Section 7 is met, it is irrelevant that (a) not all of the applicants individually meet the threshold; or (b) claims of some of the joint applicants are barred by limitation.

Finally, the NCLAT observed that as long as the numerical threshold for maintaining a Section 7 application by the allottees was met at the time of filing the application, such an application cannot be challenged on the basis of a subsequent settlement entered into by some of the allottees.

2. In Sanjay D. Kakade v. HDFC Ventures Trustee Company Limited (Company Appeal (AT) (Insolvency) No.481 of 2023), the NCLAT observed that the commercial effect of borrowing covered under sub-clause (f) of sub-section 5(8) of the Code would subsume within it the amounts raised under transactions which are not necessarily loan transactions so long as they have rhe commercial effect of borrowing.

The NCLAT went on to observe that even the raising of an amount by the corporate debtor through the issuance of shares would amount to commercial borrowing, where the said transaction has a direct effect on the business. The presence of a put option in the transaction documents, where the corporate debtor and the promoters were obliged to purchase the shares held by the claimant at a specified internal rate of return, contained a clear indication that the investment was with an eye to earn profit and that the investment was for consideration for the time value of money.

The NCLAT also went on to observe that the mere fact that a decree had been obtained by a financial creditor would not take him out of Section 7 proceedings, if ingredients of financial debt are in existence.

3. In Sanil Prakash Sahu v. Kotak Mahindra Bank Limited (Company Appeal (AT)(Insolvency) No. 1281 of 2023), the NCLAT held that an entry in the balance sheet does not cease to be an acknowledgement for the purpose of Section 18 of the Limitation Act, 1963, merely based on the notes to accounts of the balance sheet and the appended directors report narrating different stages of subsequent litigation. 

The NCLAT further noted that the solvency of a corporate debtor was not a ground to deny an application under Section 7 of the Code.

4. In Alcon Laboratories (India) Private Limited v. Emco Tech Equipments Private Limited (Comp. App. (AT) (Ins) No. 215 of 2023), the NCLAT held that pendency of proceedings under Section 138 of the Negotiable Instruments Act, 1881 would not amount to the existence of a dispute under the provisions of the Code to deny the admission of a Section 9 application.

1. In Tulip Star Hotels Limited v. Anish Kumar Nanavaty (Company Appeal (AT) (Insolvency) No.1114-1115 of 2023), the NCLAT held that a financial creditor cannot claim the rate of interest specified under the settlement agreement entered into with the corporate debtor once the settlement arrangement has been revoked.

The NCLAT remitted the matter back to the resolution professional for reverifying the claim by noting that the resolution professional was duty bound to take steps for determination of the rate of interest if such interest has a direct nexus with the admitted claim in the CIRP.

2. In Puro Naturals JV v. Warana Sahakari Bank (Company Appeal (AT) (Insolvency) Nos.661-663 of 2023), the NCLAT held that a resolution plan providing for the extinguishment of security interest and the guarantees of the financial creditors, including dissenting financial creditors, is not contrary to the provision of Section 30(2) of the Code and Regulation 38 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. 

The NCLAT further held that the resolution plan need not provide for upfront payment to dissenting financial creditors as long as the payment is being made “in priority over the financial creditors who voted in favour of the plan."

3. In Mahal Hotel Private Limited v. Govindarajula Venkata Narasimha Rao (Company Appeal (AT) (CH) (INS.) No.225/2023 (IA Nos. 733, 734, 735 & 736/2023), the NCLAT held that where the Adjudicating Authority has rejected a claim, the same issue could not have again been re-agitated before the Adjudicating Authority, and the only remedy against such determination was to file an appeal under Section 62 of the Code.

4. In Yarlagadda Krishna Mohan v. Dantu Indu Sekhar (Company Appeal (AT) (CH) (INS.) No. 370/2023 (I.A. Nos. 1130 & 1131/2023), the NCLAT held that where the appellant had not made any request for a copy of the plan and was allowed participation in the meeting of the CoC for consideration of the plan, the appellant cannot claim that he was prejudiced merely on account of non-furnishing of a copy of the plan.

5. In Sahyog Mega Chits Private Limited v. Mandeep Gujral (Company Appeal (AT) (Insolvency) No. 1455 of 2023 & I.A. No. 5206 of 2023), the NCLAT held that a resolution plan cannot be faulted for not allocating money to creditors whose liquidation value is nil under Section 53 of the Code.

1. In Jagadish Prasad Sarda v. Indian Bank (Company Appeal (AT) (CH) (INS.) No. 359/2023 (IA Nos. 1089, 1090, 1091, 1092/2023), the NCLAT held that in the absence of any possibility to continue the corporate debtor as a going concern, no challenge lies to the CoC’s decision to approve liquidation.

2. The NCLAT, in Punjab National Bank (International Limited) v. Perfect Day INC (Company Appeal (AT) (Insolvency) No.1427 of 2022) held that a financial creditor holding a miniscule stake cannot complain against the reserve price fixed by the liquidator.

The NCLAT also went on to observe that it is not necessary that the process documents should specify that reliefs and concessions will be granted to the successful auction purchaser as the question of reliefs and concessions arises only when the successful resolution applicant requires certain reliefs and concessions to run the corporate debtor as going concern.

1. In Nipan Bansal, Resolution Professional of KSM Spinning Mills Limited v. Employees Provident Fund Organization (Company Appeal (AT) (Insolvency) No. 1454 of 2023 & I.A. No. 5204, 5158 of 2023), the NCLAT held that when an application for a certified copy is filed beyond thirty days, the applicant would not be entitled to exclude the period which was taken in the preparation of the order. The NCLAT further held that its jurisdiction to condone delay in filling appeal under proviso to Section 61(2) is limited to fifteen days.

2. In Koinonia Coffee Private Limited v. Vijay Kumar Iyer (Company Appeal (AT) (Ins) No. 572 of 2023 & I.A. No. 2718 of 2023), the NCLAT held that the resolution professional has the power to change the board of the corporate debtor’s subsidiary to secure the corporate debtor’s interest.

3. In India Power Corporation Limited v. Ravi Shankar Devarakonda (Company Appeal (AT) (CH) (Ins) No. 389 of 2023 (IA Nos. 1180, 1181, 1182, 1183, 1184 & 1185 of 2023), the NCLAT held that consultation with counsel and internal management was not sufficient ground to condone a delay beyond forty-five days prescribed under Section 61 of the Code.

4. In Gold Star Realtors Limited v. ANS Apartment Limited (Company Appeal (AT) (Insolvency) No.1409 of 2023), the NCLAT held that under the garb of a clarificatory order, the Adjudicating Authority cannot issue final direction without hearing all objections.

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