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 March 16, 2023 and March 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, the Liquidation stage, and Miscellaneous.
1. In VRG Healthcare Private Limited v. VRG Infrastructure Private Limited, the NCLAT held that the where the loan granted by creditor was without any written agreement and was silent regarding the loan term and repayment date, a petition under section 7 was not maintainable basis such loan. The NCLAT further went on to hold that consideration for time value is an essential ingredient for classification of ‘financial debt’.
2. In East India Udyog Limited v. SPML Infra Limited, the NCLAT held that, where a demand had been made seeking reconciliation of accounts prior to issuance of demand notice, the same along with the grounds of non-supply of goods; delay of supplies; supply of defective goods clearly constituted as a pre-existing dispute.
The NCLAT also observed that where arbitration proceedings have been preferred post the issuance of the demand notice, the same would not qualify as a ‘pre-existing dispute’.
6. In Orbis Trusteeship Service Private Limited v. Nobal Buildtech Private Limited, the NCLAT, relying on the notification dated February 27, 2019 issued by the Ministry of Corporate Affairs, held that an application under section 7 preferred at the instance of a debenture trustee on behalf of debenture holders is maintainable.
1. In Minion Ventures Private Limited v. TDT Copper Limited, the NCLAT, upholding the rejection of a Section 7 application, held that where pursuant to a tri-partite invoice discounting agreement, the relevant seller has agreed for discounting of invoice of the Corporate Debtor, as the customer for the creation of rights and interests in the invoices, receivables in favour of the financier, as no money was disbursed much less for the time value as a financial debt to the Corporate Debtor, such financier could only maintain a claim as an operational creditor in relation to the invoices generated by the seller.
2. In the matter of Deepak Modi v. Shalfeyo Industries Private Limited and Another, the NCLAT affirmed the order of the Adjudicating Authority, admitting a Section 9 petition noting that the defence of pre-existing dispute was a moonshine, as no dispute with regards to the quality of the materials supplied by the Operational Creditor was raised at the time of inspection and was only raised after the goods were consumed by the Corporate Debtor.
6. In the matter of Shri Baiju Trading and Investment Private Limited v. Mr. Arihant Nenawati, the NCLAT noted that as per Section 66 of the Code, the Adjudicating Authority can pass suitable orders if it is found that any person has carried on the business of the Corporate Debtor, with intent to defraud its creditors and noted that such ‘fraud’ can inter alia consists of money lent by the Corporate Debtor which the Corporate Debtor has no intent of receiving back.
The NCLAT further went on to observe transactions of huge amounts, to unconnected/unrelated parties and apparently without any security interest or bank guarantee as collateral security in favour of the Corporate Debtor and subsequent ‘write-off’ of the same from the book of accounts could only be termed as ‘fraudulent transactions’.
Additionally, NCLAT held that forensic audit was not mandatory for determination of fraud.
7. In Union Bank of India v. Mr. P.K. Balasubramanian, the NCLAT observed that with respect to Section 95 of the Code, the interim moratorium commences from the date of filing of application, and not the date of numbering of the application. It reiterated that the Code does not contemplate multiplicity of the proceedings against the same personal guarantor and also observed that no prejudice is caused to a financial creditor, whose application filed prior in time is overlooked in favour of an application filed subsequent in time, as such financial creditor retains the right to file its claim once the petition is admitted.
8. In Ritu Agarwal v. Dinesh Kumar, IRP Lumata Digital India Private Limited, the NCLAT held that where the claim with the original petitioning original creditor has been settled, the withdrawal of such petition cannot be denied basis pendency of claim of creditors seeking intervention.
9. In Consolidated Finvest & Holding Limited v. Subhash Kumar Kundra, Resolution Professional- CLC Industries Limited, the NCLAT rejected an appeal from a member of the CoC, who did not effectively participate during the process, challenging the manner in which the CIRP process was conducted. Further, the NCLAT denied the applicant an opportunity to file a fresh plan, when the appellant had filed any plan in response to Form-G.
This is in line with the NCLAT’s judgement in Vinay Gupta v. Ashika Credit Capital Limited and Another which we have covered in our earlier newsletter, available here.
1. In Mr. Karthikeyan v. R. Venkatakrishnan and G.C. Logistics India Private Limited, the NCLAT held that when the appellant had not pointed out any irregularity and had not raised any objections pertaining to the liquidation process of the corporate debtor before the Adjudicating Authority, it was estopped from raising the same before the Tribunal. The NCLAT further held that an operational creditor who is a member of a stakeholder committee, is not a stakeholder in the liquidation process and has no vested interest in the Corporate Debtor to be able to maintain a challenge against going concern sale in the liquidation process.
2. In JFC Finance (India) Limited v. Anil Kohli, the NCLAT, while rejecting appellant’s (one of the bidders) contention for setting aside the auction for corporate debtor’s assets on ground of technical glitch in submitting higher offer, held that since the appellant raised the issue of technical glitch only after he was informed about his unsuccessful bid, he could not be allowed to make a higher offer later. The NCLAT further noted that allowing such claim would stand against the principal of e-auction where everybody has opportunity to give their bids and therefore, no one could be allowed to offer higher bid at later stage.
3. In Winsome Investor Welfare Association v. Mr. Amit Gupta, Liquidator of M/s. Winsome Diamonds and Jewellery Limited, the NCLAT, in absence of any genuine cause of illegality or irrationality and also on grounds of delay in challenging the appointment, rejected the challenge filed by a shareholder of the Corporate Debtor to the appointment of the Liquidator.
4. In Jagdish Kumar Parulkar v. Indore Steel & Alloys Private Limited, the NCLAT held that where lease was secured directly from the lessor in a transparent manner and not transferred from the corporate debtor (who was the erstwhile lessee and had failed to execute the lease deed in accordance with the provisions of the law and the lease deed) to the ultimate lessee, the negligence on the part of corporate debtor not to have executed lease deed cannot be allowed to become a ruse for fraudulent transaction and that a mere possibility of a potential collusion without material on record is not sufficient to persuade the NCLAT to record any finding on preferential or fraudulent transaction.
Further, the NCLAT held that liquidation has a fiduciary and legal responsibility to the Corporate Debtor, the creditors and the Court. The liquidator being an officer of the Court has to display high level of professional maturity and is not expected to show overzealousness or overreach in detecting traces of preferential/fraudulent/undervalued transactions in respect of interest in the property owned by a person who has acquired such interest from a public authority in good faith and for value.
6. In Sree Ganesh Constructions v. IVRCL Limited, the NCLAT held that pending amount for work done by an operational creditor prior to the CIRP period, for which the invoice was raised during the CIRP period, shall not be treated as CIRP cost. For such pending amount, the creditor is required to file a claim.
1. In Swastik Aqua Limited and Ors v. Jharkhand Bijli Vitran Nigam Limited & Ors, the NCLAT held that the pre-CIRP dues cannot be recovered from the successful resolution applicant where claims in relation to such pre-CIRP dues was not filed during CIRP. Further, the electricity of the corporate debtor cannot be disconnected on the basis of such non-payment of such pre-CIRP dues.
2. In Diwakar Sharma v. Anand Sonbhadra, the NCLAT did not grant condonation of delay beyond the period of 15 days, much less 45 days for filing appeal before NCLAT based on the ground that the period of limitation was to be counted from date of knowledge as opposed to date of order even where the appellant was in jail and was not aware of the pronouncement of order and received a copy of the order from the resolution professional at a later date. The NCLAT held that there is no scope for condonation of delay beyond the period of (30+15) days as there is no window available for the NCLAT to exercise its jurisdiction for condonation of delay under Section 61 of the Code.
Similarly, in Pushpa Builders Limited v. Paramveer Distributor Private Limited wherein the delay was caused due to medical reasons, the NCLAT held that delay beyond (30+15) days cannot be condoned even if delay to file an appeal was caused because of a fraud.
Arka Majumdar is a Partner; Juhi Wadhwani is a Senior Associate; Ayush Chaturvedi and Vikram Chaudhuri are Associates at Argus Partners.