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 April 1, 2023 and April 15, 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 Adunik Niryat Ispat Limited v. Truvolt Engineering Company Private Limited, the NCLAT held that where the Adjudicating Authority had allowed withdrawal of Section 9 application on the basis of settlement arrived between the parties, while specifically refusing any liberty for revival of the withdrawn application, no such revival is permissible upon breach of settlement agreement.
3. In Damji Ramji Shah v. Edelweiss Asset Reconstruction Company Limited & Ors., the NCLAT held that an assignee of a financial creditor is entitled to initiate a section 7 application.
4. In Royal Manpower Services v. Faridabad Autocomp Systems Private Limited, the NCLAT held that threshold of Rs. 1 crore for filing of an application shall not be applicable on an application filed prior to the issue of notification prescribing such threshold even where the application was registered post issue of such notification.
5. In Kaveri Sahakri Awas Samiti Limited v. Sanjay Gupta, Interim Resolution Professional Horizon Buildcon Private Limited and Ors, the NCLAT relied upon its the judgment in Namdeo Ramchandra Patil v. Vishal Ghisulal Jain, and held that a landowner cannot claim to be a financial creditor on the basis of its area share entitlement under the development agreement in absence of any disbursal for time value of money.
1. In Mr. Zubin Bharucha v. Reliance AIF Management Company Limited, the NCLAT considered whether ‘debenture holders’ could be treated as financial creditors with respect to an appellant-corporate debtor, which was not the issuer itself but a mere obliger and a guarantor to the issuer company. Answering the question in affirmative, the NCLAT rejected the contentions that: a) the debenture holders were not parties to the deed of guarantee and to the registered indenture of mortgage; b) no contract were signed between the issuer company and the debenture holders and therefore no jural relationship existed between them; and c) as no amounts were disbursed to the appellant, therefore, the appellant could not be considered as corporate debtor under the Code.
The NCLAT while reading the terms of the deed of guarantee, noted that the corporate debtor had undertaken to jointly and severally, without any demur, delay or protest and on first demand and no later than two days of the receipt of the demand certificate in writing, to make payment to the debenture holders. Relying upon the recitals and various clauses of the deed of irrevocable and unconditional guarantee and the debenture trust deed and the facts of this case, and while noting that as per guarantee, the guarantors would have to pay to the debenture holders once an event of default has been declared under the trust deed, the NCLAT held the ‘debt’ was financial debt in nature, and therefore a Section 7 petition against the appellant was held to be maintainable.
The NCLAT further observed that both debenture holders and the debenture trustee could separately enforce their rights and therefore rejected the grounds of maintainability of the Section 7 application.
3. In Intec Capital Limited v. Uday Kumar Bhaskar Bhat, IRP of Atharva Auto Logistics Private Limited, the NCLAT held that the resolution professional was empowered under Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 to reduce any amount provisionally admitted basis additional amount received. Further, it was held that the mere fact that basis the claim amount, the Adjudicating Authority had admitted the CIRP would not be a ground to not revise the amount claimed basis the information made subsequently available.
4. In Pani Logistics v. Vikas G. Jain, the NCLAT, while dealing with challenge to the resolution plan on the basis that plan value allocated to operational creditor was a meagre amount, held that as long as the amount being offered is not less than the liquidation value, mere allocation of meagre amount cannot be a ground to question the resolution plan. On the question of pending claims, the NCLAT noted that in case Adjudicating Authority passed any order, enhancing/ accepting any claim in addition to one which had been approved in the plan, the same was required to be given on pro rata basis.
5. In Kanoria Chemicals & Industries Limited v. Mr. Vijendra Kumar Jain, the NCLAT held that there needs to be a reasonable basis for classification of operational creditors in different categories. It further went on to hold that where the resolution professional had failed to point out to CoC and Adjudicating Authority, the fact that successful resolution applicant had commented upon the legality of the arbitration aware passed against the corporate debtor and proceeded to provide treatment in relation to the awarded amount under the resolution plan without any decision from a competent authority, would amount to a failure of the resolution professional in discharge of his duties. In this case, the NCLAT further highlighted that resolution professional has a duty to intimate the creditors about the status of the finally admitted claims of such creditors.
6. In Kotak Mahindra Bank Limited v. Resolution Professional of Universal Buildwell Private Limited, the NCLAT held that even when area under a housing project was allotted to homebuyer via unregistered buyer-builder agreement, homebuyers had an interest to receive the possession of the unit. Basis this, NCLAT upheld the decision of Adjudicating Authority of treating the units for which there exits buyer-builder agreement albeit unregistered, the said assets would not form part of the asset of the corporate debtor.
The NCLAT further held that the liquidation value determined by the registered valuers, cannot be allowed to be changed by CoC.
7. In State Bank of India v. Hackbridge Hewittic and Easun Limited, the NCLAT, while overturning the judgement of Adjudicating Authority, held that, the submission of proposal for one time settlement of dues would qualify as acknowledgement of debt in terms of Section 18 of Limitation Act, 1963. The NCLAT further noted that in terms of the Section 128 of the Indian Contract Act, 1872 the liability of the guarantor was co-extensive with debt of principal Borrower and therefore the acknowledgment of debt by submission of various ‘OTS’ proposals, would also extend limitation vis-à-vis the guarantors.
8. In Holy Heights Infrastructures Private Limited v. K.V. Foundations India Limited, the NCLAT held that the issue of determining whether a financial creditor is entitled to simple interest or compound interest is required to be determined by the resolution professional after collating the claims and considering other material and not at the stage of admission of section 7 application, which only requires the existence of debt and default to be proved.
9. In Raghav Jain v. Jalesh Kumar Grover, the NCLAT held that it shall only rely upon the minutes of the meeting recorded in the normal course of business as evidence to determine whether the appellant being a prospective resolution applicant had quit the meeting or was thrown out of the negotiation process, which otherwise cannot be determined in these summary proceedings in the absence of any evidence.
10. The NCLAT, in Paramjit Gandhi v. Ashwini Mehra, Chairman Monitoring Committee of Educomp Infrastructure and School Management Limited & Ors., held that a successful resolution applicant is entitled to seek protection under Section 32A which deals with protection of the property of corporate debtor in relation to offences committed by corporate debtor prior to commencement of CIRP, as and when such occasion arises, where the property of a corporate debtor was encroached which affected the implementation of a resolution plan.
11. The NCLAT, in Sicom Limited v. Kitply Industries Limited, noted that, in view of Explanation (a) of Section 18(f) the Code, where a title over immovable property vests with a third party, even after initiation of CIRP, the resolution professional would not be competent to take control over such property despite the same being under the possession of the corporate debtor. The NCLAT further held that the Adjudicating Authority lacked authority to direct transfer of title in favour of the corporate debtor, where the corporate debtor’s title over the property was not free from dispute.
12. In Madhya Pradesh Paschim Kshetra Vidyut Vitaran Company Limited v. Jagdish Kumar, Resolution Professional for Madhya Bharat Phosphate Private Limited and Shree Pushkar Chemicals and Fertilisers Limited, the NCLAT while noting that the appellant had failed to file any claim for electricity dues within the CIRP period as well as had failed to raise any issue during the entire CIRP period or during the approval of the resolution plan by the Adjudicating Authority, reiterated that all claims which are not a part of the resolution plan, would stand extinguished and no person would be entitled to initiate or continue any proceedings in respect to a claim, which is not a part of the resolution plan. It further held that, post implementation of the resolution plan, no subsequent claims can be entertained.
The NCLAT further reiterated that post approval of the resolution plan, the resolution plan cannot be challenged alleging lesser payment in light of the settled principle that all stakeholders may have to take hair cut as decided and approved by the CoC while assessing the viability of the resolution plan.
Furthermore, the NCLAT rejected the contention of the appellant that electricity dues stand on completely different footing based on Section 66 of the Electricity Act, 2003 and Regulation 4.12 of the Madhya Pradesh Electricity Supply Code which provides that notwithstanding provisions of any act, in case of any pending dues, supply of electricity to a premises may be refused and held that in light of the ‘non-obstante clause’ provided in Section 238 of the Code, the provisions of the Code shall prevail.
The NCLAT further observed that in accordance with Section 24(3)(c) of the Code, unless the dues owed to an operational creditor constitute more than 10% of the total claims, such operational creditors are not required to be part of the CoC, nor are entitled to receive notice of the meetings of the CoC.
The NCLAT directed the successful resolution applicant to pay security deposit for restoration of the electricity connection as the security deposit paid earlier by the corporate debtor was forfeited and adjusted in relation to the dues of electricity consumed pre-CIRP.
13. In Joint Commissioner of State Tax v. Shree Vindhya Cast Coasters Limited & Ors., the NCLAT placed reliance on its decision passed in Department of State Tax vs. Zicom Saas Private Limited (Company Appeal (AT) (Insolvency) No. 246 of 2022), which was covered in our earlier IBC round (February 15, 2023 to February 28, 2023) and rejected the appeal filed against the approval of the resolution plan which provided for payment of only 1% of the actual statutory dues of sales tax.
14. In Gloster Limited v. the Resolution Professional, Fort Gloster Industries Limited, the NCLAT, while setting aside the Adjudicating Authority’s decision, held that a statutory authority, if failed to make claim under the Code, could not be allowed to make such claim post the approval of the resolution plan under the respective Act governing such statutory authority.
1. In Jindal Power Limited v. Dushyant C. Dave, Liquidator of Shirpur Power Private Limited, the NCLAT held that the benefit of excluding the period consumed in obtaining certified copy of order under Section 12(2) of the Limitation Act, 1961 could not be availed where the appellant filed the application for the certified copy post the expiry of the 30 day limitation period, but before the expiry of the 15 days additional period for filing an appeal.
Arka Majumdar is a Partner; Juhi Wadhwani is a Senior Associate; Vikram Chaudhuri and Ayush Chaturvedi are Associates at Argus Partners.