NCLAT Fortnightly: Important orders on IBC (December 16 – December 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 December 16, 2023 to December 31, 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 R S Infra v. R P Infraventure Pvt. Ltd. (Company Appeal (AT) (Insolvency) No. 80 of 2023 & I.A. No.331 of 2023), the NCLAT observed that TDS deduction does not imply acknowledgement of any liability as outstanding qua the operational creditor to fasten the debt liability on a corporate debtor. The NCLAT further observed that in a Section 9 proceeding, there is no need to enter into final adjudication with regard to the existence of a dispute as long as the defense raised is not a moonshine defense.

2. The NCLAT, in Hiren Meghji Bharani v. Shankheshwar Properties Private Limited (Company Appeal (AT) (Insolvency) No.446 of 2023), had observed that where the existence and default in relation to a financial debt could be established through other documents (such as admission of liability in the balance sheet and records of debt of National E-Governance Services Limited) and the unstamped agreements/instruments was not relied upon, the mere presence or availability of such an instrument would not render the entire admission process as non-maintainable.

1. In the matter of Kolkata Municipal Corporation v. Bengal Shelter Housing Development Limited and Ors. (Company Appeal (AT) (Insolvency) No.81 of 2023 & I.A. No. 335 of 2023), the NCLAT held that where the corporate debtor had obtained possession and development right vis-à-vis a land parcel in breach of the transfer restriction contained in original title deed, such development right could not be treated as an asset of corporate debtor under Section 18 of the Code, nor could the moratorium be applied as a defense to deny regaining of possession of such land from the corporate debtor.

2. The binding nature of a plan upon the Committee of Creditors (CoC) pending its approval by the Adjudicating Authority and permissibility of the plan being withdrawn or reconsidered by the CoC was considered by the NCLAT in the following cases, namely, (a) Jubilee Metal Pvt. Ltd. v. Mr. Surendra Raj Gang RP of Metenere Ltd. and Anr. (Company Appeal (AT) (Insolvency) No. 1550 of 2023); and (b) Nivaya Resources Private Limited v. Asset Reconstruction Company (India) Limited & Anr. (Company Appeal (AT) (Insolvency) No. 1184 of 2022 & I.A. No. 3573 of 2022).

In both the cases, the NCLAT observed that the law is well-settled that the resolution plan approved by the CoC is binding on the CoC and except in exceptional circumstances, such a decision cannot be reviewed or reconsidered.

Examples of such exceptional circumstances which would allow the reconsideration of approval of a plan by the COC was noted in Jubilee Metal (supra) where the NCLAT had observed that the restriction on reviewing such a decision would not apply where the resolution applicant itself has breached the terms and conditions of the plan in a manner resulting in the very basis and substratum of the resolution applicant (which had led the CoC to approve the plan) being knocked out on account of a change in the control of the resolution applicant. Accordingly, the NCLAT allowed the application filed by the CoC for the withdrawal of an approved resolution plan upon the successful resolution applicant (SRA) changing shareholding pattern in a manner that the ultimate beneficial owner had changed.   

Similarly, in Nivaya Resources (supra), the NCLAT observed that examples of such circumstances, inter alia, include where the SRA acquires any ineligibility subsequent to the approval of the resolution plan or there is breach of any condition of the resolution plan which make the successful resolution applicant not entitled to implement the resolution plan. In the instant case, however, the NCLAT held that (a) downgrading of credit rating of the successful resolution applicant; and (b) freezing order against the parent company of the successful resolution applicant would not be grounds for reconsideration of the resolution plan.

3. In Jubilee Metal Pvt. Ltd. v. Mr. Surendra Raj Gang RP of Metenere Ltd. and Anr. (Company Appeal (AT) (Insolvency) No. 1550 of 2023), while allowing the forfeiture of a performance bank guarantee given by the SRA in terms of a request for resolution plan (RFRP), the NCLAT observed that while Regulation 36B(4A) of CIRP Regulations provides for such forfeiture after the approval of the resolution plan, such a clause did not prohibit the forfeiture of a performance security prior to the approval of a plan by the Adjudicating Authority, where such forfeiture has been done in furtherance of the provisions contained in the RFRP.

4. In Nivaya Resources Private Limited v. Asset Reconstruction Company (India) Limited & Anr. (Company Appeal (AT) (Insolvency) No. 1184 of 2022 & I.A. No. 3573 of 2022), the NCLAT observed that while failure to implement another resolution plan requires disclosure of reasons of such failure under Regulation 38(1B) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, such failure does not attract ineligibility in the manner Section 29A of the Code makes the person ineligible to submit a resolution plan.

5. In Masatya Technologies Private Ltd. v. Amit Agarwal (Company Appeal (AT) (Insolvency) No.1688 of 2023), the NCLAT held that the Adjudicating Authority was permitted to reject the plan approved by the CoC and issue direction for a fresh publication of Form-G, when certain additional valuable assets of corporate debtor were identified subsequently and was not made part of information memorandum, and where the inclusion of such assets could have increased valuation of the corporate debtor.

6. In IDBI Bank v. Sumit Binani (Company Appeal (AT) (CH) (INS.) No. 385 / 2023), the NCLAT held that the resolution professional is empowered to reject the CoC’s proposal for the renewal of bank guarantees provided by the corporate debtor prior to the initiation of the CIRP when such renewal would not lead to any advantage or any valuable gains.

7. In Harish Raghavji Patel v. Clearwater Capital Partners (Company Appeal (AT) (Insolvency) No.446 of 2023), the NCLAT held that when a default is committed during the Section 10A period, and where such default continued even post the Section 10A period, a Section 7 application is fully maintainable in relation to any default occurred subsequent to the Section 10A period as long as the relevant threshold is met. 

The NCLAT further observed that presence of a debenture trustee does not bar the debenture holder from initiating a Section 7 proceeding in their individual capacity.

8. In Mukesh Kumar Jain v. Navin Kumar Upadhyay & Anr. (Company Appeal (AT) (Insolvency) No. 930-931 of 2023), the NCLAT held that a stay on the admission of a CIRP would not require the resolution professional (RP) to hand-over the charge of the corporate debtor to the erstwhile management as such a step would be disastrous and adversely affect the creditors of the corporate debtor. It further went on to observe that while the RP cannot take any further steps in the CIRP of the corporate debtor and has to stay his hand from proceeding any further in the CIRP, the RP would still be bound to take decisions in his wisdom as to how the corporate debtor should be allowed to continue as a going concern.

9. In Mehul Parekh v. Unimark Remedies (Company Appeal (AT) (Insolvency) No. 839 of 2023), the NCLAT held that a resolution plan cannot be faulted for differentiating between a related party and other similar category creditors, nor can it be faulted for allocating a nominal amount towards the employees, where the liquidation value payable to such employees was nil in terms of Section 53 of the Code.

The NCLAT further observed that as Section 28 of the Code does not mandate the approval of CIRP costs by the CoC, the Adjudicating Authority’s decision to task CoC with the redetermination of CIRP costs was not valid.

Finally, the NCLAT held that determination of CIRP costs and payment of CIRP costs to those who found entitled to receive the payments is an independent process from any recovery from promoters/ Key Managerial Personnel, and hence such determination and payment cannot be made subject to avoidance proceedings.

10. The NCLAT, in Jaipur Trade Expocentre Private Limited v. Metro Jet Airways Training Private Limited & Ors (Company Appeal (AT) (Ins.) No. 1224 of 2023) has observed that the decision of the CoC to liquidate cannot be arbitrary but has to be accompanied with reasons. Further, the NCLAT held that there is no bar on a single operational creditor constituting a CoC.

11. In Consortium of Murari Lal Jalan & Florian Fritsch v. Ace Aviation VII Ltd. & Ors. (Company Appeal (AT) (Insolvency) No. 1517 of 2023), the NCLAT held that Section 60(5) of the Code empowers the Adjudicating Authority to have jurisdiction over any proceedings “arising out of” the resolution process, including implementing the sale process, if contemplated under the resolution plan approved by it. 

1. In Mehulkumar Arvindbhai Patel and Anr. v. Vinod Tarachand Agarwal (Company Appeal (AT) (Insolvency) No.1598 of 2023), the NCLAT held that suspended directors are not required to be given notice nor are they necessary party to a liquidation application. It further observed that the approval of liquidation cannot be recalled merely based on non-providing of a notice of hearing to the suspended board when the directors were privy to all the developments on account of attending all the CoC meetings.

1. In VO Chidambaranar Port Authority v. Shri Rajesh Chillale (Company Appeal (AT) (CH) (Ins) No. 412 of 2023), the NCLAT held that a bailee (claimant-port in the instant case) cannot claim to be a secured creditor on account of the provision contained under Section 171 of the Indian Contract Act, 1872, where the assets were not in the possession of such bailee.

2. In Aar Kay Industries Prop. Indian Securities Ltd. v. Jatalia Global Venture Ltd. (Company Appeal (AT) (Ins.) No. 1428 of 2023), the NCLAT held that a financial creditor filing a Section 7 application is fully entitled to amend the application and file additional documents for the first time even at the stage of appeal, although such documents were not filed with the Adjudicating Authority earlier.

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