Whether New Okhla Industrial Development Authority (NOIDA) can be treated as financial creditor in the Corporate Insolvency Resolution Process commenced against the real estate companies under the IBC?
The Hon’ble Supreme Court ruled that the NOIDA is an operational creditor and not a financial creditor under the Insolvency and Bankruptcy Code, 2016. The Court read down Section 5(8) and noted that the word "disbursed," which appears in the first paragraph of Section 5(8), implies that disbursal of debt is an essential prerequisite for a transaction to be defined as a "financial debt." Since there is no payment made by the lessor (i.e., NOIDA) to the lessee (i.e., the corporate debtor) in the case of a lease, it cannot result in a financial debt.
Additionally, NOIDA's lease does not meet the requirements for a "financial lease" under Section 5(8)(d) of the Code because a liability with respect to a lease that is considered to be a finance or capital lease in accordance with Indian Accounting Standards would be considered a "financial debt."
The Hon’ble Supreme Court also came to the conclusion that the leases granted by NOIDA do not fall under the purview of Section 5 (8) (f) of the Code because the corporate debtor did not raise any funds from NOIDA and an obligation incurred by the corporate debtor to pay lease rental and premium cannot be considered as a fund raised by the corporate debtor from NOIDA.
New Okhla Industrial Development Authority vs. Anand Sonbhadra (17.05.2022 - SC): MANU/SC/0651/2022
Whether a person who gives a no-interest term loan to a Corporate person to meet its working capital requirements is not a Financial Creditor and hence ineligible to initiate the CIRP under Section 7 of the IBC.
In the instant case, the Appellant filed an appeal under Section 61 of the IBC claiming to be financial creditor under Section 7 of the IBC. The Supreme Court, citing Section 3(11) of the IBC, held that the term "debt" is broad and the same includes inter alia financial debt. Section 5(8) of the IBC does not clearly exclude an interest-free loan from the definition of "financial debt". As a result, a "financial debt" would have to be understood to include interest-free loans provided to finance a corporate body's commercial operations. Therefore, a person who gives a corporate person an interest-free loan is a financial creditor, and Section 7 of the IBC allows a Financial Creditor to initiate a Corporate Insolvency Resolution Process against a Corporate Debtor if default accrues.
Orator Marketing Pvt. Ltd. vs. Samtex Desinz Pvt. Ltd. (26.07.2021 - SC): MANU/SC/0487/2021
What is the Secured and Unsecured Creditors?
Protecting creditors in general is, no doubt, an important objective. Protecting creditors from each other is also important.
If an "equality for all" approach recognising the rights of different classes of creditors as part of an insolvency resolution process is adopted, secured FCs will, in many cases, be incentivised to vote for liquidation rather than resolution, as they would have better rights if the CD is liquidated. This would defeat the objective of the Code which is resolution of distressed assets and only if the same is not possible, should liquidation follow.
The amended Regulation 38 does not lead to the conclusion that FCs and OCs, or secured and unsecured creditors, must be paid the same amounts, percentage wise, under the resolution plan before it can pass muster. Fair and equitable dealing of OCs rights under the Regulation 38 involves the resolution plan stating as to how it has dealt with the interests of OCs, which is not the same thing as saying that they must be paid the same amount of their debt proportionately. So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite majority of the CoC which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together with negotiating with a prospective resolution applicant for better or different terms which may also involve differences in distribution of amounts between different classes of creditors.
Quite clearly, secured and unsecured FCs are differentiated when it comes to amounts to be paid under a resolution plan, together with what dissenting secured or unsecured FCs are to be paid. And, most importantly, OCs are separately viewed from these secured and unsecured FCs in Sl. No. 5 of paragraph 7 of statutory Form H of the CIRP Regulations.
The Code and the Regulations, read as a whole, together with the observations of expert bodies and the Supreme Court's judgment, all lead to the conclusion that the equality principle cannot be stretched to treating unequals equally, as that will destroy the very objective of the Code - to resolve stressed assets. Equitable treatment is to be accorded to each creditor depending upon the class to which it belongs: secured or unsecured, financial or operational.
There is a vital difference between the jurisdiction of the High Court under section 392 of the Companies Act, 1956 and the jurisdiction of the AA under the Code. The AA is to decide on whether a resolution plan passes muster under the Code and there is no residual jurisdiction not to approve a resolution plan on the ground that it is unfair or unjust to a class of creditors, so long as the interest of each class has been looked into and taken care of.
Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta and Ors. (15.11.2019 - SC) : MANU/SC/1577/2019
Whether in terms of Section 24(3)(c) of I&B Code, the Resolution Professional is required to give notice to 'Operational Creditors' or their representatives to attend the meeting of Committee of Creditors?
From Section 24(3) it is clear that the Resolution Professional is not only required to give notice of the meeting to 'the members of Committee of Creditors' but also to the members of (suspended) Board of Directors or partners of the corporate person as the case may be. The 'Operational Creditors' or their representatives are also to be informed to attend the meeting of Committee of Creditors, if the amount of the aggregate dues is not less than ten per cent of the debt. Section 24(4) shows that the Directors, Partners, Representatives of Operational Creditors may attend the meeting of Committee of Creditors but have no right to vote in such meeting. The meeting of the Committee of Creditors is required to be conducted in such a manner as may be specified by the Board.
As per Section 30(5), the Resolution Applicants can attend the meeting of Committee of Creditors in which the resolution plans of the Resolution Applicants are considered.
ANG Industries Ltd. vs. Shah Brothers Ispat Pvt. Ltd. and Ors. (24.05.2018 - NCLAT) : MANU/NL/0103/2018
WHETHER AN APPLICATION U/S 7 OF THE IBC IS MAINTAINABLE WHEN WINDING UP PROCEEDING AGAINST THE CORPORATE DEBTOR HAS ALREADY BEEN INITIATED BY HIGH COURT?
The NCLAT made a reference to order of this Appellate Tribunal in Innoventive Industries Limited vs. Kumar Motors Private Limited from which it was derived that the word "winding up" mentioned in the Companies Act, 2013 is synonymous to the word "Liquidation" in mentioned in the IBC. It was held that as Bombay High Court had already ordered for "winding up", which is the second stage of the proceeding, initiation of 'CIRP" against the same 'Corporate Debtor' does not arise. Hence the appeal was dismissed.
Indiabulls Housing Finance Ltd. vs. Shree Ram Urban Infrastructure Ltd. (30.05.2018 - NCLAT) : MANU/NL/0119/2018
Whether Flat Buyers Can Initiate Insolvency Proceedings Against Builders Under The IBC?
In this case applicants would be covered by the expression 'Financial Creditor' and the expression 'Financial Debt' within the meaning of the term used in Section 7 and Section 5 (7) & (8) of the IBC and entitled to initiate corporate insolvency process against the builder, in case of non-payment of such 'Assured/Committed return' and non-delivery of unit.
Nikhil Mehta and Sons and Ors. vs. AMR Infrastructures Ltd. (23.01.2017 - NCLT - Principal Bench) : MANU/NC/0022/2017
Should the personal property be considered as the collateral?
a) Under the provisions of SARFAESI Act, guarantees can be invoked, as the liability towards the financial creditors would be joint and several. In the resolution process, these personal properties would neither be seized, attached nor repossessed, as the resolution professional would only be concerned about the assets of the corporate debtor or any immovable property in its name. The direction for imposing a moratorium would suit the directors and the guarantors perfectly from being dispossessed from their immovable properties.
In Re: Leo Duct Engineers and Consultants Ltd. (22.06.2017 - NCLT - Mumbai) : MANU/NC/0720/2017
Is Notice of Demand or Notice of Dispute relevant under Section - 7?
a) Under Section 7 neither notice of demand nor a notice of dispute is relevant whereas under Sections 8 and 9 notice of demand and notice of dispute become relevant both for the purposes of admission as well as for and rejection.
Kirusa Software Private Ltd. vs. Mobilox Innovations Private Ltd. (24.05.2017 - NCLAT) : MANU/NL/0027/2017
Whether Petition under Section 9 of the Code is not maintainable there being existence of dispute between the parties with regard to the debt claimed by Operational Creditor?
Dispute relating to quality of goods which culminated into pendency of Company Petition before the High Court, no matter whether it was withdrawn, falls within the ambit of expression "dispute, if any" defined under sub-section (6) of Section 6 of the Code and also within the ambit of expression "dispute, if any" as mentioned under sub-section (2) of Section 8 of Code.
Meyer Apparel Ltd. and ORS. Vs. Surbhi Body Products Pvt. Ltd. and ORS. NCLAT MANU/NL/0032/2017
Whether issuing legal notice under the Companies Act be seen as document to support the claim of the operational creditor that notice has been issued to corporate debtor?
Issuing legal notice under the repealed Act cannot be seen as a document to support the claim of the operational creditor, issuance of a notice u/s 8 of the Code is an act that has to be done before filing the petition u/s 9, therefore non-filing of a notice will not come within sub-section (5) of section 9 and issuance of notice u/s 433(1) (a) cannot be construed as an action saved u/s 6 of General Clauses Act.
Seema Gupta Vs. Supreme Infrastructure India Ltd. and ORS. NCLAT MANU/NL/0131/2017
Whether a person can claim any amount due from another, a 'Corporate Debtor' after long delay on the ground that Limitation Act, 1963 is not applicable?
The stale claim of dues without explaining delay, normally should not be entertained for triggering Corporate Insolvency Resolution Process under Section 7 and 9 of the Code. Even though the Limitation Act, 1963 is not applicable for initiation of Corporate Insolvency Resolution Process the Doctrine of Limitation and Prescription is necessary to be looked into for determining the question whether the application under Section 7 or Section 9 can be entertained after long delay, amounting to laches and thereby the person forfeited his claim. If it comes to the notice of the Adjudicating Authority that the application for initiation of 'Corporate Insolvency Resolution Process' under Section 7 or Section 9 has been filed after long delay, the Adjudicating Authority may give opportunity to the Applicant to explain the delay within a reasonable period to find out whether there are any laches on the part of the Applicant.
M/s. Speculum Plast Pvt. Ltd. Vs. PTC Techno Pvt. Ltd., NCLAT MANU/NL/0163/2017
Whether a joint application by two or more operational creditors under section 9 of the Code is maintainable?
Unlike Section 7, a notice under Section 8 is to be issued by an "Operational Creditor" individually and the petition under Section 9 has to be filed by Operational Creditor individually and not jointly.
Uttam Galva Steel Limited. Vs. DF Deutsche Forfait AG & Anr., NCLAT MANU/NL/0050/2017
WHETHER A WINDING UP PETITION CAN BE FILED BY THE SECURED CREDITOR AGAINST A BORROWER EVEN AFTER OBTAINING DECREE FROM THE DEBTS RECOVERY TRIBUNAL?
The Hon'ble Supreme Court maintained the exclusivity of Recovery of Debt and Bankruptcy Act (RDB Act) for recovery of debts and reaffirmed that the winding up process is not an alternate remedy for realization of debts due to a creditor, further it held that a secured creditor can file a winding up petition against the borrower even after obtaining a decree from the Debts Recovery Tribunal (DRT).
Swaraj Infrastructure Pvt. Ltd. vs. Kotak Mahindra Bank Ltd. (29.01.2019 - SC) : MANU/SC/0095/2019
Whether filing of a copy of certificate from the Financial Institution maintaining accounts of the Operational Creditor confirming that there is no payment of unpaid operational debt by the Corporate Debtor as prescribed under clause (c) of sub-section 3 of Section 9 of the Code is mandatory or directory?
The provision regarding the furnishing of a copy of the certificate from the Financial Institution maintaining accounts of the Operational creditor confirming that there is no payment of unpaid operational debt by the corporate debtor is mandatory.
Smart Timing Steel Ltd. Vs. National Steel & Agro Industries Ltd. NCLAT MANU/NL/0023/2017
Whether Section 7, 9 or 10 of the Code by the Financial Creditor, Operational Creditor or Corporate Applicant, which has been admitted by NCLT, be withdrawn on the basis of compromise between the parties?
As per Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 the National Company Law Appellate Tribunal prima facie could not avail of the inherent powers recognised by Rule 11 of the National Law Appellant Tribunal Rules, 2016 to allow a compromise to take effect after admission of the insolvency petition.
Lokhandwala Kataria Construction Pvt. Ltd. Vs. Nisus Finance & Investment Manager LLP., NCLAT MANU/NL/0051/2017
