Whether Insolvency and Bankruptcy Code, 2016 has overriding effect over Tea Act, 1953?
Therefore, considering Section 238 of the IBC, which is a subsequent Act to the Tea Act, 1953, shall be applicable and the provisions of the IBC shall have an overriding effect over the Tea Act, 1953. Any other view would frustrate the object and purpose of the IBC. If the submission on behalf of the appellant that before initiation of proceedings under Section 9 of the IBC, the consent of the Central Government as provided under Section 16G(1)(c) of the Tea Act, 1953 is to be obtained, in that case, the main object and purpose of the IBC, namely, to complete the "corporate insolvency resolution process" in a time bound manner, shall be frustrated.
The sum and substance of the above discussion would be that the provisions of the IBC would have an overriding effect over the Tea Act, 1953 and that no prior consent of the Central Government before initiation of the proceedings under Section 7 or Section 9 of the IBC would be required and even without such consent of the Central Government, the insolvency proceedings under Section 7 or Section 9 of the IBC initiated by the operational creditor shall be maintainable.
Duncans Industries Ltd. Vs. A. J. Agrochem (04.10.2019: SC) : MANU/SC/1385/2019
Constitutional validity of the Insolvency and Bankruptcy Code (Amendment) Act, 2019?
The legislature must be given free play in the joints when it comes to economic legislation. Apart from the presumption of constitutionality which arises in such cases, the legislative judgment in economic choices must be given a certain degree of deference by the courts.
While it is true that it may well be that the law laid down by the NCLAT in this very case forms the basis for some of these amendments, it cannot be said that the legislature has directly set aside the judgment of the NCLAT. The Amendment Act cannot be struck down on the ground that it has been enacted only for curing the defect in the NCLAT order in the case of Essar Steel.
Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta and Ors. (15.11.2019 - SC) : MANU/SC/1577/2019
Constitutional validity of amendment in section 12 of the Insolvency and Bankruptcy Code?
The reason for this amendment stems from the experience that has been plaguing the legislature ever since SICA was promulgated. Though SICA and other successor enactments provided for expeditious determination and timely detection of sickness in industrial companies, yet, legal proceedings under the same dragged on for years as a result of which these statutory measures proved to be abject failures in resolving stressed assets.
The speech of the Hon'ble Finance Minister in the Rajya Sabha also reflected the fact that with the passage of time the original intent of quick resolution of stressed assets is getting diluted. It is therefore essential to have time-bound decisions to reinstate this legislative intent. The speech has been used as an aid not in order to construe the amended section 12, but to explain why the amendment was brought about.
Time taken in legal proceedings cannot possibly harm a litigant if the Tribunal itself cannot take up the litigant's case within the requisite period for no fault of the litigant, a provision which mandatorily requires the CIRP to end by a certain date - without any exception thereto - may well be an excessive interference with a litigant's fundamental right to non-arbitrary treatment under Article 14 and therefore unreasonable restriction on a litigant's fundamental right to carry on business under Article 19(1)(g) of the Constitution of India. However, the time taken in legal proceedings is certainly an important factor which causes delay, and which has made previous statutory experiments fail.
While leaving the provision otherwise intact, the term "mandatorily" is struck down as being manifestly arbitrary under Article 14 of the Constitution of India and as being unreasonable restriction on the litigant's right to carry on business under Article 19(1)(g) of the Constitution. The effect of this declaration is that ordinarily the time taken in relation to the CIRP must be completed within the outer limit of 330 days from the insolvency commencement date, including extensions and the time taken in legal proceedings. If the delay or a large part thereof is attributable to the tardy process of the AA and/or the NCLAT itself, it may be open in such cases for the AA and/or NCLAT to extend time beyond 330 days.
It is only in exceptional cases that time can be extended, the general rule being that 330 days is the outer limit within which resolution of the stressed assets of the CD must take place beyond which it is to be driven into liquidation.
Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta and Ors. (15.11.2019 - SC) : MANU/SC/1577/2019
Constitutional validity of amendment in section 30 of the Insolvency and Bankruptcy Code?
Section 30(2)(b) is a beneficial provision in favour of OCs and dissentient FCs as they are now to be paid a certain minimum amount, the minimum in the case of OCs being the higher of the two figures calculated under sub-clauses (i) and (ii) of clause (b), and the minimum in the case of dissentient FC being a minimum amount that was not earlier payable. Prior to the amendment, secured FCs could cramdown unsecured FCs who are dissenting. But after the amendment, such FCs are now to be paid the minimum amount mentioned in sub-section (2) of Section 30.
The order of priority of payment of creditors mentioned in section 53 is not engrafted in sub-section (2)(b) as amended. Section 53 is only referred to in order that a certain minimum amount be paid to different classes of OCs and FCs.
There is no residual equity jurisdiction in the AA or the NCLAT to interfere in the merits of a business decision taken by the requisite majority of the CoC, provided that it is otherwise in conformity with the provisions of the Code and the Regulations.
An appellate proceeding is a continuation of an original proceeding. This being so, a change in law can always be applied to an original or appellate proceeding. For this reason also, Explanation 2 to Section 30(2)(b) of the Code is constitutionally valid, not having any retrospective operation so as to impair the vested rights.
Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta and Ors. (15.11.2019 - SC) : MANU/SC/1577/2019
What is the constitution of sub-committee by the Committee of Creditors (CoC)?
The powers of the CoC under section 28(1)(h) in respect of matters which have a vital bearing on the running of the business of the CD, though are administrative in nature, shall not be delegated to any other person. The CoC alone must take the decisions mentioned in section 28.
The power to approve a resolution plan under section 30(4) cannot be delegated to any other body as it is the CoC alone that has been vested with this important business decision which it must take by itself. However, this does not mean that sub-committees cannot be appointed for the purpose of negotiating with resolution applicants, or for the purpose of performing other ministerial or administrative acts, provided such acts are ultimately approved and ratified by the CoC.
Extinguishing of rights of creditors against guarantors
Section 31(1) of the Code makes it clear that once a resolution plan is approved by the CoC, it shall be binding on all stakeholders, including guarantors. This provision ensures that the successful resolution applicant starts running the business of the CD on a fresh slate as it were.
It is difficult to accept the argument that that part of the resolution plan which states that the claims of the guarantor on account of subrogation shall be extinguished, cannot be applied to the guarantees furnished by the erstwhile directors of the CD. The judgment of the NCLAT is contrary to section 31(1) of the Code and the Supreme Court's judgement in State Bank of India Vs. V. Ramakrishnan.
Claims
A successful resolution applicant cannot suddenly be faced with "undecided" claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by the successful resolution applicant.
All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the CD.
Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta and Ors. (15.11.2019 - SC) : MANU/SC/1577/2019
What is the meaning of the word "dispute"?
a) The definition of "dispute" is "inclusive" and not "exhaustive". The same has to be given wide meaning provided it is relatable to the existence of the amount of the debt, quality of good or service or breach of a representation or warranty. Once the term "dispute" is given its natural and ordinary meaning, upon reading of the Code as a whole, the width of "dispute" should cover all disputes on debt, default etc. and not be limited to only two ways of disputing a demand made by the operational creditor, i.e. either by showing a record of pending suit or by showing a record of a pending arbitration. The intent of the Legislature, as evident from the definition of the term "dispute", is that it wanted the same to be illustrative (and not exhaustive). If the intent of the Legislature was that a demand by an operational creditor can be disputed only by showing a record of a suit or arbitration proceeding, the definition of dispute would have simply said dispute means a dispute pending in Arbitration or a suit.
Kirusa Software Private Ltd. vs. Mobilox Innovations Private Ltd. (24.05.2017 - NCLAT): MANU/NL/0027/2017.
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 'I & B Code' is mandatory or directory?
Form-5 cannot override the substantive provision of clause (c) of sub-section (3) of Section 9 of 'I & B Code' which mandates enclosure of certificate from 'Financial Institution' maintaining accounts of 'Operational Creditor' confirming that there is no payment of unpaid operational debt by the 'Corporate Debtor'.
Macquaire Bank Limited. Vs. Uttam Galva Metallics Limited. NCLAT MANU/NL/0048/2017
Whether mere disputing a claim of default of debt can be a ground to reject the application under Section 9 of Code, till the Corporate Debtor refers any dispute pending?
Dispute as defined in sub-section (6) of Section 5 cannot be limited to a pending proceedings or "lis, within the limited ambit of suit or arbitration proceedings, the word 'includes' ought to be read as "means and includes' including the proceedings initiated or pending before consumer court, tribunal, labour court or mediation, conciliation etc.
Kirusa Software Private Ltd. Vs. Mobil ox Innovations Private Ltd., NCLAT MANU/NL/0027/2017
WHETHER THE COMPLIANCE WITH SECTION 9(3)(C) OF THE IBC,2016 WAS MANDATORY IN NATURE?
The court held that Section 9(1) contains the conditions precedent for triggering the 2016 code in so far as the operational creditor is concerned. The requisite elements are occurrence of a default and delivery of a demand notice of an unpaid operational debt or invoice demanding payment of the amount involved. The bench concluded that a procedural provision is the handmaid of justice and cannot be mandatory where there is a serious general inconvenience.
Macquarie Bank Limited vs. Shilpi Cable Technologies Ltd. (15.12.2017 - SC) : MANU/SC/1609/2017
Is it mandatory to file the copy of the certificate from financial institutions?
a) On perusal of Section 9 of Insolvency and Bankruptcy Code, it is evident, that it is mandatory to file copy of the Certificate from the Financial Institutions reflecting non-payment of the operational debt.
Smart Timing Steel Ltd. vs. National Steel and Agro Industries Ltd. (19.05.2017 - NCLAT) : MANU/NL/0023/2017
Whether in the absence of notice given to the Corporate Debtor before admitting the case under Section 7 of the Code, the impugned order of Adjudicating Authority is violative of rules of natural justice?
Before admitting an application under Section 9 of the Code it is mandatory duty of the adjudicating authority to issue notice to the corporate debtor. Admittedly no notice was issued by the adjudicating authority to the corporate debtor, before admitting the application filed under Section 9 of the Code. For the said reason the judgement order cannot be upheld having passed in violation of principle of natural justice.
M/s. Starlog Enterprises Limited. Vs. ICICI Bank Limited. NCLAT MANU/NL/0026/2017
Do disputes raised regarding quality of goods amount to pre-existing dispute under the IBC?
The National Company Law Appellate Tribunal has held that a dispute raised for the first time in reply to demand notice or in response to Adjudicating Authority regarding quality of goods will not amount to pre-existing dispute about operational debt under the Insolvency and Bankruptcy Code.
Rajeev K. Agarwal v. Panipat Texo Fabs Pvt. Ltd. MANU/NL/0293/2018
What can be the implication of specific extension of liability to directors of parent company?
Section 66 (2) of the IBC specifies the extension of liability to the directors. Under this provision, the adjudicating authority may pass an order requiring the director of the corporate debtor, as the case may be, to be liable for making such contributions to the assets of the corporate debtor as it may deem fit. Such extension of liability is subject to the fact that the director knew or ought to have known that there was no reasonable prospect of avoiding commencement of insolvency process and they failed to exercise due diligence in minimising the potential loss to the creditors. In this regard, there exists a rebuttable presumption in favour of the director. That is, it is presumed that they have exercised the level of due diligence as is reasonably expected out of a person carrying out the same function as are carried out by such director.
In the case of LIC vs. Escort Limited and Ors. MANU/SC/0138/1966, the Supreme Court held that the corporate veil may be lifted where a statute itself contemplates it or in case of prevention of fraud or improper conduct. As the provisions of IBC 2016 clearly contemplates the extension of liability on its director and parent company, therefore the intention of the legislation would remain unfulfilled if the same is not accompanied with the power to pierce the corporate veil as and when such case arises.
Further, in the case of IDBI Bank Limited vs. Jaypee Infratech Limited MANU/NC/5257/2018, a petition had been filed to declare the transaction entered into by promoters and directors of corporate debtor creating mortgage of property as illegal. It is pertinent to mention that when the account of the corporate debtor was declared as NPA, the directors of the corporate debtor, in utter disregard to their fiduciary duties and duty of care to the creditors of the corporate debtor, mortgaged 858 acres of unencumbered land owned by the Corporate Debtor to secure the debt of the related party i.e. Jaiprakash Associates Ltd (parent company). The value of the land mortgaged by the corporate debtor was estimated to be in the range of 5000 to 6000 crores approximately, as per the valuation report prepared at the time of mortgage of the said land. The mortgage of land was created without any counter guarantee from a related party. The mortgage of land is in nature of asset stripping and entered into with the intent to defraud the creditors of the corporate debtor.4 The impugned transactions, was declared as fraudulent, preferential and undervalued transactions as defined under section 66, 43 and 45 of IBC 2016 as it was carried on during the period of two year preceding the commencement of insolvency. Therefore, the Tribunal passed the order for release and discharge of the security interest created by the corporate debtor in favour of lenders of the parent company and the properties mortgaged by way of preferential and undervalued transactions were made to be deemed to be vested in the corporate debtor.
What are the requisites for a dispute to arise?
a) The true meaning of sub-section (2)(a) of Section 8 read with sub-section (6) of Section 5 of the 'I & B Code' clearly brings out the intent of the Code, namely the Corporate Debtor must raise a dispute with sufficient particulars. And in case a dispute is being raised by simply showing a record of dispute in a pending arbitration or suit, the dispute must also be relatable to the three conditions provided under sub-section (6) of Section 5(a)-(c) only. The words 'and record of the pendency of the suit or arbitration proceedings' under sub-section (2)(a) of Section 8 also make the intent of the Legislature clear that disputes in a pending suit or arbitration proceeding are such disputes which satisfy the test of sub-section (6) of Section 5 of the 'I & B Code' and that such disputes are within the ambit of the expression, 'dispute, if any'. The record of suit or arbitration proceeding is required to demonstrate the same, being pending prior to the notice of demand under sub-section 8 of the 'I & B Code'.
Kirusa Software Private Ltd. vs. Mobilox Innovations Private Ltd. (24.05.2017 - NCLAT) : MANU/NL/0027/2017.
Whether 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?
Provisions of sub-section (3) mandates the operational creditor to furnish copy of invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor.
Achenbach Buschutten CmbH & Co. Vs. Aerotech Ltd., NCLAT MANU/NL/0053/2017
Whether in absence of record of default as recorded with the information utility or any other "record or evidence of default" specified by the Board, an application under Section 7 is maintainable?
Rules of procedure are to be construed not to frustrate or obstruct the process of adjudication under the substantive provisions of law. A procedural provision cannot override or affect the substantive obligation of the adjudicating authority to deal with applications under section 7 merely on the ground has not stipulated or framed Regulations with regard to sub-section 3(a) of Section 7.
Neelkanth Township and Construction Pvt. Ltd. Vs. Urban Infrastructure Trustees Ltd., NCLAT : MANU/NL/0063/2017
Whether the application under Section 433 and 434 of the Companies Act, 1956 be treated to be an application under Section 9 of the Code?
The application under section 433 and 434 of the Companies Act, 1956 cannot be treated to be an application under section 9 of the Code in terms of Rule 5 of Transfer Rules, 2016.
M/s. Sabari Inn Pvt. Ltd. Vs. M/s. Rameesh Associates Pvt. Ltd., NCLAT MANU/NL/0176/2017
Whether an application under Section 9 of IBC is maintainable during pendency of proceeding under Section 138 of Negotiable Instruments Act, 1881?
The NCLAT, by relying on the principle propounded in Innoventive Industries Ltd. Vs. ICICI Bank and Ors. MANU/SC/1063/2017, has held that:
"29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing - i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code."
Sudhi Sachdev v. Appl Industries Ltd. MANU/NL/0305/2018
Whether the institution or continuation of a proceeding under Section 138 and 141 of the NI Act can be said to be covered by the moratorium provision under the IBC?
According to the Supreme Court, Section 138 proceeding is a "civil sheep" in a "criminal wolf's" clothing because it is the victim's interest that is sought to be protected, with the larger interest of the State being subsumed in the victim alone moving the court in cheque bouncing cases. The Supreme Court also specifies that the moratorium provision will only apply to the corporate debtor, and that the statutory liability of the natural persons stated in Section 141 of the NI Act, i.e., the persons in charge of the corporate debtor's business, will remain in force.
The implication of this decision is that the criminal proceedings against the company for cheque bouncing under Section 138 of the NI Act will be stayed during the period of moratorium applicable to any company's insolvency proceedings. It is however pertinent to note that the proceedings would continue against the directors and other officials of the company who are made accused in cheque bouncing proceedings.
P. Mohanraj and Ors. V. Shah Brothers Ispat Pvt. Ltd. (01.03.2021 - SC): MANU/SC/0132/2021
Similarly, in the recent case of Anjali Rathi and Ors. v. Today Homes & Infrastructure Pvt. Ltd., the Supreme Court reiterated that the moratorium declared under Section 14 of the Insolvency and Bankruptcy Code, 2016 applies only to proceedings involving corporate debtors and not its directors or management, because the purpose of a moratorium is to ensure that the financially ailing corporate debtor does not go bankrupt. As a result, the IBC separates the corporate debtor's interest from the interests of management.
Anjali Rathi and Ors. V. Today Homes and Infrastructure Pvt. Ltd. and Ors. (08.09.2021 - SC): MANU/SC/0649/2021
Whether notice issued to the Corporate Debtor under Section 271 of the Companies Act, 2013 for winding up can be treated to be a notice for the purpose of Section 8 of the Code?
Notice issued to the Corporate Debtor under Section 271 of the Companies Act, 2013, for winding up cannot be treated to be a notice for the purpose of Section 8 of the Code in view of the mandatory provision under section 8 of the Code read with Rule 5 of Insolvency and Bankruptcy, Rules 2016.
Era Infra Engineering Ltd. Vs. Prideco Commercial Projects Pvt. Ltd., NCLAT MANU/NL/0121/2017
Whether remand of the case to Adjudicating Authority after setting aside the impugned order will be futile or not where parties have agreed for settlement?
The order of the Adjudicating Authority is set aside as it was passed without due notice to the corporate debtor in violation of principles of natural justice with liberty to the operational creditor to withdraw the application under section 9 of the code in terms of settlement.
Agroh Infrastructure Developers Pvt. Ltd. Vs. Narmada Construction (Indore) Pvt. Ltd., NCLAT MANU/NL/0130/2017
Whether ex-parte order passed by Adjudicating Authority without prior notice or intimation of hearing to the Appellants-Corporate Debtors is against the principles of rules of natural justice?
The principle of natural justice is violated when ex-parte order is passed by the Adjudicating Authority without prior notice or intimation of hearing to the corporate debtor.
M/s MCL Global Steel Pvt. Ltd. & Anr. Vs. M/s Essar Projects India Ltd. & Anr, NCLAT MANU/NL/0031/2017
Whether dispute under the Section 5(6) of the code is a demonstrative definition or an exhaustive one?
The definition of the word 'dispute' given in the Section is not exhaustive rather demonstrative. The corporate debtor is not left with the only option of showing the existence of dispute by way of pending suit, arbitration or to show the breach of representation or warranty. The corporate debtor have their rights to show that goods and services were not supplied at all or the supply was far satisfactory in case of demand raised by an operational creditor.
Annapurna Infrastructure Pvt. Ltd. & ORS. Vs. Soril Infra Resources Ltd., NCLT Principal Bench MANU/NC/0190/2017
WHAT CONSTITUTES "EXISTENCE OF A DISPUTE" IN THE CONTEXT OF APPLICATIONS FILED BY OPERATIONAL CREDITORS FOR INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS (CIRP) OF CORPORATE DEBTORS UNDER THE INSOLVENCY AND BANKRUPTCY CODE, 2016 (IBC).
Upon review of the entire scheme relating to CIRP applications filed by operational creditors the Supreme Court held that what is important is that the existence of the dispute and/or the suit or arbitration proceeding must be "pre-existing" i.e. it must exist before the receipt of the Demand Notice. Further, the court held that the word "and" occurring in Section 8(2)(a) of the IBC must be read as "or". Also, court clarified what questions the adjudicating authority must decide while examining an application under Section 9.
Mobilox Innovations Private Limited vs. Kirusa Software Private Limited (21.09.2017 - SC) : MANU/SC/1196/2017
DUTY OF DETERMINATION OF AN INSTRUMENT OR A PARTICULAR DOCUMENT OF SPECIFIC NATURE?
The Hon'ble Supreme Court ruled that the duty of determination of an instrument or, to explicate, to determine when there is a contest to a particular document to be of specific nature, the adjudication has to be done by the judge after hearing the counsel for the parties. It is a part of judicial function and hence, the same cannot be delegated.
Black Pearl Hotels (Pvt.) Ltd. vs. Planet M Retail Ltd. (17.02.2017 - SC) : MANU/SC/0245/2017
Whether time is the essence of IBC, 2016?
Time is the essence of the Insolvency and Bankruptcy Code 2016, but it is to be seen whether on failure to do so, the Adjudicating Authority is competent to pass appropriate order. Further in case resolution process is not completed within the time prescribed as per section 33 it will lead to initiation of liquidation proceedings, which may affect the corporate debtor, which otherwise was not required to be initiated.
The resultant effect of non-completion of insolvency resolution process within the time limit of 180 days + extended period of 90 days i.e. total 270 days will result in to initiation of liquidation proceedings under section 33. As the end result of Resolution Process is approval of resolution plan or initiation of liquidation of proceedings, we hold the time granted under section 12 of 'the Code' is mandatory.
J.K. Jute Mills Company Limited vs. Surendra Trading Company (01.05.2017 - NCLAT) : MANU/NL/0009/2017
Do Maharashtra Relief Undertaking (Special Provisions) Act and Section 238 of The Insolvency & Bankruptcy Code contradict?
a) It is evident on record that IB Code has come into existence subsequent to MRU Act, therefore, notwithstanding clause in section 238 of IB Code prevails upon any other law for the time being in force, hence it could not be said that Notification given under MRU Act will become a bar to passing this order under section 7 of the IBC, 2016. Moreover, the objective under MRU Act, is to prevent unemployment of the existing employees of an industry which is recognized as relief undertaking, but by passing an order under section 7, it will not cause any obstruction to their employment until next 180 days, even if the company goes into liquidation, then also the rights of the employees are protected to the extent mentioned under IB Code, therefore, the corporate debtor counsel cannot have an argument saying that passing an order under section 7 of the Code will be against the interest of the employees.
ICICI Bank Ltd. vs. Innoventive Industries Ltd. (17.01.2017 - NCLT - Mumbai): MANU/NC/0216/2017
What is the meaning of the postulate "time value of money"?
a) In other words, the legislature has included such financial transactions in the definition of 'Financial debt' which are usually for a sum of money received today to be paid for over a period of time in a single or series of payments in future. It may also be a sum of money invested today to be repaid over a period of time in a single or series of instalments to be paid in future. In Black's Law Dictionary (9th edition) the expression 'Time Value' has been defined to mean "the price associated with the length of time that an investor must wait until an investment matures or the related income is earned". In both the cases, the inflows and outflows are distanced by time and there is a compensation for time value of money.
Nikhil Mehta and Sons vs. AMR Infrastructure Ltd. (21.07.2017 - NCLAT) : MANU/NL/0041/2017
What is the significance of the expression, "Existence of a dispute"?
a) Once parties are already before any judicial forum/authority for adjudication of disputes, notice becomes irrelevant and such an interpretation renders the expression 'existence of a dispute, if any,' in sub-section (2) of Section 8 otiose.
Kirusa Software Private Ltd. vs. Mobilox Innovations Private Ltd. (24.05.2017 - NCLAT): MANU/NL/0027/2017
In case of repugnancy, IBC prevails over any state law only if both the Parliamentary (or existing law) and the State law are referable to List III in the 7th Schedule to the Constitution of India.
Innovative Industries Ltd. vs. ICICI Bank and Ors. (31.08.2017 - SC) : MANU/SC/1063/2017
Whether the application filed by power of attorney holder under Section 7 of the Insolvency Bankruptcy Code is maintainable or not?
The Supreme Court by affirming the law laid down by the NCLAT in the case of Palogix Infrastructure Private Limited v. ICICI Bank Limited (20.09.2017 - NCLAT) held that a general authorization granted to an officer of a financial creditor through a power of attorney does not preclude that officer from acting as the financial creditor's authorized representative when filing an application under Section 7 of the Code simply because the authorization was granted through a power of attorney. In this case, authority was granted by way of a power of attorney pursuant to a resolution passed by the Bank's board of directors. As a result, it is apparent that the application has been filed on behalf of the Financial Creditor by an authorized person. Hence, it is maintainable.
Rajendra Narottamdas Sheth and Ors. vs. Chandra Prakash Jain and Ors. (30.09.2021 - SC): MANU/SC/0744/2021
whether the provisions of Section 18 of the Limitation Act certainly extend the period of limitation under the Code on any acknowledgment of debt by the corporate debtor?
a. It has been clearly held that the limitation period for application under Section 7 of the Code is three years as provided by Article 137 of the Limitation Act, which commences from the date of default and is extendable only by application of Section 5 of Limitation Act, if any case for condonation of delay is made out.
b. The question of limitation is essentially a mixed question of law and facts and when a party seeks application of any particular provision for extension or enlargement of the period of limitation, the relevant facts are required to be pleaded and requisite evidence is required to be adduced.
c. In the present case, the respondent No. 2 never came out with any pleading other than stating the date of default as '08.07.2011' in the application. That being the position, no case for extension of period of limitation is available to be examined. In other words, even if Section 18 of the Limitation Act and principles thereof were applicable, the same would not apply to the application under consideration in the present case, looking to the very averment regarding default therein and for want of any other averment in regard to acknowledgement.
d. When the application made by the respondent No. 2 for CIRP is barred by limitation, no proceedings undertaken therein after the order of admission could be of any effect. All such proceedings remain non-est and could only be annulled.
WHETHER ARBITRATION AWARD DIRECTING TRANSMISSION OF SHARES CAN BE ENFORCED THROUGH NCLT?
In the present case, the arbitral award required the shares to be transmitted to the claimants. The arbitral award attained finality. The award could be enforced in accordance with the provisions of the Code of Civil Procedure, in the same manner as if it were a decree of the Court. The award postulates a transmission of shares to the claimant. The directions contained in the award can be enforced only by moving the Tribunal for rectification in the manner contemplated by law.
Cheran Properties Limited vs. Kasturi and Sons Limited and Ors. (24.04.2018 - SC) : MANU/SC/0427/2018
What were the operational recommendations of the Insolvency Law Committee?
The Insolvency Law Committee, set up on 16th November, 2017, submitted its report1 to the Central Government on 26th March, 2018. Its mandate was to review the functioning of the Insolvency and Bankruptcy Code, 2016 (hereinafter "the Code/IBC") in light of the loopholes, lacuna, ambiguities and conflicts plaguing this law since its very enforcement. Suggestions from various stakeholders were also to be duly considered in order to model the Code on more holistic and practical lines. The salient features of the Committee's report can be understood as follows -
Classification of Home Buyers as Financial Creditors: IBC does not categorize 'Home Buyers' as either financial or operational creditors. As a result, the Corporate Insolvency Resolution Process (CIRP) envisaged under it cannot be initiated at their behest nor can they form part of the Committee of Creditors. Hence, they are deprived of the right to receive even the liquidation value of the Resolution Plan. The Committee concluded that the amounts raised from allottees/buyers of real estate projects falls under the definition of financial debt. Thus, such home buyers come within the ambit of Section 5(8)(f) of the Code which defines 'Financial Creditors'. The insertion of an explanation to this provision to remove any residual ambiguity was also recommended.2
Operational Creditors: On the suggestion that the definition of 'Operational Creditors' and, by extension, 'Operational Debt' be widened to include the dues payable to regulatory bodies, the Committee concluded that this omission in the definition was intentional. Recognizing that regulators have sufficient power and means to recover the debt owed to them of their own accord, the Committee recommended the that dues accrued as a result of goods or services provided by a regulatory body to be construed as operational debt only on a case to case basis.
Replacing Repayment with Payment: The Committee considered the connotation of the terms 'repayment'3 and 'payment' for the purposes of Section 5(21) defining operational debt and opined that payment had a wider import than repayment. Thus, it recommended that repayment be replaced with the term payment4 for a more suitable construction.
Related Party: It was noticed by the Committee that certain financial creditors like banks and Asset Reconstruction Companies (ARCs) were effectively debarred from having any representation, participation or voting rights in the Committee of Creditors (CoC) by virtue of being construed as 'Related Party' to the corporate debtor. Therefore, it was recommended that those financial creditors which end up becoming related parties only because of conversion of their debt instruments into equity shares (or instruments convertible to equity shares), before the commencement of insolvency, will not be hit by the exclusion/prohibition entailed under Section 21(2) applicable to related parties.
Insolvency Resolution by Operational Creditor: Under the Code, an insolvency application initiated by an operational creditor to a corporate debtor can be contested vis-…-vis existence of debt by showing, both, the existence of a dispute and the pendency of a suit or arbitration proceeding. However, the Supreme Court has expounded5 that prior to the receipt of demand notice from the operational creditor, disputes can also exist in a form other than a pending suit or arbitration proceeding. In order to reflect this interpretation accorded by the apex court, the Committee recommended that that Section 8(2)(a) of the Code be amended so that both conditions may be applied alternatively and not in conjugation (i.e., to replace 'and' with 'or'). Further, the requirement of furnishing of certificate from financial institution, maintain records of operational creditor has been made optional. Other means of proving the operational debt has not been repaid by the corporate debtor can also be furnished in lieu of such certificates.
Voting Thresholds for CoC: It was brought to the Committee's attention that the high voting threshold of 75% for the CoC was resulting in more rejections of resolution plans than approvals. Thus, it was recommended that the threshold for approving resolution plans and for making other critical decisions be reduced from 75% to 66%.
Initiation of CIRP by Corporate Applicant: The Committee recommended that initiation of CIRP by corporate applicant via an application before the NCLT be done after obtaining approval from shareholders or partners of corporate debtor since such process will critically affect its functioning and might also result in liquidation.
Treatment of MSMEs: The Committee noted that micro, small and medium enterprises (MSMEs) who are mostly operational creditors to businesses are especially susceptible to working capital mismatch (i.e., any temporary credit disruption created by the insolvency of the debtors of such MSMEs could have implications on the ability of MSMEs to service their debts). Thus, it recommended that specific exemption be given to corporate debtors which are MSMEs, by permitting a promoter who is not a wilful defaulter, to bid for the MSME in insolvency.
Scope of Moratorium: Once the NCLT admits an application for insolvency, a moratorium of 180 days is triggered prohibiting operational creditors from taking any action for recovery or enforcement of security interest created by the corporate debtor. However, there existed an ambiguity on whether the moratorium includes enforcement action against assets of third parties such as the promoter or guarantor provided as security to the creditor. The Committee report clarifies that this moratorium extends to the assets of the corporate debtor only. Assets of third parties can be proceeded against.
Submission of Claims: The Committee recommended for explicit provision in the Code that the IBBI has the power to specify the last date for submission of claims so as to provide for further flexibility in streamlining the timelines within the CIRP in relation to submission of claims.
Do disputes raised regarding quality of goods amount to pre-existing dispute under the IBC?
The National Company Law Appellate Tribunal has held that a dispute raised for the first time in reply to demand notice or in response to Adjudicating Authority regarding quality of goods will not amount to pre-existing dispute about operational debt under the Insolvency and Bankruptcy Code.
Rajeev K. Agarwal v. Panipat Texo Fabs Pvt. Ltd. MANU/NL/0293/2018
Is modification of the claim possible after the admission of the application?
a) Showing an incorrect claim, moving the application in a hasty manner and obtaining an ex-parte order from the 'adjudicating authority' which admitted such an incorrect claim, the Financial Creditor cannot disprove its mala fide intention by stating that the claim submitted is correct amount. The I & B Code does not provide for any such mechanism where post-admission, the applicant financial creditor can modify their claim amount.
Starlog Enterprises Limited vs. ICICI Bank Limited (24.05.2017 - NCLAT): MANU/NL/0026/2017
Can a petition for insolvency be subsequently withdrawn?
Initially, the IBC 2016 did not provide for the withdrawal of a petition for insolvency once an application for initiating the corporate debtor's CIRP has been duly admitted. However, the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 effective from 6 June 2018, inserted new Section 12A which allows for the withdrawal of admitted applications even after initiation of CIRP with the approval of 90% of the voting share of the CoC.
Moreover, adjudicating authorities like the NCLT and NCLAT have also allowed withdrawal of insolvency resolution applications in cases where a settlement has been reached between the corporate debtor and its creditors.
Whether the time period of 14 days provided under the Code to Adjudicating Authority to either admit or reject an application is mandatory or directory?
The time period of 14 days within which the Adjudicating Authority is mandated to either admit or reject application under Section 7, 9 or 10 of the Code is directory.
JK Jute Mills Company Limited Vs. M/s. Surendra Trading Company, NCLAT MANU/NL/0009/2017
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 unsecured loan taken without any interest is a 'financial debt' within the meaning of sub-section (8) of Section 5 of the Code?
Financial creditor failed to show that the amount of loan treated to have been given to the Corporate Debtor were disbursed against the consideration for the time value of money. In absence of any such evidence on record to suggest that the amount was disbursed against the consideration for the time value of money and was borrowed by the corporate debtor against the payment of interest, the financial creditor do not come within the meaning of 'financial creditor'.
Vishwa Nath Singh Vs. M/s. Visa Drugs & Pharmaceuticals Pvt. Ltd., NCLAT : MANU/NL/0211/2017
Whether non-disclosure of facts beyond the statutory requirement under the code read with relevant form, prescribed under the Insolvency and Bankruptcy Rules, 2016 can be a ground to dismiss an application for initiation of Corporate Insolvency Resolution Process?
Section 10 does not empower the Adjudicating Authority to go beyond the records as prescribed under Section 10 and the information's as required to be submitted in Form 6 of the Insolvency and Bankruptcy Rules, 2016. If all information's are provided by an applicant as required under Section 10 and Form 6 and if the Corporate Applicant is otherwise not ineligible under Section 11, the Adjudicating Authority is beyond to admit the application and cannot reject the application on any other ground.
M/s. Unigreen Global Pvt. Ltd. Vs. Punjab National Bank, NCLAT : MANU/NL/0192/2017
Whether the property not owned by the Corporate Debtor comes within the protective umbrella of "moratorium" under section 14 of the Code?
Plain language of the section is that on the commencement of the insolvency process the 'Moratorium" shall be declared for prohibiting any action to recover or enforce any security interest created by the Corporate Debtor in respect of "its" property. The property not owned by the corporate debtor does not come within the protective umbrella of moratorium under section 14 of the Code.
Alpha & Omega Diagnostics (India) Ltd. Vs. Asset Reconstruction Company of India Ltd. & ORS. NCLAT : MANU/NL/0092/2017
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 the amount invested by flat buyers come within the meaning of 'Financial Debt', as defined in Section 5(8) (f) of the Code?
Corporate Debtor treated the appellants as 'investors' and borrowed the amount pursuant to sale purchase agreement for their 'commercial purpose' treating the amount at par with loan in their return. Thereby, the amount invested by appellants come within the meaning of 'Financial Debtor', as defined in Section 5(8) (f) of the Code, subject to satisfaction as to whether such disbursement against the consideration is for time value of money. Appellants have successfully proved that the money disbursed by them is against the consideration for the time value of money and for all purpose, they come within the meaning of 'Financial Creditor' as defined in Section 5(7) of the Code.
Anil Mahindroo & Anr. Vs. Earth Iconic Infrastructure (P) Ltd., NCLAT : MANU/NL/0055/2017
