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INSOLVENCY & BANKRUPTCY CODE - EXTRA QUESTIONS

Q.1. What shall be included in Financial Information?

A. Financial Information includes theS following:-

a. Records of debt of the person

b. Records of liabilities when the person is insolvent

c. Records of assets of assets of the person over which security interest has been created

d. Records, if any, of instances of default by the person against any debt

e. Records of the balance sheet and cash-flow statements of the person; and

f. Such other information as may be specified

Q.2. What is the date of enforcement of Insolvency and Bankruptcy (application to Adjudicating

Authority) Rules, 2016?

A. The Insolvency and Bankruptcy (application to Adjudicating Authority) Rules, 2016 have been

enforced w.e.f. 1st day of December, 2016.

Q.3. What is included in the Financial Debt?

A. As per Section 5(8) of the Code, Financial Debt means a debt along with interest, if any, which is

disbursed against the consideration for the time value of money and includes:-

a. Any money borrowed against the payment of interest.

b. Any amount raised by acceptance under any acceptance credit facility or its de-materialised

equivalent.

c. Any amount raised pursuant to any note purchase facility or the issue of bonds, notes,

debentures, loan stock or any similar instrument.

d. The amount of any liability in respect of any lease or hire purchase contract which is deemed

as a finance or capital lease under the Indian Accounting Standards or such other accounting

standards.

e. Any receivables sold or discounted other than any receivables sold on non-recourse basis.

f. Any amount raised under any other transaction, including any forward sale or purchase

agreement, having the commercial effect of a borrowing.

g. Any derivative transaction entered into in connection with protection against or benefit from

fluctuation in any rate or price and for calculating the value of any derivative transaction, only

the market value of such transaction shall be taken into account.

h. Any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary

letter of credit or any other instrument issued by a bank or financial institution.

i. The amount of any liability in respect of any of the guarantee or indemnity for any of the items

referred to in above clauses.

Q.4. Can a financial creditor in respect of whom there is no default file an application of resolution?

A. Yes, a financial creditor for whom there is no default can still file an application against a corporate

debtor provided, the corporate debtor has a default against some other financial creditor.

However, in that case, he can only file joint application with the financial creditor for whom there

is default.

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Q.5. Can a Demand Notice by an operational creditor be issued in any form?

A. No, the Demand Notice has to be issued in Form No. 3 as provided in the Application to

Adjudicating Authority Rules.

Q.6. What shall be the mode of service of demand notice?

A. The demand notice may be delivered to the corporate debtor in any of the following modes:

a. By hand, registered post or speed post with the acknowledgment due delivered at the

registered office of the corporate debtor.

b. By electronic mail service to a whole time director or designated partner or key managerial

personnel of the corporate debtor.

Q.7. What are the forms to be used for Application to be filed before National Company Law Tribunal

(NCLT) by Financial Creditor, Operational Creditor and Financial Debtor?

A. The form in which the application is to be preferred is provided in the Application to Adjudicating

Authority Rules as follows:

a. Financial Creditor – Form 1

b. Operational Creditor – Form 5

c. Corporate Debtor – Form 6

Q.8. Can an assignee of a financial contract make an application under corporate insolvency resolution

process?

A. Yes, as per Regulation 4 of Insolvency and Bankruptcy (Adjudicating Authority) Rules, 2016 where

an applicant of corporate insolvency resolution is an assignee or transferee of a financial contract

the application shall be accompanied with a copy of the assignment or transfer agreement and

other relevant documents as may be required to demonstrate the assignment or transfer.

Q.9. Can an applicant withdraw its application for insolvency process?

A. Yes, as per Regulation 8 of Insolvency and Bankruptcy (Adjudicating Authority) Rules, 2016 an

applicant may withdraw application for insolvency process by making a request to the Adjudicating

Authority. However, such a withdrawal may not be made after the application has been admitted

by the adjudicating authority.

Q.10. Does an applicant need any declaration from the proposed interim resolution professional?

A. Yes, as per Regulation 9 of Insolvency and Bankruptcy (Adjudicating Authority) Rules, 2016 an

applicant is required to obtain a written communication from the proposed interim resolution

professional. The communication shall be obtained in Form 2 of the regulations.

Q.11. What are the eligibility criteria for appointment of an Insolvency Professional as a Resolution

Professional for a corporate insolvency resolution process?

A. As per Regulation 3 of Insolvency and Bankruptcy (Insolvency Resolution) Regulation, 2016, an

insolvency professional shall be eligible for appointment as a resolution professional for a

corporate insolvency resolution process if he and all partners and directors of the insolvency

professional entity of which he is partner or director are independent of the corporate debtor

i.e.,




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a. He is eligible to be appointed as an independent director on the board of the corporate

debtor u/s 149 of the Companies Act, 2013, where the corporate debtor is a company.

b. He is not a related party of the corporate debtor.

c. He is not an employee or proprietor or a partner of a firm of auditors or company

secretaries in practice or cost auditors of the corporate debtor in the last three financial

years.

d. He is not an employee or proprietor or a partner of a legal or consulting firm that has or

had any transaction with the corporate debtor amounting to ten per cent or more of the

gross turnover of such firm in the last three financial years.

Q.12. What is the Corporate Insolvency Process initiation date?

A. The date of filing of the application before the National Company Law Tribunal (NCLT) is referred

to as the Initiation date.

Q.13. Can an application for insolvency process be withdrawn?

A. A per Rule 8 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016,

application for insolvency process may be withdrawn any time before admission of application,

with the permission of Adjudicating Authority.

Q.14. What is the Corporate Insolvency Process initiation date?

A. The date of filing of the application before the National Company Law Tribunal (NCLT) is referred

to as the Initiation date.

Q.15. Can an application for insolvency process be withdrawn?

A. A per Rule 8 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016,

application for insolvency process may be withdrawn any time before admission of application,

with the permission of Adjudicating Authority.

Q.16. Who shall bear the expenses of public announcement?

A. As per Regulation 6 of the Insolvency and Bankruptcy (Insolvency Resolution) Regulations, 2016

the expenses of public announcement shall be borne by the applicant which may be reimbursed

by the Committee of Creditors, to the extent it ratifies them.

Q.18. Is there any time limit for verification of claims by the resolution professional?

A. Yes, as per Regulation 13 of the Insolvency and Bankruptcy (Insolvency Resolution) Regulations

all the claims must be verified by the resolution professional within seven days from the last

date of receipt of claims.

Q.19. Can list of creditors prepared by resolution professional be inspected?

A. Yes, as per Regulation 13 of the Insolvency and Bankruptcy (Insolvency Resolution) Regulations,

2016 the list of creditors shall be available for inspection by the persons who submitted proofs

of claims and also by the members, partners, directors and guarantors of the corporate debtors.

Further, the list shall also be displayed on the website of the corporate debtor.




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Q.20. If there is no financial creditor, how will the committee of creditors be constituted?

A. As per Regulation 16 of the Insolvency and Bankruptcy (Insolvency Resolution) Regulations,

2016, where the corporate debtor has no financial debt or where all financial creditors are

related parties of the corporate debtor, the committee shall be formed comprising of following

members:-

a. 18 largest operational creditors by value.

b. 1 representative elected by all workmen

c. 1 representative elected by all employees.

Where the number of operational creditors is less than 18, the committee shall include all

such operational creditors.

Q.21. What is the protocol for issuance of public notice?

A. The public notice shall be published in following:-

a. One English newspaper

b. One vernacular newspaper

c. Website of the Company

d. Website of the Insolvency and Bankruptcy Board of India

Q.22. What is the procedure for replacement of insolvency resolution professional

A. As per Section 27 of the Code, the Committee of Creditors may at a meeting, by a vote of 75%

of voting shares propose to replace the insolvency resolution professional with another

resolution professional.

The Committee of Creditors shall forward the name of the insolvency professional proposed by

them to the Adjudicating Authority and after the confirmation of the proposed insolvency

resolution professional by the Board he shall be appointed in the same manner as laid down in

Section 16.

Where any disciplinary proceedings are pending against the proposed resolution professional

then the resolution professional appointed under section 22 shall continue till the appointment

of another resolution professional under this section.

Q.23. What is a Resolution plan?

A. A resolution plan is a proposal agreed to by the Debtors and Creditors of an entity in a collective

mechanism to propose a time bound solution to resolve the situation of insolvency.

As per Section 30, the Insolvency Resolution Professional (IRP) within the prescribed time i.e.

180 days or in case of extension 270 days, where Fast Track Resolution within 90 days or in

case of extension 135 days, is required to submit his Resolution Plan to Adjudicating Authority

(NCLT) prepared by him on the basis of information memorandum.




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The Resolution Plan should provide for:

a. payment of insolvency resolution costs;

b. repayment of the debts to operational creditors;

c. management of affairs of the Company after approval of the resolution plan;

d. implementation and supervision of the resolution plan;

e. does not contravene provisions of the law for the time being in force; and

f. conforms to such other requirement as may be specified by the Board.

Q.24. What remedy is available to a Resolution Professional with whom the Corporate debtor

personnel do not cooperate?

A. The Resolution Professional may apply to the Board seeking support to resolve the situation and

for orders thereof.

Where any personnel of the corporate debtor, its promoter or any other person, required to,

assist or co-operate with the interim resolution professional does not assist or cooperate, the

interim resolution professional may make an application to the Adjudicating Authority for

necessary directions.

The Adjudicating Authority, on receiving an application under sub- section (2), shall by an order,

direct such personnel or other person to comply with the instructions of the resolution

professional and to cooperate with him in collection of information and management of the

corporate debtor.

Q.25. What are Insolvency Resolution Process Costs? What is the significance of these costs?

A. As per Section 5(13) of the Code, "Insolvency Resolution Process Costs" means the following

costs:-

a. The amount of any interim finance and the costs incurred in raising such finance.

b. The fees payable to any person acting as a resolution professional.

c. Any costs incurred by the resolution professional in running the business of the corporate

debtor as a going concern.

d. Any costs incurred at the expense of the Government to facilitate the insolvency resolution

process.

e. Any other costs as may be specified by the Board.

These costs have priority over other costs in the event of winding up of the corporate debtor.

Q.26. Under what circumstances transactions will be referred to as preferential transactions?

A. A corporate debtor shall be deemed to have given a preference in the following circumstances:-

a. If there is a transfer of property or an interest thereof of the corporate debtor for the

benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial

debt or operational debt or other liabilities owed by the corporate debtor.




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b. If the transfer under clause (a) has the effect of putting such creditor or a surety or a

guarantor in a beneficial position than it would have been in the event of a distribution of

assets being made in accordance with Section 53 of the Code.

Q.27. Under what circumstances transactions will not be referred to as preferential transactions?

A. As per Section 43(3) of the Code, following transfers shall not be referred to as a preference

transaction:-

a. The transfer made in the ordinary course of the business or financial affairs of the

corporate debtor or the transferee.

b. Any transfer creating a security interest in property acquired by the corporate debtor to

the extent that

(i) such security interest secures new value and was given at the time of or after the

signing of a security agreement that contains a description of such property as security

interest and was used by corporate debtor to acquire such property; and

(ii) such transfer was registered with an information utility on or before thirty days after

the corporate debtor receives possession of such property.

Further, any transfer made in pursuance of the order of a Court shall not preclude such transfer

to be deemed as giving of preference by the corporate debtor.

Q.28. When can a liquidator apply for avoidance of preferential transaction?

A. Where the liquidator is of the opinion that the corporate debtor has at a relevant time given a

preference in transactions to any of the following persons:-

a. A related party (other than by reason only of being an employee), during the period of two

years preceding the insolvency commencement date.

b. A person other than a related party during the period of one year preceding the insolvency

commencement date.

c. The liquidator shall apply to Adjudicating Authority for avoidance of such preferential

transactions.

Q.29. On what grounds can an appellant appeal against an order of National Company Law Tribunal

for approving the resolution plan?

A. As per Section 61(3) of the Code, an appeal against an order of National Company Law Tribunal

(NCLT) for approving the resolution plan may be filed on the following grounds:-

a. The approved resolution plan is in contravention of the provisions of any law for the time

being in force.

b. There has been material irregularity in exercise of the powers by the resolution

professional during the corporate insolvency resolution period.

c. The debts owed to operational creditors of the corporate debtor have not been provided

for in the resolution plan in the manner specified by the Board.




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d. The insolvency resolution process costs have not been provided for repayment in priority

to all other debts.

e. The resolution plan does not comply with any other criteria specified by the Board.

Q.30. What shall be treated as misconduct in the course of corporate insolvency resolution process?

A. The following acts of an officer of the corporate debtor on or after the commencement of

insolvency date will be treated as misconduct:-

a. When he does not disclose to the resolution professional all the details of property of the

corporate debtor, and details of transactions thereof, or any such other information

required by the resolution professional.

b. When he does not deliver to the resolution professional all or part of the property of the

corporate debtor in his control or custody and which he is required to deliver.

c. When he does not deliver to the resolution professional all books and papers in his control

or custody belonging to the corporate debtor and which he is required to deliver.

d. When he fails to inform their resolution professional the information in his knowledge that

a debt has been falsely proved by any person during the corporate insolvency resolution

process.

e. When he prevents the production of any book or paper affecting or relating to the property

or affairs of the corporate debtor.

f. When he accounts for any part of the property of the corporate debtor by fictitious losses

or expenses, or if he has so attempted at any meeting of the creditors of the corporate

debtor within the twelve months immediately preceding the insolvency commencement

date.

Q.31. What is the punishment for misconduct in the course of corporate insolvency resolution

process?

A. Where an officer of the corporate debtor is liable for misconduct under Section 70 of the

Code he shall be punishable with imprisonment for a term which shall not be less than

three years but which may extend to five years or with fine which shall not be less than one lakh

rupees but may extend to one crore rupees or with both.

Q.32. What is the punishment for contravention of the provisions of the Code by an Insolvency

Professional?

A. If an insolvency professional deliberately contravenes the provisions of the Code he shall be

punishable with imprisonment for a term which may extend to six months or with fine which

shall not be less than one lakh rupees but may extend to five lakhs rupees or with both.

Q.33. What is the punishment for falsification of books of corporate debtor?

A. Where on and after the insolvency commencement date any person destroys, mutilates, alters

or falsifies any books, papers or securities, or makes or is in the knowledge of making of any

false or fraudulent entry in any register, books of account or document belonging to the

corporate debtor with intent to defraud or deceive any person he shall be punishable with

imprisonment for a term which shall not be less than three years but which may extend to five

years or with fine which shall not be less than one lakh rupees but may extend to one crore

rupees or with both.




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Q.34. What is the punishment for willful and material omissions from statements relating to affairs of

corporate debtor?

A. Where an officer of the corporate debtor makes any material and willful omission in any

statement relating to the affairs of the corporate debtor he shall be punishable with

imprisonment for a term which shall not be less than three years but which may extend to five

years or with fine which shall not be less than one lakh rupees but may extend to one crore

rupees or with both.

Q.35. What is the punishment for making false representations to creditors?

A. Where any officer of the corporate debtor makes false representations to the creditors on or

after the insolvency commencement date or has made any false representation, or committed

any fraud prior to the commencement of insolvency he shall be punishable with imprisonment

for a term which shall not be less than three years but may extend to five years or with fine

which shall not be less than one lakh rupees but may extend to one crore rupees or with both.

Q.36. What is the punishment for contravention of moratorium or resolution plan?

A. If the corporate debtor or any of its officer violates the provisions of Section 14 (Moratorium),

any such officer who knowingly or wilfully committed or authorised or permitted such

contravention shall be punishable with imprisonment for a term which shall not be less than

three years but may extend to five years or with fine which shall not be less than one lakh rupees

but may extend to three lakh rupees, or with both.

If any creditor violates the provisions of Section 14 (Moratorium), any person who knowingly

and wilfully authorised or permitted such contravention by a creditor shall be punishable with

imprisonment for a term which shall not be less than one year but may extend to five years or

with fine which shall not be less than one lakh rupees but may extend to one crore rupees, or

with both.

If the corporate debtor, any of its officers or creditors or any person on whom the approved

resolution plan is binding under Section 31, knowingly and wilfully contravenes any of the terms

of such resolution plan or abets such contravention, such corporate debtor, officer, creditor or

person shall be punishable with imprisonment of not less than one year, but may extend to

five years, or with fine which shall not be less than one lakh rupees, but may extend to one crore

rupees, or with both.

Q.37. What is the punishment for furnishing false information in application for initiating insolvency

process under Section 7 of the Code?

A. Any person who knowingly furnishes information in the application made under Section 7

(Initiation of corporate insolvency resolution process by financial creditor) which is false in

material particulars or omits any material fact, such person shall be punishable with fine which

shall not be less than one lakh rupees but may extend to one crore rupees.

Q.38. What is the punishment for non-disclosure of dispute or repayment of debt by operational

creditor?

A. If an operational creditor has wilfully or knowingly concealed in an application under Section 9

the fact that the corporate debtor had notified him of a dispute in respect of the unpaid




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operational debt or the full and final repayment of the unpaid operational debt or has knowingly

and wilfully authorised or permitted such concealment, such operational creditor or person

shall be punishable with imprisonment for a term which shall not be less than one year but may

extend to five years or with fine which shall not be less than one lakh rupees but may extend to

one crore rupees, or with both.

Q.39. What is the punishment for providing false information in application made by corporate

debtor?

A. If a corporate debtor knowingly provides information in the application under Section 10 which

is false in material particulars or omits any material fact or any person who knowingly and

wilfully authorised or permitted the furnishing of such information, such corporate debtor or

person shall be punishable with imprisonment for a term which shall not be less than three

years but which may extend to five years or with fine which shall not be less than one lakh

rupees but which may extend to one crore rupees, or with both.

S No. Name of Case Law Order By Judgement

1. Innoventive Industries Ltd. Vs. Union of India & Ors [WP (LDG.)] No. 143 of 2017 [See discussion at S. No. 9 also]

High Court

An application under Section 7 of the Code to initiate CIRP against Innoventive Industries Limited was admitted by NCLT on 17th January, 2017. The petitioner, aggrieved b y t he admission, filed a writ petition before the Hon’ble High Court of Bombay challenging the vires of the Code and seeking ad-interim relief of stay. It also filed an appeal before the NCLAT against the admission. While dismissing the petition, vide its order dated 23rd February, 2017, the Hon’ble High Court observed that since the main order has become subject matter of challenge before the statutory appellate authority, challenge to the vires becomes academic. It also opined that there was no need for stay the operation of the appointment of the IRP as no prejudice would be caused to the petitioner.

2. Sree Metaliks Ltd. Vs. Srei Equipment Finance Ltd. (Company Appeals (AT) (Insolvency) No.3 of 2017

NCLAT

Vide order dated 30th January, 2017, the NCLT admitted an application filed by FC, namely, Srei Equipment Finance Ltd. under Section 7 of the Code and appointed the insolvency resolution professional (IRP). The Appellant, aggrieved by the appointment of the particular IRP, filed an appeal before the NCLAT. On submission of the Respondent that the IRP would step down, the NCLAT, vide its order dated 21st February, 2017, disposed of the appeal.




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3. Raipur Power & Steel Ltd. & Ors Vs. Tomorrow Sales Agency Pvt. Ltd. (Company Appeals (AT) (Insolvency) No.4 of 2017

NCLAT

Vide order dated 23rd February, 2017, the NCLT admitted an application filed by a FC, namely, Tomorrow Sales Agency Pvt. Ltd. under Section 7 of the Code and appointed the insolvency resolution professional (IRP). The Appellant filed an appeal before the NCLAT, which disposed it of, vide its order dated 6th March, 2017, with the observation: “… as the Appellant has paid the full and final amount in favour of the respondent financial creditor (M/s. Tomorrow Sales Agency Pvt. Ltd.), this court is not inclined to decide any issue at this stage nor inclined to pass any further order in view of the assurance given by the appellant that it will clear all dues, if any, payable to any financial creditor or operational creditor”. It further observed: “If the Tribunal, on the basis of records and the report as may be submitted by the ‘interim Resolution Professional’, comes to a conclusion that the Appellant has paid all the dues to financial creditor(s) and operational creditor(s), will close the proceeding and release the appellant company from the rigors of law and allow the appellant company to function independently through its Board of Directors.”

4. Annapurna Infrastructure Pvt. Ltd. & Ors Vs. Soril Infra Resources Ltd. [C.P. No. (IB).22(PB)/2017]

NCLT

The OCs, Annapurna Infrastructure Pvt. Ltd. And others filed an application under Section 9 of the Code to initiate CIRP against the CD, Soril Infra Resources Ltd. Vide order dated 24th March, 2017, the NCLT dismissed the application with the cost of Rs.1,00,000 for the reasons given hereunder. An application under Section 9 of the Code can be filed only if the OC has delivered a notice to the CD demanding payment of default amount and it has not received in response any notice of existence of dispute and record of the pendency of the suit or arbitration proceedings in relation to such dispute. The issue to be determined was whether there was a pending arbitration proceeding in relation to the dispute before the OC delivered the demand notice. There was an award dated 09.09.2016 passed by the sole arbitrator




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in favour of the OC granting certain reliefs. The CD challenged the said award under Section 34 of the Arbitration and Conciliation Act, 1996. It was, however, dismissed on 19.12.2016. Thereafter, the OC delivered the demand notice on 13.01.2017. The CD disputed the demand on 27.01.17 stating that it has appealed against the award under Section 37 of the Arbitration and Conciliation Act, 1996. The OC submitted before the NCLT that as on the date (16.01.2017) of delivery of the demand notice, the arbitration award had attained finality and there was no pendency of arbitration proceeding. The NCLT held: “It cannot be said that arbitration proceedings have come to an end merely on the dismissal of application under Section 34 of the Arbitration Act …. The proceedings are yet to attain finality as appeal under Section 37 of the Arbitration Act is pending.” Further, it came to the notice of the NCLT that the execution proceedings for enforcement of the award have been initiated and is pending for consideration of the Hon’ble High Court on 12.05.2017. In this context, the NCLT observed: “We are further of the view that already proceedings for execution of the award have been initiated. An effective remedy has been availed by the applicant. We have not been able to accept that a party can invoke more than one remedy simultaneously. It is in fact against the fundamental principles of judicial administration to allow a party to avail more than one remedies.”

5. Nikhil Mehta and Sons (HUF) & Ors Vs. AMR Infrastructures Ltd. [C.P. No. (ISB) -03 (PB)/2017]

NCLT

Nikhil Mehta and Sons (HUF) and others filed an application under Section 7 of the Code to initiate the CIRP of AMR Infrastructure Ltd. The NCLT, vide order dated 23rd January, 2017 dismissed the application. The Applicants booked properties (office space, shop and flat) in projects of the Respondent. As per the Memorandum of Understanding (MoU) executed between the parties, the Applicant would be paid a monthly ‘assured returns’ till the possession of the




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flat. The Respondent defaulted in payment of such assured returns. The NCLT observed that the essential element for a debt to qualify as a ‘financial debt’ is that it is ‘disbursed against the consideration of time value of money’. It would include such financial transactions where a sum is received today to be paid over a period of time in the future in a single or series of installment(s). The instant case is a pure and simple agreement of sale or purchase of a property. It observed: “Merely because some ‘assured amount’ of return has been promised and it stands breached, such a transaction would not acquire the status of a ‘financial debt’ as the transaction does not have consideration for the time value of money, which is a substantive ingredient to be satisfied for fulfilling requirements of the expression ‘Financial Debt’”.

6. Col. Vinod Awasthy Vs. AMR Infrastructures Ltd. [C.P. No. (IB)- 10 (PB)/2017]

NCLT

Col. Vinod Awasthy, filed an application under Section 9 of the Code to initiate CIRP of AMR Infrastructure Ltd. in respect of default in payment of assured returns till possession of a flat, as contemplated under an MoU executed between the parties. The NCLT, vide order dated 20th February, 2017, dismissed the application. The NCLT observed that the ‘operational debt’ under the Code is a claim in respect of provision of goods or services, including dues on account of employment or a debt in respect of repayment of dues arising under any law for the time being in force and payable to Central or State Government or local authority. Hence operational debt is confined to four categories like goods, services, employment and Government dues. It is not any debt other than financial debt. Hence, non-payment of aforesaid assured return is not an operational debt and the applicant is not an OC.

K. K. V. Naga Prasad Vs. Lanco Infratech Ltd (CP (IB) No 9/9/HBD/ 2017)

NCLT

An OC, K. K.V. Naga Prasad filed an application under Section 9 of the Code to initiate the CIRP of a CD, M/s. Lanco Infratech Ltd. The NCLT, vide order dated




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21st February, 2017 dismissed the application as the ‘due’ in question was already subject to an existing dispute. The NCLT observed: “The Tribunal cannot go in to roving enquiry into the disputed claims of parties as the object of IBC… is to ensure reorganization and insolvency resolution of corporate persons, individuals, etc., in a time bound manner ….”.

7. One Coat Plaster and Shivam Construction Company Vs. Ambience Private Ltd. [CP (IB) No. 07/PB/2017] and [CP (IB) No. 08/PB/2017]

NCLT

The OCs, One Coat Plaster and Shivam Construction Company filed separate applications under Section 9 of Code to initiate CIRP of the CD, Ambience Private Ltd. They alleged in the applications that full payment for their work has not been received. They served a demand notice on 25th January, 2017 to the CD. However, they neither received the payment nor reply to the demand notice till they filed applications on 8th and 9th February, 2017. The CD, however, submitted that it had replied to the demand notice. It took a stand that due to defective and the poor quality of work on part of the OCs, no further payment could be made to them, and denied the claims of the OCs. The OCs submitted several documents in support of the claim but failed to submit a report of an architect or a certificate from the CD itself, certifying the quantum of works done by the OCs, being the norm adopted in building contracts. The NCLT observed that a dispute could be proved by showing that a suit has been filed for arbitration is pending. But it is not exhaustive, but an illustrative means. It relied on the notice of dispute as sent by the CD and rejected the applications vide order dated 1st March, 2017.

8. Innoventive Industries Ltd. Vs. ICICI Bank and Anr. (Civil Appeal Nos. 8337 8338 of 2017)

Supreme Court

The Hon’ble Supreme Court extensively interpreted the Code with a message: “we thought it necessary to deliver a detailed judgment so that all Courts and Tribunals may take notice of a paradigm shift in the law. Entrenched managements are no longer allowed to continue in management if they cannot pay their debts.” It summed up the Code: “The scheme of the Code, therefore, is to make an attempt, by divesting the erstwhile




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management of its powers and vesting it in a professional agency, to continue the business of the corporate body as a going concern until a resolution plan is drawn up, in which event the management is handed over under the plan so that the corporate body is able to pay back its debts and get back on its feet. All this is to be done within a period of 6 months with a maximum extension of another 90 days or else the chopper comes down and the liquidation process begins.” Interpreting Section 17(b) of the Code, it observed: “once an insolvency professional is appointed to manage the company, the erstwhile directors who are no longer in management, obviously cannot maintain an appeal on behalf of the company. In the present case, the company is the sole appellant. This being the case, the present appeal is obviously not maintainable.” Interpreting the non-obstante clause in Section 238 of the Code, it observed: “It is clear that the later non-obstante clause of the Parliamentary enactment will also prevail over the limited non- obstante clause contained in Section 4 of the Maharashtra Act. For these reasons, we are of the view that the Maharashtra Act cannot stand in the way of the corporate insolvency resolution process under the Code.”

9. Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited (Civil Appeal No. 9405 of 2017)

Supreme Court

The Hon’ble Supreme Court has settled several issues in this matter. As regards ‘existence of a dispute’ under Section 8(2)(a) of the Code, it clarified that what is material is that a dispute must exist in fact. It should not be spurious, hypothetical or illusory and it should not be a patently feeble legal argument or an assertion of fact unsupported by evidence. It is not material whether the dispute would succeed or not and it is not necessary to examine the merits of the dispute at this stage. As regards the word ‘and’ in ‘existence of a dispute, if any, and record of the pendency of the suit…’ under Section 8(2)(a) of the Code, it clarified that ‘and’ must be read as ‘or’. “If read as “and”, disputes would only stave off the




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bankruptcy process if they are already pending in a suit or arbitration proceedings and not otherwise. This would lead to great hardship; in that a dispute may arise a few days before triggering of the insolvency process, in which case, though a dispute may exist, there is no time to approach either an arbitral tribunal or a court. Further, given the fact that long limitation periods are allowed, where disputes may arise and do not reach an arbitral tribunal or a court for upto three years, such persons would be outside the purview of Section 8(2) leading to bankruptcy proceedings commencing against them. Such an anomaly cannot possibly have been intended by the legislature nor has it so been intended.” As regards timelines for disposal of applications by NCLT and NCLAT under Section 64 of the Code, it observed: “The strict adherence of these timelines is of essence to both the triggering process and the insolvency resolution process. As we have seen, one of the principal reasons why the Code was enacted was because liquidation proceedings went on interminably, thereby damaging the interests of all stakeholders, except a recalcitrant management which would continue to hold on to the company without paying its debts. Both the Tribunal and the Appellate Tribunal will do well to keep in mind this principal objective sought to be achieved by the Code and will strictly adhere to the time frame within which they are to decide matters under the Code.”

10. Surendra Trading Company Vs. Juggilal Kamlapat Jute Mills Company Limited and Others (Civil Appeal No. 8400 of 2017)

Supreme Court

The Hon’ble Supreme Court held that the time of seven days prescribed in the Code for removal of defects by an applicant is directory. It observed: “Further, we are of the view that the judgments cited by the NCLAT and the principle contained therein applied while deciding that period of fourteen days within which the adjudicating authority has to pass the order is not mandatory but directory in nature would equally apply while interpreting proviso to sub-section (5) of




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Section 7, Section 9 or subsection (4) of Section 10 as well. After all, the applicant does not gain anything by not removing the objections in as much as till the objections are removed, such an application would not be entertained. Therefore, it is in the interest of the applicant to remove the defects as early as possible. Thus, we hold that the aforesaid provision of removing the defects within seven days is directory and not mandatory in nature.”

11. Sanjeev Shriya Vs. State Bank of India and Ors. (Civil Writ Petition No. 30285 of 2017)

High Court

The Hon’ble Allahabad High Court considered the issue as to whether the proceedings against a guarantor of a corporate debtor before a Debt Recovery Tribunal (DRT) under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 must be stayed in the light of the on-going insolvency resolution of the corporate debtor before the NCLT under the Code. It observed that until liabilities of the corporate debtor and guarantor are in a fluid stage and not crystallized, the guarantors cannot be held liable and it cannot allow the creditor to pursue two remedies on the same cause of action. Therefore, it stayed the proceedings before the DRT till the finalization of corporate insolvency resolution process or till the NCLT approves the resolution plan under Section 31 or passes an order for liquidation of corporate debtor under Section 33 of the Code, as the case may be.

12. Mother Pride Dairy India Pvt. Ltd. Versus Portrait Advertising & Marketing Pvt. Ltd.(Company Appeal (AT) (Insolvency) No. 94 of 2017)

NCLAT

The Hon’ble NCLAT observed: “In view of Rule 8 of Insolvency & Bankruptcy (Adjudicating Authority) Rules, 2016, it was open to the Operational Creditor to withdraw the application under Section 9 before its admission but once it was admitted, it cannot be withdrawn even by the Operational Creditor, as other creditors are entitled to raise claim pursuant to public announcement ….” It, however, made it clear that the order admitting application for CIRP will not




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come in the way of the appellant to satisfy and settle the claim of other creditors.

13. Lokhandwala Kataria Construction Pvt. Ltd. Vs. Nisus Finance & Investment Manager LLP (Company Appeal (AT) (Insolvency) No. 95 of 2017)

NCLAT

Interpreting rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, the Hon’ble NCLAT declined the request to close an insolvency proceeding: “Thus, before admission of an application under Section 7, it is open to the Financial Creditor to withdraw the application but once it is admitted, it cannot be withdrawn and is required to follow the procedures laid down under Sections 13, 14, 15, 16 and 17 of I&B Code, 2016. Even the Financial Creditor cannot be allowed to withdraw the application once admitted, and matter cannot be closed till claim of all the creditors are satisfied by the corporate debtor.”

14. Nikhil Mehta and Sons Vs. AMR Infrastructure Ltd. (Company Appeal (AT) (Insolvency) No. 07 of 2017)

NCLAT

The Hon’ble NCLAT perused the agreement between the parties and the ‘annual returns’ of the respondent and based on the same, observed that the amount paid by the appellants (flat buyers) fulfilled the condition of ‘disbursement against the consideration of time value of money’. The corporate debtor raised the amount through transactions of sale and purchase agreement having the commercial effect of a borrowing as per Section 5(8)(f) of the Code and hence the appellants are financial creditors under Section 5(7) of the Code.

15. Rubina Chadha & Anr. Vs. AMR Infrastructure Ltd. (Company Appeal (AT) (Insolvency) No. 8 of 2017)

NCLAT

Making it clear that the Interim Resolution Professional should consider claims of every claimant, the Hon’ble NCLAT observed: “The appellants herein, whether they are ‘Financial Creditor’ or ‘Operational Creditor’ or ‘Secured Creditor’ or ‘Unsecured Creditor’, as claim to be creditors are now entitled to file their respective claims before the ‘Interim Resolution Professional’, as may be appointed and the advertisement as may be published in the newspaper calling of such application(s) with regard to resolution of ‘Corporate Debtor’- AMR




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Infrastructure Ltd. In such case, their claim should be considered by the Interim Resolution Professional IRP) and the Committee of Creditors, in accordance with the provisions of the ‘I&B Code’”

16. Uttam Galva Steels Limited Vs. DF Deutsche Forfait AG & Anr (Company Appeal (AT) (Insolvency) 39 of 2017)

NCLAT

While setting aside an order of the Adjudicating Authority admitting an application for insolvency resolution, the Hon’ble NCLAT directed: “Learned Adjudicating Authority will fix the fee of ‘Interim Resolution Professional’, if appointed and the Respondents will pay the fees of the Interim Resolution Professional, for the period he has functioned.”

17. Prowess International Pvt. Ltd. Vs. Parker Hannifin India Pvt. Ltd.(Company Appeal (AT) (Insol.) No. 89 of 2017)

NCLAT

The corporate debtor settled the dispute with the operational creditor and other creditors and filed an interlocutory application for closure of the CIRP. The Adjudicating Authority rejected the application. The matter came on appeal before the Hon’ble NCLAT which clarified that it is not a recovery proceeding which can be closed if recovery is made. It observed: “It is made clear that Insolvency Resolution Process is not a recovery proceeding to recover the dues of the creditors. I & B Code, 2016 is an Act relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner…” It clarified that resolution may not wait for 180 days for closure: “Thereafter, in case(s) where all creditors have been satisfied and there is no default with any other creditor, the formality of submission of resolution plan under Section 30 or its approval under Section 31 is required to be expedited on the basis of plan if prepared. In such case, the Adjudicating Authority without waiting for 180 days of resolution process, may approve resolution plan under Section 31, after recording its satisfaction that all creditors have been paid/ satisfied and any other creditor do not claim any amount in absence of default and required to close the Insolvency Resolution Process.”




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18. Neelkanth Township &

Construction Pvt. Ltd. Vs. Urban Infrastructure Trustees Limited (Company Appeal (AT) (Insolvency) No. 44 of 2017)

NCLAT

The Hon’ble NCLAT considered the issue whether the application under Section 7 of the Code is admissible if the claim is barred by limitation. It held: “there is nothing on the record that Limitation Act, 2013 is applicable to I & B Code. The I &B Code, 2016 is not an Act for recovery of money claim, it relates to initiation of Corporate Insolvency Resolution Process.”

19. International Road Dynamics South Asia Pvt. Ltd. Vs. Reliance Infrastructure Ltd. (Company Appeal (AT) (Insolvency) No. 72 of 2017)

NCLAT

Interpreting Section 9 of the Code, the Hon’ble NCLAT held: “We are of the view that different claim(s) arising out of different agreements or work order, having different amount and different dates of default, cannot be clubbed together for alleged default of debt, the cause of action is being separate. For the said reasons, we hold that the joint application preferred by appellant under Section 9 is defective, as distinct from incomplete, and, was not maintainable.”

20. Rio Glass Solar SA Vs. Shriram EPC Ltd. (CP/537/(IB)/CB/2017)

NCLT

Along with the application under Section 9 of the Code for initiating CIRP, the operational creditor submitted bank statement of a foreign bank to the NCLT, Chennai. This raised an issue whether the bank statement of a foreign bank, which is not a ‘financial institution’ within the meaning of Section 3(14) of the Code, is admissible under the Code. The NCLT observed: “…It is a fact that the Operational Creditor has no account in India. Therefore, it is not at all possible to produce a certificate from any Bank in India. If the arguments of the counsel of the Corporate Debtor are considered, then, the same will render the provisions of the I&B Code otiose. In other words, the purpose and object of the legislation would be defeated”. Accordingly, vide order dated 10th August, 2017, NCLT admitted the application.

21. State Bank of India Vs. Essar Steel India Limited (CP No.40/7/NCLT/AHM/2017)

NCLT

The NCLT, Ahmedabad held that the ongoing debt restructuring process does not come in the way of insolvency resolution process. Even the corporate insolvency resolution process can consider the debt restructuring plan as one of the resolution plans, if submitted




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by any of the resolution applicants. It further held: “If Insolvency Resolution Process is commenced by appointing Interim Resolution Professional, no doubt the Board of Directors would be suspended. That does not mean the entire machinery of the Company is suspended. Even after appointment of IRP, all the employees of the Company, top to bottom, would continue to function under the control of IRP instead of the Board of Directors.” Accordingly, vide order dated 2nd August, 2017, the NCLT admitted the application filed by State Bank of India under Section 7 of the Code.

22. IDBI Bank Limited Vs. Lanco Infratech Limited (CP (IB) No.111/7/HDB/2017)

NCLT

The NCLT, Hyderabad took note of Clause 22 of the Code of Conduct for Insolvency Professionals as provided in the First Schedule of the Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulations 2016. The Clause provides that an insolvency professional must refrain from accepting too many assignments, if he is unlikely to be able to devote adequate time to each of his assignment. Keeping this in view it did not approve appointment of one IRP with an observation: “Therefore, we agreed with the submissions of the respondents considering his previous three assignments to large companies and the current corporate debtor itself is a large company we are of the prima facie view that the proposed IRP would not find sufficient time to act as IRP for the respondent Company. Most of the activities prescribed in the IBC code are time bound. Therefore, we had suggested to change the aforesaid IRP, accordingly the financial Creditor viz. IDBI proposed another IRP… and accordingly we appointed him as an IRP for the Corporate Debtor.”

23. Magicrete Buildings Solutions Pvt. Ltd. Vs. Pratibha Industries Limited (T. C. P. No. 409/ (MAH)/2017)

NCLT

An applicant under Section 9 of the Code needs a certificate from a Bank maintaining its accounts for filing an application for CIRP. However, the Bank was not issuing it. The NCLT considered this and directed: “It is hereby made clear that all citizens of the country are bound by the statute governing people of this




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country, therefore, the Bank is not exempted under the statute ….”

24. Mr. Sanjeev Jain Vs. M/s. Eternity Infracon Pt. Ltd. (CP No. (IB)-113(ND)/2017)

NCLT

The applicant claiming to be an operational creditor filed an application under Section 9 for initiation of CIRP as the corporate debtor had defaulted in repayment of investment. The NCLT declined to admit the application on the ground that the claim of investments cannot be considered as operational debt. It observed that operational debt is a claim in respect of provision of goods and services and it is not any debt other than ‘financial debt’. It further declined to convert the application under Section 9 to Section 7. It cited the case of the State of U. P. Vs. Babu Ram Upadhyay where the Hon’ble Apex Court has held: “When a statute requires a thing to be done in a particular manner, it can only be done in that manner or not all. All other methods are forbidden.” It observed: “Equity has no place when law is clear”.

25. In the matter of Amit Spinning Industries (IB-131 (PB)/2017)

NCLT

Amit Spinning Industries Ltd. had filed a reference before BIFR in October, 2011 and was declared sick on 17th July, 2012. Despite availing several opportunities, it did not come up with any viable scheme before BIFR for almost five years, but enjoyed moratorium. While admitting an application for CIRP under the Code, the NCLT observed “The facts reveal that the Corporate Applicant has already availed the moratorium as provided under Section 22(1) of SICA. Therefore, we feel it would be in fitness of things that the Insolvency Resolution Process in the present case should be speedy, preferably within a period of 100 days”.

26. Industrial and Commercial Bank of China Limited & Anr. Vs. Alok Industries Limited (I.A. No. 188/NCLT/AHM/2017)

NCLT

As per Section 446 of the Companies Act, 1956, when a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending on the date of the winding up order, shall be proceeded with, against the company. Therefore, the NCLT held that there is no bar in the Code expressly or impliedly debarring a creditor from triggering the insolvency resolution process under Section 7, 9 and 10 of the




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Code. Section 11 lists out persons not entitled to make the application. SBI does not come under any clause of Section 11 of the Code. Thus, there is nothing to prevent the SBI and its Associate Banks, who are financial creditors, from triggering the insolvency resolution process under Section 7 of the Code. It observed: “Pendency of winding up proceedings before Hon’ble High Court before its admission, is no bar either for initiation of proceedings under Section 7 of the Code or for continuation of such proceeding.”

27. Bharatbhai Vrajlalbhai Selani Vs. State Bank of India (C.P. (I.B) No. 63/10/NCLT/AHM/2017)

NCLT

The NCLT held that initiation of proceedings under the SARFAESI Act or the pendency of proceedings before the DRT is not a ground for not commencing the ‘Insolvency Resolution Process’, in view of the overriding effect given to Section 238 of the Code. It observed: “The object of the Code is, no doubt, to protect the genuine Corporate Debtors with a view to maximize their value of assets and find out a ‘Resolution Plan’. Incidentally, in the process of evolving a Resolution Plan, there is an opportunity for the Corporate Debtor to have a moratorium and thereby delay the other recovery proceedings. But, that is only for a prescribed period of 180 days or for a further period of 90 days, if extended by the Adjudicating Authority. Therefore, to say that Corporate Debtor with a view to have the benefit of moratorium or with a view to delay the proceedings under the SARFAESI Act filed this Application do not find acceptance.”

28. Schweitzer Systemtek India Private Limited Vs. Phoneix ARC Private Limited (TCP No. 1059/I&BP/NCLT/MB/MAH/20 7)

NCLT

The NCLT held that the personal properties of promoters which were mortgaged to Dhanlaxmi Bank Limited and which subsequently stood assigned to the respondent due to assignment of debt by Dhanlaxmi Bank Limited and in respect of which an order for taking over the possession was passed by the Chief Metropolitan Magistrate would remain outside the ambit of moratorium period commencing upon admission of the application. It relied upon Section 14 of the Code, which states that moratorium




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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 word “its” was interpreted to denote the property owned by corporate debtor and the property not owned by corporate debtor would not fall within the ambits of moratorium.

29. Anrak Aluminium Limited Vs. State Bank of lndia (CP (113) No.127/10/HDB/2017)

NCLT

Anrak Aluminium Limited filed an application seeking CIRP under Section 10 of the Code. The NCLT found that the corporate debtor has completed the project, but could not commence commercial operations due to nonavailability of raw material as APMDC has cancelled the bauxite supply agreement. For absolutely no act of omission or commission on the part of project sponsors and solely on account of direct State Government force majeure, a potential national asset has been lying in an unproductive and wasting state for over four years. The NCLT, considering the public money (Rs. 5,712 crore) already invested by the Banks and contribution of promoters towards the project which had a potential employment generation of more than 1000 employees directly and indirectly, instead of winding up/liquidating the corporate debtor directed all the parties to explore various possible avenues for operating/ running of the company rather than winding up/ liquidating the same. However, the parties pleaded with a closed view to liquidate the corporate debtor and they failed to produce any document to prove that they have taken up with State Government / APMDC to revoke the cancellation of bauxite supply agreement. In the interest of all stakeholders, the NCLT did not admit the application.

30. Edelweiss Asset Reconstruction Company Limited Vs. Synergy Dooray Automotive Limited and Ors, (CA NO. 43 and 57 of 2017)

NCLT

It was contended by the applicant that SCL, a related party of the corporate debtor assigned a substantial chunk of total debt of the corporate debtor to MFL, a financial creditor on 24th November, 2016, immediately prior to the reference of the corporate debtor before BIFR abated pursuant to coming into effect of the Sick Industrial Companies (Repeal) Act




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on December 1st, 2016 is questionable and suspicious. While the related party could not have become a member of the CoC, the assignee financial creditor could. After perusing various records, the NCLT held the opinion that there is no relationship between SCL and MFL. Accordingly, MFL is not a related party and is fully competent to participate in COC. At most it can be said to be similar to ‘tax planning’ rather than tax avoidance.

31. Alchemist Asset Reconstruction Company Ltd. Vs. M/s. Hotel Gaudavan Pvt. Ltd. & Ors (Civil Appeal No002E16929 of 2017

Supreme Court

The Hon’ble Supreme court observed that the mandate of the code is that the moment an insolvency petition is admitted, the moratorium that comes into effect under Section 14(1)(a) of the code expressly interdicts institution or continuation of pending suits or proceeding against CD. It accordingly held that arbitration that has been instituted after the imposition of moratorium under Section 14 of the Code is non est in law.

32. Uttara Foods and Feeds Private Limited vs. Mona Pharmache

Supreme Court

The Hon’ble Supreme Court, while allowing settlement between the parties after the admission of an insolvency application, observed “We are of the view that instead of all such orders coming to the Supreme Court as only the Supreme Court may utilize its power under Article 142 of the Constitution of India, the relevant Rules be amended by the competent authority so as to include such inherent powers. This will obviate unnecessary appeals being field before this Court in matters where such agreement has been reached.”.

33. Macquarie Bank limited vs. shilpicable Technologies Ltd. (Civil Appeal No.15135 of 2017)

Supreme Court

The Hon’ble Supreme Court clarified that a copy of the certificate required under Section 9(3)© of the Code from the financial institution maintaining accounts of the OC confirming that there is no payment of an unpaid operational debt by CD is certainly not an condition precedent to triggering the insolvency process under the Code. On a joint reading of Section 9(3)(d) of the Code and the Adjudicating Rules, it observed that if such accounts are not available, a certificate based on such accounts cannot be given. Therefore, a so called condition precedent impossible of compliance cannot be put as a threshold




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bar to the processing of an application under Section 9 of the Code. It further held that an OC may on the occurrence of a default deliver a demand notice under Section 8 of the Code through an authorised agent or lawyer.

34. Power Grid Corporation of India Ltd. Vs. Jyoti Structures Ltd. (O.M.P.(COMM.) 397/2016)

High Court

The Hon’ble High Court clarified that Section 14 of the Code does apply to the proceedings which are in the benefit of the CD as conclusion of such proceedings does not endanger, diminish, dissipate or impact the assets of the CD if any manner whatsoever. Such proceedings are in sync with the purpose of moratorium which includes keeping the CD’s assets together during the insolvency resolution process and facilitating orderly completion of the process envisaged during the insolvency resolution process and ensuring the company may continue as a going concern.

35. Canara Bank Vs. Deccan Chronicle Holding Limited (Company Appeal (AT) (Insolvency) No.147 of 2017) (Passed in the previous quarter on 14th September, 2017)

NCLAT

Hon’ble NCLAT determined whether the moratorium under Section 14 of the Code covers proceeding before Hon’ble High Courts or Hon’ble Supreme court of India. It observed: “The Hon’ble Supreme Court has power under Article 32 of the Constitution of India and Hon’ble High Court under Article 226 of Constitution of India which power cannot be curtailed by any provision of an Act or a Court. In view of the aforesaid provision of law, we make it clear that ‘moratorium’ will not affect any suit or case pending before the Hon’ble Supreme Court under Article 32 of the Constitution of India or where an order is passed under Article 136 of Constitution of India. ‘Moratorium’ will also not affect the power of the High Court under Article 226 of Constitution of India. However, so far as suit, if filed before any High Court under original jurisdiction which is a money suit or suit for recovery, against the ‘corporate debtor’ such suit cannot proceed after declaration of ‘moratorium’, under Section 14 of the I&B Code.”

36. Innoventive Industries Ltd. Vs. Maharastra State Electricity Distribution Company Ltd.

NCLAT

The Hon’ble NCLAT made it clear that the CD or resolution professional is not liable to pay the dues of period prior to passing of order of moratorium, which can be




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(Company Appeal (AT) (Insolvency) No.156 of 2017

considered at the time of payment of dues to the creditors under resolution plan. It allowed the resolution professional to pay the charges towards consumption of electricity since the date of moratorium and if such amount is deposited, directed the respondent to restore electrical connection within 48 hours of such payment.

37. Black Pearls Hotel Pvt. Ltd. Vs. Planet M Retail Ltd. (Company Appeal (AT) (Insolvency) No.91 of 2017

NCLAT

The Hon’ble NCLAT, while adjudicating on the applicability of the Limitation Act, 1963 over the initiation of CIRP under the Code, held: “Insolvency and Bankruptcy Code, 2016 has come into force with effect from 1st December, 2016. Therefore, the right to apply I&B Code accrues only on or after 1st December 2016 and not before the said date (1st December, 2016). As the right to apply under Section 9 of I&B Code assured to appellant since 1st December, 2016, the application field much prior to three years, the said application cannot be held to be barred by limitation.”

38. Indian Overseas Bank Vs. Dinkar T. Venkatsubramaniam (Company Appeal (Insolvency) No.267 of 2017)

NCLAT

The Hon’ble NCLAT, while considering the issue whether after initiation of resolution against the CD, a FC can appropriate dues of the CD from the account maintained by the letter in the bank (FC), observed: “…..that after admission of an application under Section 7 of the ‘I&B Code’, once moratorium has been declared it is not open to any person including ‘Financial Creditors’ and the appellant bank to recover any amount from the account of the ‘Corporate Debtor’, nor it can appropriate any amount towards its own dues.”

39. M/s. Speculum Plast Pvt. Ltd. Vs. PTC Techno Pvt. Ltd. (Company Appeal (AT) (Insolvency) No.47 of 2017)

NCLAT

The Hon’ble NCLAT, while adjudicating on the applicability of the Limitation Act, 1963 over the proceeding under the IBC, 2016 has held that the Limitation Act, 1963 is not applicable for initiation of CIRP. It further held: “the Doctrine of Limitation and Prescription is necessary to be locked 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.” It




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also held: “In so far it relates to filling of claim, before the ‘Insolvency Resolution Professional in case of stale claim long delay …., it is open to resolution applicant to decide whether such claim is to be accepted or not, and on submission of resolution plan, the Committee of Creditors may decide such question.”

40. M/s. Custodial services (India) Private Limited Vs. M/s. Metafilms (India) Ltd. (Company Appeal (AT) (Insolvency) No.183 of 2017

NCLAT

As per sub-section (3) of Section 61 of the Code, an appeal is required to be filed within thirty days and the Hon’ble NCLAT has been empowered to condone delay not exceeding fifteen days. In the instant matter, the appeal was filed beyond the period of 45 days. The Hon’ble NCLAT held that it has no jurisdiction to condone the delay beyond 45 days.

41. Shri Shrikrishna Rail Engineering Private Limited Vs. Madhucon Projects Limited (CP(IB) SR No. 4322/9HDB/2017)

NCLT

In this matter, the AA noted that total outstanding debt amount from the CD is Only Rs.4.16 crore (including interest and retention money) and the remuneration for MD & CEO and two Whole Time Directors of the CD works out to Rs.1.10 crore per annum, while the fee proposed by IRP works out to Rs.14.00 crore approximately, apart from other incidental expenses. While observing that the fee quoted by the professional should be reasonable, commensurate with the work to be handled, the AA held the remuneration quoted by the IRP in this matter as quite exorbitant. Accordingly, it referred the matter to IBBI for taking appropriate action/remedial measure against the proposed IRP, including disciplinary action, if any, as deemed fit.

42. M/s. Bell Finevest (India) Limited Vs. Intercon Container Survey & Commodities Pvt. Ltd. (C.P. No.1153/I&BP/2017)

NCLT

AFC filed a petition for initiation of CIRP on account of default by the CD in payment of principal and interest on loan. The loan attracted an interest rate of 24% payable in advance, and in case of default, an additional interest at the rate of 1% per day. The AA held that since the Code has come into existence to deal with distress situation of companies, it is not expected to allow a creditor to fleece whatever is left in the company in the name of interest. Further, if claims of this nature are allowed, the other creditors who are genuinely entitled to have their say in CoC will get affected. The AA invoked the




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discretion given under the Usurious Loan Act, 1998 to deprecate the claim made by the FC and dismissed the application stating that the interest claimed over the principal is usurious.

43. Fortune Pharma Pvt. Ltd. (MA 560 IN CP No.1148/I&BC/NCLT/MAH/2017)

NCLT

The applicant, SBI contended that after filling application for initiation of CIRP but before its admission, two related parties of the CD assigned their debts to unrelated FCs and their by reduced applicant’s voting rights in the CoC. With a mela fide intention and ulterior motive. The AA held that disqualification that existed at the time of initiation of CIRP cannot be washed away just because of an assignment. It observed that ‘assignment’ refers to transfer on one’s right to recover debt to another person and that the rights of ‘Assignee’ are no batter then those of the ‘Assignor’. Therefore, the assignee does not get the right change its status from ‘related’ to ‘unrelated’ vis-àvis the impugned debt.

44. ICICI Bank Ltd. Vs. Innoventive Industries Ltd. (MA557/2017 in CP 01/I&BP/2016)

NCLT

A resolution applicant had submitted a resolution plan. 66.57% of the CoC voted in favour of the resolution plan. The resolution applicant contended that the requirement of 75% vote in favor of a resolution plan is directory and nit mandatory, It further contended that rejection of proposed plan would result in loss-loss situation for all stakeholders of innoventive Industries Ltd. Including the workmen and employees of the company. It also contended that as the Code is meant for maximization of value of assets and to balance the interest of all stakeholders, the value of the resolution plan being more than double the liquidation value of Rs.135.40 crore, it is a only viable alternative for liquation. Te AA, however, held that the mandate of statute and the statements and objects of the enactment as well as the report of the committee who drafted the legislation have not minced words in saying that the prerequisite for approval of the resolution by CoC is 75% majority of the vote shares of the CoC. Observed that the jurisdiction of AA lies to exercise its power under Section 31 of the Code only when a plan is




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approved by CoC. When no decision has been taken by CoC, no jurisdiction will lie to AA as jurisdiction given under Section 30 is only limited to approve or reject the resolution plan approved by CoC with super majority. The provisions of legislation cannot be changed by AA in its own wisdom. Accordingly, it held that a resolution by CoC with less than 75% voting share in CoC is non est in law and ordered the liquidation of the CD.

44. UT Worldwide (India) Pvt. Ltd. (C.P.(B) No.363/KB/17)

NCLT

In this matter, the AA dealt with the nature of proceedings under the Code. It observed that it is exercising only a summary jurisdiction and cannot be made to conduct the proceeding by way of a detailed trial to ascertain the amount of debt claimed is as claimed or not as is done by Civil Court taking a detailed examination of documents supported by oral examination of witnesses when the plaintiff approaches it by way of a suit.

45. Punjab National Bank Vs. Divyajyoti Sponge Iron Pvt. Ltd. (C.P.(IB) No.363/KB/17)

NCLT

A prayer was made BY the Resolution Professional seeking necessary assistance and security to him to visit factory premises of the corporate debtor to carry out statutory duties and obligation peacefully. The AA ordered: “Keeping in view of the direct threatening by the corporate debtor it is hereby ordered the copy of this order may be saved on the Director General of Police, west Bengal, Superintendent of Police, Bankura and in-charge of Mejia P.S. for making proper and effective assistance to the Resolution Professional in valuation of the company. In discharge of his duty any interference in the work of the Resolution Professional, action shall be initiated against the corporate debtor and it will be presumed that that corporate debtor is not obeying the order the Court. It is expected that corporate debtor should fully cooperate with the Resolution Professional.”

46. Mchhar Polymer Pvt. Ltd. Vs. sabre Helmets Pvt. Ltd. (C.P. No.1333/I&BP/2017)

NCLT

The AA while adjudicating on the applicability of the Limitation Act, 1963 over the proceedings under the Code held: “in whatever line so far limitation is applied to winding up cases, in the same line, prescription of limitation is applicable to the Code as well. As long as limitation is




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not prescribed under any specific enactment, it goes without saying Limitation Act, 1963 is automatically applicable to the Code as well”

47. M/s Alchemist Asset Reconstruction Co. Ltd Vs. M/s Hotel Gaudavan Pvt. Ltd. (CP/CA. No.- (IB)-23(PB)/2017)

NCLT

In this matter, an IP sought protection for all acts done by him in good faith and to save him from the frivolous allegations made in FIR. The AA observed: “if, there is any compliant against the Insolvency Professional then the IBBI is competent to constitute a disciplinary committee and have the same investigated from the Investigating Authority as per the provision of Section 220 of the Code. If, after investigation ‘IBBI’ finds that criminal case has been made out against the Insolvency Resolution Professional then the ‘IBBI’ has to file a complaint in respect of the offences committed by him. It is with the aforesaid object that protection to action taken by the IRP in good faith has been accorded by the Section 233 of the Code. There is also complete bar of trial of offences in the absence of filling of a complaint by the ‘IBBI’ as is evident from a perusal of Section 236(1) (2) of the Code. Therefore, a complaint by Harendra Singh Rathore, a former director with the SHO, Police station would not be maintainable and competent as the complaint is not lodged by the IBBI. ..the jurisdiction would vest with investigation officer only when a complaint is filed by IBBI”

48. ICICI Bank Ltd. Vs. Vista steel Pvt. Ltd. (CP (IB) No.552/KB/2017)

NCLT

The AA considered the issue whether CIRP can be initiated against a guarantor, if another insolvency process already initiated against the principal borrower. It observed by, “By implication of Sec. 14(1)(c) of the I & B Code security interest has been created by corporate debtor Vista Steel Pvt. Ltd. In favour of the financial creditor. Therefore order passed under sec. 14(1)(c) prohibits any action to foreclosure, recovery of any such security interest created by the corporate debtor”. It further observed: “it is true that guarantor’s liability is given co-extensive with that of principal borrower. But it does not mean that the insolvency petition can be filed against the principal borrower and the corporate guarantor




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simultaneously…… another insolvency proceeding against the corporate guarantor barred on account of moratorium order passed under Section 14(1)(a) of I&B code against the principal borrower….”

49. Kamineni Steel & Power India Pvt. Ltd. (CP(IB) No.11/10/HDB/2017)

NCLT

The AA held: “Section 30(4) states that the CoC may approve the resolution plan by a vote of not less than 75% of voting shares of the financial creditors. Further under Section 31 it is provided that “if the adjudicating authority is satisfied…”. Therefore, we are of the considered view that even thought the CoC may approve a resolution plan with not less than 75% of the voting share, a discretion is given to the Adjudicating Authority to approve the Resolution Plan. “In exercising discretion, the AA approved the resolution plan even thought it had received the support of less than 75% of the FCs in value, keeping in mind the wider objective of the Code and in light of RBI’s guidelines on “Joint Lenders’ Forum and Corrective Action Plan (CAP)”, which requires 60% of creditors by value and 50% of creditors by number for approval of CAP.

50. JEKPL Pvt. Ltd. (CA No.233/2017 in CP NO.24/ALD?2017)

NCLT

While approving the resolution plan, the AA held: “…this court being an Adjudicating Authority is not expected to substitute its view with Commercial Wisdom of the RP and COC nor should it deal with technical complexity and merits of Resolution Plan unless it is found contrary to express provision of law and goes against the public interest. Our such observation finds supports from the UNICITRAL Legislative Guide, which recommends for similar approach to be taken by a court.”

51. Axis Bank Ltd., DBS Bank Ltd. Vs. Edu Smart Services Pvt. Ltd. ((IB)-102 (PB)/2017)

NCLT

A FC invoked guaranty after the CIRP commencement date. The resolution professional rejected the claim of the FC. The AA upheld the stand taken by the resolution professional while observing that invocation of corporate guarantee against the CD would result in enforcing security interest and would be in violation of the moratorium.




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52. M/s. Nicco Corporation Ltd. In Liquidation (C.A. (IB) No.487/KB/2017)

NCLT

The Liquidator applied to AA seeking various permission with respect to liquidation of the CD The AA held that the Liquidator has to exercise his power under the Code and does not require the prior permission of AA for every action to be performed. It, however, directed the liquidator to constitute a Monitoring Committee consisting of FCs to monitor his work.

53. Jitender Kumar Jain Vs. BSE Ltd. And Ors (MA No.373/2017 in C.P. No.1055/I&BP/2017

NCLT

An application was filed by resolution professional assailing the order of BSE and NSE de-listing shares of the CD. He contended that de-listing will affect the revival of CD and prayed that the notices issued by stock exchanges de-listing CD be declared void given that the moratorium is in force. The AA stated that companies are governed by various enactments and they have to run in compliance with laws of the country and it can’t be said that companies under CIRP are free enough to flout all other laws. It held that action of BSE and NSE is neither connected to prohibitions given under Section 14 of the Code nor inconsistent with the non-obstante clause given under Section 238 of the Code and dismissed the application.

54. RBL Bank Ltd. Vs. MBL Infrastructure Ltd. (C.A.(IB) No.543/2017 ariisng out of C.P. (IB)/170/KB/2017)

NCLT

While interpreting Section 29A(h) of the Code, inserted by the Ordinance, the NCLT observed: “Clause (h) of Section 29A is not to disqualify the promoters as a class for submitting a Resolution Plan… The objective is to disqualify those guarantors whose antecedents may adversely affect the reliability of the process under the IB code,” It further observed: “it is a settled position of law that the liability of a guarantor may accrue only on invoking the guarantee. In the case in hand, the guarantee has not been invoked, and the personal guarantor has not committed any default. No demand has been made under guarantee. Therefore, no default in the payment of dues by the guarantor has occurred. During the moratorium period, the guarantee cannot be invoked. Thus, present Resolution Applicant is not barred by clause (c) and clause (h) of Section 29A of the I.B. Code.”

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