The National Company Law Appellate Tribunal (NCLAT) is the Apex Tribunal dealing with all aspects of corporate law in India. The judgments pronounced by the Appellate Tribunal in the areas of Insolvency, Competition and Company law regulate all elements of a company’s functioning in India; from its registration to its functioning, and operation to its interaction with the market and various stakeholders, to its insolvency and potential resuscitation.

This monthly column seeks to cover the important judgments delivered by the NCLAT.

The judgments of the NCLAT for the month of September 2019 have been demarcated into those dealing with the provisions of the Insolvency and Bankruptcy Code, 2016 and that of the Companies Act, 2013. The judgments dealing with the Code have been further categorized and dealt with in the following three stages: Pre-admission stage, Corporate Insolvency Resolution Process stage and the Liquidation stage.

Insolvency and Bankruptcy Code, 2016

Pre-Admission Stage

In Mr. Ranjan Goyal Vs. Sharad Vadehra[1], the NCLAT held that where from the facts it is evident that the corporate debtor had entered into a joint venture with its subsidiary for development of land, then a petition under Section 7 by an allottee of the land would also be maintainable against the corporate debtor.

In Edelweiss Asset Reconstruction Company Limited vs. Sachet Infrastructure Pvt. Ltd.[2], the NCLAT distinguished its judgment in Dr. Vishnu Kumar Agarwal v. M/s. Piramal Enterprises Ltd[3] wherein it held that once for the same claim, an application under Section 7 filed by the ‘Financial Creditor’ is admitted against one of the corporate debtors (principal borrower or corporate guarantor), a second application by the same Financial Creditor for the same claim and default cannot be admitted against the other corporate debtor.

In the instant case, it held that where there was a joint consortium of six different corporate debtors including the principal borrower for a township project, group insolvency i.e. simultaneous corporate insolvency resolution processes should be initiated against all six corporate debtors under the guidance of the same Resolution Professional.

In Mr. Hemang Phophalia vs The Greater Bombay Co-operative Bank Limited[4], the NCLAT held that an application for initiation of Corporate Insolvency Resolution Process was maintainable against a company whose name had been struck off from the Register of the Companies under Section 248 of the Companies Act, 2013. It was also held that the National Company Law Tribunal (NCLT) is empowered to restore the name of the company and all other persons in their respective position for the purpose of initiation of ‘Corporate Insolvency Resolution Process’ under Sections 7 and 9 of the Code based on the application, if filed by the creditor.

In Sagar Sharma & Another vs. Phoenix ARC Private Limited[5], the NCLAT held that a petition under Section 7 is maintainable even during the pendency of decision of a Joint Lenders Forum or finalization of a corrective action plan.

In Sh. Naresh Kumar Sharma vs. Oriental Bank of Commerce & Anr.[6], the NCLAT reiterated that it is the NCLT having jurisdiction over the registered office of the corporate debtor that would have jurisdiction with regard to an application for initiation of insolvency proceedings against the corporate debtor and not the NCLT where properties of the corporate debtor may be situated.

In Prayag Polytech Pvt. Ltd. vs. Gem Batteries Pvt. Ltd.[7], the NCLAT held that the action of the corporate debtor in deducting TDS on the payments by the corporate debtor would not prove the debt is a financial debt as TDS can be deducted for various reasons. It was held that as the alleged financial creditor had failed to show any record showing financial debt due apart from the deduction of TDS, the application under Section 7 was rightly rejected.

In Mr. K.P. Jayaram and Anr. vs. M/s. Radha Exports (India) Pvt. Ltd.[8], the NCLAT held that if the NCLT allows the creditor to withdraw the application under Section 9 of the Code to enable the creditor to file application under Section 7, the subsequent application was maintainable.

In Manjeet Kaur Sran vs. Tricolite Electrical Industries Ltd.[9], the NCLAT held that in a petition by an operational creditor, a dispute raised regarding quantum of the amount in the absence of any suit or arbitration or other evidence, cannot be said to be a pre-existing dispute. It was reiterated that even when a claim is disputed if the default is more than Rs. 1 lakh, the NCLT will initiate the insolvency proceedings against the corporate debtor.

In M/s. Bannari Amman Spinning Mills Ltd. vs. M/s. My Choice Knit & Apparels Pvt. Ltd[10], the NCLAT clarified that an application under Section 9 cannot be rejected only on the ground that the corporate debtor is Micro, Small and Medium Enterprise (hereinafter referred to as ‘MSME’). It was held that there is no such provision under the Code which stipulates that an MSME does not come within the purview of Code or application under Sections 7 or 9 or 10 is not maintainable.

In State Bank of India vs. Rohit Ferro Tech Limited[11], the NCLAT set aside the order of the NCLT rejecting an application under Section 7 of the Code on the basis that the circular issued by the Reserve Bank of India dated February 12, 2018, directing banks to initiate insolvency proceedings against debtors had been declared to be ultra vires and all cases in which debtors had been proceeded against by financial creditors under section 7 of the Code, only because of the operation of the impugned circular were declared to be non-est by the Supreme Court in Dharani Sugars and Chemicals Ltd. vs. Union of India and Ors.[12].

The NCLAT held that in absence of any evidence to show that the State Bank of India had filed the application only because of the Circular issued by Reserve Bank of India, it was not open to the NCLT to reject the application on such ground.

In Mr. Vineet Khosla vs. M/s. Edelweiss Asset Reconstruction Company Ltd.[13], the NCLAT held that the NCLT, at the stage of hearing of a Section 7 petition, is not required to consider if a resolution for a given company would be possible or not and whether or not it would be possible to keep it a going concern. If there is a financial debt which is more than Rs.1 lakh and there is a default and if the application is complete, the application would have to be admitted.

In Armada Singapore Pte. Ltd. vs. Ashapura Minechem Ltd.[14], the NCLAT reiterated that an application under Section 10 of the Code without the approval of the shareholders of the debtor company in its Annual General Meeting/Extra-Ordinary General Meeting deserves to be rejected.

In Pratima P. Shah vs. IDBI Bank Limited & Ors.[15], the NCLAT held that applications under Section 7, Section 9 and Section 10 of the Code are the only applications for initiation of Corporate Insolvency Resolution Process, which cannot be filed, if prohibited in terms of Section 11 of the Code. It was held that for initiation of Fast Track Corporate Insolvency Resolution Process under Section 55, the prohibition under Section 11 is not applicable.

Similarly, for initiation of the Corporate Insolvency Resolution Process by reference under subsection (b) of Section 4 of SIC Repeal Act, 2003, the prohibition under Section 11 is not applicable. Such a reference should be treated as a Corporate Insolvency Resolution Process by reference under subsection (b) of Section 4 of SIC Repeal Act, 2003. In absence of any prescribed form for such a reference, the NCLAT held that it was open to the corporate debtor to suitably draft the format of reference. If the corporate debtor chose Form 6 for the purpose of reference, it will continue to be a reference by a corporate debtor under subsection (b) of Section 4 and such reference will not be hit by Section 11.

It was held that the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 do not mandate the intimation of pendency of any winding-up proceeding before any Court or Tribunal to the NCLT. The NCLAT further held that the NCLT before referring the matter under Section 77(a) of the Code was required to record its prima-facie opinion after giving an opportunity of hearing to the person accused. Such a procedure is required to be followed before referring any matter to the Registrar of Companies/ Insolvency and Bankruptcy Board of India or the Central Government for punishment under Chapter VII of the Code. It was also laid down that a subsequent bench of the NCLT has no jurisdiction to sit in appeal over the order passed by the earlier bench of the NCLT nor it is competent to deliberate on such issue.

In Srei Multiple Asset Investment Trust vs. IDBI Bank Ltd. & Ors.[16], the NCLAT held that financial creditors of a corporate debtor would not come under the definition of aggrieved person so as to enable them to challenge an application of admission of Corporate Insolvency Resolution Process.

In Amit Singhal & Anr. Vs. Experion Developers Pvt. Ltd.[17], the NCLAT held that wherein an appeal is filed after 45 days from the date of the order of the NCLT, then the NCLAT has no jurisdiction to entertain the appeal in terms of sub-section (2) of Section 61 of the Code and that there is no question of condonation of delay in such circumstances.

Corporate Insolvency Resolution Process Stage

In Devmata Exim Pvt. Ltd vs Ms. Kavitha Surana, Resolution Professional of Shri Veerganapathi Steels Pvt. Ltd.[18], the NCLAT dismissed an appeal by a debtor of a company that was undergoing a Corporate Insolvency Resolution Process. The NCLT had allowed the prayer of the resolution professional to direct the debtor of the insolvent company to pay its dues. The NCLAT, while issuing notice to the respondent for determination as to whether the Resolution Professional can pray for the recovery of any amount of the insolvent company, had by interim order, directed the appellant to keep the amount in a separate Escrow Account. The interim direction was not complied with and thereby, in absence of any merit in the appellant’s contention that debt was not payable and as the appellant had not complied with the interim direction of this Appellate Tribunal, the appeal was dismissed.

In Sukhbeer Singh, Ex-Director, Maple Realcon Private Limited vs. Mr. Dinesh Chandra Agarwal Resolution Professional, Maple Realcon Pvt. Ltd. & Ors.[19], the NCLAT held that the Committee of Creditors need not mention the viability and feasibility of a proposal for settlement under Section 12A while accepting or rejecting the same as the question of viability and feasibility arises with regard to resolution plan and not to a proposal for settlement under section 12A of the Code.

In Hero Fincorp Ltd. vs. Rave Scans Pvt. Ltd. & Ors.[20], the NCLAT held that similarly situated secured financial creditors cannot be discriminated against on the ground that a secured financial creditor has dissented to the resolution plan.

In Mr. Lagadapati Ramesh vs Mrs. Ramanathan Bhuvaneshwari[21], the NCLAT held that the NCLT cannot straight away direct any investigation to be conducted by the Serious Fraud Investigation Office. The NCLT has to give notice to the accused parties and after giving a reasonable opportunity of hearing, if it finds a prima-facie case exists, it may refer the matter to the Central Government for investigation by an Inspector or Inspectors as may be appointed by the Central Government.

On such investigation, if the investigating authority reports that a person has committed any offence punishable under Section 213 read with Section 447 of the Companies Act, 2013 or Sections 68, 69, 70, 71, 72 and 73 of the Code, in such case, the Central Government is competent to refer the matter to the Special Court itself or may ask the Insolvency and Bankruptcy Board of India or may authorise any person in terms of sub-section (2) of Section 236 of the Code to file a complaint.

In Sreeram E. Techno School Pvt. Ltd. vs. Beans and More Hospitality Pvt. Ltd. Through Resolution Professional. Prabhjit Singh Soni[22], the NCLAT held that there is no bar for the promoter to file a resolution application, even if otherwise not eligible in terms of Section 29A of the Code. The NCLAT also held that a resolution plan cannot be rejected on the ground that the corporate debtor is not a going concern if the resolution applicant can show the feasibility to run the company in the future. It was clarified that the question of viability, feasibility and other conditions as prescribed by the Insolvency and Bankruptcy Board of India can be looked into by the Committee of Creditors that has the requisite financial expertise. Such an issue of viability, feasibility and other conditions of the corporate debtor cannot be looked into by the NCLT or the NCLAT.

In Jet Airways (India) Ltd. vs. State Bank of India & Anr.[23], the NCLAT held that the Dutch Trustee is equivalent to the Resolution Professional of India, therefore, as per law, the Dutch Trustee has a right to attend the meetings of the Committee of Creditors.

In M/s. Alpha Corp Development Pvt. Ltd. vs. M/s. Earth Infrastructure Ltd.[24], the NCLAT held that in terms of third proviso of sub-section (3) of Section 12, any Corporate Insolvency Resolution Process of a corporate debtor which is pending and has not been completed within the period referred to in the second proviso of Section 12, would be entitled to be completed within another period of 90 days from the date of commencement of Insolvency & Bankruptcy Code (Amendment Act, 2019).

Liquidation Stage

In Rajnish Gupta vs Small Industries Development, Bank of India & Anr [25], the NCLAT reiterated its view expressed in Y. Shivram vs. S. Dhanapal & Ors.[26], wherein it was held inter alia that even during liquidation, the corporate debtor or its creditors may seek for compromise or arrangement by making proposal of payment to all the creditor(s) pursuant to which the liquidator on behalf of the company will move an application under section 230 of the Companies Act, 2013 before the NCLT. The NCLAT further held that the liquidator has the power to sell the business of the corporate debtor as a going concern.

In Manjit Commercial LLP vs. SPM Auto Pvt. Ltd. & Ors.[27], the NCLAT upheld the procedure followed by the liquidator during the liquidation process. The appellants had alleged that the liquidator had reduced the reserve price of an asset of the debtor company which was up for auction to favor some buyers. The NCLAT held that there was no evidence for the same and also held that as per Clause (4) of Schedule-I of the Liquidation Process, the liquidator is allowed to reduce the reserve price by 75%, if an auction at the original reserve price fails. However, in the instant case, the liquidator had reduced the reserved price only by 15%. It was clarified that the liquidator can reduce the reserve price for the reason that the earlier auction for the asset had failed.

Companies Act, 2013

In C.J. Mathew vs. Greendot Hotels & Resorts (I) Pvt Ltd & Ors.[28] the NCLAT clarified that in terms of section 244 of the Companies Act, 2013, a person who is a defaulter in payment of subscription to capital or any sum due against him, will be denied the benefit of section 241 (1) i.e. he would lose the right to apply to the NCLT for relief in cases of oppression etc.

In Smt. Smruti Shreyans Shah vs. The Lok Prakashan Limited. & Ors.[29], the NCLAT held that in an application alleging acts of oppression and mismanagement, it needs to be examined whether the acts of oppression alleged are continuing or are concluded and if they are concluded, whether they are within the prescribed period of limitation i.e. within a period of three years from such act.

It was clarified that if some acts of oppression or mismanagement do not form part of a series so as to give rise to a continuing cause of action, right to apply would accrue from the date when the first violation of right occurred or was discovered. It was also clarified that the NCLT, in absence of appropriate interim relief being sought, has the power to mould the interim relief as per the facts and circumstances of the case so as to ensure that the ends of justice are not defeated.

In Ad2Pro Global Creative Solutions Private Limited vs Regional Director, (SER), Ministry of Corporate Affairs & Ors.[30], The NCLAT set aside a precondition imposed by the NCLT with regard to the scheme of arrangement wherein the NCLT had directed the transferor company to pay the outstanding income tax and made approval of the scheme subject to such payment. The NCLAT held that while sanctioning a scheme of arrangement, the right of tax authorities remains intact to initiate appropriate proceedings regarding recovery of any tax.

Once a scheme has been sanctioned by a Tribunal in accordance with law and the same goes unassailed, nothing precludes the Tax Authorities from recovering its legitimate and recoverable outstanding tax dues from the Transferor or the Transferee Company, as provided in the scheme. Where in a given case the liability has arisen or would arise or the demand would be raised against the Transferor Company for the relevant period after due scrutiny, assessment, review or determination through a due judicial process and the Transferee Company undertakes to make payment of all outstanding tax dues as determined in the aforesaid manner, the scheme cannot be refused and has to be allowed.

In Registrar of Companies, Maharashtra, Mumbai vs. Acadia Hotels and Resorts LLP & Ors.[31], the NCLAT decried the approach adopted by the authorities in imposing a penalty on the respondents despite their complying with their legal obligations. It was held that Form-3 had been filed by the respondents prior to 2013 but was not captured in the database of the computerized system of the Ministry of Corporate Affairs. Thereby, it was held that while switching over to a computerized system, the appellant as also other concerned authorities were supposed to notify the affected persons and allow them to file the rectified/revised forms as mandated, without slapping any penalty on them.

In Gireesh Kumar Sanghi Vs. Mr. Ravi Sanghi & Ors[32], it was held that the NCLT and the NCLAT are empowered to punish a person for violation of their own order under the Contempt of Courts Act, 1971. However, an appeal under Section 421 of the Companies Act, 2013 is not maintainable before the NCLAT under Section 421 of the Companies Act, 2013 once the NCLT exercises to exercise its power under Contempt of Courts Act, 1971 read with Section 425 of the Companies Act, 2013. It was further clarified that limitation as prescribed under Section 20 of the Contempt of Courts Act, 1971 would be applicable i.e. one year from the date on which contempt is alleged to have been committed.

Swaroop George is an advocate  practicing at New Delhi

[1] Judgment dated 2.09.2019 in Company Appeal (AT) (Insolvency) No. 173 of 2019

[2] Judgment dated 20.09.2019 in Company Appeal (AT) (Insolvency) No. 377 of 2019

[3] Judgment dated 8.01.2019 in Company Appeal (AT) (Insolvency) No. 346 of 2018

[4] Judgment dated 5.09.2019 in Company Appeal (AT) (Insolvency) No. 765 of 2019

[5] Judgment dated 5.09.2019 in Company Appeal (AT)(Ins) No. 177 of 2019

[6] Judgment dated 18.09.2019 in Company Appeal (AT) (Insolvency) No. 628 of 2018.

[7] Judgment dated 24.09.2019 in Company Appeal (AT) (Insolvency) No. 713 of 2019

[8] Judgment dated 2.09.2019 in Company Appeal (AT) (Insolvency) No. 224 of 2019

[9] Judgment dated 2.09.2019 in Company Appeal (AT)(Insolvency) No. 894 of 2019

[10] Judgment dated 3.09.2019 in Company Appeal (AT) (Insolvency) No. 513 of 2019

[11] Judgment dated 20.09.2019 in Company Appeal (AT) (Insolvency) No. 671 of 2019

[12] Judgment dated 2.04.2019 in Transfer Case (Civil) 66 of 2018

[13] Judgment dated 6.09.2019 in Company Appeal (AT) (Ins) No.441 of 2019

[14] Judgment dated 30.09.2019 in Company Appeal (AT) (Insolvency) No. 350 of 2019

[15] Judgment dated 30.09.2019 in Company Appeal (AT) (Insolvency) No. 196 of 2019

[16] Judgment dated 25.09.2019 in Company Appeal (AT) (Insolvency) No. 666 of 2019

[17] Judgment dated 26.09.2019 in Company Appeal (AT) (Insolvency) No. 992 of 2019

[18] Judgment dated 6.09.2019 in Company Appeal (AT)(Insolvency) No. 526 of 2019

[19] Judgment dated 4.09.2019 in Company Appeal (AT) (Insolvency) No. 259 of 2019

[20] Judgment dated 17.09.2019 in Company Appeal (AT) (Insolvency) No. 745 of 2018

[21] Judgment dated 19.09.2019 in Company Appeal (AT) (Insolvency) No. 865 of 2019

[22] Judgment dated 11.09.2019 Company Appeal (AT) (Insolvency) No. 936 of 2019

[23] Judgment dated 26.09.2019 in Company Appeal (AT) (Insolvency) No. 707 of 2019

[24] Judgment dated 30.09.2019 in Company Appeal (AT) (Insolvency)No. 902 of 2019

[25] Judgment dated 5.09.2019 in Company Appeal (AT) (Insolvency) No. 628 of 2019

[26] Judgment dated 27.02.2019 in Company Appeal (AT) (Insolvency) No. 224 of 2018

[27] Judgment dated 5.09.2019 in Company Appeal (AT) (Insolvency) No. 732 of 2019

[28] Judgment dated 2.09.2019 in Company Appeal (At) No.321 Of 2018

[29] Judgment dated 5.09.2019 in Company Appeal (AT) No. 25 of 2018

[30] Judgment dated 25.09.2019 in Company Appeal (AT) No. 98 of 2019

[31] Judgment dated 25.09.2019 in Company Appeal (AT) No. 10 of 2019

[32] Judgment dated 2.09.2019 in Company Appeal (AT) No. 156 of 2019