The National Company Law Appellate Tribunal is the Apex Tribunal in the country dealing with all aspects of corporate law. 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 landmark judgments delivered by the National Company Law Appellate Tribunal and to offer a brief summary of the same in a capsule-form for the benefit of the reader.
The judgments of the National Company Appellate Tribunal (NCLAT) have been demarcated into those dealing with the provisions of the Insolvency and Bankruptcy Code, 2016 (Code), the Competition Act, 2002 (Competition Act) and that of the Companies Act, 2013 (Companies Act). The judgments dealing with the Code have been further categorized and dealt with in the following three stages i.e. Pre-admission stage, Corporate Insolvency Resolution Process (CIRP) stage and the Liquidation stage.
I. INSOLVENCY AND BANKRUPTCY CODE, 2016
A. Pre-Admission Stage
In V. Padmakumar v. Stressed Assets Stabilisation Fund (SASF) & Anr.[1], the NCLAT held that for the purpose of computing the period of limitation of an application under Section 7 of the Code, the date of default, particularly the date when the loan is declared as a Non-Performing Asset (NPA) is relevant. It was further held that mere filing of a suit for recovery or a decree passed by a Court cannot shift forward the date of default and a Judgment or decree passed by a Court for recovery of money by a Civil Court / Debts Recovery Tribunal (DRT) cannot shift forward the date of default for the purpose of computing the period for filing an application under Section 7 of the Code.
The NCLAT went on to hold, by a majority decision, that since the filing of balance sheet / annual return was mandatory under Section 92(4) of the Companies Act, failing which penal action under Section 92(5) & (6) would be attracted, the balance sheet / annual return of the corporate debtor cannot be treated as an acknowledgement under Section 18 of the Limitation Act, 1963. The NCLAT further explained that if the argument is accepted that the balance sheet / annual return of the corporate debtor amounts to an acknowledgement under Section 18 of the Limitation Act, 1963 (hereinafter referred to as ‘Limitation Act’), then in such case, it would tantamount to no limitation being applicable because every year, it is mandatory for the corporate debtor to file the balance sheet / annual return, which was stated to not be the correct position of law qua limitation.
In Ishrat Ali v. Cosmos Cooperative Bank Ltd. & Anr.[2], an action taken by a financial creditor under Section 13(2) or Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (hereinafter referred to as the ‘SARFAESI Act’) cannot be termed as a civil proceeding before a Court of first instance or an appeal or revision before an Appellate Court. Therefore, the action taken under Section 13(2) of the SARFAESI Act cannot be counted for the purpose of exclusion of period of limitation under Section 14(2) of the Limitation Act.
In Gourav Kishor Shinde v. Uday Yashwant Nayak & Anr.[3], the NCLAT observed that the admission of an application under Section 7, 9 or 10 of the Code entails a trigger of the provisions of the Code with grave consequences and it is improper for the National Company Law Tribunal (hereinafter referred to as ‘NCLT’) to pass a cryptic order such as “The Petition is admitted. Detailed judgement later on.” The NCLAT held that it was another thing if the complete judgement is dictated in the open Court which can be transcribed and signed later but it would not be proper not to dictate the judgement itself and admit a petition under Section 9 of the Code.
In Digamber Bhondwe, Director Raipur Treasure Island Private Limited v. JM Financial Asset Reconstruction Company Limited (in capacity as Trustee of JMFARCO-UCO March 2014-Trust)[4], the NCLAT held that the date of declaration of a loan as NPA is the date from which limitation would run for filing a petition under Section 7 of the Code and a recovery certificate issued subsequently or a subsequent judgment by the DRT would not extend the period of limitation under the Code.
In Laxmi Pat Surana v. Union Bank of India & Anr.[5], the NCLAT rejected the contention of the corporate debtor that as per Section 5A of the Code, to commence insolvency proceedings against a corporate guarantor, both the principal debtor and the guarantor must be corporate entities / corporate debtors as defined under Section 3(7) and 3(8) of the Code. It was further clarified that the term ‘Financial Debt’ includes a debt owed to a creditor by a principal and a guarantor. An omission or failure to pay on the part of a guarantor to the financial creditor, when the principal sum is claimed/demanded would come with the scope of default under Section 3(12) of the Code.
B. Corporate Insolvency Resolution Process Stage
In Pradip Kumar Chaudhuri v. M/s Dagcon (India) Pvt. Ltd. through its Resolution Professional Bimal Agarwal & Anr.[6], the NCLAT held that the guidelines laid down in Flat Buyers Association Winter Hills - 77, Gurgaon v. Umang Realtech Pvt. Ltd through IRP & Ors.[7] would be applicable to a CIRP of a debtor company, which was not a real estate company, if the corporate debtor is in the business of selling flats / apartments / shops to allottee(s). It was held that it is for the Resolution Professional (RP) to find out as to who is the allottee in whose favour the corporate debtor has reached a settlement / agreement or issued receipts of payments for such allotment. Upon receiving such receipts, if it is found that the flats / apartments / shops etc. are to be completed or is completed and ready to be handed over, the RP is bound to proceed in accordance with the guidelines issued in Flat Buyers Association Winter Hills- 77 judgment uninfluenced by the portions of the judgment referring to the terms of the particular agreement.
In Rai Bahadur Shree Ram and Company Pvt. Ltd. & Anr. v. Mr. Bhuvan Madan, Resolution Professional of Ferro Alloys Corporation Ltd. & Ors.[8], the NCLAT held that the commercial wisdom of the Committee of Creditors (hereinafter referred to as the ‘COC’) in rejecting the settlement proposal emanating from the appellants, with the requisite majority and instead approving the resolution plan of a resolution applicant, cannot be challenged by the appellants. It was further held that merely because the NCLT had declined to direct the reconsideration of an already rejected settlement proposal of the appellants does not impinge upon the legality and conformity of the approved resolution plan in terms of the conditions stated in Section 32 of the Code.
In Shrawan Kumar Agrawal Consortium v. Rituraj Steel Private Limited Through its Authorised Representative & Ors.[9], the NCLAT held that even for the maximisation of value of assets of the corporate debtor, the NCLT is not entitled to overturn the business decisions of the corporate debtor and interfere with the commercial wisdom of the COC.
C. Liquidation Stage
In D & I Taxcon Services Private Limited v. Mr. Vinod Kumar Kothari, Liquidator of Nicco Corporation Limited[10], the NCLAT held that when the appellant was not an operational creditor, nor a member or partner of the corporate debtor, it would have no locus standi under Section 47(1) of the Code to seek any direction against the liquidator as regards an alleged undervalued sale transaction.
II. COMPANIES ACT, 2013
In Union of India v. Infrastructure Leasing & Financial Services Ltd. & Ors.[11], the NCLAT held that it cannot be said that NCLT could not follow the principles of Code while dealing with a winding up matter or a matter under Section 241 read with Section 242 of the Companies Act, particularly in a case under Section 241(2), which relates to public interest. It was further held that the power of moratorium may be exercised by the NCLT under Section 242(4) of the Companies Act by way of an interim order, if the NCLT thinks it fit / necessary for regulating the conduct of the company’s affair upon such terms and conditions, which are just and equitable.
In Deloitte Haskins & Sells LLP. v. Union of India through Ministry of Corporate Affairs & Ors.[12], the NCLAT while upholding the impleadment of the auditors of IL&FS held that as rules of natural justice are to be followed, if any order is passed against one or other, including investigation, it is always open to the NCLT to ask such concerned party to be impleaded and such impleadment cannot be held to be illegal.
In Shri C.P. Yogshwara & Ors. v. Union of India through Assistant Director Serious Fraud Investigation Office & Ors.[13], the NCLAT held that despite the absence of Section 388B of the Companies Act, 1956 (hereinafter referred to as ‘1956 Act’) in the Companies Act, with a view to bring an end to the matters plaguing the company, the NCLT is empowered to pass similar orders under Sections 241 & 242 of the Companies Act Section 388B of the 1956 Act i.e. to pass orders to replace the existing management and to appoint in their place Directors nominated under the control and management by the Central Government.
In Anil Chandanmal Singhvi v. Union of India & Ors.[14], the NCLAT held that if the affairs of a company have been or are being conducted in a manner prejudicial to the public interest, though it may be beneficial to one or more members of the company, such a company is required to be wound up once such a specific finding is arrived at.
In Ramesh Kumar Chitlangia & Ors. v. The Registrar of Companies, Jaipur & Ors.[15], the NCLAT held that when there are pending litigations involving a struck off company and its management then restoring such struck off company to the Register of Companies is justified.
In Late Mona Aggarwal through her Legal heir Mr. Vijay Kumar Aggarwal & Anr v. Ghaziabad Engg Company Ltd & Ors.[16], the NCLAT reiterated that even after the removal of the name of a company from the Register of Companies, the NCLT can proceed with the petition for winding up under Section 271 of the Companies Act.
III. COMPETITION ACT, 2002
In M/s Adani Gas Limited vs. Competition Commission of India & Ors.[17], the NCLAT held that a plain reading of the provision engrafted in Section 27 of the Competition Act provides that once a contravention of Section 3 or Section 4 of the Competition Act is established, the Competition Commission of India (hereinafter referred to as ‘CCI’) is empowered to pass all or any of the orders envisaged under Clauses (a) to (g) of Section 27 i.e. the CCI may pass orders either singularly (such as to desist, discontinue and not reenter an impugned agreement which results in abuse of dominant position) or coupled with any other discretion (such as imposition of penalty and/ or modification of the impugned agreement) or pass all orders under Section 27 of the Competition Act. It was further clarified that the language of this provision leaves no scope for doubt that the CCI may, befitting the circumstances of a case, pass any order falling under either one or more of the clauses in combination or even encompassing all the clauses and the term ‘any’ has to be accorded a purposive and creative interpretation which can be explained inasmuch as no hypothesis other than the one that it embraces one, more than one, some, many and all.
With regard to imposition of penalty, the NCLAT held that while there is a ceiling on the maximum penalty sought to be imposed upon the enterprise that is found guilty of abuse of dominant position in the relevant market , however no restriction as regards minimum has been prescribed. It was held that there is no hard and fast rule and an actual exercise of judgment regarding quantum of penalty has to be done upon consideration of the peculiar facts and circumstances of a case and an affected party is not entitled to claim the exercise of discretion in its favour as a matter of right. However, the NCLAT further specified that the affected party is entitled to show that there are mitigating factors / extenuating circumstances warranting imposition of lesser / reduced penalty.
In Confederation of All India Traders v. Competition Commission of India & Anr.[18], the NCLAT reiterated that in the absence of any prima facie opinion having been formed, that the combination is likely to cause or has caused appreciable adverse effect on the competition within the relevant market in India, the Competition Commission is not required to follow the procedures under Section 29 and Section 30 of the Competition Act which provides for a comprehensive investigation and is required to pass an order of approval under Section 31 of the Competition Act. In the present case, the NCLAT found that no prima facie case had been made out on the facts of the case or by the appellant and held that thereby there is no requirement on the part of the CCI to follow the procedures prescribed under Section 29 and 30 of the Competition Act and it had rightly passed the order of approval under Section 31 of the Competition Act.
In Uttrakhand Agricultural Produce Marketing Board v. Competition Commission of India & Ors.[19], the NCLAT held that when the observations made by the CCI were tentative in nature and not final, such an order would not amount to passing of an order under Section 27 of the Competition Act and thereby the appeal under Section 53B read with Section 53A of the Competition Act would not maintainable.
In M/s. Eli Lilly and Company v. Competition Commission of India[20], the NCLAT held that the CCI ought to first determine the applicability of exemption under Section 54 of the Competition Act before requiring for the filing of notice under Section 6(2) of the Competition Act and before commencing any proceedings under Section 43A of the Competition Act.
The author is Swaroop George, an advocate practicing at New Delhi.
[1] Judgment dated 12.03.2020 in Company Appeal (AT) (Insolvency) No. 57 of 2020.
[2] Judgment dated 12.03.2020 in Company Appeal (AT) (Insolvency) No. 1121 of 2019.
[3] Judgment dated 16.03.2020 in Company Appeal (AT) (Insolvency) No. 1107 of 2019.
[4] Judgment dated 05.03.2020 in Company Appeal (AT) (Insolvency) No. 1379 of 2019.
[5] Judgment dated 19.03.2020 in Company Appeal (AT) (Insolvency) No. 77 of 2020.
[6] Judgment dated 04.03.2020 in Company Appeal (AT) (Insolvency) No. 241 of 2020.
[7] Judgment dated 04.02.2020 in Company Appeal (AT) (Insolvency) No. 926 of 2019.
[8] Judgment dated 12.03.2020 in Company Appeal (AT) (Insolvency) No. 207-208 of 2020.
[9] Judgment dated 05.03.2020 in Company Appeal (AT) (Insolvency) No. 1490 of 2019.
[10] Judgment dated 03.03.2020 in Company Appeal (AT) (Insolvency) No. 1347 of 2019
[11] Judgment and order dated 12.03.2020 in Company Appeal (AT) No. 346 of 2018.
[12] Judgment dated 04.03.2020 in Company Appeal (AT) No. 190 of 2019.
[13] Judgment dated 13.03.2020 in Company Appeal (AT) No. 111 of 2019.
[14] Judgment dated 12.03.2020 in Company Appeal (AT) No. 185-186 of 2018.
[15] Judgment dated 05.03.2020 in Company Appeal (AT) No. 04 of 2020.
[16] Judgment dated 18.03.2020 in Company Appeal (AT) No. 320 of 2019.
[17] Judgment dated 05.03.2020 in TA (AT) (Competition) No. 33 of 2017.
[18] Judgment dated 12.03.2020 in Competition Appeal (AT) NO. 62 OF 2018.
[19] Judgment dated 12.03.2020 in Competition Appeal (AT) NO. 84 OF 2018.
[20] Judgment dated 12.03.2020 in TA (AT) (Competition) No. 03 of 2017.