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 (hereinafter referred to as the ‘Code’), the Competition Act, 2002 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 i.e. Pre-admission stage, Corporate Insolvency Resolution Process (hereinafter referred to as ‘CIRP’) stage and the Liquidation stage.
I. INSOLVENCY AND BANKRUPTCY CODE, 2016
A. PRE-ADMISSION STAGE
In Anil Syal Vs. Sanjeev Kapoor (Proprietor Kapoor Logistrics) & Anr.,[1] the NCLAT held that demand notice issued under Section 8 of the Code, against the corporate debtor, for the dues of sister concern/group company, cannot be treated as a valid notice in terms of the Code.
In D. Sathish Babu Vs. Optiemus Infracom Ltd. and Mr. Ramana Kumar,[2] the NCLAT held that even if the parties and/or their sister concerns are indulging in various transactions and deals, when there is an independent transaction of sale giving rise to an operational debt and there is default in payment of the same, that independent transaction cannot be doubted or put into shadows due to other dealings between the parties and/or their sister concerns.
In Saumil Bhavnagri Vs. M/s. Nimit Builders Private Ltd. and Jeevan Jyoti Vanijya Ltd.,[3] the NCLAT held that whenever the corporate debtor demonstrates that it is a financial service provider and supports the claim with evidence by way of a certificate from the Reserve Bank of India, it is appropriate for the Adjudicating Authority to lay off its hands from such corporate debtor considering the definition of corporate person, under Section 3(7) of the Code. It was further observed that it would not be in the realm of Adjudicating Authority to examine whether the conditions applicable to Non-Banking Financial Companies (hereinafter referred to as the ‘NBFC’) have been followed or not by the NBFC. If there is any violation of conditions, the aggrieved person may bring it to the notice of Reserve Bank of India to look into the same.
In Sesh Nath Singh & Anr. vs. Baidyabati Sheoraphuli Cooperative Bank Ltd. & Ors.,[4] the NCLAT applied Section 14 (2) of the Limitation Act, 1963 to exclude the period of time, the Financial Creditor had bona fide prosecuted within limitation period under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (hereinafter referred to as the ‘SARFEASI Act’) which proceedings were subsequently ordered not to be proceeded with by the High Court of Kolkata. Since in terms of Section 14 (2), the time during which proceedings are prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like nature, was unable to entertain it, shall be excluded for computing the period of limitation, the time taken by the creditor under the SARFEASI Act was excluded.
In Mahendra Trading Company & Ors Vs. Hindustan Controls and Equipment Pvt. Ltd.,[5] the NCLAT held that as there is a provision for communicating the certified copy and a mandate to provide free certified copy to the concerned person under the Companies Act, 2013, the period of limitation for an appeal from an order of the Adjudicating Authority would only run from the date, the certified copy of the order was provided to the appellant.
In S. S. Polymers Vs. Kanadia Technoplast Ltd.,[6] the NCLAT held that in the absence of an agreement for provision of interest, claim for interest would not be maintainable in the case of an operational creditor. It was also held that one side invoices raised without any consent of the corporate debtor would not entitle the operational creditor to claim interest.
In M/s. Sree Sankeshwars Foundation & Investments Vs. M/s. Dugar Housing Ltd.,[7] the NCLAT held that parties forming a joint venture cannot be said to be providing services to each other or be operational creditors to each other.
B. CORPORATE INSOLVENCY RESOLUTION PROCESS STAGE
In G. V. Suresh Kumar & Ors. Vs. Kapil Dev Taneja, RP in CIRP of M/s. Apex Durgs Ltd.,[8] the NCLAT held that once a resolution plan has been submitted to the Adjudicating Authority and is pending consideration, thereafter, creditors are not entitled to file their claims with the Resolution Professional (hereinafter referred to as the ‘RP’) as it would amount to reversing the process and would lead to the corporate debtor being sent to liquidation.
In Sanjay Chemicals (India) Private Ltd. Vs. Sharan Bio-Medicine Ltd.,[9] the NCLAT held that when a claim arises from dues prior to the period of initiation of Corporate Insolvency Resolution Process (hereinafter referred to as the ‘CIRP’) and if the creditor had not filed the claim at that stage, then an application under Section 9 of the Code after completion of CIRP against the corporate debtor was not maintainable.
In Jyoti Ltd. Vs. M/s Prasad & Company (Project Works) Ltd.,[10] the NCLAT dismissed an appeal by an operational creditor inter-alia on the ground that the purchase order was issued by a joint-venture and only one of the parties to the joint-venture had been made a party in the application under section 9 of the Code and the joint-venture itself, had not been impleaded.
In DBS Bank Ltd., Singapore Vs. Mr. Shailendra Ajmera and Committee of Creditors,[11] the NCLAT held that a secured creditor cannot claim preference over the other secured creditors at the stage of distribution arising out of the resolution plan, on the ground of dissenting or assenting to the resolution plan; otherwise the distribution would be held to be arbitrary and discriminatory. Section 30(2)(b)(ii) of the Code cannot be interpreted in a manner to give advantage to a dissenting secured financial creditor. It was further held that Section 30(2)(b)(ii) had been amended only to ensure that dissenting financial creditor should not get anything less than the liquidation value but not for getting maximum of the secured assets.
In M/s. K. K. Foods Vs. Venkataramanarao Nagarajan,[12] the NCLAT held that any plan which is less than the liquidation value and the assets of the corporate debtor and which does not stipulate infusion of money for maximization of the assets of the corporate debtor, is against the provisions of the Code and violates Section 30(2) of the Code.
In Asset Reconstruction Company (I) Ltd. (ARCIL) Vs. (1) Mr. Koteswara Rao Karuchola,[13] the NCLAT held that after constitution of the Committee of Creditors (hereinafter referred to as the ‘COC’), without its permission, the RP was not competent to entertain more applications after three months to include one or other person as financial creditor. Further, once a decision was taken by the COC to call for a meeting for removal of the RP, it was improper for the RP to include a new financial creditor as a member of the COC. Finally, it was held that since a money laundering case had been initiated against Mahal Hotel Private Limited i.e. the financial creditor, the said creditor could not be allowed to be a member of COC.
In Kotak Mahindra Prime Ltd. Vs. Bijay Murmuria & Ors.,[14] the NCLAT held that, once a creditor files its claim before the RP and the same is taken into consideration by the successful resolution applicant and the resolution plan or the revised plan provides the creditor with the same treatment as has been given to the other similarly situated financial or operational creditors, the creditor, thereafter cannot take the benefit of sub-section (6) of Section 60 of the Code nor can they pray to pursue the suit or arbitration proceeding or to file a fresh suit or arbitration proceeding for the same claim.
C. LIQUIDATION STAGE
In Employees of Indus Fila Vs. SPG Macrocosm Ltd. and Ors.,[15] the NCLAT held that amounts of provident fund, pension fund and gratuity funds belong to employees and cannot form part of the liquidation estate assets.
In State Bank of India Vs. Anuj Bajpai (Liquidator),[16] the NCLAT held that even if a secured financial creditor, opts out of liquidation process under Section 52(1)(b) of the Code, the secured financial creditor is barred from selling the secured assets to the promoters or their related party or the persons who are ineligible in terms of Section 29A of the Code.
II. COMPANIES ACT, 2013
In Navneet Gupta Vs Bharat Tractors Private Ltd. & Ors.,[17] the NCLAT held that Section 180 of the Companies Act, 2013, which restricts powers of the board of directors to certain extent, is not applicable to a private limited company.
In Oswal Greentech Ltd. Vs. Pankaj Oswal & Ors.,[18] the NCLAT held that the right arising out of an instrument does not vest with the nominee automatically upon the death of the original holder of the instrument. Being made a nominee does not mean that the amount or the share belongs to the nominee. On the death of the holder of the instrument, the amount/ share vests with the legal heirs, the nominee merely holds the amount/ share herein till the matter of vesting is decided in favour of the legal heirs.
III. COMPETITION ACT, 2002
In Parsoli Motors Works Pvt. Ltd., Vs. BMW India Private Ltd. and Ors.,[19] the NCLAT held that abuse of dominant position by an enterprise, forbidden under Section 4 of the Competition Act, 2002, essentially arises out of a position of strength enjoyed by an enterprise in the relevant market enabling it to operate independent of the competitive forces or affects its competitors or consumers or the relevant market in a manner that tilts the balance in its favour. While holding and enjoyment of a dominant position in itself is not prohibited, its abuse is proscribed. The NCLAT found that BMW India did not enjoy a dominant position in the relevant market i.e. the segment of passenger cars and thereby, there was no abuse of dominant position.
Swaroop George is an advocate practicing at New Delhi.
[1] Judgment dated 08.11.2019 in Company Appeal (AT) (Insolvency) No. 961 of 2019
[2] Judgment dated 29.11.2019 in Company Appeal (AT) (Insolvency) No.623 of 2019
[3] Judgment dated 21.11.2019 in Company Appeal (AT) (Insolvency) No.710 of 2019
[4] Judgment dated 22.11.2019 in Company Appeal (AT) (Insolvency) No. 672 of 2019
[5] Judgment dated 25.11.2019 in Company Appeal (AT) (Insolvency) No. 97 of 2018
[6] Judgment dated 13.11.2019 in Company Appeal (AT) (Insolvency) No. 1227 of 2019
[7] Judgment dated 25.11.2019 in Company Appeal (AT) (Insolvency) No. 515 of 2019
[8] Judgment dated 07.11.2019 in Company Appeal (AT) (Insolvency) No. 1162 of 2019
[9] Judgment dated 11.11.2019 in Company Appeal (AT) (Insolvency) No. 1190 of 2019
[10] Judgment dated 18.11.2019 in Company Appeal (AT) (Insolvency) No. 288 of 2019
[11] Judgment dated 18.11.2019 in Company Appeal (AT) (Insolvency) No. 788 of 2019
[12] Judgment dated 13.11.2019 in Company Appeal (AT) (Insolvency) No. 190 of 2019
[13] Judgment dated 18.11.2019 in Company Appeal (AT) (Insolvency) Nos. 633 & 718 of 2018
[14] Judgment dated 13.11.2019 in Company Appeal (AT) (Insolvency) Nos. 47 of 2019
[15] Judgment dated 15.11.2019 in Company Appeal (AT) (Insolvency) No. 857 of 2019
[16] Judgment dated 18.11.2019 in Company Appeal (AT) (Insolvency) No. 509 of 2019
[17] Judgment dated 29.11.2019 in Company Appeal (AT) No. 199 of 2019
[18] Judgment dated 14.11.2019 in Company Appeal (AT) Nos. 410 of 2018
[19] Judgment dated 25.11.2019 in Competition Appeal (AT) No. 52 of 2018