The following is a snapshot of the important orders passed by the National Company Law Appellate Tribunal (“NCLAT”), under the Insolvency and Bankruptcy Code, 2016 ("Code”), during the period between August 1, 2023 to August 15, 2023.

For ease of reference, the orders have been categorized and dealt with in the following categories, that is, Pre-admission stage, Corporate Insolvency Resolution Process (“CIRP”) stage, Liquidation stage and Miscellaneous.

1. In Kasha E. Sai. v. M/s Yarn Udyog (Company Appeal (At) (Ch) (Ins.) No. 187/2023), the NCLAT held that the interest stipulated in an invoice can be considered and added to the principal debt amount to meet the threshold specified under Section 4 of the Code. The NCLAT further noted that an arbitration proceeding initiated before the MSME council by an operational creditor, which was rejected by the MSME council due to lack of jurisdiction, would not amount to the pre-existence of a dispute.

2. In Carissa Investment LLC v. Indu Techzone Private Limited (Company Appeal (AT) (CH) (Ins) No.124/2022), the NCLAT held that where the last installment of a settlement understanding became due and payable during the period covered by Section 10A, an application for CIRP is not maintainable upon the failure to pay such dues. 

3. In Mahmod Alam Khan v. Ahmed Alam Khan (Company Appeal (AT) (CH) (INS.) No. 30 of 2023), the NCLAT, noted that unsecured loans extended by directors or shareholders to a corporate debtor experiencing financial crisis or distress, would qualify as a financial debt, despite such loan not carrying any interest or time value of money. The NCLAT further noted that in the absence of any agreement for repayment, any amount lent falls due and payable on demand.

4. In Nitin Chandrakant Desai v. Edelweiss Asset Reconstruction Limited (Company Appeal (AT) (Insolvency) No. 1022 of 2023), the NCLAT held that when a default occurs before the period prescribed under Section 10A of the Code (moratorium on CIRPs during COVID-19), any default committed during the Section 10A period cannot be a bar on filing an application on the basis of the default prior to Section 10A and filed subsequent to the Section 10A period.

5. In Winled (HK) Cables & Wire Products Co. Ltd. v. Velankani Electronics Private Limited (Company Appeal (At) (Ch) (Ins.) No. 280/2021), the NCLAT noted that where the amounts due and payable has been acknowledged by the borrower, the mere fact that the said amount did not form part of the balance sheet of the corporate debtor would not be a ground to deny the admission of the corporate insolvency resolution process. The NCLAT further noted that there is no bar in initiating the corporate insolvency resolution process against a solvent company.

6.  In Chandrashekhar Exports Private Limited v. Babanraoji Shinde Sugar & Allied Industries Limited (Company Appeal (AT) (Insolvency) No.1032 of 2023 & I.A. No.3485, 3526 of 2023), the NCLAT held that an application under Section 9 of the Code is not maintainable on the basis of a claim of compensation and penalty which has not become a crystalized debt on account of non-adjudication by a competent authority.

7. The NCLAT in Rajesh Sabharwal v. Desein Private Limited (Company Appeal (AT) (Insolvency) No. 773 of 2021) held that even where the demand notice under Section 8 is issued prior to the amendment of Section 4 of the Code, which increased the threshold for maintainability of an application for the initiation of CIRP, a  Section 9 application filed subsequent to such increase would have to meet the increased threshold.

8. In Dhirajlal Parbatbhai Lakkad v. Ramesh Kumar Totla (Company Appeal (AT) (Insolvency) No. 1326 - 1328 of 2022), the NCLAT held that the mere fact that a creditor has also resorted to proceedings under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, cannot preclude a bank from filing a Section 7 application.

1. In Ramneek Goel v. Sunil Bajaj (Company Appeal (AT) (Insolvency) No. 845 of 2023), the NCLAT, noted that a sole resolution applicant did not have any vested right to require that only its plan should be voted and approved. The NCLAT further noted that the summary nature of jurisdiction did not prevent the Adjudicating Authority from examining all issues arising out of the insolvency resolution process, including any alleged breach of confidentiality. Finally, the NCLAT noted that the committee of creditor's decision to re-publish Form-G just before the expiry of 300 days, could not be successfully challenged if such decision was taken to maximise the value of the corporate debtor. 

2. In Amit Goel v. Piyush Colonizers Limited & Anr. (Comp. App. (AT) (Ins.) No.981 of 2023) the NCLAT held that the Committee of Creditors (CoC) has the power to change the management of the subsidiary of a corporate debtor under Section 28(1)(j) of the Code, which power is not limited on account of pendency of a proceeding under Section 66 of the Code, challenging the transaction involving the sale of shares of the subsidiary.

3. In Ocean Capital Market Limited v. Uday Narayan Mitra (Company Appeal (AT) (Insolvency) No.514 of 2023), the NCLAT held that where a portion of resolution plan is deemed to be non-compliant with law, and where during the deliberation, the successful resolution applicant  voluntarily suggests modification to address the non-compliant portion, the Adjudicating Authority has the jurisdiction to remit such resolution plan to the CoC to consider the amendment proposed and vote on it.

4. In India Resurgence ARC Private Limired v. Rohit J. Vora, Erstwhile Resolution Professional of Jogma Laminates Industry (P) Limited (Company Appeal (AT)(Insolvency) No. 100 of 2023), the NCLAT held that where the CoC has agreed to pay fees to the resolution professional until he demits the post, such an approval cannot be considered to be time bound approval and the resolution professional would be entitled to claim his fees until his replacement or substitution.

Further, the NCLAT held that the NCLAT had the jurisdiction to adjudicate on the reasonability quotient of fees payable to the resolution professional and to scale down the fees when no substantial work is undertaken.

5. In Sanjay Jain v. Nilesh Sharma, Resolution Professional of Dream Procon Private Limited (Company Appeal (At)(Ins) No.425/2021), the NCLAT held that no claim is maintainable on the basis of forged documents and where such forged documents are submitted, the Adjudicating Authority has the power to direct the initiation of action under Section 340 of the Code of Criminal Procedure, 1973.

6. In Anil Kumar (suspended director of SK Elite Industries India Limited) v. Jayesh Sanghrajaka Company Appeal (AT)(Insolvency) No. 513 of 2023), the issue before the NCLAT was - in a situation where (a) the suspended director or promoter had failed to submit an acceptable Section 12A proposal, despite being given multiple opportunities; and (b) where issuance of Form G thrice did not elicit sufficient response, whether the CoC could be faulted for accepting a resolution plan from a third party without issuing a further Form G in terms of Regulation 36A of the CIRP Regulations, after it having decided to liquidate the corporate debtor.

The NCLAT took note of the fact that (i) no consequence of non-compliance to Regulation 36A of CIRP Regulation has been provided for in the statutory construct of the Code, and (ii) while no fresh Form G was filed, the CoC's consideration of the fresh resolution plan was with the approval of the Adjudicating Authority. As such, the Authority held that the decision of the CoC to entertain the resolution plan without publication of Form G cannot be viewed to be such a grave procedural non-compliance that the integrity of the entire resolution process was undermined.

Finally, the NCLAT upheld the primacy of the commercial decision of the CoC by observing that a resolution plan which seeks to provide substantially much more than the liquidation value cannot be stifled on grounds of a minor procedural deviation that is not of much material bearing.

7. The NCLAT, in Laxman Singh (Ex-Director) v. Kerry Indev Logistics Private Limited (Company Appeal (AT)(Insolvency) No. 1002 of 2022), held that the mere fact that the fees quoted by the resolution professional has been approved by the CoC cannot be a cover for the resolution professional to keep on claiming disproportionate fees, wherein the fees claimed by the resolution professional becomes higher than the claim amount receipt.

This case also records a unique situation where the NCLAT had, post the expiry of 270 days, invoked its inherent power under Rule 11 of NCLAT, Rules, 2016 to close the CIRP (as opposed to giving direction for liquidation), taking into consideration that the sole CoC member had wanted to withdraw from the CIRP and was unable to do so.

8. In Mahendra K. Agarwal v. PTC India Financial Services Limited (Company Appeal (AT) (CH) (INS.) No. 8 of 2023), the NCLAT noted that in terms of Section 60(1) of the Code, any proceeding against the personal guarantor can be initiated before the Adjudicating Authority having territorial jurisdiction over the place where the registered office of the corporate person is located. The NCLAT further noted that pendency of CIRP against a corporate debtor is not a condition precedent for the initiation of insolvency proceedings against the personal guarantor. The maintainability of a petition filed against the personal guarantor is not affected on account of settlement and/or withdrawal of earlier proceedings initiated against the corporate debtor, the NCLAT added.

9. In the matter of Employees Provident Fund Organization v. CA. S. Prabhu (Company Appeal (At) (CH) (INS.) NO. 176/2022), the NCLAT held that for admission of claims filed by a provident fund department, the Liquidator cannot demand an assessment order in support of such claims where there is a shortfall of remittance compared to the amount indicated in the returns filed and maintained by the establishment.

10. In Assistant Commissioner of Central Tax v. Sreenivasa Rao Ravinuthala, (Company Appeal (At) (Ch) (Ins.) No. 346/2021), the NCLAT held that while in terms of Section 11E of the Central Excise Act, 1944, central excise dues would be considered a first charge on the property of the assessee (as such charge was subject to the provisions contained under the Code), in the context of the Code, the central excise dues would not be considered a secured debt.

11. In Arun Kumar v. Sripriya Kumar (Company Appeal (At) (Ch) (Ins.) No. 431/2022), the NCLAT held that where the public announcement clearly mentioned that the resolution plan was sought for a specific project, and no objection for the same was raised in CoC meetings, a challenge to the same at subsequent stage cannot be allowed.

While dealing with issue of disqualification of a successful resolution applicant, the NCLAT held that where the active status of DIN is reflected in minutes of the meeting of the CoC and Form H, the resolution applicant cannot be disqualified under Section 29A of the Code. Further the NCLAT, while considering whether penal interest imposed contractually can be governed by the Code, noted that penal interest would be governed by contractual arrangements, and that the moratorium under Section 14 would not stop the charging of penal interest. In this connection, the NCLAT upheld the submission of the counsel for the RP that the claim is determined as on the CIRP commencement date so that the RP can state the value of the amount due to the creditors in the Information Memorandum and invite Expression of Interest from prospective Resolution Applicants.

The NCLAT also observed that the Code does not contemplate any kind of preference to be given to an MSME promotor by the CoC while accepting a resolution plan.

12. In Peter Beck and Partner Vermoegensverwaltung v. Sharon Bio-Medicine (Company Appeal (AT) (Insolvency) No. 912 of 2023), the NCLAT held that a resolution plan cannot be challenged on account of differential payment being proposed to assenting unsecured financial creditors and dissenting unsecured financial creditors, as long as dissenting unsecured financial creditors are being provided the liquidation value as mandated under the Code.

1. In S. Hari Karthik v. Jayaram Chowdhary (Company Appeal (At) (Ch) (Ins.) No. 326/2021), the NCLAT held that where the terms of request for a resolution plan (RFRP) provided for the forfeiture of earnest money deposit (“EMD”) only on the ground of false and misleading representation, the liquidator could not forfeit the EMD of the resolution applicant on allegations of delay in completing CIRP.

1. In Shilpi Asthana v. Indusind Bank Limited (Comp. App. (AT) (Ins) No. 274 of 2023), the NCLAT held that the date on which an assert is declared a Non-Performing Asset (NPA) cannot be considered as the date of default. Hence, even if the NPA falls within the period covered under Section 10A of the Code, the same does not bar admission of CIRP where the actual date of default preceded the Section 10A period, the NCLAT said.

About the authors: Arka Majumdar is a Partner; Juhi Wadhwani is a Senior Associate; Vikram Chaudhuri and Ayush Chaturvedi are Associates at Argus Partners.