NCLAT at a Glance: September 2020

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 NCLAT have been demarcated into those dealing with the provisions of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the ‘Code’), and that of the Companies Act, 2013 (hereinafter referred to as the ‘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 (hereinafter referred to as ‘CIRP’) stage and the Liquidation stage..I. INSOLVENCY AND BANKRUPTCY CODE, 2016.A. PRE-ADMISSION STAGE.The NCLAT in JM Financial Asset Reconstruction Company Ltd. v. Samay Electronics Pvt. Ltd., held that in a case where the two member bench of the National Company Law Tribunal (hereinafter referred to as the ‘NCLT’) are unable to arrive at a consensus and are passing conflicting orders, the correct course would be for the bench which passed two conflicting orders to make a reference to the President, NCLT, in terms of Section 419(5) of the Companies Act for hearing on the issues and points on which the two members of the bench had divergent view in the split verdict so that the matter is placed before a third member for hearing and the Company Petition is decided in accordance with the opinion of the majority of the members who heard the case including the member before whom it is placed.The NCLAT in Phoenix ARC Pvt. Ltd. v. Kotak Mahindra Prime Ltd., by a majority decision refused to interfere in the deduction of EMI by the Financial Creditor/Bank from the funds of the Corporate Debtor during the pendency of the moratorium against the direction of the Interim Resolution Professional (hereinafter referred to as the ‘IRP’). It was held that during the CIRP if the Resolution Professional (hereinafter referred to as ‘RP’) finds that any preferential transaction is made, then he would be at liberty to file an application under Section 43 of the Code. The NCLAT held that at the initial stage, no adverse interference could be drawn, based on deduction of the EMI by the bank, for which the loan was sanctioned, and an agreement was signed before initiation of CIRP, and EMI was deducted by the bank as per the loan agreement. The minority decision, on the other hand, took a view that the deduction of EMI during the moratorium was prima facie violative of the moratorium and directed for issuance of notice in the appeal..The NCLAT in Deepakk Kumar v. Phoenix ARC Pvt. Ltd., held that when there is no mistake apparent from the record in the judgement delivered by the NCLAT, then an application for review filed by the concerned applicant cannot be construed to be one under Section 420(2) of the Companies Act or under Rule 11 of NCLAT Rules, 2016.The NCLAT in Punjab National Bank v. Mittal Corp. Ltd., held that in the absence of any cogent evidence to show that the Financial Creditor/Bank has filed the application under Section 7 of the Code, pursuant to the Circular issued by Reserve Bank of India, it would not be permissible to dismiss the application in light of the directions issued by the Supreme Court in Dharani Sugars and Chemical Ltd. v. Union of India and Ors. [(2019) 5 SCC 480]..While dismissing an appeal on merits, the NCLAT in Kuntal Construction Pvt. Ltd. v. Bharat Hotels Ltd. clarified that no one can take a recourse that the judgment was not communicated to them and it is the duty of the counsel to keep a track of the status after the matter is reserved for pronouncement. The NCLAT held that non-communication of the judgment is not a valid ground for requesting condonation of delay.The NCLAT in Rita Kapur v. Invest Care Real Estate LLP, held that once a debt is converted into capital, it cannot be termed as a Financial Debt and the person to whom the debt was owed cannot be described as a Financial Creditor.The NCLAT in Yogesh Kumar Jashwantlal Thakkar v. Indian Overseas Bank, held that in light of Section 18 of the Limitation Act, 1963, the period of limitation would get extended by debit confirmation letters secured by the Financial Creditor/Bank from the Corporate Debtor towards the outstanding debt in the loan account..B. CORPORATE INSOLVENCY RESOLUTION PROCESS STAGE.In Kundan Care Products Ltd. v. Amit Gupta, the NCLAT held that once a Resolution Plan has been approved by the Committee of Creditors (hereinafter referred to as the ‘COC’) by the requisite majority, the Resolution Applicant cannot be allowed to withdraw the Resolution Plan even if the aforesaid Resolution Plan is pending for approval before the NCLT. The NCLAT held that in the case of “Committee of Creditors of Metalyst Forging Ltd. v. Deccan Value Investors LP & Ors.” [Company Appeal (AT) (Insolvency) 1276 of 2019 decided on 7th February, 2020], the NCLAT did not compel specific performance of a plan by an unwilling Resolution Applicant because the Resolution Plan was held to be violative of Section 30(2)(e) of the Code. In the absence of such a finding, the Resolution Applicant would be bound to adhere to the Resolution Plan.The NCLAT in Jamal Ahmad v. Reliance Nippon Life Asset Management, held that the NCLAT did not have the power to condone a delay in filing the appeal beyond 45 days by invoking Rule 11 of the NCLAT Rules, 2016. It was held that Rule 11 of the NCLT Rules, 2016, vesting inherent powers in the NCLAT, cannot be invoked against an express provision of the statute..The NCLAT in Naresh Kumar Sharma v. Shekhar Resorts Ltd., relied on the judgment of the Supreme Court in ‘Maharashtra Seamless Limited v. Padmanabhan Venkatesh & Ors.’[(Civil Appeal No. 4242 of 2019) decided on 22nd January, 2020], to hold that the Resolution Plan may offer a value less than the fair value or liquidation value.The NCLAT in Indian Overseas Bank v Arvind Kumar Resolution Professional Liquidator Richa Industries Ltd., held that in a case where the bank guarantee supplied, on payment of margin money by the Corporate Debtor, was invoked by the beneficiary, and the margin money was used towards payment of the bank guarantee, then nothing remained with the Bank. Thereby, RP cannot demand such amount even if the bank guarantee was invoked during the period of moratorium. It was also held that security interest would not include a performance bank guarantee nor any margin money..The NCLAT in Shailesh Chawla v. Vinod Kumar Mahajan, held that the NCLT had the power to make a recommendation for considering the aspect of commencement of criminal proceedings even though it could not directly recommend for the initiation of criminal proceedings and, in this regard, it was held that it was for the Insolvency Bankruptcy Board of India to take a final call after applying its independent overall assessment in an objective and dispassionate manner and to act accordingly, in the subject matter in issue..C. LIQUIDATION STAGE.The NCLAT in Hasmukh Nanalal Shah v. Shri Parag K Sheth, held that merely because the sole creditor had entered into a settlement with the Corporate Debtor after the passing of a liquidation Order, the same would not be a ground to set aside the liquidation proceedings. It was further clarified that a settlement could be reached during the liquidation proceedings by making an arrangement/scheme for settlement in terms of Section 230 of the Companies Act.The NCLAT in Committee of Creditors Represented by IDBI Bank Ltd. v. V Venkata Sivakumar, held that if there is any irregularity in appointment/confirmation of a Liquidator inasmuch as the Liquidator did not have a valid authorization for assignment on the date of such acceptance or commencement of such assignment would not adversely affect nor render the Order of liquidation passed by the NCLT, illegal or invalid. If there is any irregularity, it may be brought to the notice of the NCLT which in turn shall take a re-look at the appointment of the Liquidator and pass appropriate Orders..The NCLAT in Siva Rama Krishna Prasad v. S. Rajendran Official Liquidator of M/S Krishna Industrial Corporation Ltd., held that even after recommending a Resolution Plan for the approval from NCLT, the COC can retract and withdraw its decision to grant such approval before the NCLT has approved the Resolution Plan.While setting aside the Order of the NCLT quashing a civil suit against the Corporate Debtor, the NCLAT in E.C. John v Jitender Kumar Jain held that though the filing of a civil suit may be barred in terms of the Code, the appropriate course would be for the liquidator to approach the Court where the civil suit was pending and point out the relevant provisions of law and not for the NCLT to quash the proceedings pending before the Court..II. COMPANIES ACT, 2013.While considering an application for interim relief under Section 242 of the Companies Act, the NCLAT in Jaideep Halwasiya v. A. A. Infraproperties Pvt. Ltd. reiterated that the relevant considerations are the existence of a prima facie case besides balance of convenience and irreparable injury being suffered by a member of the company alleging acts of oppression and mismanagement, prejudicial to his/her interest and those of the Company..The author is an advocate practicing at New Delhi.