NCLAT at a Glance: December 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, 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 Law Appellate Tribunal (hereinafter referred to as 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 Apya Capital Services Pvt. Ltd. v. Guardian Homes Pvt. Ltd., held that the dispute in regard to quantum of debt would be immaterial at the stage of admission of application under Section 7 of the Code unless the debt due and payable falls below the minimum threshold limit prescribed under the law.

The NCLAT in K. Venugopalan Nair v. Rita Venugopal & Anr., held that when the appeal had been filed with a delay of more than 45 days even after excluding the period post 23^rd March 2020 during which the limitation had been suspended, such appeal would be time barred.

The NCLAT in Anubhav Anilkumar Agarwal v. Bank of India & Anr., held that the NCLAT do not enjoy unbridled power of review under Rule 11 of the NCLAT Rules, 2016. It was held that the exercise of inherent powers under Rule 11 of the NCLAT Rules, 2016 has limitations and is only meant to correct an error apparent on the face of record and such power cannot be used in such a manner that it would amount to sitting in appeal over the findings recorded by the National Company Law Tribunal (hereinafter referred to as “NCLT”) after appreciation of evidence.

The NCLAT in KVR Industries Pvt. Ltd. v. PP Bafna Ventures Pvt. Ltd., confirmed that an Adjudicating Authority has the jurisdiction under Section 340 of the Code of Criminal Procedure, 1973 to hold a preliminary enquiry and could not have directed the appellant to approach an appropriate forum for resolution of its allegations regarding forgery by the respondent creditor. The NCLAT, however, held that the appellant had failed to make a case for enquiry from the facts on record and thereby, no enquiry was required to be held and the Order of the Adjudicating Authority was not to be interfered with to such extent.

B. CORPORATE INSOLVENCY RESOLUTION PROCESS STAGE

In Committee of Creditors of LEEL Electricals Ltd. through State Bank of India v. Leel Electricals Ltd., through its Interim Resolution Professional Arvind Mittal, the NCLAT held that when the Interim Resolution Professional (hereinafter referred to as ‘IRP’) was replaced by another person to act as the Insolvency Resolution Professional (hereinafter referred to as ‘RP’) under Section 22 of the Code, then the Adjudicating Authority should not have invoked Section 27 of the Code which provides for replacement of RP at any time during the CIRP and adopted a protracted procedure in terms of Section 27 of the Code as when the resolution of the Committee of Creditors (hereinafter referred to as the ‘COC’) had been passed with the required majority, it could not be said that the legal rights of the IRP had been infringed.

The NCLAT in Committee of Creditors of Rosewood Trexim Pvt. Ltd. through Resolution Professional v. NA, excluded the period of time for which the RP was immobilised from the CIRP period of 180 days as a result of being infected with COVID-19 virus.

The NCLAT in Vijayalakshmi Enterprises v. Malabar Hotels Pvt. Ltd., upheld the Order of the Adjudicating Authority dismissing the petition under Section 7 of the Code filed by the appellant / Financial Creditor by holding that that the initiation of CIRP would not be equivalent to adjudication of the claim for recovery of money which the Claimant, in respect of the disputed claim, allegedly claims to be entitled to. In the instant case, the Corporate Debtor had already undergone CIRP and while approving the Resolution Plan it was held that the claim of the Financial Creditor was a disputed claim and was to be paid on the basis of the outcome of the adjudication of the legal proceedings. The NCLAT held that the proceedings under the Code are only meant to resolve the insolvency issues and not to adjudicate a claim and thereby, the appropriate remedy for the Appellant / Financial Creditor would not lie in triggering the provisions of the Code.

The NCLAT in Excise and Taxation Department Rewari Haryana v. ARGL Ltd. & Anr., rejected the prayer of the appellant for condonation of delay of 307 days, on the ground of completion of intra-departmental procedures, in filing the appeal. The NCLAT further held that the complacency on the part of those at the helm of affairs in pursuing the appeal on behalf of the appellant after such huge delay cannot be a legal consideration warranting condonation of delay particularly when the appeal has not been filed even within the extended period of 45 days. The NCLAT remarked that such complacency / negligence on the part of public functionaries may result in a huge loss to the state exchequer but that would not warrant condonation of delay under Section 61(3) of the Code.

The NCLAT in Anil N Surwade & Ors v. Prashant Jain Resolution Professional Sejal Glass Ltd., held that employees of a Corporate Debtor who are its Operational Creditors would not be entitled to have access to the proceedings before the COC and such Operational Creditors would not be at par with the erstwhile Board of Directors with regard to the right to seek information regarding the Resolution Plan and the proceedings before the COC. It was further held that once the claims of the Operational Creditors / employees of the Corporate Debtor had been admitted, no role was ascribed to them in the deliberations conducted by the COC.

In Rajnish Jain Promoter Stakeholder and MD of Suspended Board of Directors v. BVN Traders & Ors., the NCLAT held that after categorisation of a claim by the IRP / RP, they are not empowered to change the status of a creditor. If the RP has accepted a claim as a Financial Debt and a creditor as a Financial Creditor, then they cannot review or change that position in the name of updation of the claim. It was further clarified that while updating the list of Claims, the RP can either accept or reject claims which were received subsequently and update the list of claims. The NCLAT also held that the COC has no adjudicatory power to decide, as such, whether a creditor who files its claim is a Financial or Operational Creditor.

C. LIQUIDATION STAGE

In Mohan Lal Jain, in the capacity of Liquidator of Kaliber Associates Pvt. Ltd. v. Lalit Modi & Ors., the NCLAT set aside the judgement of the Adjudicating Authority holding that it would be beyond the scope of the Adjudicating Authority to look into transactions which are alleged to be preferential or relate to fraudulent or wrongful trading when there are different versions in regard to such transactions emanating from the parties and whatever explanation is required, may be offered to the investigating agency. The NCLAT, accordingly, directed the Adjudicating Authority to enquire into the alleged transactions in accordance with law.

When the appellant who is a promoter of the Corporate Debtor, which had gone into liquidation, had filed an application for obtaining a certificate declaring that the Corporate Debtor was a Micro, Small and Medium Enterprise (hereinafter referred to as ‘MSME’) after the liquidation had been initiated and had received such certificate, the NCLAT in Muhamad Yavar Dhala v. Kavita Surana, Liquidator of Forward Shoes (India) Pvt. Ltd., held that the appellant could not have approached the authorities for issuance of certificate once the Corporate Debtor had entered into liquidation; and the liquidator was accordingly put in charge of the Corporate Debtor. The NCLAT clarified that the action of the appellant in bypassing the liquidator and approaching the authorities was illegal. Therefore, the NCLAT refused to permit the appellant to avail any further opportunity for entering into a scheme of compromise or arrangement under Section 230 of the Companies act.

II. COMPANIES ACT, 2013

The NCLAT in Brookefield Technologies Pvt. Ltd. & Anr. v. Shailaja Iyer & Ors., held that in a petition alleging oppression and mismanagement, if the averments contained therein require detailed, elaborate and / or in-depth examination based on relevant evidence, if any, to be let in by parties in a given case, then the petition cannot be thrown out at the initial stage.

The author is an advocate practicing at New Delhi.