NCLAT at a Glance: February 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 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 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 (CIRP) stage and the Liquidation stage.

I. INSOLVENCY AND BANKRUPTCY CODE, 2016

A. Pre-Admission Stage

In Sh G Eswara Rao v. Stressed Assets Stabilisation Fund & Anr.[1], the NCLAT held that a decree passed by the Debts Recovery Tribunal or a decree passed in any suit cannot shift forward the date of default and that the date of default would remain the date on which the debtor failed to pay the due debt. It was also held that by filing an application under Section 7 of the Code, a decree cannot be executed and that such filing would be covered by Section 65 of the Code, which stipulates that the insolvency resolution process or liquidation proceedings, if filed, fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, attracts penal action.

In G. Shivramkrishna, Director, M/s OM Shakti Renergies Limited v. M/s Isgec Covema Limited & Ors.[2], the NCLAT held that where the application/petition under Section 34 of Arbitration and Conciliation Act, 1996 (hereinafter referred to as Arbitration Act’) has been dismissed, then the period of limitation for filing an application under Section 9 of the Code would begin from 90 days from the date of such dismissal i.e. after excluding the period for preferring the appeal under Section 37 of the Arbitration Act.

In Arunkant Rai v. Allahabad Bank & Anr.[3], the NCLAT held that there is no bar in law for a bank which has declared the corporate debtor’s loan as a Non-Performing Asset to proceed and file proceedings under Section 7 of the Code, notwithstanding a consortium agreement between Banks.

In Neeraj Jain Director of M/s Flipkart India Private Limited v. Cloudwalker Streaming Technologies Private Limited & Anr.[4], the NCLAT held that an operational creditor does not have the discretion to send the demand notice in Form 3 or Form 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 as per its convenience. It was further held that the choice of format depends directly on the nature of the operational debt and applicability of Form 3 or Form 4 as per the nature of the transaction i.e. if the operational debt involves transactions where corresponding invoices are generated, then Form 4 would have to be utilized and in other cases, Form 3.

In Rupesh Kumar Gupta v. Punjab National Bank & Anr.[5], the NCLAT held that an acknowledgement of a debt in the minutes of meeting of the board of directors would constitute an acknowledgement under Section 18 of the Limitation Act, 1963 and would consequently extend the period of limitation.

In Aashish Mohan Gupta v. Hind Inn and Hotels Ltd. & Anr.[6], the NCLAT held that the term ‘operational debt’ would include within its ambit, a debt for payment of retention money.

In M/s Ansal Properties & Infrastructure Ltd. v. M/s MGF Developments Ltd.[7], the NCLAT held that in the case of a joint venture, it could not be said that the constituents of the joint venture were having the relation of operational creditors and corporate debtors with each other.

In Punjab National Bank v. M/s Vindhya Cereals Pvt. Ltd.[8], the NCLAT held that simply because the financial creditor had initiated parallel proceedings against the corporate debtor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (hereinafter referred to as the (‘SARFAESI Act, 2002’) as well as the Code, it could not be inferred that proceedings against the corporate debtor are fraudulent or malicious.

B. Corporate Insolvency Resolution Process Stage

In JSW Steel Ltd. v. Mahender Kumar Khandelwal & Ors.[9], the NCLAT held that the requirement of Section 32A(1)(b) of the Code is that the investigation agency must have reason to believe that the resolution applicant had abetted or conspired for the commission of the offence on the basis of material in its possession as on date. The phrase “on the basis of material in its possession” along with the usage of the words “has” and “reason to believe that he had abetted or conspired” has to be necessarily construed as, the material in the possession of investigating agency as on the date when such agency is called to provide its confirmation / certification with respect to Section 32A(1)(b) of the Code. The NCLAT further observed that if the investigating agency is permitted to keep such confirmation in abeyance till the investigation is complete in all respects then the object and purpose of introducing Section 32A(1)(b) will be defeated and no resolution applicant would come forward to implement its resolution plan for the fear that assets of the corporate debtor would be attached.

In Rajesh Goyal v. Babita Gupta & Ors.[10], the NCLAT in exercise of inherent powers conferred under Rule 11 of the NCLAT Rules, 2016 allowed the promoter of the corporate debtor under CIRP to reinvest in the corporate debtor’s real estate projects as a financial creditor and further held that if the projects are completed, creditors are paid back, a completion certificate is received from the Interim Resolution Professional (hereinafter referred to as the ‘IRP’) and other conditions are fulfilled, the CIRP process would be closed and the unsold flats and apartments would be handed back to the promoter.

In Flat Buyers Association Winter Hills – 77, Gurgaon v. Umang Realtech Pvt. Ltd through IRP & Ors.[11], the NCLAT held that that the CIRP of a real estate company is limited to a project as per the approved plan by the competent authority and would not involve other projects which are separately located for which separate plans are approved. Any other allottees or financial institutions / banks or operational creditors of other projects cannot file a claim before the IRP of another project and such claim cannot be entertained.

In Committee of Creditors of Metalyst Forging Ltd., Through State Bank of India v. Deccan Value Investors LP,& Anr.[12], the NCLAT held that in a case where the resolution applicant withdraws its resolution plan, the Code does not confer any power and jurisdiction on the Adjudicating Authority to compel specific performance of a plan by an unwilling resolution applicant. However, the NCLAT refused to interfere with the forfeiture of the bid bond guarantee submitted by the resolution applicant.

In Hammond Power Operational Creditor Solutions Private Limited v. Mr. Sanjit Kumar Nayak & Ors.[13], the NCLAT held that providing NIL amount to operational creditors under the resolution plan would certainly not balance the interest of all stakeholders or maximise the value of assets of the corporate debtor if it becomes impossible to continue running its business as a going concern and consequently set aside the order of the NCLT upholding the resolution plan.

In Mr. K.C. Sanjeev v. Mr. Easwara Pillai Kesavan Nair & Ors.[14], the NCLAT held that when the applicant wants to withdraw the application before constitution of the committee of creditors, while resorting to amended Regulation 30A of the (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, there is no bar for a party to simultaneously approach the Adjudicating Authority for a withdrawal relying on Rule 11 of the NCLT Rules 2016.

In Vijay Pal Garg & Ors. Vs. Pooja Bahry[15], the NCLAT held that that the Adjudicating Authority in law is not empowered to order an investigation directly, to be carried out by the Central Government. It was observed that an Adjudicating Authority, as a competent / appropriate authority in terms of Section 213 of the Companies Act has an option to issue notice in regard to the charges / allegations after following the due procedure enshrined under section 213 of the Companies Act, 2013. In case, an ex facie / prima facie case is made out, then, the Adjudicating Authority is empowered to refer the matter to the Central Government for an investigation by the inspectors and upon such investigation, if any action is required to be taken and if the Central Government subjectively opines that the subject matter in issue needs an investigation, through the Serious Fraud Investigation Office, it may proceed in accordance with the law.

C. Liquidation Stage

In Reliance India Power Fund, Reliance Capital v. Mr. Raj Kumar Ralhan[16], the NCLAT held that there is a duty cast on the Liquidator to institute or defend any suit, prosecution or other legal proceedings against the corporate debtor. The same would include a conscious decision which a Liquidator may take as to whether or not in the given set of facts, he needs to defend the proceeding. If the Liquidator has taken the decision not to defend, for reasons stated, then a party which has initiated such proceedings does not have any right to force the Liquidator to come and defend and surrender to such action.

In K. L. Jute Products Private Limited v. Tirupti Jute Industries Ltd. & Ors.[17], the NCLAT held that Section 43 of the Code can be invoked during the pendency of resolution process or liquidation proceedings, if there are genuine, reasonable grievances relating to preferential transactions at a relevant time and, in fact, a Liquidator by filing an application can seek one or other order from the Adjudicating Authority as per tenor and spirit of Section 44 of the Code.

In Mr. Savan Godiwala v. Mr. Apalla Siva Kumar [18], the NCLAT observed that the Liquidator should not have been directed by the National Company Law Tribunal (hereinafter referred to as the ‘NCLT’) to make provision for the payment of gratuity to the workmen as per their entitlement when the gratuity fund was never created by the corporate debtor and accordingly, the NCLAT set aside the order of the NCLT.

In State Bank of India v. Maithan Alloys Limited & Ors.[19], the NCLAT held that there is no provision in the terms and condition of an auction to withdraw from the auction process once it is agreed to by the successful bidder. The NCLAT accordingly directed the successful bidder which had withdrawn from the auction process to complete the sale transaction by paying the sale consideration.

II. COMPANIES ACT, 2013

In Surinder Mehta & Ors. Vs. Prime Meiden Ltd. & Ors.[20], the NCLAT held that an appeal would not be maintainable under Section 421 of the Companies Act, 2013 against an order of refusal to refer a matter to arbitration passed by the judicial authority i.e. the NCLT under Section 45 of the Arbitration Act.

III. COMPETITION ACT, 2002

In Western Electric & Trading Company & Anr. Vs. Competition Commission of India & Ors.[21], the NCLAT held that it would not be fit to interfere with the penalty imposed by the Competition Commission of India merely on the ground that the penalised party is a small family firm or is a small scale industry and the net profit for the entire year is not high.

The author is Swaroop George, an advocate practicing at New Delhi.

[1] Judgment dated 07.02.2020 in Company Appeal (AT) (Insolvency) No. 1097 of 2019.

[2] Judgment dated 07.02.2020 in Company Appeal (AT) (Insolvency) No. 1109 of 2019.

[3] Judgment dated 11.02.2020 in Company Appeal (AT) (Insolvency) No. 1251 of 2019.

[4] Judgment dated 24.02.2020 in Company Appeal (AT) (Insolvency) No. 1354 of 2019.

[5] Judgment dated 28.02.2020 in Company Appeal (AT) (Insolvency) No. 1119 of 2019.

[6] Judgment dated 12.02.2020 in Company Appeal (AT) (Insolvency) No. 1282 of 2019.

[7] Judgment dated 11.02.2020 in Company Appeal (AT) (Insolvency) No. 937 of 2019.

[8] Judgment dated 26.02.2020 in Company Appeal (AT) (Insolvency) No. 854 of 2019.

[9] Judgment dated 17.02.2020 in Company Appeal (AT) (Insolvency) No. 957 of 2019.

[10] Judgment dated 05.02.2020 in Company Appeal (AT) (Insolvency) No. 1056 of 2019.

[11] Judgment dated 04.02.2020 in Company Appeal (AT) (Insolvency) No. 926 of 2019.

[12] Judgment dated 07.02.2020 in Company Appeal (AT) (Insolvency) No. 1276 of 2019.

[13] Judgment dated 14.02.2020 in Company Appeal (AT) (Insolvency) No. 606 of 2019.

[14] Judgment dated 28.02.2020 in Company Appeal (AT) (Insolvency) No. 1427 of 2019.

[15] Judgment dated 04.02.3030 in Company Appeal (AT) (Insolvency) No. 949 of 2019.

[16] Judgment dated 24.02.2020 in Company Appeal (AT) (Insolvency) No. 318 of 2020.

[17] Judgment dated 20.02.2020 in Company Appeal (AT) (Insolvency) No. 277 of 2019.

[18] Judgment dated 11.02.2020 in Company Appeal (AT) (Insolvency) No. 1229 of 2019.

[19] Judgment dated 26.02.2020 in Company Appeal (AT) (Insolvency) No. 1245 of 2019.

[20] Judgment dated 06.02.2020 in Company Appeal (AT) No. 350 of 2018

[21] Judgment dated 17.02.2020 in TA (AT) Competition No. 37 of 2017 (Old Appeal No.07 of 2017)