NCLAT at a Glance: January 2021

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 Silvassa Cement Products Pvt Ltd v. Noor India Buildcon Pvt Ltd, held that incompleteness of an application is distinct from non-maintainability, with non-maintainability having broader contours. The NCLAT further held that if there was any shortcoming in regard to filing of vakalatnama or making of endorsement in regard to date in the prescribed format in relation to an application under Section 9 of the Code, the Applicant was be provided an opportunity in terms of mandate of the proviso under Section 9(5) of the Code for correction of such defect in the application.

The NCLAT in Supertech Township Project Ltd v. Inderpal Singh Khandpur HUF, held that the order of the National Company Law Tribunal (hereinafter referred to as the ‘NCLT’) directing the Corporate Debtor to provide information about the 100 number of Allottees or 1/10th of total number of the Allottees of the project, whichever is less, excluding those with whom settlement has happened would not be violative of any legal right of the Corporate Debtor. It was held that in light of the fact that the Corporate Debtor was having a legal obligation to display the particulars in regard to allottees on their website, no prejudice would be caused to the Corporate Debtor by directing the Corporate Debtor to provide necessary information to the allottee for the purpose of gathering sufficient support for initiating proceedings under the Code.

The NCLAT in Himadri Foods Ltd v. Credit Suisse Funds AG, held that once the terms of settlement providing a repayment schedule was incorporated in the order, thereby making it an order/ decree of the Court, the grant of liberty to the Financial Creditor to come back in case of breach of settlement terms could only be interpreted to mean that the revival of CIRP would be sought for non-compliance with the Terms of Settlement.

The NCLAT in Mohit Minerals Ltd v. Nidhi Impotrade Pvt Ltd, held that once an advocate was duly instructed to issue the demand notice, there was no room for holding that the notice delivered by the advocate was not a notice delivered by an authorized person.

The NCLAT in Sri D. Srinivasa Rao v. Vaishnovi Infratech Ltd, held that in case of a Corporate Debtor who refused to accept delivery of notice under section 8 of the Code, the NCLT would not be justified in holding that that notice has not been served on the Corporate Debtor as the fault would lie on the part of the Corporate Debtor for which it cannot be rewarded.

The NCLAT in Shubham Jain VS Gagan Ferrotech Ltd. & Anr., held that service of notice under section 8 of the Code on the director of the Corporate Debtor would satisfy the requirements of the Code and the same would be a valid service. It was also held that if the service of notice is returned as ‘unclaimed’, such service would also have to be treated as a valid service of the notice under section 8 of the Code.

The NCLAT in Shailendra Sharma v. Ercon Composites & Ors., held that the proceedings under section 138 of Negotiable Instruments Act, 1881 or pendency of proceedings under Order 37 of the Code of Civil Procedure, 1908 would not prohibit an application under Section 9 of the Code.

The NCLAT in Narendra Kumar Agarwal & Anr v. Monotrone Leasing Pvt Ltd & Anr, held that in a case of an inter-Corporate Deposit which is made for a certain period, and which is to be paid back with interest then such transaction would also fall in the definition of financial debt as provided under Section 5(8) of the Code. The NCLAT observed that the interest would be the product of such transaction, which is the time value of money.

The NCLAT in Naresh Sevantilal Shah VS Malharshanti Enterprises & Anr., upheld the order of the initiation of CIRP by the NCLT. The NCLAT observed that the notice invoking arbitration/creating dispute was issued by the corporate debtor only after the first demand notice under section 8 of the Code had been issued by the operational creditor. The NCLAT rejected the argument of the Corporate Debtor that the first application under section 9 of the Code had been withdrawn by the operational creditor and thereby notice creating disputes which had been sent by the corporate debtor prior to issuance of the second demand notice under section 8 of the Code or filing of second application under section 9 of the Code, by the operational creditor, would constitute proof of pre-existing dispute.

B. CORPORATE INSOLVENCY RESOLUTION PROCESS STAGE

The NCLAT in Kalinga Allied Industries India Pvt Ltd VS Hindustan Coils Ltd & Ors, held that when the application for approval of Resolution Plan is pending before the NCLT at that time the NCLT cannot entertain an application seeking consideration of a new resolution plan of a person who has not participated in CIRP even when such person is ready to pay more amount in comparison to the successful Resolution Applicant. The NCLAT noted that if a Resolution Plan is considered beyond the time limit then it would make the CIRP a never-ending process.

The NCLAT in Ranjeet Kumar Verma v. Committee of Creditors of Straight Edge Contract Pvt Ltd Through Resolution professional, held that the interim resolution professional has no locus standi to maintain an appeal against the decision of the Committee of Creditors (hereinafter referred to as the ‘COC’) to replace the Interim Resolution Professional (hereinafter referred to as the ‘IRP’) as the IRP would not amount to a stakeholder and that the IRP could not argue that the Constitution of the COC was bad when the COC was constituted by the IRP himself.

The NCLAT in Prakash Shanker Mishra & Ors. v. Ashok Kriplani & Anr., held that on the COC selecting a person to act as an authorised representative or as the IRP, such persons could not be substituted by persons of the NCLT’s choice contrary to the wishes of the COC on the ground of volume of work to be done and interest of the Company.

The NCLAT in Harkirat Singh Bedi v. The Oriental Bank of Commerce & Anr., rejected the argument of the Appellant/Promotor of the Corporate Debtor that the Appellant/Promotor would be entitled to submit resolution plan in terms of the exemption given under section 240A of the Code from applicability of section 29A(c) and 29A(h) with regard to eligibility to be a resolution applicant for a medium level enterprise under Micro Small and Medium Enterprises Development Act, 2006. The NCLAT held that the exemption granted under section 240A of the Code is only in respect of clause (c) and (h) of Section 29A of the Code. The NCLAT noted that in the instant case, the Appellant was declared ineligible under clause (b) of Section 29A i.e., declared as a willful defaulter for which no exemption has been given to Micro, Small or Medium Enterprises (hereinafter referred to as ‘MSME’). The NCLAT further held that since the date of registration of the Corporate Debtor as MSME as on record was 5th June, 2019, i.e., after CIRP admission order dated 29th March, 2019, the application for registration of MSME by the Appellant was without authorization, being subsequent to initiation of CIRP and hence was invalid. In light of the aforesaid findings, the NCLAT went on to decide that the Appellant is ineligible to take the benefits of section 240A under the Code.

C. LIQUIDATION STAGE

The NCLAT in Vinod Singh Negi v. Kiran Shah Liquidator of ORG Informatics Ltd, upheld the rejection of the claim of the employee by the liquidator of the Corporate Debtor under liquidation on the ground of such claim being barred by limitation.

II. COMPANIES ACT, 2013

In R Narayanasamy v. The Registrar of Companies, Tamil Nadu, the rejection of the appeal for restoration of the name of the company by the NCLT was challenged before the NCLAT and the members of the NCLAT bench delivered diverging judgements after which it was placed before a third member. The third member of the NCLAT held that in case of a difference of opinion between two members of a bench of the NCLAT and wherein a judgement has been passed wherein no majority decision allowing or rejecting the appeal is present, the NCLAT may adopt the procedure as laid down under section 98 of the Code of Civil Procedure, 1908. In terms of the aforesaid provision, the third member held that when there is no majority in a Judgement varying or reversing the decree against which the Appeal has been filed, such decree is required to be confirmed if point of law is not the cause of difference and accordingly, the decree of the NCLT was confirmed.

The author is an advocate practicing at New Delhi.