NCLAT at a Glance: July 2021

The National Company Law Appellate Tribunal is the Apex Tribunal in the country dealing with all the 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 (‘NCLAT’) have been demarcated into those dealing with the provisions of the Insolvency and Bankruptcy Code, 2016 (‘Code’), and that of the Companies Act, 2013 (‘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 (‘CIRP’) stage and the Liquidation stage.

I. INSOLVENCY AND BANKRUPTCY CODE, 2016

A. PRE-ADMISSION STAGE

The NCLAT in Anoop Kumar Chhawchharia v. M/s.Emgreen Impex Ltd. & Anr., held that if, the corporate debtor has become unable to pay its debt, while the debt is legally due and default has occurred, and no dispute has been raised or substantiated prior to the issue of the demand notice then the Code can be utilised for timely resolution of Insolvency and Bankruptcy.

The NCLAT in M/s Gopalpur Ports Ltd. v. M/s Sri Avantika Contractor (I) Ltd., observed that the National Company Law Tribunal (hereinafter referred to as the ‘NCLT’) Is not bound by the Code of Civil Procedure but is to be guided by the principles of natural justice and can regulate its own procedure. In this context, the NCLAT, held that the NCLT would be entitled to call for production of documents by the parties for adjudication of the petition.

The NCLAT in Bhaskar Biswas v. Avaani Oxford Owners’ Association & Ors,. held that the amounts collected by the Developer and kept with its subsidiary, the Corporate debtor, for the purpose of maintenance till the Association/ Society or Holding Organization gets established to hand over the amounts to the body of the flat owners, would fall under the definition of ‘financial debt’.

The NCLAT in Shree Ambica Rice Mill a Registered Partnership Firm v. M/s KaneriAgro Industries Ltd., held that the NCLT is entitled to examine whether an application under section 7 is bona fide or not and whether such application is collusive in nature and aims at preventing other creditors from recovering debts owed to them.

The NCLAT in Mr. Rajpal Singh Solanki, Ex-Director of Minarch Overseas Private Ltd. v. M/s. Quazar Infrastructure Pvt. Ltd. & Anr., held that in a contract where time is not of the essence, merely because the work was not completed on time, it would not be presumed that the delay arose on the part of the operational creditor/contractor when under the contract both the employer and the contractor had responsibilities.

The NCLAT in Jain Irrigation Systems Ltd. v. Empee Sugars and Chemicals Ltd., held that an applicant seeking initiation of CIRP could utilize section 5 of the Limitation Act, 1963 to seek condonation of delay in filing such application but it was for the Applicant to explain the reasons for delay to the subjective satisfaction of the tribunal.

B. CORPORATE INSOLVENCY RESOLUTION PROCESS STAGE

The NCLAT in Mukul Kumar v. M/s RPS Infrastructure Ltd., set aside the direction of the NCLT directing the Resolution Professional to consider the claim of the creditor, which was filed after a delay of 287 days, and when the Committee of Creditors had already approved the Resolution Plan. The NCLAT observed if such new claims are entertained at such a late stage the CIRP would be jeopardized, and the Resolution Process would become more difficult.

The NCLAT in M.P. Industrial Development Corporation v. Mr. Jagdish Parulkar & Ors., held that lease rent and the electricity and water bills generated during the CIRP period, all fall under the category of essential supply of goods and services and should form part of Insolvency Resolution Process Cost.

The NCLAT in M/s Vistra ITCL (India) Ltd. v. Deccan Value Investors L.P. & Ors., held that an application seeking review of judgment and rehearing of issues in the guise of an application for clarification could not be permitted in the absence of specific provisions for review under the Code.

The NCLAT in Fourth Dimension Solutions Ltd. v. Ricoh India Ltd., reiterated that when the Resolution Plan is approved by the Adjudicating Authority, the claims of the creditors which are not part of the Resolution Plan shall stand extinguished and the proceedings related thereto shall stand terminated.

The NCLAT in C & C Construction Ltd. Through Navneet Kumar Gupta, (RP) v. Power Grid Corporation of India Ltd., held that if a bank guarantee issued by the corporate debtor is encashed during the period of moratorium, it can be restricted to the full value of the guarantee minus margin money provided by corporate debtor to the banker for taking that bank guarantee and accordingly, banks can release the fund to the extent of full value of the bank guarantee minus margin money provided by the corporate debtor to the banker for the bank guarantee.

The NCLAT in Concast Steel and Power Ltd., (In Liquidation), through the Liquidator Mr. Kshitiz Chhawchharia v. MSTC Ltd., explained the role of the Interim Resolution Professional in light of section 18 of the Code as follows. The NCLAT held that under section the Interim Resolution Professional had to take control and custody of the assets over which the corporate debtor had ownership rights and which may have been in possession of the corporate debtor and if the corporate debtor is in the possession of the assets owned by a third party which are in possession of the corporate debtor held under trust or under contractual arrangements including bailment, such assets are not to be included while taking control and custody.

However, if the corporate debtor is in possession of such assets, it would be responsibility of the Interim Resolution Professional/ Resolution Professional who has taken over the management, to return the goods. If the goods get used to keep Corporate debtor a going concern the value would have to become part of CIRP costs.

The NCLAT in Lotus City Plot Buyers Welfare Association v. Three C Homes Pvt. Ltd & Ors., noted the difference in the CIRP of Companies involved in real estate projects and other companies. It held that while the Resolution Plan will generally provide a higher value than the liquidation value but in case of Real Estate Project, the same may not be always feasible as the homebuyers are in dire need of getting their homes at the earliest. In such cases, the NCLAT observed that certain reconciliation is required as to what is the actual realisable value which the homebuyers are getting whether it is below liquidation value or above liquidation value.

The NCLAT in Anuj Tejpal Director, of the Suspended Board of Directors OYO Hotels and Homes Private Ltd. v. Rakesh Yadav & Ors., while allowing withdrawal of CIRP, held that before Constitution of the Committee of Creditors, mere filing of a ‘Claim’ does not constitute default per se.

The NCLAT in Mr. Venugopal Dhoot & Anr. v. Mr. Pravin R. Navandar Resolution Professional – VOVL Ltd. & Ors., held that in light of section 18 of the Code, the resolution professional could not insist on provision of documents of subsidiaries of the corporate debtor.

C. LIQUIDATION STAGE

In NTPC Ltd. v. Ram Ratan Modi, Liquidator of D C Industrial Plant Services Pvt. Ltd., the Creditor had completed pre-arbitration proceedings against the Corporate debtor and had obtained an award of the Adjudicator in its favor in terms of the contract between the parties which was not agreed to by the Corporate debtor. The creditor thereafter initiated arbitration proceedings which were suspended due to the initiation of CIRP against the Corporate debtor and subsequent initiation of liquidation.

The claim of the creditor was rejected by the Liquidator on the ground that the claim was disputed. The NCLAT held that in terms of section 39 of the Code, the Liquidator had avoided performing their duty and the Liquidator was required to look into the Award of Adjudicator and look into the documents and come to the best estimate and give the benefit to the Creditor.

D. COMPANIES ACT, 2013

The NCLAT in Dr. Apurba Kumar Sarma & Ors. v. M/s Complete Medical Care & Research Institute Private Ltd. & Ors., held that when the period of limitation for filing an appeal under section 421(3) of the Companies Act expired prior to 15.03.2020, then the orders of the Supreme Court extending limitation cannot be availed off by the Appellant and the Appellant has to show sufficient cause to justify the delay in making of the appeal.

Swaroop George is an advocate practicing at New Delhi.