NCLAT at a Glance: June 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 (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 Earth Gracia Buildcon Private Limited through its RP Manisha Rawat v. Earth Infrastructure Ltd., held that sham transactions would not come under the ambit of financial debt and thereby, an application under Section 7 of the Code, seeking initiation of CIRP in regard of such sham transactions would be liable to be rejected.

Similarly, the NCLAT in Hytone Merchants Private Limited v. Satabadi Investment Consultants Private Limited, held that in the case of a petition seeking initiation of CIRP, which was filed collusively and not for the purpose of resolution of insolvency of the corporate debtor, the National Company Law Tribunal (hereinafter referred to as the ‘NCLT’) may reject such application even if it is complete in all other respects.

The NCLAT in Trilok Chand Agarwal v. Punjab National Bank, held that mere conversion of a debt into equity by the financial creditor so as to grant itself 51% of the shareholding of the corporate debtor would not render an application seeking initiation of CIRP by such financial creditor, under Section 7 of the Code, non-maintainable in light of the fact that no material had been produced by the corporate debtor to prove that the financial creditor had taken over the running of the corporate debtor.

While reiterating that Section 18 of the Limitation Act, 1963 would be applicable to proceedings under the Code, the NCLAT in Vivek Malik v. Punjab National Bank also held that pleadings could be amended or brought on record even during the proceedings before the NCLAT.

The NCLAT in M/s. Manipal Media Network Limited v. M/s. Vishwakshara Media Private Limited, held that when neither of the parties had referred a matter for arbitration, the NCLAT need not direct the parties to proceed for arbitration; and accordingly, upheld an application filed by an operational creditor to initiate CIRP against the corporate debtor.

B. CORPORATE INSOLVENCY RESOLUTION PROCESS STAGE

The NCLAT in Anuj Tejpal, Director, of the Suspended Board of Directors OYO Hotels and Homes Private Limited v. Rakesh Yadav, held that before the Committee of Creditors (hereinafter referred to as the ‘COC’) was constituted, mere filing of a claim would not equate to a default. It was further held that, on a case-to-case basis, the NCLAT and the NCLT could allow the withdrawal of application seeking initiation of CIRP under exercise of their inherent powers; provided that such withdrawal is prior to constitution of the COC and while keeping in mind the interests of the concerned parties.

The NCLAT in Fourth Dimension Solutions Limited v. Ricoh India Limited, reiterated that claims which do not form a part of the resolution plan are extinguished and any proceedings regarding the same will stand terminated.

On a similar note, the NCLAT in Harish Polymer Product v. Mr. George Samuel, the Resolution Professional for Jason Dekor Private Limited, held that claims cannot be submitted by the creditors of the corporate debtors at a belated stage when the resolution applicants have already filed their resolution plans before the COC and are awaiting for the necessary selection and approval of a resolution plan and thereby, such claims are liable to be rejected keeping in mind that the resolution of the corporate debtor must be done in a time bound manner to ensure maximization of value.

The NCLAT in Jayanta Banerjee v. Shashi Agarwal, Liquidator of INCAB Industries Limited, set aside the initiation of liquidation proceedings against the corporate debtor in view of the fact that the Resolution Professional (hereinafter referred to as the ‘RP’) had conducted the CIRP in contravention of the Code and the constitution of the COC was tainted and not in accordance with law. It was found that the RP had committed multiple breaches of the Code including inter-alia constituting the COC on the basis of claims submitted without verifying the same, not preparing the Information Memorandum etc.

The NCLAT in M/s Vistra ITCL (India) Limited v. Deccan Value Investors L.P., held that due to lack of provisions for review under the Code, the NCLAT could not exercise the power of review and the mere styling of an application as one seeking clarification of the judgment would not enable the NCLAT to review the judgment.

The NCLAT in Martin S. K. Golla erstwhile Resolution Professional v. Wig Associates Private Limited, held that if on the date of submission of the resolution plan, the resolution applicant suffered any disqualification under Section 29A of the Code, such resolution applicant would be barred from submitting the resolution plan. The judgment of the NCLT holding that the provisions of law, as applicable on the date of initiation of CIRP, would be applicable even if subsequent changes in law arose, was set aside.

The NCLAT in Pankaj Joshi v. Gangamai Industries & Construction Limited, held that the decision of the COC to allow a resolution applicant to file an Expression of Interest after the due date would not be a commercial decision of the COC. Furthermore, it was held that an Expression of Interest received after the time specified under Regulation 36-A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, would be liable to be rejected.

The NCLAT in Dr. Vijay Radhakrishnan v. Bijoy P Pulipra, Resolution Professional, held that the values provided by the registered valuers under the CIRP are only estimates and as a result, there will be differences between the reports of the valuers. It was also held that a variation of 15.92% with regard to the valuation of land is minimal and does not require the appointment of a third valuer for making further valuation. Furthermore, considering the difference in the nature of work of doctors who were acting as employees of the corporate debtor and doctors were acting as consultants for the corporate debtor, the differential treatment method out of the aforesaid two categories of creditors, with regard to payment of the debts owed to them by the corporate debtor, was upheld.

C. LIQUIDATION STAGE

In Rakesh Kumar Agarwal v. Devendra P Jain Liquidator of Asis Logistics Limited, the corporate debtor had become eligible to be termed as a Micro, Small or Medium Enterprises as a result of the amendment to Section 7 of the Micro, Small and Medium Enterprises Development Act, 2006 vide notification dated 01.06.2020, and the liquidator and the stakeholders committee had resolved that the promoters of the corporate debtor could submit a scheme of arrangement for taking over the corporate debtor. The NCLAT, as a result of the aforesaid developments allowed the promoters of the corporate debtor which now fell under the definition of Micro, Small and Medium Enterprises to submit a scheme of arrangement considering the special exemptions granted to Micro, Small and Medium Enterprises under the Code.

COMPANIES ACT, 2013

The NCLAT in the matter of Mohit Agro Commodities Processing Private Limited v. Gujarat Ambuja Exports Limited, held that in case of the amalgamation of a parent company and its wholly-owned subsidiary, the meeting of equity shareholders, secured creditors and unsecured creditors can be dispensed with; provided that the rights of the equity shareholders of the transferee company are not being affected.

The NCLAT in Vikas Sureshbhai Patel, Director and Shareholder, Hiraj Hospitality Private Limited v. the Registrar of Companies, Gujarat, held that merely on the non-filing of annual returns, the name of the company may not be struck off, provided that the company is operational and is carrying out its businesses.

The NCLAT in Macquarie SBI Infrastructure Private Limited v. Sadananda Shetty, held that the jurisdiction of the NCLT under sections 241 and 242 of the Companies Act in comparison to the jurisdiction of an arbitral tribunal operates in wholly different realms. It was clarified that the NCLT, under the aforesaid provisions, only examines the affairs of the company and does not have the jurisdiction to deal with issues arising out of the enforcement of contractual provisions between the parties. It was furthermore held that a party which has filed an application alleging oppression and mismanagement cannot be held to have waived their right to engage in arbitration with regard to a contractual dispute arising out of an agreement. On the aforesaid grounds amongst others, the NCLAT set aside the anti-arbitration injunction issued by the NCLT.