NCLAT at a Glance: March 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 Maldar Barrels Private Limited vs. Pearson Drums & Barrels Private Limited, held that time was not of the essence in a settlement agreement entered into between the operational creditor and the corporate debtor on various grounds including the fact that the creditor had accepted delayed payments of certain instalments without raising any objection, delay in the deposit of the cheques provided by the creditor and the inclusion of a clause for payment of interest within the settlement agreement in the case of delayed payments. Consequently, the NCLAT went on to hold that even though the contract contained provisions to the effect that, in the event of delay in making of payments by the corporate debtor, the concessions granted to the corporate debtor in the form of discounting of the amount claimed, would stand withdrawn and the entire amount claimed by the creditor would become payable; such provisions would not entitle the creditor to file a fresh application or reinstate the application for initiation of CIRP when the amount claimed under the settlement agreement had been paid.

The NCLAT in Kishanlal Likhmichand Bothra vs. Canara Bank, after relying on the judgement of the Supreme Court in Sesh Nath Singh & Anr. vs. Baidyabati Sheoraphuli Co-Operative bank Limited and Anr. [Civil Appeal No. 9198 Of 2019 dated 22.03.2021] held that Section 18 of the Limitation Act, 1963, would be applicable to proceedings under the Code and, in the event of acknowledgement of debt in the balance sheets or the one-time settlement proposal, the period of limitation would be extended if the acknowledgement is made prior to the expiration of the period of limitation.

The NCLAT in Gyanchand Mutha vs. Aditya Birla Money Limited & Anr., held that CIRP cannot be initiated against a financial service provider / non-banking financial company as financial service providers are excluded from the definition of corporate debtor in terms of Section 3(7) of the Code. It was held that merely because the corporate debtor had concealed its status of being a financial service provider in its KYC form, would not render the corporate debtor liable to be subjected to CIRP as a sort of punishment for such concealment. Even though the conduct of the corporate debtor may subject the corporate debtor to any other appropriate legal action but initiation of CIRP under the Code could not be sought merely for such an act of concealment.

The NCLAT in Orator Marketing Private Limited vs. Samtex Desinz Private Limited, held that where the loan is granted free of interest and there is no consideration for the time value of money, such a loan could not be classified as a financial debt. The NCLAT rejected the argument of the lender that the consideration for the time value of money was how the corporate debtor would utilise the loan for the development of the business by stating that the time value of money has to refer to the consideration to be given to the financial creditor and the manner in which the corporate debtor utilises the money, cannot be said to be the consideration for the time value of money for the financial creditor.

B. CORPORATE INSOLVENCY RESOLUTION PROCESS STAGE

The NCLAT in Rajalakshmi Vardarrajan Resolution Professional of Arudaavis Labs Private Limited vs. G Dhananjaya Naidu, held that the recovery by the owner / landlord of a property occupied by the corporate debtor is not permissible during the period of moratorium. It was also stated that what was relevant was for the property to be actually physically occupied and not merely for some right or interest to be created in such property. In the instant case, since the moratorium had come to an end and subsequently, the order of liquidation had also been passed, the NCLAT held that the Insolvency Resolution Professional (hereinafter referred to as the ‘IRP’) of the corporate debtor could not avoid the handing over of the rental property to the owner and making payment of the rental arrears for the CIRP period.

The NCLAT in Gautam Mittal Resolution Professional Sanwaria Consumer Limited vs. MP Warehousing and Logistics Corporation, upheld the order of the National Company Law Tribunal (hereinafter referred to as the ‘NCLT’) rejecting an application by the IRP seeking recovery of rental amounts arising out of properties leased out by the corporate debtor. It was held that such recovery of lease rent was not related to the CIRP of the corporate debtor and while the corporate debtor may be entitled to recover such dues, the NCLT was not the appropriate authority for deciding on such payment of rental amounts to the corporate debtor as it was not a recovery forum.

The NCLAT in Dr Krishan Mohan Mendiratta vs. State Bank of India, held that a member of the suspended Board of Directors of the corporate debtor, did not have any locus to file an appeal against the rejection of the resolution plan of an unsuccessful resolution applicant. It was held that as the appellant himself was not in the fray and furthermore, as a member of the suspended Board of Directors, he was ineligible to submit a resolution plan, and he could not be permitted to espouse the cause of the unsuccessful resolution applicant.

The NCLAT in Interups Inc. vs. Kuldeep Kumar Bassi & Ors. Resolution Professional of Asian Colour Coated Ispat Limited, held that an applicant who seeks to enter the CIRP as a resolution applicant after almost one year after the approval of the resolution plan by the Committee of Creditors (hereinafter referred to as the ‘COC’), would not qualify as a resolution applicant or a prospective resolution applicant or as a successful or unsuccessful resolution applicant and thereby, cannot be deemed as an aggrieved party or be deemed to be having locus for the purpose of challenging the order of the approval of the resolution plan which had been submitted by the successful resolution applicant.

The NCLAT in Union Bank of India vs. Vineet Aggarwal, held that an appeal by a sole financial creditor in his individual capacity and not by the COC, would not be maintainable against an order of the NCLT extending the time period for completion of CIRP, particularly when the CIRP had not been initiated at the behest of such financial creditor.

The NCLAT in Kotak Mahindra Bank Limited vs. AP Enterprises Private Limited & Ors. through Rajiv Khurana Resolution Professional, upheld the order of the NCLT, excluding the period of lockdown from the schedule of payment to be made by the successful resolution applicant under the approved resolution plan, considering the directions of the Supreme Court as well as the NCLAT with regard to the COVID-19 pandemic as well as the fact that 60% of the amount due by the successful resolution applicant had been paid even in the midst of the global pandemic.

The NCLAT in India Resurgence ARC Private Limited vs. Amit Metaliks Limited, held that the business decision of approving or rejecting the resolution plan taken by the COC was not subject to judicial intervention unless creditors belonging to a similarly situated class were not given a fair and equitable treatment. The NCLAT, thereby, rejected the appeal of the secured financial creditor, who had dissented to the resolution plan and had challenged the resolution plan on the ground that the value of the security held by the dissenting financial creditor was much more than the compensation offered to it under the resolution plan.

The NCLAT in Gulabchand Jain vs. Ramchandra D Choudhary Resolution Professional of Vijay Timber Industries Private Limited, held that even after the resolution plan has been approved by the COC, such a resolution plan can be withdrawn by the COC and a resolution can be passed for the liquidation of the corporate debtor, provided that the resolution plan has not been approved by the NCLT as on date of passing of such resolution for liquidation of the corporate debtor or withdrawal of resolution plan.

The NCLAT in State Bank of India vs. Animesh Mukhopadhyay Resolution Professional of Zenith Finesee India Private Limited, held that a financial creditor is entitled to file claims with regard to its debt in both the CIRP of the principal borrower as well as the CIRP of the corporate guarantor. It was further held that such entitlement to file claims in both CIRPs is not affected even if a common IRP is present or not for both the CIRPs. In the case of different IRPs, it was held that it would simply be a matter of coordination between the two IRPs and until the payment is received in one CIRP, the claim by the financial creditor could be maintained in both CIRPs for the same amount and the representation of the financial creditor would also be maintained for the extent of the amount due in both CIRPs.

The NCLAT in Sangita Agarwal vs. Limtex Tea & Industries Limited, held that when a cheque was disputed by the corporate debtor and an application had been filed for production of the original cheque and for verification of the same by the competent authorities, but no orders had been passed on such application, such a cheque could not be relied upon and would not act as an acknowledgement for extending the period of limitation.

C. LIQUIDATION STAGE

After holding that whatever power vested in the Adjudicating Authority is also available to the Appellate Authority, the NCLAT in Mr Kuldeep Verma Resolution Professional of M/s KS Oils Limited vs. State Bank of India, ordered for the liquidation of the corporate debtor considering the delay in initiating the liquidation of the corporate debtor.

II. COMPANIES ACT, 2013

The NCLAT in Accelyst Solutions Private Limited vs. Freecharge Payment Technologies Private Limited, held that while exercising the power in sanctioning a scheme of amalgamation, the NCLT has to examine as to whether the provisions of the Companies Act, 2013 have been complied with and the NCLT would have no further jurisdiction to sit in appeal over the commercial wisdom of the shareholders of a company. Thereby, the NCLAT set aside the order of the NCLT by modifying the appointed date proposed in the scheme of amalgamation, which date had not been opposed by any shareholder.

The NCLAT in the case of Piyush Dilipbhai Shah vs. Syngenta India Limited & Ors., which involved the reduction of share capital of a company, directed for revaluation of the shares of the company and payment of fair price arrived at by the valuer for the reason that public shareholders / non-promotors’ shareholders had not been adequately compensated as the valuation done in the year 2017 had been taken into consideration even after three years had passed and there had been a drastic change in the growth of the company.