NCLAT at a Glance: October 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 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 Ramesh Kymal VS Siemens Gamesa Renewable Power Pvt. Ltd., interpreted the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 (‘Amendment Ordinance’) and held that the bar on initiation of insolvency from defaults arising out of Covid-19 related defaults, cannot operate in respect of applications filed for initiation of CIRP by the eligible applicant in respect of default committed before 25th March, 2020 though such application has been filed after 25th March, 2020 but before the enforcement of Amendment Ordinance on 5th June, 2020.

The NCLAT in Niyati Chemicals VS Minepro Minerals Pvt. Ltd., laid down that providing advance against business dealings is not covered under the category of financial debt and thereby, an application under Section 7 of the Code would not lie for the same.

The NCLAT in Switching AVO Electro Power Ltd. VS Ambient Computronics Pvt. Ltd., held that the internal disputes of the directors would not be relevant for throwing out an application under Section 9 of the Code, particularly when no dispute was raised or communicated to the Operational Creditor any time before the notice under Section 8 of the Code was sent.

The NCLAT in Bhaskar VS Sai Precious Traexim Pvt. Ltd. & Anr., held that serving of an advance copy of the application to the Corporate Debtor cannot be construed / deemed as a service of notice in the eye of law and that the National Company Law Tribunal (‘NCLT’) has to issue a notice to the Corporate Debtor before allowing an application praying for initiation of CIRP against the Corporate Debtor.

The NCLAT in Madhusudan Tantia VS Amit Choraria & Anr., held that the notification dated 24.03.2020 of the Ministry of Corporate Affairs, Government of India, specifying the minimum amount of default to be Rs. 1 crore is prospective in nature and it is not retrospective or retroactive in nature. It was further held that the said notification will not apply to the pending applications filed before the concerned NCLT under the Code, prior to the issuance of the notification.

The NCLAT in Anup Dubey VS National Agricultural Co-operative Marketing Federation of India Ltd. & Ors., clarified that in the case of lease rentals arising out of use and occupation of a cold storage unit which is for commercial purpose, the same would fall under the category of Operational Debt as envisaged under Section 5(21) of the Code.

B. CORPORATE INSOLVENCY RESOLUTION PROCESS STAGE

In Panna Pragati Infrastructure Pvt. Ltd. & Anr. VS Amit Pareek & Ors., the NCLAT allowed an appeal against the Order approving the Resolution Plan on the ground that there is material irregularity by the Resolution Professional (‘RP’) in not placing a revised Resolution Plan of one of the Resolution Applicants before the Committee of Creditors (‘COC’). The NCLAT also reiterated that in appropriate cases, the NCLT or the NCLAT may extend the period for completion of the CIRP.

In Mirco Dynamics VS Cosmos Cooperative Bank Ltd. & Anr., the NCLAT held that with the closing of a case by the NCLT in compliance to the Orders passed by the NCLAT in appeal, inquiry in initiation of Insolvency Resolution Process alleged to be fraudulent or with malicious intent would be preposterous when the closure of such proceedings is a consequence of allowing of appeal against the Order of admission passed by the NCLT on the ground of limitation.

The NCLAT in Sudip Bhattacharya, Resolution Professional of Reliance Naval and Engineering Ltd. VS NA, after taking into account the imposition of nationwide lockdown on account of outbreak of COVID-19 from 23rd March, 2020 to 29th May, 2020 and the fact that the State of Maharashtra, where the Corporate Office of the Corporate Debtor is stated to be Located, has been worst hit with most of the areas declared as Red Zone culminating in extension of lockdown till 31st August, 2020 directed that the period of lockdown w.e.f. 25th March, 2020 till 31st August, 2020 should be excluded while computing the period of CIRP.

The NCLAT in Volkswagen Finance Pvt. Ltd. VS Shree Bala Printopack Pvt. Ltd. & Ors., clarified that if a charge was not registered as per the provisions of Section 77(1) of the Companies Act and as envisaged under the Code, a Creditor cannot be treated as a Secured Creditor.

The NCLAT in Ascot Reality Pvt. Ltd. VS Ajay Kumar Agarwal & Ors, held that the principle laid down in Anuj Jain vs Axis Banks (2020 SCC OnLine SC 237) was in the context of mortgages and would not apply to guarantees given by the Corporate Debtor securing payment of a loan to another Company even if the guarantee was given during enforcement proceedings. Thereby, on the enforcement of the guarantee, the same would be a Financial Debt owed to the Guarantor.

C. LIQUIDATION STAGE

The NCLAT, in Gujrat Urja Vikas Nigam Ltd. VS Yes Bank Ltd. & Anr., upheld the Order of the NCLT setting aside the termination of a Power Purchase Agreement on the sole ground that the Corporate Debtor had entered into liquidation. The NCLAT took note of the fact that as on the date of the termination, there had been no allegation that the Corporate Debtor had failed to provide power and that the Corporate Debtor was capable of fulfilling its obligations under the Power Purchase Agreement. Thereby, the NCLAT, in light of the duty of the Liquidator to carry on the business of the Corporate Debtor for its beneficial liquidation as prescribed under Section 35 of the Code, held that the termination is unjustified.

II. COMPANIES ACT, 2013

The NCLAT in Ashish O Lalpuria VS Kumaka Industries Ltd. & Ors., set aside the Order of the NCLT approving a scheme of arrangement on the ground that the notices to the various authorities such as the Central Government, the income-tax authorities, the Reserve Bank of India etc. as mandated under the relevant laws had not been issued. It was further observed that the basic intent behind the issuance of notices to various authorities is that these authorities would play a vital role in the overall legal structure and should work harmoniously with the NCLT in order to ensure that the proposed scheme is not violative of any provision of law and is also not against the public policy.

The author is an advocate practicing at New Delhi.