NCLAT Fortnightly: Important orders on IBC (August 16 – August 31, 2024)

The following is a snapshot of the important orders passed by the National Company Law Appellate Tribunal (“NCLAT”) under the Insolvency and Bankruptcy Code, 2016 ("Code”) during the period between August 16, 2024 to August 31, 2024.

For ease of reference, the orders have been categorized and dealt with in the following categories i.e., Pre-admission stage, Corporate Insolvency Resolution Process (“CIRP”) stage, Post-CIRP and Miscellaneous.

1. In Mr. Paresh Parekh v. Alchemist Asset Reconstruction Company Limited and Anr. (Company Appeal (AT) (Insolvency) No. 1204 of 2024) the NCLAT held that where the guarantee given by the personal guarantor is an unconditional one, invocation of such guarantee cannot be challenged on the basis of non-exhaustion of alternate remedies including Put Option given by other security provider. In this case the NCLAT had also observed that neither the borrower nor a guarantor has any locus or right to challenge any assignment of loan by the original lender.

2. In Indiabulls Asset Reconstruction Company Limited v. Pawan Kapoor (Company Appeal (AT)(Insolvency) No.192/2021), the NCLAT, relied upon a recent judgment dated July 2, 2024, by Delhi High Court in Sanjay Dhingra v. IDBI Bank [WP(C) No 8131/2020], to hold that, the interim moratorium provision contained under Section 96 of the Code would also be applicable to a property, symbolic position of which has been taken under SARFAESI Act, even prior to the initiation of such interim moratorium.

3. In Terry E D’Souza v. Omkara Assets Reconstruction Private Limited & Anr. (Company Appeal (AT) (Insolvency) No. 615 of 2024) the NCLAT observed that there was no prohibition under the SARFAESI Act, 2002, against co-operative banks assigning their debt to a reconstruction company. It was further held that pendency of challenge before the civil court against the assignment of debt was not a ground to postpone the admission of Section 7 application.

1. In Bijal Dineshchandra Sanghvi and Anr. v. Sumit Rajnikant Mehta (Company Appeal (AT) (Insolvency) No. 1475 of 2024), the NCLAT hopefully has settled the issue regarding permissibility of undertaking a scheme of arrangement as part of the resolution plan, de hors separate compliances under Companies Act, 2013, when it allowed an appeal against the order of the Adjudicating Authority which had wrongly rejected the prayer of a merger under a resolution plan.

2. In Jagdish Valecha v. Anurag Kumar Sinha and Anr. (Company Appeal (AT) (Insolvency) No. 1542 of 2024), the NCLAT noted that only suspended directors as on the date of CIRP were entitled to a copy of the resolution plan and not an ex-director who had resigned more than two years prior to initiation of CIRP and was not a part of the suspended board.

3. In Kritish Patel v. Mr. Vikash Gautamchand Jain (Company Appeal (AT) (Insolvency) No. 1173 of 2024), the NCLAT observed that while the Code provides for a 120-day timeline for completion of the Pre-Packaged Insolvency Resolution Process (PPIRP), there is no concept of automatic termination of the process after the expiry of the aforesaid time period. It was also held that the Adjudication Authority has discretion to extend the PPIRP period even after the expiry of 120 days, if sufficient cause is shown, especially when it serves the interest of stakeholders and the corporate debtor.

4. In Sanjeev Mahajan v. Indian Bank and Anr. (Company Appeal (AT) (Insolvency) No.1440 of 2024) it was held that a settlement proposal under Section 12-A of the Code can be challenged if the CoC arbitrarily rejects it. However, if the CoC's decision is well-considered and not arbitrary, it is binding. The decision of the CoC, once made with due deliberation, should not be overturned by the Adjudicating Authority or the Appellate Tribunal. It was also held that once the settlement proposal was rejected by the CoC, it was not open for the promoter, after the approval of the resolution plan, to increase his offer from earlier submitted settlement proposal. 

1. In Indreshwar Singh Paul v. Mohit Chawla and Anr. (Company Appeal (AT) (Insolvency) No.1510 of 2024), a resolution of the CoC approving a resolution plan was challenged on the ground that such approval was granted beyond the CIRP period, while the extension application was still pending. Noting that the extension was eventually granted, the NCLAT dismissed the challenge.

2. In Yerramaneni Ramakrishna and Anr. v. Suraksha Realty Limited and Anr. Sheth Developers Private. Limited. and Anr. (Company Appeal (AT) (Insolvency) No. 1586 of 2024 & I.A. No. 5765 of 2024), the NCLAT held that correction of a typographical error in the date of order by a subsequent order does not amount to modification of the order and on the basis of such subsequent order rectifying the typographical error, an extension of limitation period for filing of appeal cannot be claimed.

3. In Krishna Infosolutions Private Limited v. Anil Anchalia and Anr. (Comp. App. (AT) (Ins) No. 279 of 2024) the NCLAT held that a dissenting financial creditor cannot claim an amount earmarked to such creditor under the plan, where the dissenting financial creditor had voted against such plan and its entitlement under the Code being lower than the amount specified under the plan.

1. In The Commissioner of State Tax of Gujarat v. Ramchandra D. Chaudhary and Anr. [Company Appeal (AT) (Insolvency) No. 1501 of 2024], the NCLAT clarified that the liquidation of a corporate debtor starts only once the Adjudicating Authority approves the same, and any attachment order (under Gujarat Value Added Tax Act, 2003 in this particular instance) passed before the date of the liquidation order would be hit by Section 14 of the Code, despite the expiry of statutory CIRP period.

2. In Asha Chopra and Anr. v. Hind Motors India Limited and Anr. (Company Appeal (AT) (Insolvency) No. 1425 – 1428 of 2024) it was held by a three-member bench of NCLAT that an application under Section 12A of the Code for withdrawal of CIRP cannot be made after liquidation has commenced. In the course of the aforesaid decision, the NCLAT overruled an earlier decision of two-member Bench of the NCLAT in V Navneetha Krishnan v. Central Bank of India (2018) by observing that the earlier Bench had not taken into account the statutory scheme delineated by Section 12A and Section 33 of the Code.

3. In Nikhil Jain and Anr. Vs. Anil Goel and Anr. (Company Appeal (AT) NO.148 OF 2024), the NCLAT allowed an appeal against an order of Mumbai Bench of the Adjudicating Authority [directing that a no-objection certificate should be obtained from SEBI in terms of  Regulation 37 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) 2015 for undertaking a scheme during liquidation] by observing that a scheme of arrangement submitted under Section 230 of the Companies Act, 2013 read with Regulation 2-B of the Liquidation Process Regulations is akin to a resolution plan under Section 31 of the Code and would be entitled to the same relaxations as are applicable to a resolution plan, including exemption from obtaining NOC from SEBI for undertaking the scheme.

4. In Rajiv Dhamija and Anr. v. Mr. Kuldeep Verma and Anr. (Company Appeal (AT) (Insolvency) No.702 of 2024) the NCLAT held that a liquidator can auction shares held by the corporate debtor in other companies and that a pending challenge to a rights issue would have no impact on sale of shares of subsidiaries on 'as is where is' basis.

1. In Mr. Anand Singh v. Harshad Shamkand Deshpande and Anr. (Comp. App. (AT) (Ins) No. 339 of 2022), the NCLAT held that barely because the corporate debtor had drawn an amount less than the sanctioned limit, it does not bar admission of CIRP against such corporate debtor whose account has been identified as NPA for a failure to comply with no monetary conditions imposed as part of the sanction.

2. In Vivek Prakash v. Dinesh Kumar Gupta (Company Appeal (AT) (Insolvency) No. 196 of 2023), the NCLAT held that the mere writing off of certain amounts cannot amount to a preferential transaction, without establishing as to how the ingredients of Section 43 are in the facts of the case.

3. In Capriso Finance Limited. & Anr. v. Trishul Dream Homes Limited (Company Appeal (AT) (Insolvency) No. 1398 of 2024) the NCLAT held that, in absence of a written agreement regarding interest payable on the amount lent, a financial creditor cannot claim interest based on Section 3 of the Interest Act, 1978.

About the authors: Arka Majumdar is a Partner, Juhi Wadhwani is a Senior Associate, Vikram Chaudhuri, Aakriti Garodia and Ishika Neotia are Associates at Argus Partners.