NCLAT Fortnightly: Important orders on IBC (October 16 – October 31, 2023)

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 October 16, 2023 to October 31, 2023.

For ease of reference, the orders have been categorized and dealt with in the following categories, that is, pre-admission stage, Corporate Insolvency Resolution Process (“CIRP”) stage, liquidation stage and miscellaneous.

1. In Dheeraj Raikhy v. Raheja Developers Limited (Company Appeal (AT) (Insolvency) No.1336 of 2023), the NCLAT relied upon the decision of the Hon’ble Supreme Court in Vishal Chelani & Ors. vs. Debashis Nanda (Civil Appeal No.3806 of 2023) to observe that, a real estate allottee would not be exempted from fulfilling the requirement of meeting the threshold applicable for an allottee to maintain a Section 7 application, merely on the ground of him having obtained a decree from RERA.

2. In GRI Towers India Private Limited v. Inox Wind Limited (Company Appeal (AT) (Insolvency) No. 1106 of 2023), the NCLAT held that where the suit filed by the operational creditor was voluntarily withdrawn, such operational creditor cannot seek the benefit of Section 14 of the Limitation Act, 1963, which benefit is applicable only when a suit is terminated on the ground of jurisdiction on cause of like nature or withdrawn with a liberty from the court to institute a fresh proceeding.

Further, the NCLAT held that the mere availability of arbitration or any other proceeding by the operational creditor cannot preclude the operational creditor from initiating a proceeding under Section 9.

3. In Bhimsen Apat v. Kalinga Enterprises Private Limited (Company Appeal (AT) (Insolvency) No. 209 of 2023 & I.A. No. 757 of 2023), the NCLAT held that service of advance notice does not dispense with the requirement of issuing notice to the respondent to show cause against the application or petition on a date of hearing under Rule 37 of the NCLT Rules, 2016. Accordingly, it was held that the order admitting a Section 9 application, which was passed without issuing notice required in terms of Rule 37 of NCLT Rules, was erroneous and required interference.

1. In Suchi Paper Mills Limited v. Ashish Gupta, Resolution Professional in the Matter of Anush Finlease and Construction Private Limited (Comp. App. (AT) (Ins) No. 830 of 2020), the NCLAT held that, in the absence of a notification issued under the first proviso to Section 419(3) of the Code (Benches of Tribunal), an order passed by a single judicial member is not tenable under law.

The NCLAT further observed that an order approving a resolution plan would be patently illegal if the order did not record the satisfaction of the Adjudicating Authority regarding the provisions of Section 30(2) of the Code.

2. In National Small Industries Corporation Limited (NSIC), Delhi v. Prabhakar Kumar (Company Appeal (At) (Insolvency) No. 841 Of 2021), the NCLAT held that the moratorium prescribed under Section 14(1) of the Code does not bar encashment of a bank guarantee, which is not in the nature of a performance guarantee, on account of the exclusion provided in Section 14(3)(b) of the Code.

3. The NCLAT in Devi Trading & Holding Private Limited v. Ravi Shankar Devarakonda (Company Appeal (At) (Ch) (Ins.) NO. 308/2023) decided whether the Adjudicating Authority was justified in approving a resolution plan where the manner of distribution was proposed and decided by the CoC. The NCLAT noted that a deliberated ‘business decision’ of the CoC includes deliberations on the feasibility and viability, the financial and operational aspects of the Corporate Debtor, and therefore, the question of only ‘considering’ the proposal put forth by the Resolution Applicant cannot be viewed in a ‘rigid manner.' To limit the powers of the CoC only to consider the proposals put forward by the Resolution Applicant would be a very narrow interpretation of the CoC acting in its commercial wisdom, which would defeat the scope and objective of the Code. The NCLAT held that the CoC in its commercial wisdom can propose, consider and decide on the distribution mechanism of the resolution plan, as long as it is within the domain of Section 30 (2) of the Code.

4. The NCLAT, in Afita Constructions Private Limited v. Dr. G.V. Narasimha Rao (COMPANY APPEAL (AT) (CH) (INS.) NO. 326/2023 (IA No. 992/2023)) observed that a prospective resolution applicant does not have a vested right in submitting a resolution plan where such applicant failed to submit the plan in due course and after participating in a CoC meeting where the other plans were discussed.

5. In Ankur Narang & Ors. v. Mr. Nilesh Sharma (Company Appeal (AT)(Insolvency) No. 1240 of 2023), the NCLAT held that where the authorized representative of home buyers had voted in favour of approval of a resolution plan on the basis of the approval of the majority of homebuyers, such a resolution plan cannot be challenged by minority home buyers.

Further, the NCLAT held that a resolution plan providing a lesser amount than the admitted claim does not make the resolution plan illegal. Hence, any hair-cut in payment proposed in the resolution plan cannot be construed as being violative of Section 30(2)(e) of the Code.

1. In Deputy Commissioner of Income Tax v. Ravinder Kumar Goes-Liquidator of Supreme Tex Mart Limited (Comp. App. (AT) (Ins) No. 1397 & 1398 of 2022), in relation to applications under Section 33(5) of the Code, the NCLAT held that an assessment order passed by the Income Tax department after the passing of the liquidation order, was without jurisdiction.

1. In Ashok Tiwari v. Tattva & Mittal Lifespaces Private Limited (Company Appeal (At) (Insolvency) No. 729 of 2023), the NCLAT held that where an order passed by the Adjudicating Authority has been rectified, the limitation period for filing an appeal against such an order starts from the date of rectification of such order and not the date of passing of the original order.

It was further held that, even where the event of default vis-à-vis a principal borrower took place during the period covered under Section 10A of the Code, a proceeding under a corporate guarantor is maintainable if the guarantee is invoked post the expiry of the Section 10A period. 

2. In Gyan Chandra Misra v. Three C Universal Developers Private Limited (Company Appeal (AT) (Insolvency) No.1316 of 2023), the NCLAT held that where no fraud has been alleged against the corporate debtor itself, and where the failure to file the claim in due time is due to an alleged fraud committed by the management of the creditor, the benefit of exclusion of period in terms of Section 17(1)(a) of the Limitation Act, 1963 (effect of fraud or mistake) cannot be claimed.

3. In Vidyasagar Parchuri v. State Bank of India (Company Appeal (At) (Ch) (Ins.) No. 184 of 2023), the NCLAT noted that neither a dispute about the quantum of payment nor the decision of a financial creditor to approach a Debt Recovery Tribunal for appropriate relief affects the right of a financial creditor to initiate appropriate proceedings under the Code. It went on to also observe that where the debt amount is more than as prescribed under the Code, the Adjudicating Authority is not required to enquire into the reason for inability of the corporate debtor to pay its debt.

In the aforementioned case, the NCLAT has further noted that, where the balance sheet is signed by the directors several months after the balance sheet date, the acknowledgment of debt would relate to the date of the balance sheet as opposed to the date on which the directors had signed it.

4. In Anjani Kumar Prashar v. Manab Dutta and Ors. (Company Appeal (AT) (Insolvency) No.1367 of 2023) the NCLAT, while considering a delay of condonation application, observed that the benefit of extension of limitation due to the last day being a holiday is only available when the limitation period is of thirty days, and cannot be utilized if the extension is required beyond the 45th day.

5. In Satyan Kasturi v. PPS Enviro Power Private Limited (Company Appeal (At) (Ch) (INS.) NO. 337/2023), the NCLAT observed that unless sufficient cause is shown, the Authority may refuse to condone delay even in refiling of appeal.

6. In Mr. Rahul Gupta v. Chandra Prakash (COMPANY APPEAL (AT) (Insolvency) No. 966 of 2022) and Rakesh Gupta v. Mahesh Bansal (COMPANY APPEAL (AT) (Insolvency) No. 401 of 2022), the NCLAT held that as the offences and penalties under the Code can only be taken cognizance of by a special court in terms of Section 236 of the Code, despite Rule 149 of NCLT Rules, 2016, permitting Adjudicating Authority to impose cost on the defaulting party and Rule 11 of NCLT Rules containing the inherent power of the Adjudicating Authority to make such order as may be necessary to prevent abuse of the process, the Adjudicating Authority lacks jurisdiction to impose fine or penalty under Section 70 of the Code for breach of the directions issued in terms of Section 19 of the Code.

About the authors: Arka Majumdar is a Partner; Juhi Wadhwani is a Senior Associate; Vikram Chaudhuri and Ayush Chaturvedi are Associates at Argus Partners.