NCLAT Fortnightly: Important orders on IBC (April 16 - 30, 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 April 16, 2023 and April 30, 2023. 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, Liquidation Stage and Miscellaneous.

1.  In K. H. Srikanth v. C. Sanjeevi, RP of Landmark Housing Projects Chennai Private Limited, the NCLAT held that an application filed, on the date of approval of plan by Adjudicating Authority, for reconstitution of CoC is not maintainable.

2. In the State Trading Corporation of India v. Ganesh Benzoplast Limited, ignoring the order passed by the Supreme Court March 8, 2021, whereby the Supreme Court had extended the period of limitation from March 15, 2020 and had excluded the period of limitation prescribed under any laws, which inter alia prescribed outer limits (within which the court or tribunal can condone delay), NCLAT rejected the appeal against the order of Adjudicating Authority, by refusing to extend the period of 15 days specified in the proviso to Section 61(2) and which period fell after March 15, 2020.

3. In Rajendra Pandurang Barde v. Amit Steels, the NCLAT held that where corporate debtor did not raise any defense in response to section 8 notice and section 9 application, the Adjudicating Authority was justified in admitting section 9 application. The NCLAT further held that any settlement after admission of CIRP application and after the constitution of the CoC was only permissible when the same was approved with ninety percent vote share of CoC. It was also noted that where the power of attorney (“PoA”) for corporate debtor was inadvertently not filed with section 9 application, but corporate debtor did not raise any objection, the defect stood removed if such PoA was filed in appeal challenging the admission order.

4. In Oyster Steel and Iron Private Limited v. Brilliant Metals Private Limited, the NCLAT held that no operational debt liability could be fastened on the corporate debtor merely on the basis of TDS. The NCLAT noted that where there was no acknowledgment of any sort of liability, the mere raising of invoices in the name of corporate debtor was not sufficient to create either a right to payment or right to remedy under law. In view of non-existing debt or for disputed debts, the NCLAT denied the appeal for admission of Section 9 application.

5. In Continuous Dyeing & Printing Mills v. Bhavika Apparels Private Limited, the NCLAT held that pendency of civil suits filed by a director of a corporate debtor in which the corporate debtor is also a party, would suffice as the existence of dispute between the two parties.  

6. In Ashvinkumar Jayantilal Patel v. Shri Sanjay Jitendralal Shah Company Appeal (AT), the NCLAT concurred with the Adjudicating Authority wherein it rejected the resolution plan that extinguished the claim of operational creditor and carried forward the claim of ex-director who were not entitled to receive any amount in the resolution plan as per waterfall mechanism u/s 53 of the Code.  

7. In Archana Deepak Wani v. Indian Bank (erstwhile Allahabad Bank) and Ors., the NCLAT noted that while guarantor immediately becomes liable on any default committed by the principal borrower, if the relevant deed of guarantee requires additional action to be taken against the Guarantor for recovering the guaranteed amount (such as issuance of a separate demand notice), the limitation period for initiating CIRP against such guarantor would not commence until and unless such action has been completed and the guarantor has defaulted. In other words, period of limitation against a guarantor would commence from the date of default of the guarantor which need not be the same as the date of default of the principal borrower.  

Similarly, the view on the issue of limitation was reiterated by the NCLAT in Pooja Ramesh Singh v. State Bank of India by its judgement on April 28, 2023 in line with Archana Deepak Wani passed by the NCLAT on April 26, 2023.

8. In the matter of Ramdas Dutta v. IDBI Bank Limited and Ors., the NCLAT held that the date of declaration of NPA could not be treated as date of default to extend the limitation period. It further went on to observe that OTS even after the expiry of initial limitation period does not extend the limitation and mere payment which is not supported by acknowledgement in writing, would not attract Section 19 of the Limitation Act to extend the limitation period.

9. The NCLAT in B.P.C.L. International Limited v. Kalimata Ispat Industries Private Limited, observed that the neither the Adjudicating Authority nor the NLCAT had the jurisdiction to adjudicate on the authenticity or genuineness of a document, basis which pre-existing disputes had been claimed by the corporate debtor.

Further, the NCLAT observed that as long as the reply to demand notice captured the essence of the disputes highlighted in the correspondences issued prior to the issuance of demand notice, mere omission of those specific correspondences in the reply to the demand notice would not mean those correspondences were fabricated.

10. In Bhotika Trade and Services Private Limited v. Avinash EM Projects Private Limited, the NCLAT held that where the interest liability has been acknowledged by the corporate debtor, such interest can be added to the principal amount to meet the threshold for initiation of CIRP.

1. In Re: Om logistics, the NCLAT observed that the non-participation of the financial creditor, whose application was admitted for initiation of CIRP, in the process and meetings of the CoC would not imply that the application for initiation of CIRP was fraudulent or filed with malicious intention to maintain a proceeding under Section 65 in absence of any other material.

2. In Employees Provident Fund Organisation v. Fanendra Harakchand Munot and Another, the NCLAT noted that the ratio laid down by the Supreme Court in State Tax Officer v. Rainbow Papers Limited, would not be applicable in relation to a belated claim filed by the provident fund authority, where such claim was not admitted on account of delay in filing.

Similar view was taken by the NCLAT in Regional P.F. Commissioner vs. Vivek Raheja and Another, where non-admission of the claim filed after the approval of the plan by the CoC was not interfered with.

3. In Manmohan Gupta v. MDS Digital Media Private Limited and Another, the NCLAT noted that where the admitted amount of debt is more than the threshold for admission of CIRP, the exact quantum of outstanding debt was to be looked into at the time of collation of the claims by the resolution professional and not at the time of the admission of the Section 9 application.

4. In Brijesh Singh Bhadauriya v. Pinakin Shah, IRP of Sintex Industries Limited and Ors., the NCLAT observed that approval of the resolution plan cannot be interfered with only on the mere basis that the resolution professional had not conducted the insolvency process in line with the Code and or its Regulations without providing any specific grounds or reasons.

5. In Suchi Paper Mills and Others v. Ashish Gupta, Resolution professional of Anush Finlease and Construction Private Limited &Others, the NCLAT observed  that where an appeal has been filed by two co-owners of a unit, even if one co-owner withdraws from the appeal, the appeal made can be continued by the other co-owner.

In the same case, NCLAT noted that an appeal filed by a homebuyer, who is a member of a class and had not participated in the voting in relation to the approval of the plan, is maintainable. Curiously however, NCLAT went on to observe that a creditor who is not a member of a class and has also not participated in the voting, lacks locus to maintain a challenge against approval of the plan.   

6. In GVR Consulting Services Private Limited v. Pooja Bahry (Earstwhile Resolution Professional of NTL Electronics India Private Limited), the NCLAT observed, that intent and motive behind the transaction is not required to be looked into by the Adjudicating Authority to term a transaction as preferential transaction and a transaction which took place under any notice or threat does not cease to be a preferential transaction.

The NCLAT further observed that while the ingredients of Section 43, 45 and 66 are different, a composite application where the allegations and averments were separately made, under different heads, such composite application does not suffer from any infirmity.

7. In Regional Provident Fund Commissioner v. Prashant Jain, Resolution Professional of Diamond Power Infrastructure Limited & Ors., the NCLAT relied upon Jet Aircraft Maintenance Engineers Welfare Association Vs. Ashish Chhaochhaia, RP of Jet Airways (India)(Company Appeal (AT) (Insolvency) Nos. 752, 643, 792, 801 915 of 2021, 361, 771 & 987 of 2022) and held that a resolution plan shall provide for the entire payment of the provident fund claim.

8. In Bhushan Shringarpure and Ors. v. B.K. Mishra, Resolution Professional of Lakeland Chemicals (India) Limited, the NCLAT held that even though an operational creditor lacks any right to vote in a meeting of the committee of creditors, where the relevant threshold is met for an operational creditor to be a member of the committee of creditors, the requirement of sending notice of the meeting of committee of creditors to such operational creditors cannot be dispensed with.

The NCLAT, however, refused to interfere with the approval of the resolution plan by the committee of creditors for non-circulation of the notice to the eligible operational creditors by noting that even if the operational creditors were allowed to express their views in the meeting of committee of creditors, they would have been benefitted by a meagre amount of another 1% or 2 % of the amount over and above the amount allocated to them in the resolution plan, which amount was too meagre to set aside the resolution plan.

9. In Raj Hari Eswaran v. Ravindra Chaturvedi, the NCLAT held that, without issuing a notice to respondents, no directions could have been passed by the Adjudicating Authority directing the respondents to cooperate with the resolution professional. The NCLAT relied upon Rajasthan State Mines & Minerals Limited. vs. Parag Sheth & Ors which has been covered in the earlier round up.

10. In GVK Energy Limited v. Axis Bank Limited, the case pertained to the issue of whether the provisions contained under the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 dated June 7, 2019 (“June 7 Circular”) could restrict the right of a financial creditor to file a Section 7 application before the Adjudicating Authority.

In the instant matter, pursuant to the June 7 Circular, the creditors of the corporate debtor had entered into an inter creditor arrangement dated July 6, 2019 (“ICA”) for resolution of the corporate debtor, however there was no determination on formulation of a resolution plan. The lenders vide Clause 13 of the ICA had agreed and undertaken, not to commence any proceedings including proceedings against the Code against the corporate debtor on and from the reference date. The NCLAT noted, that no law, much less the June 7 Circular could curtail the right of the respondent to file the Section 7 application, and the corporate debtor cannot seek an umbrage of the inter-creditor arrangement to which it is not even a party, with a view to evade, circumvent, and supplant its obligations pursuant to the loan facility agreement. The NCLAT further observed that Section 238 of the Code would have an overriding effect to any other inconsistent laws with the Code and the Clause 13 mentioned above could not be pressed into service post the 30 (thirty) days review period. The NCLAT therefore dismissed the appeal of the corporate debtor.

1. In Adinath Jewellery Exports v. Mr. Brijendra Kumar Mishra, Liquidator of Shrenuj and Company Limited and Others, the NCLAT considered the order of the Adjudicating Authority directing the Liquidator to put a certain property owned by the corporate debtor under lock and key when specifically there was an order of status quo passed by the Small Causes Court Mumbai, with respect to an ongoing litigation between the corporate debtor and the appellant in the instant matter.

The NCLAT noted that the appellant was in possession of the premises even post expiry of the license agreement entered into with the corporate debtor and observed that the relationship between the parties were of licensee-licensor, thereby rejecting the claims of the appellant that the relationship was of tenant-landlord governed by the Maharashtra Rent Control Act, 1999. 

The NCLAT further held that once a property forms part of the liquidation estate of the corporate debtor, under liquidation, the provisions of the Code were applicable regarding the assets which were in the ownership of the corporate debtor and Section 238 of the Code prohibited the applicability of any other law inconsistent with the Code. The NCLAT further observed that in liquidation, the liquidator has the powers under Section 33(5) to get control of the assets of the corporate debtor and therefore, held that the Adjudicating Authority has jurisdiction to direct eviction of a licensee whose possession is not protected under the Rent Act.

2. In ASJ Finsolutions Private Limited v. Best Foods Limited, through Liquidator and Ors., the NCLAT agreed with the view of the Adjudicating Authority that a successful bidder of an auction cannot stop the payment of the balance with respect to an asset, on the grounds of litigation on the property, considering that the sale was on ‘as-is-where-is basis’ and the issues relating to the challenge in title were mentioned specifically in the auction notice. The NCLAT noted that the appellant was required to deposit the balance amount as per the time limit prescribed in Schedule-I of Liquidation Regulation, 2016, which is statutory in nature.

3. In T.S. Murali v. Mr. Sarvesh Kashyap, Liquidator, the NCLAT considered whether the liquidation proceedings should be allowed to proceed or a strict time-frame be given to the appellant being the promoter, shareholder, founder and ex-director of the Corporate Debtor till 2017 to settle the dues of the corporate debtor.

The NCLAT noted that the creditors were 4 statutory creditors, out of which the dues of 3 statutory creditors were extinguished, leaving the majority statutory creditor that is the department of GST. The NCLAT observed that even after liquidation, there is a likely possibility that dues of the said statutory creditor may remain unmet. Therefore, keeping in mind the facts and circumstances of the matter, and noting the spirit of the Code is that of a beneficial legislation and not penal, the NCLAT noted that the adjudicating Authority should have given an opportunity to settle with the last remaining creditor, instead of attaching his property, where he was residing. The NCLAT therefore stayed the liquidation proceedings in an effort to give an opportunity to the appellant to settle the matter.   

1. In Ankit Miglani v. State Bank of India, the NCLAT reiterated that under Section 60(2), insolvency resolution process against the personal guarantor could be filed before the Adjudicating Authority in whose jurisdiction the registered office of corporate debtor was situated. Accordingly, the NCLAT held that, where CIRP in relation to a corporate debtor was transferred to a different bench of Adjudicating Authority, if no such proceeding was pending at the time of initiation of proceeding against the personal guarantor, it would be the original Adjudicating Authority which would have the jurisdiction over the personal guarantor and not the bench to which the matter related to corporate debtor was transferred.

2. In Westcoast Infraprojects Private Limited v. Ram Chandra Dalaram Choudhary, the NCLAT held that principles of Section 74 of the Contract Act would not govern the forfeiture of earnest money deposit under the terms and conditions of a public auction conducted in terms of Liquidation Process Regulations, 2016.

3. In Saurabh Soni v. Arithmetic Finserve Private Limited on a decision passed on April 17, 2023, the NCLAT held that when an application for certified copy is filed beyond 30 days, the applicant would not be entitled to exclude the period which was taken in the preparation of the order.

The view was reiterated by the NCLAT in Religare Finvest Limited v. Strategic Credit Capital Private Limited in its decision passed on April 19, 2023.

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