NCLAT Fortnightly: Important orders on IBC (January 16 – January 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 January 16, 2024 to January 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, Liquidation stage and Miscellaneous.

1. The NCLAT, in Novacare Healthcare Solutions Private Limited v. Max Healthcare Institute Limited (Company Appeal (AT) (Insolvency) No.49 of 2024), held that section 9 application is not maintainable against a corporate debtor, where such application is based on separate purchase orders issued in favour of 3 separate entities to which the corporate debtor is a parent entity, even in cases where such debt has been acknowledged by the corporate debtor.

2.  In Jeevagan Narayana Swami Nadar v. Shapoorji Pallonji & Co. Private Limited (Comp. App. (AT) (Ins) No. 1185 of 2022 & I.A. No. 4477 of 2022 & 1780, 2830, 4382, 4384, 4541 of 2023), the NCLAT discussed the concept of pre-existence of dispute, in the context of a section 9 application and noted that unless the dispute is in accordance with section 5(6) of the Code, mere denial would not constitute a dispute.

In furtherance of the same, the NCLAT observed that where the operational creditor had initiated a section 9 application to injunct the corporate debtor from invoking bank guarantee, existence of such proceeding would not amount to a pre-existence of dispute as the claim against the corporate debtor was not based on the aforesaid bank guarantee.

The NCLAT further noted that where the completion certificate was issued by the corporate debtor without any caveat or qualifications or conditions, mere allegations regarding less mobilisation of manpower or delay does not fall in the definition of dispute under section 5(6) of the Code, nor does issuance of termination letter, indication of dispute where such letter was withdrawn and original contract was restored.

Finally, NCLAT noted that in view of the expression “shall” used in Section 9(5)(a) of the Code, the legislative indication is clear that the Adjudicating Authority has no discretion to deny admission of a section 9 application, if the application is otherwise complete in all respect.

3. In Globe Capital Market Limited v. Narayan Securities Limited (Comp. App. (AT) (Ins) No.32 of 2024 & I.A No. 62 of 2024), the NCLAT held that section 7 application filed against a financial service provider is not maintainable as a financial service provider is not included in the definition of corporate person as defined in section 3(7) of the Code.

4. In Power Trust, Promoter of Hiranmaye Energy Limited v. Mr. Bhuvan Madan & Anr. (Company Appeal (AT) (Insolvency) No. 81 of 2024), the NCLAT while observing that, whilst a CIRP application is not maintainable basis a default which occurred between March 25, 2020 to March 24, 2021, such benefit would not be available where the default under the original loan agreement was prior to section 10A period, but the default under the restructuring proposal happened during the aforementioned period.

In the context of the aforesaid decision, the NCLAT observed that the Code does not require recall of the entire loan facilities before seeking an initiation of CIRP under section 7.

It further went on to observe that, whether or not a particular issue needs to be dealt by a civil court, the Adjudicating Authority has all the rights and authority to examine all such documents which has direct or indirect bearing on the application filed under section 7 of the Code.

5. In Africa Power Company CC v. Jyoti Structures Limited (Comp. App. (AT) (Ins) No. 1084 of 2023), the NCLAT held that since the Adjudicating Authority/NCLAT is not a ‘court’ and the ‘Insolvency Resolution Process’ is not a ‘litigation’, any claim to recover amounts on the basis of such foreign judgement by invoking Section 60(5) of the Code is not maintainable before the Adjudicating Authority/NCLAT. It was further observed that NCLAT was not the proper and correct forum to execute the foreign judgement and any such attempt would amount to circumvention of law.

1. In Gammon Engineers and Contractors Private Limited v. Sutanu Sinha (Company Appeal (AT) (Insolvency) No. 1072 of 2022), the NCLAT held that a plan cannot be treated to be in violation of section 30(2) of the Code merely on the basis that the plan seeks to recover an amount from a third party, which amount has been treated as disputed in the context of admission of claim.

2. In Deepak Aggarwal v. Rabindra Kumar Mintri & Ors. (Company Appeal (AT) (Insolvency) No.1415 of 2023), the NCLAT held that, where a director was disqualified under section 164 of the Companies Act, 2013 (“Companies Act”), on the date of submission of the resolution plan, a plan submitted by such director would remain valid if subsequently such disqualification has be quashed by the Hon’ble High Court, even where such order, did not specify that the benefit of such quashing would apply retrospectively.

3. The NCLAT, in PRIO S.A. v. Mr. Pravin R. Navandar & Ors. (Company Appeal (AT) (Insolvency) No.1650 of 2023), held that a prospective resolution applicant, who has participated in the process and has submitted its offer, has locus to intervene and question the selection of an offer made by a third party whose name did not appear in the final list of prospective resolution applicants.

4. In UV Asset Reconstruction Company Limited v. Electrosteel Castings Limited, through its Authorized Signatory (Company Appeal (AT) (Insolvency) No.975 of 2022), the NCLAT observed that undertaking an obligation to arrange for the infusion of funds to comply with financial covenants by the principal borrower in the event the principal borrower is in breach of such financial covenant does not make the covenantor a guarantor.

It further observed that an approval of a resolution plan, which provides for extinguishment of entire debt or conversion of such debt into a different security, would not lead to extinguishment and effacement of third-party rights’, unless it is provided in the resolution plan.

5. The NCLAT, in Gloster Cables Limited v. Fort Gloster Industries Limited & Ors. (Company Appeal (AT) (Insolvency) No. 1343 of 2019), has considered the scope of section 60(5) of the Code and has observed that, while Adjudicating Authority’s jurisdiction is excluded when the dispute is one which does not arise solely from or relate to CIRP, the same does not proscribe the Adjudicating Authority to adjudicate the question of corporate debtor’s title over an asset (in this event, title over registered trademark), even where the dispute has its genesis in the period prior to initiation of CIRP.

NCLAT further observed that for bringing a transaction within the purview of undervalued transaction, specific material facts are required to be pleaded and merely because the trademark was hypothecated for bigger amount but assigned for a lesser amount was not sufficient to bring the transaction within the purview of undervalued transaction.

6. In Narendra Jindal v. Sharda Ma Enterprises Private Limited (Company Appeal (AT) (Insolvency) No. 594 of 2022), the NCLAT, while observing that the Adjudicating Authority could not direct for settlement to a financial creditor in contravention of the Code, noted that in view of the specific voting threshold required under section 12A of the Code, merely because the majority of the lenders have voted in favour of the withdrawal, does not make the decision of a minority lender holding 19.94% of the voting share to vote against such withdrawal, arbitrary, capricious and unreasonable. It further went to observe that decision to vote against withdrawal also falls under the commercial wisdom domain, which is not judiciable.

1. During the period under review, in the cases of ACRE 81 Trust Through its trustee Assets Care & Reconstruction Enterprise Limited v. Pawan Kumar Goyal (Comp. App. (AT) (Ins) No. 447 of 2023) and Air Travel Enterprises India Limited v. Lukose Joseph (Company Appeal (AT)(CH)(Ins.) No. 464/2023 (IA Nos. 1448 & 1449 /2023)), NCLAT had the opportunity to examine the CoC’s decision to opt for liquidation without undertaking steps for resolution of the corporate debtor. In both the cases, such decision of CoC to opt for liquidation was upheld by observing that Section 33(2) of the Code, allows the CoC to approve a plan for liquidation at any time during the resolution process but before approval of the resolution plan.

Separately, in the decision of Air Travel Enterprises India Limited v. Lukose Joseph (Company Appeal (AT)(CH)(Ins.) No. 464/2023 (IA Nos. 1448 & 1449 /2023)), it was noted that the Code does not spell out any opportunity of hearing being provided to the promoters/shareholders at the time of passing of the liquidation order and they do not have any semblance of any ‘legal right’ or ‘vested right’ to oppose the liquidation order before the Adjudicating Authority/NCLAT.

2. In Kineta Global Limited v. IDBI Bank Limited (Company Appeal (AT) (CH) (Ins) No.302/2021 (IA Nos.639/2021, 641/2021, 640/2021, 97/2022, 340/2022, 622/2022, 92/2022, 942/2022, 1052/2022 & 417/2023), the NCLAT had an opportunity to examine the interplay between section 230 of the Companies Act and the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (“Liquidation Process Regulations”) provisions, in the context of a scheme of arrangement being undertaken during liquidation.

While noting that a scheme being undertaken during liquidation would need to adhere to the procedure mentioned in section 230 of the Companies Act, including the requirement to obtain the approval of 75% of the creditors, the NCLAT upheld the primacy of valuation norms prescribed under the Liquidation Process Regulations by observing that, the requirement of obtaining valuation report from one valuer for a scheme under section 230 of the Companies Act, cannot be the basis to bypass the requirement of obtaining valuation from two valuer under regulation 35 of Liquidation Process Regulations.

Apart from observing that title related dispute does not justify ascribing a NIL value to a property over which the corporate debtor stakes a claim, NCLAT held that where the valuation was not conducted as per the Code, a H1 bidder would not qualify as ‘aggrieved person’ under section 61 of the Code. Separately, the NCLAT had also highlighted the requirement of maintaining confidentiality of such valuation report.

Finally, it was observed that a secured creditor, who is not a member of stakeholder consultation committee on account of non-relinquishment of security could maintain an appeal against an order sanctioning a scheme under section 230 of the Companies Act.

1. In Neuvera Wellness Ventures Private Limited v. Scitec Ipari es Kereskedelmi Kft (Company Appeal (AT) (Insolvency) No.99 of 2024 & I.A. No. 281 of 2024), the NCLAT held that there is no requirement of filing a separate application for condonation of delay, where a prayer for condonation of delay has been included.

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