For a bench that rarely sees action on the insolvency front, the Guwahati Bench of the NCLT recently found itself answering a question with respect to exercise of its inherent powers under the Insolvency and Bankruptcy Code, 2016 (IBC)..The question was answered in an application filed by the financial creditors of Himatsingka Resorts Pvt Ltd (Corporate Debtor), who were earlier its management. The application was filed collectively by Neha Himatsingka and Kanishka Himatsingka (Financial Creditors), who had in the years 2013 and 2014 advanced (unsecured) loans to the Corporate Debtor..Neha and Kanisha Himatsingka, along with their father-in-law (RHS Group), were the management of the Corporate Debtor when the said loans were advanced..On December 15, 2014, the management of the Corporate Debtor was taken over by the current management, BK Group, by the way of purchase of shares from the RHS Group. A debt of Rs. 2.2 crore (including principal amount plus interest), advanced by the Financial Creditors was transferred during this transaction, which BK Group was required to clear. Apart from the said debt, a term loan of over Rs. 6 crore was also transferred, which had been advanced by the State Bank of India (SBI)..Of the said Rs. 2.2 crore advanced by Financial Creditors, BK Group had cleared over Rs. 1 crore. And it is on the basis of the balance Rs. 1.2 crore debt, that the application was filed by the Financial Creditors..Interestingly, however, during the period between conclusion of hearings at the NCLT and pronouncement of the order by the NCLT, BK group was able to get hold of an agreement dated 30.07.2013 (Agreement), which was entered into between the Corporate Debtor and the SBI. The Agreement was entered into by the erstwhile management, RHS Group..The initiation of insolvency against the Corporate Debtor depended on the admission of the Agreement, which had now become the focal point in these proceedings..As per the Agreement, a) the Corporate Debtor could not charge interest on any unsecured loans and b) any unsecured loans obtained by Corporate Debtor could not be liquidated before the repayment of the term loan with SBI..This Agreement was suppressed during the shareholding transfer between RHS Group and BK Group..The Financial Creditors vehemently argued the inadmissibility of the Agreement in the said proceedings since the hearing had concluded and nothing under the IBC allowed the NCLT to admit such a piece of document as evidence..It was argued that the NCLT established under the Companies Act, 2013 (CA 2013) and the Adjudicating Authority established under the IBC are different, and that, the powers conferred to the NCLT under the NCLT Rules, 2016 (which is a creature of the CA 2013) cannot be made applicable to a proceeding before the Adjudicating Authority under the IBC..While agreeing with the said contention raised by the Financial Creditors, the Bench also took note of various precedents laid down the Supreme Court in this regard. Relying on the precedent laid down in Awadh Kishore Gupta by the Apex Court, the Bench adopted a view that all courts/tribunals are possessed with inherent power to address some extraordinary circumstances regardless of the fact whether procedural law conferred such powers, unless such power is expressly taken away..On this point, the Bench noted that the IBC, while not granting such inherent powers, also does not take them away..The Bench, thus, held that all unsecured creditors are bound by all the conditions of the Agreement. It ruled that the unsecured creditors, including Financial Creditors can neither re-claim the loans before liquidation of the term loan, nor can they demand interest on the said unsecured loans..The Bench also came down strongly on the wrongful conduct on the part of the Financial Creditors, who were well aware of the said terms and conditions of the Agreement. The bench said that their plea deserved to be rejected on falsehood alone..In this regard, the bench ruled,.“Suffice to say, such conduct on part of Financial Creditors is not only enormously appalling and unholy but also smacks gross illegality in preferring the application under Section 7 of the IBC”.However, going by merit, the Bench observed that on the date of filing of application by the Financial Creditors, the entire term loan wasn’t repaid and therefore loans due to unsecured creditors could not be liquidated..The bench further ruled,.“The debts due to Financial Creditors have not fallen due for payment, since the quantum of debts suffer from ambiguity, imprecision and vagueness, as has been evident from our foregoing discussion and since in approaching the Authority, the Financial Creditors did not come with clean hands, there cannot be any escape from the conclusion that present application painfully lacks in substance and as such, same is required to be dismissed”.Accordingly, the application was dismissed..A.K. Rai and Khushboo Aggarwal, Advocates appeared on behalf of the Applicants/ Financial Creditors..Kaushik Goswami, Rakesh Sarmah and Arinjoy Sandilya, Advocates appeared on behalf of the Corporate Debtor..(Read the Order)
For a bench that rarely sees action on the insolvency front, the Guwahati Bench of the NCLT recently found itself answering a question with respect to exercise of its inherent powers under the Insolvency and Bankruptcy Code, 2016 (IBC)..The question was answered in an application filed by the financial creditors of Himatsingka Resorts Pvt Ltd (Corporate Debtor), who were earlier its management. The application was filed collectively by Neha Himatsingka and Kanishka Himatsingka (Financial Creditors), who had in the years 2013 and 2014 advanced (unsecured) loans to the Corporate Debtor..Neha and Kanisha Himatsingka, along with their father-in-law (RHS Group), were the management of the Corporate Debtor when the said loans were advanced..On December 15, 2014, the management of the Corporate Debtor was taken over by the current management, BK Group, by the way of purchase of shares from the RHS Group. A debt of Rs. 2.2 crore (including principal amount plus interest), advanced by the Financial Creditors was transferred during this transaction, which BK Group was required to clear. Apart from the said debt, a term loan of over Rs. 6 crore was also transferred, which had been advanced by the State Bank of India (SBI)..Of the said Rs. 2.2 crore advanced by Financial Creditors, BK Group had cleared over Rs. 1 crore. And it is on the basis of the balance Rs. 1.2 crore debt, that the application was filed by the Financial Creditors..Interestingly, however, during the period between conclusion of hearings at the NCLT and pronouncement of the order by the NCLT, BK group was able to get hold of an agreement dated 30.07.2013 (Agreement), which was entered into between the Corporate Debtor and the SBI. The Agreement was entered into by the erstwhile management, RHS Group..The initiation of insolvency against the Corporate Debtor depended on the admission of the Agreement, which had now become the focal point in these proceedings..As per the Agreement, a) the Corporate Debtor could not charge interest on any unsecured loans and b) any unsecured loans obtained by Corporate Debtor could not be liquidated before the repayment of the term loan with SBI..This Agreement was suppressed during the shareholding transfer between RHS Group and BK Group..The Financial Creditors vehemently argued the inadmissibility of the Agreement in the said proceedings since the hearing had concluded and nothing under the IBC allowed the NCLT to admit such a piece of document as evidence..It was argued that the NCLT established under the Companies Act, 2013 (CA 2013) and the Adjudicating Authority established under the IBC are different, and that, the powers conferred to the NCLT under the NCLT Rules, 2016 (which is a creature of the CA 2013) cannot be made applicable to a proceeding before the Adjudicating Authority under the IBC..While agreeing with the said contention raised by the Financial Creditors, the Bench also took note of various precedents laid down the Supreme Court in this regard. Relying on the precedent laid down in Awadh Kishore Gupta by the Apex Court, the Bench adopted a view that all courts/tribunals are possessed with inherent power to address some extraordinary circumstances regardless of the fact whether procedural law conferred such powers, unless such power is expressly taken away..On this point, the Bench noted that the IBC, while not granting such inherent powers, also does not take them away..The Bench, thus, held that all unsecured creditors are bound by all the conditions of the Agreement. It ruled that the unsecured creditors, including Financial Creditors can neither re-claim the loans before liquidation of the term loan, nor can they demand interest on the said unsecured loans..The Bench also came down strongly on the wrongful conduct on the part of the Financial Creditors, who were well aware of the said terms and conditions of the Agreement. The bench said that their plea deserved to be rejected on falsehood alone..In this regard, the bench ruled,.“Suffice to say, such conduct on part of Financial Creditors is not only enormously appalling and unholy but also smacks gross illegality in preferring the application under Section 7 of the IBC”.However, going by merit, the Bench observed that on the date of filing of application by the Financial Creditors, the entire term loan wasn’t repaid and therefore loans due to unsecured creditors could not be liquidated..The bench further ruled,.“The debts due to Financial Creditors have not fallen due for payment, since the quantum of debts suffer from ambiguity, imprecision and vagueness, as has been evident from our foregoing discussion and since in approaching the Authority, the Financial Creditors did not come with clean hands, there cannot be any escape from the conclusion that present application painfully lacks in substance and as such, same is required to be dismissed”.Accordingly, the application was dismissed..A.K. Rai and Khushboo Aggarwal, Advocates appeared on behalf of the Applicants/ Financial Creditors..Kaushik Goswami, Rakesh Sarmah and Arinjoy Sandilya, Advocates appeared on behalf of the Corporate Debtor..(Read the Order)