corporate insolvency resolution process

COVID 19Legislation UpdatesNotifications

The Insolvency and Bankruptcy Board of India (IBBI) amended the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) on 29-03-2020.

2. Government of India has declared a lockdown of twenty-one days with effect from 25th March, 2020 as a measure to combat and contain the spread of COVID-19. It is difficult for the insolvency professionals to continue to conduct the process, for members of committee of creditors to attend the meetings, and for prospective resolution applicants to prepare and submit resolution plans, during the period of lockdown. Therefore, it may be difficult to complete various activities during a corporate insolvency resolution process within the timelines specified in the CIRP Regulations.

3. To address this difficulty, the IBBI amended the CIRP Regulations to provide that the period of lockdown imposed by the Central Government in the wake of COVID-19 outbreak shall not be counted for the purposes of the time-line for any activity that could not be completed due to the lockdown, in relation to a corporate insolvency resolution process. This would, however, be subject to the overall time-limit provided in the Code.

4. The amended regulations are effective from 29-03-2020. These are available at www.mca.gov.in and www.ibbi.gov.in.

Insolvency and Bankruptcy Board of India

[Press Release dt. 29-03-2020]

Case BriefsSupreme Court

Supreme Court: The bench of AM Khanwilkar and Dinesh Maheshwari, JJ has restored the NCLT order wherein it was held that the lenders of Jaiprakash Associates Limited (JAL) were not the financial creditors of the corporate debtor Jaypee Infratech Limited (JIL) and that the transactions in question were to defraud the lenders of the corporate debtor JIL. The Court held,

“such lenders of JAL, on the strength of the mortgages in question, may fall in the category of secured creditors, but such mortgages being neither towards any loan, facility or advance to the corporate debtor nor towards protecting any facility or security of the corporate debtor, it cannot be said that the corporate debtor owes them any ‘financial debt’ within the meaning of Section 5(8) of the Code; and hence, such lenders of JAL do not fall in the category of the ‘financial creditors’ of the corporate debtor JIL.”

The Court was hearing the case relating to JAL, a public listed company with more than 5 lakh individual shareholders, which was facing insolvency proceedings under the Insolvency and Bankruptcy Code, 2016. In the year 2003, JAL was awarded the rights for construction of an expressway from Noida to Agra. A concession agreement was entered into with the Yamuna Expressway Industrial Development Authority. Coming on the heels of this project, JIL was set up as a special purpose vehicle. Finance was obtained from a consortium of banks against the partial mortgage of land acquired and a pledge of 51% of the shareholding held by JAL. The banks in question instituted a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the NCLT, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against JIL, while alleging that JIL had committed a default in repayment of its dues to the tune of Rs. 526.11 crore.

NCLT in it’s order held,

“the transactions in question were to defraud the lenders of the corporate debtor JIL, as 858 acres of unencumbered land owned by the corporate debtor to secure the debt of the related party JAL was mortgaged in the midst of the corporate debtor’s immense financial crunch, while continuing with default towards the home buyers and financial creditors and after it had been declared as Non Performing Asset, in utter disregard to fiduciary duties and duty of care to the creditors; and further that the mortgage of land was created without any counter guarantee from the related party and with no other consideration being paid to the corporate debtor.”

While interpreting Section 43 of the Code, the Supreme Court noticed that the transfers in question could be considered outside the purview of sub-section (2) of Section 43 of the Code only if it could be shown that same were made in the ‘ordinary course of business or financial affairs’ of the corporate debtor JIL and the transferees. It, however, further explained that even when furnishing a security may be one of normal business practices, it would become a part of ‘ordinary course of business’ of a particular corporate entity only if it falls in place as part of ‘the undistinguished common flow of business done’; and is not arising out of ‘any special or particular situation’.

“It is difficult to even surmise that the business of JIL, of ensuring execution of the works assigned to its holding company and for execution of housing/building projects, in its ordinary course, had inflated itself to the extent of routinely mortgaging its assets and/or inventories to secure the debts of its holding company. It had also not been the ordinary course of financial affairs of JIL that it would create encumbrances over its properties to secure the debts of its holding company.”

Holding that the NCLAT had not been right in interfering with the well-considered and justified order passed by NCLT, the Supreme Court said,

“the transactions in question are hit by Section 43 of the Code and the Adjudicating Authority, having rightly held so, had been justified in issuing necessary directions in terms of Section 44 of the Code.”

The Court, hence, concluded:

“1) The impugned order dated 01.08.2019 as passed by NCLAT in the batch of appeals is reversed and is set aside.

2) The appeals preferred before NCLAT against the order dated 16.05.2018, as passed by NCLT on the application filed by IRP, are dismissed; and consequently, the order dated 16.05.2018 so passed by NCLT is upheld in regard to the findings that the transactions in question are preferential within 171 the meaning of Section 43 of the Code. The directions by NCLT for avoidance of such transactions are also upheld accordingly.

3) The appeals preferred before NCLAT against the orders passed by NCLT dated 09.05.2018 and 15.05.2018 on the applications filed by the lender banks are also dismissed and the respective orders passed by NCLT are restored with the findings that the applicants are not the financial creditors of the corporate debtor Jaypee Infratech Limited.”

[Anuj Jain v. Axis Bank Ltd., 2020 SCC OnLine SC 237, decided on 26.02.2020]

Business NewsNews

The Reserve Bank filed an application for initiation of corporate insolvency resolution process against Dewan Housing Finance Corporation Limited (DHFL) under Section 227 read with clause (zk) of sub-section (2) of Section 239 of the Insolvency and Bankruptcy Code (IBC), 2016 read with Rules 5 and 6 of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudication Authority) Rules, 2019 (“FSP Insolvency Rules”).

As per Rule 5 (b) (i) of the FSP Insolvency Rules, an interim moratorium shall commence on and from the date of filing of the application till its admission or rejection. The explanation to Rule 5 (b) provides that “interim moratorium” shall have the effect of the provisions of sub-sections (1), (2) and (3) of Section 14. Sub-sections (1), (2) and (3) of Section 14 of the IBC have been reproduced below:

“(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing off by the corporate debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

(2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.

(3) The provisions of sub-section (1) shall not apply to —

(a) such transaction as may be notified by the Central Government in consultation with any financial regulator;

(b) a surety in a contract of guarantee to a corporate debtor.

Reserve Bank of India

[Press Release dt. 29-11-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal (NCLT): Justice Rajeswara Rao Vittanala (Judicial Member) allowed the Company Petition filed by CloudWalker Streaming Technologies Pvt. Ltd. (Corporate Creditor) under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016 read with Section 6 of the Insolvency and Bankruptcy(Application to Adjudicating Authority) Rules, 2016 against Flipkart India Pvt. Ltd. (Corporate Debtor). The instant petition sought initiation of the Corporate Insolvency Resolution Process (CIRP) on the ground that Flipkart had committed default for an amount of Rs 26.95 crores. 

Anjit Anekar along with Ms. Urvi Vaidya appeared for the petitioners while the respondents were represented by Senior Counsel Dhyan Chinappa, Chinmay. J.  Mirzi and Charitha V.

CloudWalker had entered into a Supply Agreement with Flipkart, but the latter started to delay in taking deliveries and in some cases did not collect them at all. The ramification of this delay was that the Creditor CloudWalker started facing heavy financial losses. When the Debtor Flipkart defaulted in collecting more than 70 per cent of the stock ordered by it, CloudWalker threatened to invoke the arbitration clause of the Supply Agreement. 

The petitioners CloudWalker alleged that the Corporate Debtor company is commercially insolvent and poses a threat to commercial morality. The respondents Flipkart argued that they had already paid in excess of 85 crores towards the invoices raised by the Creditor CloudWalker, and therefore the question of being commercially insolvent was baseless, frivolous and bears mala fide intentions. 

The fact that the respondent company Flipkart had no material proof to deny the charges of committing default and the e-mail exchange presented before the Tribunal, tilted the case in favour of the petitioner CloudWalker.

After examining the facts of the case, the Tribunal opined that the Debtor had committed the default in question and the instant petition met all the essentials of proviso 2 of Section 9 of the IBC. Therefore, the Tribunal allowed the initiation of CIRP in respect of Flipkart India Pvt. Ltd. (Corporate Debtor). [CloudWalker Streaming Technologies (P) Ltd. v. Flipkart India (P) Ltd.,  2019 SCC OnLine NCLT 671, decided on 24-10-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A Bench of Justice Bansi Lal Bhat, Member (Judicial) and Balvinder Singh, Member (Technical), dismissed an appeal filed by the Chairman of the Corporate Debtor challenging the order passed by the National Company Law Tribunal whereby the application filed by the Operational Creditor under Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiation of the Corporate Insolvency Resolution Process against the Corporate Debtor was admitted.

The Operation Creditor initiated the insolvency process alleging that the Corporate Debtor failed to pay the dues pending under the contract entered into between parties whereby the Operational Creditor supplied broken rice and coal to the Corporate Debtor.

S.K. Sahijpal, Rakhi Sahijpal, Manisha Saini and Mihika Gupta, Advocates for the appellant-Chairman contended that there was no privity of contract between the Operational Creditor and the Corporate Debtor. It was contended that the Corporate Debtor had entered into the said supply agreement with one Arun Agarwal and Annapurna Agrawal. It was submitted that the Operation Creditor — Priya Trading Company — was not a party to the said agreement. Per contra, Sangram Patnaik representing Priya Trading Company supported the impugned order passed by NCLT.

Perusing the lawyer’s notice brought on evidence which was sent by Corporate Debtor to Arun Agrawal and Annapurna Agrawal, the Appellate Tribunal noted:

“It is therefore abundantly clear that the ‘Corporate Debtor’ was conscious of the fact that Arun Agrawal and Annapurna Agrawal supplying raw material to it were operating under the name and style of ‘Priya Trading Company’. This admission on the part of ‘Corporate Debtor’ stares at its face and there is no scope for taking a U-turn. The fact that ‘Priya Trading Company’ was the name and style under which Arun Agrawal and Annapurna Agrawal have been operating was never a fact required to be discovered or rediscovered. Both are synonyms and well within the knowledge of the ‘Corporate Debtor’ as also the ‘Appellant’. The ground raised to offset the triggering of CorporateInsolvency Resolution Process at the instance of ‘Priya Trading Company’ as ‘Operational Creditor’ by taking plea of there being no privity of contract between the ‘Operational Creditor’ and the ‘Corporate Debtor’ falls flat and has to be dismissed as being absurd and repugnant to the admitted position in regard to the status and locus standi of the ‘Operational Creditor’.”

Hence, the Appellate Tribunal held that the impugned order does not suffer from any infirmity and therefore, the instant appeal was dismissed.[Vijay Kumar v. Priya Trading Co., 2019 SCC OnLine NCLAT 585, decided on 11-09-2019]

Case BriefsHigh Courts

National Company Law Appellate Tribunal (NCLAT), New Delhi: The 3-Judge Member Bench comprising of Justice S.J. Mukhopadhaya (Chairperson) and Justice A.I.S Cheema (Judicial Member) and Kanthi Narahari (Technical Member), while pronouncing an order in regard to the “Jet Airways” setback addressed the following question:

“Whether separate proceeding(s) in ‘Corporate Insolvency Resolution Process’ against common ‘Corporate Debtor’ can proceed in two different countries, one having no territorial jurisdiction over the other?”

Further, noting the fact that separate ‘Corporate Insolvency Resolution Process’/ liquidation proceedings have been initiated against Jet Airways (India) Limited — ‘Corporate Debtor’, the one in India and another in Netherland, the point of determination as framed was,

“Whether by a Joint Agreement between the ‘Resolution Professional’ of ‘Corporate Debtor’ in India and Administrator in Netherland, as may be approved  by Appellate Tribunal, one proceeding in India can proceed for maximization of the asset of ‘Corporate Debtor’ and balancing all stakeholders, including Indian/Offshore/Creditors/Lenders”?

State Bank of India-Respondent 1, was represented by Ramji Srinivasan, Senior Advocate along with Counsel Karan Khanna.

It was directed to Respondent 1 that it may file a reply suggesting a procedure that may be followed in the facts and circumstances of the case, without any conflicting interest of stakeholders of both the countries.

Tribunal directed case for admission on 21-08-2019.

NCLAT also stated that during the pendency of the appeal, appellant administrator and Respondent 2 – ‘Interim Resolution Professional’ will cooperate with each other. It will be open to the appellant administrator to collate the claims of offshore creditors including ‘Financial Creditors’, ‘Operational Creditors’ and other stakeholders and forward their details to Respondent 2-‘Resolution Professional’ for purpose of preparing the Information memorandum with approval of ‘Committee of Creditors’.

Counsel, Sumant Batra who appeared on behalf of appellant administrator assured that-

  • Appellant Administrator will cooperate in the proceedings in India;
  • Will not sell, alienate, transfer, lease or create any 3rd party interest on the offshore movable and immovable assets of ‘Corporate Debtor’.

In respect to the above undertaking by an appellant administrator, the impugned order dated 20-06-2019 passed by NCLT, so far as it relates to the declaration that offshore proceeding is not maintainable, shall remain stayed.

  • Interim Resolution Professional of this country will ensure that ‘Corporate Debtor’ remains a going concern and will take the assistance of the (suspended) Board of Directors, paid directors and employees.
  • Person authorised to sign bank cheques may issue cheques only after Interim Resolution Professional’s authorisation.
  • Bank accounts of Corporate Debtor be allowed to be operated for the day-to-day functioning of the company such as for payment of current bills of suppliers, salaries and wages of paid director, employees’/workmen electricity bills, etc., subject to availability of fund.[Jet Airways (India) Ltd. v. SBI, 2019 SCC OnLine NCLAT 385, decided on 12-07-2019]
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): Justice Bansi Lal Bhat and Balvinder Singh, Members (Judicial) held that the application filed by the appellant under Section 9 of the Insolvency and Bankruptcy Code, 2016 was not maintainable as it was based on a foreign decree passed ex-parte and not on merits, and until the judicial proceedings regarding execution of the same pending before the Indian Courts fructify in a decree favouring the appellant, the claim of the appellant could not be held to have crystallized into a “debt payable in law”.

The appellant worked for the respondent, KEC International Ltd., in the Democratic Republic of Congo. He raised certain disputes regarding his employment and termination thereof, whereupon the Labour Court of Congo awarded a decree in favour of the appellant. However, KEC International did not comply with the same. The appellant returned to India and filed a suit before the Bombay High Court under Section 13 CPC. During the pendency of the said suit, the appellant filed an application against KEC International for initiation of corporate insolvency resolution process under Section 9 IBC. The said application was declined to be admitted by the National Company Law Tribunal, Mumbai, on the ground that there was a dispute as to the existence of an operational debt, since the foreign decree which was the basis of the appellant’s claim was a matter of pending adjudication before the Bombay High Court. Aggrieved by the said order, the appellant approached the Appellate Tribunal.

The appellant was represented before the Appellate Tribunal by K.S. IIangovan and P. Jegan, Advocates. Per contra, K. Datta, Shakunt Sumitra and Pallavi Srivastava represented KEC International.

The issue requiring determination was whether, in absence of adjudication of the foreign decree passed by a court in a non-reciprocating territory, which was relied upon by the appellant, he was legally justified in seeking initiation of corporate insolvency resolution process under Section 9 IBC against KEC International.

The Appellate Tribunal noted that in Congo, the suit was decreed in appellant’s favour in ex-parte, on account of non-appearance of KEC International. It was not disputed that such ex-parte decree of a foreign court would not be executable in India until adjudicated upon by a Civil Court in India within the ambit of Section 13 CPC and having regard for the same, the appellant chose to file suit before Bombay High Court, which was still sub-judice. Upon the decretal amount was adjudicated upon by the High Court as a legally payable claim, the same would not constitute a “Debt” in the hands of the appellant and unless the debt was crystallised as payable in law, the issue of default would not be attracted.

The Appellate Tribunal was of the opinion: “the adjudication initiated by the appellant before Bombay High Court wherein adjudication is sought in regard to foreign decree obtained ex-parte falls within the purview of a pre-existing dispute placing an embargo on the powers of Adjudicating Authority to initiate corporate insolvency resolution process at the instance of a corporate debtor. This is apart from the fact that until such adjudication fructify in a decree favouring the appellant, the claim of the appellant cannot be held to have crystallized into a debt payable in law.”

Thus, finding no scope to interfere with the order of the NCLT, the appeal was dismissed for being devoid of merits. [Peter Jhonson John v. KEC International Ltd., 2019 SCC OnLine NCLAT 375, decided on 03-07-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A Bench comprising of Justice A.I.S. Cheema, Member (Judicial) and Balvinder Singh, Member (Technical) dismissed an appeal filed against the order of National Company Law Tribunal (Mumbai) whereby it had admitted application filed by Operational Creditor under Section 8 read with Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiation of Corporate Insolvency Resolution Process against Corporate Debtor.

Appellant was the Managing Director of Corporate Debtor. His submissions as to existence of dispute as contemplated under the code were not accepted. The main point considered by the Appellate Tribunal was regarding the non-observance of the provision of serving of notice by the Adjudicating Authority (NCLT) before admitting the application. It was argued by the appellant that absence of service of notice by the Adjudicating Authority itself violates principles of natural justice. Reliance was placed upon Starlog Enterprises Ltd. v. ICICI Bank Ltd., 2017 SCC OnLine NCLAT 13 and Mass Metals (P) Ltd v. Sunflag Iron and Steel Co. Ltd., 2017 SCC OnLine NCLAT 504. It was also an admitted fact that the appellant received the notice sent under Section 8 of I&B Code but Veritas Legal, Advocates & Solicitors of operational Creditor but it was contended that Veritas Legal was not the filing authority of the application in NCLT and nor was it authorised by any Board Resolution to act on behalf of Operational Creditor.

The Appellate Tribunal was of the view that Corporate Debtor and appellant had knowledge of the legal proceedings and also of the notice. It observed, “When advocate sends the notice, it is on instructions from the client and the same cannot be ignored by saying that the advocate should also forward authority and Resolution of the Company.” In regard to the requirement of notice to be sent by Adjudicating Authority, the Appellate Tribunal observed that the appellant had sufficient notice and still chose not to appear before NCLT. In such a case, the non-observance of the requirement was not fatal to the appellant’s case. Resultantly, it was held that the appeal was sans merit and was thus dismissed. [J.B. Tiwari v. Biostadt India Ltd., 2018 SCC OnLine NCLAT 563, decided on 30-11-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A two-member bench comprising of Justice S.J. Mukhopadhaya and Balvinder Singh, Member (Technical) restored the Corporate Insolvency Resolution Process as initiated against the appellant – Corporate Debtor.

Brief facts of the case are that the respondent Bank preferred applications under Section 9 of the I&B Code against the appellant which were admitted by the National Company Law Tribunal, New Delhi. The said decision was challenged by the appellant before the Appellate Tribunal whereby the order of admission was dismissed. Thereafter, against the decision of the Appellate Tribunal, the respondent filed an appeal in the Supreme Court. The Court remitted the matter back to the Appellate Tribunal for reconsideration, pursuant to which instant proceedings were held.

The Appellate Tribunal, while reconsidering the matter, took note of the fact that the appeals were filed by the suspended Board of Directors. Reliance was placed on Innoventive Industries Ltd. v. ICICI Ltd., (2018) 1 SCC 407 to hold that an appeal filed under I&B Code by Corporate Debtor through suspended Board of Directors is not maintainable. That apart, it was reiterated that in view of the substantive provisions of the Code, it was always open to the respondent to file applications under Section 9 in case of debt or a default. Resultantly, the Corporate Insolvency Resolution Process initiated against the appellant was restored. The NCLT was directed to proceed with the matter in accordance with law. [Shilpi Cable Technologies Ltd. v. Macquarie Bank Ltd.,2018 SCC OnLine NCLAT 383, dated 08-08-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A two-member bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Justice Bansi Lal Bhat, Member (Judicial), allowed an appeal filed against the order of the National Company Law Tribunal, Chennai whereby the appellant was directed to withdraw the complaint case filed under Section 138 of the Negotiable Instruments Act, 1881.

The appellant had filed a complaint case under Section 138 against the defendants before the Metropolitan Magistrate after initiation of Corporate Insolvency Resolution Process and the order of moratorium. The respondents-Directors moved the NCLT which directed the appellants to withdraw the case treating it as a proceeding filed after order of moratorium with observations that such action amounts to misuse of power. Aggrieved thus, the appellant approached the Appellate Tribunal. The question that arose for consideration was ‘whether the order of moratorium covers a criminal proceeding under Section 138 of the NI Act which provides punishment of imprisonment or imposition of fine’.

It is pertinent to note that Section 14 of the Insolvency and Bankruptcy Code, 2016 prohibits any proceeding or judgment or decree of money claim against the corporate debtor after the order of moratorium which is passed on the insolvency commencement date. The Appellate Tribunal observed that Section 138 is a penal provision; the imposition of a fine cannot be held to be a money claim or recovery against the Corporate Debtor. As such, the said section is not covered within the purview of Section 14 I&B Code. In fact, no criminal proceeding is covered under the section. It was held that the NCLT failed to appreciate the law, and therefore, the order impugned was set aside. [Shah Brothers Ispat (P) Ltd. v. P. Mohanraj,2018 SCC OnLine NCLAT 415, dated 31-07-2018]

 

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal:  A two-member bench comprising of S.J. Mukhopadhaya and Bansi Lal Bhat, J., dismissed a company appeal filed against the order of the National Company Law Tribunal which dismissed the appellant’s application filed under Section 7 of the Insolvency and Bankruptcy Code 2016, for initiation of Corporate Insolvency Resolution Process.

The appellant (operational creditor) cited a long list of cases to substantiate its application. The question before the Tribunal was whether an application under Section 7 of the Insolvency and Bankruptcy Code 2016 was maintainable even when the winding up proceedings against the corporate debtor had already been initiated. It was an admitted fact that the Bombay High Court had already ordered the winding of the corporate debtor. Referring to various judgments, the Tribunal, held that an application for initiation of Corporate Insolvency Resolution Process was not maintainable. The Tribunal observed that winding up order is the second stage and corporate insolvency resolution process is the first. Therefore, the order for initiation of the first stage cannot be passed after order directing the compliance of the second stage had already been issued. As a result, the Tribunal dismissed the company appeal preferred by the appellant. [Indiabulls Housing Finance Ltd. v. Sree Ram Urban Infrastructure Ltd., 2018 SCC OnLine NCLAT 282, order dated 30-05-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The NCLAT has held that initiation of Corporate Insolvency Resolution Process (“CIRP”) must be ordered only if there exists a default on part of the corporate debtor and not merely because there is a debt on which no default has occurred as such.

The appellant-corporate debtor had approached the NCLAT against an order passed by the National Company Law Tribunal, New Delhi (“NCLT”) through which the NCLT had, upon hearing an application by the operational creditor under S. 9 of the Insolvency and Bankruptcy Code, 2016 (“the Code”) had placed a moratorium on the functioning of the appellant and ordered CIRP to be initiated. A Resolution Professional was appointed for the same.

It was contended by the appellant that the agreement between the appellant and the respondent stipulated that the debt would mature when a third party, to which the respondent supplied certain goods, shall pay for those goods to the appellant. The appellant had already paid a substantial part of the debt, i.e. Rs. 78 crores, and the outstanding amount of Rs. 1.75 crores had not been paid yet as the same had not been received by the appellant from the third party.

The appellant also submitted that since no payment had been received from the third party, the debt had not yet matured hence the application to the NCLT under Section 9 of the Code and the subsequent order was invalid. Further, the outstanding amount was paid to the appellant after the initiation of CIRP, and the debt has matured, it was paid to the respondent in full. Hence there was no default on part of the appellant when the order to initiate CIRP was passed since the debt had not become payable by then. These submissions were not contended by the respondent.

Hence the NCLAT observed that the NCLT had erred in passing the impugned order since such an order would be made only if a default listed in the Code would have taken place. Merely because a debt existed against the appellant was not a ground to initiate CIRP and place a moratorium on the appellant’s functioning. The order by the NCLT and all actions taken by the Resolution Professional pursuant to that order were declared illegal and the appellant was declared at liberty to operate under its own Board of Directors. [The State Trading Corporation of India Ltd. v. Gandhar Oil Refinery India Ltd., Company Appeal (AT)(Insolvency) No. 236/2018, decided on 24.05.2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The NCLAT heard an appeal against the order passed by the National Company Law Tribunal, Mumbai Bench (“NCLT”) regarding time period allotted for completing Corporate Insolvency Resolution Process (“CIRP”) under the Insolvency and Bankruptcy Code, 2016 and certain observations made by the NCLT against the Resolution Professional (“RP”).

With regard to the expire of the time limit for the CIRP proceedings, the NCLAT referred to a recent decision of its own in Quinn Logistics India Pvt. Ltd. v. Mack Soft Tech Pvt. Ltd., 2017 SCC OnLine NCLAT 474 where the NCLAT held:

“[I]t is always open to the Adjudicating Authority/Appellate Tribunal to ‘exclude certain period’ for the purpose of counting the total period of 270 days if the facts and circumstances justify exclusion.

10. For example, for following good grounds and unforeseen circumstances, the intervening period can be excluded for counting of the total period of 270 days of resolution process:

(i)- (ii)                     *                         *                                     *

(iii) The period between the date of order of admission/moratorium is passed and the actual date on which the ‘Resolution Professional’ takes charge for completing the corporate insolvency resolution process.

(iv) – (vi)                *                          *                                   *

However, after exclusion of the period, if further period is allowed the total number of days cannot exceed 270 days which is the maximum time limit prescribed under the Code.”

In the present case, the case was admitted for CIRP on 16.08.2017, and the RP assumed charge on 14.09.2017, that is 30 days. Therefore the NCLAT directed the NCLT, Mumbai Bench to exclude the said period of 30 days from the limit set to complete the CIRP proceedings and modified the impugned order to that extent. [Velamur Varadan Anand v. Union Bank of India,2018 SCC OnLine NCLAT 258, decided on 16-05-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, Principal Bench: Bank of Baroda, the Financial Creditor filed an application to trigger the Corporate Insolvency Resolution Process under Section 7 of the Insolvency and Bankruptcy Code, 2016 against Amrapali Silicon City Pvt. Ltd., the Corporate Debtor. The financial debt was set out in the form of a loan agreement between the debtor and the financial creditor wherein an amount of Rs. 100 crores was sanctioned to the corporate debtor. Amrapali Silicon City Pvt. Ltd. defaulted in paying an outstanding amount of Rs. 56 crore in March, 2016. The question which arose for consideration for the Principal Bench, NCLT was whether the Financial Creditor was able to satisfy the requirement of Section 7 of the Insolvency and Bankruptcy Code (IBC) to initiate a Corporate Insolvency Resolution Process lawfully showing the presence of a default.

Amrapali Silicon City told the Bench said that Bank of Baroda, which is the lead bank of the consortium of lenders, could not individually enforce any right or obligation of the term loan agreement. It contended that the insolvency application even otherwise was incomplete and the same was liable to be rejected. But the Bench dismissed the opposition arguing that the “Explanation to Section 7 (1) clarifies that for the purposes of Section 7, a default includes a default in respect of financial debt, owed not only to the applicant-financial creditor but to any other financial creditor of the Corporate Debt. Moreover, no other financial creditor has come to the forefront to oppose the application”.

The Principal Bench of NCLT, headed by Chief Justice M.M. Kumar, admitted the plea by Bank of Baroda against Amrapali Silicon City Pvt. Ltd. and stated that it would appoint an Interim Resolution Professional who will invite claims from creditors to the company and prepare a resolution plan within the time-frame stipulated under the IBC, 2016. [Bank of Baroda v. Amrapali Silicon City Pvt. Ltd., 2017 SCC OnLine NCLT 814, decided on 4.9.2017]