Case BriefsSupreme Court

Supreme Court: In the Reliance Commercial takeover dispute, the 3-judges Bench comprising Dr. D Y Chandrachud*, Surya Kant and A S Bopanna, JJ., gave a green signal to the voting process to implement the resolution plan. The Court, though upheld the applicability of SEBI circular, it opined that the different voting mechanism proposed under the SEBI Circular will further delay the resolution process and potentially disrupt the efforts undertaken by the stakeholders, including the retail debenture holders. The Court noted,  

“Such unscrambling of the resolution process will not only prove time-consuming, but may also adversely affect the agreed realized gains to the retail debenture holders, who have already consented to the negotiated settlement before the High Court.” 

Factual Matrix 

The instant case relates to takeover of Reliance Commercial Finance Ltd. (RCFL) by Authum Investment and Infrastructure Ltd.; where a dispute arose with regard to the applicability of two circulars issued by RBI and SEBI— Reserve Bank of India (Prudential Framework for the Resolution of Stressed Assets) Directions 2019 and SEBI Standardisation of procedure Circular (13-10-2020).   

RCFL had issued Non-Convertible Debentures to various persons and Vistra ITCL (India) Ltd. was the Debenture Trustee under three Debenture Trust Deeds. RCFL committed its first default under the Debenture Trust Deeds in March 2019. 

The dispute 

Seventeen debenture holders instituted a suit on the Original Side of the Bombay High Court for protection of their interests with respect to the amounts due to them by RCFL, alleging that certain funds available with the Bank of Baroda, were distributed amongst creditors without regard to their status as secured or unsecured creditors without their consent and that they had a first charge on the receivables of RCFL.  

The debenture holders further alleged that the RBI Circular permitted this illegal distribution of funds and hence they urged for setting aside of the RBI Circular as illegal and ultra vires. They also sought an injunction restraining RCFL, Bank of Baroda, and RBI from implementing the RBI Circular. 

Impugned Decision  

The Single Judge held that the SEBI Circular could not be permitted to operate retrospectively and did not govern the Debenture Trust Deeds.  However, opining that a mere reference to the SEBI Circular would not override the express terms of any of the Debenture Trust Deeds, the Single Judge allowed to proceed with the voting process for the takeover of RCFL according to Debenture Trust Deeds signed in compliance with the RBI circular. In appeal, the Division Bench affirmed the aforesaid order of the Single Judge. 


Based on the submissions canvassed by the parties, the following issues arose for determination: 

  1. Whether the civil court had the jurisdiction to entertain the lis in this case; and 
  2. Whether the debenture holders and other parties in the present case were required to follow the procedure under the SEBI Circular. 

Issue 1: Jurisdiction  

On the first issue, the Court noted that Section 15Y of the SEBI Act imposes a bar on the civil court to entertain any suit in respect of any matter that an adjudicating officer appointed under the SEBI Act is empowered to determine; however, since the Adjudicating officer has no jurisdiction under the SEBI Act to grant the relief sought by the plaintiffs in the first instance, the bar in Section 15Y would not operate as against the suit in the instant case. 

Similarly, with regard to the bar under Section 430 of the Companies Act that no civil court shall have the jurisdiction to entertain any suit in respect of any matter which the National Company Law Tribunal or the National Company Law Appellate Tribunal is empowered to determine, the Court observed that since neither the NCLT nor the NCLAT has jurisdiction to adjudicate upon a challenge to the RBI Circular, the bar in Section 430 is not attracted in the case at hand. 

Therefore, the Court held that the Single Judge as well as the Division Bench of the Bombay High Court properly exercised jurisdiction over the subject matter of the suit. 

Issue 2: Applicability of the SEBI Circular  

The RBI Circular provided that certain lenders may opt for a resolution strategy available to them under the existing legal framework, including entering into a resolution plan or initiating legal proceedings for recovery or insolvency. If the lenders chose to implement a Resolution Plan, they were required to enter into an Inter-creditor Agreement (ICA). 

By issuing the SEBI Circular, SEBI subscribed to the overall framework of the RBI Circular and permitted debenture holders to participate in the process specified in the RBI Circular to enter into a Resolution Plan (RBI circular provides only lenders can participate). Under the RBI Circular, the Resolution Plan cannot come into existence without an ICA. The SEBI Circular does not disturb this position. Hence, both the RBI Circular and the SEBI Circular refer to one and the same ICA and Resolution Plan.  

Rejecting the RCFL’s argument that Clauses 22 and 23 of the Fifth Schedule to the Debenture Trust Deed(s) are not concerned with signing an ICA or with the subject matter of the SEBI Circular in general, the Court observed that RCFL’s suggestion that the ICA and the Resolution Plan are distinct and severable is an incorrect interpretation of the circulars in question. The ICA and the Resolution Plan are inextricably intertwined and the latter has its genesis in the former and flows from it. 

Hence, the Court held that any reference to an ICA in the SEBI Circular is also necessarily a reference to the Resolution Plan and vice versa. It is not open to debenture holders to participate in the implementation of the Resolution Plan without being involved in its genesis through the ICA. The Court remarked,  

“There is only one ―door, so to speak, through which debenture holders can gain entry into the Resolution Plan with the lenders and that is through the ICA. Therefore, while the SEBI Circular does not mandate the execution of an ICA as the only route to entering a compromise with the issuer company, it lays down a procedure in the event that debenture holders choose the route of implementing a Resolution Plan with the lenders. This procedure cannot be circumvented.” 

Upholding the applicability of the SEBI circular, the Court pointed out the following: 

  • The purpose of the SEBI Circular is multi-fold – not only does it protect the interests of debenture holders at large (Clause 7), but it also protects the interests of any dissenting debenture holders (Clause 6.6).  
  • In the absence of Clause 7, debenture trustees would likely be unable to exit the ICA or the Resolution Plan even if they were not ―in the interest of investors or if the Resolution Plan was not finalized within 180 days from the end of the review period.  
  • Significantly, the absence of Clause 6.6 could mean that dissenting debenture holders would be bound by decisions taken even by way of a simple majority.  
  • We agree that the language in Regulation 15(7) of the 1993 Regulations and the SEBI Circular is facilitative and not mandatory. This is in recognition of the fact that debenture holders may opt to exercise their rights through mechanisms other than the execution of a Resolution Plan.  
  • The language cannot be construed to be facilitative in the sense of providing debenture holders with the option of by-passing the modalities prescribed by the SEBI Circular while accepting a Resolution Plan. The ICA continues to be the foundation or mother document for the Resolution Plan. 

Retroactive Application of the SEBI Circular  

Though RCFL issued the debentures and defaulted on the payments to the debenture holders prior to the issuance of the SEBI Circular, the Court culled out the following points to uphold the retroactive applicability of the SEBI Circular: 

  • On 13-10-2020 (when the SEBI Circular came into force), a compromise or agreement on the restructuring of the debt owed by RCFL did not exist. The debenture holders were not vested with any rights with respect to the resolution of RCFL‘s debt.  
  • The existence of the debt and the subsequent default by RCFL was the status of events, which existed prior to 13 October 2020. Once it came into force, the SEBI Circular applied to the manner of resolution of debt, as specified therein. 
  • Even assuming that debenture holders were vested with the right to sanction a compromise or arrangement in terms of the special majority in Clause 23 to the Fifth Schedule of the Debenture Trust Deed, they were divested of such a right upon the issuance of the SEBI Circular.  
  • Clause 59 of the Debenture Trust Deed stipulates that any provision in the Debenture Trust Deed which is in conflict with the 1993 Regulations is null and void.  
  • A contractually vested right may be taken away by the operation of a statutory instrument. The SEBI Circular owes its existence to statutory powers conferred by special legislation.  

Can SEBI Circular Bind Dissenting Debenture Holders 

SEBI contended that the compromise arrived at in terms of the direction of the High Court will also bind all the other debenture holders, who were not a party to the original suit before the High Court which will prejudice the dissenting debenture holders as they have to settle for a lesser amount – 24.96% of the principal among with a further 5% of the principal outstanding.  

Agreeing with SEBI‘s submission that the compromise arrived at the Debenture Trust Deed level among the consenting debenture holders should not bind the dissenting debenture holders, the Court directed that the dissenting debenture holders should be provided an option to accept the terms of the Resolution Plan.  

Alternatively, the Court held that the dissenting debenture holders have a right to stand outside the proposed Resolution Plan framed under the lender‘s ICA and pursue other legal means to recover their entitled dues. Hence, the Court disapproved the High Court’s interpretation of SEBI circular.  

Findings and Conclusion  

Though the Court upheld the applicability of the SEBI circular, it refrained from applying the same due to following findings:  

  • Under the present scheme of the Resolution Plan, retail debenture holders having exposure of up to INR 10 lakhs would stand to realize 100% of their principal dues. The secured retail debenture holders having an exposure of more than INR 10 lakhs would realize 29.69%. 
  • In comparison, the secured ICA lenders would receive 24.96% of their principal amount, which is lower than the recovery made by the debenture holders. It is also important to highlight that none of the debenture holders have raised any grievance with regard to the proposed compromise.  
  • The different voting mechanism proposed under the SEBI Circular will further delay the resolution process and potentially disrupt the efforts undertaken by the stakeholders, including the retail debenture holders.  
  • Such unscrambling of the resolution process will not only prove time-consuming, but may also adversely affect the agreed realized gains to the retail debenture holders, who have already consented to the negotiated settlement before the High Court. 

The Court observed,  

“In such a situation, application of the SEBI Circular, though right in law, may lead to unjust outcomes for the retail debenture holders if this court were to reverse the entire course of action which has occurred in the present case.” 

Relying on State v. Kalyan Singh, (2017) 7 SCC 444, the Court opined that the jurisdiction under Article 142 can be used to relax the rigors of law depending upon the peculiar facts and circumstances. Hence, considering that the compromise presently arrived at, which is in the interests of all the parties, will be disturbed if a new process is directed to be commenced in accordance with the SEBI Circular at the present stage, the application of the SEBI Circular will lead to a scenario where a Resolution Plan validly agreed upon by the ICA lenders under the RBI Framework will have to be unscrambled.  

Hence, the Court extended the benefit under Article 142 to the retail debenture holders by allowing the Resolution Plan to pass muster. The appeal was partly allowed and the Authum was allowed to process the takeover of RCFL.  

[SEBI v. Rajkumar Nagpal, 2022 SCC OnLine SC 1119, decided on 30-08-2022] 

*Judgment by: Justice Dr. D Y Chandrachud 


For SEBI: N Venkataraman, Senior Counsel & Additional Solicitor General  

For RCFL: Darius Khambata, Senior Counsel 

For Bank of Baroda: KV Viswanathan, Senior Counsel  

For Authum Investment and Infrastructure Ltd.: Dhruv Mehta, Senior Counsel 

*Kamini Sharma, Editorial Assistant has put this report together.  

Financial Creditor
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, New Delhi: The bench of Abni Rajan Kumar Sinha, Judicial Member and Hemant Kumar Sarangi, Technical Member has held, that default made in payment of instalment amount as per the terms of the settlement agreement does not fall under the definition of operational debt.

Facts of the case

Operational creditor, Ahluwali Contracts (India) Pvt. Ltd. entered into a Memorandum of Understanding (MoU)/ Settlement Agreement with corporate debtor, Logix Infratech Pvt. Ltd. on 30-09-2019 for the final settlement against the work done by the operational creditor according to the ‘Work Contracts’.

The operational debtor defaulted in making payments of instalments as determined under the settlement agreement. Operational creditor filed a company petition seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against corporate debtor by invoking the provisions of Section 9 r/w Rule 6 of the Insolvency and Bankruptcy Code, 2016 (IBC) for a resolution of Operational Debt of Rs 7,72,00,000.

Issue Whether the breach of terms and conditions mentioned under the settlement agreement comes within the purview of ‘operational debt’?

Analysis and decision

Firstly, the Bench noted that operational debt means a claim in respect of provision of goods and services including employment. In the present petition, the claim of the operational creditor did not fall under the category of either goods or services provided by the operational debtor. Rather, the present application was being pressed by the operational creditor only in respect of default made due to the breach of terms and conditions mentioned under the settlement agreement.

At this juncture, the bench referred to the decision of NCLT, Allahabad in Delhi Control Devices Pvt. Ltd. v. Fedders Electric and Engineering Ltd. (Company Petition (IB) No. 343/ALD/ 2018 wherein the bench held that, “unpaid instalment as per the agreement cannot be treated as operational debt a per Section 5(21) of IBC. The failure or Breach of settlement agreement can’t be a ground to trigger CIRP against corporate debtor under the provision of IBC 2016 and remedy may lie elsewhere not necessarily before the Adjudicating Authority”. A similar view was followed in the case Nitin Gupta v. International Land Developers Pvt. Ltd. (IB No. 507/ND/2020).

Hence, the bench applied the same principle as laid down in the aforementioned cases and considered that the default of payment of settlement agreement does not come under the definition of operational debt.

Therefore, the bench dismissed the application.

[Ahluwali Contracts (India) Pvt. Ltd. v Logix Infratech Pvt. Ltd., 2022 SCC OnLine NCLT 169, decided on 03-06-2022]

Advocates before the Tribunal

For the Applicant: Adv. Dhruv Rohatgi

For the Respondent: Adv. Nitish K. Sharma

Case BriefsTribunals/Commissions/Regulatory Bodies

A coram of Justice Ashok Bhushan (Chairperson), Shreesha Merla (Technical member) and Naresh Salecha (Technical Member) has held that non-payment of TDS by the Corporate Debtor is not a default and an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) cannot be admitted over the same.

Factual Background:

The present Appeal was preferred by a ex director of the CD against the order of the Adjudicating Authority which admitted a Section 9 application filed by the Operational Creditor (OC).

The facts leading up to the Section 9 application were as such. The OC had preferred a Section 9 application, however the parties agreed to enter into a settlement. The Adjudicating Authority passed an order to the effect, that the application could be revived in the event of settlements talks failing.  Subsequently, the CD and OC entered into certain settlements. The settlement explicitly conveyed that the amounts were inclusive of the TDS amount.

Subsequent to settlement amounts being paid by the CD, the OC prayed before the Adjudicating Authority revival of the Section 9 Application and the Adjudicating Authority passed an order asking the CD to indicate the details of the payment.

Consequently, via a supplementary affidavit the appellants conveyed the Adjudicating Authority that certain TDS amounts remained outstanding. Post this, the Adjudicating Authority admitted the Section 9 application and it is this order that the appeal has been preferred.

Observations and Decision:

The Tribunal observed that there was no event or scope of settlement talks between parties failing and thus the Adjudicating Authority could not have intervened and made an order approving the revival.

The only outstanding amount payable were the two TDS amounts. It was held that non-payment of the TDS amount by the CD was no occasion for admitting Section 9 application by the Adjudicating Authority.  The appropriate authority for taking action against non-payment of TDS is provided under Income Tax Act, 1961 and is in the domain of income tax authorities. Therefore, the approval of Section 9 application was termed to be unsustainable and set aside.

Further, the tribunal clarified that the provisions of the IBC could not be used for giving effect to the recovery of TDS amounts. Appeal was allowed with a cost of Rupees One Lakh on the OC for misusing the process under IBC.

[Amitabh Roy v Master Development Management (India) Pvt. Ltd., 2022 SCC OnLine NCLAT 240, decided on 18-5-2022]

Advocates appearing before NCLAT:

For appellants: Mr Anand Sukumar, Mr Mainak Bose and Mr Bhupesh Kumar Pathak

for Respondent: Mr Ankur Rai

Case BriefsHigh Courts

Orissa High Court: R K Pattnaik, J. dismissed the petition and held that the ground on which the petition is raised is misconceived and therefore, cannot be sustained.

The facts of the case are such that the  petitioner is an accused in a complaint case filed by OP 1 pending before the court below for an offence punishable under Section 138 of the Negotiable Instruments Act, 1881 ( ‘the NI Act’) alleging therein that the former had taken a hand loan of Rs.40,000/- to meet his personal needs and when it could be paid back, some henchmen of OP 1 forcibly entered inside his residence and managed to obtain a cheque for an amount of Rs.40,000/- drawn in the UCO Bank, Khurda Branch, Khurda and thereafter, presented it before the bank for encashment but it could not be honored for insufficient funds in the account and again after five months, it was again submitted and yet dishonored with a similar endorsement dated 18th October, 2010. The cognizance was taken and now it is raised for dispute that court below could not have taken cognizance of the offence under Section 138 of the N.I. Act after it was presented for encashment once again after about five months which is not permitted under law. Hence the petitioner assailed the legality and judicial propriety of order of cognizance and invoked jurisdiction under Section 482 Cr.P.C on the grounds inter alia that it is not sustainable in law and therefore, liable to be quashed.

The issue that came for consideration is that the question is, whether on the basis of a statutory notice issued by OP 1 subsequent to dishonor of cheque about five months before, the learned court below could have entertained the complaint and taken cognizance of offence under Section 138 of the N.I. Act as against the petitioner?

The Court relied on Sadanandan Bhadran v. Madhavan Sunil Kumar, (1998) 6 SCC 514 and observed that to the extent that second and successive presentation of a cheque is legally permissible as long as it is within six months or validity of the cheque, whichever is earlier.

The Court reiterated that a prosecution based on a second or successive default in payment of the cheque amount should not be impermissible simply because no prosecution based on the first default which was followed by statutory notice and a failure to pay had not been launched. Hence no real or qualitative difference exists between a case where default is committed and prosecution immediately launched and another, where the prosecution is deferred till the cheque presented again gets dishonored for the second or successive time.

With regard to the purport of NI Act the Court observed that if the entire purpose underlined Section 138 of the N.I. Act is to compel the drawers to honor their commitments made in course of business or other transactions, there is no reason why a person who has issued a cheque which is dishonored and who failed to make payment despite statutory notice served upon him should be immune to prosecution simply because the holder of the cheque had not rushed to the court with a complaint based on such default or for the reason that the drawer has made the holder defer prosecution promising to make arrangements for funds or on account of any other similar situation.

The Court concluded after perusing various judgments on the similar point of law that such a criminal action on a subsequent statutory notice or a notice sent for the first time after dishonor of cheque previously for which prosecution was not launched on the promise of the accused to make arrangement for funds, a complaint cannot be held as not maintainable.

The Court thus observed that in the present case OP 1 did not send any statutory notice after the cheque was dishonored in the month of May, 2010 but once again presented it within the validity period of the cheque and thereafter, issued the statutory notice as required under law and under such circumstances, it cannot be said that the complaint is invalid.

The Court thus held “the contention of the petitioner vis-à-vis maintainability of the complaint on the ground raised is misconceived and therefore, cannot be sustained.”

[Gadadhar Barik v. Pradeep Kumar Jena, 2022 SCC OnLine Ori 1052, decided on 07-04-2022]


For Petitioner- Mr. A. Pattanaik

For Opposite Parties- Mr. D.R. Parida

Arunima Bose, Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: The bench of Ajay Rastogi and Abhay S. Oka, JJ has held that any default or delay in the payment of EPF contribution by the employer under the Employees Provident Fund & Miscellaneous Provisions Act, 1952 is a sine qua non for imposition of levy of damages under Section 14B and mens rea or actus reus is not an essential element for imposing penalty/damages for breach of civil obligations/liabilities.

In the case at hand, the establishment of the appellant(s) was covered under the provisions of the Act 1952, but still failed to comply with the same and for such non-compliance of the mandate of the Act 1952, initially the proceedings were initiated under section 7A and after adjudication was made in reference to contribution of the EPF which the appellant was under an obligation to pay and for the contravention of the provisions of the Act 1952, the appellant(s) indeed committed a breach of civil obligations/liabilities and after compliance of the procedure prescribed under the Act 1952 and for the delayed payment of EPF contribution for the period January 1975 to October 1988, after affording due opportunity of hearing as contemplated, order was passed by the competent authority directing the appellant(s) to pay damages as assessed in accordance with Section 14B of the Act 1952.

The Division Bench of Karnataka High Court under the impugned judgment held that once the default in payment of contribution is admitted, the damages as being envisaged under Section 14B of the Act 1952 are consequential and the employer is under an obligation to pay the damages for delay in payment of contribution of EPF under Section 14B of the Act 1952.

The Supreme Court was, hence, called upon what will be the effect and implementation of Section 14B of the Act 1952 and as to whether the breach of civil obligations or liabilities committed by the employer is a sine qua non for imposition of penalty/damages or the element of mens rea or actus reus is one of the essential elements has a role to play and the authority is under an obligation to examine the justification, if any, being tendered while passing the order imposing damages under the provisions of the Act 1952.

The Court relied on the three-Judge Bench ruling in Union of India v. Dharmendra Textile Processors, (2008) 13 SCC 369 while examining the scope and ambit of Section 271(1)(c) of the Income Tax Act, 1961 held that as far as the penalty inflicted under the provisions is a civil liability is concerned, mens rea or actus reus is not an essential element for imposing civil penalties

“18. The Explanations appended to Section 271(1)(c) of the IT Act entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. … Object behind enactment of Section 271(1)(c) read with Explanations indicate that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under Section 276-C of the IT Act.”

Bound by the ruling in the aforementioned judgment, the Court upheld the verdict of the High Court.

[Horticulture Experiment Station Gonikoppal, Coorg v. Regional Provident Fund Organization, 2022 SCC OnLine SC 223, 23.02.2022]

*Judgment by: Justice Ajay Rastogi

National Company Law Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, Mumbai: The Coram of H.V. Subba Rao, Judicial Member addressed the relevancy of insufficiency of stamp duty under Section 7 proceedings of Insolvency and Bankruptcy Code, 2016

“…a Section 7 application under the IBC can be filed in a simple form prescribed in the Code even without any pleadings.”

Point of Reference:

Whether the Debenture Trust Deed dated 1st March, 2014 and Redeemable Non-Convertible Debenture Subscription Agreement dated 1st March, 2014, shall be impounded and be sent for payment of requisite stamp duty in accordance with the Maharashtra Stamp Act?


Main company petition was filed by M/s Vistara ITCL (India) Limited as Financial Creditors against M/s Satra Properties (India) Limited who was the Corporate Debtor under Section 7 of the Code for initiation of insolvency proceedings against the Corporate Debtor.

During the pendency of the above-stated Company Petition, the Corporate Debtor filed a Miscellaneous Application.

Petitioner/Corporate Debtor contended that the (i) Secured Redeemable Non-Convertible Debenture Subscription Agreement dated 1st March 2014 and the (ii) Debenture Trust Deed dated 1st March 2014 filed in the Company Petition cannot be looked into nor relied upon by the Financial Creditors till the deficit stamp duty payable on the above two instruments is paid in accordance with the provisions of the Maharashtra Stamp Act.

Both the members of the tribunal had ordered initiation of CIRP against the Corporate Debtor vide an order concurring with each other and by observing that the ‘debt’ and ‘default’ stood proved even without relying on the Debenture Trust Deed and NCD Subscription Agreement.

Judicial Member went ahead and partially allowed the Miscellaneous Application while holding that the Debenture Trust Deed and Redeemable Non-Convertible Debenture Subscription Agreement shall be impounded and be sent for payment of requisite Stamp Duty in accordance with Maharashtra Stamp Act and issued necessary directions to the Registrar.

Whereas, the Technical Member without expressing any opinion on the issue of stamp duty directed the Registry to immediately place the record before the President for constituting appropriate Bench for an opinion so that the order in M.A is rendered in accordance with the majority opinion.

Hence, the above M.A. was referred for independent opinion of the third member.

Core Issues:

  • Whether the pleas of deficit stamp duty, non-payment of stamp duty can be raised by a Corporate Debtor in a Section 7 application more so when the ‘debt’ and ‘default’ are proved even without relying on those documents?
  • If so at what stage and before whom?

Coram expressed that a Section 7 application under the IBC can be filed in a simple form prescribed in the Code even without any pleadings. Similarly, the ‘debt’ and ‘default’ can be proved through the records of ‘debt’ and ‘default’ maintained by the “information utility” even without filing any documents by the party.

When once the Adjudicating Authority is satisfied with these two legal requirements and if the application is complete in accordance with the Code, the Adjudicating Authority has no option except to admit the Company Petition without going into any other trivial technical issues raised by the Corporate Debtor.

Hence, the Tribunal opined that the plea of Stamp Duty in the present matter is not available to the Corporate Debtor when once the debt and default are proved without looking into the documents.

“…as per the terms and conditions of the NCD Subscription Agreement it is the Petitioner/Corporate Debtor that shall bear all documentation charges (including stamp duty) legal and valuation charges.”

Since it was the very case of the petitioner that the documents upon which the Financial Creditors were relying were novated and the respondent stood discharged of the liability in view of the larger understanding and overall settlement. Hence, the petitioner had no legal right to insist on impounding the above document.

When and before whom the issue of stamp duty will be raised?

From the provisions of the Maharashtra Stamp Act and Indian Stamp Act, it is clear that a duty is cast upon the authority before whom the document is sought to be used as evidence by the party for the purpose of enforcing the contractual rights and obligations.

Therefore, proper course of action needs to be adopted to the Miscellaneous Application without getting into the issue of stamp duty as it was irrelevant and uncalled for in a Section 7 application more so when the ‘debt’ and ‘default’ are proved otherwise without looking into those documents.

In view of the above M.A was dismissed. [Vistra ITCL (India) Ltd. v. Satra Properties (India) Ltd., 2022 SCC OnLine NCLT 15, decided on 10-2-2022]


For the Applicant: Mr. Nausher Kohli, Advocate

For the Respondents: Mr. Pulkit Sharma, Advocate

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Appellate Tribunal (NCLAT): The Division Bench of Justice A.I.S Cheena (Judicial Member) and V.P. Singh (Technical Member) reinforced that in the matter of guarantee, CIRP can proceed simultaneously against the Principal Borrower as well as Guarantor.

The instant appeal was filed under Section 61(1) of the Insolvency and Bankruptcy Code, 2016 (IBC) against the impugned order dated 04-03-2020 passed by Adjudicating Authority.

Appellant –State Bank of India filed the Application against Respondent –Athena Energy Ventures Private Limited — Corporate Debtor who was Corporate Guarantor for Athena Chattisgarh Power Ltd.

The application was filed as Borrower committed default in repayment of the financial assistance provided to the Borrower.

It has been stated that the borrower availed financial assistance from the appellant bank and other banks, in the consortium and had executed necessary documents in favour of the appellant and other consortium banks.

When the need for the Borrower increased, the Respondent which is a joint venture and promoter of Borrower came forward and executed corporate guarantee and documents in favour of the Appellant and other consortium of banks.

It has been added that respondent was under the obligation to see that amounts availed under the finance from the appellant was repaid by the borrower.

Due to the default bein committed by the borrower, appellant had filed an application under Section 7 of the IBC against the borrower before the adjudicating authority.

The instant application was filed under Section 7 of IBC to seek initiation of CIRP against Respondent-Corporate Guarantor.

Respondent opposed the application claiming that the application was arising out of the very same transaction and very same common loan agreement as amended by first amendment agreement followed by the Second Amendment Agreement and thus the application filed by the appellant against respondent was duplicating the claim which was not permissible.

Decision of the Adjudicating Authority

Relying on the decision of Vishnu Kumar Agarwal v. Piramal Enterprise Ltd.2019 SCC OnLine NCLAT 81 the Adjudicating Authority declined to admit the Application as it was on the same set of facts, claim and default for which CIRP was already initiated and was in progress and where according to the Adjudicating Authority, the claim of Applicant had already been admitted. Thus, the Application of the Appellant against the Respondent came to be rejected.

Hence, the present appeal was filed against the above Judgment of the Adjudicating Authority.

Analysis and Decision 

The main issue which Bench referred to was:

“Whether the ‘Corporate Insolvency Resolution Process’ can be initiated against two ‘Corporate Guarantors’ simultaneously for the same set of debt and default?”

Bench stated that this Tribunal while dealing with the above-stated issue referred to the Judgment in the matter of Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, where the scheme of the Code was discussed by the Supreme Court. This Court took note of the definition of Financial Creditor and financial debt, and raised the question whether for the same very claim and for same very default, the Application under Section 7 against the other Corporate Debtor (Guarantor 1) can be “initiated”.

Further, adding to the above, Tribunal stated that considering the issues which were before this Tribunal when the matter of Vishnu Kumar Agarwal v. Piramal Enterprise Ltd. was decided, it is clear that the issue was relating to question whether CIRP can be initiated against two Corporate Guarantors simultaneously for the same set of debt and default. The issue was not whether Application can be filed against the Principal Borrower as well as the Corporate Guarantor. The observations made in the Judgement that second application for the same set of claim and default can not be admitted against the Corporate Guarantor or Principal Borrower was not an issue in the matter of Vishnu Kumar Agarwal v. Piramal Enterprise Ltd.

Apart from the above observations, the decision in the matter of Vishnu Kumar Agarwal v. Piramal Enterprise Ltd. did not notice sub-sections 2 and 3 of Section 60 of IBC.

In Sub-Section 2, the earlier words were “bankruptcy of a personal guarantor of such corporate debtor”. These words were later on substituted by the words “liquidation or bankruptcy of a corporate guarantor or personal guarantor as the case may be, of such Corporate Debtor”. These words were substituted by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018.

In the matter of SBI v. Ramakrishnan, (2018) 17 SCC 394, which was pronounced 3 days before the above-stated amendment, Section 60 (2) and (3) as they stood before the amendment was enforced.

Bench observed that,

If the provisions of Section 60(2) and (3) are kept in view, it can be said that IBC has no aversion to simultaneously proceeding against the Corporate Debtor and Corporate Guarantor.

If two applications can be filed, for the same amount against Principal Borrower and Guarantor keeping in view the above provisions, the Applications can also be maintained.

It is for such reason that Section 60 (3) provides that if insolvency resolution process or liquidation or bankruptcy proceedings of a Corporate Guarantor or Personal Guarantor as the case may be of the Corporate Debtor is pending in any Court or Tribunal, it shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such Corporate Debtor.

Tribunal also found substance in the argument placed by the appellant’s counsel in regard to the Report of Insolvency Law Committee. ILC rightly referred to the subsequent Judgment of Edelweiss Asset Reconstruction Company Ltd. v. Sachet Infrastructure Ltd.,2019 SCC OnLine NCLAT 592 which permitted simultaneously initiation of CIRP’s against Principal Borrower and its Corporate Guarantors.

Adding to the above, the Bench also stated that ILC rightly observed that provisions are there in the form of Section 60(2) and (3) and no amendment or legal changes were required at the moment.

Hence Tribunal observed that simultaneously remedy is central to a contract of guarantee and where Principal Borrower and surety are undergoing CIRP, the Creditor should be able to file claims in CIRP of both of them.IBC does not prevent this.

Under the Contract of Guarantee, it is only when the Creditor would receive the amount, the question of no more due or adjustment would arise.

While parting with its decision, Tribunal held that it is clear in the matter of guarantee, CIRP can proceed against the Principal Borrower as well as Guarantor.

Tribunal in view of the above-stated reasons could not interpret the law as interpreted in the matter of “Piramal.”

Hence, the decision of the Adjudicating Authority was upheld. [State Bank of India v. Athena Energy, 2020 SCC OnLine NCLAT 774, decided on 24-11-2020]

Advocates who appeared in the instant case:

For Appellant: Advocates V.M. Kannan, Sambit Panja and Sanjay Kapur.

For Respondent: Ramesh Babu Paluta, Advocate

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)  dismissed an appeal filed against the order of the National Company Law Tribunal, Chennai whereby the application filed by the Financial Creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016 was admitted.

Firstly, the appellant (shareholder of the Corporate Debtor) submitted that the respondent is not a Financial Creditor as defined in Section 5(7) read with Section 5(8). However, on facts, the Appellate Tribunal rejected the submission. It was found that the Rajkumar Impex Ghana Ltd. (subsidiary of the Corporate Debtor) had applied for a loan which was provided by Stanbic Bank Ghana Ltd. The Corporate Debtor executed guarantee in favour of the Bank for the said loan. As such, the Bank became a Financial Creditor. Secondly, the admission of application filed by the respondent under Section 7 for initiation of Corporate Insolvency Resolution Process was assailed. It was challenged on the ground that NCLT while admitting the application, did not record reasons in writing.

The Appellate Tribunal rejected the second submission filed by the appellant as well. It observed that application under Section 7 is not a recovery proceeding or proceeding for determining of a claim on merit that can be decided only by a court of competent jurisdiction. An application under Sections 7, 9 or 10 of the Code not being a money claim or suit and not being an adversarial litigation, NCLT is not required to write a detailed decision as to which are the evidence relied upon for its satisfaction. NCLT is only required to be satisfied that there is a debt and default had occurred. In the present case, NCLT had held that a prima facie case was made out by the applicant. As such, NCLT expressed its satisfaction about existence of debt and default. Thus, the appeal was dismissed holding it to be sans merit. [V.R. Hemantraj v. Stanbic Bank Ghana Ltd.,2018 SCC OnLine NCLAT 451, dated 29-08-2018]

Case BriefsHigh Courts

Madras High Court: While setting aside the FIR registered against the officials of the Bank for an offence under Section 379 Penal Code, a bench of S. Vaidyanathan J ruled that no criminal action could be taken against the financier/ financial institution for repossessing the goods hypothecated with them in case of default in repayment of loan.

In the instant case, a loan agreement was signed between the petitioner and the 2nd respondent for a sum of Rs.9,00,000/- for purchase of a car. The petitioner seized the car on default in the repayment of loan and kept it in their custody. The 2nd respondent filed a case against the officials of the Bank for an offence under Section 379 IPC. After registering the case, the 1st respondent Police sent a communication to the bank, asking them to surrender the vehicle, as the same is required for investigation as well as for production before the Court. Aggrieved by the same, the petitioner filed the present petition under Section 482 of CrPC to quash the FIR pending on the file of the 1st respondent Police.

The Court referred K.A. Mathai  v. Kora Bibikutty, (1996) 7 SCC 212 where it was held that in case of default to make payment of installments financier had a right to resume possession even if the hire purchase agreement does not contain a clause of resumption of possession for the reason that such a condition is to be read in the Agreement. The Court also referred Anup Sarmah vs. Bhola Nath Sharma, (2013) 1 SCC 400 where it was held that in an Agreement of hire purchase, the purchaser remains merely a trustee/bailee on behalf of the financier / financial institution and ownership remains with the latter. Accordingly, the Court made it clear that in case vehicle is seized by the financier, no criminal action can be taken against him as he is repossessing the goods owned by him, and in such an eventuality, it cannot be held that the financier had committed an offence of theft and that too, with the requisite mens rea and requisite dishonest intention. [HDFC Bank Limited v. State, 2015 SCC Online Mad 10573, decided on 21.12.2015]