Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal, New Delhi (NCLAT): The Coram of Justice Ashok Bhushan (Chairperson) and Shreesha Merla (Technical Member) held that it is not within the domain of Insolvency and Bankruptcy Code for fixation of salary of the MD.

Aggrieved by the impugned order passed by the National Company Law Tribunal, New Delhi.

Facts of the Case

The Operational Creditor/Managing Director had filed an application under Section 9 of the Insolvency and Bankruptcy Code on the ground that he was entitled to Rs 3 lakhs/per month as remuneration, which was revised to Rs 4 lakhs, but the payment was short of the agreed sum.

Further, it was stated that the salary of the MD would be paid when the financial position of the company would improve. In May, 2019 the MD was removed by the Corporate Debtor without clearing his salary dues.

Analysis, Law and Decision

Firstly, the tribunal addressed the issue whether the ‘Claims’ in the application filed under Section 9 of the Code, is ‘barred by limitation’?

Bench while referring to Section 18 of the Limitation Act, addressed whether there was any ‘acknowledgment of debt’/ ‘salary dues’ to fall within the ambit of the stated Section.

Further, it was noted that there was no specific approval either of the payment of arrears or any fixation of the MD’s remuneration or increase of his salary/perks.

“There is no crystallised quantum of amount which can be claimed as salary/remuneration fixed by the Board of Directors as contemplated under Section 196 of the Companies Act, 2013.”

 Article 40 of the Articles of Association of the appellant Company stipulates that the remuneration of the MD would be fixed by the Board of Directors from time to time.

Tribunal was of the view that the Section 9 Application filed was ‘barred by limitation’ as the claims of Rs 96,92,000 and Rs 18,00,000 pertained to the period prior to 31/3/2016 and more than three years had lapsed since.

Pre-Existing Dispute

From the record, the Coram noted that the remuneration of the MD was a ‘disputed question of fact’ and not within the Tribunal’s domain under IBC to ‘decide the issue of the fixation of the salary of the MD., but to ascertain is if here is any dispute regarding the issue.

Hence, the matter was concluded stating that the Adjudicating Authority had not addressed either the question of claims having been time-barred or to the issue of the existence of a ‘Pre-Existing Dispute’ between the parties. [Omega Laser Products B.V. v. Anil Agrawal, Company Appeal (AT) (Insolvency) No. 194 of 2022, decided on 10-5-2022]

Advocates before the Tribunal:

For Appellant:

Mr. Arun Kathpalia, Sr. Advocate with Sarojanand Jha, Mr. Karan Sharma, Mr. Suraj Malik, Mr. Vineet Dwivedi, Advocates.

For Respondent 1:

Mr. Rohit Sharma, Mr. Arju Chaudhary, Mr. Rounak Nayak, Advocates for R-1.

Company Appeal (AT) (Insolvency) No. 195 of 2022

For Appellant:

Mr. Ritin Rai, Sr. Advocate with Kavita Sarin, Sarika Raichur, Mr. Nishant Menon, Mr. Rajat Gava, Advocates.

For Respondent No. 1:

Mr. Rohit Sharma, Mr. Arju Chaudhary, Mr. Rounak Nayak, Advocates for R-1.

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal, New Delhi (NCLAT): The Coram of Justice Ashok Bhushan (Chairperson) and Shreesha Merla (Technical Member) held that, the territorial jurisdiction of NCLT to decide a case under Insolvency and Bankruptcy Code, 2016 cannot be taken away by the Facility Agreement between the parties.

Instant appeal was filed against the order passed by the National Company Law Tribunal, New Delhi, by which the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 had been admitted.

The Appellant’s counsel submitted that there was no jurisdiction with the Principal Bench, Delhi to entertain Section 7 Application. He referred to a Clause from the Facility Agreement, as per which Courts at Mumbai had jurisdiction in respect of any matter of the Facility Agreement.

Analysis, Law and Decision

First, the Tribunal referred to Section 60(1) of the Code provides for Adjudicating Authority for Corporate Persons. Section 60(1) is as follows:

  1. (1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate persons located.

Coram expressed that, Adjudicating Authority in relation to Insolvency Resolution shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate persons is located.

Tribunal stated that, the appellant cannot rely on clause 24.12 of the Facility Agreement which provides jurisdiction to the Mumbai Courts.

Noting the above, Coram held that, for filing an Application under Section 7 of the Code, the provisions of Section 60(1) read with Section 238 of the Code shall be overriding clause 24.12 of the Facility Agreement.

Further, not denying that Corporate Debtor’s registered office was situated in New Delhi where the territorial jurisdiction to entertain such application was with NCLT, Delhi, Coram did not accept the submissions of Counsel for the appellant.

In view of the above, the appeal was dismissed. [Anil Kumar Malhotra v. Mahindra & Mahindra Financial Services Ltd., Company Appeal (AT) (insolvency) No. 415 of 2022, decided on 19-4-2022]

Advocates before the Tribunal:

For Appellant:  Mr. Yajur Bhalla, Mr. Siddharth Srivastava, Sumeir Ahuja, Advocates

Advocate Gunjan Chauvey, for R-1

For Respondent: Mr. Rajesh Kumar Mittal, Advocate for IRP, R-2.

Case BriefsHigh Courts

Bombay High Court: A very interesting question was considered by G.S. Kulkarni, J., the question being, whether mere filing of a proceeding under Section 7 of the Insolvency and Bankruptcy Code, 2016 would amount to an embargo on the Court considering an application under Section 11 of the Arbitration and Conciliation Act, 1996, to appoint an arbitral tribunal?

Factual Background

 In the present matter, the respondent provided financial assistance to the applicant of an amount of Rs 4,50,00,000 for which a loan agreement was entered between the applicant and the respondent, referred to as Agreement 1.

Due to a change in the business scenario, another Agreement was executed referred to as Agreement 2, under which the date of repayment of the borrowing was extended.

There were defaults on the part of the applicant in the payment of the loan instalments.

Applicant’s case was that in the discharge of its liability towards the respondent under the above-stated agreements, the applicant issued a cheque to the respondent, of an amount of Rs 31,08,33,457 being the repayment of the respondent’s dues, which was in accordance with the terms and conditions of the loan agreement.

Respondent had approached the NCLT by initiating proceedings against the applicant under Section 7 of the Insolvency and Bankruptcy Code, 2016.

Though, so far, no order had been passed by the NCLT admitting the petition as per the provisions of Section 7(5) of the IBC.

Analysis and Decision

High Court observed that there was no dispute in regard to the arbitration agreements between the parties and there was a dispute in regard to the invocation of the arbitration agreement.

Thus, the primary considerations for this Court to exercise jurisdiction under Section 11(6) were certainly present.

The Bench stated that, even if an application under Section 8 of the ACA is filed, the adjudicating authority has a duty to advert to the contentions put forth under an application filed under Section 7 of the IBC by examining the material placed before it by the financial creditor and record a satisfaction as to whether there is default or not.

“…if the irresistible conclusion of the adjudicating authority (NCLT) is that there is default and the debt is payable, the bogey of arbitration to delay the process would not arise despite the position that the agreement between the parties contains an arbitration clause.”

The Bench observed that,

“…mere filing of the proceedings under Section 7 of the IBC cannot be treated as an embargo on the Court exercising jurisdiction under Section 11 of the ACA, for the reason that only after an order under sub-section (5) of Section 7 of the IBC is passed by the NCLT, the Section 7 proceedings would gain a character of the proceedings in rem, which would trigger the embargo precluding the Court to exercise jurisdiction under the ACA, and more particularly in view of the provisions of Section 238 of IBC which would override all other laws.”

Hence, as noted in the present case, the Corporate Insolvency Resolution Process initiated by the respondent is yet to reach a stage of the NCLT passing an order admitting the said proceedings, the Court would not be precluded from exercising its jurisdiction under Section 11 of the ACA, when admittedly, there was an arbitration agreement between the parties and invocation of the arbitration agreement had been made, which was met with a refusal on the part of the respondent to appoint an arbitral tribunal.

While concluding the matter, Bench held that, the Court would be required to allow the present application by appointing an arbitral tribunal for adjudication of the disputes and differences which arose between the parties under the agreements in question.

Though the Court added that a formal order appointing an arbitral tribunal was not required to be made as after the judgment was reserved, the parties just two days back, settled the disputes stating that arbitration was not warranted. [Jasani Realty (P) Ltd. v. Vijay Corpn., 2022 SCC OnLine Bom 879, decided on 25-4-2022]

Advocates before the Court:

Dr. Birendra Saraf, Senior Advocate a/w. Anshul Anjarlekar i/b. Raval- Shah & Co., Advocate for the Applicant.

Mr.Yusuf Iqbal Yusuf i/b. Y. and A Legal, Advocate for the Respondent.

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2022 SCC Vol. 1 Part 2

In this part, read a very pertinent decision of the Supreme Court, NV Investment Holdings LLC v. Future Retail Ltd.2021 SCC OnLine SC 557 wherein while holding that an award passed by Emergency Arbitrator is enforceable under the Arbitration and Conciliation Act, 1996, a Division Bench of R.F. Nariman and B.R. Gavai, JJ. has ruled in favour of Amazon in the infamous Future-Amazon dispute. It has been held that the interim award in favour of Amazon, passed by the Emergency Arbitrator appointed under the Arbitration Rules of the Singapore International Arbitration Centre is enforceable under the Indian Arbitration Act.

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Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, New Delhi: The Coram of P.N. Prasad, Judicial Member and Rahul Bhatnagar, Technical Member, declared insolvency proceedings against the builder Supertech Limited.

An application was filed to initiate the Corporate Insolvency Resolution Process against Supertech Limited under Section 7 of the Insolvency and Bankruptcy Code 2016 for the alleged default by the respondent in settling an amount of Rs 431,92,53,302.

Counsel for the Corporate Debtor had admitted the debt and default.

“In order to initiate CIRP under Section 7 the applicant is required to establish that there is a financial debt and that a default has been committed in respect of that financial debt.”

Tribunal on perusal of the documents found that the Corporate Debtor had indebted and defaulted the repayment of loan amount.

Therefore, Coram admitted the present petition and initiated CIRP on the Corporate Debtor with immediate effect.

Mr Hitesh Goel was appointed as Interim Resolution Professional.

Material on record clearly depicted that the respondent had availed the credit facilities and committed default in repayment of the outstanding loan amount.

Tribunal on being satisfied that the present application was held that the applicant financial creditor was entitled to claim its outstanding financial debt from the corporate debtor and that there had been default in payment of the financial debt.

Further, the Coram directed that in terms of Section 13(2) of the Code, public announcement shall be made by the Interim Resolution Professional immediately with regard to the admission of this application under Section 7 of the Insolvency and Bankruptcy Code, 2016.

Moratorium in terms of Section 14 of IBC was declared. Thus following prohibitions are imposed:

(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 of 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 Securitization and reconstruction of Financial Assets and Enforcement of Security Interest Act, 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.

It was made clear that the provisions of the moratorium shall not apply to transactions which might be notified by the Centre or supply of essential goods or services to the Corporate Debtor are not to be terminated or suspended or interrupted during the moratorium period. As per IBC, the provisions of the moratorium shall not apply to the surety in a contract of guarantee.

Registrar of Companies shall update its website by updating the status of ‘Corporate Debtor’. [Union Bank of India v. Supertech Ltd., 2022 SCC OnLine NCLT 40, decided on 25-3-2022]

Advocates before the Tribunal:

Counsel for the Petitioner: Alok Kumar, Advocate

Counsel for the Respondent: Kanishk Khetan, Advocate

Case BriefsHigh Courts

Bombay High Court: Sandeep K. Shinde, J., held that Special Court which is to try offences under the Insolvency and Bankruptcy Code, 2016 is the Special Court established under Section 436(2) (b) of the Companies Act, 2013 which consisted of Metropolitan Magistrate or Judicial Magistrate First Class.

The present petition was filed assailing the order “Issue Process” under Section 73(a) and Section 235A of the Insolvency and Bankruptcy Code, 2016 passed by the Additional Sessions Judge on a complaint filed by the Insolvency and Bankruptcy Board of India.


The Additional Sessions Judge does not have jurisdiction to entertain the complaint filed by the respondents.

Analysis, Law and Decision

Section 236 of the Insolvency and Bankruptcy Code empowers the Central Government or Board to file a complaint against a person/s having contravened, one of the penal provisions of the I.B. Code constituted or established under the provisions of the Companies Act, 2013.

The Companies Act (17th amendment) sought to establish two different classes of a Special Court; (a) a Single Judge holding office as Session Judge or Additional Sessions Judge and (b) Metropolitan Magistrate or Judicial Magistrate First Class; who shall be appointed by the Central Government with concurrence of the Chief Justice of the High Court within whose jurisdiction, the Judge to be appointed is working.

Which of the above two classes is empowered to try the offences under the I.B. Code?

The plain reading of clause (a) of subsection (2) of Section 435 of the Companies Act in no uncertain terms implies or suggests that the Special Court consists of Judge holding office as a Sessions Judge is empowered to try the offences under Section under this Act”. (emphasized)

‘Under this Act’ the phrase would mean the offences committed under the Companies Act.

Hence, the Companies Act cannot be tried by the Special Court established under clause (a) of sub section 2 of Section 435.

High Court opined that the clear mandate of the legislature was that the “Special Court” comprising of a Sessions Judge or Additional Sessions Judge was only to try offences under the Companies Act, 2013 itself which carry a punishment of imprisonment of 2 years or more.

However, it is clear that “Special Court”, comprising of a Metropolitan Magistrate or Judicial Magistrate First Class is to try “other offences” and the other offences would be offences under the I.B. Code and offences under the CA 2013 but carrying punishment of imprisonment of less than 2 years.

Elaborating further, the Court expressed that Section 236(3) of the I.B. Code creates a deeming fiction that the Special Court trying offences under the I.B. Code shall be deemed to be Court of Sessions.

In view of the above discussion, the impugned proceedings instituted by the respondents in the Court of Additional Sessions Judge were not sustainable for want of jurisdiction. [Satyanarayan Bankatlal Malu v. IBBI, 2022 SCC OnLine Bom 310, decided on 14-2-2022]

Advocates before the Court:

Mr. Amir Arsiwala a/w. Mr. Piyush Deshpande a/w. Mr. Farzeen Pardiwala, Advocate for the Petitioners.

Mr. Pankaj Vijayan a/w. Mr. Mohammed Varawala, Advocate for Respondent no.1.

Mr. Y.M. Nakhawa, APP for State-Respondent no.2.

Case BriefsSupreme Court

Supreme Court: In a case where out of the total 128 home buyers, 82 were against the insolvency proceedings of the Corporate Debtor of a Gurgaon based housing project, the bench of MR Shah* and BV Nagarathna, JJ has allowed the original applicants (three home buyers) to withdraw the CIRP proceedings as the same shall be in the larger interest of the home buyers who are waiting for the possession since more than eight years. The Court observed that this decision will also be in line with the object and purpose of the IBC i.e. not to kill the company and stop/stall the project, but to ensure that the business of the company runs as a going concern.

Case Trajectory

  • Corporate Debtor – Jasmine Buildmart Pvt. Ltd. had come out with a Gurgaon based housing project, namely, Krrish Provence Estate but could not complete the project even after a period of eight years.
  • Three home buyers preferred Section 7 application before the Adjudicating Authority/NCLT, Delhi seeking initiation of CIRP against the Corporate Debtor. They also sought refund of an amount of Rs.6,93,02,755/- due to an inordinate delay in the completion of the project and failure to handover possession within the stipulated time. The said application was filed on 06.12.2018, i.e., prior to the amendment to Section 7 of the IBC, which now permits 100 or 10% of the home buyers/allottees to apply under Section 7 of the IBC.
  • NCLT directed commencement of CIRP. NCLAT upheld the said order.
  • By order dated 03.12.2020, Supreme Court, while issuing notice in the appeal, stayed the operation and implementation of the impugned order, subject to the appellant depositing the amount of Rs.2,75,55,186/- plus interest at the rate of 6% per annum in the Registry of the Court within two weeks from that date.
  • Meanwhile, Krrish Provence Flat Buyers Association had filed a caveat apprehending that if any order is passed in the present proceedings, it may affect them as home buyers.
  • On 04.02.2022, it was brought to the Court’s notice that the original applicants as well as 79 other home buyers have settled the dispute with the Corporate Debtor and a settlement has been entered into, under which, it is agreed that the Corporate Debtor shall complete the entire project and hand over the possession to the home buyers (who want the possession), within a period of one year.

Analysis and Ruling

The Court noticed that although the COC was constituted on 23.11.2020, there has been a stay of CIRP proceedings on 3.12.2020 (within ten days) and no proceedings have taken place before the COC. Also, the COC comprises 91 members, of which 70% are the members of the Flat Buyers Association who are willing for the CIRP proceedings being set aside, subject to the Corporate Debtor company honouring the settlement plan.

In such facts and circumstances, where out of 128 home buyers, 82 home buyers will get the possession within a period of one year, as undertaken by the appellant and Corporate Debtor, coupled with the fact that original applicants have also settled the dispute with the appellant/Corporate Debtor, the Court was of the opinion that it was a fit case to exercise the powers under Article 142 of the Constitution of India read with Rule 11 of the NCLT rules, 2016 and to permit the original applicants to withdraw the CIRP proceedings.

Explaining the reasoning behind it’s ruling, the Court observed that if the original applicants and the majority of the home buyers are not permitted to close the CIRP proceedings, it would have a drastic consequence on the home buyers of real estate project. If the CIRP proceedings are continued, there would be a moratorium under Section 14 of the IBC and there would be stay of all pending proceedings and which would bar institution of fresh proceedings against the builder, including proceedings by home buyers for compensation due to delayed possession or refund. If the CIRP is successfully completed, the home buyers like all other creditors are subjected to the pay outs provided in the resolution plan approved by the COC.

“Most often, resolution plans provide for high percentage of haircuts in the claims, thereby significantly reducing the claims of creditors. Unlike other financial creditors like banks and financial institutions, the effect of such haircuts in claims for refund or delayed possession may be harsh and unjust on homebuyers.”

On the other hand, if the CIRP fails, then the builder-company has to go into liquidation as per Section 33 of the IBC. The homebuyers being unsecured creditors of the builder company stand to lose all their monies that are either hard earned and saved or borrowed at high rate of interest, for no fault of theirs.

The Court further explained the legislative intent behind the amendments to the IBC which is to secure, protect and balance the interests of all home buyers. The interest of home buyers is protected by restricting their ability to initiate CIRP against the builder only if 100 or 10% of the total allottees choose to do so, all the same conferring upon them the status of a financial creditors to enable them to participate in the COC in a representative capacity.

“Being alive to the problem of a single home buyer derailing the entire project by filing an insolvency application under Section 7 of the IBC, the legislature has introduced the threshold of at least 100 home buyers or 10% of the total home buyers of the same project to jointly file an application under Section 7 of the IBC for commencement of CIRP against the builder company.”

The Court, hence, held that the settlement arrived at between the home buyers and the appellant and corporate debtor – company shall be in the larger interest of the home buyers and under the settlement and as undertaken by the appellant/corporate debtor, out of 128 home buyers, 82 home buyers are likely to get possession within a period of one year, for which they are waiting since last more than eight years after they have invested their hard earned money.


(1) The entire project shall be completed within one year from 01.03.2022 and respective home buyrers shall be offered the possession;

(2) Corporate Debtor shall complete the entire project including all the apartments, common areas, amenities, etc. as specified in the ABA;

(3) all demands be raised and timely paid, strictly in terms of ABA;

(4) Company shall continue the provisions of all maintenance services as per the ABA; and

(5) Company will make the application for obtaining Occupancy Certificate within six months, before the competent authority.

[Amit Katyal v. Meera Ahuja, 2022 SCC OnLine SC 257, decided on 03.03.2022]

*Judgment by: Justice MR Shah


For appellant: Senior Advocate Kapil Sibal,

For original applicants: Advocate Lokesh Bhola

For Impleaders: Senior Advocate K.V. Vishwanathan

For Home Buyers Association: Senior Advocate Nakul Diwan

For Resolution Professional: Advocate Yogesh Mittal

For intervenors: Advocate Radhika Gupta

Legal RoundUpSupreme Court Roundups

“No doubt, that a Judicial Officer while discharging his/her duties, is expected to be independent, fearless, impassionate and non-impulsive. But a Judicial Officer is also a human being. A Judicial Officer is also a parent. He/she could be a father or a mother. “

X v. High Court of MP

2022 SCC OnLine SC 171


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Merely writing “cancelled” on registered power of attorney wouldn’t make it null and void

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Consent decree cannot be modified/ altered unless the mistake is a patent or obvious one

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IBC Amendment, 2018; Supreme Court elaborates conditions for disqualification of Resolution Professional under S. 29A(h) of IBC

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Default/Delay in payment of EPF by employer: Mens rea or actus reus not an essential element for imposing civil penalty/damages

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[An overview of the cases reported in the latest volumes of SCC]

2021 SCC Vol. 9 Part 3

In Part 3 of Volume 9, read this very interesting decision, where the Election Commission of India (EC) had sought a direction.


2021 SCC Vol. 10 Part 1

In Part 1 Volume 10 of 2021, read Supreme Court’s decision in Supertech Ltd. v. Emerald Court Owner Resident Welfare Assn.(2021) 10 SCC 1, wherein the Court made an observation that “illegal constructions have to be dealt with strictly to ensure compliance with the rule of law.”


2021 SCC Vol. 10 Part 2

In this part, read three really interesting Articles along with some very carefully analysed decisions of the Supreme Court by our editors.


2021 SCC Vol. 10 Part 3

This part has a very interesting decision from the Supreme Court, wherein the Court issued “general uniform direction” of deduction of 15 per cent of the annual school fees for the academic year 2020-2021 in lieu of unutilised facilities/activities and not on the basis of actual data school-wise.[Indian School v. State of Rajasthan, (2021) 10 SCC 517].


2021 SCC Vol. 10 Part 4

Evidence Law, Arbitration Law, Service Law and many more interesting decisions covered in this part covering some very pertinent laws.


2022 SCC Vol. 1 Part 1

In 2022 SCC Volume 1 Part 1, read a very significant decision of Supreme Court wherein it made a very pertinent observation with regard to arbitral awards,

“There is a disturbing tendency of courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs intervention …”

[Delhi Airport Metro Express (P) Ltd. v. DMRC, 2021 SCC OnLine SC 695]


Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal, New Delhi (NCLAT): The Coram of Justice Ashok Bhushan (Chairperson) and Dr Alok Srivastava (Technical Member) held that if the Intervention Application was filed under the IBC, then, any penalty to be imposed should have been under the provisions of IBC and not Companies Act.

Appellant filed the present appeal under Section 61 of the Insolvency and Bankruptcy Code 2016, assailing the order passed by the Adjudicating Authority.

Factual Matrix

An application under Section 9 of the IBC was admitted vide the order of the Adjudicating Authority and CIRP was initiated against the Corporate Debtor along with the appointment of Interim Resolution Professional.

During the pendency of the Corporate Insolvency Resolution Process, the IRP moved two applications under Section 19(2) and Section 60(5) of the IBC alleging that the appellant had withdrawn a sum of Rs 32 lakhs during the moratorium period during the CIRP though the appellants claimed that they had given a post-dated cheque to Kewal Kishan as repayment of the loan and the said cheque was not given by them during the ongoing CIRP.

Adjudicating Authority had imposed a penalty of Rs 5 lakhs on each of the two ex-directors to be deposited in the account of the Government of India, Ministry of Corporate Affairs.

Since the ex-directors of the corporate debtor did not provide the records and other financial information to the Resolution Professional under Section 19(2), the Adjudicating Authority invoked Section 128(6) of the Companies Act and levied a penalty of Rs 5 lakhs each on the appellants 1 and 2, therefore the present appeal was filed seeking to set aside the impugned order.

Analysis and Decision

Tribunal on noting that the appellants not only did not provide the records and financial documents relating to the corporate debtor to the erstwhile resolution professional and the liquidator despite multiple requests, they also did not comply with the Adjudicating Authority’s orders.

Hence such acts of carelessness in complying with the requirements of law, amounting to defiance and disrespect of the legal process, could not eb condoned and needed to be dealt with strictly in accordance with the provisions of Chapter VII: “OFFENCES AND PENALTIES” of the IBC.

“…we are of the view that since the IA No. 1253/2020 was filed under the provisions of IBC, it would have served the requirement of law if any order regarding the penalty was imposed under the provisions of IBC. Moreover, it would have served the cause of natural justice if the Appellants were given an opportunity to be heard before imposition of any penalty. Chapter VII of the IBC which lays down “Offences and Penalties” under which officers of the Corporate Debtor can be penalized and/or punished with imprisonment is relevant in this regard.”

Therefore, Tribunal directed that the case be remanded to the Adjudicating Authority for taking a decision under the provisions of IBC after giving an opportunity to the appellants to present their case.

In view of the above discussion, the impugned order was set aside. [Ashish Chaturvedi v. Sanjay Kapoor, Company Appeal (AT) (Insolvency) No. 1103 of 2020, decided on 14-2-2022]

Advocates before the Tribunal:

For Appellants:

Mr. Manoj Kumar Garg, Advocate.

For Respondents:

Mr. K.D. Sharma and Mr. Anuj Kumar Pandey, Advocates for R-3.

Op EdsOP. ED.


Prior to the introduction of the Insolvency and Bankruptcy Code, 20161 the economic insolvency structure was a blend of various statutes comprising of the Companies Act, 19562, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 20023, the Sick Industrial Companies (Special Provisions) Act, 19854, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 etc., with no balanced outcome or a formula to resolve the situation. The Government of India had to act upon the predicament, as the surviving framework was insufficient to safeguard the interest of the promoter, creditor, stakeholders and shareholders. Likewise, the judicial designation was with the National Company Law Tribunal (NCLT), the National Company Law Appellate Tribunal (NCLAT) (in case of appeal), the High Courts and the Supreme Court. After the 2016 Insolvency Act, the floodgates of petition knocked the NCLT. The purpose behind the introduction of this legislature was to induce a consolidated opinion of recovery proceedings with a structured format, so as to have a consistency in the approach system while in default. However, the IBC, 2016 focused mainly on the multinational corporations (MNCs), corporate body, partnership, etc., while completely neglecting the major fund contributing part of the economy, the micro, small and medium enterprises. The notification by the Ministry of Micro, Small and Medium Enterprises on 26-6-2020 inserted the provisions under the Micro, Small and Medium Enterprises Development Act, 20065 (the MSME Act) to be classified as “MSME”. The notification lays down the revised financial threshold limit and investment plans as – (a) the investment in plant and machinery under the micro enterprises, shall not exceed Rs1 crore while the turnover amount shall not exceed Rs 5 crores; (b) the investment in plant and machinery for the small enterprises shall not exceed Rs10 crores while the turnover amount shall not exceed Rs 50 crores. The investment in plant and machinery under the medium enterprises shall not exceed Rs 50 crores while the turnover amount shall not exceed Rs 250 crores.

 On 3-8-2021, the Rajya Sabha passed the amendment to the Insolvency and Bankruptcy Code, 2016 shielding the MSME sector in case of default. Although the House of Representatives turned a blind eye without discussing the Ordinance promulgated, the Bill yet received the presidential assent on 11-8-2021. Amidst the ruckus which surfaced in the lower house by the opposing alliance and the pandemic hit disruptions, the urge for an effective recovery mechanism became crucial. Prior to the Amendment, the Code highlighted its views on proposing a “feasible resolution plan” by the financial/operational creditors with other requirements suggested by the Insolvency and Bankruptcy Board of India (IBBI). The Insolvency and Bankruptcy Code (Amendment) Ordinance, 20216 promulgated by the President on 4-4-2021 was inter alia added to the Chapter III-A of the earlier Code (2016). With the initiation of corporate insolvency resolution process (CIRP), the debtor control regime swaps to become the creditor control business with the subsequent proposition of 66% of the voting rights by the committee of creditors. The rationale was to encompass all those companies with Rs 1 lakh of budget preposition for business management. Erstwhile, the 2021 Amendment alters its position by incorporating the MSME classified under the Micro, Small and Medium Enterprises Development Act, 20067 within its purview. The cumulative progress by the Government of India to enforce IBC stimulation with the significant heads has provided an extensive interpretation of the term “insolvency” and other related disputes. While the legislature mainly focuses on economising the debtor’s business operation through a resolution applicant for restructuring the corporate debtors insolvency mess. The authors intend to enunciate how the pre-packed insolvency emerged in India as a requisite factor in advancing and resolving the economic bankruptcy crisis.

According to the survey conducted by the MSME Ministry, approximately 29% of the GDP is contributed through both its national and international trade. During the pandemic outbreak, the previous 2 years in the country have interspersed and terminated the entire cash flow. At the end of the credit period, numerous debtors defaulted with their finances with the subsequent interest being tagged along with the principal sum, payable to their respective creditors.

The threshold in the increase of the number of insolvency matters in the MSME precinct, coerced the Government to secure the rights of creditors, exploited during the nationwide crisis. Parliament had to be considerate about this amendment, as it would be the first-ever legal platform including both “manufacturing and service” providing industries under the single framework. The combination of three market standard positions (micro, small and medium enterprise) would be strenuous and also burdensome to the judiciary, when evaluating all these areas on a single platform would have different modus operandi of transactions. So, the Ministry of Corporate Affairs in regulation with the Insolvency and Bankruptcy Board of India guidelines set up an open platform for these marketers to initiate the insolvency procedure against the corporate debtor. In case of default operating through the new scheme of the “pre-packaged insolvency”, the corporate debtor himself could initiate the insolvency proceedings. This was a pivotal step required to safeguard the strata of the community.

Enforcement of pre-packaged insolvency resolution process (PPIRP)

The nationwide crisis due to the Covid-19 pandemic, led to the conception of bringing forth the sentinel for many business sectors which were exposed to dreadful financial distress. Accordingly, the investment plan8maintained under the Code enhances the fluctuating turnover rates for each enterprise defining the classifications and the term “MSME”. The Ordinance was promulgated to limit its applicability only to those corporate debtors who qualified under the framework of MSME. On the other hand, the Ordinance does not define MSME. The Indian MSME insolvency envisaged both formal and informal ways of settlement in order to encounter unspecified circumstances during the proceedings. The pre-packaged insolvency was initiated to incorporate all those business areas, irrespective of financial default caused (threshold mentioned in the notification), and subsequently ensure the moratorium for recovery. While the pre-packaged insolvency application concentrated mainly on the key aspects of speedy disposal and flexibility to ensure maximum efficiency. In order to protect the small businesses from being dragged into insolvency proceedings, the Government of India through a delegating authority constituted a sub-committee for the enhancement of the insolvency framework. However, the lack of funds flowing in the economy created havoc in the judicial chambers. On March 2020 the Committee issued a notification9cumulating the minimum threshold to be Rs 1 crore or more (as may be notified by the Central Government) from the primary limit of Rs 1 lakh, required for initiating CIRP were altered. The default, in general generated a multitude of financial obligations towards corporate debtors across. Erstwhile major part of the MSME sector comprised of the operational creditors. As a matter of fact, the suspension of Sections 710, 811 and 912 caused financial distress to these creditors with the additional economic breakdown. These circumstances plunged the Central Government to reduce the out-of-court workouts by constituting a sub-committee for the advancement of an ecosystem, mandatory checks and balances, etc. for ensuring a prearranged insolvency resolution mechanism.

The report to the Ministry of Corporate Affairs submitted by the Insolvency Law Committee dated 31-10-2020 held the inclusion of only corporate debtors, who were a part of the MSME sector, following the pre-packed framework. The Sub-Committee delineated few basic components to be unfiltered that ensured the stability to guide the pre-packaged insolvency proceedings. The Code highlights, “creditor’s control”, “approval of the resolution plan” and “the moratorium period” to be unfettered. Further, the Central Government notified the initiation of the Insolvency and Bankruptcy Code (Amendment) Ordinance introduced in the lower house for MSME focusing on securing the debtor’s interest and rights via the pre-packaged insolvency resolution process. Interestingly, in spite of the Insolvency and Bankruptcy Code, 2016 being commenced, it took over 5 years to propose the amendments catering to the needs of only the MSME sectors, following the Code’s suspension for a year.

Long overdue in the inception for the pre-packaged insolvency

After the cataclysm, following the mutatis mutandis and the suggestions put forth by the Sub-Committee, the Government rejuvenated the economic speculation through the pre-packaged insolvency. Although the pre-packaged Insolvency Code is in motion in European countries, India started with the insolvency programme off lately during 2016. It practically took the Government five years to begin with the pre-packaged insolvency, irrespective of the introduction of this Code would not had been a newfangled process. The Government of India held the 2016 Act to be congruous and at the same time was reassured about the MSME Developmental Act, 2006 being satisfactory to save the MSME sector from insolvency crisis. It was the 2021 pandemic hit, where innumerable manufacturers had a downslide with their businesses which edged them towards the insolvent position. Also, due to the threshold for insolvency application in these sectors being too stunted, the Government was coerced to bring a subsequent act for withholding the piling of default cases.

The seven-member panel was appointed to scrutinise the prerequisite factors required to reduce the burdens upon the NCLTs. Subsequently, the Sahoo Panel Report suggested the need for “pre-packaged insolvency” to reduce the “out-of-court settlements” and for the overall Code efficiency. The Panel aimed at providing a faster resolution mechanism compared to the traditional CIRP. The approval of Atmanirbhar Bharat funds for MSME sector paved the way to energise a new regime investment threshold. Subsequently, with the nationwide lockdown the Government sheltered these enterprises by the expansion of the term “MSME” along with other incentives following the principle of “nova constitution futuris formam imponere debet, non praeteritis”. The moot point being, whether the Government delays in these enforcements was worth the wait. Affirmatively, the Insolvency Law Committee proposition was to protect the interest of the stakeholders by blending both the formal and informal theories of insolvency procedure to ensure flexibility without any haircut in the bankruptcy claims.

For an impenetrable structure, the Government started following the systemised implementation alongside maintaining the obligatory instructions for its perusal. It first instituted with the increase in the threshold limit, under Section 413of the Code from Rs 1 lakh to 1 crore. The foremost objective of increasing the amount was to substantiate that the creditors shall not file for a petition, ensuring termination of the liquidation process under the Code. On the other hand for initiating PPIRP the minimum threshold of default was of Rs 10 lakhs. This would empower the debtors to have adequate time for the repayment, alongside it would hoard these businessmen from being tagged in the pre-packaged insolvency resolution process (PPIRP). Successively the second stage starting from 25-3-2020, where the Insolvency Ordinance submitted the suspension of Sections 7, 8 and 9 against the corporate debtor for a period of 6 months, restraining the creditors from filing the petition. This would shelter the corporate debtor’s assets against the initiation of insolvency process, the insertion under Section 66(3) of the Code14 have barricaded the adjudicating authority from making any application. However, the insertion of Section 10-A15was a major setback. On 4-6-2020 to safeguard the interest and the welfare of MSME, the Ministry of Micro, Small and Medium Enterprises tried to revise the definition of MSME, in order to encompass a more number of enterprises within this framework. Meanwhile the Insolvency Bankruptcy Code with the MSME Development Act, 2006 incited its way for the “pre-packaged insolvency process” in India.

Safeguarding the nation’s interest through MSME workouts

The intention behind this Code was to minimise the number of insolvency cases knocking the NCLT. Apart from the first resolution mechanism, the Government had three major outlines to be involved, that is regarding the informal structure setups, the employment generation through these sectors which indeed encouraged many for startups. Quintessentially the issue was to substitute the traditional approach of the Insolvency and Bankruptcy Code, 2016. The highlighting attribute of this Amendment stands for its “informal structure” while dealing without muddling up with the existing Code. The motive behind the commencement of informal mechanism was to make it cost efficient, flexible and speedy maintaining the transparency which assists in reducing the overall tax burden plan. Fundamentally since India has never dealt with any immature bankruptcy dealings, the question arises whether the marketers are ready to opt for an “informal way of settlement. Pre-packaged insolvency opts for an informal plan which operates without the involvements of courts and tribunals. It is a type of restructuring which idealises the debtor and the creditor to discuss for informal workouts and then submit its resolution plan for the approval. However pre-packaged insolvency is hybrid mechanism of the earlier insolvency structure which lacks the statutory sanctity, which in turn breaks down the conflicts post the approval. It is essential to note that approximately 14,510 applications were withdrawn from the NCLT at the pre-admission stage after the relevant parties discussed their workouts through the informal way. Interestingly, unlike the corporate insolvency resolution process the base resolution plan is entirely framed by the corporate debtor. This informal structure has opened gates for a unique way of proposing the resolution plan. While there is no compulsion for the parties to opt for this mechanism, provided it was consensual. This format lowers the burdens on tribunals safeguarding the rights of the parties involved in the insolvency proceedings. The implementation of these amendments gave birth to the long-awaited insolvency procedure.

For the growth of the MSME sector, the Government has bestowed them with granting bank loans without securities, lower electricity bills with promotional subsidies for the overall development. The public sector Bank of India announced the reduction of repo rates from 5.15 per cent to 4.40 per cent ensuring the secularisation of loans at lower rate of interest which is linked to Reserve Bank of India. It is not incorrect to say that “MSME” is the third wheel of the society, contributing majorly towards the socio-economic development. The liberties granted under this scheme have widened the scope of startups in India as the State Government guides in entailing tax benefits, tariffs, capital investment facilities. This sector needs to be carefully nourished and brought up, as it bolsters just not the economy but also the employment. Accordingly, the MSME sector in India has attained position one by generating over 35% employment rates through its different programmes. Consequently, the MSME’s role as an ancillary industry, complementary to the large-scale industries has enhanced the need to safeguard their positions in the markets.

Commencement of the new regime – The 2021 Amendments

The recommendation of the Insolvency Bankruptcy Amendments16 was to shift the burdens from the tribunals to the outside court settlements through informal discussion between the parties. Nirmala Sitharaman had tabled the Bill in Parliament to have an “effective alternative” mechanism to the traditional insolvency procedure. It alongside would have a kick-start to the new pre-packaged insolvency procedure, by liberating the collapse of the MSME’s. Chapter III-A of the Insolvency Code from Sections 54-A to 54-P enlarged the management crisis happening within the corporate debtors company.

  1. The corporate debtors termed as MSME under the MSME Development Act, 2006 stands eligible to initiate for pre-packaged insolvency resolution process. Unlike CIRP, the debtors shall have the entire management control. The corporate debtor alone or at least with the consent of three-fourth of the partner’s approval submit the base resolution plan17. Meanwhile, Section 54-A(1) of the Code18 grant only the corporate debtors to initiate the pre-packaged insolvency procedure after obtaining 66% of approval from their respective creditors, for submitting the resolution plan to the adjudicating authority for the approval. The NCLT has to either approve or reject the resolution plan with 14 days of its receipt submitted. During the initiation of these proceedings, the corporate debtor mandatory shall come in clean chit without undergoing any prior liquidation under CIRP, as an obligatory field required under Section 3319.
  2. The submission of the base resolution plan by the corporate debtor through the nomination process under Section 54-A(4) must comply with provisions under Sections 30(1) and (2) of the Code20. After the completion of the nomination process, the resolution professional is required to submit a report, confirming the condition precedent adhering under the above sections.
  3. There must be no record of a completed CIRP for past 3 years or the initiation of PPIRP during the previous year.
  4. Application under PPIRP should be approved by at least 66% of the “unrelated creditor” obtaining the green signal for the submission of the base resolution plan. In addition to the resolution plan, the creditor must approve for the appointment of the resolution professional. Subsequently, the debtor should also provide the name of the resolution professional to the financial creditors. In case, the corporate debtor does not have an unrelated party, then the corporate debtor is required to hold a similar meeting for operation creditor (major part contribution and comprising MSME) and attain the approval of all the members in the meeting in the same manner conducted for the “unrelated financial creditors”.
  5. The Code includes Section 29-A21 as a prerequisite factor. The Code barricades the related party to the corporate debtor to be a part of the Committee of Creditors while voting for the feasible plan. It is necessary to amputate the related party rights to ensure that company would not regain its control via the liquidation process by stepping through the backdoor mechanism.
  6. Under Section 54-A(2)(f), the declaratory terms and conditions be filed by the majority of the partners or directors of the corporate debtors.
  7. On 24-3-2020, the number of insolvency cases increased as a result the minimum threshold (for default) for initiating CIRP was increased from Rs 1 lakh to Rs 1 crore, which may vary as per the notification from the Central Government. A second proviso inserted under Section 4 stated, minimum thresholds for initiating the application under the PPIRP was Rs 10 lakhs against the MSME.
  8. The penalising of the officer-in-charge (resolution professional) who manages the debtor’s claims under Section 67-A22, with the intend or commit the gross mismanagement to defraud the creditors.
  9. The resolution professional, after the commencement of the Committee of creditors has to submit the plan to the adjudicating authority within a period of 120 days. The completion of the entire process must be within 90 days.
  10. Usually for the withdrawal of CIRP, under Section 12-A23 requires 90% of the approval from the Committee of creditors. Unlikely, under PPIRP anytime from commencement but before the approval of the resolution plan, PPIRP can be terminated for the initiation of CIRP with the approval of at least 66% of the creditors.

Under MSME sector, the filing of an application under the PIRP involves the following methodology. Firstly, the minimum threshold amount of default must be 10 lakh rupees. The base resolution plan must be proposed by the corporate debtor or with the consent of the three-fourth of total partners. During the PPIRP the entire management control shall be with the corporate debtor, unlike CIRP. Subsequently, the appointment of the resolution professional and shall be approved by 66% of the unrelated party of the corporate debtor. The debtor is required to submit prior claims24 and prerequisite details regarding to whom the company owes money. If default or any omission of preliminary information memorandum is suspected, then the promoter, director shall be liable to pay without any prejudice to the damage caused to the individual. After the approval of the base resolution plan by Committee of Creditors, the resolution professional shall submit the proposal to the adjudicating authority for approval. If NCLT is satisfied with the submitted proposal the liquidation process maybe decreed. Consequently, the restructuring scheme rejuvenates the MSME’s depreciating assets through regaining of the creditor’s trust by informal proceedings under the pre-packaged insolvency mechanism. These Amendments have curtailed the debtors from being dragged into the lengthy insolvency procedure and simultaneously reduced the burden on the Company Tribunals.


The model law was regulated to enhance  the betterment of bilateral agreement, happening between the nations in a manner suitable for them while adapting to assertions prescribed by law. While restructuring the Code, to secure the agreement made with creditors, the United Nations Commission on International Trade Law (UNCITRAL) used a formal base progressing with an informal structure. The negotiation and the proposing of the resolution plan remains the top notch in practices of “pre-packaged insolvency”. The court proceedings are scarcely just a formality for attainting the consent for the liquidation process. Under the pre-packaged insolvency mechanism, the informal plan discussion between the parties, in a manner that permits the resolution professional to rehabilitate and maximise the assets value, prior to the initiation of liquidation process guides them to have manifesto for negotiation on the pre-agreed sale of business assets. This authentication is sanctioned by the governing laws protecting the interest and rights of the demanding party. The model law describes pre-packaged insolvency25 as “the expedited reorganisation proceedings”, to address those situations that follow the procedure of reorganisation, but on an expedited basis, combining voluntary restructuring negotiations, where a plan is negotiated and agreed by the majority of affected creditors, with reorganisation proceedings commenced under the insolvency law to obtain court confirmation of the plan in order to bind dissenting creditors. This shall protect the rights of the parties, ensuring a balanced framework without compromising the other parties’ statement. Countries like Singapore, UK, USA, etc. who have adapted insolvency model law is obligatory to follow the pre-insolvency priorities on condition of co-equal opportunities to both the parties. Although, UNCITRAL is not incorporated in India, but under the recommendation of the Indian Insolvency Joint Committee 2015 it follows a cross-border insolvency process under Sections 23426 and 23527. The model insolvency law is indispensable to most of the countries around as it promotes the uniform code of insolvency proceedings. It defines the pre-packaged insolvency to be a “voluntary restructuring process” manifesting the settlement beyond the courts charter. The Indian system needs to adapt the model law guide in order to have an effective insolvency resort. Subsequently it must adapt to these guidelines for ensuring the coordination and harmony between cross-border nations and to avoid encumbrance of cash flow in the economy.

Is India late to the pre-packaged insolvency game

When compared to the traditional way of corporate insolvency resolution process, the restructuring scheme has been the most effective way of sustainability to those distressed firm seeking recovery within the shortest span. Although the Insolvency Bankruptcy Code, 2016 does not cover within its ambit numerous areas of bankruptcies like trust insolvency, the corporative insolvency, etc., but why has the pre-packaged insolvency been added under Chapter III-A, sidelining the rest of the insolvency areas. Erstwhile why did India fail to scrutinise the insolvency grievances of the MSME sector, when many countries under the model law had incorporated the practice of PPIRP. Whether was it the pandemic that urged the Central Government with the proposition or whether this Code has been the long-waited requirement under the Indian Insolvency Code. Affirmatively, the commencement of the pre-packaged insolvency for MSME has rescued the economies major contributing sector from turning insolvent. In countries like UK, Singapore, USA, Canada and South Korea, the PPIRP system has been a common practice shielding the distressed firms from undergoing the liquidation process.

The United Nation follows and recognises the pre-packaged insolvency through voting, rescheduling, negotiating and formulating the plan by the debtor. Therefore, the rights of the stakeholders, creditors are protected before the company files for a petition under Chapter 11 of the Code. It authorises the administrator for the partial or complete sale of the corporate debtor’s business. By summoning all the interested parties to object to the proposed deal put forth, it notifies that the business is clear-cut not involved in the its assets. Section 36328 deals with the pre-arranged insolvency proceedings. Interestingly, both the United Nations and the United Kingdom follows the same principle of Code of permitting the stakeholders of the corporate debtor to initiate the insolvency proceedings. However, the United Kingdom insolvency tricked the debtors for a long time, as only the judicial system supported this process. Contrarily the UK Insolvency Code, 1986 neither provided for nor operated the insolvency process. While this process mainly focused on selling of business assets on “going concern” without the approval of the creditors. Once the administrator was appointed, the entire process would be shut down with no claims being entertained from any side. Addressing this concern, Graham Committee was constituted to analyse this mishap within the process ensuring the stability to avoid transactions to the connected party and the tracking of “serial pre-packing”. Restoring the said provisions under the Insolvency Code, 1986 within a period of 5 years span, on November 2015 the amendments aimed to empower the Government and the pre-pack sale occurring to the connected party. Enlarging the view of pre-pack mechanism in UK, it revived its policy under the Corporate Insolvency and Governance Act, 2020. In comparison to the other countries, Singapore, under its High Court orders sanctioned its first insolvency on January 2018. This Code traces its background from the pre-packaged insolvency procedure of Chapter 11 under the US Bankruptcy laws with the compilation of the Singapore’s formula schemed under Section 211I of the Companies Act. However, the bankruptcy does not strictly claim for the “creditors support agreement”.

The detail reading of the aforementioned provisions above provides a jigsaw of the insolvency proceedings of various countries. Indian pre-packaged insolvency is a blend of both the UK and the US bankruptcy laws, certifying the Code to have an indestructible base. Yet, these structures differ from one another.

  1. The motive behind proposing the “pre-packaged” insolvency regime was to protect the rights of the creditors and the corporate debtor’s company from running insolvent. While comparing this stimulation with USA and Indian insolvency, it is noted that the interest of the shareholders is compromised in India and UK. Although UK and USA follow the same principle and guidelines for the insolvency practice, during the insolvency procedure only the creditors’ claims are considered. In USA, the shareholders’ rights are considered although they are prioritised below the creditors during repayment.
  2. India and USA justices have wide discretionary powers subjected to their restructuring process. India has only two regulatory authorities, NCLT and the Supreme Court practising its inherent powers under Rule 11 of the NCLT Rules29, with the NCLAT being only for appeals. While the other alternative for the MSME sector (creditors) would be the Debts Recovery Tribunal. The Indian courts have limited its scope with only 2 or 3 approaches. Under the USA insolvency base, the jurisdiction is vested in every District Court which issues an “order of reference30”. These are specialised Judges dealing with the core matter of the pre-packaged insolvency proceedings.
  3. Under USA pre-packaged insolvency, the administrator is entitled to wholly or sustainably sell the corporate debtor’s assets, after notifying the interested parties. The insolvency trustee must mandatorily provide the opportunity to all classes of creditors to object. Following the objection, it must then obtain consent from the bankruptcy court as these dealings are operated normal outside the routine cycle, ensuring that the business is not involved in its assets. In India, after the proposition of plan by the corporate debtor (under PPIRP), the Committee of creditors has to approve the plan by at least 66.6% while there is no objection raised by the creditors during the process. The interim resolution professional who is later confirmed as resolution professional submits the plan to the Tribunal which may reject or accept the application.
  4. The Bankruptcy Code of USA does not prescribe a proper structure on how these pre-sale transactions must be conducted and concluded outside the courts. Under the Indian pre-packaged insolvency, it mentions a structured format on how these “pre-planned” transactions must function.

Though India has delayed its inception of pre-packaged insolvency, it has addressed the major issues faced by the MSME sector and accordingly, sheltered their needs. By keeping the base of CIRP intact, the legislators have scrutinised the structure of Insolvency Bankruptcy Code, 2016 and thereby made it less burdensome to the courts with simultaneous commencement of PPIRP. Whilst it also provides for an option to the creditors where they could shift their claims from PPIRP to CIRP.


The pandemic destructions in the MSME sectors have left the judicial system cumbersome, which was later surpassed by the enforcement of the pre-packaged mechanism in India. The authors appreciate this proposition to be magnificent as the pre-packaged insolvency process covers major loopholes found in the corporate insolvency process 2016. Although the pre-packaged insolvency has no suitable statutory definition, yet the legislation has been moving ahead in full-swing since inception. The overall perception about pre-packaged insolvency makes it necessary to have a straitjacket formula in order to avoid the uncertainty and to have an anticipation of the upcoming matters while embracing the judicial assessments. However, the amendment is silent on how the assets of the third party shall be dealt with during the pre-packaged insolvency process. On the other hand, the altered and controlled system reassures the flexibility in the restructuring process, balancing the societal needs. Therefore, in circumstances of puzzlement and overlapping of issues, it is advisable to have a separate tribunal dedicated only to resolve the pre-packaged insolvency issues and to accordingly address them.

*Principal Associate, Saraf and Partners, Law Offices.

**4th year student, BA LLB , SDM Law College, Mangalore.

1Insolvency and Bankruptcy Code, 2016.

2Companies Act, 1956.

3Securitisation and Reconstruction of Financial Assests and Enforcement of Security Interest Act, 2002.

4Sick Industrial Companies (Special Provisions) Act, 1985.

5Micro, Small and Medium Enterprises Development Act, 2006.

6Insolvency and Bankruptcy (Amendment) Ordinance, 2021.

7Micro, Small and Medium Enterprises Development Act, 2006, S. 7(1).

  1. Classification of enterprises.—(1) Notwithstanding anything contained in S. 11-B of the Industries (Development and Regulation) Act, 1951, the Central Government may, for the purposes of this Act, by notification and having regard to the provisions of sub-ss. (4) and (5), classify any class or classes of enterprises, whether proprietorship, Hindu Undivided Family, association of persons, cooperative society, partnership firm, company or undertaking, by whatever name called,—

(a) in the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, as—

(i) a micro enterprise, where the investment in plant and machinery does not exceed twenty-five lakh rupees;

(ii) a small enterprise, where the investment in plant and machinery is more than twenty-five lakh rupees but does not exceed five crore rupees; or

(iii) a medium enterprise, where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees;

(b) in the case of the enterprises engaged in providing or rendering of services, as—

(i) a micro enterprise, where the investment in equipment does not exceed ten lakh rupees;

(ii) a small enterprise, where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees; or

(iii) a medium enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees.

Explanation 1.—For the removal of doubts, it is hereby clarified that in calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices and such other items as may be specified, by notification, shall be excluded.

Explanation 2.—It is clarified that the provisions of S. 29-B of the Industries (Development and Regulation) Act, 1951, shall be applicable to the enterprises specified in sub-cls. (i) and (ii) of cl. (a) of sub-s. (1) of this section.

8Expln. 2.1 from the RBI Notification (Noti. No. FIDD.MSME & NFS.BC.No.3/06.02.31/2020-21) defining investment plan as under—

2.1.Classification of enterprises.—An enterprise shall be classified as a micro, small or medium enterprise on the basis of the following criteria, namely:

(i) a micro enterprise, where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees;

(ii) a small enterprise, where the investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees; and

(iii) a medium enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.

9Explanation of the proviso inserted under S. 4 of the Insolvency and Bankruptcy Code, 2016 ((F. No. 30/9/2020-Insolvency) S.O. 1205(E).—In exercise of the powers conferred by the proviso to Section 4 of the Insolvency and Bankruptcy Code, 2016, the Central Government hereby specifies one crore rupees as the minimum amount of default for the purposes of the said section.

10Insolvency and Bankruptcy Code, 2016, S. 7.

11Insolvency and Bankruptcy Code, 2016, S. 8.

12Insolvency and Bankruptcy Code, 2016, S. 9.

13Insolvency and Bankruptcy Code, 2016, S.  4 (hereinafter referred to as “the principal Act”). In S. 4, after the proviso, the following proviso shall be inserted, namely: “Provided further that the Central Government may, by notification, specify such minimum amount of default of higher value, which shall not be more than one crore rupees, for matters relating to the pre-packaged insolvency resolution process of corporate debtors under Ch. III-A.”

14Insolvency and Bankruptcy Code, 2016, S. 66(3).

15Insolvency and Bankruptcy Code, 2016, S. 10-A

10-A. Suspension of initiation of corporate insolvency resolution process.—Notwithstanding anything contained in Ss. 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25-3-2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf: 

Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period.

Explanation.—For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before 25-3-2020.

16Insolvency and Bankruptcy Code (Amendment) Bill, 2021.

17Insolvency and Bankruptcy Act, 2016, S. 5(2-A), after cl. (2), the following clause shall be inserted, namely: “(2-A) ‘base resolution plan’ means a resolution plan provided by the corporate debtor under cl. (c) of sub-s. (4) of S. 54-A.”

18Insolvency and Bankruptcy Code, 2016, S. 54-A(1).

19Insolvency and Bankruptcy Code, 2016, S. 33.

20Insolvency and Bankruptcy Code, 2016, Ss. 30(1) and (2).

21Insolvency and Bankruptcy Code, S. 29-A.

22Insolvency and Bankruptcy Code, S. 67-A.

23Insolvency and Bankruptcy Act, S. 12-A.

24 Insolvency and Bankruptcy Code, 2016, S. 54-G

54-G. List of claims and preliminary information memorandum.—(1) The corporate debtor shall, within two days of the pre-packaged insolvency commencement date, submit to the resolution professional the following information, updated as on that date, in such form and manner as may be specified, namely:

(a) a list of claims, along with details of the respective creditors, their security interests and guarantees, if any; and

(b) a preliminary information memorandum containing information relevant for formulating a resolution plan.

(2) Where any person has sustained any loss or damage as a consequence of the omission of any material information or inclusion of any misleading information in the list of claims or the preliminary information memorandum submitted by the corporate debtor, every person who—

(a) is a promoter or director or partner of the corporate debtor, as the case may be, at the time of submission of the list of claims or the preliminary information memorandum by the corporate debtor; or

(b) has authorised the submission of the list of claims or the preliminary information memorandum by the corporate debtor, shall, without prejudice to S. 77-A, be liable to pay compensation to every person who has sustained such loss or damage.

(3) No person shall be liable under sub-s. (2), if the list of claims or the preliminary information memorandum was submitted by the corporate debtor without his knowledge or consent.

(4) Subject to S. 54-E, any person, who sustained any loss or damage as a consequence of omission of material information or inclusion of any misleading information in the list of claims or the preliminary information memorandum shall be entitled to move a court having jurisdiction for seeking compensation for such loss or damage.

25Explanation defining pre-packaged insolvency under the UNCITRAL—The expedited reorganisation proceedings discussed in the Guide to address those situations follow the procedure of reorganisation, but on an expedited basis, combining voluntary restructuring negotiations, where a plan is negotiated and agreed by the majority of affected creditors, with reorganisation proceedings commenced under the insolvency law to obtain court confirmation of the plan in order to bind dissenting creditors.

26Insolvency and Bankruptcy Code, 2016, S. 234.

27Insolvency and Bankruptcy Code, 2016, S. 235.

28United Nations Bankruptcy Code, S. 363. S. 363 defines “cash collateral” as cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents, whenever acquired, in which the estate and an entity other than the estate have an interest. It includes the proceeds, products, offspring, rents, or profits of property and the fees, charges, accounts or payments for the use or occupancy of rooms and other public facilities in hotels, motels, or other lodging properties subject to a creditor’s security interest.

29National Company Law Tribunal Rules, 2016, R. 11.

3028 US Code S. 157 Procedures under US Codes  (a) Each District Court may provide that any or all cases under Title 11 and any or all proceedings arising under Title 11 or arising in or related to a case under Title 11 shall be referred to the bankruptcy Judges for the district.

Akaant MittalExperts Corner

In the previous two columns, we had covered the position of law on whether a claim for an operational debt or a financial debt could be based on a decree by a court or an arbitral award. The rulings in Dena Bank v. C. Shivakumar Reddy[1], and G. Shivramkrishna v. Isgec Covema Ltd.[2] provide us with the guidance with respect to decree and/or an arbitral award being based on a financial debt and an operational debt respectively.


Now we will proceed with the third and final column in this three-part series.


The issue whether a settlement agreement is sufficient to constitute a financial or an operational debt has a long line of inconsistent rulings.

Settlement Agreement – As a Financial Debt

In Amrit Kumar Agrawal v. Tempo Appliances (P) Ltd.,[3] the financial creditor sought to base its claim of a financial debt against the corporate debtor/guarantor on a memorandum of understanding dated 22-9-2017 wherein the creditor had agreed to advance a loan of Rs 1,50,00,000 to one principal borrower along with with interest @18% per annum payable monthly. As per the MoU, the corporate debtor stood as a guarantor. However, when the cheques of the principal borrower had bounced, a settlement agreement was executed between the creditor and the corporate debtor. The corporate debtor, since was a guarantor had come forward to pay the outstanding amount of Rs 86 lakh with interest calculated at Rs 22 lakh and issued two cheques in consideration of such liability.


The creditor argued that their claim is based on the MoU and not the settlement agreement. The NCLAT (a) firstly held that as per the terms of the settlement agreement, the terms of the memorandum of understanding stood superseded. Then (b) it held that the obligation undertaken by the guarantor to pay Rs 86 lakh with interest calculated at Rs 22 lakh does not satisfy the ingredients of a financial debt, especially when no disbursement is made to the guarantor itself and the principal borrower was not a party to the settlement agreement.

It is submitted that the above ruling is an instance of a hyper-technical understanding of the provisions of the IB Code.


Previously in another ruling, when the debtor failed to comply with the terms of the master restructuring agreement, the appellant debtor pleaded that the terms of the debt stood altered and revised and therefore the element of default was missing. The aforesaid plea was rejected by the NCLAT and the order of admission was upheld.[4]


The position of law that a debt based on a consent decree will not be treated as a financial debt can also be found in context of real estate projects. In Arenja Enterprises (P) Ltd. v. Edward Keventer (Successors) (P) Ltd.,[5] the appellant and its associates entered into MoU about the land followed by two other supplementary MoUs. Later on, some dispute arose between the parties. The appellant, along with its associates filed a civil suit for specific performance along with other reliefs against the corporate debtor. Based on an amicable settled entered into between the parties, the civil suit was decreed where as per the settlement filed before the court, the corporate debtor had agreed to develop a group-housing complex on a plot of land measuring 22.95 acres. Out of this area, the applicant, along with another, was entitled to only 34,000 sq ft residential covered/built-up area along with proportionate super area. Given the terms of settlement if the sanction of plans is not obtained within a maximum period of 3 years from the date of signing of the settlement, in that event, further built-up area as well as liability of additional area would be imposed on the debtor.


Issue arose whether the terms of the consent decree tantamount to a financial debt. The NCLAT opined that in terms of Section 5(8)(f) of the IB Code, the appellant could claim a financial debt only when the amount raised from it as an “allottee” is used for a real estate project. Based on the facts and circumstances, the NCLAT firstly observed that no sum has been raised from an allottee under the real estate project. Then, it found that the financial creditor and its associates have not paid any money towards the allotment of built-up area and the entitlement of the appellant creditor is premised on the terms of settlement. In other words, in the light of the “consent decree and settlement terms”, the appellant had paid nothing in terms of money to the financial creditor and its associates. Resultantly, it was held that the appellant could neither be termed to be an “allottee” nor has any amount “being raised” from the appellant that could constitute to have the effect of a borrowing.


On the other hand, there is the ruling in Mahesh Kumar Panwar v. Neelam Singh[6], where the settlement agreement between the parties formed the basis of financial debt. One of the terms of the settlement agreement stipulated:

In terms of the clauses B and 8 of the earlier valid agreement dated 6-10-2008 entered between the same parties, the first party was to handover the vacant possession of space of about 2004 sq ft on 3rd floor in tower 1 in the proposed IT complex cum corporate hub to be constructed at Plot No. 02/02 situated at Sector – 154, in the name and style “the grid” of the unit duly completed in all respect by 30-6-2011.

It is ascertained and agreed by the first party that till date no construction work has started. Consequent upon the factual position both the parties have agreed for the amicable settlement.

*                                        *                                        *

Both the parties agreed and settled for a sum of Rs 1,34,00,988 (Rupees one crore thirty-four lakhs nine hundred eighty-eight only) which includes booking amount paid, compensation, commitment, services rendered, appreciation, etc.

 The first party has handed over post dated Cheque No. 617815 dated 1-2-2015 amounting to Rs 29,61,261 and Cheque No. 617818 amount to Rs. 1,04,39,727 both drawn at Corporation Bank, Noida total amounting to Rs 1,34,00,988 (Rupees one crore thirty-four lakhs nine hundred eighty-eight only) to the second party in discharge of his liability and post-dated cheques for interest of deferred payment applicable as per the agreement reckoning from 1-6-2014 as per details hereunder:

*                                        *                                       *

Noting the above-mentioned terms, the NCLAT had concluded that there was a disbursal of a sum of Rs 1,34,00,988 which was against the “consideration of time value of money” i.e. interest @12.5% per annum payable from 1-6-2014.


Similarly, in Ludhiana Scrips (P) Ltd. v. K.C. Land & Finance Ltd.[7], the adjudicating authority had dismissed an application under Section 7 of the IB Code on the ground that the creditor did not bring on record the books of accounts with any entry showing any debit of interest in the account of the corporate debtor. The NCLAT, however, overruling the order referred to the settlement agreements[8] entered into between the parties to conclude that the interest element was very much present and the condition of time value of money stood satisfied. Consequently, the NCLAT held that the earlier compromise agreement dated 20-5-2017 and the subsequent agreement dated 15-6-2018 clarify the nature of the transaction and show that the appellant is a financial creditor to whom the respondent owes financial debt, and which is in default.

Clearly, the jurisprudence on this issue is diverging and conflicting.


Settlement Agreement – As an Operational Debt

With respect to an operational debt, the issue came up in Brand Realty Services Ltd. v. Sir John Bakeries India (P) Ltd.,[9] as to whether default of installments under a settlement agreement could be considered as an operational debt under the IB Code. In this case, the debtor had approached the creditor seeking investment and consultancy services and an agreement dated 28-11-2014 was entered into by the parties to that effect. Subsequently, a settlement agreement dated 15-6-2018 was entered into wherein the debtor undertook to clear the dues of the creditor.


Issue arose when the dues were not cleared. The NCLT in this case, firstly opined that the application under Section 9 was filed on account of breach of the terms of the settlement agreement dated 15-6-2018. The NCLT categorically rendered the findings that the claim of the creditor is not based on the invoices raised on account of the agreement dated 28-11-2014.


Consequently, the NCLT then referring to several precedents, including the ruling in Delhi Control Devices (P) Ltd. v. Fedders Electric and Engg. Ltd.[10], held that the debt due in terms of a settlement agreement cannot be considered as an operational debt in terms of Section 5(21) of IB Code and hence unpaid installments under the settlement agreement do not suffice to trigger resolution process against a corporate debtor.



From the three-part series discussion, it is crystal clear that: first, the decree-holder cannot be excluded from the definition of a financial or operational debt; second, an arbitral award may also be sufficient to constitute a financial or operational debt; third, the underlying debt must be based on a transaction that fulfills the criterion of a definitions laid down of financial debt and an operational debt. Lastly, the position with respect to a settlement agreement constituting a financial or an operational debt is still divergent and conflicting.

± Akaant Kumar Mittal is an advocate at the Constitutional Courts, and National Company Law Tribunal, Delhi and Chandigarh. He is the author of the commentary “Insolvency and Bankruptcy Code – Law and Practice.

[1] (2021) 10 SCC 330.

[2] 2020 SCC OnLine NCLAT 909.

[3] 2020 SCC OnLine NCLAT 1202.

[4] Esther Malini Victor v. Oriental Bank of Commerce, 2019 SCC OnLine NCLAT 1107.

[5] 2020 SCC OnLine NCLAT 1188.

[6] 2018 SCC OnLine NCLAT 596.

[7] 2019 SCC OnLine NCLAT 355.

[8] Ludhiana Scrips (P) Ltd. v. K.C. Land and Finance Ltd., 2019 SCC OnLine NCLAT 355, para 9 reproduces one of the agreements dated 15-6-2018 wherein one of the clauses of the agreement purported:

A company winding petition was filed before the Punjab and Haryana High Court by Part 1 against Part 2 which is pending adjudication.

There after it was agreed between the parties that Part 2 i.e. K.C. Land & Finance Ltd will pay Rs 4.40 crores as principal amount and Rs 1.60 crores as interest. An agreement was executed between the parties on 20-5-2017 and various post dated cheques were issued.

… Part 2 i.e. M/s K.C. Land and Finance Ltd. undertakes and assures that all these cheques will be honoured in the event of default Part 1 will be at liberty to enforce this agreement by way of initiating legal proceedings against Part 1 and the amount recoverable will be with interest @18% from the date of default till the realisation of the full amount. (emphasis added)

[9] 2020 SCC OnLine NCLT 6066.

[10] 2019 SCC OnLine NCLT 8030.

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal (NCLT): The Coram of Kapal Kumar Vohra, Technical Member and Justice P.N. Deshmukh, Judicial Member, while addressing a matter wherein Jet Airways requested Mumbai Airport not remove its assets from its premises, expressed that,

“…it is to be noted that one of the principal objectives of the Code is to provide for revival of the CD and every attempt ought to be made to revive the CD and Liquidation being the last resort.”

An application was filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 in relation to the strategic assets of the Applicant (Jet Airways) which were placed at the respondent’s Hangar and other places at the airport, contending that the applicant had ceased its operation as commercial airline, prior to commencement of Corporate Insolvency Resolution Process (CIRP) and respondent requested the applicant to vacate the facility made available as aforesaid which is in use of the Applicant contending that permission of subject premises granted to the Applicant for its use stood revoked.

The purpose of filing the present application was to restrain the respondent from removing the applicant’s assets lying at the respondent’s premises at Mumbai International Airport Limited (MIAL).

Request for unhindered access to applicants including his representatives, workmen, nominees, etc. was also made.

Analysis and Decision

Coram stated that the Resolution Mechanism was at an advanced stage and since admittedly the premises were made available to the applicant prior to when it ceased its operation as commercial Airlines and it was the applicant’s specific case that the aircrafts, engines, and auxiliary power units etc. were lying at MIAL Airport which required maintenance at regular intervals of seven, fifteen, thirty, ninety and three sixty-five days, for instance, regular check-ups of tyre pressures of aircrafts, the battery recharges and the engine runs.

In Tribunal’s opinion, if the applicant won’t be allowed to have access to the subject premises, it would certainly cause great hardships to the applicant to perform the above-stated activities which in turn would result in severe deterioration in value assets.

Applicant also stated that despite cessation of Airline operations of the CD, the Erstwhile Resolution Professional had, with the approval of the Committee of Creditors, retained a team of personnel to look for the maintenance of aircraft and engines placed at MIAL Airport including Hangar.

Therefore, the respondent was restrained from removing applicant’s assets from its premises including MIAL Hangar and not to deny access to the applicant’s representatives, workmen, nominees, etc. till the adjourned date.

Matter to be listed on 4-3-2022. [SBI v. Jet Airways, 2022 SCC OnLine NCLT 17, decided on 9-2-2022]

Appearance (via video-conference):

For the Applicant: Mr. Rohan Rajadhyaksha, Advocate

For the Respondent: Mr. Vikram Nankani, Sr Advocate

Also Read:

NCLAT | Joint CIRP against Jet Airways to continue, Dutch Trustee allowed to attend CoC meetings as observer

NCLT | Whether Resolution Plan can be shared with Jet Airways employees or not? Verdict explains provisions revolving around confidentiality, purpose of code and more

Once Adjudicating Authority approves Resolution Plan, does it still remains a confidential document? Read what NCLAT says

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 BriefsSupreme Court

Supreme Court: While dealing with a case involving two controversial terms; “operational debt” and “operational creditor” of IBC, the 3-judge Bench of Dr Dhananjaya Y Chandrachud* Surya Kant and Vikram Nath, JJ., explained that the appellant would be an operational creditor under the IBC, since an ‘operational debt’ will include a debt arising from a contract in relation to the supply of goods or services from the corporate debtor. The Bench expressed,

“…no doubt that a debt which arises out of advance payment made to a corporate debtor for supply of goods or services would be considered as an operational debt.”

Factual Conspectus

The genesis of the case related to following undisputed facts:

  • the Consolidated Construction Consortium Ltd.-appellant and the Proprietary Concern; i.e. Hitro Energy Solutions entered into a contract for supply of light fittings, since the appellant had been engaged for a project by Chennai Metro Rail Corpn. (CMRL);
  • CMRL, on the appellant’s behalf, paid a sum of Rs 50 lakhs to the Proprietary Concern as an advance on its order with the appellant;
  • CMRL cancelled its project with the appellant;
  • The Proprietary Concern encashed the cheque for Rs 50 lakhs anyways; and
  • The appellant paid the sum of Rs 50 lakhs to CMRL.

Impugned Order

It was when the proprietary concerned refused to pay the aforesaid sum despite several notices and demands, the appellant approached NCLT under Section 9 of the IBC for initiation of the Corporate Insolvency Resolution Process (CIRP) against the respondent, Hitro Energy Solutions (P) Ltd. The NCLT allowed the application holding that the respondent’s Memorandum of Association (MoA) proved that it took over the proprietary concern; and that the Proprietary Concern did owe the appellant an outstanding operational debt. Further, the NCLT declared a moratorium under Section 14 of the IBC and appointed an Interim Resolution Professional.

In appeal, the NCLAT set aside the NCLT’s decision, dismissed the application filed under Section 9 of the IBC and released the respondent from ongoing CIRP on the following grounds:

  • The appellant was a ‘purchaser’, and thus did not come under the definition of ‘operational creditor’ under the IBC since it did not supply any goods or services to the Proprietary Concern/respondent;
  • There was nothing on record to suggest that the respondent had taken over the Proprietary Concern; and
  • The appellant could not move an application under Sections 7 or 9 of the IBC since all purchase orders were issued on 24 June 2013 and advance cheques were issued subsequently. Hence, there was unjustified delay.

However, by an interim order, the Supreme Court had stayed the operation of NCLAT’s judgment.

Whether the appellant was an operational creditor

The NCLAT, sought to narrowly define operational debt and operational creditors under the IBC to only include those who supply goods or services to a corporate debtor and exclude those who receive goods or services from the corporate debtor. Rejecting the stand taken by NCLAT, the Bench observed the following:

Firstly, Section 5(21) defines ‘operational debt’ as a “claim in respect of the provision of goods or services”. The operative requirement is that the claim must bear some nexus with a provision of goods or services, without specifying who is to be the supplier or receiver.

Secondly, Section 8(1) of the IBC read with Rule 5(1) and Form 3 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016 and Regulation 7(2)(b)(i) and (ii) of the CIRP Regulations 2016 make it abundantly clear that an operational creditor can issue a notice in relation to an operational debt either through a demand notice or an invoice. As such, the Bench opined,

“…the presence of an invoice (for having supplied goods or services) is not a sine qua non, since a demand notice can also be issued on the basis of other documents which prove the existence of the debt.”

Finally, in Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416, in comparing allottees in real estate projects to operational creditors, the Supreme Court had noted that the latter do not receive any time value for their money as consideration but only provide it in exchange for goods or services.

Therefore, the Bench opined that the phrase “in respect of” in Section 5(21) has to be interpreted in a broad and purposive manner in order to include all those who provide or receive operational services from the corporate debtor, which ultimately lead to an operational debt. In the instant case, the appellant clearly sought an operational service from the Proprietary Concern when it contracted with them for the supply of light fittings. Further, when the contract was terminated but the Proprietary Concern nonetheless encashed the cheque for advance payment, it gave rise to an operational debt in favor of the appellant, which remained unpaid.

Whether the respondent took over the debt from Proprietary Concern

The MoA of the respondent unequivocally stated that one of its main objects was to take over the Proprietary Concern. However, the respondent had produced a resolution dated 01-09-2014 passed by its Board of Directors, purportedly resolving to not take over the Proprietary Concern. In this regard, the Bench observed,

“Admittedly, there was no reference to the resolution in the counter-statement dated 18 January 2018 and additional counter-statement dated 9 March 2018 filed by the respondent before the NCLT. However, in their appeal filed before the NCLAT, the respondent states that the resolution was, in fact, brought to the notice of the NCLT.”

Additionally, the NCLT made no mention of that resolution or the auditor’s certificate in its judgment. Therefore, the Bench opined that the conduct of the respondent in bringing up the resolution for the first time before the NCLAT would lead to an adverse inference against them for having suppressed the document earlier, if at all it was in existence.

Even otherwise, Section 13 of CA 2013 provides that where the object clause is amended in MoA, it requires the Registrar to register the Special Resolution filed by the company. However, the respondent had provided no proof that the purported resolution was a Special Resolution, it was filed before the Registrar and that the Registrar ultimately did register that. Thus, the purported amendment to the MOA would not have any legal effect. Consequently, the Bench held that the MOA of the respondent still stands and the presumption would continue to be in favour of the appellant.

Whether the application under Section 9 of IBC was barred by limitation

Rejecting the respondent’s submission that limitation commenced from 07-11-2013, when the cheque was issued by CMRL to the Proprietary Concern and that considering three years limitation period under Article 137 of the Limitation Act 1963, the period would expire on 07-11-2016, while the application under Section 9 was only filed on 01-11-2017, the Bench observed, in its application under Section 9, the appellant had mentioned 07-11-2013 as the date on which the debt became due.

However, in B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633, it was held that limitation does not commence when the debt becomes due but only when a default occurs. As noted, default is defined under Section 3(12) of the IBC as the non-payment of the debt by the corporate debtor when it has become due. Hence, it was only on 27-02-2017 that the final letter was addressed by the appellant to the Proprietary Concern demanding the payment on or before 04-03-2017 and Proprietary Concern replied on 02-03-2017, finally refusing to make re-payment to the appellant. Consequently, the application under Section 9 would not be barred by limitation.


Hence, the appeal was allowed and the impugned judgment and order were set aside.  Since the CIRP in respect of the respondent was ongoing due to the Court’s order dated 18-11-2020, no further directions were issued.

[M/s Consolidated Construction Consortium Ltd. v. M/s Hitro Energy Solutions (P) Ltd., 2022 SCC OnLine SC 142, decided on 04-02-2022]

*Judgment by: Justice Dhananjaya Y Chandrachud

Appearance by:

For the Appellant: M P Parthiban, Advocate

For the Respondent: K Parameshwar, Advocate

Kamini Sharma, Editorial Assistant has put this report together


Case BriefsSupreme Court

Supreme Court: In a case were the Division Bench of Sanjay Kishan Kaul and M.M. Sundresh*, JJ., was sought to provide judicial interpretation of Section 29A(h) of the IBC, as amended by the Act, 2018, the Bench held that ineligibility has to be seen from the point of view of the resolution process. It can never be said that there can be ineligibility qua one creditor as against others. Rather, the ineligibility is to the participation in the resolution process of the corporate debtor. The Bench remarked,

“…what is required to earn a disqualification under the said provision is a mere existence of a personal guarantee that stands invoked by a single creditor, notwithstanding the application being filed by any other creditor seeking initiation of insolvency resolution process subject to further compliance of invocation of the said personal guarantee by any other creditor.”

An application was filed by RBL Bank under Section 7 of the Insolvency and Bankruptcy Code, 2016 to initiate corporate insolvency resolution process (CIRP) against Respondent 1. Pursuant to which a resolution plan, after certain modifications was submitted by the respondent 3 on 22-11-2017. Meanwhile, by way of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, Section 29A was introduced to the Code. It was specifically under 29A (h) that the CoC held a meeting to deliberate upon the impact of the amendment qua the eligibility of the Respondent 3 in submitting a resolution plan in the CIRP proceedings.

It was in the above backdrop that respondent 3 approached the NCLT praying for a declaration that he was not disqualified from submitting a resolution plan under sub-section (c) and (h) of Section 29A of the Code. NCLT, vide its order held that the Respondent 3 was eligible to submit a resolution plan, notwithstanding the fact that he did extend his personal guarantees on behalf of the Respondent 1 which were duly invoked by some of the creditors, on it. It was against the order; the Punjab National Bank approached the NCLAT. However, the Bank later sought to withdraw its appeal to change in circumstances, i.e.  the resolution plan gathered 78.50% vote share. The NCLAT allowed the withdrawal request without any liberty to challenge the same very impugned order.

Consequently, the NCLT approved the resolution plan submitted to it inter alia holding that there is a marked difference between extension and exclusion and therefore, the rigor of Section 12(1) of the Code would not get attracted on the facts of the case particularly when there were pending proceedings with interim orders, notably an interim order was issued by the NCLAT directing the adjudicating authority not to act on resolution plan until the final order of NCLAT. Further, the plan having received 75% vote share, having considered the techno-economic viability and feasibility of the plan, the application filed for approval of the resolution plan was allowed with a direction that the approved resolution plan shall come into force with immediate effect. The appeals against the said order of NCLT were dismissed on the ground that it cannot sit in appeal over the decision of the adjudicating authority or the CoC in the absence of any apparent discrimination.

Grounds for Challenge

Noticeably, the appellant had approached before NCLAT seeking to be impleaded as a party to the proceedings initiated by Punjab National Bank with an intention to continue the lis, however, the same was not favourably considered. The appellant even raised its objection to the withdrawal of appeal. The appellant had approached the Court with the following grievances:

  • The respondent 3, a promoter of the corporate debtor, was ineligible to submit a resolution plan under Section 29A(h) of the Code, as several personal guarantees executed by the Respondent 3 in favour of various creditors of the Respondent 1-corporate debtor stood invoked, prior commencement of CIRP.
  • The law which was prevailing on the date of the application has to be seen, therefore, the disqualification gets attracted on the date of filing of the application and on the same analogy not only Section 29A(h) but also Section 30(4) has to be interpreted.
  • The approval of the resolution plan was made after the mandatory period of 270 days, i.e. after the expiry of the CIRP period. Since there is clear infraction of Section 12, the 12 orders passed are liable to be interfered with.

Hence, the instant case was filed for seeking judicial interpretation of Section 29A(h) of the Insolvency and Bankruptcy Code, 2016, as amended by the Act, 2018.

Interpretation of Section 29A (h) of the Code

The idea of the Insolvency and Bankruptcy Code, 2016 being to facilitate a process of rehabilitation and revival of the corporate debtor with the active participation of the creditors, the Bench opined that there are two principal actors in the entire process, viz., (i) the committee of creditors and, (ii) the corporate debtor. Therefore, there can never be any other interest than that of the committee of creditors and the corporate debtor.

Observing that the objective behind Section 29A of the Code is to avoid unwarranted and unscrupulous elements to get into the resolution process while preventing their personal interests to step in, and to prevent certain categories of persons who may not be in a position to lend credence to the resolution process by virtue of their disqualification, the Bench relied on Ebix Singapore Pvt. Ltd. vs. COC of Educomp Solutions Ltd., 2021 SCC OnLine 707, to hold that the CoC even with the requisite majority, while approving the Resolution Plan must consider the feasibility and viability of the Plan and the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53 of the IBC. And that the CoC cannot approve a Resolution Plan barred under Section 29A of the IBC.

Rejecting the contention of the respondents that Section 29A(h) had to be literally interpreted to the extent that a personal guarantor is barred from submitting a resolution plan only when the creditor invoking the jurisdiction of the adjudicating authority has invoked a personal guarantee executed in favour of said creditor by the resolution applicant and no personal guarantee stood invoked by RBL Bank at the time of application to the adjudicating authority under Section 7 of the Code, the Bench emphasised that ineligibility has to be seen from the point of view of the resolution process. It can never be said that there can be ineligibility qua one creditor as against others. Rather, the ineligibility is to the participation in the resolution process of the corporate debtor. The manner of invocation can never be a factor for the adjudicating authority to adjudge, as against its existence. Adequate importance will have to be given to the latter part of the provision which also disqualifies a person whose liability under the personal guarantee executed in favour of a creditor, remains unpaid in full or in part for the amount due from him, upon invocation.

Difference between Extension and Exclusion

On the question of limitation, the Bench affirmed the views of adjudicating authority as confirmed by the appellate tribunal, noticing that there were earlier rounds of litigation with the interim orders. Therefore, the Bench held that delay of 106 days had been rightly condoned and excluded by the adjudicating authority by invoking Section 12(3) of the Code.

Hence, the Bench opined, the adjudicating authority was right in holding that there is a marked difference between extension and exclusion. Exclusion would come into play when the decision is challenged before a higher forum. Extension is one which is to be exercised by the authority constituted.

Factual Analysis

Admittedly, the Respondent 3 had executed personal guarantees which were invoked by three of the financial creditors even prior to the application filed. Therefore, the Bench held that rigor of Section 29A(h) of the Code obviously got attracted and the plan submitted by the Respondent 3 ought not to have been entertained. Accordingly, the Bench concluded, the adjudicating authority and the appellate tribunal were not right in rejecting the contentions of the appellant on the ground that the earlier appeals having been withdrawn without liberty, the issue qua eligibility cannot be raised for the second time, particularly when the appellant was not a party to the decision of the adjudicating authority on the first occasion.

Though the resolution plan submitted by the Respondent 3 was held ineligible and not maintainable, the Bench opined that much water had flown under the bridge as the requisite percentage of voting share had been achieve, majority of the creditors had given their approval to the resolution plan and the plan was also put into operation since 18-04-2018. The Bench remarked,

“We need to take note of the interest of over 23,000 shareholders and thousands of employees of the Respondent 1. Now, about Rs. 300 crores has also been approved by the shareholders to be raised by the Respondent 1. It is stated that about Rs. 63 crores has been infused into the Respondent No.1 to make it functional. There are many on-going projects of public importance undertaken by the Respondent No.1 in the nature of construction activities which are at different stages.”


Hence, considering the ultimate object of the Code, i.e. to put the corporate debtor back on the rails, and noticing that no prejudice would be caused to the dissenting creditors as their interests would otherwise be secured by the resolution plan itself, which permits them to get back the liquidation value of their respective credit limits, the Bench refused to disturb the resolution plan leading to the on-going operation of the Respondent 1. The appeal was dismissed.

[Bank of Baroda v. Mbl Infrastructures Ltd., 2022 SCC OnLine SC 48, decided on 18-01-2022]

*Judgment by: Justice M.M. Sundresh

Appearance by:

For the Appellant: Tushar Mehta, Solicitor General and Bishwajit Dubey, Advocate

For Respondent 1: Ranjit Kumar, Senior Advocate

For Respondent 3: Parag P. Tripathi, Senior Advocate

Kamini Sharma, Editorial Assistant has put this report together 


Case BriefsHigh Courts

Madras High Court: N. Sathish Kumar, J., while addressing a matter with regard to the dishonour of cheques under Section 138 of Negotiable Instruments Act, 1881, held that the moratorium provision contained in Section 14 of the Insolvency and Bankruptcy Code, would apply only to corporate debtor, but the natural persons mentioned in Section 141 of Negotiable Instruments Act continue to be statutorily liable under Chapter XVII of the Negotiable Instrument Act.

Petitioner’s case was that the petitioner was arrayed as one of the accused in cases pending before the lower courts for the offences under Section 138, 141 and 142 of the Negotiable Instruments Act, 1881.

As per the request of the petitioners ‘company, the complainant company agreed to supply the “Wet Blue Cow Hides” and supplied the same. During the course of business, the accused Company was due and payable to the respondent Company for the supply made. For the said purpose 2nd accused had issued various cheques but the said cheques were dishonoured with an endorsement of “Payment Stopped by the Drawers”. Hence, the respondent had filed the complaints before Judicial Magistrates’ Court.

Petitioners alleged that no legal notice was served by the respondent, hence the complaint under Section 138 NI Act was legally unsustainable and in view of the same while challenging the said complaint present petition was filed.

Analysis, Law and Decision

High Court reiterated a settled position of law that, the criminal liability of natural persons in case of a complaint filed under Sections 138 and 141 of the Negotiable Instruments Act, 1881 would survive, but would not be attracted against the company.

Bench noted that in the present case, the insolvency process was initiated by NCLT, and a moratorium had been declared under the Insolvency and Bankruptcy Code.

Therefore, referred to the Supreme Court decision in P. Mohanraj v. Shah Brothers Ispat (P) Ltd., (2021) 6 SCC 258, wherein it was held that the moratorium provision contained in Section 14 of the Insolvency Bankruptcy Code, would apply only to corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instrument Act,

High Court expressed that, the moratorium was only in respect of the corporate debtor and not in respect of the directors/management and therefore the petitioners 2 and 3 as natural persons were liable for prosecution. However, in view of the declaration of moratorium by NCLT, the prosecution against the company cannot be allowed to continue.

In view of the above, Court quashed the proceedings in respect of 1st petitioner and with regard to petitioners 2 and 3, Court opined that the issue was triable and required an appreciation of evidence and this Court cannot decide the same in exercise of its jurisdiction under Section 482 of CrPC.

High Court directed the petitioners and respondent to co-operate with the trial court for the early completion of trial.[Nag Leathers (P) Ltd. v. Muzain Hides, 2022 SCC OnLine Mad 205, decided on 3-1-2022]

Advocates before the Court:

For Petitioner in all Crl.O.P.s :  Mr T.P. Prabakaran

For Respondent in all Crl.O.P.s : Mr M. Guruprasad

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Bench of Justice Ashok Bhushan (Chairperson) and Dr. Alok Srivastava (Technical Member) allowed distribution of INR 223 crore from the cash balance available with EPC Construction among its creditors and lenders.

The instant appeal was filed by IDBI Bank in its capacity as a financial creditor and lead lender of EPC Construction India-Corporate debtor as well as a representative of all other lenders of the Corporate Debtor against the order of the NCLT whereby the application urging to direct the Respondent-Liquidator to permit the Financial Creditors of the Corporate Debtor to distribute an amount of INR 223 crore from the cash balance available with the Corporate Debtor in the proportion of their respective voting share in the erstwhile CoC had been dismissed.

The appellant submitted that the said application had been wrongly rejected by the Adjudicating Authority (NCLT) on the ground distribution of the cash would derogate the value of the Company, which observations were not in accordance with law.

Initially, an application was filed by the appellant-creditor before the Adjudicating Authority seeking a direction against the Respondent-Liquidator to distribute the available cash balance of the Corporate Debtor, amongst the stakeholders of the Corporate Debtor in favour of whom the same were charged, including the appellants herein, as per the waterfall mechanism set out in Section 53 of the Insolvency and Bankruptcy Code, 2016, and amongst the workmen of the Corporate Debtor as required under Section 53 (1) (b) (i) of the Code after accounting for the costs/reserving the estimated costs under Section 53(1) (a) towards Insolvency Resolution Process costs and the liquidation costs.

Noticeably, the liquidator did not raise any objection to distribution of surplus cash balance of the Corporate Debtor up to an extent of INR 220 Crores amongst the stakeholders in accordance with the order of priority and in the manner specified under Section 53 of the IBC, however, a condition was made to the extent that if there is any shortfall in meeting the requirements involved in the liquidation process, then the said amount shall be replenished by the financial creditors within a period of fifteen (15) days, from the date of demand. The said condition had been agreed by the appellants. The rationale behind the liquidator’s claim was following:

  1. “As per records, Corporate Debtor has a balance of approximately INR 300 (three hundred) crores in its bank accounts–which includes funds received from invocation of performance bank guarantee of INR 42 (forty-two) crores. In addition, there is additional margin money of approx. INR 13 (thirteen) crores also available. The Corporate Debtor further also generates approximately INR 6-7 crores in cash every month.
  2. Most of the business of the Corporate Debtor is non-functional. Only the equipment leasing division of the Corporate Debtor is operational. All the other division of the Corporate Debtor are being utilized for recovery of dues. The Corporate Debtor at present has a total 109 employees along with 14 employees serving notice period and superannuation. The Respondent estimates that, the process of liquidation, in all likelihood, subject to other external factors should be completed within a year. Therefore, as per the estimate of the liquidator, the cost of the liquidation process may not exceed INR 80 crores approximately – which has been computed by factoring in the receipts during liquidation period minus expenses incurred during the said period and CIRP costs.”

The liquidator contended that even after distribution of INR 223 crores, as sought in the appeal, the Corporate Debtor would have sufficient liquidity of approximately INR 80 (eighty) crores to enable him to run the liquidation process smoothly in accordance with law.

In the light of above submissions, the NCLAT reversed the decision of the Adjudicating Authority and directed for distribution of INR 223 crores as submitted by the Liquidator subject to undertaking by the members of the CoC to return the amount in the event they are paid any amount in excess to their entitlement as per waterfall mechanism under Section 53 of the Code. The impugned order was set aside.[IDBI Bank Ltd. v. Liquidator, EPC Constructions (India) Ltd., 2022 SCC OnLine NCLAT 43, decided on 27-01-2022]

Kamini Sharma, Editorial Assistant has reported this brief.

Appearance by:

For Appellant: Tushar Mehta, Sr. Advocate with Akshay Sapre, Advocate

For Respondent: Pulkit Sharma, Swarnendu Chatterjee and Shriraj H. Khambete, Advocates

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, Mumbai Bench: The Coram of H.V. Subba Rao (Judicial Member) and Chandra Bhan Singh (Technical Member) dismissed a petition filed under Section 9 of the IBC while noting that no operational debt existed under Section 5(8) and expressed that,

Operational Creditor being the Principal was always under obligation to recover the money from the client and not from his agent unless the agent failed to perform his duties.

Present company petition was filed by the THG Publishing Private Limited (Operational Creditor) seeking to initiate the Corporate Insolvency Resolution Process against Deadline Advertising Private Limited (respondent) by invoking provisions of Section 9 Insolvency and Bankruptcy Code, 2016 read with Rule 6 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for resolution of an operational debt of Rs 9,23,160.

Analysis, Law and Decision

Tribunal noted that during the course of the business, the respondent issued a release order upon the Operational Creditor for publishing advertisement in Business Line Newspaper and The Hindu newspaper which was duly done by the Operational Creditor.

Further, it was observed that the nature of business between the parties was that of a Principal and Agent, where, the Operational Creditor acted as the Principal who in turn appointed the Respondent as an agent on a commission basis in order to increase the Operational Creditor’s business revenue by attracting and engaging customers who are desirous of publishing their advertisement with the Operational Creditor.

The invoices in question had not been raised against the respondent but against M/s Avanse Financial Services Private Limited and it was clear that the client was not respondent but M/s Avanse Financial Services Private Limited who a client of the Operational Creditor through the respondent who was merely an agent to the Operational Creditor.

Since M/s Avanse Financial Services (P) Ltd. failed to remit the due to respondent, the respondent failed to remit the due to the Operational Creditor.

Coram opined that the Operational Creditor could have availed the legal remedies and initiated the appropriate legal proceedings against M/s Avanse Financial Services Private Limited to recover its monies as Avanse was the client of Operational Creditor which was reflected in the invoices raised.

Another point noted by the Coram was that the respondent was engaged by the Operational Creditor as an agent because it was accredited with the Indian Newspaper Society. As per the agreement between INS and the respondent, the respondent shall be entitled to a 15% commission pertaining to advertisement business.

Hence, it was clear that the arrangement was between the parties of principal-agent and not of Operational Creditor and Respondent, which clearly leads to the conclusion that defaulting party was not the agent of Operational Creditor, infact it was the client of Operational Creditor.

Issue: If it was a principal-agent relationship, was the respondent not liable to pay any dues arising from default?

Tribunal firstly referred to Section 182 of the Indian Contract Act, 1872 and further observed that the Operational Creditor being the Principal was always under obligation to recover the money from the client and not from his agent unless the agent failed to perform his duties.

Therefore, since the respondent performed in good faith, the agent could not be held liable for default on the part of client of the Operational Creditor.

Concluding the matter, Tribunal held that the amount claimed did not qualify as an Operational Debt under Section 5(8) of the Code and was not default under Section 3(12) of the Code.

In view of the above discussion, company petition was dismissed. [THG Publishing (P) Ltd. v. Deadline Advertising (P) Ltd., CP No. 1952/IBC/MB/2019, decided on 19-1-2022]

Advocates before the Tribunal:

For the Operational Creditor: Mr. Abhishek Tila a/w Aboli Mandik and Adv. Shivani Sanghavi i/b DMD

For the Respondent: Mr. Nausher Kohli a/w Munaf Virjee and Akash Agarwal i/b ABH Law LLP

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): Justice Ashok Bhushan (Chairperson) and Dr Ashok Kumar Mishra (Technical Member) expressed that, once Resolution Plain is approved by the Adjudicating Authority, it no longer remains a confidential document, so as to preclude Regulator and other persons from accessing the said document.

Whether the appellant/applicant is entitled to be given a copy of Resolution Plan or any part of the Resolution Plain in the appeal?

Appellant had sought a direction to produce records along with a full set of documents relating to Corporate Insolvency Resolution Process of Corporate Debtor in the application for interim relief.

Question that is to be answered in the present matter is:

Whether appellant is entitled to a copy of Resolution Plan?


Appellant was an association of aggrieved workmen of the Jet Airways (India) Ltd. and were Operational Creditors who filed their claim before the Resolution Professional. The Resolution Plan allocated workmen and employees an amount of Rs 52 Crores. The said Appeal had been filed by the Appellant challenging the order of the Adjudicating Authority approving the Resolution Plan on several grounds.

Analysis, Law and Decision

In view of relevant sections and regulations, Coram expressed that an Insolvency Professional must ensure that confidentiality of the insolvency resolution process, liquidation or bankruptcy process, as the case may be, is maintained at all times. However, this shall not prevent him from disclosing any information with the consent of the relevant parties or required by law.

Section 24 of the IB Code read with Regulation 21 (3) (iii) of Process Regulation 2016, makes it clear that all Members, who were to participate in the meeting of the Committee of Creditors had to be provided copies of all relevant documents.

Therefore, in view of the above, the entitlement of copy of documents during the CIRP is for only those who are to participate in CIRP.

The category of creditors including the Members of the suspended Board of Directors or the partners of the corporate persons, who are entitled to participate in the meeting of the Committee of Creditors are entitled to receive copies of all documents.

Supreme Court in the decision of Vijay Kumar v. Standard Chartered Bank, (2019) 20 SCC 455, held that Members of the suspended Board are entitled to participate in the meeting of the Committee of Creditors. They are also entitled to be given a copy of the Resolution Plan before such meetings are held.

The question which arose in the present proceeding was: Whether the Resolution Plan after it being approved by the Adjudicating Authority, still continues to be a confidential document, so as to deny access to any of the claimants? 

Tribunal observed that when the inspection is permitted of record of the Adjudicating Authority, obviously inspection can very well be made of the Resolution Plan, which is part of the proceedings before the Adjudicating Authority.

Further, the provision of Section 61(3) reaffirms the Tribunal’s view that after approval of the Resolution Plan, Resolution Plan does not remain a confidential document, so as to deny its perusal to a claimant, who is aggrieved by the Plan and has come up on the Appeal.

Adding to the above, Coram elaborated that the Resolution Plan even though it is not a confidential document after its approval, cannot be made available to each and to anyone who has no genuine claim or interest in the process.

In the present case, the appellant is entitled to the relevant part of the Resolution Plan relating to the claim of the workmen and employees. Hence Tribunal directed that part of the Resolution Plan which deals with the claim of workmen and employees should be provided to the appellant by the successful resolution applicant. [Assn. of aggrieved Workmen of Jet Airways (India) Ltd. v. Jet Airways (India) Ltd., 2022 SCC OnLine NCLAT 36, decided on 20-1-2022]

Advocates before the Tribunal:

For Appellants:

Mr. Nikhil Nayyar, Sr. Advocate with Ms. S. Manjula Devi, Advocate

Dr. KS Ravichandran (CS)

For Respondents:

Mr. Arun Kathpalia, Sr. Advocate with Mr. Malhar Zatakia, Mr. Nishant Upadhyay, Madhur Arora, Mr. Dhiraj Kumar Totala Ms. Tanya Chib, Advocates (R-1, 3)

Ms. Isha Malik, Ms. Niharika Shukla and Mr. Raunak Dhillon, Advocates (R-2)

Ms. Pooja Mahajan, Mr. Aashish Vats, Mr. Arveera Sharma, and Ms. Mahima Singh, Advocates (R-4)

Case BriefsSupreme Court

Supreme Court: In a case relating to Corporate Insolvency, the Division Bench comprising of Indira Banerjee* and J.K. Maheshwari, JJ., quashed the order of NCLAT rejecting the application under S. 60(5) of IBC. The Bench held that the NCLAT and NCLT had failed to consider the law laid down by the Court with regard to extension of limitation period due to Covid-19 pandemic.

The appeal was filed under Section 62 of the Insolvency and Bankruptcy Code 2016 (IBC) against a judgment and order of NCLAT, whereby it had dismissed the application assailing order of NCLT under Section 61 of the IBC, mainly on the ground that the Resolution Process had already been approved by the Committee of Creditors.

The Appellant, an entity indulged in business of Supply and Erection of Piping Systems had entered into a contract with the Rohit Ferro Tech Ltd.-Corporate Debtor, who contacted the Appellant and placed a Purchase Order for design, supply, erection and testing of LP piping system and the commissioning of an LDO (Light Diesel Oil) storage handling system for its IX 67.5 MW Power Plant (Unit-II) for a consideration of Rs.5,37,75,761 excluding taxes and duties. Subsequently, the Corporate Debtor amended the said purchase order to include additional work of the value of Rs.88,64,239 excluding taxes and duties.

Arbitral Award

Some dispute arose between the parties due to failure and negligence of the Corporate Debtor to pay a sum of Rs.76,85,472 in connection with the said purchase order, pursuant to which the appellant invoked the Arbitration Clause and an Arbitrator was appointed by the High Court of Calcutta. The Arbitrator decided the case in favour of the appellant declaring that the claimant-appellant shall be awarded a sum of Rs.55,01,661 along with interest at the rate of two percent higher than the current rate of interest prevalent on the date of the award on and from 08-08-2014 till the date of payment. Further, the costs at Rs. 5,00,000 was also awarded to the claimant-appellant.

Initiation of CIRP

However, the said award was challenged before the Trial Court by the appellant under Section 34 of the Act, 1996. Meanwhile, the respondent 2, namely State Bank of India being a Financial Creditor of the Corporate Debtor, filed an application before the NCLT under Section 7 of the IBC, for initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, and one Supriyo Chaudhuri was appointed as Resolution Professional.

Covid-19 and Countrywide Lockdown

The grievance of the appellant was that due to the COVID-19 pandemic and subsequent imposition of countrywide lockdown, it was not aware of the initiation of CIRP against the Corporate Debtor till 27-11-2020 whereafter it came to know the Corporate Debtor had not been taking steps in the Arbitration Proceedings in view of Insolvency process initiated against it.

IBC and Period of Limitation

The appellant’s claim of Rs.1,13,38,651, filed under Regulation 7 of the Insolvency and Bankruptcy Board of India (Insolvency Process for Corporate Persons) Regulations 2016 against the Corporate Debtor was rejected by the Resolution Professional on the ground that it had been filed beyond time. It was this order of the Resolution Professional which was being assailed before NCLT and NCLAT and which was being impugned in the instant appeal.

The Bench observed that the NCLT had failed to consider the order of the Supreme Court in Cognizance For Extension of Limitation: In Re, (2021) 5 SCC 452, wherein, taking cognizance of the situation arising out of the challenge faced by the country on account of Covid-19 Virus and resultant difficulties that may be faced by litigants across the country the Supreme Court had ordered that for the purpose of counting period of limitation in all proceedings, irrespective of the limitation prescribed under the general law or Special Laws whether condonable or not the period from 15-03-2020 till 14-03-2021 shall stand excluded. The Court had further declared that in cases where the limitation would have expired during the period between 15-03-2020 till 14-03-2021, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 15-03-2021.

Therefore, noticing that the NCLAT had also failed to consider the order of the Court extending period of limitation, the Bench held that since the appellant was required to file its claim within 3 months from 11-02-2020, and the appellant actually filed claim well before 14-01-2021, the claim ought not to have been rejected in the light of the above mentioned order.


In the backdrop of above, the Bench held that the NCLAT erred in dismissing the appeal without even considering the effect and impact of the orders of the Court in Cognizance For Extension of Limitation: In Re. Accordingly, the appeal was allowed and the impugned judgment and orders of NCLAT and NCLT were set aside. The application of the appellant under Section 60(5) of the IBC was allowed.

[GPR Power Solutions (P) Ltd. v. Supriyo Chaudhuri, 2021 SCC OnLine SC 1328, decided on 29-11-2021]

*Judgment by: Justice Indira Banerjee

Appearance by:

For Appellant(s): Sumit Kumar, AOR, Rajesh Pathak, Kumari Supriya, Abhishek Chakraborty, Hemant Kumar and Harshita Sinha, Advocates

For Respondent(s): Indranil Ghosh, Orijit Chatterjee, Swati Dalmial, Palzer Moktan, Ojasa Arya,  Akash Yadav, Advocates

Satya Mitra, AOR, Swarnendu Chatterjee, AOR and Naman Kamdar, Advocate

Report by: Kamini Sharma, Editorial Assistant