Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT), New Delhi: The Bench of Justice Bansi Lal Bhat (Acting Chairperson) and Justice Venugopal M. (Judicial Member), Justice Anant Bijay Singh (Judicial Member), Kanthi Narahari (Technical Member) and Shreesha Merla (Technical member), while addressing the present matter observed that:

“…for purpose of computing the period of limitation under Section 7 of I&B Code, the date of default is NPA.”


The three-member Bench of this Appellate Tribunal had opined that the decision rendered by the 5-member Bench of this Appellate Tribunal in V. Padmakumar v. Stressed Assets Stabilization Fund (SASF),2020 SCC OnLine NCLAT 417required reconsideration.

Issue formulated by the three-member Referral Bench, as noticed in the reference order was as follows:

“Hon’ble Supreme Court and various Hon’ble High Courts have consistently held that an entry made in the Company’s Balance Sheet amounts to an acknowledgement of debt under Section 18 of the Limitation Act, 1963, in view of the settled law, V. Padmakumar’s Case requires reconsideration.”

Facts and Contentions

Corporate Debtor had defaulted in repaying the dues availed as a loan from the Consortium Lenders leading to recalling of the loan facility by the Financial Creditor — State Bank of India and the Consortium Lenders issuing notices under Section 13(2) of the SARFAESI Act, 2002 demanding total amount of Rs 59,97,80,02,973. 
Corporate Debtor failed to discharge its liability.
When the Financial Creditor initiated CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor, Lenders had assigned the debt in favour of ‘Asset Reconstruction Company (India) Ltd. NCLT, Kolkata Bench on being satisfied that debt and default were established, admitted the application. Further on being aggrieved with the same, Ex-Director of Corporate Debtor filed an appeal against the admission order in light of Corporate Debtor’s account being declared as NPA in 2014 and application under Section 7 was filed in 2018 after a delay of around 5 years, hence the same was barred by limitation.
Financial Creditor contended that the right to sue for the first time accrued to it upon the classification of the accounts as NPA in 2013 but thereafter, Corporate Debtor had admitted time and again and unequivocally acknowledged its debt in the Balance Sheets for the years ending 31st March, 2015, 31st March, 2016 and 31st March, 2017.
Hence, the right to sue stood extended in terms of Section 18 of the Limitation Act, 1963.
Referral Bench had declined to accept the argument that Section 18 of the Limitation Act, 1963 is not applicable Insolvency Cases and proceeded to record the reasons for reconsideration of V. Padmakumar’s Judgment.

Analysis, Law and Decision

Bench noted that in ‘V. Padmakumar’s Case’, IDBI had advanced financial assistance of Rs 600 Lakhs by way of Term Loan Agreement dated 02-03-2000 to the Corporate Debtor and the loan was duly secured.
Further, the Corporate Debtor’s account was classified as NPA in 2002, later IDBI initiated recovery proceedings in 2007. Recovery Certification was issued in 2009 which was reflected in the Balance Sheet dated 31-03-2012.
Limitation Period
This Appellate Tribunal noted the decisions delivered by Supreme Court in Jignesh Shah v. Union of India(2019) 10 SCC 750, Gaurav Hargovindbhai Dave v. Asset Reconstructions Company (India) Ltd.  – (2019) 10 SCC 572, Vashdeo R. Bhojwani v. Abhyudaya Co-operative Bank Ltd.(2019) 9 SCC 158, and the decision of this Appellate Tribunal in V. Hotels Ltd. v. Asset Reconstruction Company (India) Ltd.– Company Appeal (AT) (Insolvency) No. 525 of 2019, decided on 11-12-2019, was of the view that for the purpose of computing the limitation period for application under Section 7 the date of default was NPA and hence a crucial date.
5-Member Bench further dealt with the acknowledgement of claim in audited Balance Sheet of Corporate Debtor to arrive at a finding as to whether such acknowledgement would fall within the ambit of Section 18 of Limitation Act, 1963.
Bench expressed that the Referral bench failed to take note of the fact that the 5-Member Bench Judgment rendered in ‘V. Padmakumar’s Case’ with a majority of 4:1 was delivered to remove uncertainty arising out of the conflicting verdicts of Benches of co-equal strength in ‘V. Hotel’s Case’ and ‘ Ugro Capital Ltd.’s Case’.

Once a Larger Bench of this Appellate Tribunal came to be constituted in the wake of two conflicting judgments rendered by Benches of co-equal strength on the issue, one of the two Benches having failed to notice the judgment of the Supreme Court on the subject, the issue raised by the Referral Bench can no more be said to be res integra, in so far as the jurisdiction exercised by this Appellate Tribunal under I&B Code is concerned.


  • For purpose of computing, the period of limitation under Section 7, the date of default is NPA.
  • In Supreme Court’s decision of Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Ltd., Civil Appeal No. 6347 of 2019, it was observed that Section 18 of the Limitation Act, 1963 would have no application to proceedings under the I&B Code. Therefore the issue raised as regards acknowledgement of liability by reflection in the Balance Sheet/Annual Return would be irrelevant.
  • The remedy available under the I&B Code is a remedy distinct from remedy available in civil jurisdiction/ recovery mechanism and since the I&B Code is not a complete Code, provisions of Limitation Act are attracted to proceedings under it before NCLT and NCLAT as far as applicable i.e. in regard to matters not specifically provided for in I&B Code.
  • The whole mechanism of triggering of Corporate Insolvency Resolution Process revolves around the concept of ‘debt’ and ‘default’.
  • There is no room for doubt that the date of default in regard to an application under Section 7 of I&B Code is the date of classification of the account of Corporate Debtor as NPA.
  • The date of default is extendable within the ambit of Section 18 of Limitation Act on the basis of an acknowledgement in writing made by the Corporate Debtor before the expiry of the limitation period.

Whether a reflection of debt in the Balance Sheet/ Annual Return of a Corporate Debtor would amount to acknowledgement under Section 18 of the Limitation Act?

“…the finding has been recorded by the five Member Bench in the context of a judgment or a decree passed for recovery of money by Civil Court/ Debt Recovery Tribunal which cannot shift forward the date of default for purposes of computing limitation for filing of an application under Section 7 of the I&B Code and the fact that filing of Balance Sheet/ Annual Report being mandatory under Section 92(4) of Companies Act, failing of which attracts penal action under Section 92(5) & (6).”

Tribunal also added to its observations that Referral Bench failed to draw a distinction between the ‘recovery proceedings’ and the ‘insolvency resolution process’.

I&B Code provides timelines for resolution of insolvency issues and proceedings thereunder cannot be equated with the ‘recovery proceedings’.

Hence, in view fo the above discussions, Bench opined that :

the order of reference which, in letter and spirit, is more akin to a judgment of an Appellate Court appreciating the findings and judgment in ‘V. Padmakumar’s Case’ is incompetent and deserves to be rejected.

Judicial Indiscipline

Tribunal went on to express that ‘Judicial indiscipline’ creates uncertainty and impairs public faith in the Rule of Law.

Crossing the red line by disregarding the binding precedent results in making the legal proposition uncertain. Such misadventure creates uncertainty as regards the settled position of law.

Cases referred by the Tribunal for the above-stated:

  • Central Board of Dawoodi Bohra Community v. State of Maharashtra, (2005) 2 SCC 673: It was held that a decision delivered by a Bench of larger strength is binding on any subsequent Bench of lesser or coequal strength.

A Bench of co-equal strength can only express an opinion doubting the correctness of the view taken by the earlier Bench of co-equal strength.

  • Keshav Mills Co. Ltd. v. CIT, (1965) 2 SCR 908: It was held that the nature of infirmity or error would be one of the factors in making a reference. Whether patent aspects of question remained unnoticed or was the attention of Court not drawn to any relevant and material statutory provision or was any previous decision of the Supreme Court not noticed would be the relevant factors.
  • In Supreme Court Advocates on Record Association v. Union of India, (2016) 5 SCC 1, it was held that the Court should not, except when it is demonstrated beyond all reasonable doubt that its previous ruling given after due deliberation and a full hearing was erroneous, revisit earlier decision so that the law remains certain.

In CCE v. Matador Foam, (2005) 2 SCC 59, the following was observed:

“….. These being judgments of coordinate benches were binding on the Tribunal. Judicial discipline required that the Tribunal follow those judgments. If the Tribunal felt that those judgments were not correct, it should have referred the case to a larger bench.”

Hence, in light of the above, Tribunal held that:

Following of the judicial precedent of a Bench of equal strength and of a Larger Bench as in the instant case, is a matter of judicial discipline.

While parting with the decision, Bench recorded that

It is not open to the Referral Bench to appreciate the judgment rendered by the earlier Bench as if sitting in appeal to hold that the view is erroneous. Escaping of attention of the earlier Bench as regards a binding judicial precedent or a patent error is of relevance but not an evaluation of earlier judgment as if sitting in appeal.

Referral Bench overlooked all legal considerations. Company Appeal (AT) (Insolvency) No. 385 of 2020 be listed for regular hearing on 11-01-2021.[Bishal Jaiswal v. Asset Reconstruction Company (India) Ltd., Reference made by Three Member Bench in Company Appeal (AT) (Insolvency) No. 385 of 2020, decided on 22-12-2020]

Legislation UpdatesRules & Regulations

The Insolvency and Bankruptcy Board of India (IBBI) notified the following Amendment Regulations, 2020:

(a) the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Fifth Amendment) Regulations, 2016

(b) the Insolvency and Bankruptcy Board of India (Liquidation Process) (Fourth Amendment) Regulations, 2020

(c) the Insolvency and Bankruptcy Board of India (Information Utilities) (Amendment) Regulations, 2020

2. The Insolvency and Bankruptcy Code, 2016 (Code) enables a financial creditor (FC), among others, to initiate corporate insolvency resolution process (CIRP) against a corporate debtor (CD). The FC, along with the application, is required to furnish “record of the default recorded with the information utility or such other record or evidence of default as may be specified”. In exercise of this power, the IBBI amended the Regulations to specify two ‘other record or evidence of default’, namely, (a) certified copy of entries in the relevant account in the bankers’ book, and (b) order of a court or tribunal that has adjudicated upon the non-payment of a debt.

3. The Code defines financial information to mean certain records and ‘such other information as may be specified’. In exercise of this power, the IBBI amended the Regulations to specify public announcement made under the Code as financial information. It mandated the Information Utilities to disseminate the public announcement to its registered users, who are creditors of the CD undergoing insolvency proceeding. This is in addition to publishing the public announcement in the newspapers and websites as required in the Regulations.

4. The Regulations provide that the Interim Resolution Professional (IRP) / Resolution Professional (RP) shall verify every claim and thereupon maintain a list of creditors and update it. He is required to file the list of creditors with the Adjudicating Authority (AA) and display it on the website, if any, of the CD. The IBBI amended the Regulations to require the IRP/RP to submit the list of creditors on an electronic platform for dissemination on its website. This will improve transparency and enable stakeholders to ascertain the details of their claims at a central place.

5. The resolution plan usually provides payment of debts to the creditors of the CD. In the interest of transparency, the IBBI amended the Regulations to require the RP to intimate each claimant the principle or formulae for payment of debts under a resolution plan, within 15 days of the order of the AA approving such resolution plan.

6. The Code envisages early closure of the liquidation process so that the assets of the CD are released for alternate uses expeditiously. However, the process takes longer where the liquidation estate includes a ‘not readily realisable asset’. To facilitate quick closure of the liquidation process, the IBBI amended the Regulations to enable the liquidator to assign or transfer a ‘not readily realisable asset’ to any person in consultation with the stakeholders’ consultation committee. For this purpose, “not readily realisable asset” means any asset included in the liquidation estate which could not be sold through available options and includes contingent or disputed assets, and assets underlying proceedings for preferential, undervalued, extortionate credit and fraudulent transactions. Thus, a liquidator shall attempt to sell the assets at the first instance, failing which he may assign or transfer an asset to any person, in consultation with the stakeholders’ consultation committee, and failing which he may distribute the undisposed of assets amongst stakeholders, with the approval of the AA.

7. There may be a creditor who may not be willing to wait for the completion of the liquidation process for realisation of his debt. The IBBI amended the Regulations to enable a creditor to assign or transfer the debt due to it to any other person in accordance with the laws for the time being in force dealing with such assignment or transfer.

Insolvency and Bankruptcy Board of India

[Press Release dt. 13-11-2020]


The Finance Minister – in her speech announcing fiscal relief to mitigate the economic shockwaves resulting from the COVID-19 virus outbreak – declared that the minimum amount of default incurred by a company in order for it’s creditors to take recourse to the IBC, would be increased from Rs 1 lakh to Rs 1 crore. This has caused a stir in the industry circles, eliciting mixed reactions – with some lauding the move and others criticising it.

There is no question that a temporary respite was needed for the courts, tribunals and industry in these uncertain and unprecedented times. However, given that there were already hints of pre-COVID speculation regarding the Ministry’s plans to increase the default limit, this author fears that this increase may not be just a temporary fix and may indicate a much more permanent shift in policy.  This would be a travesty, as this 100-fold unqualified increase in the threshold requirement has effectively excluded one of the key stakeholders in the IBC from access to recourse – namely, the unpaid workman and employee. In a country where, according to 2011–12 figures from an  ILO Report[1], the average wage was about Rs 7410 per month (the average wage of casual workers being a mere Rs 4290 per month for a 30-day work month), the previous threshold limit of Rs 1 lakh was already an unrealistic and onerous condition for workmen to meet. Increasing the threshold to Rs 1 crore seems to have made it almost impossible for any employee to meet the conditions to seek recourse under the provisions of the IBC. This article seeks to focus on the right of employees and workmen to file applications under this code as operational creditors, and analyse whether there are any circumstances wherein the employees can still continue to seek recourse under the IBC.

  •  Legislative Intent – IBC as a settlement mechanism for employees

The position of the employee/workman was always central to the resolution framework within the IBC. It is for this reason that the legislature, in its wisdom, included employees and workmen within the class of operational creditors. Whenever a company finds itself in financial distress, it usually translates into employees and workmen not being paid their dues on time. This is because of the asymmetrical power relationship between the company and its employees. The employees have little to no bargaining power with respect to the company, and therefore failure to pay salaries has been oft considered an acceptable risk by companies, since an employee would seldom, if ever, pursue a legal battle against the might of the company.

The asymmetrical nature of this relationship was one of the key concerns for the Bankruptcy Law Reforms Committee (BLRC) Report, 2015[2]. The BLRC in its recommendations with regard to the IBC, laid considerable focus on the empowerment of workmen and employees, in order to enable them to settle their dues in a timely manner. The Report, in its introduction to the Insolvency Resolution Process, categorically stated that

“…any creditor, whether financial or operational, should be able to initiate the insolvency resolution process (IRP) under the proposed Code. It may be noted that operational creditors will include workmen and employees whose past payments are due.The Committee also recommends that a resolution plan must necessarily provide for certain protections for operational creditors. This will empower the workmen and employees to initiate insolvency proceedings, settle their dues fast and move on to some other job instead of waiting for their dues for years together as is the case under the existing regime.”                                                                                                                              

(emphasis supplied)

Furthermore, the Joint Committee on Insolvency and Bankruptcy Code further observed that workers “were the nerve centre of any company” and that in the event of any company becoming insolvent or bankrupt, the workmen would always be adversely affected. In view of this the Joint Committee Report explicitly stated, in respect of employees and workmen, that ‘priority has to be given to their outstanding dues’. Following this, the workmen and employees have been given priority in claims under the waterfall mechanism enshrined under Section 53 of the Code. Under the mechanism, the dues of the workmen for the preceding 24 months are placed second on the priority list, only after the cost of the Insolvency Resolution Process, and are pari passu with debts owed to secured creditors in the event the creditor has relinquished its security. The dues of employees, other than the workmen, for the preceding 12 months is ranked third above even the unsecured creditors.

The centrality of the workman within the Code is very interestingly illustrated in the noting of the Joint Committee, which decided that ‘Notwithstanding debts owed to secured creditors being pari passu with the workmen’s dues and wages and unpaid dues to workmen of an insolvent company’, the wages and unpaid dues ‘may be placed under Item 1 and debts owed to secured creditor at Item 2 under Clause 53(1)(b)’ in order to reflect the centrality of the workman within the scheme of the Act. Thus, while it was always clear that the IBC was primarily a legislation for the resolution of sick companies, it was also supposed to operate as a Code to protect the interest of workmen and employees against a mightier company.

  • How can an employee file an application under the IBC?

 An employee, being an operational creditor under Section 5(20) r/w Section 5(21), can deliver a demand notice in terms of Section 8 and call upon the corporate debtor to satisfy its debts ‘on the occurrence of a default’. If after 10 days of receipt of such demand notice the corporate debtor fails to satisfy the debt or fails to raise any notice of dispute, then the operational creditor is entitled to file an application for the initiation of Corporate Insolvency Resolution Process against such a corporate debtor, under Section 9 of the IBC.

This right to file an application is subject to Section 4 which provides, that the IBC insofar as it relates to a corporate person, ‘shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees,provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees.’ (It is through the proviso contained in this section that the minimum amount of default has been specified by the Central Government to be Rs 1 crore  vide Notification dated 24.03.2020). Such an application for initiation of CIRP is made in terms of Rule 6(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. In terms of Rule 6(1) the operational creditor presents its application in the prescribed ‘Form 5’.

Crucially, the ‘Note’ to Form 5 asserts, ‘Where workmen/employees are operational creditors, the application may be made either in an individual capacity or in a joint capacity by one of them who is duly authorised for the purpose.’ Thus, a special category of operational creditors is created under the IBC regime for the purposes of filing an application before the Adjudicating Authority whereby employees/workmen are entitled to present a claim in their joint capacity.

  •  What does it mean to file a claim jointly?

The question of what it means to file an application in a joint capacity has been a contentious one. The dispute boils down to whether employees – who do not meet the threshold requirement of Rs 1 lakh/crore under Section 4 in an individual capacity – can satisfy the onerous requirement by combining and jointly bringing their claims.

In Suresh Narayan Singh v. Tayo Rolls Ltd.,[3] the NCLAT set aside the judgment of the NCLT which had held that no application could be presented under Section 9 in a joint/ representational capacity. The NCLAT opined that (SCC OnLine para 4)

‘4. …where workmen/employees are ‘operational creditors’, the application may be made either by an ‘operational creditor’ in an individual capacity or in a joint capacity by one of them who is duly authorised for such purpose.                                                                             

(emphasis supplied)

However, the NCLAT went further to hold that: (SCC OnLine para 7)

‘7. …Only if in an individual claim of ‘operational creditor’ the amount of debt is less than one lakh rupees, it can be rejected being not maintainable.                                  

(emphasis supplied)

Thus while upholding the principle of representational applications, the NCLAT opined that the claims of each individual workman/employee needed to meet Section 4 threshold requirement.

This understanding of the NCLAT was followed by Mazdoor Morcha v. Juggilal Kamlapat Jute Mills Co. Ltd.[4] where, rejecting the right of a trade union to file on behalf of the workers, the NCLAT had further observed: (SCC OnLine para 23)

‘23. This apart, members of a trade union/workmen association, who are workman or employee of a ‘corporate debtor’, some amount may be due to such individual workman/employee from a ‘corporate debtor’ including salary, gratuity, provident fund etc., in view of services rendered by them, but in such cases, in respect of each workman there will be separate cause of action, separate claim and separate date of default of debt.’

(emphasis supplied)

The Supreme Court setting aside the judgment of the NCLAT in J.K Jute Mills Mazdoor Morcha v. J.K Jute Mills Co. Ltd.[5], affirmed the right of a union to file on behalf of workers/employees in a representational capacity, and further went on to observe: (SCC p. 340)

 “17. …Equally, to state that for each workman there will be a separate cause of action, a separate claim, and a separate date of default would ignore the fact that a joint petition could be filed under Rule 6 read with Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, with authority from several workmen to one of them to file such petition on behalf of all.

Thus, the Supreme Court rejected the view of the NCLAT and held that in terms of the Note in Form 5, there was no need for individual claim/cause of action/date of default to be separately set out.

While the Supreme Court did not explicitly address the observations in Tayo Rolls[6] (supra), it is this author’s submission that Tayo Rolls has been implicitly overruled by the Supreme Court when it held that a joint application need not require each individual workman to state its individual claim separately, and that the joint application under Form 5 was on behalf of all workmen.

  • Conclusion

The legislature is not inclined to waste words, and every word employed by the legislative authorities must be given its due import and significance.[7] The legislative intent behind the inclusion of employees and workmen as operational creditors, was always to enable these persons to utilise the provisions of the IBC to settle their dues.

Workmen, as have been referred to in Form 5, are permitted to file an application under Section 9 of the IBC. The definition of workmen in the IBC under Section 3(36) has the same meaning as that assigned to workmen under the Industrial Disputes Act, 1947. The Industrial Disputes Act in turn defines a workman under Section 2(s)(iv) to exclude a person who, employed in a supervisory capacity, draws a wage exceeding Rs. 10,000 per month. Given this definition, it is hard to imagine a workman’s individual wage ever being sufficient to meet the threshold under Section 4, unless the legislature envisioned workmen working without pay for at least 1000 months (or 10 months pre notification) before they could become eligible to file an application under the IBC! It is therefore evident that the provision permitting workmen to file a joint petition, intended for them to be permitted to combine their claims and present a consolidated default.

The author’s understanding of the implication of J.K Jute Mills become all the more relevant now, given the recent increase of the threshold requirement to Rs 1 crore. In this context, it is crucial to give an expansive interpretation to joint applications by employees and workmen, lest they be left without recourse and the provisions of the IBC rendered merely salutary. Employees and workmen are among the most vulnerable amidst the present pandemic and denying them access to justice would only exacerbate their precariousness. Given the dire strait companies find themselves in, they may no longer feel obliged to pay their workers on time if there are no legal repercussions for the same.

It is also the recommendation of this author that the threshold raise must be qualified, and potentially be limited to only financial creditors. Financial creditors such as banks are better equipped to deal with the impact of COVID-19 than small-scale operational creditors. Denying smaller operational creditors – especially workmen and employees – a remedy under the IBC would have reverberations for the entire supply chain and industry as well.

Therefore, while the COVID-19 outbreak undoubtedly requires immediate and radical action by the Government to ameliorate the tremendous economic impact of the crisis, it is incumbent upon us to keep in mind the impact on the most vulnerable. Daily wagers and employees are already beginning to feel the brunt of the economic crisis due to salary cuts and delays. In these times, it is crucial for the worker to have access to invoke every possible legal mechanism in their arsenal, to secure their wages. In our quest to tackle this grave crisis, we must ensure that the solutions we come up with do not deny access to justice for those that need it most.

 *Ramchandra Madan is an Advocate, based in New Delhi. He holds a Master in Laws from The London School of Economics & Political Science. He currently practices the law in the courts of Delhi. He can be reached at


[2] Report of the Bankruptcy Law Reforms Committee, Vol. I: Rationale and Design 

[3] 2018 SCC OnLine NCLAT 557 

[4] 2017 SCC OnLine NCLAT 257

[5] (2019) 11 SCC 332

[6] Suresh Narayan Singh v. Tayo Rolls Ltd., 2018 SCC OnLine NCLAT 557.

[7] Sonia Bhatia v. State of U.P., (1981) 2 SCC 585

Amendments to existing lawsLegislation Updates

The Union Cabinet has approved the proposal to make amendments in the Insolvency and Bankruptcy Code, 2016 (code), through the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019.

The amendments aim to remove certain difficulties being faced during the insolvency resolution process to realise the objects of the code and to further ease doing of business.

Details of the Proposal

The Amendment Bill seeks to amend Sections 5(12), 5(15), 7, 11, 14, 16(1), 21(2), 23(1), 29A, 227, 239, 240 and insert new Section 32A in the Insolvency and Bankruptcy Code, 2016 (Code).


  1. Amendments to the Code to remove bottlenecks, streamline the CIRP and protection of last-mile funding will boost investment in financially distressed sectors.
  2. Additional thresholds introduced for Financial Creditors represented by an authorized representative due to large numbers in order to prevent frivolous triggering of the Corporate Insolvency Resolution Process (CIRP).
  3. Ensuring that the substratum of the business of the corporate debtor is not lost, and it can continue as a going concern by clarifying that the licenses, permits, concessions, clearances, etc. cannot be terminated or suspended or not renewed during the moratorium period.
  4. Ring-fencing corporate debtor resolved under the IBC in favour of a successful resolution applicant from criminal proceedings against offences committed by previous management/promoters.


[Press Release dt. 11-12-2019]

[Source: PIB]

Hot Off The PressNews

It may be recalled that in exercise of powers under Section 45-IE (5) (a) of the Reserve Bank of India Act, 1934, the Reserve Bank had, on November 22, 2019, constituted a three-member Advisory Committee to assist the Administrator of DHFL in the discharge of his duties. The members of the Committee are:

  1. Dr Rajiv Lall, Non-Executive Chairman, IDFC First Bank Ltd.
  2. Shri N.S. Kannan, MD & CEO, ICICI Prudential Life Insurance Company Ltd.
  3. Shri N.S. Venkatesh, Chief Executive, Association of Mutual Funds in India.

2. Upon admission of the petition for insolvency resolution process by the NCLT in respect of DHFL vide order dated December 3, 2019, the Reserve Bank has decided that the above mentioned three-member Committee shall continue as the Advisory Committee constituted under Rule 5 (c) of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019. The Advisory Committee shall advise the Administrator in the operations of the DHFL during the corporate insolvency resolution process.

Reserve Bank of India

[Press Release dt. 04-12-2019]

Amendments to existing lawsLegislation Updates

As reported by ANI, Parliament has approved the Insolvency and Bankruptcy (Amendment) Bill, 2019 which will amend the Insolvency and Bankruptcy Code, 2016.

To fill the critical gaps in the corporate insolvency framework, Insolvency and Bankruptcy Code (Amendment) Bill, 2019 has been introduced.

The critically analysed 7 seven amendments that will be incorporated are as follows:

(a) to amend clause (26) of Section 5 of the Code so as to insert an Explanation in the definition of “resolution plan” to clarify that a resolution plan proposing the insolvency resolution of corporate debtor as a going concern may include the provisions for corporate restructuring, including by way of merger, amalgamation and demerger to enable the market to come up with dynamic resolution plans in the interest of value maximisation;

(b) to amend sub-section (4) of Section 7 of the Code to provide that if an application has not been admitted or rejected within fourteen days by the Adjudicating Authority, it shall provide the reasons in writing for the same;

(c) to amend sub-section (3) of Section 12 of the Code to mandate that the insolvency resolution process of a corporate debtor shall not extend beyond three hundred and thirty days from the insolvency commencement date, which will include the time taken in legal proceedings, in order to prevent undue delays in the completion of the Corporate Insolvency Resolution Process. However, if the process, including time taken in legal proceedings, is not completed within the said period of three hundred and thirty days, an order requiring the corporate debtor to be liquidated under clause (a) of sub-section (1) of Section 33 shall be passed. It is clarified that the time taken for the completion of the corporate insolvency resolution process shall include the time taken in legal proceedings;

(d) to insert sub-section (3A) in Section 25A of the Code to provide that an authorised representative under sub-section (6A) of Section 21 will cast the vote for all financial creditors he represents in accordance with the decision taken by a vote of more than fifty per cent. of the voting share of the financial creditors he represents, who have cast their vote, in order to facilitate decision making in the committee of creditors, especially when financial creditors are large and heterogeneous group;

(e) to amend sub-section (2) of Section 30 of the Code to provide that–

(i) the operational creditors shall receive an amount that is not less than the liquidation value of their debt or the amount that would have been received if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priorities in Section 53 of the Code, whichever is higher;

(ii) the financial creditors who do not vote in favour of the resolution plan shall receive an amount that is not less than the liquidation value of their debt;

(iii) the provisions shall apply to the corporate insolvency resolution process of a corporate debtor–
(A) where a resolution plan has not been approved or rejected by the Adjudicating Authority; or
(B) an appeal is preferred under Sections 61 or 62 or such appeal is not time-barred under any provision of law for the time being in force; or
(C) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan;

(f) to amend sub-section (1) of Section 31 of the Code to clarify that the resolution plan approved by the Adjudicating Authority shall also be binding on the Central Government, any State Government or any local authority to whom a debt in respect of payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, including tax authorities;

(g) to amend sub-section (2) of Section 33 of the Code to clarify that the committee of creditors may take the decision to liquidate the corporate debtor, in accordance with the requirements provided in sub-section (2) of Section 33, any time after the constitution of the committee of creditors under sub-section (1) of Section 21 until the confirmation of the resolution plan, including at any time before the preparation of the information memorandum.

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A two-member bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Justice Bansi Lal Bhat, Member (Judicial) dismissed an appeal filed by the Corporate Debtor against the initiation of Insolvency Resolution Process.

The Financial Creditor had granted a loan of Rs 1.02 crores to the Corporate Debtor which they were unable to repay. The Financial Creditor took recourse to arbitration and an award was passed favouring the Financial Creditor. The Corporate Debtor failed to comply with the award. Consequently, the Financial Creditor triggered the Insolvency Resolution Process. The appellant – a shareholder of Corporate Debtor – assailed the initiation of the process on the ground that there was an internal dispute among the directors which was pending adjudication under Section 241 and 242 of the Companies Act, 2013 before National Company Law Tribunal, New Delhi.

The Appellate Tribunal perused the entire scheme of the Insolvency and Bankruptcy Code regarding the Insolvency Resolution Process. It was observed that internal dispute among directors of the Corporate Debtors does not construe a valid defence to triggering of the process. Furthermore, it could not be defeated by taking resort to pendency of matter before the NCLT under Companies Act. The Code is a special law having an overriding effect on any other law as mandated by Section 238. The factum of default and non-compliance with arbitral award was not disputed by the Corporate Debtor; and thus, the Financial Creditor was well within its right to initiate the process. The appeal was held to be frivilous and costs amounting to Rs 1 lakh were imposed. The appeal was, thus, dismissed. [Jagmohan Bajaj v. Shivam Fragrances (P) Ltd.,2018 SCC OnLine NCLAT 413, dated 14-08-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal: Order of the Adjudicating Authority rejecting the application filed by the petitioners under Section 7 of the Insolvency and Bankruptcy Code 2016, was set aside by a two-member bench comprising of S.J. Mukhopadhaya, Chairperson and Bansi Lal Bhat, Judicial Member.

The petitioners were financial creditors of the respondent company. They filed an application under Section 7 for initiating the insolvency resolution process. However, such an application was rejected by the Adjudicating Authority observing that the application did not disclose ‘dates of default’. The petitioners were in appeal against the said order of the Adjudicating Authority.

The NCLAT after considering the record held that the impugned order was not sustainable. The application was rejected on technical grounds. As stated by the petitioners, there was only a typographical defect as to the dates mentioned in the application, which could have easily been corrected. The Tribunal held that before rejecting petitioners’ application, the Authority must give opportunity to the applicants to rectify defect. In absence of such an opportunity, the impugned order was set aside. Appeal was accordingly disposed of. [Satyaprakash Aggarwal v. Vistar Metal Industries (P) Ltd., 2018 SCC OnLine NCLAT 264, dated 21-05-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, New Delhi: In the order passed by INA Malohtra (Judicial Member), S.K. Mohapatra (Technical Member), for the petition filed under Section 9 of Insolvency and Bankruptcy Code, 2016 in regards to seek the payment of his fee for services rendered by him towards the respondent stands allowed. The plaintiff mentioned that despite his repeated demands for payment, for the services rendered in the course of May 2016 and July 2016, the respondent failed to liquidate his liability. Satisfied by the claims of petitioner, the Tribunal held that the petitioner is entitled to initiate the ‘Insolvency Resolution Process’ against the respondent for payment of his dues.

The Tribunal issued a moratorium, to come into effect as per Section 14 of the Code, with the following directions-

1. Prohibition of institution of suits against respondent in any court of law, tribunal, arbitration panel or authority

2. Prohibition of transferring any of the assets of the respondent

3. Prohibition of recovery through security interest created by the respondent

4. Recovery of property owned or in possession of the respondent

Also, the Tribunal further directed that the services being rendered to the respondent shall not be terminated during the moratorium period, and that the Interim Resolution Professional should take necessary steps as per Sections 15, 17 and 18 of the Code. Furthermore, on account of the petitioner, the Tribunal observed that, documents submitted including the certification that proves that there is no disciplinary proceeding against him, is admissible, hence concluding to allow the petition, since it fulfilled all the required criterion for invoking the Resolution Process. [Toll Global Forwarding Private Ltd. v. Sarash Exports Services Private Ltd., 2017 SCC OnLine NCLT 2000, decided on 22-11-2017]

Legislation UpdatesStatutes/Bills/Ordinances

The promulgation of the Banking Regulation (Amendment) Ordinance, 2017 inserting two new Sections (viz. 35AA and 35AB) after Section 35A of the Banking Regulation Act, 1949 enables the Union Government to authorize the Reserve Bank of India (RBI) to direct banking companies to resolve specific stressed assets by initiating insolvency resolution process, where required. The RBI has also been empowered to issue other directions for resolution, and appoint or approve for appointment, authorities or committees to advise banking companies for stressed asset resolution.

This action of the Union Government will have a direct impact on effective resolution of stressed assets, particularly in consortium or multiple banking arrangements, as the RBI will be empowered to intervene in specific cases of resolution of non-performing assets, to bring them to a definite conclusion.

The Government is committed to expeditious resolution of stressed assets in the banking system. The recent enactment of Insolvency and Bankruptcy Code (IBC), 2016 has opened up new possibilities for time bound resolution of stressed assets. The SARFAESI and Debt Recovery Acts have been amended to facilitate recoveries. A comprehensive approach is being adopted for effective implementation of various schemes for timely resolution of stressed assets.

Ministry of Finance


No. 1 of 2017

Promulgated by the President in the Sixty-eighth Year of the Republic of India.

An Ordinance further to amend the Banking Regulation Act, 1949.

Whereas the stressed assets in the banking system have reached unacceptably high levels and urgent measures are required for their resolution;

AND WHEREAS the Insolvency and Bankruptcy Code, 2016 has been enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets to promote entrepreneurship, availability of credit and balance the interest of all the stakeholders;

AND WHEREAS the provisions of Insolvency and Bankruptcy Code, 2016 can be effectively used for the resolution of stressed assets by empowering the banking regulator to issue directions in specific cases;

And WHEREAS Parliament is not in session and the President is satisfied that circumstances exist which render it necessary for him to take immediate action;

NOW, THEREFORE, in exercise of the powers conferred by clause (7) of Article 123 of the Constitution, the President is pleased to promulgate the following Ordinance:—

1. Short title and commencement.– (i) This Ordinance may be called the Banking Regulation (Amendment) Ordinance, 2017.

(2) It shall come into force at once.

2. Insertion of new Sections 35AA and 35AB.–In the Banking Regulation Act, 1949, after Section 35A, the following sections shall be inserted, namely:—

35AA. Power of Central Government to authorise Reserve Bank for issuing directions to banking companies to initiate insolvency resolution process.– The Central Government may by order authorise the Reserve Bank to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016.

Explanation.—For the purposes of this section, “default” has the same meaning assigned to it in clause (12) of section 3 of the Insolvency and Bankruptcy Code, 2016.

35AB. Power of Reserve Bank to issue directions in respect of stressed assets.– (1) Without prejudice to the provisions of Section 35A, the Reserve Bank may, from time to time, issue directions to the banking companies for resolution of stressed assets.

(2) The Reserve Bank may specify one or more authorities or committees with such members as the Reserve Bank may appoint or approve for appointment to advise banking companies on resolution of stressed assets.’.