NCLAT
Case BriefsTribunals/Commissions/Regulatory Bodies

   

National Company Law Appellate Tribunal, New Delhi: The Bench of Rakesh Kumar, J., Judicial Member, and Dr. Ashok Kumar Mishra, Technical Member, while dismissing a company appeal, imposed a cost of Rs 1 lakh on the appellant for not disclosing his status, to avoid court fees and appearing before the Bench through a third party, who pretended to be an advocate.

Factual Background

The Appellant had filed Information Application under Section 19 (1) (a) of the Competition Act, 2002 before the Competition Commission of India (CCI) against 37 different government agencies. The Appellant alleged in the Information Application that Respondent, National Accreditation Board for Testing and Calibration Laboratories (NABL) had formed various exclusive supply agreements in violation of Section 3(4)(b) of the Competition Act, 2002 with the remaining 36 respondents where no other accreditation service other than that of NABL was allowed.

On 24-02-2022, the CCI passed an order under Section 26(2) of the Competition Act, 2002, and was of the view that there was no contravention of the provisions of Section 3 and 4 of the Competition Act. Aggrieved with the order passed, the Appellant filed the Company Appeal under Section 53B against the order given by the CCI. The Company Appeal was taken up for hearing on 01-06-2022.

Observation, Analysis, and Decision

While hearing the Appeal, the Bench suspected the status of the Appellant and thereof directed his counsel to submit a detailed affidavit verifying the status of his client. After the Affidavit was submitted, the Bench observed that the appellant evaded the applicable court by not mentioning before either the CCI or the Bench that he was a proprietor of an accreditation agency.

Further, the Bench observed that not only the Appellant as well as his acting Counsel, Sumit Jain, misled the court as he was neither a lawyer nor a Chartered Accountant, Company Secretary, or Cost Accountant.

At this juncture, the Bench referred to the provisions under Section 35 and Section 53(s) of the Competition Act and was of the view that a party cannot be represented by any third person who is not included in either of the aforesaid statutory provisions. Therefore, the Bench held that Mr. Sumit Jain had not only unauthorisedly represented the Appellant but impersonated himself to be counsel for the Appellant.

Hence, the Bench opined that neither the Appellant was competent, nor the Company Appeal was competent to be taken note of.

Thereby, the Bench dismissed the Company Appeal on the grounds of non-maintainability and said, “To preserve sanctity of the court proceeding and confidence of the public in the system, simply dismissal of this Appeal may not serve the purpose. Further to prevent recurrence of such activity, while dismissing the appeal it is appropriate to impose cost on the appellant.” Hence, imposed a cost of Rs.1 lakh on the appellant.

Further, the Bench directed CCI to remain vigilant while entertaining Information applications.

[Dushyant v. CCI, COMPETITION APPEAL (AT) NO. 27 OF 2022, decided on 29-07-2022]


Advocates who appeared in this case :

Sumit Jain, Advocate, for the Appellant;

Shama Nargis, Dy. Director, Law, CCI, and Krishan Kumar, Nital Pal, Swikritmala Dubey, Arun Kumar, and Prema Priyadarshini, Advocates, for the Respondent.

NCLAT
Case BriefsTribunals/Commissions/Regulatory Bodies

   

National Company Law Appellate Tribunal, New Delhi: The Bench of Ashok Kumar Bhushan, J., Chairperson, M. Satyanarayana Murthy, J., Judicial Member, and Barun Mitra, Technical Member set aside an order given by the National Company Law Tribunal, New Delhi (NCLT, New Delhi) and held that the Appellant, Entertainment City Ltd., is an affiliate of the Unitech Group. Hence, the moratorium imposed by the Supreme Court in orders given in the case of Bhupinder Singh v. Unitech Ltd. Civil Appeal No. 10856 of 2016, on 20-01-2021 and 24-03-2021 would apply to the Appellant and the application filed by the Respondent for initiation of Corporate Insolvency Resolution Process under Section 7 of the Insolvency and Bankruptcy Code, 2016 stood adjourned sine die.

The Appeal was filed against the order dated 06-04-2022 wherein NCLT, Delhi rejected the prayer of the Appellant, that the proceedings in Section 7 Application be adjourned sine die because of the Moratorium passed by the Supreme Court in Bhupinder Singh v. Unitech Limited.

The Bench noticed that the order of the Supreme Court dated 20-01-2020, referred to the expression which “included all its affiliates, trusts, subsidiaries, etc.” Hence, the Bench referred to the definition of ‘affiliate' defined in the Subscription-cum-Shareholders Agreement. As per paragraph 1 of the agreement, an affiliate refers to “Affiliate” means in relation to any party, (i) any person that directly or indirectly Controls, is Controlled by, such party; or (ii) any person, the legal and beneficial ownership of at least 26% of which is directly or indirectly held (including through one or more persons) collectively or severally by such party; (iii) any trust in respect of which such party is a direct or indirect a beneficiary; and (iv) in the case of a natural person, any Relative of such person.” Further, “the term “Affiliate” shall include (i) any fund, collective investment scheme, trust, partnership (including without limitation anyco-investment partnership), special purpose or other vehicles, or any subsidiary or Affiliate of any of the foregoing, in which any member or subsidiary of Investor is a general or limited partner, shareholder, investment manager or advisor, member of a management or investment committee, nominee, custodian, trustee or unit holder

In the light of the above definition, the Bench concluded that Unitech Holdings Ltd, a wholly owned subsidiary of Unitech Ltd, has a shareholding to the extent of 41.95% in the Appellant. Hence, the Appellant is an affiliate of Unitech Group.

Therefore, the Bench held that the order dated 06-04-2022 passed by the NCLT, Delhi was set aside and the Application under Section 7 filed by the Respondent was adjourned sine die till the Moratorium imposed by the orders of the Supreme Court.

[Entertainment City Ltd v. Simran Kaur, Company Appeal (AT) (Insolvency) No. 431 of 2022, decided on 25-07-2022]


Advocates who appeared in this case :

Siddharth Batra, Shivani Chawla, and Chinmay Dubey, Advocates, For Appellants;

Piyush Singh and Aditi Sinha, Advocates, for the Respondents.

NCLAT
Case BriefsTribunals/Commissions/Regulatory Bodies

   

National Company Law Appellant Tribunal, New Delhi: The Bench of Ashok Bhushan, J., Chairperson, and Shreesha Merla, Technical Member, while dismissing a company appeal held that when a Corporate Debtor as a Guarantor has not invoked the Corporate Guarantee before the initiation of Corporate Insolvency Resolution Process (hereinafter as ‘CIRP') under the provisions of Insolvency and Bankruptcy Code, 2016 (Hereinafter as ‘IBC') then the ‘right to payment' cannot be accrued by the Corporate Debtor.

Background of the Case

The Appellant, IDBI, was appointed as a Debenture Trustee for the benefit of the Holders of certain Debentures issued by M/s. Saha Infratech Pvt. Limited (Principal Borrower) as per the Debenture Trustee Agreement dated 18-05-2016. The first Respondent, Mr. Abhinav Mukherjee, is the Homebuyer of Palm Developers Pvt. Ltd., ‘Corporate Debtor' having a claim of Rs.2,94,43,634/-; the second Respondent Mr. Krit Narayan Mishra is the Resolution Professional of the ‘Corporate Debtor', appointed vide letter dated 13-07-2021 in I.A. 1742/2021 replacing the erstwhile IRP, Mr. Manoj Kumar Singh. The Appellant, ECL Finance Limited is the original Debenture Holder which executed the Assignment Agreement dated 27-03-2020 whereby all rights regarding the Financial Assistance were assigned in favour of Assets Care and Reconstruction Enterprise Limited (‘ACRE').

The appeals were filed under Section 61 (1) of the IBC challenging the impugned order dated 14-03-2022 passed by the National Company Law Tribunal, New Delhi, wherein the application filed by a homebuyer was allowed and held that ‘IDBI Trusteeship Services Limited' and ‘ECL Finance Ltd.', the Appellants are not ‘Financial Creditors' and also observed that the Appellants are ‘Related Parties' to the ‘Corporate Debtor'.

Analysis and Decisions

  • Whether the NCLT, Delhi was right in applying the ratio of ‘Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited v Axis Bank and holding that the Appellants are not ‘Financial Creditors' since there was no ‘direct disbursal' of the amount to the ‘Corporate Debtor'/Guarantor.

The Bench observed that a ‘Guarantee is included' as one of the illustrations which specify the definition of ‘Financial Debt' under Section 5(8)(i) of the IBC. Further, the Bench referred to the judgment given in Ascot Realty Private Limited v. Ajay Kumar .', (2020) SCC OnLine NCLAT 732, where it was held that for initiation of Insolvency Proceedings against the Corporate Guarantor, the element of disbursal for ‘Time Value of Money' is not required. Hence, the Bench opined that there was no direct disbursal of the amount to the Corporate Guarantor, any amounts released to the Principal Borrower and not to the Corporate Guarantor do constitute ‘Financial Debt' as defined under Section 5(8) of the IBC and it cannot be said that such amounts do not have consideration for ‘Time Value of Money'.

Therefore, the Bench held that the ratio of Anuj Jain Interim Resolution Professional for Jaypee Infratech Ltd v. Axis Bank, 2019 SCC OnLine SC 1775 is not applicable.

  • Whether the locus of the ‘Individual Homebuyer' or Financial Creditor to challenge the Constitution of the Committee of Creditors (‘CoC')?

The Bench in this regard referred to the judgment of the Supreme Court in Phoenix Arc Pvt.Ltd.' v. Spade Financial Services Ltd. (2021) 3 SCC 475, wherein it was held that ‘Financial Creditors' forming part of the CoC must be heard during proceedings which would establish the status of other ‘Financial Creditors'. Further, the Bench even referred to the judgment given in Aashray Social Welfare Society v. Saha Infratech Pvt. Ltd. & Ors., Comp. (AT) (Ins) No. 904 of 2021, wherein it was held, “It cannot be said that since the Authorised Representative has not come up before the Adjudicating Authority for filing the impleadment application, the Appellants who themselves are Homebuyers have no right to participate in the adjudication initiated by filing applications”.

Therefore, in the light of the above cases, the Bench held that the Homebuyer has every right to be heard and has the locus to challenge the Claim of the Appellants.

  • Whether the Appellants are ‘Related Parties' of the ‘Corporate Debtor' and were in a ‘position' to ‘control' the affairs of the ‘Corporate Debtor', to fall within the ambit of the definition of ‘Related Party' as defined under Section 5(24) of the IBC.

The Bench observed that the purpose of excluding a related party of a ‘Corporate Debtor' from the CoC is to obviate conflicts of interest that are likely to arise if a related party is allowed to become a part of the CoC. The Supreme Court in many judgments has held that the exclusion under the first proviso to Section 21(2) of the IBC was related not to the debt itself, but to the relationship existing between the related party ‘Financial Creditor' & ‘Corporate Debtor'.

Hence, the Bench relied on the judgment given in the case of Arcelormittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1, and held that the Appellants do have ‘Positive Powers'and are in a position to directly and indirectly control the management and the policy decisions of the ‘Corporate Debtor'.

  • Whether the Appellant can make a ‘Claim' based on the ‘Guarantee Deed' which was never invoked pre-commencement of the CIRP, and remained uninvoked even as on the date of filing of the ‘Claim', thereby meaning that ‘Right to Payment' has not yet accrued?

The Bench relied on the observation of the Supreme Court in Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17, where it was observed that “Whereas a “claim” gives rise to a “debt” only when it becomes “due”, a “default” occurs only when a “debt” becomes “due and payable” and is not paid by the debtor. It is for the reason that a financial creditor has to prove “default” as opposed to an operational creditor who merely “claims” a right to payment of a liability or obligation in respect of a debt which may be due.” Therefore, the Bench opined that he Appellants cannot Claim the amounts in the CIRP of the ‘Corporate Debtor' who is a ‘Corporate Guarantor ‘based on the Deed of Guarantee which was never invoked as on the date of filing of the Claims.

Further, the Bench placed reliance on the judgment of the Supreme Court in Ghanshyam Mishra and Sons Pvt Ltd v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657 and held that when the ‘Corporate Debtor' is a ‘Guarantor' and the ‘Corporate Guarantee' was not invoked before the commencement of the CIRP, as on the date of filing of the Claims, the ‘Right to Payment' cannot be accrued.

Hence, the Bench dismissed the company appeals.

[IDBI Trusteeship Services Ltd. v. Abhinav Mukherjee, 2022 SCC OnLine NCLAT 267, decided on 12-07-2022]


Appearances before the tribunal

COMPANY APPEAL (AT) (INSOLVENCY) No. 356 of 2022

Dr. Abhishek Manu Singhvi, Sr. Advocate with Gaurav Mitra, Dev Roy, Himanshi Rajput, Atul Sharma, and Aditya Vashisth, Advocates, for the Appellants;

Abhijeet Sinha, and Raghavendra M. Bajaj, Advocates, for the Respondent No.1;

Milan Singh Negi, Advocate, for the New IRP.

COMPANY APPEAL (AT) (INSOLVENCY) No. 358 of 2022

Ramji Srinivasan, Sr. Advocate with Gaurav Mitra, Dev Roy, Atul Sharma, Renuka Iyer, Aditya Vashisth and Ms. Himanshi Rajput, Advocates, for the Appellants;

Abhijeet Sinha and Raghavendra M. Bajaj, Advocate for R-1;

Milan Singh Negi, Advocate, for the New IRP.

NCLAT
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Appellate Tribunal, Mumbai: The Bench of Ashok Bhushan, J., Chairperson, M. Satyanarayana Murthy, Judicial Member, and Naresh Salecha, Technical member has dismissed a company appeal and has held that interest on delayed payment is also a form of debt and therefore, would form a part of the operational debt under Insolvency and Bankruptcy Code, 2016.

Background of the case

Operational Creditor supplies different types of yarns and has supplied goods to Bombay Rayons Fashions Ltd., Corporate Debtor. The Operational Creditor raised invoices between March, 2017 and January 2020, wherein, Operational Creditor supplied goods for Rs. 2,02,26,017/- under nine invoices. The Corporate Debtor paid three invoices with substantial delay; for one invoice part payment made and remaining five invoices, Corporate Debtor failed to make any payment.

Operational Creditor filed an application under Section 9 seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against Corporate Debtor. The Adjudicating Authority admitted the application and approved initiation of CIRP along with appointment of Insolvency Resolution Professional. The company appeal was filed against the order passed by the Adjudicating Authority dated 07-06-2022.

Analysis and decision

First, the Bench referred to the definition of debt, as per Section 3(11) of the IBC, “a debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt.” Therefore, the Bench observed that the definition of debt includes ‘claim’ which is being defined under Section 3(6) of the IBC. As per the provision of IBC a claim means-

“(a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured;

(b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured.”

Further, the Bench observed that vide the Notification No S.O. 1205 (E) dated 24.03.2020, issued by the Ministry of Corporate Affairs, the threshold Limit to initiate a CIRP has increased from Rupees 1 Lakh to Rupees 1 Crore.

Therefore, in the light of the above analysis, the Bench held that the total amount for maintainability of claim will include both principal debt amount as well as interest on delayed payment which was clearly stipulated in the invoice. Thus, in light of this the outstanding debt amounts to Rs. 1,60,87,838/- (principal debt amount of Rs. 97,87,220/- plus interest @18% p.a.).

Hence, as the total debt outstanding was above Rs. 1 crore as per requirement of Section 4 IBC read with notification No. S.O 1205 (E), the present Application was maintainable.

[Prashat Agarwal v. Vikash Parasrampuria, Company Appeal (AT) (Ins) No. 690 of 2022, decided on- 15-07-2022]


Advocates who appeared in this case :

Abhijeet Sinha, Sunil Vyas, Nausher Kohli, Palzer Moktan, Dipti Das, Deep Morabia, and Aditya Shukla, Advocates, for the Appellant;

Saurabh Pandya, Viraj Parikh, Mahur Mahajan, Advocates, for R-1;

Rubina Khan & Rohit Gupta, Advocates, for R-2.

Case BriefsSupreme Court

Supreme Court: The bench of Indira Banerjee* and JK Maheshwari, JJ has rejected the view of NCLT and NCLAT that once it is found that a debt existed, and a Corporate Debtor is in default in payment of the debt there would be no option to the Adjudicating Authority (NCLT) but to admit the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).

Going by the scheme of IBC and the legislative intent, the Court observed that the Adjudicating Authority (NCLT) would have to exercise its discretion to admit an application under Section 7 of the IBC of the IBC and initiate CIRP on satisfaction of the existence of a financial debt and default on the part of the Corporate Debtor in payment of the debt, unless there are good reasons not to admit the petition.

However, even though Section 7 (5)(a) of the IBC may confer discretionary power on the Adjudicating Authority, such discretionary power cannot be exercised arbitrarily or capriciously. If the facts and circumstances warrant exercise of discretion in a particular manner, discretion would have to be exercised in that manner.

“The object of the IBC is to first try and revive the company and not to spell its death knell. This objective cannot be lost sight of, when exercising powers under Section 7 of the IBC or interpreting the said Section.”

Stating that the Adjudicating Authority (NCLT) has to consider the grounds made out by the Corporate Debtor against admission, on its own merits, the Court explained by way of the following illustration,

“When admission is opposed on the ground of existence of an award or a decree in favour of the Corporate Debtor, and the Awarded/decretal amount exceeds the amount of the debt, the Adjudicating Authority would have to exercise its discretion under Section 7(5)(a) of the IBC to keep the admission of the application of the Financial Creditor in abeyance, unless there is good reason not to do so. The Adjudicating Authority may, for example, admit the application of the Financial Creditor, notwithstanding any award or decree, if the Award/Decretal amount is incapable of realisation.”

Facts of the case

In the case at hand, the Appellant, a Power Generating Company, was awarded the contract for implementation of a Group Power Project (GPP) by the Maharashtra Industrial Development Corporation (MIDC). The GPP was later converted into an Independent Power Project (IPP). When the appellant was disallowed the actual fuel cost for the Financial Years 2014-2015 and 2015-2016 by the Maharashtra Electricity Regulatory Commission (MERC), it approached the Appellate Tribunal for Electricity (APTEL), challenging the same.

APTEL allowed the appeal and directed MERC to allow the Appellant the actual cost of coal purchased for Unit-1, capped to the fuel cost for Unit 2 in terms of the FSA that had been executed, till such time as a FSA was executed in respect of Unit 1. The Appellant claims that a sum of Rs.1,730 Crores is due to the Appellant in terms of the said order of APTEL.

NCLT simply brushed aside the case of the Appellant that an amount of Rs.1,730 Crores was realizable by the Appellant in terms of the order passed by APTEL in favour of the Appellant, with the cursory observation that disputes if any between the Appellant and the recipient of electricity or between the Appellant and the Electricity Regulatory Commission were inconsequential.

Referring to the judgment in Swiss Ribbons v. Union of Indian, (2019) 4 SCC 17, the NCLT held that the imperativeness of timely resolution of a Corporate Debtor, who was in the red, indicated that no other extraneous matter should come in the way of expeditiously deciding a petition under Section 7 or under Section 9 of the IBC. NCLAT affirmed the NCLT’s finding while observing that NCLT was only required to see whether there had been a debt and the Corporate Debtor had defaulted in making repayment of the debt, and that these two aspects, if satisfied, would trigger the CIRP.

Ruling

The Court observed There can be no doubt that a Corporate Debtor who is in the red should be resolved expeditiously, following the timelines in the IBC. No extraneous matter should come in the way. However, the viability and overall financial health of the Corporate Debtor are not extraneous matters.

On NCLT’s finding that the dispute of the Corporate Debtor with the Electricity Regulator or the recipient of electricity would be extraneous to the matters involved in the petition, the Court observed that while the disputes with the Electricity Regulator or the Recipient of Electricity may not be of much relevance, an award of the APTEL in favour of the Corporate Debtor, cannot be completely be disregarded by the NCLT, when it is claimed that, in terms of the Award, a sum of Rs.1,730 crores, that is, an amount far exceeding the claim of the Financial Creditor, is realisable by the Corporate Debtor.

Further, the Court was of the opinion that NCLAT erred in holding that NCLT was only required to see whether there had been a debt and the Corporate Debtor had defaulted in making repayment of the debt, and that these two aspects, if satisfied, would trigger the CIRP.

“The existence of a financial debt and default in payment thereof only gave the financial creditor the right to apply for initiation of CIRP. The Adjudicating Authority (NCLT) was require to apply its mind to relevant factors including the feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, the impact of MERC’s appeal, pending in this Court, order of APTEL referred to above and the over all financial health and viability of the Corporate Debtor under its existing management.”

The Court, hence, set aside the NCLAT and NCLT orders and directed NCLT to re-consider the application of the Appellant for stay of further proceedings on merits in accordance with law.

[Vidarbha Industries Power Ltd v. Axis Bank Ltd.,2022 SCC OnLine SC 841, decided on 12.07.2022]


*Judgment by: Justice Indira Banerjee


Counsels

For Financial Creditor: Senior Advocate Dhruv Mehta

For Appellant: Senior Advocate Jaideep Gupta

Op EdsOP. ED.

   

The recent decision of the Supreme Court in Lalit Kumar Jain v. Union of India1 has set at rest a serious controversy under the Insolvency and Bankruptcy Code, 2016 (“IBC” or “the Code”) relating to personal guarantors of the corporate debtors (“PGCD”), that is to say, individuals who furnish their own personal guarantees (as promoters, Directors, etc.) to lenders and creditors for securing financial loans, advances, etc. for corporate persons who turn out to be defaulters viz. corporate debtors (“CD”). The Court has rejected the challenge by PGCD to the Central Government Notification dated 15-11-2019 by which PGCD were brought within the same operational net and regime of IBC as governs the CD themselves.

The verdict of the Supreme Court in Lalit Kumar Jain1 is an extremely elaborate one. IBC itself is a somewhat complex statute. Thus, in the very nature of things, the verdict too is a long, detailed and complicated one. PGCD advanced two main contentions before the Court in Lalit Kumar Jain1. The short study in the present article with the help of the statutory background of IBC (including certain amendments in IBC) is an endeavour to analyse and explain the said verdict on those two contentions in simple terms.

THE PARLIAMENTARY SCHEME OF ENFORCEMENT OF THE CODE

Parliament enacted IBC in 2016 as a comprehensive code of insolvency resolution, liquidation, bankruptcy, etc. governing both corporate persons as well as individuals and partnership firms. However, it did not enforce the provisions of IBC itself at the time of the enactment2. Rather it gave power to the Central Government under Section 1(3) to enforce the provisions of IBC by means of notification in the Official Gazette, enabling it to bring different provisions of IBC into force on different dates.

Accordingly, from time to time on different dates as early as in 2016 and 2017, the Central Government issued different notifications enforcing different provisions contained in Part II of IBC which pertained to insolvency resolution and liquidation for corporate persons. The notifications also enforced certain related provisions contained in Parts IV and V of IBC necessary for the working of Part II. These provisions pertained to the constitution of regulatory bodies; setting up of adjudicating and appellate authorities; ouster of jurisdiction of civil courts; overriding, repeal and amendment of sundry laws; power to make rules and regulations and so on for the sake of making Part II functional and operational.

However, the provisions contained in Part III of IBC pertaining to Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms were not enforced by the Government at the same time as Part II. The result was that individuals and partnership firms continued to be governed by the old system and old laws of insolvency [namely, the Presidency Towns Insolvency Act, 1909 (PTA) and the Provincial Insolvency Act, 1920 (PIA)]. They remained unaffected by the modern mechanism, authorities and regulatory bodies set up under Part II IBC in keeping with UNO-advised international standards e.g. NCLT under Section 60, NCLAT under Section 61 and so on. In regard to such entities, Section 179 (Part III) provided a different body, the Debts Recovery Tribunal (DRT), as the adjudicatory authority. However, in the absence of enforcement of Part III (Sections 78 to 187) as a whole, even Section 179 (DRT) remained for creditors only a silent remedy on paper.

The “individuals” covered by Part III included the abovementioned class of PGCD i.e. individuals who had given personal guarantees to creditors for securing finances for corporate persons who had later defaulted in repayment to the creditors viz. “corporate debtors” or CD. Thus, as regards PGCD, as explained above, Section 179 (DRT) remained a silent remedy on paper. Though for the purposes of Section 60(2), Section 60(4) did vest in NCLT all the powers of the DRT as contemplated under Part III, in the absence of enforcement of Part III (Sections 78 to 187) itself, even Section 179 remained for NCLT and the creditors of CD wholly a chimerical and distant dream.

In other words, PGCD in actuality remained excluded from any resolution process going on against a CD before NCLT under Section 60 of Part II. So no remedy before NCLT and also no procedure under Part II or even Part III was available to the creditors in respect of PGCD.

THE AMENDING ACTS 8 AND 26 OF 2018

As mentioned above, different provisions of IBC were enforced by the Central Government on different dates by means of multiple notifications issued under Section 1(3) in 2016 and 2017. In addition, Parliament enacted Act 8 of 2018 and Act 26 of 2018 for amending IBC. The former amended Section 2(e) w.e.f. 23-11-20173 and the latter amended Sections 60(2) and (3) w.e.f. 6-6-2018.4

Amendment and enforcement of Section 2(e)

The legislative amendment and evolution of Section 2(e) can be understood by taking into consideration the following different kinds of entities:

Corporate persons as debtors

Section 2 in Part I of IBC initially provided for “application” of IBC to different kinds of entities as mentioned in five different clauses : clauses (a) to (e). Clauses (a) to (d) of Section 2 enumerated certain kinds of corporate entities whereas clause (e) thereof described a combined group of non-corporate entities as “partnership firms and individuals”.

Part II Chapters I and II containing Sections 4 to 54 provided for insolvency resolution and liquidation for corporate persons.

Section 2(a) to (d) in Part I (titled “Preliminary”) and Sections 4 to 32 in Part II Chapters I and II (titled “Preliminary” and “Corporate Insolvency Resolution Process”, respectively) were enforced by the Central Government by means of Notification dated 30-11-2016 w.e.f. 1-12-2016. The remaining provisions, Sections 33 to 54 in Part II Chapter III (titled “Liquidation Process”) were enforced by the Central Government by means of Notification dated 9-12-2016 w.e.f. 15-12-2016.

Both the above notifications were issued on different dates under Section 1(3) IBC.

Personal guarantors to corporate debtors (a sub-group of Individuals)

As mentioned above, the provision in Section 2(e) originally read as “partnership firms and individuals”. At the outset, when the provisions for CD were enforced in 2016-2017, the provision in Section 2(e) was left unenforced. As regards this category, it is Part III containing Sections 78 to 187 which is relevant. Part III provides for matters pertaining to Insolvency Resolution Process and Bankruptcy for Individuals and Partnership Firms.

In 2018, the Code was amended twice over by Act 8 of 2018 and Act 26 of 2018. The first amendment trifurcated the original combined group of entities contained in Section 2(e) viz. “partnership firms and individuals” into three splinter sub-groups. The sub-groups were covered respectively by three newly framed clauses (e), (f) and (g) in Section 2 as follows:

(e) personal guarantors to corporate debtors;

(f) partnership firms and proprietorship firms; and

(g) individuals, other than persons referred to in clause (e).

After the above trifurcation stood effected by amendment through Act 8 of 2018, certain provisions viz. the new Section 2(e) itself (Part I), Sections 78, 79 and 94 to 187 (Part III)5 and some related clauses of Sections 239, 240 and 249 (Part V)6 were enforced by the Central Government by means of the Notification dated 15-11-2019 which came to be impugned before the Court in Lalit Kumar Jain1. The enforcement was done w.e.f. 1-12-2019. The notification thus covered one particular sub-group and type of individuals viz. PGCD in the same insolvency resolution process and before the same adjudicating authority/appellate authority under IBC as govern the principal borrower in question, namely, the corporate debtor or the CD.

In other words, out of the larger group of “individuals”, a particular sub-group of individuals, namely, PGCD, came to be identified in the newly framed Section 2(e) and the new Section 2(e) was enforced by Notification dated 15-11-2019. The notification also enforced certain other provisions, namely, Sections 78, 79 and 94 to 187 (Part III) which provide for insolvency and bankruptcy of individuals and also Sections 239 (Power to make rules), 240 (Power to make regulations) and 249 ()(Part V) insofar as they relate to PGCD.

Amendment of Section 60

The provision in “Section 60 — Adjudicating authority for corporate persons” (Part II) had already been enforced earlier by a Notification in 20167. It provided for NCLT as the adjudicating authority in respect of CD.

Initially, Sections 60(2) and (3) had envisaged a limited application only to bankruptcy of PGCD along with resolution and/or liquidation in respect of CD under Part II.

The second amendment of 2018 viz. Act 26 of 2018 amended Sections 60(2) and (3) by specifically including and bringing liquidation of a “corporate guarantor” of a CD also within the jurisdiction of the said adjudicating authority, namely, NCLT.

On the other hand, Section 179 in Part III had originally declared a different authority, the Debt Recovery Tribunal (DRT), to be the adjudicating authority for all individuals and partnership firms covered by Part III but with the rider “Subject to the provisions of Section 60”. Correspondingly, Section 60(2) in Part II had proclaimed that it applies “notwithstanding anything to the contrary contained in the Code”.

With the amended Section 2(e) and various other provisions in the Code pertaining to PGCD getting enforced under Notification dated 15-11-2019, it became possible, in a given case, for individuals classified as a sub-group viz. “PGCD” in the new Section 2(e) to be subjected to insolvency proceedings before the same adjudicating authority/appellate authority (NCLT/NCLAT) who decided matters relating to the CD. This made possible a “unified adjudication” of all parties and issues concerned with a CD under one umbrella. Now, if the CD’s debt remained unpaid in spite of his personal guarantor, the personal guarantor would not stand discharged but would himself be forced to face bankruptcy proceedings before NCLT. The procedure for him, however, would not be as per Part II meant for CD. It would be in accordance with the regime crafted by Parliament for individuals separately in Part III of IBC.

With the amendment of Section 2(e) w.e.f 23-11-2017 (vide Act 8 of 2018) coupled with its enforcement w.e.f. 1-12-2019 (vide Notification dated 15-11-2019), the class of PGCD fell straight into the lap of NCLT much to the delight of the creditors of CD.

THE GENESIS OF THE CHALLENGE BEFORE THE SUPREME COURT

Prior to the Notification dated 15-11-2019, the exclusion of the individuals, namely, PGCD, from the insolvency resolution process of CD had been much to the detriment and chagrin of the lenders and creditors of CD. PGCD, despite their personal guarantees, would remain incorrigibly elusive and immune to the resolution proceedings undertaken by the creditors under IBC. They would leave the creditors high and dry with their unending litigious and evasive malpractices. The creditors were deeply aggrieved. Hence, the Government resolved to address the woes of the creditors and bring PGCD effectively into the same net under IBC as the CD.

As noticed above, the Notification dated 15-11-2019 was issued by the Central Government under Section 1(3) to enforce certain provisions of Part III pertaining to Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms insofar as they related to one particular class of individuals, namely, PGCD so as to bring them within the bounds of IBC. It, however, left the very same provisions still unenforced in respect of all remaining individuals and partnership firms covered by Part III.

As a consequence of the notification, the class of PGCD got picked up as a special class of individuals who could now be dealt with by the creditors alongside the insolvency resolution process undertaken by them (the creditors) under Part II against the CD itself. They could be brought to book and made to account before the same adjudicating and appellate authorities under IBC as applied to the CD viz. NCLT and NCLAT. But the other class of individuals/partnership firms covered by Part III still remained unaffected by IBC.

The discrimination between the above two classes of individuals led to the challenge by PGCD before the Supreme Court in Lalit Kumar Jain1.

PGCD firstly questioned the power of the Government under Section 1(3) to enforce the provisions of IBC (Part III, etc.) selectively in respect of a particular class of individuals only, namely, PGCD without roping in all other individuals in general. This, according to PGCD, was not only outside and ultra vires the notifying (enforcing) power conferred upon the Central Government under Section 1(3) but also arbitrary and discriminatory towards PGCD. (Contention 1)

Another significant ground of challenge raised by PGCD before the Court was twofold : first, that as a consequence of the impugned notification, they had been deprived of their legal rights and protection as a surety (guarantor) under Sections 128, 133 and 140 of the Contract Act and second, that in spite of the fact that under Section 31(1) of IBC, an approved resolution plan in respect of a CD is final and binding for all concerned, the liability of PGCD is still kept alive. (Contention 2)

In re Contention 1 — Notification is ultra vires Section 1(3) and invalid

Submission by PGCD

The first contention of PGCD before the Court, in brief, was that when Section 1(3) gave to the Central Government power to issue different notifications for enforcing different provisions of the Code, it enabled the Government merely to issue such notifications on different “dates”, not for enforcing any provision only in respect of a selected class of persons to the exclusion of others. It is not possible for the Government to notify limited application of a provision meant for all individuals in general for one selected class of individuals only, namely, PGCD. Since the impugned notification did so, it is outside and ultra vires the power given to the Government under Section 1(3) and void.

PGCD conceded that in such situations the Government may be able to issue notifications at different “times” for enforcing the legislative provisions in phases in different territorial “regions” or “areas” of the State. But it cannot do so for applying the provisions to a limited class of persons, subjects or individuals when the provisions are intended to govern all of them in general. The submission was made with the help of various precedents. It had various constitutional offshoots, hues and shades which are broadly summarised as follows:

(i) Such application amounts to usurpation of essential legislative power by the executive which is unconstitutional. Parliament having enacted the law (IBC) in all its completeness as regards “place, person, laws, powers”, gave only a power of notification/enforcement of the law at such “time” as the Government may decide as an instance of “conditional legislation”. The Government has exceeded that power inasmuch as enforcement of the provisions only in respect of a certain class of individuals (PGCD) amounts to modification of the law (IBC). The Government is not authorised to do so by Parliament.

(ii) Provisions of Part III do not distinguish between an individual and a PGCD, both being referred to as the “debtors”. But the impugned notification in effect adds the words “only insofar as they relate to personal guarantors to corporate debtors” like a rider to each of the provisions/sections mentioned in the notification. That amounts to legislation by the executive.

(iii) The enforcement of the provisions in question in respect of PGCD alone is arbitrary and discriminatory, there being no intelligible differentia or rational basis to distinguish them from other individuals. Also the procedure in Part III is made available against PGCD now to both classes of creditors, financial and operational, who are otherwise entitled only to different sets of procedures under Part II governing insolvency of the CD. It treats unequals as equals.

(iv) There was also non-application of mind inasmuch as Section 243 which would have repealed the Presidency Towns Insolvency Act, 1909 (PTA) and Provincial Insolvency Act, 1920 (PIA) still remained unenforced. Resultantly, now insolvency proceedings against PGCD would lie before the adjudicating authority both under Part III of the Code as also under PTI and PIA—two self-contradictory legal regimes.

Submission by Union of India

For the Union of India and other respondents, the defense arguments were made on the lines that the Government or executive can always be entrusted with the task of implementing different provisions of a legislation as per its own wisdom and discretion at different times or in different geographical areas or from stage to stage or from one limited purpose to another. Such an exercise is not vitiated either on account of excessive delegation of legislative power or arbitrary exercise of administrative power by the Government. Various precedents were also cited in support.

By far the most direct, pertinent and outstanding authority in the context cited on behalf of the Union of India was Bennion on Statutory Interpretation : A Code (6th Edn., at p. 257). It endorses the use of power by the executive in such circumstances on different dates for different “purposes”. It is cited by the Court in para 35 of the judgment in Lalit Kumar Jain1 as follows : (SCC para 35)

35. It was argued that the executive has the power to bring into force any one provision of a statute at different times for different purposes, and that the Government can exercise this power to commence a provision for one purpose on one day and for the remaining purposes on a later date. He relied upon the following extract from Bennion on Statutory Interpretation : A Code (6th Edn., at p. 257):

“Where power is given to bring an Act into force by order, it is usual to provide flexibility by enabling different provisions to be brought into force at different times. Furthermore, any one provision may be brought into force at different times for different purposes. …

Advantages. This method of commencement gives all the advantages of extreme flexibility. Before a new Act is brought into operation, any necessary regulations or other instruments which need to be made under it can be drafted.”

(emphasis supplied)

The Court has in its judgment upheld the above view of the Union of India and rejected that of PGCD. However, curiously, the above authority (Bennion), remarkably relevant though it is to the context, does not feature in the “Analysis and Conclusions” section of the judgment1 of the Court contained in SCC paras 65 to 126.

Decision of the Court1

The judgment1 of the Court rejecting Contention 1 of PGCD is largely contained in SCC paras 90 to 114. Now that we have the benefit of the above introduction of statutory background of IBC and genesis of the challenge before the Supreme Court, one would do well, rather than paraphrasing the Court’s reasoning in one’s own words, to reproduce verbatim the reasoning of the Court in its original form from some of those paragraphs : (Lalit Kumar Jain case1, SCC paras 94-96, 103-09 & 112-14)

94. It is quite evident that the method adopted by the Central Government to bring into force different provisions of the Act had a specific design : to fulfil the objectives underlying the Code, having regard to its priorities. Plainly, the Central Government was concerned with triggering the insolvency mechanism processes in relation to corporate persons at the earliest. Therefore, by the first three notifications, the necessary mechanism such as setting up of the regulatory body, provisions relating to its functions, powers and the operationalization of provisions relating to insolvency professionals and agencies were brought into force. These started the mechanism through which insolvency processes were to be carried out and regulated by law. In the next phase, the part of the Code dealing with one of its subjects i.e. corporate persons [covered by Sections 2(a) to 2(d) of the Code] was brought into force. The entire process for conduct of insolvency proceedings and provisions relating to such corporate persons were brought into force. The other notifications brought into force certain consequential provisions, as well as provisions which give overriding effect to the Code (as also the provisions that amend or modify other laws). All these clearly show that the Central Government followed a stage-by-stage process of bringing into force the provisions of the Code, regard being had to the similarities or dissimilarities of the subject-matter and those covered by the Code.

95. As discussed in a previous part of this judgment, insolvency proceedings relating to individuals is regulated by Part III of the Code. Before the amendment of 2018, all individuals (personal guarantors to corporate debtors, partners of firms, partnership firms and other partners as well as individuals who were either partners or personal guarantors to corporate debtors) fell under one descriptive description under the unamended Section 2(e). The unamended Section 60 contemplated that the adjudicating authority in respect of personal guarantors was to be NCLT. Yet, having regard to the fact that Section 2 brought all three categories of individuals within one umbrella class as it were, it would have been difficult for the Central Government to selectively bring into force the provisions of Part III only in respect of personal guarantors. It was here that the Central Government heeded the reports of expert bodies which recommended that personal guarantors to corporate debtors facing insolvency process should also be involved in proceedings by the same adjudicator and for this, necessary amendments were required. Consequently, the 2018 Amendment Act altered Section 2(e) and subcategorized three categories of individuals, resulting in Sections 2(e), (f) and (g). Given that the earlier Notification of 30-11-2016 had brought the Code into force in relation to entities covered under Sections 2(a) to 2(d), the Amendment Act of 2018 provided the necessary statutory backing for the Central Government to apply the Code, in such a manner as to achieve the objective of the amendment, i.e. to ensure that adjudicating body dealing with insolvency of corporate debtors also had before it the insolvency proceedings of personal guarantors to such corporate debtors.

96. The amendment of 2018 also altered Section 60 in that insolvency and bankruptcy processes relating to liquidation and bankruptcy in respect of three categories i.e. corporate debtors, corporate guarantors of corporate debtors and personal guarantors to corporate debtors were to be considered by the same forum i.e. NCLT.

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103. The theme of gradual implementation of law or legal principles, was also spoken about in Javed State of Haryana8 by this Court, which held that there is no constitutional imperative that a law or policy should be implemented all at once : (SCC p. 383, para 16)

16. A uniform policy may be devised by the Centre or by a State. However, there is no constitutional requirement that any such policy must be implemented at one go. Policies are capable of being implemented in a phased manner. More so, when the policies have far-reaching implications and are dynamic in nature, their implementation in a phased manner is welcome for it receives gradual willing acceptance and invites lesser resistance.”

Similar observations were made in Pannalal Bansilal Pitti v. State of A.P.9 wherein the Court held that imposition of a uniform law, in some areas, or subjects may be counterproductive and contrary to public purpose. Sabanayagam10 too emphasised discretion to extend an enactment, having regard to the time, area of operation, and its applicability when it was emphasised that such power is “limited and almost ministerial function as an agent of the principal legislature applying the Act to the area at an appropriate time.”

104. The close proximity, or inter-relatedness of personal guarantors with corporate debtors, as opposed to individuals and partners in firms was noted by the report of the Working Group, which remarked that it:

recognizes that dynamics, the interwoven connection between the corporate debtor and a guarantor (who has extended his personal guarantee for the corporate debtor) and the partnership firms engaged in business activities may be on distinct footing in reality, and would, therefore, require different treatment, because of economic considerations. Assets of the guarantor would be relevant for the resolution process of the corporate debtor. Between the financial creditor and the corporate debtor, mostly the guarantee would contain a covenant that as between the guarantor and the financial creditor, the guarantor is also a principal debtor, notwithstanding that he is guarantor to a corporate debtor.”

105. As noticed earlier, Section 60 had previously, under the original Code, designated NCLT as the adjudicating authority in relation to two categories : corporate debtors and personal guarantors to corporate debtors. The 2018 Amendment added another category : corporate guarantors to corporate debtors. The amendment seen in the background of the report, as indeed the scheme of the Code [i.e. Section 2(e), Section 5(22), Section 29-A, and Section 60], clearly show that all matters that were likely to impact, or have a bearing on a corporate debtor’s insolvency process, were sought to be clubbed together and brought before the same forum. Section 5(22) which is found in Part II (insolvency process provisions in respect of corporate debtors) as it was originally, defined personal guarantor to say that it “means an individual who is the surety in a contract of guarantee to a corporate debtor.” There are two more provisions relevant for the purpose of this judgment. They are Sections 234 and 235 of the Code; …

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106. These two provisions also reveal that the scheme of the Code always contemplated that overseas assets of a corporate debtor or its personal guarantor could be dealt with in an identical manner during insolvency proceedings, including by issuing letters of request to courts or authorities in other countries for the purpose of dealing with such assets located within their jurisdiction.

107. The impugned notification operationalises the Code so far as it relates to personal guarantors to corporate debtors:

107.1. (1) Section 79 pertains to the definitional section for the purposes of insolvency resolution and bankruptcy for individuals before the adjudicating authority.

107.2. (2) Sections 94 to 187 outline the entire structure regarding initiation of the resolution process for individuals before the adjudicating authority.

108. The impugned notification authorises the Central Government and the Board to frame rules and regulations on how to allow the pending actions against a personal guarantor to a corporate debtor before the adjudicating authority. The intent of the notification, facially, is to allow for pending proceedings to be adjudicated in terms of the Code. Section 243, which provides for the repeal of the personal insolvency laws has not as yet been notified. Section 60(2) prescribes that in the event of an ongoing resolution process or liquidation process against a corporate debtor, an application for resolution process or bankruptcy of the personal guarantor to the corporate debtor shall be filed with NCLT concerned seized of the resolution process or liquidation. Therefore, the adjudicating authority for personal guarantors will be NCLT, if a parallel resolution process or liquidation process is pending in respect of a corporate debtor for whom the guarantee is given. The same logic prevails, under Section 60(3), when any insolvency or bankruptcy proceeding pending against the personal guarantor in a court or tribunal and a resolution process or liquidation is initiated against the corporate debtor. Thus if A, an individual is the subject of a resolution process before the DRT and he has furnished a personal guarantee for a debt owed by a company B, in the event a resolution process is initiated against B in an NCLT, the provision results in transferring the proceedings going on against A in the DRT to NCLT.

109. This Court in Ramakrishnan11, noticed why an application under Section 60(2) could not be allowed. At that stage, neither Part III of the Code nor Section 243 had not been notified. This meant that proceedings against personal guarantors stood outside NCLT and the Code. The non-obstante provision under Section 238 gives the Code overriding effect over other prevailing enactments. This is perhaps the rationale for not notifying Section 243 as far as personal guarantors to corporate persons are concerned. …The impugned notification, as a consequence of the non obstante clause in Section 238, has the result that if any proceeding were to be initiated against personal guarantors it would be under the Code.

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112. The argument that the insolvency processes, application of moratorium and other provisions are incongruous, and so on, in the opinion of this Court, are insubstantial. The insolvency process in relation to corporate persons [a compendious term covering all juristic entities which have been described in Sections 2(a) to (d) of the Code] is entirely different from those relating to individuals; the former is covered in the provisions of Part II and the latter, by Part III. Section 179, which defines what the adjudicating authority is for individuals is “subject to” Section 60. Section 60(2) is without prejudice to Section 60(1) and notwithstanding anything to the contrary contained in the Code, thus giving overriding effect to Section 60(2) as far as it provides that the application relating to insolvency resolution, liquidation or bankruptcy of personal guarantors of such corporate debtors shall be filed before NCLT where proceedings relating to corporate debtors are pending. Furthermore, Section 60(3) provides for transfer of proceedings relating to personal guarantors to that NCLT which is dealing with the proceedings against corporate debtors. After providing for a common adjudicating forum, Section 60(4) vests NCLT “with all the powers of the DRT as contemplated under Part III of this Code for the purpose of sub-section (2)”. Section 60(4) thus (a) vests all the powers of DRT with NCLT and (b) also vests NCLT with powers under Part III. Parliament therefore merged the provisions of Part III with the process undertaken against the corporate debtors under Part II, for the purpose of Section 60(2) i.e. proceedings against personal guarantors along with corporate debtors. Section 179 is the corresponding provision in Part III. It is “subject to the provisions of Section 60”. Section 60(4) clearly incorporates the provisions of Part III in relation to proceedings before NCLT against personal guarantors.

113. It is clear from the above analysis that Parliamentary intent was to treat personal guarantors differently from other categories of individuals. The intimate connection between such individuals and corporate entities to whom they stood guarantee, as well as the possibility of two separate processes being carried on in different forums, with its attendant uncertain outcomes, led to carving out personal guarantors as a separate species of individuals, for whom the adjudicating authority was common with the corporate debtor to whom they had stood guarantee. The fact that the process of insolvency in Part III is to be applied to individuals, whereas the process in relation to corporate debtors, set out in Part II is to be applied to such corporate persons, does not lead to incongruity. On the other hand, there appear to be sound reasons why the forum for adjudicating insolvency processes – the provisions of which are disparate — is to be common, i.e through NCLT. As was emphasised during the hearing, NCLT would be able to consider the whole picture, as it were, about the nature of the assets available, either during the corporate debtor’s insolvency process, or even later; this would facilitate the CoC in framing realistic plans, keeping in mind the prospect of realising some part of the creditors’ dues from personal guarantors.

114. In view of the above discussion, it is held that the impugned notification is not an instance of legislative exercise, or amounting to impermissible and selective application of provisions of the Code. There is no compulsion in the Code that it should, at the same time, be made applicable to all individuals, (including personal guarantors) or not at all. There is sufficient indication in the Code — by Section 2(e), Section 5(22), Section 60 and Section 179 indicating that personal guarantors, though forming part of the larger grouping of individuals, were to be, in view of their intrinsic connection with corporate debtors, dealt with differently, through the same adjudicatory process and by the same forum (though not insolvency provisions) as such corporate debtors. The notifications under Section 1(3), (issued before the impugned notification was issued) disclose that the Code was brought into force in stages, regard being had to the categories of persons to whom its provisions were to be applied. The impugned notification, similarly, inter alia, makes the provisions of the Code applicable in respect of personal guarantors to corporate debtors, as another such category of persons to whom the Code has been extended. It is held that the impugned notification was issued within the power granted by Parliament, and in valid exercise of it. The exercise of power in issuing the impugned notification under Section 1(3) is therefore, not ultra vires; the notification is valid.

(emphasis in original and supplied)

In re Contention 2 — PGCD deprived of their rights as “surety”

Submission by PGCD

The second contention raised by PGCD before the Court was twofold. The submissions in that regard were made by PGCD conjointly with reference to the Contract Act, 1872 and IBC. They are summarised below:

(i) Rights of guarantor under Sections 128, 131 and 140 of the Contract Act

First submission was that, as a consequence of the impugned Notification, PGCD had been deprived of their legal rights as a surety (guarantor) to discharge under Sections 128, 133 and 140 of the Contract Act12. The liability of the surety under Section 128 being co-extensive with that of the principal debtor, the surety has a right under Section 133 read with Section 140 to be discharged from his liability as soon as there is “resolution” under Section 31(1) IBC, more so when the resolution amounts to “variance” in the terms of the contract with the surety.

(ii) Immunity under Section 31(1) IBC to all concerned

Secondly, in spite of the fact that as per Section 31 IBC13, an approved resolution plan in respect of a CD is final and binding on all concerned, the liability of PGCD is kept alive. It is settled law that upon the conclusion of insolvency proceedings against the CD, there is extinction of all claims against the CD, except to the extent admitted in the insolvency resolution process itself. That is why the resolution plan is made final and binding on all concerned by Section 31(1). Now, with the impugned notification, the creditors are enabled to unjustly enrich themselves by a “double dip” process by being allowed, after the resolution process against the CD under Part II, to claim in the insolvency process of the guarantor under Part III also without accounting for the amount already realised by them in the corporate insolvency resolution process of the CD under Part II of the Code.

Indeed, the Court summed up the intertwined twofold contention and grievance of PGCD in para 118 of the judgment as follows : (Lalit Kumar Jain case1, SCC para 118)

118. All creditors and other classes of claimants, including financial and operational creditors, those entitled to statutory dues, workers, etc. who participate in the resolution process, are heard and those in relation to whom the CoC accepts or rejects pleas, are entitled to vent their grievances before NCLT. After considering their submissions and objections, the resolution plan is accepted and approved. This results in finality as to the claims of creditors, and others, from the company (i.e. the company which undergoes the insolvency process). The question which the petitioners urge is that in view of this finality, their liabilities would be extinguished; they rely on Sections 128, 133 and 140 of the Contract Act to urge that creditors cannot therefore, proceed against them separately.

(emphasis supplied)

Decision of the Court1

The Court, however, rejected the above twofold contention of PGCD with an equally deft two-pronged and interwoven rationale. The rationale covered in its wings the objections raised by PGCD with reference to both the Contract Act and IBC.

As regards Sections 128, 133 and 140 of the Contract Act, the Court held that the guarantor gets relieved of his obligations under the provisions only if the terms of the contract are not worded otherwise and also only if it is the consequence of a voluntary act of variance of the contract of guarantee by the principal debtor. The guarantor does not get relieved when the principal debtor himself is subjected to any variation of the contract on account of operation of law such as a resolution plan being approved by the adjudicating authority under Section 31(1) IBC.

As regards Section 31(1) IBC, the Court founded its reasoning on various past precedents of the Court on the subject and held that the resolution plan, even on its approval under Section 31(1), does not necessarily end in discharge of the guarantor; on the other hand, it may well permit the creditors of the CD to continue to pursue the guarantor for recovering whatever gap or shortfall remains to be filled up in the recovery of their dues from the CD.

All in all, the Court dealt with both the issues in an extremely cogent and persuasive manner. Some of the observations of the Court are contained in SCC paras 119 to 125. The more salient observations are as follows : (Lalit Kumar Jain case1, SCC paras 119-20 & 122)

119. In Vijay Kumar Jain Standard Chartered Bank14, this Court, while dealing with the right of erstwhile Directors participating in meetings of Committee of Creditors observed that : (SCC p. 475, para 19)

19.3. … we find that Section 31(1) of the Code would make it clear that such members of the erstwhile Board of Directors, who are often guarantors, are vitally interested in a resolution plan as such resolution plan then binds them. Such plan may scale down the debt of the principal debtor, resulting in scaling down the debt of the guarantor as well, or it may not. The resolution plan may also scale down certain debts and not others, leaving guarantors of the latter kind of debts exposed for the entire amount of the debt.

19.4. The Regulations also make it clear that these persons are vitally interested in resolution plans as they affect them.”

120. The rationale for allowing Directors to participate in meetings of the CoC is that the Directors’ liability as personal guarantors persists against the creditors and an approved resolution plan can only lead to a revision of amount or exposure for the entire amount. Any recourse under Section 133 of the Contract Act to discharge the liability of the surety on account of variance in terms of the contract, without her or his consent, stands negated by this Court, in Ramakrishnan11 wherein it was observed that the language of Section 31 makes it clear that the approved plan is binding on the guarantor, to avoid any attempt to escape liability under the provisions of the Contract Act. It was observed that : (SCC p. 411, para 25)

25. … Section 31(1), in fact, makes it clear that the guarantor cannot escape payment as the resolution plan, which has been approved, may well include provisions as to payments to be made by such guarantor.”

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122. It is therefore, clear that the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor’s liability. As to the nature and extent of the liability, much would depend on the terms of the guarantee itself. However, this Court has indicated, time and again, that an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability. In Maharashtra SEB15 the liability of the guarantor (in a case where liability of the principal debtor was discharged under the insolvency law or the company law), was considered. It was held that in view of the unequivocal guarantee, such liability of the guarantor continues and the creditor can realise the same from the guarantor in view of the language of Section 128 of the Contract Act as there is no discharge under Section 134 of that Act.

(emphasis supplied)

As regards the specific argument of “double dip” and unjust enrichment, the Court distinguished the concept of “double dip” from “double proof” and, with the help of a prior judgment, laid down the law as follows : (Lalit Kumar Jain case1, SCC paras 124-25)

124. In Kaupthing Singer and Friedlander Ltd. (No. 2), In re16 the UK Supreme Court reviewed a large number of previous authorities on the concept of double proof i.e. recovery from guarantors in the context of insolvency proceedings. The Court held that : (AC p. 814, para 11)

11. The function of the rule is not to prevent a double proof of the same debt against two separate estates (that is what insolvency practitioners call “double dip”). The rule prevents a double proof of what is in substance the same debt being made against the same estate, leading to the payment of a double dividend out of one estate. It is for that reason sometimes called the rule against double dividend. In the simplest case of suretyship (where the surety has neither given nor been provided with security, and has an unlimited liability) there is a triangle of rights and liabilities between the principal debtor (PD), the surety (S) and the creditor (C). PD has the primary obligation to C and a secondary obligation to indemnify S if and so far as S discharges PD’s liability, but if PD is insolvent S may not enforce that right in competition with C. S has an obligation to C to answer for PD’s liability, and the secondary right of obtaining an indemnity from PD. C can (after due notice) proceed against either or both of PD and S. If both PD and S are in insolvent liquidation, C can prove against each for 100p in the pound but may not recover more than 100p in the pound in all.”

125. In view of the above discussion, it is held that approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee. As held by this Court, the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process i.e. by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract.

(emphasis in original and supplied)

CONCLUSION — HYBRIDISATION AND LEGISLATIVE FUSION

To sum up, the Supreme Court has in Lalit Kumar Jain1 finally resolved the crisis in cases where the creditors of CD are not able to recover their dues from the assets of the CD in the resolution/liquidation proceedings under Part II IBC. It has shown the way for such creditors to pursue their remedies against the assets of PGCD under Part III of IBC and that too before the same fora, NCLT/NCLAT, as are entrusted with the task of adjudicating all matters pertaining to the CD.

The process was appropriately described before the Supreme Court by one of the respondents as a process of “parliamentary hybridisation and legislative fusion”. It was aptly and pithily encapsulated in the following words as stated in para 53 of the judgment : (Lalit Kumar Jain case1, SCC para 53)

53. The learned Senior Counsel highlighted Sections 60(1), (2), (3) and (4) and urged that Parliament had merged the provisions of Part III with the process undertaken against the corporate debtors under Part II. The process of Part II and the provisions of Part III were legislatively fused for the purpose of proceedings against personal guarantors along with the corporate debtors. … It is contended that the hybridization achieved by the impugned notification does not create any anomaly or problem in enforcement.

(emphasis supplied)

The Supreme Court has upheld the above submission virtually in toto in Lalit Kumar Jain1.

———

† Senior Advocate, Supreme Court of India.

1. (2021) 9 SCC 321 : 2021 SCC OnLine SC 396.

2. IBC received the assent of the President of India and was published in the Gazette of India on 28-5-2016.

3. Though amended w.e.f. 23-11-2017, the amended Section 2(e) came to be enforced only by Notification dated 15-11-2019 w.e.f. 1-12-2019.

4. Section 60 had already stood enforced earlier by Notification dated 30-11-2016 w.e.f. 1-12-2016. The amendment in sub-sections (2) and (3) of Section 60 took effect instantaneously with the date of the amendment itself.

5. Titled “Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms”.

6. Titled “Miscellaneous”.

1. Lalit Kumar Jain v. Union of India, (2021) 9 SCC 321 : 2021 SCC OnLine SC 396.

7. Vide Notification dated 30-11-2016 w.e.f. 1-12-2016.

1. Lalit Kumar Jain v. Union of India, (2021) 9 SCC 321 : 2021 SCC OnLine SC 396.

1. Lalit Kumar Jain v. Union of India, (2021) 9 SCC 321 : 2021 SCC OnLine SC 396.

1. Lalit Kumar Jain v. Union of India, (2021) 9 SCC 321 : 2021 SCC OnLine SC 396.

8. (2003) 8 SCC 369.

9. (1996) 2 SCC 498.

10. State of T.N. v. K. Sabanayagam, (1998) 1 SCC 318.

11. SBI v. V. Ramakrishnan, (2018) 17 SCC 394.

12. The Contract Act, 1872:

128. Surety’s liability.-The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract.

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133. Discharge of surety by variance in terms of contract.-Any variance, made without the surety’s consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance.

134. Discharge of surety by release or discharge of principal debtor.-The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor.

***

140. Rights of surety on payment or performance.-Where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor.

13. The Insolvency and Bankruptcy Code, 2016:

31. Approval of resolution plan.-(1) If the adjudicating authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of Section 30 meets the requirements as referred to in sub-section (2) of Section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.

1. Lalit Kumar Jain v. Union of India, (2021) 9 SCC 321 : 2021 SCC OnLine SC 396.

14. (2019) 20 SCC 455.

11. SBI v. V. Ramakrishnan, (2018) 17 SCC 394.

15. Maharashtra SEB v. Official Liquidator, High Court, (1982) 3 SCC 358.

1. Lalit Kumar Jain v. Union of India, (2021) 9 SCC 321 : 2021 SCC OnLine SC 396.

16. [2012] 1 A.C. 804 : [2011] 3 WLR 939 : [2011] Bus LR 1644 (SC).

1. Lalit Kumar Jain v. Union of India, (2021) 9 SCC 321 : 2021 SCC OnLine SC 396

NCLAT
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Appellate Tribunal, New Delhi: The Coram of  Ashok Bhushan, J (Chairperson), Shreesha Merla (Technical member), and Naresh Salecha (Technical member) has held that regardless of the delay made in filing the claims by homebuyers, a resolution professional should include the corporate debtor’s liabilities as mentioned in the Memorandum of Information(MoI).

Facts of the case and issue raised

An appeal was filed against the Order passed by the Adjudicating Authority (NCLT, New Delhi).

The observation of the Adjudicating Authority was that the claims of the homebuyers have been filed after a gap of eight months from the last date of the submission of the claim and therefore the claims cannot be admitted. Further, it was stated that the Committee of Creditors (CoC) had already approved the resolution plan.

The following issues were raised-

  • Whether the Resolution Professional was obliged to include the details of Homebuyers as reflected in the records of the Corporate Debtor in the Information Memorandum, even
    though they have not filed their claim before the Resolution Professional within time?
  • Whether Resolution Applicant ought to have also dealt with Resolution Plan regarding Homebuyers, whose names and claims are reflected in the record of the Corporate Debtor, although they have not filed any claim?

Submissions of the counsel

Appellant’s Counsel submitted that even though they could not file their claims within the time prescribed, details of their allotment and payments made by them already existed in the records of the Corporate Debtor. It was further submitted that it was the duty of the Resolution Professional to inform the Appellants to file their claims and in case the financial creditors were not able to do so the Resolution Professional could have included their claims in the Information Memorandum prepared under Regulation 36 of Corporate Insolvency Resolution Process (CIRP) Regulations as liabilities to Corporate Debtor.

Respondent’s Counsel submitted that Appellants did not file their claims within the time and filing of their claims was also beyond 90 days as provided by Section 12 of the Insolvency and Bankruptcy Code, 2016 (IBC) therefore no error was committed by Resolution Professional by not including the names of the Appellants in the ‘list of creditors’.

Analysis and decision

Firstly, the Coram stated that when the allotment letters are issued to the Homebuyers against the payment made, the real estate company is under the obligation to provide possession of the houses along with other attached liabilities.

Further, the Coram opinioned that the liability towards Homebuyers who had not filed their claim exists and are required to be included in the Information Memorandum. Non- consideration of such claims in the information memorandum can lead to inequitable and unfair resolutions.

Therefore, the Coram directed the resolution professional to submit the details of homebuyers, which are mentioned in the records of the corporate debtor including their claims, to the resolution applicant, based on which the resolution applicant shall prepare an addendum to the resolution plan, which may be placed before the CoC for consideration.

[Puneet Kaur v. K.V. Developers (P) Ltd., 2022 SCC OnLine NCLAT 245, dated- 01-06-2022]


Advocates before the tribunal

For Appellant(s): Mr. Mahesh Kumar and Ms. Simran Soni, Advocates.
For Respondent: Mr. Abhinav Vasisht, Sr. Advocate with Mr. Rakesh Kumar Bajaj and Mr.Harish Taneja, Advocates, Mr. Nitin Kumar and Mr. Gagan Gulati, Advocate.
Mr. Sumesh Dhawan and Ms. Vatsala Kak, Advocates.

NCLAT
Case BriefsTribunals/Commissions/Regulatory Bodies

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

Factual Background:

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

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

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

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

Observations and Decision:

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

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

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

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


Advocates appearing before NCLAT:

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

for Respondent: Mr Ankur Rai

Legal RoundUpTribunals/Regulatory Bodies/Commissions Monthly Roundup

Central Information Commission (CIC)


Framework of RTI Act restricts jurisdiction of CIC to provide a ruling on issues pertaining to access/right to information, not venture into merits of case

Neeraj Kumar Gupta (Information Commissioner), decides whether Commission can provide a ruling regarding the merits of a case or redressal of grievance.

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While examining the complaint, can CIC direct disclosure of information under S. 18 of RTI Act?

Neeraj Kumar Gupta (Information Commissioner) addressed a matter wherein it was alleged that the respondent intentionally provided an evasive reply by stating that the information sought was not clear, hence issue of prompt response of CPIO was raised.

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Customs, Excise and Services Tax Appellate Tribunal (CESTAT)


Will compensation paid by an employee to an employer for resigning from service without giving requisite notice, fall under taxable service? 

The Coram of S.K. Mohanty (Judicial Member) and P. Anjani Kumar (Technical Member) reiterated that, any compensation paid by the employee to the employer for resigning from the service without giving the requisite notice, would not be termed as consideration for the contract of employment and as such, would not fall within the preview of taxable service. 

Read more, here…

Cenvat Credit is allowed on Insurance services; Tribunal sets aside penalty and interest

Ramesh Nair (Judicial Member) partly allowed an appeal which raised the question as to whether the appellant was entitled to Cenvat credit in respect of Input Services namely construction services, fee for architectural structural works for factory plant building, group Medi-claim Insurance, Group personal accident insurance, insurance, motor car/vehicle insurance, labour charges for installation, testing & commissioning of components of VRV System (Centrally AC system) in the office building etc.

Read more, here…

Promotional activity for IPL not covered under ‘Business Auxillary Service’; Anil Kumble not liable to pay Service Tax

The Coram of P. Anjani Kumar (Technical Member) and P. Dinesha (Judicial Member) allowed appeals against the order of First Appellate Authority which upheld the demand of service tax by the adjudicating authority.

Read more, here…


Competition Commission of India (CCI)


 Conduct of Zomato and Swiggy, anti-competitive? DG to investigate

The Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma and Bhagwant Singh Bishnoi (Members) held that, in the case of both Swiggy and Zomato, prima facie there existed a conflict of interest situation, warranting detailed scrutiny into its impact on the overall competition between the RPs vis-à-vis the private brands/entities which the platforms may be incentivised to favour.

Read more, here…


Income Tax Appellate Tribunal (ITAT)


Income Tax penalty cannot be invoked without relevant documents substantiating business activities

The Coram of Shamim Yahya, Accountant Member and Narender Kumar Choudhary, Judicial Member, observed that under the Income Tax Act penalty can’t be invoked without relevant documents which substantiate business activities.

Read more, here…

Can mere rejection of the claim by Assessing Officer, make assessee liable for penalty?

Addressing the issue, of whether mere rejection of the claim by an Assessing Officer would ipso facto make assessee liable for the penaltythe Bench of G.S. Pannu (President) and Kul Bharat (Judicial Member) held that it won’t make the assessee liable to a penalty.

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Whether expenditure incurred on replacements of old truck bodies will be treated as revenue expenditure?

The Bench of Sonjoy Sarma (Judicial member) and Rajesh Kumar (Accountant Member) held that the expenditure incurred by the assessee as such on replacement of wooden body of trucks has to be allowed fully against the income of the assessee in the current year.

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Delayed payment of employee’s contribution to EPF/ESIC is not disallowable as amendments to S. 36(1) (va) and S. 43B effected by Finance Act, 2021 were applicable prospectively; appeal allowed

The Coram of Pradip Kumar Kedia (Accountant Member) and Narender Kumar Choudhry (Judicial Member) allowed an appeal which was filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals) -XXXVI, New Delhi passed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 concerning AY 2013-14. The instant appeal challenged the disallowance of Rs 45,60,061 on account of delayed payment of employee’s contribution towards EPF and ESIC.

Read more, here…

Whether gift received from HUF to any member of HUF is exempt from taxable income?

The Coram of Sanjay Garg (Judicial Member) and Annapurna Gupta (Accountant Member) examined the issue as to the taxability of the amount of gift received by the assessee from his ‘HUF’.

Read more, here…


Insolvency and Bankruptcy Board of India (IBBI)


Name and Designation of Officers of IBBI is exempted under S. 8(1)(j) of the RTI Act

“Section 8(1)(j) exempts information which relates to personal information, the disclosure of which has no relationship to any public activity or interest, or which would cause unwarranted invasion of the privacy of the individual unless a larger public interest justifies the disclosure of such information.”

Read more, here…


National Green Tribunal (NGT)


Fine of Rs 41.21 Crores imposed on a Government Corporation for excess mining and violation of conditions of Environmental Clearance: NGT issues 10 directions || If no fine, would rule of law be impacted? Read

While imposing a fine of Rs 41.21 crores on Singareni Collieries Company Limited, for violation of environmental clearance conditions and mining excess coal, the Coram of Justice K. Ramakrishnan (Judicial Member) and Dr Satyagopal Korlapati (Expert Member) expressed that,

“The Government Corporations are expected to be more law abiding and if any leniency or discrimination is shown for committing violation, then it is very difficult to maintain the rule of law, if any violations were committed by other persons. There will not be any moral right for the regulators to take action against others, if similar violations were committed by them.”

Read more, here…


National Consumer Disputes Redressal Commission (NCDRC)


If a person makes an investment in shares, will he be considered a Consumer under S. 2(1)(d) of Consumer Protection Act? NCDRC elaborates in view of ‘earning livelihood’

Viswanath, Presiding Member, held that the complainant was not investing money in the share market exclusively for earning his livelihood, hence the same was he did not fall under the definition of Consumer.

Read more, here…

[Medical Negligence] Consumer Protection Act should not be a halter round the neck

In an alleged medical negligence casethe Coram of R.K. Agrawal, President and Dr S.M. Kantikar, Member, reiterates that the “Consumer Protection Act should not be a halter round the neck.”

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“Negligence per se may be declared when …”: NCDRC explains in medical negligence case while awarding Rs 25 lakh compensation plus interest

While addressing a medical negligence case, the Coram of Dr S.M. Kantikar (Presiding Member) and Binoy Kumar, Member, observed that, Negligence per se is not a separate cause of action from negligence suits. Negligence per se, however, assumes the duty because of public policy or law.

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Due to burglary, customers lost their valuable articles from bank lockers. Will Bank be liable for deficiency in service?

The Coram of Justice R.K. Agarwal (President) and Dr S.M. Kantikar (Member) expressed that, customer avails of Locker hiring facility is so that they may rest assured that their assets are being properly taken care of, but in the present matter, OP Bank failed to take care of the assets.

Read more, here…

Sudden cancellation of rooms booked for daughter’s marriage 3 months prior on account of maintenance: Is it an acceptable reason? Can consumers claim compensation?

“The memories of marriage ceremonies are lifetime events in the life of bride and bridegroom and their family members to make their moments memorable. In our country, certainly, it is not an easy task for the parents to arrange their daughter’s marriage in a five-star hotel in place like Jaipur or any big cities. All of sudden cancellation of booking about 3 months prior to the date of marriage on account of maintenance is not acceptable reason.”

Read more, here…

After forceps delivery, patient developed 4th degree perineal tear losing chance for normal delivery: Will doctor be liable for medical negligence?

After forceps delivery, a woman lost her control over passing urine and stool due to the negligence of a doctor, the Coram of R.K. Agrawal (President) and Dr S.M. Kantikar (Member) upheld the decision of State Commission with respect to compensation of Rs 8 lakhs.

Read more, here…


National Company Law Tribunal (NCLAT)


Whether Homebuyer’s’ decision as a Class will be binding on every Homebuyer?

The Coram of Justice Ashok Bhushan (Chairperson) and Shreesha Merla (Technical Member) held that decision taken by the class of Homebuyers will be binding on all the homebuyers.

Read more, here…

Once insolvency proceedings are put on Stay, Can resolution professionals still be entitled to fees during Stay?

In a matter with regard to fees of resolution professional, the Coram of Justice Ashok Bhushan (Chairperson) and Shreesha Merla (Technical Member) held that, when proceedings in a matter are put to stay, the resolution professional is not entitled to fees during the stay on insolvency.

Read more, here…

Can territorial jurisdiction of NCLT be decided on basis of a Facility Agreement between parties?

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.

Read more, here…

Whether fixation of salary of the MD is within the domain of IBC?

“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.”

Read more, here…

Article 1 of Limitation Act deals with suits relating to accounts: NCLAT highlights scope of Art. 137 of Limitation Act

The Coram of Justice Ashok Bhushan (Chairperson) and Dr Alok Srivastava (Technical Member) observed that, provisions of the Limitation Act are applicable to proceedings under IBC.

Read more, here…

Jet Airways Resolution Plan’s implementation is subject to the outcome of?

The Coram of Justice Ashok Bhushan (Chairperson) and Shreesha Merla (Technical Member), held that the implementation of the Jet Airways Resolution Plan will be subject to the outcome of appeals filed against the order of National Company Law Tribunal which approved the resolution plan for Jet Airways.

Read more, here…


National Company Law Tribunal (NCLT)


Whether salary during notice period falls within definition of Operational Debt under IBC?

The Coram of H.V. Subba Rao, Judicial Member and Chandra Bhan Singh, Technical Member deliberated on what amounts to a pre-existing dispute.

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Securities Appellate Tribunal (SAT)


Insider Trading | SEBI’s restriction on Infosys employees for trading securities lifted by SAT: Read 5 reasons why SAT lifted restrictions

While lifting the restriction of buying or selling any securities, laid down by SEBI on employees of Infosys for allegedly violating the insider trading regulations, the Coram of Justice Tarun Agarwala (Presiding Officer) and Justice M.T. Joshi (Judicial Member) reiterated the settled law that burden of proof is always upon the prosecution, SEBI to prove that he had access to UPSI.

Read more, here…

Once a statute is repealed, will subordinate legislation made under statute ceases to have effect or can it be avoided by a saving clause?

“A statute after its repeal is completely obliterated as it had never been enacted. The effect is to destroy all inchoate rights and all causes of action that may have arisen under the repealed statute.”

Read more, here…

Logix Insolvent? NCLT initiates insolvency proceedings against Logix City Developers

The Coram of Bachu Venkat Balaram Das (Judicial Member) and Narender Kumar Bhola (Technical Member) initiates insolvency proceedings against Logix City Developers due to default in payment.

Read more, here…


Maharashtra Real Estate Appellate Tribunal


If change of promoter is left to wisdom of society, it will create chaos and uncontrollable situation leaving fate of flat purchasers in doldrum

The Coram of Indira Jain J., (Chairperson) and Dr K. Shivaji, Member (A), expressed that, if the change of promoter without following the procedure prescribed under the law is left to the wisdom of society, it will not only render the relevant provisions of revocation of registration redundant but also create chaos and uncontrollable situation leaving the fate of allottees /flat purchasers in doldrum.

Read more, here…

NCLAT
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 implementation of the Jet Airways Resolution Plan will be subject to the outcome of appeals filed against the order of National Company Law Tribunal which approved the resolution plan for Jet Airways.

Mr Balbir Singh, ASG appearing for the applicant referred to the order of the Supreme Court dated 15-9-2021 in Civil Appeal No. 3290 of 2017 in the matter of Commissioner of Income Tax v. Jet Airways India Ltd., and Order dated 16-11-2021.

In view of the above-said orders passed by the Supreme Court, Tribunal permitted the applicant to intervene in the present appeal.

Present appeals were filed against the order dated 22-6-2021 passed by the Adjudicating Authority approving the Resolution Plan.

The effective date had been fixed as 28-5-2022 and the process of the implementation of the plan has begun.

Further, the appellant’s counsel expressed their apprehension that in the event their claim was allowed, and the plan was implemented, their claim may not be met by the Successful Resolution Applicant.

Tribunal fixed the appeals on 05th July, 2022 and made it clear that the implementation resolution plan shall abide by the result of the appeals filed.

Lastly, the Senior Advocate, Krishnendu Datta submitted that the Successful Resolution Applicant shall withhold the ‘BKC’ Property, which is a valuable property and till the next date, shall not take any steps for alienation of the said property.

Coram directed that the interim order Company Appeal (AT) Ins. No. 686 of 2021 shall continue. [Association of Aggrieved Workmen of Jet Airways (India) Ltd. v. Jet Airways (India) Ltd., 2022 SCC OnLine NCLAT 222, decided on 30-5-2022]


Advocates before the Tribunal:

For Appellant:

Mr. Siddharth Bhatnagar, Sr. Advocate with Mr. Aditya Sidhra and Mr. Swarnendu Chatterjee, Mr Yashwardhan Singh, Advocates.

For Respondents:

Mr. Arun Kathpalia, Sr. Advocate with Mr. Rohan Rajadhyaksha, Ms. Aditi Bhansali, Mr. Nishant Upadhyay, Mr. Madhur Arora, Mr. Dhiraj Kumar Totala, Ms. Trisha Sarkar and Ms. Tanya Chib, Advocates for R-1 & 3.

Ms Pooja Mahajan, Ms Mahima Singh, Advocates for SRA.

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

Mr. K. Datta. Sr. Advocate with Mr. Rajat Sinha, Ms. Pooja Mahajan, Ms. Mahima Singh and Ms. Aveena Shrama, Advocates for R-4.


Read more here:

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

NCLAT
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) observed that, provisions of the Limitation Act are applicable to proceedings under IBC.

An appeal was filed against the order passed by the National Company Law Tribunal, Mumbai, by which the application filed by the appellant had been rejected as barred by time.

Contentions

Appellant’s counsel submitted that both the parties were maintaining a running account and there have been transactions inter se which was reflected from the ledger account filed by the respondent.

Further, in the facts of the present case, Article 1 of the Limitation Act was attracted as per which the limitation period of 3 years began to run from the close of the year in which the last item admitted or proved was entered into the amount.

Analysis, Law and Decision

Tribunal expressed that in the application under Section 9 IBC, the appellant had claimed payment of outstanding dues on the basis of different invoices issued in the year 2015-16.

The Adjudicating Authority after perusing the date of all the invoices returned a finding that Application under Section 9 having been filed on 24th October, 2019 even the last invoices dated 29.09.2016 and 10.10.2016 were more than three years prior to filing of Section 9 Application hence the Application having been not filed within limitation, the same is rejected.

Coram observed that the Limitation Act is applicable in IBC Proceedings and IBC does not exclude the application of Sections 6 to 14 or 18 and any provision of the Limitation Act.

Whether appellant can take benefit of Article 1 of the Limitation Act, 1963?

Supreme Court in B.K Educational Services (P) Ltd. v. Parag Gupta, (2019) 11 SCC 633 after considering the provisions of IBC and the Limitation Act had laid down that for filing application under Sections 7 and 9, it is Article 137 which is attracted.

Supreme Court in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1 has reiterated the applicability of the Limitation Act and it was again reiterated that period for limitation is governed by Article 137 of the Limitation Act.

It was noted that Article 1 is in Part-I of the Schedule of the Limitation Act dealing with suits, under the “suit relating to accounts”. The application filed under Section 9 of the appellant cannot be said to be a suit relating to accounts.

Tribunal concluded stating that, limitation as per Article 137 will begin to run from the date when the right to apply accrues and the application filed on the basis of invoices were prior to much before three years period from filing of Section 9 application, NCLT had rightly rejected the application.

Therefore, the appeal was dismissed. [S.M. Ghogbhai v. Schedulers Logistics India (P) Ltd., 2022 SCC OnLine NCLAT 216, decided on 23-5-2022]


Advocates before the Tribunal:

For Appellant: Advocate Ekta Mehta

For Respondent: Advocate Kayomars K. Kerawalla, Advocate Kunal Mehta and Advocate Robin Fernades.

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., 2022 SCC OnLine NCLAT 200, 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 BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT), New Delhi: In a matter with regard to fees of resolution professional, the Coram of Justice Ashok Bhushan (Chairperson) and Shreesha Merla (Technical Member) held that, when proceedings in a matter are put to stay, the resolution professional is not entitled to fees during the stay on insolvency.

An appeal had been filed against the order of the National Company Law Tribunal, Mumbai, by which the Resolution Professional was allowed for reimbursement of Rs 30,81,719.

In 2018, the Corporate Insolvency Resolution Process was initiated, and the Insolvency Resolution Professional was appointed.

Appellant contended that, when the Supreme Court of India had stayed the insolvency proceedings, there was no entitled fee to be paid to the Resolution Professional.

Further, the Counsel for the Resolution Professional submitted that even when the Insolvency Proceedings were stayed, certain expenses were incurred by the RP which payment cannot be denied.

Analysis and Decision


Tribunal stated that, when the Supreme Court order 26-11-2018, had stayed the insolvency proceedings which proceedings ultimately were set aside by the final Judgment dated 2-9-2019, the Resolution Professional was not entitled to any fee after 26-11-2018.

In view of the above, the appeal was partly allowed. [IndusInd Bank Ltd. v. Rajendra K. Bhuta, 2022 SCC OnLine NCLAT 201, decided on 26-4-2022]


Advocates before the Tribunal:

For Appellant: Mr. Rohit Gupta, Ms. Rubina Khan, Advocates.

For Respondent: Mr. Rajeev K Pandey, Mr. Rajeev M Roy, Advocates for R-2

Mr. Mayank Kshirsagar, Darryl Pereira, Advocates for IRP/R1

NCLAT
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal, Delhi (NCLAT): The Coram of Justice Ashok Bhushan (Chairperson) and Shreesha Merla (Technical Member) held that decision taken by the class of Homebuyers will be binding on all the homebuyers.

An appeal was filed against the Order passed by the Adjudicating Authority (NCLT, New Delhi).

The observation of Adjudicating Authority was that the class of Homebuyers were already represented in the matter and the applicant had already filed the application question rejection of the claim which was still pending before the Adjudicating Authority. The intervention applications were rejected.

Appellant’s Counsel submitted that even the authorized representation of the Homebuyer was not being provided for the facts and information and hence, the appellant filed an Intervention Application.

Analysis and Decision

Tribunal held that the appellant as a homebuyer had to go with the class of Homebuyers and the decision taken by the class of Homebuyers was binding.

The authorised representative in the event of any difficulty, it is always open for him to approach the Resolution Professional and Adjudicating Authority, if so required.

Concluding the matter, Tribunal held that the Adjudicating Authority did not commit any error in rejecting the Intervention Application of the appellant and there was no merit in the appeal. [Sandeep Kumar Jain v. Anil Tayal Resolution Professions of AVJ Developers (India) (P) Ltd., 2022 SCC OnLine NCLAT 187, decided on 27-4-2022]


Advocates before the Tribunal:

For Appellant: Mr. Harshit Aggarwal, Advocates.

For Respondent: Mr. Abhishek Anand and Mr. Karan Kohli, Advocates for RP.

Akaant MittalExperts Corner


A. Introduction


The IB Code differentiates between financial creditors and operational creditors. Financial creditors are those having a relationship with the corporate debtor that is purely a financial contract, such as a loan or a debt security. Whereas, operational creditors are those who have due from the debtor on account of transactions made for the operational working of the debtor.[1]

 

For the purposes of the definition of the term “goods”, the Sale of Goods Act, 1930 can be referred to; whereas, the definition of the term “services” is still not concretely defined. A claim on operational debt may be on account of breach of an agreement or a decree of a court of law; still the same must relate to the supply of goods and services.

 

Now issue arises as to the status of lease dues forming an “operational debt”. The question has two aspects, namely, one whether the landlord could claim to be an operational creditor against the tenant for the rental dues outstanding; and two whether a tenant while using the tenanted premise, if suffers any damages, could claim to be an operational creditor.

 


B. Landlord claiming to be an Operational Creditor


The Bankruptcy Law Reforms Committee Report that formed the basis of the IB Code illustratively suggested that the definitions of “operational creditor” and “operational debt” include wholesale vendors of spare parts whose spark plugs are kept in inventory by the car mechanic and who gets paid only after the spark plugs are sold, thus making them operational creditors. Similarly, the lessor who rents out space to an entity is an operational creditor to whom the entity owes monthly rent on a three-year lease.[2] Operational creditors, in other words, maybe employees, rental obligations, utilities payments and trade credit.[3]

 

While the landlord certainly could claim to be an operational debtor in light of what the Bankruptcy Law Reforms Committee seems to suggest, however, in Annapurna Infrastructure (P) Ltd. v. SORIL Infra Resources Ltd.[4], such an issue was left open by the NCLAT to be decided by the NCLT. In this case, the landlord had initiated proceedings under Section 9 against the tenant on the basis of an arbitral award which awarded rent due towards the landlord on the part of the tenant. The NCLAT, however, left this contention unaddressed and remitted the matter on other grounds.

 

In Sarla Tantia v. Nadia Health Care (P) Ltd.,[5] the question before the NCLT was whether the recovery of arrears of rent can be claimed as operational debt within the meaning of Section 5(21) of the IB Code. The counsel for the corporate debtor i.e. Nadia Health Care relied on the input output test arguing that the operational debt are only those debts that have “a correlation of direct input to output produced or supplied by the corporate debtor”. However, the NCLT herein relied on the observations from the decision of the Supreme Court in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd.,[6] to conclude that the Supreme Court in the affirmative settled the issue of lease dues being an operational debt.

 

It is submitted that the same is erroneous because (i) the Supreme Court in Mobilox Innovations[7] did not discuss the issue of lease deeds in its own observations. The court had merely reproduced paragraphs from the report of the Bankruptcy Law Reforms Committee, a part of which had also touched upon rental and lease dues as a type of operational debt; and (ii) to begin with, the issue was not the subject-matter of dispute before the Supreme Court at all.

Therefore, the opinion of the NCLT in Sarla Tantia[8] may not be on strong footing.

 

Split in jurisprudence

A split in the jurisprudence before the NCLAT is found in the two rulings rendered by the NCLAT in M. Ravindranath Reddy v. G. Kishan,[9] on one side and Anup Sushil Dubey v. National Agriculture Coop. Mktg. Federation of India Ltd.[10] on the other.

 

In Ravidranath, the specific query was addressed by the NCLAT on whether a landlord by providing lease could be treated as operational creditor. The same was held by the Full Bench of NCLAT to not fall within the ambit of the definition of the term “operational debt”.[11] The NCLAT in Ravidranath[12] opined that the recommendation of the Bankruptcy Law Reforms Committee pertaining to the treatment of lessors/landlords as operational creditors, was not adopted by the legislature and only the claim in respect of goods and services were kept in the definition of operational creditor and operational debt under Sections 5(20) and 5(21) of the IB Code. Resultantly, it was concluded that the definition of an operational debt and operational creditor could not be interpreted to include rent dues as operational debt. Therefore, non-payment of rent does not amount to an operational debt.

 

There is a qualification added to the ruling in M. Ravindranath[13], when the NCLAT in Sanjeev Kumar v. Aithent Technologies (P) Ltd.[14] distinguished the former. In Sanjeev Kumar, the relationship between the creditor landlord and the debtor tenant was found to be not merely of the one to that of a landlord tenant but was held to also include certain provision of services such as electricity, diesel, sewer and water charges amongst others given to the debtor tenant. In such cases once the dues were found to be more than the pecuniary threshold, the debt was held to fall under the definition of an operational debt and an application under Section 9 of the Code was admitted.[15]

 

On the other hand in Anup Sushil Dubey[16] the NCLAT held that lease and licence agreements fall within the ambit of Section 5(21) of the IB Code. The NCLAT here noted that the appellants had leased out the premises for “commercial purpose” and the same fell within the meaning of term “service” under Section 5(21) of the IB Code. Then the NCLAT found the definition of “service” under the Consumer Protection Act, 2019 to be of relevance, which defines a service in the following manner :

(42) “service” means service of any description which is made available to potential users and includes, but not limited to, the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, telecom, boarding or lodging or both, housing construction, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service.

 

The NCLAT similarly referred to the provisions of the Central Goods and Services Tax Act, 2017, which under the Schedule II lists down the activities that are to be treated as supply of goods or services, and in Para 2 of the Schedule stipulates as follows:

(a) any lease, tenancy, easement, licence to occupy land is a supply of services;

(b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.

 

On the basis of the above, taking into account that the premises were leased out for a commercial purpose, it was held that the dues claimed by the creditor squarely fell within the ambit of the definition of “operational debt” as defined under Section 5(21) of the Code.

 

It is essential to note that while M. Ravindranath[17] was a decision by a Full Bench of the NCLAT, the ruling in  Anup Sushil Dubey[18] was by a Division Bench. Furthermore, the NCLAT in Anup Sushil Dubey[19] while noted that the corporate debtor appellant before it, cited the ruling in M. Ravindranath[20]; the NCLAT however did not render any findings on the reference to M. Ravindranath[21].

 


C. Tenant claiming to be an Operational Creditor


On the other hand, as regards the claim of a tenant in its tenant landlord relationship is concerned, the position seems to be settled in Jindal Steel & Power Ltd. v. DCM International Ltd.[22] wherein it was held that tenants do not come within the meaning of “operational creditor” as defined under Sections 5(20) and (21), IB Code. In this case, the tenant sought to recover the security deposit on account of the termination of the lease agreement with the landlord. The NCLAT upheld the order of the NCLT rejecting the application filed under Section 9 by the tenant holding that the tenant does not come within the meaning of the term “operational creditor”.

 

It must also be noted here that while in Sarla Tantia,[23] the NCLT had referred to the Schedule II of the CGST Act, 2017[24] which in context of land and buildings, classifies “any lease, tenancy, easement, licence to occupy land” as a supply of services. Here in Jindal Steel[25], the NCLT held that the definition of “service” in the fiscal statutes has no bearing because the purpose of fiscal statutes is to generate revenue for the Government in the form of taxes, whereas the purpose of the IB Code is to consolidate and amend the laws relating to reorganisation and insolvency resolution.

 

Similar position was maintained in  D & I Taxcon Services (P) Ltd. v. Vinod Kumar Kothari,[26] where a tenant filed a claim on account of suffering damage in the tenanted premises due to a fire incident. The NCLAT clarified that the claim of the tenant does not constitute any operational debt since by using the demised premises as a tenant, the appellant could not be said to have been providing any “services”.

 

However, sub-tenants cannot be treated as a corporate debtor even if part of the payment is made directly by such sub-tenants to the operational creditor since the same will not create any relationship of operational creditor and debtor.[27]


Conclusion


On account of the differing viewpoints expressed by the NCLT and NCLAT, the issue on whether a landlord could claim to be an operational creditor remains unresolved.

 

Since different types of creditors are granted distinct rights under the IB Code framework, it is necessary to determine to which category, a creditor belongs to. In this context, it is possible that, in the future, a leasing agreement may not fall within either of the two categories of creditors who can file for initiating a corporate insolvency resolution process (CIRP), namely, financial and operational creditors, and that they will have to make a claim as other creditors. Categorisation as such would also lead to a significant loss of rights as such creditors would have no participatory role (whatsoever) in the CoC working.

The issue is now pending before the Supreme Court in Promila Taneja.[28]

 

Given the ambiguity surrounding the problem, the Supreme Court must evaluate the larger issue of claims resulting from the use of immovable property and other associated costs, and eventually resolve the question of whether rent arrears constitute as operational debt.

 

To sum up, unless the existing gaps in the Code regarding lease transactions, their treatment as secured creditors, the right to relinquish, and other factors discussed above are addressed, the true devil will lie in the strategically drafting of lease agreements, which will essentially make or break the rights available to the lessor.


Akaant Kumar Mittal is an advocate at the Constitutional Courts, and National Company Law Tribunal, Delhi and Chandigarh. He is also a visiting faculty at the National Law University, Mumbai and the author of the commentary Insolvency and Bankruptcy Code – Law and Practice.

“The author gratefully acknowledge the research and assistance of Sh. Priyanshu Fauzdar, pursuing law at NLU, Assam in writing this article.”

[1] The Report of the Bankruptcy Law Reforms Committee, Volume 1: Rationale and Design (Nov. 2015), Ch. 5.2.1, available online at HERE .

[2] The Report of the Bankruptcy Law Reforms Committee, Volume 1: Rationale and Design, (Nov. 2015), Ch.

5.2.1.

[3] The Report of the Bankruptcy Law Reforms Committee, Volume 1: Rationale and Design, (Nov. 2015), Ch.3.2.2.

[4] 2017 SCC OnLine NCLAT 380.

[5] 2018 SCC OnLine NCLT 16726.

[6] (2018) 1 SCC 353.

[7] (2018) 1 SCC 353.

[8] 2018 SCC OnLine NCLT 16726.

[9] 2020 SCC OnLine NCLAT 84.

[10] 2020 SCC OnLine NCLAT 674.

[11] The ruling in M. Ravindranath case, 2020 SCC OnLine NCLAT 84 has been followed subsequently in Aurora Accessories (P) Ltd. v. Ace Acoustics & Audio Video Solutions (P) Ltd., 2020 SCC OnLine NCLAT 527; Promila Taneja v. Surendri Design (P) Ltd., 2020 SCC OnLine NCLAT 1105.

[12] 2020 SCC OnLine NCLAT 84.

[13] 2020 SCC OnLine NCLAT 84.

[14] 2020 SCC OnLine NCLAT 734.

[15] 2020 SCC OnLine NCLAT 734.

[16] 2020 SCC OnLine NCLAT 674.

[17] 2020 SCC OnLine NCLAT 84.

[18] 2020 SCC OnLine NCLAT 674.

[19] 2020 SCC OnLine NCLAT 674.

[20] 2020 SCC OnLine NCLAT 84.

[21] 2020 SCC OnLine NCLAT 84.

[22] Jindal Steel & Power Ltd. v. DCM International Ltd., 2017 SCC OnLine NCLAT 441 upholding the order of the NCLT in Jindal Steel and Power Ltd. v. DCM International Ltd., 2017 SCC Online NCLT 989.

[23] 2018 SCC OnLine NCLT 16726.

[24] Central Goods and Services Tax, 2017, Schedule II read with S. 2(a).

[25] 2017 SCC Online NCLT 989.

[26] 2020 SCC OnLine NCLAT 878.

[27] Rahul Gupta v. Mahesh Madhavan, 2018 SCC OnLine NCLAT 263.

[28] Promila Taneja v. Surendri Design (P) Ltd., Civil Appeal No. 4237 of 2020, order dated 28-1-2021. (SC)

Legal RoundUpTribunals/Regulatory Bodies/Commissions Monthly Roundup

18 Reports to Read


Competition Commission of India (CCI)


Star India providing bouquet of channels at lesser prices resulting significant loss in consumer base of Asianet Digital Network: Star India abusing dominance of its position? 

The Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma and Bhagwant Singh Bishnoi (Members) noted allegations against Star India for providing a bouquet of channels at lesser prices resulting in denying of market access and also amounting to unfair pricing.

Read full report here…

7 entities indulged in anti-competitive agreement for supply of signages for branches/offices/ATMs of SBI: E-mails exchanged between parties formed basis for manipulation of bidding process

Noting that in respect of cases concerning cartels that are hidden or secret, there is little or no documentary evidence and may be quite fragmentary, Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma and Bhagwant Singh Bishnoi (Members)  imposed penalties on 7 entities and signages for bid-rigging activities and cartelization with respect to the supply of signage for branches, offices and ATMs of State Bank of India.

Read full report here…

Forcing buyers to purchase insurance policies?  Even if dealers offer to sell insurance policies to customers, customers may yet have option to buy such policies from alternative channels

The Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma and Bhagwant Singh Bishnoi (Members) addressed a matter wherein it was alleged that certain Car Companies were abusing their dominant position and denying the cashless claim to consumers if the insurance policy had not been obtained through them, their dealers or their insurance broking companies.

Read full report here…


Customs, Excise and Service Tax Appellate Tribunal (CESTAT)


Amount deposited during the investigation, ipso facto, becomes pre-deposit when the assessee carries the dispute before the Appellate Forum

Anil Choudhary (Judicial Member) dismissed applications filed by the Revenue pertaining to rectification of mistakes.

Read full report here…


Income Tax Appellate Tribunal (ITAT)


Notice issued against a dead person is null and void and all consequent proceedings/orders being equally tainted are liable to be set aside

The Coram of Amit Shukla (Judicial Member) and Pradip Kumar Kedia (Accountant Member) allowed an appeal against a revisional order passed under Section 263 of the Income Tax Act, 1961.

Read full report here…

Does Income Tax Act prohibit HRA Exemption On Rent Paid To Wife?

An appeal was filed by the assessee against the order of CIT(A)-21, New Delhi dated 21-01-2019 before the bench comprising of Sh. A. D. Jain (Vice-President) and Dr. B. R. R. Kumar (Accountant Member).

Read full report here…


National Consumer Disputes Redressal Commission (NCDRC)


When a Statute provides for a particular period of limitation, it has to be scrupulously applied, as an unlimited limitation leads to a sense of uncertainty

The Coram of Justice R.K. Agrawal (President) and Dr S.M. Kantikar (Member) expressed that, when a Statute provides for a particular period of limitation, it has to be scrupulously applied, as an unlimited limitation leads to a sense of uncertainty.

Read full report here…

Will Tax deducted at source be attracted on compensation awarded under Consumer Protection Act “in the form of simple interest”?

The Coram of Dinesh Singh (Presiding Member) and Justice Karuna Nand Bajpayee (Member) expressed that in the ‘service’ of ‘housing construction’, if, in a particular case, “compensation” is computed “by way of interest” on the deposited amount it shall not be differently treated than the other cases in which the term “interest” may not at all be used in computing the compensation.

Read full report here…

If a person conceals facts about pre-existing fatal disease at the time of taking insurance, would it be a breach of insurance contract?

The Coram of Dinesh Singh (Presiding Member) and Karuna Nand Bajpayee (Member) upheld the decision of the District Commission with respect to concealment of pre-existing fatal diseases at the time of taking insurance.

Read full report here…

Consensus between dentists and patients essential to standardize treatment plans and methods: No X-ray conducted prior to performing root canal treatment: Read how NCDRC found dentist negligent

Expressing that, the consensus between the dentists and patients is essential to standardize treatment plans and methods, Coram of Justice R.K. Agrawal (President) and Dr S.M. Kantikar (Member) addressed a case of dental negligence and remarked that,

“The teeth are only part of the face and it cannot be simply concluded that the whole face will become more beautiful once the teeth become neat.”

Read full report here…


National Company Law Tribunal (NCLT)


Whether Shareholders have the right to remove Directors of a company? NCLT explains in light of Companies Act, 2013

Expressing that the management of business affairs in a company is not a sole duty of a Director, the results of a company’s performance is a team of work of Board of Directors, the Coram of Ashok Kumar Borah, Judicial Member and Shyam Babu Gautam, Technical Member, held that, Companies Act gives shareholders the right to remove the Directors of the company.

Read full report here…

National Company Law Tribunal orders insolvency proceedings against Supertech: Indebted and defaulted repayment of loan

The Coram of P.N. Prasad, Judicial Member and Rahul Bhatnagar, Technical Member, declared insolvency proceedings against the builder Supertech Limited.

Read full report here…

Logix Insolvent? NCLT initiates insolvency proceedings against Logix City Developers

The Coram of Bachu Venkat Balaram Das (Judicial Member) and Narender Kumar Bhola (Technical Member) initiates insolvency proceedings against Logix City Developers due to default in payment.

Read full report here…


National Company Law Appellate Tribunal (NCLAT)


Reduction of Capital’ is a ‘Domestic Affair’ of a particular company in which, ordinary, a Tribunal will not interfere because of the reason that it is a ‘majority decision’ which prevails

“A ‘special resolution’ is required to determine those matters for which the Act requires a ‘special resolution’ and except these matters in all other situations an ‘Ordinary Resolution’ is to be passed.”

Read full report here…


National Green Tribunal (NGT)


Unregulated tourism activities resulting in damage to environment in eco-sensitive Himalayan States of India: NGT takes suo motu cognizance

The Coram of Justice Adarsh Kumar Goel (Chairperson) and Justice Sudhir Agarwal (Judicial Member), Prof. A. Senthil Vel (Expert Member) and Dr Vijay Kulkarni (Expert Member) took suo moto cognizance based on media report highlighting the damage to the environment in eco-sensitive Himalayan States of India due to unregulated tourism.

Read full report here…


Securities Exchange Board of India (SEBI)


Can SEBI proceed against a Chartered Accountant for lack of due diligence? SAT analyses

The Coram of Justice Tarun Agarwala (Presiding Officer) and Justice M.T. Joshi (Judicial Member) while addressing a matter whether a Chartered Accountant could be held guilty by SEBI for lack of due diligence, held that,

Lack of due diligence can only lead to professional negligence which would amount to a misconduct which could be taken up only by ICAI.


Uttar Pradesh Real Estate Appellate Tribunal


Developer issued two allotment letters, increasing cost of a unit in second by correcting taxes, lease rent and advance maintenance charges: Read whether UPRERA finds it to be illegal

The Division Bench of Justice Dr D.K. Arora (Chairman) and Rajiv Misra (Administrative Member) set aside the decision of the Regulatory Authority and held that the developer did not conceal the details of the project including the status of the same.

Read full report here…


West Bengal Taxation Tribunal


Can States levy ‘Entry Tax’?

The Coram of Justice Malay Marut Banerjee (Chairman) and Suranjan Kundu (Judicial Member) and Chanchalmal Bachhawat (Technical Member), expressed that, Article 304(a) frowns upon discrimination (of a hostile nature in the protectionist sense) and not on mere differentiation.

Read full report here…

NCLAT
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal, New Delhi (NCLAT): The Coram of Justice Venugopal. M, Judicial Member and Kanthi Narahari, Technical Member, held that ‘Reduction of Capital’ is a ‘Domestic Affair’ of a particular company in which, ordinary, a Tribunal will not interfere because of the reason that it is a ‘majority decision’ which prevails.

The present Company Appeal was focused on being dissatisfied with the order of the National Company Law Tribunal in rejecting the petition filed under Section 66(1)(b) of the Companies Act, 2013 and granting liberty to file a fresh application.

The reason for the filing the company petition by the appellant was seeking an order confirming the reduction of share capital.

The appellant/company had sought relief to confirm the reduction of issued, subscribed and paid-up equity share capital of the petitioner company (appellant) as resolved by the Members in the Annual General Meeting by passing the special resolution.

Further, the pre-mordial plea of the appellant was that the NCLT had failed to appreciate the creeping in of an ‘inadvertent typographical error’ figuring in the extract of the Minutes of the Meeting characterizing the special resolution as a unanimous ordinary resolution. Moreover, the appellant had fulfilled all the statutory requirements of its own ‘Articles of Association’ which had resulted in the dismissal of the petition seeking approval of ‘Reduction of Share Capital’.

On behalf of the Respondents, it was represented that the members of the Appellant/Company at the ‘Annual General Meeting’ that took place among other things resolved that pursuant to Section 66 of the Companies Act, 2013 and subject to other requisite approvals, the paid-up share capital of the Company would reduce from its present level of Rs 67,47,90,000/- to Rs 4,90,00,000/-.

Analysis and Decision

The Resolution passed in the ‘Annual general Meeting’ of the appellant’s company under Section 66 of the Companies Act was found to be in order by the respondents. Registrar of Companies, Delhi found that the appellant had filed the said resolution keeping in tune with the ingredients of Section 66 of the Companies Act, 2013.

‘Reduction of Capital’ is a ‘Domestic Affair’ of a particular company in which, ordinary, a Tribunal will not interfere because of the reason that it is a ‘majority decision’ which prevails.

A ‘special resolution’ is required to determine those matters for which the Act requires a ‘special resolution’ and except these matters in all other situations an ‘Ordinary Resolution’ is to be passed.

Conclusion

Tribunal after subjectively satisfying itself that the appellant has tacitly admitted its creeping in of typographical error in the extract of the minutes and also taking into consideration of 1st respondent’s stand that the appellant had filed the special resolutions with it, which satisfied the requirement of Section 66 of the Companies Act, 2013 and allows the appeal by setting aside the impugned order passed by the NCLT, thereby confirming the reduction of share capital of the appellant.[Economy Hotels India Service (P) Ltd. v. Registrar of Companies, 2020 SCC OnLine NCLAT 653, decided on 24-8-2020]


Advocates before the Tribunal:

For Appellant: Mr. Sujoy Dutta, Mr. Satvinder Singh, Mr. NPS Chawla and Mr. Surek Kant Baxy, Advocates

For Respondent: Mr. P S Singh, Advocate for ROC, Ms. Chetna Kandtal, Company Prosecutor for R1 and R2

Legal RoundUpTribunals/Regulatory Bodies/Commissions Monthly Roundup

Appellate Tribunal for Electricity (APTEL)


State commission disallows benefit of increase in the tariff based on the change in law provision; Tribunal directs reconsideration

A Coram of R.K. Gauba (Officiating Chairperson) and Sandesh Kumar Sharma (Technical Member) decided on an appeal which was filed by Solar Power Project Developer (“SPD”) assailing order passed by respondent Bihar Electricity Regulatory Commission (“the State Commission”) disallowing the benefit of increase in the tariff based on the change in law provision with respect to increased Operation and Maintenance (O&M) costs of its 10MW solar power generating system.

Read full report, here…


 Customs, Excise and Service Tax Appellate Tribunal (CESTAT)


Whether Membership Subscription Charges, which is an essential service for business promotion, will be eligible for CENVAT Credit? CESTAT explains

While taking into consideration various of kinds of charges and whether they would qualify to be eligible for CENVAT Credit, P. Dinesha (Judicial Member) held that Membership Subscription charges are essential for business promotion and hence eligible for refund claim.

Read full report, here…

Unless 7.5% of the penalty is deposited when the penalty is in dispute, the appeal cannot be entertained by the Tribunal

The Coram of Sulekha Beevi, C.S. (Judicial Member) and P. Anjani Kumar (Technical Member) decided on an appeal which was filed in the matter of non-compliance with the pre-deposit.

Read full report, here…

Whether the services provided by CRS companies to the appellant can be subjected to levy of service tax under the OIDAR services? CESTAT addresses

The Coram of Dilip Gupta (President) and P.V. Subba Rao (Technical Member) took up an appeal which was filed by Air India to assail that part of the order by which the demand of service tax of Rs. 37,58,23,581/- has been confirmed against the total amount of service tax that was proposed in the show cause notice. It was for the reason that there was no liability pay service tax prior to 18-04-2006. The Commissioner had also ordered for recovery of interest under section 75 of the Finance Act, 1994 and penalty under Sections 76, 77 and 78 of the Finance Act.

Read full report, here…


National Consumer Disputes Redressal Commission (NCDRC)


 Can flat owners be prevented from use of certain open spaces and facilities by builders? NCDRC answers

While noting whether the flat owners can be prevented from the use of certain common spaces, the Coram of Justice R.K. Agarwal (President) held that under the provisions of the Maharashtra Apartment Ownership Act 1970 and even Maharashtra Ownership Flats (Regulation of the promotion of construction, sale management and transfer) Act, 1963, a Society had to be formed by the builder and the entire building premises including the open space in question was to be transferred to the Society or a legal body for its maintenance and further, as per Section 6 of the MAOA 1970, each flat owner is entitled to an undivided interest in the common areas and the facilities.

Read full report, here…

Can doctors alleged of medical negligence be exempted from legal proceedings as they are busy and conscious about their duties towards patients? NCDRC answers in a transfer application

The Coram of Dr S.M. Kantikar (Presiding Member) and Binoy Kumar (Member) while allowing an application for transfer expressed that,

“…it is true that the doctors are busy and conscious about their duties towards the patient, but they are not exempted from the legal proceedings and duty bound to attend the court proceedings (physical or virtual mode) either through their Counsel or on their own.”

Read full report, here…

Patient developed serious complications after being operated which were promptly treated by doctors, yet she died. Would this amount to ‘medical negligence’? NCDRC analyses

The Coram of Justice R.K. Agarwal (President) and Dr S.M. Kantikar (Member) analyses a matter wherein a patient developed serious issues after being operated, which led to her death, hence the doctors/hospital were alleged for medical negligence.

Read full report, here…

Homebuyer invests his hard-earned money to get legal possession of flat, yet gets subjected to a 6-year delay: Read how NCDRC provided relief to consumer

While addressing a case wherein there was a delay of 6 years in handing over the possession to the buyer, the Coram of Dr S.M. Kantikar (Presiding Member) and Binoy Kumar, Member, held that in view of catena of Supreme Court decisions on the said issue, the buyer was entitled to get legal possession along with compensation.

Read full report, here…

Builder took money from homebuyer for formation of Co-operative Housing Society, but never formed so: Read why the homebuyer approached Commission

The Coram of R.K. Agrawal (President) and Dr S.M. Kantikar (Member) addressed a matter wherein the builder took money from the purchaser for the formation of a co-operative housing society but failed to do so and when asked for the refund, he did not return the money as well.

Read full report, here…


National Company Law Tribunal (NCLT)


Operational Creditor is under obligation to recover money from its client and not agent: NCLT decides while dismissing a petition filed under S. 9 IBC

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.

Read full report, here…

In case of an application being filed under S.7 of IBC, will insufficiency of stamp duty be looked into? NCLT decides

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.”

Read full report, here…

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“…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.”

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National Company Law Appellate Tribunal (NCLAT)


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Can application filed under S. 95(1) read with S. 60(1) IBC be rejected on ground that no Corporate Insolvency Resolution Process was pending against Corporate Debtor? NCLAT addresses

If CIRP or Liquidation Proceeding of a Corporate Debtor is pending before an NCLT, application relating to Insolvency Process of Corporate or Personal Guarantor should be filed before same NCLT.

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NCLAT
Case BriefsTribunals/Commissions/Regulatory Bodies

 If CIRP or Liquidation Proceeding of a Corporate Debtor is pending before a NCLT, application relating to Insolvency Process of Corporate or Personal Guarantor should be filed before same NCLT.

National Company Law Appellate Tribunal, New Delhi (NCLAT): The Coram of Justice Ashok Bhushan (Chairperson) and Dr Alok Srivastava (Technical Member) expressed that, Application having been filed under Section 95(1) and the Adjudicating Authority for application under Section 95(1) as referred in Section 60(1) being the NCLT, the Application filed will be maintainable and cannot be rejected on the ground that no CIRP or Liquidation Proceedings were pending before the NCLT.

“…when a CIRP or Liquidation Proceeding of a Corporate Debtor is pending before ‘a’ NCLT the application relating to Insolvency Process of a Corporate Guarantor or Personal Guarantor should be filed before the same NCLT.”

An appeal was filed against the order of the National Company Law Tribunal, Kolkata. The State Bank of India had filed an application under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 to seek initiation of Corporate Insolvency and Resolution Process against the Guarantor. The said application was rejected by the Adjudicating Authority as premature.

Appellant’s Counsel submitted that NCLT did not correctly interpret Section 60(2) of the Code and the application was fully maintainable under Section 60(1) of the Code despite there being no pendency of any Corporate Insolvency Resolution Process in NCLT.

Let’s have a look at Section 60 (2) and (2) of the IBC:

Section 60: Adjudicating Authority for corporate persons.

*60.(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.

(2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or[liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of such corporate debtor] shall be filed before such National Company Law Tribunal.

Section 60(2) of the IBC does not in any way prohibit filing of proceedings under Section 95 of the Code even if no proceeding are pending before the NCLT.

“…Section 60(2) was applicable only when a CIRP or Liquidation Proceeding of a Corporate Debtor is pending before NCLT.”

Coram added that Section 60(2) is applicable only when CIRP or Liquidation Proceeding of a Corporate Debtor is pending, when CIRP or Liquidation Proceeding are not pending with regard to the Corporate Debtor there is no applicability of Section 60(2).

Further, it was elaborated that Section 60(1) provides that Adjudicating Authority in relation to Insolvency or Liquidation for Corporate Debtor including Corporate Guarantor or Personal Guarantor shall be the NCLT having territorial jurisdiction over the place where the Registered Office of the Corporate Person was located.

“…substantive provision for an Adjudicating Authority is Section 60, sub-Section (1), when a particular case is not covered under Section 60(2) the Application as referred to in sub-section (1) of Section 60 can be very well filed in the NCLT having territorial jurisdiction over the place where the Registered Office of corporate Person is located.”

Hence, in the present matter, the Adjudicating Authority erred in holding that since no CIRP or Liquidation Proceeding of the Corporate Debtor were pending the application under Section 95(1) was not maintainable.

“…Application having been filed under Section 95(1) and the Adjudicating Authority for application under Section 95(1) as referred in Section 60(1) being the NCLT, the Application filed by the Appellant was fully maintainable and could not have been rejected only on the ground that no CIRP or Liquidation Proceeding of the Corporate Debtor are pending before the NCLT.”

[SBI v. Mahendra Kumar Jajodia, 2022 SCC OnLine NCLAT 58, decided on 27-1-2022]


Advocates before the tribunal:

For Appellant: Malvika Trivedi, Sr. Advocate with Mr. Akash Tandon, Mr. Ashish Chudhury, Santosh Kumar, Bhargavi Kannar, Akanksha Tripathi, Rituparna Sanyal, Mansi Chaudhary, Advocates

For Respondent: Advocate Supriyo Gole