insightInsolvency Code · 2018-10-01 · 8 Synergies Dooray Auto Component 972 55 8 5.63 9 Sharon Bio Med Pharma 891 294 181 32.99 10 Shirdi Industries Plastics 674 176 103 26.16

Operational Creditor – Suffering Class Once AdmittedUnlike the Companies Act 2013, IBC has classified creditors into financial

and operational creditors.

According to the section 5(7) of the IBC, a financial creditor means any

person to whom a financial debt is owed and indicates a person to whom

such debt has been legally assigned or transferred.

Section 5(20) of the IBC defines operational creditor as a person to whom

an operational debt is owed and includes any person to whom such debt

has been legally assigned or transferred.

This Issue

01

Operational Creditor – Suffering Class Once Admitted

03

Revisiting the Code

07

Selected Judgements

11

Latest Amendments to the Insolvency and Bankruptcy Code, 2016

+91 33 [email protected]

Please refer to important disclosures at the end of this report

insightInsolvency Code Volume 2, September 2018

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Insolvency Code Insight | Volume II

2

Operational Creditors are worse off

Operational Creditors’ claim

Insolvency proceedings

Financial creditors can initiate the insolvency process even the debt is disputed one;

Operational creditors cannot initiate the process in case of a disputed debt. For operational creditors to initiate a resolution process, it must satisfy the NCLT with respect to certain documentation;

If the corporate debtor does not admit the obligation, there is a chance that the case may not be accepted.

Committee of creditors

Section 21(2) of the IBC explains that the Committee of Creditors (CoC) shall comprise of all financial creditors of the corporate debtor. That means, all decisions including acceptance of resolution plans, liquidation etc. will be taken by a committee where financial creditors are the only representatives;

However, Section 24(3) states that an operational creditor can participate in the meeting of CoCs, if the amount of their aggregate dues is not less than 10% of the debt.

Liquidation waterfall

Section 53 of the Code deals with distribution of assets sale proceeds along with liquidation waterfall. Here also, secured financial creditors have the priority over operational creditors, who are considered as unsecured creditors.

In majority of the cases, the loan of the financial creditors are secured in nature. Therefore, their dues would be recovered first along with the workmen’s due. As the haircut is expected to be very high, the operational creditors would hardly get their dues in the corporate insolvency resolution process.

These operational creditors are small business entities, mainly SMEs, and create huge employment for the society. If they do not get their outstanding, they may be defaulters to the banks again. Additionally, on their closure, there would be job loss and the losers would be people living at the bottom of the pyramid.

Company Operational Creditors’ claim (INR Crore)

Admitted Claim (INR Crore)

No. of Operational Creditors

Average Claim per Operational Creditor (INR Crore)

Bhushan Steel 2547 1212 798 3.19Lanco Infra 8800 3117 1252 7.03Essar Steel 23087 2541 1757 13.14Bhushan Power 779 621 683 1.14Alok Industries 659 544 946 0.70Amtek Auto 223.8 223.8 589 0.38Monnet Ispat 8 8 25 0.32Electrosteel Steels 1688 783 441 3.83Jaypee Infratech 463 463 9 51.44ABG Shipyard 36.4 36.4 192 0.19

Source: Individual Companies, IBBI, Sumedha Fiscal


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Admitted Cases

Closed by Liquidation

Closed by Resolution

Voluntary Liquidation

IPs Registered with IPA^

CIRP Initiated by^ Resolution vs Liquidation^

IPs Registration Trend

Closed by^

Revisiting the code

37 129

231

145

194

977

241

180

0 0 2

8

13 34

11

12

0 0 824

57136

47

66

0 13

38

56

66

214

41

43

91

34

136

1147

153

583

381

447

14934

136

1147

76463933

153

11797

51

583

443

371

12

Total as on 15 Sep 2018: 1157 Total as on 15 Sep 2018: 46

Total as on 15 Sep 2018: 257Total as on 15 Sep 2018: 202

*As on 15 Sep 2018

^ As on 1Q FY 2018

0

200

400

600

800

1000

1200

4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19*

0

5

10

15

20

25

30

35

40

45

50


0

50

100

150

200

250

4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19* 0

50

100

150

200

250

300


Appeal/ Review Resolution LiquidationFinancial Creditor Operational Creditor

Corporate DebtorResolution Liquidation

ICAI (CA) ICAI (Cost Accountants) ICSA (CS)0

400

800

1200

1600

2000

June 18Dec 17Sep 17Mar 17

ICAI (CA) ICAI (Cost Accountants) ICSA (CS)Source: IBBI



4

Resolutions Till 1Q FY2019, a total 34 cases were closed by approval of resolution plan as against 136 cases were closed by

commencement of liquidation, i.e. a resolution to liquidation ratio of 1:4.

On a cumulative basis, the financial creditors could recover 55.5% of their claim from these 34 resolution cases. In 47% cases, the recovery rate is less than 50% with 5.63% being the lowest.

Out of total admitted claim of INR 86,160 Crores by financial creditors in these 34 resolution cases, seven steel companies account of 84% of the exposure. The cumulative recovery rate in steel sector is also high.

BIFR vs Non BIFR Cases*

Operational Creditors Financial Creditors

Corporate Debtors

Engineering

Steel

Auto Compoent

Infrastructure

Hotels

Others

Triggered by Resolution by sectors

10

15

9

5

7

2

32

15

BIFR Non BIFR

Top Resolution Cases

A 100% or higher realization by the Financial Creditors

Sl. No.

Name of Corporate Debtor

Industries Total Admitted Claims of FCs (INR Crore)

Realisation by FCs (INR Crore)

Liquidation Value (INR Crore)

Realisation by FCs as % of their Claims Admitted

1 Bhushan Steel Steel 56022 35571 14541 63.492 Electrosteel Steels Steel 13175 5320 2900 40.383 Orissa Manganese Mining 5389 310 301 5.754 Kohinoor CTNL Infra Infrastructure 2528 2246 330 88.83##5 Kamineni Steel Steel 1509 600 760 39.766 MBL Infra Infrastructure 1428 1597 270 111.83^^7 Sree Metalic Steel 1287 607 283 47.188 Synergies Dooray Auto Component 972 55 8 5.639 Sharon Bio Med Pharma 891 294 181 32.99

10 Shirdi Industries Plastics 674 176 103 26.16Total 83876 46777 19677 55.77

Sl. No.

Name of Corporate Debtor

Industries Total Admitted Claims of FCs (INR Crore)

Realisation by FCs (INR Crore)

Liquidation Value (INR Crore)

Realisation by FCs as % of their Claims Admitted

1 MBL Infra Infrastructure 1428 1597 270 112^^2 Burn Standard Engineering 59 65 593 1113 Radha Raman Packaging Packaging 1 1 3 1074 Forward Shoes Footwear 121 121 80 1005 Nutri First Agro Agri-Business 14 14 10 1006 Prowess International Engineering 3 3 NC 1007 Propel Valves Engineering 2 2 0 1008 Master Shipyard Ship-Building 0 0 4 1009 Trinity Auto Auto Component 17 17 21 100

^^ For MBL Infra the bank loans will be repaid over a period of nine years## Upfront payment is very small compared to the total realization; balance will be paid will 11% interest after a two-year moratorium on interest repayment. Source: IBBI



Liquidations From the first few closed cases, it is clearly seen that liquidation has dominated over resolution. From the 170

cases closed as on June 30, 2018, as many as 136 cases ended up with the commencement of liquidation as against only 34 cases closed with resolution plan.

Source: IBBI

49

87

37%

23%

40%

BIFR Non BIFR Operational Creditors Either in BIFR or Non-functional or bothResolution Value ≤ Liquidation ValueResolution Value >Liquidation Value

Financial CreditorsCorporate Debtors

*BIFR Cases - that transferred to NCLT after the scrapping of the BIFR

Progress

Large accounts with low liquidation value

0

5

10

15

20

25

Jul 17 Sep 17 Nov 17 Jan 18 Mar 18 May 18

0 2000 4000 6000 8000 10000 12000

Rei Agro

Gujarat NRE

Roo�t Industries

Rotomac Global

Gupta Corp

JODPL

Gupta Coal

Rotomac Exports

Cethar Ltd.

Innoventive

Top 10 companies under liquidation

0%

5%

10%

15%

20%

0

4000

8000

12000

Default (INR crore) Recovery Rate

0

20

40

60

80

100

120

Default (INR Crore) Liquidation Value (INR Crore)

Few small accounts with a very high liquidation value

BIFR vs Non BIFR Cases* Triggered by Distribution of Corporate Debtors Ending up with Liquidation

Total Claims Admitted (INR Crore)Month wise liquidation orders



6

Status of Large Cases

Exposure of Banks and Financial Institutions

Company Sector Default Amount INR Crore

Haircut/ Expected Haircut*

Lead Bank Admission Date

NCLT Bench Status

Bhushan Steel Metals 44480 37% SBI 26-Jul-17 Delhi Ended with ResolutionLanco Infra EPC 44370 75% DBI 07-Aug-17 Hyderabad Ordered liquidation proceedingsEssar Steel Metals 37280 15% SBI/SCB 02-Aug-17 Ahmedabad Completed 2nd round of biddingBhushan Power Metals 37250 60% PNB 26-Jul-17 Delhi At an advanced stageAlok Industries Textile 22080 60% SBI 18-Jul-17 Ahmedabad JM ARC and RIL bid - acceptedAmtek Auto Auto Com. 12300 67% Corp. Bank 24-Jul-17 Chandigarh Ended with ResolutionMonnet Ispat Metals 12120 72% SBI 18-Jul-17 Mumbai Ended with ResolutionElectrosteel Steels Metals 10270 60% SBI 21-Jul-17 Kolkata Ended with ResolutionJaypee Infratech EPC 9640 25% IDBI 09-Aug-17 Allahabad Back to NCLT for fresh resolutionABG Shipyard Shipping 6950 80% ICICI Bank 01-Aug-17 Ahmedabad Progressing, Liberty House – sole bidderJyoti Structures EPC 5170 85% SBI 04-Jul-17 Mumbai Interim stay on liquidation by NCLATEra Infra EPC 10070 80% Union Bank 08-May-18 New Delhi Admitted in May 2018

*Source: Companies, IBBI, Media Report, Sumedha Fiscal

Source: Individual Companies, Sumedha Fiscal

INR Billion Company SBI (Incl.

group)ALBK ANDHRA BoB BoI Maha

BankCan Bank

Central Bank

Corp. Bank

Dena Bank

Bhushan Steel 134 19 9 16 24 12 29 12 9 6Lanco Infra 18 9 30 13 18 5 28 17 7 7Essar Steel 137 4 13 20 39 6 17Bhushan Power 98 22 13 23 25 12 23 19 4 6Alok Industries 106 1 1 9 8 4 10 13 5 8Amtek Auto 11 3 7 5 2 3 6 1 9 1Monnet Ispat 23 0 0 3 3 2 3 1 1 4Electrosteel Steels 51 4 2 2 3 2 7 2 2 2Jaypee Infratech 8 4 7ABG Shipyard 27 2 12 7 0 0 3

Company Indian Bank

IOB OBC PNB PSB IDBI Syndi-cate

UCO Union Bank

United Bank

Bhushan Steel 9 10 16 49 7 17 18 11 16 8Lanco Infra 1 26 10 30 6 36 7 6 13Essar Steel 1 30 52 10 6 22Bhushan Power 9 18 20 45 3 12 18 10 18 10Alok Industries 4 5 6 9 13 5 2 6 9Amtek Auto 1 5 1 1 17 1 1 2 1Monnet Ispat 3 5 4 5 7 2 4 4 3Electrosteel Steels 2 6 6 9 2 2 7 4 4Jaypee Infratech 43 4 3ABG Shipyard 0 9 6 11 0 26 4

Company Vijaya Bank

LIC AXIS EXIM ICICI IFCI J&K Yes Bank

Others FC’s Total Claims Filed

Bhushan Steel 4 16 19 6 24 4 8 3 45 561Lanco Infra 3 15 28 4 74 3 1 41 453Essar Steel 1 6 25 6 156 549Bhushan Power 7 12 9 7 6 4 20 472Alok Industries 3 8 17 6 7 7 27 297Amtek Auto 0 10 0 1 2 5 33 129Monnet Ispat 2 3 1 1 4 3 1 1 9 103Electrosteel Steels 3 2 1 1 12 136Jaypee Infratech 8 2 3 3 2 2 11 100ABG Shipyard 1 9 49 2 0 182



Selected Judgements

This case revolved around whether Section 14 of the Insolvency and Bankruptcy Code, 2016, which provides for a moratorium for the limited period mentioned in the Code, on admission of an insolvency petition, would apply to a personal guarantor of a corporate debtor.

The Supreme Court has held that Section 14 of the Insolvency and Bankruptcy Code, 2016, which provides for a moratorium for the limited period mentioned in the Code, on admission of an insolvency petition, would not apply to a personal guarantor of a corporate Debtor disagreeing with the views of NCLT and NCLAT.

State Bank of India Vs V. Ramakrishnan & ANR (Supreme Court, August,2018)Moratorium Shall not be applicable to Personal guarantors of the corporate debtor

Pr. Commissioner of Income tax (Petitioner) filed case against Monnet Ispat and Energy Limited (Respondent) on impugned judgement on IA. Supreme Court held that given Section 238 of the Insolvency and Bankruptcy Code, 2016, it is obvious that the Code will override anything inconsistent contained in any other enactment, including the Income Tax Act and its progeny, making it clear that income-tax dues, being in the nature of Crown debts, do not take precedence even over secured creditors, who are private persons. As such, the precedence of dues how orders secured creditors sets clarified.

Pr. Commissioner of Income Tax Vs Monnet Ispat and Energy Ltd. (Supreme Court, August,2018)Provision of the code will prevail over the Income Tax Act, 1961

This appeal dealt with the Supreme Court’s decision on the subject in K. Kishan v. M/S Vijay Nirman Company Pvt. Ltd., which held that a dispute under section 9 of the Insolvency and Bankruptcy Code would include within its scope a challenge to an arbitral award under section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”)

Filing of Section 34 (Arbitration) petition against an arbitral award shows a pre-existing dispute which culminates at the first stage of the proceedings in an award and continues even after the award, at least till the final adjudicatory process under Sections 34 and 37 of the Arbitration Act has taken place. Hon’ble Supreme Court also dealt with different situation under which an appeal u/s.34 of Arbitration Act and its consequence under the Code as hereunder:

a) Where a Section 34 petition challenging an arbitral award may clearly and unequivocally be barred by limitation, in that it can be demonstrated to the court that the period of 90 days plus the discretionary period of 30 days has clearly expired, after which either no petition under Section 34 has been filed or a belated petition under Section 34 has been filed. It is only in such clear cases that the insolvency process under the Code may then be put into operation.

b) In cases where a Section 34 petition may have been instituted in the wrong court, as a result of which the petitioner may claim the application of Section 14 of the Limitation Act to get over the bar of limitation laid down in Section 34(3) of the Arbitration Act, the insolvency process under the Code cannot be put into operation without an adjudication on the applicability of Section 14 of the Limitation Act.

Further, the bench disagreed with the view of NCLAT that Section 238 of the Code overrides Arbitration Act. It said Section 238 of the Code would apply in case there is an inconsistency between the Code and the Arbitration Act. In the present case, no such inconsistency is observed. On the contrary, the Award passed under the Arbitration Act together with the steps taken for its challenge would only make it clear that the operational debt, in the present case, happens to be a disputed one.

K. Kishan Vs Vijay Nirman Company Pvt. Ltd. (Supreme Court, August,2018)The code cannot be invoked in respect of an operational debt where

an arbitral award has been passed against the Debtor

The Telangana and Andhra Pradesh High Court held that despite any prior attachment of assets of a corporate debtor, no priority will be given to such a right of the creditor in liquidation proceedings under IBC.

Leo Edibles & Fats Limited Vs The Tax Recovery (High Court, July,2018)Any Corporate Debtor in liquidation under the IBC, the Income-tax Department can no longer

claim a priority in respect of clearance of tax dues of the said company



8

If anybody submitted Resolution Plan prior to 23.11.2017 on which Sec. 29A came into force & if covered by clause (c) of Sec. 29A whether they are entitled to get benefit of second provision to Sec. 30 (4)-NCLAT in the matter of Numetal Limited Vs. Satish Kumar Gupta. There is no provision to submit ‘Expression of Interest’ prior to ‘Resolution Plan’ under IB Code. The invitation of ‘Expression of Interest’ to submit a ‘Resolution Plan’ for ‘Essar Steel Limited’ was published on 6th October, 2017 was the first stage of ‘Resolution Plan’. Therefore, clearly ‘Expression of Interest’ is one of the part of the ‘Resolution Plan’, which follows the ‘Resolution Plan’. In such case, the date of submission of the ‘Expression of Interest’ should be treated to be the date of submission of the ‘Resolution Plan’.

Further whether the AM Netherlands was eligible, after having transferred its entire shareholding of ‘Uttam Galva’ on 7th February, 2018 and by transferring of its entire shareholding of ‘Fraseli’ in ‘KSS Global’ on 9th February, 2018 i.e. two to four days prior to the submission of ‘Expression of Interest’ (first phase of ‘Resolution Plan’). Provision to clause (c) of Section 29A makes it clear that the person shall be eligible to submit a ‘Resolution Plan’ if such person makes payment of all overdue amounts with interest thereon and charges relating to non-performing asset accounts before submission of ‘Resolution Plan’. It does not stipulate any other mode to become eligible and thereby does not prescribe any other mode to become ineligible, including by selling the shares thereby existing as a member of the Company whose account has been classified as non-performing asset accounts in accordance with the guidelines of the Reserve Bank of India.

Second provision to sub-section (4) of Section 30 & Proviso to clause (c) of Section 29A, from both the provisions, it is clear that except in the manner the ‘Resolution Applicants’ can make it eligible and get rid of ineligibility under clause (c) of Section 29A that is by making payment of all overdue amounts in accordance with the provision to clause (c) of Section 29A, no other manner a person, who is otherwise ineligible under clause (c) of Section 29A, can become eligible. There is no provision in the IBC which permits an ineligible person to become eligible by selling or transferring its shares of the Company whose accounts have been declared as NPA in accordance with the guidelines of Reserve Bank of India.

Numetal Limited Vs Satish Kumar Gupta (NCLAT, September, 2018)

Submission of Resolution Plan prior on 23.11.2017 on which to the Sec. 29A came into force & if covered by clause (c) of Sec. 29A are entitled to derive benefit of second provision to Sec. 30(4)

Two appeals preferred by ‘Export Import Bank of India’ (hereinafter referred to as ‘EXIM Bank’) relates to Corporate Insolvency Resolution Process initiated against ‘JEKPL Private Limited’, whereas appeal preferred by ‘Axis Bank Limited’ relates to Corporate Insolvency Resolution Process against ‘Edu Smart Services Private Limited’. However, as the question of law is common, they were heard together and are decided by this common judgment.

EXIM Bank Vs. Resolution Professional, JEKPL Private LimitedThe EXIM Bank disbursed Dollar Loan to the tune of US$ 50 Million to a Netherland based company, namely, Jubilant Energy N.V., (‘JENV’) (Principal Borrower) for which ‘Corporate Guarantee’ was executed by the Jubilant Enpro Private Limited (‘JEPL’) in favour of the EXIM Bank. Contractual obligation of ‘JEPL’ (Corporate Guarantor) was further secured by the execution of ‘Corporate Guarantor Guarantee’ with ‘Counter Corporate Guarantee’ by JEKPL (Corporate Debtor) in favour of the EXIM Bank. The EXIM Bank invoked its ‘Counter Corporate Guarantee’ which led to the present dispute and its claim to treat it as a ‘Financial Creditor’ has not been accepted by the Resolution Professional. The EXIM Bank declared the amount of loan advanced to Principal Borrower (JENV, Netherlands) as NPA.

Export Import Bank of India Vs RP JEKPL Private Limited (NCLAT, August, 2018)

Counter Corporate Guarantee given by Corporate Debtor amounts to Guarantee, if jointly and severally liable

High Court held that the Income-tax Department cannot claim any priority merely because of the fact that the order of attachment issued by him was long prior to the initiation of liquidation proceedings under the IBC against the Corporate Debtor. In so far as liquidation of a company under the IBC is concerned, Section 178 of Income Tax Act, 1961 stands excluded by virtue of the amendment of Section 178(6) with effect from 01.11.2016, in accordance with the provisions of Section 247 of the IBC read with the Third Schedule appended thereto. Therefore, in the event an assessee company is in liquidation under the IBC, the Income-tax Department can no longer claim a priority in respect of clearance of tax dues of the said company, as provided under Sections 178(2) and (3) of the Income Tax Act, 1961. In the context of liquidation of an assessee company under the provisions of the IBC, the Income-tax Department, not being a secured creditor, must necessarily take recourse to distribution of the liquidation assets as per Section 53 of the IBC. Section 53(1) provides the order of priority for such distribution and any amount due to the Central Government and the State Government comes fifth in the order of priority under Clause (e) thereof.



This appeal has been preferred by ‘Fernas Construction India Pvt. Ltd.’- (‘Corporate Debtor’) against the order dated 9th July, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench- III, whereby and whereunder, the application preferred by the Respondent- ‘RVR Projects Pvt. Ltd.’- (‘Operational Creditor’) has been admitted, order of ‘Moratorium’ has been passed and the name of ‘Resolution Professional’ has been called for. The main plea of Fernace Construction was that the application under Section 9 of the IBC was time barred, having filed after more than three years, the cause of action having taken place on 9th May, 2012 and they also submitted that no ground of delay or laches was shown by RVR Projects in preferring the application under Section 9. However, RVR submits that the application was not time barred as the last payment was made by the ‘Corporate Debtor’ in the year 2013 and thereafter, correspondence was going on for the payment of amount which can be shown if time is allowed to file reply affidavit.

However, NCLAT was not inclined to decide whether there is a delay in preferring the application under Section 9 or not in view of the fact that the present appeal under Section 61 by the ‘Corporate Debtor’ is not maintainable as per the decision of the Hon’ble Supreme Court in “Innoventive Industries Ltd. Vs ICICI Bank. Further, NCLAT found that IBC came into force since 1st December, 2016, RVR accrued right to file application under Section 9 since 1st December, 2016 and the application having filed within three years, NCLAT hold that the application was within the period of limitation. Again Fernace submitted that Article 18 of the Limitation Act, 1963 will be applicable as the matter related to the ‘price of work done by the plaintiff for the defendant’. However, as the Article 18 is in Part 1 of the Limitation Act, 1963, will not be applicable in the present case which is not a ‘suit’ nor to be treated as a ‘recovery proceeding’ under the IBC. For both the aforesaid reasons of maintainability and on merit, no case has been made out. Therefore, NCLAT declined to interfere with the impugned order dated 9th June, 2018. The appeal was accordingly dismissed.

Fernas Construction India Private Limited Vs RVR Projects Private Limited (NCLAT, August, 2018)

Article 18 is in Part 1 of the Limitation Act, 1963, will not be applicable in case which is not a ‘suit’ nor to be treated as a ‘recovery proceeding’ under IBC

Therefore, the EXIM Bank recalled the loan facilities advanced to JENV. Consequently, it had invoked its ‘Corporate Guarantee’ as well as the ‘Counter Corporate Guarantee’ against the JEPL and JEKPL. Thus, according to EXIM Bank Principal Borrower having defaulted and the liability of Corporate Guarantee as ‘Counter Corporate Guarantee’ being joint and co-extensive with Principal Borrower, the EXIM Bank comes within the meaning of ‘Financial Creditor’ of JEKPL (Corporate Debtor), in terms of Section 5(7) r/w Section 5(8)(h) of I&B Code.

Axis Bank Limited vs. Edu Smart Services Private LimitedCounter-Indemnity Obligation in respect of a guarantee or indemnity or bond or documentary letter of credit is not necessarily to be issued by a bank or ‘financial institution’, but can be issued by any person to whom ‘Financial Debt’ is owed. Maturity of claim or default of claim or invocation of guarantee for claiming the amount has no nexus with filing of claim pursuant to public announcement made under Section 13(1)(b) r/w Section 15(1)(c) or for collating the claim under Section 18(1)(b) or for updating claim under Section 25(2)(e). For the purpose of collating information relating to assets, finances and operations of Corporate Debtor or financial position of the Corporate Debtor, including the liabilities as on the date of initiation of the Resolution Process as per Section 18(1), it is the duty of the Resolution Professional to collate all the claims and to verify the same from the records of assets and liabilities maintained by the Corporate Debtor.

When the participation of suspended director is not required for the CoC to take any call over the Resolution Plan pending before them, the applicant/director cannot press upon them to provide such confidential information. However, being a participant is not enough to get access to Confidential Documents as Reg. 35, which requires disclosure of fair value and liquidation value, stipulates that such information is to be provided only to members of the CoC and it was further noted that Reg. 39 requires the Resolution Plan to be submitted only to Members of the Committee. The Bench Members finally dismissed the application and in this appeal NCLAT has given order that suspended directors can be a part of COC meetings, but did not allow them any access to confidential documents since they think that the suspended board of directors cannot decide the viability and feasibility of a ‘Resolution Plan’ nor is competent to restructure their debt in order to make the Corporate Debtor as a going concern. It will be only in the domain of COC who are expert in the field to decide the viability, feasibility and financial matrix of one or other resolution plan by majority share of voting rights.

Vijay Kumar Jain Vs Standard Chartered Bank Limited (NCLAT, August, 2018)Suspended directors are entitled to get the confidential information or not-Ruchi Soya



10

In this appeal NCLAT on an application filed by Orissa Stevedores towards withdrawal u/s 12A to NCLT allowed the same and the case under section 9 was dismissed as withdrawn. NCLAT released Corporate Debtor i.e. Orissa Minerals Development Corporation Ltd from all the rigour of law and is allowed to function independently through its Board of Directors from immediate effect.

Prem Sagar Mishra Vs Orissa Stevedores Limited (NCLAT, August, 2018)

In this case NCLAT did not agree with the submission that section 138 is a penal provision which empowers the court of competent jurisdiction to pass order of imprisonment or fine which cannot be held to be proceeding or any judgement or decree of money claim. Imposition of fine cannot be held to be a money claim or recovery against the corporate debtor nor order of imprisonment, if passed by the court of competent jurisdiction on the directors, they cannot come within the purview of section 14. As such no criminal proceeding is covered under section 14 of IBC.

Shah Brothers Ispat Private Limited Vs P. Mohanraj (NCLAT, August, 2018)

Whether the order of moratorium will cover a criminal proceeding under section 138 of Negotiable Instrument Act, 1881

The Appellant SREI Infrastructure Finance Limited (Financial Creditor) filed an application under Section 60(5) of the Insolvency and Bankruptcy Code 2016 for direction to Resolution Professional of Deccan Chronical Holdings Limited (‘Corporate Debtor’) to allow the A`ppellant as a member of the Committee of Creditors and to participate and vote in the said meeting. . The Resolution Professional refused to allow the appellant as member of the Committee of Creditors on the ground that the appellant is “related party” in relation to the Corporate Debtor with shareholding more than twenty percent. The aforesaid decision has been upheld by the Adjudicating Authority (National Company Law Tribunal) Hyderabad Bench, Hyderabad by impugned order dated 15th November 2017. The prayer for interim stay was also rejected by the Adjudicating Authority on the same day.

Now NCLAT held that the appellant controls more than twenty per cent of the voting rights in the Corporate Debtor on account of ownership or a voting agreement, the appellant to be treated as a related party in relation to a Corporate Debtor, however the Bench has given orders to the Resolution Professional, the members of the ‘Committee of Creditors’ and the Adjudicating Authority are directed to treat the appellant as one of the member of the ‘Committee of Creditors’. They further directed to call for a meeting of the ‘Committee of Creditors’ after intimating the appellant and to consider the Resolution Plan in accordance with Section 30(4). The Resolution Plan, if earlier approved in absence of appellant – ‘financial creditor’, being illegal is to be ignored. The appellant will take part in the meeting of the ‘Committee of Creditors’ but will not raise unnecessarily any objection, if resolution plan already approved by the ‘Committee of Creditors’. If such plan is the best out of the rest, viable and feasible, and taken into consideration all factors under Section 30(2) and if the Resolution Applicant is not ineligible under Section 29(A), the appellant will concur with the rest of the members of the ‘Committee of Creditors’ without raising any objection. However, if there is some better Resolution Plan, the appellant may bring it to the notice of the rest of the ‘Committee of Creditors’.

SREI Infrastructure Finance Limited Vs Canara Bank (NCLAT, August, 2018)Case on the matter of related Party under IBC

NCLT has given order to Enforcement Directorate to hand over the possession of attached properties of the Corporate Debtor under liquidation to the liquidator under section 35 (1) (n) IBC, 2016.

Surendra Kumar Joshi Vs REI Agro Limited (NCLT, August, 2018)

NCLT ordered District Collector/District Magistrate to take possession of the properties, books of accounts and other documents of the Corporate Debtor and the same may be entrusted to the Resolution professional.

AML Steel & Power Limited Vs Santanu Ray (NCLT, August, 2018)

The Adjudicating Authority held that the Andhra Bank cannot be treated to be ‘Financial Creditor’ in view of Section 3(6).Further AA also observed that the right of remedy of appellant can arise only in case of breach of contract.

NCLAT has given orders that creditor is entitled to invoke guarantee to recover the amount from the guarantor, but only after completion of the period of the Moratorium as declared under section 13. Further the Bench allowed Andhra Bank to be a member of the COC. However without strong ground Andhra Bank can’t raise objection to the Resolution Plan in question. If the Resolution plan is not in accordance with section 30(2), then a valid objection can be raised by Andhra Bank who has been added as a member of the COC. NCLAT frther clear thet if Resolution Plan is approved and successful Resolution Applicant takes over the management of the Corporate Debtor and CD will continue to be guarantor of the Andhra Bank as their right will not cease and as it cannot raise claim at this stage.

Andhra Bank Vs F.M. Hammerle Textile Limited (NCLAT, August, 2018)



Latest Amendments to the Insolvency and Bankruptcy Code, 2016(All amendments are available in the following link: http://www.sumedhamanagement.com/amendments/)

1. Encouraging formalisation of MSME sector 06 Jun 2018

2. The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 06 Jun 2018

3. Circular regarding Fee and other Expenses incurred for Corporate Insolvency Resolution Process 12 Jun 2018

4. The Companies (Registered Valuers and Valuation) Second Amendment Rules, 2018 13 Jun 2018

5. MCA invites suggestions from Stakeholders on Draft Chapter of Cross Border Insolvency 20 Jun 2018

6. Discussion Paper- Discharge from Responsibility as IRP, RP or Liquidator of the Corporate Processes under the Code 21 Jun 2018

7. Constitution of NCLT, Jaipur Bench at Jaipur 28 Jun 2018

8. IBBI Communication to IPs-In aid of IPs conducting CIRP 29 Jun 2018

9. FAQ for Limited Insolvency Examination wef 01st July, 2018 29 Jun 2018

10. IBBI (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2018 04 Jul 2018

11. IBBI amends the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 04 Jul 2018

12. Circular- Empanelment of Insolvency Professional Entities 06 Jul 2018

13. Circular- Appointment of Authorised Representative under section 21 (6A) (b) of the Code 13 Jul 2018

14. Hon’ble Minister of State for Law & Justice and Corporate Affairs, Mr. P. P. Chaudhary gives away registration certificates to the first set of 16 Registered Valuers

19 Jul 2018

15. The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018 24 Jul 2018

16. The Securities Contracts (Regulation) (Amendment) Rules, 2018 25 Jul 2018

17. The Syllabus for Limited Insolvency Examination wef 1st November, 2018 31 Jul 2018

18. Circular- Notice for Meetings of the Committee of Creditors 10 Aug 2018

19. Corporate Insolvency Resolution Processes Yielding Resolution 13 Aug 2018

20. Discussion Paper Governance of IPAs and IUs 14 Aug 2018

21. The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 17 Aug 2018

22. FAQ-One day Refresher Program for Insolvency Professionals 21 Aug 2018

23. Dissemination Liquidation June 30, 2018 31 Aug 2018

24. Circular- Compliance of regulation 13 (2) of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 31 Aug 2018

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