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All about Indian Insolvency Laws

Insolvency Bulletin IBC Laws Monthly Newsletter

March 2020 Publication Date: 03.04.2020

[Special issue on CIRP application filing, power of liquidator, home buyers]

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ABOUT IBC LAWS IBC Laws is a web-based resource, maintain online database on Corporate Resolution, Compromise & Arrangement, Merger & Acquisition, Liquidation, Winding Up, Bankruptcy of Individual & Partnership Firm, Securitization & Enforcement, Arbitration and Dispute & Litigation Resolution at one place. Online database comprises reporting case laws with brief about the decision & citation, maintaining up2date acts, regulations, rules, notifications & circulars and relevant content in quick searchable mode with separate dashboard of each topic. It is a complete guide of Indian Insolvency Laws & most updated website to keep you up2date in your Insolvency, Valuation & Arbitration Profession. Know more about us…….

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How to find a judgment/order using given Case Citation: In the Compilation, the brief about the decision alongwith Case Citation is provided. To Access full judgment, follow below instructions:

1. Go to www.ibclaw.in and click on IBC CASE LAW Menu (Advance Search Case Laws)

OR Click here: https://ibclaw.in/ibc-case-laws/ 2. Find case law using Case Citation as:

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This compilation covers:

From visitor’s pen ................................................................................................................... 5

Analysis of Selling Companies as “Going Concern” ....................................................................................... 5

Sole Proprietorship Firm is eligible to file Application Under Section 7 and Section 9 of Code and entitled to initiate CIRP against Corporate Debtor- A detailed Analysis .................................................... 8

Whether Appellate Tribunal have power to extend the time limit under section 12 of IBC beyond 330 days. ................................................................................................................................................................... 9

Legal updates: Notifications, Circulars & amendments ......................................................... 11

COVID-19 impact on IBC proceedings ................................................................................... 13

National Company Law Appellate Tribunal Decisions .......................................................... 14

I. INITIATING CIRP ............................................................................................................................................. 14

II. PERIOD OF LIMITATION UNDER IBC ............................................................................................................... 19

III. JURISDICTION OF NCLAT & NCLT ............................................................................................................. 24

IV. HOME BUYERS ............................................................................................................................................. 27

V. CO-OPERATION OF MANAGEMENT WITH IPR/RP .......................................................................................... 30

VI. POWER OF LIQUIDATOR ............................................................................................................................... 32

VII. APPLICABILITY OF IBC ................................................................................................................................ 38

From visitor’s pen

Analysis of Selling Companies as “Going Concern”

[By Keshav Mantri, Final year student at Faculty of Law, University of Delhi]

INTRODUCTION

As per the amendment to the Liquidation Process Regulations, dated 28th March 2018, a change was made to Reg 33 of the Liquidation Process Regulations permitting the liquidator to sell the corporate debtor as going concern. With this viewpoint, the IBBI (Liquidation Process) Regulations, 2016, was amended to permit the sale of the corporate debtor as a going concern. Subsequently, a further amendment, IBBI (Liquidation Process) (First Amendment) Regulations. 2018. was made to introduce the concept of “sale of the business of the corporate debtor as a going concern”.

The underlying principle behind restructuring or reorganization proceeding is that a business may be worth a lot more preserved or even sold, as a going concern than if the parts are sold piecemeal. For instance, in the US Congress, it has been stated that:

“The purpose of a business reorganization case, unlike a liquidation case, is to restructure a business’s finances so that it may continue to operate, provide its employees with jobs, pay its creditors and provide a return for its stockholders.”

The amendment vide 28th March 2018 notification adds clause (c) to Reg. 32 of the Liquidation Process Regulations. The Regulation, as amended, stands as under:

The liquidator may:

a) sell an asset on a standalone basis; or

b) sell

(i) the assets in a slump sale,

(ii) a set of assets collectively, or

(iii) the assets in parcels or”.

c)sell the corporate debtor as a going concern

As a new clause (c) was added to allow selling the company as a going concern.

SELLING AS A GOING CONCERN

While the Code recognizes going concern sale as one of the methods of sale, however, it does not provide for the definition of going concern”. The meaning of the term has been provided interpreted in various rulings. ‘A Going Concern Scheme’ means selling on “as is where is basis” which enables the sale of business of the company including all its assets and properties. When the company goes into liquidation, the liquidator prior the amendment had limited options either to sell the assets as piecemeal or slump sale but after Section 32(c) is in effect the liquidator has options to sell the company with all its assets i.e selling the business as a whole without bifurcating its properties and liabilities. Thus, one of the essential objectives of Insolvency and Bankruptcy Code,2016 was to ensure speedy recovery of cases but in numerous cases it is seen that due to delay in liquidation process there was a loss to the company, its employees, workers and CoC could play no role in this process. Alternatively, now the company can be sold as a going concern provides better utilization of resources of the company. Also, if the company is transferred as a going concern, there is no question of disposal of the assets of the company, either by way of a piecemeal sale or a slump sale. Therefore, it may be argued that strictly speaking, sec 53 of the Code does not apply. The assets stay in the company, and so do the liabilities, along with all attendant claims, limitations, licenses, permits or business authorizations. The company survives as it was – the ownership of the company is moved by the liquidator to the acquirer.

ADVANTAGES OF SELLING AS GOING CONCERN

One of the key features of the company is ‘perpetual succession’ which means, a continuation of a corporate entity despite the death, bankrupt, insanity or change in ownership. Selling as a going concern provides life to the company after going through liquidation. Though liquidation is the antithesis of going concern courts in various judgments have provided this route primarily motivated by an objective of keeping employment potential and economic activities intact. Thus, some

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of the reasons why a company should be liquidated as a going concern:

• Preservation of Intangible Assets: • Smooth transition of undertaking. • Collective value of assets. • Retaining workers and employees • Time-bound process.

ROLE OF ADJUDICATING AUTHORITY

• In the recent case of IVRCL, that owed more than 14000 cr to financial and other creditors was under liquidation as a going concern following the order of NCLT, Hyderabad.

“This sale is subject to the decision of NCLAT, Delhi in the matter of Company Appeal (AT) on the pending appeal against NCLT order dated 26 July 2019 read with Corrigendum order dated 31st July 2019 ordering liquidation of the company as a going concern and subject to the provisions of IBC, 2016 and liquidation regulation,” IVRCL said in filing to the exchanges.”

• In another case before the Calcutta High Court, was the National Tannery Co Case where a company was ordered to be sold on going concern basis under liquidation. This is an interesting case study of how a committee of management was formed to run the company until its sale on going concern basis, and eventually, how the West Bengal govt. offered to acquire the company on a going concern basis, pay consideration, and also agree to pay the wages of the workmen.

• In a Supreme Court ruling in Allahabad Bank vs ARC Holding and another in the following words: “But subsequent order directs sale of the entire assets of the company as a ‘going concern’. This means to revive the company first to make it operational, re-employ its employees, which would involve huge investment by the prospective buyer, a Herculean task, making execution practically infructuous.”

• See 35(1)(f) of Code empowers liquidator to sell the property of the corporate debtor in liquidation by public Auction, Hence there was no need for adjudicating authority to

direct the liquidator for considering the proposal of R-2 to R-4 State Bank of India Vs. Maithan Alloys Limited – NCLT the Adjudicating Authority after due date of finalization of Auction.

• An important decision would be another order of the Mumbai bench of NCLT in the case of Gupta Global Resources Pvt Ltd, where the bench, dealing with an application made by the liquidator of Gupta Global Resources Private Limited, had made the following observation: Ld. Counsel appearing on behalf of the Liquidator submitted that the meaning of “going concern” is not at all clear in the Liquidation Regulations. Different meanings have emerged in the context of accounting standards, GST law and from several rulings. “Going Concern” means all the assets, tangibles or intangibles and resources needed to continue to operate independently a business activity which may be whole or a part of the business of the Corporate Debtor without values being assigned to the individual asset or resource. It is pertinent to mention that when the business of the Corporate Debtor is being sold on going concern basis, then it has a presumption that sale will be with assets and liabilities.

• In the matter of Edelweiss Asset Reconstruction Company Ltd. Vs. Bharati Defence and Infrastructure Ltd.:

“…. we direct that the Liquidator shall endeavour to sell the Corporate Debtor company as a going concern.…. The maximum period applicable for trying the sale on a going concern basis of the Corporate Debtor will be only six months from the date of the order. In case the efforts to sell the company as a going concern fails during the stipulated period of six months, then the process of the sale of the assets of the company will be undertaken by the liquidator as prescribed under Chapter- III of IBC, 2016 and the relevant regulations of IBBI.”

LIMITATION OF SELLING AS A GOING CONCERN

• When the company is sold “as is where is” basis, the buyer’s interest is not protected by representations and warranties. This provides limited recourse to the buyer

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against the seller if there is any variance in the terms of sell or agreement.

• Section 52 read with Section 33(5) allows a secured creditor the option to (i) relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator in the manner specified in section 53; or (ii) realize its security interest in the manner specified in section 52 of the Code read with regulation 37. Thus, a secured creditor may opt to realize its security interest outside the liquidation foreclosing the option of sale of the corporate debtor as a going concern by the liquidator. In order to sell the corporate debtor as a going concern in the liquidation process, either the secured creditors opt in favour of relinquishing their security interest in favour of liquidation estate, or the secured creditors postpone the exercise of their option under section 52 to realize security interest outside liquidation process to allow the liquidator to explore the possibilities of sale as a going concern.

• In a going concern sale in liquidation, there cannot be a question of the liabilities being a part of the undertaking, as that will be a case of business transfer and not a case of liquidation. Liabilities in the priority order listed in Section 53. Hence, the business of the company, as well as its assets, becomes part of the liquidation estate. The legal entity continues and gets transferred to the acquirer. The proceeds realized by transfer of both of these are used by the liquidator to settle the claims, in the manner provided in Section 53.

• It is also evitable that the goodwill of a business, cultivated over time, will be lost with the change in management and control of the corporate entity.

CONCLUSION

In reference to the above, Going Concern Scheme is one of the routes that can expedite the process of liquidation, one of the achievements which I can observe is the retaining of the employees as it provides them with a medium to still retain their jobs, a company if sold as a going concern gives the acquirer an opportunity to revive the company without it being non-existent. A recent survey by World Bank (Doing business in 2005 – India Regional Profile) has pointed out that it took 10 years on an

average to wind up / liquidate a company in India as compared to 1 to 6 years in other countries. Such lengthy time-frames are detrimental to the interest of all stakeholders. The process should be time-bound, aimed at maximizing the chances of preserving value for the stakeholders as well as the economy as a whole.

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Sole Proprietorship Firm is eligible to file Application Under Section 7 and Section 9 of Code and entitled to initiate CIRP against Corporate Debtor- A detailed Analysis

[By M. Maharshi Viswaraj, Advocate] There are conflicting views of various NCLT Benches on the subject matter whether a sole proprietorship concern comes under the definition of Operational Creditor and Financial Creditor. Before going into Judicial Interpretations, let us have a look in to the definitions prescribed under the Code. As per Section 5(7) Financial Creditor means any person to whom a financial debt is owed and as per Section 5(20) Operational Creditor means a person to whom an Operational debt is owed. According to Section 3(23) Person Includes (a) an individual (b) a Hindu Undivided Family (c) a Company (d) a trust (e) a partnership (f) a limited liability partnership and (g) any other entity established under a statute. Bare reading of definition of Person shows that “Sole Proprietorship” is not included, but as per clause (g) of Section 3(23) person includes entity established under a statute. There are different statutes that can be applied to a sole proprietor business and registering under them can give valid proof of existence. Such provisions are as follows:

1. Shop and Establishment License issued under Shops & Establishments Act.

2. GST Registration Certificate issued by the Government of India under GST Act.

3. MSME Registration Certificate issued by the Government of India under MSME Act.

4. Bank Account opened under the name of Proprietary Concern.

5. PAN issued under Income Tax Act.

When the Sole Proprietary Concern is registered under any Statute, then the Firm said to have been established under a statute. The Same view is taken by the Hon’ble NCLT, Hyderabad Bench in CP (IB) No. 123/9/HDB/2018. The Hon’ble Adjudicating Authority held that the Operational Creditor filed GST Registration Certificate and the Certificate was issued under the provisions of an Act. Hence

Operational Creditor has to be treated as a Person under clause (g) of Section 3(23). According to Section 2(f) of Code,2016 the provisions of the Code shall apply to Proprietorship Firms. Further the definition of Person in Section 3(23) is inclusive definition, but not exhaustive one. When Section 2(f) and Section 3(23) are read together it can be safely said that the Sole Proprietorship Firm comes under the definition of Person. The same view has been taken by the Hon’ble NCLAT in the matter of Neeta Saha vs. Mr. Ram Niwas Gupta 191(IBC)156/2020. The Hon’ble NCLAT over ruled the Order of Hon’ble NCLT, New Delhi Bench in “R.G. Steels Vs. Berry Auto Ancillaries (P) Ltd”, where in the Adjudicating Authority rejected the petition on the ground that Sole Proprietorship concern is not included in the definition of Person. In Neeta Saha(supra) case the Hon’ble NCLAT observed that Section 2 of IBC provides that the provisions of the Code apply, inter alia, to “proprietorship firms”. Further the definition of “person” in Section 3(23) of IBC is inclusive definition. Hence the Applications filed by the Sole Proprietorship Firm under IBC are perfectly maintainable.

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Whether Appellate Tribunal have power to extend the time limit under section 12 of IBC beyond 330 days.

[by IBC Laws Team] On 23rd March, Hon’ble Supreme Court extended the period of limitation on filing petitions, applications, suits, appeals, and other proceedings at courts and tribunals across the country in light of the present circumstance caused by the Covid-19 pandemic with effect from 15th March, 2020 till further order/s in terms of order dated 23rd March, 2020 in Suo Motu Writ Petition (Civil) No(s).03/2020. On 29th March, IBBI inserted a new Regulation 40C in CIRP Regulation, 2016 with initial line “Notwithstanding the time-lines contained in these regulations, but subject to the provisions in the Code,…” to exclude time for the purposes of the time-line for any activity that could not be completed due to such lockdown. That is the Regulation 40C excludes only the time of activities prescribed under Regulation 40A and other CIRP regulations. This Regulation 40C cannot extend the time limit prescribed under Section 12 as restricted by opening words. Now, today NCLAT exercise of powers conferred by Rule 11 of NCLAT Rules, 2016 and referring the decision Quinn Logistics India Pvt. Ltd. vs. Mack Soft Tech Pvt. Ltd. 192(IBC)10/2018 excluded such lockdown period from the time limit mentioned under section 12 of the Code. The case of Quinn Logistics was decided in May, 2018. The exceptions carved out in this case to extend the time period include i.e. for following good grounds and unforeseen circumstances, the intervening period can be excluded for counting of the total period of 270 days of resolution process:-

1. If the corporate insolvency resolution process is stayed by ‘a court of law or the Adjudicating Authority or the Appellate Tribunal or the Hon’ble Supreme Court.

2. If no ‘Resolution Professional’ is functioning for one or other reason during the corporate insolvency resolution process, such as removal.

3. The period between the date of order of admission/moratorium is passed and the actual date on which the ‘Resolution Professional’ takes charge for completing the corporate insolvency resolution process.

4. On hearing a case, if order is reserved by the Adjudicating Authority or the Appellate Tribunal or the Hon’ble Supreme Court and finally pass order enabling the ‘Resolution Professional’ to complete the corporate insolvency resolution process.

5. If the corporate insolvency resolution process is set aside by the Appellate Tribunal or order of the Appellate Tribunal is reversed by the Hon’ble Supreme Court and corporate insolvency resolution process is restored.

6. Any other circumstances which justifies exclusion of certain period. However, after exclusion of the period, if further period is allowed the total number of days cannot exceed 270 days which is the maximum time limit prescribed under the Code.

In Aug, 2019 (after the Quinn Logistics case) the Insolvency and Bankruptcy Code (Amendment) Act, 2019 (amendment act), w.e.f. 16.08.2019, inserted a proviso to Section 12 to cap the CIRP time limit mandatorily 330 day. The proviso reproduced here: “Provided further that the corporate insolvency resolution process shall mandatorily be completed within a period of three hundred and thirty days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this section and the time taken in legal proceedings in relation to such resolution process of the corporate debtor” Section 12 of the Code thus mandates that the CIRP must conclude within 330 days from the insolvency commencement date. This period of 330 days includes: (a) normal CIRP period of 180 days, (b) one-time extension, if any, up to 90 days of such CIRP period granted by the Adjudicating Authority, and (c) the time taken in legal proceedings in relation to the CIRP of the CD.

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Now, the question raised is whether Appellate Tribunal (NCLAT) have power to extend the time limit of those cases which are expiring 330 days during this lockdown period i.e. beyond the status limit? As per sub-section (2) & (3) of section 12 of the Code, Adjudicating Authority(NCLT) can extent the CIRP time limit further 90 days. NCLAT have inherent power under Rule 11 of NCLAT Rules, 2016 to extend the time limit, which is reproduced here: “11. Inherent powers Noting in these rules shall be deemed to limit or otherwise affect the inherent powers of the Appellate Tribunal to make such orders or give such directions as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Appellate Tribunal.” This is settled law that rules cannot override the main statute and the main status, here the Code, defined the maximum cap 330 days which is mandatory in nature. The question was answered by Hon’ble Supreme Court in the matter of Committee of Creditors of Essar Steel India Vs. Satish Kumar Gupta & Ors. 84(IBC)15/2019 where Hon’ble Apex Court struck-off the mandatorily word and held that while leaving the provision otherwise intact, the term “mandatorily” is struck down as being manifestly arbitrary under Article 14 of the Constitution of India and as being unreasonable restriction on the litigant’s right to carry on business under Article 19(1)(g) of the Constitution. The effect of this declaration is that ordinarily the time taken in relation to the CIRP must be completed within the outer limit of 330 days from the insolvency commencement date, including extensions and the time taken in legal proceedings. If the delay or a large part thereof is attributable to the tardy process of the AA and/or the NCLAT itself, it may be open in such cases for the AA and/or NCLAT to extend time beyond 330 days. It is only in exceptional cases that time can be extended, the general rule being that 330 days is the outer limit within which resolution of the stressed assets of the CD must take place beyond which it is to be driven into liquidation. As per above decision of the Hon’ble Supreme Court, NCLT as well as NCLAT can extend time limit under section 12 of the Code beyond 330 days. So, it is well

in power of NCLAT to extent the time limit beyond 330 days for those cases crossing the limit during the lockdown period vide the suo motu order dated 30.03.2020.

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Legal updates: Notifications, Circulars & amendments 1. MCA issued circular superseding the earlier circular 04/2020 dated 17.02.2020- Circular No. 08/2020 dt. 06.03.2020.

MCA notified compliance for filing of form INC-28 such as selection of designation as “CEO’ in the declaration box mentioning date of event and Board Resolution, date of order of NCLT/NCLAT/Court. It is further clarified that in respect of companies which are marked under CIRP in the Registry, Annual Return (e-form No.MGT-7) and Financial Statement (e-form AOC-4) and other documents under the provisions of the Companies Act, 2013, in accordance with directions issued by the NCLT/ NCLAT/Courts, shall be filed as attachments with e-form GNL-2against the payment of one time normal fee only, till such time the company remains under CIRP. Separate GNL-2 forms shall be filed for each such document, by the IRP/RP. Other issue such as responsibility of RP/IPR/Liquidator, all filing of eforms including AOC-4 and MGT-7 etc. Read more.

2. Ordinance passed in Dec.’19 replaced and added new amendments by amendment act, 2020 The Insolvency and Bankruptcy Code (Amendment) Bill, 2020 was passed by voice vote in Rajya Sabha on 12.03.2020. It was approved by Lok Sabha on March 6. The Bill replaces an ordinance promulgated in December, 2019. Read more.

3. Constitution of NCLAT Chennai bench w.e.f. 18.03.2020 N. No. S.O.1060(E) dated 13.03.2020

MCA has notified constitution of another Bench of the NCLAT at Chennai to hear the appeals against the orders of the Benches of the NCLT having jurisdiction of:

• Karnataka, • Tamil Nadu, • Kerala, • Andhra Pradesh, • Telangana, • Lakshadweep and • Puducherry.

The Bench of the NCLAT at New Delhi shall be known as the Principal Bench of the NCLAT which shall continue to hear appeals other than those in the jurisdiction of Chennai Bench of the NCLAT. Read more.

4. Allow modification of of CIRP Forms N. No. IBBI/CIRP/030/2020 dt. 17.03.2020 Feature for modification of CIRP Forms (including IP-1 Form) submitted by an Insolvency Professional (IP) in compliance of regulation 40B of the CIRP Regulations, 2016. The Board has enabled a feature on the platform for modification of an already submitted Form. An IP may modify a Form already submitted by him by submitting a modified Form on the platform on payment of the applicable fee. However, such modification till 31st March, 2020 shall not attract any fee. Read more.

5. Notified Interim Finance arrangement by RP/IRP N. No. S.O. 1145(E) dt. 18.03.2020 MCA notified “Special Window for Affordable and Middle-Income Housing Investment Fund I” as an alternate investment fund and registered with the SEBI, established under sub-section (1) of section 3 of the SEBI Act, 1992, to provide financing for the completion of stalled housing projects that are in the affordable and middle-income housing sector. Read more.

6. Extent of the Insolvency and Bankruptcy Code, 2016 to whole of India Proviso to sub-section (2) of section 1 of the Code has been omitted by the Jammu and Kashmir

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Reorganisation (Adaptation of Central Laws) Order, 2020 w.e.f. 18.03.2020. Read more.

7. Compliance under GST during CIRP N. No. 11/2020 dt 21.03.2020 & Circular No. 134/04/2020 dt. 23.03.2020 CBIC clarified some issues involved in compliances of GST by RP/IRP during the CIRP. The notification r/w circular issued by CBIC on some issues involved in compliances of GST by RP/IRP during the CIRP, clarified that the corporate debtors who are undergoing CIRP shall

• with effect from the date of appointment of IRP / RP, be treated as a distinct person of the corporate debtor

• be liable to take a new registration new registration within 30 days of the appointment of the IRP/RP.

• after obtaining registration file the first return under section 40 of the GST Act, from the date on which he becomes liable to registration till the date on which registration has been granted.

• in his first return, be eligible to avail input tax credit on invoices covering the supplies of goods or services or both, received since his appointment as IRP/RP but bearing the GSTIN of the erstwhile registered person.

• Registered persons who are receiving supplies from the Corporate debtor shall, for the period from the date of appointment of IRP/RP till the date of registration as required in this notification or thirty days from the date of this notification, whichever is earlier, be eligible to avail input tax credit on invoices issued using the GSTIN of the erstwhile registered person.

• Any amount deposited in the cash ledger by the IRP/RP, in the existing registration, from the date of appointment of IRP/RP to the date of registration in terms of this notification shall be available for refund to the erstwhile registration. Read more.

8. Increase minimum amount of default under IBC to 1 crore under section 4

Due to the emerging financial distress faced by most companies on account of the large-scale economic distress caused by COVID 19, it has been decided to raise the threshold of default under section 4 of the IBC 2016 to Rs 1 crore (from the existing threshold of Rs 1 lakh). This will by and large prevent triggering of

insolvency proceedings against MSMEs. Read more.

Access all notifications & circulars here.

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COVID-19 impact on IBC proceedings 1. Hon’ble Supreme Court Suo Motu writ petition

03/2020 dated 23.03.2020: A period of limitation in all such proceedings shall stand extended w.e.f. 15th March 2020 till further order/s to be passed by this Court in present proceedings. Read more.

2. NCLAT suo moto order dated 30.03.2020: The period of lockdown COVID19 shall be excluded for the purpose of counting of the period for Resolution Process under Section 12 of the IBC, in all cases where CIRP has been initiated & pending before any Bench of the NCLT or in Appeal before NCLAT-Suo Moto Order 01/2020 dated 30.03.2020. Read more.

3. Suspension of enrolments for the Limited Insolvency Examination and the Valuation Examinations extended till 14th April 2020. Read more.

4. IBBI inserts new Regulation in CIRP Regulations, 2016 to extend the time line prescribed under Regulation 40A & other regulations. Read more.

5. Change in the filing of a Form under IP Regulation 40B after due date of submission, whether by correction, updation or otherwise, shall be accompanied by a fee of five hundred rupees per Form for each calendar month of delay after 1st October, 2020. Also, IBBI extended Forms filing date and amended other Regulations. Read more.

6. Pre-registration Educational Course under the IBBI (Insolvency Professional) Regulations, 2016. Read more.

7. Educational Course and Continuing Education under the Companies (Registered Valuers and Valuation) Rules, 2017. Read more.

8. Closing of NCLT benches till 31st March, 2020. Read more.

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National Company Law Appellate Tribunal

Decisions

I. INITIATING CIRP 1. The statutory prescribed period of 14 days for passing of an order by AA u/s 7 of the Code has not been held to be mandatory-Techno Electric & Engineering Co. Ltd. Vs. McLeod Russel India Ltd. – NCLAT

Case Citation: 161(IBC)126/2020 Brief about the decision The proceedings arising out of Section 7 application under Code are still at the very threshold stage i.e. at pre-admission stage. and the learned Adjudicating Authority is sitting over the matter and not taking a decision with regard to admission or otherwise of the application. NCLAT in line with decision of Hon’ble Supreme Court IN RE Surendra Trading Company held that though the statutory prescribed period of 14 days for passing of an order by Adjudicating Authority with regard to admission or otherwise of an application under Section 7 of the Code has not been held to be “mandatory” but having regard to the timelines prescribed by Code, there can be no dispute with the proposition that such order is required to be passed with utmost expedition. In view of the same, we dispose of the appeal with direction that the learned Adjudicating Authority shall accord priority to this matter and make all endeavours to pass the order at the admission stage within 15 days. 2. There is no illegality if the Resolution Professional uses the money available from the sale of pledged stock for the purpose CIRP-Punjab National Bank Vs. State Bank of India – NCLAT

Case Citation: 160(IBC)125/2020 Brief about the decision CIRP is pending with regard to the Corporate Debtor- M/s Kannu Aditya (India) Limited. It is stated that there was stock of rice lying in the godown of

Corporate Debtor. The Appellant claims that the Corporate Debtor had pledged the stock in favour of the Appellant-Punjab National Bank by a document of pledge and because of this, the Appellant was holding a security in this regard. Against this the learned Counsel for the Respondent No. 1-State Bank of India has pointed out that before above document of pledge, the Corporate Debtor had hypothecated its stock in favour of the State Bank of India in consortium by Joint Deed of Hypothecation and thus the same stocks were hypothecated with the consortium including State Bank of India. There is no dispute between the parties regarding the fact that that during pendency of CIRP, the CoC had considered the dispute being made by State Bank of India which is holding 97.16% voting right and the Appellant- Punjab National Bank which is holding 2.84% voting right and it was decided that stock being rice, being perishable commodity, should be sold. In view of such decision of the CoC, the Resolution Professional moved before the Adjudicating Authority seeking permission to utilize the amount realized from the sale of stock for the purpose of CIRP costs. Learned Adjudicating Authority, after hearing the parties, has accepted the prayer of IRP to utilise the sale proceeds and operate bank account of the Corporate Debtor for the purpose of day to day functioning of the Corporate Debtor including payment of current bill of supplier, salaries and wages of the employees and workmen. It would also include CIR Process cost. Learned Counsel for the Appellant submits that the pledged stock being the only security, Punjab National Bank had from the Corporate Debtor, the stocks should not have been sold and the money cannot be utilised by the Resolution Professional for conducting CIRP. NCLAT held that the stock already having been sold, there is no illegality if the Resolution Professional uses the money available from the sale of the stock for the purpose CIRP. The rights and benefits in law claimed by the Appellant of having security by way of pledge and the value of the stock which was pledged are kept open for consideration of the CoC when the Resolution Plan is available before it, and/or in case situation of liquidation arises. The claim as above of Appellant shall be kept in consideration by RP/CoC/Adjudicating Authority while dealing with the Resolution Plan, if any, and/or in case of liquidation.

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3. NCLAT rejected the submission that Sec. 3(10) definition of Creditor includes financial creditor, operational creditor, decree-holder etc. But Sec. 5 dealing with Financial Creditor & operational creditor do not include decree-holder to initiate CIRP in Part II- Digamber Bhondwe Vs. JM Financial Asset Reconstruction Company Limited – NCLAT

Case Citation: 165(IBC)130/2020 Facts of the case The present Appeal claims that the Account of Corporate Debtor was declared as NPA on 30.06.2013 vide notice dated 07th August, 2013 which was issued by UCO Bank and Action was initiated under Section 13 (2) of SARFAESI Act. The notice stated that the Account had become NPA on 30th June, 2013. The Appellant claims that the Original Application came to be filed before DRT on 30th September, 2013. The Corporate Debtor had contested the notice under Section 13(2) of the SARFAESI Act and still the Bank went ahead to file Original Application No. 225 of 2013 before Debt Recovery Tribunal, Jabalpur (DRT) which allowed the claim of the Financial Creditor and held that the Corporate Debtor was liable to pay Rs. 85,94,62,955.00 with interest from the date of filing of Original Application dated 28th September, 2013 till realization. The application under Section 7 was filed on the basis of such final order dated 22.10.2016 (Annexure A-5 Page 45) passed by DRT which issued Recovery Certificate in the nature of decree under Section 19(22) of “Recovery of Debts Due to Banks and Financial Institutions Act 1993”. The application filed under Section 7 of Code dated 17th January, 2019 is time barred keeping in view, the date of NPA dated 30th June, 2013. Before the Adjudicating Authority, the Corporate Debtor raised dispute of limitation claiming that the loan was made in 2013 and the Application which is filed based on order dated 22.10.2016 was time barred when the Application came to be filed on 07th January, 2019. The Adjudicating Authority however, recorded that the Application was based on the order dated 22.10.2016 and thus was within limitation. Thus, the Application came to be admitted. NCLAT decision

A perusal of the Judgment in the matter of “Sh G Eswara Rao” shows that in that matter also the Appellant for Corporate Debtor claimed that the period of 3 years was required to be counted from date of default or when Account became NPA while the Financial Creditor claimed that it should be counted from date of Decree passed by DRT. In that matter also it appears that the Application u/s 7 was based on the date of Decree and order of DRT and default was calculated accordingly. This Tribunal considered provisions of Section 18 of Limitation Act. This Tribunal in Judgment of “Sh G Eswara Rao” referred to the Judgments of Hon’ble Supreme Court of India in the matter of “B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta and Associates”, and Judgement in the matter of “Vashdevo Bhojwani VS. Abhyudaya Co-operative Bank Limited and Another”. Reference was made to Judgment in the matter of “Jignesh Shah and Another Vs. Union of India and Another”, and portions from the said judgment were reproduced. Similarly a reference was made to Judgment in the matter of “Gaurav Hargovindbhai Dave Vs. Asset Reconstructions Company (India) Limited and Another”, It was noted that in the matter of Gaurav Hargovindbhai Dave, the Bank had filed two OAs before DRT to recover the total debt and that Hon’ble Supreme Court had found that there was default and as the Account was declared NPA on 20th July, 2011 in the matter, the Application under Section 7 was barred by limitation. It was noted that in view of the Judgments of Hon’ble Supreme Court, for Application under Section 7 of the Code, Article 137 of Limitation Act 1963 will apply. NCLAT held that we do not accept the argument of the Learned Counsel for the Respondent that judgment in the matter of “Vashdeo R. Bhojwani”(Supra) should be read in a manner to state that limitation would start ticking from date of recovery certificate. On analyzing the Judgment of Hon’ble Supreme Court, we are unable to agree with the Ld. Counsel for Respondent. We are unable to hold that date of N.P.A is to be ignored & limitation is to be counted from Date of Recovery Certificate for Section 7 of I&B Code. Further held that it is clear from the judgments of Hon’ble Supreme Court referred by this Tribunal in the matter of “Sh G Eswara Rao” that the applicable provision is Article 137 of the Limitation Act 1963 and the relevant date is date of default for the purpose of Application under Section 7 or Application under Section 9. Once, the time starts

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running, subsequent filing of the Application to DRT and judgment passed by DRT does not make a difference, for the purposes of provisions of I&B Code. Further NCLAT rejected the submission that because in Section 3(10) of Code in definition of “Creditor” the “decree holder” is included it shows that decree gives cause to initiate application under Section 7 of Code. Section 3 is in Part I of Code. Part II of Code deals with “Insolvency Resolution And Liquidation For Corporate Person”, & has its own set of definitions in Section 5. Section 3 (10) definition of “Creditor” includes “financial creditor”, “operational creditor” “decree-holder” etc. But Section 7 or Section 9 dealing with “Financial Creditor” and “operational creditor” do not include “decree-holder” to initiate CIRP in Part II. NCLAT accepted the submissions made by the Learned Counsel for the Appellant and hold that the Application under Section 7 in this matter was time barred and impugned order admitting the Application deserves to be set aside. A. For the above reasons, we set aside the impugned order passed by Adjudicating Authority and dismiss the Application under Section 7 of Code filed by the Respondent. 4. Mere finding on an Interlocutory Application that the debt claimed by the Creditor constituted a financial debt would not ipso facto justify admission or rejection of the application-Kerala Ayurveda Ltd. Vs. Tata Global Beverages Ltd. – NCLAT

Case Citation: 174(IBC)139/2020 Brief about the decision NCLAT held that it emerges from the record that the application under Section 7 of the Code has not been dealt with at the stage of admission and no order has been passed either admitting or rejecting the application. Mere finding on an Interlocutory Application that the debt claimed by the Creditor constituted a ‘financial debt’ would not ipso facto justify admission or rejection of the application as learned Adjudicating Authority is required to consider the debt along with default and unless there is a finding in respect of default and an order of admission is passed, ‘Corporate Insolvency Resolution Process’ does not commence. Viewed in this perspective, it is futile to contend that the appeal in terms of Section 60(1) shall be maintainable.

5. Adjudicating Authority is not in a position to determine the dispute on question of fact as to work completed or not completed or rectified or not-Rohini Industrial Electricals Ltd. Vs. National Textiles Corporation Ltd. – NCLAT

Case Citation: 176(IBC)141/2020 Brief about the decision Rohini Industrial Electricals Ltd. (Operational Creditor) moved application under Section 9 of the Code for initiation of CIRP against National Textiles Corporation Ltd. (Corporate Debtor). The Adjudicating Authority rejected the application on the ground of pre-existing dispute. NCLAT held that Adjudicating Authority is not in a position to determine the dispute on question of fact as to work completed or not completed or rectified or not. The question as to whether on rectification of the work, the Corporate Debtor accepted the liability and thereby there was no existence of dispute is a question of fact which can be determined only by Court of competent jurisdiction and not in an application under Section 9 of the Code. Once evidence are brought on record to show pre-existing dispute raised prior to issuance of demand notice under Section 8(1), the Adjudicating Authority cannot entertain the application under Section 9. 6. Only in a situation where the Corporate Debtor within 10 days of the receipt of demand notice, has not sent the reply to the Operational Creditor, then only, an affidavit to that effect can be submitted in terms of Sec. 9(3)(b) of the Code-Sangeeta Goel Vs. Roidec India Chemicals Private Limited-NCLAT

Case Citation: 178(IBC)143/2020 Brief about the decision The Operational Creditor filed an Application under Section 9 of the Code against the Corporate Debtor Roidec India Chemicals Private Limited for the alleged default on the part of the Respondent-Corporate Debtor in clearing the outstanding amount of Rs.63,29,169/- towards the services rendered by the Applicant. The total outstanding dues Rs.63,29,169/-

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pertain to services provided to the Corporate Debtor from 09th September 2013 to 03rd January 2017. The amounts fell due after the Respondent received the invoices. The Learned Adjudicating Authority rejected the Application filed under Section 9 mainly on the ground of pre-existing dispute and for non-compliance of Section 9(3)(b) of the Code(An affidavit to the effect that there is no notice given by the Corporate Debtor relating to a dispute of the unpaid operational debt.). An appeal has been filed primarily on the ground that the Adjudicating Authority rejected the petition on the ground of a pre-existing dispute between the parties, before the receipt of the demand notice of the unpaid operational debt. The Adjudicating Authority has further failed to consider that the compliance under Section 9(3)(b) is not mandatory. NCLAT considering decisions of Hon’ble Supreme Courts in Macquarie Bank Vs. Shilpi Cable Technologies Ltd.and Surendra Trading Company V. Juggilal Kamlapat held that it is clear that only in a situation where the Corporate Debtor within 10 days of the receipt of demand notice, has not sent the reply to the Operational Creditor, then only, an affidavit to that effect can be submitted in terms of Section 9(3)(b) of the Code. But in a case where such notice has been sent, in reply to the demand notice by the Corporate Debtor ‘an affidavit to that effect cannot be given’. In the instant case, after receiving the demand notice Corporate Debtor within ten days of receipt of the demand notice raised the dispute of the unpaid operational debt. Therefore, affidavit in compliance of Section 9(3)(b) could not be submitted. Thus, it is apparent that there is no default in not providing the affidavit in compliance of Section 9(3)(b) of the Code. On perusal of the record, it is crystal clear that about one year before the issuance of demand notice, the Corporate Debtor complained about the quality of service to the Operational Creditor and communicated that he has not provided services after 2015 and also informed that their services are no longer required. In the circumstances, we are of considered opinion that the Adjudicating Authority has rightly rejected the Application filed under Section 9. 7. A Financial Creditor can file application under section 7 of the Code against a Company who is guarantor to a

individual/Sole Proprietorship firm-Laxmi Pat Surana Vs. Union Bank of India – NCLAT

Case Citation: 189(IBC)154/2020 Brief about the decision Facts of the case Application filed by the Bank against Corporate Guarantor (M/s Surana Metal Lts.), status as under:

Party Name Status Financial Creditor(Lender)

Union Bank of India

Bank

Principal Debtor M/s Mahaveer Construction

Sole Proprietorship Firm

Corporate Guarantor

M/s Surana Metals Ltd.

Registered under the Companies Act,2013

The Appellant (Promoter/Director and Shareholder of Surana Metals Ltd.) has focused the present Company Appeal being dissatisfied with the impugned order dated 6.12.2019 passed by the Adjudicating Authority. Decision of Adjudicating Authority Ld. Counsel for the Corporate Debtor submitted that he cannot be the Corporate Debtor in view of the definition of corporate guarantor as stated in Section 5A of IBC,2016. According to him, since his client is guarantor to the individual and not corporate person, no proceeding can lie again his client under IBC,2016. We have considered about his above submission. Section 5A of IBC,2016 states Corporate Guarantor means the corporate person who is surety in contract guarantee to a Corporate Debtor. Section 3(8) of IBC defines Corporate Debtor means corporate person who owes a debt of any person. In this case, it is not in dispute that by virtue of deed of guarantee, the Corporate Debtor herein who is the corporate person owes a debt to the Bank. Hence, the Corporate definition in Section 5A of IBC, 2016 of corporate guarantor cannot be considered for exclusion of this proceeding from consideration for a simple reason that the definition is just explanatory definition as to who could be called as corporate guarantor. In this case, the corporate Debtor is the guarantor of the individual. He executed deed of guarantee in the year

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2008. He thereby undertook to repay the debt in case of default by the original borrower. The definition of the corporate guarantor relied on by him in Section 5A cannot be used to show applicability or inapplicability of provisions of IBC against him as it is just explanatory definition. Hence, we reject his argument. Contentions of the parties before NCLAT The Learned Counsel for the Appellant submits that the first Respondent/Bank /’Financial Creditor’ filed an application under Section 7 of the Code and as per Section 3(7) and 3(8) of the Code, the application can be filed only against Company and the same is not maintainable against the Sole Proprietorship Firm(as in instant case) and as such what cannot be performed directly, cannot be performed indirectly. In response, the Learned Counsel for the first Respondent contends that M/s Mahaveer Construction (Borrower) had borrowed money against the payment of interest from the First Respondent/Bank and M/s Surana Metals Ltd. is being registered under the Companies Act, 2013. Hence, the Plea is taken on behalf of the first Respondent/Bank that M/s Surana Metals Ltd. comes within the purview of Corporate Debtor and the first Respondent/Bank comes within the ambit of Financial Creditor of M/s Surana Metals Ltd. (Corporate Debtor) and therefore, the application under Section 7 of the Code filed by the first Respondent/Bank is perfectly maintainable in law. Decision of Appellate Tribunal

• The Learned Counsel for the Appellant emphatically takes a forceful stand that the Corporate Debtor as a Corporate Person being Company under the Companies Act,2013 and had given surety but in relation to a Contract or Guarantor or Corporate Suffice it to make a pertinent mention that the Corporate Debtor had guaranteed surety in regard to this Contract where Debtor firm was Proprietor concern. Besides these, the Corporate Debtor cannot shirk his liability to pay the debt to the Financial Creditor/Bank and also that the Corporate Guarantor had taken Guarantee in respect of

Section 5(8) of the Code and M/s Mahaveer Construction had borrowed the money against the payment of interest from the bank.

• The Corporate Debtor being a Corporate Person and registered under the Companies Act,2013 had Guaranteed ‘Surety’ in regard to ‘Contract’ with ‘Debtor firm’ or ‘Proprietary concern’ as the case may be. As per Section 145 of the Indian Contract Act, 1872 in respect of every ‘Contract of Guarantee’, there is an implied Promise of the ‘Principal Debtor’ to indemnify the ‘Surety’.

• It may not be out of place for this tribunal to make a relevant mention that the ‘Financial Debt’ includes a ‘Debt’ owed to a Creditor by ‘Principal’ and ‘Guarantor’. A just Omission or failure to pay on the part of a Guarantor to pay the ‘Financial Creditor’, When the Principal sum is claimed/demanded certainly, will come with the scope of ‘Default’ under Section (3),(12) of the Code. The proceedings under Section 7 of the Code can be triggered by a ‘Financial Creditor’ who had taken Guarantee in respect of ‘Debt’ against ‘Guarantor’ for failure to repay the money borrowed by the ‘Principal Borrower’. To put it explicitly (Ms/ Surana Metals Ltd.) is the ‘Corporate Debtor’ and that the Appellant is the proprietor of the Firm of M/s Mahaveer Construction.

• By virtue of Deed of Guarantee Corporate Debtor being a‘Corporate Person’ owes debt to the Bank.In the present case the ‘Corporate Debtor’ is the Guarantor and in the year 2008, undertook to repay the debt in case of default by the Principal Borrower. As per Section 3(8) of the Code ‘Corporate Debtor’ means a Corporate Person who owes debt of any person.

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II. PERIOD OF LIMITATION UNDER IBC 1. SARFAESI & DRT proceeding will not extent the period of limitation since those proceedings are independent & the Code will have overriding effect on other laws-Bimalkumar Manubhai Savalia vs. Bank of India – NCLAT

Case Citation: 162(IBC)127/2020 Brief about the decision The Appeal preferred by a Shareholder and Director of the Corporate Debtor(M/s Radheshyam Agro Products Pvt. Ltd.) challenging the order passed by the Adjudicating Authority. The Adjudicating Authority admitted the Application filed by the Respondent No. 1 herein in the capacity as Financial Creditor u/s 7 of Code on the ground that the Corporate Debtor defaulted in payment of debt/loan facility availed by the Corporate Debtor. With regard to the limitation, the Adjudicating Authority observed that the date of mortgage is 18.11.2010, The SARFAESI and DRT started in 2017, One Time Settle (OTS) revised offer from 12 Crores to 14.56 Cores, vide letter dated 01.06.2016 was submitted by the Corporate Debtor to the Financial Creditor-Bank and the credits have come to the loan account on 31.03.2017. The Adjudicating Authority, by observing above, held that the Application is within limitation taking into account the OTS proposal dated 01.06.2016 and the amounts which have come from the Guarantor into the loan account of the Financial Creditor on 31.03.2017. Proceedings initiated or pending in DRT initiated under SARFAESI cannot be taken into account for the purposes of limitation: Contention of the Appellant that the Application filed by the Financial Creditor was time barred. He submits that the Adjudicating Authority admitted the Application and initiated CIRP of the Corporate Debtor. NCLAT held that the SARFAESI and DRT proceeding will not extent the period of limitation since those proceedings are independent and as per section 238 of IBC, the Insolvency and Bankruptcy Code is a complete Code and will have overriding effect on other laws. Therefore, the proceedings initiated or

pending in DRT, either initiated under SARFAESI or under debts and due to Banks and Financial Institutions cannot be taken into account for the purposes of limitation. OTS was not accepted by the 1st Respondent/the Financial Creditor, therefore, the same cannot be treated as an acknowledgement in view of Section 18 of the Limitation Act, 1963. Date of payment of amount by the Guarantor will not extend the period of limitation: The Guarantors have transferred the amount of Rs. 1,26,619/-and Rs. 1,28,654/- to the Account of the Corporate Debtor on 01.04.2017, therefore the period of limitation is to be counted from 04.2017. It is the argument of the learned Counsel for the Appellant that the amounts have been appropriated by the Respondent No. 1 and therefore, appropriation of the Amount by the Respondent No. 1 herein from the Guarantor will not extend the period of limitation. NCLAT held that it is to be seen that Article 19 of the Limitation Act will fall under the category of first division of schedule which applies to the suits. However, Section 7 of the Code is not a suit and as held by Hon’ble Supreme Court, Section 7 is an Application under the Code which falls under the category of Application in para II of 3rd division. Therefore, the Hon’ble Supreme Court held that the Article 137 will apply to the Applications filed under Section 7 & 9 of the Code. Therefore, the stand of the Respondent No. 1 that the period of limitation will get extended from the date of payment of amount by the Guarantor on 01.04.2017 cannot be a ground and the limitation will not get extended. Therefore, the submission made by the Respondent no. 1 is negated. Finally, NCLAT held that in the present case, there is no acknowledge issued by Appellant/Corporate Debtor prior to expiry of 3 years or from the date of default. Therefore, the Application filed by the 1st Respondent before the Adjudicating Authority on 30.08.2018 is beyond the period of limitation. 2. Proceedings before the DRT & other forums will not get the benefit of extending the limitation period merely on the basis of pending proceedings before the DRT-

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Corporation Bank vs. M/s SJN Energy Infrastructure Pvt. Ltd. – NCLAT

Case Citation: 163(IBC)128/2020 Brief about the decision NCLAT held that we are of the firm opinion that the proceedings before the DRT and other forums, will not get the benefit of extending the limitation period merely on the basis of pending proceedings before the DRT. In this regard, it is unequivocal and settled law that the IBC is a complete Code and as per Section 238 of IBC it has overriding effect on other laws. Therefore, pending proceedings before other forums, the limitation will not get extended. 3. Period of limitation in case of NPAs start from the date of default/NPA having been declared by the Bank-Mr. Harsukbhai P. Lakkad Vs. Bank of Baroda (Erstwhile Dena Bank) & Anr. – NCLAT

Case Citation: 169(IBC)134/2020 Brief about the decision The Dena Bank (now Bank of Baroda) by letter dated 27th September, 2012 sanctioned cash credit hypothecation facility of Rs.9,00,00,000/- in the favour of the Corporate Debtor. Further, the Respondent Bank sanctioned another cash credit hypothecation facility of Rs. 1,50,00,000/- to the Corporate Debtor. After account was declared NPA, the Bank issued notice on 28th December, 2015 under Section 13(2) of the SARFAESI Act, 2002 to the Corporate Debtor demanding payment of an amount of Rs.12,57,86,554.88/- within 60 days. The Corporate Debtor filed objections on 24.02.2016. The Bank thereafter took steps under Section 13(4) of the SARFAESI Act, 2002 on 8th March, 2016. On 10th March, 2016, the Bank also moved Original Application bearing O.A. No. 239 of 2016 before the Debt Recovery Tribunal, Ahmedabad for recovery of a sum of Rs.13,07,14,630/- taking the date of trigger point of limitation as 30th January, 2014. On 26th July, 2016, the Corporate Debtor disputed its liability and action of the Respondent including Section 14 order passed by the District Magistrate under the SARFAESI Act, 2002 and, therefore, preferred a Securitisation Appeal No. 155 of 2016 before the Debt Recovery Tribunal II Ahmedabad.

When the matter remained pending, the Bank moved application under Section 7 on 19th October, 2018 for initiation of the ‘Corporate Insolvency Resolution Process’ against the ‘Corporate Debtor’, in which the impugned order has been passed. The Adjudicating Authority (NCLT), Ahmedabad Bench, by impugned order dated 20th November, 2019 admitted the application. Learned counsel appearing on behalf of the Respondents submitted that the claim is not barred by limitation. The equitable mortgage has already been detailed in the Affidavit under the head ‘collateral security’. Therefore, Article 62 of the Limitation Act, 1963 would apply. As admittedly period of limitation 12 years would remain there, the claim cannot be held to be barred by limitation. Reliance has been placed on the decision of this Appellate Tribunal in “A. Maheshwaran v. Stressed Assets Stabilization Fund”. Decision of Appellate Tribunal NCLAT held that it will be evident that for triggering application under Section 7 the date of default is to be noticed for counting the period of limitation under Article 137 of the Limitation Act, 1963. In the year 2016, before the Debt Recovery Tribunal, the Bank had already pleaded that the cash credit facility has been declared as ‘NPA’ on 30th January, 2014. Such plea has been taken as back as in the year 2016. It emerges from perusal of O.A. No. 239 of 2016 filed before the Debt Recovery Tribunal No.II at Ahmedabad that the aforesaid cash credit facility has been declared as NPA culminating in issuance of notice under Section 13(2) of the SARFAESI Act, 2002 on 3rd September, 2014. It is abundantly clear that the cash credit facility stands declared as NPA prior to issuance of notice under Section 13(2) of the SARFAESI Act, 2002 which happened on 3rd September, 2014. Even if date of default in the context of cash credit facility being declared as NPA is taken as 3rd September, 2014, application under Section 7 of the ‘I&B Code’ having been filed on 19th October, 2018 is clearly beyond three years and as such barred by limitation. Showing a subsequent date of NPA i.e. 28th October, 2015, the Bank cannot derive advantage of filing an application under Section 7 to suggest that it is within the time of three years. NCLAT held that the application under Section 7 has not been filed within three years from the date of

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default/ NPA having been declared before 3rd September, 2014, as pleaded before the Debt Recovery Tribunal, Ahmedabad in Original Application No. 239 of 2016. As the application under Section 7 being barred by limitation, we also hold that the application was not maintainable and was fit to be dismissed. 4. Action taken under Section 13(2) of the SARFAESI Act, 2002 cannot be counted for the purpose of exclusion of the period of limitation under Sec. 14(2) of the Limitation Act, 1963-Ishrat Ali Vs. Cosmos Cooperative Bank Ltd. & Anr. – NCLAT

Case Citation: 171(IBC)136/2020 Brief about the decision Facts of the case M/s. Cosmos Co-Operative Bank Limited-(Financial Creditor) filed an application under Section 7 of the Code for initiation of the CIRP against Micro Dynamics Private Limited-(Corporate Debtor). The Adjudicating Authority (NCLT), Mumbai Bench, Mumbai, by impugned order dated 23rd September, 2019 admitted the application. The Appellant, Director and Shareholder of the Corporate Debtor challenged the impugned order on the ground that the application under Section 7 was barred by limitation. Learned counsel for the Respondents appeared and relied on the decision of this Appellate Tribunal in “Sesh Nath Singh & Ors. v. Baidyabati Sheoraphuli Cooperative Bank Ltd. In the said Judgment, a Bench of three Hon’ble Members of this Appellate Tribunal held that the Financial Creditor bonafidely prosecuted his application under SARFAESI Act, 2002 and therefore, as per Section 14(2) of the Limitation Act, 1963 in computing the period of limitation the time during which the Respondent has been prosecuting with due diligence another civil proceedings against the Corporate Debtor for the same relief shall be excluded. Decision of Appellate Tribunal

• A decree passed by a Court for recovery of money by Civil Court/ Debt Recovery Tribunal cannot shift/forward the date of default: A suit

for recovery of money can be filed only when there is a default of dues. Even if the decree is passed, the date of default does not shift forward to the date of decree or date of payment for execution. Decree can be executed within specified period i.e. 12 years. If it is executable within the period of limitation, one cannot allege that there is a default of decree or payment of dues. Therefore, NCLAT held that a Judgment or a decree passed by a Court for recovery of money by Civil Court/ Debt Recovery Tribunal cannot shift forward the date of default for the purpose of computing the period for filing an application under Section 7 of the Code.

• The time during which the applicant has been prosecuting with due diligence another civil proceeding: Section 14(2) of the Limitation Act, 1963 makes it clear that in computing the period of limitation for any application, the time during which the applicant has been prosecuting with due diligence another civil proceeding, whether in a court of first instance or of appeal or revision, against the same party for the same relief shall be excluded, where such proceeding is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it. Therefore, to take advantage of Section 14(2), the Applicant must satisfy:

o That the applicant has been prosecuting with due diligence in another civil proceeding, whether in a court of first instance or of appeal or revision.

o against the same party; and o for the same relief.

• Action taken under Section 13(2) of the SARFAESI Act, 2002 cannot be counted for the purpose of exclusion of the period of limitation under Section 14(2) of the Limitation Act, 1963: Under the SARFAESI Act, 2002, once the account is declared as NPA, the Financial

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Creditor can exercise its power under Section 13 of the SARFAESI Act, 2002 which is required to issue Demand Notice under Section 13(2). An action taken by the Financial Creditor under Section 13(2) or Section 13(4) of the SARFAESI Act, 2002 cannot be termed to be a civil proceeding before a Court of first instance or appeal or revision before an Appellate Court and the other forum. Therefore, action taken under Section 13(2) of the SARFAESI Act, 2002 cannot be counted for the purpose of exclusion of the period of limitation under Section 14(2) of the Limitation Act, 1963.

• Application u/s 7 is not a money claim or suit: In an application under Section 7 relief is sought for resolution of a Corporate Debtor or liquidation on failure. It is not a money claim or suit. Therefore, no benefit can be given to any person under Section 14(2), till it is shown that the application under Section 7 was prosecuting with due diligence in a court of first instance or of appeal or revision which has no jurisdiction.

The decision rendered in “Sesh Nath Singh & Ors. v. Baidyabati Sheoraphuli Cooperative Bank Ltd.” thereby cannot be held to be a correct law laid down by the Bench. In the present case, the account of the Corporate Debtor was classified as NPA on 30th March, 2014. Thereafter, on 6th December, 2014, Demand Notice under Section 13(2) of the SARFAESI Act, 2002 was issued by the Respondent- Cosmos Co-operative Bank Ltd. The Bank also initiated Arbitration under Section 84 of the Multi-State Cooperative Societies Act on 4th December, 2015. The Bank had also taken possession of the movable assets under Section 13(4) of the SARFAESI Act, 2002 as back as on 16th January, 2017. In the circumstances, instead of remitting the case to the Bench, NCLAT held that application under Section 7 filed by the Cosmos Co- Operative Bank Limited was barred by limitation. Accordingly, set aside the impugned order dated 23rd September, 2019 passed by the Adjudicating Authority (NCLT), Mumbai Bench, Mumbai.

5. Even if the decree is passed, the date of default cannot be shift forward to the date of decree or date of payment for execution as a decree can be executed within specified period i.e. 12 years-V. Padmakumar Vs. Stressed Assets Stabilisation Fund (SASF) & Anr. – NCLAT

Case Citation: 173(IBC)138/2020 Facts of the case M/s. Stressed Assets Stabilization Fund (SASF)- (Financial Creditor) filed an application u/s 7 of the Code for initiation of the CIRP against M/s. Uthara Fashion Knitwear Limited- (Corporate Debtor). The Adjudicating Authority by impugned order dated 21st November, 2019 admitted the application. At the request of the Corporate Debtor, the Industrial Development Bank of India (IDBI) granted financial assistance of Rs.600 lacs by way of Term Loan Agreement dated 2nd March, 2000 to the Corporate Debtor. The account of the Corporate Debtor was classified as NPA on 29th May, 2002. In the year 2003, at the instance of the IDBI Bank, Debt Recovery proceeding was initiated under Section 19 of the RRDDBFI. It was decreed on 19th June, 2009 and Recovery Certificate was issued on 31st August, 2009, which was reflected in the Balance Sheet dated 31st March, 2012. In the aforesaid background, it was argued before NCLAT that the application under Section 7 filed in the year 2019 was barred by limitation. Decision of Appellate Tribunal NCLAT held that a suit for recovery of money can be filed only when there is a default of dues. Even if the decree is passed, the date of default cannot be shift forward to the date of decree or date of payment for execution as a decree can be executed within specified period i.e. 12 years. If it is executable within the period of limitation, one cannot allege that there is a default of decree or payment of dues. Therefore, a Judgment or a decree passed by a Court for recovery of money by Civil Court/ Debt Recovery Tribunal cannot shift forward the date of default for the purpose of computing the period for filing an application under Section 7 of the Code.

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Decision of the NCLAT that in the present case, as we find that the account of the Corporate Debtor was declared NPA on 31st October, 2002 and decree was passed on 19th June, 2009/ 31st August, 2009, we hold that the application under Section 7 filed by M/s. Stressed Assets Stabilization Fund (SASF) against M/s. Uthara Fashion Knitwear Limited- (Corporate Debtor) is barred by limitation and was not maintainable.

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III. JURISDICTION OF NCLAT & NCLT 1. Whether the Adjudicating Authority has exceeded its jurisdiction in passing order for re-bidding, despite the approval of the Resolution Plan by CoC, with a vote share of 84.70% of votes?-Shrawan Kumar Agrawal Consortium Vs. Rituraj Steel Private Limited – NCLAT

Case Citation: 167(IBC)132/2020 Facts of the case These Appeals emanate from the common order passed by the Adjudicating Authority(AA) under Section 31 of the Code,whereby the AA, Kolkata Bench has issued directions for fresh bidding within 15 days and file the re-approved Resolution Plan by 31st December 2019 and conclude the process, ignoring the approval of the Resolution Plan by the Committee of Creditors (CoC) with a vote share of 84.70 %. The Appellant herein is the successful resolution applicant, whose Resolution Plan has been approved by the CoC with 84.70% of voting share. After the approval of the resolution plan by the CoC, the RP filed the same before the Adjudicating Authority for its approval under Sec. 31 of the Code, 2016. But during the hearing for the approval of Resolution Plan, the two other unsuccessful Resolution Applicants preferred application before the Adjudicating Authority. Question before NCLAT Whether the Adjudicating Authority has exceeded its jurisdiction in passing order for re-bidding, despite the approval of the Resolution Plan by CoC, with a vote share of 84.70% of votes? NCLAT held that it is pertinent to mention that the Adjudicating Authority has a very limited power of judicial scrutiny and the statutory provision does not permit the Adjudicating Authority to interfere with the commercial wisdom of the CoC. Even for maximisation of value of the assets of the Corporate Debtor, the Adjudicating Authority is not entitled to overturn the business decisions of the Corporate Debtor. Contention of the Appellant

It contends that the Adjudicating Authority ignored the settled position of law and had reversed the commercial decision of CoC. The Appellant further contends that as per the law laid down by the Hon’ble Supreme Court in Sashidhar v. Indian Overseas Bank, and Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta and Others, it is clear that the Adjudicating Authority, under Section 31, is having limited power of judicial review which has to be within the four corners of Section 30(2) of the Code and the same cannot, in any circumstance, trespass upon the commercial wisdom of the CoC. The approach of the Adjudicating Authority while directing the re-bidding to take place after the approval of Resolution Plan by the requisite majority is erroneous, as a Resolution Plan is neither a sale nor an auction, and not a recovery proceeding or liquidation proceeding. Decision of the Appellate Tribunal (NCLAT) The Hon’ble Supreme Court in case of K. Shashidhar has explicitly laid down the law that there is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act based on a thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject-matter expressed by them after due deliberations in CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the “commercial wisdom” of the individual financial creditors or their collective decision before the adjudicating authority. That is made non-justiciable. Whereas, the discretion of the adjudicating authority (NCLT) is circumscribed by Section 31 limited to the scrutiny of the resolution plan “as approved” by the requisite per cent of voting share of financial creditors. Even in that enquiry, the grounds on which the adjudicating authority can reject the resolution plan is about matters specified in Section 30(2), when the resolution plan does not conform to the stated requirements. Reverting to Section 30(2), the enquiry to be done is in respect of whether the resolution plan provides for: (i) the payment of insolvency resolution process costs in a specified manner in priority to the repayment of other debts of the corporate debtor, (ii) the repayment of the debts of operational creditors in prescribed manner, (iii) the management of the affairs of the corporate debtor, (iv) the implementation and

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supervision of the resolution plan, (v) does not contravene any of the provisions of the law for the time being in force, (vi) conforms to such other requirements as may be specified by the Board. In the instant case, the Adjudicating Authority has overturned the decision of the CoC regarding approval of the Resolution Plan despite being approved by 84.70 percent of the vote share of the CoC, on the pretext of maximisation of value of the corporate debtor. The provisions investing jurisdiction and authority in the NCLT has not made the commercial decision exercised by the CoC of not approving the resolution plan or rejecting the same, justiciable. In the circumstances as stated above, it is clear that the Adjudicating Authority cannot interfere with the commercial wisdom of CoC. The direction for rebidding for maximisation of the value of the corporate debtor also amounts to an interference in the business decision of the CoC, which is not permitted in law. Thus it is clear that the Adjudicating Authority is having limited power of judicial scrutiny under Section 31, which has to remain within the four corners of Section 30(2) of the Code and the same cannot, in any circumstance, trespass upon the commercial wisdom of the CoC. The directions of the Adjudicating Authority for re-bidding, after the approval of Resolution Plan by the requisite majority, is not in consonance with the law laid down by Hon‟ble Supreme Court in K. Shashidhar (supra) case, as a Resolution Plan is neither a sale nor an auction but it all depends on the “commercial wisdom” of the individual financial creditors or their collective decision before the adjudicating authority and “that is made non-justiciable”. 2. NCLAT didn’t incline to determine the initial issue whether there was a pre-existing dispute or not as more than one & a half year has passed & as the matter remains pending since long because of the Promoters-Vishal Vijay Kalantri Vs. DBM Geotechnics & Construction Pvt. Ltd – NCLAT

Case Citation: 170(IBC)135/2020 Brief about the decision

Vishal Vijay Kalantri (Director and Shareholder of the Corporate Debtor) initially challenged the impugned order on one of the ground that there is an ‘existence of dispute’. The notice was issued on Respondents pursuant to which the Respondent (DBM Geotechnics and Constructions Pvt. Ltd. – Operational Creditor) appeared. The learned counsel for the Appellant sought time to settle the dispute, which was agreed upon by the learned counsel for the Respondent. Decision of Appellate Tribunal It was submitted that Hon’ble NCLT vide its Order dated 15th January, 2020 has reserved Judgement on the Application filed by the Resolution Professional under Sections 30 and 31 of the I&B Code, inter alia, seeking approval of the Resolution Plan of ‘APSEZL’ which has been approved by 99.68% [voting share] of the CoC. Therefore, the determination/adjudication as to whether the Resolution Plan is in compliance to the provisions of the Code and Regulations framed thereunder is sub judice before the NCLT being the court of first instance. It is further submitted that the Settlement Proposal of the Appellant under Section 12A of the Code has been rejected by 99.68% [voting share] of the CoC. Furthermore, almost 2 years have elapsed since passing of the Admission Order and in the event this Appellate Tribunal interferes with the Admission Order, this would result in one of the creditors filing a fresh application before the NCLT and CIRP of the Corporate Debtor would have to be recommenced. From the record, we find that after the CIRP was initiated on 25th March, 2018 and number of claims were filed by different financial creditors and the operational creditors, the claims amounting to Rs.3000 crores. In view of the said position, the Appellant – Vishal Vijay Kalantri on behalf of the Promoter sought time to settle the claim under Section 12A. Now at the time of hearing, the learned counsel for the Appellant wanted to highlight the merit to suggest that there is a ‘pre-existence of dispute’. However, as more than one and a half year has passed and as the matter remains pending since long because of the Appellant – Vishal Vijay Kalantri, the Promoter would have settled the matter with the creditors and also sought time, we are not inclined to determine the initial issue whether there was a ‘pre-existing dispute’ or not. Even if, the proceedings is quashed on the ‘pre-existing dispute’, as admittedly there is a default of payment and it will regenerate other proceedings,

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which is not desirable. Admittedly, the CoC now approved the plan as submitted by the APSEZL with 99.68% voting share and approved on 19th September, 2019. The matter is pending before the Adjudicating Authority for passing the order under Section 31(1) of the Code. In terms of the Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta & Ors., the Adjudicating Authority or the NCLT or this Appellate Tribunal cannot sit in appeal on commercial wisdom of the CoC. In the circumstances, we are not interfering with the impugned order dated 25th March, 2018 passed by the Adjudicating Authority (NCLT), Mumbai Bench and dismiss the appeals preferred by Vishal Vijay Kalantri and declare both the appeals preferred by APSEZL as infructuous. The matter stands remitted to the Adjudicating Authority to pass appropriate order under Section 31 of the Code in accordance with law. 3. No party has a right to say whether the Adjudicating Authority should go for further valuation before approval of the plan or not-Asset Reconstruction Company (India) Ltd. Vs. Corporation Ltd. & Ors. – NCLAT

Case Citation: 181(IBC)146/2020 Brief about the decision The Appellant has challenged the decision of Adjudicating Authority for fresh valuation on the ground that it is not permissible. NCLAT held that we are not inclined to interfere with the impugned order as no party has a right to say whether the Adjudicating Authority should go for further valuation before approval of the plan or not and it is open to the Adjudicating Authority to satisfy itself of the plan approved by the Committee of Creditors, to ascertain whether to approve the plan under Section 31 of the I&B Code or not. As the matter is pending since long, we hope that the Adjudicating Authority will pass appropriate order under Section 31 in the application taking into consideration the valuation and the plan as approved by the Committee of Creditors.

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IV. HOME BUYERS 1. If Appellants have not claimed for allotment of flats but prayed for initiation of CIRP as Financial Creditors, the AA will decide the said issue without awaiting the decision of the Hon’ble Supreme Court-Akriti Agnihotri & Anr. Vs. Blackberry Realcon Pvt. Ltd. – NCLAT

Case Citation: 175(IBC)140/2020 Brief about the decision The Appellants were the Original Allottees who initially moved application under Section 7 of the Code a Real Estate Company. The matter is pending. The Adjudicating Authority by impugned order dated 27.01.2020 adjourned the matter for 5th March in view of pendency of the case before the Hon’ble Supreme Court on the ordinance dated 28th December, 2019. In the present case the question to be decided is to whether the Appellants filed their claim independently as Financial Creditors as defined under Section 5(7) & (8) of the Code pursuant to the agreement of refund or as the allottees. If, they have claimed to be Financial Creditors independently relying on agreement of refund, in such case, one may argue that the order of status quo passed by the Hon’ble Supreme Court with regard to allottees who have moved application under Section 7 will not be applicable to the present case. NCLAT held that since such issue is required to be determined, therefore, we remit the matter to the Adjudicating Authority to decide the issue as to:

1. whether Appellants filed application as an independent “Financial Creditor” as defined under Section 5(7) & (8) of the Code or as “allottees”. 2. If they have not claimed for allotment of flats or shops but prayed for initiation of insolvency proceeding as Financial Creditors, the Adjudicating Authority will decide the said issue without awaiting the decision of the Hon’ble Supreme Court.

3. If it is decided that the application has been filed by the Appellants as allottees, in such case the Adjudicating Authority will await for the decision of the Hon’ble Supreme Court.

2. Reverse CIRP apply even if the Corporate Debtor is in the business of selling the flats/ apartments/ shops to allottee(s)-Pradip Kumar Chaudhuri Vs. M/s Dagcon (India) Pvt. Ltd. – NCLAT

Case Citation: 183(IBC)148/2020 Brief about the decision Asset Reconstruction Co. (I) Ltd. moved an application under Section 7 of the Code against Ms/ Dagcon (India) Pvt. Ltd. (Corporate Debtor), which was admitted by the Adjudicating Authority. The Appellant moved this Appeal with the grievance that due to failure on the part of the Directors and other Officers of the Corporate Debtor in handing over the records, the Resolution Professional is not in a position to give possession of the flats/ apartments/ shops, which have already been completed and for which appropriate certificate can be obtained from the concerned Authority. Learned Counsel appearing on behalf of Asset Reconstruction Company (India) Ltd. submits that land in question was mortgaged with the ‘Financial Creditor’, which now stands mortgaged to the Asset Reconstruction Company (India) Ltd. He further submits that the decision in “Flat Buyers Association Winter Hills-77” may not be applicable in the present case as Dagcon (India) Pvt. Ltd is not a Real Estate Company. NCLAT held that such submission cannot be accepted, if the Corporate Debtor is in the business of selling the flats/ apartments/ shops to allottee(s). It is for the Resolution Professional to find out as to who is the allottee in whose favour the Promoter Dagcon (India) Pvt. Ltd. has reached settlement/ Agreement or issued receipts of payments for such allotment and any other documents in support of such claim as may be produced. On receiving of such receipts, if it is found that the flats/ apartments/ shops etc. are to be completed or is completed and ready to be handed over, the ‘Resolution Professional’ is bound to proceed in accordance with law and the guidelines issued in

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“Flat Buyers Association Winter Hills-77” uninfluenced by the terms of agreement part of the said judgment. The ‘Resolution Professional’ is to ensure that the ‘Corporate Debtor’ remains a going concern and if there are allottee(s), then it should be handed over to the allotte(s), if the flats are complete. The Promoter is bound to cooperate with the ‘Resolution Professional’ in respect of flats/ apartments/ shops, if any is completed. The ‘Resolution Professional’ may take help of their officers/ workmen etc. The ‘Resolution Professional’ and the ‘Committee of Creditors’ are also directed to ensure that it should not reach the ‘Liquidation’ stage before handing over the assets to the allottee(s). The Adjudicating Authority will pass order after taking into consideration the relevant facts and circumstances of the case and the development, following the observations made by this Appellate Tribunal in “Flat Buyers Association Winter Hills-77” and “Rajesh Goyal vs. Babita Gupta & Ors.”. It is needless to say that the ‘Resolution Professional’ on receipt of rest of the consideration amount from the allottee(s) will intimate the allottee(s) and on payment of amount for registration, it will be open to the ‘Resolution Professional’ to get the premises registered in favour of the allottee(s), after counter signature of the Promoter. Whatever the amount remains on completion of the project, the ‘Committee of Creditors’ will decide the matter of distribution. 3. The resolution can be taken even during the CIRP, if any Promoter as investor agrees to invest the money for keeping the company as a going concern and complete the project within the time frame-Rajesh Goyal Vs. Babita Gupta & Ors. – NCLAT

Case Citation: 193(IBC)157/2020 Facts of the Case Ms. Babita Gupta, Mr. Manoj Kumar Gupta and Ms. Sweta Gupta (Allottees – Financial Creditors) moved an application under Section 7 of the Code for initiation of CIRP against ‘Rajesh Projects (India) Private Limited (Corporate Debtor), an infrastructure Company. The Adjudicating Authority by impugned order date 19th September, 2019 admitted the application. Mr. Rajesh Goyal (Promoter) has preferred this appeal on one of the ground that the Respondents (Allottees) themselves being defaulter and in view of the decision of the Hon’ble Supreme

Court in ‘Pioneer Urban Land and Infrastructure Limited & Anr. v. Union of India & Ors., the application was fit to be dismissed. It was also submitted that there was no ‘default’ by the Corporate Debtor in terms of the agreement, therefore, the application under Section 7 of the Code was pre-mature. Decision of the Appellate Tribunal NCLAT held that the procedure as followed in “Flat Buyers Association Winter Hills – 77, Gurgaon’ shows curtailment of period of resolution without asking for resolution plan from the third party before finalisation of the resolution plan. The resolution can be taken even during the corporate insolvency resolution process, if any Promoter as investor agrees to invest the money for keeping the company as a going concern and complete the project within the time frame. In view of the fact that part of the infrastructure (Apartments/Flats) has already been completed, the allottees (Financial Creditors) were the main beneficiaries of the infrastructure have already reached settlement with the Promoter and the fact that the Promoter as an outsider financial creditor has agreed to invest the amount, not from the account of the Corporate Debtor but from other sources to keep the infrastructure as a going concern, we in exercise of inherent powers conferred under Rule 11 of the NCLAT Rules, 2016, pass the following order:

i. ‘Rajesh Goyal’ (Promoter) is directed to cooperate with the Interim Resolution Professional and disburse amount (apart from the amount already disbursed) from outside as Lender (financial creditor) not as Promoter to ensure that the project is completed within the time frame as given by him. The disbursement of amount which has been made by ‘Rajesh Goyal.’ and the amount as will be generated from dues of the Allottees (Financial Creditors) during the Corporate Insolvency Resolution should be deposited in the account of the Company (Corporate Debtor) to keep the Company a going concern. The amount can be utilized only by issuance of cheque signed by the authorised person of the Company (Corporate Debtor) with counter signature by the Interim Resolution Professional. The Bank in which the Corporate Debtor (Company) has account the amount should be deposited only for the

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purpose of completion of the Project. Banks will allow the cheques for encashment only with the counter signature of the Interim Resolution Professional. ii. The flats/apartments should be completed in all aspect by 30th June, 2020. All internal fit outs for electricity, water connection should be completed by 30th July, 2020. The allottees are directed to deposit their balance amount and pay 90% without penal interest, if not deposited, by 15th March, 2020. The Allottees in whose favour possession has been offered and clearance has been given by the competent authority are bound to pay the cost for registration and directed to deposit registration cost to get the flats/apartments registered after paying all the balance amount in terms of the agreement. iii. Common area such as Swimming Pool, Club House etc. as per the agreement, be also completed by 30th August, 2020. The allottees are allowed to form ‘Residents Welfare Association’ and get it registered to empower them to claim the common areas. iv. ‘Rajesh Goyal’ will return the amount to the allottees, who already sought for, within the time frame i.e. 30% of the principal amount within 90 days and rest 70% of the principal amount within 180 days. The interest be paid to them in the manner as detailed above by 30th August, 2020. The ‘Financial Institutions/’Banks’ and ‘Operational Creditors’, if any should be paid simultaneously within the period of 180 days. v. All these processes should be completed by 30th August, 2020. If it completed, the Corporate Insolvency Resolution Process be closed after intimating it to the Adjudicating Authority (National Company Law Tribunal). The resolution cost including fee of the Interim Resolution professional will be borne by the Promoter. Only after getting the certificate of completion from the Interim Resolution Professional/ Resolution Professional and approval of the Adjudicating Authority (National Company Law Tribunal) unsold flats/ apartments etc. be handed over to the Promoter.

vi. It is made clear that even during the Corporate Insolvency Resolution Process, the Interim Resolution Professional can also sell the unsold flats/apartments, by way of a Tripartite Agreement between the Purchaser, Interim Resolution Professional/Resolution Professional and Promoter (Rajesh Goyal). The proceeds as may be generated from such sale should be utilized for completion of the project, payment to Financial Institutions/Banks, Operational Creditors and interest as is payable to the allottees whose principal amount is to be refunded. Once the project is completed, the ‘Interim Resolution Professional’ will move application before the Adjudicating Authority (National Company Law Tribunal) with the report of completion and ask for disposal of application under Section 7 of the ‘I&B Code’ filed by Ms. Babita Gupta, Mr. Manoj Kumar Gupta and Ms. Sweta Gupta (Allottees – Financial Creditors). vii. However, if the ‘Promoter’ fails to comply with the undertaking and fails to invest as financial creditor or do not cooperate with the Interim Resolution Professional/Resolution Professional, the Adjudicating Authority (National Company Law Tribunal) will complete the Insolvency Resolution Process. The appeal stands disposed of with aforesaid observations and directions.

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V. CO-OPERATION OF MANAGEMENT

WITH IPR/RP Withdrawal of money by Director during CIRP can be treated as criminal misappropriation and criminal breach of trust -Manoj K. Daga Vs. ISGEC Heavy Engineering Limited – NCLAT

Case Citation: 184(IBC)149/2020 Brief about the decision Facts of the case Operational Creditor filed Application under Section 9 of Code before the Adjudicating Authority against M/s. Shree Vishnu Power & Energy Pvt. Ltd. – Corporate Debtor which Application came to be admitted by Impugned Order dated 27th September, 2019 and moratorium under Section 14 of IBC was declared by the Adjudicating Authority, and CIRP was initiated. Against the Order of admission of Application under Section 9, present Appeal came to be filed by the Appellant – Manoj K. Daga as Director of the Company. It is pointed out that on enquiry conducted by the IRP, he came to know on 21st November, 2019 that Directors of Corporate Debtor had made huge withdrawals including cash withdrawals started within two days of taking Interim Orders dated 23.10.2019 from this Tribunal which were in violation of the same. The Counsel for IRP complained of Violation of Sections 14, 17 and 19 of IBC. The learned Counsel for IRP submits that these Directors had withdrawn most of the amount of the Corporate Debtor after the CIRP had been initiated which is clearly not permissible when the moratorium had been applied. The learned Counsel for IRP states that COC meeting has been held on 6th March, 2020 but if the IRP is unable to give effect, the CIRP itself would get stranded or stayed and given the fact that the amounts withdrawn were withdrawn in an illegal manner after moratorium had been imposed, no further time needs to be given. Learned Counsel states that the IRP is under the responsibility under the provisions of IBC to keep the Corporate Debtor a going concern and if almost the whole money which was in the bank account, has been withdrawn, the IRP has been rendered helpless in the situation.

Decision of Appellate Tribunal Taking conspectus of the whole developments in this CIRP proceeding and this Appeal, NCLAT held that the Directors acted wholly illegally once moratorium had been applied, in going ahead and withdrawing monies from the accounts at the back of IRP by even issuing cheques “Self”. Such acts cannot be justified in any manner. The Appellant and Deepak Daga kept telling this Tribunal that they would return the money and in spite of undertaking given and time fixed, the money has not been returned and the CIRP process is seriously hampered. Consuming whole month stated in the Undertaking and without returning any money, we find no substance in the hollow statements in I.A. No.1075 of 2020 – Application seeking time to comply with Undertakings. The I.A. wrongly states that undertakings given were without prejudice. They were voluntarily given. There are no bona fides in seeking time. Looking to the statements made to this Tribunal by the Appellant and Deepak Dage through learned Counsel for the Appellant and the Affidavits and undertakings given, which have not been honoured, we are of the view that, prima facie, case is made out for proceeding against both the Directors in contempt. We are of the opinion that the Appellant and Deepak Daga since beginning were aware of nature of the acts they were committing in the illegal withdrawals. They disobeyed Orders of Adjudicating Authority and this Tribunal wilfully and there is wilful non-compliance of undertakings given. I.A. No.1075 of 2020 to seek time to comply undertaking is not honest and appears to have been filed to create grounds of defence to further abuse process to kill time. The I.A. is rejected. The acts of the two Directors have obstructed the proceedings of CIRP, the proceedings before Adjudicating Authority and this Tribunal. The acts prima facie disclose serious Contempt, violating mandate of law of IBC applied by Orders of Adjudicating Authority and this Tribunal and breach of undertaking given on oath, actionable as NCLT established under the Companies Act, 2013 acts as Adjudicating Authority and this Tribunal is empowered under Section 425 of Companies Act, 2013 read with enabling provisions to take action. At the same time, considering record which shows that Appellant violated Orders of Adjudicating Authority and this Tribunal and looking to the apparent default on record where undertakings were given and not honoured, we find that the Appeal deserves to be dismissed in default. We dismiss the

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Appeal in default while permitting the IRP to move the Adjudicating Authority or any other authorities including Police authorities to pursue the matter with regard to money illegally withdrawn from the accounts of the Corporate Debtor so as to trace the money and get it back in the Company accounts. Prima facie, it appears to us that the illegal withdrawals can, inter alia, be treated as criminal misappropriation and criminal breach of trust. The CIRP proceedings will continue in terms of provisions of IBC. The IRP would be at liberty to examine the accounts and evidence and may place before the Adjudicating Authority all particulars and facts including evidence showing violation of Sections 14, 17 and 19 of IBC, after Impugned Order dated 27.09.2019 was passed and during pendency of the Appeal, for Adjudicating Authority to consider and take actions under Sections 70 and 74 of IBC, or other provisions as may be.

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VI. POWER OF LIQUIDATOR Liquidator have power to replace or remove the Nominee Directors of the Corporate Debtor on the board of other Companies-Rajive Kaul Vs. Vinod Kumar Kothari & ors – NCLAT

Case Citation: 190(IBC)155/2020 Facts of the Case NICCO Corporation (NICCO) is holding 25% share in ‘NICCO Parks and Resorts Pvt. Ltd.(NPRL)’ and NICCO have power as per Article of Associate of NPRL to nominate Director in the board of NPRL. The NICCO Corporation (NICCO) is under Liquidation, as per order dated 17.10.2017, holds 1,17,00,000 shares in ‘NICCO Parks and Resorts Pvt. Ltd.(NPRL)’ and this is 25% of the ‘shareholding of NPRL’. ‘NICCO Parks and Resorts Ltd.’ was incorporated on 17.3.1989 and on 23.2.1990, it was converted into a ‘Joint Sector Undertaking’ between ‘NICCO’ and two State-owned Corporations, (1) West Bengal Tourism Development Corporation Ltd. and (2) West Bengal Industrial Development Corporation Ltd., by means of a Joint Sector Agreement dated 23.2.1990. As a matter of fact, the shareholding of ‘NPRL’ was split between ‘NICCO’ (25%), the State-owned Corporations (26%) and the remaining ‘Capital’ was partly with the Public, partly with the ‘Kauls’ and partly with some other shareholders. The Clause 7 of the ‘Joint Sector Agreement’ recognises the right of ‘NICCO’ as also the Two State-owned Corporations to nominate three Directors each on the Board of ‘NPRL’. Furthermore, Pursuant to the right ‘NICCO’ to nominate Mr. Rajiv Kaul (Appellant), being the Promoter of ‘NICCO’, as one of the first Directors on the Board of ‘NPRL’, and later Pallavi Kaul and Abhijit Dutta were appointed as the other two Nominee Directors of ‘NICCO’ on the Board of ‘NPRL’. Decision of the Adjudicating Authority(NCLT) The Adjudicating Authority had directed the Appellant(Rajive Kaul )to vacate the office as ‘Nominee Directors’ of the ‘Corporate Debtor’ and such direction was issued in spite of the fact that the Appellants were no longer Nominee Directors of the Corporate Debtor and were appointed as Directors in their individual capacity on the Board of ‘NPRL’ by the

shareholders of NPRL, in a duly convened Annual General Meeting in accordance with the provisions of the Companies Act. Contention of the parties 1. Contentions of Appellants : Rajive Kaul & Pallavi Priyadarshini Kaul- Nominee Director in the Board of NPRL:

• the power to nominate the Managing Director was given only to ‘NICCO’ and such exercise of ‘Right of Nomination’ is the then pre-existing business relationship between the parties to the aforesaid Agreement, viz., ‘The Government of West Bengal’ and ‘NICCO’.

• the ‘Right to Nominate’, being a ‘Contractual Right’ agreed between the parties is essentially ‘person in character’ and the right being only to NICCO cannot be exercised either by the Liquidator or any subsequent purchaser of the ‘NPRL’ shares.

• the ‘Articles Of Association’ of ‘NPRL’ provides the right to nominate by name to ‘NICCO’ only vide ‘Article 121’ and the exercise of such rights of nomination along with the right to nominate Managing Director of the NPRL was given to only ‘NICCO’ and no other entity other than ‘NICCO’ can exercise it.

• the ‘Liquidator steps into the shoes of ‘NICCO’ after ‘Liquidation’, and that the Liquidator is only to carry out ‘Beneficial Liquidation’ of the Corporate Debtor as opposed to interfering and attempting to manage the affairs of another Company which is a separate entity neither ‘in ‘Liquidation’ nor part of ‘Liquidation Proceedings’.

• ‘the powers of a shareholder’ are not inclusive of the power to remove a Director from the Board of a Company as per his/her whims and fancies. Also, the powers of a shareholder are not to participate in the business or management of the Company and therefore, any removal of a ‘Director’ from the Board of a Company can only be as per Sec 169 of the

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Companies Act, 2013, by a ordinary resolution passed by the shareholders of the Company.

• the provisions of the IBC do not confer any power on a ‘Liquidator’ to assert any right to manage or interfere with the management and business of a separate Company, which is neither in liquidation nor part of the legal proceedings. In fact, it is the stand of the Appellants that ‘a Liquidator’s duty is only to assist the Corporate Debtor and to realise such ‘sale proceeds’ of the shares for distribution of ‘the proceeds’ in discharge of his obligation under the Code.

• the directions issued by the Adjudicating Authority were beyond its competence.

2. Contentions of Appellants: Nicco Parks and Resorts Ltd.(NPRL) The Learned Counsel for the Appellant takes a legal plea that by virtue of Sec 6 of the Companies Act, 2013, the provisions of the Companies Act, 2013 overrides the ‘Articles of Association’ and that ‘the Adjudicating Authority’ is not to permit the ‘Liquidator’ to remove Directors of another Company or to direct the Liquidator to appoint its Nominees on the Board of another Company which is neither in Liquidation nor is a part of Liquidation Process. Besides this, no casual link exists as to why the appointment of Nominee Directors in another Company will be required for the purpose of selling the shares held in that Company and no casual link was shown. 3. Contentions of Respondent (Liquidator)

• because of the non-cooperation and unresponsive attitude of the Appellants and bearing in mind the apparent conflict in Rajive Kaul and Ms. Pallavi Kaul and Abhijit Dutta (Managing Director of ‘NPRL’) being disqualified from holding any office conferred by the Corporate Debtor and ineligible in terms of Sec 29A of the I & B Code, 2016, to hold or enjoy any part of the ‘Estate of the Corporate Debtor’ at the behest of the Monitoring Committee of NICCO (consisting of the Creditors of ‘NICCO’) perforced to

exercise on behalf of ‘NICCO’ the rights attached to 25% of shares held by NICCO in NPRL and remove the Appellants as ‘Nominees of NICCO on the Board of NPRL’ as per notice dated 3.11.2018.

• In fact, neither the ‘Appellants’ nor ‘NPRL’ had adhered to the notice dated 3.11.2018 in spite of several follow-ups made by the Liquidator and through Emails dated 30.4.2019 and 1.5.2019, Rajive Kaul and Pallavi Kaul had refused to vacate the Board seats occupied by them as ‘Nominees of NICCO’.

• the shares of NPRL owned by NICCO as well as the right attached to their said shares form part of the ‘Liquidation Estate’ as per Sec 36 of the I & B Code.

• the right to appoint nominees carries also a right to withdraw such nomination as per decision Farrel Futato v State of Goa 1992 SCC Online Bom 336.

• the Appellants being ineligible under Sec 29A of the Code cannot be allowed to enjoy any advantage or benefit arising out of the ‘Liquidation Estate of NICCO’ or to enjoy the usufructs of an asset of NICCO which they are otherwise barred to possess under the Code.

• In fact, Sec 19 r/w Sec 33 of the Code is to provide assistance and co-operation to the ‘Liquidator’ of NICCO’ as may be required by him in order to carry out the Liquidation Process and hence the Appellants serving as Nominees of NICCO on the Board of NPRL constitute a clear violation of Sec 29A and Sec 19 r/w Sec 33 of the I & B Code, 2016.

• the ‘Articles of Association’ of a Company is part of its very Constitution, and represents a binding contract between the ‘shareholders’, ‘company’ as well as the ‘shareholders’ inter se. Refers to Sec 44 of the Companies Act, 2013 and points out that the shares, debentures or other interests of a ‘shareholder’ in a Company shall be movable property transferable in the manner provided by the Articles of the Company.

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• Moreover, the ‘shares’ being in the nature of movable property carry with them all the attributes of such property and further represent a bundle of rights including inter alia, the right to exercise the voting rights attached to the shares, right to elect Directors and thus to participate in the management through such Directors. As per decisions LIC of India v Escorts Ltd. & Ors., (1986) 1 SCC 264 (vide paragraph 72, 74, 78-80, 84, Vodafone International Holdings v UOI, (2012) 6 SCC 613 vide paragraphs 160, 240, 269-274; Borland’s Trustee v Steel Brothers & Co. Ltd., (1901) 1 Ch. 279 at paragraphs 9-13.

• 25% ‘NICCO Parks and Resorts Pvt. Ltd’ held by ‘NICCO’ carry with them several differential rights, including among other things, the right to appoint three Nominees on the Board of Trustees of NPRL and in his absence, the CEO of NPRL. Furthermore, these differential rights are not just personal to NICCO but are in the nature of class rights that are inextricably attached to the said shares held by NICCO in NPRL vide Cumbrian Newspapers Group Ltd. v Cumberland & Westmorland Herald Newspaper & Printing Co. Ltd., (1986) 3 WLR 26 pages 34, 37(d-h), 38(b-e), 42(g); Bushell v. Faith, (1970) 2 WLR 272 page 10 Paras 2,3.

• special/differential rights enjoyed by NICCO in respect of the shares held by it in NPRL flowing from the Articles of ‘NPRL’, are attached to the shares themselves and are in the nature of ‘class rights’ as defined under Sec 43(a)(ii) of the Companies Act, 2013. Apart from that, these rights cannot be severed from the shares themselves and must continue to flow with the said shares at all times (as per decision Radhakrishnan & Ors. V. P.R. Ramakrishnan, 1992 SCC Online Mad 115 at Paras 27,28,30,33,35,37-39,41-46).

• the rights attached to the shares held by NICCO in NPRL are clearly not ‘personal in nature’ and that they are in the nature of ‘class rights’ annexed to the shares and flowing from

the ‘Articles of NPRL’ and they are inseparable from the shares and are thus transferable and assignable with the shares.

• the ingredients of Sec 238 of the I & B Code have an overriding effect in respect of other Laws. Further, in the instant case, the rights attached to the shares of ‘NPRL’ or ‘not merely contractual rights’ but arising out of holding the property, i.e., ‘the shares of NPRL’ and that upon liquidation of NICCO, the rights attached to the holding of NICCO in ‘NPRL’ cannot be said to disappear and that the First Respondent/Liquidator cannot be held Not to have such a right as the rights are attached to the shares itself.

Decision of the Appellate Tribunal(NCLAT)

• The real grievance of the Liquidator is that the Appellant Rajive Kaul and Ms. Pallavi Priyadarshni Kaul were refusing to step down as nominees of the ‘Corporate ‘ (Nicco Corporation Ltd.) (Under Liquidation) and the same being bad in law mala fide and rife with conflict of interest on numerous grounds, inclusive of the fact that they were nominees and the provisions of the joint sector agreement. Further, Article 121 of the Articles of Association of Nicco Parks and resort Pvt. Ltd and the rudimentary law of nomination ‘Directors’ leave no scope of any discretion on the part of nominees by the decision of the nominator in replacing the nominees. Moreover, it is not within the rights of the Appellants(Nominee Directors), who were driven by their personal interest, whether such replacement and the rights under the ‘Joint Sector Agreement’ or within the ambit of powers of Liquidator or not.

• It is an axiomatic principle in Law that a Company in liquidation acts through the ‘Liquidator’ and the ‘Liquidator’ steps into the shoes in the Board of the Directors of the Company under Liquidation for the purpose of discharging is statutory duties. In reality,

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the property of the Company forming part of Liquidation still remain vested in the Company.

• The Promoters and Directors of the Corporate Debtor (Nicco) were appointed as nominees of Nicco on the Board of the Appellant (Nicco Parks and Resorts Limited) and they served before the disputes arose and they refuse to vacate their office. As a matter of fact the aforesaid Appellants, on account of ineligibility as per section 29A of theCode, 2016 are not to be permitted to derive any benefit to gain any advantage at the Liquation stage of Nicco (Corporate Debtor) or to avail the fruits of an assets of Nicco. It cannot be brushed aside that the contentions of the Appellants (Kauls) that they were nominees of Nicco on the Board of NPRL only before the 29th and 30th Annual General Meetings and Later in the aforesaid Annual General meeting they were appointed as a Directors on the Board of Nicco Parks and Resort Pvt. Ltd, in a personal/individual capacity can only be termed as an inconceived one.

• As regards the aspect of assignability of 25% shares held by the Nicco in NPRL along with rights attached thereto, the same has not cropped up, inasmuch as 1st Respondent/Liquidator had not sold the said shares which formed part of the Liquidation estated. There is no two opinion of a prime fact that the ‘Articles of Associations of a Company reflects’ a binding contract inter se between the shareholders and the Company etc. Shares, Debentures or other interests of a shareholders in a Company undoubtedly movable property, which can be transferred as per the ‘Articles of Associations of the Company’. To put it explicitly, the shareholders do have rights like voting, to elect Directors and to take part in the management through Directors. If, an agreement speaks of the rights of nomination and removal of a person who has shares of the ‘Nicco Park and Resorts Limited then the said

right may pass on by way of Assignment or selling. In case of any fetter pertaining to ‘Nomination Right’ as per ‘Articles of Associations’, then the said right may not be assigned in a given case.

• The ‘Articles of Nicco parks and Resorts Ltd’ does not impose a restrain relating to the transfer of shares held by the Corporate Debtor (Nicco) in ‘NPRL’ along with rights attached therein. In fact, the Articles of Associations clearly recognized that the shares of Corporate Debtor (Nicco) or transferrable subject to a right of 1st refusal of the stated owned corporation. To put it succinctly, the shares held by the Corporate Debtor (Nicco) in NPRL, together with class rights, in law can be assigned by the 1st Respondent/Liquidator with a rider being that the same is to be exercised subject to the limitation mentioned in the ‘Articles of NPRL’.

• It is relevant to point out that Section 238 of the Code, 2016 has an ‘overriding effect of other Laws’. The maximisation of value of Liquidation estate can only be certain if the said shares of NPRL as held by the Corporate Debtor (Nicco) together with the class rights or termed as part of the Liquidation estate attached to it, are held to be forming part liquidation estate and assignable, as enshrined in IBC, 2016. To take a contra view, will have a deleterious effect on the value of said shares and also will have a catastrophic effect on the Liquidation estate of Nicco as opined by this Tribunal.

• The Appellant (‘Nicco Parks and Resorts Pvt. Ltd’) is not required to be informed of the reasons behind the replacement of existing ‘Nominee Directors’ by the ‘Liquidator’, although the said ‘Directors’ were elected as ‘Directors’ because of the fact that they had secured the shares of ‘Nicco Parks and Resorts Pvt. Ltd’, in an individualistic manner. No wonder, unless and until the ‘Liquidator’ permits the ‘Nominee Directors’ to continue, they do not have any right in this regard.

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• In the backdrop of the foregoing detailed discussions and because of the fact that the Appellants (Nicco Parks and Resorts Ltd & Pallavi Priyadarshini Kaul) had acted against the Liquidator, the impugned orders passed by the Adjudicating Authority in discharging their ‘Nominee Directors’ position w.e.f. 17.10.2017 etc., are free from any legal flaws.

• Further it is held that the Liquidator is armed with requisite powers to remove the ‘Nominee Directors’ (Rajive Kaul & Pallavi Priyadarshini Kaul) and is entitled to nominate the ‘Directors’ and the Appellant ‘Nicco Park and Resorts Pvt. Ltd.’ is enjoined to act upon the replacement proposal of the ‘Existing Nominee Directors’ of ‘Corporate Debtor’.

• Looking from any point of view, the Appeals san merits and accordingly, they are dismissed. There shall be no order as to costs.

Other important points arise from the case 1. Removal of the Director under Section 169 of the Companies Act, 2013

• In the decision Home Chaudhary(AK) V. National Textile Corporation Uttar Pradesh Limited (1984) 48 Faclr page 96 at 101 (Allahabad), it is observed that where the Articles of Association shower, powers on the Board of Directors to remove the Managing Director or other Directors such power is not affected by Section 284 of the Companies Act, 1956 (corresponding to Section 169 of the Companies Act, 2013).

• Section 161(3) of the Companies Act, 2013 specifies that subject to the articles of a Company, the Board may appoint any person as a Director nominated by any institution in pursuant of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government Company.

• In fact, there is no statutory provision which addresses the powers of Directors in a

‘Compulsory Liquidation’ but in the decision Re Mawcon Ltd (1969) 1 All E.R at page 188 it is observed that the ‘Powers of Directors’ cease.

• There is no simmering doubt that the Directors of a Company appointed by the shareholders in the ‘Annual General Meeting’ are to be removed as per ‘Ordinary Resolution’ passed in the ‘General Body Meeting’. There is no different opinion on this well settled proposition. The aspect of a dismissal removal, retirement or one vacating the office voluntarily are covered by the covenants of an Agreement, but Section 33(7) of the I& B Code, 2016 speaks of deemed notice of discharge in respect of officers, employees and workmen of the ‘Corporate Debtor’ etc. As per Section 33(7), of the Code, the Directors concerned would stand discharged automatically and in practice the procedure mentioned in Section 169 of the Companies Act, 2013 need not be. Rule 39 of IBBI (Liquidation Process) Regulation 2016, clearly spells out that a Liquidator shall make an attempt to recover and realise all the assets and outstanding of a ‘Corporate Debtor’ in a time bound manner for the purpose of ‘Maximation of Value’ of the stakeholders.

• It cannot be gained said that the Appellant (‘Nicco Parks and Resort Pvt. Ltd’) is bound by the terms of Agreement and the Appellant is bound by the proposal and is to present the same before the ‘Annual General Meeting’ for its accord/approval, without any iota of doubt. As a matter of fact, the proposal submitted by the Liquidator in terms of the power bestowed on him under the I&B Code, read with Rule, Article 140 (4) of the ‘Articles of Associations’ cannot be ignored and a self-serving decision being arrived at in this regard.

2. Section 19 of IBC and Section 284 of the Companies Act, 2013 Section 19 of the I&B Code, 2016 is similar to Section 284 of the Companies Act, 2013. Section 19 imposes an

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obligation on the personnel and promoters of Corporate Debtor to extend all assistance and cooperation with ‘Insolvency Resolution Professional’ may require in the management of the affairs of the Corporate Debtor. The word ‘Personnel’ refers to Directors, Managers, Key Managerial Personnel, Designated partners and Employees, if any, of the Corporate Debtor by means of Section 5(23) of the Code. Furthermore, Section 19(2) empowers a Resolution Professional to file an Application before the Adjudicating Authority to seek necessary directions where any personnel does not assist or cooperate and that the Adjudicating Authority shall issue directions to such defaulting personnel. Moreover, any personnel of Corporate Debtor or Promoter does not render assistance or cooperation to the Insolvency Resolution Professional, the Adjudicating Authority (‘NCLT’) is to pass appropriate orders. Any instructions/ directions issued by an Adjudicating Authority cementing on an Application filed under Section 19 (2) of the Code shall be binding on such personnel or others as the case may be. 3. Section 54 of IBC and Section 302 of the Companies Act, 2013 Section 54 of the Code says that once the affairs of Corporate Debtor were wound up and its assets were wholly Liquidated, the Liquidator shall make an application before an Adjudicating Authority for ‘Dissolution of the Corporate Debtor’. In fact Section 54 of the Code is similar to Section 302 of the Companies Act, which deals with ‘Dissolution of a Company’. Section 290 of the Companies Act, 2013 has a provision like that of Section 35 of the I&B Code, which specifies the power of Liquidator in an exclusive manner i.e. the Liquidator shall exercise his power subject to the Directions of the Tribunal. As per Section 36 (3) of the Code, Liquidator estate include both tangible and intangible assets. A Liquidator has only sale power of a Liquidation estate as seen from the I&B Code, 2016. In Section 34 of the Code, the term ‘Vest’ is synonymous with title and it is concerned with title as per decision Daya Wanti Punj And Ors. vs New Delhi Municipal Committee report in 1982 Del. 534. Proviso to Section 35(f) of the Code, fetters a Liquidator to sell the immovable or movable property or actionable claims of Corporate Debtor in Liquidation to any person who is not eligible to be Resolution Applicant. It is to be remembered that as per Section 35(1)(e)of

the Code is to carry on the business of the Corporate Debtor and not the business of any other entity which is not the Corporate Debtor. 4. A permanent Director entitled under the AOA of a Company is to hold office for Life can be removed from office It cannot be lost sight of that a Director removed under Section 169 of the Companies Act, is not deprived of his right to receive compensation for the loss of office if he is otherwise entitled to it, as per the Act 2013 and by virtue of his term of appointment, a removal a Director in terms of the ‘Article of Associations’ is not a defective one as per decision Ravi Prakash Singh V. Venus Sugar Ltd, (2007) 140 Com cases Page 823. A permanent Director entitled under the ‘Article of Associations of a Company’ is to hold office for Life can be removed from office as per decision Tarlok Chand Khanna V. Rajkumar Kapoor as per decision (1983) 54 com cases page 12 (Delhi). As per section 169 (8) of the Companies Act, 2013 (old Section 284(7) of 1956 Act) enjoins that compensation or damages in the case of wrongful removal of a Director and the same can be claimed not only in respect of the termination of the Office but also any other offence which all terminate along with the office like that of ‘Managing Director’.

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VII. APPLICABILITY OF IBC Section 2 of IBC provides that the provisions of the Code apply, inter alia, to “proprietorship firms”. Further the definition of “person” in Section 3(23) of IBC is inclusive definition.-Neeta Saha vs. Mr. Ram Niwas Gupta -NCLAT

Case Citation: 191(IBC)156/2020 Brief about the decision The Corporate Debtor took up a defence that the Application was filed in the name of sole proprietorship firm and it was not a legal entity under the definition of “person” under Section 3(23) of IBC. It was also claimed that the Operational Creditor had added interest which was not stipulated in the agreement. The Adjudicating Authority, after hearing the parties, has admitted the Application under Section 9 of IBC and against the said admission, present Appeal has been filed. Contentions of the parties The argument of the learned Counsel for the Appellant is that the Proprietorship is not a legal person and thus Application under Section 9 of IBC could not have been maintained. According to the

learned Counsel, the Tribunal had no jurisdiction because of the filing of the Application by entity which is not “person” under the law. He refers to a judgment in the matter of “R.G. Steels Vs. Berry Auto Ancillaries (P) Ltd.” passed by NCLT, New Delhi, Court No. III in IB-722/ND/2019 to submit that in that matter when the petition was filed by Sole Proprietorship concern it was not held to be a person and the petition was dismissed. Learned Counsel for the Respondent(No. 1) is submitting that there was no defect in the Application filed as the copy of the Application under Section 9 of IBC shows that it was not an Application which was filed merely in the name of Proprietorship but it was stated that the Proprietorship is through Proprietor and the name of the Proprietor was added. It is also stated that even if it was to be stated that there was any defect same was allowed to be cured by the Adjudicating Authority and thus objection does not survive. Decision of the Appellate Tribunal NCLAT upheld the decision of Adjudicating Authority and held that we also note that Section 2 of the Code provides that the provisions of the Code apply, inter alia, to “proprietorship firms”. Further the definition of “person” in Section 3(23) of IBC is inclusive definition.

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