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Vol V CPSLR, NUALS
NUALS IBC E-NEWSLETTER [1]
NUALS IBC E-NEWSLETTER
Vol. 5, March-April, 2019
* All views expressed are those of the authors. The Newsletter is for private circulation and not
for sale.
CONTENTS
KEY HIGHLIGHTS……………………………………………………………………………..4
SPECIAL INTERVIEW
With Mr. Rajeev Vidhani.…………………………………………………………………………….9
QUASHING OF THE RBI’S FEB 12 CIRCULAR: WHAT LIES AHEAD
By- Saurav Roy……………………………………………………………………………………...12
THE PERPLEXMENT IN ASCERTAINMENT AND INCLUSION OF CONTINGENT
LIABILITY IN THE RESOLUTION PROCESS
By- Rupal Gupta & Nehreen Mehra………………………………………………………………….14
PRE-PACKAGED INSOLVENCY: QUICK RESCUE PROCESS OR A FUTILE
EXERCISE?
By- Rahul Kanoujia and Dhruv Thakur……………………………………………………………….18
CASE UPDATES……………………………………………………………………………….21
IBBI RULES……………………………………………………………………………………32
AN INITIATIVE OF CENTRE FOR PARLIAMENTARY STUDIES AND LAW REFORMS, NUALS (KOCHI)
Vol V CPSLR, NUALS
NUALS IBC E-NEWSLETTER [2]
OUR ADVISORY BOARD
NUALS IBC E-NEWSLETTER TEAM
Dr. Anil R. Nair
Associate Professor,
NUALS, Kochi
Nihas Basheer
Partner,
Wadia Ghandy &
Co., Mumbai
Suharsh Sinha
Partner,
AZB & Partners,
Mumbai
Rohitesh Tak
Chitransh Vijayvergia
Pulkit Khare
Abhijeet S. Thakur
Ajay Krishna
Anuj Jain
Charchil Vijay
Vaidehi Soni
Dilmrig Nayani
Vidit Goyal
Husna Fayaz
Jagriti Sanghi
Nikhil Gupta
Sharath Chandupatla
Utkarsh Jhingan
Anjali A.
Naveen Kumar L.R
Vallari Dronamraju
Abhishek Lalwani
Priyanka Pillai
Winy Daigavane
Belmannu Pavan
Anubhav Sharma
Shiren Panjolia
Suzann Dinu
Padmavathi Prasad
Gayathri K.K.
Jyotsna Punshi
Abhishek Jamalpur
Rishabh Saxena
Rajeev Vidhani
Ex-Partner,
Khaitan & Co.,
Mumbai
Vol V CPSLR, NUALS
NUALS IBC E-NEWSLETTER [3]
LIST OF ABBREVIATIONS
S. NO. ABBREVIATION MEANING
1. A/c Account
2. AA Adjudicating Authority
3. AT Appellate Tribunal
4. BIFR The Board for Industrial and Financial Reconstruction
5. BoD Board of Directors
6. BR Act Banking Regulation Act, 1949
7. CD Corporate Debtor
8. CDR Corporate Debt Restructuring Scheme
9. CIRP Corporate Insolvency Resolution Process
10. CIRP Regulations Corporate Insolvency Resolution Process Regulations, 2016
11. CPSLR Centre for Parliamentary Studies and Law Reforms, Kochi
12. DRS Draft Rehabilitation Scheme
13. FC Financial Creditor
14. Feb 12 circular RBI circular dated February 12, 2019
15. IBBI Insolvency and Bankruptcy Board of India
16. IBC/Code Insolvency and Bankruptcy Code, 2016
17. IRP Interim Resolution Professional
18. JLF Joint Lenders Forum
19. MSMED Act, 2006 The Micro, Small and Medium Enterprises Development
Act, 2006
20. NCLAT National Company Law Appellate Tribunal
21. NCLT National Company Law Tribunal
22. PB Principal Borrower
23. RA Resolution Applicant
24. RBI Reserve Bank of India
25. Relevant Sections Section 35AA & 35AB of the Banking Regulation Act, 1949
26. RP Resolution Professional
27. S. Section
28. Ss. Sections
29. SC Supreme Court of India
30. SICA The Sick Industrial Companies (Special Provisions) Act, 1985
31. UNCITRAL United Nations Commission on International Trade Law
32. UK United Kingdom
33. US United States
Vol V CPSLR, NUALS
NUALS IBC E-NEWSLETTER [4]
KEY HIGHLIGHTS
Seria
l No.
Case Name Date Key Findings Page
No.
SUPREME COURT OF INDIA
1. JK Jute Mill Mazdoor
Morcha v. Juggilal
Kamlapat Jute Mills
Company Ltd. through its
Director & Ors., Civil
Appeal No. 20978 of 2017.
April 30, 2019
Trade Unions are entitled to
file application u/S. 9 of the
Code, on behalf of the
Workmen.
21
NCLAT
2. Bhandari Hosiery Exports
Ltd. & Ors. v. M/s In-
Time Garments Pvt. Ltd.
& Ors., Company Appeal
(AT) (Insolvency) No. 143
of 2019
March 1, 2019
Pre-existing dispute u/S. 9 of
the Code can be evidenced
by communication through
22
3. Alchemist Infra Ventures
Ltd. & Anr. v. Kiran
Malhotra & Anr.,
Company Appeal (AT)
(Insolvency) No. 113 of
2019
March 1, 2019
Application u/S. 7 of the
Code can be revived, if post-
settlement, a default is
committed through dishonor
of cheque by the CD.
22
4. Avishek Roy, Shareholder
of M/s Reacon Engineers
(India) Pvt. Ltd v.
Diamond Steel
Enterprise, Company
Appeal (AT) (Insolvency)
No. 794 of 2018
March 12, 2019 The application u/S. 9 can be
dismissed if a settlement is
already arrived at between
the OC and CD, prior to the
constitution of CoC.
22
5. E. Sivanandam & 23 Ors.
v. Sarang S. Kale & 3 Ors.,
Company Appeal (AT)
(Insolvency) No. 27 of
2019
March 13, 2019 In the instant case, workmen
were entitled to submit their
claims even after approval of
the Resolution Plan.
22
6. R. Vijay Kumar & Anr v.
Kasi Viswanathan & Anr.,
Company Appeal (AT)
April 5, 2019 Even after the order of
liquidation has been given by
the AA, the Liquidator shall
23
Vol V CPSLR, NUALS
NUALS IBC E-NEWSLETTER [5]
(Insolvency) No. 340 of
2019
take all possible measures to
revive the company. The
measures to be taken are:
[i.] Compromise or
Arrangement with the
Creditors, u/S. 230 of the
Companies Act, 2013;
[ii.] On such failure, the
Liquidator is then required to
take steps to sell the business
of the CD as a going concern
in its totality (including with
the employees).
7. Siddharth Nayar v.
Sanjeve Bhushan Deora,
R.P. for Woolways
Exports & Anr. Company
Appeal (AT) (Insolvency)
No. 342 of 2019
April 8, 2019 The AT is not empowered to
condone delay beyond a
period of 15 days as
stipulated under u/S. 61(2)
of the Code.
23
8. Padmanabhan Venkatesh
& Ors. v. Shri
Padmanabhan Venkatesh
& Ors., Company Appeal
(AT) (Insolvency) No.
128, 220 & 247 of 2019
April 8, 2019 OCs cannot be discriminated
against the FCs. In the
instant case, the Average of
three Valuers was taken to
ascertain the liquidation
value of the CD. The
approved resolution plan
provided for payment below
liquidation value, and hence
AA didn’t accord its assent
and directed the RP to
modify.
24
9. Bhavna Sanjay Ruia v.
Insolvency and
Bankruptcy Board of
India, Company Appeal
(AT) (Insolvency) No. 341
of 2019
April 8, 2019 Appeal u/S. 61 of the Code
cannot be filed against the
order of IBBI.
24
Vol V CPSLR, NUALS
NUALS IBC E-NEWSLETTER [6]
10. Neeraj Jain v. Yes Bank
Ltd. & Anr., Company
Appeal (AT) (Insolvency)
323 of 2019
April 10, 2019
The pendency of an
investigation or trial cannot
serve as a ground to refuse an
application u/S. 7, if the
application is complete and
there exist a debt and default.
The IBC being a complete
Code will prevail over any
other legislation.
25
11. M/s Khanna Lubricants v.
M/s Gulf Petronergy Pvt.
Ltd. & Anr., Company
Appeal (AT) (Insolvency)
No. 251 of 2018
April 15, 2019 A Creditor may assign its
debt to another person but a
Debtor cannot assign a debt
payable by it to a third party
in the absence of a legal
provision.
26
12. Ms. Anju Agarwal, R.P. for
Shree Bhawani Paper
Mills Ltd. V. Bombay
Stock Exchange & Ors,
Company Appeal (AT)
(Insolvency) No. 734 of
2018
April 23, 2019 IBC prevails over the SEBI
Act, 1992 in relation to
recovery of money. SEBI
cannot recover any amount
from the CD during the
CIRP even though it may
claim as an OC.
26
NCLT
13. Trinity Services (India)
Pvt. Ltd. v. TBEA Energy
(India) Pvt. Ltd., C.P.
(I.B)
No17/9/NCLT/AHM/2
018
March 1, 2019
If in terms of any agreement,
interest is payable to the
Operational or Financial
Creditor, then the debt will
include interest.
26
14. Ms. Rama Subramaniam
v. M/s Sixth Dimensions
Project Solution Ltd, MA
No. 1626 of 2018 in CP No.
587/I&BP/2018
March 13, 2019
The CoC cannot replace the
existing IRP without any
rational reason.
27
15. M/s Agarwal Coal Corp.
Pvt. Ltd. v. M/s Sun Paper
Mills Ltd., Comp/1/2019
in CP/616/IB/2018
March 14, 2019
Contempt jurisdiction of the
NCLT u/S. 425 of the
Companies Act, 2013,
27
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cannot be extended to
proceedings under IBC.
16. In the matter of Ashapura
Minechem Ltd., MA 303
of 2019 in CP (IB) –
4508/MB/2018
March 15, 2019
The DRS Scheme accepted
by the creditors under SICA
can be considered as a
Resolution Plan under the
Code.
28
17. M/s City Union Bank Ltd.
v. M/s Deepsea
Developers Pvt. Ltd.,
CP/1153/IB/2018
March 18, 2019 ‘Corporate Guarantor’
becomes a CD as soon as the
guarantee agreement is
invoked.
28
18. Alchemist Asset
Reconstruction Co. Ltd. v.
Moser Baer India Ltd.,
Item No. 119 (IB) –
378(PB)/2017
March 19, 2019
The amount owed to the
workmen towards provident
fund, pension fund, and
gratuity fund does not
constitute part of the
liquidation estate and hence
is not to be considered under
the Waterfall Mechanism as
per S. 53 of the Code.
28
19. Yes Bank Ltd. v. M/s
Namo Alloys Pvt. Ltd., CP
No. (IB) – 867 (PB)/2018
March 25, 2019
Pendency of proceedings in a
different forum is no bar for
initiation of CIRP, in view of
the overriding provision
under S. 238 of the Code.
29
20. Dena Bank v. Kansal
Building Solution Pvt.
Ltd., CP No. (IB) – 816
(PB)/2018
March 25, 2019
A dispute over the quantum
of default cannot be a ground
for rejection of application
u/S. 7 of the Code. The
determination of quantum is
not within the domain of the
AA. If a default exists, the
application would be
accepted under S. 7.
29
21. FL Smidth Pvt. Ltd. v.
Jhabua Power Ltd., C.P.
(IB) No. 634/KB/2017
March 27, 2019 For the purpose of S. 9, the
‘dispute in existence’
between the parties should
only be in relation to “services
30
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rendered or goods supplied or the
dispute relating to a breach of
warranties.”
22. Langlai Tea and
Industries Ltd. v. State
Bank of India, C.P. (IB)
No. 10/GB/2019
March 29, 2019
Under S. 10 of the Code,
there is no requirement to
provide the reasons for the
default by the Corporate
Applicant.
31
23. M/s Guru & Jana v. M/s
Ayurwin Pharma Pvt. Ltd.
C.P. (I.B) No. 273/ BB/
2018
April 8, 2019
The notice issued under
provisions of the MSMED
Act, 2006 cannot be a valid
notice u/S. 8 of the Code.
31
24. S. Rajendran, RP v. PRC
International Hotels Pvt.
Ltd., CP/540/IB/2018
April 22, 2019
Delay owing to change in RP
and non-approval of the
budget by CoC, were
considered as valid grounds
to extend the CIRP by 270
days.
32
Vol V CPSLR, NUALS
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SPECIAL INTERVIEW
Mr. Rajeev Vidhani
Banking & Finance and Insolvency &
Restructuring Expert
Ex-Partner, Khaitan & Co., Mumbai
1. In the aftermath of the Swiss
Ribbons case, whether the promoters will
be excluded under S. 29A of the Code,
based on the test propounded in the
decision or whether a backdoor entry can
still be managed under S. 12A of the Code?
Is there any apparent conflict between the
two provisions?
It can be safely said that the two provisions are
not conflicting in nature. S. 29A of the Code
lays down the eligibility criteria for bidders
intending to submit a bid/resolution plan for a
CD. A backdoor entry is said to occur if, the
antecedents of the person submitting the
resolution plan itself are not clear and a bidder
who is otherwise ineligible to bid, submits a
resolution plan indirectly. S. 12A, on the other
hand, provides a transparent withdrawal
window for a CD/ its promoter to arrive at a
settlement with its Creditors for termination of
1 Brilliant Allow Pvt. Ltd. v. Mr. S. Rajagopal & Ors., Petition(s) for Special Leave to Appeal (C) No(s). 31557/2018.
the ongoing CIRP. It does not make S. 29A
redundant or create a backdoor entry because
the withdrawal process is completely
dependent on the consent of the original
Applicant and approval of the withdrawal
application by the Financial Creditors with at
least a 90% vote share. Thus, if the FCs ascribe
the failure of the CD on willful act or
incompetence of the promoters, they can very
well refuse to provide consent for withdrawal.
However, in a resolution plan bidding process,
as long as a Resolution Applicant is eligible
under Section 29A, the FCs, cannot bar such
Applicant from submitting a resolution. The
two provisions work harmoniously. In fact,
recently, the SC in the case of Brilliant Alloys
Private Limited1 held that Regulation 30A of
CIRP Regulations which bars withdrawal
under S. 12A after issuance of an EoI, is
directory and not mandatory.
2. Due to the advantage of liquidation
over resolution in terms of higher value
recovery, the trend has shifted to
liquidation being the preferred mode. Will
this be a hindrance in the viability and
popularity of the IBC process?
Off late, the process of liquidation has gained
prominence in India and foreign jurisdictions
especially with respect to creditors whose debts
enjoy a decent security cover over recoverable
assets. The statement holds significance but
cannot be generalized, for instance, for non-
brick and mortar companies, such as EPC
(Engineering, Procurement, and Construction)
companies, recovery is low for liquidation due
to lack of existence of hard assets. Thus,
Vol V CPSLR, NUALS
NUALS IBC E-NEWSLETTER [10]
liquidation can be preferred only in case of
asset-heavy companies or companies where
approvals can be easily transferred or obtained
post asset acquisition and where the lenders
reasonably believe that the recovery shall be
higher in case of liquidation or that the
company has lost all viability for any potential
recovery. Additionally, the first preference of
the lenders should always be insolvency
resolution. Liquidation should be resorted to
only when no potential bidders are offering a
value higher than liquidation value or where all
timelines have been exhausted. The legislative
intent of reducing the voting percentage from
75 to 66 is proof in itself, that insolvency
resolution is to be given an impetus. Thus, the
norm is resolution and liquidation is only an
option of last resort as reiterated by the
Courts/ Tribunals through various judicial
pronouncements (such as, in the case of Arcelor
Mittal).2
3. The SC in K. Sashidhar’s case has
clearly mentioned that CoC decisions are
commercial decisions and are not to be
interfered with. But contrast can be seen in
the recent case of Essar Steel v. Arcelor
Mittal, in which NCLT has made some
observations for giving the OCs a 15%
stake instead of lesser. In your opinion,
how far is it correct on part of NCLT to
review a commercial decision made by the
CoC, and does this essentially amount to
judicial review of commercial decisions?
The observation made by NCLT Ahmedabad
is only a recommendation and not a direction
per se. The decision in K. Sashidhar’s3 case only
2 Arcelor Mittal India Private Limited v. Satish Kumar Gupta and Ors., 2018 TaxPub (CL) 1116 (SC).
reiterated that the commercial wisdom of the
CoC should not be questioned with respect to
the approval of a Resolution Plan unless it is
wholly arbitrary. However, the observation by
the NCLT is only with regard to certain aspects
such as the distribution of resolution proceeds,
wherein the Tribunal has recommended a
change in proportion to ensure reasonable
parity amongst Financial and Operational
Creditors. There is a difference between
NCLT/ NCLAT interfering with the
approval/ rejection of a resolution plan and it
recommending a change in distribution of
proceeds of an approved resolution plan. The
present recommendation is only for modifying
the distribution as well as clarifying the
position of similarly and dissimilarly placed
creditors.
4. It can be seen that even after a
decision has been taken by the CoC, bids
are still being submitted. Do you think a
cut-off date is required for this as well?
How will such a time frame be managed?
In exceptional cases, Courts have allowed the
bids to be submitted even after the bid
submission date. It has been held and reiterated
by NCLAT on several occasions that the
objective of the IBC is commercial insolvency
resolution and not completion of a bid process.
The objective of the Code is value
maximization, whereby the Company/ CD
should be able to end its financial misery and
continue as a going-concern along with
creditors recovering the highest possible value.
This sole objective should not be allowed to be
defeated on a technicality. Hence, submission
3 K. Sashidhar v. Indian Overseas Bank and Ors, 2019 SCCOnLine SC 257.
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post the cut-off date has been allowed to
ensure maximum recovery for the benefit of all
stakeholders rather than turning CIRPs into
mere bid processes, allowing the highest bidder
to walk away with the company, without due
regard to the interest of all stakeholders and
business continuity.
5. A significant concern has been
expressed in certain CIRP cases that
Insolvency Professionals in India are
charging high fees that may not be
reasonable and commensurate with the
work being handled by them. There have
also been instances of abnormally low fees
charged by an IP, such as ₹1, to act as an
Insolvency Resolution Professional.
Should this disparity be a cause of concern
and, if yes, how can this be addressed?
There are no set guidelines but attempts have
been made in the form of general guidelines.
Other developed jurisdictions have fee
schedules attached to the insolvency
regulations. Thus, a standardized fee structure
should be adopted in India as well. As far as
lesser payments are concerned, there might be
other considerations involved in the current
processes.
6. Contingent liabilities, the debts
which are not dealt with in the resolution
plan, might not get due consideration at
the time of crystallization of debts when
compared to a similarly placed creditor
even though both the causes of action
arose at the same time, i.e., before the
insolvency commencement date. How can
this disparity, which is detrimental to both
the contingent debtor as well as the bidder,
be resolved?
Presently, the placement and treatment of
contingent liabilities is dealt with in the manner
set out in the Resolution plan, with provisions
limiting liability of Resolution Applicant to the
total amount provided for the respective class
of creditors in the resolution plan and
realignment of distribution inter-se the class
upon crystallization of contingent liabilities
pertaining to that class or providing for
settlement at NIL value due to non-availability
of sufficient liquidation value. If it is felt that
sufficient funds will not be available for
Secured Creditors or Operational Creditors,
limited recourse may be provided for
contingent liability (though there exists no
other reason to treat them differently).
Another alternative can be holding money in
an escrow for contingent liabilities.
7. In your view, what are the grey
areas that persist in IBC?
Firstly, the concept of third-party contracts
does not find a place in the Code. The question
arises as to whether the court has jurisdiction
to adjudicate upon their rights, including
termination of third-party contracts. Secondly,
the finality of claims itself is still a problem
area. There is no express provision in the Code
which deals with the acceptance or
extinguishment of claims submitted after a
particular date. This is expected to be settled in
due course, once claims are received post
completion of substantial CIRPs. Thirdly, the
position for distribution of resolution proceeds
can be made based on the ranking of charges
as well as between secured and unsecured
creditors. The position is under deliberation
before Hon'ble NCLAT in some prominent
matters such as Essar Steel.
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QUASHING OF THE RBI’S FEB 12
CIRCULAR: WHAT LIES AHEAD
By Saurav Roy4
INTRODUCTION
The SC, via its order in Dharani Sugars and
Chemicals Ltd. v. Union of India,5 struck down the
circular dated February 12, 2019, and declared
it entirely ultra vires, in relation to powers that
are delegated to the RBI under Ss. 35AA and
35AB of the BR Act. The Feb 12 Circular had
initially revolutionized the restructuring regime
for banks and financial institutions by repealing
a host of RBI Circulars on debt restructuring;
such as CDR, JLF, and many others. These
schemes, commonly referred to as the
‘alphabet soup', were replaced in favor of an
entirely new regime governed by the Feb 12
Circular.
In layman terms, the Feb 12 Circular inter alia
provided that:
Lenders ought to put in place a policy for
stressed assets;
In the case of default (SMA-0, SMA-1,
SMA-2), identification of a resolution plan
is necessary;6
Independent credit evaluation must be
conducted for accounts of ₹1 billion; and
Compulsory reference is to be made to IBC
proceedings for accounts over ₹20 billion
in case of unachieved resolution from 180
days starting March 1, 2018.
4 Saurav Roy, 5th Year Student, ILS Law College, Pune. 5 Dharani Sugars and Chemicals Ltd. v. Union of India, (2019) 5 SC ALE 629. 6 SMAs, or Special Mention Accounts, are classifications used by the RBI to better manage the bad loans. When
FINDINGS OF THE APEX COURT
The operative and most pertinent parts of the
SC order are as under:
The SC reasoned that the Feb 12 Circular
ought to be struck down as it exceeded the
power granted to RBI under the Relevant
Sections of the BR Act. Moreover, the
basic tenor of the Relevant Sections led the
SC to hold that the RBI ought to issue
directions only in cases where the Central
Government mandates or provides
instructions. Any generalized directions
issued by the RBI without Central
Government authorization would be ultra
vires of the BR Act.
The SC upheld the arguments of
petitioners from the power production
sector, who argued that a general circular
(such as the Feb 12 Circular) quantifying
INR 20 billion as the threshold for default,
could not be applied to individual cases
without a case by case analysis. Credence
was given to the nature of business
undertaken by power production
companies, and the long gestation periods
involved in the same.
The SC held that there was no evidence to
show that Section 45L (3)7 of the Reserve
Bank of India Act, 1934 had been satisfied
by the issuance of the Feb 12 Circular. The
SC unequivocally stated that all cases under
IBC which were under the auspices of the
Feb 12 Circular would be Non-Est, and
thus struck down. However, it becomes
principal and interest are outstanding for 30 days, it falls under the SMA-0 category. Similarly, 30-60 days of default is SMA-1, and 61-90 days falls under SMA-2. 7 Reserve Bank of India Act, 1934, §45L.
Vol V CPSLR, NUALS
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important to iterate that notwithstanding
the merits of the case, the SC has not
curtailed any lenders’ statutory rights under
the IBC to initiate insolvency proceedings
as a financial creditor under Section 7 of
the IBC.8
IMPLICATIONS OF THE ORDER
The invalidation of the Feb 12 Circular has
technically left a gaping hole in the distressed
assets space, with clarity on the RBI’s stance
expected post general elections of 2019.9 That
being said, it is pertinent to analyze the
pedantic approach taken by the SC and its
implications on the commercial sector. A few
key observations and considerations are
delineated below:
Given that cases restructured under the
ambit of the Feb 12 Circular are now
technically bad in law, banks ought to
revisit benefits of asset classification and
provisioning taken under the Feb 12
Circular, and the effect it would have on
their balance sheets.
It is logical to presume that cases that have
been initiated solely on grounds under the
Feb 12 Circular would now be withdrawn
under Section 12A of the IBC, after
concurrence of the CoC. This could also
lead to filings on the part of the debtor to
take itself out of the insolvency process,
and the interplay between these filings and
IBC will certainly lead to innovation on the
part of the legal fraternity.
8 Insolvency and Bankruptcy Code, 2016, §7. 9 RBI's revised debt resolution rules likely post-election, Economic Times Markets,
The timelines envisaged under the Feb 12
Circular had forced promoters to hurriedly
arrange funds in order to enable a ‘one-
time settlement' with banks or rush to find
new investors into equity. Various offshore
debt funds began acquiring loans from
banks, predicting a speedy resolution. The
invalidation of the Feb 12 Circular can
prove to be a blow to the liquidity in the
distressed assets market.
The negation of the Feb 12 Circular has
exposed the market to uncertainty,
especially in relation to negotiations
between bankers and promoters.
Previously, the security of fixed timelines
and predictability of outcomes enabled
smooth market liquidity. With these
timelines no longer in place, lengthier time
periods could affect the consistency and
efficacy of resolutions.
THE WAY FORWARD
Given that the SC has rejected the generalized
approach adopted by the RBI in terms of
directions and mandates, it is the author’s belief
that the best way forward for the RBI is a more
objective and specific approach (like in the case
of the ‘dirty dozen’, a list of twelve [12]
companies which constituted twenty-five per
cent [25%] of India’s non-performing assets)
which will allow for separate identification of
companies that should face the IBC process,
after a thorough analysis of the interests of
banks, debtors, and the general public.
The undermining of the Feb 12 Circular has
also brought to light the need to have a well-
https://economictimes.indiatimes.com/markets/stocks/news/rbis-revised-debt-resolution-rules-likely-post-election/articleshow/68873490.cms (Apr. 25, 2019, 10:50 AM).
Vol V CPSLR, NUALS
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planned and effective alternative arrangement,
preferably outside the purview of the IBC. The
stringent 180-day timeline provided by the Feb
12 Circular often proved detrimental, as
approval of all creditors was required for a
successful resolution. An alternate resolution
framework would be free from the shackles of
pressurized timelines and provide much-
needed flexibility to interested parties.
It would be in the RBI's best interest that the
revised framework consists of opportunities
for lenders and borrowers to interact with and
seek the support of governmental authorities
and sectoral regulators. Given the nature of the
business involved in power, sugar and other
similar sectors, a more nuanced approach along
with this institutional support could go a long
way in ensuring the resolution of debts which
even IBC may not be best suited for.
While designing the revised terms of the
stressed assets framework, the RBI must take
this SC order as an opportunity to revisit the
flaws in the Feb 12 Circular and identify a more
structurally sound system to facilitate the
resolution of debts. Two competing concerns
ought to be balanced, namely:
a. Creating adequate incentives for banks
to resolve their bad debts promptly,
and
b. The necessity of sufficient flexibility
can lead to stress-free resolution
processes for the multiple stakeholders
involved.
10 Rupal Gupta & Nehreen Mehra, 3rd-year Students, Amity Law School Delhi, affiliated to G.G.S.I.P University. 11 Property, Black's Law Dictionary (2nd ed. 1910). 12 Insolvency and Bankruptcy Board of India, Minutes of the 3rd meeting of the Advisory Committee on
Given that the statutory rights under IBC
continue to exist for banks, it is worrying that
they often need to be prodded or even
compelled to exercise these rights. It is high
time that the banks chased their bad loans
themselves, without the interference of other
agencies.
THE PERPLEXMENT IN
ASCERTAINMENT AND INCLUSION
OF CONTINGENT LIABILITY IN
THE RESOLUTION PROCESS
By Rupal Gupta & Nehreen Mehra10
MEANING
Contingent liability in the literal sense can be
defined as a liability that depends on an event
to happen to become a liability. Funds are set
aside to handle the loss.11 It is a probable
liability. For example, if a company has given a
guarantee for some other entity's debt,
statutory dues, penal interests, late fees, etc.
The IBC is silent on contingent liabilities
however, the definition of claim u/S. 3(6) &
that of financial debt u/S. 5(8) implies that it
can be treated as a claim as suggested by the
Advisory Committee on Corporate Insolvency
& Liquidation.12
Similarly, in the US, it is clear that under the
Bankruptcy Code of the US, ‘property’
encompasses both contingent & disputed
assets.13 U/S. 101(12) of the Bankruptcy Code,
‘debt’ is defined as “liability on a claim,” &
‘claim’ is defined u/S. 101(5) of the Bankruptcy
Corporate Insolvency & Liquidation held on 10-11th February, 2018 https://ibbi.gov.in/Agenda_04C_150318.pdf. 13 In re Hall, 304 F.3d 743 (7th Cir. 2002).
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Code as a “right to payment, whether or not
such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured,
unmatured, disputed, equitable, secured, or
unsecured.”14
Hence, there is no specific definition of a
contingent liability in the IBC, however, its
essence is present.
RELEVANT PROVISIONS UNDER IBC
& THE CIRP REGULATIONS, 2016
Under the CIRP, once the application for the
initiation of the resolution process is admitted
by the NCLT, the creditors are supposed to
submit all their claims against the CD.
However, Chapter II of the IBC provides that
such an application can only be filed when a
default is made by the CD. Thus in this
scenario, the main question that arises is
whether certain contingent liabilities can be
submitted as a claim by a creditor? Even
though the IBC does not directly address this
issue, inference regarding the admissibility of
contingent liabilities can be drawn from the
following-
1. The term ‘claim’ as defined u/S. 3(6) of the
IBC, includes any right to payment,
irrespective of whether it is matured or not.
2. Regulation 14(1) of the CIRP Regulations
provide-
14. Determination of amount of claim.
(1) Where the amount claimed by a creditor is not precise
due to any contingency or other reason, the interim resolution
professional or the resolution professional, as the case may be,
14 United States Bankruptcy Code, 11 U.S.C. § 101(5). 15 Export Import Bank of India. v. Resolution Professional JEKPL Pvt. Ltd, [2018] 146 CLA 246.
shall make the best estimate of the amount of the claim based
on the information available with him.
This implies that liabilities which have not yet
become debt i.e., they are contingent or
unmatured can be included in the total
liabilities of a CD. The valuation of contingent
liabilities will be done by the insolvency
professional.
APPROACH OF THE NCLT & THE
NCLAT
The main concern regarding the treatment of
contingent liability is that its occurrence is not
confirmed and when it is treated as a claim
under the CIRP, no reliable estimation of its
value can be made.
Till now, the issue about the treatment of un-
invoked corporate guarantee, which is
contingent at the date of commencement of
the CIRP has been decided by the Hon’ble
NCLAT in Export Import Bank of India. v.
Resolution Professional JEKPL Private Limited15. In
this case, the orders of the NCLT in Axis Bank
Limited v. Edu Smart Services Private Limited16 &
Export-Import Bank of India v. JEKPL Private
Limited17 were set aside which held that un-
invoked corporate guarantee cannot constitute
a ‘claim’ as first, it had not crystallized as a ‘debt’
at the commencement of CIRP; second,
enforcement of such contingent liability would
result in enforcing of ‘security interest’ leading
to violation of the moratorium imposed u/S.
14(1)(c) of the IBC. The Hon’ble NCLAT
rejected the plea that right to claim any debt
16 Axis Bank Limited v. Edu Smart Services Private Limited, CP (IB)-102(PB)/2017; Braj Bhusandas Binani v. Vijaykumar V. Iyer, [2018] 146 CLA 114. 17 Export-Import Bank of India v. JEKPL Private Limited, CA No. 159/2017.
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arises only when the Creditor's debt is due &
payable & referring to the definition of default
u/S. 3(12) held-
"It is clear that the default of debt has nothing to do
with the claim of a person, whether secured or
unsecured."
Moreover, it was observed that the duty of the
resolution professional to maintain an updated
list of all the claims u/S. 25 (2) (e), was also
indicative of the fact that even unmatured
liabilities could be treated as a claim.
Thus, this decision is welcome as it has given
much clarity regarding the admissibility of
contingent liabilities. This aligns with the
intention of the Legislature, which can be
inferred from the provisions of the IBC
discussed above.
OUTLOOK OF FORUMS OUTSIDE
INDIA
Contingent liability has been recognized as a
claim under Bankruptcy proceeding
worldwide.
As per UNCITRAL Legislative Guide to
Insolvency Law,18 the recommendation is that:
“The Insolvency Law should specify the claims
that may be submitted to include all rights for
payment that arise from acts or omissions of
the debtor prior to commencement of the
insolvency proceedings, whether mature or
18 10, Legislative Guide on Insolvency Law 14 (5th ed. 2005), https://www.uncitral.org/pdf/english/texts/insolven/05-80722_Ebook.pdf. 19 Official Trustee in Bankruptcy v. C S & G J Handby Pty Ltd, (1989) 21 FCR 19.
not, whether liquidated or unliquidated,
whether fixed or contingent. The law should
identify claims that will not be affected by the
insolvency proceedings.”
Full Federal Court in Official Trustee in
Bankruptcy v. C S & G J Handby Pty Ltd19
observed that the Bankruptcy Code is quite
wide. It opined that “every possible demand, every
possible claim, every possible liability, except for
personal torts, is to be the subject of proof in
bankruptcy.”
“Future & contingent creditors are just as much
entitled to a ranking as present creditors, in a different
way… In the case of contingent creditors, a sum is set
apart to meet their claim, should the condition upon
which it depends become purified.”20
Although contingent liability is recognized
however, its inclusion in calculation is always in
question, as the contingency makes the
valuation of the claim impossible, even though
liability has been fastened.21
The Seventh Circuit’s decision in In re Xonics
Photochemical, Inc22 recognized contingent
liabilities and even gave the formula to
evaluate. It stated that a contingent liability
should neither be added on the balance sheet
at its full face amount nor should it be shown
as zero. Instead, the Court explained that "to
value the contingent liability it is necessary to discount
it by the probability that the contingency will occur and
the liability becomes real." This is referred to as
the ‘probability discount rule.’ The Seventh
20 Thomas M Burton, Liquidator of the Ben Line Steamers Ltd, [2011] S.L.T. 535, Order dated December 24, 2010. 21 Riggin v. Magwire, 15 Wall. 549, 21 L. Ed. 232. 22 Xonics Photochemical, Inc. v. Mitsui & Co. (In re Xonics Photochemical, Inc.), 841 F.2d 198 (7th Cir. 1988).
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Circuit23 refined the ‘formula’ later. It was
observed that the formula given in Xonics was
from the creditor’s point of view & the
Bankruptcy Code required to think from the
debtor’s point of view.
The Court in Mellon Bank, N.A. v. Official
Committee of Unsecured Creditors of R.M.L., Inc.24
& in Advanced Telecommunication Network Inc. v.
Allen25 have followed the Xonics rule.26
The other method of evaluation is ‘Hindsight’,
in which an expert is asked to give a solvency
plan or a plan for valuation. Although it is
considered as inaccurate, since an expert
cannot give a plan for unknown liabilities, there
have been cases in which this valuation method
has been preferred such as in W.R. Grace & Co.
v. Sealed Air Corp.27 However, the Bankruptcy
Court in Diamond Power International Inc. v.
Babcock & Wilcox Co.28 observed that the
hindsight method was incorrect.
Another method is the ‘Monte Carlo Method’
which is probabilistic and uses statistical
random sampling techniques that reproduces
various sources of uncertainty. It calculates an
average or expected value over a large range of
resultant outcomes.29 This method has proved
to be quite successful in many cases such as In
re, Tronox30.
23 Covey v. Commercial National Bank of Peoria, 960 F.2d 657, 660 (7th Cir. 1992). 24 Mellon Bank, N.A. v. Official Committee of Unsecured Creditors of R.M.L., Inc. (In re R.M.L., Inc.), 92 F.3d 139 (3d Cir. 1996). 25 Advanced Telecommunication Network Inc. v. Allen (In re Advanced Telecommunication Network Inc.)490 F.3d 1325 (11th Cir. 2007). 26 In re Hoffinger Indus. Inc., 313 B.R. 812 (Bankr. E.D. Ark. 2004); In re Merry-Go-Round Enters., Inc., 229 B.R. 337 (Bankr. D. Md. 1999).
CONCLUSION
Even though the decision of the NCLAT dealt
with a certain type of contingent liability, it has
settled the uncertainty surrounding its
treatment under the resolution plan. It is
believed that there is one more reason why
contingent liabilities should be considered a
claim under the CIRP. It will be unfair for a
creditor if he is not allowed to participate in the
process because of the contingency of its claim.
Moreover, once the company liquidates, such a
claim will never be recovered. The NCLAT
decision will help in avoiding such injustice to
any creditor.
However, the issue regarding the reliable
estimation of such claims still exist. It cannot
be denied that the power given to the
resolution professional under Regulation 14
will be subjectively applied. "No single valuation
method is universally applicable to all appraisal
purposes. The context in which the appraisal is to be
used is a critical factor.”31 Thus, it is suggested that
some guidelines be laid down in this regard
which shall provide the basis for estimation.
This will ultimately help in bringing uniformity
in the calculation of such claims. For this
purpose, assistance can be taken from the
methods laid down in the foreign cases
discussed above. The inclusion of contingent
liability & its correct estimation is also essential
27 W.R. Grace & Co. v. Sealed Air Corp. (In re Sealed Air Corp.), 3 281 B.R. 852 (Bankr. D. Del. 2002). 28 Diamond Power International Inc. v. Babcock & Wilcox Co. (In re Babcock & Wilcox) 274 B.R. 230, 262 (Bankr. E.D. La. 2002). 29 In Lyondell Chemical Co. v. Occidental Chemical Corp., 608 F.3d 284 (5th Cir. 2010). 30 In re Tronox, No. 09-01198-alg (Bankr. S.D.N.Y. Nov. 20, 2012) ECF No. 591. 31 In re Commercial Fin. Servs., Inc., 350 B.R. 520, 532 (2005).
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as the financial creditors who have contingent
claims will also be part of the CoC which may
affect the resolution plan.
PRE-PACKAGED INSOLVENCY:
QUICK RESCUE PROCESS OR A
FUTILE EXERCISE?
By Rahul Kanoujia & Dhruv Thakur32
The Government is contemplating inception
of a quick rescue process i.e. pre-packaged
bankruptcy for corporate entities which will
unfold preferably in boardrooms than
courtrooms. Pre-packaged insolvency scheme
is a concept where bankruptcy courts are
approached with a pre-negotiated
reorganization plan by the creditors and
shareholders. Pre-packaged bankruptcy is a
plan for the financial reorganization of
distressed firms and is a popular corporate
restructuring exercise prevalent in the US and
UK. This plan is prepared with co-operation of
the creditors and the underlying objective is to
simplify the bankruptcy process to save the
firm’s money in accounting and litigation fees.
After filing a plan for reorganization, a
confirmation hearing can be scheduled quickly,
due to advance negotiation with creditors
leading to a quick exit from bankruptcy. To
illustrate, in 2017, Vodka Maker Roust Corp,
filed, initiated insolvency process under
Chapter 11 of the US Bankruptcy Code, and
it took just four business days to get a plan
approved. The company was hit by the steep
32 Rahul Kanoujia & Dhruv Thakur, 2nd year Students, Gandhinagar National Law University, Gandhinagar (Gujarat). 33 REUTERS, https://www.reuters.com/article/us-usa-bankruptcy/ever-shorter-u-s-bankruptcies-have-creditors-scrambling-idUSKBN15G5FO, (last visited December 29, 2018).
fall in Russian Ruble in 2016 and spent nine
months forging out a pre-packaged bankruptcy
plan with note-holders to cut 462 million
dollars in debt.33 Hence, pre-packaged
insolvency allows a company to engage in a
compact bankruptcy process, as almost all the
restructuring negotiations have taken place
before filing for bankruptcy.
ADVANTAGES OF OPTING FOR A
PRE-PACKAGED INSOLVENCY
The most significant advantage of pre-
packaged insolvency is the conservation of
money and time as the mechanism of CIRP is
smoother with lenders on board with a
restructuring plan beforehand.34 Credit goes to
expedited schedule, fees and costs associated
with monthly reports, attorneys, other
professionals, and creditor committees are
minimized.
Further, negative publicity that may have been
incurred with creditors fighting for their claims
in a long bankruptcy process, can be avoided.
Hence, goodwill of the company stays intact
which results in a higher price being achieved
than what otherwise would have been
realized.35
For a CD, instead of facing the CIRP, which is
disruptive to customers, suppliers, and
employees, it will have the opportunity to
broadcast a strong positive message to its
constituencies, by initiating pre-packaged
insolvency process. This will indicate that the
34 Kasee Sparks Heisterhagen, Pros, and Cons of the Pre-Pack Bankruptcy, Lexology (December 26, 2018), https://www.lexology.com/library/detail.aspx?g=f927e4b4-ef28-4714-9a04-0a49bb327f80. 35 Jose M. Garrido, Out-of-Court Debt Restructuring 09, (World Bank 2012) [hereinafter referd as ‘Garrido’].
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CD is more competitive in the business
because it will have a more manageable capital
structure in the immediate future.36 Under
Chapter 11 of the US Bankruptcy Code, which is
also a potential point of reference to introduce
the concept of pre-packaged insolvency in
India, a debtor can obtain Bankruptcy Court's
approval of a disclosure statement because
solicitation is not required for a pre-packaged
bankruptcy as it is done outside of the
bankruptcy process.37 Also, if the debtor is
interested in continuing to run its business as a
new company, but needs help in dealing with
on-going financial problems, then the pre-pack
administration could be the best solution
available.38
About the employees of the insolvent
company, the pre-packaged bankruptcy
process provides relief through the swift
transfer of a business to the acquirer without
any delay and job loss.39 Furthermore,
Indentures and credit agreements outside of
bankruptcy process require the unanimous
written agreement of note-holders or lenders
to implement a transaction that affects the
fundamental economics of a deal, for ex.,
maturity, principal and other economic terms.
Because all holders must approve these
changes, holdouts or else unresponsive parties
can vitiate the process.40 On the flip side, in a
planned process if the affected class of
36 Alexandra Kastrinou and Stef Vullings, ‘No Evil is
Without Good: A Comparative Analysis of Pre‐pack Sales in the UK and the Netherlands’, 27 International Insolvency Review 320, 320-339 (2018). 37 Raza Khan, UK: Pre-Packaged Insolvency, Mondaq (December 26, 2018), http://www.mondaq.com/uk/x/665912/Insolvency+Bankruptcy/PrePackaged+Insolvency. 38 Garrido, supra note 5, at 8. 39 Admin, The 5 Biggest Advantages of Pre-Pack Administration, HJS Recovery (December 26, 2018),
creditors accepts the proposed treatment by
two-thirds in dollar value and one-half in
number of creditors, voting can make binding
changes In Chapter 11 of the US Bankruptcy Code,
plan process, the Bankruptcy Code allows for
a class of creditors to make binding changes to
all aspects of an indenture or credit
agreement.41
ON THE CONTRARY, PRE-
PACKAGED BANKRUPTCY IS A
CONTROVERSIAL TOOL WHICH HAS
SOME POTENTIAL DISADVANTAGES
There exist various risk factors associated with
pre-packaged bankruptcy, which need to be
taken into consideration before adopting a
suitable framework in India. Firstly, a creditor,
whether financial or operational, if aware that
a bankruptcy filing is anticipated might take an
aggressive stance in collecting its dues from the
company. 42
Secondly, there is a perceived lack of
transparency concerning marketing and
evaluation of the claims, which can give rise to
an impression that full value may not be
obtained particularly in the case of sale to a
related party connected to the directors of the
CD.43
https://www.hjsrecovery.co.uk/the-5-biggest-advantages-of-pre-pack-administration/. 40 Garrido, supra note 35, at 10. 41 US Bankruptcy Code, Chapter 11. 42 Id. 43 Alexandra Kastrinou and Stef Vullings, ‘No Evil is
Without Good: A Comparative Analysis of Pre‐Pack Sales in the UK and the Netherlands’, 27 International Insolvency Review 320, 320-336 (2018).
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Thirdly, in many legal systems, creditors could
face liability if it is found that through the
implementation of the workout they were de-
facto running the debtor’s business (shadow
directors). They may also face lender’s liability
for the concession of abusive credit.44 But in
the Indian insolvency scenario, those risks do
not exist, because new finance typically
requires the consent of creditors and/or
authorization of the AA.
HOW PRE-PACKAGED BANKRUPTCY
WORKS IN US & UK
UK (pre-packaged bankruptcy has become
popular since the Enterprise Act 2002) and
the US (pre-packaged insolvency provisions
are often found in Chapter 11) have
historically been perceived as leading
jurisdictions in the development of
restructuring and insolvency law – to the extent
that dozens of local insolvency regimes around
the world have been modeled on some
combinations of their processes. Hence to
ascertain accurate feasibility of Pre-Packaged
Insolvency it is significant to understand how
it functions in these nations where pre-
packaged insolvency marks its inception.
a) UNITED KINGDOM
In the UK, directors must pass a resolution
stating they have considered the financial
position of the Company. That resolution
includes appointing an advisor known as an
Insolvency Practitioner (IP). The IP shall
review the CD’s financial position, its
performance and accordingly advise on
options available, namely: ‘Carry on the
business'; Company Voluntary Arrangement,
Administration (Including consideration of a
44 Garrido, supra note 35, at 13.
pre-pack sale); and Creditors Voluntary
Winding-up.
Where a pre-packaged bankruptcy
administration is deemed appropriate, the IP
shall try to identify buyers. Ensuring
Compliance via the Statement of Insolvency
Practice 16, it provides direction to IPs
concerning any proposed pre-pack sale. IP
shall through independent valuers, evaluate the
value of the company.
The Directors are obliged to prepare a
Statement of Affairs. If a connected party is
leading in these talks to acquire the business,
they are required to consult with the pre-pack
pool of creditors. IP will then be appointed as
an Administrator to affect the sale of the
business and or assets of the company. After
the sale, an Administrator should provide
creditors with a detailed narrative explanation
and justification (the SIP 16 statement) of
why a pre-packaged sale was undertaken and all
alternatives considered.
b) UNITED STATES OF AMERICA
In the US, unlike the UK, a CD negotiates the
terms of a Chapter 11 restructuring plan and
solicits votes on it prior to the bankruptcy filing
and Court approvals.
Pre-packaged Bankruptcy in the US allows a
company to quickly implement a balance sheet
restructuring without the consent of 100% of
its creditors (restructuring debt outside
bankruptcy often requires unanimous consent
from financial creditors). Further, in the US a
pre-pack requires the support of creditors that
hold two-thirds in amount and more than one-
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half in the number of claims voting in a class
under the bankruptcy plan.
Pre-packaged Insolvency in the United States
can be completed within thirty to ninety days.
By minimizing a debtor's time in bankruptcy,
pre-pack limits the administrative costs that a
debtor would otherwise incur during formal
insolvency proceedings.
THE ROAD AHEAD FOR PRE-
PACKAGED INSOLVENCY IN INDIA
At present, the Govt. of India is evaluating the
idea of adopting a suitable framework for pre-
packaged insolvency in India, based on past
experiences with the UK and US. The primary
objective for such discussion is to make the
pre-negotiation method amongst various
stakeholders, very clear. The IBBI is probably
going to be entrusted with this exercise. It's
expected that IBBI might come back up with a
discussion paper, inter alia, inviting suggestions
on key objectives. However, solely time can tell
that whether the pre-packaged insolvency
process, which is common in developed
insolvency jurisdictions, can be able to work its
way in India where the insolvency practice is
still at a growing stage.
CASE UPDATES
[SUPREME COURT]
April 30, 2019
JK Jute Mill Mazdoor Morcha v. Juggilal
Kamlapat Jute Mills Co. Ltd. through its
Director & Ors, Civil Appeal No. 20978 of
2017.
The case before the SC was primarily to analyze
whether a Trade Union could be an OC under
the IBC. The factual matrix of the case was that
the Trade Union issued a demand notice on
behalf of the workers under S. 8 of the Code,
to the CD. The Respondent approached the
NCLT which dismissed the claims of the Trade
Union as an OC, holding workers alone could
file an individual application before NCLT.
NCLAT on appeal upheld the NCLT’s order.
The SC analyzed the meaning of OC under the
S. 5(20) of the Code and traced it to be a
‘person’ to whom an operational debt is owed.
A careful reading of the term ‘person’ was also
done by the Court under S. 3 of the Code
which includes “any other entity established
under a statute”. Court read in the scope of
Trade Unions Act, 1926 into this clause of S. 3
of the Code.
Court gave a purposeful interpretation to the
provisions of the Trade Unions Act, stating
that a registered Trade Union being a body
corporate, has a general fund built through
contributions of the Workmen. This fund of
the Trade Union could certainly be used for the
initiation of a legal proceeding to which the
trade union is a party and for protecting the
rights of the workmen.
The Court held the orders of NCLAT to be
burdensome as each Workmen would have to
pay the CIRP cost, valuation cost, and
incidental costs, etc. Therefore, SC set aside the
NCLAT judgment and declared the Trade
Union to be a ‘person’ under the definition of
OC. It finally remanded the case to NCLAT
directing the application by the Trade Union to
be considered as a Joint Application.
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NCLAT
March 1, 2019
Bhandari Hosiery Exports Ltd. & Ors. v.
M/s In-Time Garments Pvt. Ltd. & Ors.,
Company Appeal (AT) (Insolvency) No.
143 of 2019.
The AT in this case recognized a claim of pre-
existing dispute communicated through a
WhatsApp message as a ground for non-
acceptance of Insolvency application u/S. 9 of
the IBC. Furthermore, it held that it is not
competent to answer the question as to
whether the debtor has committed fraud
against the creditor in their business
transactions.
March 1, 2019
Alchemist Infra Ventures Ltd. & Anr. v.
Kiran Malhotra & Anr., Company Appeal
(AT) (Insolvency) No. 113 of 2019.
This was a case where settlement had reached
between the parties and the amount was paid
by way of a cheque. The Hon’ble Tribunal held
that if the said cheque bounces or, for one or
other reasons encashment is not allowed, it will
be open to the FC to revive the application
u/S. 7 of the IBC.
March 12, 2019
Avishek Roy, Shareholder of M/s Reacon
Engineers (India) Pvt. Ltd v. Diamond
Steel Enterprise, Company Appeal (AT)
(Insolvency) No. 794 of 2018.
In this matter, the appellant had submitted
before the Tribunal that in light of the
45 Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors., Writ Petition (Civil) No. 99/2018.
settlement with the OC, the order admitting
the initiation of CIRP filed by the OC be
dismissed. This was contested by one of the
FCs on the ground that in pursuance of the
order, the CoC has already been constituted
and therefore the appeal should not be allowed.
The AT relying on the judgment in Swiss
Ribbons Pvt. Ltd. & Anr. v. Union of India &
Ors.,45 and based on the facts in the instant case,
held that, since the settlement was reached
before the constitution of the CoC, the
impugned order be dismissed.
March 13, 2019
E. Sivanandam & 23 Ors. v. Sarang S. Kale
& 3 Ors., Company Appeal (AT)
(Insolvency) No. 27 of 2019.
In the instant case, an appeal was sought by
certain workmen of the CD against the order
passed by the AA which approved the
resolution plan submitted by the ‘successful
resolution Applicant’. It was submitted that the
majority of workmen did not file their claims
during the CIRP. On behalf of the ‘successful
Resolution Applicant,' it was submitted that
provisions were made for settling the claims of
those workmen who have not submitted their
claims. The AT did not interfere with the
impugned order but allowed the workmen to
file their claims with the CD. It additionally
clarified that the Tribunal has not decided the
individual claim of any of the Appellants,
which is to be verified by the CD from the
records and evidence as may be produced by
them.
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March 15, 2019
MSTC Ltd. v. Adhunik Metalliks & Ors.,
Company Appeal (AT) (Insolvency) No.
519 of 2018
The appeals were raised in connection with the
CIRP of Adhunik Metalliks. In the first appeal,
the question was whether, on the failure of the
resolution applicant to settle the claims as per
the resolution plans within 57 days, liquidation
proceedings be initiated. The second question
was w.r.t. appropriation of claims of MSTC
Ltd. under the CIRP.
In the first appeal, the Tribunal negated Liberty
House's contention that the 57 days have to be
computed from the date of approval of the
resolution plan by CCI. However, it granted a
further 30 day period for implementing the
resolution plan. In the second appeal, the
Tribunal held that MSTC cannot appropriate
the old claims against the CD before the
passing of the moratorium under CIRP as
‘resolution process costs'.
April 5, 2019
R. Vijay Kumar & Anr v. Kasi Viswanathan
& Anr., Company Appeal (AT)
(Insolvency) No. 340 of 2019.
In the instant case, NCLAT made various
observations regarding S. 230 of the
Companies Act, 2013. The CIRP had failed
and the RP filed an application u/S. 33 of the
IBC before the NCLT, which passed an order
for liquidation. It was held, following the
decision in Meghal Homes Pvt. Ltd.46 and Swiss
Ribbons Pvt. Ltd.,47 that the liquidator shall carry
46 Meghal Homes (P) Ltd. v. Shree Niwas Girni K.K. Samiti, (2007) 7 SCC 753).
on the business of the CD for its beneficial
liquidation etc. as prescribed u/S. 35 of the
IBC. Even during liquidation, steps for revival
must be taken and protect the CD from death
by liquidation. The steps to be taken are: [i.]
Compromise or arrangement with the
creditors, u/S. 230 of the Companies Act,
2013; [ii.] On such failure, the liquidator is
then required to take steps to sell the business
of the CD as going concern (including the
employees) in its totality. Further, if, for any
reason, the liquidation process takes more
time, the AA can extend the period if there
exists a chance for approval of the scheme of
arrangement.
April 8, 2019
Siddharth Nayar v. Sanjeve Bhushan
Deora, R.P. for Woolways Exports & Anr.,
Company Appeal (AT) (Insolvency) 342 of
2019.
An appeal was preferred by Woolways Exports
against the order of NCLT, New Delhi u/Ss.
43, 44 and 45 of the IBC. The appeal was filed
after 79 days of delay apart from 30 days’
period of filing the appeal. It was held that,
u/S. 61(2), an appeal is required to be filed
within 30 days before the AT. Furthermore,
the AT can condone the delay of another 15
days if it is satisfied that there was sufficient
cause for not filing. Thus, the AT is not
empowered to condone the delay of 79 days.
Hence, the appeal was held to be barred by
limitation.
47 Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors., Writ Petition (Civil) No. 99/2018.
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April 8, 2019
Padmanabhan Venkatesh & Ors. v. Shri
Padmanabhan Venkatesh & Ors.,
Company Appeal (AT) (Insolvency) 128,
220 & 247-2019.
The CIRP was initiated against ‘M/s. United
Seamless Tubular Pvt. Ltd.’. The Resolution
Applicant, M/s. Maharashtra Seamless Ltd.,
submitted the resolution plan which according
to the RP met all the requirements of the Code
and CIRP Regulations. However, several
parties raised objections against the resolution
plan submitted by RA. One of the grounds
taken was that the resolution plan was below
the liquidation value and fair value should be
adopted before approval of the resolution plan.
On consideration of the facts of the entire case,
it was held by the AT, that OCs had been
discriminated against the FCs in the resolution
plan. The liquidation value being ₹597.54
crores, the upfront payment suggested by the
Resolution Applicant being less, i.e., ₹477
crores, the payment to the OCs was lower than
the proportionate liquidation value, therefore,
the resolution plan as approved by the AA was
against S. 30(2) of the IBC. Taking into
consideration the case of Binani Industries Ltd.
v. Bank of Baroda,48 the AT held that the OCs
must get a minimum payment of not less than
the liquidation value. Hence, it was observed
that if RA modifies the resolution plan as
ordered and deposits another sum of ₹120.54
crores within 30 days, the AA will allow the
Resolution Applicant to take over the
possession of CD.
48 Binani Industries Ltd. v. Bank of Baroda, Company Appeal (AT) (Insolvency) No. 82 of 2018.
April 8, 2019
Bhavna Sanjay Ruia v. Insolvency and
Bankruptcy Board of India Company
Appeal (AT) (Insolvency) No. 341 of 2019.
An appeal was preferred by RP against the
order passed by IBBI through its Disciplinary
Committee. It was observed that S. 61 of the
IBC empowers an aggrieved person to file an
appeal before AT against an order passed by
the AA. Held, no appeal is maintainable against
the order passed by IBBI including its
Disciplinary Committee u/S. 61. In the
circumstances, the appeal was dismissed being
not maintainable. However, it was clarified that
the said order will not operate as an
impediment against the Appellant to move
before any appropriate forum for relief.
April 9, 2019
Rajit Mehra v. Punjab National Bank &
Anr., Company Appeal (AT) (Insolvency)
334 of 2019.
In the instant case, an appeal was preferred by
an Ex-Director of CD against the order of
NCLT. It was submitted that the BoD was not
invited during the meeting of CoC when the
resolution plan was approved. The AT held,
that admittedly, the BoD has no voting right
though they have the right to point out the
defect, if any, in approving or rejecting one or
the other plan. In the instant case, even after
allowing the Appellant for pointing out any
illegality, committed by the CoC while
approving the resolution plan, the Appellant
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failed to point out any. Hence, the Appeal was
dismissed.
April 9, 2019
Phoenix ARC Pvt. Ltd. v. Ketulbhai
Ramubhai Patel, Company Appeal (AT)
(Insolvency) 325 of 2019.
The Appellant submitted that the CD pledged
40,160 shares in its favor as security inter alia
for repayment of Financial Facility. This
amounts to raising money under the
transaction having a commercial effect of
borrowings. Therefore, in effect, the Appellant
ought to fall within the meaning of FC. It was
held that the ‘pledge of shares' in question did
not amount to “disbursement of any amount
against the consideration for the time value of
money” and thus do not fall under S. 5(8)(f) of
the Code. In this regard it was observed that:
“it is clear that the shares have been assigned and in
case the shares or any part of them became the subject
matter of an attachment by a Court or otherwise tainted
for any reason, the ‘Corporate Debtor' is liable to
replace the same with other securities acceptable to the
Assignor.”
Hence, the appeal was dismissed.
April 10, 2019
Neeraj Jain v. Yes Bank Ltd & Anr.,
Company Appeal (AT) (Insolvency) 323 of
2019
The CFO of CD, who was involved in signing
forged cheque, had withdrawn money from the
account of the CD. The Appellant (shareholder
of CD) appealed against the admission of an
application u/S. 7 of the Code. It was
submitted by the Appellant that had the
amount remained in the account of the CD, the
CD would not have failed to pay its dues. It
was held that, application u/S. 7 is an
independent proceeding and has nothing to do
with the pendency of a criminal case relating to
the misappropriation of funds by the CFO of
the Banks. The pendency of the investigation
or trial cannot be a ground to refuse an
application u/S. 7 if the application is complete
and there exist a debt and default. The IBC
being a complete Code will prevail over any
other legislation.
April 11, 2019
Guneet Pal Singh Majitha v. Sh.
Dharmendra Kumar, Company Appeal
(AT) (Insolvency) No. 752 of 2018
The AA affirmed the RP’s decision that
refused to recognize the appellant as FC. The
factual matrix of the case was that CD and the
appellant had entered into an "agreement to
sell". The aforesaid Agreement depicted the
appellant as a ‘Purchaser' and CD as an owner
of the office space. The CD agreed to sell the
said property for a sum of ₹3,75,00,000/- out
of which, the Appellant paid ₹1, 25,00,000/- as
advance money. The AT was of the opinion
that from the aforesaid agreement, it is clear
that the Appellant is an ‘allottee’ and further
that the amount was disbursed by it towards
the consideration for the time value of money.
Hence, the AT set aside the impugned order
passed by the AA and held that the appellant
was eligible to file an application S. 7 of the
Code.
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April 15, 2019
M/s. Khanna Lubricants v. M/s. Gulf
Petronergy Pvt. Ltd. & Anr., Company
Appeal (AT) (Insolvency) No. 251 of 2018.
The Appellant, an OC filed an application u/S.
9 of the Code for initiation of CIRP against
‘M/s. Gulf Petronergy Pvt. Ltd.' which was
dismissed by the impugned order dated 17th
April 2018 passed by the AA. The Appellant
submitted that the application should have
been accepted as ‘M/s. Petrolube India Ltd.’-
(CD) assigned the debt to ‘M/s. Gulf
Petronergy Pvt. Ltd.’ The AT rejecting the
submission of the Appellant, held that a
creditor is entitled to assign its debt to another
person but a debtor cannot assign a debt
payable by it to a third party in absence of any
provision to assign debt of a debtor.
April 23, 2019
Ms. Anju Agarwal, R.P. for Shree Bhawani
Paper Mills Ltd. v. Bombay Stock
Exchange & Ors., Company Appeal (AT)
(Insolvency) No. 734 of 2018
The appellant challenged the decision of the
AA and argued that Regulatory Authorities
such as SEBI is covered by moratorium u/S.
14 of the Code. The respondents placed
reliance on S. 28A (3) of the SEBI Act and
suggested that it will prevail over the IBC. The
Tribunal observed that S. 28A of the SEBI Act
is in contravention of S. 14 of the IBC and held
that S. 14 will prevail over S. 28A of the SEBI
Act by virtue of the overriding provision u/S.
238 of the IBC and referring to the decision in
49 Maharashtra Seamless Ltd. v. Shri Padmanabhan Venkatesh & Ors, Company Appeal (AT) (Insolvency) No. 220 of 2019.
Maharashtra Seamless Ltd. v. Shri Padmanabhan
Venkatesh & Ors.49, held that SEBI cannot
recover any amount from CD during the CIRP
even though it may claim as an OC.
April 23, 2019
Ravinder Pal Singh Lamba v. Satkar Air
Cargo Services Pvt. Ltd., Company Appeal
(AT) (Insolvency) No. 592 of 2018.
The issue before the Tribunal was whether the
appellant falls within the meaning of FC u/S.
5(7) of the IBC. The respondents argued that
the money advanced by the Appellant was not
given as a loan but was an investment on the
part of the Appellant and his son for running
the business of the Respondent, which is
apparent from the terms of the agreement
between the parties. Analyzing the records and
Ss. 5(7) and 5(8) of the IBC, AT allowed the
appeal with no costs by holding that the money
was a ‘long-term borrowing’ and was provided
by the appellant against the consideration for
time value of money and thus the Appellant
falls within the meaning of FC as the amount
disbursed comes within the meaning of
‘Financial Debt’ under the IBC.
NCLT
March 1, 2019
Trinity Services (India) Pvt. Ltd. v. TBEA
Energy (India) Pvt. Ltd., C.P. (I.B) No.
17/9/NCLT/AHM/2018
In the instant case, the OC filed an application
under S. 9 of the Code. The issue was whether
the interest claimed on delayed payment can
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get crystallized into a single due with the
principal amount. The court referred to the
decision of the Hon'ble NCLAT in the matter
of Gammon India Ltd v/s. 1) M/s. Krishna
Enterprises 2) Om Industrial Corporation 3) M/s.
Swastik Enterprises 4) Orissa Sales & 5) M/s.
Pavan Enterprises50 and observed that if in terms
of any agreement interest is payable to the
operational or financial creditor, then the debt
will include interest. However, as there was no
agreement for payment of the alleged interest
amount and no documents to prove the same,
the petition was dismissed.
March 5, 2019
M/s Anandram Developers Pvt. Ltd. v. Mr.
Gopal Krishna and Ors.,
CP/603/(CB)/2017.
In the instant case, the CD had availed credit
facilities/loans from two financial institutions
namely Indian Overseas Bank and Oriental
Bank of Commerce. The Applicant, being the
assignee of the debts from the said financial
institutions had stepped into the shoes of its
assignors pursuant to an agreement. The issue
that arose before the AA was that whether
Respondent no. 2 (M/s. Jayapushpam Investments
and Trading Pvt. Ltd) and Respondent No. 3
(M/s. JDA Consultancy Pvt. Ltd.) were ‘related
parties' to the CD. The AA considered the
contents of the deeds of assignment between
the CD and the two respondents. The deed
included provisions such as allotment of equity
shares, settlement of the amount in favor of the
assignors by the assignees, agreements for joint
ownership and development of the property.
In light of all these aspects, the AA concluded
50 Company Appeal (AT) (Insolvency) No. 144, 145, 146, 147 & 148 of 2018.
that these were assignments cum partnership
deeds which placed the respondents in a
position to influence the decision of the CD.
Therefore, it was held that the Respondents fall
within the definition of ‘related party’ as per S.
5(24) (a) of the Code. Hence, the RP was
directed to remove the names of Respondent
No. 2 & 3 from the CoC.
March 13, 2019
Ms. Rama Subramaniam v. M/s Sixth
Dimensions Project Solution Ltd, MA No.
1626 of 2018 in CP No. 587/I&BP/2018.
An application was filed by the CoC which
sought to replace the IRP with an RP of their
own choice. But, the CoC did not furnish any
reason for the change of RP, only certain
grounds were furnished in the form of an
affidavit, to which the IRP provided a
satisfactory explanation. However, the CoC
still was adamant on appointing the RP of their
choice. Hence, the issue was whether the CoC
could appoint a new RP even when the AA
finds the existent IRP competent. It was held
that the CoC has no absolute power to change
the RP without any assigning any valid reasons.
The change of an RP must be sought for only
reasonable, tenable and rational reasons.
March 14, 2019
M/s Agarwal Coal Corp. Pvt. Ltd. v. M/s
Sun Paper Mills Ltd., Comp/1/2019 in
CP/616/IB/2018.
The issue in the instant case was whether or not
the contempt jurisdiction u/S. 425 of the
Companies Act, 2013 could be extended to the
cases under the Code. It was observed that the
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provisions of the Contempt of Courts Act,
1971 have been made applicable to NCLT &
NCLAT u/S. 425 of the Companies Act, 2013.
Thus, it was held that if an authority designated
under one enactment is conferred powers to
adjudicate cases under another enactment, it
cannot be assumed that all powers conferred
under the earlier enactment could be exercised
by AA unless an explicit mention of the same
is made. Hence, it was held that contempt
jurisdiction cannot be extended to cases under
the Code.
March 15, 2019
In the matter of Ashapura Minechem
Limited, MA 303-2019 In CP (IB)-4508-
MB-2018.
In the instant case due to the repeal of SICA,
the proceedings under the Act against CD
stood abated and were transferred to the
NCLT within 180 days. The CD filed a petition
u/S. 10 of the Code and a miscellaneous
application u/S. 30 & 31. The question for
consideration before the Tribunal was firstly,
whether an application u/S. 10 is to be treated
as a continuation of the BIFR proceedings on
the repeal of SICA which the tribunal answered
in affirmative. Secondly, whether the DRS
Scheme is to be treated as a resolution plan for
the revival of the Corporate Applicant? It was
held that the CD was correct in moving an
application u/S. 30 for the submission of a
resolution plan which was already considered
and taken into account by the BIFR. Hence,
the resolution plan transferred from BIFR
ought to be treated as a resolution plan under
51 Ferro Alloys Corporation Ltd. v. Rural Electrification Corporation Ltd., Comp. App (AT) (Ins) No. 92 of 2017.
S. 30 of the Code. It was further held that there
was no requirement of publication to invite the
EoI. The resolution plan in existence could be
acted upon as it is the same bankers who had
considered the resolution plan in the earlier
proceedings, which were going to be the
members of CoC under the Code.
March 18, 2019
M/s. City Union Bank Limited v. M/s.
Deepsea Developers Pvt. Ltd.,
CP/1153/IB/2018.
In the instant case, an application was filed
under S. 7 of the Code by the FC, against the
‘Corporate Guarantor’, on the ground that the
‘Principal Debtor’ had defaulted in repaying
the financial debt. The AA held that the
‘Corporate Guarantor' becomes a CD as soon
as a guarantee agreement is invoked.
Furthermore, S. 5(8) of the Code confirms that
a corporate person who owes a debt in the
form of liability in respect of a guarantee would
be included in the definition of a "Corporate
Debtor" under S. 3(8) of the Code. The
principle in the case of Ferro Alloys Corporation
Ltd. v. Rural Electrification Corporation Ltd.51 and
other connected appeals were reiterated.
Hence, the AA accepted application in the
instant case as liability subsisted against the
guarantor and it had defaulted.
March 19, 2019
Alchemist Asset Reconstruction Co. Ltd. v.
Moser Baer India Ltd., Item No. 119 (IB) -
378(PB)/2017.
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In the instant case an application was filed by
the various workmen of CD under liquidation,
praying for directions to exclude the amount
due to them towards provident fund, pension
fund and gratuity fund from the waterfall
mechanism under S. 53 of the Code and to pay
them the respective dues, as they will not
constitute a part of liquidation estate. Similar
directions concerning payment of dues
towards workmen u/S. 25FFF of the Industrial
Dispute Act, 1947 and payment of arrears,
being less than 24 months preceding the order
of the liquidation, were also sought. The AA
while relying on the case of Asset Reconstruction
Company (India) Ltd. v. Precision Fasteners Ltd.52
held that the dues in respect of the Provident
Fund/Pension Fund/Gratuity Fund shall not
be treated as a part of the liquidation estate and
therefore would not be recovered under the
waterfall mechanism. Hence, the application
was accepted.
March 19, 2019
Mrs. Kaushalya Ahluwalia v. Vardhman
Estates and Developers Pvt. Ltd., C.P. No.
IB-1555(PB)/2018
An application was filed u/S. 7 of the Code. It
was argued by respondent that the transaction
between parties was not a loan transaction but
was a transaction of different nature where the
Applicant purchased two properties/units
from the respondent through builder-buyer
agreement and the properties were sold at a
considerably lower price because the
respondent wanted to keep the option open of
buying back the said properties after paying
52 Asset Reconstruction Company (India) Ltd. v. Precision Fasteners Ltd, MA 576 & 752 of 2018 in CP No. (IB) – 1339(MB)/2017.
some premium to the Applicant. However, the
AA concluded that the defense was an
afterthought. It was observed that such defense
had not been taken up by the respondent at any
point of time in the settlement agreement as
well as the earlier part of the proceedings.
Therefore, it was held that all the requirements
of S. 7 for the initiation of CIRP were fulfilled
and in furtherance of the same, the application
was admitted.
March 25, 2019
Yes Bank Ltd. v. M/s Namo Alloys Pvt.
Ltd., CP No. (IB) – 867 (PB)/2018
In the present case, the Applicant Bank had
sanctioned and disbursed the loan amount
recoverable with applicable interest in favor of
the CD. The CD committed default in
repayment of the financial debt. The main
argument of Respondent was that there was a
suppression of material facts by the bank and
also the misappropriation of funds by CFO of
the CD in concert with the Bank employees
and in furtherance of the same, a civil suit and
an FIR had also been filed. The AA refused to
entertain this objection and admitted the
application. In this regard, it held that initiation
and pendency of proceedings in different
forums is no bar for the initiation of CIRP
given the overriding effect u/S. 238 of the
Code.
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March 25, 2019
Dena Bank v. Kansal Building Solution
Pvt. Ltd., CP No. (IB)- 816 (PB)/2018
In the present case, the bench rejected the
Respondent’s objection to application u/S. 7
of the Code, which claimed that the FC had not
acted in terms of circulars and guidelines of
RBI for classifying the a/c as NPA. The bench
held that the dispute over the quantum of
default, cannot be a ground for rejection of an
application u/S. 7 as determination of quantum
is not within the domain of the AA. Hence,
since the default was proved, the application
was accepted.
March 27, 2019
FL Smidth Pvt. Ltd. v. Jhabua Power Ltd,
C.P. (IB) No. 634/KB/2017
The OC supplied a coal machine handling
system and certain other required services to
the CD in exchange for a sum of ₹151, 45, 00,
000/-. However, since CD was not in a
position to pay the same, through a meeting, it
was decided that CD would pay an amount of
₹39, 00, 00, 000/- as full and final settlement.
However, since CD did not pay, the OC filed
an application to initiate CIRP against CD u/S.
9 of the Code. CD argued that the application
was not admissible since certain documents
were not supplied by OC in contravention of
the settlement agreement, and therefore, there
was a ‘dispute in existence’ between the parties
u/S. 5(6) of the Code. The AA, relying upon
the decision of SC in Mobilox Innovations53 held
that the existence of a dispute under this
53 Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd, Civil Appeal No. 9405 of 2017 (Supreme Court).
Section must relate to “the amount claimed, dispute
about the services rendered or goods supplied or the
dispute relating to a breach of warranties” and not
due to the failure to supply certain documents.
Therefore, the AA admitted the application on
account of it being devoid of any defects.
March 27, 2019
UCO Bank v. Shree Shyam Pulp and
Boards Mills Ltd, C.P. (IB) No. –
386(PB)/2018.
The Applicant Bank extended different
financial facilities to the CD which was later
converted into a consortium and the Applicant
Bank took over as the Lead Bank. When the
CD failed to repay the amount, the FC filed an
application to initiate CIRP. The CD defended
by stating that it always is ready and willing to
revive and run the unit to pay back the loan. It
contended that CD had made several offers for
an OTS which were rejected by the FC. The
AA held that it is beyond the power of the
Tribunal to compel a creditor to forgo part of
its claim or to enter into any settlement. The
court's duty is to look into whether the
requirements under S. 7 have been fulfilled.
Hence, the application was accepted u/S. 7 of
the Code.
March 28, 2019
M/s. OPG Power Generation Pvt. Ltd v.
M/s. Balu Spinning Mills Pvt. Ltd.,
CP/736/IB/2018.
There was an agreement between parties for
the supply of power to the CD subsequent to
which invoices were raised against it. As and
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when the tariff rate increased, a new agreement
was executed. OC entered into a new
agreement on 20.05.2016 superseding the
previous one. CD contended that, as a result,
the tariff determined under the old agreement
would get extinguished. The point of
consideration for the AA was, as to whether or
not the claim made over the power already
supplied based on the tariff determined under
the old agreement could get extinguished and
whether the debtor is relieved from paying off
the earlier dues due to the new agreement,
being executed. The AA answered in negative
and stated that it is not a suit for specific
performance so as to contemplate, whether or
not the agreement is in force. O has to pay for
the services or goods availed notwithstanding
the fact as to whether the agreement is in force
or not. Hence, the application for initiation of
CIRP was admitted u/S. 9 of the Code.
March 29, 2019
Langlai Tea and Industries Ltd. v. State
Bank of India, C.P. (IB) No. 10/GB/2019
An application to initiate CIRP was filed by the
CD under S. 10 of the Code. However, its
submission was that the failure to repay the
loan was as a result of the failure of the banks
in disbursing the subsequent funds on time.
The AA opined that there was no need of
going into the details of the allegations leveled
by the Applicant with regard to the cause of
default as it was filed under S. 10 of the Code.
The AA held that the requirements under S.10
(3) have been fulfilled and therefore, the
application was admitted.
April 4, 2019
In the matter of Global Interactive Malls
Pvt. Ltd., Company Petition No. (IB)-249
(ND)/2018.
An application was filed u/s 10 of IBC. Under
Form – 6 of the Rules, a CD is required to
disclose as amongst others, the details of the
CD including the date of incorporation as well
as information about FCs and OCs to whom
the CD owes money. The CD is also required
to furnish the total amount of debt, the total
amount in default and the time of occurrence
of the same, with the relevant documents. The
conditions stipulated under Form-6 were not
complied with by the Corporate Applicant at
the filing stage, in its entirety initially, but later
it was subsequently rectified. The FCs argued
that the Applicant had not come with clean
hands and had suppressed facts. The AA held
that such objection cannot be a ground to
reject the application if it is otherwise
complete. While admitting the application the
AA observed that S. 10(4) (a) of the Code
mandates the AA to admit the application if it
is complete and no disciplinary proceeding is
pending against the proposed IRP.
April 8, 2019
M/s Guru & Jana v. M/s Ayurwin Pharma
Pvt. Ltd. C.P., (I.B) No. 273/ BB/ 2018.
An application was filed under S. 9 of the
Code. The Applicant had issued a legal notice
under the provisions of the MSMED Act,
2006. The services rendered by the Applicant
were covered under the MSMED Act, 2006
and a remedy was available under the same Act.
The AA held that as per S. 8(1), an OC should
deliver a notice in the manner prescribed under
the Code and since Applicant had issued the
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notice under the MSMED Act, 2006 and not
under the Code, the Applicant has to avail the
remedy under the MSMED Act.
April 22, 2019
S. Rajendran RP v. PRC Int’l Hotels Pvt.
Ltd., CP/540/IB/2018.
In the instant case, the CIRP was not in
progress for 29 days owing to the change of
IRP. The AA had passed a stay order
restraining the CIRP proceedings for 19 days
and later the CIRP budget was not approved
by the CoC, due to which 24 days got lapsed.
Therefore, the period of 72 days was sought by
the RP to be excluded from the total period of
270 days as 72 days could not be utilized by the
IRP. Hence, the AA excluded 72 days from 270
days by extending the CIRP period till
03.07.2019 with the direction to expedite the
process.
IBBI RULES
March 1, 2019
Insolvency and Bankruptcy Board of India
(Salary, Allowances and other Terms and
Conditions of Service of Chairperson and
members) Second Amendment Rules,
2019.
These Rules were enacted to amend Rule 16 of
the Insolvency and Bankruptcy Board of India
(Salary, Allowances and other Terms and
Conditions of Service of Chairperson and
members) Rules, 2016 which deals with
‘Encashment of Leave'. After the amendment,
Rule 40 of the Central Civil Services (Leave)
Rules, 1972 shall govern the payment of leave
salary during leave. Formerly, these were
governed in accordance with the "rules
applicable to Group ‘A' officers of the Central
Government". Moreover, the Chairperson and
a whole-time member are now entitled to
encashment of fifty percent of earned leave
standing to their credit at any time, which
earlier was restricted to maximum encashment
of three hundred (300) days, including the leave
encashed before superannuation.
