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Important IBC Judgments by the NCLAT (12 – 16 July 2021)

  July 20, 2021

Abbreviations Used

Code – Insolvency and Bankruptcy Code, 2016

CIRP – Corporate Insolvency Resolution Process

AA – Adjudicating Authority (NCLT)

CD – Corporate Debtor

FC – Financial Creditor

OC – Operational Creditor

CoC – Committee of Creditors

IRP – Interim Resolution Professional

RP – Resolution Professional

RA – Resolution Applicant

 

 

(12-07-2021)

Delhi Bench

NCLT misunderstood the Supreme Court decision in Ghanashyam Mishra: Piramal Capital & Housing Finance Limited v. The Administrator, Dewan Housing Finance Corporation Limited and Anr.

The AA in the impugned order had observed that the approval of the Resolution Plan should not be construed as a waiver of any statutory obligations of the CD. The AA had relied on Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited &. Others to hold that any waiver in the Resolution Plan should be subject to approval by the authorities. The Appellant/RA submitted that the aforesaid observation was contrary to Ghanshyam Mishra case. The Appellate Tribunal held that the statutory dues owed to the government, which are not a part of the Resolution Plan, shall be extinguished.

 

 

(13-07-2021)

Delhi Bench

Simultaneous proceedings against the Developer and the Maintenance Company valid: Bhaskar Biswas v. Avaani Oxford Owners’ Association

M/s Avaani Projects and Infrastructure Ltd., a developer of a real estate project, collected a sinking fund and maintenance deposit of Rs. 5,64,72,615.80/– from the proposed flat owners. This sinking fund was transferred to the CD, which is a wholly owned subsidiary of the developer company, for upkeep till a flat owners’ association was formed.

The FC/flat owners’ association filed for proceedings u/s. 7 of the Code against the developer company, and also initiated proceedings against the CD. The FC filed a consumer complaint before the National Consumer Disputes Redressal Commission, and restrained the Developer from utilizing the sinking fund. The Appellant suspended the director of the CD, contented that the amount collected was used for maintenance and was not a Financial Debt.  The Appellate Tribunal noted that as per Explanation to Section 5(8)(f) of the Code, any amount raised from a flat allottee shall be deemed to have the effect of a borrowing. It held there was a financial debt due and in default and therefore, the CIRP initiated against the CD could not be interfered with.

 

Application was collusive and to seek undue benefits of IBC: Shree Ambica Rice Mill v. M/s Kaneri Agro Industries Limited

The CD admitted the debt of the FC and did not object to the admittance of the application. The AA had also directed the Registry to issue notice to the FC u/s. 65 of the Code for a penalty. The Appellant/FC submitted that the moment AA is satisfied that a default has occurred, the application must be admitted, unless it is incomplete. They also submitted that the AA did not have the jurisdiction to question the nature of the transaction.

The Appellate Tribunal relied on Swiss ribbons (P) Ltd v Union of India, (2019) 4 SCC 17 where the Supreme Court held that even if the application u/s. 7 meets all the requirements, the AA has to exercise discretion to prevent a malafide CIRP. The AA is obliged to investigate the nature of the transaction and to prevent anyone taking undue benefit of provisions of the Code. The Appellate Tribunal, to ascertain if there is a ‘Financial Debt’, relied on Phoenix Arc Private Limited v. Spade Financial Services Limited & Ors and Anuj Jain IRP for Jaypee Infratech Ltd. v. Axis Bank Ltd. The Appellate Tribunal was not convinced by the actions of the CD, which has a paid-up share capital of Rs. 7,30,00,000/– and cash credit limit of Rs. 24,00,00,000/– but was unable to repay Rs. 10,00,000/–, and did not object to the initiation of CIRP. There was no proper evidence of debt and default, including a loan agreement stipulating the tenure and the interest rate. The Appellate Tribunal held that the transaction is not a ‘Financial Debt’. The Application was filed with the ulterior motive to subvert a recovery proceeding initiated by Bank of Baroda u/s. 13(4) of the SARFAESI Act, by seeking benefits of moratorium u/s. 14 of the IBC.

 

Corporate guarantee extended by CD to creditor is a financial debt: 9M Corporation v. Naresh Verma

The appeal was filed seeking direction to constitute the CoC under Section 21 of the Code. The Appellant/FC submitted that the inclusion of STCI Finance Ltd. as an FC in the CoC was against the decision of the Supreme Court in Anuj Jain v. Axis Bank Limited, in which it has been held that security to the third party by the CD cannot be called ‘Financial Debt’. The Appellate Tribunal held that liability arising out of guarantee for any of the items referred to in sub-clause (a) to (h) of section 5(8) is a Financial Debt. Thus, based on the corporate guarantee extended by the CD, the Appellate Tribunal held that STCI is an FC in the CIRP.

 

Appeal filed beyond the period prescribed u/s. 61(2) of the Code cannot be condoned: New Boilers Engineering v. IDBI Bank Limited

 

 

(15/07/2021)

Chennai Bench

Condonation of delay is at the discretion of the AA: Jain Irrigation Systems Limited v. Empee Sugars and Chemicals Limited

The appeal was against the order of the AA dismissing an application u/s. 5 of the Limitation Act for condonation of delay of 241 days. The Appellant/OC contended that there existed ‘sufficient cause’ justifying the condonation of delay.

The Appellate Tribunal held that the condonation of delay cannot be claimed as a matter of right. It is the discretion of the Tribunal and when there is no sufficient cause for the delay, it may not entertain the application. The Appellate Tribunal noted that as per Section 5 of the Limitation Act, 1963, the explanation of delay must be to the satisfaction of the Court/Tribunal and in this case, the AA was not subjectively satisfied for the delay.

 

~ By Manikanda Prabhu J