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Important IBC Judgments by NCLTs this week (28 June – 2 July 2021)

  July 3, 2021

Summaries of the noteworthy orders passed by the various NCLT benches in IBC matters ~ By Aaryan Mohan & Vinisha Jain

AHMEDABAD BENCH

June 29, 2021

Rule 11 of the NCLT Rules will Apply for Withdrawal of CIRP before Constitution of CoC: Sintex Plastics Technology Ltd. v. Zielem Industries Pvt Ltd. & Anr.

The Corporate Debtor (“CD”) was a wholly owned subsidiary of M/s Sintex Plastics Technology Ltd. (“the Applicant”) in the case. The Applicant filed an application for withdrawal of the Corporate Insolvency Resolution Process (“CIRP”) initiated under Section 9 against CD, under Rule 11 of the NCLT Rules, 2016 and Section 60(5) of the Code.

The Applicant settled the claim of the Operational Creditor who had filed the application immediately after admission of the Section 9 application and approached NCLAT for closing CIRP. The NCLAT redirected it to NCLT.

The major basis of the Applicant’s case was the view taken in Swiss Ribbons & Ors. v. Union of India & Ors. wherein the Hon’ble Supreme Court held that a CD may take the opportunity to take an exit from CIRP under Rule 11 of the NCLT Rules, 2016 when CoC has not been constituted. Section 12A does not apply in a pre-constitution situation, as under that section, withdrawal of the application can be made only after approval of 90% of voting share of CoC. Therefore, the only recourse left with the Applicant is under Rule 11 of the NCLT Rules, 2016.

The Respondent and the intervening Financial Creditors cited Regulation 30A of the CIRP Regulations which requires an application of withdrawal to be made through RP or IRP. However, the NCLT rejected the argument relying on the judgement in Brilliant Alloys Private Limited v. S. Rajgopal & Ors. and Jogendra Kumar Arora v. Dharmendra Sharma & Ors. In both these cases, Regulation 30A was held to be only directory and not mandatory.

This judgement appears to maintain the established position that Rule 11 of the NCLT Rules is to be resorted to pre-constitution of CoC, and Section 12A is to be resorted to post-constitution. Further, that locus standi of stakeholders like a promoter-cum-shareholder is not affected by Regulation 30A, which requires a CD to proceed through an IRP or RP.

 

DELHI BENCH

June 30, 2021

Avoidance Applications Disappear if a Resolution Applicant Beats it to the Chase: TUF Metallurgical Pvt. Ltd. v. Albus India Ltd.

The Applicant was the successful resolution applicant and was also a financial creditor of the CD, Albus India Ltd. CIRP was initiated under Section 7 of the Code. Due to certain apprehensions regarding conduct of the CD, the RP was authorized by the CoC to appoint a forensic auditor. There were two contradictory reports of the forensic auditor, one in 2019 alleging fraudulent transactions and another in 2020 stating that no deviant transactions were made. An avoidance application was filed by the Resolution Professional under Section 43 of the Code, which was also pending before the Tribunal.

The NCLT, heavily relying on the judgement of Delhi High Court in Venus Recruiters Pvt Ltd v. Union of India, reiterated the dictum that it does not have jurisdiction to adjudicate upon avoidance applications once the CIRP comes to an end.

 

KOCHI BENCH

June 30, 2021

Can a Director of a MSME File a Belated Resolution Plan? Dhanalakshmi Bank Limited v. Trivandrum International Health Services Ltd

The resolution process in this case had already availed many extensions. The director sought the CoC’s permission to table his resolution plan past the date for Expression of Interest. Not entirely opposed to the proposition, the Resolution Professional invoked the inability of the CoC to go beyond the mandate of the Code and asked the director to secure appropriate directions from the NCLT, and to file a resolution plan within the timeline specified by the CoC. However, the timeline was not adhered to by the director.

The director invoked the jurisdiction of the NCLT, and furthered a two-pronged case for his eligibility – first: exceptions to Section 29A for MSMEs (Section 240A) would allow him to file a resolution plan, and second: he had received the MSME Udhayam Registration certificate, which enabled the classification of his enterprise as an MSME. The NCLT allowed the director to file a resolution plan within a week.

However, the order does not mention the extension of the last date for accepting Expression of Interest, as mentioned in form G (Regulation 36A (1) of the Insolvency and Bankruptcy (Insolvency Resolution Process for Corporate Persons) Regulations, 2016), and fails to uphold the sanctity of the process, due to a lack of procedural compliance.

 

June 28, 2021

A Rather Lenient Prospect of Restructuring after Commencement of Liquidation. Goodwin Packpet Private Limited v. Mr. Balakrishnan Baburajan

The applicant corporate debtor’s operation was to be liquidated as per NCLT’s order dated 11.01.2021. However, in accordance with the agreement of all stakeholders, the promoters were allowed to table a plan for restructuring under Section 230 of the Companies Act, 2013, read with Regulation 2B of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, which requires such a restructuring or compromise to be completed before 90 days from the date of commencement of liquidation.

In this case the applicant corporate debtor requested an extension of the 90-day period, by 45 additional days. The NCLT referred to the JJ Irani Report, which advocates for a flexible approach allowing smooth procedural transitions, and the NCLAT’s holding in S.C. Sekaran vs. Amit Gupta and Ors, which encourages the use of Section 230 of the Companies Act and extended the 90-day period with another 30 days.

 

June 30, 2021

See also: The South Indian Bank Ltd v. M/s Churakulam Tea Estates –  demonstrated inability to execute the accepted resolution plan can substantiate a liquidation order under Section 33(3) and (4). In this case, the liquidation value was also greater than the approved resolution plan.

 

HYDERABAD BENCH

Liquidation Round Up

June 30, 2021

Dissolution of M/S Neutrino Power Systems Private Limited, under Section 54(1) of the Code.

• Lone Secured creditor: Bank of Bahrain & Kuwait BSC pursued recovery through SARFAESI and credited the amount to the Corporate Debtor’s liquidation account.
• The Liquidator distributed the balance amount as under Section 53 of the code, and closed the account.
• Nothing left to recover, realize and hence dissolution; NCLT passed orders accordingly.

 

June 30, 2021

Initiation of liquidation proceedings against: Lanco Vidarbha Thermal Power Limited.

•  Proper steps taken to approve a viable resolution plan.
• Even after receiving three Expressions of Interest, the plans received were not in accordance with the requirements specified in the Request for Resolution Plans.
• Therefore, the CoC passed a resolution in favour of corporate debtor’s operation with an 88.03% majority.

 

June 30, 2021

 Sale of Vishwa Infrastructures and Services Pvt. Ltd. as a going concern.

• Successful bid of M/s Indus Projects Private Limited, along with Indvis Holdings Pvt. Ltd.
• Bid amount of 57 crores to be distributed in accordance with the waterfall mechanism under Section 53 of the code.