Important IBC Judgments by the NCLAT (19 – 23 July 2021)

  July 27, 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


Delhi Bench

The Liquidator should accept the Claim of NTPC Ltd. as “Other Creditors”: NTPC v. Ram Ratan Modi Liquidator of D C Industrial Plant services Ltd (19 July 2021)

The Appeal was filed against the order of the AA partially rejecting the appeal filed u/s. 42 of the Code. The Appellant had awarded two contracts to the CD but due to the non-performance, the contracts were terminated and awarded to a third party. The CD referred the matter to Adjudication as per the terms of the contracts. On the admission of application, u/s. 7, the Appellant filed a proof of claim as an “other creditor” under Form ‘F’ but the Liquidator rejected the claim. The Appellant challenged the rejection before the AA, and it was partly allowed.

The Appellant submitted that the award passed by the Adjudicator rejected the counter-claim of the CD and about the Appellant’s claim, the figure to be worked out and assessed at the risk and cost of the CD. The Expert Settlement Council (ESC) constituted in terms of the contract could not arrive at a settlement between the parties.

The Liquidator rejected the claim of the Appellant for the reason that the claim amount of the Appellant was in dispute and the books of CD did reflect such claim. The Appellant argued that the Liquidator failed in its duty to take into account the Adjudicator’s decision and examine the claim as per Reg. 25 of IBBI (Liquidation Process) Regulations, 2016. The Appellate Tribunal noted that the Liquidator wrongly classified the Appellant under “Operational Creditors” while the Appellant had filed the claim itself as “Other Creditors” in terms of Reg. 20. It held that the Liquidator was required to consider the award passed by the Adjudicator and directed the Liquidator accordingly. 


Delay in Payment of Sale Consideration owing to Sub-division was not attributed to the Successful Bidder: Om Prakash Agrawal v. UPL Ltd. (19 July 2021)

The Respondent was a successful bidder in an e-auction. The e-auction memo had divided the assets in lots comprising of lease-hold land, freehold land and other current assets. The Liquidator was supposed to apply for sub-division to Gujarat Industrial Development Corporation (GIDC) after the conclusion of the e-auction. During the pendency of the sub-division, the Respondent/Successful Bidder had not paid the sale consideration before the due date. The Liquidator sought interest on the delay in payment of sale consideration, as per the terms of  the e-auction document.

On an application by the Respondent/Successful Bidder, The AA had directed the Appellant/Liquidator to refund the full amount of interest collected, as the delay was not attributable to the Respondent. The Respondent/Successful Bidder argued that the balance sale consideration was supposed to be paid only after a sub-division order by the GIDC for the leasehold land from the appropriate authority. They also relied on an email by the Liquidator clarifying that the interest would be waived off due to the delay in sub-division of the leased land. The Liquidator contended that the sale consideration to the extent of freehold land, excluding the leasehold land, remained unpaid.

 The Appellate Tribunal held that the delay in respect of leasehold land cannot be attributed to the Respondent but delay in respect of freehold land was not justified. The Appellate Tribunal directed the Appellant to refund the excess interest to the extent of leasehold land.


Bank Guarantees can be Liquidated to the full value excluding the Margin Money provided by the CD: C and C construction Ltd v. Power Grid Corporation of India Ltd (19 July 2021)

The Appeal was filed by the RP against the order of AA vacating an earlier ad-interim injunction against the encashment of bank guarantees issued on behalf of the Appellant to the Respondent. The Appellate Tribunal relied on SBI v. V. Ramakrishnan and the Insolvency Law Committee Report on the point that the assets of the surety are separate from those of the CD and proceedings against the CD may not be impacted by the actions against assets of the third party like surety. The funds would be paid by the banks and not the CD. The Appellate Tribunal held that the bank guarantees can be liquidated, however restricted to the full value of guarantee minus margin money provided by CD to the banker for taking that bank guarantee.


Inherent powers can be invoked to replace and appoint a new IRP/RP: Anil Kumar v. Allahabad Bank (20 July 2021)

The appeal was filed by the ex-IRP against the appointment of a new IRP/RP, and replacing the appellant by the AA, in exercise of its powers u/r. 11 of the NCLT Rules.

The brief facts were that during the first meeting of the CoC, the IRP submitted a list of FCs with their respective voting shares. The list showed that of the 37 Creditors, 7 were financial institutions and the rest were non-financial institutions and corporates. The total voting share was 36.53% and 63.47% respectively. Respondent No.1 sought verification of all creditors who were non-financial institutions, and the same was not completed by the Appellant/ex-IRP. This had led to a stalemate between the secured and unsecured FCs, and Respondent No. 1 had apprehended that the CIRP period might expire without a CoC meeting. Respondent No. 1 had approached the AA for removal of the Appellant/ex-IRP and to appoint a new IRP/RP. The AA allowed the application and appointed a new IRP/RP by exercising its inherent powers u/r. 11 of the NCLT Rules.

The primary contention of the Appellant was that the inherent powers u/r. 11 of the NCLT Rules could not be invoked to bypass Sections 22 and 27 of the Code, and that the conditions of replacement of RP by the CoC had not been met in the case. The Appellate Tribunal held that neither the ingredients of Section 22 nor Section 27 had been made out. However, the Tribunal noted that the AA had taken note of the facts and the stalemate amongst the FCs, and that the CIRP period was running out. In view of the same, the AA had rightly exercised its inherent powers u/r. 11 of the NCLT Rules.


Edwell Infrastructure Hazira Ltd. v. Siddhi Vinayak Logistics Ltd(22 July 2021)

The Appellant was a shareholder in the CD and had filed the appeal against the order of the AA admitting the application u/s. 9 filed by Respondent No. 1.

The Appellant and Respondent No. 1 settled their disputes through a Settlement Agreement, and filed an application u/r. 11 of the NCLAT Rules, 2016. The CD and IRP had acknowledged the receipt of amounts due and CIRP costs, respectively. However, Respondent No. 1 had raised doubts about the quantum of CIRP costs and fees paid by the Appellant to the IRP, to the tune of Rs.76,47,490/- as per the Settlement Agreement.

The Appellate Tribunal ruled that when the Settlement Agreement and receipt of payment are not questioned, Respondent No. 1, who is not making the payment, cannot question the quantum of CIRP costs and fees. It held that the Original Application before the AA should be treated as withdrawn. 


63 Moons Technologies Limited v. The Administrator Dewan Housing Finance Corporation Limited and Ors. (23 July 2021)

The Appeal was against the order of the AA, which had rejected the application seeking rejection of the resolution plan.

The CoC, after deliberations, had decided that the recoveries u/s. 66 of the Code would be to the Successful Resolution Applicant and on the other hand, the recoveries from avoidance in terms of Sections 43-50 would be for the exclusive benefit of the Creditors. The Appellant had relied on the decision of the Delhi High Court in M/s. Venus Recruiters v. Union of India that the benefits of the preferential transactions are for the Creditors, and not for the Resolution Applicant who steps into the shoes of the CD in its new Avatar.

The Respondent relied on Jaypee Kensington Boulevard Apartments Welfare Association & Ors. v. NBCC (India) Ltd. & Ors to submit that it has been held that once a class has voted in favour of the resolution plan, a constituent of the class cannot be separately heard in opposition to the plan by way of objection or appeal. They also contended that the Appellant had voted for the contested clause and was estopped. 

The Appellate Tribunal distinguished the facts of the Venus Recruiters case, as they did not involve any question regarding avoidance applications. The Appellate Tribunal noted that any interference at this preliminary stage would not be sagacious, and disposed of the appeal.


Chennai Bench

Default and debt proved through other documents even if the Loan Agreement is insufficiently stamped: Mr. Ashique Ponnamparambath v.Federal Bank (19 July 2021)

The issue before the Appellate Tribunal was that “Whether petition filed under Section 7 of the code is not maintainable because the entire loan transaction is based on the ‘Term Loan Agreement’, which is an inadequately stamped document, therefore, inadmissible in evidence?” The Appellant contended that the Term Loan Agreement which purported to create a right, title and interest was insufficiently stamped and was not admissible in evidence. The Appellant also contended that the AA admitted the application despite its submission that the outstanding dues be cleared off within six months on the basis of a proposed settlement. The Appellate Tribunal clarified that the admission cannot be set aside in anticipation of settlement in the parties. The FC had proved the existence of default based on a statement of accounts, a certificate under the Bankers Book of Evidence Act and CIBIL report. The Appellate Tribunal held that even if the Term Loan Agreement is insufficiently stamped it is inadmissible in evidence but debt and default are proved beyond reasonable doubt by the other documents.


~ By Manikanda Prabhu J

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