Important IBC Judgments by the NCLAT (28 June – 02 July)

  July 8, 2021

New Delhi Bench

Section 65 can be relied on to reject an application under Section 7 of the Code: Hytone Merchants Private Limited v. Satabadi Investment Consultants Private Limited

The appeal was against an order of the Adjudicating Authority rejecting the application filed under Section 7 of the Code for the reason that the petition has been filed in collusion with the Corporate Debtor. The primary contention of the Appellant/Financial Creditor was that even though the application was complete in all respects as required by law, the Adjudicating Authority had proceeded with an unjustified and roving enquiry of its own to reject the application, instead of following the mandate of Section 7(5).  The Appellate Tribunal framed the issue as

whether the petition complying with all requirements of Section 7(5) of the Insolvency and Bankruptcy Code, 2016, but if it appears that the Application is filed collusively, not with the intention of Resolution of Insolvency, and so with malicious intent, or malafides, then whether the Application can be rejected relying on Section 65 of the Code?

The Appellate Tribunal noted that the expression “it may” under Section 7(5) leaves the discretion in the hands of the Adjudicating Authority in admitting or rejecting the application, keeping in mind the parameters laid out in Section 7(5)(a) of the Code. It also observed that when a statute provides for punishment for any wrong, it also contains deemed power to prevent it, thus justifying the applicability of Section 65 of the Code to reject an application.


Applicability of Section 18 of the Limitation Act, 1963 reaffirmed: Vivek Malik v. Punjab National Bank

The appeal had been filed claiming the Section 7 application was clearly beyond the three years’ of limitation, per Section 3 of the Code read with Article 137 of the Limitation Act, 1963. However, the Adjudicating Authority relied on an acknowledgement of the outstanding debt by the Corporate Debtor to overrule the objection on limitation and admitted the application.

The Appellants relied on the decision of the Supreme Court in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr. 2020 SCC Online 647 to argue that the limitation began to run from the date of the NPA and the application filed under Section 7 of the IBC after the expiry of three years was barred by the law of limitation. The Appellate Tribunal by placing reliance on judgements of the Supreme Court in Sesh Nath Singh & Anr. vs. Baidyabati Sheoraphuli Co-Operative Bank Ltd. & Anr.- Civil Appeal No. 9198 of 2019 and Asset Reconstruction Company (India) Ltd. vs. Bishal Jaiswal & Anr., Civil Appeal No. 323 of 2021 arrived at the settled position that the applicability of Sections 18 of the Limitation Act, 1963, which is about the fresh period of limitation from the date of a written acknowledgement, apply to the proceedings under IBC.


The existence of dispute has to be a plausible one, and not a mere spurious defence: Mr. Rajpal Singh Solanki v. M/s. Quazar Infrastructure Pvt. Ltd.

The appeal was against the order of the Adjudicating Authority admitting the Section 9 application, rejecting the contention of the Corporate Debtor that there was a pre-existing dispute between the Appellant and Respondent No. 1. The main issue before the Appellate Tribunal was the pre-existence or lack of a dispute between the Appellant and Respondent No. 1 regarding the claimed operational debt.

The Appellate Tribunal relied on Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353 to reiterate the position that the existence of a dispute has to be a plausible one, and not a mere spurious defence, a patently feeble legal argument or an assertion of fact unsupported by evidence. The appeal was dismissed as the Appellant’s claim of pre-existence dispute was based on uncorroborated evidence.


Permitting a prospective Resolution Applicant to file an EoI after the due date is not commercial wisdom: Dwarkadhish Sakhar Karkhana Ltd. v. Pankaj Joshi

The Adjudicating Authority had set aside the decision of the CoC in accepting the Expression of Interest of one particular entity after the due date, and deprecated the conduct of the RP. The primary issues before the Appellate Tribunal were –

  1. Whether the Adjudicating Authority does not invest with the jurisdiction to interfere before the quasi-judicial determination is made, under S. 31 of IBC?

The Appellate Tribunal, based on the decision of the Supreme Court in Arcelormittal India Pvt. Ltd. v. Satish Kumar Gupta, held that even before the approval of the Resolution Plan, the Adjudicating Authority has jurisdiction under Section 60(5)(c) of the Code. 

2. Whether to allow DSKL after due date to file EoI is a commercial decision?

The Appellate Tribunal ruled that as per Section 30, the decision of the CoC in approving a Resolution Plan is a commercial decision. However, a decision to allow an entity to file EoI after the due date is not a commercial decision. The Appellants relied on Brilliant Alloys v. S. Rajagopal 2018 SCC Online SC 3154 and Kalpraj Dharamshi v. Kotak Investment Advisors 2021 SCC Online 204. The Appellate Tribunal distinguished the facts of the above-cited cases from the present one and clarified that the Supreme Court in Brilliant Alloys did not hold that Regulation 36A is not mandatory in nature. It also noted that in Kalpraj, the RP acted in a bona fide and impartial manner. However, in this case, the request for submitting EoI after the due date had already been rejected by the CoC in an earlier meeting and later was approved of his own accord by a new RP immediately after his appointment.


Chennai Bench

Adjudicating Authority cannot remit back an approved Resolution Plan to CoC, as they become functus officio: M/s Orbit Electro Equipments Pvt. Ltd. v. Mr. Kapil Dev Taneja

The appeal was against the order of the Adjudicating Authority to remit back the approved Resolution Plan to the CoC for fresh consideration and to forfeit the amounts already paid by the successful resolution applicant. The Appellate Tribunal held that the Adjudicating Authority had exceeded its jurisdiction in directing suo motu the reconsideration of an already approved Resolution Plan, as after such approval the CoC becomes functus officio. It further clarified that the course of action on failure of the approved Resolution Plan is liquidation, on an application under section 33(3) of IBC.


State Bank of India v. M/s AFCO Energy Pte Ltd.

The Appellate Tribunal upheld the order of the Adjudicating Authority permitting the Applicant to withdraw the main petition, pursuant to the filing of Form FA by the Operational Creditor for withdrawal. The Appellant/Financial Creditor contented that the Adjudicating Authority failed to hear the Financial Creditor and other interested parties before permitting withdrawal. The Appellate Tribunal held that the Adjudicating Authority had exercised its power as per Section 12A of the Code r/w Regulation 30A(1)(a) of the CIRP Regulations, prior to the constitution of the CoC.  

~ By Manikanda Prabhu J

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