Important IBC Judgments by the NCLTs (16-20 August 2021)

  August 23, 2021

Abbreviations Used 

  • Code – Insolvency and Bankruptcy Code, 2016
  • CrPC –The Criminal Procedure Code, 1973
  • 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

Ahmedabad Bench – 1

Axis Bank Limited v. M/s. Avantha Power & Infrastructure Limited (16.08.2021)

The CD was a corporate guarantor in respect of a loan given by the FC to the principal borrower for a specified project. When a default occurred, the FC initiated proceedings against both the borrower and the guarantor. The guarantee given was invoked on 05.06.2018 to the extent of the liability of the guarantor. Meanwhile, the borrower entered CIRP and a resolution plan was approved.

It was contended by the FC that the guarantee extended by the CD was unaffected by the approval of a resolution plan, as allegedly mentioned in the guarantee agreement. The CD pleaded that the alleged amount of default had already formed a part of the CIRP proceedings against the borrower and, more importantly, that the resolution plan was not shared with the CD. It was claimed by the CD that this highlighted the malafide intention of the applicant (FC) and that this was their attempt to gain the same amount for the already resolved default. In its rejoinder, the FC emphasised the fact that the resolution plan made it clear that its approval would not extinguish FC’s claims against the guarantor, since the guarantee became a debt the moment it was invoked, making the guarantor a CD.

The question was whether the guarantee issued by the CD ceased to exist on the approval of the resolution plan of the principal borrower. The bench found the presence of a debt which was due and payable evident, and held that the FC’s application was maintainable due to the default. It also made clear that the FC never sought the recovery of an amount already resolved and the CD pleaded that the liability of the CD should be restricted to the recovery of the balance amount only. The bench prescribed these issues be resolved through CIRP. No merit was found in the contentions made by the CD, and CIRP  under Section 7 of the Code was initiated.

Guwahati Bench 

Mr. Sandeep Khaitian v.  JSVM Plywood Industries Ltd (18.08.2021)

The application was filed by the RP with the prayer to have JSVM directed to refund Rs. 32,50,000/- to the CD within a week. On 12.08.2021, JSVM was given such direction by the bench, which it absolutely failed to execute. A criminal appeal was made in the Supreme Court, and the order passed previously was modified — the respondent could not operate its account unless the said amount stood remitted to the CD. It was made clear that this order was not to interfere with the petition pending under Section 482 of the CrPC. JSVM was also declared free to pursue its claims in accordance with law.

JSVM submitted to the bench that it was willing to comply with the refund order but could not, since all its financial resources were held in ICICI Bank, and withdrawing from it would be contrary to the instructions of the RP. The bench found it understandable that arrangement of such an amount would be tedious for an MSME, and therefore it directed ICICI Bank’s concerned branch to remit the amount to the CD.

Subsequently, the remission was made in accordance with the judgment passed in the Criminal Appeal and the direction of the tribunal.

~ By Sandali Sharma

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