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Important IBC Judgments by the NCLTs (26-30 July 2021)

  August 1, 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

NEW DELHI BENCH

Financial Creditor’s right to institute proceedings under SARFAESI Act when the proceedings under IBC are pending for adjudication: State Bank of India v. M/s World Window Impex Pvt. Ltd (27 July 2021)

The applicant contended that once the financial creditor had exercised its right under the Code, simultaneous exercise of the right under the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI) would defeat the purpose of the Code by making the petition under Section 7 futile. Further, the applicant contended that allowing the rights under SARFAESI would render the company incapable of running as a going concern, thereby making it impossible to have a successful CIRP.  

The tribunal, after hearing both the parties, observed that it is settled law that if there is any inconsistency between IBC and SARFAESI Act, Section 238 of the Code shall prevail over any provision of SARFAESI Act. However, taking into consideration the fact that the main petition filed under Section 7 of the Code had not been admitted yet, and no moratorium was imposed under Section 14 of the Code, the tribunal held that the financial creditor had the right to institute or continue with the proceedings under the SARFAESI

ALLAHABAD BENCH

Can the accumulated cash profits lying in the bank account of the CD be distributed as per Section 53 of the Code?: Supriyo Kumar Chaudhuri v. State bank of India (26 July 2021)

The liquidator filed an application under Section 35(1)(n) of the Code, read with Section 60(5), seeking grant to distribute the accumulated cash profits lying in the bank accounts of the CD (which were in excess of liquidation cost) to the stakeholders, in accordance with Section 53 of the Code.

The tribunal observed that Regulation 42 of the IBBI (Liquidation Process) Regulation, 2016 provides that the liquidator can commence with the distribution, once the list of stakeholders and asset memorandum have been filed with the tribunal. In the present case, it had already been filed by the liquidator. Further, the tribunal observed that the CD in liquidation was not a going concern, and assets which were to be distributed were in the form of liquid assets and were non-saleable. Thus, the tribunal opined that the Code does not bar such distribution, as it would not hamper the liquidation process of the CD.

Therefore, the tribunal allowed the liquidator to distribute the amount, less an applicable withholding tax, out of the accumulated cash profits lying in the bank accounts of the CD, to the stakeholders as per the waterfall mechanism under Section 53 of the Code.

MUMBAI BENCH

An Investor in a Restaurant Operation and Services Agreement cannot be termed as Creditor: Plutusone Hospitality Private Limited v. Busabong & Co. Private Limited (26 July 2021)

The Applicant/FC and Respondent/CD had entered into an investment agreement, viz. ‘Restaurant Operations and Services Agreement’. As per this Agreement, the Applicant was to finance and equip restaurants, whereas the Respondent was to provide day to day operations and management services for running the business. The Applicant alleged to have provided a total loan of Rs. 7.02 lakhs to the Respondent in terms of the agreement. 

The AA observed that the restaurants were rented in the name of the Applicant under a leave-and-licence agreement with a third party, and the CD was not a party for it to receive any disbursement of money. The AA interpreted that the agreement had never mentioned working capital to be a loan and the investor had to provide for the working capital till the achievement of ‘break-even’ by the restaurants. The AA held that the amount which was being claimed as financial debt u/s. 5(8) of the Code, was not a debt at all and was in the nature of payment due after the restaurant breaks even, which event had not happened at the time of the application. Thus, the AA dismissed the application.

Bsmart Tech Private Limited v. Essel Utilities Distribution Company Limited (26 July 2021)

The claim was that the CD had to pay an outstanding operational debt, for being provided Bulk SMS services and inter-operator services, to the tune of Rs. 17,54,240 along with interest @ 12% p.a. The applicant alleged that the CD had unilaterally stopped making the payments despite availing services. The CD contented that there was a pre-existing dispute about the rate per unit of SMS charged by the applicant. The CD raised an additional argument that the claim was barred by limitation, as the invoices were from the year 2015-2016 and the application had filed only on 07.05.2019. The applicant countered by relying on Pedersen Consultants India Private Limited v. Nitesh Estates Limited, wherein it was held that the application u/s 9 cannot be rejected due to a mere dispute of amount.

The AA noted that there was a pre-existing dispute between the parties as to the count of SMSes. It also held that the claim was also time-barred, and dismissed the application.

~ By Manikanda Prabhu J and Sujay Agrawal