Important Judgments on IBC by the NCLAT (06-10 September 2021)

  September 17, 2021

Abbreviations Used

  • Code – Insolvency and Bankruptcy Code, 2016
  • CIRP – Corporate Insolvency Resolution Process
  • AA – Adjudicating Authority (NCLT)
  • IBBI – Insolvency and Bankruptcy Board of India
  • 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

The Appellate Tribunal excluded the Covid-19 lockdown for calculating CIRP time-limit: Sunil Kumar Agrawal v. Committee of Creditors, KPG International Pvt. Ltd. & Anr. (07 September 2021)

This appeal was filed by the RP of the CD against the order of the AA, which partly allowed the exclusion of the COVID-19 lockdown period from the CIRP period by virtue of Sections 12 and 60(5) of the Code r/w Regulation 40(c) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”). The Appellant had prayed in terms of Regulation 40(c) of the CIRP Regulations to exclude the total period of 221 days, during which the Central and State Governments had imposed a lockdown due to COVID-19. However, the AA only excluded a total of 98 days. Hence, the present appeal.

 

The Appellate Tribunal set aside the impugned order, and allowed the exclusion of 221 days as against the 98 days granted by the AA. The Appellate Tribunal relied on the IBBI’s Press Release dated 29.03.2021, which provided for the exclusion of the Covid-19 period from the resolution process. The Appellate Tribunal also observed that the legislative intent behind the Code would be defeated if the impugned order was not set aside.

 

M/s Sardar Ji Di Hatti Departmental Stores Pvt. Ltd. v. Sunil Kumar Agrawal (07 September 2021)

The present appeal was filed by the OC against the AA’s order, wherein it dismissed the OC’s application for admission of claims. The AA had reasoned that the said application was filed after the timeline provided in Regulation 12(2) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.  The appellant argued that the timeline mentioned in the said regulation was merely directory and not mandatory and therefore the RP ought to have accepted the claim. The Appellate Tribunal observed that the appellant had full knowledge of the commencement of CIRP and deliberately did not adhere to the timeline and thus, the RP had rightly rejected the appellant’s claim. Thus, the present appeal was dismissed and the AA’s order was upheld.

 

BKB Transport Pvt. Ltd. v. NTPC Ltd. (08 September 2021)

In the present case, the AA had dismissed the OC’s application to initiate CIRP u/s. 9 of the Code on the ground of a pre-existing dispute between the parties regarding the short supply of coal. The impugned order made some remarks on the merits of the dispute and attached the culpability on the Appellant/OC for the failure to supply coal in terms of the Purchase Order. The Appellant/OC, in appeal, prayed for the expungement of the said remarks, arguing that such comments would come in the way of any arbitration proceedings, if invoked. The Appellate Tribunal observed that the AA had conceded that the said remarks touched upon the merits of the case and had no objection to the same being expunged. The Appellate Tribunal thus allowed the present appeal and expunged the said remarks from the impugned order.

 

The Appellate Tribunal provided 6 months to the CD to settle dues as per the OTS agreement in the interest of justice: Air Travel Enterprises India Ltd v. Union Bank of India & Ors. (09 September 2021)

The present appeal was filed under Section 61 of the Code against the AA’s order of admission of a Section 7 application and was filed by the second respondent in the original application.  In this case, the appellant was a major shareholder of the CD company, which had acquired financial assistance from the State Bank of India, Union Bank of India and the Bank of Travancore.  The CD’s outstanding liability was in the tune of Rs. 96 Crores. As per the terms of the restructured term loan in 2015, it was payable by 2022-23. Meanwhile, an OTS agreement was entered into between the Respondent Banks and the CD on 05/11/2019 and approved on 27/11/2019. Having agreed to the OTS, without giving sufficient time, Union Bank of India filed the application under Section 7 of the Code, which was admitted by the AA. Since a liquidation at this stage of the project would result in huge economic losses, the present appeal was filed against the AA’s order of admission.

 

The Appellate Tribunal took into consideration the genuine efforts taken by the Appellant to settle the dues of the Banks. In view of the same, the Appellate Tribunal in the interest of justice allowed the appeal and set aside the order of admission by the AA. It was directed that in the event of failure to settle the dues as agreed by the OTS agreement within 6 months from the date of order, the banks were at liberty to take appropriate steps for recovery.

 

The doctrine of derivative action cannot be applied to applications u/s. 7 of the Code: M Sai Eswara Swamy v. SITI Vision Digital Media Pvt. Ltd. (09 September 2021)

The Appellant, a 50% shareholder in the FC cited a deadlock in the FC Company and pleaded for him to be allowed to file an application u/s. 7 of the Code by virtue of the Doctrine of Derivative Action and in the interest of the FC Company. The Appellate Tribunal held that as per Notification S.O. 1091 (E) dated 27.02.2019, a guardian, an executor or administrator of an estate of a financial creditor, a trustee and a person duly authorized by the board of directors of a company may file Application u/s. 7. The Appellate tribunal observed that in such a situation, the doctrine of derivative action could not be applied to Section 7 of the Code. Thus, the present appeal was dismissed and the AA’s decision was upheld.

 

CHENNAI BENCH

M/s. Dynamic Engineers Ltd. v. M/s. Muhlenbau Equipments Private Limited (07 September 2021)

The AA had dismissed the Appellant/OC’s application u/s. 9 of the Code with observations to settle the disputes between the parties. Despite the Respondent/CD not appearing before the AA and not replying to the demand notice sent by the Appellant/OC, the AA did not admit the OC’s application and directed the Respondent/CD to settle the claim of the Appellant within 3 months. Meanwhile, the Respondent/CD threatened the Appellant/OC to withdraw the application in order to receive a Form C for completion of the work. The Appellate Tribunal condemned the actions of the Respondent/CD and held that the payment is an operational debt u/s. 5(21) of the Code and the Respondent/CD committed a default. The Appellate Tribunal observed that the AA ought to have admitted the application to initiate CIRP against the CD and the Appellate Tribunal directed the AA to admit the application.

~ By Manikanda Prabhu J and Ankur Mishra

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