Important Judgments on IBC by the NCLTs (06-17 September 2021)

  September 22, 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

Applicants may file their claim before the appointed IRP, if the CD is already under CIRP: M/s. B.B. Steels Pvt. Ltd. v. M/s. Jai Sai Ram Steels Pvt. Ltd. (10.09.2021)

The applicant, an operational creditor, filed the application under Section 9 with the motive of initiating CIRP against Jai Ram Steels, the CD. Since a CIRP had already been initiated for the CD in another matter, the present Tribunal application was dismissed on the ground of being infructuous, falling in line with Section 11. The, however, was clear about the fact that in the event of the initiated CIRP being terminated, the applicant would be automatically at liberty to seek revival of this application.

 

CHANDIGARH BENCH

OTS-related compliance issues to trigger revival of a civil petition: Jammu & Kashmir Bank Ltd v. Basantar Breweries Pvt. Ltd. (15.09.2021)

J&K Bank (FC) filed a civil petition alleging corrupt practices by Basantar Breweries (CD), which then filed an application under Rule 11 of NCLT Rules, 2016, seeking to place on record the proceedings of One Time Settlement (OTS) sanctioned by the petitioner-bank on 23.12.2020 and for disposal of the CP.  While the sanction of the OTS proposal was not disputed by the FC, it submitted that the CD had failed to comply with the terms of the same OTS on previous instances.

An order was passed by the J&K High Court wherein the OTS proposal was modified and payments were made by the CD in compliance with this modified proposal, leaving out a part amounting to Rs. 26 crores. Therefore, the application to seek revival of the aforementioned civil petition was granted to the FC in case the CD did not make the appropriate payment within the stipulated time period.

 

CHENNAI BENCH

Issues concerning the contents and delivery of Demand Notice under Form-3 TVS Automobile Solutions Pvt. Ltd. vs. M/s. KPN Travels India Ltd. (07/09/21)

This application was filed by M/s. TVS Automobile Solutions Pvt. Ltd. (OC) under Section 9 of the Code to initiate CIRP against M/s. KPN Travels India Ltd. (CD). The CD had placed several orders with the OC for the supply of automobile parts, but failed to pay for them once the consignment was delivered. Hence, it was submitted the total amount due and payable by the CD was Rs. 5,27,16,818 (Rs. 3,94,26,813 + interest at 18% p.a.). The OC submitted that the CD had acknowledged the debt, but had failed to respond to the notice issued by the OC under Section 8. The CD, in its reply, submitted that there was no proper service of the Demand Notice, and that the OC had failed to comply with the mandatory requirement under Section 8 as the Demand Notice was bereft of any invoices.

During the hearing, the AA dealt with, inter alia, the following issues:

  • Whether a Demand Notice issued in Form 3 as per Section 8 of the Code, if bereft of invoices, will be held to be non-est in law?

The AA noted that a Demand Notice under Section 8 can be issued by the OC in two formats i.e. Form 3 and Form 4. The CD had argued that the OC’s Demand Notice in Form 3 was devoid of invoices, and this was non-est in law. The AA observed that it is not mandatory for an OC, who is issuing a Demand Notice under Section 8, to enclose invoices if it can prove from ‘any other documents’ that an operational debt is due and payable by the CD. The AA noted that the balance confirmation given by the CD was attached with the Demand Notice, and opined that it was more than sufficient to prove the existence of an operational debt.

  • Whether a Demand Notice served upon the Directors of the CD would be valid under Section 8 of the Code?

For this issue, the AA perused Rule 5(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The said rule states that the Demand Notice can be hand-delivered to the registered office of the CD, or can be served via e-mail to a whole-time director/designated partner/key managerial personnel of the CD. The AA observed that in the present case, the Demand Notice had been received by the directors of the CD and thus, non-receipt of the notice at the CD’s office alone would not vitiate the maintainability of the said application.

Due to, inter alia, the aforementioned reasons, the AA admitted the application to initiate CIRP against the CD, and imposed a moratorium under Section 14(1) of the Code.

 

GUWAHATI BENCH

“Obtaining Administrative Approval of bank finance” does not qualify as “service” under the definition of ‘operational debt’ Centralised Business Solutions Pvt. Ltd. and Anr. Vs. Chandrali Builders and Developers Pvt. Ltd. (09/09/21)

Centralized Business Solutions Pvt. Ltd. (OC) filed this application under Section 9 of the Code to initiate CIRP against M/s Chandrali Builders and Developers Pvt. Ltd. (CD). In this case, the CD, having no major presence in West Bengal, approached the OC, seeking project finance of Rs. 5 crores from the State Bank of India for one of its projects in the state. Accordingly, the OC entered into a verbal agreement with a key director of the CD. The OC had argued in this application that the CD owed Rs. 15 lakhs plus GST to the OC for “Professional services rendered towards Administrative Approval of bank finance”. The OC submitted that it had diligently devoted time towards obtaining the Administrative Approval of bank finance for CD’s project, and thus the professional fee was justified.

During the proceedings, the AA asked the OC to clarify the reported service (Administrative Approval of Bank Finance) and enquired whether the OC were CA/CS/Cost Accountants. The OC failed to furnish the said clarifications and submitted that they were not CA/CS or Cost Accountants. The AA observed that there is no service named “obtaining Administrative Approval of bank finance”, and that loan applications are sustained depending upon the eligibility of the Loan Applicant/guidelines/conditions stipulated by the said Financial Institution. The Bench also noted that no middle-men job is permitted in such situations. In light of this, the AA rejected this application on the grounds that firstly, the service claimed by the applicant was not in existence; and secondly, the basis of the application was only a verbal agreement only.

 

MUMBAI BENCH

Siddhi Metal Corporation vs. Relco Extrusion Pvt. Ltd. (06/09/21)

Siddhi Metal Corporation (OC) filed an application under Section 9 to initiate CIRP against Relco Extrusion Pvt. Ltd. (CD). The CD opposed the said application in its reply, and argued that it had repaid all its outstanding dues barring one transaction, wherein the OC had delivered goods of substandard quality. Despite several intimations, the OC had failed to resolve this issue. The AA opined that the only issue in the present case was whether there was a pre-existing dispute between the parties.

The Bench perused the letters submitted by the CD in support of its claim, and observed that the said correspondence is from a period much prior to the demand letter issued by the OC, which would amount to a pre-existing dispute. Additionally, this application was also barred by limitation. Accordingly, the application was dismissed due to a lack of merits and on grounds of limitation and pre-existing dispute.

Service benefits arising out of a service do not come under the purview of Operational Debt Kishore K. Lonkar vs. Hindustan Antibiotics Ltd.  (06/09/21)

In this case, Mr. Kishore Lonkar (OC) had filed an application under Section 9 to initiate CIRP against Hindustan Antibiotics Ltd. (CD) for the resolution of an amount of Rs. 16,80,877, which was the total service benefits (Gratuity + EL Encashment + LTC) payable to the OC on his superannuation. The CD opposed this application and argued that, firstly, a CIRP could not be initiated against the CD as it was a government company; secondly, the CD had offered payment of gratuity amount to the OC, but he had not come forward to take it; and thirdly, the OC had obtained an order for payment of gratuity from the Gratuity Commissioner and therefore the remedy for the OC was to have that order executed.

The AA opined that gratuity, leave encashment and LTC amounted to service benefits, and did not qualify under the definition of “Operational Debt” under the Code. The Bench reiterated the objective of the Code, which aims at “resolution” and not “recovery”. The AA added that the terms “goods” and “services” under the definition of ‘operational debt’ could not be stretched to include service benefits arising out of a service. Accordingly, the AA rejected the application without even considering whether CIRP could be ordered against a government company.

 

~ By Sandali Sharma and Ankur Mishra

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