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IBC

IBC Cases Weekly Round Up: May 9 To May 15, 2022

Pallavi Mishra
16 May 2022 1:00 PM GMT
IBC Cases Weekly Round Up: May 9 To May 15, 2022
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SUPREME COURT 1. Supreme Court Issues Notice On Meru Cab's Plea Alleging Anti-Competitive Practices By Ola Case Title: Meru Travels Solutions Pvt. Ltd. v Competition Commission of India Case No.: Civil Appeal No.2843-2844/2022 The Supreme Court Bench comprising of Justices L. Nageswara Rao and B.R. Gavai has issued notice in the appeal filed by Meru Cab, challenging the...

SUPREME COURT

1. Supreme Court Issues Notice On Meru Cab's Plea Alleging Anti-Competitive Practices By Ola

Case Title: Meru Travels Solutions Pvt. Ltd. v Competition Commission of India

Case No.: Civil Appeal No.2843-2844/2022

The Supreme Court Bench comprising of Justices L. Nageswara Rao and B.R. Gavai has issued notice in the appeal filed by Meru Cab, challenging the order of the National Company Appellate Tribunal (NCLAT) wherein it had refused to set aside the order passed by the Competition Commission of India (CCI) exonerating Ola from allegations of abuse of dominant position. The Bench took note of the concurrent findings by the Director General, CCI and NCLAT.

Meru had contended before the CCI that Ola had abused its dominant position by indulging in predatory pricing and by entering into anti-competitive agreements with its drivers. Since the Commission prima facie found the allegation of abuse of dominant position to have some merit, it ordered the Director General (DG) to investigate the matter. Based on the investigation report, in 2017, CCI concluded that Ola did not abuse its dominant position. On 07.02.2022, the NCLAT also held that Ola has not indulged in predatory pricing or abused its dominant position.

2. Proceedings Against Personal Guarantor Of Corporate Debtor Can Be Continued Independently - Supreme Court Lifts The Stay

Case Title: Mahendra Kumar Jajodia v State Bank of India

Case No.: Civil Appeal No. 1871/2022

The Supreme Court bench comprising of Justice S Abdul Nazeer and Justice Vikram Nath has dismissed the civil appeal filed against the judgment of National Company Law Appellate Tribunal (NCLAT) in the case of SBI versus Mahendra Kumar Jajodia. The order was passed on 06.05.2022.

The NCLAT on 27.01.2022 had held that even in the absence of any pending Corporate Insolvency Resolution Process or Liquidation proceedings, the application under Section 95(1) of the Insolvency Bankruptcy Code, 2016 against the personal guarantors of the Corporate Debtor is maintainable by the virtue of Section 60(1) of the Code before the National Company Law Tribunal having territorial jurisdiction over the place where the Registered office of the Corporate Person is located. The Supreme Court upheld the NCLAT order and dismissed the appeal by stating that there is no cogent reason to interfere with the order of NCLAT.

3. Supreme Court Issues Notice On Plea Challenging Constitutionality Of IBC Provisions Relating To Personal Guarantors

Case Title: Gurmeet Sodhi v Union of India & Ors.

Case No.: Writ Petition(s)(Civil) No(s).307/2022

The Supreme Court Bench comprising of Justices Vineet Saran and J K Maheshwari has issued notice on a petition filed by a personal guarantor which raises a constitutional challenge to the personal insolvency provisions under the Insolvency & Bankruptcy Code, 2016 ("IBC"). Since a similar issue is pending, the Court has directed to tag the case along with the pending Special Leave Petition (C) No.16464/2021.

The personal guarantor has filed a writ petition under Article 32 before the Supreme Court contending that the IBC does not provide for the personal guarantor's right to be heard before entertaining the insolvency petition and appointment of a resolution professional, thus violating the fundamental right to natural justice.

The Bench, as an interim relief, has restrained the resolution professional in the personal guarantor's insolvency proceedings from submitting the statutory report before the Adjudicating Authority while issuing notice in the writ petition. The Court also directed that the Petitioner shall not transfer, alienate, encumber or dispose of any of his assets or his legal rights or beneficial interest therein.

4. Appeal To NCLAT Shall Be Filed Within A Period Of 30 Days, Reiterates Supreme Court

Case Title: Safire Technologies Pvt. Ltd v Regional Provident Fund Commissioner & Anr.

Case No.: Civil Appeal No.2212 of 2021

The Supreme Court bench comprising of Justice L N Rao and Justice P S Narasimha has reiterated that an appeal against the order of NCLT shall be filed before the NCLAT within a period of 30 days and the appellate tribunal can only condone delay for a period of 15 days. The order was passed on 29.04.2022.

5. IBC - Moratorium Period Can Be Excluded In Computing Limitation Period In A Suit/Application By Corporate Debtor: Supreme Court

Case Title: New Delhi Municipal Council v Minosha India Limited

Case No.: CA No. 3470 of 2022

The Supreme Court Bench comprising of Justices KM Joseph and Hrishikesh Roy has held that the entire period during which the moratorium was in force in respect of Corporate Debtor, can be excluded while computing the period of limitation for a suit or proceeding by the Corporate Debtor.

The appellant had challenged the Delhi High Court's order allowing the application filed by respondent Corporate Debtor under Section 11(6) of the Arbitration and Conciliation Act. The court noted that Section 14 (moratorium) does not include an application under Section 11(6) of the A&C Act by the Corporate Debtor or for that matter, any other proceeding by the Corporate Debtor against another party. The order was passed on 27.04.2022.

HIGH COURT

1. Mere Pendency Of An Insolvency Petition Is Not A Bar To The Appointment Of The Arbitrator: Delhi High Court

Case Title: Millennium Education Foundation v Educomp Infrastructure and School Management Limited

Case No.: ARB. P. 326 of 2022

The Delhi High Court Bench comprising of Justice Sanjeev Sachdeva has held that the mere pendency of an insolvency petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 is not a bar to the appointment of an arbitrator, neither an embargo on the power of the Court to decide arbitration applications. It is only when the insolvency petition is admitted and the moratorium is declared that the proceedings under the Arbitration Act would be non-maintainable.

NCLAT

1. Threshold Of Rs.1 Crore Is Required For Initiation of CIRP, Even If The Cause Of Action Arises Out Of Failure Of The Consent Terms Of The Earlier Section 7 Application: NCLAT

Case Title: Prafulla Purushottamrao Gadge v. Narayan Mangal

Case No.: Comp. App. (AT) (Ins.) No. 498 of 2022

The National Company Law Appellate Tribunal (NCLAT) Bench comprising of Justice Ashok Bhushan and Ms. Shreesha Merla has held that an application filed after 24.03.2020 under Section 7 of the Insolvency and Bankruptcy Code, 2016 below the threshold of Rs. One Crore is not maintainable.

The suspended director of the Corporate Debtor had filed the appeal against the order passed by NCLT Mumbai wherein CIRP was initiated against the Corporate Debtor for the default of Rs. 78,65,000/-. The NCLAT held that the application filed on 25.06.2021 has to fulfill the requirement of increased threshold as introduced in Section 4 of IBC by notification dated 24.03.2020. The order was passed on 06.05.2022

2. Arrears Of Salary Due Beyond Three Years, Barred By Limitation, Cannot Be The Basis For Initiating CIRP: NCLAT Delhi

Case Title: Omega Laser Products B.V. v Anil Agrawal

Case No.: Company Appeal (AT) (Insolvency) No.194 Of 2022.

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising of Justice Ashok Bhushan (Chairperson) and Ms. Shreesha Merla (Technical Member) has held that arrears of salary due beyond a period of 3 years would be barred by limitation for the purposes of initiating Corporate Insolvency Resolution Process (CIRP). The Managing Director had initiated CIRP against the Corporate Debtor over salary arrears dues which were barred by limitation. NCLAT has set aside the order of CIRP vide an order dated 10.05.2022 by observing:

"Therefore, this Tribunal if of the earnest view that the Section 9 Application filed on 27/08/2021 is 'barred by Limitation' as the claims of Rs.96,92,000/- and Rs.18,00,000/- pertain to the period prior to 31/03/2016 and more than three years have lapsed since."

3. Under Section 44 of IBC NCLT Doesn't Have The Power To Suo-Moto Classify A Transaction As A 'Preferential Transaction': NCLAT

Case Title: Sahara India v Shir Nandkisho Vishnupant Deshpande and Anr.

Case No.: Company Appeal (AT) (Ins) No. 368 of 2021

The National Company Law Appellate Law Tribunal (NCLAT) Bench comprising of Justices M. Venugopal (Member Judicial) and Dr. Ashok Kumar Mishra (Member Technical) has held that NCLT does not have the power to suo motu classify a transaction as a Preferential Transaction under Section 44 of the Insolvency and Bankruptcy Code, 2016. The NCLAT allowed the appeal challenging the order of the NCLT wherein the Adjudicating Authority had classified a transaction as 'Preferential Transaction.' The Bench remanded the matter back to the NCLT for deciding afresh in the light of the observations made in the order. The order was passed on 09.05.2022

4. Failure To Pay Consideration In 90Days, NCLAT Delhi Cancels The Sale Of Corporate Debtor To The Auction Purchaser In Liquidation Proceedings.

Case Title: Potens Transmissions & Power Pvt. Ltd v Gian Chand Narang

Case No.: Company Appeal (AT) (Insolvency) No. 532 of 2022.

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising of Justice Ashok Bhushan (Chairperson) and Ms. Shreesha Merla (Technical Member) has upheld the cancellation of sale of Apex Buildsys Ltd. as a going concern to Potens Transmissions & Power Pvt. Ltd. (Auction Purchaser), over the latter's failure to pay the sale consideration amount within 90 days, as stipulated under IBBI (Liquidation Process) Regulations 2016. The order was passed on 12.05.2022.

The NCLAT Bench observed that 90 days' period provided in the Liquidation Process Regulation is the maximum period for the Auction Purchaser to deposit the consideration amount, failing which the Regulation expressly mentions that the sale shall be cancelled. It was held that "when the Consequence of non-compliance of the provision is provided in the statute itself, the provision is necessary to be held to be mandatory."

5. Insolvency Cannot Be Initiated On The Basis Of Unpaid LTC And Leave Encashment Dues: NCLAT

Case Title: Kishore K Lonkar v Hindustan Antibiotics Ltd.

Case No.: Company Appeal (AT) (Insolvency) No. 934 of 2021.

The National Company Law Appellate Tribunal (NCLAT) Bench, comprising of Justice Ashok Bhushan and Ms. Shreesha Merla, has held that the welfare claims such as Leave Encashment, Superannuation Dues are not operational debt for the purpose of initiation of Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor under Section 9 of the Insolvency & Bankruptcy Code, 2016.

NCLAT noted that the definition of operational debt under Section 5(21) of the Code includes claim towards services which includes "employment" also however, the amount claimed by the Appellant was not towards any services rendered by him during his employment with the Corporate Debtor but all these payments were accrued after the cessation of employment. The Bench held that:

"9…Though 'service benefits' like 'LTC' accrue, on account of the service rendered during the period of employment, the scope and objective of the Code is simply not just for recovery of 'dues' but Resolution of the Companies meant for 'maximization of the value of assets', to promote entrepreneurship, availability of credit and balance all interest of the stakeholders"

6. National Company Law Appellate Tribunal Gets Five More Judges

Five new Judges have been appointed to the NCLAT vide a Notification dated 12.05.2022, the total Judges' strength has gone up from seven to twelve.

Following are the Details:

a. Justice Rakesh Kumar Jain, Retd. judge, Punjab and Haryana High Court

b. Justice Rakesh Kumar, Retd. Judge, Patna High Court

c. Justice M Satyanarayan Murthy sitting judge, Andhra Pradesh High Court

d. Barun Mishra, IAS, Retd. Secretary, Department of Justice

e. Naresh Salecha, IRAS, Member (finance), Railway Board

NCLT

1. Project Wise CIRP Of Real Estate Company Is Outside The Purview Of Insolvency And Bankruptcy Code, 2016: NCLT Chennai

Case title: N Kumar v. Tata Capital Housing Finance Ltd.

Case No.: CP (IB)/889(CHE)/2019

The National Company Law Tribunal, Chennai Bench comprising of Justice S. Ramathilagam and Mr. Anil Kumar B (Technical Member) has held that the project wise Corporate Insolvency Resolution Process (CIRP) of a real estate company is outside the purview of Insolvency and Bankruptcy Code, 2016

NCLT observed that there is no concept of limited CIRP or CIRP for specific projects anywhere in the IBC, 2016 or regulations made thereunder. NCLT further noted that the Supreme Court in the case of Pioneer Urban Land and Infrastructure Ltd. versus Union of India held that IBC is a beneficial legislation which can be trigged to put the whole corporate Debtor back on its feet.

2. NCLT Is Empowered To Pierce The Corporate Veil To Ascertain The Real Successful Bidder: NCLT Delhi

Case Title: Argentium International Pvt. Ltd. v Utm Engineering Pvt. Ltd.

Case No.: IB No. 248/ND/2019

The National Company Law Tribunal (NCLT), New Delhi Bench, comprising of Dharminder Singh (Judicial Member) and Sumita Purkayastha (Technical Member), has held that the NCLT has the power to pierce the 'corporate veil' in order to ascertain the real successful bidder. The Bench held:

"Tribunal is also not denuded of authority to pierce the 'corporate veil' to ascertain the real successful bidder. Therefore, the 'Corporate Veil' has to be lifted to prevent unjust and fraudulent act of the respondent herein and in order to look-into realities behind the legal façade and to hold him liable to the acts of the Corporate Debtor. No doubt, the separate personality of the company is statutory privileges, but it must be used for the legitimate purpose only. Whenever & wherever, if fraudulent or dishonest use is made of the legal entity, the individual will not be allowed to hide behind the curtain of the corporate personality. A duty is casted upon the Tribunal or the Court to break this shell of the company and to see who is actually benefitted by this curtain."

IBBI

1. IBBI Suspends IP Subrata Monindranath Maity Who Has Been Arrested By CBI Over Bribe Allegations

Case No.: IBBI/DC/95(Interim)/2022

The Insolvency and Bankruptcy Board of India (IBBI) has suspended Insolvency Professional, Mr. Subrata Monindranath Maity, vide an interim ex-parte order dated 09.05.2022, after the Central Bureau of Investigation (CBI) had arrested Mr. Subrata over bribe allegations.

On 03.05.2022 a complaint was filed before CBI, ACB Pune, alleging that after the settlement had taken place between the aforesaid Parties, Mr. Subrata (IRP in the matter) had approached Guardian Homes Pvt. Ltd. (Corporate Debtor) demanding an amount of Rs. 20 Lakhs as bribe in addition to the IRP fees amounting to Rs. 4 Lakhs, for completing the pending formalities before NCLT Mumbai after the settlement. It has been alleged that Mr. Subrata had threatened Guardian Homes that in case of non-payment of the bribe he might take coercive actions against Guardian Homes such as seizure of bank account and publication of notice of liquidation. CBI lodged a First Information Report (FIR) against Mr. Subrata on 04.05.2022 and arrested him thereafter. CBI has also issued a press release on 05.05.2022 narrating the case.

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