NCLT Mumbai: Exclusion Of Stay Period Of CIRP Petition Doesn't Postpone Insolvency Commencement Date Under IBC

The National Company Law Tribunal ('NCLT') Mumbai bench comprising Justice V.G. Bisht (Retd.) (Judicial Member) and Mr. Prabhat Kumar (Technical Member) held that exclusion of period of stay of Corporate Insolvency Resolution Process (“CIRP”) petition does not lead to postponement of Insolvency commencement date under Insolvency and Bankruptcy Code, 2016 (“IBC”). Background Facts: Reliance Communications Limited (Corporate Debtor) defaulted on loan repayments to China Development Bank (CDB) and other Chinese lenders (Respondents). Consequently, CDB initiated a Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code (IBC). In 2017, Indian lenders, led by the State Bank of India (SBI) as convenor, formed a Joint Lenders' Forum and signed a TRA Agreement to manage the Corporate Debtor's cash flows. The lenders considered an asset monetization process (“AMP”) to sell the Corporate Debtor's assets. CDB and other Chinese lenders demanded USD 200 million to consent to the AMP and withdraw the CIRP petition. SBI issued a no-objection letter (“NOC”) permitting the Corporate Debtor and Reliance Telecom Limited (“RTL”) to raise USD 200 million on an unsecured basis to pay the Respondents. On 29.12.2017, the Corporate Debtor and RTL raised approximately USD 184 million from five unsecured creditors and made payments to the Respondents. The Term Sheets indicated the funds were for these payments but did not specify that, if the AMP failed, the unsecured creditors would have recourse only to the promoters, not the Corporate Debtor's assets, as stipulated in the SBI NOC. Consequently, the Corporate Debtor's books reflected the liability for these unsecured loans. The AMP failed, leading to the initiation of CIRP by Ericsson India Pvt. Ltd. (Operational Creditor) on 15.05.2018. On 07.05.2019, NCLT Mumbai directed the Interim Resolution Professional (“IRP”) to take control of the Corporate Debtor's assets, including the TRA, and inform the financial creditors. Mr. Anish Niranjan Nanavaty (Applicant), the Resolution Professional (“RP”) of the Corporate Debtor, was obligated to honor the term sheets and admit the claims of the unsecured creditors as financial creditors. The RP filed an application before NCLT Mumbai stating that the Rs. 117 crores paid to the Respondents before the commencement of CIRP constituted a preferential transaction under Section 43 of IBC. He sought to declare the payment of Rs. 117 crores as a preferential transaction and to direct CDB to refund Rs. 93.82 crores and other Chinese lenders to refund Rs. 23.45 crores to the Corporate Debtor. Contentions of the Parties: The RP argued that the payment of Rs. 144 crores by the Corporate Debtor to the Respondent and the said transaction occurred between 15.05.2017 and 15.05.2018 within the one-year lookback period under Section 43 of IBC. Whereas, the Respondents contended that the insolvency commencement date should be May 7, 2019 and thus, the said transaction would fall outside the lookback period under Section 43 of IBC. NCLT Verdict: The NCLT Mumbai dismissed the application and held that exclusion of period of stay of CIRP petition does not lead to postponement of Insolvency commencement date under IBC. The Tribunal noted that Section 5(12) of the IBC defines the "insolvency commencement date" as the date on which the Adjudicating Authority admits an application to initiate the CIRP under Sections 7, 9, or 10 of IBC. It observed that presently, the admission order for the Corporate Debtor was passed on 15.05.2018, but was stayed by the NCLAT and vacated on 30.04.2019. During the stay, the Corporate Debtor's management was restored to its previous state with the erstwhile management. Consequently, the NCLAT directed the commencement of the CIRP on 07.05.2019 and NCLT Mumbai allowed the acceptance of creditor claims as of that date. The Tribunal also relied upon the Supreme Court's decision in Shree Chamundi Mopeds Ltd. vs. Church of South India Trust Assn clarifying the effect of order staying, and observed that an order that has been stayed remains in existence but suspended. NCLT Mumbai noted that the Order dated 30.05.2018 shows that the NCLAT stayed the operation of the admission order, but the RP continued to hold office without powers or duties. Moreover, the Order dated 09.05.2019, indicates that the exclusion was granted considering the stay on the admission order. Therefore, the insolvency commencement date cannot be considered as any date other than the admission order date of 15.05.2018. It noted that the reason to exclude the stay from the CIRP period is to determine the 180-day and 330-day timelines. Therefore, excluding the stay period does not postpone the insolvency commencement date, which is the date of the admission order as defined by IBC. In conclusion, the Tribunal...

NCLT Mumbai: Exclusion Of Stay Period Of CIRP Petition Doesn't Postpone Insolvency Commencement Date Under IBC

Sachika Vij

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NCLT Mumbai: Exclusion Of Stay Period Of CIRP Petition Doesn't Postpone Insolvency Commencement Date Under IBC

Sachika Vij

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INR 1099+GST

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