1. NCLAT Urges Central Government And IBBI To Consider Legislative Change For Payment To Operational Creditor Under Resolution Plan

Case Title: Damodar Valley Corporation v Dimension Steel and Alloys

Case No.: Company Appeal (AT) (Insolvency) No. 62 of 2022

The National Company law Appellate Tribunal (NCLAT) bench comprising of Justice Ashok Bhushan and Ms. Shreesha Merla has urged the Central Government and the Insolvency and Bankruptcy Board of India (IBBI) to consider legislative change regarding the payment to operational creditors under the resolution plan. The Bench observed that: "We are consistently receiving the Plans, where Operational Creditors either not paid any amount towards their claim or paid negligible amount, sometime even less than 1%." The Bench noted that time has come to reconsider the payment mechanism to operational creditors under the Resolution plan and urged the Central Government and IBBI to find out if there is any ground to reconsider the legislative change towards payment to the operational creditors under the resolution plan.

2. Article 1 Of Limitation Act,1963 Will Not Apply To Proceedings Under Insolvency And Bankruptcy Code, 2016: NCLAT

Case Title: S M Ghogbhai versus Schedulers Logistics India Pvt. Ltd

Case No.: Company Appeal (AT) Insolvency No. 281 of 2022

The National Company Law Appellate Tribunal (NCLAT), Principal Bench. comprising of Justice Ashok Bhushan and Dr. Alok Srivastava has held that the Article 1 of Limitation Act, 1963 is not applicable to the Petition filed by the Operational Creditor under Section 9 of the Insolvency and Bankruptcy Code (IBC). Reliance was placed on the case of BK Educational Services Pvt. Ltd. v. Parag Gupta and Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries wherein Supreme Court held that the period of limitation for filing an application under Section 7 or 9 of the Code is to be decided as per Article 137 of the Limitation Act. NCLAT further held that Article 1 of Limitation Act deals with "suits relation to accounts" and an application under Section 9 of the Code cannot be said to be a suit relating to accounts.

3. NCLAT Upholds Dismissal Of Section 7 Petition Filed By Hinduja Leyland Finance Ltd. During The Prohibited Period; Grants Liberty To Re-File With Corrected Documents

Case Title: Hinduja Leyland Finance Ltd. v Fly Express Logistic Pvt. Ltd.

Case No.: Company Appeal (AT) (Ins.) No. 553 of 2022.

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Ms. Shreesha Merla (Technical Member) and Mr. Naresh Salecha (Technical Member), while adjudicating an appeal has upheld that Corporate Insolvency Resolution Process ("CIRP") cannot be initiated over a default which had occurred in the period mentioned under Section 10A of the Insolvency and Bankruptcy Code, 2016 ("IBC"), i.e. between 25.03.2020 to 24.03.2021. The order was passed on 20.05.2022.

NCLT

1. NCLT Delhi Initiates Insolvency Process Against National Textile Corporation Ltd., A Public Sector Enterprise

Case Title: Hero Solar Energy Pvt. Ltd. v National Textile Corporation Ltd.

Case No.: C.P. No. IB-452/ND/2020

The National Company Law Tribunal (NCLT), New Delhi Bench, comprising of Mr. Dharminder Singh (Judicial Member) and Ms. Sumita Purkaysatha (Technical Member), has initiated Corporate Insolvency Resolution Process ("CIRP") against National Textile Corporation Ltd., which is a Public Sector Enterprise under Ministry of Textiles, Government of India. The NCLT Bench observed that there is a claim which is due and payable and the Corporate Debtor had failed to prove existence of any 'pre-existing dispute' in respect of the default. The petition was admitted under Section 9 of IBC and CIRP was initiated against the Corporate Debtor. Mr. Amit Talwar has been appointed as the Interim Resolution Professional and moratorium has been declared. The order was passed on 27.05.2022.

2. CIRP Cannot Be Initiated Solely For Interest Amount, If The Principal Amount Is Discharged: NCLT Delhi

Case Title: Saraf Chits Private Limited & Anr. v KAD Housing Private Limited

Case No.: (IB)-255(ND)/2021.

The National Company Law Tribunal ("NCLT"), New Delhi Bench, comprising of Shri Abni Ranjan Kumar Sinha (Judicial Member) and Shri L.N. Gupta (Technical Member), has held that Corporate Insolvency Resolution Process ("CIRP") cannot be initiated against a Corporate Debtor solely on the basis of the un-paid amount of interest, where the entire principal amount has already been discharged by the Corporate Debtor. The Bench observed that interest is not included in the term "debt" per se under IBC. Rather, "interest" can be claimed as "financial debt" only if such debt exists. The Bench opined that the "interest" component alone cannot be claimed or pursued in absence of the debt for initiating CIRP against the Corporate Debtor. An application pursued for realization of the interest amount alone is against the intent of the IBC. The order was passed on 23.05.2022.

3. Salary During Notice Period Does Not Fall Within The Definition Of 'Operational Debt' Under IBC: NCLT, Mumbai

Case Title: Sandesh Naik v. MT Educare Ltd.

Case No.: C.P.(IB)-678(MB)/2020

The National Company Law Tribunal ("NCLT"), Mumbai Bench, comprising of Justice H.V. Subba Rao (Judicial Member) and Chandra Bhan Singh (Technical Member), has held that salary for purported notice period amounts to specific performance of the appointment letter and does not fall within the definition of 'Operational Debt' as the same was not salary for the actual work done by the Operational Creditor.

The Applicant resigned from his job and demanded the Employer to pay salary for 3 months of notice period. The Employer only paid for 1 month and stated that the appointment letter did not provide for 3 months' payment. The NCLT dismissed the Section 9 application filed by the Applicant on the ground that there existed a dispute between the parties which ought to be adjudicated upon by leading evidence and conducting trials before the competent court and that the Applicant cannot use the IBC as a substitute of debt enforcement procedures.

4. Minimum Threshold Of Rs. 1 Crore Must Be Met, Even If Default Had Occurred Or Demand Notice Was Sent Prior To 24th March, 2020: NCLT Delhi

Case Title: Mr. Daxesh D. Desai v Shopzo Brand Pvt. Ltd.

Case No.: IB 533/(ND)/2021.

The National Company Law Tribunal ("NCLT"), New Delhi Bench, comprising of Shri Dharminder Singh (Judicial Member) and Ms. Sumita Purkayastha (Technical Member), has held that for determining maintainability of an application in terms of Section 4 of the Insolvency and Bankruptcy Code, 2016 ("IBC"), the date of filing of a petition has to be seen and not the date of default or demand notice. No petition under Section 7 or 9 of IBC could be filed for a default of less than Rs. 1 Crore, on or after 24.03.2020, even if the default had occurred or demand notice was sent prior to 24.03.2020.

5. NCLT Delhi Dismisses Insolvency Petition Against NBCC India Ltd., A Navratna Enterprise

Case Title: Biosafe Lab India Pvt. Ltd. v NBCC India Ltd.

Case No.: IB 323/ND/2022

The National Company Law Tribunal ("NCLT"), New Delhi Bench, comprising of Mr. Dharminder Singh (Judicial Member) and Ms. Sumita Purkaysatha (Technical Member), has dismissed an application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 ("IBC") seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against NBCC India Pvt. Ltd. The Bench observed that a serious dispute existed in relation to the due payment, which cannot be decided in a summary manner. The order was passed on 27.05.2022.

6. Split Verdict Of NCLT, Hyderabad Bench On The Question Of Related Party, Issue Referred To President Of The Bench

Case Title: Trimex Industries Pvt. Ltd. v. M/s. Sathavahana Ispat Ltd.

Case No.: CP (IB) No. 17/9/HDB/2020

In a split verdict, a two-judge Bench of NCLT, Hyderabad comprising of Shri Venkata Ramakrishna Badarinath Nandula (Judicial Member) and Shri Veera Brahma Rao Arekapudi (Technical Member), has referred to the Principal Bench the question of –"whether in an application filed by an Operational Creditor u/s 60(5) of the Code, the CoC can be barred from considering the resolution plan of a Prospective Resolution Applicant (PRA), when the same has not received approval of the CoC on the ground that the PRA and sole member of CoC are related parties". The Technical Member has allowed the application u/s 60(5) of IBC and directed the CoC not to consider the resolution plan of the PRA as the entire process of CIRP is vitiated and collusion between the parties is writ large on the face of CIRP of the CD, as the PRA was a related party to the sole member of the CoC, JC Flower Asset Reconstruction Company, to whom, after assignment of debts, the Corporate Debtor owed all financial debts. Thus, the application to pass an order is not premature. However, the Judicial Member rejected the application by observing that the plea would be within the jurisdiction of the CoC while voting for the plan and interference by the Adjudicating Authority would amount to usurpation of power which is not available under the Code.

IBBI

1. IBBI Rescinds Its Previous Circulars

The Insolvency and Bankruptcy Board of India (IBBI) vide its circular dated 23.05.2022 has rescinded its various earlier circulars by exercising its power under Section 196 of the Insolvency and Bankruptcy Code, 2016. As per circular dated 23.05.2022, IBBI conducted an exercise of review of its circulars and withdrew its earlier circulars as these circulars are no longer required due to incorporation of those changes in the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 or IBBI (Insolvency Professionals) Regulations, 2016.

CBIC

1. CBIC Issues SOP for NCLT Cases In Respect Of The IBC

Instruction No. 1083/04/2022-CX9 dated: 23.05.2022

The Central Board of Indirect Taxes and Customs (CBIC) has issued the Standard Operating Procedure (SOP) for National Company Law Tribunal (NCLT) cases in respect of the Insolvency and Bankruptcy Code, 2016 (IBC).

The Board has instructed that the Insolvency and Bankruptcy Board of India establish the role of the GST and Customs authorities in certain crucial matters under the Insolvency and Bankruptcy Code, 2016. The GST and Customs Authorities have been classed as operational creditors. The authorities must file claims against corporate debtors when the corporate bankruptcy and resolution process is commenced and a public statement inviting claims is published by the insolvency professional. "It has also been noticed that the authorities then litigate on the denial of each claim, despite the established stance that no claims can be lodged after the plan is authorised and no demands can be made on the resolution applicant who has taken over the firm through such a resolution plan" the CBIC has instructed.