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Insolvency Law In Review – November & December 2021

Insolvency Law In Review – November & December 2021
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The enactment of the Insolvency and Bankruptcy Code 2016 (Code) has had significant ramifications on the corporate insolvency landscape. Over time, the Code has witnessed a manifold increase in litigation, and consequently in the number of decisions. This has made it difficult for insolvency practitioners to stay updated with developments in the field. This column fills this...

The enactment of the Insolvency and Bankruptcy Code 2016 (Code) has had significant ramifications on the corporate insolvency landscape. Over time, the Code has witnessed a manifold increase in litigation, and consequently in the number of decisions. This has made it difficult for insolvency practitioners to stay updated with developments in the field. This column fills this gap by providing brief summaries of latest decisions from the various fora dealing with Insolvency Law.

These case summaries are not an exhaustive review of the cases under the Code; only significant rulings on the Code in the months of November and December 2021 have been summarized. However, this does not negate the possibility of some important decisions being missed on account of human error. Further, since the purpose of this endeavor is to keep practitioners abreast of relevant developments, the decisions are summarized and not comprehensively analyzed.

I. SUPREME COURT

In Tata Consultancy Services Limited v. Vishal Ghisulal Jain, Resolution Professional, SK Wheels Private Limited, the Supreme Court held that the residuary jurisdiction of the Adjudicating Authority cannot be invoked to stay the termination of a contract if the termination of a contract is based on grounds unrelated to the insolvency of the corporate debtor. The Supreme Court further held that even if the contractual dispute arises in relation to the insolvency, a party can be restrained from terminating the contract only if it is central to the success of the corporate insolvency resolution process (CIRP). The Supreme Court noted that the appellant here had terminated its contract with the corporate debtor due to deficiency in services and not due to the insolvency of the corporate debtor. The Supreme Court further noted that Section 14 of the Code was not applicable in this case, as the appellant was availing of the services of the corporate debtor and was using the property that had been leased to it by the corporate debtor.

In E S Krishnamurthy & Others v. M/s Bharath Hi Tech Builders Private Limited, the Supreme Court held that the Adjudicating Authority had acted outside the terms of its jurisdiction under Section 7(5) of the Code by directing the parties to settle the dispute within a stipulated time frame. The Supreme Court noted that the Adjudicating Authority is empowered only to verify whether a default has occurred or has not occurred. Based upon its decision, the Adjudicating Authority must then either admit or reject an application respectively. These are the only two courses of action which are open to the Adjudicating Authority in accordance with Section 7(5) of the Code. The Supreme Court observed that while the Adjudicating Authority and Appellate Authority can encourage settlements, they cannot direct them by acting as courts of equity.

In Ngaitlang Dhar v. Panna Pragati Infrastructure Private Limited & Others, the Supreme Court set aside the decision of the National Company Law Appellate Tribunal (NCLAT), New Delhi and held that the decision of the committee of creditors (CoC) to not grant any further time to a resolution applicant for submission of its revised bid cannot be said to be falling in the category of the term 'material irregularity'. The Supreme Court noted that it is trite law that the commercial wisdom of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the processes within the timeline prescribed by the Code.

II. HIGH COURTS

In Dewan Housing Finance Corporation Limited v Union of India, the Bombay High Court held that if the conditions laid down under Section 32A of the Code i.e. (i) implementation of the resolution plan; (ii) change in management in favor of persons not related to the corporate debtor, are fulfilled, then the corporate debtor cannot be denied immunity from criminal liability under Section 32A of the Code. The High Court, accordingly, allowed the writ petition against an order of the Central Bureau of Investigation (CBI) court, wherein the prayer for discharge made by the corporate debtor pursuant to Section 32A of the Code was rejected, and discharged the corporate debtor from a criminal case pending before the CBI court under Section 420 read with Section 120B of the Indian Penal Code and Sections 7(12), 13(2) read with Section 13(1) (d) of the Prevention of Corruption Act, 1988. The impugned order of the CBI court, while rejecting the application for discharge, had allowed the corporate debtor to be prosecuted through its erstwhile directors. The Bombay High Court held that by permitting the prosecution of the corporate debtor through its directors, who had been ousted by the Reserve Bank of India (RBI) owing to governance concerns two years ago, the CBI court had committed an error and quashed the order of the CBI court in its entirety.

In Murli Industries Limited v. Assistant Commissioner of Income Tax, the Bombay High Court held that on the date of approval of the resolution plan by the Adjudicating Authority, all claims which are not a part of the resolution plan, including statutory dues, will stand extinguished and no proceedings can be initiated or continued in respect of such an extinguished claim. Therefore, the income tax authorities cannot issue a notice under Section 148 of the Income Tax Act, 1961 to a corporate debtor calling upon it to submit a return in the prescribed form for the assessment year falling prior to the date of the approval of a resolution plan under the Code.

In Tamil Nadu Generation & Distribution Corporation Limited v. Union of India & Others, the Madras High Court dismissed a petition seeking issuance of a writ of declaration declaring the provisions of Section 9 of the Code as unconstitutional and void in so far as it extends its application to the disputes arising under the Electricity Act, 2003. It was reasoned that there was no provision under the Code or the Companies Act, 2013, which exempted a complaint against a company substantially owned by the government. It was opined that the idea of one legislation being the special legislation vis-a-vis the other did not arise in this case, as there was no direct conflict. However, the Madras High Court held that if a dispute under the Electricity Act, 2003 is of such a nature that renders it obligatory to be decided earlier, then the National Company Law Tribunal (NCLT) would do so, but the jurisdiction of the NCLT to decide the same cannot be questioned.

In Ultratech Nathdwara Cement Ltd v. The State of Rajasthan & Others, the Rajasthan High Court dismissed a petition seeking fulfillment of a claim by the petitioner company beyond the approved resolution plan on the grounds that the said claim was pending adjudication before a competent court. The Court placed reliance on the judgment of the Supreme Court in the case of UltraTech Nathdwara Cement Limited v. State of Uttar Pradesh & Others, and upheld the principle that after approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of the resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not a part of the resolution plan.

In Nitin Jain, Liquidator PSL Limited v. Enforcement Directorate, the Delhi High Court held that the approval of the measure to be implemented in the liquidation process by the Adjudicating Authority must be held to constitute the trigger event for the statutory bar enshrined in Section 32A of the Code coming into effect. The Delhi High Court further held that the power to attach, as conferred by Section 5 of the Prevention of Money Laundering Act, 2002 (PMLA), would cease to be exercisable once any one of the measures specified in Regulation 32 of the Insolvency and Bankruptcy Board of India (IBBI) (Liquidation Process) Regulations, 2016 (Liquidation Regulations) comes to be adopted and approved by the Adjudicating Authority. The Delhi High Court noted that the power otherwise vested in the Enforcement Directorate under the PMLA to provisionally attach or move against the properties of the corporate debtor would stand foreclosed once the Adjudicating Authority comes to approve the mode selected in the course of liquidation.

In Vishnoo Mittal v. M/s Shakti Trading Company, the Punjab & Haryana High Court, citing the judgment of the Supreme Court in P. Mohan Raj & Others v. Shah Brothers Ispat Private Limited, held that upon the imposition of moratorium under Section 14 of the Code, no proceeding under Section 138 or Section 141 of the Negotiable Instruments Act, 1881 (NI Act) can be instituted or continued against the corporate debtor. The High Court further held that such a bar will not be applicable to the suspended director of the corporate debtor and the proceedings instituted against them under the NI Act can continue.

In Adarsh Jhunjhunwala v. State Bank of India, the Calcutta High Court differentiated between the moratorium imposed under Section 14 and the moratorium under Section 96 of the Code. The High Court held that the moratorium under Section 14 attaches to the corporate debtor, while the moratorium under Section 96 attaches to the debt. Further, the Calcutta High Court held that since willful defaulter proceedings have got nothing to do with the recovery of debt, the moratorium imposed under Section 96 of the Code does not prevent the continuation of such proceedings. The willful defaulter proceedings are initiated with the purpose of cautioning others lenders against lending money to the willful defaulter with the objective of preventing fraud and loss of public money. In such a scenario, the moratorium under the Code cannot be used to let a wrongdoer get away.

III. NATIONAL COMPANY LAW APPELLATE TRIBUNALS

In Mr. Aseem Srivastav v ICICI Bank Limited, the NCLAT, New Delhi dismissed an appeal seeking a declaration of misjoinder of causes of action. The appeal was filed on the grounds that as the claims arose out of two different agreements and had different dates of default, the financial creditors could not club them together based on the ratio of the NCLAT, New Delhi in the case of International Road Dynamics South Asia Pvt. Ltd. v. Reliance Infrastructure Ltd. However, the NCLAT, New Delhi held that the said judgment was decided in the context of an application made under Section 9 of the Code by operational creditors and was not applicable to an application made under Section 7 of the Code by financial creditors. It was held that the language of Section 7 of the Code and the explanation to the same make it apparent that more than one financial creditor can file a joint application and the dates of default may be different.

In Rajmee Power Construction Limited v. M/s. Jharkhand Urja Sancharan Nigam Limited, the NCLAT, New Delhi, dismissed a claim for barring an application on the grounds of limitation. While placing reliance on the judgment of the Supreme Court in the case of B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates, the NCLAT, New Delhi held that the judgment had to be applied on a case-by-case basis and in the event a party lacks complete knowledge of a decision of recovery, then the date of knowledge of the happening of the default becomes the relevant date of default for the purposes of determining limitation. The NCLAT, New Delhi noted that limitation is essentially a mixed question of law and facts and the material evidence on record established that the appellant got the knowledge of the deduction made by the corporate debtor for the very first time only after receipt of information through a right to information application.

In Ananta Charan Nayak v. State Bank of India & Others, the NCLAT, New Delhi held that the Code does not provide for keeping the proceedings in abeyance and the application for admission has to be decided within a stipulated time frame. Here, the NCLAT, New Delhi rejected the contention of the appellant that it had submitted a one time settlement proposal to the financial creditor, which was pending decision, and hence, the Adjudicating Authority should not have passed an admission order on an application under Section 7 of the Code. The NCLAT, New Delhi noted that if a settlement is to be reached, then the appellant would need to take recourse to Section 12A of the Code.

In Bhatpara Municipality v. Nicco Eastern Private Limited & Others, the NCLAT, New Delhi held that the auction purchaser cannot be held liable to pay any such dues relating to the period prior to the confirmation of sale. Here, the auction-purchaser was served with a demand notice of outstanding property taxes four months after the auction sale was completed under the Code. The NCLAT, New Delhi noted that the outstanding dues of property taxes relating to the period prior to the sale confirmation, are dues that are akin to claim of an unsecured creditor (Bhatpara Municipality in the present case) and should be discharged in terms of the properties regarding distribution of assets given under Section 53 of the Code. The NCLAT, New Delhi further noted that on a conjoined reading of Regulation 34(2)(f) and Regulation 13 of the Liquidation Regulations, the liquidator, while submitting a preliminary report to the Adjudicating Authority with the asset memorandum, is required to bring to the notice of the Adjudicating Authority any liabilities with respect to the assets.

In Shailendra Singh v. Nisha Malpani & Another, the NCLAT, New Delhi held that merely because the Code does not specifically mention about the contempt provisions, it cannot be said that the Adjudicating Authority (NCLT) has no powers of contempt. The NCLAT, New Delhi noted that if one is to give such a restricted interpretation that the Adjudicating Authority (NCLT) has no jurisdiction of contempt, then its orders cannot be implemented, and in fact, the Code will remain in black letters without any teeth to bite. The NCLAT, New Delhi further held that a conjoined reading of Sections 408 and 425 of the Companies Act, 2013 demonstrates that the power to punish for contempt is vested with the NCLT while adjudicating on matters not only confined to the Companies Act, 2013 but also relating to the Code.

In the matter of Krrish Realtech Pvt. Ltd., the NCLAT, New Delhi held that, in view of Section 424(1) of the Companies Act, 2013 read with Chapter III-A of the Code and the Pre-Packaged Insolvency Resolution Process Regulations 2021, the NCLT is not barred from hearing objectors/intervenors before admitting an application seeking initiation of pre-packaged insolvency resolution process.

In Axis Bank Ltd. v. Value Infracon India Pvt. Ltd. and Another, the NCLAT, New Delhi reiterated the position that a homebuyer would be considered as a 'financial creditor' for the purposes of the Code. The NCLAT, New Delhi further held that it was not the objective of the Code to consider banks/financial institutions that have advanced loans to homebuyers as 'financial creditors' for the purposes of the Code, inasmuch as the liability to repay such loans is on the homebuyers.

In M/s Hasmukh N. Shah and Associates v. M/s. Victoria Entertainment Pvt. Ltd., the NCLAT, New Delhi relied on, inter alia, the judgment of the Supreme Court in V. Nagarajan v. SKS Ispat and Power Ltd. and Others, to reject the contention that the period of limitation to file an appeal under Section 61 of the Code would only start running after a free certified copy of the impugned judgment is received under Rule 50 of the National Company Law Tribunal Rules, 2016. (NCLT Rules). The NCLAT, New Delhi noted that the limitation to file an appeal under Section 61 of the Code cannot be treated to be under suspension till a free certified copy of the judgment is received by the party as enjoined by Rule 50 of the NCLT Rules, and any such interpretation shall not dwell with the statutory scheme.

In BSE Ltd. v. KCCL Plastic Ltd., the NCLAT, New Delhi held that annual listing fees fall under the ambit of 'regulatory dues' that are recoverable by the Securities and Exchange Board of India, and cannot be classified as an 'operational debt within the meaning of the Code. The NCLAT, New Delhi relied on the suggestion of the Insolvency Law Committee to hold that regulatory dues are not to be recovered under the category of 'operational debt'.

In Drip Capital Inc. v. Concord Creations (India) P. Ltd., the NCLAT, Chennai held that an initiation of the CIRP does not amount to recovery proceedings and that the Adjudicating Authority at the time of determination as to whether to admit or reject an application under Section 7 of the Code, is not to take into account the reasons for the corporate debtor's default. The NCLAT, Chennai noted that the NCLT, Bangalore had acted contrary to the established principles by allowing the corporate debtor additional time to repay its debt on the grounds that the corporate debtor had sufficient income and assets to repay its debt.

In Manmohan Singh Jain v. State Bank of India & Another, the NCLAT, Chennai held that non-mentioning of the date of default in an application by a financial creditor under Section 7 of the Code is not fatal to the application and on that sole ground, the application cannot be rejected due to a mere a technical impediment. The NCLAT, Chennai noted that the financial creditor here had filed sufficient proof of documents as evidence showing the date of default, and had stated the date of default in the pleadings and in other documents, which the corporate debtor had received and acknowledged.

In Mr. C. Raja John v. Mr. R. Raghavendran and Others, the NCLAT, Chennai relied upon the judgment of Sarvana Global Holdings Ltd. and Another v. Bafna Pharmaceuticals Ltd. and Others, to hold that in exceptional circumstances, if the corporate debtor is a micro, small and medium enterprise (MSME), then it is not necessary for the promoters to compete with other resolution applicants to regain control over such corporate debtor, in view of the Section 240-A of the Code. The NCLAT, Chennai noted that the in view of Section 240A of the Code, the intention of the Code is to give an opportunity to the management/promoters/erstwhile directors of the corporate debtor being an MSME, to regain the control of the corporate debtor.

IV. NATIONAL COMPANY LAW TRIBUNALS

In Amit Kumar Mehta v New Steel Trading Private Limited, the NCLT, Mumbai followed the Supreme Court judgment in Orator Marketing Pvt Ltd v Samtex Desinz Pvt Ltd, to hold that the definition of 'financial debt' under Section 5(8) of the Code does not exclude an interest free loan and any default in payment of an interest free loan would be squarely covered under Section 7 of the Code. The NCLT, Mumbai further rejected the contention that the loan disbursed by the financial creditor was in the nature of 'quasi-equity' while noting that the financial creditor had no involvement in the affairs of the corporate debtor.

In Rattan India Finance Private Limited v M/s Cox and Kings Private Limited, the NCLT, Mumbai rejected an application filed by an operational creditor under Section 60(5) of the Code seeking declaration of its claim amount as an 'asset in trust' under Section 18(f) of the Code, while holding that a mere stipulation under an agreement (to provide air services) regarding the amount collected by the corporate debtor being held in trust for the applicant without taking further steps to set up a trust and retention account, does not lead to an understanding that the money was held in trust by the corporate debtor under Section 18(f) of the Code. The NCLT, Mumbai further noted that under the agreement relied on by the applicant, in case of initiation of bankruptcy proceedings, Clause 7.4 of the agreement provided for acceleration of the amount payable to the applicant. In view of this clause, the NCLT, Mumbai noted that the amount collected by the corporate debtor, became immediately due and payable on the insolvency commencement date and accordingly fell within the definition of 'debt' under Section 3(11) of the Code.

​​In Punjab National Bank v Mittal Corp Limited, the NCLT, Mumbai noted that the pre-requisite for the applicability of the Hon'ble Supreme Court judgment in Dharani Sugars & Chemicals Ltd v Union of India & Others (which struck down insolvency proceedings initiated pursuant to the RBI circular dated February 12, 2018) was that the lenders to the corporate debtor must have an aggregate exposure of more than INR 2,000 Crores. The NCLT, Mumbai, accordingly, admitted the insolvency application by the financial creditor, while finding that Dharani Sugars was not applicable to the application since the total outstanding debt of the corporate debtor was INR 1,007 Crores. The NCLT, Mumbai further noted that since the application under Section 7 of the Code was filed before the lapse of the time period of 180 days from the declaration of the corporate debtor's loan as a non-performing asset prescribed under the RBI circular, there was no cogent evidence that the insolvency application had been filed pursuant to the RBI circular dated February 12, 2018.

In Hubtown Limited v GVFL Trustee Company Limited, the NCLT, Mumbai held that the exercise of a shareholder's right to exit by way of a put option did not amount to a 'financial debt' under Section 5(8) of the Code. While underlining the basic difference between a shareholder and a lender as the former undertaking the risk by investing in shares and deriving its return by way of profits in the form of dividends and capital gains as opposed to a lender gaining returns on its loan by interest, the NCLT, Mumbai held that the investment by the applicant was under the shareholders' agreement, and accordingly, the claim of the applicant based on exercise of its put option could not be categorised as a financial debt. The NCLT, Mumbai further noted that the voting rights in the annual/extraordinary general meeting could not accrue to a financial creditor and that the internal rate of return on investment in shares is in relation to expected profit and dividend payout, which cannot be equated with interest payment pursuant to a loan.

In Vekatesan Sankaranarayanan RP for RTIL v Nitin Shambhukumar Kasliwal, the NCLT, Mumbai held that for an application under Section 66 of the Code to be allowed, the applicant must demonstrate that the business of corporate debtor has been carried on with the 'intent to defraud' its creditor or for 'any fraudulent purpose'. While dealing with the contention of the applicant regarding the exercise of write off by the corporate debtor being fraudulent, the NCLT, Mumbai noted the decision of the Hon'ble Supreme Court in Salim Akbarali Nanji v Union of India, (2006) 5 SCC 302, and held that write off was an internal accounting procedure and by itself did not demonstrate fraudulent trading. The NCLT, Mumbai further noted that the mere existence of common statutory auditors between the corporate debtor and its suppliers without any established link between the corporate debtor and such supplier could not lead to the categorisation of the transactions between the parties as fraudulent or wrongful trading. The NCLT, Mumbai further observed that in the absence of any reference to siphoning of or diversion of funds, the observations in the transaction review report regarding 'potential fraudulent transaction' or bad commercial business decisions, could not be considered a valid ground for fraudulent or wrongful trading under Section 66 of the Code.

In Ashutosh Agarwala, RP v. Joint Commissioner of State Tax, Kolkata, the NCLT, Mumbai held that attachment of the assets of the corporate debtor during the CIRP under Section 83 of the Goods and Services Tax Act, 2017 ("GST Act") is not possible considering the moratorium imposed under Section 14 of the Code and the overriding effect of the Code as provided under Section 238 of the Code. Further, the NCLT, Mumbai held that when a corporate debtor is undergoing the CIRP, no action can be taken pursuant to a notice issued under Section 79 of the GST Act Any payments due to the tax authorities would have to be satisfied during the distribution of proceeds under Section 53 of the Code.

In BKP Enterprise v. Air India Ltd., the NCLT, New Delhi dismissed an application under Section 9 of the Code on the grounds of being barred by limitation. The NCLT, New Delhi reasoned that the mere existence of an erstwhile writ petition filed by the operational creditor could not be considered as a 'sufficient cause' to accept an application of condonation of delay under the Limitation Act, 1963.

In Propertree Real Estate Solutions Private Limited v. Unibera Developers Private Limited, the NCLT, New Delhi admitted an application under Section 9 of the Code and dismissed the contention by the corporate debtor of there being a pre-existing dispute. The NCLT, New Delhi reasoned that if the corporate debtor was to make contradictory statements while claiming the ground of there being a pre-existing dispute, then the claim would be rejected. It was held that such an act would be against the law as laid down by the Supreme Court in the case Mobilox Innovations Private Limited v. Kirusa Software Private Limited, that a dispute must 'exist in fact' and not be 'spurious, hypothetical or illusory.'

In Dhankalash Distributors Pvt. Ltd. v. Piyush IT Solutions Pvt. Ltd. & Insolvency & Bankruptcy Board of India, the NCLT, New Delhi dismissed an application to declare Section 16A(7) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 as unconstitutional. The NCLT, New Delhi held that as per Sections 240 and 241 of the Code, the Parliament and the IBBI have the power to make and alter said rules and regulations, and therefore, the NCLT does not have the jurisdiction to entertain such a challenge.

In M/s Propertree Real Estate Solution Private Limited v. M/s Unibera Developers Private Limited, the NCLT, New Delhi rejected an application filed under Rule 11 of the NCLT Rules for withdrawal of company petition pursuant to the settlement reached between the parties. The NCLT, New Delhi noted that the parties should have moved an application under Regulation 30A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and followed the procedure prescribed thereunder for withdrawal of the company petition.

In Ashimara Housing Private Limited v. Vibrus Homes Private Limited, the NCLT, New Delhi held that the amount deposited towards the license fee for providing operational and management services constitutes an 'operational debt' under the Code. The NCLT, New Delhi further rejected the contention that there was a pre-existing dispute between the corporate debtor and the operational creditor, as the corporate debtor had raised a legal notice under Section 138 of the NI Act. The NCLT, New Delhi noted that the issuance of legal notice under the NI Act, cannot be treated as a dispute.

In India SME Asset Reconstruction Company Limited v. M/s Medirad Tech India Limited, the NCLT, New Delhi, while admitting the company petition, held that in view of Section 238 of the Code, the provisions of the Code will have an overriding effect over any court order directing parties to not take any coercive steps against the corporate debtor. Here, the corporate debtor had challenged the validity of the assignment deed between the original financial creditor and the petitioner, and the Orrisa High Court had directed to not take any coercive steps against the corporate debtor.

In Bank of India v. ARSS Infrastructure Projects Limited the NCLT, Cuttack allowed an application under Section 60(5) of the Code for placing an additional document in the main application. The NCLT, Cuttack noted that in the present case, the applicant was a public sector bank, and therefore, in the main proceedings, public money was at stake. The NCLT, Cuttack held that such a mistake, which was inadvertent, should not affect the proceedings, and an additional document should be allowed as per the law laid down by the Supreme Court in the case of Dena Bank v. Shivakumar Reddy, wherein it was held that there is no bar in law to file additional documents in an application under Section 7 of the Code.

In Jaldhi Overseas Pte. Ltd. v. Steer Overseas Private Limited, the NCLT Cuttack, dismissed an application under Section 9 of the Code, where the claim of the operational creditor was based on a foreign award passed by an arbitral tribunal based in Singapore. The NCLT, Cuttack reasoned that a foreign award has to undergo certain tests for it to be enforceable as an award or a decree. Reliance was placed on the law laid down by the Supreme Court in the case of Government of India v. Vedanta Limited, and it was stated that a foreign award cannot directly constitute a debt for the initiation of the CIRP under the Code. It was emphasized that as per Section 47 of the Arbitration and Conciliation Act, 1996 ("Act"), only High Courts could deal with foreign awards and only after subjective satisfaction of the conditions given under Section 48 of the Act, is the award deemed to be an enforceable decree under Section 49 of the Act. Therefore, it was held that the NCLT did not have the requisite jurisdiction to acknowledge the debt on the basis of a foreign award and initiate the CIRP in pursuance of the same.

In Sunit Jagdishchandra Shah, Liquidator of SRK Chemicals Ltd. v. SRK Chemicals & Others, the NCLT, Ahmedabad passed an order of liquidation and reaffirmed the principle that the amount due to operational creditors cannot be below the liquidation value even if the resolution plan has complete consent of the CoC. In this case, there was no financial creditor, however, even with claims of only the operational creditors present, it was held that the CoC could not override Section 30(2)(b) of the Code.

In Satiq Buhari, Resolution Professional v. Platino Classic Motors India Pvt. Ltd., the NCLT, Kochi passed an order to remove the petitioner as a resolution professional ("RP") on the grounds of not following the required statutory procedure under the Code. Here, the petitioner/RP, on the directions of the CoC, filed an application for the initiation of liquidation of the corporate debtor without inviting any expression of interest for the submission of resolution plan on the grounds that the entity was not a going concern. The NCLT, Kochi relied on the ratio of the judgment of the NCLAT, New Delhi in Jayanta Banerjee v. Shashi Agarwal and another, to hold that all statutory provisions under the Code are interconnected and there is no discretion with the RP to skip any of the provisions. The NCLT, Kochi also held that the time spent till date before the Adjudicating Authority, with the petitioner as the RP, would not be used for calculation under Sections 12(1), (2) and (3) of the Code.

In the matter of M/s Alkas Spinning Mills Ltd., the NCLT, Chennai held that if a resolution plan is pending approval before the NCLT, then it is beyond the scope of the Code to hand over the possession of the assets of the corporate debtor to the successful resolution applicant without the appropriate approval. The NCLT, Chennai reasoned that such an approval was important to maintain status quo with respect to the corporate debtor and to not allow the CoC or the RP to alter the possession of the assets of the corporate debtor merely after obtaining the CoC-approval for the resolution plan.

In Muthuiah Thevar Rajapandian v. SCM Garments Private Limited, the NCLT, Chennai admitted an application under Section 9 of the Code by rejecting a challenge by the corporate debtor that the NCLT lacked the 'pecuniary jurisdiction' to pass such an order. The NCLT, Chennai held that even if any application filed by an operational creditor is adjudicated upon at a later date but has been filed before the threshold limit was raised to Rs. 1 Crore from Rs. 1 Lakh on March 24, 2020, then the same could not be dismissed on the ground of lacking pecuniary jurisdiction.

In Mrs. Komal Varma v. M/s Dakshin Constructions Private Limited, the NCLT, Chennai dismissed an application under Section 7 of the Code on the ground of there being no 'financial contract' placed on record. The NCLT, Chennai placed reliance on the judgment passed by the NCLAT, New Delhi in the case of Pawan Kumar v. Utsav Security where it was held that in the absence of a 'financial contract' as defined in Rule 3 (1)(d) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, a transaction cannot be termed as a 'financial debt'. The NCLT, Chennai reasoned that it was an incumbent duty on the financial creditor to place on record a 'financial contract', which could showcase, without ambiguity, the amount to be disbursed, the tenure of the loan and the interest payable.

In ICICI Bank Ltd. v. Garlico Industries Ltd., the NCLT, Indore admitted an application under Section 7 of the Code and dismissed the claim made by the corporate debtor that the application was barred by limitation. The NCLT, Indore placed reliance on the Supreme Court judgment in the case of Asset Reconstruction Company Limited v. Bishal Jaiswal, wherein it was laid down that if the amount of debt is acknowledged by the corporate debtor in its balance sheet which is duly signed by the authority, then the same would amount to acknowledgment of liability within the meaning of Section 18 of the Limitation Act, 1963. The NCLT, Indore reasoned that Section 18 of the Limitation Act, 1963 comes into play when the amount of debt is acknowledged by the corporate debtor in writing, and therefore, a challenge based on limitation is liable to be dismissed.

Karan Sangani and Rahul Sibal are advocates based out of Mumbai. Shubhaankar Ray and Soham Chakraborty are pursuing their B.A., LL.B. (Hons.) programme at NALSAR University of Law. Siddharth Sunil and Akshata Singh are advocates based out of New Delhi. The present compilation represents the exclusive work of the authors in their personal capacities, and is not linked to any of the institutions/firms/offices that they may be associated with.


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