Insolvency Law In Review – October 2021

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 month of October 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 M/s Jai Balaji Industries v. D.K. Mohanty & Another, the Supreme Court held that for the purpose of and in the scheme of the Code, even pendency of an application for restoration is sufficient to bring the matter within the four corners of a 'pre-existing dispute' in terms of Section 8 of the Code, and without a final decision on the prayer for restoration, the insolvency process at the instance of an operational creditor cannot be put into motion. The Supreme Court noted that it remains trite that when a suit or appeal is dismissed in default and is restored after the court is satisfied on the cause shown for default, such restoration would revive the proceedings to their status before default dismissal, and the doctrine of relation back would come into play in the manner that the proceedings shall continue in their original status, unless otherwise stated in the order of restoration or coming out by necessary implication. In V. Nagarajan v. SKS Ispat and Power Ltd. & Others, the Supreme Court held that the import of Sections 61(1) and 61(2) of the Code and Section 12 of the Limitation Act, 1963, is to assign the responsibility of applying for a certified copy of the order on the aggrieved party filing an appeal. The Supreme Court further held that a person aggrieved by an order under the Code cannot await the receipt of a free certified copy under Section 420(3) of the Companies Act, 2013 read with Rule 50 of the National Company Law Tribunal Rules, 2016 (NCLT Rules) and prevent limitation from running. Furthermore, the Supreme Court held that the limitation to file an appeal under the Code commences from the date the order is pronounced and only excludes the time taken by the court to prepare a certified copy of the order after the party has applied for a certified copy of the order. The Supreme Court also relied on Rule 22(2) of the National Company Law Appellate Tribunal Rules, 2016 (NCLAT Rules) to reiterate that parties aggrieved with an order cannot automatically dispense with their obligation to apply for and obtain a certified copy for filing an appeal.II. HIGH COURTS In Adisri Commercial Pvt Ltd v RBI & Others, the Bombay High Court upheld the order of the Reserve Bank of India (RBI) under Section 45IE of the Reserve Bank of India Act, 1934 (RBI Act) superseding the board of directors of a non-banking financial company (NBFC). The High Court noted that the RBI intended to apply to the National Company Law Tribunal (NCLT) to initiate the corporate insolvency resolution process (CIRP) of such NBFC under the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019. The reasons for such supersession included poor financial condition of the NBFC and governance issues such as approval of a slump exchange despite non-receipt of no-objection from majority lending institutions, non-maintenance of minimum regulatory net owned fund and capital to risk asset ratio. The High Court noted that despite opportunity granted by the RBI to rectify the governance issues and improve the financial condition, the NBFC had failed to do so, and accordingly, the RBI had acted within its jurisdiction.III. NATIONAL COMPANY LAW APPELLATE TRIBUNALS In Gundeep Gurdeep Singh Sood & Another v. Corporation Bank & Another, the National Company Law Appellate Tribunal (NCLAT), New Delhi followed the decision of the Supreme Court in Asset Reconstruction Company (India) Limited v. Bishal Jaiswal & Another, to hold that admission of the debt in the financial statements, balance sheet and letter for one time settlement issued by the corporate debtor within the stipulated limitation period for an insolvency application, amounts to an acknowledgment of debt under the Limitation Act, 1963, and an application under Section 7 of the Code with respect to such debt would not be barred. In Asset Reconstruction ...

Insolvency Law In Review – October 2021

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Insolvency Law In Review – October 2021

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