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IBC Cases Weekly Round Up : 1 August To 7August, 2022

Pallavi Mishra
8 Aug 2022 11:30 AM GMT
IBC Cases Weekly Round Up : 1 August To 7August, 2022

Supreme Court

Entries In Book Of Accounts/Balance Sheet Of Corporate Debtor Can Be Treated As Acknowledgment Of Liability Of Debt Payable To Financial Creditor: Supreme Court

Case Title: Asset Reconstruction Company (India) Limited v Tulip Star Hotels Limited

Case No.: 2022 LiveLaw (SC) 648, CA 84-85 OF 2020

The Supreme Court Bench comprising of Justice Indira Banerjee and Justice JK Maheshwari, while adjudicating a petition has observed that the entries in Books of Account/Balance sheet of a company can be treated as acknowledgement of liability in respect of debt payable to a financial creditor.

"To sum up, in our considered opinion an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years."

Term Of Future NCLT Members Should Be5 Years, Supreme Court Tells Centre While Refusing To Extend 3 Yr Term Of Those Appointed In 2019

Case Title: National Company Law Tribunal Bar Association v Union of India

Case No. W.P.(C) No. 180/2022

The Supreme Court Bench comprising of Justice D.Y. Chandrachud and Justice Sudhanshu Dhulia, turned down a plea seeking modification of the tenure of members of National Company Law Tribunal (NCLT) appointed pursuant to the notification dated 20.09.2019 issued by the Ministry of Corporate Affairs, from 3 years to 5 years. It refused to extend tenure for the concerned 23 members, but clarified that while making appointments in future the Central Government would be bound by Section 413 of the Companies Act, 2013, which prescribes the tenure of the members of NCLT to be 5 years. The Apex Court was of the view that an administrative notification for appointment ought to be consistent with the statute. The issue of tenure of members of NCLT is not something that its Bar Association should be interested in. It indicated that the Bar Association should be concerned with the vacancies being filled up at the earliest so that there is no impediment in the justice delivery system. Considering the fact that the process to fill up the vacancies is going on, it refused to interfere and stall it in any manner.


CIRP Against Solvent, MSME Company Providing Employment Not Justified: NCLAT Delhi

Case Title: M/s Agarwal Veneers v Fundtonic Service Pvt. Ltd.

Case No.: Company Appeal (AT) (Ins) No. 968 of 2020

The National Company Law Appellate Tribunal ("NCLAT"), Principal Bench, comprising of Justice Anant Bijay Singh (Judicial Member) and Ms. Shreesha Merla (Technical Member), has upheld the dismissal of a Section 9 petition on the grounds of the Corporate Debtor being a solvent company, operating as a 'going concern' and is also a MSME enterprise providing employment and generating revenue. It was observed that the Preamble of IBC describes its spirit and objective to be 'Reorganisation' and 'Insolvency Resolution', specifically omitting the word 'Recovery'. If IBC is purely used for the purpose of Debt Recovery, particularly when the amounts due are small, and the Company is a solvent entity and is a going concern, the question of 'Reorganising' or 'Resolution of the Company' does not arise.

Liability Of Personal Guarantor Survives Even On Becoming Citizen Of A Foreign Country: NCLAT Delhi

Case Title: Sudip Dutta v State Bank of India

Case No.: Company Appeal (AT) (Insolvency) No. 807 of 2021

The National Company Law Appellate Tribunal ("NCLAT"), New Delhi Bench, comprising of Justice Ashok Bhushan (Chairperson), Justice M. Satyanarayana Murthy (Judicial Member) and Shri Barun Mitra (Technical Member), has held that the liability of a Personal Guarantor does not get extinguished upon subsequent acquisition of citizenship of a foreign country. It was further held that provisions of Section 234 and 235 of IBC would not apply if the assets of the Personal Guarantor are situated within India. It was observed that Section 60(1) of IBC categorically provides that the insolvency resolution process is to be initiated before the Adjudicating Authority within whose territorial jurisdiction registered office of the Corporate Person is located. The residence of Personal Guarantor is not taken into consideration when proceedings against the Personal Guarantor are initiated.

"The statutory scheme of the code does not contain any indication that the Personal Guarantor of a Corporate Debtor can escape from its liability under the Personal Guarantee Deed merely on the ground that he is now started residing in another country and acquired citizenship of another country and is no more an Indian citizen."

Threshold Limit Under Insolvency And Bankruptcy Code Will Also Include Interest: NCLAT

Case title: Mr. Prashant Agarwal v. Vikas Parasrampuria

Case No.: Company Appeal (AT) (Ins) No. 690 of 2022

The National Company Law Appellate Tribunal, Principal Bench, New Delhi comprising of Justice Ashok Bhushan, Justice M Satyanarayana Murthy and Mr. Naresh Salecha held that minimum threshold mentioned under Section 4 of the Insolvency & Bankruptcy Code, 2016 can include both the principal amount and the interest.

The Bench observed that the invoices raised by the Operational creditor clearly mentioned that the interest will be charged @18% after the due date of the bill. Therefore, the bench concluded that the total amount for maintainability of a debt as per Section 4 of the Code will include both the principal debt amount as well as the interest on the delayed payment as it was clearly stipulated in the invoice itself.

NCLAT Declines To Entertain Revised Resolution Plan As CIRP Had Already Crossed 559 Days, Timely Completion Of Resolution Necessary

Case Title: Shrinathji Trading Company v Sanwaria Consumer Limited

Case No.: Company Appeal (AT) (Ins.) No. 480 of 2022

The National Company Law Appellate Tribunal ("NCLAT"), New Delhi Bench, comprising of Justice Rakesh Kumar Jain (Judicial Member), Mr. Kanthi Narahari (Technical Member), Dr. Alok Srivastava (Technical Member), has dismissed an application filed by resolution applicant seeking consideration of its revised resolution plan. The Bench observed that the Corporate Insolvency Resolution Process ("CIRP") period of the Corporate Debtor had already crossed 559 days as against a statutory period of 330 days and held that timely completion of resolution is necessary under IBC.

The Bench placed reliance on the Supreme Court judgment in Ebix Singapore Pvt. Ltd. v CoC of Educomp Solutions Ltd. & Anr., Civil Appeal No. 3324 of 2020, wherein timely completion of resolution process has been considered necessary without delaying the stage of liquidation, if circumstances so require.

Fraudulent Initiation Of CIRP, NCLAT Upholds Issuance Of Show Cause Notice To Related Parties

Case Title: Zoom Communications Pvt. Ltd. v M/s. Par Excellence Real Estate Pvt. Ltd.

Case No.: Comp. App. (AT) (Ins.) No. 619 of 2022

The National Company Law Appellate Tribunal ("NCLAT"), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Justice M. Satyanarayana Murthy (Judicial Member) and Mr. Barun Mitra (Technical Member), has upheld the Adjudicating Authority's order declining to initiate CIRP on an application made by a related party of the Corporate Debtor upon mala fide. The Bench has also upheld the issuance of Show Cause Notice under Section 65(1) of the Insolvency and Bankruptcy Code, 2016 ("IBC") by the Adjudicating Authority to the Related Parties, for attempting to initiate CIRP fraudulently.


Homebuyers Can't Be Defrauded; NCLT Delhi Initiates CIRP Against Som Resorts

Case Title: Yadubir Singh Sajwan & Ors. v Som Resorts Private Limited

Case No.: Company Petition No. (IB)-67(ND)/2022

The National Company Law Tribunal ("NCLT"), New Delhi Bench, comprising of Shri. Dharminder Singh (Judicial Member) and Dr. Binod Kumar Sinha (Technical Member), has held that under the guise of 'separate legal entity' doctrine, a developer company cannot be permitted to defraud the homebuyers in connivance with its Marketing Agent. The Corporate Veil can be pierced in matters involving public interest and to ascertain the real nature of transactions. The Bench has initiated Corporate Insolvency Resolution Process ("CIRP") against real estate developer Som Resorts Pvt. Ltd. upon a petition filed by the home buyers.

It was opined that lifting of Corporate Veil is an exception to the distinct personality of the Company and it can be invoked if public interest so requires or if there is allegation of violation of law using the device of a corporate entity. It was observed that the Corporate Debtor had used its Marketing Agent to enter into buyer agreements and collect monies from the home buyers with an ulterior motive to conceal the real transaction. It would not be fair to the homebuyers if the Corporate Debtor indirectly achieves its agenda of defrauding homebuyers in the disguise of separate legal entity, which it could not have done directly.

NCLT Principal Bench To Hear Matters Through Video Conferencing From 8th To 18th August 2022

The National Company Law Tribunal ("NCLT") has issued a Circular dated 05.08.2022, intimating that the matters before the Principal Bench (Court Room No. 1) of the NCLT, New Delhi, would be heard through video conferencing from 08.08.2022 to 18.08.2022.

The hearings are being conducted through video conferencing to meet the shortage of Members in NCLT after 15 Members retired on 03.07.2022. The Ministry of Corporate Affairs vide a notification dated 20.09.2019 ("Notification") had appointed 23 NCLT Members for a term of 3 years or till the age of 65 years, whichever is earlier. However, Section 413 of the Companies Act, 2013 prescribes the term of the Members as 5 years.

The National Company Law Tribunal Bar Association ("NCLTBA") had filed a writ petition titled as National Company Law Tribunal Bar Association v Union of India before the Supreme Court in May 2022, seeking modification of the term of 3 years fixed by the MCA Notification as 5 years. In a hearing held on 01.08.2022, the Supreme Court turned down the plea of the NCLTBA for extension of tenure of the NCLT Members, while observing that NCLTBA should be interested in filling up of vacancies of Members rather than their tenure.

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