Monthly Digest Of IBC Cases: July 2022

Supreme Court NCLT Not A Debt Collection Forum ; Operational Creditor's Application To Initiate CIRPMust Be Dismissed If The Debt Is Disputed: Supreme Court Case Title: SS Engineers vs Hindustan Petroleum Corporation Ltd Case No.: 2022 LiveLaw (SC) 617, CA 4583 OF 2022 The Supreme Court Bench comprising of Justices Indira Banerjee and V. Ramasubramanian observed that application of the Operational Creditor for initiation of Corporate Insolvency Resolution Process (CIRP) must be dismissed, if the debt is disputed. "It is not the object of the IBC that CIRP should be initiated to penalize solvent companies for non-payment of disputed dues claimed by an operational creditor". The Bench also remarked that the adjudicating authority under IBC i.e. NCLT is not a 'debt collection forum' and the objective of IBC is not to penalize solvent companies for non-payment of disputed dues claimed by an operational creditor. It was further held that there are noticeable differences in the IBC between the procedure of initiation of CIRP by a financial creditor and initiation of CIRP by an operational creditor. On a reading of Sections 8 and 9 of the IBC, it is patently clear that an Operational Creditor can only trigger the CIRP process, when there is an undisputed debt and a default in payment thereof. If the claim of an operational creditor is undisputed and the operational debt remains unpaid, CIRP must commence, for IBC does not countenance dishonesty or deliberate failure to repay the dues of an Operational Creditor. However, if the debt is disputed, the application of the Operational Creditor for initiation of CIRP must be dismissed. NCLT Has Discretion To Not Admit Financial Creditor's CIRP Application Even If Corporate Debtor Is In Default: Supreme Court Case Title: Vidarbha Industries Power Ltd. vs Axis Bank Limited Case No.: 2022 LiveLaw (SC) 587, CA 4633 OF 2021 The Supreme Court Bench comprising of Justices Indira Banerjee and JK Maheshwari has observed that it is not mandatory for the Adjudicating Authority to admit an application to initiate Corporate Insolvency Resolution Process even if a debt existed and the Corporate debtor is in default. However, such discretionary power cannot be exercised arbitrarily or capriciously. "Ordinarily, the Adjudicating Authority (NCLT) would have to exercise its discretion to admit an application under Section 7 of the IBC of the IBC and initiate CIRP on satisfaction of the existence of a financial debt and default on the part of the Corporate Debtor in payment of the debt, unless there are good reasons not to admit the petition.. The Adjudicating Authority (NCLT) has to consider the grounds made out by the Corporate Debtor against admission, on its own merits. For example when admission is opposed on the ground of existence of an award or a decree in favour of the Corporate Debtor, and the Awarded/decretal amount exceeds the amount of the debt, the Adjudicating Authority would have to exercise its discretion under Section 7(5)(a) of the IBC to keep the admission of the application of the Financial Creditor in abeyance, unless there is good reason not to do so. The Adjudicating Authority may, for example, admit the application of the Financial Creditor, notwithstanding any award or decree, if the Award/Decretal amount is incapable of realisation. The example is only illustrative." NCLAT Resolution Professional Is Only Authorized To Operate Accounts Of Corporate Debtor : NCLAT Chennai Case Title: Beauty Etiole Pvt. Ltd. v C. Sanjeevi & Ors. Case No.: Company Appeal (AT) (CH) (Ins.) No. 316/2021 The National Company Law Appellate Tribunal, Chennai Bench, comprising of Justice M. Venugopal (Judicial Member) and Mr. Kanthi Narahari (Technical Member), has held that the Resolution Professional is only authorized in law to exercise control over Bank Accounts operated by the Corporate Debtor and not otherwise. NCLAT Holds Lease Rental As Operational Debt Under The Insolvency And Bankruptcy Code, 2016 Case Title: Jaipur Trade Expocentre Private Limited versus Metro Jet Airways Private Limited Case No.: Company Appeal (AT) (Insolvency) No. 423 of 2021 The National Company Law Appellate Tribunal comprising of Justice Ashok bhushan, Justice Rakesh Kumar, Justice Rakesh Jain, Mr. Naresh Salecha and Mr. Barun Mitra held that the lease rental qualifies as an operational debt under the provisions of the Insolvency and Bankruptcy Code, 2016. NCLAT noted that the definition of operational debt as mentioned under Section 5(21) of the Code provides that the operational debt means a claim arising out of provision of goods and services but the term "services" is not defined anywhere under the IBC. The Bench referred to the license agreement which provides that the licensee shall pay all govt. taxed including GST and observed that the payment of GST is only provided for...

Monthly Digest Of IBC Cases: July 2022

Pallavi Mishra

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