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The Parliament has approved amendments to India’s bankruptcy law that will restore the primacy of secured creditors over unsecured creditors in the insolvency process. Finance Minister Nirmala Sitharaman said that the amendment was in response to an NCLAT ruling in the Essar case that that operational creditors be treated on a par with financial creditors at the time of settling claims.
One author wrote that had the Supreme Court endorsed the NCLAT’s verdict, banks would have had to give up on substantial recoveries, step up bad-loan provisions, and push more salvageable debtors into liquidation, leading to unnecessary job losses.
The amendments also give the committee of creditors of a loan defaulting company explicit authority over the distribution of proceeds in the resolution process and fixes a firm timeline of 330 days for resolving cases referred to the IBC. Doubts still remain about whether the time taken by the NCLT or NCLAT in disposing of petitions or applications under the IBC will be excluded.
In a highly significant judgment for homebuyers across the country, the Supreme Court has endorsed their use of the Insolvency and Bankruptcy Code to enforce their rights. When the Court upheld the validity of Section 5(8)(f) of the Code, homebuyers retained their right to be considered as ‘financial creditors’ and trigger the insolvency process before the National Company Law Tribunal.
The amendment to the IBC, treating allottees of real estate companies as deemed financial creditors entitled to trigger the Code, introduced by way of an ordinance in 2018 and later approved by Parliament, were challenged by as many as 136 builders through writ petitions.
The Court also said their remedy under the IBC would be in addition to other remedies under the RERA law which gives them the option to seek the return of their money along with interest.
However, the court also said that since many posts on the insolvency benches, appellate bodies, and regulatory agencies remained vacant, they should be filled in three months and that homebuyers should wait until then to file cases against developers.
Voluntary liquidations under the IBC are becoming popular for promoters to close down ‘unviable’ companies, information from the IBBI has revealed. As many as 452 companies have filed for voluntary liquidation up to June 30, 2018. Of that, 56 firms have so far been dissolved, final reports have been submitted in 114 cases and 338 are at different stages of the process.
A company can file for voluntary resolution only if it has no debts or promises to pay the debt in full from the proceeds of assets to be sold under voluntary liquidation process.
The IBBI may soon commence individual insolvency process, its chairperson said. He also noted that one of the Board’s key challenges was capacity building. “All stakeholders including committee of creditors, resolution professionals, national company law tribunals and the insolvency and bankruptcy board itself need to improve our capacity.”
The committee of creditors of Jet Airways has approved the evaluation criteria for potential bidders of the grounded airline. Among other conditions, bidders must have a minimum net worth of Rs. 1000 crore.
The NCLT has approved the consolidation of the insolvency resolution process of 13 out of 15 Videocon Group companies. Videocon Industries, Videocon Telecommunications, Century Appliances, PE Electronics, CE India, and Sky Appliances are among the 13 group companies where the CIRP has been consolidated.
The Supreme Court will now decide on the question of primacy between India’s insolvency and securities laws. The NCLT had held that the Insolvency and Bankruptcy Code would reign over the Securities and Exchange Board of India Act in Bhanu Ram v. HBN Dairies & Allied Ltd., a case involving an illegal collective investment scheme. Previously, the Supreme Court has observed that the Insolvency and Bankruptcy Code would override anything inconsistent in any other law, including the Income-Tax Act. Various other courts have also reinforced the primacy of the IBC over some other laws.
From the docket
In SSMP Industries v. Perkan Food Processors, the Delhi High Court held that Section 14 of the IBC would not result in a stay on the adjudication of a counter claim. The court observed that “once the counter claims are adjudicated and the amount to be paid/recovered is determined, at that stage, or in execution proceedings, depending upon the situation prevalent, Section 14 could be triggered. At this stage, due to the reasons set out above, the counter claim does not deserve to be stayed under Section 14 of the Code. The suit and the counter claim would proceed to trial before this Court.”
It is always open to the NCLT to, after giving a reasonable opportunity of being heard to the parties concerned and if it forms a prima facie opinion that acts of fraud have been committed by a company or a group of companies or its directors or officers, refer the matter to the central government for investigation under Section 213 of the Companies Act, the NCLAT held in Srinivas v. Ramanathan Bhuvaneshwari, Resolution Professional, Bhuvana Infra Projects.
The NCLAT, in International Asset Reconstruction Company v. The Administrator of the Specified Undertaking of the Unit Trust of India, has held that it is always open to the adjudicating authority to decide a claim under Section 60(5) of the IBC if the resolution professional has no jurisdiction to entertain the same provided that the resolution plan has not been approved by the adjudicating authority.
In IDBI Bank v. Anuj Jain, Interim Resolution Professional, Jaypee Infratech, the NCLAT held that if there is an extraordinary situation where the law is silent and there is no guideline in the law, a certain period can be excluded from the CIRP as followed by the Supreme Court in ArcelorMittal v. Satish Kumar Gupta. Accordingly, a certain period of time taken by the NCLT and the NCLAT in disposing off an application pertaining to the determination of voting share of allottees, was excluded.
Thank you for staying updated with the latest from India’s insolvency and bankruptcy regime with us. We will be back with more in a month!