Hello and welcome back to the updates on Indian insolvency law!
Following the Enforcement Directorate’s plea that the National Company Law Appellate Tribunal had no jurisdiction to unfreeze and approve the sale of an asset attached by it, JSW Steel’s ₹19,700-crore bid to acquire Bhushan Power is hanging by a thread. After the agency filed a fresh plea in the Supreme Court to scrap the sale finalised under the Insolvency and Bankruptcy Code, JSW Steel has urged the Supreme Court to pronounce its final judgment.
Probe agencies like the Enforcement Directorate are not the only government bodies contributing to inordinate delays in insolvency resolution processes by attaching properties of companies despite orders from adjudicating authorities against doing so.
The SBI has moved the Supreme Court against a Delhi High Court order granting stay on the insolvency proceedings against Mr. Anil Ambani. More on this litigation, in our ‘From the Docket’ section below.
Lenders to Reliance Communications and Reliance Telecom have informed the Mumbai bench of the National Company Law Tribunal that they will move the Supreme Court for clarity on the sale of spectrum as part of the resolution process under the Insolvency and Bankruptcy Code.
A five-member committee headed by K.V. Kamath constituted by the RBI to look into the parameters within which loan restructuring can be allowed, has submitted its recommendations to the central bank. A large number of companies may be left out.
Why are cases of liquidation under the IBC rising faster than those which are resolved?
From the Docket
In some major relief to telecom firms such as Vodafone-Idea, Bharti Airtel, and Tata Teleservices, the Supreme Court granted, with some conditions, a period of ten years for paying the Adjusted Gross Revenue related dues to the Department of Telecommunications. The bench further directed the NCLT to decide whether the license or spectrum can be sold or transferred by telecom companies and be a part of the resolution process initiated under the provisions of the IBC.
The other big development is the order of NCLT Mumbai in the matter of SBI v. Anil Ambani, appointing a resolution professional in a Chapter III proceeding in respect of Mr. Ambani as a personal guarantor. The adjudicating authority rejected the argument that since the CIRP for Reliance Communications and Reliance Infratel was pending there was no need to proceed against the personal guarantor. The NCLT held that the personal guarantor can be proceeded against under Section 60(2) read with Sections 95 and 97(3) of the Code despite the pendency of the CIRP of the corporate debtor. In a subsequent development, Mr. Ambani received a stay on this order from a Division Bench of the High Court of Delhi, with the caveat that he cannot dispose of his assets.
In Selvaraj v. RBI, the Madras High Court quashed an order declaring a non-executive independent director as a wilful defaulter on the ground that the criterion laid down in Section 149 of the Companies Act, 2013 – that is – that an independent director can be held responsible only in respect of those acts of commission or omission by a company which occurred with his knowledge, consent or connivance, had not been satisfied in this case.
In Cygnus Investments v. Union, the Calcutta High Court has struck down the order of the Principal Bench of NCLT by which the filing of the record of default from an information utility was made mandatory (including for pending petitions). The High Court held that Section 215 of the IBC was not mandatory and that financial creditors can rely on other modes of evidence at hand to showcase a financial debt and need not solely rely on a record of default.
In Invent Assets v. Xylon, the NCLAT relied on earlier decisions of the Appellate Authority and held that for the purpose of limitation under Article 137 of the Limitation Act, the crucial date was the date of default as evidenced by the date on which the corporate debtor is classified as a non-performing asset by the financial creditor. Recourse to other remedies such as civil suits, DRT or SARFAESI proceedings would not extend the limitation. The NCLAT further held that a financial debt appearing in the balance sheet or financial statements of the corporate debtor was not tantamount to an acknowledgement under Section 18 of the Limitation Act, 1963.
In Sunil Kakkad v. Atrium Infocom, the NCLAT held that the committee of creditors can decide to liquidate the corporate debtor without taking any steps for inviting an expression of interest for the submission of a resolution plan for the Corporate Debtor. This judgment once again highlights the stance of the judiciary towards respecting the commercial wisdom of the COC.
A decree holder cannot be classified as a financial creditor for the purpose of initiating the Corporate Insolvency Resolution Process under the IBC, clarified the NCLAT in Sushil Ansal v Ashok Tripathi.
The NCLAT has clarified that an advance paid towards the supply of goods cannot be called an ‘Operational Debt’ under Section 5(20) of the Code in Andal Bonumalla v. Tomato Trading.
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