A panel on group insolvency has proposed reforms on the legal framework to address group insolvency to the Insolvency and Bankruptcy Board of India (IBBI). It has recommended that the definition of ‘group’ be specific, and it may include holding, subsidiary and associate companies.
In our last update, we learnt about the first ever resolution process for a financier under India’s bankruptcy laws, that of Dhawan Housing Finance (DHFL). There has been no significant progress since then because even though its creditors have reportedly agreed to dilute bidding terms, they have not found a buyer. Moreover, while they agreed to let DHFL resume its lending operations, its depositors have moved the Supreme Court against that decision.
Meanwhile, the liquidity in the non-banking finance and housing finance sectors remains a concern and an industry body has asked the government to revive them for an immediate boost to the economy.
Reliance Naval & Engineering Ltd. has been admitted for insolvency proceedings by the Ahmedabad bench of the National Company Law Tribunal.
Deutsche Bank AG has moved an insolvency application against Uttam Galva Steels Ltd.
From the docket
In S.A. Pharmachem v. Alok Industries, the NCLAT held that once a resolution plan has been approved and is final, all the dues stand cleared in terms of the plan and no issue can subsequently be raised before any court of law or tribunal. Further, the monitoring committee’s decisions about the manner of distribution on the basis of an approved plan must be respected.
In Santosh Wasantrao Walokar v. Vijay Kumar V. Iyer, Dalmia Cement, the NCLAT held that the adjudicating authority will have to go by the commercial wisdom of the committee of creditors even if the resolution plan is conditional. It further held that claims that are not submitted or are not accepted or dealt with by the resolution professional would stand extinguished if the resolution plan has been approved. The NCLT therefore, does not have power to modify its own order but can only correct a mistake apparent from the record.
The Madras High Court has held in Ajay Kumar Bishnoi v. Tap Engineering that where the proceedings under Section 138 of the Negotiable Instrument Act, 1881 had already commenced and the company is dissolved, the directors and the other accused cannot escape liability by citing its dissolution. What is dissolved is only the company, not the personal penal liability of the accused covered under Section 141 of the law. It further held that once the corporate debtor comes under the resolution process, its erstwhile managing director or directors cannot continue to represent the company.
In Sirpur Paper Mills v. I.K. Merchants, the Calcutta High Court held that the corporate insolvency resolution proceedings cannot be used to defeat a claim or a dispute which existed prior to the initiation of insolvency proceedings. It reiterated the Supreme Court’s observations in K. Kishan v. Vijay Nirman Company and Mobilox Innovations v. Kirusa Software that an earlier dispute or notice of a suit or an arbitration must be given precedence to insolvency proceedings.
In India Infoline Finance v. State of West Bengal, the Calcutta High Court held that even though a moratorium under Section 14 of the IBC does not directly affect a criminal proceeding, there are some circumstances, particularly when it is the subject matter of the corporate insolvency resolution process and its consequential proceedings, where they have to be kept on hold due to practical difficulties.
In Gouri Prasad Goenka v. Surendra Kumar Agarwal, the NCLAT held that the NCLT had no jurisdiction to defer its decision on an application for withdrawal of the application for initiation of the CIRP and direct the interim resolution professional to constitute the committee of creditors and thus render an application filed under Rule 11 infructuous. It can only do so if it is of the view that the application under Rule 11 is fit to be rejected.