After the Supreme Court ruled that the Committee of Creditors had all the rights to decide on the distribution of funds realised from the sale of insolvent assets and that the adjudicating authorities could not change the approved resolution plan, ArcelorMittal, in partnership with Japan’s Nippon Steel, will pay Rs 42,000 crores to the financial and operational creditors of Essar Steel. The Court reversed the NCLAT’s order for parity between financial and operational creditors and ruled that the adjudicating authority and tribunal should not interfere in the commercial decisions taken by the CoC in insolvency proceedings.
The resolution of stressed financial institutions may soon be possible within the framework of the Insolvency and Bankruptcy Code because the government has published rules for the resolution of systemically important financial service providers. The Union Finance Minister said that only the Reserve Bank of India and other regulators would be able to decide which financial companies would be taken up under these rules. This was to ensure the stability required in the financial services sector with only cases of systemic default being referred to the NCLT.
Personal guarantors to corporate debtors will also be brought within the fold of the insolvency and bankruptcy regime from next month.
The Ministry of Corporate Affairs has also reportedly floated a proposal to introduce a threshold value for a class of homebuyers to initiate insolvency proceedings against a real estate developer. This move could be in line with reports that real-estate developers resent the ability of a single home-buyer to bring the entire company crashing down.
Data from the Insolvency and Bankruptcy Board of India shows a troubling increase in delays in bankruptcy proceedings. 34% of the 1,292 cases in the bankruptcy courts up to June had been delayed beyond the scheduled 270 days. That figure is up from 26% a year ago.
The IBBI has instructed insolvency professionals to the reasons and the persons responsible for non-completion, in cases that have failed to find resolution within the prescribed time limit of 330 days. The IBBI chairman said that this move was part of the normal monitoring function of IBBI.
The chairman also said that there was no intent to regulate the fees of resolution professionals.
From the docket
The Karnataka High Court has granted a stay on the admission a petition for initiating corporate insolvency resolution proceedings against Indian e-commerce giant Flipkart by the Bengaluru bench National Company Law Tribunal. The petition was filed by one of Flipkart’s LED TV suppliers for an outstanding operational debt of Rs. 26.95 crores. Flipkart’s stance is that since the sums are in the nature of damages, no debt was due.
The Supreme Court, exercising its plenary jurisdiction under Article 142 of the Constitution, has extended the time limit for CIRP and directed the Resolution Professional of Jayprakash Associates Limited to complete the process within 90 days of its order.
In Ajay Agarwal v. Shantanu T. Ray (RP) and Others, the NCLAT refused to characterise a last minute e-mail for incomplete settlement as a bona fide offer or a bona fide effort to take the benefits of Section 12A of the Code.
In Accord Life Spec v. Orchid Pharma, the NCLAT partially set aside an order of the NCLT Chennai Bench approving a resolution plan. The NCLAT reasoned that since the plan provided for payments less than the liquidation value of the corporate debtor to the stakeholders including the financial operational creditors, it was against the objects of the Code and Section 30(2) in particular.
The NCLAT, in Tirumala Balaji Alloys v. Sumit Binani, refused to adjudicate an appeal filed by an operational creditor against the rejection of its claim by the resolution professional and the adjudicating authority for the reason that the resolution plan was placed before the adjudicating authority under Section 13 and approved by them. The appellate tribunal further held that the operational creditor could make a claim before the successful resolution applicant or avail the remedy of ‘suit’ in terms of Section 60(6) of the IBC.
In K.R.V. Uday Charan Rao v. Bank of India, the NCLAT held: “(l)imitation will start from the date of accrual of right. The accrual of right is also to be noticed from the date of confirmation or acknowledgement of the debt and to be read along with the Section 18 of the Limitation Act, 1963”.
In R.P of SEL Manufacturing Company v. Committee of Creditors of SEL Manufacturing, the NCLAT extended the CIRP by 90 days (from the date of issuance of a certified copy) on the ground that the matter had remained pending before the High Court or before the Supreme Court and because of an interim order of stay, the matter could not proceed.
Taking a strict view of operational creditors misusing the provisions of the IBC for realisation of debts, the NCLAT in S.S Polymers v. Kanodia Technoplast held that if the application under Section 9 of the Code is filed for any purpose other than for the resolution of insolvency or liquidation of the corporate debtor, then it should be treated to be an application pursued by the applicant with malicious intent and barred in view of Section 65 of the Code.
In Kotak Mahindra Prime v. Bijay Mururia and Others, the NCLAT has held that once a creditor – whether financial or operational – files a claim before a resolution professional that is taken into consideration by the successful resolution applicant, that creditor could not after the submission of the plan or revised plan treating them (such creditor) similar to similarly situated creditors, take the benefit of sub-section (6) of section 60 of the Code or pursue a suit or arbitration proceeding or file a fresh suit or arbitration proceeding for the same claim.
These were the updates from India’s insolvency law for the month of November. We hope you enjoyed them and look forward to reading more!