Hello. Welcome back to updates on insolvency and restructuring law from India for September and October, 2020.

In order to provide further time to corporates to recover from the impact of Covid-19, the Union Government has extended from 25.09.2020, the period during which no insolvency resolution process can be filed against corporate debtors by a further three months. Affirming the decision of the NCLT, the NCLAT has ruled that the revised threshold of Rs. 1,00,00,000 is applicable prospectively and would not affect pending applications.

There have been calls for further reforms to India’s insolvency law regime with some focussing on improving efficiency and others calling for more dramatic reforms. The panel on pre-pack insolvency is also expected to submit its report soon.

The Supreme Court has transferred to itself all petitions challenging the notification which brought into force the IBC provisions relating to personal guarantors of corporate debtors and further directed the High Courts not to entertain any new writ challenging the 15 November notification or related issues.

From the Docket

The Supreme Court has, in a recent order, stayed an order dismissing an appeal against a liquidation order passed by the NCLT on the ground that the liquidation of a corporate debtor should be the last resort. The grant of such interim relief was also premised on the fact that the appellant or a successful resolution applicant had undertaken to deposit some sums of money within an agreed time-frame as well as the forfeiture of money already deposited by it, in case of a failure to do the same.

In Sandip Bajaj v. SBI, the Calcutta High Court has held that a guarantor could not claim protection from proceedings under the RBI Master Circular on Wilful Defaulters once an order initiating CIRP is passed in respect of the corporate debtor. The High Court held that the prohibition on institution or continuation of suits and other proceedings against the corporate debtor under Section 14(3)(b), did not extend to a surety.

Similarly, in Kiran Gupta v. SBI, the Delhi High Court has held that a bank is entitled to initiate proceedings against a guarantor under the SARFAESI Act during the pendency of a corporate insolvency resolution process against the corporate debtor or principal borrower.

In Kundan Care, the NCLAT has held that a successful resolution applicant cannot subsequently withdraw the resolution plan on grounds of delay in conclusion of the CIRP. The appellate tribunal’s conclusion was based on four factors: (a) there is no power to permit the withdrawal of an approved resolution plan; (b) the resolution plan incorporates contractual terms and conditions binding on the resolution applicant; (c) the principle of estoppel applies and the resolution applicant cannot be allowed to wriggle out; and (d) allowing the withdrawal of the plan would have a deleterious effect on the other stakeholders on account of reduction in value of assets in the intervening period.

The authors believe that this is not the end of the matter, and the issue of the withdrawal of resolution plans may come up again if reliance is placed on MAE or force majeure clauses in a resolution plan. Read an instructive post on this issue here.

In GUVNL v. Yes Bank, the NCLAT has upheld an order of the Adjudicating Authority whereby it held that the GUVNL could not terminate the power purchase agreement during the liquidation process. The NCLAT accepted the argument that the solar power plant and the PPA related to it form one integrated economic asset and hence, needs to be kept intact during CIRP and liquidation so that the liabilities of creditors and other stakeholders can be taken care of.

In Dewan Housing Finance Corporation v. SEBI, the SAT has held that the SEBI/ Adjudicating Officer has no power to initiate or carry on any proceedings against a corporate debtor under Section 15-I of the SEBI Act after the initiation of CIRP.

In SBI v. Videocon Telecommunications, the NCLAT has held that a performance bank guarantee is outside the definition of “security interest” under the IBC and therefore, the moratorium under Section 14 of IBC has no application to it. The bank guarantee can be enforced in accordance with its terms.

The NCLAT has reiterated that the obligation to cooperate with the resolution professional under the Code is not merely that of executive or managing directors, but also of the other directors, employees, and key managerial personnel.

In Deepakk Kumar v. Phoenix ARC, the NCLAT has clarified that it has no power to review its own judgment. The NCLAT also pointed out that a review cannot be sought through Rule 11 of NCLAT Rules which confers inherent powers.

In Volkswagen Finance, the NCLAT has upheld the decision of a liquidator to treat a vehicle financier as an unsecured creditor as the charge or hypothecation on the vehicles was not registered under the Companies Act or Information Utility or the Central Registry under the SARFAESI Act. The NCLAT stated that registration of hypothecation under the Motor Vehicles Act would not suffice for the purpose of IBC.

Thank you for reading. We will be back in your inbox in December, 2020. We wish you the very best of the festive season! Stay safe and healthy!

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