We hope that all of you had a peaceful festive season with family and friends
There has been some pushback recently to the IBC amendment that elevated homebuyers to the status of financial creditors and the Supreme Court judgment that upheld it. The Economic Times has argued that individual homeowners should not be allowed to initiate bankruptcy proceedings. These proceedings should be aimed solely at the efficient reallocation of resources and “bankruptcy cannot be used as a substitute for dysfunctional working of normal contract laws”, it said. Anticipating the threat of speculative homebuyers misusing the law, the Company Affairs Secretary even said that the government may set a minimum threshold of allottees for homebuyers to be able to initiate insolvency proceedings against real estate developers. Recently released data from the Insolvency and Bankruptcy Board of India showing that the number of real estate companies under CIRP had more than doubled to 421 between September 2018 and June 2019, could only have fanned these flames. Is this India’s “mini-Lehman”?
Stressed NBFCs may soon be brought within the ambit of the IBC with special procedures borrowed from the lapsed Financial Resolution and Deposit Insurance Bill, but these may not be enough to arrest the crisis in the sector.
An online marketplace for stressed assets? This may soon become a reality. The government feels that making key information available to a wider pool of investors at the earliest will expedite the resolution process and generate more interest for stressed assets. This may also be a part of the government’s plans to set time limits for financial bids.
Statutory amendments to provide a framework for cross-border insolvency can be expected during the Winter session of Parliament, the government has said.
MSMEs have struggled with recovery of dues and the primacy accorded to financial creditors over operational creditors under the insolvency law has not helped, one author noted.
From the Docket
In Action Ispat & Power v. Shyam Metalics & Energy, a Division Bench of the Delhi High Court upheld a decision of a company judge to permit the transfer of a company petition to the NCLT after an order for winding up had been passed.
In R.G Steels v. Berrys Auto Ancillaries, the NCLT held that a sole proprietor was not entitled to file an application under the Code to initiate a corporate insolvency resolution process against a corporate debtor on its own. A sole proprietor, the bench held, did not fall under the definition of ‘person’ under Section 3(23) of the Code.
In Karan Goel v. Pashupati Jewellers, the NCLAT held that the mere pendency of a suit against a financial creditor could not be a ground to reject an application under Section 7 of the Code. The appellate tribunal was of the view that a pre-existing dispute cannot be a subject matter of Section 7, though it may be relevant under Section 9.
In Padmaiah Vuppul v. Reliance Capital AIF Trustee Company, the NCLAT held that the adjudicating authority (under the IBC) did not have jurisdiction to decide the legality and propriety of a corporate guarantee executed by the corporate debtor.
Delivering a blow to promoters, the NCLAT in Jindal Steel & Power v. Arun Kumar Jagatramka held that a promoter who is ineligible to submit a resolution plan under Section 29A of the Code could not make an application for compromise and arrangement under Section 230 of the Companies Act, 2013 after a liquidation order had been passed. This decision would only increase the number of companies going for liquidation sale as the number of eligible bidders would be significantly reduced for the process under Section 230. In fact, a Discussion Paper on Corporate Liquidation Process along with Draft Regulations dated 27 April 2019 issued by the IBBI had discussed this issue and concluded that for the time being, the ineligibility should not be applied to compromise and arrangements under Section 230.
These were the updates from India’s insolvency law for the month of October. We will return to your inbox soon with more news and information.