Setting aside an order of the Mumbai-bench of NCLT, the NCLAT permitted a Dutch insolvency court administrator to attend the Committee of Creditors meetings of the debt-laden Jet Airways. The Resolution Professional of Jet Airways and the Dutch insolvency court administrator informed the NCLAT that they had finalised the terms of cooperation between them. The Committee of Creditors had previously objected to the presence of the Dutch court insolvency administrator during the meetings. This order is being seen by some as paving the way for a framework for cross-border insolvency in India.
Nearly half of the CIRPs are initiated by operational creditors, the IBBI’s data has revealed. While financial creditors initiate 40 per cent, the remaining are initiated by the corporate debtors themselves.
In the last edition of this newsletter, we tracked some of the reactions to the amendments to the Insolvency and Bankruptcy Code. The response has remained positive.
The IBBI has clarified that the amendments to the liquidation process will only be applicable to cases that commenced on or after July 25, which is when they came into effect.
Another amendment to the law, which will allow lenders to recover money from personal guarantors of the corporate debtor, is also under consideration.
Before the amendment, the Supreme Court had, in a landmark victory for homebuyers against builders, upheld the validity of Section 5(8)(f) of the IBC. An interview with the counsel for the homebuyers explains how homebuyers retained their right to be considered at par with financial creditors. You can read more details about the Supreme Court’s view, later in this e-mail.
The NCLAT rejected the argument that the provisions of the IBC permit separate treatment of dissenting financial creditors, that is, those who did not vote in favour of the resolution plan.
Meanwhile, the appellate authority under the Prevention of Money Laundering Act has upheld the prevalence of the IBC over the provisions of PMLA.
The current system of payment of GST does not allow companies to pay current or future taxes without first clearing dues from previous years. This contradicts the moratorium that is in place, even on the payment of taxes, after a corporate insolvency resolution process is triggered under the IBC, and may lead to litigation between companies and the tax departments.
Anurag Thakur, the Union Minister of State for Finance has said that the finance ministry does not want lenders to use the Insolvency and Bankruptcy Code for every stressed asset but only refer matters to the National Company Law Tribunal when other resolution mechanisms fail. The jury meanwhile, is still out on whether the IBC is the best way to resolve stressed assets.
From the docket
In Ved Prakash Abbot v. Kishore K. Avarsekar, the Delhi High Court held that adjudication of a counterclaim cannot be stayed under Section 14 of the Insolvency and Bankruptcy Code. “Once the counter claims are adjudicated and the amount to be paid/recovered is determined, at that stage, or in execution proceedings, depending upon the situation prevalent, Section 14 could be triggered. At this stage, due to the reasons set out above, the counter claim does not deserve to be stayed under Section 14 of the Code”, the Court observed.
In State Bank of India v. Moser Baer Karamchari Union, the NCLAT upheld the decision of the adjudicating authority that ‘provident fund dues’, ‘pension fund dues’ and ‘gratuity fund dues’ cannot be part of Section 53 of the Code, that is, the liquidation estate.
In Excel Metal Processors v. Benteler Trading GMBH, the NCLAT held that an agreement barring the filing of a suit or a case between parties in India and vesting the jurisdiction with a foreign court does not oust the jurisdiction of the NCLT and NCLAT. “Exclusive jurisdictional clauses” do not cover proceedings under the Code. it said. The bench while referring to its own judgment in Binani Industries v. Bank of Baroda (2018), held that the corporate insolvency resolution process was not a suit, litigation, money claim, auction, or a recovery – which is an individual effort by a creditor to recover dues through a process that had debtor and creditor on opposite sides, or a liquidation.
While hearing three appeals in Shweta Vishwanath Shirke v. Committee of Creditors, Andhra Bank v. Sterling Biotech, and Sundaresh Bhatt, Resolution Professional for Sterling Biotech v. Andhra Bank, the NCLAT held that Section 29A of the Code is not applicable to an application under Section 12A for withdrawal of petition. Promoters and shareholders of the corporate debtor were therefore entitled to settle the matter in terms of the Section. It further held that if the assets of a corporate debtor are the result or proceeds of crime, it was always open to the Enforcement Directorate to seize the assets in accordance with the Prevention of Money Laundering Act and that a prayer for withdrawal of an application under Section 7 could not be rejected by the adjudicating authority if the promoter or director or shareholder in their individual capacities, outside of the proceeds of crime, were able to satisfy the creditors.
In Elektrans Shipping v. Pierre D’Silva, the NCLAT held that an application for initiation of corporate insolvency resolution process under Sections 7 and 9 of the IBC will be maintainable against a corporate debtor even if its name has been struck off the Register of Companies.
The NCLAT in L&T Infrastructure Finance Company v. Gwalior Bypass Project has held that a financial creditor, not being a member or shareholder of the corporate debtor, has no right to oppose the admission of an application filed under Section 7 of the Code by another financial creditor of the corporate debtor.
In Pioneer Urban Land and Infrastructure Limited v. Union of India, the Supreme Court dismissed a large number of writ petitions filed by developers and upheld the constitutional validity of the 2018 amendment to the code by virtue of which ‘allottees’ or homebuyers were brought within the ambit of “financial creditors”. It held that:
a. the amendment act did not infringe Articles 14, 19(1)(g) read with Article 19(6), or 300-A of the Constitution;
b. the RERA law has to be read harmoniously with the Code, as amended. It is only in the event of conflict that the Code will prevail over the RERA. Remedies that are given to allottees of flats and apartments are concurrent remedies. They can avail of remedies under the Consumer Protection Act, the RERA law, as well as trigger the Code.
c. Section 5(8)(f) as it originally appeared in the Code is a residuary provision. It always subsumed within it, the allottees of flats and apartments. The explanation, together with the deeming fiction added by the Amendment Act is only clarificatory.
In Vineet Khosla v. Edelweiss Asset Reconstruction, the NCLAT held that at the stage of admission of an application under Section 7, the adjudicating authority is not required to consider whether resolution for a given company would be possible or not and whether or not it would be possible to keep it a going concern.
In Gaurav Hargovindbhai Dave v. Asset Reconstruction, the Supreme Court has reiterated that the purpose of the IBC was not to give a fresh lease of life to time-barred debts. Article 62 of the Limitation Act (which provides a limitation period of 12 years for suits to enforce payment of money secured by a mortgage or otherwise charged upon immovable property) is applicable only to suits and not to applications filed under Section 7 of the IBC.
The NCLAT in a set of appeals including Edelweiss Asset Reconstruction Company v. Sachet Infrastructure, ordered that a common resolution professional be appointed for the companies that had entered into agreements for the joint development of land. While admitting the group insolvency, the NCLAT noted that the insolvency resolution process would not be successful unless the township can be developed. This judgment is likely to be a landmark and perhaps pave the way for other group insolvencies, especially in sectors (such as real estate and power) where related entities perform various parts of a transaction and have inter-related agreements.