Hello! Welcome back to our updates from the insolvency law landscape in India.
The IBBI recently celebrated its seventh annual day on October 1, 2023 with much fanfare and publication of thought-leadership in the area.
The Insolvency and Bankruptcy Board of India (IBBI) made significant amendments to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations). These amendments came into effect on September 18, 2023. Subsequently, on September 19, 2023, the IBBI issued a press release to provide a summary of the amendments. Notable amendments include the need for cooperation from the personnel of corporate debtor in facilitating the resolution process, enhanced role of authorised representative of class of creditors particularly homebuyers, extension of timeline for filing claims up to the date of the request for resolution plans or ninety days from the insolvency commencement date, whichever is later. Further, changes have been made to Form G in order to provide prospective resolution applicants with more information and thereby, making it easier for them to understand the status of the corporate debtor. Furthermore, minutes of committee meetings where resolution plans are approved are now included in the compliance certificate (Form H) to help the Adjudicating Authority understand the decision-making rationale of the committee of creditors.
IIM Ahmedabad has recently conducted a research study to understand the impact of the resolution process on companies and their performance both before and after the resolution process. The report observes that average sales have shown an increase of 76% in three years since resolution. It further noted that while net margins continue to remain negative, the resolved firms had been able to “break even” in the post resolution period. The report also noted around 50% increase in the average employee expenses in the three years post-resolution, which indicates a higher employment intensity in the resolved firms (listed) in the post-resolution period.
In another news, the NCLT allowed GE Power to withdraw its insolvency petition against public sector undertaking, Bharat Heavy Electricals Ltd, with the liberty to revive if the operational debt is not settled.
The former promoters of Asian Hotels (West) are looking to revive the Hyatt Regency hotel in Mumbai, by bringing in a new shareholder and infusing funds. Promoters Sandeep Gupta and Sudhir Gupta have informed the resolution professional of their agreement with Robust Hotels, an 18% stakeholder in Asian Hotels (West), to revive the company and withdraw it from the corporate insolvency resolution process. They intend to repay all outstanding dues to lenders, operational creditors, and other creditors without any haircut. The total claims against the hotel amount to over ₹350 crore, with financial creditors accounting for ₹292 crore, most of which is held by UV Asset Reconstruction Company, assigned by YES Bank.
From the Docket
The Supreme Court in Employees Provident Fund Organization v. Fanendra Harakchand Munot held that timelines under the Insolvency and Bankruptcy Code, 2016 (“IBC”) must be strictly complied with by the Commissioner and employees of the Employees Provident Fund Organization (EPFO) for filing of claims. In the event of dereliction of duty, action in accordance with law must be taken against erring employees.
In Peter Beck and Partner Vermoegensverwaltung GMBH v. Sharon Bio-medicine, the NCLAT, held that differential payments can be made between the unsecured Financial Creditors who voted in favour of the plan and the ones who voted against it. The Appellate Authority further reiterated that the assenting financial creditors are entitled for payment as proposed in the plan and dissenting financial creditors are entitled as per the minimum entitlement as per Section 30(2)(b).
The NCLAT, in Chandrashekhar Exports v. Babanraoji Shinde Sugar & Allied Industries affirmed that a claim of compensation and penalty arising out of a contract is not an operational debt as for crystallization of the said compensation/ penalty adjudication is required by a competent court. Accordingly, the order of dismissal of the petition under section 9 of IBC by the Adjudicating Authority was upheld.
The NCLAT, in, The Assistant Commissioner of Central Tax v. Sreenivasa Rao Ravinuthala relied upon the Master Circular No.1053/02/2017-CX, issued by the Ministry of Finance and held that Central Excise Authority is not a secured creditor under IBC.
The NCLT in Small Industrial Development Bank of India v. E & G Global Estates rejected an application filed on behalf of EPFO for admission of its claim. The NCLT reiterated that since the resolution plan has already been approved, the belated claim cannot be entertained, as such claims would defeat the very purpose of the corporate insolvency resolution process which is supposed to conclude in a time bound manner.
In Bezel Stockbrokers v. SEBIthe NCLAT has held that a stock broker company is a “Financial Service Provider” under the IBC.
We will be back next month with another update. Thank you for reading!
Thank you for reading.
– Sarthak Advocates & Solicitors