Hi! Welcome back to our updates on the Insolvency and Bankruptcy Code featuring developments during February 2023.
From the Docket
The Hon’ble High Court of Karnataka in M/s G.K. Ispat v. M/s Consolidated Construction Consortium. held that a commercial appeal before High Court against the issue of decree is not allowed if moratorium under Section 14 of IBC was in place on the date of filing of the appeal.
In Welspun Steel Resources v. Union of India the High Court of Gujrat held that if Prevention of Money Laundering Act, 2002 authorities are given a free hand to pass orders of attachment of properties which were acquired by a successful bidder in a liquidation process, the same could be contrary to the interest of value maximization of the corporate debtor’s assets by substantially reducing the chances of finding a willing resolution applicant/bidder in liquidation.
The High Court of Calcutta in Rashidhan Sales v. Damodar Valley Corporation held that when a property has been sold in an auction sale on ‘as is where is’ basis in liquidation under IBC, the auction purchaser is not liable to pay pre-CIRP outstanding dues of electricity connection before getting a new electricity connection.
In Shapporji Pallonji and Company v. Kobra West Power, the NCLAT, relying upon the Supreme Court’s order in the matter of Fourth Dimension Solutions v. Ricoh India Limited, dated January 21, 2022 allowed an operational creditor, whose claim was kept under verification by the resolution professional on account of pendency of arbitration proceeding, to continue such proceeding post approval of the resolution plan.
In the case of State of Rajasthan v. Arunava Sikdar, Resolution Professional for Jaipur Metals & Electricals, the NCLAT held that an order passed by the stamp authorities identifying deficiency of the stamp duty on the relevant financing agreements would not bar the resolution professional from admitting a claim, existence of which could be corroborated from other available documents, including the financial statements of the corporate debtor. The NCLAT also held that while the court does not give any fresh period of limitation for filing any application, nor gives any fresh lease of life to a stale or dead claim, if the claimant would seek exclusion of limitation on account of some other legislations, such benefit of exclusion of period of limitation would be available for maintaining a relevant application for initiating CIRP under the Code. Applying the aforesaid principle, NCLAT held that financial creditors were entitled to seek relief under the Rajasthan Relief Undertakings (Special Provisions) Act, 1961.
The NCLAT, in Rahul Arunprasad Patel v. Invesco Asset Management (India) Private Limited, upheld right of debenture holders to maintain a Section 7 application independent of that of a debenture trustee. In the same case, the NCLAT further recognized the locus of an asset management company to initiate the CIRP on behalf of a mutual fund.
In Gouri Shankar Chatterjee v. SBI, the NCLAT held that mere pendency of a proceeding before the high court challenging the legality of declaration of NPA by the financial creditor, does not bar admission of a Section 7 application filed by the same financial creditor, specially where the debts owed to the financial creditor are acknowledged in the balance sheet of the corporate debtor.
The NCLAT, in Jagdish Kumar Parulkar v. Vinod Agarwal, held that the timeline of 135 days prescribed under Regulation 35-A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 for filing an application in relation to preferential and fraudulent transactions is directory and not mandatory. Non-compliance with such timelines will not render the application non-maintainable.
Further, the following transactions conducted by the suspended management during the look back period were held to be preferential and fraudulent transactions:
- repayment of personal loan;
- transfer of funds for meeting emergent medical needs of an erstwhile director after a period of one year of the transfer;
- reimbursement of business tour expenses where no documents were submitted for substantiating the expenditure; and
- fraudulent sale of stocks and siphoning of funds.
Thank you for reading.
– Sarthak Advocates & Solicitors