Welcome to the updates from Indian insolvency and restructuring law for the month of May, 2020.
The Indian Government announced Unlock 1.0 on 31 May 2020 to give a push to the Indian economy which had seen a sharp decline since and perhaps, because of the lockdown to curb COVID-19. In a much anticipated move, on 05 June 2020, the Government of India promulgated the Insolvency and Bankruptcy (Amendment) Ordinance, 2020.
We have previously written here that reactions in India to the suspension of the provisions for the triggering of insolvency resolution processes have been mixed. The Ordinance suspended the provisions of Sections 7, 9, and 10 of the Insolvency and Bankruptcy Code, 2016 for six months (extendable to one year) in respect of any default that occurred after 25 March 2020.
Many experts have faulted the drafting of the ordinance and argue that the language leaves much scope for improvement. Another aspect that has been overlooked is that although CIRP cannot be initiated against the corporate debtor, the insolvency resolution process under the Code can be initiated against personal guarantors of such corporate debtors. In our view, this distinction is illusory, and may worsen the crisis for promoters who may be as much (if not more so) affected by COVID-19 as the corporate debtors. It is also doubtful that such a distinction would withstand a constitutional challenge.
In a first, the Ahmedabad bench of NCLT has permitted a successful resolution applicant to change the payment schedule (on account of COVID-19) in the resolution plan. This order will set a precedent for others and is one of the issues we had discussed in an earlier issue.
It is now mandatory for financial creditors to file a ‘default record’ from an ‘Information Utility’ along with new petitions filed under section 7 of the IBC. In pending petitions, the NCLT has directed that such a default record should be filed before the next date of hearing.
From the Docket
In SBI v. Metenere, the NCLAT held that a former employee of a financial creditor would be eligible to act as the IRP at the instance of such financial creditor. The appellate tribunal further held that the empanelment of a ‘Resolution Professional’ as an advocate or company secretary or chartered accountant with the ‘Financial Creditor’ cannot by itself be a ground to reject the proposal of his appointment unless there is any disciplinary proceeding pending against him or it is shown that the person is an interested person being an employee or on the payroll of the ‘Financial Creditor’.
In Allahabad Bank v. Poonam Resorts, the NCLAT held that at the pre-admission stage, the adjudicating authority cannot direct a forensic audit and engage in a long-drawn pre-admission exercise to determine whether there is occurrence of a default in a petition under section 7 of the Code.
In Amitabh Kumar Jha v. Bank of India, the NCLAT rejected the argument that an Inter-Creditor Agreement signed at the time of a consortium lending transaction would bar an individual creditor from triggering CIRP in the event of a default qua outstanding liability in respect of its financial debt without the consent of other lenders forming the consortium of the same Corporate Debtor. The NCLAT further held the contractual rights, unless recognised by the statute as a permissible mode, would not override the statutory mechanism and right created and enforceable under statute.
Allowing an appeal under Section 61 of the IBC against an order for admission of petition under Section 9, the NCLAT held in Ritu Goyal v. SVG Fashions that the provisions of Sections 4 to 24 of the Limitation Act carve out exceptions by providing exclusions and extensions on various grounds enumerated therein. The appellate tribunal also held that an acknowledgement of debt or issuance of cheques after the original limitation had expired would not have the effect of extending the limitation under Section 18 of the Limitation Act.
In Hussan Kadri v. Edelweiss ARC, the NCLAT held that an application under Section 7 of the Code is governed by Article 137 of the Limitation Act, 1963 prescribing three years’ time for triggering of the ‘Corporate Insolvency Resolution Process’. The appellate tribunal further held that such a period of limitation would commence from the date the financial debt is declared as an NPA in the books of accounts of the financial creditor.
In First Global Finance v. IVRCL, the National Company Law Appellate Tribunal reiterated that promoters and other persons who are ineligible under Section 29A of the Code from submitting a resolution plan are also not entitled to file an application for compromise and arrangement in with the creditors of a corporate debtor under Sections 230 to 232 of the Companies Act.
Thank you for reading! We will be back in your inbox next month with more updates from the world of insolvency and bankruptcy law, in what are hopefully better circumstances.