Welcome back to our updates on the Insolvency and Bankruptcy Code, featuring developments in the month of May 2022.
The Supreme Court (SC) has issued notice in a plea challenging the constitutional validity of provisions relating to insolvency of individuals recently.
The pandemic has negatively affected the recoveries by lenders, according to a report. It was also reported that in the last quarter of FY 2022, the recoveries by financial creditors were less than liquidation value.
SC has reiterated that the NCLT/ NCLAT cannot sit in appeal over the commercial wisdom of the committee of creditors in the case of Shiva Industries.
After a review of the circulars issued by it, the IBBI has rescinded several circulars with immediate effect primarily on the ground that the relevant changes to the law have been carried out by way of amendment to the regulations.
From the Docket
The Supreme Court in NOIDA v. Anand Sonbhadra has rejected the contention of NOIDA that it is a financial creditor and that that the lease deed between NOIDA and various corporate debtors was a financial deed as per the Indian Accounting Standards (Ind AS). The SC has held that NOIDA is an Operational Creditor under the IBC as there is no financial lease executed between NOIDA and corporate debtors as per the Indian Accounting Standards. This judgment provides much needed clarity to the ongoing CIRP/ liquidation proceedings of various real estate companies whose land was on leasehold basis from NOIDA.
In IOB v. RCM Infrastructure, held that banks cannot continue the proceedings under the SARFAESI Act once the CIRP was initiated, and the moratorium was ordered. The SC observed that the legislative intent is clear that after the CIRP is initiated, all actions under the SARFESI Act to foreclose, recover or enforce any security interest are prohibited.
The SC has stayed the operation of NCLAT’s decision which held that Section 60(2) does not in any way prohibit filing of insolvency proceedings under Section 95 of the Code against Personal Guarantor even if no proceeding are pending against the Corporate Debtor before NCLT in Mahendra Kumar Jajodia v. SBI.
Only once an insolvency petition is admitted, does the moratorium kick-in, retierated the High Court of Delhi in Millennium Education Foundation v. Educomp Infrastructure and School Management. The Delhi High Court also held that mere pendency of an insolvency petition under Section 9 of the IBC is not a bar to the appointment of an arbitrator, neither an embargo on the power of the Court to decide arbitration applications.
In IDBI Bank v. Manoj Gaur it was held that the invocation of a personal guarantee can be done by a Security Trustee only after obtaining consent of all co- lenders under the concerned Security Trustee Agreement.
In order to maximise the value of assets of a corporate debtor, it is permissible to conduct a joint auction under the IBC and SARFESI Act, 2002, ruled the NCLAT in the case of Ayan Mallick v. Pratime Bayal.
Adjudicating an appeal in Amar Vora v. City Union Bank, the NCLAT, Chennai Bench held that that a petition can be moved under Section 7, 9, or 10 of Insolvency and Bankruptcy Code, 2016 (“IBC”), even when proceedings with respect to the same debt are pending before the Debt Recovery Tribunal; or SARFAESI Act 2002; or Prohibition of Benami Property Transaction Act, 1988 or any other forum. The Appellate Tribunal observed that IBC is a special enactment and held that it has an overriding effect over other laws.
In Saraf Chits v. VKSS International, NCLT has held that the CIRP cannot be initiated solely on the basis of unpaid interest when the corporate debtor has discharged the principal amount.
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– Mani Gupta & Saumya Upadhyay