Landmark Judgements On Insolvency Law-November 2020
The article provides a brief summary of all the leading decisions dealing with Insolvency law in the month of November, 2020.
A. Balakrishnan v. Kotak Mahindra Bank Limited and Anr.
[Company Appeal (AT) (Insolvency) No. 1406 of 2019]
For calculating the limitation period for an application under Section 7 of IBC, the date of default shall be deemed to be the date of declaration of non-performing asset (NPA), and not the date on which a recovery certificate is issued.
Hindustan Oil Exploration Company v. Erstwhile Committee of Creditors JEKPL Pvt. Ltd.
[Company Appeal (AT) (Insolvency) No. 969 of 2020]
The NCLAT observed that the implementation of the resolution plan cannot be assailed on the grounds that the CoC had permitted the successful Resolution Applicant to alter certain terms of the approved resolution plan, to facilitate its implementation. Thus it was held that the applicant, who was an unsuccessful Resolution Applicant, had no locus to challenge the implementation of the resolution plan which was already approved by the Adjudicating Authority.
Kaledonia Jute and Fibres Pvt. Ltd. v. Axis Nirman and Industries Ltd,
[CIVIL APPEAL NO. 3735 OF 2020]
In this case the Supreme Court held that under Section 434 of the Companies Act, 2013, a creditor of a company can seek the transfer of winding up proceedings which are pending before a High Court to a National Company Law Tribunal. The apex court also observed that the transferability of winding up proceedings, other than those covered by the fourth proviso to sub-clause (c) of Section 434(1) of the Companies Act, 2013 would depend on the stage at which they are pending before the High Court and would need to be seen as per the Companies (Transfer of Pending Proceedings) Rules, 2016.
State Bank of India v. Kiran Gupta
In this case before the Honourable High Court of Delhi, the court held that proceedings against the principal debtor under the IBC shall not be a bar to institution or continuation of proceedings against the guarantor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 as the liability of a guarantor is co-extensive with that of the principal debtor and not in the alternative.
Ratna Singh and Anr. v. M/s Theme Export Pvt. Limited and Anr.
[Company Appeal (AT) (Insolvency) No. 917 of 2020]
In this case, the NCLAT invoked Section 61 of the Code and observed that an appeal against an order of liquidation can be preferred only on the grounds of material irregularity or fraud committed with regard to the order of liquidation. The Appellate Tribunal further held that the Code cannot be used for initiating proceedings to prevent oppression and mismanagement.
Naveen Kumar Jain v. Committee of Creditors of K.D.K Enterprises Pvt. Ltd.
[Company Appeal (AT) (Insolvency) No. 882 of 2020]
The Adjudicating Authority observed in the present case,
“It is well settled that the commercial wisdom of the Committee of Creditors which covers matters including the replacement of the Resolution Professional does not fall within the limited scope of judicial review and is not justiciable.” While dismissing the appeal, the NCLAT made it clear that the fee fixed for the Interim Resolution Professional under Regulation 33(3) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 cannot be interfered with, as the commercial wisdom of the CoC is beyond the pale of challenge.
Anuj Khanna v. Wishwa Naveen Traders
[Company Appeal (AT) (Insolvency) No. 555 of 2020]
The adjudicating authority stated that questions of law and facts in the present case as to whether the Corporate Debtor paid the dues to the Operational Creditor, or whether the cheques returned dishonoured were issued by the Corporate Debtor as a security, or whether any instructions were given to the Corporate Debtor to make payments to the personal accounts of the employees of the Operational Creditor, should be decided by an appropriate forum and do not come within the purview of NCLAT.
It further observed that the Adjudicating Authority cannot be a substitute for the recovery forum.
Hemant Sharma, Resolution Professional of Global Softech Ltd.
[Company Appeal (AT) (Insolvency) No. 942 of 2020]
In the present case, the NCLAT allowed an application to exclude the period of lockdown i.e. from March 25 to September 15, 2020 while computing the period of 180 days for the purposes of the CIRP.
The Tribunal further clarified that the extended period of 90 days beyond 180 days shall commence only after the prescribed period of 180 days after exclusion of aforesaid period.
Pegasus Asset Reconstruction Private Limited v. Yashomati Hospitals Private Limited
[Company Appeal (AT) (Ins) No.1337 of 2019]
The Appellant filed the Application under Section 7 of the IBC on assigning of the debt as per registered deed of assignment. It was held that Section 3 of the Limitation Act, 1963, which imposes a duty on the Adjudicating Authority to examine suo moto whether the application is within limitation, should be read with S. 7(5) of the Code, which provides that the Adjudicating Authority shall, before rejecting the application, give a notice to the Applicant to rectify the defect in his application.
Thus, the NCLAT stated that on a combined reading of S. 3 of the Limitation Act and S. 7(5) of the Code, if the Adjudicating Authority is of the opinion that the application does not adequately demonstrate the existence of the debt and whether the application is within the prescribed period of limitation, then the Adjudicating Authority would be required to call upon the Applicant to rectify the defect.
NCLAT held that the application is maintainable and remitted it back to the Adjudicating Authority with a direction to permit the Appellant – Financial Creditor to rectify defect in the format and file documents with regard to limitation.
Autonix Lighting Industries Private Limited v. Moser Baer Electronics Limited
[ Company Petition No. (IB)-1265(ND)/2019]
The present application was filed before NCLT, New Delhi seeking directions to release the lawful dues of the ex-employees who had submitted their resignation prior to the initiation of the CIRP process. While relying on the decision in Alchemist Asset Reconstruction Co. Ltd. v. Moser Baer India Limited., the NCLT noted that the provident fund dues, pension funds dues and gratuity fund dues would not be treated as a part of the liquidation estate and would not, therefore, be recovered u/s 53 of the Code, which provides for the waterfall mechanism. The NCLT, New Delhi allowed the application of the authorised representative of the ex-employees of the Corporate Debtor and directed the RP to release the dues including gratuity dues of the ex-employees and deposit the provident fund with the EPFO.