ARCIL v. Corporation Limited [Co.
Appeal (AT) (Insolvency) No. 418/2020]
In the present matter, a
resolution plan of the Corporate Debtor (CD) was approved by the
Committee of Creditors (COC) and placed before the Adjudicating
Authority for approval in terms of Section 31 of the Code. During the course of
the proceedings, the Adjudicating Authority, in order to satisfy itself about
the resolution plan, directed a further valuation of the CD, which was assailed
before the NCLAT.
The NCLAT observed that the Adjudicating
Authority, while deciding an application under Section 31 of the Code, is permitted
to carry out a further valuation before approval of the resolution plan. In
other words, it is open to the Adjudicating Authority to fully satisfy itself
of the resolution plan approved by the Committee of Creditors before allowing
an application under Section 31 of the Code.
Indian Renewable Energy
Development Agency Limited v. T.S.N Raja [Co. Appeal (AT) (Insolvency) No. 899/2019]
In the present matter, the
Appellant had extended a loan facility to the Corporate Debtor. Subsequently,
the Corporate Debtor slipped into insolvency and the Appellant filed its claim
before the Interim Resolution Professional (IRP). However, the IRP
rejected the claim of the Appellant on the premise that the CD had not
defaulted in its instalments towards the loan of the Appellant and hence no
‘claim’ had arisen in favour of the Appellant and against the Corporate Debtor.
Reference was also made to the definition of the term ‘claim’ under Section 3
(6) of the Code to contend that the said definition only included a ‘right to
payment’ or ‘right to remedy for breach of contract’. In the present situation,
since the above said contingency had not yet arisen, the IRP was under no
obligation to take note of the claim of the Appellant. The Adjudicating
Authority upheld the view of the IRP.
The NCLAT observed that any
resolution applicant who submits a resolution plan must not face any undecided
claims of the CD after his plan is approved in accordance with the Code.
Reliance was placed by the NCLAT
on the Supreme Court judgement of Committee of Creditors of Essar Steel
India Limited v. Satish Kumar Gupta which, inter alia, held that
undecided claims against of the CD during the CIRP would militate against the
rationale of Section 31 of the Code. All claims must be submitted to and be
decided by the resolution professional so that a prospective resolution
applicant knows exactly what are the liabilities or obligations of the CD
before presenting a resolution plan and participating in the CIRP of the CD.
Keeping in mind the fact that in
the said matter, the resolution plan had been approved by the COC and the
matter was pending before the Adjudicating Authority, the NCLAT opined that the
successful resolution applicant must be made aware of the existing contingent
right of the Appellant. Further, the Adjudicating Authority must also take note
of the said right of the Appellant and afford an opportunity of hearing to the
successful resolution professional before deciding the matter.
Maharashtra State Electricity
Transmission Company Limited v. Sri City Private Limited & Others [Co.
Appeal (AT) (Insolvency) No. 1401/2019]
In the present case, the
Appellant (Maharashtra State Electricity Transmission Company Limited) has
executed a long term contract with the Corporate Debtor with respect to
transmission of electricity. Subsequently, the CIRP was initiated against the
CD and the Appellant preferred its claim with the resolution professional.
Thereafter, a resolution plan for the CD was formulated which inter alia
provided for an ex parte termination of the contract between the Appellant and
the CD. This termination provision in the resolution plan was assailed before
the NCLAT.
The principal contention of the
Appellant was that, in view of various provisions of the Electricity Act, 2003,
the contract in question could only be terminated either between the parties
themselves or by moving the appropriate electricity regulator. Further, in the
present situation, the Maharashtra Electricity Regulatory Commission was the
only appropriate forum to adjudicate matters pertaining to energy agreements
such as the one in question. The Respondent, on the other hand, relied upon
Section 238 of the Code (the overriding provision) as well as the Supreme Court
judgement of Committee of Creditors of Essar Steel India Limited v. Satish
Kumar Gupta to contend that Section 238 of the Code overrides the
Electricity Act and that the successful resolution applicant is entitled to
take over the CD with a clean slate and cannot be forced to continue with the
long term contract executed by the CD previously.
The NCLAT upheld the contentions
of the Respondent and chose to not interfere with the commercial wisdom of the
COC of the CD which decided to terminate the long term contract with the
Appellant.
Flat Buyers Association Winter
Hills 77, Gurgaon v. Umang Realtech Limited through IRP & Others [Co.
Appeal (AT) (Insolvency) No. 926/2019]
In this landmark judgement, the
NCLAT made the following observations with respect to CIRP against a real
estate company:
a)
If
CIRP against a real estate company is initiated by the creditors of one of its
projects, then the CIRP shall remain confined only to that project would not
affect any other project(s) of the same real estate company in other places.
b)
CIRP
against a real estate company should be on a project basis. Allottees
(financial creditors), financial institutions/banks (financial creditors) or
operational creditors of other projects cannot file a claim before the interim
resolution professional.
c)
Other
projects of the CD at other places cannot be clubbed together, nor can the
assets of such other projects be used for the CIRP of the target project.
d)
A
secured creditor (bank/financial institution) of the target project of the CD
cannot be given a flat in the project by preference over the allottees
(unsecured financial creditors) for whom the project was being made. Therefore,
the claims of the allottees are to be satisfied by providing a flat. Also, the
allottees are permitted to opt for another flat in another tower etc. of the
project which is complete. This may help the allottees in taking possession early.
However, a prayer for refund cannot be allowed by the Adjudicating Authority in
view of the judgement of the Supreme Court in Pioneer Urban Land and
Infrastructure Limited v. Union of India (2019) SCC Online SC 1005.
e)
The
NCLAT propagated the concept of a ‘reverse CIRP’ for real estate companies in
the interest of the allottees, for completion of the real estate projects
(which gives employment to a large number of people) and for survival of the
company itself.
Further,
the facts and circumstances of the matter, the NCLAT issued a slew of
directions for effective implementation of the CIRP which are summarised below:
i)
A
promoter of the CD was directed to pump in money from outside (as a financial
creditor and not as a promoter) to ensure that the project is completed.
ii)
Monies
generated from the allottees during the CIRP to be deposited in the account of
the CD for keeping it as a going concern. Such deposited amounts to be utilised
only towards the target project.
iii)
The
allottees were directed to deposit the balance amount within a certain time
frame without any penal interest.
iv)
Various
time lines were set for the completion of the flats, common areas etc.
v)
The
financial institutions/banks were directed to be paid simultaneously.
vi)
The
allottees in whose favour possession had been offered and clearance given by
the competent authority were directed to pay the balance amount in terms of the
builder buyer agreement along with registration costs.
vii)
The
allottees were permitted to form a residents welfare association and get the
same registered.
viii)
During
the CIRP, the resolution professional was permitted to sell the unsold flats.
The proceeds from such sale(s) would be used for completion of the project and
for making payment to the financial institutions/banks and the operational
creditors of the project.
Orbit Lifescience Private Limited
v. Raj Ralhan, Resolution Professional [Co. App. (AT) (Ins.) No. 846/2019]
In the present matter, an
application was preferred by an entity (the Appellant) seeking release/return
of certain perishable goods owned by it but lying at the plant of the CD
(undergoing CIRP). During the course of inquiry by the resolution professional,
it was found that while the goods of the Appellant were indeed lying in the
plant of the CD, however, there was various dues of the CD payable by the
Appellant. Accordingly, the resolution professional sought to exercise a right
of lien over the goods of the Appellant. This issue was also placed by the
resolution professional before the COC and the COC had opined that the
Appellant should clear the dues of the CD before the goods could be returned. The
Adjudicating Authority directed for return of the goods with a simultaneous
payment of the CD’s dues by the Appellant. The NCLAT upheld the view of the
Adjudicating Authority.
Vijay Pal Garg v. Pooja Bahry,
Liquidator of Gee Ispat Private Limited [Co. Appeal (AT) (Insolvency) No. 949/2019]
In the present matter, the
Adjudicating Authority, after noting various allegations made by the resolution
professional of the CD against its ex-directors/management, directed the
central government to order an investigation into the affairs of the CD under
Section 210 of the Companies Act, 2013. The allegations of the resolution
professional included the following: (i) carrying on of the business of the CD
with an intent to defraud its creditors; (ii) initiation of the CIRP for
fraudulent purpose and/or with malicious intent; (iii) failure of the
ex-management to disclose the affairs of the CD to the resolution professional
from time to time; (iv) falsification(s) in the accounts of the CD. Furthermore,
various applications (under Sections 65, 67, 70,71, 72, 73 & 235A of the
Code had also been preferred by the resolution professional against the
ex-management before the Adjudicating Authority.
The ex-management (Appellant) questioned
the abovementioned order of the Adjudicating Authority before the NCLAT. The
principal argument of the Appellant was that Adjudicating Authority could not
have invoked Section 210 of the Companies Act while exercising jurisdiction
under the provisions of the Code.
The NCLAT while determining the
matter, placed reliance on its previous judgement in Lagadapati Ramesh v.
Ramanathan Bhuvaneshwari [Co. App. (Ins.) AT No. 574/2019] which observed
as follows:
a)
An
Adjudicating Authority, upon receipt of an application/complaint alleging
violations as provided under Section 213 of the Companies Act, and upon being
satisfied that circumstances exist which suggest that defraud etc. has been
committed, may refer the matter to the central government for an investigation
by inspector(s). If the investigation report reveals an offence under the
provisions of the Companies Act, 2013 or the Code, then the central government
may refer the matter to the special court for trail in the manner prescribed
under Sections 435 & 447 of the Companies Act or in the alternative, may
ask the IBBI to prefer a complaint before the special court in terms of Section
236 of the Code.
b)
After
investigation by the inspector (mentioned above), if a case is made out and the
central government feels that the matter also requires an investigation by the
‘serious fraud investigation office’ (under Section 212 of the Companies Act,
2013), the central government may order an inquiry by the said investigation
office. Such decision of the government will depend on the gravity of the
charges found during the course of investigation by the inspector.
The NCLAT made the following
observations:
a)
An
investigation is not to be ordered on mere suspicion, assumptions,
presumptions, conjectures or surmises. The aim of an investigation is to
unearth hidden materials. Prior to making an order of investigation, the
Adjudicating Authority must give an opportunity of being heard to the concerned
parties.
b)
An
Adjudicating Authority is not empowered to directly order an investigation, to
be carried out by the central government. However, the Adjudicating Authority
can, in terms of Section 213 of the Companies Act, 2013, issue notice in regard
to the allegations levelled against the promoters of the CD and others. If a
prima facie case is made out, then the Adjudicating Authority may refer the
matter to the central government for an investigation by the inspector(s). The
central government, may thereafter, pursuant to an investigation by the
inspector(s), decide whether the matter also needs to be investigated by the
SFIO.
c)
A
detailed reference was also made by the NCLAT, of Sections 210 and 213 of the
Companies Act, 2013.
The
following other principles were also laid down by the NCLAT in the matter:
a)
A
company in liquidation retains its existence and is entitled to sue or be sued
in its name, until it is dissolved as per applicable law.
b)
A
tribunal does not have trappings of a court. A detailed discussion was made by
the NCLAT on this aspect.
c)
A
resolution professional is a creation of the Code and is authorised to prefer
an application before the Adjudicating Authority by pointing out any
hardships/obstacles which he comes across during the course of the CIRP.
d)
Intention
of the CD is a prime factor for the purposes of Section 43 of the Code (avoidance
of preferential transactions).
Carnoustie Management India
Private Limited v. CBS International Projects Private Limited [Co. Appeal (AT)
(Insolvency) No. 154/2019]
In the present matter, there
existed serious disputes between the parties on the existence of a loan
agreement. The original loan agreement executed between the financial creditor
and the CD was not produced. On the contrary, the CD produced reports from
experts to support its contention that the loan agreement was forged. There
further existed a dispute on the interest payable to the financial creditor for
the alleged loan. In such circumstances, the Adjudicating Authority and the
NCLAT refused to admit the Section 7 Application preferred by the financial
creditor.
Reliance Asset
Reconstruction Company Limited v. Hotel Poonja International Private Limited [Co.
Appeal (AT) (Insolvency) No. 1011/2019]
In the said matter,
the following principles of limitation law (regarding exclusion of time period)
were discussed by the NCLAT:
a) In order to claim the benefit of Section 14
of the Limitation Act, the essential factor is that the matter was prosecuted
before the court suffering from defect in jurisdiction. In other words, there
ought to be an ‘initial want of jurisdiction’.
b) Time spent in pursuing insolvency
proceedings is not to be excluded (under limitation law) from the limitation
prescribed for execution of a decree. Reliance was placed on Yeshwant v.
Walchand AIR 1951 SC 16
c) Time taken by a person to prosecute a
winging up petition against a company before the company court cannot be
excluded in computing the limitation period for a suit of recovery against the
said company for recovery of debt because the matter in issue is not the same.
Reliance was placed on Ajab Enterprises v. Jayant Vegoiles and Chemicals
AIR 1991 Bom 35
d) Benefit of Section 14 of the Limitation Act,
1963 cannot be availed even when the winding up petition was dismissed by the
company court on merits and not on account of any defect in jurisdiction or
other defect of like nature. Reliance was placed on Anil Pratap Singh v.
Onida Sawak Limited AIR 2003 Delhi 252.
