Ritu
Rastogi, Resolution Professional v. Riyal Packers [Co. Appeal (AT) (Insolvency)
No. 1425/2019]
In
the present matter, the resolution professional sought a short extension of
time 15-20 days despite the fact that the outer time limit of 330 days for CIRP
(as envisaged under the Code) had already lapsed. The extension was sought on
the premise that one resolution plan which had been tabled had a bright chance
of getting approved. The NCLAT, in the peculiar circumstances, and in view of
the observations of the Supreme Court in Committee of Creditors of Essar
Steel India Limited v. Satish Kumar Gupta (which inter alia provides
for extension of time for CIRP beyond 330 days under exceptional
circumstances), chose revival over liquidation and granted one final
opportunity (time extension) to the resolution professional to try and resolve
the company.
M.
Ravindranath Reddy v. G. Kishan & Others [Co. Appeal (AT) (Insolvency) No. 331/2019]
In
the present case, the NCLAT, deliberated upon whether a lease by a landlord to
a tenant qualifies to be an ‘operational debt’ under the provisions of the
Code. In the said matter, the landlord had preferred a Section 9 Application
before the AA in respect of purported non payment of enhanced rent. The parties
had initially entered upon a lease deed for the period 1998 to 2006 and
thereafter the lease continued on a month to month basis. There was no
agreement in place providing for enhancement of rent.
During
the said determination, the following critical observations were made by the
NCLAT:
a) The
Code recognises only 2 types of debts to enable creditors to make an
application for initiation of CIRP against the CD viz. financial debt
and operational debt. In case of any other debt, the creditor will not be
permitted to prefer an application for insolvency. Hence, determination of the
nature of the claim/debt is an important step at the time of adjudication of
the application for insolvency.
b) The
NCLAT while analysing the scope and ambit of the term ‘operational debt’, relied
upon a judgement of the NCLT Delhi Bench titled ‘Parmod Yadav v. Divine
Infracon’ and concluded that any debt which has a nexus to the direct input
to the output produced or supplied by the CD comes within the purview of the
term ‘operational debt’.
c) Lease
of immovable property cannot be considered as an operational debt in as much as
it cannot be considered as a supply of goods or services.
d) On
the aspect of ‘pre-existence of dispute’ the NCLAT while relying on the
judgement of the Supreme Court in Mobilox Innovations observed that in
case notice of dispute is received by the operational creditor from the CD,
then in such case, the AA is required to see whether there exists a plausible
contention which requires a further investigation and the said ‘dispute’ is not
a patently feeble legal argument or an assertion of fact unsupported by
evidence. It is important to separate the grain from the chaff and to reject a
spurious defence which is a mere bluster.
Dipco
Private Limited v. Jayesh Sanghrajka & Others [Co. Appeal (AT) (Insolvency)
No. 37/2020]
In
the said judgement, the NCLAT examined the scope of Section 60 (5) of the Code.
In this case, the collation/verification exercise carried out by the resolution
professional of the claims (filed by the creditors of the CD during the CIRP)
was questioned by a financial creditor. While relying on the judgement of the
Supreme Court in Arcelormittal India Private Limited, the NCLAT observed
that under Section 60 (5) of the Code, though the AA is empowered to entertain
any application by or against the CD, it however does not invest in the AA the
jurisdiction to redetermine and collate the claims. The decision for collating
claims ought to be taken by the resolution professional and the AA should not
sit in appeal there against.
Ritusree
Basu v. Punjab National Bank & Others [Co. Appeal (AT) (Insolvency) No.151/2020]
The
NCLAT observed that pending proceedings against the CD before the Debt Recovery
Tribunal or proceedings under the SARFAESI Act cannot be an obstruction to
Section 7 proceedings under the Code. The AA is only required to look into the
element of ‘debt’ and ‘default’ and not of pendency of any of the above
mentioned proceedings.
Akshay
Bhansali v. Amit Gupta [Co. Appeal (AT) (Insolvency) No. 154/2020]
In
the said matter, the suspended directors of the CD (undergoing CIRP) had
illegally withdrawn monies from the bank account of the CD during the pendency
of the CIRP. Consequently, the AA directed the errant directors to disgorge
such amounts. However, when the directors did not comply with such directions,
the AA directed the resolution professional/liquidator to lodge FIR’s against
such persons. The NCLAT upheld the view of the AA.
QVC
Exports Private Limited v. United Tradeco FZC
[Co. Appeal (AT) (Insolvency) No. 1351/2019]
In
the said matter, two resolution applicants collectively filed a resolution plan
which was approved by the COC and thereafter by the AA, and the same was
subsequently acted upon by the parties as well. Amongst other things, the
resolution plan provided for issuance of shares of the CD to the successful
resolution applicants in a pre-defined proportion.
After
lapse of more than 1 year from the approval of the resolution plan, one of the
successful resolution applicants, unilaterally and without the consent of the
other resolution applicant preferred an application (under Rule 11 of the NCLT
Rules) for rectification of the plan which was allowed by the AA. The said
rectification had the effect of substantially altering the shareholding of the
resolution applicants in the CD.
The
NCLAT observed as follows:
(a) The AA had no jurisdiction in interfering
with the terms of an already approved resolution plan after a lapse of 13
months, more so behind the back of the joint successful resolution applicant.
(b) When the resolution plan was submitted
jointly by 2 resolution applicants, then in such case, it was not permissible
for one of the resolution applicants to prefer an application for rectification
of the plan in the absence of or without the consent of the other resolution
applicant.
(c) Once a successful resolution applicant
has acted on the approved resolution plan, then he cannot be permitted to come
back to the AA alleging substantial errors in the said plan.
(d) The judgement of the Supreme Court titled
Rahul Jain v. Rave Scans (2019) 10 SCC 548 was relied upon to observe
that a resolution plan which has attained finality cannot be changed by courts.
(e) The judgement of the NCLAT in RGG
Vyapar Private Limited v. Arun Kumar Gupta [Co. Appeal (Ins.) No. 509/2018]
was relied upon to observe that AA has no authority to reopen a resolution
process under Section 31 of the Code.
(f) Rule 11 of the NCLT Rules (inherent
powers) cannot be used to dehor the statutory provisions of law. Further, while
replying on judgement of the Supreme Court in Sooraj Devi v. Pyare Lal
(1981) 1 SCC 500 it was observed that the inherent powers of the court cannot
be exercised for doing which is expressly prohibited by the Code.
(g) An application for rectification of the
plan is outside the ambit of Section 60 (5) (c) of the Code in as much as such
application does not involve question of priorities or any question of law or
facts. Arising out of or in relation to the CIRP or liquidation proceedings.
(h) In the garb of rectifying clerical or
arithmetic mistakes, the terms of an approved resolution plan cannot be
amended, especially in the absence of the co-resolution applicant.
Santosh
Wasantrao Walokar v. Vijay Kumar V. Iyer & Another
[Co. Appeal (AT) (Insolvency) No. 871-872/2019]
In
a batch of petitions, the NCLAT decided the following issues:
(a) The AA and the NCLAT cannot go into the
feasibility and viability of the resolution plan which is the ambit of the
commercial wisdom of the COC.
(b) Claims which are not dealt with in the
resolution plan can be held to be extinguished under the Code upon approval of
the plan. In other words, claims which are not submitted by the creditor or not
accepted or dealt with by the resolution professional in the approved
resolution plan, would stand extinguished.
(c) The NCLT does not have the power to
modify its own order. All that it can do is to correct or rectify any clerical/arithmetic
error or any mistake apparent from the record. Reliance in this regard was
placed on Section 420 (3) of the Companies Act, 2013 and Rule 154 of the NCLT
Rules, 2016.
Bijay
Kumar Agarwal v. State Bank of India
[Co. Appeal (AT) (Insolvency) No. 993/2019]
The
NCLAT made the following observations on the aspect of guarantor insolvency:
(a) It is not necessary to first commence
CIRP against the principal borrower before proceeding against the guarantor. In
fact, a financial creditor can initiate CIRP against the guarantor without
proceeding against the principal debtor.
(b) There is no fetter under the Code for
proceedings simultaneously against the principal debtor and the guarantor for
the same set of claim. However, once CIRP is initiated against either of the
two, then in such case it is not permissible to further proceed against the
other.
Munisuvrata
Agri International Private Limited v. Bank of Baroda
[Co. Appeal (AT) (Insolvency) No. 84/2019]
In
the present matter, a defaulting company, in a bid to escape its creditors,
surreptitiously changed its name and preferred a Section 10 Application before
the AA. The said application was contested by various creditors of the company
citing fraud and malicious intent on the part of the company. In the
interregnum, a secured creditor of the company also preferred a Section 7 Application
against the company.
The
AA dismissed the Section 10 Application which was upheld by the NCLAT. However,
the NCLAT clarified that the dismissal of the Section 10 Application will not
come in the way of the secured financial creditor from pursuing its Section 7
Application against the company.
Although the NCLAT
made reference to the BLRC Report of November 2015 which indicated that rentals
constitute an operational debt, it however refused to accept that rental dues
can fall within the ambit of ‘operational debt’. The authors of this update
feel that a lease of immovable property availed for business purposes by the
lessee-CD such as to operate its office or for manufacturing of its goods etc.
ought to come within the purview of the term ‘operational debt’.
