Brief of significant rulings on insolvency and bankruptcy code.

1. Recent IBC Judgments
(July- August, 2021)
Prepared by:
Richa Saraf
Manager- Legal
Sumedha Management Solutions Pvt. Ltd.

2. NCLAT RULINGS

3. Anuj Tejpal, Director, Suspended Board of Directors, OYO Hotels and
Homes Private Limited vs. Rakesh Yadav & Anr. (07.07.2021)
Facts:
• All amounts due and payable by CD to OC, who filed the Section 9 Application, have been paid in full and final satisfaction,
together with the IRP Costs.
• Several intervenor applications filed that their claim is due and withdrawal should not be allowed.
Observation:
• It is not the case of the Intervenors that demand notice under Section 8 is pending. It is only their case that money is due.
before constitution of CoC mere filing of a ‘Claim’ does not constitute default per se.
• In a catena of Judgements the Hon’ble SC has reiterated that the prime objective of Code is not recovery, but revival. This
Tribunal in numerous judgements observed that after admission, this Tribunal, on a case to case basis can exercise its
inherent power under Rule 11 if parties are interested to settle the matter prior to Constitution of CoC.
Held: Regulation 30-A(1)(a) is not applicable to the present application. The Intervenor Applications filed during the
pendency of the appeal, prior to constitution of CoC, disallowed, and withdrawal allowed.

4. C & C Construction Ltd. Through RP vs. Power Grid
Corporation of India Ltd. (17.07.2021)
Facts:
• Axis Bank issued bank guarantees in favour of Ministry of External Affairs for a joint venture project of CD, based on the request of
CD.
• Axis Bank Ltd. filed an application seeking clarifications/ directions from Tribunal regarding encashment of this bank guarantee.
Ministry of External Affairs also has filed appeal seeking a direction from this Tribunal to Axis Bank to release the amount payable
towards encashment of bank guarantee.
• AA allowed petition to invoke/encash bank guarantee issued by CD without seeking leave of Tribunal.
Observation:
• Section 14(3)(b) of the Code states that the provisions of this section shall not apply to a surety in a contract of guarantee to CD.
• Section 14(1)(c) makes amply clear that any security interest created by CD in respect of its property is covered under moratorium.
• The Insolvency Law Committee, through its report dated 26.03.2018, has clarified that assets of surety are separate from those of
the CD and proceedings against CD may not be seriously impacted by the actions against assets of the third party like surety.
Held: Bank guarantee issued by bankers are the responsibility of bankers and the fund will go out of the fund of banks and not
directly from CD’s fund. Banks can release the fund to the extent of full value of the bank guarantee minus margin money provided
by CD to the banker for bank guarantee.

5. Pawan Kumar, Ex-Director and Shareholder Vogue Clothiers Pvt.
Ltd vs. Utsav Securities Pvt. Ltd & Anr. (03.08.2021)
Facts:
• Financial Creditor, NBFC, granted financial assistance to CD for a total of Rs. 6.10 Cr in between 16.02.2017 to 22.02.2017.
• CD paid interest Rs. 6,05,718 once on 14.02.2018 after deduction of TDS. Thereafter, failed to pay interest.
• FC vide notice dated 27.04.2019 recalled the loan, and filed Application u/s 7 of IBC.
Issue 1: whether the transaction in question is a Financial Debt?
Observation: Bank entries filed by FC corroborate that amount has been received by CD, however, there is no written agreement between the parties to show that the disbursement of such
amount is a loan transaction.
Issue 2: Whether amount is disbursed for a consideration for time value of money?
Observation: CD has paid interest Rs. 6,05,718 on 14.02.2018 after deduction of TDS. However, RBI on 18.02.2013 issued guidelines to NBFCs for fair practices which states that NBFCs
should convey in writing to the borrower in vernacular language as understood by the borrower by means sanctioned letter or otherwise, the amount of loan sanctioned along with the
terms and conditions including annualised rate of interest. Thus, it is obligatory on the part of FC that there should be a loan agreement in writing only.
Issue 3: Whether CD failed to pay (whole or any part or instalment of the debt) and when the debt become due and payable?
Observation: FC has not filed any writing to show that when the debt become due and payable. FC has not filed copy of their balance sheet for relevant years and also balance sheet of CD.
As per FC, debt in question is payable on demand. From the notice and the Application, it is not clear that on which date the demand was made and the loan and interest become due and
payable.
Held: Relying on Swiss Ribbons case, NCLAT held that even if the Application meets all the requirements, then also AA should exercise discretion carefully to prevent and protect CD from
being dragged into CIRP malafide. AA is obliged to investigate the nature of the transaction and should be very cautious in admitting the Application.

6. ARCIL vs. Mohammadiya Educational Society (03.08.2021)
Facts:
• Application u/s 7 was filed against M/s. Mohammadiya Educational Society.
• AA held that Respondent is not a body corporate and dismissed the Petition. Hence, the Appeal.
Relevant provisions:
• Section 3(7) of IBC- defines "corporate person“- means a company as defined in clause (20) of section 2 of the Companies Act,
2013, a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act,
2008, or any other person incorporated with limited liability under any law for the time being in force but shall not include any
financial service provider;
• Section 2(20) of Companies Act- defines company- means a company incorporated under this Act or under any previous company
law.
Observation: What appears from reading of Section 18 of A.P. Act is that registration of a Society shall render it a body corporate by
the name under which it was registered having perpetual succession and common seal. Section 18 makes it clear that as the Society
will be rendered body corporate, it shall be entitled to acquire, hold and dispose of property, to enter into contracts, to institute and
defend suits and other legal proceedings and to do all other things necessary for the furtherance of the aim for which it was
constituted. However, the society shall not be regarded as Company incorporated as such.

7. Vipul Dilip Shah & Ors. vs. Parinee Developers Pvt. Ltd.
Through RP & Anr (05.08.2021)
Facts:
AA dismissed Application under Section 12A-
• Absence of backup plan is contrary to terms of settlement deed itself, which expressly provides that in case of
any default in making outstanding payments in terms of settlement deed, lenders would have right to move AA
for revival of CIRP.
• Settlement proposal contains a lot of uncertainty and depends on future events.
Held: None of the conditions of settlement is against the provisions of IBC and Regulation and CoC has taken a
commercial decision by voting shares of 99.9%. In such a situation, it is not appropriate to dismiss the
Application.

8. RS Ventures Investment Ltd. vs ROC, Guwahati
(09.08.2021)
Facts: Successful RA filed petition with a prayer to allow increase in authorized share capital without paying any
fees / Stamp duty to the RoC.
Observation:
• AA while approving resolution plan has expressly covered issues as required for approval of plan and nowhere
such waiver is explicitly or implicitly provided.
• When a new company takes over and starts at a new slate and take certain management decision, then
everything cannot be exempted at a later stage, as it is a business decision to expand the business, and based
on those probability of cash inflow, cash outflow is provisioned for.

9. MSC Meditteranean Shipping Company vs. CA Kannan
Tiruvengadam, RP, BRG Iron & Steel Co. Pvt. Ltd. (10.08.2021)
Facts:
• MSC Shipping gave notice to CD a, and called upon them to take delivery of the containers upon payment of shipping charges and against surrender of Bills of Lading. It is
stated that despite several notices, 256 numbers of containers remained unclaimed at the Container Freight Station.
• MSC Shipping filed petition in High Court of Kolkata against CD for payment of container, demurrage charges, return of the containers after de-stuffing cargo sale of the de-
stuffed cargo and receipt of the proceeds thereof. As per Clauses 17 and 20.3 of the Bills of Lading, MSC Shipping has lien on the cargo for demurrage charges and other
dues.
• Pursuant to the Order dated 21.09.2017 passed by the Hon’ble High Court of Kolkata, the cargo was de-stuffed and the empty containers returned to MSC Shipping.
• CD has relinquished its interest by its positive act of seeking sale of the cargo on May, 2018 which is much prior to the CIRP Admission Order dated 05.03.2019. The Order
for sale by the Hon’ble High Court dated 26.09.2018 and hence, CD does not have any title in the Auction cargo.
• As soon as the IRP came to know that certain goods belonging to the ‘Corporate Debtor’ was detained by the ‘Customs Dept.’ for clearing the statutory dues, addressed a
letter dated 11.03.2019 informing the authority about the initiation of CIRP with respect to the ‘Corporate Debtor’ but on 14.03.2019, received a letter from the ‘Customs
Dept.’ informing the ‘Corporate Debtor’ that the goods detained by them have been put up for auction on 26.03.2019, despite having complete knowledge of the fact that
Moratorium was declared under Section 14 of the IBC on 05.03.2019 itself.
• IRP preferred an Application before AA for stopping the Customs Dept, from auctioning goods belonging to CD and Notice was issued in the said Application. Ignoring the
intimation by IRP, the Dept. auctioned the goods, and retained balance 667 containers continue to remain in the custody of the ‘Customs Dept.’.
• MSC Shipping filed Form B as an ‘Operational Creditor’.
Held: Relying on the Hon’ble Supreme Court in Mr. Anand Rao Korada Vs. Varsha Fabrics (P) Ltd. & Ors., it has been observed that if the assets of the CD are alienated during
pendency of IBC proceedings, it would seriously jeopardize interest of all stakeholders. Directed to trust the balance containers and sale proceeds to RP.

10. Nitin Garg vs. SBI & Ors. (12.08.2021)
Facts:
• On 21.09.2019, sale notice was published in newspapers under Rule 8(6) of SARFAESI Rules.
• On 24.10.2019, e-auction for sale of property was conducted by SBI and Alucom Panels Pvt. Ltd. was declared highest bidder.
• On 27.12.2019, balance payment of 75% was made under Rule 9(4), SARFAESI Rules.
• On 30.12.2019, Sale Certificate was issued by SBI under Rule 9(6), SARFAESI Rules.
• CIRP proceedings were initiated on 24.01.2020 and commencement of moratorium u/s 14.
• Suspended Director of CD filed an application for reversal of sale since registration of documents was still not done.
Observations:
• NCLAT relied on the judgment of the Hon’ble Supreme Court in B. Arvind Kumar vs. Govt. of India and Ors. (2007) 5 SCC 745, wherein it
has held when a property is sold by public auction in pursuance of order of court and bid is accepted and sale is confirmed by court in
favour of purchaser, sale becomes absolute and title vests in purchaser.
• Sale certificate is issued to purchaser only when sale becomes absolute, which is evidence of title.
• When an auction purchaser derives title on confirmation of sale in his favour, and sale certificate is issued evidencing such sale and title,
no further deed of transfer from court is contemplated or required. Further, it does not required registration under Registration Act.

11. Vijisan Jewels Pvt. Ltd. vs. Cimme Jewels Ltd. & Anr. (13.08.2021)
Facts:
• Appellant was a leave and license holder (01.04.2016 to 31.03.2019) of the premises of CD- in liquidation.
• Lease agreement expired on 31.03.2019, and was not renewed thereafter.
• Appellant submitted that all certificates & registrations including registered office as per Companies act, GST
Registration, Factory licenses, PF, ESIC, pollution certificates and all other registration licenses cannot be changed in
such short span of time and as such the livelihood of more than 100 workmen working with the Appellant at the
factory premises will be at stake if the Appellant is forced to vacate the premises immediately.
• Appellant filed application before AA to allow it to purchase the premises and also sought directions to allow
appellant to continue to occupy the premises till the sale of premises is not finalised.
• AA, vide order dated 05.02.2021, permitted the Liquidator to proceed with e-auction and asked the Appellant to
handover vacant possession of the premises and deposit the arrears in rent due from January, 2020 till date. AA
further permitted the Appellant to participate in the e-auction.
Held: Appellant has no locus standi and accordingly he cannot seek the sale of the property to the Appellant only.

12. Panch Tatva Promoters Pvt Ltd vs. GPT Steel Industries
Ltd. Through RP & Ors. (18.08.2021)
Facts:
• CoC in voting approved Resolution Plan of Respondent No.3.
• Appellant (Unsuccessful RA) rushed to AA finding faults with Respondent No.3 to claim that Respondent No.3
has in another CIRP of ‘Allied Strips Limited’ failed to implement Resolution Plan and thus should be treated as
ineligible. Appellant claims that Respondent No.3 had suppressed facts in that regard in Resolution Plan which
fact was required to be disclosed as per Regulations 38 (1-B) of CIRP Regulations.
Held:
• It is job of AA to “determine” if provisions of Resolution Plan have been contravened.
• There does not exist any order under Section 33(4) holding Respondent No.3 to have contravened provisions of
Resolution Plan in any other proceedings. Merely because in execution of the Resolution Plan application for
time is under consideration with regard to other CIRP would not be sufficient at this stage to say that
ineligibility has already been incurred.

13. Ishita Halder vs. Siba Kumar Mohapatra & Anr.
(18.08.2021)
Facts: Appellant claimed that debt was declared NPA on 31st March, 2013 and application u/s 7 was filed on
01.01.2019 and thus claim was time barred.
Issue: Whether proposal made in OTS can be considered to be acknowledgement?
Held:
• Offer of OTS can be relied on for purpose of considering acknowledgement u/s Section 18 of Limitation Act.
• Issue of Recovery Certificate by DRT also is relevant for purpose of calculating limitation.

14. SC RULINGS

15. Orator Marketing Pvt. Ltd. vs. M/S Samtex Desinz Pvt. Ltd
(26.07.2021)
Issue: Whether a person who gives a term loan to CD, free of interest, on account of its working capital requirements is a
Financial Creditor, and therefore, competent to CIRP u/s 7?
Relevant provision:
Section 5(8) defines ‘financial debt’ to mean a debt along with interest if any which is disbursed against the consideration of the
time value of money and includes money borrowed against the payment of interest, as per Section 5(8) (a) of the IBC.
Held: Financial Debt would have to be construed to include interest free loans advanced to finance the business operations of a
corporate body.

16. Dena Bank vs. C. Shivakumar Reddy and Anr. (04.08.2021)
Facts:
• On 20th September, 2013 CD defaulted in repayment of dues to Appellant. The Loan Account was declared NPA on 31st December 2013.
• CD addressed a letter dated 24th March 2014 to Appellant, making a request for restructuring Term Loan. Appellant did not accede to request.
• On 22nd December 2014, Appellant issued legal notice to make payment of Rs.52.12 crores, CD did not make the payment.
• On 1st January 2015, Appellant filed an application under Section 19 of Recovery of Debts Due to Banks and Financial Institutions Act, 1993. On 27th March 2017, DRT, Bengaluru passed a final judgment and order/decree
against CD, for recovery of Rs.52,12,49,438.60 with future interest at the rate of 16.55% per annum, from date of filing application till date of realization.
• On 1st October 2018, Appellant issued Demand Notice in Form-3, and on 12th October 2018, filed the Petition before AA.
Issue: 1 Whether the petition has been instituted within 3 years from date of default?
Observation:
• Balance Sheets and Financial Statements of CD for 2016-2017 constitute acknowledgement of liability which extended the limitation by 3 years. Application u/s 7 of the IBC would not be barred by limitation, on the ground that
it had been filed beyond a period of 3 years from the date of declaration of the loan account as NPA, if there were an acknowledgement of the debt by CD before expiry of the period of limitation, in which case the period of
limitation would get extended by a further period of 3 years.
• A judgment and/or decree for money in favour of FC, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate FC, would give rise to a fresh cause of action for FC, to initiate CIRP, within 3 years from
date of judgment and/or decree or within 3 years from date of issuance of the Certificate of Recovery, if dues of CD, under the judgment and/or decree and/or in terms of the Certificate of Recovery, or any part thereof
remained unpaid.
Issue 2: Whether there is any bar in law to the amendment of pleadings, in a Petition or to the filing of additional documents, apart from those filed initially, along with the Petition under Section 7 of the IBC in Form-1.
Observation: There is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with application under Section 7 of the
IBC in Form-1. In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that AA committed any illegality or error in permitting the Appellant Bank to file
additional documents. Depending on the facts of the case, when there is inordinate delay, AA might, at its discretion, decline the request of applicant to file additional pleadings and/or documents, and proceed to pass a final
order.

17. Pratap Technocrats (P) Ltd. vs. Monitoring Committee, Reliance
Infratel Limited (10.08.2021)
Facts:
• In the course of deciding upon approval of plan, NCLT noted that Doha Bank, which was one financial creditor of CD,
had instituted proceedings challenging admission of claims of few other creditors and a proceeding to impugn the
decision of RP to recognize indirect lenders of CD as financial creditors.
• NCLT noted that applications were pending, but it came to the view that pendency of these and other applications
would not stand in the way of approval of resolution plan, particularly since it had been unanimously approved by
CoC. However, it clarified that distribution of payments to creditors, financial or operational, shall be subject to
orders which are passed in interim applications.
• As a consequence of order of NCLT dated 2 March 2021, certain entities which were recognized as financial
creditors in resolution plan have been de-recognized as financial creditors. The issue, then, was whether this
decision would have any bearing on the requisite majority required to pass a resolution plan.
Held: Resolution plan has been duly approved by a requisite majority of the CoC in conformity with Section 30(4).
Whether or not some of the financial creditors were required to be excluded from the CoC is of no consequence, once
plan is approved by 100% voting share of CoC. Jurisdiction of AA was confined by Section 31(1) to determining
whether requirements of Section 30(2) have been fulfilled in plan approved by CoC. As such, once the requirements
of statute have been duly fulfilled, decisions of AA are in conformity with law.

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