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Mayank Goyal v. G. Madhusudhan Rao and Another

Citation

REED 2024 NCLAT Del 02562

Court

NCLAT

Subject 

Corporate Insolvency – Liquidation – CoC has the authority to decide on liquidation "any time" during the CIRP, even before the confirmation of a resolution plan

Date

February 23, 2024

Bench

Delhi

Applicable Law

Sections 7, 12, 30(6), 31, 33, 33(1), 33(2), 56, 61, 61(4), Insolvency and Bankruptcy Code, 2016
Regulation 40, IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

Brief

In a set of two appeals filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 ("IBC"), the National Company Law Appellate Tribunal (NCLAT) considered the common order dated 04.12.2023 passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court-II) in CP (IB) 4058 (MB) 2019. The Adjudicating Authority, through the impugned order, allowed the Resolution Professional's application for initiating the liquidation of Corporate Debtor-Bil Energy Systems Limited under Section 33 of the IBC and dismissed the appeal filed by a prospective resolution applicant, Mayank Goyal, seeking to set aside the resolution passed by the Committee of Creditors ("CoC") for the initiation of the liquidation process.

Two appeals were filed against this common impugned order – Company Appeal (AT) (Insolvency) No. 147-148 of 2024 by Mayank Goyal and Company Appeal (AT) (Insolvency) No. 182 of 2024 by Suresh More.

The factual background revealed that Bil Energy Systems Limited was admitted into Corporate Insolvency Resolution Process (CIRP) on 09.12.2022, and the CoC, initially constituted with State Bank of India (SBI) as the sole member, later appointed a Resolution Professional (RP). The CoC, in its 5th meeting, decided to initiate the liquidation process, a decision contested by Mayank Goyal in one appeal and Suresh More in the other.

Mayank Goyal, one of the appellants, argued that the RP misrepresented facts about the status and possession of the Corporate Debtor's assets. The contention included claims that SBI had been allowed to take possession of land, and the RP wrongly asserted that the suspended management did not provide necessary information.

In response, the RP, supported by the Learned Counsel for the Respondent No. 1/RP, contended that the suspended management had no vested right to appeal against a liquidation order. They questioned the locus of the prospective resolution applicant (Mayank Goyal), arguing that the appeals were not maintainable under Section 61(4) of the IBC. The RP also emphasized the CoC's wide powers to initiate liquidation under Section 33(2) of the IBC.

The NCLAT, after considering the arguments, examined three key points:
1. Whether the statutory provisions of the IBC allow the CoC to consider approval of liquidation before inviting resolution plans.
2. Whether there were valid grounds for the CoC to initiate liquidation based on the commercial wisdom exercised.
3. Whether there existed any cogent ground for the Adjudicating Authority to reject the CoC's recommendation to initiate liquidation.

The NCLAT, in its detailed analysis, concluded that the CoC, as per Section 33(2) of the IBC, has the authority to decide on liquidation "any time" during the CIRP, even before the confirmation of a resolution plan. The decision to initiate liquidation was found to be in conformity with the IBC.

Regarding the CoC's decision, the NCLAT upheld the CoC's commercial wisdom in initiating liquidation due to the Corporate Debtor's non-functionality for three years, lack of clear possession of assets, and potential difficulty in tracing other assets. The Adjudicating Authority's approval of the CoC's decision was deemed valid.

In summary, the NCLAT dismissed the appeals, affirming the CoC's authority to decide on liquidation and finding no merit in the objections raised by the appellants. The decision emphasized the limited judicial review powers of the Adjudicating Authority in matters of CoC decisions on liquidation under the IBC.

Jushya Realty Private Limited v. Ninety Properties Private Limited

Citation

REED 2024 NCLAT Del 02505

Court

NCLAT

Subject 

Corporate Insolvency - Transaction does not qualify as a financial debt - Absence of a default date

Date

February 2, 2024

Bench

Delhi

Applicable Law

Sections 3(11), 3(12), 5(8), 7, 61, Insolvency and Bankruptcy Code, 2016
Section 18, Limitation Act, 1963

Brief

The transaction's absence of evidence for a Share Purchase Agreement and the failure to establish it as a financial debt led to the appeal's lack of merit.

In this case, the Appellant challenged an order dated February 3, 2023, passed by the National Company Law Tribunal, Mumbai Bench-IV, dismissing the petition filed under section 7 of the Insolvency & Bankruptcy Code, 2016 (IBC). The order stated that the amount in default was not a financial debt, and the Appellant was not a financial creditor under the IBC.

The dispute arose from an agreement in December 2014, where the Appellant agreed to purchase 100% shares of the Respondent along with its assets and liabilities for Rs. 4.5 crores. An advance payment of Rs. 1.25 crores were made, subject to due diligence and execution of a share purchase agreement. However, the Respondent failed to fulfill its obligations, leading the Appellant to file a petition under section 7 of the IBC.

The Learned NCLT dismissed the petition without providing reasoning. The main issue was whether the Rs. 1.25 crores constituted a financial debt under the IBC. The Appellant argued that it was reflected in balance sheets, while the Respondent claimed it was an advance for acquiring tenancy rights.

During the appeal, the Appellant's counsel argued that the transaction fell under section 5(8) of the IBC, covering amounts paid in respect of Share Purchase Agreements. The Respondent's counsel contended that there was no written or oral agreement regarding the debt and that the claim was time-barred.

The Appellate Tribunal analyzed the definitions of "debt" and "financial debt" under the IBC. It concluded that the Appellant failed to provide evidence of a Share Purchase Agreement and that the transaction did not qualify as a financial debt. The absence of a default date further weakened the Appellant's case. The Tribunal upheld the NCLT's decision, stating that the appeal was devoid of merit and dismissed it without costs.

CA Rajeev Bansal, Liquidator of Isolux Corsan India Engineering and Construction Private limited

Citation

REED 2024 NCLAT Del 02503

Court

NCLAT

Subject 

Corporate Insolvency – Adjudicating Authority's prior approval to prosecute on behalf of the Corporate Debtor covered the Writ Petition

Date

February 1, 2024

Bench

Delhi

Applicable Law

Section 33, Bihar Value Added Tax ACT, 2005
Sections 33(5), 35(1)(k), 60(5), Insolvency and Bankruptcy Code, 2016

Brief

The prior approval granted in I.A. No. 405 of 2021 to the Liquidator for defending legal proceedings on behalf of the Corporate Debtor extended to the subsequent Writ Petition, rendering the dismissal of I.A. No. 1081 of 2023 erroneous.

The appeal heard against the order dated 29.11.2023, passed by the National Company Law Tribunal, Chandigarh Bench, Chandigarh. The appellant, appointed as Liquidator on 06.02.2020 for 'Isolux Corsan India Engineering & Construction Pvt. Ltd.,' had filed I.A. No. 405 of 2021 seeking authorization to defend legal proceedings on behalf of the Corporate Debtor. The application was allowed on 28.04.2022, permitting the Liquidator to defend various litigations.

Later, the Liquidator discovered Re-Assessment Proceedings initiated by the Commercial Tax Department and filed a Writ Petition for quashing the order and demand. When objections were raised about prior approval, I.A. No. 1081 of 2023 was filed, seeking retroactive approval for the Writ Petition. This application was dismissed, leading to the present appeal.

The Appellant argued that the order in I.A. No. 405 of 2021 allowed the Liquidator to prosecute any proceedings in the interest of the Corporate Debtor. The impugned order was challenged for not considering the previous order's true effect and consequence. The Appellate Tribunal, upon considering the submissions, held that legal proceedings by the liquidator require prior approval, and I.A. No. 405 of 2021 obtained such approval.

The NCLAT found the subsequent application necessary due to objections raised during the Writ Petition. Despite the lack of specific approval for the Writ Petition, the court concluded that the Adjudicating Authority's prior approval to prosecute on behalf of the Corporate Debtor covered the Writ Petition. Consequently, the impugned order was set aside, I.A. No. 1081 of 2023 was allowed, and the appeal was disposed of accordingly.

UV Asset Reconstruction Company Limited v. Electrosteel Castings Limited

Citation

REED 2024 NCLAT Del 01545

Court

NCLAT

Subject 

Corporate Insolvency – Guarantor - Respondent's obligations were limited - Respondent did not undertake the role of a guarantor in the Rupee Loan Agreement

Date

January 24, 2024

Bench

Delhi

Applicable Law

Section 126, Indian Contract Act, 1872
Section 7, Insolvency and Bankruptcy Code, 2016
Sections 13(2), 13(4), 17, 34, SARFAESI Act, 2002

Brief

The NCLAT held that Electrosteel Castings Limited was not a guarantor, emphasizing the absence of a clear promise to discharge Electrosteel Steels Limited's debt and ruled that the approval of ESL's Resolution Plan did not extinguish Electrosteel Castings Limited's liability as a third-party debtor.

In the present NCLAT judgment, the Financial Creditor (Appellant) appealed against the NCLT's order rejecting their Section 7 Application against Electrosteel Castings Limited (ECL). The dispute stemmed from financial assistance provided by SREI Infrastructure Finance Limited (SREI) to Electrosteel Steels Limited (ESL) in the form of a Rs.500 crore loan. ESL defaulted, leading to legal battles, including proceedings in the Madras High Court and the Supreme Court.

The NCLAT addressed two main issues in the judgment. Firstly, it determined that ECL was not a guarantor under the relevant agreements. The obligation of ECL was to arrange funds for ESL, not to directly discharge ESL's debt. The judgment emphasized clauses specifying the form and manner of additional funds and the absence of a clear promise by ECL to discharge ESL's debt.

Secondly, the NCLAT rejected the argument that ESL's Resolution Plan extinguished ECL's liability. It held that the Resolution Plan preserved the rights of financial creditors against guarantors, and the reduction in ESL's share capital did not absolve ECL's liability. The NCLAT set aside the NCLT's order and remitted the matter to NCLT for further proceedings.

The Appellant sought to establish the Respondent's liability as a guarantor in relation to a Rupee Loan Agreement. The NCLAT considered key points, including the Sanction Letter clarifying no corporate guarantee from the Respondent, the Rupee Loan Agreement specifying an undertaking by the Promoter, and the absence of any mention of guarantee in relevant documents.

The NCLAT ruled that the Respondent did not undertake the role of a guarantor in the Rupee Loan Agreement, emphasizing the specific nature of the obligations outlined in the relevant documents. It rejected the Appellant's reliance on foreign judgments and concluded that the Respondent's obligations were limited to facilitating ESL in discharging its own obligations by arranging funds.

In a separate case, the Respondent contested the Financial Creditor's claim, relying on a Delhi High Court judgment. The NCLAT upheld the Adjudicating Authority's decision, stating that the Delhi High Court's findings on certain letters and the Respondent's admissions in other proceedings were not conclusive. The NCLAT ruled in favour of the Respondent, stating that the approval of the Resolution Plan led to the extinguishment of the debt against the Corporate Debtor only, not against third parties. The rejection of the Section 7 Application was upheld, limiting the finding on debt extinguishment to the Corporate Debtor only.

Jubilee Metal Private Limited v. Surendra Raj Gang, Resolution Professional of Metenere Limited and Another

Citation

REED 2023 NCLAT Del 12579

Court

NCLAT

Subject 

Corporate Insolvency – Resolution Plan - Resolution Plans are binding under the Insolvency and Bankruptcy Code, and while withdrawal after CoC approval is generally impermissible

Date

January 22, 2024

Bench

New Delhi

Applicable Law

Section 29A, Section 30(2), Section 30(4), Section 31, Section 60(5), Insolvency and Bankruptcy Code, 2016
Regulations 36B, 36B(4A), 36B(4F), IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

Brief

Appellant's breach of the Resolution Plan and addendum, specifically through unauthorized changes in shareholding, justified the Committee of Creditors' withdrawal of the plan, and the forfeiture of the performance guarantee

In a judgment dated 21.11.2023, the National Company Law Appellate Tribunal (NCLAT) addressed three appeals challenging the order of the Adjudicating Authority (National Company Law Tribunal) dated 21.11.2023. The first appeal, Company Appeal (AT) (Insolvency) No. 1551 of 2023, contested the Adjudicating Authority's decision to allow the withdrawal of the application for approval of the Resolution Plan filed by the Resolution Professional through IA No. 985 of 2023.

The second appeal, Company Appeal (AT) (Insolvency) No. 1550 of 2023, challenged the order passed in IA No. 2294 of 2023, which sought various reliefs, including setting aside the resolution passed by the Committee of Creditors (CoC) for withdrawal of the Resolution Plan. The third appeal, Company Appeal (AT) (Insolvency) No. 1552 of 2023, contested the order of the Adjudicating Authority dated 21.11.2023 in IA No. 4041 of 2021, seeking approval of the Resolution Plan.

The case involved the Corporate Insolvency Resolution Process (CIRP) against 'Metenere Limited,' initiated on 25.09.2020. The Resolution Plan submitted by the Appellant, 'Jubilee Metal Pvt. Ltd.,' was initially approved by 92.45% votes on 27.07.2021. However, subsequent developments, including changes in directorship and shareholding structure, led to disputes.

The NCLAT, after considering arguments, determined that the Appellant's change in the shareholding structure breached the Resolution Plan and addendum. It upheld the CoC's decision to withdraw the plan and forfeit the performance guarantee of Rs. 20 Crores. The NCLAT also affirmed the Adjudicating Authority's decision to grant exclusion of time in the CIRP.

In the background, Mr. Gaurav Gupta informed about changes in directorship on 25.10.2022, leading to non-compliance with Resolution Plan conditions. Despite repeated requests, necessary details were not provided, and the CoC highlighted non-compliance in a meeting on 25.11.2022. The Resolution Professional's actions, including emails on 27.11.2022 and 16.12.2022, sought clarification from the Resolution Applicant, but non-compliance resulted in the CoC's decision to forfeit the performance security on 21.12.2022.

The NCLAT confirmed that Resolution Plans are binding under the Insolvency and Bankruptcy Code (IBC), and while withdrawal after CoC approval is generally impermissible, a breach by the Resolution Applicant may warrant withdrawal, as seen in this case. The judgment upheld the forfeiture of performance security under the relevant provisions.

Ultimately, the NCLAT dismissed all appeals, affirming the Adjudicating Authority's decision, finding no error in withdrawing the Resolution Plan, forfeiting performance security, and excluding time for CIRP restart.

ACRE - 81 Trust Through its trustee Assets Care and Reconstruction Enterprise Limited and Others v. Pawan Kumar Goyal, Interim Resolution Professional of SARE Realty Projects Private Limited and Others

Citation

REED 2024 NCLAT Del 01534

Court

NCLAT

Subject 

Corporate Insolvency – CoC’s decision for liquidation of the Corporate Debtor

Date

January 17, 2024

Bench

Delhi

Applicable Law

Sections 9, 33, 33(2), 65, 65(1), 65(2), Insolvency and Bankruptcy Code, 2016

Brief

The Committee of Creditors, with 88.48% voting share, had the authority to decide on the liquidation of the Corporate Debtor at any time before the confirmation of the resolution plan, and Section 65 penalties were inapplicable as the proceedings were initiated for liquidation, not for any purpose other than resolution or liquidation.

In the appeal filed by ACRE-81 Trust, India Real Estate 2021 Trust, ACRE-100 Trust, and Catalyst Trusteeship Limited (members of the Committee of Creditors) against the order dated 16.03.2023 by the Adjudicating Authority, the National Company Law Tribunal, New Delhi Bench, Court II, the appellants challenged the show cause notice issued under Section 65 of the Insolvency and Bankruptcy Code, 2016. The notice was in response to the CoC's decision to liquidate SARE Realty Projects Pvt. Ltd., the Corporate Debtor.

The Adjudicating Authority, in its order, observed that the CoC had not explored resolution possibilities before opting for liquidation, raising concerns about the application's malicious intent. The authority issued a show cause notice to the appellants, questioning why penalties under Section 65 should not be imposed. The appellants contested this order, claiming misinterpretation of Section 33(2) and asserting that the CoC had the right to decide on liquidation before resolution plan confirmation.

During the proceedings, the Adjudicating Authority's order was stayed by the court. The appellants argued that Section 65 was erroneously invoked since the proceedings were initiated for liquidation, not for purposes other than resolution or liquidation. They emphasized the absence of a recorded opinion on malicious intent.

The National Company Law Appellate Tribunal, after reviewing the case, found the Adjudicating Authority's approach flawed. It held that the CoC, with 88.48% voting share, had the jurisdiction to decide on liquidation as per Section 33(2). The court emphasized that the CoC could make this decision at any time before resolution plan confirmation. It cited the precedent set in the case of Sunil S. Kakkad v. Atrium Infocom Private Limited and Others, REED 2020 NCLAT Del 08510 and affirmed by the Supreme Court. The court also ruled that Section 65 did not apply in this case as the proceedings were initiated for liquidation, not for any ulterior purpose.

Consequently, the appeal was allowed, and the impugned order was set aside, with no costs imposed.

Marshall Machines Limited v. DN Solutions Company Limited

Citation

REED 2024 NCLAT Del 01533

Court

NCLAT

Subject 

Corporate Insolvency – Appeal - Another opportunity to file a reply

Date

January 16, 2024

Bench

Delhi

Applicable Law

Brief

The NCLAT affirmed the Adjudicating Authority's refusal to grant further opportunities for the Appellant to file a reply, holding that, despite ample chances, the Appellant's failure to timely respond justified the striking off of their right to reply.

In the NCLAT order, the Appellant had filed an appeal against the Adjudicating Authority's decision dated 21.12.2023, which refused to provide another opportunity for the Appellant to file a reply, resulting in the striking off of their right to reply. The Appellant's counsel argued that settlement talks had taken place on 16.11.2023, but no final agreement was reached, leading to a delay in filing the settlement on record. The Adjudicating Authority had granted multiple extensions but eventually struck off the right to reply on 21.12.2023.

The Respondent's counsel contended that ample opportunities had been given to the Appellant to file a reply, referring to orders from 20.03.2023 to 11.10.2023. The Adjudicating Authority, considering the history of delays, refused to grant further opportunities, leading to the Appellant's appeal.

The NCLAT observed that despite repeated extensions, the Appellant failed to file a reply. The Adjudicating Authority's order of 21.12.2023 was upheld, stating that sufficient opportunities had already been provided. The Appellant was given the option to make submissions before the Adjudicating Authority and file written submissions with the leave of the Adjudicating Authority. The NCLAT dismissed the appeal, finding no merit in it.

Deepak Aggarwal v. Rabindra Kumar Mintri and Another

Citation

REED 2024 NCLAT Del 01536

Court

NCLAT

Subject 

Corporate Insolvency – Resolution Plan – Approval of - Non-existent of SRA’s disqualification

Date

January 16, 2024

Bench

Delhi

Applicable Law

Sections 164(1), 164(1)(i), 164(2), 164(2)(i), 165(1), Companies Act, 2013
Sections 7, 30(6), Insolvency and Bankruptcy Code, 2016

Brief

Disqualification of the Successful Resolution Applicant based on a list quashed by the Delhi High Court is unfounded.

The National Company Law Appellate Tribunal (NCLAT) heard an appeal filed by the Successful Resolution Applicant challenging the order of the Adjudicating Authority (National Company Law Tribunal) dated 13.10.2023. The Adjudicating Authority had rejected the Resolution Professional's application (IA No. 1078 of 2022) seeking approval of the Resolution Plan submitted by the Appellant.

The Corporate Insolvency Resolution Process (CIRP) against 'MSA Developers Private Limited' commenced on 11.10.2019. The Resolution Plan submitted by the Appellant was approved by the Committee of Creditors (CoC) with an 80.12% vote share in a meeting held on 31.08.2021. However, on 13.10.2023, the Adjudicating Authority dismissed the application for approval, declaring the Appellant ineligible based on the disqualification list of the Registrar of Companies dated 15.09.2017.

The Appellant challenged this decision, arguing that the Delhi High Court had quashed the disqualification list on 29.09.2021, rendering the disqualification non-existent. The NCLAT agreed with this argument, stating that when a list is quashed, it is treated as if it never existed. The Adjudicating Authority's observation that the High Court's order did not quash the list retrospectively was deemed incorrect.

Regarding an alleged forged comfort letter from Axis Bank submitted by the Appellant, the NCLAT noted that it was not relied upon in the Resolution Plan, and the Adjudicating Authority did not reject the plan on this ground. The NCLAT set aside the Adjudicating Authority's order dated 13.10.2023, reviving the Resolution Professional's application for approval to be reconsidered.

The NCLAT also highlighted those intervening applications by Yasmin Sabir Ali and Ravinder Aggarwal seeking the Appellant's ineligibility had already been dismissed by the Adjudicating Authority on the same date. Therefore, the NCLAT concluded that the objections raised by the intervenors cannot oppose the approval of the Resolution Plan.

In conclusion, the NCLAT found the Adjudicating Authority's order unsustainable and set it aside. The Resolution Professional's application for approval is to be heard and decided afresh. The NCLAT requested the Adjudicating Authority to dispose of the application at an early date, and the appeal was accordingly disposed of.

Gammon Engineers and Contractors Private Limited v. Sutanu Sinha and Others

Citation

REED 2024 NCLAT Del 01535

Court

NCLAT

Subject 

Corporate Insolvency – Commercial wisdom of the CoC

Date

January 16, 2024

Bench

Delhi

Applicable Law

Sections 7, 30(2), Insolvency and Bankruptcy Code, 2016
Regulation 38, IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

Brief

The NCLAT upheld the approval of a Resolution Plan by the CoC, emphasizing the commercial wisdom of the majority creditors and finding no grounds for interference under Section 30(2) of the Insolvency and Bankruptcy Code.

The National Company Law Appellate Tribunal (NCLAT) rendered a judgment on an appeal challenging the Order dated May 10, 2022, passed by the National Company Law Tribunal (NCLT) in the matter of I.A. 3954 of 2021 in CP(IB) No. 1504 (PB)2019. The impugned Order rejected the application filed by the appellant, seeking the rejection of the Resolution Plan submitted by Respondent No. 3.

The case pertained to a concession agreement between the National Highway Authority and the Corporate Debtor, and subsequent disputes arising from the project. The Appellant, who took over the project, faced issues with the Corporate Debtor and NHAI, leading to arbitration proceedings. During this time, insolvency proceedings were initiated against the Corporate Debtor.

The Committee of Creditors (CoC) approved the Resolution Plan submitted by Respondent No. 3, leading to the appellant filing an application (I.A. No. 3954 of 2021) seeking rejection of the Resolution Plan. The Adjudicating Authority, on May 10, 2022, rejected the application. Subsequently, the NCLAT heard the appeal.

In the judgment, the NCLAT noted that the Resolution Plan had been upheld in a previous judgment dated May 25, 2023. The appellant argued that certain clauses in the Resolution Plan were not adequately considered in the earlier appeal. Specifically, reference was made to Schedule 6, Clause 6, regarding cost claims.

The NCLAT rejected the appellant's contentions, emphasizing the commercial wisdom of the CoC and stating that no grounds were presented to show non-compliance with Section 30(2) of the Code. It further held that the earlier judgment upholding the Resolution Plan concluded the matter, and hence, the appeal was dismissed.

Sainik Industries Private Limited v. Ritesh Raghunath Mahajan, RP, Indian Sugar Manufacturing Company Limited

Citation

REED 2024 NCLAT Del 01529

Court

NCLAT

Subject 

Corporate Insolvency - Definitions of operational and financial debt

Date

January 11, 2024

Bench

Delhi

Applicable Law

Sections 2(21), 5(8), 5(8)(f), 5(21), 7, 9, Insolvency and Bankruptcy Code, 2016
Section 138, Negotiable Instruments Act, 1881

Brief

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