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CHAPTER XXVIIof The Companies Act, 2013

Sec 408 : Constitution of National Company Law Tribunal. —

NCLT was constituted under Section 408 of Companies Act 2013 wef 1 June 2016. 410. Constitution of Appellate Tribunal.—

National Company Law Appellate Tribunal (NCLAT) was constituted under Section 410 of the Companies Act, 2013 with effect from 1st June, 2016. One of its job is hearing appeals against the orders of National Company Law Tribunal(s) (NCLT).I&B Code

Section 60- AA for Corporate Persons

The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located.Setion 61 – Appeals and Appellate Authority.

NCLAT is the Appellate Tribunal for hearing appeals against the orders passed by NCLT(s). NCLAT is also the Appellate Tribunal for hearing appeals against the orders passed by Insolvency and Bankruptcy Board of India under Section 202 and Section 211 of IBC. Appeal to NCLAT by Insolvency Professional Agency (Sec 202) Appeal to NCLAT by Information Utility (Sec 211)

1 Advocate Rajan D. Agarwal – Recent Judicial Pronouncements in IBC – 10/05/2019 ICMAI -WIRC

Objects behind enactment of Insolvency and Bankruptcy Code, 2016

a) To consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals.

b) To fix time period for execution of the law in a time bound manner;

c) To maximize the value of assets of interested persons;d) To promote entrepreneurship;e) To increase availability of credit;f) To balance the interests of all the stake holders including

alteration in the order of priority of payment of Government dues; and

g) To establish an Insolvency and Bankruptcy Board of India as a regulatory body for insolvency and bankruptcy law.

Article 142 of The Constitution Of India.

142. Enforcement of decrees and orders of SC and unless as to discovery, etc.(1) The Supreme Court in the exercise of its jurisdiction may pass such decree or make such order as is necessary for doing complete justice in any cause or matter pending before it, and any decree so passed or orders so made shall be enforceable throughout the territory of India in such manner as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, in such manner as the President may by order prescribe.(2) Subject to the provisions of any law made in this behalf by Parliament, the Supreme Court shall, as respects the whole of the


https://indiankanoon.org/doc/614338/

territory of India, have all and every power to make any order for the purpose of securing the attendance of any person, the discovery or production of any documents, or the investigation or punishment of any contempt of itself.

Extracts from some of the Orders highlighting the important role of Resolution Professionals under CIRP

a) IP shall not step into the shoes of the CoC. The institution of IP is a key facilitation. An IP, who is appointed by the AA on the recommendation of the CoC, cannot substitute itself for the CoC.

b) An IP shall not mislead the stakeholders; his responsibilities require absolute integrity which inspires confidence and trust of the stakeholders.

c) An IP shall be independence of external influences and he shall not influence the decision of the work of the committee of creditors for undue or unlawful gains.

d) He shall not raise the bill towards the fees of IRP/RP through another firm.

e) An Insolvency Professional is an extended arm of the AA and is responsible for all companies under the code.

f) The Insolvency Professional cannot run away leaving the sinking ship in the mid sea. He cannot run away from the CD when it needs the IP the most.

g) He shall not jeopardize life of corporate debtor and the interest of stakeholders. He is the only hope for a sinking ship as its captain.

Apex Court Judgment on Feb 12 Circular

In view of the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC), RBI has been decided to substitute the existing


guidelines with a harmonised and simplified generic framework for resolution of stressed assets", read the circular.

Under the new framework, the apex bank discontinued programmes for banks to restructure their defaulted loans such as corporate debt restructuring (CDR), sustainable structuring of stressed assets (S4A), strategic debt restructuring (SDR), among others, and made the Insolvency and Bankruptcy Code as the main tool to deal with defaulters.

The framework made it mandatory for banks to identify signs of incipient stress in loan accounts and classify stressed assets as Special Mention Account (SMA), immediately on default. Even a single day's default in debt servicing would require reporting to the RBI and implementation of Resolution Plan.

Furthermore, lenders were asked to finalise a resolution plan in case of a default on large accounts of Rs 2,000 crore and above within 180 days, failing which insolvency proceedings would be invoked against the defaulter.

The logic was that the revised framework would establish an ecosystem where NPAs would not only get recognised on time but also see faster resolutions- something the previous dispensations like asset restructuring failed to do.Media reports at the time suggested that around Rs 2 lakh crore worth of stressed loans could possibly land in bankruptcy court as a result of this new framework.

While Section 35A talks about general powers of RBI to issue directions to banking companies, Section 35AA gives power to the Central Government to authorize RBI to direct any bank to initiate insolvency process in respect of a default.

The petitioners comprising of association of companies from the


sectors of power, sugar, shipping, etc, argued that the direction in February 12 circular to initiate insolvency process if bad debts over Rs.2000 crores are not resolved within 180 days could not have been issued without the authorization of the central government. The general application of Circular to all debts above Rs. 2000 crores was challenged by petitioners as suffering from non-application of mind, as it failed to draw a distinction between various forms of "stressed assets" from different industrial sectors. They further contended that the circular failed to distinguish between genuine and willful defaulters.The RBI sought to sustain the circular by tracing its source to the general powers under Section 35A, instead of Section 35AA, which is inserted as per 2017 amendment. Since no authorization from Central Government is needed to exercise powers under Section 35A, the circular was valid, argued the RBI. Though the judgment agreed that Section 35A could be a source of power for the impugned circular, it said that after the insertion of Section 35AA in 2017 with a specific condition of authorization from central government, recourse cannot be made to general powers under Section 35A for issuing directions to take insolvency action in respect of bad debts. The bench of Justices R F Nariman and Vineet Saran explained the position as follows :"Section 35AA makes it clear that the Central Government may, by order, authorise the RBI to issue directions to any banking company or banking companies when it comes to initiating the


insolvency resolution process under the provisions of the Insolvency Code. The first thing to be noted is that without such authorisation, the RBI would have no such power...." "The corollary of this is that prior to the enactment of Section 35AA, it may have been possible to say that when it comes to the RBI issuing directions to a banking company to initiate insolvency resolution process under the Insolvency Code, it could have issued such directions under Sections 21 and 35A. But after Section 35AA, it may do so only within the four corners of Section 35AA." The Court further applied the principle that when a statute prescribes a specific manner for doing a thing, it should be done only in that specified manner. "If a statute confers power to do a particular act and has laid down the method in which that power has to be exercised, it necessarily prohibits the doing of the act in any manner other than that which has been prescribed. Following this principle, therefore, it is clear that the RBI can only direct banking institutions to move under the Insolvency Code if two conditions precedent are specified, namely, (i) that there is a Central Government authorisation to do so; and (ii) that it should be in respect of specific defaults.

The Section, therefore, by necessary implication, prohibits this power from being exercised in any manner other than the manner set out in Section 35AA." The Court also held that Section 35AB, which spoke of powers of RBI to issue directions for resolution of stressed assets, cannot be a source of power for the circular. That Section, which opened with the words "without prejudice to", was held to be a general provision, which is to be read along with Section 35A. It was held


that Section 35AB dealt with directions for debt resolution outside Insolvency and Bankruptcy Code(IBC).

"Therefore, the scheme of Sections 35A, 35AA, and 35AB is as follows: (a) When it comes to issuing directions to initiate the insolvency resolution process under the Insolvency Code, Section 35AA is the only source of power. (b) When it comes to issuing directions in respect of stressed assets, which directions are directions other than resolving this problem under the Insolvency Code, such power falls within Section 35A read with Section 35AB." Section 35AA can be used only in respect of specific debts The Court held that reference to IBC under Section 35AA can be made only on a case to case basis, and that there cannot be a blanket direction to that effect. This was because Section 35AA used the phrase "in respect of a default". 'Default' has been given the same meaning as in Section 3(12) of IBC. "...what is important to note is that it is a particular default of a particular debtor that is the subject matter of Section 35AA", observed the Court. The Press Note dated 05.05.2017 along with the 2017 Ordinance(which introduced Section 35AA , 35AB) specifically referred to resolution of "specific" stressed assets which will empower the RBI to intervene in "specific" cases of resolution of NPAs. The Statement of Objects and Reasons for introducing Section 35AA also emphasises that directions are in respect of "a default". "Thus, it is clear that directions that can be issued under Section 35AA can only be in respect of specific defaults by specific debtors. This is also the understanding of the Central Government when it issued the notification dated 05.05.2017, which authorised the RBI to issue such directions only in respect of "a default" under the Code. Thus, any directions which are in


respect of debtors generally, would be ultra vires Section 35AA", held the Court. The circular was struck down, and all proceedings under Section 7 of the IBC taken by financial creditors on the basis of it were declared as "non-est". The manifest legal infirmity in the circular forced the Court to consciously step away from the "judicial hand's off approach vis-à-vis economic regulation" and proceed to quash the circular.As a result, all the cases in which debtors have been proceeded against by financial creditors under Section 7 of the Insolvency Code, only because of the operation of the impugned circular, will stand nullified.

Section 35A in BANKING REGULATION ACT,1949

35A : Power of the Reserve Bank to give directions. —(1) Where the Reserve Bank is satisfied that—(a) in the 178 [public interest]; or179 [(aa) in the interest of banking policy; or](b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company; or(c) to secure the proper management of any banking company generally,it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking







companies or the banking company, as the case may be, shall be bound to comply with such directions.(2) The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any direction issued under sub-section (1), and in so modifying or cancelling any direction may impose such conditions as it thinks fit, subject to which the modification or cancellation shall have effect.]

Section 35AA :"35AA. The Central Government may by order authorize the Reserve Bank to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016. Explanation. – For the purposes of this section, "default" has the same meaning assigned to it in clause (12) of section 3 of the Insolvency and Bankruptcy Code, 2016."

Sec 35AB. (1) Without prejudice to the provisions of section 35A, the Reserve Bank may, from time to time, issue directions to any banking company or banking companies for resolution of stressed assets. (2) The Reserve Bank may specify one or more authorities or committees with such members as the Reserve Bank may appoint or approve for appointment to advise any banking company or banking companies on resolution of stressed assets.’. Section 21 of BANKING REGULATION ACT,194921. Power of Reserve Bank to control advances by banking companies.—



(1) Where the Reserve Bank is satisfied that it is necessary or expedient in the public interest [or in the interests of depositors][ or banking policy] so to do, it may determine the policy in relation to advances to be followed by banking companies generally or by any banking company in particular, and when the policy has been so determined, all banking companies or the banking company concerned, as the case may be, shall be bound to follow the policy as so determined.(2) Without prejudice to the generality of the power vested in the Reserve Bank under sub-section (1) the Reserve Bank may give directions to banking companies, either generally or to any banking company or group of banking companies in particular, 112 [as to—(a) the purposes for which advances may or may not be made,(b) the margins to be maintained in respect of secured advances,(c) the maximum amount of advances or other financial accommodation which, having regard to the paid-up capital, reserves and deposits of a banking company and other relevant considerations, may be made by that banking company to any one company, firm, association of persons or individual,(d) the maximum amount up to which, having regard to the considerations referred to in clause (c), guarantees may be given by a banking company on behalf of any one company, firm, association of persons or individual, and(e) the rate of interest and other terms and conditions on which advances or other financial accommodation may be made or guarantees may be given.]110 [(3) Every banking company shall be bound to comply with any directions given to it under this section.]










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WHETHER THE IBC CAN BE INVOKED IN RESPECT OF AN OPERATIONAL DEBT WHERE AN ARBITRAL AWARD HAS BEEN PASSED AGAINST THE OPERATIONAL DEBTOR, WHICH HAS NOT YET BEEN FINALLY ADJUDICATED UPON?

K. Kishan vs. M/s Vijay Nirman Company Pvt. Ltd, Civil Appeal No. 21824 of 2017 decided on 14.08.2018

The court held that the filing of a Section 34 petition against an Arbitral Award shows that a pre-existing dispute which culminates at the first stage of the proceedings in an Award, continues even after the Award, at least till the final adjudicatory process under Sections 34 & 37 has taken place. However, court clarified that there may be cases where a Section 34 petition challenging an Arbitral Award may clearly and unequivocally be barred by limitation, in that it can be demonstrated to the Court that the


period of 90 days plus the discretionary period of 30 days has clearly expired, after which either no petition under Section 34 has been filed or a belated petition under Section 34 has been filed. It is only in such clear cases that the insolvency process may then be put into operation.

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WHETHER REGULATION 30 A OF THE CIRP REGULATIONS IS DIRECTORY OR MANDATORY?

[Brilliant Alloys Private Limited vs Mr. S. Rajagopal&Ors, Special Leave to Appeal (C) No(s). 31557/2018 decided on 14.12.2018]

In this case an application was filed by the Resolution Professional of the corporate debtor before NCLT for withdrawal of CIRP on the ground that all claims of operation and financial creditors of the corporate debtor are settled. However, the application for withdrawal was filed under Section 60 (5) of the IBC instead of Section 12A because the settlement happened after the issue of invitation for expression of interest under regulation 36A of CIRP Regulations.


NCLT Chennai dismissed the application on the ground that since regulation 30A imposes condition for withdrawal application that it has to be filed before invitation for expression of interest; NCLT cannot pass an order allowing the withdrawal ignoring the conditional clause. The Supreme Court set aside the order of NCLT and held that regulation 30A has to be read along with the main provision section 12A, which contains no such condition. Hence, the condition under regulation 30A can only be considered as directory in nature depending on the facts of each case.

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WHETHER THE NCLT IS THE ULTIMATE AUTHORITY TO APPROVE OR REJECT THE PLAN AND WHAT FACTORS ARE TO BE CONSIDERED BY THE NCLT IN DECIDING THE SAME?

[Rajputana Properties Pvt. Ltd. v. UltraTech Cement Ltd. &Ors Civil Appeal No. 10998 OF 2018 decided on 19.11.2018]

The Supreme Court upheld the order passed by the NCLAT that approval of the NCLT is not a mere requirement/ formality. Even though the NCLT is not permitted to alter the terms of the plan, the ultimate authority to approve or reject a plan vests with the NCLT, and for that it should consider the following aspects: (i) whether the plan complies with the requirements of Section 30(2)? (ii) Whether the plan is fair and equitable or there is any unjust discrimination not envisaged in law? (iii) Whether the plan adheres to the object of the Code i.e. maximizes the value of assets and balances the interests of all the stakeholders? Only if the aforesaid questions are answered in satisfactory, the plan is confirmed, if not the NCLT may deny its confirmation.


WHETHER THE NCLT HAS THE JURISDICTION TO ENQUIRE INTO JUSTNESS OF REJECTION OF THE RESOLUTION PLAN?

[K. SashidharVs Indian Overseas Bank &Ors. Civil Appeal No.10673 of 2018]

The Hon'ble Supreme Court has observed that National Company Law Tribunal has no jurisdiction and authority to analyse or evaluate the commercial decision of the Committee of Creditors (CoC) to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. The bench observed that upon receipt of a "rejected" resolution plan, the adjudicating authority (NCLT) is obligated to initiate liquidation process under Section 33(1) of the Insolvency and Bankruptcy Code


Issue : Debt does not stand barred by Limitation if existing as liability in the books of the Corporate DebtorIn the matter of Unimetal Castings Ltd. Vs TJSB Sahakari Bank Ltd.Mumbai BenchAA admitted the petition filed under Section 7 of the code by the Applicant Bank where Corporate Debtor raised an objection claiming petition to be barred by Limitation Act as the date of default was June 30, 2015 while application was filed in August, 2018. The Adjudicating Authority while deciding the application held that loan was appearing in the Balance Sheet of the Corporate Debtor which is acknowledgement of liability and Corporate Debtor has not disputed the fact of loan being shown as liability in his Balance Sheet. Thus the Adjudicating Authority carving an exception and agreeing with the Applicant Bank stated that the liability shown in the balance sheet is a clear acknowledgement of debt by the Corporate Debtor and is not barred by Limitation.

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Issue : The demand notice under section 8(1) of the Code can be served on the Corporate Debtor either at their Registered Office or their Corporate Office to be treated as a valid service of notice.

Alloysmin Industries Vs Raman Casting Pvt. Ltd.

NCLAT in Company Appeal (AT) (Insolvency) No. 684 of 2018Date of Order : 21.01.2019NCLAT held that the Adjudicating Authority (NCLT, New Delhi Bench III) erred in rejecting the application under Section 9 on a wrong presumption that demand notice is to be served on the Registered Office of the Corporate Debtor and not on Corporate Office. If the demand notice under Section 8 (1) is served on Corporate Debtor either on it Registered Office or its Corporate Office it should be treated to be valid service of notice under Section 8 and application under Section 9 is maintainable.Therefore, in view of the aforesaid, NCLAT directed that a fresh notice may be issued to the Corporate Debtor to give an opportunity, to both of their aforesaid addresses, to enable the Respondent to settle the claim with the Operational Creditor and enable the OC to withdraw its petition. Otherwise, the application under Section 9 is to be admitted.

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Issue : Can CIRP proceedings be initiated against a company that is not in existence on the rolls of ROC?

Upshot Utility Services Pvt. Ltd.,

NCLT Chennai (Division Bench)

The AA after taking note of the submissions made by the IRP’s Counsel that the company was struck off by the ROC on 05/07/2017, held that since there is a recorded material showing that the company is already struck off, the company’s petition shall no more survive. The application seeking co-operation of promoters under section 19 of the Code was accordingly dismissed as been infructuous. The NCLT also observed that the Operational Creditor (OC) filed the case without even finding out as to whether the Corporate Debtor is in existence as on the date of filing, and the Bench had passed an order of admission, resulting into IRP discharging his functions by taking out his time and money. It directed the OC who filed the application without even verifying the existence of the company to pay Rs. 1,00,000/- towards IRP fee. Rs. 16,000/- towards costs that the IRP incurred in discharging his functions as IRP and in attending the court (adjournments/arguments) and Rs. 25,000/- towards advocate’s fee for the advocate engaged by the IRP.The NCLT held that since no proceedings could be initiated against a company that is not in existence on the rolls of ROC, accordingly, the petition was dismissed as misconceived relieving the IRP from his duties.

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Issue : Can Central Government, State Government or the legal authority having statutory claim be regarded as Operational Creditor under IBC?

NCLAT held on 20th March 2019 that Central Government, State Government or the legal authority having statutory claim can be entitled as Operational Creditor under IBC.

While deciding on many matters with the same issue

NCLAT held that “Operational Debt” in normal course means a debt arising during the operation of the Company (‘Corporate Debtor’). The ‘goods’ and ‘services’ including employment are required to keep the Company (‘Corporate Debtor’) operational as a going concern. If the Company (‘Corporate Debtor’) is operational and remains a going concern, only in such case, the statutory liability, such as payment of Income Tax, Value Added Tax etc., will arise. As the ‘Income Tax’, ‘Value Added Tax’ and other statutory dues arising out of the existing law, arises when the Company is operational, we hold such statutory dues has direct nexus with operation of the Company”.Accordingly NCLAT held that (1) All statutory dues including ‘Income Tax’, ‘Value Added Tax’ etc. come within the meaning of “Operational Debt’ and (2) ‘Income Tax Department of the Central Government’ and the ‘Sales Tax Department(s) of the State Government’ and ‘local authority’, who are entitled for dues arising out of the existing law are ‘Operational Creditor’ within the meaning of Section5(20) of the ‘I&B Code’.

Issue : Financial Creditor directed to deposit with IRP amount to meet out the public announcement expenses.


Mr. Kamal Gulati Vs IDV Technology Solutions Pvt. Ltd.

Hon’ble NCLT, Principal Bench

In this matter an application was filed by Financial Creditor u/s 7 for initiation of CIRP.NCLT in its order dated 15/02/2019 admitted the application and also directed the financial creditor to deposit a sum of Rs. 2 lakhs with Interim Resolution Professional within three days of the receipt of the order to meet out the public announcement expenditure. Further, it also held that the amount is subject to adjustment by Committee of Creditors and the amount must be accounted for by Interim Resolution Professional and shall be paid back to the Financial Creditor.

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Issue : Do the RDBA, SARFAESI Act and IBC prevail over relevant statutory provisions of PMLA ?

The Dy Director- Directorate of Enforcement Delhi v Axis Bank and Ors

Delhi High Court

The Delhi High Court in a landmark judgment while disposing of a bunch of five appeals has held that the Recovery of Debts and Bankruptcy Act, SARFAESI Act and Insolvency and Bankruptcy Code does not prevail over the provisions of Prevention of Money-Laundering Act. The High Court was considering appeals against Appellate Tribunal (as constituted under PMLA), which held that the RDBA, SARFAESI Act and IBC prevail over relevant statutory provisions of PMLA. Disagreeing with the Tribunal's view, the bench observed that the process of attachment (leading to confiscation) of proceeds of crime under PMLA is in the nature of civil sanction which runs parallel to investigation and criminal action vis-a-vis the offence of money-laundering. The empowered enforcement officer has the authority of law in PMLA to attach not only a "tainted property" - that is to say a property acquired or obtained, directly or indirectly, from proceeds of criminal activity constituting a scheduled offence - but also any other asset or property of equivalent value of the offender of money laundering, the latter not bearing any taint but being alternative attachable property The question of law addressed in these appeals pertained to the effect of non-obstante clause contained in each of the four legislations, viz., RDB Act, 1993 (section 34); SARFAESI Act, 2002 (section 35); IBC, 2016 (section 238) and PMLA, 2002 (section 71) The High Court, while addressing the said issue, held “139, .. it is


clear that the objects and reasons of enactment of the four legislations are distinct, each operating in different fields. There is no overlap…”.Thus, drawing a distinction between the objective(s) sought to be achieved and the powers conferred thereof, under the PMLA and those of other statutes, High Court held, “141. … The Government, when it exercise its power under PMLA to seek attachment leading to confiscation of proceeds of crime, does not stand as a creditor, the person alleged to be complaint in the offence of money-laundering similarly not acquiring the status of a debtor…”.

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Issue : Is the COC vested with an absolute power to change the IRP.

Misc. Appln filed by the COC in the matter of Corporate Debtor M/s Sixth Dimensions Project Solution Ltd. (Mumbai Bench)

The COC decided to replace IRP. It filed Misc. Appln with AA and then filed an Affidavit.The NCLT, after perusing material on record and hearing the submission, allegations and counter allegations made by the parties, observed as, “having noticed the fair and humble conduct of the IRP, we felt that the allegations caste against him are frivolous and the Bank in order to find a ruse to appoint their own person, had filed the subsequent affidavit only as an after thought.”

The NCLT also examined the language of section 22(3)(b) and section 22(4) and came to a legal finding that the legislation gives NCLT the power to exercise its discretion in the appointment or change of the RP. It held that, “If the intention of the legislature is to give absolute power to the COC, there would not have been a provision under Section 22(3)(b) making it mandatory to file an application before the Adjudicating Authority seeking the change of the IRP.RP.”COC has no absolute power to change the IRP/RP at their whims and fancies without any valid or tenable reasons.’ In conclusion, the application seeking change of IRP was dismissed.

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Issue : Non-issuance of NOC by CA without assigning any reason

State Bank of India Vs Dunar Foods Limited

Mumbai Bench

Date of Order – 10-01-2019

The RP filed application with AA seeking directions to be given to CA appointed as Statutory Auditor in AGM either to give its consent to conduct the Audit of Corporate Debtor on terms proposed by him or else issue NOC to enable other CA to conduct the Statutory Audit

The Bench held that non-issuance of NOc by the Chartered Accountant without assigning any cogent reason, is unprofessional and unethical. The Hon’ble Court, after observing the urgency of the audit requirement and the fact that COC and the RP have waited for quite some time for the issuance of NOC of the outgoing Chartered Accountant, directed for substitution with new Chartered Accountant without further delay.The Tribunal also directed the Registry for intimating the said decision to the Chairman, Institute of Chartered Accountants, New Delhi.

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Issue : Action against Insolvency Professional for repeated non appearance despite service of Notice

In the Matter of M/s. Apna Scientific Supplies (P) Ltd.

Date of Order – 14/03/2019.

Bank, Financial Creditor, had filed Misc. Appln seeking replacement of IRP. The NCLT took serious note of non appearance of IRP on three continuous occasions for which he was duly informed and directed to appear. After observing that the IRP is flouting the orders of the Tribunal willfully, intentionally and avoiding personal appearance, the NCLT concluded : This is nothing but the abdication of the duties by the IRP, which is serious in nature. Therefore, the IRP…is held an unfit person for being given any assignment under the provisions of the I & B Code, 2016 as Resolution Professional.

The NCLT also imposed a cost of Rs. 20000/- on the said IRP for his willful disobedience of the Tribunal’s orders and directed him to hand over all relevant records of the Corporate Debtor to the newly appointed RP within a week’s time.

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Issue : Priority to recover Income Tax Dues


Leo Edibles & Fats Ltd.vsTax Recovery officer (Central), HyderabadHigh Court of Andhra Pradesh &Telangana

TRO—1stRespThe Sub-Registrar-- fourth respondent, Liquidator---5th Respondent

HeldIn so far as liquidation of a company under the Code is concerned, section 178 of the Act of 1961 stands excluded by virtue of the amendment of section 178(6) with effect from 1-11-2016, in accordance with the provisions of section 247 read with the Third Schedule appended thereto. Therefore, in the event an assessee company is in liquidation under the Code, the Income-tax Department can no longer claim a priority in respect of clearance of tax dues of the said company, as provided under sections 178(2) and (3) of the Act of 1961. In the context of liquidation of an assessee company under the provisions of the Code, the Income-tax Department, not being a secured creditor, must necessarily take recourse to distribution of the liquidation assets as per section 53 of the Code. Section 53(1) provides the order of priority for such distribution and any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State in respect of the whole or any part of the period of two years preceding the liquidation


commencement date comes fifth in the order of priority under Clause (e) thereof. [Para 24]Article 266 of the Constitution provides that all revenues received by the Government of India, shall form one consolidated fund to be entitled 'the Consolidated Fund of India' and that that all revenues received by the Government of India, shall form one consolidated fund to be entitled 'the Consolidated Fund of the State'. It is therefore clear that tax dues, being an input to the Consolidated Fund of India and of the States, clearly come within the ambit of section53(1)(e). If the Legislature, in its wisdom, assigned the fifth position in the order of priority to such dues, it is not for this Court to delve into or be little the rationale underlying the same.The first respondent necessarily has to submit the claim of the Income-tax Department to the fifth respondent for consideration as and when the distribution of the assets, in terms of section 53(1) is taken up. [Para 31] The fourth respondent (Sub Registrar) shall entertain and register the sale transaction effected by the fifth respondent (Liquiqdator) in favour of the petitioner company, if not already done. The first respondent is at liberty to submit its claim before the fifth respondent, who shall duly consider the same in accordance with the priorities stipulated under section 53(1).

Issue : Can workers file Application u/s sec 9 of IBC jointly?

Suresh Narayan Singh27 Advocate Rajan D. Agarwal – Recent Judicial Pronouncements in IBC – 10/05/2019

ICMAI -WIRC

vsTayo Rolls Ltd.NCLAT

Date of Order : September 26, 2018

Facts

The appellant who was Authorised Representative of 284 workers of respondent company filed instant appeal against the order passed by the Adjudicating Authority whereby the application under section 9 preferred by the applicant had been rejected on the ground that said application had to be filed by the 'Operational Creditor' individually and not jointly.

Held:

Section 5(20), read with section 5(21) makes it clear that the workmen of a Company come within the meaning of 'Operational Creditor'. If sections 8 and 9 are read with Form 5, it will be clear that the person authorized to act on behalf of the 'Operational Creditor' is entitled to file an application under section 9. Therefore, where workmen/employees are 'Operational Creditors' the application under section 9 may be made either by an 'Operational Creditors' in an individual capacity or as a joint capacity by one of them who is duly authorized for such purpose.

Only if in an individual claim of 'Operational Creditor' the amount of debt is less than one lakh rupees, it can be rejected being not maintainable.

The Adjudicating Authority having failed to consider the aforesaid fact, the impugned order was to be set aside and the matter was to be remitted to the Adjudicating Authority to admit the application

*****28 Advocate Rajan D. Agarwal – Recent Judicial Pronouncements in IBC – 10/05/2019

ICMAI -WIRC

Can a Registered Trade Union Can File Insolvency Petition As Operational Creditor On Behalf Of Its Members?

In the matter of JK Jute Mill Mazdoor MorchaIn Supreme Court

The Supreme Court has held that a registered trade union can maintain a petition as an operational creditor on behalf of its


members. The bench allowed the appeal against the National Company Law Appellate Tribunal (NCLAT) order which held that a trade union would not be an operational creditor as no services are rendered by the trade union to the corporate debtor. JK Jute Mill Mazdoor Morcha issued a demand notice on behalf of about 3000 workers under Section 8 of the Insolvency and Bankruptcy Code for outstanding dues of workers. The National Company Law Tribunal (NCLT) dismissed their application. Upholding the NCLT order, the NCLAT observed that stating that each worker may file an individual application before the NCLT. Disagreeing with this approach the SC observed that, a trade union is an entity established under a statute – namely, the Trade Unions Act, and would thus fall within the definition of "person" under Sections 3(23) of the Code. An "operational debt", meaning a claim in respect of employment, could certainly be made by a person duly authorised to make such claim on behalf of a workman, the court said. It further observed: "Further, a registered trade union recognised by Section 8 of the Trade Unions Act, makes it clear that it can sue and be sued as a body corporate under Section 13 of that Act. Equally, the general fund of the trade union, which inter alia is from collections from workmen who are its members, can certainly be spent on the conduct of disputes involving a member or members thereof or for 8 the prosecution of a legal proceeding to which the trade union is a party, and which is undertaken for the purpose of protecting the rights arising out of the relation of its members with their employer, which would include wages and other sums due from the employer to workmen."


Filing Individual Petitions would be Burdensome. "Instead of one consolidated petition by a trade union representing a number of workmen, filing individual petitions would be burdensome as each workman would thereafter have to pay insolvency resolution process costs, costs of the interim resolution professional, costs of appointing valuers, etc. Looked at from any angle, there is no doubt that a registered trade union which is formed for the purpose of regulating the relations between workmen and their employer can maintain a petition as an operational creditor on behalf of its members. We must never forget that procedure is the handmaid of justice, and is meant to serve justice."

Setting aside the Tribunals' view, the bench remanded the matter to NCLAT to decide the application on merits and said: "What is clear is that the trade union represents its members who are workers, to whom dues may be owed by the employer, which are certainly debts owed for services rendered by each individual workman, who are collectively represented by the trade union. Equally, to state that for each workman there will be a separate cause of action, a separate claim, and a separate date of default would ignore the fact that a joint petition could be filed under Rule 6 read with Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, with authority from several workmen to one of them to file such petition on behalf of all."

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Issue : Except the Corporate Debtor does any other party has the right to intervene at the stage of admission of the petition.

In the matter of

Damont Developers Pvt. Ltd. Vs Bank of Baroda and Anr.

NCLATDate of Order : 24-04-2019


While disposing of an appeal the NCLAT has observed that except the Corporate Debtor does any other party has the right to intervene at the stage of admission of the petition u/s 7 or 9. However an aggrieved party may prefer an appeal, if it is aggrieved by the order of admission.

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Issue : Is giving Public Notice in a proper publication regarding initiation of CIRP sufficient notice to creditors for making their claims.

NCLT Bengaluru Bench

In the matter of

BCIL Red Earth Developers India Pvt. Ltd.

A bonafide creditor of the Corporate Debtor was delayed in submitting the claim as the creditor was out of town. IRP rejected the claim due to delayed submission. The creditor filed an application with the adjudicating authority.

The AA passed an order that the CIRP processed is to be completed in a time bound manner. There may be many people like the applicant who are not aware of the initiation of instant CIRP in order to give notice to the concerned public due process of law is to give paper publication. Therefore sufficient notice is given by the IRP for parties to respond by submitting their claim, Therefore, the impugned decision taken by learned IRP/RP cannot be found fault with.

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Various Timelines under the Code

M/s J. K. Jute Mills Company Limited vs. M/s Surendra Trading Company

NCLATHeldThat the time period of 180 days (or 270 days), within which the CIRP must be completed, is mandatory.

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Extension of Time applied for after 180 Days are Over

Quantum Limited

Vs

Indus Finance Corpn

NCLAT

The corporate debtor (through the Resolution professional) filed for an extension application of the CIRP after the expiry of 180 days. The National Company Law Tribunal (the NCLT) rejected the application since it was not filed before the expiry of 180 days. An appeal was preferred and while allowing the appeal, the NCLAT held that the provisions of the Code do not require the application to be filed before the expiry of the 180 days period. It observed that:

“If within 180 days including the last day i.e. 180th day, a resolution is passed by the committee of creditors by a majority vote of 75% of the voting shares, instructing the resolution professional to file an application for extension of period in such case, in the interest of justice and to ensure that the resolution process is completed following all the procedures time should be allowed by the Adjudicating Authority who is empowered to extend such period up to 90 days beyond 180th day.”

Further, it held that:

“For the aforesaid reasons, we set aside the impugned order dated 18th December, 2017 and extend the period of the resolution process for another 90 days to be counted from today. The period between 181st day and the passing of this order shall not be counted for any purpose and is to


be excluded for all purpose. Now the Adjudicating Authority will proceed in accordance with law.”

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Issue : 270 Days of CIRP over

Rave Scans Private Limited

The committee of creditors (by a creditor representing 35% of the voting rights) rejected the resolution plan without assigning any reasons. Interestingly the resolution plan provided for a sum of INR 51 Crores whereas the liquidation value of the Company was merely INR 36 Crores. The creditor who rejected the plan was unable to furnish any reasons for rejection. In view of the larger public interest and the broad objectives of the Code, the NCLT directed the committee to reconsider the plan even though the 270 days period had already expired.

In the matter of Essar Steel India Limited, Bhushan Power and Steel Limited and Binani Cement the relevant NCLT benches have extended the time period.

While in the cases of Essar Steel and Bhushan Power, the Ahmedabad and New Delhi benches of the NCLT have ordered that the period which is to be consumed in litigation would not prima facie be part of the period prescribed for CIRP under the Code.

In the case of Binani Cement, the tribunal had extended the tenure of the resolution professional “till further orders”.


http://ibbi.gov.in/webadmin/pdf/order/2018/Apr/Liberty-House-Order_2018-04-24%2023:21:11.pdf

http://ibbi.gov.in/webadmin/pdf/order/2018/Apr/Liberty-House-Order_2018-04-24%2023:21:11.pdf

http://ibbi.gov.in/webadmin/pdf/order/2018/Apr/Essar%20Steel%20Ltd%20order%20dated%2019-04-2018_2018-04-21%2021:11:59.pdf

Issue : Does a pending case of Sec 138/441 of the NI Act mean existence of Dispute?SudhiSachdev …AppellantVsAPPL Industries Ltd. ….RespondentNCLAT13.11.2018Facts of the Case1. This appeal has been preferred by Appellant (Corporate Debtor) against order passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench whereby application under Section 9 of I&B Code preferred by Respondent – ‘APPL Industries Ltd.’ (Operational Creditor) has been admitted and order of moratorium has been passed. 2. Learned counsel appearing on behalf of the Appellant submits that there was an existence of dispute in view of the fact that the Respondent has instituted cases under Section 138/441 of Negotiable Instruments Act, 1881, which are pending in the court of Metropolitan Magistrate, Gurgaon. 3. Referring to the decision of Hon’ble Supreme Court in ‘R. Vijayan Vs. Baby and Anr.’, (2012) 1 Supreme Court Cases 260, learned counsel for the Appellant submitted that the proceeding under Section 138 is really a civil cases of recovery of the money, therefore, in view of the pendency of such case, application under section 9 of I&B Code is not maintainable. 4. Having heard learned counsel for the Appellant and perusal of records, we are not inclined to accept the submission made on behalf of the Appellant.5. In the present case, it is not in dispute that there is a debt payable to the Operational Creditor and default on the part of the Corporate Debtor. The pendency of the case under Section 138/441 of the Negotiable Instruments Act, 1881, even if accepted as recovery proceeding, it cannot be held to be a


dispute pending before a court of law. Thereby we hold that the pendency of the case under Section 138/441 of Negotiable Instruments Act, 1881 actually amounts to admission of debt and not an existence of dispute. We find no merit in this appeal. Dismissed.

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Issue : Sarfaesi and Moratorium on Personal Properties


Applicant: SCHWEITZER SYSTEMTEK INDIA PRIVATE LIMITED (Corporate Debtor)Vs.PHOENIX ARC PRIVATE LIMITED ---- Fin Cr, RespNCLT-

Applicant filed this application under section 10 of the code for initiating corporate insolvency resolution process against itself.

Brief facts: On 19th December, 2011, CD raised a debt of Rs. 4,54,61,524/-

from Dhanlaxmi Bank. CD charged personal properties of its directors situated

at Mumbai as security to Dhanlaxmi Bank. On 17th April, 2012, CD raised a sum of Rs. 14,48,504/- from

Standard Chartered Bank. Thereafter, Dhanlaxmi Bank assigned its debt to Phoenix

ARC Private Limited (“Respondent”) by way of assignment agreement dated 28.03.2014.

As a result of the said assignment, the charge also stood modified and assigned to the respondent.

Since the CD defaulted in repaying its loan, proceedings under SARFAESI Act were initiated.

An order was passed by Chief Metropolitan Magistrate, Esplanade, Mumbai appointing a court commissioner to take over the possession of the secured assets being residential units of the directors of CD.

Respondent’s contention Respondent opposed the present application on the ground

that if the present application is admitted, then till insolvency process is completed, moratorium shall commence prohibiting taking over of the possession.


Decision of the AA At the stage of Admission, prima facie it is required to

examine the basic facts only to ascertain whether the application under consideration deserves admission within the parameters of sec 10.

The Adjudicating Authority perused the balance sheet of the corporatedebtor and gave following reasons for admission of the application.

The Balance Sheet of the CD did not contain the impugned heads of liability. As a result, it was considered appropriate to appoint a Professional so that due examination of the books could be done and position of debt could be streamlined.

No evidence was found to indicate if the interests of the sundry creditors were safeguarded. This aspect could be examined by Professional who would be appointed only on admission of the application.

Possibility of recovery from sundry debtors needed to be explored and reserves and surplus needed due examination which could be done only by a Professional who would be appointed on admission of the application.

Though a loss was reflected in Profit & Loss Account of the CD for the year ended March 31, 2017 but the same required due examination to ensure its correctness.

This further necessitated appointment of Professional. However, before admitting the application, the Adjudicating

Authority observed that the personal properties of promoters which were mortgaged to Dhanlaxmi Bank Limited and which subsequently stood assigned to the Respondent due to assignment of debt by Dhanlaxmi Bank Limited and in respect of which an order for taking over the possession was passed by the Chief Metropolitan Magistrate, Mumbai would remain outside the ambit of moratorium period commencing upon admission of the application.

To substantiate this, the Adjudicating Authority relied upon section 14 of the Code which states that Moratorium shall be declared for prohibiting any


action to recover or enforce any security interest created by the Corporate Debtor in respect of “its” property.

The word “its” was interpreted to denote the property owned by corporate debtor and the property not owned by corporate debtor would not fall within the ambits of Moratorium.

AA added that the SARFAESI Act may come within the ambit of moratorium if an action is to foreclose or to recover or to create any interest in respect of property owned by the CD, not otherwise.

Admitted u/s 10 of the Court.

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HOME BUYERS

PIL to SC u/a 32 of Constitution of India

Chitra Sharma


v.Union of IndiaFacts

IDBI Bank Limited instituted a petition under section 7 against JaypeeInfratech Ltd. (JIL) before the National Company Law Tribunal.JIL withdrew its objections and furnished its consent for a resolution plan under the provisions of the IBC.IDBI Bank claimed that JIL had committed a default of Rs. 526.11 crores in the repayment of its dues. On 9-8-2017, NCLT initiated the Corporate Insolvency Resolution Process (CIRP) in respect of JIL. Interim Resolution Professional was appointed under the provisions of the IBC.The instant proceedings had been initiated by petitioner-home buyers under article 32 of the Constitution for protecting the interests of home buyers in projects floated by JIL which was a special purpose vehicle created by its holding company, Jaiprakash Associates Limited.In formulating the directions, the Court initiated steps to protect the interests of the home buyers. At that stage, it must be noted, the CoC as constituted under section 21 did not include a representative of the home buyers. Nor were the home buyers regarded as financial creditors under the IBC. The mechanism evolved by the Court was intended to provide a workable arrangement under the then prevailing regime so that the interests of the home buyers would not be ignored.

■ Accordingly, the following directions are issued:(i) In exercise of the power vested in the Court under article

142 of the Constitution, it is directed that the initial period of 180 days for the conclusion of the CIRP in respect of JIL shall commence from the date of instant order. If it becomes necessary to apply for a further extension of 90


days, the NCLT is permitted to pass appropriate orders in accordance with the provisions of the IBC;

(ii) A CoC is directed to be constituted afresh in accordance with the provisions of the Insolvency and Bankruptcy (Amendment) Ordinance, 2018, more particularly the amended definition of the expression 'financial creditors';

(iii) The IRP is permitted to invite fresh expressions of interest for the submission of resolution plans by applicants, in addition to the three short listed bidders whose bids or, as the case may be, revised bids may also be considered;

(iv) JIL/JAL and their promoters shall be ineligible to participate in the CIRP by virtue of the provisions of section 29A;

(v) RBI is allowed, in terms of its application to the Court to direct the banks to initiate corporate insolvency resolution proceedings against JAL under the IBC;

(vi) The amount of Rs. 750 crores which has been deposited in the Court by JAL/JIL shall together with the interest accrued thereon be transferred to the NCLT and continue to remain invested and shall abide by such directions as may be issued by the NCLT. [Para 42]

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Issue : Whether Home Buyer who booked flats under fixed returns plans can file for CIRP?Narender Kumarv.AadinathProbuild (India) (P.)Ltd.NCLT New Delhi BenchU/s 7


Applicant booked three flats in a project of respondent corporate debtor with assured return plan - Corporate debtor failed to pay assured return - Thus, applicant filed instant application to initiate corporate insolvency resolution process (CIRP) against corporate debtor - Corporate debtor raised objection that entire transaction between parties was in nature of buyer and seller and not in nature of debtor and creditor - Thus, neither claim of applicant did fall within ambit of 'financial debt', nor applicant could be termed as 'financial creditor' - Corporate debtor also disputed amount claimed by applicant - It was noted that definition of 'financial debt' had been amended by Insolvency and Bankruptcy (Amendment) Ordinance, 2018 and in view of revised definition, any amount raised from an allottee under a real estate project would be deemed to be an amount having commercial effect of a borrowing and thus, would came within definition of 'financial debt' - Amendment also recognizes home buyers as 'financial creditors' and accordingly, home buyers could initiate CIRP against defaulting builder or developer, as financial creditor - It was also noted that dispute over quantum of default, could not be a ground for rejection of an application under section 7 as determination of quantum of financial debt was not within domain of Adjudicating Authority - Further, there was admission of default by corporate debtor and amount of default exceeded statutory limit of 1 lakh - Admitted

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Issue :Applicability of Law of LimitationB.K. EDUCATIONAL SERVICES PRIVATE LIMITED …APPELLANT VS PARAG GUPTA AND ASSOCIATES …RESPONDENTSSupreme Court of India

The question raised by the appellants in these appeals is as to whether the Limitation Act, 1963 will apply to applications that are made under Section 7 and/or Section 9 of the Code on and from its commencement on 01.12.2016 till 06.06.2018. In all these cases, the Appellate Authority has held that the Limitation Act, 1963 does not so apply. Even on the assumption that Article 137 of the Limitation Act, 1963 is attracted to such applications, in any case, such applications being filed only on or after commencement of the Code on 01.12.2016, since three years have not elapsed since this date, all these applications, in any event, could be said to be within time. The Appellate Tribunal went on to hold:“68. In view of the settled principle, while we hold that the Limitation Act, 1963 is not applicable for initiation of ‘Corporate Insolvency Resolution Process’, we further hold that the Doctrine of Limitation and Prescription is necessary to be looked into for determining the question whether the application under Section 7 or Section 9 can be entertained after long delay, amounting to laches and thereby the person forfeited his claim. 69. If there is a delay of more than three years from the date of cause of action and no laches on the part of the Applicant, the Applicant can explain the delay. Where there is a continuing cause of action, the question of rejecting any application on the ground of delay does notarise. 70. Therefore, if it comes to the notice of the Adjudicating Authority that the application for initiation of ‘Corporate Insolvency Resolution Process’ under section 7 or Section 9 has


been filed after long delay, the Adjudicating Authority may give opportunity to the Applicant to explain the delay within a reasonable period to find out whether there are any laches on the part of the Applicant. 71. The stale claim of dues without explaining delay, normally should not be entertained for triggering ‘Corporate Insolvency Resolution Process’ under Section 7 and 9 of the ‘I&B Code’. 72. However, the aforesaid principle for triggering an application under Section 10 of the ‘I&B Code’ cannot be made applicable as the ‘Corporate Applicant’ does not claim money but prays for initiation of ‘Corporate Insolvency Resolution Process’ against itself, having defaulted to pay the dues of creditors. In so far it relates to filing of claim before the ‘Insolvency Resolution Professional’, in case of stale claim, long delay and in absence of any continuous cause of action, it is open to resolution applicant to decide whether such claim is to be accepted or not, and on submission of resolution plan, the Committee of Creditors may decide such question. If any adverse decision is taken in regard to any creditor disputing the claim on ground of delay and laches, it will be open to the aggrieved creditor to file objection before the Adjudicating Authority against resolution plan and for its necessary correction who may decide the same in accordance with the observations as made above.”Learned counsel appearing on behalf of the appellants have argued, relying upon the Report of the Insolvency Law Committee of March, 2018, that the object of the Amendment Act which introduced Section 238A into the Code was to clarify the law and, thus, Section 238A must be held to be retrospective.They also referred to and relied upon the 4 definitions under Sections 3(11), 3(12), and Section 5(6) of the Code, which, when contrasted with Section 3(6), would show that though “claim” in Section 3(6) refers to a right to payment, the definitions of “debt” and “default” in Sections 3(11) and 3(12) respectively, refer to liability or obligation in respect of a claim which is “due” and this being the case, a time-barred debt cannot be said to be “due” so as to trigger the Code.


The learned counsel further attacked the Appellate Tribunal judgment by stating that an application filed in 2017 under Section 7 or 9 of the Code, praying that the Code be triggered for a debt that has become time-barred long back, say in 2011, would lead to absurdity as it could never have been the intention of the legislature to resuscitate stale and dead claims leading to the drastic consequence of the taking away of the management of the corporate debtor, which may ultimately result in its corporate death.The learned advocate appearing on behalf of some of the respondents, argued, based upon our judgment in Innoventive Industries Ltd. v. ICICI Bank &Anr., that the Code is a complete Code dealing with insolvency and not debt recovery and that, therefore, the periods of limitation that are stated therein would show that the Limitation Act would not apply. In any case, as has been held by various judgments of this Court, the Limitation Act cannot apply to the NCLT as it is a tribunal and not a court. He cited a number of judgments to point out the difference between amounts that are “due and payable” as opposed to amounts that are “due and recoverable”. According to him, since the language used in Section 3(11) is “due” and in Section 3(12), “due and payable”, it would be clear that a timebarred debt would be subsumed within the said expression as it is not a debt that is “due and recoverable” under the said provision.Held by SCHaving heard the learned counsel for both sides, it is important to first set out the reason for the introduction of Section 238A into the Code. This is to be found in the Report of the Insolvency Law Committee of March, 2018, as follows: “28. APPLICATION OF LIMITATION ACT, 1963 28.1 The question of applicability of the Limitation Act, 1963 (“Limitation Act”) to the Code has been deliberated upon in several judgments of the NCLT and the NCLAT. The existing


jurisprudence on this subject indicates that if a law is a complete code, then an express or necessary exclusion of the Limitation Act should be respected.In light of the confusion in this regard, the Committee deliberated on the issue and unanimously agreed that the intent of the Code could not have been to give a new lease of life to debts which are time-barred. It is settled law that when a debt is barred by time, the right to a remedy is time-barred.This requires being read with the definition of ‘debt’ and ‘claim’ in the Code. Further, debts in winding up proceedings cannot be time-barred, and there appears to be no rationale to exclude the extension of this principle of law to the Code.Further, non-application of the law on limitation creates the following problems: first, it re-opens the right of financial and operational creditors holding time-barred debts under the Limitation Act to file for CIRP, the trigger for which is default on a debt above INR one lakh.The purpose of the law of limitation is “to prevent disturbance or deprivation of what may have been acquired in equity and justice by long enjoyment or what may have been lost by a party’s own inaction, negligence or latches” Though the Code is not a debt recovery law, the trigger being ‘default in payment of debt’ renders the exclusion of the law of limitation counter-intuitive.It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. “The right to sue”, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.In view of our finding that the Limitation Act has in fact been applied from the inception of the Code, it is unnecessary for us to go into the arguments based on the doctrine of laches. The


appeals are therefore remanded to the NCLAT to decide the appeals afresh in the light of this judgment.

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Issue : Whether Section 14 would apply to a personal guarantor of a corporate debtor.

STATE BANK OF INDIA … APPELLANT… Fin Cr VERSUS V. RAMAKRISHNAN & ANR. … RESPONDENTS… MD of CD/CD Facts of the CaseThe present appeals revolve around whether Section 14 of the Insolvency and Bankruptcy Code, 2016, which provides for a moratorium for the limited period mentioned in the Code, on admission of an insolvency petition, would apply to a personal guarantor of a corporate debtor.Respondent No.1 is the Managing Director of the corporate debtor, namely, the Respondent No.2 Company, and also the personal guarantor in respect of credit facilities that had been availed from the Appellant.On default, Appellant proceeded under SARFAESI to recover duesRespondent 2 ieCD preferred an application u/s 10 of IBC which was admitted. During pendency of these proceedings, Respondent no 1 took the plea that moratorium u/s 14 would apply to personal guarantor as well as a result of which proceedings against the personal guarantor and his property would have to be stayed. Held by NCLT that since u/s 31, a Resolution Plan would bind the guarantor as well and since after the creditor is proceeded against, the guarantor stands in the shoes of the creditor, allowed the interim applicationHeld by NCLAT that since personal guarantor can also be proceeded against and forms part of Resolution Plan which is


binding on him, he is part of the CIRP process against CD and moratorium u/s 14 would apply to him. Appeal dismissed. Now at SC

SC appointed K V Vishwanathan as Amicus Curiae (Friend of the Court). He pointed out that earlier debt recovery statutes were heavily loaded in favor of CDs which has resulted in huge amounts due to banks and FIs. He also drew attention to Sec 22 of SICA which did not permit creditors to proceed against guarantors without BIFR approval. Repeal of SICA and several later enactments including Companies Act, 2013 which omitted a provision akin to Sec 22 shows that Sec 14 of IBC is a deliberate enactment. He also stated that the IBC amendment on 6- Jun-18 which substituted Section 14 (3) was clarificatory and hence retrospective. Key recommendations of Insolvency Law Committee in its Report dated 26-Mar18 were also considered i.e. the liability of the principal debtor and the surety is co-extensive and is joint and several. Also, this characteristic of such contracts i.e. of having remedy against both the surety and the corporate debtor, without the obligation to exhaust the remedy against one of the parties before proceeding against the other, is of utmost important for the creditor and is the hallmark of a guarantee contract, and the availability of such remedy is in most cases the basis on which the loan may have been extended. The LdAdv for the Appellant argued that the corporate debtor and personal guarantor are separate entities and that a corporate debtor undergoing insolvency proceedings under the Code would not mean that a personal guarantor is also undergoing the same process. As the guarantor’s liability is distinct and separate from that of the corporate debtor, a suit can be maintained against the surety, though the principal debtor has not been sued. For this


purpose, they relied upon Section 128 of the Indian Contract Act, 1872. They also relied heavily upon the reasoning contained in a judgment by a Single Judge of the Bombay High Court in M/s. Sicom Investments and Finance Ltd. v. Rajesh Kumar Drolia and Anr. Distinction between sec 14 and sec101 was brought out. They also relied heavily upon the Amendment Ordinance dated 06.06.2018, by which Section 14(3) of the Code was substituted, including a surety in a contract of guarantee to a corporate debtor. They relied upon the Insolvency Law Committee proceedings, which led to the aforesaid amendment

Held By SCThe Report of the said Committee makes it clear that the object of the amendment was to clarify and set at rest what the Committee thought was an overbroad interpretation of Section 14. That such clarificatory amendment is retrospective in nature. Impugned judgment of NCLAT set aside and appeals allowed

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