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ADVOCATES & ATTORNEYS LEXZONE YOUR LEGAL THOUGHT

BANKING & FINANCE NEWSLETTER JULY 2019 | Series 25.2

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Banking & Finance Bytes

New framework by RBI on Stressed Assets.

No order of a foreign court against an Indian company pending insolvency proceedings can be taken into record if there is no agreement entered between the government of India and the foreign country for the enforcement of the provisions of IBC, 2016 – NCLT MUMBAI.

RERA proceedings cannot be stayed merely because a winding up petition has been filed before the High Court of Delhi – Rajasthan RERA.

NCDRC orders that homebuyers shall not lose money for cancelling delayed apartments Constitution Bench of the Supreme Court commences hearing to resolve conflicting views on S. 24 of the Land Acquisition Act, Rehabilitation and Resettlement Act, 2013.

Central government plans to set up a common RERA platform for all over India.

New framework by RBI on Stressed Assets1 -Shreya Dasgupta, Senior Associate.

The Reserve Bank of India (“RBI”) issued a new prudential

framework for stressed assets on June 07, 2019. The

framework directs the lenders to demarcate the stressed

assets from the beginning, immediately after the

payments fall default. These accounts will be recognized

as ‘Special Mention Account’ (“SMA”) and divided into

different categories, as mentioned in the framework. The

lender will be required to report to the Central Repository

of Information on Large Credits (“CRILC”), on all

borrowers having aggregate exposure of INR 5,00,00,000

and above. It further mandates all lenders to review the

bank accounts of the borrowers within 30 days of the first

default and initiate the Resolution Plan (“RP”), either by

initiating legal proceedings for insolvency or recovery. If

there are more than one lender, the lenders shall enter

into an inter-creditor agreement to implement the RP and

the agreement shall contain clause stating that the

decision of more than 60% of lenders by numbers and

1CIVIL APPEAL NOS.4784-4785 OF 2019.

more 75% of the institution providing credit facilities,

shall be applicable on all. The RP should be implemented

within 180 days of the Review period of 30 days. RPs

involving restructuring/change in ownership in respect of

accounts where the aggregate exposure of lenders is INR

10,00,00,000 and above, shall require Independent Credit

Evaluation (“ICE”) of the residual debt by Credit Rating

Agencies (“CRAs”) specifically authorised by the RBI. If the

RP is delayed more than 180 days, the RP shall contain

additional percentage of total dues pending from the

borrower. RBI also mandated lenders to make

appropriate disclosures in their financial statements,

under ‘Notes on Accounts’, relating to RPs implemented.

The framework has also provided some exceptions and

other provisions which regulate the management of

stressed assets.

No order of a foreign court against an Indian

company pending insolvency proceedings can be

taken into record if there is no agreement entered

between the government of India and the foreign

country for the enforcement of the provisions of IBC,

2016 – NCLT MUMBAI. -Vaidya, Associate.

The National Company Law Tribunal, (“NCLT”) Mumbai in

its order dated 20.06.2019 in the insolvency application

filed by State Bank of India (Financial Creditor) and Ors v.

Jet Airways (India) Limited (Corporate Debtor) rejected an

application filed by an Intervener to recognize and take

on record a judgment passed by the Noord Holland

District Court regarding appointment of administrator of

Bankruptcy on behalf of the Corporate Debtor. The facts

of the case were such that the Corporate Debtor was in

default of Rs. 976,60,38,604.55/- (Rupees Nine Hundred

and Seventy-Six Crores Sixty Lakhs Thirty Eight Thousand

Six Hundred and Four only) sanctioned by the Financial

Creditor and other Operational Creditors and submitted

proof copies of certificate under the Banker’s Books

Evidence Act, 1891. On 20.06.2019, the NCLT was

informed by way of intervention application that an

insolvency proceeding was already initiated before the

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Holland District Court by the Practicing Company

Secretary on behalf of the foreign court. It was contended

and objected by the Intervener that though section 234

and section 235 of the Insolvency and Bankruptcy Code,

2016 (“the Code”) has not been given effect by the

Central Government of India, there is no prohibition to

take into record the same and that two parallel

proceedings would not be sustainable and hence would

result in a desired outcome. The NCLT after elaborating

the said sections 234 and 235 of the Code held that the

order of the foreign court is at nullity since the provisions

are yet to be enforced by the Indian Government and that

in the absence of any reciprocal arrangement between

the two countries there cannot be a question with respect

to taking into record an award of a foreign court.

RERA proceedings cannot be stayed merely because

a winding up petition has been filed before the High

Court of Delhi – Rajasthan RERA.2 - Vaidya, Associate.

As per the Delhi High Court order dated 09.05.2019, the

Rajasthan Real Estate Regulatory Authority (“RERA”)in a

batch of complaints instituted by the Complainants

against MVL Ltd. (the Respondent) by way of application

under section 279 of the Companies Act, 2013 had

requested the Rajasthan RERA to stay the proceedings on

the grounds that the Delhi High Court had admitted

winding up proceedings against the Respondentwherein

a provisional liquidator was also appointed by the Delhi

High Court. The counsel for the Respondent made

arguments before RERA stating that no legal proceedings

shall commence or be pending when a winding up

proceeding is pending before the High Court. It was

observed by the bench that section 279 of the Companies

Act, 20133 does not apply to the proceedings under RERA

as the RERA Act, 2016 being a special enactment and a

revised legislation as specified in section 79 of RERA Act,

20164, the provisions of RERA prevails over that of

Companies Act, 2013. Hence, it was held that it would not

2 Kuldeep Kaur and 7 others as per order dated 09.05.2019 3 (1) When a winding up order has been passed or a provisional liquidator has

been appointed, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, by or against the company, except with the leave of the Tribunal and subject to such terms as the Tribunal may impose:

stay the proceedings before RERA. The submissions of the

counsel for the Complainant were further supported by

decision of the Hon’ble Supreme Court in “Allahabad

Bank Vs. Canara Bank & anr.” (2000) 4 SCC 406 wherein it

was held that the RDB (Recovery of Debts due to Banks

and Financial Institutions Act) which is a special law would

prevail over the Companies Act, 2013 which is a general

law.

NCDRC orders that homebuyers shall not lose

money for cancelling delayed apartments. - Akshay Ramesh, Associate.

The apex consumer forum i.e. the Nation Consumer

Disputes Redressal Commission (“NCDRC”) in the case of

Chandan Gupta vs. Supertech Ltd. (01.05.2019 - NCDRC)5

held that the developers cannot demand forfeiture of any

amount, in case a homebuyer decides to cancel the

apartment because of handing over of delayed

possession by the developer. The NCDRC ordered the real

estate giant, Supertech to refund the entire INR

1,00,00,000 to a particular homebuyer who decided to

cancel the apartment due to 2 years of delay in handing

over of the possession. Irrespective of any harsh clauses

in the agreement to sell by the developer regarding

forfeiture for cancelling of the apartment, the builder

cannot invoke these clauses in case of inordinate delay.

NCDRC directed Supertech Ltd to refund the buyer within

three months the entire principal amount of INR

1,08,00,000 along with compensation in the form of

simple interest at 10% per annum from the date of each

payment till the date of refund.

Central government plans to set up a common

RERA platform for all over India

- Dhivya, Associate.

Under the Real Estate (Regulation and Development) Act,

2016, all states are mandated to constitute their

respective real estate regulator RERA which provides

proper protection to home buyer and the state

Provided that any application to the Tribunal seeking leave under this section shall be disposed of by the Tribunal within sixty days. (2) Nothing in sub-section (1) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court. 4 Jurisdiction of civil courts are barred from matters pertaining to RERA. 5 MANU/CF/0273/2019

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governments have separate online portals. The Central

Government is now planning to make one common portal

for all the states and union territories which will provide

an opportunity to home-buyers, builders and authorities

to exchange views.

NCLT clarifies section 29A ineligibility clause

which deals with question as to who are ineligible

to file ‘Resolution Plan’ -Latha, Associate

The Successful Resolution Applicant, Mr. Jagmeet Singh

Sabharwal & Ors. herein has preferred an appeal against

part of the order dated 19th February, 2019 passed by the

Adjudicating Authority (National Company Law Tribunal),

Mumbai Bench in M.A. No. 1039/2018 in C.P. (I.B.) –

1686(MB)/2017 whereby the ‘resolution plan’ submitted

by the Appellant has been approved with the

modifications wherein adjudicating authority has added

the additional Government Dues of Rs. 14 Crores, the

claim which was not before the ‘Resolution Professional’

nor shown in the ‘Information-Memorandum’.

The Appellant submits that whatever claim was made

towards the statutory dues, i.e. dues arising out of

existing law, were taken into consideration and the

‘Resolution Applicant’ made suitable provision for such

dues, therefore, additional burden of Rs. 14 Crores has

been levied on the ‘Resolution Applicant’ without any

basis and further the Adjudicating Authority wrongly held

that the resolution applicant has nexus with the

‘Corporate Debtor’.

The modification of the order was due to the

interlocutory application filed by the advocate on behalf

of ‘Fouress Engineering (India) Pvt. Ltd.’ Since the

‘Fouress Engineering (India) Pvt. Ltd.’ has also filed one

claim as ‘Financial Creditor’ one as ‘Operational Creditor’

and another claim was filed as ‘other creditor’ has

intervened stating that within the meaning of Section

5(20) of the ‘I&B Code’ Central Government, State

Government or Local Authority is ‘Operational creditor,

the ‘Resolution Applicant’ is required to provide the same

treatment to all the ‘Operational Creditors’, equally.

Decision

The presiding officer in the above case has rightly held

that the court is of the view that the aforesaid

classification between the ‘employees’, ‘Operational

Creditors’ who have supplied goods or rendered services

and the ‘Operational Creditors’ like Government dues i.e.

debt payable to the Central Government or State

Government etc. is rational and correct. Further

employees who have rendered services to keep the

company a going concern even during the ‘Corporate

Insolvency Resolution Process’, the supplier of the goods

and those who rendered services have also invested

money for keeping the company operational. On the

other hand, the Central Government or State

Government, only derive the advantage of the existing

law, claiming without supplying any goods or rendering

any services. So far as the inventory of ‘Fouress

Engineering (India) Pvt. Ltd.’ is concerned, it is equated

with all the similar placed ‘Operational Creditors’

therefore it cannot allege discrimination. So far as the

‘Shareholders’ or ‘Promoters’ are concerned because of

their failure the ‘Corporate Insolvency Resolution

Process’ got initiated against the ‘Corporate Debtor’ and

‘Successful Resolution Applicant’ pays the dues to all the

creditors on behalf of the ‘Corporate

Debtor’/’Promoters’/’Shareholders’. In lieu of such

payment, it is always open to the ‘Successful Resolution

Applicant’ to claim transfer of shares of

‘Shareholders’/’Promoters’ in its favour. Further it is not

the case that the ‘Resolution Professional’ or the

‘Committee of Creditors’ or that the Adjudicating

Authority found the ‘Resolution Applicant’ to be

ineligible under Section 29A and in absence of any such

evidence, it was not open to the Adjudicating Authority to

observe that the Appellant has a nexus with the

‘Corporate Debtor’.

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solicit work through this update. KSK or its associates are not responsible for any error or omission in this newsletter or for any action taken based on its contents. Unsolicited mails or information sent to KSK will not be treated as confidential and do not create attorney-client relationship with KSK. © 2019-20 King Stubb & Kasiva, India. All rights reserved.

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