CRE PROBLEM – 6 AND 7

COMPANY LAW-I

BACKGROUND FACTS
1. The Democratic Republic of Howdystan (“Howdystan”) is a country located in
central Asia and is one of the largest democracies in the world. In the year 2016, the
legislature of Howdystan, in an effort to overhaul its law on insolvency, enacted the
Insolvency and Bankruptcy Code, 2016 (“IBC”), which in turn amended some
provisions of their Companies Act as well.
2. The IBC provided a lengthy procedure which allowed a creditor to commence the
insolvency resolution process on the default of the corporate debtor.
3. Jake Peninsula Pvt. Ltd. (“Peninsula Co.”) is a company incorporated under the
Companies Act of Howdystan and is engaged in the business of selling merchandise
of the “Die-Hard” movie franchise.
4. Amarte Santiago Financial Services Ltd. (“Amarte Ltd.”) is one of the largest
financial institutions operating in Howdystan and is known to be a bank which is very
particular about its payment schedules.
5. Charles Boyle (“Boyle”) is a small supplier of cloth in Howdystan. He was
particularly fond of doing business with Peninsula Co. and had signed an exclusivity
agreement with Peninsula Co. to supply all the cloth for their line of merchandise.
6. Diaz & Jeffords Apparel Ltd. (“Diaz & Jeffords”) is the largest apparel and lifestyle
brand in Howdystan and is looking to strengthen their position further in the market.

DISPUTE FACTS
1. Peninsula Co. had taken a loan of INR 3,00,00,000 (Rupees Three Crore) from
Amarte Ltd. to be paid back in 3 equal installments of INR 1,00,000 (Rupees One
Crore) at 12% p.a. compound interest.
2. Peninsula Co. had been going through a slump in its sales as the popularity of the
“Die Hard” franchise diminished in Howdystan, with people more interested in the
merchandise of bigger and better movie franchises like “Golmaal” and “Housefull”.
3. Thus, Peninsula Co. going through a period of financial difficulty defaulted in
payment of its very first installment to Amarte Ltd.
4. Amarte Ltd. gave Peninsula Co. a six-month extension to pay but Peninsula Co. was
still unable to make any payment. Thus Amarte Ltd. made an application before the
National Company Law Tribunal (“NCLT”) to commence the Corporate Insolvency
 Resolution Process (“CIRP”) and appoint Ms. Jia Linetti (“Jia”) as the Interim
Resolution Professional. The application was accepted and NCLT passed an order to that
effect.
5. Jia then invited submission of claims from all creditors of Peninsula Co. who had
claims against the company to form the Committee of Creditors (“CoC”). Boyle was
also part of this CoC.
6. The CoC was then asked to confirm whether Jia could be appointed as the Resolution
Professional (“RP”). With an overwhelming majority Jia was confirmed as the RP.
Boyle, however did not approve of Jia as the RP as he had some personal differences
with her. To his dismay he was not allowed to vote in the CoC being an “operational
creditor”.
7. According to Boyle there was no basis of differentiating and classifying operational
and financial creditors and this classification was arbitrary. Thus he challenged the
constitutional validity of such a classification under the IBC before the Supreme
Court of Howdystan. (Writ Petition No. 01/2019).
8. Even with this petition pending before the Apex Court, Jia decided to go ahead with
inviting Resolution Applicants to submit resolution plans for Peninsula Co.
9. Diaz & Jeffords were interested in submitting a resolution plan and inquired with Jia
regarding some key information of the company so that they could prepare a
resolution plan.
10. However, Jia informed Diaz & Jeffords that it was disqualified under Section 29A(c) of
the IBC as prior to the commencement of the CIRP for Peninsula Co., Diaz & Jeffords
had control over Hitchcock & Scully Enterprises (“Hitchcock & Scully”) who had been
classified as a Non Performing Asset (“NPA”) by the RBI for over a year.
11. Diaz & Jeffords argued that Hitchcock & Scully was something they had given up
control of a year ago as it was never going to recover. Feeling aggrieved, Diaz &
Jeffords challenged the constitutional validity of Section 29A of the IBC before the
Apex Court of Howdystan. (Writ Petition No. 02/2019).
12. The Chief Justice of Howdystan while evaluating the petitions issued the following
order:

“Both the Writ Petitions present questions of law which have

been already decided by this very Court in its judgment in the
matter of Swiss Ribbons Pvt. Ltd. v. Union of India dated January
25, 2019. However, after perusing the written arguments, I am of
the opinion that these questions of law need to be considered
 again. Hence both petitions are clubbed together and the
matter will come up again on October 4, 2019”

ADDITIONAL INSTRUCTIONS
1. The Laws and case law of Howdystan are pari materia to those of India.
2. The students are not required to argue the constitutional validity of the entire IBC.
Please stick to the two questions of law which have been raised in the petitions.
3. Please do not restrict your arguments to those given in Swiss Ribbons v Union of
India. Students are encouraged to come up with new and creative arguments and will
be marked favourably.
4. Students are encouraged to prepare compendiums and will be marked favorably.
5. Please quote the exact paragraph of the judgments and the problem when you are
referring to the same in the memo.
6. Memo submission time is 8 PM one day before CRE.