NCLT

WITH RELATION TO
INSOLVENCY AND
BANKRUPTCY CODE
What is NCLT?

The National Company Law Tribunal (NCLT) is a quasi-judicial body in

India that adjudicates issues relating to Indian companies. The NCLT was
established under the Companies Act 2013 and was constituted on 1 June
2016 by the government of India & is based on the recommendation of the
justice Eradi committee on law relating to insolvency and winding up of
companies.
All proceedings under the Companies Act, including proceedings relating
to Arbitration, Compromise, arrangements and reconstruction and
winding up of companies shall be disposed of by the National Company
Law Tribunal.
The National Company Law Tribunal is the Adjudicating Authority
for Insolvency resolution process of Companies and Limited Liability
Partnerships under the Insolvency and Bankruptcy Code, 2016.

The NCLT has thirteen benches, two at New Delhi (one being the principal
bench) and one each at  Ahmedabad,
Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipu
r, Kochi, Kolkata and Mumbai. Justice M.M. Kumar, a retired Chief Justice
of the Jammu & Kashmir High Court has been appointed as President of
the NCLT.

The NCLT has the power under the Companies Act to adjudicate
proceedings:

 Initiated before the Company Law Board under the previous act

(the Companies Act 1956);
 Pending before the Board for Industrial and Financial
Reconstruction (BIFR), including those pending under the Sick
Industrial Companies (Special Provisions) Act, 1985;
 Pending before the Appellate Authority for Industrial and Financial
Reconstruction; and
 Pertaining to claims of oppression and mismanagement of a
company, winding up of companies and all other powers prescribed
under the Companies Act.
Decisions of the NCLT may be appealed to the National Company Law
Appellate Tribunal  (NCLAT). The decisions of NCLAT may be appealed to
the Supreme Court of India on a point of law. The Supreme Court of India
has upheld the Insolvency and Bankruptcy Code in it's entirety.
The Supreme Court on Thursday said the National Company Law
Tribunal (NCLT) and the Appellate Authority (NCLAT) should refrain
from interfering in insolvency resolution proceedings by the Interim
Resolution Professional and the Committee of Creditors of the lender
banks of a sick enterprise under the Insolvency and Bankruptcy Code. 

INSOLVENCY AND BANKRUPTCY CODE

An Act to consolidate and amend the laws relating to reorganisation and

insolvency resolution of corporate persons, partnership firms and
individuals in a time bound manner for maximisation of value of assets of
such persons, to promote entrepreneurship, availability of credit and
balance the interests of all the stakeholders including alteration in the
order of priority of payment of Government dues and to establish an
Insolvency and Bankruptcy Board of India, and for matters connected
therewith or incidental thereto.
BE it enacted by Parliament in the Sixty-seventh Year of the Republic of
India as follows:—
(1) This Code may be called the Insolvency and Bankruptcy Code, 2016.
(2) It extends to the whole of India: Provided that Part III of this Code shall
not extend to the State of Jammu and Kashmir.
(3) It shall come into force on such date as the Central Government may, by
notification in the Official Gazette, appoint
Provided that different dates may be appointed for different provisions of
this Code and any reference in any such provision to the commencement of
this Code shall be construed as a reference to the commencement of that
provision.
No timely action by lenders is considered appropriate in an Indian
environment, which destroys the overall value for most creditors. The law
has provisions for such situations, but there are enough and more issues to
deal with, including creditors taking quick decisions during the
moratorium period, appeals to NCLT being resolved amicably and NCLT
relying more on the insolvency professional (IP) to run the process for
quicker disposition. The law is more an operational turnaround than a
legal battleground
The provisions of this Code shall apply to—
(a) any company incorporated under the Companies Act, 2013 or under
any previous company law;
(b) any other company governed by any special Act for the time being in
force, except in so far as the said provisions are inconsistent with the
provisions of such special Act;
(c) any Limited Liability Partnership incorporated under the Limited
Liability Partnership Act, 2008;
(d) such other body incorporated under any law for the time being in force,
as the Central Government may, by notification, specify in this behalf; and
(e) partnership firms and individuals,
in relation to their insolvency, liquidation, voluntary liquidation or
bankruptcy, as the case may be.
The first insolvency resolution order under this code was passed
by National Company Law Tribunal (NCLT) in the case of Synergies-
Dooray Automotive Ltd on 14 August 2017 and the second resolution plan
was submitted in the case of Prowess International Private Limited. The
plea for insolvency was submitted by company on 23 January 2017.
The resolution plan was submitted to NCLT within a period of 180 days as
required by the code, and the approval for the same was received on 2
August 2017 from the tribunal. The final order was uploaded on 14 August
2017 on the NCLT website.
A plea for insolvency is submitted to the adjudicating authority (NCLT in
case of corporate debtors) by financial or operation creditors or the
corporate debtor itself. The maximum time allowed to either accept or
reject the plea is 14 days.
If the plea is accepted, the tribunal has to appoint an Insolvency
Resolution Professional (IRP) to draft a resolution plan within 180 days
(extendable by 90 days).
Following which the Corporate Insolvency Resolution process is initiated
by the court. For the said period, the board of directors of the company
stands suspended, and the promoters do not have a say in the
management of the company.
The IRP, if required, can seek the support of the company’s management
for day-to-day operations. if the CIRP fails in reviving the company the
liquidation process is initiated.

HIGH VALUE CASES

The court said this in the course of the hearing of a petition by

ArcelorMittal on challenging the NCLAT order directing it to clear Rs
7,000 crore liability now beleaguered Uttam GalvaNSE 3.92 % and KSS
Petron with whom he was previously associated by virtue of his 29 per
cent holding. 

The court said that "everything is wrong" in the case of resolution

proceedings on Essar steel. 

Adjudicating Authority (AA) - would be the NCLT for corporate

insolvency; to entertain or dispose any insolvency application,
approve/reject resolution plans and decide in respect of claims or matters
of law/ facts thereof.
In the very first case under the new insolvency regime, ICICI Bank Ltd.
took Innoventive Industries Ltd. to NCLT for defaulting on its debt. The
company challenged the application on grounds that all remedies for
enforcement against it were temporarily suspended, owing to a reprieve it
had won under the Maharashtra Relief Undertaking (Special Provisions)
Act, a state specific labour legislation. 
After several rounds of appeal, the matter reached the apex court, which
rejected Innoventive’s argument. It concluded that the state law cannot
stand in the way of the insolvency code. But Bahram Vakil, founding
partner of law firm AZB & Partners, cautioned against using this ruling to
escape compliance under other central laws.

The insolvency code overrides any inconsistency in any other law. But
many clients ask us, do we have to abide by competition law, by the
Companies Act. In fact, there is a clear Section 30 which says that all
resolution plans must abide by all applicable laws, but if there is an
inconsistency the non-obstante wins.   

The primary issue before the court was whether a ‘dispute’ can exist only if
there are pending legal proceedings between the parties or will a rebuttal
to a claim by the company also qualify as a ‘dispute’.
This ruling has clarified that the requirement of a proceeding being
initiated prior to a notice being issued under the insolvency law is not a
requirement in case of a bona fide dispute, Kumar Saurabh, finance partner
at law firm Khaitan & Co told BloombergQuint.
It’s a very fair position because otherwise operational creditors using it
just for debt recovery is not the objective of the insolvency code. And
clearly that sort of an approach had to be discouraged.

The third important case under the insolvency regime is the one that
marked the first approval of a resolution plan. The case brought to the fore
the possibility of promoters managing voting rights of the committee of
creditors. The insolvency code prohibits inclusion of related parties in the
committee of creditors but Synergies Dooray Automotive Ltd.’s affiliate,
Synergies Casting, succeeded in

The insolvency code prohibits inclusion of related parties in the committee

of creditors but Synergies Dooray Automotive Ltd.’s affiliate, Synergies
Casting, succeeded in indirectly violating this provision by assigning more
than 90 percent of its debt to a third party financial institution, Millennium
Finance, or so claimed Edelweiss Asset Reconstruction Company – 
Synergies Dooray’s financial cr

Edelweiss went on to challenge the constitution of the committee of

creditors, alleging that the assignment of debt by Synergies Casting to
Millennium Finance was with the ulterior motive of reducing its voting
rights. However, Edelweiss’ argument did not find favour with the NCLT.
The tribunal noted that assignment of debt was legally permissible during
the pendency of insolvency proceedings and 

Aggrieved by NCLT’s decision, Edelweiss has challenged it before the

appellate tribunal. While discussing the alleged motives of the promoters
in trying to control the committee of creditors, Vakil said that if what was
alleged has indeed happened, it is very unfortunate.

“The U.K., Brazil and many other countries did mention that in the first
few years you come up with all these difficulties, so the sooner you
recognise them the sooner these kinds of shenanigans can be stopped. For
sure, it will happen in every country. The sooner you stamp it out, the IB is
going to be extremely cautious in future.”

NOTE : Under Section 7 - Financial creditor can, either alone or jointly

with others, file an application before NCLT for initiating IRP when default
has occurred. Default includes a default in respect of a financial debt
owned not only to the applicant financial creditor but to any other financial
creditor of the corporate debtor.
Though Code does not specifically says so but from the scheme of the
Code, it is apparent that the petition under Section 7 and 8 of the Code
shall not be maintainable if there is a slightest dispute or doubt about the
payability of the amount claimed either by (i)Financial Creditor or by
(ii)Operational Creditor. The above provisions has been held in the case
law Annapurna Infrastructure Pvt. Ltd and Ors. Vs. Soril Infra Resources
Ltd. MANU/NC/0190/2017 where the petition is rejected since the amount
claimed was in dispute due to a counter claim.
Copy of Certificate from the financial institutions maintaining accounts of
the operational creditor confirming that there is no payment of an unpaid
operational debt by the corporate debtor. The NCLT has dismissed number
of petitions where the certificate has not been enclosed from the banker
about the non-receipt of payment in respect of which the petition has been
filed.
For the purpose of application for stay the documents mainly required are :
a)Board Resolution authorizing person who signed petition
b)Evidence of Fees of Rs.2,500 – The DD in the name of The Pay &
Accounts Officer, Ministry of Corporate Affairs;
c)Copy of Memorandum & Article of Corporate Debtor;
d)Application for interim stay
The NCLT under Section 7(4) shall, within 14 days from the receipt of an
application, ascertain the existence of default from the records of
information utility or on the basis of other evidence furnished by the
financial creditors.

SECTION 7(5) – ADMISSION OF PETITION BY NCLT

Where NCLT is satisfied that default has occurred and application is

complete in all respect and no disciplinary proceedings are pending
against the proposed Interim Resolution Professional –
(a) Invariably the NCLT is also requiring a certificate from IRP saying that
he is not attached or connected to the Petitioner Company. Therefore, a
separate certificate may be obtained and annexed along with the
petition.

But, where NCLT is satisfied that no default has occurred or application is

incomplete or any disciplinary proceedings are pending against the
resolution professional, it may, by order, reject the application. NCLT shall
before rejecting application give notice to the applicant to rectify the
default in his application within seven days of receipt of such notice from
NCLT. It is mandatory on the part of the Petitioner Company to remove
the defects within a period of seven days failing which, on many occasions,
the Company Petition has been dismissed.
SECTION 14 – SCOPE OF MORATORIUM

The NCLT under Section 14, shall prohibit all the following: The institution
of suits or continuation of pending suits or proceedings against the
corporate debtor including execution of any judgment, decree or order in
any court of law, tribunal, arbitration panel or other authority.
Transferring, encumbering, alienating or disposing of by the corporate
debtor any of its assets or any legal right or beneficial interest therein; Any
action to foreclose recover or enforce any security interest created by the
corporate debtor in respect of its property including any action under the
Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002.

The recovery of any property by an owner or lessor where such property is

occupied by or in the possession of the corporate debtor.

APPROVAL OF RESOLUTION PLAN

When the NCLT is satisfied that resolution plan approved by committee of

creditors meets requirement of the Code, it shall, by order, approve the
plan. An approved plan is binding on debtors and its employees, members,
creditors, guarantors and other stakeholders in the resolution plan.
However, where the NCLT is satisfied that resolution plan does not meet
requirement of the Code, it may, by order, reject the plan. On approval of
resolution plan, the IRP is closed. When IRP is closed, the moratorium
ceases to have effect, resolution professional is relieved of his duties and all
documents related to IRP are consigned to board.

POWER TO INITIATE LIQUIDATION PROCESS

The NCLT has power to order liquidation if resolution plan has been
rejected as it fails to meet the requirements of the Code; or maximum time
allowed for resolution process has expired without any resolution plan
being agreed upon; or during the IRP but before confirmation of resolution
plan committee of creditors through resolution professional intimates
adjudicating authority to about its decision to liquidate the corporate
debtor; or when the corporate debtor, or any person connected with
corporate debtor, contravenes the approved resolution plan.
Where IRP fails and liquidation proceedings have started the resolution
professional continues to act as liquidators, but, new liquidator is
appointed in case IRP has failed because it did not meet requirement of
law or there is a complaint against resolution professional.

DISSOLUTION ORDER

When the business operations of the corporate person have been

completely wound up and its assets have been completely liquidated, the
liquidator shall make an application to the NCLT for dissolution of
corporate person. On such application being filed,the NCLT shall order
that corporate person shall be dissolved from the date of the order. The
order of NCLT has effect of dissolving the corporate person from the date
of order.
Order of dissolution is required to be forwarded within seven days
(fourteen days in case of voluntary liquidation) from the date of order to
the authority with which the corporate debtor (corporate in case of
voluntary liqidation ) is registered.

AVOIDANCE OF PREDERENTIAL TRANSACTIONS

When liquidator or resolution professional, as the case be, is of the opinion

that a corporate debtor during the period specified under the Code has
transferred any property or an interest thereof of the debtor to specified
persons on account of antecedent debt or liability in a manner putting
specified person in a beneficial position than it would have been in the
event of a distribution of assets in liquidation(preferential transaction), he
shall apply to NCLT for avoidance of such transactions.
When an application for avoidance of preferential transaction is made, the
NCLT may, inter alia by an order require that property transferred be
vested in the corporate debtor; or release or discharge security interest
created by the corporate debtor; or require payment by any person of sum
in respect of benefit received by him from such transaction; or restore the
position of guarantor whose debts were released or discharged; or direct
providing security or charge on any property for discharge of any debt
under order.

The period specified in respect of transactions with related parties is two

years preceding the insolvency commencement date and one year
preceding the insolvency commencement date in other transactions.

CONCLUSION

The formation of national company law tribunal and national company

law appellate tribunal has been playing an important role in dissolving the
corporate dispute. It has been denoted as beneficiary in the eyes of law to
give some special protection and care to the corporate side (Bowman 2011)
as the countries, financial growth depends on the growth of the business.
In order to have an healthier corporate governance the NCLT has been
established. (Jones 2017) (Jones 2017; Petrakis 2015) There has been marked
a change in the companies sector due to the formation and effective
function of the NCLT and NCLAT. And it was also further held that there
would be no violation in separation of powers as only a limited power has
been given to the company as upheld in UNION OF INDIA v. R. GANDHI
[2010 11 SCC 1] . And the constitutional validity was given to the nclt in
this case for maintaining the inner and outer peace of the company sector.
The formation of NCLT would have played an important role in the
settlement of company dispute if it was implemented effectively and
administered properly. The main problem faced by the nclt is its
inefficiency to solve the corporate dispute within a framed time . For
speedy disposal of case proper implementation must be done by the
central government.

RECOMMENDATIONS: From the researchers point of view the only

reason why the cases are still pending is due to the less branches available
for NCLT. The sources conclude that there are only 11 branches for the nclt
. And there should at least be 2 or more branches in a state where the
corporate sector is said to be high so that cases won’t be pending beyond
its framed time. And also the time limit for each case should be strictly
followed .