IBC Case Law

Interpretation

1. Supreme Court: Macquarie Bank Limited v. Shilpi Cable Technologies Ltd. (15th Dec 2017)
Facts: Appellant filed s. 9 application in NCLT after the Respondent replied to the demand
notice u/s 8 saying that there existed no outstanding default on its part. NCLT rejected
the application on two grounds:
(1) The application was incomplete without a certificate from financial institution
under Section 9(3)(c). Appellant Bank itself was not a financial institution as it was
a foreign bank.
(2) There was an existence of dispute before the Demand Notice was furnished upon
the Corporate Debtor as per Section 8(2)(a).
NCLAT upheld the NCLT order stating that 9(3)(c) was mandatory and that the demand
notice was not proper as it was signed by the Appellant’s lawyer and not the creditor
himself.
Held: SC gave a liberal interpretation to provisions of the Act in order to prevent hardship
for the Appellants. The requirement of certificate under 9(3)(c) was held to be not
mandatory for substantiating the existence of default as it can be proved by other
documents as well. Further, lawyers have implied authority to act on behalf of their
clients and thus the demand notice was proper.

2. Supreme Court: ArcelorMittal India Private Limited v. Satish Kumar Gupta

Facts: There was a bidding war for the insolvent company Essar Steel India Limited between
ArcerolMittal India Private Limited and Numetal Limited. At the resolution stage, the
resolution professional disqualified both ArcelorMittal and Numetal. ArcelorMittal
was found to have been the promoter or exercised control over two companies, Uttam
Galva Steels Limited and KSS Petron Limited, which owed dues to banks and financial
institutions that remain unpaid. In the case of Numetal, it was found that the company
was established in the lead up to the resolution of Essar Steel and that it was
essentially controlled by Rewant Ruia, who is the son of Ravi Ruia (one of the
promoters of Essar Steel). The NCLT affirmed the resolution professional’s
disqualification of both bidders. On appeal, however, the NCLAT agreed with
ArcelorMittal’s disqualification, but came to a different conclusion regarding Numetal
because Rewant Ruia had by then divested his Numetal interests in favour of VTB, a
Russian entity. It was against this decision that ArcelorMittal approached the Supreme
Court.
Held: Both Resolution Applicants were disqualified under 29A(c). Exercising its powers
under Art. 142 the Supreme Court ordered that both bidders need to clear the dues
 owed in respect of other companies forming part of their group if they wish to submit
fresh resolution plans, which they must do within two weeks
Corporate veil: The SC called 29A a “see through provision”, applying a purposive
interpretation (mischief rule), so that one is able to arrive at persons who are actually
in “control”, whether jointly, or in concert, with other persons, thus lifting the
corporate veil. The court also held that
If it is shown, on facts, that, at a reasonably proximate point of time before the
submission of the resolution plan, the affairs of the persons referred to in
Section 29A are so arranged, as to avoid paying off the debts of the non-
performing asset concerned, such persons must be held to be ineligible to
submit a resolution plan, or otherwise both the purpose of the first proviso to
sub-section (c) of Section 29A, as well as the larger objective sought to be
achieved by the said sub-clause in public interest, will be defeated.
Management & Control: management- de jure BoD, control- de jure (rt to appoint
majority directors) & de facto (ability to influence) control. The expression “under”
would seem to suggest positive or proactive control, as opposed to mere negative or
reactive control.
Timelines: On the question of whether the adjudicatory and appellate process will be
excluded from the timelines, where a resolution plan is upheld but the time to decide
an application extends beyond the period of 270 days, the period of time taken in
litigation ought to be excluded, as otherwise a good resolution plan may have to be
shelved, resulting in corporate death, and the consequent displacement of employees
and workers. The act of the Court shall harm no man.

3. Supreme Court: Innoventive Industries Limited v. ICICI Bank Limited

The first IBC case decided by SC. The broad issues before the Supreme Court were -
(i) what is the concept of default under the Insolvency Code and how it must be
ascertained;
Scope of ‘default’ is very wide. It is simpliciter a non-payment of debt when the
same becomes due and includes non-payment of even a part thereof. It is of no
matter that the debt is disputed so long as the debt is “due”. NCLT must
ascertain the existence of a default within 14 days of the receipt of the
application. Speed is important.
(ii) what is the scope and extent of enquiry at the admission of a insolvency
application;
Under Section 7, the adjudicating authority has merely to see the records of the
information utility or other evidence produced by the financial creditor to satisfy
itself that a default has occurred. The scope of enquiry is therefore limited to
assessing the records provided by the financial creditor to satisfy itself that the
default has occurred.
(iii) what is the scope of hearing to be provided to a corporate debtor;
 At the stage of Section 7(5), the corporate debtor is entitled to point out that a
default has not occurred in the sense that the “debt”, which may also include a
disputed claim, is not due. A debt may not be due if it is not payable in law or in
fact.
(iv) whether the protection granted under the Maharashtra Relief Undertaking Act
(MRU Act) renders an application under the Insolvency Code not maintainable.
MRU Act operates in the same field as the Insolvency Code and is repugnant to
Insolvency Code and that the later non-obstante clause (Section 238) of the
Parliamentary enactment (Insolvency Code) will also prevail over the limited non-
obstante clause contained in Section 4 of the Maharashtra Act.

Constitutional validity and ultra vires

4. Supreme Court: Swiss Ribbons Pvt. Ltd. v. UOI

Constitutional validity of IBC. Upheld in entirety. Contentions & decision –
 economic laws, less scrutiny, viewed with greater latitude.
 Madras Bar Association case – NCLAT should not be under MCA but ML&J.
 Distinction between FC & OC – not manifestly arbitrary under Art 14. OCs don’t have
voting rts because only FCs can keep CD a going concern, as they have capability to
assess the viability and willing to modify the existing terms of liabilities.
 12A- not manifestly arbitrary, mechanism is free from possibilities of unfair
withdrawal as the NCLT is the final approving authority, and decision can be
challenged in NCLAT.
 IUs – created to reduce information asymmetry, improving credit risk assessment and
speed-up resolution. Information is only a prima facie evidence of default, which can
be rebutted.
 Adjudicatory powers of the resolution professional – IRP/RP only has administrative
powers. Liquidator has quasi-judicial powers, his determination of the value of claim
is in the nature of a ‘decision’, thus an appeal lies against such determination.
However, the IRP is only empowered to submit its report for the final determination
by the adjudicating authority.
 29A – constitutional. Retrospectively OK as resolution applicant does not have any
vested right

5. Supreme Court: Dharani Sugars and Chemicals Ltd. v. Union of India

SC struck down RBI’s February 12 Circular as ultra vires section 35AA of the Banking
Regulation Act, 1949 because of two reasons:
1. The power was to be exercised under the authorization of the Central
Government; and
2. Power was to be exercised only after ‘due deliberation and care’ and only in
relation to ‘specific defaults’.
6. Supreme Court: Karamchari Union of Moserbaer India Ltd. (Art 32 writ petition)
(ongoing case) The Supreme Court has issued a notice to Centre and Moser Baer India
on a petition challenging the validity of Section 327(7) of the Companies Act, 2013, to
the extent that Section 327 (7) renders the meaning of the Explanation (II) to Section
53 of the Code (which incorporates section 326 of Companies Act) meaningless.
The petition claims that Section 327 (7) of the Companies Act, 2013 creates an artificial
embargo by ousting the application of Section 326 of Companies Act, 2013 to the
proceedings under IBC, 2016 which results in exclusion of “Workmen Dues” which
results in violation of Right to Livelihood as the statutory dues which are rights of every
employee/workmen gets denied. By excluding the applicability of Sections 326 and
327 from the proceedings under the Code, there is an ambiguity as there is no
definition of “Workmen’s Dues” under the Code, being in stark violation of Article 21
of the Constitution.

Dispute under IBC

7. Supreme Court: Mobilox Innovations Private Limited Vs. Kirusa Software (2017)
Interpretation of Section 8 (2) (a): "The word "and" occurring in Section 8 (2) (a) must
be read as "or". The existence of the dispute and/or suit or arbitration proceeding
necessarily be "pre-existing", that is to say, it should exist prior to receipt of the
Demand Notice. To determine a dispute the SC applied the ‘plausible contention’ test.
The adjudicating authority has to see whether there is a plausible contention which
requires further investigation and that the “dispute” is not a patently feeble legal
argument or an assertion of fact unsupported by evidence.

Resolution Plan

8. NCLT (Chennai): Orchid Pharma Limited (28th Feb 2019)

NCLT annulled the previously approved resolution plan as the resolution applicant,
Ingen Capital, failed to infuse the promised money, even after the stipulated time and
despite the bench giving it an option to deposit upfront Rs 1,000 crore and later about
one-third of the planned resolution amount, towards financial creditors. NCLT gave
105 additional days for CIRP excluding the time the company lost from the first bidding
process and directed the RP and CoC to call for fresh bids.

9. NCLT (Ahmedabad): Standard Chartered Bank v. Essar Steel India Limited

Approved ArcelorMittal Resolution Plan. NCLT held that it’s jurisdiction does not allow
it to substitute its view with the commercial wisdom of CoC or conduct judicial review
of Resolution Plan. 30(2)(e) stipulates that plan cannot violate any provisions of law
and thus the Resolution Applicant has to comply with laws of the land and cannot
 claim reliefs and concessions as a matter of right. One years time for obtaining all
regulatory approvals.

CoC: Formation, Roles and Responsibilities

10. NCLT (Chennai) Anandram Developers Pvt. Ltd. (16th Apr 2019)
Application moved by the Asset Reconstruction Company (India) Ltd (Arcil). Held that
a party having a vested interest /relation with a corporate debtor should not be a part
of the Committee of Creditors (CoC). The CoC’s decisions will impact the debtor’s
survival or liquidation, and the debt realisation of all the creditors. Therefore, the
institution of CoC needs to be completely independent and free from any kind of
influence — either of the promoters or their close relatives who may have stakes. The
IRP has to conduct a forensic audit to examine the “fraudulent and avoidance
transactions” over the claims of the creditors.

Timelines under IBC

11. Supreme Court: Surendra Trading Company Vs. Juggilal Kamlapat Jute Mills Co. Ltd. &
Ors. (19th Sept 2017)
Sections 7(5), 9(5) and 10(4) of IBC are procedural in nature and cannot be treated to
be a mandate of law. The object behind the time period prescribed under the
aforementioned sections is to prevent the delay in hearing the disposal of the cases
and the Adjudicating Authority cannot ignore the provisions, but in appropriate cases,
for the reasons to be recorded in writing, it can admit or reject the petition after the
period prescribed under section 7, 9 or 10. The object of specified timelines is to
expedite the hearing and not to scuttle the same.

12. NCLT (Allahabad) LML Limited (23rd Mar 2018)

Anil Goel (RP) failed to meet timelines and submit Progress Report/Resolution Plan
even after 270 days. NCLT refused to appoint him as Liquidator and directed the IBBI
to appoint a suitable person as Liquidator.

13. NCLAT Sanjeev Shriya Vs. LML Ltd. & Ors. (20th Aug 2018)
After completion of statutory period of 270 days, the NCLT had no option but to order
liquidation of the Corporate Debtor. The Resolution Plans were not approved by the
CoC as they were not in accordance with § 30(2). Thus, even if extension is granted it
will not serve useful purpose in absence of any valid Resolution Plan. NCLAT refused
to grant extension and upheld order of NCLT.

14. NCLT (New Delhi) Su Kam Power Systems Limited (3rd Apr 2019)
Application for Liquidation filed by RP allowed as no eligible Resolution Plan was
submitted during the CIRP despite multiple public announcements.
 Personal Guarantors during Moratorium

15. Delhi HC Sanjeev Shriya v, SBI (6th Sept 2017)

The liability of the CD and guarantors is co-extensive but the entire proceeding is still
in a fluid stage and for the same cause of action, two split proceedings cannot go
before the DRT and NCLT simultaneously. Liability has not been crystallized either
against the principal debtor or guarantors and hence, the proceeding pending before
the DRT cannot continue and the same was stayed till finalization of CIRP/liquidation.

16. Supreme Court State Bank of India v. V. Ramakrishna & Anr (Civil Appeal No. 3595-2018)
Amendment to §14(1) held to be clarificatory and retrospectively applicable. Thus,
personal guarantors are excluded from moratorium.

Settlement after admission of CIRP Application

17. NCLAT: Prowess International Pvt. Ltd. Vs. Parker Hannifin India Pvt. Ltd. (18th Aug 2017)
Tribunal has no power to allow withdrawal of application after admission under Rule
8 of AAA Rules, when the order admitting the application has not been challenged.
Earlier, NCLT had dismissed the application for withdrawal of the petition, and held
that after the admission of the petition, it acquires the character of representative suit
and through publication in the newspapers, other creditors get a right to participate
in the insolvency resolution process, and therefore, petition cannot be dismissed on
the basis of compromise between the operational creditor and corporate debtor;

18. Supreme Court Lokhandwala Kataria Construction Pvt. Ltd. v. Nisus Finance and
Investment Manager, LLP
Can Rule 11 of NCLAT Rules (inherent power of NCLAT) be invoked to allow withdrawal
of application after admission in view of Rule 8 of AAA Rules, 2016 (withdrawal of
application before admission). NCLAT was of the view that the inherent power could
not be so utilized. SC stated that prima facie this is the correct position in law.
However, SC allowed the same in this case under Art 142 of Constitution by taking
consent terms on record.

19. Supreme Court Uttara Foods and Feeds Private Limited Vs. Mona Pharmachem (2017)
SC allowed settlement and directed that the Rules be amended by the competent
authority so as to include inherent powers to allow withdrawal of application after
admission. Order sent to Ministry of Law & Justice. Later 2nd Amendment Act inserted
§12A allowing withdrawal with 90% CoC.

20. NCLT (Mumbai) Andra Bank v. Sterling Biotech Limited (5th Apr 2019)
Although more than 90% of creditors approved OTS offer, the NCLT refused to allow
withdrawal under § 12A as the application was not filed through RP, but directly by
 Andra Bank, the creditor. The RP filed the application after the expiry of CIRP period
of 270 days, after which no extension could be granted and no such application
admitted.

Limitation under IBC

21. NCLAT Neelkanth Township and Construction P.L. Vs. Urban Infrastructure Trustees
(2017)
Limitation Act is not applicable to claims under IBC. Debentures once matured,
constitute ‘financial debt’.