2021 (2) TMI 753 - HC - Companies Law

Recovery action by secured creditors and financial institutions who extended financial help to the original borrowers / guarantors - action under section 29 of the State Financial Corporation Act 1951 - HELD THAT - A part of the sale consideration was converted into loan and the said purchaser M/s. Shree Industries Ltd. also defaulted and the said purchaser / borrower approached the BIFR / AAIFR under the provisions of the Sick Industrial Companies (Special Provisions) Repeal Act 1985 as it then existed and while the proceedings were pending before the BIFR / AAIFR a new law in the form of the Insolvency and Bankruptcy Code 2016 came to be enacted by the Parliament and the proceedings regarding insolvency Resolution / Recovery from the defaulting corporate debtor on its winding-up were to be taken up by the National Company Law Tribunal (NCLT) which was constituted under the provisions of Section 408 of the Companies Act 2013. Section 408 of the Companies Act 2013 stipulates that the NCLT shall exercise such powers and functions as may be conferred on it by the provisions of the Companies Act 2013 or any other law for the time being in force. Under the provisions of IBC 2016 the NCLT is designated and defined as the Adjudicating Authority and thus has all the relevant powers to deal with these issues - In view of Section 408 of the Companies Act 2013 stipulates that the NCLT shall exercise such powers and functions as may be conferred on it by the provisions of the Companies Act 2013 or any other law for the time being in force. Under the provisions of IBC 2016 the NCLT is designated and defined as the Adjudicating Authority and thus has all the relevant powers to deal with these issues. It appears that the Company whose reference was pending before the BIFR / AAIFR could make a reference to the NCLT under the provisions of the IBC 2016 within 180 days from the date of commencement of the IBC 2016 which is 28.05.2016 - If the said Company whose reference is pending before the BIFR / AAIFR does not make such reference to the NCLT then what happens to the pending proceedings seems to have not been specified in the provisions of the IBC 2016 or other relevant laws. Whether the abatement will become final or such pending proceedings could be referred to the NCLT by any of the parties or by the Court is a question for our consideration. As prayed by Learned Counsel time is granted to them to make submissions on the following points - (i) Whether any proceedings in any manner in respect of the Assets of the Company in question M/s. Ganpati Pulp and Paper Mills Ltd or M/s. Shree Industries Ltd. are pending before the NCLT or not and if the proceedings are pending the details and status of the same may be placed before the Court? (ii) If no such proceedings are pending before the NCLT as of now whether this Court can refer the entire matter to the NCLT and direct it to decide all the questions of law involved in the present case and the questions of facts including the respective rights of the secured creditors leaving it open to the parties to raise their respective claims / counter-claims and defences before the NCLT at this stage or not? Put up on 09.02.2021 on the top of the Board as prayed.

Summary

Issues involved:
Recovery action by secured creditors and financial institutions, abatement of proceedings under the Insolvency and Bankruptcy Code, 2016, pending proceedings before the National Company Law Tribunal (NCLT), reference to NCLT from BIFR/AAIFR, powers and functions of NCLT under the Companies Act, 2013 and IBC, 2016.

Detailed Analysis:

1. Recovery Action by Secured Creditors and Financial Institutions:
The case involves a recovery action by secured creditors and financial institutions against the original borrowers and guarantors who defaulted on loans. The Borrower Company went into liquidation, and its assets were taken over by a purchaser. Subsequently, the purchaser also defaulted, leading to proceedings under the Insolvency and Bankruptcy Code, 2016.

2. Abatement of Proceedings under IBC, 2016:
The judgment discusses the abatement of proceedings against the second defaulter company, M/s. Shree Industries Ltd., under the Insolvency and Bankruptcy Code, 2016. It highlights the provisions of The Eight Schedule under section 252 of the IBC, 2016, which address the abatement of pending appeals or references before the Appellate Authority or the Board under the Sick Industrial Companies Act, 1985.

3. Pending Proceedings before NCLT:
The issue of pending proceedings before the National Company Law Tribunal (NCLT) is raised, questioning whether the company involved should make a reference to the NCLT within a specified timeline. The judgment explores the implications of not making such a reference and the lack of clarity in the provisions regarding the finality of abatement or the possibility of referring pending proceedings to the NCLT.

4. Reference to NCLT from BIFR/AAIFR:
The judgment delves into the process of referencing cases from the Board for Industrial and Financial Reconstruction (BIFR) or the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) to the NCLT under the Insolvency and Bankruptcy Code, 2016. It emphasizes the timeline within which such references should be made and the consequences of failing to do so.

5. Powers and Functions of NCLT under Companies Act, 2013 and IBC, 2016:
The judgment elucidates on the powers and functions of the National Company Law Tribunal (NCLT) as the Adjudicating Authority under the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016. It underscores the NCLT's authority to deal with insolvency resolution and recovery matters concerning defaulting corporate debtors.

In conclusion, the judgment addresses complex legal issues surrounding recovery actions, abatement of proceedings under the Insolvency and Bankruptcy Code, pending cases before the NCLT, referencing procedures from BIFR/AAIFR, and the powers of the NCLT under relevant laws. It seeks further submissions on specific points related to pending proceedings and the potential referral of the matter to the NCLT for resolution.