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IBC - Case Laws
Showing 221 to 240 of 9149 Records
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2024 (8) TMI 997
Initiation of CIRP - authentication of default as contemplated in Regulation 21, not taken - information of default not filed with the information utility - it was held by NCLAT that 'There are no substance in any of the submissions raised by the Counsel for the Appellant to interfere with the impugned order of the Adjudicating Authority' - HELD THAT:- There are no reason to interfere with the order of the National Company Law Appellate Tribunal - appeal dismissed.
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2024 (8) TMI 996
Entitlement to file an appeal as an Independent Director in the Corporate Debtor - aggrieved person regarding acceptance of claim of the financial creditor or the quantum of financial credit admitted or not - it was held by NCLAT that 'The claim, as well as constitution of CoC with voting share as per claim, was in the knowledge of appellant from the very beginning. There are no fault in the RP’s admission of claim of Respondent No. 2'.
HELD THAT:- There are no reason to interfere with the impugned order - appeal dismissed.
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2024 (8) TMI 910
Oppression and mismanagement - wrongful infusion of money - Corporate Debtor along with other family owned business entities were in nature of quasi-partnership or not - equal representation in the BoD - casting vote is privilege of the Chairman of the BoD or can be done away by the Adjudicating Authority as done in the Impugned Order.
HELD THAT:- The lack of probity or equity would be more relevant factors in the cases of “oppressions”. This will further imply that intention behind of the action taken by the Corporate Debtor or person in charge of the company would also be relevant factor to look into such allegations of “oppression of mismanagement” - the oppressive actions are taken by the majority of shareholders which are pre-judicial to the minority members of the company. In the present case, it is already noted that both the Appellants and the Respondents are holding equal shareholding of 50:50 as such there is no majority shareholders. It is primarily the issue of control of the management of the Corporate Debtor.
Whether such appointment or non appointment of the Director on BoD can be cause of “oppression and mismanagement”? - HELD THAT:- It is already noted that the act of “oppression and mismanagement” should be pre-judicial to a member of the company and not against the director of the BoD. Technically and legally speaking the appointment and removal of directors cannot be treated as act of “oppression and mismanagement”.
The principles of quasi-partnership is not foreign to the concept of the Companies Act, 2013. For the purpose of grant of relief, the principles of quasi- partnership had been applied even in a public limited company. It is held that the true character of the Company and other relevant factors should be considered to decide the true factor of ‘quasi-partnership’ - the reasoning given by the Appellant No. 2 that he was getting old to run the affairs of the company are contradicted by himself after assuming the charge of Chief Operating Officer of the company. It clearly reflects that the intent was to oust (Respondent No. 1) and his family from the management and to have full control of the company by his family members.
The casting vote were invoked only 2015 onwards when dispute arose between the parties and subsequently majority of such casting votes were used for benefits of the Appellants rather than for the company. It is appreciated that the disqualification of both the directors of company i.e., Appellant No. 2 and Respondent No. 1 would have rendered company without any director which is not permissible - the Adjudicating Authority took decision to remove the casting vote in these extraordinary circumstances which created company imbalance by one set of 50% shareholders taking all decisions for their own benefits and denying any right to other 50% shareholders. Based on the strength of the shareholding one can legitimately expect to have representation and say in the BoD of the company if otherwise eligible under Companies Act, 2013.
Appeal dismissed.
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2024 (8) TMI 855
Violation of principles of res judicata as provided under Section 11 of the Code of Civil Procedure, 1908 - Suppression of relevant facts from the CoC - discrepancy in examining financial capability and eligibility of a Joint Resolution Applicant, [PRA] Mr. Sushant Chabbra, who is a former director of the Corporate Debtor and also a director in Unitech Machines Limited, a company undergoing CIRP proceedings - disposal of the assets of Corporate Debtor without the approval of CoC - executing lease agreement with the Prospective Resolution Applicants with respect to assets of Corporate Debtor without the approval of CoC - Review of order by Disciplinary Committee - Disciplinary Committee can sit in appeal against its own order or not.
HELD THAT:- In the first round, when the Petitioner was confronted with Mr. Sushant Chabbra’s suspension, he responded by saying that since Corporate Debtor was registered under the Micro, Small and Medium Enterprises Development Act, 2006, in 2007, the ineligibilities under Clause (c) and (h) of Section 29A of the Code were not applicable and, thus, Mr. Sushant Chabbra is eligible to be a Joint Resolution Applicant.
Subsequently, it came to light that the MSME certificate furnished by Petitioner stood cancelled on 22nd December, 2017 and, thus, it emerged that Corporate Debtor was not an MSME as on the date of commencement of CIRP, i.e., 04th July, 2019. Considering the date of initiation of the CIRP proceedings of Corporate Debtor, the criteria for classification of an enterprise as MSME would have to be governed by the provisions of Ministry of MSME Office Memorandum (OM) F. No. 12(4)/2017-SME dated 08th March 2017, as per which gross block for investment in plant and machinery as shown in the audit accounts were taken into account - It can be seen that that investment in plant and machinery in the three years preceding the commencement of CIRP was more than INR 10 crores. Therefore, in terms of Ministry of MSME Office Memorandum dated 08th March, 2017, Corporate Debtor was not an MSME.
In light of the new information received by IBBI, in the opinion of the Court, the foundation of the Second SCN is based on a different issue altogether. Thus, Petitioner’s thrust of arguments that SCN is only a mirror copy of the First SCN and the principles of res judicata would apply, is not appealing. The concerns with respect to Mr. Chabbra’s eligibility as dealt with pursuant to the Second SCN were not raised in the First SCN. One of the main functions of IBBI is to investigate the conduct of its registered Insolvency Professionals. Cancellation of Corporate Debtor’s MSME certificate and non-disclosure by Petitioner of Avoidance Application against Mr. Sushant Chabbra comprises of new information that ought to be dealt with by IBBI de novo - Petitioner’s contention that the Second SCN is passed on the same cause of action as the First SCN, in the opinion of the Court, is devoid of merit.
Non-compliance of Section 30(2) of the Code - HELD THAT:- Section 30(2) of the Code places an obligation upon the Resolution Professional to confirm that the Resolution Plan does not contravene any provisions of law and requires the Resolution Professional to examine the mandatory compliances before submitting the Resolution Plan for approval by the CoC. Section 29A aims to prevent those persons from gaining control of the Corporate Debtor from persons who have contributed to the defaults of the Corporate Debtor. Since there is an explicit bar under Section 29A of the Code, prohibiting the suspended board of directors of the Corporate Debtor to submit a Resolution Plan for the Corporate Debtor, Petitioner as a Resolution Professional cannot escape the liability of failure to carry out due diligence. Therefore, Petitioner’s contention before the Disciplinary Committee that due to non-availability of complete data, he was not able to ascertain MSME status of Corporate Debtor, cannot be accepted - Petitioner’s lack of due diligence in exercising its statutory obligations ought to be dealt with in accordance with the framework provided under the law.
The determination made by Respondent that Petitioner has contravened the provisions of the Code and its Regulations, in the opinion of the Court, is after due consideration of all the relevant material placed before them.
The Court finds no ground to interfere in the said decision and accordingly, the present petition is dismissed.
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2024 (8) TMI 854
Admissibility of Section 7 application - novation of the contract - non-invocation of the subsequent guarantee - HELD THAT:- In the sanction letter, clause 4 clearly mentions that all existing securities in the captioned facilities will continue to be the security for the existing facilities with the revised repayment schedule. It was further mentioned that the said securities will also cover the fresh FITL facility opened to part the interest on the captioned working capital facilities. Thus, the sanction letter dated 09.09.2020 was fully covered by existing securities which included the guarantees dated 22.08.2015 and 18.11.2016.
Part-IV of the Section 7 Application, Cash Credit, Term Loan, FITL and Cash Credit Adhoc are the facilities for which with regard to amount disbursed default was claimed. Admittedly, for Cash Credit and Term Loan, Guarantees dated 22.08.2015 and 18.11.2016 are very much covering the said Cash Credit, Term Loan and for sanction of Adhoc Cash Credit and FITL. Sanction letter as extracted above clearly indicate that the existing securities shall cover.
The Consortium Agreement which was executed on 06.11.2020 between the parties clearly mentions that it was not to affect existing securities. There are no novation of contract between the parties. Disbursement made pursuant to sanction made in the year 2013 and the guarantees issued by the corporate guarantor on 22.08.2015 and 18.11.2016 are still continuing and binds the corporate guarantor to discharge the debt. Subsequent to disbursement, Adhoc Limit and FITL sanctioned on 26.12.2019 and 09.09.2020 are also covered by the existing securities - the invocation of guarantee on 06.03.2023 by the Bank was right invocation which obliges the corporate guarantor to clear the dues.
It is relevant to notice that there is no submission of the Appellant that no amount is due. Debt and default is not even contested. Appellant sought to get over his liabilities on the ground that contract is novated and there is no liability of the corporate guarantor.
There are no error in the order passed by the Adjudicating Authority admitting Section 7 application. There is no merit in the Appeal - appeal dismissed.
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2024 (8) TMI 795
Permission to withdraw application filed u/s 9 of the Insolvency and Bankruptcy Code, 2016 - Appellant challenging the order contends that the Adjudicating Authority committed error in not granting liberty to the Appellant to file a fresh Application - HELD THAT:- The present is a case where the Adjudicating Authority due to reasons recorded in the judgment has refused permission to grant leave to file a fresh Application under Section 9. More so, while in the IBC proceedings, it cannot be held as a matter of right that the Applicant is entitled to withdraw the Application filed under Section 9 at any stage and pray for liberty to file afresh.
IBC is a process in which timeline has importance and from the facts of the present case, it is clear that an objection was raised by the Corporate Debtor and an IA was filed, making allegations against the Appellant, that the Appellant placed on record false evidence pertaining to Demand Notice - the Adjudicating Authority permitted the Appellant to file pursish for withdrawal.
Thus, no error has been committed by the Adjudicating Authority in permitting withdrawal of the Application, while denying liberty to file fresh Application, once again - the imposition of cost of Rs.50,000/- was not necessary - appeal dismissed.
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2024 (8) TMI 794
Approval of Resolution Plan - lifting of attachment by Enforcement Directorate over the assets of the Corporate Debtor - Section 32A of the IBC - HELD THAT:- Through, Section 32-A, the legislature have authoritatively spoken of the terminal point whereafter the powers under the PMLA would not be exercisable. The events which trigger its application when reached would lead to erection of an impregnable wall, which cannot be breached by invocation of the provisions of the PMLA. The Adjudicating Authority has missed the clear pronouncement by the Delhi High Court in Rajiv Chakraborty [2022 (11) TMI 600 - DELHI HIGH COURT] with regard to Section 32A.
The Appellant has relied on judgment of the Bombay High Court in Shiv Charan [2024 (3) TMI 136 - BOMBAY HIGH COURT], where the Bombay High Court has held that NCLT does not lack jurisdiction to use its judicial discretion to adjudicate upon the release of the attachment.
The Hon’ble Supreme Court had occasion to consider the challenge to Section 32-A in the Writ Petition filed in the Hon’ble Supreme Court under Article 32 in the judgment of Manish Kumar vs. Union of India and Anr [2021 (1) TMI 802 - SUPREME COURT]. In the above judgment challenge to Section 32-A was repelled and while repelling the challenge to Section 32-A, the Hon’ble Supreme Court examined the legislative scheme of Section 32-A - Hon’ble Supreme Court has clearly held that Section 32-A has been engrafted in the legislation, which is a legislative scheme and if legislature thought that immunity be granted to the Corporate Debtor or its property, it hardly furnishes a ground for this Court to interfere. In paragraph 326, it has been emphasized that the extinguishment of the criminal liability of the Corporate Debtor is apparently important to the new management to make a clean break with the past and start on a clean slate.
Thus, the Adjudicating Authority erred in not extending the benefit of Section 32-A, subsection (2) to the Resolution Applicant, who was entitled to protection under Section 32A of the IBC.
The SRA is entitled to relief of extension of benefit of protection of Section 32-A to lift the attachment by Enforcement Directorate over the assets of the Corporate Debtor - appeal allowed.
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2024 (8) TMI 727
Rejection of prayer for quashing the invitation of Expression of Interest (“EoI”) dated 25.04.2022 issued by Respondent No.1 – Financial Creditor - error in the Assignment Agreement executed by Respondent no.2 or not - It is submitted that EoI for selection of new operation and maintenance contractor does not amount to any breach of Section 14(1)(d) of the IBC - HELD THAT:- On looking into the Facility Use Agreement entered between Corporate Debtor and Respondent No.2, it is clear that the Appellant has been handed over the substations (switchyards) for operation and maintenance and there is a clear Agreement between the parties that notwithstanding the Corporate Debtor operating, maintaining and usage of Facility, the ownership of the Facility shall remain solely with Respondent No.2. Except for the right to operate, maintain and use the Facility, the Corporate Debtor will have no right whatsoever in the ownership of the Facility. We have also extracted Clause 2.2.(d) of the Facility Agreement dated 12.08.2013.
There can be no dispute that Facility has been handed over to the Appellant for operation and maintenance. Further, Respondent No.2 was also obliged to provide access to representative of the Corporate Debtor for operating and maintenance, but the mere fact that the Appellant has been permitted to use the Facility for operation and maintenance, cannot lead to conclusion that the Corporate Debtor is in occupation of the Facility and there is any breach of Section 14(1)(d). Section 14(1)(d) of the IBC prohibits recovery of any property by an owner or lessor, where such property is occupied and in possession of the Corporate Debtor. The present is not a recovery of the Facility by owner or lessor, who is Respondent No.2 herein. Further, the Facility is neither in occupation, nor in possession of the Corporate Debtor, since the Corporate Debtor has been appointed as operating and maintenance contractor
The Adjudicating Authority has considered the various Clauses of the Facility Agreement and has rightly come to the conclusion that the EoI issued by Respondent No.1 to appoint another operating and maintenance contractor, cannot be interfered with.
The fact is not disputed that the Corporate Debtor is not paying the facility use charges and is trying to set off the same against the claim against Respondent No.2. It is due to the non-payment of facility use charges, Respondent No.2 is unable to service the debt, causing an event of default for which Respondent No.1 has already initiated proceedings under the SARFAESI Act, 2002 against Respondent No.2.
Thus, no error has been committed by the Adjudicating Authority in rejecting the Application filed by the Appellant - there are no merit in the Appeal - appeal dismissed.
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2024 (8) TMI 671
Application for intervention/impleadment and objections - exercise of power under Article 142 of the Constitution of India - HELD THAT:- Application for intervention/impleadment and objections to the consent terms have been filed by M/s. A.M. Patel Infrastructure Pvt. Ltd. It is accepted at the Bar that M/s. A.M. Patel Infrastructure Pvt. Ltd. claims to be an operational creditor, but its claim has not been accepted by the liquidator, which is pending adjudication. An application under Section 66 of the IBC has been filed for avoidance of transaction, which has not yet been adjudicated.
The company, namely, Virtue Infra and Entertainment Private Limited will stand revived - The proceedings pending before the National Company Law Tribunal will be treated as disposed of.
Appeal disposed off.
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2024 (8) TMI 670
Seeking Section 9 application - whether payment in respect of the ten invoices raised by the Operational Creditor were time barred? - whether there was any substance in the contention of the Corporate Debtor that there was a preexisting dispute surrounding the debt claimed by the Operational Creditor?
Time limitation - HELD THAT:- It is the case of the Corporate Debtor that even taking into account the date of the 10th invoice which was 02.02.2017, the claim against it stood barred on 01.02.2020 which pre-dated the filing of Section 9 application which happened to be 04.03.2020. Hence all the 10 invoices, except the 11th invoice no. 77, stood time barred. It is well acknowledged that the period of limitation for an application under Section 9 of IBC is undisputedly three years as prescribed by the Limitation Act. Since the date of default is the starting point for counting of limitation and such date of default having been specifically shown as 25.07.2016 in Part IV by the Appellant in respect of these 10 invoices, the limitation period of filing of Section 9 application clearly expired on 24.07.2019 while the Section 9 application was filed on 04.03.2020 - the Adjudicating Authority did not commit any error in holding that the first ten invoices relied upon by the Appellant as the basis for their Section 9 application were all time-barred claims on which the incidence of debt and default could not be predicated.
Pre-existing dispute - HELD THAT:- Despite having received the payment, it is clear that the Appellant has tried to misrepresent the total outstanding amount as Rs. 75.38 lakhs as due and payable under the 11th invoice no. 77 dated 31.01.2019 in Part-IV of the Section 9 application. Even on seeing the reply of the Corporate Debtor to the Section 8 Demand Notice, it is noticed that the amounts claimed by the Appellant have been disputed by the Respondent - the Adjudicating Authority rightly applied the ratio of Innoventive judgement supra in deciding whether the amount under 11th invoice had become due and payable or not and basis that appreciated the existence of a pre-existing dispute in respect of the said invoice and factorising the same rejected the Section 9 application. Given the conspectus of facts in the present case, it is clear that the first ten invoices were clearly time-barred and the 11th invoice no. 77 stood disputed even before the issue of demand notice - the Adjudicating Authority did not commit any error in rejecting the Section 9 application.
There are no good grounds to interfere with the impugned order - appeal dismissed.
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2024 (8) TMI 669
Invocation of Performance Bank Guarantee - Jurisdiction of order restraining the Appellant from encashing the Performance Bank Guarantee - applicability of moratorium u/s 14 of IBC - HELD THAT:- The basis of Judgment of the Adjudicating Authority is that Performance Bank Guarantee is not unconditional and sufficient ground has not made out by the Appellant to prove the fault on the part of Corporate Debtor, hence the Guarantee could not be invoked.
The issue as to invocation of Performance Bank Guarantee during the period of Moratorium is now well settled.
Reference made to the Judgment of the Hon’ble Supreme Court in the matter of STATE BANK OF INDIA VERSUS V. RAMAKRISHNAN AND ANR. [2018 (8) TMI 837 - SUPREME COURT], where Hon’ble Supreme Court has noticed the amendment made in Section 14(3) and has also noted the Report of the Insolvency Law Committee dated 26.03.2018 in consequence of which amendments were made in Section 14(3). The Committee in its Report has opined that Assets of the surety are separate from those of the Corporate Debtor and proceeding against the Corporate Debtor may not be seriously impacted by the actions against Assets of third parties like sureties.
Thus, it is well settled that Section 14 in no manner impact the right of the Appellant to invoke the Bank Guarantee during pendency of the Moratorium and in the present case, it was during currency of the Moratorium 30.10.2019, the Guarantee was invoked. The observation made by the Adjudicating Authority that reading of Clauses of Performance Bank Guarantee does not give the impression of it being unconditional.
There is no dispute between the parties that Mechanical Completion Certificate, the date for Mechanical Completion as per the Contract was 23.08.2018 and Certificate was issued as specifying the date of Mechanical Completion as 31.01.2019 - When the Contractor does not complete the Contract within the period specified, it cannot be said that Contractor has complied the terms and conditions of the Contract. In the letter invoking the Bank Guarantee, it was clearly stated by the Appellant that Contractor has not perform his obligation in accordance with the Contract was advised of such failure and did not cure the failure within the time period allowed for in the Contract. When it is an admitted fact that Contractor did not complete the Contract as per the Mechanical Completion Certificate it is not open to hold that there is no default on the part of the Contractor.
The Adjudicating Authority committed an error in allowing the Application filed by the RP of the Corporate Debtor for restraining the Appellant, the State Bank of India and other Bank who has given counter Guarantee to invoke the Bank Guarantee. Order passed by the Adjudicating Authority, thus is unsustainable.
Appeal allowed.
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2024 (8) TMI 668
Dissolution of Corporate Debtor - Section 54 of the Insolvency and Bankruptcy Code, 2016 r.w Regulation 45 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 - HELD THAT:- On perusal of the application and documents annexed with it, it is found that the applicant has not annexed Final report and Sale certificate with the application therefore this Adjudicating Authority listed this matter for clarification on 04.06.2024. In compliance of order dated 04.06.2024, applicant filed clarification affidavit.
It is observed that the liquidator has obtained a report from the Auditor by way of Independent Auditor’s Report wherein the draw down of receipts and payments are mentioned. By way of email he has forwarded to a list of recipients for information and has in its report stated that the same has been forwarded for information. However, neither the email states that in view of the report he proposes to dissolve the entity and file before this authority this application, nor has he convened a meeting of the SCC to propose a dissolution under Sec 54 of IBC 2016.
This application cannot be considered and needs to be reverted back with the directions to the liquidator to convene a meeting of SCC and place his proposal and submit a fresh application based on the advice of SCC - Application rejected.
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2024 (8) TMI 524
Condonation of delay in filing the appeal - whether the period from 08.06.2023 to 03.01.2024 need to be excluded by extending the benefit of Section 14 of the Limitation Act? - Whether the Appellant is entitled for benefit of Section 14 of the Limitation Act? - HELD THAT:- In M.P. Steel Corporation [2015 (4) TMI 849 - SUPREME COURT], the Hon’ble Supreme Court has held that for invoking Section 14, the Application should not be guilty of negligence, lapse or inaction and further there should be no pretended mistake intentionally made with a view to delaying the proceedings or harassing the opposite party. The present is a case where one of the ingredients as laid down by the Hon’ble Supreme Court in Consolidated Engineering Enterprises is not being fulfilled, i.e., “failure of the prior proceeding was due to defect of jurisdiction or other cause of like nature”. It has been held that all the ingredients as noted in the judgment of the Hon’ble Supreme Court need to be fulfilled.
The judgment in State Bank of India vs. Visa Steel Ltd. [2021 (3) TMI 631 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] clearly hold that while computing the period of limitation under Section 61, sub-section (2), time spent in prosecuting the legal remedy need to be excluded. There cannot be any quarrel to the above preposition laid down in the above case. Whereas, the question in the present case is as to whether condition precedent required for applicability of Section 14, are fulfilled in the facts of the case or not? - The above judgment clearly hold that while computing the period of limitation under Section 61, sub-section (2), time spent in prosecuting the legal remedy need to be excluded.
Thus, no case has been made out to extend the benefit of Section 14 of the Limitation Act for excluding the period from 08.06.2023 to 03.01.2024. The Appeal having been filed with the delay of 209 days, and the delay being beyond the condonable period of 15 days, IA No.2256 of 2024 field for condonation of delay of filing the Appeal, is rejected.
Appeal dismissed.
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2024 (8) TMI 477
Declarations of the petitioner as Wilful Defaulter by the Identification Committee as well as the Review Committee - Liability of the personal guarantor post-assignment of debt under the approved Resolution Plan - whether the NBFC, simultaneously with the original financial creditor/bank, can recover the debt from the guarantors? - HELD THAT:- The answer is a resounding “No”, since the Resolution Plan itself contemplates that the assignment, including the security interests, in favour of the NBFC is confined only to the CD-company, categorically excluding the guarantors. In fact, it is further clarified in the Resolution Plan that it does not deal at all with personal guarantors or corporate guarantees given by other persons than the company.
The personal guarantors, being excluded from the purview of the Resolution Plan, are by default also excluded from the assignment of the right to recover debt in favour of the assignee.
Insofar as the surviving liability for the debt is concerned, the same is retained by the financial creditors, including the respondent no.1-bank herein, to be exercised in respect of the guarantors only - The CD is absolved by operation of law in terms of the Resolution Plan and the assignee of the debt never gets any right to recover the debt from the guarantors, since the guarantors are excluded from the Resolution Plan as well as from the process of assignment itself.
The debt survives only between the financial creditors/bank and the guarantors - the argument of the petitioner that its liabilities are transferred to the assignee is not borne out by the Resolution Plan and the corresponding provisions of the IBC.
There is an element of continuity in the liability of the borrower to repay the debt. Seen from such perspective, a borrower may very well make good the loan taken by it even subsequent to the classification of its account as NPA, thereby regularizing the account - By a logical corollary, the converse is also true, that is, if the borrower, despite having the means, fails to repay the loan and continues the violations as envisaged in Clause 2.1.3 read with Clause 2.2 of the Master Circular, there is no bar in declaring the borrower and the other entities contemplated in the Master Circular as Wilful Defaulters.
Petition is allowed on contest, thereby setting aside the impugned decision dated December 30, 2022, whereby the Review Committee confirmed the decision of the Wilful Defaulter Identification Committee that the petitioner is a Wilful Defaulter under the RBI Master Circular dated July 1, 2015.
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2024 (8) TMI 407
Statutory construct of IBC post issue of demand notice by the Operational Creditor as laid down in Section 9 of IBC - whether payment to the Respondent No. 2 was due from the Corporate Debtor? - whether a default has been committed by the Corporate Debtor in respect of payment of such debt and whether there was any pre-existing dispute surrounding the debt?
HELD THAT:- From a plain reading of the statutory provisions, it is clear that the existence of dispute and its communication to the Operational Creditor is statutorily provided for in Section 8. In the present case, it is an undisputed fact that Section 8 demand notice was issued by the Operational Creditor- Respondent No. 2 on 20.06.2018 and in response a notice of dispute was also raised by the Corporate Debtor on 29.06.2018.
Besides attributing a grave charge against Respondent No. 2 for bankrupting SPIN, the Corporate Debtor had effectuated revision of the role, responsibilities and salary compensation of Respondent No. 2. More significantly, the disputes raised in these letters are central to the payments claimed by Respondent No. 2 and had a bearing on the computation of outstanding dues arising out of the hand written agreement of 18.09.2013 which has been the bone of contention between the two parties. These disputes, raised prior to demand notice, were germane to deciding whether there was a debt and if the debt was disputed by the Corporate Debtor. The present is therefore not a case where there is an undisputed debt for which Corporate Debtor can be brought under the rigors of CIRP. Triggering the drastic consequences of CIRP on the Corporate Debtor on the basis of debt and default which is mired in pre-existing disputes, in our considered view, is not acceptable.
It is well settled that in Section 9 proceeding, there is no need to enter into final adjudication into the disputes between the parties regarding operational debt. In terms of the Mobilox judgement [2017 (9) TMI 1270 - SUPREME COURT], all that the Adjudicating Authority was required to do was to see whether any notice of dispute was raised by the Corporate Debtor and take a call on the plausibility of these disputes which in the present facts of the case the Adjudicating Authority has hopelessly failed to do. Disputes once raised and found plausible, they require detailed consideration which is beyond the ambit of the Adjudicating Authority since IBC only provides for summary proceedings. For such disputed operational debt, Section 9 proceeding under IBC cannot be initiated at the instance of the Operational Creditor.
The Adjudicating Authority committed serious error in admitting Section 9 application. The impugned order initiating CIRP of the Corporate Debtor is set aside. The Corporate Debtor is released from the rigours of CIRP with immediate effect. The Resolution Professional shall however be paid his fees/expenses by the Appellant. The Registry is directed to take appropriate action without any delay to refund the amount which was deposited by the Appellant in Fixed Deposit Receipt in pursuance of the interim order of this Tribunal dated 10.11.2023.
Appeal allowed.
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2024 (8) TMI 406
Maintainability of application - application is within the minimum default amount of Rs. 1,00,00,000/- as provided under Section 4 of the Code or not - pre-existing dispute with respect to the amount claimed to be due in the application or not in the instant case.
Threshold amount - HELD THAT:- In this claim amount towards interest alone on loan was not termed as an operational debt. This may not fully support the case of the Respondent - reliance can be placed exclusively on SS Polymers Vs. Kanodia Technoplast Limited [2019 (11) TMI 1428 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] cross referenced in Steel India [2020 (8) TMI 578 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] on the issue of the interest to be charged in the invoice which was not signed by the Appellant. It was held to be a ‘unilateral document’ and such interest could not have been recovered.
In the instant case also, the unilateral stipulation of interest by the Appellant without any agreement or understanding between the parties further weakens the Appellant's claim.
Furthermore, according to Section 5(21) of the IBC, ‘operational debt’ is defined as “a claim for the provision of goods or services, including employment, or a debt for the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government, or a local authority.” Section 5(8) of the Code defines ‘financial debt’ as “a debt along with interest, if any, which is disbursed against the consideration for the time value of money.” - the Appellant's inclusion of interest in the claimed amount is untenable as interest cannot be termed as operational debt under the Code.
The present application is below the threshold limit of Rs.1,00,00,000/- and cannot agree with the claims of the Appellant in terms of the threshold amount and there are no infirmity in the findings of the Adjudicating Authority.
Existence of any pre-existing disputes or not - HELD THAT:- Both the parties were having a dispute with respect to some cheques issued by the Respondent. Appellant had issued a legal notice dated 05.09.2022 for dishonouring of cheques. The Respondent claims that these cheques were issued in the year 2020 and they were stopped for payment as necessary payment was made through RTGS in the same year. The Respondent has claimed that the Appellant has fraudulently changed the dates of cheques and presented them in the bank for clearing but the Respondent immediately stopped the payment of the cheques and also filed a police complaint against Appellant for committing cheating and forgery. This is another dispute which has been going on between the parties. Without going into the details of the criminal case, apart from this material also there is sufficient other material on record that suggests there was a pre-existing dispute.
It is well settled that if the Corporate Debtor raises a plausible contention about a pre-existing dispute, which is not just a moonshine or feeble legal argument, it would suffice for the Adjudicating Authority to reject the application filed under Section 9 of the Code, the Adjudicating Authority being precluded from determining as to whether the Corporate Debtor would be successful or not, with regard to the said dispute, at the time of decision making.
It is evident that the Adjudicating Authority's Order dated 17th January 2024 is well-founded and does not warrant interference. The operational debt amount claimed by the Appellant is less than the threshold limit required under Section 4 of the Code, and there are pre-existing disputes between the parties.
The present appeal is dismissed.
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2024 (8) TMI 405
Application filed under Section 7 of the Code by the Appellant dismissed without the arguments having been addressed - HELD THAT:- Since the Tribunal has not followed the basic principle that nobody should be condemned without hearing, therefore, the impugned order deserves to be set aside and be remanded back to take a decision on the application in accordance with law after hearing both the parties and passing a speaking order - the present appeal is allowed and the impugned order is set aside - petition is hereby restored and the matter is remanded back to the Tribunal.
Application under Section 60(5), 65 and 75 of the Code has been dismissed on the ground that the application has been filed before the admission of the application filed under Section 7 of the Code - At what stage the application under Section 65 is maintainable? - HELD THAT:- The answer of this question is not farfetched because of the decisions in the cases of Beacon Trusteeship Limited [2020 (4) TMI 516 - SUPREME COURT], Ashmeet Singh Bhatia [2023 (3) TMI 646 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] and Shree Ambica Rice Mill [2021 (7) TMI 581 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI]. In the case of Beacon Trusteeship Limited, the Hon’ble Supreme Court has held that “The plea of collusion could not have been raised for the first time in the appeal before the NCLAT or before this Court in this appeal. Thus, we relegate the appellant to the remedy before the Adjudicating Authority”.
In the case of Ashmeet Singh Bhatia a specific question was framed in para 12 that “as to whether an application filed under Section 65 of the Code is maintainable after the filing of the application under Section 7, 9 or 10 of the Code or could be maintainable only after the admission of such an application? - The answer to the aforesaid question is captured in para 16 where this order as this Court has held that the application filed under Section 65 of the Code is maintainable after the application is filed either under Section 7, 9 or 10 of the Code and not after the admission.
Thus, in view of the aforesaid discussion and law laid down by the Hon’ble Supreme Court and this court dismissal of the application by the Tribunal only on this ground that the application has been filed before the admission of the application under Section 7 is not sustainable.
The impugned order is set aside - the impugned order is restored and the matter is remanded back to the Tribunal to decide the aforesaid application in accordance with law.
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2024 (8) TMI 326
Maintainability of section 7 application - effect of approval of Resolution Plan in the CIRP of the Principal Borrower on the guarantee which was given by the Corporate Debtor to ICICI Bank - it was held by NCLAT that 'The Adjudicating Authority after considering all relevant aspects of the matter has admitted the Section 7 application against the Corporate Guarantor, in which there are no infirmity' - HELD THAT:- There are no good ground and reason to interfere with the impugned judgment and, hence, the appeal is dismissed.
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2024 (8) TMI 325
Seeking to quash the demand notice of the respondents (TANGEDCO) for arrears of unpaid electricity charges - direction to the respondents to provide the electricity connection - electricity connection disconnected for non-payment of current consumption charges, prior to the commencement of insolvency proceedings - Regulation 17 of the Electricity Supply Code.
IBC & Scope for Misuse - Is the petitioner liable to pay the arrears of electricity charges which has arisen prior to the commencement of the insolvency proceedings, and will it survive after the successful completion of the resolution process? - HELD THAT:- Having understood the scheme of the IBC, it is now time to navigate through the authoritative pronouncements of the Hon’ble Supreme Court. It is neither about the creation of two broad categories of creditors – the financial creditors and the operational creditors by the IBC, nor about the differential criterion which IBC has employed to define the character of both these categories of creditors, whose alleged inequality of status the Supreme Court has rejected on its way to uphold the constitutionality of the IBC in the Swiss Ribbons Case [2019 (1) TMI 1508 - SUPREME COURT]. It is about the protection and the assurance the IBC offers to the operational creditors and the role of the Adjudicating Authority. This exercise is both inevitable and mandatory since this Court has to ensure that the petitioner, with or without the collaboration of its financial creditor, has not been converted the IBC into mechanism to deny the respondent of their dues by a shrewd manipulation of the process it provides.
Operational Creditors & Right to Property - HELD THAT:- The object of the IBC evidently is to minimize the loss of various categories of creditors even as it attempts to salvage the corporate debtor from its commercial extinction. Appreciable it is, but it may not be let to gloss over the fact that every claim of the operational creditors involves a right to their property under Article 300 A of the Constitution, which the Supreme Court now reads it as a facet of human right and as integral to the right to life under Article 21 of the Constitution vide the ratio in Lalaram Vs Jaipur Development Authority [2015 (12) TMI 1866 - SUPREME COURT] read alongside the ratio in Tukaram Kana Joshi Vs MIDC [2012 (11) TMI 1234 - SUPREME COURT], and approved in VIDYA DEVI VERSUS THE STATE OF HIMACHAL PRADESH & ORS. [2020 (1) TMI 1691 - SUPREME COURT]. This is the major premise.
Ordinarily, a person with a claim has the right of action to enforce the claim before a neutral arbiter, be it the Court or a tribunal, both of which are positioned equidistantly from opposing claims. This is the minor premise.
IBC & Neutral Tribunal - HELD THAT:- It could now be derived that where a substantive right to property is in peril, the right of action before a neutral tribunal springs into action for obtaining justice in the cause. This is fundamental to Constitutional jurisprudence - the scheme of IBC provides for a two-tier mechanism for approval of a resolution plan – first by the CoC and next by the Adjudicating Authority. Now, unless the Adjudicating Authority is treated as a neutral tribunal for the operational creditors to defend and secure its right to property which they have in their claims against any perceived unfair and inequitable treatment meted out to them by the CoC, even if the CoC has acted bonafide, there is a lurking danger of IBC straying into the zone of unconstitutionality for breaching the dictum of the Constitution Bench in the Madras bar Association case [2010 (5) TMI 393 - SUPREME COURT].
What then is the role which the Adjudicating Authority is expected to play? - HELD THAT:- From the Essar Steel case to the Rainbow Papers case [2022 (9) TMI 317 - SUPREME COURT] and other decisions, the Adjudicating Authority has been told that its duty is limited to satisfying itself of the due compliance of Sec.30(2) requirement by the CoC when the latter approved the resolution plan. The Essar Steel in particular has held that the Adjudicating Authority shall not substitute its sense of fairness and equity to replace the commercial wisdom of the CoC. The Rajagopalan effect, it must be stated, does not stop with bringing in clarity in understanding the expression ‘commercial wisdom’ of the CoC, but also has interfered to realign the understanding of the duty of the Adjudicating Authority. Therefore, even though the Adjudicating Authority may not sit in appeal over the commercial wisdom of the CoC, still it is required to exercise a jurisdiction, akin to a revisional jurisdiction, to ascertain the correctness of what has been done before and by the CoC.
Finality of the Resolution Plan & the CST - HELD THAT:- In the case of disclosed creditors, CST will definitely apply, if any of the aggrieved creditors did not opt to challenge the resolution plan as approved under Sec.31 before the Appellate Authority, the NCLAT. So far as the undisclosed creditors are concerned if CST is applied, they become instant victims of the callousness of the IRP and the RP as well as the deliberate silence of the suspended board in not revealing them - the corporate debtors themselves must be classified into two: The MSME corporate debtor who had the opportunity to participate in the resolution process effectively to the extent of presenting a resolution plan; and (b) non MSME corporate debtor.
What the Petitioner may anticipate? - HELD THAT:- Fraud has to be unearthed through inferences from attending circumstances. It is hence, mandatory not to eschew the attending circumstances from judicial purview while evaluating the bonafides of a resolution plan, more significantly the fairness expected of it as there is an obligation on the CoC to protect the interests of the operational creditors.
While the legislative intent to save the corporate debtor as a going concern may be appreciable, should it be at the cost of others, more so when IBC offers adequate space for engineering manipulation? The larger question therefore, is why should the Parliament bend backwards to protect one corporate debtor at the risk of exposing the public interest to peril? The present case, a case-study merely, illustrates how IBC could be manipulated to defeat the interests of the undisclosed creditors of the corporate debtor.
This petition is dismissed and given the nature of questions it raised, there will no order as to costs.
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2024 (8) TMI 213
Maintainability of application - petition filed under Section 9 of the Code was rejected on the contentions of the Corporate Debtor that there lies a preexisting dispute between the Parties - both sides have made allegations of Forgery against each other - forgery of termination notice.
HELD THAT:- It is to be noted that both sub-contracts specified a payment schedule in Clause 7, stating that 85% of the contract value was payable at certain stages, and the remaining 15% was payable upon full commissioning of the project. The Appellant did not complete the project, finishing only 11 out of 17 gates by July 2017, when they abandoned the site. Therefore, it cannot be concluded that the Appellant's claim for the outstanding amount aligns with the contractual terms, as the project was not completed or commissioned. Since there were claims and counter claims leading into a dispute. These cannot be gone into by us under the framework of the Code.
Respondent has also raised the issue of limitation and claims that petition is barred by limitation, as the statutory demand notice was issued on December 27, 2021, well beyond the prescribed period from the date of the last invoice. The issue of limitation was taken up by the Adjudicating Authority in its order dated 11.05.2022 in which it was noted that since the first default had occurred in April 2013 and the present application is filed on 23rd February 2022 and where as in terms of Article 137 of the limitation Act, the applicant is required to file an application within 3 years, when the right to apply accrues. Since the invoices had been raised from 2013 and the applicant claims that the amount was also defaulted in the year 2013. Therefore, the first date of the default was in the year 2013, when the payment of the invoices was due and not paid period. Hence the present application is barred by limitation and was dismissed.
The Corporate Debtor had raised a plausible contention about a pre - existing dispute, which in the instant case is not a moonshine or feeble legal argument. Therefore, the Adjudicating Authority was not incorrect to reject the application filed under Section 9 of the Code.
Thus, in the instant case there were agreed-upon tasks which remained incomplete, and dispute regarding the payment amount existed prior to issuance of Demand Notice by the Petitioner to the Respondent. Based on the detailed analysis and appraisal of the facts and contentions presented, it is evident that there exists a pre-existing dispute between the Appellant and the Respondent, which is not moonshine.
The Impugned Order dated May 7, 2024, passed by the NCLT dismissing the petition filed under Section 9 of the IBC is upheld - Appeal dismissed.
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