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Judicial Review of Resolution Plan by NCLT and NCLAT | Avoidance and Fraudulent Applications and Treatment | Mandatory Requirements of CIRP Regulation 38 | Maximization of value of assets | Majority Decision | Right of Ex-Directors/ Promoters  – Piramal Capital and Housing Finance Ltd. (Formerly known as Dewan Housing Finance Corporation Ltd.- DHFL) Vs. 63 Moons Technologies Ltd. and Ors. – Supreme Court

This landmark judgment covers:
A. The objective behind enacting the IBC
B. Scope of Judicial Review: By NCLT under Section 31 and by NCLAT under Section 61 of IBC
C. Avoidance and Fraudulent/ Wrongful trading Applications
C.1 Concept
C.2 Distinction between the Avoidance Applications and Fraudulent Applications
D. Mandatory Requirements of Section 30(2) of the IBC and CIRP Regulation 38
E. What is maximization of the value of assets of the Corporate Debtor?
F. Individual Financial Creditor estopped from raising objection against the decision taken by Authorized Representative (majority of Financial Creditors)
G. Whether NCLAT should have entertained the appeals filed by the 63 Moons under Section 61 of the Code and tinkered with the Resolution Plan approved by the CoC and the NCLT?
H. Regulation 37A of Liquidation Process vs. Section 25(2)(j) and Section 26
I. Reliance on the Foreign Texts and Jurisprudence
J. Notional Value of Fraudulent trading and Wrongful trading Transactions in Resolution Plan
K. Different treatment of Avoidance and Fraudulent Applications
L. Payment to Fixed Deposit Holders: Sections 36(A) of NHB Act and 45(QA) of the RBI Act do not mandate full payment of deposits
M. Resolution Plan after approved by NCLT becomes a “Public Document”
N. “Supersession” of the Board of Directors vs. “Suspension” of the Directors
O. Right of the Ex-Directors/ Promoters to participate in the Meetings of CoC and right to get the copy of Resolution Plan approved by the CoC
P. Conclusion

Judicial Review of Resolution Plan by NCLT and NCLAT | Avoidance and Fraudulent Applications and Treatment | Mandatory Requirements of CIRP Regulation 38 | Maximization of value of assets | Majority Decision | Right of Ex-Directors/ Promoters  – Piramal Capital and Housing Finance Ltd. (Formerly known as Dewan Housing Finance Corporation Ltd.- DHFL) Vs. 63 Moons Technologies Ltd. and Ors. – Supreme Court Read Post »

Section 66(1) of IBC confers no jurisdiction but declaring any transaction as void, even if fraudulent, but confers jurisdiction on NCLT to fix the liabilities on the persons responsible for conducting business of corporate debtor which is fraudulent or wrongful – Smt. Sudipa Nath Vs. Union of India – Tripura High Court

Hon’ble High Court held that in legislature wisdom and as apparent from the text of 66(1) it is clear that firstly it confers no jurisdiction but declaring any transaction as void, even if fraudulent, but confers jurisdiction on NCLT to fix the liabilities on the persons responsible for conducting business of corporate debtor which is fraudulent or wrongful. Secondly section 66(1) contemplates an application thereunder only by the resolution professional and by none other. Thirdly section 66 (1) also restricts the power of NCLT subject to being satisfy with pre-requisite that any business of the corporate debtor has been carried on with intent to defraud creditors or the corporate debtors or for any fraudulent purpose and if satisfied it powers to pass an order is only against such person who are responsible for the conduct of such fraudulent business of the corporate debtor with mens rea to make them personally liable to make such contributions to the assets of the corporate debtor as it may deem fit.

Section 66(1) of IBC confers no jurisdiction but declaring any transaction as void, even if fraudulent, but confers jurisdiction on NCLT to fix the liabilities on the persons responsible for conducting business of corporate debtor which is fraudulent or wrongful – Smt. Sudipa Nath Vs. Union of India – Tripura High Court Read Post »

Avoidance applications under IBC can be heard after conclusion of CIRP and benefits derived from adjudication will be appropriated by Creditors and Resolution Professional will pursue the avoidance applications since he is only functus officio vis-à-vis CIRP and not avoidance applications – Tata Steel BSL Ltd. Vs. Venus Recruiterprivate Ltd. & Ors – Delhi High Court

Hon’ble set aside the impugned order of single judge bench and held that:
(a) the timelines under CIRP Regulation 35A are directory and not mandatory in nature. The premise of 35A timelines not being mandatory itself, adherence to Regulation 35A timelines cannot be required so strictly as to render the provisions of avoidable transactions redundant. There is also no time limit prescribed for the NCLT to adjudicate these applications.
(b) The provisions pertaining to avoidable transactions is to primarily benefit creditors. In cases where the Resolution Plan is silent on the treatment of any pending applications because such information could not be made available to the applicant, the creditors of the corporate debtor can still be the beneficiaries of the sum or properties that may be recovered from adjudication of an avoidance application.
(c) The benefit arising out of the adjudication of avoidance applications is not for the corporate debtor in its new avatar since it does not continue as a debtor and has gone through the process of resolution. This is public money, and, therefore, the amount that is received if and when transactions are avoided and receive the imprimatur of adjudicating authority must be distributed amongst the committee of creditors in a manner determined by the adjudicating authority.
(d) The scheme of the Act suggests that proceedings for unearthing such transactions are ancillary proceedings and the resolution of the corporate debtor need not be stalled due to pendency of such proceedings.
(e) The phrase “arising out of” or “in relation to” as situated under Section 60(5)(c) of the IBC is of a wide import and it is only appropriate that such applications are heard and adjudicated by the Adjudicating Authority, i.e., the NCLT or the NCLAT, as the case maybe, notwithstanding that the CIRP has concluded and the resolution applicant has stepped into the shoes of the promoter of the erstwhile corporate debtor.
(f) It follows that the RP will not be functus officio with respect to adjudication of avoidance applications.

Avoidance applications under IBC can be heard after conclusion of CIRP and benefits derived from adjudication will be appropriated by Creditors and Resolution Professional will pursue the avoidance applications since he is only functus officio vis-à-vis CIRP and not avoidance applications – Tata Steel BSL Ltd. Vs. Venus Recruiterprivate Ltd. & Ors – Delhi High Court Read Post »

Benefit of any orders passed in the avoidance application filed or to be filed by the Administrator under Sections 43 to 51 or under Section 66 of the Code shall be for the benefit of Successful Resolution Applicant or Creditors of Corporate Debtor – 63 Moons Technologies Limited Vs. The Administrator of Dewan Housing Finance Corporation Limited – NCLAT New Delhi

The legal issue involved is whether the Respondent No.2- Piramal Capital & Housing Finance Ltd. (Successful Resolution Applicant) can appropriate recoveries, if any, from avoidance applications filed by Respondent No.1- Administrator under Section 66 of the Code which is involving amounts in excess of Rs. 45,000 Crores.
NCLAT held that it appears to us that the Company Appeal is heavily based on the observations in the matter of “M/s. Venus Recruiters Pvt. Ltd. (2020) ibclaw.in 41 HC”. At this preliminary stage, it will not appropriate for us to make detail observations as it may be treated as a finding in the Appeals. Suffice it to say that having gone through the rival contentions of the Learned Counsel for both sides, we do not find that these are Appeals where interim order should be passed for grounds being raised by the Appellant.

Benefit of any orders passed in the avoidance application filed or to be filed by the Administrator under Sections 43 to 51 or under Section 66 of the Code shall be for the benefit of Successful Resolution Applicant or Creditors of Corporate Debtor – 63 Moons Technologies Limited Vs. The Administrator of Dewan Housing Finance Corporation Limited – NCLAT New Delhi Read Post »

It is not necessary to file an application only by RP or Liquidator to decide whether a transaction fall under section 50 or not. The Adjudicating Authority u/s 60(5) has jurisdiction to entertain or dispose of any Application or proceeding by or against the Corporate Debtor or Corporate persons – Smt. Anamika Singh Vs. Shinhan Bank – NCLAT

Relying the judgment in the matter of “Pioneer Urban Land and Infrastructure Limited and another Vs. Union of India and Others”, the learned Counsel for the Appellants submitted that all the persons who had advanced money to the Corporate Debtor should have a right to be on the CoC. Per-se the judgement of the Apex Court is binding on all the Courts and Tribunals. However, in the present case, the facts are completely different. As stated above, the Appellants No. 2,3,4,6,7 & 9 their transactions clearly fall under Section 50 of the IBC, 2016 and said transactions are Extortionate Credit Transactions for the reason that the said Appellants have charged exorbitant rates of interest which is not legal in the eye of law. Therefore, in exercise of powers conferred under Rule 11 of NCLAT Rule, 2016 and other enabling Provisions, we treat that these transactions are Extortionate Credit Transactions and we accordingly set aside these transactions as Extortionate Credit Transactions.

It is not necessary to file an application only by RP or Liquidator to decide whether a transaction fall under section 50 or not. The Adjudicating Authority u/s 60(5) has jurisdiction to entertain or dispose of any Application or proceeding by or against the Corporate Debtor or Corporate persons – Smt. Anamika Singh Vs. Shinhan Bank – NCLAT Read Post »

Whether a Secured Financial Creditor while opting out of liquidation process under Section 52(1)(b) of the IBC is barred from selling the secured assets to the Promoters or its related party or the persons who are ineligible in terms of Section 29A of the IBC? – State Bank of India Vs. Anuj Bajpai (Liquidator) – NCLAT New Delhi

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Whether a Secured Financial Creditor while opting out of liquidation process under Section 52(1)(b) of the IBC is barred from selling the secured assets to the Promoters or its related party or the persons who are ineligible in terms of Section 29A of the IBC? – State Bank of India Vs. Anuj Bajpai (Liquidator) – NCLAT New Delhi Read Post »

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