07 (3)

Filing of default information with Information Utility in compliance of Rule 20(1A) of IBBI (Information Utilities) Regulations 2017 is not mandatory compliance | Whether simultaneous CIRP can be initiated against Principal Borrower and its Corporate Guarantor – State Bank of India Vs. Anupriya Management Pvt. Ltd. – NCLT Kolkata Bench

Hon’ble NCLT Kolkata Bench hold that:
(i) Financial Creditor can also prove default with own records as provided in Sec 7(3) of the Code which says that the Financial Creditor shall, along with the application furnish the record of the default recorded with the information utility or such other record or evidence of default as may be specified.
(ii) The Financial Creditor can produce certified copies of the entries in the relevant account in the banker’s book as defined in clause (3) of Section 2 of the Bankers Book Evidence Act 1891, in this Financial Creditor has furnished the same and thus no fault can be attributed.
(iii) The Corporate Debtor has built a few apartments on the very same land as a Joint venture Partner and is in the process of seeking Liquidation. When the Corporate Debtor himself could not seek any resolution plan as a builder, the question of the Corporate Guarantor getting Resolution Plan does not arise.

Filing of default information with Information Utility in compliance of Rule 20(1A) of IBBI (Information Utilities) Regulations 2017 is not mandatory compliance | Whether simultaneous CIRP can be initiated against Principal Borrower and its Corporate Guarantor – State Bank of India Vs. Anupriya Management Pvt. Ltd. – NCLT Kolkata Bench Read Post »

Whether filing of Record of Default(RoD) of Information Utility is mandatory? and without obtaining an Authentication of Default(AoD) as per IU Regulation 21, no application under Sec. 7 can be filed by Financial Creditor? – Vijay Kumar Singhania Vs. Bank of Baroda and Anr. – NCLAT New Delhi

In this landmark judgment, Hon’ble NCLAT, bench comprising of three members, held that:
(i) IU Regulation 20 although has been amended w.e.f 14.06.2022 but there is no amendment either in Section 7 of the IBC which empowers Financial Creditor to file record of the default recorded in the information utility or such other record and default as may be specified or in Rules 2016 or CIRP Regulations 2016.
(ii) The statutory scheme contemplates furnishing record of default by the financial creditor as recorded with the information utility or such other record or evidence of default as may be specified.
(iii) Record of default recorded with the information utility is not the only document which has to be furnished by financial creditor.
(iv) Regulations framed by the Board as per Section 240(1) has to be consistent with provisions of the Code and the Rules. When Section 240 itself provides that regulations have to be consistent with provision of Code and Rules, no regulation can be implemented or enforced which is not in consonance with the Code and the Rules.
(v) If IU Regulation 20(1A) is to be read as Regulation now mandating the Financial Creditor to file only the record of default in the information utility, the said Regulation will not be consistent with provision of Section 7(3) of the Code and AAA Rule 4 which provides that what documents have to be filed by the Financial Creditor.
(vi) IU Regulation 20(1A) cannot be read to mean that after the said amendment brought in regulation w.e.f 14.06.2022 an application filed under Section 7 which is not supported by information of default from an information utility is to be rejected and if the Financial Creditor has filed other evidence to prove default which is contemplated by the AAA Rules, 2016 and the CIRP Regulations, 2016, the said application has not to be considered.
(v) Filing of counter claim or money suit shall not absolve the Appellant from its liability to discharge its debt and if there is a financial debt which is due and default is committed by the Corporate Debtor proceedings under Section 7 can be initiated. Mere filing of the counter claim or money suit cannot lead to dismissal of Section 7.

Whether filing of Record of Default(RoD) of Information Utility is mandatory? and without obtaining an Authentication of Default(AoD) as per IU Regulation 21, no application under Sec. 7 can be filed by Financial Creditor? – Vijay Kumar Singhania Vs. Bank of Baroda and Anr. – NCLAT New Delhi Read Post »

In the absence of any document evidencing relationship of the Financial Creditor with the Corporate Debtor, it cannot be concluded that the Financial Creditor has a right to claim default amounts – Devkinandan Shankarlal Agarwal and Another Vs. M/s Mangalmurti Mats Pvt. Ltd. – NCLT Mumbai Bench

The Adjudicating Authority observed that in the present case, there is no dispute on the amount advanced by M/s. Pioneer Steels. However, in the absence of any document evidencing relationship of the Financial Creditor with the said firm, it cannot be concluded that the Financial Creditor has a right to claim these amounts. Accordingly, on the basis of documents annexed to the Application, the Bench is of the view that the Financial Creditor has no locus to file the present Application.

Nonetheless, these amounts were advanced without any stipulation of repayment date and accordingly are in nature of amounts repayable on demand. The Applicant Financial Creditor has not filed any communication seeking repayment of debt, if any, from the Corporate Debtor. Even if it is considered that the amounts paid from the account of M/s. Pioneer Steels belong to the Applicant, the amounts so paid cannot be said to have become due. Since the amount has not fallen due, there can-not be question of any default having taken place. The Applicant has filed Record of the default with the Information Utility i.e NeSL Certificate dated 07.05.2021 in accordance with Section 7(3) of the code. However, on perusal it is seen that the filed document does not contain the certificate of NeSL, in absence of which it is not clear how the Corporate Debtor responded to this. The cause under Section 7 only on occurrence of default. Hence, this petition is not maintainable on this ground also.

In the absence of any document evidencing relationship of the Financial Creditor with the Corporate Debtor, it cannot be concluded that the Financial Creditor has a right to claim default amounts – Devkinandan Shankarlal Agarwal and Another Vs. M/s Mangalmurti Mats Pvt. Ltd. – NCLT Mumbai Bench Read Post »

Section 9(5)(i) vs. Section 7(5)(a) of IBC: The Adjudicating Authority may in its discretion not admit the application of a Financial Creditor filed u/s 7, however, Section 9(5)(i) is mandatory, almost identical provision relating to the initiation of CIRP by an Operational Creditor – Vidarbha Industries Power Ltd. Vs. Axis Bank Ltd. – Supreme Court

In this landmark judgment, Hon’ble Supreme Court clarifies various issues in filing of CIRP u/s 7 and 9. The Hon’ble Court held that If Section 7(5)(a) of the IBC is construed literally the provision must be held to confer a discretion on the Adjudicating Authority (NCLT). The fact that Legislature used ‘may’ in Section 7(5)(a) of the IBC but a different word, that is, ‘shall’ in the otherwise almost identical provision of Section 9(5) shows that ‘may’ and ‘shall’ in the two provisions are intended to convey a different meaning. It is apparent that Legislature intended Section 9(5) of the IBC to be mandatory and Section 7(5)(a) of the IBC to be discretionary. The IBC does not countenance dishonesty or deliberate failure to repay the dues of an operational creditor. Further, it held that the Adjudicating Authority may in its discretion not admit the application of a Financial Creditor. It is certainly not the object of the IBC to penalize solvent companies, temporarily defaulting in repayment of its financial debts, by initiation of CIRP. There is no fixed time limit within which an application under Section 7 of the IBC has to be admitted.

Section 9(5)(i) vs. Section 7(5)(a) of IBC: The Adjudicating Authority may in its discretion not admit the application of a Financial Creditor filed u/s 7, however, Section 9(5)(i) is mandatory, almost identical provision relating to the initiation of CIRP by an Operational Creditor – Vidarbha Industries Power Ltd. Vs. Axis Bank Ltd. – Supreme Court Read Post »

Adjudicating Authority must either admit or reject an application filed u/s 7 of IBC, it cannot compel a party to the proceedings before it to settle a dispute – E S Krishnamurthy & Ors. Vs. M/s Bharath Hi Tech Builders Pvt. Ltd. – Supreme Court

Hon’ble Supreme Court set aside judgment of NCAT and NCLT and held that the Adjudicating Authority must either admit the application under Section 7(5)(a) or it must reject the application under Section 7(5)(b). The statute does not provide for the Adjudicating Authority to undertake any other action, but for the two choices available. The Adjudicating Authority is empowered only to verify whether a default has occurred or if a default has not occurred. Based upon its decision, the Adjudicating Authority must then either admit or reject an application respectively. These are the only two courses of action which are open to the Adjudicating Authority in accordance with Section 7(5). The Adjudicating Authority cannot compel a party to the proceedings before it to settle a dispute. What the Adjudicating Authority and Appellate Authority, however, have proceeded to do in the present case is to abdicate their jurisdiction to decide a petition under Section 7 by directing the respondent to settle the remaining claims within three months and leaving it open to the original petitioners, who are aggrieved by the settlement process, to move fresh proceedings in accordance with law. Such a course of action is not contemplated by the IBC. Thus, while the Adjudicating Authority and Appellate Authority can encourage settlements, they cannot direct them by acting as courts of equity.

Adjudicating Authority must either admit or reject an application filed u/s 7 of IBC, it cannot compel a party to the proceedings before it to settle a dispute – E S Krishnamurthy & Ors. Vs. M/s Bharath Hi Tech Builders Pvt. Ltd. – Supreme Court Read Post »

NCLT order dated 12.05.2020 making mandatory prescription on all financial creditors to submit certain financial information as a record of default before the Information Utility is ultra vires the IBC, 2016 – Univalue Projects Pvt. Ltd. & Anr. Vs. The Union of India & Ors – Calcutta High Court

The Court held that :
a) The NCLT has acted without jurisdiction and exceeded its jurisdiction that is limited within the four corners of Section 424 of the CA, 2013 by passing the impugned order in violation of Section 7(3)(a) of the IBC, 2016. Furthermore, the impugned order is clearly in confrontation with Rule 4 of AA Rules, 2016 and Regulation 8 of the CIRP Regulations, 2016 and thereby defeats the very purpose for which the IBC, 2016 has been enacted.

b) I am of the view that financial creditors can rely on either of the modes of evidences at hand to showcase a financial debt, that is, either a record of default from the IU OR any other document as specified which showcases the existence of a financial debt. Such other documents may belong to any of the four classes of documents stated in sub-regulation 2(b) of Regulation 8 of the CIRP, 2016 or as the Supreme Court has observed in Swiss Ribbons (P) Ltd. (supra), all the eight classes of documents stated in Part-V to Form-1 appended with the AA Rules, 2016.

c) Based on sub-paragraph (b) above, it may therefore be inferred that Section 215 of the IBC, 2016 is not mandatory in nature.

d) The NCLT could not exercise its inherent powers under Rule 11 of the NCLT Rules, 2016 to promulgate the impugned order dated May 12, 2020.

e) As far as the distinction that was sought to be drawn between substantive and procedural laws whereby the tribunal could regulate its own procedure, such powers of the tribunal regulated by a delegated form of legislation cannot rise above their source, that is the CA, 2013 and thereby obstruct the operation of a statutory provision of the parent Act (a substantive provision) and the Rules formulated thereunder.

f) Any delegatee under the IBC, 2016, and the CA, 2013, that is, the Central Government, the IBBI and the NCLT cannot make regulations that have a retrospective effect.

NCLT order dated 12.05.2020 making mandatory prescription on all financial creditors to submit certain financial information as a record of default before the Information Utility is ultra vires the IBC, 2016 – Univalue Projects Pvt. Ltd. & Anr. Vs. The Union of India & Ors – Calcutta High Court Read Post »

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