07 (5) (b)

During hearing of CIRP application u/s 7 of IBC, NCLT cannot force Financial Creditor to settle its outstanding dues with Corporate Debtor – Avargreen Organic Foods Pvt. Ltd. Vs. Raghupati Construction Pvt. Ltd. – NCLT Allahabad Bench

NCLT Allahabad Bench observed that:
(i) Section 7(5) empowers Adjudicating Authority either to accept the application in lieu of section 7(5)(a) or to reject under section 7(5)(b). Therefore, no other order can be passed by the adjudicating authority in a petition under section 7.
(ii) Once Adjudicating Authority identify a default by the corporate debtor, then it is bounded by the statute (as per IBC) to admit the CIRP application under section 7. The Adjudicating Authority cannot pass any other order at this instance.
(iii) These are the only two courses of action which are open to the Adjudicating Authority in accordance with Section 7(5), either admit or reject an application, but the Adjudicating Authority cannot compel a party to the proceedings before it to settle a dispute.
(iii) Undoubtedly, settlements have to be encouraged because the ultimate purpose of the IBC is to facilitate the continuance and rehabilitation of a corporate debtor, as distinct from allowing it to go into liquidation.
(iv) Initiated CIRP u/s 7 of IBC against the Raghupati Construction Pvt. Ltd., Corporate Debtor.

During hearing of CIRP application u/s 7 of IBC, NCLT cannot force Financial Creditor to settle its outstanding dues with Corporate Debtor – Avargreen Organic Foods Pvt. Ltd. Vs. Raghupati Construction Pvt. Ltd. – NCLT Allahabad Bench Read Post »

Whether the provisions of the IBC, 2016 interdict the appointment of an Arbitrator by invoking Section 11(6) of the Arbitration and Conciliation Act, 1996 – M/s. Sunflag Iron & Steel Co. Ltd. Vs. M/s. J. Poonamchand & Sons – Bombay High Court

Hon’ble High Court held that (i) The admission of an application after recording its satisfaction as contemplated by Section 7(5) of the IB Code would be the starting point where the bar under Section 238 of the IB Code can be said to be capable of being invoked and the mere filing of an application under Section 7(1) of the IB Code cannot be said to be enough to invoke the bar. (ii) The mere filing of an application under Section 7(1) of the IB Code, would not act as a bar to any proceedings under other statutes, until and unless the satisfaction as contemplated by Section 7(4) r/w Section 7(5)(a) of the IB Code is recorded by the Adjudicating Authority and the application is admitted. (iii) There does not appear to be anything inconsistent between the provisions of the A & C Act and the IB Code, inasmuch as the provisions of Section 238 of the IB Code would come into play only upon an order having been passed by the Adjudicating Authority under Section 7(5) of the IB Code and therefore an application under Section 11(6) of the A & C Act, till such time cannot be said to be not maintainable.

Whether the provisions of the IBC, 2016 interdict the appointment of an Arbitrator by invoking Section 11(6) of the Arbitration and Conciliation Act, 1996 – M/s. Sunflag Iron & Steel Co. Ltd. Vs. M/s. J. Poonamchand & Sons – Bombay High Court Read Post »

Whether the Adjudicating Authority can refer application proceedings under Section 7 of IBC, 2016 for Mediation under Section 442 of the Companies Act, 2013 – White Stock Ltd. Vs. Prajay Holdings Pvt. Ltd. – NCLAT Chennai

NCLAT held that the purpose of Section 241 of the Companies Act, 2013 cannot be equated with Section 7 of the Code, 2016. Similarly, the powers of the Tribunal under Section 242 of the Companies Act, 2013 w.r.t oppression and mismanagement are quite comprehensive in comparison to Section 7 which grants limited powers to the Adjudicating Authority of either acceptance or rejection of the claims made by the Financial Creditor based on details of claims along with evidence produced by him. As such we find that the petitions made under Section 241 of the Companies Act, 2013 cannot be equated with Application filed under Section 7 of the Code, 2016 and the Adjudicating Authority is required to treat these petitions on a separate footing as per law and take decision accordingly.

Whether the Adjudicating Authority can refer application proceedings under Section 7 of IBC, 2016 for Mediation under Section 442 of the Companies Act, 2013 – White Stock Ltd. Vs. Prajay Holdings Pvt. Ltd. – NCLAT Chennai 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 and Ors. Vs. 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 and Ors. Vs. Bharath Hi Tech Builders Pvt. Ltd. – Supreme Court Read Post »

In case of consortium of Bank, whether first date of default is to be taken into consideration for the purpose of calculating period of limitation to trigger CIRP under IBC – Mr. Manmohan Singh Jain Vs. M/s. State Bank of India – NCLAT Chennai

It is submitted that as per Hon’ble Supreme Court in the matter of Laxmi Pat Surana v Union Bank of India and Anr., the date of default is not the date of NPA and 90 days prior to the date of NPA is to be taken into consideration as per the Master Circular of the RBI. The Bone of Contention of the Learned Counsel for the Appellant is that the first default of Consortium of Bank is to be taken into consideration for the purpose of triggering CIRP against the Corporate Debtor.
NCLAT held that debt of Axis Bank is irrelevant as the application filed by the Respondent No.1, SBI is in respect of its debt under the Working Capital Consortium for a sum of Rs.52.28 Crores and the said arrangement entitles each of the case independently enforced its rights arising therefrom. NCLAT also held that non-mentioning of the date of default in Form-1(Section 7 of IBC) filed before the Adjudicating Authority is not fatal to the application and on the sole ground, the application cannot be rejected mere taking a technical impediment

In case of consortium of Bank, whether first date of default is to be taken into consideration for the purpose of calculating period of limitation to trigger CIRP under IBC – Mr. Manmohan Singh Jain Vs. M/s. State Bank of India – NCLAT Chennai Read Post »

There is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with application under Section 7 of the IBC – Dena Bank Vs. C. Shivakumar Reddy and Anr. – Supreme Court

On objects and scheme of the Code, Hon’ble Supreme Court held that the IBC aims at promoting, inter alia, investments and also resolution of insolvency of Corporate persons. The IBC is not just another statute for recovery of debts. An application cannot be dismissed, without compliance with the requisites of the Proviso to Section 7(5) of the IBC.
Further, the Court on filing additional documents and amendment in CIRP application, held that the proviso to Section 7(5)(b) of the IBC obliges the Adjudicating Authority to give notice to an applicant, to rectify the defect in its application within seven days. The Adjudicating Authority may accept the cured application, even after expiry of seven days, for the ends of justice. There is no bar to the filing of documents at any time until a final order either admitting or dismissing the application has been passed. Needless however, to mention that depending on the facts and circumstances of the case, when there is inordinate delay, the Adjudicating Authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order.
The Hon’ble Court on the matter of Recovery Certificate issued by DRT held that a final judgment and order/decree is binding on the judgment debtor. Once a claim fructifies into a final judgment and order/decree, upon adjudication, and a certificate of Recovery is also issued authorizing the creditor to realize its decretal dues, a fresh right accrues to the creditor to recover the amount of the final judgment and/or order/decree and/or the amount specified in the Recovery Certificate.

There is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with application under Section 7 of the IBC – Dena Bank Vs. C. Shivakumar Reddy and Anr. – Supreme Court Read Post »

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