Applicability of IBC [Sec. 2]

Can insolvency be initiated against a Company registered under Section 8 of the Companies Act, 2013 with a charitable objective of imparting and promoting education? – M/s. Educomp Infrastructure & School Management Ltd. Vs. M/s. Millenium Education Foundation – NCLT New Delhi Bench Court-V

The Adjudicating Authority held that on a reading of Section 3(7) of the Insolvency and Bankruptcy Code, 2016 that defines a “corporate person”, it is amply clear that the definition under Section 3(7) inter alia, includes a “company” under Section 2(20) of Companies Act‟ 2013. Section 2(20) of the Companies Act, 2013 defines “Company” as a company incorporated under the Companies Act, 2013 or under any previous company law. Further, Section 2(a) of the Code, 2016 provides that the provisions of the Code, 2016 shall apply to, “any company incorporated under the Companies Act 2013 or under any previous company law for the applicability of the Code, 2016”. Accordingly, the Insolvency and Bankruptcy Code, 2016 does not create a difference based on the objectives or nature of the company. Thus, clearly, Section 8 Companies are also covered under the Code, 2016 as a “Corporate Person‟ and therefore, Corporate Insolvency Resolution Process can be initiated against the Corporate Debtor herein.

Can insolvency be initiated against a Company registered under Section 8 of the Companies Act, 2013 with a charitable objective of imparting and promoting education? – M/s. Educomp Infrastructure & School Management Ltd. Vs. M/s. Millenium Education Foundation – NCLT New Delhi Bench Court-V Read Post »

Can proceedings under Section 95(1) of IBC against a Personal Guarantor be initiated before NCLT Bench even after getting citizenship of another country/Foreign Country? – Sudip Bijoy Dutta Vs. State Bank of India – NCLAT New Delhi

Following issues arise in the present Appeal:

(i) Whether a Personal Guarantee given by the Appellant by Guarantee Deed dated 19.10.2015 shall extinguish, on Appellant, the Personal Guarantor acquiring citizenship of Singapore w.e.f. 18.06.2018?

(ii) Whether proceedings under Section 95(1) against the Appellant as a Personal Guarantor could not have been initiated by State Bank of India before the NCLT, Kolkata Bench by filing C.P. (IB) No. 54/KB/2021 due to the reason that Appellant has obtained citizenship of Singapore w.e.f. 18.06.2018 and has gone beyond jurisdiction of the Adjudicating Authority to proceed against him under Section 95(1)?

(iii) Whether it was necessary for the Central Government to enter into an agreement as required under Section 234-235 of the Code to enable the Adjudicating Authority to proceed against the Appellant, a Singapore citizen’ under Section 95(1) where the Appellant has executed Guarantee Deed dated 19.10.2015?

Can proceedings under Section 95(1) of IBC against a Personal Guarantor be initiated before NCLT Bench even after getting citizenship of another country/Foreign Country? – Sudip Bijoy Dutta Vs. State Bank of India – NCLAT New Delhi Read Post »

Whether the Monitoring Committee of a Corporate Debtor through its Chairman has the authority under IBC to file CIRP application against other Corporate Debtor – M/s. Educomp Infrastructure & School Management Ltd. Vs. M/s. Millenium Education Foundation – NCLT New Delhi Bench Court-V

The Adjudicating Authority observed that the Applicant, in the present Application, being the Monitoring Professional for M/ s. Educomp Infrastructure & School Management Limited, is covered under the provisions of the Code, by virtue of Section 2(d) of the code which read as; “such other body incorporated under any law for the time being in force, as the Central Government may, by notification, specify in this behalf;”. Here, it can be observed that the Monitoring Committee is formed under the provisions of the Code and the Chairman therein, is also appointed in accordance with the provisions of the Code. Hence, he has proper authority to proceed to take any steps as necessary to protect the interest of the Applicant.

Whether the Monitoring Committee of a Corporate Debtor through its Chairman has the authority under IBC to file CIRP application against other Corporate Debtor – M/s. Educomp Infrastructure & School Management Ltd. Vs. M/s. Millenium Education Foundation – NCLT New Delhi Bench Court-V Read Post »

Proprietorship Firm represented by its Sole Proprietor by reflecting the name of sole proprietor itself would show that the Application is being represented by the Proprietorship Firm as well as the Proprietor, duly represented by its Sole Proprietor – Fipola Retail (India) Pvt. Ltd. Vs. M2N Interiors – NCLAT Chennai

NCLAT observed that from the perusal of the Application it is seen that the Proprietorship name i.e., M/s. M2N Interiors is represented by its Sole Proprietor as depicted in cause title, therefore, taking into consideration that the Proprietorship Firm represented by its Sole Proprietor by reflecting the name of sole proprietor itself would show that the Application is being represented by the Proprietorship Firm as well as the Proprietor, duly represented by its Sole Proprietor. In this regard, as decided by this Tribunal Section 2 of Code 2016 applies to Partnership Firms and Proprietorship Firms. As per Sub Clause (f) of Section 2, the person defines in Sub Section 23 of Section 3 includes a Partnership Firm. Therefore, relying upon the decision of this Tribunal there is no error apparent in the Impugned Order.  Taking into consideration of the aspects and relying upon the decision NCLAT in Neeta Saha vs. Mr. Ram Niwas Gupta [2020] ibclaw.in 272 NCLAT is of the view that the Application filed by the Respondent i.e., M/s. M2N Interiors, a Proprietorship Firm is maintainable and accordingly this Tribunal does not find any illegality in the Common Order passed by the Adjudicating Authority dated 01.02.2021.

Proprietorship Firm represented by its Sole Proprietor by reflecting the name of sole proprietor itself would show that the Application is being represented by the Proprietorship Firm as well as the Proprietor, duly represented by its Sole Proprietor – Fipola Retail (India) Pvt. Ltd. Vs. M2N Interiors – NCLAT Chennai Read Post »

As per definition of Corporate Person under Section 3(7) of the Code, the Societies cannot be said to be Corporate Persons – Asset Reconstruction Company (India) Ltd. Vs. Mohammadiya Educational Society – NCLAT New Delhi

NCLAT upheld decision of the Adjudicating Authority and held that Section 3(7) defines “corporate person” and even if this definition is considered, the Respondents are not Companies defined in clause 2(20) of the Companies Act, 2013 or “limited liability partnership” as defined under the Limited Liability Partnership Act, 2008 or any other person incorporated with limited liability under any law for the time being in force. Even if the Appellant was to say that the Respondents should be treated as body corporate under Section 18 of the A.P. Act, nothing is shown that Respondents Societies are persons “incorporated” or that the incorporation is with “limited liability”. This has to be further read with Section 2(d) which requires that to apply the Code such other body incorporated under any law for the time being in force needs to be specified by Central Government only then Code would apply to it. Thus, reading Section 2 which prescribes the entities and individuals to which the Code applies when considered with definition of ‘corporate person’ under Section 3(7) of the Code, the Respondents i.e. Societies cannot be said to be ‘corporate persons’ to whom the provisions of the Code applies.(p20-21)

As per definition of Corporate Person under Section 3(7) of the Code, the Societies cannot be said to be Corporate Persons – Asset Reconstruction Company (India) Ltd. Vs. Mohammadiya Educational Society – NCLAT New Delhi Read Post »

Approval of a Resolution Plan does not ipso facto discharge a Personal Guarantor (of a Corporate Debtor) of her/his liabilities under the Contract of Guarantee – Lalit Kumar Jain Vs. Union of India & Ors. – Supreme Court

The Hon’ble Supreme Court upheld validity of notification dated 15.11.2019 and held that the impugned notification enforcing provisions of the Code, only in so far as they relate to Personal Guarantors was issued within the power granted by Parliament and it is legal and valid. The Court also held that the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor’s liability. The Court referred Maharashtra State Electricity Board [2017] ibclaw.in 19 SC judgment alongwith other judgments and clarified that approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee. As held by this court, the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process, i.e. by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract. It was also held that approval of a resolution plan relating to a corporate debtor does not operate so as to discharge the liabilities of personal guarantors (to corporate debtors).

Approval of a Resolution Plan does not ipso facto discharge a Personal Guarantor (of a Corporate Debtor) of her/his liabilities under the Contract of Guarantee – Lalit Kumar Jain Vs. Union of India & Ors. – Supreme Court Read Post »

Whether an action under Section 7 of the Code can be initiated by the Bank against a Corporate Person (being a Corporate Debtor) concerning Guarantee offered by it in respect of a loan account of the Principal Borrower, who had committed default and is not a “Corporate Person” within the meaning of the Code? – Laxmi Pat Surana Vs. Union Bank Of India & Anr. – Supreme Court

Hon’ble Supreme Court held that if the guarantor is a corporate person (as defined in Section 3(7) of the Code), it would come within the purview of expression “corporate debtor”, within the meaning of Section 3(8) of the Code. There is no reason to limit the width of Section 7 of the Code despite law permitting initiation of CIRP against the corporate debtor, if and when default is committed by the principal borrower. For, the liability and obligation of the guarantor to pay the outstanding dues would get triggered coextensively.
The expression “debt” in Section 3(11) is wide enough to include liability of a corporate person on account of guarantee given by it in relation to a loan account of any person including not being a corporate person in the event of default committed by the latter. It would still be a “financial debt” of the corporate person, arising from the guarantee given by it, within the meaning of Section 5(8) of the Code. The remedy under Section 7 is not for recovery of the amount, but is for reorganisation and insolvency resolution of the corporate debtor who is not in a position to pay its debt and commits default in that regard.
In law, the status of the guarantor, who is a corporate person, metamorphoses into corporate debtor, the moment principal borrower (regardless of not being a corporate person) commits default in payment of debt which had become due and payable. Thus, action under Section 7 of the Code could be legitimately invoked even against a (corporate) guarantor being a corporate debtor. The definition of “corporate guarantor” in Section 5(5A) of the Code needs to be so understood.

Whether an action under Section 7 of the Code can be initiated by the Bank against a Corporate Person (being a Corporate Debtor) concerning Guarantee offered by it in respect of a loan account of the Principal Borrower, who had committed default and is not a “Corporate Person” within the meaning of the Code? – Laxmi Pat Surana Vs. Union Bank Of India & Anr. – Supreme Court Read Post »

Scroll to Top