Other-Objective/Scheme of the IBC

Supreme Court sets Guidelines for Withdrawal and Settlement of Insolvency Cases under Section 12A of IBC read with CIRP Regulation 30A | Withdrawal application shall be moved through Resolution Professional only and NCLT Rule 11 or NCLAT Rule 11 or even the power under Article 142 no longer arises – GLAS Trust Company LLC Vs. BYJU Raveendran and Ors. – Supreme Court

In this landmark decision, Hon’ble Supreme Court covers following issues:

i. Nature of the proceedings after admission of the application: proceeding in personam or in rem.
ii. Legal framework for withdrawal and settlement of claims.
iii. Four stages of withdrawal of Insolvency cases: A procedure prescribed under the existing framework.
iv. Comprehensive framework to deal with withdrawal and settlement: Rule 11 of the NCLT Rules, or Rule 11 of the NCLAT Rules or even the power under Article 142 no longer arises.
v. Withdrawal application u/s 12A through IRP only, NCLT conducts an adjudicatory exercise and the procedure is not a mere technicality.
vi. Inherent Powers under Rule 11 of NCLT/ NCLAT Rules, 2016.
vii. Meaning of the phrase “any person aggrieved” under Section 61 and Section 62 of IBC.

Supreme Court sets Guidelines for Withdrawal and Settlement of Insolvency Cases under Section 12A of IBC read with CIRP Regulation 30A | Withdrawal application shall be moved through Resolution Professional only and NCLT Rule 11 or NCLAT Rule 11 or even the power under Article 142 no longer arises – GLAS Trust Company LLC Vs. BYJU Raveendran and Ors. – Supreme Court Read Post »

Landmark judgment on various provisions of IBC on Personal Insolvency | Provisions of Section 95 to Section 100 of the IBC are not unconstitutional – Dilip B Jiwrajka Vs. Union of India & Ors. – Supreme Court

Conclusion of the landmark judgment on personal insolvency as under:
(i) No judicial adjudication is involved at the stages envisaged in Sections 95 to Section 99 of the IBC;
(ii) The resolution professional appointed under Section 97 serves a facilitative role of collating all the facts relevant to the examination of the application for the commencement of the insolvency resolution process which has been preferred under Section 94 or Section 95. The report to be submitted to the adjudicatory authority is recommendatory in nature on whether to accept or reject the application;
(iii) The submission that a hearing should be conducted by the adjudicatory authority for the purpose of determining ‘jurisdictional facts’ at the stage when it appoints a resolution professional under Section 97(5) of the IBC is rejected. No such adjudicatory function is contemplated at that stage. To read in such a requirement at that stage would be to rewrite the statute which is impermissible in the exercise of judicial review;
(iv) The resolution professional may exercise the powers vested under Section 99(4) of the IBC for the purpose of examining the application for insolvency resolution and to seek information on matters relevant to the application in order to facilitate the submission of the report recommending the acceptance or rejection of the application;
(v) There is no violation of natural justice under Section 95 to Section 100 of the IBC as the debtor is not deprived of an opportunity to participate in the process of the examination of the application by the resolution professional;
(vi) No judicial determination takes place until the adjudicating authority decides under Section 100 whether to accept or reject the application. The report of the resolution professional is only recommendatory in nature and hence does not bind the adjudicatory authority when it exercises its jurisdiction under Section 100;
(vii) The adjudicatory authority must observe the principles of natural justice when it exercises jurisdiction under Section 100 for the purpose of determining whether to accept or reject the application;
(viii) The purpose of the interim-moratorium under Section 96 is to protect the debtor from further legal proceedings; and
(ix) The provisions of Section 95 to Section 100 of the IBC are not unconstitutional as they do not violate Article 14 and Article 21 of the Constitution.

Landmark judgment on various provisions of IBC on Personal Insolvency | Provisions of Section 95 to Section 100 of the IBC are not unconstitutional – Dilip B Jiwrajka Vs. Union of India & Ors. – Supreme Court Read Post »

Whether the provisions of IBC 2016 would override the provisions of Income Tax Act, 1961 and Whether the Income Tax Department is entitled to recover dues for the period which precedes the date of approval of the Resolution Plan by the NCLT – Tata Steel Ltd. Vs. Deputy Commissioner of Income Tax – Delhi High Court

In this case, the issues before Hon’ble High Court are:
(i) Whether the Income Tax Department is entitled to recover dues for the period which precedes the date of approval of the Resolution Plan by the NCLT.
(ii) Whether the provisions of the IBC 2016 would override the provisions of the Income Tax Act, 1961.
(iii) Should Successful Resolution Applicant take recourse to an alternate remedy, as provided under the Income Tax Act, 1961.

Whether the provisions of IBC 2016 would override the provisions of Income Tax Act, 1961 and Whether the Income Tax Department is entitled to recover dues for the period which precedes the date of approval of the Resolution Plan by the NCLT – Tata Steel Ltd. Vs. Deputy Commissioner of Income Tax – Delhi High Court Read Post »

Not all dues owed under statute are treated as ‘government dues’ under Section 53 of IBC, Rainbow Papers judgment did not notice the waterfall mechanism – Paschimanchal Vidyut Vitran Nigam Ltd. Vs. Raman Ispat Pvt. Ltd. & Ors. – Supreme Court

Hon’ble Supreme Court held that:
(i) On occurrence of any eventuality specified under Section 33, the liquidation process has to begin, as a matter of course – there is no choice in the matter.
(ii) The expression “government dues” is not defined in the IBC – it finds place only in the preamble. The repeated reference of lowering of priority of debts to the government, on account of statutory tax, or other dues payable to the Central Government or State Government, or amounts payable into the Consolidated Fund on account of either government, in the various reports which preceded the enactment of the IBC, as well as its Preamble, means that these dues are distinct and have to be treated as separate from those owed to secured creditors.
(iii) The specific mention of other class of creditors whose dues are statutory, such as dues payable to workmen or employees, “the provident fund, the pension fund, the gratuity fund” under Section 36(4), which excludes these enumerated amounts from the liquidation, especially clarifies that not all dues owed under statute are treated as ‘government’ dues. In other words, dues payable to statutory corporations which do not fall within the description “amounts due to the central or state government” such as for instance amounts payable to corporations created by statutes which have distinct juristic entity but whose dues do not constitute government dues payable or those payable into the respective Consolidated Funds stand on a different footing.
(iv) On the other hand, dues payable or requiring to be credited to the Treasury, such as tax, tariffs, etc. which broadly fall within the ambit of Article 265 of the Constitution are ‘government dues’ and therefore covered by Section 53(1)(f) of the IBC.
(v) Rainbow Papers judgment did not notice the ‘waterfall mechanism’ under Section 53 – the provision had not been adverted to or extracted in the judgment. The dues payable to the government are placed much below those of secured creditors and even unsecured and operational creditors. This design was either not brought to the notice of the court in Rainbow Papers (supra) or was missed altogether. In any event, the judgment has not taken note of the provisions of the IBC which treat the dues payable to secured creditors at a higher footing than dues payable to Central or State Government.

Not all dues owed under statute are treated as ‘government dues’ under Section 53 of IBC, Rainbow Papers judgment did not notice the waterfall mechanism – Paschimanchal Vidyut Vitran Nigam Ltd. Vs. Raman Ispat Pvt. Ltd. & Ors. – Supreme Court Read Post »

Waterfall Mechanism in Insolvency & Bankruptcy Code, 2016 (IBC) vs. in Companies Act, 2013 – Moser Baer Karamchari Union Thr. President Mahesh Chand Sharma Vs. Union of India and Ors. – Supreme Court

Hon’ble Supreme Court held that (i) in principle, it cannot be doubted that the cases of revival or winding up of the company on the ground of insolvency and inability to pay debts are different from cases where companies are wound up under Section 271 of the Companies Act 2013. The two situations are not identical. The reasons and grounds for winding up under Section 271 of the Companies Act, 2013 are vastly different from the reasons and grounds for the revival and rehabilitation scheme as envisaged under the Code.
(ii) In view of the enactment of IBC and Section 53 of the IBC, it necessitated to amend the Act, 2013. As per Sub-Section (7) of Section 327, Sections 326 and 327 shall not be applicable in the event of liquidation under the IBC.
(iii) Entire unpaid dues are not covered by the proviso to sub-section (1) to Section 326 of the Companies Act, 2013.
(iv) The provisions under the IBC cannot be compared with that of the earlier regime, namely, the Companies Act, 1956/2013.
(v) The waterfall mechanism is based on a structured mathematical formula, and the hierarchy is created in terms of payment of debts in order of priority with several qualifications, striking down any one of the provisions or rearranging the hierarchy in the waterfall mechanism may lead to several trips and disrupt the working of the equilibrium as a whole and stasis, resulting in instability. Every change in the waterfall mechanism is bound to lead to cascading effects on the balance of rights and interests of the secured creditors, operational creditors and even the Central and State Governments.
Hon’ble Apex Court concluded that as sub-section (7) of Section 327 of the Act, 2013 provides that Sections 326 and 327 of the Act, 2013 shall not be applicable in the event of liquidation under the IBC, which has been necessitated in view of the enactment of IBC and it applies with respect to the liquidation of a company under the IBC, Section 327(7) of the Act, 2013 cannot be said to be arbitrary and/or violative of Article 21 of the Constitution of India. In case of the liquidation of a company under the IBC, the distribution of the assets shall have to be made as per Section 53 of the IBC subject to Section 36(4) of the IBC, in case of liquidation of company under IBC.

Waterfall Mechanism in Insolvency & Bankruptcy Code, 2016 (IBC) vs. in Companies Act, 2013 – Moser Baer Karamchari Union Thr. President Mahesh Chand Sharma Vs. Union of India and Ors. – Supreme Court Read Post »

Once Liquidator applies to the NCLT for the decision to sell the movable and immovable assets of the Corporate Debtor in liquidation by adopting a particular mode of sale and NCLT grants approval to such a decision, there is no provision in the IBC that empowers the NCLAT to suo motu conduct a judicial review of the said decision – R.K. Industries (Unit-II) LLP Vs. H.R. Commercials Pvt. Ltd. and Other – Supreme Court of India

Hon’ble Supreme Court observed that only two points arise for consideration in these appeals. Firstly, whether the respondent No.2 – Liquidator was justified in discontinuing the Second Swiss Challenge Process for the sale of a part of the assets of the Corporate Debtor wherein the appellant – R.K. Industries was declared as an Anchor Bidder and opting for a Private Sale Process through direct negotiations in respect of the composite assets of the Corporate Debtor? If so, was the NCLAT justified in directing the respondent No.2 – Liquidator to restart the entire process of Private Sale after issuing an open notice to prospective buyers instead of confining the process to those parties who had participated in the process earlier?

Once Liquidator applies to the NCLT for the decision to sell the movable and immovable assets of the Corporate Debtor in liquidation by adopting a particular mode of sale and NCLT grants approval to such a decision, there is no provision in the IBC that empowers the NCLAT to suo motu conduct a judicial review of the said decision – R.K. Industries (Unit-II) LLP Vs. H.R. Commercials Pvt. Ltd. and Other – Supreme Court of India Read Post »

IBC would prevail over the Customs Act, 1962 and once moratorium is imposed in terms of Sections 14 or 33(5) of the IBC, the Custom authority only has a limited jurisdiction to assess/determine the quantum of customs duty and other levies – Sundaresh Bhatt, Liquidator of ABG Shipyard Vs. Central Board of Indirect Taxes and Customs – Supreme Court of India

Hon’ble Supreme Court held that:
i) Once moratorium is imposed in terms of Sections 14 or 33(5) of the IBC as the case may be, the respondent authority only has a limited jurisdiction to assess/determine the quantum of customs duty and other levies. The respondent authority does not have the power to initiate recovery of dues by means of sale/confiscation, as provided under the Customs Act.

ii) After such assessment, the respondent authority has to submit its claims (concerning customs dues/operational debt) in terms of the procedure laid down, in strict compliance of the time periods prescribed under the IBC, before the adjudicating authority.

iii) In any case, the IRP/RP/liquidator can immediately secure goods from the respondent authority to be dealt with appropriately, in terms of the IBC.

IBC would prevail over the Customs Act, 1962 and once moratorium is imposed in terms of Sections 14 or 33(5) of the IBC, the Custom authority only has a limited jurisdiction to assess/determine the quantum of customs duty and other levies – Sundaresh Bhatt, Liquidator of ABG Shipyard Vs. Central Board of Indirect Taxes and Customs – Supreme Court of India Read Post »

An appeal being the continuation of original proceedings, the provision of Section 7(5)(b) of the IBC, would be attracted and before closing CIRP proceedings at appeal stage, an opportunity to Financial Creditors to explain if there was sufficient cause for the delay in filing CIRP application before the NCLT – Kotak Mahindra Bank Ltd. Vs. Kew Precision Parts Pvt. Ltd. & Ors. – Supreme Court

This judgment clarifies:
Pre-existing disputes in case of application u/s 7-Financial Creditor;
SARFEASI or other recovery law does not affect the right of a Financial Creditor to initiate CIRP;
Section 25 of the Indian Contract Act;
Distinction between Section 18 of the Limitation Act, 1963 and Section 25 of the Contract Act;
Compliance with the requisites of the Proviso to Section 7(5) of the IBC;
Opportunity to Financial Creditor at appeal stage before dismissing CIRP;
Condonation of delay in filing of CIRP application u/s 7, 9 and 10 and appeals;
Period of Limitation;
Entries in books of accounts and/or balance sheets of a Corporate Debtor – Acknowledgement under Section 18 of Limitation Act;
Scheme of the IBC and Interpretation of IBC

An appeal being the continuation of original proceedings, the provision of Section 7(5)(b) of the IBC, would be attracted and before closing CIRP proceedings at appeal stage, an opportunity to Financial Creditors to explain if there was sufficient cause for the delay in filing CIRP application before the NCLT – Kotak Mahindra Bank Ltd. Vs. Kew Precision Parts Pvt. Ltd. & Ors. – Supreme Court Read Post »

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