IBC & Debt Recovery Case Laws Digest: 25th December, 2023 to 31st December, 2023
Supreme Court
If CIRP under Insolvency & Bankruptcy Code, 2016 commences after issued sale certificate under SARFAESI Act, 2002, the rights of flat buyers cannot be affected by insolvency proceedings
Case Name: Pankaj Majithia v. Honest Shelters Pvt. Ltd. and Ors.
Case Citation: (2023) ibclaw.in 169 SC
Hon’ble Supreme Court observes that a relevant aspect is that on 26.06.2019, a sale certificate was issued under the SARFAESI Act, 2002 in terms whereof while giving the description of the immovable property have been specifically excluded. Reasons for this is that qua these flats the work is assigned to respondent No. 1 and there are flat buyers who made payment in respect thereof. The orders of Real Estate Regulatory Authority (RERA) dated 20.03.2023 and 19.07.2023 required to complete the project and handover possession to the flat owners. The obligations of the flat buyers would be governed by their agreements. It is perceived that the impugned order would amount to revisiting this issue by the NCLT.
The Hon’ble Court held that since the process by the NCLT under the IBC commences on 06.11.2019 and the sale certificate was issued on 26.06.2019, the rights of respondent No. 1 and the flat buyers cannot be affected by this process. Thus the NCLT is not to examine these aspects which apparently troubles the parties.
High Court
1. Whether attachment order passed prior to initiation of CIRP of Award Debtor shall remain unaffected to ensure the realization of the decretal dues or arbitral award?
Case Name: Candor Gurgaon Two Developers & Projects Pvt. Ltd. Vs. Srei Infrastructure Finance Ltd.
Case Citation: (2023) ibclaw.in 1021 HC
Hon’ble Calcutta High Court held that:
(i) Following the procedure as laid down under the IBC, 2016, once Resolution Applicant submits resolution plan and it is approved by the committee of creditors, the Adjudicating Authority is to take the call and once such plan is accepted the moratorium under Section 14 of the Code ceased to operate. But that does not permit the proceeding including one in the execution to dance back to life. The provision as laid down under Section 31 of the Code of 2016 takes over.
(ii) The execution proceeding appears to be not maintainable for the simple reason that if by way of execution the claim is satisfied and thereby the quantum of money is realized and given to the Corporate Creditor (in this case the Award Holder) it would amount to preferential transaction, which is not permitted under Section 43 of the IBC, 2016.
(iii) The provision of Section 231 of the IBC, 2016 is eloquent about ouster of jurisdiction of Civil Code in respect of matter in which the Adjudicating Authority or the Board is empowered by or under the Code of 2016. The order of attachment in favour of the Award Holder, in view of Section 238 of the IBC, 2016 as a natural corollary shall be void.
2. Whether once an Insolvency Professional is appointed as a Liquidator by NCLT, he moves away from the orbit of IBC and ceases to be governed by IBC | Whether IBBI can exercise any jurisdiction to issue the show cause notice to a Liquidator
Case Name: Ad.(CA) V.Venkata Siva Kuma Vs. Insolvency and Bankruptcy Board of India and Ors.
Case Citation: (2023) ibclaw.in 1067 HC
In this case, the pointed allegation made against the petitioner (Insolvency Professional) in the show cause notice issued by IBBI is that the petitioner while discharging his responsibilities under Sec. 230 of the Companies Act, he shared the details of the valuation report of the assets of the company with all the scheme proponents, as a result of which all of them quoted the same price.
Hon’ble Madras High Court while dismissing writ petition filed against IBBI show cause notice, held that:
(i) Liquidation of a Corporate Debtor is not alien to the scheme of IBC.
(ii) Merely because Insolvency Professional was directed to perform a role by NCLT, it does not prima facie entertain an idea that he ceases to be governed by IBC, and Regulations framed thereunder.
(iii) When the Insolvency Professional ceases to be a Resolution Professional, and starts wearing the cap of a liquidator, the role of IIIP of ICAI vis-a-vis its member ceases
(iv) This petition is dismissed, and the petitioner will have all the liberty to put forth his entire line of defence disciplinary enquiry, which needless to say includes all that the grounds on the basis of which he has now challenged the show cause notice.
3. Moratorium given to an individual under Chapter III of IBC, 2016 will not cover the proceedings under Sec. 138/141 of Negotiable Instruments Act, 1881 initiated against Directors or Guarantors of any Company, which is not a Corporate Debtor under the Code
Case Name: Ashok B.Jeswani and Anr. Vs. Redington India Ltd.
Case Citation: (2023) ibclaw.in 1015 HC
Hon’ble Madras High Court refers judgment in P. Mohanraj & Ors. v. Shah Brothers Ispat Pvt. Ltd. (2021) ibclaw.in 24 SC and Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd. (2023) ibclaw.in 30 SC and holds that as the Hon’ble Supreme Court held that the moratorium given to the corporate debtor under Chapter II will not cover the individuals, who are the Guarantors of Directors. Similarly, the moratorium given to an individual under Chapter III will not cover the proceedings initiated against them as Directors or Guarantors of any company, which is not a corporate debtor under this Code.
4. Whether the different departments of the State including Excise and Revenue will have priority over the Secured Creditors’ debt under SARFAESI Act, 2002
Case Name: State Bank of India Vs. State of H. P. and Ors.
Case Citation: (2023) ibclaw.in 1013 HC
Hon’ble Himachal Pradesh High Court held that once the petitioner is a secured creditor and has moreover created the first charge over the property, then obviously, it has the first right to realise its dues and this question is no longer res integra in view of the authoritative pronouncement of the Hon’ble Supreme Court in Punjab National Bank Vs. Union of India & Ors. (2022) ibclaw.in 12 SC.
5. If DRT has not determined any amount payable by Borrowe, the quantum of pre-deposit is necessarily to be paid on the basis of the debts as claimed by Secured Creditor/Bank
Case Name: Preeti Sharma v. Authorized Officer Bank of Baroda & Ors.
Case Citation: (2023) ibclaw.in 1003 HC
Hon’ble Delhi High Court held that:
(i) It is apparent from the second proviso to Section 18 of the SARFAESI Act that, the quantum of pre-deposit required to maintain an appeal under Section 18 of the SARFAESI Act is to be determined on the basis of the debt due from the borrower as claimed by the secured creditor or as determined by the DRT, whichever is less.
(ii) In the present case, the DRT has not determined any amount payable by the petitioner as yet. Therefore, the quantum of pre-deposit is necessarily to be paid on the basis of the debts as claimed by respondent no.1 Bank. It is apparent that the quantum of pre-deposit is, thus, required to be determined on the basis of the claim made by respondent no.1 Bank and not on the basis of the defence as advanced by the petitioner.
National Company Law Appellate Tribunal
1. When goods are not in possession of Port Authority, there is no actual lien to invoke Section 171 of Indian Contract Act, 1872 and claim of Port cannot be treated as a Secured Creditor for distribution of liquidation assets under Sec. 53 of Code
Case Name: V O Chidambaranar Port Authority v. Shri Rajesh Chillale, RP of IndBharath Power Gencom Ltd.
Case Citation: (2023) ibclaw.in 830 NCLAT
Hon’ble NCLAT held that a careful reading of the Section of 171 Indian Contract Act, 1872 would show that wharfingers as the Appellant claiming itself to be a security for a general balance of account any goods bailed to them whereas in the present case, the goods are not in possession of the Appellant which is also admitted by the Appellant during the course of hearing and thus there was no actual lien to invoke Section 171 of the Act.
2. Mere insertion of any date in Section 7 application does not make that date of default valid and binding especially when there is no agreement between the two parties as to what shall constitute an event of default | If the default is committed prior to the Section 10A of IBC period and continues in the Section 10A period, this does not put any bar on the initiation of CIRP proceedings
Case Name: Sushma Paranjpe v. Rohan Developers Pvt. Ltd.
Case Citation: (2023) ibclaw.in 796 NCLAT
Hon’ble NCLAT held that:
(i) Mere insertion of any date in Form 1 at Part IV of the Section 7 application does not make that date of default valid and binding especially when there is no agreement between the two parties as to what shall constitute an event of default.
(ii) A plain reading of Section 10A signifies that no application/ proceedings under Sections 7, 9 and 10 can be initiated for any default in payment which is committed during Section 10A period. The object and purpose of Section 10A has been explained in the ordinance by which Section 10A was brought into operation.
What is essentially barred is initiation of CIRP proceedings when the Corporate Debtor commits any default during the Section 10A period. However, if the default is committed prior to the Section 10A period and continues in the Section 10A period, this statutory provision does not put any bar on the initiation of CIRP proceedings.
3. TDS deduction does not imply acknowledgment of any liability as outstanding qua the Operational Creditor
Case Name: R S Infra v. R P Infraventure Pvt. Ltd.
Case Citation: (2023) ibclaw.in 793 NCLAT
Hon’ble NCLAT held that:
(i) Post issue of demand notice by the Operational Creditor, if the Operational Creditor does not receive payment from the Corporate Debtor or notice of the dispute, he may file an Application under Section 9(1) of the Code.
(ii) TDS deduction does not imply acknowledgment of any liability as outstanding qua the Operational Creditor.
(iii) The WhatsApp message of 20.07.2020 relating to debit notes from the Corporate Debtor to the Operational Creditor has been placed at page 133 of APB. That this message was received by them from the Corporate Debtor has not been controverted by the Operational Creditor.
(iv) It is well settled that in Section 9 proceeding, there is no need to enter into final adjudication with regard to existence of dispute between the parties regarding operational debt.
4. Adjudicating Authority cannot substitute its views with the commercial wisdom of the CoC in rejecting the Resolution Plan since nil amount has been allocated to Operational Creditors
Case Name: Yogeshwar Garg and Ors. v. Mandeep Gujral RP Jaycon Infrastructure Ltd. and Anr.
Case Citation: (2023) ibclaw.in 792 NCLAT
CoC in its commercial wisdom has decided not to allocate any amount to the other creditors while following the water fall mechanism as contained in Section 53 of the IBC. The Appellants have failed to point out any material irregularity or contravention of any provision of law by the CoC in approving the plan. That being the case, the Adjudicating Authority with the limited powers of judicial review available to it, cannot substitute its views with the commercial wisdom of the CoC in rejecting the resolution plan unless it is found to be contrary to the express provisions of law or there is sufficient basis which establishes material irregularity.
5. In case Sale of Resolution Plan approved by CoC to third party as transferring shareholding of Successful Resolution Applicant against terms and conditions of Rplan, CoC can withdraw Rplan which is pending for NCLT approval and forfeit EMD/PBG | CIRP Regulation 36B(4A) does not exclude forfeiture of performance security as per conditions in RFRP
Case Name: Jubilee Metal Pvt. Ltd. v. Mr. Surendra Raj Gang RP of Metenere Ltd. and Anr.
Case Citation: (2023) ibclaw.in 827 NCLAT
In this case, shareholding of the Successful Resolution Applicant has been changed while Resolution Plan is pending before NCLT for approval. On IA, NCLT allow withdrawal of Rplan and forfeiture PGB and extended the CIRP time period.
Hon’ble NCLAT has upheld the decision of NCLT Principal Bench, holding that:
(i) The law is well settled and clear that even CoC cannot go back and pray for withdrawal of the Resolution Plan since the plan is clearly binding on the CoC but the above legal position and situation may not apply in a case where after approval of the Resolution Plan by the CoC, the Resolution Applicant himself has breached the terms and conditions and undertaking which was given by him as in the present case.
(ii) Present is a case where in essence we may say it is a case of sale of Resolution Plan approved by the CoC to third party. CoC approves the Resolution Plan looking to the credentials of the Resolution Applicant and its credibility and finances. When very basis of Resolution Applicant is knocked out and it changes its constitution substantially the CoC cannot be faulted in view of breach of the conditions by the Resolution Applicant, application for approval of the Resolution Plan be withdrawn.
(iii) CIRP Regulation 36B(4A) only contemplate one contingency that where performance security shall stand forfeited but the said provision does not exclude forfeiture of performance security in other conditions as contemplated in RFRP.
6. Decisions of CoC to liquidate under Sec. 33(2) of IBC has to be with reasons and that cannot be arbitrarily | V. Duraisamy v. Jeyapriya Fruits & Vegetables Commission Agent & Ors. does not lay down any ratio that Single Operational Creditor CoC cannot be constituted
Case Name: Jaipur Trade Expocentre Pvt. Ltd. v. Metro Jet Airways Training Pvt. Ltd. and Ors.
Case Citation: (2023) ibclaw.in 825 NCLAT
Hon’ble NCLAT observes that CoC has given reasons as to that there are no employees, no business, no registered office, no filing of annual account of the MCA since 31.03.2011, no returns and no transactions since 2017. The scheme of the IBC as delineated by Section 33(2) empower of CoC to take a decision to liquidate after constitution of CoC.
The Bench holds that it is true that the decisions of the CoC to liquidate has to be with reasons and that cannot be arbitrarily done. In V. Duraisamy vs. Jeyapriya Fruits and Vegetables Commission Agent & Ors. (2023) ibclaw.in 405 NCLAT what has been held that the case was that in which no claim was filed, no committee of Creditors was constituted. The said was a not a case of that Committee of Creditors was constituted by single Operational Creditor, hence, the submission which is sought to be advanced by the counsel for the respondent that the single Operational Creditor committee cannot be constituted was not an issue nor any ratio in the said judgment can be read to that effect.
7. Whether profit-sharing loan can be construed as a Financial Debt in terms of IBC | Section 7 application is not maintainable against the breach of terms of the contract
Case Name: Realpro Realty solutions Pvt. Ltd. Vs. Sanskar Projects and Housing Ltd.
Case Citation: (2023) ibclaw.in 763 NCLAT
In this important judgment on Join Venture Investment, Hon’ble NCLAT held that:
(i) A plain understanding of a joint venture is a combination of two or more parties/entities that seeks the development of any enterprise or project for profit and entails sharing the risks associated with its development.
(ii) The Appellant by virtue of the funds invested by them in terms of the Agreement cannot claim the status and benefits of a Financial Creditor as defined under Section 5(7) of the IBC.
(iii) When shared liability for profit is so clearly manifested in the Agreement, it stares in our eyes that both parties are development partners and co-sharers in the development of the subject property. The terms of the Agreement laid the foundations of a legal and binding relationship with mutual financial obligations towards each other.
(iv) The present transaction is in the nature of investment for profit and not disbursement for time value of money and hence does not fall within the canvas of financial debt as defined under Section 5(8) of the IBC.
8. When value has been added to the assets of the Corporate Debtor, the submission by CoC that fresh process may not start cannot be accepted
Case Name: Masatya Technologies Pvt. Ltd. Successful Resolution Applicant for Vistar Construction Pvt. Ltd. v. Amit Agarwal RP for Vistar Construction Pvt. Ltd. and Anr.
Case Citation: (2023) ibclaw.in 824 NCLAT
Hon’ble NCLAT agrees with the Adjudicating Authority as view AA has taken in consideration the fact that properties shall come to the kitty of the Corporate Debtor, whose value is much more than the entire plan value submitted by the Resolution Applicant, hence, order was issued for issuance of Form G. The Committee of Creditors would always be interested in getting more and more value from the assets of the Corporate Debtor. When value has been added to the assets of the Corporate Debtor, the submission by the Committee of Creditors that fresh process may not start cannot be accepted.
9. Whether once CIRP has been stayed, Resolution Professional has to handover the charge of Corporate Debtor to Ex-management?
Case Name: Mr. Mukesh Kumar Jain v. Navin Kumar Upadhyay & Anr
Case Citation: (2023) ibclaw.in 805 NCLAT
In this important judgment on stayed of CIRP, Hon’ble NCLAT held that:
(i) The judgment in Ashok Kumar Tyagi v. UCO Bank (2022) ibclaw.in 943 NCLAT does not lay down any proposition that when order of initiating CIRP has been stayed, the result would be to handover the Corporate Debtor to the ex-management by Resolution Professional.
(ii) Any such result of stay of the CIRP shall be disastrous since if the management against whom the CIRP has been initiated is handed over the charge, it is prone to misuse the assets and the assets shall be diminished, which may adversely affect the creditors of the Corporate Debtor.
(iii) In view of the stay of the CIRP, it is true that the Resolution Professional cannot take any further steps in the CIRP of the Corporate Debtor and has to stay his hand from proceeding any further in the CIRP and await the order of the Appellate Court.
(iv) The direction to the Resolution Professional in the impugned order to handover the Corporate Debtor to the ex-management is wholly unjustified and has to be set aside.
10. Non-stamping of document does not render CIRP application filed to be non-maintainable when there exists other material on record to prove existence of default in the payment of debt
Case Name: Hiren Meghji Bharani v. Shankheshwar Properties Pvt. Ltd. and Anr.
Case Citation: (2023) ibclaw.in 822 NCLAT
Hon’ble NCLAT refers seven judge bench of the Apex Court’s latest Judgement, reported in (2023) ibclaw.in 153 SC and holds that it has been clearly brought out that Agreements which are not stamped or are inadequately stamped are inadmissible in evidence under Section 35 of the Stamp Act and such agreements are not rendered void or void ab initio or unenforceable and further Non-stamping or inadequate stamping is a curable defect and therefore as claimed by the Appellant unstamped “confirmation and undertaking” doesn’t make the whole process illegal if this document is not even relied upon as an evidence.
11. In case, a party who was given right of development by owner, without prior approval of owner, has assigned the rights to Corporate Debtor, such illegally transferred the possession to Corporate Debtor cannot be treated as assets of Corporate Debtor and cancellation of assignment by owner does not cover under moratorium
Case Name: Kolkata Municipal Corporation v. Bengal Shelter Housing Development Ltd. and Ors.
Case Citation: (2023) ibclaw.in 820 NCLAT
Hon’ble NCLAT observes that Kolkata Municipal Corporation who is owner of the premises by Development Agreement gave right of development of the premises to the R1 and R1 has unauthorisedly without prior approval of the Appellant as alleged Assignment Agreement dated 06.03.2008 has given to the Corporate Debtor. The possession of the premises has to be of R1 who was given possession by the Appellant. In event, the R1 illegally transferred the possession to Corporate Debtor contrary to the Development Agreement for protection of such possession, Section 14(1)(d) cannot be relied on.
National Company Law Tribunal
1. While a written contract is not an absolute prerequisite for establishing the existence of a Financial Debt, Adjudicating Authority must ascertain that the initiation of CIRP is not done in mala fide and is genuinely aimed at resolving insolvency | Mere admission of receipt of money by Corporate Debtor does not qualify as a Financial Debt under Sec. 5(8) of IBC | It is the duty of Financial Creditor to plead and produce evidence as to the existence of any debt, that is due and payable and not paid to constitute the requirements to file an application under Sec. 7 of the IBC
Case Name: Meghna Devang Juthani Vs. Ambe Secruities Pvt. Ltd.
Case Citation: (2023) ibclaw.in 1065 NCLT
Hon’ble NCLT Mumbai Bench held that:
(i) Written contract may not be necessary to prove a financial debt; however, the nature of the transaction is relevant to constitute financial debt within the meaning of section 5(8) of the IBC.
(ii) In order to constitute a “debt”, there must be a liability or obligation on the part of a person in respect of a claim which is due from any person.
(iii) In the absence of any proof as to the nature of the transaction, mere admission of receipt of money by the CD does not qualify as a financial debt within the meaning of Section 5(8) of the IBC.
(iv) While a written contract is not an absolute prerequisite for establishing the existence of a financial debt, the Adjudicating Authority must ascertain that the initiation of CIRP is not done in mala fide and is genuinely aimed at resolving insolvency.
(v) It is the duty of the FC/Applicant to plead and produce evidence as to the existence of any debt, that is due and payable and not paid to constitute the requirements to file an application under Section 7 of the IBC.
(vi) The funds if at all extended by the FC to the CD were exclusively intended for investment purposes, which does not warrant initiation of CIRP in respect of the CD.
2. Can Financial Creditor initiate insolvency proceedings against Successful Resolution Applicant on default in payment to Stakeholders/Creditors as per terms of approved Resolution Plan
Case Name: ICICI Prudential Asset Management Company Ltd. v. Nandi Vardhan Infrastructure Ltd.
Case Citation: (2023) ibclaw.in 1062 NCLT
Hon’ble NCLT Mumbai Bench held that:
(i) Such a promise or undertaking made by a Resolution Applicant, if not fulfilled, cannot be treated as a default of a financial debt nor the so called obligation to pay such sums to the Financial Creditors of the Corporate Debtor in CIRP by such an Applicant can be treated as a financial debt covered under the four corners of the definition provided u/s 5(8) of the Code, 2016.
(ii) The performance guarantee furnished by such SRA can be forfeited and the SRA can also be prosecuted u/s 74 of the Code, 2016 but since the liability of the SRA either to pay the creditor or to infuse money in the Corporate Debtor in CIRP for its revival cannot be equated with a financial debt, proceedings u/s 7 of the Code, 2016 cannot be initiated.
3. Real Estate Appellate Tribunal (REAT) can continue proceedings during CIRP and pass order against Corporate Debtor during moratorium | It is incumbent upon IRP to find out and follow all pending proceedings against Corporate Debtor | Claim filed after order of RERA cannot be said to be a belated claim barred by limitation
Case Name: Mysore Petro Chemicals Ltd. Vs. Mrs. Vandana Garg, The RP of Raghuleela Builders Pvt. Ltd.
Case Citation: (2023) ibclaw.in 1064 NCLT
Hon’ble NCLT Mumbai Bench held that:
(i) The claim of the Applicant cannot be said to be a belated claim barred by the limitation as the Applicant filed the appeal before the MahaRERA much prior to the initiation of CIRP proceedings.
(ii) The Corporate Debtor (or the IRP) were on the one hand duty bound to appear before MahaRERA or/otherwise is bound by the judgment rendered by Hon’ble MahaRERA.
(iii) It was incumbent upon the IRP to find out and follow all the pending proceedings against the Corporate Debtor.
(iv) In view of the settled proposition of law that the purpose of moratorium is to secure the assets of the Corporate Debtor and the term “proceedings” not preceded by word “all” makes it abundantly clear that Section 14(1)(a) would not apply blindly without appreciating the facts to “all” the proceedings.
(v) In addition, the directions of the Hon’ble Apex Court in Pioneer Urban Land and Infrastructure Ltd. & Anr. v. UoI & Ors. (2019) ibclaw.in 13 SC holding that the RERA Act has to be read harmoniously with IBC also deserve to be appreciated and taken notice of.
4. NCLT directs new managements of Ruchi Soya Industries Ltd. and ex-management to Cooperate ongoing Forensic Audit and investigation, under Sec. 32A of IBC
Case Name: IDBI Bank Ltd. Vs. Ruchi Soya Industries Ltd. and Another
Case Citation: (2023) ibclaw.in 1066 NCLT
NCLT Mumbai Bench held that:
(i) Provisions of Section 32A(3) of the Code are explicitly clear and mandates the corporate debtor and any person who may be required to provide assistance under such law as may be applicable to such corporate debtor or person, shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the CIRP.
(ii) direct the Corporate Debtor and Respondent No. 2 to cooperate and provide all such documents and assistance, as may be requested and requisitioned by the Forensic Auditor from time to time for the necessary completion of the forensic audit pursuant to MP High Court order dated 05.12.2019.
5. Adjudicating Authority exercising summary jurisdiction cannot determine the claim amount of Operational Creditor and initiate the CIRP
Case Name: Vertex Cranes & Hoists India Ltd. v. Rotodyne Engineering Services Pvt. Ltd.
Case Citation: (2023) ibclaw.in 1060 NCLT
Hon’ble NCLT Hyderabad Bench held that when the operational creditor did not fix the problems as per the terms and conditions of the agreement, the corporate debtor was within its right to withhold the payment. Such defects were pre-existing before the receipt of the demand notice by the corporate debtor. The dispute was also genuine one and the standard of determining ought not to be equated with the doctrine of preponderance of probability.
The Bench also held that besides the pre-existing disputes bar the filing of the present application, the operational creditor is also unable to prove the exact amount due from the corporate debtor. This Authority exercising summary jurisdiction cannot determine the claim amount and initiate the CIRP.
6. Matters related to non-payment for services rendered are not within the purview of insolvency proceedings under the IBC
Case Name: Masprocon v. Prasad & Company (Project Works) Pvt. Ltd.
Case Citation: (2023) ibclaw.in 1057 NCLT
The Adjudicating Authority observes that this is evidently a case where the provisions of the Insolvency and Bankruptcy Code (IBC) are being invoked as a means of recovering a disputed debt amount, betraying the primary objective of the IBC to facilitate the resolution of insolvency for corporate entities. Matters related to non-payment for services rendered are not within the purview of insolvency proceedings under the IBC. To recover any outstanding dues, the Petitioner could have opted for legal recourse through the appropriate Civil Court, which holds jurisdiction to adjudicate the validity of the outstanding dues.
7. Whether construction of flats for Corporate Debtor falls under definition of Operational Debt u/s 5(21) of IBC and whether the Contractor can be considered as operational creditor
Case Name: K.Lakshma Reddy v. Telangana State Rajiv Swagruha Corporation Ltd.
Case Citation: (2023) ibclaw.in 1056 NCLT
NCLT Hyderabad Bench held that:
(i) An application under Section 9 of the Code, requires a ‘strict proof’ of debt and default.
(ii) An operational creditor can send the demand notice through two methods: (i) a demand notice in Form 3; or (ii) a copy of an invoice attached with a notice in Form 4.
(iii) As such, the applicant has to prove that claim regarding the construction of flats would fall either under the term ‘goods’ or ‘services’. Word ‘goods’ has not been defined under the IBC. However, this term has been defined under the Sale of Goods Act, 1930. Similarly, the term “services” used in the definition of 5(21) has not been defined under the IBC. (iv) The applicant has constructed flats for the corporate debtor and the dispute is about payment of dues for constructing flats. However, on that basis, the applicant can’t claim himself as operational creditor as dues to be paid does not relate to goods or services.
8. NCLT imposes cost on Operational Creditor on inflating the rate of interest to bring Operational Debt under the threshold limit envisaged under section 4 of IBC
Case Name: Sun Printers v. OMICS International Pvt. Ltd.
Case Citation: (2023) ibclaw.in 1059 NCLT
NCLT Hyderabad Bench held that:
(i) Strangely, the petition is completely silent on the “basis”, for claiming interest @24% p.a. on the principal sum of Rs 68,96,128/.
(ii) The sole purpose behind inflating the rate of interest to 24% p.a. is to bring the subject operational debt under the threshold limit envisaged under section 4 of IB Code and not because of any agreed clause or agreement between the parties.
(iii) The petitioner’s purported claim of existence of the operational debt allegedly due and defaulted, by the respondent will not attract section 9 of IB Code, as such the petition is liable to be dismissed as not maintainable before the Adjudicating Authority.
(iv) The petitioner can be subjected to cost in this case.
9. Liquidator can be removed under IBC, 2016 on any of the grounds provided under Sec. 276 of the Companies Act, 2013
Case Name: State Bank of India Vs. Mr. Kari Venkateswarlu
Case Citation: (2023) ibclaw.in 999 NCLT
NCLT Hyderabad held that:
(i) The liquidator is the appointee of this Authority. He is supposed to act as a neutral umpire vis-a-vis various stakeholders in the game.
(ii) It is for the CoC etc. but not the Resolution Professional, to take appropriate proceedings or file an appeal and the Resolution Professional should have maintained a neutral stand.
(iii) The relationship between the liquidator and the Adjudicating Authority is sort of fiduciary. Similarly, the liquidator has also to maintain highest regard to the principles of integrity and honesty in dealing with all the stakeholders.
(iv) The grounds under Sec. 276 of Companies Act, 2013 have direct link with the functioning of the liquidator and if he treads the path which clash with the interest of the stakeholders or shock the conscience of the common man, he can be removed. On the same analogy, the liquidator can also be removed under the IBC on any of the above grounds.
10. This case is a classic example as to how the provisions of law can be misused by scrupulous elements
Case Name: V.N. Commercial Corporation v. Mr. Chakravarthi Srinivisan, RP of Shree Rudra Shakti Industries Pvt. Ltd.
Case Citation: (2023) ibclaw.in 1055 NCLT
In this judgment, NCLT Hyderabad Bench observes that this case is a classical example as to how the provisions of law can be misused by scrupulous elements. Ultimately, object of law is to unravel truth. Truth should be the Guiding Star in the entire Judicial Process. To search it out, chaff from the grain is to be removed. Dispensation of justice, based on truth, is an essential feature in the justice delivery system. With that in mind, the value maximisation, which is one of the main objectives of the IBC, is to be achieved. The sequence of events in the present case show how meticulously one has tried to defeat the very object of the IBC.
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