Insolvency Bulletin-Weekly IBC Case Laws Digest: 20th June to 26th June, 2022

Insolvency Bulletin-Weekly IBC Case Laws Digest: 20th June to 26th June, 2022

High Court

1. The proceedings under the IBC cannot be pressed into service to dilute the rights of the Income Tax Department to re-open the assessment under Section 148 of the Income Tax Act, 1961

Case Name: M/s. Dishnet Wireless Ltd. Vs. Assistant Commissioner of Income Tax (OSD)

Case Citation: (2022) ibclaw.in 141 HC

The High Court held that the provisions of Insolvency and Bankruptcy Code, 2016 (IBC) cannot be interpreted in a manner which is inconsistent with any other law in the time being in force. Therefore, Corporate Insolvency Resolution Plan sanctioned and approved cannot impinge on the rights of the Income Tax Department to pass any fresh Assessment Order under Section 148 read with Sections 143(3) and 147 of the Income Tax Act, 1961. Therefore, the proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) cannot be pressed into service to dilute the rights of the Income Tax Department under the Income Tax Act, 1961 to re-open the assessment under Section 148 of the Income Tax Act, 1961. In my view, the Income Tax Department was not precluded from reopening the assessment completed under Section 143(3) of the Income Tax Act,1961. Therefore, these Writ Petitions filed by these petitioners have to be dismissed. The Assessment Orders which have been passed pursuant to the interim order dated 27.12.2018 are directed to be given to the respective petitioners by the respondent, within a period of thirty days from the date of receipt of a copy of this order.

National Company Law Tribunal

1. The date of default can only be calculated when the tenure of the loan is established, or when there is a demand for repayment

Case Name: N.C. Goel & Maya Goel Vs. Piyush Infrastructure India Pvt. Ltd.

Case Citation: (2022) ibclaw.in 435 NCLT

The Adjudicating Authority held that in summary jurisdiction, without adequate documentation, it is difficult to establish the purpose for which the money was lent and accepted. It is also not possible to establish whether there was any interest required to be paid. The time value of money is an important factor to be considered in order to establish whether this is a financial debt. Ex facie, this appears to be a petition which has been filed for recovery of money and not for resolution of the corporate debtor. The Code, should not be allowed to be used as an easy way of recovery of money. In this view of the matter, the present petition cannot be admitted under section 7 of the Code, and the same shall stand dismissed.

2. NCLT directs to JVVNL not to levy any extra amount other than the electricity consumed as per single-phase connection nor to disconnect the supply of electricity as the liquidation process is still ongoing

Case Name: Supriyo Kumar Chaudhary Liquidator of the Corporate Debtor Vs. Jaipur Vidyut Vitran Nigam Ltd. 

Case Citation: (2022) ibclaw.in 425 NCLT

The Adjudicating Authority held that it is noted that only single-phase connection has been used for running the premises and the records shows that the bill of three connections have been charged by the applicant, which seems to be exorbitant on the face of it. We find no reason as to why the excess amount charged by the respondents should not be refunded to the applicant. Therefore, we direct the Respondent to provide the report for the amount of actual consumption by the corporate debtor and further to refund the amount charged in excess of consumption.

3. The assets of the Corporate Debtor forms part of valuation of the liquidation proceedings and the auction and sale of assets of the Corporate debtor during moratorium is against the spirit of the Code

Case Name: Supriyo Kumar Chaudhary Liquidator of JVL Agro Industries Ltd. Vs. Sub-Divisional Officer, Office of Deputy District Collector & Ors 

Case Citation: (2022) ibclaw.in 441 NCLT

The Adjudicating Authority observed that in the present case, moratorium has already been imposed by this Adjudicating Authority when CIRP was initiated on 25.04.2018 and thereafter liquidation order was passed and moratorium under Section 33(5) of the Code was attracted. It is to be noted that in view of the provisions of the Code, the Respondents should not have proceeded with the auction of the property of the Corporate debtor, once the proceedings under the IBC had commenced and an order declaring moratorium was passed. We are of the view that the assets of the Corporate Debtor/Applicant forms part of valuation of the liquidation proceedings and the auction and sale of assets of the Corporate debtor during moratorium is against the spirit of the Code.

4. If the default occurs during the period specified in the section 10A of IBC, an application under section 7 of IBC cannot be filed

Case Name: Yes Bank Ltd. Vs. Laxmi Oil and Vanaspati Pvt. Ltd.

Case Citation: (2022) ibclaw.in 431 NCLT

The Adjudicating Authority observed that there is no basis for determining the date of default as 28.02.2020. As noted, that loan recall notice has been issued on 27.08.2020, which falls in the period as specified u/s 10A of IBC, 2016. Hence, said date of default, in our view, has been fixed, just to circumvent the implications of the said section because if the default occurs during the period specified in the said section, an application under section 7 of IBC cannot be filed. Unless a loan recall notice is given or the date of default can be determined in a specific manner in terms of any guidelines given by the RBI, the Financial Creditor cannot be allowed to treat any date as date of default just because such a course would suit it.

5. Whether on the basis of the certificate issued by RBI, NBFC can be excluded from the definition of the Corporate Person

Case Name: Best Healthcare Products Pvt. Ltd. Vs. Neelanchal Holding Pvt. Ltd.

Case Citation: (2022) ibclaw.in 520 NCLT

The Adjudicating Authority observed that the Reserve Bank of India by exercising its power under Section 45-IA of the Reserve Bank of India Act has granted a certificate to the Respondent/Corporate Debtor Company to carry on business of non-banking financial institution subject to the condition given on the reverse. Now we consider this aspect whether on the basis of the certificate, the Respondent/Corporate Debtor can claim exemption. On perusal of the provision referred to Section 3(7)-Corporate Person, of IBC, it is clear that the financial service provider is excluded from the definition of the Corporate Person. On conjoint reading of Section 3(16) and 3(17), it is not necessary that the Financial Service Provider must accept the deposit. Rather the financial service includes any of the service, which come under clause (a) to (i) of Section 3(16) of IBC, 2016. The definition of Financial Service is not only limited to 9 activities as referred to Section 3(16)(a) to (i), rather the aforesaid Clauses (a) to (i) are inclusive, which means there are other services which also come within the meaning of financial services. The registration of certificate issued by the Reserve Bank Of India, Respondent/ Corporate Debtor to carry on business of non-banking financial institution is subject to the conditions. Therefore, we are unable to accept the contention of the Applicant that the Respondent/ Corporate Debtor is not a non-banking financial service provider.

6. While a written contract cannot be treated as a pre-requisite to proving the existence of Financial Debt, the AA must be satisfied that the Corporate Debtor is not being dragged into CIRP mala fide for any purpose other than the resolution of the Insolvency

Case Name: Gateway Offshore Pvt. Ltd. Vs. Runwal Realtors Pvt. Ltd. 

Case Citation: (2022) ibclaw.in 518 NCLT

The Adjudicating Authority observed that it is the contention of the Corporate Debtor’s that there is no written contract regarding any loan being sanctioned to the Corporate Debtor by the Financial Creditors. In this regard, we would like to rely on the stand taken by the NCLAT in Narendra Kumar Agarwal and Ors. v Monotrone Leasing Private Limited and Ors. (2021) ibclaw.in 25 NCLAT (Order dated 19.01.2021) wherein it was held that the written contract cannot be treated as an essential element or prerequisite to prove the existence of Financial Debt. However, the Financial Creditor has failed to bring on record any other evidence in the form of a loan agreement, promissory note, contract or any document to substantiate its claim that there was a financial debt and a default of the same. The Financial Creditor has produced the Corporate Debtor’s Annual reports for the Financial Years 2016-17 and 2017-18. However, the same do not reflect any debt due specifically to the Financial Creditor.

7. As per Section 10A, no IBC proceedings can be initiated against a Corporate Debtor for the default which has occurred between the period from 25/03/2020 till 24/03/2021

Case Name: Yes Bank Ltd. Vs. Privilege Industries Ltd. 

Case Citation: (2022) ibclaw.in 528 NCLT

The Adjudicating Authority held that because of insertion of Sec 10A in IBC as mentioned above, this case is clearly attracted by the provisions of Sec 10A as the date of default in this case is 01/10/2020. As per Sec 10A, no IBC proceedings can be initiated against the Corporate Debtor for the default which has occurred between the period from 25/03/2020 till 24/03/2021, keeping in view of the extended period of Sec 10A, the application filed by the Operational Creditor against the Corporate Debtor cannot succeed and is hereby dismissed with a liberty granted to the Operational Creditor to pursue his case before the appropriate forum.

8. Whether the non-payment of rent arising out of Leave and License Agreement can constitute an Operational Debt under section 5(21) of the Code

Case Name: Bharat Doshi Vs. Autobahn Automotive Pvt. Ltd.

Case Citation: (2022) ibclaw.in 529 NCLT

In M. Ravindranath Reddy V. G. Kishan, [2020] ibclaw.in 95 NCLAT, the Hon’ble NCLAT, the issue was whether a landlord by providing lease could be treated as Operational Creditor. It was held by full Bench that it does not fall within the ambit of the definition of “Operational Debt”. This Judgment has been followed subsequently in Aurora Accessories (P) Ltd. V. Ace Acoustics & Audio Video Solutions (P) Ltd., [2020] ibclaw.in 155 NCLAT and in Promila Taneja Vs. Surendri Design Pvt. Ltd., (2020) ibclaw.in 428 NCLAT. The case of Promila Taneja is pending in the Hon’ble Supreme Court for deciding the same issue. In view of the above, this Bench is of considered view that the debt arising out of Rent & Lease cannot be considered as Operational Debt under the Code. The Operational Creditor stated that the Operational Creditor raised invoice for the use of additional car parking space even after the termination of the Leave and License Agreement. This Bench is of view that the provision for use of additional space by the Corporate Debtor was not incorporated in the Leave and License Agreement and hence the Operational Creditor cannot raise invoice against the Corporate Debtor for the use of additional space without the consent of the Corporate Debtor.

9. A dissenting financial creditor cannot file an application under Section 66 of IBC

Case Name: Ambit Finvest Pvt. Ltd. Vs. Rakesh Niranjan Ranjan & Ors.

Case Citation: (2022) ibclaw.in 527 NCLT

Adjudicating Authority held that the application under section 66 is to be filed only by the resolution professional or the liquidator. Moreover, the applicant herein is not a resolution professional and is only a dissenting financial creditor and in this capacity the Applicant has no right to file the present application. In any case, the present application is liable to be dismissed on the ground of maintainability also, since the transactions which were mentioned in the application under section 47 and section 66 does not qualify the criteria of undervalued or fraudulent transaction. Under these circumstances, we are of the considered opinion that the instant Application is liable to be dismissed and accordingly stands dismissed.


Act wise amended Rules and Regulations are available here: Click here for Rules & Regulation Dashboard.
For Notifications and Circulars, click here.
For bare acts, click here.