Landmark Judgements in Insolvency and Bankruptcy Code(IBC), 2016

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Category Landmark judgments
Power of CoC & principle of Commercial Wisdom
  1. K. Sashidhar Vs. Indian Overseas Bank & Ors.
  2. Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors.
  3. Maharasthra Seamless Limited Vs. Padmanabhan Venkatesh & Ors.

(Click on Summary in the case laws)

Resolution Applicant Ineligibility u/s 29A Arcelormittal India Private Limited Vs. Satish Kumar Gupta & Ors.
Secured & Unsecured Creditors Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors.
Jurisdiction of NCLT & NCLAT

M/s Embassy Property Developments Pvt. Ltd. Vs. State of Karnataka & Ors.

Period of Limitation
  1. B.K. Educational Services Private Limited Vs. Parag Gupta And Associates
  2. Gaurav Hargovindbhai Dave Vs. Asset Reconstruction Company (India) Ltd & Anr
  3. Jignesh Shah & Anr Vs Union of India & Anr
Preferential, Undervalued Transactions under Sec. 43, 44, 45 Anuj Jain Interim Resolution Professional For Jaypee Infratech Limited Vs. Axis Bank Limited Etc. Etc.

For landmark judgments on period of limitation, click here.

I. Lokhandwala Kataria Construction (P) Ltd. (Corporate Debtor) Vs. Nisus Finance & Investment Manager LLP.- Supreme Court:

The Court held that in view of Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, the NCLAT could not utilise the inherent power recognised by Rule 11 of the NCLAT Rules, 2016.

Read full judgment: Lokhandwala Kataria Construction (P) Ltd. (Corporate Debtor) Vs. Nisus Finance & Investment Manager LLP.

II. Innoventive Industries Ltd. (Corporate Debtor) Vs. ICICI Bank & Anr.- Supreme Court:

Once an insolvency professional is appointed to manage the company, the erstwhile directors who are no longer in management, obviously cannot maintain an appeal on behalf of the company

The Court the held that once an insolvency professional is appointed to manage the company, the erstwhile directors who are no longer in management, obviously cannot maintain an appeal on behalf of the company – The Insolvency and Bankruptcy Code, 2016 is an Act to consolidate and amend the laws relating to reorganization and insolvency resolution, inter alia, of corporate persons – The Insolvency and Bankruptcy Code is a Parliamentary law that is an exhaustive code on the subject matter of insolvency in relation to corporate entities – On reading of section 238 of the code it is clear that the later non-obstante clause of the Parliamentary enactment will also prevail over the limited non-obstante clause contained in Section 4 of the Maharashtra Act and therefore, the Maharashtra Act cannot stand in the way of the corporate insolvency resolution process under the Code – There would be repugnancy between the provisions of the two enactments.

Read full judgmentInnoventive Industries Ltd. (Corporate Debtor) Vs. ICICI Bank & Anr.

III.  Macquarie Bank Ltd. Vs. Shilpi Cable Technologies Ltd.- Supreme Court:

The first question is whether, in relation to an operational debt, the provision contained in Section 9(3)(c) of the Code is mandatory?
It is true that the expression “initiation” contained in the marginal note to Section 9 does indicate the drift of the provision, but from such drift, to build an argument that the expression “initiation” would lead to the conclusion that Section 9(3) contains mandatory conditions precedent before which the Code can be triggered is a long shot. Equally, the expression “shall” in Section 9(3) does not take us much further when it is clear that Section 9(3)(c) becomes impossible of compliance in cases like the present. It would amount to a situation wherein serious general inconvenience would be caused to innocent persons, such as the appellant, without very much furthering the object of the Act, therefore, Section 9(3)(c) would have to be construed as being directory in nature.

Whether a demand notice of an unpaid operational debt under section 8 can be issued by a lawyer on behalf of the operational creditor?
Sections 8, 9 and 238 of the Insolvency and Bankruptcy Code, 2016 read with Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with Section 30 of the Advocates Act – A fair construction of Section 9(3)(c), in consonance with the object ought to be achieved by the Code, would lead to the conclusion that it cannot be construed as a threshold bar or a condition precedent – The non-obstante clause contained in Section 238 of the Code will not override the Advocates Act as there is no inconsistency between Section 9, read with the Adjudicating Authority Rules and Forms referred to hereinabove, and the Advocates Act -Since there is no clear disharmony between the two Parliamentary statutes in the present case which cannot be resolved by harmonious interpretation, it is clear that both statutes must be read together. Also, we must not forget that Section 30 of the Advocates Act deals with the fundamental right under Article 19(1)(g) of the Constitution to practice one’s profession. Therefore, a conjoint reading of Section 30 of the Advocates Act and Sections 8 and 9 of the Code together with the Adjudicatory Authority Rules and Forms thereunder would yield the result that a notice sent on behalf of an operational creditor by a lawyer would be in order.

Read full judgment: Macquarie Bank Ltd. Vs. Shilpi Cable Technologies Ltd.

IV.  Mobilox Innovations (P) Ltd. Vs. Kirusa Software (P) Ltd.- Supreme Court:

Whether the expression “and” occurring in section 8(2)(a) may be read as “or”?

The Court held that the expression “and” occurring in section 8(2)(a) may be read as “or” in order to further the object of the statute and/ or to avoid an anomalous situation – once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility – So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application – A “dispute” is said to exist, so long as there is a real dispute as to payment between the parties that would fall within the inclusive definition contained in Section 5(6).

Read full judgment: Mobilox Innovations (P) Ltd. Vs. Kirusa Software (P) Ltd.

 

V. Surendra Trading Company Vs. Juggilal Kamlapat Jute Mills Company Ltd. & Others- Supreme Court:

The time limit prescribed in IBC, 2016 for admitting or rejecting a petition or initiation of CIRP under proviso to sub-sec. (5) of Sec. 9, is directory

The question before the NCLAT was as to whether time of fourteen days under section 9(5) given to the adjudicating authority for ascertaining the existence of default and admitting or rejecting the application is mandatory or directory. NCLAT hold that the mandate of sub-section (5) of section 7 or sub-section (5) of section 9 or sub-section (4) of section 10 is procedural in nature, a tool of aid in expeditious dispensation of justice and is directory.

Further question (with which supreme Court is concerned) was as to whether the period of seven days for rectifying the defects under proviso to sub-section (5) of Section 9 is mandatory or directory. The aforesaid provision of removing the defects within seven days is directory and not mandatory in nature.

Read full judgment: Surendra Trading Company Vs. Juggilal Kamlapat Jute Mills Company Ltd. & Others

V. K. Kishan Vs. M/S Vijay Nirman Company Pvt. Ltd.

Operational creditors cannot use the Insolvency Code either prematurely or for extraneous considerations or as a substitute for debt enforcement procedures

The Court held that there may be cases where a Section 34 petition challenging an Arbitral Award may clearly and unequivocally be barred by limitation, in that it can be demonstrated to the Court that the period of 90 days plus the discretionary period of 30 days has clearly expired, after which either no petition under Section 34 has been filed or a belated petition under Section 34 has been filed. It is only in such clear cases that the insolvency process may then be put into operation. There may also be other cases where a Section 34 petition may have been instituted in the wrong court, as a result of which the petitioner may claim the application of Section 14 of the Limitation Act to get over the bar of limitation laid down in Section 34(3) of the Arbitration Act. In such cases also, it is obvious that the insolvency process cannot be put into operation without an adjudication on the applicability of Section 14 of the Limitation Act.

VI. Brilliant Alloys Private Limited Vs. Mr. S. Rajagopal & Ors.

Supreme court in this matter held that this Regulation has to be read along with the main provision Section 12A which contains no such stipulation.

VII. Jaipur Metals & Electricals Employees Organization Vs. Jaipur Metals & Electricals Ltd.

Amended Section 434 of the Companies Act, 2013 must be read as being part of the Code and not the Companies Act, 2013.

The Supreme Court held that the NCLT proceedings will now continue from the stage at which they have been left off. Obviously, the company petition pending before the High Court cannot be proceeded with further in view of Section 238 of the Code. The writ petitions that are pending before the High Court have also to be disposed of in light of the fact that proceedings under the Code must run their entire course. We, therefore, allow the appeal and set aside the High Court’s judgment.

VIII. Transmission Corporation of Andhra Pradesh Limited Vs. Equipment Conductors and Cables Limited

IBC is not intended to be substitute to a recovery forum & whenever there is existence of real dispute, the IBC provisions cannot be invoked.

The only argument advanced by learned counsel for the respondent before this Court was that the High Court of Punjab and Haryana while setting aside the remand order passed by the Additional District Judge did not hold that Invoice Nos. 1-57 are time barred. Therefore, the respondent had a valid claim under those invoices. This argument cannot be countenanced. As of today, there is no award of the Arbitral Council with respect to invoices at Sl. Nos. 1-57. There is no order of any other court as well qua these invoices. In fact, Arbitral Council specifically rejected the claim of the respondent as time barred. It is pertinent to mention that respondent had moved an application before the Arbitral Council for determination of amount to be paid by the appellant. However, this application was specifically dismissed by the Arbitral Council as not maintainable.

In a recent judgment of this Court in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited (2018) 1 SCC 353, this Court has categorically laid down that IBC is not intended to be substitute to a recovery forum. It is also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked.

IX. JK Jute Mill Mazdoor Morcha Vs. Juggilal Kamlapat Jute Mills Company Ltd. Through Its Director & Ors.

Whether a trade union can be said to be an operational creditor for the purpose of the IBC

The Supreme Court the NCLAT, by the impugned judgment, is not correct in refusing to go into whether the trade union would come within the definition of “person” under Section 3(23) of the Code. Equally, the NCLAT is not correct in stating that a trade union would not be an operational creditor as no services are rendered by the trade union to the corporate debtor. What is clear is that the trade union represents its members who are workers, to whom dues may be owed by the employer, which are certainly debts owed for services rendered by each individual workman, who are collectively represented by the trade union. Equally, to state that for each workman there will be a separate cause of action, a separate claim, and a separate date of default would ignore the fact that a joint petition could be filed under Rule 6 read with Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, with authority from several workmen to one of them to file such petition on behalf of all. For all these reasons, we allow the appeal and set aside the judgment of the NCLAT. The matter is now remanded to the NCLAT who will decide the appeal on merits expeditiously as this matter has been pending for quite some time.

X. Mr. Anand Rao Korada Resolution Professional   Vs. M/s. Varsha Fabrics (P) Ltd. & Ors.

High Court ought not to 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 by the NCLT.

The Supreme Court set aside the impugned Interim Orders dated 14.08.2019 and 05.09.2019 passed by the Odisha High Court and held that in view of the provisions of the IBC, the High Court ought not to 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 by the NCLT. The High Court passed the impugned Interim Orders dated 14.08.2019 and 05.09.2019 after the CIRP had commenced in this case. The moratorium having been declared by the NCLT on 06.2019, the High Court was not justified in passing the Orders dated 14.08.2019 and 05.09.2019 for carrying out auction of the assets of the Corporate Debtor before the NCLT. If the assets of the Company(Corporate Debtor) are alienated during the pendency of the proceedings under the IBC, it will seriously jeopardise the interest of all the stakeholders. The sale or liquidation of the assets of Respondent No. 4 will now be governed by the provisions of the IBC.

 

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