NCLT Cases-Limited Insolvency Examination w.e.f. 1st January, 2021

1. In the matter of Amtek Auto Limited [CA.Nos.567/2018 & 601/2018 in CP(IB)No.42/Chd/Hry/2017]

Case Citation: (2019) ibclaw.in 14 NCLT

Corporation Bank as a financial creditor filed a petition under Section 7 of the Code against M/s Amtech Auto Limited, for having made a default in making payment of the outstanding dues. The petition was admitted on 24.07.2017, declaring the moratorium in terms of sub-section (1) of Section 14 of the Code and by order dated 27.07.2017, Mr. Dinkar T. Venkatasubramanian, was appointed as Interim Resolution Professional with the necessary directions. It is borne out from the record that the Interim Resolution Professional was confirmed as a Resolution Professional by Committee of Creditors. In the meanwhile, certain miscellaneous applications came to be filed, which were disposed of from time to time.

The Resolution Professional filed CA No.8 of 2018, seeking extension of time in completion of the Resolution Process as borne out from the order dated 17.01.2018. The initial period of 180 days, prescribed for completion of the Resolution Process under Section 12(1) of the Code, expired on 19.01.2018. For the reasons stated in the order dated 17.01.2018, the period of completion of Resolution Process was extended by 90 days. As such, the total period of CIRP process would have expired in the middle of April, 2018.

The Resolution Plan submitted by respondent No.1 Liberty House Group Pte Ltd. (for brevity ‘LHG‘), was approved by this Tribunal, vide order dated 25.07.2018. The successful resolution applicant is said to have failed to honour its commitment to comply with the requirements for implementation of the approved plan and expressed its inability to comply with the commitments on one pretext or the other. The respondent No.1 has intentionally evaded to fulfil the following financial commitments made in the Resolution Plan:-

a. Failure to pay a sum of INR 3,310 Crores upfront along with the fresh infusion of INR 350 Crores and compliance of the terms of ninety (90) days, extendable by another 30 days (in case the CCI approval is not received within a period of 60 days from the NCLT approval date) from the NCLT approval date, i.e. November 22, 2018.

b. Failure to fulfil commitments prescribed under the process note dated 07.12.2017, prepared under the mandate of Section 25(2)(h) of the Code (“Process Note“) including (i) furnishing a performance guarantee of an amount of ₹100 Crore (Performance Guarantee) against the committed amounts of ₹ 4404 Crores; and (ii) creation of the escrow equivalent to 15% of the upfront cash pay-out contemplated under the terms of the approved Resolution Plan as an alternative to the provision of the performance bank guarantee in favour of the Committee of Creditor (in the form acceptable to the Committee of Creditors).

Various steps taken by the Resolution Professional in inviting the prospective Resolution Applicants, release of the detailed process note dated 07.12.2017 and other conditions required for a binding resolution plan have been detailed. The objective evaluation criteria was also approved by the Committee of Creditors. The binding Resolution Plans were received only from two prospective applicants, being respondent No.1 and Deccan Value Investors LP (DVI). The applicant was the highest bidder and its bid was approved by the Committee of Creditors. It was conveyed by the Resolution Professional to both the prospective Resolution Applicants, vide e-mail dated 26.02.2018 that the Resolution Applicant should undertake to create an escrow equivalent to 15% of the upfront cash pay-out in the event the Committee of Creditors approving the Resolution Plan. The final plan was submitted by respondent No.1 (LHG) on 26.03.2018.

The instant application has been filed on behalf of all the Financial Creditors of the corporate debtor through the Corporation Bank under Section 60(5) read with Section 74(3) of the Insolvency and Bankruptcy Code, 2016, (for short to be referred hereinafter as the `Code‘), with the prayer to declare that the Resolution Applicant M/s Liberty House Group Pte Limited (respondent No.1 herein) and its promoters upon whom the Resolution Plan is binding under Section 31 of the Code, have knowingly contravened the terms of the Resolution Plan, having failed to implement the same. The further prayer made is that the Committee of Creditors be reinstated to run the corporate debtor, as a going concern and to grant minimum of 90 days for the Resolution Professional to make another attempt for a fresh process rather than forcing the corporate debtor into liquidation on account of fraud committed by respondent No.1. It has also been prayed that respondent No.1 be debarred from applying for a fresh resolution plan and the Insolvency and Bankruptcy Board of India, may be directed to initiate the process under Section 74(3) of the Code.

Contentions of the parties

Petitioners

The basic ground that has been highlighted is that the Resolution Process needs to be restarted as respondent No.1 has failed to make payment of the upfront amount as required under the approved Resolution Plan. The Corporation Bank, a financial creditor also invoked the bid bond guarantee, against which respondent No.1 has filed the Civil Suit, CS (Comm) 1245 of 2018 before the Hon’ble High Court of Delhi, inter alia, seeking a permanent injunction of the invocation of the bid bond guarantee, which is pending adjudication.

Resolution Professional

Respondent No.2-Resolution Professional has filed his reply by way of affidavit vide Diary No. 320 dated 21.01.2019 and the stand of the Committee of Creditors is adopted. It is stated that the Resolution Professional is also a member of the Monitoring Committee to implement the Resolution Plan. The Resolution Professional has also prayed that relief sought by the applicant is not only necessary for the effective resolution of the corporate debtor and protecting the interest of all the stakeholders, but to avoid the liquidation of the corporate debtor. It is stated that despite repeated attempts, discussions and accommodation by the Members of the Committee of Creditors and the Resolution Professional, respondent No.1 has failed to honour its commitments and faltered in implementing the Resolution Plan.

Successful Resolution Applicant

A detailed reply has been filed by LHG. The respondent has tried to build a case that there has been gross misrepresentation/mistake of facts/irregularities in the information relating to the corporate debtor and the fraud allegedly played by the Resolution Professional, has resulted in the entire Insolvency Resolution Corporate Process, being vitiated. It is denied that respondent No.1 has knowingly or wilfully contravened the terms of the Resolution Plan or acted blatantly. It is otherwise stated that the Adjudicating Authority being the creature of the statute is not entitled to grant the reliefs, being prayed for. It is stated that after the approval of the Resolution Plan under Section 31 of the Code, the role of the Adjudicating Authority comes to an end. Further, there is no power for the Adjudicating Authority to recommend an action under Section 74(3) of the Code or to declare that the Resolution Applicant has knowingly or wilfully contravened any of the terms of the Resolution Plan. The offences for contravention are exclusively triable by the Special Court.

Decision of the Tribunal

Jurisdiction of NCLT

Before disposing of the application, it would be necessary to consider the issue as to whether the Corporation Bank, stating itself to be representing the Committee of Creditors, is competent to file the application. It is submitted that Committee of Creditors is non-existent after the Resolution Plan is approved.

In any case, it was the Corporation Bank as a Financial Creditor, which initiated the process against the respondent under Section 7 of the Code, resulting into its admission, declaration of moratorium and appointment of Interim Resolution Professional. No other financial creditor has approached this tribunal taking a contrary stand. So the instant applicant is competent.

Section 60(5) falls in Chapter VI of the Code, after the chapter dealing the provisions relating to CIRP and Liquidation process. This is a non-obstante clause and the Tribunal is vested with the power to entertain and dispose of any question of law or facts arising out of or in relation to the insolvency process, liquidation proceeding, of corporate person under the Code. The process cannot be kept in a limbo, especially when the approved Resolution Plan has not been implemented and various objections have been raised over various terms and conditions and about the allegations constituting misrepresentation and fraud.

The provisions of the Code provide for a definite timeline for strict implementation of the Resolution Plan. If the timelines as provided in the Resolution Plan, duly approved by this Tribunal, are not adhered to, the only conclusion would be that there has been a default in implementing the Plan for whatever reason. We are not going into the question of the Resolution Applicant being intentionally or wilfully contravening any of the terms of the Plan, as such the matter is to be tried by Special Court, as the offence under Section 74(3) of the Code, is triable before a Special Court.

By virtue of Section 236 of the Code, the cognizance of the offence can be taken on a complaint made by the Board or the Central Government or any person authorized by the Central Government on its behalf.

There being a clear default in implementing the Plan within the time stipulated in the Resolution Plan, the instant application deserves to be allowed with liberty to any Member of the Committee of Creditors or the Resolution Professional file a complaint before the Insolvency and Bankruptcy Board of India or the Central Government with a prayer to file the criminal complaint on the ground of corporate debtor having intentionally and wilfully contravened the terms of the Resolution Plan, for which we are restraining ourselves from making any observation either way. However, for LHG to say that the Tribunal was not properly assisted at the time of hearing on the application for approval of the Resolution Plan, would be a misplaced allegation. The order dated 25.07.2018 by which the Resolution Plan was approved shows that DVI had raised the issue of eligibility of LHG, which was opposed by LHG tooth and nail.

Exclusion of the time & Fresh process for resolution

The only issue that requires consideration is the exclusion of time in calculating the maximum period of 270 days permissible under Section 12 of the Code for completion of the Insolvency Resolution Process. As we are not going into the question and detailed assertions of the parties with regard to the wilful or intentional contravention of the terms of the approved Resolution Plan in view of the ultimate submissions made at the stage of final arguments.

Reference may be made to the judgment in Company Appeal (AT) (Insolvency) No.185 of 2018, reported as Quinn Logistics India Pvt. Ltd. Versus Mack Soft Tech Pvt. Ltd., passed by Hon’ble National Company Law Appellate Tribunal, wherein it was held that if an application has been filed by the ‘Resolution Professional’ or the ‘Committee of Creditors’ or ‘any aggrieved person’ for justified reasons, it is always open to the Adjudicating Authority/Appellate Tribunal to ‘exclude certain period’ for the purpose of counting the total period of 270 days, if the facts and circumstances justify exclusion, in unforeseen circumstances. It is admitted proposition of fact that LHG being the highest bidder, DV1 did not participate in the later proceedings before the Committee of Creditors for seeking a chance to modify its Plan.

The Hon’ble Appellate Tribunal in Quinn Logistics India’s case (supra) held that the following good grounds and unforeseen circumstances, the intervening period can be excluded for counting of the total period of 270 days of resolution process:-

(i) If the corporate insolvency resolution process is stayed by ‘a court of law or the Adjudicating Authority or the Appellate Tribunal or the Hon’ble Supreme Court.

(ii) If no ‘Resolution Professional’ is functioning for one or other reason during the corporate insolvency resolution process, such as removal.

(iii) The period between the date of order of admission/moratorium is passed and the actual date on which the ‘Resolution Professional’ takes charge for completing the corporate insolvency resolution process.

(iv) On hearing a case, if order is reserved by the Adjudicating Authority or the Appellate Tribunal or the Hon’ble Supreme Court and finally pass order enabling the ‘Resolution Professional’ to complete the corporate insolvency resolution process.

(v) If the corporate insolvency resolution process is set aside by the Appellate Tribunal or order of the Appellate Tribunal is reversed by the Hon’ble Supreme Court and corporate insolvency resolution process is restored.

(vi) Any other circumstances which justifies exclusion of certain period.

The facts of the present case are not covered under various circumstances from Point No. (i) to (v) as laid down by the Hon’ble National ‘company Law Appellate Tribunal, but the matter in this case is required to be considered under principal Point No. (vi) to see whether the circumstances in the present case are such which would justify the exclusion of certain period.

The principle laid down thus emerges is that certain period can be excluded from the total period of 270 days permissible under Section 12 of the Code for the purpose of exclusion, and there is no scope of granting extension beyond 270 days under any circumstances. The contention of Learned Senior Counsel for the applicant and that of the learned counsel for the Resolution Professional that there are so many prospective applicants, who now intend to jump into the field and that there are bright chances of a much better Resolution Plan therefore, the Committee of Creditors, be reconstituted and the matter be remitted for starting fresh process of advertisement, inviting expression of interest etc., is not permissible. There is no dispute of the fact that originally Insolvency Resolution Process was concluded within a period of 270 days. The Committee of Creditors fixed the evaluation matrix of inviting expression of interest, and the proposed applicants were supposed to fulfil the condition of the bond to make other eligible for submitting the Resolution Plan. As already discussed, there were only two binding Resolution Plan, one submitted by respondent No.1 (LHG) and other by DVI. DVI only backtracked because there was some better amount of bid offered by respondent No.1-LHG. Since the approved Resolution Plan cannot be now implemented because of the default in making payment as per the terms of the Resolution Plan, the period when the Resolution Plan was submitted by DVI till the disposal of the instant application can only be reconsidered by the Committee of Creditors by reconstituting it and not by initiating fresh process, which would defeat the fresh binding timelines provided under the Code to complete the process. No matter if the corporate debtor ultimately has to face liquidation, but the permission to restart the process, make advertisement and invite fresh plans etc., would defeat the very mandate of Section 12 of the Code. The Committee of Creditors can only discuss the Resolution Plan which was submitted by DVI only by exclusion of certain period of time while calculating 270 days.

From the order dated 25.07.2018, passed in CA No.114/2018, by which the Resolution Plan was approved, it was observed in Paragraph No.10 that only two bindings Resolution Plans were received from two applicants namely LHG and DVI. So if that was the state of fact, there is no question of giving opportunity to so many interested persons, who may join at this stage as they had not submitted the binding Resolution Plan within the period already fixed by the Committee of Creditors. It was also observed in the said order that there were four more Resolution Applicants, who neither submitted the Resolution Plan nor bid bond guarantee. So looking into the object of the Code and the principle laid down by the Hon’ble Supreme Court, the prayer made in the instant application for starting the fresh process for resolution of the corporate debtor cannot be accepted. However, in the facts of this case, the Committee of Creditors is reconstituting for the purpose of making a decision on the plan submitted by DVI.

With the aforesaid discussion and holding that the approved Resolution Plan submitted by LHG is not capable of implementation due to default in adhering to the payment schedule, we dispose of this application by directing that the period from the date when DVI submitted its final plan i.e. on 05.03.2018 as given in Paragraph No.8 of CA No.140 of 2018 upto the date of the receipt of copy of this order be excluded while calculating the period of 270 days for completion of the Resolution Plan with liberty to the financial creditor and/or Resolution Professional to make appropriate complaint with the Insolvency and Bankruptcy Board of India or the Central Government on the allegation of wilful or intentional default and to pursue the appropriate remedy for the offence, if any, committed by the respondent with right to respondent No.1 to defend the action. The period of 10 days in addition would also stand excluded for serving the notice to DVI for representing its case before the Committee of Creditors and for which the Committee of Creditors is reconstituted. The Resolution Professional and the Committee of Creditors would take a final decision and report to the adjudicating authority about the final outcome. The progress reports shall be sent by the Resolution Professional regularly after 10 days from the date of receipt of copy of this order. Rest of the prayers are declined.

With the aforesaid observation and directions, CA No. 567/2018 stand disposed of.

CA No.601/2018

The learned Senior Counsel for the applicant-LHG however, contended that the Adjudicating Authority must lay down the guidelines for compliance by the Resolution Professionals in such matters and the adjudicating authority is vested with such a right. We have already held that there has been a default in implementing the Resolution Plan submitted by the applicant. The application of the financial creditor has been disposed of with liberty to the Resolution Applicant or the financial creditors to file a complaint before the Insolvency and Bankruptcy Board of India or the Central Government, claiming that the LHG intentionally and wilfully contravened the terms of the Plan. No effective order therefore, can be passed in this application as the matter would be within the purview of the Competent Authority. The Adjudicating Authority under the Code without passing an effective order cannot lay down the guidelines in the exercise of its jurisdiction, which is to adjudicate the matters under the Code and the Rules and Regulations framed thereunder.

In view of the above, we reject this application in limine. CA No.601/2018 stands disposed of.

2. In the matter of Sterling SEZ and Infrastructure Limited [M.A 1280/2018 in CP 405/ 2018]

Case Citation : (2019) ibclaw.in 15 NCLT

This Tribunal admitted a Section 7 petition against the Corporate Debtor on 16.07.2018 and appointed the Applicant herein as the Interim Resolution Professional who was subsequently confirmed as Resolution Professional.

The office of the Enforcement Directorate has provisionally attached the assets belonging to the Corporate Debtor vide order/notice dated 29.05.2018 and corrigendum dated 14.06.2018 as part of certain proceedings initiated by the office of the Enforcement Directorate against the Corporate Debtor.

On 05.09.2018, the Applicant intimated the Directorate of Enforcement about the initiation of CIRP and imposition of moratorium as mentioned in this Tribunal’s order. The Applicant also requested the Directorate of Enforcement to withdraw the attachment, if any, on the properties and assets of the company as the IRP is required to take charge and custody of the same under the provisions of the Code. Now the applicant came before this Tribunal for the above said reliefs.

Contentions of the parties

Applicant

As per the provisions of the Code, the entire management of the Corporate Debtor and the responsibility of running the business as a going concern vests with the Resolution Professional. Under Section 18 of the Code, an IRP is required to take control and custody of all the assets of the Corporate Debtor including those assets which may not be in the possession of the Corporate Debtor.
The Applicant cited Sec. 14 & 238 of IBC to draw home the point that during CIRP, the Resolution Professional should decide how the properties and assets of the Corporate Debtor can be appropriated.
Further, the Applicant cited a judgment pronounced by the Hon’ble NCLT, Kolkata bench in Surendra Kumar Joshi v. REI Agro Limited, C.A (IB) No. 453/KB/2018 in C.P (IB) No. 73/KB/2017 wherein a liquidator had filed an application under Section 35(1) (n) of the Code seeking orders against the Directorate of Enforcement, New Delhi to release the attachment on the assets of the Corporate Debtor which was allowed.
The Hon’ble Supreme Court in Solidaire India Ltd v. Fairgrowth Financial Services Pvt. Ltd., (2001) 3 SCC 71 held that where there are two special statues which contain non-obstante clauses, the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non-obstante clause. If the Legislature still confers the later enactment with a non-obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to revail then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply.
The Applicant further contended that the Tribunal established under the Prevention of Money Laundering Act, 2002 (PMLA) being a criminal court can only decide whether the properties attached during investigation from the possession of the Corporate Debtor could be said to be the properties acquired by them by using the proceeds of crime. It is for the NCLT to decide how the properties and assets of the Corporate Debtor under liquidation can be appropriated and held that the liquidator must get possession of the properties attached by the Enforcement Directorate.
The Applicant further contended that the properties attached cannot be said to be acquired by using proceeds of crime or by diversion of funds. All the properties which were attached were in the name of the company and they should be available for legitimate distribution to the various creditors for settlement, resolution or recovery of their claims.
The Applicant submits that unless the attachment is withdrawn and properties are set free, he cannot proceed with the CIRP process.

Enforcement Directorate

That Sterling Biotech Limited (SBL) is a Baroda based public limited company listed in BSE/NSE and is engaged in manufacturing of gelatin. The SBL group consist of Sterling International Enterprise Limited, PMT Machines Limited, Sterling SEZ and Infrastructure Limited, Sterling Oil Resources Limited, Sterling Port Limited etc. The SBL group obtained credit facilities of more than 5000 Crores from Banks and Financial Institutions and those loan turned into Non Performing Assets. The Banks/Financial Institutions conducted forensic audit to ascertain the end use of loans availed by SBL Group.
The Enforcement Directorate received forensic audit report from Andhra Bank and State Bank of India which shows the use of loan funds for non mandated purposes, payments made to non existant parties and non justificatory payments to Directors, etc. e. As on date, credit facilities availed by the SBL group to the extent of Rs.8100 Crores was declared as fraud account by the concerned Banks.
CBI, BS&FC, New Delhi registered an FIR RCBD1/2017/E/007 dated 25.10.2017 u/s 13(2) r/w 13(1)(d) of the Prevention of Corruption Act, 1988 and 120-B r/w 420, 467, 468, 471 and 469 of IPC against various accused persons including the promoters of SBL group, on the basis of which the Enforcement Directorate, Headquarters Investigation Unit recorded an ECIR bearing number ECIR/HQ/17/2017 to investigate into the offences under PMLA. As the investigation kept unfolding the role of different accused persons and determination of various assets which are proceeds of crime/laundered money led to attachment of properties involved in money laundering which were nothing but proceeds of crime to the tune of Rs.4274 Crores and filing of different prosecution complaints, the last being filed on 23.10.2018 before special PMLA Court, Patiala House, New Delhi. On the said Court taking cognizance of the matter, issued nonbailable warrants against the accused persons/promoters of SBL group on 25.10.2018.
The Promoters of SBL group left the country under suspicious circumstances and evaded the process of law to face criminal prosecution.
The property in question constitute the value of proceeds of the crime as defined u/s 2(1)(u) of PMLA which provides that even if the direct link between the crime proceeds and the property is not available/determinable the value thereof (equivalent value of such proceeds of crimes) can be attached.
The properties provisionally attached constitute the value of such proceeds of crime. The PMLA is a special act and have overriding effects in terms of section 71 of the PMLA. The main object of Insolvency and Bankruptcy Code, 2016 (Code) and PMLA are different from each other. The Code being a civil law cannot be given precedence over PMLA, 2002 and hence NCLT lacks jurisdiction in the matter.
The moratorium declared by this adjudicating authority is not applicable to the criminal case initiated under the PMLA by the enforcement directorate and to the criminal case initiated by the CBI.

Amicus Curiae

The learned amicus-curiae filed his written submissions highlighting the following:-

Overriding effect of IBC: Writ Petition no. 1238/2018 was filed on behalf of the Corporate Debtor challenging the virus of the PMLA as well as provisional attachment and the corrigendum dated 29th and 14th June, 2018. The Writ Petition appears to have been filed and affirmed by the erstwhile directors and does not indicate any authority, either of the RP or the CoC, to institute any such Petition for and on behalf of the Corporate Debtor after initiation of CIRP. The Petition does not disclose the fact that the NCLT has already admitted the Petition and initiated CIRP.

In the case of Surender Kumar Joshi (supra), NCLT, Kolkata has directed ED to hand over the possession of the attached properties of the Corporate Debtor under liquidation to the liquidator along with the title deeds thereof. It is, however, clarified by the NCLT that the Court established under PMLA could decide whether the properties attached could said to be properties acquired out of proceeds of crime.

In the present MA, the Resolution Professional have sought release of attachments as well as handing over possession of the assets. However, there is nothing on record to indicate that the possession of these assets in question have been taken over by the ED under PMLA. In absence of such material, it is obligation/duty of the Resolution Professional to take control and custody of assets of the Corporate Debtor in terms of Section 18(1)(f) of the Code. However, it is required to be noted that the provisions of PMLA permit possession to be taken by the ED under Section 8(4) of the PMLA only after confirmation of the provisional order of attachment under Sub-Section 3 thereof. There is nothing on record to indicate that ED has taken any such steps after passing of the order of confirmation of attachment dated 20.11.2018.

It is pertinent to note that the order dated 20.11.2018 passed by the Adjudicating Authority (under PMLA) has been passed after the order of admission of the Petition against the Corporate Debtor and during CIRP as well as moratorium. The issue as to whether the proceedings before the Adjudicating Authority under the PMLA would be stayed by virtue of Section 14 of the IBC has already been considered by the Appellate Tribunal under the PMLA Act in two recent judgments, one in the case of “Bank of India Vs Deputy Director, Enforcement Directorate” and another in the case of “Punjab National Bank Vs Deputy Director, Directorate of Enforcement, Raipur”. Hon’ble Justice Manmohan Singh speaking for the Appellate Tribunal in both the above cases has held as below:

i. In view of the non-obstante clause contained in Section 238 of IBC, the Adjudicating Authority under the PMLA could not have continued with the attachment after declaration of moratorium.

ii. The non-obstante clause contained in IBC, which is a later statute shall prevail over the non-obstante clause contained in Section 71 of PMLA.

iii. The proceedings before the Adjudicating Authority under PMLA is civil in nature and hence, in view of Section 14 of IBC, the proceedings before the Adjudicating Authority of PMLA cannot continue.

iv. In the case of Punjab National bank (supra), the Secured Creditor being lead Banker of Consortium of Banks had applied for raising of the attachment which was granted by the Appellate Tribunal. The facts of that case are similar to the case on hand except that the Secured Creditors in the resent case have not filed any such application before the Adjudicating Authority under PMLA for raising attachment.

Provisional attachment under PMLA:– It is submitted that attachment under the provisions of PMLA cannot be raised by NCLT under the provisions of IBC. The attachment can only be raised in accordance with the procedures laid down in the concerned statue under which it was levied. The only exception to this is the constitutional courts i.e. the Hon’ble Supreme Court and High Court in exercise of power under Article 32 and 226 of the Constitution of India. However, there is precedent where NCLT, Allahabad in the case of Raman Ispat Pvt. Ltd. (Supra) has in exercise of power u/s 35(1)(n) of IBC directed the District Magistrate and Tehsildar, Muzaffarnagar to release the attached properties in favour of liquidator. However, in the present case the provisional attachments were levied prior to the commencement of CIRP. Also, Section 35(1) of the Code only applied in the case of liquidation and hence such recourse cannot be applied in the present case.

The only other provisions which may be applicable for considering raising of attachment would be section 60 (5) of IBC where under NCLAT would have jurisdiction to pass appropriate orders and decide all such issues relating to the Corporate Debtor or as regards any claim against the same. It was further submitted that the Resolution Professional to take out an appropriate application before the adjudicating authority under PMLA for raising the attachment. However, in the interregnum the Resolution Professional can take physical possession of the properties attached in terms of Section 18(1)(f) of the Code. The Hon’ble Supreme Court and several High Courts have consistently held that an order of attachment is passed for achieving a limited purpose. The attachment is used for two purposes (1) to compel the appearance of the Defendant and (2) to cease and hold his property for the payment of debt. The Hon’ble High Court of Andhra Pradesh in W.P. No. 8560 of 2018 by an order dated 26.07.2018 held that a prior attachment under the Income tax Act long before the commencement of proceedings under IBC before NCLT would yield to the provisions of IBC.

Under the provisions of PMLA, there are three stages of attachment. Initially a provisional attachment is levied under Section 5(1), which is then confirmed after enquiry under Section 8(3). However, this attachment attains finality only after proceedings before Special Court are proved as per Section 8(5) thereof. Furthermore, Section 4 of PMLA provides for punishment of imprisonment and fine for money laundering. If charges of ED are proved, then, the Corporate Debtor being an artificial person would be awarded an appropriate fine, whereas Directors of the Corporate Debtor would be liable for imprisonment as well as fine. Assuming any such fine is imposed on the Corporate Debtor, the same can be recovered in accordance with Section 69 of PMLA which contemplates recovery in the manner as prescribed under Schedule 2 of the Income Tax Act. In case the Corporate Debtor is in CIRP/liquidation, ED be entitled to make necessary claims in before RP or the liquidator in case of liquidation.

Proceeds of Crime:- It is submitted that if it is found by the Special Court under PMLA that any such property is involved in Money Laundering are the proceeds of crime and such is liable to be confiscated by and vested in the Central Government u/s 8 (5) and 9 of the PMLA and this aspect has to be born in mind by the Resolution Professional and appropriate disclosures have to be made to the Resolution Applicant in relation to the said properties. The finding and decision by the Special Court under PMLA that an asset is a proceeds of crime erodes the very title of the Corporate Debtor and the Resolution Applicant will not be entitled to claim a higher right on the basis of approval of resolution plan by NCLT or sale of assets in liquidation under IBC. It is also required to be clarified that non-obstante class contained in IBC will not apply to pending proceedings against other group companies of Corporate Debtors and Directors of all concerned companies.

Secured Creditors beneficiaries under both statutes:- It is submitted that the ultimate beneficiaries under both statutes are the secured Creditors/ Financial Institutions who have filed claim before the Resolution Professional. Section 31 of IBC provides for Resolution Plan in CIRP whereas Section 53 of PMLA provides for distribution in case of liquidation. Similarly, under Section 8(8) of PMLA the Special Court may direct the Central Government to restore the confiscated property or part thereof to the claimant with legitimate interest therein. Thus in both situations the ultimate beneficiaries are financial creditors/secured creditors. The object of IBC is to expedite the insolvency process and to secure maximization of value of assets of Corporate Debtor for distribution to all stake holders. PMLA contemplates restoration of confiscated property to the claimants who have legitimate interest. The Appellate Tribunal for PMLA in the case of Punjab National Bank (supra) held as below:-

“The Adjudicating authority is bound by the law laid down by the higher courts. No authority has any justification to ignore the law laid down by the Supreme Court and various High Courts and this Tribunal, who on the basis of decisions of the Hon’ble Supreme Court and various High Courts has delivered orders. Unless each and every judgment is distinguished or are on different facts and legal issues are almost same and the Adjudicating Authority has incorrectly passed by impugned order by saying that “it cannot “Concur” with the law laid down by this Tribunal. The appellate is a public Sector Bank. The money must come to the public forthwith not after the trial of criminal case against the borrowers which may take may years. The banks are in crisis, no attempt should be made to block the loan amount in order to avoid worsen positions in the commercial market. The trial may continue against the borrowers. One is failed to understand why the Bank loan amount be blocked in view of settled law.”

Decision of the Tribunal

a. The purpose and object of IBC is for resolution of the Corporate Debtor by maximizing the value that can be received by the Creditors and stake holders. The IBC provides for timelines within which the resolution has to be arrived at. The PMLA’s object is also to recover the property from wrong doers and compensate the affected parties by confiscation and sale of the assets of the wrong doer apart from imposing punishment. Here the beneficiaries are the creditors of the Corporate Debtor. The criminal proceedings before PMLA will take a longer time and by the time there will be an eroison in the value of assets. However, considering the overriding provisions of Section 238 of IBC which is the later legislation, when compared to the earlier legislation of PMLA, the provisions of IBC will prevail and hence considering the economic interest of the beneficiaries, the IBC will provide solution at the earliest to the Corporate Debtor as well as to the Creditors. The case laws cited above also favours a resolution by IBC instead of waiting for a long period to get the benefit under the PMLA. Further, the quantum of amount locked in the assets of the Corporate Debtor can be released at the earliest when resolution is found through IBC instead of taking a long route under PMLA. This is the economic aspect of the case.

b. As per the provisions of Section 14(1)(a) of IBC, where moratorium on any kind of proceedings is imposed by the Adjudicating Authority, particularly this attachment is a legal proceedings which squarely falls under the ambit of the said Sections of IBC. Since, the attachment order passed by the PMLA court is hit by the provisions of Section 14 of the Code and considering the overriding effect of IBC under Section 238 of the Code, this Tribunal is of the considered view that the attachment order under PMLA Act is a nullity and non-est in law and hence it will not have any binding force.

c. Section 63 of the IBC provides that, no Civil Court or Authority shall have jurisdiction to entertain any suit or proceeding in respect of any matter on which NCLT or NCLAT has jurisdiction under this Code. In view of the ruling by the Appellate Authority under PMLA in “Bank of India vs Deputy Directorate Enforcement, Mumbai” supra, that the proceedings before Adjudicating Authority under PMLA in respect of attached properties is a civil proceedings, the Adjudicating Authority under PMLA does not have jurisdiction to attach the properties of the Corporate Debtor undergoing Corporate Insolvency Resolution Process.

d. The suggestion made by the amicus curiae that the resolution professional or other creditors can approach the adjudicating authority under PMLA for raising the attachment though seems plausible but will definitely further delay the CIRP which will be against the spirit of the Code. If that route is followed it may take a considerable time and the assets were to be locked in the proceedings. Considering the economic factors associated with the case and the object of both legislations, it is advisable to take a route where assets can be utilized in a speedy manner rather waiting and lose the value of assets over a period of time.

In view of the above discussion the attachment order dated 29.05.2018 and the Corrigendum dated 14.06.2018 issued by Respondent and as confirmed Adjudicating Authority under PMLA Court is a nullity and nonest in law in view of Sections 14(1)(a), 63 and 238 of IBC and the Resolution Professional can proceed to take charge of the properties and deal with them under IBC as if there is no attachment order. The concerned sub-registrars are directed to give effect to this order and remove their notings of attachment, if any, in their file in respect of properties belonging to the Corporate Debtor. It is needless to mention that the attachments in respect of the properties of the Corporate Debtor only are covered in this order. Consequently, the sub-registrar at Jambusar is directed to register and hand over the two Original lease deeds entered into between Sterling SEZ and Infrastructure Ltd. and P. I. Industries Ltd. on 28.08.2018, as prayed for in this application. Accordingly, the application is ordered in above terms, but no cost.

3. In the matter of Aircel Limited [MA-337/2018 in C.P. (IB)-298/(MB)/2018 and MA-336/2018 in C.P. (IB)-302/(MB)/2018]

Case Citation : [2019] ibclaw.in 09 NCLT

Facts of the Case

Facts of the case are that an Application/Petition was moved by Aircel Limited, Corporate Debtor/Petitioner U/s 10 of Code to declare itself insolvent. The said Petition under section 10 of Code was ‘Admitted’ vide an Order dated 12.03.2018 by declaring Moratorium and appointing Interim Resolution Professional. This is a case where the Corporate Debtor is under heavy debt i.e. operational debt of about Rs. 19,889 Crores and financial debt of about Rs. 7,378 Crores. On appointment, the Resolution Professional has taken charge over the debtor company so as to commence the Corporate Insolvency Resolution Process proceedings ( CIRP ).
The present application is revolving around the fundamental question of Telecom License granted by Department of Telecommunication/ DoT (Licensor) to the Petitioner /Aircel ( Licensee ) under the provisions of Section 4 of Indian Telegraph Act, 1885. The Petitioner Company also holds spectrum of 900 MHz, 1800 MHz and 2100 MHz frequency across various circles in India (“Spectrum“), which has been allotted to it by the Department of Telecommunication (DoT). The Petitioner Company along with group entities i.e. Dishnet Wireless Limited and Aircel Cellular Limited operated under the brand name “AIRCEL” offering 2G and 3G Services across India.
Therefore, the Petitioner Company happened to be the holder of Telecom Licenses (Unified Access Service License/UASL) granted by Respondent for various circles across India which includes Andhra Pradesh, Delhi, Gujarat, Karnataka, Maharashtra, Mumbai, Rajasthan and Tamil Nadu. However, licenses of Gujarat and Maharashtra were stated to be surrendered in the past. The acquisition of spectrum in 900 Mhz, 1800 Mhz and 2100 Mhz was procured through an auction process which was in terms of “Notice inviting Auction of Spectrum”. At present the Petitioner Company is holding the Spectrum and the Spectrum Rights are available to circles viz. AP, Delhi, Karnataka, Mumbai etc. The most important feature of holding the Spectrum and the license is that the Telecom Licenses and Spectrum are required for operation of the Petitioner Company as a going concern. The Telecom License is a valuable asset for the Telecom Company; as vehemently pleaded by the Resolution Professional. Furthermore, Petitioner Company also holds “Spectrum” across various circles in India, that too, is a valuable asset of the Petitioner Company.

Contention of the parties

Applicant/Resolution Professional

The apprehension is that “Telecom Licenses” and grant of “Spectrum” may be terminated during the ‘Moratorium’ Period because the Debtor Company had defaulted in payment of annual installments. The apprehension is that DoT may take steps against the Company. However, at this juncture Learned Counsel of the Resolution Professional has informed that up till the commencement of the CIRP the Company had paid the license fees.
It is vehemently pleaded that during “Moratorium” in operation the Telecom License and Spectrum cannot be terminated as prescribed U/s 14 of I&B So the prayer is that the DoT be directed not to take any action against the Company such as termination of Telecom License and Spectrum Allocation. Learned Counsel has raised a serious concern that in case of termination the value of the Petitioner should get severely eroded. A great prejudice shall be caused if any action is taken by the said department.
Further it is informed that the Company had made a huge investment of Rs. 6249.27 Crores for procuring the license. It is further pleaded that the terms and conditions of “License Agreement for Provision of Unified Access Services” do not permit for revocation of license when the period has not expired.

DoT / U.O.I

On the other hand from the side of the Department, Learned Additional Solicitor General Mr. Anil Singh appeared and pleaded that the Union of India has exclusive ownership right over the Spectrum. According to him in this case the default of non-payment of license fees had already occurred therefore, the licensor/DoT otherwise has right to terminate the impugned facility to the Company. The moment ‘licensee’/ AIRCEL fails to pay the fees, the ‘licensor’/DoT has every right to deprive of the licensee from the ‘License’. The ownership and the control over the Spectrum at all times is the property of Union of India and never vested with the Licensee. The terms of the said license also confirm the same that the Licensor reserves the right to suspend the operation of the license in whole or in part at any time if in the opinion of the Licensor it is necessary or expedient to do so in public interest. The Spectrum had never been sold as per the Agreement because this a natural resource of the country which belongs to the people of India. Reliance was placed on W.P. (C) 423 of 2010 Centre for Public Interest Litigation and others V/s Union of India and Others with Writ Petition (C) No. 10 of 2011 Subramanian Swamy V/s Union of India and Others.
Learned ASG has further pleaded that the Petitioner Company was granted “Right to use” and not the “Right to own” the Spectrum. Through an auction held in the year 2010 it was advertised as under :-

“1.1 The Government of India (the “Government”) through the Department of Telecommunications (“DoT”), proposes to allot the rights to use certain specified radio spectrum frequencies in the 2.1GHz band (the “3G Spectrum”) and in the 2.3GHz band (unpaired) (the “BWA Spectrum”) by means of auction in various telecom service areas in India.”

In the “Notice Inviting Applications” (NIA) for Spectrum Auction 2010 had granted only Transfer of “Right to use” and in case of breach of condition the revocation has also been specified as per the terms.
One of the legal argument is that as per the provisions of Section 18 (1)(f) of the I&B Code, 2016 to be read along with “Explanation” an asset if owned by the Third Party but in possession of the Corporate Debtor, can be repatriated back to the owner. In this regard reliance was placed on the decision NCLT Chandigarh dated 26.04.2019 in the case of Weather Makers Pvt. Ltd. V/s Parabolic Drugs Ltd. in CA-206/2019 In C.P.(IB)-102/CHD/2018 Order was passed on 26.04.2019 wherein it was held that although vide Section 18 of the Code Resolution Professional is authorized to take control and custody of any asset over which the Corporate Debtor has ownership right or an asset which is in possession of the Corporate Debtor, whether tangible, moveable, immoveable, intangible etc., however, an exception is carved out by inserting “Explanation” to Section 18(1)(f) of the Code that an asset owned by a Third Party but in possession of the Corporate Debtor held under contractual arrangement shall not be an asset over which the Resolution Professional can take control. So the Argument is that once it is an admitted factual position that the asset in question i.e. “Spectrum” is under ownership of Union of India thus at any time can be taken back from the possession of the Debtor Company. Hence it is intensely pleaded that the Company had breached the terms of the license agreement hence the DoT is authorized to cancel the usage of license.
Reliance has also been placed on a decision of NCLAT in the case of Rajendra K. Bhuta V/s Maharashtra Housing and Area Development Authority, Order dated 14.12.2018 [2018] ibclaw.in 109 NCLAT it was held that :-

“On perusal of record it was found that the land of MHADA was handed over to the Corporate Debtor over which no right had accrued to the Corporate Debtor and the land belonged to MHADA thus cannot be treated as an asset of the debtor company hence out of the ambits of the provisions of section 14(1)(d) of the Code.”

The Learned Counsel has therefore pleaded that this case law is squarely applicable on the facts that the Spectrum being not the asset of the Corporate Debtor thus out of the ambits of Moratorium.
Reliance has also been placed on an Order of Hon’ble Supreme Court dated 14^th May, 2015 pronounced in the case of Bharti Airtel Limited and others V/s Union of India in C.A. No. 2803 of 2014 with C.A. 1969 of 2014 for the legal proposition that the Licensee has no automatic right of renewal or extension on expiry of original tenure of license. Renewal is at sole discretion of Licensor/ DoT. It is the exclusive privilege of the Government of India which could be permitted to be exercised by others only by way of grant from the Government of India. Therefore, the argument is that the license/Spectrum is a National Asset, therefore, no individual or a corporate body can demand a claim over this property. Almost on identical lines a legal proposition has been laid down by the Hon’ble Supreme Court in the case of (2012) 3 Supreme Court Cases 1 (Writ Petition No. 423 of 2010) in Centre for Public Interest Limitation and others V/s Union of India and Others with Writ Petition (C) No. 10 of 2011 Subramanian Swamy V/s Union of India and Others dated 02.02.2012 that :-

“Natural resources belong to the people but the State legally owns them on behalf of its people and from that point o view natural resources are considered as national assets, more so because the State benefits immensely from their value. The State is empowered to distribute natural resources. However, as they constitute public property/national asset, while distributing natural resources, the State is bound to act in consonance with the principles of equality and public trust and ensure that no action is taken which may be detrimental to the public interest.”

Decision of the Tribunal

Decision of the Adjudicating Authority as under:

The Corporate Debtor i.e. Aircel Limited had paid a sum of 6249.27 Crores to get License and Spectrum. These licenses are being used across India being Telecom License is required to run the business of the Company. The apprehension is that by issuance of demand notice for a sum of Rs. 55.70 Crores dated 13.04.2018 by DoT, that notice may lead to cancellation of license. Cancellation of license shall adversely affect the business of the Company. Only on the basis of license the Company is running the telecom business in the Country. Therefore, license is an essential requirement for the business of the Corporate Debtor.
The facility of Spectrum and License was obtained by the Petitioner after huge payment. Since presently the Company is in Insolvency, the expectation is to get a reasonably good Resolution Plan. Any Resolution Applicant shall show interest in the business of the Company if the Company holds license. Without license, since no other valuable asset is available to the Company, no Resolution Applicant may show any interest in the business of this Debtor Company for it’s revival. Without License this Company be as good as a shell company. Resolution Professional has informed that in response to advertisement inviting EOI, few parties have shown interest but all are interested in running the Telecom Business. Therefore, the presence of the license is a sine qua non for getting good Resolution Plan.
As far as the legal question is concerned, the Application of Section 14(1)(d) of the Code is in respect of a property by an owner and the restriction is that on commencement of Insolvency the Adjudicating Authority shall declare Moratorium for prohibiting recovery of any property by an Owner or Lessor in the possession of the Corporate Debtor.
As a fundamental principle, if a property is in possession of the Corporate Debtor the same cannot be demanded back by the Owner/Lessor/DoT of the property as long as the same is in use and in possession of the Corporate Debtor/ Licensee. To this extent there should not be any controversy that since the intangible asset is used for business purpose by the Corporate Debtor, the provisions of Moratorium must apply. The Licensor/DoT can be prohibited from taking any step which may be prejudicial to the interest of the Licensee/ Aircel.
An exception to this general rule is that if an asset is in possession of the Corporate Debtor under contractual arrangement the same can be demanded back by the owner of the asset, refer Section 18(1)(f) of the Code. In this regard a decision of NCLT Chandigarh has also been relied upon by UOI. On examination of facts we have noticed that while admitting the Petition of the Corporate Debtor (Aircel Limited) under section 10 of the I&B Code, vide Order dated 12.03.2018 it was duly acknowledged that on one hand the employees of the debtor company and other Trade Creditors are regularly demanding their outstanding dues, however, on the other hand there was an apprehension of suspension of Telecom License.
Therefore, since inception of the Insolvency Proceedings the advantage of having license to run telecom business has been acknowledged by this Bench. Without such an asset, no party shall take interest in acquiring this Debtor company, hence approved the commencement of CIRP.
As far as the apprehension of cancellation of license by DoT is concerned, on examination we have noticed that there is a clause of “Force Majure” which prescribes that in addition to any act of God even by an act of State or direction from Statutory Authority the licensor shall not be entitled to terminate the license. Since the signing parties have duly agreed upon the terms and conditions, therefore, it shall be unfair on the part of the DoT to suspend the license at this juncture.
An important point which has been brought to our notice is that the Applicant or the Resolution Professional is not demanding the ‘ownership’ of the license as a product but simply seeking uninterrupted use of the said intangible asset. Otherwise also, through agreements only ‘right to use’ is granted and not the ‘right to ownership”. Therefore, ‘right to use’ should remain, during the period agreed upon, with the Corporate Debtor which is always beneficial for the company as well as for all stake holders. This argument can further be buttressed by placing reliance on Sub-sec. (2) of Section 14 of the I&B Code which prescribes that the supply of essential goods or services to the Corporate Debtor shall not be terminated or suspended or interrupted during Moratorium Period. The usage of license/spectrum is akin to “Essential Goods or Services” because without usage the Company cannot run its Telecom Business. This prohibition shall, therefore, also applicable on DoT.

To conclude this Bench is of the view that, admittedly the License/Spectrum is an asset of State over which the Corporate Debtor has no right of ownership, therefore, up to this extent the argument of the Government is hereby accepted. The relief sought by the Corporate Debtor is that due to issuance of Demand Notice by DoT an apprehension is that the same may be suspended. We hereby direct that the clauses of “Moratorium” are squarely applicable on this CIRP Proceedings, hence need not be interrupted or hampered by any authority. It has also been brought to our notice that worst come if the department is aggrieved then it can approach TRAI or TDSAT, regulatory authorities constituted to supervise the functioning of Telephone Companies. As far as the Insolvency Proceedings are concerned, we are governed by the object set out in the ‘Preamble’ of the Insolvency Code wherein it is prescribed to maximize the assets of the Company as well as to protect the value so as to get good Resolution Plan for the revival of the debtor company. Our objective is limited to this extent that too governed by the Code, therefore, within the scope and ambit of Insolvency and Bankruptcy Code, 2016 hereby instruct the concerned DoT authority not to make any attempt to cancel the impugned license issued in favour of the debtor company. Both the applications are disposed of and Ordered accordingly.

4. In the matter of M/s. GNB Technologies (India) Private Limited [C.P.(IB) No. 167/BB/2019]

Case Citation : (2019) ibclaw.in 16 NCLT

C.P.(IB)No.167/BB/2019 is filed by M/s. GNB Technologies (India) Private Limited (Petitioner/Corporate Debtor), U/s 10 of the Code, R/w Section 33 of the Code, by inter-alia seeking to initiate CIRP/Liquidation in respect of M/ s. GNB Technologies (India) Private Limited, on the ground that the Company has become insolvent with a debt of Rs.49,97,96,558/- (Rupees Forty Nine Crores Ninety Seven Lakhs Ninety Six Thousand Five Hundred and Fifty Eight only) with mere current assets are to the extent of INR 65,000/.

As per the Independent Auditor’s report dated 25.10.2017, namely Shri T. Shrinivasa Rao & Co., Chartered Accountants, has interalia stated that the Company’s net worth is eroded (Net worth as at 31st March 2017 is (-) Rs.38,59,81,079.37), which cast significant doubt on the ability of the Company to continue as a going concern. VAT Tax of Rs.1,12,53,958/- has been paid during the year on account of non collection of C forms pertaining to earlier years. The Company has not granted any loans to bodies corporate covered in the register maintained under Section 189 of the Companies Act, 2013. The Company has not accepted any deposit. Therefore, the provisions of Clause (v) of paragraph 3 of the Order are not Applicable to the Company. According to the information and explanations given to them and on the basis of their examination of the records of the Company, amounts deducted/accrued in the books of account in respect of undisputed statutory dues including provident fund, income-tax, sales tax, value added tax, duty of customs, service tax, cess and other material statutory dues have been regularly deposited during the year by the Company with the appropriate authorities. Ax explained to us, the Company did not have any dues on account of employees’ state insurance and duty of excise; according to the information and explanations given to them, there are no dues in respect of sales tax, income tax, custom duty, wealth tax, excise duty and cess have been deposited with the appropriate authorities on account of any dispute.

As per another the Independent Auditor’s report dated 30.08.2018, issued by Shri T. Shrinivasa Rao 86 Co., Chartered Accountants, has inter-alia states that the Company has accumulated losses of Rs.584,043.854 and negative net worth of Rs.503,859,674 on March 31, 2018. During FY 2017-18 the Company has incurred net loss of Rs.111,380,969/-, which cast significant doubt on the ability of the Company to continue as a going concern. The Company has suspended its operations more than 5 years ago and the management has no plan to restart the production in near future.

The holding Company M/ s. Exide Technologies has issued a demand notice dated 07.10.2019, to the Petitioner/ Corporate Debtor, by inter stating that the Exide Technologies was responsible for supplying the raw materials to the GNB Technologies (India) Private Limited, and thus GNB India owes an amount of Rs.42,89,04,336/- (i.e. approx. INR 42.89 Crores) to Exide Technologies on account of various payables including sale of raw materials to GNB Technologies (India) Private Limited. Thus, demanded to pay this amount (Approx. 42.89 Crores) within 5 (five) days). Accordingly, the Corporate Applicant has given reply dated 15.10.2019 by inter alia stating that they could not revive its business operations and the Company was forced to sell its plant and machinery and closed down its operations entirely and thus they are initiating insolvency proceedings before NCLT.

As stated supra, the current assets of the Company is only whereas it current liabilities are approximately INR 49.98 and there is no possibility to revive the Company as the Company sold its plant and machinery long time back and closed down its operations for more than 5 years back. Moreover, the Corporate Applicant owes the liability to its holding Company which supplies all the raw materials to the Corporate Debtor and the Holding Company was also not interested to revive the Company. Therefore, there is hardly any possibility of any Resolution plan likely to be received during first stage of CIRP, if initiated, and thus it would be just and proper to put the Corporate Applicant Debtor under the liquidation process, in order to liquidate the Company, rather than to put it in CIRP in the first instance. The Petitioner has suggested Shri Malay Jitendra Ajmera, bearing IP registration number IBBI/IPA-001/IP-P01190/2018-2019/ 11908, to appoint as IRP, who has also filed his Written Consent in Form-2 dated 14.03.2019, by inter alia affirming that he is eligible to be appointed as a liquidator in respect of the Corporate Debtor herein and that there are no disciplinary proceedings pending against him with the Board or Indian Institute of Insolvency Professional of ICAI; he is currently serving as an Interim Resolution Professional/ Resolution Professional/ Liquidator in NIL proceedings. He can be appointed as Liquidator instead of IRP, in order to liquidate the Corporate Applicant U/s.33 of the Code.

In view of the facts and circumstances of the case, the Adjudicating Authority, by exercising its powers conferred under Section 10 R/w Section 33 of the IBC, 2016 and Rule 11 of NCLT Rules, 2016, the Company petition bearing C.P(IB)No.167/BB/2019 is hereby admitted with following consequential directions:

(1) We hereby order that M/s. GNB Technologies India Private Limited, Petitioner/ Corporate Applicant to be liquidated in the manner as laid down in Chapter III (Liquidation Process) of Part II of the Code.

(2) We hereby appointed Shri Malay Jitendra Ajmera, Regs. No. IBBI/IPA-001/IP-P-01190/2018-19/11908 as Liquidator subject to the terms and conditions to be agreed upon by the parties in the light of the extant provisions of the IBBI.

(3) We hereby directed the Liquidator to issue immediate public announcement by stating that the Corporate Debtor is in liquidation

(4) The Registry is directed to communicate this order to the Registrar of Companies, Karnataka for information and necessary action.

(5) The liquidator is directed to strictly adhere to the extant provisions of the Code and the Rules made there under framed by IBBI from time to time and also directed to take expeditious steps to complete the liquidation process in the light of various orders.

(6) Post the case on 06.12.2019 for report of the Liquidator.

5. In the matter of Videocon Industries Limited & Ors. [MA 1306/2018 & Ors. CP 543/2018 & Ors.]

Case Citation: (2019) ibclaw.in 17 NCLT

Facts of the Case

There are as many as 15 applications, some are in favour of the ‘Consolidation’ and some are opposing the ‘Consolidation’ of insolvency process of the Videocon group Companies, therefore, a summary at the outset shall be useful to deal all of them in this combined order.
It is worth to note that most of these companies, (collectively referred to as “Corporate Debtors” and individually “Corporate Debtor”) were proceeded against by the SBI U/s 7 of the Insolvency & Bankruptcy Code, 2016 (I&B Code) and in the case of other few companies, operational creditors have filed insolvency petitions u/s 9 of the I&B Code.
The table showing the status of section 7 proceedings under Insolvency Code of the Corporate Debtor is given hereunder:

S.No.	Name of Videocon Group Company	Status Before NCLT	Court Room No.	Date Of Order	Name of IRP/RP
1.	VTL	Admitted	I	11.06.2018	Anuj Jain
2.	Electro World	Admitted	I	30.08.2018	Avil Menezes
3.	Value Industries	Admitted	I	30.08.2018	Dushyant Dave
4.	Evans Fraser	Admitted	I	30.08.2018	Avil Menezes
5.	CE India	Admitted	III	14.09.2018	Mahender Khandelwal
6.	VIL	Admitted	II	06.06.2018	Anuj Jain
7.	Trend Electronics	Admitted	II	25.09.2018	Dushyant Dawe
8.	Applicomp	Admitted	II	25.09.2018	Avil Menezes
9.	Techno Kart	Admitted	II	25.09.2018	Divyesh Desai
10.	Century Appliances	Admitted	II	25.09.2018	Dushyant Dave
11.	KAIL	Admitted	III	08.06.2018	Mahender Khandelwal
12.	Millennium Appliances	Admitted	III	31.08.2018	Avil Menezes
13.	SKY Appliances	Admitted	III	31.08.2018	Mahender Khandelwal
14.	PE Electronics	Admitted	III	31.08.2018	Divyesh Desai
15.	Techno Electronics	Admitted	III	31.08.2018	Divyesh Desai

Mr. Venugopal N. Dhoot, ex-director/promoter had filed an application (CA/1022(PB)/2018) before the Principal Bench, NCLT New Delhi praying that all the matters relating to the Corporate Debtors must be heard by one and the same court of Mumbai Bench of NCLT. Likewise, another application was filed by the State Bank of India before the Principal Bench seeking the same reliefs as were sought in the said Application i.e. consolidation of CIRPs of all the Corporate Debtors. The Hon’ble Principal Bench disposed of both the applications vide a common order dated 24.10.2018. In the said Order dated 24.10.2018, the Hon’ble Principal Bench has transferred all matters where CIRP commenced of the Corporate Debtors to this Bench as it will, inter alia, serve the basic purpose of tagging of all matters to avoid conflicting orders, if any, in the connected matters. Following the directions of the Hon’ble Principal Bench, the cases of all Mumbai Benches were transferred by the registry to one Bench, now ceased of the matter, taking up the issue of consolidation collectively in this judgement.

Arguments in favour the Consolidation of CIRPs

M.A. 1306/2018 & MA No. 1416/2018

The Application No. 1306/2018 is filed on 30.10.2018 by State Bank of India (SBI) to seek an order for the ‘Consolidation’ of the CIRP of 15 Corporate Debtors.
The gist of the arguments tendered by Sr. Adv. Mr. Ravi Kadam, Ld. Counsel for SBI, was that a majority of the common lenders of 15 Videocon Group companies had agreed that the consolidation of the CIRPs of these companies was necessary, as it would be in the best interests of the 15 Videocon Group companies, as well as all the stakeholders for the following reasons:
- (a) The 15 Videocon Group companies are interdependent on each other in terms of their business activities. It was appraised that the businesses included manufacturing of various consumer electronics goods spread across companies, which were sold under inter alia the ‘Videocon’ brand, which was owned by CE India Limited, a group company, and sold through the retail arm, Techno Kart India Limited, which is another group company. There are other instances of interdependency such as one company leasing its land to another group company to carry on manufacturing.
- (b) The major loans taken by the companies follows a obligor/co-obligor structure, wherein each company is ‘jointly and severally liable’ to repay the entire amounts.
- (c) The committees of creditors are more or less common.
- (d) The lenders have been treating these companies as a single economic unit, even from the time of granting the loans.
- (e) The Videocon Group companies themselves have been filing common and consolidated financial statements.
- (f) There is extensive cross-shareholding.
- (g) Multiple expressions of interest were floated in each company, however, no interest is shown by any resolution applicant so far in any of the companies.
- (h) If there is no resolution, the 15 Videocon Group companies will go into automatic liquidation, which is against the objectives of the IBC, namely maximization of value and resolution. Reliance was placed on the judgement of the Hon’ble NCLAT in Binani Industries Limited v. Bank of Baroda & Anr. Company Appeal (AT) (Insolvency) No. 82 of 2018, and Hon’ble Supreme Court in Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors. (2019 SCC Online SC 73).
- (i) There is precedent of group Insolvency and consolidation under UNCITRAL model law, USA, Germany and European Union.
The Ld. Counsel for the SBI finally argues that lack of substantive consolidation may result in lesser value being derived for the Corporate Debtors which are expected to receive Resolution Plans, thereby traversing the object of the Code i.e. maximisation of the value of the assets of the Corporate Debtor. The potential benefit of the substantive consolidation during CIRP may far outweigh any potential harm to interested parties.

Arguments against the Consolidation of CIRPs

MA No. 393/2019

Mr. Sancheti argued that substantive consolidation as proposed by the applicant is not envisaged in the IBC or the regulations made thereunder, and hence, the reliefs sought by the applicant does not stand. He added that even in the Report of the Insolvency Law Committee, which was published in March, 2018, though there were discussions on the need for provisions pertaining to group insolvency, however, it was suggested by the committee that it may be too soon for the introduction of the group insolvency regime in India.
He added that substantive consolidation of CIRPs of the 15 Videocon Group companies will be prejudicial to the interests of all creditors of each of these companies. Further, upon the enquiring if consolidation of the CIRPs of the companies would be better in respect of verification of claims, process etc., Mr. Sancheti stated that creditors like Infotel would be facing discriminatory treatment and inequity, because if the assets are pooled, then the voting share of the creditors, not part of the common loan agreements, would come down, and this would impact the decision making process during the CIRP.
Hence the Infotel prays that its share be considered as 40.21% in the COC meetings of KAIL Limited and direct that “co-obligor” obligations be declared un-enforceable in law. Thus, in a way it is pleaded that the separate applications filed by SBI against each Co-obligors independently by itself was a wrong approach of SBI as a Financial Creditor due to the reason that the insolvency code do not prescribe such approach i.e. when the assets are common against whom a common loan was granted which was put in black and white by RTL Agreement , the proposal of consolidation is not justifiable.
Mr. Purohit submitted that consolidation of the CIRPs of the 15 Videocon Group companies will adversely affect the workers, and that since there are no provisions which allow for consolidation under the IBC or the regulations made thereunder, the NCLT does not have the power to pass such orders. He added that each of the companies filed separate financial statements, and hence consolidation in such a scenario will not be fruitful.
Mr. Ankit Lohia stated that the claim amount of ATC was more than 10% of the debt of Videocon Telecommunications Limited, and hence it is an operational creditor, who will be affected by the consolidation of the 15 Videocon group companies. He further stated that the proposed consolidation would affect operational creditors of individual companies and that the treatment of the 15 companies as a ‘single economic entity’ would lead to an ‘effective merger’, and that the substance of the transaction was to be considered.
In light of this, he referred to the case of 63 Moons Technologies Ltd. v. Union of India & Ors. (Supreme Court) dealing with inter alia, the powers of the Central Government under Section 396 to provide for amalgamation in public interest. Further, he added that the powers under Companies Act pertaining to amalgamations and mergers cannot be incorporated into the regime of the IBC and that the NCLT has no powers to grant such an order, since there are no provisions pertaining to consolidation under the IBC or the regulations made thereunder.He also added that the telecom business of Videocon Telecommunications Limited has no interdependency with the business of the other group companies, and hence, consolidation was not necessary, and that the same was being floated only to secure the interests of the banks. It is further contended that consolidation will neither benefit the creditors nor the group companies because the financial affairs of all the group companies are completely separate, hence can be handled by separate CIRP proceedings.

Decision of the Tribunal

The Adjudicating Authority held that:

A. Report of The Insolvency Law Committee

A philosophical opening remark, before addressing this interesting issue as emerged out of the discussion made herein above, is that if in life an attempt is made to avoid a crucial situation either by ignoring or deferring it, this is experienced that, that very situation or problem resurface so fast so that it compels to deal urgently leaving no scope for avoidance or any more deferment. Thus leaves no alternative but to tackle the ‘bull by the horns’. Reason for making this observation at the very start of the Findings arose because of an observation made in the “Report of The Insolvency Law Committee” dated 26th March 2018” on Page 83 a part of Annexure II- [Summary Response to Comments] at Sr. No. 17 given as under:

“It was noted that the treatment of group companies within insolvency laws is a complicated subject. The current system of insolvency law is new, and it may be too soon to introduce a complex subject, like the present issue. The UNCITRAL Legislative Guide on Insolvency Law also provides that the treatment of group companies is a very complex subject in relation to insolvency law and has multiple different approaches in different jurisdictions. Since lifting of the corporate veil in insolvency may affect corporate debtor entities significantly, this issue may be dealt with in the long-term once the present system is well established.”

At that point of time the Hon’ble Members of the Insolvency Law Committee have thought that the mechanism of combining Insolvency proceedings in respect of associate or holding companies was ‘too soon to introduce’, but the jurisprudence on Insolvency Code developed very fast in last 3 years , as witnessed by all of us, that this problem of ‘Consolidation’ has also cropped sooner than expected in this Group of cases, so pressing that it cannot be avoided or deferred . No option is available to this Bench to declare that in the absence of any specific provisions in the I & B Code 2016 issue of ‘Consolidation’ is premature so be not dealt with. Nonetheless, I cannot hold that in the absence of Law, the question of Consolidation need not to be addressed. I am aware that this approach shall not be appreciated being against the natural justice. Equity demands to give a verdict on an issue raised by the litigants before a court of law, but definitely within the four corners of the Law without transgressing the jurisdiction as prevalent currently. It goes without saying that the decision hereinbelow is going to be based upon the merits of this case; supported by case-laws pronounced in the past and evidence on record. Undoubtedly the treatment of ‘group companies’ for the Insolvency purpose is a complex subject, as appropriately observed in the ‘Report’. That lifting of corporate veil for Insolvency purpose may affect Corporate Debtor’s entity significantly , but considering the high stakes of the stakeholders and the lengthy arguments raised by various parties demanding a verdict urgently on the issue of ‘ Consolidation’ , no choice is left but to take the call, although with due care that not to exceed the jurisdiction enshrined in the Insolvency Code.

B. An order of ‘Consolidation’ can be demanded or suo-moto be passed by a court / tribunal

A preliminary question arises that under what circumstances an order of ‘Consolidation’ can be demanded or suo-moto be passed by a court / tribunal. Answer is that when the promoters/ directors of a company diversify the business in various field by creating several independent entities , call it subsidiaries, having cross share-holding with the constitution of common directors and at some point of time the Group gets financially stressed due to default in repayment of debt , at that juncture a right recourse is required to be adopted. That is why, in my humble opinion, the right recourse shall be to examine the necessity of ‘Consolidation’.

C. Testing for whether in a particular case the question of consolidation is worth consideration or not?

Before arriving at any conclusion on ‘ Consolidation’ , the existence of certain ingredients are necessary to be examined, viz ; (1) Common control, (2) Common directors, (3) Common assets, (4) Common liabilities, (5) Inter-dependence, (6) Inter-lacing of finance, (7) Pooling of resources, (8) Co-existence for survival , (9) intricate link of subsidiaries 10) inter-twined of accounts, 11) inter-looping of debts, 12) singleness of economics of units, 13) cross shareholding, 14) Inter dependence due to intertwined consolidated accounts, 15) Common pooling of resources, etc. This is not an exhaustive list and cannot be. These are the elementary governing factors, prima-facie to activate the process of ‘consolidation’. At first glance the existence of these rudimentary points are required to be seen to examine whether in a particular case the question of ‘consolidation’ is worth consideration or not? It is also necessary to put it on record at this juncture when entering to start the investigation that it is a cumbersome exercise which require time and patience. Whether the case in hand can fit into these basic criterion is to be scrutinised in the following paragraphs.

Henceforward Summum bonum, is that the UK / USA courts have dealt with the process of consolidation along with the jurisdiction of the Authority by pronouncing that equity and fairness ought to be a yardstick by lifting the corporate veil. Consolidation is to be utilized as a mechanism to maximise the value of financially stressed group of companies. Economic benefit ought to be the sole purpose and for that a preliminary searching enquiry is suggested which would yield benefit to stakeholders by off-setting any harm, if inflicted, if not consolidated. On due reading of all these judgements, one proposition of law emerges that the motion of ‘consolidation’ depends upon the facts and circumstances of each debtor/debtors. It is appropriate and suitable to give a ruling at this occasion that there is no single yardstick or measurement on the basis of which a motion of consolidation can or cannot be approved. With humility, this Bench herein below sets-out a list of examples, based upon reading the history of ‘group insolvency’, so that the presence of them can lead to a decisive conclusion of triggering of ‘consolidation’ of Insolvency process. Undisputedly, and also laid down by the courts, before ordering consolidation, a preliminary searching inquiry be ensured that whether consolidation yields benefits to stakeholders by offsetting the harm if not consolidated. Areas of inquisition and our finding on the facts of this case are :-

i) Common Control: These companies are promoted by Dhoot Family.

ii) Common directors: The family members of V.N. Dhoot are directors in all the Videocon group companies.

iii) Common assets: There are many instances of interdependency between the group companies and the assets are common to such an extent that, for instance, one company has leased its land to another group company to carry on manufacturing.

iv) Common liabilities: The clauses of the VTL and RTL Agreements have demonstrated that “all guarantees thereof executed by one or more of the other Corporate Debtors are deemed to be one obligations of all the Corporate Debtors. “The company along with 12 other affiliates/entities (collectively referred to as “Obligors” and individually referred to as “Borrower”) executed facility agreement with consortium of existing domestic rupee term lenders, in the obligor/co-obligor structure, wherein all the Rupee Term Loans of the obligors are pooled together….” .

v) Inter-dependence: Some corporate debtors are engaged in manufacturing, assembling and distribution of comprehensive range of consumer electronic and home appliances. Also manufacturing set top boxes, Colour Televisions, DVD Players Etc. by some Units/subsidiaries in Aurangabad. This is stated to be India’s Largest Electronics Retail chain. The uniqueness stated to be that all are marketed under single license of “Videocon Trademark”.

vi) Inter-lacing of finance: Pursuant to the RTL Agreement, a consortium of banks and financial institutions including SBI had agreed to grant ‘Rupee Terms Loans’ to the RTL obligors under an obligor/co-obligor structure. The Rupee Term Loans under the RTL Agreement were to be utilised for the purposes of refinancing of existing rupee debt of the RTL obligors, funding the capital expenditure in relation to the ‘Ravva Field’ and the capital expenditure in relation to the consumer electronics and home appliances business of the RTL obligors and such other end users as permitted by the facility agent under the RTL Agreement. Recital C of the RTL Agreement states that:

“ The Rupee Term loan has been sanctioned by the lenders for the purposes of refinancing of existing Rupee debt of the obligors, funding the capital expenditure in relation to the consumer electronics and home appliances business of the obligors and such other end uses permitted by the Facility Agent”. (Emphasis Supplied).

vii) Pooling of resources: Facts and evidences have demonstrated that there was common pooling of human resources, liaising and funding. Undisputedly, the directors are common using their contacts and relationship to run all the subsidiaries for which common office staff, accountants, and other human resources are mobilised to manage the affairs collectively. Further, common arrangement of capital/funds is an accepted position in Videocon group.

viii) Co-existence for survival: An interlinked chain of business operations is also evident in this group case. Electronic gadgets/home appliances are manufactured by a unit. However, distribution and market chain is controlled by another entity. Interdependence upon each other is a unique feature visible in Videocon group.

ix) Intricate link of subsidiaries: Consolidated accounts, pooling of resources, commingling of assets and business functions are the examples of intricate link among subsidiaries.

x) Inter-twined accounts: The consolidated accounts of 15 months is one of the evidence to demonstrate that on demand by the lenders, all the subsidiaries have prepared a common position of their assets and liabilities, thereafter, prepared consolidated accounts, stated to be duly approved by an auditor.

xi) Inter-looping of debts: On perusal of the agreements, it is evidenced that the clauses have made a provision of securing the debts owed by subsidiaries of Videocon group. For example, Clause 2.4 of the RTL Agreement states about the Utilisation of the proceeds i.e. :

“(i) the obligors hereby agree that the proceeds of the Rupee Term Loan shall be utilized for the following purposes:

(a) Capital expenditure in relation to the Ravva Field and the capital expenditure in relation to the consumer electronics and home appliances business of the obligors, for an amount not exceeding Rs.684 Crores incurred or to be incurred by the Obligors between the current year 2012 and till 2014;

(b) Refinancing of existing Rupee Loans listed in part A of schedule 9 for an amount not exceeding Rs.19,511 Crores; and

(c) Such other end use as may be permitted by the lenders in writing. “

xii) Singleness of economics of units: The group is known by its brand name “Videocon”. Therefore, the entire economics of the group revolve around this brand name either for the purposes of procuring raw material or finally selling the appliances manufactured. The group as a whole is therefore, has a common economic feature to sustain and promote the business operations.

xiii) Common Financial Creditors: As per two Agreements viz. RTL & VTL the lenders are members of ‘consortium of banks’ which is common for all. Because the impugned Insolvency Petitions were filed by SBI for itself and also on behalf of the said Joint Lenders Forum, already listed above, the names of all the banks forming consortium thus substantiate the fact that the financial creditors are common for the 15 debtor entities.

xiv) Common group of Corporate Debtors: As per the said two agreements the Debtors are combined together for the purpose of availing various loan facility. Therefore, this is a case where all the Debtors are independently as well as jointly liable for the repayment of loans facilities availed.

D. The consolidation route is going to be more beneficial to all the stakeholders, comparing the liquidation route

One of the argument favouring consolidation in this case is based upon the fact that on calling the ‘expression of interest’ there was no positive response. In such a scenario where no resolution applicants are interested, the companies will go into automatic liquidation. The argument was that the assets of each companies are validly charged to secure the loans, and the secured creditors will be protected even if the companies go into liquidation, however, the liquidation route may affect the rights of the other stakeholders. Thus, the consolidation route is going to be more beneficial to all the stakeholders, comparing the liquidation route. At this juncture it is worth to devote few more lines that group companies have been created within the parameters of law as a ‘ special purpose vehicle’ hardly holding independent valuable assets but burdened with liability, Which may cause disadvantage if segregated. But after consolidation all the liabilities pooled together can be satisfied up to large extent against the value of common pooled assets, which are otherwise in control of a single entity . In this group Licenses , Good-will, Permits, Trade-marks etc. are valuable but scattered all over the group entities. One more valuable asset is ‘ Oil & Gas field’ acquired through joint venture and duly taken as a valuable property by the banks while granting loan. So all are to be consolidate which shall create a high value cumulative asset, going attract an equally high value Resolution Plan. Singly it is a far sight. Therefore apart from all other reasons inter-alia, the existence of Reeva oil-field in the common pool of assets is a good reason for propounding ‘ Consolidation’.

E. Two factors are necessary for determination of Consolidation

Decisively, the above discussion has deciphered cases of this group into two categories. Rather it is absolutely necessary to place my view with humility that if at all a question of ‘ Group Insolvency’ is to be answered in such type of group of cases, then in that situation, a blanket view is not possible to declare that the entire Group is fit to be CONSOLIDATED simply being connected or controlled by common management. Although, these two factors are necessary for determination of ‘consolidation’, but not the only basis. Over and above, each unit or subsidiary is to be examined on its merits, that whether all the parameters are being satisfied or not. These parameters in fact are the ‘factors’ to distinguish the units in two categories, precisely as under :-

a. A category/ classification of those cases can be made where the business operations are so dove-tailed that their management, deployment of staff, production of goods, distribution system, arrangement of funds, loan facilities etc. are so intricately interlinked that segregation may result in an unviable solution. Over and above, most important is that if segregated, the possibility of restructuring or the option of maximisation of value of assets become so bleak which shall overweigh the consolidation.

b. The other category/ classification can be of such group cases where the accounts are interlinked and due to the existence of debt agreement, the liabilities have become common but assets are identifiable. Hence, on segregation the independent structure of each unit shall survive which shall also result into viable profitable restructuring proposals. Therefore, in this category of cases, although for the limited purpose of signing of certain documents through which loan facilities might have been commonly availed but that can be segregated so that the assets and liabilities are identifiable separately thus facilitating a good investor.

F. Foreign Laws

While discussing bankruptcy law in US, we have noticed that under certain circumstances, consolidation request can be denied. A view was expressed that determination for consolidation hinges on a balancing of the equities favouring consolidation against the equities favouring continued debtor separateness. If the consolidation is not equitable or more disadvantageous to stakeholders, the request for consolidation denied. Therefore, the burden is on the party objecting consolidation to demonstrate that prejudice be posed if consolidation be granted. Although in all 15 cases, the accounts are inter-mingled and due to the existence of agreements, there is a relationship of obligor and/or co-obligors among all these entities. But it is necessary to further ascertain the position of advantage or disadvantage qua the stakeholders. In other words, if an entity is self-serving, self-dependent and self-sustainable, a view can be taken for not granting consolidation. This Bench has therefore, gone further in detail to examine the financial position of each such entities, albeit having inter-connected accounts. However, noticed that for the purposes of carrying on the business they are not inter-dependent. The cases for which this Bench is of the view that consolidation is neither beneficial nor advisable are listed below after due diligence remarks :

a. KAIL Ltd.: An application u/s 9 against the Corporate Debtor KAIL Ltd. was submitted by an Operational Creditor Cooltech Appliances, which was admitted vide an order of 08.06.2018. KAIL is engaged in the business of manufacturing and trading various consumer electronic goods and home appliances, such as washing machines, air conditioners, air coolers, television and other electric appliances. Manufacturing facilities are stated to be located in West Bengal. This entity has annual turnover of more than Rs. 400 Crore and had been allegedly dragged into the common debts, thus facing insolvency proceedings. This company has nearly 350 workers in a factory which is undisputedly owned by the Company. In one of the applications submitted by Workers Union (MA 774 of 2019), certain facts have narrated to demonstrate the independent functioning of the Company and capability to operate on its own. The consolidation of the accounts, in a way, demonstrating unfair and unjust treatment to the stakeholders other than the financial creditors. The monetary interest of the employees and the workers is to maintain segregation of this company from the group. As this company is self sufficient, its products are in demand all over the country and its business is also not dependent on the other 14 group companies, this company is capable of maintaining itself as a going concern on its own. Also, keeping in view the interests of the employees and workers of this company, it is seen that this company would be in a better position to pay the dues if kept out of consolidation. It is seen that Infotel (a financial creditor of KAIL Ltd.) has also sought for keeping this company out of consolidation, due to the reason that its own share as a financial creditor would be reduced if the consolidation is allowed. I hereby clarify that this company is kept out of consolidation due to the reason that it can function independently and not because the share of financial creditor would be reduced. Hence, MA 393/2019 of Infotel is hereby rejected being a self-serving demand not in line with the provisions of the Code. But the CIRP proceedings of KAIL Ltd. shall run independently, by denying ‘Consolidation’.

b. Trend Electronics Ltd.: This company is in the business of manufacturing and selling the dish antenna and Set-Top box which are mandatory pursuant to the compulsory digitalization by Ministry of Information and Broadcasting. Set-Top Boxes being in great demand in the country, this company is able to do business despite being referred to CIRP and is independently capable of maintaining itself as a going concern. Its business is not dependent on the other 14 companies. If this company shares a common CIRP with other companies, there would be a common resolution plan and this company, which has a good asset value would be treated at par with the other companies, which may be detrimental to this company’s resolution plan, as and when received. I, therefore hold that CIRP proceedings of M/s Trend Electronics shall run independently and ‘Consolidation’ is denied.

G. Order of accepting Consolidation/Rejecting

As far as MA No. 1574 of 2018 filed by ATC Telecom Infrastructure Pvt. Ltd. is concerned, Videocon Telecommunications Ltd. (VTL) cannot be allowed to stand outside the CIRP. This application is filed by an operational creditor with a sole concern that the share of the operational creditor would be reduced if the CIRP of VTL is consolidated with that of other companies. It is hereby held that this is not a reason enough to keep this company out of consolidation keeping in view the financial position of this company. The judgement of the Apex Court, tendered by the Ld. Counsel in this application, i.e. 63 Moons Technologies (supra) has no relevance in the insolvency arena as the same was in respect of mergers under the Companies Act. As against that, presently having a completely different issue in hand. What is adjudicated here is the consolidation of CIRPs of the Corporate Debtors and not the consolidation / merger of all the group companies. Hence, MA 1574 of 2018 is hereby rejected.

The consequence of the above decision is that out of the 15 entities, CIRPs of 13 entities namely:

1. Videocon Industries Limited
2. Videocon Telecommunications Limited
3. Evans Fraser & Co. (India) Ltd.
4. Millennium Appliances (India) Ltd.
5. Applicomp India Ltd.
6. Electroworld Digital Solutions Ltd.
7. Techno Kart India Ltd.
8. Century appliances Ltd.
9. Techno Electronics Ltd.
10. Value Industries Ltd.
11. PE Electronics Ltd.
12. CE India Ltd.
13. Sky Appliances Ltd.
are directed to be ‘Consolidated’.

H. Appointment of IRPs

(i) In these consolidated cases, while admitting the petition, name of Mr. Mahendra Khandelwal, having registration No. IBBI/IPA-002/IP-N00446/2017-2018/11275 is largely been approved. He is directed to take over the process of insolvency henceforth and complete expeditiously. Fortnightly reports of progress is expected to be furnished by the said appointed RP before this Bench.

(ii) As far as the CIRP of M/s KAIL Ltd. is concerned, what we have noticed that in some cases while admitting the respective petitions a name was approved of Mr. Avil Menezes having registration No. IBBI/IPA-001/IP-P00017/2016-2017/10041. Therefore he is appointed as IRP. His consent is already on record in those cases . Mr. Avil Menezes IRP , he is directed to act upon without wasting a single day and report the progress fortnightly.

(iii) In respect of the appointment of IRP in the case of M/s Trend Electronics Ltd., while admitting the petitions of the group a name of IRP Mr. Divyesh Desai having registration No. IBBI/IPA-001/IP-P00169/2017-2018/10338 has appeared and approved in few cases. Therefore, he is appointed for this Petition as IRP and directed to act upon immediately and report the progress fortnightly.

The appointed IRP is hereby directed that in case of the 13 Corporate Debtors, listed above, consolidation is now approved, therefore, on the basis of the consolidated Balance Sheet of the group drawn as on 31.03.2017, directed to be updated as on 31.03.2018 and thereupon Information Memorandum is to be prepared at an early date, so that urgently Expression of Interest can be invited.

In cases of M/s KAIL Ltd and M/s Trend electronics Ltd., these two Corporate Debtors have been kept out of consolidation, therefore, their respective independent Balance Sheet should be made the basis for preparation of Information Memorandum as on 31.03.2018. As far as the question of liabilities of the consortium of banks is concerned , those are to be ascertained independently and for that a simple calculation method i.e. proportionate to the value of assets of these two Corporate Debtors, be computed for preparation of Information memorandum. The RP being a professional and expert of preparation of Statement of Accounts, hence, hereby given a liberty to adopt any other method through which the nexus between the liabilities of the Financial Creditors be established with the assets of the debtor company so that the asset-liabilities evaluation be precisely computed. It is expected that after ascertainment of true and correct picture of assets and liabilities of these two Corporate Debtors and on advertisement of EoI, some legitimate and serious Resolution Applicants may appear with a Resolution plan.

I. Commencement of CIRP period

The directions as listed above are to be carried out as well as to be completed within the period of 180 days as prescribed under Sec. 12 of the statute. However, from the date of admission of several applications/petitions filed by Financial Creditors, the period cannot be calculated on account of the fact that an order was pronounced on 05.10.2018 (MA 1092/2018 in CP 02/IBC/NCLT/MB/2018) wherein the insolvency process had been directed to be deferred temporarily as per below:

“In the light of the afore discussed matrix of law and facts, I am of the conscientious view that the Ld. IRP be hereby directed to defer temporarily the CIRP proceedings and wait for the directions of the Hon’ble Principle Bench, expected to be pronounced within 10 days’ time, informed by the Ld. Counsel. Since the above-mentioned advertisement has fixed cut-off date today i.e. 5th October, 2018, hence, directed to receive the Resolution Plan, if any, but not to be processed further till the outcome of the awaited order. To be more safe, IRP is directed to revert back and inform this Bench immediately without a delay of single day on receiving such an information. The Applicant is duty bound to contact the Ld. IRP immediately on receiving the directions of the Hon’ble Principle Bench.”

On account of the complexity of the issue of consolidation, further in past few months several petitions, one after another, have been filed by the creditors either demanding the consolidation or in some cases objecting the consolidation. Long arguments took place which ended in the month of June 2019. During the pendency of those applications, as an interregnum arrangement, this Court has thought it appropriate not to initiate insolvency process and to exclude the period of litigation for the purpose of computation of 180 days. It is, therefore, directed that from the date of admission of respective Petitions upto the date of this order, the period for computation of 180 days be excluded. This decision is taken under exceptional circumstances of these group case. On account of direction of Consolidation Order, a fresh approach for completion of CIRP is required to be adopted by the IRPs, now appointed, namely Mr. Mahender Khandelwal, Mr. Avil Menzes and Mr. Divyesh Desai .Therefore, for the purpose of calculation of 180 days as prescribed U/s 12 of I&B Code the corporate insolvency resolution process should be completed within 180 days form the date of this order. Registry is directed to upload on the site immediately to reach for public domain, which shall construe due knowledge of passing of the order, nonetheless, on demand directed to issue certified copy urgently as per NCLT Rules.

6. In the matter of Adhunik Metaliks Ltd. CA No. 118- CTB-2019 Connected with TP No. 44/CTB/2019 Arising out of CP (IB) No. 373/KB/2017

Case Citation: (2019) ibclaw.in 18 NCLT

Facts of the Case

State Bank of India/Financial Creditor, CIRP of Adhunik Metaliks Limited/Corporate Debtor was initiated by an order dated 03.08.2017 as passed by the concerned Adjudicating Authority, Kolkata Bench. Pursuant thereto, in accordance with the Code, the Resolution Plan of the successful Resolution Applicant was approved by the Committee of Creditors (CoC) and the same was approved by the Kolkata Bench of the Tribunal vide Order dated 17th July 2018. Liberty House Group Pte Ltd., therein was the Successful Resolution Applicant. Subsequently, a Monitoring Committee was formed and constituted in accordance with the Resolution Plan as approved under Section 31 of IBC.
The Applicant submits that, Liberty House Group Pte Ltd., the Successful Resolution Applicant, herein had failed to implement the Resolution Plan and a period of almost one year had elapsed from the date of approval of the resolution plan and that there are various costs which have accrued during the aforesaid period when the Monitoring Committee was in charge of the Corporate Debtor, which includes costs incurred and accrued for salary of workmen/employee, admin costs, unpaid costs to security personnel and other professional fees of auditors etc. although the plant and business operations was shut from May 2018.
Applicant further submits that such costs were accrued in view of the hope of the revival of the Corporate Debtor as a going concern but the successful resolution applicant allegedly failed to implement the resolution plan which was binding on it and other stakeholders for almost a year after which the Liquidation of the Corporate Debtor has commenced.
Accordingly, by order dated 8th July 2019 of this Adjudicating Authority, the Company was sent to liquidation and thereafter the present applicant was appointed as the Liquidator. The liquidation order dated 8th July 2019 was challenged and an interim order of stay of the operation of the said order was passed on 17th July 2019 which was eventually set aside on 28th August 2019. On and from that date, the liquidation process is being carried out.
The applicant herein, is the Liquidator of the Corporate Debtor Company and was so appointed when the liquidation order was passed on 8th of July 2019 by this Bench. Vide the aforesaid application, the applicant has sought clarity about the treatment of claims received on and from the period between 18th July 2018 till 7th July 2019 when the company was supposed to be revived under the resolution plan approved on 17th July, 2018.
The applicant states that several claims as on the liquidation commencement date have been received by the applicant which includes amount accrued and under for the period between 18th July 2018 till 7th July 2019 (hereinafter referred to as “the non-implementation period”).
As per the averments, while submitting their claims for the aforesaid period, there have been verbal enquiries to the applicant specially from workmen and employees as to the treatment of their dues accrued during the aforesaid non implementation period in the distribution pattern laid down under Section 53 of IBC and whether the same should be treated as priority over other dues.
The applicant states that for the period between 18th July 2018 till 7th July 2019 i.e. the period after the lapse of Corporate Insolvency Resolution Process and before the commencement of liquidation, the Monitoring Committee was in charge and has incurred costs. Details of such costs have also been provided as Annexure-A to the application.

Decision of the Tribunal

The present application is for clarification in regard to treatment of the non-implementation period claims of workmen and employees and such other claims which have accrued during the non-implementation period and that whether the same should have priority over other dues.
In this regard, it has been noted that the distribution pattern of the assets and the order of priority have been specified under Section 53 of IBC.
From sub-section 13 of Section 5, subsection 16 of Section 5, Regulation 2(1) (ea) and regulation 7(1) of the Liquidation Process Regulations, 2016, the claims received during the period between 18th July 2018 till 7th July 2019 can neither be treated as a part of “insolvency resolution process costs” nor do they fall within the ambit of “liquidation cost” and hence, cannot be accorded priority over other dues in terms of the provisions of the law.
However, in respect of the aforesaid claims received during the period between 18th July 2018 till 7th July 2019 applicant may rely on the statutory treatment of claims as laid down in Section 53 of IBC.
Accordingly, CA No. 118/CTB/2019 is disposed of.

7. In the matter of Hammerle Textiles Limited CA No. 893/2019 In CP(IB) No. 30/Chd/Pb/2017

Case Citation: (2019) ibclaw.in 19 NCLT

Petition was filed by F.M. Hammerle Textiles Limited (Corporate Debtor) under Section 10 of the Code for initiation of CIRP and the same was admitted vide order dated 27.06.2017 and the CIRP of the corporate debtor was initiated and Mr. Mohan Lal Jain was appointed as Interim Resolution Professional (IRP) vide order dated 27.06.2017. The RP received resolution plan from 2 prospective resolution applicants namely M/s. New Ram Traders and Donear Industries Limited which were opened and presented to the CoC members in its meeting held on 16.02.2018. The prospective resolution applicants were suggested to modify and submit the revised resolution plan.

In the 7th meeting of CoC held on 27.02.2018, both the resolution plans were evaluated in terms of the Resolution Plan Evaluation Criteria formulated under the Process Document dated 12.12.2017 and after evaluation and negotiations, M/s New Ram Traders was declared as ‘H1 Resolution Applicant’ and the financial bid was revised from ₹42 crores to ₹ 45 crores. The resolution plan dated 25.01.2018 submitted by M/s. New Ram Traders was approved by the CoC members after voting in their 8th meeting held on 15.03.2018. The applicant herein filed CA No.97/2018 under Section 30(6) of the Code for approval of the Resolution Plan dated 25.01.2018 submitted by M/s. New Ram Traders. The applicant herein filed CA No.97/2018 under Section 30(6) of the Code for approval of the Resolution Plan dated 25.01.2018 submitted by M/s. New Ram Traders.

Further, it is submitted that CA No.191/2017 was filed by Andhra Bank, a corporate guarantee holder seeking directions to the RP to accept their claims which was rejected by the IRP. The said application of Andhra Bank was dismissed vide order dated 17.11.2017 and the Andhra Bank filed an appeal bearing Company Appeal (AT) (Insolvency) No.61/2018 before NCLAT. The Hon’ble NCLAT vide its order dated 04.05.2018, directed this Tribunal to not pass any further orders under Section 31 of the Code till the final adjudication of the said Appeal. The Hon’ble NCLAT vide its order dated 13.07.2018 disposed of the said appeal of the Andhra Bank, inter alia, reconstituting the COC with Andhra Bank as a member thereof, being corporate guarantee holder and further directed that the Applicant herein to place the approved Resolution Plan of New Ram Traders before the reconstituted CoC. However, the newly inducted Andhra Bank was only given power to object to the plan only if the same is not in compliance with Section 30(2) of the Code.

In order to comply with the aforesaid directions of the Hon’ble NCLAT, CA 97/2018 was disposed of with liberty to file afresh, after compliance of the said order of Hon’ble NCLAT. It is stated that the applicant herein admitted the claims of the Corporate Guarantee holders (CGH) of the Corporate Debtor i.e. State Bank of India, Andhra Bank, Allahabad Bank, Canara Bank, Bank of Maharashtra, Phoenix ARC Private Limited (Assignor United Bank of India), Punjab & Sind Bank, Punjab National Bank, Bank of India, Bank of Baroda and Axis Bank Limited and reconstituted CoC with induction of the CGHs as the new members.

In the 9th meeting the CoC held on 16.08.2018, the earlier approved resolution plan dated 25.01.2018 of M/s. New Ram Traders (the successful resolution applicant) was placed before the reconstituted CoC and after deliberations on resolution plan, the successful resolution applicant was given time to submit the revised plan. It is stated that the revised resolution plan was submitted on 30.08.2018 and after discussion in the CoC, another revised plan was submitted on 24.09.2018.

It is also stated that the Resolution Plan dated 25.01.2018 along with addendum dated 09.11.2018 was placed before the CoC in its 14th meeting held on 17.11.2018 wherein SBI rejected the said resolution plan and the Resolution Professional filed CA No.587/2018 for liquidation of the Corporate Debtor.

It is stated that the successful resolution applicant filed application bearing CA No. 607/2018 seeking extension of CIRP period till 03.01.2019 and for direction to the CoC to consider the resolution plan submitted.

It was found that the directions of Hon’ble NCLAT were that only if the resolution plan is not in accordance with Section 30(2) then a valid objection can be raised by Andhra Bank who has been added as a member of CoC otherwise the CoC will approve it having already found it to be viable and workable and that however, SBI did not approve the original resolution plan on the ground that the offer by the resolution applicant in the original resolution plan is much lower than the liquidation value of the corporate debtor.

The Successful Resolution Applicant i.e. M/s. New Ram Traders was directed to submit its final revised resolution plan within 3 days from the date of order and the RP was directed to convene a meeting of the CoC for consideration of the final plan. Further, exclusion of time was also granted as discussed above.

By virtue of the aforesaid order, the Successful Resolution Applicant vide email dated 19.09.2019 submitted the final revised resolution plan dated 25.01.2018 along with amendment made on 18.09.2019. The CoC in its 16th meeting held on 23.09.2019 approved the revised resolution plan dated 25.01.2018 (along with amendment dated 18.09.2019) submitted by New Ram Traders by 100% voting share in favour of it. A copy of the Letter of Intent dated 23.09.2019 stated to be issued to the successful resolution applicant is attached as Annexure RP-22.

CA No.893/2019 is filed by the Resolution Professional (RP) under Section 30(6) of the Code seeking approval of resolution plan dated 25.01.2018 and Amendment made on 18.09.2019 as submitted by M/s New Ram Traders. It has been prayed in the application that the Resolution Plan dated 25.01.2018 and amendment made on 18.09.2019 as submitted by M/s New Ram Traders be approved.

In compliance of the order dated 30.01.2020, affidavits of the CoC (Diary No.1319 dated 18.02.2020) and the Resolution Applicant along with his two sons (Diary No.1336 dated 18.02.2020) were filed. The CoC in its affidavit has stated that the cost of earlier resolution plan was about ₹59.95 crores which was far less than liquidation value of ₹66.57 crores whereas the total cost of present resolution plan is ₹64.33 crores which is much close to the liquidation value of ₹66.57 crores. It is also stated that the tentative liquidation value worked out as per order dated 28.03.2019 is ₹58.37 crores and therefore, the current resolution plan approved by the CoC is much above the tentative liquidation value.

The total admitted claim due to Operational Creditors is Rs.977.16 lakhs. The liquidation value given in Form H is ₹66,57,53,000/-. However, the dues of Financial Creditors are much more than this value. Therefore, nothing is payable to the Operational Creditors in the event of liquidation and the amount to be distributed between operational creditors in the event of liquidation, if distributed in order of priority in Section 53(1) of the Code would be NIL However, the RA proposes to offer 2.5% of the admitted amount (on pro rata basis) for payment against dues for operational creditors and the said payment will be made to the operational creditors in priority over the payment to secured and unsecured financial creditors. Hence, the amount offered to operational creditors is ₹24.43 lakhs. Further, there are no dissenting financial creditors as the resolution plan has been approved by 100% voting share of the Financial Creditors.

It is submitted by the RP that the resolution plan has been approved by a vote of 100% of voting share of the financial creditor and therefore, the conditions provided for by Section 30(4) of the Code are satisfied.

The compliance of Section 30(2) of the Code is given in para No.9 of Form H (supra). The same is being further examined as under: –

Section 30(2)(a): The resolution plan provides for the payment of ₹1050 lakhs as CIRP cost (estimated till 31.03.2019) which will be first made in priority to all other creditors of the corporate debtor. It is also stated that the Resolution Applicant undertakes that any incremental CIRP Cost till the date of approval of the plan by the AA will be paid in full and in priority before making any payments to other creditors.

Section 30(2)(b): It is stated in Form H that the average liquidation value of the corporate debtor is ₹66,57,53,000/-. It is further stated that as the debts of financial creditors are higher than liquidation value as estimated by Resolution Applicant, there is no amount left as such for payment to operational creditors in the event of liquidation of the Corporate Debtor. The amount of dues of operational creditors as admitted by the RP is ₹977.16 lakhs. However, the RA proposes to offer 2.5% of the admitted amount (on pro rata basis) for payment against dues for operational creditors and the said payment will be made to the operational creditors in priority over the payment to secured and unsecured financial creditors. Hence, the amount offered to operational creditors is ₹24.43 lakhs.

Further, it is stated in the resolution plan that the RA proposes to pay 0.1% of ₹574.65 crores (the total admitted claim of the Corporate Guarantee) i.e.₹0.58 crore in full and final settlement within 30 days of the approval of the plan. The resolution plan provides payment of ₹20.88 lakhs towards 100% of dues of workmen.

Section 30(2) (c) & (d):The resolution plan provides complete and detailed plan for management of the affairs of the corporate debtor (page 190 of the application). As per para VII of the resolution plan and upon the AA Approval, the corporate debtor will be managed by the Interim Monitoring Committee (IMC) which will comprise of one person appointed by the financial creditor and one person appointed by RA. The tenure of the IMC will be for a maximum period of 90 days and will be dissolved on completion of payments made towards CIRP cost and towards different class of persons. Further, it is stated in the resolution plan that the RA will retain all the employees of the corporate debtor but the board of directors and Key Managerial Personnel of the corporate debtor will be reconstituted and appointed. As mentioned in para 7.2 of the plan, the Board of Directors of the Resolution Applicant will consist of Mr. Shirishkumar Ramkrishna Sonavane, Mr. Kunal Sonavane and Mr. Rohit Sonavane. It is also stated in para 7.3 of the plan that Mr. Sanjeev Sinha will be the CEO of the CD.

Section 30(2) (e): In Form H (supra) (para No.4), the RP has certified that the resolution plan complies with the provisions of the Code and Regulations and does not contravene any of the provisions of law for the time being in force.

We are now examining the compliance of the proviso to Section 31(1) of the Code that the resolution plan has provisions for its effective implementation. The resolution plan states that upon NCLT Approval Date, an Interim Monitoring Committee will be constituted. The constitution of the Committee is given in para no VIII of the plan. The terms of the plan and its implementation schedule is stated to be 90 days from the approval of the plan by the Adjudicating Authority. The RA will make full and final payment of ₹5150 lakhs to secured financial creditor i.e. SBI out of which ₹500 lakhs will be deposited at the end of 30 days from the approval of the resolution plan and the balance ₹4650 lakhs will be paid in an Escrow Account within 90 days from the approval of the resolution plan. The payment of ₹24.43 lakhs to operational creditors is proposed to be made in priority over secured and unsecured financial creditors. Payment of dues to workmen and employees is proposed to be made within 30 days of approval of resolution plan by AA in the manner provided for in Para 11.2 of the Resolution Plan.

The sources of funds are stated to be infusion of ₹1700 lakhs towards Equity to be issued by the Corporate Debtor within 30 days of the approval of the resolution plan; infusion of funds to the tune of ₹233 lakhs by way of loans from friends/ relatives/ associates; and ₹4500 lakhs as term loan from Bank (Bharat Corporation Bank). Also, the resolution plan provides for ₹130 lakhs towards working capital requirement.

We have discussed above that the requirements under Section 31(1) of the Code are satisfied in the present case. In para No.4 of Form H (supra) the RP has certified that the resolution plan complies with all the provisions of the Code and Regulations and does not contravene any of the provisions of the law for the time being in force. The RP has also certified that the resolution applicant New Ram traders has submitted affidavit pursuant to Section 30(1) of the Code confirming its eligibility under Section 29A of the Code to submit the resolution plan and the contents of the said affidavit are in order. The RP has submitted that the resolution plan has been approved by the CoC with 100% voting share in accordance with the provisions of the Code and CIRP Regulations made thereunder and after considering the feasibility and viability and other requirements specified by the CIRP Regulations. It has been held in para 42 of K. Sashidhar Vs. Indian Overseas Bank &Ors. (Civil Appeal No. 10673 of 2018 dated 05.02.2019) by the Hon’ble Supreme Court inter alia that no corresponding provision has been envisaged by the legislature to empower the resolution professional., the Adjudicating Authority (NCLT) or for that matter the Appellate Authority (NCLAT), to reverse the “commercial decision” of the CoC. It was also held that whereas, from the legislative history there is contra indication that the commercial or business decisions of the financial creditors are not open to any judicial review by the adjudicating authority or the appellate authority. In view of the above discussion, the decision taken by the financial creditors falls within the ambit of its commercial and banking wisdom and is therefore, not being interfered with.

We may add that in the case of Maharashtra Seamless Limited vs. Padmanabhan Venkatesh & Ors. In Civil Appeal Nos.4242 of 2019, it has been held in para 26 thereof that “No provision in the Code or Regulations has been brought to our notice under which the bid of any Resolution Applicant has to match liquidation value arrived at in the manner provided in Clause 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016….” In view of the above discussion, the decision taken by the financial creditors falls within the ambit of its commercial and banking wisdom and is therefore, not being interfered with.

We shall now discuss the requirements of Regulation 39(4) of the Regulations. It can be observed that as per the terms of the process document dated 12.12.2017 issued by RP, a Proposal Performance Guarantee (PPG) to the tune of ₹1,00,00,000/- was submitted by the Resolution Applicant. Copy of the minutes wherein the request for the resolution plan was approved, a copy of the RFRP and the Performance Guarantee is attached as Annexure-4 (Colly) of affidavit filed vide Diary No.1287 dated 17.02.2020. As per Amendment No.3 dated 19.11.2019, the validity of the Bank Guarantee is presently 16.05.2020 and the claim expiry date is 16.06.2020. It is thereby submitted that the requirements of performance security under Regulation 39(4) of the Regulations read with 36B(4A) of the Regulations are complied with.

On the basis of discussion made above and in view of the provisions of Section 30(4) of the Code, we approve the resolution plan submitted by M/s. New Ram Traders as approved by the CoC. The resolution so approved shall be binding on the corporate debtor and its employees, members, creditors [including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] guarantors and other stakeholders involved in the resolution plan.

Under the provisions of Section 31 (3) of the Code, we also direct as under:-

a) The moratorium order passed by the Adjudicating Authority under Section 14 of the Code on 27.06.2017 shall cease to have effect; and

b) The RP shall forward all records relating to the conduct of the CIRP and the resolution plan to the Board to be recorded on its database.

CA No. 893/2019 is disposed of.

8. In the matter of Coastal Projects Ltd [CP (IB) No. 593 /KB/2017]

Case Citation: (2018) ibclaw.in 17 NCLT

Facts of the Case

The CP(IB) No. 593/KB/2017 was filed by the State Bank of India/financial Creditor for initiating the CIRP as against the Corporate debtor, Coastal Projects Limited as per section 7 of the Code. Vide Order dated 5th January, 2018, the application was admitted by appointing Mr. Ravi Sankar Devarakonda as the Interim Resolution Professional. Public announcement, as well as publication of expression of interest inviting prospective Resolution Applicant was issued by him. Resolution Plan was submitted by only one Resolution Applicant, namely, Mantena Engitec Private Limited. It seems to have filed in compliance of sub-section 2 of Section 30 of the IB code, 2016. The Resolution Professional has submitted the Resolution Plan before the Committee of Creditors for its favourable consideration.
From the records available, it is understood that there is no other Resolution Applicant who showed interest in taking over the stressed assets of the Corporate Debtor other than the resolution plan of Mantena Engitec Private Limited. The Ld. RP has submitted that the Resolution Plan of M/s. Mantena Engitec Private Limited (MEPL) has undergone various negotiations, deliberations at the various meetings convened by the Committee of Creditors and as per the result of negotiations with the Resolution Applicant, the resolution Applicant had submitted its revised Resolution Plan to the Resolution Professional on 07-09-20918. That Resolution Plan is seen placed before the COC in the meeting held on 19-09-2018. However, no decision was taken on that day and the consideration of the resolution Plan was thereafter referred to 14th meeting of the COC held on 24-09-2018. After negotiation and deliberation, the Plan was put to vote on 26-09-2018 through E-voting facility. However, the majority of the Members of the Committee of Creditors did not vote in favour of the Plan. 88.04% voted against the Resolution Plan and only 11.96% vote shares were cast in favour of the Resolution Plan. Thereby, the Resolution Professional was unsuccessful in getting the approval of only one resolution Plan received by him to take over the stressed assets of the Corporate Debtor and in the meanwhile, the extended period of CIRP was expired on 1st October, 2018.
When this case was taken up for hearing on 29-10-2018, three applications were filed, i.e., CA(IB) No. 582/KB/2018, CA(IB) No. 955/KB/2018 and CA(IB) No. 965/KB/2018. Two other applications also came up for consideration which were filed by the two Operational Creditors contending that their claims have not been admitted by the Resolution Professional. In the meanwhile, the Resolution Applicant also filed CA(IB) No. 965/KB/2018 for reconsideration of the resolution Plan by the Committee of Creditors. All these applications came up for consideration after the expiry of the mandatory period of the CIRP process. Therefore, none of the Applications requires any consideration and therefore, those applications are not elaborately discussed here in this case.
When the case was posted on 03-10-2018 for filing the final report by the RP, the RP has submitted that no Resolution Application was under consideration and he was intending to move an Application for liquidation. Thereby, the case was adjourned to 11-10-2018. Thereafter, the case was adjourned because of filing of interim Applications. Lastly, it was heard on 30-11-2018.

Issues before the Adjudicating Authority

The Ld. Counsel appearing for the Resolution Applicant in CA(IB) No. 965/KB/2018 has submitted that the period taken by the RP and the COC in regard to finalisation of the approval of the Resolution Plan if excluded, one more opportunity can be availed by the Resolution applicant for submitting his revised Resolution Plan.

Decision of the Adjudicating Authority

NCLT held that:

The said submission seems to deserve no consideration at the stage when the Committee of Creditors has, by majority decision, decided to proceed with liquidation. Moreover, the period of CIRP has already expired.
As per Section 12 of the I&B code, 2016, time limit for completion of the Insolvency Resolution Process shall expire firstly upon completion of 180 days and if it is extended, it would lastly expire within 270 days. That 270 days has expired on 01-10-2018.
Proviso to Section 12 mandate that the Adjudicating Authority shall not pass an order for extension of the period of CIRP under Section 12 for more than once. Therefore, the request on the side of the resolution Applicant in CA(IB) No. 965/KB/2018 for a reconsideration of the Resolution Plan after the expiry of 270 days could not be entertained by me at this stage.
Here in the instant case, it appears to me that the rejection of the Resolution Plan by the majority vote share was not on sound reason.
It is significant to note that the Plan of the resolution Applicant has been under consideration of the Resolution Professional as well as before the Committee of creditors from 29th June, 2018 onwards i.e. before the 180 days from the starting period of CIRP. The 180 days expired on 03-072018. The RP was obliged to identify Resolution Applicant finally prior to 03-07-2018. It has not happened in the case in hand.
Having cross checked with the above time line, I am afraid, the only one Resolution Plan submitted before the consideration of the Committee of Creditors has not been seriously dealt with in the time frame. If the CoC and RP would have taken adequate care to have negotiation with the resolution applicant day by day, bearing in mind the very object of the Code which is Resolution and maximisation of value, chances of success in having a resolution in the case in hand was not too remote. The laxity in dealing with negotiation with the resolution applicant for having a resolution is visible from the mode of discussion process entertained by the CoC in the case in hand. Thereby, the chance of revival has been blocked.
In view of the above said discussion, I am of the considered opinion that I could not extend the period of CIRP for any reasons advanced on the side of the Ld. RP as well as on the side of the Resolution Applicant, as Section 12 mandates, no further extension beyond 270 days is to be granted in the like case.
Having failed in obtaining the Resolution Plan within the mandatory period of 270 days and since the Committee of Creditors has decided to have liquidation of the Corporate debtor, I have no other alternative than to pass an order requiring the Corporate Debtor to be liquidated in the manner as laid down in the Chapter III read with Section 33 of the I&B Code, 2016.
The CA(IB) No. 965/KB/2018, upon the reason highlighted above, requires no consideration and it is liable to be dismissed. The CA(IB) No. 955/KB/2018 is an Application for admitting the claim put forward by the Operational Creditor. Since an order of liquidation is passed, this CA also requires no consideration. It is liable to be dismissed. However, with a liberty to submit the claim, if any, to the Liquidator. The Resolution Professional in the instant case has consented to continue the liquidation process as a Liquidator. Therefore, he is to be appointed as the Liquidator in CP(IB) No. 593/KB/2017.

9. In the matter of Gujarat NRE Coke Ltd. IA 122,194 & 305-KB-2020 in C.P. (IB) No. 182- KB-2017

Case Citation: (2020) ibclaw.in 131 NCLT

Ld. Liquidator appears. Ld. Counsel for SFIO (respondent no. 2) appears. Ld. Counsel for State Bank of India appears. Ld. Counsel for State Tax Officer Gujrat appears. Ld. Counsel for shareholders who have filed a proposed Scheme appears. Ld. Chairperson of the meeting in CA(CAA)No.20/Kb/2020 appears.

CA(IB)No.1305/KB/2019 is filed by the Liquidator for directing total fifteen Secured Creditors either to relinquish security interest under Section 52 or to proceed under that Section. Almost all have relinquished their claim accept one i.e. Laxmi Vilas Bank having 2.49% security interest in the assets of the Corporate Debtor. Despite notice, none appears for Laxmi Vilas Bank. We in our jurisdiction and considering the fact that liquidation process could not be proceeded without their cooperation, their security interest stands relinquished. CA(IB)NO.1305/KB/2019 is allowed in terms all above. Now, Liquidator to proceed with liquidation process. This CA stands disposed of.

CA(IB)No.1828/KB/2019 is again filed by the Liquidator for extension of the period of liquidation. It appears from record that liquidation process is in progress. Hence, liquidation period further stands extended for six(6) months from today. CA(IB)No.1828/KB/2019 stands disposed of.

CA(CAA)No.20/KB/2020 is filed by the Liquidator presenting Scheme file by the equity shareholders under Section 230-232 of the Companies Act, 2013. The Chairperson who was appointed to hold the meeting of creditors and the equity shareholders has filed the report. We direct the Chairperson of the said meeting to provide copy of the report to the equity shareholders and to the Liquidator at their cost.

Liquidator filed report of special CoC meeting. We direct that the extracts of the meeting be circulated to the equity shareholders for their consideration.

IA(IB)No.122/KB/2020 is filed by State Bank of India bringing on record certain facts about encashing Bank guarantee of 62 wind mills. We record the fact. However, we make it clear while recording above facts that the allegations made in Part XVIII in this application are not considered and stands deleted. In view of this, IA(IB)No.122/KB/2020 stands disposed of.

IA(IB)NO.305/KB/2020 is filed by Commission CGST Excise, Gandhinagar (State Tax Officer, Gujrat). We direct the Liquidator to consider its claim as per the rules. In view of this, CA(IB)No.305/KB/2020 stands disposed of.

IA(IB)No.194/KB/2020 is filed by ICICI Bank with direction to the Liquidator to consider its claim. We have already directed the Liquidator to consider its claim and the Liquidator submits that he has already considered the claim. In view of this, this CA becomes infructuous and stands disposed of.

CA(CAA)No.20/KB/2020 to come up for hearing on 14.04.2020.

10. In the matter of Jet Airways [CP(IB)-2205/MB/2019]

Case Citation: (2019) ibclaw.in 20 NCLT

Facts of the Case

The Company Petition bearing CP No. 2205/2019 is filed by State Bank of India, Petitioner / Financial Creditor under Section 7 of Insolvency and Bankruptcy Code, 2016 (I&B Code) for initiation of Corporate Insolvency Resolution Process (CIRP) against Jet Airways (India) Limited, Corporate Debtor /Respondent. There are two other petitions filed under section 9 of I&B Code bearing CP no 1968/2019 and 1938/2019 filed by Gaggar Enterprises Private Limited and Shaman Wheels Private Limited respectively claiming to be Operational Creditors of the Corporate Debtor. All these three petitions that are listed to initiate CIRP against the same Corporate Debtor and are therefore being dealt with vide this common order.
The total amount of debt granted to the Corporate Debtor by the Petitioner alone stands at ₹1795.21 Cr. There are several other Financial Creditors who have also granted a loan to the Corporate Debtor. Thus, the Corporate Debtor has a huge outstanding Debt. The default amount is stated to be ₹462,39,38,604.55/-, being the overdrawn amount over sanctioned limits of the cash credit facilities by the Petitioner alone. The default in loan facilities given by the other financial creditors is not included in the default amount in the present application. Over and above this, the Corporate Debtor has also defaulted in the payment to several of its Operational Creditors as has been stated in the letter of the Senior Vice-President-Finance of the Corporate Debtor dated 14.12.2018. Two of the applications filed by the Operational Creditor have also reached the stage of admission. Further, during the hearing on 20.06.2019 the counsel appearing for the Pilots of the Corporate Debtor has submitted that the Corporate Debtor owes more than ₹550 Cr. to its pilots towards the pending salary. The Counsel for engineers of the Corporate Debtor also submitted that similar dues are pending against the claim of the engineers of the Corporate Debtor. Thus, the Corporate Debtor has huge outstanding debt, both financial and operational.

Issue before Adjudicating Authority

During the hearing on 20.06.2019, this bench was apprised that insolvency proceedings against the Corporate Debtor have already been initiated and a translated copy of the judgment of NOORD-HOLLAND DISTRICT COURT dated 21.05.2019 was placed before us by the Practising Company Secretary appearing on behalf of the Foreign Court appointed Administrator in Bankruptcy.

Decision of the Adjudicating Authority

NCLT held that:

It is to be noted that the said Judgment is not submitted on affidavit neither the Original/Certified copy of the Judgment is submitted along with the translated copy. It is also important to note that there is no provision and mechanism in the I&B Code, at this moment, to recognise the judgment of an insolvency court of any Foreign Nation. Thus, even if the judgment of Foreign Court is verified and found to be true, still, sans the relevant provision in the I&B Code, we cannot take this order on record. It is pertinent to mention that Mr. R. Mulder, Administrator in Bankruptcy of Jet Airways (India) Ltd in Noord Holland District Court has filed a written submission in the capacity of Intervenor stating that vide judgement dated 21.5.2019, Hon’ble Noord Holland District Court, Trade, Sub-district and Insolvency, passed an order of bankruptcy against Jet Airways (India) Limited (hereinafter, “Corporate Debtor”) in Petition Number: C/ 15/288017/ FT RK 19/ 540R as per the provisions of Bankruptcy Act prevailing in the Netherlands. The Hon’ble Court appointed Mr R. Mulder as the Administrator in bankruptcy of the Corporate Debtor by the said Judgment. A copy of the said judgement (translated. version) is enclosed.
It is further contended by the applicant Intervener that on the appointment as the Administrator of the Corporate Debtor, Mr R. Mulder informed the Corporate Debtor and the Chairman, State Bank of India of the initiation of bankruptcy proceedings against the Corporate Debtor. Mr Mulder has appointed the Indian law firm, Kesar Dass B. & Associates, as his legal advisor to assist him in India in taking control of the Corporate Debtor and its assets, under the bankruptcy law on the Netherlands. The initiation of said bankruptcy proceedings has been widely reported by the Indian media.
It is further contended by the Intervener that the Counsels of the Administrator apprised this Tribunal regarding the existing order of Insolvency and appointment of Administrator. The contention of the Administrator is as under:
- a. Admission of application(s) and passing order of commencement of insolvency against the Corporate Debtor when the insolvency process has already been commenced against the Corporate Debtor one month ago in another jurisdiction will create a peculiar situation of two insolvency proceedings running in parallel against the same Corporate Debtor leading to complications and delays in resolution Of insolvency.
- b. The Administrator appointed by a competent court in the Netherlands and Interim Resolution Professional appointed by the Adjudicating Authority will compete to take control and possession of assets, in India and other jurisdictions, which is neither in the interest of smooth functioning of the insolvency process nor in the interest of the stakeholders including the creditors.
- c. The above situation will create uncertainty and unpredictability of the outcome and impair the chances of attracting potential resolution applicants for the Corporate Debtor.
- d. Even though the provisions of law, Section 234 and Section 235 of the IBC have not been given effect to by the Central Government, there is no bar or prohibition under the IBC for the Adjudicating Authority recognising the insolvency proceedings in a foreign jurisdiction.
- e. The provisions of sections 13, 14 and 44-A of the Code of Civil Procedure, 1908 do not apply to insolvency proceedings. They deal with the procedure of recognition and enforcement of foreign judgments/ decree/orders etc. An insolvency proceeding is not a money decree which requires recognition and enforcement. It is also not against the public policy of India as the Administrator will act by the substantive principles of IBC in his dealing with the insolvency process of the Corporate Debtor.
- f. The Judgment dated 21 May 2019 has been passed by the court of competent jurisdiction is final and binding on the Corporate Debtor and lenders. Despite notice (supra), the Corporate Debtor and State Bank of India have not filed any appeal against the judgement, till date.
- g. Two parallel proceedings are likely to obstruct smooth and uninterrupted, sustainable and certain proceedings. Also, they are likely to stand in the way of expeditious outcome of the process.
The objections raised by the Intervener is based on the order passed by the Noord Holland District Court, Netherland.
It is pertinent to mention that Section 234-235 of IBC, 2016 deals with the matter regarding the agreement with foreign countries and the letter of request to a country outside India in the insolvency Resolution Process where the assets of the corporate debtor exist outside India.
The above provision of IB Code is yet to be notified hence not enforceable. Therefore, we as the Adjudicating Authority are not empowered to entertain the order passed by the foreign jurisdiction in the case, where the registered office of the Corporate Debtor company is situated in India, and the jurisdiction specifically lies with this court. Therefore, we cannot pass any order to withhold the Insolvency proceedings pending in our court based on the order of insolvency passed by any other jurisdiction, which is not authorised to pass order for the company, which is registered in India and the jurisdiction solely lies with this court.
The contention of the Intervener is that peculiar situation will arise by running two parallel proceedings against the same corporate debtor, and it will lead to complications and delays in resolution of insolvency is not sustainable. It is to be clarified that the order of the foreign court is a nullity in the eye of law and such order cannot be given effect.
The question of running two parallel proceedings does not arise. The order passed by Noord Holland District Court, Netherland for the company registered in India is nullity ab-initio.
It is also pertinent to mention that Section 234 of IBC, 2016 is not yet notified, which provides the application of provisions of this Code in relation to assets or property of corporate debtor or debtor, including a personal guarantor of a corporate debtor, as the case may be, situated at any place in a country outside India with which reciprocal arrangements have been made.
In this case, the Indian Government has no such reciprocal arrangement with the Government of Netherland. Therefore, none of the courts has any jurisdiction to pass an order under IBC, where the assets and properties of the Corporate Debtor are situated in a country outside their country.
Based on the objections filed by the Intervener, proceedings of Insolvency, in this case, can’t be kept pending.
It is also important to the point out that this matter is of National Importance. The Corporate Debtor company has more than 20,000 employees, and its revival at the earliest by a viable Resolution Plan is essential. Therefore, the proceeding of this court cannot be stayed or withhold even for a single day based on the order passed by any foreign court, which is a nullity in the eye of law.
In light of the above scheme and objects of the I&B Code and the stakes involved in the Corporate Debtor, the prompt disposal of this application is essential, and any further delay or deferment, in this case, would be against the objective of the I&B Code.
The Petitioner has proposed the name of Mr Ashish Chhawchharia, a registered insolvency resolution professional having Registration Number [IBBI/IPA-001/IP-P00294/2017-18/10538] as Interim Resolution Professional, to carry out the functions as mentioned under I&B Code, and given his declaration; no disciplinary proceedings are pending against him.
The CP 2205/2019 filed under sub-section (2) of Section 7 of I&B Code, 2016 is complete. The existing financial debt of more than rupees one lakh against the corporate debtor and its default is also proved. Accordingly, the petition filed under section 7 of the Insolvency and Bankruptcy Code for initiation of corporate insolvency resolution process against the corporate debtor deserves to be admitted.

11. In the matter of Kiran Global Chem Limited [MA/1298/2019 in IBA/130/2019]

Case Citation: [2019] ibclaw.in 08 NCLT

It is an MA filed by Resolution Professional of M/s. Kiran Global Chem Limited seeking permission to the Corporate Debtor to have access to its GST Portal Account to file GST Returns during the period of CIRP and to allow the Applicant to pay the net GST liability from the date of commencement of CIRP till its completion disregarding non-payment of arrears dues of GST for the period prior to commencement of CIRP.

2. Counsel appearing on behalf of 1st Respondent (The Assistant Commissioner (ST), Anna Nagar East, Chennai) stated that the above reliefs cannot be granted because no provision has been set out in GST Act to accept current dues before clearing past dues, therefore this application is liable to be dismissed.

3. On hearing the above submissions of Applicant as well as the 1st Respondent Counsel, it appears that any company once it has gone into CIRP, if at all the Corporate Debtor is to be run as a going concern, it can be obligated to pay the taxes from the date of initiation of CIRP. As to the dues of pre-admission period, the creditors, including Tax authorities, are entitled to make a claim against the Corporate Debtor as mentioned in the Insolvency and Bankruptcy Code.

4. In view thereof, if the Corporate Debtor’s GST Portal is blocked, it is difficult to the Corporate Debtor to generate bills falling within the ambit of GST and pay the taxes for the post-admission period.

5. Since law is clear that Tax authorities fall within the ambit of the Operational Creditor, as to the pre-admission claims are concerned, they are at liberty to make their claims before the Resolution Professional instead of insisting upon the Resolution Professional to pay the pre-admission dues before accepting the tax liabilities arising during the CIRP period.

6. As to provisions of GST Act, since Section 238 of the Insolvency and Bankruptcy Code having categorically mentioned that IBC will have over riding effect on all other laws which are in contravention to the provisions of the IBC, R1 cannot raise an objection saying since no provision has been made in GST or in its software to accept such accounts, the business happening in the market after initiation of CIRP through debtor company will come to stand still and in such situation no company under CIRP can function as a going concern.

7. In view thereof, we hereby direct all the Respondents including the 13th Respondent to allow the Corporate Debtor to have access to its GST Net Portal Account, permit the applicant to file GST Returns of the Corporate Debtor generated after commencement of CIRP without insisting upon payment of past dues of GST during the pre-admission period and accept net GST liability after availing eligible ITC from the date of commencement of CIRP and adjust such GST payment so remitted by the Corporate Debtor towards discharge of GST during the CIRP period.

8. Accordingly, this MA/1298/2019 is hereby disposed of.

12. Indus Biotech Private Limited v Kotak India Venture Fund –I [IA No. 3597/2019 in CP(IB)No. 3077/2019]

Case Citation: [2020] ibclaw.in 29 NCLT

Facts and contentions of parties

The single-point reference in the Interlocutory Application (IA) is that this Adjudicating Authority refer the parties in the main CP (IB) No.3077/2019 to arbitration for settling their disputes. The IA has been filed under section 8 of the Arbitration & Conciliation Act, 1996.
The underlying Company Petition has been filed by Kotak India Venture Fund-I under section 7 of the IBC, seeking to initiate CIRP against Indus Biotech Private Limited on the ground that the Corporate Debtor had failed to redeem the Optionally Convertible Redeemable Preference Shares (OCRPS) on or before 15.04.2019 in terms of the Share Subscription and Shareholders Agreement (SSSA) dated 20.07.2007. Schedule ‘J’ of the SSSA is at p.272 of the Paper Book details the terms of the OCRPS.
The Petitioner has alleged that there was a default on the part of the Respondent in redeeming the OCRPS, which, according to the Petitioner, works out to ₹367,07,50,000/- (Rupees three hundred and sixty-seven crore seven lakh and fifty thousand only). The date of default is stated to be 16.04.2019.
On the point of law, Mr Mustafa Doctor, learned Senior Counsel appearing for the Applicant/Respondent, drew our attention to the provisions of section 8 of the Arbitration & Conciliation Act, 1996,1 and stated that it is mandatory in nature. The undisputed fact is that the SSSA contains an arbitration clause which is wide enough to cover the dispute between the parties. This is in the nature of a commercial dispute. It is settled law that courts must always lean in favour of enforcing arbitration agreements, since that is the bargain struck by the parties. He submitted that the Hon’ble Supreme Court has reiterated this legal principle in a number of judgments.
Mr Mustafa Doctor submitted that the underlying Company Petition is in the nature of a ‘dressed-up’ Petition, inasmuch as the real dispute between the parties is with regard to matters pertaining to the agreement reached between the parties and interpretation of its various clauses. The Respondent/Financial Creditor is not a Financial Creditor of the Applicant. The claim of the Respondent/ Financial Creditor is only a misconceived attempt to pressurise the Applicant/Corporate Debtor to succumb to extortionate demands, and the claim can be determined by arbitration. The provisions of the IBC ought not to be used as a pressure tactic to extort money from profitable companies. The Applicant/Corporate Debtor has a right under section 8 of the Arbitration & Conciliation Act, 1996, to make an application at the first available opportunity before a judicial forum, to seek a reference to arbitration, Mr Mustafa Doctor submitted. The present IA is in this context.
In support of his contention regarding ‘dressed up’ petition, Mr Mustafa Doctor relied on the judgment of the Hon’ble Bombay High Court in Rakesh Malhotra vs Rajinder Kumar Malhotra, 2014 SCC OnLine Bom 1146, decided on 20.08.2014 wherein it was held that the power to refer the disputes in a petition that is mischievous, vexatious, mala fide and ‘dressed up’ to arbitration is always retained.
Mr Fredun E DeVitre, learned Senior Counsel for the Respondent/ Financial Creditor, submitted that the only issue to be decided in the present is this:

“Are the reliefs claimed in the petition capable of being referred to arbitration or being granted by an arbitral tribunal?”

Mr Fredun E DeVitre submitted that a section 7 IBC petition belongs to that class of litigation which are incapable of being referred to arbitration. These are matters in rem, as stated by the Hon’ble Supreme Court in Pioneer Urban Land and Infrastructure Limited & another v Union of India & others.
Matters in rem are inherently incapable of being referred to arbitration. Examples are probate, criminal matters, matrimonial matters, winding up etc. The initiation of CIRP cannot be granted by an arbitrator. A section 7 petition is not for recovery of debts. The IBC is a code for dealing with insolvency, either for revival or for liquidation. Once there is a debt and default based on a claim, then the court should decide to admit. It is the exclusive mandate of this court. The existence of an arbitration clause can never affect a section 7 application, which has to be decided independently by this Authority, Mr Fredun DeVitre submitted.
Mr Fredun DeVitre invited attention to the judgment of the Hon’ble Supreme Court in Haryana Telecom v Sterlite Industries (India) Limited.
The ratio decidendi of that judgment was that while deciding the scope of a section 8 petition under the Arbitration & Conciliation Act, 1996, was that only such disputes or matters which an arbitrator is competent or empowered to decide, can be referred to arbitration, Mr Fredun DeVitre submitted.
Mr Fredun DeVitre also drew the court’s focus to the judgment of the Hon’ble Supreme Court in Booz Allen and Hamilton Inc v SBI Home Finance Limited & others, in support of his argument that only where the subject matter of the suit is ‘arbitrable’ can the parties be referred to arbitration (para 20 of the judgment). He also submitted that para 34 of the judgment lays down the test for arbitrability, which are as follows: –

(a) Whether the disputes are capable of adjudication and settlement by arbitration?
(b) Whether the disputes are covered by the arbitration agreement?
(c) Whether the parties have referred the disputes to arbitration?
If the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration under section 8 of the Arbitration & Conciliation Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes.

Mr Fredun DeVitre also drew strength from para 51 of the Booz Allen judgment, in support of his line of argument that if there are some matters which are arbitrable and some matters which are nonarbitrable, even in those cases, it should not be referred to arbitration. The judgment also goes on to quote with approval the view in Sukanya Holdings (P) Ltd v Jayesh H. Pandya,12 that bifurcation of the subject matter of an action brought before a judicial authority is not allowed (para 52-Booz Allen judgment).

NCLT findings

At the outset, we must say that the subject matter of this IA – seeking a reference to arbitration in a petition filed under section 7 of the IBC – is something that is res integra. The facts of the case are, however, undisputed, and therefore, we seek to address the points of law that need to be addressed. In our endeavour to arrive at a decision, we have tried to be guided by the decisions of the constitutional courts under other laws, and the underlying reasons in arriving at those decisions. The case law cited by both Senior Counsel is a good starting point in this quest.

Booz Allen lays down three tests of arbitrability of a dispute in para 34 of the judgment –
(a) Whether the disputes are capable of adjudication and settlement by arbitration?
(b) Whether the disputes are covered by the arbitration agreement?
(c) Whether the parties have referred the disputes to arbitration?
In para 36 thereof, the well-recognised examples of non-arbitrable disputes have been laid down to be –
(i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
(ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;(iii) guardianship matters;
(iv) insolvency and winding-up matters;
(v) testamentary matters (grant of probate, letters of administration and succession certificate); and
(vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.

The Hon’ble Supreme Court added a seventh category to the six categories of cases in Booz Allen, vide its judgment in Vimal Kishor Shah & others v Jayesh Dinesh Shah & others. The Hon’ble Court held that cases arising out of trust deed and Trusts Act cannot be decided by arbitration (para 54 of the judgment).

Question before the NCLT

Will the provisions of the Arbitration & Conciliation Act, 1996 prevail over the provisions of the Insolvency & Bankruptcy Act, 2016? If so, in what circumstances?

Decision of the NCLT

It is settled law that generalia specialibus non derogant – special law prevails over general law.
In Gujarat Urja Vikas Nigam Limited v Essar Power Limited, the Hon’ble Supreme Court held that the Arbitration & Conciliation Act, 1996 is a general law. The court in that case was considering a question under the Electricity Act. It held that the Electricity Act being a special statute would have overriding effect over the Arbitration & Conciliation Act, which was the general statute. However, this decision was overturned by the Hon’ble Supreme Court in Consolidated Engineering Enterprises v Principal Secretary, Irrigation Department & others, wherein the Hon’ble Court held that the Arbitration & Conciliation Act is a special law, consolidating and amending the law relating to arbitration and matters connected therewith or incidental thereto.
In Hindustan Petroleum Corporation Limited v Pinkcity Midway Petroleums, the Hon’ble Supreme Court held that where an arbitration clause exists, the court has a mandatory duty to refer dispute arising between the contracting parties to arbitrator. It quoted with approval the decision of the same court in P Anand Gajapathi Raju & others v PVG Raju (dead) & others, wherein it was held that the language of section 8 of the Arbitration & Conciliation Act, 1996, is peremptory and the court is under an obligation to refer parties to arbitration.
The Preamble of the IBC reads that it is an Act to “consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons … in a time-bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, available of credit and balance the interests of all the stakeholders ….” The Preamble of the Arbitration & Conciliation Act, 1996, reads that “it is an Act to consolidate and amend the law relating to domestic arbitration … as also to define the law relating to conciliation ….”
The rules of interpretation are fairly well-settled: –

(1) When a provision of law regulates a particular subject and a subsequent law contains a provision regulating the same subject, there is no presumption that the later law repeals the earlier law. The rule making authority while making the later rule is deemed to know the existing law on the subject. If the subsequent law does not repeal the earlier rule, there can be no presumption of an intention to repeal the earlier rule.

(2) When two provisions of law – one being a general law and the other being special law govern a matter, the court should endeavour to apply a harmonious construction to the said provisions. But where the intention of the rule making authority is made clear either expressly or impliedly, as to which law should prevail, the same shall be given effect.

(3) If the repugnancy or inconsistency subsists in spite of an effort to read them harmoniously, the prior special law is not presumed to be repealed by the later general law. The prior special law will continue to apply and prevail in spite of the subsequent general law. But where a clear intention to make a rule of universal application by superseding the earlier special law is evident from the later general law, then the later general law, will prevail over the prior special law.

(4) Where a later special law is repugnant to or inconsistent with an earlier general law, the later special law will prevail over the earlier general law.

In Innoventive Industries Limited v ICICI Bank & another, The Hon’ble NCLAT held that sub-section (5) of section 7 of the IBC provides for admission or rejection of application of a financial creditor where the adjudicating authority is satisfied that the documents are complete or incomplete. The Adjudicating Authority, post ascertaining and being satisfied that such a default has occurred, may admit the application of the financial creditor. In other words, the statute mandates the Adjudicating Authority to ascertain and record satisfaction as to the occurrence of default before admitting the application. Mere claim by the financial creditor that the default has occurred is not sufficient. The same is subject to the Adjudicating Authority’s summary adjudication, though limited to ‘ascertainment’ and ‘satisfaction’ (paras 57 & 58). Therefore, in a section 7 petition, there has to be a judicial determination by the Adjudicating Authority as to whether there has been a ‘default’ within the meaning of section 3(12) of the IBC.
In the present case, the dispute centres around three things – (1) The valuation of the Respondent/Financial Creditor’s OCRPS; (2) The right of the Respondent/Financial Creditor to redeem such OCRPS when it had participated in the process to convert its OCRPS into equity shares of the Applicant/Corporate Debtor; and (3) Fixing of the QIPO date. All of these things are important determinants in coming to a judicial conclusion that a default has occurred. The invocation of arbitration in a case like this seems to be justified.
Looking at the contention raised, and that the facts are not in dispute, we are not satisfied that a default has occurred. We note Mr Mustafa Doctor’s statements that the Applicant/Corporate Debtor is a solvent, debt-free and profitable company. It will unnecessarily push an otherwise solvent, debt-free company into insolvency, which is not a very desirable result at this stage. The disputes that form the subject matter of the underlying Company Petition, viz., valuation of shares, calculation and conversion formula and fixing of QIPO date are all arbitrable, since they involve valuation of the shares and fixing of the QIPO date. Therefore, we feel that an attempt must be made to reconcile the differences between the parties and their respective perceptions. Also, no meaningful purpose will be served by pushing the Applicant/Corporate Debtor into CIRP at this stage.

We further note that the Arbitration Petition bearing Arbitration Case No.48/2019 filed by the Applicant/Corporate Debtor is pending consideration before the Hon’ble Supreme Court for appointment of an arbitrator.
For all the above reasons, the present IA No.3597/MB.I/2019 is allowed. As a natural corollary, the underlying Company Petition bearing CP No.3077/MB.IV/2019 is incapable of being admitted at this stage, and is, accordingly, dismissed

13. In the matter of Tax Recovery Officer 4 & Anr. [Item No. 301, IA-992/2020 in CP/294/2018]

Case Citation: [2020] ibclaw.in 75 NCLT

It is an application filed by the liquidator for de-freeze of the Accounts of the Corporate Debtor lying with Indian Bank at Prabhadevi Branch and at Barur Branch, Mumbai because the Respondent/ Tax Recovery Officer (4) Mumbai attached the Accounts aforementioned by an attachment notice dated 21.03.2017 stating that the Corporate Debtor-company failed to pay the arrears payable by the Corporate Debtor, therefore ordered attachment.

As to Section 178 of Income Tax Act, it has been amended incorporating a clause in the section stating that IBC will have overriding effect over the mandate of Section 178, therefore I hereby agree with the contention of the liquidator counsel and allow this application with a direction to the Bank to de-freeze the accounts and release the amounts of the corporate debtor lying with the respective bank accounts within 30 days hereof. Accordingly, this application is allowed.

14. In the matter of Pal Infrastructure & Development Pvt. Ltd, [IA No. 2504/2019 and other applications]

Case Citation: (2020) ibclaw.in 133 NCLT

Replacement of Resolution Professional

In I.A. No. 2504 of 2019, the counsel appearing on behalf of three Allottee Associations has stated that in the second CoC meeting, the class of Allottees (Homebuyers) comprised of 72.394% voting in the CoC voted for replacement of the IRP with the RP aforementioned with a voting share of 38.92% of the class of allottees comprising of 72.394%. But whereas the IRP has not moved an application for replacement on the premise that the allottees voted in favour of the approval is far below 66% of voting share of the total voting without taking Sub Section 3(A) of Section 25A of the Code into consideration though it has been specifically stated in the said Section that if a decision is taken by a vote of more than 50% voting share of the financial creditors of a class represented by Authorized Representative, the vote cast by the Authorized Representative on behalf of the Respective class is to be treated as 100% voting on behalf of Respective class of financial creditors who voted for more than 50% in favour of the approval. The applicant counsel has further stated that the removal of IRP is complete discretion of the CoC and the same required no reason or justification to be recorded in this regard. The counsel has also placed the ratio decided by Hon’ble the Supreme Court in Pioneer Urban Land and Infrastructure Ltd. v. Union of India (Writ Petition (Civil) No. 43 of 2019, decided on 09.08.2019) to say that whenever a class of creditors voted for more than 50% then such voting shall be treated as 100% on behalf of the Respective class.

As against this submission, the IRP has submitted that out of total Homebuyers not even half of them were present at the time of voting for replacement of the IRP, therefore though more than 50% voting has come out of the allottees attended to the meeting, it cannot be construed as 100% voting on behalf of the class of Homebuyers. He has further stated that the other financial creditors comprised of remaining 23% having voted against the resolution for replacement of IRP and for appointment of Mr. Ganga Ram Agarwal as Resolution Professional, therefore this voting shall not be taken into consideration for approval of replacement of the IRP with Mr. Ganga Ram Agarwal as Resolution Professional.

When this Bench has asked the IRP as to whether meeting has taken place and voting has been done as stated by the applicant counsel, the IRP has conceded that in the second CoC meeting resolution was proposed and voted as stated by the applicant counsel.

On looking at this factual scenario against the legal proposition envisaged under the Code, it is evident that if a class of creditors represented by Authorized Representative voted for more than 50% on a resolution, such voting is to be considered as 100% by the respective class of creditors in the resolution passed by the CoC. In this case, for the class of creditors were present in the meeting voted for more than 50% for replacement of IRP with the RP, such approval with more than 50% shall be treated as 100% on behalf of the Homebuyers to the resolution passed by the CoC as contemplated under Section 25A (3A) of the Code

In view of the aforesaid legal proposition and the existing factual situation, we are of the view that no further enquiry is required, therefore we arrive to a conclusion that the resolution passed by the CoC is with more than 66% for approval of the replacement of IRP with RP, hence this application is hereby allowed for replacement of Mr. Dilip Kumar Niranjan (IRP) with Mr. Ganga Ram Agarwal as RP. Accordingly, this I.A. No. 2504 of 2019 is hereby allowed by appointing Mr. Ganga Ram Agarwal as RP.

Since these home buyers who are said to have made their claims after the CoC meeting for approval of resolution for appointment of the RP, subsequent claimants making an allegation against past action cannot invalidate the decisions taken by the CoC. Moreover, it appears all these advocates file vakalatnamas on behalf of associations without having any vakalatnama directly from the respective home buyers. The IRP who is supposed to remain neutral, has come against the CoC as if he has personal interest in the affairs of the CD.

It is evident on record that if any allegation is there against the proposed RP, if at all they have any strength for change of the RP, they can place their proposal before the CoC with 33 per cent to pass a resolution for replacement of the RP but not by making bald allegation and not allowing this bench to pass orders for more than 6 months. By this litigation, for the last six months there is no progress in CIRP, in view thereof this application is hereby dismissed as misconceived.

15. In the matter of Om Boseco Rail Products Limited [CP(IB)No. 1735/KB/2019]

Case Citation: [2020] ibclaw.in 12 NCLT

Facts of the case

The applicant Foseco India filed this application under Sec.9 of the Insolvency and Bankruptcy Code, 2016 (in short IB Code) for initiation of corporate insolvency resolution process against the corporate debtor, viz., om Boseco Rail Products Limited for the alleged default in payment of operational debt to the tune of 90,00, 919.10.

Question before NCLT

Whether Notification u/s 4 of the Code raising the minimum default limit be applicable to the application spending for admission?

Decision of the NCLT

NCLT held that it is a well settled law that a statute is presumed to be prospective unless it is held to be retrospective, either expressly or by necessary implication. When the amendment to section 4 of IBC was, inserted a proviso enhancing the pecuniary jurisdiction for filing applications as against small and medium scale industries nowhere in the notification mentioned that its application will be retrospective. Therefore, it appears to me that the amendment shall be considered as prospective and not retrospective.

The application filed by the Operational Creditor under section 9 of the Insolvency & Bankruptcy Code, 2016 for initiating Corporate Insolvency Resolution Process against the Corporate Debtor, Om Boseco Rail Products Limited is hereby admitted.

16. In the matter of Chemizol Additives Pvt. Ltd. [CP(IB)No. 62/BB/2020]

Case Citation: [2020] ibclaw.in 24 NCLT

Facts of the Case

Mr. Mahesh. M, the Learned Counsel for the Petitioner, while reiterating various averments made in the company petition, as briefly stated supra, has further submitted that the Petitioner being an small employee living on the salary, has no other remedy except to approach this Adjudicating Authority hoping instant justice. The engagement of the Petitioner as an employee, and the salary due from the Respondent is not at all in dispute. The Petitioner tried his level best to recover the salary due before invoking the provisions of the Code seeking to initiate CIRP against the Respondent. Further, the Respondent has committed a similar defaults in respect of the several employees, who have filed cases against it. The Adjudicating Authority may take serious view of the matter as the Respondent even failed to respondent even to the notice issued by it. Therefore, he urged the Adjudicating Authority to initiate CIRP in respect of the Respondent as prayed for.

Decision of the Adjudicating Authority

For an aggrieved party, knocking at the doors of Judiciary would be last resort. Such party should exhaust alternative remedy available virtue of Agreement(s) they themselves have voluntarily executed and the terms and conditions in those Agreement(s) would bind them. In the instant case, as stated supra, approaching this Adjudicating Authority is not only the remedy available for the Petitioner as per the terms of agreement. In terms of Clause 6 of the Agreement, as stated supra, both the parties agreed to settle the issue by resorting to Indian Arbitration and Conciliation Act 1996. Therefore, the Petitioner can also avail alternative remedy available in the Agreement, which is binding on both the parties. Since the Petitioner has relied upon the very terms and conditions of the Agreement in support of its claim, it cannot selectively choose to insist payment in terms of the agreement, without making/ invoking provisions of alternative remedy.

It is a settled position of law that the provisions of the Code cannot be invoked to settle the dispute(s) or to recover the alleged outstanding amount. Admittedly the Petitioner has not invoked other remedies available except the provisions of the code by issuing demand notice. The mere acceptance of the debt in question by the Respondent would not automatically entitle the Petitioner to invoke the provisions of the Code, unless the debt and default is undisputed and proved it to the satisfaction of the Adjudicating Authority. As per the copy of Annual Returns for the Financial year 2017-18, filed by the Petitioner in respect of the Respondent Company, its turnover and net worth are Rs. 103,322,162 and Rs. respectively. Therefore, the Respondent Company prima facie appears to be solvent Company so as to resolve the issue of outstanding amount in question. The NCLT is conferred power, even to refer the matter pending before it, to Mediation and Conciliation. U/s 442 of the Companies Act, 2013. The Adjudicating Authority, being NCLT, U/ s 60(1) of the Code, can suo motto refer the matter to either Mediation and Conciliation or to Arbitration to settle the dispute.

Since, there is already Arbitration clause is available in the Agreement in question, the Petitioner can be permitted to invoke Arbitration clause in respect of the issue in question.

For the aforesaid reasons and circumstances of the case, and the law on the issue, we are of considered view that instead of initiating ex-parte CIRP proceedings, the instant Company Petition can be disposed Of with the directions as mentioned below, duly following the principle of ease Of doing business.

In the result cp (1B) No. 62/BB/ 2020 is disposed of with the following directions:

(1) The Respondent is directed to settle the issue amicable, failing which, the Petitioner is at liberty to invoke the arbitration clause as available under Clause-6 of the Employment Agreement dated 01.09.2015, and the Respondent is directed to participate in such Arbitration, as per law, in order to resolve the issue rather than to aggravate the issue.

(2) The Petitioner is also granted liberty to invoke appropriate remedy, as per law, in case, the Petitioner is aggrieved by the proceedings passed during Arbitration to be invoked in pursuance to this order.

(3) No order costs.

17. In the matter of Bharati Defense and Infrastructure Ltd. [CP 292/I&B/NCLT/MAH/2017]

Case Citation: (2017) ibclaw.in 26 NCLT

NCLT held that as to record of default with information utility, this point has already been answered saying that nonexistence of record of default from information utility will not make this Petition invalid if the Financial Creditor furnishes the record of default as specified under any other two modes specified in the Regulation 8 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Since the Financial Creditor has furnished the record of default by showing Financial Contract, Financial Statements of the Debtor Company and the accounts of IDBI and the Assignment Agreement assigning the debt to this applicant, this Bench believes that the applicant furnished the material as specified under law. As to non production of identification number of the Financial Creditor, since it is a Trust that is making the claim, there cannot be any possibility to have an identification number like CIN that companies will have. As to computation of the claim defaulted, the applicant has annexed Schedules to the form, since those annexure have been mentioned in the form, those annexure have to be construed as part of the form disclosing computation of the default claim. It is true that credit information agency report had initially not been filed but whereas subsequently the applicant filed CIBIL report disclosing that this Debtor Company has not repaid loan to IDBI at any point of time therefore, the Debtor Company cannot say that the record lying with Credit Information Agency has not been filed. Since the present applicant is not an NBFC, there is no obligation to be recorded with Credit Information Agency therefore, it is not even an obligation upon this Applicant to place any such record maintained by Credit Information Agency. Inspite of it, this applicant has furnished that information as well. The applicant has filed all the copies of the ledgers maintained by IDBI Bank until this debt has been assigned to the applicant herein, therefore, this debtor company could not have stated that entries shown in the ledgers of IDBI Bank are not in accordance with Bankers Books Evidence Act, 1891.In view of the reasons given above, this Bench has not found any merit in the objection raised by the Corporate Debtor.

Insolvency Exam Dashboard

Chapter	Topic	Content
CH-2: General & Definitions
		Short Note on Insolvency and Bankruptcy Code, 2016 (IBC, 2016)
		Dispute and Existence of a Dispute
		Operational Debt and Operational Creditor
		Persons who may initiate Corporate Insolvency Resolution Process(CIRP)
		Analysis provisions of Limitation Act, 1963 with respect to Insolvency and Bankruptcy Code, 2016
CH-3: CIRP
	Topic-1 : CIRP Application & Withdrawal
		Analysis of Minimum amount of default under Section 4 of IBC
		Procedure of filing application by Financial Creditor before NCLT under Section 7 of the IBC
		Procedure of filing application by Operational Creditor before NCLT under Section 8 & 9 of the IBC
		Initiation of CIRP by corporate applicant under Section 10 of the IBC
		Analysis of withdrawal of CIRP proceeding pursuant to settlement under Section 12A of Insolvency and Bankruptcy Code, 2016 (IBC)
	Topic-2 : Declaration of moratorium and public announcement
		Declaration of moratorium and public announcement [Section 13, 14 & 15 of the IBC]
		All about the Moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 including judicial pronouncements
	Topic-3 : Appointment and tenure of IRP & RP
		Appointment and tenure of Interim Resolution Professional and Resolution Professional [Section 16, 22 & 27 of the IBC]
		Role of an Interim Resolution Professional and Resolution Professional
	Topic-4 : Management of affairs by IRP
	Topic-5 : Receive and collate all the claims submitted by creditors
	Topic-6 : Committee of creditors and meetings
		Constitution of Committee of Creditors under Section 21 of IBC
		Role of Committee of Creditors & It’s Commercial Wisdom
		Analysis of provisions on Authorised Representative under IBC
		Meetings & Voting of the Committee of Creditors under Section 24 of the IBC
	Topic-7 : RP to conduct the CIRP and manage the operations
		Resolution Professional to conduct the CIRP and manage the operations of the Corporate Debtor
		Insolvency Resolution Process Costs & Essential supplies
		To identify preferential transactions under Sec. 43 of the Code in any CIRP, step to be taken by a Resolution Professional
	Topic-8 : CIRP and Resolution Plan
		Information Memorandum, Expression of Interest, Request for Resolution Plans & Resolution Plans
		Role of the prospective resolution applicant
		Persons not eligible to be Resolution Applicant [Sec. 29A of IBC]
		Submission and approval of the Resolution Plan
		Liability for prior offences under Section 32A of the IBC
CH-4 : Liquidation Process
	Topic-1 : Initiation of Liquidation
	Topic-2 : Appointment & Remuneration of Liquidator
		Appointment & Remuneration of Liquidator under Sec. 34 of IBC
		Powers and duties of Liquidator under Sec. 35, 37 of IBC
	Topic-3: Liquidation Estate
	Topic-4: Public announcement, Preliminary report, Early dissolution and Progress reports under Liquidation
	Topic-5: Claims under Liquidation
	Topic-6: Preferential, undervalued and Extortionate Credit Transactions
		Preferential, Undervalued and Extortionate Credit Transactions under Sec. 43, 44, 45, 46, 47, 48, 49, 50, 51 of IBC
		To identify preferential transactions under Sec. 43 of the Code in any CIRP, step to be taken by a Resolution Professional
	Topic-7: Secured Creditor in Liquidation Proceedings
	Topic-8: Realisation of Assets in Liquidation Proceedings
	Topic-9: Proceeds of Liquidation and Distribution of Proceeds
CH-5 : Personal Guarantor
		Chapter VIII Indemnity and Guarantee of Indian Contract Act, 1872
		All about Personal Guarantor under IBC Part-I
		All about Personal Guarantor under IBC Part-II
		Insolvency Resolution Process Regulation
		Bankruptcy Process for PG Regulation
		IRP Application to AA Rules
		Bankruptcy Process Application to AA Rules