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Landmark Judgments by the Hon’ble NCLAT 16th August to 31st August, 2022

Amit Jain Vs. Siemens Financial Services Pvt. Ltd (D.O.J- 23.08.2022)

In the instant case an Application under Section 95 of the Code was filed against the Personal Guarantor and accordingly interim moratorium under Section 96 was initiated and Resolution Professional was appointed. Aggrieved by the same an appeal was preferred before the Hon’ble NCLAT. The Appellant/ Personal Guarantor contended that since Section 10A bars initiation of proceedings against Corporate Debtor and that the same is applicable to Personal Guarantor as well. That protection under Section 10A has to be given interpretation to protect the Personal Guarantor, failing which the provision will become discriminatory. That the condition precedent for invoking insolvency against PG is default on part of Principal Borrower.

The issue that arose consideration was whether the benefit of Section 10A can also be claimed by a Personal Guarantor and an application under Section 95 shall be barred for a default which has arisen on or after 25.03.2020 till 24.03.2021? The Hon’ble NCLAT held that Section 10A will not be applicable to Section 95 of the Code i.e., to the Personal Guarantors and observed that if the legislature had intended to prohibit filing of an application under Section 95(1) they would have inserted a provision similar to Section 10A in Chapter III of Part III. Further, if the language of the statute is clear and unambiguous there is no need to look outside the statute and relied on “Nemai Chandra Kumar & Others vs. Mani Square Ltd. & Others, (2015)14 SCC 203” & “Commissioner of Agricultural Income Tax, West Bengal vs. Keshab Chandra Mandal, AIR 1950 SC 265”

Somesh Choudhary, Suspended Director at Global Fragrances Private Limited Vs. Knight Riders Sports Private Limited and Ors. (D.O.J.- 18.08.2022)

In the present matter the Appellant is aggrieved by the Order dated 05.07.2021 passed by Hon’ble AA wherein a Petition under Section 9 was admitted by the Hon’ble AA qua the issue of non-payment of “Minimum Guaranteed Royalties” on the ground that rights like Trademarks, copyrights, patent and rights in personam are capable to be included in the ambit of “goods” and hence the claim of Operational Creditor falls within the definition of “Operational Debt”.

The issue that arose for consideration before the Hon’ble NCLAT is that whether the non-payment of “Minimum Guaranteed Royalties” falls under the purview of “goods or services” as defined under Section 5(21) of the Code.

Hon’ble NCLAT held that granting exclusive right and license to the Appellant to use, manufacture, sell, distribute the product and further to use the trademark for packaging and promotion has direct connection with business operations. Hence, the Hon’ble NCLAT held that claim in respect of Goods and Services fall within the ambit of definition of “Operation Debt” as defined under Section 5(21) of the Code. The Hon’ble NCLAT also relied upon “Vikas Sales Cooperation Vs. Commissioner of Sales Tax (1996) 4 SCC 433” where the Apex Court examined the definition of “Goods” and observed that ‘even incorporeal rights like trademarks, copyrights are movable property’ and are included in the ambit of definition of “Goods” under the provisions of Sale of goods Act, 1930


Athena Demwe Power Ltd.  Vs. Abir Infrastructure Pvt. Ltd. (D.O.J- 17.08.2022)

In the present case Appellant and Corporate Debtor got into a contract and a mobilization advance was issued in the furtherance of the same. Subsequently CIRP was initiated against the Corporate Debtor.

The Appellant sought repayment of his amount by filing a claim before RP, firstly as FC and secondly as OC, and the same got rejected. In furtherance to the same the Appellant filed an Application claiming repayment of his amount before AA which was also dismissed vide Order dated 12.01.2022. Aggrieved by the order of the AA the Appellant filed an appeal before Hon’ble NCLAT which answered the following issues-

(i) Whether the mobilization advance would amount to financial debt under section 5(8) or Operational debt under Section 5(21) of the Code?

It was held by Hon’ble NCLAT that Mobilization advance was not disbursed against the consideration for the time value of money which is essential as per section 5(8) of the Code. It further held that the advance given by Appellant will not fall under the category of Guarantee Deed under section 5(8)(i) as only the items mentioned in clause (a) to (f) of Section 5(8) can be termed as guarantee and none of them mentions mobilization advance as an ingredient. Therefore, Appellant’s claim as a Financial Creditor cannot be accepted. However while answering the issue pertaining to Operational Debt the tribunal relied on the case of M/s. Consolidated Construction Consortium Limited Vs. M/s. Hitro Energy Solutions Private Limited (2022) 09 SC. which fully attracts the facts of the present case, it was held that words “in respect of” in Section 5(21) has to be interpreted in a broad and purposive manner in order to include all those who provide or receive operational services from the corporate debtor and this will ultimately lead to an operational debt and as per this the mobilization advance given by the Appellant to the Corporate Debtor is clearly an Operational Debt.

Raghavendra G. Kundangar Vs. Shashi Agarwal the Liquidator of Bharat NRE Coke Ltd. (D.O.J – 24.08.2022)

In the present case shareholders of the CD preferred this appeal before the NCLAT challenging an order by the Hon’ble NCLT (Kolkata bench) in CP/IB-1340/2018. where the AA has refused the plea of the Appellant to declare a previous Order bad in law for the reason of its overruling by the Supreme Court in a subsequent decision.

Main contention of the Appellant was that once a decision of Hon’ble NCLAT is upheld by the Apex Court but is again overruled by the Apex Court in a subsequent Judgement in such situation the order passed by the AA in CP/IB-1340/2018 is bad in law and hence cannot be enforced.

NCLAT held that once a judgement attains finality it can only be recalled under 4 circumstances as laid down by the Apex Court in “Sri Budhia Swain & Ors. v. Gopinath Deb & Ors. [(1999) 4 SCC 396)]”

  1. i) The proceedings culminating into an order suffer from inherent lack of jurisdiction and such lack of jurisdiction is patent,
  2. ii) There exists fraud or collusion in obtaining the judgment,

iii) There has been a mistake of the Court prejudicing a party, or

  1. iv) A judgment was rendered in ignorance of the fact that a necessary party had not been served at all or had died and the estate was not represented.”

Hon’ble NCLAT emphasised that subordinate Court and Tribunal will also implement the law as declared by the Apex Court from the day it was so decided. The Appellate Tribunal also held that any judgement which have attained finality based on the law prevailing on the past date and rights and liability so decided in a previous judgement will not be affected by a future ruling. The purpose of a judgement is to settle the rights of the party based on the law prevailing on that day, once a proceeding is concluded and attained finality same cannot be reopened based on subsequent Judgement. Appeal dismissed

Jose M.M. V. V. State Bank of India (D.O.J. 30.08.2022)

In the instant case the Appellant is challenging the Common Order dated 24.02.2022, one arising out of the Application filed by FC under Section 95(1) of the Code, admitted by the AA seeking initiating CIRP of the CD and Insolvency and Resolution Process against the Appellant (Personal Guarantor).

And another Order dated 24.02.2022 passed by AA admitting the Application filed by FC under Section 7 of the Code, filed by the FC seeking initiation of the CIRP of the CD.

One of the important issue that arose before Hon’ble NCLAT :-

  1. Whether guarantee given as MD/Director of CD shall be treated as PG or otherwise.

This Hon’ble NCLAT relying upon the Judgement of Apex Court in Lalit Kumar vs Union of India (2021) 9 SCC 321 held that Personal Guarantee given by the MD and Director of the CD are enforceable as per the amended Section 2(e) of IBC and also by enforcing various provisions of the Code vide notification dated 15.11.2019, it was made possible to make PG to the CDs as party in Insolvency proceedings before the NCLT and NCLAT. Further the Hon’ble NCLAT referring to para 3 of Lalit Kumar (Supra) stating “these petitioners had furnished PG to the FC which led to release advances to various companies in which they (the petitioners) were associated as directors, promoters or in some instances, as chairman or managing directors

finally held that there is no doubt that PG given by Director and MD are enforceable hence there is no error committed by the AA in the impugned Order.