Landmark Judgments by the Hon’ble NCLAT 1st August to 15th August, 2021

1. Harish Taneja, RP of Perfact Color Digital Prints Private Limited v. Dakshin Haryana Bijli Vitran Nigam (DOJ 05.08.2021)

The instant appeal was filed by the Resolution Professional of the Corporate Debtor for resumption of electricity to keep it as a going concern under the protection of section 14 of Insolvency and Bankruptcy Code, 2016 along with the Regulation 32 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. It was observed by the Hon’ble NCLAT that the use of electricity by the CD during the CIRP period would be an essential supply only to the extent it is not a direct input to the output produced or supplied by the CD. It was held that that use of electricity for running the printing business of the Corporate Debtor cannot avail protection of essential supply under the prescribed provisions.

The Hon’ble Tribunal further affirmed that the impugned order of the Adjudicating Authority is justified and directed to give liberty to the Appellant to specifically put on record particulars relating to the electricity supply required which would not be direct input to the output produced by the Corporate Debtor and disposed of the matter.

The Hon’ble Tribunal accordingly dismissed the application.

Judgment link: https://bit.ly/37MoHt2

2. Pawan Kumar Ex-Director and Shareholder Vogue Clothiers Pvt. Ltd. v. Utsav Securities Pvt. Ltd. (DOJ: 03.08.2021)

In the current Hon’ble NCLAT held that in the absence of Financial Contract defined in Rule 3(1)(d) of the AAA Rules, 2016 between the corporate debtor and financial creditor, a transaction cannot be termed as financial debt.  The instant appeal has been invoked against an application filed under section 7 by a Non-Banking Finance Company, the Financial Creditor of the Corporate Debtor which was admitted by the Adjudicating Authority. The Corporate Debtor through ex-Director challenged the admission of the Insolvency application before this Hon’ble Tribunal on the ground that there is lack of agreement/documents which can substantiate the claims of the NBFC as a financial creditor under the Code.

It was observed by the Hon’ble Tribunal that the Adjudicating Authority is obliged to investigate the nature of the transaction and should be very cautious in admitting the Application in order to prevent taking undue benefit of provisions of IBC to detriment of the rights of legitimate creditors as well as to protect the Corporate Debtor from being dragged into CIRP with mala fide intention. Further, relying on the RBI guideline dated 18.02.2013 and in the matter of Prayag Polytech Pvt. Ltd. v. Gem Batteries Pvt. Ltd, it was ratified that there has to be a financial contract as per the Rule 3(1)(d) wherein it is a must that the corporate debtor and financial creditor set out the terms of a Financial Debt including the tenure of the Debt, interest payable and the date of repayment. In the absence of such Financial Contract, the application under section cannot be admitted.

Accordingly, the impugned order was set aside and the appeal was allowed.

Judgment link: https://bit.ly/3iP6Bgv

3. MSC Meditteranean Shipping Company S.A. v. CA Kannan Tiruvengadam, RP of BRG Iron & Steel Co. Pvt. Ltd. (DOJ: 10.08.2021)

In the present matter, a shipping company delivered large number of containers to the Corporate Debtor. The CD was undergoing proceedings under SICA Act and the Hon’ble Calcutta High Court on 16.09.2016 inter alia directed that the container be de-stuffed and the goods be sold. On 19.07.2018, an Order allowing the prayer of the CD to bid for the goods in an auction was allowed. The sale proceeds from auction were invested by the Customs in an interest bearing account in compliance with the Order of the Hon’ble High Court of Kolkata.

The CIRP proceedings against the CD had commenced on 05.03.2019. On 01.07.2019, the Resolution Professional filed application for restraining the Customs Department from selling the goods de-stuffed from the 256 containers. The question before this Hon’ble Tribunal was whether the Adjudicating Authority was justified in directing the amount to be made over to the CD, in the light of claims made by the Shipping Company and the Customs Dept. and whether it was justified to make over the Auction proceeds to the CD.

It was held by the Hon’ble NCLAT that the goods are the property of the CD and thus covered under section 14 of the Code. Moratorium has application on the subject property as it is owned by the CD and the Resolution Professional under Section 18(1)(f) & (g) of the Code has the right to take control and custody of the asset. Relying on the SC judgment of Mr. Anand Rao Korada Resolution Professional’ v. M/s. ‘Varsha Fabrics (P) Ltd. & Ors., it was further held that the provisions of IBC vest exclusive jurisdiction on the NCLT and NCLAT to deal with all issues pertaining to the Insolvency Process of a ‘Corporate Debtor’ and the mode and manner of disposal of its assets. It was observed that if the assets of the CD are alienated during the pendency of the proceedings under IBC, it would seriously jeopardize the interest of all the stakeholders.

Accordingly, the appeal was partly allowed as the penalty imposed by adjudicating authority was set aside and the Customs Dept. was allowed to submit its claim to the Liquidator and was to be treated as operational creditor.

Judgment link: https://bit.ly/3k21vNn

4. BRS Ventures Investment Ltd. v. Registrar of Companies, Guwahati (DOJ: 09.08.2021)

In the present matter, the appeal is preferred by the Resolution Applicant of the corporate debtor against whom the CIRP was initiated in October 2017. The Appellant enquired with the Registrar of Companies, Guwahati (RoC) about the jurisdiction of the ACIL within which it falls to allow it to increase the authorized share capital without paying any fees or stamp duty in accordance with Resolution Plan.

Hon’ble NCLAT held that the Adjudicating Authority while approving the Resolution Plan has expressly covered the issues as required for the approval of the plan and nowhere in the plan is such waiver explicitly or implicitly provided for. It was further observed that when a new company takes over and starts at a new slate and take certain management decision then everything cannot be exempted at a later stage as it is a business decision to expand the business and based on those probabilities of cash inflow, cash outflow is provisioned for.

Accordingly, the appeal was dismissed for the lack of merits.

Judgment link: https://bit.ly/2VZ4lKl

5. Kishore Bachuram Kapdi, Promoter & Director of the Suspended Board of M/s Afcan Impex Pvt. Ltd. v. Bank of Maharashtra (DOJ: 11.08.2021)

In the present matter, the Appellant approached the Hon’ble NCLAT against the impugned order which was passed ex parte by the Adjudicating Authority. It was contended by the Appellant that the date of default noted by the Adjudicating Authority was incorrect and must have been the date of NPA and as a result, the application under section 7 is time barred. The Resolution Professional pointed out the Balance and Security Confirmation Letters issued from the Corporate Debtor. Hon’ble Tribunal held that when date of NPA is 28.10.2016 and there is Balance Confirmation as mentioned above of 15.07.2019, the same is within three years. Calculating limitation period from 15.07.2019, Application under Section 7 filed on 28.07.2020 cannot be said to be time barred.

The Appellant reasoned his non-attendance in the hearing with being infected with Covid-19. Accordingly, the Hon’ble NCLAT held that when a Corporate Debtor is a company with multiple Directors it does not lie in the mouth of the Corporate Debtor to claim that one Director was suffering from COVID and hence the Corporate Debtor could not cause appearance before the Adjudicating Authority.

The Hon’ble Tribunal accordingly dismissed the appeal due to lack of substance.

Judgment link: https://bit.ly/3m3IQmQ

6. Mahesh Hardware & Pipes Pvt. Ltd. v. Jains & Alliance Palm Ventures Pvt. Ltd. (DOJ: 09.08.2021)

In the instant matter the Appellant approached the Hon’ble NCLAT against the impugned order of the Adjudicating Authority whereby the Appellant’s application under Section 9 was rejected on the ground that it was merely an attempt of debt recovery and strictly against the objective of IBC. The Hon’ble Tribunal was of the view that the Corporate Debtor has failed to prove that there exists any dispute between the parties in regard to the amount claimed by the Operational Creditor.

Thereafter, relying on the case of K. Kishan v. Vijay Nirman Company Pvt. Ltd it was clarified that once the Operational Creditor has filed an Application, which is otherwise complete, the Adjudicating Authority must reject the Application under Section 9(5)(2)(d) of the Code, if notice of dispute has been received by the Operational Creditor. The CD did not place on record any material to infer that the Operational Creditor has filed the claim prematurely or for extraneous considerations or as a substitute for debt enforcement procedures. The Hon’ble NCLAT observed that the CD has defaulted in paying more than one lakh and in absence of pre-existing dispute and the record being complete; it was held that the Application under Section 9 of the Code preferred by the Operational Creditor was fit to be admitted.

Accordingly, the Appeal was allowed with the aforesaid observations and directions without any costs.