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Landmark Judgments by the Hon’ble NCLAT 1st September to 15th September, 2022

Rita Kapur Vs. Invest Care Real Estate LLP (D.O.J- 01.09.2022)

In the instant case, the application was filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 and was dismissed on the ground that the loan advanced by the appellant was converted into equity by her own act and conduct and as such it does not fall within the definition of financial debt which is due and payable. Aggrieved by the same, an appeal was preferred before the Hon’ble NCLAT and the same was upheld. The appellant thereafter preferred a Civil Appeal before the Hon’ble Supreme Court, where the appeal was allowed. The matter was remanded back to the NCLAT for fresh disposal. The issue that arose consideration before the Hon’ble NCLAT was whether the amount of loan is debt or; has the same been converted into capital?

The Hon’ble NCLAT held that the loan advanced by the appellant that has been converted into capital contribution without her consent cannot be treated as a capital contribution in order to dismiss the application filed by her under Section 7 of the Code. Accordingly, the matter was remanded back to Hon’ble NCLT for further proceedings after admitting the Petition filed under Section 7 of the Code.


Bhawanishankar Harishchandra Sharma Vs. Feedback Highways Omt Pvt. Ltd. – NCLAT New Delhi (D.O.J- 02.09.2022)

In the instant matter, an Appeal has been preferred against two orders dated 10.01.2018 and 25.02.2022 passed by the Hon’ble Adjudicating Authority (AA), arising out of the Application filed under section 9 of the Code. That the case was heard by one Bench and the order was pronounced by another bench, which had not heard the case.

The issue the arose consideration was whether a member of the bench who has not heard the arguments can pronounce the order of a reserved judgment. The Hon’ble NCLAT held that the law does not permit a case being heard by one entity and the order pronounced by another which has not heard the case at all. The Hon’ble NCLT held that when the order is passed by a bench in which one of the members was not a member of the bench who had heard the matter at the time when it was reserved, is patently illegal and void ab-initio.

The Hon’ble NCLAT also relied upon Gullapalli Nageswara Rao & Ors. Vs. Andhra Pradesh State Road Transport Corporation & Anr and Ergomax India Pvt. Ltd. Vs. The Registrar.


Sumat Kumar Gupta Vs. Committee of Creditors of M/S Vallabh Textiles Company Ltd. through Punjab National Bank (D.O.J – 02.09.2022)

In the instant case, an Appeal was preferred by the erstwhile Resolution Professional (RP) against the order of the Hon’ble Adjudicating Authority (AA) for appointment of a new RP. The reasons for replacement were not provided to the Appellant by the CoC and hence, the appellant filed an Appeal contesting that Section 27 of the Code does not exclude the applicability of principles of natural justice and that he was entitled to the opportunity of being heard.

The Hon’ble NCLAT held that the scheme of Section 27 nowhere provides for any opportunity to the Appellant/ RP for hearing. That that the erstwhile RP is not entitled to be heard by the Hon’ble AA before taking decision as there are no principles of natural justice being violated. Further, Section 27 does not provide that the RP is to be made party and issued notice before any decision is taken to appoint another RP. The Code stipulates timeline as an essential factor to be taken into consideration at all stages and such a provision would cause unnecessary delay. There is no warrant in the Code to permit a suit to be raised by the RP challenging his replacement by the CoC.


IDBI Bank Vs. Ms. Mamta Binani RP, Deccan Chronicle Holdings Ltd. (D.O.J – 02.09.2022)

In the instant case an appeal was preferred before the Hon’ble NCLAT against the order of the Hon’ble AA duly approving the Resolution Plan. The Appellant/ Dissenting financial creditor contended that the Resolution Plan submitted by Vision India Fund is illegal and discriminatory and in violation of the Code. Further, the Resolution Plan duly approved discriminates the financial creditor by providing less than the pro-rata entitlement. The questions that arose consideration before the Hon’ble NCLAT was whether a dissenting financial creditor is entitled to claim relief under Section 60(5), competent to challenge approval when the Resolution Plan has been approved and attained finality? & Whether, the alleged discrimination overrides the commercial wisdom of the CoC, if so, the order passed is liable to be set aside?

The Hon’ble NCLAT held that once the Resolution Plan is approved, the same cannot be withdrawn or modified under section 60(5). That the dissenting secured creditors cannot challenge an approved Resolution Plan and insist for payment of higher amount to it on the basis of security interest held by it over the Corporate Debtor. Further, the Tribunal does not have power of judicial review when the decision is taken by CoC in compliance of Section 30(2) and Regulations 37 & 38 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016. That the Tribunal is not entitled to interfere with such decision, except where the approved Resolution Plan is contrary to the provision of IBC or any other law which would fall within Section 61(3) of IBC. Accordingly, the Appeal was dismissed.


Shri Alok Kaushik, Resolution Professional of Cheema Spintex Vs. Cheema Spintex and Ors (D.O.J – 05.09.2022)

In the instant case, Company Petition under section 9 of Code was admitted wherein the Appellant was appointed as the IRP. That before formation of the CoC the OC and, the CD had entered in to settlement. In furtherance of the same, the IRP file an Application before the Hon’ble AA for withdrawal.  Since, the Hon’ble AA did not put a stay on the CIRP proceedings, the IRP proceeded to constitute the CoC. The IRP while continuing with the CIRP incurred expenses by engaging other professionals and deploying resources. The expenses incurred by the IRP were ratified by the CoC. However, while hearing the withdrawal application, Hon’ble AA made erroneous remarks about conduct of IRP observing that since withdrawal application was filed by the IRP himself, the IRP continued with the CIRP process and incurred expenses which were unjustifiable. Further, the Hon’ble AA classified costs incurred by the IRP as “essential” and “non-essential”. That vide the aforesaid order the IRP was to be paid only costs ratified by the Hon’ble AA as essential.

The issue arose on the justification of the continuance of CIRP proceedings by the IRP, when he had himself filed the Application for withdrawal. The Court held that IRP should have pursued for clear directions and guidance from the Tribunal rather than going forward with the CIRP and incurring further costs. Further, on the issue of disallowing certain CIRP expenses claimed by IRP and treating them as “non-essential”, The Hon’ble NCLAT observed that the Hon’ble AA had used terms like ‘essential’ and ‘non-essential’ and not acted in any manner contrary to spirit of IBC. Further, upon the remarks disapproving the conduct of IRP, it was observed that the IRP should have pursued for clear directions and guidance from the Tribunal and instead IRP chose to mechanically proceed by taking the plea of adherence to CIRP regulations. Though IRP may be technically correct, the same cannot be countenanced. Therefore, the appeal being devoid of merits was dismissed.