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Landmark Judgement by the Hon’ble NCLAT 16th to 31st December, 2020

1.  Mohan Lal Jain, in the capacity of Liquidator of Kaliber Associates Pvt Ltd v. Lalit Modi & Ors (DOJ:16.12.2020)

The Liquidator approached the Adjudicating Authority to invoke Sections 43 and 66 of the Code, in regard to preferential transactions and fraudulent trading/ wrongful trading wherein the Adjudicating Authority referred the matter to Ministry of Corporate Affairs, with directions that explanation of the opposite party, if required, can be offered to the Investigating Agency.

The Appellant submitted that the Resolution Professional/Liquidator rightly invoked the jurisdiction of Adjudicating Authority as specifically provided by Section 43 and Section 66 of the IBC and it was not permissible for the Adjudicating Authority to abdicate its powers and refer the matter to the Ministry of Corporate Affairs or an Investing Agency.

NCLAT held that the impugned order, to the extent of disposal of CA-1342/2019 is not in conformity with the statutory provisions and the dictum of the Hon’ble Apex Court. The impugned order to the extent indicated, cannot be supported and the same is modified by providing that the Adjudicating Authority will inquire into such alleged dealings in accordance with law with expedition, preferably within two months.

Judgment link: https://nclat.nic.in/Useradmin/upload/8521160745fd9eeb86e2a8.pdf

2. Parole Hotels Pvt Ltd Through Erstwhile Director Sh. Vijay Kumar Kashinath Fadke v. The Greater Bombay Co-operative Bank Ltd & Ors (DOJ:16.12.2020)

NCLAT held that it is a settled position of law is that the decision in regard to approval of the CoC being a business decision based on commercial wisdom of the creditors is not open to judicial review. The order of approval of Resolution Plan was assailed by the Ex-Director of the Corporate Debtor alleging that the Resolution Plan was passed due to the connivance of between the Resolution Professional and the Financial Creditor and claiming that it was prepared to repay the outstanding dues and

NCLAT observed that there is ample proof on record to demonstrate that the Adjudicating Authority was approached at the time when the Corporate Insolvency Resolution Process was at an advanced stage and it had permitted the Appellant to take immediate steps for settlement of the claim of the Financial Creditor. The Resolution Plan came to be approved more than three months thereafter.  NCLAT observed that there are no ground across the ambit of Section 61(3) of I&B Code demonstrating any material irregularity in the Corporate Insolvency Resolution Process is made out for interference. There is no merit in this appeal.  Accordingly, the Appeal was dismissed.

Judgment link: https://nclat.nic.in/Useradmin/upload/9731237735fd9ee07a2d06.pdf

3. M/s. KVR Industries Pvt Ltd v. M/s. P.P Bafna Ventures Pvt Ltd (DOJ:18.12.2020)

The Appellant (Corporate Debtor) filed IA Nos. 51 and 52 seeking criminal proceedings under Cr. P. C against the authorized signatory of Financial Creditor for forged signatures on No. 41 and 42 of 2020 filed by it for restoring its Company Petition filed under section 7 of the IBC. CP/204/2019, earlier disposed asking Financial Creditor to go and claim before IRP appointed in matter of Operational Creditor M/s. Eshwar Enterprises under the other Petition TCP (IB) No. 111/9/AMR/2019, which got settled and was disposed as withdrawn.  The Adjudicating Authority thus restored CP/204/2019 for the reasons that the Financial Creditor could not be left without remedy.

NCLAT held that the Adjudicating Authority has ample inherent powers even under Rule 11 of the National Company Law Tribunals Rules, 2016 to make such Orders as may be necessary for meeting ends of justice or to present abuse of the process of the Tribunal. The Interest of Justice and the facts and circumstances of the matter required such suo-moto action on the part of the Adjudicating Authority.

NCLAT observed that the Appellant/Corporate Debtor has not shown us that the Financial Creditor would have any advantage or benefit of putting false signatures. NCLAT set aside the observations of the Adjudicating Authority to the Corporate Debtor to approach appropriate forum for redressal of IA No. 51 and 52 and maintained the restoration of CP (I.B)/204/7/ AMR/2019 and further directions in that regard.

Judgment link: https://nclat.nic.in/Useradmin/upload/7269085865fdc7bd944b1c.pdf

4. Rajendra Nirottamdas Seth & Anr v. Chandra Prakash Jain & Anr (DOJ:18.12.2020)

The Appellant (Directors of the suspended Board of Directors) filed appeal against order dated 01.06.2020   2020 by Adjudicating Authority on the application filed by Financial Creditor (Union Bank of India) under Section 7 against M/s. R.K. Infratel Ltd.

The Appellant relied on the judgment (Jagdish Prasad Sarda Vs. Allahabad Bank, 2020) by the NCLAT wherein it was held that the payments made after the declaration of NPA would not give benefit of Section 19 of the Limitation Act, 1963 if the NPA had not been regularized by the Bank and the date of default remains to be the date of declaring NPAs.  The Appellant also raised question on authorization of the person signing Application under Section 7 to be defective as it was given by the Bank before IBC came into force. The Appellants also claimed that Principles of Natural Justice were not followed as the Learned Counsel for the Appellant who appeared on 11th March, 2020 for final argument was not allowed to address the Tribunal and his attendance in the Order-Sheet dated 11th March, 2020 was cut down,

NCLAT clarified that the limitation issue is decided on facts and law both and it differs from case to case. Section 19 of the Limitation Act, 1963 is not subject to any such exception that after Account is declared NPA, if the debtor makes payments on account of debt, the Section would not be applicable. The Adjudicating Authority found that there were not merely repayments but also Acknowledgments.

The NCLAT did not find any error in the observations by the Adjudicating Authority and held that the Application was within limitation. Accordingly, the appeal lacking any substance was dismissed.

Judgment link: https://nclat.nic.in/Useradmin/upload/6180128275fdc7b9a97892.pdf

5. Rajnish Jain Promoter Stakeholder and MD of suspended Board of Directors v. BVN Traders & Ors (DOJ – 18.12.2020)

In the present matter Hon’ble NCLAT held that:-

The Interim Resolution Professional (IRP) after collation of Claims and formation of ‘COC’ is not entitled to suo moto review or change the status of a creditor from Financial Creditor to Operational Creditor. The aggrieved can challenge either the constitution of ‘COC’ or for any grievance against rejection, incorrect acceptance or categorisation of creditors before the Adjudicating Authority. But the RP cannot arbitrarily on its own overturn an earlier decision, to change the status of a creditor from Financial Creditor to Operational Creditor.

The ‘COC’ had no role in deciding the status of a creditor either as ‘Financial Creditor’ or ‘Operational Creditor’ and such a decision of ‘COC’ can never be treated as an exercise under its Commercial wisdom. It is a matter of applying the law of IBC, and if such a factor is left to CoC, there would be a serious conflict of interest, as the present matter itself shows. Whether a person or entity is a “Financial Creditor” or an Operational Creditor is a matter of applying the law to facts. It cannot be a matter of voting, and choice as discretion is not relevant. During the CIRP, the IRP collates the Claim, and after that, the ‘COC’ is formed. After the COC is formed only the aggrieved person can agitate the same only before the AA.

Judgment link: https://nclat.nic.in/Useradmin/upload/15634799325fdc5b398403e.pdf

6. Committee of Creditors of LEEL Electricals Ltd Through State Bank of India v. Leel Electricals Ltd Through its Interim Resolution Professional, Arvind Mittal (DOJ – 21.12.2020)

The NCLT, Allahabad Bench adjourned the matter to 20th Jan, 2021 while granting an opportunity to the Interim Resolution Professional (IRP) to file an affidavit in regard to passing of resolution by the Committee of Creditors for its replacement by Resolution Professional (RP) under Section 22 of the I&B Code.

The NCLAT held that there was no merit in the case set up by IRP before the Adjudicating Authority and the same was required to be dealt with without insisting upon filing of affidavit by the IRP in regard to the provision of law invoked to pass the resolution. It was further held that in the face of CoC resolution passed with more than the requisite majority, it cannot lie in the mouth of IRP that any of his legal rights have been infringed. It would have been wise on his part to bow to the commercial wisdom of the Committee of Creditors and quit gracefully. The Appeal was thereby allowed and the Adjudicating Authority was directed to carry forward the Resolution Process in regard to the Corporate Debtor with Resolution Professional as appointed by the CoC.

Judgment link: https://nclat.nic.in/Useradmin/upload/3987126745fe1d11f2d047.pdf

7. M/s Neesa Infrastructure Ltd v. State Bank of India & Ors (DOJ – 23.12.2020)

Appeal was preferred against the order passed by the Adjudicating Authority (NCLT, Ahmedabad Bench), in CP No. (IB) 61/10/NCLT/AHM/2018 dated 17th September, 2020 whereby the Adjudicating Authority rejected the Application of the Appellant filed under Section 10 of Insolvency and Bankruptcy Code, 2016.

The Hon’ble NCLAT confirmed the order of the Adjudicating Authority while holding that the Applicant has not approached the Adjudicating Authority with a bona fide intention only with a purpose to get admission of the application under section 10 followed by imposition of moratorium to stall all further proceedings. It was further held that the Adjudicating Authority dealt with all aspects including the Special Power of Attorney given by one of the Promoters Ms. Neelu Gupta, and did not confine to only non-disclosure of facts beyond the statutory requirements as mentioned in the Judgement of Hon’ble NCLAT M/s Unigreen Global Private Limited Vs. Punjab National Bank and Others- Company Appeal (AT)(Insolvency) No. 81 of 2017. It was further found on record that SIDBI and IOB, the Financial Creditors have strenuously opposed the admission of Section 10 Application by filing their Counter Affidavits and had simultaneously initiated recovery proceedings against the Appellant in proper court of jurisdiction.

The NCLAT stated that the IBC being a special legislation cannot be used as a tool to one’s advantage and other’s disadvantage.

Judgment link: https://nclat.nic.in/Useradmin/upload/12422692365fe321b84e28e.pdf