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NCLAT Landmark Judgements Roundup: Sep 2020 – Oct 2020

  1. The NCLAT in JM Financial Asset Reconstruction Company Ltd. v. Samay Electronics Pvt. Ltd., the same Bench of the Adjudicating Authority, which passed two conflicting orders, to make a reference to Hon’ble President, NCLT, if not already made, in terms of Section 419 (5) of the Companies Act 2013, for hearing on the issues and points on which the two Members of the Bench had divergent view in the split verdict so that the matter is placed before a third Member for hearing and the Company Petition is decided in accordance with the opinion of the majority of members who heard the case including the member before whom it is placed.

          Judgment Link: https://nclat.nic.in/upload/18866859245f69ecd2100fe.pdf

  1. The NCLAT in Phoenix ARC Pvt. Ltd. v. Kotak Mahindra Prime Ltd., by majority decision refused to interfere in the matter of deduction of EMI by the Financial Creditor/Bank from the funds of the Corporate Debtor during the pendency of the moratorium, against the direction of Interim Resolution Professional. The Adjudicating Authority vide impugned order (dated 06th July 2020) allowed the submissions of the claim by Respondent No.1 after due adjustment of the sums received by them during the moratorium. During CIRP Resolution, if any preferential transaction is made, the Resolution Professional shall be at liberty to file an application under Section 43. No adverse inferences could be made from the initial transactions, since an agreement was signed as a result of loan sanction.  The minority decision of the NCLAT bench (Member Technical) felt that prima facie a case exists as put forth by the appellant and directed for issuance of notice in the appeal. Appeals were dismissed in terms of the order rendered by majority of the Members comprising the Bench.

          Judgment Link: https://nclat.nic.in/upload/4958632655f5768d646fc2.pdf

  1. In Deepakk Kumar v. Phoenix ARC Pvt. Ltd., NCLAT dismissed the Review Application, seeking to ‘Review’ the judgement dated 05.03.2020 for correction of an error ‘apparent on the face of record’ leading to an error also. The Applicant had filed Appeal against NCLT order admitting application filed before the Adjudicating Authority on 05.09.2018 under section 7 of the IBC on the ground that November 2012 is categorically written in ‘date of default’ column in Form No.1 and the same was dismissed by NCLAT on 05.03.2020. The NCLAT held that when there is no mistake apparent from the record in the judgment delivered by it. The power to ‘review’ is a creation of statute and ‘Review Jurisdiction’ cannot be pressed into service as an ‘Appellate Jurisdiction’. ‘Power of Review’ is not to be confused with an Appellate power. A ‘review’ cannot be claimed or asked for merely for a fresh hearing or arguments or the correction of an erroneous view taken earlier.  any application for review filed by the concerned applicant cannot be construed to be one under Section 420(2) of the Companies Act or under Rule 11 of NCLAT Rules, 2016.

          Judgment Link: https://nclat.nic.in/upload/9656848185f6345c620e98.pdf

  1. The NCLAT in Punjab National Bank v. Mittal Corp. Ltd., held that in the absence of any cogent evidence to show that the Appellant has filed the Application only pursuant to the ‘Circular’ issued by Reserve Bank of India, which we hold at the outset, was not applicable to the facts of the instant case. It was not open to the Adjudication Authority to reject the Application on this ground, in the light of the directions issued by the Supreme Court in the case of Dharani Sugars and Chemical Ltd. v. Union of India and Ors., for application under Section 7 of the Code, pursuant to the Circular issued by the Reserve Bank of India.

          Judgment Link: https://nclat.nic.in/upload/19606511745f55e6415b61c.pdf

  1. In Kuntal Construction Pvt. Ltd. v. Bharat Hotels Ltd., the NCLAT, dismissed the Appeal against the NCLT order for rejecting the application filed under section 9 on the grounds of pre-existing dispute. While dismissing the application on merits, the NCLAT clarified that no one can take a recourse saying a judgment was not communicated to them as it is the duty of the counsel to keep a track of the status after the matter is reserved for pronouncement. It further held that non-communication of the judgment is not a valid ground for requesting condonation of delay.

          Judgment Link: https://nclat.nic.in/upload/3815928825f5212c810cb8.pdf

  1. In Kundan Care Products Ltd. v. Amit Gupta, the NCLAT held that once a Resolution Plan has been approved by the Committee of Creditors by required majority, the Resolution Applicant cannot be allowed to withdraw the Resolution Plan even if the said Resolution Plan is pending approval from NCLT. Referring to the reliance placed by the Appellant on the case of Committee of Creditors of Metalyst Forging Ltd. v. Deccan Value Investors LP and Ors, wherein the NCLAT did not compel the performance of a plan by an unwilling Resolution Applicant because the plan was held in violation of Section 30(2) (e) of the Code. Such observations cannot be treated as a ratio to be followed as a precent. Same has no resemblance or comparison with the facts of the instant case where the Resolution Plan approved by the Committee of Creditors is still awaiting approval of the Adjudicating Authority.  The Appeal being devoid of merit is dismissed. If such finding was absent, the applicant would have been bound to adhere to the Resolution Plan.

         Judgment Link: https://nclat.nic.in/upload/12787593265f74473351662.pdf

  1. The NCLAT in Jamal Ahmad v. Reliance Nippon Life Asset Management, held that the appeal is hopelessly barred by limitation. There is a delay of 387 days. IBC prescribes a period of 30 days for filing appeal and the jurisdiction vested in this Appellate Tribunal to extend time by 15 days provided sufficient cause by the Appellant is assigned for the same. Argument for invoking inherent powers vested in NCLAT under NCLAT’s Rules cannot be accepted. Further, it was held that Rule 11 of the NCLAT Rules, 2016, vesting inherent powers in the NCLAT, cannot be invoked against an express provision of the statute. In any case no appeal can be entertained after the maximum period of 45 days.

          Judgment Link: https://nclat.nic.in/upload/11953076705f683b9cabfe5.pdf

  1. The NCLAT in Indian Overseas Bank v. Arvind Kumar Resolution Professional Liquidator Richa Industries Ltd., held that as per section 3 (31), security interest shall not include a performance guarantee. The ‘margin money’ is the contribution on the part of the borrower who seeks ‘Bank Guarantee’ and in case the bank guarantee is invoked by the beneficiary, the margin money goes towards payment of bank guarantee to the beneficiary and nothing remains with the financial institutions which can be reversed to the Corporate Debtor. RP cannot demand such amount when the bank guarantee was invoked during the period of moratorium. It was also held that security interest would not include a performance bank guarantee and the margin money. The NCLAT set aside the directions of the Adjudicating Authority ‘to release the margin money kept in fixed deposit for issuance of Bank Guarantee, which was utilized by the invocation of bank guarantee by the beneficiary’ is set aside.

         Judgment Link: https://nclat.nic.in/upload/20816254225f71ab7f0fb82.pdf

  1. The NCLAT in Hasmukh Nanalal Shah v. Shri Parag K Sheth, held that the instant appeal filed against the order of liquidation passed by Adjudicating Authority on 5th July 2019 is hopelessly time barred. The Appeal can be preferred within thirty days and Appellate Tribunal is empowered to condone the delay for sufficient cause assigned by the Appellant but not exceeding fifteen days. The only ground for reversal of the impugned order is that the financial creditor has accepted the proposal of Appellant for settlement after the passing of a Liquidation Order, the same would not be a ground to set aside the liquidation proceedings. It was further clarified that a settlement could be reached during the liquidation proceedings by making an arrangement/scheme for settlement in terms of Section 230 of the Companies Act.

         Judgment Link: https://nclat.nic.in/upload/9241951005f60ad15c57c7.pdf

  1. The NCLAT in Committee of Creditors Represented by IDBI Bank Ltd. v. V Venkata Sivakumar, held that the Adjudicating Authority has adopted the right approach in not granting prayed for extension of period of CIRP beyond the maximum prescribed period of 330 days and for sending the Corporate Debtor into ‘Liquidation. The NCLAT held that no fault can be found with the impugned order on that score, if there is any irregularity in appointment/confirmation of a Liquidator inasmuch as the Liquidator did not have a valid authorization for assignment on the date of such acceptance or commencement of such assignment, would not adversely affect nor render the Order of liquidation passed by the NCLT, illegal or invalid. If there is any irregularity, it may be brought to the notice of the NCLT which would pass appropriate Order after having re-considered the appointment of the Liquidator.

          Judgment Link: https://nclat.nic.in/upload/14447915685f56142443c1e.pdf

  1. In the case of C. John v. Jitender Kumar Jain, NCLAT set aside the order of the NCLT quashing a civil suit against the Corporate Debtor and held that, though the filing of a civil suit is barred in terms of the code, the appropriate course for the liquidator is to approach the Court where the civil suit was pending and point out the relevant provisions of law and not for the NCLT to quash the proceedings pending before the Court.

          Judgment Link: https://nclat.nic.in/upload/8620734845f4f83f18084d.pdf

  1. In Prakash Kalash v. Apeejay Surrendra Park Hotels, the NCLAT held that proceeding ex parte against the corporate debtor based on substituted service through newspaper is permissible only when it is shown that the corporate debtor is purposefully avoiding service. Here, the court notice was returned with endorsement “insufficient address”. Thereafter the NCLT ordered publication of notice in the newspaper and proceeded ex parte against the corporate debtor based on the notice in the newspaper. The NCLAT observed that the notice had been returned due to insufficient address and no effort was made for service then notice through email. There was no service attempted via email or any other means and the substituted service was said to be not proper. NCLAT also held that there was a pre-existing dispute, even though the Adjudicating Authority admitted the Application for initiation of CIRP. NCLAT allowed the Appeal, set aside the order passed by the Adjudicating Authority.

          Judgment Link: https://nclat.nic.in/upload/9681380025f6b25c557ac9.pdf

  1. In Bishal Jaiswal v. Asset Reconstruction Company and Ors., the Appellant cited a judgement by 5 Hon’ble members of the NCLAT in Padamakumar v. Stressed Assets Stabilization Fund (SASF) & Anr and the NCLAT thought it proper to refer V. Padmakumar’s case for reconsideration. Earlier, the NCLAT in the Padamakumar case had held that an entry in the balance sheet of the Corporate Debtor cannot be treated as an acknowledgment of debt for the purpose of allowing a fresh period of limitation under Section 18 of the Limitation Act, 1963. In the instant case, the NCLAT further held that that view of the Bench in Padamakumar case is against the settled judgments of the Supreme Court and High Court.

          Judgment Link: Bishal_Jaiswal_vs_ARCIL Judgment_25th_September.pdf

  1. In Anshul Vashishtha v. Jayhind Steel Traders and Anr., NCLAT allowed the Appeal filed against the impugned order passed by the Adjudicating Authority (NCLT) under section 9 and declared it illegal and set aside. The NCLAT held that the object of the Code is maximizing the value of assets of the corporate debtor and to bring it out of insolvency, not recovery of money. It is further clear that if there is a dispute as per relevant provisions of the Code, it is incumbent on the Adjudication Authority to reject the petition/application as per provisions under Section 9 of the Code. The IBC also debars application of the code for recovery of money and if there is a dispute, the present petition/ application shall have to be rejected.

          Judgment Link: https://nclat.nic.in/upload/3784828685f745fb5681fc.pdf

  1. In the case of Ascot Realty Private Limited v. Ajay Kumar Agarwal, the NCLAT held that even if Corporate Debtor issued guarantee in recovery proceeding for the financial debt of the third party and in case of default, the said guarantee(s) have been invoked by the Financial Creditor, the Corporate Debtor shall be liable to pay the amount as it is amount of liability in respect of guarantee issued as per the definition of Section 5(8)(i) of IBC. The Appeal was dismissed.

         Judgment Link: https://ibbi.gov.in//uploads/order/

  1. In the case of Bhaskar v. Sai Precious Traexim Pvt. Ltd., NCLAT focused on the important ingredients to ‘Service of notices and processes’ to be followed by Adjudicating Authority as per Rule 38 of the NCLT Rules, 2016. If a notice was not duly served upon the concerned party or the party was prevented by any sufficient cause from appearing for the hearing, the Tribunal has the authority to pass an order to set aside the ex parte hearing against such party on conditions as he thinks fit. The order passed by the Adjudicating Authority in admitting application under section 7 was set aside and the matter was remitted back to the Adjudicating Authority for fresh consideration and appreciation of the entire gamut of the controversies centering around the Application in an objective and dispassionate manner, on merits, of course after issuing due notice to the parties as per ‘NCLT’ Rules 2016 and also adhering to the principles of ‘natural justice’. Corporate Debtor is released from the rigour of the CIRP.  All actions taken by the Interim Resolution Professional / Resolution Professional and the Committee of Creditors, if any, are declared illegal and set aside.

         Judgment Link: https://nclat.nic.in/Useradmin/upload/1299276785f86a11da9d28.pdf