Ppt for webinar ICSI- landmark judgements

PRESENTED BY:
ASHOK KUMAR JUNEJA
(LLB, FCS, ACMA, DBF, ADICA, M.COM)
ADVOCATE & INSOLVENCY
PROFESSIONAL
FOUNDER & MANAGING PARTNER
MANTRAH LAW HOUSE LLP
1302, VIJAYA BUILDING, 17 BARAKHAMBA ROAD,
CONNAUGHT PLACE, NEW DELHI-110001
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EMAIL: ASHOKJUNEJA@GMAIL.COM
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LANDMARK JUDGEMENTS
DELIVERED BY
THE HON'BLE SUPREME COURT
(WHICH SETTLED CERTAIN MAJOR ISSUES CROPPED UP WHILE IMPLEMENTING THE IBC)

CASE NO.1: THE IBC VS STATE LAWS
Judgement delivered on : 31.08.2017
In one of its first major ruling under the IBC, the Apex court
in Innoventive Industries Limited Vs. ICICI Bank & Anr.,
analyzed repugnancy between the IBC, which is a Central law,
and Maharashtra Relief Undertakings Special Provisions Act
1958, a State legislation.
3
Email:ashokjuneja@gmail.com Mobile:09810532462
ADVOCATE & IP ASHOK JUNEJA

If the question of repugnancy arises between the Central
law and State law relates to the subjects falling under the
concurrent list of the Constitution of India, then how to
reconcile both the statutes so as to avoid repugnancy.
In the event of direct conflict between State and Central
legislature which legislature will prevail?
4
ISSUES INVOLVED:-

Hon'ble Supreme Court after examining Article 254 of the
Constitution of India, which deals with repugnancy between
Central and State law, held that in the event of any repugnancy
between any State law and the Central law shall prevail. Thus it
was held in respect of matters relating to bankruptcy and
insolvency, the IBC would prevail over such State laws.
The only exception to the above is when it is found that a State
legislation is repugnant to an earlier Central law or an existing law
if the case falls within Article 254(2) of the Constitution, and
Presidential assent is received for State legislation; in which case
State legislation prevails over Central legislation or an existing law
within that State. Here again, the State law must give way to any
subsequent Central law, which adds to, amends, varies or repeals
the law made by the legislature of the State, by virtue of the
operation of Article 254(2) provision.
The Apex Court also made a very important ruling in this case
that once insolvency professional is appointed to manage the
company; the erstwhile directors, who are no longer in the
management of the company, cannot maintain an appeal on
behalf of the company. 5

CASE NO.2: WITHDRAWAL AFTER
ADMISSION OF APPLICATION
In the case of Lokhandwala Kataria Construction
Private Limited Vs Nisus Finance and Investment
Managers LLP.
6
ISSUES INVOLVED:-
Whether National Company Law Appellate Tribunal
(“NCLAT”), the appellate body under the IBC, could
allow withdrawal of insolvency application after
admission on the basis of the consent terms agreed
between the parties.

7
Hon’ble NCLAT Held:-
The petitioner in this case approached NCLAT invoking
its inherent jurisdiction under Rule 11 of National
Company Law Tribunal Rules 2016 (“NCLT Rules”) for
withdrawal of the application on the basis of the
consent term agreed between the parties. Rule 11
allows NCLAT to make orders for meeting the ends of
justice. However, NCLAT refused to invoke its inherent
power for this purpose.

HON’BLE SUPREME COURT HELD:-
8
 The petitioner challenged the order of the NCLAT before Hon’ble
Supreme Court. The Hon’ble Supreme Court upheld the view of the
NCLAT and held that NCLAT cannot invoke its inherent power to
allow the parties to withdraw the application after admission.
 Rule 8 of Insolvency and Bankruptcy (Application to Adjudicating
Authority Rules 2016) Rules allows the parties to withdraw the
application prior to admission of the application by National
Company Law Tribunal (“NCLT”), the adjudicating authority under
the IBC. However, there is no provision for withdrawal of application
after admission.
 However, Hon'ble Supreme Court invoked its own inherent power
under Article 142 of the Constitution and allowed the parties to
withdraw the application on the undertaking of the appellant to pay
the outstanding dues to the applicant as per the consent terms.

CASE NO.3: RELAXATION OF TIME PERIOD
OF 14 DAYS AND 7 DAYS
The IBC prescribes a time bound process for handling
insolvency applications. The sanctity of some of these time
limits has been tested before the Hon'ble Supreme Court
in Surendra Trading Company Vs. Juggilal kamlapat jute
mills Company Limited and others.
9
Whether time limit of 7 days prescribed under the IBC
for rectifying or removing defects in the application filed
by an operational creditor for initiating corporate
insolvency resolution is mandatory or not.
ISSUE INVOLVED:-

THE QUESTIONS BEFORE THE NCLAT
WAS:
Whether time of 14 days given to NCLT
for admitting or rejecting an application is
mandatory or directory; and
Whether the period of 7 days given to the
applicant for rectifying the defects is
mandatory or directory.
10

 The NCLAT held that period of fourteen days prescribed for NCLT to
pass such an order is directory in nature, whereas period of seven
days given to the applicant for rectifying the defects is mandatory in
nature.
 NCLAT was of the view that the time period of 14 days given to NCLT
for accepting or rejecting an application is procedural in nature and
cannot be treated to be a mandate of law.
 NCLAT further held that 14 days time period is to be counted not from
the date of filing an application but from the date when such an
application is presented before the adjudicating authority, i.e. the
date on which it is listed for admission/order.
 However, NCLAT concluded that the time period of 7 days for
rectifying the defect is mandatory.
The appeal to the Hon'ble Supreme Court was filed against this
conclusion of NCLAT that 7 days time period is mandatory.
11
Hon’ble NCLAT Held:-

It couldn’t find any valid rationale in the conclusion of NCLAT
that seven days time period is mandatory. The Apex Court
further observed that NCLAT’s conclusion cannot be justified
on the ground of the time period of 180 days given in the IBC
for completion of the resolution process because the period
of 180 days commence from the date of admission of
application.
 Period prior to that, such as time consumed for scrutinizing
the application, rectifying defects in the application or NCLT
admitting the application etc. cannot be taken into account.
In fact, till the objections are removed, it is not to be treated
as application validly filed. It is only after the application is
complete in every respect; it needs to be entertained. 12
Hon'ble Supreme Court HELD:-

Under this scenario, the Apex Court held that making the
period of seven days as mandatory does not serve any purpose.
The Apex Court observed that in a given case there might be
weighty, valid and justifiable reasons for not able to remove
the defects within seven days. Accordingly, the provision of
removing the defects within seven days is directory and not
mandatory in nature.
The Honorable Court cautioned that while considering the
application for extension of time, a balance approach need to be
taken to avoid misuse of the provision. If the objections are not
removed within seven days, the applicant while refilling the
application after removing the objections, file an application in
writing showing sufficient cause as to why the applicant could
not remove the objections within seven days. Once the NCLT is
satisfied with the cause it can entertain the application;
otherwise, the application needs to be rejected.
13

CASE NO.4: ELABORATION OF DEFINITION
OF DISPUTE
In a land mark judgment in Mobilox Innovations Private
Limited Vs. Kirusa Software Private Limited, the
Hon'ble Supreme Court clarified the interpretation of
the term ‘dispute’ under the IBC as a dispute raised by
the operational creditor prior to the issue of demand
notice, even though no suit or arbitration is pending in
respect of such dispute.
14

Whether only a dispute pending before the court or
arbitral tribunal could stop the insolvency
proceedings or any other kind of dispute would
qualify the criterion.
Hon'ble Supreme Court held:-
After examining the Section 5(6) of the IBC, the
Apex Court held that the interpretation of the term
‘existence of dispute’ includes dispute raised by the
operational debtor prior to the issue of demand
notice, even though no suit or arbitration is pending
in respect of such dispute.
15
ISSUE INVOLVED:-

Accordingly, an email send by the debtor, raising
dispute, prior to the issue of demand notice by the
creditor, will also fall under the definition of dispute
under the IBC.
 NCLT only has to examine, at the stage of admitting or
rejecting an application, whether there is a plausible
contention which requires further investigation and the
‘dispute’ raised by the operational debtor is not a
patently feeble legal argument or an assertion of facts
unsupported by evidence.
 However, while doing so, NCLT is not required to
satisfy whether the dispute would ultimately succeed
or not. So long as dispute truly exists in fact and is not
spurious, hypothetical or illusory the NCLT has to reject
the application. 16

The Hon'ble Supreme Court also examined definition of ‘dispute’
under section 5 (6) of IBC to consider whether dispute should fall
under the three categories mentioned in the definition viz:
 the existence of amount of debt;
 quality of goods or services; or
 breach of representation or warranty.
The Apex Court held that the definition is inclusive one as it only
deals with suits or arbitration proceedings relating any one of the
three categories and not any other kind of dispute. So long as
there is a real dispute between the parties even though it does
not fall under the above three categories, it would fall under the
inclusive definition of dispute under section 5(6) of the IBC.
Hence, dispute raised by the debtor regarding breach of an NDA
by the operational creditor in respect of the service provided by
the operational creditor was held to be a dispute within the
meaning of the IBC.
17

CASE NO.5: CERTIFICATION FROM FINANCIAL
INSTITUTIONS AND DEMAND NOTICE BY LAWYERS
In another landmark judgment delivered in Macquarie Bank
Limited Vs. Shilpi Cable Technologies Limited, the Hon'ble
Supreme Court brought clarity on the below mentioned issues.
ISSUES INVOLVED:
The first question was whether, in relation to an operational
debt, the provision contained in Section 9(3)(c) of the IBC is
mandatory. Section 9 (3) (c) requires that while initiating
insolvency proceeding under the IBC, operational creditor shall
submit a certificate from a financial institution maintaining
accounts of the operational creditor confirming that there is no
payment of the unpaid operational debt by the corporate
debtor. 18

 This above requirement has resulted into undue hardship while filing
application against operational creditor mainly due to the reason that
financial institutions are often hesitant to issue such certificate. The
requirement also created an obstacle for foreign creditors to invoke the
IBC against operational creditors in India, as foreign creditors generally
don’t have bank account in India and certificate from foreign bank does
not satisfy the criteria under the IBC.
 Regarding this issue, the Hon'ble Supreme Court held that the
requirement under Section 9 (3) (c) regarding the certificate from the
financial institution is not a condition precedent to trigger the
insolvency process under the IBC but can only be considered as a piece
of evidence.
 The Apex Court went on to add that the important condition
precedent to trigger the IBC is occurrence of a default, which can be
proved by means of other documentary evidence also and not
necessary only through certificate from financial institution.
 The Apex Court also categorically stated that the IBC allows foreign
operational creditor to invoke the IBC despite the fact that such
operational creditor may or may not have a bank account in India.
19

The second issue under consideration was whether
lawyer could issue demand notice under the IBC on
behalf of operational creditor. The issue is significant
due to the earlier decisions that only a creditor himself
or person holding position with the creditor can issue
demand notice. Since lawyers often do not hold position
with the creditor, this means that he could not issue
demand notice.
The Apex Court analyzed the provisions of the IBC and
categorically concluded that not only the creditor and
his authorized agent but lawyers are also entitled to
issue demand notice under the IBC on behalf of
creditors.
20

IMPORTANT
JUDGMENTS
DELIVERED BY
THE NCLAT

CASE-1: QUANTUM LIMITED VS INDUS
FINANCE CORPORATION LIMITED
Company appeal (AT) (Insolvency) No. 35 of 2018
Judgement delivered on : 20th February, 2018
Issues Involved:-
An application moved by the Resolution Professional (RP),
seeking extension of CIRP period for another 90 days as
envisaged under Section 12(2) of the Insolvency and
Bankruptcy IBC, 2016,
As Application for extension filed after expiry of 180 days.
Application has been rejected by Hon’ble NCLT Bench.
22

HON’BLE NCLT HELD:-
It has been noticed that this application has been filed on
30.11.2017 on a resolution dated 24.11.2017 passed by COC
seeking extension of time.
This application was moved by the Resolution Professional
after expiry of 180 days of CIRP process which has completed
on 25.11.2017.
On visiting the provision of law, we have noticed that this
application shall be filed by the Resolution professional for
extension of CIRP period before completion of CIRP period,
But this application has been filed after expiry of the original
period of 180 days of CIRP.
 If at all this application is allowed, it will become nothing but
revival of CIRP period that was complete by 25.11.2017.
23

APPEAL TO NCLAT:-
Appeal Allowed
The Adjudicating Authority (NCLT) has held that the subject
matter of the case does not justify to extend the period.
 It has not been rejected on the ground that the committee of
creditors or resolution professional has not justified their
performance during the 180 days.
In such circumstances, it was duty on the part of the
Adjudicating Authority to extend the period to find out whether
a suitable resolution plan can be approved instead of going for
liquidation, which is the last recourse on failure of resolution
process.
For the aforesaid reasons, we set aside the impugned order
dated 18th December, 2017 and extend the period of
resolution process for another 90 days to be counted from
today.
The period between 181st day and passing of this order shall
not be counted for any purpose and is to be excluded for all
purpose.
24

CASE NO-2: DEVENDR PADAMCHAND JAIN, RESOLUTION
PROFESSIONAL OF VNR INFRASTRUCTURES LIMITED VS
STATE BANK OF INDIA
Company Appeal (AT) (Insolvency) No. 177 of 2017
Judgement delivered on : 31st January, 2018
Issues Involved:
This appeal has been preferred by Mr. Devendra Padamchand
Jain, the then Resolution Professional of VNR Infrastructures
Limited (Corporate Debtor) against the order dated 24th
August, 2017.
Whether the Adjudicating Authority has jurisdiction to remove
the resolution professional if it is not satisfied with the
functioning of the resolution professional and he has failed to
comply with sub-section (2) of section-30.?
Whether Adjudicating authority has jurisdiction to remove the
resolution professional?
25

NCLT has removed resolution professional pursuant
to provision of section of 34(4) and 30 of Insolvency
and Bankruptcy IBC.
26
ACTION OF APPLICANT:
Applicant filed appeal to Hon’ble NCLAT.

HON’BLE NCLAT HELD:-
 The Adjudicating Authority (NCLT) has jurisdiction to
remove the resolution professional if it is not satisfied
with the functioning of the resolution professional and he
has failed to comply with Sub-Section (2) of Section 30.
 Insolvency and Bankruptcy IBC, 2016, Sections 34(4)
and Section 30- Resolution Professional – Removal
jurisdiction of adjudicating authority.
 Adjudicating authority has jurisdiction to remove the
resolution professional,
 In view of provisions of section 22, 27, 30 and 34, the
adjudicating authority is also empowered to remove the
resolution professional, apart from the committee of
creditors, but it should be for the reason and in the
manner as provided under the relevant provision. 27
ADVOCATE&IPASHOKJUNEJA

CASE NO-3: STATE BANK OF INDIA VS VEESONS
ENERGY SYSTEMS PVT. LTD.
Judgement delivered on : 28th February, 2018
Issues Involved:
Once resolution plan is approved by the adjudicating
authority, it is not only binding on the corporate Debtor, but
also on its employees, members, creditors, guarantors and
other stakeholders involved in the resolution plan, including
the personal guarantors. Therefore moratorium order will not
only be applicable to the property of the corporate debtor
but also to the personal guarantor.
Whether in view of clause (b) of sub-section (1) of section 31,
the financial creditor cannot proceed even against the
‘personal guarantor? 28

The Adjudicating Authority by impugned order dated
18th September, 2017 observed that ‘Moratorium’
prohibits transferring, encumbering, alienating or
disposing of by the ‘Corporate Debtor’ any of its assets
or any legal right or beneficial interest therein.
In view of the provisions of ‘I&B IBC’, Section 140 of the
Indian Contract Act, 1872 and the decision of the
Hon’ble High Court of Madras, the Adjudicating
Authority allowed the Interlocutory Application
preferred by the ‘Personal Guarantor’, and restrained
the Appellant- State Bank of India (‘Financial Creditor’)
from proceeding against the ‘Personal Guarantor’ till the
period of ‘Moratorium’ is over.
and allowed application. 29

HON’BLE NCLAT HELD:-
Once resolution plan is approved by the adjudicating
Authority, it is not only binding on the corporate debtor, but
also on the employees, members, creditors guarantors, and
other stakeholder involved in the resolution plan including
the personal guarantor. Therefore, moratorium order will not
applicable only be applicable to the property of the corporate
debtor but also to the personal guarantor.
On bare perusal of the aforesaid provisions, it is clear that not
only institution of suits or continuation of pending suits or
proceedings against the ‘Corporate Debtor’ are prohibited
from proceedings, in terms of clause (b) of sub-section (1) of
Section 14 of the ‘I&B IBC’, transfer, encumbrance, alienation
or disposal of any of its assets of the ‘Corporate Debtor’ and/
or any legal right or beneficial interest therein are prohibited.
Clauses (c) & (d) of sub-section (1) of Section 14 of the ‘I&B
IBC’ prohibits recovery or enforcement of any security
interest created by the corporate debtor in respect of its
property including the property occupied by it or in the
possession of the ‘Corporate Debtor’
30

From the aforesaid provisions, it is clear that ‘Resolution
Plan’ if approved by the ‘Committee of Creditors’ under
sub-section (4) of Section 30 and if the same meets the
requirements as referred to in sub-section (2) of Section
30 and once approved by the ‘Adjudicating Authority’ is
not only binding on the ‘Corporate Debtor’, but also on
its employees, members, creditors, guarantors and
other stakeholders involved in the ‘Resolution Plan’,
including the ‘Personal Guarantor’.
Holding that Moratorium order will not only be
applicable to the property of corporate debtor but also
to the personal guarantor, the appellate tribunal
declined to interfere with the order of adjudicating
authority and dismissed the appeal.
31

CASE NO-4: PUNJAB NATIONAL BANK VS
DIVYA JYOTI SPONGE IRON PRIVATE LIMITED
CP (1B) No. 363/kb/2017
Judgement delivered on : 13th, March, 2018
ISSUES INVOLVED:
 The resolution plan approved by the committee of
creditors meets the requirements as referred to in sub-
section (2) of section 30, the adjudicating authority
cannot reopen the reasons for rejection of plan passed
with 100% voting shares for adjudication.
 Can Adjudicating Authority reopen the reasons for
rejection of plan passed with 100% voting shares for
adjudication?
32

Right of rejection or approval of a plan is with the committee of
creditors.
What can be screened is that whether the plan approved by the
committee of creditors meets the requirements as referred to in
sub section (2) of section 30.
If all the requirements are satisfied, the adjudicating authority
shall pass an order for approval and cannot reopen the reason
for rejection of plan passed with 100% voting shares for
adjudication.
Decision regarding non-acceptance of the resolution plan
submitted by the resolution applicant was taken by the
committee of creditors and its plan had under gone deliberation
in various meetings of the committee of creditors up to final
voting stage and that resolution plan has been rejected by the
committee of creditors upon a unanimous decisions.
Therefore, objection regarding the irregularity in not considering
the resolution plan submitted by the applicant in are also found
devoid of any merits.
 Accordingly, resolution plan approved.
33

CASE NO-5: QUINN LOGISTICS INDIA PVT. LTD.
VS MACK SOFT TECH PVT. LTD.
Judgement delivered on : 8th May, 2018 (NCLAT)
Issue Involved:
Whether the Corporate Insolvency Resolution Process
remained Stayed for some time due to interim order passed
by the Adjudicating Authority, stayed period could be
excluded for the purpose of counting the total period of 270
days?
34

APPEAL TO NCLAT:
JUDGEMENT ON: 08.05.2018
If An application is filed by the ‘Resolution Professional’ or the
‘Committee of Creditors’ or ‘any aggrieved person’ for justified
reasons, it is always open to the Adjudicating Authority/Appellate
Tribunal to ‘exclude certain period’ for the purpose of counting the
total period of 270 days, if the facts and circumstances justify
exclusion, in unforeseen circumstances. For example, for following
good grounds and unforeseen circumstances, the intervening period
can be excluded for counting of the total period of 270 days of
resolution process:-
(i) If the corporate insolvency resolution process is stayed by ‘a court
of law or the Adjudicating Authority or the Appellate Tribunal or the
Hon'ble Supreme Court.
(ii) If no ‘Resolution Professional’ is functioning for one or other
reason during the corporate insolvency resolution process, such as
removal. 35

(iii) The period between the date of order of
admission/moratorium is passed and the actual date on which
the ‘Resolution Professional’ takes charge for completing the
corporate insolvency resolution process.
(iv) On hearing a case, if order is reserved by the Adjudicating
Authority or the Appellate Tribunal or the Hon'ble Supreme
Court and finally pass order enabling the ‘Resolution
Professional’ to complete the corporate insolvency resolution
process.
(v) If the corporate insolvency resolution process is set aside by
the Appellate Tribunal or order of the Appellate Tribunal is
reversed by the Hon'ble Supreme Court and corporate
insolvency resolution process is restored.
(vi) Any other circumstances which justifies exclusion of certain
period. 36

Under the above case the Appellate Tribunal Directed
Adjudicating Authority to exclude 166 days for the
purpose of counting the period of Corporate Insolvency
Resolution Process and thereby allow the Resolution
professional/ Committee of Creditors (COC) further 166
days for the corporate insolvency resolution process and
impugned order passed by the Adjudicating Authority.
37

CASE NO-6: RAJPUTANA PROPERTIES PVT.
LTD. VS ULTRA TECH CEMENT LTD
Judgement delivered on : 15th May, 2018 (NCLAT)
Issue Involved:
Whether Resolution Professional is required to notice
the comments of one or other Resolution Applicant(s) to
decide the eligibility?
What procedure the Committee of Creditors are
required to be followed at the time of approval of
resolution plan?
38

APPEAL TO NCLAT:
ORDER DELIVERED ON: 15.05.2018
While scrutinizing the resolution plan under sub-section (2) of
section 30, the Resolution Professional Cannot hold or decide
as to who is ineligible under Section 29A. sub-section (2) of
Section 30 does not confer such power to the Resolution
Professional nor there is any other provision conferring such
power to the resolution Professional to scrutinize the
eligibility of one or other Resolution Applicant [Prima facie, in
absence of any information through any source while
scrutinizing the resolution plan under Section 30(2), the
Resolution Professional cannot hold or decide as to who is
ineligible under Section 29A. Section 30(2) does not confer
such power to the Resolution Professional nor there is any
other provision conferring such power to the Resolution
Professional to scrutinize the eligibility of one or other
Resolution Applicant] 39

 As per sub-section (2) of section 30, the Resolution professional is
required to examine whether resolution plan confirm the provisions
as mentioned therein but he cannot disclose it to any other person
including Resolution Applicant(s), who has submitted the resolution
plan. The resolution plan submitted by one or other Resolution
Applicant nor any opinion can be taken or objection can be called for
from other resolution Applicant with regard to one or other
resolution plan [As per Section 30(2), the Resolution Professional is
required to examine whether resolution plan confirm the provisions as
mentioned therein but he cannot disclose it to any other person
including Resolution Applicant(s), who has submitted the resolution
plan. According to us, the resolution plan submitted by one or other
Resolution Applicant being confidential cannot be disclosed to any
competitor Resolution Applicant nor any opinion can be taken or
objection can be called for from other Resolution Applicants with
regard to one or other resolution plan].
40

 On co-joint reading of Section 24 and 30, the following persons
are to take part in the meeting of Committee of Creditors at the
time of approval of one or other resolution plan:
(a) Members of Committee of Creditors;
(b) Members of the (suspended) Board of Directors or the
Partners of the corporate persons’
(c) Operational Creditors or their representatives if the amount of
their aggregate dues is not less than ten percent of the debt; and
(d) Resolution Applicant(s) when resolution plan of such applicants
are placed for consideration.
The members of the ‘committee of the Creditors’ have voting right
but others, who attend the meeting including the Board of
Directors, partners, Operational Creditor(s) and the Resolution
Applicants), have no voting right.
41

From reading of provisions of Section 24 read with
Section 30, the intention of the legislature is clear that
the Committee of Creditors while approving or rejecting
one or other resolution plan should follow such
procedure which is transparent.
Those who will watching the proceeding such
as(Suspended) Board of Directors or its partners;
Operational Creditors or its representatives and
Resolution Applicant(s) are not mere spectator but may
express their views to the committee of creditors for
coming to conclusion in one or other way. Therefore, the
Committee of Creditors should record reasons (in short
while approving or rejecting one or other resolution
plan. 42

Views, if any, are expressed by the (suspended) Board of
directors or its partners; Operational creditors or its
representatives and Resolution Applicant(s), are also
required to be taken into consideration by the Committee
of Creditors before approving or rejecting one or other
resolution plan. The Views so expressed by any of those
who are watching the proceeding should also be recorded
(in short).
Appellate Authority Directed the Resolution Professional
not to take any comment from one or other Resolution
applicant(s). Resolution Professional and the Committee of
Creditor will proceed in accordance with law.
43

CASE NO-7: DR. B V S LAKSHMI VS. GEOMETRIX
LASER SOLUTION (P) LTD.
Company Appeal (AT) Insolvency) No.38 of 2017
Judgement delivered on : 22nd December, 2017 (NCLAT)
Issue Involved:
Whether appellant-creditor come within the meaning
of “financial creditor” As Defined Under Clause (F) Of
Sub-Section (8) Of Section 5?
44

NCLT, HYDERABAD BENCH, PASSED ORDER:
In Company Petition (IB)/19/7/HBD/2017 held that the
appellant do not come within the meaning of ‘Financial
Creditor’ and failed to satisfy the Adjudicating Authority
about requisite ingredients of Section 7 of the IBC to
claim any relief and thereby rejected the application.
45

APPEAL TO NCLAT:
JUDGEMENT ON: 22.12.2017
If the claimant claims to be ‘financial Creditor’ as defined in clause
(7) of Section 5 of the Code, he will have to show that debt is due
which he has disbursed against the ‘consideration for the tie value
of money’ and that the borrower has raised the amount directly or
through other modes like credit facility or its de-materialized
equivalent, note purchase facility or the issue of bonds, notes,
debenture, loan stock or any other similar instrument.
The amount of any liability in respect of any lease or hire purchase
contract, which is deemed as a finance or capital lease under the
Indian accounting Standards or such other Accounting Standards,
can also be referred to by the creditor to claim that there is a
Financial debt’ due to him which has been disbursed against the
‘consideration for the time value of money to show that there is a
debt due which was disbursed against the ‘consideration for the
time value of money’, it is not necessary to show that an amount
has been disbursed to the ‘Corporate Debtor’. A person can show
that the disbursement has been made against the Consideration for
the time value of money through any instrument. 46

The appellant has also failed to show that the amount
ahs been raised by corporate debtor under any other
transaction, such as sale or purchase agreement,
having commercial effect of borrowing. In absence of
any such evidence, the appellant cannot claim that
loan amount, if any given to the corporate debtor
comes within the meaning of Financial debt’, as
defined under sub-clause (f) clause (8) of Section 5 of
the Code.
The Appellate Tribunal holding that, the Adjudicating
Authority rightly held that the appellant is not a
‘financial creditor’ and declined to interfere in the
impugned order. Accordingly, dismissed the appeal.
47

CASE NO-8: MOSMETRO STROY VS BASF
INDIA LTD. AND ANOTHER
Company Appeals (AT) (Insolvency) No. 229 & 230 of 2017
Judgement delivered on : 28th November 2017 (NCLT)
ISSUES INVOLVED:
Whether application under Sections 433 and 434 of
the companies Act, 1956 can be treated to be an
application under Section 9 of the IBC?
48

NCLT PRINCIPAL BENCH:
The Appellant Corporate Debtor has challenged the orders
dated 1st September, 2017 and 29th September, 2017 passed
by the Adjudicating Authority(National Company Law
Tribunal), Chennai, whereby and where under the application
preferred by the respondent-BASF India Ltd.(‘Operational
Creditor’) under section 433 and 434 of the Companies act
1956 has been treated to be an application under section 9 of
the Insolvency and Bankruptcy IBC, 2016 (I & B IBC’ read with
rule 6 of the insolvency and Bankruptcy (Application to
Adjudicating Authority Rules, 2016 (‘Adjudicating Authority
Rules, 2016’), the order of admission and Moratorium has
been passed, name of Interim Resolution professional has
been called for from the Insolvency and Bankruptcy Board of
India (‘Board’) with further prohibitory orders in terms of IBC. 49

APPEAL TO NCLAT:
ORDER DELIVERED ON: 28.11.2017
From the Rule 5 of the Companies (Transfer of pending
proceedings) rules, 2016(Transfer rules) it is clear after
transfer of the case the applicant was required to submit
all information, other than in formation forming part of
the records transferred from the High court, for
admission of the petition under Section 7, 8 or 9 of the
IBC, including details of the proposed ‘Insolvency
Professional’ within sixty days failing which, the petition
shall stand abated.
50

As per section 9 of the IBC, before admission of application
and is filing, a demand notice under sub section (1) of
section 8 is required to be issued on the ‘corporate debtor’.
It is only on receipt of such notice under that sub section,
the Corporate Debtor may either pay the amount or may
dispute the claim in terms of sub section (2) of section 8.
The operational creditor having failed to provide all the
details as required under 5 of the Transfer Rules, 2016 the
application under section 433 and 434 of the companies
act, 1956 cannot be traded to be an application under
section 9 of the IBC in terms of rule 5. In such
circumstances, in view of provision to rule 5 of the Transfer
rule, 2016 of the application under sections433 and 434 of
the companies act, 1956 stands abated.
51

The Appellate Tribunal set aside the impugned orders
passed by the Adjudicating Authority and also declared
that the application preferred by operational creditor
under section 433 and 434 of the companies act, 1956
stands abated. However, it allowed operational
creditor to issue fresh notice under sub section (1) of
section 8 and on receipt of service of such notice, if
there is a debt and default and no dispute is raised, it
will be open to the respondent to file fresh application
under section 9 after ten days of service of such notice.
52

INSOLVENCY AND
BANKRUPTCY IBC
(AMENDMENT)
ORDINANCE, 2018

1.THIS AMENDMENT ORDINANCE MAKES THE LIMITATION
ACT APPLICABLE TO INSOLVENCY PROCEEDINGS – SECTION
238A INTRODUCED
This clarifies a large confusion brought up again and
again in various orders including Black Pearl Hotels Pvt.
Ld. Vs Planet M Retail Limited. A lot of time-barred
claims were being filed since the Hon’ble NCLAT had
opined that limitation would apply only from 2016 when
the IBC came into force.
54

2.AMOUNT RAISED FROM ALLOTTEE OF A REAL ESTATE PROJECT IS
INCLUDED IN THE DEFINITION OF FINANCIAL DEBT. THE CLASS OF
CREDITORS HAS BEEN PERMITTED TO BE REPRESENTED BY A QUALIFIED RP
IF THE IRP OF CORPORATE DEBTORS MAKES AN APPLICATION TO THE
ADJUDICATING AUTHORITY (SUB SECTION 6A OF SECTION 21). SUCH
RP WHO BECOMES AUTHORIZED REPRESENTATIVE OF A CLASS OF
CREDITORS IS ALSO TO BE PAID REMUNERATION AS PER NEWLY
INTRODUCED SUB SECTION 6B OF SECTION 21.
This amendment and introduction of new provisions greatly clears
the air with respect to flat-buyers and is slated to be a big move in
ensuring that the disgruntled flat-buyers are able to pursue the
remedy under the IBC. The monthly/assured returns conundrum
that the NCLAT had introduced in the case of Nikhil Mehta Vs AMR
Infrastructure has been left out by the Ordinance though the
introduction into the definition uses the words that the financing
from the allottee must have the effect of commercial borrowing.
The Ordinance does not stop at introduction of flat-buyers into the
definition of flat-buyers but also provides for appointment of an
authorised representative who may represent the flat-buyers at the
CoC. However, priority of banks and flat-buyers has now become the
same in order of payment.
55

3. SECTION 30 NOW REQUIRES A MANDATORY CERTIFICATE
ON AFFIDAVIT FOR ELIGIBILITY AS A RESOLUTION APPLICANT
This confusion had arisen in several matters including
the matter of Liberty House Group Pte Ltd. Vs Bhushan
Power and Steel Limited. It was time and again
contended that Section 29A does not introduce a pre-
eligibility requirement and the RP’s powers to ask for
undertakings and affidavits fro Section 29A eligibility
was limited to examining the same at the time of
opening the resolution plan and its consideration. The
Ordinance clarifies that a prior affidavit is to be sought.
It is expected that the format of the affidavit may come
to be prescribed by amendment to regulations framed
under the IBC. 56

4.SECTION 9(3)(C) CERTIFICATE IS NOW TO BE FILED
“IF AVAILABLE”
It has been held by the Hon'ble Supreme Court that the
certificate under Section 9 (3)(c) from the financial
institution is to be filed only where available. As a matter
of practice, showing that effort was made to procure the
certificate would suffice to get application under Section 9
admitted. This position has now become crystallized in the
words of the statute. This resolves a genuine grievance of
many applicants regarding non-cooperation from banks.
This also resolves the time and effort being put by the
NCLT to summon banks and seek reasons.
57

5.SECTION 12A INTRODUCED TO RECOGNISE SETTLEMENT
AFTER THE COMMENCEMENT OF INSOLVENCY
This was a major grey area and the hands of NCLAT and NCLAT were
tied since the Hon'ble Supreme Court in the case of Lokhandwala
Kataria Construction Pvt Ltd Vs Nisus finance and Investment
Managers LLP had observed that the power to recognize settlement
after admission of insolvency was not present in the IBC and only the
Hon'ble Supreme Court could recognize such settlement under Article
142.
As such, it was widely criticized that exercise of extraordinary power
under Article 142 by the Hon'ble Supreme Court had become a
matter of course. Moreover, conflicting judgments had started to be
passed by various NCLT Benches recognizing settlement under Rule 11
of NCLT Rules, 2016 that provides for inherent powers. The consistent
view of the NCLAT was that Rule 11 NCLT Rules does not apply to the
Adjudicating Authority under the IBC. This issue now stands resolved
with the NCLT and NCLAT being empowered to recognize settlement
post admission of application. Provided that an application made by
the applicant with the approval of 90% voting share of COC.
58

6. SURETY IN A CONTRACT OF GUARANTEE TO A
CORPORATE DEBTOR IS NOT COVERED IN THE MORATORIUM
UNDER SECTION 14.
The issue regarding guarantors and sureties had become hotly
contested and a larger bench of the NCLT had been seized of
the issue.
7. Section 22 to confirm IRP to RP – now only
66% votes needed at COC not 75%
This amendment makes the process of confirmation of IRP
easier. In fact throughout the IBC various voting thresholds
have been reduced from 75% to 66%. This could be keeping
in mind that high threshold of voting at 75% was leading to
deadlock in the COC and the NCLT was being approached for
breaking such deadlock. Majority of 66% might be easier to
obtain and COC will become more effective and efficient.
59

8. SECTION 23- RP TO MANAGE THE COMPANY TILL
RESOLUTION PLAN IS APPROVED BY THE ADJUDICATING
AUTHORITY. SECTION 31(4) INTRODUCED THAT RP IS
TO GET PLAN APPROVED WITH ALL PERMISSIONS WITHIN
1 YEAR OF APPROVAL OF RESOLUTION PLAN BY COC
A question had arisen as to when the RP becomes functus
officio and if the Adjudicating Authority is seized of the
matter then who continues to manage the corporate debtor
till such time. The amendments clarify that the RP is to
continue to remain in charge. The broad timeline of 1 year
has also been prescribed for the RP to get all relevant
permissions once the resolution plan is approved by the COC.
60

9. SECTION 30(2) (F) IF PLAN REQUIRES APPROVAL OF
SHAREHOLDERS THEN THE SAME IS DEEMED TO BE GIVEN
This position was clarified by the Ministry of Corporate
Affairs vide General Circular Bo. IBC/01.2017 issued on
25.10.2017 stating that consent of shareholders which
would otherwise be required under the Companies Act,
2013 is deemed to have been given if an action is taken
under the Resolution Plan.
The same position is now crystallized in law. this is
important since the resolution plans providing for
mergers ought not to be subject to the process of the
Companies Act for getting approvals. This question was
a pending consideration before the NCLAT in the matter
of Edelweiss Asset Reconstruction Ltd Vs Mamta Binani
and Others. 61

10. PROVISON TO SECTION 434 COMPANIES ACT HAS BEEN
INTRODUCED THAT WHERE A WINDING UP PETITION IS
PENDING IN THE HIGH COURT THE PETITIONER MAY APPLY
FOR TRANSFER OF PROCEEDING TO THE ADJUDICATING
AUTHORITY AND TO TREAT THE PETITION AS ONE UNDER
THE INSOLVENCY IBC.
This amendment has now given the litigants an option to
opt for a faster and more effective remedy under the IBC
even where notice has been issued and the High Courts
are actively seized of winding up petitions.
62

11. CLAUSE 24A OF SECTION 5 IS INSERTED TO INTRODUCE
THE ‘RELATED PARTY’ IN RELATION TO AN INDIVIDUAL.
This amendment has explained about the “Related
Party” in relation to an Individual in case the resolution
applicant is an Individual. The wide list of twenty nine
relatives includes blood and close relative in this list.
63
12. Section 12 to confirm for the extension of
period of CIRP- reduced to 66% from 75%
Now to extend the period of the corporate insolvency
resolution process beyond one hundred and eighty days, the
resolution is to be passed at a meeting of the committee of
creditors by a vote of Sixty Six per cent. of the voting shares.

13. SECTION 25A IS INSERTED TO DEFINE THE RIGHTS AND
LIABILITIES OF THE AUTHORIZED REPRESENTATIVE OF
FINANCIAL CREDITOR
The rights and responsibilities is defined to protect the
interest and to give timely information to the Financial
Creditor by the Authorized Representative.
64
14. AMENDMENT IN SECTION 10 TO HELP SMALL
STAKEHOLDERS
The amendment in section 10 by substituting the sub
section (3) that the Special Resolution from members of
the company is required to file the application by
Corporate Debtor itself for CIRP.

15. THE WORD REPAID HAS SUBSTITUTED TO PAID TO
WIDEN THE AREA OF DEFAULT AMOUNT
In the definition of “operational debt” under section 5
(21) the word ‘repayment’ has been substituted by the
word ‘payment’. Similarly the word “repaid” has been
substituted by “paid” in various provisions of the IBC
such as section 3(12), section 8(2)(b), explanation to
section 8, section 9(5)(i)(b), section 9(5)(ii)(b), etc.
65

16. ASSETS TO BE TAKEN UNDER CONTROL BY INTERIM
RESOLUTION PROFESSIONAL
Change in explanation to section 18, so as to cover the scope
of “assets” defined under the explanation to the entire
section rather than a particular sub-section. Wherever the
word “assets” appear in section 18 specifying duties of
interim resolution professional, the same shall be interpreted
in terms of the explanation.
66

17. CONSENT OF INTERIM RESOLUTION
PROFESSIONAL/RESOLUTION PROFESSIONAL/LIQUIDATOR
Clause 16 amends section 22 so as to require consent from
interim resolution professional and resolution professional for
continuation/appointment in office respectively. Clause 20
requires the consent of the proposed resolution professional who
would be replacing the existing resolution professional. Clause 26
amends section 34 so as to require the consent of resolution
professional to act as liquidator.
Amendment in various sections so as to require obtaining of
consent by resolution professional at various stages – during
appointment by committee of creditors, on replacement of
existing resolution professional, on appointment of existing
resolution professional as liquidator, on appointment of resolution
professional as liquidator.
67

CHANGES IN VOTING POWER:
68
Section
of IBC,
2016
Heading of Section Description Earlier
Voting
Power
Amendment
in Voting
Power
through
Ordinance
12(2) Time limit For
Completion of
Insolvency Resolution
Process
Voting power in favour of
extension of CIRP Process
exceeding one eighty days
75% 66%
21(8) Committee of Creditors Decision of COC for passing of
any resolution except otherwise
prescribed in specific sections
75% 51%
22(2) Appointment of
Resolution Professional
To Appoint RP or Regularize
the IRP as RP
75% 66%
27(2) Replacement of
Resolution Professional
by COC
Replacement of RP with
another RP by COC
75% 66%

69
Section
of IBC,
2016
Heading of
Section
Description Earlier
Voting
Power
Amendment in
Voting Power
through
Ordinance
28(3) Approval of COC
for certain
Actions
Certain businesses which
required prior approval
of COC
75% 66%
30(4) Submission of
Resolution Plan
Approval of Resolution
Plan by COC
75% 66%
56(2) Time limit For
Completion of
Fast Track
Corporate
Insolvency
Resolution
Process
Voting power in favour
of extension of Fast
Track CIRP Process
exceeding Ninety days
75% 75%
145(2) Replacement of
Bankruptcy
Trustee
Replacement of
Bankruptcy Trustee with
another Bankruptcy
Trustee by COC
75% 75%

70
For Any Query/ Clarification, please contact :
ADVOCATE ASHOK KUMAR JUNEJA
(LLB, FCS, ACMA, DBF, ADICA, M.COM)
ADVOCATE & INSOLVENCY PROFESSIONAL
FOUNDER & MANAGING PARTNER
MANTRAH LAW HOUSE LLP
1302, Vijaya Building,
17 Barakhamba Road,
Connaught Place, New Delhi-110001
Mobile No: +91-9810532462
Landline No: 011-41563467/ 43011969/23324078
Email: ashokjuneja@gmail.com
Website: www.mantrahlawllp.com
ADVOCATE&IPASHOKJUNEJA

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