NCLT
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This article is written by Uma Shankar Mishra, pursuing a Certificate Course in Intellectual Property Law from Lawsikho.com. Here he discusses “Five NCLT decisions you must know about”.

 

NCLT which was established under the Companies Act to adjudicate disputes and Matters related to Companies Act, 2013. However, with the merger of Competition Appellate Tribunal (COMPAT) and Enactment of IBC, the NCLT manages the affairs related to Companies Act, 2013, IBC,2016 and Competition Act,2002. Some of the landmark Judgements Of IBC are as follows:

1) Innoventive Industries Vs ICICI Bank

Facts

Innoventive Industries filed an application before the Mumbai Bench of the National Company Law Tribunal (“NCLT”) for the insolvency resolution procedure to be initiated as Innoventive was found to be a default under the IBC. The main argument of Innoventive was that no debt was legally due as all Innovative obligations and remedies for compliance actions were temporarily suspended for 2 years pursuant to notifications issued under the 1958 Maharashtra Relief Undertaking (“Maharashtra Act”) 

Main Contentions

  1. Whether the appeal could be continued as it was lodged by Innoventive’s former directors after the appointment of an insolvency lawyer to manage the company? 
  2. Whether the IBC and the Maharashtra Act really had any repugnance? 
  3. Whether the non-obstante clause contained in IBC section 238 would prevail over the non-obstante clause contained in section 4 of the Maharashtra Act?

NCLT Judgment

On 17 January 2017, the NCLT held that, in view of the non-discriminatory clause contained in Section 238 of the IBC, 2016, the Maharashtra Relief Undertaking (Special Provisions  Act ) would prevail over the non-obstante in Maharashtra Relief Undertaking (Special Provisions Act), 1958 (“Maharashtra Act”). As Maharashtra Relief Undertaking (Special Provisions Act), 1958 (“Maharashtra Act”) is a state act whereas IBC is a Central Act and Central law prevails over State Law. 

Judgment of NCLAT 

Upheld decision Of  NCLT

Judgment of Supreme Court 

The SC held that Once an insolvency Professional is appointed to run the company, an appeal on behalf of the company can not be made by the former directors who are no longer in management. The appeal was therefore not sustainable in the present case. Nonetheless, on this point alone, the Supreme Court did not tend to dismiss the appeal. Since this was the very first case to be transferred under the IBC, the judges found it appropriate to pass a thorough judgment so that all courts and tribunals could be informed about  of a paradigm shift in insolvency law in India.

The Supreme Court discussed in detail different case laws and constitutional principles in order to test whether there is any repugnance between the IBC and the Maharashtra Act and pointed forth (among others) the following proposals:

  1. The difference must be clear and direct and must be of such a kind as to put the two Acts or sections thereof into an overt confrontation with each other, entering a condition where the two acts or parts thereof are in dispute with each other. It occurs when two laws, when presented to the same evidence, produce different legal outcomes.
  2. While there may be no direct conflict, the legislation of the State may be inoperative because the Parliamentary law is intended to be a complete, exhaustive or exclusive code and superior to state Code.

2) Swiss Ribbons vs Union Of India 

Several petitions were filed assailing the constitutional validity of various provisions of the Insolvency and Bankruptcy Code, 2016 (Code). While dismissing these petitions, the Hon’ble Supreme Court made several important findings and rulings as under. The Hon’ble Supreme Court decided on the difference between Operational and Financial Creditor and Held that a) Some FCs are investors that are covered, while most OCs are unsecured. 

  1. The essence of loan agreements with FCs varies from contracts for the supply of goods or services with OCs. 
  2. Generally speaking, FCs lend money on a term loan or working capital that helps the CD to either set up and/or run its business. On the other side, OC contracts are linked to the delivery of goods and services in the business operation. 
  3. For a fact, large sums of money are included for financial transactions. Operational arrangements include responsibilities that are generally lower in amount. 
  4. OCs can be many in the running of a business as opposed to FCs that provide finance for the establishment or operation of a business. 
  5. FCs with defined repayment periods and defaults enable them to completely recover a loan whereas OC contracts have no such stipulations. 
  6. Dispute resolution of FCs and OCs is distinct. OC contracts can and do have private arbitration provisions to resolve disputes, whereas no such provision can be included in loan contracts. 
  7. Operating debts appear to be persistent in nature, and the scope for real conflicts in the case of operating debts is much greater than in the case of financial debts. 
  8. Products shipped or services provided by OCs may be deficient or products may not have been distributed at all.
    On the other side, financial loans to banks and financial institutions are well known and it is easy to verify defaults made.
  9. FCS has been interested in determining the feasibility of the CD from the very beginning. Thus, FCs should indulge in reforming the loan as well as reorganizing the company of the CD when there is financial stress, which is not and can not be achieved by OCs.
  10. There is a clever distinction between the FCs and OCs that has a direct relationship to the artefacts the Code seeks to achieve. 
  11. Classification of FCs and OCs is not unfair, subjective or in violation of Article

3)Binani Industries Vs Bank of Baroda, National Company Law Tribunal, Kolkata Bench, Kolkata

Facts

CIRP process was Initiated against Binani Industries by Committee Of Creditors Due to default of Dues.

The meeting was held on 14 March 2018 with 99.43 per cent of the Committee of Creditors (COC) accepting Rajputana Properties Private Limited’s Resolution Strategy.

Nonetheless, a dissent note was registered by 10.53 per cent of the COC who were forced to vote in support of the “Resolution Program.” They said they had not been treated fairly relative to other financial investors who were the corporate debtor’s corporate guarantors. The RP submitted a request for approval of the Resolution Plan in Binani Cement Limited pursuant to Sections 30 and 31 of IBC r/w Regulation 39 of the Insolvency and Bankruptcy Board of India Rules, 2016.

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The Resolution Plan of Rajputana Properties Pvt. Ltd. envisaged that the Financial Creditors such as, ‘Edelweiss Asset Restructuring Company Limited’, ‘IDBI Bank Limited’, ‘Bank of Baroda’, ‘Canara Bank’, ‘Bank of India’, State Bank of India’ would be given 100% of the verified claim whereas lesser percentage was proposed for the claims of other Financial creditors such as Export-Import Bank of India (72.59%) and State Bank of India-Hong Kong (10%). The resolution plan was held to be discriminatory by some of the lenders and they filed an application to NCLT for not Considering it and file revised plans.

Issues

Whether  RP exceeded his power in Appointing Other Professionals and Outsourcing Works?

Whether Non Considering of revised offer from Ultratech is Violative of Provisions Under IBC?

Judgement 

1. Whether  RP exceeded his power in Appointing Other Professionals and Outsourcing Works?

The Tribunal observed that costs incurred by RP in engaging people was exorbitant and directed costs should be reasonable.

2. Whether Non-Considering of revised offer from Ultratech is Violative of Provisions Under IBC?

Yes, It is violative as the CoC decided to negotiate with only the H1 bidder which is against the basic provisions Of code aimed at maximising value. The Coc went ahead with Approval of plan submitted by Rajputana Properties which is Unjust and Arbitrary, Company which was not an H1 bidder was as Disqualified from the Bidding Process. which is not valid due to the following:

  1. Negotiation only With H1 Bidder Not the test Of the code. RP should Act independent Of CoC, his resolution Plan should Be fair across all Categories Of Creditors.
  2. RP and CoC should aim at Maximisation of Value, Receipt  of Email not a Criteria For rejection
  3. He is duty bound To place all plans that satisfy requirements Of Sec. 30(2)
  4. Any plan/bid submission till CIR process is not concluded to be taken to its logical conclusion.

3. Whether the Resolution Plan is Discriminative Against Unsecured Financial Creditors?

NCLT observed that there has been Discrimination In Consideration of Claims of Financial Creditors in the Resolution Plan and the Resolution Plan Accordingly Needed Modifications

4. Whether RP has Ignored Claims Of Operational Creditors?

The NCLT observed That a Reduction In Amounts Payable to Operational Creditors Is Acceptable However Such Reduction Should Be Acceptable To all Class of Creditors Since the Plan Contained settlements At Various class Of Creditors Differently the NCLT observed that Resolution Plan Contravenes Some Provisions Of the Code as such Regulation is not in line with the Objectives Of Code.

4) Tata Sons Vs Cyrus Mistry Case

Facts

Due To disagreements and difference Of Opinion between Tata Trusts (Largest Shareholder of Tata Sons) and Cyrus Mistry(Then Chairman of Tata Sons) Cyrus was removed From his Position Of Chairman on Charges of gross Mismanagement  Of Company

NCLT Judgement

NCLT Mumbai sets aside the two investment firms of the Mistry family’s complaint on the question of viability, stating that they did not meet the criteria for filing a case of alleged exploitation of minority shareholders under the Companies Act, 2013— 10 per cent stake in a business.

NCLT Mumbai denies Mistry’s petitions opposing his dismissal as chairman of Tata Sons as well as Ratan Tata’s and the company’s board’s charges of systemic abuse. In his claims of mismanagement in Tata group companies, the court said it saw little substance. NCLT Mumbai also refuses petitions requesting a waiver from the two investment firms on the grounds that they have at least 10% share of a filing their case of oppression and mismanagement against Tata sons by SP  Group.

NCLAT Judgement

Mistry’s investment firms are pursuing the NCLAT, appealing the NCLT order that dismissed their demands for maintenance. They also challenged their plea for a waiver to be rejected.  On Sept. 21, 2017, NCLAT allowed petitions from the two investment firms requesting a waiver in filing case of injustice and mismanagement against Tata Sons but rejected Mistry’s other petition on sustainability claiming the firms did not.  On Dec. 18, 2019: NCLAT reinstated Cyrus Mistry as Tata Sons Ltd’s executive chairman, but postponed its execution for four weeks to give Tata Group time to appeal.

SC Judgement – awaited

5) Mack Soft Tech Pvt. Limited&Anr. Vs  Quinn Logistics India Pvt. Limited

Issue

Whether Financial Creditor Can Claim Its Dues & File Action Under IBC For in Case Of No Supporting Documents or Over Limitation Period?

Judgement

Limitation Act, 1963 is not valid for claiming amount under IBC but Application Under Sec-7 is Time –Barred For 3 Years. But in this case, the cause of action is continuing, therefore, application Under Sec-7 Is Admissable.


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