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This article is written by Vishnu Ameya pursuing Certificate Course in National Company Law Tribunal Litigation from LawSikho.

Introduction

The National Company Law Tribunal (NCLT) acts as the adjudicating authority when it comes to matters pertaining to the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 (IBC). In this article, I have summarized five decisions of the NCLT. These five decisions pertain to some important and contentious issues namely; CIRP during Covid lockdown, the role of an NCLT in referring a matter to the Serious Fraud Investigation Organisation (SFIO), disqualifications for submitting a resolution plan, promoter disqualification in relation to compromise, and arrangement for a company undergoing liquidation and secured creditor’s role during liquidation. 

Ramaswamy Palaniappan v. Radha Krishnadharmarajan (Resolution Professional) (2021)

Facts

  • Corporate Insolvency Resolution Process (CIRP) was initiated against M/s Appu Hotels Ltd (Corporate Debtor) on 5th May 2020, but the entire CIRP process could not be completed due to the lockdowns imposed by the central government and various State Governments within the statutory period of 180 days.
  • The Committee of Creditors (CoC) had voted in favour of excluding 179 days, i.e, the period from 05th May 2020 to 31st October 2020. The central government inserted Regulation 40C in the CIRP Regulations, 2016 which excluded the period of lockdown for the purposes of calculating the timeline for CIRP.

Main contentions

  • Whether a mechanical extension of 179 days from the CIRP period without complete exclusion of the timelines and the activities undertaken during the lockdown period render a considerable benefit to all the stakeholders.
  • Whether the extension of CIRP of 179 days was against the basic object of IBC which is providing benefit to all stakeholders.

Decision of the NCLT

The NCLT excluded the 179 days pursuant to Regulation 40 C of CIRP Regulations, which excluded the period of lockdown for the purposes of calculating the timeline for CIRP. 

Decision of the NCLAT

The NCLAT observed the decision of the NCLT. The NCLAT further observed that Regulation 40C was inserted in compliance with the powers derived u/s. 12 of the IBC and was done in the interest of Public Health during these unprecedented times. The NCLAT cited the judgement of Kalpraj Dharamshi v Kotak Investment Advisors Limited 2021 SCC Online SC 204, in which the Supreme Court observed that the commercial wisdom of the CoC is not to be interfered with unless the scheme does not provide equitable relief to all the stakeholders. 

Ministry of Corporate Affairs v. Amit Chandrakant Shah (Resolution Professional) (2021)

Facts

  • The resolution professional had filed an application to the NCLT u/s 66 IBC for fraudulent and wrongful trading with the intent to defraud the company against the management of the company undergoing Corporate Insolvency Resolution Process (CIRP). 

Main contentions

  • Whether Section 213 allows the NCLT can direct the central government to refer a matter to the Serious Fraud Investigation Office (SFIO).

Decision of the NCLT

  • The NCLT in the exercise of its powers u/s. 213(b)(i)  of the Companies Act, 2013; which allows the NCLT to direct the central government to investigate in case of fraud committed by the management of the Company in order to defraud the creditors.
  • The NCLT further ordered the resolution professional to file the requisite documents in support of the application filed u/s. 66 and even directed the central government to refer the matter to the Serious Fraud Investigation Office (SFIO).

Decision of the NCLAT

  • The NCLAT citing its decision in the case of Mr. Lagadapati Ramesh v. Mrs. Ramanathan Bhuvaneshwari, Company Appeal (AT) Insolvency No. 574 of 2019; ruled that u/s. 213 of the Companies Act, 2013 the NCLT may give notice to the promoters and directors of the company and only if a prima facie case is made out to the matter to the central government. 
  • If the inspectors of the central government are satisfied that there is a case of wrongful trading or fraud with the intent to defraud creditors and the same requires investigation by the SFIO, the matter shall be directed to the SFIO.
  • Hence, it is not within the powers of the NCLT u/s. 213 to direct the central government to refer the matter to the SFIO for investigation.

Arun Kumar Jagatramka v. Jindal Steel and Power Ltd. (2021)

Facts 

  • GNCL, (corporate debtor) was undergoing CIRP and a resolution plan was submitted by a resolution applicant. However, the Committee of Creditors (CoC) found that the applicant being a promoter is disqualified u/s 29A of IBC.
  • Upon receiving no resolution plan within the CIRP timeframe, the resolution professional filed for liquidation in the NCLT which was allowed.
  • Subsequently, an application was filed in the NCLT proposing a scheme of compromise and arrangement u/s 230-232 of the Companies Act, 2013.

Main contentions

  • Whether in liquidation proceedings a scheme for compromise or arrangement u/s. 230-232 of the Companies Act, 2013 can be made.
  • Whether a promoter who is ineligible u/s 29A IBC can be permitted to propose a compromise or arrangement u/s 230-232 of the Companies Act, 2013.

Decision of the NCLT

  • The NCLT had allowed the application on the ground that there is no bar under the Companies Act, 2013, and issued a direction for convening a meeting of the shareholders and creditors.

Decision of the NCLAT

  • The NCLAT ruled that the stages of CIRP, viz. a creditor in control, meetings of CoC, voting power of CoC, suspension of management, resolution plan, and even liquidation indicate the company must be running as a going concern or undergo liquidation to meet the liabilities.
  • Proposal of a compromise or arrangement by a promoter is akin to giving a backdoor entry to the promoter to take over the management of the company.
  • However, the NCLAT did affirm that a scheme for compromise or arrangement may be made for a company undergoing liquidation proceedings.

Decision of the Supreme Court

  • The Supreme Court affirmed the judgement of NCLAT.
  • The Supreme Court observed that during the liquidation process of the filing of a resolution agreement, selling the company’s assets and selling the company as a going concern is not given a backdoor entrance into the company by the promoter or anyone in the company management and therefore unavailable at those phases.

Ashish Mohan Gupta v. Hind Motors India Ltd (In liquidation) (2021)

Facts

  • The NCLT had passed an order to initiate liquidation against the corporate debtor. However, a director cum promoter cum shareholder of the corporate debtor filed an application for compromise and arrangement of the corporate debtor with two other companies which were undergoing liquidation and in which the individual held office as director.

Main Contentions

  • Whether an individual who is a promoter cum director cum shareholder of a company undergoing liquidation files an application for compromise and arrangement.
  • Whether the bar under Section 29A IBC r/w Section 35 (1) (f) binds Section 230-233 of the Companies Act, 2013 and acts as a bar in matters relating to compromise and arrangement.

Decision of the NCLT

  • The NCLT ruled that in the instant case, the applicant is disqualified u/s 29A IBC and Section 35(1)(f) of IBC and thus is disqualified from filing the application for compromise and arrangement u/s. 230-233 of the Companies Act, 2013.

Decision of the NCLAT

  • The NCLAT ruled that Section 29A of IBC prohibits a promoter from being a resolution applicant and Section 35(1)(f) of IBC prohibits the liquidator to sell assets of the company undergoing liquidation to those disqualified u/s. 29A of IBC.
  • The NCLAT further observed that in the case of Arun Kumar Jagatramka v. Jindal Steel and Power Ltd., 2021 SCC Online SC 220 wherein the Hon’ble Supreme Court of India ruled that the bar under Section 29A IBC r/w Section 35(1)(f) of IBC is applicable to Section 230-233 of the Companies Act, 2013 if not it would be akin to allowing that disqualified u/s 29A r/w Section 35(1)(f) a backdoor entry to the corporate debtor thereby defeating one of the primary intentions of the Code.

SICOM Ltd. v. Sundaresh Bhat (NCLT Ahmedabad Bench) (2021)

Facts

  • SICOM Ltd. (the applicant) had sanctioned a loan amounting to Rs. 90 crores to ABG Shipyards Ltd. (the corporate debtor). The corporate debtor created an exclusive first charge to the applicant on its assets.
  • CIRP of the corporate debtor was initiated u/s. 7 of the IBC by a financial creditor. The applicant filed its claim to the interim resolution professional.
  • Subsequently, the CIRP of the corporate debtor failed and the corporate debtor was undergoing liquidation. The applicant, despite receiving notice from the liquidator, failed to file ROC Charge Registration or CERSAI Search Reports in support of the security interest on the assets of the corporate debtor.
  • Consequently, the applicant was classified as an ‘unsecured creditor’ by the liquidator. Aggrieved by this, the applicant filed the present application against the decision of the liquidator after a span of 551 days.

Main contentions

  • Whether a creditor can file an application against the decision of the liquidator 551 days after the receipt of the decision of the liquidator.
  • Whether the liquidator can take into account only such charges which are duly registered and the certificate of registration is presented to the liquidator.

Decision of the NCLT

  • Regarding the first contention, The NCLT Ahmedabad Bench ruled that u/s. 42 of the IBC, the creditor is under an obligation to file an appeal either confirming or challenging the decision of the liquidator in a span of 14 days after the receipt of the decision of the liquidator.
  • Regarding the second contention, the NCLT Ahmedabad Bench ruled that a combined reading of Section 77(3) of the Companies Act, 2013 and Regulation 21 of Liquidation Regulation implies that for a charge to be valid against the holder and the liquidator, the charge must be registered and must be duly presented to the liquidator.

Conclusion

Adjudicating authorities like the NCLT and NCLAT play a key role in resolving disputes under the Companies Act, 2013 and IBC. The aforementioned decisions clear the mist regarding the exclusion of lockdown period during CIRP, limitation of NCLT in referring a matter to the SFIO, disqualification of a promoter in proposing a compromise or arrangement in a company undergoing liquidation, and presenting a duly registered charge to the liquidator to realize the security of the corporate debtor.

References


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