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This article is written by Dhruv Sharma, pursuing a Certificate Course in Insolvency and Bankruptcy Code from LawSikho.

Introduction

In the course of 2016, the Assembly established the Insolvency and Bankruptcy Code to solidify and amend the legislation concerning enterprise, company, and employee reform and the determination of indebtedness on a timely basis, in order to increase the appreciation of the people’s wealth, to facilitate industry, to make credit available and to adapt the interface between all partners. The Code has been under a relentless scanner and overhauled many times ever since it started. The legal system has too formulated decisions that define the substance of the code and lead to streamlining the law on duty recovery in India recently established. In 2016, courts and tribunals paved the way, by successful interpretation and improved application of the Code, for a modern system of bankruptcy and insolvency in India. Although the Code is still in progress, judicial comments play a very significant role in clarifying the legislative purpose and interpretation of the Code provisions. 

Legal provisions

The Insolvency and Bankruptcy Act is a combined code covered in List 9 of the Indian Constitution List III of the Seventh Schedule. The key aim of the Code is to make the insolvency process of a corporate or a creditor temporarily oriented. It should be remembered that w.e.f 23.11.2017, the Code also extends to the corporate personal guarantors. The aim of the Code is to set up the Insolvency and Bankruptcy Board of India (IBBI) for the oversight of business, business, and entity insolvency, and insolvency work.

The aim of the IBC Code is to strengthen regulations surrounding reorganization and insolvency, as well as timing and value maximization. The recovery goal is not, however, stated along with other items, but is believed to be just a recovery mechanism in the current scenario. In addition to the restructuring component, the details on the insolvency settlement indicate that the law still has a lot to do. 3774 insolvency settlement claims were filed and only 1604 cases were settled out of this. Furthermore, it is questioned to say that the rate of cases that end up with a winding-up is 58.9%. Thus after going through the above scenario, it becomes paramount to understand and therefore to see what are the changes or the reformations that have come so far which in effect will provide a new shape to this code. For this, the present article shall deal with landmark judgments that were passed by various Adjudicating Authorities across the country. 

Landmark judgments

1. Lokhandwala Kataria vs Nissus Finance And Investment 

Held:

In this case, it was held that the Supreme Court in this paramount case held that in view of Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, the NCLAT could not utilise the inherent power recognised by Rule 11 of the NCLAT Rules, 2016.

2. M/S. Innoventive Industries Ltd vs ICICI Bank  

Held:

The court here ruled that the previous directors, who are no longer managing, will clearly no longer hold an appeal on behalf of the corporation until an insolvency professional has been named to administer the firm. The Insolvency and Insolvency Code, 2016, is an Act to consolidate and update, inter alia: rules on company restructuring and insolvency – The Insolvency and Bankruptcy Code is an exhaustive code of parliamentary law on the issue of company insolvency.

3. Macquarie Bank Limited vs Shilpi Cable Technologies Ltd. 

Held:

One important question arises in this case-

  • Whether a demand notice of an unpaid operational creditor under Section 8 can be issued by a lawyer on behalf of the operational creditor?

According to Rule 5 (Application to the Adjudicating Authority), Rule 5 (2016), Rules of Practice – Sections 8, 9, and 238 of the Insolvency and Bankruptcy Code – Rule 30 – Rules 2016 read the Rule 5 Advocates’ Act, the goal ought to be met under the Code, a rational construction of Section 9(3)(c) could infer that it cannot be viewed as a threshold bar or as a preceding prerequisite. The non-stant provision provided in Section 238 of the Code will not circumvent the Advocates Act, since the two Parliamentary Laws cannot be resolved in the present case by a harmonious interpretation, since in Section 9, reading the Rules and Forms of the Adjudicating Authority referred to above, do not exist any inconsistency between them or between them. 

Also, we must not forget that Section 30 of the Advocates Act deals with the fundamental right under Article 19(1)(g) of the Constitution to practice one’s profession. Therefore, a conjoint reading of Section 30 of the Advocates Act and Sections 8 and 9 of the Code together with the Adjudicatory Authority Rules and Forms thereunder would yield the result that a notice sent on behalf of the operational creditor would be in order. 

4. Mobilox Innovations Private Ltd vs Kirusa Software Private Ltd.

The question that arises before the bench-

  • Whether the expression “and” occurring in Section 8(2)(a) may be read as “or”?

The court held that the expression “and” occurring in Section 8(2)(a) may be read as “or” in order to further the object of the statute and/ or to avoid an anomalous situation – once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility – So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application – A “dispute” is said to exist, so long as there is a real dispute as to payment between the parties that would fall within the inclusive definition contained in Section 5(6).

5. Surendra Trading Company vs Juggilal Kamlapat Jute Mills 

The NCLAT query concerned whether it was obligatory or directory to assess the nature of a default and to approve or deny the submission, for a period of 14 days, pursuant to Section 9(5). NCLAT retains a continuing disposition, an assist weapon in the timely discharge of justice, and is a directory in the mandate of Section 7, or Sub-Section (5) of Section 9 or Sub-Section (4) of Section 10.

The query, as to whether the seven-day period for correcting the defects under proviso of Section 9 of subsection (5) is compulsory or a directory, also appeared (with the Supreme Court). The court held that the same is a directory and not mandatory.

6. K.Kishan vs M/S Vijay Nirman Company Pvt. Ltd.

In that, it can be demonstrated to the court that the term of ninety days plus the discretionary time of thirty days has clearly ended, after which no application has been made under Section 34 or a late petition under Section 34 has been filed The court found that a case can arise where an application for an arbitrator’s award can clearly and unevenly barred by limitation, The insolvency process can only be implemented in such obvious cases. There may be additional cases in which a petition under Section 34 has been brought before the wrong court and the petitioner may then claim that the limitation bar laid down in Section 34(3) of the Arbitration Act is applied to Section 14 of the Limitation Act. It is also clear, in these cases, that without an award on the applicability in Article 14 of the Limitation Act, the insolvency procedure cannot be implemented.

7. Transmission Corporation Of vs Equipment Conductors And Cables 

The only argument put forward by an experienced advocate of the respondent before the Court of Justice was that the Supreme Court of Punjab and Haryana did not consider time-barred while setting aside the remand order issued by the District Judge Additional. Consequently, under these invoices, the respondent had a valid claim. This argument is incompatible. The Arbitral Council has not received an award for invoices in Sl. 1-57 as of today. Any other court’s order and these invoices are not available. Indeed, the Arbitral Council rejected the defendant’s claim as time was not allowed. It is relevant to note that the intimate has requested the Arbitral Council to establish the amount the appellant should pay. The Arbitral Council specifically rejected this application as not viable, however. However, The Court also mentioned the Mobilox Innovations Private Ltd. vs Kirusa Software Private Ltd. case where the IBC did not consider itself to be a substitute for a forum for remediation and where a real dispute exists it did not invoke the IBC provisions.

8. Jk Jute Mill Mazdoor Morcha vs Juggilal Kamlapat Jute Mills 

Held

By a contested ruling, the Supreme Court held that the NCLAT is not correct in refusing to examine how the syndicate is defined under Section 3(23) of the Code as a ‘person.’ Likewise, NCLAT does not make the point that a trade union would not be an operational creditor because no corporate debtors’ services are provided by the trade union. What is clear is that it represents its employees, to whom the employer can pay dues, which surely are debts due to services rendered by each individual employee, who collectively represents the syndicate. Equally, to state that for each workman there will be a separate cause of action, a separate claim, and a separate date of default would ignore the fact that a joint petition could be filed under Rule 6 read with Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, with authority from several workmen to one of them to file such petition on behalf of all. For all these reasons, we allow the appeal and set aside the judgment of the NCLAT.

9. Anand Rao Korada Resolution vs M/S Varsha Fabrics (P) Ltd.

The Supreme Court dismissed the contested provisional orders of the Court of Appeal dated 14.08.2019 and 05.09.2019 passed by the Odisha High Court and held that it should not have audited the property of corporate debtors as soon as the proceedings under the International Business Center had begun and that NCLT was ordering the declaration of a moratorium. After the initiation of the CIRP, the High Court issued the contested Interim Orders from 14 August 2019 and 05 Sep 2019. The moratorium was declared by the NCLT on 06.2019, and the High Court was not justified to make a hearing of the corporate debtor’s assets before the NCLT with the orders of 14.08.2019 and 05.09.2019. If the company’s assets are alienated during the pending IBC proceedings, the interest of all parties will be seriously threatened. The sale or wind-up of respondent No. 4’s assets are now subject to the IBC’s provisions.

Conclusion

In order to ensure a stable recovery, it was important to improve the Code for maximization of the valuation of the asset and, at the outset of the Code, the whole corporate insolvency process. The Code was created. One causes the value of the business to deteriorate could be incompetent administration, which is why the resolution specialist assures a swift company recovery and continuity during the arbitration process control over the corporate obligor properties. The overarching aspect of the Act, otherwise the Act does not fulfill its purposes and recover businesses, should be preserved to ensure other legislation would not obstruct the insolvency settlement mechanism. The article has illustrated the dynamics of this code which in terms take place at a regular interval of the time period. The code does not itself satisfy every aspect of the IBC, the intricacies that keep on adding in the IBC News Letter are best narrated with the help of precedents. So following the same approach, the author has come out with the most important decisions that had been passed by various Adjudicating authorities across the country and the Apex Court per se. These landmark judgments have given a new stature to this code and have helped in solving unanswered questions of various litigants. 

References


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