IBC - NCLAT Fornightly Summary (October 1, 2023 ' October 15, 2023)

• Published date: 04 April 2024
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-Structuring, Corporate and Company Law, Insolvency/Bankruptcy, Trials & Appeals & Compensation
• Law Firm: Argus Partners
• Author: Ms Arka Majumdar, Juhi Wadhwani, Ayush Chaturvedi and Vikram Chaudhuri

The following is a snapshot of the important orders passed by the National Company Law Appellate Tribunal ("NCLAT"), under the Insolvency and Bankruptcy Code, 2016 ("Code"), during the period between October 1, 2023 to October 15, 2023. For ease of reference, the orders have been categorized and dealt with in the following categories i.e., Pre-admission stage, Corporate Insolvency Resolution Process ("CIRP") stage, Liquidation stage, and Miscellaneous.

PRE-ADMISSION STAGE

1. In Suresh Khola v. Abdulhadi Almailem Trading Company W.L.L (Comp. App. (AT) (Ins) No. 1063 of 2023 &amp I.A. No. 3673, 3674, 4537 of 2023), the NCLAT held that where the goods supplied were defective, a Section 9 application to recover the amount paid towards such defective goods is non-maintainable as a claim of damages does not fall within the purview of 'debt.'
2. In Amour Infrastructure LLP v. Digital Integrated Technologies Private Limited (Company Appeal (AT) (Ins.) No. 884 of 2022), the NCLAT observed that an application under Section 65 of the Code ( fraudulent or malicious initiation of proceedings) requires adequate pleadings and findings and in the absence of such adequate pleadings and findings, a Section 7 application cannot be rejected on the basis of mere allegations.
3. In Yogesh Agarwal Sole Proprietor of Agarwal Steels v. Shapoorji and Pallonji Company Private Limited (Comp. App. (AT) (Ins) No. 641 of 2023), the NCLAT noted that while a recall application is maintainable against the dismissal of an application on the ground of non-appearance, where the dismissal is on merits, only an appeal lies against such order and not a recall application.

CIRP STAGE

1. In Ajit Kumar v. Alpha (India) Properties Private Limited (Comp. App. (AT) (Ins) No. 404 of 2021), the NCLAT relied upon the proviso to Section 21(2) of the Code, which specifies that a related party of the corporate debtor would not have any right of representation, participation or voting in a meeting of committee of creditors, to hold that the view of the Adjudicating Authority allowing related party financial creditors, whose claims were accepted by the resolution professional, to participate in the meeting of committee of creditors, was palpably wrong.
2. In Sunil Tangri v. Ashu Gupta (Company Appeal (AT) (Insolvency) No. 1070 of 2021 & I.A. No. 4532 of 2022 & I.A. No. 981 of 2023), the NCLAT observed that if a person has been a promoter, or in the management, or control of the corporate debtor in which preferential, undervalued fraudulent and extortionate transactions have taken place, and in respect of which an order has been made by the Adjudicating Authority under the Code, such person would become ineligible to submit any resolution plan under Section 29A(g) of the Code and such eligibility cannot be restored back by paying off the debts of the corporate debtor.
   
   Accordingly, in the instant case, the rejection of a resolution plan filed by the successful resolution applicants who were the suspended board of directors of the corporate debtor and who were found to be ineligible under Section 29(A)(g) of the Code on account of being involved in preferential, undervalued, fraudulent and extortionate transactions, was upheld.
   
   The NCLAT further held that a finding in the forensic audit report regarding the existence of a fraudulent transaction does not become unreliable merely on account of the statutory auditor of the corporate debtor failing to identify the existence of any such fraudulent transactions.
3. In G. Balasubramaniam v. B Jeevarathinam (Company Appeal (AT) (CH) (Ins) No.309/2023), the NCLAT held that the commercial wisdom of the committee of creditors cannot be interfered with except in the limited purview, as specified, under Section 30(2) of the Code. The NCLAT further held that where the ingredients of regulation 36C of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 were fulfilled and evidence of wider publicity through advertisement was present it could not be contended that no specific or certain effort was undertaken by the resolution professional with a view to finding a better prospective resolution applicant.
   
   The NCLAT noted that the Adjudicating Authority is not empowered to have the jurisdiction of a civil court to ascertain if a resolution applicant which is incorporated under applicable law, has been legally and validly constituted.
   
   It was further noted that shareholders do not havelocusto challenge the approval of a resolution plan or question the CIRP costs incurred.
4. In Sunil Kumar v. Mohit Goyal &amp Ors. (Company Appeal (AT) (Insolvency) No.1291 of 2023), the NCLAT held that where the authorized representative of home buyers had voted in favour of the approval of a resolution plan based on the approval of majority of homebuyers, such a resolution plan cannot be challenged by minority home buyers. A similar view was taken by the NCLAT in Ashok Gosavi & Ors. v. Manoj Kumar Agarwal & Ors. (Company Appeal (AT) (Insolvency) No.1094/2023), which we have covered in our August 16 to August 31, 2023 round-up.
5. The NCLAT, in Pratim Bayal v. Tata Motors Finance Solutions Limited (Company Appeal (AT) (Insolvency) No. 1309 of 2023 & I.A. No. 4631 of 2023), held that the date of payment by a cheque is the date on which a cheque is handed over and not when the cheque is encashed. Hence, where a cheque was issued prior to the CIRP admission but encashed during moratorium, such payment was not held to be violative of the moratorium.
6. In Regional Provident Fund Commissioner, Vatwa, Employees Provident Fund Organization v. Shri Manish Kumar Bhagat (Company Appeal (AT) (Insolvency) No. 808 of 2022), the NCLAT held...