THE INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ORDINANCE, 2017

Indian President signed off on an ordinance amending the Insolvency and Bankruptcy Code, 2016 ("IBC") to help prevent defaulters from bidding for their assets in resolution process  and regaining control while lender banks were forced to swallow losses.  (Ordinance are issued when Parliament is not in session and approval of law Bill is urgently required).   

A person shall not be eligible to submit a resolution plan, if such person is -

(a)        Undischarged Insolvent;

(b)        Wilful Defaulter as per guidelines of the Reserve Bank of lndia issued under the Banking Regulation Act, 1949;

(c)        Persons whose accounts are  classified as non-performing asset (NPA) and period of one year or more has lapsed from the date of such classification and who has failed to make the payment of all overdue amounts with interest thereon and charges relating to non-performing asset before submission of the resolution plan;

(d)        has been convicted for any offence punishable with imprisonment for 2 years; or

(e)        Disqualified Directors ;

(f)        prohibited by SEBI from accessing the securities markets;

(g)        Person indulged in undervalued transaction or fraudulent transaction as per order passed by Adjudicating Authority under IBC;

(h)       has executed an enforceable guarantee in favour of a creditor in respect of a corporate debtor;

(i)         Connected Person in respect of persons specified in clauses (a) to (h) above.

(j)       Person subject to any disability, corresponding to clauses (a) to (i), under any foreign law.

Text of the Notification is provided below

MINISTRY  OF LAW AND JUSTICE

(Legislative Department)

New Delhi, the 23rd November, 2017

THE INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ORDINANCE, 2017

No.7 OF 2017

Promulgated by the President in the Sixty-eighth Year of the Republic of India.

An Ordinance to amend the Insolvency and Bankruptcy Code, 2016.

WHEREAS the Insolvency and Bankruptcy Code, 2016 (the Code), inter alia, provides a framework for insolvency resolution of corporate persons in a time bound manner for maximisation of value of assets of such persons;

AND WHEREAS the provisions relating to corporate insolvency resolution process of the Code have come into force on 1st day of December, 2016;

AND WHEREAS in order to strengthen further the insolvency resolution process, it has been considered necessary to provide for prohibition of certain persons from submitting a resolution plan who, on account of their antecedents, may adversely impact the credibility of the processes under the Code;

AND WHEREAS it is also considered necessary to make provisions to specify certain additional requirements for submission and consideration of the resolution plan before its approval by the committee of creditors;

AND WHEREAS Parliament is not in session and the President is satisfied that circumstances exist which render it necessary for him to take immediate action;

NOW, THEREFORE, in exercise of the powers conferred by clause (1) of article 123 of the Constitution, the President is pleased to promulgate the following Ordinance :-

 Shorttitle and commencement

1.      (1)        This Ordinance may be called the Insolvency and Bankruptcy Code (Amendment) Ordinance ,2017

(2)        It shall come into force at once.

Amendmentof section 2.

2.      In the Insolvency and Bankruptcy Code, 2016 (hereinafter referred 31 of 2016 to as the principal Act), in section 2,-

(i) in clause (d), the word “and” shall be omitted;

(ii) for clause (e), the following clauses shall be substituted, namely:-

                                    (e) personal guarantors to corporate debtors;

                                    (f) partnership firms and proprietorship firms; and

                                    (g) individuals, other than persons referred to in clause (e),”

Amendmentof section 5

3.      In section 5 of the principal Act,-

(a)        for clause (25), the following clause shall be substituted, namely:-

'(25) "resolution applicant" means a person, who individually or jointly with any other person, submits a resolution plan to the resolution professional pursuant to the invitation made under clause (h) of sub-section (2) of section 25;'

(b)        in clause (26), for the words "any person", the words "resolution applicant" shall be substituted.

Amendmentof section 25

4.      In section 25 of the principal Act, in sub-section (2), for clause (h), the following clause shall be substituted, namely:-

"(h) invite prospective resolution applicants, who fulfil such criteria as may be laid down by him with the approval of committee of creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified by the Board, to submit a resolution plan or plans.".

Insertionof new section 29A

5.      After section 29 of the principal Act, the following section shall be inserted, namely:-

"29A. A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly with such person, or any person who is a promoter or in the management or control of such person,-

(a)        is an undischarged insolvent;

(b)        has been identified as a wilful defaulter in accordance with the guidelines of the Reserve Bank of lndia issued under the Banking Regulation Act, 1949;

(c)        whose account is classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 and period of one year or more has lapsed from the date of such classification and who has failed to make the payment of all overdue amounts with interest thereon and charges relating to non-performing asset before submission of the resolution plan;

(d)        has been convicted for any offence punishable with imprisonment for 2 years or more; or

(e)        has been disqualified to act as a director under the Companies Act, 2013;

(f)        has been prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets;

(g)        has•indulged in preferential transaction or undervalued transaction or fraudulent transaction in respect of which an order has been made by the Adjudicating Authority under this Code;

(h)        has executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor under insolvency resolution process or liquidation under this Code;

(i)         where any connected person in respect of such person meets any of the criteria specified in clauses (a) to (h).

Explanation.- For the purposes of this clause, the expression "connected person" means-

(i)         any person who is promoter or in the management or control of the resolution applicant; or

(ii)        any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or

(iii)       the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii)

(j)         has been subject to any disability, corresponding to clauses (a) to (i), under any law in                          a jurisdiction outside India.".

Amendmentof section 30

6.      In section 30 of the principal Act, for sub-section (4), the following sub-section shall be substituted, namely:-

"( 4) The committee of creditors may approve a resolution plan by a vote of not less than seventy-five per cent. of voting share of the financial creditors, after considering its feasibility and viability, and such other requirements as may be specified by the Board:

Provided that the committee of•creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, v,rl1ere the resolution applicant is ineligible under section 29A and may, where no other resolution plan is available with it, require the resolution professional to invite a fresh resolution plan.".

Amendmentof section 35

7.      In section 35 of the principal Act, in sub-section (J), in clause (j), the following proviso shall be inserted, nan1ely:-

"Provided 1hat the liquidator shall not sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be resolution applicant.”

Insertionof new section 235A (Punishment where no specific penalty or punishment is provided.)

8.      After section 235. of the principal. Ac1, the following section shall be inserted, namely:-

''235A. If any person contravenes any of the provisions of this Code or the rules or regulations made there under for which no penalty or punishment is provided in this Code, such person shall be punishable with fine which shall not be less than one lakh. rupees but which may extend to two crore rupees.".

Amendment of section 240

9.      In section 240 of the principal Act, in sub-section (2),-

(i)         after clause (s), the following clause shall be inserted, namely:-

"(sa) other conditions under clause (h) of sub-section (2) of section 25;'\

(ii)        after clause (w), the following clause shall be inserted,

namely:-

"(wa) other requirements under sub-section (4) of section 30;".

   

RAM  NATH KOVIND,

President.

DR.G.N YANARAJU,

Secretary to the Govt. of India.

Note: For information purposes only. Blog readers are requested to go through the original gazette notification as no responsibility or liability is assumed by the Author.  All rights reserved.   For corporate regulatory updates visit www.nclt.in

Operational Creditor can invoke CIRP in priority over Corporate Debtor application

National Company Law Tribunal (hereinafter “NCLT”) allowed application of Operational Creditor u/s 9 of IBC, 2016 for CIRP, giving preference to hearing over application filed by Corporate Debtor itself u/s 10.  The order passed by Hon'ble J. Varadharajan NCLT Special Bench, New Delhi  in Re: Levcon Valves Pvt. Ltd. vs Energo Engineering Projects Limited sets precedent on several counts:

• NCLT passed a common order in all the 4 applications admitting application filed by Levcon Valves Pvt. Ltd. (Operational Creditor).

• Although the net result of any of the applications being admitted would have been the same i.e. invocation of CIRP, the key concerns raised by the operational creditors and the financial creditor (with reference to application of the Corporate Debtor) was on the appointment of the proposed Interim Resolution Professional ("IRP") suggested by the Corporate Debtor.  The applications filed by Operational Creditors was objected by the Corporate Debtor which sought to appoint its IRP. 

• Under the IBC, 2016 three classes of persons can initiate CIRP against a company i.e. Financial Creditors, Operational Creditor and Corporate Debtor.   

• Bankers Certificate under section 9(3)(c) of the IBC, 2016 held to be mandatory for admission of the application of the Operational Creditor.   NCLT bench relied on judgment passed by Hon'ble NCLAT in Smart Timing Steel Ltd. vs. National Steel and Agro Industries Ltd.

• The Financial Institution maintaining account of the Creditor are required to provide certificate specific to the requirement of section 9(3) (c) of the IBC, 2016 based on legislative and judicial mandate.  In the circumstances Bank Manager has been held accountable and called for explanations for not providing the mandatory certificate even after specific directions from Hon’ble NCLT.

• Where Operational Creditors petition has some shortcoming in details of the proposed IRP, the petition cannot be rejected merely on this ground as NCLT can seek recommendation of IBBI for appointment of IRP. 

• NCLT admitting the Operational Creditor’s petition and declaring moratorium, recommended the case to IBBI to suggest IRP.   Proposal for IRP is mandatory where application is filed by Financial Creditor and Corporate Debtor.    

Counsel Pankaj Jain and Salman Razi of Veda Legal, Advocates & Solicitors appeared on behalf of Levcon Valves Pvt Ltd. a Kolkata based company.
Contact No. 8447778422  Email: pankaj.jain@vedalegal.in 

Views expressed are personal.

Recent Order under Insolvency and Bankruptcy Code, 2016

1 NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI
Company Appeal (AT) (Insolvency) No. 56 of 2017
IN THE MATTER OF:

P.K. Ores Private Limited …... Appellant 
Vs. 
Tractors India Private Limited ..... Respondent 

Present: For Appellant: - Mr Amit Kumar Muhuri, Advocate.

For Respondent: Mr Rishav Banerjee and Ms Ishita Chakrabarti, Advocates.

O R D E R 1.6.2017 ─

This appeal under Section 61 of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as I&B Code) have been preferred by Appellant - P.K. Ores Private Limited (Corporate Debtor) against order dated 3rd April 2017 passed by Ld. Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata) in Company Petition No. 172 of 2017 whereby and where under the application preferred by Respondent – Tractors India Private Limited – (Operational Creditor) under Section 9 of the I&B Code for initiating the Corporate Resolution Process against the Appellant - Corporate Debtor has been admitted and the Operational Creditor has been asked to propose the name of Interim Resolution Professional along with the consent letter for taking immediate possession of the assets of Corporate Debtor, including the bank account (s).

2. Ld. Counsel appearing for the Appellant while assailed the order, submitted that the impugned order dated 3rd April, 2017 has been passed by the Adjudicating Authority in violation of rules of natural justice, without any notice and without giving any opportunity to Corporate Debtor. It is further contended that there is an ‘existence of dispute’ which the Appellant- Corporate Debtor could have brought to the notice of the Adjudicating Authority, if given an opportunity.

3. On the other hand according to Ld. Counsel for RespondentOperational Creditor the Appellant- Corporate Debtor was served with a notice under Section 8 of the I&B Code and the copy of the 2 petition under Section 9 was also forwarded to the Appellant. It is further contended that the Appellant failed to reply to the notice given by the Operational Creditor under Section 8 of I&B Code.

4. We have heard Ld. Counsels for the parties and perused the record.

5. From the Order Sheets enclosed with the appeal, we find that the Adjudicating Authority initially taken up the matter on 17th March 2017 and thereafter on 30th March 2017 but the application was incomplete as the Respondent- Operational Creditor had not filed any affidavit regarding pendency of any litigation with the Corporate Debtor. The Operational Creditor had also not filed Board’s resolution for initiating proceeding against the Corporate Debtor. Therefore, time was allowed for the Operational Creditor. From the aforesaid order sheets it is clear that only Ld. Counsels appearing for the Operational Creditor were present and no notice was given to the Appellant –Corporate Debtor.

6. It appears that the matter was subsequently taken up on 3rd April 2017. On the said date taking into consideration the fact that after service of notice by the Operational Creditor under Section 8 of the I&B Code, the petition had been filed and the Operational Creditor had alleged that the Corporate Debtor has failed to pay Rs. 9,76,095/- (Rupees Nine Lakh seventy-six thousand ninety-five only) in spite of notice dated 17th January 2017 and the petition was otherwise complete, the application was admitted. From the said order it is clear only Ld. Counsels for the Respondent/Operational Creditor were present and no notice was given to the Appellate – Corporate Debtor.

7. It appears that on 10th April 2017 when the matter was taken up the Ld. Counsel for the Respondent submitted that the Operational Creditor will propose the name of Insolvency Resolution Professional along with the consent letter by 12th April, 2017. On the said date for the first time, Ld. Counsel for Corporate Debtor appeared. However, there is nothing on record to suggest that the Ld. Adjudicating Authority issued any notice to the AppellantCorporate Debtor. The Respondent - Operational Creditor has also not brought on record any order to suggest that the Ld. Adjudicating Authority issued any notice to Corporate Debtor before admitting the application. 3

8. Ld. Counsel appearing on behalf of Appellant submits that the Appellant requested the National Company Law Tribunal, Kolkata Bench to allow the Appellant to inspect the records. On inspection of records, the Appellant came to know that no notice was issued by Ld. Adjudicating Authority to the Appellant – Corporate Debtor prior to admission of the case.

9. As per Section 424 of the Companies Act, 2013 the Adjudicating Authority is supposed to follow the rules of natural justice before passing any order. In “Innoventive Industries Limited vs. ICICI Bank” Company Appeal (AT) (Insolvency) No. 1 & 2 of 2017 this Appellate Tribunal by judgment dated 15th May, 2017, also held that a notice required to be given to the Corporate Debtor before admitting any application for initiation of corporate resolution process under Section 7 and 9 of the I&B Code.

10. In the present case as the Adjudicating Authority has not given any notice to the Corporate Debtor, prior to admitting the application under Section 9 of the I&B Code, the impugned order is fit to be set aside having been passed in violation of rules of natural justice.

 11. Ld. Counsel appearing on behalf of the Appellant – Corporate Debtor brought to our notice, letters communicated between the Corporate Debtor and the Operational Creditor, which are not in dispute.

12. From the record we find that in reply to the letter dated 4th November 2016, written by Operational Creditor, the AppellantCorporate Debtor by reply dated 16th November, 2016 brought the notice of the Operational Creditor that one of the ‘Caterpillar Engine’ (CAT 6.6) which was repaired and installed by Operational Creditor was not functioning properly from the date of installation. It was further informed that since last 8 months several times without rectifying the defects of existing engine it was not possible for the Corporate Debtor to lift the Engine which was lying idle in the work shop of Operational Creditor. It was also alleged that the Operational Creditor failed to supply the spare parts as per agreement due to negligence of the Operational Creditor for that the Appellant - Corporate Debtor had to incur loss to the tune of Rs. 2 crores. The relevant portion of the letter dated 16th November, 2016 reads as follows: - “This has reference to your letter dated November 4 2016 and the content has been noted by us. In this regard, we feel it necessary to bring to your notice the following facts for taking necessary action at your end to avoid legal complications. That one of the Caterpillar Engine (CAT 6.6) which was repaired and installed is not functioning 4 property from the date of installation. This was brought to your notice several times and the same was verified by your Engineers on this spot and assured for its rectification without any fruitful results. You were also informed for taking necessary measures to overcome our huge revenue loss. In this regard, we informed you since last 8 months several times that without rectifying the existing Engine it is not possible on our part to lift the captioned Engine, which is lying repaired at your workshop. Needless to mention here that you have also failed to supply the spares, which were committee by you and due to your negligence we have incurred a lost in the tune of Rs.2 crores and you shall be held responsible for the same. In nutshell, to maintain in long lasting business relation with your organization we request your good self-for taking necessary action for a smooth function of the existing CAT6.6 Engine to proceed further in the matter or else, we will be forced to take shelter under the law and social media to solve the issue which is obviously not desirable. Looking forward to your views for an amicable solution of the same.”

13. In reply to the said letter, the Respondent - Operational Creditor by letter dated 15th December 2016 while shown surprise and shock, intimated the Corporate Debtor that the allegations are baseless. With regard to faulty, non-functional machine it was intimated that the Engine was earlier repaired. The Operational Creditor threatened to initiate legal proceeding, including civil and criminal proceedings against the Corporate Debtor, as apparent from the letter aforesaid, relevant portion of which (letter dated 15th December, 2016) reads as under: - “At the outset, we are surprised and shocked to having received your reply letter dated 16th November, 2016 and the contents therein. We would like to state in this regard that such a baseless allegation with respect to some faulty, non-functional machine which was earlier repaired by us on receipt of our legal notice for legitimate outstanding dues is purely after thought, sham and baseless, only to avoid paying our due debts. You will appreciate that Tractors India is a trusted brand in the industry for last 7 decades and such baseless and false allegation written with malicious intent is only to damage the reputation of our organization and only delay the legitimate dues of ours. In this regard, we would like to further state that such baseless allegations which leave us with no option but to instigate legal proceedings against your organization, both civil and criminal, including but not limited to proceedings for offences committed 5 under Section 193, 195, 196, 199, 200 and Section 420 of the Code of Criminal Procedure, which you are requested to note hereby. We are hereby calling upon you as a final reminder for forthwith payment of our dues to the tune of Rs.9,76,095/- In case we don’t hear from you within 2 weeks from the date of receipt of this letter, we initiate legal proceedings, both civil and criminal and will also dispose off the said machine in parts or as a whole as scrap lying in unclaimed and abandoned state at your cost and consequence.”

14. In “Kirusa Software Private Ltd. Vs Mobilox Innovations Private Ltd” Company Appeal (AT) (Insolvency) No. 6 of 2017, the Appellate Tribunal by judgment dated 24th May 2017 decided the question as to what does a ‘dispute’ and ‘existence of dispute’ means for the purpose of determination of petition under Section 9 of the I&B Code. In the said case, the Appellate Tribunal held: -

 “25. The true meaning of sub-section (2)(a) of Section 8 read with sub-section (6) of Section 5 of the 'I & B Code' clearly brings out the intent of the Code, namely the Corporate Debtor must raise a dispute with sufficient particulars. And in case a dispute is being raised by simply showing a record of dispute in a pending arbitration or suit, the dispute must also be relatable to the three conditions provided under sub-section (6) of Section 5 (a)-(c) only. The words 'and record of the pendency of the suit or arbitration proceedings' under sub-section (2)(a) of 16 Section 8 also make the intent of the Legislature clear that disputes in a pending suit or arbitration proceeding are such disputes which satisfy the test of subsection (6) of Section 5 of the 'I & B Code' and that such disputes are within the ambit of the expression, 'dispute, if any'. The record of suit or arbitration proceeding is required to demonstrate the same, being pending prior to the notice of demand under sub-section 8 of the 'I & B Code'. 

26. It is a fundamental principle of law that multiplicity of proceedings is required to be avoided. Therefore, if disputes under sub-section (2)(a) of Section 8 read with sub-section (6) of Section 5 of the 'I & B Code' are confined to a dispute in a pending suit and arbitration in relation to the three classes under subsection (6) of Section 5 of the 'I & B Code', it would violate the definition of operational debt under sub-section (21) of Section 3 of the 'I & B Code' and would become inconsistent thereto, and would bar Operational Creditor from invoking Sections 8 and 9 of the Code. 6 

27. Sub-section (6) of Section 5 read with sub-section (2)(a) of Section 8 also cannot be confined to pending arbitration or a civil suit. It must include disputes pending before every judicial authority including mediation, conciliation etc. as long there are disputes as to existence of debt or default etc., it would satisfy subsection (2) of Section 8 of the 'I & B Code'. 28. Therefore, as per sub-section (2) of the 'I & B Code', there are two ways in which a demand of an Operational Creditor can be disputed: 

17 i. By bringing to the notice of an operational creditor, 'existence of a dispute'. In this case, the notice of dispute will bring to the notice of the creditor, an 'existence of a dispute' under the Code. This would mean disputes as to existence of debt or default etc. or ii. By simply bringing to the notice of an operational creditor, record of the pendency of a suit or arbitral proceedings in relation to a dispute. In this case, the dispute in the suit/arbitral proceeding should relate to matters (a)-(c) in sub-section (6) of Section 5 and in this case, showing a record of pendency of a suit or arbitral proceedings on a dispute is enough and to intent of the Legislature is clear, i.e. once the dispute (on matters relating to 3 classes in sub-section (6) of Section 5 of the 'I & B Code') is pending adjudication, that in itself would bring it within the ambit of sub-section (6) of Section 5 of the 'I & B Code'. 

31. The dispute under I&B Code, 2016 must relate to specified nature in clause (a), (b) or (c) i.e. existence of amount of debt or quality of goods or service or breach of representation or warranty. However, it is capable of being discerned not only from in a suit or arbitration from any document related to it. For example, the 'operational creditor' has issued notice under Code of Civil Procedure Code, 1908 prior to initiation of the suit against the operational creditor which is disputed by 'corporate debtor. Similarly notice under Section 59 of the Sales and Goods Act if issued by one of the party, a labourer/employee who may claim to be operation creditor for the purpose of Section 9 of I&B Code, 2016 may have raised the dispute with the State Government concerning the subject matter i.e. existence of amount of debit and pending consideration before the competent Government. Similarly, a dispute may be pending in a Labour Court about existence of amount of debt. A party can move before a High Court under writ jurisdictions against Government, corporate debtor (public sector 19 undertaking). There may be cases where one of the party has moved before the High Court under Section 433 of the Companies Act, 1956 for initiation of liquidation proceedings against the corporate debtor and dispute is 7 pending. Similarly, with regard to quality of goods, if the 'corporate debtor' has raised a dispute, and brought to the notice of the 'operational creditor' to take appropriate step, prior to receipt of notice under sub-section (1) of Section 8 of the 'I & B Code', one can say that a dispute is pending about the debt. Mere raising a dispute for the sake of dispute, unrelated or related to clause (a) or (b) or (c) of Sub-section (6) of Section 5, if not raised prior to application and not pending before any competent court of law or authority cannot be relied upon to hold that there is a 'dispute' raised by the corporate debtor. The scope of existence of 'dispute', if any, which includes pending suits and arbitration proceedings cannot be limited and confined to suit and arbitration proceedings only. It includes any other dispute raised prior to Section 8 in this in relation to clause (a) or (b) or (c) of sub-section (6) of Section 5. It must be raised in a court of law or authority and proposed to be moved before the court of law or authority and not any got up or malafide dispute just to stall the insolvency resolution process.” 

15. In the present case we find that the Corporate Debtor raised dispute about the quality of goods and brought the same to the notice of the Operational Creditor. The Corporate Debtor also claimed damage for inferior quality of goods and its loss much prior to receipt of notice under sub-section (1) of Section 8 of the I&B Code. In this background and in view of decision in “Kirusa Software Private Ltd. Vs Mobilox Innovations Private Ltd”, we hold that a dispute is existing about the quality of goods which is one of the clause of sub-section (6) of Section 5 of I&B Code.

 16. In this appeal as admittedly the Adjudicating Authority has passed the impugned order dated 3rd April 2017 without notice to the Appellant, in violation of rules of natural justice and there exists a dispute between the parties, we hold that the as impugned order dated 3rd April 2017 passed by Adjudicating Authority is not only in violation of rules of natural justice, the application under Section 9 was also not maintainable. For the reasons aforesaid, we set aside impugned order dated 3rd April 2017.

17. In effect the order appointing an Interim Resolution Professional, order declaring moratorium, freezing of account and all other order passed by Adjudicating Authority pursuant to impugned order and action, if any, taken by the Interim Resolution Professional, including the advertisement published in the newspaper calling for applications are declared illegal. The Adjudicating Authority is directed to close the proceeding. The appellant company is released from the rigour of law. The appellant 8 company is allowed to function independently through its Board of Directors from immediate effect.

18. The Adjudicating Authority will fix the fee of Interim Resolution Professional and the Financial Creditor will pay the fees to the Interim Resolution Professional, for the period he has worked.

19. The appeal is allowed with aforesaid observation and direction. However, there shall be no order as to cost.

 Sd/- (Justice S.J. Mukhopadhaya) Chairperson Sd/- (Mr. Balvinder Singh) Member (Technical) RC


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Evolving Jurisprudence under Insolvency and Bankruptcy Code, 2016

Hon’ble High Court of Bombay in the matter of Innoventive Industries Ltd. Vs. Union of India & Ors [WP (LDG.)] No.  143 of 2017

An application under section 7 of the Code to initiate CIRP against Innoventive Industries Limited was admitted by National Company Law Tribunal ("Tribunal") on  17th January, 2017.  The petitioner, aggrieved by the admission, filed a writ petition before the Hon’ble High Court of Bombay challenging the vires of the Code and seeking ad-interim relief of stay. It also filed an appeal before the NCLAT against the admission.

While the Hon’ble High Court  vide its order dated 23rd February, 2017, while dismissing the petition, observed that since the main  order   has   become subject matter of challenge before the statutory  appellate authority i.e National Company Law Appellate Tribunal (NCLAT), challenge to the vires becomes academic.

It also opined that there was no need for stay the operation of the appointment of the Insolvency Resolution Professional ("IRP") as no prejudice would be caused to the petitioner.

NCLAT

I. Sree Metaliks Ltd. Vs. Srei Equipment Finance Ltd. (Company Appeals (AT) (Insolvency) No.3 of 2017 Vide order dated 30th January, 2017, the Tribunal admitted an application filed by Financial Creditor, namely, Srei Equipment Finance Ltd. under section 7 of the IBC, 2016 and appointed the insolvency resolution professional (IRP).

The Appellant, aggrieved by the appointment of the particular IRP, filed an appeal before the NCLAT. On submission of the Respondent that the IRP would step down, the NCLAT, vide its order dated 21st February, 2017, disposed of the appeal.

II. Raipur Power & Steel Ltd. & Ors Vs. Tomorrow Sales Agency Pvt. Ltd. (Company Appeals (AT) (Insolvency) No.4 of 2017

Vide order dated 23rd February, 2017, the Tribunal admitted an application filed by a Financial Creditor, namely, Tomorrow Sales Agency Pvt. Ltd. under section 7 of the Code and appointed the insolvency resolution professional (IRP).

The Appellant filed an appeal before the NCLAT, which disposed it of, vide its order dated 6th March, 2017, with the observation: “… as the Appellant has paid the full and final amount in favour of the respondent-financial creditor (M/s. Tomorrow Sales Agency Pvt. Ltd.), this court is not inclined to decide any issue at this stage nor inclined to pass any further order in view of the assurance given by the appellant that it will clear all dues, if any, payable to any financial creditor or operational creditor”.

It further observed: “If the Tribunal, on the basis of records and the report as may be submitted by the ‘interim Resolution Professional’, comes to a conclusion that the Appellant has paid all the dues to financial creditor(s) and operational creditor(s), will close the proceeding and release the appellant company from the rigors of law and allow the appellant company to function independently through its Board of Directors.”

Orders of the National Company Law Tribunal ("Tribunal")

I. Annapurna Infrastructure Pvt. Ltd. & Ors Vs. Soril Infra Resources Ltd. [C.P. No. (IB).22(PB)/2017]

Application filed by Operational Creditor (OCs): Annapurna Infrastructure Pvt. Ltd. and others filed an application under section 9 of the IBC, 2016 to initiate Corporate Insolvency Resolution Process (CIRP) 

Corporate Debtor CD - Soril Infra Resources Ltd.

Vide order dated 24th March, 2017, the Tribunal/NCLT dismissed the application with the cost of Rs.1,00,000 for the reasons given hereunder. 

Held: An application under section 9 of the Code can be filed only if the OC has delivered a notice to the CD demanding payment of default amount and it has not received in response any notice of existence of dispute and record of the pendency of the suit or arbitration proceedings in relation to such dispute. The issue to be determined was whether there was a pending arbitration proceeding in relation to the dispute before the OC delivered the demand notice.  There was an award dated 09.09.2016 passed by the sole arbitrator in favour of the OC granting certain reliefs. The CD challenged the said award under section 34 of the Arbitration and Conciliation Act, 1996. It was, however, dismissed on 19.12.2016. Thereafter, the OC delivered the demand notice on 13.01.2017. The CD disputed the demand on 27.01.17 stating that it has appealed against the award under section 37 of the Arbitration and Conciliation Act, 1996. The OC submitted before the NCLT that as on the date (16.01.2017) of delivery of the demand notice, the arbitration award had attained finality and there was no pendency of arbitration proceeding.

The NCLT held: “It cannot be said that arbitration proceedings have come to an end merely on the dismissal of application under section 34 of the Arbitration Act …. The proceedings are yet to attain finality as appeal under section 37 of the Arbitration Act is pending.”

Further, it came to the notice of the NCLT that the execution proceedings for enforcement of the award have been initiated and is pending for consideration of the Hon’ble High Court on 12.05.2017. In this context, the NCLT observed: “We are further of the view that already proceedings for execution of the award have been initiated. An effective remedy has been availed by the applicant. We have not been able to accept that a party can invoke more than one remedy simultaneously. It is in fact against the fundamental principles of judicial administration to allow a party to avail more than one remedies.”

II. Nikhil Mehta and Sons (HUF) & Ors Vs. AMR Infrastructures Ltd. [C.P. No. (ISB) -03 (PB)/2017]

Applicants: Nikhil Mehta and Sons (HUF) and others
Corporate Debtor: AMR Infrastructure Ltd.

Nikhil Mehta and Sons (HUF) and others filed an application under section 7 of the IBC to initiate the CIRP of AMR Infrastructure Ltd. The NCLT, vide order dated 23rd January, 2017 dismissed the application.

The Applicants booked properties (office space, shop and flat) in projects of the Respondent.  As per the Memorandum of Understanding (MoU) executed between the parties, the Applicant would be paid a monthly ‘assured returns’ till the possession of the flat.

The Respondent defaulted in payment of such assured returns.

The NCLT observed that the essential element for a debt to qualify as a ‘financial debt’ is that it is ‘disbursed against the consideration of time value of money’.   It would include such financial transactions where a sum is received today to be paid over a period of time in the future in a single or series of installment(s).  The subject case is a pure and simple agreement of sale or purchase of a property.

It observed: “Merely because some ‘assured amount’ of return has been promised and it stands breached, such a transaction would not acquire the status of a ‘financial debt’ as the transaction does not have consideration for the time value of money, which is a substantive ingredient to be satisfied for fulfilling requirements of the expression ‘Financial Debt’”.  

New Corporate Laws Treatise https://www.nclt.in

MANUAL OF MINISTRY OF CORPORATE AFFAIRS RELEASED

New Corporate Laws Treatise - News Bulletin 

MANUAL OF MINISTRY OF CORPORATE AFFAIRS RELEASED

For the purpose of providing effective service to the stakeholders, the Ministry
of Corporate Affairs has put in place a well- defined Citizens’/Clients’ Charter. The
Ministry has also prescribed a strong decision making procedure in accordance with
the rules and regulations prescribed by the Central Government. Particulars of the
Ministry are publicized in the form of Induction Material and the Mandatory
Disclosures in pursuance of Section 4(1)(b) of the Right to Information Act, 2005.

Nonetheless, with the objective to make available the information about
Ministry of Corporate Affairs at one-stop-shop to the stakeholders, this unified Manual
is presented as per the guidelines issued by the Department of Administrative
Reforms of Public Grievances. The manual, inter-alia, contains vision, mission,
description of the organization; objectives of the Ministry, duties of various
functionaries, channel of submissions and level of disposal, Acts, Rules and
Regulations pertaining to the organization, supervision and control system,
recruitment and training of the officials, monitoring and inspection of field offices in
desired detail.

Click here to view the MCA Manual 

News update by New Corporate Laws Treatise www.nclt.in All rights reserved.  

Email us:  cs@nclt.in

Companies (Audit and Auditors) Amendment Rules, 2017

Ministry of Corporate Affairs vide its Notifications No. G.S.R. 307(E) dated 30th March, 2017 has made amendment in Companies (Audit and Auditors) Rules, 2014 to seek disclosure in the Auditors Report relating to the following: whether the company had provided requisite disclosures in its financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016 and if so, whether these are in accordance with the books of accounts maintained by the company. Rule 11 of the Companies (Audit and Auditors) Rules, 2014 reads as follows: 11. Other Matters to be included in Auditors Report The auditor’s report shall also include their views and comments on the following matters, namely:- (a) whether the company has disclosed the impact, if any, of pending litigations on its financial position in its financial statement; (b) whether the company has made provision, as required under any law or accounting standards, for material foreseeable losses, if any, on long term contracts including derivative contracts; (c) whether there has been any delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the company. (d) whether the company had provided requisite disclosures in its financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016 and if so, whether these are in accordance with the books of accounts maintained by the company. As the amendment was notified on March 30, 2017, it seems it will effect all Auditors Report signed post this date more particularly the financial statements for F.Y. 2016-17.

G.S.R. 307(E) text reads as follows: G.S.R. 307(E).—In exercise of powers conferred by section 143 read with sub-sections (1) and (2) of section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules further to amend the Companies (Audit and Auditors) Rules, 2014, namely:— 1. (1) These rules may be called the Companies (Audit and Auditors) Amendment Rules, 2017. (2) They shall come into force on the date of their publication in the Official Gazette. In the Companies (Audit and Auditors) Rules, 2014, in rule 11, after clause (c), the following clause shall be inserted, namely:— “(d) whether the company had provided requisite disclosures in its financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016 and if so, whether these are in accordance with the books of accounts maintained by the company.”. Note : The principal rules were published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 246(E), dated the 31st March, 2014, subsequently amended vide G.S.R. 722(E), dated the 14th October, 2014 and vide G.S.R. 972(E), dated the 14th December, 2015. Click here to view Notification No. G.S.R. 307(E) dated 30-03-2017 New Corporate Laws Treatise www.nclt.in . All rights reserved.

National Company Law Tribunal holds shareholders meeting mandatory for approval of amalgamation scheme of unlisted company, under the Companies Act, 2013

National Company Law Tribunal holds shareholders meeting mandatory for approval of amalgamation scheme of unlisted company, under the Companies Act, 2013

The provisions of Corporate Restructuring i.e. section 230  except sub-section (11) and (12) of 230; 231-233 and sections 235 - 240 was notified on December 7, 2016 vide notification S.O. 3677(E) and were made effective from December 15, 2016.  However the provisions related to cross border merger involving Indian and foreign companies under section 234 are yet to be made effective under the Companies Act, 2013. 

MCA also notified the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 on December 14, 2016 vide notification no. GSR 1134(E) [F.No.2/31/CAA/2013/-CL-V] effective from 15.12.2016. 

National Company Law Tribunal has the power to entertain the compromise or arrangement petitions based on the territorial jurisdiction over the place of the registered office of the applicant/ petitioner companies to the corporate restructuring exercise. 

It is pertinent to note that the Companies Act, 2013 now facilitates compromise/ arrangement schemes between (a) small companies; or (b) holding company and its wholly owned subsidiary company, without the approval of the Hon’ble National Company Law Tribunal in a bid to save time and costs for the companies generally considered as closely held within the group or in situation where public interest is largely not affected.

In a first of its kind order pronounced by the Hon’ble National Company Law Tribunal, Principal Bench, New Delhi (“Tribunal”) under the newly notified compromise and arrangement provisions under the Companies Act, 2013 the Hon’ble Tribunal disallowed dispensation to the meetings of shareholders of the Companies basis the consents provided by them after duly considering the provisions of the Companies Act, 2013 and related rules.  

Key takeaway from the order passed in the matter of JVA Trading Private Limited by the Hon’ble Tribunal, division bench, New Delhi.  

·         

• Filing of joint application is allowed instead of filing separate multiple applications by each of the Companies to the compromise/ arrangement scheme.
• Change in capital structure from the date of last financials till the date of filing of application to be disclosed.  
• Share exchange ratio shall also be disclosed in the application along with rationale for merger
• Application to be inter-alia accompanied with list of shareholders and secured and unsecured creditors of the Companies (including debenture and deposit holders) along with their MOA, AOA, audited balance sheet, latest financial position etc.

While passing an order the Hon’ble Tribunal did not allowed dispensation of the meeting of the Shareholders and Creditors of the Companies and held that although the Tribunal may dispense with calling of the meeting of creditors or class of creditors where such creditors or class of creditors, having at least 90% (ninety percent) value, agree and confirm, by way of affidavit, to the scheme of compromise and arrangement.  However the provisions of section 230(9) does not provide for the dispensation of the meetings of the members. 

The Tribunal also observed that the (Compromise, Arrangements and Amalgamations) Rules, 2016 more specifically Rule 5 which provides for directions to be issued by the Tribunal discloses:

• ·     For determining the class or classes of creditors or of members meeting or meetings have to be held for considering the proposed compromise or arrangement; or
• 
  
• ·     For dispensing with the meeting or meetings for any class of classes of creditors in terms of sub-section (9) of section 230. 

The Tribunal held that keeping in view of the above provisions, dispensation of the meeting of members of the Company cannot be entertained.  Further the Tribunal passed order directing the separate meetings of the all the shareholders, secured creditors and the unsecured creditors of the Transferor Company and the Transferee Company.

Conclusion: 

The aforesaid order passed by the Hon’ble Tribunal, division bench, New Delhi in Re: JVA Trading Private Limited may likely be followed by other benches of the Hon’ble Tribunal and thus affect the timelines for merger involving unlisted companies which were generally allowed dispensations basis the consents from their shareholders under the erstwhile provisions of the Companies Act 1956 administered by the Hon’ble High Courts.  Companies may also appeal the order of the Tribunal before the Hon’ble National Company Law Appellate Tribunal basis the merits of the case.   

For more information contact the author Mr Pankaj Jain at pankaj.jain@vedalegal.in  

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