Saturday, 10 June 2017

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.


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’”.  

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