Friday, 30 March 2018

Liquidator may sell the corporate debtor as a going concern: IBBI



The Insolvency and Bankruptcy Board of India (“IBBI") issues IBBI(Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2018 and the IBBI(Liquidation Process) (Amendment) Regulations, 2018.

These regulations shall be effective from 1st April, 2018.

IBBI (Liquidation Process) (Amendment) Regulations, 2018 inserted the definition of “liquidation cost” which is:

(ea) “liquidation cost” under sub-section 16 of section 5 means-
            (a) fees payable to liquidation under regulation 4;
            (b) remuneration payable to liquidator under regulation 7;
            (c) cost incurred by the liquidator under regulation 24; and
(d) interest on interim finance for a period of twelve months or for a period from the liquidation commencement date till repayment of interim finance, whichever is lower.”

Further, IBBI (Liquidation Process) (Amendment) Regulations, 2018 allows the liquidator to sell the corporate debtor as a going concern. Now Regulation 32 allows Liquidator to realize the assets of in the following manner:

            (a) sell an asset on a standalone basis; or
            (b) sell
·      the asset in a slump sale,
·      a set of assets collectively;
·      the assets in parcels; or
(c) sell the corporate debtor as a going concern.

IBBI also amends IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, wherein after the 1st April 2018 resolution professional would be required to disclose item wise insolvency resolution process cost and resolution professional shall identify the prospective resolution applicants on or before the 105th day from the insolvency commencement date.

Thereafter, IBBI states that as per the amendment Regulation the expenses incurred by resolution professional would be considered as the fee to be paid to the IRP, fee to be paid to insolvency professional entity (if any) and fee to be paid to professionals (if any) and other expenses to be incurred by the IRP.


The amendment Regulation clearly directs financial creditor to declare whether financial creditor is or is not related party in relation to the corporate debtor while submitting the claim to the interim resolution professional. The Amendment Regulation also disperses with the requirement of affidavit that was required to be submitted with the forms for submission of claims from claimants.

Monday, 26 March 2018

IBC, 2016 - Tribunal to be empowered to discontinue Insolvency Resolution Process in case of settlement between parties



                                                                                                               

The government had appointed a 14-member panel presided by Injeti Srinivas the Secretary of Corporate Affairs and 
M S Sahoo, chief Insolvency and Bankruptcy Board of India (IBBI)  to review the (Insolvency and Bankruptcy Code) IBC, 2016 to make the resolution process smoother. 

The panel may suggest that National Company Law Tribunal (Tribunal) should be empowered to dismiss/halt the resolution proceedings if 90% of the Creditors or Lenders agree or give their consent for the withdrawal of the resolution proceeding.

Till now this power is exercised by only the Supreme Court of India under Article 142 of the Constitution of India.   

Ordinarily the CIRP process once commenced cannot be ended even if the debt of the Petitioner creditor has been paid in full or settlement is reached between the Corporate Debtor and claimant.  

Recent Supreme Court Ruling


The Hon'ble Supreme Court while hearing a case concerning corporate debtor Lokhandwala Kataria Construction Pvt. Ltd on an application filed by Financial Creditor Nisus Finance and Investment Manager LLP ruled that a settlement agreement can be considered and a case can be withdrawn after Insolvency Proceedings have started against a company. The said case was initiated before Mumbai bench of the National Company Law Tribunal (NCLT).

Later the Company and the Creditor approached the National Company Law Appellate Tribunal (NCLAT) with an appeal to withdraw the petition filed under IBC as they had settled the dispute and that some of the dues had already been paid to which NCLAT ruled that a case under IBC, 2016 can only be withdrawn before the admission of an insolvency case and not after that, aggrieved to this, the parties filed an appeal before the Supreme Court.

At a policy level, the argument is that once the resolution process is triggered, a collective mechanism commences which places all creditors at par.  Allowing the (single) triggering party to settle the dispute post admission may adversely impact the interests of other creditors, whose rights and interests would have otherwise been protected during the resolution process.

Also “The policy underlying IBC shifts the incentive of the parties from individual recovery actions to collective action. In that context, after a petition has been filed in NCLT, allowing out-of-court bilateral settlement between the borrower and one creditor may contradict that basic objective of collective action,”

However, Supreme Court allowed a settlement to be considered under Article 142 of the Indian Constitution which provides that “the Supreme Court in the exercise of its jurisdiction may pass such decree or make such order as is necessary for doing complete justice in any cause or matter pending before it”.  In the order, Supreme Court also observed that NCLT and NCLAT do not have inherent powers and will be ruled by provisions of IBC.

Re: Uttara Foods and Feeds Private vs. Mona Pharmachem (Civil Appeal No. 18520 OF 2017) 

The Hon'ble Supreme Court directed the competent authorities (i.e MCA/ IBBI) to formulate rules in such manner so as to include inherent powers of the NCLAT, eliminating unnecessary appeals being filed before Courts in the matters where settlement has been reached between the parties.

Rationale behind prohibiting the tribunals:- 

After the admission of the petition, it acquires the character of representative suit and through publication in newspapers, other creditors get a right to participate in the insolvency resolution process and therefore IBC does not allow the petition to be dismissed on the basis of a compromise between the operational creditor and corporate debtor.

To make sure that Article 142 is restricted to facts of a particular case and may not act as a precedent for the NCLT or NCLAT to assert an out-of-court settlement in every other insolvency case, Supreme Court also observed that “Since this order is under Article 142, it should be treated on the facts of that particular case and not as a precedent of general applicability “which will be highly subjective in its substantial.

However, we might see some more cases of similar nature come up and process would need to mature accordingly. The government may also consider amending the IBC, 2016 to make provisions for settlement of insolvency proceedings once a plea is admitted.

Providing the power to the NCLT to halt the resolution process while considering the settlement agreement could help avoid complications like the one that has arisen in the Binani Cement resolution in which the defaulting promoters and UltraTech, which came in behind winning bidder Dalmia Bharat, have struck a deal to take over the promoters’ stake. Currently, only the Supreme Court can exercise powers under Article 142 of the constitution in cases that are pending in the NCLT.

Consequences

“If this recommendation is accepted, it will significantly impact the bidding process. For the banks, this will bring an opportunity of minimizing their losses on defaulting loans as after gathering the 90% support of the lenders and creditors effectively gives likely buyers an opportunity to enter into one-time settlement with banks, operational creditors and employees/workmen while bankruptcy proceedings are on.

In the Binani Cement case, the bid from Dalmia Bharat-led consortium was approved by the lenders Ultra-Tech said its offer to the Binani promoters improves on the Dalmia. Under IBC, once a company is admitted to the bankruptcy process, it cannot exit until a resolution plan is put in place within 270 days or the loan account is regularised. If this doesn’t happen before the 270-day deadline, the company has to go into liquidation. However, a case can be withdrawn during the period between the referral of the case to NCLT and before admission of the Insolvency process.

Current research states that out of 2,700 cases that have been referred to NCLT by operational creditors, close to 2,000 were withdrawn before admission since the dispute was settled outside court.

Even after the strict ruling laid down by the Supreme Court National Company Law Tribunal and National Company Law Appellate Tribunal did not adhere to the decision of the apex court and allowed the out of court settlement after the admission of the case for insolvency process under IBC.

Some cases on settlement agreement :-

NCLAT 


Argoh Infrastructure Developers

The appellant, corporate debtor first argued that no notice under Section 8 was provided by the operational creditor, which was rejected.

The appellant also argued that no notice by the NCLT was given and therefore, the order admitting the application was in violation of principles of natural justice. The NCLAT, here as well, declined to agree.

But the judgment somewhat ambiguously records that the parties have ‘settled’ the dispute and if the appealed order is set aside on grounds of violation of principles of natural justice, the respondent, operational creditor will withdraw the application .

It appears from the wordings of the judgment, thus, that the NCLT order was set aside on grounds of violation of principles of nature justice to simply pave the way for settlement post admission. 

Ruling by NCLT, Chennai

In the case of Phoenix Global DMCC Chennai Bench allowed settlement exercising its powers under Rule 11, and also because the Resolution Professional hadn’t been appointed and public announcement wasn’t made. 

Although this ruling came before the Supreme Court had passed its Order, the NCLAT ruling in the case of Lokhandwala would still serve as precedent.  In fact, the facts of this case are similar to Lokhandwala to the extent that a public announcement wasn’t made in either. And on that point, the NCLAT had ruled,

“Mere admission without subsequent step of advertisement having carried out, would not amount to refusal of claim of other creditors.  Such submission as made by learned counsel for the appellant cannot be accepted in view of the provisions of the Act. ”

Call this ignorance of law or, defiance to precedents. 




Other important questions required to be answered from the panel:-
  • Among them is one that lenders should be allowed to invoke personal guarantees of promoters of companies facing bankruptcy while the resolution process is underway. There is no clarity on similar seizures with regard to guarantees made by corporates. 

  • Other recommendations are that home buyers should be treated on par with unsecured creditors and lenders should be allowed to implement a resolution plan if two-thirds of them by value agree to it, versus 75% now. 

  • The first is aimed at protecting those who have bought homes from real estate developers that enter the insolvency process while the second is to prevent smaller borrowers from delaying resolution plans. 


The committee is expected to submit its recommendations for amendments to the IBC this month to finance minister Arun Jaitley, also corporate affairs minister. Parliament will have to approve them before they become law.
______________________________________________________________
** The author is associated with VEDA LEGAL advocates and solicitors 
** All the views expressed above are personal comments of the author and does not form any sort of legal opinion
** Viewers are requested to refer to original texts of the orders referred above for more details

For daily news and updates on Insolvency and Bankruptcy Code, 2016 matters visit www.ibcode2016.com
_______________________________________________________________
“You take care of your client we are here to look after you”.

For other conveniences stay tuned at corporate laws and insolvency updates knowledge forum (New Corporate Law TreatiseNCLT.in and download the app NCLT.in from Google play store for more virtuous features which will be meritorious for your profession. 


Wednesday, 14 March 2018

Clarification to circular pertaining to Investor Protection Fund and Investor Service Fund





The Securities and Exchange Board of India vide its circular dated March 14, 2018 clarified the Circular pertaining to Investor Protection Fund (IPF) and Investor Service Fund (ISF).

SEBI vide circular no. CIR/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017, has issued guidelines covering broad areas of Investor Protection Fund and Investor Service Fund.

Subsequently, SEBI has received representations from the national commodity derivatives exchanges (NCDEs) for clarifications and consideration of their requests with respect to some of the clauses of the said circular. After examination thereof, the following clarifications are being issued.

i.    It is clarified that the unutilized IPF Interest Income accruing during a specific financialyear can be carried forward to the next financial year to enable effective utilization of such money by the exchanges during such extended period.

ii.      NCDEs are hereby permitted to utilize IPF interest income for undertaking research activities related to commodities market, provided every such research activity / project can be undertaken only after obtaining prior written approval of the trustees of the IPF Trust, who would inter alia, record the reasons, relevance and stated objectives of the research project while according approval to such activity/ project. Further, the Board of the exchange may be apprised of the research programs / activities being undertaken at least once in every quarter or half year of a given financial year.

        There will be an overall cap on the total amount, not more than 10% of the interest amount of IPF which can be spent on Research activities related to commodities market. IPF shall frame a policy towards identifying / recognising public and private academic institutions, professional bodies, trade (physical market) associations and industry bodies / chambers through / with whom such Research activities shall be undertaken / organised / sponsored.

iii.      Clause 7.3 of the circular no. CIR/CDMRD/DEICE/CIR/P/2017/53 dated June 13, 2017 provided that the IPF of the exchange shall be utilized for the clients of SEBI registered members. In this connection, it is clarified that exchanges may also use the IPF of the exchange for meeting their liabilities towards the clients of members not registered with SEBI, if the same is allowed under the byelaws of the exchange.

iv.       SEBI has prescribed certain expenditures which are to be met utilizing the ISF and not IPF. However since ISF is of recent origin, its corpus may be inadequate. NCDEs have therefore requested to permit utilizing interest on IPF in lieu of ISF for expenditures meant only for ISF. Accordingly, the NCDEs have been granted 3 years period starting April 1st, 2018 to permit utilizing interest on IPF for activities of ISF also.

The provisions of this circular shall come into effect immediately.

RBI curbs the Practice of Issuing Letters of Understanding and Letters of Comfort for Trade Credits



The Reserve Bank of India ( RBI ) decided to stop the practice of issuing Letters of Undertaking (LoUs) and Letters of Comfort (LoCs) for Trade Credits with immediate effect. A Notification issued by the RBI in this regard said that “On a review of the extant guidelines, it has been decided to discontinue the practice of issuance of LoUs/ LoCs for Trade Credits for imports into India by AD Category –I banks with immediate effect. Letters of Credit and Bank Guarantees for Trade Credits for imports into India may continue to be issued subject to compliance with the provisions contained in Department of Banking Regulation Master Circular No. DBR. No. Dir. BC.11/13.03.00/2015-16 dated July 1, 2015 on “Guarantees and Co-acceptances”, as amended from time to time.” The changes are applicable from 13th March 2018 itself







**All the views expressed above are personal comments of the author and does not form any sort of legal opinion** 
__________________________________________
“You take care of your client we are here to look after you”.

For other conveniences stay tuned at corporate laws and insolvency updates knowledge forum (New Corporate Law TreatiseNCLT.in and download the app NCLT.in from Google play store for more virtuous features which will be meritorious for your profession. 



Saturday, 10 March 2018

Companies (Filing of Documents and Forms in XBRL) Amendment Rules, 2018



Mar 08, 2018

Companies (Filing of Documents and Forms in XBRL) Amendment Rules, 2018


The Ministry of Corporate Affairs has amended Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2015 (Principal Rules) vide notification dated 08.03.2018, through Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Amendment Rules, 2018.

Rule 3 of the Principal Rules, shall be numbered as sub-rule (1) of rule 3 and after sub-rule (1) as so numbered, the following sub-rules shall be inserted, namely:–

“(2) The companies which have filed their financial statements under sub-rule (1) shall continue to file their financial statements and other documents though they may not fall under the class of companies specified therein in succeeding years.

(3) The companies which have filed their financial statements under the erstwhile rules, namely the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2011, shall continue to file their financial statements and other documents as prescribed in sub-rule (1) though they do not fall under the class of companies specified therein.”

Click here to view the MCA Notification dated 08.03.2018



**All the views expressed above are personal comments of the author and does not form any sort of legal opinion** 

-----------------------------------------------------------------------------------------------------------------------

“You take care of your client we are here to look after you”.

For other conveniences stay tuned at corporate laws and insolvency updates knowledge forum (New Corporate Law TreatiseNCLT.in and download the app NCLT.in from Google play store for more virtuous features which will be meritorious for your profession. 



Monday, 5 March 2018

Union Cabinet approves Fugitive Economic Offenders Bill, tighten noose around fugitives for confiscation of their assets



                                                                                                         BY- Soujanyaq Khetraj
                                                                           Intern at Veda Legal Advocates and Solicitors  

Advent of the Fugitive Economic Offenders Bill, 2018

The absence of economic offenders who try to escape criminal proceedings from Indian courts has several deleterious consequences - first, it hampers investigation in criminal cases; second, it wastes precious time of courts of law, third, it undermines the rule of law in India. Further, most such cases involve non-repayment of bank loans thereby worsening the financial health of the banking sector in India. Thus, this Bill intends to protect the interests of the lenders, essentially the banks and the financial institutions. It is felt necessary to provide an effective, expeditious and constitutionally permissible deterrent to ensure that such actions are curbed. It may be mentioned that the non-conviction-based asset confiscation for corruption-related cases is enabled under provisions of United Nations Convention against Corruption (ratified by India in 2011). The Bill adopts this principle. In view of the above context, a Budget announcement was made by the Government in the Budget 2017-18 that the Government was considering to introduce legislative changes or even a new law to confiscate the assets of such absconders till they submit to the jurisdiction of the appropriate legal forum.

The Union Cabinet approved the Fugitive Economic Offenders Bill, 2018, in a bid to tighten noose around fugitives like diamond merchant Nirav Modi and Vijay Mallya, and prevent such incidents in future. The Bill, which was introduced in September 2017, aims to provide an “effective, expeditious and constitutionally permissible deterrent to ensure that such actions are curbed”. This will empower the government to confiscate any property owned by such person in India.

It said that on such declaration of a fugitive economic offender, two consequences would follow:

First, any property that is a proceed of crime that the person is accused of, as well as any property owned by such person in India shall stand confiscated and vested in the government of India free from all encumbrances.

Second, at the discretion of any court, such person or any company where he is a promoter or key managerial personnel or majority shareholder, may be disentitled from bringing forward or defending any civil claim. If at any point of time in the course of the proceeding prior to the declaration, however, the alleged fugitive economic offender returns to India and submits to the appropriate jurisdictional court, proceedings under this Act would cease by law.

The Bill makes provisions for a Court ('Special Court' under the Prevention of Money-laundering Act, 2002) to declare a person as a Fugitive Economic Offender.

A Fugitive Economic Offender is a person against whom an arrest warrant has been issued in respect of a scheduled offence and who has left India so as to avoid criminal prosecution, or being abroad, refuses to return to India to face criminal prosecution.

A scheduled offence refers to a list of economic offences contained in the Schedule to this Bill which consist of certain specified offences under the Indian Penal Code, 1860, Prevention of Corruption Act, 1988, Securities and Exchange Board of India, 1992, Customs Act, 1962, Companies Act, 2013, Limited Liability Partnership Act, 2008, Insolvency and Bankruptcy Code, 2016

Salient features of the Bill:

Application before the Special Court for a declaration that an individual is a fugitive economic offender;
Attachment of the property of a fugitive economic offender;
Issue of a notice by the Special Court to the individual alleged to be a fugitive economic offender;
Confiscation of the property of an individual declared as a fugitive economic offender resulting from the proceeds of crime;
Confiscation of other property belonging to such offender in India and abroad, including benami property;
Disentitlement of the fugitive economic offender from defending any civil claim; and
An Administrator will be appointed to manage and dispose of the confiscated property under the Act.

How does it help lenders?

The Bill is expected to re-establish the rule of law with respect to the fugitive economic offenders, as they would be forced to return to India to face trial for scheduled offences. This would also help the banks and other financial institutions to achieve higher recovery from financial defaults committed by such fugitive economic offenders, improving the financial health of such institutions.

How does it help the government?

The Bill would help in laying down measures to deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts.

The special forum to be created for
expeditious confiscation of the proceeds of crime, in India or abroad, would coerce the fugitive to return to India to submit to the jurisdiction of Courts in India to face the law in respect of scheduled offences.

If at any point of time in the course of the proceeding prior to the declaration, however, the alleged Fugitive Economic Offender returns to India and submits to the appropriate jurisdictional Court, proceedings under the proposed Act would cease by law. All necessary constitutional safeguards in terms of providing hearing to the person through counsel, allowing him time to file a reply, serving notice of summons to him, whether in India or abroad and appeal to the High Court have been provided for. Further, provision has been made for appointment of an Administrator to manage and dispose of the property in compliance with the provisions of law. All properties in addition to the proceeds of crime belonging to such offender would also be confiscated. Besides, he will be disentitled from defending any civil claim.


_____________________________________________________________________________
“You take care of your client we are here to look after you”.

For other conveniences stay tuned at corporate laws and insolvency updates knowledge forum (New Corporate Law TreatiseNCLT.in and download the app NCLT.in from Google play store for more virtuous features which will be meritorious for your profession.