an initiative of centre for parliamentary studies and … · with: mr. divyanshu pandey, partner,...

Vol. III CPSLR, NUALS

NUALS IBC E- NEWSLETTER [1]

NUALS IBC E- NEWSLETTER

Vol. 3, October-November, 2018

* All views expressed are those of the authors. The Newsletter is for private circulation and not

for sale.

CONTENTS

SPECIAL INTERVIEW

With: Mr. Divyanshu Pandey, Partner, J. Sagar Associates, Gurugram…….………………………………8.

EXAMINING THE POSITION OF OPERATIONAL CREDITORS UNDER THE

INSOLVENCY AND BANKRUPTCY CODE

By: Chitransh Vijayvergia & P. Dharma Teja…………………………………………………………10.

THE EASY ANSWER IS THE WRONG ANSWER: THE NON-PERFORMING ASSETS

CONUNDRUM

By: Utkarsh Jhingan & Anjali A. ….………………………………………………………………..12.

BINANI CEMENT INSOLVENCY MATTER: A STEP FORWARD?

By: Jagriti Sanghi …………………………………………………………………………………...14.

CASE UPDATES……………………………………………………………………………….16.

REGULATORY UPDATES…………………………………………………………………...23.

CROSS BORDER INSOLVENCY UPDATES………………………………………………24.

COMPANY LAW UPDATES………………………………………………………………….27.

CIRCULARS……………………………………………………………………………………28.

AN INITIATIVE OF CENTRE FOR PARLIAMENTARY STUDIES AND LAW REFORMS, NUALS (KOCHI).



FOREWORD

[Dr. Anil R. Nair, Associate Professor, Director, CPSLR, NUALS, Kochi.]

The Centre for Parliamentary Studies and Law Reforms (CPSLR) under the National University of

Advanced Legal Studies (NUALS) is an endeavour of the University to make legislation more effective

for social transformation and to achieve social justice by equitable administration of law. The CPSLR

adopts an inter-disciplinary approach to identify the inadequacies of present laws, suggest the changes

required and support the enactment of new laws to meet emerging challenges. The Centre strives to

guarantee public participation in the process of law making to provide valuable inputs for the

qualitative improvement of the law. It provides a point of convergence for law makers, academicians

and the general public.

The NUALS IBC E-Newsletter is a tool to create public awareness of the current developments in

the realm of bankruptcy and insolvency consequent to the implementation of the IBC. It provides a

platform for publication of research in this area.

Conceived and edited by a team of very enthusiastic and bright legal minds, the third edition of the

newsletter exemplifies the effort of the editorial team with its well-researched and excellently

articulated articles on the subject. As the Director of the Centre it is my pleasure to present this third

edition of the NUALS IBC E-Newsletter to the world with a promise of successive volumes with

equally rich and updated content.

NUALS IBC E-NEWSLETTER TEAM

Rohitesh Tak, Pulkit Khare, Abhijeet Singh Thakur, Ajay Krishna, Anuj Jain, Charchil Vijay,

Chitransh Vijayvergia, P. Dharma Teja, Vaidehi Soni, Dilmrig Nayani, Husna Fayaz, Jagriti

Sanghi, Jemimah Mathew, Manal Shah, Manu Sharma, Nikhil Gupta, Priyadarsini TP,

Rishabh Saxena, Sharath Chandupatla, Shashwat Bhaskar, Utkarsh Jhingan, Vidit Goyal,

Vishnu Suresh, Anand Amit, Anjali A., Naveen Kumar LR, Vallari Dronamraju, Sanjana

Banerjee.



LIST OF ABBREVIATIONS

S. NO. ABBREVIATION MEANING

1. & And

2. AA Adjudicating Authority

3. ALB Allahabad Bench

4. ARCs Asset Reconstruction Companies

5. AT Appellate Tribunal

6. BLRC Bankruptcy Law Reforms Committee

7. CA Company Appeal

8. CD Corporate Debtor

9. CIRP Corporate Insolvency Resolution Process

10. CoC Committee of Creditors

11. Code/IBC Insolvency and Bankruptcy Code, 2016

12. CP Company Petition

13. CPSLR The Centre for Parliamentary Studies and Law Reforms

14. FC Financial Creditor

15. HDB Hyderabad Bench

16. IA Insolvency Application

17. ILR Insolvency Law Committee

18. IT Income Tax

19. IBBI Insolvency and Bankruptcy Board of India

20. IRP Insolvency Resolution Process

21. IU Information Utilities

22. KB Kolkata Bench

23. COMI Centre of Main Interests

24. NCLAT National Company Law Appellate Tribunal

25. NCLT National Company Law Tribunal

26. NPA Non-Performing Asset

27. OC Operational Creditor

28. PoA Power of Attorney

29. PSBs Public Sector Banks

30. RBI Reserve Bank of India

31. RP Resolution Professional

32. S. Section

33. SBI State Bank of India

34. u/s Under Section

35. UNCITRAL United Nations Commission on International Trade

Law

36. v. Versus

37. Vol. Volume



KEY HIGHLIGHTS

Serial No.

Case Name Date Key Findings Page No.

SUPREME COURT OF INDIA

1 Arcelormittal India Private Limited v. Satish Kumar Gupta & Ors., Civil Appeal Nos. 9402-9405-2018

4th October 2018

This ineligibility u/s 29 A of the Code can be removed if the overdue amounts are paid along with the interest and charges relating to NPA. Only those who foul provisions of S.29A will not be eligible to submit resolution plans.

16

2 B K Educational Services Pvt. Ltd v. Parag Gupta and Associates, Civil Appeal No. 23988-2017

11th October 2018

Limitation Act is procedural in nature and shall apply retrospectively.

17

3 Transmission Corporation of Andhra Pradesh Limited v. Equipment Conductors and cables Limited, Civil Appeal No. 9597 of 2018

23rd October 2018

When the claims were time barred and a subject matter of arbitration. An application cannot be accepted u/s 9 of the Code, as there subsist a ‘dispute in existence’ between the parties. The Code is not a substitute for a recovery forum.

17

NCLAT

4 Francis John Kattukaran v. The Federal Bank Ltd. & Anr., Company Appeal (AT) (Insolvency) No. 242 of 2018

13th November 2018

Regulation 30A cannot override the substantive provisions of S. 12A according to which the ‘applicant’ who initiated the CIRP can only move application for withdrawal and not the RP.

18

5 Binani Industries Limited v. Bank of Baroda & Anr., Company Appeals (AT) (Insolvency) Nos. 82, 123, 188, 216 & 234 of 2018

14th November 2018

Any kind of discrimination by CoC against any creditor amounts to contravention of the objectives of the Code and even if a Regulation allows for such differential treatment, it will be ultra vires the Code. Further, a settlement proposal by the CD by itself is not sufficient to stop or withdraw the CIRP process, once initiated.

18



6 Ajay Chaturvedi v. J M Financial Asset Reconstruction Co. Ltd. & Anr, Company Appeal (AT) (Insolvency) No. 320 of 2018

29th November 2018

An application under S. 7 can be moved not only against the ‘Personal Guarantor’ but also against the ‘Corporate Guarantor’ as well, due to the definition of FC u/s 5(7) read along with S. 5(8).

18

7 Ankit Patni v. State Bank of India Ltd. and Anr., Company Appeal (AT) (Insolvency) No. 369 of 2018

29th November 2018

The circulars by RBI in exercise of the power under S.35AA of the Banking Regulation Act, 1949, cannot override the provisions of the IBC.

18

8 Usha Holdings LLC v. Francorp Advisors Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 44 of 2018

30th November 2018

The AA has no jurisdiction to decide whether a foreign decree is legal or illegal.

19

9 Mrs. Mamatha v. AMB Infrabuild Pvt. Ltd. & Ors., Company Appeal (AT) (Insolvency) No. 155 of 2018

30th November 2018

When two CDs collaborate and form an independent corporate unit entity, the application u/S. 7 of the IBC will be maintainable against both of them jointly and not individually against one or other.

19

10 Biostadt India Limited v. Sonachi Industries Limited, Company Appeal (AT) (INS) No. 268 of 2018

30th November 2018

Order passed by the AA was challenged on the grounds of violation of natural justice as the notice was allegedly not served by the registry. It was held that the notice was given and the CD failed to prove that there existed any dispute. The NCLAT did not find it necessary to remit back the matter.

19

11 Archisha Steel Private Limited v. State Bank of India and Anr., Company Appeal (AT) (Insolvency) No. 440 of 2018

30th November 2018

U/s 7 of the Code the AA is not authorised/competent to determine the legality of the order for rejection of restructuring plan which was made before the initiation of the application.

20

NCLT

12 Srinivas Venkatraman v. Royal Splendour Developers Pvt.

1st October 2018

Due to the delay by the IRP in handing over the records and documents to the RP the

20



Ltd., MA 442-2018 In CP (IB) 626 (CB) 2017

CIRP process was delayed by 27 days. It was held that the period unutilised due to the same is to be deducted from the 270 days provided u/s 12(2) of IBC.

13 Vaman Fabrics Pvt. Ltd. v. Punjab National Bank CP (IB) 27/10 (AHM) 2018

1st October 2018

Corporate applicant does not have to produce any document that the provisions of the Code are silent on and that the IBC has an overriding effect on any other proceedings going on.

20

14 Eendee Sales & Services Pvt. Ltd v. ETA Engineering Pvt. Ltd., CP (IB) 1106 (CB) 2018

3rd October 2018

Notice of dispute is valid if it is sent before the date of delivery of notice by the creditor.

20

15 M/s A.J. Agrochem v. M/s Duncans Industries Limited CP (IB) 308 (KB) 2018

5th October 2018

Non-obstante clause u/s 238 will not apply to the Tea Act, 1953 as it is a special legislation and the IBC deals with general provisions relating to insolvency. Both the statutes do not occupy the same field.

21

16 Sarla Tantia v. Nadia Healthcare Private Limited, CP (IB) 108 (KB) 2018

5th October 2018

The petition filed by the PoA in place of the OC is maintainable if there is compliance u/s 9 of the Code.

21

17 Mr. Sunil Gopichand Teckchandani v. Metallica Industries Limited MA 1253/2018, CP (IB) 1329/I&BP/2017

29th October 2018

The AA will apply judicial mind only after a resolution plan is approved u/s 31 of the Code.

21

18 Shivashakti Elmech Private Limited v. Drake and Scull Water & Energy India Private Limited, CP (IB) No.7.Chd/Hry/2018

30th November 2018

Non invocation of the arbitration clause cannot be a bar for invocation of the provisions of IBC due to overriding effect as per S. 238.

21

19 IDBI Bank v. Manor Floatel Limited, CP(IB) no.592/KB/2017

30th October 2018

The insolvency resolution process cost may be paid during the CIRP period also and does not necessarily have to be included in the Resolution plan.

22



20 State Bank of India v. Vijaraj Surana and Ors., CP/713/IB/CB/2018

30th October 2018

The Code is not applicable to the personal guarantors but NCLT can proceed as per Presidency Towns Insolvency Act or Provincial Act as Part III of the Code had not been notified.

22

21 Kitply Industries Ltd. v. Assistant Commissioner of Income Tax and IDBI Bank, I.A. No. 54/2018 in C.P. (IB)/02/GB/2018

15th November 2018

Proceedings before the I.T. Dept. which resulted in the freezing of the accounts in the name of CD is a proceeding of quasi-judicial nature and therefore continuation of the same is untenable in law as per S.14 of the Code.

22

22 Edelweiss Asset Reconstruction Co. Ltd v. M/s Birla Cotysn (India) Limited, CP 579/I&BP/NCLT/MAH/2018

20th November 2018

The petition filed by the FC u/s 7 was hit by limitation. It is essential that there is default of a financial debt. It was however argued by the FC giving evidence of the balance sheets of 2016-17 that the debt had been due since 2016. The AA admitted the petition of the FC u/s 7.

22

23 Fairmacs Shipping & Transport Services Pvt. Ltd. v. Trimurti Corns Agro Foods Pvt. Ltd., CP No. (IB) 1569/MB/2017

20th November 2018

Dispute raised after the demand notice does not amount to ‘dispute in existence’ u/s 9 of the Code.

23



SPECIAL INTERVIEW

Mr. Divyanshu Pandey

Partner

J. Sagar Associates, Gurugram

1. According to the promulgation passed

on November 23, 2017,

disqualifications have been placed on

the plans to be received by ex-

management and promoters. Do you

feel that the ex-management and

promoters may be in the best position

to revive and restructure the debt of the

corporate debtor, and hence should be

provided an opportunity to submit

resolutions plans?

The philosophy behind the inclusion of the

disqualification criteria was that it was solely

intended to keep those people out of the

process who due to their mismanagement and

unscrupulous behaviour have led to

deterioration of assets and in turn, the

company facing the CIRP. The Code does not

say that every promoter has to be kept out. All

default-free promoters can easily continue

because they have knowledge of a host of

information which undoubtedly puts them in a

better position. Most importantly, misdeeds

should not be used to buy the same assets at

the discounted value so as to cause loss to the

creditors and other stakeholders.

2. Do you feel that OCs under the Code

shall also be provided with voting rights

in CoC?

The scheme of the Code should be

understood, which is to provide a speedy and

time-bound insolvency resolution. The reason

why only the FCs were given voting rights, as

stated in BLRC Report, was that they are in the

best position to understand the economic

viability of a business as they would have

advanced money in the first instance, taking

into account the credit and risk profile of the

business and would have done their

assessments. If OCs are given rights, it would

affect the whole process by causing delays (A

business may have OCs ranging from rupees

10 thousand to rupees 10 crores). Also, their

rights are not completely ignored. If an

operational creditor is more than 10 % he or

she can attend meetings and voice their

concern.

3. Recently there was a recommendation

by the Insolvency Law Committee,

which submitted its report in March,

2018, to revise the minimum amount of

default for corporate insolvency

resolution process from 1 lakh to 10

lakhs and in case of personal insolvency

resolution process from 1 thousand to

10 thousand? Do you feel that this

particular recommendation needs to be

implemented by the legislature?

There can be pros and cons for the same. On

one hand, it will help in reducing the number

of cases if the threshold is increased. But at the

same time, creditors (especially OCs) should



not be placed in a difficult position. If there is

a difficulty in meeting even the one lakh

liability for a large business enterprise, then

there is definitely an issue with continuation of

the business as a going concern and needs to

be addressed. All in all, a balancing has to be

done.

4. What is your opinion on the latest

developments with regard to S.29A of

the Code in the light of ArcelorMittal

decision?

This is a landmark decision which sure brings

about clarity in terms of various aspects such

as the role of the RP, role of the CoC with

respect to determining the eligibility of the

resolution applicant, how frivolous litigation

can be curtailed in the whole process as well as

ascertaining people who are responsible for

control of the business by applying the

principle of lifting of the corporate veil.

5. What are the recent developments with

regard to the adoption of UNCITRAL

Model Law on cross border insolvency

in India as well as its importance?

This concept has become very important due

to increase in FDI into India and outbound

foreign investment from India to other

jurisdictions. So a framework has to be

designed to determine how these assets will be

treated and how insolvency proceedings will be

managed, if initiated, against entities which are

located outside India or are based in India but

have assets outside India, from a cross-border

perspective. Even ILC in its second report has

suggested a cross border framework which is

largely based on UNCITRAL law for

government’s consideration and adding a new

chapter in the Code regarding the same. Such a

framework will also be helpful in protection of

assets, and grants access to creditors which

could result in maximization of returns for all

stakeholders. Scope of CIRP should not be

limited on the principles of territoriality.

Instead, an approach of modified universalism

could be followed to acknowledge and accept

the rights of the creditors who are based

outside India and to provide a framework on

how to deal with the assets outside India.

6. With respect to operation of Part III

under the Code, which deals with

insolvency resolution and bankruptcy

for individuals and partnership firms,

do you think the existing mechanism of

DRTs will be sufficient to absorb the

extra load?

No doubt, the present infrastructure needs to

be enhanced to ensure smooth functioning. By

drawing parallels between the existing

mechanisms of how NCLTs adapted to the

requirements of law, even DRTs will end up

doing the same.

7. What do you think might still be a grey

area in the Code?

A lot of resolution plans provide for

termination of existing contractual

arrangements. A resolution plan is binding on

all stakeholders, even the counter parties to

these contracts. What seems to be the problem

is that there is no clarity as to what remedies

these contractual counter parties might have

and whether they are able to get a fair deal or

not.



8. What are different career opportunities

that have been created by the Code for

law professionals and students?

First and foremost, is becoming a resolution

professional. Secondly, one can pursue

becoming a lawyer practicing either in court or

a firm with respect to insolvency and

restructuring related matters. Third can be with

respect to research since the Code is at an

evolving stage and there is a requirement of

good academicians to study the law and teach

it.

EXAMINING THE POSITION OF

OPERATIONAL CREDITORS UNDER

THE INSOLVENCY AND

BANKRUPTCY CODE

By: Chitransh Vijayvergia & P. Dharma

Teja

The IBC, was enacted with the objective of

facilitating time bound insolvency resolution of

corporate persons, among others, for

maximising the value of assets of such

persons.1 It further promotes the availability of

credit and balances the interests of all the

stakeholders involved in the insolvency

process. The Code fulfils the said objectives,

inter alia, by enabling the OCs to initiate CIRP

under the Code on the occurrence of default

by the CD, subject to satisfaction of certain

conditions.2 However, the OCs do not stand

on the same footing as that of FCs under the

Code. While the FCs form part of the CoC and

play an instrumental role in taking decisions

1 See, Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta and Ors., Civil Appeal Nos. 9402-9405 of 2018 at p.125. 2 S.6, Insolvency and Bankruptcy Code, 2016. 3 Operational creditors should get a say, vote in insolvency process: SC, https://www.business-standard.com/article/companies/operational-creditors-

relating to the CIRP by exercising their voting

rights, OCs are not provided with voting rights

and merely benefit from the CIRP by receiving

their respective dues.

Recently, a two-judge bench of the Supreme

Court, while hearing a challenge on the

constitutionality of the Code, observed that

OCs of corporate debtors undergoing CIRP

must get a say in the CoC, including voting

rights proportionate to the debt owed to them.3

It further asked the government to deliberate

on this issue and report back to the court.4 This

observation has significant implications and

therefore requires thorough examination.

The issue of providing voting rights to OCs in

the CoC is multifaceted and complex in nature.

There have been convincing arguments from

various stakeholders involved in the insolvency

process. The rationale for denying voting rights

to OCs, as elaborated upon in the Bankruptcy

Law Reforms Committee Report,5 is that OCs

neither have the capability to assess the

economic viability of the corporate debtor nor

the willingness to modify terms of existing

liabilities in negotiations, unlike financial

creditors. Further, such provision of voting

rights to OCs, whose number is generally very

large and of varying amounts of debt, will not

result in rapid and effective resolution of the

debt, thereby not fulfilling the objective of the

Code.

Presently, as it stands, S.24 of the Code, dealing

with meeting of CoC, provides that

representative of OCs, whose aggregate debt

should-get-a-say-vote-in-insolvency-process-sc-118121300923_1.html. 4 Id. 5 Report of the Bankruptcy Law Reforms Committee dated November 2015, https://ibbi.gov.in/BLRCReportVol1_04112015.pdf, Para 5.3.1, sub-para 4.



exceeds 10% of the total debt, is permitted to

attend the meetings of CoC but shall not have

any voting rights in such meetings. Thus, in

cases where the aggregate value of debt owed

to OCs exceeds a certain threshold, the Code

allows them to make a representation in the

meetings of CoC.

With the objective of encouraging resolution as

opposed to liquidation, the Insolvency and

Bankruptcy Code (Second Amendment) Act of

2018 reduced the voting threshold to 66%

from 75% for all major decisions to be taken

by the CoC.6 It could therefore be argued that

even if the OCs are provided with voting

rights, with the lowered voting threshold under

the Code, they would not have significant

leverage in controlling the outcome of the

insolvency process.

However, the present position under the Code

vis-à-vis OCs is not without its criticism. Even

in cases where the debt of the OCs is

significant compared to that of FCs the CD

undergoing CIRP, they presently do not have

any control over the insolvency process. For

example, in Bhushan Steel’s CIRP, L&T did

not get any voting rights in the CoC even

though it was an operational creditor to the

tune of Rs. 900 crores.

In this context, it is pertinent to make reference

to the landmark judgment of Rajputana

Properties Pvt. Ltd. v. Ultratech Cement

Ltd. & Ors.7 and other connected matters. In

this case, the NCLAT upheld the revised

resolution plan submitted by Ultra Tech

Cement Ltd. for Binani Cements Ltd. The

NCLAT particularly examined the position of

6 S. 12(2), 22(2), 27(2), 30(4), 33(2), Insolvency and Bankruptcy Code, 2016.

OCs under the Code. It expounded the need to

balance the interests of all stakeholders,

including OCs, to fulfil the objective of the

Code to promote availability of credit, among

others. It further observed that OCs must not

be discriminated vis-à-vis FCs, otherwise, it

would defeat the objective of the Code. Thus,

it concluded that dues of OCs must get

treatment similar to that of FCs.

Hence, there is a need to review the present

position and balance the interests of all types

of creditors involved in the insolvency process.

It is reasonable that all OCs, of varying

amounts of debt, may not be given voting

rights in the CoC, in light of the objective of

the Code to ensure speedy and effective

resolution of the debt. Nevertheless, a

reasonable classification may be made wherein

some OCs, whose debt constitutes a certain

proportion of the total debt of the corporate

debtor, are given voting rights on behalf of

themselves and other OCs for all decisions to

be taken by the CoC. This arrangement must

be made to ensure that OCs of large amounts

of debt, are given a vital role in deciding the

outcome of the insolvency process. Otherwise,

it might affect provision of goods and services

on credit which is against the objective of the

Code of promoting availability of credit. Since

a reasonable distinction is made between

various classes of creditors pursuant to the aim

sought to be achieved by the Code, it does not

violate the principle of equality between them.

It is therefore imperative that the Parliament

holds effective consultations with all the

stakeholders concerned and make suitable

amendment to the Code providing OCs with

7 Rajputana Properties Pvt. Ltd. v. Ultratech Cement

Ltd. & Ors., Company Appeal (AT)(Insolvency) No. 188 of 2018.



voting rights under the Code. Such a measure

will necessitate other related amendments,

including changes to the procedure of initiation

of CIRP by OCs, among others.

THE EASY ANSWER IS THE WRONG

ANSWER: THE NON-PERFORMING

ASSETS CONUNDRUM

Is Privatization of Public Sector Banks a

Solution for Non-Performing Asset?

By: Utkarsh Jhingan and Anjali A.

Over the last decade, the complex loan

structure of NPA has adversely affected the

banking industry in India. The RBI has defined

NPA as a loan or advance for which the

interest or installment of the principal amount

has been overdue for more than 90 days.8 The

higher the level of NPA’s, the higher is the

probability of it affecting the performance of

banks, i.e. a large number of credit defaults pull

down the net profitability and in turn

compromises the position of the banking

system as a financial institution. According to

the RBIs Financial Stability Report 2018, the

current stand of stressed assets i.e. NPAs is at

10.8% as of September 2018. The issue of

NPAs does not only affect the banks, but also

reflects the conditions of the industry and trade

in the country’s economy. This poses an

alarming threat to the banking industry,

questioning its sustainability and endurance

capacity. However, it is the nationalized banks

like SBI, PNB and IDBI that suffer the most

from this muddle.

8 Resolution of Stressed Assets – Revised Framework,

February 12, 2018, https://www.rbi.org.in/scripts/FS_Notification.aspx?Id=11218&fn=2&Mode=0

Reasons for the Rise in NPA

There are various reasons for the rise in NPA

like the financial crisis, boom phase etc. A look

into the boom phase from 2000 to 2008, shows

that public sector banks had started lending

heavily to companies. The financial crisis of

2008-09 caused a rapid increase in the prices of

raw materials as well as a shortage of supply.

Industries faced difficulties in repayment of

loans. As such, industries that suffered the

most, such as textile, infrastructure, mining and

aviation constitute for most of the NPAs.

Another reason is the large amount of money

lent to commercialized industries, such as

Kingfisher Airlines. When Kingfisher Airlines

was undergoing financial crisis, the SBI group

provided them with a massive amount of loan

which the bank is still to recover. Banks faced

the same problem with PNB. There are several

other factors which contribute to the rapid

increase in this situation - such as the sluggish

legal system of the country as well as the

inadequacy of banks in appropriate planning to

meet these contingencies. Numerous efforts

are now being taken to solve the problem of

NPAs muddling in PSBs and some solutions

regarding this problem are discussed below.

Privatization as a Solution

Privatization of PSBs is being proposed by

many experts for the rising number of NPAs

in the Indian PSBs. The argument advanced is

that to avoid interference by politicians in the

working of PSBs, they must not remain under

the ownership of the Government. The apex

position of PSBs are now being treated as a

government job, their main objective being to



spend most of the time in implementing the

orders of the politicians. Some experts have

also mooted the idea that instead of 100%

privatization of the PSBs, the right solution

would be to spread the equity of PSBs and

bring down the Government’s hold to below

50%, so that the boards can function properly

without any interference from the State

officials. Privatization of PSBs is a costly

process and it does not insure that when these

banks are privatized, there will be no fraud.

Why Other Solutions Are Required?

There has been a steady increase in the number

of frauds in PSBs, and doing away with the

existing system is not the answer to the

problem. Privatization is not the way to solve

the problem of NPAs, as frauds happen in

those scenarios too, per RBI’s Asset Quality

Review of Private Banks. There are a number

of private banks which have gone out of

existence because of mismanagement, such as

Punjab Co-operative Bank Ltd., Bharat

Overseas Bank to name a few.

The problem of NPA is quite devilish and an

easy answer, in this case, might be rushing to

conclusions. One has to recognize that India is

still a developing country and as such cannot

be compared to other developed countries. If

the banking system is privatized, then schemes

like Jan Dhan Yojna which gave the public

access to PSBs will fail and most of the

population of the country will cease to have

bank accounts, as such accounts do not

generate profit. In addition, privatization of

banks does not take the liability away from the

government as illustrated by several instances

in the UK and the USA, where the government

had to bail out private banks because of their

mismanagement. In India, banks like Global

Trust Bank and Bank of Rajasthan required the

aid of the State to be rescued in instances of

mismanagement.

Governments throughout the brief history of

Indian autonomy have spent large amount of

taxpayers’ money in the name of PSB re-

capitalization. So, in order to solve this

problem, certain steps should be taken to

ensure that the money of the taxpayers is not

drained yet again. Firstly, RBI needs to amplify

its managerial capacity, which should include

more specialization in the subject, and

improved training mechanism. Secondly, steps

should be taken to have a process to evaluate

the PSBs corporate governance and bring out

their objective. Many schemes like Bank Board

Bureau were incorporated within the public

sector framework but these schemes failed

because the RBI was not well equipped. The

Nayak Committee recommended that the

government shareholding should be

disinvested to below 52% but this will not help

until and unless the banks are professionally

managed. Thirdly, in order to solve the

problem of NPA, RBI should take steps to

prevent ever-greening of banks. Lastly, the RBI

should take the lead and make regulations in

such a way that the business which is

conducted in the financial sector is done in a

clean and transparent way.

Conclusion

If the government wants to bring an end to the

problem of NPA in PSBs, then it has to work

on the very foundation of these banks, i.e. it

should start taking steps towards improving

the administration of the PSBs. Furthermore,

rather than relying upon shortcuts like

privatization of PSBs, the Government should

take the road that is less travelled.



BINANI CEMENT INSOLVENCY

MATTER: A STEP FORWARD?

By: Jagriti Sanghi

NCLAT, in its landmark judgment of Binani

Cement, has ruled that the interests of the OCs

should be taken care on par with FCs and they

ought not to be discriminated against in

insolvency cases. It is common practice to

prefer FCs in the line of repayment. The lack

of protection for OCs in the CIRP was

apparent in this case of debt-ridden Binani

Industries Ltd.

The facts of the case are that Binani Cement

had been declared to have debt over Rs. 6,469

crores. The CoC agreed to Dalmia Bharat’s bid

(Rs. 6,700 crores) and did not initially consider

Ultra Tech’s revised offer since it was

submitted late. Dalmia Bharat, who has

emerged as the highest bidder (H1), offered to

pay 100% only to the secured financial

creditors. This offer consequently meant

haircuts for unsecured financial creditors. The

OCs of Binani Cement were seen to be

insignificant to Dalmia and were offered a

paltry amount of Rs. 150 crores as against Rs.

700 crores. The OCs were appalled at the sight

of the settlement and categorization proposed

by Dalmia. It was claimed that the OCs

extended their support to keep the plant

functioning even during difficult times when

FCs had withdrawn their assistance. Hence,

OCs asserted financial parity with the banks

and other financial institutions.

Thereafter, the rival Ultra Tech offered Rs.

7,200 crores which was much higher vis-à-vis

Dalmia’s. It entered into an agreement with

Binani Industries to terminate the insolvency

process and to settle it out of court. In addition,

the company put forth the idea of paying the

full dues of Binani Cement’s OCs along with

secured and unsecured financial creditors.

Thus, UltraTech wanted to make a 100%

payout to both the types of lenders. However,

this agreement could not be enforced since, as

per the insolvency process, the lenders refused

to agree to the withdrawal. Ultra Tech

contended that ‘maximization of value’ is the

foremost aim of IBC and challenged the COCs

decision to accept the Dalmia Bharat’s bid.

NCLT, in its order, held that the COCs

decision to deny the consideration of Ultra

Tech’s revised bid was unfair and unjust. Thus,

after a prolonged hearing, CoC was ordered to

look into Ultra Tech’s plan. Ultra Tech

increased the bid to Rs. 7,900 crores.

Aggrieved, Dalmia moved to NCLAT for a

stay on NCLT’s order but in vain. Later, the

Supreme Court transferred all the pending

cases related to this case to the NCLAT and

ordered it to expedite the hearing.

The NCLAT, in its judgment, made it clear that

the IBC does not cater to the discriminatory

treatment meted out to the OCs. Instead, the

IBC seeks to ensure fair and similar treatment

to both the classes of creditors. NCLAT gave

its nod to Ultratech’s bid since it upholds the

interests and rights of all the creditors. It

labelled Dalmia’s offer as “discriminatory”.

It is imperative to analyse the position of OCs

prior to this landmark judgment. It is pertinent

in this context to examine the recent

amendment to the Insolvency and Bankruptcy

Board of India (Insolvency Resolution Process

for Corporate Persons) Regulations, 2016

which came into force with effect from 5th

October, 2018. The Amendment to Regulation

38 of the 2016 Regulations accorded priority to

OCs in payment and quantum of dues.

However, the priority given to the payment of



OCs as per the 4th Amendment over and above

the FCs needs to be further refined and

articulated. The implementation of the change

is doubtful since the payment is associated with

the resolution plan, which requires approval by

the CoC.

The OCs are not adequately represented in the

CoC and have no influence in the insolvency

process. Notwithstanding the Amendment, the

payment is subject to the approval by the CoC

and there is no fiduciary duty on the CoC to

function according to the best interests of the

stakeholders. OCs are accorded inferior

treatment as compared to FCs by virtue of

Sections 30(b), 31 and S. 53 of the Code. The

aforementioned statutory provisions have been

interpreted in such a manner by the bidders, so

as to provide OCs with a minimum payout of

the liquidation value due to them as against

their admitted claims, which on many

occasions was almost close to nothing.

Furthermore, there is no statutory provision

that enables the Tribunal to oppose a

resolution plan on the ground of unfairness

against a particular class of creditors. The sole

relief available to OCs is to approach the courts

which will cause further delay.

The CoC which comprises of only financial

creditors9 has the absolute discretion in

deciding the amount to be payable to the OCs

under a resolution plan. Thus, the OCs

recourse is to persuade the FCs to vote for

their favorable resolution plan. The FCs have

varied voting powers based on the proportion

of the respective financial debt owed and the

resolution plan is implemented if it meets the

66% of the voting threshold.

9 S. 21, Insolvency and Bankruptcy Code, 2016.

In addition, there is another provision namely

S.24(3)(c) which states that one representative

of each of the OCs can be given an opportunity

to attend the meetings of CoC when their

aggregate dues constitute at least ten percent of

the total debt but they shall not have voting

shares. Hence, OCs are completely neglected if

their respective debts in aggregate do not

amount 10% of the total debt.

Furthermore, the minutes of the meetings are

to be sent only to the participants of the

meeting and not to all the stakeholders as per

Regulation 24(7) of the CIRP Regulations,

2016. The irony is that FCs have the right to

participate and exercise their voting rights in

the meetings of the CoC irrespective of the

percentage of the debt owed to them (even if

their debt is less than 1% of the total debt).

Hence, the decision-making power is evidently

vested with the FCs and the OCs remain

disempowered. It is pertinent to note that FCs

cannot be regarded as neutral parties. Being a

commercial entity, they have a personal interest

in recovery of their maximum dues.

Therefore, FCs are in a position to compel the

OCs to agree to minimum repayment of the

latter’s debt and they can enjoy full repayment

of loans. Hence, this can be construed as a

violation of Article 14 (equality before law);

Article 19(1)(g) (freedom of trade) and Article

300A (right to property) of the Indian

Constitution.

Thus, the IBC limits the rights of the OCs only

to the extent of attending the meetings of the

CoC. Often, many OCs institute CIRP

proceedings but they neither form part of the

CoC nor possess the voting rights, indicating

incongruence with the law of reasonableness.



This position is seemingly oppressive to the

OCs. In a number of cases, it is seen that

despite filing an application for initiating

insolvency proceedings, OCs receive no

payment and they get completely ignored. The

IBC as a whole puts the OCs in a weak position

having insignificant influence on the

insolvency process.

It is reasonable to presume that there exist

practical difficulties in providing the OCs with

voting shares in the CIRP. There could be

thousands of OCs involved in the CIRP and

attempting to reach consensus, which is a

difficult task. They are diversified and may not

be in a position to agree upon a resolution plan.

However, there is a need to improve the

situation of OCs because they are the

disadvantaged in an insolvency process. An

economy cannot merely run on the credit

facilities provided by the Banks, but also

requires the OCs to supply goods and services

which forms a significant part of the working

capital.

Therefore, for the time being, the most

favorable course of action would be to invite

objections on the resolution plan for the

discrimination meted out to the OCs. This

could be done before submitting the plan to

the AA. It is because the liquidation value

available to the OCs in most cases is an

insignificant amount. The OCs stand to lose

from Corporate Insolvency Resolution

Process. The OCs must not be satisfied with

mere liquidation value when they hold

significant amount of claims. Therefore, the

objecting creditor must be given an

opportunity to be heard and the burden of

10 Sree Metaliks Ltd. & Anr. v. Union of India, W.P.

7144 (W) of 2017.

proof shall lie on the creditor claiming it to be

unfair and prejudiced. NCLT cannot condemn

persons unheard. It requires the Tribunal to

hear the other party, as was laid down in the

case of Sree Metaliks Ltd. & Anr. v. Union of

India.10 Other concrete and workable solutions

must be deliberated upon to improve the

condition of OCs.

The Amendment is appreciable but is not an

effective step to deal with the issues of the

OCs. The actual problem still persists and both

the IBC and the Regulations do not rectify

these defects. In the Binani ruling, NCLAT’s

decision is indeed laudable since it is an

important step towards improving the plight of

OCs. It is for the first time that the rights of

the OCs have been ruled upon vis-à-vis FCs.

However, there is much left to be achieved

regarding protection of OCs. The judgment

should manifest itself to be an important

precedent to effectively rule that OCs cannot

be unfairly discriminated against in insolvency

proceedings under the IBC.

CASE UPDATES

[SUPREME COURT]

4th October, 2018

Arcelormittal India Private Limited v.

Satish Kumar Gupta & Ors., Civil Appeal

Nos. 9402-9405 -2018

Bids were submitted by Arcelormittal India

Private Limited and Numetal Limited for the

CIRP of Essar Steel India Limited. The RP

disqualified both the bidders by virtue of S.29

A of the Code, since the former had control

over two companies which owed unpaid dues



to banks and financial institutions and the latter

was controlled by the son of one of the

promoters of Essar Steel. On appeal such

disqualification was affirmed by NCLT.

However later NCLAT allowed the bid of

Numetal Limited owing to the divestiture of

Numetal’s interest.

Later, the appellant approached Supreme

Court against the decision of the NCLAT. The

Supreme Court in this case observed that both

the bidders were ineligible u/s 29A(c) and

hence disqualified from submitting resolution

plan. However, it was of the view that

ineligibility can be removed if resolution

applicant makes payment of all overdue

amounts along with the interest and charges

relating to non-performing asset in question

before submission of resolution plan and thus

took a literal interpretation of S.29A.

Therefore, it is only such persons who do not

fall foul of sub clause (c) or (g) of 29A, shall be

eligible to submit resolution plans. The

Supreme Court exercised powers under Article

142 due to recent amendments made in the

Code which augmented the ineligibility of the

companies in the present case and provided an

opportunity to pay off NPA’s of CDs within a

period of two weeks from date of receipt of the

judgement to become eligible for the bids.

11th October 2018

B.K. Educational Services Pvt. Ltd v. Parag

Gupta and Associates, Civil Appeal No.

23988-2017

The issue in the instant case was whether the

provisions of the Limitation Act, 1963 would

be applicable to the applications made u/s 7 or

9 of the Code on and from their

commencement. The Supreme Court observed

that the Limitation Act is procedural in nature

and shall be construed as retrospective. It also

placed reliance on the ILC Report which

emphasised that when a debt is time barred, the

right to remedy is time barred. It further held

that non-agitation of claims within three years

as stipulated under article 137 of schedule to

Limitation Act will bar the remedy.

23rd October, 2018

Transmission Corporation of Andhra

Pradesh Limited v. Equipment

Conductors and Cables Limited, Civil

Appeal No. 9597 of 2018

The appellant awarded certain contracts to

respondent for supply of goods and services.

Dispute arose in the course of such contract

and thereafter was referred to arbitration

wherein claims on certain invoices (58-82) were

decided in favour of the respondent while the

others (1-57) were held to be barred by

Limitation. Respondents challenging the

rejection of such claims finally approached

NCLT u/s 9 of the Code after filing execution

application which was again dismissed by High

Court of Hyderabad being time barred.

NCLT held that the CP filed by respondent

was not maintainable as such claims to receive

monies from appellant were not tenable and

disputed claims, as the very claims were subject

matter of arbitration and the award was passed

rejecting these claims as time barred. Thus, the

petition was dismissed by NCLT and aggrieved

by such order approached NCLAT, which

directed Appellants to settle the claims of

Respondents, failing which CIRP shall be

initiated.

The Supreme Court upheld NCLT’s decision

which relied on the test of existence of dispute



and operational debt laid down in Mobilox11

case and also observed that the Code was not

intended to be a substitute to a recovery forum.

NCLAT

13th November, 2018.

Francis John Kattukaran v. The Federal

Bank Ltd. & Anr., Company Appeal (AT)

(Insolvency) No. 242 of 2018

Withdrawal of an insolvency application was

moved by the RP after obtaining the majority

vote as per Regulation 30A of ‘Insolvency and

Bankruptcy Board of India (Insolvency

Regulation Process for Corporate Persons)

Regulations, 2016’. The Court held that

Regulation 30A cannot over-ride the

substantive provisions of S.12A according to

which the ‘applicant’ who initiated CIRP can

only move application for withdrawal and not

the RP.

14th November, 2018

Binani Industries Limited v. Bank of

Baroda & Anr., Company Appeals (AT)

(Insolvency) Nos. 82, 123, 188, 216 & 234 of

2018

The primary issue before the Court in the

instant case was regarding the differential

treatment by CoC against a resolution

applicant and differential treatment of certain

creditors in the approved resolution plan. The

Tribunal held that where discrimination of

either kind is found, it is against the objectives

and provisions of the Code. It also observed

that even a Regulation which allows for such

differential treatment is ultra-vires the Code.

Further it was also held that a settlement

11 Mobilox Innovations (P) Ltd. v. Kirusa Software (P)

Ltd., (2018) 1 SCC 353.

proposal by the CD by itself is not sufficient to

stop or withdraw the CIRP process, once

initiated.

29th November, 2018

Ajay Chaturvedi v. J M Financial Asset

Reconstruction Co. Ltd. & Anr, Company

Appeal (AT) (Insolvency) No. 320 of 2018

Application of the FC was accepted u/s 7 of

the Code by the AA. The issue before the

appellate tribunal was whether application u/s

7 of the Code can only be filed against the

‘Personal Guarantor’ and not against the

‘Corporate Guarantor’. The Tribunal held that

in view of the definition of ‘Financial Creditor’

as defined in S.5(7) read with S.5(8) of the Code

an application u/s 7 is also tenable against the

‘Corporate Guarantor’. The Tribunal was of

the view that under Clause (i) of sub-S.(8) of S.

5 any liability in respect of any ‘guarantee’ or

‘indemnity’ for any of the items referred to in

sub-clauses (a) to (h) comes within the meaning

of ‘Financial Debt’. Therefore, the CD having

given ‘guarantee’ on behalf of the principal

borrower for the items referred to in sub-clause

(a), guarantor company will also come within

the meaning of CD qua the principal borrower

in whose favour the guarantee has been given.

Hence, the appeal was dismissed.

29th November, 2018

Ankit Patni v. State Bank of India Ltd. and

Anr., Company Appeal (AT) (Insolvency)

No. 369 of 2018

Appellant, the CD, brought the case arguing

that the term ‘default’ u/s 35A, which

empowers the Central Govt. to authorize the

RBI to issue directions to any Banking



Company, of the Banking Regulation Act, 1949

has the same meaning as u/s 3(12) of the Code.

Appellant argued that the circular dated 12th

February 2018 is binding on Banking

Companies and has statutory force and that,

the SBI is also bound by the circulars and was

required to wait for the publication of the

revised framework in terms of Clause 6

thereof. Held, the 12th February circular is not

applicable as it came into effect after the filing

of the application u/s 7. Further, the RBI’s

directions also suggest that it never intended to

interfere with the statutory remedy of

resolution process under the IBC and the

circulars cannot override the provisions of the

IBC. Therefore, the AA needs only to be

satisfied of the existence of a debt and default,

if any.

30th November, 2018

Usha Holdings LLC v. Francorp Advisors

Pvt. Ltd., Company Appeal (AT)


While hearing an appeal from an order of the

NCLT, the NCLAT held that the AA not being

a Court or ‘Tribunal’ and CIRP not being a

litigation, it has no jurisdiction to decide

whether a foreign decree is legal or illegal.

Further, the findings of the AA with regard to

legality and propriety of foreign decree in

question being without jurisdiction is nullity in

the eye of law. Also, the money claims of the

Appellant did not relate to supply of goods or

services and, therefore, the application u/s 9

against the CD was held to be not

maintainable.

30th November, 2018

Mrs. Mamatha v. AMB Infrabuild Pvt. Ltd.

& Ors., Company Appeal (AT)


The allottee of real estate filed an application

u/s 7 of the Code for initiation of CIRP jointly

against two CDs. The AA rejected the

application on the ground that the application

u/s 7 of the Code cannot be filed jointly against

the two CDs. The NCLAT held that, when the

two ‘CDs’ collaborate and form an

independent corporate unit entity for

developing the land and allotting the premises

to its allottee, the application u/s 7 of the IBC

will be maintainable against both of them

jointly and not individually against one or

other. Therefore, order of AA was reversed

and the application was accepted against them

jointly.

30th November, 2018

Biostadt India Limited v. Sonachi

Industries Limited, Company Appeal (AT)

(INS) No.268 of 2018

Appellant raised objections on the order

passed by the AA on an application filed u/s 8

& 9 of the Code. It was challenged on the

grounds that the proceedings were ex-parte

and the AA itself, through its Registry did not

serve notice on the CD and violated principles

of natural justice and thus the Order deserves

to be set aside. Held, due notice was given and

as the CD failed to prove that there existed any

dispute prior to the notice u/s 8. The NCLAT

did not find that remitting back the matter will

serve any purpose, the application having been

rightly admitted by the AA.



30th November, 2018

Archisha Steel Private Limited v. State

Bank of India and Anr., Company Appeal

(AT) (Insolvency) No. 440 of 2018

The AA initiated the CIRP process against the

CD. Later a shareholder brought appeal on the

ground that the AA failed to appreciate that

one of the Credit Rating Agencies accorded an

‘investment grade’ rating and the other one

gave a below investment grade rating and the

Bank could not rely upon them to reject the

restructuring plan. The NCLAT held that u/s

7 of the Code the AA is not

authorized/competent to determine the

legality of the order of rejection of

restructuring plan which was made before the

initiation of the application.

NCLT CASES

1st October, 2018

Srinivas Venkatraman v. Royal Splendour

Developers Pvt. Ltd., MA 442-2018, CP (IB)

626 (CB) 2017.

IBBI had given its approval to appoint the RP

proposed by the CoC. Subsequently, the IRP

handed over all the records and documents to

the RP which delayed the CIRP process by

about 27 days. RP filed an application u/s 12

(2) of the Code to extend the period of the

CIRP. NCLT held that the period unutilized

due to the same is to be deducted from the 270

days provided u/s 12(2) of the Code and

granted an extension of 27 days.

1st October, 2018

Vaman Fabrics Pvt. Ltd. v. Punjab

National Bank CP (IB) 27/10 (AHM) 2018

The CD filed an application for CIRP u/s 10

of the Code. However, proceedings under the

SARFAESI Act and the Recovery of Debts

Due to Banks and Financial Institutions Act,

1993 were pending before the DRT. The FC

opposed the IB petition stating that it is filed

with mala fide intentions to stall the debt

recovery proceedings and that they have not

produced certain documents and hence the

application is incomplete. The NCLT accepted

the application holding that the corporate

applicant does not have to produce any

document that the provisions of the Code are

silent on and that the IBC has an overriding

effect on any other proceedings that is going

on.

3rd October, 2018

Eendee Sales & Services Pvt. Ltd v. ETA

Engineering Pvt. Ltd., CP (IB) 1106 (CB)

2018

The petition was filed u/s 9 of the Code by the

operational creditor for initiating CIRP against

the debtor after sending a demand notice u/s 8

of the Code. However, the debtor contented

that he had intimated the creditor through mail

stating that the amount claimed is incorrect,

before the notice was sent to him which gave

rise to a pre-existing dispute. The NCLT

dismissed the petition holding that the notice

of dispute is valid even if it is sent before the

date of delivery of notice by the creditor.



5th October, 2018

M/s A.J. Agrochem v. M/s Duncans

Industries Limited CP (IB) 308 (KB) 2018

The CD objected the CIRP application filed by

the OC stating that since it is a tea company

taken over by the Tea Board of India, no

winding up proceeding can be initiated without

the permission of the Central government

according to the Tea Act, 1953. The NCLT

rejected the application holding that the non

obstante clause u/s 238 of the Code won’t

apply in this case as the Tea Act, 1953 is a

special legislation and the provisions of the

IBC deal with general provisions relating to

Insolvency and Bankruptcy and that both the

statutes do not occupy one and the same field.

5th October, 2018

Sarla Tantia v. Nadia Healthcare Private

Limited, CP (IB) 108 (KB) 2018

The petition u/s 9 of the IBC was filed by the

PoA holder of the OC. The Corporate Debtor

challenged the maintainability of the

proceeding on the ground that the petition is

not filed by the OC herself, but it is filed by her

PoA holder. The tribunal came to the

conclusion that the petition filed by a PoA is

maintainable after going through the facts of

the case and the provisions of the IBC and also

since the OC had complied with the provisions

of S. 9 of the Code.

12Arcelormittal India Pvt. Ltd. v. Satish Kumar Gupta & Ors, [Civil Appeal No.9402-9405 of 2018]. 13 Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd, (2018), 1 SCC 353.

29th October 2018

Mr Sunil Gopichand Teckchandani v.

Metallica Industries Limited MA

1253/2018, CP (IB) 1329/I&BP/2017

Applicants had filed Misc. Application against

the actions of RP, on the grounds of

deliberately preventing them from

participating in the CIRP. However, since the

application was made u/s 60(5)(c) of the Code,

the NCLT relied on the case of Arcelormittal

India Pvt. Ltd. v. Satish Kumar Gupta &

Ors.12 where Supreme Court clarified that the

Tribunal shall apply judicial mind only after a

resolution plan is approved by the CoC and is

pending for approval u/s 31 of the Code.

Hence the Tribunal considered the M.A.

premature and dismissed it.

30th October 2018

Shivashakti Elmech Private Limited v.

Drake and Scull Water & Energy India

Private Limited, CP (IB)

No.7/Chd/Hry/2018

The NCLT on an application u/s 9 relied on

the test of existence of “dispute” laid by the

Supreme Court under the Mobilox case13 and

also relied on the case of B.K. Educational

Services14 for evaluating the application of

Limitation Act, 1963. The NCLT observed the

non-invocation of the arbitration clause cannot

be a bar for invocation of the provisions of

IBC due to overriding effect of the Code as per

S.238.

14 B.K. Educational Services v. Parag Gupta and Associates [Civil Appeal No. 23988 of 2017].



30th October 2018

IDBI Bank v. Manor Floatel Limited,

CP(IB) No.592/KB/2017

The NCLT before approval of the Resolution

Plan observed the conditions spelt out in

S.30(2) of the Code. The Resolution plan

submitted had no provision of payment of

Insolvency Resolution process cost. However,

the Tribunal approved the plan, because the

IRP Cost had already been paid for by the CoC

during the CIRP period and therefore it

deemed it appropriate to be not included in the

resolution plan.

30th October 2018

State Bank of India v. Vijaraj Surana and

Ors., CP/713/IB/CB/2018

The case arose out of separate applications

made to the NCLT against the Personal

Guarantors of the CD u/s 60(2) of the Code.

The NCLT has powers of DRT u/s 60(4) of

the Code, but the issue arose since part III of

the Code has not been notified to proceed

against individuals under the Code. The

Tribunal noted the verdict of the SC in S.B.I.

v. Ramakrishnan15 and held the Code is not

applicable to the personal guarantors but

NCLT can proceed as per Presidency Towns

Insolvency Act or Provincial Insolvency Act.

15th November, 2018

Kitply Industries Ltd. v. Assistant

Commissioner of Income Tax and IDBI

Bank, I.A. No. 54/2018 in

C.P.(IB)/02/GB/2018

15 State of Bank of India v. V. Ramakrishnan & Anr [Civil Appeal No. 3595 of 2018].

On the scope of moratorium u/s 14 of the

Code. The tribunal held that the proceeding(s)

before the I.T. Department which had resulted

in freezing of the bank accounts in the name of

CD is a proceeding of quasi-judicial nature and

being so, such a proceeding is a “proceeding before

any other authority” u/s 14(1)(a) of the Code and

the continuation of the same during the

moratorium period is untenable in law.

20th November, 2018

Edelweiss Asset Reconstruction Co. Ltd. v.

M/s Birla Cotysn (India) Limited, CP

579/I&BP/NCLT/MAH/2018

A petition was filed u/s 7 of the IBC, 2016 by

the FC. The CD argued that the claim of

amount is barred by limitation as the date of

default was 29.10.12 and the acknowledgement

given by the corporate debtor regarding the

default is after the period of limitation and such

acknowledgement doesn’t start a fresh period

of limitation.

The financial creditor relied on the case of

Innoventive Industries to illustrate that for an

application u/s 7 of the Code, default of a

financial debt is necessary and whether the

debt is disputed once it is due, is of no matter.

Also, the financial creditor relied on the

balance sheets of 2016-17 to show that the

debt had been due since the default in 2012, to

reject the argument of the claim being barred

by limitation. Hence, the AA admitted the

petition of the financial creditor u/s 7

acknowledging default within the meaning of

the S.3(12) of the IBC.



20th November, 2018

Fairmacs Shipping & Transport Services

Pvt. Ltd. v. Trimurti Corns Agro Foods Pvt.

Ltd., CP No. (IB) 1569/MB/2017

An application was filed u/s 9 of the IBC by

the OP. The issue raised by the CD was that

there was deficiency in service on part of the

OP owing to which the CD has incurred

certain losses and was unable to pay the OP.

The Bench held that there was no pre-existing

dispute regarding the quality of goods or

service and the dispute which is raised after the

demand notice does not amount to ‘dispute in

existence’ under S. 9 of the Code. For this, the

Bench relied on Mobilox Innovations Case16. It

further noticed that whether the company is

unable to make payment or that the relief

sought has bonafide or not is irrelevant.

Therefore, the application of the petitioner was

admitted by the Bench.

REGULATORY UPDATES

IBBI (Insolvency Resolution Process for

Corporate Persons) (Fourth Amendment)

Regulations, 2018.

In the erstwhile regulation there was a

mandatory requirement for circulating the

minutes of the meeting via electronic means to

the CoC to intimate within forty-eight hours of

the culmination of the meeting to seek a vote

of the members who were not able to vote at

the meeting. Now by virtue of the amendment

the minutes of the meetings has to be

circulated to the authorized representatives

also. Further, the same shall also be circulated

to the FCs. The RP now needs to announce the

voting window at least twenty-fours before the

16 Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353.

window opens for at voting instructions and

keep the voting window open for at least

twelve hours and the same shall be exercised

by the professional either through electronic

means or electronic voting system as per the

instructions received from the FCs. The idea

behind this change is that the FC can vote even

after the circulation of the minutes of meeting.

Whereas, in the erstwhile regulations the

discharge of the payment to different creditors

was based on priority basis, this amendment

has now provided that the OC shall be given

priority over the financial creditors. Lastly, the

term ‘dissenting creditors’ has been removed

from the regulations.

Insolvency and Bankruptcy Board of India

(Information Utilities) Regulations, 2017

The main object behind the IU regulation is to

lay down criteria for registration as well as

regulation of the IU. The regulation lays down

the criteria for the registration of an IU to be a

public company with a minimum net worth of

50 crores, with more than half of its governing

board being independent directors. The IU, its

key managerial personnel including its

promoters, directors and other persons

holding more than 5% of its paid up equity

share capital or its total voting power shall be

fit and proper persons.

Further, the regulation allows the IBBI to lay

down certain guidelines pertaining to technical

standards and other services carried out by IU.

Lastly, to protect the interest of the user, the

IU have to setup a grievance redressal policy

and comply with other prescribed measures as

laid down.




Insolvency Professionals (Amendment)

Regulations, 2018

This regulation lays down the requirements for

the registration of the IP. It states that the

professional shall mandatorily have passed the

insolvency examination within last twelve

months and in addition to that should have

completed a pre-registration course from the

insolvency professional agency. Two

requirements laid down for registration as an

insolvency professional includes:

1. Either a required experience of ten-

fifteen years.

2. If not, to successfully complete the

graduate insolvency program as approved by

the Board.

After registration the insolvency resolution

professional shall not delegate his duties as laid

down under the Code. Further, by virtue of the

regulation any company/registered

partnership/limited liability partnership can

also be registered as an insolvency professional

entity.


(Liquidation Process) Regulations, 2016

The liquidation process regulations provide for

the activities which are to be carried out from

the issue of liquidation order (S. 36) to the

dissolution (S. 54). This regulation also places

a bar on the insolvency professional from

acting as a liquidator for a corporate debtor if

he is not acting independently of the corporate

debtor. Further, the partners or directors of an

insolvency professional entity of which the

insolvency professional is a partner or director

is prohibited from representing other

stakeholders in the same liquidation process.

These regulations also lay down the contents

of the announcement, verification of claims,

manner of realization of assets and security

interest. Mode of selling the assets has also

been provided which is through auction, and

sale through private sale shall only be made

when the assets are perishable. The fee payable

to the liquidator shall be decided by the CoC.


(Mechanism for Issuing Regulations)

Regulations, 2018

S. 240 of the IBC provides the IBBI to make

rules and regulations. In furtherance of the

same IBBI notified the Mechanism for issuing

regulations for the purpose of making or

amending regulations. The regulation provides

that the IBBI shall with the approval of the

governing board place the draft on its website

and shall seek comments from the public. The

IBBI shall provide at least twenty-one days for

public to submit their comments. The

comments shall be uploaded on the website

prior to the date of the notification of the

regulations. The regulations shall then be put

to the scrutiny of the governing board for

approval, if the board decides to the approve

regulations which are different from those

proposed by IBBI the governing body can

repeat the process of issuing regulations.

CROSS BORDER INSOLVENCY

UPDATES

Summary- “Report of Insolvency Law

Committee on Cross Border Insolvency”

In the report, the committee highlighted the

recommendations of the Report of the

Bankruptcy Law Reforms Committee, 2015

that cross border insolvency cases must be

deliberated upon once the proposed legal

regime for domestic insolvency matters was in



place and that the UNICTRAL Model Law of

1997 on cross border insolvency must be

adhered to and adopted with suitable globally

recognized and accepted modification.

The modifications suggested by the committee

are broadly the four main principles on which

the Model Law is based on. These are as

follows:

1. Access: Allowing foreign insolvency

professional and foreign creditors direct access

to domestic courts and to allow them to

participate in proceedings.

2. Recognition: Recognising the orders

of foreign authorities, and recognition to

proceedings as main proceedings and non-

main proceedings which shall have its own

consequences.

3. Cooperation: The Model Law lays

down guidelines for cooperation between the

foreign and domestic authorities subject to

guidelines of the central government.

However, certain guidelines have been retained

as provided under the Model Law.

4. Coordination: The Model Law

provides for coordination of two or more

concurrent insolvency proceedings in different

countries by encouraging cooperation between

courts.

“RECOMMENDATIONS OF THE

COMMITTEE ON CROSS BORDER

INSOLVENCY UNDER DRAFT PART

Z”

POSITION OF FOREIGN ENTITIES-

Inclusion of foreign companies in the

definition of CD. It shall enable them to

approach the AA in India for cooperation

or recognition of foreign proceedings to

avail relief in India.

Maintenance of legislative reciprocity in

insolvency proceeding.

Access to foreign representative in any

domestic insolvency proceedings can be

allowed through domestic insolvency

representatives, however, the Central

Government shall be empowered to

decide the extent of the right to access, in

this regard, through subordinate

legislation.

It further provides for foreign

representative to be subjected to code of

conduct specified by the ‘IBBI’.

Exclusion of certain entities like banks and

insurance companies under certain

circumstances; also enables the Central

Government to be empowered to notify

the entities that may be excluded from

applicability of draft Part Z.

The Committee recommended that the

definition of “other interested persons”

shall be restricted to creditors at present.

The Committee further recommended that

‘3-month look back period’ for

determining “establishment” cannot be

benchmarked from the date of filing of

application to initiate the foreign main

proceeding. Hence, the Committee

decided that it may not be necessary to

build in a look back period in the definition

of “establishment” presently.

The definition of ‘non-main proceeding’ be

limited to proceedings in countries where

the corporate debtor has an establishment.

The Committee decided that the central

government shall be empowered to suo

moto apply to the Adjudicating Authority

for an order if in the opinion of the central



government the proceedings is manifestly

contrary to the public policies in India.

Mode of notice to foreign creditors may be

by electronic notice and by uploading

notices on the website of the corporate

debtor or the IBBI.

ADOPTION OF UNICTRAL

MODEL

Article 13 of the Model Law may be

adopted in the draft Part Z without any

substantial modification.

The committee suggested that Article 15

and 16(1) and 16(2) of the Model Law may

be adopted, i.e. for recognition of a foreign

proceeding by the domestic courts all the

documents pertaining to any insolvency

proceedings against the corporate debtor

must be submitted before such authority

for bringing it within its knowledge.

COMI

The presumption of registered office being

a COMI is rebuttable and the Committee

has suggested that other factors may also

be looked into such as the location of the

debtor’s books and records; the location

where financing was organized or

authorized. Weightage given to each factor

depends upon facts and circumstances of

the case. COMI of enterprise groups has to

be determined in the same manner.

A timeline of thirty days may be provided

to the Adjudicating Authority to decide on

the application for recognition. It may be

recognised as a foreign main proceeding or

a foreign non-main proceeding, both

having different treatment in the Model

Law. Committee recommended that power

to grant interim relief may not be provided,

as it might result in delay in proceedings.

RELIEF ON RECOGNITION

A moratorium similar in scope as S.14 of

the IBC shall be made applicable

automatically on recognition of a foreign

main proceeding. This cannot be modified

by the Court and is a mandatory relief.

Individual actions or proceedings can still

be commenced against corporate debtor to

preserve claims. Relief in respect of foreign

main or non-main proceedings and

provision of such relief is left to the

discretion of the court. Adjudicating

Authority shall consider the scope of the

moratorium u/s 14 of the Code, including

limitations and exceptions to it, while

providing discretionary relief.

Tribunal is to be provided with power to

enable the foreign representative or any

other designated person to distribute all or

part of the debtor’s assets located in the

enacting country, subjecting its

entrustment to the foreign representative

on satisfaction of the court that interests of

domestic creditors are adequately

protected. Relief given in case of foreign

non-main proceedings should not interfere

with rights under foreign main

proceedings. Model Law may also include

enforcement of judgments as a relief. Once

the foreign proceeding is recognized, the

foreign representative may also initiate

avoidance actions.

COOPERATION WITH FOREIGN

COURTS AND FOREIGN

REPRESENTATIVES

Insolvency structure is under nascent stage

and thus cooperation and communication

between Adjudicating Authorities and

foreign courts in cross-border insolvency



matters must be based on a framework to

be notified by the Central Government in

consultation with the AA in the interest of

all stakeholders. Additional Authority may

also be established to assist the AA in such

communication. The communication

between insolvency professional and

foreign court is to be done under

supervision of the domestic courts.

CONCURRENT PROCEEDINGS

Simultaneous proceedings may be initiated

by enabling coordination and cooperation

of such proceedings. Scope of such

proceedings will be limited to the assets in

the enacting country. Review of

proceedings may also be enabled. Any

relief in relation to a foreign non-main

proceeding, shall be consistent with the

foreign main proceeding.

Threshold of the payment in concurrent

proceedings shall be based upon the

resolution plan, in case of insolvency

process, or upon same class and ranking

rule in case of liquidation.

PRESUMPTION OF INSOLVENCY

The committee recommends that instead

of presuming the insolvency, the proof of

default may be presumed in case of

recognition of foreign proceedings,

because the Code does not contemplate

the satisfaction of a test of insolvency for

the purposes of commencement of a

proceeding.

COMPANY LAW UPDATES

The Companies (Registered Valuers and

Valuation) Fourth Amendment Rules, 2018

The Rule was notified on the 13th of November

2018 by the Ministry of Corporate Affairs to

amend certain provisions of the Companies

(Registered Valuers and Valuation) Rules 2017.

The 2017 Rules laid down provisions relating

to registered valuers and the way in which

valuation is to be conducted by such valuers.

The 2018 Rules made changes in an effort to

bring about clarity in this regard. The major

amendments have been discussed below:

The applicability of the Rules has been

specified to include ‘valuation in respect of

property, stocks, shares, debentures,

securities or goodwill or any other assets or

net worth of a company or its liabilities’

In regard to eligibility of registered valuers,

the Rules provide that a company that is a

subsidiary, joint venture or associate of

another company or body corporate

cannot be a registered valuer. Further,

‘unsoundness of mind’ has been inserted

with other ineligibilities of partners and

directors.

The 2018 Rules have removed the

requirement of certain educational

qualifications and experience. It has

provided what will be considered

equivalent to a degree in Annexure IV.

This Annexure consists of eligibility and

criteria for experience for registration as

valuer in the specified disciplines of plant

and machinery, land and building, and

securities or financial assets.

The 2018 Rules have also removed the rule

in regard to transitional agreements

whereby entities were permitted to act as



valuers without registration for a period of

six months after the commencement of the

Rules.

CIRCULARS

17th October, 2018

Circular No. IBBI/RV/019/2018

The circular issued by the board w.r.t. valuation

under the Code. The Companies (Registered

Valuers and Valuation) Rules, 2017 already

provides the framework for regulation of

registered valuers and meeting the requirement

for an individual to be eligible for being a

registered valuer. The Board performs the

functions of the Authority under the Rules and

recognizes Registered Valuer Organisation

(RVO) and registered valuers.

The Rules provide for a transition arrangement

which clearly states that any person who may

be rendering valuation services under the Act,

on the date of commencement of these rules,

may continue to render such services without a

certificate of registration under these rules up

to 31st January, 2019. Provided, if the valuer is

appointed before the commencement date of

these Rules and such valuation or part of it has

not been completed before 31st January, 2019,

the valuer needs to complete such valuation or

such part of it within three months of

thereafter.

The Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for Corporate

Persons) defines registered valuer as ‘a person

registered as such in accordance with the

Companies Act, 2013 (18 of 2013) and rules

made thereunder’. Moreover, Regulation 27

provides for appointment of a registered

valuer.

Keeping in mind the above rules and

regulations, every valuation is required to be

conducted by the registered valuer under the

Code or any of the regulations made

thereunder. The valuer is registered with the

IBBI under the Companies (Registered Valuers

and Valuation) Rules, 2017.

It is directed by the Board that with effect from

1st February 2019, no insolvency professional

shall appoint a person other than a registered

valuer to conduct any valuation under the Code

or any of the regulations made thereunder.

an initiative of centre for parliamentary studies and … · with: mr. divyanshu pandey, partner,...

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