ibc judicial pronouncement and case study · 2emhfwlyh ri &rgh lv wr surylgh uhvroxwlrq wr wkh...

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By CS. Yogina Kochar

National Company Law Tribunal (NCLT) - 2224

National Company Law Appellant National Company Law Appellant Tribunal (NCLAT) - 548

Hon’ble High Courts - 27

Hon’ble Supreme Court - 78

2Email: [email protected]

Judicial Pronouncements(Impact on the code)(Impact on the code)


Earlier provision of section 9(3)(c):- Theoperational creditor shall, along with theapplication furnish – a copy of thecertificate from the financial institutionscertificate from the financial institutionsmaintaining accounts of the operationalcreditor confirming that there is nopayment of an unpaid operational debtby the corporate debtor;


In Macquarie Bank Limited vs ShilpiCable Technologies Limited, Hon’ble SC held that –

Its a procedural provision. Its a procedural provision.The code cannot be construed in a

discriminatory fashion. Situation where condition precedent is

impossible of compliance, it is directory in nature.


Provision of section 9(3)(c) afteramendment:The operational creditor shall, along withthe application furnish – a copy of thethe application furnish – a copy of thecertificate from the financial institutionsmaintaining accounts of the operationalcreditor confirming that there is nopayment of an unpaid operational debtby the corporate debtor if available;


Earlier there was no provision for withdrawal of application admitted under section 7, 9 and 10 of the Code.


In Lokhandwala Kataria Construction Private Limited vs. Nisus Finance and Investment Managers LLP, Hon’ble SC held that –

No provisions to recognise settlement after admission of insolvency. admission of insolvency.

Rule 8 deals with withdrawal of application before admission.

NCLAT could not utilise its inherent power recognised by Rule 11 of the NCLAT Rules, 2016.


Inserted a new section 12A Withdrawal ofapplication admitted under section 7,9and 10 :-The Adjudicating authority may allow thewithdrawal of application admitted underThe Adjudicating authority may allow thewithdrawal of application admitted undersection 7,9 and 10 on an applicationmade by the applicant with the approvalof 90% voting share of committee ofcreditors in such manner as may bespecified.


Earlier section 14(3) with respect to non-applicability of moratorium :-The provision of moratorium shall notapply to such transactions as may beapply to such transactions as may benotified by the central Government inconsultation with any financial sectorregulator.


In Alpha & Omega Diagnostics (India) Limited vs. ARC of India Limited & Ors., both NCLT & NCLAT held that –

Provisions of moratorium are misused by Provisions of moratorium are misused by the Corporate Debtor (Applicant)

Application u/s 10 of the Code was admitted subject to the fact that properties owned by director(s) cannot come under moratorium.


Earlier section 14(3) with respect to non-applicability of moratorium :- The provision of moratorium shall not apply to (a) such transactions as may be to (a) such transactions as may be notified by the central Government in consultation with any financial sector regulator; (b) a surety in a contract of guarantee to a corporate debtor.


Earlier section 30(1) w.r.t. submission ofresolution plan:- A resolution applicantmay submit a resolution plan to theresolution professional prepared on theresolution professional prepared on thebasis of the information memorandum.


In Liberty House Group Pte. Limited vs. Bhushan Power & Steel Limited, NCLT held that –

Mere not providing a certificate from a Mere not providing a certificate from a chartered accountant confirming eligibility of resolution applicant cannot be a ground for rejecting expression of interest.


Section 30(1) w.r.t. submission of resolution plan:- A resolution applicant may submit a resolution plan along with affidavit stating that he is eligible u/s 29A affidavit stating that he is eligible u/s 29A to the resolution professional prepared on the basis of the information memorandum.


Earlier section 30(2)(e) w.r.t. Submission of resolution plan:- The resolution professional shall examine each resolution plan received by him to resolution plan received by him to confirm that each resolution plan – does not contravene any of the provision of law for the time being in force.


In Edelweiss Asset Reconstruction v. Mamta Binani, NCLAT held that –

Resolution plan includes activities like merger etc. for which shareholder’s merger etc. for which shareholder’s approval is required.

MCA circular dated 25th October, 2017 further clarify compliance of applicable laws. CircularIBC_25102017.pdf


Section 30(2)(e):- The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan – does not contravene any of the provision of law for the time being in the provision of law for the time being in force. Explanation- For this purpose if any approval of shareholders is required under Companies Act, 2013 or any law for the time being in force, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law.


Earlier section 30(4) w.r.t. submission of resolution plan :- The committee of creditors may approve a resolution plan by vote of not less than 75% of the voting by vote of not less than 75% of the voting shares of the financial creditors.


In K.Sashidhar vs. Kamineni Steel & Power India Pvt Ltd, NCLT held that –

Objective of Code is to provide resolution to the insolvency and not liquidation.

The dissenting banks did not exhibit any The dissenting banks did not exhibit any concern towards social object of the country.

Members of Committee of Creditors to come with mandate of taking final call in the meeting itself.


Earlier section 30(4) w.r.t. submission of resolution plan :- The committee of creditors may approve a resolution plan by vote of not less than 66% of the voting by vote of not less than 66% of the voting shares of the financial creditors, after considering its feasibility and viability, and such other requirements as may be specified by the Board.


Case StudyCase Study(Essar Steel India Limited)


On 12th June, 2017, RBI identified 12 non-performing assets (NPAs) representing 25% of than gross NPAs of country.

RBI Press Release mentioned “such cases (bankruptcy proceedings) will be accorded (bankruptcy proceedings) will be accorded priority by the NCLT.”

Essar Steel India Limited (ESIL) defaulted payment of Rs. 45600 crore.

ESIL owned by the Ruias and based on Surat, is a leading manufacturers of integrated steel.


Against the RBI & Ors., ESIL filed a case in Gujarat High Court on 4th July, 2017.

Issues involved are whether : the press release was unjust? the press release was in the form of directive to

(quasi)judicial authority ?(quasi)judicial authority ? banking companies are entitled to initiate CIPR

without direction of RBI? SCB is bound to consider restructuring plan

proposed by the petitioner?

High Court dismiss petition vide order dated 17th

July, 2017.


Points raised by the ESIL(CD) before NCLT, Ahmadabad against insolvency application:

Operations of ESIL are very complex. ESIL is undergoing debt resolution process. There is risk of operations and value of the There is risk of operations and value of the

company in the hands of IRP. The appointment of IRP shall be made only

after admission of petition.

NCLT admit ESIL for insolvency proceedings.


Mr. Satish Kumar Gupta was appointed as IRP and later confirmed as RP.

Public Announcement was made and claims invited.claims invited.

First meeting of Committee of Creditors was held on 1st September, 2017.

Information Memorandum prepared and Expression of Interest was invited by the RP.


While undergoing CIRP, RP representing ESIL asks direction from NCLT, Ahmadabad for :

Claiming ownership of assets, pending civil suit at the Hon’ble High Court for Claiming ownership of assets, pending civil suit at the Hon’ble High Court for resolution plan.

Admission of application u/s 60(5)(a) & (c) of the Code.

NCLT to view whether section 14(1)(a) and section 60(5) are contradictory?


Section 14(1)(a):- Subject of provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely, for prohibiting all of the following, namely, - the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority;


Section 60(5):-Notwithstanding anything to the contrary contained in any other law for the time being in force, the NCLT shall have jurisdiction to entertain or dispose of – (a) any application or proceeding by or against any application or proceeding by or against the corporate debtor or corporate person; --(c)any question of priorities or any questions of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this code.


NCLT Ahmadabad provide its verdict on 02th February, 2018 that –

Application u/s 60(5) can be admitted but declaratory relief cannot be granted.but declaratory relief cannot be granted.

Ownership title is subject matter of civil suit, however only for CIRP, Adjudicating Authority can give certain views, which are subject to the result of such civil suit.


Among 7 EoI received by 23rd Oct, 2017, two were Numetal Limited and ArcelorMittal India Private Limited.

Numetal was incorporated with VTB Bank, Indo international Trading FZCO (INDO), Numetal was incorporated with VTB Bank, Indo international Trading FZCO (INDO), TPE and Aurora Enterprise Ltd.

Arcelor Mittal was promoter of UttamGalva Ltd and KSS Petron Limited.

RP found both as ineligible as per sec.29A(c) of the Code.


Section 29A: A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person –

(c) at the time of submission of resolution plan has an account or an account of a corporate debtor under the management or control of such person or of whom such person is promoter, classified as NPA in accordance with the guideline promoter, classified as NPA in accordance with the guideline of RBI issued under the Banking Regulation Act, 1949 or the guideline of a financial sector regulator under any other law for the time being in force and at least a period of one year has lapsed from the date of such classification till the date of commencement of the CIRP of the corporate debtor:

Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to NPA before submission of resolution plan.


Section 30(4): The committee of creditors may approve a resolution plan by a vote of not less than sixty-six per cent. of voting share of the financial creditors, after considering its feasibility and viability, and such other requirements as may be specified by the Board:

Provided that the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 (Ord. 7 of 2017), where the resolution applicant is ineligible under section 29A and may require the resolution professional to is ineligible under section 29A and may require the resolution professional to invite a fresh resolution plan where no other resolution plan is available with it:

Provided further that where the resolution applicant referred to in the first proviso is ineligible under clause (c) of section 29A, the resolution applicant shall be allowed by the committee of creditors such period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso to clause (c) of section 29A:

Provided also that nothing in the second proviso shall be construed as extension of period for the purposes of the proviso to sub-section (3) of section 12, and the corporate insolvency resolution process shall be completed within the period specified in that sub-section.


NCLT Ahmadabad observed on 19th

April, 2018 that –Resolution professional should follow

procedure mentioned u/s 29A.Time period of 30 days u/s 30(4) to be procedure mentioned u/s 29A.

Time period of 30 days u/s 30(4) to be allowed.

Resolution professional to consider both the resolution plan before fresh bids are invited.

Exclusion of time.


NCLAT dealt with issues of both ineligibility and provide its judgement on 07th

September, 2018, that – “Person acting in concert” as not defined in

the Code can derive its meaning from SEBI the Code can derive its meaning from SEBI (SAST) Regulations.

Selling or transferring shares will not remove ineligibility of the resolution applicant.

Numetal was held eligible while ArcelorMittal was ineligible.

Exclusion of time.


Hon’ble SC in its judgement on 04th

October, 2018 clarified following points – Management, Control and Person acting in

concert. Stage of ineligibility and proximate facts. Stage of ineligibility and proximate facts. Stages at which resolution applicant

can/cannot litigate. Both Numetal and Arcelor Mittal were held

ineligible. Directions to remove ineligibility. Inclusion and Exclusion of time.


12 June17: RBI identified 12 NPA.13 June17: RBI issued press release.27 June17: Sec.7 application filed at NCLT04 July 17: ESIL challenged RBI etc. at HC.

17 July 17: Hon’ble HC dismiss plea.17 July 17: Hon’ble HC dismiss plea.02 Aug 17: Insolvency admitted at NCLT.01 Sep 17: First meeting of CoC held.06 Oct 17: EOI invited.12 Feb 18: First bid- Numetal Rs.19000/- cr.

Arcelor Mittal Rs.32000/- cr.


20 Mar18: Numetal moves to NCLT.23 Mar18: RP hold both bid ineligible.26 Mar18: Arcelor Mittal moves to NCLT.02 Apr18: RP invites fresh bid- Numetal

increased to Rs.37000/- cr.)increased to Rs.37000/- cr.)19 Apr18: NCLT judgement-both ineligible26 Apr18: Both moves at NCLAT.22 May18:NCLAT orders status-quo.07 Sep18: NCLAT judgement.10 Sep18: Arcelor Mittal incresed bid to Rs.

42000/- cr.


04 Oct18: Hon’ble SC’s judgement.25 Oct18: Ruias offer full settlement of

Rs.54389 cr.26 Oct18: CoC approved Arcelor Mittal.26 Oct18: CoC approved Arcelor Mittal.05 Nov18: SCB & OC moves to NCLT.28 Nov18: Hearing to commence from 10. 10 Dec18: NCLT proceedings.13 Dec18: NCLT proceedings.


Essar Steel India Limited vs. RBI & Ors.SBI/SCB vs. Essar Steel India Limited.ESIL through RP vs.Odisha Slurry

Infrastructure Limited & Ors.Infrastructure Limited & Ors.Numetal vs. Satish Kumar Gupta, RP.Arcelor Mittal vs. Satish Kumar Gupta, RP.Numetal vs. Arcelor Mittal.SCB vs. Satish Kumar Gupta & Ors.CoC of ESIL through SBI vs. ESIL.


Thank You.

CS. Yogina Kochar.20/5 C, Armenian Street, First Floor.Kolkata- 700001. M- 91 9007044009.Email – [email protected] – www.yoginakochar.wordpress.com


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