The Insolvency and Bankruptcy Code, 2016 was established to reform and determine the indebtedness on a timely basis, in order to increase the appreciation of the people’s wealth, to facilitate industry, to make credit available and to adapt the interface between all partners. The Courts and Tribunals paved the way, by successful interpretation and improved application of the Code, for a modern system of bankruptcy and insolvency in India. However, the Code is still under progress. Therefore, it is important to look after certain judicial interpretation to understand the provisions of Code more efficiently
- Swiss Ribbons Pvt. Ltd & Anr. V. Union of India & Ors. (W.P. No.99 of 2018).
In the present case, a Writ Petition was filed that challenged on various grounds, such as- question related to the selection committee comprising of more technical members than judicial members, the jurisdiction of the National Company Law Appellate Tribunal substituting the jurisdiction of the High Courts and the classification between ‘financial creditors’ and ‘operational creditors’ being arbitrary, discriminatory and violative of Article 14 of the Constitution.
Supreme Court of India while highlighting the features of the Code noted that the IBC is a beneficial legislation, acting for the benefit of the corporate debtor, and thus the admission of a company into Corporate Insolvency Resolution Process (CIRP) cannot be seen from a traditional lens of proceedings.
In this way, Supreme Court upheld the constitutionality of the Insolvency and Bankruptcy Code, 2016 and the judgment has brought the focus back on the object of the Code to revive a corporate debtor and the efforts of a creditor as well as other stakeholders to achieve said objects.
- Innoventive Industries Ltd. (Corporate Debtor) Vs. ICICI Bank & Anr.
The Supreme Court while delivering its Judgement in this case said that once an insolvency professional is appointed to manage the company, the erstwhile directors who are no longer in management, obviously cannot maintain an appeal on behalf of the company. The Insolvency and Bankruptcy Code, 2016 is a Parliamentary law i.e. an exhaustive code on the subject matter of insolvency in relation to corporate entities. Section 238 of the code makes it clear that the later non-obstante clause of the Parliamentary enactment will also prevail over the limited non-obstante clause contained in Section 4 of the Maharashtra Act and therefore, the Maharashtra Act cannot stand in the way of the corporate insolvency resolution process under the Code as there would be repugnancy between the provisions of the two enactments.
- Excel Metal Processors Limited Vs. Benteler Trading International GMBH and Anr.
The appellant in this case referred to the agreement between the parties stating that any suit or case is maintainable only at the Court of Germany and hence no case can be filed in India. But the Section 408 of the Companies Act, 2013 says that the NCLT has been constituted in different states. The Central Government has notified and vested power on them to deal with matters situated in the particular territory where registered offices of the companies are situated. Therefore, the appellant shall not derive advantage of the terms of agreement between the parties and the NCLT bench, Mumbai (where the office of the appellant is situated) shall have the jurisdiction to entertain the application under Section 9 of the Code.
- Mobilox Innovations Private Ltd vs Kirusa Software Private Ltd.
In this case the that arose before the bench was Whether the expression “and” occurring in Section 8(2)(a) may be read as “or”?
The Court held that the expression “and” occurring in section 8(2)(a) may be read as “or” in order to avoid an anomalous situation. Once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application. A “dispute” is said to exist, if there is a real dispute as to payment between the parties that would fall within the inclusive definition contained in Section 5(6).
- Committee of Creditors of Essar Steel India Limited V. Satish Kumar Gupta & Ors.
Essar Steel was admitted for insolvency resolution before the NCLT, Ahmedabad bench in 2017. The original resolution plan submitted by ArcelorMittal which was then approved by the Committee of Creditors(CoC) provided that the operational creditors with an exposure of an amount above INR 1 crore would forego the entire amount.
When the NCLT approved ArceloMittal’s plan, it directed the CoC to consider sharing of 15 percent of the amount recovered from the profits made during the CIRP with the operational creditors of Essar Steel.
This decision of NCLT was challenged before the NCLAT. The NCLAT held that resolution plan must not differentiate between financial creditors and operational creditors in the manner of payment of dues. It approved the resolution plan of ArcelorMittal but redirected distribution of proceeds amongst the creditors of Essar Steel.
Financial Creditors challenged the decision of NCLAT before the Supreme Court. The Apex Court held that both the NCLT and NCLAT must not trespass upon a commercial decision of the majority of CoC. The Court has also coined the difference between equal and equitable treatment and hence the financial creditors and operational creditors cannot be treated equally as it would defeat the scheme of the code. Court also said that for negotiation of resolution applicants can appoint a sub-committee then all the actions of sub-committee are to be approved by the CoC. It also observed that in exceptional cases the limit of 330 days may be extended.
The Supreme Court set aside the judgment of the NCLAT which had set aside the decisions of the CoC of Essar Steel and gave a nod to the sale of Essar Steel thereby helping banks to recover almost 90 percent of their dues worth Rs.40,000 Crores.
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