In the first appeal, the corporate debtor and Sach Marketing Pvt. Ltd. (‘Respondent 1’) had two agreements. By the agreement/ letter dated 01-04-2014, the corporate debtor appointed the respondent 1 as a ‘Sales Promoter’ to promote beer manufactured by the corporate debtor at Ranchi (Jharkhand) for twelve months on certain conditions incorporated by the corporate debtor in the said letter/ agreement. The Oriental Bank of Commerce invoked the provisions of Section 7 of the IBC, against the corporate debtor, which provides for initiation of corporate insolvency resolution process (‘CIRP’) against a corporate debtor when a default has occurred. The National Company Law Tribunal (‘the NCLT’) imposed a moratorium under Section 14 of the IBC and appointed an Interim Resolution Professional (‘IRP’). Initially, the respondent 1 filed a claim with the IRP as an ‘operational creditor’, which was withdrawn, and a subsequent claim was filed with the IRP as a ‘financial creditor’. However, the claim was rejected on the ground that respondent 1 could not be considered a ‘financial creditor’.
Therefore, an application was moved before the NCLT under Section 60(5) of the IBC by respondent 1 seeking a direction to the IRP to admit the claim as a ‘financial creditor’, which came to be rejected. In an appeal before the NCLAT, it was held that respondent 1 was a ‘financial creditor’ and not an ‘operational creditor’, forming the present impugned order. In other appeals, the Resolution Professional rejected the claims of the four creditors as ‘financial creditors’. Therefore, separate applications were filed before the NCLT by invoking Section 60(5) of the IBC, which came to be rejected. In the appeals before the NCLAT, the NCLAT allowed the appeals by relying upon its judgment, which is the subject matter of challenge in the first appeal.
Whether the Respondent be considered a Financial Creditor or an Operational Creditor?
The Court emphasized that in Jaypee Infratech Ltd. Interim Resolution Professional v. Axis Bank Ltd., (2020) 8 SCC 401, it was laid that “the requirement of existence of a debt, which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in clauses (a) to (i) of Section 5(8), even if it is not necessarily stated therein” and “the essential element of disbursal, and that too against the consideration for time value of money, needs to be found in the genesis of any debt before it may be treated as “financial debt” within the meaning of Section 5(8) of the Code”. The Court said that when one party owes a debt to another and when the creditor has a claim under a written agreement/arrangement providing for rendering ‘service’, the debt is an operational debt only if the subject matter of the debt has some connection or co-relation with the ‘service’ which is the subject matter of the transaction.
The Court considered it necessary to determine the real nature of the transaction on a plain reading of the agreements, and the Court noted that for promoting the beer manufactured by the Corporate debtor, only a sum of Rs. 4,000/- was being paid to the respondent 1. The Court said that a debt existed in the form of a security deposit in the said two agreements as the Court noted that Clause (10) provided for the payment of the security deposit by the respondent 1, however, the clause for the forfeiture of the security deposit did not exist.
The Court explained that as there was no clause regarding the forfeiture of the security deposit , the corporate debtor was liable to refund the security deposit after the period specified therein was over with interest @21% per annum. Since the security deposit payment had no correlation with any other clause under the agreements, as held by the NCLAT, the security deposit amounts represent debts covered by Section 3(11) of the IBC, because the right of the respondent 1 to seek a refund of the security deposit with interest is a claim within the meaning of Section 3(6) of the IBC as respondent 1 is seeking a right to payment of the deposit amount with interest.
Further, the Court analysed the applicability of Section 5(21), which defines ‘operational debt’ and explained that “operational debt means a claim in respect of the provision of goods or services including employment”, and for it to be applicable the claim must be regarding the provisions of goods or services, therefore, in the case of a contract of service, there must be a correlation between the ‘service’ agreed to be provided under the agreement and the ‘claim’
The Court said that in the matter at hand, if it is assumed that both the agreements reflected the true nature of the transaction, the only claim under the agreements which will have any connection with the services rendered by respondent 1 will be the claim of Rs.4,000/- per month as provided in clause (1) of both the agreements.
Therefore, the Court said that the debt claimed by respondent 1 cannot be an operational debt. The Court agreed with the NCLAT’s decision that the amounts covered by security deposits under the agreements constituted ‘financial debt’. The Court held that considering that it is a financial debt owed by respondent 1, the Section 5(7) of the IBC was applicable, making respondent 1 a ‘financial creditor’. Therefore, the Court upheld the impugned orders.
The NCLT, Mumbai Bench admitted a petition filed by SBM Paper Mills Pvt. Ltd. (Corporate Debtor) under Section 10 of the Insolvency and Bankruptcy Code, 2016 (the Code) and initiated CIRP. In the meanwhile, the Respondent/ExDirector of the Corporate Debtor (Mr. Satyanarayan Malu) filed an application before the NCLT under Section 12A of the Code for the withdrawal of the petition under Section 10 in light of a One Time Settlement (OTS) entered into with the sole Financial Creditor, i.e., Allahabad Bank. The NCLT allowed the M.A. filed by the Respondent while observing the consent for withdrawal of the petition by the sole Financial Creditor. However, on account of non-compliance of the terms of the OTS by the Respondents, the NCLT issued a Show-Cause Notice against them. The NCLT further found it to be a fit case to propose the prosecution of the Respondents.
Thereafter, on 22.09.2020, the Appellant (Insolvency and Bankruptcy Board of India-IBBI) filed a Complaint against the Respondents before the Sessions Judge under the provisions and for offences punishable under Section 73(a) and 235A of the Code for the non-compliance of the terms of the OTS and for not having filed the M.A. under Section 12A of the Code through the RP. The Sessions Judge vide Order dated 17.03.2021 directed issuance of process against the Respondents and further directed them to be summoned on the next date of hearing.
Being aggrieved thereby, the Respondents filed a Writ Petition before the High Court of Judicature at Bombay, praying for the quashing and setting aside of the order dated 17.03.2021 passed by the Sessions Judge for the want of jurisdiction. The High Court vide impugned judgement dated 14.02.2022 allowed the Writ Petition filed by the Respondents.
Whether the Special Court under the Code (Section 236 of IBC) would be as provided under Section 435 of the Companies Act as it existed at the time when the Code came into effect, or it would be as provided under Section 435 of the Companies Act after the 2018 Amendment?
The petitioner no. 1 is a borrower-Company and the other petitioners are its Directors/ guarantors. In the present writ petition, the petitioners have challenged a Show-cause Notice dated March 1, 2024 issued by the respondent-Authorities for declaring the petitioners as Wilful defaulters in terms of the Master Circular on Wilful Defaulters issued by the Reserve Bank of India (RBI) on July 1, 2015.
Whether a wilful defaulter proceeding does not come within the contemplation of Section 14 or Section 96 of the IBC?
Whether the court in the present factual circumstances will be right to interfere in the proceedings?
The event of default by the borrower precedes the classification of the account as NPA. For holding a borrower to be a defaulter, the subsequent NPA classification is irrelevant. A borrower becomes a defaulter and is declared to be a wilful defaulter upon the criteria of the Wilful Defaulter Master Circular being satisfied, even without classification of the account as NPA. A guarantor may also be declared to be a wilful defaulter. Under Clause 2.6, it is clearly indicated that in connection with guarantors, in terms of Section 128 of the Indian Contract Act, 1872, the liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. Although Clause 2.6 further provides that a banker has to make a claim on the guarantor on account of default and the guarantor has to refuse to comply with the demand despite having sufficient means to make payment of the dues, to be treated as wilful defaulter, the stage of considering such aspects of the matter has not yet arrived.
Whether any proceedings for assessment, reassessment or re-computation initiated in terms of the faceless assessment procedure under Section 144B of Income Tax Act, 1961, after approval of Resolution Plan is contrary to the Clean Slate theory under IBC?
Whether on the dishonour of cheques issued in the name of Company under CIRP, Directors be prosecuted?
The appellant represents a group of homebuyers who purchased flats in the Sushant Metropolis Township, developed by the respondent, Ansal Hi-tech Township Limited. Despite promises made in allotment agreements, the respondent failed to deliver possession of the flats within the agreed timeframe, leading to aggrieved homebuyers seeking recourse under the IBC.
Whether the homebuyers met the threshold requirement under Section 7 of the IBC to initiate Corporate Insolvency Resolution Process (CIRP) against the respondent.
Whether the Township constituted a single project for the purpose of meeting the threshold criteria?
The homebuyers’ application for the initiation of the CIRP against Ansal Hi-Tech Township under Section 7 of the IBC was rejected by the Hon’ble NCLAT, which held that the homebuyers were associated with different projects. As a result, they fall short of the minimal requirement needed to initiate CIRP proceedings against the respondent
This appeal challenged the order passed by the National Company Law Tribunal (‘NCLT’) on 10.08.2023. Amidst the backdrop of commercial dealings TMPL acted as an agent for Videocon Industries Limited (‘VIL’), and disputes emerged over unsettled payments, leading to a significant legal confrontation with Rajasthan Patrika Pvt. Ltd. (‘Respondent’).
The TMPL provided advertisement services to various clients, including VIL acting as their agent. VIL utilized these services and placed advertisements through the TMPL which then coordinated with the Respondent for the publication of these ads. Payments from VIL were delayed, leading to a direct settlement agreement between VIL and the Respondent. Under this agreement, VIL agreed to exchange appliances for the outstanding amounts as a form of barter. As the due payments remained unsettled, the Respondent issued a demand notice to the TMPL and filed a petition under s. 9 of the IBC. The NCLT admitted the application and the corporate insolvency resolution process (‘CIRP’) was initiated against the TMPL. The Appellant then filed an appeal interalia on the ground that the Respondent had not properly served the demand notice as required under s. 8 of the IBC.
Whether a ‘debt’ is owed by TMPL towards the Respondent?
The NCLAT held that a corporate debtor cannot pass on its liability by contending that it is merely an agent and by taking recourse under Section 230 of Indian Contract Act, 1872 [Agent cannot personally enforce, nor be bound by, contracts on behalf of principal], where the creditor is not party to any tripartite agreement governing such arrangement. It was further held that as the IBC proceedings are self -contained, without any agreement in place, the responsibility to repay the invoices issued in the name of the corporate debtor cannot be shifted to the purported principal. In the instant case, NCLAT had also observed that where the corporate debtor has duly represented and defended his case, he cannot question the failure of proof of the service of the statutory demand notice, without disputing the address on which the demand notice was issued.
This appeal challenged the order passed by the National Company Law Tribunal (‘NCLT’) on 10.08.2023. Amidst the backdrop of commercial dealings TMPL acted as an agent for Videocon Industries Limited (‘VIL’), and disputes emerged over unsettled payments, leading to a significant legal confrontation with Rajasthan Patrika Pvt. Ltd. (‘Respondent’).
The TMPL provided advertisement services to various clients, including VIL acting as their agent. VIL utilized these services and placed advertisements through the TMPL which then coordinated with the Respondent for the publication of these ads. Payments from VIL were delayed, leading to a direct settlement agreement between VIL and the Respondent. Under this agreement, VIL agreed to exchange appliances for the outstanding amounts as a form of barter. As the due payments remained unsettled, the Respondent issued a demand notice to the TMPL and filed a petition under s. 9 of the IBC. The NCLT admitted the application and the corporate insolvency resolution process (‘CIRP’) was initiated against the TMPL. The Appellant then filed an appeal interalia on the ground that the Respondent had not properly served the demand notice as required under s. 8 of the IBC.
Whether a ‘debt’ is owed by TMPL towards the Respondent?
The NCLAT held that a corporate debtor cannot pass on its liability by contending that it is merely an agent and by taking recourse under Section 230 of Indian Contract Act, 1872 [Agent cannot personally enforce, nor be bound by, contracts on behalf of principal], where the creditor is not party to any tripartite agreement governing such arrangement. It was further held that as the IBC proceedings are self -contained, without any agreement in place, the responsibility to repay the invoices issued in the name of the corporate debtor cannot be shifted to the purported principal. In the instant case, NCLAT had also observed that where the corporate debtor has duly represented and defended his case, he cannot question the failure of proof of the service of the statutory demand notice, without disputing the address on which the demand notice was issued.
The Respondent No. 1/ Financial Creditor – Yes Bank had filed Section 7 application on 13.12.2019 for initiation of CIRP of Appellant/Corporate Debtor – Tulip Hotels in respect of their debt liability as Corporate Guarantor for loan purportedly disbursed by the Financial Creditor to Cox & Kings Ltd. (‘Borrower No. 1’) and to Ezeego One Travels and Tours Ltd.( ‘Borrower No.2’). The application for CIRP was admitted by the AA.
Whether Section 7 application filed by one Mr. Rahul Dodeja for the Respondent No. 1 on the basis of Power of Attorney without any supporting Board Resolution of the Financial Creditor is maintainable?
A board resolution is a duly authorized person and can file a Section 7 application for the initiation of CIRP in terms of Rule 4(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. In the same case, applying the ‘Doctrine of Indoor Management’, the NCLAT held that the financial creditor cannot be prejudiced due to any irregularities in the internal procedure of the appellant-corporate guarantor (“Appellant-CG”). The NCLAT held that the financial creditor was right in inferring that the board resolution authorizing the signing of the deeds of guarantee was legitimately passed even if the internal requirements and procedures had not been complied with by the Appellant-CG, especially when the Appellant-CG had not sufficiently challenged the deeds of guarantee before the appropriate fora. The NCLAT further noted that under Section 127 of the Contract Act, past consideration is sufficient consideration for the contract of guarantee and the grant of loan to the principal borrowers by the creditor need not necessarily be contemporaneous with the execution of guarantees. Finally, the NCLAT observed that the issue of whether the guarantee deed executed is a forged and fabricated one can only be raised in a civil suit and not before the Adjudicating Authority exercising a summary jurisdiction.
The present appeal filed under Section 61 of IBC by the Appellant arises out of the impugned order passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court-III). where the AA has admitted the Section 7 application filed by Awaita Properties Private Limited – Financial Creditor/ Respondent No. 1 against Tarapur Textile Park Ltd. – Corporate Debtor for a default amount of Rs. 8,56,30,137/-. Aggrieved by this impugned order, the present appeal has been preferred by the ex-Director of the Corporate Debtor.
It is an undisputed fact that a sum of Rs. 5 crore was transferred to the account of Corporate Debtor and the disbursal of this amount took place on 01.01.2014. There was no agreement/ document in respect of the loan amount, but in the notice the Respondent 1 stated that it had extended loan to meet the working capital requirements.
Whether the outstanding amount of Rs. 5 crore disbursed by Respondent No. 1 to Corporate Debtor is in the nature of financial debt?
Whether in the facts of the present case, there has been a default in the re-payment of the said loan by the Corporate Debtor which entitled the Respondent No. 1 to file a Section 7 application in the capacity of a Financial Creditor qua the Corporate Debtor?
The NCLAT interpreted the expression ‘time value for money’ in Section 5(8) of the Code expansively to include not just a regular or timely return received for the duration for which the amount is disbursed as an amount in addition to the principal, but also any other form of benefit or value accruing to the creditor as a return for providing money for a long duration. In holding thus, the NCLAT upheld the finding of the Adjudicating Authority that the money advanced towards meeting working capital needs of the corporate debtor was a disbursal against the consideration for time value of money.
The NCLAT also held that the absence of a loan agreement which determines the payment of interest and the rate thereof is not a ground for assuming that a loan is not interest-bearing. It was further observed that reliance cannot be placed upon an MoU which was merely a draft format and without any evidence of the same having been signed, executed or acted upon to establish the relationship between the parties thereto.
Once the Adjudicating Authority is subjectively satisfied that there is a debt and a default has been committed by the Corporate Debtor and the Section 7 application is complete in all respects, the Adjudicating Authority in the exercise of summary jurisdiction has to admit the Section 7 application. In our considered view, this is a case where all the prerequisites for filing a Section 7 stood fulfilled and the Adjudicating Authority cannot be held to have committed an error in admitting the Corporate Debtor into CIRP for having defaulted in repaying a financial debt which was above the threshold limit.
Parsvnath Landmark Developers Pvt. Ltd. (“Corporate Debtor”) embarked on the La Tropicana Khyber Pass Delhi project, where Mr. Rahul Gyanchandani and three others (“Appellants”) entered into Flat Buyer Agreements for four flats. However, the Corporate Debtor failed to adhere to project timelines, prompting the Appellants to seek recourse under the RERA Act for a refund of their payments. Despite RERA’s directive to refund the amounts, the Corporate Debtor failed to comply, leading the Appellants to initiate insolvency proceedings under Section 7 of the IBC.
Whether Appellants be classified as allottees vis-à-vis decree holders and their obligations under the IBC, particularly concerning the threshold requirements under the second proviso to Section 7(1)?
The NCLAT meticulously examined the legal framework underpinning the case. It underscored that the definition of “creditor” under Section 3(10) of the IBC encompasses various categories, including financial creditors, operational creditors, secured creditors, unsecured creditors, or decree holders.
Crucially, a decree holder may file a petition under Section 7 only if it falls within the ambit of a financial creditor. Despite RERA’s order directing the Corporate Debtor to refund the amounts, the non-compliance by the Corporate Debtor rendered the Appellants as continuing allottees under the IBC and the RERA Act. The NCLAT categorically emphasized that allottees do not shed their allottee status merely due to a favorable RERA order.
Even if RERA mandates refund, allottees remain bound by the second proviso to Section 7(1) of the IBC. Homebuyers, whether they have an order or Decree from the RERA or who do not have any Decree or order from RERA, belong to same category of allottees and no distinction can be made on the said ground. Consequently, the NCLT rightfully rejected the petition due to non-compliance with the IBC’s threshold requirements.
Whether NPA classification date or loan recall notice date constitutes the date of default under the IBC, if Corporate Debtor made part payment between NPA classification date and loan recall notice date.
The Hon’ble NCLAT interpreted Section 29A read with Section 240A that:
On March 2022, the Financial Creditor preferred an application being C.P.(IB) No. 200/KB/2022 under section 7 of the IBC, 2016 praying CIRP against Machine Works International Limited, the Corporate Debtor herein. During pendency of the aforesaid company petition, the Financial Creditor conducted an E-auction to transfer all its rights, title and interest by way of sale, transfer and or assignment of the loans granted to Motijug Agencies Limited, Ural India Limited and Machine Works International Limited. The applicant entered into a Deed of Assignment which was later registered on August 22, 2023. By the way of this application, CFM Asset Reconstruction Pvt. Ltd. (Applicant) seeks its substitution in place and stead of Indian Bank, in terms of the Deed of Assignment executed by and between the parties on August 14, 2023, and registered on August 22, 2023.
Whether enforceability of an assignment depends on adequacy of stamp duty? Whether the assignment under section 5 of SARFASI excludes assignment of liability?
The NCLT referred Section 2(b) of the SARFEASI Act, 2002 and Section 10 and held that the from the language of Section 10 of the SARFEASI Act, 2002, it is discernible that the SARFAESI Act, 2002 does not specifically contemplate the assignment of a liability to an assignee, i.e., CFM Asset Reconstruction Pvt. Ltd. in the present case.
It is explicit that the statute permits only the assets to be assigned and not the liability, and the statute book does not provide for the assignment of liability or obligation. Further, the Clause 8 of the assignment agreement dated August 14, 2023, specifically excludes liability of the assignee. On this score also, the assignment is found to be valid and squarely in terms of the statute. The Tribunal also notes that the liabilities of the Assignor in regard to the very same assets in question would remain protected to such extent, as envisaged under the provisions Sections 5(3) and 5(4) of the SARFAESI Act, 2002, as it appears that the provisions will squarely apply to the present case.
The NCLT Kolkata Bench concluded that;
Validity of an assignment on the basis of adequacy or inadequacy of the stamp duty etc., cannot be gone into in a summary proceeding as the present one.
SARFAESI Act, 2002 does not specifically contemplate the assignment of a liability to an assignee. It is explicit that the statute permits only the assets to be assigned and not the liability, and the statute book does not provide for the assignment of liability or obligation.
(iii) Section 5(3) of the SARFEASI Act, 2002 and Section 5(4) of the Act, 2002 and held that the liabilities of the Assignor in regard to the very same assets in question would remain protected to such extent, as envisaged under the provisions Sections 5(3) and 5(4) of the SARFAESI Act, 2002, as it appears that the provisions will squarely apply to the present case.
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