The Hon’ble Supreme Court in Axis bank v. Vidarbha Industries Limited in Review Petition (C) No. 1043/2022 held that the Ld. National Company Law Tribunal had discretionary powers in admitting the initiation of CIRP by the Financial Creditor (“FC”), even if the Corporate Debtor (“CD”) is in default. The Hon’ble Apex Court was of the view that the Adjudicating Authority, if the situation so warranted, could keep admission of the application filed by a Financial Creditor in abeyance once default has been established.
The Supreme Court in a review preferred by Axis Bank on the decision rendered in Vidarbha Industries Power Limited v. Axis Bank.,1 bringing to the Court’s attention to paragraphs 31 and 34 of the judgment passed in E.S. Krishnamurthy v. Bharath Hi-Tech Builders Ltd.2 that the Adjudicating Authority must then either admit or reject an application, respectively. These are the only two courses of action which are open to the adjudicating authority in accordance with Section 7(5). The Adjudicating Authority cannot compel a party to the proceedings before it to settle a dispute.
Learned Solicitor General of India submits that certain observations made by us in the judgment and order under review could be interpreted in a manner that might be contrary to the aims and objects of the IBC and render the law infructuous. The apprehension appears to be misconceived.
The Hon’ble Apex court was of the view that that judgments and observations in judgments are not to be read as provisions of statute. Judicial utterances and/or pronouncements are in the setting of the facts of a particular case. To interpret words and provisions of a statute, it may become necessary for the Judges to embark upon lengthy discussions. The words of Judges interpreting statutes are not to be interpreted as statutes
The Hon’ble Apex court thus concluded that the words of the Judges were not to be interpreted as statutes and only provisions of statutes warranted extensive deliberation, not the words of a Judge.
The Hon’ble Supreme Court in the matter of Ashok G. Rajani v. Beacon Trusteeship Limited in Civil Appeal no.4911 of 2021 held that there was no bar on the withdrawal of CIRP application before the constitution of Committee of Creditors.
Brief Background An appeal was preferred against an interim order passed by the National Company Law Appellate Tribunal whereby the NCLAT permitted the IRP to issue publication and also handover all assets and proceed with the CIRP even though the matter had been settled between the parties.
The Dispute arose between the parties when the Respondent defaulted in making payment of the second tranche as per the terms of a Debenture Trust Deed (DTD which was executed between the Corporate Debtor and Respondent- Beacon Trusteeship. The Corporate Debtor initiated Arbitration Proceedings before the High Court of Bombay.
In the interregnum, the Respondent Nos. 1 to 3 filed an application under Section 7 of the IBC before the National Company Law Tribunal (NCLT), Mumbai Bench. The Arbitrator passed an interim award passed in favour of Beacon Trusteeship and other Respondents and directed the Corporate Debtor to make payment along with interest. In view of the interim award, the Respondents filed Section 7 of IBC for initiation of Corporate Insolvency Resolution Process against the Corporate Debtor. Thereafter, parties time and again sought deferment on the ground that the parties were in the process of arriving at a settlement.
Thereafter, the Adjudicating Authority admitted Section 7 application which was filed against the Corporate Debtor.
The Appellant i.e. the director of the Corporate Debtor preferred an appeal before the Appellate Authority against the admission order passed by the Adjudicating Authority. The Appellate Authority considered the settlement arrived at between the parties and further gave liberty to the parties to adopt procedure under Section 12A of IBC but later permitted the IRP to issue publication and also handover all assets and proceed with the CIRP even though the matter had been settled between the parties. Being aggrieved by the said order of the Appellate Authority appellant preferred the instant appeal before the Hon’ble Supreme Court.
Expounding on the matter, the Hon’ble Supreme Court concluded that Section 12A enabled the Adjudicating Authority to permit the withdrawal of an application admitted under the Sections 7, 9 and 10, on an application made by the Applicant hence, there is no bar on withdrawal by the applicant of an application admitted under Section 7 of the Code.
The Supreme Court in the matter of Maitreya Doshi v. Anand Rathi Global Finance Limited Civil Appeal No. 6613 of 2021 held that that Corporate Insolvency Resolution Process initiated against one Corporate Debtor would not bar proceedings from being initiated against a Guarantor, extending the principles of applicable to a Surety under a contract of guarantee to the liability of a Co- Borrower, while allowing initiation of parallel CIRPs against Co-Borrowers.
An appeal was filed seeking setting aside an order passed by the Appellate Tribunal dismissing the appeal filed against an order passed by the Adjudicating Authority admitting an application for initiation of CIRP of the Appellant u/s 7 of the IBC. According to the Loan-cum- Pledge agreement the Respondent no.1 / Financial Creditor disbursed loan to the tune of Rs.6 Crores to M/s Premier Limited. The Loan-cum- Pledge agreements contemplated two transactions – grant of loan to M/s Premier Ltd. and creation of pledge by Doshi Holdings of securities held by the Doshi Holdings in Premier Ltd. Thereafter, the Premier Ltd. defaulted in making repayments as per terms of the Loancum- Pledge agreements, therefore the Financial Creditor called upon Premier to make the payments of outstanding dues. Doshi Holdings has been referred to as borrower and pledger in the agreement. Prima facie, it appears that Doshi Holdings was a party to the Loan-cum- Pledge Agreement in its dual capacity of borrower and pledger of shares.
The Hon’ble Apex Court while observing Lalit Kumar Jain v. Union of India3 , held that the approval of a Resolution Plan in relation to a Corporate Debtor does not discharge the Guarantor of the Corporate Debtor. On a parity of reasoning, the approval of a resolution in respect of one borrower cannot certainly discharge a co-borrower
The Hon’ble concluded that if there are two borrowers or if two corporate bodies fall within the ambit of corporate debtors, there is no reason why
proceedings under Section 7 of the IBC cannot be initiated against both the Corporate Debtors. However, the same amount cannot be realised from both the Corporate Debtors. If the dues are realised in part from one Corporate Debtor, the balance may be realised from the other Corporate Debtor being the co-borrower and once the claim of the Financial Creditor is discharged, there can be no question of recovery of the claim twice over.
The Hon’ble Supreme Court in the matter of Tech Sharp Engineers Pvt. Ltd. v. Sanghvi Motors Limited in Civil Appeal No. 296 OF 2020 held that a claim may not be barred by limitation but it is the remedy for realisation of the claim, which gets barred by limitation.
The Hon’ble Apex Court observed that the pendency of parallel proceedings by the Respondent did not comprise sufficient cause of delay in filing application u/s 9 of the IBC for initiation of CIRP by Operational Creditor.
In the instant matter an appeal was sought against a judgment and order passed by Ld. Appellate Tribunal allowing appeal by filed by the Respondent to set aside an order of the Ld. Adjudicating Authority being the initiation of CIRP as barred by limitation. In this instance, the Hon’ble Court relied on its pronouncement in B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates and Radha Export (India) Private Ltd. v. K.P. Jayaram which held that the Ld. NCLT/NCLAT has discretion to entertain applications/ appeals after the prescribed limitation period. It was clarified that the condition precedent to invoke exemption would require the fulfillment of the ‘sufficient cause’ test for having not preferred said application/appeal during the statutorily stipulated time.
The limitation for initiation of winding up proceedings in the High Court stopped running on the date on which the Winding Up petition was filed. The initiation of proceedings in High would not save limitation for initiation of proceedings for initiation of CIRP in the NCLT under Section 7 of the IBC.
The Hon’ble Apex Court in the matter of K. Parmasivam v. The Karur Vysya Bank India Limtied. & Anr. in Civil Appeal No. 9286 OF 2019 held that the liability of the guarantor is co-extensive with that of the Principal Borrower. Therefore, it was open to the Financial Creditor to proceed against the guarantor without first suing the Principal Borrower.
An appeal was filed against a final order and judgment of the Hon’ble NCLAT dismissing the appeal against an order of the Ld. NCLT admitting an application filed under Section 7 for initiation of CIRP by Financial Creditor against the Corporate Debtor i.e. Maharaja Theme Parks and Resorts Private Limited. Maharaja Theme Parks and Resorts stood guarantor for the loans availed by borrowers and the borrowers failed to repay the debts payable to the Financial Creditor. Thereafter, the Financial Creditor filed an application for initiation of CIRP against Maharaja Theme Parks and Resorts on the ground that Maharaja Theme Parks and Resorts had extended corporate guarantee(s) for loans availed by each of the borrowers and upon failure of the borrowers to repay the loans, Maharaja Theme Parks and Resorts, as Guarantor, became liable to repay the loan.
The Hon’ble Court relying on Laxmi Pat Surana v. Union Bank of India4 which held the liability of the Guarantor to be co-extensive with that of the Principal Borrower. The Hon’ble Apex Court was of the view that CIRP can be initiated against a Corporate entity who has given a guarantee to secure the dues of a non-corporate entity as a financial debt accrues to the corporate person, in respect of the guarantee given by it, once the borrower commits default. The guarantor is then, the Corporate Debtor
It is the discretion of the Financial Creditor to pursue or not to pursue the Principal Borrower first or not under Section 7 of the Code.
The Hon’ble Supreme Court in the matter of State Tax Officer v. Rainbow Papers Limited in Civil Appeal NO. 1661 OF 2020 held that a Resolution Plan which ignores the statutory demands payable to any State Government or a legal authority, altogether, is liable to be rejected.
An appeal was preferred against the judgment and order of the Ld. NCLAT dismissing an appeal against an order rejecting the application filed by the Appellants and holding that the Government could not claim priority charge over the property of the Corporate Debtor as per Section 48 of the GVAT Act which provides for first charge on the property of the dealer in respect of amounts payable to the dealer including tax, interest and penalty under the said Act, which cannot prevail over Section 53 of the IBC.
The question was raised that whether the provisions of the IBC and, in particular, Section 53 thereof, overrides Section 48 of the GVAT Act?
In view of the above question raised, the Hon’ble Supreme Court observed that Section 48 of the GVAT Act is not contrary to or inconsistent with Section 53 or any other provisions of the IBC. Under Section 53(1)(b)(ii), the debts owed to a secured creditor, which would include the State under the GVAT Act, are to rank equally with other specified debts including debts on account of workman’s dues for a period of 24 months preceding the liquidation commencement date.
The Committee of Creditors, which might include financial institutions and other financial creditors, cannot secure their own dues at the cost of statutory dues owed to any Government or Governmental Authority or for that matter, any other dues
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