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Dishonouring of cheque could not bar of initiation of insolvency resolution process

Raj Duplex (P.) Ltd. v. Sardhana Papers (P.) Ltd. [2018] 94 taxmann.com 183 (NCLT - Allahabad)

The issue before the NCLAT was whether pending mediation proceedings could bar initiation of CIRP ?

In the instant case, Cheques issued by the corporate debtor against supply of goods were dishonoured. The complaint under section 138 of the Negotiable Instrument Act was filed by operational creditor on account of dishonouring of four cheques.

It was stated by corporate debtor that proceedings against operational creditor under section 138 of NI Act were challenged by one of its director in which the Adjudicating Authority referred matter to the Mediation and Conciliation Centre.

NCLT held that pendency of proceedings in the mediation and conciliation centre could not be said to be against pre-existing disputes related to alleged debt amount and, thus, instant application to initiate CIRP was to be admitted.

Resolution professional was directed to remove illegalities for submission of expression of interest

M.K. Shah Exports Ltd. v. Assam Co. India Ltd. [2018] 94 taxmann.com 184 (NCLT - Guwahati)

A notice was issued by Resolution Professional inviting expression of interest from prospective resolution applicant for revival of corporate debtor. Basic business of the corporate debtor was confined to tea business.

In the instant application, it was submitted that the notice inviting Expression of Interest (EoI) from prospective resolution applicants (PRA's) were enormously arbitrary, unreasonable since the eligibility criteria set for Prospective Resolution Applicants, as incorporated by the RP in inviting EoI from the PRAs, suffered from several infirmities.

It was contended that the admitted debt by the corporate debtor was approximately Rs.1453 crores but the eligibility criteria for participation in CIRP in terms of minimum Net Tangible worth had been set at Rs. 400 crores.

The NCLT held that one who wanted to participate in CIRP as Resolution Applicant must have experience and expertise in tea business, otherwise it would be impossible to turn corporate debtor as profitable enterprise.

Since Net Tangible worth of most of players in tea industry was 96 crores to 292 crores, Net Tangible worth fixed by Resolution Professional for participating in CIRP at 400 crores would mean exclusion of major tea companies which would not be in best interest of corporate debtor.

NCLT directed Resolution Professional to remove illegalities that had occurred in prescribing criteria for submission of expression of interest.

Insolvency plea was to be admitted when dispute raised by debtor wasn't supported by any proof: NCLT

Mahavir Traders v. Ajay Knitwears & Fabrics (P.) Ltd. [2018] 94 taxmann.com 182 (NCLT-Chd.)

During period 2008-09 petitioner supplied yarn to respondent/corporate debtor, which allegedly failed to pay outstanding dues despite demand notice. Therefore, petitioner filed application under section 9 for initiating corporate insolvency resolution process against corporate debtor in year 2017.

Corporate debtor contended that there was nothing due to operational creditor as it did not deliver goods to it in respect of invoices in question and it had not furnished any evidence of delivery of goods.

It was further contended that financial statement of respondent, relied upon by petitioner, had been prepared in connivance with ex-employee of respondent only with aim of getting wrongful gain.

NCLT held that since balance sheet of respondent relied upon by operational creditor in support of its claim was signed by chartered accountant along with directors of corporate debtor which disclosed trade payable to operational creditor and respondent had not even placed any documentary proof in support of its contention, dispute raised by it was spurious, hypothetical and illusory.

Since existence of trade payable in name of petitioner in balance sheet as in March 2016 was accepted, claim of petitioner could not be held to be time barred. Therefore petition filed by petitioner was to be admitted.

Pendency of proceeding under SARFAESI Act could not act as bar to initiate insolvency resolution process

Seatel Electronics (India) (P.) Ltd., In re [2018] 95 taxmann.com 51 (NCLT - New Delhi)

In the instant case, the corporate applicant initiated process of insolvency against itself on its failure to pay debt due to financial creditors. All shareholders of corporate applicant had given their consent to filing of instant application.

No CIRP had ever been initiated nor any liquidation order or winding up order had been made against Applicant Company

The applicant-company had filed list of assets and liabilities and submitted that it was in dire need of a resolution plan in interest of all stakeholders.

Three of financial creditors of the applicant had filed objections; initially corporate debtor had sufficient stocks and inventory, however, subsequently there was sudden decrease in value of inventory shown by the applicant and it had failed to disclose as to where inventory of differential amount had gone; secondly, an action under SARFAESI Act had also been initiated against corporate debtor which was pending.

It was noted that corporate debtor in its affidavit had explained reasons for decrease in its stock of inventory.

Further, initiation and pendency of proceedings against corporate debtor under SARFAESI Act would not act as bar for initiation of resolution and Insolvency proceedings by corporate debtor under section 10.

Since it was clear that a default had occurred and instant application under section 10 was complete, same was to be admitted.

Loan disbursed without consideration of time value of money is not financial debt: NCLT

Rajesh Kumar Himatsingka v. Himatsingka Resorts (P.) Ltd [2018] 95 taxmann.com 177 (NCLT - Guwahati)

In the instant case, it was held that where applicant had failed to bring on record any evidence to suggest that he had disbursed money against consideration for time value of money and there was no information about rate of interest on principal amount, loan did not satisfy requirement of financial debt as contemplated under section 5(8).

Misleading disciplinary committee by resolution professional amounted to contravention of Bankruptcy Code

Bhavna Sanjay Ruia, In re [2018] 95 taxmann.com 193 (IBBI)

In instant case even before commencement of Corporate Insolvency Resolution Process (CIRP), IRP misled an operational creditor to sign term sheet engaging her as IRP and fixing her fees at an exorbitant rate of Rs. 13.75 crore comprising of Rs. 5 crore for first month and Rs. 1.75 crore for five subsequent months.Later on, she misled Disciplinary Committee (DC) submitting that fees included cost of public announcement, fees for all professionals cost of running corporate debtor.

The NCLT held that, even though there were no prescribed set of rules and regulations/guidelines at present with regard to fee payable to Insolvency Resolution Professional (IRP), fee quoted by professionals should be reasonable, commensurate with work to be handled. NCLT held that IRP had contravened Code of Conduct for Insolvency Professionals and, therefore, registration of IRP was to be suspended for a period of one year.