jitender jain recent case laws on indian insolvency and bankruptcy code 2016

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  • Insolvency&BankruptcyCode,2016DiscussiononRecentMajorCaseLaws

    JitenderJainAdvocate&InsolvencyProfessional

    Mumbai

  • 2Insolvency & Bankruptcy Code, 2016 2017 Jitender Jain, Arcindo Law, Advocates

    LegalFrameworkforInsolvencyinIndia1. The Companies Act 2013 (CA2013) For companies in the following cases:(a) if the company has, by special resolution, resolved that the company be woundup by the Tribunal;(b) if the company has acted against the interests of the sovereignty and integrityof India, the security of the State, friendly relations with foreign States, publicorder, decency or morality;(c) if on an application made by the Registrar or any other person authorised by theCentral Government by notification under this Act, the Tribunal is of the opinionthat the affairs of the company have been conducted in a fraudulent manner or thecompany was formed for fraudulent and unlawful purpose or the personsconcerned in the formation or management of its affairs have been guilty of fraud,misfeasance or misconduct in connection therewith and that it is proper that thecompany be wound up;(d) if the company has made a default in filing with the Registrar its financialstatements or annual returns for immediately preceding five consecutive financialyears; or(e) if the Tribunal is of the opinion that it is just and equitable that the companyshould be wound up.

  • 3Insolvency & Bankruptcy Code, 2016 2017 Jitender Jain, Arcindo Law, Advocates

    LegalFrameworkforInsolvencyinIndia(Cont.)

    2. Insolvency & Bankruptcy Code, 2016 (Insolvency Code) For Corporate Persons, Individuals and partnership firms in

    case they are unable to pay debts; and Voluntary windingup of Corporate Persons.

    3. Notably, voluntary windingup of companies is covered bothunder Insolvency Code and CA2013.

    4. More importantly, now, CA2013 has no provision for winding upof the company when it is unable to pay its debts.

    5. IBC has only two types of creditors, i.e., Financial Creditor (FC)and Operational Creditor (OC). Thus, no remedy, either underCA2013 or Insolvency Code, is available to a creditor (who isneither FC nor OC) against the corporate debtor (CD)?

  • 4Insolvency & Bankruptcy Code, 2016 2017 Jitender Jain, Arcindo Law, Advocates

    LegalFrameworkforInsolvencyinIndia(Cont.)

    6. Who can file windingup petition under Insolvency Code?(a) Operational creditor for operational debt;(b) Financial creditor for financial debt; and(c) Corporate Debtor itself for default of any debt.

    7. Who can file windingup petition under the CA2013?As per section 272 of CA2013, a petition to NCLT for the winding up of acompany shall be presented by (a) the company itself;(b) any contributory or contributories;(c) all or any of the persons specified in clauses (a) and (b);(d) the Registrar, after sanction of central government, in cases falling u/s271(b) or 271(c) or 271(d;(e) any person authorised by the Central Government in that behalf; or(f) in a case falling under clause (b) of section 271, by the Central Governmentor a State Government.

  • 5Insolvency & Bankruptcy Code, 2016 2017 Jitender Jain, Arcindo Law, Advocates

    LegalFrameworkforInsolvencyinIndia(Cont.)

    Case Law Nikhil Mehta & Sons (HUF) and others V/s AMRInfrastructure Ltd. (NCLT Delhi) The applicants booked units in real estate projects of CD whereinCD agreed that assured return will be payable to applicants in caseof delay in possession. CD paid assured return for some time and thereafter stoppedpayment because of financial problems. Multiple windingup petitions were filed against CD by various unitholders u/s 433(e) of the Companies Act, 1956 which were alreadyadmitted by Honble Delhi High Court. Applicants filed this application claiming themselves to be FC.NCLT (a) The applicants were not FC and, thus, the application wasdismissed.(b) The remedy of the applicants may lie elsewhere. [Para 15]

  • 6Insolvency & Bankruptcy Code, 2016 2017 Jitender Jain, Arcindo Law, Advocates

    LegalFrameworkforInsolvencyinIndia(Cont.)

    Case Law Nikhil Mehta & Sons (HUF) andothers V/s AMR Infrastructure Ltd. (Cont.)

    Question What remedy is available to creditorslike the applicants assuming CD is unable to payits debt?

    Suggested Answer Amendment to section 272of the Companies Act 2013 or Insolvency Code!!

  • 7Insolvency & Bankruptcy Code, 2016 2017 Jitender Jain, Arcindo Law, Advocates

    ApplicationbyOperationalCreditorunderInsolvencyCode

    1. The proceedings under Insolvency Code are in nature of summary proceedingsand, thus, the Adjudicating Authority (NCLT) will not decide the matter on meritsby recording evidence, etc., i.e., adjudication of dispute between the parties, ifany.

    2. Operational debt means a claim in respect of the provision of goods orservices including employment or a debt in respect of the repayment of duesarising under any law for the time being in force and payable to the CentralGovernment, any State Government or any local authority. [Section 5(21) ofInsolvency Code]

    3. Dispute Section 5(6) of Insolvency CodeDispute" includes a suit or arbitration proceedings relating to:(a) the existence of the amount of debt;(b) the quality of goods or service; or(c) the breach of a representation or warranty.

  • 8Insolvency & Bankruptcy Code, 2016 2017 Jitender Jain, Arcindo Law, Advocates

    ApplicationbyOperationalCreditorunderInsolvencyCode(Cont.)

    4. OC may, on occurrence of default deliver demand notice of: (i)unpaid operational debt; or (b) copy of invoice, demandingpayment of amount involved in default in prescribed manner.[Section 8(1)]

    5. CD shall, within 10 days of receipt of such notice, bring into noticeof OC: (i) existence of dispute, if any, and record of the pendencyof the suit or arbitration in relation to such dispute; (ii) payment ofoperation debt along with proof of payment. [Section 8(2)]

    6. NCLT shall, within 14 days of receipt of the application, by an orderadmit the application if, inter alia, (i) no notice of dispute has beenreceived by the OC, or (ii) there is no record of dispute in theinformation utility. [Section 9(5)(d)]

  • 9Insolvency & Bankruptcy Code, 2016 2017 Jitender Jain, Arcindo Law, Advocates

    ApplicationbyOperationalCreditorunderInsolvencyCode(Cont.)

    CaseStudy WhatisDispute?

    1. VDS Plastic Private Limited V/s Pal Mohan Electronics Pvt. Ltd. NCLT Delhi

    OC filed application for recovery of dues claiming that there isno pending suit or arbitration at the time of issue of notice.Thus, there is no dispute as per Insolvency Code.

    CD showed proofs that CD disputed the debt from time to timethough no arbitration or suit is pending.

    CD submitted that definition of Dispute is inclusive and suit orarbitration are not conclusive factor to determine if a Disputeexists.

    NCLT The definition of dispute is not limited to prior suit orarbitration. [Para 11]

  • 10Insolvency & Bankruptcy Code, 2016 2017 Jitender Jain, Arcindo Law, Advocates

    ApplicationbyOperationalCreditorunderInsolvencyCode(Cont.)

    CaseStudy WhatisDispute?

    2. Essar Projects India Limited V/s MCL Global Steel Pvt. Ltd. NCLT Mumbai

    OC issued notice u/s 8 for outstanding amount withinterest.

    CD raised various dispute after receipt of notice u/s 8 ofInsolvency Code.

    There was no pending arbitration or suit.

    NCLT As per section 5(6) read with section 8(2)(a), it isevident that dispute in existence means and includes raisingdispute in court of law or arbitral tribunal before receipt ofnotice u/s 8 of Insolvency Code. [Para 8]

  • 11Insolvency & Bankruptcy Code, 2016 2017 Jitender Jain, Arcindo Law, Advocates

    ApplicationbyOperationalCreditorunderInsolvencyCode(Cont.)

    CaseStudy WhatisDispute?

    3. DF Deutsche Forfait AG and other V/s Uttam Galva SteelLtd. NCLT Mumbai

    Summary proceedings under Insolvency Code cannotmean that NCLT can simply pass matter to other forum ifanswers to all issues are available on the basis of materialplaced and as to legal issues, when no evidence isrequired to decide those issues. [Para 13]

    NCLT observed that No doubt it is true that wordincludes normally considered as exhaustive, but thereare situations to read includes as means to enable thecourts to achieve the purpose of the legislation. [Para23]

  • 12Insolvency & Bankruptcy Code, 2016 2017 Jitender Jain, Arcindo Law, Advocates

    ApplicationbyOperationalCreditorunderInsolvencyCode(Cont.)

    CaseStudy WhatisDispute?

    3. DF Deutsche Forfait AG and other V/s Uttam Galva Steel Ltd. NCLTMumbai (Cont.)

    If reply is given denying the claim despite default occurrence isclear, does it mean that no application can be filed by any OC eventhough the OC makes the case of default occurrence? If this scenarioemerges, then it will be nothing but throwing this law into dustbin.[Para 23]

    Suit or arbitration must be pending before the issue of notice u/s 8of Insolvency Code. Filing of suit / arbitration after issue of notice u/s8 is irrelevant. [Para 38]

    NCLT Dispute is qualified as the dispute pending in a suit or arbitrationbefore issue of notice u/s 8 and not otherwise. [Para 33].

  • 13Insolvency & Bankruptcy Code, 2016 2017 Jitender Jain, Arcindo Law, Advocates

    ApplicationbyOperationalCreditorunderInsolvencyCode(Cont.)

    CaseStudy WhatisDispute?

    4. Annapurna Infrastructure Private Limited & Others V/s Soil InfraResources Ltd. NCLT Delhi

    OC and CD had disputes under the lease deed. Sole arbitrator appointed by the Honble High Court pronounced

    his award in favour of the applicants. CD filed application u/s 34 of the

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