Welcome back to our updates on insolvency and bankruptcy! We were on a short break and have now returned with a larger team at our office.
The Insolvency and Bankruptcy Code (Amendment) Bill, 2021 which replaces the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 has been passed by both Houses of Parliament. The bill further amends the Insolvency and Bankruptcy Code, 2016, by inter alia, introducing Prepacked Insolvency Resolution Process (PPIRP) for micro, small and medium enterprises (MSMEs). The proposed amendment enables the government to notify the threshold of default not exceeding Rs 1 crore for initiation of PPIRP. Some authors argue that this scope should be widened.
The Insolvency and Bankruptcy Board of India (IBBI) issued a circular instituting uniform monetary penalties to be levelled by insolvency professional agencies for violations by Insolvency Professionals.
Has the journey of India’s Insolvency Code been successful? A high liquidation rate and large haircuts have negatively impacted the outcome of the Code. Despite these, commentators argue that many significant milestones have been achieved in a short span of five years.
From the Docket
In Orator Marketing v. Samtex Desinz the Supreme Court (SC) held that a person who gives a term loan to a Corporate person, free of interest, will be a financial creditor and hence, competent to file an application under section 7 of IBC. The apex court analysed the definition of ‘debt’ which includes financial debt and the definition of ‘financial debt’ under Section 5(8) of IBC which does not exclude an interest free loan. The SC clarified that the trigger for initiation of Corporate Insolvency Resolution Process by a Financial Creditor under section 7 of IBC is the occurrence of default by the Corporate Debtor.
The NCLAT stayed the Resolution Plan for Videocon Industries Group in Bank of Maharashtra v. Videocon Industries. Unsurprisingly, the matter went up to the Supreme Court, which has refused to interfere with the NCLAT’s interim with a direction that the matter be decided on 7 September. The resolution plan was inter alia challenged on the ground that it provided a haircut of almost 90 to 96% to financial creditors. The appeals against the approval of resolution plan also raised question about the confidentiality obligation of the resolution professional.
Some authors have questioned whether public policy should be applied as a yardstick to asses a resolution plan in light of the loss of public money in a case like Videocon. However, we do not agree with such a view. The IBC has been transformative in how debtors approach CIRP and liquidation proceedings. Allowing judicial scrutiny of a resolution plan on grounds like public policy would not only lead to delays but it is also likely to further erode the stakeholder value.
In Dena Bank v. C. Shivakumar Reddy, the Supreme Court held that a financial creditor’s application for initiation of CIRP under Section 7 would not be barred merely because it is filed more than three years after the declaration of the Corporate Debtor’s account as an NPA, when there exist subsequent acknowledgments of debt in writing. In the present case, the Corporate Debtor had acknowledged the liability towards the bank in its bank accounts, made an offer for one-time settlement and there was an unsatisfied recovery certificate issued by the Debt Recovery Tribunal in favour of the financial creditor.
In Pratap Technocrats v. Monitoring Committee of Reliance Infratel, the Supreme Court has reemphasised that the Adjudicating and Appellate Authorities under the IBC do not have an “unchartered jurisdiction in equity” while considering an application under Section 31 of the Code.
The NCLT, Delhi in Om Logistics v. Ryder India terminated the CIRP of the Corporate Debtor and further issued show-cause notice under section 65 of the Code to the creditor at whose application the CIRP was initiated. The Adjudicating Authority observed that Resolution Professional was unable to carry forward the CIRP for want of cooperation/ participation from the sole member of Committee of Creditor.
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