Hello! Welcome back to our updates from the insolvency law landscape in India.
In the News
Deputy Governor of Reserve Bank of India, recently endorsed the idea for introducing a code of conduct for committee of creditors under IBC. He raised concerns regarding disproportionate prioritisation of individual creditors’ interest; disagreements in approving the resolution plan due to undervaluation or lack of viability; non-participation in the CoC meetings and lack of effective engagement etc.
As per reports, the central government is planning to bring a bill in parliament to amend IBC to introduce provisions regarding group insolvency. Currently, the Insolvency and Bankruptcy Code (“IBC”) does not have provisions regarding group insolvency and NCLTs have been relying upon the principles laid down by US and UK courts to adjudicate matters related to group insolvency as done in Videocon insolvency matter.
The Standing Committee on Finance has recommended introducing urgent listing system for insolvency related cases for faster resolution of cases. The committee also called upon MCA to provide clearer guidelines on treating government dues, especially taxes and penalties, ensuring equitable and transparent resolution of government claims.
From the Docket
The Supreme Court in China Development Bank v. Doha Bank OPSC held that a default is not necessary for a debt to qualify as a financial debt under the IBC. The Court clarified that under Section 5(7) of the IBC, any person to whom a financial debt is owed is a Financial Creditor, even in the absence of a default in payment. Therefore, for submitting a claim as a Financial Creditor, actual default is not a prerequisite.
In Prabhat Jain v. MP Industrial Development, the NCLAT held that a liquidator cannot create sub-leases over public land without complying to the statutory requirements. It was further held that Section 238 of the IBC does not override the statutory authority of a public body to regulate its properties.
The NCLAT, in Decor Paper Mills v. Mahashakti Plasto, held that an application under Section 9 of the IBC, cannot be admitted for invoices, which are covered by the prohibited period under Section 10A of the Code.
In Central Transmission Utility of India v. Summit Binani, the NCLAT, held that security deposit given by the corporate debtor towards its pre-CIRP dues cannot be adjudted after the admission of the corporate debtor into the CIRP as such an action is strictly prohibited by section 14 of the code. Any amount due to the corporate debtor can be recovered by filing claims before the IRP/RP, as the case may be.
The NCLAT in Vidyadhar Sarfare v. CS Anagha Anasingharaju held that unless the application for withdrawal is filed by the applicant who initiated the CIRP, the same cannot be withdrawn under Section 12A read with Regulation 30A.
The NCLAT in Rakesh Kumar Jain v. ADTV Communications, held that a decree holder falls qualifies as a “Financial Creditor” under Sections 5(7) and 5(8) of the Insolvency and Bankruptcy Code, 2016, if the decree is based on a financial debt. The Tribunal observed that the cause of action for initiating proceedings under Section 7 of the IBC arises when the debt is acknowledged by the debtor. It was further observed that the petition filed by the appellant was within the limitation period as the respondent had acknowledged the debt, thereby extending the limitation period under Section 18 of the Limitation Act, 1963. Consequently, the Appellate Tribunal initiated the CIRP against the respondent.
The NCLAT in Harish Chander Arora v. The Principal Commissioner of Income Tax, Ghaziabad held that if before initiation of CIRP, the Income Tax Department seized an amount and adjusted against demand, then the same cannot be considered as assets of the corporate debtor.
Thank you for reading! We will be back again next month with more updates on insolvency.