Hello! Welcome back to our updates from the insolvency law landscape in India.
In the News
IBBI in its latest newsletter, has observed that there has been a decline in the number of liquidation cases in recent times. As on December 31, 2024, around 44 per cent of the total number of insolvency matters went into liquidation.
IBBI vide its circular dated 11.02.2025 has made it mandatory for insolvency resolution professionals to report their assignments on electronic portal within the prescribed time to streamline record-keeping.
In other news, Justice Sharad Kumar Sharma, Judicial Member of the NCLAT, Chennai, recused himself from hearing an appeal filed by Riju Raveendran, suspended director and promoter of Think & Learn Pvt. Ltd. (Byju’s parent company). The appeal challenged the NCLT Bengaluru’s decision to include Glas Trust and Aditya Birla Finance as Financial Creditors in the Committee of Creditors (CoC) of Think & Learn Pvt. Ltd.
The IBBI has introduced key amendments to the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which include:
- Homebuyers can get possession of flats during corporate insolvency resolution process (CIRP) with 66% CoC approval.
- If creditors in a class exceed 1,000, CoC can appoint up to five facilitators to assist homebuyers in the insolvency process
- Land authorities (HUDA, NOIDA) can attend CoC meetings for project inputs.
- RPs must submit a real estate project status report within 60 days.
- CoC can relax eligibility criteria for homebuyers submitting resolution plans.
- Resolution applicants must provide performance security to prevent default.
- Monitoring Committee to oversee resolution plan implementation with quarterly reports.
- RPs must disclose MSME registration status of the Corporate Debtor.
- Homebuyers get relaxations in eligibility, deposits, and security for resolution plans.
These amendments aim to boost homebuyer participation, expedite resolutions, and ensure fair insolvency proceedings in real estate.
The Singapore High Court has officially recognised India’s CIRP under IBC, marking a significant step in cross-border insolvency. This recognition affirms India’s insolvency framework under the UNCITRAL Model Law, allowing Indian insolvency proceedings to be acknowledged as “foreign main proceedings” in Singapore. The ruling is expected to facilitate smoother asset repatriation and cross-border restructuring for Indian companies, enhancing global enforceability of the IBC.
The IBBI Chairperson has emphasized that Indian companies are not leveraging the IBC sufficiently to resolve insolvency issues. He noted that initiation of insolvency proceedings by creditors rather than the companies themselves is less ideal. According to IBBI data, as of September 2024, only 480 out of 7,518 insolvency applications were filed by corporate debtors. Mittal advocated for more proactive engagement by companies in utilizing the IBC to address financial distress effectively.
The IBBI has directed that, effective from 1 April 2025, all Insolvency Professionals must exclusively use the Baanknet auction platform (formerly eBKray) for conducting asset sales during liquidation. The circular also specifies that prospective bidders must submit necessary eligibility documents through the platform, including a declaration under Section 29A of the IBC. Additionally, bidders must deposit the Earnest Money Deposit (EMD) via Baanknet, with the EMD being forfeited if the bidder is found ineligible.
The IBBI has directed Insolvency Professionals to include a dedicated section in the Information Memorandum detailing the corporate debtor’s carry forward of losses under the Income Tax Act, 1961. This must cover the quantum, category-wise breakdown, applicable time limits, and a declaration if no such losses exist. The move aims to improve transparency and assist resolution applicants in framing informed and viable resolution plans. Read more of our thought leadership on this circular here.
From the Docket
The Supreme Court in Bank of Baroda v. Farooq Ali Khan, held that the High Court should not have intervened to halt insolvency proceedings against a personal guarantor by ruling that the guarantor’s liability had been waived. The bench emphasized that when specialized statutory tribunals are established to adjudicate matters of law and fact, High Courts should not overstep their judicial review powers by assuming the role of the primary decision-making authority.
In Vishnoo Mittal v. Shakti Trading the Supreme Court held that if the cause of action for a cheque dishonour offence under Section 138 of the Negotiable Instruments Act, 1881 arises after the imposition of a moratorium under the IBC, then proceedings under Section 138 NI Act cannot be sustained against the company’s former director.
The Supreme Court in Saranga Anilkumar Aggarwal v. Bhavesh Dhirajlal Sheth held that the interim moratorium under Section 96 of the IBC does not extend to penalty proceedings initiated under Section 27 of the Consumer Protection Act, 1986. The Court clarified that, in view of Section 79(15) of the IBC, fines and penalties imposed under regulatory statutes like the Consumer Protection Act are excluded from the purview of the moratorium. Read our detailed analysis of this case here.
In Electrosteel Steel v. Ispat Carrier, the Supreme Court held that an arbitral award passed in respect of claims not included in a resolution plan approved under Section 31 of the IBC, is unenforceable. The Court ruled that once the resolution plan is approved by the NCLT, any claim falling outside its scope stands extinguished, rendering the award incapable of execution.
In Stesalit vs. Union of India, the Calcutta High Court, ruled that gratuity dues owed to workers are protected under the Payment of Gratuity Act, 1972, and do not form part of the Corporate Debtor’s liquidation estate under IBC, 2016. The Court held that gratuity payments fall outside the waterfall mechanism under Section 53 of the IBC and must be fully paid, irrespective of any resolution plan. It further emphasized that Section 14 of the Payment of Gratuity Act has overriding authority and the same ensures that employees’ statutory rights remain intact even during insolvency proceedings.
The Delhi High Court in Bhushan Power & Steel v. Union of India, ruled that a Corporate Debtor cannot be prosecuted under the Prevention of Money Laundering Act for offences committed before the initiation of the CIRP once its resolution plan has been approved under Section 31 of the IBC. The Court relied on Section 32A(1) of the IBC, affirming that the Corporate Debtor is shielded from such liabilities post-resolution.
In Ashok Harry Pothen v. Indian Bank, the Kerala High Court, held that a bank retains the right to initiate proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) to recover outstanding dues if it was not included as a party in a resolution plan approved under the IBC. The Court clarified that the restriction on claims outside a resolution plan does not extend to third parties merely associated with the Corporate Debtor through agreements such as joint ventures.
The NCLAT in Power Mech Projects v. Essar Power (Jharkhand), held that a liquidator’s decision to conduct a private sale using the Swiss Challenge Method is within their jurisdiction and authority. The Tribunal emphasized that since the Stakeholders Consultation Committee had approved the decision, it could not be deemed beyond the liquidator’s powers under the IBC, 2016.
In Greenshift Initiatives v. Sonu Gupta, the NCLAT has ruled that a related party cannot transfer its debt solely to gain eligibility for participating in the CoC and influence the rights of other creditors. The Appellate Tribunal emphasized that such an assignment, when made with the intent to bypass disqualification, is not permissible under the IBC.
The NCLAT in Global Indian School Education Services v. Abhay Narayan Manudhane, held that a security deposit provided under a Memorandum of Understanding does not constitute financial debt under Section 5(8) of the IBC, if it lacks the essential characteristics of a financial transaction, such as an intention to borrow commercially or the accrual of time value of money. The Appellate Tribunal clarified that the mere existence of a deposit does not automatically establish a financial debt unless it meets the statutory requirements.
In Anjanee Kumar Lakhotia v. IDBI Bank, the NCLAT held that a Successful Resolution Applicant can be directed to make an upfront payment to dissenting financial creditors if the Resolution Plan itself contains a clause providing for such payment.
The NCLAT in Madhubala Chauhan v. Phoenix ARC, held that while considering an application under Section 7 of the IBC, neither the Adjudicating Authority nor the Appellate Authority should interfere with the contractual terms agreed upon by the parties. The only consideration is whether the existence of debt and default is established, without examining the fairness or reasonableness of the interest rate.
In SBI v. Santoshi Hyvolt Electricals, the NCLAT held that once the CoC has approved a resolution plan and it has been submitted to the Adjudicating Authority, the CoC cannot seek to send it back for fresh consideration.
The NCLAT in Rajabhau Shinde v. S.M. Electric Works, held that while the 90-day period for payment of sale consideration under Schedule I, Clause 1(12) of the Liquidation Regulations, 2016 is mandatory, the Adjudicating Authority has the power to extend this timeline under Section 35 of the IBC read with Rule 11 of the NCLT Rules, 2016; however, this power does not lie with the Liquidator.
In Gaurav Jindal v. Debashish Nanda, the NCLAT held that an allottee cannot be treated as a financial creditor if the allotted unit was cancelled at the allottee’s own request and the loan availed for its purchase was subsequently settled with the bank.
The NCLAT in Paresh Rastogi v. Omkara Assets Reconstruction, held that service of a demand notice sent to the last known address of a personal guarantor, as mentioned in the deed of guarantee, constitutes valid service under Section 95(4) of the IBC.=
In Phoenix ARC v. Kuldeep Verma, the NCLAT held that if a secured creditor, opting to realize its security interest under Section 52 of the IBC, fails to deposit the amount specified in Regulation 21A(2) of the Liquidation Regulations within 90 days of the liquidation commencement date, the secured asset shall be treated as part of the liquidation estate.
In Divyesh Desai v. Gujarat Industrial Development Corporation Bhuj, the NCLAT, held that leasehold rights held and possessed by the corporate debtor constitute assets, and therefore, a lease cannot be terminated during the moratorium period imposed under Section 14 of the IBC.
The NCLAT in Avni Jain v. Manoj Kulshrestha, held that Section 45 of the IBC applies to transactions made before the commencement of the CIRP, and not to transactions executed on the date of its initiation.
In Aarti Singal v. SBI, the NCLAT held that a creditor’s right to initiate proceedings under Section 95 of the IBC against a personal guarantor is not extinguished merely because the quantum of debt payable by the guarantor changes following the approval of a resolution plan for the corporate debtor.
The NCLAT in Star Maxx Properties v. Arunava Sikhdar held that an arbitral award restraining a real estate firm from creating third-party interests in specific units does not constitute a “security interest” under Section 3(31) of the IBC, and thus the creditor cannot be treated as a secured financial creditor in the absence of a formal Builder-Buyer Agreement.
In Om Sai Moulds & Plastics v. Pllastomax Engineering, the NCLAT held that a petition under Section 9 of the IBC cannot be entertained if the operational creditor has fabricated invoices and misused its internal position to file insolvency proceedings with malicious intent linked to personal disputes.
Thank you for reading! We will be back again with more updates on insolvency.
Disclaimer
The content provided in this newsletter is intended for general awareness and should not be considered as legal advice. Readers are advised to consult with a qualified legal professional regarding any specific issues mentioned herein. If you have any questions about any of these developments or would like to see something different next month, reach out to us at knowledge@sarthaklaw.com.