The following is a snapshot of the important orders passed by the National Company Law Appellate Tribunal (“NCLAT”), under the Insolvency and Bankruptcy Code, 2016 ("Code”), during the period between March 16, 2024 to March 31, 2024. For ease of reference, the orders have been categorized and dealt with in the following categories i.e., Pre-admission stage, Corporate Insolvency Resolution Process (“CIRP”) stage and Miscellaneous.   

PRE-CIRP

1. In Vishal Sethi v. Collage Group Infrastructure Private Limited (Company Appeal (AT) (Insolvency) No. 903 of 2023), the NCLAT refused to entertain a section 9 application filed against the parent company for an alleged amount due by its subsidiary company, by observing that a holding company and its subsidiary are two distinct legal persons and mere ownership, parental control and common management does not constitute sufficient and adequate grounds to justify lifting of corporate veil to hold the parent entity liable for the acts of its subsidiary.
2. In Arham Jewellery v. Golden Wealth Advisory Private Limited (Comp. App. (AT) (Ins) No. 1514 of 2023 & I.A. No. 5451 of 2023), the NCLAT held that where the balance sheet of the corporate debtor reflected certain amount as unsecured borrowing, a Section 7 application cannot be challenged by arguing the same to be in nature of an investment.
3. In Srinivas Reddy Yadiki v. Ardee Hi-Tech Private Limited (Company Appeal (At) (CH) (Ins) No. 234/2022), the NCLAT observed that admission of a Section 9 application basis claims arising out of an independent purchase order cannot be challenged on the basis that, such payment obligation was conditional upon receipt of money from the principal employer, where the receipt of payment under such back to back arrangement was not specified as a condition precedent to the payment obligation under the purchase order.
4. The NCLAT, in Invoice Discounters of Riva Perfumes LLP Represented by Minion Ventures Private Limited v. Riva Perfumes LLP (Company Appeal (AT) (Insolvency) No. 518 of 2024) held that a Section 7 application is not maintainable on account of a claim arising out of invoice discounting of receivables, which claim at best would qualify as operational debt.

CIRP STAGE

1. In Ashwani Kumar Kaura v. Devendra Umarao (Company Appeal (AT) (Insolvency) No.190 of 2024), the NCLAT reiterated the well settled principle that an approval of plan cannot be interfered with, basis amount allocated to different creditors , unless such allocation violates any of the provisions of Section 30, sub-section (2) of the Code.
2. In Ashdan Properties Pvt. Ltd. v. Mamta Binani ((RP of Rolta India Ltd.) & Ors) (Company Appeal (AT) (Insolvency) No.464 of 2024), the Adjudicating Authority had given directions for inclusion of resolution applicants belatedly, even though the name of such resolution applicants did not appear in the list of prospective resolution applicants. The NCLAT noted such inclusion directly contravenes Regulation 39(1)(b) of CIRP Regulations, 2016, and upon noting that CoC in its meeting had also taken resolution not to consider any new applicants, set aside the impugned orders for such inclusion by observing that where no fresh form G has been issued, an applicant whose name is not included in the final list of prospective resolution applicants, cannot be allowed to submit a resolution plan.
3. In Girish Nalavade v. Bhrugesh Amin (Company Appeal (AT) (Insolvency) No. 1542 of 2023), the NCLAT held that a debenture holder/lender cannot be considered to be a related party of the corporate debtor merely basis having protective rights under the debenture trust documents, unless it can be shown that the director promoter or manager of the corporate debtor was accustomed to act on the advice, direction or instruction given by such lender. Further, merely because certain clauses contained in the debenture trust deed can be inferred to attract provisions of section 5(24)(m) (Related party basis participation in policy making process of the corporate debtor), without there being specific evidence to establish such participation of the financial creditor in the policy making process, the creditor cannot be treated to be a related party.
   
   It was further observed when no irregularity was pointed out in the constitution of the CoC, prior to the CoC approving the resolution plan, the same cannot be challenged belatedly after approval of the plan.
   
   The NCLAT observed that once the CoC has approved a resolution plan by requisite majority and the same is in consonance with applicable law and nothing has come to light to show that the resolution professional had committed any material irregularities in the conduct of the CIRP proceedings, the same cannot be a subject matter of judicial review and modification.
   
   The NCLAT held that the Code, having envisaged time bound resolution insolvency process, does not allow dissatisfied individual homebuyers in a minority to challenge the commercial wisdom of the majority homebuyers in the CoC.
4. In Yester Investment Private Limited v. Manish Motilal Jaju (Company Appeal (AT) (Insolvency) No. 1286 of 2023 & I.A. No. 4551 of 2023), the NCLAT held that commercial wisdom of the CoC in differentiating “affected homebuyers”, (who had obtained NOC from the charge holder of the properties in a real estate project) and “unaffected homebuyers’, (who had not obtained such NOC) under a resolution plan, cannot be faulted.
   
   The NCLAT further held that when majority of homebuyers have voted in favour of the approval of the resolution plan, a homebuyer being in minority, cannot contend against the majority of homebuyers, who have decided to approve the resolution plan.

MISCELLENEOUS

1. The NCLAT, in Meena Juneja v. State Bank of India & Ors. (Company Appeal (AT) (Insolvency) No. 1076 of 2023), held that a failed OTS proposal can be considered as acknowledgement of debt for the purpose of limitation period.  
2. In SEL Manufacturing Company Ltd v. Punjab Small Industries & Export Corporation Limited (Company Appeal (AT) (Insolvency) No. 881/2022 (IA Nos. 2446, 2447 & 2449 of 2022)), the NCLAT was posed with a question as to whether the application of clean slate principle could extinguish the land cost demanded by public authorities prior to the initiation of CIRP. Upholding the right of the land-owning public authorities, the NCLAT observed that the rights of public sector/state land development authorities on assets owned by them, cannot be overwritten by provisions of the Code and any transfer to successful auction purchaser, or SRA has to be in accordance with the terms and conditions of the original allotment or lease deed or policy of the authority. It was further observed, that the amount payable towards clearing defect in the title of the land is not linked to the CIRP proceedings, and cannot be extinguished by taking recourse to the protective umbrella of the Code without full payment of the outstanding dues or without compliance to the transfer policies specified under the relevant land document.
3. In Fortune Gilts Private Limited v. Piramal Capital & Housing Finance Limited (I.A. No. 2114 of 2024 in Company Appeal (AT) (Insolvency) No. 414 of 2024), the NCLAT held that proceedings for preferential transaction could be proceeded only against the creditors of the corporate debtor and not against non-creditors.

This update has been contributed by Arka Majumdar (Partner), Juhi Wadhwani (Senior Associate), Ayush Chaturvedi and Vikram Chaudhuri (Associates).

The update was first published on Bar & Bench.

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