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 January 1, 2025 to January 15, 2025.

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, Post CIRP stage, Liquidation and Miscellaneous.

A. Pre-admission

1. In Amit Yogesh Satwara v. Incred Financial Services Limited (Company Appeal (AT) (Insolvency) No.1584 of 2024), the corporate debtor had pledged shares with the financial creditor, sufficient to cover the entire liability. However, when the pledge was invoked, the shares were sold by the financial creditor at a lower value, resulting in certain amounts of the loan still remaining outstanding. As to whether a Section 7 application was maintainable on the basis of such an outstanding debt was answered in the affirmative by the Adjudicating Authority by noting that the outstanding debt indicates the presence of both debt and default. The aforesaid view was also upheld by NCLAT, which refused to accept the defence that had the shares been transferred on the date when it was pledged, the financial creditor would have realised amounts sufficient to clear all his claims.

2. In Comet Performance Chemicals Private Limited v. Aarvee Denims and Exports Limited (Company Appeal (AT) (Insolvency) No. 1878 of 2024), the NCLAT reiterated that an operational creditor can neither charge interest on the operational debt unless there is an express agreement between the parties, nor can such interest component be considered towards part of the operational debt. It was also held that the Adjudicating Authority has the power to suo motu conduct an enquiry regarding the bar under Section 10A of the Code even if the dispute has not been raised by the corporate debtor.  

3. In RAJ Krishna Construction Company Private Limited v. Newera Solutions Private Limited (Company Appeal (AT) (Insolvency) No. 83 of 2024), the NCLAT reiterated that the pre-existing dispute must relate to the transaction or the debt that forms the basis of the Section 9 application. It was also observed that commencement of arbitration prior to the date of issuance of the demand notice constituted a pre-existing dispute and, thus, there was sufficient ground for the rejection of a Section 9 application.

4. In Super Floorings Private Limited v. Napin Impex Limited (Company Appeal (AT) (Insolvency) No. 1928 of 2024), the NCLAT upheld the decision of the Adjudicating Authority that the Section 9 application is not time-barred. For arriving at the conclusion, the NCLAT took due note of the fact that the limitation period stands extended by virtue of Section 19 of the Limitation Act, 1963, which allows extension of limitation, subject to there being part payment within the limitation period followed by an acknowledgment of the payment in writing. However, the NCLAT further held that Section 19 does not mandate that the acknowledgment must occur within the limitation period. Accordingly, in the instant case where the corporate debtor had acknowledged the fact of part payment in its reply to the demand notice, it was held that both the criterion of the payment being made within the initial limitation period, followed by acknowledgment in writing, were met.

5. In Deepak Raheja v. Omkara Asset Reconstruction Private Limited (Company Appeal (AT) (Insolvency) No.165 of 2024), the NCLAT held that where the lenders have proposed to maintain a debt service reserve amount before returning a finding on the existence of default, the Adjudicating Authority was required to consider whether the amount kept as debt service reserve amount was sufficient to cover the shortfall in repayment.

6. In JC Flowers Asset Reconstruction Private Limited v. Carnival Films Entertainment Private Limited (Comp. App. (AT) (Ins) No. 1831 of 2024), the NCLAT held that the date of default for initiation of an application under Section 7 of the Code can be determined by the correspondences between the parties, and in case of continuing default, any specific date for filing the application can be chosen. Further, it was also held that the bar under Section 10A of the Code (prohibition of CIRP for defaults during COVID-19 period) does not apply when the chosen default date falls outside the protected period, even if earlier defaults had occurred within it.

7. In Pawan Kumar v. Central Bank of India (Company Appeal (AT) (Insolvency) No.1095 of 2024), the NCLAT held that initiation of proceedings before the Debts Recovery Tribunal does not preclude a financial creditor from taking remedy under Section 7 of the Code.

8. In Commissioner of Customs v. Ajit Solar Private Limited (Company Appeal (AT) (Insolvency) No. 1938 of 2024), the NCLAT held that the order rejecting a plea to recall an admission order of CIRP could not be revoked on grounds that there was adequate revenue in the balance sheet and there were only two defaults in EMI payments of the corporate debtor.

B. CIRP Stage

1. In Canara Bank v. Vivek Kumar (Comp. App. (AT) (Ins) No. 390 of 2023), the question before the NCLAT was whether a bank which had given loans to the homebuyers under a tri-partite builder-buyer agreement would qualify as a secured financial creditor. The question was answered in affirmative by observing that under the builder-buyer agreement, the developer had an independent obligation to refund the amount advanced by the lender on behalf of the homebuyer and distinguished its earlier judgment in the case of Axis Bank v. Value Infracon India Private Limited (CA (AT) (Ins) No. 582 of 2020), wherein the relevant clause only allowed the lender to get the property registered in its name by paying the remainder of the sale consideration, without any obligation of refund.

The NCLAT further held that lenders can claim to be secured creditor status based on the provisions in the tri-partite agreement recognizing prior charge or lien on residential units for which the housing loans were provided, despite non-registration of such charge under Section 77 of the Companies Act, 2013.

2. In Drish Shoes Workers Union v. Drish Shoes Limited (Company Appeal (AT) Insolvency) No.1365 of 2023), the NCLAT did not find fault with the Resolution Professional’s approach of non-computation of salary after layoff by the corporate debtor prior to the commencement of the CIRP, by observing that neither the Resolution Professional, nor the Adjudicating Authority have the jurisdiction to ascertain whether the workers were entitled to claim their dues for the layoff period under the provisions of Industrial Disputes Act, 1947.

3. In Fortune Chemicals Limited v. Ashok Kumar Jaiswal (Company Appeal (AT) (Insolvency) No. 1263 of 2022), the NCLAT upheld the decision of the Adjudicating Authority of identifying the Prospective Resolution Applicant as ineligible under Section 29A(e) of the Code on account of one of its directors being ineligible to act as a director under Section 164(2) of the Companies Act, 2013.

4. In CSA Corporation Private Limited v. Mr. Rajiv Bhatnagar (Company Appeal (AT) (Insolvency) No. 1497 of 2024), the NCLAT upheld the decision of the Resolution Professional to not admit claims on the basis of unadjudicated claims for damages, which are not crystallized claims. It was also held that the Resolution Professional could not be faulted for communicating his decision to reject the claim prior to the expiry of the outer time limit specified for the communication of the decision. Finally, it was observed that Regulation 13(1)(b) of CIRP Regulations, 2016, which allows the Resolution Professional to admit claims received up to 7 (seven) days before the date of meeting of the creditors for voting on the Resolution Plan, and which was introduced with effect from September 18, 2023 did not have any retrospective application to affect the rejection of claims that had preceded the notification of the said amendment.

5. In terms of Section 27 of the Code, the Committee of Creditors has been entrusted with the power to replace one Resolution Professional with another. As to whether a Resolution Professional can be removed on the basis of an application by a non-member of the Committee of Creditors, but who has been funding the project as an interim financer, was answered in affirmative by the NCLAT in the case of Anoop Kumar Srivastava v. Neerav Bhatnagar (Company Appeal (AT) (Insolvency) No. 823 of 2023). In this case, the NCLAT had used its inherent power to remove the Resolution Professional for its failure to disclose his conflict of interest. While arriving at the conclusion, the NCLAT observed that in the conduct of reverse CIRP, the relationship between the Resolution Professional and the other stakeholders is built on trust, and once this trust is belied, it had the potential to jeopardize the entire process.

6. The scope of moratorium under Section 14 of the Code and whether a claim on the basis of an assessment carried out during the moratorium period covered under Section 14 is admissible was the question before the NCLAT in the case of Employees’ Provident Fund v. Jaykumar Pesumal Arlani (Company Appeal (AT) (Insolvency) No.1062 of 2024).

In the course of the decision, the NCLAT compared the language of moratorium provisions appearing under Section 14 (applicable during CIRP) and Section 33(5) (applicable during liquidation) and observed that the scope of moratorium under Section 14 which encompasses “all proceedings” is wider than Section 33(5) which bars “suits or other legal proceedings." It was accordingly observed that, while an assessment proceeding, being not a suit or other legal proceeding, is permissible during liquidation, the same conclusion cannot be arrived at when such an assessment proceeding is undertaken during the moratorium under Section 14.

Accordingly, it was held that a claim on the basis of an assessment carried out during the moratorium period under the CIRP is not admissible.

7. In Sumati Suresh Hegde v. Anand Sonbhadra (Comp. App. (AT) (Ins) No. 884 of 2024), the NCLAT took note of the difference between a lease and a tenancy agreement and observed that as tenancy can only be terminated by operation of law or contract, the Adjudicating Authority cannot direct the eviction of a tenant in exercise of inherent powers under Section 60(5) of the Code.

C. Post-CIRP Stage

1. The NCLAT, in Industrial Forgings Industries Private Limited v. A2Z Infra Engineering Limited (Company Appeal (AT) (Insolvency) No.1470 of 2024), held that correction of the date of the order, which is in the nature of a typographical error, does not extend the period of limitation for filing an appeal under Section 61 of the Code.

2. In Embassy Commercial Projects v. Pankaj Srivastava (Company Appeal (AT) (CH) (INS) No. 439 / 2024), the NCLAT held that an application under Section 60(5) is not maintainable to seek the status of a counterclaim filed against the corporate debtor, which was not admitted by the Resolution Professional, after the approval of the plan. It was also observed that while pending arbitration proceedings between the parties can continue independently, the outcome cannot create new liabilities for the corporate debtor beyond what is specified in the approved Resolution Plan.

D. Liquidation Stage

1. In Wockhardt Limited v. Rajeev Mannadiar (Company Appeal (AT) (Insolvency) No.927 of 2024), the NCLAT upheld the order of the Adjudicating Authority by observing that a leasehold property of the corporate debtor does not cease to be part of its liquidation estate when such property was transferred by way of an unregistered agreement and in contravention of the provision of the lease deed requiring consent of the lessor for such sub-letting.

E. Miscellaneous

1. In State Bank of India v. Gourishankar Poddar (Company Appeal (AT) (Ins.) No. 689 of 2024), the NCLAT observed that a personal guarantor’s liability is not discharged on account of approval of resolution plan, or on account of the personal guarantor resigning from directorship or unilaterally revoking an irrevocable guarantee.

2. In Directorate of Enforcement v. Gaurav Misra (Company Appeal (AT) (Insolvency) No. 1495 of 2024), the NCLAT held that a judgment could be recalled if a proper party to the proceeding was not heard.

This update has been contributed by Arka Majumdar (Partner), Vikram Chaudhuri (Senior Associate) and Aakriti Garodia (Associate).

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