On February 17, 2020, the National Company Law Appellate Tribunal in JSW Steel v. Mahender Kumar Khandelwal (Company Appeal (AT) (Insolvency) No. 957 of 2019) decided on several unresolved issues under the Insolvency and Bankruptcy Code, 2016 (“IBC”).

10 key findings of NCLAT are set out below:

1. Directorate of Enforcement/ other investigating agencies do not have the powers to attach assets of a corporate debtor, once the resolution plan is approved, and criminal investigations against the corporate debtor stands abated.

2. A successful resolution applicant cannot be faced with undecided claims after the resolution plan has been approved. Claims towards entry-tax dues filed by the State of Orissa, after approval of a resolution plan by NCLT, cannot be entertained. 

3. Just because two parties have investment in a downstream joint venture company, would not make the parties ‘related parties’ – but NCLAT also added a rider that it is in this particular case that the parties are not related parties because a party for the purpose of its business, mandated by the Central Government joined hands together and was forced to form a consortium or as joint associate. In this case JSW Steel Limited (the successful resolution applicant) and ‘Bhushan Power and Steel Limited (“Corporate Debtor”) had a joint venture company Rohne Coal Company Private Limited where JSW Steel Limited held 49% equity and the Corporate Debtor held 24.09% equity. The joint venture had to be formed because the Central Government had made a joint allocation of a coal block to the companies for meeting their proportionate share of requirement of coal.

4. Following persons are empowered to decide eligibility in terms of section 29A:

• Committee of Creditors
• Adjudicating Authority i.e. National Company Law Tribunal
• Directorate of Enforcement cannot decide on this issue.
• A Resolution Professional is only to find out whether the statement referred in section 30(1) of the IBC has been made or not. Section 30(1) requires a resolution applicant to submit an affidavit stating that he is eligible under section 29A of the IBC. 

5. A contingent creditor cannot claim equitable treatment with all other creditors.

6. Operational creditor not entitled to receive any amount towards pre-CIRP dues. 

7. Following order shall be deemed to have been granted by virtue of approval of the resolution plan – all penalties and liabilities for any non-compliance with statutory obligations as well as labour and employment laws shall stand settled.

8. Right of subrogation against the company under any guarantee can be extinguished if the resolution plan so provides and is approved by the National Company Law Tribunal.

9. If the Corporate Debtor has any right over subsidiaries, once a resolution applicant takes over the corporate debtor, it will be open to the Corporate Debtor to decide whether it will continue with such right of subsidiaries and the Corporate Debtor shall stand declassified as promoter of the subsidiaries

10. Distribution of profit made during the corporate insolvency resolution process has to be as per RFP issued. 

This update has been contributed by Adity Chaudhury (Partner) .