A round-up of significant rulings on the Insolvency and Bankruptcy Code, 2016 in the month of August.

The enactment of the Insolvency and Bankruptcy Code 2016 (Code) has had significant ramifications on the corporate insolvency landscape. Over time, the Code has witnessed a manifold increase in litigation, and consequently in the number of decisions. This has made it difficult for insolvency practitioners to stay updated with developments in the field. This column fills this gap by providing brief summaries of latest decisions from the various fora dealing with Insolvency Law.

These case summaries are not an exhaustive review of the cases under the Code; only significant rulings on the Code in the month of August 2021 have been summarized. However, this does not negate the possibility of some important decisions being missed on account of human error. Further, since the purpose of this endeavour is to keep practitioners abreast of relevant developments, the decisions are summarized and not comprehensively analyzed.

1. SUPREME COURT

In Dena Bank (now Bank of Baroda) v. C. Shivakumar Reddy and Another, the Supreme Court held that the statement of accounts/balance sheet/financial statements and the offer of a one-time settlement of a claim made within the period of limitation, constituted an acknowledgement of debt under Section 18 of the Limitation Act, 1963 (Limitation Act). The Supreme Court further stated that a judgment and/or decree for money in favour of the financial creditor, passed by the Debt Recovery Tribunal, or any other tribunal or court, or the issuance of a certificate of recovery in favour of the financial creditor, would give rise to a fresh cause of action for the financial creditor, to initiate proceedings under Section 7 of the Code. The Supreme Court also noted that there is no bar to amendment of pleadings in an application under Section 7 of the Code, or to the subsequent filing of additional documents with application under Section 7 of the Code. However, in case of inordinate delay, the adjudicating authority may decline the request of an applicant to file additional pleadings and/or documents and proceed to pass a final order.

In Pratap Technocrats (P) Ltd. & Others v. Monitoring Committee of Reliance Infratel Limited & Another, the Supreme Court held that the jurisdiction of the adjudicating authority under Section 31(1) of the Code is to determine whether the resolution plan, as approved by the committee of creditors (CoC), complies with the requirements of Section 30(2), and there is no equity-based jurisdiction with the adjudicating authority under the provisions of the Code. The Supreme Court noted that under the Indian insolvency regime, it appears that a conscious choice has been made by the legislature to not confer any independent equity-based jurisdiction on the adjudicating authority other than the statutory requirements laid down under Section 30(2) of the Code. Hence, the Supreme Court rejected the contention that the treatment of the operational creditors had not been fair and equitable, by noting that as long as the payment under the resolution plan was fair and equitable amongst the operational creditors as a class, it satisfied the requirements of Section 30(2)(b) of the Code.

In Kay Bouvet Engineering Limited v. Overseas Infrastructure Alliances (India) Private Limited, the Supreme Court held that in order to determine the ‘existence of a dispute’ between the corporate debtor and the operational creditor in terms of Section 8(2)(a) of the Code, the adjudicating authority is required to examine whether there is a plausible contention, which requires further investigation, and that the dispute is not a patently feeble legal argument or an assertion of fact unsupported by evidence. However, the adjudicating authority is not required to be satisfied as to whether the defence is likely to succeed. The Supreme Court also noted that the adjudicating authority cannot go into the merits of the dispute except to the extent specified above. The Supreme Court further stated that so long as a dispute truly exists in fact and is not spurious, hypothetical, or illusory, the adjudicating authority has no other option but to reject the application under Section 9(5)(ii)(d) of the Code.

2. NATIONAL COMPANY LAW APPELLATE TRIBUNALS

In Ravi Ajit Kulkarni v. State Bank of India, the NCLAT, New Delhi held that when an application for initiation of personal insolvency is filed under Section 95 of the Code, the Adjudicating Authority should send a “limited notice” to the personal guarantor so as to secure his presence. This would be followed by appointment of the Resolution Professional (RP) and submission of a report by the RP to the Adjudicating Authority. The purpose of this “limited notice” would be to intimate the personal guarantor about the filing of the application and the initiation of interim moratorium. However, no right of hearing will be provided to the debtor before the Adjudicating Authority at this stage.

In Ishita Halder v. Mr. Siba Kumar Mohapatra & Ors., the National Company Law Appellate Tribunal (NCLAT), New Delhi, citing the judgment of the Supreme Court in Dena Bank (now Bank of Baroda) v. C. Shivakumar Reddy and Another, held that the one-time settlement offers (OTS) by the corporate debtor would be considered as an acknowledgment under Section 18 of the Limitation Act, and hence, would extend the period of limitation from the date of such OTS proposal. The NCLAT, New Delhi further held that the fact that the payments are made in order to induce the bank to consider the OTS proposal, will not make a difference as to the applicability of Section 19 of the Limitation Act.

In Parag Sheth v. Sunil Kumar Agarwal & Others, the NCLAT, New Delhi held that Section 20(2)(b) of the Code authorizes the RP to only re-enter into such contracts, concerning the corporate debtor, which were entered into before the commencement of corporate insolvency resolution process (CIRP). In this case, the NCLAT, New Delhi held that the RP/interim resolution professional (IRP) did not have the power to enter into a new contract for insurance, which was at a higher premium rate without the authorization of the CoC. In M/s Unicorn Buildtech v. Aishwarya Mohan Gahrana, the NCLAT, New Delhi, citing the decision of the Supreme Court in Arcelormittal India Pvt. Ltd. v. Satish Kumar Gupta & Others, held that the resolution applicant does not have any vested or fundamental right to have its resolution plan approved. In this case, the NCLAT, New Delhi refused to interfere with the decision of the CoC, which in its commercial wisdom, had decided not to grant further time to the resolution applicant to present its resolution plan before the CoC.