India: Restructuring & Insolvency Monthly Update | February 2023

Priyal Kantilal Patel v. IREP Credit Capital Pvt Ltd & Anr

National Company Law Appellate Tribunal, Principal Bench, New Delhi | Judgment dated February 01, 2023 | Company Appeal (AT) (Insolvency) No. 1423 of 2022

Background facts

• Rajesh Landmark Projects Pvt Ltd (Corporate Debtor/Appellant) had issued debentures to IREP Credit Capital Pvt Ltd (Financial Creditor). On December 20, 2019, a Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) was filed by the Financial Creditor against the Corporate Debtor seeking initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.
• Subsequently, consent terms were entered between the parties with other stakeholders, as per which the Financial Creditor agreed to withdraw the Petition. However, in the event of default of the consent terms, the Financial Creditor was at liberty to revive the Section 7 Petition.
• Thereafter, the Corporate Debtor defaulted in making payments as per the Consent Terms. The Financial Creditor instead of reviving earlier Petition, filed a fresh Section 7 Petition seeking initiation of CIRP against the Corporate Debtor. On October 10, 2022, the Adjudicating Authority admitted the Section 7 Petition and initiated CIRP against the Corporate Debtor. The Corporate Debtor challenged the order dated October 10, 2022, before NCLAT.

Issue at hand?

• Whether on breach of settlement terms by the Corporate Debtor, a fresh Section 7 Application can be filed, or the earlier Section 7 Petition has to be revived?

Decision of the Tribunal

• The NCLAT dismissed the Appeal preferred by the Appellant observing that the Financial Creditor had not filed the subsequent Section 7 Petition over default in the settlement agreement. Rather, the subsequent Petition was filed over original financial debt, which was extended by the Financial Creditor to the Corporate Debtor. The NCLAT stated that 'The mere fact that in earlier company petition, consent terms were arrived, which consent terms were breached by the Corporate Debtor, the financial debt which was claimed by the Financial Creditor would not be wiped out nor the nature and character of financial debt shall be changed on account of breach of the consent terms. Permitting such interpretation shall be giving premium to the Corporate Debtor who breached the consent terms.'
• The Bench concluded by stating that though the consent terms provided for restoration of Section 7 Petition, the mere fact that instead of reviving the earlier petition a fresh Petition has been filed by the Financial Creditor, would be no ground for rejection of the subsequent Petition. The Bench held that the nature of financial debt would not change on account of breach of the consent terms and granted liberty to the Corporate Debtor to file an Application under Section 12A of IBC in case any settlement is arrived between the parties

Insolvency & Bankruptcy Board of India v. GTL Infrastructure & Ors

National Company Law Appellate Tribunal, Principal Bench, New Delhi | Judgment dated February 07, 2023 | Company Appeal (AT) (Ins) No. 103 of 2023

Background facts

• In the present case, Canara Bank (Financial Creditor) filed a Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 seeking initiation of Corporate Insolvency Resolution Process (CIRP) against GTL Infrastructure Ltd (Corporate Debtor) for an amount of INR 646,38,06,271 as on July 01, 2011.
• The NCLT Mumbai Bench dismissed the Petition on November 18, 2022, and noted that the Corporate Debtor was a viable going concern, as it has monthly revenues of INR 120 crore (net of GST). Further, the Corporate Debtor repaid INR 16,915 crore between 2011 to 2018, which depicts its reasonably healthy position to repay the debt. Further, reliance was placed on the Supreme Court's judgement in Vidarbha Industries Power Ltd v. Axis Bank Ltd¹ and it was held that the Corporate Debtor's current management and the overall financial health do not warrant its admission into CIRP.
• The Financial Creditor filed two Appeals before the NCLAT challenging the order of dismissal which are pending adjudication. Subsequently, the Insolvency and Bankruptcy Board of India (IBBI), which was not a party in the proceedings before NCLT, filed a third Appeal before the NCLAT challenging the order dated November 18, 2022. The Corporate Debtor was impleaded as Respondent and the Financial Creditor was made Performa Respondent.

Issue at hand?

• Whether the Appeal filed by the IBBI, who was not a party in the proceedings before the NCLT, is maintainable?

Decision of the Tribunal

• The NCLAT dismissed the Appeal filed by the IBBI, challenging the dismissal of a Section 7 petition in a matter to which IBBI was not a party. The Bench opined that the IBBI's cause of concern behind filling of the Appeal was not known, since the Financial Creditor had already filed two Appeals for challenging the order of dismissal and further noted that IBBI is not aggrieved by the NCLT's order and has nothing to do with the litigation between the Financial Creditor and Corporate Debtor.
• The NCLAT observed that, 'However, from the perusal of the memorandum of Appeal, we could not find the cause of concern much less the grievance of the Appellant for preferring the present appeal especially when the Appeals have already been filed by the aggrieved person. In this regard, we may also refer to an order passed by this Tribunal in the case of Insolvency and Bankruptcy Board of India v. Wig Associates Pvt Ltd & Ors² , in which the Tribunal has recorded its displeasure while noticing the fact that the Appeal has been filed by the board as an aggrieved person which was held to be not maintainable.'
• The NCLAT concluded that the Appeal is thus totally misconceived and not maintainable.

Mrs CG Vijyalakshmi v. Shri Kumar Rajan, Resolution Professional & Ors

National Company Law Appellate Tribunal, Chennai Bench | Judgment dated February 08, 2023 | Company. Appeal. (AT) (CH) (Ins) No. 29 of 2021

Background facts

• The Appeals were filled against the Impugned Order dated January 29, 2021 passed by the NCLT Kochi Bench, by which the Application filed by the Resolution Professional (RP) seeking approval of the Resolution Plan under Section 30(1) of the Insolvency and Bankruptcy Code, 2016 was approved. All these Appeals challenged the approved Resolution Plan and claimed that the plan is in contravention to the provisions of the Code and had ignored the applicability of the EPF and MP Act, 1952 and the payment of Gratuity Act, 1972 by allocating only partial amounts towards the provident fund and gratuity claims and did not include the interest component.
• Further, it was also claimed that there is material irregularity in exercise of the powers by the RP during the CIRP as the RP did not physically verify the assets of the Corporate Debtor and no liquidation value has been provided in the Information Memorandum, which is to be prepared under Section 29 of the Code.

Issue at hand?

• Whether the Resolution Plan meets the requirement of Section 30(2)(e) of the Code and whether provident fund, gratuity claims and workmen/employees' dues have to be paid in full?

Decision of the Tribunal

• NCLAT, after referring to the provisions of the Code and the ratio of the judgement in Jet Aircraft Maintenance Engineers Welfare Association v. Ashish Chhawchharia Resolution Professional of Jet Airways (India) Ltd & Ors³ , held that provident fund and gratuity is to be paid in full as per the provisions of EPF and MP Act, 1952 and payment of Gratuity Act, 1972 and as the amounts paid are only 35.13%, having treated them as secured creditors, it was considered as a violation of the provisions of the Section 30(2) of the Code with respect to the payment of the provident fund and gratuity claims.
• However, the NCLAT rejected all the claims with regards to the other allegations raised by the Appellant with respect to undervaluation and any other material irregularity in the approval of the Resolution Plan. Thus, the rest of the prayers were declined and no interference with the order of the NCLT was made except for issuing directions regarding the payment of unpaid provident fund and gratuity fund and pending dues to the workmen/employees till the date of CIRP after deducting the amount already paid towards the same in the Resolution Plan.

Footnotes

1 Civil Appeal No. 4633 of 2021

2 2018 SCC Online NCLAT 386

3 Company Appeal (AT) (Insolvency) No. 628 of 2020

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