IBC Case Laws - Snippets January 2019 By CS Arundhuthi Bose

‘IBC Case Laws - Snippets’, is an effort of the Knowledge & Resources Division of Mamta Binani & Associates to compile snippets of few of the Orders of the Honourable Supreme Court, Honorable NCLT and the Honorable NCLAT in relation to the Insolvency and Bankruptcy Code, 2016 for easy reference and convenience.

The extracts have been reiterated from the Orders pronounced by the respective Honorable NCLT and NCLAT, the links to which have been provided for convenience and easy reference.

Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of Mamta Binani & associates whatsoever and the content is to be used strictly for educative purposes only.
20.12.2018: In the matter of SBM Paper Mills Ltd. M.A. 827,828,1142 &1396-2018 [C.P. (IB)-1362(MB)-2017]
  • In a situation when EoI has already been invited then can an application for withdrawal be entertained?
  • “If deem fit such an attempt is required to be discouraged. This Code shall not be made a tool for deferment of payment of liabilities which ought to happen due to the declaration of “moratorium”. Subject to the fine imposed (supra) this withdrawal application is hereby allowed by invoking the jurisdiction prescribed u/s 12A of the IBC.”
“This attempt may not be allowed, unless and until circumstances of a case compel to do so. Withdrawal of a Resolution Plan at the stage when it is already approved by CoC has a far-reaching effect.”
Link:- Click Here
20.12.2018: In the matter of Shailen Shah, RP Vs. DBM Geotechnics & Construction Ltd. [CA (AT) No. 724-2018]
  • Can certain intervening period be excluded for counting the total period of 270 days?
  • “As it appears that the earlier ‘Resolution Professional’ had not taken any effective steps due to which the ‘Committee of Creditors’ recommended to appoint the appellant on 15th June, 2018, and the appellant was intimated by the Adjudicating Authority on 16th August, 2018 and the matter is remained pending before the Adjudicating Authority for more than a month after which the order was passed on 6th August, 2018, we are of the view that the period between filing application for approval of the name of the appellant and date of communication of the order i.e.16th August, 2018 should be excluded for the purpose of counting the period of 270 days. This period for exclusion will be in addition to the exclusion of period as already made by the Adjudicating Authority by impugned order dated 26th October, 2018. We accordingly direct to exclude the aforesaid period for counting 270 days. ”
Link:- Click Here
21.12.2018: In the matter of Unimark Remedies Ltd. MA No.1529-2018 [CP No.197 – 2018]
  • Can a Resolution Professional choose not to open a Resolution Application and simply reject it at his own will?
  • “The spirit of the Code is first and then comes the other things. The rejection of the Resolution Plan by the CoC even without opening the envelope containing the Resolution Plan on the ground that the same is submitted after the expiry of the stipulated time fixed by the CoC, is certainly against the law/Code and we hereby direct the Respondent to forthwith consider the Resolution plan of the Applicant on its merits and judicious decision may be taken in the best interest of the parties concerned.”
Link:- Click Here
03.01.2019: In the matter of Sanjay Kumar Ruia Vs Catholic Syrian Bank Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 560 of 2018]
  • Can an Adjudicating Authority convert a CIRP matter under Sections 7, 9 or 10 of the Code as a “Fast Track Corporate Insolvency Resolution Process”?
  • “We have already held that the Adjudicating Authority has no jurisdiction to convert ‘Corporate Insolvency Resolution Process’ under Sections 7, 9 or 10 of the ‘I&B Code’ as ‘Fast Track Corporate Insolvency Resolution Process’ proceeding under Section 55 of ‘I&B Code’ and therefore, we are of the view that the Adjudicating Authority was duty bound to pass order under Section 31 in absence of the ‘Resolution Plan”.
News piece: - Click Here
15.01.2019: In the matter of IDBI Bank Ltd. Vs. Odisha Slurry Pipeline Infrastructure Ltd. [CA(AT)(Insolvency) 51-2019]
  • Question
Is there a requirement of hearing a third party/intervenor at the stage of admission of the application?
  • Answer
“Further, we may observe that except the applicant (financial creditor) and the ‘corporate debtor’, there is no requirement of hearing the third party including Intervenor at the stage of admission.”

Link:- Click Here
16.01.2019: In the matter of Shivam Water Treaters Pvt. Ltd. [CP (IB)-1882-MB-2018]
  • Question
Can the Ex-Director of the Corporate Debtor interfere in the performing of duties of the Resolution Professional?

  • Answer
“Counsel for the RP has stated that their entry in the office is also restricted and the Ex-Director of the Corporate Debtor is creating hindrance in the CIRP. Grounds for exemption from appearance in Court are sham excuses. In the circumstances, we pass an order for police assistance so that the Resolution Professional can take full control of the company without any interference from Ex-Director’s or his officials.”
Link:- Click Here
16.01.2019: In the matter of Ashok B. Jiwrajka, Director of Alok Infrastructure Ltd. Vs Axis Bank Ltd.
  • Can CIRP be initiated against a subsidiary of a holding company which is undergoing CIRP itself?
  • Findings of the case:-
  • “Having heard learned counsel for the parties, we find that a separate Corporate Insolvency Resolution Process has been initiated against ‘Alok Industries Ltd.’ (Holding Company). Subsequently, another Corporate Insolvency Resolution Process has been initiated pursuant to an application filed by another financial creditor against ‘Alok Infrastructure Ltd.’ (Subsidiary of Alok Industries Ltd.). This appeal has been preferred by ‘Mr. Ashok B. Jiwrajka’, Director of ‘Alok Infrastructure Ltd.’ against order dated 24th October, 2018 whereby and whereunder Corporate Insolvency Resolution Process has been initiated against ‘Alok Infrastructure Ltd.’ (Subsidiary Company).”
  • “We make it clear that we have not stayed the Corporate Insolvency Resolution Process initiated against ‘Alok Infrastructure Ltd.’ and the Resolution Professional, the Committee of Creditors and the Adjudicating Authority will continue with the same in accordance with law within the time specified in the law.”
Link:- Click Here
25.01.2019: In the matter of Swiss Ribbons Pvt. Ltd. & Anr.
Writ Petition (Civil) No. 37,99,100,115,459,598,775,822,849 & 1221-2018 In Special Leave Petition (Civil) No. 28623 of 2018
(The observations have been taken from the findings of the Honourable Supreme Courts’ file as circulated in this matter by the IBBI)





The preamble of the Code.

a. The Code is for reorganization and insolvency resolution of corporate debtors (CD) in a time-bound manner.

b. The Code maximises the value of the assets of CDs.

c. The Code promotes entrepreneurship as the persons in management of the CD are replaced by entrepreneurs.

d. As resolution plan takes off, the CD is able to repay its debts, which promotes credit market.

e. As the CD benefits from the resolution, the interests of all stakeholders are looked after.

f. The Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark.

g. Even in liquidation, the liquidator can sell the business of the CD as a going concern.


The approach of the Code

a. The Code ensures revival and continuation of the CD by protecting it from its own management and from liquidation.

b. The Code is beneficial legislation which puts the CD back on its feet, not being mere recovery legislation for creditors.

c. The Code bifurcates and separates the interests of the CD from that of its promoters/management.

d. The resolution process is not adversarial to the CD but, in fact, protective of its interests.

e. The moratorium imposed by section 14 is in the interest of the CD itself, thereby preserving the assets of the CD during the resolution process.

f. The timelines within which the resolution process is to take place protects the CD’s assets from further dilution, and also protects all its creditors and workers.


About NCLT and NCLAT


a. The appointment of members of these tribunals has been regularly appointed.

b. Administrative support for these tribunals needs to come from the Ministry of Law and Justice.

c. Union of India shall set up Circuit Benches of the NCLAT within a period of 6 months from today.


Classification into financial creditors (FCs) and operational creditors (OCs).


a. Most FCs are secured creditors, whereas most OCs are unsecured.

b. Nature of loan agreements with FCs is different from contracts with OCs for supplying goods or services.

c. FCs generally lend finance on a term loan or for working capital that enables the CD to either set up and/or operate its business. On the other hand, contracts with OCs are relatable to supply of goods and services in the operation of the business.

d. Financial contracts generally involve large sums of money. Operational contracts have dues whose quantum is generally less.

e. In the running of a business, OCs can be many as opposed to FCs, who lend finance for the set up or working of the business.

f. FCs have specified repayment schedules, and defaults entitle them to recall a loan in totality whereas contracts with OCs do not have any such stipulations.

g. There is a difference in dispute resolution of FCs and OCs. Contracts with OCs can and do have private arbitration clauses for dispute resolution, whereas, in loan contracts no such facility.

h. Operational debts tend to be recurring in nature and the possibility of genuine disputes in case of operational debts is much higher when compared to financial debts.

i. Goods supplied or services provided by OCs may be substandard or goods may not have been supplied at all. These qua operational debts are matters to be proved in arbitration or in the courts of law. On the other hand, financial debts made to banks and financial institutions are well-documented and defaults made are easily verifiable.

j. FCs are from the very beginning involved with assessing the viability of the CD. FCs can, therefore do, engage in the restructuring of the loan as well as re-organization of the CD’s business when there is financial stress, which are things OCs do not and cannot do.

k. There is an intelligible differentia between the FCs and OCs which has a direct relation to the objects sought to be achieved by the Code.

l. Classification between FCs and OCs is neither discriminatory, nor arbitrary, nor violative of Article 14.


Notice, hearing, set-off or counterclaim qua financial debts.


a. The CD is served with a copy of the application filed with the Adjudicating Authority (AA) and has the opportunity to file a reply before the said authority and be heard by the said authority before an order is made admitting the said application. What is also of relevance is that in order to protect the CD from being dragged into the corporate insolvency resolution process malafide, the Code prescribes penalties.

b. A set-off of amounts due from financial creditors is a rarity. It may be considered at the stage of filing of proof of claims during the resolution process by the resolution professional, and his decision is subject to challenge under section 60 of the Code.

c. There is nothing in the Code which interdicts the CD from pursuing counterclaims in other judicial fora.

d. Legislative Policy has shifted from “inability to pay debts” to “determination of default”.


There are four reasons for the same:

(a) predictability and certainty;

(b) an interest of CD is to be safeguarded;

(c) the cause of default is not relevant and protecting economic interest is relevant in case of financial stress;

(d) liquidation can only be upon failure of the resolution process.

e. “Claim” gives rise to “debt” only when it is “due” and “default” occurs only when “debt” becomes “due and payable” and is not paid by the debtor.

This is why financial creditor proves default and operational creditor claims a right to payment of the liability.

When this is kept in mind, the differentiation in triggering of insolvency resolution process by financial and operational creditors becomes clear.


OCs and Committee of Creditors (CoC)


a. The CoC has the primary responsibility of financial restructuring. It assesses the viability of a CD by taking into account all available information as well as to evaluate all alternative investment opportunities that are available. It evaluates the resolution plan on the basis of feasibility and viability.

b. Since the FCs are in the business of money lending, they are best equipped to assess the viability and feasibility of the business of the CD. Even at the time of granting loans, they undertake a detailed market study which includes a techno-economic valuation report, evaluation of the business, financial projection, etc. They are in a good position to evaluate the contents of a resolution plan.

c. On the other hand, OCs, who provide goods and services, are involved only in recovering amounts that are paid for such goods and services and are typically unable to assess viability and feasibility of business.

d. The NCLAT has, while looking into viability and feasibility of resolution plans approved by the CoC, always gone into whether OCs are given roughly the same treatment as FCs, and if they are not, such plans are either rejected or modified so that the OCs’ rights are safeguarded.

e. Regulation 38 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 strengthens the rights of OCs by statutorily incorporating the principle of fair and equitable dealing of their rights, together with priority in payment over FCs.

f. OCs are not discriminated against or Article 14 has not been infracted either on the ground of equals being treated unequally or on the ground of manifest arbitrariness. 


Section 12A vis-a-vis Article 14.


a. Regulation 30A(1) of the CIRP Regulations is not mandatory but is a directory for the simple reason that on the facts of a given case, an application for withdrawal may be allowed in exceptional cases even after issuing of invitation for expression of interest under Regulation 36A.

b. After the admission of creditor’s petition under section 7 to 9 of the Code, the proceeding before the Adjudicating Authority is a proceeding in rem.

c. A party can directly approach NCLT for withdrawal or settlement at any stage if the CoC is not constituted which will be decided by the NCLT after hearing all the concerned parties.

d. That withdrawal requires the approval of CoC by 90% of voting power is in the domain of the legislative policy.

e. The CoC does not have the last word on the subject; if CoC arbitrarily rejects a just settlement and/or withdrawal claim, the NCLT can always set aside such decision under section 60 of the Code.


Information Utilities


The evidence of default with an Information Utility is only prima facie evidence of default, which is rebuttable by the CD.


Powers of Resolution Professional (RP).


a. RP has no adjudicatory powers. He has administrative powers as opposed to quasi-judicial powers.

b. The RP is really a facilitator of the resolution process, whose administrative functions are overseen by the CoC and by the AA.


The constitutional
validity of Section 29A.


a. A statute is not retrospective merely because it affects existing rights; nor is it retrospective merely because a part of the requisites for its action is drawn from a time antecedent to its passing.

b. A resolution applicant has no vested right for consideration or approval of its resolution plan and, therefore, no vested right is taken away by Section 29A.

c. There is no vested right in an erstwhile promoter of a CD to bid for the immovable and movable property of the CD in liquidation. Section 29A not only applies to resolution applicants but also to liquidation.

d. A person, who is unable to service its own debt beyond the grace period, is unfit to be eligible to become a resolution applicant. This policy cannot be found fault with.

e. Neither can the period of one year be found fault with, as this is a policy matter decided by the RBI and which emerges from its Master Circular, as during this period, an NPA is classified as a substandard asset.

f. Persons who act jointly or in concert with others are connected with the business activity of the resolution applicant. All categories of persons mentioned in section 5 (24A) of the Code must be connected with the resolution applicant within the meaning of section 29A (j). The categories of persons who are collectively mentioned as ‘relative’ in explanation to section 5 (24A) need to have a connection with the business activity of the resolution applicant.

g. The rationale for excluding MSMEs from eligibility criteria laid down in Section 29A (c) and 29A (h) of the Code is qua such industries, other resolution applicants may not be forthcoming which would not lead to resolution but liquidation.


Section 53 vis-à-vis Article 14


Unsecured debts are of various kinds, and so long as there is some legitimate interest sought to be protected, having relation to the object sought to be achieved by the statute in question, Article 14 does not get infracted. For these reasons, the challenge to Section 53 of the Code must also fail.


Constitutional Validity of Code


The experiment contained in the Code, judged by the generality of its provisions and not by so-called crudities and inequities that have been pointed out by the petitioners, passes constitutional muster.


Working of the Code


a. The flow of financial resource to the commercial sector in India has increased exponentially as a result of financial debts being repaid.

b. These figures show that the experiment conducted in enacting the Code is proving to be largely successful.

c. Defaulter’s paradise is lost. In its place, the economy’s rightful position has been regained.

Order:- Click Here
Findings & Rulings:- Click Here
31.01.2019: In the matter of Vijay Kumar Jain Vs Standard Chartered Bank & Ors Civil Appeal No. 8430-2018
  • Resolution plans need not be furnished to the erstwhile members of the Board of Directors. Is this statement justified?
  • The arguments of the respondents that “committee” and “participant” are used differently, which would lead to the result that resolution plans need not be furnished to the erstwhile members of the Board of Directors, must be rejected. Equally, the Regulations, far from going beyond the Code, flesh out the true intention of the Code that is achieved by reading the plain language of the Sections that have already been adverted to. So far as confidential information is concerned, it is clear that the resolution professional can take an undertaking from members of the erstwhile Board of Directors, as has been taken in the facts of the present case, to maintain confidentiality.
  • Under CIRP Regulation 38(1)(a), a resolution plan shall include a statement as to how it has dealt with the interest of all stakeholders, and under sub-clause 3(a), a resolution plan shall demonstrate that it addresses the cause of default. This Regulation also, therefore, recognizes the vital interest of the erstwhile Board of Directors in a resolution plan together with the cause of default. It is here that the erstwhile directors can represent to the committee of creditors that the cause of default is not due to the erstwhile management, but due to other factors which may be beyond their control, which have led to non-payment of the debt. Therefore, a combined reading of the Code as well as the Regulations leads to the conclusion that members of the erstwhile Board of Directors, being vitally interested in resolution plans that may be discussed at meetings of the committee of creditors, must be given a copy of such plans as part of “documents” that have to be furnished along with the notice of such meetings.
Link:- Click Here
04.02.2019: In the matter of Tata Steel Limited Vs. Liberty House Group Pte. Ltd. & Ors. CA (AT) (Insolvency) No. 198-2018
  • Does the ‘Process Document’ for the ‘Corporate Insolvency Resolution Process’ of the ‘Corporate Debtor’ curtail the powers of the ‘Committee of Creditors’ to maximize value?

  • The ‘Process Document’ for the ‘Corporate Insolvency Resolution Process’ of the ‘Corporate Debtor’ does not curtail the powers of the ‘Committee of Creditors’ to maximize value.
  • It is true that the ‘Committee of Creditors’ will have to ensure a time-bound process, to better preserve the economic value of the asset. Simultaneously, it is duty of the ‘Committee of Creditors’ to ensure that the ‘Resolution Plan’ is viable, feasible and should maximize the assets of the ‘Corporate Debtor’.
  • In the extant case, from the ‘Process Document, it is clear that the ‘Committee of Creditors’ have absolute discretion but without being under any obligation to do so, update, amend or supplement the information, assessment or assumptions and right to change, update, amend, supplement, modify, add to, delay or otherwise annul or cease the ‘Resolution Process’ at any point in time. Thus, the ‘Resolution Plan’ can be modified as per dates or other terms and conditions set out in the ‘Process Document’.
  • In “Binani Industries Limited Vs. Bank of Baroda & Anr. – Company Appeal (AT) (Insolvency) No. 82 of 2018 etc.”, this Appellate Tribunal by its judgment dated 14th November, 2018 held that the ‘Corporate Insolvency Resolution Process’ is not litigation, nor it is money suit. The persons are not required to submit a bid.
  • The ‘Committee of Creditors’ has a statutory mandate to ensure value maximization within the timeframe prescribed by the ‘I&B Code’.
Link:- Click Here

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