Insolvency and Bankruptcy

Lease and Rentals - Are these Operational Debt under the IBC

INTRODUCTION

The Insolvency and Bankruptcy Code, 2016 (‘Code’) recognises two types of debts — financial and operational– to enable the creditors to make an application for initiating insolvency proceedings against a corporate debtor. A financial creditor and an operational creditor can initiate a Corporate Insolvency Resolution Process (‘CIRP’) under Section 7 and Section 9 of the Code, respectively. If there is a debt, other than a financial debt or an operational debt, the creditor will not qualify to apply under Sections 7 or 9 of the Code, as the case may be. Therefore, it becomes important to determine the nature of debt/claim while considering the application of an admission under the Code.
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Karnataka High Court’s Judgment in Dreamz Infra India Limited v. Competent Authority - Yet another manifestation of primacy of the IBC

Since the introduction of the Insolvency and Bankruptcy Code, 2016 (“Code/IBC”), the courts and tribunals in India have had to constantly assess the application of the Code vis-à-vis other central and state legislations in light of the non-obstante clause under Section 238 of the Code.  The courts have time and again reiterated that the Code would have an overriding effect over other legislations to the extent of being repugnant  to the matters exhaustively dealt with under the Code. The courts have re-affirmed the primacy of the Code based on the premise that the IBC is a ‘complete and consolidated code in itself.’ For example, in Innoventive Industries Ltd. vs. ICICI Bank and Ors. (“Innoventive”), the Hon’ble Supreme Court upheld the primacy of the Code over the Maharashtra Relief Undertakings (Special Provisions) Act, 1958 and in Directorate of Enforcement vs. Manoj Kumar Agarwal & Ors (“Manoj Kumar Agarwal case”), the Hon’ble National Company Law Appellate Tribunal  (“NCLAT”) noted that the  provisions of the Code shall override the attachment of the properties of the Corporate Debtor under Sections 5 and 8 of the Prevention of Money Laundering Act, 2002.[1]
Continue Reading Karnataka High Court’s Judgment in Dreamz Infra India Limited v. Competent Authority: Yet another manifestation of primacy of the IBC

Limitation Act is to be Made Applicable ‘As Far as May Be Possible’ to Insolvency Code

The Supreme Court’s pro-insolvency stance continues. With three recent rulings in a period of one month, the Supreme Court has clearly indicated that, so far as possible within the contours of the Limitation Act, a debt will continue to be alive and an action basis such debt will be maintainable under the Insolvency and Bankruptcy Code, 2016 (“Insolvency Code”) against a defaulting borrower.
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Enforcement of Arbitration Awards via Insolvency Proceedings - A Contrary Perspective

As the Insolvency regime in India builds its new course under the Insolvency and Bankruptcy Code, 2016 (‘Insolvency Code’), numerous issues of application have arisen and will continue to grapple the corridors of the insolvency courts. One of the concerns is the interaction between debt enforcement/ execution procedures and the Insolvency Code. Insolvency Code allows operational creditors to initiate insolvency proceedings against a debtor, with a valid proof of undisputed claim. Form 5 of the IBBI (Application to Adjudication Authority) Rules, 2016, under which an Operational Creditor makes an application for initiation of insolvency process, considers a court decree or an arbitration award adjudicating on the default as a valid evidence of default to support insolvency commencement. The all-encompassing term ‘Arbitration Award’ includes both domestic awards and foreign awards. While the domestic awards are per se enforceable before the civil courts, unless stayed in a challenge before the court, and no distinct process for enforcement needs to be complied with under the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’), foreign awards must follow a procedure of recognition, prior to being considered as enforceable before Indian courts. The Rules, however, shed no light on issues such as, at what stage the arbitration awards are eligible to be presented before the insolvency courts for insolvency commencement.
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 Attachment Details Insolvency-and-Bankruptcy-Code-Re-affirming-its-primacy-over-the-Prevention-of-Money-Laundering-Act-2002

It has been an active month for the Insolvency and Bankruptcy Code, 2016 (“Code”/ “IBC”). On one hand, the legislature has inserted a new chapter into the Code providing for pre-packed insolvency resolution process for micro, small or medium enterprises (“MSMEs”) to ease and fast track the resolution for the stressed MSMEs, while on the other hand, Courts through various landmark decisions have upheld the primacy of the Code which will play a significant role in boosting the confidence of the stakeholders, particularly the creditors and the resolution applicants, in the sanctity of the corporate insolvency resolution process (“CIR Process”).
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‘CASH ONLY’ to dissenting financial creditors - Supreme Court in Jaypee

The Supreme Court’s judgment in Jaypee Kensington Boulevard Apartments Welfare Association & Ors vs. NBCC (India) Ltd. & Ors.[1] (“Jaypee Decision”) has laid down some new requirements whilst reinforcing several old ones in relation to the insolvency resolution regime of the country. In this article, we examine and discuss the implications of the rights of dissenting financial creditors as held in the Jaypee Decision on the corporate insolvency resolution process.
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IBC and Limitation - The Dust Settles Blog

The Supreme Court in the case of Laxmi Pat Surana vs Union Bank of India & Anr. [Civil Appeal No. 2734 of 2020] (“Laxmi Pat”) has settled the issue of the applicability of Section 18 of the Limitation Act, 1963 (“Limitation Act”) to applications for initiation of insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (“IBC”). The Apex Court has held that Section 18 of the Limitation Act (“Section 18”) applies to extend the period of limitation for filing an application under Section 7 of the IBC.
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Does NCLT has power to refer parties to Arbitration in an in rem insolvency proceeding

The conflict between Insolvency and Arbitration is almost of near polar extremes. The difference in focus of the two was well illustrated in Re United States Lines Inc[1] as a:

“… conflict of near polar extremes: bankruptcy policy exerts an inexorable pull towards centralization while arbitration policy advocates a decentralized approach towards dispute resolution”.

Thus, while insolvency/ bankruptcy aims to centralise all the proceedings against a debtor to one jurisdiction and give rise to a proceeding in rem (against the world at large) thereby creating third party rights for all creditors of the debtor, arbitration on the other hand advocates a decentralised approach and promotes party autonomy in dispute resolution resulting in a proceeding in personam (against a particular person).
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Indian Insolvency Law responds to the COVID-19 Pandemic- Part-II

Introduction

On June 5, 2020, the President of India promulgated the Insolvency and Bankruptcy (Amendment) Ordinance, 2020 (“Ordinance”), in furtherance to the economic measures announced by the Ministry of Finance[1] to support Indian businesses impacted by the outbreak of the Covid-19 pandemic. The Ordinance has introduced the following amendments to the Insolvency and Bankruptcy Code, 2016 (“IBC”) (effective immediately):

  • Section 10A has been inserted in the IBC, restricting filing of any application for initiation of the corporate insolvency resolution process (“CIRP”) of a corporate debtor (being a company or a limited liability partnership) for any default[2] arising after March 25, 2020, for a period of six months or such further period, not exceeding one year from March 25, 2020, as may be notified in this behalf (such period being “Specified Period”).[3]

Further, a proviso has been inserted in section 10A to specify that no application shall ever be filed for initiation of CIRP of a corporate debtor for the said default occurring during the Specified Period i.e. CIRP can never be initiated on the basis of a default during the Specified Period, even if the default is continuing after having occurred during the Specified Period.

  • A non-obstante clause has been inserted in to section 66 (Fraudulent trading or wrongful trading) of the IBC to give protection to the directors of a corporate debtor. Accordingly, no application can be filed by a resolution professional under sub-section 66(2), in respect of such defaults against which initiation of CIRP is suspended under Section 10A of the IBC.[4]


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Overriding the IBC’s over-rider

Insolvency resolution regimes, globally, function as an exception to otherwise accepted norms of commercial law.[1] The Indian Insolvency and Bankruptcy Code, 2016 (“Code”), is no exception: a mere glance at the Code will display how it has a liberal sprinkling of non-obstante clauses.[2] From a specific dispute resolution mechanism, to an overarching carve out for insolvency resolution mechanism, the legislature has inserted non-obstante clauses in the Code as guidance of its intent. One would imagine that this would have ensured sufficient clarity for all stakeholders, avoided disputes and ensured timely insolvency resolution. Yet, as market participants try to understand the scope and intent of non-obstante clauses in the Code, such clauses continue to generate legal debate and litigation[3]. Perhaps, the stakes are too high for the parties to resist litigating. And some would argue not without good legal reason: after all, the Hon’ble Supreme Court has over the years identified exceptions[4] to the Latin maxim ‘leges posteriores priores contraries abrogant’ i.e. in the event two special statutes contain non obstante clauses, the non-obstante clause in the chronologically later special statute shall prevail[5].
Continue Reading Overriding the IBC’s Over-Rider?