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.
Continue Reading Lease and Rentals: Are these Operational Debt under 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.
Continue Reading Limitation Act is to be made applicable ‘as far as may be possible’ to Insolvency Code

 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”).
Continue Reading Insolvency and Bankruptcy Code: Re-affirming its primacy over the Prevention of Money Laundering Act, 2002

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.
Continue Reading IBC and Limitation: The Dust Settles

The provisions of the Companies Act, 2013 (the Act), and the rules framed thereunder, mandate companies to file requisite documents, including annual returns and financial statements, with the concerned Registrar of Companies (RoC) of their jurisdiction. Non-adherence to such provisions and non-filing of the requisite documents is an offence, exposing non-complaint companies and its directors to severe penal consequences, including fines and prosecution.

However, the records of the Ministry of Corporate Affairs (MCA) and the National Company Law Tribunals (NCLT) would clearly reveal that a lot of companies have been non-compliant with their filings. This non-compliance has been a menace to all the stakeholders involved, including, inter alia, (i) the companies and directors who have to face penal consequences for such non-compliances; (ii) the MCA and its administration who are engaged in the process of updating the records; (iii) the public/ shareholders who do not get access to the records of the companies; and (iv) the NCLT and the office of Regional Directors, which are burdened with compounding cases.


Continue Reading A Fresh Start for Companies

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?

Indian Insolvency Law responds to the COVID-19 Pandemic

With more than three lakh confirmed cases and 14 thousand deaths across 190 countries, the Coronavirus disease (COVID-19) pandemic has caused (and continues to cause) unprecedented disruptions in the global political, social and economic environment. India has not remained untouched from this. With almost 500 confirmed cases and the country in lock-down mode to prevent further outbreak, social and economic activities have come to a grinding halt.

The pandemic has forced governments across the world to impose restrictions on working and travel conditions as well as human movement. The severity of the situation requires quick and decisive action from the Government and all sections of the economy to prevent ‘deepening’ of the crisis.
Continue Reading Indian Insolvency Law responds to the COVID-19 Pandemic

Essar Steel India Limited - Supreme Court reinforces primacy of Creditors Committee in insolvency resolution

Essar Steel judgement of the National Company Law Appellate Tribunal (NCLAT), which required that the secured financial creditors share recoveries in a resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC), inter se (irrespective of the ranking of their security positions) and with the trade creditors, on a pari passu basis, was considered a ”confusion in the different types of creditors” and a setback for the nascent but growing secondary debt market in India. The judgement perhaps was also opposed to the realities of credit risk assessments and pricing of the credit leading to an unsatisfactory resolution outcome for creditors in an insolvency situation.
Continue Reading Essar Steel India Limited: Supreme Court Reinforces Primacy of Creditors Committee in Insolvency Resolution

In the case of Wiki Kids Limited[1], the NCLAT upheld the order of the NCLT rejecting a scheme of amalgamation, as it resulted in undue advantage to the promoters of the amalgamating company.

Facts

Background

In the instant case, a non-listed company Wiki Kids Limited (Transferor Company), wished to amalgamate with Avantel Limited, a listed company (Transferee Company). For the aforesaid purpose, these entities (collectively referred to as Appellants) had proposed a scheme of amalgamation (Scheme) and approached the Andhra Pradesh High Court, seeking directions with respect to the meetings of the shareholders, and secured and unsecured creditors in the Scheme.

Pursuant to the directions of the High Court, the Scheme was approved by the shareholders of the Transferee Company. In the meantime, in view of a notification of the Ministry of Corporate Affairs dated December 7, 2016, the case was transferred to the National Company Law Tribunal (NCLT). The Appellants, accordingly, filed a second motion before the Hyderabad Bench of the NCLT. The NCLT, on perusal of various documents including the share exchange ratio and the valuation report, rejected the Scheme on the ground that it was beneficial to the common promoters of the Appellants and no public interest was being served.


Continue Reading NCLT Can Reject a Scheme of Arrangement if it is not in Public Interest

India has long recognised the right of foreign creditors to participate in the winding up of Indian companies. As early as 1961, the Supreme Court of India, in Rajah of Vizianagaram (AIR 1962 SC 500), clarified that foreign creditors have the same right as Indian creditors in winding up proceedings under Indian law. Given the backlog of cases and resultant timelines for resolving disputes in the Indian judicial system, winding up has been the remedy of choice, albeit mostly as a pressure point, for unsecured creditors including foreign unsecured creditors of Indian companies. Such creditors have taken winding up actions despite the low return (an abysmal 28% as per one source) and pace of insolvency (almost 4.5 years) in the Indian market. At the same time, there have been instances where consensual restructuring of stressed Indian companies has been halted by such actions of unsecured creditors.

The Indian government from time to time provided a specific legal regime for Indian financial creditors to recover their money – for example, debt recovery tribunals (DRT) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI). But no additional measures were suggested for non-financial creditors.


Continue Reading IBC- Making “Doing Business in India” Easy for Foreign Trade Creditors?