Corporate Insolvency Resolution Process

(a)Suhani and Dhwani are childhood friends and were very fond of designing Indian traditional dresses. After completing their schooling, Suhani joined a fashion designing course to pursue her interest and Dhwani decided to be a fashion Model. She participated in various fashion show programs conducted by Non-Government Organisation(s) engaged in the creating awareness for cervical cancer which is spreading rapidly among Ladies in India.

After some years, in one of the fashion programmes, they met again and planned to form a private Limited Company in the name of Suhani Fashions Private Limited having a paid-up share capital of 5 Crore and became Entrepreneurs.

Suhani Fashions Pvt. Ltd. is engaged in the business of Manufacturing and Selling Ladies Suits and Sarees in Kolkata, West Bengal which is a very big market for Indian traditional dresses.

They also offered their products on online e-commerce platforms. They employed more than 100 Ladies and other staff in their workshop who were engaged in designing, cutting, tailoring and other allied works. Suhani also used to design products being sold by the company.

Both Suhani and Dhwani were Promoter Directors of the company as per the Article of Association of the company and also the subscribers to the Memorandum of Association of the company by subscribing 50% shares each in the company. Dhwani, being a fashion model, did modelling for her products in order to improve the sales of the company. The company started growing very fast and sales touched a figure of ₹ 20 crores in the very first year and in order to meet the working capital and other requirements, the company approached the bankers Beta bank and Gama Bank for a facility of ₹ 3 crores and ₹ 5 crores respectively. The Company already had taken the credit facilities with Alpha Bank and outstanding amount is ₹ 6 crores.

After the change in demand of the products and growing need of Formal dresses from the Indian traditional dresses, sales started declining and the company started facing cash crunch and made a default in paying the instalments for ₹ 2 crores which were outstanding in the name of the Alpha bank.

The Alpha bank decided to file an Insolvency Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 as a financial Creditor on 3rd January, 2024. The Corporate Insolvency Resolution Process application was admitted by the Adjudicating Authority on 25th January, 2024. Moratorium was declared and Ishann was appointed as an Interim Resolution Professional. Ishaan, Interim Resolution Professional made a public announcement and prepared a list of creditors based on the claims received. The CoC is yet to be formed.

Consider the above facts and answer the following questions :

(c)Panapathi G. Seeds Pvt. Ltd. a closely held private company was engaged in the business of processing oilseeds for edible oils. It was established in 1988 under the leadership of Panapathi G. Prasad. Within a decade, Panapathi G. Seeds Pvt. Ltd positioned itself as a leader in production of groundnut oil in the Western region of India with two premium brands.

In 2016 Panapathi G. Prasad had a severe heart attack and died without any succession plan in place. Ram and Sham, the two sons of Panapathi G. Prasad were also directors in the company with equal shareholding. After the death of Panapathi G. Prasad, both brothers had strained relations over the management control which adversely affected the business of the company. With declining profit and turnover both the brothers were worried and decided to reach a family settlement whereby the control of the company was handed over to the elder brother Ram. Sham resigned as the director of the company and in lieu of the same he was entrusted with the management and control of another family firm Saraswathi Edibles, wherein both brothers were partners. Praveen, son of Ram was inducted as director in the Company.

In 2018 Sham wanted to withdraw unsecured loan given by him to the company because the company stopped paying him interest on the loan. Despite follow up Sham was not paid either the principal or interest, which forced him to file an application under section 7 of the Insolvency and Bankruptcy Code 2016.

The Adjudicating Authority (i) admitted the application, (ii) declared moratorium and (iii)

appointed Nagarajan, as an Interim Resolution Professional (IRP). Ram refused to hand over the management control to the IRP on the plea that it was a family dispute, and they will settle soon on their own. He also asked the IRP not to make the public announcement.

IRP tried to persuade Ram citing the provisions of the Code and warned him that if he does not hand over control of the Corporate Debtor IRP will be forced to approach the Adjudicating Authority for appropriate orders. Thereafter Ram allowed the IRP to take inventory of the assets and stocks after 15 days from the insolvency commencement date.

With reference to the above facts and other details provided, answer the following questions with particular reference to the provisions contained in the Code, Regulations and rules of IBC and others :

(c)Panapathi G. Seeds Pvt. Ltd. a closely held private company was engaged in the business of processing oilseeds for edible oils. It was established in 1988 under the leadership of Panapathi G. Prasad. Within a decade, Panapathi G. Seeds Pvt. Ltd positioned itself as a leader in production of groundnut oil in the Western region of India with two premium brands.

In 2016 Panapathi G. Prasad had a severe heart attack and died without any succession plan in place. Ram and Sham, the two sons of Panapathi G. Prasad were also directors in the company with equal shareholding. After the death of Panapathi G. Prasad, both brothers had strained relations over the management control which adversely affected the business of the company. With declining profit and turnover both the brothers were worried and decided to reach a family settlement whereby the control of the company was handed over to the elder brother Ram. Sham resigned as the director of the company and in lieu of the same he was entrusted with the management and control of another family firm Saraswathi Edibles, wherein both brothers were partners. Praveen, son of Ram was inducted as director in the Company.

In 2018 Sham wanted to withdraw unsecured loan given by him to the company because the company stopped paying him interest on the loan. Despite follow up Sham was not paid either the principal or interest, which forced him to file an application under section 7 of the Insolvency and Bankruptcy Code 2016.

The Adjudicating Authority (i) admitted the application, (ii) declared moratorium and (iii)

appointed Nagarajan, as an Interim Resolution Professional (IRP). Ram refused to hand over the management control to the IRP on the plea that it was a family dispute, and they will settle soon on their own. He also asked the IRP not to make the public announcement.

IRP tried to persuade Ram citing the provisions of the Code and warned him that if he does not hand over control of the Corporate Debtor IRP will be forced to approach the Adjudicating Authority for appropriate orders. Thereafter Ram allowed the IRP to take inventory of the assets and stocks after 15 days from the insolvency commencement date.

With reference to the above facts and other details provided, answer the following questions with particular reference to the provisions contained in the Code, Regulations and rules of IBC and others :

There was a major steel manufacturing company called ‘Tough Steel Industries Limited’ (‘Tough Steel’ or ‘the Company’). For many years, Tough Steel was a leading name in the steel industry, known for producing high-quality steel that was used in critical infrastructure projects worldwide.

However, over time, Tough Steel found itself in serious financial trouble due to a mix of rising production costs, market volatility, and mismanagement. As a result, the company defaulted on its massive debt obligations, putting its future at risk.

Faced with growing debt and no way to repay it, Tough Steel was forced into the insolvency resolution process under the Insolvency and Bankruptcy Code (IBC). A Resolution Professional (RP)

was appointed to manage the proceedings and oversee the search for a solution. Several potential buyers came forward with offers to resolve the insolvency, but one stood out: Steel Global, an international steel conglomerate, which presented an offer that could clear all of Tough Steel’s debts and inject fresh capital to restore the company.

The Committee of Creditors (CoC), which included both financial and operational creditors, had to approve the resolution plan. However, a key issue emerged : who should have the final say in approving the resolution plan? Was it the financial creditors, who had the largest share of Tough Steel’s debts, or should operational creditors, who provided goods and services to the company, have a more significant influence ?

In the light of the above case study inputs and referring to the decisions of applicable case laws with reasons and the provisions of Insolvency and Bankruptcy Code ,2016 (IBC, 2016) and the Regulations made thereunder, answer the following questions :

There was a major steel manufacturing company called ‘Tough Steel Industries Limited’ (‘Tough Steel’ or ‘the Company’). For many years, Tough Steel was a leading name in the steel industry, known for producing high-quality steel that was used in critical infrastructure projects worldwide.

However, over time, Tough Steel found itself in serious financial trouble due to a mix of rising production costs, market volatility, and mismanagement. As a result, the company defaulted on its massive debt obligations, putting its future at risk.

Faced with growing debt and no way to repay it, Tough Steel was forced into the insolvency resolution process under the Insolvency and Bankruptcy Code (IBC). A Resolution Professional (RP)

was appointed to manage the proceedings and oversee the search for a solution. Several potential buyers came forward with offers to resolve the insolvency, but one stood out: Steel Global, an international steel conglomerate, which presented an offer that could clear all of Tough Steel’s debts and inject fresh capital to restore the company.

The Committee of Creditors (CoC), which included both financial and operational creditors, had to approve the resolution plan. However, a key issue emerged : who should have the final say in approving the resolution plan? Was it the financial creditors, who had the largest share of Tough Steel’s debts, or should operational creditors, who provided goods and services to the company, have a more significant influence ?

In the light of the above case study inputs and referring to the decisions of applicable case laws with reasons and the provisions of Insolvency and Bankruptcy Code ,2016 (IBC, 2016) and the Regulations made thereunder, answer the following questions :

There was a major steel manufacturing company called ‘Tough Steel Industries Limited’ (‘Tough Steel’ or ‘the Company’). For many years, Tough Steel was a leading name in the steel industry, known for producing high-quality steel that was used in critical infrastructure projects worldwide.

However, over time, Tough Steel found itself in serious financial trouble due to a mix of rising production costs, market volatility, and mismanagement. As a result, the company defaulted on its massive debt obligations, putting its future at risk.

Faced with growing debt and no way to repay it, Tough Steel was forced into the insolvency resolution process under the Insolvency and Bankruptcy Code (IBC). A Resolution Professional (RP)

was appointed to manage the proceedings and oversee the search for a solution. Several potential buyers came forward with offers to resolve the insolvency, but one stood out: Steel Global, an international steel conglomerate, which presented an offer that could clear all of Tough Steel’s debts and inject fresh capital to restore the company.

The Committee of Creditors (CoC), which included both financial and operational creditors, had to approve the resolution plan. However, a key issue emerged : who should have the final say in approving the resolution plan? Was it the financial creditors, who had the largest share of Tough Steel’s debts, or should operational creditors, who provided goods and services to the company, have a more significant influence ?

In the light of the above case study inputs and referring to the decisions of applicable case laws with reasons and the provisions of Insolvency and Bankruptcy Code ,2016 (IBC, 2016) and the Regulations made thereunder, answer the following questions :

Background CIL Limited (hereinafter referred as ‘CIL’ or Corporate Debtor) is a manufacturer of precision engineering and automobile components, namely crankshafts for tractors, HCVs, LCVs as well as two-wheelers, as also connecting rods, steering knuckles and hubs. IBD Bank, one of the Financial Creditors of the Company has initiated a Corporate Insolvency Resolution Process (CIRP).

Appointment of Resolution Professional The National Company Law Tribunal (NCLT) has appointed Mr. RL as the Interim Resolution Professional and subsequently, he was confirmed as the Resolution Professional (hereinafter referred to as the “RP”) by the NCLT.

Receipt and Admission of Claims The RP received a claim for ₹ 1,850 crores and after verification of claims, the RP admitted a claim of ₹ 1,780 crores and the balance of claims was rejected by the RP.

Break-up of Claims Admitted Out of admitted claim of ₹ 1,780 crores, the Financial Creditors claim was ₹ 1,620 crores, Workmen Wages pending for a period of last 24 months is ₹ 18 crores, Employees pending claims for a period of last 12 months is 15 crores, Claims by Operational Creditors and Statutory Authorities is ₹ 127 crores.

Going forward, the RP published an “Expression of Interest.” Subsequently, it was revised on three different dates.

The Resolution Applicant (hereinafter referred to as the ‘RA’) submitted its first Resolution Plan during April, 2019 providing to pay ₹ 75 crores to all the stakeholders including ₹ 62 crores to Financial Creditors (FCs).

After a series of negotiations, the RA submitted an addendum to the Resolution Plan during May 2019 by which the RA raised the payment to Financial Creditors to ₹ 74 crores and at the request of the Committee of Creditors (hereinafter referred to as the “CoC”. Thereafter, once again, the RA submitted a Revised Plan during June, 2019 wherein the total pay- out was ₹ 86 crores and the Financial Creditors were to be paid ₹ 75 crores.

Further, the statutory requirement of the RP involving two approved valuers for giving reports, apropos fair market value and liquidation value was duly complied with and the figures in both reports were not at great variance.

The final Resolution Plan was submitted on August, 2019, in which the financial proposal/ total pay-out was increased to ₹ 130 crores and the Financial Creditors were to get upfront payment of ₹ 81 crores towards final settlement.

The total estimated liquidation cost and fee to the Resolution Professional and other connected/ incidental expenses was ₹ 3.30 crores.

Final Approval of the Resolution Plan by CoC.

This final Resolution Plan submitted by the Resolution Applicant during August, 2019 was finally approved by the CoC by a majority of 88% votes. In terms of such approval of the Resolution Plan, the RP moved Approval Application under Sections 30(6) and 31 of the IBC, 2016 seeking approval of the Resolution Plan before the Adjudicating Authority-NCLT.

In terms of the Resolution Plan, for which approval was being sought, the Corporate Debtor would be allowed the benefit of carry forward of its losses in terms of Section 79 of the Income Tax Act, 1961.

The NCLT, vide its order, by which the approval of the Resolution Plan was kept in abeyance, directed the Official Liquidator (OL) to provide the exact figures/value of assets. The same was carried in appeal under Section 61 of the Code by the RA before the NCLAT which passed the impugned Judgment on 19th January, 2022, dismissing the appeal, thereby upholding the order of the NCLT.

It is imperative to note that the moot question involved is the extent of the jurisdiction and powers of the Adjudicating Authority in the background of the admitted and undisputed factual position that no objection was raised by any quarter with regard to any deficiency/irregularity, either by the RP or the Appellant or the CoC in finally approving the resolution plan which was sent to the Adjudicating Authority–NCLT for approval. Further, the NCLT and the NCLAT did not fully recognise that under the Resolution Plan, the Corporate Debtor was set to be revived and not liquidated.

In view of the above, the RA filed an appeal before the Supreme Court.

In the light of the above inputs and referring to the applicable provisions of the IBC Code, 2016 and the Regulations framed thereunder together with the decided case laws, answer the following questions :

Background CIL Limited (hereinafter referred as ‘CIL’ or Corporate Debtor) is a manufacturer of precision engineering and automobile components, namely crankshafts for tractors, HCVs, LCVs as well as two-wheelers, as also connecting rods, steering knuckles and hubs. IBD Bank, one of the Financial Creditors of the Company has initiated a Corporate Insolvency Resolution Process (CIRP).

Appointment of Resolution Professional The National Company Law Tribunal (NCLT) has appointed Mr. RL as the Interim Resolution Professional and subsequently, he was confirmed as the Resolution Professional (hereinafter referred to as the “RP”) by the NCLT.

Receipt and Admission of Claims The RP received a claim for ₹ 1,850 crores and after verification of claims, the RP admitted a claim of ₹ 1,780 crores and the balance of claims was rejected by the RP.

Break-up of Claims Admitted Out of admitted claim of ₹ 1,780 crores, the Financial Creditors claim was ₹ 1,620 crores, Workmen Wages pending for a period of last 24 months is ₹ 18 crores, Employees pending claims for a period of last 12 months is 15 crores, Claims by Operational Creditors and Statutory Authorities is ₹ 127 crores.

Going forward, the RP published an “Expression of Interest.” Subsequently, it was revised on three different dates.

The Resolution Applicant (hereinafter referred to as the ‘RA’) submitted its first Resolution Plan during April, 2019 providing to pay ₹ 75 crores to all the stakeholders including ₹ 62 crores to Financial Creditors (FCs).

After a series of negotiations, the RA submitted an addendum to the Resolution Plan during May 2019 by which the RA raised the payment to Financial Creditors to ₹ 74 crores and at the request of the Committee of Creditors (hereinafter referred to as the “CoC”. Thereafter, once again, the RA submitted a Revised Plan during June, 2019 wherein the total pay- out was ₹ 86 crores and the Financial Creditors were to be paid ₹ 75 crores.

Further, the statutory requirement of the RP involving two approved valuers for giving reports, apropos fair market value and liquidation value was duly complied with and the figures in both reports were not at great variance.

The final Resolution Plan was submitted on August, 2019, in which the financial proposal/ total pay-out was increased to ₹ 130 crores and the Financial Creditors were to get upfront payment of ₹ 81 crores towards final settlement.

The total estimated liquidation cost and fee to the Resolution Professional and other connected/ incidental expenses was ₹ 3.30 crores.

Final Approval of the Resolution Plan by CoC.

This final Resolution Plan submitted by the Resolution Applicant during August, 2019 was finally approved by the CoC by a majority of 88% votes. In terms of such approval of the Resolution Plan, the RP moved Approval Application under Sections 30(6) and 31 of the IBC, 2016 seeking approval of the Resolution Plan before the Adjudicating Authority-NCLT.

In terms of the Resolution Plan, for which approval was being sought, the Corporate Debtor would be allowed the benefit of carry forward of its losses in terms of Section 79 of the Income Tax Act, 1961.

The NCLT, vide its order, by which the approval of the Resolution Plan was kept in abeyance, directed the Official Liquidator (OL) to provide the exact figures/value of assets. The same was carried in appeal under Section 61 of the Code by the RA before the NCLAT which passed the impugned Judgment on 19th January, 2022, dismissing the appeal, thereby upholding the order of the NCLT.

It is imperative to note that the moot question involved is the extent of the jurisdiction and powers of the Adjudicating Authority in the background of the admitted and undisputed factual position that no objection was raised by any quarter with regard to any deficiency/irregularity, either by the RP or the Appellant or the CoC in finally approving the resolution plan which was sent to the Adjudicating Authority–NCLT for approval. Further, the NCLT and the NCLAT did not fully recognise that under the Resolution Plan, the Corporate Debtor was set to be revived and not liquidated.

In view of the above, the RA filed an appeal before the Supreme Court.

In the light of the above inputs and referring to the applicable provisions of the IBC Code, 2016 and the Regulations framed thereunder together with the decided case laws, answer the following questions :

(a)An agreement was entered into during August, 2006 between the ZY Infrastructures Private Limited (hereinafter referred to as ‘ZY Infra’) and WV Infrastructure Private Limited (hereinafter referred to as ‘the Corporate Debtor’), for development of land licensed with the ZY Infra admeasuring 8 acres into a residential group housing complex at Bengaluru. However, the ZY infra, being aggrieved by the Corporate Debtor’s alleged misconduct in advertising the project under its own name and without mentioning the name of the ZY Infra, sought reference to arbitration during May, 2011.

The arbitral proceedings culminated in an award dated 1st August, 2016 in favour of the ZY Infra. In addition to awarding a monetary claim, the award inter alia directed the Corporate Debtor to apply to the authorities for transfer of the requisite licenses to the ZY Infra.

Aggrieved by the award, the Corporate Debtor filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Arbitration Act’) during September, 2016.

On the same date, the ZY Infra filed execution proceedings in respect of the said award.

These execution proceedings were ultimately adjourned sine die on 22nd December, 2017 on account of the pendency of the proceedings under Section 34 of the Arbitration Act.

These proceedings under Section 34 of the Arbitration Act culminated in the award being upheld by Special Commercial Court with some modifications.

Corporate Debtor who has filed an appeal against the same under Section 37 of the Arbitration Act is stated to be pending.

Meanwhile, the Corporate Insolvency Resolution Process (‘CIRP’) was initiated against the Corporate Debtor in respect of three real estate projects by certain homebuyers who had invested in these projects. This application under Section 7 of the Insolvency and Bankruptcy Code (hereinafter referred to as ‘the IBC’) was admitted on 27th March, 2019 by the Adjudicating Authority. On the same date, an Interim Resolution Professional (‘IRP’) was appointed. The IRP issued a public announcement inviting claims from creditors, in accordance with Section 15 of the IBC read with Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as the ‘IBBI Regulations’) on 30th March, 2019.

After receipt of the claims, the IRP constituted the Committee of Creditors (‘COC’) on 6th November, 2019 and circulated the draft information memorandum and invited expressions of interest from prospective resolution applicants. Five such applications were received.

Thereafter, the IRP was replaced by Resolution Professional (RP) by the COC on 18th June,

2020. The resolution plan as submitted by TSK Residential Welfare Association was approved by the COC by a majority vote of 80.74% on 11th July, 2020. This plan was then submitted by RP to the Adjudicating Authority for approval under Section 31 of the IBC on 8th September, 2020.

ZY Infra sent an email on 19th August, 2020 to RP highlighting their pending claim of ₹ 35 Crores and odd against the Corporate Debtor arising from the arbitral award dated 1st August, 2016, confirmed with certain modifications in the proceedings under Section 34 of the said Act.

However, RP rejected this claim on 25th August, 2020 on the ground that the time period for submitting the claim was within 90 days of initiation of CIRP and the applicant was 287 days late. A Resolution plan had already been passed by the COC.

ZY Infra filed an application under Section 60(5) of the IBC. During the pendency of RP’s application for approval of the plan before the Adjudicating Authority, seeking directions to RP that the ZY Infra’s claim may be considered on merits.

This relief was granted to the ZY Infra by the Adjudicating Authority vide an order dated 3rd November, 2020 predicated on the following grounds :

(a)RP could not have summarily rejected ZY Infra’s claim, as this claim would have appeared in the Corporate Debtor’s books of accounts;

(b)In case such books of accounts were not available, RP had a duty to obtain them and verify the financial position; and

(c)as such announcement was made through public newspapers, it was likely that the appellant missed out on the same.

RP thereafter preferred an appeal under Section 61 of the IBC before the National Company Law Appellate Tribunal, New Delhi (‘NCLAT’) against the Adjudicating Authority’s order.

The NCLAT, vide the impugned order dated 30th July, 2021, did not favour the view adopted by the Adjudicating Authority. Their reasoning was as follows :

(i)RP had effectuated proper service for inviting claims in accordance with Regulation 6 of the IBBI Regulations which only mandates a pronouncement through newspapers and not through personal service—an aspect that was not disputed by the appellant;

(ii)The appellant failed to show that it filed its claim as soon as it came to know of the initiation of the CIRP.

(iii)RP even filed an application under Section 19 of the IBC before the Adjudicating Authority seeking that a direction be issued to the ex-management to provide all records. Although nothing came of this attempt, it reflected his sincere efforts;

(iv)Regulations 12 and 13 of the IBBI Regulations obliged the RP to accept claims filed within the extended period of 90 days of the commencement of CIRP.

(v)The resolution plan, as approved by the COC, would be jeopardised if new claims were entertained.

Consequent to the decision of the NCLAT, ZY Infra approached Supreme Court of India for the final resolution.

In the above background mentioning relevant case laws and applicable provisions of IBC and IBBI Regulations answer the following questions :

Background CIL Limited (hereinafter referred as ‘CIL’ or Corporate Debtor) is a manufacturer of precision engineering and automobile components, namely crankshafts for tractors, HCVs, LCVs as well as two-wheelers, as also connecting rods, steering knuckles and hubs. IBD Bank, one of the Financial Creditors of the Company has initiated a Corporate Insolvency Resolution Process (CIRP).

Appointment of Resolution Professional The National Company Law Tribunal (NCLT) has appointed Mr. RL as the Interim Resolution Professional and subsequently, he was confirmed as the Resolution Professional (hereinafter referred to as the “RP”) by the NCLT.

Receipt and Admission of Claims The RP received a claim for ₹ 1,850 crores and after verification of claims, the RP admitted a claim of ₹ 1,780 crores and the balance of claims was rejected by the RP.

Break-up of Claims Admitted Out of admitted claim of ₹ 1,780 crores, the Financial Creditors claim was ₹ 1,620 crores, Workmen Wages pending for a period of last 24 months is ₹ 18 crores, Employees pending claims for a period of last 12 months is 15 crores, Claims by Operational Creditors and Statutory Authorities is ₹ 127 crores.

Going forward, the RP published an “Expression of Interest.” Subsequently, it was revised on three different dates.

The Resolution Applicant (hereinafter referred to as the ‘RA’) submitted its first Resolution Plan during April, 2019 providing to pay ₹ 75 crores to all the stakeholders including ₹ 62 crores to Financial Creditors (FCs).

After a series of negotiations, the RA submitted an addendum to the Resolution Plan during May 2019 by which the RA raised the payment to Financial Creditors to ₹ 74 crores and at the request of the Committee of Creditors (hereinafter referred to as the “CoC”. Thereafter, once again, the RA submitted a Revised Plan during June, 2019 wherein the total pay- out was ₹ 86 crores and the Financial Creditors were to be paid ₹ 75 crores.

Further, the statutory requirement of the RP involving two approved valuers for giving reports, apropos fair market value and liquidation value was duly complied with and the figures in both reports were not at great variance.

The final Resolution Plan was submitted on August, 2019, in which the financial proposal/ total pay-out was increased to ₹ 130 crores and the Financial Creditors were to get upfront payment of ₹ 81 crores towards final settlement.

The total estimated liquidation cost and fee to the Resolution Professional and other connected/ incidental expenses was ₹ 3.30 crores.

Final Approval of the Resolution Plan by CoC.

This final Resolution Plan submitted by the Resolution Applicant during August, 2019 was finally approved by the CoC by a majority of 88% votes. In terms of such approval of the Resolution Plan, the RP moved Approval Application under Sections 30(6) and 31 of the IBC, 2016 seeking approval of the Resolution Plan before the Adjudicating Authority-NCLT.

In terms of the Resolution Plan, for which approval was being sought, the Corporate Debtor would be allowed the benefit of carry forward of its losses in terms of Section 79 of the Income Tax Act, 1961.

The NCLT, vide its order, by which the approval of the Resolution Plan was kept in abeyance, directed the Official Liquidator (OL) to provide the exact figures/value of assets. The same was carried in appeal under Section 61 of the Code by the RA before the NCLAT which passed the impugned Judgment on 19th January, 2022, dismissing the appeal, thereby upholding the order of the NCLT.

It is imperative to note that the moot question involved is the extent of the jurisdiction and powers of the Adjudicating Authority in the background of the admitted and undisputed factual position that no objection was raised by any quarter with regard to any deficiency/irregularity, either by the RP or the Appellant or the CoC in finally approving the resolution plan which was sent to the Adjudicating Authority–NCLT for approval. Further, the NCLT and the NCLAT did not fully recognise that under the Resolution Plan, the Corporate Debtor was set to be revived and not liquidated.

In view of the above, the RA filed an appeal before the Supreme Court.

In the light of the above inputs and referring to the applicable provisions of the IBC Code, 2016 and the Regulations framed thereunder together with the decided case laws, answer the following questions :

(B)Mr. Krish, an operational creditor, filed an application with the Adjudicating Authority (NCLT, Delhi) to initiate the Corporate Insolvency Resolution Process (CIRP) against M/s Master Mind Limited, and the application was accepted. On 10th July 2023, NCLT Delhi appointed Mr.

Aditya to act as an Interim Resolution Professional of M Limited. After the appointment, Mr.

Aditya issued the public announcement on 12th July 2023, of the initiation of CIRP process and called for the submission of claims. On 20th July 2023, the Committee of Creditors was constituted by Mr. Aditya.

Thereafter, Mr. Krish wants to withdraw his application under Section 12A of the Insolvency and Bankruptcy Code, 2016. However, Mr. Aditya denied filing a withdrawal application stating that the Committee of Creditors has already been constituted.

Referring to the provisions of the Insolvency and Bankruptcy Code, 2016, answer the following with reference to the above facts :

Sober Ltd. (the Company) is engaged in the business of running hotel chains in India as well as outside India. Due to less demand faced during the pandemic, the Company was unable to meet its financial obligations. Financial creditors of the Company decided to file an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). On 1 st January, 2022, Corporate Insolvency Resolution Process (‘CIRP’) of the Company started and Shyam was appointed as an Interim Resolution Professional.

The Company was subjected to parallel insolvency proceedings in India as well as Netherlands (where it had registered office). In the Netherlands, the Company was declared bankrupt and the Dutch trustee had been appointed to manage the estate of the Company. During the 1st meeting of the Committee of Creditors (CoC), Shyam was confirmed to act as Resolution Professional (RP). Considering the future potential in the Company, many strategic and financial investors expressed their interest in buying the Company including one of the members of the CoC who also submitted Expression of Interest to the RP. Shyam after due verification, published the final list of the prospective resolution applicants. One of the investors, Simba Ltd. wrote an email to Shyam stating that they also want to participate in the process and submitted all the required documents to Shyam for their name to get included in the final list of the prospective resolution applicants. Shyam refused to include their name in the final list stating that no provision exist under the IBC to include name of any party, once the final list of the prospective resolution applicants is published by the RP.

During the CIRP process, Shyam had appointed two valuers to carry out valuation. The fair value given by Valuer 1 was ₹ 1,750 crore and Valuer 2 was ₹ 550 crore and liquidation value was ₹ 1,000 crore and ₹ 200 crore respectively. During the discussions with the valuers to understand the methodology adopted by them to carry out the valuation, Shyam realized that both the valuers have carried out valuation based on the internationally accepted valuation methods and have made certain assumptions while arriving at the final numbers. Lawyer of Shyam had suggested that since the valuation given by Valuer 1 is advantageous for the stakeholders, he can put the valuation report issued by Valuer 1 before the CoC. Shyam agreed and moved ahead accordingly. During one of the meetings of the CoC, the financial creditors were deliberating on how to maximize the value of the Company and fetch a best possible resolution plan. In response, one of the members of the CoC requested the entire CoC to explore possibility of ‘Swiss Challenge’ to improve value of the resolution plans. However, none of the other members agreed stating that there is no provision under the IBC for exercising a ‘Swiss Challenge’. When the final resolution plans had come, the RP after due verification and completing required formalities, had put-up all the plans on voting. The outcome of voting was as under:

S. No. Particulars Voting result 1 Resolution Plan 1 56% 2 Resolution Plan 2 67% 3 Resolution Plan 3 67% 4 Resolution Plan 4 75% One of the members of the CoC suggested to carry out the voting again since the voting percentage of Resolution Plan 2 and 3 is same. The RP denied stating that once the voting is done, re-voting on the plans cannot be done again in the present scenario. Accordingly, Resolution Plan 4 was filed with the adjudicating authority for approval.

The resolution applicant had mentioned in the Resolution Plan 4 to put ₹ 80 crore in the form of working capital as well as capital expenditure, once the company’s handover formalities are completed. Even after 1 year of handover, the resolution applicant did not infuse the aforesaid amount. In fact, the resolution applicant requested the financial creditors to waive off the condition to infuse money for working capital and capital expenditure. Shyam being part of the monitoring committee, overseeing implementation of the resolution plan, expressed his concern on the request made by the resolution applicant citing violation of the provisions under the IBC. Consider the above case and relevant provisions of the IBC, its rules and regulations made thereunder, answer the following questions:

(d)Whether the following actions of Shyam are in accordance with the IBC?

Sober Ltd. (the Company) is engaged in the business of running hotel chains in India as well as outside India. Due to less demand faced during the pandemic, the Company was unable to meet its financial obligations. Financial creditors of the Company decided to file an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). On 1 st January, 2022, Corporate Insolvency Resolution Process (‘CIRP’) of the Company started and Shyam was appointed as an Interim Resolution Professional.

The Company was subjected to parallel insolvency proceedings in India as well as Netherlands (where it had registered office). In the Netherlands, the Company was declared bankrupt and the Dutch trustee had been appointed to manage the estate of the Company. During the 1st meeting of the Committee of Creditors (CoC), Shyam was confirmed to act as Resolution Professional (RP). Considering the future potential in the Company, many strategic and financial investors expressed their interest in buying the Company including one of the members of the CoC who also submitted Expression of Interest to the RP. Shyam after due verification, published the final list of the prospective resolution applicants. One of the investors, Simba Ltd. wrote an email to Shyam stating that they also want to participate in the process and submitted all the required documents to Shyam for their name to get included in the final list of the prospective resolution applicants. Shyam refused to include their name in the final list stating that no provision exist under the IBC to include name of any party, once the final list of the prospective resolution applicants is published by the RP.

During the CIRP process, Shyam had appointed two valuers to carry out valuation. The fair value given by Valuer 1 was ₹ 1,750 crore and Valuer 2 was ₹ 550 crore and liquidation value was ₹ 1,000 crore and ₹ 200 crore respectively. During the discussions with the valuers to understand the methodology adopted by them to carry out the valuation, Shyam realized that both the valuers have carried out valuation based on the internationally accepted valuation methods and have made certain assumptions while arriving at the final numbers. Lawyer of Shyam had suggested that since the valuation given by Valuer 1 is advantageous for the stakeholders, he can put the valuation report issued by Valuer 1 before the CoC. Shyam agreed and moved ahead accordingly. During one of the meetings of the CoC, the financial creditors were deliberating on how to maximize the value of the Company and fetch a best possible resolution plan. In response, one of the members of the CoC requested the entire CoC to explore possibility of ‘Swiss Challenge’ to improve value of the resolution plans. However, none of the other members agreed stating that there is no provision under the IBC for exercising a ‘Swiss Challenge’. When the final resolution plans had come, the RP after due verification and completing required formalities, had put-up all the plans on voting. The outcome of voting was as under:

S. No. Particulars Voting result 1 Resolution Plan 1 56% 2 Resolution Plan 2 67% 3 Resolution Plan 3 67% 4 Resolution Plan 4 75% One of the members of the CoC suggested to carry out the voting again since the voting percentage of Resolution Plan 2 and 3 is same. The RP denied stating that once the voting is done, re-voting on the plans cannot be done again in the present scenario. Accordingly, Resolution Plan 4 was filed with the adjudicating authority for approval.

The resolution applicant had mentioned in the Resolution Plan 4 to put ₹ 80 crore in the form of working capital as well as capital expenditure, once the company’s handover formalities are completed. Even after 1 year of handover, the resolution applicant did not infuse the aforesaid amount. In fact, the resolution applicant requested the financial creditors to waive off the condition to infuse money for working capital and capital expenditure. Shyam being part of the monitoring committee, overseeing implementation of the resolution plan, expressed his concern on the request made by the resolution applicant citing violation of the provisions under the IBC. Consider the above case and relevant provisions of the IBC, its rules and regulations made thereunder, answer the following questions:

Sober Ltd. (the Company) is engaged in the business of running hotel chains in India as well as outside India. Due to less demand faced during the pandemic, the Company was unable to meet its financial obligations. Financial creditors of the Company decided to file an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). On 1 st January, 2022, Corporate Insolvency Resolution Process (‘CIRP’) of the Company started and Shyam was appointed as an Interim Resolution Professional.

The Company was subjected to parallel insolvency proceedings in India as well as Netherlands (where it had registered office). In the Netherlands, the Company was declared bankrupt and the Dutch trustee had been appointed to manage the estate of the Company. During the 1st meeting of the Committee of Creditors (CoC), Shyam was confirmed to act as Resolution Professional (RP). Considering the future potential in the Company, many strategic and financial investors expressed their interest in buying the Company including one of the members of the CoC who also submitted Expression of Interest to the RP. Shyam after due verification, published the final list of the prospective resolution applicants. One of the investors, Simba Ltd. wrote an email to Shyam stating that they also want to participate in the process and submitted all the required documents to Shyam for their name to get included in the final list of the prospective resolution applicants. Shyam refused to include their name in the final list stating that no provision exist under the IBC to include name of any party, once the final list of the prospective resolution applicants is published by the RP.

During the CIRP process, Shyam had appointed two valuers to carry out valuation. The fair value given by Valuer 1 was ₹ 1,750 crore and Valuer 2 was ₹ 550 crore and liquidation value was ₹ 1,000 crore and ₹ 200 crore respectively. During the discussions with the valuers to understand the methodology adopted by them to carry out the valuation, Shyam realized that both the valuers have carried out valuation based on the internationally accepted valuation methods and have made certain assumptions while arriving at the final numbers. Lawyer of Shyam had suggested that since the valuation given by Valuer 1 is advantageous for the stakeholders, he can put the valuation report issued by Valuer 1 before the CoC. Shyam agreed and moved ahead accordingly. During one of the meetings of the CoC, the financial creditors were deliberating on how to maximize the value of the Company and fetch a best possible resolution plan. In response, one of the members of the CoC requested the entire CoC to explore possibility of ‘Swiss Challenge’ to improve value of the resolution plans. However, none of the other members agreed stating that there is no provision under the IBC for exercising a ‘Swiss Challenge’. When the final resolution plans had come, the RP after due verification and completing required formalities, had put-up all the plans on voting. The outcome of voting was as under:

S. No. Particulars Voting result 1 Resolution Plan 1 56% 2 Resolution Plan 2 67% 3 Resolution Plan 3 67% 4 Resolution Plan 4 75% One of the members of the CoC suggested to carry out the voting again since the voting percentage of Resolution Plan 2 and 3 is same. The RP denied stating that once the voting is done, re-voting on the plans cannot be done again in the present scenario. Accordingly, Resolution Plan 4 was filed with the adjudicating authority for approval.

The resolution applicant had mentioned in the Resolution Plan 4 to put ₹ 80 crore in the form of working capital as well as capital expenditure, once the company’s handover formalities are completed. Even after 1 year of handover, the resolution applicant did not infuse the aforesaid amount. In fact, the resolution applicant requested the financial creditors to waive off the condition to infuse money for working capital and capital expenditure. Shyam being part of the monitoring committee, overseeing implementation of the resolution plan, expressed his concern on the request made by the resolution applicant citing violation of the provisions under the IBC. Consider the above case and relevant provisions of the IBC, its rules and regulations made thereunder, answer the following questions:

(c)Whether the following contentions of the CoC are correct?

Sober Ltd. (the Company) is engaged in the business of running hotel chains in India as well as outside India. Due to less demand faced during the pandemic, the Company was unable to meet its financial obligations. Financial creditors of the Company decided to file an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). On 1 st January, 2022, Corporate Insolvency Resolution Process (‘CIRP’) of the Company started and Shyam was appointed as an Interim Resolution Professional.

The Company was subjected to parallel insolvency proceedings in India as well as Netherlands (where it had registered office). In the Netherlands, the Company was declared bankrupt and the Dutch trustee had been appointed to manage the estate of the Company. During the 1st meeting of the Committee of Creditors (CoC), Shyam was confirmed to act as Resolution Professional (RP). Considering the future potential in the Company, many strategic and financial investors expressed their interest in buying the Company including one of the members of the CoC who also submitted Expression of Interest to the RP. Shyam after due verification, published the final list of the prospective resolution applicants. One of the investors, Simba Ltd. wrote an email to Shyam stating that they also want to participate in the process and submitted all the required documents to Shyam for their name to get included in the final list of the prospective resolution applicants. Shyam refused to include their name in the final list stating that no provision exist under the IBC to include name of any party, once the final list of the prospective resolution applicants is published by the RP.

During the CIRP process, Shyam had appointed two valuers to carry out valuation. The fair value given by Valuer 1 was ₹ 1,750 crore and Valuer 2 was ₹ 550 crore and liquidation value was ₹ 1,000 crore and ₹ 200 crore respectively. During the discussions with the valuers to understand the methodology adopted by them to carry out the valuation, Shyam realized that both the valuers have carried out valuation based on the internationally accepted valuation methods and have made certain assumptions while arriving at the final numbers. Lawyer of Shyam had suggested that since the valuation given by Valuer 1 is advantageous for the stakeholders, he can put the valuation report issued by Valuer 1 before the CoC. Shyam agreed and moved ahead accordingly. During one of the meetings of the CoC, the financial creditors were deliberating on how to maximize the value of the Company and fetch a best possible resolution plan. In response, one of the members of the CoC requested the entire CoC to explore possibility of ‘Swiss Challenge’ to improve value of the resolution plans. However, none of the other members agreed stating that there is no provision under the IBC for exercising a ‘Swiss Challenge’. When the final resolution plans had come, the RP after due verification and completing required formalities, had put-up all the plans on voting. The outcome of voting was as under:

S. No. Particulars Voting result 1 Resolution Plan 1 56% 2 Resolution Plan 2 67% 3 Resolution Plan 3 67% 4 Resolution Plan 4 75% One of the members of the CoC suggested to carry out the voting again since the voting percentage of Resolution Plan 2 and 3 is same. The RP denied stating that once the voting is done, re-voting on the plans cannot be done again in the present scenario. Accordingly, Resolution Plan 4 was filed with the adjudicating authority for approval.

The resolution applicant had mentioned in the Resolution Plan 4 to put ₹ 80 crore in the form of working capital as well as capital expenditure, once the company’s handover formalities are completed. Even after 1 year of handover, the resolution applicant did not infuse the aforesaid amount. In fact, the resolution applicant requested the financial creditors to waive off the condition to infuse money for working capital and capital expenditure. Shyam being part of the monitoring committee, overseeing implementation of the resolution plan, expressed his concern on the request made by the resolution applicant citing violation of the provisions under the IBC. Consider the above case and relevant provisions of the IBC, its rules and regulations made thereunder, answer the following questions:

(c)Whether the following contentions of the CoC are correct?

(a)An agreement was entered into during August, 2006 between the ZY Infrastructures Private Limited (hereinafter referred to as ‘ZY Infra’) and WV Infrastructure Private Limited (hereinafter referred to as ‘the Corporate Debtor’), for development of land licensed with the ZY Infra admeasuring 8 acres into a residential group housing complex at Bengaluru. However, the ZY infra, being aggrieved by the Corporate Debtor’s alleged misconduct in advertising the project under its own name and without mentioning the name of the ZY Infra, sought reference to arbitration during May, 2011.

The arbitral proceedings culminated in an award dated 1st August, 2016 in favour of the ZY Infra. In addition to awarding a monetary claim, the award inter alia directed the Corporate Debtor to apply to the authorities for transfer of the requisite licenses to the ZY Infra.

Aggrieved by the award, the Corporate Debtor filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Arbitration Act’) during September, 2016.

On the same date, the ZY Infra filed execution proceedings in respect of the said award.

These execution proceedings were ultimately adjourned sine die on 22nd December, 2017 on account of the pendency of the proceedings under Section 34 of the Arbitration Act.

These proceedings under Section 34 of the Arbitration Act culminated in the award being upheld by Special Commercial Court with some modifications.

Corporate Debtor who has filed an appeal against the same under Section 37 of the Arbitration Act is stated to be pending.

Meanwhile, the Corporate Insolvency Resolution Process (‘CIRP’) was initiated against the Corporate Debtor in respect of three real estate projects by certain homebuyers who had invested in these projects. This application under Section 7 of the Insolvency and Bankruptcy Code (hereinafter referred to as ‘the IBC’) was admitted on 27th March, 2019 by the Adjudicating Authority. On the same date, an Interim Resolution Professional (‘IRP’) was appointed. The IRP issued a public announcement inviting claims from creditors, in accordance with Section 15 of the IBC read with Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as the ‘IBBI Regulations’) on 30th March, 2019.

After receipt of the claims, the IRP constituted the Committee of Creditors (‘COC’) on 6th November, 2019 and circulated the draft information memorandum and invited expressions of interest from prospective resolution applicants. Five such applications were received.

Thereafter, the IRP was replaced by Resolution Professional (RP) by the COC on 18th June,

2020. The resolution plan as submitted by TSK Residential Welfare Association was approved by the COC by a majority vote of 80.74% on 11th July, 2020. This plan was then submitted by RP to the Adjudicating Authority for approval under Section 31 of the IBC on 8th September, 2020.

ZY Infra sent an email on 19th August, 2020 to RP highlighting their pending claim of ₹ 35 Crores and odd against the Corporate Debtor arising from the arbitral award dated 1st August, 2016, confirmed with certain modifications in the proceedings under Section 34 of the said Act.

However, RP rejected this claim on 25th August, 2020 on the ground that the time period for submitting the claim was within 90 days of initiation of CIRP and the applicant was 287 days late. A Resolution plan had already been passed by the COC.

ZY Infra filed an application under Section 60(5) of the IBC. During the pendency of RP’s application for approval of the plan before the Adjudicating Authority, seeking directions to RP that the ZY Infra’s claim may be considered on merits.

This relief was granted to the ZY Infra by the Adjudicating Authority vide an order dated 3rd November, 2020 predicated on the following grounds :

(a)RP could not have summarily rejected ZY Infra’s claim, as this claim would have appeared in the Corporate Debtor’s books of accounts;

(b)In case such books of accounts were not available, RP had a duty to obtain them and verify the financial position; and

(c)as such announcement was made through public newspapers, it was likely that the appellant missed out on the same.

RP thereafter preferred an appeal under Section 61 of the IBC before the National Company Law Appellate Tribunal, New Delhi (‘NCLAT’) against the Adjudicating Authority’s order.

The NCLAT, vide the impugned order dated 30th July, 2021, did not favour the view adopted by the Adjudicating Authority. Their reasoning was as follows :

(i)RP had effectuated proper service for inviting claims in accordance with Regulation 6 of the IBBI Regulations which only mandates a pronouncement through newspapers and not through personal service—an aspect that was not disputed by the appellant;

(ii)The appellant failed to show that it filed its claim as soon as it came to know of the initiation of the CIRP.

(iii)RP even filed an application under Section 19 of the IBC before the Adjudicating Authority seeking that a direction be issued to the ex-management to provide all records. Although nothing came of this attempt, it reflected his sincere efforts;

(iv)Regulations 12 and 13 of the IBBI Regulations obliged the RP to accept claims filed within the extended period of 90 days of the commencement of CIRP.

(v)The resolution plan, as approved by the COC, would be jeopardised if new claims were entertained.

Consequent to the decision of the NCLAT, ZY Infra approached Supreme Court of India for the final resolution.

In the above background mentioning relevant case laws and applicable provisions of IBC and IBBI Regulations answer the following questions :

Background CIL Limited (hereinafter referred as ‘CIL’ or Corporate Debtor) is a manufacturer of precision engineering and automobile components, namely crankshafts for tractors, HCVs, LCVs as well as two-wheelers, as also connecting rods, steering knuckles and hubs. IBD Bank, one of the Financial Creditors of the Company has initiated a Corporate Insolvency Resolution Process (CIRP).

Appointment of Resolution Professional The National Company Law Tribunal (NCLT) has appointed Mr. RL as the Interim Resolution Professional and subsequently, he was confirmed as the Resolution Professional (hereinafter referred to as the “RP”) by the NCLT.

Receipt and Admission of Claims The RP received a claim for ₹ 1,850 crores and after verification of claims, the RP admitted a claim of ₹ 1,780 crores and the balance of claims was rejected by the RP.

Break-up of Claims Admitted Out of admitted claim of ₹ 1,780 crores, the Financial Creditors claim was ₹ 1,620 crores, Workmen Wages pending for a period of last 24 months is ₹ 18 crores, Employees pending claims for a period of last 12 months is 15 crores, Claims by Operational Creditors and Statutory Authorities is ₹ 127 crores.

Going forward, the RP published an “Expression of Interest.” Subsequently, it was revised on three different dates.

The Resolution Applicant (hereinafter referred to as the ‘RA’) submitted its first Resolution Plan during April, 2019 providing to pay ₹ 75 crores to all the stakeholders including ₹ 62 crores to Financial Creditors (FCs).

After a series of negotiations, the RA submitted an addendum to the Resolution Plan during May 2019 by which the RA raised the payment to Financial Creditors to ₹ 74 crores and at the request of the Committee of Creditors (hereinafter referred to as the “CoC”. Thereafter, once again, the RA submitted a Revised Plan during June, 2019 wherein the total pay- out was ₹ 86 crores and the Financial Creditors were to be paid ₹ 75 crores.

Further, the statutory requirement of the RP involving two approved valuers for giving reports, apropos fair market value and liquidation value was duly complied with and the figures in both reports were not at great variance.

The final Resolution Plan was submitted on August, 2019, in which the financial proposal/ total pay-out was increased to ₹ 130 crores and the Financial Creditors were to get upfront payment of ₹ 81 crores towards final settlement.

The total estimated liquidation cost and fee to the Resolution Professional and other connected/ incidental expenses was ₹ 3.30 crores.

Final Approval of the Resolution Plan by CoC.

This final Resolution Plan submitted by the Resolution Applicant during August, 2019 was finally approved by the CoC by a majority of 88% votes. In terms of such approval of the Resolution Plan, the RP moved Approval Application under Sections 30(6) and 31 of the IBC, 2016 seeking approval of the Resolution Plan before the Adjudicating Authority-NCLT.

In terms of the Resolution Plan, for which approval was being sought, the Corporate Debtor would be allowed the benefit of carry forward of its losses in terms of Section 79 of the Income Tax Act, 1961.

The NCLT, vide its order, by which the approval of the Resolution Plan was kept in abeyance, directed the Official Liquidator (OL) to provide the exact figures/value of assets. The same was carried in appeal under Section 61 of the Code by the RA before the NCLAT which passed the impugned Judgment on 19th January, 2022, dismissing the appeal, thereby upholding the order of the NCLT.

It is imperative to note that the moot question involved is the extent of the jurisdiction and powers of the Adjudicating Authority in the background of the admitted and undisputed factual position that no objection was raised by any quarter with regard to any deficiency/irregularity, either by the RP or the Appellant or the CoC in finally approving the resolution plan which was sent to the Adjudicating Authority–NCLT for approval. Further, the NCLT and the NCLAT did not fully recognise that under the Resolution Plan, the Corporate Debtor was set to be revived and not liquidated.

In view of the above, the RA filed an appeal before the Supreme Court.

In the light of the above inputs and referring to the applicable provisions of the IBC Code, 2016 and the Regulations framed thereunder together with the decided case laws, answer the following questions :

Background CIL Limited (hereinafter referred as ‘CIL’ or Corporate Debtor) is a manufacturer of precision engineering and automobile components, namely crankshafts for tractors, HCVs, LCVs as well as two-wheelers, as also connecting rods, steering knuckles and hubs. IBD Bank, one of the Financial Creditors of the Company has initiated a Corporate Insolvency Resolution Process (CIRP).

Appointment of Resolution Professional The National Company Law Tribunal (NCLT) has appointed Mr. RL as the Interim Resolution Professional and subsequently, he was confirmed as the Resolution Professional (hereinafter referred to as the “RP”) by the NCLT.

Receipt and Admission of Claims The RP received a claim for ₹ 1,850 crores and after verification of claims, the RP admitted a claim of ₹ 1,780 crores and the balance of claims was rejected by the RP.

Break-up of Claims Admitted Out of admitted claim of ₹ 1,780 crores, the Financial Creditors claim was ₹ 1,620 crores, Workmen Wages pending for a period of last 24 months is ₹ 18 crores, Employees pending claims for a period of last 12 months is 15 crores, Claims by Operational Creditors and Statutory Authorities is ₹ 127 crores.

Going forward, the RP published an “Expression of Interest.” Subsequently, it was revised on three different dates.

The Resolution Applicant (hereinafter referred to as the ‘RA’) submitted its first Resolution Plan during April, 2019 providing to pay ₹ 75 crores to all the stakeholders including ₹ 62 crores to Financial Creditors (FCs).

After a series of negotiations, the RA submitted an addendum to the Resolution Plan during May 2019 by which the RA raised the payment to Financial Creditors to ₹ 74 crores and at the request of the Committee of Creditors (hereinafter referred to as the “CoC”. Thereafter, once again, the RA submitted a Revised Plan during June, 2019 wherein the total pay- out was ₹ 86 crores and the Financial Creditors were to be paid ₹ 75 crores.

Further, the statutory requirement of the RP involving two approved valuers for giving reports, apropos fair market value and liquidation value was duly complied with and the figures in both reports were not at great variance.

The final Resolution Plan was submitted on August, 2019, in which the financial proposal/ total pay-out was increased to ₹ 130 crores and the Financial Creditors were to get upfront payment of ₹ 81 crores towards final settlement.

The total estimated liquidation cost and fee to the Resolution Professional and other connected/ incidental expenses was ₹ 3.30 crores.

Final Approval of the Resolution Plan by CoC.

This final Resolution Plan submitted by the Resolution Applicant during August, 2019 was finally approved by the CoC by a majority of 88% votes. In terms of such approval of the Resolution Plan, the RP moved Approval Application under Sections 30(6) and 31 of the IBC, 2016 seeking approval of the Resolution Plan before the Adjudicating Authority-NCLT.

In terms of the Resolution Plan, for which approval was being sought, the Corporate Debtor would be allowed the benefit of carry forward of its losses in terms of Section 79 of the Income Tax Act, 1961.

The NCLT, vide its order, by which the approval of the Resolution Plan was kept in abeyance, directed the Official Liquidator (OL) to provide the exact figures/value of assets. The same was carried in appeal under Section 61 of the Code by the RA before the NCLAT which passed the impugned Judgment on 19th January, 2022, dismissing the appeal, thereby upholding the order of the NCLT.

It is imperative to note that the moot question involved is the extent of the jurisdiction and powers of the Adjudicating Authority in the background of the admitted and undisputed factual position that no objection was raised by any quarter with regard to any deficiency/irregularity, either by the RP or the Appellant or the CoC in finally approving the resolution plan which was sent to the Adjudicating Authority–NCLT for approval. Further, the NCLT and the NCLAT did not fully recognise that under the Resolution Plan, the Corporate Debtor was set to be revived and not liquidated.

In view of the above, the RA filed an appeal before the Supreme Court.

In the light of the above inputs and referring to the applicable provisions of the IBC Code, 2016 and the Regulations framed thereunder together with the decided case laws, answer the following questions :

Background CIL Limited (hereinafter referred as ‘CIL’ or Corporate Debtor) is a manufacturer of precision engineering and automobile components, namely crankshafts for tractors, HCVs, LCVs as well as two-wheelers, as also connecting rods, steering knuckles and hubs. IBD Bank, one of the Financial Creditors of the Company has initiated a Corporate Insolvency Resolution Process (CIRP).

Appointment of Resolution Professional The National Company Law Tribunal (NCLT) has appointed Mr. RL as the Interim Resolution Professional and subsequently, he was confirmed as the Resolution Professional (hereinafter referred to as the “RP”) by the NCLT.

Receipt and Admission of Claims The RP received a claim for ₹ 1,850 crores and after verification of claims, the RP admitted a claim of ₹ 1,780 crores and the balance of claims was rejected by the RP.

Break-up of Claims Admitted Out of admitted claim of ₹ 1,780 crores, the Financial Creditors claim was ₹ 1,620 crores, Workmen Wages pending for a period of last 24 months is ₹ 18 crores, Employees pending claims for a period of last 12 months is 15 crores, Claims by Operational Creditors and Statutory Authorities is ₹ 127 crores.

Going forward, the RP published an “Expression of Interest.” Subsequently, it was revised on three different dates.

The Resolution Applicant (hereinafter referred to as the ‘RA’) submitted its first Resolution Plan during April, 2019 providing to pay ₹ 75 crores to all the stakeholders including ₹ 62 crores to Financial Creditors (FCs).

After a series of negotiations, the RA submitted an addendum to the Resolution Plan during May 2019 by which the RA raised the payment to Financial Creditors to ₹ 74 crores and at the request of the Committee of Creditors (hereinafter referred to as the “CoC”. Thereafter, once again, the RA submitted a Revised Plan during June, 2019 wherein the total pay- out was ₹ 86 crores and the Financial Creditors were to be paid ₹ 75 crores.

Further, the statutory requirement of the RP involving two approved valuers for giving reports, apropos fair market value and liquidation value was duly complied with and the figures in both reports were not at great variance.

The final Resolution Plan was submitted on August, 2019, in which the financial proposal/ total pay-out was increased to ₹ 130 crores and the Financial Creditors were to get upfront payment of ₹ 81 crores towards final settlement.

The total estimated liquidation cost and fee to the Resolution Professional and other connected/ incidental expenses was ₹ 3.30 crores.

Final Approval of the Resolution Plan by CoC.

This final Resolution Plan submitted by the Resolution Applicant during August, 2019 was finally approved by the CoC by a majority of 88% votes. In terms of such approval of the Resolution Plan, the RP moved Approval Application under Sections 30(6) and 31 of the IBC, 2016 seeking approval of the Resolution Plan before the Adjudicating Authority-NCLT.

In terms of the Resolution Plan, for which approval was being sought, the Corporate Debtor would be allowed the benefit of carry forward of its losses in terms of Section 79 of the Income Tax Act, 1961.

The NCLT, vide its order, by which the approval of the Resolution Plan was kept in abeyance, directed the Official Liquidator (OL) to provide the exact figures/value of assets. The same was carried in appeal under Section 61 of the Code by the RA before the NCLAT which passed the impugned Judgment on 19th January, 2022, dismissing the appeal, thereby upholding the order of the NCLT.

It is imperative to note that the moot question involved is the extent of the jurisdiction and powers of the Adjudicating Authority in the background of the admitted and undisputed factual position that no objection was raised by any quarter with regard to any deficiency/irregularity, either by the RP or the Appellant or the CoC in finally approving the resolution plan which was sent to the Adjudicating Authority–NCLT for approval. Further, the NCLT and the NCLAT did not fully recognise that under the Resolution Plan, the Corporate Debtor was set to be revived and not liquidated.

In view of the above, the RA filed an appeal before the Supreme Court.

In the light of the above inputs and referring to the applicable provisions of the IBC Code, 2016 and the Regulations framed thereunder together with the decided case laws, answer the following questions :

(a)An agreement was entered into during August, 2006 between the ZY Infrastructures Private Limited (hereinafter referred to as ‘ZY Infra’) and WV Infrastructure Private Limited (hereinafter referred to as ‘the Corporate Debtor’), for development of land licensed with the ZY Infra admeasuring 8 acres into a residential group housing complex at Bengaluru. However, the ZY infra, being aggrieved by the Corporate Debtor’s alleged misconduct in advertising the project under its own name and without mentioning the name of the ZY Infra, sought reference to arbitration during May, 2011.

The arbitral proceedings culminated in an award dated 1st August, 2016 in favour of the ZY Infra. In addition to awarding a monetary claim, the award inter alia directed the Corporate Debtor to apply to the authorities for transfer of the requisite licenses to the ZY Infra.

Aggrieved by the award, the Corporate Debtor filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Arbitration Act’) during September, 2016.

On the same date, the ZY Infra filed execution proceedings in respect of the said award.

These execution proceedings were ultimately adjourned sine die on 22nd December, 2017 on account of the pendency of the proceedings under Section 34 of the Arbitration Act.

These proceedings under Section 34 of the Arbitration Act culminated in the award being upheld by Special Commercial Court with some modifications.

Corporate Debtor who has filed an appeal against the same under Section 37 of the Arbitration Act is stated to be pending.

Meanwhile, the Corporate Insolvency Resolution Process (‘CIRP’) was initiated against the Corporate Debtor in respect of three real estate projects by certain homebuyers who had invested in these projects. This application under Section 7 of the Insolvency and Bankruptcy Code (hereinafter referred to as ‘the IBC’) was admitted on 27th March, 2019 by the Adjudicating Authority. On the same date, an Interim Resolution Professional (‘IRP’) was appointed. The IRP issued a public announcement inviting claims from creditors, in accordance with Section 15 of the IBC read with Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as the ‘IBBI Regulations’) on 30th March, 2019.

After receipt of the claims, the IRP constituted the Committee of Creditors (‘COC’) on 6th November, 2019 and circulated the draft information memorandum and invited expressions of interest from prospective resolution applicants. Five such applications were received.

Thereafter, the IRP was replaced by Resolution Professional (RP) by the COC on 18th June,

2020. The resolution plan as submitted by TSK Residential Welfare Association was approved by the COC by a majority vote of 80.74% on 11th July, 2020. This plan was then submitted by RP to the Adjudicating Authority for approval under Section 31 of the IBC on 8th September, 2020.

ZY Infra sent an email on 19th August, 2020 to RP highlighting their pending claim of ₹ 35 Crores and odd against the Corporate Debtor arising from the arbitral award dated 1st August, 2016, confirmed with certain modifications in the proceedings under Section 34 of the said Act.

However, RP rejected this claim on 25th August, 2020 on the ground that the time period for submitting the claim was within 90 days of initiation of CIRP and the applicant was 287 days late. A Resolution plan had already been passed by the COC.

ZY Infra filed an application under Section 60(5) of the IBC. During the pendency of RP’s application for approval of the plan before the Adjudicating Authority, seeking directions to RP that the ZY Infra’s claim may be considered on merits.

This relief was granted to the ZY Infra by the Adjudicating Authority vide an order dated 3rd November, 2020 predicated on the following grounds :

(a)RP could not have summarily rejected ZY Infra’s claim, as this claim would have appeared in the Corporate Debtor’s books of accounts;

(b)In case such books of accounts were not available, RP had a duty to obtain them and verify the financial position; and

(c)as such announcement was made through public newspapers, it was likely that the appellant missed out on the same.

RP thereafter preferred an appeal under Section 61 of the IBC before the National Company Law Appellate Tribunal, New Delhi (‘NCLAT’) against the Adjudicating Authority’s order.

The NCLAT, vide the impugned order dated 30th July, 2021, did not favour the view adopted by the Adjudicating Authority. Their reasoning was as follows :

(i)RP had effectuated proper service for inviting claims in accordance with Regulation 6 of the IBBI Regulations which only mandates a pronouncement through newspapers and not through personal service—an aspect that was not disputed by the appellant;

(ii)The appellant failed to show that it filed its claim as soon as it came to know of the initiation of the CIRP.

(iii)RP even filed an application under Section 19 of the IBC before the Adjudicating Authority seeking that a direction be issued to the ex-management to provide all records. Although nothing came of this attempt, it reflected his sincere efforts;

(iv)Regulations 12 and 13 of the IBBI Regulations obliged the RP to accept claims filed within the extended period of 90 days of the commencement of CIRP.

(v)The resolution plan, as approved by the COC, would be jeopardised if new claims were entertained.

Consequent to the decision of the NCLAT, ZY Infra approached Supreme Court of India for the final resolution.

In the above background mentioning relevant case laws and applicable provisions of IBC and IBBI Regulations answer the following questions :

(a)Suruchi Fabrics Limited (SFL) availed term loan of ₹ 10 Crore and cash credit facility of ₹ 2 Crore from A-One Bank Ltd. Since the SFL was unable to service the loan, the Board of Directors of the company passed a resolution to initiate Corporate Insolvency Resolution Process (CIRP) and proposed the name of Aneri, an Insolvency Professional to act as Interim Resolution Professional (IRP). Apart from the credit facility from the A-One Bank, SFL have no other financial creditor. However, SFL have outstanding dues towards its operational creditors amounting to ₹ 25 Crore.

Mathew is the Company Secretary of A-One Bank. Mathew’s younger brother Thomas is the Chief Financial Officer in the SFL. Although Mathew and Thomas are brothers in relation, they are not in talking terms. Thomas joined the SFL after the loan was disbursed by the Bank.

In the first meeting of the Committee of Creditors (CoC) it was decided to change the existing IRP and to appoint Brijesh as Resolution Professional.

The Information Memorandum was prepared and expression of interest was invited for resolution plan.

Two Resolution Proposals were submitted, details of which are as under :

(i)A company named as Dinesh Textiles Private Limited, submitted the resolution plan.

Dinesh who is the Managing Director of the company holds 90% of the equity and rest 10% is in the name of his wife Neeta. Dinesh Textiles Private Limited has availed loan from another bank and his account has been classified as Non-performing Account by that bank.

(ii)Harsh, another Resolution Applicant was convicted and remained in imprisonment for two years under the provisions of the Prevention of Money Laundering Act, 2002. He was released in December 2021.

On the above background, referring relevant case laws, provisions of the Insolvency and Bankruptcy Code, 2016 and Regulations made by IBBI, answer the following questions :

(a)Suruchi Fabrics Limited (SFL) availed term loan of ₹ 10 Crore and cash credit facility of ₹ 2 Crore from A-One Bank Ltd. Since the SFL was unable to service the loan, the Board of Directors of the company passed a resolution to initiate Corporate Insolvency Resolution Process (CIRP) and proposed the name of Aneri, an Insolvency Professional to act as Interim Resolution Professional (IRP). Apart from the credit facility from the A-One Bank, SFL have no other financial creditor. However, SFL have outstanding dues towards its operational creditors amounting to ₹ 25 Crore.

Mathew is the Company Secretary of A-One Bank. Mathew’s younger brother Thomas is the Chief Financial Officer in the SFL. Although Mathew and Thomas are brothers in relation, they are not in talking terms. Thomas joined the SFL after the loan was disbursed by the Bank.

In the first meeting of the Committee of Creditors (CoC) it was decided to change the existing IRP and to appoint Brijesh as Resolution Professional.

The Information Memorandum was prepared and expression of interest was invited for resolution plan.

Two Resolution Proposals were submitted, details of which are as under :

(i)A company named as Dinesh Textiles Private Limited, submitted the resolution plan.

Dinesh who is the Managing Director of the company holds 90% of the equity and rest 10% is in the name of his wife Neeta. Dinesh Textiles Private Limited has availed loan from another bank and his account has been classified as Non-performing Account by that bank.

(ii)Harsh, another Resolution Applicant was convicted and remained in imprisonment for two years under the provisions of the Prevention of Money Laundering Act, 2002. He was released in December 2021.

On the above background, referring relevant case laws, provisions of the Insolvency and Bankruptcy Code, 2016 and Regulations made by IBBI, answer the following questions :

(b)Jayparan (“Jay” in short), has paid a sum of ₹ 4 crore to RD Developers Private Limited (hereinafter referred as ‘Corporate Debtor’) who was engaged in real estate business. This sum of ₹ 4 crore was paid in 2010 as earnest money against advance sale consideration for booking of a flat. Since there was no progress in the said project until 2014, Jay sought refund of the earnest money following which the Corporate Debtor assured to return the same with interest @ 12% per annum.

Since then, the sum of ₹ 4 crore was mutually treated as unsecured loan and reflected accordingly in the books of the account of the Corporate Debtor. Interest thereon was paid by the Corporate Debtor and TDS was also deducted thereon for which confirmation of books of accounts was periodically sought from Jay. Thus, it was contended that the Corporate Debtor by his own conduct changed the status of the home-buyer to a Financial Creditor.

The Corporate Debtor paid regular interest till FY 2016-17. On the grounds of liquidity and financial crunch, he sought waiver of interest from Jay which request was, however declined.

It is the contention of Mr. Jay that the Corporate Debtor thereafter, defaulted in making interest payment since 1st October, 2017 and continued to default from FY 2017-18 until FY 2020-21 except for part repayment in 2018. It is further submitted that on the demise of Mr.

Jay during October 2018, the loan amount was transferred to the name of his wife, Kushma Jayparan which stands confirmed from the confirmation of account for FY 2019-20 signed by the Directors of the Corporate Debtor.

On account of non-payment of debt, a letter dated 1st February, 2021 was sent by Kushma Jayparan to the Corporate Debtor demanding a sum of ₹ 6.20 crores which included principal amount of ₹ 4.09 crores and ₹ 2.11 crores as interest. Since the amount remained outstanding, on behalf of Jay, his wife filed an application under Section 7 of the IBC on 6th October, 2021 for initiating a Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor for the default committed.

The learned Counsel of the Corporate Debtor contended that there was no agreement between Jay and the Corporate Debtor with respect to the amount advanced by him and further, the amount paid by Jay is as an Advance amount for buying a flat under development of the Corporate Debtor. Hence, Jay is only a home buyer and not a Financial Creditor of unsecured loans. It is also the contention of the Corporate Debtor that the investment was made by the Jay to receive returns on investment from the Corporate Debtor. Hence, the sum advanced was in the nature of speculative investment and cannot be treated as a financial debt.

The Adjudicating Authority viewed that as no time period was stipulated in the demand notice, it may be held that no default had occurred and also this date fell in the prohibited period under Section 10A of the IBC, 2016. Thus, the Adjudicating Authority held that in both these circumstances, Section 7 application was non-maintainable. Aggrieved with the findings of the Adjudicating Authority, the wife of Jay preferred an appeal before the National Company Law Appellate Tribunal.

Referring to the relevant case laws and the applicable provisions of the IBC, 2016 and the Regulations made thereunder, answer the following questions :

Read the following case study and answer the questions that follow :

Arya is a Practicing Company Secretary and Insolvency Professional. She renders Corporate Advisory Services and very often delivers guest lectures in Financial Institutions, Banks and Management and Law Colleges on the topics of Corporate Insolvency, Restructuring and Fund Raising.

R. K. Institute of Management and Technology (RK-IMT) is a reputed management college in Jaipur.

RK-IMT was established in the year 2000 and this year the college in completing its glorious 25 years.

The RK-IMT planned for its Silver Jubilee and organized a whole week of celebrations. During this week the college organized various programs / activities viz: Sports Day, Debate Competition, Cultural Evening, Seminars, Workshop etc.

Arya was invited to address a seminar on the topic of Corporate Insolvency. Arya explained the objectives and purposes of the Insolvency and Bankruptcy Code, 2016 (IBC) and touched the key points relating to Financial Creditor, Operational Creditor, Corporate Debtor, Default, Initiation of Corporate Insolvency, Constitution of Committee of Creditors, and Insolvency Resolution Process Period etc. After delivering a thought-provoking lecture, Arya invited the audiences to raise queries on the topic.

Vedika, a student of the college, was curious to know more about Insolvency Law. She exclaimed to know that the IBC is a totally new concept and prior to this enactment whether there was any such law on insolvency existed in India. Arya clarified the position.

Reyansh, an Associate Professor of the college, was curious to know that whether IBC is an effective recovery tool and the lending institution can effectively exercise its control over the debtor through the Resolution Professional. Arya again clarified the doubts of Reyansh referring the objectives and purpose of IBC.

As a lecturer of the Institute, Rohil shared his own experience, he booked a 2-BHK Flat in Swarnim Galaxy, a building project of Swarnim Builders Limited (Swarnim Builders), and paid upto 90% of the purchase price to the builder, Swarnim Builders, on various stages. Ten per cent (10%) of the purchase price was to be paid at the time of taking the possession which was due in December,

2023. However, the possession of the flat was not given by the Builder to him. Rohil is not the only allottee but all the other allottees who had booked the flat in the Swarnim Galaxy were not given the possession and the Builder was taking excuses by narrating false reasons. Rohil narrated the whole story before the Arya and requested if she could help him. Arya asked Rohil to let her know the details of the project and relevant information to proceed in the case.

Rohil meets Arya at her office and submits her the details of the project available with him. Arya studies about the project and also checks the financial statements of Swarnim Builders, which are filed with Registrar of Companies. On scrutiny of financial statements, Arya found out that Rishabh Suppliers Limited (RSL), one of the major suppliers of Swarnim Builders had supplied the construction materials to Swarnim Builders amounting to ₹ 15 crore. On scrutiny of RSL’s financial statements, Arya has found out that RSL has assigned its book debts at a discount of 3% in favour of the Moon star Financiers Limited (MFL) a NBFC Company.

Based on the above factual background, answer the following questions :

Read the following carefully and answer the questions given at the end:

BSC Bank filed an application for initiating Corporate Insolvency Resolution Process (CIRP) against one of its borrower company M/s Moon Storm Pvt. Ltd., in the National Company Law Tribunal (NCLT). The NCLT allowed the application and passed order for commencement of CIRP. Rohit has been appointed as Interim Resolution Professional (IRP) and moratorium was declared.

The Committee of Creditor (CoC) was constituted and Rohit was appointed as Resolution Professional by CoC. Meetings of the CoC was convened from time to time and expression of interest for Resolution Plan was invited from various parties via public notice. However, no Resolution Plan was received during the currency of 180 days period. Hence, NCLT on the recommendation of RP extended the initial time period from 180 days to 270 days. Since, no one had shown the expression of interest even during the extended period of 270 days, the CoC appointed another Resolution Professional (RP) after the expiry of 270 days.

When the matter of resolution could not be completed within the extended time.

NCLT, extended the period of CIRP by further period of 90 days after the expiry of 270 days by exercising the power conferred under Section 55 of Insolvency and Bankruptcy Code, 2016 by treating the matter as ‘Fast Track Corporate Insolvency Resolution Process’ and also determined the ‘Corporate Insolvency Resolution Process fee’ and the ‘Cost’ incurred and payable to the Resolution Professional.

Aggrieved from the said order of the NCLT, the Resolution Professional preferred appeals against the order of the NCLT. In light of the above facts, answer the following questions :

Facts of the case :

Richa Infrastructure Limited engaged in the construction of roads is in default in repayment of loans due to general slowdown in construction industry. Repeated follow-up by the financial institutions with the Corporate Debtor, ‘Richa Infrastructure Ltd.’ for submitting its specific plan for repayment of dues did not evoke any response.

One of the financial creditors filed a case against Richa Infrastructure Ltd. before the Debt Recovery Tribunal.

Richa Infrastructure Ltd. had issued some cheques to some Operational Creditors.

All the cheques issued to creditors were dishonored/returned by the banker due to insufficient funds in the account. Consequently, Operational Creditors issued legal notices to Richa Infrastructure Ltd, with clear intimation that if due amount is not paid within 15 days from the date of receipt of legal notice, criminal complaint shall be filed against Richa Infrastructure Ltd. under the Negotiable Instrument Act, 1881 and criminal complaints were filed. After a joint lenders meeting, all the financial institutions unanimously decided to apply under the provisions of the Insolvency and Bankruptcy Code, 2016 to the National Company Law Tribunal (NCLT) for starting the process of Insolvency Resolution. Their application was admitted by NCLT on 30th June, 2018 and orders were issued for commencement of a moratorium period of 180 days, appointment of an Interim Resolution Professional and issue of public announcement inviting claims from all concerned.

After public announcement and the responses thereto, following details were brought out :

(1)Financial debts due to unsecured creditors (F1) - ₹15 Crores.

(2)Workmen’s due for the period of 24 months preceding the liquidation commencement date (F2) - ₹25 Crores.

(3)Debts due to a secured creditor who has relinquished his security (F3) - ₹30 Crores.

(4)Amount due to the Central Government (F4) - ₹27 Crores.

(5)Debts due to a secured creditor after the enforcement of security interest (F5) -₹36 Crores.

Insolvency Resolution Professional (IRP) approached the promoters, directors and officials of Richa Infrastructure Ltd to provide the necessary information, documents, statutory records, books of accounts to verify the claims filed by creditors. The promoters, directors and officials of Richa Infrastructure Ltd. ignored the request of Resolution Professional.

M/s ANG & Associates, Chartered Accountants were the Statutory Auditors of Richa Infrastructure Ltd. They audited the accounts for the financial year end March, 2018 of Richa Infrastructure Ltd. and submitted the Annual Accounts for approval of the Board of Directors.

The Resolution Professional has appointed valuers and has received the valuation reports. The Resolution Professional then started the efforts to get resolution proposals.

However during the normal resolution process period of 180 days, no resolution proposal could be finalized. The Committee of Creditors decided that Resolution Professional should get the extension as per the provisions of Insolvency and Bankruptcy Code, 2016.

Based on the above facts, answer the following questions :

(B)Mr. Krish, an operational creditor, filed an application with the Adjudicating Authority (NCLT, Delhi) to initiate the Corporate Insolvency Resolution Process (CIRP) against M/s Master Mind Limited, and the application was accepted. On 10th July 2023, NCLT Delhi appointed Mr.

Aditya to act as an Interim Resolution Professional of M Limited. After the appointment, Mr.

Aditya issued the public announcement on 12th July 2023, of the initiation of CIRP process and called for the submission of claims. On 20th July 2023, the Committee of Creditors was constituted by Mr. Aditya.

Thereafter, Mr. Krish wants to withdraw his application under Section 12A of the Insolvency and Bankruptcy Code, 2016. However, Mr. Aditya denied filing a withdrawal application stating that the Committee of Creditors has already been constituted.

Referring to the provisions of the Insolvency and Bankruptcy Code, 2016, answer the following with reference to the above facts :

(B)Mr. Krish, an operational creditor, filed an application with the Adjudicating Authority (NCLT, Delhi) to initiate the Corporate Insolvency Resolution Process (CIRP) against M/s Master Mind Limited, and the application was accepted. On 10th July 2023, NCLT Delhi appointed Mr.

Aditya to act as an Interim Resolution Professional of M Limited. After the appointment, Mr.

Aditya issued the public announcement on 12th July 2023, of the initiation of CIRP process and called for the submission of claims. On 20th July 2023, the Committee of Creditors was constituted by Mr. Aditya.

Thereafter, Mr. Krish wants to withdraw his application under Section 12A of the Insolvency and Bankruptcy Code, 2016. However, Mr. Aditya denied filing a withdrawal application stating that the Committee of Creditors has already been constituted.

Referring to the provisions of the Insolvency and Bankruptcy Code, 2016, answer the following with reference to the above facts :

(a)Suhani and Dhwani are childhood friends and were very fond of designing Indian traditional dresses. After completing their schooling, Suhani joined a fashion designing course to pursue her interest and Dhwani decided to be a fashion Model. She participated in various fashion show programs conducted by Non-Government Organisation(s) engaged in the creating awareness for cervical cancer which is spreading rapidly among Ladies in India.

After some years, in one of the fashion programmes, they met again and planned to form a private Limited Company in the name of Suhani Fashions Private Limited having a paid-up share capital of 5 Crore and became Entrepreneurs.

Suhani Fashions Pvt. Ltd. is engaged in the business of Manufacturing and Selling Ladies Suits and Sarees in Kolkata, West Bengal which is a very big market for Indian traditional dresses.

They also offered their products on online e-commerce platforms. They employed more than 100 Ladies and other staff in their workshop who were engaged in designing, cutting, tailoring and other allied works. Suhani also used to design products being sold by the company.

Both Suhani and Dhwani were Promoter Directors of the company as per the Article of Association of the company and also the subscribers to the Memorandum of Association of the company by subscribing 50% shares each in the company. Dhwani, being a fashion model, did modelling for her products in order to improve the sales of the company. The company started growing very fast and sales touched a figure of ₹ 20 crores in the very first year and in order to meet the working capital and other requirements, the company approached the bankers Beta bank and Gama Bank for a facility of ₹ 3 crores and ₹ 5 crores respectively. The Company already had taken the credit facilities with Alpha Bank and outstanding amount is ₹ 6 crores.

After the change in demand of the products and growing need of Formal dresses from the Indian traditional dresses, sales started declining and the company started facing cash crunch and made a default in paying the instalments for ₹ 2 crores which were outstanding in the name of the Alpha bank.

The Alpha bank decided to file an Insolvency Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 as a financial Creditor on 3rd January, 2024. The Corporate Insolvency Resolution Process application was admitted by the Adjudicating Authority on 25th January, 2024. Moratorium was declared and Ishann was appointed as an Interim Resolution Professional. Ishaan, Interim Resolution Professional made a public announcement and prepared a list of creditors based on the claims received. The CoC is yet to be formed.

Consider the above facts and answer the following questions :

Read the case study carefully and answer the questions given at the end :

JCP Industries Ltd (JIL) was incorporated in the year 2011 with an authorized share capital of ₹2,000 crore having its registered office located in Mumbai with the main objects to carry out the business (a) manufacturing of heavy duty earth moving machinery and their spare parts (b) purchase, sale, construction of multi-story commercial and residential apartments under own name or as under Joint Development Agreements (c) Mining of minerals and thereafter refining and processing them for sale; and (d) doing the business in the hospitality sector by running and maintaining Hotels, Resorts and Budget Hotels. The paid-up share capital of the company as on date is ₹1,750 crore.

During the course of business, the company has approached various banks, state finance corporations and NBFCs for availing financial assistance in the nature of term loans and other facilities. However, based on the business plans and security offered, the finance proposal was approved by National Bank of India (the Bank) in the form of both fund based and non-fund based limits. The company during the course of its business operations was also availing credit for 90 days to 120 days from its creditors in connection with the purchase of raw material being used in the business of manufacturing heavy duty earth moving machineries, real estate, mining and hospitality sectors. The progress of the company since its incorporation till 31st March, 2019 was exceptional. However, because of certain transactions carried out by the directors with their relatives and other parties between 1st July, 2020 to 30th June, 2021 which were in the nature purchase of raw-material for different business segments of the company including the purchase of immovable properties as well as transferring and sale of goods and assets of the company to such related and other parties by givingthem preference over the other buyers ultimately resulted into mismatch in the cash flows and consequently resulted into losses to the company.

With an intention to grow organically, the company also incorporated a wholly owned subsidiary in the year 2017 under the name of JCP Buildcon Ltd (JAL) which was mainly engaged in the real estate business involving construction of apartments and flats in multi-story buildings under the Joint Development Agreements being entered into with the various parties including various State Governments under Housing Schemes. JAL entered into a tripartite Joint Development Agreement with Jaipur Development Authority (JDA) for construction of apartments and flats in multi-story buildings after development of land belonging to JDA. In an attempt to extend support to JIL, JAL had also mortgaged its assets in favour of banks in the month of August, 2018 when additional financial assistance was provided to JIL.

The financial condition of JIL started deteriorating after July, 2019 because of reduction in the business activities as well as default being committed in honoring the debt obligations towards banks, payment to trade creditors and delays in construction of apartments to be handed over to the buyers who had entered into agreements with the company and have paid almost 95% of the cost of the apartment.

The banks, trade creditors and buyers of the flats were constantly making follow up with the management but no reply was given to them by the management of JIL as well as JAL. National Bank of India during their internal review meeting informed their legal team that the promoter/directors may have siphoned off the money which was supposed to have been used for business purposes; since it appears to them that the amounts have been advanced to related parties and diverted towards a few suspicious transactions.

The bank despite the continuous follow up with the management and the Board of directors could not get any suitable response relating to the repayment plan to honor the debt obligations.

Considering the situation and based on the recommendation of their legal department, the bank decided to take action against the company under the Insolvency and Bankruptcy Code, 2016 (the Code) and thus filed an application on 16th February, 2022 before the Adjudicating Authority (AA) for initiating Corporate Insolvency Resolution Process (CIRP). In the application, the Bank had proposed name of Robin to act as Interim Resolution Professional (IRP). Simultaneously, other lenders of JAL also submitted an application before the AA to initiate CIRP against JAL for default in repayment of their dues.

After hearing the parties, the AA admitted the applications in the case of JIL and JAL on 25th April, 2022 and also confirmed the appointment of Robin as IRP in both the companies. In the case of JIL, Robin constituted a Committee of Creditors (CoC) on 15th May, 2022 and called first meeting of the CoC on 20th May, 2022. The constitution of CoC by Robin was challenged by the operational creditors as well as home buyers since their name was not included in the list of the CoC. Further, the members of the suspended Board of directors of JIL also challenged the actions of Robin who did not allow their participation in the first meeting of the CoC.

During the first meeting of the CoC in the case of JIL, Robin was confirmed to act as Resolution Professional (RP) by the CoC and was asked to invite the Expression of Interest (EoI) from the Resolution Applicants (RA) for submitting Resolution Plan.

Besides the above, JDA has also issued notice to JAL for taking over possession of the land given for the purpose of construction.

Considering the above facts answer the following questions :

(a)Read the following and answer the questions below based on the relevant case laws and the applicable provisions of the Insolvency and Bankruptcy Code, 20l6 (‘IBC, 2016’) and the Regulations made thereunder in this regard.

Facts of the case Thakur Engineering Products Private Limited [‘the company’] engaged in the business Industrial Machinery supplies. It got Machinery supplies worth ₹ 21,10,11,054/- from a supplier (‘Respondent’), which was due and payable by the company. Several cheques were issued by the company in favour of the respondent towards amounts payable for supplies, all of which were returned dishonoured for the reason “funds insufficient”.

As a result, the respondent issued a statutory demand notice under Section 138 read with Section 141 of the Negotiable Instruments Act, l88l (‘NI Act’), calling upon the company and its three Directors, to pay the amount within 15 days of the receipt of the notice.

Subsequently, two cheques for a total amount of ₹ 90,80,123/- presented by the respondent for encashment were returned dishonoured for the reason “funds insufficient”. A second demand notice was therefore issued under the same Sections by the respondent, calling upon the company and the appellants to pay this amount within l5 days of the receipt of the notice.

Since no payment was forthcoming pursuant to the two statutory demand notices, two criminal complaints, were filed by the respondent against the company and the appellants under Section 138 read with Section 141 of the Negotiable Instruments Act before the Additional Chief Metropolitan Magistrate [‘ACMM’]. Summons were issued by the ACMM to the company and the appellants in both the criminal complaints.

Meanwhile, as a statutory notice under Section 8 of the IBC, 20l6 had been issued by the respondent to the company, and an order was passed by the Adjudicating Authority admitting the application under Section 9 of the IBC and directing commencement of the corporate insolvency resolution process with respect to the company, a moratorium in terms of Section 14 of the IBC was ordered.

Pursuant thereto, the Adjudicating Authority stayed further proceedings in the two criminal complaints pending before the ACMM. In an appeal filed to the National Company Law Appellate, Tribunal (‘NCLAT’), the NCLAT set aside this order, holding that Section 138, being a criminal law provision, cannot be held to be a “proceeding” within the meaning of Section 14 of the IBC, 20l6. In an appeal filed before the Court, the Court ordered a stay of further proceedings in the two complaints pending before the learned ACMM.

Subsequent thereto, since a resolution plan submitted by the promoters of the company had been approved by the committee of creditors, the Adjudicating Authority approved such plan as a result of which, the moratorium order ceased to have effect. It may only be added that at present, an application for withdrawal of approval of this resolution plan has been filed by the financial creditors of the company before the Adjudicating Authority.

Equally, an application to extend time for implementation of this plan has been filed by the resolution applicant before the Adjudicating Authority. Both these applications have yet to be decided by the Adjudicating Authority.

On the above background, referring the provisions of IBC, 2016 and applicable case laws answer following questions :

(a)Read the following and answer the questions below based on the relevant case laws and the applicable provisions of the Insolvency and Bankruptcy Code, 20l6 (‘IBC, 2016’) and the Regulations made thereunder in this regard.

Facts of the case Thakur Engineering Products Private Limited [‘the company’] engaged in the business Industrial Machinery supplies. It got Machinery supplies worth ₹ 21,10,11,054/- from a supplier (‘Respondent’), which was due and payable by the company. Several cheques were issued by the company in favour of the respondent towards amounts payable for supplies, all of which were returned dishonoured for the reason “funds insufficient”.

As a result, the respondent issued a statutory demand notice under Section 138 read with Section 141 of the Negotiable Instruments Act, l88l (‘NI Act’), calling upon the company and its three Directors, to pay the amount within 15 days of the receipt of the notice.

Subsequently, two cheques for a total amount of ₹ 90,80,123/- presented by the respondent for encashment were returned dishonoured for the reason “funds insufficient”. A second demand notice was therefore issued under the same Sections by the respondent, calling upon the company and the appellants to pay this amount within l5 days of the receipt of the notice.

Since no payment was forthcoming pursuant to the two statutory demand notices, two criminal complaints, were filed by the respondent against the company and the appellants under Section 138 read with Section 141 of the Negotiable Instruments Act before the Additional Chief Metropolitan Magistrate [‘ACMM’]. Summons were issued by the ACMM to the company and the appellants in both the criminal complaints.

Meanwhile, as a statutory notice under Section 8 of the IBC, 20l6 had been issued by the respondent to the company, and an order was passed by the Adjudicating Authority admitting the application under Section 9 of the IBC and directing commencement of the corporate insolvency resolution process with respect to the company, a moratorium in terms of Section 14 of the IBC was ordered.

Pursuant thereto, the Adjudicating Authority stayed further proceedings in the two criminal complaints pending before the ACMM. In an appeal filed to the National Company Law Appellate, Tribunal (‘NCLAT’), the NCLAT set aside this order, holding that Section 138, being a criminal law provision, cannot be held to be a “proceeding” within the meaning of Section 14 of the IBC, 20l6. In an appeal filed before the Court, the Court ordered a stay of further proceedings in the two complaints pending before the learned ACMM.

Subsequent thereto, since a resolution plan submitted by the promoters of the company had been approved by the committee of creditors, the Adjudicating Authority approved such plan as a result of which, the moratorium order ceased to have effect. It may only be added that at present, an application for withdrawal of approval of this resolution plan has been filed by the financial creditors of the company before the Adjudicating Authority.

Equally, an application to extend time for implementation of this plan has been filed by the resolution applicant before the Adjudicating Authority. Both these applications have yet to be decided by the Adjudicating Authority.

On the above background, referring the provisions of IBC, 2016 and applicable case laws answer following questions :

(a)Read the following and answer the questions below based on the relevant case laws and the applicable provisions of the Insolvency and Bankruptcy Code, 20l6 (‘IBC, 2016’) and the Regulations made thereunder in this regard.

Facts of the case Thakur Engineering Products Private Limited [‘the company’] engaged in the business Industrial Machinery supplies. It got Machinery supplies worth ₹ 21,10,11,054/- from a supplier (‘Respondent’), which was due and payable by the company. Several cheques were issued by the company in favour of the respondent towards amounts payable for supplies, all of which were returned dishonoured for the reason “funds insufficient”.

As a result, the respondent issued a statutory demand notice under Section 138 read with Section 141 of the Negotiable Instruments Act, l88l (‘NI Act’), calling upon the company and its three Directors, to pay the amount within 15 days of the receipt of the notice.

Subsequently, two cheques for a total amount of ₹ 90,80,123/- presented by the respondent for encashment were returned dishonoured for the reason “funds insufficient”. A second demand notice was therefore issued under the same Sections by the respondent, calling upon the company and the appellants to pay this amount within l5 days of the receipt of the notice.

Since no payment was forthcoming pursuant to the two statutory demand notices, two criminal complaints, were filed by the respondent against the company and the appellants under Section 138 read with Section 141 of the Negotiable Instruments Act before the Additional Chief Metropolitan Magistrate [‘ACMM’]. Summons were issued by the ACMM to the company and the appellants in both the criminal complaints.

Meanwhile, as a statutory notice under Section 8 of the IBC, 20l6 had been issued by the respondent to the company, and an order was passed by the Adjudicating Authority admitting the application under Section 9 of the IBC and directing commencement of the corporate insolvency resolution process with respect to the company, a moratorium in terms of Section 14 of the IBC was ordered.

Pursuant thereto, the Adjudicating Authority stayed further proceedings in the two criminal complaints pending before the ACMM. In an appeal filed to the National Company Law Appellate, Tribunal (‘NCLAT’), the NCLAT set aside this order, holding that Section 138, being a criminal law provision, cannot be held to be a “proceeding” within the meaning of Section 14 of the IBC, 20l6. In an appeal filed before the Court, the Court ordered a stay of further proceedings in the two complaints pending before the learned ACMM.

Subsequent thereto, since a resolution plan submitted by the promoters of the company had been approved by the committee of creditors, the Adjudicating Authority approved such plan as a result of which, the moratorium order ceased to have effect. It may only be added that at present, an application for withdrawal of approval of this resolution plan has been filed by the financial creditors of the company before the Adjudicating Authority.

Equally, an application to extend time for implementation of this plan has been filed by the resolution applicant before the Adjudicating Authority. Both these applications have yet to be decided by the Adjudicating Authority.

On the above background, referring the provisions of IBC, 2016 and applicable case laws answer following questions :

(a)Read the following and answer the questions below based on the relevant case laws and the applicable provisions of the Insolvency and Bankruptcy Code, 20l6 (‘IBC, 2016’) and the Regulations made thereunder in this regard.

Facts of the case Thakur Engineering Products Private Limited [‘the company’] engaged in the business Industrial Machinery supplies. It got Machinery supplies worth ₹ 21,10,11,054/- from a supplier (‘Respondent’), which was due and payable by the company. Several cheques were issued by the company in favour of the respondent towards amounts payable for supplies, all of which were returned dishonoured for the reason “funds insufficient”.

As a result, the respondent issued a statutory demand notice under Section 138 read with Section 141 of the Negotiable Instruments Act, l88l (‘NI Act’), calling upon the company and its three Directors, to pay the amount within 15 days of the receipt of the notice.

Subsequently, two cheques for a total amount of ₹ 90,80,123/- presented by the respondent for encashment were returned dishonoured for the reason “funds insufficient”. A second demand notice was therefore issued under the same Sections by the respondent, calling upon the company and the appellants to pay this amount within l5 days of the receipt of the notice.

Since no payment was forthcoming pursuant to the two statutory demand notices, two criminal complaints, were filed by the respondent against the company and the appellants under Section 138 read with Section 141 of the Negotiable Instruments Act before the Additional Chief Metropolitan Magistrate [‘ACMM’]. Summons were issued by the ACMM to the company and the appellants in both the criminal complaints.

Meanwhile, as a statutory notice under Section 8 of the IBC, 20l6 had been issued by the respondent to the company, and an order was passed by the Adjudicating Authority admitting the application under Section 9 of the IBC and directing commencement of the corporate insolvency resolution process with respect to the company, a moratorium in terms of Section 14 of the IBC was ordered.

Pursuant thereto, the Adjudicating Authority stayed further proceedings in the two criminal complaints pending before the ACMM. In an appeal filed to the National Company Law Appellate, Tribunal (‘NCLAT’), the NCLAT set aside this order, holding that Section 138, being a criminal law provision, cannot be held to be a “proceeding” within the meaning of Section 14 of the IBC, 20l6. In an appeal filed before the Court, the Court ordered a stay of further proceedings in the two complaints pending before the learned ACMM.

Subsequent thereto, since a resolution plan submitted by the promoters of the company had been approved by the committee of creditors, the Adjudicating Authority approved such plan as a result of which, the moratorium order ceased to have effect. It may only be added that at present, an application for withdrawal of approval of this resolution plan has been filed by the financial creditors of the company before the Adjudicating Authority.

Equally, an application to extend time for implementation of this plan has been filed by the resolution applicant before the Adjudicating Authority. Both these applications have yet to be decided by the Adjudicating Authority.

On the above background, referring the provisions of IBC, 2016 and applicable case laws answer following questions :

Ruby and Emerald Pvt. Ltd (REPL), incorporated on 1st April, 2013 has its registered office in Surat. Gems and Gems Pvt. Ltd (GGPL), incorporated on 11th September, 2014 has its registered office in Jaipur. REPL was approached by GGPL for procuring its goods which can be used as raw material in the factory of REPL. It was agreed through a contract between REPL and GGPL that upon procurement of the goods entire payment shall be made by REPL within 10 days of issuance of the tax invoice.

The transaction was smoothly going between REPL and GGPL without any delays in supply of goods and payment. Owner of REPL died due to cardiac arrest and the business operations of REPL were severely affected. REPL started supplying faulty goods to its customers and the quality of raw material being supplied by the suppliers also deteriorated gradually. As on 2nd January, 2021, there were no dues outstanding towards GGPL and balance confirmation from GGPL was also taken by REPL.

However, between 3rd January, 2021 and 31st May, 2021 various transactions happened between REPL and GGPL. GGPL requested for the payments multiple times for such transaction between 3rd January, 2021 and 31st May, 2021; however, GGPL kept supplying goods in good faith based on relationship with REPL. REPL neither responded to requestsof GGPL nor stopped buying goods from them. Because of the long overdue from REPL, GGPL sent a demand notice on 16th June, 2021 through their lawyer to make the payment of entire outstanding to the tune of ‘ 1,25,00,000/- exclusive of interest @ 15% p.a. within 10 days from the receipt of the notice, failing which GGPL will take suitable actions under the law. No communication whatsoever was received from REPL. Therefore, as per the directions of the lawyer, GGPL filed an application to initiate Corporate Insolvency Resolution Process (CIRP)

against REPL. Also, they have sent a letter to the power company to disconnect the supply of electricity to REPL considering that they are not in a position to pay their dues Considering the above facts answer the following questions :

Facts of the case :

Richa Infrastructure Limited engaged in the construction of roads is in default in repayment of loans due to general slowdown in construction industry. Repeated follow-up by the financial institutions with the Corporate Debtor, ‘Richa Infrastructure Ltd.’ for submitting its specific plan for repayment of dues did not evoke any response.

One of the financial creditors filed a case against Richa Infrastructure Ltd. before the Debt Recovery Tribunal.

Richa Infrastructure Ltd. had issued some cheques to some Operational Creditors.

All the cheques issued to creditors were dishonored/returned by the banker due to insufficient funds in the account. Consequently, Operational Creditors issued legal notices to Richa Infrastructure Ltd, with clear intimation that if due amount is not paid within 15 days from the date of receipt of legal notice, criminal complaint shall be filed against Richa Infrastructure Ltd. under the Negotiable Instrument Act, 1881 and criminal complaints were filed. After a joint lenders meeting, all the financial institutions unanimously decided to apply under the provisions of the Insolvency and Bankruptcy Code, 2016 to the National Company Law Tribunal (NCLT) for starting the process of Insolvency Resolution. Their application was admitted by NCLT on 30th June, 2018 and orders were issued for commencement of a moratorium period of 180 days, appointment of an Interim Resolution Professional and issue of public announcement inviting claims from all concerned.

After public announcement and the responses thereto, following details were brought out :

(1)Financial debts due to unsecured creditors (F1) - ₹15 Crores.

(2)Workmen’s due for the period of 24 months preceding the liquidation commencement date (F2) - ₹25 Crores.

(3)Debts due to a secured creditor who has relinquished his security (F3) - ₹30 Crores.

(4)Amount due to the Central Government (F4) - ₹27 Crores.

(5)Debts due to a secured creditor after the enforcement of security interest (F5) -₹36 Crores.

Insolvency Resolution Professional (IRP) approached the promoters, directors and officials of Richa Infrastructure Ltd to provide the necessary information, documents, statutory records, books of accounts to verify the claims filed by creditors. The promoters, directors and officials of Richa Infrastructure Ltd. ignored the request of Resolution Professional.

M/s ANG & Associates, Chartered Accountants were the Statutory Auditors of Richa Infrastructure Ltd. They audited the accounts for the financial year end March, 2018 of Richa Infrastructure Ltd. and submitted the Annual Accounts for approval of the Board of Directors.

The Resolution Professional has appointed valuers and has received the valuation reports. The Resolution Professional then started the efforts to get resolution proposals.

However during the normal resolution process period of 180 days, no resolution proposal could be finalized. The Committee of Creditors decided that Resolution Professional should get the extension as per the provisions of Insolvency and Bankruptcy Code, 2016.

Based on the above facts, answer the following questions :

Facts of the case :

SB Pvt. Ltd. supplied raw materials worth ₹15 lakh in January 2018 to a company named MR Ltd. MR Ltd. issued two cheques for ₹10 lakh, dated l5th April, 2018 and ₹ 5 lakh, dated 1st June, 2018, in favour of SB Pvt. Ltd. MR Ltd. had availed loan facility of ₹50 lakh from State Bank of India (SBI) and due to non-payment the account became Non-performing Asset (NPA) in the books of SBI.

The SBI started recovery measures and lastly filed Corporate Insolvency Resolution Process (CIRP) against the MR Ltd. with the Adjudicating Authority (AA), The Adjudicating Authority admitted the CIRP filed by the SBI and the order of moratorium was passed under section 14 of the Insolvency and Bankruptcy Code, 2016 (the Code) on 6th June, 2018.

The first cheque of ₹10 lakh lodged by SB Pvt. Ltd. returned unpaid by its banker for the reason of insufficiency of funds. The SB Pvt. Ltd lodged a criminal complaint under section 138 of the Negotiable Instruments Act, 1881 (NI Act) against MR Ltd.

and its directors in the competent court having jurisdiction on 1st June, 2018. (i. e.

prior to declaration of moratorium by the AA).

The second cheque of ₹5 lakh was also returned unpaid for the reason of insufficiency of funds and again a second criminal complaint was lodged by the SB Pvt. Ltd.

against the MR Ltd. and its directors on l5th June, 2018 (i.e after declaration of moratorium by the AA).

The MR Ltd. and its Directors moved before the Adjudicating Authority and argued that during the period of moratorium proceeding petition under Section 138 of NI Act was not maintainable. This was opposed by the SB Pvt. Ltd. but the Adjudicating Authority directed the SB Pvt. Ltd. to withdraw the complaint case filed under Section 138 of NI Act treating it as a proceeding filed after order of moratorium with observation that such action amounts to deliberate attempt on the part of SB Pvt. Ltd. and sheer misuse of the process of law.

Aggrieved from the order of the Adjudicating Authority, the SB Pvt. Ltd. preferred appeal before the National Company Law Appellate Tribunal (NCLAT). The NCLAT accepted the appeal and set aside the order of the Adjudicating Authority.

Based on the above facts, answer the following questions :

Facts of the case :

SB Pvt. Ltd. supplied raw materials worth ₹15 lakh in January 2018 to a company named MR Ltd. MR Ltd. issued two cheques for ₹10 lakh, dated l5th April, 2018 and ₹ 5 lakh, dated 1st June, 2018, in favour of SB Pvt. Ltd. MR Ltd. had availed loan facility of ₹50 lakh from State Bank of India (SBI) and due to non-payment the account became Non-performing Asset (NPA) in the books of SBI.

The SBI started recovery measures and lastly filed Corporate Insolvency Resolution Process (CIRP) against the MR Ltd. with the Adjudicating Authority (AA), The Adjudicating Authority admitted the CIRP filed by the SBI and the order of moratorium was passed under section 14 of the Insolvency and Bankruptcy Code, 2016 (the Code) on 6th June, 2018.

The first cheque of ₹10 lakh lodged by SB Pvt. Ltd. returned unpaid by its banker for the reason of insufficiency of funds. The SB Pvt. Ltd lodged a criminal complaint under section 138 of the Negotiable Instruments Act, 1881 (NI Act) against MR Ltd.

and its directors in the competent court having jurisdiction on 1st June, 2018. (i. e.

prior to declaration of moratorium by the AA).

The second cheque of ₹5 lakh was also returned unpaid for the reason of insufficiency of funds and again a second criminal complaint was lodged by the SB Pvt. Ltd.

against the MR Ltd. and its directors on l5th June, 2018 (i.e after declaration of moratorium by the AA).

The MR Ltd. and its Directors moved before the Adjudicating Authority and argued that during the period of moratorium proceeding petition under Section 138 of NI Act was not maintainable. This was opposed by the SB Pvt. Ltd. but the Adjudicating Authority directed the SB Pvt. Ltd. to withdraw the complaint case filed under Section 138 of NI Act treating it as a proceeding filed after order of moratorium with observation that such action amounts to deliberate attempt on the part of SB Pvt. Ltd. and sheer misuse of the process of law.

Aggrieved from the order of the Adjudicating Authority, the SB Pvt. Ltd. preferred appeal before the National Company Law Appellate Tribunal (NCLAT). The NCLAT accepted the appeal and set aside the order of the Adjudicating Authority.

Based on the above facts, answer the following questions :

Read the case study carefully and answer the questions given at the end :

JCP Industries Ltd (JIL) was incorporated in the year 2011 with an authorized share capital of ₹2,000 crore having its registered office located in Mumbai with the main objects to carry out the business (a) manufacturing of heavy duty earth moving machinery and their spare parts (b) purchase, sale, construction of multi-story commercial and residential apartments under own name or as under Joint Development Agreements (c) Mining of minerals and thereafter refining and processing them for sale; and (d) doing the business in the hospitality sector by running and maintaining Hotels, Resorts and Budget Hotels. The paid-up share capital of the company as on date is ₹1,750 crore.

During the course of business, the company has approached various banks, state finance corporations and NBFCs for availing financial assistance in the nature of term loans and other facilities. However, based on the business plans and security offered, the finance proposal was approved by National Bank of India (the Bank) in the form of both fund based and non-fund based limits. The company during the course of its business operations was also availing credit for 90 days to 120 days from its creditors in connection with the purchase of raw material being used in the business of manufacturing heavy duty earth moving machineries, real estate, mining and hospitality sectors. The progress of the company since its incorporation till 31st March, 2019 was exceptional. However, because of certain transactions carried out by the directors with their relatives and other parties between 1st July, 2020 to 30th June, 2021 which were in the nature purchase of raw-material for different business segments of the company including the purchase of immovable properties as well as transferring and sale of goods and assets of the company to such related and other parties by givingthem preference over the other buyers ultimately resulted into mismatch in the cash flows and consequently resulted into losses to the company.

With an intention to grow organically, the company also incorporated a wholly owned subsidiary in the year 2017 under the name of JCP Buildcon Ltd (JAL) which was mainly engaged in the real estate business involving construction of apartments and flats in multi-story buildings under the Joint Development Agreements being entered into with the various parties including various State Governments under Housing Schemes. JAL entered into a tripartite Joint Development Agreement with Jaipur Development Authority (JDA) for construction of apartments and flats in multi-story buildings after development of land belonging to JDA. In an attempt to extend support to JIL, JAL had also mortgaged its assets in favour of banks in the month of August, 2018 when additional financial assistance was provided to JIL.

The financial condition of JIL started deteriorating after July, 2019 because of reduction in the business activities as well as default being committed in honoring the debt obligations towards banks, payment to trade creditors and delays in construction of apartments to be handed over to the buyers who had entered into agreements with the company and have paid almost 95% of the cost of the apartment.

The banks, trade creditors and buyers of the flats were constantly making follow up with the management but no reply was given to them by the management of JIL as well as JAL. National Bank of India during their internal review meeting informed their legal team that the promoter/directors may have siphoned off the money which was supposed to have been used for business purposes; since it appears to them that the amounts have been advanced to related parties and diverted towards a few suspicious transactions.

The bank despite the continuous follow up with the management and the Board of directors could not get any suitable response relating to the repayment plan to honor the debt obligations.

Considering the situation and based on the recommendation of their legal department, the bank decided to take action against the company under the Insolvency and Bankruptcy Code, 2016 (the Code) and thus filed an application on 16th February, 2022 before the Adjudicating Authority (AA) for initiating Corporate Insolvency Resolution Process (CIRP). In the application, the Bank had proposed name of Robin to act as Interim Resolution Professional (IRP). Simultaneously, other lenders of JAL also submitted an application before the AA to initiate CIRP against JAL for default in repayment of their dues.

After hearing the parties, the AA admitted the applications in the case of JIL and JAL on 25th April, 2022 and also confirmed the appointment of Robin as IRP in both the companies. In the case of JIL, Robin constituted a Committee of Creditors (CoC) on 15th May, 2022 and called first meeting of the CoC on 20th May, 2022. The constitution of CoC by Robin was challenged by the operational creditors as well as home buyers since their name was not included in the list of the CoC. Further, the members of the suspended Board of directors of JIL also challenged the actions of Robin who did not allow their participation in the first meeting of the CoC.

During the first meeting of the CoC in the case of JIL, Robin was confirmed to act as Resolution Professional (RP) by the CoC and was asked to invite the Expression of Interest (EoI) from the Resolution Applicants (RA) for submitting Resolution Plan.

Besides the above, JDA has also issued notice to JAL for taking over possession of the land given for the purpose of construction.

Considering the above facts answer the following questions :

(a)Read the following and answer the questions below based on the relevant case laws and the applicable provisions of the Insolvency and Bankruptcy Code, 20l6 (‘IBC, 2016’) and the Regulations made thereunder in this regard.

Facts of the case Thakur Engineering Products Private Limited [‘the company’] engaged in the business Industrial Machinery supplies. It got Machinery supplies worth ₹ 21,10,11,054/- from a supplier (‘Respondent’), which was due and payable by the company. Several cheques were issued by the company in favour of the respondent towards amounts payable for supplies, all of which were returned dishonoured for the reason “funds insufficient”.

As a result, the respondent issued a statutory demand notice under Section 138 read with Section 141 of the Negotiable Instruments Act, l88l (‘NI Act’), calling upon the company and its three Directors, to pay the amount within 15 days of the receipt of the notice.

Subsequently, two cheques for a total amount of ₹ 90,80,123/- presented by the respondent for encashment were returned dishonoured for the reason “funds insufficient”. A second demand notice was therefore issued under the same Sections by the respondent, calling upon the company and the appellants to pay this amount within l5 days of the receipt of the notice.

Since no payment was forthcoming pursuant to the two statutory demand notices, two criminal complaints, were filed by the respondent against the company and the appellants under Section 138 read with Section 141 of the Negotiable Instruments Act before the Additional Chief Metropolitan Magistrate [‘ACMM’]. Summons were issued by the ACMM to the company and the appellants in both the criminal complaints.

Meanwhile, as a statutory notice under Section 8 of the IBC, 20l6 had been issued by the respondent to the company, and an order was passed by the Adjudicating Authority admitting the application under Section 9 of the IBC and directing commencement of the corporate insolvency resolution process with respect to the company, a moratorium in terms of Section 14 of the IBC was ordered.

Pursuant thereto, the Adjudicating Authority stayed further proceedings in the two criminal complaints pending before the ACMM. In an appeal filed to the National Company Law Appellate, Tribunal (‘NCLAT’), the NCLAT set aside this order, holding that Section 138, being a criminal law provision, cannot be held to be a “proceeding” within the meaning of Section 14 of the IBC, 20l6. In an appeal filed before the Court, the Court ordered a stay of further proceedings in the two complaints pending before the learned ACMM.

Subsequent thereto, since a resolution plan submitted by the promoters of the company had been approved by the committee of creditors, the Adjudicating Authority approved such plan as a result of which, the moratorium order ceased to have effect. It may only be added that at present, an application for withdrawal of approval of this resolution plan has been filed by the financial creditors of the company before the Adjudicating Authority.

Equally, an application to extend time for implementation of this plan has been filed by the resolution applicant before the Adjudicating Authority. Both these applications have yet to be decided by the Adjudicating Authority.

On the above background, referring the provisions of IBC, 2016 and applicable case laws answer following questions :

(a)Read the following and answer the questions below based on the relevant case laws and the applicable provisions of the Insolvency and Bankruptcy Code, 20l6 (‘IBC, 2016’) and the Regulations made thereunder in this regard.

Facts of the case Thakur Engineering Products Private Limited [‘the company’] engaged in the business Industrial Machinery supplies. It got Machinery supplies worth ₹ 21,10,11,054/- from a supplier (‘Respondent’), which was due and payable by the company. Several cheques were issued by the company in favour of the respondent towards amounts payable for supplies, all of which were returned dishonoured for the reason “funds insufficient”.

As a result, the respondent issued a statutory demand notice under Section 138 read with Section 141 of the Negotiable Instruments Act, l88l (‘NI Act’), calling upon the company and its three Directors, to pay the amount within 15 days of the receipt of the notice.

Subsequently, two cheques for a total amount of ₹ 90,80,123/- presented by the respondent for encashment were returned dishonoured for the reason “funds insufficient”. A second demand notice was therefore issued under the same Sections by the respondent, calling upon the company and the appellants to pay this amount within l5 days of the receipt of the notice.

Since no payment was forthcoming pursuant to the two statutory demand notices, two criminal complaints, were filed by the respondent against the company and the appellants under Section 138 read with Section 141 of the Negotiable Instruments Act before the Additional Chief Metropolitan Magistrate [‘ACMM’]. Summons were issued by the ACMM to the company and the appellants in both the criminal complaints.

Meanwhile, as a statutory notice under Section 8 of the IBC, 20l6 had been issued by the respondent to the company, and an order was passed by the Adjudicating Authority admitting the application under Section 9 of the IBC and directing commencement of the corporate insolvency resolution process with respect to the company, a moratorium in terms of Section 14 of the IBC was ordered.

Pursuant thereto, the Adjudicating Authority stayed further proceedings in the two criminal complaints pending before the ACMM. In an appeal filed to the National Company Law Appellate, Tribunal (‘NCLAT’), the NCLAT set aside this order, holding that Section 138, being a criminal law provision, cannot be held to be a “proceeding” within the meaning of Section 14 of the IBC, 20l6. In an appeal filed before the Court, the Court ordered a stay of further proceedings in the two complaints pending before the learned ACMM.

Subsequent thereto, since a resolution plan submitted by the promoters of the company had been approved by the committee of creditors, the Adjudicating Authority approved such plan as a result of which, the moratorium order ceased to have effect. It may only be added that at present, an application for withdrawal of approval of this resolution plan has been filed by the financial creditors of the company before the Adjudicating Authority.

Equally, an application to extend time for implementation of this plan has been filed by the resolution applicant before the Adjudicating Authority. Both these applications have yet to be decided by the Adjudicating Authority.

On the above background, referring the provisions of IBC, 2016 and applicable case laws answer following questions :

Facts of the case :

SB Pvt. Ltd. supplied raw materials worth ₹15 lakh in January 2018 to a company named MR Ltd. MR Ltd. issued two cheques for ₹10 lakh, dated l5th April, 2018 and ₹ 5 lakh, dated 1st June, 2018, in favour of SB Pvt. Ltd. MR Ltd. had availed loan facility of ₹50 lakh from State Bank of India (SBI) and due to non-payment the account became Non-performing Asset (NPA) in the books of SBI.

The SBI started recovery measures and lastly filed Corporate Insolvency Resolution Process (CIRP) against the MR Ltd. with the Adjudicating Authority (AA), The Adjudicating Authority admitted the CIRP filed by the SBI and the order of moratorium was passed under section 14 of the Insolvency and Bankruptcy Code, 2016 (the Code) on 6th June, 2018.

The first cheque of ₹10 lakh lodged by SB Pvt. Ltd. returned unpaid by its banker for the reason of insufficiency of funds. The SB Pvt. Ltd lodged a criminal complaint under section 138 of the Negotiable Instruments Act, 1881 (NI Act) against MR Ltd.

and its directors in the competent court having jurisdiction on 1st June, 2018. (i. e.

prior to declaration of moratorium by the AA).

The second cheque of ₹5 lakh was also returned unpaid for the reason of insufficiency of funds and again a second criminal complaint was lodged by the SB Pvt. Ltd.

against the MR Ltd. and its directors on l5th June, 2018 (i.e after declaration of moratorium by the AA).

The MR Ltd. and its Directors moved before the Adjudicating Authority and argued that during the period of moratorium proceeding petition under Section 138 of NI Act was not maintainable. This was opposed by the SB Pvt. Ltd. but the Adjudicating Authority directed the SB Pvt. Ltd. to withdraw the complaint case filed under Section 138 of NI Act treating it as a proceeding filed after order of moratorium with observation that such action amounts to deliberate attempt on the part of SB Pvt. Ltd. and sheer misuse of the process of law.

Aggrieved from the order of the Adjudicating Authority, the SB Pvt. Ltd. preferred appeal before the National Company Law Appellate Tribunal (NCLAT). The NCLAT accepted the appeal and set aside the order of the Adjudicating Authority.

Based on the above facts, answer the following questions :

Read the case study carefully and answer the questions given at the end :

JCP Industries Ltd (JIL) was incorporated in the year 2011 with an authorized share capital of ₹2,000 crore having its registered office located in Mumbai with the main objects to carry out the business (a) manufacturing of heavy duty earth moving machinery and their spare parts (b) purchase, sale, construction of multi-story commercial and residential apartments under own name or as under Joint Development Agreements (c) Mining of minerals and thereafter refining and processing them for sale; and (d) doing the business in the hospitality sector by running and maintaining Hotels, Resorts and Budget Hotels. The paid-up share capital of the company as on date is ₹1,750 crore.

During the course of business, the company has approached various banks, state finance corporations and NBFCs for availing financial assistance in the nature of term loans and other facilities. However, based on the business plans and security offered, the finance proposal was approved by National Bank of India (the Bank) in the form of both fund based and non-fund based limits. The company during the course of its business operations was also availing credit for 90 days to 120 days from its creditors in connection with the purchase of raw material being used in the business of manufacturing heavy duty earth moving machineries, real estate, mining and hospitality sectors. The progress of the company since its incorporation till 31st March, 2019 was exceptional. However, because of certain transactions carried out by the directors with their relatives and other parties between 1st July, 2020 to 30th June, 2021 which were in the nature purchase of raw-material for different business segments of the company including the purchase of immovable properties as well as transferring and sale of goods and assets of the company to such related and other parties by givingthem preference over the other buyers ultimately resulted into mismatch in the cash flows and consequently resulted into losses to the company.

With an intention to grow organically, the company also incorporated a wholly owned subsidiary in the year 2017 under the name of JCP Buildcon Ltd (JAL) which was mainly engaged in the real estate business involving construction of apartments and flats in multi-story buildings under the Joint Development Agreements being entered into with the various parties including various State Governments under Housing Schemes. JAL entered into a tripartite Joint Development Agreement with Jaipur Development Authority (JDA) for construction of apartments and flats in multi-story buildings after development of land belonging to JDA. In an attempt to extend support to JIL, JAL had also mortgaged its assets in favour of banks in the month of August, 2018 when additional financial assistance was provided to JIL.

The financial condition of JIL started deteriorating after July, 2019 because of reduction in the business activities as well as default being committed in honoring the debt obligations towards banks, payment to trade creditors and delays in construction of apartments to be handed over to the buyers who had entered into agreements with the company and have paid almost 95% of the cost of the apartment.

The banks, trade creditors and buyers of the flats were constantly making follow up with the management but no reply was given to them by the management of JIL as well as JAL. National Bank of India during their internal review meeting informed their legal team that the promoter/directors may have siphoned off the money which was supposed to have been used for business purposes; since it appears to them that the amounts have been advanced to related parties and diverted towards a few suspicious transactions.

The bank despite the continuous follow up with the management and the Board of directors could not get any suitable response relating to the repayment plan to honor the debt obligations.

Considering the situation and based on the recommendation of their legal department, the bank decided to take action against the company under the Insolvency and Bankruptcy Code, 2016 (the Code) and thus filed an application on 16th February, 2022 before the Adjudicating Authority (AA) for initiating Corporate Insolvency Resolution Process (CIRP). In the application, the Bank had proposed name of Robin to act as Interim Resolution Professional (IRP). Simultaneously, other lenders of JAL also submitted an application before the AA to initiate CIRP against JAL for default in repayment of their dues.

After hearing the parties, the AA admitted the applications in the case of JIL and JAL on 25th April, 2022 and also confirmed the appointment of Robin as IRP in both the companies. In the case of JIL, Robin constituted a Committee of Creditors (CoC) on 15th May, 2022 and called first meeting of the CoC on 20th May, 2022. The constitution of CoC by Robin was challenged by the operational creditors as well as home buyers since their name was not included in the list of the CoC. Further, the members of the suspended Board of directors of JIL also challenged the actions of Robin who did not allow their participation in the first meeting of the CoC.

During the first meeting of the CoC in the case of JIL, Robin was confirmed to act as Resolution Professional (RP) by the CoC and was asked to invite the Expression of Interest (EoI) from the Resolution Applicants (RA) for submitting Resolution Plan.

Besides the above, JDA has also issued notice to JAL for taking over possession of the land given for the purpose of construction.

Considering the above facts answer the following questions :

Ruby and Emerald Pvt. Ltd (REPL), incorporated on 1st April, 2013 has its registered office in Surat. Gems and Gems Pvt. Ltd (GGPL), incorporated on 11th September, 2014 has its registered office in Jaipur. REPL was approached by GGPL for procuring its goods which can be used as raw material in the factory of REPL. It was agreed through a contract between REPL and GGPL that upon procurement of the goods entire payment shall be made by REPL within 10 days of issuance of the tax invoice.

The transaction was smoothly going between REPL and GGPL without any delays in supply of goods and payment. Owner of REPL died due to cardiac arrest and the business operations of REPL were severely affected. REPL started supplying faulty goods to its customers and the quality of raw material being supplied by the suppliers also deteriorated gradually. As on 2nd January, 2021, there were no dues outstanding towards GGPL and balance confirmation from GGPL was also taken by REPL.

However, between 3rd January, 2021 and 31st May, 2021 various transactions happened between REPL and GGPL. GGPL requested for the payments multiple times for such transaction between 3rd January, 2021 and 31st May, 2021; however, GGPL kept supplying goods in good faith based on relationship with REPL. REPL neither responded to requestsof GGPL nor stopped buying goods from them. Because of the long overdue from REPL, GGPL sent a demand notice on 16th June, 2021 through their lawyer to make the payment of entire outstanding to the tune of ‘ 1,25,00,000/- exclusive of interest @ 15% p.a. within 10 days from the receipt of the notice, failing which GGPL will take suitable actions under the law. No communication whatsoever was received from REPL. Therefore, as per the directions of the lawyer, GGPL filed an application to initiate Corporate Insolvency Resolution Process (CIRP)

against REPL. Also, they have sent a letter to the power company to disconnect the supply of electricity to REPL considering that they are not in a position to pay their dues Considering the above facts answer the following questions :

Facts of the case :

SB Pvt. Ltd. supplied raw materials worth ₹15 lakh in January 2018 to a company named MR Ltd. MR Ltd. issued two cheques for ₹10 lakh, dated l5th April, 2018 and ₹ 5 lakh, dated 1st June, 2018, in favour of SB Pvt. Ltd. MR Ltd. had availed loan facility of ₹50 lakh from State Bank of India (SBI) and due to non-payment the account became Non-performing Asset (NPA) in the books of SBI.

The SBI started recovery measures and lastly filed Corporate Insolvency Resolution Process (CIRP) against the MR Ltd. with the Adjudicating Authority (AA), The Adjudicating Authority admitted the CIRP filed by the SBI and the order of moratorium was passed under section 14 of the Insolvency and Bankruptcy Code, 2016 (the Code) on 6th June, 2018.

The first cheque of ₹10 lakh lodged by SB Pvt. Ltd. returned unpaid by its banker for the reason of insufficiency of funds. The SB Pvt. Ltd lodged a criminal complaint under section 138 of the Negotiable Instruments Act, 1881 (NI Act) against MR Ltd.

and its directors in the competent court having jurisdiction on 1st June, 2018. (i. e.

prior to declaration of moratorium by the AA).

The second cheque of ₹5 lakh was also returned unpaid for the reason of insufficiency of funds and again a second criminal complaint was lodged by the SB Pvt. Ltd.

against the MR Ltd. and its directors on l5th June, 2018 (i.e after declaration of moratorium by the AA).

The MR Ltd. and its Directors moved before the Adjudicating Authority and argued that during the period of moratorium proceeding petition under Section 138 of NI Act was not maintainable. This was opposed by the SB Pvt. Ltd. but the Adjudicating Authority directed the SB Pvt. Ltd. to withdraw the complaint case filed under Section 138 of NI Act treating it as a proceeding filed after order of moratorium with observation that such action amounts to deliberate attempt on the part of SB Pvt. Ltd. and sheer misuse of the process of law.

Aggrieved from the order of the Adjudicating Authority, the SB Pvt. Ltd. preferred appeal before the National Company Law Appellate Tribunal (NCLAT). The NCLAT accepted the appeal and set aside the order of the Adjudicating Authority.

Based on the above facts, answer the following questions :

Facts of the case :

Richa Infrastructure Limited engaged in the construction of roads is in default in repayment of loans due to general slowdown in construction industry. Repeated follow-up by the financial institutions with the Corporate Debtor, ‘Richa Infrastructure Ltd.’ for submitting its specific plan for repayment of dues did not evoke any response.

One of the financial creditors filed a case against Richa Infrastructure Ltd. before the Debt Recovery Tribunal.

Richa Infrastructure Ltd. had issued some cheques to some Operational Creditors.

All the cheques issued to creditors were dishonored/returned by the banker due to insufficient funds in the account. Consequently, Operational Creditors issued legal notices to Richa Infrastructure Ltd, with clear intimation that if due amount is not paid within 15 days from the date of receipt of legal notice, criminal complaint shall be filed against Richa Infrastructure Ltd. under the Negotiable Instrument Act, 1881 and criminal complaints were filed. After a joint lenders meeting, all the financial institutions unanimously decided to apply under the provisions of the Insolvency and Bankruptcy Code, 2016 to the National Company Law Tribunal (NCLT) for starting the process of Insolvency Resolution. Their application was admitted by NCLT on 30th June, 2018 and orders were issued for commencement of a moratorium period of 180 days, appointment of an Interim Resolution Professional and issue of public announcement inviting claims from all concerned.

After public announcement and the responses thereto, following details were brought out :

(1)Financial debts due to unsecured creditors (F1) - ₹15 Crores.

(2)Workmen’s due for the period of 24 months preceding the liquidation commencement date (F2) - ₹25 Crores.

(3)Debts due to a secured creditor who has relinquished his security (F3) - ₹30 Crores.

(4)Amount due to the Central Government (F4) - ₹27 Crores.

(5)Debts due to a secured creditor after the enforcement of security interest (F5) -₹36 Crores.

Insolvency Resolution Professional (IRP) approached the promoters, directors and officials of Richa Infrastructure Ltd to provide the necessary information, documents, statutory records, books of accounts to verify the claims filed by creditors. The promoters, directors and officials of Richa Infrastructure Ltd. ignored the request of Resolution Professional.

M/s ANG & Associates, Chartered Accountants were the Statutory Auditors of Richa Infrastructure Ltd. They audited the accounts for the financial year end March, 2018 of Richa Infrastructure Ltd. and submitted the Annual Accounts for approval of the Board of Directors.

The Resolution Professional has appointed valuers and has received the valuation reports. The Resolution Professional then started the efforts to get resolution proposals.

However during the normal resolution process period of 180 days, no resolution proposal could be finalized. The Committee of Creditors decided that Resolution Professional should get the extension as per the provisions of Insolvency and Bankruptcy Code, 2016.

Based on the above facts, answer the following questions :

(a)An agreement was entered into during August, 2006 between the ZY Infrastructures Private Limited (hereinafter referred to as ‘ZY Infra’) and WV Infrastructure Private Limited (hereinafter referred to as ‘the Corporate Debtor’), for development of land licensed with the ZY Infra admeasuring 8 acres into a residential group housing complex at Bengaluru. However, the ZY infra, being aggrieved by the Corporate Debtor’s alleged misconduct in advertising the project under its own name and without mentioning the name of the ZY Infra, sought reference to arbitration during May, 2011.

The arbitral proceedings culminated in an award dated 1st August, 2016 in favour of the ZY Infra. In addition to awarding a monetary claim, the award inter alia directed the Corporate Debtor to apply to the authorities for transfer of the requisite licenses to the ZY Infra.

Aggrieved by the award, the Corporate Debtor filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Arbitration Act’) during September, 2016.

On the same date, the ZY Infra filed execution proceedings in respect of the said award.

These execution proceedings were ultimately adjourned sine die on 22nd December, 2017 on account of the pendency of the proceedings under Section 34 of the Arbitration Act.

These proceedings under Section 34 of the Arbitration Act culminated in the award being upheld by Special Commercial Court with some modifications.

Corporate Debtor who has filed an appeal against the same under Section 37 of the Arbitration Act is stated to be pending.

Meanwhile, the Corporate Insolvency Resolution Process (‘CIRP’) was initiated against the Corporate Debtor in respect of three real estate projects by certain homebuyers who had invested in these projects. This application under Section 7 of the Insolvency and Bankruptcy Code (hereinafter referred to as ‘the IBC’) was admitted on 27th March, 2019 by the Adjudicating Authority. On the same date, an Interim Resolution Professional (‘IRP’) was appointed. The IRP issued a public announcement inviting claims from creditors, in accordance with Section 15 of the IBC read with Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as the ‘IBBI Regulations’) on 30th March, 2019.

After receipt of the claims, the IRP constituted the Committee of Creditors (‘COC’) on 6th November, 2019 and circulated the draft information memorandum and invited expressions of interest from prospective resolution applicants. Five such applications were received.

Thereafter, the IRP was replaced by Resolution Professional (RP) by the COC on 18th June,

2020. The resolution plan as submitted by TSK Residential Welfare Association was approved by the COC by a majority vote of 80.74% on 11th July, 2020. This plan was then submitted by RP to the Adjudicating Authority for approval under Section 31 of the IBC on 8th September, 2020.

ZY Infra sent an email on 19th August, 2020 to RP highlighting their pending claim of ₹ 35 Crores and odd against the Corporate Debtor arising from the arbitral award dated 1st August, 2016, confirmed with certain modifications in the proceedings under Section 34 of the said Act.

However, RP rejected this claim on 25th August, 2020 on the ground that the time period for submitting the claim was within 90 days of initiation of CIRP and the applicant was 287 days late. A Resolution plan had already been passed by the COC.

ZY Infra filed an application under Section 60(5) of the IBC. During the pendency of RP’s application for approval of the plan before the Adjudicating Authority, seeking directions to RP that the ZY Infra’s claim may be considered on merits.

This relief was granted to the ZY Infra by the Adjudicating Authority vide an order dated 3rd November, 2020 predicated on the following grounds :

(a)RP could not have summarily rejected ZY Infra’s claim, as this claim would have appeared in the Corporate Debtor’s books of accounts;

(b)In case such books of accounts were not available, RP had a duty to obtain them and verify the financial position; and

(c)as such announcement was made through public newspapers, it was likely that the appellant missed out on the same.

RP thereafter preferred an appeal under Section 61 of the IBC before the National Company Law Appellate Tribunal, New Delhi (‘NCLAT’) against the Adjudicating Authority’s order.

The NCLAT, vide the impugned order dated 30th July, 2021, did not favour the view adopted by the Adjudicating Authority. Their reasoning was as follows :

(i)RP had effectuated proper service for inviting claims in accordance with Regulation 6 of the IBBI Regulations which only mandates a pronouncement through newspapers and not through personal service—an aspect that was not disputed by the appellant;

(ii)The appellant failed to show that it filed its claim as soon as it came to know of the initiation of the CIRP.

(iii)RP even filed an application under Section 19 of the IBC before the Adjudicating Authority seeking that a direction be issued to the ex-management to provide all records. Although nothing came of this attempt, it reflected his sincere efforts;

(iv)Regulations 12 and 13 of the IBBI Regulations obliged the RP to accept claims filed within the extended period of 90 days of the commencement of CIRP.

(v)The resolution plan, as approved by the COC, would be jeopardised if new claims were entertained.

Consequent to the decision of the NCLAT, ZY Infra approached Supreme Court of India for the final resolution.

In the above background mentioning relevant case laws and applicable provisions of IBC and IBBI Regulations answer the following questions :

Read the following case study and answer the questions that follow:

(I)Background:

Phoenix Asset Management Ltd. (Phoenix) is an asset reconstruction company registered under the applicable laws of India. It acquired, by way of an assignment agreement, the outstanding receivables owed by Meridian Hospitality Ltd. (Meridian), a company engaged in the hotel and hospitality business from a consortium of four public sector banks. The assignment took place in January 2009.

Meridian had originally borrowed ₹ 180 crores from the consortium in March 2003 under a term loan agreement. The funds were used for the renovation and expansion of its flagship hotel property. Repayments were irregular from the outset, and by November 2008, the consortium banks collectively classified Meridian’s loan account as a Non-Performing Asset (NPA). Shortly thereafter, the consortium assigned all outstanding receivables to Phoenix.

The shareholding of Meridian was held equally by two promoter entities, Crestwood Hotels Pvt. Ltd. and Pinnacle Resorts Ltd. each holding a 50% stake. Mr. Rajiv Bhatia served as the Chairman and Managing Director of Meridian as well as of both promoter companies.

(II)Settlement attempts and acknowledgments:

In March 2010, well within three years of the NPA declaration, Meridian wrote to Phoenix proposing a one-time settlement of the outstanding dues. In this letter, Meridian acknowledged that the aggregate outstanding liability, inclusive of principal and interest, stood at ₹ 195 crore as on 31 December 2009. It offered an upfront payment of ₹ 15 crores and committed to clearing the balance in instalments over 18 months.

A formal Settlement Agreement was executed between the parties on 15 April 2010.

Under this agreement, Meridian acknowledged its total liability of ₹ 195 crores, agreed to pay interest at 20% per annum compounded monthly, made an upfront payment of ₹ 15 crores, and committed to clearing the balance by 30 September 2011. Between 2010 and 2013, Meridian made further part payments totalling approximately ₹ 48 crores through various demand drafts and cheques.

However, Meridian repeatedly sought extensions of time to pay the balance. In June 2012, it acknowledged an outstanding liability of ₹ 241 crore (principal and interest combined) and sought extension until March 2013. In September 2013, Phoenix revoked the Settlement Agreement after Meridian defaulted once again.

From the financial year 2009-10 onwards, Meridian’s audited annual financial statements consistently reflected the amounts owed to Phoenix as a liability. However, beginning from the financial statements for the year 2014-15, the notes to the accounts contained a qualification. While the principal amount owed to Phoenix was shown as a liability in the balance sheet, the notes stated that the Settlement Agreement had been revoked by Phoenix and that Meridian had been legally advised the applicable interest rate could not exceed 13% per annum, not the 20% claimed by Phoenix. The notes further stated that the question of the correct rate of interest was pending adjudication before the Debt Recovery Tribunal (DRT).

Phoenix issued a notice under the SARFAESI Act in October 2013 and took symbolic possession of the hotel property in February 2014. Phoenix also invoked the personal guarantee of Mr. Rajiv Bhatia in May 2015.

(III)The IBC, 2016 application and proceedings:

On 10 April 2018, Phoenix filed an application under Section 7(2) of the Insolvency and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal (NCLT), seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Meridian. In its application, Phoenix claimed a principal amount of ₹42 crore and interest of ₹ 178 crores calculated at 20% per annum, bringing the total claim to approximately ₹ 220 crores.

Meridian filed a miscellaneous application before the NCLT seeking dismissal of the petition on the ground that it was barred by limitation. Meridian argued that the NPA was declared in November 2008, that the limitation period of three years expired in November 2011, and that the IBC application filed in April 2018 was hopelessly late by nearly seven years. Meridian further contended that the financial statements contained a clear dispute as to the rate of interest and could not, therefore, be read as an unequivocal acknowledgment of liability sufficient to extend limitation.

Phoenix countered that its application was well within time. It relied on the audited balance sheet of Meridian for the financial year 2014-15, signed by Meridian’s directors on 12 September 2015, which reflected Phoenix as a creditor and acknowledged Meridian’s outstanding financial liability. Phoenix argued that this acknowledgment, made before the original limitation period had expired, created a fresh three-year limitation period running from 12 September 2015 to 12 September 2018. Since the application was filed on 10 April 2018, it was within this extended period.

Phoenix also argued that regardless of the caveats in the notes to accounts concerning the interest rate, the balance sheet clearly showed the jural relationship of debtor and creditor between Meridian and Phoenix, and the existence of financial liability. A dispute about the rate of interest was a dispute about quantum, not about the existence of the debt itself. Moreover, even if the parts payments made by Meridian were to be considered, they would first be appropriated towards interest and then towards principal, meaning a substantial principal remained outstanding.

The promoter companies, Crestwood Hotels Pvt. Ltd. and Pinnacle Resorts Ltd., separately filed an appeal challenging the admission of the CIRP, arguing there was no subsisting financial debt and that the application was time-barred.

The NCLT rejected Meridian’s limitation objection and admitted the application, appointing an Interim Resolution Professional. The matter was then appealed to the NCLAT, which set aside the NCLT’s order, holding that the financial statements with caveated notes could not amount to an unequivocal acknowledgment under Section 18 of the Limitation Act and that the application was therefore barred by limitation.

Phoenix has now filed an appeal before the Supreme Court of India challenging the NCLAT’s order.

Required:

(b)MPCL (hereinafter referred as ‘MPCL/Corporate Debtor’) imported goods from China for utilising in the construction of MPCL’s Power Plant. Unfortunately, CIRP was initiated on MPCL by the Adjudicating Authority and Resolution Professional (RP) was appointed. The Customs Bank Guarantees were issued by 5 Banks prior to the CIRP initiation of MPCL, with a condition that the said Bank Guarantee shall be kept alive until Unit Nos. 2 & 5 achieves confirmed Mega Power Plant (MPP) status.

Upon expiry of the Customs Bank Guarantees, the Banks requested for renewal of the same pending the grant of MPP status of Unit Nos. 2 & 5. However, the Resolution Professional is of the view that since there are no goods being imported by MPCL or its contractor for the operationalisation of the units of MPCL, there is no exemption which MPCL can claim for customs duty liability.

He further intimated the CoC that these renewals are not necessary for the ‘Going Concern’ nature of MPCL and the RP was not in favour renewal the Bank Guarantees.

The Banks filed an application before the Adjudicating Authority (AA) against the action of Resolution Professional. However, AA ruled in favour of the RP. Hence, the Banks preferred an appeal against the order of the Adjudicating Authority.

(b)MPCL (hereinafter referred as ‘MPCL/Corporate Debtor’) imported goods from China for utilising in the construction of MPCL’s Power Plant. Unfortunately, CIRP was initiated on MPCL by the Adjudicating Authority and Resolution Professional (RP) was appointed. The Customs Bank Guarantees were issued by 5 Banks prior to the CIRP initiation of MPCL, with a condition that the said Bank Guarantee shall be kept alive until Unit Nos. 2 & 5 achieves confirmed Mega Power Plant (MPP) status.

Upon expiry of the Customs Bank Guarantees, the Banks requested for renewal of the same pending the grant of MPP status of Unit Nos. 2 & 5. However, the Resolution Professional is of the view that since there are no goods being imported by MPCL or its contractor for the operationalisation of the units of MPCL, there is no exemption which MPCL can claim for customs duty liability.

He further intimated the CoC that these renewals are not necessary for the ‘Going Concern’ nature of MPCL and the RP was not in favour renewal the Bank Guarantees.

The Banks filed an application before the Adjudicating Authority (AA) against the action of Resolution Professional. However, AA ruled in favour of the RP. Hence, the Banks preferred an appeal against the order of the Adjudicating Authority.

Images Gym Ltd. was granted credit facility of ₹100 lakh under consortium arrangements.

Under the consortium, there were 5 five banks, and credit facility provided by the respective banks were as under :

A-One Bank Ltd. - ₹45 lakh, Best Bank Ltd. - ₹20 lakh, Good Deal Bank Ltd. - ₹15 lakh, Credit Arrangers Bank Ltd. - ₹10 lakh and Your Bank Ltd - ₹10 lakh Among theses the A-One Bank Ltd. was the leader.

Images Gym Ltd. was engaged in the business of manufacturing and trading of Gym exercise machines. However, due to poor demand of the products, the company could not sell out the machines and as a result the account of the company with respective banks were classified as Non-performing Advances (NPAs).

Apart from credit facility from the above banks, the company was also having outstanding dues of the creditor, which the company was not able to pay-off. The total amount outstanding of such operational creditors amounted ₹30 lakh.

The company has also not paid the salary to its employees and workers for the last 6 months and the total dues amounted to ₹10 lakh.

The leader of the consortium filed Corporate Insolvency Resolution Process (CIRP)

with the Adjudicating Authority (AA) and proposed the name of Saket Sharma, as Interim Resolution Professional (IRP).

The AA accepted the application and appointed Saket Sharma as IRP and put moratorium.

The IRP constituted the Committee of Creditors (CoC) and first meeting of the CoC was called upon.

The operational creditors objected about the constitution of the committee and asked the IRP to include operational creditors also in the CoC, which the IRP denied.

The CoC observed that IRP is not discharging his functions properly and was reluctant in calling the expression of interest from Resolution Applicant(s), so they proposed for the change of the existing IRP and appointment of the new Resolution Professional (RP) named as Anubhav Dutt.

The RP called the expression of interest from the eligible applicants and each proposal was placed before the CoC, but no consensus had arrived at. The initial period of 180 days was going to elapsed so the CoC through the RP sought extension which the Adjudicating Authority for further 90 days. The RP again called the expression of interest from other Resolutionm Applicants, but it was also not agreed upon by the CoC and after lapse of total 270 days, the Adjudicating Authority ordered for its liquidation and the present RP was appointed as Liquidator.

The Liquidator sold off the assets of the Company and realised only ₹150 lakh, whereas the outstanding dues of the various stakeholders remained as under.

Dues of ₹ in Lakhs Fee payable as Resolution Professional 10 Fee payable as Liquidator 10 Dues of the banks with interest 110 Outstanding from Operational Creditors 30 Dues of Govts. 15 Workmen’s dues 10 Employee’s salary 15 Equity shareholders 30 Total 230 Based on the above information, answer the following questions:

Read the following case study and answer the questions that follow :

Arya is a Practicing Company Secretary and Insolvency Professional. She renders Corporate Advisory Services and very often delivers guest lectures in Financial Institutions, Banks and Management and Law Colleges on the topics of Corporate Insolvency, Restructuring and Fund Raising.

R. K. Institute of Management and Technology (RK-IMT) is a reputed management college in Jaipur.

RK-IMT was established in the year 2000 and this year the college in completing its glorious 25 years.

The RK-IMT planned for its Silver Jubilee and organized a whole week of celebrations. During this week the college organized various programs / activities viz: Sports Day, Debate Competition, Cultural Evening, Seminars, Workshop etc.

Arya was invited to address a seminar on the topic of Corporate Insolvency. Arya explained the objectives and purposes of the Insolvency and Bankruptcy Code, 2016 (IBC) and touched the key points relating to Financial Creditor, Operational Creditor, Corporate Debtor, Default, Initiation of Corporate Insolvency, Constitution of Committee of Creditors, and Insolvency Resolution Process Period etc. After delivering a thought-provoking lecture, Arya invited the audiences to raise queries on the topic.

Vedika, a student of the college, was curious to know more about Insolvency Law. She exclaimed to know that the IBC is a totally new concept and prior to this enactment whether there was any such law on insolvency existed in India. Arya clarified the position.

Reyansh, an Associate Professor of the college, was curious to know that whether IBC is an effective recovery tool and the lending institution can effectively exercise its control over the debtor through the Resolution Professional. Arya again clarified the doubts of Reyansh referring the objectives and purpose of IBC.

As a lecturer of the Institute, Rohil shared his own experience, he booked a 2-BHK Flat in Swarnim Galaxy, a building project of Swarnim Builders Limited (Swarnim Builders), and paid upto 90% of the purchase price to the builder, Swarnim Builders, on various stages. Ten per cent (10%) of the purchase price was to be paid at the time of taking the possession which was due in December,

2023. However, the possession of the flat was not given by the Builder to him. Rohil is not the only allottee but all the other allottees who had booked the flat in the Swarnim Galaxy were not given the possession and the Builder was taking excuses by narrating false reasons. Rohil narrated the whole story before the Arya and requested if she could help him. Arya asked Rohil to let her know the details of the project and relevant information to proceed in the case.

Rohil meets Arya at her office and submits her the details of the project available with him. Arya studies about the project and also checks the financial statements of Swarnim Builders, which are filed with Registrar of Companies. On scrutiny of financial statements, Arya found out that Rishabh Suppliers Limited (RSL), one of the major suppliers of Swarnim Builders had supplied the construction materials to Swarnim Builders amounting to ₹ 15 crore. On scrutiny of RSL’s financial statements, Arya has found out that RSL has assigned its book debts at a discount of 3% in favour of the Moon star Financiers Limited (MFL) a NBFC Company.

Based on the above factual background, answer the following questions :

Read the case study carefully and answer the questions given at the end :

JCP Industries Ltd (JIL) was incorporated in the year 2011 with an authorized share capital of ₹2,000 crore having its registered office located in Mumbai with the main objects to carry out the business (a) manufacturing of heavy duty earth moving machinery and their spare parts (b) purchase, sale, construction of multi-story commercial and residential apartments under own name or as under Joint Development Agreements (c) Mining of minerals and thereafter refining and processing them for sale; and (d) doing the business in the hospitality sector by running and maintaining Hotels, Resorts and Budget Hotels. The paid-up share capital of the company as on date is ₹1,750 crore.

During the course of business, the company has approached various banks, state finance corporations and NBFCs for availing financial assistance in the nature of term loans and other facilities. However, based on the business plans and security offered, the finance proposal was approved by National Bank of India (the Bank) in the form of both fund based and non-fund based limits. The company during the course of its business operations was also availing credit for 90 days to 120 days from its creditors in connection with the purchase of raw material being used in the business of manufacturing heavy duty earth moving machineries, real estate, mining and hospitality sectors. The progress of the company since its incorporation till 31st March, 2019 was exceptional. However, because of certain transactions carried out by the directors with their relatives and other parties between 1st July, 2020 to 30th June, 2021 which were in the nature purchase of raw-material for different business segments of the company including the purchase of immovable properties as well as transferring and sale of goods and assets of the company to such related and other parties by givingthem preference over the other buyers ultimately resulted into mismatch in the cash flows and consequently resulted into losses to the company.

With an intention to grow organically, the company also incorporated a wholly owned subsidiary in the year 2017 under the name of JCP Buildcon Ltd (JAL) which was mainly engaged in the real estate business involving construction of apartments and flats in multi-story buildings under the Joint Development Agreements being entered into with the various parties including various State Governments under Housing Schemes. JAL entered into a tripartite Joint Development Agreement with Jaipur Development Authority (JDA) for construction of apartments and flats in multi-story buildings after development of land belonging to JDA. In an attempt to extend support to JIL, JAL had also mortgaged its assets in favour of banks in the month of August, 2018 when additional financial assistance was provided to JIL.

The financial condition of JIL started deteriorating after July, 2019 because of reduction in the business activities as well as default being committed in honoring the debt obligations towards banks, payment to trade creditors and delays in construction of apartments to be handed over to the buyers who had entered into agreements with the company and have paid almost 95% of the cost of the apartment.

The banks, trade creditors and buyers of the flats were constantly making follow up with the management but no reply was given to them by the management of JIL as well as JAL. National Bank of India during their internal review meeting informed their legal team that the promoter/directors may have siphoned off the money which was supposed to have been used for business purposes; since it appears to them that the amounts have been advanced to related parties and diverted towards a few suspicious transactions.

The bank despite the continuous follow up with the management and the Board of directors could not get any suitable response relating to the repayment plan to honor the debt obligations.

Considering the situation and based on the recommendation of their legal department, the bank decided to take action against the company under the Insolvency and Bankruptcy Code, 2016 (the Code) and thus filed an application on 16th February, 2022 before the Adjudicating Authority (AA) for initiating Corporate Insolvency Resolution Process (CIRP). In the application, the Bank had proposed name of Robin to act as Interim Resolution Professional (IRP). Simultaneously, other lenders of JAL also submitted an application before the AA to initiate CIRP against JAL for default in repayment of their dues.

After hearing the parties, the AA admitted the applications in the case of JIL and JAL on 25th April, 2022 and also confirmed the appointment of Robin as IRP in both the companies. In the case of JIL, Robin constituted a Committee of Creditors (CoC) on 15th May, 2022 and called first meeting of the CoC on 20th May, 2022. The constitution of CoC by Robin was challenged by the operational creditors as well as home buyers since their name was not included in the list of the CoC. Further, the members of the suspended Board of directors of JIL also challenged the actions of Robin who did not allow their participation in the first meeting of the CoC.

During the first meeting of the CoC in the case of JIL, Robin was confirmed to act as Resolution Professional (RP) by the CoC and was asked to invite the Expression of Interest (EoI) from the Resolution Applicants (RA) for submitting Resolution Plan.

Besides the above, JDA has also issued notice to JAL for taking over possession of the land given for the purpose of construction.

Considering the above facts answer the following questions :

Read the case study carefully and answer the questions given at the end :

DK Swan Limited (DK) was subject to Corporate Insolvency Resolution Process (CIRP) initiated by an Operational Creditor under Section 9 of Insolvency Bankruptcy Code, 2016 (IBC). During the CIRP, claims were invited by the Interim Resolution Professional (IRP). Sunrise filed its claim in Form C as a financial creditor for a sum of ₹62.60 lakh on 15th June, 2017. Thereafter, Sunrise filed a revised Form C for a sum of ₹119.11 lakh on 25th June, 2017. Sunrise had filed the revised claim Form on the basis of an alleged Memorandum of Understanding dated 17th September, 2010 executed with the Corporate Debtor, which stated that Inter Corporate Deposits (ICDs) of ₹36.55 lakh have been granted to the Corporate Debtor by Sunrise bearing interest of 24% repayable in terms of the mutual agreement between the parties.

However, Sunrise has submitted that it has granted ICDs of ₹76.00 lakh (approx.) to the Corporate Debtor between July, 2008 and February, 2012. Out of this amount, Sunrise is claiming a principal amount of ₹33.00 lakh. The balance amount of ₹53.60 lakh was credited in the account of XYZ, which is a wholly owned subsidiary of Sunrise. The total claim of Sunrise has increased to ₹119.11 lakh in 7 years on account of interest at the rate of 24% XYZ filed its claim before the IRP in Form F as a creditor other than a financial creditor or operational creditor for a sum of ₹103.90 lakh on 15th June, 2017.

Thereafter, XYZ filed a revised claim in Form C as a financial creditor for a sum of ₹119.72 lakh on 28th June, 2017. It had entered into a Development Agreement dated 6th April, 2011 with the Corporate Debtor for a sale consideration of ₹42.80 lakh to purchase development rights in a project. On 30th November, 2011, the Development Agreement was terminated and an Agreement to sell, along with a Side Letter, was executed between XYZ and the Corporate Debtor for purchase of flats. The sale consideration for the Agreement to sell was enhanced to ₹96.01 lakh from ₹42.80 lakh under the Development Agreement. XYZ paid a sum of ₹53.06 lakh as advance payment under the Agreement to Sell. This amount was adjusted out of the ICDs payable to Sunrise as noted above. The claim of XYZ is with respect to the principal amount of ₹53.06 lakh, which along with interest at the rate of 18% increased to ₹119.72 lakh in 5 years.

Phantom is also a financial creditor of the Corporate Debtor and is a part of Committee of Creditors (CoC). Its claim is based on a registered Deed of Assignment in its favour dated 2nd January, 2015, pursuant to which, Karnataka Bank Limited had assigned the non-performing assets relating to the credit facilities granted to the Corporate Debtor. The voting share of Phantom was reduced to 3.58% on account of XYZ and Sunrise being included in the CoC.

The CoC was constituted on 27th June, 2017. On 30th June, 2017, the IRP rejected the claim of Sunrise, inter alia, on the ground that the claim was not in the nature of a financial debt in terms of Section 5(8) of IBC since there was an absence of consideration for the time value of money, i.e., the period of repayment of the claimed ICDs was not stipulated The IRP also rejected the claim of XYZ on the ground that its claim as a financial creditor in Form C was filed after the expiry of the period for filing such a claim.

The IRP in his letter dated 30th June, 2017 has noted that as per the ledger provided by Sunrise, no interest was claimed on the alleged debt and no adjustment was made regarding the payment of principal or interest by the Corporate Debtor to Sunrise. It has been submitted in the written submissions filed on behalf of Sunrise and XYZ that the auditors of the Corporate Debtor had been putting a note in its balance sheets stating that the interest of 12% was not being paid to Sunrise due to a dispute.

Aggrieved by the rejection of their claim as financial creditors, XYZ and Sunrise filed applications before the National Company Law Tribunal (NCLT) to be included in the CoC. The NCLT by its order dated 5th July, 2017 allowed the applications.

However, none of the other financial creditors, such as Phantom and YES Bank, were parties to these proceedings. The NCLT observed that XYZ’s original claim in Form F was filed on time and it has only amended its claim as one under Form C.

The NCLT further observed that the amount given by Sunrise in the form of ICDs has been received as a deposit and is attracting interest as reflected in Form ‘26AS’, deducting TDS on interest. Thus, NCLT allowed Sunrise and XYZ to submit their claims as financial creditors with a direction to the IRP to consider the claims.

On 6th July, 2017, a meeting of the CoC took place which was attended by YES Bank and Phantom, and also by the newly approved financial creditors, XYZ and Sunrise. Following the meeting, YES Bank and Phantom filed applications in the NCLT for the exclusion of XYZ and Sunrise from the CoC on the ground that they are related parties.

The applications filed under Section 60(5) by Phantom also sought similar reliefs for:

(i)The removal of Sunrise and XYZ from the CoC; and

(ii)Directing the constitution of the CoC in terms of the Insolvency and Bankruptcy (Amendment) Ordinance 2018 (IBC Ordinance 2018).

As noted by NCLT, the Memorandum of Understanding dated 17th September, 2010, on the basis of which Sunrise had filed its claim in Form C before the IRP, was signed two years after the commencement of the purported transaction. The execution of the Memorandum of Understanding was sought to be explained on the basis that a formal document was created for specifying the rate of interest on the ICDs given by Sunrise to the Corporate Debtor. However, despite the creation of a formal document, the rate of interest being charged on the ICDs was 12% as mentioned in the claim before the IRP, which is half of the interest rate of 24% stipulated in the Memorandum of Understanding.

NCLT in its judgement dated 24th August, 2018 said :

(a)That Sunrise and XYZ did not qualify to be considered as financial creditors.

(b)In relation to the second issue, NCLT held that it ‘‘does not require a reply’’ in view of its above-mentioned finding. However, it took note of the first proviso to Section 21(2) of the IBC, which was introduced with effect from 6th June, 2018.

Under the first proviso, inter alia, a financial creditor who is a related party of the corporate debtor shall not have the right of representation, participation or voting in the CoC.

In appeal, the National Company Law Appellate Tribunal (NCLAT) proceeded of its decision to observe that admittedly Sunrise and XYZ are the financial creditors of the corporate debtor. Having stated so, the Appellate Tribunal proceeded to enquire into whether XYZ and Sunrise are related parties within the meaning of Section 5(24) of the IBC. Answering the above issue in the affirmative, the NCLAT held that Sunrise and XYZ are related parties of the Corporate Debtor since :

(a)XYZ was a partner of the Corporate Debtor.

(b)During the transaction period of 2009 to 2012, Sunrise led by Kunal Kumar was making substantial financial arrangements on the basis of advice provided by the Corporate Debtor led by its Management and Directors.

(c)The Corporate Debtor was acting on the directions/instructions of Kunal Kumar who, along with his family, is the majority shareholder in Sunrise, of which XYZ is a whollyowned subsidiary.

(d)On the basis of the same reasons, Kunal Kumar was also held to be a person participating in the policy-making process of the Corporate Debtor.

Aggrieved by order of NCLAT, Phantom approached the Hon’ble Supreme Court.

Referring the relevant case and relevant provisions of IBC, its Rules and Regulations made thereunder, answer the following questions :

Read the case study carefully and answer the questions given at the end :

DK Swan Limited (DK) was subject to Corporate Insolvency Resolution Process (CIRP) initiated by an Operational Creditor under Section 9 of Insolvency Bankruptcy Code, 2016 (IBC). During the CIRP, claims were invited by the Interim Resolution Professional (IRP). Sunrise filed its claim in Form C as a financial creditor for a sum of ₹62.60 lakh on 15th June, 2017. Thereafter, Sunrise filed a revised Form C for a sum of ₹119.11 lakh on 25th June, 2017. Sunrise had filed the revised claim Form on the basis of an alleged Memorandum of Understanding dated 17th September, 2010 executed with the Corporate Debtor, which stated that Inter Corporate Deposits (ICDs) of ₹36.55 lakh have been granted to the Corporate Debtor by Sunrise bearing interest of 24% repayable in terms of the mutual agreement between the parties.

However, Sunrise has submitted that it has granted ICDs of ₹76.00 lakh (approx.) to the Corporate Debtor between July, 2008 and February, 2012. Out of this amount, Sunrise is claiming a principal amount of ₹33.00 lakh. The balance amount of ₹53.60 lakh was credited in the account of XYZ, which is a wholly owned subsidiary of Sunrise. The total claim of Sunrise has increased to ₹119.11 lakh in 7 years on account of interest at the rate of 24% XYZ filed its claim before the IRP in Form F as a creditor other than a financial creditor or operational creditor for a sum of ₹103.90 lakh on 15th June, 2017.

Thereafter, XYZ filed a revised claim in Form C as a financial creditor for a sum of ₹119.72 lakh on 28th June, 2017. It had entered into a Development Agreement dated 6th April, 2011 with the Corporate Debtor for a sale consideration of ₹42.80 lakh to purchase development rights in a project. On 30th November, 2011, the Development Agreement was terminated and an Agreement to sell, along with a Side Letter, was executed between XYZ and the Corporate Debtor for purchase of flats. The sale consideration for the Agreement to sell was enhanced to ₹96.01 lakh from ₹42.80 lakh under the Development Agreement. XYZ paid a sum of ₹53.06 lakh as advance payment under the Agreement to Sell. This amount was adjusted out of the ICDs payable to Sunrise as noted above. The claim of XYZ is with respect to the principal amount of ₹53.06 lakh, which along with interest at the rate of 18% increased to ₹119.72 lakh in 5 years.

Phantom is also a financial creditor of the Corporate Debtor and is a part of Committee of Creditors (CoC). Its claim is based on a registered Deed of Assignment in its favour dated 2nd January, 2015, pursuant to which, Karnataka Bank Limited had assigned the non-performing assets relating to the credit facilities granted to the Corporate Debtor. The voting share of Phantom was reduced to 3.58% on account of XYZ and Sunrise being included in the CoC.

The CoC was constituted on 27th June, 2017. On 30th June, 2017, the IRP rejected the claim of Sunrise, inter alia, on the ground that the claim was not in the nature of a financial debt in terms of Section 5(8) of IBC since there was an absence of consideration for the time value of money, i.e., the period of repayment of the claimed ICDs was not stipulated The IRP also rejected the claim of XYZ on the ground that its claim as a financial creditor in Form C was filed after the expiry of the period for filing such a claim.

The IRP in his letter dated 30th June, 2017 has noted that as per the ledger provided by Sunrise, no interest was claimed on the alleged debt and no adjustment was made regarding the payment of principal or interest by the Corporate Debtor to Sunrise. It has been submitted in the written submissions filed on behalf of Sunrise and XYZ that the auditors of the Corporate Debtor had been putting a note in its balance sheets stating that the interest of 12% was not being paid to Sunrise due to a dispute.

Aggrieved by the rejection of their claim as financial creditors, XYZ and Sunrise filed applications before the National Company Law Tribunal (NCLT) to be included in the CoC. The NCLT by its order dated 5th July, 2017 allowed the applications.

However, none of the other financial creditors, such as Phantom and YES Bank, were parties to these proceedings. The NCLT observed that XYZ’s original claim in Form F was filed on time and it has only amended its claim as one under Form C.

The NCLT further observed that the amount given by Sunrise in the form of ICDs has been received as a deposit and is attracting interest as reflected in Form ‘26AS’, deducting TDS on interest. Thus, NCLT allowed Sunrise and XYZ to submit their claims as financial creditors with a direction to the IRP to consider the claims.

On 6th July, 2017, a meeting of the CoC took place which was attended by YES Bank and Phantom, and also by the newly approved financial creditors, XYZ and Sunrise. Following the meeting, YES Bank and Phantom filed applications in the NCLT for the exclusion of XYZ and Sunrise from the CoC on the ground that they are related parties.

The applications filed under Section 60(5) by Phantom also sought similar reliefs for:

(i)The removal of Sunrise and XYZ from the CoC; and

(ii)Directing the constitution of the CoC in terms of the Insolvency and Bankruptcy (Amendment) Ordinance 2018 (IBC Ordinance 2018).

As noted by NCLT, the Memorandum of Understanding dated 17th September, 2010, on the basis of which Sunrise had filed its claim in Form C before the IRP, was signed two years after the commencement of the purported transaction. The execution of the Memorandum of Understanding was sought to be explained on the basis that a formal document was created for specifying the rate of interest on the ICDs given by Sunrise to the Corporate Debtor. However, despite the creation of a formal document, the rate of interest being charged on the ICDs was 12% as mentioned in the claim before the IRP, which is half of the interest rate of 24% stipulated in the Memorandum of Understanding.

NCLT in its judgement dated 24th August, 2018 said :

(a)That Sunrise and XYZ did not qualify to be considered as financial creditors.

(b)In relation to the second issue, NCLT held that it ‘‘does not require a reply’’ in view of its above-mentioned finding. However, it took note of the first proviso to Section 21(2) of the IBC, which was introduced with effect from 6th June, 2018.

Under the first proviso, inter alia, a financial creditor who is a related party of the corporate debtor shall not have the right of representation, participation or voting in the CoC.

In appeal, the National Company Law Appellate Tribunal (NCLAT) proceeded of its decision to observe that admittedly Sunrise and XYZ are the financial creditors of the corporate debtor. Having stated so, the Appellate Tribunal proceeded to enquire into whether XYZ and Sunrise are related parties within the meaning of Section 5(24) of the IBC. Answering the above issue in the affirmative, the NCLAT held that Sunrise and XYZ are related parties of the Corporate Debtor since :

(a)XYZ was a partner of the Corporate Debtor.

(b)During the transaction period of 2009 to 2012, Sunrise led by Kunal Kumar was making substantial financial arrangements on the basis of advice provided by the Corporate Debtor led by its Management and Directors.

(c)The Corporate Debtor was acting on the directions/instructions of Kunal Kumar who, along with his family, is the majority shareholder in Sunrise, of which XYZ is a whollyowned subsidiary.

(d)On the basis of the same reasons, Kunal Kumar was also held to be a person participating in the policy-making process of the Corporate Debtor.

Aggrieved by order of NCLAT, Phantom approached the Hon’ble Supreme Court.

Referring the relevant case and relevant provisions of IBC, its Rules and Regulations made thereunder, answer the following questions :

Images Gym Ltd. was granted credit facility of ₹100 lakh under consortium arrangements.

Under the consortium, there were 5 five banks, and credit facility provided by the respective banks were as under :

A-One Bank Ltd. - ₹45 lakh, Best Bank Ltd. - ₹20 lakh, Good Deal Bank Ltd. - ₹15 lakh, Credit Arrangers Bank Ltd. - ₹10 lakh and Your Bank Ltd - ₹10 lakh Among theses the A-One Bank Ltd. was the leader.

Images Gym Ltd. was engaged in the business of manufacturing and trading of Gym exercise machines. However, due to poor demand of the products, the company could not sell out the machines and as a result the account of the company with respective banks were classified as Non-performing Advances (NPAs).

Apart from credit facility from the above banks, the company was also having outstanding dues of the creditor, which the company was not able to pay-off. The total amount outstanding of such operational creditors amounted ₹30 lakh.

The company has also not paid the salary to its employees and workers for the last 6 months and the total dues amounted to ₹10 lakh.

The leader of the consortium filed Corporate Insolvency Resolution Process (CIRP)

with the Adjudicating Authority (AA) and proposed the name of Saket Sharma, as Interim Resolution Professional (IRP).

The AA accepted the application and appointed Saket Sharma as IRP and put moratorium.

The IRP constituted the Committee of Creditors (CoC) and first meeting of the CoC was called upon.

The operational creditors objected about the constitution of the committee and asked the IRP to include operational creditors also in the CoC, which the IRP denied.

The CoC observed that IRP is not discharging his functions properly and was reluctant in calling the expression of interest from Resolution Applicant(s), so they proposed for the change of the existing IRP and appointment of the new Resolution Professional (RP) named as Anubhav Dutt.

The RP called the expression of interest from the eligible applicants and each proposal was placed before the CoC, but no consensus had arrived at. The initial period of 180 days was going to elapsed so the CoC through the RP sought extension which the Adjudicating Authority for further 90 days. The RP again called the expression of interest from other Resolutionm Applicants, but it was also not agreed upon by the CoC and after lapse of total 270 days, the Adjudicating Authority ordered for its liquidation and the present RP was appointed as Liquidator.

The Liquidator sold off the assets of the Company and realised only ₹150 lakh, whereas the outstanding dues of the various stakeholders remained as under.

Dues of ₹ in Lakhs Fee payable as Resolution Professional 10 Fee payable as Liquidator 10 Dues of the banks with interest 110 Outstanding from Operational Creditors 30 Dues of Govts. 15 Workmen’s dues 10 Employee’s salary 15 Equity shareholders 30 Total 230 Based on the above information, answer the following questions:

Facts of the case :

Richa Infrastructure Limited engaged in the construction of roads is in default in repayment of loans due to general slowdown in construction industry. Repeated follow-up by the financial institutions with the Corporate Debtor, ‘Richa Infrastructure Ltd.’ for submitting its specific plan for repayment of dues did not evoke any response.

One of the financial creditors filed a case against Richa Infrastructure Ltd. before the Debt Recovery Tribunal.

Richa Infrastructure Ltd. had issued some cheques to some Operational Creditors.

All the cheques issued to creditors were dishonored/returned by the banker due to insufficient funds in the account. Consequently, Operational Creditors issued legal notices to Richa Infrastructure Ltd, with clear intimation that if due amount is not paid within 15 days from the date of receipt of legal notice, criminal complaint shall be filed against Richa Infrastructure Ltd. under the Negotiable Instrument Act, 1881 and criminal complaints were filed. After a joint lenders meeting, all the financial institutions unanimously decided to apply under the provisions of the Insolvency and Bankruptcy Code, 2016 to the National Company Law Tribunal (NCLT) for starting the process of Insolvency Resolution. Their application was admitted by NCLT on 30th June, 2018 and orders were issued for commencement of a moratorium period of 180 days, appointment of an Interim Resolution Professional and issue of public announcement inviting claims from all concerned.

After public announcement and the responses thereto, following details were brought out :

(1)Financial debts due to unsecured creditors (F1) - ₹15 Crores.

(2)Workmen’s due for the period of 24 months preceding the liquidation commencement date (F2) - ₹25 Crores.

(3)Debts due to a secured creditor who has relinquished his security (F3) - ₹30 Crores.

(4)Amount due to the Central Government (F4) - ₹27 Crores.

(5)Debts due to a secured creditor after the enforcement of security interest (F5) -₹36 Crores.

Insolvency Resolution Professional (IRP) approached the promoters, directors and officials of Richa Infrastructure Ltd to provide the necessary information, documents, statutory records, books of accounts to verify the claims filed by creditors. The promoters, directors and officials of Richa Infrastructure Ltd. ignored the request of Resolution Professional.

M/s ANG & Associates, Chartered Accountants were the Statutory Auditors of Richa Infrastructure Ltd. They audited the accounts for the financial year end March, 2018 of Richa Infrastructure Ltd. and submitted the Annual Accounts for approval of the Board of Directors.

The Resolution Professional has appointed valuers and has received the valuation reports. The Resolution Professional then started the efforts to get resolution proposals.

However during the normal resolution process period of 180 days, no resolution proposal could be finalized. The Committee of Creditors decided that Resolution Professional should get the extension as per the provisions of Insolvency and Bankruptcy Code, 2016.

Based on the above facts, answer the following questions :

Read the following carefully and answer the questions given at the end :

Pine Food Industries Limited (“PFIL”) is one of the top FMCG player and listed entity in India. It is a leading manufacturer and marketer of various edible oils, food products and eatables. Its Authorized Capital is Rs. 252.00 crore and Paid-up Capital is Rs.

65.00 crore. PFIL has borrowed from various Banks and Financial institutions in India and its borrowings were around Rs. 12,000 Crore.

Due to unprecedented crash in global prices of the oil seeds coupled with falling revenues in the oil business gave a crippling blow to PFIL.

AB Bank and BC Bank filed an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (“Code”) for initiating the insolvency resolution process against PFIL (hereinafter called as the Corporate Debtor (“CD”)). After hearing both the parties, National Company Law Tribunal (“NCLT”) admitted the petition filed. The Financial Creditor proposed the name of Kapoor to act as Interim Resolution Professional (“IRP”).

An application was filed before NCLT by one of the creditors who made a claim before the Resolution Professional (“RP”) stating that the CD owed to pay USD 10.00 crore, based on the Bills of Exchanges, ordering the CD to pay this creditor for the goods supplied by another party. On making of such claim before the RP, it has been rejected by him saying that it is not a Financial Debt as it is an Operational Debt therefore, it could not be considered as Financial Debt as claimed by applicant therein.

Vijay Kumar Jain, suspended Director of the CD, filed an application before the NCLT under section 60(5) of the Code seeking an order for setting aside the decision taken by the Committee of Creditors (“CoC”) disallowing the erstwhile representatives of the Corporate Debtor including Vijay to participate in the CoC meetings; declare that the CoC meeting is non est; direct the RP to ensure active participation of the applicant in the meetings of CoC; provide all the documents and information to the applicant.

RP filed application in NCLT under section 43(1) of the Code for seeking reversal of the amounts that were debited from the current accounts of the CD maintained with XYZ Bank which had been debited by the XYZ Bank before the insolvency commencement date and were utilized against the payment of the dues owed by the CD to a Bank in relation to the Letter of Credit issued by them.

The RP submits that the payment of the impugned amount lead to preferential treatment towards XYZ Bank by the CD as such payment has the effect of putting Respondents (i.e. XYZ Bank) in a beneficial position than it would have been in liquidation of the CD in accordance with Section 53 of the Code. It is further stated by the RP that the payments of the impugned amount by the Corporate Debtor were not in the “ordinary course of business” of the CD.

NCLT, vide its order, held that the respondent Bank, which had debited an amount aggregating to Rs. 65.98 crores from the current accounts of the Corporate Debtor is directed to reverse the said amount within 30 days from the date of the said order.

Since the resolution plan is already submitted and under examination of the CoC without consideration of this amount, therefore the appropriation of this amount will be decided by the CoC. XYZ Bank filed appeal in NCLAT against the order of NCLT.

The main plea taken by the Appellant Bank is that the RP before filing an application under Section 43(1) of the Code formed no independent opinion nor afforded an opportunity to the Appellant to explain about the transactions in question.

The RP called for Expression of Interest (“EOI”). 28 prospective resolution applicants showed their interest out of which two prospective resolution applicants were rejected as one was disqualified under Section 29 A of the Code (being related party) and the other was a financial investor who did not meet the criteria in the EOI evaluation parameters.

The applicant reviewed the four Resolution Plans submitted by the Resolution Applicants and found that only the plans submitted by 2 Resolution Applicants (RA1 and RA2) provided for the corporate insolvency resolution of the Corporate Debtor as a whole and on a going concern basis.

The RP filed application under section 30(6) of the Code, seeking order for approval of the resolution plan for the Corporate Debtor submitted by the consortium led by PAL (RA2) as approved by the members of Committee of Creditors (CoC). The said resolution plan was approved by a vote share of 96.85%. RP filed application in NCLT for approval of Resolution Plan.

While the said application was pending for consideration before the NCLT, Hon’ble Supreme Court, in Vijay Kumar Jain Vs. Standard Chartered Bank & Ors pronounced the judgment. Under the Judgment of Hon’ble Supreme Court, the approval of the NCLT to the resolution plan of RA2 was interdicted. In compliance of the above-mentioned Hon'ble Supreme Court order, NCLT by its order directed as follows :

“Resolution Professional is directed to comply with the directions of the Hon’ble Supreme Court and submit the report within the stipulated time as provided by the Hon'ble Supreme Court.”

Thereafter, NCLT approved the Resolution Plan submitted by RA2 and passed orders and directions on the reliefs and concession sought.

Since in Para 38, NCLT in their order rejected some of the relief sought, RA2 moved to NCLT for modification of order of NCLT.

In the application filed, RA2 had sought substitution of Para 38 of the order of NCLT approving the Resolution Plan of RA2 as under :

Existing Para “38. Any relief sought for in the Resolution Plan, where the contract/agreement/ understanding/ proceedings/actions/notice etc is not specifically identified or is for future and contingent liability, is at this moment rejected.”

Proposed Para “All claims that were either not filed or not admitted during CIRP in terms of the provisions of the Insolvency and Bankruptcy Code, 2016 shall stand extinguished.

Further, claims admitted/ verified by the Resolution Professional shall stand settled and extinguished as per the Resolution Plan.”

Resolution Plan approved by NCLT of RA2 leads to a 60% haircut for the lenders.

RA2 completed its acquisition of PFIL.

Referring decided case and relevant provisions of the Insolvency and Bankruptcy Code (IBC), 2016 and Rules and Regulations made thereunder, answer the following questions :

(c)Panapathi G. Seeds Pvt. Ltd. a closely held private company was engaged in the business of processing oilseeds for edible oils. It was established in 1988 under the leadership of Panapathi G. Prasad. Within a decade, Panapathi G. Seeds Pvt. Ltd positioned itself as a leader in production of groundnut oil in the Western region of India with two premium brands.

In 2016 Panapathi G. Prasad had a severe heart attack and died without any succession plan in place. Ram and Sham, the two sons of Panapathi G. Prasad were also directors in the company with equal shareholding. After the death of Panapathi G. Prasad, both brothers had strained relations over the management control which adversely affected the business of the company. With declining profit and turnover both the brothers were worried and decided to reach a family settlement whereby the control of the company was handed over to the elder brother Ram. Sham resigned as the director of the company and in lieu of the same he was entrusted with the management and control of another family firm Saraswathi Edibles, wherein both brothers were partners. Praveen, son of Ram was inducted as director in the Company.

In 2018 Sham wanted to withdraw unsecured loan given by him to the company because the company stopped paying him interest on the loan. Despite follow up Sham was not paid either the principal or interest, which forced him to file an application under section 7 of the Insolvency and Bankruptcy Code 2016.

The Adjudicating Authority (i) admitted the application, (ii) declared moratorium and (iii)

appointed Nagarajan, as an Interim Resolution Professional (IRP). Ram refused to hand over the management control to the IRP on the plea that it was a family dispute, and they will settle soon on their own. He also asked the IRP not to make the public announcement.

IRP tried to persuade Ram citing the provisions of the Code and warned him that if he does not hand over control of the Corporate Debtor IRP will be forced to approach the Adjudicating Authority for appropriate orders. Thereafter Ram allowed the IRP to take inventory of the assets and stocks after 15 days from the insolvency commencement date.

With reference to the above facts and other details provided, answer the following questions with particular reference to the provisions contained in the Code, Regulations and rules of IBC and others :

Background CIL Limited (hereinafter referred as ‘CIL’ or Corporate Debtor) is a manufacturer of precision engineering and automobile components, namely crankshafts for tractors, HCVs, LCVs as well as two-wheelers, as also connecting rods, steering knuckles and hubs. IBD Bank, one of the Financial Creditors of the Company has initiated a Corporate Insolvency Resolution Process (CIRP).

Appointment of Resolution Professional The National Company Law Tribunal (NCLT) has appointed Mr. RL as the Interim Resolution Professional and subsequently, he was confirmed as the Resolution Professional (hereinafter referred to as the “RP”) by the NCLT.

Receipt and Admission of Claims The RP received a claim for ₹ 1,850 crores and after verification of claims, the RP admitted a claim of ₹ 1,780 crores and the balance of claims was rejected by the RP.

Break-up of Claims Admitted Out of admitted claim of ₹ 1,780 crores, the Financial Creditors claim was ₹ 1,620 crores, Workmen Wages pending for a period of last 24 months is ₹ 18 crores, Employees pending claims for a period of last 12 months is 15 crores, Claims by Operational Creditors and Statutory Authorities is ₹ 127 crores.

Going forward, the RP published an “Expression of Interest.” Subsequently, it was revised on three different dates.

The Resolution Applicant (hereinafter referred to as the ‘RA’) submitted its first Resolution Plan during April, 2019 providing to pay ₹ 75 crores to all the stakeholders including ₹ 62 crores to Financial Creditors (FCs).

After a series of negotiations, the RA submitted an addendum to the Resolution Plan during May 2019 by which the RA raised the payment to Financial Creditors to ₹ 74 crores and at the request of the Committee of Creditors (hereinafter referred to as the “CoC”. Thereafter, once again, the RA submitted a Revised Plan during June, 2019 wherein the total pay- out was ₹ 86 crores and the Financial Creditors were to be paid ₹ 75 crores.

Further, the statutory requirement of the RP involving two approved valuers for giving reports, apropos fair market value and liquidation value was duly complied with and the figures in both reports were not at great variance.

The final Resolution Plan was submitted on August, 2019, in which the financial proposal/ total pay-out was increased to ₹ 130 crores and the Financial Creditors were to get upfront payment of ₹ 81 crores towards final settlement.

The total estimated liquidation cost and fee to the Resolution Professional and other connected/ incidental expenses was ₹ 3.30 crores.

Final Approval of the Resolution Plan by CoC.

This final Resolution Plan submitted by the Resolution Applicant during August, 2019 was finally approved by the CoC by a majority of 88% votes. In terms of such approval of the Resolution Plan, the RP moved Approval Application under Sections 30(6) and 31 of the IBC, 2016 seeking approval of the Resolution Plan before the Adjudicating Authority-NCLT.

In terms of the Resolution Plan, for which approval was being sought, the Corporate Debtor would be allowed the benefit of carry forward of its losses in terms of Section 79 of the Income Tax Act, 1961.

The NCLT, vide its order, by which the approval of the Resolution Plan was kept in abeyance, directed the Official Liquidator (OL) to provide the exact figures/value of assets. The same was carried in appeal under Section 61 of the Code by the RA before the NCLAT which passed the impugned Judgment on 19th January, 2022, dismissing the appeal, thereby upholding the order of the NCLT.

It is imperative to note that the moot question involved is the extent of the jurisdiction and powers of the Adjudicating Authority in the background of the admitted and undisputed factual position that no objection was raised by any quarter with regard to any deficiency/irregularity, either by the RP or the Appellant or the CoC in finally approving the resolution plan which was sent to the Adjudicating Authority–NCLT for approval. Further, the NCLT and the NCLAT did not fully recognise that under the Resolution Plan, the Corporate Debtor was set to be revived and not liquidated.

In view of the above, the RA filed an appeal before the Supreme Court.

In the light of the above inputs and referring to the applicable provisions of the IBC Code, 2016 and the Regulations framed thereunder together with the decided case laws, answer the following questions :

Facts of the case :

Richa Infrastructure Limited engaged in the construction of roads is in default in repayment of loans due to general slowdown in construction industry. Repeated follow-up by the financial institutions with the Corporate Debtor, ‘Richa Infrastructure Ltd.’ for submitting its specific plan for repayment of dues did not evoke any response.

One of the financial creditors filed a case against Richa Infrastructure Ltd. before the Debt Recovery Tribunal.

Richa Infrastructure Ltd. had issued some cheques to some Operational Creditors.

All the cheques issued to creditors were dishonored/returned by the banker due to insufficient funds in the account. Consequently, Operational Creditors issued legal notices to Richa Infrastructure Ltd, with clear intimation that if due amount is not paid within 15 days from the date of receipt of legal notice, criminal complaint shall be filed against Richa Infrastructure Ltd. under the Negotiable Instrument Act, 1881 and criminal complaints were filed. After a joint lenders meeting, all the financial institutions unanimously decided to apply under the provisions of the Insolvency and Bankruptcy Code, 2016 to the National Company Law Tribunal (NCLT) for starting the process of Insolvency Resolution. Their application was admitted by NCLT on 30th June, 2018 and orders were issued for commencement of a moratorium period of 180 days, appointment of an Interim Resolution Professional and issue of public announcement inviting claims from all concerned.

After public announcement and the responses thereto, following details were brought out :

(1)Financial debts due to unsecured creditors (F1) - ₹15 Crores.

(2)Workmen’s due for the period of 24 months preceding the liquidation commencement date (F2) - ₹25 Crores.

(3)Debts due to a secured creditor who has relinquished his security (F3) - ₹30 Crores.

(4)Amount due to the Central Government (F4) - ₹27 Crores.

(5)Debts due to a secured creditor after the enforcement of security interest (F5) -₹36 Crores.

Insolvency Resolution Professional (IRP) approached the promoters, directors and officials of Richa Infrastructure Ltd to provide the necessary information, documents, statutory records, books of accounts to verify the claims filed by creditors. The promoters, directors and officials of Richa Infrastructure Ltd. ignored the request of Resolution Professional.

M/s ANG & Associates, Chartered Accountants were the Statutory Auditors of Richa Infrastructure Ltd. They audited the accounts for the financial year end March, 2018 of Richa Infrastructure Ltd. and submitted the Annual Accounts for approval of the Board of Directors.

The Resolution Professional has appointed valuers and has received the valuation reports. The Resolution Professional then started the efforts to get resolution proposals.

However during the normal resolution process period of 180 days, no resolution proposal could be finalized. The Committee of Creditors decided that Resolution Professional should get the extension as per the provisions of Insolvency and Bankruptcy Code, 2016.

Based on the above facts, answer the following questions :

(a)Suruchi Fabrics Limited (SFL) availed term loan of ₹ 10 Crore and cash credit facility of ₹ 2 Crore from A-One Bank Ltd. Since the SFL was unable to service the loan, the Board of Directors of the company passed a resolution to initiate Corporate Insolvency Resolution Process (CIRP) and proposed the name of Aneri, an Insolvency Professional to act as Interim Resolution Professional (IRP). Apart from the credit facility from the A-One Bank, SFL have no other financial creditor. However, SFL have outstanding dues towards its operational creditors amounting to ₹ 25 Crore.

Mathew is the Company Secretary of A-One Bank. Mathew’s younger brother Thomas is the Chief Financial Officer in the SFL. Although Mathew and Thomas are brothers in relation, they are not in talking terms. Thomas joined the SFL after the loan was disbursed by the Bank.

In the first meeting of the Committee of Creditors (CoC) it was decided to change the existing IRP and to appoint Brijesh as Resolution Professional.

The Information Memorandum was prepared and expression of interest was invited for resolution plan.

Two Resolution Proposals were submitted, details of which are as under :

(i)A company named as Dinesh Textiles Private Limited, submitted the resolution plan.

Dinesh who is the Managing Director of the company holds 90% of the equity and rest 10% is in the name of his wife Neeta. Dinesh Textiles Private Limited has availed loan from another bank and his account has been classified as Non-performing Account by that bank.

(ii)Harsh, another Resolution Applicant was convicted and remained in imprisonment for two years under the provisions of the Prevention of Money Laundering Act, 2002. He was released in December 2021.

On the above background, referring relevant case laws, provisions of the Insolvency and Bankruptcy Code, 2016 and Regulations made by IBBI, answer the following questions :

COB Bank filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) for initiating a Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, M/s. Gupta Infra Private Limited (GIPL). The said application was admitted by the Adjudicating Authority (AA) during October, 2018 and a Resolution Professional (RP) was appointed as an Interim Resolution Professional (IRP).

Following is the financial position of GIPL as on the date of commencement of the CIRP :

Liabilities Amount in Assets Amount in ₹

₹ Crores Crores

Share Capital – Equity 100.00 Fixed Assets – Land and 115.00

Building

Share Capital – Redeemable 75.00 Fixed Assets – Plant and 165.00 Preference Shares Machinery Share Capital – Convertible 25.00 Other Fixed Assets 70.00 Preference Shares Debentures (Unsecured fully 50.00 Investments in Subsidiaries 50.00 convertible)

Long Term Borrowings – Fully 300.00 Inventories 150.00 Secured Short Term Borrowings – Unsecured 75.00 Receivables 110.00 Loan from Related Parties 25.00 Cash and Bank Balances 15.00 Payables 65.00 Other Current Assets 25.00 Provisions 35.00 Accumulated Losses 100.00 Deferred Tax Liabilities 15.00 Other Current Liabilities 35.00 Total Liabilities 800.00 Total Assets 800.00 Other Additional information provided by the Corporate Debtor :

[Amounts stated in the table above can be treated as claims made by each of the parties in their respective category].

Other Current Liabilities include :

₹ In Crores

Workmen Wages Payable for 36 months 9.00 Salary Payable for 20 months 100.00 PF Liabilities 3.80 Sales Tax/Commercial Taxes Due * 4.80 Other Statutory Dues 2.40

* On the sales tax and commercial taxes due, the Commercial Tax Authorities have already attached one of the immovable properties of the Corporate Debtor valued at ₹ 3.50 crores.

Fixed Assets includes buildings occupied on long term lease for a period of 75 years obtained from the State Industrial Development Authority (SIDA) for ₹ 5 Crores. SIDA has also submitted their claim with the RP stating that their premium amount along with interest and penal interest is due for since last 7 years. SIDA has filed its claim as a Financial Creditor. Whereas, the Resolution Professional has requested SIDA to submit its claim as an Operational Creditor. (This amount is included in Other Current Liabilities).

Further, it was informed by the Resolution Professional that the Corporate Debtor, M/s. Gupta Infra Private Limited, who initiated a CIRP against one of its Operational Creditor, namely C-Digital Arts Private Ltd for ₹ 6 Crores and going forward, the National Company Law Tribunal (NCLT) has already ordered for initiation of Corporate Insolvency Resolution Process (CIRP). However, one of the suspended Director on the Board of C-Digital Arts Private Limited filed an appeal before the National Company Law Appellate Tribunal (NCLAT) stating that there was no notice given as required under Section 8 of the Insolvency and Bankruptcy Code, 2016 read with Rule 5 of the insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 which entails that for initiation of insolvency resolution process by an Operational Creditor, a demand notice has to be served by the unpaid Operational Debtor on the Corporate Creditor. Nevertheless, the aforesaid suspended director he has not denied the debts due. This matter is pending before NCLAT for disposal.

Investments includes investment in Foreign Subsidiary of ₹ 30 Crores and in an Indian Subsidiary of ₹ 18 Crores and Investment in shares amounting to ₹ 2 Crores in another company incorporated and registered with charitable objects and not for profit.

Inventories and Receivables realisable only for 80% of its value.

Loan from related parties is from wife and son of one Director of GIPL.

Other Current Assets includes ₹ 10 Crores paid to National Highway Authority of India (NHAI) towards a bid amount for a road project.

Other Current Assets includes ₹ 2 Crores of assets of third party held under Trust. Machinery, the carrying value of which is ₹ 1.50 crores belonging to an Indian Subsidiary is lying in one of the Units of the Corporate Debtor.

A Machinery which was acquired for dispatching to the Foreign Subsidiary is also lying in the factory premises of the Corporate Debtor having a carrying value of ₹ 3 crores.

Cranes worth ₹ 5 Crores belonging to a proprietorship concern of one of the Director is also lying the Factory premises of the Corporate Debtor.

CIRP costs payable including all expenses is ₹ 2 Crores.

The Security Interest charged for COB Bank is 91.25% and SID Bank is 8.75%. (both the financial creditors have not relinquished their security interest).

During the CIRP, in one of the Meeting of the ‘Committee of Creditors’ (CoC), Resolution Plans were discussed. Revised Resolution Plans were submitted by the prospective Resolution Applicants.

Resolution Plan was put to e-Vote and by majority of 94.79%, the Resolution Plan of ‘GIPL’ was approved.

The Resolution plan proposes for utilisation of all assets including the assets under lease. Further, the Resolution Professional has sent a letter to the Commercial Taxes Authorities to release the property attached by them and on the contrary, the Authorities informed that the Department will get their portion as per the proposed Resolution Plan.

One of the Financial Creditor (SID Bank) sent an objection with respect to the distribution of the proceeds of the resolution plan under the Resolution Plan.

SID Bank also filed seeking direction to the Resolution Professional to distribute the proceeds of the Resolution Plan and made the following prayers :

“It is most respectfully prayed that :

1.The present application may kindly be allowed and the directions be issued to the Respondent No. 1 to modify/clarify the distribution to dissenting members as per the Resolution Plan and distribute the proceeds of the resolution plan to the Applicant SID Bank, for an amount of ₹ 8.97 Crores in priority in accordance with provisions of IBC, 2016 in the interest of justice and equity.

2.Interim stay be granted on distribution of the resolution plan amount by the Resolution Professional to the Committee of Creditors till the present application is decided.”

The case of the Appellant, namely SID Bank in the Application was that, as per the security interest of the Appellant, the Appellant is entitled to 8.75% i.e. the amount of ₹ 8.97 Crores and as per voting share as approved by the CoC, the Appellant is entitled to 5.21% i.e., ₹ 5.34 Crores. The case of the Appellant SID Bank set up in the Application is that he is entitled for his distribution of plan amount as per value of the security interest of the Appellant.

The Application was objected by the Resolution Professional. The Adjudicating Authority, by its Order, upheld the decision of the CoC for distribution of proceeds of the Resolution Plan as per the voting share. The Appellant, aggrieved by the said Order, has come up with the Appeal to the National Company Law Appellate Tribunal (NCLAT).

In the light of the above case study inputs and referring to the decisions of applicable case laws with reasons and the provisions of Insolvency and Bankruptcy Code, 2016 (IBC, 2016) and the Regulations made thereunder, answer the following questions :

A Resolution Professional appointed under Insolvency & Bankruptcy Code, 2016 (IBC, 2016), placed before the Committee of Creditors (CoC), a Consortium of Banks, a Resolution Plan submitted to him. The CoC approved the Resolution Plan and National Company Law Tribunal (NCLT), sanctioned it. As the Liquidation Value is not sufficient and there is a hair-cut involved in the dues payable to the secured financial creditors, nothing is provided for the Operational Creditors under the Resolution Plan. The Operational Creditor aggrieved by the decision of the NCLT filed Appeal before National Company Law Appellate Tribunal (NCLAT). The contention of the Operational Creditor is that the Resolution Plan approved is not in compliance with the provisions of the Insolvency and Bankruptcy Code, 2016 and the Regulations made thereunder :

Background CIL Limited (hereinafter referred as ‘CIL’ or Corporate Debtor) is a manufacturer of precision engineering and automobile components, namely crankshafts for tractors, HCVs, LCVs as well as two-wheelers, as also connecting rods, steering knuckles and hubs. IBD Bank, one of the Financial Creditors of the Company has initiated a Corporate Insolvency Resolution Process (CIRP).

Appointment of Resolution Professional The National Company Law Tribunal (NCLT) has appointed Mr. RL as the Interim Resolution Professional and subsequently, he was confirmed as the Resolution Professional (hereinafter referred to as the “RP”) by the NCLT.

Receipt and Admission of Claims The RP received a claim for ₹ 1,850 crores and after verification of claims, the RP admitted a claim of ₹ 1,780 crores and the balance of claims was rejected by the RP.

Break-up of Claims Admitted Out of admitted claim of ₹ 1,780 crores, the Financial Creditors claim was ₹ 1,620 crores, Workmen Wages pending for a period of last 24 months is ₹ 18 crores, Employees pending claims for a period of last 12 months is 15 crores, Claims by Operational Creditors and Statutory Authorities is ₹ 127 crores.

Going forward, the RP published an “Expression of Interest.” Subsequently, it was revised on three different dates.

The Resolution Applicant (hereinafter referred to as the ‘RA’) submitted its first Resolution Plan during April, 2019 providing to pay ₹ 75 crores to all the stakeholders including ₹ 62 crores to Financial Creditors (FCs).

After a series of negotiations, the RA submitted an addendum to the Resolution Plan during May 2019 by which the RA raised the payment to Financial Creditors to ₹ 74 crores and at the request of the Committee of Creditors (hereinafter referred to as the “CoC”. Thereafter, once again, the RA submitted a Revised Plan during June, 2019 wherein the total pay- out was ₹ 86 crores and the Financial Creditors were to be paid ₹ 75 crores.

Further, the statutory requirement of the RP involving two approved valuers for giving reports, apropos fair market value and liquidation value was duly complied with and the figures in both reports were not at great variance.

The final Resolution Plan was submitted on August, 2019, in which the financial proposal/ total pay-out was increased to ₹ 130 crores and the Financial Creditors were to get upfront payment of ₹ 81 crores towards final settlement.

The total estimated liquidation cost and fee to the Resolution Professional and other connected/ incidental expenses was ₹ 3.30 crores.

Final Approval of the Resolution Plan by CoC.

This final Resolution Plan submitted by the Resolution Applicant during August, 2019 was finally approved by the CoC by a majority of 88% votes. In terms of such approval of the Resolution Plan, the RP moved Approval Application under Sections 30(6) and 31 of the IBC, 2016 seeking approval of the Resolution Plan before the Adjudicating Authority-NCLT.

In terms of the Resolution Plan, for which approval was being sought, the Corporate Debtor would be allowed the benefit of carry forward of its losses in terms of Section 79 of the Income Tax Act, 1961.

The NCLT, vide its order, by which the approval of the Resolution Plan was kept in abeyance, directed the Official Liquidator (OL) to provide the exact figures/value of assets. The same was carried in appeal under Section 61 of the Code by the RA before the NCLAT which passed the impugned Judgment on 19th January, 2022, dismissing the appeal, thereby upholding the order of the NCLT.

It is imperative to note that the moot question involved is the extent of the jurisdiction and powers of the Adjudicating Authority in the background of the admitted and undisputed factual position that no objection was raised by any quarter with regard to any deficiency/irregularity, either by the RP or the Appellant or the CoC in finally approving the resolution plan which was sent to the Adjudicating Authority–NCLT for approval. Further, the NCLT and the NCLAT did not fully recognise that under the Resolution Plan, the Corporate Debtor was set to be revived and not liquidated.

In view of the above, the RA filed an appeal before the Supreme Court.

In the light of the above inputs and referring to the applicable provisions of the IBC Code, 2016 and the Regulations framed thereunder together with the decided case laws, answer the following questions :

Background CIL Limited (hereinafter referred as ‘CIL’ or Corporate Debtor) is a manufacturer of precision engineering and automobile components, namely crankshafts for tractors, HCVs, LCVs as well as two-wheelers, as also connecting rods, steering knuckles and hubs. IBD Bank, one of the Financial Creditors of the Company has initiated a Corporate Insolvency Resolution Process (CIRP).

Appointment of Resolution Professional The National Company Law Tribunal (NCLT) has appointed Mr. RL as the Interim Resolution Professional and subsequently, he was confirmed as the Resolution Professional (hereinafter referred to as the “RP”) by the NCLT.

Receipt and Admission of Claims The RP received a claim for ₹ 1,850 crores and after verification of claims, the RP admitted a claim of ₹ 1,780 crores and the balance of claims was rejected by the RP.

Break-up of Claims Admitted Out of admitted claim of ₹ 1,780 crores, the Financial Creditors claim was ₹ 1,620 crores, Workmen Wages pending for a period of last 24 months is ₹ 18 crores, Employees pending claims for a period of last 12 months is 15 crores, Claims by Operational Creditors and Statutory Authorities is ₹ 127 crores.

Going forward, the RP published an “Expression of Interest.” Subsequently, it was revised on three different dates.

The Resolution Applicant (hereinafter referred to as the ‘RA’) submitted its first Resolution Plan during April, 2019 providing to pay ₹ 75 crores to all the stakeholders including ₹ 62 crores to Financial Creditors (FCs).

After a series of negotiations, the RA submitted an addendum to the Resolution Plan during May 2019 by which the RA raised the payment to Financial Creditors to ₹ 74 crores and at the request of the Committee of Creditors (hereinafter referred to as the “CoC”. Thereafter, once again, the RA submitted a Revised Plan during June, 2019 wherein the total pay- out was ₹ 86 crores and the Financial Creditors were to be paid ₹ 75 crores.

Further, the statutory requirement of the RP involving two approved valuers for giving reports, apropos fair market value and liquidation value was duly complied with and the figures in both reports were not at great variance.

The final Resolution Plan was submitted on August, 2019, in which the financial proposal/ total pay-out was increased to ₹ 130 crores and the Financial Creditors were to get upfront payment of ₹ 81 crores towards final settlement.

The total estimated liquidation cost and fee to the Resolution Professional and other connected/ incidental expenses was ₹ 3.30 crores.

Final Approval of the Resolution Plan by CoC.

This final Resolution Plan submitted by the Resolution Applicant during August, 2019 was finally approved by the CoC by a majority of 88% votes. In terms of such approval of the Resolution Plan, the RP moved Approval Application under Sections 30(6) and 31 of the IBC, 2016 seeking approval of the Resolution Plan before the Adjudicating Authority-NCLT.

In terms of the Resolution Plan, for which approval was being sought, the Corporate Debtor would be allowed the benefit of carry forward of its losses in terms of Section 79 of the Income Tax Act, 1961.

The NCLT, vide its order, by which the approval of the Resolution Plan was kept in abeyance, directed the Official Liquidator (OL) to provide the exact figures/value of assets. The same was carried in appeal under Section 61 of the Code by the RA before the NCLAT which passed the impugned Judgment on 19th January, 2022, dismissing the appeal, thereby upholding the order of the NCLT.

It is imperative to note that the moot question involved is the extent of the jurisdiction and powers of the Adjudicating Authority in the background of the admitted and undisputed factual position that no objection was raised by any quarter with regard to any deficiency/irregularity, either by the RP or the Appellant or the CoC in finally approving the resolution plan which was sent to the Adjudicating Authority–NCLT for approval. Further, the NCLT and the NCLAT did not fully recognise that under the Resolution Plan, the Corporate Debtor was set to be revived and not liquidated.

In view of the above, the RA filed an appeal before the Supreme Court.

In the light of the above inputs and referring to the applicable provisions of the IBC Code, 2016 and the Regulations framed thereunder together with the decided case laws, answer the following questions :

Ruby and Emerald Pvt. Ltd (REPL), incorporated on 1st April, 2013 has its registered office in Surat. Gems and Gems Pvt. Ltd (GGPL), incorporated on 11th September, 2014 has its registered office in Jaipur. REPL was approached by GGPL for procuring its goods which can be used as raw material in the factory of REPL. It was agreed through a contract between REPL and GGPL that upon procurement of the goods entire payment shall be made by REPL within 10 days of issuance of the tax invoice.

The transaction was smoothly going between REPL and GGPL without any delays in supply of goods and payment. Owner of REPL died due to cardiac arrest and the business operations of REPL were severely affected. REPL started supplying faulty goods to its customers and the quality of raw material being supplied by the suppliers also deteriorated gradually. As on 2nd January, 2021, there were no dues outstanding towards GGPL and balance confirmation from GGPL was also taken by REPL.

However, between 3rd January, 2021 and 31st May, 2021 various transactions happened between REPL and GGPL. GGPL requested for the payments multiple times for such transaction between 3rd January, 2021 and 31st May, 2021; however, GGPL kept supplying goods in good faith based on relationship with REPL. REPL neither responded to requestsof GGPL nor stopped buying goods from them. Because of the long overdue from REPL, GGPL sent a demand notice on 16th June, 2021 through their lawyer to make the payment of entire outstanding to the tune of ‘ 1,25,00,000/- exclusive of interest @ 15% p.a. within 10 days from the receipt of the notice, failing which GGPL will take suitable actions under the law. No communication whatsoever was received from REPL. Therefore, as per the directions of the lawyer, GGPL filed an application to initiate Corporate Insolvency Resolution Process (CIRP)

against REPL. Also, they have sent a letter to the power company to disconnect the supply of electricity to REPL considering that they are not in a position to pay their dues Considering the above facts answer the following questions :

(c)Panapathi G. Seeds Pvt. Ltd. a closely held private company was engaged in the business of processing oilseeds for edible oils. It was established in 1988 under the leadership of Panapathi G. Prasad. Within a decade, Panapathi G. Seeds Pvt. Ltd positioned itself as a leader in production of groundnut oil in the Western region of India with two premium brands.

In 2016 Panapathi G. Prasad had a severe heart attack and died without any succession plan in place. Ram and Sham, the two sons of Panapathi G. Prasad were also directors in the company with equal shareholding. After the death of Panapathi G. Prasad, both brothers had strained relations over the management control which adversely affected the business of the company. With declining profit and turnover both the brothers were worried and decided to reach a family settlement whereby the control of the company was handed over to the elder brother Ram. Sham resigned as the director of the company and in lieu of the same he was entrusted with the management and control of another family firm Saraswathi Edibles, wherein both brothers were partners. Praveen, son of Ram was inducted as director in the Company.

In 2018 Sham wanted to withdraw unsecured loan given by him to the company because the company stopped paying him interest on the loan. Despite follow up Sham was not paid either the principal or interest, which forced him to file an application under section 7 of the Insolvency and Bankruptcy Code 2016.

The Adjudicating Authority (i) admitted the application, (ii) declared moratorium and (iii)

appointed Nagarajan, as an Interim Resolution Professional (IRP). Ram refused to hand over the management control to the IRP on the plea that it was a family dispute, and they will settle soon on their own. He also asked the IRP not to make the public announcement.

IRP tried to persuade Ram citing the provisions of the Code and warned him that if he does not hand over control of the Corporate Debtor IRP will be forced to approach the Adjudicating Authority for appropriate orders. Thereafter Ram allowed the IRP to take inventory of the assets and stocks after 15 days from the insolvency commencement date.

With reference to the above facts and other details provided, answer the following questions with particular reference to the provisions contained in the Code, Regulations and rules of IBC and others :

Read the case study carefully and answer the questions given at the end :

JCP Industries Ltd (JIL) was incorporated in the year 2011 with an authorized share capital of ₹2,000 crore having its registered office located in Mumbai with the main objects to carry out the business (a) manufacturing of heavy duty earth moving machinery and their spare parts (b) purchase, sale, construction of multi-story commercial and residential apartments under own name or as under Joint Development Agreements (c) Mining of minerals and thereafter refining and processing them for sale; and (d) doing the business in the hospitality sector by running and maintaining Hotels, Resorts and Budget Hotels. The paid-up share capital of the company as on date is ₹1,750 crore.

During the course of business, the company has approached various banks, state finance corporations and NBFCs for availing financial assistance in the nature of term loans and other facilities. However, based on the business plans and security offered, the finance proposal was approved by National Bank of India (the Bank) in the form of both fund based and non-fund based limits. The company during the course of its business operations was also availing credit for 90 days to 120 days from its creditors in connection with the purchase of raw material being used in the business of manufacturing heavy duty earth moving machineries, real estate, mining and hospitality sectors. The progress of the company since its incorporation till 31st March, 2019 was exceptional. However, because of certain transactions carried out by the directors with their relatives and other parties between 1st July, 2020 to 30th June, 2021 which were in the nature purchase of raw-material for different business segments of the company including the purchase of immovable properties as well as transferring and sale of goods and assets of the company to such related and other parties by givingthem preference over the other buyers ultimately resulted into mismatch in the cash flows and consequently resulted into losses to the company.

With an intention to grow organically, the company also incorporated a wholly owned subsidiary in the year 2017 under the name of JCP Buildcon Ltd (JAL) which was mainly engaged in the real estate business involving construction of apartments and flats in multi-story buildings under the Joint Development Agreements being entered into with the various parties including various State Governments under Housing Schemes. JAL entered into a tripartite Joint Development Agreement with Jaipur Development Authority (JDA) for construction of apartments and flats in multi-story buildings after development of land belonging to JDA. In an attempt to extend support to JIL, JAL had also mortgaged its assets in favour of banks in the month of August, 2018 when additional financial assistance was provided to JIL.

The financial condition of JIL started deteriorating after July, 2019 because of reduction in the business activities as well as default being committed in honoring the debt obligations towards banks, payment to trade creditors and delays in construction of apartments to be handed over to the buyers who had entered into agreements with the company and have paid almost 95% of the cost of the apartment.

The banks, trade creditors and buyers of the flats were constantly making follow up with the management but no reply was given to them by the management of JIL as well as JAL. National Bank of India during their internal review meeting informed their legal team that the promoter/directors may have siphoned off the money which was supposed to have been used for business purposes; since it appears to them that the amounts have been advanced to related parties and diverted towards a few suspicious transactions.

The bank despite the continuous follow up with the management and the Board of directors could not get any suitable response relating to the repayment plan to honor the debt obligations.

Considering the situation and based on the recommendation of their legal department, the bank decided to take action against the company under the Insolvency and Bankruptcy Code, 2016 (the Code) and thus filed an application on 16th February, 2022 before the Adjudicating Authority (AA) for initiating Corporate Insolvency Resolution Process (CIRP). In the application, the Bank had proposed name of Robin to act as Interim Resolution Professional (IRP). Simultaneously, other lenders of JAL also submitted an application before the AA to initiate CIRP against JAL for default in repayment of their dues.

After hearing the parties, the AA admitted the applications in the case of JIL and JAL on 25th April, 2022 and also confirmed the appointment of Robin as IRP in both the companies. In the case of JIL, Robin constituted a Committee of Creditors (CoC) on 15th May, 2022 and called first meeting of the CoC on 20th May, 2022. The constitution of CoC by Robin was challenged by the operational creditors as well as home buyers since their name was not included in the list of the CoC. Further, the members of the suspended Board of directors of JIL also challenged the actions of Robin who did not allow their participation in the first meeting of the CoC.

During the first meeting of the CoC in the case of JIL, Robin was confirmed to act as Resolution Professional (RP) by the CoC and was asked to invite the Expression of Interest (EoI) from the Resolution Applicants (RA) for submitting Resolution Plan.

Besides the above, JDA has also issued notice to JAL for taking over possession of the land given for the purpose of construction.

Considering the above facts answer the following questions :

Read the following carefully and answer the questions given at the end :

Pine Food Industries Limited (“PFIL”) is one of the top FMCG player and listed entity in India. It is a leading manufacturer and marketer of various edible oils, food products and eatables. Its Authorized Capital is Rs. 252.00 crore and Paid-up Capital is Rs.

65.00 crore. PFIL has borrowed from various Banks and Financial institutions in India and its borrowings were around Rs. 12,000 Crore.

Due to unprecedented crash in global prices of the oil seeds coupled with falling revenues in the oil business gave a crippling blow to PFIL.

AB Bank and BC Bank filed an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (“Code”) for initiating the insolvency resolution process against PFIL (hereinafter called as the Corporate Debtor (“CD”)). After hearing both the parties, National Company Law Tribunal (“NCLT”) admitted the petition filed. The Financial Creditor proposed the name of Kapoor to act as Interim Resolution Professional (“IRP”).

An application was filed before NCLT by one of the creditors who made a claim before the Resolution Professional (“RP”) stating that the CD owed to pay USD 10.00 crore, based on the Bills of Exchanges, ordering the CD to pay this creditor for the goods supplied by another party. On making of such claim before the RP, it has been rejected by him saying that it is not a Financial Debt as it is an Operational Debt therefore, it could not be considered as Financial Debt as claimed by applicant therein.

Vijay Kumar Jain, suspended Director of the CD, filed an application before the NCLT under section 60(5) of the Code seeking an order for setting aside the decision taken by the Committee of Creditors (“CoC”) disallowing the erstwhile representatives of the Corporate Debtor including Vijay to participate in the CoC meetings; declare that the CoC meeting is non est; direct the RP to ensure active participation of the applicant in the meetings of CoC; provide all the documents and information to the applicant.

RP filed application in NCLT under section 43(1) of the Code for seeking reversal of the amounts that were debited from the current accounts of the CD maintained with XYZ Bank which had been debited by the XYZ Bank before the insolvency commencement date and were utilized against the payment of the dues owed by the CD to a Bank in relation to the Letter of Credit issued by them.

The RP submits that the payment of the impugned amount lead to preferential treatment towards XYZ Bank by the CD as such payment has the effect of putting Respondents (i.e. XYZ Bank) in a beneficial position than it would have been in liquidation of the CD in accordance with Section 53 of the Code. It is further stated by the RP that the payments of the impugned amount by the Corporate Debtor were not in the “ordinary course of business” of the CD.

NCLT, vide its order, held that the respondent Bank, which had debited an amount aggregating to Rs. 65.98 crores from the current accounts of the Corporate Debtor is directed to reverse the said amount within 30 days from the date of the said order.

Since the resolution plan is already submitted and under examination of the CoC without consideration of this amount, therefore the appropriation of this amount will be decided by the CoC. XYZ Bank filed appeal in NCLAT against the order of NCLT.

The main plea taken by the Appellant Bank is that the RP before filing an application under Section 43(1) of the Code formed no independent opinion nor afforded an opportunity to the Appellant to explain about the transactions in question.

The RP called for Expression of Interest (“EOI”). 28 prospective resolution applicants showed their interest out of which two prospective resolution applicants were rejected as one was disqualified under Section 29 A of the Code (being related party) and the other was a financial investor who did not meet the criteria in the EOI evaluation parameters.

The applicant reviewed the four Resolution Plans submitted by the Resolution Applicants and found that only the plans submitted by 2 Resolution Applicants (RA1 and RA2) provided for the corporate insolvency resolution of the Corporate Debtor as a whole and on a going concern basis.

The RP filed application under section 30(6) of the Code, seeking order for approval of the resolution plan for the Corporate Debtor submitted by the consortium led by PAL (RA2) as approved by the members of Committee of Creditors (CoC). The said resolution plan was approved by a vote share of 96.85%. RP filed application in NCLT for approval of Resolution Plan.

While the said application was pending for consideration before the NCLT, Hon’ble Supreme Court, in Vijay Kumar Jain Vs. Standard Chartered Bank & Ors pronounced the judgment. Under the Judgment of Hon’ble Supreme Court, the approval of the NCLT to the resolution plan of RA2 was interdicted. In compliance of the above-mentioned Hon'ble Supreme Court order, NCLT by its order directed as follows :

“Resolution Professional is directed to comply with the directions of the Hon’ble Supreme Court and submit the report within the stipulated time as provided by the Hon'ble Supreme Court.”

Thereafter, NCLT approved the Resolution Plan submitted by RA2 and passed orders and directions on the reliefs and concession sought.

Since in Para 38, NCLT in their order rejected some of the relief sought, RA2 moved to NCLT for modification of order of NCLT.

In the application filed, RA2 had sought substitution of Para 38 of the order of NCLT approving the Resolution Plan of RA2 as under :

Existing Para “38. Any relief sought for in the Resolution Plan, where the contract/agreement/ understanding/ proceedings/actions/notice etc is not specifically identified or is for future and contingent liability, is at this moment rejected.”

Proposed Para “All claims that were either not filed or not admitted during CIRP in terms of the provisions of the Insolvency and Bankruptcy Code, 2016 shall stand extinguished.

Further, claims admitted/ verified by the Resolution Professional shall stand settled and extinguished as per the Resolution Plan.”

Resolution Plan approved by NCLT of RA2 leads to a 60% haircut for the lenders.

RA2 completed its acquisition of PFIL.

Referring decided case and relevant provisions of the Insolvency and Bankruptcy Code (IBC), 2016 and Rules and Regulations made thereunder, answer the following questions :

(a)Read the following background information and answer the questions :

The Insolvency and Bankruptcy Code, 2016 (IBC, 2016) creates an ecosystem for maximizing the value of assets of the Corporate Debtor (CD) and balancing the interests of all stakeholders in a time-bound manner. A significant value of insolvent entities is often locked in assets underlying avoidance transactions which are undertaken by the CD prior to the initiation of the Corporate Insolvency Resolution Process (CIRP). The Resolution Professional (RP) or the liquidator is obliged to file applications, in respect of Avoidance Transactions (Preferential, Undervalued, Fraudulent and Extortionate (PUFE) Transactions) found by him during CIRP and Liquidation Processes before the Hon’ble Adjudicating Authority (AA), seeking appropriate relief permissible under the Code.

As of end of September 2024, 1,326 Avoidance Transaction Applications involving an amount of ₹ 3.76 lakh Crore have been filed with the AA. The AA, after consideration, can order for the amount to be clawed back. The IBC has led to a direct recovery of about ₹ 3.55 Lakh Crore due to Resolution and ₹ 10,446 Crore due to Liquidation till September, 2024. The Recovery from Avoidance Transactions will add to this recovery to the Creditors. Till September 2024, 338 Avoidance Transaction Applications have been settled by the AA ordering a claw back of about ₹ 7,516 Crore.

While the RP/Liquidator may have filed an Application with the AA based on his determination, it may not always be possible for the AA to consider and dispose of the application during the tenure of the CIRP or the Liquidation Process. Section 26 of the Code clarifies that the filing of an Avoidance Application by the RP shall not affect the proceedings of CIRP. Avoidance Applications and CIRP are a separate set of proceedings and Avoidance Applications can be continued Post-completion of CIRP. The IBC provides that the Resolution/Liquidation Process should not be held up if Avoidance Transaction Applications are pending. During CIRP if the decision on Avoidance Transactions is pending before Resolution is finalised, the amount would claw back to CD for the benefit of Creditors. The CIRP Regulations mandate that a Resolution Plan should contain the details of the Party/Person who will pursue these Avoidance Transactions after the Approval of the Resolution Plan, who will get the proceeds and the manner in which the proceeds, if any, from such proceedings will be distributed.

Consequently, after the Resolution Plan is approved, the RP has no role in pursuing these transactions and Creditors / Successful Resolution Applicant (SRA) will have to make their own arrangements to pursue them before the AA.

The amount clawed back would reflect in higher bids. In cases where decision on Avoidance Transactions is not available, the Avoidance Transactions being Assets of the CD, could be permitted by the CoC to be bid by Prospective Resolution Applicants (PRAs) in the Resolution plan. In case the CoC decides to assign the Avoidance Transactions to a Resolution Applicant (RA), the specifics of Avoidance Transactions should be made explicit in the information Memorandum (IM) and Request for Resolution Plan (RFRP), allowing prospective RAs to account for the value of Avoidance Transactions while submitting their plan. The CoC in the Resolution Plan should not give the proceeds of Avoidance Transactions to the RA without detailing such transactions in the IM or RFRP and without transparent bidding for such transactions. Another option could be to invite bids for Avoidance Transactions separately after obtaining the Approval of AA and the amount recovered could be appropriated by the Creditors Post-approval from the AA.

The provisions for Avoidance Transactions aid in maximizing the value of the CD both ex-post (i.e., once the CD is in Insolvency) and Ex-ante. These provisions foster good Corporate Governance and deter solvent entities and market participants from engaging in activities involving diversion of funds from the CD. By annulling such transactions, the Code Aims to prevent the depletion of the Debtor’s Assets and protect the interest of Creditors and other Stakeholders. They would act as an additional source of Recovery for the Creditors.

The Code calls upon the Resolution Professional/Liquidator, as the case may be, to bring to the knowledge to the Adjudicating Authority, transactions of Preferential. Under- value, Extortionate, Fraudulent, or unlawful nature, if any, identified during the course of CIRP or Liquidation. Considering the huge sums involved in these transactions, provisions for the same, in IBC as well as on a global scale, is of utmost importance.

In ABC Bank Limited v. JIL, the NCLT Bench, dealt with a crucial aspect of Insolvency proceedings, that is, vulnerable transactions. The Resolution Professional (RP) of the Corporate Debtor filed application in relation to a mortgage of an immovable property belonging to the Corporate Debtor to secure the debt of a related party (that is, the Holding Company of the Corporate Debtor). The RP sought directions, inter alia so as to declare the transaction as Preferential, Undervalued and “Fraudulent and Wrongful” under the Code.

Facts in a decided case :

In ABC Bank Ltd. v. JIL, certain mortgages created by JIL in favour of the lenders of its Holding Company JAL.

l JIL was a special purpose Company promoted by JAL for certain design, engineering, development and construction projects. JAL held approximately 70% of the shares of JIL.

l JIL started facing financial difficulties and failed to honour its project completion deadlines. It also started defaulting on its loan payments due to its financial creditors.

One of the lenders declared JIL as a Non-Performing Account (‘‘NPA’’) first and other lenders declared it as a NPA subsequently.

l JIL Mortgaged 800 plus Acres of unencumbered land owned by it to secure the debt of JAL, vide Mortgage Deeds entered on various dates.

l The NCLT Admitted an application filed by one of JIL’s Financial Creditors, IDBI Bank Ltd., for initiating Insolvency Proceedings under the Code, and appointed an Interim Resolution Professional (‘‘IRP’’).

l The IRP examined various transactions entered into by JIL with its promoter shareholders, pursuant to his duties as a Resolution Professional.

l The IRP, consequently filed an Application before the NCLT seeking declarations that the Impugned Transactions were :

(i)Fraudulent Transactions under Section 66 of the Code;

(ii)Preferential Transactions under Section 43 of the Code; and

(iii)Undervalued Transactions under Section 45 of the Code; and sought consequent reliefs (‘‘Application’’).

In the light of the above information and with reference to the relevant provisions and decision of Adjudicating Authority (NCLT Bench) under IBC, 2016, answer the following Questions :

(a)Read the following background information and answer the questions :

The Insolvency and Bankruptcy Code, 2016 (IBC, 2016) creates an ecosystem for maximizing the value of assets of the Corporate Debtor (CD) and balancing the interests of all stakeholders in a time-bound manner. A significant value of insolvent entities is often locked in assets underlying avoidance transactions which are undertaken by the CD prior to the initiation of the Corporate Insolvency Resolution Process (CIRP). The Resolution Professional (RP) or the liquidator is obliged to file applications, in respect of Avoidance Transactions (Preferential, Undervalued, Fraudulent and Extortionate (PUFE) Transactions) found by him during CIRP and Liquidation Processes before the Hon’ble Adjudicating Authority (AA), seeking appropriate relief permissible under the Code.

As of end of September 2024, 1,326 Avoidance Transaction Applications involving an amount of ₹ 3.76 lakh Crore have been filed with the AA. The AA, after consideration, can order for the amount to be clawed back. The IBC has led to a direct recovery of about ₹ 3.55 Lakh Crore due to Resolution and ₹ 10,446 Crore due to Liquidation till September, 2024. The Recovery from Avoidance Transactions will add to this recovery to the Creditors. Till September 2024, 338 Avoidance Transaction Applications have been settled by the AA ordering a claw back of about ₹ 7,516 Crore.

While the RP/Liquidator may have filed an Application with the AA based on his determination, it may not always be possible for the AA to consider and dispose of the application during the tenure of the CIRP or the Liquidation Process. Section 26 of the Code clarifies that the filing of an Avoidance Application by the RP shall not affect the proceedings of CIRP. Avoidance Applications and CIRP are a separate set of proceedings and Avoidance Applications can be continued Post-completion of CIRP. The IBC provides that the Resolution/Liquidation Process should not be held up if Avoidance Transaction Applications are pending. During CIRP if the decision on Avoidance Transactions is pending before Resolution is finalised, the amount would claw back to CD for the benefit of Creditors. The CIRP Regulations mandate that a Resolution Plan should contain the details of the Party/Person who will pursue these Avoidance Transactions after the Approval of the Resolution Plan, who will get the proceeds and the manner in which the proceeds, if any, from such proceedings will be distributed.

Consequently, after the Resolution Plan is approved, the RP has no role in pursuing these transactions and Creditors / Successful Resolution Applicant (SRA) will have to make their own arrangements to pursue them before the AA.

The amount clawed back would reflect in higher bids. In cases where decision on Avoidance Transactions is not available, the Avoidance Transactions being Assets of the CD, could be permitted by the CoC to be bid by Prospective Resolution Applicants (PRAs) in the Resolution plan. In case the CoC decides to assign the Avoidance Transactions to a Resolution Applicant (RA), the specifics of Avoidance Transactions should be made explicit in the information Memorandum (IM) and Request for Resolution Plan (RFRP), allowing prospective RAs to account for the value of Avoidance Transactions while submitting their plan. The CoC in the Resolution Plan should not give the proceeds of Avoidance Transactions to the RA without detailing such transactions in the IM or RFRP and without transparent bidding for such transactions. Another option could be to invite bids for Avoidance Transactions separately after obtaining the Approval of AA and the amount recovered could be appropriated by the Creditors Post-approval from the AA.

The provisions for Avoidance Transactions aid in maximizing the value of the CD both ex-post (i.e., once the CD is in Insolvency) and Ex-ante. These provisions foster good Corporate Governance and deter solvent entities and market participants from engaging in activities involving diversion of funds from the CD. By annulling such transactions, the Code Aims to prevent the depletion of the Debtor’s Assets and protect the interest of Creditors and other Stakeholders. They would act as an additional source of Recovery for the Creditors.

The Code calls upon the Resolution Professional/Liquidator, as the case may be, to bring to the knowledge to the Adjudicating Authority, transactions of Preferential. Under- value, Extortionate, Fraudulent, or unlawful nature, if any, identified during the course of CIRP or Liquidation. Considering the huge sums involved in these transactions, provisions for the same, in IBC as well as on a global scale, is of utmost importance.

In ABC Bank Limited v. JIL, the NCLT Bench, dealt with a crucial aspect of Insolvency proceedings, that is, vulnerable transactions. The Resolution Professional (RP) of the Corporate Debtor filed application in relation to a mortgage of an immovable property belonging to the Corporate Debtor to secure the debt of a related party (that is, the Holding Company of the Corporate Debtor). The RP sought directions, inter alia so as to declare the transaction as Preferential, Undervalued and “Fraudulent and Wrongful” under the Code.

Facts in a decided case :

In ABC Bank Ltd. v. JIL, certain mortgages created by JIL in favour of the lenders of its Holding Company JAL.

l JIL was a special purpose Company promoted by JAL for certain design, engineering, development and construction projects. JAL held approximately 70% of the shares of JIL.

l JIL started facing financial difficulties and failed to honour its project completion deadlines. It also started defaulting on its loan payments due to its financial creditors.

One of the lenders declared JIL as a Non-Performing Account (‘‘NPA’’) first and other lenders declared it as a NPA subsequently.

l JIL Mortgaged 800 plus Acres of unencumbered land owned by it to secure the debt of JAL, vide Mortgage Deeds entered on various dates.

l The NCLT Admitted an application filed by one of JIL’s Financial Creditors, IDBI Bank Ltd., for initiating Insolvency Proceedings under the Code, and appointed an Interim Resolution Professional (‘‘IRP’’).

l The IRP examined various transactions entered into by JIL with its promoter shareholders, pursuant to his duties as a Resolution Professional.

l The IRP, consequently filed an Application before the NCLT seeking declarations that the Impugned Transactions were :

(i)Fraudulent Transactions under Section 66 of the Code;

(ii)Preferential Transactions under Section 43 of the Code; and

(iii)Undervalued Transactions under Section 45 of the Code; and sought consequent reliefs (‘‘Application’’).

In the light of the above information and with reference to the relevant provisions and decision of Adjudicating Authority (NCLT Bench) under IBC, 2016, answer the following Questions :

(a)Read the following background information and answer the questions :

The Insolvency and Bankruptcy Code, 2016 (IBC, 2016) creates an ecosystem for maximizing the value of assets of the Corporate Debtor (CD) and balancing the interests of all stakeholders in a time-bound manner. A significant value of insolvent entities is often locked in assets underlying avoidance transactions which are undertaken by the CD prior to the initiation of the Corporate Insolvency Resolution Process (CIRP). The Resolution Professional (RP) or the liquidator is obliged to file applications, in respect of Avoidance Transactions (Preferential, Undervalued, Fraudulent and Extortionate (PUFE) Transactions) found by him during CIRP and Liquidation Processes before the Hon’ble Adjudicating Authority (AA), seeking appropriate relief permissible under the Code.

As of end of September 2024, 1,326 Avoidance Transaction Applications involving an amount of ₹ 3.76 lakh Crore have been filed with the AA. The AA, after consideration, can order for the amount to be clawed back. The IBC has led to a direct recovery of about ₹ 3.55 Lakh Crore due to Resolution and ₹ 10,446 Crore due to Liquidation till September, 2024. The Recovery from Avoidance Transactions will add to this recovery to the Creditors. Till September 2024, 338 Avoidance Transaction Applications have been settled by the AA ordering a claw back of about ₹ 7,516 Crore.

While the RP/Liquidator may have filed an Application with the AA based on his determination, it may not always be possible for the AA to consider and dispose of the application during the tenure of the CIRP or the Liquidation Process. Section 26 of the Code clarifies that the filing of an Avoidance Application by the RP shall not affect the proceedings of CIRP. Avoidance Applications and CIRP are a separate set of proceedings and Avoidance Applications can be continued Post-completion of CIRP. The IBC provides that the Resolution/Liquidation Process should not be held up if Avoidance Transaction Applications are pending. During CIRP if the decision on Avoidance Transactions is pending before Resolution is finalised, the amount would claw back to CD for the benefit of Creditors. The CIRP Regulations mandate that a Resolution Plan should contain the details of the Party/Person who will pursue these Avoidance Transactions after the Approval of the Resolution Plan, who will get the proceeds and the manner in which the proceeds, if any, from such proceedings will be distributed.

Consequently, after the Resolution Plan is approved, the RP has no role in pursuing these transactions and Creditors / Successful Resolution Applicant (SRA) will have to make their own arrangements to pursue them before the AA.

The amount clawed back would reflect in higher bids. In cases where decision on Avoidance Transactions is not available, the Avoidance Transactions being Assets of the CD, could be permitted by the CoC to be bid by Prospective Resolution Applicants (PRAs) in the Resolution plan. In case the CoC decides to assign the Avoidance Transactions to a Resolution Applicant (RA), the specifics of Avoidance Transactions should be made explicit in the information Memorandum (IM) and Request for Resolution Plan (RFRP), allowing prospective RAs to account for the value of Avoidance Transactions while submitting their plan. The CoC in the Resolution Plan should not give the proceeds of Avoidance Transactions to the RA without detailing such transactions in the IM or RFRP and without transparent bidding for such transactions. Another option could be to invite bids for Avoidance Transactions separately after obtaining the Approval of AA and the amount recovered could be appropriated by the Creditors Post-approval from the AA.

The provisions for Avoidance Transactions aid in maximizing the value of the CD both ex-post (i.e., once the CD is in Insolvency) and Ex-ante. These provisions foster good Corporate Governance and deter solvent entities and market participants from engaging in activities involving diversion of funds from the CD. By annulling such transactions, the Code Aims to prevent the depletion of the Debtor’s Assets and protect the interest of Creditors and other Stakeholders. They would act as an additional source of Recovery for the Creditors.

The Code calls upon the Resolution Professional/Liquidator, as the case may be, to bring to the knowledge to the Adjudicating Authority, transactions of Preferential. Under- value, Extortionate, Fraudulent, or unlawful nature, if any, identified during the course of CIRP or Liquidation. Considering the huge sums involved in these transactions, provisions for the same, in IBC as well as on a global scale, is of utmost importance.

In ABC Bank Limited v. JIL, the NCLT Bench, dealt with a crucial aspect of Insolvency proceedings, that is, vulnerable transactions. The Resolution Professional (RP) of the Corporate Debtor filed application in relation to a mortgage of an immovable property belonging to the Corporate Debtor to secure the debt of a related party (that is, the Holding Company of the Corporate Debtor). The RP sought directions, inter alia so as to declare the transaction as Preferential, Undervalued and “Fraudulent and Wrongful” under the Code.

Facts in a decided case :

In ABC Bank Ltd. v. JIL, certain mortgages created by JIL in favour of the lenders of its Holding Company JAL.

l JIL was a special purpose Company promoted by JAL for certain design, engineering, development and construction projects. JAL held approximately 70% of the shares of JIL.

l JIL started facing financial difficulties and failed to honour its project completion deadlines. It also started defaulting on its loan payments due to its financial creditors.

One of the lenders declared JIL as a Non-Performing Account (‘‘NPA’’) first and other lenders declared it as a NPA subsequently.

l JIL Mortgaged 800 plus Acres of unencumbered land owned by it to secure the debt of JAL, vide Mortgage Deeds entered on various dates.

l The NCLT Admitted an application filed by one of JIL’s Financial Creditors, IDBI Bank Ltd., for initiating Insolvency Proceedings under the Code, and appointed an Interim Resolution Professional (‘‘IRP’’).

l The IRP examined various transactions entered into by JIL with its promoter shareholders, pursuant to his duties as a Resolution Professional.

l The IRP, consequently filed an Application before the NCLT seeking declarations that the Impugned Transactions were :

(i)Fraudulent Transactions under Section 66 of the Code;

(ii)Preferential Transactions under Section 43 of the Code; and

(iii)Undervalued Transactions under Section 45 of the Code; and sought consequent reliefs (‘‘Application’’).

In the light of the above information and with reference to the relevant provisions and decision of Adjudicating Authority (NCLT Bench) under IBC, 2016, answer the following Questions :

(a)Read the following background information and answer the questions :

The Insolvency and Bankruptcy Code, 2016 (IBC, 2016) creates an ecosystem for maximizing the value of assets of the Corporate Debtor (CD) and balancing the interests of all stakeholders in a time-bound manner. A significant value of insolvent entities is often locked in assets underlying avoidance transactions which are undertaken by the CD prior to the initiation of the Corporate Insolvency Resolution Process (CIRP). The Resolution Professional (RP) or the liquidator is obliged to file applications, in respect of Avoidance Transactions (Preferential, Undervalued, Fraudulent and Extortionate (PUFE) Transactions) found by him during CIRP and Liquidation Processes before the Hon’ble Adjudicating Authority (AA), seeking appropriate relief permissible under the Code.

As of end of September 2024, 1,326 Avoidance Transaction Applications involving an amount of ₹ 3.76 lakh Crore have been filed with the AA. The AA, after consideration, can order for the amount to be clawed back. The IBC has led to a direct recovery of about ₹ 3.55 Lakh Crore due to Resolution and ₹ 10,446 Crore due to Liquidation till September, 2024. The Recovery from Avoidance Transactions will add to this recovery to the Creditors. Till September 2024, 338 Avoidance Transaction Applications have been settled by the AA ordering a claw back of about ₹ 7,516 Crore.

While the RP/Liquidator may have filed an Application with the AA based on his determination, it may not always be possible for the AA to consider and dispose of the application during the tenure of the CIRP or the Liquidation Process. Section 26 of the Code clarifies that the filing of an Avoidance Application by the RP shall not affect the proceedings of CIRP. Avoidance Applications and CIRP are a separate set of proceedings and Avoidance Applications can be continued Post-completion of CIRP. The IBC provides that the Resolution/Liquidation Process should not be held up if Avoidance Transaction Applications are pending. During CIRP if the decision on Avoidance Transactions is pending before Resolution is finalised, the amount would claw back to CD for the benefit of Creditors. The CIRP Regulations mandate that a Resolution Plan should contain the details of the Party/Person who will pursue these Avoidance Transactions after the Approval of the Resolution Plan, who will get the proceeds and the manner in which the proceeds, if any, from such proceedings will be distributed.

Consequently, after the Resolution Plan is approved, the RP has no role in pursuing these transactions and Creditors / Successful Resolution Applicant (SRA) will have to make their own arrangements to pursue them before the AA.

The amount clawed back would reflect in higher bids. In cases where decision on Avoidance Transactions is not available, the Avoidance Transactions being Assets of the CD, could be permitted by the CoC to be bid by Prospective Resolution Applicants (PRAs) in the Resolution plan. In case the CoC decides to assign the Avoidance Transactions to a Resolution Applicant (RA), the specifics of Avoidance Transactions should be made explicit in the information Memorandum (IM) and Request for Resolution Plan (RFRP), allowing prospective RAs to account for the value of Avoidance Transactions while submitting their plan. The CoC in the Resolution Plan should not give the proceeds of Avoidance Transactions to the RA without detailing such transactions in the IM or RFRP and without transparent bidding for such transactions. Another option could be to invite bids for Avoidance Transactions separately after obtaining the Approval of AA and the amount recovered could be appropriated by the Creditors Post-approval from the AA.

The provisions for Avoidance Transactions aid in maximizing the value of the CD both ex-post (i.e., once the CD is in Insolvency) and Ex-ante. These provisions foster good Corporate Governance and deter solvent entities and market participants from engaging in activities involving diversion of funds from the CD. By annulling such transactions, the Code Aims to prevent the depletion of the Debtor’s Assets and protect the interest of Creditors and other Stakeholders. They would act as an additional source of Recovery for the Creditors.

The Code calls upon the Resolution Professional/Liquidator, as the case may be, to bring to the knowledge to the Adjudicating Authority, transactions of Preferential. Under- value, Extortionate, Fraudulent, or unlawful nature, if any, identified during the course of CIRP or Liquidation. Considering the huge sums involved in these transactions, provisions for the same, in IBC as well as on a global scale, is of utmost importance.

In ABC Bank Limited v. JIL, the NCLT Bench, dealt with a crucial aspect of Insolvency proceedings, that is, vulnerable transactions. The Resolution Professional (RP) of the Corporate Debtor filed application in relation to a mortgage of an immovable property belonging to the Corporate Debtor to secure the debt of a related party (that is, the Holding Company of the Corporate Debtor). The RP sought directions, inter alia so as to declare the transaction as Preferential, Undervalued and “Fraudulent and Wrongful” under the Code.

Facts in a decided case :

In ABC Bank Ltd. v. JIL, certain mortgages created by JIL in favour of the lenders of its Holding Company JAL.

l JIL was a special purpose Company promoted by JAL for certain design, engineering, development and construction projects. JAL held approximately 70% of the shares of JIL.

l JIL started facing financial difficulties and failed to honour its project completion deadlines. It also started defaulting on its loan payments due to its financial creditors.

One of the lenders declared JIL as a Non-Performing Account (‘‘NPA’’) first and other lenders declared it as a NPA subsequently.

l JIL Mortgaged 800 plus Acres of unencumbered land owned by it to secure the debt of JAL, vide Mortgage Deeds entered on various dates.

l The NCLT Admitted an application filed by one of JIL’s Financial Creditors, IDBI Bank Ltd., for initiating Insolvency Proceedings under the Code, and appointed an Interim Resolution Professional (‘‘IRP’’).

l The IRP examined various transactions entered into by JIL with its promoter shareholders, pursuant to his duties as a Resolution Professional.

l The IRP, consequently filed an Application before the NCLT seeking declarations that the Impugned Transactions were :

(i)Fraudulent Transactions under Section 66 of the Code;

(ii)Preferential Transactions under Section 43 of the Code; and

(iii)Undervalued Transactions under Section 45 of the Code; and sought consequent reliefs (‘‘Application’’).

In the light of the above information and with reference to the relevant provisions and decision of Adjudicating Authority (NCLT Bench) under IBC, 2016, answer the following Questions :

(a)Read the following background information and answer the questions :

The Insolvency and Bankruptcy Code, 2016 (IBC, 2016) creates an ecosystem for maximizing the value of assets of the Corporate Debtor (CD) and balancing the interests of all stakeholders in a time-bound manner. A significant value of insolvent entities is often locked in assets underlying avoidance transactions which are undertaken by the CD prior to the initiation of the Corporate Insolvency Resolution Process (CIRP). The Resolution Professional (RP) or the liquidator is obliged to file applications, in respect of Avoidance Transactions (Preferential, Undervalued, Fraudulent and Extortionate (PUFE) Transactions) found by him during CIRP and Liquidation Processes before the Hon’ble Adjudicating Authority (AA), seeking appropriate relief permissible under the Code.

As of end of September 2024, 1,326 Avoidance Transaction Applications involving an amount of ₹ 3.76 lakh Crore have been filed with the AA. The AA, after consideration, can order for the amount to be clawed back. The IBC has led to a direct recovery of about ₹ 3.55 Lakh Crore due to Resolution and ₹ 10,446 Crore due to Liquidation till September, 2024. The Recovery from Avoidance Transactions will add to this recovery to the Creditors. Till September 2024, 338 Avoidance Transaction Applications have been settled by the AA ordering a claw back of about ₹ 7,516 Crore.

While the RP/Liquidator may have filed an Application with the AA based on his determination, it may not always be possible for the AA to consider and dispose of the application during the tenure of the CIRP or the Liquidation Process. Section 26 of the Code clarifies that the filing of an Avoidance Application by the RP shall not affect the proceedings of CIRP. Avoidance Applications and CIRP are a separate set of proceedings and Avoidance Applications can be continued Post-completion of CIRP. The IBC provides that the Resolution/Liquidation Process should not be held up if Avoidance Transaction Applications are pending. During CIRP if the decision on Avoidance Transactions is pending before Resolution is finalised, the amount would claw back to CD for the benefit of Creditors. The CIRP Regulations mandate that a Resolution Plan should contain the details of the Party/Person who will pursue these Avoidance Transactions after the Approval of the Resolution Plan, who will get the proceeds and the manner in which the proceeds, if any, from such proceedings will be distributed.

Consequently, after the Resolution Plan is approved, the RP has no role in pursuing these transactions and Creditors / Successful Resolution Applicant (SRA) will have to make their own arrangements to pursue them before the AA.

The amount clawed back would reflect in higher bids. In cases where decision on Avoidance Transactions is not available, the Avoidance Transactions being Assets of the CD, could be permitted by the CoC to be bid by Prospective Resolution Applicants (PRAs) in the Resolution plan. In case the CoC decides to assign the Avoidance Transactions to a Resolution Applicant (RA), the specifics of Avoidance Transactions should be made explicit in the information Memorandum (IM) and Request for Resolution Plan (RFRP), allowing prospective RAs to account for the value of Avoidance Transactions while submitting their plan. The CoC in the Resolution Plan should not give the proceeds of Avoidance Transactions to the RA without detailing such transactions in the IM or RFRP and without transparent bidding for such transactions. Another option could be to invite bids for Avoidance Transactions separately after obtaining the Approval of AA and the amount recovered could be appropriated by the Creditors Post-approval from the AA.

The provisions for Avoidance Transactions aid in maximizing the value of the CD both ex-post (i.e., once the CD is in Insolvency) and Ex-ante. These provisions foster good Corporate Governance and deter solvent entities and market participants from engaging in activities involving diversion of funds from the CD. By annulling such transactions, the Code Aims to prevent the depletion of the Debtor’s Assets and protect the interest of Creditors and other Stakeholders. They would act as an additional source of Recovery for the Creditors.

The Code calls upon the Resolution Professional/Liquidator, as the case may be, to bring to the knowledge to the Adjudicating Authority, transactions of Preferential. Under- value, Extortionate, Fraudulent, or unlawful nature, if any, identified during the course of CIRP or Liquidation. Considering the huge sums involved in these transactions, provisions for the same, in IBC as well as on a global scale, is of utmost importance.

In ABC Bank Limited v. JIL, the NCLT Bench, dealt with a crucial aspect of Insolvency proceedings, that is, vulnerable transactions. The Resolution Professional (RP) of the Corporate Debtor filed application in relation to a mortgage of an immovable property belonging to the Corporate Debtor to secure the debt of a related party (that is, the Holding Company of the Corporate Debtor). The RP sought directions, inter alia so as to declare the transaction as Preferential, Undervalued and “Fraudulent and Wrongful” under the Code.

Facts in a decided case :

In ABC Bank Ltd. v. JIL, certain mortgages created by JIL in favour of the lenders of its Holding Company JAL.

l JIL was a special purpose Company promoted by JAL for certain design, engineering, development and construction projects. JAL held approximately 70% of the shares of JIL.

l JIL started facing financial difficulties and failed to honour its project completion deadlines. It also started defaulting on its loan payments due to its financial creditors.

One of the lenders declared JIL as a Non-Performing Account (‘‘NPA’’) first and other lenders declared it as a NPA subsequently.

l JIL Mortgaged 800 plus Acres of unencumbered land owned by it to secure the debt of JAL, vide Mortgage Deeds entered on various dates.

l The NCLT Admitted an application filed by one of JIL’s Financial Creditors, IDBI Bank Ltd., for initiating Insolvency Proceedings under the Code, and appointed an Interim Resolution Professional (‘‘IRP’’).

l The IRP examined various transactions entered into by JIL with its promoter shareholders, pursuant to his duties as a Resolution Professional.

l The IRP, consequently filed an Application before the NCLT seeking declarations that the Impugned Transactions were :

(i)Fraudulent Transactions under Section 66 of the Code;

(ii)Preferential Transactions under Section 43 of the Code; and

(iii)Undervalued Transactions under Section 45 of the Code; and sought consequent reliefs (‘‘Application’’).

In the light of the above information and with reference to the relevant provisions and decision of Adjudicating Authority (NCLT Bench) under IBC, 2016, answer the following Questions :

(a)Suhani and Dhwani are childhood friends and were very fond of designing Indian traditional dresses. After completing their schooling, Suhani joined a fashion designing course to pursue her interest and Dhwani decided to be a fashion Model. She participated in various fashion show programs conducted by Non-Government Organisation(s) engaged in the creating awareness for cervical cancer which is spreading rapidly among Ladies in India.

After some years, in one of the fashion programmes, they met again and planned to form a private Limited Company in the name of Suhani Fashions Private Limited having a paid-up share capital of 5 Crore and became Entrepreneurs.

Suhani Fashions Pvt. Ltd. is engaged in the business of Manufacturing and Selling Ladies Suits and Sarees in Kolkata, West Bengal which is a very big market for Indian traditional dresses.

They also offered their products on online e-commerce platforms. They employed more than 100 Ladies and other staff in their workshop who were engaged in designing, cutting, tailoring and other allied works. Suhani also used to design products being sold by the company.

Both Suhani and Dhwani were Promoter Directors of the company as per the Article of Association of the company and also the subscribers to the Memorandum of Association of the company by subscribing 50% shares each in the company. Dhwani, being a fashion model, did modelling for her products in order to improve the sales of the company. The company started growing very fast and sales touched a figure of ₹ 20 crores in the very first year and in order to meet the working capital and other requirements, the company approached the bankers Beta bank and Gama Bank for a facility of ₹ 3 crores and ₹ 5 crores respectively. The Company already had taken the credit facilities with Alpha Bank and outstanding amount is ₹ 6 crores.

After the change in demand of the products and growing need of Formal dresses from the Indian traditional dresses, sales started declining and the company started facing cash crunch and made a default in paying the instalments for ₹ 2 crores which were outstanding in the name of the Alpha bank.

The Alpha bank decided to file an Insolvency Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 as a financial Creditor on 3rd January, 2024. The Corporate Insolvency Resolution Process application was admitted by the Adjudicating Authority on 25th January, 2024. Moratorium was declared and Ishann was appointed as an Interim Resolution Professional. Ishaan, Interim Resolution Professional made a public announcement and prepared a list of creditors based on the claims received. The CoC is yet to be formed.

Consider the above facts and answer the following questions :

Read the following carefully and answer the questions given at the end:

BSC Bank filed an application for initiating Corporate Insolvency Resolution Process (CIRP) against one of its borrower company M/s Moon Storm Pvt. Ltd., in the National Company Law Tribunal (NCLT). The NCLT allowed the application and passed order for commencement of CIRP. Rohit has been appointed as Interim Resolution Professional (IRP) and moratorium was declared.

The Committee of Creditor (CoC) was constituted and Rohit was appointed as Resolution Professional by CoC. Meetings of the CoC was convened from time to time and expression of interest for Resolution Plan was invited from various parties via public notice. However, no Resolution Plan was received during the currency of 180 days period. Hence, NCLT on the recommendation of RP extended the initial time period from 180 days to 270 days. Since, no one had shown the expression of interest even during the extended period of 270 days, the CoC appointed another Resolution Professional (RP) after the expiry of 270 days.

When the matter of resolution could not be completed within the extended time.

NCLT, extended the period of CIRP by further period of 90 days after the expiry of 270 days by exercising the power conferred under Section 55 of Insolvency and Bankruptcy Code, 2016 by treating the matter as ‘Fast Track Corporate Insolvency Resolution Process’ and also determined the ‘Corporate Insolvency Resolution Process fee’ and the ‘Cost’ incurred and payable to the Resolution Professional.

Aggrieved from the said order of the NCLT, the Resolution Professional preferred appeals against the order of the NCLT. In light of the above facts, answer the following questions :

(a)Suhani and Dhwani are childhood friends and were very fond of designing Indian traditional dresses. After completing their schooling, Suhani joined a fashion designing course to pursue her interest and Dhwani decided to be a fashion Model. She participated in various fashion show programs conducted by Non-Government Organisation(s) engaged in the creating awareness for cervical cancer which is spreading rapidly among Ladies in India.

After some years, in one of the fashion programmes, they met again and planned to form a private Limited Company in the name of Suhani Fashions Private Limited having a paid-up share capital of 5 Crore and became Entrepreneurs.

Suhani Fashions Pvt. Ltd. is engaged in the business of Manufacturing and Selling Ladies Suits and Sarees in Kolkata, West Bengal which is a very big market for Indian traditional dresses.

They also offered their products on online e-commerce platforms. They employed more than 100 Ladies and other staff in their workshop who were engaged in designing, cutting, tailoring and other allied works. Suhani also used to design products being sold by the company.

Both Suhani and Dhwani were Promoter Directors of the company as per the Article of Association of the company and also the subscribers to the Memorandum of Association of the company by subscribing 50% shares each in the company. Dhwani, being a fashion model, did modelling for her products in order to improve the sales of the company. The company started growing very fast and sales touched a figure of ₹ 20 crores in the very first year and in order to meet the working capital and other requirements, the company approached the bankers Beta bank and Gama Bank for a facility of ₹ 3 crores and ₹ 5 crores respectively. The Company already had taken the credit facilities with Alpha Bank and outstanding amount is ₹ 6 crores.

After the change in demand of the products and growing need of Formal dresses from the Indian traditional dresses, sales started declining and the company started facing cash crunch and made a default in paying the instalments for ₹ 2 crores which were outstanding in the name of the Alpha bank.

The Alpha bank decided to file an Insolvency Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 as a financial Creditor on 3rd January, 2024. The Corporate Insolvency Resolution Process application was admitted by the Adjudicating Authority on 25th January, 2024. Moratorium was declared and Ishann was appointed as an Interim Resolution Professional. Ishaan, Interim Resolution Professional made a public announcement and prepared a list of creditors based on the claims received. The CoC is yet to be formed.

Consider the above facts and answer the following questions :

(A)Mr. K Sridhar and Mr. K. Murali are the Directors of M/s S & M Engineering Enterprises Limited (SMEEL). Unfortunately, being the victims of COVID 2019 pandemic, by both the brothers and their respective families, they could not concentrate on the day-to-day affairs of the business and in the short run, the top line and the bottom line of the business went southwards and ultimately, they had to face the brunt of huge debts.

An application for initiation of Corporate Insolvency Resolution Process (CIRP) against M/s SMEEL under the Insolvency and Bankruptcy Code, 2016 (IBC, 2016) was moved by an ‘Assignee’ of an Operational Creditor for Non-payment of dues. The Adjudicating Authority admitted the application because there was no intimation of any dispute within the 10 days.

After following all the compliances prescribed under the IBC, 2016, the Adjudicating Authority passed an order to Liquidate the Corporate Debtor, on an intimation from the Resolution Professional to do so, as decided by the Committee of Creditors (CoC) by requisite voting, before the approval of the resolution plan.

The relevant information related to M/s SMEEL for the purpose of liquidation is produced as follows :

Liabilities ₹ in Assets ₹ in Lakhs

Lakhs

Capital : Fixed Assets :

Equity 300 Land and Buildings 350 Preference 200 Plant and Machinery 150 Financial Creditors : Current Assets :

Secured 250 Inventories 100 Unsecured 150 Trade Receivables 300 Operational Creditors : Other Current Assets 50 Secured 60 Cash and Cash Equivalents 100 Unsecured 70 Fictitious Assets 190 Government Dues 50 Workmen’s Dues 80 Employees Dues 80 Total 1,240 Total 1,240 Other Information :

1.Workmen’s dues represent the amounts payable for the period of 30 months preceding the liquidation commencement date.

2.Employee’s liability includes ₹ 72 Lakhs outstanding to employees for a period of 12 months, preceding the liquidation commencement date.

3.Land and Buildings would realize 110% of its book value, Plant and Machinery would realize 60% of its book value, net of any realization cost. Inventories and Trade Receivables would realize 72% of its book value.

4.The secured financial creditors worth ₹ 45 Lakhs decided to enforce their security interest in the other current assets and they could realize 80% of its value.

5.There has been a pending court case against the Company for use of child labour which could result in a penalty of approximately ₹ 30 lakhs. This has been reflected as a contingent liability only. It has been finally decided to pay ₹ 25 lakhs and settle the case.

6.Based on the amount realized and distributed, the cost of liquidation and insolvency period cost is computed to be ₹ 20 lakhs and ₹ 12 lakhs respectively.

In the light of the above inputs and with reference to the relevant provisions of the IBC, 2016, answer the following questions :

(a)Suruchi Fabrics Limited (SFL) availed term loan of ₹ 10 Crore and cash credit facility of ₹ 2 Crore from A-One Bank Ltd. Since the SFL was unable to service the loan, the Board of Directors of the company passed a resolution to initiate Corporate Insolvency Resolution Process (CIRP) and proposed the name of Aneri, an Insolvency Professional to act as Interim Resolution Professional (IRP). Apart from the credit facility from the A-One Bank, SFL have no other financial creditor. However, SFL have outstanding dues towards its operational creditors amounting to ₹ 25 Crore.

Mathew is the Company Secretary of A-One Bank. Mathew’s younger brother Thomas is the Chief Financial Officer in the SFL. Although Mathew and Thomas are brothers in relation, they are not in talking terms. Thomas joined the SFL after the loan was disbursed by the Bank.

In the first meeting of the Committee of Creditors (CoC) it was decided to change the existing IRP and to appoint Brijesh as Resolution Professional.

The Information Memorandum was prepared and expression of interest was invited for resolution plan.

Two Resolution Proposals were submitted, details of which are as under :

(i)A company named as Dinesh Textiles Private Limited, submitted the resolution plan.

Dinesh who is the Managing Director of the company holds 90% of the equity and rest 10% is in the name of his wife Neeta. Dinesh Textiles Private Limited has availed loan from another bank and his account has been classified as Non-performing Account by that bank.

(ii)Harsh, another Resolution Applicant was convicted and remained in imprisonment for two years under the provisions of the Prevention of Money Laundering Act, 2002. He was released in December 2021.

On the above background, referring relevant case laws, provisions of the Insolvency and Bankruptcy Code, 2016 and Regulations made by IBBI, answer the following questions :

Read the case study carefully and answer the questions given at the end :

DK Swan Limited (DK) was subject to Corporate Insolvency Resolution Process (CIRP) initiated by an Operational Creditor under Section 9 of Insolvency Bankruptcy Code, 2016 (IBC). During the CIRP, claims were invited by the Interim Resolution Professional (IRP). Sunrise filed its claim in Form C as a financial creditor for a sum of ₹62.60 lakh on 15th June, 2017. Thereafter, Sunrise filed a revised Form C for a sum of ₹119.11 lakh on 25th June, 2017. Sunrise had filed the revised claim Form on the basis of an alleged Memorandum of Understanding dated 17th September, 2010 executed with the Corporate Debtor, which stated that Inter Corporate Deposits (ICDs) of ₹36.55 lakh have been granted to the Corporate Debtor by Sunrise bearing interest of 24% repayable in terms of the mutual agreement between the parties.

However, Sunrise has submitted that it has granted ICDs of ₹76.00 lakh (approx.) to the Corporate Debtor between July, 2008 and February, 2012. Out of this amount, Sunrise is claiming a principal amount of ₹33.00 lakh. The balance amount of ₹53.60 lakh was credited in the account of XYZ, which is a wholly owned subsidiary of Sunrise. The total claim of Sunrise has increased to ₹119.11 lakh in 7 years on account of interest at the rate of 24% XYZ filed its claim before the IRP in Form F as a creditor other than a financial creditor or operational creditor for a sum of ₹103.90 lakh on 15th June, 2017.

Thereafter, XYZ filed a revised claim in Form C as a financial creditor for a sum of ₹119.72 lakh on 28th June, 2017. It had entered into a Development Agreement dated 6th April, 2011 with the Corporate Debtor for a sale consideration of ₹42.80 lakh to purchase development rights in a project. On 30th November, 2011, the Development Agreement was terminated and an Agreement to sell, along with a Side Letter, was executed between XYZ and the Corporate Debtor for purchase of flats. The sale consideration for the Agreement to sell was enhanced to ₹96.01 lakh from ₹42.80 lakh under the Development Agreement. XYZ paid a sum of ₹53.06 lakh as advance payment under the Agreement to Sell. This amount was adjusted out of the ICDs payable to Sunrise as noted above. The claim of XYZ is with respect to the principal amount of ₹53.06 lakh, which along with interest at the rate of 18% increased to ₹119.72 lakh in 5 years.

Phantom is also a financial creditor of the Corporate Debtor and is a part of Committee of Creditors (CoC). Its claim is based on a registered Deed of Assignment in its favour dated 2nd January, 2015, pursuant to which, Karnataka Bank Limited had assigned the non-performing assets relating to the credit facilities granted to the Corporate Debtor. The voting share of Phantom was reduced to 3.58% on account of XYZ and Sunrise being included in the CoC.

The CoC was constituted on 27th June, 2017. On 30th June, 2017, the IRP rejected the claim of Sunrise, inter alia, on the ground that the claim was not in the nature of a financial debt in terms of Section 5(8) of IBC since there was an absence of consideration for the time value of money, i.e., the period of repayment of the claimed ICDs was not stipulated The IRP also rejected the claim of XYZ on the ground that its claim as a financial creditor in Form C was filed after the expiry of the period for filing such a claim.

The IRP in his letter dated 30th June, 2017 has noted that as per the ledger provided by Sunrise, no interest was claimed on the alleged debt and no adjustment was made regarding the payment of principal or interest by the Corporate Debtor to Sunrise. It has been submitted in the written submissions filed on behalf of Sunrise and XYZ that the auditors of the Corporate Debtor had been putting a note in its balance sheets stating that the interest of 12% was not being paid to Sunrise due to a dispute.

Aggrieved by the rejection of their claim as financial creditors, XYZ and Sunrise filed applications before the National Company Law Tribunal (NCLT) to be included in the CoC. The NCLT by its order dated 5th July, 2017 allowed the applications.

However, none of the other financial creditors, such as Phantom and YES Bank, were parties to these proceedings. The NCLT observed that XYZ’s original claim in Form F was filed on time and it has only amended its claim as one under Form C.

The NCLT further observed that the amount given by Sunrise in the form of ICDs has been received as a deposit and is attracting interest as reflected in Form ‘26AS’, deducting TDS on interest. Thus, NCLT allowed Sunrise and XYZ to submit their claims as financial creditors with a direction to the IRP to consider the claims.

On 6th July, 2017, a meeting of the CoC took place which was attended by YES Bank and Phantom, and also by the newly approved financial creditors, XYZ and Sunrise. Following the meeting, YES Bank and Phantom filed applications in the NCLT for the exclusion of XYZ and Sunrise from the CoC on the ground that they are related parties.

The applications filed under Section 60(5) by Phantom also sought similar reliefs for:

(i)The removal of Sunrise and XYZ from the CoC; and

(ii)Directing the constitution of the CoC in terms of the Insolvency and Bankruptcy (Amendment) Ordinance 2018 (IBC Ordinance 2018).

As noted by NCLT, the Memorandum of Understanding dated 17th September, 2010, on the basis of which Sunrise had filed its claim in Form C before the IRP, was signed two years after the commencement of the purported transaction. The execution of the Memorandum of Understanding was sought to be explained on the basis that a formal document was created for specifying the rate of interest on the ICDs given by Sunrise to the Corporate Debtor. However, despite the creation of a formal document, the rate of interest being charged on the ICDs was 12% as mentioned in the claim before the IRP, which is half of the interest rate of 24% stipulated in the Memorandum of Understanding.

NCLT in its judgement dated 24th August, 2018 said :

(a)That Sunrise and XYZ did not qualify to be considered as financial creditors.

(b)In relation to the second issue, NCLT held that it ‘‘does not require a reply’’ in view of its above-mentioned finding. However, it took note of the first proviso to Section 21(2) of the IBC, which was introduced with effect from 6th June, 2018.

Under the first proviso, inter alia, a financial creditor who is a related party of the corporate debtor shall not have the right of representation, participation or voting in the CoC.

In appeal, the National Company Law Appellate Tribunal (NCLAT) proceeded of its decision to observe that admittedly Sunrise and XYZ are the financial creditors of the corporate debtor. Having stated so, the Appellate Tribunal proceeded to enquire into whether XYZ and Sunrise are related parties within the meaning of Section 5(24) of the IBC. Answering the above issue in the affirmative, the NCLAT held that Sunrise and XYZ are related parties of the Corporate Debtor since :

(a)XYZ was a partner of the Corporate Debtor.

(b)During the transaction period of 2009 to 2012, Sunrise led by Kunal Kumar was making substantial financial arrangements on the basis of advice provided by the Corporate Debtor led by its Management and Directors.

(c)The Corporate Debtor was acting on the directions/instructions of Kunal Kumar who, along with his family, is the majority shareholder in Sunrise, of which XYZ is a whollyowned subsidiary.

(d)On the basis of the same reasons, Kunal Kumar was also held to be a person participating in the policy-making process of the Corporate Debtor.

Aggrieved by order of NCLAT, Phantom approached the Hon’ble Supreme Court.

Referring the relevant case and relevant provisions of IBC, its Rules and Regulations made thereunder, answer the following questions :

Images Gym Ltd. was granted credit facility of ₹100 lakh under consortium arrangements.

Under the consortium, there were 5 five banks, and credit facility provided by the respective banks were as under :

A-One Bank Ltd. - ₹45 lakh, Best Bank Ltd. - ₹20 lakh, Good Deal Bank Ltd. - ₹15 lakh, Credit Arrangers Bank Ltd. - ₹10 lakh and Your Bank Ltd - ₹10 lakh Among theses the A-One Bank Ltd. was the leader.

Images Gym Ltd. was engaged in the business of manufacturing and trading of Gym exercise machines. However, due to poor demand of the products, the company could not sell out the machines and as a result the account of the company with respective banks were classified as Non-performing Advances (NPAs).

Apart from credit facility from the above banks, the company was also having outstanding dues of the creditor, which the company was not able to pay-off. The total amount outstanding of such operational creditors amounted ₹30 lakh.

The company has also not paid the salary to its employees and workers for the last 6 months and the total dues amounted to ₹10 lakh.

The leader of the consortium filed Corporate Insolvency Resolution Process (CIRP)

with the Adjudicating Authority (AA) and proposed the name of Saket Sharma, as Interim Resolution Professional (IRP).

The AA accepted the application and appointed Saket Sharma as IRP and put moratorium.

The IRP constituted the Committee of Creditors (CoC) and first meeting of the CoC was called upon.

The operational creditors objected about the constitution of the committee and asked the IRP to include operational creditors also in the CoC, which the IRP denied.

The CoC observed that IRP is not discharging his functions properly and was reluctant in calling the expression of interest from Resolution Applicant(s), so they proposed for the change of the existing IRP and appointment of the new Resolution Professional (RP) named as Anubhav Dutt.

The RP called the expression of interest from the eligible applicants and each proposal was placed before the CoC, but no consensus had arrived at. The initial period of 180 days was going to elapsed so the CoC through the RP sought extension which the Adjudicating Authority for further 90 days. The RP again called the expression of interest from other Resolutionm Applicants, but it was also not agreed upon by the CoC and after lapse of total 270 days, the Adjudicating Authority ordered for its liquidation and the present RP was appointed as Liquidator.

The Liquidator sold off the assets of the Company and realised only ₹150 lakh, whereas the outstanding dues of the various stakeholders remained as under.

Dues of ₹ in Lakhs Fee payable as Resolution Professional 10 Fee payable as Liquidator 10 Dues of the banks with interest 110 Outstanding from Operational Creditors 30 Dues of Govts. 15 Workmen’s dues 10 Employee’s salary 15 Equity shareholders 30 Total 230 Based on the above information, answer the following questions:

Read the case study carefully and answer the questions given at the end :

DK Swan Limited (DK) was subject to Corporate Insolvency Resolution Process (CIRP) initiated by an Operational Creditor under Section 9 of Insolvency Bankruptcy Code, 2016 (IBC). During the CIRP, claims were invited by the Interim Resolution Professional (IRP). Sunrise filed its claim in Form C as a financial creditor for a sum of ₹62.60 lakh on 15th June, 2017. Thereafter, Sunrise filed a revised Form C for a sum of ₹119.11 lakh on 25th June, 2017. Sunrise had filed the revised claim Form on the basis of an alleged Memorandum of Understanding dated 17th September, 2010 executed with the Corporate Debtor, which stated that Inter Corporate Deposits (ICDs) of ₹36.55 lakh have been granted to the Corporate Debtor by Sunrise bearing interest of 24% repayable in terms of the mutual agreement between the parties.

However, Sunrise has submitted that it has granted ICDs of ₹76.00 lakh (approx.) to the Corporate Debtor between July, 2008 and February, 2012. Out of this amount, Sunrise is claiming a principal amount of ₹33.00 lakh. The balance amount of ₹53.60 lakh was credited in the account of XYZ, which is a wholly owned subsidiary of Sunrise. The total claim of Sunrise has increased to ₹119.11 lakh in 7 years on account of interest at the rate of 24% XYZ filed its claim before the IRP in Form F as a creditor other than a financial creditor or operational creditor for a sum of ₹103.90 lakh on 15th June, 2017.

Thereafter, XYZ filed a revised claim in Form C as a financial creditor for a sum of ₹119.72 lakh on 28th June, 2017. It had entered into a Development Agreement dated 6th April, 2011 with the Corporate Debtor for a sale consideration of ₹42.80 lakh to purchase development rights in a project. On 30th November, 2011, the Development Agreement was terminated and an Agreement to sell, along with a Side Letter, was executed between XYZ and the Corporate Debtor for purchase of flats. The sale consideration for the Agreement to sell was enhanced to ₹96.01 lakh from ₹42.80 lakh under the Development Agreement. XYZ paid a sum of ₹53.06 lakh as advance payment under the Agreement to Sell. This amount was adjusted out of the ICDs payable to Sunrise as noted above. The claim of XYZ is with respect to the principal amount of ₹53.06 lakh, which along with interest at the rate of 18% increased to ₹119.72 lakh in 5 years.

Phantom is also a financial creditor of the Corporate Debtor and is a part of Committee of Creditors (CoC). Its claim is based on a registered Deed of Assignment in its favour dated 2nd January, 2015, pursuant to which, Karnataka Bank Limited had assigned the non-performing assets relating to the credit facilities granted to the Corporate Debtor. The voting share of Phantom was reduced to 3.58% on account of XYZ and Sunrise being included in the CoC.

The CoC was constituted on 27th June, 2017. On 30th June, 2017, the IRP rejected the claim of Sunrise, inter alia, on the ground that the claim was not in the nature of a financial debt in terms of Section 5(8) of IBC since there was an absence of consideration for the time value of money, i.e., the period of repayment of the claimed ICDs was not stipulated The IRP also rejected the claim of XYZ on the ground that its claim as a financial creditor in Form C was filed after the expiry of the period for filing such a claim.

The IRP in his letter dated 30th June, 2017 has noted that as per the ledger provided by Sunrise, no interest was claimed on the alleged debt and no adjustment was made regarding the payment of principal or interest by the Corporate Debtor to Sunrise. It has been submitted in the written submissions filed on behalf of Sunrise and XYZ that the auditors of the Corporate Debtor had been putting a note in its balance sheets stating that the interest of 12% was not being paid to Sunrise due to a dispute.

Aggrieved by the rejection of their claim as financial creditors, XYZ and Sunrise filed applications before the National Company Law Tribunal (NCLT) to be included in the CoC. The NCLT by its order dated 5th July, 2017 allowed the applications.

However, none of the other financial creditors, such as Phantom and YES Bank, were parties to these proceedings. The NCLT observed that XYZ’s original claim in Form F was filed on time and it has only amended its claim as one under Form C.

The NCLT further observed that the amount given by Sunrise in the form of ICDs has been received as a deposit and is attracting interest as reflected in Form ‘26AS’, deducting TDS on interest. Thus, NCLT allowed Sunrise and XYZ to submit their claims as financial creditors with a direction to the IRP to consider the claims.

On 6th July, 2017, a meeting of the CoC took place which was attended by YES Bank and Phantom, and also by the newly approved financial creditors, XYZ and Sunrise. Following the meeting, YES Bank and Phantom filed applications in the NCLT for the exclusion of XYZ and Sunrise from the CoC on the ground that they are related parties.

The applications filed under Section 60(5) by Phantom also sought similar reliefs for:

(i)The removal of Sunrise and XYZ from the CoC; and

(ii)Directing the constitution of the CoC in terms of the Insolvency and Bankruptcy (Amendment) Ordinance 2018 (IBC Ordinance 2018).

As noted by NCLT, the Memorandum of Understanding dated 17th September, 2010, on the basis of which Sunrise had filed its claim in Form C before the IRP, was signed two years after the commencement of the purported transaction. The execution of the Memorandum of Understanding was sought to be explained on the basis that a formal document was created for specifying the rate of interest on the ICDs given by Sunrise to the Corporate Debtor. However, despite the creation of a formal document, the rate of interest being charged on the ICDs was 12% as mentioned in the claim before the IRP, which is half of the interest rate of 24% stipulated in the Memorandum of Understanding.

NCLT in its judgement dated 24th August, 2018 said :

(a)That Sunrise and XYZ did not qualify to be considered as financial creditors.

(b)In relation to the second issue, NCLT held that it ‘‘does not require a reply’’ in view of its above-mentioned finding. However, it took note of the first proviso to Section 21(2) of the IBC, which was introduced with effect from 6th June, 2018.

Under the first proviso, inter alia, a financial creditor who is a related party of the corporate debtor shall not have the right of representation, participation or voting in the CoC.

In appeal, the National Company Law Appellate Tribunal (NCLAT) proceeded of its decision to observe that admittedly Sunrise and XYZ are the financial creditors of the corporate debtor. Having stated so, the Appellate Tribunal proceeded to enquire into whether XYZ and Sunrise are related parties within the meaning of Section 5(24) of the IBC. Answering the above issue in the affirmative, the NCLAT held that Sunrise and XYZ are related parties of the Corporate Debtor since :

(a)XYZ was a partner of the Corporate Debtor.

(b)During the transaction period of 2009 to 2012, Sunrise led by Kunal Kumar was making substantial financial arrangements on the basis of advice provided by the Corporate Debtor led by its Management and Directors.

(c)The Corporate Debtor was acting on the directions/instructions of Kunal Kumar who, along with his family, is the majority shareholder in Sunrise, of which XYZ is a whollyowned subsidiary.

(d)On the basis of the same reasons, Kunal Kumar was also held to be a person participating in the policy-making process of the Corporate Debtor.

Aggrieved by order of NCLAT, Phantom approached the Hon’ble Supreme Court.

Referring the relevant case and relevant provisions of IBC, its Rules and Regulations made thereunder, answer the following questions :

Read the following case study and answer the questions that follow :

Arya is a Practicing Company Secretary and Insolvency Professional. She renders Corporate Advisory Services and very often delivers guest lectures in Financial Institutions, Banks and Management and Law Colleges on the topics of Corporate Insolvency, Restructuring and Fund Raising.

R. K. Institute of Management and Technology (RK-IMT) is a reputed management college in Jaipur.

RK-IMT was established in the year 2000 and this year the college in completing its glorious 25 years.

The RK-IMT planned for its Silver Jubilee and organized a whole week of celebrations. During this week the college organized various programs / activities viz: Sports Day, Debate Competition, Cultural Evening, Seminars, Workshop etc.

Arya was invited to address a seminar on the topic of Corporate Insolvency. Arya explained the objectives and purposes of the Insolvency and Bankruptcy Code, 2016 (IBC) and touched the key points relating to Financial Creditor, Operational Creditor, Corporate Debtor, Default, Initiation of Corporate Insolvency, Constitution of Committee of Creditors, and Insolvency Resolution Process Period etc. After delivering a thought-provoking lecture, Arya invited the audiences to raise queries on the topic.

Vedika, a student of the college, was curious to know more about Insolvency Law. She exclaimed to know that the IBC is a totally new concept and prior to this enactment whether there was any such law on insolvency existed in India. Arya clarified the position.

Reyansh, an Associate Professor of the college, was curious to know that whether IBC is an effective recovery tool and the lending institution can effectively exercise its control over the debtor through the Resolution Professional. Arya again clarified the doubts of Reyansh referring the objectives and purpose of IBC.

As a lecturer of the Institute, Rohil shared his own experience, he booked a 2-BHK Flat in Swarnim Galaxy, a building project of Swarnim Builders Limited (Swarnim Builders), and paid upto 90% of the purchase price to the builder, Swarnim Builders, on various stages. Ten per cent (10%) of the purchase price was to be paid at the time of taking the possession which was due in December,

2023. However, the possession of the flat was not given by the Builder to him. Rohil is not the only allottee but all the other allottees who had booked the flat in the Swarnim Galaxy were not given the possession and the Builder was taking excuses by narrating false reasons. Rohil narrated the whole story before the Arya and requested if she could help him. Arya asked Rohil to let her know the details of the project and relevant information to proceed in the case.

Rohil meets Arya at her office and submits her the details of the project available with him. Arya studies about the project and also checks the financial statements of Swarnim Builders, which are filed with Registrar of Companies. On scrutiny of financial statements, Arya found out that Rishabh Suppliers Limited (RSL), one of the major suppliers of Swarnim Builders had supplied the construction materials to Swarnim Builders amounting to ₹ 15 crore. On scrutiny of RSL’s financial statements, Arya has found out that RSL has assigned its book debts at a discount of 3% in favour of the Moon star Financiers Limited (MFL) a NBFC Company.

Based on the above factual background, answer the following questions :

(b)Jayparan (“Jay” in short), has paid a sum of ₹ 4 crore to RD Developers Private Limited (hereinafter referred as ‘Corporate Debtor’) who was engaged in real estate business. This sum of ₹ 4 crore was paid in 2010 as earnest money against advance sale consideration for booking of a flat. Since there was no progress in the said project until 2014, Jay sought refund of the earnest money following which the Corporate Debtor assured to return the same with interest @ 12% per annum.

Since then, the sum of ₹ 4 crore was mutually treated as unsecured loan and reflected accordingly in the books of the account of the Corporate Debtor. Interest thereon was paid by the Corporate Debtor and TDS was also deducted thereon for which confirmation of books of accounts was periodically sought from Jay. Thus, it was contended that the Corporate Debtor by his own conduct changed the status of the home-buyer to a Financial Creditor.

The Corporate Debtor paid regular interest till FY 2016-17. On the grounds of liquidity and financial crunch, he sought waiver of interest from Jay which request was, however declined.

It is the contention of Mr. Jay that the Corporate Debtor thereafter, defaulted in making interest payment since 1st October, 2017 and continued to default from FY 2017-18 until FY 2020-21 except for part repayment in 2018. It is further submitted that on the demise of Mr.

Jay during October 2018, the loan amount was transferred to the name of his wife, Kushma Jayparan which stands confirmed from the confirmation of account for FY 2019-20 signed by the Directors of the Corporate Debtor.

On account of non-payment of debt, a letter dated 1st February, 2021 was sent by Kushma Jayparan to the Corporate Debtor demanding a sum of ₹ 6.20 crores which included principal amount of ₹ 4.09 crores and ₹ 2.11 crores as interest. Since the amount remained outstanding, on behalf of Jay, his wife filed an application under Section 7 of the IBC on 6th October, 2021 for initiating a Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor for the default committed.

The learned Counsel of the Corporate Debtor contended that there was no agreement between Jay and the Corporate Debtor with respect to the amount advanced by him and further, the amount paid by Jay is as an Advance amount for buying a flat under development of the Corporate Debtor. Hence, Jay is only a home buyer and not a Financial Creditor of unsecured loans. It is also the contention of the Corporate Debtor that the investment was made by the Jay to receive returns on investment from the Corporate Debtor. Hence, the sum advanced was in the nature of speculative investment and cannot be treated as a financial debt.

The Adjudicating Authority viewed that as no time period was stipulated in the demand notice, it may be held that no default had occurred and also this date fell in the prohibited period under Section 10A of the IBC, 2016. Thus, the Adjudicating Authority held that in both these circumstances, Section 7 application was non-maintainable. Aggrieved with the findings of the Adjudicating Authority, the wife of Jay preferred an appeal before the National Company Law Appellate Tribunal.

Referring to the relevant case laws and the applicable provisions of the IBC, 2016 and the Regulations made thereunder, answer the following questions :

Background CIL Limited (hereinafter referred as ‘CIL’ or Corporate Debtor) is a manufacturer of precision engineering and automobile components, namely crankshafts for tractors, HCVs, LCVs as well as two-wheelers, as also connecting rods, steering knuckles and hubs. IBD Bank, one of the Financial Creditors of the Company has initiated a Corporate Insolvency Resolution Process (CIRP).

Appointment of Resolution Professional The National Company Law Tribunal (NCLT) has appointed Mr. RL as the Interim Resolution Professional and subsequently, he was confirmed as the Resolution Professional (hereinafter referred to as the “RP”) by the NCLT.

Receipt and Admission of Claims The RP received a claim for ₹ 1,850 crores and after verification of claims, the RP admitted a claim of ₹ 1,780 crores and the balance of claims was rejected by the RP.

Break-up of Claims Admitted Out of admitted claim of ₹ 1,780 crores, the Financial Creditors claim was ₹ 1,620 crores, Workmen Wages pending for a period of last 24 months is ₹ 18 crores, Employees pending claims for a period of last 12 months is 15 crores, Claims by Operational Creditors and Statutory Authorities is ₹ 127 crores.

Going forward, the RP published an “Expression of Interest.” Subsequently, it was revised on three different dates.

The Resolution Applicant (hereinafter referred to as the ‘RA’) submitted its first Resolution Plan during April, 2019 providing to pay ₹ 75 crores to all the stakeholders including ₹ 62 crores to Financial Creditors (FCs).

After a series of negotiations, the RA submitted an addendum to the Resolution Plan during May 2019 by which the RA raised the payment to Financial Creditors to ₹ 74 crores and at the request of the Committee of Creditors (hereinafter referred to as the “CoC”. Thereafter, once again, the RA submitted a Revised Plan during June, 2019 wherein the total pay- out was ₹ 86 crores and the Financial Creditors were to be paid ₹ 75 crores.

Further, the statutory requirement of the RP involving two approved valuers for giving reports, apropos fair market value and liquidation value was duly complied with and the figures in both reports were not at great variance.

The final Resolution Plan was submitted on August, 2019, in which the financial proposal/ total pay-out was increased to ₹ 130 crores and the Financial Creditors were to get upfront payment of ₹ 81 crores towards final settlement.

The total estimated liquidation cost and fee to the Resolution Professional and other connected/ incidental expenses was ₹ 3.30 crores.

Final Approval of the Resolution Plan by CoC.

This final Resolution Plan submitted by the Resolution Applicant during August, 2019 was finally approved by the CoC by a majority of 88% votes. In terms of such approval of the Resolution Plan, the RP moved Approval Application under Sections 30(6) and 31 of the IBC, 2016 seeking approval of the Resolution Plan before the Adjudicating Authority-NCLT.

In terms of the Resolution Plan, for which approval was being sought, the Corporate Debtor would be allowed the benefit of carry forward of its losses in terms of Section 79 of the Income Tax Act, 1961.

The NCLT, vide its order, by which the approval of the Resolution Plan was kept in abeyance, directed the Official Liquidator (OL) to provide the exact figures/value of assets. The same was carried in appeal under Section 61 of the Code by the RA before the NCLAT which passed the impugned Judgment on 19th January, 2022, dismissing the appeal, thereby upholding the order of the NCLT.

It is imperative to note that the moot question involved is the extent of the jurisdiction and powers of the Adjudicating Authority in the background of the admitted and undisputed factual position that no objection was raised by any quarter with regard to any deficiency/irregularity, either by the RP or the Appellant or the CoC in finally approving the resolution plan which was sent to the Adjudicating Authority–NCLT for approval. Further, the NCLT and the NCLAT did not fully recognise that under the Resolution Plan, the Corporate Debtor was set to be revived and not liquidated.

In view of the above, the RA filed an appeal before the Supreme Court.

In the light of the above inputs and referring to the applicable provisions of the IBC Code, 2016 and the Regulations framed thereunder together with the decided case laws, answer the following questions :

COB Bank filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) for initiating a Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, M/s. Gupta Infra Private Limited (GIPL). The said application was admitted by the Adjudicating Authority (AA) during October, 2018 and a Resolution Professional (RP) was appointed as an Interim Resolution Professional (IRP).

Following is the financial position of GIPL as on the date of commencement of the CIRP :

Liabilities Amount in Assets Amount in ₹

₹ Crores Crores

Share Capital – Equity 100.00 Fixed Assets – Land and 115.00

Building

Share Capital – Redeemable 75.00 Fixed Assets – Plant and 165.00 Preference Shares Machinery Share Capital – Convertible 25.00 Other Fixed Assets 70.00 Preference Shares Debentures (Unsecured fully 50.00 Investments in Subsidiaries 50.00 convertible)

Long Term Borrowings – Fully 300.00 Inventories 150.00 Secured Short Term Borrowings – Unsecured 75.00 Receivables 110.00 Loan from Related Parties 25.00 Cash and Bank Balances 15.00 Payables 65.00 Other Current Assets 25.00 Provisions 35.00 Accumulated Losses 100.00 Deferred Tax Liabilities 15.00 Other Current Liabilities 35.00 Total Liabilities 800.00 Total Assets 800.00 Other Additional information provided by the Corporate Debtor :

[Amounts stated in the table above can be treated as claims made by each of the parties in their respective category].

Other Current Liabilities include :

₹ In Crores

Workmen Wages Payable for 36 months 9.00 Salary Payable for 20 months 100.00 PF Liabilities 3.80 Sales Tax/Commercial Taxes Due * 4.80 Other Statutory Dues 2.40

* On the sales tax and commercial taxes due, the Commercial Tax Authorities have already attached one of the immovable properties of the Corporate Debtor valued at ₹ 3.50 crores.

Fixed Assets includes buildings occupied on long term lease for a period of 75 years obtained from the State Industrial Development Authority (SIDA) for ₹ 5 Crores. SIDA has also submitted their claim with the RP stating that their premium amount along with interest and penal interest is due for since last 7 years. SIDA has filed its claim as a Financial Creditor. Whereas, the Resolution Professional has requested SIDA to submit its claim as an Operational Creditor. (This amount is included in Other Current Liabilities).

Further, it was informed by the Resolution Professional that the Corporate Debtor, M/s. Gupta Infra Private Limited, who initiated a CIRP against one of its Operational Creditor, namely C-Digital Arts Private Ltd for ₹ 6 Crores and going forward, the National Company Law Tribunal (NCLT) has already ordered for initiation of Corporate Insolvency Resolution Process (CIRP). However, one of the suspended Director on the Board of C-Digital Arts Private Limited filed an appeal before the National Company Law Appellate Tribunal (NCLAT) stating that there was no notice given as required under Section 8 of the Insolvency and Bankruptcy Code, 2016 read with Rule 5 of the insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 which entails that for initiation of insolvency resolution process by an Operational Creditor, a demand notice has to be served by the unpaid Operational Debtor on the Corporate Creditor. Nevertheless, the aforesaid suspended director he has not denied the debts due. This matter is pending before NCLAT for disposal.

Investments includes investment in Foreign Subsidiary of ₹ 30 Crores and in an Indian Subsidiary of ₹ 18 Crores and Investment in shares amounting to ₹ 2 Crores in another company incorporated and registered with charitable objects and not for profit.

Inventories and Receivables realisable only for 80% of its value.

Loan from related parties is from wife and son of one Director of GIPL.

Other Current Assets includes ₹ 10 Crores paid to National Highway Authority of India (NHAI) towards a bid amount for a road project.

Other Current Assets includes ₹ 2 Crores of assets of third party held under Trust. Machinery, the carrying value of which is ₹ 1.50 crores belonging to an Indian Subsidiary is lying in one of the Units of the Corporate Debtor.

A Machinery which was acquired for dispatching to the Foreign Subsidiary is also lying in the factory premises of the Corporate Debtor having a carrying value of ₹ 3 crores.

Cranes worth ₹ 5 Crores belonging to a proprietorship concern of one of the Director is also lying the Factory premises of the Corporate Debtor.

CIRP costs payable including all expenses is ₹ 2 Crores.

The Security Interest charged for COB Bank is 91.25% and SID Bank is 8.75%. (both the financial creditors have not relinquished their security interest).

During the CIRP, in one of the Meeting of the ‘Committee of Creditors’ (CoC), Resolution Plans were discussed. Revised Resolution Plans were submitted by the prospective Resolution Applicants.

Resolution Plan was put to e-Vote and by majority of 94.79%, the Resolution Plan of ‘GIPL’ was approved.

The Resolution plan proposes for utilisation of all assets including the assets under lease. Further, the Resolution Professional has sent a letter to the Commercial Taxes Authorities to release the property attached by them and on the contrary, the Authorities informed that the Department will get their portion as per the proposed Resolution Plan.

One of the Financial Creditor (SID Bank) sent an objection with respect to the distribution of the proceeds of the resolution plan under the Resolution Plan.

SID Bank also filed seeking direction to the Resolution Professional to distribute the proceeds of the Resolution Plan and made the following prayers :

“It is most respectfully prayed that :

1.The present application may kindly be allowed and the directions be issued to the Respondent No. 1 to modify/clarify the distribution to dissenting members as per the Resolution Plan and distribute the proceeds of the resolution plan to the Applicant SID Bank, for an amount of ₹ 8.97 Crores in priority in accordance with provisions of IBC, 2016 in the interest of justice and equity.

2.Interim stay be granted on distribution of the resolution plan amount by the Resolution Professional to the Committee of Creditors till the present application is decided.”

The case of the Appellant, namely SID Bank in the Application was that, as per the security interest of the Appellant, the Appellant is entitled to 8.75% i.e. the amount of ₹ 8.97 Crores and as per voting share as approved by the CoC, the Appellant is entitled to 5.21% i.e., ₹ 5.34 Crores. The case of the Appellant SID Bank set up in the Application is that he is entitled for his distribution of plan amount as per value of the security interest of the Appellant.

The Application was objected by the Resolution Professional. The Adjudicating Authority, by its Order, upheld the decision of the CoC for distribution of proceeds of the Resolution Plan as per the voting share. The Appellant, aggrieved by the said Order, has come up with the Appeal to the National Company Law Appellate Tribunal (NCLAT).

In the light of the above case study inputs and referring to the decisions of applicable case laws with reasons and the provisions of Insolvency and Bankruptcy Code, 2016 (IBC, 2016) and the Regulations made thereunder, answer the following questions :

Read the following carefully and answer the questions given at the end:

BSC Bank filed an application for initiating Corporate Insolvency Resolution Process (CIRP) against one of its borrower company M/s Moon Storm Pvt. Ltd., in the National Company Law Tribunal (NCLT). The NCLT allowed the application and passed order for commencement of CIRP. Rohit has been appointed as Interim Resolution Professional (IRP) and moratorium was declared.

The Committee of Creditor (CoC) was constituted and Rohit was appointed as Resolution Professional by CoC. Meetings of the CoC was convened from time to time and expression of interest for Resolution Plan was invited from various parties via public notice. However, no Resolution Plan was received during the currency of 180 days period. Hence, NCLT on the recommendation of RP extended the initial time period from 180 days to 270 days. Since, no one had shown the expression of interest even during the extended period of 270 days, the CoC appointed another Resolution Professional (RP) after the expiry of 270 days.

When the matter of resolution could not be completed within the extended time.

NCLT, extended the period of CIRP by further period of 90 days after the expiry of 270 days by exercising the power conferred under Section 55 of Insolvency and Bankruptcy Code, 2016 by treating the matter as ‘Fast Track Corporate Insolvency Resolution Process’ and also determined the ‘Corporate Insolvency Resolution Process fee’ and the ‘Cost’ incurred and payable to the Resolution Professional.

Aggrieved from the said order of the NCLT, the Resolution Professional preferred appeals against the order of the NCLT. In light of the above facts, answer the following questions :

Read the following case study and answer the questions that follow:

(I)Background:

Phoenix Asset Management Ltd. (Phoenix) is an asset reconstruction company registered under the applicable laws of India. It acquired, by way of an assignment agreement, the outstanding receivables owed by Meridian Hospitality Ltd. (Meridian), a company engaged in the hotel and hospitality business from a consortium of four public sector banks. The assignment took place in January 2009.

Meridian had originally borrowed ₹ 180 crores from the consortium in March 2003 under a term loan agreement. The funds were used for the renovation and expansion of its flagship hotel property. Repayments were irregular from the outset, and by November 2008, the consortium banks collectively classified Meridian’s loan account as a Non-Performing Asset (NPA). Shortly thereafter, the consortium assigned all outstanding receivables to Phoenix.

The shareholding of Meridian was held equally by two promoter entities, Crestwood Hotels Pvt. Ltd. and Pinnacle Resorts Ltd. each holding a 50% stake. Mr. Rajiv Bhatia served as the Chairman and Managing Director of Meridian as well as of both promoter companies.

(II)Settlement attempts and acknowledgments:

In March 2010, well within three years of the NPA declaration, Meridian wrote to Phoenix proposing a one-time settlement of the outstanding dues. In this letter, Meridian acknowledged that the aggregate outstanding liability, inclusive of principal and interest, stood at ₹ 195 crore as on 31 December 2009. It offered an upfront payment of ₹ 15 crores and committed to clearing the balance in instalments over 18 months.

A formal Settlement Agreement was executed between the parties on 15 April 2010.

Under this agreement, Meridian acknowledged its total liability of ₹ 195 crores, agreed to pay interest at 20% per annum compounded monthly, made an upfront payment of ₹ 15 crores, and committed to clearing the balance by 30 September 2011. Between 2010 and 2013, Meridian made further part payments totalling approximately ₹ 48 crores through various demand drafts and cheques.

However, Meridian repeatedly sought extensions of time to pay the balance. In June 2012, it acknowledged an outstanding liability of ₹ 241 crore (principal and interest combined) and sought extension until March 2013. In September 2013, Phoenix revoked the Settlement Agreement after Meridian defaulted once again.

From the financial year 2009-10 onwards, Meridian’s audited annual financial statements consistently reflected the amounts owed to Phoenix as a liability. However, beginning from the financial statements for the year 2014-15, the notes to the accounts contained a qualification. While the principal amount owed to Phoenix was shown as a liability in the balance sheet, the notes stated that the Settlement Agreement had been revoked by Phoenix and that Meridian had been legally advised the applicable interest rate could not exceed 13% per annum, not the 20% claimed by Phoenix. The notes further stated that the question of the correct rate of interest was pending adjudication before the Debt Recovery Tribunal (DRT).

Phoenix issued a notice under the SARFAESI Act in October 2013 and took symbolic possession of the hotel property in February 2014. Phoenix also invoked the personal guarantee of Mr. Rajiv Bhatia in May 2015.

(III)The IBC, 2016 application and proceedings:

On 10 April 2018, Phoenix filed an application under Section 7(2) of the Insolvency and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal (NCLT), seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Meridian. In its application, Phoenix claimed a principal amount of ₹42 crore and interest of ₹ 178 crores calculated at 20% per annum, bringing the total claim to approximately ₹ 220 crores.

Meridian filed a miscellaneous application before the NCLT seeking dismissal of the petition on the ground that it was barred by limitation. Meridian argued that the NPA was declared in November 2008, that the limitation period of three years expired in November 2011, and that the IBC application filed in April 2018 was hopelessly late by nearly seven years. Meridian further contended that the financial statements contained a clear dispute as to the rate of interest and could not, therefore, be read as an unequivocal acknowledgment of liability sufficient to extend limitation.

Phoenix countered that its application was well within time. It relied on the audited balance sheet of Meridian for the financial year 2014-15, signed by Meridian’s directors on 12 September 2015, which reflected Phoenix as a creditor and acknowledged Meridian’s outstanding financial liability. Phoenix argued that this acknowledgment, made before the original limitation period had expired, created a fresh three-year limitation period running from 12 September 2015 to 12 September 2018. Since the application was filed on 10 April 2018, it was within this extended period.

Phoenix also argued that regardless of the caveats in the notes to accounts concerning the interest rate, the balance sheet clearly showed the jural relationship of debtor and creditor between Meridian and Phoenix, and the existence of financial liability. A dispute about the rate of interest was a dispute about quantum, not about the existence of the debt itself. Moreover, even if the parts payments made by Meridian were to be considered, they would first be appropriated towards interest and then towards principal, meaning a substantial principal remained outstanding.

The promoter companies, Crestwood Hotels Pvt. Ltd. and Pinnacle Resorts Ltd., separately filed an appeal challenging the admission of the CIRP, arguing there was no subsisting financial debt and that the application was time-barred.

The NCLT rejected Meridian’s limitation objection and admitted the application, appointing an Interim Resolution Professional. The matter was then appealed to the NCLAT, which set aside the NCLT’s order, holding that the financial statements with caveated notes could not amount to an unequivocal acknowledgment under Section 18 of the Limitation Act and that the application was therefore barred by limitation.

Phoenix has now filed an appeal before the Supreme Court of India challenging the NCLAT’s order.

Required:

Read the following case study and answer the questions that follow:

(I)Background:

Phoenix Asset Management Ltd. (Phoenix) is an asset reconstruction company registered under the applicable laws of India. It acquired, by way of an assignment agreement, the outstanding receivables owed by Meridian Hospitality Ltd. (Meridian), a company engaged in the hotel and hospitality business from a consortium of four public sector banks. The assignment took place in January 2009.

Meridian had originally borrowed ₹ 180 crores from the consortium in March 2003 under a term loan agreement. The funds were used for the renovation and expansion of its flagship hotel property. Repayments were irregular from the outset, and by November 2008, the consortium banks collectively classified Meridian’s loan account as a Non-Performing Asset (NPA). Shortly thereafter, the consortium assigned all outstanding receivables to Phoenix.

The shareholding of Meridian was held equally by two promoter entities, Crestwood Hotels Pvt. Ltd. and Pinnacle Resorts Ltd. each holding a 50% stake. Mr. Rajiv Bhatia served as the Chairman and Managing Director of Meridian as well as of both promoter companies.

(II)Settlement attempts and acknowledgments:

In March 2010, well within three years of the NPA declaration, Meridian wrote to Phoenix proposing a one-time settlement of the outstanding dues. In this letter, Meridian acknowledged that the aggregate outstanding liability, inclusive of principal and interest, stood at ₹ 195 crore as on 31 December 2009. It offered an upfront payment of ₹ 15 crores and committed to clearing the balance in instalments over 18 months.

A formal Settlement Agreement was executed between the parties on 15 April 2010.

Under this agreement, Meridian acknowledged its total liability of ₹ 195 crores, agreed to pay interest at 20% per annum compounded monthly, made an upfront payment of ₹ 15 crores, and committed to clearing the balance by 30 September 2011. Between 2010 and 2013, Meridian made further part payments totalling approximately ₹ 48 crores through various demand drafts and cheques.

However, Meridian repeatedly sought extensions of time to pay the balance. In June 2012, it acknowledged an outstanding liability of ₹ 241 crore (principal and interest combined) and sought extension until March 2013. In September 2013, Phoenix revoked the Settlement Agreement after Meridian defaulted once again.

From the financial year 2009-10 onwards, Meridian’s audited annual financial statements consistently reflected the amounts owed to Phoenix as a liability. However, beginning from the financial statements for the year 2014-15, the notes to the accounts contained a qualification. While the principal amount owed to Phoenix was shown as a liability in the balance sheet, the notes stated that the Settlement Agreement had been revoked by Phoenix and that Meridian had been legally advised the applicable interest rate could not exceed 13% per annum, not the 20% claimed by Phoenix. The notes further stated that the question of the correct rate of interest was pending adjudication before the Debt Recovery Tribunal (DRT).

Phoenix issued a notice under the SARFAESI Act in October 2013 and took symbolic possession of the hotel property in February 2014. Phoenix also invoked the personal guarantee of Mr. Rajiv Bhatia in May 2015.

(III)The IBC, 2016 application and proceedings:

On 10 April 2018, Phoenix filed an application under Section 7(2) of the Insolvency and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal (NCLT), seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Meridian. In its application, Phoenix claimed a principal amount of ₹42 crore and interest of ₹ 178 crores calculated at 20% per annum, bringing the total claim to approximately ₹ 220 crores.

Meridian filed a miscellaneous application before the NCLT seeking dismissal of the petition on the ground that it was barred by limitation. Meridian argued that the NPA was declared in November 2008, that the limitation period of three years expired in November 2011, and that the IBC application filed in April 2018 was hopelessly late by nearly seven years. Meridian further contended that the financial statements contained a clear dispute as to the rate of interest and could not, therefore, be read as an unequivocal acknowledgment of liability sufficient to extend limitation.

Phoenix countered that its application was well within time. It relied on the audited balance sheet of Meridian for the financial year 2014-15, signed by Meridian’s directors on 12 September 2015, which reflected Phoenix as a creditor and acknowledged Meridian’s outstanding financial liability. Phoenix argued that this acknowledgment, made before the original limitation period had expired, created a fresh three-year limitation period running from 12 September 2015 to 12 September 2018. Since the application was filed on 10 April 2018, it was within this extended period.

Phoenix also argued that regardless of the caveats in the notes to accounts concerning the interest rate, the balance sheet clearly showed the jural relationship of debtor and creditor between Meridian and Phoenix, and the existence of financial liability. A dispute about the rate of interest was a dispute about quantum, not about the existence of the debt itself. Moreover, even if the parts payments made by Meridian were to be considered, they would first be appropriated towards interest and then towards principal, meaning a substantial principal remained outstanding.

The promoter companies, Crestwood Hotels Pvt. Ltd. and Pinnacle Resorts Ltd., separately filed an appeal challenging the admission of the CIRP, arguing there was no subsisting financial debt and that the application was time-barred.

The NCLT rejected Meridian’s limitation objection and admitted the application, appointing an Interim Resolution Professional. The matter was then appealed to the NCLAT, which set aside the NCLT’s order, holding that the financial statements with caveated notes could not amount to an unequivocal acknowledgment under Section 18 of the Limitation Act and that the application was therefore barred by limitation.

Phoenix has now filed an appeal before the Supreme Court of India challenging the NCLAT’s order.

Required:

Read the following case study and answer the questions that follow:

(I)Background:

Phoenix Asset Management Ltd. (Phoenix) is an asset reconstruction company registered under the applicable laws of India. It acquired, by way of an assignment agreement, the outstanding receivables owed by Meridian Hospitality Ltd. (Meridian), a company engaged in the hotel and hospitality business from a consortium of four public sector banks. The assignment took place in January 2009.

Meridian had originally borrowed ₹ 180 crores from the consortium in March 2003 under a term loan agreement. The funds were used for the renovation and expansion of its flagship hotel property. Repayments were irregular from the outset, and by November 2008, the consortium banks collectively classified Meridian’s loan account as a Non-Performing Asset (NPA). Shortly thereafter, the consortium assigned all outstanding receivables to Phoenix.

The shareholding of Meridian was held equally by two promoter entities, Crestwood Hotels Pvt. Ltd. and Pinnacle Resorts Ltd. each holding a 50% stake. Mr. Rajiv Bhatia served as the Chairman and Managing Director of Meridian as well as of both promoter companies.

(II)Settlement attempts and acknowledgments:

In March 2010, well within three years of the NPA declaration, Meridian wrote to Phoenix proposing a one-time settlement of the outstanding dues. In this letter, Meridian acknowledged that the aggregate outstanding liability, inclusive of principal and interest, stood at ₹ 195 crore as on 31 December 2009. It offered an upfront payment of ₹ 15 crores and committed to clearing the balance in instalments over 18 months.

A formal Settlement Agreement was executed between the parties on 15 April 2010.

Under this agreement, Meridian acknowledged its total liability of ₹ 195 crores, agreed to pay interest at 20% per annum compounded monthly, made an upfront payment of ₹ 15 crores, and committed to clearing the balance by 30 September 2011. Between 2010 and 2013, Meridian made further part payments totalling approximately ₹ 48 crores through various demand drafts and cheques.

However, Meridian repeatedly sought extensions of time to pay the balance. In June 2012, it acknowledged an outstanding liability of ₹ 241 crore (principal and interest combined) and sought extension until March 2013. In September 2013, Phoenix revoked the Settlement Agreement after Meridian defaulted once again.

From the financial year 2009-10 onwards, Meridian’s audited annual financial statements consistently reflected the amounts owed to Phoenix as a liability. However, beginning from the financial statements for the year 2014-15, the notes to the accounts contained a qualification. While the principal amount owed to Phoenix was shown as a liability in the balance sheet, the notes stated that the Settlement Agreement had been revoked by Phoenix and that Meridian had been legally advised the applicable interest rate could not exceed 13% per annum, not the 20% claimed by Phoenix. The notes further stated that the question of the correct rate of interest was pending adjudication before the Debt Recovery Tribunal (DRT).

Phoenix issued a notice under the SARFAESI Act in October 2013 and took symbolic possession of the hotel property in February 2014. Phoenix also invoked the personal guarantee of Mr. Rajiv Bhatia in May 2015.

(III)The IBC, 2016 application and proceedings:

On 10 April 2018, Phoenix filed an application under Section 7(2) of the Insolvency and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal (NCLT), seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Meridian. In its application, Phoenix claimed a principal amount of ₹42 crore and interest of ₹ 178 crores calculated at 20% per annum, bringing the total claim to approximately ₹ 220 crores.

Meridian filed a miscellaneous application before the NCLT seeking dismissal of the petition on the ground that it was barred by limitation. Meridian argued that the NPA was declared in November 2008, that the limitation period of three years expired in November 2011, and that the IBC application filed in April 2018 was hopelessly late by nearly seven years. Meridian further contended that the financial statements contained a clear dispute as to the rate of interest and could not, therefore, be read as an unequivocal acknowledgment of liability sufficient to extend limitation.

Phoenix countered that its application was well within time. It relied on the audited balance sheet of Meridian for the financial year 2014-15, signed by Meridian’s directors on 12 September 2015, which reflected Phoenix as a creditor and acknowledged Meridian’s outstanding financial liability. Phoenix argued that this acknowledgment, made before the original limitation period had expired, created a fresh three-year limitation period running from 12 September 2015 to 12 September 2018. Since the application was filed on 10 April 2018, it was within this extended period.

Phoenix also argued that regardless of the caveats in the notes to accounts concerning the interest rate, the balance sheet clearly showed the jural relationship of debtor and creditor between Meridian and Phoenix, and the existence of financial liability. A dispute about the rate of interest was a dispute about quantum, not about the existence of the debt itself. Moreover, even if the parts payments made by Meridian were to be considered, they would first be appropriated towards interest and then towards principal, meaning a substantial principal remained outstanding.

The promoter companies, Crestwood Hotels Pvt. Ltd. and Pinnacle Resorts Ltd., separately filed an appeal challenging the admission of the CIRP, arguing there was no subsisting financial debt and that the application was time-barred.

The NCLT rejected Meridian’s limitation objection and admitted the application, appointing an Interim Resolution Professional. The matter was then appealed to the NCLAT, which set aside the NCLT’s order, holding that the financial statements with caveated notes could not amount to an unequivocal acknowledgment under Section 18 of the Limitation Act and that the application was therefore barred by limitation.

Phoenix has now filed an appeal before the Supreme Court of India challenging the NCLAT’s order.

Required:

(b)Jayparan (“Jay” in short), has paid a sum of ₹ 4 crore to RD Developers Private Limited (hereinafter referred as ‘Corporate Debtor’) who was engaged in real estate business. This sum of ₹ 4 crore was paid in 2010 as earnest money against advance sale consideration for booking of a flat. Since there was no progress in the said project until 2014, Jay sought refund of the earnest money following which the Corporate Debtor assured to return the same with interest @ 12% per annum.

Since then, the sum of ₹ 4 crore was mutually treated as unsecured loan and reflected accordingly in the books of the account of the Corporate Debtor. Interest thereon was paid by the Corporate Debtor and TDS was also deducted thereon for which confirmation of books of accounts was periodically sought from Jay. Thus, it was contended that the Corporate Debtor by his own conduct changed the status of the home-buyer to a Financial Creditor.

The Corporate Debtor paid regular interest till FY 2016-17. On the grounds of liquidity and financial crunch, he sought waiver of interest from Jay which request was, however declined.

It is the contention of Mr. Jay that the Corporate Debtor thereafter, defaulted in making interest payment since 1st October, 2017 and continued to default from FY 2017-18 until FY 2020-21 except for part repayment in 2018. It is further submitted that on the demise of Mr.

Jay during October 2018, the loan amount was transferred to the name of his wife, Kushma Jayparan which stands confirmed from the confirmation of account for FY 2019-20 signed by the Directors of the Corporate Debtor.

On account of non-payment of debt, a letter dated 1st February, 2021 was sent by Kushma Jayparan to the Corporate Debtor demanding a sum of ₹ 6.20 crores which included principal amount of ₹ 4.09 crores and ₹ 2.11 crores as interest. Since the amount remained outstanding, on behalf of Jay, his wife filed an application under Section 7 of the IBC on 6th October, 2021 for initiating a Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor for the default committed.

The learned Counsel of the Corporate Debtor contended that there was no agreement between Jay and the Corporate Debtor with respect to the amount advanced by him and further, the amount paid by Jay is as an Advance amount for buying a flat under development of the Corporate Debtor. Hence, Jay is only a home buyer and not a Financial Creditor of unsecured loans. It is also the contention of the Corporate Debtor that the investment was made by the Jay to receive returns on investment from the Corporate Debtor. Hence, the sum advanced was in the nature of speculative investment and cannot be treated as a financial debt.

The Adjudicating Authority viewed that as no time period was stipulated in the demand notice, it may be held that no default had occurred and also this date fell in the prohibited period under Section 10A of the IBC, 2016. Thus, the Adjudicating Authority held that in both these circumstances, Section 7 application was non-maintainable. Aggrieved with the findings of the Adjudicating Authority, the wife of Jay preferred an appeal before the National Company Law Appellate Tribunal.

Referring to the relevant case laws and the applicable provisions of the IBC, 2016 and the Regulations made thereunder, answer the following questions :

(c)Panapathi G. Seeds Pvt. Ltd. a closely held private company was engaged in the business of processing oilseeds for edible oils. It was established in 1988 under the leadership of Panapathi G. Prasad. Within a decade, Panapathi G. Seeds Pvt. Ltd positioned itself as a leader in production of groundnut oil in the Western region of India with two premium brands.

In 2016 Panapathi G. Prasad had a severe heart attack and died without any succession plan in place. Ram and Sham, the two sons of Panapathi G. Prasad were also directors in the company with equal shareholding. After the death of Panapathi G. Prasad, both brothers had strained relations over the management control which adversely affected the business of the company. With declining profit and turnover both the brothers were worried and decided to reach a family settlement whereby the control of the company was handed over to the elder brother Ram. Sham resigned as the director of the company and in lieu of the same he was entrusted with the management and control of another family firm Saraswathi Edibles, wherein both brothers were partners. Praveen, son of Ram was inducted as director in the Company.

In 2018 Sham wanted to withdraw unsecured loan given by him to the company because the company stopped paying him interest on the loan. Despite follow up Sham was not paid either the principal or interest, which forced him to file an application under section 7 of the Insolvency and Bankruptcy Code 2016.

The Adjudicating Authority (i) admitted the application, (ii) declared moratorium and (iii)

appointed Nagarajan, as an Interim Resolution Professional (IRP). Ram refused to hand over the management control to the IRP on the plea that it was a family dispute, and they will settle soon on their own. He also asked the IRP not to make the public announcement.

IRP tried to persuade Ram citing the provisions of the Code and warned him that if he does not hand over control of the Corporate Debtor IRP will be forced to approach the Adjudicating Authority for appropriate orders. Thereafter Ram allowed the IRP to take inventory of the assets and stocks after 15 days from the insolvency commencement date.

With reference to the above facts and other details provided, answer the following questions with particular reference to the provisions contained in the Code, Regulations and rules of IBC and others :

Read the following carefully and answer the questions given at the end :

Pine Food Industries Limited (“PFIL”) is one of the top FMCG player and listed entity in India. It is a leading manufacturer and marketer of various edible oils, food products and eatables. Its Authorized Capital is Rs. 252.00 crore and Paid-up Capital is Rs.

65.00 crore. PFIL has borrowed from various Banks and Financial institutions in India and its borrowings were around Rs. 12,000 Crore.

Due to unprecedented crash in global prices of the oil seeds coupled with falling revenues in the oil business gave a crippling blow to PFIL.

AB Bank and BC Bank filed an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (“Code”) for initiating the insolvency resolution process against PFIL (hereinafter called as the Corporate Debtor (“CD”)). After hearing both the parties, National Company Law Tribunal (“NCLT”) admitted the petition filed. The Financial Creditor proposed the name of Kapoor to act as Interim Resolution Professional (“IRP”).

An application was filed before NCLT by one of the creditors who made a claim before the Resolution Professional (“RP”) stating that the CD owed to pay USD 10.00 crore, based on the Bills of Exchanges, ordering the CD to pay this creditor for the goods supplied by another party. On making of such claim before the RP, it has been rejected by him saying that it is not a Financial Debt as it is an Operational Debt therefore, it could not be considered as Financial Debt as claimed by applicant therein.

Vijay Kumar Jain, suspended Director of the CD, filed an application before the NCLT under section 60(5) of the Code seeking an order for setting aside the decision taken by the Committee of Creditors (“CoC”) disallowing the erstwhile representatives of the Corporate Debtor including Vijay to participate in the CoC meetings; declare that the CoC meeting is non est; direct the RP to ensure active participation of the applicant in the meetings of CoC; provide all the documents and information to the applicant.

RP filed application in NCLT under section 43(1) of the Code for seeking reversal of the amounts that were debited from the current accounts of the CD maintained with XYZ Bank which had been debited by the XYZ Bank before the insolvency commencement date and were utilized against the payment of the dues owed by the CD to a Bank in relation to the Letter of Credit issued by them.

The RP submits that the payment of the impugned amount lead to preferential treatment towards XYZ Bank by the CD as such payment has the effect of putting Respondents (i.e. XYZ Bank) in a beneficial position than it would have been in liquidation of the CD in accordance with Section 53 of the Code. It is further stated by the RP that the payments of the impugned amount by the Corporate Debtor were not in the “ordinary course of business” of the CD.

NCLT, vide its order, held that the respondent Bank, which had debited an amount aggregating to Rs. 65.98 crores from the current accounts of the Corporate Debtor is directed to reverse the said amount within 30 days from the date of the said order.

Since the resolution plan is already submitted and under examination of the CoC without consideration of this amount, therefore the appropriation of this amount will be decided by the CoC. XYZ Bank filed appeal in NCLAT against the order of NCLT.

The main plea taken by the Appellant Bank is that the RP before filing an application under Section 43(1) of the Code formed no independent opinion nor afforded an opportunity to the Appellant to explain about the transactions in question.

The RP called for Expression of Interest (“EOI”). 28 prospective resolution applicants showed their interest out of which two prospective resolution applicants were rejected as one was disqualified under Section 29 A of the Code (being related party) and the other was a financial investor who did not meet the criteria in the EOI evaluation parameters.

The applicant reviewed the four Resolution Plans submitted by the Resolution Applicants and found that only the plans submitted by 2 Resolution Applicants (RA1 and RA2) provided for the corporate insolvency resolution of the Corporate Debtor as a whole and on a going concern basis.

The RP filed application under section 30(6) of the Code, seeking order for approval of the resolution plan for the Corporate Debtor submitted by the consortium led by PAL (RA2) as approved by the members of Committee of Creditors (CoC). The said resolution plan was approved by a vote share of 96.85%. RP filed application in NCLT for approval of Resolution Plan.

While the said application was pending for consideration before the NCLT, Hon’ble Supreme Court, in Vijay Kumar Jain Vs. Standard Chartered Bank & Ors pronounced the judgment. Under the Judgment of Hon’ble Supreme Court, the approval of the NCLT to the resolution plan of RA2 was interdicted. In compliance of the above-mentioned Hon'ble Supreme Court order, NCLT by its order directed as follows :

“Resolution Professional is directed to comply with the directions of the Hon’ble Supreme Court and submit the report within the stipulated time as provided by the Hon'ble Supreme Court.”

Thereafter, NCLT approved the Resolution Plan submitted by RA2 and passed orders and directions on the reliefs and concession sought.

Since in Para 38, NCLT in their order rejected some of the relief sought, RA2 moved to NCLT for modification of order of NCLT.

In the application filed, RA2 had sought substitution of Para 38 of the order of NCLT approving the Resolution Plan of RA2 as under :

Existing Para “38. Any relief sought for in the Resolution Plan, where the contract/agreement/ understanding/ proceedings/actions/notice etc is not specifically identified or is for future and contingent liability, is at this moment rejected.”

Proposed Para “All claims that were either not filed or not admitted during CIRP in terms of the provisions of the Insolvency and Bankruptcy Code, 2016 shall stand extinguished.

Further, claims admitted/ verified by the Resolution Professional shall stand settled and extinguished as per the Resolution Plan.”

Resolution Plan approved by NCLT of RA2 leads to a 60% haircut for the lenders.

RA2 completed its acquisition of PFIL.

Referring decided case and relevant provisions of the Insolvency and Bankruptcy Code (IBC), 2016 and Rules and Regulations made thereunder, answer the following questions :

COB Bank filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) for initiating a Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, M/s. Gupta Infra Private Limited (GIPL). The said application was admitted by the Adjudicating Authority (AA) during October, 2018 and a Resolution Professional (RP) was appointed as an Interim Resolution Professional (IRP).

Following is the financial position of GIPL as on the date of commencement of the CIRP :

Liabilities Amount in Assets Amount in ₹

₹ Crores Crores

Share Capital – Equity 100.00 Fixed Assets – Land and 115.00

Building

Share Capital – Redeemable 75.00 Fixed Assets – Plant and 165.00 Preference Shares Machinery Share Capital – Convertible 25.00 Other Fixed Assets 70.00 Preference Shares Debentures (Unsecured fully 50.00 Investments in Subsidiaries 50.00 convertible)

Long Term Borrowings – Fully 300.00 Inventories 150.00 Secured Short Term Borrowings – Unsecured 75.00 Receivables 110.00 Loan from Related Parties 25.00 Cash and Bank Balances 15.00 Payables 65.00 Other Current Assets 25.00 Provisions 35.00 Accumulated Losses 100.00 Deferred Tax Liabilities 15.00 Other Current Liabilities 35.00 Total Liabilities 800.00 Total Assets 800.00 Other Additional information provided by the Corporate Debtor :

[Amounts stated in the table above can be treated as claims made by each of the parties in their respective category].

Other Current Liabilities include :

₹ In Crores

Workmen Wages Payable for 36 months 9.00 Salary Payable for 20 months 100.00 PF Liabilities 3.80 Sales Tax/Commercial Taxes Due * 4.80 Other Statutory Dues 2.40

* On the sales tax and commercial taxes due, the Commercial Tax Authorities have already attached one of the immovable properties of the Corporate Debtor valued at ₹ 3.50 crores.

Fixed Assets includes buildings occupied on long term lease for a period of 75 years obtained from the State Industrial Development Authority (SIDA) for ₹ 5 Crores. SIDA has also submitted their claim with the RP stating that their premium amount along with interest and penal interest is due for since last 7 years. SIDA has filed its claim as a Financial Creditor. Whereas, the Resolution Professional has requested SIDA to submit its claim as an Operational Creditor. (This amount is included in Other Current Liabilities).

Further, it was informed by the Resolution Professional that the Corporate Debtor, M/s. Gupta Infra Private Limited, who initiated a CIRP against one of its Operational Creditor, namely C-Digital Arts Private Ltd for ₹ 6 Crores and going forward, the National Company Law Tribunal (NCLT) has already ordered for initiation of Corporate Insolvency Resolution Process (CIRP). However, one of the suspended Director on the Board of C-Digital Arts Private Limited filed an appeal before the National Company Law Appellate Tribunal (NCLAT) stating that there was no notice given as required under Section 8 of the Insolvency and Bankruptcy Code, 2016 read with Rule 5 of the insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 which entails that for initiation of insolvency resolution process by an Operational Creditor, a demand notice has to be served by the unpaid Operational Debtor on the Corporate Creditor. Nevertheless, the aforesaid suspended director he has not denied the debts due. This matter is pending before NCLAT for disposal.

Investments includes investment in Foreign Subsidiary of ₹ 30 Crores and in an Indian Subsidiary of ₹ 18 Crores and Investment in shares amounting to ₹ 2 Crores in another company incorporated and registered with charitable objects and not for profit.

Inventories and Receivables realisable only for 80% of its value.

Loan from related parties is from wife and son of one Director of GIPL.

Other Current Assets includes ₹ 10 Crores paid to National Highway Authority of India (NHAI) towards a bid amount for a road project.

Other Current Assets includes ₹ 2 Crores of assets of third party held under Trust. Machinery, the carrying value of which is ₹ 1.50 crores belonging to an Indian Subsidiary is lying in one of the Units of the Corporate Debtor.

A Machinery which was acquired for dispatching to the Foreign Subsidiary is also lying in the factory premises of the Corporate Debtor having a carrying value of ₹ 3 crores.

Cranes worth ₹ 5 Crores belonging to a proprietorship concern of one of the Director is also lying the Factory premises of the Corporate Debtor.

CIRP costs payable including all expenses is ₹ 2 Crores.

The Security Interest charged for COB Bank is 91.25% and SID Bank is 8.75%. (both the financial creditors have not relinquished their security interest).

During the CIRP, in one of the Meeting of the ‘Committee of Creditors’ (CoC), Resolution Plans were discussed. Revised Resolution Plans were submitted by the prospective Resolution Applicants.

Resolution Plan was put to e-Vote and by majority of 94.79%, the Resolution Plan of ‘GIPL’ was approved.

The Resolution plan proposes for utilisation of all assets including the assets under lease. Further, the Resolution Professional has sent a letter to the Commercial Taxes Authorities to release the property attached by them and on the contrary, the Authorities informed that the Department will get their portion as per the proposed Resolution Plan.

One of the Financial Creditor (SID Bank) sent an objection with respect to the distribution of the proceeds of the resolution plan under the Resolution Plan.

SID Bank also filed seeking direction to the Resolution Professional to distribute the proceeds of the Resolution Plan and made the following prayers :

“It is most respectfully prayed that :

1.The present application may kindly be allowed and the directions be issued to the Respondent No. 1 to modify/clarify the distribution to dissenting members as per the Resolution Plan and distribute the proceeds of the resolution plan to the Applicant SID Bank, for an amount of ₹ 8.97 Crores in priority in accordance with provisions of IBC, 2016 in the interest of justice and equity.

2.Interim stay be granted on distribution of the resolution plan amount by the Resolution Professional to the Committee of Creditors till the present application is decided.”

The case of the Appellant, namely SID Bank in the Application was that, as per the security interest of the Appellant, the Appellant is entitled to 8.75% i.e. the amount of ₹ 8.97 Crores and as per voting share as approved by the CoC, the Appellant is entitled to 5.21% i.e., ₹ 5.34 Crores. The case of the Appellant SID Bank set up in the Application is that he is entitled for his distribution of plan amount as per value of the security interest of the Appellant.

The Application was objected by the Resolution Professional. The Adjudicating Authority, by its Order, upheld the decision of the CoC for distribution of proceeds of the Resolution Plan as per the voting share. The Appellant, aggrieved by the said Order, has come up with the Appeal to the National Company Law Appellate Tribunal (NCLAT).

In the light of the above case study inputs and referring to the decisions of applicable case laws with reasons and the provisions of Insolvency and Bankruptcy Code, 2016 (IBC, 2016) and the Regulations made thereunder, answer the following questions :

(b)SMS Enterprises Private Limited (Operational Creditor) has filed the present petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 with a prayer to initiate the CIRP against Kaj Tiles Private Limited (Hereinafter referred as ‘Kaj Tiles’).

The Applicant Operational Creditor has claimed the alleged debt on account of the accumulated stocks due to discontinuance/prevention of the supply of goods to the dealers of the Operational Creditor, which it had been doing pursuant to the Distributorship Agreement executed between the Kaj Tiles and SMS Enterprises (through its proprietor Mittu).

As per Kaj Tiles, the said Distributorship Agreement clearly prohibited Mittu (SMS Enterprises)

from transferring or assigning the same or any part thereof without the prior written consent in terms one of the clauses of the Distributorship Agreement. The Applicant Operational Creditor, in its rejoinder has admitted that the proprietorship was transferred into a Private Limited Company by virtue of an “Amalgamation Agreement” entered between M/s SMS Enterprises (Proprietorship Concern) and M/s SMS Enterprises Private Limited and the aforesaid Distributorship Agreement never prohibited the transfer of business or assigning of actionable claims. The Petitioner Operational Creditor being a Company is pursuing debt on behalf of the proprietorship firm.

In the light of the above case study inputs, answer the following questions :

Ruby and Emerald Pvt. Ltd (REPL), incorporated on 1st April, 2013 has its registered office in Surat. Gems and Gems Pvt. Ltd (GGPL), incorporated on 11th September, 2014 has its registered office in Jaipur. REPL was approached by GGPL for procuring its goods which can be used as raw material in the factory of REPL. It was agreed through a contract between REPL and GGPL that upon procurement of the goods entire payment shall be made by REPL within 10 days of issuance of the tax invoice.

The transaction was smoothly going between REPL and GGPL without any delays in supply of goods and payment. Owner of REPL died due to cardiac arrest and the business operations of REPL were severely affected. REPL started supplying faulty goods to its customers and the quality of raw material being supplied by the suppliers also deteriorated gradually. As on 2nd January, 2021, there were no dues outstanding towards GGPL and balance confirmation from GGPL was also taken by REPL.

However, between 3rd January, 2021 and 31st May, 2021 various transactions happened between REPL and GGPL. GGPL requested for the payments multiple times for such transaction between 3rd January, 2021 and 31st May, 2021; however, GGPL kept supplying goods in good faith based on relationship with REPL. REPL neither responded to requestsof GGPL nor stopped buying goods from them. Because of the long overdue from REPL, GGPL sent a demand notice on 16th June, 2021 through their lawyer to make the payment of entire outstanding to the tune of ‘ 1,25,00,000/- exclusive of interest @ 15% p.a. within 10 days from the receipt of the notice, failing which GGPL will take suitable actions under the law. No communication whatsoever was received from REPL. Therefore, as per the directions of the lawyer, GGPL filed an application to initiate Corporate Insolvency Resolution Process (CIRP)

against REPL. Also, they have sent a letter to the power company to disconnect the supply of electricity to REPL considering that they are not in a position to pay their dues Considering the above facts answer the following questions :

Read the following case study and answer the questions that follow:

(I)Background:

Phoenix Asset Management Ltd. (Phoenix) is an asset reconstruction company registered under the applicable laws of India. It acquired, by way of an assignment agreement, the outstanding receivables owed by Meridian Hospitality Ltd. (Meridian), a company engaged in the hotel and hospitality business from a consortium of four public sector banks. The assignment took place in January 2009.

Meridian had originally borrowed ₹ 180 crores from the consortium in March 2003 under a term loan agreement. The funds were used for the renovation and expansion of its flagship hotel property. Repayments were irregular from the outset, and by November 2008, the consortium banks collectively classified Meridian’s loan account as a Non-Performing Asset (NPA). Shortly thereafter, the consortium assigned all outstanding receivables to Phoenix.

The shareholding of Meridian was held equally by two promoter entities, Crestwood Hotels Pvt. Ltd. and Pinnacle Resorts Ltd. each holding a 50% stake. Mr. Rajiv Bhatia served as the Chairman and Managing Director of Meridian as well as of both promoter companies.

(II)Settlement attempts and acknowledgments:

In March 2010, well within three years of the NPA declaration, Meridian wrote to Phoenix proposing a one-time settlement of the outstanding dues. In this letter, Meridian acknowledged that the aggregate outstanding liability, inclusive of principal and interest, stood at ₹ 195 crore as on 31 December 2009. It offered an upfront payment of ₹ 15 crores and committed to clearing the balance in instalments over 18 months.

A formal Settlement Agreement was executed between the parties on 15 April 2010.

Under this agreement, Meridian acknowledged its total liability of ₹ 195 crores, agreed to pay interest at 20% per annum compounded monthly, made an upfront payment of ₹ 15 crores, and committed to clearing the balance by 30 September 2011. Between 2010 and 2013, Meridian made further part payments totalling approximately ₹ 48 crores through various demand drafts and cheques.

However, Meridian repeatedly sought extensions of time to pay the balance. In June 2012, it acknowledged an outstanding liability of ₹ 241 crore (principal and interest combined) and sought extension until March 2013. In September 2013, Phoenix revoked the Settlement Agreement after Meridian defaulted once again.

From the financial year 2009-10 onwards, Meridian’s audited annual financial statements consistently reflected the amounts owed to Phoenix as a liability. However, beginning from the financial statements for the year 2014-15, the notes to the accounts contained a qualification. While the principal amount owed to Phoenix was shown as a liability in the balance sheet, the notes stated that the Settlement Agreement had been revoked by Phoenix and that Meridian had been legally advised the applicable interest rate could not exceed 13% per annum, not the 20% claimed by Phoenix. The notes further stated that the question of the correct rate of interest was pending adjudication before the Debt Recovery Tribunal (DRT).

Phoenix issued a notice under the SARFAESI Act in October 2013 and took symbolic possession of the hotel property in February 2014. Phoenix also invoked the personal guarantee of Mr. Rajiv Bhatia in May 2015.

(III)The IBC, 2016 application and proceedings:

On 10 April 2018, Phoenix filed an application under Section 7(2) of the Insolvency and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal (NCLT), seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Meridian. In its application, Phoenix claimed a principal amount of ₹42 crore and interest of ₹ 178 crores calculated at 20% per annum, bringing the total claim to approximately ₹ 220 crores.

Meridian filed a miscellaneous application before the NCLT seeking dismissal of the petition on the ground that it was barred by limitation. Meridian argued that the NPA was declared in November 2008, that the limitation period of three years expired in November 2011, and that the IBC application filed in April 2018 was hopelessly late by nearly seven years. Meridian further contended that the financial statements contained a clear dispute as to the rate of interest and could not, therefore, be read as an unequivocal acknowledgment of liability sufficient to extend limitation.

Phoenix countered that its application was well within time. It relied on the audited balance sheet of Meridian for the financial year 2014-15, signed by Meridian’s directors on 12 September 2015, which reflected Phoenix as a creditor and acknowledged Meridian’s outstanding financial liability. Phoenix argued that this acknowledgment, made before the original limitation period had expired, created a fresh three-year limitation period running from 12 September 2015 to 12 September 2018. Since the application was filed on 10 April 2018, it was within this extended period.

Phoenix also argued that regardless of the caveats in the notes to accounts concerning the interest rate, the balance sheet clearly showed the jural relationship of debtor and creditor between Meridian and Phoenix, and the existence of financial liability. A dispute about the rate of interest was a dispute about quantum, not about the existence of the debt itself. Moreover, even if the parts payments made by Meridian were to be considered, they would first be appropriated towards interest and then towards principal, meaning a substantial principal remained outstanding.

The promoter companies, Crestwood Hotels Pvt. Ltd. and Pinnacle Resorts Ltd., separately filed an appeal challenging the admission of the CIRP, arguing there was no subsisting financial debt and that the application was time-barred.

The NCLT rejected Meridian’s limitation objection and admitted the application, appointing an Interim Resolution Professional. The matter was then appealed to the NCLAT, which set aside the NCLT’s order, holding that the financial statements with caveated notes could not amount to an unequivocal acknowledgment under Section 18 of the Limitation Act and that the application was therefore barred by limitation.

Phoenix has now filed an appeal before the Supreme Court of India challenging the NCLAT’s order.

Required:

Read the case study carefully and answer the questions given at the end :

JCP Industries Ltd (JIL) was incorporated in the year 2011 with an authorized share capital of ₹2,000 crore having its registered office located in Mumbai with the main objects to carry out the business (a) manufacturing of heavy duty earth moving machinery and their spare parts (b) purchase, sale, construction of multi-story commercial and residential apartments under own name or as under Joint Development Agreements (c) Mining of minerals and thereafter refining and processing them for sale; and (d) doing the business in the hospitality sector by running and maintaining Hotels, Resorts and Budget Hotels. The paid-up share capital of the company as on date is ₹1,750 crore.

During the course of business, the company has approached various banks, state finance corporations and NBFCs for availing financial assistance in the nature of term loans and other facilities. However, based on the business plans and security offered, the finance proposal was approved by National Bank of India (the Bank) in the form of both fund based and non-fund based limits. The company during the course of its business operations was also availing credit for 90 days to 120 days from its creditors in connection with the purchase of raw material being used in the business of manufacturing heavy duty earth moving machineries, real estate, mining and hospitality sectors. The progress of the company since its incorporation till 31st March, 2019 was exceptional. However, because of certain transactions carried out by the directors with their relatives and other parties between 1st July, 2020 to 30th June, 2021 which were in the nature purchase of raw-material for different business segments of the company including the purchase of immovable properties as well as transferring and sale of goods and assets of the company to such related and other parties by givingthem preference over the other buyers ultimately resulted into mismatch in the cash flows and consequently resulted into losses to the company.

With an intention to grow organically, the company also incorporated a wholly owned subsidiary in the year 2017 under the name of JCP Buildcon Ltd (JAL) which was mainly engaged in the real estate business involving construction of apartments and flats in multi-story buildings under the Joint Development Agreements being entered into with the various parties including various State Governments under Housing Schemes. JAL entered into a tripartite Joint Development Agreement with Jaipur Development Authority (JDA) for construction of apartments and flats in multi-story buildings after development of land belonging to JDA. In an attempt to extend support to JIL, JAL had also mortgaged its assets in favour of banks in the month of August, 2018 when additional financial assistance was provided to JIL.

The financial condition of JIL started deteriorating after July, 2019 because of reduction in the business activities as well as default being committed in honoring the debt obligations towards banks, payment to trade creditors and delays in construction of apartments to be handed over to the buyers who had entered into agreements with the company and have paid almost 95% of the cost of the apartment.

The banks, trade creditors and buyers of the flats were constantly making follow up with the management but no reply was given to them by the management of JIL as well as JAL. National Bank of India during their internal review meeting informed their legal team that the promoter/directors may have siphoned off the money which was supposed to have been used for business purposes; since it appears to them that the amounts have been advanced to related parties and diverted towards a few suspicious transactions.

The bank despite the continuous follow up with the management and the Board of directors could not get any suitable response relating to the repayment plan to honor the debt obligations.

Considering the situation and based on the recommendation of their legal department, the bank decided to take action against the company under the Insolvency and Bankruptcy Code, 2016 (the Code) and thus filed an application on 16th February, 2022 before the Adjudicating Authority (AA) for initiating Corporate Insolvency Resolution Process (CIRP). In the application, the Bank had proposed name of Robin to act as Interim Resolution Professional (IRP). Simultaneously, other lenders of JAL also submitted an application before the AA to initiate CIRP against JAL for default in repayment of their dues.

After hearing the parties, the AA admitted the applications in the case of JIL and JAL on 25th April, 2022 and also confirmed the appointment of Robin as IRP in both the companies. In the case of JIL, Robin constituted a Committee of Creditors (CoC) on 15th May, 2022 and called first meeting of the CoC on 20th May, 2022. The constitution of CoC by Robin was challenged by the operational creditors as well as home buyers since their name was not included in the list of the CoC. Further, the members of the suspended Board of directors of JIL also challenged the actions of Robin who did not allow their participation in the first meeting of the CoC.

During the first meeting of the CoC in the case of JIL, Robin was confirmed to act as Resolution Professional (RP) by the CoC and was asked to invite the Expression of Interest (EoI) from the Resolution Applicants (RA) for submitting Resolution Plan.

Besides the above, JDA has also issued notice to JAL for taking over possession of the land given for the purpose of construction.

Considering the above facts answer the following questions :