Page 7 - IBBI

INSOLVENCY AND BANKRUPTCY NEWS

Other Authorities April 18, 2018 inter alia holding that the issue qua the eligibility under
section 29A(h) decided already, coupled with the resolution plan crossing
Securities and Exchange Board of India the requisite threshold of approval by the CoC i.e., 75% vote share, having
considered the technoeconomic viability and feasibility of the plan, the
Introduction of Special Situation Funds as a sub-category under
Category I AIFs application led for approval of the resolution plan submitted by the
promoter was liable to be allowed. A direction was accordingly given,
The Securities and Exchange Board of India (SEBI) has amended SEBI holding that the approved resolution plan shall come into force with
(Alternative Investment Funds) Regulations, 2012 vide its notication dated immediate effect.
January 24, 2022 to introduce Special Situation Funds (SSF), a sub-category
under Category I AIF, which shall invest in ‘special situation assets’. It has NCLAT conrmed the order of AA. On appeal, SC observed that:
been specied that SSF intending to act as a resolution applicant under the • Once a person executes a guarantee in favour of a creditor for credit
IBC shall ensure compliance with the eligibility requirement provided facilities availed by a CD, and the matter has been admitted, and the
thereunder. The amendment also species the conditions for SSFs guarantee having been invoked, the bar qua eligibility under section
acquiring stressed loans in terms of Clause 58 of the Master Direction – 29A(h) would certainly come into play;
Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021.
• What is required to earn a disqualication under the said provision is a
Orders mere existence of a personal guarantee that stands invoked by a single
creditor, notwithstanding the application being led by any other
creditor seeking initiation of CIRP; and
Supreme Court
• If the submission of the plan is maintainable at the time when petition
Devarajan Raman Vs. Bank of India Limited [Civil Appeal No. 3160 was led, and thereafter, by the operation of the law, a person becomes
of 2020] ineligible, which continues either till the time of approval by the CoC,
The AA directed the FC to pay an amount of ₹ 5,00,000/- plus GST or adjudication by AA, then the subsequent amended provision would
towards the fee of the RP. On an appeal by RP, contending inadequacy of the govern the question of eligibility.
fee, NCLAT dismissed the appeal and observed that xation of fee is not a SC held that the resolution plan submitted by the promoter of CD was not
business decision depending upon the commercial wisdom of the CoC. SC maintainable due to his ineligibility under section 29A(h) of the Code.
while setting aside the orders of AA and NCLAT noted that NCLAT has However, SC disposed of the matter without disturbing the approved plan
proceeded in an ad hoc manner. It further held that both the orders suffer on merits considering socio economic factors viz., the employment of
from an abdication in the exercise of jurisdiction, as, in the absence of any several workers and that the CD is a running concern.
reasons either in the order of the AA or the NCLAT, it is impossible for the
court to deduce the basis on which the payment of an amount of M/s Consolidated Construction Consortium Limited Vs. M/s Hitro
` 5,00,000/- together with expenses was found to be reasonable. Energy Solutions Private Limited [Civil Appeal No. 2839 of 2020]
The appellant executed a project with Chennai Metro Rail Limited (CMRL)
Bank of Baroda & Anr. Vs. MBL Infrastructures Limited & Ors.
[Civil Appeal No. 8411 of 2019] under which it placed orders with the respondent and an advance was paid
by CMRL to the respondent. On termination of the project the advance
The judicial interpretation of section 29A(h) of the Code was an issue in this amount was repaid by the appellant to CMRL, intimating this to the
appeal before the SC. Loans/ credit facilities were obtained by the CD from respondent and requesting them to refund the said payment as it had
a consortium of banks (State Bank of Mysore, now State Bank of India as already encashed the cheque for advance payment. On default, the
lead bank). On the failure of the CD to act in tune with the terms of appellant led an application under section 9 of the Code against the
repayment, some of the lender banks were forced to invoke the personal respondent which was admitted by AA. NCLAT reversed the decision of
guarantees extended by promoter of the CD for the credit facilities availed the AA. On appeal, SC observed that section 5(21) denes operational
by it. Lenders including RBL Bank issued a notice under section 13(2) of the debt as a claim in respect of the provision of goods or services and, the
SARFAESI Act after duly invoking the personal guarantee of the promoter. operative requirement is that the claim must bear some nexus with a
Later, RBL Bank initiated CIRP under section 7 against the CD which was provision of goods or services, without specifying who is to be the supplier
admitted by AA. Two resolution plans were received by the RP of which, or receiver. Referring to its decision in Pioneer Urban Land and Infrastructure
one was authored by the personal guarantor promoter prior to the Ltd. Vs. Union of India, it observed that a debt which arises out of advance
introduction of section 29A of the Code. payment made to a CD for supply of goods or services would be
AA, vide its order dated December 18, 2017 held that the personal considered as an operational debt. It set aside the order of NCLAT and
guarantor was eligible to submit a resolution plan, notwithstanding the fact held that the appellant is an operational creditor (OC) under the Code.
that he did extend his personal guarantees on behalf of the CD which were Amit Katyal Vs. Meera Ahuja and Ors. [Civil Appeal No. 3778 of
duly invoked by some of the creditors. It ruled that in as much as the 2020]
personal guarantee having not been invoked and the personal guarantor
merely having extended his personal guarantee, as such there is no Three home buyers led application under section 7 of the Code against
disqualication per se under section 29A(h) of the Code as the liability the builder before the threshold on number of home buyers was brought
under a guarantee arises only upon its invocation. Thus, only those into force by amendment to the Code. AA admitted the application on
guarantors who had antecedents which might adversely impact the November 28, 2019. NCLAT upheld the admission order passed by AA. In
credibility of the process are alone to be excluded. As debt payable by appeal led by the promoter, the admission order was stayed by SC. While
personal guarantor was not crystalized, he could not be construed as a the matter was pending before SC, the applicant home buyers led another
defaulter for breach of the guarantee. While the appeal was pending before application before the SC praying for withdrawal of CIRP owing to the
NCLAT against this order of AA, section 29A(h) went through an settlement reached between majority of the home buyers.
amendment which came into effect from January18, 2018 whereby it was SC observed that if the original applicants and the majority of the home
declared that a person shall not be eligible to submit a resolution plan if he buyers are not permitted to close the CIRP, it would have a drastic
has executed an enforceable guarantee in favour of a creditor, in respect of consequence on the home buyers as there would be a moratorium under
a CD against which an application for insolvency resolution made by such section 14 which would bar institution of fresh proceedings against the
creditor has been admitted under the Code. builder, including proceedings by home buyers for compensation due to
delayed possession or refund. If the CIRP is successfully completed, the
The resolution plan of promoter was approved by CoC with 78.50%
voting and the pending appeal before the NCLAT was withdrawn on home buyers will be subjected to the pay outs provided in the resolution
February 27, 2018. The AA approved the resolution plan by its order dated plan, since resolution plans provide for high percentage of haircuts in the

6