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INSOLVENCY AND BANKRUPTCY NEWS

ŸThe CoC cannot countenance incorporating any term in the resolution settlement proposal which is akin to a resolution plan. It further observed
plan which is contrary to the law or which otherwise makes the resolution that if the CIRP is initiated, it cannot be set aside or withdrawn except for
plan illegal. any illegality, to be exhibited or if it is without jurisdiction or for some other
justiciable ground; and just because a promoter desires to pay all dues
ŸThe law does not permit CoC to exercise judicial function. There is a vast including the default amount, it cannot be a ground to set aside the CIRP.
difference between the exercise of commercial wisdom during CIRP and While concurring with the order of AA, NCLAT observed that projected
the exercise of adjudicatory powers by the AA under the Code.
settlement proposal plan of the promotor is not a settlement simpliciter as
Dheeraj Wadhawan Vs. The Administrator, Dewan Housing envisaged under section 12A of the Code rather it is a business
Finance Corporation Limited [Company Appeal (AT) (Insolvency) restructuring plan. It upheld the liquidation order of the AA.
No. 785 of 2020 & 647 of 2021]
*Note: SC vide its order dated March 11, 2022 has stayed the operation of
Erstwhile directors/guarantor of DHFL led an appeal against AA’s order this order.
that disentitled them to attend the CoC meetings as member of the Mrs. Nidhi Rekhan Vs. M/s. Samyak Projects Private Limited
erstwhile Board of Directors. On the difference between the ‘supersession [Company Appeal (AT) (Ins) No. 1035 of 2020]
of directors’ under the RBI Act and the ‘suspension of directors’ under the
Code, NCLAT observed that in ‘supersession’, the Board of Directors The AA rejected section 7 application holding that appellant who in
vacates their ofce and there is nality attached to it. The superseded pursuance of an agreement invested certain sums in return of ats and an
directors who have been removed or deemed to have demitted ofce, are assured return of 24% per annum with absolute discretion to cancel or
not holding the position of director on the CIRP commencement date and rescind the allotment of ats booked through the agreement, is not a FC
cannot be considered a director simpliciter to benet from participating in under the Code. On appeal, NCLAT observed that the said agreement did
the meeting of CoC. It further observed that “after vacation or removal from not have the necessary elements of a builder-buyer agreement, but it is an
the ofce of the Director, the said person cannot claim their entitlement to agreement which is more in the nature of detailing and protecting an
participate in the CoC of the Corporate Debtor. A removed Director from the investment made by the appellant. It further observed that the status of FC
Board of Directors cannot interfere in the Company's affairs per contra a cannot be provided to a person who, in the garb of an allottee comes in the
suspended Director always remains on the Board.” project as a speculative investor and for no reason cancels the allotment.
Upholding the order of AA, it held that the appellant, who is a speculative
State Bank of India, Stressed Asset Management Branch Vs. investor, cannot claim status and benets as FC under explanation (i) of
Mahendra Kumar Jajodia, Personal Guarantor to Corporate section 5(8)(f) of the Code.
Debtor [Company Appeal (AT) Insolvency No. 60 of 2022]*
Union Bank of India Vs. Mr. Kapil Wadhawan & Ors., [Company
The AA rejected an application led against personal guarantor of the CD Appeal (AT) (Insolvency) 370, 376-377 & 393 of 2021]
under section 95(1) of the Code on the ground that no CIRP or liquidation
process is pending against the CD so as to maintain the said application The issue before the NCLAT was as to whether after approval of the
within the provisions of section 60(2) before the AA. In appeal, NCLAT resolution plan by the CoC and pending AA’s approval, the AA can direct
observed that, “the use of words ‘a’ and ‘such’ before National Company Law the CoC to convene a meeting and place the settlement proposal for
Tribunal clearly indicates that Section 60(2) was applicable only when a CIRP or consideration. NCLAT while relying on the ratio of the SC’s judgment in
Liquidation Proceeding of a Corporate Debtor is pending before NCLT. The Ebix Singapore Private Limited Vs. Committee of Creditors of Educomp
object is that when a CIRP or Liquidation Proceeding of a Corporate Debtor is Solutions Ltd., observed that there was no scope for negotiations between
pending before ‘a’ NCLT the application relating to Insolvency Process of a the parties once the CoC has approved the resolution plan. The
Corporate Guarantor or Personal Guarantor should be led before the same contractual principles and common law remedies, which do not nd a rope
NCLT. This was to avoid two different NCLT to take up CIRP of Corporate in the wording or the intent of the Code, cannot be imported in the
Guarantor... when CIRP or Liquidation Proceeding are not pending with regard intervening period between the acceptance of the CoC approved
to the Corporate Debtor there is no applicability of Section 60(2)”. resolution plan and the approval by the AA. It further observed that once
the requirements of the Code have been fullled, the AA and the NCLAT
*Note: SC, vide its order dated March 21, 2022, has stayed the operation are duty-bound to abide by the discipline of the statutory provisions and
of this order.
they do not have an unchartered jurisdiction in equity.
Union Bank of India Vs. Mr Dinkar T. Venkatasubramanian, Ravi Iron Ltd. Vs. Jia Lal Kishori Lal & Ors. [Comp. App. (AT)(Ins.)
Resolution Professional of Amtek Auto Limited & Ors. [Company No.122 of 2022]
Appeal (AT) (Insolvency) No. 729 of 2020]
The issue for consideration was whether the mediation order and post-
The AA rejected the application led by FC for modication of the dated cheque can extend the date of limitation for ling an application by an
approved resolution plan that provided for a deduction of ` 34 crores, i.e., OC under the Code. In this case, the appellant had led an application
the amount paid to the vendors of the CD against the 'Letter of Credit Bank under section 9 mentioning the date of default as January 10, 2008. AA
Guarantee' facility which continued during the CIRP period, under the dismissed the application on the grounds of limitation. In appeal the
instructions of the RP to keep the CD as a going concern, out of the appellant claimed that although the date of default was mentioned as
distribution amount payable to the FC under the resolution plan. NCLAT January 10, 2008 in the application under section 9 but there was District
observed that the phrase used in section 17(1)(d) of the Code that nancial Court Mediation on November 16, 2015 wherein the Respondent
institution “shall act on the instructions of the IRP” does not mean that it accepted their liability and the post-dated cheques issued were also
authorises IRP/RP to compel the nancial institution for maintaining the dishonored. Last cheque was dishonored on December 31, 2016. Hence,
accounts of the CD to continue the non-fund based facility comforted by the application led was within time. NCLAT, while dismissing the appeal,
bank guarantee, and non-compliance with such instructions of RP cannot observed that “the purpose of mediation order and post-dated cheques are
be considered a violation of section 17(1)(d) of the Code. It directed that different and the fact that the cheques were dishonoured may give right to the
the said amount be treated as CIRP costs and should not be deducted out appellant to take appropriate proceedings but that shall not give extension of
of the distribution amount payable to the FC under the resolution plan.
the limitation for the appellant under section 9 of the code to make it within
Mr. Vallal RCK Vs. M/s Siva Industries and Holdings Ltd (In time.”
Liquidation) & Anr. [Company Appeal (AT)(CH)(Insolvency) No. Amit Arora Vs. Tourism Finance Corporation of India & Anr.
211 & 212/2021]*
[Company Appeal (AT) (Insolvency) No.60 of 2021]
The NCLAT, in an appeal against AA’s order rejecting the settlement The issue, whether a right to convert the outstanding debts into equity is
proposal of promoter and ordering liquidation of the CD, noted that the available to the FC in terms of loan agreements came up for consideration
promoter of the CD being ineligible to submit a resolution plan by virtue of in this case. NCLAT upheld the order of AA and observed that the lenders
section 29A of the Code had embarked upon the aspect of furnishing a
shall have the right to convert the outstanding amount into fully paid equity

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