Satish Chand Gupta Vs Servel India Private Limited - Deposits accepted by company under CA shall be considered as Financial Debt under IBC.

NCLAT (29.01.2021) in Satish Chand Gupta Vs Servel India Private Limited [Company Appeal (AT) (Insolvency) No. 502 of 2020] held that;

• The answer to the question as to whether a decree holder would fall within the definition of ‘financial creditor’ has to be an emphatic ‘No’ as the amount claimed under the decree is an adjudicated amount and not at debt disbursed against the consideration for the time value of money and does not fall within the ambit of any of the clauses enumerated u/s 5(8) of the ‘I&B’ Code”.

• In this connection, it is not out of place for this Tribunal to make a pertinent mention that the maturity of claim, default of claim or invocation of guarantee has no nexus with the filing of claim before the ‘Interim Resolution Professional’ u/s 18(1)(b) and the ‘Resolution Professional’ u/s 25(2)(e) of the Code.

• that the ‘Corporate Debtor’ had accepted money from the Appellant against the payment of interest and bearing in mind the payment of interest on the amounts borrowed by the Respondent Company is nothing but a consideration for the time value of money and in as much as the ‘interest’ is the compensation paid by the borrower to the lender for using the lender’s money over a period of  time, this Tribunal comes to an inevitable and inescapable conclusion that the Appellant’s status is that of a ‘Financial Creditor’ as per Section 5(7) read with Section 5(8) of the Code

Excerpts of the order;

The Appellant has preferred the instant Appeal being dissatisfied with the order dated 13.02.2020 passed by the ‘National Company Law Tribunal’, New Delhi, Bench-V in (IB) 1886 (ND)/2019.

# 2. The ‘National Company Law Tribunal’ while passing the impugned order dated 13.02.2020 had interalia at paragraph 10 to 12 had observed the following:-

• “10. At this juncture, I would like to refer Companies (Acceptance of Deposits) Rule, 2014, which has come into force on 1st April, 2014, along with Section 73 and 74 of the Companies Act, 2013 and the same is quoted below:-

• 11. So far, the initiation of proceeding under Section 7 of the Code is concerned, in my view, is not liable to be accepted. At this juncture, I would also like to refer the arguments of the Petitioner that there is a default in pay ent of debt, therefore, Section 7 application is maintainable. At this juncture, I would like to refer the definition of default as defined in Section 3(12) of the Code:- 

- “Section 3(12) “default” means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable an is not 1(paid) by the debtor or the corporate debtor, as the case may be.”

• 12. Mere plain reading of the provisions shows that default means nonpayment of debt, whereas in the aforementioned para, I held that the amount which the Petitioner deposited does not come under the definition of the debt. Therefore, I am unable to accept the contention of the Petitioner that there is a default in payment of debt.”

and was of the considered view that though the petitioner had some other remedy under the law to recover the amount which he had deposited with the ‘Corporate Debtor’ but in regard to the initiation of Section 7 of the ‘I&B’ Code held that the present application was not maintainable and rejected the prayer of the Appellant / Petitioner to initiate the proceedings u/s 7 of the Code and dismiss the application. However, the ‘Adjudicating Authority’ had granted liberty to the Appellant/Petitioner to file an appropriate application under Chapter V of the Companies Act, 2013.

Appellant’s Submissions

# 17. The Learned Counsel for the Appellant comes out with a plea that payment of interest on the amounts borrowed by the Respondent / Company is nothing but the consideration for the time value of money, as it increases the value of investment/debt with time. Moreover, interest is the compensation paid by the borrower to the lender for using the lenders money over a period of time and in this regard, the Appellant refers to the decision of this Tribunal in the matter of ‘Nikhil Mehta and Sons’ v. AMR Infrastructure Limited reported in 2017 SCC online, NCLAT 859(vide para 17) and the decision of the Hon’ble Supreme Court in the matter of ‘Pioneer Urban Land and Infrastructure Ltd.& Anr.’ V. ‘Union of India & Ors.’ reported in 2019 (8 SCC 416 (vide para 71).

# 19. The Learned Counsel for the Appellant proceeds to takes a legal plea that the Depositors / fixed deposit holders are financial creditors and in this regard relies on the judgement of the Hon’ble Supreme Court in the matter of ‘Pioneer Urban Land and Infrastructure Ltd.’ & Anr. V. ‘Union of India & Ors.’ reported in (2019) 8 SCC p.416 vide para (43).

# 21. The Learned Counsel for the Appellant cites the decision of this Tribunal in the matter of ‘Shailesh Sangani’ v. ‘Joel Gardoso & Anr.’ reported in 2019 SCC online NCLAT p. 52 (2) whereby and whereunder this Tribunal, had allowed an application under Section 7 of the Code by a shareholder who gave an unsecured loan with no fixed time period and repayable on demand from time to time by the ‘Corporate Debtor’.

# 24. The Learned Counsel for the Appellant relies on the judgement of this Tribunal in Co. Appl.(AT)(Ins.) No. 452 of 2020 in the matter of ‘Sh. Sushil Ansal’ V. ‘Ashok Tripathi and two Ors.’ dated 14.08.2020 wherein at paragraph 20 it is observed as under:-

• “…….The answer to the question as to whether a decree holder would fall within the definition of ‘financial creditor’ has to be an emphatic ‘No’ as the amount claimed under the decree is an adjudicated amount and not at debt disbursed against the consideration for the time value of money and does not fall within the ambit of any of the clauses enumerated u/s 5(8) of the ‘I&B’ Code”. 

Discussions

# 33. It must be borne in mind that a ‘Financial Creditor’ is a person to whom the financial debt is owed. A ‘Financial Creditor’ is a person who has a right to financial debt. A ‘Financial Creditor’ can be either a secured creditor or an unsecured creditor.

# 34. A ‘Corporate Debtor’ is a person who owes a debt to any person. The term ‘debt’ means a liability or an obligation in respect of a claim due from any person and includes (i) a Financial Debt (ii) An Operational Debt. As a matter of fact, Section 3(6) of the Code speaks of ‘Definition of Claim’ meaning (a) a right to payment, whether or not such right is reduced to judgement, fixed, disputed, undisputed, legal, equitable, secured or unsecured.

# 35. Any person who has the right to claim payment, as defined u/s 3(6) of the Code is supposed to file the claim whether matured or unmatured. The question is as to whether there is a default or not. Section 3(11) of the Code defines debt meaning a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt.

# 36. In this connection, it is not out of place for this Tribunal to make a pertinent mention that the maturity of claim, default of claim or invocation of guarantee has no nexus with the filing of claim before the ‘Interim Resolution Professional’ u/s 18(1)(b) and the ‘Resolution Professional’ u/s 25(2)(e) of the Code.

# 37. It cannot be gainsaid that the term ‘deposit’ includes any receipt of money by a company either as deposit or loan or in any other form by it. Under the Companies (acceptance of deposits) Rules, 2014 the term ‘Deposit’ is defined under Rule 2(1)(c) in an inclusive manner. The meaning of ‘Deposit’ is enlarged by covering receipts of money in any other form. After all, a deposit is something more than a mere loan of money.

# 39. The Learned Counsel for the Appellant refers to the judgement of this tribunal dated 18.12.2020 in Co. Appl. (AT)(Ins.) 519 of 2020 in the matter of Mr. Rajnish Jain, the promoter, stakeholder and Managing Director of suspended Board of Directors V. ‘Anupam Tiwari’ (Resolution Professional for M/s Jain Mfg. (India) Pvt. Ltd. & Anr. wherein it is held that the 3rd Respondent therein ‘BVN Traders’ is a ‘Financial Creditor’ within the meaning of Section 5(7) f the Code and the debt in question is a ‘financial debt’ within the meaning of  Section 5(8) of the Code.

# 42. On a careful consideration of respective contentions and in view of the fact that the Respondent / Corporate Debtor had accepted certain amounts from the Appellant and credited the interest in a consistent manner against such amounts for a continuous period of five years, as pleaded by the Appellant and also that the ‘Corporate Debtor’ had accepted money from the Appellant against the payment of interest and bearing in mind the payment of interest on the amounts borrowed by the Respondent Company is nothing but a consideration for the time value of money and in as much as the ‘interest’ is the compensation paid by the borrower to the lender for using the lender’s money over a period of  time, this Tribunal comes to an inevitable and inescapable conclusion that the Appellant’s status is that of a ‘Financial Creditor’ as per Section 5(7) read with Section 5(8) of the Code and that there is a default in payment of the accepted amounts by the Respondent/CD and in short, the Respondent / Corporate Debtor comes within the purview of the definition of ‘Financial Debt’. Viewed in that perspective, the contra view taken by the Adjudicating Authority in coming to the conclusion that the application filed by the Appellant / Financial Creditor is not maintainable for initiation of Section 7 of the Code is clearly unsustainable in the eye of law, as held by this Tribunal, to prevent an aberration of justice. Consequently, the Appeal succeeds.

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M/s Embassy Property Developments Pvt. Ltd. Vs State of Karnataka & Ors - Fraudulent Transactions during CIRP

SCI (03.12.2019) in M/s Embassy Property Developments Pvt. Ltd. Vs State of Karnataka & Ors. [Civil Appeal No. 9170 of 2019] held that;

• We do not think that the moratorium provided for in Section 14 could have any impact upon the right of the Government to refuse the extension of lease. The purpose of moratorium is only to preserve the status quo and not to create a new right.

• Therefore, in fine, our answer to the first question would be that NCLT did not have jurisdiction to entertain an application against the Government of Karnataka for a direction to execute Supplemental Lease Deeds for the extension of the mining lease.

• Even fraudulent tradings carried on by the Corporate Debtor during the insolvency resolution, can be inquired into by the Adjudicating Authority under Section 66. Section 69 makes an officer of the corporate debtor and the corporate debtor liable for punishment, for carrying on transactions with a view to defraud creditors.

Excerpts of the order;

# 2. Two seminal questions of importance namely:

• i) Whether the High Court ought to interfere, underArticle 226/227 of the Constitution, with an Order passed by the National Company Law Tribunal in a proceeding under the Insolvency and Bankruptcy Code, 2016, ignoring the availability of a statutory remedy of appeal to the National Company Law Appellate Tribunal and if so, under what circumstances; and

• ii) Whether questions of fraud can be inquired into by the NCLT/NCLAT in the proceedings initiated under the Insolvency and Bankruptcy Code, 2016,

arise for our consideration in these appeals.

# 28. Therefore as rightly contended by the learned Attorney General, the decision of the Government of Karnataka to refuse the benefit of deemed extension of lease, is in the public law domain and hence the correctness of the said decision can be called into question only in a superior court which is vested with the power of judicial review over administrative action. The NCLT, being a creature of a special statute to discharge certain specific functions, cannot be elevated to the status of a superior court having the power of judicial review over administrative action. Judicial review, as observed by this court in SubCommittee on Judicial Accountability vs. Union of India, flows from the concept of a higher law, namely the Constitution. Paragraph 61 of the said decision captures this position as follows: 

• “But where, as in this country and unlike in England, there is a written Constitution which constitutes the fundamental and in that sense a “higher law” and acts as a limitation upon the legislature and other organs of the State as grantees under the Constitution, the usual incidents of parliamentary sovereignty do not obtainand the concept is one of ‘limited government’. Judicial review is, indeed, an incident of and flows from this concept of the fundamental and the higher law being the touchstone of the limits of the powers of the various organs of the State which derive power and authority under the Constitution and that the judicial wing is the interpreter of the Constitution and, therefore, of the limits of authority of the different organs of the State. It is to be noted that the British Parliament with the Crown is supreme and its powers are unlimited and courts have no power of judicial review of legislation.”

# 29. The NCLT is not even a Civil Court, which has jurisdiction by virtue of Section 9 of the Code of Civil Procedure to try all suits of a civil nature excepting suits, of which their cognizance is either expressly or impliedly barred. Therefore NCLT can exercise only such powers within the contours of jurisdiction as prescribed by the statute, the law in respect of which, it is called upon to administer. Hence, let us now see the jurisdiction and powers conferred upon NCLT.

# 44. A lot of stress was made on the effect of Section 14 of IBC, 2016 on the deemed extension of lease. But we do not think that the moratorium provided for in Section 14 could have any impact upon the right of the Government to refuse the extension of lease. The purpose of moratorium is only to preserve the status quo and not to create a new right. Therefore nothing turns on Section 14 of IBC, 2016. Even Section 14 (1) (d), of IBC, 2016, which prohibits, during the period of moratorium, the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor, will not go to the rescue of the corporate debtor, since what is prohibited therein, is only the right not to be dispossessed, but not the right to have renewal of the lease of such property. In fact the right not to be dispossessed, found in Section 14 (1) (d), will have nothing to do with the rights conferred by a mining lease especially on a government land. What is granted under the deed of mining lease in ML 2293 dated 04.01.2001, by the Government of Karnataka, to the Corporate Debtor, was the right to mine, excavate and recover iron ore and red oxide for a specified period of time. The Deed of Lease contains a Schedule divided into several parts. Part I of the Schedule describes the location and area of the lease. Part II indicates the liberties and privileges of the lessee. The restrictions and conditions subject  to which the grant can be enjoyed are found in Part III of the Schedule. The liberties, powers and privileges reserved to the Government, despite the grant, are indicated in Part IV. This Part IV entitles the Government to work on other minerals (other than iron ore and red oxide) on the same land, even during the subsistence of the lease. Therefore, what was granted to the Corporate Debtor was not an exclusive possession of the area in question, so as to enable the Resolution Professional to invoke Section 14 (1) (d). Section 14 (1) (d) may have no application to situations of this nature.

# 45. Therefore, in fine, our answer to the first question would be that NCLT did not have jurisdiction to entertain an application against the Government of Karnataka for a direction to execute Supplemental Lease Deeds for the extension of the mining lease. Since NCLT chose to exercise a jurisdiction not vested in it in law, the High Court of Karnataka was justified in entertaining the writ petition, on the basis that NCLT was coram non judice.

# 46. The second question that arises for our consideration is as to whether NCLT is competent to enquire into allegations of fraud, especially in the matter of the very initiation of CIRP.

# 48. In the light of the above averments, the Government of Karnataka thought fit to invoke the jurisdiction of the High Court under Article 226 without taking recourse to the statutory alternative remedy of appeal before the NCLAT. But the contention of the appellants herein is that allegations of fraud and collusion can also be inquired into by NCLT and NCLAT and that therefore the Government could not have bypassed the statutory remedy.

# 49. The objection of the appellants in this regard is well founded. Section 65 specifically deals with fraudulent or malicious initiation of proceedings. It reads as follows: 

• “65. Fraudulent or malicious initiation of proceedings. – 

• (1) If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency or liquidation, as the case may be, the adjudicating authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees.

• (2) If, any person initiates voluntary liquidation proceedings with the intent to defraud any person the adjudicating authority may impose upon such person a penalty which shall not be less than one lakh rupees but may extend to one crore rupees.”

# 50. Even fraudulent tradings carried on by the Corporate Debtor during the insolvency resolution, can be inquired into by the Adjudicating Authority under Section 66. Section 69 makes an officer of the corporate debtor and the corporate debtor liable for punishment, for carrying on transactions with a view to defraud creditors. Therefore, NCLT is vested with the power to inquire into (i) fraudulent initiation of proceedings as well as (ii) fraudulent transactions. It is significant to note that Section 65(1) deals with a situation where CIRP is initiated fraudulently “for any purpose other than for the resolution of insolvency or liquidation”.

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MCC Concrete Vs Northway Spaces Ltd. - Extension of Limitation under Section 19 of The Limitation Act, 1963.

NCLAT (22.01.2021) in MCC Concrete Vs Northway Spaces Ltd. [Company Appeal (AT) (Ins) No. 527 of 2020] held that;

• The ledger account is a running account which shows that on 05/11/2015, the respondent has made payment of Rs. 12 lacs to appellant and from this date of acknowledgement within three years, that is on 15/01/2018 the application is filed. Thus, the application is within period of limitation. We agree with the finding of the Adjudicating Authority that the application is filed within the period of limitation.

Excerpts of the order;

This Appeal has been preferred by the Appellant M/s MCC Concrete (Operational Creditor) against the order dated 12/02/2020 passed by the Adjudicating Authority (National Company Law Tribunal), Ahmadabad Bench, Ahmadabad. Whereby the Application preferred by the Appellant under Section 9 of the Insolvency and Bankruptcy Code (In Short I&B Code) has been rejected.

# 2. Brief facts of this case are that the Operational Creditor (Appellant herein) has supplied ready MCC Concrete at various sites of the Corporate Debtor (Respondent herein) upon placing purchase order by the Corporate Debtor. Pursuant thereto the Operational Creditor had issued invoices upon the Corporate Debtor along with delivery challans. The delivery challans are signed and stamped by the Corporate Debtor. The Corporate Debtor was earlier known as Mayfair Spaces Ltd. Hence, all the invoices and delivery challans were issued in the name of Mayfair Spaces Ltd. As per ledger account the Operational Creditor has supplied goods to the Corporate Debtor for the total sum of Rs. 02,29,94,288/-. Whereas, the Corporate Debtor has made part payment of Rs. 02,09,30,948/-. Even after several email communications, the Corporate Debtor has not made any payment for balance amount of Rs. 20,63,340/-. Therefore on 11/02/2017 the Operational Creditor has sent a demand notice to the Corporate Debtor. Despite receipt of the notice, the Corporate Debtor has neither replied to the notice nor made any payment. Therefore, the Operational Creditor has filed an Application under Section 9 of the I&B Code before the Adjudicating Authority for initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.

# 4. After hearing the parties, Ld. Adjudicating Authority held that Operational Creditor is maintaining a running account of the Corporate Debtor and as per the ledger account, the last payment of Rs. 12 lacs were made by the Corporate Debtor on 05/11/2015 and the Application is filed on 15/01/2018. Thus, the application is within limitation. Ld. Adjudicating Authority held that on 15/07/2013 and 18/10/2013 no order was placed by the Corporate Debtor, therefore, the invoices dated 15/07/2013 and 18/10/2013 bearing nos. 661 and 360 have been issued erroneously. Therefore, the Corporate Debtor vide its letter dated 16/10/2013 and 21/10/2013 sent back the invoices stating that the Corporate Debtor has no connection with Mayfair Corporate Park to whom the goods were delivered. On this basis it is held that there is pre-existing dispute regarding the goods supplied and invoices raised thereof. Hence, rejected the application.

# 9. The Hon’ble Supreme Court in Mobilox Innvations Pvt. Ltd. Vs. Kirussa Software Pvt. Ltd. 2017 1 SCC Online SC 353 held as to what are facts to be examined by the Adjudicating Authority while examining an Application under Section 9 of I & B Code which is as follows: -

• “34. Therefore, the adjudicating authority, when examining an application under Section 9 of the Act will have to determine: 

- (i) Whether there is an “Operational Debt” as defined exceeding Rs. 1 Lakh? (See Section 4 of the Act) 

- (ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? And

- (iii) Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute? 

• If any one of the aforesaid conditions is lacking, the application would have to be rejected. Apart from the above, the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the Application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act.”

# 17. From the above referred ledger account maintained by the respondent we hold that as on 31/03/2017, operational debt Rs. 19,89,130/- was due and payable and has not yet been paid.

# 21. As we have noted that the appellant is relying on the ledger account maintained by the respondent. In this ledger account the amount of disputed invoices are not shown. Therefore, we hold that there is no dispute between the parties in regard to the aforesaid invoices. Thus, we do not agree with the finding of ld. Adjudicating Authority that there is a pre-existing dispute

between the parties.

# 22. Now, we have considered the objection of ld. counsel for the respondent that the claim is barred by limitation. The ledger account is a running account which shows that on 05/11/2015, the respondent has made payment of Rs. 12 lacs to appellant and from this date of acknowledgement within three years, that is on 15/01/2018 the application is filed. Thus, the application is within period of limitation. We agree with the finding of the Adjudicating Authority that the application is filed within the period of limitation.

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The Limitation Act, 1963.

• # Section19. Effect of payment on account of debt or of interest on legacy.- Where payment on account of a debt or of interest on a legacy is made before the expiration of the prescribed period by the person liable to pay the debt or legacy or by his agent duly authorised in this behalf, a fresh period of limitation shall be computed from the time when the payment was made: 

Provided that, save in the case of payment of interest made before the 1st day of January, 1928, an acknowledgment of the payment appears in the handwriting of, or in a writing signed by, the person making the payment. 

Explanation.- For the purposes of this section,- 

(a) where mortgaged land is in the possession of the mortgagee, the receipt of the rent or produce of such land shall be deemed to be a payment; 

(b) “debt” does not include money payable under a decree or order of a court.

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Rajkumar Brothers And Production Private Limited Vs Harish Amilineni Shareholder and erstwhile Director of Amilionn Technologies Private Limited & Anr. - Insolvency Application rejected by NCLAT, CIRP cost to be borne by applicant

Supreme Court of India (22.01.2021) in Rajkumar Brothers And Production Private Limited Vs Harish Amilineni Shareholder and erstwhile Director of Amilionn Technologies Private Limited & Anr. [Civil Appeal No.4044 of 2020] upheld the orders of NCLAT and observed as under;

• The direction is in the nature of costs of the proceedings under Section 7 of the IBC, which have been found to be unsustainable in law. The Respondent having succeeded, cannot be saddled with the costs of the Corporate Insolvency Resolution Process (CIRP) initiated at the behest of the Appellant or with the fees of the Interim Resolution Professional (IRP). The direction does not warrant interference in appeal.

Excerpts of the order;

# 1. This appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 is against an order dated 10th August, 2020 passed by the National Company Law Appellate Tribunal (NCLAT), New Delhi allowing Company Appeal (AT) (Insolvency) No.212 of 2020 filed by the Respondent. 

# 2. The Appellant had filed a petition under Section 9 of the IBC before the National Company Law Tribunal (NCLT) Hyderabad, being CP(IB) No.737/9/HDB/2019. Notice on the said petition was issued by the NCLT on 21st November, 2019.

# 3. By an Order dated 9th January, 2020, the NCLT admitted the petition observing that the claim of the Appellant was undisputed. Aggrieved by the order dated 9th January, 2020, the Respondent filed above mentioned appeal before the NCLAT. By the order impugned in this appeal, the NCLAT has set aside the order of the NCLT, holding that there were pre-existing disputes between the Respondent and the Appellant. The aforesaid finding is based on various documents.

# 4. The NCLAT set aside the impugned order of the NCLT and dismissed the application of the appellant under Section 9 of the IBC. The Appellant has challenged the impugned order only to the extent of the direction in paragraph 8(C) thereof, which reads as follows:

• “The IRP/RP will place particulars regarding CIRP costs and fees before the Adjudicating Authority and the Adjudicating Authority after examining the correctness of the same will direct the Operational Creditor to pay the same in time to be specified by the Adjudicating Authority.”

# 5. The direction is in the nature of costs of the proceedings under Section 7 of the IBC, which have been found to be unsustainable in law. The Respondent having succeeded, cannot be saddled with the costs of the Corporate Insolvency Resolution Process (CIRP) initiated at the behest of the Appellant or with the fees of the Interim Resolution Professional (IRP). The direction does not warrant interference in appeal.

# 6. We find no grounds to interfere with the order dated 10th August, 2020 passed by the National Company Law Appellate Tribunal in Company Appeal (AT) (Insolvency) No.212 of 2020.

# 7. The Civil Appeal is accordingly dismissed.

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Ranjit Das & Ors. Vs. MSX Mall Pvt. Ltd - Delay in filing of claim during CIRP & Collection of rent by CD

NCLAT (07.01.2019) in Ranjit Das & Ors. Vs. MSX Mall Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 07 of 2019] held that;

• Another application CA 709/2018 has been filed by the RP praying for directions to entertain claims received late i.e. beyond the period of 90 days. This Bench is of the view that receipt of the late claims beyond the period of 90 days would not entitle the claimant to be part of the COC. However, a legitimate claim of an investor or creditor cannot be turned out or rejected till it is a point of no return. In our considered view this situation shall arise only after disbursal of the liquidated estate of the Corporate Debtor as even at the state of liquidation claims are invited.” 

Excerpts of the order;

07.01.2019─ The Appellant- ‘Resolution Professional’ has challenged the order dated 26th November, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench, which reads as follows:

• “Order

• Reply has been filed by the RP to CA 615/2018. The grievance stems from the fact that commercial space was rented out to Haldiram. This area was subsequently allotted to various buyers on receipt of full payment. The Corporate Debtor would then distribute the proportional rent to the various allottees/owners in possession in respect of their individual units from the total area of 9857.70 sq. feet leased out to Haldiram. The RP has collected the names of all the allottees/ owners in possession whose units are under lease to Haldiram. Since legally this is an amount of rent to be paid to the owners, for their units under lease to Haldiram It is prayed that the rent due to the various owners be kept outside the purview of the moratorium.

• We find merit in the arguments advanced by the lad. Counsel. The rent due from a lessee to the actual owner should not be a subject matter of resolution as the Corporate Debtor is only collecting it on behalf of the allottees who have paid full payment. Such an act, if permitted, would neither be legal nor just and equitable to the allottees who have invested in commercial properties to supplement their monthly income. It is therefore directed that any rent received from Haldiram or any other lessee which the Corporate Debtor has allotted for a purchase consideration will be out of the purview of Section 14(2) of the Code. The RP shall ensure that this amount is not used in any CIR process, but is kept for the time being in an escrow account maintained with a bank. After ascertaining the rent due to each allottees, the same shall be disbursed by the RP to them after prior approval of this Bench. 

• CA 615/2018 stands disposed off in terms of the above.

• Another application CA 709/2018 has been filed by the RP praying for directions to entertain claims received late i.e. beyond the period of 90 days. This Bench is of the view that receipt of the late claims beyond the period of 90 days would not entitle the claimant to be part of the COC. However, a legitimate claim of an investor or creditor cannot be turned out or rejected till it is a point of no return. In our considered view this situation shall arise only after disbursal of the liquidated estate of the Corporate Debtor as even at the state of liquidation claims are invited.” 

# 2. On hearing learned counsel for the parties, we find that the amount generator does not belong to the ‘Corporate Debtor’ which was collecting it on behalf of the others and, therefore, if the Adjudicating Authority has asked to release it to the concerned person, we are not inclined to interfere with the same. 

# 3. So far as the pending arbitration proceeding is concerned, the arbitration proceedings, if so pending may continue but the award, if any,passed by the Arbitral Tribunal against the ‘Corporate Debtor’ be not given effect during the period of ‘Moratorium’.

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SCI (15.11.2019) in CoC of Essar Steel India Limited vs. Satish Kumar Gupta & Ors.(Civil Appeal No. 8766-67 OF 2019) On delay in filing of a claim Hon’ble SCI observed as under; 

• # 67. For the same reason, the impugned NCLAT judgment in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority / Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate, as has been pointed out by us hereinabove. For these reasons, the NCLAT judgment must also be set aside on this count.

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Supertech Township Project Ltd. Vs Inderpal Singh Khandpur HUF - CD to provide information about allottees for initiating class action.

 NCLAT (18.01.2021) in Supertech Township Project Ltd. Vs Inderpal Singh Khandpur HUF   [Company Appeal (AT) (Insolvency) No. 17 of 2021] held that;

• when the Corporate Debtor and the Regulator are under legal obligation to display the particulars in regard to allottees on their websites. No prejudice can be claimed by the Appellant on account of the direction in so far as the same relates to providing information in regard to allottee for limited purpose of enabling it to garner necessary support for initiating class action.

Excerpts of the order;

18.01.2021: The issue raised in this appeal preferred by the Corporate Debtor against impugned order dated 8th December, 2020 directing the Corporate to provide information about the 100 number of Allottees or 1/10th of total number of the Allottees of the project, whichever is less, excluding those with whom settlement has happened, is that such direction apart from being violative of the provisions of the ordinance and the direction of the Hon’ble Apex Court in Writ Petition (Civil) No. 26/2020 and allied matters directing maintenance of status quo with respect to pending applications is unsustainable also on the ground that requisite information has already been provided on the website of RERA.

# 2. After hearing Shri P. Nagesh, learned counsel representing the Appellant and Ms. Rashi Bansal, Advocate for the Respondent, we find that the impugned order does not adjudicate upon any right in regard to triggering of Corporate Insolvency Resolution Process. By merely directing the Corporate Debtor to provide information to the Respondent – Allottee to meet the threshold criteria to initiate the class action in the face of the ordinance laying such threshold limit, no legal right vested in the Appellant /Corporate Debtor can be said to have been infringed. In this age of transparency, knowledge and information revolution coupled with the fact that adequate information as required by the Respondent – Allottee is not displayed on the website of the Corporate Debtor, as emanating from the impugned order, we are of the considered opinion that the impugned order cannot be termed to be erroneous or unsustainable. In so far as the direction given by the Hon’ble Apex Court is concerned, it is in regard to initiation or continuance of Corporate Insolvency Resolution Process in the pending cases wherein status quo is directed to be observed. The order of Hon’ble Apex Court cannot be interpreted to hold that the requisite information for initiating class action by an allottee under Section 7 of the I&B Code to meet the threshold criteria laid down under the ordinance cannot be provided, more so when the Corporate Debtor and the Regulator are under legal obligation to display the particulars in regard to allottees on their websites. No prejudice can be claimed by the Appellant on account of the direction in so far as the same relates to providing information in regard to allottee for limited purpose of enabling it to garner necessary support for initiating class action.

# 3. In the given circumstance, while we find no merit in the appeal, we dispose off this appeal with direction that the Corporate Debtor will display the information in regard to the allottees with full particulars on its website within two weeks from today and that in the event Respondent – Allottee approaches the Appellant for providing necessary information, same shall be provided to the Allottee by the Appellant.

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State Bank of India Vs Ram Dev International Ltd - Empanelment of IP with one or other Financial Creditor cannot be a ground to reject the proposal for his appointment as IRP/RP.

NCLAT (16,07,2018) in State Bank of India Vs Ram Dev International Ltd.  [Company Appeal (AT) (Insolvency) No. 302 of 2018] held that;

• We have already held that except for pendency of a disciplinary proceeding or ineligibility in terms of provisions of the I&B Code, there is no bar for appointment of a person as Resolution Professional. A Resolution Professional if empaneled as an Advocate or Company Secretary or Chartered Accountant with one or other ‘Financial Creditor’ that cannot be a ground to reject the proposal, if otherwise there is no disciplinary proceeding is pending or it is shown that the person is an interested person being employee or in the payroll of the ‘Financial Creditor.

Excerpts of the order;

16.07.2018: The ‘State Bank of India’, a member of the Committee of Creditors has preferred this appeal against order dated 15th May, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi in Company Petition No. (IB)178(PB)/2017, whereby Mr. K. G. Somani, who was proposed to act as Resolution Professional by the majority voting share of the Committee of Creditors has been held to be ineligible on the ground that he was in the panel of erstwhile ‘State Bank of Hyderabad’, which is now merged with the ‘State Bank of India’, which is one of the members of the Committee of Creditors.

# 2. The question arises for consideration in this appeal is whether the Adjudicating Authority can reject the proposal of the Committee of Creditors for appointment of Resolution Professional, on the ground that the name of proposed Resolution Professional is appearing in the panel of one of the member of the Committee of Creditors?

# 3. Learned Senior Counsel for the Appellant referred to the provisions of the Code and submitted that Mr. K. G. Somani was not empaneled as Retainer of State Bank of Hyderabad. He was not in the payroll of the Bank and is not an employee. He is a panel lawyer, as generally maintained by the Banks, Public Sector Undertakings and Governments, who cannot be treated to be employee of the Bank.

# 4. Mr. Rakesh Kumar Jain, who was earlier functioning as Resolution Professional and was replaced by the majority decision of the Committee of Creditors has appeared. Learned counsel for Mr. Rakesh Jain submits that for removing the earlier Resolution Professional, the Committee of Creditors have not shown any reason; no adverse comments has been recorded by them.

# 6. For initiation of Corporate Insolvency Resolution Process by Financial Creditor under Section 7 or by the Corporate Applicant under Section 10, the Financial Creditor alongwith the application require to provide the name of proposed ‘Interim Resolution Professional’ in terms of Section 7(3)(b). Similarly, the Corporate Debtor alongwith the Application under Section 10 is also required to provide the name of proposed ‘Interim Resolution Professional’ in terms of Section 10(3)(b). For initiation of Corporate Insolvency Resolution Process by Operational Creditor under Section 9 no such compulsion has been made, though it is open to an ‘Operational Creditor’ to propose the name of the ‘Interim Resolution Professional’. The only bar for appointment of an Resolution Professional is that if any disciplinary proceeding is pending against such roposed Resolution Professional he cannot be appointed.

# 7. There is no other ineligibility prescribed for appointment of Interim  Resolution Professional or Resolution Professional, either under I&B Code or the Regulations framed by the IBBI. However, in a particular case, the Adjudicating Authority for one or other good reason can remove a Resolution Professional for his act of omission and commission. Similarly, for the ground(s) to be recorded in writing, the name of the proposed Resolution Professional can be rejected by the Adjudicating Authority.

# 10. From the aforesaid provision it is clear that during the Corporate Insolvency Resolution Process, at any time, if the Committee of Creditors ‘is of opinion’ that the Resolution Professional appointed under Section 22 is required to be replaced, it may replace him with another Resolution Professional in the manner provided under said section. In terms of Section 27(2), the Committee of Creditors at a meeting by vote of 75% of voting share (as per un-amended provision) can propose to replace the Resolution Professional appointed under Section 22 with another Resolution Professional.

# 14. Though such submission seems to be attractive, we are of the view, it is not desirable for a Committee of Creditors to record its opinion in view of the following reasons:

• (i) If the Committee of Creditors record any adverse opinion for replacement of Resolution Professional, it will not only harm him for the present but will also affect him in future during appointment as Resolution Professional in another proceeding. In such case, the Committee of Creditor will have to refer the matter to IBBI for initiation of departmental proceeding, which is also not desirable in all the cases.

• (ii) If the Committee of Creditors forms opinion on the basis of performance of the Resolution Professional and not because of allegation, it will also go against the Resolution Professional in interest of the Resolution Process.

# 15. We have already held that except for pendency of a disciplinary proceeding or ineligibility in terms of provisions of the I&B Code, there is no bar for appointment of a person as Resolution Professional. A Resolution Professional if empaneled as an Advocate or Company Secretary or Chartered Accountant with one or other ‘Financial Creditor’ that cannot be a ground to reject the proposal, if otherwise there is no disciplinary proceeding is pending or it is shown that the person is an interested person being employee or in the payroll of the ‘Financial Creditor.

# 16. In the present case, as we find that the Adjudicating Authority has failed to take into consideration the aforesaid fact and as there is no allegation against Mr. K. G. Somani and no disciplinary proceeding is pending against him and he is not in the payroll of one or other member of the Committee of Creditors, we are of the view that the Adjudicating Authority was required to approve his name.

# 18. So far as fee and cost incurred by Mr. Rakesh Kumar Jain is concerned, he may submit his claim before the Committee of Creditors, who should take into consideration such claim while preparing Information Memorandum and Resolution Plan in terms of Regulation 31 and 32 of ‘The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016’. The appeal is allowed with aforesaid observations and actions. No cost.

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