#Shubham Moratorium Apply

[shubhamhomeloan]

क्या आप ऋण ईएमआई पर अधिस्थगन का विकल्प चुनकर लाभान्वित होंगे? यहाँ आप सभी नियमों के बारे में जानते हैं

तरलता के मुद्दों को संबोधित करने के लिए जो व्यक्तियों और व्यवसाय के मालिकों को कोरोनावायरस महामारी के प्रसार और आगामी लॉकडाउन के कारण हो सकता है। हालाँकि, RBI ने हाल ही में वित्तीय संस्थाओं को निर्देश दिया है कि वे सभी मासिक उधारकर्ताओं / उधारदाताओं को उनकी मासिक किस्तों या EMIS पर तीन महीने की मोहलत दें।

ईएमआई 1 मार्च, 2020 से 31 मार्च, 2020 के बीच लागू होगी। देय ईएमआई व्यक्तिगत ऋण और गृह ऋण जैसे ऋण पर लागू होगी। हालाँकि, आपको जो याद रखना चाहिए, वह एक पुनर्भुगतान अवकाश नहीं है। इसके बजाय, जब आपको ब्लैकलिस्ट नहीं किया जाता है और आपका क्रेडिट स्कोर हिट नहीं होता है, तो आप अधिस्थगन अवधि के दौरान ब्याज लेना जारी रखते हैं।

क्या आपको ईएमआई अधिस्थगन का विकल्प चुनना चाहिए? अधिक जानने के लिए पढ़े।

ईएमआई अधिस्थगन आपको मार्च, अप्रैल, और मई 2020 में अपने ऋण ईएमआई को वापस लेने की अनुमति देता है। आप जून से पुनर्भुगतान जारी रख सकते हैं। अधिस्थगन अवधि के दौरान, बकाया मूलधन पर ब्याज अर्जित होता है, और इससे उधार की लागत बढ़ जाती है।

आप उच्च ब्याज का भुगतान करते हैं

आपके द्वारा दिए गए प्रत्येक ईएमआई के कारण मूलधन में वृद्धि होती है। फिर, यह मानते हुए कि ब्याज की दर समान है, शेष टेनर को ईएमआई संतुलन रखने के लिए बढ़ाया जाता है क्योंकि वे अधिस्थगन से पहले थे। आपके पास तीन महीने के लिए संचित ब्याज का भुगतान करने का विकल्प भी हो सकता है।

हालांकि, बैंक 31 मई 2020 तक किसी भी ईएमआई भुगतान के लिए नहीं कहेगा। हालांकि, इन तीन महीनों के दौरान ब्याज जारी रहेगा, जिसका अर्थ है कि आप उच्च ब्याज लागत का भुगतान करेंगे। साथ ही, आपका ऋण अवधि लंबी अवधि में अतिरिक्त तीन महीने तक बढ़ जाएगा।

शुभम हाउसिंग फाइनेंस ईएमआई मोराटोरियम

भारतीय रिज़र्व बैंक (RBI) द्वारा बैंकों और NBFC को ऋण और EMI की शर्तों पर अधिस्थगन की अनुमति देने की घोषणा के आधार पर, शुभम हाउसिंग फाइनेंस ने अपने ग्राहकों को समान प्रदान करने का निर्णय लिया है। ग्राहक मार्च, अप्रैल और मई 2020 में होने वाली अवैतनिक ईएमआई के लिए अधिस्थगन का अनुरोध कर सकते हैं। आपका लोन टेनर बढ़ जाएगा क्योंकि ब्याज देय और मूलधन की अवधि के लिए बकाया मूलधन में जोड़ दिया जाएगा।

यह भी याद रखें कि प्रत्येक ��ैंक के पास इससे निपटने के लिए अपनी नीति होगी और आपको इस स्थगन का लाभ उठाने के लिए बैंक से संपर्क करने की आवश्यकता हो सकती है, खासकर यदि आप इसका लाभ उठाना चाहते हैं।

यह एक आवारा नहीं है बल्कि एक डेफर है

जैसा कि ऊपर उल्लेख किया गया है, आरबीआई आपके तीन महीने की ईएमआई माफ नहीं कर रहा है। हालाँकि, इसने आपको इसे हटाने का विकल्प प्रदान किया। इसलिए, आप सभी के लिए ऐसा कोई लाभ नहीं है। आप बस अपनी ईएमआई में देरी कर रहे हैं।

आपका लोन टेन्योर 3 महीने तक बढ़ जाएगा

यदि आपने तीन महीने की ईएमआई अधिस्थगन का विकल्प चुना है, तो आपके ऋण की अवधि तीन महीने बढ़ जाएगी। मान लीजिए, अगर हम कहते हैं कि आपका ऋण कार्यकाल 120 महीने है, तो यह बढ़कर 123 महीने हो जाएगा।

यह उन लोगों के लिए उचित है जिनके पास एक स्थिर आय है और ऐसा करने के लिए अपने मासिक ईएमआई को जारी रखने के लिए आरामदायक हैं। इस तरह, आप उच्च ब्याज भुगतान और लंबे समय तक ऋण अवधि से बचेंगे।

हाथ में इस जानकारी के साथ, आप ईएमआई अधिस्थगन के लिए चयन के बारे में सही निर्णय ले सकते हैं। यदि आपके पास अधिस्थगन के बारे में कोई और प्रश्न हैं, तो कृपया शुभम मोराटोरियम में पहुँचें

[legalseat]

Resolution of Disputes in the Insolvency Code: Need for Appellate Review

[Shubham Jain and Vishvesh Vikram are BA.LLB (Hons.) students at National Law University Delhi]

The limits of the discretion which can be exercised by a resolution professional with regard to adjudication of claims of creditors under the Insolvency Code remain to be tested. The National Company Law Appellate Tribunal (‘NCLAT’) in Saraogi Udyog v Vedanta Ltd (20 August 2018) refused to interfere with the Resolution Professional’s discretion to determine the quantum of debt owed to a creditor.

The Insolvency and Bankruptcy Code, 2016 (‘Code’) allows for a dispute between an operational creditor and a corporate debtor to be resolved before an insolvency application is admitted, if the operational creditor in question is the creditor that files the insolvency application under section 9. However, if other creditors have pending disputes with the corporate debtor, they are barred from recovering through any suit or arbitration on account of the moratorium placed under section 14, and the amount that can be claimed by them is determined by the resolution professional.

Once the Corporate Insolvency Resolution Process (‘CIRP’) commences, the only way a creditor can recover is by filing a claim with the resolution professional. Determination of amount of claim is governed by regulation 14 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘CIRP Regulations’) which reads as:

“14. Determination of amount of claim.

(1) Where the amount claimed by a creditor is not precise due to any contingency or other reason, the interim resolution professional or the resolution professional, as the case may be, shall make the best estimateof the amount of the claim based on the information available with him.

(2) The interim resolution professional or the resolution professional, as the case may be, shall revise the amounts of claims admitted, including the estimates of claims made under subregulation (1), as soon as may be practicable, when he comes across additional information warranting such revision.” (emphasis added)

An additional administrative duty is entrusted with the resolution professional under section 20(1) of the Code to manage the affairs of the corporate debtor and protect and preserve the value of its business. Thus, those claims which might have been subjected to a suit otherwise due to the existence of a dispute, now become subject to the resolution professional’s “best estimate”. If, due to any contingency in the amount of claim of any creditor, the resolution professional does not admit the claimed amount, the creditor has no recourse but to submit additional information to her and hope for a revision of claim. If the resolution professional disagrees with the creditor over the quantum of debt owed by the corporate debtor, then the determination of the resolution professional shall prevail. The judicial remedies in such a case, as we discuss later, are ambiguous and limited.

Interestingly, the Committee of Creditors, which can exercise oversight over the conduct of the resolution professional (by way of replacement), has an interest in not letting more claims being admitted. The voting rights in the Committee of Creditors (which is normally composed solely of financial creditors) are in proportion to financial debt owed to the creditor. An increase by revision in financial debt of other creditors will lead to dilution of voting rights of the dominant financial creditors. Even in cases where the claims of operational creditors are substantial in relation to those of the financial creditors, the Committee of Creditors will have an interest in not letting the aggregate operational debt increase.

Further, in the absence of any financial creditors, it is possible to have a Committee of Creditors composed of the 18 largest operational creditors.[1] In such a scenario, similar to the first one, the existing creditors on the Committee will have an interest in not letting many claims be revised. In the last case, since only the 18 largest operational creditors get represented in the Committee of Creditors, an increase in one’s claim may lead to replacement of one operational creditor on the Committee with another. The remedies available to an aggrieved creditor in these situations are not clearly defined.

Once a Resolution Plan is approved by the Committee of Creditors, it must receive the approval of the Adjudicating Authority under section 31 of the Code. The Adjudicating Authority (which is the National Company Law Tribunal (‘NCLT’) in matters of insolvency) can reject a Resolution Plan if it does not fulfill the criteria under section 30(2) of the Code. Further, an appeal against the decision of the Adjudicating Authority lies under section 61(3) on various grounds set forth therein.

The challenge against a resolution professional’s mis-adjudication is more likely to be dismissed on the grounds of “material irregularity”, as the Supreme Court has interpreted the term very narrowly in Keshaedeo Chamria v. Radha Kissen Chamria. However, it is possible to read into these provisions a right of creditors to get their disputes resolved by an independent judicial authority under clause (b) of section 30(2) or clause (iii) of section 61(3). But the stage at which such an appeal is concerned only deals with setting aside the Resolution Plan, which the courts might deem to be a drastic measure merely to revise the claims of a few creditors.

For this very reason, the NCLAT did not decide the issue when it was raised in Saraogi. Once the Resolution Plan has been passed by the Committee of Creditors and approved by the Adjudicating Authority, the possibility of it being set aside merely because a few creditors disagreed with the adjudication made by the Resolution Professional. The judgment by NCLAT explicitly states in consequentialist terms “[t]he ‘Resolution Plan’ having already been approved at different levels and already acted upon, we are not inclined to decide individual claim in these appeals.”

Approach of Foreign Jurisdictions

The UNCITRAL Legislative Guide on Insolvency, which recommends practices and the institutional framework that should be adopted by countries to best handle insolvency resolution,  states that the insolvency representative should be required to give the reasons for her decision in writing when the claim of a creditor is denied or only a part of it is admitted. Further the Guide also states that remedies should be made available to creditors in case of disagreement with the insolvency representative by way of allowing them to request review by court of the acts of the insolvency representative which are not subject to approval of the creditors. Recommendation 180 of the Guide goes on to further state that the insolvency law should permit even an interested party to dispute a submitted claim and also the claim to be reviewed by court on request. Even the World Bank Report on Principles for Effective Insolvency and Creditor/ Debtor Regimes clearly states that “there should be procedures for appellate review that support timely, efficient, and impartial resolution of disputed matters. As a general rule, appeals do not stay insolvency proceedings, although the court may have power to do so in specific cases.”

The United Kingdom and Singapore have recently enacted new insolvency laws which came into force in April and May 2017 respectively. The administration proceedings in British insolvency law, governed primarily by the Insolvency Act 1986, are analogous to Indian CIRP. The administrator (appointed to preside over the process of restructuring), similar to the resolution professional in India, has the authority under Rule 15.33 of the Insolvency Rules 2016 (U.K.) (‘Rules’) to decide the quantum of debt owed by the insolvent debtor, and to verify any claim submitted by a creditor in that respect. The voting share of a creditor is also decided on the basis of value of debt owed to the creditor.

Unlike the Indian CIRP, if the administrator has rejected the proof given by a creditor of her own debt, the creditor can apply to the court contesting the same. The administrator can allow votes to be cast by marking it as objected when she is in doubt about the claim. These objected votes can be declared invalid later if the claim is later rejected. The decision of administrator regarding the claim of creditors for the purposes of voting can be appealed in a court and if the court reverses the decision of the administrator or varies it or if the votes are declared invalid, the court can order another decision procedure to be initiated or make any other order which it thinks “just”.[2]

Similarly in Singapore, during the process of judicial management (analogous to Indian  CIRP), a creditor can contest the decision of the insolvency representative (judicial manager in case of Singapore) and approach the court, while the insolvency proceedings carry on normally with a separate set of ‘objected’ votes counted for substantive matters. In addition to this, following the UNCITRAL Guide, the judicial manager under Regulation 80 of Companies Regulation (Singapore) is required to submit reasons in writing for rejecting the proof, and the Court, on hearing the appeal against the order, can admit, vary or reject the creditor’s claim.

Moreover, unlike in India, in UK and Singapore the committee of creditors or even the entire body of creditors do not have the power to remove the insolvency representative (i.e the administrator or the judicial manager as the case may be) from office unilaterally. The only recourse available to them if they think that the insolvency representative has been acting unfairly is to go to the court with their grievance and then it is up to the court as to what action needs to be taken, if at all any, against the administrator. Thus, the potential situation where the committee of creditors having an interest in not letting more claims be admitted exercise their oversight over the conduct of resolution professional by way of replacement, as discussed above in case of India, cannot arise in UK or Singapore.

Possible Reconstruction of the Code

Merely because the NCLAT declined to interfere with the Resolution Plan after it received approval from the Adjudicating and Appellate Authorities cannot mean that creditors in general cannot have any remedy against an unfavourable adjudication by the Resolution Professional. One possible way of reading the Code in a manner so as to allow aggrieved creditors to appeal against the determination of quantum of debt by the resolution professional is by restrictively reading the scope of moratorium under section 14. A right of appeal against the adjudication by the resolution professional can be read into section 14(1)(a) by the court to harmonize the process and bring Indian CIRP in line with internationally recognized principles. The application of moratorium has been restricted in the past as well.

While the moratorium may remain effective for institution and continuation of all suits and proceedings against the corporate debtor, it may exclude a suit contesting the adjudication made by the resolution professional. In the meanwhile, the resolution professional can simply mark the balance of what is claimed and what was admitted as “objected”, in a manner similar to the UK procedure.

The court may also allow parties with leave to pursue alternate remedies in cases of a dispute by restrictively reading the scope of moratorium by narrowly interpreting the word “including” in section 14(1)(a) to mean only suits for execution of judgments or decrees, and suits for recovery, but not suits for determination of quantum of debt. Such a reading may also allow international parties to continue with international arbitration, thereby resolving many concerns regarding cross-border insolvency. If the dispute is not resolved within the period of the CIRP, the relevant creditors may be excluded from the purview of the Resolution Plan, and the debts may be carried forward to the new management created from the Resolution Plan, probably by leave of the court. If the matter goes to liquidation, then the disputing creditor may submit their claim directly at time of liquidation, which the courts have allowed and has been discussed elsewhere.

In the view of the authors, the second remedy may have to be disregarded in the interest of efficiency, as an insolvent party will have to bear the additional burden of pursuing multiple legal proceedings. However, creditors’ rights cannot be wholly disregarded for the purposes of efficiency, and an appellate mechanism to review the adjudication made by a resolution professional is strongly needed.

– Shubham Jain & Vishvesh Vikram

[1] IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Reg. 16(2)(a).

[2] Refer to Rule 14.8, Rule 15.33(3) and Rule 15.35(3) of the UK Insolvency Rules 2016.

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[shubhamhomeloan]

The EMIs would be applicable between March 1st, 2020 to March 31st, 2020. The EMIs due would be applied to a loan like personal loans and home loans. 

[shubhamhomeloan]

Each Home Loan eligibility calculator you do without makes the extraordinary chief increment. At that point, expecting the pace of intrigue continues as before, the staying tenor is expanded to keep the parity EMIs equivalent to they were before the ban.

[shubhamhomeloan]

Will You Benefit By Opting For Moratorium On Housing Loan EMI Calculator?

To address liquidity issues that individuals and business owners may face due to the spread of the Coronavirus pandemic and the ensuing lockdown. However, the RBI has recently instructed financial entities to grant a three-month moratorium to all borrowers/ lenders on their monthly installments or EMIS.

The EMIs would be applicable between March 1st, 2020 to March 31st, 2020. The EMIs due would be applied to a loan like personal loans and home loans. However, what you ought to remember is the grace period isn’t a repayment holiday. Instead, while you do not get blacklisted and your credit score does not take a hit, you continue to incur interest during the moratorium period.

Should you opt for an EMI moratorium? Read on to know more.

The EMI moratorium allows you to forgo your loan EMIs in March, April, and May 2020. You can continue repayment from June onwards. During the moratorium period, interest accrues on the outstanding principal, and this increases the cost of borrowing.

You Pay Higher Interest

Each EMI you forgo causes the outstanding principal to increase. Then, assuming the rate of interest remains the same, the remaining tenor is increased to keep the balance EMIs the same as they were before the moratorium. You may also have the option to pay off the accumulated interest for three months.

However, the bank will not ask for any EMI payment until May 31st 2020. However, interest will continue to accrue during these three months, which means you will be paying a higher interest cost. Also, your loan tenure will get extended by an additional three months in the long run.

Shubham Housing Finance EMI Moratorium

Based on the announcement made by the Reserve Bank of India (RBI) to allow banks and NBFCs to offer a moratorium on terms of loans and EMIs, Shubham Housing Finance has decided to provide the same to its customers. Customers can request a moratorium for unpaid EMIs that are due in March, April, and May 2020. Your loan tenor will increase as interest will be added to the interest payable and principal outstanding for the period of moratorium.

Also, remember that each bank will have its policy for dealing with this and you may need to approach the bank to avail of this moratorium for yourself specifically if you choose to take advantage of it.

It is not a WAIVER but a DEFER

As mentioned above, RBI is not waiving your three months EMI. However, it provided you with an option to defer it. Hence, no such benefit for all of you. You are just delaying your EMI.

Your Loan Tenure Will Increase By 3 months

If you opted for the three months EMI moratorium, your loan tenure would increase by three months. Suppose, if we say your loan tenure is 120 months, then it will increase to 123 months.

It is advisable for people who have a stable income and are comfortable servicing their monthly EMIs to continue doing so. In this way, you will avoid higher interest payments and longer loan tenures.

With this information at hand, you can make the right decision about opting for the EMI moratorium. If you have any more queries about the moratorium, kindly reach us at Shubham Moratorium

Source by https://bit.ly/2XKvQWz

[shubhamhomeloan]

As per the RBI guidelines, Shubham Housing Development Finance will be offering a 3 month moratorium on EMI’s of terms loans for the period of 1st March 2020 to 31st May 2020. Please read the FAQ's section for any queries/concerns.

[legalseat]

Resolution Professionals in the Insolvency Code: Need for Appellate Review

[Shubham Jain and Vishvesh Vikram are BA.LLB (Hons.) students at National Law University Delhi]

The limits of the discretion which can be exercised by a resolution professional with regard to adjudication of claims of creditors under the Insolvency Code remain to be tested. The National Company Law Appellate Tribunal (‘NCLAT’) in Saraogi Udyog v Vedanta Ltd (20 August 2018) refused to interfere with the Resolution Professional’s discretion to determine the quantum of debt owed to a creditor.

The Insolvency and Bankruptcy Code, 2016 (‘Code’) allows for a dispute between an operational creditor and a corporate debtor to be resolved before an insolvency application is admitted, if the operational creditor in question is the creditor that files the insolvency application under section 9. However, if other creditors have pending disputes with the corporate debtor, they are barred from recovering through any suit or arbitration on account of the moratorium placed under section 14, and the amount that can be claimed by them is determined by the resolution professional.

Once the Corporate Insolvency Resolution Process (‘CIRP’) commences, the only way a creditor can recover is by filing a claim with the resolution professional. Determination of amount of claim is governed by regulation 14 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘CIRP Regulations’) which reads as:

“14. Determination of amount of claim.

(1) Where the amount claimed by a creditor is not precise due to any contingency or other reason, the interim resolution professional or the resolution professional, as the case may be, shall make the best estimateof the amount of the claim based on the information available with him.

(2) The interim resolution professional or the resolution professional, as the case may be, shall revise the amounts of claims admitted, including the estimates of claims made under subregulation (1), as soon as may be practicable, when he comes across additional information warranting such revision.” (emphasis added)

An additional administrative duty is entrusted with the resolution professional under section 20(1) of the Code to manage the affairs of the corporate debtor and protect and preserve the value of its business. Thus, those claims which might have been subjected to a suit otherwise due to the existence of a dispute, now become subject to the resolution professional’s “best estimate”. If, due to any contingency in the amount of claim of any creditor, the resolution professional does not admit the claimed amount, the creditor has no recourse but to submit additional information to her and hope for a revision of claim. If the resolution professional disagrees with the creditor over the quantum of debt owed by the corporate debtor, then the determination of the resolution professional shall prevail. The judicial remedies in such a case, as we discuss later, are ambiguous and limited.

Interestingly, the Committee of Creditors, which can exercise oversight over the conduct of the resolution professional (by way of replacement), has an interest in not letting more claims being admitted. The voting rights in the Committee of Creditors (which is normally composed solely of financial creditors) are in proportion to financial debt owed to the creditor. An increase by revision in financial debt of other creditors will lead to dilution of voting rights of the dominant financial creditors. Even in cases where the claims of operational creditors are substantial in relation to those of the financial creditors, the Committee of Creditors will have an interest in not letting the aggregate operational debt increase.

Further, in the absence of any financial creditors, it is possible to have a Committee of Creditors composed of the 18 largest operational creditors.[1] In such a scenario, similar to the first one, the existing creditors on the Committee will have an interest in not letting many claims be revised. In the last case, since only the 18 largest operational creditors get represented in the Committee of Creditors, an increase in one’s claim may lead to replacement of one operational creditor on the Committee with another. The remedies available to an aggrieved creditor in these situations are not clearly defined.

Once a Resolution Plan is approved by the Committee of Creditors, it must receive the approval of the Adjudicating Authority under section 31 of the Code. The Adjudicating Authority (which is the National Company Law Tribunal (‘NCLT’) in matters of insolvency) can reject a Resolution Plan if it does not fulfill the criteria under section 30(2) of the Code. Further, an appeal against the decision of the Adjudicating Authority lies under section 61(3) on various grounds set forth therein.

The challenge against a resolution professional’s mis-adjudication is more likely to be dismissed on the grounds of “material irregularity”, as the Supreme Court has interpreted the term very narrowly in Keshaedeo Chamria v. Radha Kissen Chamria. However, it is possible to read into these provisions a right of creditors to get their disputes resolved by an independent judicial authority under clause (b) of section 30(2) or clause (iii) of section 61(3). But the stage at which such an appeal is concerned only deals with setting aside the Resolution Plan, which the courts might deem to be a drastic measure merely to revise the claims of a few creditors.

For this very reason, the NCLAT did not decide the issue when it was raised in Saraogi. Once the Resolution Plan has been passed by the Committee of Creditors and approved by the Adjudicating Authority, the possibility of it being set aside merely because a few creditors disagreed with the adjudication made by the Resolution Professional. The judgment by NCLAT explicitly states in consequentialist terms “[t]he ‘Resolution Plan’ having already been approved at different levels and already acted upon, we are not inclined to decide individual claim in these appeals.”

Approach of Foreign Jurisdictions

The UNCITRAL Legislative Guide on Insolvency, which recommends practices and the institutional framework that should be adopted by countries to best handle insolvency resolution,  states that the insolvency representative should be required to give the reasons for her decision in writing when the claim of a creditor is denied or only a part of it is admitted. Further the Guide also states that remedies should be made available to creditors in case of disagreement with the insolvency representative by way of allowing them to request review by court of the acts of the insolvency representative which are not subject to approval of the creditors. Recommendation 180 of the Guide goes on to further state that the insolvency law should permit even an interested party to dispute a submitted claim and also the claim to be reviewed by court on request. Even the World Bank Report on Principles for Effective Insolvency and Creditor/ Debtor Regimes clearly states that “there should be procedures for appellate review that support timely, efficient, and impartial resolution of disputed matters. As a general rule, appeals do not stay insolvency proceedings, although the court may have power to do so in specific cases.”

The United Kingdom and Singapore have recently enacted new insolvency laws which came into force in April and May 2017 respectively. The administration proceedings in British insolvency law, governed primarily by the Insolvency Act 1986, are analogous to Indian CIRP. The administrator (appointed to preside over the process of restructuring), similar to the resolution professional in India, has the authority under Rule 15.33 of the Insolvency Rules 2016 (U.K.) (‘Rules’) to decide the quantum of debt owed by the insolvent debtor, and to verify any claim submitted by a creditor in that respect. The voting share of a creditor is also decided on the basis of value of debt owed to the creditor.

Unlike the Indian CIRP, if the administrator has rejected the proof given by a creditor of her own debt, the creditor can apply to the court contesting the same. The administrator can allow votes to be cast by marking it as objected when she is in doubt about the claim. These objected votes can be declared invalid later if the claim is later rejected. The decision of administrator regarding the claim of creditors for the purposes of voting can be appealed in a court and if the court reverses the decision of the administrator or varies it or if the votes are declared invalid, the court can order another decision procedure to be initiated or make any other order which it thinks “just”.[2]

Similarly in Singapore, during the process of judicial management (analogous to Indian  CIRP), a creditor can contest the decision of the insolvency representative (judicial manager in case of Singapore) and approach the court, while the insolvency proceedings carry on normally with a separate set of ‘objected’ votes counted for substantive matters. In addition to this, following the UNCITRAL Guide, the judicial manager under Regulation 80 of Companies Regulation (Singapore) is required to submit reasons in writing for rejecting the proof, and the Court, on hearing the appeal against the order, can admit, vary or reject the creditor’s claim.

Moreover, unlike in India, in UK and Singapore the committee of creditors or even the entire body of creditors do not have the power to remove the insolvency representative (i.e the administrator or the judicial manager as the case may be) from office unilaterally. The only recourse available to them if they think that the insolvency representative has been acting unfairly is to go to the court with their grievance and then it is up to the court as to what action needs to be taken, if at all any, against the administrator. Thus, the potential situation where the committee of creditors having an interest in not letting more claims be admitted exercise their oversight over the conduct of resolution professional by way of replacement, as discussed above in case of India, cannot arise in UK or Singapore.

Possible Reconstruction of the Code

Merely because the NCLAT declined to interfere with the Resolution Plan after it received approval from the Adjudicating and Appellate Authorities cannot mean that creditors in general cannot have any remedy against an unfavourable adjudication by the Resolution Professional. One possible way of reading the Code in a manner so as to allow aggrieved creditors to appeal against the determination of quantum of debt by the resolution professional is by restrictively reading the scope of moratorium under section 14. A right of appeal against the adjudication by the resolution professional can be read into section 14(1)(a) by the court to harmonize the process and bring Indian CIRP in line with internationally recognized principles. The application of moratorium has been restricted in the past as well.

While the moratorium may remain effective for institution and continuation of all suits and proceedings against the corporate debtor, it may exclude a suit contesting the adjudication made by the resolution professional. In the meanwhile, the resolution professional can simply mark the balance of what is claimed and what was admitted as “objected”, in a manner similar to the UK procedure.

The court may also allow parties with leave to pursue alternate remedies in cases of a dispute by restrictively reading the scope of moratorium by narrowly interpreting the word “including” in section 14(1)(a) to mean only suits for execution of judgments or decrees, and suits for recovery, but not suits for determination of quantum of debt. Such a reading may also allow international parties to continue with international arbitration, thereby resolving many concerns regarding cross-border insolvency. If the dispute is not resolved within the period of the CIRP, the relevant creditors may be excluded from the purview of the Resolution Plan, and the debts may be carried forward to the new management created from the Resolution Plan, probably by leave of the court. If the matter goes to liquidation, then the disputing creditor may submit their claim directly at time of liquidation, which the courts have allowed and has been discussed elsewhere.

In the view of the authors, the second remedy may have to be disregarded in the interest of efficiency, as an insolvent party will have to bear the additional burden of pursuing multiple legal proceedings. However, creditors’ rights cannot be wholly disregarded for the purposes of efficiency, and an appellate mechanism to review the adjudication made by a resolution professional is strongly needed.

– Shubham Jain & Vishvesh Vikram

[1] IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Reg. 16(2)(a).

[2] Refer to Rule 14.8, Rule 15.33(3) and Rule 15.35(3) of the UK Insolvency Rules 2016.

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[legalseat]

Resolution Professionals in the Insolvency Code: Need for Appellate Review

[Shubham Jain and Vishvesh Vikram are BA.LLB (Hons.) students at National Law University Delhi]

The limits of the discretion which can be exercised by a resolution professional with regard to adjudication of claims of creditors under the Insolvency Code remain to be tested. The National Company Law Appellate Tribunal (‘NCLAT’) in Saraogi Udyog v Vedanta Ltd (20 August 2018) refused to interfere with the Resolution Professional’s discretion to determine the quantum of debt owed to a creditor.

The Insolvency and Bankruptcy Code, 2016 (‘Code’) allows for a dispute between an operational creditor and a corporate debtor to be resolved before an insolvency application is admitted, if the operational creditor in question is the creditor that files the insolvency application under section 9. However, if other creditors have pending disputes with the corporate debtor, they are barred from recovering through any suit or arbitration on account of the moratorium placed under section 14, and the amount that can be claimed by them is determined by the resolution professional.

Once the Corporate Insolvency Resolution Process (‘CIRP’) commences, the only way a creditor can recover is by filing a claim with the resolution professional. Determination of amount of claim is governed by regulation 14 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘CIRP Regulations’) which reads as:

“14. Determination of amount of claim.

(1) Where the amount claimed by a creditor is not precise due to any contingency or other reason, the interim resolution professional or the resolution professional, as the case may be, shall make the best estimateof the amount of the claim based on the information available with him.

(2) The interim resolution professional or the resolution professional, as the case may be, shall revise the amounts of claims admitted, including the estimates of claims made under subregulation (1), as soon as may be practicable, when he comes across additional information warranting such revision.” (emphasis added)

An additional administrative duty is entrusted with the resolution professional under section 20(1) of the Code to manage the affairs of the corporate debtor and protect and preserve the value of its business. Thus, those claims which might have been subjected to a suit otherwise due to the existence of a dispute, now become subject to the resolution professional’s “best estimate”. If, due to any contingency in the amount of claim of any creditor, the resolution professional does not admit the claimed amount, the creditor has no recourse but to submit additional information to her and hope for a revision of claim. If the resolution professional disagrees with the creditor over the quantum of debt owed by the corporate debtor, then the determination of the resolution professional shall prevail. The judicial remedies in such a case, as we discuss later, are ambiguous and limited.

Interestingly, the Committee of Creditors, which can exercise oversight over the conduct of the resolution professional (by way of replacement), has an interest in not letting more claims being admitted. The voting rights in the Committee of Creditors (which is normally composed solely of financial creditors) are in proportion to financial debt owed to the creditor. An increase by revision in financial debt of other creditors will lead to dilution of voting rights of the dominant financial creditors. Even in cases where the claims of operational creditors are substantial in relation to those of the financial creditors, the Committee of Creditors will have an interest in not letting the aggregate operational debt increase.

Further, in the absence of any financial creditors, it is possible to have a Committee of Creditors composed of the 18 largest operational creditors.[1] In such a scenario, similar to the first one, the existing creditors on the Committee will have an interest in not letting many claims be revised. In the last case, since only the 18 largest operational creditors get represented in the Committee of Creditors, an increase in one’s claim may lead to replacement of one operational creditor on the Committee with another. The remedies available to an aggrieved creditor in these situations are not clearly defined.

Once a Resolution Plan is approved by the Committee of Creditors, it must receive the approval of the Adjudicating Authority under section 31 of the Code. The Adjudicating Authority (which is the National Company Law Tribunal (‘NCLT’) in matters of insolvency) can reject a Resolution Plan if it does not fulfill the criteria under section 30(2) of the Code. Further, an appeal against the decision of the Adjudicating Authority lies under section 61(3) on various grounds set forth therein.

The challenge against a resolution professional’s mis-adjudication is more likely to be dismissed on the grounds of “material irregularity”, as the Supreme Court has interpreted the term very narrowly in Keshaedeo Chamria v. Radha Kissen Chamria. However, it is possible to read into these provisions a right of creditors to get their disputes resolved by an independent judicial authority under clause (b) of section 30(2) or clause (iii) of section 61(3). But the stage at which such an appeal is concerned only deals with setting aside the Resolution Plan, which the courts might deem to be a drastic measure merely to revise the claims of a few creditors.

For this very reason, the NCLAT did not decide the issue when it was raised in Saraogi. Once the Resolution Plan has been passed by the Committee of Creditors and approved by the Adjudicating Authority, the possibility of it being set aside merely because a few creditors disagreed with the adjudication made by the Resolution Professional. The judgment by NCLAT explicitly states in consequentialist terms “[t]he ‘Resolution Plan’ having already been approved at different levels and already acted upon, we are not inclined to decide individual claim in these appeals.”

Approach of Foreign Jurisdictions

The UNCITRAL Legislative Guide on Insolvency, which recommends practices and the institutional framework that should be adopted by countries to best handle insolvency resolution,  states that the insolvency representative should be required to give the reasons for her decision in writing when the claim of a creditor is denied or only a part of it is admitted. Further the Guide also states that remedies should be made available to creditors in case of disagreement with the insolvency representative by way of allowing them to request review by court of the acts of the insolvency representative which are not subject to approval of the creditors. Recommendation 180 of the Guide goes on to further state that the insolvency law should permit even an interested party to dispute a submitted claim and also the claim to be reviewed by court on request. Even the World Bank Report on Principles for Effective Insolvency and Creditor/ Debtor Regimes clearly states that “there should be procedures for appellate review that support timely, efficient, and impartial resolution of disputed matters. As a general rule, appeals do not stay insolvency proceedings, although the court may have power to do so in specific cases.”

The United Kingdom and Singapore have recently enacted new insolvency laws which came into force in April and May 2017 respectively. The administration proceedings in British insolvency law, governed primarily by the Insolvency Act 1986, are analogous to Indian CIRP. The administrator (appointed to preside over the process of restructuring), similar to the resolution professional in India, has the authority under Rule 15.33 of the Insolvency Rules 2016 (U.K.) (‘Rules’) to decide the quantum of debt owed by the insolvent debtor, and to verify any claim submitted by a creditor in that respect. The voting share of a creditor is also decided on the basis of value of debt owed to the creditor.

Unlike the Indian CIRP, if the administrator has rejected the proof given by a creditor of her own debt, the creditor can apply to the court contesting the same. The administrator can allow votes to be cast by marking it as objected when she is in doubt about the claim. These objected votes can be declared invalid later if the claim is later rejected. The decision of administrator regarding the claim of creditors for the purposes of voting can be appealed in a court and if the court reverses the decision of the administrator or varies it or if the votes are declared invalid, the court can order another decision procedure to be initiated or make any other order which it thinks “just”.[2]

Similarly in Singapore, during the process of judicial management (analogous to Indian  CIRP), a creditor can contest the decision of the insolvency representative (judicial manager in case of Singapore) and approach the court, while the insolvency proceedings carry on normally with a separate set of ‘objected’ votes counted for substantive matters. In addition to this, following the UNCITRAL Guide, the judicial manager under Regulation 80 of Companies Regulation (Singapore) is required to submit reasons in writing for rejecting the proof, and the Court, on hearing the appeal against the order, can admit, vary or reject the creditor’s claim.

Moreover, unlike in India, in UK and Singapore the committee of creditors or even the entire body of creditors do not have the power to remove the insolvency representative (i.e the administrator or the judicial manager as the case may be) from office unilaterally. The only recourse available to them if they think that the insolvency representative has been acting unfairly is to go to the court with their grievance and then it is up to the court as to what action needs to be taken, if at all any, against the administrator. Thus, the potential situation where the committee of creditors having an interest in not letting more claims be admitted exercise their oversight over the conduct of resolution professional by way of replacement, as discussed above in case of India, cannot arise in UK or Singapore.

Possible Reconstruction of the Code

Merely because the NCLAT declined to interfere with the Resolution Plan after it received approval from the Adjudicating and Appellate Authorities cannot mean that creditors in general cannot have any remedy against an unfavourable adjudication by the Resolution Professional. One possible way of reading the Code in a manner so as to allow aggrieved creditors to appeal against the determination of quantum of debt by the resolution professional is by restrictively reading the scope of moratorium under section 14. A right of appeal against the adjudication by the resolution professional can be read into section 14(1)(a) by the court to harmonize the process and bring Indian CIRP in line with internationally recognized principles. The application of moratorium has been restricted in the past as well.

While the moratorium may remain effective for institution and continuation of all suits and proceedings against the corporate debtor, it may exclude a suit contesting the adjudication made by the resolution professional. In the meanwhile, the resolution professional can simply mark the balance of what is claimed and what was admitted as “objected”, in a manner similar to the UK procedure.

The court may also allow parties with leave to pursue alternate remedies in cases of a dispute by restrictively reading the scope of moratorium by narrowly interpreting the word “including” in section 14(1)(a) to mean only suits for execution of judgments or decrees, and suits for recovery, but not suits for determination of quantum of debt. Such a reading may also allow international parties to continue with international arbitration, thereby resolving many concerns regarding cross-border insolvency. If the dispute is not resolved within the period of the CIRP, the relevant creditors may be excluded from the purview of the Resolution Plan, and the debts may be carried forward to the new management created from the Resolution Plan, probably by leave of the court. If the matter goes to liquidation, then the disputing creditor may submit their claim directly at time of liquidation, which the courts have allowed and has been discussed elsewhere.

In the view of the authors, the second remedy may have to be disregarded in the interest of efficiency, as an insolvent party will have to bear the additional burden of pursuing multiple legal proceedings. However, creditors’ rights cannot be wholly disregarded for the purposes of efficiency, and an appellate mechanism to review the adjudication made by a resolution professional is strongly needed.

– Shubham Jain & Vishvesh Vikram

[1] IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Reg. 16(2)(a).

[2] Refer to Rule 14.8, Rule 15.33(3) and Rule 15.35(3) of the UK Insolvency Rules 2016.

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[legalseat]

Resolution Professionals in the Insolvency Code: Need for Appellate Review

[Shubham Jain and Vishvesh Vikram are BA.LLB (Hons.) students at National Law University Delhi]

The limits of the discretion which can be exercised by a resolution professional with regard to adjudication of claims of creditors under the Insolvency Code remain to be tested. The National Company Law Appellate Tribunal (‘NCLAT’) in Saraogi Udyog v Vedanta Ltd (20 August 2018) refused to interfere with the Resolution Professional’s discretion to determine the quantum of debt owed to a creditor.

The Insolvency and Bankruptcy Code, 2016 (‘Code’) allows for a dispute between an operational creditor and a corporate debtor to be resolved before an insolvency application is admitted, if the operational creditor in question is the creditor that files the insolvency application under section 9. However, if other creditors have pending disputes with the corporate debtor, they are barred from recovering through any suit or arbitration on account of the moratorium placed under section 14, and the amount that can be claimed by them is determined by the resolution professional.

Once the Corporate Insolvency Resolution Process (‘CIRP’) commences, the only way a creditor can recover is by filing a claim with the resolution professional. Determination of amount of claim is governed by regulation 14 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘CIRP Regulations’) which reads as:

“14. Determination of amount of claim.

(1) Where the amount claimed by a creditor is not precise due to any contingency or other reason, the interim resolution professional or the resolution professional, as the case may be, shall make the best estimateof the amount of the claim based on the information available with him.

(2) The interim resolution professional or the resolution professional, as the case may be, shall revise the amounts of claims admitted, including the estimates of claims made under subregulation (1), as soon as may be practicable, when he comes across additional information warranting such revision.” (emphasis added)

An additional administrative duty is entrusted with the resolution professional under section 20(1) of the Code to manage the affairs of the corporate debtor and protect and preserve the value of its business. Thus, those claims which might have been subjected to a suit otherwise due to the existence of a dispute, now become subject to the resolution professional’s “best estimate”. If, due to any contingency in the amount of claim of any creditor, the resolution professional does not admit the claimed amount, the creditor has no recourse but to submit additional information to her and hope for a revision of claim. If the resolution professional disagrees with the creditor over the quantum of debt owed by the corporate debtor, then the determination of the resolution professional shall prevail. The judicial remedies in such a case, as we discuss later, are ambiguous and limited.

Interestingly, the Committee of Creditors, which can exercise oversight over the conduct of the resolution professional (by way of replacement), has an interest in not letting more claims being admitted. The voting rights in the Committee of Creditors (which is normally composed solely of financial creditors) are in proportion to financial debt owed to the creditor. An increase by revision in financial debt of other creditors will lead to dilution of voting rights of the dominant financial creditors. Even in cases where the claims of operational creditors are substantial in relation to those of the financial creditors, the Committee of Creditors will have an interest in not letting the aggregate operational debt increase.

Further, in the absence of any financial creditors, it is possible to have a Committee of Creditors composed of the 18 largest operational creditors.[1] In such a scenario, similar to the first one, the existing creditors on the Committee will have an interest in not letting many claims be revised. In the last case, since only the 18 largest operational creditors get represented in the Committee of Creditors, an increase in one’s claim may lead to replacement of one operational creditor on the Committee with another. The remedies available to an aggrieved creditor in these situations are not clearly defined.

Once a Resolution Plan is approved by the Committee of Creditors, it must receive the approval of the Adjudicating Authority under section 31 of the Code. The Adjudicating Authority (which is the National Company Law Tribunal (‘NCLT’) in matters of insolvency) can reject a Resolution Plan if it does not fulfill the criteria under section 30(2) of the Code. Further, an appeal against the decision of the Adjudicating Authority lies under section 61(3) on various grounds set forth therein.

The challenge against a resolution professional’s mis-adjudication is more likely to be dismissed on the grounds of “material irregularity”, as the Supreme Court has interpreted the term very narrowly in Keshaedeo Chamria v. Radha Kissen Chamria. However, it is possible to read into these provisions a right of creditors to get their disputes resolved by an independent judicial authority under clause (b) of section 30(2) or clause (iii) of section 61(3). But the stage at which such an appeal is concerned only deals with setting aside the Resolution Plan, which the courts might deem to be a drastic measure merely to revise the claims of a few creditors.

For this very reason, the NCLAT did not decide the issue when it was raised in Saraogi. Once the Resolution Plan has been passed by the Committee of Creditors and approved by the Adjudicating Authority, the possibility of it being set aside merely because a few creditors disagreed with the adjudication made by the Resolution Professional. The judgment by NCLAT explicitly states in consequentialist terms “[t]he ‘Resolution Plan’ having already been approved at different levels and already acted upon, we are not inclined to decide individual claim in these appeals.”

Approach of Foreign Jurisdictions

The UNCITRAL Legislative Guide on Insolvency, which recommends practices and the institutional framework that should be adopted by countries to best handle insolvency resolution,  states that the insolvency representative should be required to give the reasons for her decision in writing when the claim of a creditor is denied or only a part of it is admitted. Further the Guide also states that remedies should be made available to creditors in case of disagreement with the insolvency representative by way of allowing them to request review by court of the acts of the insolvency representative which are not subject to approval of the creditors. Recommendation 180 of the Guide goes on to further state that the insolvency law should permit even an interested party to dispute a submitted claim and also the claim to be reviewed by court on request. Even the World Bank Report on Principles for Effective Insolvency and Creditor/ Debtor Regimes clearly states that “there should be procedures for appellate review that support timely, efficient, and impartial resolution of disputed matters. As a general rule, appeals do not stay insolvency proceedings, although the court may have power to do so in specific cases.”

The United Kingdom and Singapore have recently enacted new insolvency laws which came into force in April and May 2017 respectively. The administration proceedings in British insolvency law, governed primarily by the Insolvency Act 1986, are analogous to Indian CIRP. The administrator (appointed to preside over the process of restructuring), similar to the resolution professional in India, has the authority under Rule 15.33 of the Insolvency Rules 2016 (U.K.) (‘Rules’) to decide the quantum of debt owed by the insolvent debtor, and to verify any claim submitted by a creditor in that respect. The voting share of a creditor is also decided on the basis of value of debt owed to the creditor.

Unlike the Indian CIRP, if the administrator has rejected the proof given by a creditor of her own debt, the creditor can apply to the court contesting the same. The administrator can allow votes to be cast by marking it as objected when she is in doubt about the claim. These objected votes can be declared invalid later if the claim is later rejected. The decision of administrator regarding the claim of creditors for the purposes of voting can be appealed in a court and if the court reverses the decision of the administrator or varies it or if the votes are declared invalid, the court can order another decision procedure to be initiated or make any other order which it thinks “just”.[2]

Similarly in Singapore, during the process of judicial management (analogous to Indian  CIRP), a creditor can contest the decision of the insolvency representative (judicial manager in case of Singapore) and approach the court, while the insolvency proceedings carry on normally with a separate set of ‘objected’ votes counted for substantive matters. In addition to this, following the UNCITRAL Guide, the judicial manager under Regulation 80 of Companies Regulation (Singapore) is required to submit reasons in writing for rejecting the proof, and the Court, on hearing the appeal against the order, can admit, vary or reject the creditor’s claim.

Moreover, unlike in India, in UK and Singapore the committee of creditors or even the entire body of creditors do not have the power to remove the insolvency representative (i.e the administrator or the judicial manager as the case may be) from office unilaterally. The only recourse available to them if they think that the insolvency representative has been acting unfairly is to go to the court with their grievance and then it is up to the court as to what action needs to be taken, if at all any, against the administrator. Thus, the potential situation where the committee of creditors having an interest in not letting more claims be admitted exercise their oversight over the conduct of resolution professional by way of replacement, as discussed above in case of India, cannot arise in UK or Singapore.

Possible Reconstruction of the Code

Merely because the NCLAT declined to interfere with the Resolution Plan after it received approval from the Adjudicating and Appellate Authorities cannot mean that creditors in general cannot have any remedy against an unfavourable adjudication by the Resolution Professional. One possible way of reading the Code in a manner so as to allow aggrieved creditors to appeal against the determination of quantum of debt by the resolution professional is by restrictively reading the scope of moratorium under section 14. A right of appeal against the adjudication by the resolution professional can be read into section 14(1)(a) by the court to harmonize the process and bring Indian CIRP in line with internationally recognized principles. The application of moratorium has been restricted in the past as well.

While the moratorium may remain effective for institution and continuation of all suits and proceedings against the corporate debtor, it may exclude a suit contesting the adjudication made by the resolution professional. In the meanwhile, the resolution professional can simply mark the balance of what is claimed and what was admitted as “objected”, in a manner similar to the UK procedure.

The court may also allow parties with leave to pursue alternate remedies in cases of a dispute by restrictively reading the scope of moratorium by narrowly interpreting the word “including” in section 14(1)(a) to mean only suits for execution of judgments or decrees, and suits for recovery, but not suits for determination of quantum of debt. Such a reading may also allow international parties to continue with international arbitration, thereby resolving many concerns regarding cross-border insolvency. If the dispute is not resolved within the period of the CIRP, the relevant creditors may be excluded from the purview of the Resolution Plan, and the debts may be carried forward to the new management created from the Resolution Plan, probably by leave of the court. If the matter goes to liquidation, then the disputing creditor may submit their claim directly at time of liquidation, which the courts have allowed and has been discussed elsewhere.

In the view of the authors, the second remedy may have to be disregarded in the interest of efficiency, as an insolvent party will have to bear the additional burden of pursuing multiple legal proceedings. However, creditors’ rights cannot be wholly disregarded for the purposes of efficiency, and an appellate mechanism to review the adjudication made by a resolution professional is strongly needed.

– Shubham Jain & Vishvesh Vikram

[1] IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Reg. 16(2)(a).

[2] Refer to Rule 14.8, Rule 15.33(3) and Rule 15.35(3) of the UK Insolvency Rules 2016.

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[legalseat]

Winding-up and Liquidation: Demarcation by the Bombay High Court

[Shubham Sancheti is a 4th Year B.A., LL.B. (Hons.) student at NALSAR University of Law, Hyderabad]

The Insolvency and Bankruptcy Code, 2016 [“Code”] entailed various interpretation lacunae and, the Central Government is constantly seeking to bridge the emerging gaps. One of such lacuna pertained to the conflict between “Winding-up” under the Companies Act [“1956 Act” or “2013 Act”, as the case maybe] and “Corporate Insolvency Resolution Process” [“CIRP”] under the Code. This anomaly has been aptly discussed here. To state briefly, Section 433 of the 1956 Act empowered the Courts to wind up a company on the grounds mentioned therein. This section has been invoked, particularly on the ground of inability to pay debts, to pass a winding-up order. Subsequent to the enactment of the 2013 Act and the Code, the Parliament intended to transfer all the proceedings pertaining to companies to one forum – National Company Law Tribunal [“NCLT”].

Section 434(2) of the 2013 Act empowered the Central Government to come up with rules in order to effectuate the transfer of all the proceedings pertaining to, inter alia, winding up, to the NCLT in accordance with section 434(1)(c) of the 2013 Act. Subsequently, a proviso was added to Section 434(1)(c) when the Code was enacted:

“Provided that only such proceedings relating to the winding up of companies shall be transferred to the Tribunal that are at a stage as may be prescribed by the Central Government.”

The Central Government was supposed to fulfil two criteria – (a) facilitation of the timely transfer of the proceedings and, (b) determine a stage at which the said proceeding shall be transferred. Thus, the Companies (Transfer of Pending Proceedings) Rules, 2016 [“Transfer Rules”] were enacted. The Rules fulfilled both the criteria whereby all the petitions under section 433(e) of the 1956 Act were required to be transferred to the NCLT if (a) the matter is pending and, (b) the notice of the petition has not been served on the respondent. Succinctly, the legislature created a divide between the petitions which have been served on the respondent and, those which have not. The former were to be adjudicated upon in accordance with the 1956 Act while the latter were to be dealt with under the Code.

Addressing the lacuna

Factual Background

The position seemed to have been clarified to a great extent until recently when the Bombay High Court in Jotun India Private Limited v. PSL Limited [“Jotun”] took an interesting view of the nature of either of the proceedings. In this matter, Jotun India filed a winding-up petition against the PSL Limited under section 433(e) of the 1956 Act. Three months later, PSL made a reference to the Board of Industrial and Financial Reconstruction [“BIFR”] under the Sick Industrial Companies (Special Provisions) Act, 1985 [“SICA”]. Subsequent to the enactment of the Code, SICA was repealed and all the references under it could have been filed as an application under section 7, 9 or 10 of the Code within 180 days of such repeal. The winding-up petition against PSL was admitted by the High Court and subsequently, PSL filed an application under section 10 of the Code before the NCLT. The said application was admitted by the NCLT, but Jotun India filed an application in the High Court, seeking to appoint a Provisional Liquidator for PSL. The High Court enjoined the NCLT from proceeding with the application filed by PSL. Hence, PSL filed an appeal before the High Court.

To delineate the timeline–

Period High Court NCLT March 10, 2015 Winding-up petition by Jotun India – June 19, 2015 – A reference under SICA (Before BIFR then) March 09, 2017 Admission of the winding-up petition – May 29, 2017 – Application under section 10 by PSL July 18, 2017 – Admission of the Application by the Tribunal July 19, 2017 Application for appointment of Provisional Liquidator by Jotun India – July 19, 2017 Restraining order on NCLT to go further with the section 10 application – September 15, 2017 Application filed by PSL to vacate the order dated July 19, 2017 –

Court’s Holding

The High Court agreed with the Respondent’s submissions and stated that the NCLT’s proceedings could not be barred by the High Court on the ground that the winding-up proceeding is sub-judice. The Court stated that since there is no explicit interpretation otherwise, the High Court cannot be said to have such power. Furthermore, since the Code has been accepted as a successor to the SICA, the conflict between the Code and the 1956/2013 Act needs to be resolved in the same manner as between SICA and the Act. Thus, the High Court held that, inter alia, by virtue of sections 238 and 64(2) of the Code, the High Court cannot restrain proceedings pending before the NCLT because (a) The Code has an overriding effect and, (b) Since the Code requires the NCLT to expeditiously dispose off the applications, it bars the other Courts from passing any injunction order against the NCLT.

Conflict between SICA and the Companies Act

The Supreme Court has categorically held that in the event of a conflict between the SICA and the Act, the former shall prevail because the aim of the legislations is not to result in culmination of the company’s existence but to rejuvenate it. However, the Courts acknowledged the fact that such overriding effect of the SICA may lead to abuse of process of law as the entities may deliberately seek moratorium in order to cease the legitimate proceedings ongoing under other legislation.

The definition of “winding-up” under the 2013 Act was inserted by the Eleventh Schedule of the Code and, includes liquidation under the Code.[1] Liquidation under the Code is a phase which gets triggered when the NCLT (a) does not receive any resolution plan from the Resolution Professional, and (b) rejects the resolution plan due to non-compliance of certain grounds. The Code specifically states under section 33(5) that as soon as the liquidation order has been passed by the Court/Tribunal, no suit or other legal proceeding can be instituted by or against the corporate debtor. Furthermore, the bar under section 11(d) of the Code states that if a liquidation order has been passed against the corporate debtor, then the corporate debtor is barred from filing an application under section 10 of the Code.

A question, therefore, arises– what constitutes a liquidation order? Is it equivalent to a dissolution order passed under section 481 of the 1956 Act or does a mere appointment of the Official Liquidator suffice? For an order to be passed under section 433(e), the debt shall be determined and due; “inability to pay the debts” shall be read as commercial insolvency[2] and must not be resorted to for merely extracting dues out of the company.[3]

NCLAT’s Take on the Conflict

The National Company Law Appellate Tribunal [“NCLAT”] in M/s. Unigreen Global Private Ltd. v. Punjab National Bank [“Unigreen”] stated that if a winding-up proceeding has been initiated against the Debtor or the liquidation order has been passed, the bar under section 11 activates. However, the NCLAT drew a line between this and the instance where the winding up petition is pending and no winding-up/liquidation order has been passed.

The NCLAT adopted the reasoning of the Unigreen in Innoventive Industries v. Kumar Motors Pvt. Ltd. where the application was filed by the financial creditor of the Company under Section 7 of the Code. The NCLAT upheld the NCLT’s view that the proceedings where the petition is served on the Respondent shall be dealt with by the High Court itself because the Transfer Rules had flowed from Eleventh Schedule of the Code and thus, application of section 238 of the Code will render the purpose of Transfer Rules otiose. Therefore, the NCLAT created an exception of Winding-up proceeding for section 238 of the Code to apply.

The NCLAT further stated that under the Code, if a liquidation order has been passed against a Corporate Debtor, the Creditors are not entitled to file a CIRP application under Section 7 or 9 because the NCLT passes liquidation order only after ascertaining the viability of the Resolution Plan and the creditors may express their stake before the Resolution Professional is appointed. Similarly, since liquidation under the Code corresponds to the Winding-up under the 1956/2013 Act, then allowing the NCLT to admit the application under Section 7, 9 or 10 leaves a gap between Winding-up and liquidation under the newly added section 2(94)(A) of the 2013 Act.

High Court’s Omission

In Jotun, the High Court admitted the winding-up petition and stated–

“…since all assets of the respondent company are secured assets in favour of the secured creditors and are under their control, I do not propose to appoint official liquidator at this stage. The petitioner will be at liberty to apply for appointment of the official liquidator at the latter stage if it is found that the assets of the respondent company are jeopardized.”

The application under section 10 was filed after the aforementioned order was passed (Refer to the Table above). The order clearly intended that the entity was supposed to be wound up but since there was no immediate prejudice to the creditors, the Court delayed the appointment of the liquidator.

The term “winding-up order” has been widely discussed in numerous cases. One such interpretation to which the Bombay High Court had subscribed as well was where the Supreme Court held that passing of a winding-up order is not the termination of the proceedings before the High Court but, in fact, a beginning to the process of winding-up.[4] The ultimate order is a dissolution order passed under section 481 of the 1956 Act. Therefore, the winding-up proceeding was ongoing in Jotun when the section 10 application was filed by the respondent.

One of the arguments presented by Jotun India in Jotun was that under section 442 of the 1956 Act, the High Court does have the power to restrain any suit or proceeding against the Corporate Debtor in any Court. Moreover, Jotun India argued that in accordance with section 446 of the 1956 Act, no proceeding in any other court shall be commenced or continued with if a winding-up order has been passed. With due respect, the Bombay High Court in Jotun looked at the dispute only through the lens of the Code (and its overriding effect) rather than taking into account the petitioner’s arguments pertaining to the 1956 Act.

Conclusion

The Transfer Rules were enacted so as to facilitate the Code and reduce the burden of the High Courts. However, the Transfer Rules have been misused by the Corporate Debtor in order to delay the winding-up proceeding in the High Court as, when the NCLT admits the application, the moratorium period imposed by the NCLT ceases the proceeding going on in the High Court. The Legislature could not have intended for two proceedings to go on simultaneously against the same entity as the purpose of reducing the litigations with the Courts stands defeated. Thus, in pursuance of that intention, if there is any conflict between the NCLT and the High Court, the said purpose shall be taken into consideration.

– Shubham Sancheti

[1] Companies Act, 2013, section 2(94)(A).

[2] Commercial Solvency means whether the company can pay its liabilities and dues as and when they arise.

[3] Mediquip Systems (P) Ltd. v. Proxima Medical System GMBH, (2005) 7 SCC 42.

[4] Rishabh Agro Industries Ltd. v. PNB Capital Services Ltd., AIR 2000 SC 1583.

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