1. INSOLVENCY AND BANKRUPTCY CODE, 2016 - Reinforcing the insolvency regime
- by Madhumitha Srinivasan
June 18
June 2018

2. OBJECTS OF THE CODE Creditor in control regime
Consolidates existing insolvency laws and amends other legislations
Overriding effect on all other laws inconsistent with the provisions of the Code
Time bound resolutions for evaluation and viability determinations of companies referred for CIRP
Clearly defined order of priority (waterfall mechanism)
Investigation of antecedent transactions in case of illegal diversion of assets of company
Establishment of IBBI as an independent monitoring body for administration and governance of the insolvency and bankruptcy law
June 2018

3. WATERFALL MECHANISM UNDER IBC
Secured creditor and workmen dues (up to 24 months and secured creditors)
Other than workmen, employee dues of up to 12 months
Financial debts of unsecured creditors
Government dues (up to 2 years) and unpaid secured creditors
Preference shareholders, if any
Equity shareholders or partners, as the case may be
June 2018

4. SCHEME UNDER THE CODE June 2018
Source:
June 2018

5. STATISTICS
Source:
June 2018

6. June 2018

7. LANDMARK DECISIONS
Lokhandwala Kataria Construction Private Limited v. Nisus Finance and Investment Managers LLP (Supreme Court Judgment dated 24th July 2017)
Inherent powers under Article 142 of the Constitution invoked to permit parties to withdraw application post settlement
Innoventive Industries Ltd. vs. ICICI Bank (Supreme Court Judgment dated 31st August 2017)
Supremacy of the Code over other laws
Application by financial creditor will have to be admitted once the debt was proved to be “due”
On appointment of a resolution professional, an erstwhile director of the corporate debtor cannot file a petition on behalf of the company
Who may prefer an appeal on behalf of the corporate debtor against an order of admission of an insolvency application?
June 2018

8. Scope of “dispute” was inclusive and not exhaustive
Mobilox Innovation Pvt. Ltd. vs. Kirusa Software Pvt. Ltd. (Supreme Court Judgment dated 21st September 2017)
Insolvency Bill of 2015 included the term “bonafide” in the definition of dispute, the same was omitted in the Code
Scope of “dispute” was inclusive and not exhaustive
Once existence of a “real dispute” was established, the petition will have to be rejected by the NCLT
Surendra Trading Company vs. Juggilal Kamalpat Jute Mill Company Limited & Ors. (Supreme Court Judgment dated 19th September 2017)
Held that the time limit of 7 days for removing defects is directory [provisos to Sections 7(5) and 9 (5)]
June 2018

9. Demand notice can be issued by an advocate
Macquarie Bank Limited Vs. Shilpi Cable Technologies Limited (Supreme Court Judgment dated 15th December 2017)
Requirement to deliver a demand notice / invoice of unpaid operational debt mandatory
Requirement to file an affidavit or certificate from financial institution only directory
Procedural hurdles should not be imposed on creditors; domestic and foreign creditors ought not to be discriminated
Demand notice can be issued by an advocate
June 2018

10. Overview of the IBC amendment Ordinance, 2018…
IS LIMITATION ACT APPLICABLE?
Neelkanth Township and Construction Pvt. Ltd. vs. Urban Infrastructure Pvt. Ltd. (Supreme Court Order dated 23rd August 2017)
The question of limitation was left open
Black Pearl Hotels Pvt. Ltd. vs. Planet M Retail Ltd. (NCLAT Judgment dated 17th October 2017)
Right to apply under the Code would accrue only on 1st December, 2016 when the Code came into force
June 2018

11. Is Limitation Act applicable to Tribunals?
Ref: M.P. Steel Corporation vs. Commissioner of Central Excise (Supreme Court Judgment dated 23rd April 2015)
Bar of limitation applies to suits, appeals and applications before “Courts” and not quasi-judicial bodies (those that are part of judicial branch of the State)
Post Amendment Ordinance, 2018:
Section 238A: Limitation Act, 1963 applies to proceedings or appeals before AA, NCLAR, DRT and DRAT
June 2018

12. HOME BUYERS AS FINANCIAL CREDITORS
KEY OBSERVATIONS OF THE INSOLVENCY COMMITTTEE:
“Time value” interpreted to mean price paid for the length of time for which the money has been disbursed
Insolvency Law Committee opined that monies so raised are a tool for raising finance for the project
Homebuyers to be treated on par with other financial creditors
Assocham Report - RERA as growth impetus: does the promise hold out on the ground?
RERA regulates and formalizes real estate sector; IBC restructures or liquidates the business
Apex Court steps in to secure homebuyers’ rights
June 2018

13. Clarifications required Whether secured or unsecured creditors?
Post Amendment Ordinance, 2018: Sec. 5(8): Financial debt ………. (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; Explanation. - For the purposes of this sub-clause,- (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and…..” Sec. 21: Committee of Creditors (6A) provides for manner of representation for other classes of creditors.
Clarifications required
Whether secured or unsecured creditors?
Whether commercial real estate buyers are included?
June 2018

14. No moratorium can be claimed on the assets of the guarantor
GUARANTORS UNDER IBC
Alpha & Omega Diagnostics (India) Ltd. vs. ARCIL (NCLAT Judgment dated 31st July 2017)
Moratorium is applicable only on the assets of the corporate debtor that are reflected in the balance sheet
No moratorium can be claimed on the assets of the guarantor
Post Amendment Ordinance, 2018:
Section 5(5A): corporate guarantor defined
Section 14: moratorium to not apply to a surety in a contract for guarantee to a corporate debtor
June 2018

15. (as amended on 18th January, 2018)
PROMOTERS UNDER IBC
Section 29A of the IBC
(as amended on 18th January, 2018)
(In)Eligibility criteria:
Layer 1 – the “person” is ineligible (wilful defaulter, disqualified director, etc.)
Layer 2 – connected person is ineligible (promoter of a company in which preferential or undervalued transactions have taken place and order made under Code by Adjudicating Authority, etc.)
Layer 3 – related party of a connected person
Layer 4 – person acting jointly / in concert with a person under the above 3 layers of ineligibility
June 2018

16. 1st Resolution Plan approved under the Code
In the matter of Synergies Dooray Automative Limited (Hyderabad NCLT Order dated 2nd Aug. 2017
1st Resolution Plan approved under the Code
Source:
June 2018

17. Synergies Castings Limited Assigned 92.93% of its debt holding in SDAL
Millennium Finance Limited (NBFC)
In 2005, Synergies Dooray’s (SDAL) lenders approved leasing out of company assets to Synergies Castings for 4 years
SDAL declared sick company in lenders assigned their debts (93% of borrowings) to Synergies Castings in 2008 and 2011
92.93% of the debts assigned by Synergies Castings to NBFC, two days prior to Government notifying that SICA would be repealed
SDAL filed an Application under Sec. 10 of IBC for initiating CIRP
June 2018

18. EARC objected to the assignment agreements – questionable
Post assignment of the debt, NBFC got a seat in the CoC with more than 75% voting share
EARC objected to the assignment agreements – questionable
RP submitted that resolution plan was in accordance with the Code
Resolution plan was admitted by NCLT with certain conditions
APPEAL FILED BY EARC PENDING IN THE NCLAT
June 2018

19. Examples where the bar derailed insolvency process:
VTB Bank led Numetal (Rewant Ruia, member of Ruia family of Essar) rendered ineligible to bid for Essar Steel
ArcelorMittal ineligible to bid for Essar Steel as Lakshmi Mittal (since dropped his name as promoter) was one of the promoters (while not in management) of KSS Petron and Uttam Galva.
[provided all defaulting accounts of respective NPAs are regularized before submission of resolution plan]
Promoter of JSW Steel related to promoter of Monnet Ispat, for which JSW-AION Capital submitted their bid to take over the company, which was approved by the CoC.
[neither JSW not Monnet invested in each other companies]
June 2018

20. Post Amendment Ordinance, 2018: Section 29A:
Ineligible to submit resolution plan if at the time of submission of plan has an NPA
The clause does not apply to persons who have acquired NPA pursuant to resolution plan approved under IBC, for a period of 3 years from the date of such approval
Sec. 5(24A):
Related party in relation to an ‘”individual” defined
June 2018

21. SOURCE: https://economictimes. indiatimes
June 2018

22. THANK YOU!
June 2018