INSOLVENCY AND BANKRUPTCY CODE, 2016

1. INSOLVENCY AND BANKRUPTCY CODE, 2016

2. The Insolvency and Bankruptcy Code, 2016(‘Code’)

3. Objectof the Code The Code has the following objectives:

4. Legal Framework Under the Code SUPREME COURT Appeal45 days DRAT (Tribunal) NCLAT (Tribunal) For Individuals /Proprietorship concern/Partnership firm (Rules not yet notified) For Company/LLP Appeal30 days DRT (Adjudicating Authority) NCLT (Adjudicating Authority) Note: Adjudicating Authority (“AA”) – NCLT (established u/s 408 of Companies Act, 2013) is referred to as AA under Section 5 of the Code. – DRT (established u/s 3 of RDDBFI Act, 1993) is referred to as AA under Section 79 of the Code.

5. Corporate Insolvency Resolution Process (“CIRP”) Default Financial Creditor Files Application for CIRP AA passes Order 1. Admission a) Appointment of IRP b) Declaration of Moratorium 2) Rejection Claims called for and admitted by Interim Resolution Professional (“IRP”) Information Memorandum (IM) prepared by RP Appointment of RP by Committee of Creditors (“CoC”) and confirmation by AA CoC formed by IRP CoC votes for resolution plans RP will call for expression of interest and will share IM with concerned stakeholders Resolution Plan submitted by Resolution Applicants < 66 % Votes - Company goes into liquidation > 66% Votes - Resolution plan accepted Implementation of Resolution Plan

6. Corporate Insolvency Resolution Process (“CIRP”) Who can initiate CIRP: • Financial Creditor (any person to whom “financial debt” is owed), on the occurrence of default (with any financial creditor). [Section 7] “Financial debt” means a debt along with interest, disbursed against consideration for the time value of money, including, money raised through issue of bonds and debentures etc.) 2. Operational Creditor (any person to whom “operational debt” is owed), who does not receive its payment. [Section 9] “Operational debt” means a claim arising from provisions of goods and services” 3. Corporate Debtor /Corporate Applicant of the Corporate Debtor. [Section 10] Default amount for initiating CIRP: • Minimum amount of default – Rs. 1 Lakh. • Central Government may notify a higher minimum-default amount, not exceeding Rs. 1 Crore.

7. Corporate Insolvency Resolution Process (“CIRP”) Consequences of application under IBC: • AA shall either accept or reject the application. • If accepted, CIRP commences and the date of admission of application is called the “Insolvency Commencement Date”. 180/270 days shall be counted from this date. [The maximum timeline of 270 days has been extended to 330 days, inclusive of any litigation, by way of IBC Amendment Bill, 2019] • Appointment of IRP. (IRP will be replaced with/confirmed as RP in the first meeting of the CoC by a majority of 66% votes.) • Moratorium & Public Announcement: The AA, by order, declares a moratorium and causes public announcement of initiation of CIRP and calls for submission of claims. Note : AA may allow withdrawal of CIRP application post admission with the approval of 90% voting share of CoC (Section 12A).

8. Moratorium under CIRP • Restrictions during Moratorium: • Institution / continuation of any suits or proceedings against Corporate Debtor; • Transferring/encumbering any assets, legal rights or beneficial interests by Corporate Debtor; • Any action to recover, foreclose or enforce security interest against Corporate Debtor; • Recovery by the owner or lessor of any property occupied or in possession of Corporate Debtor. • Recourse for a Lender during Moratorium: • Invocation of personal guarantee/corporate guarantee – Section 14(3). NCLAT held in Ferro Alloys Corporation Ltd. vs. Rural Electrification Corporation Ltd. that lenders can initiate corporate insolvency resolution process against corporate guarantors without invoking CIRP for the principal borrowers. On 11th February, 2019, SC upheld the NCLAT ruling in Ferro Alloys Corporation Ltd. • Invocation of third party security – On the premise of same analogy as stated above. • Enforcement of guarantee/third party security can be initiated by relevant financial creditor in appropriate forum such as DRT or under the provisions of SARFAESI.

9. CIRP – BROAD TIMELINES

10. Insolvency Resolution Professional: Management of Corporate Debtor IRP shall manage the affairs of the Corporate Debtor, namely: 1. Management of affairs of Corporate Debtor shall vest in IRP. [Section 17(1)(a)] 2. Powers of the Board of Directors of Corporate Debtor stand suspended and vest in IRP. [Section 17(1)(b)] 3. The officers and managers of Corporate Debtor shall report to and cooperate with the IRP and provide access to all necessary documents and records. [Section 17(1)(c) and Section 19] 4. The financial institutions maintaining accounts of Corporate Debtor shall act on the instructions of IRP in relation to such accounts. [Section 17 (1) (d)] 5. The IRP shall act and execute in the name and on behalf of the Corporate Debtor, all deeds, receipts, and other documents. [Section 17(2)(a)] 6. The IRP shall be responsible for complying with the applicable laws with respect to the Corporate Debtor. 7. Protect and preserve the value of assets and manage the operation of Corporate Debtor as going concern. (Section 20).

11. Insolvency Resolution Professional: Duties • Collect all information relating to the assets, finances and operations of the Corporate Debtor. • Receive and collate all claims submitted by creditors to the IRP. • Formation of the CoC by IRP after collation of claims. • Take control & custody of all assets over which Corporate Debtor has ownership rights. • Investigation / forensic audit of the financial affairs of Corporate Debtor. • Prepare Information Memorandum. • Issue Expression of Interest. • Invite prospective Resolution Applicants. • Present Resolution Plans to CoC. • Submit approved Resolution Plan to AA (Section 30). • To raise interim finance, with the approval of 66% votes in CoC.

12. Practical Challenges faced by IRP Compliance to the timeline of CIRP: Difficult to be completed within  180 / 270 days. To deal with the directors, promoters, management / Key Managerial Person of the Corporate Debtor. To deal with employees, trade unions, operation creditors, government authorities like ED etc. 4. Sector specific issues to the Corporate Debtor and unknown to RP. 5. Handling and pursuing the litigations on behalf of Corporate Debtor. 6. Verification of claims, preparing IM and evaluation matrix for all the submitted proposals can be very time consuming. 7. Review of the Resolution Plan and approval thereof by CoC and AA.

13. Committee of Creditors (CoC) • IRP shall constitute CoC (Section 21). • CoC consists of all financial creditors (whether secured or unsecured), excluding those which are related party of the Corporate Debtor. • CoC appoints the RP in its 1st meeting post its formation. • Meetings of CoC are to be conducted by the IRP and later the RP. • The voting threshold has been reduced from 75% to 51%, except for certain key decisions requiring 66% votes, such as: • Extension of CIRP period from 180 upto 270 days; • Appointment/substitution of RP; • To raise interim finance for Corporate Debtor; • To create security interest over the assets of Corporate Debtor; • To undertake any related party transaction; • To dispose or permit disposal of shares of any shareholder of Corporate Debtor; • To make changes in management of Corporate Debtor or its subsidiary.

14. IBC: From Lender’s perspective • Paradigm shift from the concept of ‘debtor in possession’ to ‘creditor in control’. • Has largely become a recovery mechanism, instead of revival/resolution mechanism. • Lender may choose not to invoke IBC but initiate proceedings in DRT/ under SARFAESI. However, once CIRP is initiated, proceedings in DRT/ SARFAESI, enforcement of any foreign decree/ award against the Corporate Debtor cannot be continued. • Irrespective of CIRP, criminal proceedings would continue against the Corporate Debtor such as proceedings under Section 138 Negotiable Instruments Act, 1881 and would not fall within the purview of moratorium as held by NCLAT in Shah Brothers IspatPvt. Ltd. Vs P. Mohanraj & Ors. • CIRP cannot be initiated against a Corporate Debtor who is a financial service provider (including NBFC) as held by NCLAT in Randhiraj Thakur, Director, Mayfair Capital Pvt. Ltd. Vs Jindal Saxena Financial Services and Anr. It was held that Mayfair being a financial service provider having been excluded from the definition of ‘corporate person’ under Sub-Section (7) of Section 3 of IBC, the application under Section 7 was not maintainable against Mayfair. • Option to initiate the process even if the default is in respect of the debt of another lender. • Operational Creditors (having dues of more than Rs. 1 Lac.) may trigger IBC, while the loans of the Financial Creditors may be standard. • A PE Fund needs to be aware that RBI’s Restructuring Circular dated February 12, 2018 may force the Banks to initiate CIRP.

15. Resolution Plan from a Lender’s Perspective • In a liquidation scenario, a secured creditor may either relinquish or enforce/realize its security interest (as per applicable law). A clear priority of distribution (waterfall) is discussed below- • Payment of Insolvency Resolution Process costs in priority to the payment of other debts of the Corporate Debtor [Section 30(2)(a)]; • Paymentto operational creditors is to be made on priority over the financial creditors [Regulation 38(1), Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016]; • Value maximization is the key factor for acceptance of a resolution plan by the CoC; • CoC also needs to examine the viability of each plan from the financial, technical, legal and regulatory perspective; • CoC needs to ensure resolution applicant must be a person eligible to submit the resolution plan and is not a person disqualified under Section 29A of the Code.

16. Liquidation Proceedings under IBC Liquidation can be initiated on:- AA rejecting Plan submitted by CoC. Resolution Plan is neither submitted nor approved by the CoC within stipulated time. 66% majority votes of the CoC resolves to liquidate the Corporate Debtor. RP to act as liquidator. The Liquidator shall form an estate of the assets. Liquidator to collect all claims of all creditor within 30 days. Verify and then accept/reject these claims and communicate to the creditor within 7 days. Distribution of Assets.

17. Waterfall for distribution of liquidation proceeds Insolvency resolution and liquidation cost (paid in full) Secured creditors who have relinquished their security interest and workmen dues (24 months preceding liquidation commencement date) Wages and unpaid dues to employees (other than workmen) for a period of 12 months preceding liquidation commencement date Unsecured creditors Central and State government dues (2 years preceding liquidation commencement date) Secured creditor for any amount unpaid following enforcement of security interest. + Any remaining debts or dues Preference shareholders, if any 17 Equity shareholders or partners, as the case may be

18. Certain challenges of a PE Fund • Lower exposure of PE Funds vis-à-vis overall indebtedness of the Corporate Debtor – may impact voting share in CoC. • Special legislations like SARFAESI and forums like DRT may not be available to PE Funds. • The Lead Bank representing a consortium of banks or larger banks/financial institutions may assert their clout in CoC. • Challenges with regard to non-transparent/biased conduct of RP may impact identified creditors.

19. Benefits for a PE Fund from IBC Perspective • Speedier recovery of dues either by way of settlement with Corporate Debtor, pursuant to a Resolution Plan submitted by Resolution Applicant or under liquidation. • Fear of losing control by the Promoters of the Corporate Debtor may help settle the dispute and ensure realization of dues by the creditor. • Ability to be a creditor in control in the form of CoC being assisted by the RP, and is not required to interact directly with the Board/ Promoters of the Corporate Debtor. • Brings financial discipline into the affairs of the Corporate Debtor and promotes good governance.

20. LANDMARK JUDGMENTS

21. 1) Constitutional Validity of the IBC • Swiss Ribbons Pvt. Ltd. & Anr. Vs Union Of India [(Civil) No.99 of 2018] • [Decided on January 25, 2019] • The Supreme Court, in its judgement upheld the constitutional validity of the Insolvency and Bankruptcy Code 2016 in its “entirety”. • The Court however held that to attract the bar under Section 29A from participating in resolution process, "related person" should be a person connected to the business of the defaulting entity or promoters thereof.

22. 2) Prevailing Nature of IBC i) Over PMLA, 2002 SREI Infrastructure Finance Ltd. Vs. Sterling SEZ and Infrastructure Ltd. [M.A 1280/2018 in C.P. 405/ 2018, NCLT, Mumbai Bench] as decided on February 12, 2019. The non-obstante clause contained in IBC, which is a later statute shall prevail over the non-obstante clause contained in Section 71 of PMLA and the proceedings before the Adjudicating Authority under PMLA is civil in nature and hence, in view of Section 14 of IBC, and over-riding effect of IBC under Section 238, the attachment order under PMLA is a nullity and non-est in law and hence it will not have any binding force. ii) Over IT Act, 1961 Pr. Commissioner of Income Tax Vs. Monnet Ispat and Energy Ltd. [SLP No. 6483 of 2018] as decided by Supreme Court on 10 August, 2018 Upholding an order of the Delhi High Court, the Hon'ble Supreme Court held that in view of Section 238 of IBC, the provisions therein will override anything inconsistent contained in any other enactment, including Income-Tax Act.

23. 3) Prevailing Nature of IBC Perusal of Pending Proceeding before High Courts after Declaration of Moratorium under IBC Steamline Industries Ltd. Vs. Tecpro Systems Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 299 of 2017] as decided on December 4, 2017 • The Hon’ble NCLAT stated that the submission of the Appellate could not be accepted in view of section 238 of the IBC which read as: "The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. • Therefore, no relief was granted to the Appellant. • The Hon’ble Court relied on the landmark judgement of ICICI Bank Ltd. vs. Innoventive Industries Ltd. in which, the Court had held that the non-obstante clause in Section 238, which thus overrides all other Acts.

24. 4) Applicability of provisions of Usurious Loans Act, 1918 on the IBC Naveen Luthra & Ors. Vs. Bell Finvest (India) Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 336/2017, 07/2018 and 10/2018] as decided on November 29, 2018 The NCLAT held that: • Provision of Section 3 and 4 of the Usurious Loans Act, 1918 are not applicable to the proceedings under Section 7 or 9 of the IBC. • Thus the petition filed by the Financial Creditor cannot be dismissed on the allegation of charging of usurious and extortionate penal interest.

25. 5) Applicability of Negotiable Instruments Act, 1881 to the IBC Sudhi Sachdev Vs. APPL Industries Ltd. [Company Appeal (AT)(Insolvency) No. 623 of 2018] as decided on November 13, 2018 The NCLAT held that: • Pendency of a case under Section 138 of the Negotiable Instrument Act, even if taken as recovery proceedings, cannot be held to be a dispute pending before a court of law. • Pendency of the case under Section 138/441 of Negotiable Instruments Act, 1881 actually amounts to admission of debt and not an existence of dispute. • Therefore the pendency of case under section 138 of NI Act will not prevent an operational creditor from instituting proceedings under the Code.

26. 6) In case of a pre-existing dispute between parties and an agreement through an Arbitration clause, can the proceedings under IBC continue? Pallavada Technical Textiles Park Pvt. Ltd. Vs. Unique Roof Pvt. Ltd. [CP/385/(IB)/CB/2018] as decided on August 21, 2018. The NCLAT held that : • The Tribunal observed that due to non-supply of transferrables and specifications by the respondent, the sudden abrupt change in the market value of iron and steel and due to extra cost burden by the enforcement of GST there arose a dispute in the amount claimed. The counter filed by the respondent states that on 25.02.2018 reply notice was given which specifically states about the commencement of arbitration whereas the petition before the Tribunal was filed in March, 2018 from which the Tribunal observed that there is a pre-existing dispute which was sought to be resolved through arbitration as per the agreed terms of contract by both the parties. The tribunal was of the opinion that there was in existence a dispute, before the petition was filed in the Tribunal and hence under the provisions of IBC the petition stood dismissed.

27. 7) Whether Adjudicating Authority has jurisdiction to decide the legality of a foreign decree Usha Holdings L.L.C &Ors. Vs. Francorp Advisors Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 44 of 2018] as decided on November 30, 2018. The NCLAT held that : • In view of the decision in "Binani Industries Limited", the Tribunal held that the Adjudicating Authority not being a ‘Court’ or 'Tribunal’, and 'Insolvency Resolution Process' not being a litigation, Adjudicating Authority has no jurisdiction to decide whether a foreign decree is legal or illegal. Whatever findings the Adjudicating Authority has given with regard to legality and propriety of foreign decree in question being without jurisdiction is nullity in the eye of law.

28. 8) Applicability of Limitation Act, 1963 on CIRP proceedings • B.K. Educational Services Private Limited Vs. Parag Gupta & Associates [Civil Appeal No. 23988 of 2017] as decided on October 11, 2018 • Hon'ble Supreme Court of India has held that the Limitation Act, 1963will apply to applications that are made under S. 7 and S. 9 of the Insolvency and Bankruptcy Code, 2016, on and from the commencement of IBC on 01.12.2016, having retrospective effect. • Hon'ble Supreme Court has through this judgment clarified that IBC proceedings cannot be initiated based on time barred claims. • Since the Limitation Act is applicable to applications filed under Sections 7 and 9 of IBC from the inception of IBC, Article 137 of the Limitation Act gets attracted. Article 137 of the Limitation Act provides the period of limitation in case of "any other application for which no period of limitation is provided elsewhere" as three years from the time when the right to apply accrues. "The right to sue", therefore, accrues when a default occurs. • If the default has occurred over three years prior to the date of filing of application under IBC, the application would be barred under Article 137 of the Limitation Act, except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.

29. 9) Whether the time limit for initiation and completion of Insolvency resolution process under section 7(5), section 9(5) or section 10(4) of  the Code is mandatory? Surendra Trading Company Vs. JuggilalKamalpat Jute Mills Co. Ltd. & Ors, [Civil Appeal No. 8400 of 2017] as decided on September 19, 2017 • The Hon’ble Supreme Court observed that the judgments relied upon by NCLAT and the principle contained therein applied while deciding that period of 14 days within which the AA has to pass the order is not mandatory but directory in nature and would equally apply while interpreting proviso to sub-section (5) of Section 7, Section 9 or sub-section (4) of Section 10 as well and therefore held that the time of 7 days prescribed in the Code for removal of defects by the applicant as directory.

30. 10) Calculation Of Number of Days of Proceedings Tata Steel Ltd. Vs. Liberty House Group PTE Ltd. & Ors., [Company Appeal (AT) (Insolvency) No. 198 of 2018] as decided on February 4, 2019 • Liberty House Group PTE Ltd. had filed an application under Section 60(5) of the Code challenging the decision of the Committee of Creditors refusing to entertain the resolution plan on the ground of delay. • The NCLAT, Principal Bench allowed the application and directed that the number of days spent on litigation will not be counted as part of the corporate insolvency resolution process, and will be deducted from the 270 days that the resolution professional gets to decide on the fate of a stressed asset.

31. 11) Difference between Section 7 & 9 of the Code Innoventive Industries Ltd. Vs. ICICI Bank & Ors. (Civil Appeal No. 8337-8338 of 2017) as decided on August 31, 2017. The Hon’ble Supreme Court held that: • The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in subsection (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing – i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.

32. 12) Definition of Financial Creditor Nikhil Mehta and Sons (HUF) & Ors. Vs. AMR Infrastructure Ltd [Appeal (AT) (Insolvency) No. 07/2017] as decided on July 21, 2017 • The Appellant (purchasers) and Respondent (developer) had entered into a MOU. In return for a substantial portion of the total money paid upfront, the Respondent promised to pay monthly “assured returns” from the time of signing of the MOU till the time the possession was delivered to the Appellant. Respondent defaulted on these payments following which an application under section 7 of the Code was filed by the Appellant. The NCLT observed that the instant case is not ‘financial debt’ as essential element for a debt to qualify as a ‘financial debt’ is that it is ‘disbursed against the consideration of time value of money’. • However, in the appeal against the said order, NCLAT reversed above order and observed that in the MOU signed between the Appellant and the Respondent, the Appellant were referred to as “Investors”. NCLAT on perusal of the financial returns of the Respondent further observed that the assured returns payable by them were shown under “commitment charges”, at par with “Interest on Loans” under the heading of “Financial Costs”. It was also observed that this transaction had the commercial effect of borrowing and the Appellant had disbursed the amount against the “time consideration of money”. It was thus held to come under the meaning of ‘financial debt’.

33. 13) Whether a member of the CoC, falls within the meaning of ‘Financial Creditor’ Andhra Bank Vs. M/s F.M. Hammerle Textile Ltd. [Company Appeal (AT) (Insolvency) No. 61 of 2018] as decided on July 13, 2018. The NCLAT held that: • It is to be ascertained whether the person who claims to be ‘financial creditor’, has debt owed to him within the meaning of ‘financial debt’ as defined under Section 5(8) of the Code. If it is shown that the debt has been disbursed against “consideration for time value of money” then it is treated to be a ‘financial debt’, which may include debt as mentioned in Clause (a) to (i) of Section 5(8). Any indemnity obligation in respect of a guarantee also comes within the meaning of ‘financial debt’ as defined under the said provision. • Corporate Debtor has counter-indemnity obligation in respect of guarantee given by it to the Appellant- ‘Andhra Bank’, and accordingly Andhra Bank comes within the definition of ‘financial Creditor’ as defined under Sections 5(7) r/w 5(8) of the Code.

34. 14) Whether Applications under Section 7 and 9 are bound by res judicata? Forech India Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Company Ltd. [Company Appeal (AT) (Insolvency) No. 202 of 2017] as decided on December 23, 2017 The NCLAT held that: • There is no provision under the Code which stipulate that if a 'winding up' or 'liquidation' proceeding has been initiated against the Corporate Debtor, the petition under Section 7 or Section 9 against the said Corporate Debtor is not maintainable. However, if a corporate insolvency resolution has started or on failure, if liquidation proceeding has been initiated against the Corporate Debtor, the question of entertaining another application under Section 7 or Section 9 against the same very Corporate Debtor does not arise, as it is open to the Financial Creditor and the Operational Creditor to make claim before the Insolvency Resolution Professional/Official Liquidator.

35. 15) Whether the proviso in Section 9 (3)(c) is mandatory in relation to operational debt and Whether the demand notice of an unpaid operational debt can be served by a lawyer on behalf of the operational creditor? Macquarie Bank Ltd. Vs. Shilpi Cable Technologies Ltd. [Civil Appeal No.15135 of 2017] as decided on December 15, 2017 The Hon’ble Supreme Court held that: • A fair construction of Section 9(3)(c), in consonance with the object sought to be achieved by the Code, would lead to the conclusion that it (proviso under Section 9 (3)(c)) cannot be construed as a threshold bar or a condition precedent. • It is clear, that both the expression “authorized to act” and “position in relation to the operational creditor” go to show that an authorized agent or a lawyer acting on behalf of his client is included within the aforesaid expression. The Court further held that, Section 30 of the Advocates Act, 1961 deals with the fundamental right under Article 19(1)(g) of the Constitution to practice one’s profession. Therefore, a conjoint reading of Section 30 of the Advocates Act,1961 and Sections 8 and 9 of the Code together with the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 and Forms thereunder would yield the result that a notice sent on behalf of an operational creditor by a lawyer would be in order.

36. 16) Presumption raised against the Corporate Debtor in case of absence of notice of dispute Durlum India Pvt. Ltd. Vs. Sharma Kalypso Pvt. Ltd. [CP-IB-483/ND/2017]as decided on May 22, 2018 The NCLT held that: • Absence of notice of dispute raises a serious presumption as against the Corporate Debtor of its default however, the same is a rebuttal presumption which can be rebutted by way of demonstration that there is in fact, a pre-existing dispute even though it may not be clinching, but however a ‘plausible’ one. No doubt in case if notice of dispute is issued, the same should be placed on record and the fact of receipt or non-receipt of notice of dispute is to be disclosed by an affidavit filed Section 9(3)(b). The application under section 9 was not admitted as there was existence of dispute. • On appeal, the NCLAT upheld the order of the NCLT.

37. 17) Whether Section 14 of the Code, applies to the Personal Guarantor of a Corporate Debtor? State Bank of India Vs. V. Ramakrishnan & Ors. [Civil Appeal Nos. 3595 and 4553 of 2018]as decided on August 14, 2018. The Hon’ble Supreme Court held that: • Sections 96 and 101 of the Code, when contrasted with section 14 of the Code, would show that section 14 of Code could not apply to a personal guarantor. When an application was filed under Part III, an interim-moratorium or a moratorium was applicable in respect of any debt due. First and foremost, this was a separate moratorium, applicable separately in the case of personal guarantors against whom insolvency resolution processes may be initiated under Part III. Secondly, the protection of the moratorium under these sections was far greater than that of Section 14 of the Code; as in the former pending legal proceedings in respect of the debt, and not the debtor, are stayed. • Section 14 of the Code refers only to debts due by corporate debtors, who are limited liability companies, and it was clear that in the vast majority of cases, personal guarantees are given by Directors who are in management of the companies. The object of the Code was not to allow such guarantors to escape from an independent and co-extensive liability to pay off the entire outstanding debt, which was why Section 14 of Code was not applied to them.

38. 18) Guarantors Under the Code • In Lalit Mishra & Ors. Vs. Sharon Bio Medicine Ltd. &Ors., NCLAT ruled that the liabilities of guarantors is co-extensive with the borrower and it was not the intention of the legislature to benefit the ‘Personal Guarantors’ by excluding exercise of legal remedies available in law by the creditors, to recover legitimate dues by enforcing the personal guarantees, which are independent contract. • In Axis Bank Ltd. Vs. Edusmart Services Pvt. Ltd., NCLAT ruled that any person who has a right to claim payment under the Code is supposed to file the claim, whether matured or immature. The question as to whether there is default or not is not relevant. Accordingly, RP is obliged to accept the claim under corporate guarantee, whether invoked or not. • In Ferro Alloys Corporation Ltd. Vs. Rural Electrification Corporation Ltd., NCLAT held that without initiating corporate insolvency resolution process against the principal borrower, the financial creditor may initiate corporate insolvency resolution process under section 7 against the corporate guarantors, as the creditor is also the financial creditor qua the corporate guarantor. The NCLAT ruling was later upheld by Supreme Court by its order dated 11th February, 2019.

39. 19) Withdrawal of CIRP after issue of Invitation for expression of Interest. Brilliant Alloys Private Limited Vs. Mr. S. Rajagopal & Ors. (Petitions for Special Leave to Appeal (C) Nos. 31557/2018) as decided on December 14, 2018. Hon’ble Supreme Court held that: • The withdrawal of CIRP was not allowed, though agreed to by the corporate debtor as well as the financial creditor and the operational creditor, as Regulation 30A, Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 states that withdrawal cannot be permitted after issue of invitation for expression of interest. This Regulation has to be read along with Section 12A which contains no such stipulation. • However, this stipulation can only be construed as directory depending on the facts of each case.

40. 20) Binding Nature of Resolution Plan Binani Industries Limited Vs. Bank of Baroda & Ors. [Company Appeal(AT) (Insolvency) No. 82 of 2018] as decided on November 14, 2018 • NCLAT held that resolution plan shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.

41. 21) IBC (Amendment) Ordinance 2018 upheld Pioneer Urban Land and Infrastructure & Anr. Vs UOI [Writ Petition No. 43 of 2019] as decided on August 9, 2019 The Supreme Court of India held that : • The definition of “financial creditor” always subsumed the allottees of flats and apartments. • Homebuyers are, thus, considered to be the financial creditors under the Code. • Advance amount paid by the flat purchasers to be treated as the financial debt; • Homebuyers to be part of the Committee of Creditors; • The remedies available to the flat purchasers under IBC, RERA and Consumer Protection Act are concurrent and can be exercised by the flat purchasers

42. 22) Banks to monitor end-use of funds Bikram Chatterji & Ors. Vs UOI [Writ Petition (C) No. 940 of 2017] as decided on July 23, 2019 The Supreme Court of India, while cancelling the RERA registration of errant Amrapali group of companies, appointed NBCC India Limited to complete the projects at a commission of 8%. Further, the Apex Court held that: • Conditional NOC –The mortgage was to be effective on making full payment of premium. Since the conditions under the Conditional NOC were not complied with, the mortgage is unenforceable. No charge can be said to be created on the project since the monies have not been used in the projects. • End-Use of Funds – Banks to now monitor the end-use of funds, and ensure compliance of the terms qua usage of disbursed loan amounts. • Other Enforcement – Since the monies have been utilized to create other assets, banks can realize the monies from enforcement of these assets, and not from building where such monies have not been used.

43. 23) NBFC, being financial service provider, are outside the purview of the Code HDFC Ltd. Vs RHC Holding Private Ltd. [Company Appeal (AT) (Insolvency) No. 26 of 2019] as decided on July 10, 2019 The NCLAT ruled that the Respondent, a non-banking financial institution is carrying on business of financial institution and thereby it being financial service provider, does not come within the meaning of Corporate Person/Corporate Debtor. So far as the allegation that the Respondent, Non-Banking Finance Company, is taking deposits from others in violation of conditions imposed by the Reserve Bank of India, such issue cannot be decided by the Adjudicating Authority while considering an Application under Section 7 or 9 of the I&B Code. Only on such ground the Adjudicating Authority cannot admit or reject an application under Section 7 or 9 of the I&B Code. If the terms and conditions imposed by Reserve Bank of India or there is violation of any of the provision of Reserve Bank of India, one may bring the same to the notice of Reserve Bank of India and not before the Adjudicating Authority.

44. 24) NCLT Has No Jurisdiction To Enquire Into Justness Of Rejection Of The Resolution Plan K. Sashidhar Vs Indian Overseas Bank & Ors. [Civil Appeal No. 10673 of 2018] as decided on February 5, 2019 While dismissing the appeals against the common order of NCLAT, the SC observed: • The word “may” in section 30(4) is ascribable to discretion of CoC to approve or not to approve the resolution plan. AA has no jurisdiction to evaluate commercial decision of CoC much less to enquire into the justness of rejection of plan by dissenting FCs. At best, the AA may cause an enquiry into the “approved” resolution plan on limited grounds referred to in Section 30(2) read with Section 31(1) of the I&B Code. It cannot make any other inquiry nor is competent to issue any direction in relation to the exercise of commercial wisdom of the financial creditors ­ be it for approving, rejecting or abstaining, as the case may be. • If resolution plan is approved by CoC, it is obligatory for RP to submit it to AA. If plan is rejected by not less than 25% of voting shares of FCs, RP is under no obligation to submit it under section 30(6) to AA. The legislative intent is to uphold the opinion of the minority dissenting FCs. On receipt of the plan, the AA is required to satisfy itself that the plan approved by CoC meets the requirements specified in section 30(2). Upon receipt of a “rejected” resolution plan, the AA is not expected to do anything more; but is obligated to initiate liquidation process under section 33(1).

45. NUMBER GAME : Official Data • 42% of firms taken to the bankruptcy tribunals belonged to the manufacturing sector; • Companies in the services segment, including hotels, restaurants, transportation and communication businesses, too, face acute financial distress, accounting for 15% of the 2,162 cases before the bankruptcy tribunals. • Banks and vendors (operational creditors) have dragged 90% of the 2,162 bankrupt companies; • Resolution of 120 companies achieved • Enabled financial creditors to recover about ₹1 trillion, or 43% of their admitted claims of ₹2.5 trillion • As of June, 2019: 1293 cases are pending before various tribunals, and out of this, 445 have exceeded the maximum 270-days window.

46. THANK YOU!