LEGAL ANALYSIS AND RECENT DEVELOPMENT- POST INSOLVENCY AND BANKRUPTCY CODE 2016

LEGAL ANALYSIS AND RECENT DEVELOPMENT- POST INSOLVENCY AND BANKRUPTCY CODE 2016

This is a blog authored by Mahak Paliwal, a student of B.B.A L.L.B (Hons.) Symbiosis Law School, Pune. 

The recent developments post coming into being of the Insolvency and Bankruptcy Code, 2016 stands comprehensive. The judicial pronouncements in light of the Insolvency and Bankruptcy Code, 2016 has locked up various interrogations which have hampered the development of the law so far.

The boundaries surrounding the concept of ‘operational creditor’ and ‘operational debt’ elaborated in the definition has been aptly dealt with by the tribunal wherein the term operational creditor has been interpreted the term “operational debt” in the light of section 5(20) of the code to mean debt that “may arise out of the provision of goods or services including dues on account of employment or a debt in respect of repayment of dues arising under any law for time being in force and payable to Centre or local authority.” The vagueness governing the limitation period or issue as to whether an application filed under the code can be time barred or not has been precisely dealt with by the tribunal in M/s. Deem Roll Tech Limited v. M/s. R.L. Steel & Energy Limited. [1] The tribunal resolved the issue in the light of both the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016. It was held that Sec. 255 of the code has failed to amend and put bar on section 433 of the Companies Act which provides for applicability of the provisions under of the Limitation Act when a matter put forth before a tribunal or an appellant body. Accordingly, in absence of any such bar the petitioner application was declared as time barred in lieu of the Limitation Act. The Apex court while exercising its power under Article 142 of the Constitution of India Act, 1950 which provides enforcement of decrees and orders of Supreme Court allowed the applicant to withdraw his application post the initiation of insolvency proceedings and admission of his application by recording expressly the consent of the parties to the dispute and quashed the NCLAT inferences.[2]

NCLAT in para 35-40 laid down that only a representative who has been authorized to institute proceedings under the code is eligible to file an application under section 7 of the code. Mere confederation of the general authority of attorney does not entitle an individual to initiate proceedings by way of filing application under section 7 of the code.[3] Additionally, the notice under section 8 of the code ought to be sent by the operational creditor himself, neither his advocate nor attorney.[4]  Not only is the notice to be sent by concerned creditor himself but also, the prior notice under section 8 of the Insolvency and Bankruptcy Code, 2016 ought to be sent before institution of the interim resolution process. Further, while filing an application of insolvency under section 9 of the code it is mandatory to obtain a certificate which reveal the non payment of the operational debt. [5] The application under section 7,8,9 and 10 of the code should be refiled and admitted within the prescribed period of 7 days and the time period of fourteen days specified under them stands discretionary in essence.[6]

 

In the recent past, the court has comprehensively determined the wide scope of code by excluding the application of the Limitation Act and declaring it as a complete code in itself.[7] The National Company Law Appellant Tribunal has declared financial debt to include ‘ debentures’ accordingly, an amount which the debenture holder stands             deprived of constitutes a debt and appellant can be called “financial debtor” and respondent a “financial creditor.”[8] Where the higher court had not passed any order relating to winding up and the appointment of official liquidator stands outstanding, such pendency cannot act as a bar for instituting corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016.[9]  The distinguished role of adjudicating authority while entertaining petition under section 7 as opposed to section 9 was dealt with by NCLT in the matter of State Bank of India, Colombo Vs. Western Refrigeration Pvt. Ltd.[10] The court held the following: First, while adjudicating upon matter within the purview of section 7; the authority ought to take into account the documents along with the contentions of both financial creditor and the corporate debtor. Second, the court is entitled to solely reject the argument contending absence of any defense for debtor under section 7. Lastly, the NCLT reaffirmed the applicability of principles of natural justice with respect to the matters pertaining to section 7 of the code.

 

References

[1] (C.A. No. (I.B.) 24/PB/2017.

[2] Lokhandwala Kataria v. Nisus Finance & Investment Manager LLP.

[3] Palogix Infrastructure Pvt. Ltd v. ICICI Bank Ltd.2017.

[4] Paharpur Cooling Towers v. Ankit Metal & Power (NCLAT

[5] Achenbach Buschhutten GmbH & Co. v. Arcotech ltd. (NCLAT)

[6] Surendra Trading Company v. J.K Jute Mills Company Ltd. (SC)

[7] Speculum Plast Pvt. Ltd V. PTC Techno Pvt Ltd. (NCLAT on 07.11.2017)

[8] Neelkanth Township And Construction V. Urban Infrastructure Trustee Ltd. (NCLAT)

[9] M/s Allocin Laboratories (India) Pvt. Ltd v. M/S Vasan Care Pvt ltd. (NCLT Chennai) @para4

[10] 7/7/NCLT/AHM/2017, delivered on 26.05.2017.

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