India: Insolvency And Bankruptcy Code, 2016 - Weekly Updates

Last Updated: 14 August 2019
Article by AMLEGALS  

I. When the Appellant had Approached Appropriate Forum for Appropriate Remedy in time with continuous  cause of action, then the claim is not barred by Limitation.

Sanghvi Movers Ltd. v. Tech Sharp Engineers Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 118 of 2019, NCLAT, Date: 23.07.2019

The NCLAT, while relying upon Section 137 of the Limitation Act, 1963 concluded that the Appellant had approached an appropriate forum for relief in time and hence the application was not barred by limitation.


The NCLAT took into consideration the complete facts as well as the laws which were previously not considered in several cases.

The Hon'ble Supreme Court in BK Educational Services Pvt. Ltd. v. Parag Gupta and Associates (2018 SCC OnLine SC 1921) had very categorically held that the Limitation Act shall be applicable prospectively, since the very inception of the IBC.

Further, Section 137 of the Limitation Act provides that the application for initiating CIRP has to be filed within a period of 3 years from the date on which the right to apply accrued.

The right to apply accrued under the IBC from 01.12.2016 as laid down in Pushpa Shah & Anr v. IL&FS Financial Services Ltd. (Company Appeal (AT)(Insolvency) No. 521 of 2018) since it's the date on which IBC came in force.

The present judgment of NCLAT has made it crystal clear that if the creditor had already approached the appropriate forum for appropriate relief in time, before the commencement of IBC then the application is very well within the limitation period. The NCLAT has kept the essence of the above mentioned two judgments and the Limitation Act intact.

II. Exclusion of certain days from the completion of CIRP can be granted to the RP for delay caused due to non-cooperation of the suspended directors of CD.

Ramchandra D. Choudhary Resolution Professional OfMaharashtra Shetkari Sugar Limited v. Committee Of Creditors Of Maharashtra Shetkari Sugar Limited [Company Appeal (AT) (Insolvency) No. 633 OF 2019], NCLAT, Date: 24.07.2019

The Court held that the Promoters had neither handed over the records of the management which are required for the process of CIRP of the CD to the IRP nor to the RP.

The court held to exclude 90 days for the purpose of counting the period of CIRP of 270 days in place of 145 days to enable the RP/ CoC to complete the CIRP at an early date preferably within 45 days.


The order of the NCLAT is just as the RP and the IRP cannot perform their duties without the co-operation of the management/ directors of the CD. There needs to be stricter implications for penalizing the directors / management of the CD in case of non-cooperation.

III. Rejection of application under Section 9 of the IBC on the basis that the amount of payment couldn't be determined, cannot be allowed.

Pedersen Consultants India Pvt. Ltd. v. Nitesh Estates Limited [Company Appeal (AT) (Insolvency) No.720 of 2019], NCLAT, Date: 24.07.2019

The NCLAT held that application under Section 9 should not have been rejected on the ground that dispute regarding the quantum of payment could not be determined.


The NCLAT aptly observed the fact that the claim means a right to payment even if there is a dispute raised in relation to it.

Mere dispute with regards to a claim by showing a counter claim does not show that there is pre-existence of dispute. The dispute regarding the amount cannot be a basis to reject the application under Section 9 of the Code.

IV. If the notice is served to the CD before admitting the application then it is not a ground for rejection of application filed under Section 9 of IB Code.

Mr. Paresh Patel v. M/s. Shah Kirit Babulal Ni Company & Ors., Company Appeal (AT)(Insolvency) No. 684 of 2019, NCLAT, Date: 29.07.2019

The NCLAT observed that the debt was undisputed and there was no reply to the demand notice issued by the operational creditor. It held that if the notice is served to the corporate debtor before admitting the application then it is not a ground for rejection of application filed under Section 9 of IB Code. If the said appeal is allowed and the matter is remanded to NCLT then it will be a futile exercise as NCLT will also admit the application for undisputed debt.


The NCLAT in the present case has just reiterated principle laid down in the major precedents. The Hon'ble Supreme Court itself in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353 has held that if the debt is undisputed the application under Section 9 shall be admitted if it is complete.

Hence, the Hon'ble NCLAT has correctly interpreted the provision and the Supreme Court judgment and thereby not admitted the appeal.

V. The claim under IBC, cannot be rejected on the ground that it is time barred or that the claim is by an entity other than the Financial Creditor.

Sunil Kumar Aggarwal v. New Okhla Industrial Development Authority & Ors.[Company Appeal (AT) (Insolvency) No. 775 of 2019] Date: 31.07.2019

The NCLAT in this case held that the Interim Resolution Professional will examine the claim submitted by the Applicant and the same will not be rejected on the basis that it is time barred or filed by an entity other than Financial Creditor. The Adjudicating Authority had already made it crystal clear that "the claim can't be rejected because it is time barred or it is claimed by an entity other than financial creditor."


The Adjudicating Authority and NCLAT had the similar views and approach that the claim submitted to the IRP cannot be rejected on the mere ground that it was time barred or the Financial Creditor has not raised the claim. The order given to the IRP is correct in the sense that the claim submitted by the applicant will be examined by the IRP.

This will provide an opportunity to the creditors of the Corporate Debtor to submit the claims without mentioning the category of the creditors and the same will be examined by the IRP.

VI. The resolution plans or schemes not accepted in CIRP, can be accepted by the liquidator in the liquidation process.

Kautilya Industries Pvt. Ltd. v. Parasrampuriya Synthetic Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 282 of 2019] Date: 31.7.2019

The NCLAT held that it is open to the Liquidator or the class of creditors or the class of members to consider resolution plans which were filed but were not taken up for the purpose of the scheme.


The NCLAT herein has rightly observed and examined the fact that there was no case made out for exclusion of any of the period for the purpose of counting 270 days which stands completed on passing the impugned order of liquidation.

The duty of the liquidator is to ensure the fact that the company remains as a going concern during liquidation, and it will be a helping hand to the acquirer as company will not be started from the scratch.

The selling off of a company with the employees, in case there is no approval of any scheme under section 230 of Companies Act, 2013, will surely have a positive effect on the growth of the economy as well as the company.

Considering the scheme or arrangement under Liquidation would result in the saving of time, money and resources but would be subject to scrutiny of the Liquidator.

VII. Can Adjudicating Authority pass an ex-parte order without issuing and serving of any notice on the Corporate Debtor.

Mr. Abhishek Jaiswal v. M/s Raj Process Equipments & Systems Pvt Ltd & Anr., [Company Appeal (AT) (Insolvency) No.316 of 2019], NCLAT, Date: 02.08.2019

The NCLAT held that passing of an ex-parte order without the notice being served to the Corporate Debtor is violative of the principles of natural justice.


In the present case, Hon'ble NCLAT has clearly observed the importance of serving of notice to the Corporate Debtor and how it plays an important role. Here more significance is given to observing and implementing the basis of principles of natural justice i.e. no order can be passed without giving an opportunity of hearing to both the parties.

VIII. RTI can be rejected on the basis that the information asked for is not available as existing material in the records of IBBI.

Mr. Ravindra Gopal Karle v. CPIO, IBBI [Appeal No. ISBBI/A/2019/60006], FAA of IBBI, Date: 05.08.2019

The Authority referred the decision of CIC in the matter of Shri Alok Shukla vs. CPIO, SEBI wherein it was held that "while dealing with RTI, we should not forget that information means only an existing material record. The CPIO can provide the copy of the available record; he cannot create new records in order to address specific queries of the Appellant."

Based on the above the authority rejected the application of the RTI request filed by the Appellant requesting the details of all registered valuers registered on the basis of their post-graduation qualification from Annamalai University along with the date of registration.


The Authority herein has taken a narrow view of the rights available under the RTI Act here by not allowing the RTI Appeal, wherein a request was made to make all the information available of certain valuers. The Authority has taken a strict view by stating that the information would mean only an existing material record and not the records that need to be created in order to address a specific query.

IX. Selling off of the assets of the Corporate Debtor should be the last resort.

S. Vijayalaskhmi v. M. Murugesan (RP), [Company Appeal (AT) (Insolvency) No.792 of 2019], NCLAT, Date: 05.08.2019

The NCLAT held that during the liquidation process, steps are required to be taken for revival and continuance of the 'Corporate Debtor' by protecting the 'Corporate Debtor' from its management and from a death by liquidation.

Thus, the steps which are required to be taken are as under:

  1. By compromise or arrangement with the creditors, or class of creditors or members or class of members in terms of Section 230 of the Companies Act, 2013.
  2. On failure, the liquidator is required to take steps to sell the business of the 'Corporate Debtor' as a going concern in its totality, along with the employees.

The last stage will be death of the 'Corporate Debtor' by liquidation, which should be avoided.


NCLAT is of the clear view that all the required and possible measures are to be taken so that the Corporate Debtor can be revived and kept as a going concern. Importance has been given to the option of Compromise available under Section 230 of the Companies Act, 2013 and to the revival of the Corporate Debtor. The Liquidator before taking steps for selling of the assets of the Corporate Debtor is required to take steps in terms of Section 230.

X. The dispute must exist prior to serving of the Demand Notice

R.S. Cottmark (India) Pvt. Ltd. v. Rajvir Industries Ltd. [Company Appeal (AT) (Insolvency) No. 653 of 2018
M/s. Krishna Bio Tech vs. Rajvir Industries Ltd. [Company Appeal (AT) (Insolvency) No. 654 of 2018, Date: 05.08.2019

The NCLAT held that the dispute had already been raised by the Respondent in respect of the quality of cotton supplied by the Petitioner, which was seen when the goods were rejected due to their quality. NCLAT observed that the proceedings under IBC are not a recovery proceedings and subsequently the applications were rejected.


The Appellant herein has rightly observed and examined the fact that the dispute had already arisen before the demand notice was served.

Section 5(6) of the IBC 2016 defines dispute, in which clause (b) clearly mentions dispute relating to "the quality of goods or services", and the respondent via invoices had informed to the appellants regarding the quality of cotton bales supplied and it had been done much before the issuance of Demand Notice by the Appellants to the Respondents.

This content is purely an academic analysis under "Legal intelligence series".

© Copyright AMLEGALS.

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

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