Category Archives: Insolvency and Bankruptcy

In a recent judgment in Kotak Mahindra Bank Limited versus A. Balakrishnan & Anr [Civil Appeal No. 689 of 2021], the Hon’ble Supreme Court settled the position w.r.t. the holder of recovery certificate issued under the Recovery of Debts and Bankruptcy Act, 1992 (“RDB Act”) who shall be a ‘Financial Creditor’ under Insolvency and Bankruptcy Code, 2016 (“IBC/Code”) and shall have a fresh cause of action to initiate CIRP under section 7 of the Code.

In the present matter, Kotak Mahindra Bank, which procured a recovery certificate from Debt Recovery Tribunal, filed an application under section 7 of the Code on the basis of the recovery certificate. The application was admitted but immediately challenged before the Hon’ble NCLAT which set aside the order of the NCLT on the basis of the cause of action being time barred.

The order of NCLAT was challenged before the Hon’ble Supreme Court on the ground that the application before NCLT was made well within the period of three years from the date on which the recovery certificates were issued and therefore the application under section 7 was within limitation.

The Court set aside the order of NCLAT. The Court upheld the decision in Dena Bank (now Bank of Baroda) vs. C. Shivakumar Reddy & Anr, 2021 SCC OnLine SC 543 which inter alia held that the a fresh period of limitation period would accrue for an application under Section 7 from the date of a recovery certificate. The Court reasoned that a recovery certificate is a “financial debt” within the unexhausted definition provided under Section 5 (8) of the Code. While an application under section 7 of the IBC may be filed in respect of a ‘default’ which means non-payment of a debt as per section 3 (12) of the Code, “debt” is defined as a “liability in respect of a claim as per Section 3 (11) of the Code, and “claim” in turn, as per section 3(6) of the IBC, means a right to payment, whether or not such right has been reduced to judgment. In this case, the claim has been reduced to judgment by way of a recovery certificate. The Court also went into interpreting Sections 19 (22) and 19 (22A) of the RDB Act and held that they do not restrict initiation of CIRP based on a recovery certificate.

In the matter of State Bank of India, Stressed Asset Management Branch  v. Mahendra Kumar Jajodia Company Appeal (AT) Insolvency No. 60 of 2022, State Bank of India (“Appellant”) approached the Hon’ble National Company Law Appellate Tribunal (“NCLAT”) against the order of Ld. National Company Law Tribunal, Kolkota (“NCLT”). Vide impugned order, NCLT, Kolkata had rejected the application of the Appellant under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 (“IBC”) seeking initiation of Corporate Insolvency Resolution Process against the Guarantor. As per the NCLT, the application was premature as on date of application there was no Corporate Insolvency Resolution Process (“CIRP”) or Liquidation Process pending against the Corporate Debtor because of approval of the Resolution Plan. Since Section 60(2) of the Code prerequisites that there must be CIRP or Liquidation Process pending against the principal borrower or the corporate debtor for initiation of an insolvency resolution process to be initiated against the personal guarantor, the application was liable to be dismissed.

On analysis of Section 60(2) of the IBC, the Hon’ble NCLAT held that purpose and object of Section 60(2) of the IBC is that “when proceedings are pending in ‘a’ National Company Law Tribunal, any proceeding against Corporate Guarantor should also be filed before ‘such’ National Company Law Tribunal. The idea is that both proceedings be entertained by one and the same NCLT. The sub-section 2 of Section 60 does not in any way prohibit filing of proceedings under Section 95 of the Code even if no proceeding are pending before NCLT.” It was further clarified by the Hon’ble NCLAT that Section 60(2) was applicable in a limited circumstances i.e. only when a CIRP or Liquidation Proceeding of a Corporate Debtor is pending before NCLT. In cases where CIRP is not pending against the corporate debtor, section 60(1) shall apply.

The NCLAT explained that the provision of Section 60(2) are without prejudice to Section 60(1) and are supplemental to Section 60(1) which provides that Adjudicating Authority in relation to Insolvency or Liquidation for Corporate Debtor including Corporate Guarantor or Personal Guarantor shall be the NCLT having territorial jurisdiction over the place where the Registered Office of the Corporate Person is located. Therefore, section 60(1) is the substantive provision and can be invoked in the cases which do not fall under section 60(2) of the IBC.

The Hon’ble NCLAT, therefore, allowed initiation of insolvency resolution process against the personal guarantor under section 95(1) of the Code, although no CIRP of the corporate debtor was pending before the NCLT.

It is important to note that the CIRP was initiated against the corporate debtor but has ceased to continue on account of approval of the resolution plan. Interestingly, section 60(2) provides for two situation only i.e. “where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal”.

The order has been now challenged by the personal guarantor before the Hon’ble Supreme Court where the moot question is whether Insolvency Resolution Process can be initiated against the Personal Guarantor in the absence of Corporate Insolvency Resolution Process. This absence of CIRP may arise out of the fact that there is no CIRP initiated against the corporate debtor at all or that it commenced but terminated on account of approval of resolution plan. The situation that the CIRP culminates into commencement of Liquidation Process has been squarely covered by the provision under section 60(2) of the IBC.

The Division Bench of the Hon’ble Supreme Court comprising of Justice Abdul Nazeer and Justice Vikram Nath vide order dated 21.03.2022 stayed the operation of order of the Hon’ble NCLAT and issued notice while citing Paragraph 95 in the judgment of Lalit Kumar Jain v. Union of India 2021(9)SCC321 wherein it was held that:

“Section 60(2) prescribes that in the event of an ongoing resolution process or liquidation process against a corporate debtor, an application for resolution process or bankruptcy of the personal guarantor to the corporate debtor shall be filed with the concerned NCLT seized of the resolution process or liquidation. Therefore, the Adjudicating Authority for personal guarantors will be the NCLT, if a parallel resolution process or liquidation process is pending in respect of a corporate debtor for whom the guarantee is given. The same logic prevails, under Section 60(3), when any insolvency or bankruptcy proceeding pending against the personal guarantor in a court or tribunal and a resolution process or liquidation is initiated against the corporate debtor. Thus if A, an individual is the subject of a resolution process before the DRT and he has furnished a personal guarantee for a debt owed by a company B, in the event a resolution process is initiated against B in an NCLT, the provision results in transferring the proceedings going on against A in the DRT to NCLT.”

While drafting an appeal under section 61 of the Insolvency and Bankruptcy Code, 2016, against the order of the NCLT, we have often faced the difficulty of determining the commencement of limitation period. Section 61(1) and 61(2) of the Code provides that:

(1) Notwithstanding anything to the contrary contained under the Companies Act 2013 (18 of 2013), any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal.

(2) Every appeal under sub-section (1) shall be filed within thirty days before the National Company Law Appellate Tribunal:

Provided that the National Company Law Appellate Tribunal may allow an appeal to be filed after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing the appeal but such period shall not exceed fifteen days.

As can be seen above, Section 61 (2), although prescribes the time line of 30 + 15 days, it does not state as to when the time period starts.

If one refers to the NCLAT Rules, we find the following relevant provisions:

22. Presentation of appeal.-

(1) Every appeal shall be presented in Form NCLAT-1 in triplicate by the appellant or petitioner or applicant or respondent, as the case may be, in person or by his duly authorised representative duly appointed in this behalf in the prescribed form with stipulated fee at the filing counter and non-compliance of this may constitute a valid ground to refuse to entertain the same.

(2) Every appeal shall be accompanied by a certified copy of the impugned order.

…

 Form NCLAT-1  provides a fixed format and the relevant paragraphs of the format are reiterated for the ease of reference.

…

2. Date on which the order appealed against is communicated and proof thereof, if any.

…

6. Limitation The Appellant/s declare that the appeal is within the period specified in sub-section (3) of section 421 of the Act. (Explain how the appeal is within the period prescribed in case the appeal is preferred after the expiry of 45 days from the date of order/direction/decision against which this appeal is preferred). In case the appeal barred by limitation, the number of days of delay should be given along with interlocutory application for condonation of delay.

…

By the reading of the said provisions, it is not clear as to which is the starting point of the limitation period as prescribed under section 61(2) of the Code. Para 2 of the Form NCLAT-1, however mandates that the appeal should mention the date on which the order appealed against is communicated and also attach a proof of the same, if any. This might indicate that the time period should ideally start to run from the date on which the order appealed against is communicated. However, the question is whether under IBC, this is referring to the free certified copy, or the certified copy for which the appellant applies? If it is latter, when should the applicant apply for the certified copy?

In a judgment pronounced in the matter of V Nagarajan v. SKS Ispat and Power Ltd.& Ors. [Civil Appeal No. 3327 of 2020], the Hon’ble Supreme Court has clarified the very question as to when the limitation period under section 61 of the Insolvency and Bankruptcy Code, 2016 starts ticking.

The issue in the matter arose from the fact that the appellant in the matter had filed an appeal against the order of National Company Law Tribunal, Chennai dated 31^st December 2019 which was uploaded on the NCLT website only on 12^th March 2020 after which a corrected order was also uploaded on 20 March 2020. Thereafter, the Appellant, allegedly so, sought the free copy on 23^rd March 2020, which according to the Appellant was never received by him. The Appellant filed the appeal before the NCLAT on 8^th June 2020 with a downloaded copy accompanied with an application for exemption from filing a certified copy of the order as it had not been issued. Appellant did not file any application for the condonation of delay.

The Appellate Tribunal did not find any ground to interfere on merits. On the question of limitation period, the NCLAT observed that the appeal was barred by limitation since the statutory time limit of thirty days had expired and the Appellant had not filed an application for condonation of delay. Further, in violation of rule 22 of the NCLAT Rules, the appeal was neither accompanied with a certified copy of the impugned order nor had the Appellant provided any evidence to prove that a certified or free copy had not been issued to him.

Amongst other contentions before the Supreme Court, the Appellant argued that NCLAT, in its suo motu order dated 23^rd March 2020 had stopped the clock of limitation with effect from 15th March 2020 on account of the COVID-19 pandemic and that he filed an appeal on 8^th June 2020 when an SOP for commencement of virtual hearings was issued on 30^th May 2020. Before this time, the NCLAT was shut on account of the COVID-19 pandemic from 24^th March 2020. Therefore, according to the Appellant, the appeal was within the time period of 30 days. The Appellant also contented that although Rule 22 of the NCLAT Rules mandates a certified copy of the order for filing an appeal, however, Rule 14 of the NCLAT Rules permits a waiver from compliance with any of the rules. According to the Appellant, the waiver, as a matter of practice, was usually granted in case of a downloaded online copy filed in lieu of a certified copy of the order.

The Appellant further relied on the judgment of Sagufa Ahmed v. Upper Assam Plywood Products Pvt Ltd. (2021 (2) SCC 317), where the Hon’ble Supreme Court had held that the limitation period would run only from the date on which a copy of the order is made available to the aggrieved party and that even a delay in applying for a certified copy would not prejudice the right to appeal when a free copy is statutorily mandated.

Another interesting argument of the Appellant was that mere absence of the words “from the date on which a copy of the order of the Tribunal is made available to the person aggrieved” in Section 61(2) of the IBC, in contradistinction to Section 421(3) of the Companies Act, has no material bearing since an appeal cannot be filed without a copy of the order. The Appellant further relied on the legal principles of lex non cogit ad impossibilia which states that the law cannot mandate a person to do an impossible act and actus curiae neminem gravabit– no person should suffer for an act of Court.

The Court framed two questions to be determined –

(i) when will the clock for calculating the limitation period run for appeals filed under the IBC; and

(ii) is the annexing of a certified copy mandatory for an appeal to the NCLAT against an order passed under the IBC.

Issue 1: When will the clock for calculating the limitation period run for appeals filed under the IBC?

The Court in the process of determination of the first issue, analysed the judgment in Sagufa Ahmed and observed that the Court in the matter had clarified that once an application for a certified copy is made and the order has been received, irrespective of when the free certified copy is received, the limitation period would then be computed from the date of receipt of the certified copy (as applied). Therefore, as per the court, “the statutory mandate of a free copy is not to enable litigants to take two bites at the apple where they could compute limitation from either when the certified copy is received on the litigant’s application or received as a free copy from the registry – whichever is later.”

The Court, once again adopting a purposive interpretation, emphasized on the fact that IBC was framed particularly to structure and streamline the entire process of insolvency with strict time-lines for the completion of the process. Under IBC, any extension of times beyond the outer limit prescribed by the Code is only granted in exceptional circumstances. In this regard the Court also referred to Section 64 of the IBC which ‘notably’ imposes an obligation on the NCLT and NCLAT to expeditiously dispose applications pending before it, along with recording of reasons for any delay from the prescribed limit to the President of the NCLT/NCLAT, who can then extend the period, not exceeding ten days. The Court relied on various cases including the decision in Essar Steel India Ltd v. Satish Kumar Gupta, Innoventive Industries Ltd v. ICICI Bank, (2018) 1 SCC 407, Mobilox Innovations Private Ltd v. Kirusa Software Private Ltd (2018) 1 SCC 353 and recently decided decision in Ebix Singapore Private Ltd v. Committee of Creditors of Educomp Solutions Ltd. 2021 SCCOnLine SC 707.

On the first issue, the Court concluded while clarifying reasons why there is a conscious omission of the words “from the date on which the order is made available” for the purposes of computation of limitation in Section 61(2) of the IBC.  The Court held that IBC affects rights of stakeholders who are not necessarily parties to the proceedings. Therefore applicants are expected to exercise diligence and file the appeal without awaiting a free copy. Thus, the omission of the words “is a consistent signal of the intention of the legislature to nudge the parties to be proactive and facilitate timely resolution.”

Issue 2: Is the annexing of a certified copy of the order mandatory?

On the question of whether the appeal should be accompanied by a certified copy of the order, the Court referred to Rule 22(2) of the NCLAT Rules and Section 12(2) of the Limitation Act. The Court held that the provisions assign the responsibility of applying for a certified copy of the order on a party. While Rule 22(2) of the NCLAT Rules mandates that an appeal has to be filed with a certified copy of the impugned order and the Section 12(2) of the Limitation Act excludes the time taken by a party for obtaining a certified copy of the order it seeks to appeal and thus, ensures that any delay in the receipt of the certified copy by the applicant shall not cause any prejudice to the applicant.

The obvious question that arises here is within what time should the person aggrieved of the order, apply for the certified copy. In this regard, the Court observed that “a person wishing to file an appeal is expected to file an application for a certified copy before the expiry of the limitation period, upon which the “time requisite” for obtaining a copy is to be excluded. However, the time taken by the court to prepare the decree or order before an application for a copy is made cannot be excluded. If no application for a certified copy has been made, no exclusion can ensue.”

In the findings of facts, the Court observed that in the matter in hand the appellant was present in court at the time of pronouncement of the order, and yet chose to file for a certified copy after five months. It clearly goes on to indicate that the Appellant failed to exercise diligence in pursuing the litigation in a timely fashion. The court further found that the period of 30 days + 15 days also expired much before the set in of pandemic and resultant lockdown in March. Further, the suo moto extensions made by the NCLAT only extended the period of limitation applicable in the proceedings, only in cases where such period had not ended before 15^th March 2020.

The Court further held that, “In this case, owing to the specific language of Section 61(1) and 61(2), it is evident that limitation commenced once the order was pronounced and the time taken by the Court to provide the appellant with a certified copy would have been excluded, as clarified in Section 12(2) of the Limitation Act, if the appellant had applied for a certified copy within the prescribed period of limitation under Section 61(2) of the IBC.”   

The Appeal was thus rightly dismissed by the NCLAT as time barred.

In the recent matter of Rajendra Narottamdas Sheth & Anr. vs. Chandra Prakash Jain & Anr. decided by the Hon’ble Supreme Court (Civil Appeal No.4222 of 2020), two essential issues arose for consideration, namely, (i) What is the maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 filed by a power of attorney holder; and (ii) whether an application filed beyond three years from the date of default is barred by limitation?

The first issue arises from the fact that Union Bank of India (the financial creditor) had issued power of attorney as an authority document. The PoA was executed by the general managers in 2011 pursuant to the resolution passed by the board of directors of the Bank in 2008. The Bank through the PoA appointed the person to conduct and manage and to assist in all the business and affairs of the Bank. Additionally the person was also authorised to commence, prosecute, endorse, defend, answer and/or oppose any suit or other legal proceedings and to make sign, execute, present and file all applications, plaints, petitions etc. The Corporate Debtor while relying on Palogix Infrastructure Private Limited v. ICICI Bank Limited, [2017 SCC Online NCLAT 266] argued that the application under Section 7 of the Code was not maintainable as it was filed by a power of attorney holder. Interestingly Counsel appearing for the Financial Creditor, also relied upon the same judgment and argued that a person authorised by way of a power of attorney can file an application under Section 7 of the Code.

The Supreme Court while referring to  the judgment in Palogix Infrastructure observed that if a general authorisation is made by a creditor/corporate applicant in favour of its officer to do needful in legal proceedings, mere use of the words ‘Power of Attorney’ while delegating such power, will not take away the authority of such officer. The Court, while approving the view taken by NCLAT in Palogix Infrastructure, further indicated that if the officer was authorised to sanction loans and had done so, such officer having power to recover the loan amount, can also initiate corporate insolvency resolution process.

The second issue arises from the fact that the date of default of payment by the corporate debtor was 30.09.2014 i.e. the date on which the account of the Corporate Debtor was declared as non-performing asset (NPA) and the application under section 7 of IBC was filed on 25.04.2019. The Financial Creditor, along with the application had only filed a copy of the debit balance confirmation letter dated 07.04.2016. The Financial Creditor, however, had made no plea with respect to extension of the limitation period and application of Section 18 of the Limitation Act. In such circumstances of there being no specific plea, the application was liable to be dismissed.

However, the Corporate Debtor had, in its reply before the Adjudicating Authority, placed on record a letter dated 17.11.2018, which detailed the amount repaid till 30.09.2018 and acknowledged the amount outstanding as on 30.09.2018. On the basis of the said letter and the record as presented in the reply by the Corporate Debtor showing that the Corporate Debtor had executed various documents amounting to acknowledgement of the debt even in the financial year 2019-20, the Court was of the opinion that Section 18 of the Limitation Act was applicable and therefore, the application under section 7 was well within the limitation period.