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Team Code:

II SURANA & SURANA AND UPES SCHOOL OF LAW,

NATIONAL INSOLVENCY LAW MOOT COURT
COMPETETION, 2019

Before The Hon’ble National Company Law

Tribunal

In the Matter of:

Trade Union ….Applicants

v.
The Weeknd Airlines’ Pvt. Ltd. …Respondents
With
Kailash Bank and Anrs. …Applicants
v.
Resolution Professional/ CoC …Respondents
With
Indian Creditors …Applicants
v.
Ms. Olivia …Respondents

UNDER SECTION

10(1) OF INSOLVENCY AND BANKRUPTCY CODE, 2016

READ WITH

RULE 7(1) OF INSOLVENCY AND BANKRUPTCY RULES, 2016

Written Submission on Behalf of the Defendant

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INDEX OF AUTHORITIES

INDIAN JUDGEMENTS

1 Ambey Flour Mills Pvt. Ltd. V. Vimal 1989 SCC OnLine Del 358

Chand Jain

2 Arcelor Mittal India Pvt Ltd. v. Satish (2018) 211 CompCase

Kumar Gupta 0369.

3 Ashok Kumar Sonkar v. Union of India and (2007) 2 SCC (L&S) 19.

Ors

4 American Express Bank v. Core Healthcare (1999) 96 Comp Cas

Ltd 841(Guj)

5 Bank of New York Mellon, London Branch AIR 2017 SC 1735

v. Zenith InfoTech Limited,

6 SemCanada Crude Corporation et al Court of No. 0801-08510 (22 May

Queen’s Bench of Alberta for the Judicial 2009)

District of Calgary

7 Gujarat Industrial Investment Corporation 2008 SCC OnLine Mad

Ltd. v. Sterling Holiday Resorts (India) Ltd 103

8 H.P. State Electricity Board v. Shivalik (2003) 115 Comp Cas

Casting Pvt. Ltd 310(HP)

9 ICICI Bank Ltd. v. ABG Shipyard Ltd. [C.P. No. (IB

Written Submission on Behalf of the Defendant

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53/7/NCLT/AHM/2017)

NCLT, Ahmedabad]

10 Innoventive Industries Ltd. v. ICICI Bank & 2017 SCC OnLine SC

Anr 1025

11 Kaliber Associates Pvt. Ltd v. Mrs. Tripat (2017) SCC NCLAT 77

Kaur,

12 Kotak Mahindra Bank Ltd. v. J.B. Diamonds 2010 SCC OnLine Bom

Ltd 1162

13 Kumar Mathur v. Union of India (1996) 20 CLA 213(SC)

14 Lalit Mishra &Ors. v. Sharon Biomedicine Company appeal

Ltd., Insolvency no. 164 of

2018] dated: 14.11.2018

15 Life Insurance Corporation of India v. (1986) 59 Comp Cas 548

Escorts Ltd

16 Madhusudhan Gordhandas & Co. v. Madhu AIR 1971 SC 2600

Woolen Industries Pvt. Ltd

17 Madhya Pradesh Iron & Steel Co. v. GB 2002 SCC OnLine Del

Spring Pvt. Ltd 1371

18 M/s. Bhairav Industries v. The Official SCC OnLineBom 7630

Liquidator M/s. Shree Ghanshyam Pvt. Ltd

19 M/s. Subasri Realty Private Limited v. Mr. [Company Appeal (AT)

N. Subramanian & Anr (Insolvency) No. 290 of

2017][6]

20 National Project Construction Corporation AIR 1990 P&H 300

Limited v. Sandhu and Co

Written Submission on Behalf of the Defendant

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21 Nawabkhan Abbaskhan v. State of Gujrat AIR 1974 SC 1471

22 Nitro Ltd. v. National Insurance Co. Ltd. (1991) 70 Comp Cas

388(Delhi).

23 Organo Chemical Industries v. Union of AIR 1979 SC 1803.

India

24 P.C. Agarwal v. Payment of Wages Inspector (2005) 8 SCC 104.

25 PNB Ltd.v. Arura Mal Durga Dass (AIR 1960 Pun.632.).

26 Ramdeo Ranglal v. Ghooronia Tea Co. Pvt. (2005) 126 Comp Cas

Ltd 193(Gau).

27 Rajendra Nath Dutta v. Shibendra Nath [1982] 52 Comp Cas 293

Mukherjee (Cal)

28 Ram Niwas v. Bano, AIR 2001 SC 2921.

29 Royal British Bank v. Turquand (1856) CI & B 327

30 R.R.R. Gopala Rao v. N.G. Sehararao, AIR 1989 SC 218

31 Sanjeev Shriya v. the State Bank of India, 2017 (9) ADJ 723.

32 SBI v.V Ramakrishnan and M/s Veesons Civil Appeal No 3595 and

Energy Systems Pvt. Ltd 4553 of 2018 dated

14.08.2108

33 Sham Saheb M. Multtani v. State of AIR 2001 SC 921

Karnataka,

34 Shree Metaliks & Anr. v. Union of India & 2017 SCC OnLine Cal

Anr. 2749

35 Sicom Investments and Finance Ltd. v. (2017) SCC Onine Bom

Rajesh Kumar Drolia and Anr 9275

36 M/s State Bank of India, Colombo v. 17/7/NCLT/AHM/2017

Written Submission on Behalf of the Defendant

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Western Refrigeration Pvt. Ltd

37 Syndicate Bank v. Vijay Kumar AIR 1992 SC 1066.

38 Telco Ltd. v. State of Bihar (1964) 6 SCR 885

39 Union of India and Another v. W.N. Chadha, AIR 1993 SC 1082

INTERNATIONAL JDGEMENTS

1 Akai Holdings Limited Cases No. HCCW 49/2000 and

High Court of the Hong Kong Special HCCW 50/2000 (6 February

Administrative Region 2004), and the Supreme Court

of Bermuda

2 Gallaghar v. Germania Brewing Company (1893) 53 MINN 214

3 Firbank’s Executors v. Humphreys (1886) 18 QBD 64

4 Ivan Cherkasov v. Nogotkov Kirill Olegovich [2017] EWHC 756 (Ch)

5 Macaura v Northern Assurance Co [1925] AC 619

6 P MacFadyen & Co. Ltd. [1908] 1 K.B. 675

Re P. MacFadyen & Co, ex parte Vizianagaram

Company Limited

7 Pope & Talbot Inc Case No. SO77839, (14

Supreme Court of British Columbia, December 2007)

Vancouver, , and the United States Bankruptcy Case. No. 07-11738

Court for the District of Delaware,

8 Rashdall v. Ford (1866) ERQ Fq. Cas 750

9 Seawolf Tankers Inc., Heidmar Inc. v. Pan [2017] EWHC 756 (Ch)

Written Submission on Behalf of the Defendant

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Ocean Co. Limited

10 Solomon v. Solomon (1897) AC 22

11 SemCanada Crude Corporation et al Court of No. 0801-08510 (22 May

Queen’s Bench of Alberta for the Judicial 2009), and the United States

District of Calgary Bankruptcy Court for the

District of Delaware, Case No.

08-11525

12 Weeks v. Propert (1873) LR 8 CP 427

BOOKS AND REPORTS REFFERED

1 Treatise on IBC by V.S. Wahi (former Chief Commissioner of Income

Tax and Ex-member of Company Law Board) {2nd Edition, 2018}

2 C.R. Dutta on Company Law (6th Edition, 2008)

3 Law of Insolvency by S. Krishnamurthy Aiyar (7th Edition)

4 Taxmann Company Laws Manual: A Compendium on Companies Act

2013 & Company Rules & Forms (7th Edition, 2017)

5 C.S.(Dr.) D.K. Jain, Guide to Insolvency & Bankruptcy Code 2016 (1st

Edition, 2017)

6 Reserve Bank of India, Report of The Advisory Group on Bankruptcy

Laws, (May 9, 2001)

7 M. Virgo and E. Schmit, Report on the Convention on Insolvency

Proceedings, Brussels, 3rd May 1996

8 The Insolvency and Bankruptcy Code, 2016- New Road and New

Written Submission on Behalf of the Defendant

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Challenges,

(2012) PL (CL) July 76.

9 Bouviour’s Law Dictionary, Third Revision.

10 UNCITRAL Practice Guide on Cross Border Insolvency

11 Committee on Bankruptcy Law Reforms, Volume I, 2015

12 Manzar Sayeed, Commentary on the Insolvency and bankruptcy, 2016 59

(2nd ed. 2017).

13 1. Committee on Insolvency and Bankruptcy Code, Lok Sabha (2015)

STATUTES REFFERED

1 Insolvency & Bankruptcy Code, 2016

2 Companies Act, 2013

3 UNCITRAL Legislative Guide

4 US Bankruptcy Code, 1979

5 Draft Part Z on Cross-Border Insolvency Code

6 SARFAESI Act, 2002

Written Submission on Behalf of the Defendant

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7 Indian Contract Act, 1872

WEB RESOURCES REFFERED

1 SCC OnLine

2 Manupatra

3 JSTOR

4 Lexis Nexis

TABLE OF ABBREVIATIONS

1. AIR All India Reporter

Written Submission on Behalf of the Defendant

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2. Comp. Cas. Company Cases

3. CompLJ Company Law Journal

4. Cr. Crore

5. IBC Insolvency and Bankruptcy Code

6. NCLAT National Company Law Appellate Tribunal

7. NCLT National Company Law Tribunal

8. SC Supreme Court

9. SCC Supreme Court Cases

10. Sec. Section

11. w.r.t With Regard To

12. CoC Committee of Creditors

13. IRP Interim Resolution Profession

14. Model Law UNCITRAL Model Law on Cross Border

Insolvency

15. NCLT Rules National Company Law Tribunal Rules,

2016

16. SCR Supreme Court Recorder

17. UNCITRAL United Nations Convention on International

Trade Law

18. Bom. Bombay

19. Cal. Calcutta

20. Guj. Gujrat

21. Gau. Guwahati

22. i.e. In Essence

23. & And

Written Submission on Behalf of the Defendant

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24. INR Indian Rupee

25. RP Resolution Profession

26. Weeknd The Weekend Airlines

27. AHSB Air Hotels SDN BHD

28. Co. Company

29. Del Delhi

30. Mad Madras

31. Mr. Hooda Mr. Abel TasfayeHooda

32. Ors. Others

33. SARFAESI Securitisation and Reconstruction of

Financial Assets and Enforcement of

Securities Interest Act, 2002

34. Regd. Registered

35. Estd. Established

36. COMI Centre of Main Interests

37. No. Number

38. v. Versus

39. Ltd. Limited

40. Anr. Another

41. Pvt. Private

42. Chap. Chapter

43. RP Resolution Professional

Written Submission on Behalf of the Defendant

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STATEMENT OF FACTS

Mr. Hooda had started Weeknd as the first privately-owned airline Company in India in 2011

and the Company was known for its high-end premium services that could break the

monopoly of Air India and Indian Airlines. The very ambitious Mr. Hooda established AHSB

in 2014 to expand his business. In the course of time many competitor airlines came to

crumble Weeknd’s well-set business, however, Mr. Hooda stuck to the ideology of ‘quality’

over ‘quantity’.

As the company did not gain profits in the year when sector experienced best returns, Mr.

Hooda took several loans for running the business of the company efficiently. After taking

the loans, the weeknd flew to for the first time to Russia and then to Europe. The loans taken

by Mr. Hooda which are in dispute are, INR 100Cr from Bank of Dehradun for covering

flying costs in Europe, INR 189Cr from Kailash Bank for base maintenance, INR 150Cr from

RSJ Bank to catch-up with the losses incurred by Weeknd Productions.

After the initiation of CIRP, the CoC was appointed which rejected the claims of the abve

mentioned three banks. The claims of Mr. Vikas for being indemnified by Mr. Hooda had

also been rejected on the grounds that it doesn’t fall under IBC proceedings.

Ms. Olivia was appointed as the Interim Trustee of the restructuring process of AHSB at

USA who had applied for the recognition of the US Proceeding to the Adjudicating Authority

as soon as she learnt about AHSB’s assets in India which the Indian Creditors of AHSB

opposed right away.

The RP rejected the Resolution Application of the highest bidder, Mr. Naresh Singhvi,

Weeknd’s Directors stating that he is barred under Sec. 29A of the Code.

And therefore this present case.

Written Submission on Behalf of the Defendant

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SUMMARY OF ARGUMENTS

ISSUE 1: The suit has been filed by the trade union, which do not fall under the ambit of the

creditors. Also, respondent must be given a fair right to be heard and the right to receive

notice. Thus, the application is not admissible.

ISSUE 2: Because of the concept of Separate legal entity and its exception of lifting the

corporate veil, company is not responsible to fulfill the debts of Mr. Hooda.

ISSUE 3: The basic argument being illustrated in this contention is that RSJ Bank is not a

creditor of Weeknd which does not have any ownership of the security for the loan

concerned.

ISSUE 4: The Co. is a separate entity independent of its Directors and can hence not be held

liable for the individual acts of its Directors.

ISSUE 5: Mr. Vikas cannot enforce his contractual rights as IBC proceedings are not

recovery proceedings but more of restorative in nature.

ISSUE 6: Ms. Olivia's application must be accepted as the financial amount involved is

humongous and the USA proceedings are also of utmost importance.

ISSUE 7: Two Concurrent Insolvency Proceedings going on under different jurisdictions as

the UNCITRAL Model Law on Cross-Border Insolvency talks about the same.

ISSUE 8: The claim of defendants, upon the admission of CIRP the invocation of Personal

Guarantee by Bank of Dehradun is liable to be set aside as IBC confirms the same under

Section 60.

ISSUE 9: Mr. Naresh Singhvi must not be allowed to present his resolution plan as

reinforced by Section 19 and 29A of the IBC.

Written Submission on Behalf of the Defendant

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ARGUMENTS ADVANCED

1. Whether the application filed under Insolvency and Bankruptcy Code, 2016 is

admissible?

It is humbly submitted that the case has been filed by the trade union, at the request of Pilots

of Weeknd as they were not given the possession of flats on time. But weeknd is going

through hard times and therefore it is unjust for the trade union to take such coercive actions.

i. Trade Union cannot initiate CIRP according to IBC: According to Sec. 6 of IBC Code,

only a “financial creditor1, an operational creditor2 or the corporate debtor3” can initiate the

CIRP and Trade union does not fall under any of this. Also, neither weeknd nor Mr. Hooda is

indebted to them. Therefore, it does not have any right to file an application to initiate CIRP.

ii. Weeknd, a growth-oriented company is not commercially insolvent: Weeknd who is

known for providing premium quality services and who flew to Russia and Europe has a vast

business network and hence is a growth-oriented company. Therefore “it is not possible to

come even to prima facie conclusion that the company is a commercially insolvent person. 4”

Also, Mr. Hooda is not a ‘Willful defaulter 5’ because a person can be said to have committed

an act of insolvency only when there is a profound intention to defeat or delay the creditor.6

iii. There exists a high possibility of overcoming the losses: A petition cannot be admitted

without first giving the company “an opportunity of making payment in a phased manner…it
1
Insolvency and Bankruptcy Code, 2016, Section 5(7).

2
Insolvency and Bankruptcy Code 2016, Section 5(20).

3
Insolvency and Bankruptcy Code 2016, Section 3(8).

4
American Express Bank v. Core Healthcare ltd., (1999) 96 Comp Cas 841(Guj).

5
R.R.R. Gopala Rao v. N.G. Sehararao, AIR 1989 SC 218.

6
MANZAR SAEED, COMMENTARY ON THE INSOLVENCY AND BANKRUPTCY CODE, 2016 59 (2nd ed. 2017).

Written Submission on Behalf of the Defendant

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is certainly an important consideration especially where it is found that the company is going

through a temporary financial crisis and there is a possibility of it overcoming the same.7”

iv. Principles of Natural justice: Reasonable opportunity of being: As mentioned in

Section 420(1) of the CA, 2013, the tribunal may pass such order as it thinks fit after giving

“a reasonable opportunity of being heard”8 and this shall be done before the admission of the

application. Not only this, Section 424 of the CA, 2013 states that the tribunal in CIRP “shall

be guided by the principles of natural justice…” Hence, the decision must be modulated by

equitable consideration9 and reasonable opportunities of being heard.10

v. Position of RP in Insolvency Resolution Process and Right to Notice under IBC: It is

respectfully submitted that RP was unjustified in direct overtaking of the possession of

Company’s assets. It shows RP’s sheer ignorance towards the agony of employees of the

company. An efficient RP is very important in a CIRP as he holds a pivotal position in the

CIRP.11 His position in the proceedings is very sensitive. 12 It is a settled procedure that on the

occurrence of default operational creditor needs 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.” 13

Thus, corporate debtor has the ‘Right to Notice14’ under IBC.

7
Kotak Mahindra Bank Ltd. V. J B Narayan Ltd., 2010 SCC OnLine Bom 1162.

8
Ashok Kumar Sonkar v. Union of India and Ors., (2007) 2 SCC (L&S) 19.

9
Gujarat Industrial Investment Corporation Ltd. v. Sterling Holiday Resorts (India) Ltd, 2008 SCC OnLine Mad
103.

10
Madhya Pradesh Iron & Steel Co. v. GB Spring Pvt. Ltd., 2002 SCC OnLine Del 1371.

11
Bank of New York Mellon, London Branch v. Zenith InfoTech Limited, AIR 2017 SC 1735 and Committee on
Bankruptcy Law Reforms, THE REPORT OF THE BANKRUPTCY LAW REFORMS COMMITTEE VOLUME –I, 2015.

12
Joint Committee on Insolvency and Bankruptcy Code 2015, Lok Sabha.

13
Innoventive Industries Ltd. V. ICICI Bank & Anr., 2017 SCC OnLine SC 1025.

14
Kaliber Associates Pvt. Ltd v. Mrs. Tripat Kaur; (2017) SCC NCLAT 77.

Written Submission on Behalf of the Defendant

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vi. Insolvency mechanism cannot be equated with a recovery mechanism: IBC is not made

for purpose of claiming debts. Insolvency proceeding is similar to winding up process for

companies15. “The machinery of winding-up is not to be allowed to be utilized simply as a

means for realizing debts due from a company. A winding-up petition is not the legitimate

means of seeking to enforce payment of the debt which is bona fide disputed by the

company.”16 By creating a parallel, it is stated that, insolvency proceedings cannot be used as

a means for realizing the debts from the debtor.

Hence without the fair opportunity to be heard, such a hefty proceeding aimed at recovery of

the debt shall be a scandalous abuse of power and thus, the application is not admissible.

2. Whether the claims of Kailash Bank and Bank of Dehradun can be admitted by RP/CoC?

It is respectfully contended by the respondent that the claims of Kailash Bank and Bank of

Dehradun were due against Mr. Hooda and not against the Company, and thus it cannot be

admitted by the RP/CoC for reasons discussed hereunder.

i. Separate Legal Personality of the company: The Co. is a “distinct legal personality” 17

with an independent identity of its own and hence, it is completely different and separated

from its members, their creditors or any of their acts. “The corporation in law is equal to

natural person and has a legal entity of its own. Its assets are separate and distinct from its

members. The creditors of the members have absolutely no right over the assets of the

corporation.18”Therefore, Mr. Hooda has no rights over the assets of the company and thus,

company is not liable to pay the debts taken by hooda in his personal capacity.

15
Pavan Kumar Vijay, Compendium on the IBC, 2016.

16
Ambey Floor Mills Pvt. Ltd. V. Vimal Chand Jain, 1989 SCC OnLine Del 358.

17
Rajendra Nath Dutta v. Shibendra Nath Mukherjee [1982] 52 Comp Cas 293 (Cal).

18
Telco Ltd. V. State of Bihar, (1964) 6 SCR 885.

Written Submission on Behalf of the Defendant

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ii. Concept of lifting the Corporate veil find its applicable in this case: The counsel humbly

pleads before the adjudicating authority that, though a company is a separate legal entitiy 19

with its own independent existence, it cannot be denied that it is only an artificial person that

is run by and for the benefits of certain individuals who can also commit fraudulent or illegal

activities under the cover of the Company. 20 As was explained in the case of Gallaghar v.

Germania Brewing Company.21 It has also been stated in many Indian judgments that “…

corporate veil may be lifted where the statute itself contemplates lifting the veil or fraud or

improper conduct is intended to be prevented… 22”. It has to be noted that the same concept

of lifting the corporate veil is mentioned in section 339(1) of the Company’s Act and abiding

by this definition, it is seen that all the required conditions for fraud i.e., intention to defraud

creditors, for fraudulent purposes, by director or manager or officer or any person

carrying on the businesses of the Company have been fulfilled by Mr. Hooda for which

both judicial as well as statutory references are available and have been mentioned. Hence the

corporate veil in this case can be lifted and thereby, Mr. Hooda is now legally liable to pay

off the debts to all the creditors which he had wrongfully used for his personal benefits.

It is therefore pleaded to the learned adjudicating authority that relying on the above

mentioned arguments the company is not bound to relieve Mr. Hooda of its debts matured to

the Kailash Bank and Bank of Dehradun.

3. Whether the RP/CoC is rightful in denying the financial debts of RSJ Bank?

19
Solomon v. Solomon & Co., (1897) AC 22.

20
Concept of Lifting the Corporate veil, Compnay Law.
21
Gallaghar v. Germania Brewing Company, (1893) 53 MINN 214.

22
Life Insurance Corporation of India v. Escorts Ltd., (1986) 59 Comp Cas 548.

Written Submission on Behalf of the Defendant

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It is stated to the learned Tribunal that Weeknd Productions is a fully owned subsidiary of

Weeknd and the loan was taken in its name with Weeknd’s assets kept as security. CoC has

rejected the claims of RSJ Bank because of the following main contentions:

i. There is no default on the part of Weeknd Productions in paying of the debts: Weeknd

Productions, till date has neither defaulted on any loan, nor is any debt due on Weeknd.

ii. Procedure of Enforcement of Security Interest23: Acc. to Sec.13(2) of SARFAESI Act, if

in case of default, a debtor is liable to pay the debt to a secured creditor, the secured creditor

can then require the debtor to discharge his liabilities, and in case the debtor fails, “take

possession of the secured assets of the borrower including the right to transfer by way of

lease, assignment or sale for realizing the secured asset.”24 But however, Sec. 13(2) clearly

mentions, “makes any default in repayment of secured debt or any installment thereof”

as a precondition to act upon any of the mentioned recourses.

iii. Who shall comprise of Committee of Creditors? The Counsel respectfully submits that

according Sec.21 (2)25, IBC, only the financial creditors of corporate debtor shall comprise

of CoC, and RSJ Bank, in no possible circumstance, is a financial Creditor of Weeknd.

iv. Intent of the Code: At this juncture, taking a note of the intent of the Code is important.

“It is for enabling the Company to continue as a going concern and to protect the interest of

the shareholders and creditors that such a power is conferred and must be exercised. 26”

Giving RSJ Bank, charge over the securities without the occurrence of any default would

23
SARFAESI Act, 2002, Section 13(2) and 13(4)

24
Section 13(4)(a), SARFAESI Act, 2002.

25
Sec. 21(2), IBC, 2016: “the committee of creditors shall comprise all financial creditors of the corporate
debtor.”
26
M/s. Bhairav Industries v. The Official Liquidator M/s. Shree Ghanshyam Pvt. Ltd., SCC OnLineBom 7630.

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interfere with Weekend's redeployment method27 and “will bring a Going Concern of the

Company closer to winding up.”28

v. General lien of Bankers cannot be exercised in the present case: It is to be noted that

banker’s lien can be exercised only on the things which are fully under the ownership of the

debtor else cannot be exercised otherwise. “The ownership of a property in the hands of the

bank should be held as a security only if it is in the debtor's possession, otherwise the bank

may not hold a lien right.”29 Thus, in the present situation, as the owner of the security

provided is Weeknd, therefore, RSJ Bank cannot claim banker’s lien over the same.

The above mentioned arguments are submitted by the counsel for the defendant to the learned

tribunal and thus hereby plead that RSJ Bank should not have any place in the CoC.

4. Whether the directors must be held liable for furnishing current assets of Weeknd as

security?

It is humbly submitted that Sec.2 (34)30 of the CA, 2013 defines who the director of a

company is. From a Juristic point of view, a company is a legal person distinct from its members 31.

Lifting the corporate veil means disregarding the corporate personality and looking behind the real

people who are in control of the company or where a fraudulent and dishonest act is done, under the

legal name of the company. During the Course of Winding up of the Company if it appears that any

business of the company has been carried on with the intent to defraud the creditors of the

company then, “the person who were knowingly carrying on such business, shall be personally

27
Shishir Mehta, Kumar Saurabh Singh, Rajeev Vidhani & AhanaSinha, The Insolvency and Bankruptcy Code,
2016 — New Road and New Challenges, (2016) PL (CL) July 76.

28
Supra Note 11.

29
PNB Ltd. v. Arura Mal Durga Dass (AIR 1960 Pun.632.).
30
“(34) ― “director” means a director appointed to the Board of a company”

31
Supra Note 17.

Written Submission on Behalf of the Defendant

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responsible without any limitation of liability for all or any of the debts or for other liabilities of the

company as the court may direct.32”

1. Doctrine of indoor management: In a case33, it was held that the lenders may claim

damages from the Directors or hold them personally liable in case of breach of warranty of

authority. Now, if borrowing is not authorized by the company but has been take in the name

of the company by the directors of the company, for which prior permission of the

shareholders in general body meeting must be obtained, then any amount borrowed without

the prior permission (ultra vires the Director) can be ratified and rendered to be invalid by

the Co., but in a situation where the Co. refuses to ratify the Director’s act, then the

“doctrine of indoor management” shall be applied, which was also applied as a rule in the

case of Royal British Bank v. Turquand34 where it was held that a lender borrowing the

money in good faith shall be protected.

2. If the surety has been furnished by the director in their personal capacity: As stated

earlier through a case law, a Director of a Co. shall get protection of law if the loan is taken

for the Co.’s benefit, but in the present case it has been observed that although the loans

were taken from the banks for the benefit of the Co., the amount was spent by Mr. Hooda for

certain reasons such as buying luxury cars which definitely do not stand for the benefit of

the Co. but personal enrichment solely. This was observed in a case.35 that if the surety has

been furnished by the Directors in their personal capacity on behalf of the Co., hence the Co.

cannot be sued in any way for the surety amount.

32
Company’s Act, 2013, Section 339, Liability for Fraudulent conduct of the business.

33
Firbank’s Executors v. Humphreys, (1886) 18 QBD 64.
34
Royal British Bank v. Turquand, (1856) CI & B 327.

35
H.P. State Electricity Board v. Shivalik Casting Pvt. Ltd, (2003) 115 Comp Cas 310(HP).

Written Submission on Behalf of the Defendant

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While Weeks v. Propert36talked about all such conditions under which the Director(s) of a

Co. may incur direct personal liability: (iv) where they exceed their authority, e.g., where

they borrow in excess of the limits imposed upon them”

But once again, “the powers of a company in respect of all matters are to be exercised by

the Board of Directors except where these are reserved for exercise by company in general

meeting.”37

5. Whether Mr. Vikas can enforce his contractual right?

It is humbly submitted to the learned Tribunal that Mr. Vikas Sharma cannot enforce his

contractual rights in the CIRP because of the following reasons

i. Prohibition of prosecution of personal guarantor – Mr. Vikas had acted as the surety in

the loan of INR 100 Cr. which was borrowed from the Bank of Dehradun by Weeknd. Sec.

128 of the ICA clearly states, “The liability of the surety is co- extensive with that of the

principal debtor, unless it is otherwise provided by the contract.” Furthermore, Sec. 5(22)

highlights the definition of a guarantor 38. To substantiate on this argument, the NCLAT in a

case39 has held that no property of the ‘corporate debtor’ and/or any legal or useful right in it

is allowed to be transferred, burdened, alienated or dispossessed in accordance with Section

14(1)(b) of the Code the NCLAT held that section 14 of the Code prohibits the prosecution or

prosecution of personal guarantors. NCLAT held that the moratorium would affect and thus

bar the CIRP. Creditors cannot currently invoke a personal CIRP guarantee.

36
Weeks v. Poppert, (1873) LR 8 CP 427

37
Nitro Ltd. v. National Insurance Co. Ltd. (1991) 70 Comp Cas 388(Delhi).
38
“personal guarantor” means an individual who is the surety in a contract of guarantee to a corporate debtor.

39
Court of Appeal in SBI v.V Ramakrishnan and M/s Veesons Energy Systems Pvt. Ltd, Civil Appeal No 3595 and
4553 of 2018 dated 14.08.2108.

Written Submission on Behalf of the Defendant

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This has been further explained in the case of Lalit Mishra &Ors. v. Sharon Biomedicine

Ltd.40 where it has been held that, as proceedings under the IBC are not recovery proceedings,

the Guarantor cannot exercise its rights to subrogation under the Contract Act. IBC's

procedure is aimed at restoring business value and not ensuring that the credit is accessible to

all stakeholders. The purpose is to maximize the value of its assets.Therefore, the guarantor

cannot make such a recovery.

With the above-mentioned cases throwing light on the contention being made, the Counsel

humbly pleads to the learned Tribunal that Mr. Vikas Sharma cannot enforce his contractual

rights.

6. Whether Ms. Olivia’s application for recognition of US Voluntary Bankruptcy

proceeding be accepted?

It is humbly submitted to the Hon’ble tribunal, that Ms. Olivia was appointed as the Interim

Trustee, and knowing about AHSB’s assets in India, she applied for the recognition of the US

Proceeding in India. The contentions in favor of Ms. Olivia are as followed:

i. India is a signatory to Draft Part Z on the Cross-Border Insolvency Code as mentioned

in Article 1(1)(a) of the Draft Part Z and has also ratified the same: The scope of the

application of this Part applies where “assistance is sought in India by a foreign Court or a

foreign representative in connection with foreign proceedings.”41

ii. Objective of Draft part Z and providing additional assistance to Foreign

Representatives: The main objective of the Draft Part Z as iterated in several case laws is,

“Fair and efficient administration of cross-border insolvencies that protects the interests of

40
Lalit Mishra &Ors. v. Sharon Biomedicine Ltd., Company appeal Insolvency no. 164 of 2018] dated:
14.11.2018
41
Article1(1)(a), Draft Part Z on Cross Border Insolvency.

Written Submission on Behalf of the Defendant

 Page 22 of 29

all creditors and other interested persons, including the debtor.42 Article 5 of the Draft says

that, RP “may provide additional assistance to a foreign representative under any other law

of India.” Thus, for the recognition of the US Proceedings, this Article needs to be enforced.

“In the event of an international insolvency proceeding involving an Indian company, Indian

courts are endeavoring to provide any aid or assistance to a foreign liquidator.”43

iii. Center of Main Interest is in USA: It is humbly submitted to the learned adjudicating

authority that the Center of main interest in this case, is in USA according to Article 14 of

Draft Part Z which states that, “the corporate debtor’s registered office is presumed to be the

corporate debtor’s center of main interests for the purpose of this Part” and this was even

upheld in the Virgo-Schmit Report44 which is an explanatory report prepared by European

convention. With all these references at hand, it can be claimed that COMI is in USA and not

in India. v. AHSB is a Subsidiary of weeknd: AHSB is a fully owned subsidiary of Weeknd

and it will be affected because of the insolvency proceeding of Weeknd and vice-versa.

Hence there arises an urgent need for the recognition of Ms. Olivia’s application in India.

Thus, with all these provisions and cases cited, it can be contended that Ms. Olivia’s

application for recognition of the US Voluntary Bankruptcy Proceeding must be accepted in

India, especially when the USA Proceedings are of such importance. Thereby, considering

the huge amount of finance involved, the application is requested to be duly accepted.

7. Whether there can be two concurrent Insolvency proceedings in different

jurisdictions?

42
Sea Wolf Tankers Inc., Heidmar Inc. v. Pan Ocean Co. Limited, [2017] EWHC 756 (Ch).

43
Reserve Bank of India Report of The Advisory Group on Bankruptcy Laws, (May 9, 2001).

44
M. Virgo and E. Schmit Report on the Convention on Insolvency Proceedings, by the European Union 3 rd May
1996. It reads: “Where companies and legal persons are concerned, the Convention presumes, unless proved to
the contrary, that the debtor’s center of main interests is the place of his registered office. This place normally
corresponds to the debtor’s head office.”

Written Submission on Behalf of the Defendant

 Page 23 of 29

It is humbly submitted to the learned Tribunal that two concurrent insolvency proceedings

shall not take place because of the following reasons:

i. Article 27 of the Model Law authorizes concurrent Cross-border insolvency

Proceedings:, that concurrent insolvency proceedings can be carried as UNCITRAL Model

as it provides legislative framework, authorizing cross-border cooperation in Concurrent

Insolvency Cases under Art.27 which talks about “Coordination of concurrent proceedings

regarding the same debtor.” Article 25 of the UNCITRAL Model Law provides possible

forms of cooperation that might be used to coordinate Concurrent cross-border insolvency

cases. Article 29 of the Model Law offers guidance to tribunals dealing with instances where

the debtor is subject to both international and local trials, addressing ways in which those

procedures should be coordinated, in particular with regard to the provision of relief, to

guarantee that the distinct procedures can proceed without unnecessarily suspending the

operation of the stay45.

ii. Recognition of Concurrent Cross Border Proceedings in UNCITRAL Practice guide on

Cross Border Insolvency: The Practice Guide also supports the same argument in Point

Number 14(g) stating, “Establishing rules for coordination where an insolvency proceeding in

the enacting State is taking place concurrently with insolvency proceedings in foreign

States.”46

iii. Need for concurrent Proceedings: “Investigation of the debtor’s assets may involve

assets located in a number of different jurisdictions and such investigation may be hampered

by the operation of a stay in one or more of those jurisdictions.” 47 Thus, UN has formed rules

by way of Model law for the coordination and recognition of the concurrent proceedings.
45
Ibid.
46
UNCITRAL Practice Guide on Cross-Border Insolvency, United Nations Publication, ISBN Number: 978-92-1-
133688-7

47
Ibid.

Written Submission on Behalf of the Defendant

 Page 24 of 29

iv. Elements of Coordination: Chapter V of the UN Convention on Model Law (Arts. 28-

32), deals with certain elements of cooperation in a comfortable procedure, namely

coordination of the relief procedure; coordination of various trials; the implementation in

concurrent trials of the presumption of insolvency and rules of compensation.48

v. Various Instances of Concurrent Proceedings under Cross Border Insolvency: There

have been a huge number of Cases in which Concurrent proceedings are coordinated which

receives it guidance from the Model law. The most famous examples to which are:

A. Across the Hong Kong Superior Administrative Region of China (SAR) and

Bermuda, the case of Akai Holdings Limited49 engaged a concurrent liquidation process. The

insolvency agreement was based on the principle of concurrent insolvency proceedings. The

contract was drawn up to take into consideration appropriate provisions of Hong kong and

Bermuda insolvency legislation and allow insolvency officials to manage the two liquidations

as economical as possible

B. P MacFadyen & Co. Ltd.50, which is probably the earliest case of cross-border

insolvency agreements, proceedings were initiated in England and India in which it was held

that under cross border insolvency contract, two insolvency proceedings could continue.

C. The case of SemCanada Crude Corporation et al.51 involved distinct insolvency

cases for the various members of the corporate group in Canada and the U.S. The companies

were tightly embedded via a concurrent and integrated reorganization plan.

48
UNCITRAL Practice guide on cross border insolvency, United Nations Publication, ISBN Number: 978-92-1-
133688-7, Para 13, 14, 15.

49
High Court of the Hong Kong Special Administrative Region, Case No. HCCW 49/2000 and HCCW 50/2000 (6
February 2004), and the Supreme Court of Bermuda.

50
Re P. MacFadyen & Co, ex parte Vizianagaram Company Limited [1908] 1 K.B. 675.

51
Court of Queen’s Bench of Alberta for the Judicial District of Calgary, No. 0801-08510 (22 May 2009), and the
United States Bankruptcy Court for the District of Delaware, Case No. 08-11525.

Written Submission on Behalf of the Defendant

 Page 25 of 29

Hence, these case laws show incidences where concurrent insolvency process in different

jurisdictions were accepted and took a standard form of insolvency resolution process.

In the light of the legislations and the case laws cited above, it is very evident that countries

who are signatories to UNCITRAL Model Law on Cross-Border Insolvency Process, allow

concurrent insolvency in different jurisdictions also.

8. Whether upon the admission of CIRP the invocation of Personal Guarantee by Bank

of Dehradun is liable to be set aside?

It is humbly submitted to the learned Tribunal that in accordance with Sec. 128 of the Indian

Contract Act, 1872, the responsibility of the bond is co-extended with that of the principal

debtor, and either the principal or the bond is to be exceeded by the creditor in no specific

sequence52.Sec. 5(22) of the IBC describes personal guarantor as a person who is a guarantee

for the borrower.

Non employment of private guarantors in IBC: Sec. 14 of the IBC stipulates that a

moratorium banning the initiation of recuperation procedures against a company debtor shall

be applied upon acceptance of the insolvency application, but the paragraph no longer

employs “private guarantor”. Sec. 14(1)(b) of the IBC forbids, among others, any of the

corporate debtor's property Sec. 60(2) says that the private guarantor is subject to a

proceeding of insolvency in the same court which accepts the corporate debtor's insolvency

request. The NCLAT Court in a case53 it was confirmed the above view in which NCLAT

noted that, in accordance with Section 14(1)(b) of the Code, any of its ‘Corporate Debtor’

property and/or any legal or beneficial right therein, is not permitted to be transferred,

burdened, alienated or dispose of. The NCLAT held that section 14 of the Code would bar

52
National Project Construction Corporation Limited v. Sandhu and Co., AIR 1990 P&H 300
53
SBI v.V Ramakrishnan and M/s Veesons Energy Systems Pvt. Ltd Supra Note 39..

Written Submission on Behalf of the Defendant

 Page 26 of 29

private guarantors from prosecution or proceedings. NCLAT held that the CIRP would be

affected and therefore barred by moratorium proceedings. Creditors currently cannot invoke

CIRP personal warranty.

2. Involvement of only a corporate debtor in a CIRP: In a case54it was held that Sec. 14 is

as evident as possible, according to the High Court of Bombay. In Sec. 14, it is evident that

the benefits and liabilities mentioned in this section are exclusively those of the corporate

debtor. The same applies only to an involved corporate debtor and not to another party, such

as a guarantor or a corporate guarantor, where the ban on or continuation of pendent suits or

proceedings is concerned. In Sanjeev Shriya v. the State Bank of India 55, the Allahabad HC

held that the moratorium would be applicable to the enforcement of the debt guarantee. It is

reasonable for the company debtor to be held liable for CIRP. The Court held that the

guarantor's liability could not be triggered until debt of the corporate debtor had been

crystallized. The committee considered and pointed out that this meant that if a CIRP were

against the corporate debtor, the liabilities of the collateral would be held, and such

interpretation might result in the contracts of guarantee being unprofitable and not serving the

purpose for which they were signed. In Lalit Mishra & Others vs Sharon Bio medicine Ltd

&Ors56, the National Company Law Appellate Tribunal (NCLAT) has ruled that the right of a

personal guarantor to subordinate a corporate debtor may be withdrawn in a resolution plan

under the Insolvency and Bankruptcy Code (IBC).

Thus, the claim of defendants, upon the admission of CIRP the invocation of Personal

Guarantee by Mr Vikas is liable to be set aside.

54
Sicom Investments and Finance Ltd. v. Rajesh Kumar Drolia and Anr, (2017) SCC Onine Bom 9275.
55
Sanjeev Shriya v. the State Bank of India, 2017 (9) ADJ 723.

56
Lalit Mishra & Others vs Sharon Biomedicine Ltd &Ors, Company Appeal (AT) Insolvency No 104 of 2018 .

Written Submission on Behalf of the Defendant

 Page 27 of 29

9. Whether Mr. Naresh Singhvi can be allowed to present the plan as a Scheme, in case

the Corporate Debtor goes into liquidation?

It is humbly submitted to the learned Tribunal, that when a Co. is under debt then no

subsidiary, or unit or manager is allowed to pay off the debt or show the security on behalf of

the corporate debtor itself. Sec. 1757 of the Code reads,

1. IBC is a confiscating law: In a case58 the SC held that, “According to us, once an

insolvency professional is appointed to manage the company, the erstwhile directors who are

no longer in management, obviously cannot maintain an appeal on behalf of the company . . .

Entrenched managements are no longer allowed to continue in management if they cannot

pay their debts.” The obiter dicta was abruptly set aside by concluding that the IBC is

confiscating law, which enables managers to become “erstwhile directors” and “no longer

allowed to continue management” once insolvency professionals are nominated. the Code

becomes a confiscating law.

In a case59 it was stated, that the Managing Director, or one of the Corporate Debtors '

Directors are suspended after appointment of the RP and a moratorium statement, but that is

not a suspension..If either an officer or another employee is entitled to register on behalf of

the debtor before the moratorium, this authority shall neither be suspended after the Board of

Management has been dissolved nor can the RP be drawn from it. In such cases it is always

57
“17. (1) From the date of appointment of the interim resolution professional,—
(b) the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall
stand suspended and be exercised by the interim resolution professional;
(c) the officers and managers of the corporate debtor shall report to the interim resolution professional and
provide access to such documents and records of the corporate debtor as may be required by the interim
resolution professional;”

58
Innoventive Industries Ltd v. ICICI Bank and Anr. Supra Note 24.
59
M/s. Subasri Realty Private Limited v. Mr. N. Subramanian & Anr , [Company Appeal (AT) (Insolvency) No. 290
of 2017][6].

Written Submission on Behalf of the Defendant

 Page 28 of 29

open to the RP to withhold these powers after notice to the concerned person if the person

empowered to enter a check refuses to work on the direction of the RP or misuses his power.

ii. Barring of Non Performing Assets: It is an established legislation that, where the

requisite payment for debt fulfillment has been made, ineligibility under Section 29A of IBC

2016 may be withdrawn.Second proviso of IBC's 30(4), the Committee of Creditors has the

authority to allow the Resolutionary Applicant to clear the duties of its debtors up to thirty

days and to qualify for a Resolutionary Applicant. The Hon'ble SC in ruled on the eligibility

of resolution candidates in a case60 in accordance with Sec. 29A of the IBC 2016.The

judgment of the SC set forth Section 29A Clause c of IBC 2016 which held that anyone

wishing to submit a resolution plan shall first pay the debt of that corporate debtor that was

classified as an non-executing asset (NPA). The SC has also stated that any individual who

has no NPA and who has not paid off debts for at least one year before the start of corporate

insolvency settlement will not be eligible to present a settlement plan.

Hence keeping all such circumstances in mind, Mr. Naresh Singhvi is pleaded be allowed to

present the plan as a Scheme, in case the Corporate Debtor goes into liquidation.

PRAYER

WHEREFORE, IN THE LIGHT OF THE FACTS STATED, ISSUES RAISED, REASONS

GIVEN AND AUTHORITIES CITED, THIS HON’BLE TRIBUNAL MAY BE PLEASED

TO:

 Hold that the application submitted to it is not admissible

60
Arcelor Mittal India Pvt Ltd. v. Satish Kumar Gupta, (2018) 211 CompCase 0369.

Written Submission on Behalf of the Defendant

 Page 29 of 29

 Hold that the claims of Kailash Bank and the Bank of Dehradun cannot be admitted

by the RP/CoC

 Hold the denial of the claim for clearance of the financial debt by RSJ Bank

 Hold that, the directors of the company will be held personally liable for furnishing

current assets of weeknd as security.

 Dismiss the enforceability of Mr. Vikas’s contractual rights

 Hold Ms. Olivia’s application for recognition of US Voluntary Bankruptcy

Proceeding

 Hold the execution of two concurrent proceedings in different jurisdiction

 Hold that, after admission of CIRP the invocation of Personal guarantee by bank of

Dehradun is liable to be set aside.

 Hold Mr. Naresh Singhvi ineligible to present the plan as a Scheme in case the

Corporate Debtor goes into liquidation

AND ANY OTHER RELIEF THAT THIS HON’BLE TRIBUNAL MAY BE PLEASED TO

GRANT.

-ALL OF WHICH IS RESPECTFULLY SUBMITTED-

Written Submission on Behalf of the Defendant