RELEVANT CASE LAWS

Encore Asset Reconstruction Co. Limited V. Charu Sandeep Desai – 238 - Sometimes there is a conflict between the two acts
(SARFAESI & IBC) as both the acts deals with the liquidation process, the national company law tribunal held that section 238 of
IBC provides a non-obstante clause that means that IBC will prevail its supremacy over any act enforced at a particular time. 

Innoventive Industries Ltd. (Corporate Debtor) Vs. ICICI Bank & Anr.- Supreme Court:
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
The Court the held that 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 – The Insolvency and Bankruptcy Code,
2016 is an Act to consolidate and amend the laws relating to reorganization and insolvency resolution, inter alia, of corporate
persons – The Insolvency and Bankruptcy Code is a Parliamentary law that is an exhaustive code on the subject matter of
insolvency in relation to corporate entities – On reading of section 238 of the code it is clear that the later non-obstante clause of
the Parliamentary enactment will also prevail over the limited non-obstante clause contained in Section 4 of the Maharashtra Act
and therefore, the Maharashtra Act cannot stand in the way of the corporate insolvency resolution process under the Code – There
would be repugnancy between the provisions of the two enactments.

Invalidation of preferential, extortionate or fraudulent transactions

IBC devolves certain powers on the Adjudicating Authority to nullify or reverse the effect of certain transactions carried out for
the purpose of undermining or circumventing any of the provisions of the Code. The NCLT, Allahabad in the case of IDBI Bank
Ltd. v. Jaypee Infratech Ltd, held that mortgages created by Jaypee Infratech Ltd. (“JIL”) in favour of the lenders of its holding
company Jaiprakash Associates Ltd. (“JAL”) amounted to preferential, undervalued and fraudulent transactions. Upon finding
that the transactions were fraudulent, undervalued and preferential, the NCLT ordered the release of the encumbered lands from
JAL’s lenders, and directed that they be vested back in JIL.

In reaching the above conclusion the NCLT took note of the following factors:
a. Creation of a mortgage in favour of JAL’s lenders had the effect of putting JAL in a beneficial interest vis-à-vis the
position it would have been in if JIL’s assets were distributed as per the distribution waterfall under Section 53 of IBC;
b. Creation of mortgage in favour of JAL’s lender was not in the ordinary course of business of JIL;
c. JIL did not benefit from creation of mortgage in any manner;
d. JIL mortgaged its land without any consideration or counter-guarantee from JAL.

The above judgment has been stayed by NCLAT while it is seized of the appeal.
Swiss Ribbon V. UOI – 3(6)Claims give rise to 'debt' only when it is due and default occurs only when debt becomes due and
payable and is not paid by the debtor.
Hindustan Construction Comp Ltd. & Anr. Vs. Union of Indi Ors. – 3(7) National Highway Authority of India (NHAI) is a
statutory body which functions as an extended limb of the Central Government and performs Governmental functions which
obviously cannot be taken over by an RP, or by any other corporate body nor can NHAI ultimately be wound up under the Code.
For all these reasons, it is not possible to either read in, or read down; the definition of 'corporate person' in Section 3(7) of the
Code to include NHAI.

Nikhil Mehta & Sons V. AMR Infrastructure Ltd. – 3(10) The parties who have entered into agreement, for purchase of flat or
shop or any immovable property, which contains a clause of assured or committed returns are financial creditors under the Code.

Tourism Finance Corporation of India Ltd. Vs. Rainbow Papers Ltd. & Ors 3(30) The State Tax Officer does not come
within the meaning of ‘secured creditor’ as defined under section 3(30) read with section 3(31) of the Code

Edelweiss Asset Reconstruction Company Limited Vs. Kalptaru Alloys Pvt. Ltd. (7) The assignee of the debt is also entitled
to file application and such assignee steps into the shoes of the FC.

Dharani Sugars and Chemicals Ltd. Vs. Union of India & Ors. (7)The SC held that the RBI circular dated 12th February,
2018, by which the RBI promulgated a revised framework for resolution of stressed assets is ultra vires of section 35AA of the
Banking Regulation Act, 1949 and all actions taken under the said circular which has triggered the CIRP under section 7 will fall
along with the circular.

Mamatha Vs. AMB Infrabuild Pvt. Ltd. & Ors. – 7 If the two CDs collaborate and form an independent corporate unit entity
for developing the land and allotting the premises to its allottee, the application under section 7 will be maintainable against both
of them jointly and not individually against one or other.

Innoventive Industries Ltd (7) – Held that if the records enclosed are misleading u/s 7 the Application has to be rejected.
Macquarie Bank Limited Vs. Shilpi Cable Technologies Ltd. – 9 (NCLAT – a lawyer, law firm, CA or CS cant sent Demand
Notice on behalf of OC, unless authorized by the board. If authorised, Required to clearly state their position I relation to OC in
concerned Demand Notice.)
The expression ‘an operational creditor may on the occurrence of a default deliver a demand notice’ under section 8 of the Code
must be read as including an OCs authorised agent and lawyer, as has been fleshed out in Forms 3 and 5 appended to the AA
Rules.

Laxmi Pat Surana V. UBI – 238A Required clarity on the conflict and ambiguities b/w Limitation act and code. 238A was
interpreted by SC state that section was inserted not with the intent to render the L.A inapplicable.

B.K Educational V. Parag Held that LA 1963, is applicable filed u/s 7&9 of code.
Right to sue accrues when there is an occurrence of default
If default occur over 3 yrs prior to date of filing the app, would be barred u/A-137 of L.A

Anand Rao Korada Vs. Varsha Fabrics (P) Ltd. & Ors. – 14 Once the proceedings under the Code had commenced and an
order declaring moratorium has been passed by the AA, then if the assets of the CD are alienated during the pendency of the
proceedings under the Code, it will seriously jeopardise the interest of all the stakeholders.

Haravtar Singh Arora Vs. Punjab National Bank & Ors. – 14 In terms of section 14 of the Code, all the proceedings pending
before any court against the CD automatically comes to halt and cannot be decided.

Varrsana Ispat Limited Vs. Deputy Director, Directorate of Enforcement – 14 Section 14 of the Code is not applicable to the
criminal proceeding or any penal action taken pursuant to the criminal proceeding or any act having essence of crime or crime
proceedings under the Prevention of Money-Laundering Act, 2002.

Canara Bank Vs. Deccan Chronicle Holdings Ltd – 14 Moratorium will not affect any suit or case pending before the SC under
Article 32 of the Constitution or where an order is passed under Article 136 of the Constitution.

P. Mohanraj & Ors. Vs. Shah Brothers Ispat Pvt. Ltd. – 14 The Apex court analyzed this issue from various angles and held
that the proceedings under Section 138/141 of the NI Act cannot be initiated against a corporate debtor if the NCLT has already
passed an order of moratorium under the IBC. The Supreme Court observed that a quasi-criminal proceeding like the one under
the Section 138 of the NI Act will result in the assets of the Corporate Debtor being depleted as a result of having to pay
compensation which may amount to twice the amount of the dishonoured cheque.

Phoenix Arc Pvt. Ltd. Vs. Spade Financial Services Ltd. & Ors. – 21 The SC held: (a) The collusive commercial arrangements
between FCs and the CD would not constitute a ‘financial debt’;
(b) The objects and purposes of the Code are best served when the CIRP is driven by external creditors, so as to ensure that the
CoC is not sabotaged by related parties of the CD. The purpose of excluding a related party of a CD from the CoC is to obviate
conflicts of interest;
(c) Exclusion under the first proviso to section 21(2) is related not to the debt itself but to the relationship existing between a
related party FC and the CD.; and
(d) The FC, who in praesenti is not a related party, would not be debarred from being a member of the CoC. However, in case
where the related party FC divests itself of its shareholding or ceases to become a related party in a business capacity with the sole
intention of participating in the CoC and sabotage the CIRP, it would be in keeping with the object and purpose of the first proviso
to section 21(2), to debar the former related party creditor.

Raj oil Mills Limited – 29A COC declared Adani Wilmar as a highest bidder and RP was being finalised. A claim of an
ineligibility raised by Patanjali by the second highest bidder against Adani contesting its eligibility under 29 A. Adani was
ineligible, spouse of MD of Adani Wilmar is the daughter of defaulting promoter. Patanjali approached NCLT challenged the
decision of COC approving the bid of Adani

Shree Sidhivinayak Cotspin Private Limited & Anr. Vs. RP of Marurti Cotex Limited & Anr. – 25 The object of the code is
to revive the company not only to liquidate it. it is RP’s to invite prospective R A u/s 25(2)(h). Hence RP directed to follow the
process under section 25 for inviting R.plans

Mandhana Industries Ltd. - 31(1) & 60(5) NCLT observed that R. plan didn’t provide upfront payment. It was ambiguous &
didn’t provide exact term of plan in terms of CIRP reg 38(2)(A)

Swiss Ribbons Private Limited & others V. UOI Section 12A of IBC withdrawal of corporate debtor from CIRP was upheld as
it prescribes a high threshold limit, requiring 90% approval of the members of the CoC. CoC has primary responsibility of
financial restructuring and assessment of viability of a corporate debtor.

Pariman Enterprises Pvt. Ltd. v. Atlantis Life Sciences Pvt. Ltd., (33) AA ordered the liquidation of the corporate debtor as
the maximum period prescribed by the Code for completion of CIRP had lapsed. In this case, even after 5 CoC meetings, a
resolution plan for the corporate debtor was not finalized and presented before the Adjudicating Authority and the time period for
CIRP had already lapsed.
Punjab National Bank v. Sri Guruprabha Power Ltd., the CoC had passed a resolution for initiating the liquidation process of
the corporate debtor with a 100% majority. The Hon’ble Tribunal opined that the CoC has exercised its commercial wisdom and
thus, it ordered for the liquidation of the corporate debtor.

Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors., held that the Adjudicating Authority
has only a limited judicial review power in respect of the decisions made by the COC. The Hon’ble NCLT and Hon’ble NCLAT
are not empowered to exercise their respective jurisdiction to interfere in the decisions of the CoC taken by the majority of the
members.

Axis Bank Ltd. Vs. Anuj Jain – 45&46 The transactions as has been made i.e. mortgage(s) in favour of the appellants as and
when made against the amount payable by Jaiprakash Associates Limited, the amount is not payable by the CD. Therefore, clause
(a) of sub- section (2) of section 45 is not attracted. For the same reason clause (b) of sub-section (2) of section 43 or section 45
cannot be made applicable with regard to transaction in question which are not related to any payment due from the CD.

JM Financial Asset Reconstruction Company Ltd. Vs. Finquest Financial Solutions Pvt. Ltd. – 52 - If one or more secured
creditors have not relinquished the security interest and have opted to realise their security interest against the same asset in terms
of section 52(1)(b) read with section 52(2) and (3), the liquidator will act in terms of section 52(3) and find out as to who has the
first charge (security interest). If any dispute is pending as to the question of who has the first charge, the liquidator may inform
the same to parties and proceed as per section 52(3)

State Bank of India v Anuj Bajpai – 52 ordered that the persons disqualified under section 29A shall remain to be prohibited
even when the secured creditor has realised his security interest and is planning to sell his/her asset under 52(4) of the Code. The
Parliament has also given sanctity to the said judicial principle by inserting in Rule 37(8)[xi], which prohibits sale or transfer of an
asset which is subject to security, to any person who is not eligible to submit the resolution plan under the code.

Anand Murti V. Soni Infra case (Leading case) Sc stayed the insolvency proceedings against real estate developer & permit the
promoter of real estate developer to complete housing project. Sc noted that real estate developers had completed a substantial
portion of housing project & had secured funds for completing rest of the project before Insolvency proceedings were initiated.
Real Estate Developer submitted the settlement proposal & willing to refund the money along with interest at a rate of 6% p.a. to
homebuyers objecting to settlement proposal. SC opined that it would be in the interest of the homebuyers that developer is
permitted to complete the project.

Anuj Jain (Jaypee) V. Axis BANK LTD. Sc held that debt in question are in the form of 3rd party security said to be given by
JIL to secure loans/advances/facilities obtained by JAL from said lender. Held that such debt is not and cant be covered under
expression of F. Debt and said lenders are not Financial creditor of JIL.