RESEARCH PAPER ON

A RESOLVE FOR RESOLUTION- THE SOUL OF IBC

INSOLVENCY LAW

SUBMITTED BY SUBMITTED TO

PAYAL MISHRA(518) MRS. SANCHITA TIWARI

SURAJ KUMAR(539) ASSISTANT PROFESSOR

SEM - IX(A) INSOLVENCY LAW

NATIONAL UNIVERSITY OF STUDY AND RESEARCH IN LAW

RANCHI.

2019.
 A RESOLVE FOR RESOLUTION- THE SOUL OF IBC
ABSTRACT
Bad loans have emerged as the proverbial millstone around the neck of Indian
financial system. Despite a plethora of laws, recovery still remains a
cumbersome, protracted affair. Recovery through various modes such as DRTs,
Lok Adalats, SCRA Act have had a restricted impact. However, the government
seems to be proactive in addressing teething issues by bringing changes through
reforms and regulations. IBC is a key reform to strengthen identification and
resolution of insolvencies in India in an expedited manner. This Article assesses
and evaluates the paradigm shift brought about by IBC, 2016. It examines the
major challenges in the insolvency resolution process. It studies and critically
analyzes the 2019 amendment in so far as it strives to address those challenges. It
delves into the judicial decisions which have shaped the jurisprudence of IBC in
this regard. Finally, it concludes that Success of the IBC Code hinges on timely
resolution of stressed assets and a conducive ecosystem.
Keywords- Insolvency, Resolution, Committee of Creditors, Corporate debtor
 I. INTRODUCTION

A. IBC, 2016- A GAME CHANGER OR NOT?

Before the enactment of IBC, 2016- India did not have any experience of a proactive, incentive-
compliant, market-led and time bound insolvency law. The IBC has altered the way, insolvency
and bankruptcy law is practised in India and has become an effective way to take actions,
especially against the wilful defaulters. The focus of this discussion will be to understand and
discuss the critical challenges faced by Insolvency Professionals (IPs) or
Interim Resolution Professionals (IRPs) and other stakeholders during the
insolvency resolution process.1 Various institutions required for implementation of an insolvency
regime did not exist at all. This code takes the journey into an uncharted territory. As on March
2019, under the CIRP, a resolution plan for 94 stressed assets was approved by NCLT. For this
set of 94 accounts, resolution has been reached for 75,000 crore out of 1,75,000 crore total claim
of financial creditors admitted. It makes up for a standard recovery rate of 43%. After the
implementation of the Code, CRISIL has estimated that gross NPA of banking sector has
dropped down to 10% in March, 2019 from 11.5% of 2018. Moreover, India's resolvency score
has improved to 40.8 in 2019 from 32.6 in 2016.2
However, the average resolution timeline for the resolved 94 cases was 324 cases vis-a-vis the
mandated insolvency resolution timeline of 270 days. Also there are a few big cases for which no
resolution plan has been yet finalised even after 400 days. As on March, 2019, there were 1,143
cases outstanding under CIRP, out of which 32% cases were pending for more than 270 days.
Still, its far better than the recovery time of 3.5-4 years taken by asset reconstruction companies.
Its performing way better than earlier as reflected in World's Bank 'Doing Business 2019' report
which marks the recovery timeline for stressed assets in India at 4.3 years.3
One of the amendments s. 29-A can render the promoters of insolvent companies(except those of
micro, small and medium enterprises) ineligible to bid for their own entry. It has instilled a better
sense of credit discipline.

1
Ketan Mukhija, Challenges in Insolvency Resolution Process Under Insolvency and Bankruptcy Code, 2016, 5
KIIT Student L Rev 25 (2018).
2
IBBI Report (2019), available at
https://ibbi.gov.in/webadmin/pdf/whatsnew/2019/Jan/Two%20years%20of%20insolvency%20and%20Bankruptcy
%20Code(Last accessed on 15 October, 2019).
3
Id.
B. RESEARCH QUESTIONS

1. Whether the IBC, 2016 has really been a game changer?

2. What are the major challenges in the insolvency resolution process?
3. How does the IBC 2019 Amendment fare in addressing those challenges?
4. What is the role played by judiciary in expanding the jurisprudence of IBC?

C. RESEARCH OBJECTIVES

1. To assess and evaluate the paradigm shift brought about by IBC, 2016
2. To examine the major challenges in the insolvency resolution process
3. To study and critically analyze the 2019 amendment in so far as it strives to address those
challenges.
4. To analyze the judicial decisions which have shaped the jurisprudence of IBC in this
regard.

D. LITERATURE REVIEW

1. Balkrishna Goenka(Strengthening the Code, 2019)-It propounds that IBC had been
implemented with a view to consolidating insolvency and bankruptcy laws and
addressing NPA issues affecting the economy. Having gained a traction since then, it has
brought a paradigm shift in recovery and resolution process by empowering the creditor.
While investors also gain from available opportunities, the tendency of borrowers to
default has been curbed. It has helped improve the governance framework- the result of
which has been improvement in India's ease of doing business.
2. Dr. MS Sahoo(IBBI, 2019)-Insolvency and Bankruptcy board is among the biggest and
most impactful economic reforms undertaken in the country. With the coming into force
of this Code, banks and other financial institutions have been able to settle directly or
indirectly an amount more than 3lakh fifty thousand crore. This Code has also curbed the
tendency of willfully defaulting on loans taken from banks and other financial
institutions.
E. HYPOTHESIS

Success of the IBC Code hinges on timely resolution of stressed assets and a conducive
ecosystem.

II. MAJOR CHALLENGES IN THE INSOLVENCY RESOLUTION PROCESS

With the disposal of ongoing cases, a large number of grey areas which are open to interpretation
are being clarified by the Courts and the Tribunals, thus eliminating the confusion in interpreting
the Code. However, there are few challenges for the IRPs and the stakeholders in the insolvency
process which are not only creating practical difficulties but putting the whole process of
insolvency resolution at stake, which must be resolved both institutionally as well as
legislatively.
A. STRINGENT TIMELINES- While stringent timelines under IBC is a welcome move from the
erstwhile insolvency laws, however, it some cases it is practically impossible to complete the
whole procedure with necessary approvals within the given timeline of 180/270/330 days,
considering the practical difficulties of getting necessary information as well as dealing with
multiple stakeholders. It is important to create and facilitate supporting structures, guidelines and
bodies like IUs in place at the earliest, to ensure that the deadlines are met without creating
backlogs and delays which the Indian legal system is quite known for.4
B. NON AVAILABILITY OF INTERIM FINANCE — As most of the companies against whom
insolvency are bought are already in high debt and financially stressed, getting interim finance
during the corporate insolvency resolution process (CIRP) is a challenge. Running and reviving
the company under CIRP without availability of interim finance is a big challenge for an IP. 5
C. DEALING WITH THE EXISTING MANAGEMENT AND PROMOTERS — As the powers of the
Board is suspended during the CIRP and the effective power is transferred to the IP/IRP, the
promoters and the existing management see it as a threat to their company and sometimes try to
impede the IP/IRPs from working in the most efficient manner. The challenge not only include in
training the IP/IRPs in how to deal with such situations, but also in sensitising the promoters and

4
Ketan Mukhija, Challenges in Insolvency Resolution Process Under Insolvency and Bankruptcy Code, 2016, 5
KIIT Student L Rev 25 (2018).
5
ASSOCHAM, Strengthening the Code, (May, 2019), CRISIL, available at https://www.crisil.com/en/home/our-
analysis/reports/2019/05/strengthening-the-code.html(Last Accessed on 12 October, 2019).
communicating with them in a manner that will allow IP/IRPs to understand how the process
might help them in reviving the company.6
D. LACK OF SUPPORT FROM OPERATIONAL CREDITORS AND REGULATORS — Once a
company is into CIRP, existing vendors do not want to continue business and want their dues to
be cleared, while new vendors request for advance payment. Without cooperation from vendors,
it might be challenging for the IP/IRP to sustain business operations. IP/IRPs need to inform that
during the period, all costs are given priority under the Code. Moreover, due to lack of awareness
about the new law, sometimes regulators are taking actions like freezing the bank accounts or
disconnecting the electricity connection causing further stress for the company and the IRP/IP to
maintain on-going business or to revive the company.7
E. INEFFECTIVE DECISION MAKING BY COC — Without standard protocols and guidelines to
deal with decision making by the Committee of Creditors (CoC), there are often indifferences
within the creditors which are leading to delays and resulting in non-compliance with the given
timelines and in some cases such decisions might not be commercially sound. It is suggested that
a standard guideline or protocol may be developed by IBBI in consultation with the stakeholders
to increase efficiency in the decision making by the CoC.8
F. PREPARING THE INFORMATION MEMORANDUM— One of the most important document that
an IP/IRP is required to prepare is the information memorandum (IM), which forms the basis for
the CoC to take effective decision. However, for most the stressed companies, the accounts and
documentations are not maintained properly. Moreover, getting accurate information from the
promoters and the officers is a challenging job, for which in some cases application needs to be
filed with the NCLT to get discovery orders against such officers. Due to lack of correct
information or adequate information, preparation of the IM within the deadlines might be
difficult. The IP/IRP in some cases might have to appoint external experts who can investigate
and find out fraudulent transactions and other important financial information that may be crucial
for preparing the information memorandum.9
G. LEGAL LIABILITY OF IRPS/IPS- As the IP is in control of the corporate debtor, certain
creditors and government bodies are filing suits against the IP directly and sometimes frivolous

6
Insolvency and Bankruptcy News, The Quarterly Newsletter of IBBI, April-June, 2019, Vol. 11, available at
www.ibbi.gov.in(Last Accessed on 9 October, 2019).
7
Id.
8
Id.
9
Id.
suits are being made against the IRP/IP. Though Section 233 of the Code provides for immunity
of the IP for actions taken in good faith, many frivolous law suits are being made against the IP,
which not only hampers the resolution process but also deterring the IPs from taking up new
assignment. There is no insurance product available in India to cover professional liability for
IPs/IRPs. It is important that insurance companies come up with such insurance products which
can cover the IP/IRPs from professional liabilities. On this regards IBBI and other stakeholders
must take this up with the insurance companies, so that such insurance policies are made
available at the earliest.10

III. IBC 2019 AMENDMENT- PROACTIVELY ADDRESSING TEETHING ISSUES

Therefore, it becomes imperative to have course corrections to address difficulties arising from
the implementation of the Code in tune with emerging market realities to attain its objective. The
2019 Amendment Bill is one attempt in such direction. Let us analyse various key features of the
Bill-
A. RESOLUTION PLAN- The Code defines resolution plan which means insolvency resolution of
a corporate debtor as a growing concern- it must continue to exist post resolution. The very first
resolution plan approved under the Code extinguished the CD through its amalgamation, while
providing for continuity of business.11 This approval was appealed against inter alia on the
ground that such extinguishment of the CD was not permissible under a resolution plan. While
dismissing the appeal, NCLAT clarified that a resolution plan may provide for merger and
amalgamation.12 The Bill makes explicit what was implicit and clarifies that a resolution plan
may provide for restructuring of the CD, including by way of merger, amalgamation, and
demerger. This would enable the market to come up with more innovative resolution plans for
value maximisation.
B. COMMENCEMENT OF CIRP: In the early days of distress, the value of a CD is typically
higher than its liquidation value and the stakeholders are more likely to resolve its insolvency
rather than liquidate it. The Code, therefore, enables stakeholders to make an application to

10
ASSOCHAM, Strengthening the Code, (May, 2019), CRISIL, available at https://www.crisil.com/en/home/our-
analysis/reports/2019/05/strengthening-the-code.html(Last Accessed on 12 October, 2019).
11
Edelweiss Asset Reconstruction Company Ltd. v. Synergies Dooray Automotive Ltd. & Ors., 2018 SCCOnline
NCLAT 845.
12
Id.
initiate corporate insolvency resolution process (CIRP) of the CD on default of a threshold
amount. It requires the Adjudicating Authority (AA) to ascertain the existence of the default
within 14 days of receipt of the application and initiate CIRP where it is satisfied that the
default has occurred. It is, however, observed that some applications are taking longer than
the statutory period of 14 days for disposal13, while the AA may dispose of an application after
14 days of its receipt, for reasons to be recorded in writing14. The Courts have held this timeline
to be directory.15 To avoid delays in admission of applications, especially in case of financial
debt, where the default is generally undisputed, the Bill requires the AA to record its reasons
in writing, where an application for admission is not disposed of within the stipulated time.

C. CLOSURE OF CIRP: The Code envisages closure of a CIRP in a time bound manner as undue
delay is likely to reduce the value of the CD making its revival difficult. It mandates completion
of a CIRP within 180 days, with a one-time extension of up to 90 days. While holding this
timeline to be mandatory16, the Courts have allowed the AA to exclude certain periods from
the CIRP period if the facts and circumstances justify such exclusion, including time spent on
litigation.17 Consequently, many CIRPs are continuing even after expiry of 270 days
frustrating time bound resolution. To address the issue, the Bill requires that CIRP shall
mandatorily be completed within 330 days, including any extension of time as well as any
exclusion of time on account of legal proceedings. It further provides that an ongoing CIRP,
which has not been closed yet within 330 days, shall be completed within next 90 days.

D. VOTING IMPASSE: The Code provides for an authorised representative (AR) to represent a
class of financial creditors (FCs) and to vote in respect of each FC in the committee of
creditors (CoC). However, it was found difficult to secure the requisite votes where the CoC
has class(es) of FCs, who are large in number, scattered all over the country and
unorganised. To address the difficulty in CIRP of a real estate company where a class of

13
ICICI Bank Ltd. v. Jaiprakash Associates Ltd., 2019 SCCOnline NCLAT 384.
14
Judgement dated Ist May, 2017 of the NCLAT in the matter of JK Jute Mills Company Limited Vs. M/s.
Surendra Trading Company, (2017) 138 CLA 0258.
15
Judgement dated I9th September, 20I7 of the Supreme Court in the matter of M/s. Surendra Trading
Company Vs. M/s. Juggilal KamlapatJute Mills Company Limited & Ors.
16
JK Jute Mills Company Limited v. M/s. Surendra Trading Company, (2017) 138 CLA 0258.
17
Quinn Logistics India Pvt. Ltd. v. Mack Soft Tech Pvt. Ltd. and Ors. (2018) 144 CLA 0484, Arcelor Mittal India
Private Limited Vs. Satish Kumar Gupta and Ors., (2018) 146 CLA 0293.
creditors alone constituted the CoC, the threshold voting share of 66% was not considered
mandatory and approval by simple majority was allowed.18 Where CoC included a class of
FCs, the voting share required for approval was considered mandatory and class wise voting
was not allowed.19 To facilitate decision making, the Bill provides that an AR shall vote for the
FCs he represents in accordance with the decision taken by the class with more than SO%
voting share of the FCs, who have cast their votes. This principle, however, shall not
apply to voting for withdrawal of applications.

E. RESOLUTION WATERFALL: The Code provides for a waterfall for distribution of

proceeds from the sale of liquidation assets. It does not provide for a similar waterfall for
distribution of realisation under a resolution plan amongst the creditors. It, however, requires
that the resolution plan shall provide at least the liquidation value for operational creditors
(OCs). The Code, read with Regulations, incorporates the principle of fair and equitable dealing
of rights of OCs.20 The liquidation value for OCs, however, has been insignificant in many
CIRPs. The distribution of realisation under resolution plans has been a bone of contention in
several CIRPs and caused prolonged litigation and undue delay in completion of the process,
occasionally disturbing pre-insolvency entitlements of creditors. The Bill provides that OCs
shall be paid not less than the amount payable to them in the event of liquidation of the CD or the
amount payable to them if realisations under the resolution plan were distributed in accordance
with the priority in the liquidation waterfall, whichever is higher. It also provides that the
dissenting FCs shall be paid not less than the amount payable to them under liquidation
waterfall. It clarifies that distributions made in this manner shall be fair and equitable. This
provision shall apply to all ongoing CIRPs, including the ones where approved resolution plans
are under litigation.

F. COC'S DOMAIN: The Code segregates commercial aspects of insolvency resolution from
judicial aspects. The commercial decisions of the CoC are not generally open to any judicial
review by the AA.21 What is commercial and what is not has, however, been debatable. It is

18
Nikhil Mehta& Sons & Ors. v. M/s. AMR Infrastructure Ltd., (2018) 145 CLA 0335.
19
IDBI Bank Limited v. Jaypee lnfratech Ltd., 2017 TaxPub(CL) 0711(NCLAT-All).
20
Swiss Ribbons Pvt. Ltd. & Anr. v. Union of lndia & Ors., 2019 SCCOnline SC 73.
21
K. Sashidhar v. Indian Overseas Bank& Ors., 2019 SCCOnline SC 257.
not clear whether inter se distribution of realisation under resolution plans among creditors is a
commercial matter. It was held in a matter that the CoC cannot distribute realisation amongst
creditors, as the FCs constituting CoC, being claimants at par with other creditors, have a
conflict of interests.22 To set the matter at rest, the Bill makes it clear that the CoC may approve
a resolution plan after considering its feasibility and viability, and the manner of distribution of
realisation under the plan, keeping in view priority of the creditors and their security interests.

G. BINDING EFFECT: The Code provides that a resolution plan approved by the AA is binding
on the CD, its members, creditors and other stakeholders. It is now settled that tax dues being
operational debt23, Government is an OC. A resolution plan, which settles dues of the
creditors, should be binding on Government. There have been instances where Government
followed up for the balance dues after approval of resolution plan. This was creating uncertainty
and discouraging potential resolution applicants. The Bill provides that resolution plan shall be
binding on Central Government, any State Government and any local authority to whom the
CD owes debt under any law.
H. EARLY LIQUIDATION: The Code does not allow a stakeholder to initiate liquidation
directly. It, however, empowers the CoC to decide to liquidate a CD at any time during the
CIRP. However, there have been a few instances where the AA has insisted that a
liquidation order may be passed only after failure of the CIRP to yield a resolution plan.24 There
are instances where early liquidation would maximise the value while running the entire CIRP
would been empty formality. The Bill clarifies that CoC may decide to liquidate a CD at any
time during CIRP, even before preparation of the information memorandum.

IV. JUDICIAL INTERPRETATION OF THE CODE- IMPERATIVE COURSE CORRECTIONS

The Supreme court in JK Jute Mill Mazdoor Morcha v. Juggilal Kamlapat Jute Mills Company
Ltd. through its Directors & Ors.25 While disposing of the appeal against the order of the
NCLAT, the Supreme Court (SC) observed that a trade union is an entity established under a
22
Judgement dated 4th July, 20I9 of the NCLAT in the matter of Standard Chartered Bank v. Satish Kumar
Gupta&Ors.
23
Judgement dated 20th March, 20I9 of the NCLAT in the matter of Pr. Director General of Income Tax Vs.
M/s. Synergies Dooray Automotive Ltd. & Ors.
24
Order dated 4th May, 2018 of the NCLT in the matter of Punjab National Bank v. Siddhi Vinayak Logistic
Limited.
25
[Civil Appeal No. 20978/2017]
statute and, therefore, is a person under section 3(23) of the Code. A claim in respect of an
employment, which is operational debt, can be made by a person duly authorised to make such
claim on behalf of a workman. The SC held-"...the trade union represents its members who are
workers, to whom dues may be owed by the employer, which are certainly debts owed for
services rendered by each individual workman, who are collectively represented by the trade
union. Equally. to state that for each workman there will be a separate cause of action, a
separate claim, and a separate date of default would ignore the fact that a joint petition could
be filed under Rule 6 read with Form 5 of the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016, with authority from several workmen to one of them to file
such petition on behalf of all."
The Apex Court in Dharani Sugars and Chemicals v. Union of India & Ors.26 -Constitutional
validity of sections 35AA and 35AB introduced by the Banking Regulation (Amendment) Act,
2017 and the RBI circular dated on I2" February, 2018 providing a revised framework for
resolution of stressed assets were challenged. While upholding constitutional validity of the
said sections, the SC observed that section 35AA enables the Central Government to
authorise the RBI to issue directions to initiate CIRP in respect of 'a default'. Therefore, what is
important is that it is a particular default of a particular debtor that is the subject matter of
section 35AA. The exercise of this power requires due deliberation and care and hence refer to
specific defaults. Any direction, as provided in the circular, which are inrespect of
debtors in general is ultra vires section 35AA.
In The Deputy Director Directorate of Enforcement Delhi v. Axis Bank & Ors.27-The High
Court (HC) considered the issue relating to confiscation of property acquired by a person through
proceeds of crime under the Prevention of Money Laundering Act, 2002 (PMLA) against the
lawful claim of the third party. It held: "The objective of PMLA being distinct from the
purposes of the RDBA, SARFAESI, and the Code, the latter three legislations do not prevail over
the former. The PMLA, RDBA, SARFAESI and the Code (or such other laws) must co-exist,
each to be construed and enforced in harmony, without one being in derogation of the other
with regard to the assets in respect of which there is material available to show the same to

26
[Transferred Case (Civil) No. 66/2018 in TP (Civil) No. 1399/2018].
27
[Crl. A. 143/2018].
have been "derived or obtained" as a result of "criminal activity relating to a scheduled offence"
and consequently being "proceeds of crime", within the mischief of PMLA."
In Amira Pure Foods Pvt. Ltd. v. Canara Bank & Ors28, the court observed: "the DRAT was
not powerless to modify its own order whereby the two court commissioners had been appointed
to take over control of the assets of the petitioner/corporate debtor. In the facts of the case, the
learned DRAT should have recalled its order so that the IRP/RP could take over the assets of the
corporate debtor in the exercise of its mandate under the Insolvency & Bankruptcy Code, 2016."
It set aside the order of the DRAT, recalled appointment of two Court Commissioners and
permitted the IRP/RP to act under the Code.
In Bhavna Sanjay Ruia v. Insolvency and Bankruptcy Board of India29, an appeal was preferred
by an IP against an order passed by the Disciplinary Committee of IBBI. While dismissing the
appeal, the NCLAT observed that it can entertain an appeal only against an order passed by the
AA. No appeal is maintainable against order passed by IBBI, including its Disciplinary
Committee. It clarified that the appellant may move before appropriate forum for appropriate
relief.
In Edelweiss Asset Reconstruction Company Limited v. Orissa Manganese and Minerals
Limited & Ors.30 -In this matter, the CD had given guarantee to the appellant. The principal
borrower had neither defaulted on payment to the appellant nor the appellant had invoked
guarantee. The NCLAT considered the issue whether in such circumstances the appellant can
submit a claim in the CIRP of the CD. It held that the claim of the appellant cannot be considered
as the debt payable by the CD as on the date of the commencement of CIRP.
In Rasiklal S. Mardia v. Amar Dye Chem Limited31- By the impugned order, the AA
held that liquidator alone was authorised to file a petition for compromise or arrangement
in respect of the company. While setting aside the impugned order, the NCLAT observed that
the judgement in the matter of National Steel & General Mills v. Official Liquidator32 makes
it quite clear that Liquidator is only an additional person and not exclusive person who can
move application under Section 391 of the old Act when the company is in liquidation.

28
[WP(C) No. 5467/2019].
29
[CA(AT)(lns) No.341/2019].
30
[CA(AT)(lns) No. 437, 438, 444 & 500/2018].
31
[CA(AT)(lns)No.337/2018].
32
38 (1989) DLT 151.
In Ms. Anju Agarwal, RP (Shree Bhawani paper Mills Ltd.) v. Bombay Stock Exchange &
Ors.33 -The AA, vide its order dated I0" September, 2018, held that regulatory authorities
are not covered under moratorium under section 14 of the Code. Therefore, SEBI and BSE
are not prohibited from taking actions under the SEBI Act and regulations made thereunder
against the CD. The NCLAT observed that section 28A of the SEBI Act, 1992 is inconsistent
with section 14 of the Code. It held: "Section 28A of the 'SEBI Act, 1992' being inconsistent
with Section 14 of the 'I&B Code', we hold that Section 14 of the 'I&B Code' will prevail over
Section 28A of the 'SEBI Act, 1992' and 'Securities Exchange Board of India' cannot recover
any amount including the penalty from the 'Corporate Debtor'. The 'Bombay Stock Exchange for
the same very reason cannot take any coercive steps against the 'Corporate Debtor' nor
can threaten the 'Corporate Debtor' for suspension of trading of shares." It reiterated its
decision in Maharashtra Seamless Ltd. v. Shri Padmanabhan Venkatesh & Ors.34, that the
statutory dues come within the meaning of operational debt and may be claimed but cannot be
recovered during the resolution process.
In the matter of Cooperative Rabobank U.A. Singapore Branch v. Mr. Shailendra Ajmera35- the
NCLAT noted that under section 5(20) of the Code, an OC is not only a person to whom an
operational debt is owed but also a person to whom such operational debt is assigned. It held:
".... it is clear that an 'Operational Creditor', who has assigned or legally transferred any
'Operational Debt' to a 'Financial Creditor', the assignee or transferee shall be considered as an
'Operational Creditor' to the extent of such assignment or legal transfer."
In Mr. Bohar Singh Dhillon v. Mr. Rohit Sehgal (IRP) & Ors36- The CD had collected money
under unauthorised collective investment scheme. SEBI took action against the CD and attached
its immovable properties. The issue for consideration was whether, in such circumstances, an
application under section 7 of the Code is maintainable. The NCLAT held that application
under section 7 is maintainable and till the period of moratorium, SEBI can neither recover any
amount nor sell the assets of the CD. It, however, observed: "the 'Resolution Professional' is
required to act in terms of Section 17(2) (e) of the 'I&B Code' for complying with the
requirements under the 'Securities and Exchange Board of India Act' and Regulations framed

33
[CA(AT)(lns) No.734/2018].
34
Company Appeal (AT) (Insolvency) No. 128 of 2019 & I.A. No. 675 of 2019.
35
[CA(AT) (Ins) No.261/2018].
36
2019 SCCOnline NCLAT 233.
thereunder as well as the guidelines issued by the Regulatory Authority. It is also made clear
that the 'Securities and Exchange Board of India' is however entitled to take action against
individuals including the former Directors and Shareholders of the 'Corporate Debtor'."
In Superna Dhawan & Anr. v. Bharati Defence and Infrastructure Ltd. & Ors37-An appeal
was filed against the liquidation order of CD passed by AA. While dismissing the appeal against
the impugned order, the NCLAT observed: "The Adjudicating Authority rightly observed that
the 'Resolution Plan' should be planned for 'Insolvency Resolution' of the 'Corporate Debtor'
as a going concern and not for addition of value with intent to sell the 'Corporate Debtor'.
The purpose to take up the company with intent to sell the 'Corporate Debtor' is against the
basic object ofthe 'I&B Code'."
In Prasad Gempex v. Star Agro Marine Exports Pvt. Ltd. & Anr.38 -While approving the
resolution plan, the AA directed that all proceedings in the matter, whether civil or criminal,
present or future, shall stand withdrawn and dismissed. While setting aside this direction of AA,
the NCLAT held: "the Adjudicating Authority has no jurisdiction to pass any order with regard
to any matter pending before the Court of criminal jurisdiction".
In RMS Employees Welfare Trust v. Anil Goel39 -While approving the resolution plan, the AA
noted that the resolution plan did not envisage any payment towards Government dues. It,
however, observed that waiver of Government dues may be considered by the respective
Government department. The NCLAT held: "The debt of the Central Government or the State
Government arising out of the existing law being 'Operational Debt', the question of asking for
waiver does not arise as per the 'Resolution Applicant' to decide how much to be paid to the
Central Government or the State Government against the 'Operational Debt' (Income Tax or
G.S. Tor any other statutory debt), which should not be less than the amount to be paid to the
'Operational Creditors' in the event of a liquidation of the 'Corporate Debtor' under Section 53.
In Industrial Services v. Burn Standard Company Ltd. & Anr.40- The Appellants challenged the
order passed by the AA approving a resolution plan submitted by the corporate applicant. The
said plan did not provide for revival of the CD but its closure and retrenchment of all the
workmen. The NCLAT held: "the 'Resolution Plan' is against the object of the Code and the

37
[CA(AT)(lns) No. 195/2019].
38
[CA(AT)(lns) 469/2019].
39
2019 SCCOnline NCLAT 300.
40
[CA(AT)(lns) No. 141, 142, 179 8& 208/2018].
application under Section IO was filed with intent of closure of the 'Corporate Debtor' for a
purpose other than for the resolution of insolvency, or liquidation, we hold that the part of the
'Resolution Plan' which relates to closure of the 'Corporate Debtor'/ 'Corporate Applicant' being
against the scope and intent ofthe 'I&B Code' is in violation ofSection 30(2)(e) of the 'l&B
Code'." It directed the CD to ensure that the company remains a going concern and employees
are not retrenched.
In IDBI Bank Limited v. Mr. Anuj Jain, IRP, Jaypee lnfratech Ltd. and Anr.41- The NCLAT
reiterated: "We make it clear that if any of the 'Financial Creditor' remains absent from voting,
their voting percentage should not be counted for the purpose of counting the voting shares, as
held by this Appellate Tribunal in 'Tata Steel Ltd. v. Liberty House Group Pte. Limited&
Ors"42
In Jagmeet Singh Sabharwal & Ors. v. Rubber Product Ltd. & Ors.43 The NCLAT held that the
resolution applicant is required to provide the same treatment to all the OCs, who are equally
situated. The 'Operational Creditors' who were supplying goods or rendered services including
employees are investing money for keeping the company operational. Employees are also
working to keep the company operational, therefore, they are class in themselves. Resolution
plan cannot be arbitrary or discriminatory amongst class of such 'Operational Creditors'. Only
the same treatment is to be made.
In Bhushan Power and Steel Limited v. Mahendra Kumar Khandelwal44 The NCLAT observed:
"The Hon'ble High Court has jurisdiction under Article 226 of the Constitution of India and
has also supervisory jurisdiction under Article 227 of the Constitution of India. We are not
expressing any opinion as to whether they have the supervisory jurisdiction over all the Tribunals
or not, but it is not clear as to how the Punjab and Haryana High Court can pass an order, which
has no territorial jurisdiction over Delhi, where Principal Bench of National Company Law
Tribunal, New Delhi is situated, who is considering the matter."It advised the AA to decide the
case on merits in accordance with law and uninfluenced by any order except the decision of the
NC LAT and the SC.

41
[IA No. 1857 of 2019 in CA(AT)(lns) No. 536/2019].
42
2019 SCCOnline NCLAT 13.
43
[CA(AT)(lns) No.405/2019].
44
[CA(AT)(lns) No. 562/2019].
In Dhinal Shah v. Bharati Defence Infrastructure Ltd. & Anr45, NCLAT was of the view that
without such notice and without impleading Resolution Professional by name, the Adjudicating
Authority was not competent to make any observation against the Resolution Professional. If
there was any lapse on the part of Resolution Professional which has come to the notice of the
Adjudicating Authority, he should have referred the matter to the Insolvency and Bankruptcy
Board of India for taking appropriate action in accordance with law, which is the competent
authority to take any action, after seeking explanation from the Resolution Professional."
Accordingly, it set aside the part of the impugned order as regards adverse observations against
the RP.
In Damont Developers Pvt. Ltd. v. Bank of Baroda & Anr.46 - The AA by impugned order
dated 4" February, 20I9 rejected the impleadment application filed by the Appellant. While
dismissing appeal, the NCLAT held: "Except the Corporate Debtor, no other party has right
to intervene at the stage of admission ofa petition under Section 7 or 9. However, an aggrieved
party may prefer an appeal if the order of admission affects the person."
In State Bank of India v. Jet Airways (India) Ltd47-Application for initiation of CIRP of the CD
for non-repayment of various credit facilities provided to it was admitted. During the hearing,
it was submitted that insolvency proceeding had already been initiated against the CD by a
foreign court. Mr. R. Mulder, Administrator in Bankruptcy of Jet Airways (India) Ltd in
Noord Holland District Court filed a written submission in the capacity as Intervener stating
that vide judgment dated 21st May, 2019, Hon'ble Noord Holland District Court,
passed an order of bankruptcy against Jet Airways (India) Limited as per the provisions of
Bankruptcy Act prevailing in the Netherlands. While noting that sections 234 and 235 of the
Code are yet to be notified, the AA observed: "Therefore, we as the Adjudicating Authority
are not empowered to entertain the order passed by the foreign jurisdiction in the case, where the
registered office of the Corporate Debtor company is situated in India, and the jurisdiction
specifically lies with this court. Therefore, we cannot pass any order to withhold the Insolvency
proceedings pending in our court based on the order of insolvency passed by any other
jurisdiction,which is not authorised to pass order for the company, which is registered in India
and the jurisdiction solely lies with this court." It clarified that the order of the foreign court is a

45
[CA(AT)(lns) No. 175/2019].
46
[CA(AT) (Ins) No.436-437/2019].
47
[CP2205(1B)/MB/2019].
nullity in the eyes of law and such order cannot be given effect. While admitting the
application, the AA directed the IRP to proceed in the matter with immediate effect without
being influenced by order of the Noord Holland District Court, Netherland. It advised that every
effort should be made by the IRP/RP and members of CoC to expedite the matter and try to
finalise the resolution plan on a fast track mode and they should not wait for the expiry of the
statutory period of 180/270 days.
In Insolvency and Bankruptcy Board of India v. Liberty House Group Pvt. Ltd.48 -IBBI filed a
complaint under section 236(2) of the Code against the resolution applicant and its officers for
knowingly and willfully contravening the terms and conditions of the approved resolution plan.
The special court took cognizance of the complaint and ordered that the respondents are prima
facie liable to be prosecuted for commission of offences punishable under section 74(3) of the
Code.

V. CONCLUSION
It is quite commendable to see the development of the jurisprudence on insolvency laws
developing within a short period of 3 years. The aim of the IBC is not to close down existing
business, but is aimed at restructuring and reviving an ailing company and run it as a going
concern. The successful submission of a resolution plan in the case of Chhaparia
Industries and Synergies Dooray Automotive to recast debt has boosted the confidence of the
stakeholders in the new Code to resolve debt. However, it is important that the existing problems
are resolved at the earliest by involving the stakeholders and all working together to ensure the
Code becomes a success, a tool in enabling recovery of dues at the same time ensuring that
sufficient opportunity is given to the debtor to turn around and contribute to the economy
together. A dynamic law is one which is crafted in the context of life. Given that life is ever
evolving, the Code, even in a short span, has shown extraordinary dynamism in addressing many
of the pressing concerns on resolving corporate insolvency for the benefit of people and the
economy. The Amendment, embedded on market realities, further strengthens the hands of
stakeholders to take commercial decisions and enables time bound, innovative resolutions to
ensure value maximisation. Therefore, we can finally conclude that IBC really has been a game

48
[CNR No. HR GR0I-00440I-2019) (CIS No. COMA/02/2019)].
changer in terms of recovery and resolution of stressed assets in the wake of emerging market
realities. Better institutional support and judicial is mandatory for the insolvency regime.

VI. BIBLIOGRAPHY
1. Insolvency and Bankruptcy News, The Quarterly Newsletter of IBBI, April-June, 2019,
Vol. 11.
2. ASSOCHAM, Strengthening the Code, (May, 2019), CRISIL.
3. Ketan Mukhija, Challenges in Insolvency Resolution Process Under Insolvency and
Bankruptcy Code, 2016, 5 KIIT Student L Rev 25 (2018).
4. Insolvency and Bankruptcy Code 2016-As amended by Insolvency & Bankruptcy Code
(Amdt.) Act 2019 (11th Edition August 2019), Taxmann Publications Pvt. Ltd. (16
September 2019).
5. Insolvency and Bankruptcy Law Digest (May 2018 Edition).