Insolvency Law

[By Anjali Soni] The author is a student at the National Law University, Odisha. Introduction Real estate developers use various mechanisms to raise finance apart from the traditional loans received from Financial Institutions and buy-back agreements are one of such instruments. Buyback schemes are where the developers agree to repurchase the property at a higher price, within a stipulated time, during which the homebuyers generally get some percentage of annual returns. Such offers are usually undertaken to encourage sales. Even though the homebuyers were declared as financial creditors so far as the Insolvency and Bankruptcy Code is concerned, however, homebuyers categorized as speculative investors have no remedy under the IBC. The NCLAT recently in the case of  Shubha Sharma, Suspended Board of Director v. Mansi Brar Fernandes ruled that homebuyers with a compulsory buy-back agreement are not genuine buyers but mere speculative investors and hence cannot seek relief under the provisions of the IBC. This article seeks to analyze the judgment and make a case for investors under buy-back agreements. Facts Gayatri Infra Planner Pvt. Ltd. Company, a real estate developer, and Mrs. Mansi Brar Fernandes entered into an agreement/MoU for the provisional allotment of four apartments in a project named “Gayatri Life”. Rs. 35 lacs was paid by the financial creditor at the time of signing the agreement. The agreement had a compulsory buy-back provision which stipulated that upon the expiry of 12 months, the Corporate Debtor was to return the initial amount along with an additional Rs. 65 lacs as premium, failing which the homebuyer was to take possession of the apartments. The Corporate Debtor issued two post-dated cheques in favor of the financial creditor. Upon inquiring, the Corporate Debtor expressed his interest to exercise the buyback but the said cheques were dishonored upon encashment. No amount was returned after repeated extensions nor the possession of the apartments was given. The financial creditor finally filed the application under Section 7 of the IBC. Decision of the adjudicating authority The two primary objections raised before the Adjudicating Authority. First, that the allottee does not come under the definition of Financial creditor, and second, that the amount of default is Rs. 35 lacs and not Rs. 1,02,50,000 as claimed by the allottee. The NCLT did not accept either of the objections and admitted the application on the grounds of the debt being a financial debt in view of the explanation inserted under clause Section 5(8)(f) by the Insolvency and Bankruptcy (Second Amendment) Act, 2018. Aggrieved by this order, the former Director of the Corporate Debtor filed an appeal before the Appellate Tribunal. Decision of the Appellate Tribunal The Honourable Appellate Tribunal while setting aside the impugned order ruled that the MoU signed by the financial creditor and the real estate developer is an agreement to buy back the apartments and not an agreement for sale of the apartments. Since the buyback is an irrevocable and compulsory buy-back agreement, the homebuyer is actually a speculative investor and not a genuine homebuyer. Judicial precedents regarding homebuyers with a buy-back agreement under IBC In the case of Kussum Chadha v. C&C Towers Ltd. the real estate developer launched a ‘Buy Back’ scheme inviting investors but defaulted in payment of the assured monthly returns to financial creditors. Cheques issued in favor of the financial creditors towards the refund and premium due were dishonored, and the CIRP petition was admitted by the NCLT. Similarly, in the case of Narender Kumar v. Aadinath Probuild a buy-back agreement cum guarantee deed was executed in favor of the applicant and after the default in payment, CIRP proceedings were initiated. The Adjudicating Authority categorically laid down that since the amount of money has been raised under a real estate project, it has the commercial effect of a borrowing and comes within the scope of a financial debt. Analysis of the nature of debt under a buy-back agreement In the author’s opinion, homebuyers under a compulsory buy-back agreement should be considered as financial creditors because the debt owed to them fulfills all the prerequisites of a financial debt. Section 5(8) of the IBC provides two primary components for a debt to be classified as a financial debt. First, the debt has to be disbursed against the consideration for the ‘time value of money’ and second, the transaction should fall under any clauses between (a) to (i). The NCLAT in the case of Nikhil Mehta and Sons (HUF) v. AMR Infrastructure Ltd ruled that the first essential requirement of financial debt has to be that the debt is disbursed against the consideration for the time value of money. Black’s Law Dictionary defines ‘time value’ as “the price associated with the length of time that an investor must wait until an investment matures or the related income is earned”. Essentially, the time value of money is the incentive that the said investor gets after a stipulated time period against the investment. Under buy-back agreements, the real-estate developers give lucrative offers to investors in order to stimulate sales. These offers include assured annual returns at attractive rates and heavy premiums along with the principal amount after the time period is over. The time value of money in such transactions is evident from the monetary benefits received by such investors. With regard to the second requirement, a debt can be classified as a financial debt if it is raised under any transaction having the commercial effect of a borrowing as mentioned in Section 5(8)(f) of IBC. The Hon’ble the Appellate Tribunal in the case of Rajendra Kumar Saxena v. Earth Gracia Buildcon Pvt. Ltd. held that the explanation inserted under Section 5(8)(f) states that any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing, making all allottees of real estate as ‘financial creditors’. Finances raised under a buy-back agreement also have the same commercial effect of a borrowing. During times of financial crises, real estate developers resort to raising funds through buy-back agreements

[By Nikhil Singh] The author is a student at the National University of Juridical Sciences, Kolkata. Introduction The Insolvency and Bankruptcy Code, 2016 (“Code”) was brought with an intent to secure the creditors’ interests by providing exhaustive provisions for corporate restructuring and debt recovery. Creditors are classified into two heads i.e. financial and operational creditors and the process to initiate a corporate insolvency resolution process (“CIRP”) has been provided in the Code. The phrase “creditor” has also been defined in the code itself under Section 2(10). The definition expressly includes “decree holder” within the scope of the term. As regards the homebuyers, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 put them in a priority position by including the amount advanced by them to the builders within the definition of “financial debt” under Section 5(8)(f) of the Code. The Supreme Court has also held that the remedies under Real Estate (Regulation and Development) Act, 2016 (“RERA”) and the Code co-exist with concurrent remedies under the two statutes. However, a recent ruling by the National Company Law Appellate Tribunal (“NCLAT”) has raised a debate as to whether a decree holding homebuyer would be covered within the definition. Analysis In Sushil Ansal v Ashok Tripathi (“Sushil Ansal Case”), the respondent i.e. the homebuyer had purchased a flat from the appellants and paid a certain amount in relation to it. Upon the appellant’s failure to deliver possession, the respondent got a recovery certificate i.e. decree in his favour from the Real Estate Regulatory Authority. After this, he initiated CIRP under Section 7 claiming himself as a decree-holder, and not a homebuyer. Now based on the facts of the case, it was clear that there was no dispute as to the existence of the debt and even the appellants did not challenge this. The only contention raised by the appellant was that once the respondent became a decree-holder, the underlying builder buyer contract stood terminated and thus no CIRP could be initiated based on it. Now a question arises as to whether a decree-holder ceases to be a financial creditor who can imitate a CIRP under Section 7. On this point, there are contradicting positions taken by the courts. In the case of Urgo Capital Ltd. v Bangalore Dehydration and Drying Equipment Co.(“Urgo Case”) the court had ruled in the positive holding that a decree-holder continues to be a financial creditor and can consequently initiate a CIRP under Section 7. The court had further clarified that just because the claimant does not go for court execution of the decree, it does not disqualify him from initiating CIRP based on the decree. Further jurisprudence on Section 7 is that the claimant only needs to show the existence of creditor-debtor relations by proving the existence of a debt. More specifically, the court had allowed section 7 application stating that as long as the amount under the decree has not been paid, the debt exists and that the decree itself will be evidence of the existence of a debt. Now, a parallel to money decree can be drawn from arbitral awards passed by tribunals. The position taken by the court in K Kishan v Vijay Nirman Co. was that an award- the creditor is considered as a financial creditor who can initiate a CIRP based on the award. The only condition is that the timeline to challenge the award under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) has elapsed. This analogy is further strengthened by Section 36 of the Arbitration Act, which states that an award is to be enforced as if “it is a decree of a court”. Now, one might rightly argue that if an arbitral award is kept on the same pedestal as a court decree, the Code and NCLAT cannot treat them differently to establish the creditor-debtor relations. The NCLAT had done the same mistake in the heavily criticized judgment in Digamber Bhondwen v. JM Financial Asset Reconstruction Company (“Digamber”). There, the Tribunal had taken an erroneous position in holding that a decree-holder, although falling under the definition of a creditor under section 3(10) of the Code, will not be entitled to file an application under section 7 or section 9 of the Code as the definition of a ‘financial creditor’ or an ‘operational creditor’ does not include a decree-holder. Such a position is flawed because it would invalidate the definition of the term “creditor” itself. If decree-holder has been expressly included in the scope of creditor, and judicial precedents have appreciated such inclusion, the position in Digamber would not only be in conflict with the legislative intent but also its own position in previous judgements. Now although a larger bench in the Urgo Case has contradicted this and taken the correct position, the judgement has not been overruled and has made way for the larger bench decision in the Sushil Ansal Case. Thus, currently, these two judgements stand in contradiction with each other and as both are of the same bench strength, none of them have overruled the other. This has created a gap on this issue which can only be settled by a larger bench of the NCLAT or the Supreme Court of India. Another, problem that the exclusionary position creates is that the decree holding homebuyers are now left remediless under the Code. Explanation II of Section 5(8) categorically includes the amount raised through a builder buyer contract as a “financial debt” enabling homebuyers to initiate CIRP as financial creditors under Section 7. Now it is true that the basis of the creditor-debtor relation is the builder buyer contract and that once a decree is passed based on such a contract, the contract stands terminated. However, this basis is only relevant to prove the existence of the debt and once a decree is passed based on such a contract, the decree itself becomes evidence of the debt if there is no appeal against it. The NCLAT seems to have failed in analysing this point in

[By Aashna Shah] The author is a student at the Institute of Law, Nirma University. Indian courts have pronounced inconsistent judgements regarding the classification of dues arising out of Lease and rentals as Operational Debts. With contradictory reasoning, courts had earlier put the creditors at a great disadvantage, thus neglecting the objective of the Insolvency and Bankruptcy Code, 2016 (“IB Code” or “the Code”) to balance the interests of all stakeholders. Finally, this ambiguity was settled in the case of Anup Dubey v. National Agricultural Co-operative Marketing Federation of India Ltd. & Ors., wherein the court stated that Lease and License agreements shall come within the ambit of section 5(21) of the IB Code i.e., they shall be construed as operational debts. Hence the adjudicating authority deviated from its judgement in Ravindranath Reddy v. G. Kishan, wherein it had excluded Lease and Rentals as Operational Debts. In this article, the author shall provide an analytical account of the present case. Additionally, the author will explain arguments that could have been used by the NCLAT to strengthen its decision. Factual Background M/s. National Agriculture Co-operative Marketing Federation of India Ltd. (“Operational Creditor”) entered into a leave and license agreement (“Agreement”) with Umarai Worldwide Private Limited (“Corporate Debtor”) to use cold storage facilities for three years. The corporate debtor started defaulting in the payments as stipulated in the agreement from September 2017. The operational creditor contended that despite repeated reminders to pay the ‘outstanding debt’, and serving an eviction notice, the Corporate debtor did not pay the outstanding debt. Subsequently, the Operational creditor sent a demand notice under section 8 of the IB Code. The Corporate debtor, in its reply, denied all the claims and requested for renewal of the agreement. Thereafter, the Operational creditor initiated insolvency proceedings against the Corporate debtor under section 9 of the IB Code, which was accordingly admitted by the National Company Law Tribunal, Mumbai (“MNLCT”). While admitting the application, the MNCLT stated that the Corporate debtor vide two letters had confirmed to pay the outstanding dues for rent as established by the agreement. Hence, the Corporate debtor has committed a default by not paying the debt due to the Operational creditor. The Corporate debtor’s suspended board member challenged this order of MNCLT before the National Company Law Appellate Tribunal (“NCLAT”).  The NCLAT upheld the order of MNCLT and stated that lease rentals which arise due to the use and occupation of a cold storage unit for commercial purposes shall come under the ambit of section 5(21) of the IB Code i.e., it shall be considered as an ‘Operational Debt’. Analysis The adjudicating authority examined section 5(21) of the code which states that for a debt to be construed as an ‘Operational debt’ it should arise out of any of the following: (a) Claim in respect of provisions for goods and services (b) Employment or debt in respect of dues and (c) Such repayment of dues which should arise under any law in force at that time What Operational debt can be construed as has been interpreted by the courts time and again because the legislature has not defined the term ‘goods and services.’ This lacuna in law has given rise to the varying application of this provision. In Ravindranath Reddy v. G. Kishan, NCLAT wrongly observed that there is no difference between ‘essential goods and services’ under section 14(2) of the IB Code and ‘goods and services’ under section 5(21) of the Code. Hence, the goods and services stated under section 14(2) shall only be construed as Operational debts. This incorrect position of law was rectified in the present case, where the same tribunal refused to consider the contention of the Corporate debtor that section 14(2) read with Regulation 32 (Insolvency Resolution Process for Corporate persons, Regulation 2016) do not include rental dues from cold storage facilities, which is why it should not be considered Operational debt. The adjudicating authority rightly differentiated between ‘goods and services’ and ‘essential goods and services’ because the latter only comprises of those goods and services whose supply is not to be terminated during Corporate Insolvency Resolution Proceedings. Also, it is nowhere mentioned in the Code, that essential goods and services under Section 14(2) are the same goods and services under section 5(21). .The adjudicating authority rejected the reasoning provided by the Tribunal in Ravindranath’s case for excluding dues out of lease agreements as Operational Debt. In the aforementioned case, the tribunal had stated that for the determination of dues arising out of a lease agreement, the court will have to rely on evidence. But the tribunal will not be able to investigate as it exercises a summary jurisdiction, hence dues arising out of lease agreements are not considered to be Operational debts. Instead in support of its decision, the court relied on the judgement of the Supreme court in the case of Mobilox Innovations Private Ltd vs Kirusa Software Private Ltd, wherein debts arising out of lease rentals were included under Operational debt. The judgement of the apex court was pronounced by relying on recommendations of the Bankruptcy Law reforms committee report (BLRC) which stated that the liability of Operational creditors arises due to transactions on operations. Hence, in Lease and Rentals which are included in the operations, any debt arising thereof should be considered as an operational debt. The only issue on placing reliance on the report is that despite the suggestions of the committee, the Legislature never expressly included Lease and Rentals as an Operational debt. Additionally, the adjudicating authority in the present matter did not state that in cases of Operational debts, the very reason that the Corporate Debtor can claim the defence of the existence of a dispute is because of the lack of evidence relating to the ‘Existence of Debt’. This completely negates the reasoning of the tribunal in the Ravindranth case related to the investigation of the evidence for the existence of debt and would have strengthened the decision of the tribunal to

[By Vishesh Jain and Sahiba Vyas] The authors are students at National Law University, Odisha. Introduction The 89th Law Commission Report subserves that no one should live under the menace of a plausible action for an indefinite period. When the Insolvency and Bankruptcy Code, 2016 (IBC) was instituted, there was no explicit provision regarding the application of Limitation Act, 1963 until the Hon’ble Supreme Court (SC) ascertained the applicability of limitation period for filing of an application under IBC. The Apex Court, in the matter of Innoventive Industries Ltd. vs. ICICI Bank Limited (2018), adjudged that, “a debt may not be due if it is not payable in law or in fact”. Thus, Section 238A was inserted into IBC which states that, “The provisions of the Limitation Act, 1963 shall, as far as may be, apply to the proceedings or Appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Appellate Tribunal, as the case may be.” The interpretation of the same has become misty after the National Company Law Appellate Tribunal (NCLAT) and the National Company Law Tribunal (NCLT) have given contradictory judgements on the same question of law. The authors through this post comment on the differing views of the adjudicating authorities and try to establish a conclusion to encounter the disparate views with the help of foreign jurisprudence. NCLAT & NCLT at Odds The whole conundrum started when recently in the case of Syndicate Bank v. Bothra Metals and Alloys Limited, NCLT held that an application under Section 7 of IBC  is not barred by limitation. The case dealt with a Company Petition filed under Section 7 of IBC by Syndicate Bank (Financial Creditor), seeking to initiate Corporate Insolvency Resolution Process (CIRP) against Bothra Metals and Alloys Limited (Corporate Debtor). The Corporate Debtor (CD) failed to pay the principal and interest of the loan availed by the Financial Creditor (FC). The CD raised the contention that the present application of the FC is barred by limitation but the Tribunal, held that “an acknowledgement in the Balance Sheet of the company satisfies the requirements of Section 18 of the Limitation Act, 1963, leading to a fresh period of limitation commencing from each such acknowledgement.” The contradictory views on the impugned issue can be observed from various rulings of NCLAT. In 2019 in case of Gautam Sinha vs. UV Asset Reconstruction Company Limited, the Tribunal ruled that though a default in the form of NPA is reflected in the Balance Sheet, it was not an acknowledgement of the debt by the Corporate Debtor and the default was time-barred for filing of an application under Section 7 of the IBC. Further, in February 2020 in the case of Sh. G Eswara Rao vs. Stressed Assets Stabilisation Fund, the Appellate Tribunal reaffirmed the same rationale and stated that under Section 92(4) of the Companies Act, 2013, the filing of Balance Sheet/annual return is mandatory notwithstanding which penal action might be initiated under Section 92(5) and 92(6) of the same Act. Thus, the filling of Balance Sheet/ Annual Return cannot be considered as a ground for acknowledgement of debt under Section 18 of the Limitation Act, 1963. In March 2020 again in case of V. Padmakumar v. Stressed Assets Stabilisation Fund, the AA relied on the same contradictory premise as stated in above-mentioned cases. In this case an application was filed under Section 7 of IBC by M/s. Stressed Assets Stabilization Fund (SASF) for initiation of CIRP against M/s. Uthara Fashion Knitwear Limited. A five-judge bench of NCLAT, with a ratio of 4:1, favoured barring limitation to file an application under Section 7 of IBC. The impugned case discussed the legal perspectives with regards to the acknowledgement of the debt using Recovery Certificate reflected in the Balance Sheet. The one dissenting opinion of Justice Cheema, in this case, favoured the acknowledgement of debt through the Balance Sheet. While deciding the case, the Adjudicating Authority (AA) relied on the judgement delivered by the Apex Court in the case of Jignesh Shah and another v. Union of India and another, where the Hon’ble court cited the prima facie objectives of IBC i.e. an insolvency proceeding is a proceeding ‘in rem’ and not a recovery proceeding; thus, a winding-up petition must trigger the date of default and not on the day of acknowledgement of debt. Thus, the contradictory views adopted by various Adjudicating Authorities have left the interpretation of the provision in a lurch. Acknowledgement of Debt and Foreign Jurisprudence Under the English Law, Atlantic and Pacific Fibre Importing and Manufacturing Co. Ltd is considered as one of the first cases on the acknowledgement of debt and Balance Sheet conundrum wherein the court opined that recording debenture debt in the Balance Sheet of the company is sufficient acknowledgement of debenture debt. The next most notable and celebrated decision on the Balance Sheet conundrum was rendered in Jones v. Bellgrone Properties, wherein the Court of Appeals held that once the chartered accountant and directors of a company sign the Balance Sheet, it constitutes as an acknowledgement of debt within the meaning of applicable limitation statue. The current legal position in English Law can be derived from the decision of Gee & Co.(Woolwich) Ltd., where the Court observed that there is no requirement in English law that debt must be due at the time when it is acknowledged. The Court further held that when the director duly signs the Balance Sheet, then it can be efficiently considered as acknowledgement of debt and the cause of action for the same is deemed to have accrued on the date of signing of the Balance Sheet by the director. This has also been upheld by the Court in the case of Overmark Smith Warden Ltd. If we look upon Australian Jurisprudence, the Courts have settled the position in the case of Stage Club v. Miller Hotels wherein it was held that the signed Balance Sheet is enough to constitute an acknowledgement for the debt for Statute

[By Soham Banerjee] The author is an Associate (Dispute Resolution) at Vashi and Vashi – Advocates and Solicitors, Mumbai. Introduction: The National Company Law Tribunal (“NCLT”) by way of its Circular dated May 12, 2020 (“Impugned Circular”), directed all new and pending insolvency applications filed by Financial Creditors under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) to be mandatorily accompanied by a record of the Financial Default from an Information Utility (“IU”). Accordingly, Univalue Projects Ltd. and Cygnus Investments and Finance Pvt. Ltd. (“Petitioners”) challenged the vires of the impugned Circular invoking the writ jurisdiction of the Calcutta High Court. Grounds of Challenge: Being Financial Creditors with a pending/prospective applications under Section 7 of the IBC, the Petitioners alleged that the impugned Circular would adversely affect the substantive and vested rights of the Petitioners that had accrued upon them as a creditor under the IBC, prior to the publication of the impugned Circular. Additionally, the Petitioners also claimed that the impugned Circular was issued in gross contravention of the IBC, the Companies Act, 2013 (“CA 2013”), and regulations under the Insolvency and Bankruptcy Board of India (“IBBI).  Petitioner’s Submissions: a)Kompetenz – kompetenz of the NCLT to issue the Circular Section 424 of the CA, 2013 lays down the powers of the NCLT and the NCLAT. Accordingly, the Petitioner submitted that upon a bare reading of Section 424 of the CA, 2013, it is ex facie evident the scope of the NCLT’s jurisdiction is limited to the regulation of day to day procedure and such procedure that may be followed for the administration of justice. Section 424 of the CA, 2013 does not confer jurisdiction upon the NCLT to alter and/or contravene the basic structure of the CA, 2013, or the IBC. b)Statutory interpretation of “as may be specified” under Section 7(3)(a) Attention was drawn to Section 3(32) of the IBC on the definition of the term ‘specified’ which means specified by regulations made by the IBBI. Accordingly, relying on the term “as may be specified” under Section 7(3)(a) of the IBC, the Petitioners submitted that the power to make regulations under Section 7 of the IBC vested with the IBBI and not the NCLT. c)Presumption of implied delegated legislation The Petitioners submitted that where a statute expressly provides for delegation of power to a subordinate authority, exclusive jurisdiction vests with that subordinate authority to make rules and regulations under the statute. Accordingly, since the IBC had expressly delegated the power to make regulations to the IBBI, the NCLT traversed beyond the ambit of the statute in issuing the impugned Circular. d)Disjunctive nature of Section 7(3)(a) The Petitioners submitted that Section 7(3)(a) of the IBC envisaged proof of financial default through other modes of documents and evidence. Attention was drawn to the usage of the term “or” in Section 7(3)(a) of the IBC to argue that the intention of the legislature was to make Section 7(3)(a) disjunctive, and not limit proof of financial default to only furnishing of record of default with the IU. Reliance was also placed on Regulation 8(2) of the IBBI Regulations, 2016 to highlight that the said regulation also lists four other categories of documents, in addition to the record of default with the IU to establish financial default. e)Inherent powers of the NCLT and AA Rules, 2016 In conclusion, the Petitioners pre-emptively submitted that even under the NCLT’s inherent jurisdiction under Rule 11 of the NCLT Rules, 2016, the NCLT could not have issued the impugned Circular. A comparison was made with Section 151 of the Code of Civil Procedure, 1908 (inherent powers of a Civil Court) to submit that even a Civil Court cannot resort to its inherent jurisdiction to issue rules and regulations, ultra vires the parent statute [See KK Veluswamy v. N. Palanisami, (2011) 11 SCC 275]. Additionally, reliance was also placed on Rule 4(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (“AA Rules, 2016”), which deals with procedural aspects of an application filed by a Financial Creditor. It was contended that the ‘Form – I’ which had to be filed along with the documents evincing financial default also made provision for accommodating other sources of documents and evidence, apart from the record of default with the IU. Respondent’s Submissions: Per contra, the Respondent argued that Section 424 of the CA, 2013 vested NCLT with the jurisdiction to regulate their own procedure. Further, the Respondent raised strong objections to the furnishing of record of default with the IU as a mere formality and contended that it was an essential feature of the IU to authenticate and verify the information submitted by a financial creditor. Additionally, the Respondent also argued that new disabilities and/or obligations have not been foisted upon financial creditors by way of the impugned Circular since Section 7(3)(a) of the IBC specified, at the outset, that a financial creditor is required to submit the record of the default with the IU, along with the application. Since there exist no specific regulations that govern the submission of other evidence/documents as proof of financial default, the record of default to be furnished to the IU is the only way to establish financial default, and hence mandatory. Findings: a)On jurisdiction of the NCLT: On the NCLT’s jurisdiction to publish the impugned Circular, reliance was placed on Government Of Andhra Pradesh & Ors v. Smt. P. Laxmi Devi [(2008) 4 SCC 720] to expound upon the hierarchy of legal norms when it comes to rules and regulations governing the field of Insolvency laws, as under: (i)Provisions of the CA, 2013 and IBC; (ii)Rules enacted by the Central Government and regulations made by the IBBI; and (iii)NCLT/NCLAT regulating their own procedure subject to Section 424 of the CA, 2013 (iv)Accordingly, while the NCLT has been vested with the jurisdiction to regulate its own procedure, such regulations are subservient to the provisions of the CA, 2013, the IBC, and regulations made by the IBBI b) On implied delegated legislation:

[By Prashansa M. Agrawal] The author is an Advocate practicing in the High Court of Bombay. Recently, in the judgment dated 14th August 2020 in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr., the Supreme Court decided that the application filed by the financial creditor therein was not barred by limitation. While pronouncing the decision, the Supreme Court reasserted the settled aspects of limitation under the Insolvency and Bankruptcy Code, 2016 (“the Code”) in reference to its earlier landmark judgments. At the same time, the Supreme Court touched upon a slightly different and disputed position with respect to the applicability of Section 18 of the Limitation Act to the Code― which has come up before the Supreme Court for the first in the instant case. In this article, the author analyses the landmark judgments on the limitation period under the Code along with a few disputed judgments on Section 18, in order to assess the stand of the Supreme Court in the instant case. Background The legislature sought to answer the ever-looming question of ‘limitation’ under the Insolvency and Bankruptcy Code, 2016 (“the Code”) by incorporating Section 238A in the Code by way of the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 which applies provisions of the Limitation Act (“the Act”) to the proceedings before National Company Law Tribunal (“NCLT”) and National Company Law Appellate Tribunal (“NCLAT”) Consequently, the question of retrospective application of Section 238A arose before the Supreme Court in B.K. Educational Services Private Limited v.Parag Gupta and Associates. The Apex Court held that limitation provisions were applicable to the Code from its very inception. Therefore, it was construed that Section 238A only clarifies the said position and is applicable retrospectively. Thus, as per the judgment in B.K. Education(supra), the right to sue accrues when the default occurs, which lasts for three years to be computed from the date of default. After the said period, an application under the Code would be barred under Article 137 of the Act except when the delay is explained and condoned as per Article 5. However, there arose ambiguities with regard to other ways of extending the prescribed limitation period of three years. One such ambiguity relates to the applicability of Section 18 of the Act to the Code which came for consideration before the Apex Court in the case of Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr. As per Section 18, when a party against whom a property or right is being claimed acknowledges the liability during the subsistence of the limitation period prescribed for a suit or application in respect of such property or right i.e. 3 years under the Code, a fresh period of limitation shall be computed from the date of such acknowledgment. The contention, ‘Whether or not Section 18 pushes the date of default under the Code’ has been addressed in a few judgments over the years as provided below- Prior to the Instant Case In Fernas Construction India Pvt. Ltd. v. RVR Projects Pvt. Ltd., the National Company Law Appellate Tribunal (“NCLAT”) held that Section 18 in Part I of the Act would not apply to an application under the Code as such an application is neither a suit nor can be regarded as a recovery proceeding. Thereafter in Jignesh Shah & Anr. v. Union of India & Anr., the question before the Supreme Court was whether a prior suit for recovery extends the limitation period for filing a subsequent winding-up petition. The Supreme Court answered the aforementioned in negative and remarked that the limitation period can only be extended by the provisions under the Limitation Act such as by way of Section 18 of the Act. Relying on the aforementioned judgment of the Supreme Court, the NCLAT in Sh G. Eswara Rao v.. Stressed Assets Stabilisation Fund and Others held that the period of limitation under the Code commences from the date of default and this date of default can be forwarded to a future date only under Section 18 of the Act. In light of the judgments in Jignesh Shah (supra) and Sh. G Eswara Rao (supra), the financial creditor in the instant case argued the applicability of Section 18 which was not accepted by the Supreme Court as explained below. Obiter Dictum of the Instant Case The Supreme Court clarified that the illustrative reference to Section 18 in Jignesh Shah(supra) was only with respect to suits or other proceedings, wherever it could apply. It further emphasized that the said observations in Jignesh Shah (supra) do not alter the settled position in B.K. Education(supra) i.e. an application under Section 7 (i.e. by a financial creditor) under the Code is time-barred after 3 years from the date of default except when the delay is condoned under Article 5. The Supreme Court further observed that even while assuming that Section 18 is, in fact, applicable for extension of the limitation period for an application under the Code, the same would not come to the rescue of the applicant creditor in the instant case as no suggestion of any acknowledgment as required under Section 18 has been made. It was thus observed that limitation is a mixed question of fact and law which requires the pleader to produce the necessary facts and evidence in order to argue that a particular provision is applicable to extend the prescribed limitation period. In light of the above observations, the Supreme Court decided that the application filed by the financial creditor was barred by limitation. Conclusion and Analysis The instant case certainly creates a doubtful situation around the applicability of Section 18 to the Code, causing dilemma to a number of creditors. In order to understand the position of Section 18 vis-a-vis an application under the Code, it is imperative to note that the phrase ‘suits or applications’ appears under Section 18, as opposed to Article 62 of the Act relating to mortgages which only contains the word ‘suits’ and

[By Amay Bahri] The author is a student at the National Law University, Delhi. Like any new legislation which is introduced, even the Insolvency and Bankruptcy Code 2016 (hereinafter ‘IBC’ or ‘the code’) has been marred by litigation since its inception. One of the more recent discussions on IBC is regarding the power of the creditor against guarantors of a corporate debtor. This discussion becomes all the more relevant after the introduction of new rules and regulations for governing the insolvency of personal guarantors. These new rules and regulations allow the creditor to initiate insolvency proceedings against the personal guarantor, however, there are still unresolved issues regarding the powers of the creditor to have legal recourse against the guarantor when the principal debtor is unable to pay debts. To iron out these unresolved issues, we refer to the already established precedents relating to corporate guarantors. Though corporate and personal guarantors are different to the extent of their liability, there appears to be no distinction or any reason for the distinction in their treatment within the code; thus the developed jurisprudence surrounding the rights against corporate guarantors can be applied to the personal guarantor. One of the objectives mentioned in the preamble to the Insolvency and Bankruptcy Code is that the code seeks to balance of interest of stakeholders. The code marks a paradigm shift from a regime of unaccountable corporates to adopting a realistic approach where commercially unviable companies would close shop. Upon such shift, the code has adopted a creditor centric approach, wherein wide powers to institute the insolvency proceedings are vested with the creditors. The concept of a guarantee is rooted in the Indian Contract Act, thus the powers of the creditor under IBC are to be exercised keeping in mind the principles of guarantee under the Indian Contract Act. There are two distinct issues that arise here, first regarding the power of the creditor to recover after acceptance of the resolution plan; and second regarding the power of the creditor to proceed against the guarantor when insolvency proceedings against corporate debtor have been initiated but the resolution plan has not been accepted. Against this backdrop, the author seeks to discuss the recovery mechanisms available to the creditor against the guarantor a) after the acceptance of the resolution plan and b) when the corporate debtor is under CIRP. The author shall then provide his own conclusion as to the flaws in the recovery mechanism and the way forward. Power of the creditor to recover after Acceptance of Resolution Plan According to the IBC, the acceptance of the resolution plan by the Committee of Creditors (CoC) and approval of the same by the adjudicatory body brings the insolvency proceedings to an end. As per section 31 of the IBC, such an accepted resolution plan determines the full and final liability of the principal debtor. The IBC does not directly deal with the liabilities of a guarantor; neither does it bar the creditor to institute proceedings against the guarantor of the debt. Guarantors seek to protect themselves from the claims of recovery of debt amount by applying the provisions of the Indian Contract Act. These provisions are Section 133 and 134 of the Indian Contract Act. Section 133 provides that a surety is discharged of the debt if there is variance in the terms of the contract without the consent of the surety. The resolution plan can be seen as a variance of terms without the consent of the guarantor, thus the guarantor should be absolved from its liability. However, section 31(1) of the IBC makes the resolution binding on the guarantor, thus countering such claims of the guarantor and making the guarantor liable to bear the liability. Turning to section 134 of the Contract Act, the provision provides that any act which relieves the principal debtor of its obligation to pay will also discharge the surety of its obligation for such a debt. Applying section 134 would be erroneous since a crucial ingredient to satisfy the requirements of this section is that the agreement to discharge the principal debtor of the debt was reached through their own volition and not due to any operation of law. By approval of the resolution plan, the corporate debtor is discharged of its obligations to make a payment, but this discharge is due to the application of the law. Since the crux of section 134 is not satisfied, the said section cannot be invoked to discharge the guarantor of their obligation to pay. Hence, the guarantor is bound to pay the unpaid amount of debt, after the acceptance of the resolution plan and the creditor can take legal actions against the guarantor. One complication that arises out of this arrangement is whether the right to subrogation survives after acceptance of the resolution plan. This was answered in negative, in the case of Essar Steel case but this does not seem to be the final position of law. The right to subrogation would entitle the guarantor to recover the amount of debt paid to the creditor as the guarantor would then step into the shoes of the creditor to claim the amount paid. The holding of Essar Steel is a huge blow to the rights of the guarantor as the judgment has done away with a right to subrogation, which is not only a statutory right under the Indian Contract Act, but also a principle of natural justice. Considering this decision not only impacts the inherent rights of guarantors, but also has adverse impacts on the market economy; the decision of Essar Steel relegating subrogation right requires reconsideration. Power of the creditor to proceed against the guarantor when the debtor is under CIRP As per the Indian Contract Act, the liability of a guarantor and that of the principal debtor are co-extensive, thus a creditor is not obligated to expend the legal remedies against the principal debtor before making a claim against the guarantor and can sue either of them for the debt

[By Jyotiranjan Mallick and Sai Akanksh Deekonda] The authors are students at the National Law Institute University, Bhopal. Introduction The current Pandemic has affected the economy by disrupting the demand and supply chain. It has exacerbated the situation by bringing financial institutions on its knees, owing to the increase in non-performing assets, and default by corporations. Policies are being introduced around the world to protect the state of the economy. It includes “reducing the interest rates” or by introducing “economic stimulus” to balance the economic disruption. The Government of India introduced the ‘Aatmanirbhar’ plan under which it has proposed Rs. 3 lakh crores Collateral-free Automatic Loans for Businesses, including Medium and Small Enterprises. Further, to protect corporations, from facing the brunt of unnecessary liquidation, the government, introduced the Insolvency and Bankruptcy Code (“I&B Code”) Amendment Ordinance, 2020, through which, it has suspended the initiation of the Corporate Insolvency Resolution Process (“CIRP”) for all defaults under section 7, 8, and 9 of I&B Code for 6 months, after 25th March 2020. In a step further, National Company Law Appellate Tribunal (“NCLAT”) in Vivek Bansal v. Burda Druck Pvt Ltd, has allowed the parties, to exit the CIRP midway, and settle through an agreement. This comes as a relief for corporate debtors, who are already in the process of resolution. In this article, we will analyse whether broadening the scope of a settlement agreement is favourable in the current crisis, and what changes can be implemented to further improve the process. A Brief Look at the Case The CIRP was initiated by an operational creditor, Vivek Bansal. The National Company Law Tribunal (“NCLT”) New Delhi Bench, in its order, appointed an Interim Resolution Professional (“IRP”) and a moratorium was imposed on the corporate debtor, However, after the order, the parties settled their dispute through an agreement, and an appeal was filed to NCLAT by Bansal, to allow them to exit the CIRP so that they can act upon the settlement. The NCLAT using its inherent power under Rule 11 of NCLAT Rules 2016 (“Rule-I”) set aside the order of NCLT and permitted the parties to exit the CIRP. Background of ‘settlement agreement under I&B Code’ To settle through an agreement, the parties first have to withdraw their application filed before the adjudicating authority, under Rule 8 of The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (“Rule-II”). However, during the initial phase of the enactment of the I&B Code, the scope of the settlement was highly limited, as Rule 8  of Rule-II, only permits the withdrawal of application before its admission to the NCLT. Ergo, if parties wanted to settle after the admission of the application, the NCLT used to apply Rule 8 and discard such settlement. As a result, appeals started mounting in the Supreme Court, to provide the requisite relief. In Lokhandwala Kataria Limited v. Nisus Finance Managers LLP, the apex court refused to interfere with the decision of NCLAT where it rejected the settlement reached between the parties after the application has been admitted by the NCLT. The NCLAT here refused to use its inherent powers under Rule 11 of Rule-1since the same wasn’t adopted for the I&B Code. Following this, the Apex court in Uttara Foods Pvt Ltd. v. Mona Parachem directed the competent authority to make changes in the code through which the NCLT/NCLAT may allow such settlement, which would restrict unnecessary appeal filed before the Apex court. The Insolvency Law Committee discussed this issue; following which section 12 A was inserted in the code, by IBC (Second Amendment) Act, 2018. Section 12 A gives the power to the adjudicating authority to allow such settlement when it gets the support of at least 90% voting share of the Committee of Creditors (“COC”). In Swiss Ribbons v. Union of India, the apex court observed that even if CoC hasn’t been constituted, the NCLAT may allow the settlement agreement using its inherent power under Rule 11 of the Rule-I. Hence, this judgment extended the scope of inherent powers under Rule 11 to matters under the I&B Code.  The NCLAT in the Vivek Bansal’s case allowed the settlement following this observation in Swiss Ribbons. What Makes the Settlement Agreement Favorable in the Current Crisis Since the inception of the I&B Code, a huge chunk of cases is still pending for resolution. The average time taken for the resolution of completed cases took around 375 days, which is way more than 330 days limit as set by the code. The delay in results and monetary loss makes alternatives like settlement a suitable option. The pandemic has caused India’s economic growth and activities to shrink by 45%., this has made the scope of settlement even more favorable. To understand this, one has to look at the recovery mechanism under CIRP. If a corporate debtor defaults, then CIRP can be initiated. In case, a corporate debtor fails to pay the debt, then the company is either restructured by taking over its management or is liquidated. However, due to the economic turmoil, it is neither beneficial for the creditors to take over the management of the company, as businesses are in complete distress, nor the current market is favorable for liquidation which is considered to be the last resort under I&B Code. As a result, creditors are resorting to settlement. The IBC ordinance 2020, has suspended the initiation of CIRP for any default after 25th March for 6 months. This means that CIRP cannot be initiated, for any default by a corporation within this period. The implication would make it more favorable, even for financial creditors to follow a settlement, which wasn’t earlier preferred, owing to the institutional formalities and the nature of lending. The crisis has made the courts to give flexibility even in terms of the time limit set for such settlement. In a recent verdict of ES Krishnamurthy v. Bharath Hitech Builders, NCLAT observed that considering the present crisis; a concession can be given to the corporate debtors to