Insolvency Law

[By Daksh Aggarwal] The author is a second year student of Campus Law Centre, Faculty of Law, University of Delhi. Prefatory The unification of markets and interconnected commercial transactions has necessitated significant need for common law governing business deals. The United Nations Commission on International Trade Law (“UNCITRAL”) Model law on Cross-Border Insolvency (“Model Law”), adopted in 1997, is designed to harmonise insolvency laws of various jurisdictions of the world and is internationally accepted as a unified restructuring framework by a number of states, including sophisticated economies. The Model Law is applied when the assets of the Corporate Debtor (“CD”) are located in foreign states or where the creditors of the CD reside in states other than the jurisdiction, in which the main insolvency proceedings are taking place against the CD. The major objective of the Model Law is to promote cooperation and coordination between courts and other competent authorities in cross-border parallel insolvency proceedings. The Model Law was substantially implemented in the United Kingdom through the Cross-Border Insolvency Regulations 2006 (“CBIR”). The CBIR, in consonance with Chapter III of the Model Law, intends to provide for the coordination of a British insolvency proceeding and foreign proceedings concerned with the same debtor. Recently, in Michael carter v. Roy Bailey and Keiran Hutchison (as foreign representatives of Sturgeon Central Asia Balanced Fund Ltd) (“Sturgeon Central Asia Case”), the Hon’ble England and Wales High Court (“Court”) interpreted the stated purpose and object of the Model Law and opined that solvent proceedings do not fall within the category of ‘foreign proceedings’ as defined under the CBIR. Apparently, the judgment contrasts with the approach adopted by the United States court which implemented the Model Law and recognised Australian solvent liquidation proceeding under Chapter 15 of the US Bankruptcy Code. The English court deviated from the well settled international judicial dictum and demonstrated divergence of the United Kingdom and the US on abstruse question of law dealing with cross-border recognition of solvent proceeding as a foreign proceeding. In this blog piece, the author aims to dissect the ‘legally unsound reasoning’ of the UK judgment and its troublesome interpretation of the international insolvency law. Legal scrutiny of the judgment The baffling conundrum that the Court in the Sturgeon Central Asia Case faced was whether a just and equitable winding-up of a solvent company would fall within the scope of a ‘foreign proceeding’ for the purposes of the Model Law and the CBIR. According to Article 2(a) of the Model Law, ‘foreign proceeding’ refers to a collective judicial or administrative proceeding in a foreign State pursuant to a law relating to insolvency, for the purpose of reorganization or liquidation.[i] It must be noted that the Model Law is set out in Schedule 1 to the CBIR and hence the same definition of ‘foreign proceedings’ substantially applies to Great Britain. The perspicuous explanation to Article 2(a) insists that the entity would fall under the said article of the Model Law only if the debtor is insolvent or in severe financial distress.[ii] The true meaning and connotation of ‘foreign proceeding’ has been interpreted by various judicial pronouncements. In In Re Stanford International Bank Ltd Case [2010] Bus LR 1270, the English and Wales Court of Appeal (Civil Division) categorically held that the winding-up of a company on the just and equitable grounds includes insolvency in conventional terms. The court, while considering the liquidation of an Antiguan corporation, also opined that the ultimate purpose of the law governing the process of recognition of ‘solvent proceedings’ as ‘foreign proceedings’ is liquidation. The court also observed that the liquidation of a solvent entity incorporated with the objective to carry on international trade or business on just and equitable grounds would be termed as a foreign proceeding. An even wider interpretation was adopted by the US Court in In Re Betcorp Ltd (2009) 400 BR 266. The court, impliedly, held that even solvent companies could fall within the scope of ‘financial distress companies’. The court also elucidated that the voluntary liquidation of an Australian company under the Australian Corporation Act was a collective proceeding, in that it considered the rights and obligations of all creditors and hence recognised the collective proceeding as a ‘foreign main proceeding’.[iii] However, the Court in the Sturgeon Central Asia Case conflicted with the aforementioned precedents and restricted the scope of foreign proceedings. The Court explicitly held that since Sturgeon (Bermudan incorporated investment corporation) was not insolvent or in financial distress, the solvent liquidation of the company cannot be identified under the wide umbrella of ‘foreign proceedings’ as per the Model Law and the CBIR. The Court, indubitably, employed the purposive approach and narrowed the purview of previously existing “universal rule of recognizing voluntary insolvency proceedings as foreign proceedings”. In May 2019, Hon’ble Mrs. Justice Falk assessed the application made by the liquidators of Sturgeon Central Asia Balanced Fund Ltd and held that recognition of proceedings as foreign proceedings was intended to be made available in circumstances where the insolvency of an entity has not yet been established. However, in January 2020, the Hon’ble Insolvent and Companies Court (“ICC”) Judge Briggs overruled the judgment delivered by Mrs Justice Falk and concluded that the voluntary solvent proceeding which does not aim to restructure the financial affairs of an entity, but is more focused in dissolving the legal status of the concerned entity cannot be recognized as a foreign proceeding for the purpose of Article 2 of the Model Law. The Hon’ble ICC judge passed the judgment without mulling over severe legal consequences. The UK courts now also shoulder responsibility for defining an ambiguous term- ‘financial distress’ or its threshold. The judgment delivered by the Hon’ble ICC Judge raises an essential question of whether the English courts would take up an inquisitorial legal system and investigate into the insolvency of companies when considering future applications for recognition of foreign proceedings to draw a visible line between ‘financial distress’ and ‘solvent liquidation’. The judgment brings up a perplexing problem of law in

[By Vatsal Patel] The author is a fourth year student of Institute of Law, Nirma University. Introduction The Insolvency and Bankruptcy Code, 2016 (“IBC”) has been a game-changer in the field of corporate bankruptcy in India. Though, there is still scepticism, looming over the IBC’s economic significance with a lot of companies going into liquidation as opposed to the intended corporate revival,[i] there is no doubt that the IBC has provided for a clear and robust guiding mechanism during the Corporate Insolvency Resolution Process (“CIRP”).[ii] Recently, the Supreme Court of India in the case of Anuj Jain v. Axis Bank,[iii] commonly referred to as the “Jaypee Case”, further outlined the powers of the Resolution Professional (“RP”) in terms of handling of various claims and transactions submitted by the Committee of Creditors (“CoC”). The Court further clarified the application of different provisions of the IBC which till now had not been suitably expounded. The piece aims to discuss in detail this judgement of the Supreme Court; and explain why the reasoning of the Court is correct and should serve as a guide for all future decisions. Factual Matrix Jaypee Infratech Ltd. (“JIL”), the corporate debtor in the present case is undergoing CIRP due to the committal of a default.[iv] Jaiprakash Associates Ltd. (“JAL”) the holding co. of JIL, has approximately 71.64 % equity in JIL.[v] Before the initiation of the CIRP, JIL, the subsidiary company had mortgaged certain parcels of land in favour of the lenders of JAL, the parent company in furtherance of the benefit to the parent company.[vi] This was despite the fact that JIL was itself undergoing a financial crunch, and was unable to pay up its own debts.[vii] Why was this problematic? The reason it was problematic was because of these transactions, certain creditors of the parent company would be favoured in the distribution of assets as per waterfall mechanism laid down in Section 53 of IBC, wherein their claim would be satisfied before, in the order of priority, as compared to the claims of other claimants who are otherwise similarly placed. The Interim Resolution Professional (“IRP”) i.e. Anuj Jain, bound by Section 25(2)(j) of IBC and armed with the objective of ensuring parity between all the creditors, filed an application seeking to set-aside all these transactions as being violative of Sections 43, 45, 49 and 66 of IBC. While the NCLT ruled in favour of the IRP, the NCLAT reversed this decision in favour of Respondents in the present case,  the primarily lenders of JAL. Analysis of the judgment The judgment of the Supreme Court, for the purposes of this piece, is coherently segmented into two parts – firstly, it discusses the contours of Section 43 IBC and its application it to the facts of the present case; and secondly, it distinguishes the application of Section 43 IBC from that of Sections 45, 49 and 66 IBC. The judgment also adjudicates upon the existence of a financial debt in cases wherein a mortgage is created by a corporate debtor in favour of a third party.[viii] However, the same has not been discussed by the author in this blog post. Contours of Section 43 of IBC Section 43 IBC is concerned with two things – preferential transaction and relevant time.[ix] To simplify, if the liquidator or RP is of the opinion that at a relevant time, a preference has been given by corporate debtor to a particular creditor in certain transactions, the liquidator or the RP shall be bound to make an application under Section 44 IBC for setting aside such a transaction.[x] After going through various interpretations of “preference”,[xi] the Court held “preferential transaction” as: “being the transaction where an insolvent debtor makes transfer to or for the benefit of a creditor so that such beneficiary would receive more than what it would have otherwise received through the distribution of bankruptcy estate.” [xii] In relation to “relevant time”, the Court observed that it is normal to have a longer look-back period in case of a related party, and a shorter one in case of an unconnected party.[xiii] The Court further observed that a strict construction should be given to Section 43 but only after giving of apposite consideration to the underlying principles and objectives of IBC.[xiv] Thereafter, the Court devised a step-by-step process which must be applied by the RP (initially) and Tribunals (upon an application under Section 44 IBC) to see whether a transaction is hit by Section 43. These steps are as follows: Firstly, whether the transfer by way of transaction is for the benefit of the surety or guarantor in furtherance of an antecedent financial liability of corporate debtor [Section 43(2)(a) IBC]; Secondly, whether such a transactions puts the surety or guarantor at a beneficial position than in case of a distribution of assets as per Section 53 IBC [Section 43(2)(b) IBC]; Thirdly, whether the transaction was made two years prior in the case of a “related party”[xv] or one year otherwise [Section 43(4) IBC]; and Fourthly, whether such transaction is not and “excluded transaction” as per Section 43(3) IBC.[xvi] In its essence, the Court meant for a transaction to be a “preferential transaction” under IBC if the ingredients of clause 2 and 4 of Section 43 IBC are satisfied, and it is not protected by clause 3 of Section 43 IBC. The Court by formulating this test made it easier for the RPs and Tribunals to adjudicate upon the existence of a “preferential transaction”. Now, they need not interpret Section 43 in a broad manner but are only required to mechanically follow the stipulated steps. This brings in a greater degree of certainty in the CIRP. However, what is more important is that the Supreme Court applied it aptly to the facts of the present case. The Court began by holding that the non-existence of a creditor-debtor relationship between the lenders and corporate-debtor is not of significance because the ultimate benefit flowed to its parent co. i.e. JAL,[xvii] who is a “related

[By Shantanu Lakhotia] The author is a student of Jindal Global Law School, Sonipat. Introduction Recently, a judgement delivered by a 3-judge bench of the Supreme Court of India has been hailed by the legal fraternity as it cleared a mischief revived by the Parliament in the realm of arbitration law. In the matter of Hindustan Construction Company Ltd. & Anr. v. Union of India & Ors.[i](“HCC case”), the Supreme Court struck down Section 87 of the Arbitration and Conciliation Act (“A&C Act”). The said provision was inserted by the Parliament vide the Arbitration and Conciliation Amendment Act of 2019 provided for an automatic stay of arbitral award under Section 36 of the A&C Act once an appeal was filed under Section 34 of the A&C Act. This in turn was bound to lead to delays in enforcement of the arbitral awards, which had been a longstanding complaint of businesses with the A&C Act. It took the Parliament 19 years to cure this mischief of ‘delayed justice’ vide the Arbitration and Conciliation Amendment Act of 2015. However, in addition to laying down the law in the dominion of arbitration, the judgement has provided a clarification to the position of law in the realm of insolvency law that seems to have been overshadowed.  The Supreme Court in HCC case had resolved the controversy as to whether Public Sector Undertaking/Government of Companies (“PSU/Govt. companies”) are amenable to the Insolvency and Bankruptcy Code, 2016 (“the Code”). The controversy in regard to this had already been expressly adjudicated upon by the National Company Law Tribunal (“NCLT”) as well as the National Company Law Appellate Tribunal (“NCLAT”), wherein both the tribunals along with the Supreme Court had answered the question in the affirmative. Astonishingly, the High Court of Bombay has decided to embark on a quest to find an answer to the controversial question as to the jurisdiction of NCLT and NCLAT to declare PSU/Govt. companies as insolvent, neglecting the fact that the answer has already been answered by the Supreme Court of India in affirmative in the matter of HCC. The present article explains the position of the Supreme Court in the matter and will provide a comment about the correctness of the same. The article will further comment upon the jurisdiction of the High Court of Bombay to re-adjudicate a question of law, already been decided by the Supreme Court of India. Judgement of the Supreme Court In the matter of HCC case, the Supreme Court had to decide on a Constitutional challenge made to the Code as being arbitrary and discriminatory, due to the fact that even though the Petitioner company can be proceeded against by their creditors (which can include statutory bodies or PSU’s) under the Code the Petitioner cannot move against their debtors like National Highway Authority of India (“NHAI”), National Thermal Power Corporation Ltd., IRCON International Ltd.,  National Hydropower Corporation Ltd. which are statutory bodies or PSU’s. Hence, the essential question to be decided was whether Corporate Insolvency Resolution Proceedings (“CIRP”) can be initiated against a PSU/Govt. Company? The Supreme Court while agreeing with argument put forth by the Solicitor General of India, held that even though the, definition of ‘government company’ is provided in Section 2(45) of the Companies Act, 2013 (“Company Act”), the definition of ‘government company’ would be subsumed in the definition of ‘company’ as provided in Section 2(20) of Company Act, and hence insolvency proceedings against Government company can be initiated by virtue of it being covered under the ambit of Section 3(7) of the Code. However, the Supreme Court had further gone on to hold that statutory bodies, like the NHAI which “functions as an extended limb of the Central Government and performs governmental functions” cannot be taken over by a resolution professional or by any other corporate body and neither can such Authority be wound-up under the Code. Therefore proceedings against NHAI under the Code are not possible. The Court in addition to the above-mentioned points had provided certain other reasons for dismissing the constitutional challenge made to the Code, however, for the purpose of this article the same has not been delved into, as it is not related to the topic of the article. Analysis of Supreme Court’s judgment  The apparent overshadowing of the clarification considering the position of law in terms of initiating insolvency proceedings against government companies is clear from the fact, that even though the Supreme Court has laid the law in the matter and thus binding on all Courts of India by virtue of Article 141 of the Constitution of India, the Bombay High Court, in the matter of Hindustan Antibiotics Ltd & Anr. v. Union of India & Ors.[ii], has taken up the task of clearing the insolvency law-based controversy again, based on the reasoning that in the Hindustan Construction Company Ltd. case, “pertinently therein, the issue of constitutional validity of Section 87 of Arbitration and Conciliation Act, 1996 was considered and decided”[iii]. At this point of time, it must be noted that the Supreme Court has provided the answer in the affirmative as to whether CIRP can be initiated against PSU/Govt. Companies and that the Bombay High Court should not embark on the quest of an already discovered position of law. The NCLT Bombay Bench in the matter of Lark Chemicals Pvt. Ltd. v. Goa Antibiotics & Pharmaceuticals Ltd.[iv], the NCLAT in the matter of West Bengal Essential Commodities Supply Corporation Ltd. v. Bank of Maharashtra[v] as well as the Supreme Court, from a theoretical viewpoint of law were right at holding that CIRP can be initiated against PSU/Govt. Companies as under Section 3(7) of the Code, the only exception provided for ‘corporate’ person is that for financial service provides. Furthermore, it is pertinent to note that the Companies Act, 2013 in Section 462 provides for classes of companies that are exempt from the provisions of the Company Act in public interest, and the Government has through various notifications used this provision for relaxation of norms

[By Lakshmi Babu] The author is a corporate lawyer and currently pursuing LLM from Institute for Law and Finance, Frankfurt. Introduction India is witnessing an economic and consumption slowdown. The liquidity crunch in India’s shadow bank industry has slowly started to affect other sectors as well.[i] The defaults pertaining to IL&FS and the crisis faced by Punjab and Maharashtra Cooperative Bank (“PMC“) suggest the need for a more comprehensive resolution mechanism for financial institutions. The Insolvency and Bankruptcy Code, 2016 (“IBC“), generally deals with the insolvency and resolution of corporate entities, other than those providing financial services[ii]. It is a well-known fact that financial institutions handle public money and functions on the basis of the public trust and confidence placed on them. Even the slightest of distrust in their solvency has the ability to impute negative externalities which can affect the economy as a whole. The inter-connectedness of financial institutions and the inherent systemic risk therein, makes the process all the more prone to financial shocks.[iii] It is due to such considerations that financial institutions have to be treated differently from corporate debtors during insolvency and resolution process. The Government of India introduced the Financial Resolution and Deposit Insurance Bill (“FRDI Bill“) in 2017 which aimed to establish a resolution regime for banks, insurance companies and other financial institutions. However, the FRDI Bill was withdrawn within a year due to public outcry regarding a proposed bail-in clause, as a result of which there is a regulatory void in this regard. In the wake of increasing defaults in the financial sector, including that of IL&FS, DHFL and PMC, many experts believe that it is crucial to revive the FRDI Bill without delay.[iv] The regulation and protection afforded by a resolution legislation is essential to tackle the current financial slowdown that has impaired the Indian economy. In order to frame a healthy financial resolution framework, it is important to look at the standards set by the Financial Stability Board (“FSB“). Key Attributes by the Financial Stability Board FSB was established by the G20 to monitor and draft recommendations about global financial systems. The FSB issued a set of rules called the “Key Attributes of Effective Resolution Regime for Financial Institutions” (“Key Attributes“) in 2011. The core principles were adopted by the G20 in 2014 in order to reduce taxpayer support for solvency following the Global Financial Crisis (“GFC“). As a member of G20, India is committed to implement the Key Attributes into its domestic law. The Key Attributes have specified several factors to be included in such a framework, including: Co-operation with other jurisdictions so that resolution of global groups is eased;[v] Right to enforce temporary stay of early contractual termination rights by the appropriate authority and the enforcement of set-off, netting and collateralisation;[vi] Bail-in clause: A bail-in should be implemented, which respect the order of hierarchy of claims and shall convert all or part of unsecured and uninsured claims into equity (or other instruments of ownership);[vii] Creation of a temporary bridge institution wherein selected assets, liabilities and rights of a failed institution are transferred without the consent of shareholders and creditors;[viii] and Inclusion of branches of foreign firms in the resolution process.[ix] Rules for Financial Service Providers On 15 November 2019, the Ministry of Corporate Affairs (“MCA“) notified the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (“FSP Rules“) under section 227 of IBC. The FSP Rules prescribe a more exhaustive process of administration and liquidation of financial service providers as opposed to the already existing framework for corporate debtors. By a subsequent notification on 18 November, 2019, MCA clarified that FSP Rules shall be applicable to systemically important Non-Banking Finance Companies (“NBFC“) having an asset size of Rs. 500 crore or more including housing finance companies (“Approved NBFCs“).[x] The FSP Rules prescribe the Reserve Bank of India[xi] as the appropriate regulator for all the Approved NBFCs. It is clear that the FSP Rules shall deal with the resolution and liquidation of notified FSPs and this is applicable, pending a full-fledged insolvency framework for all financial institutions including banks. FRDI Bill and the proposed bail-in clause The Government of India made a laudable effort when it introduced the FRDI Bill in 2017. The Bill was aimed to provide a sound resolution framework for financial institutions, including banks, insurance companies, payment systems, SIFIs, mutual and pension funds, Indian branches of foreign financial institutions among other financial institutions. SIFIs are those financial institutions whose failure would have a significant effect on the economy as a whole owing to its size, complexity and inter-connectedness with other financial institutions.[xii] The Bill aimed to divide financial institutions on the basis of risk, into categories such as low, moderate, material, imminent and critical, based on capital adequacy and other factors. The financial institutions in the material and imminent categories have to submit a restoration plan/resolution plan and would be subjected to subsequent periodic monitoring by the appropriate resolution authority.[xiii] The FRDI Bill was withdrawn due to the inclusion of a proposed bail-in provision. Bail-in is a method to restructure debts of a financial institution. Under a bail-in clause, the appropriate authority will have the power to either cancel the debts owed to creditors or convert such debts into instruments of ownership like equity. This provision is generally invoked where it is necessary that a troubled financial institution continue functioning and a bail-in provision can be used by itself or as a part of a proposed merger or acquisition[xiv]. The public outcry was a result of the fear of using the bail-in provision at the expense of deposit holders. Presently, deposit-holders are subjected to a maximum deposit insurance coverage of Rs. 1 lakh by the Deposit Insurance and Credit Guarantee Corporation of India, which the FRDI Bill intends to repeal. The FRDI Bill has not revised the deposit insurance cover, which was last amended in 1993[xv]. It is pertinent to note that the deposit insurance coverage in

[By Aditya Suresh] The author is a third year student of National Law University, Jodhpur. Introduction The Insolvency and Bankruptcy Code[i] (“IBC”) intends to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate firms. This Code replaced the erstwhile Part VII of the Companies Act, 1956 (“1956 Act”), under which Sections 433(e) and 434 authorized the High Court to adjudicate upon winding-up petitions brought before it by creditors on account of a company’s inability to pay its debts.[ii] However, under Section 434(1)(c) of the Companies Act, 2013 (“2013 Act”) read with the amendments brought in after the passing of the IBC [such as the modification to the earlier Section 271(1)(a) of the Companies Act, 2013, pending proceedings before the High Courts pertaining to winding-up petitions as a result of inability to pay debts, are to be transferred to the National Company Law Tribunal (“NCLT”).[iii] The problem however, arises as a result of the first proviso to Section 434(1)(c), which provides that only proceedings which are “at a stage as may be prescribed by the Central Government” may be transferred to the NCLT.[iv] While Parliament passed the Companies (Transfer of Pending Proceedings) Rules in 2016 (“Transfer Rules”), these Rules did not adequately address the question of the stage after which proceedings may not be transferred.[v] Rule 5(1) provided that petitions under Section 433(e) of the 1956 Act where notice had not been served upon the respondent company, were to be transferred to the NCLT. This was extended by the Supreme Court in Forech India Ltd. v. Edelweiss Assets Reconstruction Co. Ltd.[vi](“Forech”), wherein the Court expounded upon the need to have all pending winding-up proceedings before High Courts transferred to the NCLT. In this case, the Court noted that on a conjoint reading of Section 434 of the 2013 Act, the Transfer Rules and the IBC, the legislature intended to have all proceedings transferred to the NCLT in order to further the objectives of the IBC, which were to “resuscitate the corporate debtors who are in the red”.[vii] The Court further observed that keeping this objective in mind, even petitions wherein notice had been served and the matter was lis pendens before the High Court, could be transferred to the NCLT upon an application for the same having been made by the creditors. Thus, this decision opened a Pandora’s Box of litigation wherein litigants applied for initiation of the CIRP process under the IBC and a transfer of proceedings to the NCLT. This is because corporate creditors wanted to opt for the contemporized rules under the IBC, which looks at resuscitation as the primary option through the appointment of the Resolution Professional, and the submission of resolution plans which would aim at revival of the company. While expansively dealing with transferability of cases in light of the IBC, the Court in Forech missed answering the important question which has been continually left unaddressed: at what stage in the insolvency process if at all, does such a transfer petition become untransferable? While the Delhi High Court in Tata Capital Financial Services v. Shree Shyam Pulp and Board Mills[viii] addressed this point, the Court here only ruled that the power to transfer is discretionary, and that it is incumbent upon the courts to decide whether transfer is viable at that particular stage in the winding-up process. However, another recent decision of the Delhi High Court provides more clarity on the Indian position regarding transfers after a winding-up order has been passed by the High Court and an Official Liquidator (“OL”) appointed. This next section analyses this decision of the Court. The decision in Action Ispat In Action Ispat and Power Pvt. Ltd. v. Shyam Metallics and Energy Ltd.,[ix] a division bench of the Delhi High Court decided in favour of allowing a transfer of insolvency proceedings to the NCLT even after a winding-up order had been passed by the High Court and an OL had been appointed under Section 448 of the 1956 Act. In this case, wherein the creditors sought transfer of the insolvency petition, the Court delved into an analysis of Section 434 of the 2013 Act, Rule 5(1) of the Transfer Rules as well as the IBC. On a conjoint reading of the aforesaid provisions, the Court found that the power of the Company Court to transfer proceedings to the NCLT is discretionary, and not limited to cases covered by Rule 5(1). Additionally, the Court found that the scope of proceedings under the High Court vis-à-vis that of the NCLT had to be looked into, and their relative benefits analysed. There was a difference in approach taken by the NCLT as opposed to an OL appointed by the Court. The NCLT, at all stages of the proceedings, looks at revival of the company as a primary option failing which the assets are liquidated. As opposed to that, the OL looks to satisfy creditors in a solely monetary sense, by liquidating the assets and letting each creditor have a proportional share. Relying on the judgment in Sudarshan Chits v. Sukumaran Pillai,[x] the Court herein found that winding-up orders were not irrevocable and that even after the winding-up order is passed, the petition could be transferred. Thus, the Court found that looking into the objectives of the IBC and that of the insolvency resolution process as mentioned in Forech, the will of the creditors in transferring the petition has to be upheld, unless there are compelling and irrevocable circumstances justifying a departure from such a transfer. Analysing the Decision of the Court: Objectives of the Insolvency Process Given the expansive analysis given by the Delhi High Court on the objectives of the IBC and the larger purpose of the insolvency resolution process, this decision merits some discussion. The author believes that the Delhi High Court rightly distinguished between the NCLT and the OL with respect to the functions and powers exercised. Section 457 of the Companies Act, 1956, which dealt with the powers of the OL, primarily allowed him

[By Suyash Tiwari and Aditya Prasad] The authors are fourth year students of Hidayatullah National Law University, Raipur and can be reached at tiwarisuyash475@gmail.com. The Insolvency and Bankruptcy Code (“IBC” or “the Code”) recently dealt with a spate of jurisdictional disputes vis-à-vis various other statutes including the Companies Act, 2013; Prevention of Money Laundering Act, 2002; the Arbitration and Conciliation Act, 1996 and the Tea Act, 1953. This article is concerned with such a conflict between the Securities and Exchange Board of India (“SEBI”) and the National Company Law Tribunal (“NCLT”). The present dispute is with regards to the attachment of certain properties by SEBI in an action against illegal mobilization of funds by a company, HBN Dairies. Background In 2015, a SEBI order was passed against HBN Dairies wherein it found floating a Collective Investment Scheme (“CIS”) without duly obtaining registration from SEBI under Section 12(1B) of the SEBI Act (“the Act”) read with Regulation 3 of the CIS Regulations, 1999. On appeal, SEBI’s founding was upheld by the Securities Appellate Tribunal. Subsequently, in 2017, SEBI ordered the attachment of 41 properties of the Company and a recovery certificate was issued to the tune of Rs. 1136 Crores to pay off the investors. However, since the investors under the scheme had not been paid off for several months, a group of 36 investors approached the NCLT preferring an insolvency application under Section 7 of the IBC. On 14th August, 2018, the NCLT admitted the application and declared a moratorium under Section 14 of IBC on the basis that the investors could be considered as financial creditors of the Company. Moreover, it was held that, the provisions of Section 14 of IBC would, by virtue of the non-obstante clause present in Section 238 of IBC, prevail over Section 28A of the SEBI Act which provides for recovery of money from a Company by selling movable or immovable property. The same was upheld by NCLAT on appeal. SEBI has now preferred an appeal before the Hon’ble Supreme Court of India in the case of SEBI v. Rohit Sehgal. [i] Feasibility of a Resolution Process On a prima facie inspection of the facts, we see that there is uncertainty whether the Code is the appropriate machinery under which the investors ought to seek remedy. Should the Supreme Court uphold the NCLAT order, it would be tantamount to defeating the express legislative intent of the Code. The Code seeks to act, not merely on behalf of the creditors, but for the more wholesome endeavour of insolvency resolution, while attempting to maintain or revive the business as a going concern. Reference can be made to Binani Industries Ltd. v. Bank of Baroda & Anr. [ii] which elucidates the above point. The NCLAT in that case made the following observations: The Code in Section defines Resolution Plan as a plan for insolvency resolution of the Corporate Debtor as a going concern. The Code does not allow liquidation of a Corporate Debtor directly, but only on the failure of the Resolution process. Further, the Code prohibits and discourages mere recovery of debt, which might only end up bleeding the Debtor’s resources to its death, as opposed to a resolution which seeks to keep it alive. On perusing the above, we find that the primary objective of any resolution proceeding under the Code is to preserve the business as a going concern; to which the recovery of debts is ancillary. An application under Section 7 of the Code does not entail a mere garage sale of the Debtor’s properties to satisfy his debts, but an earnest attempt to keep the business alive. However, keeping the business alive cannot be a suitable course of action with regard to HBN Dairies whose operations were declared illegal as it is in contravention of Section 12(1B) of the SEBI Act. Accordingly, SEBI ordered HBN to cease collection of further funds and initiated attachment and recovery proceedings against it. What this implies is that the business has effectively been brought to an end and the only remaining course of action left with regard to it is recovery, which as pointed out earlier, is not under IBC’s domain. A Resolution Plan is, thus, an inappropriate remedy for the investors to pursue, more so because the appropriate remedy, that is, the SEBI’s auctioning of HBN’s properties in order to pay back the investors has already been put into motion. Thus, the Supreme Court, in overturning the NCLAT’s order would be upholding the legislative intent of the Code as well as preventing an encroachment of the SEBI’s jurisdiction in investor protection issues. Jural Relationship as a requisite for existence of legal debt The Supreme Court also had the opportunity to shed some light on the question whether these investors may be categorized as financial creditors. In the instant case the investors were classified as financial creditors after relying on Nikhil Mehta & Sons (HUF) v M/s AMR Infrastructure Ltd. [iii] wherein it was held that those who have been committed assured returns on their investment are financial creditors. However, that order pertained to a legally binding relationship between the investors and the investees, whereas in the present case, the scheme run by HBN Dairies under which the returns were assured was illegal ab initio. In Shobha Ltd v Pancard Clubs [iv] NCLT Mumbai dealt with a similar factual matrix involving attachment of properties of a Company who had floated a CIS without registration. When the tribunal was adjudicating about the existence of a financial debt it held that: “There is no jural relationship in between this Petitioner and the Corporate Debtor because the contract purported to have been entered between this Petitioner and the Corporate Debtor is not recognised by any law, indeed there is a prohibition under SEBI Act to collect funds as mentioned under Section 11AA of the SEBI Act unless and until license for CIS has been granted by the SEBI.” Thus, the NCLT stated that the returns promised cannot be

[By Jubin Jay and Kirti Vyas] The authors are fifth year students of National Law University, Odisha Introduction A Corporate debtor is provided with a surviving mechanism during moratorium through the application of Section 14 of the Insolvency and Bankruptcy Code, 2016 (“the Code”). The moratorium period is declared by the adjudicating authority under Section 13 of the Code after admitting the application for initiating Corporate Insolvency Resolution Process (“CIRP”) against the corporate debtor during which, continuation of all the pending suits is suspended and institution of any new suit is prohibited. Among other things, moratorium is applicable to all the “essential contracts” of the Corporate Debtor. Section 14(2) of the Code states that when an order initiating the CIRP is passed, “the supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.” The term “essential goods and services” has been defined under regulation 32 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”) to mean electricity, water, telecommunication services and information technology services to the extent these are not a direct input to the output produced or supplied by the corporate debtor. A mere reading of the definition highlights that it is restrictive in nature. However, the National Company Law Tribunal has in some cases sought to expand the scope of the term ‘essential’, which in turn has created a lot of confusion. Another issue which arises from this restriction under section 14 of the Code is the manner of payment for such essential contracts being rendered by the suppliers of those particular contracts. The reason being that suppliers of essential goods and services are qualified to be mere operational creditors, and this being the case, they will never be able to recover their full payment through CIRP. The Courts have tried to deal with this situation time and again, and the position is mostly settled in this regard that such expenses incurred will be qualified as Insolvency Resolution Process cost. However, whether the payment has to be made during moratorium or not is still a point of contention. What constitutes “Essential Goods and Services”? ICICI Bank v. Innoventive Industries [i] The Tribunal opined that on a bare reading of the CIRP Regulations, it appears that electricity, water and telecommunication services and information technology services are to be considered as essential as long as these services are not a required to the output produced or supplied by the corporate debtor. Further, “essential service” is a service for survival but not for doing business and earning profits without making payment for the services used. When a company is using it for making profits, then the company owes payment to the supplier for such non-essential services/goods utilized in manufacturing purpose. The Tribunal in this case restricted the ambit of the definition to a large extent. However, soon after, the Tribunal in another case, deviated from its strict interpretation and expanded the scope of the definition, the latter interpretation being inconsistent with the definition as provided under the CIRP Regulations. Canara Bank v. Deccan Chronicle Holdings Ltd.[ii] In this case, the Tribunal held that printing ink, printing plates, printing blanker, solvents etc. will also come under the purview of exemption along with the heads as defined. The corporate debtor i.e. Deccan Chronicles Holdings Limited was in the business of publishing newspapers and periodicals. Including the above-mentioned products will be a direct input to the output product. However, the order does not even explain why additional goods and services have been covered under the ambit of essential goods and services. This created ambiguity on the position of law in this regard. However, recently National Company Law Appellate Tribunal (“NCLAT”) has again differentially opined in the case of Dakshin Gujarat VIJ Company Limited v. ABG Shipyard Limited [iii] that “from subsection (2) of Section 14 of the ‘I&B Code’, it is also clear that essential goods or services, including electricity, water, telecommunication services and information technology services, if they are not a direct input to the output produced or supplied by the ‘Corporate Debtor’, cannot be terminated or suspended or interrupted during the ‘Moratorium’ period.” The Insolvency Law Committee [iv] had advocated for expanding the scope of mandatory essential supplies covered under section 14(2) of the Code. Subsequently, the Committee had recommended that there should be a proviso added to Section 14(2) which states that “for continuation of supply of essential goods or services other than as specified by IBBI, the IRP/ RP shall make an application to the NCLT and the NCLT will make a decision in this respect based on the facts and circumstances of each case”. However, this recommendation was not adopted as an amendment to the Code. Manner of Payment for such Essentials during Moratorium. Regulation 31 read with Regulation 32 of the CIRP Regulations makes it aptly clear that any expense or amount due to the suppliers falling under Section 14(2) of the Code, during moratorium will be considered as insolvency resolution process cost and thereby will be given priority over other debts. However, the question remains as to whether these payments are to be made during the moratorium period or can they be paid later? Dakshin Gujarat VIJ Company Limited v. ABG Shipyard Ltd.[v] NCLAT mandated that payments for supply of goods and services is to be made during the moratorium period. Explanation provided by the Appellate body was that such payment is not covered by the order of moratorium. Law does not stipulate that such suppliers will continue to supply the essentials free of cost until the completion of the period of moratorium and that the corporate debtor is not liable to pay till such completion. Emphasising further on the point of regular payments, NCLAT noted that if the company does not even have funds to pay for the essentials to keep it a going entity, then it has become sick and the very question

[By Ravleen Chhabra] The author is a final year student of Institute of Law, Nirma University and can be reached at ravleenchhabra096@gmail.com. Introduction The Insolvency and Bankruptcy Code (“IBC” or “the Code”) has been probably one of the greatest developments in the Indian Legal System in a bid to reform India’s irresistible Non-Performing Assets conundrum. The Insolvency and Bankruptcy Board of India (“IBBI”), is the body that regulates the working of the IBC, has been actively involved in disseminating understanding and regulating the space [i]. In the wake of recent developments, the IBC had various hits and misses during its execution and is expected to mature in the coming future with better results. Despite having covered a plethora of aspects, there still exist certain issues with no provisions to govern. The current framework of this striving piece of economic legislation provides for a variety of plans for the resolution of individual stressed companies. However, owing to the lack of regulatory framework providing for consolidating the connected companies in group insolvency proceedings, lenders were finding it difficult to proceed for group insolvency proceedings. The dearth of a provision dealing with group insolvency is adversely impacting the resolution process in numerous cases where group companies are lugged to the National Company Law Tribunal (“NCLT”) by the lenders themselves, requesting for a group insolvency approach. However, in the absence of a legal provision allowing the same, the NCLT is unable to help them in any possible manner [ii]. Anchoring the First Step: Formation of the Working Group The first step in the direction of understanding the concept of group insolvency and proposing a legal framework was taken by the Central Government in January 2019 by establishing a working group under the leadership of Mr. UK Sinha, former SEBI Chief [iii]. Two months later, a committee known as the Insolvency Law Committee was reconstituted by the Government to analyse the implementation of the IBC, and craft suggestions to deal with the issues [iv]. One of the largely debated topics during the discussions was to suggest legal provisions in the IBC for allowing group insolvency. These developments seem to suggest that soon, a highly efficient and standardized framework shall be incorporated within the IBC for the resolution of an entire stressed group company having various entities in different NCLT jurisdictions. Global Regulations: How India can benefit? While examining the chapter on “Insolvency Proceedings of Members of a Group of Companies” integrated in the revised European Union (“EU”) Insolvency Regulation, 2017 (“EU Regulation”), a lot of inspiration can be taken from the impeccable manner in which the EU aims at inculcating coordination and cooperation regarding groups of companies, thereby resulting in a win-win situation for both the creditors and the debtors [v]. Article 72 (3) of the EU Regulation, in fact, signifies the importance of coordination, and not consolidation. In conjunction with the same, the recent synchronized scheme of group insolvency law in the Indian IBC shall aim to keep a group of stressed companies concomitantly to either reorganize the group as a whole or liquidate the total asset of the  group in the paramount interest of all parties involved. The ideology behind the same is to formulate a restructuring mechanism that permits the initiation of insolvency proceedings of companies within a corporate group adjudicated by the single independent court/tribunal [vi].This approach shall be helpful, keeping in mind that the groups of debtors or creditors can ask for joint proceedings, thereby reducing the likelihood of spending a huge amount of time and money. The recent amendments to the German Insolvency Act also provide for having only one administrator, while dealing with the insolvency of particular companies of a group, to improve their cooperation and coordination [vii]. Though the legislation does not provide for explicit consolidation of individual proceedings into one, they offer an opportunity to begin working in that direction. In India, it is noticed particularly in case of the infrastructure sector, that the holding company is subjected to insolvency without subjecting the subsidiary company and in most of these cases; it is tougher to put the individual company through insolvency resolution, resulting into its liquidation eventually. If India, under all odds circumstances, is able to incorporate some of these provisions as located out in European or the German Insolvency regime, then India can scotch the burgeoning cases like this and help in pumping up the  value for lenders as well. For assistance on the effective mechanism of cooperation, reference can also be made to the UNCITRAL‘s Legislative Guide on Insolvency Law, Part three: Treatment of enterprise groups in insolvency. The process of group insolvency in India can reap beneficial results in situations wherein there exists a provision allowing the debtors or creditors to seek joint proceedings against the same debtors in the same group in cases where more than one application is pending in the same court against debtors in the same group. This viewpoint can be useful in those cases where those stressed companies who are part of same group barge into the vestibule into corporate guarantees for availing and doing borrowing of either of group members or a debtor may shift his assets to those group companies to deceive creditors, in instantly recognizable situations, in such case, creditors should be able to pierce the corporate veil and initiate the insolvency proceedings within the said corporate group.  Such a scenario is possible only if the group companies are bound to coordinate and cooperate, throughout the process. Further, if any of the members fail to fulfil the obligation, the other members would not suffer the consequences. Group Formation Although the inevitable need for group restructuring of companies has been recognised, the crucial task remains of the methodology or technique of forming such groups, keeping in mind that the interests of no company should be preferred over the other. Such an objective can be achieved probably by forming groups of companies involving some form of the economic relationship, resulting in a mutual or reciprocated environment in terms of

[By Shantanu Lakhotia] The author is a student of Jindal Global Law School, Delhi and can be reached at shantanulakhotia@gmail.com. Introduction Defunct airlines, Jet Airways has a gross debt and liability that adds up to more than Rs. 36,000 crores. This includes money owed to both domestic as well as foreign lenders, employees, vendors etc. However, currently, the major issue that is critically being debated in the National Company Law Appellate Tribunal (“NCLAT”) is regarding the question of jurisdiction of the bankruptcy court in Netherlands to try matters as well as pass orders of a company registered and incorporated in India. The present article will provide a history of the account that led to such a dispute being raised in the NCLAT as well as try to provide a possible answer to the same. History In June 2019, a consortium of banks led by State Bank of India well as other creditors had approached the National Company Law Tribunal (“NCLT”), seeking declaration of Jet Airways as bankrupt and to initiate Corporate Insolvency Resolution Process against it. During the hearing scheduled on 20th June 2019, NCLT was apprised of the fact that in April 2019, two European creditors, H.Esser Finance Company and Wallenborn Transport had filed a bankruptcy petition in the Noord-Holland District Court of Netherlands, against Jet Airways citing unpaid claims worth nearly Rs. 280 crores. The Dutch Court, claiming jurisdiction under Article 2(4) of the Bankruptcy Court of Netherlands, had passed an order dated 21st May 2019, declaring Jet Airways bankrupt and had ordered seizure of one of Jet Airways’ Boeing 777 aircraft that was parked in the Schiphol airport in Amsterdam. The Administrator appointed by the Noord-Holland District Court to manage the assets of Jet Airways had approached the NCLT, requesting it to withhold the bankruptcy proceedings going on in India, as a competent court in Netherlands had already initiated the same proceeding against Jet Airways in Netherlands. The Administrator raised the contention that if two parallel proceedings take place, it would lead to a great detriment to the Creditors of Jet Airways. The NCLT refused to withhold the proceedings in India, as according to them, the relief provided under Section 234 and 235 of the Insolvency and Bankruptcy Code of India (“IBC”) for cross-border insolvency could not be used as the two sections had yet not been notified by the Government of India, and in the absence of such notification, an order passed by a foreign Court would not be binding to the NCLT. To the contention raised by the Administrator, the NCLT had categorically stated in para 29 of its order that, ‘The order passed by Noord Holland District Court, Netherland for the company registered in India is nullity ab-initio’. Aggrieved by the order passed by the NCLT, the Administrator approached the NCLAT in appeal. The NCLAT, on the assurance of the Administrator that he would not alienate any offshore assets of Jet Airways in his possession, stayed the order of the NCLT, and listed the matter for arguments. The NCLAT further passed an order that in the pendency of the present Appeal, the Administrator will co-operate with its Indian Counterpart, to collate the claims of the offshore creditors. Furthermore, the NCLAT through its order also allowed the Administrator and its Indian Counterpart to negotiate a settlement in the best interest of Jet Airways and all of its stake holders. Analysis Countries have broadly tried to tackle the problem of cross-border insolvency, through two different and contrasting principles. The first principle is one in which one Court is provided with the jurisdiction to try a bankruptcy matter in regard to a debtor and the administrator appointed by the Court has the power to take charge all the assets of the debtor, located throughout the globe. According to this approach the Courts and laws of the country in which the debtor is domiciled or has his registered office should be given preference. This is known as the principle of unity or universality. On the other hand, there exists a principle that the Court in whose jurisdiction the bankruptcy proceedings has commenced, has jurisdiction on assets present only within its country’s state boundary. The consequence of this is that the Court, cannot pass an order against any asset of the debtor abroad and the administrator appointed by the Court can also only take charge of these limited assets. Furthermore, Court will follow its local laws on the matter. This is known as the principle of territoriality. A complication that is present in the Jet Airways case is that, both India as well as Netherland’s follow different principles of cross-border insolvency law. Netherland’s insolvency regime does not perfectly fit into any one of the above-mentioned two principles, but incorporates the tenants of both of them and hence essentially forms a different kind of principle which can be described as limited-universalism principle. In India, the Joint Parliament Committee Report, 2016, in its report had clearly stated that the Insolvency and Bankruptcy Code, 2016 was brought forth to solve, the question of bankruptcy and insolvency purely limited to the domestic scenario of India. In so far as Section 234 and 235 of the IBC is concerned, it needs to be realized, that it was not added by the Viswanathan Committee to tackle the bigger picture of cross border insolvency or provide a comprehensive framework for it, but simply to allow Indian Administrator to take control of assets of a corporate debtor situated in a country outside of India as well as provide foreign Administrator with the reciprocal arrangement. The foundation of such a mutually benefit arrangement, lies in Section 234 of IBC through which the Government of India, can enter into a treaty with other countries to bring forth the principle of universality. However, in the absence of such a treaty, India will abide by a principle of territoriality. Regardless, as of this moment Section 234 and 235 of IBC, has not been notified by the Government of India and