Insolvency Law

 [By Naman Kasliwal & Vaibhav Kesarwani] The authors are students of Gujarat National Law University.   Introduction In a recent case of Ramkrishna Forgings Limited v Ravindra Loonkar & Anr., the Supreme Court has set aside an order of the NCLT and NCLAT that had put the approval process of a resolution plan on hold. While the judgment has been lauded for its affirmation of the commercial wisdom of the Committee of Creditors (“CoC”) and the limited scope of judicial interference, a critical examination reveals underlying pitfalls that demand our attention. This blog seeks to delve into the intricacies of the judgment, shedding light on inherent drawbacks. By doing so, it aims to provide a comprehensive understanding of potential repercussions that could extend well beyond the immediate case, significantly impacting the landscape of insolvency resolution practices in India.  Background of the Case  ACIL, the Corporate Debtor, underwent the Corporate Insolvency Resolution Process (“CIRP”) under the Insolvency Bankruptcy Code (“IBC”). The CoC approved the Resolution Plan submitted by Ramkrishna Forgings Limited, referred to as the Successful Resolution Applicant (“SRA”). Subsequently, the Resolution Professional submitted an application under Sections 30(6) and 31 of the IBC to the NCLT, seeking approval for the resolution plan.  On September 1, 2021, the NCLT passed an order instructing the revaluation of the Corporate Debtor’s assets. As a result, the application seeking approval of the Resolution Plan was kept in abeyance, and the Official Liquidator was instructed to furnish exact value of assets. Against this order of NCLT, an appeal was filed by the SRA before the NCLAT under section 61 of the IBC. The NCLAT dismissed the appeal while noting the discovery of an avoidance transaction worth approximately Rs. 1000 Crores, justifying intervention due to the involvement of crores of rupees. Aggrieved by the NCLAT order, the SRA filed an appeal to the Supreme Court, arguing that the IBC inherently includes a mechanism for asset valuation of the Corporate Debtor, as outlined in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Thus, the appointment of an Official Liquidator for asset valuation, which is a creation of the Companies Act, 2013, is unnecessary.   Supreme Court’s Ruling  The Supreme Court, in its judgment, addressed the core issue of the extent of the NCLT’s jurisdiction and the role of the CoC in the insolvency resolution process. The Court emphasized that the Adjudicating Authority, in this case, the NCLT, has a limited role, primarily focused on approving resolution plans that align with the requirements of the IBC.  The Court rejected the NCLT’s order for re-valuation, highlighting that there were no objections raised by any party regarding the valuation or the resolution plan. It underscored the importance of the CoC’s commercial decision-making, stating that unless the resolution plan violates the provisions of the IBC, the NCLT should refrain from intervening. The Court referred to previous judgments, such as K Sashidhar v. Indian Overseas Bank, reinforcing the principle that the CoC’s decisions should not be subject to unnecessary judicial scrutiny unless there is a clear violation of statutory provisions, particularly the Sections 30 and 31 of IBC.  In allowing the appeal, the Supreme Court set aside the orders of both the NCLT and the NCLAT, directing the NCLT to pass appropriate orders on the approval application within three weeks. The Court’s ruling essentially upheld the commercial wisdom of the CoC, emphasizing that interference by the NCLT should be limited to cases where statutory provisions are infringed upon.  Harmonizing CoC Autonomy with Stakeholders Rights  Undoubtedly, the court’s emphasis on recognizing the commercial wisdom of the CoC is deeply rooted in the conviction that those with a significant financial stake are inherently best positioned to navigate the complexities of decisions in insolvency resolution processes. This recognition reflects an acknowledgment of the CoC’s intimate understanding of the financial intricacies involved and their vested interest in ensuring a successful resolution.   However, while this emphasis on financial acumen appears logical on the surface, it sparks legitimate concerns about potential biases within the decision-making framework. The considerable influence wielded by financial creditors, if left unchecked, introduces a risk of decisions that prioritize their interests at the expense of other stakeholders, particularly operational creditors or minority shareholders. The autonomy granted to the CoC, if not subject to adequate checks and balances, carries the inadvertent risk of fostering a decision-making culture that might lack the ethical scrutiny necessary to ensure fairness and equity. Striking a delicate balance between financial prudence and ethical considerations becomes paramount in maintaining the integrity of insolvency resolution processes and safeguarding the interests of all stakeholders involved.  The ruling in the Ramkrishna Forgings case appears to adopt a positivist stance on judicial intervention in the CoC’s decision-making process. The court underscores that the resolution plan does not exhibit any of the specific flaws outlined in section 31. However, this approach needs to be assessed in the context of the low recovery rates observed under the IBC. Instances exist where creditors are compelled to walk away with minimal returns, experiencing haircuts as substantial as 99%. Such outcomes might potentially result in non-financial creditors losing faith in the CIRP, as they lack a voice in endorsing resolution plans that entail significant haircuts. This might inadvertently create a chilling effect on challenges to CoC decisions. Stakeholders, including dissenting voices or those with legitimate concerns, may feel discouraged from raising objections if they perceive a reluctance on the part of the judiciary to intervene. This potential deterrence poses a risk to the checks and balances essential for a fair and transparent insolvency resolution process. The fear of facing an uphill battle against entrenched decisions could stifle dissent and hinder the constructive scrutiny that is integral to refining and improving the resolution process.  The potential drawbacks of unquestioningly relying on the commercial wisdom of the CoC have been acknowledged by the Insolvency and Bankruptcy Board of India (IBBI), which has therefore come up with a Code of Conduct and ethical framework for the

[By Nidhi & Pratham Mohanty] The authors are students of National Law University, Jodhpur.   Introduction  Over the years following the enactment of the Insolvency and Bankruptcy Code, 2016 [“IBC”], the position of the creditors has been strengthened with respect to realizing their dues, including in the case of the position of personal guarantors under the Indian insolvency regime. Personal guarantors were incorporated under Part III of the IBC related to individuals and partnerships firms vide Central Government Notification dated November 15 2019, which was upheld in the landmark Lalit Kumar Jain v. Union of India.  Through another significant decision in Dilip B. Jiwrajka v. Union of India [“Judgement”], the Hon’ble Supreme Court [“Court”] has upheld the validity of Section 95 to Section 100 under Part III of the IBC, pertaining to the insolvency of individuals, including personal guarantors. The judgement brought an end to the long-standing debate regarding the constitutionality of the key provisions related to the insolvency of personal guarantors.   Personal guarantors under IBC  Under the law of contract, the liability of the principal debtor and the guarantor is co-extensive. However, IBC allows creditors to move against the personal guarantors at various stages, including after the conclusion of the Corporate Insolvency Resolution Process [“CIRP”] of the principal borrower. In Lalit Kumar Jain v. Union of India, the Supreme Court clarified that the discharge of the principal borrower upon the sanction of a resolution plan or conclusion of CIRP does not lead to ‘discharge’ of the liability of the guarantor. This can be justified because often the creditors are driven to initiate IRP against the personal guarantors to remedy excessive haircuts incurred in the CIRP of the principal borrower. Due to such dynamics, the creditors are afforded enhanced rights to invoke personal guarantees.   Furthermore, the NCLAT has clarified that “guarantors cannot exercise the right of subrogation conferred upon them in contract law, since proceedings under IBC are not recovery proceedings” as in the cases of Lalit Mishra v. Sharon Biomedicine Ltd. and in State Bank of India v. Jayaprakash, by excluding guarantors from the ambit of secured creditors under the code. Moreover, the right of subrogation can be extinguished in the resolution plan while preserving the liabilities of the personal guarantors.  As the judiciary continued curtailing the rights of personal guarantors, they tried challenging the very provisions governing their insolvency under the IBC. Before understanding the recent judgement, it is important to understand the scheme of insolvency provided under Chapter III, Part III of the IBC, governing personal guarantors.   The Operation of Chapter III of Part III of IBC  The procedure provided under the Insolvency Resolution Process [“IRP”] for Corporates and Individuals, under Part II and Part III of the IBC, respectively, differs substantially.   Unlike Part II, under Part III of the Code, upon filing an application for IRP under Section 95, the following steps automatically take place, without admission of the same by an Adjudicating Authority [“AA”]:  An automatic interim moratorium:  As per Section 96 of the IBC, upon filing of an insolvency application under Section 95, an automatic interim moratorium is put in place in relation to all the debts of the debtor, and any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed.  The appointment of a resolution professional  Section 97 provides for the appointment of a Resolution Professional [“RP”], by the AA nominated by the Board. On the other hand, if the application is filed through a RP, the Board shall confirm his/her appointment.   Report by the Resolution Professional  The RP is required to investigate the application and furnish a report to the AA, recommending approval or rejection of the application. Only after the submission of such a report by the RP are the doors of the AA are knocked open for judicial determination to confirm the validity of the application.  The Judgement: Dilip B. Jiwrajka v. Union of India  On November 9th, 2023, the Supreme Court, in the landmark decision of Dilip B. Jiwrajka v. Union of India, upheld the validity of Section 95 to Section 100 of the IBC, pertaining to the insolvency of individuals, including personal guarantors.   Arguments by the Petitioners  The petitioners challenged the validity of Chapter III of Part III of the IBC, primarily on the following three grounds:  Firstly, the scheme under Part III provides for the appointment of a RP, even prior to the admission of the petition and without judicial determination of jurisdictional questions such as the existence of debt by the AA.   Secondly, the powers provided to the RP under Section 99 of the IBC are too wide and are judicial in nature, making them ultra vires to the object of the IBC.   Thirdly, the appointment of the RP and the initiation of an interim moratorium without providing an opportunity for the PG to be heard in front of a judicial body are arbitrary, a violation of principles of natural justice, and a violation of Art. 14 of the Constitution.   Judgment of the Court  The court analyzed the contentions of the petitioners and divided its observations into primarily four parts, covering primarily four issues. The judgement can thus be summarized as follows:  The role of the resolution professional in corporate as opposed to individual insolvency  The Court, in its analysis, noted that the RP exercise any judicial role under Part III, but that of a facilitator and is limited to the collection of information. The Court highlighted that the IBC specifically used the terms “examine the application,” “ascertain,” “satisfies the requirements,” and “recommend” in relation to the acceptance or rejection of the application. These statements clearly indicate that the resolution professional is not meant to engage in an adjudicatory role or make any judicial determinations regarding facts.   It further noted that since the threshold of default for filing an application is only Rs. 1000, as per Section 78 of the IBC, the AA would be overburdened if all amounts of alleged defaults as low as one thousand

[By Arushita Singh] The author is a student of National Law Institute University, Bhopal.   Introduction On October 3, 2023, a notification was issued by the Ministry of Corporate Affairs, invoking their authority under Section 14(3) of the Insolvency and Bankruptcy Code 2016 (IBC/Code), through which exemption has been granted to the transactions, arrangements, or agreements governed by the Convention and the Protocol pertaining to aircraft, aircraft engines, airframes, and helicopters from the moratorium provision within Section 14 of the Code. In this article, the author endeavours to examine and analyze the government’s decision to grant an exemption to aircraft deals from the moratorium provision of IBC. This significant development followed a protracted struggle involving financial creditors and lessors of GoFirst Airlines, which had garnered international attention and criticism. It became evident to the government that India could ill afford to jeopardize its reputation in the aircraft leasing and financing market, given its critical role in the sustenance of the aviation industry. The aviation industry holds substantial sway over the nation’s economic landscape, and any disruption therein would have far-reaching consequences. What Prompted the Move by the Government? The NCLT’s green light for Go First’s insolvency plea and the ensuing moratorium raised valid concerns for both lessors and creditors. This moratorium put a blanket ban shielding the airline and created an environment where aircraft lessors found themselves unable to repossess planes and other leased assets during the resolution process. Furthermore, it restrained the Directorate General of Civil Aviation (“DGCA”) from entertaining any applications for the de-registration of aircraft from lessors. Amidst this turbulence, SMBC Aviation Capital, a globally renowned aircraft lessor, raised strong objections to the ruling by the NCLT. It was asserted that each lessor possesses the inherent right to regain possession of their aircraft, coupled with the discretion to either export or re-lease these aircrafts to other operational carriers, and that the NCLT’s decision curtailed such rights of leasing entities to reclaim their aircraft from Go First. It was thus clear that the incorporation of aircraft within the moratorium’s scope blatantly disregarded not only the provisions of the CTC but also India’s own commitments in this regard. The ramifications of the NCLT’s decision began to reverberate throughout the aviation market, injecting an element of uncertainty and unsettling overall market confidence. Numerous applications for the dergistration of other aircrafts, like SpiceJet.   Prior instances of airline failures such as Kingfisher Airlines and Jet Airways had already cast a shadow over the reputation of the Indian aviation sector. These collective episodes contributed to the perception that India might be a potentially risky environment for aircraft leasing, eroding the confidence of international stakeholders in the aviation sector. India’s heavy reliance on leased commercial aircraft, with a staggering 80% of its approximately 800 aircraft operating under lease agreements, is a stark reality. Leased aircrafts are prominent fixtures in the fleets of major airlines like IndiGo, Go First, SpiceJet, and Vistara. Hence, the perception of India as a risky jurisdiction for aircraft financing and leasing could have driven up risk premiums for domestic airlines, ultimately resulting in higher lease costs and potentially increased ticket prices for passengers. Experts feared that these developments could also hinder the ambitious “Project Pukaar” of the Government to transform the Gujarat International Finance Tec-City International Financial Services Centre (GIFT IFSC) into a thriving hub for aircraft leasing. CTC Compliance and the Economic Rationale The CTC and its Aircraft Protocol, also known as the Protocol on Matters Specific to Aircraft Equipment 2001 (“Protocol”), constitute a comprehensive international framework designed to protect the interests of lessors when lessees default on high-value aviation assets, such as aircraft, engines, and spare parts. The Protocol is strategically crafted to ensure secure financing for these assets, reducing risks for lessors and providing procedural remedies, particularly through Article XI (Remedies on Insolvency), which offers effective measures for creditors in cases of defaults, including interim relief like aircraft de-registration and export. The CTC primarily serves to safeguard the interests of creditors and lessors by establishing a global framework that eases financing for valuable aviation assets that lack a fixed location. Its importance becomes evident in unfortunate circumstances, such as when defaults occur in loan or lease agreements or when an operator encounters insolvency, prompting the financier or lessor to pursue the repossession of the aircraft. Compliance with the CTC, especially with swift enforcement of Article XI, Alternative A of the Protocol (Alternative A), substantially reduces the risk for lenders in aircraft financing. Shortening the global aircraft repossession delay to two months can lower the loss-given default by 25-30%, resulting in reduced risk spreads and increased confidence of the lessors in aviation financing and leasing. Malta, ranking highest in the CTC Compliance Index, showcases the economic advantages of such compliance. Adhering to the Convention enhanced its reputation as a secure aviation financing hub, attracting investors and financiers. Additionally, the Organisation for Economic Cooperation and Development (OECD) standards offer airlines from CTC-implementing countries a 10% reduction in export credit insurance costs. India’s Bumpy Ride with CTC Compliance While India signed the Convention in 2016, it has yet to enact a legislation in compliance with the Convention. This gap has posed challenges for lessors and creditors in swiftly repossessing aircraft assets in cases of airline insolvencies. In accordance with India’s declaration submitted under the Protocol, it has committed to applying Article XI, Alternative A, to insolvency proceedings, which includes a special provision of a “waiting period” of two calendar months. In the context of India’s insolvency framework, Section 14(1)(d) of the Code enforces a moratorium provision, which restricts the owner or lessor from reclaiming any property or asset that is in the possession of the corporate debtor during this period. A careful examination of these two provisions reveals a fundamental contradiction between the “waiting period” stipulated in Alternative A of the Protocol and the moratorium provision detailed in Section 14(1)(d) of the Code. Section 14(1)(d) enforces a 180-day moratorium, extendable by an additional 90 days, during which creditors and

[By Ayush Mathur] The author is a student of National Law School of India University, Bangalore.   Introduction As a penultimate step towards incorporating the amendments in the Insolvency and Bankruptcy Code (IBC), the Insolvency and Bankruptcy Board of India (IBBI) released a discussion paper for comments on the proposed amendments. The 28th of November marked the deadline for these comments, and now the Ministry of Corporate Affairs is a step closer to deciding on the amendments to the code. The proposed amendments largely concern the real estate insolvency process, which has gained attention due to concerns expressed by the courts, promoters, and homebuyers regarding the scope and interpretation of sections related to real estate insolvency. There are 5 amendments to the code , including the one where the Committee of Creditors (CoC) will be allowed to invite separate plans for each project. However, while this project-wise CIRP is suggested, the Amendment overlooks Reverse CIRP. This analysis focuses on the absence of Reverse CIRP in the proposed Amendment. The author advocates for its incorporation, providing a structured framework and supporting rationale. Reverse CIRP Reverse CIRP, introduced by the NCLAT in Flat Buyers Association Winter Hills v Umang Realtech Pvt. Ltd., is initiated when project homebuyers apply for CIRP through the project’s funding bank. The project’s promoter submits a resolution plan, ensuring timely project resolution, requiring external funds infusion as a lender. The CoC, comprising homebuyers and banks, assesses the plan’s viability. Unlike regular CIRP, Reverse CIRP doesn’t invite third-party resolution plans. After successful project completion, the Resolution Professional (RP) applies for CIRP application disposal under Section 7 of the IBC. If delays or funding issues arise, the RP resorts to regular CIRP. The Court designed Reverse CIRP to address the lack of homebuyer expertise, ensure project continuity, achieve quicker resolution, and acknowledge the need for debtor management assistance. In real estate insolvency cases, Reverse CIRP is deemed more suitable than the original CIRP. No Circumventing Section 29A Without Amendment It is often argued that Reverse CIRP allows the promoter to act as a financial creditor. This defeats the purpose of section 29A of IBC, which was inserted to prevent defaulting promoters from gaining unauthorized re-entry to their companies by submitting a resolution plan through a back-door route. It is contended that the principle of reverse CIRP goes strictly against the section’s aim and scope. The author of this section elaborates on the same with case precedents and highlights the importance of the incorporation of Reverse CIRP in the code, as without finding this principle in the book, the existence of this essential legal principle remains uncertain. In the case of Chitra Sharma v. Union of India, the Supreme Court declined to create an exception that would enable promoters to assume control of the resolution. The Court expressed the view that Section 29A was enacted with the broader public interest in mind and to enhance corporate governance. Allowing promoters to engage in the resolution process, according to the Court, would undermine the positive objectives and intent of the IBC. Despite its potential benefits, the Court held that such an allowance could compromise the fundamental purpose of the IBC. In ArcelorMittal India (P) Ltd. v. Satish Kumar Gupta, the Supreme Court advocated a balanced interpretation of Section 29A, emphasizing its purpose. The court directed the business owner (promoter) not to directly participate in the CIRP, and act only as a lender. While the order lacks clarity on ‘stays out of the CIRP,’ it implies an independent person (IRP) will oversee the process, even if the business owner contributes funds. Payments must be authorized by check, ensuring proper fund usage, and the business owner must cooperate. Despite efforts to limit their involvement, the order recognizes the business owner’s expertise in decision-making during resolution, a departure from regular proceedings where management powers are fully suspended. Although the court order includes safeguards, it permits the business owner some managerial involvement during the resolution process. It’s important to highlight that the Reverse CIRP procedure described in the Order is specifically tailored to the details of the case, making it inappropriate as a general model for other real estate insolvency situations. The decision to use or bypass Reverse CIRP depends on the unique circumstances of each case. Essentially, Reverse CIRP acts as a trial resolution process, and if it doesn’t work, the NCLAT then resorts to the regular CIRP process. This emphasizes the need to not leave this decision solely to the court’s discretion. If done so then uniformity in court’s decision cannot be achieved. As demonstrated above, in Chitra Sharma case the court refused to allow promoters a stage in the insolvency process while in Arcelor Mittal case a middle ground was specifically made by the court. Therefore, the status quo underscores the necessity for the legislature to include this principle in the code, creating an exception to Section 29A and specifying the conditions under which the court can utilize this legal tool. Reverse CIRP: Urgency for Amendments and Strategic Implementation It is important to note that the principle of Reverse CIRP is nowhere to be found in the code de; if anything, it is often argued that it lies against both the scheme of the code de and particularly against section 29A of IBC. Incorporating the principle of Reverse CIRP into the code is crucial due to the delicate future standing of this principle. An amendment could contribute significantly to achieving uniformity in the application of reverse CIRP. In Winter Hills case, the NCLAT addressed the challenges faced by homebuyers within the CIRP framework, acknowledging the inadequacy of the IBC in providing the desired remedy for allottees as Financial Creditors. While praised for adapting to the unique concerns of homebuyers, the decision in Winter Hills raises concerns about deviating from the established CIRP process under the IBC, as the NCLAT’s decision lacks a solid foundation within the IBC provisions or even under its inherent powers outlined in Section 11 of the NCLAT Rules 2016.

[By Shubham Singh] The author is a student of National Law University, Odisha.   Introduction Section 53 of the Insolvency and Bankruptcy Code, 2016 (IBC) establishes a waterfall mechanism for the distribution of assets in liquidation, with secured creditors having the highest priority and equity shareholders having the lowest priority. The waterfall mechanism is designed to ensure that the most important creditors are paid first and that all creditors are treated fairly. It also helps to protect the interests of workers and other vulnerable stakeholders. Government dues are treated after all other creditors and before the shareholders of a company. However, the ruling of the Supreme Court in State Tax Officer (1) v. Rainbow Papers Limited, placed government dues on par with secured creditors and mandated their inclusion in the resolution plan. Given the Rainbow Papers ruling’s deviation from the established principles of the IBC, subsequent litigation concerning Government dues was a predictable consequence. There have been different and conflicting rulings by the Supreme Court regarding the government dues to this date. In this article, the author will delve into those different rulings by Supreme Court post rainbow papers and their reasoning, while critically analysing them and their effect on the present Indian IBC scenario Supreme Court Rulings The reasoning behind the Rainbow Papers ruling was provided by the two-judge bench of the Supreme Court. They stated that a statutory charge can be considered a form of security, and according to the definition of a “Secured Creditor” under the IBC, the government can be classified as a secured creditor if it holds a statutory charge. This technical perspective adopted by the court, treating statutory charge as security and using that security to treat government dues as secured creditors contradicts Section 53 of IBC which specifically puts government dues below in the waterfall mechanism. The Rainbow Papers judgement goes against the legislation. However, In July 2023, the Hon’ble Supreme Court of India, in the case of Paschimanchal Vidyut Vitran Nigam Ltd. Vs. Raman Ispat Private Limited & Ors, ruled that the Rainbow Papers judgment overlooked Section 53 of the IBC, which grants priority to secured creditors in liquidation proceedings. This ruling is significant because Rainbow Papers primarily dealt with the resolution process rather than liquidation. Nevertheless, it’s important to note that this judgment was delivered by a single-judge bench, and it cannot ultimately overturn the Rainbow Papers decision. Interestingly, a review petition was filed against the Rainbow Papers judgment in front of a two-judge bench in October 2023, in the case of Sanjay Agarwal v. State Tax Officer. The review petitioner heavily relied on the Paschimanchal Vidyut Vitran case and argued that the court in Rainbow Papers failed to consider all relevant IBC provisions and cases, including the “waterfall mechanism” discussed in the Rainbow Papers decision. However, the court dismissed the petition However, once again, in October 2023, a two-judge bench in the case of Principal Commissioner of Customs V. Rajendra Prasad Tak & Ors. stated that tax and customs dues must be paid following the “waterfall mechanism” outlined in Section 53 of the IBC. The ongoing disparity in judicial interpretations raises critical questions about the alignment of these rulings with the legislative framework of the IBC. The Game Show – Analysis of Rulings While analysing the judgment in the Rainbow Papers case (Supra), the decision in the case of Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. was cited, but it was considered in the context of a resolution plan. However contrary to Rainbow papers, In the Ghanashyam Mishra case, the Supreme Court ruled that all types of government dues would be classified as operational debt and could be extinguished if they were not included in the approved resolution plan. Rainbow Papers was judged by a two-judge bench, and Ghanashyam Mishra’s case was judged by a three-judge bench. However, the ruling in the review petition in the Sanjay Agarwal case (Supra) feels like a conundrum in itself. In the Sanjay Agarwal case, the court stated that Rainbow Papers analyzed the cases and provisions cited in Rainbow Papers correctly. The review was denied, citing the practice that a bench of equal authority cannot critique decisions made by another bench citing cases like Beghar Foundation vs. Justice K.S. Puttaswamy (Retired) and Others, which stated the same. The bench in this case was also a two-judge bench In the Ghanshyam Mishra case, the ruling was provided from the perspective of the legislative effect of the IBC. In contrast, the Rainbow Papers case was approached from a technical standpoint, neglecting the examination of why Government Dues are placed lower in the waterfall mechanism, contrary to its legislative intent. The analysis of the Ghanshyam Mishra case was confined to the resolution plan in Rainbow Papers, and the assertion in the Sanjay Mishra case that everything was correctly analyzed in Rainbow Papers seems questionable. This doubt arises not only from the perspective of the Ghanshyam Mishra case but also considering the provisions of the IBC. However, the main argument of this article pertains to the treatment of the Ghanshyam Mishra case. Even if one argues that there may be a different perspective in the Ghanashyam Mishra case and the Rainbow Papers case, and the analysis is correct, the reasoning in the Sanjay Agarwal case, emphasizing the importance of the bench in a judgment, raises a question  Why was the ruling in the Ghanashyam Mishra case, asserting that government dues are not a priority with secured creditors, not embraced in Rainbow Papers, considering that the Ghanashyam Mishra case was decided by a larger bench then rainbow Papers and a larger bench always prevails over a shorter bench? In the Rajendra Prasad Tak (supra) case, an order was passed which stated that the dues of the Central Board of Indirect Taxes & Customs must adhere to the specific hierarchy outlined in Section 53 of the IBC. This judgment emphasizes the importance of following the structured hierarchy for the fair treatment of creditors and

[By Bhabesh Satapathy & Vatsala Tyagi] The authors are students of National Law University, Odisha.   Introduction In the intricate web of insolvency jurisprudence, the intersection of personal guarantees and the Insolvency and Bankruptcy Code, 2016 (“Code“) has recently been scrutinized by the Supreme Court (“SC”) in the case of Surendra B. Jiwrajika v. Omkara Assets Reconstruction Private Limited.  A personal guarantee, emblematic of an individual’s commitment to assume liability for a debtor’s obligations, has long been a focal point of legal deliberation. The SC’s verdict, ostensibly settling the fog of uncertainty surrounding personal guarantors’ obligations under the Code, manifests a pivotal development. Notably, it fortifies creditors’ position by extending the reach of the insolvency resolution process to Personal Guarantors (“PG”), effectively creating a twofold safeguard for creditors seeking recourse. However, the ramifications of this pronouncement are profound, as it curtails the protective ambit afforded to personal guarantors, thereby amplifying creditors’ leverage. This shift in legal paradigm engenders multifaceted consequences for PG, leaving them with scant recourse. The judgment, though ostensibly clearing the legal waters, leaves PG caught in a crossfire of diminished protection and heightened creditor empowerment. A Spotlight on the Essential Backdrop The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, and Notification No. S.O. 4126  empowered the initiation of insolvency proceedings against PG independently. In Lalit Kumar Jain v. Union of India, the SC has affirmed the constitutionality of these provisions, clarifying that an “involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability”. PG’s liability under the Code remains co-extensive with the corporate debtor, as per Section 128 (“S.”) of the Indian Contract Act. In the State Bank of India v. Ramakrishnan , the SC determined that S.31 (1) of the Code does not absolve the PG of their responsibilities. Further, Essar Steel India Limited v. Satish Kumar Gupta delineated that approval of a resolution plan is binding upon the PG. Ever since the contours of resolution plan against PGs were defined, its inherent neglect of natural justice has been criticised. In the present case, the constitutional bench addresses a barrage of 384 petitions questioning the constitutional validity of S.95-100. Procedural Fairness: A Hollow Framework without Natural Justice PGs have vehemently called out this blind spot as they are caught in between unfair and unreasonable screws of resolution plan. a. Violation of principles of natural justice Maneka Gandhi v. Union of India constitutionalised natural justice principles into Articles 14, 19, 21, and 22. The impugned provisions violate two principles of natural justice, namely; right to be heard (Audi alterum partem) and the prohibition of self-judgment (Nemo judex in causa sua). Top of Form The court brushed aside these contentions highlighting the following: S.99(2) offers ample representation opportunity for the debtor; S.100 complies with natural justice principles. The role of the Resolution Professional (“RP”) as under S.99 (“u/s”) of the Code, is limited to collection of facts and hence is not adjudicatory in nature. In Madhyamam Broadcasting Ltd. v. Union of India, Justice Chandrachud, observed that such principles of fairness ‘express…that to be a person, rather than a thing, is at least to be consulted about what is done with one’. However, irreversible steps from S.95-S.100 in this case lack due consultation with relevant parties. The interesting aspect of the case is, the judgement was pronounced by Justice D.Y. Chandrachud. Despite having previously integrated this procedural requirement, he conspicuously omitted it in this particular case. (Emphasis supplied) b. Inadequacy of procedural fairness The court balances incorporating constitutional morality in the Code while respecting judicial review constraints. Hence, it upholds validity of opportunity of representation u/s 99(2), it ignoring its rudimentary nature in view of the instantaneous moratorium. Interpreting S.99(10) literally, the RP must share the report with the applicant u/s 94 or 95. The  IBBI’s discussion paper dated 27th September, 2023, highlights that the current scheme of the Code, does not mandate sharing of the Report with both the parties. In the Madhyamam Broadcasting case, Justice Chandrachud emphasizes the right to know about inquiries, stating that “it is sufficient if the non-disclosure would lead to a possibility of bias and prejudice”.  The Code is ignorant towards such inchoate principles of legal justice. (Emphasis supplied) The Court tilts towards legal positivism overlooking discussion on aforementioned grounds. While it evaluates the presence of procedural provisions, it somehow failed to realise their inadequacy, leaving natural justice impotent and hence unrealised. Putting Section 96 on Trial: Examining Legal Consequences of Interim Moratorium Application under S.94 or S.95 triggers immediate interim moratorium under S.96, facing constitutional challenges for violating Articles 14 and 21. a. Fundamental Rights Under Siege Part II and II of the Code face criticism for alleged arbitrary dissimilarity, violating Article 14. The court justifies distinct stages for the AA’s involvement, citing S.96‘s debt-focused moratorium. However, the court, engrossed in doctrinal intricacies, neglects broader impacts. The debtors can exploit an automatic interim-moratorium to undermine the rights of other creditors by merely filing an application u/s 95 of Code. Further, Subramanian Swamy v. Union of India, acknowledged right to reputation as a fundamental right under Article 21. Insolvency harms reputation and strains commercial relationships. The Court overlooks the psychic consequences of interim moratorium. Breathing natural justice into the process is essential to avoid Article 21 violation.Top of Form b. Adjudication of jurisdictional facts delayed is adjudication denied Before insolvency, a “debtor-creditor relationship” is essential. Initiating resolution plan u/s 95-100 necessitates early adjudication of jurisdictional facts, which is postponed until after moratorium and RP’s report submission.Top of Form This indicates a prima facie assumption of substantial merit in the application. The Code contemplates a presumption of civil guilt over the preferred presumption of civil innocence. The scheme of the Code presents a rare anomaly wherein the merits of the claim are decided prior to the maintainability of the claim. Introducing an adjudicatory stage before S.100 might seem to compromise the Code’s time-bound nature, but it’s a myopic view. The Bombay High Court

[By Uravi Pania] The author is a student of National Law School Of India University, Bengaluru   Introduction In May 2023, the National Company Law Tribunal (hereinafter the ‘NCLT’) admitted Go First’s insolvency plea with regards to default of around Rs. 2660 crores to its aircraft lessors and of Rs. 1202 crores to its vendors. The National Company Law Appellate Tribunal (hereinafter the ‘NCLAT’), on an appeal contending that the plea of insolvency was malicious, upheld the NCLT’s order and presently, the airline company is undergoing the Corporate Insolvency Resolution Process (hereinafter the ‘CIRP’), with Shailendra Ajmera as the resolution professional. Post the NCLT’s order, a moratorium mandated by section 14 of the Insolvency and Bankruptcy Code 2016 (hereinafter the ‘Code’) was imposed, which prohibited the initiation of any proceedings, transfer of assets or legal rights, foreclosure of securities or, recovery of any property of the Corporate Debtor (hereinafter the ‘CD’).  A major question arose in the midst of the matter regarding the rights of the aircraft lessors, who faced a bar on recovering the same due to the imposition of a moratorium under section 14 of the Code. The Ministry of Corporate Affairs (hereinafter the ‘MCA’) and the Ministry of Civil Aviation appeared to be in support of differing positions regarding the aircraft lessors’ rights vis a vis the moratorium. However, the MCA via a notification dated October 3, 2023, exempted the application of s.14 moratorium on transactions, arrangements or agreements, relating to aircraft, aircraft engines, airframes and helicopters. This post analyses the exemption notification vis-a-vis the aims of the Code to highlight its inconsistency. It argues that the notification violates principles of insolvency process in India and, that the utilisation of a notification route leads to an inadequate adoption of the Cape Town Convention (hereinafter the ‘CTC’). India being a signatory to the Convention, planned to ratify it through the Cape Town Convention Bill, which has not been introduced yet. Not only is this mechanism of implementing provisions of the Convention procedurally deficient as the CTC has not been ratified yet, but it also principally goes against the Insolvency and Bankruptcy Code. The scope of this post is limited to the latter proposition. Firstly, the exemption of lessors from the moratorium goes against the underlying principles of the Code, which includes not just credit recovery but also managing and sustaining a stressed firm’s operations and helping its resolution. Secondly, by utilising the notification route, the government has brought in inadequate application of the CTC, making the present Code incompatible with it—though the Convention provides for a gradual and balanced approach, the same cannot be incorporated into India’s insolvency proceedings without an amendment of the Code. Aviation Industry’s Demands India’s aviation market consists of a large share of 80% leased aircrafts as compared to purchased ones due to its cost-efficiency, enabling airlines to provide low-cost airline services too. However, with Go First filing for insolvency, its market share declined, leading to a surge in market shares as well as the prices of its competitors. Additionally, on the admission of the insolvency application by the NCLT, Go First’s aircrafts entered the protection of the moratorium period as provided by section 14 of the Code. The lessors of Go’s aircrafts filed interlocutory applications before the NCLT, to which the Tribunal held that the recovery of the leased aircrafts couldn’t be made due to the moratorium. Thus, section 14 prohibited the aircraft lessors from initiating any proceeding to recover the leased aircrafts. However, with the MCA notification, the moratorium would be exempted and, aircraft lessors would be able to recover their aircrafts. Disagreement with IBC Principles The Code’s inception in 2016 brought in a streamlined procedure to deal with reorganisation of assets in a time-bound manner and aimed to balance and maximise multiple stakeholders’ interests. The Supreme Court noted the object of the Code to be discerned by the Preamble of it—that it is “first and foremost a code for reorganisation and insolvency resolution of corporate debtors”. It also observed that IBC seeks to ensure revival and continuation of the CD from its own management as well as from a corporate death through liquidation. This view has been consistently argued and affirmed by various Courts and Tribunals. Protecting assets of a CD is significant towards treating it as a going concern, which is also another important objective of the legislation. The MCA notification exempts section 14 from “transactions, arrangements or agreements, under the Convention”. The Convention allows for the possession of the aircraft to be returned to the creditor on occurrence of an “insolvency related event”. Such allowance goes against the very essence of section 14 of the Code as section 14(2A) of the Code provides that an Interim Resolution Professional (IRP) or the Resolution Professional (RP) can prevent such return if the supply of such goods or services is critical for value of the CD or to manage its operations. It is evident that aircrafts would be critical to preserve the value of an airline business as well as to manage its operations. The Supreme Court in Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, considering an ipso facto clause in a power purchase agreement (PPA), held that the “going concern” status of the debtor would be nullified if the PPA was terminated. The PPA would be the “sole basis for the CD’s existence” and its termination would affect the going concern status of the CD. The Court considered section 14(2) and 14(2-A) to maintain the status of a CD as a going concern and that it should not be hampered on insolvency. A similar reasoning can be extended to the essentiality of the aircrafts for airline corporate debtors. Aircrafts are the sole basis of airlines and termination of aircraft leases on insolvency will affect the going concern status of such CDs. This violates the existing jurisprudential reasoning of section 14 of the Code, as employed by the NCLT tribunal while considering Go First’s lessors’ pleas as well. The tribunal observed that

[By Philip John] The author is a student of the National University of Advanced Legal Studies, Kochi   Introduction The evaluation of the Insolvency and Bankruptcy Code (IBC) in India necessitates an insightful comparative analysis with insolvency laws in international jurisdictions. This article places a magnifying glass on the United Kingdom’s (UK) Insolvency Act of 1986, a legislation in the realm of insolvency, and juxtaposes it with India’s own Insolvency and Bankruptcy Code 2016. Moreover, the context is enriched through references to the Recast Insolvency Regulation and the Cross Border Insolvency Regulations of 2006. Historical Shift and Comparative Approach The historical evolution of insolvency laws in the UK has manifested a leaning towards safeguarding debt holders’ interests at the expense of debtors. However, the transformative Cork Report marked a pivotal juncture by catalysing an increased recognition of the imperative of corporate rescue and the survival of companies as growing concerns. This paradigm shift underscores the pivotal significance of rescuing distressed entities to preserve competitiveness and ultimately benefit creditors, employees, and business owners. This paradigm shift is encapsulated in the enactment of the Insolvency Act of 1986, which concretized provisions for rescuing and rejuvenating viable segments of companies undergoing financial turmoil. Influence of EU Membership and Brexit The regulatory framework of the UK was profoundly influenced by its membership in the European Union (EU). This phase saw the ascendancy of the Recast Insolvency Regulation, which assumed a commanding role post-June 26 2017, governing insolvency proceedings initiated during this period. This regulation superseded the Insolvency Regulation Act and exemplified the influence of EU membership. However, the formal departure of the UK from the EU necessitated a recalibration, contingent on potential future agreements. Post-Brexit, the Insolvency (Amendment) (EU Exit) Regulations of 2019 upheld the applicability of the Recast Insolvency Regulation for insolvencies where primary proceedings were instigated prior to December 31 2020, thus ensuring continuity within the EU. Regulation 1346/2000, a landmark introduction, facilitated streamlined cross-border insolvency processes within the EU framework. It delineated three categories: main proceedings, secondary proceedings, and territorial insolvency proceedings. Substantial reformulation of this framework was witnessed through the Recast Insolvency Regulation, embellishing its efficacy and scope. Evolution and Enhanced Dynamics: Recast Bankruptcy Regulation The contours of insolvency proceedings were further refined through the introduction of the Recast Bankruptcy Regulation, activated from June 26, 2017, with applicability to new insolvency cases. Retaining the tripartite structure of the Recast Insolvency Regulation, this new iteration integrated substantial amendments. The crux of this evolution was the elevation of the “centre of main interests” (emphasis supplied) as the locus of consistent administration of a debtor’s interests, discernible to external stakeholders. It’s notable that the presumption of the registered office as the centre of interests could be rebutted by compelling evidence. Cross Border Insolvency Regulations The aftermath of Brexit ushered in the Cross Border Insolvency Regulations of 2006, designed to recognize foreign insolvency proceedings post-Brexit, regardless of their occurrence within or outside the EU. These regulations encompass foreign proceedings as collective judicial or administrative processes in foreign states, emphasising reorganisation or liquidation. The crux of determining foreign main proceedings hinges on their location within the territorial ambit where the debtor’s primary interests are established. Correspondingly, foreign non-main proceedings occur in the state where the debtor’s core interests find residence. Comparative Insights and Potential Assimilation The potential refinements identified below have the capacity to bolster the effectiveness, efficiency, and accessibility of the IBC, ultimately contributing to a more robust and equitable insolvency regime. I. Bridging Jurisdictional Insights In elucidating the juxtaposition of the United Kingdom’s insolvency law with the Indian Insolvency and Bankruptcy Code (IBC), this discourse discerns salient provisions that could potentially enrich the latter. A particular focus is directed toward the UK’s diligent approach in disseminating information regarding the existence of a moratorium, accompanied by a comprehensive explication of its ramifications for creditors. This accentuation of transparency and awareness highlights a distinct avenue where the IBC could potentially refine its operational framework. Furthermore, the United Kingdom’s intricate and refined mechanisms governing voluntary arrangements and winding-up proceedings furnish proactive strategies for addressing instances of financial distress. The integration of these strategies into the IBC could serve as a formidable deterrent against the accumulation of unsustainable debt burdens. Aligned with the United Kingdom’s legal framework, the proposition of permitting operational creditors to collectively initiate the Corporate Insolvency Resolution Process (CIRP) is proffered as a means to alleviate the administrative complexities currently associated with the IBC. This suggested modification holds the potential to expedite the insolvency resolution process and render it more efficient. Additionally, the United Kingdom’s practice of allowing creditors to institute CIRP proceedings on the grounds of uncontested non-payment of debts is evaluated. This practice, if incorporated into the IBC, has the potential to uphold the principle of equitable access to insolvency proceedings, thereby fostering a more inclusive and accessible legal framework for resolving insolvency matters. II. The UK’s Specialized Court System, A Model for Efficiency The Indian insolvency and bankruptcy landscape is marred by prolonged litigation due to inadequate judicial infrastructure and delayed appointments of Adjudicating Authority (AA) members. The UK’s approach to insolvency cases through specialised courts offers a blueprint for India. Judges with a profound understanding of insolvency law streamline intricate cases. Complex cases are directed to designated courts that possess in-depth insolvency knowledge, expediting resolutions. Referring cases from lower to higher courts when necessary ensures expertise alignment. The High Court intervenes in complex or high-value cases, showcasing the UK’s commitment to streamlined insolvency adjudication. NCLT and NCLAT, being generalist forums, adjudicate diverse corporate law issues encompassing insolvency matters. This broad jurisdiction may result in procedural delays and inefficacies, given that adjudicators may lack the specialized expertise requisite for addressing intricate insolvency cases. Meanwhile, the UK’s High Court employs specialised lists for bankruptcy cases, presided over by Insolvency and Companies Court (ICC) judges. These judges possess extensive insolvency law knowledge, technical expertise, and commercial understanding. This focus enhances the efficiency and accuracy of insolvency resolutions, utilising a specialised pool of