Insolvency Law

[By Saumya Mittal & Keerthana Rakesh] The authors are students of Gujarat National Law University.   Introduction In a dramatic chain of events, Go First, one of the most profitable and most sought-after airlines in India, had to take a flight on the wings of Section 10 of the Insolvency and Bankruptcy Code, 2016. With its faulty engines, the aviation company found itself in hot water due to mounting losses and unpaid credit. But the news didn’t bode well for the operational creditors of the company who were well aware that a Corporate Insolvency Resolution Process (CIRP) takes an average of 588 days in India and by the time a resolution plan develops, most of the value of the assets would have eroded. To counter the same, they presented the National Company Law Tribunal (NCLT) with multiple arguments, one of them being that no notice of initiation of CIRP under section 10 was served to the operational creditor by the corporate debtor, thus depriving them of the opportunity to object to the said application. Section 10 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) allows the Corporate Debtor to initiate CIRP against itself by filing an application before the Adjudicating Authority. Having heard both the sides, the NCLT vide order no. (IB)-264(PB)/2023 admitted the application and favored the Corporate Debtor by stating that a Corporate Debtor is not obliged to serve notice to its creditors as Section 10 or 11 of the IBC does not prescribe the said requirement. The position on serving of notice being clear, this article attempts to inspect the decision of the NCLT with respect to the serving of notice under section 10 and whether the same should be made mandatory. Issue and Contentions of the Parties The issue arose when Go Airlines (India) Limited filed an insolvency application under Section 10 of the IBC before the NCLT, Delhi, to initiate the CIRP proceedings against itself. The Corporate Debtor submitted that it is in financial distress due to continuous default in payments to vendors and aircraft lessors. Since it has a subsisting debt of more than Rs. 1 Crore, it is entitled to file an application under the said section of the IBC. The creditors of the Applicant, on the other hand, were against the insolvency application as they contended that the Corporate Debtor did not give them due notice before filing the application before the NCLT. They pleaded that they were entitled to prior notice and that principles of natural justice should be duly adhered to. Further, the creditors contended that they should be provided with an opportunity to file an application under Section 65 of the IBC, which provides for action to be taken against any person who initiates CIRP with malicious intent. Notice under Sections 7 and 9 similar to that under Section 10? One important observation made by the tribunal in the Go First proceedings was that serving of notice to a corporate debtor by the financial and the operational creditor under sections 7 and 9 respectively, was a matter of right as application under the two sections was in personam and in the nature of a litigation thus making the corporate debtor a respondent. Also, the tribunal noted that a corporate debtor is an ‘aggrieved party’ and thus it should be served notice. But the same was not the case for notice under section 10. Since creditors didn’t constitute an ‘aggrieved party’ and are in the nature of a third party, serving notice to them is not legally compulsory and it merely depends upon the facts of each case. Thus, the notice under sections 7 and 9 is significantly different from that under section 10. The matter of whether notice under this section is obligatory has been largely resolved by the tribunal. However, a new consideration arises: Should this requirement be mandated? Before addressing this, it is prudent to examine Section 65, which grants distressed creditors the authority to initiate fraud proceedings against any deceitful CIRP. Rationale behind notice requirement in light of Section 65 Mention of section 65 whilst dealing with section 10 is a no-brainer. Section 65 of the 2016 code deals with the fraudulent initiation of Insolvency resolution proceedings by a person in order to defraud any stakeholder. It is settled law that section 65 proceedings can be initiated even after the imposition of a moratorium under section 14 of the code, and the same has been reiterated in the Go First NCLT Order. In this order, one sound question was raised- why should notice be served under section 10 if the provision of section 65 is there? If a party has the grievance that application for CIRP is fraudulent and has been filed just to defraud the creditors of their loans, the latter can very well file an application under section 65, and the proceedings would go along with the CIRP proceedings. Why does one, then, need an intimation via notice of filing for CIRP by the corporate debtor just to make sure that no fraudulent proceedings are initiated? The answer lies in the limited scope of section 65, which deals with only those cases where ‘fraudulent intention’ exists. However, consideration must also be given to instances where the corporate debtor’s actions were not driven by malicious intent. Nonetheless, these actions still had a substantial adverse effect on the creditors. In such cases, a prompt notification of the impending CIRP filing was essential to allow creditors to strategize appropriately. For these scenarios, regardless of intent, the necessity for a notice persists, and this requirement cannot be solely addressed by the provisions of section 65. Need for serving of notice under section 10 Serving notice to creditors during the initiation of the CIRP is a prudent approach that aligns with the spirit of IBC 2016 while fostering transparency, efficiency, and the best interests of all stakeholders involved. One of the primary reasons to serve mandatory notice to creditors is to enable them to be adequately prepared for

[By Manas Shrivastava & Adaysa Hota] The authors are students at National Law University Odisha.   INTRODUCTION During a company’s liquidation proceedings, a secured Creditor has been presented with two options under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) “relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator” or “realise its security interest”. If the secured creditor realises its security interest outside the liquidation proceeding, two circumstances follow. Firstly, where the enforcement of a security interest results in a sum by way of proceeds that is greater than the amount owed, they must give the liquidator any surplus funds in addition to their share of the costs associated with the liquidation procedure. The previous situation is straightforward, but the complexity arises in the second situation, where the proceeds of realisation are insufficient to cover the debt, and the liquidator must pay the secured creditor’s outstanding debts in accordance with Section 53. Furthermore, in accordance with Section 52, as stated above, the secured creditor may also choose to relinquish its security interest but this too must be done in the manner specified under Section 53. This is where the waterfall mechanism for liquidation comes into play, i.e. when a corporate debtor is unable to repay all its creditors, the entire sum due. The remaining amount of debt and number of creditors is the Rubicon of the waterfall mechanism. The debt, thus befitting the term “waterfall”. Although the waterfall mechanism is considered to be the heart of the IBC, it was introduced in the Companies Act, 2013. COMPARING THE WATERFALL MECHANISM UNDER COMPANIES ACT 2013 AND IBC 2016 Since the inception of the IBC, there has been a debate raging on whether the mechanism under the Code is essentially the same as that enshrined under Section 326 of the Companies Act, 2013. And if the answer to that is yes, scholars argue that the redundancy must be done away with. Even the Supreme Court has recently considered this matter. But, before we try to find the answers to these questions, it is imperative to understand the mechanism, separately, from the context of IBC as well as the Companies Act 2013. One can decipher from the provisions that there are several tiers of creditors, and priority will be granted in accordance with their order. For instance, under the IBC, secured creditors rank second while government obligations rank fifth. But while the Act lays the mechanism for winding up of the company, the Code focuses only on liquidation. Insolvency Resolution Procedure (IRP) and liquidation costs are paid with the highest priority under section 53 of IBC. Thereupon, “workmen’s dues for twenty-four months preceding the liquidation commencement date” and “debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52” are placed in the same hierarchy for repayment. Herein lies the second distinction between the waterfall mechanisms used by IBC and CA. In contrast to the Code, payment of workmen’s compensation and a secured creditor who has achieved its security interest is not pari passu from the outset under section 326 of the 2013 Act. They will be in the same hierarchy only after paying any outstanding workmen’s compensation and accumulated vacation pay from the two years before the winding up order. The Proviso to Section 326(1) requires the company to reimburse the above-mentioned sum to workers or “in case of their death, to any other person in his right” before repayment to the secured creditors within thirty days from the sale of assets. Thirdly, IBC’s waterfall mechanism requires payment of “wages and any unpaid dues owed to employees other than workmen for twelve months preceding the liquidation commencement date,” whereas CA only allows four months. Thereafter IBC ranks unsecured creditors for repayment but CA has no such provision for such creditors. IBC at fifth position ranks, “any amount due to the Central and State Governments including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date” and “debts owed to a secured creditor for any amount unpaid following the enforcement of security interest” equally. Whereas, CA provides for payment of the preceding year only. Additionally, IBC houses provisions for payment of the debt owed to unsecured creditors and to Secured Creditors if they relinquish their security interest and opt for preferential payment, whereas CA fails to do so. Furthermore, the IBC Amendment Act of 2019 has added provisions for operational creditors and dissenting financial creditors in the waterfall mechanism, which the CA has yet not recognized. DEVIATION SHOWN BY THE COURTS FROM THE PATH OF THE WATERFALL MECHANISM The supreme court in various cases has upheld the validity of the waterfall mechanism under IBC, but still, there is a current trend going on where the courts are deviating from following the waterfall mechanism while distributing the assets. In a recent case of State Tax Officer v. Rainbow Papers Limited (hereinafter “Rainbow Papers”) where the court clearly showed a deviation from the waterfall mechanism under section 53 of IBC 2016. The case deals with state legislation, where the state tax authority has a security interest against the corporate debtor thus, making the state tax authority as “secured creditor”. The court carved this exception under section 48 of Gujarat Value Added Tax Act, 2003 which provides a first charge to state tax authority, on the property of a corporate debtor, which goes against the mechanism. Similarly, in the case of Jet Aircraft Maintenance Engineers Welfare Association v. Ashish Chhawchharia (hereinafter “The Jet airways case”) the court deviated from following it and held that until the onset of the insolvency, the company has to pay the whole provident fund to the workers and employees and the gratuity payment. It is pertinent to note that under section 53(1)(b) of IBC, these payments are limited to a

[By Sachika Vij & Kartikeya Misra] The authors are students of Ram Manohar Lohiya National Law University Lucknow.   INTRODUCTION The UNICTRAL Model Law on Cross-Border Insolvency (MLCBI) has recently celebrated its 25th anniversary.  The inclusion of the UNCITRAL MLCBI has gained significant traction and is now being incorporated into the domestic legislation of numerous countries worldwide. An increasing number of international jurisdictions, including Hong Kong and Singapore, are aligning themselves with the global trend of embracing a Centre of Main Interest (COMI)-based approach to recognition to insolvency proceedings. However, several challenges have cropped up in its implementation. One such issue is with the interpretation of the date of determination of COMI. India on the other hand is still in the process of enacting the cross-border insolvency framework. With the different interpretations already in place there is a greater mantle on the Indian authorities to ensure that these loopholes are not used to delay the resolution process and that they do not hamper the interests of the parties involved in seeking recourse. THE CENTRALITY OF COMI IN INSOLVENCY AND ITS DETERMINATION Imagine a scenario, where a debtor company finds itself entangled in insolvency proceedings spanning multiple jurisdictions. The COMI holds immense significance when it comes to navigating such a complex realm of cross-border insolvency. Article 17(2)(a) of the Model Law states that a foreign main proceeding is where the COMI lies. It acts as the determining factor as to which jurisdiction shall have the authority to grant the necessary relief for the debtor’s ongoing financial concern. Though, it has not been defined anywhere in the Model Law but has been of extensive use worldwide. For determining COMI, a comprehensive assessment of various factors is required. Article 16 of the Model Law lays down a rebuttable presumption that the debtor’s registered office is taken to the COMI and as per the Recitals (12) and (13) of the European Commission Regulation should correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties. However, UNCITRAL MLCBI with Guide to Enactment and Interpretation provide for other factors which may include the jurisdiction where the debtor takes its key managerial decisions and conducts the majority of its economic activities, where it manages its key assets, etc. Ascertaining COMI is not simple and the determination is to be based on the fulfillment of two important requisites which are: Determination of the date for deciding the debtor’s COMI Determination of the factors for deciding the location of the debtor’s COMI It is only once the first element has been determined, the Court will determine the location of COMI under various non-exhaustive factors. Although the preamble and interpretation under Article 8 of the Model Law clearly state that it was enacted for the sole purpose of bringing uniformity to cross-border insolvency proceedings by harmonizing national insolvency laws dealing with it. However, there is no established position on the specific date that will serve as the decisive factor for determining the COMI. THE TIMING CONUNDRUM IN COMI DETERMINATION In 2013 answering the approach to be adopted for the timing of determining COMI, the Guide to the Enactment of the MLCBI mentioned that the relevant date for determining the  COMI should be the date of commencement of the foreign proceeding. However, before this guide, US developed its own principles for the date of determining the COMI in the case of Fairfield Sentry which was upon the filing of the recognition application. Australian Courts have on the other hand, stemming from the case of Australian equity investors, held the relevant date of COMI to be the time the Court is called for a decision on the requisite recognition application. In 2022, a Hong Kong Court Global Brands Group Case opined that the determining factor of COMI should be the date of the   foreign office-holder’s recognition application The Court noted that this preference aligns with Article 6 of The Supreme People’s Court’s Opinion on Taking Forward a Pilot Measure for the Recognition of and Assistance to Insolvency Proceedings in the Hong Kong Special Administrative Region. Moreover, claiming it to be consistent with the approach taken by the Singapore Courts in Re Zetta Jet in 2019. Therefore, Courts internationally have come up with different approaches in deciding the timing  of COMI which are relevant because they can have a huge impact on the proceeding and can even impact the location of COMI. INDIAN APPROACH TO DATE OF DETERMINING COMI India’s iteration of the Model Law on Cross-Border Insolvency is still under consideration in the form of Draft Part Z to be introduced in the Insolvency and Bankruptcy Code, 2016. The Cross Border Insolvency Resolution Committee (CBIRC) in its Report on the Rules and Regulations for Cross Border Insolvency Resolution recommended that for the determination of the timing of COMI, appropriate date should be the date of commencement of a foreign proceeding under the local law of the jurisdiction. By adopting this approach, the CBIRC aimed to minimize forum shopping opportunities. Considering the time of filing of the recognition application as determining point of COMI there would only be the proceedings and actions of the foreign representative that would help indicate the COMI. Therefore, relying on the date of commencement of foreign proceedings would provide a clearer result compared to determining COMI at the time of the application. Additionally, this approach would be easier to apply across different jurisdictions, simplifying the practical implementation of the rule. On the other hand, proponents of the time of filing of the application approach argue that delving into the debtor’s past interests can be complex and may result in denying the true COMI. They believe that determining COMI based on the time of filing the application could prevent such complications and ensure a more accurate determination of COMI. WORKING IT OUT: THE POLICY CHALLENGE The different approaches in the timing of determination of COMI have been evolving as has been seen recently in

[By Aritra Mitra] The author is a student at National Law University, Odisha.   Introduction In the recent judgment of Puissant Towers India (P.) Ltd. v. Neueon Towers Ltd., the Chennai bench of the NCLAT overturned the order of the Adjudicating Authority and held that ARCs (hereinafter “Asset Reconstruction Companies”)  can act as Resolution Co-Applicant in an Insolvency and Bankruptcy Code, 2016 (IBC) resolution process, even without the permission of RBI. It observed that the Adjudicating Authority ought not to have placed reliance on Section 10(2) of the SARFAESI Act, 2002 as Section 238 of the IBC would prevail over the provisions of the SARFAESI Act, 2002, if there was any inconsistency with any provisions of the IBC. But the conundrum arises because ARCs are regulated under the SARFAESI Act and ARCs intending to perform any activity other than securitisation, reconstruction, and statutorily allowed functions, prior approval of the RBI is a must. Hence, even though there have been judicial precedents that state that IBC will override other conflicting other acts, but permitting ARCs to act as Resolution co-applicant without RBI approval creates issues, which the NCLAT has failed to consider before passing the order, and which the author shall discuss  in the following paragraphs. ARC as Co-Resolution Applicant – Beyond objectives under SARFAESI ARCs were introduced with the objective of helping banks and financial institutions manage their stressed assets by reducing the non-performing assets on their books. Whereas IBC was introduced to perform the function of reorganisation and resolution of insolvent entities. Since both IBC and SARFAESI perform a similar objective of reconstruction of bad loans, there are chances of inconsistencies and overlaps. The petitioners relied upon ARCIL v. Viceroy Hotels Limited, Manish Kumar v. Union of India, and the Delhi HC judgment in UV Asset Reconstruction Company v. Union of India, where it was clearly held that ARCs have to take RBI approval. But the appellate authority completely rejected the submissions of the appellants. But by passing such judgment it failed to discuss certain points which should have been considered before passing such a decision. The legal and regulatory design of ARCs is primarily focused on recovery of debt from the borrower and not on resolution of the borrower’s insolvency. Under Section 2(1)(ba) of the SARFAESI Act, ARCs are set up solely for the purpose of asset reconstruction or securitisation, or both. Further restrictions have been provided in Section 10(1) in the form of business that ARCs are allowed to perform. There is no mention of resolution applicant. Furthermore, Section 10(2) of the SARFAESI restricts ARCs from performing any business without prior RBI approval. It clearly denotes the specific purpose of ARCs. Allowing ARCs to act as resolution applicant without RBI approval seems to go against the provisions of SARFAESI. Also, Section 12(2) lays out the RBI’s power to issue directions to ARCs. And the implied meaning of those directions cannot go beyond the business provided in the SARFAESI Act. Section 15(4) of the SARFAESI Act states as following: “if any secured creditor jointly with other secured creditors or any asset reconstruction company or financial institution or any other assignee has converted part of its debt into shares of a borrower company and thereby acquired controlling interest in the borrower company, such secured creditors shall not be liable to restore the management of the business to such borrower.” Thus, there is no such obligation on the ARC to return the business to the borrower where it has already acquired a controlling interest in the entity. This goes against the very objective of the Code and should have been considered before allowing ARC to act as resolution applicant without RBI approval. Beyond Legislative Intent The idea of establishing ARC was recommended for the sole purpose of performing recovery of NPAs of banks. The Expert Committee for Recommending Changes in the Legal Framework concerning Banking System, and the BLRC Report, 2015 had clearly demarcated the functions of the ARC to reconstruction and securitisation. There was no mention of roles in insolvency resolution. It was clearly explained that the intent and objective of an ARC is to ‘realise the dues’ and reposition the borrower, and not ‘rescue’. The NCLAT also failed to consider the legislative intent behind establishing the ARCs. Allowing them to act as resolution professional in IBC would effectively go beyond the purpose of the ARCs. This may Furthermore, the resolution of stressed assets under IBC is expensive. the resolution applicant has to burn cash for an elongated timeline before being able to derive profits from these assets. However, ARCs are required to redeem SR’s within a period of maximum 8 years, meaning that ARCs cannot burn holes in their pocket and are required to recover their dues within a tight timeline. Accordingly, the luxury of a long gestation period is not available with ARCs making them unsuitable for resolution of stressed assets under IBC. Inefficiencies in RBI notification Now even though the NCLAT did not even discuss it, but RBI on 11th October, 2022 came out with a new notification ‘Review of Regulatory Framework for ARCs’, which permits ARC to act as Resolution Applicant under IBC. But even such permission is conditional upon fulfilment of certain grounds. The NCLAT did not even consider whether the ARC has a minimum Net Owned Fund of ₹1,000 crore and a committee, consisting mostly of independent directors, to make decisions about proposals for the submission of a resolution plan under the IBC. Since the RBI notification was not considered to grant permit to the ARC, the NCLAT made another error in granting permit without even considering whether the statutory requirements were fulfilled. Furthermore, the RBI notification also mandates that ARCs cannot exert significant control over the acquired insolvent entity and has to dilute such control within five years of the date of approval of the resolution plan. This ultimately means that a situation may arise where the ARC will look to sell the insolvent entity at a high price instead of reviving it. This

[By Mohak Agarwal & Hemang Mankar] The authors are students at National Law University, Jodhpur.   GoFirst Insolvency: A tug of war with the lessors The recent case of GoFirst Airlines’ Insolvency has highlighted certain significant issues in the Indian Insolvency law regime. The tug of war between the airline and the lessors commenced on May 2, 2023, when GoFirst filed for voluntary insolvency proceedings under Section 10 of the Insolvency and Bankruptcy Code [“Code”]. As soon as the insolvency application was filed, certain aircraft lessors terminated the lease agreement in order to seek repossession of the leased aircrafts. Subsequently, on May 5, the lessors invoked the Irrevocable Deregistration and Export Request Authorization [“IDERA”] and applied to Directorate General of Civil Aviation [“DGCA”] for deregistration and repossession of the leased aircrafts. IDERA confers an exclusive right on the lessors to effect deregistration of the aircraft and its export from India. It is a part of the Cape Town Convention [“CTC”], to which India is a signatory. The entire process has to be completed within 5 working days. However, before the elapse of 5 working days, the Adjudicating Authority [“AA”], on May 10, admitted the application and declared a moratorium under Section 14 of the Code. This led to a situation wherein though the lease agreement was terminated before the declaration of moratorium, the possession of the planes remained with GoFirst since the deregistration process could not be completed. The question of whether the possession of the leased planes would rest with the Corporate Debtor [“CD”] or with the lessors is still a debatable proposition and largely depends on the interpretation of Section 14(1)(d) of the Code that prohibits the recovery of property by the lessor which is in the possession of the CD. Nevertheless, it cannot be denied that had the AA been late even by a couple of days, the lessors would have succeeded in securing repossession of the aircrafts and would have severely impacted the revival prospects of GoFirst. This threat has been averted, at least for now. However, this incident raises serious concerns over the present Insolvency regime and the possibility of the creditors rushing to secure their assets in the period between the date of filing and the date of admission, thus potentially trapping the CD in an irrecoverable state. Absence of Interim Moratorium: An Achilles Heel? The absence of an Interim Moratorium in the Indian insolvency regime raises significant concerns and poses a troubling scenario akin to an impending storm that threatens to disrupt the insolvency process of distressed companies. Although the Code stipulates that the AA should admit a Corporate Insolvency Resolution Process [“CIRP”] application within 14 days of its filing (Section 7(4), 9(5), and 10(4) of the Code), the pre-admission stage is often plagued by substantial delays. According to the 2021 IBBI Survey on CIRP Timelines, the AA took an average of 133 days to make a decision from the filing date of a CIRP application. This protracted delay is troubling as it incentivizes syphoning off assets by promoters and/or encourages creditors to rush and enforce their debts, undermining the collective and value-maximising insolvency resolution process envisioned by the Code. In cases such as NUI Pulp and Paper Industries, and F.M. Hammerle Textiles, the Appellate Tribunal granted an interim moratorium when there was a reasonable apprehension of asset misappropriation. This underscores the pressing need for the incorporation of an interim moratorium into the Code through an amendment. Such an amendment is crucial to prevent a scenario where a distressed company’s assets are syphoned off even before the commencement of a moratorium, which would ultimately defeat the fundamental objectives of the Code. Therefore, it is imperative to address this gap in the Indian insolvency regime promptly to safeguard the integrity and effectiveness of the insolvency resolution process. Fixing the loophole: A global perspective The GoFirst case has highlighted a prominent issue in the Indian Insolvency regime that warrants attention. If the leading foreign jurisdictions are perused, majority of them provide for an interim moratorium at the time of filing the insolvency application. For instance, in Singapore, Section 64(14) of the Insolvency, Restructuring and Dissolution Act 2018 [“IRDA”] imposes an automatic 30-day moratorium as soon as an application for Judicial Management is filed. Within these 30 days, the Court schedules a first hearing in order to review the status of the moratorium. Even before the passing of IRDA, Section 227C of the Companies Act, Singapore provided for a moratorium beginning from the date of filing of the application. In the UK, Section 44(1) of Schedule B1 of the Insolvency Act, 1986 provides for an interim moratorium from the time of making the administration application till the time a decision is made with regards to the appointment of an administrator. Similarly, in the USA, Section 362 of the US Bankruptcy Code provides for an automatic moratorium upon the filing of a Chapter 11 petition. The purpose behind these provisions is twofold: (i) to prevent individual creditors from taking action against the CD and hampering its prospects of revival; (ii) to prevent the CD’s management from siphoning off its assets. Thus, the existence of an interim moratorium ensures that none of the stakeholders maliciously work towards securing their own welfare and protects their collective well-being by keeping the restructuring and revival prospects of the CD alive. These regimes have also taken the interests of creditors into consideration. This is important because during the pre-admission stage, the control is still vested in the CD’s erstwhile management which creates an exorbitant room for misuse. In the USA, the automatic moratorium could be lifted upon the application by secured creditors for appropriate cause, including the case wherein the debtor company has not ‘adequately protected’ the property interests of the creditor during the moratorium period. Even in the UK, sufficient power has been granted to the court to lift the moratorium in order to check the misuse. The Saga of Interim Moratorium: Tracing the history Let’s look back at the

[By Biprojeet Talapatra] The author is a student of Campus Law Centre, University of Delhi.   Introduction Leasing-in of aircrafts by aviation businesses is extremely prevalent across the world, and according to projections, about half of the commercial aircrafts that fly the world’s skies are leased by the companies. Aviation companies enjoy considerable operational flexibility and financial advantages through aircraft leasing. In India, approximately 80% of the commercial fleet is obtained through leasing, a significantly higher percentage compared to the global average of 53%. According to a February 2021 report on ‘Aircraft leasing in India: Ready to take off,’ auditing major PwC said the size of the global aircraft leasing industry was estimated to be $290.07 billion in 2019. Aircraft lessors have seen their share in the total commercial fleet grow globally from 25 percent in 2000 to 48.9 percent in 2020. In light of this context, the recent decision of the National Company Law Appellate Tribunal (NCLAT) has triggered alarm signals among international lessors. In the case of SMBC Aviation Capital v. Interim Resolution Professional of Go Airlines (India), Abhilash Lal, the NCLAT rendered its verdict, affirming the National Company Law Tribunal’s (NCLT) decision to admit the application under Section 10 of the Insolvency and Bankruptcy Code 2016 (Code), granting defaulters the ability to initiate voluntary insolvency proceedings. As part of this ruling, the NCLT also imposed a moratorium, marking a critical turning point with far-reaching consequences for the aircraft leasing landscape in India. Background Go Airlines (India) Limited, which has since been rebranded as GoFirst, operated as a low-cost airline. However, the company faced significant financial challenges, resulting in defaults in payments to aircraft lessors, amounting to a staggering INR 2,660 crores. In response to the mounting financial strain, the corporate debtor (CD), GoFirst, opted to file for voluntary insolvency under Section 10 of the Code with the National Company Law Tribunal (NCLT). Operational creditors, representing the aircraft lessors, opposed the insolvency application, asserting that it was driven by fraudulent and malicious intent. Moreover, the creditors expressed concern over the absence of prior notice, depriving them of the opportunity to object to the application. The NCLT held that no specific law requires creditors to be notified when filing an application for voluntary insolvency. Furthermore, when ruling on the matter of opposing the application under Section 65 of the Code, which deals with fraudulent insolvency initiation, the NCLT found that the same may be dealt with once the Corporate Insolvency Resolution Process (CIRP) was initiated. As a result, the CD was subject to the moratorium established by Section 14 of the Code. In response to the lessors’ appeal, the appellate body NCLAT issued held that there is an established legal precedent and legislative provisions that the NCLT is obligated to allow the application if the NCLT is persuaded that there is a debt and default and if the Corporate Applicant has completed the conditions stipulated in Section 10(3). Before the application is approved, the Corporate Applicant is not required to issue notice to creditors and allow them to express their concerns with the NCLT. As a result, the NCLAT correctly affirmed the NCLT’s ruling. Exploring the Dynamics of Aircraft Leasing in the Context of Insolvency Aircraft leasing is characterized by a significant volume of cross-border transactions, necessitating the implementation of principles that safeguard the rights of lessors. The Cape Town Convention (CTC), officially titled the Convention on International Interests in Mobile Equipment, stands as a pivotal international agreement specifically focused on regulating aircraft leasing and related matters. Its provisions are designed to ensure the protection and interests of lessors in such transactions. Within the Aircraft Protocol of the Cape Town Convention (CTC), Article XI introduces essential provisions that offer creditors two viable options. Firstly, they may reclaim possession of the aircraft after the waiting period expires. Alternatively, the insolvency administrator can decide to either surrender the aircraft or continue utilizing it while fulfilling lease payments as per the existing lease agreement. Moreover, both the debtor and the administrator are obligated to uphold the equipment’s value. These measures have been established to ensure the protection of creditors’ rights without imposing any orders or actions that could hinder the creditors’ exercise of remedies. The two alternatives presented to creditors under Article XI enhance the flexibility and efficiency of dealing with leased aircraft during insolvency proceedings. This allows for a balanced approach that safeguards both creditors’ interests and the continued operation of aircraft assets. Analysis of the Verdict The moratorium was imposed, which is intended to protect the assets of the debtor and maintain the status quo while the insolvency proceedings are underway. The imposition of a moratorium implies that aircraft lessors are prohibited from repossessing the leased aircraft for a minimum period of six months, which may potentially extend further. Unfortunately, such delays in resolving debt-ridden companies can lead to a depreciation in the value of the aircraft. Moreover, during this period, the aircraft will remain grounded and unused, preventing them from being leased to more financially robust airlines. This delay in resolution has a well-established impact on diminishing the value of the corporate debtor’s (CD) assets and obstructing successful resolution efforts. Additionally, creditors, aside from the lessors, may also seize the aircraft to recover their outstanding dues. In the case of Gujarat Urja Vikas Nigam Limited v. Mr. Amit Gupta & Ors., the Supreme Court has established a significant precedent. The court ruled that terminating a contract solely due to a company entering insolvency proceedings, which could potentially lead to the demise of the corporate debtor, should not be allowed. It emphasized that such terminations must be prohibited to safeguard the interests of the corporate debtor during insolvency. It is important to note a distinguishing aspect in the current case where lease agreements were terminated before the initiation of the CIRP against the Corporate Applicant. These terminations were made in anticipation of the probable initiation of insolvency proceedings and the subsequent enforcement of the moratorium under Section 14 of the Insolvency

[By Yash Arjariya] The author is a student at Hidayatullah National Law University.   Introduction In a series of cases like Chitra Sharma v. Union of India, Bikram Chatterji v. Union of India, etc., the Supreme Court (“SC”) has been tasked with adjudicating the claims and rights of house owners in the real estate sector as against the processes of the Insolvency and Bankruptcy Code (“IBC”). The adjudications have been favourable to the house owners, with their rights elevated to a safer pedestal, providing representation of their interests in the Committee of Creditors (“CoC”) formed for the Corporate Insolvency Resolution Process (“CIRP”) of the Corporate Debtor. However, the introduction of the concept of reverse CIRP, now moulded in the form of project-wise CIRP after the decision of the SC in Indiabulls Assest Reconstruction Company Limited vs. Ram Kishore (“Supertech Ltd.”), has added a new nuance to the insolvency processes in the real estate sector. Reverse CIRP, as propounded by the National Company Law Appellate Tribunal (“NCLAT”) in Flat Buyers Association Winter Hills-77 v. Umang realtech Private Limited (“Umang Realtech”), accords an opportunity to the promoter of a real estate entity to revive the entity and act as lender or financial creditor by fusion of finances. The SC in Supertech Ltd. has furthered the reverse CIRP as a project-wise CIRP, i.e., there is fundamental participation of the promoter in the CIRP, but such a CIRP does not operate over all the projects of the corporate debtor but only a specific project. This first part of this article identifies the basis of the judgement given in Supertech Ltd. and then goes on to comment on the utility of such a process in insolvency in the real estate sector. Furthermore, the legality of reverse CIRP is then tested on the statutory principles laid out by the IBC. This piece then concludes as a critical note on the processes of reverse CIRP and project-wise CIRP while remaining speculative about the future jurisprudence on this issue. Factual Underpinnings in the Insolvency Regime: The Vidarbha Effect? The recent judgement of the SC in Supertech Ltd., upholding the NCLAT’s rationale, has nuanced the reverse corporate insolvency resolution process, in effect turning the corporate insolvency resolution process into a project-wise insolvency process. The constitution of the committee of creditors was restricted only to a single project of the corporate debtor, precluding any impact on the several ongoing projects of the real estate entity. It may be argued that the concept of project-wise insolvency is alien to the IBC; however, the court fortified the tenability of the scheme by balancing convenience and practical viability. Visualising a contrary landscape, the court opined that allowing the CIRP against the corporate debtor as a whole will compromise and prejudice other ongoing projects of the debtor, and more importantly, greater inconvenience would be weighed upon the homebuyers as the efforts of the debtor to ensure continuous flow of funds into the project through personal undertaking would cease. This creative culmination of practical utility and viability into a new beginning of project-wise insolvency schemes in the Indian Insolvency landscape can be said to be a corollary effect of the Vidarbha Industries v. Axis Bank Limited (“Vidarbha’) judgement. Though the judgement related to the discretionary power of the adjudicating authority to admit applications by financial creditors under Sec. 7 of the IBC, it necessarily opened a new epoch of factual underpinnings in the Indian insolvency landscape. The judgement vacated enough room as an example for the courts to mould the insolvency process to ensure that parties are not prejudiced if the factual matrix warrants otherwise. The SC in Vidarbha fathomed the factors of feasibility of initiation of CIRP,  financial health of the stakeholders, viability of the corporate debtor, etc. with respect to CIRP. Much akin to the same understanding, the SC in its recent judgement devised a new scheme, not contemplated by the IBC but on account of facts warranting the same. The test of circumstances: Utility of Reverse CIRP The NCLAT, in its ruling in Umang Realtech, appropriately acknowledged that homebuyers, in contrast to other financial creditors, lack the commercial acumen to make informed judgments about which resolution plan would be most advantageous to them. The Reverse CIRP effectively addresses this concern by maintaining the existing management structure of the company while guaranteeing that the promoter mobilizes financial resources to successfully complete the project. Even the SC in Supertech Ltd. explained that reverse CIRP does not create any additional rights in favour of ex-management. Reverse CIRP involves oversight by the Insolvency Resolution Professional (“IRP”) coupled with efforts made for the infusion of funds with the active assistance of the ex-management, as in Supertech Ltd. Hence, the reverse CIRP offers an opportunity for real estate company promoters to revive a project without automatically removing them from the operational aspects of the company. Moreover, the project-focused approach ensures that only the assets associated with that particular project are brought into resolution, thereby preventing any undue burden on the company and averting potential uncertainties surrounding other projects. Further, the Reverse CIRP process, or project-wise CIRP, propounded by the SC is one that is shaped by the facts of the case. As a result, it cannot be considered an ideal model for all other instances of real estate insolvency. The decision of whether or not to employ the Reverse CIRP will hinge on the factual circumstances surrounding the case. The Reverse CIRP can be likened to a trial-like resolution process. Even in Supertech Ltd., the NCLAT in the impugned order was experimental, suggesting that project-wise resolution may be started as a test to find out the success of such resolution. Thus, as a logical conclusion, on failure of resolution by the Reverse CIRP, the NCLAT would proceed with the normal CIRP process. Testing Waters: The Legality of Reverse CIRP Section 29A of the IBC bars the promoter of the entity (the corporate debtor) from being the resolution applicant. The purport of this provision is to forbid the

[By Ashutosh Anand & Shalini Puri] The author are students at National University of Study and Research in Law, Ranchi.   Introduction The National Company Law Tribunal (“NCLT”) and National Company Law Appellate Tribunal (“NCLAT”) have transformed the Indian insolvency regime by affording a single platform for resolution, specialised expertise, a creditor-friendly approach, efficient resolution mechanisms such as Corporate Insolvency Resolution Process, time-bound resolution, and an appellate body for review. However, there is persistence of a grey area regarding the powers of the NCLT and NCLAT in recalling their judgment. The concept of ‘Recall’ refers to a process by which the court, legislature, or administrative organisations withdraw or cancel their previous judgments or actions. On the other hand, ‘Review’ involves the court, legislature, or any other body re-examining their decisions. By using the method of review, the aforementioned bodies try to rectify the error in an act, judgement, or legislation. The NCLAT’s three-member bench in 2019, in the matter of Agarwal Coal Corporation Private Limited v. Sun Paper Mill Limited & Anr.[1] laid down a strong proposition of law of absence of any power or express provision of review and recall vested with the ‘Adjudicating Authority,’ i.e., the NCLT, and the ‘Appellate Authority’, i.e., the NCLAT, in the Insolvency and Bankruptcy Code, 2016 (“the Code”). Hence, a judgment or an order passed by the same shall neither be reviewed nor recalled. Subsequently, another three-member bench of the NCLAT in Rajendra Mulchand Varma & Ors. v. K.L.J Resources Ltd. & Anr.[2] vehemently adhered to the ratio in the Agarwal Coal Corporation case. Therefore, it became binding on the NCLT and NCLAT not to recall their judgments or orders.[3] However, the landmark case called UBI v. Dinkar T. Venkatasubramanian & Ors.[4] was heard by a three-member bench of the NCLAT in 2023. The case raised an important legal question about whether the NCLT and NCLAT, despite lacking the power to review judgments under the Code, could consider an application for recalling a judgment if sufficient grounds were presented. To address this issue, the three-member bench referred the matter to a five-member bench for further deliberation. After thorough consideration, the NCLAT ruled in the affirmative. In light of the same, this piece tries to highlight the rudimentary jurisprudential difference between the definitions of review and recall. Furthermore, by navigating through the legal standing under the scheme of the Code of Criminal Procedure, 1973, (“CrPC”) and a plethora of precedents, the piece tries to find the conceptual distinction between review and recall. Further, it discusses the inherent powers of the Tribunal in relation to Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 (“NCLAT Rules”), and how that inherent power is to be utilised by the Tribunal to recall a decision. The piece also lists out the practical aspects of non-deliverance of justice in case a Court or a Tribunal is not able to recall its decisions. An Underlined Distinction between Review and Recall According to Black’s Law Dictionary, the phrase ‘recall a judgment’ means to revoke or reverse a judgment for matters of fact or when a judgment is annulled because of errors of law.[5] On the contrary, the Dictionary says that the word ‘review’ means to examine judicially, a reconsideration, second view or examination, revision, or consideration for purposes of correction. Review is used especially for the examination of a cause by an appellate court and for a second investigation.[6] In Vijaya Sri v. State of Andhra Pradesh,[7] the Court, after analysing the combined definitions of review and recall from various authoritative dictionaries, concluded that recall necessitates the complete abrogation of a judgment or final order. In contrast, review refers to the continuation of the initial judgment or order with specific modifications, along with a re-examination and reconsideration of the said decision. As a result, the power to recall a judgment differs from the power to review it.[8] The contentions related to review and recalling have also been persistently seen in the CrPC. Section 362 of the CrPC has been held to be mandatory and puts a complete bar on review, except only to correct arithmetic or clerical errors. Additionally, it has been held that Section 482 of the CrPC cannot be invoked for the purposes of reviewing or altering the judgment. Nevertheless, it is important to note that recalling is different from reviewing and altering a judgment. Section 482 permits wide enough powers to the court to cover any type of case for the purpose of it being recalled or re-heard, if three conditions mentioned therein so warrant, viz. (a) to implement any order issued under the CrPC; (b) to safeguard against the misuse of the judicial process; and (c) to ensure the achievement of justice.[9] However, a difficult and complex situation arises when there is  no express provision regarding the recalling of a judgment in the statute. This question was answered by the Apex Court in Grindlays Bank Ltd. vs. Central Government Industrial Tribunal & Ors.,[10] wherein an application was filed to set aside an award given by the Industrial Tribunal. There was no express provision in the Industrial Disputes Act, 1947 or the Rules framed thereunder that provided for setting aside an ex-parte order. However, the Court held that even though there was an absence of an express provision to set aside the award, the Tribunal has jurisdiction to pass the order, which is an ancillary and incidental power to discharge its functions effectively.[11] The Tussle of Interpretation Nevertheless, the ratio given in the Agarwal Coal Corporation case and the Rajendra Mulchand Varma case, as mentioned in the introduction, made it impossible for the NCLT or NCLAT to recall their decisions which posed a grave jurisprudential flaw in the justice system. Numerous cases have emerged where the Tribunal discovered that its decisions were influenced by fraudulent practices by the parties involved, or the Tribunal itself made mistakes that unfairly affected one party. Additionally, instances were found where the parties deceived the Tribunal, leading to unjust outcomes.

[By Ritik Jhanwar & Kiran Nilawar] The authors are students at Gujarat National Law Univeristy.   Introduction In this article the author would highlight the interpretation of word ‘may’ in Section 7 of Insolvency and Bankruptcy Code, 2016 (“IBC”) and the difference between ‘may’ and ‘shall’ of Section 7 and 9 of the IBC respectively which are two mirror provisions in their application. The author would also explore the discretion exercised by adjudicating authority while deciding to admit any application filed under Section 7 of IBC in light of the recent judgement of the Supreme Court in M. Suresh Kumar Reddy v. Canara Bank & Ors.[1] The legal issue that this article clarifies comes into its existence because of the provisions Section 7 and Section 9 of the Insolvency and Bankruptcy Code (“IBC”) which are almost mirror provisions apart from the fact that while the former mentions application for Corporate Insolvency Resolution Process (“CIRP”) by Financial Creditors and the latter talks about the application by Operational Creditors. The issue stems from the fact that Section 7 (5) uses the word ‘may’ while section 9 uses the word ‘shall’ thus leading to conundrum as to whether Section 7 (5) confers discretion on the part of Adjudicating Authority while deciding an application for CIRP filed by Financial Creditors. In the Innoventive Industries Ltd. v. ICICI Bank and Ors.[2] (hereinafter “Innoventive Industries”), the Supreme Court stated that Section 7(5) of the Code confers the Adjudicating Authority to either accept or reject an application based on their assessment of whether a default has taken place or not. In Pratap Technocrats (P) Ltd. and Ors. v. Monitoring Committee of Reliance Infratel Limited and Ors.[3] (hereinafter “Pratap Technocrats”) it was further emphasized that a default refers to the failure to make a timely payment of a debt, and the jurisdiction of the Adjudicating Authority  is limited to identifying such defaults by the corporate debtor. Once the Adjudicating Authority is satisfied that a default has taken place, the application should be admitted, as long as it is properly filled out and there are no ongoing disciplinary actions against the proposed Resolution Professional. A similar stance was taken in E.S Krishnamurthy and Ors. v. Bharat Hi-Tech Builders Private Limited[4](hereinafter “E.S. Krishnamurthy”) wherein the Apex Court held that the Adjudicating Authority has only two options under Section 7(5) of the Code: either to accept or reject the application based on the verification of whether a default has taken place or not. But a contrary stance is taken in the case of Vidarbha Industries Power Limited v Axis Bank Limited[5] (hereinafter “Vidarbha Industries”), wherein some of the major issues that were discussed were: Whether there is a distinction between Section 7(5) and Section 9(5) of the IBC, 2016? Whether Section 7(5) of the IBC is a mandatory provision? The apex court while deciding these issues observed that Section 9 of the Code deals with initiation of CIRP by operational creditor, wherein a mandatory demand notice to be served on the Corporate Debtor by the Operational Creditor and after the expiry of 10 days of the notice and Operation Creditor without receiving the payment due or a notice of dispute by the Corporate Debtor, the Operational Creditor becomes qualified to file application to initiate CIRP before the Adjudicating Authority. Section 9(5)(i) also entails some conditions to be fulfilled for admitting the application by the Adjudicating Authority. On the contrary, Section 7(5) of the IBC deals with initiation of CIRP by the financial creditors. The court also observed that there was some legislature wisdom that led to using of word “may” in Section 7(5) and “shall” in Section 9(5) of the Code. Thus, an application under Section 9(5) is intended to be a mandatory provision but an application under Section 7(5) to be interpreted as a discretionary provision. The justification for this interpretation is rooted in the distinction between the business activities of financial creditors, who concentrate in investing and financing activities, whereas operational creditors, who often involves in supplying goods and services. Financial credits are typically characterized by larger amounts, secured assets, and longer repayment periods, while operational credit tends to involve smaller amounts, lack of collateral, and shorter repayment terms. As a result, it is inappropriate to compare the financial strength and business nature of a Financial Creditor with that of an Operational Creditor involved in the supply of goods and services. The non-payment of acknowledged dues can have a much more severe impact on an operational creditor compared to a financial creditor. Thus, court held that while deciding application filed by financial creditors under Section 7(5) of the IBC, the adjudicating authority has been conferred discretion. Adjudicating Authority may exercise this discretion while taking into account the overall financial health and viability of the corporate debtor and the relevant facts. From the above-mentioned judgements, a key conclusion that can be drawn is that while Innoventive Industries, Pratap Technocrats and E.S Krishnamurthy reiterate the delimited power of the Adjudicating Authority in the admittance of an application under Section 7 of the Code thus supporting the interpretation of mandatory nature of Section 7(5) of the Code, the decision in Vidarbha Industries supports the interpretation that discretionary nature of Section 7(5) of the Code. The position of law regarding nature of Section 7 of the Code was that of Vidarbha Industries only i.e., discretionary nature. Therefore, the Adjudicating Authority has discretion while deciding an application for CIRP filed by financial creditors under Section 7 (5) of the IBC by virtue of the word used in the provision “may” in the section. But this position was recently questioned in the case of M. Suresh Kumar Reddy v. Canara Bank & Ors.[6] Suresh Kumar Reddy v. Canara Bank & Ors. (hereinafter “M. Suresh Kumar Reddy”) Brief facts: Respondent bank had sanctioned a Secured Overdraft Facility of Rs. 12 Crores and a Guarantee Limit of Rs. 110 Crores to the Corporate Debtor on 28 February, 2017. However due to irregularities committed by the Corporate