Insolvency Law

[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

[By Priyanshu Mishra] The author is a student at National Law School of India University.   Introduction The implementation of the Insolvency and Bankruptcy Code (Hereinafter as “IBC”) was intended to tackle the increasing problem of loan defaults and non-performing assets (Hereinafter as “NPA”). Unlike the previous insolvency law, the IBC focused on reviving companies rather than liquidating them and gave priority to the interests of creditors. Under the IBC, financial creditors played a crucial role as part of the Committee of Creditors (Hereinafter as “CoC”), which held significant decision-making power in the corporate insolvency resolution process (Hereinafter as “CIRP”). However, in a recent case (MK Rajagopalan v Dr Periasamy Palani Gounder), the Supreme Court ruled that the principle of commercial wisdom cannot be stretched too far to overlook a significant flaw in the functioning of the CoC. This article seeks to explore the implications of this court ruling on the principle of Commercial Wisdom of the CoC. It also questions the absolute authority of the CoC based on the principle of commercial wisdom and suggests the implementation of a Code of Conduct to govern the actions of CoC members. Legal Precedence: Examining existing jurisprudence on the Principle of Commercial Wisdom of the COC. In the landmark case of Vallal RCK v M/s Siva Industries, the Supreme Court established that the adjudicatory authority cannot scrutinize the details of a settlement plan approved by the CoC when assessing a resolution application under section 12A. Similarly, in the case of Ashish Saraf v Bhuvan Madan, the Court emphasized that the CoC has the responsibility of making business decisions regarding the approval or rejection of a resolution plan. This includes evaluating its feasibility and viability, and such decisions are considered beyond the scope of judicial review. Furthermore, in the case of K Shashidhar v Indian Overseas Bank, the Supreme Court concluded that the adjudicating body (NCLT) cannot dispute the autonomy of the CoC, but Judicial Review is limited to the grounds provided in the Act itself, which is a self-contained code. As a result, the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) cannot overrule CoC rulings. The Court reiterated this stance in the case of Committee of Creditors of Essar Steel India Ltd v Satish Kumar Gupta and Ors, emphasizing that adjudicatory bodies should exercise their jurisdiction as defined in the IBC. They must adhere to the guidelines outlined in Section 30(2) of the IBC and exercise their judicial review power in accordance with Section 32 of the IBC. A similar question arose in the Kalpraj Dharmshi case, where the Court reaffirmed that adjudicatory bodies cannot interfere with the commercial decisions made by the CoC. Examining the Court’s Role in CoC Decision-Making in the present case: Opening Pandora’s box? The Courts have generally interpreted the principle of commercial wisdom of the CoC as non-justiciable, granting significant discretion to CoC members, as discussed earlier. However, in this particular case, the Court aimed to limit the broad interpretation of the principle of commercial wisdom while also ensuring limited judicial intervention in insolvency proceedings. The Court found the resolution plan to be in violation of Section 88 of the Trust Act, the IBC Act (specifically Section 29A), and the Companies Act (specifically Section 164(3)), which rendered the resolution applicant ineligible for the insolvency proceedings. The Court clarified that the commercial wisdom of the CoC refers to a well-considered decision made by the CoC in the best interests of both commercial aspects and corporate revival. In its judgment, the Court sought to define the boundaries of the principle of commercial wisdom within insolvency proceedings, adopting a balanced approach. It also emphasized that judicial intervention should not be disregarded under the pretext of the principle of commercial wisdom of the CoC. The Court recognized that resolving legal conflicts, which are necessary for enforcing the resolution settlement, can only be accomplished through the court’s interpretation of the law. Therefore, the Court stated that limited judicial intervention in the conduct of CoC members is necessary but should focus on matters beyond the scope of the principle of commercial wisdom. However, while the Court’s approach was commendable, it raised certain unaddressed concerns. By balancing the principle of commercial wisdom of the CoC and the power of judicial review, the Court inadvertently risks increasing never-ending litigation. This outcome is contrary to the legislative intent, which aims to ensure effective and efficient insolvency proceedings for debt-ridden companies. In previous cases such as Essar Steel and Swiss Ribbon, the Court emphasized that the relevance of the commercial wisdom of the CoC is to expedite the resolution process of insolvent companies. Therefore, to align the legislature’s intent with the court’s reasoning on the principle of commercial wisdom of the CoC, it is necessary to establish accountability and transparency within the CoC’s decision-making process. This can be achieved by implementing a structured framework that specifies the conduct and procedures for insolvency proceedings. However, before implementing such a framework, it is crucial to identify the potential challenges within the insolvency proceedings. In analyzing the current CoC framework, three major problems emerge: procedural delays, difficulties in consensus building, and unreasonable haircuts (reductions in the value of creditors’ claims). These issues primarily stem from the unrestricted authority granted to CoC members, who are shielded from judicial scrutiny under the principle of commercial wisdom. Procedural Delay: The Essar Steel case highlighted that the Bankruptcy Law Reform Committee Report of 2015 emphasized the importance of speed in insolvency proceedings in India. However, data from the report indicated that 71% of insolvency cases exceeded the stipulated 180-day timeline. This significant deviation from the intended objective of the code indicates a clear issue with procedural delays. In the Jindal Saxena Financial Service Pvt Ltd v Mayfair Capital Pvt Ltd, the Court identified that a major cause of delay in insolvency proceedings is the lack of decision-making power given to nominated members of financial institutions within the CoC.[1] This leads to time-consuming internal approval processes within financial

[By Shubh Jaiswal & Mayannk Sharma] The authors are students at Jindal Global Law School.   Introduction A division bench of the Apex Court is set to hear the applicant on 26th July in the case of SEBI vs Rohit Sehgal, which has been pending before it since 2019. The appeal arises out of an order by the NCLAT, which had previously upheld an order of the NCLT admitting an insolvency application under Section 7 of the IBC and subsequently declaring a moratorium under Section 14 of the act. The SEBI had contended that the Corporate Debtor had violated Regulation 3 of the Collective Investment Scheme Regulations and consequently, had attached the debtor’s properties. While the Securities Appellate Tribunal had upheld this direction, the NCLT (and NCLAT) had observed that SEBI could not recover their dues (as per the procedure laid out in Section 28A of the SEBI Act) during the imposition of a moratorium due to the non-obstante clause present in the IBC—which postulates that the provisions of the IBC shall have effect even if they are inconsistent with another law. It is precisely this position of the NCLT that this article intends to critique. After exploring the arguments furthered by proponents of this position vis-à-vis Section 238 of the IBC (i.e., the non-obstante clause) that assert that the IBC should prevail as it was enacted after the SEBI Act, we take the opposite stance. We contend this position on the primary ground that the IBC would prevail over the SEBI Act only if there were a manifest inconsistency between the 2 acts—however such is not the case as the IBC and SEBI Act deal with entirely different subject matters. Furthermore, we elucidate how allowing the SEBI to recover its dues as an operational creditor barely benefits the watchdog and instead, propose a harmonious interpretation of the two statutes that would ensure that the legislative intents of both the statutes is furthered. Battle of the Non-Obstantes: the Conundrum Explained In essence, the dispute between the legislations arises due to the IBC’s “creditor in control” regime, that empowers the “Adjudicating Authority” to issue a moratorium on the NCLT’s admission of an application of the Corporate Insolvency Resolution Process (“CIRP”). This power, enshrined in Section 14 of the IBC, prohibits inter alia the institution of fresh suits, continuation of pending suits and the execution of any judgement, decree, or order till the culmination of the CIRP, i.e., till the resolution plan is approved by the NCLT or liquidation proceedings are initiated. Thus, once the moratorium period kicks in, the corporate debtor (i.e., the corporate person that owes the debt) is protected from all proceedings, including those that demand the recovery of dues before a court of law, tribunal or “any other authority”. The efficacy of such shielding under Section 14 is catalysed when read with Section 238 of the IBC, which contains a non-obstante clause and consequently, authorises the IBC to have primacy (and an over-riding effect) over all existing laws, provided they are “inconsistent” with its provisions. On the contrary, Section 28A of the SEBI Act allows the SEBI to recover proceeds or any other penalties imposed by it via attachment and sale of property, bank accounts etc. The SEBI does so when a perpetrator is unable to pay a penalty/dues or fails to comply with an order issued by it. This provision is further bolstered by a non-obstante clause of its own—Section 28A (3)—which postulates that the recovery of any amount under Section 28A (1), would precede over “any other claim” against the said person. The conundrum, thus, is plainly apparent. Can the SEBI exercise its power to recover penalties/dues from corporate debtors even when a moratorium (that expressly prohibits such action) has been imposed? The jurisprudence on this issue has not been established concretely—while the decisions of the NCLT have held the IBC to be supreme, a catena of other decisions have opined otherwise. When Late is Great: Analysing the intent behind Section 14 Academicians assert that the SEBI’s power under Section 28A is rendered void (and futile) against companies undergoing CIRP and base their claim on 2 primary contentions—the legislative intent behind Section 14 and the principle of generalia specialibus non derogant. The Apex Court, in Rajendra K. Bhutta, has previously affirmed that the objective behind the introduction of Section 14 was to maintain a “statutory status quo” on the Corporate Debtor and his assets, to ensure that the Resolution Professional could fulfil his role effectively—without any outside intervention or impediments. Along similar lines, in the case of Bhanu Ram, the NCLT stipulated that the legislature intended that the Interim Resolution Professional carry out the day-to-day affairs of the corporate debtor, and accordingly drafted Section 14 in a manner that allowed him to do so effectively. As the possession of the debtor’s property is sine qua non for the Interim Resolution Professional (“IRP”) to effectively carry out their function, the NCLT Bench unanimously held that Section 28A could not be imposed by the SEBI during a moratorium on the debtor. Furthermore, the NCLAT in Anju Aggarwal, posited that regulatory entities such as SEBI and the Bombay Stock Exchange fit within the contours of “other authority. In that regard, the tribunal declared that Section 14 (1) (a) of the code included the SEBI (Listing Obligations and Disclosure Requirements) Regulations within its ambit, and a corporate debtor need not comply with them after a moratorium had been issued in light of Section 238 of the IBC. It is precisely in this regard that innumerable academics contend that the objects and purposes of the IBC, when read with the aforementioned precedents, unequivocally showcase that the moratorium period hinders all statutory bodies, including the SEBI from collecting their dues. The NCLT also placed reliance on the Supreme Court decision in Monnet Ispat and Energy Limited which had  held that the IBC would prevail over all inconsistent laws (including the Income Tax Act),  while acknowledging the supremacy of the non-obstante clause in