Insolvency Law

[By Yash Arjariya] The author is a student of Hidayatullah National Law University.   Introduction Section 5(21) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) explains operational debt as a claim made in respect of ‘goods and services’. The earlier jurisprudence developed by the National Company Law Appellate Tribunal (hereinafter referred to as “NCLAT”) in M. Ravindranath Reddy v. G. Kishan & Ors and subsequently followed in Promila Taneja v. Surendri Designe Pt. Ltd.held that rent of a leasehold property did not amount to ‘operational debt’ for the purpose of Sec 5(21) of IBC and purported to follow what can be described as the “direct-nexus test”, i.e., the supply by the creditor must directly relate to or affect the production of goods and services by the debtor to classify the creditor as operational creditor. The decision of the NCLAT in Jaipur Trade Expocentre Private Limited v. M/s Metro Jet Airways Training Pvt. Ltd.overruled the earlier interpretation of Sec 5(21) of IBC and provided that lease of premises is a ‘service’ and hence the claim of the licensor for the payment of licence fee is a claim of ‘operational debt’ within the meaning of Sec 5(21) of IBC. The dust, with respect to the classification of rental dues or leasehold dues as operational debt, is settled now. However, there remains to be an inquiry made about the treatment of rental or leasehold dues arising after a Corporate Insolvency Resolution Plan (hereinafter referred to as “CIRP”) has been filed and a moratorium is imposed, i.e., whether such dues will continue to be classified as operational debt or be included in CIRP costs. If such rental dues are considered as post-CIRP cost, they shall be treated as CIRP cost and would be payable to recipients on priority, as held by the National Company Law Tribunal (hereinafter referred to as, “NCLT”) in Hind Tradex Limited v. Lakshmi Precisions Screws.It is necessary to account for the explanation that, as per the scheme of distribution of assets as envisaged in Sec. 53 of the IBC, the insolvency resolution process costs are paid in full and in priority over other claims.Thus, when the resolution professional manages the business of the corporate debtor during insolvency proceedings, the question is whether the rental or leasehold amount becoming due after the insolvency proceedings have started should be considered CIRP costs or be pooled in the class of operational debt. The article examines the two different jurisprudential approaches to treating post-CIRP rental dues or leasehold dues as either cost or operational debt. Then, the author makes an attempt to address this proposition through the lens of a statutory creditor (established as a creature of law). The article concludes by listing and accounting for the carvings made in the jurisprudential epoch on this proposition. Post CIRP rental dues as ‘CIRP Cost’ In this respect, Prerna Singh v. CoC of M/s Xalta Food and Beverages Pvt. Ltd.(hereinafter referred to as “Prerna Singh”) can be said to be an epoch-making judgement. In the instant case, the operational creditor was extremely prejudiced by the moratorium imposed on account of the initiation of insolvency proceedings, to the extent of becoming insolvent in the near future. The NCLAT ordered the inclusion of post-CIRP rental dues in CIRP costs and their payment on priority. What NCLAT can be said to have devised as a rule is that if the right of the lessor to recover rent is affected on account of a moratorium, the lessor is entitled to recover the rent, which shall be included in the CIRP cost. The Chennai Bench of the NCLAT in S. Rajendran Resolution Professional of M/s Vasan Health Care Pvt. Ltd. v. B.M. Anand(hereinafter referred to as “S. Rajendran”) in its judgement necessarily read Section 5(13) of IBC into details enumerated in Regulation 31 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 to classify post-CIRP rental dues as CIRP cost. By doing so, the court has furthered the juristic principle that the rights of creditors must not be prejudiced by moratorium. However, this ‘prejudice to rights of creditor due to moratorium’ is qualified by the presentation of adequate facts and circumstances by the creditor; the law doesnot automatically classify post-CIRP rental dues as CIRP cost but on the warrant of a factum of circumstances. This factum has been a pendulum between a situation as weighty as nearly causing the bankruptcy of the creditor himself in Prerna Singh (supra) to a mere inadequacy of funds in S. Rajendran. The law in this respect was followed in a catena of judgements delivered by both NCLT and NCLAT inNishant Singhal v. Hasti Mal Kachhara, Oriental Insurance of Commerce v. Yamuna Infradevelopers Private Limited, and Santanu T. Ray v. Tata Capital Financial Services Limited. Necessary Outliers The classification of post-CIRP dues as CIRP cost has not necessarily been dealt as only an issue of fact, i.e, such classification does not exlusively depended on creditor proving that his/her rights have been prejudiced on account of moratorium. The judgement of NCLT in Karad Urban Co-Operative Bank Ltd. v. Khandoba Prasanna Sakhar Karkhana(which was later affirmed by the Supreme Court) has caused this proposition to transcend from entirely a issue to fact to so certain legal qualifications to be met. The NCLT held that an application for recovery of outstanding rental dues as CIRP cost cannot be filed after the application for approval of the resolution plan has already been filed with the adjudicating authority. The decision can be rationalised on the ground that such a belated filing of the application cannot be said to be anything but an attempt to forestall the resolution process. Thus, the law as it stands now requires the application for treatment of post-CIRP rental dues as CIRP costs to be filed before the resolution plan is filed for approval before the adjudicating authority. Case of a Statutory Creditor Section 14(1)(d) of the IBC provides a general rule as to the

[By Jahnvi Pandey] The author is a student of University of Petroleum and Energy Studies, Dehradun.   Introduction The Committee of Creditors (“CoC”) is said to be the custodian of public trust during the Corporate Insolvency Resolution Process (“CIRP”). The Insolvency and Bankruptcy Code, 2016 (“IBC“) envisages a doctrine of commercial wisdom by virtue of which CoC exercise their commercial decisions. Section 33(2) of IBC states that CoC can put the Corporate Debtor into liquidation anytime during CIRP but before the approval of the resolution plan. In the case of Mr Pawan Kumar Goyal, IRP v. Alchemist XXXVII (“present case”), the National Company Law Tribunal (“NCLT”) issued a show cause notice (“SCN”) under Section 65 of IBC to the members of CoC for fraudulent initiation of liquidation proceedings. The SCN was issued to the CoC as they voted to initiate early liquidation of the Corporate Debtor. The decision to initiate liquidation proceedings was made without inviting a prospective resolution plan for the resolution of the Corporate Debtor. This article aims to analyse the above case and seeks to address the issue of whether issuing SCN under Section 65 to the CoC will be deleterious to the commercial wisdom of the CoC. Background of the case The present application has been filed by Mr Pawan Kumar Goyal, an Interim Resolution Professional (“IRP”) of M/s. SARE Realty Projects Private Limited (“Corporate Debtor”), under Section 33(2) of IBC, to attain the liquidation order. The essential step in inviting a resolution plan is to publish a detailed expression of interest (“EOI”) in the format of Form-G. The EOI calls for resolution applicants to submit their respective resolution plans. The CoC did not take any initiative and instead deferred from approving the EOI contained in Form-G, leaving no scope for preparing resolution plans. All five CoC meetings conducted by IRP discussed early liquidation of the Corporate Debtor. In the fifth CoC meeting, the liquidation proposal by CoC was put to a majority vote. Moreover, CoC preferred early liquidation because they could not find a prospective buyer even after trying to sell the corporate debtor’s project, and no liquid assets were present. The issue raised before the Tribunal was whether CoC justified the decision regarding early liquidation. Decision of the Court The Tribunal observed that the CoC had not initiated the resolution process as the early liquidation after being discussed in all meetings, got approved in the fifth meeting. This shows that all the courses of action by the CoC were pre-planned. The logic of putting the Corporate Debtor into liquidation because no prospective buyers are available for the said assets, was considered vague by the Tribunal. No resolution applicant was appointed to submit the plan to get a prospective buyer. Moreover, the Tribunal observed the importance of CIRP over liquidation, as the resolution process provides a fair chance for the Corporate Debtor to escape financial distress. The Tribunal identified that the Corporate Debtor is a real estate company with assets and projects; hence, opting for early liquidation is arbitrary. The Tribunal observed that the pursuance of liquidation against the Corporate Debtor showcases mala fide intent considering the resolution process has been skipped altogether. Thereafter, the Tribunal ordered to issue SCN under Section 65 proceedings of IBC against the assenting members of CoC. The Tribunal’s final decision will depend upon the records presented by IRP and the reply to the show cause notice by CoC. Analysis Impact of Section 65 on Commercial Wisdom of CoC The presumption attained by the settled position of law is that CoC takes its commercial decision in accordance with the Corporate Debtor as a going concern and viable prospect of going ahead with any proposed resolution plan. The CoC’s commercial wisdom is of utmost importance, and hence, no judicial intervention in their commercial decisions is allowed. The limited scope of the judiciary indicates assessing whether the requirements enshrined in IBC are met concerning the submitted resolution plan. This leads to the conclusion that any judicial authority cannot overturn the collective business decision of the CoC. Section 65 of IBC is a penalty provision against proceedings initiated with mala fide or fraudulent intentions. A significant penalty is imposed in cases where CIRP is commenced for a purpose other than resolution or liquidation. In the present case, action against CoC under Section 65 will create a bad precedent for further financial creditors to take decisions through free will. The CoC’s final decision considers all debts to be paid off in some or the other way to both financial and operational creditors. There is no deniability in considering the Corporate Debtor as the beneficiary of the resolution process, and liquidation should be a last resort. However, situations may arise where the corporate debtor is not left with assets and money to adjust and pay off the creditors’ debts. In such a situation, analysis can be drawn to prefer liquidation before resolution since the corporate debtor’s company is deprived of assets and is on edge. For such circumstances, Section 33 of IBC has been provided for the benefit of the CoC to avoid an unnecessary stretch of time when it would ultimately result in the liquidation of the corporate debtor considering the condition. Therefore, penalising CoC for its commercial decision of early liquidation would curb different other financial creditors in future from deciding against those Corporate Debtors who do not have sufficient assets left to pay off the debts. No detrimental effect due to skipping procedures The present case cited a judgment titled Sunil S. Kakkad v. Atrium Infocom Private Limited & Ors. wherein there is no publication requirement of Form-G while passing an order of liquidation. In addition, a recent decision of NCLAT, Delhi, titled Jayanta Banerjee v. Sashi Agarwal, raised a question, i.e., “whether any of the procedures prescribed under the Code can be skipped on the pretext of the commercial decision of CoC.” The Tribunal observed that statutory requirements become mandatory before CoC gets to decide during CIRP to liquidate the

[By Mohd. Fahad Ansari and Avnee Byotra] The authors are students of National University of Study and Research in Law (NUSRL) Ranchi.   INTRODUCTION At the time of writing this article, a petition is pending before the Apex Court challenging the NCLAT Chennai judgement of C Ramasubramaniam Liquidator v. Deputy Commissioner of Income tax (Benami Prohibition)  (“Ramasubramaniam”). The judgement of the Apex Court will decide the range to which the Insolvency and Bankruptcy Code, 2016 (“Code”) will be given an overriding effect over the other civil proceedings. The above disturbing judgement of the NCLAT is also followed by the NCLAT Chennai on 13 March, 2023 in M/S. Senthil Papers and Boards v. The Deputy Commissioner of Income Tax. The issue is with regards to the conflict between the power of the government to confiscate property under the Prohibition of Benami Property Transactions Act, 1988 (“Benami Act”) and the objective of the Code which seeks to ensure a corporate debtor “as a going concern” during the moratorium imposed under the CIRP. Through this article, the authors submit that the Ramasubramaniam judgement can potentially undo the overriding effect of the Code, and if the Apex Court do not overturn it, the objectives of the Code will be derailed. THE ISSUE The main issue at hand is the clash which arises due to the presence of non-obstante clauses in both Section 238 of the Code and Section 67 of the Benami Act. While it is true that the conflict of the Code with other statutes is not so uncommon, the position whether the Code will override the Benami Act or not is still unsettled as no binding judgement has been pronounced yet. The code came into effect in 2016 so as to embark a shift in the insolvency proceedings from debtor in control to creditor in control process with an aim of speedy recoveries and optimizing the value of the debtor’s assets. For achieving this change, Section 14 of the Code has a moratorium provision, under which no legal proceedings can take place till the completion of the CIRP. This was enacted so as to ensure that during the completion of CIRP, the property of the corporate debtor remains intact, and the stake of each creditor is also safeguarded. This is further strengthened by Section 238 of the Code according to which the Code has supremacy over any other statute which contains inconsistent provisions with that of the Code. The Benami Act came into force so as to prevent the occurrence of benami transactions and reclaim properties in such transactions.  To fulfil its objective, Section 24(3) of the Benami Act allows attachment of property by an initiating officer, so as to restrict the transfer of the benami property. In the Ramasubramaniam case, the provisional attachment order was issued so as to prohibit the transfer of the property by the appellant. However, the attachment order disturbed the CIRP since it would compel the corporate debtor to go in liquidation. Coming to the facts of the present case, the CIRP was initiated against the appellant and as a result, the moratorium was imposed on 15 August, 2018 which was further extended till 17 October, 2019. During this period, an attachment order was released by the initiating officer under the Benami Act against the corporate debtor on 1 November, 2018. The said order was challenged before the NCLAT Chennai which rejected it. The tribunal opined that it is incompetent to decide the matter since the matter is related to the Benami Act and it does not have the authority to settle the dispute. By rejecting the appeal, the tribunal cleared the way for the Benami Act to override the Code. The tribunal hereby after drawing an analogy between the conflict in the Prevention of Money Laundering Act (“PMLA”) and the Code noted that just like under PMLA, the state is the victim under the Benami Act as well. The order of the tribunal has once again reflected the attitude of the judicial/quasi-judicial bodies of giving preference to the government’s interest over the Code’s economic efficiency. TRACING THE CONFLICT BETWEEN THE CODE AND THE PMLA Since the NCLAT relied heavily on judgements resolving the conflict between the Code and the PMLA, it is important to have a look at such judgements. The Delhi High Court in The Deputy Director Directorate of Enforcement v. Axis Bank held that the government under Section 8 of the PMLA can attach property which is acquired from the “proceeds of crime”. The court held that the nature of the procedure under the PMLA is criminal, and the proceedings under the Code and the PMLA can take place at the same time since both are independent of each other. On the same lines, in Rajiv Chakraborty Resolution v. Directorate of Enforcement, the Delhi High Court ruled that unlike the creditors, the government by attaching the property does not purport to recover the debts. Instead, the attachment is to prohibit the accused from enjoying the rights over the attached property. The court further ruled that the imposition of the moratorium under the Code is aimed towards the maximization of the debtor’s asset’s value, both the objects are different and can be fulfilled simultaneously. However the same consideration cannot be applied in cases covering the conflicts between the Code and the Benami Act. Firstly, in order to solve the clash between these statutes, it becomes pertinent to note the nature of the proceeding under each statute. As discussed above, under Section 5 of the Benami Act, the property is attached in order to restrict the accused from exercising ownership rights over the property that has been seized .This is cemented by Section 19 of the Benami Act, which confer the authorities the same power which is vested to the courts under the C.P.C., 1908. Therefore, the nature of the attachment and the proceedings under the Benami Act are civil instead of criminal. Notwithstanding the fact that benami transactions are an offence under the Act,

[By Aishwarya S & Meenakshi Gopakumar] The authors are students of National University of Advanced Legal Studies, Kochi.   INTRODUCTION The Insolvency and Bankruptcy Code (IBC) has been under judicial scrutiny since its inception. The judiciary has played a crucial role in the influence of IBC on real estate for the benefit of the homebuyers and the Corporate Debtor (hereinafter “CD”) by introducing two novel methods, namely “Reverse CIRP” and “Project-wise CIRP”. These methods have been explored as plausible solutions to the conflict of interest between homebuyers as financial creditors (hereinafter “FCs”) and the other FCs under the IBC. Though these methods are still being debated as viable solutions for homebuyers under the IBC, the Ministry of Corporate Affairs released a consultation paper on 18th January 2023 (hereinafter “consultation paper”), wherein one of the proposals provides for the inclusion of Project-wise CIRP within the IBC framework. Project-wise CIRP refers to the initiation of the CIRP process for a specific real estate project with the objective of resolving the insolvency of the project and completing the project in a time-bound manner. It deviates from the general practice in the sense that this form of CIRP can be initiated only against the defaulted project(s) of the company instead of the entire company. Though this process is prima facie simplified, all the projects rest with one entity, and their segregation into different projects during CIRP may pose certain challenges. Through this article, the authors seek to analyse the practical implications of Project-Wise CIRP in IBC and show that it is a welcome step to balance the interests of the key stakeholders in the resolution process. JUDICIAL DEVELOPMENTS SO FAR The idea of project-wise CIRP was explored by the judiciary for the first time in the case of Flat Buyers Association v Umang Realtech Private Ltd. (hereinafter “Winterhills” case). It was observed that the asset maximization of a particular project should take place for balancing the creditors, such as allottees, financial institutions, and operational creditors.  In light of the same, the Adjudicating Authority proposed that the CIRP be project-basis. The rationale for the adoption of project-wise CIRP was elaborated in the case of Manish Kumar v. Union of India. It was held that the complaints by the allottees in various projects might be of different nature. Therefore, such inclusion of all the projects in CIRP, regardless of whether a default has been committed or not, is more cumbersome.  This method has been adopted widely in recent cases like Whispering Tower Flat Owner Welfare Association vs. Abhay Narayan Manudhane and RP of Corporate Debtor Ram Kishor Arora, Suspended Director of M/s. Supertech Ltd. v. Union Bank of India & Another. However, in the case of Mr. N. Kumar RP of M/s. Sheltrex Developers Pvt. Ltd. Vs. M/s. Tata Capital Housing Finance Ltd., it was pointed out that the Winterhills case cannot be taken as a precedent for project-wise CIRP since the said case had unique facts and circumstances and that there is no concept of limited CIRP or project-specific CIRP under the IBC. Though there has been one dissenting judgment so far, it is seen that the judiciary has mostly leaned towards the practice of project-wise CIRP in the interest of all the stakeholders, especially the homebuyers. POSITIVE AND NEGATIVE IMPLICATIONS OF PROJECT-WISE CIRP: Project-wise CIRP has been carried out for more than two years, and it has significantly helped in the evolution of IBC in the context of real estate. In this section, the authors will be focusing on the practical implications of the same to two key stakeholders: CDs and homebuyers.    A. BENEFITS      (i) Projects which have not been at default can still be continued: In the consultation paper released, the justification provided for introducing project-wise CIRP is two-fold: firstly, the default is often project-specific, and the other projects can still continue to do well. To this end, the initiation of CIRP of specific projects which have defaulted will help the CD to focus on other projects which are still performing well; secondly, a tailored resolution can be achieved based on the status of the project and the objectives of the stakeholders, primarily the allottees of the relevant project. The aforementioned rationale serves to balance the interests of the multiple stakeholders in the real estate project. This will benefit most of the stakeholders, if not all, in the following ways: (i). the CD can still continue to work on the non-defaulted projects in a smooth manner, and with reverse CIRP (if successful), it can complete the defaulted projects. (ii). the homebuyers of the defaulted projects get their possession based on a tailor resolution where their preference is given primacy. (iii). in the event of initiation of CIRP against the entire company, the homebuyers of projects (which are performing well) will also be negatively affected via the insolvency process.      (ii) Homebuyers will get possession after the completion of the project The homebuyers, as FCs are treated differently compared to other FCs, where the homebuyers prefer ownership and possession of the plot, apartment, or building rather than repayment of the amount with suitable haircuts or commencement of the liquidation process. The homebuyers, as financial creditors of the defaulted project, will get possession after the completion of the project through the methods of reverse and project-Wise CIRP.      (iii) Courts can monitor the projects individually The ideas of project-wise and reverse CIRP have been borne out of judicial wisdom. Though the Interim Resolution Professional (hereinafter “IRP”) oversees these methods for the completion of the defaulted projects, the courts also play a crucial role by closely monitoring the status of the completion of the projects and allotment. They lay down strict timelines and direct the IRP and the management to file status reports. This will ensure the timely completion of the projects and ensure accountability on the part of the CD. The process can be carried out in an efficient manner if there is a clear segregation of the projects.

[By Naman Maheshwari] The author is a student of Gujarat National Law University.   Introduction The Insolvency & Bankruptcy Code, 2016 (IBC) was enacted with the prime objective to revive distressed corporate debtors through a time-bound Corporate Insolvency Resolution Process (CIRP). But since its enactment, IBC has been at loggerheads with the Prevention of Money Laundering Act, 2002 (PMLA), owing to an overlap in their area of application. Legislative, judicial and other regulating authorities have faced difficulties in harmonizing the intent of the provisions of IBC and PMLA, since both the legislations contain a “non-obstante” clause. Section 71 of the PMLA provides an overriding effect to the provisions of the PMLA, while Section 238 of the IBC gives overriding effects to the provisions of the IBC, thereby restricting the operation of one legislation over the other. Recently, the High Court of Delhi in Rajiv Chakraborty vs. The Directorate of Enforcement has added fuel to the fire of conflict between IBC and PMLA by holding that moratorium as given under Section 14 of the IBC would not prevent the authorities under PMLA from confiscating/attaching the properties by virtue of Sections 5 and 8 of the PMLA. The author tries to provide a better understanding of the interplay of PMLA and IBC by analysing the judgement of the High Court of Delhi in Rajiv Chakraborty. Facts of the Case EIEL, the Corporate Debtor herein, was admitted to CIRP on 08.05.2018. Then came the Provisional Attachment Order (PAO) under Section 5 of the PMLA on 07.10.2019. The adjudicating authority confirmed the attachment by an order dated 17.03.2020. There was another PAO dated 08.07.2020, and the same was confirmed by the adjudicating authority on 01.01.2022. A writ petition was filed before the High Court of Delhi against the NCLAT for setting aside the impugned PAOs. It was dismissed by the High Court. Current Position of Law In order to understand the current legal framework, and to provide analysis of the case, , the author divides the factual matrix into 3 different possible scenarios, where the Tribunals/Courts have taken different views. Scenario I:   PAO under Section 5 of PMLA is passed before the commencement of CIRP and before the commencement of the moratorium period under Section 14 of IBC In the aforementioned scenario, tribunals and courts have held that proceedings of PMLA will supersede those of IBC, and therefore, a moratorium as prescribed under Section 14 will not be applicable. The NCLAT, in the case of Varrsana Ispat Ltd. v. Deputy Director, Directorate of Enforcement has propounded that proceedings under PMLA relate to ‘proceeds of crime’. Therefore, PMLA would take precedence over IBC as a moratorium under Section 14 is not applicable to criminal proceedings. Further, the NCLAT held that attachment by ED is not in the capacity of a creditor of the corporate debtor, because ‘proceeds of crime’ would not amount to debt. An appeal was preferred before the Supreme Court of India and was consequentially dismissed. The NLCAT reiterated the above decision in the case of Kiran Shah v. Enforcement Directorate and held that the adjudicating authority under IBC has no power to intervene in matters that fall under the purview of the authority under PMLA. With regard to the objectives of the legislation, NCLAT held that the objectives, text, and shape of the IBC and PMLA are distinct and different, and there is no inconsistency between both legislations. Therefore, both legislations can be invoked simultaneously without one necessarily having to precede over the other, and an appeal against any decision of the adjudicating authority of the PMLA lies before the Appellate Tribunal constituted under PMLA. Scenario II: PAO under Section 5 of PMLA is passed after initiation of CIRP and after commencement of the Moratorium period under Section 14 of IBC In the aforementioned scenario, tribunals and courts have held that IBC proceedings will supersede the proceedings under PMLA, and therefore, the moratorium provided under Section 14 would be applicable. The PMLA Appellate Tribunal (PMLAT) in the case of Bank of India vs. The Deputy Director of Enforcement, Mumbai was of the considered opinion that proceedings under Section 8 of the PMLA are civil proceedings and in the case of secured charge created, much prior to the PAO, in respect of any property that is confiscated or attached by the authority under PMLA, the secured creditor will have the first right over the property. The Tribunal held that the continuation of proceedings that have been initiated after the moratorium has commenced under Section 14 runs contrary to the intent of the legislature and creates hurdles in the time-bound resolution process. The PMLAT, by attributing precedence to IBC further held that by virtue of the non-obstante clause under Section 238 of the IBC, authorities under PMLA have no jurisdiction and cannot continue with the proceedings in case a moratorium has commenced. Scenario III: PAO under Section 5 of the PMLA is passed after the adjudicating authority has approved the resolution plan under Section 31 of the IBC In such a factual matrix, tribunals/courts are of the view that IBC proceedings will supersede PMLA, and therefore, any attachment/confiscation/seizure has to be vacated by the authority under PMLA. This conflicting scenario came before NCLAT in the case of M/s Bhushan Power and Steel (BPSL) vs. Enforcement Directorate. It was held that proceedings under PMLA are criminal proceedings. Consequently, the ED would have the power to order attachment. Later, the Ministry of Corporate Affairs intervened to resolve the difference between the two legislations. Immediately, an Ordinance was promulgated by the President of India, inserting Section 32A in the IBC. Through this amendment, it was made clear that once a Resolution Plan is approved by the adjudicating authority, all attachments/seizures/confiscations cease to operate. The NCLAT in the case of JSW Steel Limited abated all the criminal proceedings against the Corporate Debtor as soon as the Resolution Plan submitted by M/s JSW Steel got approved. Analysis of the Judgement The High Court of Delhi in the

[By Soumya Modi and Kunal Dave] The authors are students of National Law School of India University, Bangalore and National Law Institute University, Bhopal.   INTRODUCTION Due to the claims of homebuyers, the Insolvency and Bankruptcy Code, of 2016 (hereinafter, the Code or IBC) has seen several developments since its inception.  A recent judicial experiment in this respect is the National Company Law Appellate Tribunal-devised “Reverse Corporate Insolvency Resolution Process (reverse CIRP)” which has no genesis under the Code. This concept was formulated to protect the interests of the allottees of the real estate projects whose interests (getting possession of the unit) conflicted with the interest of other financial creditors who were concerned with the repayment of their money. Furthermore, even though real estate allottees are now financial creditors, the tribunal thought that they do not have the commercial expertise to understand the viability of a resolution plan.[i] Considering this unique position of homebuyers, the National Company Law Appellate Tribunal (NCLAT) brought in this innovation. However, judicial innovations may not always lead to desirable outcomes. The danger looms over the phenomenon of reverse CIRP, given the porousness with respect to the funds of the project. In terms of Section 4(2)(l)(D) of the Real Estate (Regulations and Development) Act (hereinafter, RERA), 70% of the amount realized for the real estate project has to be kept in a separate account only for meeting project costs. However, India has bore witnessed to several flagrant violations of this requirement. The ongoing Supertech controversy got triggered when Supertech Limited did not maintain 70% funds in this account. Additionally, Maharashtra has also witnessed a large number of instances of divergence of funds from such accounts. The tribunals have not consistently implemented this condition in most reverse CIRP cases. The likely outcome would be the enhancement of the risks of some stakeholders (promoters) benefiting at the expense of others. The thrust here is that an objective legal criterion for keeping a check on the funds is critical for an effective reverse CIRP process. Therefore, a shift from the ex-post determination in reverse CIRP cases to formulating an ex-ante regime can help in overcoming the self-serving tendencies that the promoter may have as well as bring a sense of predictability to the process. This blog will provide an overview of the reverse CIRP process, and reveal its shortcomings. Further, it will take into consideration the implications of this shortcoming from the Meld Model which is a synthesis of exclusive legal positivism (ELP).[ii] In furtherance of this model, this blog will adopt an ELP lens to the situation of reverse CIRP and will analyze the consequence of departing from it through law and economics to make a case for an ex-ante regime. AN OVERVIEW OF REVERSE CIRP In light of the specific concerns of homebuyers, the NCLAT formulated the doctrine of Reverse CIRP while deciding an appeal in Flat Buyers Association Winter Hills v. Umang Realtech Pvt. Ltd. The idea essentially provides that in the case of real estate companies, the promoter will disburse funds as a lender and not as a promoter to ensure the completion of the project. The NCLAT has also in later judgments ruled that the reverse CIRP should be carried out in a project-wise manner.[iii] The project-specificity of the process reverberates in the recently proposed Amendments to IBC. Since the IBC as it stands currently provides for insolvency resolution of a company as a whole, the default in one project would trigger the Corporate Insolvency Resolution Process (CIRP) against the entire company. In order to address these difficulties, the Ministry of Corporate Affairs has proposed certain Amendments that provide for a ‘project-wise Resolution’. SHORTCOMINGS IN THE CURRENT REGIME While the proposed Amendment comes in as a relief to the real estate developers as well as the allottees, the specific contours of the process still remain largely undefined, especially in terms of a monitoring mechanism. In Flat Buyers, the tribunal directed the Resolution Professional to ensure the completion of the project with the funds provided by the lender and the amount generated from allottees. However, no reference was made by the tribunal of the 70% requirement. Similarly, the Supreme Court in Anand Murti vs Soni Infratech Pvt. Ltd. and Amit Katyal vs Meera Ahuja upheld the concept of reverse CIRP but did not mandate this requirement under RERA.[iv] Further, in the case of Whispering Tower v. Abhay Narayan, the Tribunal allowed project-wise reverse CIRP, but no mention was made of this requirement. However, in Suspended Director of M/s. Supertech Ltd. v. Union Bank of India (Hereinafter, Supertech), the tribunal directed the RP to ensure that all receivables are maintained in a separate account.[v] Although the Tribunal’s vigilant stance in Supertech is appreciable the same can be attributed to the peculiarities of the facts in the case as the Uttar Pradesh-RERA had reported prior mismanagement of this separate fund. Therefore, there is no consistency in the approach of the courts for putting a monitoring mechanism in place for the utilization of funds by the promoters. THE MELD MODEL    (i) THE ELP ANALYSIS Exclusive Legal Positivists posit that a legal question can only be settled by referencing legally binding sources. When analyzing reverse CIRP as formulated in Flat Buyers, from the perspective of ELP, it is clear that the NCLAT’s reasoning is not grounded in any source of law. In fact, by making it a promoter-driven process the tribunal has supplanted its logic over that of the legislature. This is because the NCLAT created new terms that would conflict with Section 29A of the Code, which disqualifies the promoter of the debtor company from becoming a resolution applicant. As mentioned in the case of Chitra Sharma v. UOI, this section prevents the backdoor entry of promoters who may attempt to regain control of the entity.[vi] NCLAT in Flat Buyers introduced the terms ‘intended Lender’ and an ‘outsider financial creditor’ who essentially are promoters who ‘intend’ to be a lender while staying outside the CIRP process.

[By Ayush Kumar and Vanshika Manglani] The authors are students of Hidayatullah National Law University.   The Delhi High Court (Hon’ble Court) in the case of Rajiv Chakraborty Vs. Directorate of Enforcement (“the case”) provided that the restraint of Section 32A of the Insolvency and Bankruptcy Code, 2016 (“IBC”) is not attracted in case of attachment of assets which are considered a ‘proceeds of crime’. The Enforcement Directorate is entrusted with this power by the Prevention of Money Laundering Act, 2002 (“PMLA”). The Judgement has once again opened the pandora’s box. Moreover, the presence of a non-obstante clause in Section 71 of PMLA and Section 238 of IBC has also raised the question of the overriding effect of one legislation over the other. This article aims to provide an analysis of the conundrum by providing a historical jurisprudence of the cases dealing with the current subject matter and analysing the aforementioned judgement. IBC and PMLA, both are special legislations in their own paradigm and deal with different aspects. But the two legislations come to loggerheads when the Corporate Insolvency Resolution Process is initiated against the corporate debtor and simultaneously, he is charged with scheduled offenses under PMLA. Consequently, the judiciary has envisaged the need for harmonious implementation of the two laws time and again. DELVING INTO THE PAST JURISPRUDENCE The judiciary has missed numerous opportunities to settle the aforementioned conundrum but there have certainly been cases where the gap has been tried to be bridged between the two laws to a certain extent. By the virtue of the doctrine of posteriores priores contraries abrogant (the latter enacted legislation shall prevail in case of a non-obstante clause present in the two) the IBC was to prevail over PMLA but NCLAT in Varrsana Ispat Limited v. Deputy Director, Directorate of Enforcement took a different approach and held that PMLA would prevail over IBC if the assets relate to ‘proceeds of crime’. The NCLAT, along the same lines held in Andhra Bank V. Sterling Biotech Ltd. that if the assets of the corporate debtor come under the proceeds of crime, the Enforcement Directorate (“ED”) is entitled to seize them. However, the NCLAT differed from its previous stance in Directorate of Enforcement V. Manoj Kumar Agrawal, wherein it recognized that any attachment of properties by ED is barred after the moratorium is placed under Section 14 of IBC. For settling the conundrum, the question was posed before a larger bench of NCLAT in the case of Kiran Shah V. Directorate of Enforcement in which it was held that section 14 of IBC does not prevent ED personnel from using their PMLA authority. The ruling is this case was completely at odds with the Manoj Kumar Agrawal case ruling. FACTUAL MATRIX The ED in exercise of the power conferred under Section 102 of Criminal Procedure Code, 1973 (CRPC) froze 74 bank accounts of EIEL (“Corporate Debtor”). EIEL (“Petitioner”) filed a writ petition against the aforementioned action which resulted in quashing of the orders. However, the court refrained from interfering into one of the orders which provided for provisional attachment of certain properties by ED under Section 5 of PMLA. Aggrieved by this, the petitioner filed an application before National Company Law Tribunal (NCLT) to quash the orders of ED. Added to this, an Interlocutory Application was also filed regarding the attachment of two more properties. While the suit was pending, the Adjudicating Authority confirmed the orders. In due course, more properties were provisionally attached by ED and confirmed by the Adjudicating Authority. The Resolution professional of the CD filed the present writ challenging the confirmation of attachment orders by the ED under Section 8(3) of PMLA. CONUNDRUM OF OVERRIDING EFFECT: AN ANALYSIS In this decision, the court attempted to interpret how the IBC and PMLA interact with regard to the moratorium under Section 14 and the impact it has on the ED ability to seize assets derived from “proceeds of crime.” It is pertinent to note that the provisions of PMLA could not be interpreted as being “subservient” to the IBC and giving preference to one of these two independent pieces of legislation over the other would be contrary to the fundamental reason why they were passed.   The PMLA was enacted with the purpose of taking away property which does not belong to the person possessing it and is gained through unlawful means. If the same is allowed to become a part of the resolution plan then it will be considered as the property of the corporate debtor and the entire purpose of the act will be defeated. The property which is gained through illicit means should not be allowed to form a part of the Corporate Insolvency Resolution Process (“CIRP”). It is a reparation measure which seeks to strip and deprive criminals of benefits derived and retained by the adoption of illegal and dishonest action. Moreover, the “proceeds of crime” as defined under section 2(1)(u) of PMLA is not the same as “operational debt” defined under section 5(20) of IBC. Thus, a narrowed and strict interpretation should be given to the term operational debt and operational creditor so as to exclude ED from its purview. Therefore, when the ED exercises its power to seek attachment leading to confiscation of properties of the corporate entity it is not acting as a ‘creditor’ and thus the provisions of section 14 which bars the institution of suits against the corporate debtor would be inapplicable to that extent. Further, the taking of the property as an attachment does not nullify the corporate debtor’s property rights; rather, it is only a symbolic taking over of the property while the PMLA proceedings are ongoing. It is also imperative to look at the objective of the acts to decide on the dilemma surrounding the applicability of the two laws. The object clause of the PMLA clearly states that, “An Act to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering and for matters connected

[By Ishaan Saraswat] The author is a student of Jindal Global Law School.   On January 18, 2023, the Ministry of Corporate Affairs, Government of India proposed certain changes in relation to the Insolvency and Bankruptcy Code, 2016 (“IBC” or “Code”). These suggestions deal with the acceptance of corporate insolvency resolution process applications, the streamlining of insolvency resolution, the reformatting of the liquidation process, and the function of service providers under the IBC. Of the plethora of proposals, a key consideration was with regard to amending Section 10 of the IBC to bring about a transparent appointment of the interim resolution professional (“IRP”). The present regime under Section 10 is adverse to the stakeholders of a corporate insolvency resolution process (“CIRP”) since on admission, the corporate debtor’s (“CD”) management is ousted, and an IRP who is nominated by the same management takes over control. The proposal encapsulates amending Section 10 to expunge the right of the CD to nominate an IRP, and that the Adjudicating Authority (“AA”) would appoint the IRP on the recommendation of the Insolvency and Bankruptcy Board of India (“IBBI”). A brief background of CD-nominated-IRP A corporate applicant is one who is either the CD, a member/partner of the CD, an individual managing the operations of the CD, or a person who has control over the financial affairs of the CD. This corporate applicant can approach the AA under Section 10 of the Code to admit the CD for CIRP. While doing so, the corporate applicant shall also nominate an IRP. As per Section 16 of the Code, the AA shall appoint the person nominated to be an IRP. The IRP, on appointment, is vested with vast powers by Section 17, such as managing the affairs of the company, exercising the powers of the board, taking actions in the name of the company, accessing the internal records and books of the company and so on. The question that arises is whether such vast powers are regulated. Prevention of abuse Chapters VI and VII of the Code provide for extreme cases of siphoning off assets, concealment of assets, misconduct in the resolution process, and fraudulent or wrongful trading. The AA has time and again barred resolution professionals from making misleading statements, abdicating their duties and flouting the orders of the tribunal wilfully, and even for charging an exorbitant fee. Furthermore, the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 (“IP Regulations”), provide for qualifications of an IRP and the code of conduct to abide by. However, all these measures may not suffice. The vast powers vested in the IRP allow them to misguide the Committee of Creditors (“CoC”) formed subsequently, and damage the CIRP process. Instances have been recorded where IRPs have not maintained a list of claimants properly, have not verified assets of a company, have appointed suspended directors of the CD for assistance in managing operations, have handed over incomplete records of the CD etcetera. The instances above may be more damaging and discreetly, when there are clear-cut conflicts of interest, with the potential for unfairness or bias. The IRP and their firms, for instance, may have ongoing relationships with the CD or creditors who are involved in the insolvency process in various ways; relationships with the directors of specific companies may create conflicts; personal interests and other appointments held may be relevant; the IRP’s firm may have financial interests present or future that may be impacted by recommendations or decisions relating to a troubled company; and the volume of work or compensation received by the IRPs may also be relevant. Addressing the independence of insolvency professionals The Bankruptcy Law Reforms Committee has observed that, “As the RP plays a key role in the life-cycle of the insolvency resolution process – from the time of the acceptance of the application, the design and agreement of the repayment plan, to the final execution of the plan – it is possible that unfair conduct of the RP jeopardises the interests of either party”. To curb any unfair conduct, by way of bias or impartiality, tribunals have sought substitution of IRP when affiliated with a financial creditor by virtue of employment history and pecuniary interest. But when we move the gaze away from creditors, a clear case of impartiality may be observed under the current scheme of Section 10 of the Code where the CD itself nominates an IRP. To address this, the IP Regulations’ code of conduct demands disclosure of any pecuniary or personal relationship with any stakeholders in the CIRP. Any such lack of independence warrants the IRP to be replaced. The IP Rules provide that a relationship may be established if the resolution professional is a shareholder, director, key managerial employee, or partner of the related party, or if the related party accounts for 5% or more of the resolution professional’s gross revenue (“relationship”). Further, an instance of impartiality may also be there if a relative of the resolution professional has a relationship with the related party, or where the resolution professional is a part of an insolvency professional entity, which has a relationship with the related party. The ‘relationship’ that an IRP may share with the stakeholders and the metrics mentioned earlier may not suffice to eradicate impartiality. The ‘relationship’ expounded in the IP Regulations seems narrow since there is no mention of an indirect interest, such as being a shareholder of an associate company or a sister concern or a company that engages in business with the CD. Furthermore, esteemed resolution professionals render services often to the same set of creditors, for instance, the big lenders. In such scenarios, there is a familiarity bias and an expectation for the IRP to work in a particular manner. This also bypasses the code of conduct since the IRP earns the revenue from the CD, not from the creditors. Moreover, as the UNCITRAL Legislative Guide on Insolvency Law elaborates, a prior or current business relationship with the debtor (including being a party to a

[By Rituraj Singh Parmar & Devyani Mishra] The authors are students of National Law Institute University, Bhopal.   Introduction: Avoidance application is the action against preferential or fraudulent transactions made by company which has gone into insolvency. The IBC 2016 in order to reverse such transactions has developed a mechanism which is stipulated under chapter 3 of the code (Section 43-51). The avoidance application can be adjudicated at three possible stages viz., during CIRP, liquidation stage and post resolution. However, the single bench of Delhi high court ruled that Avoidance application ends with the conclusion of CIRP and therefore can’t be adjudicated once CIRP is completed. Overruling this, in the case of Tata steel v Venus recruiter (Venus Recruiters) the division bench of Delhi High court rectified the mistake made by single judge bench and held that avoidance application can be pursued post CIRP. This particular judgment by Delhi high court is landmark because it is not restricted to stage of adjudication of avoidance application but also deals with various other important fragments relating to it. In light of this ruling of Delhi High Court, the article attempts to analyse the implications of the judgement. First Section of this post will first delve into the background of the case; thereafter author will explore and discuss the different aspects of the judgement. The article will conclude by analysing the case within the broader context of IBC vis-à-vis avoidance application and the possible reasons of lower rate of adjudication of such applications. Brief background of the case: In the instant case, RP moved an avoidance application under Section 43 IBC after the submission of resolution plan to NCLT. Upon approval of Resolution Plan, Tata Steels BSL Ltd. subsumed the control of Bhushan Steel Ltd. NCLT upon the observation that avoidance application was submitted before the approval of Resolution Plan, proceeded to issue notice to the Respondent (Venus Recruiter pvt ltd). Aggrieved by the same, respondent moved petition before the Ld. Single Judge thereby, challenging the legality of avoidance application. In light of this, court upheld that avoidance application cannot be pursued post CIRP and that; RP becomes functus officio to the further proceedings. Expanding the Ambit of Section 60(5) of IBC The Single Judge bench of Delhi High Court narrowed down the jurisdiction of NCLT under Section 60(5) IBC while holding that the phrase “arising out of or in relation to the insolvency resolution” only includes matter pertaining to CIRP and NCLT becomes functus officio once CIRP is concluded.  Due to the very same reason, the single bench allowed the appellant to approach the high court for want of any other efficacious alternative remedy under IBC. Overruling this, the present court held that phrase “in relation to insolvency resolution” connotes a wider import. The court has placed reliance on report of the Bankruptcy Law Reforms Committee (BLRC), Titaghur Paper Mills v State of Odisha, Swiss Ribbons v Union of India, Gujarat Urja Vikas Nigam  v Amit Gupta to conclude that dispute arising out of any local statute has to be remedied by exhausting the remedy present under that statute first. Court also referred to Essar Steelv Satish Kumar Gupta (Essar Steel)wherein the apex court held that no other court other than NCLT has jurisdiction to deal with proceedings mentioned under 60(5).  Building upon the rationale of these authorities, the division bench has categorically held that “Ld. Single Judge erred in holding the writ petition was maintainable. An appeal ought to have been preferred by Respondent No. 1 before the NCLAT underSection 61 of the IBC and the NCLAT itself was the appropriate forum to decide the controversy posed before the Ld. Single Judge” Thus, the present court while widening the ambit of NCLT has fairly settled the law relating to adjudication of Avoidance application that any petition or application arising out of the adjudication application of a corporate person shall be dealt by NCLT first and then as a second appeal to the NCLAT. Effects of Regulation 35A and 38(2)(d) of CIRP Regulations, 2016 post the conclusion of CIRP: The Ld. Single Judge via its impugned judgement held that avoidance applications cannot continue after the conclusion of CIRP. In the present matter, the avoidance application was held to be infructuous because the same wasn’t filed within the timelines prescribed by Regulation 35A of the CIRP Regulations, 2016. The division bench overturned the impugned judgement and upheld that avoidance application can be pursued upon the conclusion of CIRP process. The bench ruledthat “The timelines prescribed under regulation 35A are merely directory and not mandatory in nature”. It further cited the case of Essar Steel,wherein, Hon’ble Supreme Court upheld that CIRP process in itself is not mandatorily bound by the prescribed timelines.Section 25(2)(j) under IBC provides that RP needs to file avoidance application before the conclusion of CIRP, the said obligation, in the present matter, had been discharged. The respondent (Venus Recruiter pvt ltd) argued that on account of Regulation 38(2)(d), earlier, avoidance application wouldn’t survive after the approval of Resolution Plan. However, the bench upheld that the said regulation has no bearing on the instant matter. Regulation 38(2)(d) mandates Resolution Plan to provide for the ways to deal with avoidance applications and the proviso further sets cut-off date for the implementation of the regulation i.e., 14 June 2022. The Resolution Plans prior to cut-off date is not required to clarify the manner in which these applications are to be dealt with. Therefore, the NCLT does have jurisdiction over the avoidance applications submitted by Resolution Professionals. Position of RP vis-à-vis CIRP on one hand and avoidance application on the other: The arguments put forth by respondent that Resolution Professional (RP) becomes functus officio upon the successful conclusion of CIRP and accordingly, cannot pursue avoidance application, holds no ground because the objective of IBC provides for intelligible demarcation between the proceedings of CIRP and avoidance application. Section 26 of IBC states that the application to avoid certain transactions i.e., preferential or fraudulent by the