Abstract

Following significant deliberations by the Insolvency Law Sub-Committee chaired by Mr. M.S. Sahoo (Chairman of the Insolvency and Bankruptcy Board of India), along with other advisors, including our founding partner Mr. Bahram Vakil, the Government of India, has on April 04, 2021 notified the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 to introduce a framework for pre-packaged insolvency resolution of micro, small and medium enterprise companies (‘PPIRP’).

On 26 February 2021 the National Company Law Appellate Tribunal (NCLAT) allowed the invocation of a bank guarantee during a moratorium period imposed under Section 14 of the Insolvency and Bankruptcy Code (IBC) 2016. This article summarises the NCLAT’s decision in this case (Bharat Aluminium Co Ltd v JP Engineers Pvt Ltd).

Facts

On November 20, 2020, the CCI approved the acquisition of the (i) retail and wholesale undertaking (‘RWU’); and (ii) the logistics and warehousing undertaking (‘LWU’) of the Future Group (collectively, ‘Target Businesses’) carried out through various entities of the Future Group, by Reliance Retail Ventures Limited (‘RRVL’) and Reliance Retail and Fashion Lifestyle Limited (‘RRVL WOS’) (collectively, ‘Acquirers’) respectively.

Commercial decisions are largely driven by incentive structures. Therefore, if legal policy favours a particular commercial outcome, the decision-making in that regard must be placed in the hands of entities most likely to be affected by such outcomes. This logic can also be applied to insolvency proceedings. The favoured policy outcome of the Indian insolvency law framework is the maximization of value of a corporate debtor. In the context of an insolvent company, the persons most likely to gain from such maximization of value are its creditors.

The Hon’ble National Company Law Appellate Tribunal (‘NCLAT’) in its order in Standard Chartered Bank v. Satish Kumar Gupta, R.P. of Essar Steel Limited & Ors. has dealt with various important legal issues in relation to the corporate insolvency resolution process (‘CIRP’). Some of the key aspects of this judgment have been summarised below:

1. Validity of Guarantee

Companies undergoing corporate insolvency resolution process tend to be in dire need of funds to meet their working capital expenses. Interim finance can be an important tool for effective reorganization so as to prevent liquidation.