Holding that liability in respect of a claim arising out of a recovery certificate would be a ‘financial debt’, the 3-Judge Bench of the Supreme Court has held that a person who holds a recovery certificate would be a ‘financial creditor’ within the meaning of clause (7) of Section 5 of the Insolvency and Bankruptcy Code, 2016.

The Court was hence of the view that the holder of the recovery certificate would be a financial creditor and entitled to initiate CIRP, within a period of three years from the date of issuance of the recovery certificate.

The Supreme Court has held that the dues towards the wages/salaries of only those workmen/employees who actually worked during the Corporate Insolvency Resolution Process (CIRP) are to be included in the CIRP costs.

The Apex Court in this regard observed that as per Section 5(13) of the Insolvency and Bankruptcy Code (‘IBC’), “insolvency resolution process costs” shall include any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern.

The Supreme Court has on 11 April 2022 dismissed a Special Leave Petition against the decision of the High Court of Tripura at Agarthala, wherein the High Court had held that the distinction of decree holders as creditors from ‘financial creditors’ and ‘operational creditors’, is intelligible and takes forward the purpose of the Insolvency and Bankruptcy Code, 2016, without being discriminatory or arbitrary.

Vigilantibus, et non dormientibus, jura subveniunt is a noted maxim which means ‘the laws assist those who are vigilant, not those who sleep over their rights‘ . This is a pertinent principle which applies predominantly while determining if a particular cause of action has been espoused within the limitation period.

Introduction:

Introduction

The legislature has time and again introduced various income-tax benefits and incentives to encourage fresh investments and stimulate the economic growth. These incentives are generally given to new businesses in form of tax holidays, concessional tax rates or additional deductions.

The Supreme Court of India has rejected the contention which sought to narrowly define operational debt and operational creditors under the Insolvency and Bankruptcy Code, 2016 to only include those who supply goods or services to a corporate debtor and exclude those who receive goods or services from the corporate debtor.

The Court noted that a demand notice for an operational debt by an operational creditor does not necessarily need to be accompanied by an invoice, but it may be sent where such debt arises under a ‘provision of law, contract or other document’.

The Insolvency & Bankruptcy Code, 2017 (‘Code’) was,inter alia, enacted for the resolution or liquidation of companies defaulting on their debts. These debts may include claims subject to an arbitration or sums determined in the form of an award. In the present article, we identify some potential scenarios where parties to an arbitration agreement must be conscious of the interplay between arbitration and the Code.

1.Initiating Insolvency Proceedings for contractual defaults

The National Company Law Tribunal (NCLT), Mumbai has held that in a Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, only the debt and default need to be looked in to and that the value of the security would have no bearing on the legal requirement, which when satisfied would trigger the Corporate Insolvency Resolution Process (CIRP).

The Corporate defaulter had plead that assets mortgaged and or hypothecated to the financial creditor were of a very high value and hence, the dues were secured by the said assets.

The Supreme Court in a recent judgment has held that the Notification dated 15 November 2019 (‘Notification’), which notified the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 (Rules), is ‘legal and valid’.

The said Notification was challenged before several High Courts and therefore, the Supreme Court had directed transfer of petitions from High Courts to itself to provide uniform interpretation on the said Notification and the Rules.