The Supreme Court in its recent judgement Kotak Mahindra Bank Limited v. Kew Precision Parts Private Limited & Others¹, has held that an application to initiate corporate insolvency resolution process (“CIRP”) against a corporate debtor is maintainable in respect of a time barred debt, if the debtor has after the expiry of the limitation period, agreed to repay the same. 

Brief Facts

Introduction

Ever since the pandemic induced stress began, there has been talk of the Government introducing pre-packaged insolvency resolution processes (“pre-packs”) into the Insolvency and Bankruptcy Code, 2016 (“IBC”).  Prevalent in other jurisdictions either through statutory provisions or market driven mechanisms, pre-packs aim to provide a more debtor-friendly, cost-effective and faster resolution process in situations where there may already be a broad consensus between debtor and creditors for a resolution.

A key concern in respect of the Insolvency and Bankruptcy Code, 2016 (Code) since its inception has been the differential treatment of operational creditors and financial creditors. For context, financial creditors have a purely financial arrangement with the corporate debtor, while operational creditors are those who are owed money by the corporate debtor for the provision of goods supplied or services rendered.

Under the Insolvency and Bankruptcy Code, 2016 (Code), a financial creditor may initiate corporate insolvency resolution process (CIRP) if there is a default of INR 10 million, by filing an application before the National Company Law Tribunal (NCLT). The settled principle is that an application made by a financial creditor under the Code must be admitted and CIRP initiates against the corporate debtor, if the NCLT is satisfied that a default has occurred in payment of debt.

Since the implementation of the Insolvency and Bankruptcy Code, 2016, (“Code”), the Real Estate Sector has been in turmoil, with many transactions entered into by the Builder(s) undermining and jeopardising the legitimate interests of innocuous creditors. The Code encompasses a collection of transactions that the Interim Resolution Professional (“IRP”) and the liquidator appointed by the National Company Law Tribunal (“NCLT”) for companies in insolvency or liquidation should avoid, as stated below.

Introduction

Under the Insolvency and Bankruptcy Code, 2016 (Code), a trade creditor may initiate corporate insolvency resolution process if there is an unpaid operational debt above INR 10 million. An ‘operational debt’ under the Code means a claim in relation to goods and services. The insolvency courts have provided divergent views on the issue of whether rental dues or license fees for use of premises would qualify as an ‘operational debt’ under the Code.

Introduction

In a move to accord relief to Licensors with outstanding license fee payments, the National Company Law Appellate Tribunal (“NCLAT”) vide order dated 7th July 2022 (“Order”) held that a debt arising from unpaid license fees is qualified as an ‘operational debt’ under Section 5(21) of the Insolvency and Bankruptcy Code, 2016 (“Code”).

このニュースレターは、2022年6月のインドの破産法の進展に関する重要な最新情報をカバーしています。