In a recent decision, the Delhi High Court ("Delhi HC”) has stayed 2 (two) summary suits against a personal guarantor on the ground that interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 ("IBC”) arising out of another creditor’s IBC proceedings has the effect of staying all pending legal proceedings in respect of ‘all of the debts’ of the particular guarantor.

Brief Facts

In the recent decision of Base Realtors Private Limited v. Grand Realcon Private Limited, the National Company Law Appellate Tribunal, New Delhi (“NCLAT”) has upheld the maintainability of an application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) relating to the component of interest due and payable, without asking for the principal amount which has not yet become due and payable.

Brief Facts

In its decision in Shailesh Verma, Resolution Professional of Lavasa Corporation Limited vs. Maharashtra State Electricity Distribution Company Limited, a 3 (three)member bench of the Hon’ble National Company Law Appellate Tribunal (“NCLAT”) has held that continuation of electricity supply to a corporate debtor during the subsistence of the corporate insolvency resolution process (“CIRP”) is subject to payment for such supply.

Brief Facts

November, 2022 For Private Circulation - Educational & Informational Purpose Only Between the lines... A BRIEFING ON LEGAL MATTERS OF CURRENT INTEREST KEY HIGHLIGHTS ⁎ NCLT: A related party of the financial creditor is not barred under Section 29A of the IBC to submit a resolution plan. ⁎ NCLAT: Attachment of Corporate Debtor’s bank account by the Employees’ Provident Fund Organization cannot continue during Moratorium. ⁎ NCLT: Indemnity of obligations under an agreement is not a 'financial debt' under Section 5(8) of the Insolvency and Bankruptcy Code, 2016.

The Insolvency and Bankruptcy Code, 2016 was enacted, amongst others, to facilitate timely insolvency resolution. While the Supreme Court has always upheld the sanctity of timelines under the Code for corporate insolvency resolution, it has held the prescribed timelines for actions prior to the commencement of the corporate insolvency process as merely directory. This article explores the impact of such decisions on the proceedings under the Code which already suffer from inordinate delays.

In the previous quarter, the Supreme Court pronounced important judgements on the admission of insolvency applications filed by financial creditors and the validity of resolution plans not providing for payment of statutory dues to government authorities. In arbitration law, the Supreme Court clarified the scope of the court’s power to grant interim measures under Section 9 of the Arbitration and Conciliation Act, 1996, and assess the arbitrability of a dispute in an application filed for appointment of the arbitrator.

Insolvency Proceedings are commenced upon bankruptcy of a debtor. In simple terms, bankruptcy is inability of a corporate debtor to pay back its creditors. Insolvency and Bankruptcy Code, 2016 (“IBC”) governs insolvency proceedings in India. A corporate insolvency resolution process (“CIRP”) is a recovery mechanism for the creditors of the corporate debtor and the CIRP can be initiated under Section 7 & Section 9 of the IBC.

Introduction

Recently on August 28, 2022, a three-judge bench of the Supreme Court of India delivered a judgement in R.K. Industries (Unit-II) LLP vs. H.R. Commercials Private Limited and Others[1], interpreting the provisions of IBC concerning the powers of the liquidator vis-à-vis mode of sale of assets by the liquidator.

In the recent decision of Somesh Choudhary v. Knight Riders Sports Private Limited & Ors., the National Company Law Appellate Tribunal (“NCLAT”), New Delhi has held that claims arising from the grant of an exclusive right and license to use intellectual property rights falls within the definition of “operational debt” under Section 5(21) of Insolvency and Bankruptcy Code, 2016 (“IBC”).

Background Facts