Premise
Since the advent of the Insolvency & Bankruptcy Code, 2016 (“IBC”), the insolvency law regime in India has been consolidated and uniformized. Courts have repeatedly held that the IBC is a code in itself and that one need not look elsewhere in deciding matters under it.
Between the lines... For Private Circulation-Educational & Information purpose only Vaish Associates Advocates… Distinct. By Experience. I. Supreme Court: NCLT has discretion to not admit Financial Creditor’s CIRP Application even if Corporate Debtor is in default. The Hon’ble Supreme Court (“SC”) has in its judgment dated July 12, 2022 in the matter of Vidarbha Industries Power Limited v. Axis Bank Limited [Civil Appeal No.
I. INTRODUCTION
The Insolvency and Bankruptcy Code, 2016 (“Code”) was enacted at a time when there was no singular law which dealt with insolvency and bankruptcy in India. A perusal of the statement of objects and preamble of the Code reveal that it was enacted to consolidate the law of insolvency resolution of companies, partnerships etc in a time bound manner, for maximisation of assets and for balancing of interests of all stakeholders.
In the matter of Mr. Praful Nanji Satra v. Vistra ITCL (India) Ltd. & Ors., the Principal Bench of the National Company Law Appellate Tribunal (“NCLAT”) observed that insufficiency in payment of stamp duty will not affect admission of corporate insolvency resolution process (“CIRP”) under the Insolvency and Bankruptcy Code, 2016 (“IBC”) for a valid debt.
Brief Facts
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.
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”).
INTRODUCTION:
I. Introduction
Proceedings against personal guarantors find their origin in Section 128 of the Contract Act, 1872 which deals with the co-extensive liability of a surety. It has long been considered that a surety’s liability to pay the debt is not removed by reason of the creditor’s omission to sue the principal debtor. Such a creditor is not bound to exhaust his remedy against the principal debtor before suing the surety, and a suit may be maintained against the surety even though the principal debtor has not been sued.
The Supreme Court has held that Section 7(5)(a) of the Insolvency and Bankruptcy Code, 2016 confers discretionary power on the NCLT with respect to admission of application under said provision.
The Court was however of the view that such discretionary power cannot be exercised arbitrarily or capriciously and that NCLT must consider the grounds made out by the corporate debtor against admission, on its own merits.
On 05 July 2022, a Full Bench of the National Company Law Appellate Tribunal (NCLAT) in Jaipur Trade Expocentre Private Limited v. M/s Metro Jet Airways Training Private Limited, Company Appeal (AT) (Insolvency) No. 423 of 2021, held that a claim towards unpaid license fees for an immovable property would constitute an operational debt under the Insolvency and Bankruptcy Code, 2016 (Code) and consequently constitute a debt in default for initiating the corporate insolvency resolution process (CIRP).