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Delving further into Preferential Transactions: NCLAT studies section 43 in light of Jaypee ruling, SC upholds

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– Shaivi Bhamaria | resolve@vinodkothari.com

When a corporate person undergoes Corporate Insolvency Resolution Process (‘CIRP’) or liquidation process, there is an obvious presumption of precedent financial stress, and hence, all the transactions that have an adverse bearing on the financial health of the distressed corporate person, at the cost of stakeholders, come under the scanner. There is a look-back period, which, based on global equivalents, has been fixed at 2 years prior to commencement of CIRP in case of transactions with related persons, and 1 year prior to commencement of CIRP in other cases. The Insolvency and Bankruptcy Code, 2016 (‘the Code’) has titled such transactions as ‘avoidance transactions’. Such avoidance transactions are classified into 4 categories in the Code, viz- (a) preferential transactions (b) undervalued transactions (c) transactions defrauding the creditors and (d) fraudulent transactions. The provisions with respect to avoidance transactions are inspired by the UK Insolvency Act.

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Retrospective Operation of S. 29A & OTS under IBC – Analysing Prospects

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– Megha Mittal

[resolution@vinodkothari.com]

The Hon’ble NCLAT vide its order Martin SK Golla v. Wig Associates, 2019[1] has set aside the order of the Adjudicating Authority which had accepted a one-time settlement-cum-resolution plan submitted by a connected person of Corporate Debtor, who later on, after the implementation of section 29A became ineligible to submit a plan. Hence, the question before the Hon’ble Tribunal was whether sec 29A of IBC will be applicable with retrospective effect in section 10 proceedings which were initiated prior to sec 29A came into force?

The Hon’ble NCLAT held that the reason that once CIRP is commenced, provisions as existing on the day of the petition would continue to apply even in the face of amendment brought about by way of 29A- cannot be maintained, and as such the one time settlement-cum-resolution plan, offered by the connected person of the Corporate Debtor cannot be considered good under law.

In this article, along with the issue of retrospective applicability of section 29A and its likely impact on the stakeholders, the Author also delves into the question whether a one-time settlement scheme could tantamount to a resolution plan under the Code.

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MCA need not be mandatorily impleaded in applications: NCLAT sets-aside directions issued by of Principal Bench

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–Megha Mittal

(resolution@vinodkothari.com)

The Hon’ble National Company Law Appellate Tribunal (‘NCLAT’), vide its order dated 22nd May, 2020[1] set aside the directions issued by the Hon’ble Principal Bench for impleadment of Ministry of Corporate Affairs (‘MCA’) as a respondent-party to all applications filed under the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016.

This comes in light of the order dated 22nd November, 2019 of the Hon’ble National Company Law Tribunal, Principal Bench of New Delhi (‘NCLT’/ ‘Principal Bench’), in the matter of Oriental Bank of Commerce v. Sikka Papers Ltd. & Ors[2], wherein the Hon’ble NCLT directed that “…In all cases of Insolvency and Bankruptcy Code, and Company Petition, the Union of India, Ministry of Corporate Affairs through the Secretary be impleaded as a party respondent so that authentic record is made available by the officers of the Ministry of Corporate Affairs for proper appreciation of the matters..”(‘Impugned Directions’). The said requirement was directed to be made applicable in all benches of NCLT, pan-India.

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Schemes under Section 230 with a pinch of section 29A – Is it the final recipe?

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-Sikha Bansal (resolution@vinodkothari.com)

Note: This article is in continuation of/an addition to our earlier article wherein the author discussed various aspects pertaining to schemes of arrangement in liquidation under section 230 of the Companies Act, 2013 read with various provisions of the Insolvency and Bankruptcy Code, 2016. The author has described various factors and principles which the judiciary may consider while sanctioning a scheme of arrangement for companies in liquidation, how a scheme is different from a resolution plan or a going concern sale, what constitutes ‘class’ in the context, whether the waterfall under section 53 will apply to such schemes, etc. The author also pointed out the lack of clarity as to applicability or inapplicability of section 29A on such schemes. However, very recently, NCLAT has clarified that persons ineligible under section 29A are not qualified to propose a scheme during liquidation. This Part discusses this ruling and ponders upon some questions which still remain open-ended/unanswered.

The conundrum as to whether section 29A of the Insolvency and Bankruptcy Code, 2016 (‘Code’) will apply to schemes under section 230 of the Companies Act, 2013 (‘Companies Act’) has been put to rest, at least for the time being, by a recent ruling of the National Company Law Appellate Tribunal (‘NCLAT’). In  Jindal Steel and Power Limited v. Arun Kumar Jagatramka & Gujarat NRE Coke Limited (Company Appeal (AT) No. 221 of 2018), vide order dated 24.10.2019, NCLAT held, while a scheme under section 230 is maintainable for companies in liquidation under the Code, the same is not maintainable at the instance of a person ineligible under section 29A of the Code. The NCLAT relied on the observation of the Hon’ble Supreme Court in Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors., WP No. 99 of 2018, that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation.

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