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SC gives purposive interpretation to section 238A of IBC:

Time lost in SARAFESI proceedings can be excluded from limitation period for IBC initiation

-By Sikha Bansal and Urmil Shah [resolution@vinodkothari.com]

The recent ruling of Supreme Court (SC) in Sesh Nath Singh v. Baidyabati Sheoraphuli Co-Operative Bank Ltd., Civil Appeal No. 9198 of 2019 (Ruling) partially addresses the persistent debate on the interplay between the Limitation Act, 1963 (‘Limitation Act’) and the Insolvency and Bankruptcy Code, 2016 (‘IBC’).

The central issue involved in the case was – the financial creditor had initiated SARFAESI proceedings against the corporate debtor years back when the default occurred.  Later, while the SARFAESI proceedings were still pending before the High Court (which prima facie viewed that the financial creditor, being a co-operative bank, could not invoke the provisions of SARFAESI), the financial creditor filed for insolvency proceedings under section 7 of IBC against the corporate debtor. Such application was filed after a lapse of 3 years from the default. Hence, the corporate debtor objected the initiation of insolvency on grounds of the application being barred by limitation.

SC, however, read the expression “as far as maybe” as used in section 238A of IBC as a conscious choice of words by the legislature. As such, the words are to be understood in the sense in which they best harmonise with the subject matter and object to the legislation. These words permit a wider, more liberal, contextual, and purposive interpretation by necessary modification.  Therefore, section 5, 14, and even section 18 of the Limitation Act would apply to proceedings under IBC.

The article below notes the important observations of SC, along with the authors’ insights.

Read more

An Odd Scheme: Case for exclusion of schemes of arrangement from scheme of liquidation

Sikha Bansal, Partner

[resolution@vinodkothari.com]

The Article below has also been published on the IndiaCorplaw Blog, see here 

The concerns around section 230 schemes in the background of insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) have been partly addressed with the ruling of Supreme Court (SC) in Arun Kumar Jagatramka v. Jindal Steel and Power Ltd. The SC has held that the prohibition contained in section 29A should also attach itself to a scheme of compromise or arrangement under section 230 of the Companies Act, when the company is undergoing liquidation under the auspices of IBC. Reason being: proposing a scheme of compromise or arrangement under section 230 of the Companies Act, while the company is undergoing liquidation under the provisions of the IBC, lies in a similar continuum.

Earlier, there were several rulings of NCLAT which allowed schemes of arrangement during liquidation – for instance, see S.C. Sekaran, Y. Shivram Prasad, etc. After such rulings, the IBBI (Liquidation Process) Regulations were amended to include Regulation 2B, which also state that “a person, who is not eligible under the Code to submit a resolution plan for insolvency resolution of the corporate debtor, shall not be a party in any manner to such compromise or arrangement.” Read more

Outstretching section 29A to realisations by secured creditors: Will it work?

-Sikha Bansal (resolution@vinodkothari.com)

Freedom is not worth having if it does not include the freedom to make mistakes.

                                                                                                                                                                    Mahatma Gandhi

If one collates all the discussion going on around section 29A of the Insolvency and Bankruptcy Code, 2016 (‘Code’), the concept has been outstretched so far that the idea of Mahatma, at least when applied to entrepreneurial traits, seems to be a distant dream.

In a recent ruling, State Bank of India v. Anuj Bajpai (Liquidator)[1], Hon’ble National Company Law Appellate Tribunal (‘NCLAT’) held that a secured creditor realising assets outside of liquidation under the Code cannot sell the assets to persons ineligible under section 29A. Read more

Group Insolvency: Moving from “Entity” to “Enterprise”

-Sikha Bansal (resolution@vinodkothari.com)

 

Recently, the Working Group led by Shri U.K. Sinha, submitted its Report on group insolvency, recommending a complete framework to facilitate insolvency resolution and liquidation of corporate debtors in a “group”. The Report was submitted by the working group on 23.09.2019.

See our presentation here on various aspects of group insolvency proceedings as suggested by the Working Group, and includes discussion on procedural coordination versus substantive consolidation along with case laws and case studies.