Supreme Court/ High Courts
The Supreme Court has clarified that in an appeal arising from an interlocutory order in a pending oppression and mismanagement petition, the paramount consideration for the court is to preserve the subject matter of the dispute until the competent forum adjudicates the main petition. Accordingly, the Court ruled that an interim arrangement directing the parties to maintain status quo, thereby preventing any alteration to the nature of the principal asset or the creation of further third-party interests, should be continued until the final disposal of the underlying Company Petition by the NCLT.
A Two-Judge Bench comprising Justice Dipankar Datta and Justice Augustine George Masih observed that the proceedings were at an interlocutory stage, and the paramount consideration was to ensure that the subject matter of the proceedings, i.e., the project land, which is the principal asset, is preserved until the competent forum (NCLT) adjudicates the dispute on allegations of oppression and mismanagement.
The Bench took note of the sequence of its own interim orders passed during the pendency of the appeals. This included the initial order restraining ‘perceptive steps’, a subsequent order directing no construction on the property after a third-party developer entered insolvency, and a later clarification permitting limited protective works to ensure structural safety without creating any equity for any party.
The Supreme Court has clarified that the reduction of share capital is a domestic affair of a company, to be decided by a special resolution of the majority. In short, the court’s or Tribunal’s role is not to substitute its own business wisdom but to ensure the scheme is fair, just, and not egregiously wrong or prejudicial to any class of shareholders.
The Apex Court ruled that Section 66 of the Companies Act, 2013, does not statutorily require a valuation report to be prepared or circulated to shareholders for a capital reduction scheme. Therefore, the non-attachment of such a report to the general meeting notice does not vitiate the process, provided the price offered is disclosed and the underlying documents are made available for inspection.
The Court also held that the application of a Discount for Lack of Marketability (DLOM) is a valid and permissible valuation methodology under Indian Accounting Standards for determining the fair value of unlisted, illiquid shares in the context of a capital reduction, particularly when it is not a case of a court-ordered buyout due to oppression.
For a court to find a capital reduction scheme prejudicial, the objector must demonstrate more than just receiving a price lower than desired. It must be shown that the offer is ‘inherently unjust’ or that the valuation is so off-track that it offends the judicial conscience. The approval of the scheme by a majority of the affected shareholders is a strong indicator of its fairness, added the Court.
As far as composition of NCLAT Benches are concerned, the Apex Court said that a bench of the NCLAT is validly constituted under Section 418A of the Companies Act, 2013, as long as it consists of at least one Judicial Member and one Technical Member. Further, the 2013 Act does not mandate a majority of Judicial Members on the bench.
The Supreme Court has clarified that non-inclusion of a claim in the resolution plan results in its extinguishment, and any claim which is not expressly included in the resolution plan, and which is not expressly barred as per such plan, cannot be inferred to have been included therein.
The Court held that the West Bengal Power Development Corporation (respondent), although not entitled to independently pursue its claim by way of counterclaim post-approval of the resolution plan, ought to be permitted to raise the plea of set-off at least by way of defence. Further, the respondent shall not derive any positive or affirmative relief on the basis of the said defence and may only defend itself against the claim raised by the appellant to the extent necessary to prevent the appellant from succeeding in the arbitration proceedings either entirely or in part.
The Court added that in the event the amount claimed in the counterclaim of the respondent, or any part of it, is found to be due and payable to the respondent by the appellant and such amount exceeds the amount awarded to the appellant, the surplus amount shall not be recoverable by the respondent.
Conversely, the Court clarified that if any amount remains payable to the appellant after adjustment of the respondent’s defence plea, the same shall be recoverable by the appellant and the Tribunal may order accordingly. If the arbitration proceedings initiated by the appellant are withdrawn, the counterclaim of the respondent shall also fail, as the same is permitted only for the limited purpose of defence.
The Supreme Court has clarified that the commercial wisdom of the Committee of Creditors (CoC) in evaluating and approving a resolution plan is paramount and non-justiciable. Essentially, judicial review by adjudicating authorities (NCLT, NCLAT) and courts is strictly confined to the limited grounds specified in the Insolvency and Bankruptcy Code, 2016 (IBC), primarily concerning procedural compliance and legality under Sections 30(2) and 61(3) of the IBC, and does not extend to the merits of a commercial decision.
The Court held that a ‘material irregularity’ under Section 61(3)(ii) of the IBC cannot be attributed to a Resolution Professional (RP) when the RP is acting solely on the express instructions of the CoC. The process of seeking clarifications from resolution applicants to remove ambiguities in their plans, without altering the fundamental commercial terms or the net present value of the offer, does not constitute an impermissible modification of the plan but is a valid exercise within the scope of the CoC’s evaluation process.
The Court cautioned that that unsuccessful bidders will always try to spin commercial decisions of the CoC as procedurally faulty in order to secure a second shot through litigation by filing applications or making representations. Thus, from an ex-post perspective, excessive judicial review in the CIRP carries significant economic costs that run counter to the objects of IBC.
The Bombay High Court has clarified that proceedings for attachment of property initiated under the Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999, are in the nature of a public law remedy and civil forfeiture, intended to protect the interests of depositors from fraudulent activities.
Such proceedings are not ‘in respect of any debt’ as defined under the Insolvency and Bankruptcy Code, 2016, because no debtor-creditor relationship exists between the State and the party whose property is being attached, added the Court.
The High Court explained that the IBC admittedly not having any retrospective effect cannot reach back in time and assert any right of application on such assets which are now in effect State property for the purpose of the provisions of the MPID Act. Thus, the moratorium provisions under the IBC would have no effect on the properties attached under the provisions of the MPID Act or the further attachment.
Consequently, the Court held that the interim moratorium provided under Section 96 of the IBC does not apply to or stay attachment proceedings under the MPID Act. The Court therefore dismissed the appeal and imposed a cost of Rs. 10 lakh on the Appellant for filing the appeal as a dilatory tactic.
The Supreme Court has clarified that a financial creditor is entitled to initiate and maintain simultaneous Corporate Insolvency Resolution Processes (CIRPs) under the Insolvency and Bankruptcy Code, 2016, against both the principal debtor and its corporate guarantor(s) for the same debt. This right stems from the principle of co-extensive liability of the surety as enshrined in Section 128 of the Indian Contract Act, 1872, which is not contradicted by the IBC.
The Apex Court held that a creditor cannot be forced to elect its remedy or apportion its claim between the principal debtor and the guarantor. The Court affirmed that the legal framework, particularly Section 60(2) of the IBC, envisages the possibility of concurrent proceedings and that any apprehension of unjust or double enrichment is addressed by existing regulatory safeguards that mandate the updating and revision of claims by the creditor and the Resolution Professional.
A Two-Judge Bench comprising Justice Dipankar Datta and Justice Augustine George Masih observed that the question of whether simultaneous proceedings can be maintained is no longer res integra and is squarely covered by the decision in BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd. [(2025) 1 SCC 456]. The Bench noted that Section 60(2) of the IBC itself contemplates separate or simultaneous insolvency proceedings against a corporate debtor and its guarantor. This provision, which requires that an application against a guarantor be filed before the same NCLT where the debtor’s CIRP is pending, implicitly permits concurrent proceedings.
The Supreme Court has emphasised that the Insolvency and Bankruptcy Code, 2016 (IBC), is a special statute whose provisions have an overriding effect over any inconsistent provisions in other laws, including the Companies Act, by virtue of Section 238 of the IBC. The Court emphasised that the corporate restructuring under the IBC must be prioritized over stalled and ineffective proceedings under the Companies Act to protect public funds and the larger economic interest.
Essentially, the Apex Court held that an independent proceeding initiated under Section 7 of the IBC for the revival of a corporate debtor is not affected by and shall prevail over pending proceedings under the Companies Act, such as a Scheme of Arrangement, especially when the latter has been rendered defunct and inoperable due to gross, unexplained delays and non-compliance with statutory timelines.
A Two-Judge Bench of Justice Sanjay Kumar and Justice K. Vinod Chandran observed that the respondent company had failed to comply with the procedural and statutory timelines mandated under the Companies Act, 1956, and the Companies (Court) Rules, 1959, for the SOA. The delay of almost ten years in getting the scheme sanctioned, which was based on dues as of 2008, rendered it redundant, inoperable, and unenforceable by 2019, especially as the debt had grown astronomically in the interim.
The Supreme Court has clarified that for an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) to be admitted, the adjudicating authority (NCLT) is only required to ascertain the existence of a financial debt and a default in its payment. The concept of a pre-existing dispute, which is a defence against an application by an operational creditor under Section 9, is not applicable to an application by a financial creditor under Section 7 of the IBC.
The Apex Court held that a contract, such as a Debenture Trust Deed (DTD), cannot be considered novated or modified through informal communications with only one of several parties, especially when the contract itself prescribes a strict and formal procedure for amendment that has not been followed. For a novation under Section 62 of the Contract Act, 1872, consensus among all original parties is essential.
Further, the Court emphasised that a waiver of rights under a contract cannot be implied when the agreement explicitly requires such waiver to be in writing. The duty of a debenture trustee is to the debenture holders, and acting to protect their interests as per the governing deed does not amount to collusion or unfairness.
A Two-Judge Bench comprising Justice Sanjay Kumar and Justice K. Vinod Chandran observed that the NCLT and NCLAT erred by proceeding on the assumption that a moratorium was in place. The Bench noted that the restructuring discussions were held with only one debenture holder, ECLF, and there was no evidence that ECLF was authorized to act on behalf of all other debenture holders, who were separate legal entities.
The Supreme Court has ruled that orders passed under the Prohibition of Benami Property Transactions Act, 1988 (Benami Act) cannot be questioned before authorities under the Insolvency and Bankruptcy Code, 2016 (IBC). The Court clarified that the National Company Law Tribunal (NCLT) lacks jurisdiction to entertain challenges to provisional attachment orders passed by authorities under the Benami Act, and the remedy for such challenges lies exclusively before the competent forum constituted under the Benami Act itself.
The Apex Court emphasised that the adjudicatory fora under the IBC must yield to the specialised mechanism created by the Benami Act for disputes pertaining to the exercise of sovereign statutory power, particularly in relation to the determination of legality of title, attachment, or confiscation of property.
A Two-Judge Bench comprising Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar observed that both the Benami Act and the IBC are special legislations operating in distinct fields. The Benami Act is a complete and self-contained code for the identification, attachment, adjudication, and confiscation of benami property, with a distinct adjudicatory and appellate hierarchy. On the other hand, the IBC is an exhaustive code governing insolvency resolution and liquidation of corporate persons.
Tribunals (NCLT/ NCLAT)
NCLAT Delhi: Fixed Deposit of Corporate Debtor Cannot Be Disturbed After Resolution Plan Approval
Emphasising the principle of finality of an approved resolution plan and the ‘clean slate’ doctrine, as established by the Supreme Court in Ghanashyam Mishra & Sons (P) Ltd. Vs Edelweiss Asset Reconstruction Co. Ltd. [(2021) 9 SCC 657], the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has held that once a resolution plan is approved by the Adjudicating Authority, all claims which are not part of the plan stand extinguished. This ensures that the successful resolution applicant can start with a ‘fresh slate’ without the threat of ‘surprise claim’.
The NCLAT ruled that since the Respondent No. 1 in the present case has failed to file its claim regarding the purported lien over the Fixed Deposits (FD) during the Corporate Insolvency Resolution Process (CIRP), any such claim was extinguished upon the approval of the resolution plan. Consequently, the FD, being an unencumbered asset of the Corporate Debtor, could not be interfered with after the plan had been approved and implemented.
The NCLAT Clarified that the approved plan could not be altered based on claims that were not pursued in time. Therefore, the Successful Resolution Applicant (SRA – Mangalam Global Enterprise Limited) for the Corporate Debtor (H.M. Industrial Private Limited) was entitled to the liquidation of the FD and the transfer of its proceeds. The NCLAT therefore, directed Bank of Baroda to liquidate the FD and transfer the amount with accrued interest to the Appellant.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has asserted that to classify a transaction as fraudulent or wrongful trading under Section 66 of the Insolvency and Bankruptcy Code, 2016 (IBC), there must be cogent and conclusive evidence demonstrating a deliberate intent to defraud creditors; a mere presumption or suspicion is not sufficient.
The NCLAT held that the payments made for legitimate and documented managerial services rendered in the ordinary course of business to maintain the company as a going concern cannot be deemed fraudulent under Section 66 without strict proof of malafide intent, especially when similar claims for other periods have been admitted.
However, any withdrawal made with the knowledge that the company’s insolvency is imminent or inevitable, particularly if cleared after the commencement of the CIRP, can be directed to be refunded to the corporate debtor’s account, added the Tribunal.
The National Company Law Appellate Tribunal (NCLAT) at Principal Bench, New Delhi, has clarified that an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), is not barred by limitation if its filing is within a fresh limitation period triggered by the issuance of a Recovery Certificate by the Debt Recovery Tribunal (DRT), which grants a fresh three-year period of limitation from the date of the certificate.
The NCLAT held that the limitation period also gets extended by an acknowledgment of the debt in the corporate debtor’s audited financial statements. An entry reflecting a contingent liability, such as a corporate guarantee, can be construed as an unequivocal acknowledgment of the underlying jural relationship of debtor and creditor, thereby extending limitation under Section 18 of the Limitation Act, 1963.
Further, the Tribunal explained that a written communication from the corporate debtor, such as a letter responding to a settlement offer, which acknowledges the debt, if made before the expiry of the then-subsisting limitation period, gives rise to a fresh period of limitation from the date of the acknowledgment. The computation of the limitation period must also account for the exclusion of the period from March 15, 2020 to February 28, 2022, as directed by the Supreme Court in its suo moto orders concerning the COVID-19 pandemic.
The Ahmedabad Bench of the National Company Law Tribunal (NCLT) has clarified that in view of the overriding effect of Section 238 of the Insolvency and Bankruptcy Code, 2016, (IBC), the powers conferred upon the Income Tax Department under Section 245 of the Income Tax Act, 1961, cannot be exercised during the subsistence of a moratorium under Section 14 of the IBC.
The NCLT ruled that the adjustment of income tax refunds, which are assets of the corporate debtor, against pre-CIRP tax demands during the moratorium period is a form of recovery and is expressly prohibited by Section 14 of the IBC. Consequently, any such adjustment is illegal, arbitrary, and void, and the amount so adjusted or withheld must be refunded to the corporate debtor, along with any applicable statutory interest, to be made available for the insolvency resolution process.
The Division Bench comprising Shammi Khan (Judicial Member) and Sanjeev Sharma (Technical Member) observed that while Section 245 of the Income Tax Act empowers the department to set off refunds against outstanding tax dues, this power is not absolute. Section 238 of the IBC contains a non-obstante clause that gives the IBC primacy over any inconsistent provisions in other laws, including the Income Tax Act.
The Mumbai Bench of the National Company Law Tribunal (NCLT) has held that the security deposits refundable to post-paid subscribers and the unspent balances of pre-paid subscribers are considered money collected in excess of prescribed rates. These amounts, being outstanding liabilities in the Corporate Debtor’s books at the start of the CIRP, shall be admitted by the RP as Operational Debt and are liable to be paid into the Telecommunication Consumers Education and Protection Fund.
The liability towards these subscribers exists and must be included in the Information Memorandum, irrespective of whether individual claims were filed, added the Tribunal.
The NCLT also clarified that only liabilities that exist as of the insolvency commencement date are admissible in a CIRP. Regulatory penalties imposed after the commencement of CIRP are not admissible claims due to the moratorium under Section 14 of the Code. The financial disincentive imposed by TRAI is considered an Operational Debt, but only the portion levied before the CIRP began is admissible and must be dealt with in accordance with the Resolution Plan.
The Division Bench comprising Ashish Kalia (Judicial Member) and Sanjiv Dutt (Technical Member) observed that the Corporate Debtor held security deposits from post-paid subscribers and advance payments from pre-paid subscribers, which were due for refund prior to the commencement of the CIRP.
The Tribunal observed that the total claim of Rs. 2.53 Crores was mostly raised after the commencement of the CIRP. Only a demand for Rs. 17 Lakh was raised prior to the CIRP start date, while the remaining Rs. 2.36 Crores was demanded while the moratorium under Section 14 of the Code was in effect.
The National Company Law Appellate Tribunal (NCLAT) Principal Bench, New Delhi, has clarified that the NCLT has jurisdiction under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016 (IBC) to decide any question of law or fact arising out of or in relation to insolvency proceedings, including claims against a Multi-State Co-operative Society, notwithstanding the exclusion of the Companies Act, 2013, by the Multi-State Cooperative Societies Act, 2002. This is due to the overriding effect of Section 238 of the IBC.
The NCLT ruled that a creditor who participates in the CIRP by filing a claim and accepts payment under a resolution plan is estopped from later challenging the NCLT’s jurisdiction, and any unilateral adjustment of dues by a creditor from the assets of the corporate debtor after the imposition of a moratorium under Section 14 of the IBC is illegal. Further, the shares held by a corporate debtor in a co-operative society are considered its assets, and any provision in the Multi-State Cooperative Societies Act, 2002, to the contrary is overridden by the IBC.
Accordingly, the appeal was partly allowed, modifying the NCLT’s order only to the extent that the 10% interest on the refund of Rs. 56 Lakh would be calculated from the date of filing of the application, instead of the respective adjustment dates.
NCLT: Knowledge of Fraudulent Business Intent Essential to Invoke Section 339 Against Third Parties
The Mumbai Bench of the National Company Law Tribunal (NCLT) has clarified that the aspect whether third persons, including the auditors, participated in, facilitated or assisted fraudulent transactions by a company knowing that the company’s business is being carried on for any fraudulent purpose are yet to be looked into and can only be considered when the evidence(s) on record in relation to their role in perpetration of such fraud are examined.
No general rule for their exclusion from scope of section 339 of the Companies Act, 2013 can be laid, as it would depend on the facts of each case. Accordingly, the contention of third persons, including auditors, against their liability is premature at this juncture, added the NCLT.
The Division Bench comprising Sushil Mahadeorao Kochey (Judicial Member) and Prabhat Kumar (Technical Member) observed that Section 339 of the Companies Act makes liable any person, who is or has been a director, manager, or officer of the company or any persons who were knowingly parties to the carrying on of the business if any business of the company has been carried on with intent to defraud creditors of the company or any other persons or for any fraudulent purpose.
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