The Supreme Court has clarified that while subsidiary companies are separate legal entities, the corporate veil may be lifted where associated companies are inextricably connected so as to form one concern. Since in the present case, Earth Infrastructures Limited (EIL) EIL was the main driving force behind the development of all three Greater Noida Industrial Development Authority (GNIDA)-linked projects, GNIDA was aware of that position, and the subsidiary/SPC entities were only a front, the Court held this to be an eminently fit case for lifting the corporate veil.
The Court explained that although GNIDA remained entitled to recover its principal dues, its failure to monitor the projects, delay in taking steps against defaults, and lack of diligence during the CIRP disentitled it from claiming penal interest, penal charges and time-extension penalties at this stage.
The Apex Court therefore held that the NCLAT erred in setting aside the approved plans, and hence, restored the resolution plans of Alpha and Roma, directed GNIDA to recalculate dues excluding penal components, and allowed payment of those recalculated dues over twenty-four months. The plans were to proceed from June 01, 2026, and registrations in favour of allottees were to be undertaken only after GNIDA’s dues were fully paid, with GNIDA’s participation, so as to confer sub-lease status on buyers.
The Ahmedabad Bench of the Gujarat High Court has held that during the subsistence of moratorium under Section 14 of the IBC, a lessor cannot terminate a subsisting lease and recover possession of leased property occupied by the corporate debtor by invoking contractual breach clauses or by initiating or continuing eviction proceedings under the Gujarat Public Premises Act, 1972. The Court emphasised that Explanation to Section 14(1) is clarificatory and not an enabling exception permitting such termination or recovery on grounds other than insolvency. The expression “proceedings” in Section 14(1)(a) is broad, and the protection under Section 14(1)(d) extends to actual occupation or possession of property by the corporate debtor, so as to maintain status quo and preserve the corporate debtor as a going concern during CIRP.
Since Section 238 gives the IBC overriding effect over inconsistent provisions of the Public Premises Act, the High Court held that the Single Judge had committed no error in quashing the termination order and eviction order, and the Letters Patent Appeal filed by GIDC was dismissed as devoid of merit. The Court clarified that issues concerning approval of the resolution plan and GIDC’s claims pending before the NCLAT were left open and that its observations would not prejudice the parties there.
The Division Bench comprising the Chief Justice Sunita Agarwal and Justice D.N. Ray observed that Section 14(1)(d) of the IBC prohibits recovery of any property by an owner or lessor where such property is occupied by or in possession of the corporate debtor, and that this protection had to be read in light of the object of the moratorium, namely preservation of the assets and value of the corporate debtor as a going concern. It accepted that the leasehold interest of the corporate debtor in the demised premises was “property” within Section 3(27) of the IBC, and noted that the leased land was the only property held by the corporate debtor. The Bench further observed that the statutory freeze under Section 14 is intended to preserve the status quo from the insolvency commencement date until completion of CIRP or approval of the resolution plan.
The Supreme Court has held that where a transaction is structured such that the lender’s disbursement is made directly to a builder and is intrinsically linked to the builder’s obligations concerning construction, delivery and transfer of the property, and the dispute is predominantly contractual and already subject to recovery proceedings before the DRT, such matter does not constitute a straightforward “financial debt-default” scenario for initiation of CIRP under Section 7 of the IBC. In such circumstances, invocation of the Code would amount to using insolvency proceedings as a coercive recovery mechanism, which is impermissible.
The Court treated the substance of the transaction as a builder-linked contractual arrangement rather than a pure financial debt default, and on that basis refused to allow Section 7 IBC proceedings to be used in parallel with DRT recovery proceedings.
The Division Bench comprising Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe reiterated that the condition precedent for invocation of Section 7 of the Code is the existence of a “financial debt” and a “default” in repayment. It also observed that the Code is a collective insolvency resolution mechanism and not a forum for adjudication of individual contractual claims. The Bench also observed that where the object behind invoking the Code is to compel payment rather than address genuine financial distress, such invocation amounts to abuse of process, and the Code must not be used as a tool for coercion and debt recovery by individual creditors.
The Supreme Court has held that an appeal filed without a certified copy of the impugned order, and without even an application for exemption from filing such certified copy, is not a merely defective appeal capable of being cured, rather it is a wholly incompetent appeal that does not satisfy the essential requirements under the Code and the NCLAT Rules.
A Two-Judge Bench of Justice Sanjay Kumar and Justice K. Vinod Chandran reaffirmed, that Rule 22(2) of the NCLAT Rules mandatorily requires every appeal to be accompanied by a certified copy of the impugned order, and that parties cannot automatically dispense with this obligation. The Bench emphasised that the act of applying for a certified copy before the expiry of the limitation period is not merely a technical requirement but is an indicator of the diligence of the party in pursuing litigation in a timely manner.
Section 138 NI Act Proceedings Not Stayed By Personal Insolvency Moratorium Under IBC: Supreme Court
The Supreme Court has held that proceedings under Section 138 of the Negotiable Instruments Act are not in the nature of legal action for recovery of money simpliciter; they are quasi-criminal proceedings with a tilt towards the criminal side, and their predominant object is to maintain the credibility and integrity of cheques in commercial transactions by attaching penal consequences to cheque dishonour. Accordingly, the moratorium provisions under Part III of the IBC do not apply to the criminal aspect of Section 138 proceedings, namely the prosecution and punishment for the offence, but do apply to the compensatory aspect, namely the recovery of compensation ordered in such proceedings.
The Court further held that where directors are vicariously liable under Section 141 of the NI Act and are themselves undergoing insolvency or bankruptcy under Part III of the IBC, they are entitled to the benefit of moratorium in respect of the compensatory liability, but not in respect of their personal criminal liability under Section 138of the NI Act.
Accordingly, Two-Judge Bench comprising Justice J.B. Pardiwala and Justice K. V. Viswanathan directed that the matters be placed before the Chief Justice of India for constitution of an appropriate three-Judge Bench. The Court indicated that the larger Bench may consider, first, whether Section 138 of the NI Act and its underlying objective indicate that it is quasi-criminal in nature with a tilt towards the criminal side, and second, whether the moratorium provisions under Part III of the IBC apply to the entire proceedings under Section 138 or only to the compensatory aspect thereof.
The Supreme Court has clarified that once a resolution plan has been approved by the CoC, the successful resolution applicant is bound by it and cannot seek to evade implementation by raising objections to LoI stipulations that are either inherent in the process, already known to it, or expressly accepted by it. The Court reaffirmed that after CoC approval, there is no scope under the IBC for the successful resolution applicant to negotiate further, modify the plan, or withdraw from it at its own instance; the only surviving statutory contingency is adjudicatory approval under Section 31, subject to the limits of Section 30(2).
The Court further held that where the successful resolution applicant fails to furnish the performance guarantee or otherwise fails to comply with the plan process, forfeiture of the earnest money deposit in terms of the RFRP is valid, particularly where the non-compliance does not arise from non-receipt of the LoI or imposition of additional terms outside the resolution plan process. The Court also affirmed that under Section 33(2), read with its Explanation, the CoC is entitled, at any time before confirmation of the resolution plan, to resolve to liquidate the corporate debtor, and such commercial decision is not amenable to judicial review except within the narrow statutory framework.
The New Delhi Principal Bench of the National Company Law Appellate Tribunal (NCLAT) has held that where a financial creditor establishes the existence of financial debt and a continuing default, a Section 7 application is maintainable even if the creditor has also obtained an arbitral award and pursued execution proceedings, because those remedies are not mutually exclusive. In the present case, the default was held to have arisen independently upon non-payment pursuant to the valid loan recall notices, and was not dependent solely on the arbitral award.
The Tribunal further held that a contractually defined “material adverse effect” clause can validly support recall of the loan where the lender forms the opinion that circumstances affecting the guarantors impair the obligors’ ability to perform their obligations, particularly where guarantors are expressly included within the definition of “Obligor(s).” Consequently, non-payment within the recall period constituted default for the purpose of Section 7.
The New Delhi Principal Bench of the National Company Law Appellate Tribunal (NCLAT) has held that where a real estate project has been undertaken under a collaboration arrangement, substantial construction has been carried out, allotments have been made to allottees, and neither HARERA nor the arbitral tribunal has accepted that the underlying Collaboration Agreement stood validly terminated, the unsold inventory and the subject project property cannot be excluded from the valuation of the corporate debtor or from the Information Memorandum in CIRP.
The NCLAT asserted that merely because the arbitral tribunal found that the Collaboration Agreement could not be specifically enforced and described it as inoperable for that purpose, it did not follow that the project assets ceased to form part of the corporate debtor’s estate for insolvency purposes, particularly when the landowner’s specific prayer for declaration of lawful termination and for transfer of the project back to him had been refused, and the rights of allottees remained statutorily protected. Accordingly, the Division Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) upheld the rejection of the appellant’s application seeking exclusion of the unsold inventory and subject property from the CIRP process.
The New Delhi Principal Bench of the National Company Law Appellate Tribunal (NCLAT) has held that the right of a secured creditor to realise its security interest outside liquidation under Section 52 is a qualified statutory right and can be exercised only upon strict compliance with the Code and the Liquidation Regulations. Mere assertion of an intention not to relinquish security is insufficient.
The NCLAT clarified that if the secured creditor fails to comply with Regulation 21A(2), including payment of the required dues within the prescribed period, and fails to take the necessary steps for realisation of security, Regulation 21A(3) operates automatically and the secured asset becomes part of the liquidation estate.
The Tribunal also held that where the alleged pari passu charge is conditional and the foundational contractual conditions for its creation are not fulfilled, such charge does not become legally enforceable merely because charge documentation exists or charge registration has been made. Further, in a consortium lending structure involving joint security, Section 13(9) of the SARFAESI Act applies as the applicable law under Section 52(4), with the consequence that a decision of secured creditors holding the requisite statutory majority binds the dissenting creditor.
On distribution, the Division Bench comprising Justice Ashok Bhushan (Chairperson) and Indevar Pandey (Technical Member) held that questions relating to entitlement and inter se distribution of sale proceeds under Section 53 are to be adjudicated by the Adjudicating Authority in the first instance. It accordingly dismissed the first appeal, disposed of the second appeal by remanding the issue of distribution to the Adjudicating Authority, and dismissed the third appeal as barred by limitation.
The National Company Law Tribunal (NCLT) Mumbai Bench has explained that a document styled and worded as a guarantee, which records that the signatory unconditionally and irrevocably guarantees repayment of the borrower’s dues, will be treated as a contract of guarantee and not as an indemnity merely because it also contains language that, as between the bank and guarantor, the guarantor is treated as principal debtor.
The Tribunal held that where the terms of the guarantee are on demand, a Section 13(2) SARFAESI notice addressed to the guarantor and containing a specific demand to pay within the stated period can amount to valid invocation of the personal guarantee. In such a case, the guarantor’s default arises upon failure to comply within that demand period, and the date of default for the guarantor may therefore be different from the borrower’s default/NPA date.
The Division Bench comprising Nilesh Sharma (Judicial Member) and Sameer Kakar (Technical Member) further held that for admission under Section 95/100 IBC, pendency of proceedings under SARFAESI or before the DRT does not bar initiation of insolvency resolution against a personal guarantor, having regard to the independent nature of IBC proceedings and the overriding effect of Section 238. Even if the guarantee deed is challenged on stamping, the application can still be admitted where debt and default are otherwise established from other transaction documents on record.
The National Company Law Appellate Tribunal (NCLT) Mumbai Bench has clarified that for admission of a Section 7 IBC application, the Adjudicating Authority is required to determine whether there exists a financial debt and whether a default has occurred. The Court held that disputes raised by the Corporate Debtor, including MSME-related objections, alleged irregularity in NPA classification, pending arbitration, or other inter se disputes, do not defeat admission once debt and default are established.
The Tribunal also held that a dispute as to the precise date of default is not material where, even on the Corporate Debtor’s own case, the application remains within limitation. Further, a defect in the supporting affidavit of the application was treated as a curable defect, not fatal to maintainability once cured pursuant to the Tribunal’s direction.
The Division Bench comprising Nilesh Sharma (Judicial Member) and Sameer Kakar (Technical Member) explained that the debt owed by the Corporate Debtor fell within the definition of “financial debt” under Section 5(8), that the default exceeded the threshold under Section 4, and that the conditions necessary to trigger CIRP were fulfilled. Accordingly, the Section 7 application was admitted, moratorium under Section 14 was declared, and RSDS Advisory & Restructuring LLP was appointed as IRP.
NCLT Directs Suspended Director to Refund Rental Income Diverted to Personal Account During CIRP
The Mumbai Bench of the National Company Law Tribunal (NCLT) has clarified that where a director/suspended management, while aware of impending or ongoing CIRP, conceals true asset-related transactions of the corporate debtor, furnishes forged leave and license documents to the RP, and diverts rental income from properties owned by the corporate debtor into his personal account or a connected account, such conduct constitutes carrying on the business of the corporate debtor for a fraudulent purpose with intent to defraud creditors, warranting a contribution direction under Section 66(1) of the IBC.
On the facts before it, the Division Bench comprising Justice Sushil Mahadeorao Kochey (Judicial Member) and Prabhat Kumar (Technical Member) directed Respondent No. 1 to contribute the amounts already received from Respondent Nos. 3 and 4, as well as any further amounts received under the leave and license arrangements, to the assets of the corporate debtor within 30 days, together with interest at 12% per annum from the date of receipt until payment. The Tribunal further held that, given the concealment, diversion of funds, and obstruction in relation to the corporate debtor’s assets during CIRP, the matter merited referral to the IBBI for appropriate action under Sections 70, 72, 73 and 74 of the IBC.
The Jaipur Bench of the National Company Law Tribunal (NCLT) has held that proceedings under Section 94 of the Insolvency and Bankruptcy Code, 2016 are maintainable only where the applicant clearly satisfies the statutory character of a “personal guarantor to a corporate debtor.” Mere description of the applicant in loan documents as a “co-borrower” or “co-applicant,” without an independently established contract of guarantee and proof that such guarantee was invoked and remains unpaid, does not meet the legal threshold under Section 94 read with Section 5(22), Rule 3(e) of the 2019 Rules, and the notification bringing Part III into force for personal guarantors.
The Division Bench comprising Reeta Kohli (Judicial Member) and Kavita Bhatnagar (Technical Member) observed that for invoking jurisdiction under Sections 94 and 95 IBC, the debtor must be a personal guarantor to a corporate debtor, and this is a mandatory threshold requirement. The tribunal rejected the argument that co-borrowers and guarantors are merely commercial expressions or are analogous in liability.
The National Company Law Tribunal (NCLT), Chennai Bench has held that advance paid to a corporate debtor for supply of goods or services, where the claim has a nexus with the provision of goods or services, constitutes “operational debt” within the meaning of Section 5(21) of the IBC. Therefore, such advance can be taken together with unpaid invoice dues for the purpose of determining whether the Section 4 threshold for a Section 9 application is met.
The Tribunal affirmed that acknowledgment of liability in balance confirmation letters and subsequent reply correspondence can extend limitation under Section 18 of the Limitation Act, and where the so-called dispute is not a genuine dispute as to quality or quantity and liability is otherwise admitted, the Section 9 petition is maintainable. Accordingly, CIRP was initiated against Sabash Engineering (Chennai) Pvt Ltd., and K.J. Vinod was appointed as the Interim Resolution Professional. The Tribunal also directed payment of Rs. 3 lakhs to the IRP and imposed the statutory moratorium under Section 14 of the IBC.
The Division Bench comprising Sanjiv Jain (Judicial Member) and Venkataraman Subramaniam (Technical Member) has recorded that it was an admitted case that the parties had a business relationship since 2013, and that both sides used to place purchase orders on each other in the ordinary course of business. The Tribunal noted that the petitioner had placed on record the purchase orders, invoices, ledger accounts, bank statement extracts, and confirmation of balance letters, by which the Corporate Debtor acknowledged liability and confirmed the outstanding balance of Rs. 1.13 crores.
The Mumbai Bench of the National Company Law Tribunal (NCLT) has held that timelines under Regulation 35A of the CIRP Regulations are directory, and an avoidance application is not liable to fail merely on that procedural objection. Where the primary facts of payment are undisputed, and cash payments are made within the statutory look-back period to discharge antecedent debt in a manner indicating appropriation of cash immediately prior to CIRP, such payments can be held to be preferential under Section 43 if they do not fall within the ordinary course of business or the exception under Section 43(3) of IBC.
The NCLT ruled that a write-off of inventory may be held fraudulent under Section 66(1) where the surrounding facts show non-maintenance and withholding of stock records, inconsistency between inventory figures and operational trends, and use of the write-off to conceal non-existent inventory with intent to defeat creditors in contemplation of insolvency. Accordingly, the Tribunal directed the Respondent Nos. 4 and 5 to repay Rs. 4.97 lakhs to the Corporate Debtor, and Respondent Nos. 1 to 3 were directed to contribute Rs. 10.83 crores to the assets of the Corporate Debtor, both within 30 days, failing which interest at 12% p.a. would apply from the date of the order.
The Division Bench comprising Sushil Mahadeorao Kochey (Judicial Member) and Prabhat Kumar (Technical Member) observed that the timelines under Regulation 35A of the CIRP Regulations are directory in nature. It opined that the factual basis of the transactions was not disputed by the Respondents, though the conclusions drawn from those facts were challenged. It also noted from the audit report that the transaction auditor had relied on information provided by the RP, staff, and promoters, and that the suspended directors had knowledge of the information shared with the auditor. On that basis, the Tribunal rejected the challenge founded on absence of annexures or signatures on every page.
The Mumbai Bench of the National Company Law Tribunal (NCLT) has held that Section 54 of the Insolvency and Bankruptcy Code, 2016 does not permit direct dissolution of a corporate debtor at the CIRP stage merely because the corporate debtor has no assets. The dissolution under Section 54 can be sought only after the assets of the corporate debtor have been completely liquidated, and the application for such dissolution must be made by the liquidator, not by the resolution professional.
Further, the NCLT’s inherent powers under Rule 11 of the NCLT Rules cannot be invoked to bypass or override the mandatory statutory sequence under the IBC requiring CIRP followed, where applicable, by liquidation before dissolution, added the Tribunal.
The Division Bench comprising K. R. Saji Kumar (Judicial Member) and Anil Raj Chellan (Technical Member) noted that the CIRP had been initiated at the instance of an operational creditor, and that at the admission stage there was no proof of receipt of goods by the corporate debtor and no acknowledgment of liability arising from such supply. It also recorded that although there was an open charge on book debts in favour of Punjab National Bank, no claim had been filed by the bank. The Tribunal observed that eight CoC meetings had been convened, but instead of taking steps to explore possible resolution, the CoC passed a resolution for dissolution without undergoing the liquidation process under the IBC.
The New Delhi Principal Bench of National Company Law Tribunal (NCLT) has held that where an application for withdrawal of CIRP under Section 12A of the IBC is supported by a duly submitted Form FA, accompanied by the required bank guarantee, placed before the CoC within the prescribed time, approved by not less than 90% voting share of the CoC, and otherwise complies with Regulation 30A, the Adjudicating Authority may permit withdrawal of the CIRP.
In the present case, since the “essential requirements” for a Section 12A application had been completely met and no stakeholder had objected, the NCLT allowed withdrawal of the corporate insolvency resolution process (CIRP) against Nobility Estates Pvt Ltd, developer of ATS Group’s luxury housing project ‘Le Grandiose’ in Noida, after lenders and the company’s erstwhile management reached a settlement agreement. The Tribunal also restored management to the Board, and released the Resolution Professional from CIRP-related obligations and liabilities.
The Division Bench comprising Bachu Venkat Balaram Das (Acting President) and Ravindra Chaturvedi (Technical Member) was satisfied that the essential requirements for filing an application under Section 12A had been completely met and that no objections had been received from any stakeholder opposing the application. On that basis, the Tribunal allowed the application, took on record the Form FA dated 13 March 2026 and the accompanying bank guarantee, concluded the CIRP of Nobility Estates Private Limited, and disposed of all pending applications connected with the insolvency proceedings.
The Mumbai Bench of the National Company Law Tribunal (NCLT) has asserted that for admission of a petition under Section 7 of the IBC, the Adjudicating Authority is required only to ascertain the existence of a financial debt and the occurrence of default, and once these are established, technical objections as to Form 1 particulars, insufficiency of stamping, absence of Information Utility record, or pendency of parallel proceedings against related obligors do not defeat maintainability.
The Tribunal further held that where term loans are repayable through continuing instalment schedules, limitation for Section 7 proceedings is not exhausted merely because some earliest instalments may have become time-barred; each subsequent unpaid instalment constitutes a default under Section 3(12), and defaults occurring within three years prior to filing are sufficient to sustain the petition. It was also held that multiple loan facilities granted by the same creditor to the same corporate debtor as part of a common financing relationship may be pursued in one consolidated Section 7 application, and simultaneous proceedings against co-borrowers, guarantors, or sister concerns do not bar such petition until the underlying debt is fully satisfied.
The Division Bench comprising Nilesh Sharma (Judicial Member) and Sameer Kakar (Technical Member) observed that the scope of inquiry under Section 7 is limited to examining whether there exists a financial debt and whether default has occurred. It further observed that at the admission stage the Adjudicating Authority is not required to examine broader disputes, the commercial viability of the Corporate Debtor, or its alleged solvency; nor can technical objections be permitted to defeat the statutory remedy once debt and default are established.
The Guwahati Bench of the National Company Law Tribunal (NCLT) has held that Section 68 of the Insolvency and Bankruptcy Code, 2016 is a penal provision, and offences under Sections 68 and 235A of the Code can be prosecuted only before the competent Special Court in the manner prescribed under Section 236 of the Code; therefore, the NCLT, while exercising summary jurisdiction under Section 60(5), has no jurisdiction to try such offences, record findings of criminal culpability, or impose penal consequences.
The Division Bench comprising Rammurti Kushawaha (Judicial Member) and Yogendra Kumar Singh (Technical Member) reproduced Section 68 of the Code and observed that it is a penal provision dealing with punishment where an officer of the corporate debtor has wilfully concealed, removed, transferred, or otherwise dealt with the property of the corporate debtor with intent to defraud creditors during the relevant period.
The Jaipur Bench of the National Company Law Tribunal (NCLT) has held that for initiation and admission of proceedings against a personal guarantor under Section 95 of the Insolvency and Bankruptcy Code, 2016, invocation of the guarantee in accordance with the contract of guarantee is a mandatory precondition under Rule 3(1)(e) of the relevant Rules, and such invocation must precede the Rule 7 demand notice as well as the filing of the Section 95 application.
The NCLT clarified that a Rule 7 notice cannot itself amount to invocation, because it proceeds on the basis that default has already occurred. Similarly, a SARFAESI notice or a recovery certificate cannot, in the absence of a clear contractual stipulation or specific demand made upon the guarantor under the guarantee deed, be treated as invocation of the personal guarantee. Where no such prior invocation is pleaded and proved, no default arises qua the personal guarantor and the Section 95 application is not maintainable.
The Division Bench comprising Reeta Kohli (Judicial Member) and Kavita Bhatnagar (Technical Member) observed that the statutory framework under Part III of the Code makes invocation of guarantee a fundamental requirement because Rule 3(1)(e) requires that the guarantee must have been invoked and remain unpaid. Finding that the financial creditor had not disclosed in its pleadings any specific act of invocation, the Tribunal rejected the argument that the recovery certificate could amount to invocation, observing that a recovery certificate is the result of adjudication or consent before a recovery forum, whereas invocation is a contractual act by which the creditor calls upon the guarantor to perform his obligation under the contract of guarantee.
NCLT: Interest Cannot Be Artificially Added To Debt Without Contractual Basis To Meet IBC Threshold
The Chennai Bench of the National Company Law Tribunal (NCLT) has held that, for admission of a Section 7 application, the applicant must establish that the claimed debt is a “financial debt” within the meaning of Section 5(8), namely a debt disbursed against consideration for the time value of money. Where the material on record shows a continuous commercial trading relationship supported by purchase and sales invoices, and there is no written loan agreement, no interest clause, and no contemporaneous evidence that the transaction was a loan at inception, the debt cannot subsequently be recharacterized as financial debt merely by later communications or unilateral assertions. Further, interest cannot be added without contractual basis to artificially cross the statutory threshold for maintainability under Section 7 of the IBC.
The Division Bench comprising Jyoti Kumar Tripati (Judicial Member) and Ravichandran Ramasamy (Technical Member) observed that the principal issue was whether the debt claimed by the applicant qualified as a “financial debt” under Section 5(8) of the Code. On examining the invoices on record, it found that the parties were engaged in a continuous business-to-business relationship and that the documents showed purchase and sales invoices indicative of an operational rather than a financial arrangement. It reiterated that, to qualify as a financial debt, the debt must be disbursed against consideration for the time value of money, and that the burden lay on the applicant to prove that the transaction was not merely a commercial payment but a loan carrying an inherent element of time value of money.
The Chandigarh Bench of the National Company Law Tribunal (NCLT) has held that where a petition under Sections 241-242 of the Companies Act, 2013 raises grievances and seeks reliefs that concern corporate governance, directorial status, board and shareholder actions, dilution of shareholding, alteration of constitutional documents, and other matters affecting rights in rem and the ownership and governance structure of the company, such disputes are statutory in character and are not amenable to arbitration merely because the dispute may have been triggered by or may overlap with contractual arrangements containing arbitration clauses.
The Tribunal further held that the jurisdiction under Sections 241-242 is a special statutory jurisdiction that cannot be waived by prior invocation of arbitration, and where the cause of action is composite, includes non-arbitrable reliefs, and involves parties not bound by the arbitration agreement, bifurcation is impermissible. The Tribunal found that many of the disputes raised and reliefs sought were not amenable to arbitration under the Employment Agreement or the Shareholders’ Agreement, and that the acts complained of fell within the exclusive jurisdiction of the Tribunal under Sections 241-242 of the Companies Act, 2013. It accordingly directed that the interim order would continue in full force and effect.
The Division Bench comprising Khetrabasi Biswal (Judicial Member) and Shishir Agarwal (Technical Member) framed the core issue as to whether the disputes and reliefs in the petition under Sections 241-242 of the Companies Act, 2013 were amenable to arbitration under the Employment Agreement and the Shareholders’ Agreement, or whether they were fully or partly non-arbitrable matters of oppression and mismanagement falling exclusively within the Tribunal’s jurisdiction. It observed that Respondent No. 1 was not merely an employee under the Employment Agreement, but also a co-founder, 35% promoter-shareholder, and founding director, and that these capacities existed independently of the employment relationship. The Tribunal therefore held that the fact that termination of employment was the starting point did not make the entire dispute purely contractual in nature.
The National Company Law Tribunal (NCLT), Bengaluru Bench has held that an agreement of sale and an amendment agreement, even if executed prior to commencement of CIRP, do not by themselves confer any right, title or interest in immovable property of the corporate debtor in favour of the applicant, since title passes only through a duly executed and registered conveyance deed.
Accordingly, where the applicant seeks enforcement of such pre-CIRP agreements in respect of a corporate debtor’s asset, and the transaction is already under challenge in avoidance proceedings as preferential, undervalued or fraudulent, the applicant cannot claim conveyance as of right merely on the basis of those agreements, particularly when payments were made during moratorium and no cogent proof of possession is produced.
The Tribunal thus dismissed the application seeking enforcement of the 2019–20 agreements and execution of the sale deed in favour of the applicant. In addition, while noting the discharge deed issued by TGMC Bank after implementation of the resolution plan, the Tribunal stated that TGMC Bank needed to be summoned to explain the entire scenario and its conduct in receiving money both from the applicant and again under the approved resolution plan.
The Division Bench comprising Sunil Kumar Aggarwal (Judicial Member) and Radhakrishna Sreepada (Technical Member) identified as undisputed that the agreement of sale and amendment agreement had been executed before commencement of CIRP, that TGMC Bank was the secured creditor in respect of the schedule property, that CIRP commenced, that the applicant made payment to TGMC Bank during moratorium, that application seeking avoidance of the impugned sale transactions was pending, and that the applicant was seeking enforcement of the sale transaction by execution of the sale deed in its favour.