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.
The Division Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) referred to the argument of the Appellant argued that as a Multi-State Co-operative Society, it is not subject to the Companies Act, 2013, by virtue of Section 121 of the Multi-State Cooperative Societies Act, 2002, and therefore the NCLT, a tribunal constituted under the Companies Act, had no jurisdiction. However, the Bench rejected this, observing that the appellant had submitted to the NCLT’s jurisdiction by filing a claim and receiving payment under the resolution plan.
More importantly, the Bench held that Section 238 of the IBC gives the Code an overriding effect over inconsistent provisions in other laws, including the Multi-State Cooperative Societies Act, 2002. The dispute regarding the adjustment of dividends arose directly ‘out of or in relation to the insolvency resolution’ and thus fell squarely within the NCLT’s jurisdiction under Section 60(5)(c) of the IBC.
On the legality of adjustments during moratorium, the NCLT found that the adjustments made by the Appellant from the share/dividend account during the CIRP and post-plan approval violated the moratorium under Section 14 of the IBC. The NCLAT upheld this finding, noting that after the CIRP commenced and the moratorium was in effect, the dividends payable to the Corporate Debtor were unilaterally adjusted by the Appellant, which was impermissible.
On shares as ‘Assets’ of the corporate debtor, the Appellant contended that under Sections 55 and 56 of the Multi-State Cooperative Societies Act, 2002, the shares were not assets of the Corporate Debtor that could be attached. The NCLAT dismissed this argument, affirming the NCLT’s view that the shares were indeed “assets” of the Corporate Debtor under the IBC. The shares were listed in the Information Memorandum, and the overriding nature of the IBC (Section 238) meant that the provisions of the Multi-State Cooperative Societies Act, 2002, could not be used to exclude these shares from the Corporate Debtor’s assets.
Lastly, the NCLT had directed a refund of Rs. 56 lakhs with 10% interest from the various dates of adjustment. While the NCLAT upheld the principal refund amount, it modified the order regarding interest. The appellate tribunal reasoned that since the SRA’s application for the refund was filed on 04.03.2025, the interest should be payable from that date, not from the earlier adjustment dates.
Briefly, the Corporate Insolvency Resolution Process (CIRP) of Swastik Ceracon Limited (the Corporate Debtor) commenced on January 15, 2019, and the Appellant, Mehsana Urban Co-operative Bank, filed a claim of Rs. 10.43 Crores as a financial creditor, which was admitted. The Corporate Debtor held equity shares in the Appellant bank, and these shares were recorded as assets of the Corporate Debtor in the Information Memorandum. A Resolution Plan was approved by the NCLT, under which the Appellant was allocated an amount exceeding Rs. 5 Crores, against its admitted claim.
Subsequent to the approval of the plan, the Successful Resolution Applicant (SRA) filed an application alleging that the Appellant had, both during the CIRP and after the plan’s approval, unlawfully adjusted dividends and share values amounting to Rs. 56 lakhs. The SRA sought a refund of this amount with interest. The NCLT later, allowed the application, directing the Appellant to refund Rs. 56 lakhs with 10% interest from the respective dates of adjustment.
Appearances:
Advocate Kamlesh Patel, for the Appellant
Advocates Palash Singhai, Jinth Nayak, Harshal Sareen, and Aashima Gautam, for the Respondents
