INNOVENTIVE INDUSTRIES LTD. V ICICI BANK AND ANR. (CIVIL APPEAL NOS. 8337-8338 OF 2017)
CITATION: 2017 Latest Caselaw 624 SC
COURT: The Supreme Court of India
FACTS:
In 2012, the Innoventive Industries (Corporate Debtor/ Appellant) had proposed to form a consortium for Corporate Debt Restructuring (CDR) which included all 19 banks in order to provide financial assistance to the Corporate Debtor. On June 24, 2014, the consortium approved the CDR scheme. In accordance to the CDR, a Master Restructuring Agreement (MRA) was entered into on September 9, 2014, wherein the funds were to be infused by the creditors and certain obligations were to be met by the Corporate Debtor over the next two years.
ICICI Bank (Respondents) on December 7, 2016 filed an Insolvency Application (IA) against the Corporate Debtor and contented that CIRP ought to be initiated. In reply, the Corporate Debtor filed an application stating that no dues were legally due as all the liabilities of the Corporate Debtor was temporarily suspended for two years according to the two notifications under the Maharashtra Relief Undertakings (Special Provisions) Act, 1958 (hereinafter as ‘Maharashtra Act’). Another application was filed by the Appellant pleading its incapability of repaying the debts due to the non-release of funds under the MRA. It was held by the NCLT that firstly, the Code would prevail over the Maharashtra Act in accordance with the application of the non-obstante clause (Section 238 of IBC). Secondly, it held that a Parliamentary Statute would prevail over the State Statute, hence the IA was admitted and moratorium was declared. Thirdly, the second application was dismissed as: (a) no audience has been given to the Corporate Debtor by the NCLT under the Code; and (b) the Corporate Debtor had not taken the plea contented in the second application in the earlier application as only 14 days was available as prescribed by the Code from the date of filing of the creditor’s petition, to decide the application.
An appeal was filed before the NCLAT against the NCLT order where the NCLAT upheld the decision of the NCLT but held that the IBC and Maharashtra Act operate in different fields and are not repugnant to each other. It held that the Corporate Debtor cannot derive any advantage from the Maharashtra Act and the MRA to stall the CIRP. Hence, aggrieved by the order, an appeal was filed by the Corporate Debtor in the Supreme Court.
LEGAL ISSUES:
- Whether there exists any repugnancy under Article 254 of the Constitution between the two statutes (IBC and the Maharashtra Act) and whether the moratorium imposed by the Maharashtra Act shall continue to be in force when the IA was filed against the Corporate Debtor?
- Whether Section 238 of the IBC shall allow the IBC to prevail over the Maharashtra Act?
- Whether the appeal is maintainable before the Court as it was filed by the management of the company after it was suspended and an IRP/RP was appointed?
JUDGEMENT:
For the first issue, the Court held that the Maharashtra Act was repugnant with the IBC. The Court reasoned that the State Law was an hinderance in the application of the Parliamentary Statute, there was direct inconsistency between the two Acts and as both the IBC and the Maharashtra Act have similar provisions, i.e., the application of moratorium, they cannot be applied together.
For the second issue, the Court held that the non-obstante clause in Section 238 of the IBC will override any non-obstante clause under State enactment (Maharashtra Act).
As for the third issue, the Court held that the appeal is not maintainable before the Court which was filed by the management of the company as once an insolvency professional is appointed to manage the company, the erstwhile directors, do not remain in management anymore and hence cannot maintain an appeal on behalf of the company. It is to be noted that the appeal was dismissed on this ground solely and a detailed judgement was delivered elucidating upon the paradigm shift in the law.
MOBILOX INNOVATIONS PRIVATE LIMITED V KIRUSA SOFTWARE PRIVATE LIMITED (CIVIL APPEAL NO. 9405 OF 2017)
CITATION: [2017] ibclaw.in 01 SC
COURT: The Supreme Court of India
FACTS:
The Mobilox Innovations (Appellant/Corporate Debtor) was engaged in conducting telephonic voting mechanism and it engaged the Kirusa Software (Respondent/Operational Creditor) for providing various TV program related services. A Non-Disclosure Agreement (NDA) was executed between the two and it stipulated certain conditions like confidentiality obligations towards Mobilox. In the meanwhile, the Respondent raised the required monthly invoices for the rendered services. However, the Appellant withheld the payment as there was a breach of the NDA obligations by the Respondent. Later, the Respondent sent a demand notice to the Appellant under Section 8 of the IBC due to non-payment to which the Appellant responded that there was a bona fide and serious dispute between the parties.
Hence, the Respondent made an application before the NCLT, Mumbai under section 9 of the IBC which was rejected on the grounds that the Appellant had issued a notice of dispute to the Respondent. Again, an appeal against the order of the NCLT was filed in the NCLAT by the Respondent contending that a mere dispute to the demand notice by the Respondent does not amount to a valid ground for the rejection of the application made under Section 9 of the IBC. Here, the NCLAT allowed the Respondent’s appeal stating that disputes were not only vague but the Appellant intended to evade the liability. Hence, aggrieved by the orders of the NCLAT, the Appellant filed an appeal in the Supreme Court.
LEGAL ISSUES:
- What is the scope and ambit of the terms “disputes” and the “existence of dispute” for determining the maintainability of an application filed by an Operational Creditor under Section 8(2)(a) of the IBC?
JUDGEMENT:
The Court allowed the appeal of the Appellant, while interpreting the expression “existence of dispute” under Section 8(2) of the IBC. The Court observed that the Insolvency and Bankruptcy Bill, 2015 defined “dispute” as “a bona fide suit or arbitration proceedings”. However, when the bill was passed the term “dispute” was dropped from the definition hence the SC is of the view that the definition of “dispute” does not apply in the current IBC. Instead, the AA has to use the test of “plausible contention” to determine the “existence of dispute”. Furthermore, the Court is of the view that the breach of NDA is sufficient to construe the existence of dispute to invalidate the CIRP application filed by the operational creditor. Lastly, the Court held that in the Section 8(2)(a), the word “and” must be read as “or” as the Code provides that a dispute between operational creditor and a corporate debtor would only exist if a suit or an arbitration proceeding with respect to the dispute has been filed prior to the receipt of demand notice.
DHARANI SUGARS AND CHEMICALS LTD. V. UNION OF INDIA AND ORS. TRANSFERRED CASE (CIVIL) NO. 66 OF 2018 IN TP (CIVIL) NO. 1399 OF 2018.
CITATION: 2019 SCC OnLine SC 460
COURT: The Supreme Court of India
FACTS:
The Reserve Bank of India issued a circular dated February 12, 2018 to revise the existing framework for resolution of stressed assets namely, “Resolution of Stressed Assets-Revised Framework”. The circular instructed that the bank has to identify default and on the occurrence of default, to immediately classify the assets as special mention accounts. The bank ought to report information regarding such a case to the Central Repository of Information on Large Credits (CRILC) for borrowers having aggregate exposure of Rs. 50 million. Also, restructuring outside the guidelines of IBC can only be allowed if it is agreed b the 100 percent of the creditors. Furthermore, in case of defaults exceeding Rs. 2000 crore as on 1st March, 2018, which are not cleared within 180 days of such a default or if the date of default is after 1st March, 2018, then the creditors are required to file an application under the IBC within 15 days from the expiry of the said 180 days.
Due to this, the Indian power sector was greatly affected and the NPA account was huge. Hence, aggrieved by this circular, the petitioners in the instant case, challenged the constitutional validity of the same.
LEGAL ISSUES:
- Whether the circular issued by RBI is ultra vires to the power conferred to the RBI under the Banking Regulation Act, 1949?
- Whether Section 35AA and 35AB of the Banking Regulation Act, 1949 are unconstitutional in law?
JUDGEMENT:
For the first issue, the Court held the circular to be ultra vires to the powers conferred to the RBI. The circular has to comply with Section 35AA as only this provision can be the source of power for issuing directions concerning the IBC but as the circular fails to do so, it is considered ultra vires as it is outside the scope of the powers of the RBI.
For the second issue, Court held that Section 35AA and 35AB of the Banking Regulation Act, 1949 are constitutionally valid in nature. The Court held that like any other provision of the Banking Regulation Act, 1949, Section 35AA and 35AB merely confer power to the RBI to perform its functions. With the help of the abovementioned sections, the RBI can provide ample guidance to the bank.
PIONEER URBAN LAND AND INFRASTRUCTURE LIMITED & ANR V. UNION OF INDIA & ORS. WP (CIVIL) NO. 43 OF 2019 AND OTHER PETITIONS.
CITATION: 2019 SCC OnLine SC 1005
COURT: The Supreme Court of India
FACTS:
The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, was enacted in response to the Insolvency Law Committee Report, released by the Ministry of Corporate Affairs in March 2018. This suggestion was made based on the decision given by the NCLAT in Nikhil Mehta and Sons (HUF) v. AMR Infrastructure Limited. Here the NCLAT held that the homebuyers are to considered as Financial Creditors within the meaning of Section 5(7) of the IBC. This was because certain allottees had filed several writ petitions against the real estate developers, who entered into “assured returns/ committed returns” agreement with the developers, where the developer agreed to pay certain amount to the allottees on a monthly basis from the date of execution of the agreement, on the payment of a substantial part of the total sales consideration in advance at the time of execution. The amount raised under assured return schemes had a “commercial impact of borrowing”. Such amounts obtained were treated as “commitment charges” under the account “Financial Cost” in the annual returns of the developers. Hence, as a result, the amendments made was constitutionally challenged through numerous writ petitions filed by the Petitioner.
LEGAL ISSUES:
- Whether the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 is constitutionally valid?
- Whether the amendment is disproportionate to the Real Estate (Regulation and Development) Act, 2016 (RERA)?
- Whether Home Buyers can be considered as the Financial Creditors under the IBC?
JUDGEMENT:
For the first issue, the Court held that the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 is constitutionally valid and does not infringe Article 14, 19(1)(g) read with Article 19(6), or 300-A of the Constitution of India.
For the second issue, the Court held that the amendment is disproportionate to the RERA and the IBC shall have an overriding effect over the RERA. However, the RERA is to be read harmoniously with IBC and they must co-exist together. Only in the effect of conflict, the IBC would prevail over the RERA.
For the third issue, the Court held that the Home Buyers can be considered as Financial Creditors under the IBC as Section 5(7) defines “financial debt” which is a debt against consideration for time value of money. In accordance to this definition, the Court observed that the amount paid by the allottees to the developers has the above element to such homebuyers and hence such debt would be a financial debt and Home Buyers would be treated as a financial creditor.
ARCELORMITTAL INDIA PRIVATE LIMITED V SATISH KUMAR GUPTA & ORS. (CIVIL APPEAL NOS. 9402-9405 OF 2018)
CITATION: [2018] ibclaw.in 31 SC
COURT: The Supreme Court of India
FACTS:
The CIRP for Essar Steels was commenced on 02/08/2017 and Mr. Satish Kumar Gupta was appointed as the RP. In the meantime, Section 29A of the IBC was induced into the Code through the Insolvency and Bankruptcy Code (Amendment) Bill, 2017. An advertisement was circulated by the RP seeking expression of interest for the resolution applicants who wish to submit their resolution plan suggesting the method to ensure ESIL continues as a going concern. Hence, there was a bidding war between Arcelormittal India Private Limited (Appellant) and Numetal for the insolvent company Essar Steel India Limited (ESIL). At the resolution stage, both the companies were disqualified under Section 29A. ArcelorMittal was found to have been the promoter or exercised control over two companies, Uttam Galva Steels Limited and KSS Petron Limited, which owed dues to banks and financial institutions that remain unpaid. In the case of Numetal, it was found that the company was established in the lead up to the resolution of Essar Steel and that it was essentially controlled by Rewant Ruia, who is the son of Ravi Ruia (one of the promoters of Essar Steel). The NCLT affirmed the resolution professional’s disqualification of both bidders and found them to be ineligible to a resolution process under Section 29A of IBC. On appeal, however, the NCLAT agreed with ArcelorMittal’s disqualification, but came to a different conclusion regarding Numetal because Rewant Ruia had by then divested his Numetal interests in favour of VTB, a Russian entity. Aggrieved by this, the Appellant filed an appeal before the Supreme Court.
LEGAL ISSUES:
- Whether the right to appeal is available to a rejected resolution applicant?
- Whether Numetal and ArcelorMittal are eligible resolution applicants under Section 29A of the IBC?
JUDGEMENT:
For the first issue, the Court held that there is no right to appeal available to a rejected resolution applicant as the applicant has no vested right that his resolution plan must be considered. Even if the applicant files a writ petition under Article 226, the High Court is eligible to turn down that writ on the ground that no right is affected at this stage. The Court held that the appropriate stage for an applicant to raise a concern is after the COC has reviewed the resolution plans and passed a resolution thereafter. It is done in order to prevent the CIRP from getting hampered due to multiple litigations.
As for the second issue, the Court held that both Numetal and ArcelorMittal are ineligible resolution applicants under Section 29A of the IBC. In case of Numetal, it was incorporated for the sole purpose of bidding for ESIL without any financial or experience credentials. For ArcelorMittal, the shareholdings in Uttam Galva and KSS Petron were divested. KSS Petron is directly connected to LN Mittal and AMIPL. AMIPL has been declared as an NPA and CIRP has already been established against it which leads to AMIPL not being eligible under Section 29A of the IBC as KSS Petron is a connected person to AMIPL.
COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY V SATISH KUMAR GUPTA & ORS. [CIVIL APPEAL NO. 8766-67 OF 2019 AND ORS.]
CITATION: 2019 SCC OnLine SC 1478
COURT: The Supreme Court of India
FACTS:
The Reserve Bank of India issued a press release in 2017, identifying 12 stressed accounts in need of immediate reference under the IBC in which Essar Steel India Ltd. (ESIL). CIRP were initiated against ESIL by an order issued by the NCLT, Ahmedabad, admitting an application filed by several banks including Standard Chartered Bank and State Bank of India. ArcelorMittal India Private Ltd. submitted resolution plans which was accepted with a majority by the COC. Mr. Satish Kumar Gupta (Respondent) was appointed as the RP.
Later, NCLT passed an order stating that the dues of the Operational Creditors would be prioritized over the dues of the Financial Creditors according to the Regulation 38 of the IBBI Regulations, 2016.
An appeal was filed against the order of the NCLT in the NCLAT and the NCLAT by an order dated 04/07/2019: approved the ArcelorMittal’s resolution plan; modified the distribution of amounts so that all creditors were treated at par which would result in approximately 60.7% recovery for all the creditors and the Operational Creditors with a claim of or more than Rupees 1 crore would get 60.28% of their claims; it held that the guarantees issued in respect of Essar Steel’s debt shall come to an end upon clearance of the underlying debt ;it denied the creation of a sub-committee; and lastly it held that COC had not been granted the power to decide the manner of distribution as it would cause a conflict of interest between the Operational Creditors and the Financial Creditors. Aggrieved by this, the Appellant filed an appeal in the Supreme Court.
LEGAL ISSUES:
- What is the role of RP?
- What is the role of Committee of Creditors (COC)?
- Whether there is a scope of judicial review by the NCLT and the NCLAT over the resolution plan?
- Whether Section 4 and 6 of the Insolvency and Bankruptcy Code (Amendment) Act, 2019 are constitutionally valid?
JUDGEMENT:
For the first issue, it is held by the Court that the role of Resolution Professional (RP) under the IBC is administrative and not adjudicatory. The role of RP is to manage the affairs of the Corporate Debtor till a resolution plan is approved by the Adjudicating Authority, to appoint and convene meetings of the COC in order to aid them to decide upon resolution plans.
For the second issue, it is held that the role of COC is to decide whether or not to rehabilitate the Corporate Debtor by means of acceptance of a particular resolution plan. It has to consider the feasibility and viability of the plan.
For the third issue, it is held that limited judicial review is available to the NCLT and NCLAT and they shall not trespass upon a business decision made by the majority of the COC. NCLT has limited scope of judicial review under Section 31 of the IBC and Section 32 of the IBC limits the judicial review scope of the NCLAT. The Court held that they can only review the fairness and equitability of a resolution plan but cannot interfere with the decision of the COC and order as to what to pay and how much to pay to each class of creditors.
For the last issue, the Court held that Section 4 is constitutionally valid as the Code requires the CIRP to have completed within 330 days including any extension granted and time taken for litigation. Hence the Court holds Section 6 to be constitutionally valid while it struck down the word “mandatorily” as being manifestly arbitrary under Section 14 of the Constitution. It imposes an unreasonable restriction on the litigant’s right to carry on business under Article 19(1)(g) of the Constitution.
For Section 6, the Court held it to be constitutionally valid too as Section 30(2)(b) of the IBC is substituted by the Section 6 of the Amending Act, 2019 which is beneficial for the Operational Creditors and dissentient Financial Creditors as they are now to be paid a certain minimum amount. This section provides for a guideline as to the minimum payment received by an Operational Creditor and does not prohibit the COC from classifying creditors.
Shivam Water Treaters Pvt. Ltd. v Union of India Secretary to Govt. Ministry of Corporate Affairs & Ors. (SLP (C) No. 1740/2018)
CITATION: [2018] ibclaw.in 66 SC
COURT: The Supreme Court of India
FACTS:
Shivam Water Treaters Pvt. Ltd. (Appellant) is an Ahmedabad-based company which provides solutions in the field of water treatment, water handling, water waste treatment, sewage treatment and recycling systems. The Appellant had availed loans from SBI and Allahabad Bank. When the Appellant defaulted on repayments, SBI issued a legal notice dated July 21, 2011 and another notice date February 14, 2012 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act. Later, it sold the loans to ARCIL seeking to recover the dues. Hence, the petition was filed by the Appellant after ARCIL referred the company to Ahmedabad NCLT to recover the amount.
LEGAL ISSUES:
- Whether the Insolvency and Bankruptcy Code, 2016 is constitutionally valid on the ground of discrimination against Operational Creditor?
JUDGEMENT:
The Court after hearing both the parties agreed with the arguments made by the Respondent and upheld the constitutional validity of the IBC and dismissed the challenge mounted and the special leave petition was disposed of accordingly. The Supreme Court was inclined to request the High Court of Gujarat to address the relief limited to any action taken by the Respondents or any order passed by the NCLT. The SC advised the High Court to not to enter into the debate pertaining to the validity of the Insolvency and Bankruptcy Code, 2016 or the constitutional validity of the National Company Law Tribunal (NCLT). It was observed by the Court that: the classification made by the IBC between Financial Creditors and Operational Creditors is based on reasonable differentia and does not offend any provision of the Constitution of India and the rationale provided for the difference in treatment between financial creditors and operational creditors is a plausible view taken for an expeditious resolution of an insolvency issue of a company and cannot be said to offend any provisions of the Constitution of India.
B K EDUCATIONAL SERVICES PVT. LTD. V PARAG GUPTA AND ASSOCIATES (CIVIL APPEAL NO.23988/2017 AND OTHER APPEALS)
CITATION: [2018] ibclaw.in 32 SC
COURT: The Supreme Court of India
FACTS:
In the present case, a dispute rose between B.K. Educational Services Pvt. Ltd. (Appellant/Corporate Debtor) and Parag Gupta & Associates (Respondent/Financial Creditor) regarding liability. The Appellant claimed that all financial claims by the Respondent is false except the debt of an immoveable property allotted by GNIDA. The Appellant alleged that the financial records were tampered and manipulated by the relatives of the Respondent. It was contended that the debt was rime barred and there was nothing to extend the limitation to recover the debt. The application was disposed of by the NCLT stating that the limitation period cannot be extended as the documents produced were not justifiable. However, the sum given by the Petitioner was entitled to be recovered.
Aggrieved by the order, the Respondent/Financial Creditor filed an application under Section 7 of the IBC before the NCLAT. Here, the NCLAT held that the Limitation Act, 1963 will not be applicable under Section 7 and 9 of the IBC from the date of commencement of IBC till the date on which IBC was amended to incorporate Section 238A, IBC.
LEGAL ISSUES:
- Whether Section 238A of IBC will be applicable to the applications filed under Section 7 or Section 9 of the Code prior to the date on which the IBC (Second Amendment), 2018 came into effect?
JUDGEMENT:
It is held by the Court that the amendment of Section 238A would serve no purpose unless it is applied retrospectively or else the applications seeking to resurrect time-barred claims would have to be allowed and it will not be governed by the law of limitation. Any application filed after the IBC came into effect cannot revive a debt which is no longer due as it is time-barred. The Court held that Section 433 of the Companies Act makes the provision of the Limitation Act applicable to the proceedings before the NCLT or NCLAT. As the Limitation Act is applicable to the applicable filed under Section 7 and 9 of IBC from the commencement of the Code, Article 137 automatically gets attracted as it provides the period of limitation as three years from the time when the right to apply accrues. Hence, “the right to sue” accrues when a default arises. If the default has occurred over three years prior to the date of filing application, it would be barred under Article 137 of the Limitation Act, unless those cases where Section 5 of the Limitation Act may be applicable.
CHITRA SHARMA V UNION OF INDIA (WP NO.744 OF 2017 AND OTHER PETITIONS)
CITATION: [2018] ibclaw.in 37 SC
COURT: The Supreme Court of India
FACTS:
The CIRP was initiated by the IDBI Bank Ltd. under Section 7 of the IBC against Jaypee Infratech Ltd. (hereinafter as JIL). The NCLT admitted the petition and passed an order on 09.08.2017 and hence an order of moratorium was passed under Section 14 of the IBC. A number of home-buyers had invested in the housing projects by JIL and were permitted by the IRP to submit their claims as ‘other creditors’. IBC did not recognize home-buyers as creditors and it did not provide them with any preferential treatment. Hence, a number of writ petitions were filed before the Supreme Court to protect the interests of home buyers and hence these writ petitions were clubbed together with the present case being the lead matter.
LEGAL ISSUES:
- Whether Corporate Insolvency Resolution Process (CIRP) should be extended to introduce new resolution plans in order to protect the interests of home-buyers?
JUDGEMENT:
The Court held that CIRP ought to be revived and by the passing of the Insolvency and Bankruptcy (Amendment) Ordinance, 2018, the Council of Creditors (COC) would be reconstituted and the home-buyers would be included in COC as Financial Creditors under Section 5(7) of the IBC. The Court disallowed the participation of JIL/JAL in the CIRP due to the statutory bar under Section 29A of IBC and the IRP can invite fresh expression of interest for submission of new resolution plans. Hence, the Court passed an order extending the period which has been prescribed for the completion of the resolution process and wherein a new COC would be constituted with the home-buyers as Financial Creditors.
ANUJ JAIN INTERIM RESOLUTION PROFESSIONAL FOR JAYPEE INFRATECH LIMITED V AXIS BANK LIMITED ETC. [CIVIL APPEAL NOS. 8512-8527 OF 2019 AND OTHER PETITIONS]
CITATION: [2020] ibclaw.in 06 SC
COURT: The Supreme Court of India
FACTS:
In the present case, the Jaiprakash Associates Ltd (hereinafter as JAL) was the parent company to the Jaypee Infratech Ltd company (hereinafter as JIL). JAL was a public listed company and it was given the rights to construct an expressway from Noida to Agra. JAL had obtained finances from a consortium of several associated banks including State Bank of India, ICICI Bank, IDBI Bank and Standard Chartered Bank against partial mortgage of land acquired and a pledge of 51% of the shareholding held by JAL. However, the IDBI Bank filed a petition under Section 7 of the IBC seeking to carry out the Corporate Insolvency Resolution Process (CIRP) against JIL, alleging that JIL had committed a default of Rs. 526.11 crores in repayment of its dues. This was accepted and the CIRP was initiated, alternatively, the Interim Resolution Professional (hereinafter IRP) denied to accept certain claims made by Axis Bank which were related to the collateral submitted by the JAL. Hence, this case was filed before the NCLT scrapping the nature of claims by the IRP.
LEGAL ISSUES:
- Whether the transactions initiated by JIL fall under the scope of Section 43, 45, 49 and 66 of the IBC?
- Whether JAL can be categorized as the financial creditor of the JIL (corporate debtor)?
JUDGEMENT:
On the first issue, the Court scrutinized the three requirements of Section 43 of the IBC. Firstly, whether such transfer was for the benefit of a creditor/surety/guarantor. Secondly, whether such transfer would put the creditor/surety/guarantor in a beneficial position than he would have been in case of the distribution of assets according to section 53(1)(b) of the IBC. Thirdly, whether the transfer has been made during the period of two years preceding the insolvency commencement date, in case such transfer had been made for the benefit of a related party; and if the transfer had been made during the period of one year preceding the insolvency commencement date, in case such transfer had been made for the benefit of an unrelated party. The Court held that the impugned transactions has put JAL in a beneficial position than it would have been in the event of distribution of assets under Section 53. Hence, JIL has given a preference under Section 43(2) of the Code.
On the second issue, the Court relied on the Swiss Ribbons Private Limited & Anr. v. Union of India & Ors. (2019 SCC OnLine SC 73) and mentioned that the Financial Creditors and the Secured Creditors are different as the former acquires a unique position, through its own direct involvement in a functional existence of corporate debtor. The Court held that the lenders of JAL does not fall in the category of ‘Financial Creditors’ as JAL may be considered as secured creditors on the strength of the mortgages, but such mortgages are neither towards any loan, facility or advance to the corporate debtor nor towards protecting any facility or security of the corporate debtor.
YLCC would like to thank Riya Singh for her valuable insights in this article.
