Birbal’s Update
February 2019
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Key Updates


Recent Judgements


SUPREME COURT UPHOLDS CONSTITUTIONAL VALIDITY OF IBC, 2016.

Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors.

The Hon'ble Supreme Court of India upheld the constitutional validity of the Insolvency and Bankruptcy Code, 2016. The petitioners had raised the following questions of law while challenging the validity of the Code-

• That the provisions of the code classifing the Financial Creditors and the Operational Creditor are discriminatory, arbitrary and violative of Article-14 of the Constitution.

• That section-12A of the code is violative of Article-14.

• That section-29A of the code is constitutionally invalid.

The Honb’le Supreme Court dealt and answered these issues in the following manner, respectively-

• The court pointed that object and purpose of IBC do not violate Article-14, and the classification facilitates the repayment of debts, infuses capital into the economy, and resultantly the banks and financial institutions are able to lend further, which is in economic intrests of the nation

• The SC in reply stated that the committee of creditors do not have the last word on this subject (section-12 A) because section-60 of the code empowers NCLT to interfere with the same.

• The legislative purport of Section 29A applies not merely to resolution applicants, but to liquidation also.




FORECH INDIA LTD. V. EDELWEISS ASSETS RECONSTRUCTION CO. LTD.



Civil Appeal No. 818 of 2018

The Hon’ble Supreme Court vide judgment dated 22.01.2019 held that with regard to the rules pertaining to the transfer of winding up petitions the amended Section 434 of the Companies Act, 2013 must be read as being part of the Insolvency and Bankruptcy Code, 2016. The Hon’ble Court substantiated that the proviso to Section 434 provided that even in winding up petitions where notice had been served and which are pending in the High Courts, any person could apply for transfer of such petitions to the NCLT under the Code, which would then have to be transferred by the concerned High Court to the NCLT and be treated as an insolvency petition under the Code.

Section 434 states that party or parties to any proceedings relating to the winding up of companies pending before any Court immediately before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, may file an application for transfer of such proceedings and the Court may by order transfer such proceedings to the NCLT and the proceedings so transferred shall be dealt with by the NCLT as an application for initiation of corporate insolvency resolution process under the Code. Provided that only such proceedings relating to the winding up of companies shall be transferred to the Tribunal that are at a stage as may be prescribed by the Central Government.



Alloysmin Industries vs. Raman Casting Private Limited



In an important decision, NCLAT held that the Adjudicating Authority had made a mistake in declining the application under Section 9 on an incorrect belief that demand notice is to be served on the Registered Office of the Corporate Debtor and not on Corporate Office (Industrial Area Office in the current case). In a scenario, wherein the demand notice under Section 8 (1) is served on Corporate Debtor either on its Registered Office or its Corporate Office, it must be regarded as effective service of notice under Section 8 and pursuantly application filed under Section 9 on failure of payment, if filed after 10 days, is sustainable.

In the instant case, the appellant filed an application under Section 9 Of the Insolvency and Bankruptcy Code,2016, for initiating the Corporate Insolvency Resolution Process against Corporate Debtor. The application was rejected u/s 9 on grounds that courier was sent to the registered office but was returned to the applicant with remark “S/A RTO”. Appellant submitted that the demand notice was issued to both the registered office as well as the industrial area but the demand notice under the name of 'M/s. Raman Casting Private Limited ' was returned and the demand notice on corporate debtor at Industrial Area was duly served. Thus, although notices were basically served at both offices, yet nobody appeared on the behalf of Corporate Debtor. And since no one appeared, upon grant of one more opportunity, case was adjourned. Giving the aforementioned finding in the case, NCLAT stated that a Fresh notice maybe issued to Corporate Debtor to give an opportunity and sent to both addresses to enable respondent to settle claim with appellant and enable appellant to withdraw. Otherwise application u/s 9 is admitted to be appropriate order of moratorium and appointment of Interim Resolution Professional is required to be passed.

Policy Updates



AMENDMENTS TO THE INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (INSOLVENCY RESOLUTION PROCESS FOR CORPORATE PERSONS) REGULATIONS, 2016



The Insolvency and Bankruptcy Board of India (IBBI) on 24.01.2019 notified key changes to the regulations under IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The prime amendment was with regard to Regulation 38 whereby it was notified that –

• The amount due to the Operational Creditors (OC) shall be made in priority over the Financial Creditors (FC).

• The resolution plan shall include and disclose how it has dealt with the interest of all the stakeholders including the Operational Creditors and Financial Creditors.

• The resolution plan shall specify if there is any failure of implementation or contribution of any other resolution plan approved by the NCLT. A detail of such failure by the resolution applicant or any of its relating parties will be noted therein.

Regulation 21(3) which deals with the process regarding the meeting of Committee of Creditors was also amended to notify that the notice of meeting of the CoC–

• Shall state the process and manner of voting by electronic means and the time schedule (including the time period of the casting of vote).

• provide the login ID and the details of a facility for generating password and for keeping security and casting of vote in a secure manner

• provide the contact details of the person who will be connected during the electronic voting

Regulation 25 has been modified to direct the Resolution Professional to –

• circulate minutes of meeting within 48 hours of conclusion of meeting to all authorized representatives and members of committee by electronic means

• take the vote of members who did not vote in the matters listed for voting in the meeting. The voting shall be done through electronic means and kept open for at least 24 hours from the circulation of the meeting according to Regulation 26.



AMENDMENTS TO THE INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (VOLUNTARY LIQUIDATION PROCESS) REGULATIONS, 2017



The Insolvency and Bankruptcy Board of India notified certain key amendments to the regulations pertaining to voluntary liquidation process under the Insolvency and Bankruptcy Code, 2016 on 15.01.2019.

Importantly, the Regulation 3 was notified as amended to the effect of notifying a detailed process for the liquidation of a corporate person, prescribing that the designated partners in case of an LLP or the governing body of any corporate person shall verify by affidavit that the corporate person is not being liquidated to defraud any person and that the said partners or the governing board have formed an opinion that the either the entity has no debt or that the same is in a position to pay its debts in full from the proceeds of assets to be sold in liquidation.

The Regulation 3 now also requires the designated partners of the governing body to pass a regulation to the effect of liquidation and in furtherance of the same a proviso has been introduced to Regulation 3 which reads that in case the corporate person owes any debt to any person, the creditors representing two-thirds in value of the debt of the corporate person shall approve the said resolution within seven days of such resolution.

Moreover, the IBBI has also notified the disqualifications of an Insolvency professional by enumerating them under Regulation 6 which carries an Explanation providing that a person shall be considered independent of the corporate person, if he-

(a) is eligible to be appointed as an independent director on the board of the corporate person under section 149 of the Companies Act, 2013 (18 of 2013), where the corporate person is a company;

(b) is not a related party of the corporate person; or

(c) has not been an employee or proprietor or a partner-
(i) of a firm of auditors or 2 [secretarial auditors] or cost auditors of the corporate person; or

(ii) of a legal or a consulting firm, that has or had any transaction with the corporate person contributing ten per cent or more of the gross turnover of such firm, at any time in the last three years.

It further lays down that an insolvency professional shall not be eligible to be appointed as a liquidator if he, or the insolvency professional entity of which he is a partner or director is under a restraint order of the Board.

In furtherance of the above a liquidator is now required to disclose the existence of any pecuniary or personal relationship with the concerned corporate person or any of its stakeholders as soon as he becomes aware of it, to the Board and the Registrar. And that an insolvency professional shall not continue as a liquidator if the insolvency professional entity of which he is a director or partner, or any other partner or director of such insolvency professional entity represents any other stakeholder in the same liquidation.


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