TaxTMI 
TaxTMI 
2021 (12) TMI 683
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....it the petition and instead directed the respondent to settle the claims within three months. The NCLAT found no merit in the appeal Company Appeal (AT) (Insolvency) No 649 of 2020 against the NCLT's order. 4 The issue which arises for adjudication before this Court is whether, in terms of the provisions of the IBC, the Adjudicating Authority can without applying its mind to the merits of the petition under Section 7, simply dismiss the petition on the basis that the corporate debtor has initiated the process of settlement with the financial creditors. 5 The genesis of the case arises from a Master Agreement to Sell "Master Agreement" which was entered into between the respondent, IDBI Trusteeship Limited and Karvy Realty (India) Limited "Facility Agent" on 22 June 2014, in order to raise an amount of Rs. 50 crores for the development of 100 acres of agricultural land. Under the terms of the Master Agreement, the Facility Agent was to sell the plots to prospective purchasers against the payment of a lumpsum amount. The respondent was then required to pay interest at the rate of 25 per cent per annum compounded annually to the purchaser, under the Master Agreement. It has been....
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.... is stated to have extended the term of the Loan Agreement, due to its alleged inability to refund the principal amount along with interest. The respondent is also alleged to have sought an extension of the loan period by 12 months, with an assurance that the principal amount would be repaid in three equal instalments in the 13th, 14th and 15th months. 10 However, on 26 April 2019, 11 out of the 17 appellants before this Court (together with 72 other petitioners) instituted a petition under Section 7 of the IBC before the Adjudicating Authority, due to the respondent's default in making the re-payment of an amount of Rs. 33,84,32,493. 11 On 11 September 2019, the Adjudicating Authority adjourned the proceedings on the ground that the parties were attempting to resolve the dispute. A further extension of time for exploring the possibility of a settlement was sought on 24 October 2019 by the respondent, which was granted by the Adjudicating Authority and the petition was posted for 5 November 2019. On 22 November 2019, the respondent informed the Adjudicating Authority that it was exploring the possibility of a settlement, following which it was observed that any proposal for s....
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....ich show that 140 investors have been fully settled by the Corporate Debtor and an amount of Rs. 27.25 crore has been paid to them. 13 claims/Petitioners before us have been settled, 40 are in the process of settlement and 39 pending settlement. Thus the process of settlement appears to be progressing in all seriousness. Instead of examining all the individual claims in detail, we would like to dispose of the instant case by directing the Corporate Debtor to settle all the remaining claims sincerely within a definite lime frame." Thus, the Adjudicating Authority decided to dispose the petition based on the following factors: (i) that respondent's efforts to settle the dispute were bona fide, as evinced by the fact that they had already settled with 140 investors, including 13 petitioners before it; (ii) the settlement process was underway with 40 other petitioners; (iii) the procedure under the IBC was summary in nature, and could not be used to individually manage the case of each of the 83 petitioners before it; and (iv) initiation of CIRP in respect of the respondent would put in jeopardy the interests of home buyers and creditors, who have invested in the respondent's projec....
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....ared pandemic. Even after unlocking, the pace of business operations is far from normal. In these circumstances, some concession has to be given in adherence to the timelines set in terms of the impugned order. Be-that-as-it-may, this situation may also have to be addressed by the Adjudicating Authority, if approached by a claimant whose claim has not been settled so far. It is not disputed that the resolution of disputes relating to claims, more particularly of Allottees in Housing Projects, has to be given primacy and pushing the Corporate Debtor into liquidation would only be the last option. 6. In view of the foregoing discussion and also bearing in mind that the settlement process set in motion at the pre-admission stage is supported by the Consent Terms filed by some of the stakeholders, though it may not be all encompassing, this appeal would not lie. We accordingly hold that the appeal is not maintainable. There being no legal infirmity in the impugned order, the appeal is dismissed." The Appellate Authority's decision to dismiss the appeal and uphold the Adjudicating Authority's order was thus based upon the following considerations: (i) the NCLT decided to dis....
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....ari Twelfth Appellant Not a Party Not a Party 13 Nemmara Raju Dorai Mahadevan Thirteenth Appellant Not a Party Not a Party 14 Mayank Gupta Fourteenth Appellant Not a Party Not a Party 15 Manjushri Basu Fifteenth Appellant Not a Party Petitioner 16 Madhukar V. Limaye Sixteenth Appellant Not a Party Petitioner 17 Dipankar Kanjilal Seventeenth Appellant Not a Party Not a Party During the course of the appeal, there have also been two applications IA No 4783 of 2021 and IA No 97193 of 2021 seeking impleadment in the proceedings by ten individuals who are similarly placed to the appellants. Some of these individuals were also original petitioners before the NCLT. 15 We have heard Mr Srijan Sinha, Counsel for the appellants and Ms Aakanksha Nehra, Counsel for the respondent. 16 On behalf of the appellants, the principal challenge is on the ground that: (i) The Appellate Authority as well as the Adjudicating Authority have acted beyond the scope of thei....
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....udicating Authority and Appellate Authority have acted beyond the scope of their jurisdiction in 'directing' the parties to settle with the respondent. To substantiate this argument, it has been urged: (a) The Adjudicating Authority as well as the Appellate Authority are creatures of the statute - the IBC - and are bound by its provisions. Thus, their jurisdiction is limited by the provisions of the IBC; (b) Hence, once there is an admitted default by the respondent, the Adjudicating Authority was statutorily bound to admit the petition and has acted patently beyond its jurisdiction in not entertaining it on the ground that there was a possibility of a settlement. The Appellate Authority has merely placed its stamp of approval on the judgment of the Adjudicating Authority. In doing so, Adjudicating Authority and Appellate Authority have acted as courts of equity, which is not prescribed by the IBC. In support of this proposition, reliance has been placed upon the judgment of this Court in Pratap Technocrats (P) Ltd. and Others v. Monitoring Committee of Reliance Infratel Limited and Another13 ("Pratap Technocrats"); (c) In any case, out of 83 petitioners ....
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....s Court in Manish Kumar v. Union of India (2021) 5 SCC 1 ("Manish Kumar"). However, in paragraph 181, this Court has held that such a requirement only needs to be assessed at the threshold while admitting the petition. Hence, if subsequent to the admission, withdrawal applications are preferred and the 10 per cent threshold is reduced, it shall not affect the maintainability of the original petition. Thus, in the present case, the 83 original petitioners did meet the 10 per cent threshold and the petition should have been admitted. Based on the above submissions, the appellants have prayed that the orders of the NCLAT and NCLT be set aside, and the original petition under Section 7 of the IBC be restored for a decision on its admissibility under Section 7(5) of the IBC. 17 On the other hand, the respondent counters by submitting that: (i) The present appeal has been filed by the appellants to obviate the procedural requirements of Section 7 of the IBC. It has been urged: (a) The petition under Section 7 was instituted by the first appellant on behalf of himself and 82 other petitioners/proposed purchasers. Out of these 83 petitioners, only 7 of the original ....
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....t the NCLT disposed of the petition, with specific directions that the appellants could approach it if the respondent did not settle their claims within three months; (b) Even after the disposal of the proceedings by the NCLT, the respondent has continued to settle with proposed purchasers. However, while numerous efforts have been made to arrive at a settlement with the appellants, none of the options offered were agreeable to them; (c) During the pendency of the appeal, agreed amounts have been paid in full to the eighth, fourteenth and sixteenth appellants in November 2020. With respect to the tenth, twelfth, thirteenth and seventeenth appellants, a settlement was arrived at and cheques have been handed over by the respondent to them, which have not been encashed; and (d) The respondent reiterates its commitment to settle with the proposed purchasers, despite the real-estate industry being severely affected due to the COVID-19 pandemic; and (iii) The respondent should not be pushed to insolvency merely because a few of its alleged creditors are not willing to settle. In any case, the appellants are merely speculative investors and are not allo....
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.... itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government, may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred: Explanation.-For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application furnish- (a) record of the default recorded with the information utility or such other record or evidence of default as may be specified; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. (4) The Adjudicating Authority shall, within fourteen days of the receipt of th....
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....claim which is due from any person and includes a financial debt and operational debt;" Thus, a "debt" is defined to be a liability or an obligation in respect of a claim due from any person. This includes a financial debt and an operational debt. 22 If the above criteria are met, the financial creditor can make an application under sub-Section (2) of Section 7, in the manner prescribed, along with the necessary fees. Sub-Section (3) requires the financial creditor, inter alia, to furnish a record of the default with the information utility or such other record or evidence of default as may be specified along with the application. Under sub-Section (4), the Adjudicating Authority must, within 14 days of the receipt of the application under sub-Section (2), ascertain the existence of a default from the record of an information utility or on the basis of other information furnished by the financial creditor under sub-Section (3). 23 Sub-Section (5) of Section 7 is comprised in two parts: Clause (a), which is the first part, empowers the Adjudicating Authority to admit the application where it is satisfied that: (i) a default has occurred; (ii) the application under sub-Secti....
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....vant. Under the Explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor - it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility o....
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....he respondent also noted that of the claims of the original petitioners who have moved the Adjudicating Authority, only 13 have been settled while, according to it "40 are in the process of settlement and 39 are pending settlements". Eventually, the Adjudicating Authority did not entertain the petition on the ground that the procedure under the IBC is summary, and it cannot manage or decide upon each and every claim of the individual home buyers. The Adjudicating Authority also held that since the process of settlement was progressing "in all seriousness", instead of examining all the individual claims, it would dispose of the petition by directing the respondent to settle all the remaining claims "seriously" within a definite time frame. The petition was accordingly disposed of by directing the respondent to settle the remaining claims no later than within three months, and that if any of the remaining original petitioners were aggrieved by the settlement process, they would be at liberty to approach the Adjudicating Authority again in accordance with law. The Adjudicating Authority's decision was also upheld by the Appellate Authority, who supported its conclusions. 27 The Adj....
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.... equity based jurisdiction in the Adjudicating Authority or the Appellate Authority to interfere in this decision, so long as it is otherwise in conformity with the provisions of the IBC and the Regulations under the enactment. [...] 50. Hence, once the requirements of the IBC have been fulfilled, the Adjudicating Authority and the Appellate Authority are duty bound to abide by the discipline of the statutory provisions. It needs no emphasis that neither the Adjudicating Authority nor the Appellate Authority have an uncharted jurisdiction in equity. The jurisdiction arises within and as a product of a statutory framework." (emphasis supplied) 30 In Arun Kumar Jagatramka v. Jindal Steel & Power Ltd. (2021) 7 SCC 474, a two judge Bench of this Court issued a note of caution to the Adjudicating Authorities and the Appellate Authority against judicial interference with the framework created by the IBC. Speaking through Justice DY Chandrachud, the Court held: "95...we do take this opportunity to offer a note of caution for NCLT and NCLAT, functioning as the adjudicatory authority and appellate authority under the IBC respectively, from judicially i....
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.... received after passing of order by Adjudicating Authority however no cheques provided. N.A. N.A. N.A. 17 Dipankar Kanjilal Yes July 2019 Accepted Yes September 2019 The above statement indicates that a settlement has admittedly not been arrived at by the respondent with all the appellants. Moreover, in the present appeal, impleadment applications have also been filed on behalf of an additional set of individuals claiming non-payment of their dues by the respondent. 32 For the above reasons, we have come to the conclusion that the order of the Adjudicating Authority, and the directions which eventually came to be issued, suffered from an abdication of jurisdiction. The Appellate Authority sought to make a distinction by observing that the directions of the Adjudicating Authority were at the 'pre-admission stage', and that the order was not of such a nature which was prejudicial to the rights and interest of the stakeholders. The Appellate Authority was cognizant of the fact that even the time schedule for settlement which had been indicated by the Adjudicating Authority had elapsed, but then noted the impact of the outbreak of COVID-19 pandemic o....