29 August, 2017
In a recent judgment of the Hon’ble Supreme Court dated 24th July, 2017, consent terms between a corporate debtor and a nancial creditor have been taken on record subsequent to the admission of the Company Petition by the National Company Law Tribunal (“NCLT”). In the present case, Nisus Finance & Investment Managers LLP (“Financial Creditor”), in the capacity of a facility agent under a Debenture Trust Deed, led an Application under Section 7 of the Insolvency & Bankruptcy Code, 2016 (“Code”) against Lokhandwala Kataria Constructions Private Limited (“Corporate Debtor”). One Vista Homes Private Limited, a group company of the Corporate Debtor, had issued certain redeemable debentures. Accordingly, the said Debenture Trust Deed was executed wherein the Corporate Debtor was one of the guarantors with respect to redemption of said debentures and the Financial Creditor was the facility agent to ensure returns to the debenture holders. Vista Homes Private Limited failed to repay and therefore the Financial Creditor led the Company Petition before NCLT, Mumbai Bench, against the Corporate Debtor. Vide an order dated 15th June, 2017, NCLT admitted the Company Petition and appointed an Interim Resolution Professional. Thereafter, the Corporate Debtor approached the National Company Law Appellate Tribunal (“NCLAT”) against the order of admission of the Company Petition. Before the NCLAT both the parties submitted that since a settlement had been arrived at between them, the Financial Creditor may be allowed to withdraw the Company Petition. By an order dated 13th July, 2017, the NCLAT considered the provisions of the Code and held that Rule 8 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 allows an Application led under Section 7 of the Code to be withdrawn, but only before admission of the Application. NCLAT further held that the inherent power under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016, cannot be exercised by it since Rule 11 has not been adopted forthepurposeoftheCode. Thepartiesthenapproachedthe Hon’ble Supreme Court challenging the order of NCLAT. The Hon’ble Supreme Court exercised its inherent powers under Article 142 of the Constitution and allowed the Consent Terms between the Corporate Debtor and the Financial Creditor. It is pertinent to note that in its order, the Hon’ble Supreme Court has also con rmed that NCLAT could not exercise the inherent powers under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016.
Property Not Owned by the Corporate Debtor Does Not Fall Under the Ambit of Moratorium Under the Insolvency and Bankruptcy Code, 2016.
National Company Law Tribunal, Mumbai vide its order dated 3rd July, 2017, clari ed that the application of moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 (“Code”) does not extend to the properties which are beyond the ownership of the corporate debtor. In the present case, Schweitzer Systemtek India Private Limited (“Corporate Debtor”) led an application before the Hon’ble Tribunal at Mumbai bench under section 10 of the Code for initiating Corporate Insolvency Resolution Process (“CIRP”) against itself so that under the provisions of section 14 of the Code, the process of “Moratorium” may commence. The Corporate Debtor took a loan of an amount of Rs. 4.5 crore approximately from Dhanlaxmi Bank. Dhanlaxmi Bank later on assigned and transferred the outstanding debt to M/s Phoenix ARC Limited (“Creditor”) by way of an assignment agreement executed between Dhanlaxmi Bank and the Creditor. The personal properties of the promoter of the Corporate Debtor (i.e. 3 residential ats) were mortgaged in the name of Dhanlaxmi Bank as a security for the aforesaid debt and pursuant to the aforesaid assignment, on modi cation of the charges, the said properties stood mortgaged with the Creditor. The said application was contested and opposed by the Creditor. The Hon’ble Tribunal upon hearing both the sides, allowed the admission of the application on various reasons and thus commencing the provisions of moratorium. However, while allowing the application, the Hon’ble Tribunal held that the personal properties not owned by the Corporate Debtor which are mortgaged as security will not fall under the ambit of moratorium as section 14 of the Code states that, on the insolvency commencement date, moratorium shall be declared for prohibiting any action to recover or enforce any security interest created by the Corporate Debtor in respect of its property. The Hon’ble Tribunal further went to explain that the word “its” in the section 14 of the Code means the property owned by a corporate debtor and does not extend to the properties beyond the ownership of a corporate debtor.
For further information, please contact:
Vineet Aneja, Partner, Clasis Law
vineet.aneja@clasislaw.com
