Recent developments in Indian insolvency law

Clarification on Ineligibility of Resolution Applicants

In a significant ruling in the case of M.K. Rajagopalan v. Dr. Periasamy Palani Gounder & Anr., the Supreme Court has clarified that a resolution applicant cannot be presumed ineligible under Section 164(2)(b) of the Companies Act, 2013, unless a competent authority explicitly declares their disqualification as a director.

No Multiplicity of Applications Against Personal Guarantors

The case of Union Bank of India v. Mr. P.K. Balasubramanian has provided much-needed clarity, stating that there cannot be multiple insolvency resolution applications against the same personal guarantor across various benches of the National Company Law Tribunal (NCLT) in India. This judgment underscores the legislative intent behind Section 103 of the Insolvency & Bankruptcy Code (IBC).

Partial Sale of Stressed Companies

The Indian government may permit partial sales of distressed companies under the Insolvency & Bankruptcy Code if finding a buyer for the entire entity proves challenging. This move aims to reduce delays in resolution and prevent the decline of stressed asset values.

Clarification on Distribution of Payments

The case of Stressed Assets Stabilisation Fund, Mumbai vs. M/s. Galada Power and Telecommunications Ltd. has clarified that Section 30(4) of the IBC is for guidance and does not compel the Committee of Creditors (CoC) to distribute payments based on the value of security. Dissenting secured creditors cannot demand higher payments based on the value of their security interest.

Conditions for Liquidation

In the case of Hero Fincorp Limited v. M/s. Hema Automotive Pvt. Ltd, the Court stated that the Adjudicating Authority should only direct liquidation if the CoC’s decision aligns with the provisions of the IBC. The timing of the decision to liquidate was also scrutinized.

Creditor Participation and Challenge to Resolution Plans

The case of Madhya Pradesh Paschim Kshetra Vidyut Vitaran Co. Ltd. v. Jagdish Kumar & Anr. Has highlighted that a creditor who neither submits a claim nor raises issues during the Corporate Insolvency Resolution Process (CIRP) cannot challenge an already implemented resolution plan.

Withdrawal of Application for a Corporate Insolvency Resolution Process (CIRP)

In Abhishek Singh v. Huhtamaki Ppl Ltd. & Anr., the Supreme Court clarified that Section 12A of the IBC does not bar applications for withdrawal of the CIRP even before the constitution of the Committee of Creditors (CoC). This judgment aligned with Regulation 30A of the CIRP Regulations.

Jurisdiction of NCLT to Admit Section 7 Petition

In M Suresh Kumar Reddy v. Canara Bank & Ors, the Supreme Court emphasised that a petition under Section 7 of the IBC must be admitted by the NCLT once the existence of default in payment of financial debt is established, regardless of whether the applicant is the financial creditor.

Central Excise Authority and Secured Creditors

The Assistant Commissioner of Central Tax v. Mr. Sreenivasa Rao Ravinuthala & Anr has made clear that the Central Excise Authority is not a secured creditor under the IBC.

Waterfall Mechanism and Government Obligations

The Supreme Court has upheld the waterfall mechanism under the IBC, reaffirming the priority of repayments based on the hierarchy of preferences. This decision corrected a previous ruling that had impacted how government obligations were handled in insolvency proceedings.

IBC Supersedes Electricity Act

In Paschimanchal Vidyut Vitran Nigam Limited v. Raman Ispat Private Limited and Ors, the Supreme Court clarified that Section 238 of the IBC supersedes the provisions of the Electricity Act, 2003, in matters of creditor repayment.