Corporate and Commercial Law Judgments January 2024: Key Case Summaries and Legal Insights
Table of Contents
Important Corporate and Commercial Law Judgments January 2024 and Their Impact on Businesses and Litigation
MILAN AGGARWAL V. SAUDI BASIC INDUSTRIES CORPORATION (SABIC) AND ORS.
CITATION: Mr. Milan Aggarwal V. Saudi Basic Industries Corporation (Sabic), MANU/NL/0977/2023, Company Appeal (AT) (Insolvency) No. 231 of 2023, NCLAT New Delhi, decided by Hon’ble Justice Ashok Bhushan and Barun Mitra, dated 13.12.2023.
https://www.linkedin.com/posts/ibclaw_read-more-ibc-laws-by-payment-of-insurance-activity-7148193183498199041-u3cm?utm_source=share&utm_medium=member_desktop
FACTS: The case of Milan Aggarwal (Suspended Director of Prayag Polytech Pvt. Ltd.) vs. Saudi Basic Industries Corporation (SABIC) revolves around the obligations of a corporate debtor in insolvency proceedings, particularly concerning payments made by an insurance company to an operational creditor. The Tribunal emphasized that the corporate debtor remains responsible for its debts, regardless of any payments made by third parties like insurance companies. This ruling reinforces the principle that operational creditors must pursue their claims and cannot rely on external payments to absolve the corporate debtor from its obligations
RATIO: The corporate debtor cannot absolve its liability by claiming the operational creditor had received an insurance payout. The operational creditor can pursue a legal action for recovery against the corporate debtor, even if the operational creditor has received payout from the insurance companies. The claim from the insurance company does not eliminate the corporate debtor’s obligation to pay the outstanding amount and based on the said ground the Section 9 Application under IBC cannot be dismissed.
SANKET BHADRESH MODI V. CENTRAL BUREAU INVESTIGATION & ANR.
CITATION: Sanket Bhadresh Modi V. Central Bureau Investigation & Anr, 2024 LiveLaw (Del) 5, Hon’ble Delhi High Court, decided by Justice Saurabh Banerjee, dated 18.12.2023.
https://www.livelaw.in/high-court/delhi-high-court/delhi-high-court-accused-cant-coerced-reveal-passwords-digital-devices-trial-bail-245733
FACTS: In Bail Application. 3754/2023, the applicant sought bail for alleged involvement in a multi-million-dollar fraud scheme targeting US citizens through scam phone calls. The Court, considering that the investigation was complete, and the applicant had not misused interim bail, granted bail. The ruling emphasized that mere non-cooperation with the investigation, protected under Article 20(3) of the Constitution, could not justify denying bail, as the applicant is presumed innocent until proven guilty.
RATIO: The court held that non-cooperation with the investigation cannot be a sole reason to deny bail, particularly under constitutional protections against self-incrimination, provided the accused does not pose a flight risk or threaten the integrity of the investigation. Further the Hon’ble Court observed that an accused cannot be coerced to reveal or disclose the passwords, or any other similar details of the digital devices or gadgets seized during investigation while the trial is ongoing against self-incrimination, in view of the protection guaranteed under Article 20(3) of the Constitution of India.
X V. Y
CITATION: X V. Y, 2024 LiveLaw (PH) 04, Hon’ble High Court of Punjab and Haryana at Chandigarh, decided by Justice Sudhir Singh and Sumeet Goel, dated 22.12.2023.
https://www.livelaw.in/high-court/punjab-and-haryana-high-court/punjab-haryana-high-court-family-court-can-into-any-material-evidence-whether-not-fulfils-requirement-of-indian-evidence-act-245784
FACTS: In X v. Y, the Punjab & Haryana High Court clarified that a Family Court can admit any material into evidence for effective adjudication, regardless of its compliance with the Indian Evidence Act, 1872. The Division Bench, comprising Justice Sudhir Singh and Justice Sumeet Goel, stated that a Family Court has the discretion to admit any evidence deemed essential for resolving a case, provided it adheres to fundamental legal principles. The Court emphasized that Order VIII, Rule 1-A of the CPC, 1908, is not mandatory in Family Court proceedings. The provision is considered merely directive, allowing a Family Court to admit documents not initially submitted with the written statement, even without a formal leave application, if a reasoned order is passed. The case arose from a husband’s appeal challenging the Family Court’s decision, which dismissed his objections to the wife’s affidavit of evidence. The High Court held that the Family Court’s procedural flexibility, derived from Sections 10(1) and 10(3) of the Family Courts Act, 1984, permits deviation from CPC requirements, if the process aligns with natural justice and good conscience.
RATIO: The High Court affirmed that Family Courts possess discretionary powers to admit evidence beyond the Indian Evidence Act’s technicalities and the CPC’s procedural constraints. It ruled that this discretion is essential for ensuring justice in matrimonial disputes, emphasizing that the Family Courts Act, 1984, supersedes other procedural laws to facilitate effective adjudication while safeguarding fairness and equity.
RAJESH KATHPAL V. SHUBH STEEL .
CITATION: Rajesh Kathpal vs Shubh Steel, 2022 SCC Online Del 3403, Hon’ble High Court of Delhi, decided by Justice C Hari Shankar, dated 12.10.2022.
FACTS: In Rajesh Kathpal v. Shubh Steel, the Delhi High Court, through Justice C. Hari Shankar, addressed a petition under Article 227 of the Indian Constitution challenging an order of the District Judge (Commercial Court) that refused to strike off the respondent’s written statement for being filed beyond the stipulated timeframe. The petitioner argued that the written statement was submitted late, breaching the prescribed timeline under Order V Rule 11 and Order VIII Rule 12 of the CPC. Consequently, the High Court dismissed the petition, confirming that the Commercial Court acted correctly by allowing the written statement to remain on record.
RATIO: The Court established that the timeline for filing a written statement begins only upon meaningful service of the plaint and documents. Moreover, the Supreme Court’s extension of limitation due to the pandemic applies, protecting pleadings filed within the extended period. If the written statement is filed before 28th February 2022, it is considered within time, aligning with procedural fairness under the CPC and Supreme Court directions.
NAHAR ENTERPRISES V. HYDERABAD ALLWYN LTD. ANDANR
CITATION: Nahar Enterprises vs Hyderabad All Wyn Ltd, MANU/SC/7152/2007, Hon’ble Supreme Court of India, decided by Hon’ble Justice S.B. Sinha, dated 09.02.2007.
https://main.sci.gov.in/jonew/judis/31182.pdf
FACTS: In Nahar Enterprises v. Hyderabad Allwyn Ltd., the Supreme Court dealt with an appeal against the dismissal of an application to set aside an ex-parte decree for Rs. 1,87,904.62, with interest, filed by the appellant. The Court noted procedural errors, including the non-annexation of the plaint copy with the summons, in violation of Order V Rule 2 of the CPC. The summons was also served after the appearance date, triggering the requirement under Order IX Rule 6(1)(c) of the CPC to fix a new date for filing a written statement, which was not done. The Court also addressed the limitation issue, emphasizing that under Article 123 of the Limitation Act, the limitation period starts from the date the defendant becomes aware of the decree, not the decree date itself. The Supreme Court found the lower courts’ dismissal of the application unsustainable and set aside the ex-parte decree, subject to the appellant depositing Rs. 15,000 within six weeks.
RATIO: The judgment clarified that the failure to annex a copy of the plaint with the summons and to reschedule the hearing when summons is served late constitutes a procedural flaw that justifies setting aside an ex-parte decree under Order IX Rule 13 of the CPC. The Court also reaffirmed that limitation under Article 123 begins from the defendant’s knowledge of the decree, not its passing. Further if the summons is served on the defendant in furtherance to the date fixed by the Court, the Court ought to assign a date to the defendant for appearance and for filing written statement.
BHARAT ELECTRONICS LIMITED V. IBEX INTEGRATED BUSINESS EXPRESS PVT. LTD.
CITATION: Bharat Electronics Ltd vs IBEX Integrated Business Express Pvt. Ltd., MANU/MH/5689/2023, Interim Application (L) No. 6968 of 2023 in Commercial Arbitration Petition (L) No. 40522 of 2022, Hon’ble Court of Judicature at Bombay Ordinary Original Civil Jurisdiction in its commercial division, decided by Justice R.I. Chagla, dated 20.12.2023.
FACTS: In this case, an interim application was filed and the applicant sought to exclude 1,854 days from the limitation period for challenging an arbitral award dated 31st March 2017, arguing that the delay occurred while pursuing a writ petition and subsequent special leave petition (SLP) in good faith. Initially, the applicant challenged the award through a writ petition, but it was dismissed on 20th January 2020 due to the availability of an alternative remedy under Section 34 of the Arbitration and Conciliation Act, 1996. The applicant then pursued an SLP, which was dismissed by the Supreme Court on 31st October 2022. The applicant subsequently filed a petition under Section 34 of the Arbitration Act on 23rd December 2022, resulting in a 166-day delay beyond the permissible 120-day limitation period. The applicant claimed that the entire period of pursuing the writ petition and SLP should be excluded under Section 14 of the Limitation Act, 1963, as the proceedings were conducted in good faith.
RATIO: The Court held that Section 14 of the Limitation Act applies only if prior proceedings were pursued with due diligence and in good faith. However, since the applicant continued pursuing the writ petition and SLP despite clear objections regarding an alternative remedy under Section 34, it did not qualify as bona fide prosecution. Additionally, a Writ Court’s refusal to interfere due to the existence of an alternative remedy does not constitute a “defect of jurisdiction” under Section 14. Thus, the applicant was not entitled to the benefit of Section 14, and the petition under Section 34 was deemed time barred. The application for condonation of delay was dismissed, and the arbitration petition was rejected as beyond the limitation period.
LOMBARDI ENGINEERING PVT LTD. V. UTTARAKHAND JAL VIDYUT NIGAM LIMITED
CITATION: Lombardi Engineering Pvt Ltd. V. Uttarakhand Jal Vidyut Nigam Ltd, MANU/SC/1210/2023, Hon’ble Supreme Court of India, decided by Hon’ble CJI Dr. DY. Chandrachud, Justice J.B. Pardiwala and Justice Manoj Mishra dated 06.11.2023.
FACTS: On 6 November 2023, the Supreme Court of India in Lombardi Engineering Pvt. Ltd. v. Uttarakhand Jal Vidyut Nigam Limited addressed the legality of a pre-arbitral deposit condition under an arbitration clause vis-à-vis Article 14 of the Indian Constitution. The case emerged from a contract between Lombardi Engineering, a Swiss firm, and Uttarakhand Project Development and Construction Corporation Limited (UPDCC), later transferred to Uttarakhand Jal Vidyut Nigam Limited. The contract required the initiating party to deposit 7% of the arbitration claim as security. Lombardi, seeking arbitration, challenged this clause as arbitrary and violative of Article 14, arguing it limited access to justice and created unnecessary financial burdens. The Court, while recognizing the significance of ‘party autonomy’ in arbitration, ruled that such autonomy cannot extend to violations of constitutional principles, notably equality under Article 14.
RATIO: This decision emphasizes that for an arbitration agreement to be enforceable, it must align with the “operation of law”, which prioritizes the Constitution as the ‘grundnorm’. Therefore, an ambiguous pre-arbitral deposit condition can be invalidated as arbitrary and unconstitutional. This decision underscores the Supreme Court’s commitment to constitutional compliance, even within private contracts, setting a precedent that fundamental rights may influence arbitration agreements involving both public and private entities. The judgment thus highlights a broader role of judicial intervention to ensure constitutional rights are not undermined by contractual terms.
MS VAISHALI PATRIKAR, RP VS. DARSHAN DEVELOPERS AND OTHERS
CITATION : Ms. Vaishali Patrikar, RP Vs. Darshan Developers and Others, MANU/NC/2583/2024, I.A. 3921 of 2022 in C.P. (IB) No. 1632/MB/2019, NCLT Mumbai, decided by Hon’ble Justice Virendra Singh Gyan Singh Bisht and Prabhat Kumar, dated 02.01.2024.
https://ibclaw.in/ms-vaishali-patrikar-rp-vs-darshan-developers-and-others-nclt-mumbai-bench/
FACTS: The Corporate Insolvency Resolution Process (CIRP) in the said matter was commenced vide Order dated 03.08.2020 passed by National Company Law Tribunal (NCLT) on an Application filed under Section 7 of Insolvency and Bankruptcy Code (Code) by Vistra (ITCL) India Ltd. (Respondent No.1/R1) encashed the cheque for an amount of Rs. 91,00,000/- after the admission of Section 7 Petition by the NCLT. The Respondent No. 3 (Suspended Board of Directors of Corporate Debtor) claimed that the cheques were issued on 31.07.2020. The alleged date of issuance of the cheques is 3 days prior to the admission order. Further, a perusal of the bank account shows that when the cheques were issued there was not sufficient amounts with the corporate debtor to even get these encashed.
RATIO: The cheques encashed after commencement of CIRP and dated post CIRP commencement date could not have been encashed in view of moratorium coming into force in view of Section 14 of the Code. Further the Tribunal Observed that Section 14 of the Code provides that the Adjudicating Authority shall by order declare moratorium for prohibiting, amongst others, transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein. Upon commencement of CIRP, the bank accounts of the corporate debtor are to be managed and operated by the appointed Insolvency Professional. And the said rule applies to the cheques issued prior to the commencement of CIRP.
TRANSTEC OVERSEAS PVT LTD VS DHEERAJ AVIATION GROUND EQUIPMENT PVT LTD
CITATION: Transtec Overseas Pvt Ltd vs Dheeraj Aviation Ground Equipment Pvt Ltd, MANU/NC/2567/2024, decided by the NCLT Mumbai, by Justice K.R. Saji Kumar and Sanjiv Dutt, dated 29.10.2024.
FACTS: Operational creditor (OC) filed an application under Section 9 of the Insolvency and Bankruptcy Code (Code) after receiving demand notice from the Sales Tax Authorities, against the corporate debtor (CD), as the corporate debtor did not pay the sales tax to the appropriate Authority amounting to Rs. 5,76,367/- arising out of transactions between the OC and CD, treating the non-payment of the Sales Tax/VAT to the OC even after the demand notice issued to CD. A claim seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Dheeraj Aviation Ground Equipment Pvt. Ltd. (CD) was brought before the appropriate Authority. The OC claimed outstanding Value Added Tax (VAT) liability of ₹2,03,609 related to transactions from the financial year 2008-09, alleging default by the CD.
RATIO: This decision emphasizes that statutory dues cannot be treated as operational debt owed to a private party and that applications for CIRP must adhere to the limitation period prescribed under the Limitation Act. The NCLT held that this VAT liability was owed to the Sales Tax Authorities, not the OC, thereby not qualifying as “operational debt” under Section 5(21) of the Code. Additionally, the application was found to be time-barred under Article 137 of the Limitation Act, 1963, as it was filed beyond the three-year limitation period from the date of default. The Tribunal concluded that VAT liabilities do not constitute operational debt under the Code when owed to statutory authorities, and thus, the CIRP cannot be initiated.
KAUSHAL KISHOR V. STATE OF UTTAR PRADESH & ANR.
CITATION: Kaushal Kishor v. State of Uttar Pradesh & Anr., MANU/SC/0004/2023, decided by the Supreme Court of India, by Justice Abdul Nazeer, Justice B.R. Gavai, Justice A.S. Bopanna, Justice V Ramasubramanian, and Justice B.V. Naagarathna, dated 03.01.2023.
FACTS: In a significant case, the Supreme Court of India clubbed two matters involving derogatory remarks made by state ministers from Uttar Pradesh and Kerala, which allegedly violated the Right to Dignity under Article 21 of the Constitution. The petitions challenged the balance between the Right to Freedom of Speech under Article 19(1)(a) and the Right to Dignity. The Uttar Pradesh minister had dismissed a sexual assault as a “political controversy”, while the Kerala minister made derogatory comments about women.
RATIO: The Court emphasized that any citizen who is prejudiced by attack of speech/expression which constitutes hate speech, by public functionary/any private sectors may approach the Court of Law under civil and criminal statutes for seeking appropriate remedies, including remedy of damages.
RAMESH KESAVAN VS. CA JASIN JOSE, RP and ANR.
CITATION: Mr. Ramesh Kesavan vs. CA Jasin Jose, RP and Anr., MANU/NL/0002/2024, decided by the NCLT Chennai, by Justice Rakesh Kumar Jain and Shreesha Merla, dated 05.01.2024.
https://ibclaw.in/mr-ramesh-kesavan-vs-ca-jasin-jose-rp-sd-pharmacy-pvt-ltd-nclat-chennai/
FACTS: In Ramesh Kesavan vs. CA Jasin Jose, RP & Anr., the appellant, a promoter and suspended director of the corporate debtor, challenged the approval of a Resolution Plan by the National Company Law Tribunal (NCLT), alleging improper valuation, discriminatory treatment of creditors, and illegal constitution of the Committee of Creditors (CoC). The appellant argued that Edelweiss Asset Reconstruction Company, a significant creditor, was not included in the CoC despite holding a substantial debt. The appellant also claimed the plan provided less than the liquidation value to operational creditors and failed to address avoidance transactions properly. The National Company Law Appellate Tribunal (NCLAT) upheld NCLT’s decision, finding that the Resolution Plan was approved with 100% CoC voting and complied with the Insolvency and Bankruptcy Code (Code). The NCLAT ruled that the appellant lacked the locus to challenge the plan, citing that promoters have a limited role under the Code once a corporate debtor’s management is handed over to the Interim Resolution Professional (IRP). The Tribunal emphasized that judicial review cannot override the CoC’s commercial wisdom and that the plan was in accordance with Section 30(2) of the Code.
RATIO: The decision affirms that once a Resolution Plan is approved by the CoC with requisite voting and complies with statutory requirements, a promoter or shareholder lacks standing to contest it, reflecting the “creditor in control” model of insolvency. Additionally, limited judicial review is permissible only to ensure adherence to legal provisions, not to reassess the CoC’s commercial decisions.
CHANNEGOWDA AND ANR. V. SRI. N. S. VISHWANATH & ORS.
CITATION: Channegowda and Anr. v. Sri. N. S. Vishwanath & Ors., 2023 SCC OnLine Kar 153, Hon’ble High Court of Karnataka, decided by Justice Jyothi Mulimani, dated 08.12.2023.
FACTS: A Regular Second Appeal was filed by defendants 5 and 6, challenging the lower courts’ decisions that recognized the plaintiff’s ownership over a disputed property based on an unregistered General Power of Attorney (GPA) and affidavit executed in 1991. The property was initially transferred to the second plaintiff through these documents, who later sold it to the first plaintiff in 2004. Meanwhile, defendants 1 to 3 had already sold the property to defendant 4 in 2003, who subsequently transferred it to defendants 5 and 6 in April 2004. The lower courts had ruled in favour of the plaintiffs, declaring the latter transfers as void. However, the Karnataka High Court reversed these decisions, emphasizing that under Section 48 of the Transfer of Property Act (TPA), earlier transfers take precedence over subsequent ones. It held that the sale deeds registered in 2003 and 2004 in favour of defendants 4, 5, and 6 have priority over the unregistered documents cited by the plaintiffs.
RATIO: The ratio is that priority of rights under Section 48 of the TPA mandates that earlier registered sales supersede later ones. A sale made by an Attorney Holder based on an unregistered GPA, cannot be construed as a valid sale. Further the Power of Attorney Deed must compulsorily be registered to sell the immovable property.
LATE H.H. JYOTENDRA SINHJI VIKRAMSINJI & OTHERS AND STATE OF KARNATAKA & OTHERS
CITATION: Late H.H. Jyotendra Sinhji Vikramsinhji & Others AND State of Karnataka & Others, 2024 LiveLaw (Kar) 3, Writ Petition No. 1678/2015 (LB-RES), Hon’ble High Court of Karnataka, decided by the Hon’ble Justice Suraj Govindraj, dated 28.11.2023.
FACTS: The petitioner’s land was designated for public use according to Section 12(1)(c) of the Karnataka Town and Country Planning Act (KTCP) under the Revised Master Plan which came into effect on 25.06.2007. The Authority under KTCP did not acquire the land as mandated under the provision of Section 69(1) or (2) of the KTCP. The petitioners approached the Court to strike down the notification issued by the Bangalore Development Authority (BDA).
RATIO DECEDENDI: In this case it was held that land reserved for public use such as parks, cemeteries, etc., in under Section 12(1)(c) of the KTCP, loses such reservation if not acquired within five years by the competent Authority. It was also held that Section 69(2) of the KTCP makes it clear that in the matter of construction of roads, the proceedings will not lapse even if the period of five years is over.
ASMA LATEEF & ANR V. SHABBIR AHMAD & ORS.
CITATION: Asma Lateef & Anr. v. Shabbir Ahmad & Ors., MANU/SC/0034/2024, Hon’ble Supreme Court of India, decided by Justice D.Y. Chandrachud, Justice Surya Kant, and Justice Pamidighantam Sri Narasimha, dated 15.02.2024.
FACTS: The appellants challenged a High Court decision that dismissed their execution application. Initially, the appellants obtained a decree against one of the defendants (Samiullah) under Rule 10 of Order VIII of the Code of Civil Procedure (CPC), 1908, due to the failure of Samiullah to file a written statement. The decree was later contested by respondents (subsequent purchasers) under Section 47 of CPC, claiming it to be inexecutable since the decree was passed without adjudicating the Trial Court’s jurisdiction.
RATIO: A decree pronounced under Order VIII Rule 10 of CPC without assessing the Court’s jurisdiction or proving the facts in dispute, cannot be considered valid or executable. Further, it was held that a judgment under Order VIII Rule 10 must establish jurisdiction and address the merits of the case. A decree passed without fulfilling these requirements is ab initio void and inexecutable. The Court reaffirmed that any decision rendered without first determining jurisdiction is a nullity and can be objected to during execution.
NAVINCHANDRA STEELS PVT. LTD. AND ORS. VS. UNION OF INDIA AND ORS.
CITATION: A. Navinchandra Steels Pvt. Ltd. and Ors. vs. Union of India and Ors., MANU/MH/0179/2024, Writ Petition No. 4620 of 2022, Hon’ble High Court of Bombay, decided by Justice M.M. Sathaye and Justice B.P. Colabawalla, dated 11.01.2024.
FACTS: MSME borrowers challenged their classification as NPAs by banks and NBFCs under the SARFAESI Act, arguing that banks should follow the MSME Notification (29.05.2015) for early stress identification (SMA-0, SMA-1, SMA-2) before declaring NPAs. They contended that the MSMED Act should override SARFAESI. Banks and NBFCs countered that MSMEs must voluntarily apply for restructuring, or SARFAESI proceedings could proceed.
RATIO DECIDENDI: The Bombay High Court ruled that the MSME Notification is non-mandatory and does not override SARFAESI, which prevails in financial recovery. It held that the borrower must initiate restructuring, and failure to apply within 90 days allows the lender to classify the account as an NPA. The Court dismissed the petitions, stating that MSMEs cannot use the MSMED Act to block recovery proceedings, and granted two weeks for an appeal to the Supreme Court.
NAMITA GUPTA V. SURAJ HOLDINGS LIMITED
CITATION: Namita Gupta vs Suraj Holdings Ltd, MANU/DE/0150/2024, Hon’ble High Court of Delhi, decided by Justice Navin Chawla, dated 09.01.2024.
FACTS: The Additional District Judge, by order dated 06.03.2023, held a civil suit to have a dispute which was commercial in nature and referred it to the Principal District and Sessions Judge for directions. On 14.03.2023, the suit was withdrawn and transferred to the District Judge of Commercial Court at Delhi. The key issues were whether Section 24 of the Civil Procedure Code (CPC) applies to commercial disputes and whether a District and Sessions Judge can transfer such suits to Commercial Courts under this provision.
RATIO DECEDENDI: The Delhi High Court held that Section 24 CPC applies to commercial disputes as the Commercial Courts Act does not exclude it. However, a District and Sessions Judge lacks the power to transfer such suits under Section 24, and only High Courts have the power to do so. Instead, an improperly filed commercial suit must be returned under Order VII Rule 10 of CPC, allowing the plaintiff to refile it before the competent Commercial Court, where it will be treated as a fresh suit.
STATE BANK OF INDIA V. ANUPRIYA MANAGEMENT PRIVATE LIMITED
CITATION: State Bank of India v. Anupriya Management Private Limited, MANU/NC/2615/2024, NCLT Kolkata, decided by Justice Bidisha Banerjee, and Arvind Devanathan, dated 01.01.2024.
FACTS: In the abovementioned case, State Bank of India (SBI) sought to initiate Corporate Insolvency Resolution Process (CIRP) against the corporate guarantor, Anupriya, for default on loans to Avani Projects. The guarantor opposed this, citing non-compliance with Insolvency and Bankruptcy Board of India (IBBI) regulations and suggesting project completion to settle liabilities. The National Company Law Tribunal (NCLT) ruled that non-filing with the information utility did not prevent CIRP initiation, as SBI provided adequate evidence of default, allowing proceedings to continue against the corporate guarantor.
RATIO: Under Section 7 of the Insolvency and Bankruptcy Code (Code), simultaneous CIRP can be initiated against both the principal borrower and the corporate guarantor, as their liabilities are co-extensive. The Code permits proceedings against the guarantor upon the borrower’s default, affirming the creditor’s right to pursue both entities. It was further held that filing of default information utility under Rule 20(1A) of IBBI (Information Utilities) Regulations 2017 is not mandatory compliance for initiating CIRP.
SANDEEP GUPTA V. JM FINANCIAL ASSET RECONSTRUCTION COMPANY LTD. & ANR
CITATION: Sandeep Gupta v. JM Financial Asset Reconstruction Company Ltd. & Anr., MANU/NL/0020/2024, the NCLAT New Delhi, decided by Justice Dr. Venkata Ramakrishna Badrinath Nandula and Charan Singh, dated 09.01.2024
FACTS: In this case, the suspended directors challenged National Company Law Appellate Tribunal’s (NCLT) admission of Yes Bank’s Section 7 Application for Corporate Insolvency Resolution Process (CIRP). The appellants sought to settle dues under Section 12A of the Insolvency and Bankruptcy Code (Code), offering to pay 100% of creditor’s claims. However, the Committee of Creditors (CoC), led by UV Asset Reconstruction Company Limited (UVARCL), rejected the proposal due to concerns over payment structure and third-party involvement. UVARCL also cited Section 29A of the Code, barring promoters from submitting resolutions, asserting only genuine creditors can propose under Section 12A. Appeals were dismissed based on these grounds.
RATIO: The CoC’s commercial wisdom in rejecting a settlement under Section 12A is not absolute. The Adjudicating Authority (NCLT/National Company Law Appellate Tribunal) has jurisdiction to intervene if the CoC’s decision is arbitrary, especially when 100% dues are offered. Section 29 A of the Code does not prohibit promoters to submit application under Section 12A and NCLT can accept application under Section 12 A filed by promoters, even if rejected by CoC, if decision of CoC seems to be arbitrary.
HYUNDAI CONSTRUCTION EQUIPMENT INDIA PVT. LTD. V. M/S SAUMYA MINING LTD & ANR
CITATION: Hyundai Construction Equipment India Pvt. Ltd V. M/S Saumya Mining Ltd & Anr., MANU/MH/0143/2024, Arbitration Petition No. 32/2022, Hon’ble High Court of Bombay, decided by Justice Dr. Neela Gokhale, dated 11.01.2024.
FACTS: In this case, Hyundai filed a petition under Section 11 of the Arbitration & Conciliation Act of 1996 (Act), seeking the appointment of an arbitrator to resolve disputes arising from agreements executed in Kolkata in 2011 and 2013. The agreements, concerning the sale and hire of construction equipment, contained arbitration clauses specifying Kolkata and Pune as venues. Disputes arose, leading Hyundai to initiate proceedings in the Kolkata High Court under Section 9 of the Act. The Kolkata High Court appointed a Court Receiver for asset recovery. Hyundai later filed the current petition in the Bombay High Court, arguing that the arbitration clause in the 2013 agreement designating Pune as the venue granted jurisdiction to the Bombay High Court. However, the Court rejected this argument, citing Section 42 of the Act, which mandates that once a Court exercises jurisdiction over arbitration proceedings, it retains exclusive jurisdiction over subsequent applications.
RATIO: Under Section 42 of the Act, the Court where the first Application related to Arbitration is filed retains exclusive jurisdiction over subsequent proceedings, regardless of any designated arbitration venue. The earliest Competent Court remains the sole authority for all related matters. Consequently, the petition in the Bombay High Court was dismissed, as Kolkata High Court had initially exercised jurisdiction
KUSUM GUPTA V. ALKESH GUPTA & ANR.
CITATION: Kusum Gupta V. Alkesh Gupta & Another., 2023 SCC OnLine NCLAT 2187, Company Appeal (AT) (CH) No. 76/2023, NCLAT Chennai, decided by Mr. Justice Venugopal M and Ms. Shreesha Merla, dated 11.10.2023.
FACTS: The primary dispute arose over the procedure required for the transfer of shares following the death of a family member who held shares in the company. The appellant argued that as per the company’s Articles of Association (AOA), transmission should occur only with proper legal documentation, including a succession certificate. However, the respondent contended that a succession certificate was not strictly required under the Companies Act, and transmission could proceed based on legal heirship and a death certificate, as permitted under a 2022 Securities and Exchange Board of India (SEBI) circular.
RATIO: The Tribunal concluded that the AOA are binding in share transmission cases. Consequently, the Tribunal ruled that a succession certificate is necessary for legal clarity and to protect all parties’ rights, particularly in conflicts relating to inheritance claims. The Tribunal also upheld the requirement for such documentation, emphasizing that the company’s articles take precedence in determining procedural compliance, and that unresolved disputes over heirship must be settled through formal legal channels before transmission can occur.
ACRE – 81 TRUST THROUGH ITS TRUSTEE ASSETS CARE & RECONSTRUCTION ENTERPRISE LTD. AND OTHERS V. PAWAN KUMAR GOYAL AND OTHERS
CITATION: Acre – 81 Trust Through its trustee Assets Care & Reconstruction Enterprise Ltd. and Others V. Pawan Kumar Goyal and Others, 2024 SCC OnLine NCLAT 90, Company Appeal (AT) (Ins) No. 447/2023, NCLAT New Delhi, decided by Justice Rakesh Kumar Jain and Mr. Naresh Salecha, dated 17.01.2024.
FACTS: All assenting members of Committee of Creditors (CoC) of SARE Realty Projects Pvt. Ltd. voted to liquidate the corporate debtor. The National Company Law Tribunal (NCLT) at Delhi had observed that the CoC’s decision to liquidate without attempting a resolution was contrary to the Insolvency and Bankruptcy Code’s (Code) scheme and potentially malicious, prompting the issuance of the show-cause notice stating that until Invitation for Expression of Interest according to Form G is published, there is no mechanism under the regime of the Code to discover prospective resolution applicants for a corporate debtor and without publishing Form G, CoC could not have been in a position to formulate an opinion that there were no prospective buyers available for the corporate debtor. Against the said Order, the CoC members preferred Appeal before the National Company Law Appellate Tribunal (NCLAT).
RATIO: NCLAT held that under Section 33(2) of the Code, the CoC has the authority to recommend liquidation at any stage before a resolution plan is confirmed, even without pursuing resolution attempts, provided that at least 66% of the CoC agrees. The Tribunal found that Section 65, meant for fraudulent applications, was misapplied, as the CoC’s decision was solely for liquidation. Consequently, the show-cause notice and NCLT’s order were set aside, affirming CoC’s discretion under Section 33(2) to liquidate the corporate debtor.
SIMETECH INDIA PRIVATE LIMITED V. BHARATH HEAVY ELECTRICALS LIMITED
CITATIONS: Simetech India Private limited V. Bharath Heavy Electricals Limited, 2024 SCC OnLine Del 227, Hon’ble High Court of Delhi, decided by Justice Sanjeev Narula, dated 12.01.2024.
FACTS: The petitioner filed a petition under Section 34 of the Arbitration and Conciliation Act (Act) challenging an arbitral award before the High Court of Delhi. In the challenge petition, the respondent filed an I.A. under Order VII Rule 10 r/w Section 151 of CPC seeking return of the petition on ground of lack of pecuniary jurisdiction of the Court. Accordingly, the Court referred the matter to the Joint Registrar (JR) for the computation of the specified value of claims and counterclaims. The JR held that the specified value of the claim was less than 2 crores, therefore, the petition was liable to be returned. However, the JR had also erroneously included the pendente lite and future interests till the date of the filing of the petition.
RATIO: It is held that to determine the pecuniary jurisdiction of the Court to deal with a challenge petition under Section 34 of the Act, the aggregate value of the claims cannot include the value of the pendente lite and future interest on claims and counter-claims to determine the ‘Specified Value’ as provided under Section 12 of the Commercial Courts Act of 2015.
RAJANTI DEVI ALIAS RAJANTI KUMARI V. THE UNION OF INDIA
CITATION: Rajanti Devi alias Rajanti Kumari V. The Union of India, 2023 SCC OnLine SC 1595, Hon’ble Supreme Court of India, decided by Justice Bela M. Trivedi and Justice Satish Chandra Sharma, dated 28.11.2023.
FACTS: The petitioner had filed a Special Leave Petition (SLP) seeking anticipatory bail, which was dismissed as withdrawn by the Supreme Court. During the proceedings, it was brought to the Court’s attention that the Patna High Court had heard the anticipatory bail matter on 07.04.2022 and reserved the order, but released it only on 04.04.2023—after nearly a year. The Supreme Court took serious note of this delay and directed the Registrar General of the Patna High Court to submit a report regarding the delay in pronouncement of orders.
RATIO: The Supreme Court reiterated the necessity of expeditious disposal of bail applications and judgments. The Court emphasized that bail applications should be decided within two weeks, while anticipatory bail applications should be disposed of within six weeks. The Court directed all High Courts to adhere strictly to these timelines and to implement a monitoring mechanism for reserved judgments, reinforcing the fundamental right to a speedy trial.
DIPY ENTERPRISE V. LIFELINE MEDIAL RESEACH & CANCER INSTITUTE
CITATION: Dipy Enterprise V. Lifeline Medial Reseach & Cancer Institute, 2024 SCC OnLine NCLT 337, Company Petition (IB) No. 90/KB/2023, NCLT Kolkata, decided by Justices Bidisha Banerjee and Arvind Devanathan, dated 12.01.2024.
FACTS: In the abovementioned case, Dipy Enterprise filed a petition under Section 9 of the Insolvency and Bankruptcy Code (Code), seeking insolvency proceedings against Lifeline Medical Research for unpaid dues related to the supply of medicines. Despite repeated notices and attempts at mediation, Lifeline Medical Research failed to respond or settle the debt, leading to the Tribunal ruling in favour of Dipy Enterprise. The Tribunal held that the absence of a genuine dispute or response from Lifeline established the debt’s validity and justified proceeding with insolvency measures
RATIO: An operational creditor may proceed with insolvency action if the corporate debtor does not raise a genuine pre-existing dispute or respond to debt notices. NCLT emphasized that repeated non-response, lack of payment despite acknowledged supply of goods, and failure to participate in mediation proceedings collectively demonstrate the validity of the debt, thus warranting insolvency proceedings under the Code.
HYDERABAD HI-TECH TEXTILES PARK MEMBERS WELFARE SOCIETY V. HYDERABAD HI-TECH TEXTILE PARK PVT. LTD. & 7 ORS.
CITATION: Hyderabad Hi-Tech Textiles Park Members Welfare Society v. Hyderabad Hi-Tech Textile Park Pvt. Ltd. and Ors., MANU/NC/6299/2023, decided by the NCLT Hyderabad, by Justice Dr. Venkata Ramakrishna Badrinath Nandula and Charan Singh, dated 22.12.2023.
FACTS: The case involved a conflict between the shareholders and management of Hyderabad Hi-Tech Textile Park Pvt. Ltd. over alleged financial irregularities, lack of transparency, and misuse of funds. The Members Welfare Society argued that the directors were engaging in activities detrimental to the company and, consequently, to the welfare of its members. This allegedly included failure to ensure proper facilities within the Textile Park, misappropriation of funds, and lack of adherence to statutory requirements.
RATIO: NCLT’s decision centered on principles of corporate governance, the responsibilities of directors, and shareholder rights under the Companies Act of 2013. The Tribunal held that directors owe fiduciary duties to the shareholders and are required to act in the company’s best interests. The judgment emphasized the importance of transparency and accountability in managing corporate affairs and ruled that if directors are found to be in breach of their duties, shareholders have the right to seek redress. The NCLT ordered remedial measures to ensure the welfare of the Textile Park’s members and mandated improved governance practices within the company to prevent similar issues in the future. This case reinforces the regulatory role of NCLT in addressing corporate governance disputes and upholding the interests of stakeholders when there is evidence of mismanagement and lack of adherence to statutory obligations.
SARABJIT KAUR V. THE STATE OF PUNJAB & ANR.
CITATION: Sarabjit Kaur V. The State of Punjab & Anr., MANU/SC/0193/2023, Hon’ble Supreme Court of India, decided by Justice Abhay Shreeniwa Oka and Justice Rajesh Bindal, dated 01.03.2023.
FACTS: The Supreme Court examined whether a breach of contract alone could constitute grounds for criminal charges of cheating. The appellant, Sarabjit Kaur, challenged an FIR filed against her under Sections 420 (cheating), 120-B (criminal conspiracy), and 506 (criminal intimidation) of the Indian Penal Code (IPC). The allegations stemmed from an unfulfilled property sale agreement between the appellant and the complainant’s wife, where the appellant received an initial payment and subsequently delayed the sale.
RATIO: The Supreme Court held that criminal prosecution for cheating requires proof of fraudulent intent at the initiation of the transaction. Merely failing to fulfil a contractual obligation, without evidence of initial dishonest intent, does not establish grounds for criminal charges. The Court noted that the complainant repeatedly escalated the issue from a civil dispute to a criminal case, seemingly to pressure the appellant for a refund, which was deemed an abuse of judicial process. As a result, the Court quashed the FIR, emphasizing that criminal proceedings should not substitute civil remedies unless essential criminal elements are clearly present.
SHARADHA L. DODMANI VS. STATE OF KARNATAKA AND ORS.
CITATION: Smt Shardha L Dodmani vs State of Karnataka and Others, MANU/KA/4122/2023, Hon’ble High Court of Karnataka, decided by Justice M. Nagaprasanna, dated 20.12.2023.
FACTS: The petitioner, who was employed as a temporary accountant since October 3, 2008, sought to challenge the termination of her service. This termination was initiated after she received a show cause notice alleging unauthorized absence from duty, yet the notice did not specify the period of absenteeism. The petitioner argued that her termination occurred despite ongoing proceedings concerning the regularization of her service, which had been ordered by the High Court in an earlier ruling. The High Court found that the termination order was issued without conducting a proper inquiry or considering the petitioner’s response to the show cause notice.
RATIO: The Court held that termination of employment was not a mere administrative action but rather a punitive measure that required a fair hearing and due process as mandated under Article 311(2) of the Indian Constitution. The Court referenced several precedents indicating that even a temporary employee has the Right to an Inquiry when misconduct is alleged, and any termination without such due process could be quashed. The Court further decided that:
- A termination that results from allegations of misconduct must adhere to the principles of natural justice, including the right to a hearing.
- If a termination order is found to be a guise for disciplinary action without a fair inquiry, it can be deemed unsustainable and subject to annulment.
- The ruling reaffirmed that constitutional protections against arbitrary dismissal must be honoured, particularly in government employment scenarios.
SIVAGNANAGOVINDASAMY NAMBI V. THE REGISTRAR OF COMPANIES, CHENNAI
CITATION: Sivagnanagovindasamy Nambi V. The Registrar of Companies, Chennai, Company Appeal (AT) (CH) No. 32/2022, NCLT Chennai, decided by Justice Shreesha Merla, dated 18.01.2024.
FACTS: The appellant sought restoration of its name after being struck off from the Register of Companies due to non-compliance with statutory obligations, particularly the failure to file annual returns and financial statements from the financial years 2010-11 to 2016-17. The appellant contended that the provisions of the Companies Act of 2013 were applied excessively, leading to what they described as “double jeopardy”. They argued that the company had made efforts to comply with the Companies (Compromises, Arrangements and Amalgamations) Scheme (CODS) of 2018, including the payment of necessary fees. Despite this, the Registrar of Companies (RoC) opposed the restoration, citing non-compliance as the reason for the company’s striking off.
RATIO: The National Company Law Tribunal (NCLT) held that the application for restoration must be assessed based on the specific facts and circumstances of each case. In this instance, the Tribunal recognized the principle of justness and fairness in dealing with corporate compliance issues. The Bench emphasized that while adherence to statutory obligations is paramount, the specific context of the company’s operations, its contribution to mental healthcare, and the creditors involved were significant factors to consider. The NCLT concluded that the company’s past efforts to rectify compliance issues warranted a more nuanced approach than mere penalties for non-compliance, ultimately favouring the restoration of the company’s name by imposing penalty on the company.
VINGRO DEVELOPERS PVT. LTD. V. NITYA SHREE DEVELOPERS PVT. LTD. AND ORS.
CITATION: Vingro Developers Private Limited V. Nitya Shree Developers Private Limited and Others, MANU/DE/0504/2024 Hon’ble High Court of Delhi, decided by Justice Dinesh Kumar Sharma, dated 05.01.2024.
FACTS: The dispute arose between Vingro Developers Pvt. Ltd. and Nitya Shree Developers Pvt. Ltd. regarding certain contractual obligations. Vingro Developers sought to initiate arbitration against Nitya Shree Developers and aimed to include the directors of the latter as parties to the arbitration, invoking the ‘Group of Companies’ Doctrine. This Doctrine allows for non-signatory parties to be included in arbitration under certain conditions, particularly when there’s a common intention between the parties involved.
RATIO: The Court clarified that for a non-signatory such as a director to be included in arbitration, there must be a clear common intention between the parties to bind them to the arbitration agreement. It emphasized that simply because a director signs a contract on behalf of the company, it does not automatically bind the director to the arbitration agreement. The relationship between the company and its directors was characterized as one of a principal and an agent under the Indian Contract Act, meaning that an agent cannot be held liable for the actions of their principal unless specified in the contract. The Court ultimately directed that the arbitration proceeds without including the directors as parties, highlighting the distinction between the company and its directors in legal agreements.
SURESH GUPTA V. B.E. BILLMORIA & COMPANY LIMITED
CITATION: Suresh Gupta v. B.E. Billimoria & Company Limited, CP (IB) No. 838/MB-VI/2019, decided by the NCLT, Mumbai Bench-VI, decided by Hon’ble Shri K.R. Saji Kumar, Member (Judicial) and Hon’ble Shri Sanjiv Dutt, Member (Technical), dated January 19, 2024
https://ibclaw.in/suresh-gupta-vs-b-e-billimoria-company-ltd-nclt-mumbai-bench/
FACTS: In the abovementioned case, the petitioner, Suresh Gupta, initiated proceedings under Section 9 of the Insolvency and Bankruptcy Code (Code) against the corporate debtor, B.E. Billmoria & Company Limited. The case arose from a financial arrangement where the corporate debtor had defaulted on loan repayment despite having received significant financial facilities from the financial creditor, which were documented through various agreements, including a Trust Receipt and Demand Promissory Notes.
RATIO: The National Company Law Tribunal (NCLT) held that an application under Section 9 of the Code cannot be admitted when there exists a cloud of suspicion, especially when the nexus between the operational creditor and corporate debtor in their engagement or agreement is not clearly made out. The Settlement Agreement does not offer any credence in establishing the relationship between the parties. Even if it is believable, Corporate Insolvency Resolution Process (CIRP) cannot be initiated on the failure of the Settlement Agreement. Further, when the parties entered into the Settlement Agreement, the nature of the debt changed. The amount outstanding pursuant to the Settlement Agreement is a settlement amount which can only be construed as a mere debt and does not qualify to be an operational debt under the Code as it lost its character of operational debt. Hence, NCLT rejected the Application holding that the operational creditor’s right to approach appropriate forum is not prejudiced.
