Leading Corporate and Commercial Law Cases in August 2022

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1. State Bank of India v Sudip Bijoy Dutta, Director of Ess Dee Aluminium Ltd

Citation: State Bank of India vs. Sudip Bijoy Dutta, Director of Ess Dee Aluminium Ltd. (16.06.2022 – NCLT – Kolkata): 2022 SCC OnLine NCLAT 2687. Decided by Rohit Kapoor (Judicial) and Harish Chander Suri, Member (Technical)

Ratio: Section 60(1) of Insolvency and Bankruptcy Code, 2016 clearly states that the residence of a Personal Guarantor is not considered when initiating proceedings against them. Whether the Personal Guarantor resides in India or abroad, the jurisdiction lies with the Adjudicating Authority in whose territorial jurisdiction the registered office of the Corporate Person is located. Therefore, the Appellant’s claim of being a citizen of Singapore and providing a Singapore address is irrelevant for initiating proceedings against them.
Since the registered office of the Corporate Debtor, M/s Ess Dee Aluminum Ltd., is within the jurisdiction of NCLT, Kolkata, the application for initiating insolvency proceedings against the Personal Guarantor should be filed there. The term “personal guarantors” under Section 60(1) applies to all personal guarantors, regardless of their citizenship. If a personal guarantee is given by a person residing outside India or a foreign national, and it is accepted, they are bound by the personal guarantee.

The statutory scheme does not indicate that a Personal Guarantor can escape their liability under the Guarantee Deed simply because they obtained foreign citizenship after executing the guarantee. Allowing such Personal Guarantors to evade their obligations would create a loophole where they can leave the country and claim they are no longer liable due to their non-Indian citizenship.

2. Vishnu Oil Mill Private Ltd v Union of India

Citation: Vishnu Oil Mill Private Ltd vs Union of India: D.B. Civil Writ Petition No. 2507/2022, High Court of Rajasthan, Jodhpur Bench. Decided by Sandeep Mehta, Kuldeep Mathur

Ratio: The High Court of Rajasthan has held that a group of financial creditors can join hands to touch the financial limit of Rs.1 crore stipulated under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) so as to initiate a CIRP under the IBC. The Court held that the amendment to Section 7 of the IBC, which increased the threshold default limit for filing a CIRP application from Rs.1 lakh to Rs.1 crore, was intended to provide a means of efficacious redressal to the smaller financial creditors and to give them an opportunity of availing the speedy remedy under the IBC rather than being relegated to other onerous proceedings for securing their money.
The Court also held that the amendment to Section 7 did not make any change to the provision that an application for triggering CIRP may be initiated by a financial creditor either individually or jointly with other financial creditors. This, the Court said, suggests that the legislature intended to
allow a group of financial creditors to join hands to touch the financial limit of Rs.1 crore so as to initiate a CIRP.
4. Rakesh Kumar Jain v Jagdish Singh Nain & Ors

Citation: Rakesh Kumar Jain vs. Jagadish Singh Nain and Ors.: 2022 SCC OnLine NCLAT 3300, Company Appeal (AT)(Ins.) No. 425 of 2022, NCLAT Principal Bench, New Delhi, Decided by Hon’ble Justice Ashok Bhushan (Chairperson), Justice M. Satyanarayana Murthy (Judicial) and Barun Mitra (Technical).

Ratio: Section 14(1)(a) of the IBC prohibits the institution and prosecution of proceedings against the corporate debtor, but it does not prevent the Adjudicating Authority from passing orders during the insolvency resolution or liquidation process against the resolution professional, suspended directors, or related parties.
On the other hand, Section 66 allows the Tribunal to pass appropriate orders against the suspended board of directors or resolution professional and related parties when fraudulent transactions are involved. These two provisions serve different purposes and should be interpreted independently to make the enactment effective and workable. The Tribunal’s duty is to construe Sections 14(1)(a) and 66 of the IBC harmoniously in order to achieve the objectives of the law.

5. Commissioner of Service Tax New Delhi v Quick Heal Technologies Ltd

Citation: Commissioner of Service Tax New Delhi versus Quick Heal Technologies Ltd: (2023) 5 SCC 469, Civil Appeal No. 5167 of 2022, Supreme Court of India, Decided by Hon’ble Justice Abhay S. Oka and Hon’ble Justice J.B. Pardiwala

Ratio: Held that, once a lumpsum has been charged for the sale of software in CDs/DVDs and Sales Tax has been paid thereon, the Appellant thereafter cannot levy Service Tax on the entire sale consideration once again on the ground that the updates are being provided. The artificial segregation of the transaction, as in the case on hand, into two parts is not tenable in law.

6. Vallepu Naga Raju v The State Of Andhra Pradesh

Citation: Vallepu Naga Raju vs The State Of Andhra Pradesh: Writ Petition No. 3129 of 2021, The High court of Andhra Pradesh, Decided by Hon’ble Justice Sri Justice A.V. Sesha Sai and Hon’ble Justice Sri Justice G. Ramakrishna Prasad.

Ratio: The Hon’ble High Court upheld the principle of “equal pay for equal work” and held that an employee engaged for the same work cannot be paid less that another employee, who performs the same duties or functions, even if the departments and designations of the employees are different.
Therefore, in the present case the pay scales of computer assistants were revised to equal to that of data processing officers (From Rs. 17,500 to Rs. 31,460) despite no revised pay scales for computer assistants on the grounds that only giving benefit to data processing officers was a violation of Article 14 of the Constitution. Obiter: Anyone, who is compelled to work at a lesser wage, does not do so voluntarily. He does so, to provide food and shelter to his family, at the cost of his self-respect and dignity, at the cost of his self-worth, and at the cost of his integrity. The same therefore, is a violation of Article 21 of the Constitution.
7. Kuldeep Verma, the Liquidator of Eastern Gases Ltd. v DBS Bank Ltd

Citation: Kuldeep Verma, the Liquidator of Eastern Gases Ltd. v. DBS Bank Ltd: IA (I.B.C)/883(KB) 2021, NCLT Kolkata Bench. Decided by Shri Rohit Kapoor (Judicial), Shri Harish Chander Suri (Technical)

Ratio: In the above matter, the issue at hand revolves around the time limit for submitting claims and whether the liquidator has the authority to restrict creditors from charging interest and realizing their debt. According to Chapter IV Regulation 12 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulation 2016, the time limit for submitting claims by stakeholders is the date of commencement of liquidation and 30 days thereafter. All claims, including interest, must be raised using the prescribed forms (Form C or D).
The respondent in this case submitted their claims within the specified time limit. The plea of the respondent, arguing that the Insolvency and Bankruptcy Code, 2016 does not regulate or delegate powers to the liquidator to restrict the charging of interest and debt realization after the submission of claims, was deemed incorrect and contrary to the provisions and regulations of the Code.

8. Mr. Hemant Mehta v Asst. Commissioner of State Tax

Citation: Mr. Hemant Mehta v Asst. Commissioner of State Tax, 2022 SCC OnLine NCLAT 2621, Company Appeal (AT) (Insolvency) No. 328 of 2022, NCLAT, Principal Bench, New Delhi. Decided by Hon’ble Justice Ashok Bhushan (Chairperson), Hon’ble Justice M. Satyanarayana Murthy (Judicial) and Barun Mitra (Technical)

Ratio: In the present case, the liquidator made genuine and sustained efforts, through correspondence with government authorities and banks, to unlock the frozen accounts. Despite these efforts, no progress was made. Section 35 of the Insolvency and Bankruptcy Code (IBC) grants the liquidator the authority to request the unfreezing of the Corporate Debtor’s bank accounts and transfer the funds to the liquidator’s account as part of the liquidation estate.
Section 60(5) of the IBC, when read together with the non-obstante clause, grants the Adjudicating Authority residual jurisdiction, allowing it to intervene in certain circumstances. Given the stalemate situation in this case, it would have been appropriate for the Adjudicating Authority to exercise its residuary discretion under Section 60(5) to prevent frustration of the objectives of the IBC and provide relief to the liquidator. The Supreme Court has also held that the NCLT’s residuary jurisdiction under Section 60(5)(c) of the IBC is wide and can be exercised as long as it pertains to the insolvency proceedings.

9. Godson v State of Kerala

Citation: Godson vs State of Kerala: 2022 SCC OnLine Ker 4024, CRL. MC No. 2807 of 2022, High court of Kerala at Ernakulam. Decided by Hon’ble Mr. Justice Ziyad Rahman A.A.

Ratio: The Hon’ble Court held that a violation of condition imposed while granted bail would not amount to automatic cancellation of bail. Instead, while considering an application to cancel the bail on the ground of non-compliance of the conditions, the court has to consider the question whether the alleged violation amounts to an attempt to interfere with the administration of justice or as to whether it affects the trial of the case in which the accused is implicated.

In the present case, Accused were granted bail in 2018 and were subsequently implicated in separate crime in 2021. However, a bare reading of Section 437(5) and Section 439(2) of Cr.P.C. states that cancellation of bail shall only be done if the court considers it “necessary to do so”. Therefore, bail cannot be cancelled, unless it is shown that the involvement of the petitioners in the subsequent crime is affecting the trial of the earlier case.
10. Eanokaran Anthony Tony v Union of India

Citation: Eanokaran Anthony Tony Vs Union of India: WP(C) 1162 of 2022, Kerala High Court, Decided by Hon’ble Justice VG Arun.

Ratio: In the Present case, Petitioner being a director requested that company be struck off in accordance with Section 560 of the Companies Act, 1956 in 2016. Subsequently, he was informed that company was struck off. However, even as of 2020, the company status on MCA website was “under process of striking off”.
The technical glitch was informed to the RoC (Respondents). Subsequently, the director was disqualified for not filing returns of the company from 2016 onwards. The Hon’ble Court was pleased to allow the petition and direct the disqualification to be overturned on the grounds that State and public authorities should act fairly and reasonably and any action lacking bonafides would stand vitiated as it would be a case of colourable exercise of power.

11. Yadubir Singh Sajwan & Ors v Som Resorts

Citation: Yadubir Singh Sajwan & Ors vs Som Resorts: Company Petition No. (IB)- 67(ND)/2022, NCLT, New Delhi Bench- IV. Decided by Hon’ble Justice Dharminder Singh (Judicial) and Dr. Binod Kumar Sinha (Technical)

Ratio: In the above case, the National Company Law Tribunal admitted Corporate Insolvency Resolution Process proceedings against the real estate developer by disregarding the doctrine of separate legal entity. The corporate veil was lifted based on the contention that the marketing agency and Som Resorts were under common management. Som Resorts had appointed Cosmic Structures (CSL) as its marketing agency for a residential project. When CSL faced liquidation, the official liquidator sealed the project.

A Memorandum of Settlement was later reached, where Som Resorts undertook to complete the project but failed to do so. The home buyers filed a petition under the IBC for a refund, arguing that payments made to CSL should be deemed as made to Som Resorts. Som Resorts disputed the claims, stating that CSL had limited rights and certain obligations were not fulfilled by the petitioners.

12. Asset Reconstruction Company (India) Ltd v Nivaya Resources Private Ltd

Citation: Asset Reconstruction Company (India) Ltd v. Nivaya Resources Private Ltd: IA No./ 239 / AHM / NCLT / 2022, NCLT Ahmedabad. Decided by Ajai Das Mehrotra, (Technical), Hon’ble Justice Dr. Deepti Mukesh (Judicial)

Ratio: The Adjudicating Authority has determined that the resolution plan can be sent back to the Committee of Creditors (CoC) for reconsideration based on changed circumstances and the commercial wisdom of the CoC. The Tribunal has the authority to do so upon the request of the CoC.
This decision is supported by the order of the NCLAT in a similar case and is in line with the Supreme Court’s ruling in the Essar Steel case, where it was established that the NCLT can send back a resolution plan to the CoC if there are reasons to alter it or if certain parameters are not addressed.
13. Athena Demwe Power Ltd. Through its RP, Mr. Umesh Garg v Abir Infrastructure Pvt. Ltd

Citation: Athena Demwe Power Ltd. Through its RP, Mr. Umesh Garg v. Abir Infrastructure Pvt. Ltd: 2022 SCC OnLine NCLAT 498 Company Appeal (AT) IBC No. 158/2022, NCLAT New Delhi. Decided by Hon’ble Justice Ashok Bhushan (Chairperson), Hon’ble Justice M. Satyanarayana Murthy (Judicial) and Mr. Barun Mitra (Technical)

Ratio: The NCLAT considered whether a mobilization advance should be classified as a financial debt or an operational debt. The appellant argued that the guarantee provided by the corporate debtor made it a financial debt under Section 5(8)(i) of the Insolvency and Bankruptcy Code. However, the NCLAT ruled that the mobilization advance did not fall under the categories specified in Section 5(8) (i), and therefore, it could not be considered a financial debt. Regarding the classification of the mobilization advance as an operational debt, the NCLAT referred to a Supreme Court judgment stating that operational services provided or received by the corporate debtor could lead to an operational debt.
Based on this interpretation, the NCLAT concluded that the mobilization advance should be treated as an operational debt, and the resolution applicant was obligated to include it in the resolution plan. The appeal was allowed, directing the resolution applicant to treat the mobilization advance as an operational debt and make payment accordingly.

14. Akshat Pandey v Avighna Films Pvt. Ltd

Citation: Akshat Pandey v. Avighna Films Pvt. Ltd: C.P. (IB) No. 178/KB/2021, NCLT Kolkata Bench. Decided by Mr. Harish Chander Suri (Technical), Hon’ble Justice Rohit Kapur (Judicial)
Ratio: In this case, a Company Petition was filed under section 9 of the Insolvency and Bankruptcy Code, 2016 (“Code”). The main issue at hand was whether an investment made by a director of the company could be considered an Operational Debt.

The Adjudicating Authority referred to the relevant sections of the Code, specifically section 5(21) which defines Operational Debt as a claim related to the provision of goods or services, including employment, or a debt for repayment of dues under any applicable law to the Central Government, State Government, or local authority. Additionally, section 5(20) defines an Operational Creditor as a person to whom an Operational Debt is owed, including those who have legally assigned or transferred such debt. Based on the above definitions, it was determined that an investment made by a director of the company does not fall within the scope of an Operational Debt under the Code.

15. Arun Bhatiya v HDFC Bank & Ors

Citation: Arun Bhatiya vs HDFC Bank & Ors: 2022 SCC OnLine SC 1017, Civil Appeal Nos. 5204, 5205 of 2022, Supreme Court of India. Decided by Hon’ble Justices DY Chandrachud and AS Bopanna

Ratio: Supreme Court has reaffirmed that a person who avails any banking service falls within the scope of the definition of ‘consumer’ under the Consumer Protection Act, 1986 (“Act”) and can take recourse to legal remedies provided in the Act. If a person is aggrieved by the services of the bank, such person is a consumer under the Act, and he can file a legal claim seeking remedy under the Act.

Disclaimer: This material and the information contained herein prepared by Anirudh Associates is intended to provide general information on a subject or subjects and is not an exhaustive treatment of such subject(s). Anirudh Associates is not, by means of this material, rendering professional advice or services. The information is not intended to be relied upon as the sole basis for any decision. Anirudh Associates shall not be responsible for any loss whatsoever sustained by any person who relies on this material.
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