Leading Corporate and Commercial Law Cases in October 2022

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1. Mrs. Renukadevi Rangaswamy v Regen Powertech Pvt Ltd

Citation: Mrs. Renuka Devi Rangaswamy vs. Regen Powertech Pvt Ltd.: 2021 SCC OnLine NCLT 16430, IA(IBC)/591(CHE)/2021 in IBA/1424/2019, NCLT Chennai, Decided by Hon’ble Justice Ramathilagam(Judicial) and Anil Kumar B, Member(Technical)

Ratio: In this case, the NCLAT has ruled that the transfer of assets among group companies is not considered fraudulent trading under Section 66(1) of the Insolvency and Bankruptcy Code, 2016. The transparency of transactions between the companies, as well as the maintenance of records on an SAP system and regular auditing, indicate that the allegations of fraudulent trading made by the appellant are not convincingly proven.
2. Ocean Deity Investment Holdings Ltd v Mack Star Marketing Pvt Ltd and Anr

Citation: Ocean Deity Investment Holdings Ltd vs. Mack Star Marketing Pvt Ltd and Anr: Company Appeal (AT)(INSOLVENCY) No. 795 of 2021, NCLAT New Delhi, Decided by Hon’ble Justice Anant Bijay Singh (Judicial) and Shreesha Merla, Member (Technical)

Ratio: The NCLAT (National Company Law Appellate Tribunal) here found that the term-loan provided by Yes Bank to Mack Star was collusive and not considered financial debt under the definition in the Insolvency & Bankruptcy Code. The majority of the sanctioned loan amount was quickly returned to Yes Bank, indicating that the loan transactions were a facade. The NCLAT stated that Yes Bank had disbursed these loans with an ulterior motive.

The NCLT had admitted Suraksha Asset Reconstruction’s application claiming defaults in payment of term loans between Mack Star and Yes Bank. However, Ocean Deity Investment Holdings argued that the transactions were collusive and cited a criminal conspiracy involving Yes Bank officials and HDIL promoters. The NCLAT acknowledged these allegations and found that the term loans disbursed by Yes Bank to Mack Star were fraudulent in nature. The NCLAT order highlights the circular flow of funds and the majority of loan amounts being routed back to Yes Bank shortly after disbursement. It also mentioned that the Adjudicating Authority had ignored the findings of the CBI (Central Bureau of Investigation) and ED (Enforcement Directorate).
3. Small Industries Development Bank of India (SIDBI) v Vivek Raheja and Ors
Citation: Small Industries Development Bank of India Vs. Vivek Raheja and Ors.: Company Appeal (AT)(Insolvency) No. 570 of 2022, NCLAT New Delhi, Decided by Hon’ble Justice Ashok Bhushan (Judicial) and Hon’ble Barun Mitra (Technical)

Ratio: Section 53(1)(b)(ii) of the Insolvency and Bankruptcy Code specifies that distribution in the order of priority should be based on “debts owed to a secured creditor.” This provision does not refer to the value of the security held by the secured creditor, but rather the actual debt amount admitted in the Corporate Insolvency Resolution Process (CIRP). The debt owed to a secured creditor is a fixed amount determined during the CIRP and outlined in the Information Memorandum prepared by the Resolution Professional.

Therefore, the distribution of proceeds should be based on the admitted debt of the secured creditor, not the value of their security. This interpretation aligns with the legislative scheme of Section 53(1) of the Code. The Appellate Tribunal has already addressed this issue in a previous case (Union Bank of India Vs. Resolution Professional of M/s Kudos Chemie Ltd. & Ors.), where it affirmed the Adjudicating Authority’s decision to distribute the resolution plan amount based on the accepted amount by the Resolution Professional, rather than the value of the security.
4. Reliance Commercial Finance Ltd v Darode Jog Builder Pvt Ltd

Citation: Reliance Commercial Finance Ltd vs. Darode Jog Builder Pvt Ltd: 2021 SCC OnLine NCLT 10743, Company Appeal (AT)(Insolvency) No. 1005 of 2022, NCLAT New Delhi, Decided by Hon’ble Justice Ashok Bhushan (Chairperson), Hon’ble Justice Satyanarayana Murthy (Judicial) and Hon’ble Dr. Barun Mitra (Technical)

Ratio: The National Company Law Appellate Tribunal (NCLAT) referred to a recent judgment by the Hon’ble Supreme Court in the case of Vidarbha Industries Power Limited vs. Axis Bank Limited and concluded that in the present case, the Adjudicating Authority had given the Corporate Debtor an opportunity to deposit the entire defaulted amount within 45 days. If the Corporate Debtor complied and deposited the full amount, there would be no need for the Adjudicating Authority to admit the Section 7 of the Insolvency and Bankruptcy Code 2016, application for insolvency resolution.

The purpose of the Section 7 proceedings is to resolve the insolvency of the Corporate Debtor, and if the Corporate Debtor fulfils its obligation to deposit the defaulted amount, there would be no reason to continue with the insolvency resolution process. The interests of the Financial Creditor are protected because they have been granted the liberty to revive the Section 7 Application if the amount is not deposited within 45 days.
5. Indian Overseas Bank v Presiding Officer, DRT-II, Chandigarh

Citation: Indian Overseas Bank vs. Presiding Officer, DRT-II, Chandigarh and Ors. (12.09.2022 – DRAT Delhi): MANU/DD/0009/2022, Decided by Hon’ble Justice Brijesh Sethi (Chairperson).

Ratio: If One-time Settlement (OTS) of one borrower is accepted, it does not confer any right upon the other borrower. The value of the securities, possibility of recovery from guarantors are some of the relevant factors which are to be considered by the authorities while analysing OTS application. Moreover, the OTS proposal only provides for the minimum amount which can be accepted by the bank, and it does not provide maximum amount and the OTS proposal itself observes that all the Branch/Regional Offices should make every effort in increasing the borrowers’ OTS amount and should ensure that OTS brings maximum cash.

Therefore, Banks cannot be compelled to accept OTS Proposal and accordingly the impugned orders passed by the Ld. PO, DRT-II, Chandigarh dated 17.05.2021 and 02.06.2021 were set aside.
6. Punjab National Bank v Supriyo Kumar Chaudhuri and Ors

Citation: Punjab National Bank vs. Supriyo Kumar Chaudhuri and Ors.: 2022 SCC OnLine NCLAT 1592, Company Appeal (AT)(Insolvency) No. 657 of 2020, NCLAT New Delhi, Decided by Hon’ble Justice Anant Bijay Singh (Judicial) and Hon’ble Shreesha Merla (Technical).

Ratio: In the above case, the appellant argued that margin money in the form of part payment for a letter of credit (LC) is not a security interest and does not fall under the definition of ‘Security Interest’ as per the Insolvency and Bankruptcy Code (IBC). It was claimed that the margin money is a contribution by the corporate debtor to procure raw materials and keep the company operational.
The appellant further asserted that the bank’s appropriation of margin money during the moratorium period is justified because it is not an asset of the corporate debtor. The NCLAT agreed with the contentions of the appellant, stating that margin money does not constitute a security interest or an asset of the corporate debtor. Therefore, the bank’s appropriation of the margin money during the moratorium period was deemed lawful.
7. Jagdish Prasad Saini and Ors. v State of Rajasthan and Ors

Citation: Jagdish Prasad Saini and Ors. vs. State of Rajasthan and Ors.: 2022 SCC OnLine SC 1298, Special Leave Petition (Civil) No. 16813 of 2019, Supreme Court of India, Decided by Hon’ble Chief of India Uday Umesh Lalit and Justice Ravindra Bhat.

Ratio: The Rajasthan High Court relied upon State of Rajasthan and Anr. v. Senior Higher Secondary School, Lachhmangarh and held that the leave encashment is part of the salary. The court further held that there has been no alteration to Rule 82 Rajasthan Non-Government Educational Institutions (Recognition Grant-In-Aid and Service Conditions, Etc.) Rules, 1993 (“1993 rules”) or any other evidence presented to suggest that respondent nos. 3-7, the management, are no longer responsible for paying gratuity upon the termination of their employment with the appellants. Rule 82 is a precondition for the grant, indicating that the management establishment was fully cognizant of its obligation when it applied and received assistance under the 1993 Rules. As a result, it cannot evade its responsibility on this basis.

The impugned order was set aside, and the appeal was allowed.
8. Ram Kumar v State of Uttar Pradesh and Ors

Citation: Ram Kumar vs. State of Uttar Pradesh and Ors.: Civil Appeal No. 4258 of 2022, Supreme Court of India, Decided by Justice B. R. Gavai and Justice C. T. Ravikumar

Ratio: In any proceedings where the dismissal of fair price shop license is being challenged, the subsequent allottee is a necessary party and shall have a right to be heard and make submission defending the order of cancellation. If the necessary party is not impleaded in a petition, the petition is liable to be dismissed. In the present case, the previous allottee suppressed the material fact that a subsequent allottee had been allotted. Non-disclosure of relevant and material documents with a view to obtain an undue advantage in proceedings would amount to fraud and such decree obtained by fraud is to be treated as a nullity.
9. Jaipur Trade Expocentre Pvt Ltd Versus M/s Metro Jet Airways Training Pvt Ltd.:

Citation: Jaipur Trade Expocentre Private Limited vs. Metro Jet Airways Training Private Limited (07.03.2022 – NCLAT): 2022 SCC OnLine NCLAT 95, Decided by Justice Ashok Bhushan (Chairperson), Justice Rakesh Kumar Jain (Judicial), Justice Rakesh Kumar (Judicial), Member Barun Mitra (Technical), Member Naresh Salecha (Technical)

Ratio: The nature of the dues in this case is related to the license fee for the use of premises specifically designed for an educational institution, including fittings, fixtures, and other amenities. The Adjudicating Authority erroneously concluded that the debt claimed by the Operational Creditor was not an ‘operational debt,’ while the appellant argues that it falls within the definition of ‘operation debt’ as stated in Section 5(21) of the Code. The Tribunal acknowledges that the previous judgments in Mr. M. Ravindranath Reddy’s case and Promila Taneja’s case do not establish the correct law. Therefore, the judgment in Promila Taneja’s case cannot be followed based on this understanding.

Consequently, the Tribunal rules that the claim for payment of the license fee by the Licensor for the business use of the premises constitutes an ‘operational debt’ under Section 5(21) of the Code.
10.Chhattisgarh State Power Distribution Company Ltd. v Salsar Steel and Power Ltd

Citation: Chhattisgarh State Power Distribution Company Ltd vs. Salsar Steel and Power Ltd: Company Appeal (AT)(Insolvency) No. 118 of 2022, NCLAT New Delhi, Decided by Hon’ble Justice Satyanarayana Murthy (Judicial) and Member Barun Mitra (Technical)

Ratio: The Appellant raised the concern that they were not a member of the Committee of Creditors (CoC) and were not given an opportunity to participate in the CoC meeting. The Tribunal was of the opinion that since the Appellant’s debt falls below the 10% threshold, so there is no requirement to issue a notice to them for the CoC meeting. Consequently, the decisions made by the CoC were not set aside on this ground.
11.H. N. Nagraj v Suresh Lal Hira Lal and Ors

Citation: H. N. Nagraj vs. Suresh Lal Hira Lal and Ors.: Criminal Petition No. 8257 of 2019, High Court of Karnataka, Decided by Justice Suraj Govindraj

Ratio: The Karnataka High Court has ruled that in a case filed under Section 138 of the N.I. Act, arraying the proprietor as an accused or representing the proprietary concern through the proprietor is sufficient to meet the requirements of Section 138 of the N.I. Act. The provision of Section 141 of the NI Act does not explicitly mention the applicability to a proprietary concern. While it specifies that it would apply to a company, firm, or association of individuals, it is not clear whether a proprietary concern would fall under the ambit of the provision.

The court’s reasoning was that in the case of a proprietorship, there is only one proprietor who is in charge of the affairs of the concern. Thus, there is no need to plead who is in charge of the concern when there is only one proprietor. The court disagreed with the decision of the Punjab and Haryana High Court to extend the definition of a company to a proprietary concern in order to argue that it has a separate and independent existence. The court held that the provision of Section 141 of the NI Act does not indicate the applicability of the same to a proprietary concern, although it does indicate that it applies to a company, firm or association of individuals.
12.Rajratan Babulal Agarwal v Solartek India

Citation: Rajratan Babulal Agarwal vs. Solartex India Pvt. Ltd. and Ors. (13.10.2022 – SC): 2022 SCC OnLine SC 1395, Decided by Hon’ble Justice K.M. Joseph and Justice Hrishikesh Roy https://www.barandbench.com/news/litigation/pre-existing-dispute-ibc-cannot-equated-principle-of-preponderance-of-probability-supreme-court

Ratio: In present case, the insolvency petition was initiated against corporate debtor by operational creditor for failure to pay Rs. 4.4 crore for supply of coal. However, the Corporate Debtor had raised issue with the operational creditor that coal was of substandard quality.

Held, the operational creditor was barred from initiating insolvency of corporate debtor on ground that pre-existing dispute existed between the parties. Further, the court held that the standard for determining existence of pre-existing dispute shall not be that of a civil court i.e. preponderance of possibilities. Even few emails raising concern regarding quality of sufficient proof of pre-existing dispute.
13.Om Pratap Singh v The Station House Officer

Citation: Om Pratap Singh vs. the Station House Officer: 2022 SCC OnLine Kar 1587, Criminal Petition No. 8879 of 2022, High Court of Karnataka, Decided by Hon’ble Justice Rajendra Badamikar.

Ratio: The High Court of Karnataka allowed the petition filed under Section 438 of CrPC saying that it does not see any impediment to admit the petitioner for anticipatory bail.
The High Court also held that the google reviews do not hold any evidentiary value hence the same cannot be considered in this present case.
14.Dalip Narinder Gupta v M/s M. K. Printech Pvt Ltd

Citation: Dalip Narinder Gupta vs. M/s M. K. Printech Pvt Ltd: (IB)- 550(ND)2020, NCLT New Delhi, Decided by Hon’ble Justice Bachu Venkat Balram Das (Judicial) and Member L. N. Gupta (Technical)

Ratio: The NCLT didn’t allow the modification of the order wherein it had appointed an IRP (Interim Resolution Professional) from the IBBI list in view of no nomination of IRP been made by the OC (Operational Creditor) in their Form 5. However, the OC had made a nomination of an IRP by way of a separate Affidavit, which the Tribunal dismissed.
15.Abdul Hakeem M.A. & Ors. v Mahatma Gandhi University & Ors

Citation: Abdul Hakeem M.A. and Ors. vs. Mahatma Gandhi University and Ors. (28.02.2019 – SC): (2019) 16 SCC 328, Decided by Hon’ble Justice Uday Umesh Lalit and Justice Indira Banerjee

Ratio: The Respondent University attempted to avoid revised pay scales to Petitioner teaching staff on the grounds that the teaching staff were
part-time/contractual employees. However, the appointment, resolution to appoint and screening process for appointment of teaching staff all clearly indicated that the teaching staff were permanent employees of the Respondent. Held that, whenever appointments were to be for limited duration or on contractual basis, a clear stipulation was always made in the concerned Resolution or Notification. Therefore, posts were on a substantive and not contractual basis. The appeal was allowed and revised pay scales for teaching staff was to be implemented.
16.NRC Ltd v State of Maharashtra and Ors

Citation: NRC Ltd vs. State of Maharashtra and Ors., 2016 SCC OnLine Bom 454, WP-8449-2022, High Court of Bombay, Decided by Hon’ble Justice G. S. Patel and Justice Gauri Godse

Ratio: The Punjab National Bank (PNB) initiated the Corporate Insolvency Resolution Process (CIRP) against NRC Ltd by filing an application under Section 7 of the IBC before the NCLT. The NCLT admitted the petition on November 27, 2018, triggering a moratorium as per Section 14 of the IBC. After the Resolution Plan was approved through the required voting process, MSEDCL served a notice to Adani Properties on January 21, 2021, under Section 56(1) of the Electricity Act 2003 stating that Adani Properties, as the successful Resolution Applicant, was now liable to pay Rs. 29,94,09,779/- towards electricity arrears.
For MSEDCL’s internal records and to protect against potential arguments regarding limitation, the Hon’ble Court held that it should be allowed to continue displaying the amount of arrears and any claim for interest in the bills. However, this does not mean that NRC Ltd is obliged to pay MSEDCL’s bills for connection and ongoing charges until the connection is restored and new connections are granted. The Court stated that MSEDCL cannot refuse to provide a new connection or restore services solely based on the non-payment of past dues and that the MSEDCL’s bills should be addressed only after the restoration of the connection and the granting of new connections.
17. Bahu Builders and Traders Jammu Pvt Ltd v J&K Dharmarth Trust and Ors

Citation: Bahu Builders and Traders Jammu Pvt Ltd vs. J&K Dharmarth Trust and Ors, CRMC No. 265/2017, High Court of Jammu and Kashmir and Ladakh, Decided by Hon’ble Justice Sanjay Dhar

Ratio: The High of Jammu and Kashmir held that the dispute between the parties was purely civil in nature and the same does not contain any ingredients constituting criminal offence. Moreover, there is also an arbitration agreement in the agreement entered by the parties hence the matter has to go before the said arbitrator agreed upon in the agreement entered by the parties.

Also, the complainant has preferred the present petition only to settle the matter expeditiously. The Court relied upon the ration in Anil Mahajan vs. Bhor Industries Ltd. and another, (2005) 10 SCC 228, wherein it is held that a culpable intention cannot be presumed from a mere denial of a person to keep a promise subsequently. The court distinguished between mere breach of contract and the offense of cheating and noted that the intention of the accused at the time of the inducement is the key factor to consider. The subsequent conduct of the accused alone is not a sufficient test.

The Supreme court also held that case is of civil nature and does not involve any fraudulent or dishonest intention. Mere breach of contract cannot give rise to criminal prosecution for cheating. The intention of the accused at the time of inducement is the determining factor, and subsequent conduct is not the sole test. Therefore, the mere use of the term “cheating” in the complaint is of no consequence.
18. Bharat Petroleum Corporation Ltd and Ors. v Nisar Ahmed Ganai and Ors
Citation: Bharat Petroleum Corporation Ltd and Ors. vs Nisar Ahmed Ganai and Ors., 2022 SCC OnLine SC 1388, Civil Appeal Nos 6778 – 6780 of 2022, Supreme Court of India, Decided by Hon’ble Justice M.R. Shah and Justice Krishna Murari.

Ratio: The Supreme court held that the regarding lands acquired under the J&K Act, 1990, Section 24(1)(a) of the land acquisition, 2013 does not apply. Furthermore, due to pending writ petitions and a status quo order, the award could not be declared, making it a serious error for the High Court to direct the appellants to pay compensation under the Act, 2013. Therefore, the common judgment and order passed by the High Court is unsustainable on both factual and legal grounds.

The Hon’ble Supreme Court also held that, The High Court did not consider the arguments presented by the original landowners concerning the invalidation of the land acquisition proceedings on other grounds. Therefore, the matters will be remanded to the High Court to consider the writ petitions again in light of the law and on their own merits, including any other grounds challenging the land acquisition proceedings under the State Act of 1990.
19. Indrani Saha v BK Podder Printing Pvt Ltd

Citation: Indrani Saha vs BK Podder Printing Pvt Ltd, CP (IB) No. 140/KB/2020, NCLT Kolkata, Decided by Hon’ble Justice Shri. Rohit Kapoor (Judicial) and Member Shri. Balraj Joshi (Technical)

Ratio: The Corporate Debtor contended that the demand notice sent via email was deliberately sent to the wrong address, although it was sent to an email registered with the Registrar of Companies. The NCLT determined that the service of the demand notice to the registered email address was valid, and since no reply was given by the Corporate Debtor, the notice was deemed delivered. However, the NCLT also recognized that the lack of a reply does not prevent the Corporate Debtor from presenting facts to establish pre-existing disputes related to the case.
20.Union Bank of India v State of Karnataka

Citation: Union Bank of India vs State of Karnataka, Company Appeal (AT)(CH) (Insolvency) No. 160 of 2021, NCLAT Chennai, Decided by Hon’ble Justice M. Venugopal (Judicial) and Member Kanthi Narahari (Technical)

Ratio: The Insolvency and Bankruptcy Code and the IBBI CIRP Regulations clearly outline the duties of the Insolvency Resolution Professional (IRP) and the Resolution Professional (RP). The Operational creditor(s) need to submit their claim/s with proof in Form-B, while financial creditor(s) submit their claim/s in Form-C. The IRP verifies these claims and maintains a list of creditors with their claimed amounts. The NLCAT stated that in view of the provisions of the IBC and the regulations in place, the IRP cannot admit claims Suo – moto without the proper claim forms and supporting evidence.
21. Partha Sarathy Sarkar v Insolvency and Bankruptcy Board of India

Citation: Partha Sarathy Sarkar vs Insolvency and Bankruptcy Board of India, IBBI/DC/108/2022, Insolvency and Bankruptcy Board of India, Decided by Hon’ble Justice Sudhaker Shukla

Ratio: The Hon’ble High Court held that it has the power to issue writs beyond its territorial jurisdiction if the cause of action, wholly or partly, arises within its jurisdiction. The place of work or residence of the petitioner is not relevant, but rather where the cause of action accrues. In this case, the show cause notice and suspension order were issued to the petitioner in connection with proceedings in Delhi. However, the petitioner also has ongoing assignments in Mumbai, Maharashtra, as a resolution professional, and the suspension order would affect their work there.

Therefore, since part of the cause of action arises within the territorial jurisdiction of the court, the court has the jurisdiction to entertain the writ petition.
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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