IBC

ADJUDICATORY FRAMEWORK UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016

Section 60 to Section 67A deals with adjudicatory framework in respect of Corporate Insolvency Resolution Process. Section 179 to Section 183 deals with adjudicatory framework in respect of Insolvency and Bankruptcy of Individual and Partnership Firms.

ADJUDICATING FRAMEWORK FOR CORPORATE PERSONS

Adjudicating Authority for Corporate Persons

    Section 60 deals with Adjudicating Authority for Corporate Persons. Section 60 is reproduced as under:

    60. Adjudicating Authority for corporate persons. –

    (1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located.

    (2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of such corporate debtor shall be filed before such National Company Law Tribunal.

     (3) An insolvency resolution process or liquidation or bankruptcy proceeding of a corporate guarantor or personal guarantor, as the case may be, of the corporate debtor pending in any court or tribunal shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such corporate debtor.

     (4) The National Company Law Tribunal shall be vested with all the powers of the Debt Recovery Tribunal as contemplated under Part III of this Code for the purpose of subsection (2).

    (5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of –

     (a) any application or proceeding by or against the corporate debtor or corporate person;

     (b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and

    (c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or Liquidation Proceedings of the Corporate Debtor or corporate person under this Code.

     (6) Notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being in force, in computing the period of limitation specified for any suit or application by or against a corporate debtor for which an order of moratorium has been made under this Part, the period during which such moratorium is in place shall be excluded.

    NCLT has been constituted under Section 408 of the Companies Act, 2013.  Under Section 60 (1) of the Code, the NCLT has been given adjudicatory powers in respect of Corporate Debtors and Personal Guarantors to a Corporate Debtor.

    The NCLT has territorial jurisdiction over the place where the registered office of the Corporate Person is located.

    If CIRP or Liquidation Proceedings of a Corporate Debtor are pending before a specific NCLT, an application for Insolvency Resolution or Liquidation or Bankruptcy of a Corporate Guarantor or a Personal Guarantor of such Corporate Debtor has to be filed before such NCLT only. If any Insolvency Proceedings, Liquidation Proceedings or Bankruptcy Proceedings of a Corporate Guarantor or Personal Guarantor is pending before any other court or tribunal, such proceedings have to be transferred to Adjudicating Authority dealing with Insolvency Resolution Process or Liquidation Proceedings of such Corporate Debtor.  

    NCLT has all the powers of Debt Recovery Tribunal (DRT) while dealing with Insolvency or Bankruptcy Proceedings of Personal Guarantors.

    Under 60 (5) of the Code the NCLT has been given wide jurisdiction to entertain matters related with insolvency of Corporate Debtors. NCLT has jurisdiction to entertain any application or proceeding by or against Corporate Debtor or Corporate Person. NCLT can also entertain claim made by or against the Corporate Debtor or Corporate Person, including claims by or against any of its subsidiaries situated in India. NCLT can also entertain any question of priorities or any question of law or facts, arising out of or in relation to the Insolvency Resolution or Liquidation Proceedings of the Corporate Debtor or Corporate Person under this Code.

    While filing a suit on behalf of the Corporate Debtor or against the Corporate Debtor, period of Moratorium has to be excluded in computing period of limitation in filing any suit.

    Hon’ble Supreme Court in Gujarat Urja Vikas Nigam Ltd1 has held that NCLT has jurisdiction to entertain disputes which solely arises from or relates to insolvency of the Corporate Debtor. If certain disputes are not related with insolvency of the Corporate Debtor, NCLT or NCLAT should not usurp jurisdiction of the other court.

    67. The institution framework under the IBC contemplated the establishment of a single forum to deal with the matters of insolvency, which were distributed earlier across multiple fora. In absence of a court exercising exclusive jurisdiction over matters relating to insolvency, the Corporate Debtor would have to file and/or defend multiple proceedings in different for a. These proceedings may cause undue delay in insolvency resolution process due to multiple proceedings in trial courts and courts of appeal. A delay in completion of the insolvency proceedings would diminish the value of the debtor’s assets and hamper the prospects of a successful reorgnisation or liquidation. For the success of insolvency regime, it is necessary that insolvency proceedings are dealt with in a timely, efficiently and effective manner. Pursuing this theme in Innovative (supra) this court observed that “one of important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process”.  The principle was reiterated in Arcelor Mittal (Supra) where this court held that “the non obstante   Clause in Section 60(5) was designated for a different purpose: to ensure that the NCLT alone has jurisdiction when it comes to applications to and proceedings by or against Corporate Debtor covered by the Code, making it clear that no other forum has jurisdiction to entertain or dispose of such applications or proceedings.  Therefore, considering the text of Section 60 (5) (c) and the interpretation of similar provisions in other insolvency related statutes, NCLT has jurisdiction to adjudicate disputes, which arise solely from   or which relate to the insolvency of the Corporate Debtor.  However, in doing so, we issue a note of caution to the NCLT and NCLAT to ensure that they do not usurp the legitimate jurisdiction of other courts, tribunals and for a when the dispute is one which does not arise solely form or relate to the insolvency of the Corporate Debtor. The nexus with the insolvency of the Corporate Debtor must exist”

    Appeal before NCLAT

    Section 61 deals appeal from the orders of the Code.  Section 61 is reproduced as under;

    (1) Notwithstanding anything to the contrary contained under the Companies Act 2013 (18 of 2013), any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal.

    (2) Every appeal under sub-section (1) shall be filed within thirty days before the National Company Law Appellate Tribunal:

     Provided that the National Company Law Appellate Tribunal may allow an appeal to be filed after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing the appeal but such period shall not exceed fifteen days.

     (3) An appeal against an order approving a resolution plan under section 31 may be filed on the following grounds, namely: –

    (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force;

    (ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period;

    (iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board;

    (iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or

    (v) the resolution plan does not comply with any other criteria specified by the Board.

    (4) An appeal against a liquidation order passed under section 33, or sub-section (4) of section 54L, or sub-section (4) of section 54N, may be filed on grounds of material irregularity or fraud committed in relation to such a liquidation order.

     (5) An appeal against an order for initiation of corporate insolvency resolution process passed under sub-section (2) of section 54-O, may be filed on grounds of material irregularity or fraud committed in relation to such an order.

    An appeal can be preferred under Section 61 (1) of the Code against any order passed by the NCLT by aggrieved persons. Any such appeal has to be filed within thirty days before the National Company law Appellate Tribunal (NCLAT). NCLAT may allow additional fifteen days if sufficient cause is shown for not filing the appeal within thirty days. The Supreme Court has consistently heldthat delay of more than 15 days cannot be condoned.

    In National Spot Exchange2 the Supreme Court has held as under:

    1. It is true that in a given case there may arise a situation where the applicant/appellant may not be in a position to file the appeal even within a statutory period of limitation prescribed under the Act and even within the extended maximum period of appeal which could be condoned owing to genuineness, viz., illness, accident etc. However, under the statute, the Parliament has not carved out any exception of such a situation. Therefore, in a given case, it may cause hardship, however, unless the Parliament has carved out any exception by a provision of law, the period of limitation has to be given effect to. Such powers are only with the Parliament and the legislature. The courts have no jurisdiction and/or authority to carve out any exception. If the courts carve out an exception, it would amount to legislate which would in turn might be inserting the provision to the statute, which is not permissible.

    The Supreme Court in V. Nagarajan3 reiterated that the litigant has to file its appeal within thirty days, which can be extended up to a period of fifteen days, and no more, upon showing sufficient cause.

    Section 61(3) provides that an appeal against an order approving a Resolution Plan under section 31 can be filed on limited grounds only.  Such appeal can be filed if  the approved  Resolution Plan is in contravention of the provisions of any law for the time being in force or there has been material irregularity in exercise of the powers by the Resolution Professional during CIRP or the debts owed to the Operational Creditors of the Corporate Debtor have not been provided for in the Resolution Plan in the manner specified by IBBI or the Insolvency Resolution Process Costs have not been provided for repayment in priority to all other debts or Resolution Plan does not comply with  any other criteria  specified by IBBI.

    An appeal against an order of Liquidation Order passed under Section 33 or Section 54L (4) or Section 54N (4) can be filed on limited grounds of material irregularity or fraud committed in relation to such an order.

    Appeal before Supreme Court

    Any person aggrieved by an order of the National Company Law Appellate Tribunal may file an appeal to the Supreme Court under Section 62 of the Code on a question of law arising out of such order within forty –five days from the date of receipt of such order. The Supreme Court if it is satisfied that a person was prevented by sufficient cause from filing an appeal within forty-five days allow the appeal to be within a further period not exceeding fifteen days.

    Bar on Jurisdiction of Civil Court

    Section 63 provides that no Civil Court or Authority has jurisdiction to entertain any suit or proceedings in respect of any matter on which NCLT or NCLAT has jurisdiction under the Code.

    Expeditious Disposal of Applications

    Speed is essence of the insolvency proceedings. Every application   has to be decided by the NCLT expeditiously. In cases, where application is not disposed of or an order is not passed within the period specified, NCLT or NCLAT has to record in writing reasons for the same. President of NCLT or chairman of the NCLAT can extend the period specified under the act by not exceeding ten days.

    No injunction can be granted by any court, tribunal or authority in respect of any action or to be taken in pursuance of any power conferred upon NCLT or NCLAT.

    ADJUDICATING AUTHORITY FOR PERSONAL GUARANTORS OF CORPORATE DEBTOR

    The Adjudicatory Authority for Personal Guarantor of a Corporate Debtor is also NCLT, although provisions applicable are those, which are applicable to Insolvency and Bankruptcy of Individuals and Partnerships. Such application can be filed within the territorial jurisdiction of NCLT, where the registered office of the Corporate Debtor is located to which such guarantor is a Personal Guarantor. Such application can be filed irrespective of the fact whether any CIRP proceedings are pending in respect of the Corporate Debtor to which such guarantor is a Personal Guarantor.

    NCLAT has held in Mahendra Kumar Jajodia4 that Adjudicating Authority for Personal Guarantor to a Corporate Debtor will be NCLT. Relevant para is as under:

    10.Sub-Section 1 of Section 60 provides that Adjudicating Authority in relation to Insolvency or Liquidation for Corporate Debtor including Corporate Guarantor or Personal Guarantor shall be the NCLT having territorial jurisdiction over the place where the Registered Office of the Corporate Person is located. The substantive provision for an Adjudicating Authority is Section 60, sub-Section (1), when a particular case is not covered under Section 60(2) the Application as referred to in sub-section (1) of Section 60 can be very well filed in the NCLT having territorial jurisdiction over the place where the Registered Office of corporate Person is located.

    11. The Adjudicating Authority erred in holding that since no CIRP or Liquidation Proceeding of the Corporate Debtor are pending the application under Section 95(1) filed by the Appellant is not maintainable. The Application having been filed under Section 95(1) and the Adjudicating Authority for application under Section 95(1) as referred in Section 60(1) being the NCLT, the Application filed by the Appellant was fully maintainable and could not have been rejected only on the ground that no CIRP or Liquidation Proceeding of the Corporate Debtor are pending before the NCLT. In result, we set aside the order dated 05th October, 2021 passed by the Adjudicating Authority. The Application filed by the Appellant under Section 95(1) of the Code is revived before the NCLT which may be proceeded in accordance with the law.

    ADJUDICATING FRAMEWORK   FOR INDIVIDUALS AND PARTNERSHIP FIRMS

    Adjudicating Authority for Individual and Partnerships

      Section 179 deals with Adjudicating Authority in respect of Insolvency Resolution and Bankruptcy   for Individuals and Partnership Firms. Debt Recovery Tribunal (DRT) has been given adjudicatory powers under Section 179 of the Code in respect of Insolvency Resolution  and Bankruptcy for Individuals and Partnership Firms. Territorial jurisdiction of DRT is where the individual debtor actually and voluntarily resides or carries on business or personally works for gain.

      The DRT has jurisdiction to entertain or dispose of any suit or proceedings by or against the individual debtor, any claim made by or against the individual debtor, any question of priorities or any other question whether of law or facts, arising out of or in relation to Insolvency and Bankruptcy of Individuals and Partnership Firms.

      While filing a suit or an application on behalf of debtor or against the debtor, period of Moratorium has to be excluded in computing period of limitation.

      Appellate Authorities

      An appeal from an order of DRT can be filed before Debt Recovery Appellate Tribunal (DRAT) within 30 days. If sufficient cause is shown, a delay of period not exceeding fifteen days can be condoned.

      An appeal from order of DRAT on question of law can be filed before the Supreme Court within forty-five days.  If sufficient cause is shown, a delay of period of fifteen days can be condoned.

      Bar on jurisdiction of Civil Courts

      No Civil Court or Authority will have jurisdiction to entertain any suit or proceedings in respect of any matter on which the DRT or DRAT has jurisdiction. No injunction can be granted by any Court, Tribunal or Authority in respect of any action taken or to be taken in pursuance of any power conferred on DRT or DRAT.

      Expeditious disposal of Applications

      Every application has to be disposed of expeditiously. In cases where an application is not disposed of and order is not passed within period specified under the Code, the DRT or DRAT has to record reasons for the same. On the basis of such reasons, chairperson of DRAT may extend period specified by the Code by ten days.

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      1. Gujarat Urja Vikas Nigams Ltd Vs Mr. Amit Gupta & Ors; Civil Appeal No. 9241 of 2019
      2. National Spot Exchange Ltd. Vs. Mr. Anil Kohli; Civil Appeal 6187 of 2019
      3. V. Nagarajan Vs. SKS Ispat and Power Ltd.; Civil Appeal No. 3327/2020
      4. State Bank of India Vs. Mahendra Kumar Jajodia; Company Appeal (AT) (Insolvency) 60 of 2022

      Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

      Mukesh Kumar Suman

      Mukesh Kumar Suman

      Mukesh Kumar Suman is an advocate based at Delhi. He has rich experience in civil, criminal, commercial, arbitration and corporate insolvency matters. He regularly appears before District Courts, NCLT, NCLAT, High Court and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

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