INSOLVENCY AND BANKRUPTCY CODE 2016 Reinforcing the insolvency

INSOLVENCY AND BANKRUPTCY CODE, 2016 - Reinforcing the insolvency regime - by Madhumitha Srinivasan June 18 June 2018

OBJECTS OF THE CODE • Creditor in control regime • Consolidates existing insolvency laws and amends other legislations • Overriding effect on all other laws inconsistent with the provisions of the Code • Time bound resolutions for evaluation and viability determinations of companies referred for CIRP • Clearly defined order of priority (waterfall mechanism) • Investigation of antecedent transactions in case of illegal diversion of assets of company • Establishment of IBBI as an independent monitoring body administration and governance of the insolvency and bankruptcy law for June 2018

WATERFALL MECHANISM UNDER IBC • Secured creditor and workmen dues (up to 24 months and secured creditors) • Other than workmen, employee dues of up to 12 months • Financial debts of unsecured creditors • Government dues (up to 2 years) and unpaid secured creditors • Preference shareholders, if any • Equity shareholders or partners, as the case may be June 2018

SCHEME UNDER THE CODE Source: http: //slideplayer. com/slide/12224343/ June 2018

STATISTICS Source: http: //www. ibbi. gov. in/IBBI_News_letter_2018_06_11_18_12_27. pdf June 2018

June 2018

LANDMARK DECISIONS Lokhandwala Kataria Construction Private Limited v. Nisus Finance and Investment Managers LLP (Supreme Court Judgment dated 24 th July 2017) • Inherent powers under Article 142 of the Constitution invoked to permit parties to withdraw application post settlement Innoventive Industries Ltd. vs. ICICI Bank (Supreme Court Judgment dated 31 st August 2017) • Supremacy of the Code over other laws • Application by financial creditor will have to be admitted once the debt was proved to be “due” • On appointment of a resolution professional, an erstwhile director of the corporate debtor cannot file a petition on behalf of the company • Who may prefer an appeal on behalf of the corporate debtor against an order of admission of an insolvency application? June 2018

Mobilox Innovation Pvt. Ltd. vs. Kirusa Surendra Juggilal Trading Kamalpat Company Jute vs. Mill Software Pvt. Ltd. (Supreme Court Judgment dated 21 st September 2017) Company Limited & Ors. (Supreme Court Judgment dated 19 th • Insolvency Bill of 2015 included the term “bonafide” in the definition of dispute, September 2017) the same was omitted in the Code • Held that the time limit of 7 days for removing defects is • exhaustive directory [provisos to Sections 7(5) and 9 (5)] Scope of “dispute” was inclusive and not • Once existence of a “real dispute” was established, the petition will have to be rejected by the NCLT June 2018

Macquarie Bank Limited Vs. Shilpi Cable Technologies Limited (Supreme Court Judgment dated 15 th December 2017) • Requirement to deliver a demand notice / invoice of unpaid operational debt mandatory • Requirement to file an affidavit or certificate from financial institution only directory • Procedural hurdles should not be imposed on creditors; domestic and foreign creditors ought not to be discriminated • Demand notice can be issued by an advocate June 2018

Overview of the IBC amendment Ordinance, 2018… Neelkanth Township and Construction Pvt. Ltd. vs. Urban Infrastructure Pvt. IS LIMITATION ACT APPLICABLE? Ltd. (Supreme Court Order dated 23 rd August 2017) • The question of limitation was left open Black Pearl Hotels Pvt. Ltd. vs. Planet M Retail Ltd. (NCLAT Judgment dated 17 th October 2017) • Right to apply under the Code would accrue only on 1 st December, 2016 when the Code came into force June 2018

Is Limitation Act applicable to Tribunals? Ref: M. P. Steel Corporation vs. Commissioner of Central Excise (Supreme Court Judgment dated 23 rd April 2015) • Bar of limitation applies to suits, appeals and applications before “Courts” and not quasi -judicial bodies (those that are part of judicial branch of the State) Post Amendment Ordinance, 2018: Section 238 A: Limitation Act, 1963 applies to proceedings or appeals before AA, NCLAR, DRT and DRAT June 2018

HOME BUYERS AS FINANCIAL CREDITORS KEY OBSERVATIONS OF THE • growth impetus: does the promise INSOLVENCY COMMITTTEE: • Assocham Report - RERA as “Time value” interpreted to mean hold out on the ground? price paid for the length of time for which the money has been disbursed • • Insolvency Law Committee opined estate sector; IBC restructures or that monies so raised are a tool for liquidates the business raising finance for the project • Homebuyers to be treated on par with RERA regulates and formalizes real • Apex Court steps in to secure other financial creditors homebuyers’ rights June 2018

Post Amendment Ordinance, 2018: Sec. 5(8): Financial debt ………. (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; Explanation. - For the purposes of this sub-clause, - (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and…. . ” Sec. 21: Committee of Creditors ………. (6 A) provides for manner of representation for other classes of creditors. Clarifications required Whether secured or unsecured creditors? Whether commercial real estate buyers are included? June 2018

GUARANTORS UNDER IBC Alpha & Omega Diagnostics (India) Ltd. vs. ARCIL (NCLAT Judgment dated 31 st July 2017) • Moratorium is applicable only on the assets of the corporate debtor that Post Amendment Ordinance, 2018: • Section 5(5 A): corporate guarantor defined • Section 14: moratorium to not apply to a surety in a contract for guarantee to a corporate debtor are reflected in the balance sheet • No moratorium can be claimed on the assets of the guarantor June 2018

PROMOTERS UNDER IBC Section 29 A of the IBC (as amended on 18 th January, 2018) (In)Eligibility criteria: • Layer 1 – the “person” is ineligible (wilful defaulter, disqualified director, etc. ) • Layer 2 – connected person is ineligible (promoter of a company in which preferential or undervalued transactions have taken place and order made under Code by Adjudicating Authority, etc. ) • Layer 3 – related party of a connected person • Layer 4 – person acting jointly / in concert with a person under the above 3 layers of ineligibility June 2018

In the matter of Synergies Dooray Automative Limited (Hyderabad NCLT Order dated 2 nd Aug. 2017 1 st Resolution Plan approved under the Code Source: https: //www. bloombergquint. com/china/2018/06/16/next-move-is-trump-s-after-china-hitsback-in-trade-war-opener June 2018

Synergies Castings Limited • Assigned 92. 93% of its debt holding in SDAL Millennium Finance Limited (NBFC) In 2005, Synergies Dooray’s (SDAL) lenders approved leasing out of company assets to Synergies Castings for 4 years • SDAL declared sick company in 2007 - lenders assigned their debts (93% of borrowings) to Synergies Castings in 2008 and 2011 • 92. 93% of the debts assigned by Synergies Castings to NBFC, two days prior to Government notifying that SICA would be repealed • SDAL filed an Application under Sec. 10 of IBC for initiating CIRP June 2018

• Post assignment of the debt, NBFC got a seat in the Co. C with more than 75% voting share • EARC objected to the assignment agreements – questionable • RP submitted that resolution plan was in accordance with the Code • Resolution plan was admitted by NCLT with certain conditions • APPEAL FILED BY EARC PENDING IN THE NCLAT June 2018

Examples where the bar derailed insolvency process: • VTB Bank led Numetal (Rewant Ruia, member of Ruia family of Essar) rendered ineligible to bid for Essar Steel • Arcelor. Mittal ineligible to bid for Essar Steel as Lakshmi Mittal (since dropped his name as promoter) was one of the promoters (while not in management) of KSS Petron and Uttam Galva. [provided all defaulting accounts of respective NPAs are regularized before submission of resolution plan] • Promoter of JSW Steel related to promoter of Monnet Ispat, for which JSW-AION Capital submitted their bid to take over the company, which was approved by the Co. C. [neither JSW not Monnet invested in each other companies] June 2018

Post Amendment Ordinance, 2018: Section 29 A: • Ineligible to submit resolution plan if at the time of submission of plan has an NPA • The clause does not apply to persons who have acquired NPA pursuant to resolution plan approved under IBC, for a period of 3 years from the date of such approval Sec. 5(24 A): • Related party in relation to an ‘”individual” defined June 2018

SOURCE: https: //economictimes. indiatimes. com/news/economy/policy/why-ibc-panelsnew-recommendations-may-defeat-the-very-purpose-of-thelaw/articleshow/63994517. cms June 2018

THANK YOU! June 2018