CASES

Parmod Yadav and Ors. v. Divine Infracon Pvt. Ltd. MANU/NC/1038/2017.

Facts:
The Applicants being mother and daughter state that they are owners of service apartment bearing
No. 915-A, 9th Floor, Soul City Service Apartment Complex situated at Plot No. 4, Sector-13,
Dwarka, New Delhi-110078. According to the Applicants, the built up area of the Service
Apartment is 34 mtrs. and the super built area is of 68 sq.mtrs. It is further stated that in relation
to the said property a lease agreement was entered into between the owners being the Applicants
as 'Lessors' with the 'Corporate Debtor' being the 'Lessee' on 16.8.2014. However, lease was made
effective retrospectively on and from 10.1.2012 correlating with certainagreement having
nomenclature of Hotelier-Buyer agreement. The duration of the lease it is claimed is for a period
of 15 years effective from 10.1.2012 and the monthly rental payable being Rs. 1,37,250/- plus
service tax, if any, applicable. The lock-in period in relation to both the parties of the property
described as above, it is claimed is for a period of 15 years. While so, it is claimed by the
Applicants/landlords that the Lessee namely the 'Corporate Debtor' had chosen to issue the
termination notice dated 4.4.2016 terminating the agreement entered into between the parties
before the expiry of lease time period of 15 years, in other wordswithin the lock-in period specified
in the agreement. It is also stated that at the time of terminating the same, Rs. 12,62,700/- was due
by way of rentals and interest was also due for the defaulted amount @ 12% per annum which
comes to around Rs. 1,95,718.03. In addition to the non-payment of rentals for the period in which
the 'Corporate Debtor' was in occupation of the premises, the Applicant has also put forth a claim
w.e.f. 10.4.2016 to 9.1.2027 in relation to monthly rentals for the unexpired period of lock-in to
the extent of Rs. 2,60,05,539.74 which it is claimed is also payable along with the interest at 12%
p.a. The aggregate amount thereby it is claimed by the Operational Creditor is in a sum of Rs.
2,74,63,957.77 and in relation to the said sum Applicants state that the notice of demand as
required to be issued under Section 8(1) of Insolvency & Bankruptcy Code, 2016 dated 22.4.2017
had been sent which the Applicants claim was also served by courier on the 'Corporate Debtor' on
24.4.2017. In view of the fact that no payment of the amount claimed in default has been remitted
nor the notice of demand being replied to, which it is stated to have made the Operational Creditor
to file under Section 9 of IBC, 2016 this Petition for invoking the Corporate Resolution Process
(CIRP) against the 'Corporate Debtor'.
Relevant Paragraph:

Rather than looking at the provisions of the Code, two of the rules framed there under throws some
light in relation to this important aspect giving a pointer that there can be other types of debt apart
from financial and operational debt in relation to a corporate debtor and these Rules also throws
some light relating to the usage of the term 'goods or services' as given under Section 14(2) of the
Code which can give a pointer to the meaning of goods or services as used in the definition of
operational debt under Section 5(21) of IBC, 2016.

Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., AIR2017SC 4532.

Facts:

An application was then filed before the National Company Law Tribunal under Sections 8 and 9
of the new Code stating that an operational debt was owed to the Respondent. The Tribunal
dismissed the aforesaid application. An appeal was then filed before the National Company Law
Appellate Tribunal which was allowed. Hence, present appeal.

Held, while allowing the appeal:

Once the operational creditor has filed an application, which was otherwise complete, the
Adjudicating Authority must reject the application under Section 9(5)(2)(d) if notice of dispute
has been received by the operational creditor or there was a record of dispute in the information
utility. It was clear that such notice must bring to the notice of the operational creditor the existence
of a dispute or the fact that a suit or arbitration proceeding relating to a dispute was pending
between the parties. Therefore, all that the adjudicating Authority was to see at this stage was
whether there was a plausible contention which requires further investigation and that the dispute
was not a patently feeble legal argument or an assertion of fact unsupported by evidence. It was
important to separate the grain from the chaff and to reject a spurious defence which was mere
bluster. However, in doing so, the Court did not need to be satisfied that the defence was likely to
succeed. The Court did not at this stage examine the merits of the dispute. So long as a dispute
truly exists in fact and was not spurious, hypothetical or illusory, the Adjudicating Authority has
to reject the application. The confirmation from a financial institution that there was no payment
of an unpaid operational debt by the corporate debtor was an important piece of information that
needs to be placed before the Adjudicating Authority, under Section 9 of the Code, but given the
fact that the Adjudicating Authority had not dismissed the application on this ground and that the
Appellant had raised this ground only at the Appellate stage, the application could not be dismissed
at the threshold for want of this certificate alone.

Relevant Paragraph: 45

Going by the aforesaid test of "existence of a dispute", it is clear that without going into the merits
of the dispute, the Appellant has raised a plausible contention requiring further investigation which
is not a patently feeble legal argument or an assertion of facts unsupported by evidence. The
defense is not spurious, mere bluster, plainly frivolous or vexatious. A dispute does truly exist in
fact between the parties, which may or may not ultimately succeed, and the Appellate Tribunal
was wholly incorrect in characterizing the defense as vague, got-up and motivated to evade
liability.

Bank of Baroda and Ors. v. Vijaykumar V. Iyer, [2018]148SC L48.

Facts:
applications were filed by one Braj Bhushan Das Binani, a promoter director of the Corporate
Debtor on 20.02.2018 mainly raising serious challenge against the resolution process initiated at
the instance of the Resolution Professional. CA(IB) No. 234/KB/2018 was filed on 16.03.2018
alleging wrongful and illegal actions of RP and CoC and prays for issuing directions to allow him
to participate in the CoC meeting. CA(IB) No. 245/KB2018 was filed on 16.03.2018 alleging
violation of master restructuring agreement by EARC and prays for issuing injunction restraining
EARC from making any claim in excess of Rs. 2594.24 Crores and to correct voting share by
restructuring CoC excluding IDBI from CoC. CA(IB) No. 201/KB/2018 was filed alleging
misconduct of the Resolution Professional by causing wrongful losses to the Corporate Debtor. He
contents that the valuation of the assets of the Company was not properly done. The Resolution
Professional acted mala fide and in contravention of the provisions of the I & B Code. Despite
directions given to the Resolution Professional vide Order in CA (AT)(Insolvency) No. 82/2018,
dated 09.03.2018 of NCLAT he was not allowed to participate in the CoC meeting from the
beginning till the conclusion of the meeting. Whenever certain crucial points affecting the
Corporate Debtor arise for deliberation, he was directed to leave the meeting room and to wait
outside. Therefore, Section 24 of the Code is violated as well as Regulation 21(3)(a) of the
Insolvency and Bankruptcy Regulations for Corporate Persons Regulations 2016. One another
serious contention raised by the applicant herein is that the Resolution Professional did not done
any work of his own. He delegated all his powers to representatives and appointed so many adviser,
legal counsels and evaluators so as to burden the resolution applicant to pay a resolution cost.
Majority work of the Resolution Professional has been outsourced so as to claim exorbitant fees
and cost of resolution by the Resolution Professional. He also appointed an LLP firm, namely
Deloittes for pre-audit of expenses and for monitoring the affairs of the corporate debtor at a fee
of Rs. 13 lakhs per month. So also he managed to get himself insured at a cost of Rs. 72.5 lakhs
during the resolution process which is unwarranted in a case of this nature. Rs. 2.4 crores had been
paid to Deloitte on account of Resolution Professional Facilitator, Rs. 2 crores have been paid to
Alvares & Marshall allegedly evaluators on account of evaluation of bids.

Relevant Paragraph: 81

In view of the above said discussion we are unable to hold that there is no discrimination among
the creditors who are equal and reduction offered to the operational creditors too is not in
accordance with the regulations and within the objective of the Code. This point is answered
accordingly.

Sree Metaliks Ltd. & Anr. v. Union of India & Anr, [2017]140C LA30(C al).

Relevant Paragraph: 20
It would be open to the parties to agitate their respective grievances with regard to any order of
NCLT or NCLAT as the case may be in accordance with law. It is also open to the parties to point
out that the NCLT and the NCLAT are bound to follow the principles of natural justice while
disposing of proceedings before them.

J.R. Agro Industries P. Ltd. v. Swadisht Oils P. Ltd. MANU/NC/5939/2018.

Relevant Paragraph:
In the circumstances, to give justice to the operational creditors, we think it appropriate to direct
the Resolution Professional to modify the resolution plan in the light of observation given in the
body of the judgment. We further direct that "the unsecured debt of related party which is
intragroup debt will be treated as an equity contribution rather than as an intragroup loan, with the
consequence that the intragroup obligation will rank lower in priority than the same obligation
between unrelated parties".

Akshay Jhunjhunwala and Ors. v. Union of India and Ors. AIR2018C al139.
Relevant Paragraph:
1. The petitioners have assailed the vires of Sections 7, 8 and 9 of the Insolvency and
Bankruptcy Code, 2016.
2. Learned Senior Advocate appearing for the petitioners has submitted that, the second
respondent is a corporate debtor in respect of whom a proceeding under the Code of 2016,
is pending adjudication before the National Company Law Tribunal (NCLT), Kolkata. The
Code of 2016, according to him, makes a distinction between a financial creditor and an
operational creditor in respect of a corporate debtor which does not have a rational and
intelligible basis. The differentiation between the two categories of creditors being
unintelligible and irrational, the provisions of Sections 7, 8 and 9 of the Code of 2016
should be struck down. He has submitted that, undue preference has been given to a
financial creditor. A financial creditor has a right to be in the Committee of Creditors
(COC) of a corporate debtor in an insolvency proceeding. An operational creditor, although
such creditor may have a claim far in excess than that of the financial creditor, will have
no say in the Committee of Creditors. In a given situation, a corporate debtor may have
only one financial creditor. Such financial creditor will constitute COC, without any
participation from any other category of creditors of a corporate debtor including that of
an operational creditor, although such operational creditor in a given case may have a claim
in excess of the financial creditor and the number of operational creditors may exceed the
number of financial creditors. Such a distinction between two categories of creditors in
respect of the same financial debtor is unjust, unfair, impracticable, irrational and ought
not to be countenanced by a Court. The distinctions sought to be introduced by the Code
 of 2016 in respect of a financial and an operational creditor for corporate debtor has been
highlighted by the learned Senior Advocate for the petitioners. He has referred to Sections
3(6), (10), (11), (12), Section 5(6), (7), (8), (20)(21), Section 6, Section 7, Section 8 and
Section 9 of the Code of 2016 in this regard.
3. Learned Senior Advocate for the petitioners has submitted that, the Code of 2016 does not
empower the adjudicating authority to look into the validity and sufficiency of a claim
lodged by a financial creditor whereas a deeper and a better scrutiny is sought to be
introduced in respect of an operational creditor. In both the events, learned Senior Advocate
for the petitioners has submitted that, the scope of enquiry as contemplated under the Code
of 2016 or at least as the learned Presiding Officers of NCLTs seek to enforce, are within
such extreme limited parameters that, justice so far as a corporate debtor is concerned
stands affected. He has submitted that, a corporate debtor does not have a platform on
which the corporate debtor can get on board along with its creditors to face and challenge
the validity, sufficiency, legality and the quantum of the claim leveled against it by any
category of creditor, be it the financial or the operational one. In case of an operational
creditor, however, the Code envisages a slightly better position for a corporate debtor
although such socalled better position is also insufficient. According to him, Section 7 of
the Code of 2016 as it stands today does not permit a corporate debtor to claim either set
off or make a counter claim, a valid defence against the financial creditor. A corporate
debtor does not have a platform to contend that, it has a valid ground so as to deny the
liability towards the financial creditor. He has given few examples where the Code of 2016
is lacking. He has submitted that, by reason of Section 231 and 238 of the Code of 2016,
the corporate debtor and in fact, no stake holder connected or concerned with the corporate
debtor, can approach any other forum for the purpose of obtaining an injunction against a
proceeding pending before a Tribunal under the Code of 2016.
4. Learned Senior Advocate for the petitioners has submitted that, the distinction sought to
be introduced by the Code of 2016 between a financial creditor and an operational one is
without any basis. The claim of the operational creditor and its money value would, in a
given case, be of the same quality and value than that of the financial creditor. The financial
creditor should also be visited with the same rigours as visited in case of an operational
creditor. Therefore, the difference introduced by the Code of 2016 is not on an intelligible
 criterion. Drastic consequences of the Code of 2016 aggravate the unequalness amongst
the creditors. He has referred to MANU/WB/0236/2017 : 2017 Volume 203 Company
Cases page 442 (Sree Metaliks Ltd. & Anr. v. Union of India & Anr.),
MANU/SC/1063/2017 (M/S. Innoventive Industries Ltd. v. ICICI Bank & Anr.),
MANU/SC/1196/2017 (Mobilox Innovations Private Limited v. Kirusa Software Private
Limited) in support of his contentions.
5. Learned Senior Advocate for the petitioners has highlighted the proceedings under the
Code of 2016. He has submitted that, the post admission stage of an insolvency petition
commences upon the insolvency application being admitted by NCLT. He has referred to
Sections 21, 30, 31 and 53 of the Code of 2016 as well as Regulation 37 of the Insolvency
and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016 in support of his contentions. According to him, the differentiation
introduced in the Code of 2016 in respect of financial and operational creditors should be
held to be a differentiation without any intelligible basis and struck down.