IBC: THEN…NOW & BEYOND
The evolution of the IBC, 2016
The Insolvency and Bankruptcy Code, 2016 (IBC, 2016) came into effect on 28th May, 2016 in order to provide one stop comprehensive legislation to address financial failure and consequent corporate insolvency.
The code was enacted with the objective of providing structured solutions to lenders and borrowers alike. For the first time in financial legislation, the creditor was given all importance by vesting them with power / right to initiate insolvency resolution proceeding against a corporate debtor for default in repaying debts. At the same time a moratorium period of 180 days is provided to the corporate debtor where in no corporate action is initiated against the corporate debtor. At the same time a duly appointed Insolvency professional shall be appointed and take over the management of the company to determine the extent and value of claims made by creditors. Employees and workmen featured in the list of priority after the creditors to enable just and equitable settlement of dues.
More than 2000 applications were filed ever since the legislation came into effect and the number is only increasing. Some very crucial decisions have been laid out in the initial cases that were filed before the NCLT and the NCLAT.
As the IBC, 2016 completes two years, we bring you an insight into some of the landmark rulings / judgements that have impacted the insolvency resolution process:
ICIC Bank Vs. Innoventive Industries Limited
First case filed by a financial creditor
Admissibility u/s 7 of the IBC when the corporate debtor is already under covered under another Act
NCLT, CLAT & SC held that objective of both legislations were different – protecting employee interest and protecting Bank interest respectively. Holding that the liability suspended under another Act, had nothing to do with the continuing default, the Tribunal admitted the application u/s 7 of the IBC declaring moratorium and appointing an insolvency professional.
NCLT, NCLAT & Supreme Court were of the same viewMobilox Innovations Private Limited Vs. Kirusa Software Private Limited
Definition of “Dispute”
The term “dispute” is an inclusive definition. It is not restricted to only if there is a suit or arbitration pending in the courts. Dispute must relate to matters specified in Section 5
NCLT dismissed the petition filed by the operational creditor. NCLAT overruled the dismissal and allowed the appeal. Similar judgement given in Badjate Stock & Share Pvt. Ltd Vs. Trexim Pvt. Ltd Synergies Dooray Automative Limited Vs. Edelweiss ARC Ltd & others
First resolution plan put in place under IBC, 2016
Related parties in corporate resolution plan
NCLT noted that assignment of debt to third party was permissible while the operational creditor stated that it was done by related party with intention of reducing financial burden
NCLT decided in favour of the corporate debtor. The corporate creditor has approached the NCLAT. The resolution plan saw recovery of only Rs. 54 crores as against a total of Rs. 972 crores. This involved a “haircut” of 94% which was a matter of concern Jaypee Infratech Vs. IDBI Bank Ltd & Others
Society at large is involved
Whether home buyers come under the definition of ‘financial creditors’ and ‘operational creditors’
NCLT initiated insolvency proceedings against Jaypee Infratech Consequently the homebuyers who have neither got their homes nor refund of moneys are up in arms as it prohibits them from filing a legal proceedings against Jaypee
NCLT initiated insolvency proceedings. SC is hearing petitions filed by homebuyers. Similar facts existed in the Nikhil Mehta case wherein it was ruled that homebuyers under an “assured return scheme” will qualify as “financial creditors"Shilpi Cable Technologies Vs. Macquaire Bank Ltd
The verbatim enforceability of section 9(3)(c) and Authority of an Advocate to serve demand notice to an operational debtor
NCLT held that it is mandatory for all documents to be submitted u/s 9(3)( c) of the Code. Also an Advocate not being an insider does not have authority to serve demand notice to operational debtor. NCLAT upheld the decision. However, SC overruled the decision of the NCLT & NCLAT stating that section 9(30) ( c) is procedural provision. It is directory in nature. Also an advocate serving demand notice is valid
NCLT decision was upheld by NCLAT. SC overruled the decision and ruled in favour of the operational creditorK.S. Rangasamy Vs. State Bank of India & another
No dispute in admissibility or debt
If the corporate debtor does not dispute the admissibility or debt to be repaid, then it the judgement is not open to review simply because the resolution professional and corporate debtor having different views on the amount and time of repayment. It will be upto the Creditor to settle the matter through an appropriate forum
NCLT passed order. NCLAT dismissed appeal stating that when there is no dispute as to the debt, the judgement need not be revisited
Insolvency resolution – the way ahead
The enactment of the IBC, 2016 has been welcomed and appreciated by global financial institutions and watch dogs as a welcome step in easing the clogged financial markets as well as ease of doing business. The strict adherence to timelines of 180 days / 270 days once cases are admitted before the Tribunal will ensure a comparatively speedier resolution proceeding. By enabling the Creditors to file petitions, they have been given primary importance in resolving issues with their debtors. Some landmark judgements were passed by the Tribunals and Courts laying down guidelines for a nascent legislation to find its bearings.
However, the Act needs to go a long way in ensuring the objective for which it has been enacted. Like in the case of new legislation, there are several interpretation issues and operational issues. A committee has been set up to review and address the same from time to time. The Insolvency Resolution Professionals (IRP) are often found to be at the receiving end of the hostile corporate debtors or impatient operational creditors. There is also the issue of the Tribunals of different Benches interpreting the Codes differently. Presumably, the role of the review committee will come under sharp focus to ensure all teething issues and loop holes are addressed to take forward an otherwise well intentioned legislation.
EUTHANASIA: ETHICS, MERCY AND LAW
Over the centuries the phrase “Euthanasia” has been used in varied contexts. It is believed to have originated around the regime of Emperor Augustus when he ‘died quickly without suffering’ in the arms of his wife. In the 17th Century, it was used in the medical context to refer to an easy and painless death.
Wikipedia defines euthanasia in the modern era as “painless inducement of quick death”. This opened a Pandora ’s Box of interpretation with human rights activists, legal fraternity and society in general questioning the intention of the inducing the death. This definition was not considered fool proof as such loose interpretation would have been used to the advantage of perpetrators with malicious intentions.
Over the years, intelligentsia from across the world argued that euthanasia could be considered valid only if there was already existing a condition of permanent suffering and death is induced to relieve such non curable suffering or pain. Then came the crux of the issue – intention. There must be intention of death, rather than it being accidental. The intention must be to have or cause a merciful death to alleviate suffering.
It was then that variations to Euthanasia came into being – Active and Passive being the most discussed forms of Euthanasia. The consent of the sufferer formed the curx of these.
While active Euthanasia involved using of force or lethal substances like administering lethal injections to induce death, passive Euthanasia involved withholding treatment necessary for continuance of life such as withdrawal of life support systems. In some cases, classification as active or passive becomes a challenge. This is presumably the reason why Euthanasia (of any kind) was not permitted or considered valid for many decades.
There have been many voices on this issue commonly known as ‘mercy killing’.
Some of the arguments against mercy killing are:
There are others who support mercy killing on the following grounds:
Netherlands was the first country to decriminalise Euthanasia in 1984 followed by Belgium and Luxemborg in 2009. In India until recently Euthanasia was not permitted and therefore there was no express law(s) governing the same.
In March 2018, the Supreme Court legalised passive Euthanasia (only). The apex court, after weighing pros and cons has arrived at a mid-path by ruling that withdrawal of life support to patients in permanent vegetative state would be legal. The landmark judgement was given while ruling in the case of Aruna Shanbaugh, a nurse who went into vegetative state after being sexually assaulted. She remained in that state for 42 years. The Persistent vegetative State (PVS) of a person enabled decision on this. Wikipedia defines PVS as a disorder of consciousness in which patients with severe brain damage are in a state of partial arousal rather than true awareness.
When a person is in such vegetative state for 4 weeks, it is classified as persistent. It is considered as permanent vegetative if the condition persists for a few months. That varies from one country to another.
It was only correct that Aruna Shanbaugh’s case brought the passive Euthanasia case to light as she had been in vegetative state for more than 4 decades. A silent legal battle of a patient that resulted in the operation being a success for the patient to be gone.
In the fortnightly podcast, Mr. A K Mylswamy shares his experience handling yet another corporate law case on Swabs India Pvt Ltd vs Manav Packaging Pvt Ltd.
AT THE HELM OF AFFAIRS
Special Marriage Act 1954
In the civil and old English law, an inn allowed by public license, for entertainment of strangers and other guests. Also, a hospital; a place where sick an infirm persons are taken care of.
Yellow dog contract
An employment practice by which employees requires employee to sign an agreement promising a condition of employment that he will not join a union, and will be discharged if he does join.
An untechnical term denoting a witness, on the trial of a cause, who manifests a partiality for the side calling him, and an eager readiness to tell anything which he thinks may be of advantage to that side.
TO KILL A MOCKING BIRD (MOVIE)
Adapted from the Pulitzer winning American novel written by Harper Lee, the movie starring the Greek God looking legendary actor Gregory Peck and won three Academy awards.
The film is based on real events that happened in Alabama, the hometown of Lee. Set in the backdrop of the great depression of the 1930’s, the film is poignant tale of innocence and racism told from the perspective of two siblings. Their father, a white lawyer is defending a black man accused of raping a white woman. Though the lawyer manages to prove that the victim is lying and the accused is innocent, the Judge convicts the accused, shaking the children of their faith in judiciary. Several incidents lead up to the growth of the children and the town as a whole in their perception towards racial injustice in the process destroying the innocence of young minds. There is also a subtle yet strong message of gender equality.
The movie was made in 1962 while the book was published in 1960. This novel is widely taught in schools in the United States as a classic of American literature and more importantly to emphasize tolerance and equality.
Petrocelli 1974-76 (TV)
The television series ran for two seasons in the mid 70’s. An Italian American Harvard educated lawyer gives up his fancy job and metropolitan life to move with his wife to a small sleepy town in Southwest America. While waiting for their house to be built, they live in a trailer and drive around in a rickety old truck only to realise the sleepy town is not so sleepy after all.
The true sign of intelligence is not knowledge, but imagination.
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