IBC Digest by AVM Resolution Professionals LLP.

1.Section 29A(h) requires guarantee which is to be invoked along with the CIRP against the CD.

The Hon’ble Supreme Court in the case of Bank of Baroda & Anr. v. MBL Infrastructures Limited & Ors. (Civil Appeal No. 8411 of 2019) discussed the legality of Section 29A(h) of the Code.

The Appellant in the present case is challenging the eligibility of the Resolution Applicant (RA) on the basis of its liability existing as a guarantor as per the unamended Section 29A(h) which was prevailing on the day of the application and has also challenged the approval of the resolution plan by the AA.

The Respondent, on the contrary, argued that since the decision of approving the resolution plan was the commercial decision of the COC, hence, the same cannot be challenged. It was also argued that the RA was not ineligible to submit the resolution plan as the provision of Section 29A(h) requires an invocation of guarantee against the guarantor along with the pendency of the insolvency proceedings against the CD, which was not invoked in the present case.

The Apex Court discussed the objective of the said section which is to avoid unwarranted elements entering the resolution process and prevent the entry of certain categories of people who are not in the position to lend credence to the resolution process because of their disqualifications. It further observed that the scope of clause (h) of Section 29A covers the ineligible guarantor against whom the guarantee has been invoked by the creditor along with the requirement of admission of CIRP proceedings against the CD in whose favour the guarantee was given. Hence, both the requirement for making the guarantor ineligible was satisfied and thus, the RA was held to be ineligible to submit the resolution plan. However, the Court took notice of the fact that the Respondent had infused the money into the CD and had made it run on the going concern, thus, reversing the decision based on eligibility will affect the interest of the shareholders and employees.

Further, on the issue of the RA earlier eligible and later ineligible, the Court observed that if the eligibility of the RA changes by the operation of law which then continues till the plan is been approved by the COC and later by the AA, then the subsequently amended provision shall govern the eligibility of the RA to submit the resolution plan.

2.Orders passed by the Adjudicating Authority (AA) in upholding the remuneration of the IRP should have a reasonable basis.

The Hon’ble Supreme Court in the case of Devarajan Raman v. Bank of India Ltd. (Civil Appeal No. 3160 of 2020) has allowed the appeal of the Interim Resolution Professional (IRP) and observed that the orders passed by the Adjudicating Authority (AA) in upholding the remuneration of the IRP should have a reasonable basis.

The appeal has been filed by the IRP of the CD against whom the insolvency petition has been dismissed by the NCLAT. The Appellant/IRP has claimed the amount as CIRP cost and fees from the Respondent/ Financial Creditor (FC) which was partly paid by the latter. Against this, an application was filed in the NCLT for reimbursement of the remaining fees, i.e., Rs 9,08,993/- which directed the FC to pay a sum of Rs 5,00,000/towards the fee of the IRP. The Appellant filed an appeal to the order of the NCLT in the NCLAT which observed that the fees of Rs 5,00,000/- allowed to the IRP was not unreasonable and the same to be fixed by the COC will not be a business decision depending upon the commercial wisdom of the COC.

To this, the Appellant filed the appeal in the Apex Court. It contended that the fees asked was based on the technical and financial bid submitted by the IRP which was ratified by the COC as the CIRP expenses. It was also submitted that the NCLT failed to verify the factual position and have awarded an ad hoc figure of Rs 5,00,000/- which was affirmed by the NCLAT. The Appellant referred to the case of Alok Kaushik v. Bhuvaneshwari Ramanathan and stated that the NCLT improperly exercised its jurisdiction by not applying its mind in reaching the figure of Rs 5,00,000/-. Lastly, it was argued that the claims of the IRP were not assessed based on the agreed terms submitted by the IRP in its bid.

The Supreme Court referred to the June 12, 2018 circular issued by the IBBI which provides for the reasonable remuneration to the RP and stated that the order of the AA does not reveal that the submissions made by the Appellant were considered.

It further observed that the AA merely directed the FC to pay the fees to the IRP without even giving the basis of the claims or its reasonability. It also negated the orders of the NCLAT stating the same to be made in an ad hoc manner. Hence, the Court concluded that the orders passed by the NCLT and the NCLAT does not have reasons based on which the payment of Rs 5,00,000/- is to be made by the Respondent. Thus, the appeal was admitted and the orders of the NCLT and the NCLAT were set aside with a direction to the AA to decide the matter afresh within one month.

3.In re Cognizance for limitation.

The Hon'ble Supreme Court in the case of In Re: Cognizance for Extension of Limitation (Suo Motu Writ Petition (C) No. 3 of 2020) has restored the earlier order passed by it for excluding the period from 15.03.2020 to 02.10.2021 and stated that the period from 15.03.2021 to 28.02.2022 shall stand excluded from the computation of the limitation period.

The Apex Court previously took suo moto cognizance dated 23.03.2020 and had excluded the period of limitation in the filing of petitions/ applications/ suits/ appeals/ other quasi-judicial proceedings due to the outbreak of Covid-19 pandemic till further orders. Later, the above order was brought to an end by another order dated 08.03.2021 which provided that the period from 15.03.2020 to 14.03.2021 shall not be counted for the purpose of limitation. Further, the Supreme Court on an application filed by the SCAORA restored the order dated 23.09.2020 and had extended the limitation period in all proceedings till 02.10.2021.

The Court observed that by way of this application, the SCAORA has again sought restoration of the order dated 23.03.2020. It directed that the order dated 23.03.2020 be restored and stated that the period from 15.03.2020 to 28.02.2022 shall be excluded from the count of limitation in respect of all judicial and quasi-judicial proceedings. Lastly, it directed that in cases wherein the period of limitation is going to get expired in between the excluded period, notwithstanding the actual balance period of limitation remaining, all such litigants shall have an additional period of 90 days from 01.03.2022 and if the actual period remaining is greater than 90 days, then such longer period shall prevail.

About AVM- Insolvency Professionals LLP

AVM- Insolvency Professionals LLP is a registered Insolvency Professional Entity (IPE) by The Insolvency and Bankruptcy Board of India (IBBI).(Registration number:IBBI/IPE/0099) ( The partners of IPE are Registered Insolvency Professionals (IP) under Insolvency and Bankruptcy Code, 2016 (IBC) having expertise and rich experience to advise on / carry out all aspects of Insolvency Resolution, Restructuring, Bankruptcy & Liquidation.

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