Whether Insolvency and Bankruptcy Code, 2016 (Code) supersedes any State Law ? Held yes by Mumbai NCLT in ICICI Bank Ltd vs. Innoventive Industries Ltd.

Whether Insolvency and Bankruptcy Code, 2016 (Code) supersedes any State Law ?

Held yes by Mumbai NCLT in ICICI Bank Ltd vs. Innoventive Industries Ltd.

ICICI bank has advanced term loan, working capital facilities and external commercial borrowing (ECB) to Innoventive Industries Ltd to the tune of Rs1, 019,177,034 as on 30th November, 2016. As there was a failure to repay the loan by the Innoventive industries , ICICI bank has initiated an insolvency proceeding under the Insolvency and Bankruptcy Code, 2016 for the realisation of money advanced to Innoventive and requested for an order of Moratorium.

What is Moratorium Order?

One of the most significant features of the Code is the grant of moratorium during which creditor action will be stayed. This is not automatic and has to be granted by the Adjudicating Authority at the time of admission of the corporate insolvency application. Moratorium shall continue till completion of corporate insolvency resolution process.

The Adjudicating Authority (NCLT) shall declare moratorium for prohibiting the following:

• ·  Transferring, encumbering, alienating or disposing debtor’s assets;
• 
  
• ·   Any action to enforce or deal with security interest created by the debtor in respect of its property including under SARFAESI Act, 2002;
• 
  
• · The recovery by an owner or lessor of any property in the possession of the debtor.

·         

Relief under the Maharashtra Relief Undertaking (Special Provisions) Act, 1958

Innoventive Industries argued that as they fell under the Maharashtra Relief Undertaking (Special Provisions) Act, 1958, they are entitled for a relief from any pending proceedings before any court, tribunal, and authorities.

Innoventive Industries argued that the Maharashtra Relief Undertaking (Special Provisions) Act is armoured with non-obstante clause in section 4 with the overriding effect.

NCLT Mumbai bench viewed that since IBC 2016 (Code) has come into existence subsequent to Maharashtra Relief Undertaking (Special Provisions) Act, 1958, the non–obstante clause of the Code in section 238 thereof would prevail upon any other law for the time being in force, and it could not be said that the notification given under the Maharashtra Act would become a block to issue a direction under section 7. 

Furthermore, the goal and aim under the Maharashtra Act is to avert unemployment, and an order under section 7 of IBC code would not result in any obstacle to their employment until the next 180 days even if the Innoventive Industries goes into liquidation.

NCLT viewed that the liability of the Innoventive Industries has been dealt with by the Maharashtra Relief Undertaking (Special Provisions) Act (MRU) and also by IBC but with diverse objectives , as the chief aim of  MRU is to safeguard the interest of the employees whereas under IBC , it is to safeguard the interest of the creditors who have supplied fuel to the company to make it run.

Decision

NCLT Mumbai bench observed that as the petition filed by the financial creditor is being complete, the same is accepted declaring moratorium with necessary directions.

Whether the provisions of the section 8 and 9 of IBC can be overruled where a creditor seeks for declaration of corporate insolvency against a debt defaulter.

Whether the provisions of the section 8 and 9 of IBC can be overruled where a creditor seeks for declaration of corporate insolvency against a debt defaulter.

In the case Essar Projects India Ltd. v. MCL Global Steel Private Limited (CP No. 20/1 & BP/NCLT/MAH/2017), the Mumbai bench of the National Company Law Tribunal (NCLT) dealt with the Insolvency and Bankruptcy Code, 2016 (IBC) and considered whether the provisions relating to the initiation of insolvency resolution process by an operational creditor ?

Fact of the Case

M/s Essar Projects India Limited (Essar) (Creditor) carried out some construction work for MCL Global Steel Private Limited (Debtor).

Despite several reminders by Essar, the contractual amount for the construction was not paid to Essar by MCL.. Essar issued a demand notice under Section 8 of the IBC, demanding the repayment of INR 9,26,40,255 (which is principal amount and interest).

MCL claimed that the amount claimed by the ESSAR is a disputed one under section 8 &9 of IBC as there was a poor construction and bad quality of materials were used and project was not handed over to MCL in time.

Lastly, a petition for initiation of the corporate insolvency resolution process (Petition) was filed by Essar before the NCLT, Mumbai.

Arguments & Scrutiny

·       Essar claimed that HCL never opened any claim well ahead of issue of statutory notice for debt due by Essar.

·       Essar claimed that its previous invoices for construction were duly accepted by HCL without any objection in 2014 and 2015.

·       Essar argued that HCL never initiated any civil suit or other legal or arbitral proceedings against Essar which is a pre-requisite under Section 8 of the IBC.

·       Essar demonstrated that HCL refusal to acknowledge the Essar claim is only an afterthought process.

The Bench examined Section 8 of the IBC, the provisions of which have been reproduced below:

8. (1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed.

(2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor—

(a) existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute; [Emphasis supplied]

(b) the repayment of unpaid operational debt—

(i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or

(ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor.

Explanation.—For the purposes of this section, a "demand notice" means a notice served by an operational creditor to the corporate debtor demanding repayment of the operational debt in respect of which the default has occurred.

Views of the NCLT , Mumbai Bench:

It  is obvious from the wording of Section 8, the Bench observed that disagreement raised by the MCL in reply to the demand notice does not fulfil the needs under Section 8.

The NCLT Mumbai Bench also took into account that the MCL had acknowledged the raising of the earlier invoices and had taken up the dispute only once the demand notice was given by Essar.

It emphasised that section 8 clearly states that proceedings in relation to the dispute, if any, should be initiated prior to the receipt of the demand notice from an operational creditor.

Hence, the Bench viewed that the differences raised by the Debtor were not maintainable and allowed the Petition.

Concluding Remarks

·       HCL v Essar case clearly emphasises that a debtor cannot raise a dispute as a second thought to circumvent the commencement of the insolvency resolution process by an operational creditor.

·       The dispute should have been in existence well-ahead to the issuance of the demand notice so as to cater the needs under Section 8.

The Meaning of 'financial creditor' and 'financial debt' as held by Delhi NCLT in “Nikhil Mehta v AMR Infrastructure Limited”

The Meaning of 'financial creditor' and 'financial debt' as held by Delhi NCLT in “Nikhil Mehta v AMR Infrastructure Limited”

In  Nikhil Mehta v AMR Infrastructure Limited ,the Delhi Bench of the NCLT in the case, while deducing the vital meanings of 'financial creditor' and 'financial debt', has disallowed the application on the footings  of the Nikhil Mehta (petitioner)  and the amount claimed to be unpaid not falling within the scope of the respective definitions.

The petitioner, Nikhil Mehta (HUF), had filed an insolvency application against AMR Infrastructure Limited for failing to pay 'Assured Returns'.

Assured Returns, as per contracts entered among the corporate debtor and the applicants (at the time of booking of several real estate units), were the sums of money that the petitioners were promised to be paid on a monthly basis until the possession of real estate units booked by them was handed over.

The petitioners had contended that since the amount was in the guise of an Assured Return, the failure to make such payment entitled the applicants to proceed under the CIR Process under the Insolvency Code.

The NCLT turned down the application on the ground that the Assured Returns promised to be paid to the applicants and defaulted upon by the corporate debtor did not satisfy the definition of 'financial debt' and the applicants therefore, were not entitled to prefer an application under the Code as 'financial creditors'.

The major legal points in this case are as follows:

• ·       The unpaid amount should satisfy the definition of 'financial debt' for a claim to be filed under Section 7 of the Code.
• ·       For a debt to be classified as a financial debt it should have been extended for the time value of money.
• ·       The NCLT deliberated upon the meaning of the term 'time value of money' and while relying upon several lexicons, held that time value is a price associated with the maturity period of the debt or the period during which the related income is earned.
• ·       There should be a time distance between inflows and outflows and the time value is compensation for that.
• ·       Since the transaction pertaining to the application was purely a transaction for purchase or sale of property, an amount of return promised in connection to it does not acquire the nature of a financial debt.

·       The NCLT has gone into great detail to explain the meaning of the term 'time value of money' which has not been defined under the Code and this is expected to bring clarity on maintainability of applications which may be filed by financial creditors in future.

Courtesy: CA. Sanjay Ruia

ShareShare Important decision by NCLT Bench of Delhi... in case of Nikhil Mehta v AMR Infrastructure Limited

Listed Companies “ Company Secretary “ should be careful as they are liable to be fined for Insider trading along with the other principal officials of the company- as held in Falcon Tyres case

Listed Companies “ Company Secretary “ should be careful as they are liable to be fined for Insider trading along with the other principal officials of the company- as held in Falcon Tyres case

For not complying with Insider Trading Regulations, Market watch dog, SEBI imposed a penalty of Rs. 1 crore on Falcon Tyres and four senior officials.

SEBI imposed falcon Tyres and Mr. Ruia, who was the Chairman and Promoter Director of the firm and on the firm’s Executive Director Sunil Bhansali, Non-Executive Director S Ravi and Company Secretary-cum-Compliance Officer M C Bhansali.

These senior officials, who were holding these positions during the investigation period, were required to frame a clear code of conduct under PIT Regulations to prevent Insider Trading and misuse of the price sensitive information.

However, SEBI found that Falcon Tyres has been continuing with an ambiguous code since 2008, which undermined this very spirit that the model code intended to serve. In fact, Sebi said that code of conduct approved by the Board of Falcon Tyres in December, 2008 “left ample scope for misuse of price sensitive information”, was detrimental to the interest of the shareholders of the company and general public and “ambiguous.”

After finding that the five entities had violated PIT (Prohibition of Insider Trading) Regulations SEBI has imposed a fine totalling Rs 1 crore on them.

Earlier in 2014, SEBI had imposed the penalty of Rs. 1 crore on these five entities. Following SEBI’s order, they approached SAT, which last year set aside the market regulator’s 2014 ruling and ordered a fresh probe.

Courtesy: Money Control.com

Now, a Foreign Company can merge with an Indian Company with prior Approval from RBI.

Now, a Foreign Company can merge with an Indian Company with prior Approval from RBI.

MCA on 14 April 2017 notified Section 234 of Companies Act, 2013 and issued rules thereunder, thereby opening the gates for merger and amalgamation of a foreign company with an Indian company and vice versa.

The newly inserted Rule 25A states that

1. Prior Approval from RBI is mandatory for a foreign company, incorporated outside India to merge with an Indian company by complying the provisions under Sec 230 - 232 of Companies Act, 2013 and rules made thereunder;

2. An Indian company may merge with a foreign company incorporated under following jurisdictions after obtaining prior approval of RBI and complying with the provisions of Sec 230 - 232 of Companies Act, 2013 and rules made thereunder:

3. After getting approval from RBI for such merger, such company has to make an application to NCLT.

If you accepts Cash in excess of Rs 2 lacs, you are liable to pay a penalty of Rs 2 lacs

If you accepts Cash in excess of Rs 2 lacs, you are liable to pay a penalty of Rs 2 lacs under Income-tax Act 

Jewellers , Builders and Hospitals have to be more cautious while accepting cash.

From 1st April cash transactions must be done very cautiously. Gifts etc. amounting to more than Rs 2 Lakhs received in cash may attract penalty. This will affect Jewellers, Hospitals, builders, persons who carry business in cash. Further cash purchases or expenses above Rs 10,000 may be levied a penalty, earlier the limit was Rs. 20000. Transactions must be done through banks only .

Cash sale in excess of Rs 2 lacs is to be avoided.

From 1st April 2017, for accepting cash more than Rs 2 lacs is an offence under IT Act.

On cash transactions if cash accepted of Rs. 2 Lakh or more then there is 100% penalty on it to acceptor.

v To a single person or on one day or through one transaction if Rs. 2 Lakh or more is accepted in cash then there is penalty.

v It means following four rules must be considered: (1) Rs. 2 Lakh or more (2) one person (3) One day (4) one transaction must be followed.

No split Sale is Allowed

One seller is not permitted to receive more than Rs. 2 Lakh in cash which connotes that one seller cannot accept in excess of Rs 2 lakhs in cash from any one buyer. For instance: If X Sell products for Rs 1 lakh and supplies bill no. x to Y customer and on the same day gives another bill no. m amounting to Rs. 1.5 lakhs, total amount equal to Rs. 2.5 Lakh and for such transactions seller may be levied with a penalty of 100% as he has received more than Rs 2 lacs in cash in a day.

The Meaning of One Transaction

One transaction means if the amount on the bill goes in excess of Rs 2 Lakhs and even if such amount is received through cheque or online transfer and partly in cash then also such transactions may be liable to attract penalty. For Ex.: X seller makes a credit sale of Rs. 2.5 Lakhs to Customer B on 20th April and on 22nd April the customer A pays Rs. 2.25 Lakh through Cheque and Rs. 25,000 in cash still in such transaction seller    X may be liable for penalty because the transaction has gone beyond Rs. 2 Lakhs.

Courtesy - CA Umesh Sharma 

ED raids offices of 34 chartered accountants and some company secretaries in New Delhi

ED raids offices of 34 chartered accountants and some company secretaries  in New Delhi

The raids follow an earlier notice issued by the ED to the chartered accountants and company secretaries.

The Enforcement Directorate (ED) is carrying out a first-of-its-kind raids in New Delhi on the offices of professionals like chartered accountants and company secretaries for allegedly providing a legitimate cover to shell companies.

The CAs and CSs are accused of helping shell companies convert black money in to white. They allegedly help shell companies by providing a legal framework for the paper companies. The raids follow notices that were earlier issued.

On Wedesnday, the ED was raiding the offices of 34 CAs in the Jain brothers case who were arrested last month in action against shell by the ED.

According to a report by PTI, the agency had arrested Surendra Kumar Jain and Virendra Jain and were later sent to 10 days custody after being produced in front of a court.

The ED, at the time said in a statement that "the modus operandi of Jain brothers was to launder the unaccounted money through the process of placement of funds, layering of transactions and the final integration of laundering money into the banking channel camouflaged as legitimate share premium transactions.

“Funds were brought in by the mediators on behalf of the beneficiaries through the mediators. Jain Brothers were providing accommodation entries by accepting funds from their beneficiaries through mediators and converting the same into share premium transactions in the beneficiary company. In this process Jain Brothers earned money as a certain percentage of the unaccounted money converted into share premium,” it added.

The ED also said, "during probe of some other firms 'controlled' by these brothers, it has emerged that during a “short period of three months between the opening and closing of the accounts of these companies, there was credit and debit summations to the tune of Rs 8,000 crore.”

Courtesy _ DNA