#Insolvency and Bankruptcy

The NCLAT Chennai Bench held ESI contributions are trust assets excluded from liquidation estate under IBC Sec 36(4)(a)(i), overturning a plan paying only 1% of the claim and affirming priority for employees' statutory dues in insolvency.

NCLAT Chennai held that the Committee of Creditors may replace a Resolution Professional under Section 22 of the IBC provided the replacement is not contrary to the Code, expunging adverse findings against the former RP and remitting his fee claim to the NCLT for adjudication.

The NCLAT held that Section 238 of the IBC overrides rent control laws, letting a liquidator evict occupants under Section 60(5)(c) without rent control proceedings. This speeds asset recovery in insolvency, affecting liquidators, creditors and occupants.

The NCLAT held that a fraud-initiation claim under Section 65 IBC must be raised before the Adjudicating Authority and cannot be raised for the first time on appeal, forcing parties to raise such allegations at the CIRP stage to avoid belated challenges.

NCLAT ruled that guarantors remain liable for total debt despite deed clause limiting liability to mortgaged property value, upholding DRT’s crystallised debt and confirming that guarantee provisions override security clauses under IBC Section 114.

The NCLAT has ruled that advance payments made under a consortium agreement for goods supply qualify as operational debt under Section 5(21) of the IBC, even when payment obligations are structured between consortium members rather than directly with a corporate debtor. This expands the scope of operational creditors in complex supply chains and clarifies that inter-se financial arrangements do not negate the existence of a debt arising from a transaction in the ordinary course of business.

NCLAT rules that the three-month timeline under Section 121(2) of the IBC for filing bankruptcy applications against personal guarantors is directory, not mandatory, allowing condonation of delay under the Limitation Act. This decision clarifies that financial creditors can proceed with insolvency applications even beyond the prescribed period, ensuring flexibility in personal guarantor insolvency proceedings.

NCLAT ruled that fraudulent transactions under Section 242 of the Companies Act can be set aside without the consent of involved parties, reinforcing RBI directions as legally binding. The judgment impacts insolvency proceedings and corporate governance, particularly for NBFCs and group companies engaged in sham lending arrangements.

NCLAT rules that a single creditor’s unjustified refusal to accept repayment of an admitted debt during CIRP constitutes abuse of process under Section 65 IBC, warranting termination of insolvency proceedings. The ruling protects corporate debtors from frivolous or malicious creditor actions that undermine the IBC’s objectives.

NCLAT rules that under RERA, secured creditors' claims in corporate insolvency resolution processes (CIRP) are restricted to unsold units only, prioritizing homebuyers' rights. NOIDA's statutory dues are recognized as secured claims under registered lease deeds, impacting real estate insolvency proceedings.

NCLAT clarifies that Resolution Professionals under the IBC can request documentation to verify claims but lack adjudicatory powers. The ruling denies NOIDA’s claims for farmer compensation and time extension charges due to insufficient substantiation, reinforcing the limited scope of RP authority during CIRP.

NCLAT rules that assets under unlawful possession of a corporate debtor, even after a Supreme Court-affirmed eviction decree, cannot form part of the Corporate Insolvency Resolution Process (CIRP). The ruling reinforces that legal ownership, not physical possession, determines asset inclusion under the IBC, impacting insolvency proceedings where disputed assets are involved.

NCLAT rules that a personal guarantor's insolvency can be initiated under the IBC based on contractual notice and cumulative evidence, even if postal receipts are absent. The ruling clarifies that strict proof of service is not mandatory if the guarantee deed authorizes alternative invocation methods, impacting lenders and guarantors in insolvency proceedings.

NCLAT clarifies that a financial creditor submitting a resolution plan under the IBC is not barred from voting on its own plan, rejecting the NCLT's conflict of interest rationale. The ruling reinforces the commercial wisdom of the Committee of Creditors (CoC) and expands the scope of eligible resolution applicants, impacting insolvency proceedings where creditors seek to revive distressed companies.

NCLAT rules that possessory rights under Section 53A of the Transfer of Property Act, when affirmed by a consent decree, cannot be disturbed by a Resolution Professional under the Insolvency and Bankruptcy Code. The ruling clarifies that IBC proceedings do not automatically extinguish pre-existing property rights established through judicial decrees, offering critical protection to parties with settled possessory claims.