#insolvency proceedings

Bombay High Court rules that failure to update tax demand records after appellate reduction from Rs. 3.56 crores to Rs. 22 lakhs jeopardizes the Income Tax Department's preferential creditor status in insolvency proceedings. The court criticized mechanical responses and directed immediate compliance to protect creditor claims.

NCLAT rules that interest-free loans from directors may qualify as financial debt under Section 5(8) of the Insolvency and Bankruptcy Code if they reflect a commercial borrowing effect, even without formal agreements. This expands the scope of financial creditors and impacts corporate governance and insolvency proceedings.

NCLAT rules that a contractual obligation to pay minimum guaranteed royalty qualifies as operational debt under IBC Section 9, even in the absence of invoices, if the default is admitted and exceeds ₹1 lakh. This expands the scope of operational debt to include uninvoiced but contractually mandated payments, impacting creditors' rights in insolvency proceedings.

The NCLAT has ruled that a No Objection Certificate for charge satisfaction does not equate to legal discharge of financial debt under IBC Section 7. Only verified financial statements and NeSL records can conclusively establish default, setting a critical precedent for creditors and resolution professionals relying on procedural documents over substantive evidence.

The Madras High Court has struck down Section 77A of the Registration Act as unconstitutional, ruling that registration officers lack jurisdiction to cancel sale deeds - even where possession is disputed. Only civil courts may adjudicate title claims, reinforcing the separation between administrative registration functions and substantive property rights. This empowers corporate debtors and long-term possessors to challenge cancellations through civil litigation, not bureaucratic orders.

The NCLAT has clarified that the three-year limitation period under Section 95 of the IBC to initiate insolvency against a personal guarantor begins from the date the corporate debtor defaults, not from the date the creditor issues a demand notice under the guarantee. This resolves ambiguity affecting creditors and guarantors alike, ensuring consistency with the IBC’s statutory framework and preventing tactical delays.

NCLAT rules that the clock for initiating insolvency proceedings under Section 95 IBC against a personal guarantor starts only upon formal invocation of the guarantee, not prior demand letters. This clarifies the limitation period for creditors and protects guarantors from premature insolvency actions.

Bombay HC rules that principles of natural justice in Corporate Insolvency Resolution Process (CIRP) withdrawal applications are satisfied by hearing the Interim Resolution Professional (IRP) and objecting financial creditors, excluding suspended directors or unrepresented creditors. The ruling clarifies the scope of audi alteram partem in IBC proceedings, impacting creditor participation rights.

Punjab & Haryana High Court holds that District Magistrates lack inherent power to assist insolvency professionals; NCLT is the exclusive adjudicating authority under IBC.