Mondaq: India: IBC: Rejection Of Claims Need Evaluation

11 February 2019: In case any corporate debtor defaults in making payment to its creditor(s), a corporate insolvency resolution process (“CIRP”) may be initiated against such corporate debtor. Once CIRP is initiated, claim(s) may be invited by interim resolution professional (“IRP”) from creditor(s) for ascertaining the actual liability pertaining to such corporate debtor so that such creditor(s) may recover their dues upon revival or liquidation of such corporate debtor to the extent allowed. Upon receipt of such claim(s), IRP / resolution professional (“RP”) is required to verify the same from books of account of the corporate debtor or other available documents. Section 3(6) of the Insolvency and Bankruptcy Code, 2016 (“IBC”) contains a wide definition of ‘claim’. There were several instances wherein IRP had rejected the claim(s) of creditor(s) due to various reasons, which were later allowed by NCLT / higher courts.

In the matter of Export Import Bank of India and Ors. Vs. Resolution Professional JEKPL Private Limited and Ors. [CA No. 304 of 2017, 16 of 2018 and 302 of 2017] and Andhra Bank Vs. M/s. F.M Hammerle Textiles Ltd. [Company Appeal (AT) (Insolvency) No.61 of 2018], IRP rejected claims of the banks since the same were not matured at the time of commencement of CIRP against the corporate debtor. Thereafter, NCLT reaffirmed the decision of IRP. In appeal, the National Company Law Appellate Tribunal inter alia held that any person, who has a right to claim payment under Section 3(6) of IBC, can file its claim irrespective of the fact whether the same is matured or not at the time of commencement of CIRP.

In another matter, CIRP was going on against the principal debtor as well as the guarantor simultaneously. ICICI Bank (“ICICI”) filed its claim with RP of the principal debtor as well as the guarantor (both). RP of the guarantor rejected the claim of ICICI since the same had already been admitted by RP of the principal debtor and if such claim is admitted then the recovery amount may exceed the total claimed amount of ICICI which may be prejudicial to others. However, NCLT allowed the said claim since it falls within the definition of financial debt and RP is not allowed to raise objection contrary to the provisions of the guarantee agreement [ICICI Bank Vs CA Ritu Rastogi, CA 366 (PB)/2017 and (IB)-102(PB)/2017]. It cannot be denied that acceptance of claim(s) by IRP / RP may involve subjectivity in some cases. In order to deal such cases, there must be some criteria or guidelines as may be followed by IRP / RP while accepting or rejecting the claims. In the absence of same, issues may crop up resulting into litigation(s) and delay in CIRP or liquidation process.

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Mondaq article

BS: Jaypee Infratech Q3 net loss narrows to Rs 326 cr

11 February 2019: Debt ridden Jaypee Infratech Monday said its net loss narrowed to Rs 326.64 crore in the third quarter ended December 31.

The company, which is undergoing Corporate Insolvency Resolution Process, had reported a net loss of Rs 361.28 crore in the October-December quarter of the previous fiscal.

Last year, the National Company Law Tribunal (NCLT) had admitted the application by an IDBI Bank-led consortium, seeking resolution for Jaypee Infratech under the Insolvency and Bankruptcy Code.

During the period under review, its total income rose sharply to Rs 338.85 crore, as against Rs 59.91 crore in the corresponding quarter last fiscal.

Its total expenses also increased to Rs 665.49 crore from Rs 421.19 crore in the year-ago period.

“The standalone results of the Company comprise of only one segment i e Yamuna Expressway Project, an integrated project which inter-alia includes construction, operation and maintenance of Yamuna Expressway and rights for land development of 25 million sq mtrs along the expressway,” Jaypee Infratech said in a regulatory filing.

The Business Standard reported

TOI: Reid & Taylor expects 3-4 bidders

11 February 2019: Finquest Financial, one of the major financial creditors of Reid & Taylor, said it expects serious bidders to come forth for the ailing apparel maker now that it has been asked to be liquidated as a going concern by the National Company Law Tribunal(NCLT). 

The NCLT had ordered the move after investors, put forth by the employees association, either declined to invest after due diligence, or failed to prove the requisite net worth.

“There will be a buyer, not many, but about 3-4 companies, who would not want liabilities on their head or tax notices slapped on them by government authorities,” Bharat Patel of Finquest told TOI. “I have already been approached by a buyer for the assets. He does not want to get into the resolution process.” Being liquidated as a going concern under the Insolvency and Bankruptcy Code has two benefits: it helps lenders recover more money against unpaid loans and creates job opportunities for at least some of those who worked in the company.

In comparison, selling such assets on a piecemeal basis is “long, painful and makes no economic sense,” a company executive said. Reid & Taylor, whose factory in Mysuru is running at much below capacity, has about 1,200 employees.Meanwhile, the employees association is set to approach the NCLAT (National Company Law Appellate Tribunal) this week for a stay order on liquidation and to prove that Indian Gas Ltd, a potential investor, has sufficient net worth.

“The way this drama has gone, it looks like the employees association is acting on behalf of the promoters, to hamper the process,” Patel said. Reid & Taylor’s creditors include Finquest, which is the largest with about Rs 800 crore of claims, Union Bank of India, Punjab National Bank, IL&FS Financial Services, IDBI Bank and L&T Finance. All are in favour of liquidation. 

Patel said the factory jobs would be protected under the new owner. “Any buyer has to run the plant and bring it back to healthy capacity. Why would they retrench a lot of people?” But the employees association does not buy the argument. Patel said the meagre value of the company’s assets, just about Rs 200 crore, and the huge liability, of about Rs 4,000 crore, discouraged resolution plans. He said liquidation is the only way out.

The Times of India reported

BS: After NCLT nod, ICAI arm to reopen books of financially crippled IL&FS

11 February 2019: An arm of Institute of Chartered Accountants of India (ICAI) will be reopening the books of the financially crippled infra lender IL&FS.

The Mumbai bench of the National Company Law Tribunal (NCLT) had on January 1 directed the reopening of the books and recasting of the financial statements of IL&FS, IL&FS Financial Services, IL&FS Transportation Networks between fiscal years 2012-13 to 2017-18.

In view of the substantial public interest involved in the matter, ICAI Accounting Research Foundation (ICAI ARF) will be carrying out the task, an official statement said.

The whole exercise will be independent, it said, acknowledging the Serious Fraud Investigation Office (SFIO) is also carrying out an investigation on IL&FS and its group/ subsidiary/associate companies.

Being a ‘section 25’ company, whose purpose is not for profit, ICAI ARF can outsource this assignment so that it is over within a reasonable period of time, the statement added.  

The NCLT had allowed for the reopening under Section 130 of the Companies Act to ascertain financial mismanagement.

The government, which took over the board of the diversified and complex IL&FS last year, wanted to check the balance-sheets of the crippled group and its two listed subsidiaries.

Earlier, SFIO and ICAI reports had indicated that the accounts were prepared a fraudulently and negligently in the last five years by the previous management.

The statutory bodies including, the the Reserve Bank, the markets watchdog Sebi and the Income Tax Department gave their no objection for restating the accounts.

However, the auditors Ernst & Young owned SRBC & Co, Delloitte Haskins & Sells and KPMG affiliate BSR Associates had opposed the move citing that they had no role in the alleged frauds arguing financial accounts are made by the company and not the auditors.

The NCLT had observed that based on the ICAI and SFIO reports though it cannot be concluded that the auditors and former directors had any role in preparing of the financial accounts, lets reopen it in the interest of fairness.

After allowing the reopening and recasting the books of account of IL&FS, ITNL and IL&FS Financial Services, the tribunal clarified that the order is without any prejudice and will not affect the proceedings before ICAI and SFIO probe.

The group owes over Rs 94,000 crore to lenders, mostly banks.

The Business Standard reported

CNBC TV18: Essar Steel Case: Supreme Court rejects pleas by operational creditors

11 February 2019: The Supreme Court has rejected the pleas by the operations creditors of Essar Steel, seeking a stay on a National Company Law Appellate Tribunal (NCLAT) order asking the NCLT Ahmedabad to take a decision on the debt-laden company’s case by February 11.

The SC order of rejecting the pleas means that the NCLT will have to decide on the case and thereby approve ArcelorMittal’s bid.

The petition before the National Company Law Tribunal (NCLT) was moved on February 1 by the former managing director of Essar Steel Dilip Oommen along with its project director Rajiv Kumar Bhatnagar, as well as Ruia.

This fresh move by the Essar Steel directors came after the NCLT-Ahmedabad had on January 29 rejected the debt settlement proposal put forth by the Essar Steel Asia Holdings despite it being much higher at Rs 54,389 crore than the former’s Rs 42,000-crore bid.

The Supreme Court on Monday said the Essar promoters are acting through operational creditors, people and proxies to delay the process and it has been 571 days since the inception of the insolvency proceedings.

The NCLAT had said if the orders are not passed by February 11, it will result in them taking over the proceedings.

Earlier on January 3, NCLAT had asked the Ahmedabad bench of NCLT to expeditiously take a final decision in the Essar Steel insolvency case, where ArcelorMittal emerged as the highest bidder.

It had asked the NCLT bench to take an early decision in the matter as per the order passed by the Supreme Court in this regard.

The case began on February 12, 2018 when ArcelorMittal and Numetal (originally promoted by Ravi Ruia’s son Revant with a 25 percent stake) submitted the bids to take over the company.

On March 21, NCLT has found that both the bids were ineligible under Section 29 of IBC. While ArcelorMittal’s bid was rejected on technical grounds, NuMetal’s was declared invalid for its association with the Ruias.

The tribunal also ordered the RP to fresh bids which were challenged on some technical grounds again.

On April 2, the second round of bids were submitted, and NCLT asked the RP not to open the bids till applications were disposed off; and on April 19, it remanded the first bids to RP and the lenders and declared the second bids invalid.

(With inputs from PTI)

CNBC TV18 reported