Innoventive Industries, India’s first company to be tried under the new Insolvency and Bankruptcy Code, has failed to finalize a debt resolution plan in the stipulated six months, prompting the National Company Law Tribunal (NCLT) to extend the deadline by another three months – the maximum permissible – before liquidation. If the company fails to resolve the debt problem in the next three months with banks taking a haircut and promoters bringing in equity, it would face liquidation. The company manufactures steel tubes and auto parts for various large auto companies.
As creditors and the borrower could not conclude on the revival plan, they agreed on seeking the additional time, three sources familiar with the matter told ET. “The promoter may too bid for the company on a personal capacity, a move aimed at preventing a possible liquidation of the company as there is disagreement over the revival plan,” said one of the persons cited above.
Innoventive Industries is India’s first company to be tried under Insolvency & Bankruptcy Code.
On August 31, 2017. The Supreme Court of India in the case of Innoventive Industries Limited v. ICICI Bank Limited delivered its first extensive ruling on the operation and functioning of the Insolvency and Bankruptcy Code, 2016 (Insolvency Code). In which it is of the considered view that the Tribunal and the Appellate Tribunal were right in admitting the application filed by the financial creditor ICICI Bank Ltd. There were two arguments taken up by appellant (Innoventive Industries) before NCLT, later before NCLAT and these arguments finally dismissed by Supreme Court. It appears that Innoventive Industries was trying to buy time to come up with a suitable resolution plan or even a strategy to save its company from going into liquidation.
Financial Performance of Innoventive Industries Ltd.
Table 1: Financials of Innoventive (All Figs. in INR Crores)
|Financial Creditor||ICICI Bank Ltd|
|Corporate Debtor||M/s Innoventive Industries Ltd|
|Date of default||30th November 2016|
|Date of Company petition||22nd December 2016|
|Maharashtra Relief Undertaking (Special Provisions) Act declared Innoventive Industries Ltd as relief undertaking.|
- As per the said Act, the debts said to have been existing against the Corporate Debtor have been suspended on 18th July 2016.
- M/s Innoventive Industries Ltd, to which financial assistance of industrial promotion subsidy of Rs 115,36,40,000 provided by the Government of Maharashtra under the Package Scheme of 2007 Incentive, shall for a period of one year commencing on July 22, 2016 and ending on 21st July 2017 be conducted to serve as a measure of preventing unemployment and directs that in relation to such undertaking in respect of one year period mentioned above.
- The rights, privileges, obligations, or liability accrued or incurred before 22nd July 2016 and any remedy for the enforcement thereof shall remain suspended and all proceedings relating thereto pending before any Court, Tribunal, Officers or Authority shall be stayed.
|Issue ||Whether Financial Creditor (ICICI Bank) can invoke Insolvency proceedings against Corporate Debtor (Innoventive Industries Ltd) during which the Corporate debtor is already enjoying the relief of one year of all the debts and liabilities as having been suspended under another Act(Maharashtra Relief Undertaking (Special Provisions) Act)?|
|War of non-obstante clauses both under Insolvency and bankruptcy Code 2016 Sec 238 and Maharashtra Relief Undertaking (Special Provisions) Act(MRU) Sec 4.||Grounds for Judgement:|
- IB Code has come into existence after MRU, hence the later Act shall prevail. Therefore, IBC 2016 shall prevail over MRU.
- Order passed u/s 7 of the Insolvency Code 2016, will NOT be against the interest of the employees.
- Subject matter is liability over the company which has been dealt by IBC and MRU but with different objectives, under MRU, it is to protect the interest of the company and in IBC, it is to protect the creditors who have provided funds to the company.
- Since the liability suspended under MRU Act being inconsistent with the default occurred to the debt payable to the creditor, this order will not be against the ratio decided by Hon’ble Apex court in Vishal N Kalsa v Bank of India and Others.
|Decision||The Bench having not noticed any merit in the argument of the Corporate Debtor Counsel, the Application filed by Corporate Debtor is hereby dismissed.|
|Later an appeal was filed to NCLAT by Innoventive Industries Ltd on 3 issues.||The question (s) involved in this appeal are: –|
- Whether a notice is required to be given to the Corporate Debtor for initiation of Corporate Insolvency Resolution Process under I&B Code, 2016 and if so, at what stage and for what purpose?
- Whether ‘Maharashtra Relief Undertaking (Special Provisions) Act (Bombay Act XCVI of 1958)’ (hereinafter referred to as MRU Act 1958) shall prevail over I&B Code 2016. In other words, whether a Corporate Debtor who is enjoying the benefit of MRV Act, can be subjected to I&B Code 2016? and
- Whether in a case where Joint Lender Forum (JLF) have reached agreement and granted permission to the Corporate Debtor prior consent of JLF is required by financial creditor, before filing of an application under Section 7 of the I&B Code 2016?
|Decision||‘adjudicating authority’ having satisfied on all counts, including default and that the application is complete and that there is no disciplinary proceeding pending against the Insolvency Resolution Professional, no interference is called for against the impugned judgment. And it does not find any merit in this appeal. It is accordingly dismissed. However, in the facts and circumstances, there shall be no order as to cost.|
Key highlights of the Supreme Court Judgement
Both NCLT and NCLAT had views that the Code and the Maharashtra Act operate in different fields and, therefore, are not repugnant to each other. Having recorded this, however, the NCLAT went on to hold that the appellant cannot derive any advantage from the Maharashtra Act to stall the insolvency resolution process under Section 7 of the Code.
- On 16th January, a second application was filed by the appellant in which a different plea was taken. This time, the appellant pleaded that owing to non-release of funds under the MRA, the appellant was unable to pay back its debts as envisaged. But by a separate order dated 23rd January 2017 passed by NCLT, in which a clarification application was dismissed, it was held that the second application of 16th January 2017 was raised belatedly and would not be maintainable for two reasons – (1) because no audience has been given to the corporate debtor in the Tribunal by the Code; and (2) the corporate debtor has not taken the plea contained in the second application in the earlier application. This was because a limited timeframe of only 14 days was available under the Code from the date of filing of the creditors’ petition, to decide the application.
- In this view of the matter, Supreme Court considered view that the Tribunal and the Appellate Tribunal were right in admitting the application filed by the financial creditor ICICI Bank Ltd.
The date of declaration of Moratorium under section 13 of IBC 2016 for Innoventive Industries Ltd is 17 January 2017, wherein the powers of the existing Board of the Company are automatically suspended and the Insolvency Professional, Mr. Dhinal A. Shah is vested with such powers. It is interesting to note that in the wake of such moratorium, the Insolvency Professional has signed the Results for the year ended March 31, 2017. Whereas in case of annual results of ABG Shipyard Ltd (which is also presently facing insolvency proceedings) are not signed and approved either the Board or Insolvency Professional during moratorium period. Hence there are two stands taken in the same case by both the Insolvency Professionals.
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