Tag Archives: IBC

Relaxations to FPIs and Companies under bankruptcy wrt ECB

Regulatory update: RBI’s Bi-Monthly Monetary Policy Statement grants important relaxations to FPIs and Companies under bankruptcy with respect to ECB

The Reserve Bank of India (RBI) on 7 February 2019 has issued its Sixth Bi-monthly Monetary Policy Statement (Monetary Policy Statement), for the current fiscal year 2018-19. The key relaxations announced for foreign investors are as follows:

  1. Relaxation to FPIs investing under the debt route:

Under the extant framework for FPI investment in corporate debt, the RBI’s A.P. (DIR Series) Circular No. 31 dated June 15, 2018 restricted an FPI from having more than 20% exposure of its total corporate bond portfolio, in the corporate debt market in a single corporate (including exposure to entities related to the corporate). Imposed with the aim of incentivizing FPIs to maintain a diverse portfolio of assets, existing FPIs were also given an exemption from this requirement till end of March 2019 to adjust their portfolios. However, the market feedback according to the RBI indicated that FPIs have been constrained by the earlier requirements, and relaxations were needed.

Accordingly, in order to encourage investment in the Indian corporate debt market, the RBI vide the Monetary Policy Statement, removed the abovementioned restriction and has declared that all FPIs shall henceforth again be permitted to invest any portion of its corporate bond portfolio in a single borrower entity. The Monetary Policy Statement indicates that RBI would issue a circular in this regard by mid-February 2019 to make it official.

The Monetary Policy Statement however did not provide any relaxation on the following key restrictions imposed vide the aforementioned A.P. (DIR Series) Circular No. 31 dated June 15, 2018:

  1. Investment by a single FPI or a group of related FPIs shall not exceed 50% of the issue size of a corporate bond; and
  2. At any point of time, a FPI’s investments in corporate / government bonds maturing within one year shall not exceed 20% of the FPI’s total portfolio in corporate / government bonds.
  1. Relaxation ECB framework norms on end-use restrictions for companies under bankruptcy:

Under the extant External Commercial Borrowing (ECB) framework, any borrowing proceeds from an ECB could not be utilized for repayment or for on-lending for repayment of domestic rupee loans. However, cognizant of the prospect that resolution applicants under Corporate Insolvency Resolution Process (CIRP) under Insolvency and Bankruptcy Code (IBC), 2016 might find it attractive to borrow abroad to repay the existing lenders, the RBI has decided to relax the end-use restrictions for resolution applicants under the CIRP.

Further under A.P. (DIR Series) Circular No. 18 also dated 7 February 2019 the resolution applicants, who are otherwise eligible borrowers, have been allowed to raise ECBs from recognised lenders, except the branches/ overseas subsidiaries of Indian banks, for repayment of Rupee term loans of the target company under the approval route.


  1. Sixth Bi-monthly Monetary Policy Statement for the current fiscal year 2018-19: https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=46237
  2. P. (DIR Series) Circular No. 18 date February 07, 2019: https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11472&Mode=0

Notification of Insolvency and Bankruptcy (Amendment) Act, 2018

The Insolvency Bankruptcy Code (Second Amendment) Bill, 2018 was introduced in the Parliament on July 23, 2018 to amend the Insolvency and Bankruptcy Code, 2016 and replace the Insolvency and Bankruptcy (Amendment) Ordinance, 2018 that was released on June 6, 2018. The Bill was passed by the Lok Sabha on July 31, 2018 and by the Rajya Sabha subsequently on August 10, 2018, thereby making it a passed legislation (the Act). The various amendments to the existing legislative framework have been listed down below:

  1. Financial Creditors: The Act deems allottees under a real estate project to be financial creditors. Allottees under a real estate project would include a person to whom a plot, apartment, or building has been allotted, sold or transferred by a real estate developer or a development authority.
  2. Representative of Financial Creditors: As per the Act, a representative authority can be appointed to represent a class of financial creditors on the committee of creditors. Under the ordinance, the remuneration was to be borne collectively by the financial creditors but under the Act, this remuneration would be a part of the insolvency resolution costs.
  3. Voting Threshold: Under the Insolvency and Bankruptcy Code, 2016, the voting threshold for all decisions of the committee of creditors was by a majority of 75%. This threshold has been brought down to 51%. A voting threshold of 66% has been prescribed for decisions pertaining to appointment or replacement of resolution professional and approval of resolution plan.
  4. Disqualification of resolution applicant: Under the Insolvency and Bankruptcy Code, 2016, a person convicted of an offence which is punishable with two or more years of imprisonment was disqualified to be eligible to be a resolution applicant. The Act provides that such disqualification would cease to exist after two years of date of completion of punishment.
  5. Disqualification of NPAs and guarantors: The Insolvency and Bankruptcy Code, 2016 barred a person identified as an NPA for than a year and a guarantor of a defaulter from being a resolution applicant. This bar has been removed in regard to applicants applying for resolution of MSMEs.
  6. Withdrawal: The amendment provides for withdrawal of resolution application after initiation of resolution process provided the same has been approved by 90% vote of the committee of creditors.
  7. Implementation: The Act provides that the resolution plans should contain an implementation mechanism without which approval would not be given. Moreover, the Act also requires that if the resolution plan provides for a merger or acquisition of enterprises, the consent of the Competition Commission of India is required before approval of resolution plan by the committee of creditors.
  8. Appointment of Interim Resolution Professional: The Act also provides that in case of a delay in the appointment of Interim Resolution Professional, the Insolvency Commencement Date would be considered as the date on which the Interim Resolution Professional was appointed.



Under the Insolvency and Bankruptcy Code 2016 (the Code), there has been an ambiguity with respect to applicability of the Limitation Act, 1963 (the Limitation Act). This has been deliberated upon in several judgments of the National Company Law Tribunal (the NCLT) and the National Company Law Appellate Tribunal (the NCLAT). In the case of Mis Deem Roll Tech Limited, the NCLT held that the Limitation Act is applicable to proceedings under the Code and dismissed the debt of the petitioner as being time barred and in the case of Neelkanth Township and Construction Private Limited Vs. Urban Infrastructure Trustees Limited, the NCLAT held that the provisions of the Limitation Act, 1963 would not apply to the Code. As observed above, it may be noted that applicability is being interpreted on the merit of each case and this has led to the confusion. The Supreme Court in case of Parag Gupta Vs. B. K. Educational Services held that the provisions of the Limitation Act is applicable for initiation of Corporate Insolvency Resolution Process.

Facts of the Case

  • There was a dispute on liability between Parag Gupta & Associates, Chartered Accountants (Financial Creditors) and B. K. Educational Services Private Limited, (Corporate Debtor).
  • The Corporate Debtor denied the financial liability and contended that the all the financial claims were false except one genuine debt, being immovable property allotted by Greater Noida Industrial Development Authority (GNIDA).
  • The Corporate Debtor further alleged that the records were tampered and manipulated by the relatives of the Financial Creditors.
  • The amounts claimed were time-barred.
  • It was showed that there was nothing on record that would extend the limitation to recover the same since the period was between 01 October 2012 to 05 February 2013.

The NCLT held that documents produced by the applicants were not justifiable for the purpose of extending limitation. Therefore, the amounts stated by the petitioner are not legally recoverable. But with respect to liability of sum which was given by petitioner on 25 February 2015, it was entitled to be recovered.  However, that amount the debtor had liquidated the recoverable after admission of the application. Subsequently, the NCLT held that there were no further actions acquired and disposed of the application.

Challenging the order of NCLT, the Financial Creditor had appealed the said order of the NCLT and filed an appeal before the NCLAT. Contrary to the NCLT order, the NCLAT held that the provisions of the Limitation Act were not applicable for initiation of Corporate Insolvency Resolution Process (CIRP) under the Code and passed an order to accept the application for initiation of CIRP. Consequent upon this, the Supreme Court stayed the order of the NCLAT dated 7 November 2017. The Supreme Court[1] pointed out that ‘NCLAT Order has erred in holding that the right to apply under Section 7 of the Code for initiating Corporate Insolvency Resolution Process, accrues from 1 December 2016 i.e. from the date the Code came into force. It is submitted that in the event the rational given by the NCLAT is given effect to, it will lead to an anomalous situation where even in case of defaults in respect of debts more than fifty years ago a party will be able to initiate Corporate Insolvency Proceedings under the IBC.

The Indian jurisprudence opines that if a law is a complete code, then an express or necessary exclusion of the Limitation Act should be respected. In light of the confusion in this regard, the Insolvency Law Committee, set up on 16 November 2017 deliberated on the issue and unanimously agreed that the intent of the Code could not have been to give a new lease of life to debts which are time-barred. It is settled law that when a debt is barred by time, the right to a remedy is time-barred. This requires being read with the definition of ‘debt’ and ‘claim’ in the Code. Further, debts in winding up proceedings cannot be time-barred, and there appears to be no rationale to exclude the extension of the principle of law to the Code.


In view of the above the Committee recommended that it would be fit to insert a specific section applying the Limitation Act to the Code. The relevant entry under the Limitation Act may be on a case to case basis. However, in the absence such explicit provisions in the Code, the creditors would get a right to make an application for time-barred debts too. Given this, a need is felt for more clarity pertaining to entry under the Limitation Act as it is vague and criteria is not recommended, which once again leaves the question unanswered.

It is pertinent to note that the non-application of the law of limitation creates the following glitches: (i) It re-opens the right of financial and operational creditors holding time-barred debts under the Limitation Act to file for CIRP, the trigger for which is default on a debt above INR One Lakh. The purpose of the law of limitation is “to prevent disturbance or deprivation of what may have been acquired in equity and justice by long enjoyment or what may have been lost by a party’s own inaction, negligence or latches”. Though the Code is not a debt recovery law, the trigger being ‘default in payment of debt’ renders the exclusion of the law of limitation counter-intuitive.  (ii) It re-opens the right of claimants (pursuant to issuance of a public notice) to file time-barred claims with the Insolvency Resolution Professional/Resolution Professional, which may potentially be a part of the resolution plan. Such a resolution plan restructuring time-barred debts and claims may not be in compliance with the existing laws for the time being in force pursuant to Section 30(4) of the Code.

[1] http://supremecourtofindia.nic.in/supremecourt/2017/41322/41322_2017_Order_10-Jan-2018.pdf

Withdrawal Application after Initiation of Corporate Insolvency Proceedings under the IBC


In case of any disputes between the parties, there are probabilities that parties might compromise and settle the matter during the pendency of the case before the Court.  In this blog, we analyse the situation where the application has been made before the National Company Law Tribunal (the NCLT) or National Company Law Appellate Tribunal (the NCLAT) under the Insolvency and Bankruptcy Code 2016 (the Code) and in case if such application has been admitted and the Corporate Insolvency Resolution Process (the CIRP) is initiated by the NCLT and the parties with consensus ad idem wish to withdraw the said application.

On July 24, 2017, the Hon’ble Supreme Court in case of Nisus Finance and Investment Managers LLP (“Facility Agent” or “Financial Creditor”) and Lokhandwala Kataria Construction Pvt. Ltd. (“Debtor”) ordered that the application for CIRP could be withdrawn or the subject matter could be settled by the parties even after the CIRP have been initiated.

Facts of the Case:

Nisus Finance and Investment Managers LLP (“Facility Agent” or “Financial Creditor”) filed an application before the National Company Tribunal (“NCLT”), Mumbai against the Lokhandwala Kataria Construction Pvt. Ltd. (“Debtor”) for initiation of insolvency proceedings. The Debtor was acting as a guarantor of Vista Homes Pvt Ltd. (“Principal Debtor”) with respect to amount owed by the Principal Debtor. The Financial Agent, the Debtor and the Principal Debtor are one among the parties to the Debenture Trust Deed executed between the Principal Debtor, Facility Agent and other Debenture holders. The Debtor was acting as a guarantor to redeem the debentures in the event if Principal Debtor, fails to pay to the debenture holders. The Facility Agent had the authority to invoke its rights to ensure that the returns are reached to the debentures holders. The Principal Debtor failed to redeem the debentures which were due for its redemption and the Facility Agent filed application under the Code for CIRP with the NCLT, Mumbai. The NCLT admitted the application of Facility Agent on being satisfied that the Debtor defaulted in redeeming the debentures.

Upon Moratorium being declared by the NCLT, Mumbai, the parties approached the NCLAT with a plea requesting to set aside the order of the NCLT and allow them to withdraw the case as the parties had settled the dispute and the dues are paid by the Debtor.

The NCLAT rejected the plea that the Adjudicating Authority may permit withdrawal of the application on a request made by the applicant before its admission and same cannot be withdrawn once the order for admission is issued and Moratorium is declared. Contesting the order of the NCLAT, the parties appealed the said order with the Hon’ble Supreme Court highlighting that NCLAT could utilize the inherent power recognized by Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 to allow a compromise between the parties after admission of the matter.


The Hon’ble Supreme Court highlighted that the Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 was not notified as on the date of order passed by the NCLAT. However, the Hon’ble Supreme Court utilised its powers under Article 142 of the Constitution of India, which states that Supreme court in the exercise of its jurisdiction may pass such order or decree as is necessary in doing complete justice. The Hon’ble Supreme Court while exercising its powers allowed the parties to withdraw the application. The Hon’ble Supreme Court disposed the appeal after accepting and recording the consent of the parties, where parties undertook to abide by the consent terms and the debtor agreed to pay the sums due. It is important to note that the intention of law is to provide the justice, therefore depending on the facts and circumstances, an application may be withdrawn even after the admission of the application.

Some thought provoking facts from the case:

  1. One of the objections raised by the Debtor before the NCLT, Mumbai was that the Facility Agent has no locus standi to file the case as no liability has been shown as owed and Facility Agent is not an authorised agent and not permitted under the law to file an application, hence application is not maintainable. The NCLT, Mumbai highlighted that since all the parties being privy to the Debenture Trust Deed, the Debtor cannot backout saying that the Facility Agent cannot act as Financial creditor on behalf of or as Debenture holders to initiate the CIRP against the Debtor.


  1. The NCLAT dismissed the appeal of the Debtor for withdrawal of application on the ground that before admission of an application under Section 7, it is open to the Financial Creditor to withdraw the application but once it is admitted, it cannot be withdrawn and is required to follow the procedures laid down under Sections 13, 14, 15, 16 and 17 of the Code. Therefore, parties cannot be allowed to withdraw the application once admitted, and matter cannot be closed till claim of all the creditors are satisfied by the corporate debtor. However, as explained in this blog, the Supreme Court may on a case to case basis, allow to withdraw the application which is already admitted by applicable authority.


  1. It is pertinent to note that the Supreme Court while passing order highlighted and agreed to the view of the NCLAT on Rule 11 has not been adopted at that point of time and in the absence of no inherent power, the question of exercising inherent power does not arise. Therefore, the Supreme Court took the cognizance of Article 142 of the Constitution of India where the Apex Court has authority to pass such order or decree as is necessary in doing complete justice.

Authors: Ms Shivani Handa and Mr Ashwin Bhat.

Are Assured Returns or Damages in instances of Breach a “Financial Debt” under Insolvency & Bankruptcy Code 2016?

Under the Insolvency and Bankruptcy Code, 2016 (the Code), a financial creditor can initiate a Corporate Insolvency Resolution Process (CIRP) by filing an application before the jurisdictional National Company Law Tribunal (the NCLT) upon the occurrence of a default in the payment of its financial debt under section 7 of the Code.

Before making an application, the financial creditor shall ascertain that his dues are more than INR 1,00,000/- (Indian Rupees One Lakh only), to be eligible to make an application.bankruptcy-1156329_960_720

The paramount question that arises is what can be included as ‘Financial Debt’. The term Financial Debt is defined under Section 5 (8) of the Code, which means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes:

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any acceptance credit facility or its dematerialized equivalent;

(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;

(d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as finance or capital lease under the Indian Accounting Standards or any other Standards as may be prescribed;

(e) receivables sold or discounted other than any receivables sold on non-recourse basis;

(f) any amount raised under any other transaction including any forward sale or purchase agreement, having the commercial effect of a borrowing;

(g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account;

(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution;

(i) the amount of any liability in respect of any of the guarantee or indemnity or any of the items referred to above;

The opening words of Section 5(8), i.e. the definition clause indicates that a financial debt is a debt along with interest which is disbursed against the consideration for the time value of money and it may include any of the events enumerated in sub-clauses (a) to (i). The above mentioned (a-i) are instances of a mere inclusive definition and the judiciary has powers to interpret other situations which can be considered as financial debt.

A Financial Creditor is a person who has the right to a financial debt. The key feature of financial transaction as postulated by section 5(8) of the Code is its consideration for the time value of money. In Black’s 12 Law- Dictionary (9th edition) the expression ‘Time Value’ has been defined to mean “the price associated with the length of time that an investor must wait until an investment matures or the related income is earned”. In both the cases, the inflows and outflows are distanced by time and there is a compensation for the time value of money.

A bare reading of the provision gives an impression that the financial transaction should be in the nature of debt and no equity has been implied by the opening words of Section 5(8) of the Code.

Also, the NCLT order in the Nikhil Mehta & Sons (HUF) v. M/s AMR Infrastructures Limited (AMR) case has provided “…that the financial transaction should be in nature of debt and no equity has been implied by the opening words of clause 5(8) of the IBC”. Even though this order has been superseded by the NCLAT order on the merits of the case, it is expected that the intent of the legislation is clear to exclude all equity transactions from the purview of financial debt in the spirit of “Verba intentioni, non e contra, debent inservire” which means that the words of the statute should serve its intentions, not the reverse.

In Nikhil Mehta & Sons (HUF) Vs. M/s AMR Infrastructures Limited (AMR)[1] the NCLAT held that in order to qualify as a “Financial Creditor”, first the essential requirements of “Financial Debt” has to be satisfied as the key feature of a financial transaction is its consideration for the time value of money.

Initially, the NCLT had denied the applicant’s petition stating that his contractual right under an MOU with AMR, whereby AMR had assured ‘assured/committed returns’ to him, from the date of execution of the MoU till the handing over of the physical possession of the unit(s) was an agreement for mere sale and purchase of a piece of property and not a financial debt as the transaction did not have consideration for the time value of money. On appeal, the NCLAT had reversed the decision of the NCLT and held that the promise of the ‘assured return’ makes the applicant analogous to a ‘Financial Creditor’ or an ‘investor’ that has chosen ‘committed return plan’.

The above judicial interpretation of ‘the time value of money’ in the context of financial debt has opened up a Pandora’s box and put forth the question of whether the treatment of other complex debt instruments (debt-like instruments such as redeemable preference shares, put and call options on securities) whose returns are linked to parameters observed in equity transactions as financial debt. It can be logically argued that to satisfy clause 5 (8) of the Code, the claim should be in nature of a debt, to begin with. However, it is true that there are complex financial instruments which may not provide an easy answer to decipher the true nature and meaning of a transaction as either debt or equity. There may be instances wherein debt instruments/hybrid instruments in investment transactions may come with the option of assured returns within a prescribed timeframe for the investors. It would be interesting to watch if these will now be covered under the broad umbrella of financial debt.

Another area of concern is whether damages awarded in instances of breach to the investor may also be categorized as “Financial Debt” under IBC. This discussion is relevant especially since various courts in judgments such as Cruz City v. Unitech’ [2] and ‘NTT Docomo v. Tata Sons’[3] have ruled in favor of foreign investors and have provided that any pre-determined rate of exit claimed by such foreign investors in nature of damages would be valid and enforceable in India. The Courts in these cases have held that any assured exit formulae in lieu of damages would not be violative of Foreign Exchange Management Act, 1999 (FEMA) as FEMA prohibits any and all assured return to foreign investors [4]. A right/option of assured returns can be termed as illegible instruments in accordance with RBI guidelines (RBI Circular No. RBI/2013-2014/436 A.P. (DIR Series) Circular No. 86 (January 09 2013). And Circular dated 14.07.2014 (A.P. (DIR Series) Circular No. 3

The Court opined that the RBI circular which bars exit at pre-determined returns would not apply, in cases where the option is exercised for making good for a breach. Thus, any pre-determined exit exercisable in the event of a breach of obligations is not necessarily an assured return but a mere downside protection. This interpretation is important as the RBI circular itself does not account for distinction on grounds of breach or non-breach for prohibiting a pre-determined exit price but merely puts a blanket restriction on the exit of foreign entities at a pre-determined price. One can draw an analogy of these judgments to Nikhil Mehta’s case as discussed above as even in the Nikhil Mehta’s case, the court held the constructor liable for payment in the instance of a breach.

Thus, even pre-determined exit clauses for foreign investors tailored in nature of breach may also fall within the domain of financial debt. In such instances, foreign investors may approach the NCLT under the Code and initiate a request for an insolvency process of Indian companies.

Even though these provisions may seem as investor friendly and boost investor confidence in the Indian judicial system, such broad interpretations may flood the gates of IBC with suits wherein investors approach under the garb of financial creditor and will be entitled to trigger the CIRP against the Corporate Debtor. If so, then all investors (even including holders of convertible instruments) may fall under the ambit of “financial creditors” as their investment in the company may be treated as a downside protection or assured return by virtue of the transaction documents. This would aggravate the very purpose and intent of the Code as a statute was a quicker and faster way to protect creditors interests and not that of the shareholders.

[1]Nikhil Mehta and Sons v AMR Infrastructure Company Appeal (AT) (Insolvency) No. 7 of 2017 (July 21, 2017).

[2] MANU/DE/0965/2017

[3] MANU/DE/1164/2017

[4] A right/option of assured returns can be termed as illegible instruments in accordance with RBI guidelines (RBI Circular No. RBI/2013-2014/436 A.P. (DIR Series) Circular No. 86 (January 09 2013). And Circular dated 14.07.2014 (A.P. (DIR Series) Circular No. 3

Co-authored by: Ashwin Bhat (Junior Partner) and Ayushi Singh (Associate) at NovoJuris Legal.


The Ministry of Consumer Affairs, Food and Public Distribution vide its order dated 23rd June, 2017 brought in amendments to the Legal Metrology (Packaged Commodities) Rules, 2011 in the backdrop of e-marketplaces causing new and complex consumer protection issues regarding information deficiency. The amended rules are now effective from 1st January, 2018 in which substantive changes were introduced to increase online consumer protection such that they are protected at par with offline consumers.


  • Mandatory declarations which are to be made on the label of goods also include:
    • For the imported products- ‘country of origin/manufacture/assembly’.
    • For commodities that may become unfit for human consumption- ‘best before or use by the date, month and year’ must be mentioned in the label.
  • The MRP must clearly indicate that it is inclusive of all the taxes and the process must be rounded off to the nearest rupee or 50 paise.
  • All the mandatory declarations (except the month and year in which the commodity is manufactured or packed) must be displayed on the digital and electronic network used for e-commerce transactions.
  • Additional declarations such as Barcode, GTIN, QR code, e-code, logos of government schemes is now discretionary.
  • Manufacturer/Seller/Dealer/Importer is liable for the correctness of the declarations in a market place model of e-commerce in certain instances.
  • Increased font size in the declarations.
  • No manufacturer or packer or importer shall declare different maximum retail prices on an identical pre-packaged commodity.
  • Medical devices declared as drugs cannot be exempted from any of the rules.
  • A uniform penalty of five thousand rupees is imposed as punishment for contravening any of the provisions.

 Source: http://consumeraffairs.nic.in/WriteReadData/userfiles/file/PCR_Amendment_2017.pdf



The Insolvency and Bankruptcy Board of India (IBBI) has notified the IBBI (Grievance and Complaint Handling Procedure) Regulations, 2017 on 7 December 2017. The Regulation enable the stakeholders i.e., debtor, creditor, claimant, service provider, resolution applicant or any other person having an interest in an insolvency resolution, liquidation, voluntary liquidation or bankruptcy transaction under the Insolvency and Bankruptcy Code, 2016 (Code), to file a grievance or a complaint against a service provider, namely, insolvency professional agency, insolvency professional, insolvency professional entity or information utility.