The Supreme Court recently disposed of a bunch of cases in which the basic legal question was whether, after the approval of a scheme by the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, an unsecured creditor has the option not to accept the scaled down value of its dues, and to wait until the scheme for the rehabilitation of the respondent company has worked itself out, with an option to recover the debt with interest post rehabilitation.
The apex court answer with a ‘no’. Taking the case of Modi Rubber vs Continental Carbon as an exemplary one that will settle other such cases, too, a Supreme Court bench comprising Justice MR Shah and Justice CT Ravikumar noted that the submission that unsecured creditors should have an option not to accept the scaled down value of dues “has no substance and cannot be accepted”.
They noted that it is only due to the scaling down of the value of the dues by the creditors does the company survive. The unsecured creditor “cannot be permitted to take the benefit of the revival scheme, which is at the cost of other creditors including the financial institutions and even the labourers”, the Supreme Court said.
IL&FS fails again
When IL&FS Financial Services’ (IFIN) petition for condoning a delay in filing an appeal was dismissed by the Delhi bench of the National Company Law Appellate Tribunal (NCLAT), it was its second failure in its dispute with a company called Empower India Ltd. In the first instance the National Company Law Tribunal (NCLT) threw out its case.
IFIN had given Empower India Ltd a loan of ₹170 crore for lending to a subsidiary of IL&FS called IL&FS Transport Networks Ltd (ITNL). Empower India Ltd was to receive a fee of around ₹2 crore. ITNL’s business failed and it did not repay the loan to Empower India, which, in turn, did not repay IFIN. When IFIN sued NCLT, Empower India successfully argued that there was neither a debt nor a default, clearly establishing it was only passing on the money from one IL&FS company to another.
It is not clear what prompted IFIN to go on appeal and why it did not file on time. NCLAT Chairperson Ashok Bhushan and Member (Technical) Barun Mitra did not waste time in recording that “the appeal has been filed beyond 15 days’ delay”. Under Section 61 of the Insolvency and Bankruptcy Code, only a 15-day delay is condoned.