Vidarbha Industries Power Limited v Axis Bank Limited- A temporary storm in the waters?
INTRODUCTION The Supreme Court on 12th July 2022, in Vidarbha Industries Power Ltd. v Axis Bank Ltd. [1] held that Section 7(5)(a) of the Insolvency & Bankruptcy Code (“IBC”) is directory. Enunciating on the same, the Supreme Court held that National Company Law Tribunal (“NCLT”) can reject an application even if the financial creditor fulfills the twin test of establishing “debt” and “default” on the part of the corporate debtor. While a Review Petition was filed against the said judgment due to the untoward path taken, the same was rejected by the Supreme Court. The case analysis seeks to understand the position as adopted by various forums in the present case and seeks to critique the Supreme Court judgment as being violative of the objectives of the IBC. The analysis also tests for the sustainability of this position in the insolvency regime of India in times to come. BRIEF FACTS OF THE CASE Axis bank being the financial creditor of Vidarbha Industries filed an application under Section 7(2) before the NCLT, Mumbai for institution of Corporate Insolvency Resolution Process (“CIRP”). In response, Vidarbha Industries filed a Miscellaneous Application No. 570 of 2020 in C.P. (IB) No. 264 of 2020 before the NCLT seeking stay on proceedings under Section 7 of the IBC in the NCLT as long as Civil Appeal No. 372 of 2017 was pending in the Supreme Court. Vidarbha Industries averred that it was power generating company operating a 600 MW Coal-fired Thermal Power Plant in Maharashtra and had been supplying power to Reliance Infrastructure Ltd. (“RIL”) since 1st April 2014 as per various agreements approved by the Maharashtra Electricity Regulatory Commission (“MERC”). In 2016, Vidarbha Industries filed an application before MERC for truing up the Aggregate Revenue Requirement and for determination of tariff due to increase in fuel costs and cost of procuring coal. MERC disposed off the application in June 2016, by disallowing substantial portions of the fuel costs for financial years (2014-15, 2015-16) and additionally capped the said tariff for (2016-17 to 2019-20). An Appeal was filed before the Appellate Tribunal for Electricity (“APTEL”) which was allowed. Hence Vidarbha Industries claimed that an amount of INR 1,730 Crores (Indian Rupees One Thousand Seven Hundred and Thirty Crores only) is due as per the order passed by APTEL. Though MERC has challenged the said order by way of an Appeal before the Supreme Court, the same is pending adjudication. Hence, in its Miscellaneous Application for stay Vidarbha Industries stated that it was financially healthy and due to unwanted financial stress due to the pending Appeal, debts could not be paid. The NCLT dismissed the stay application by holding Section 7 to be mandatory in its wording and hence Vidarbha Industries approached the NCLAT. The NCLAT held that the issue of liquidity as raised by Vidarbha Industries cannot impact the admission of Application under Section 7 of the IBC when the twin test of existence of a debt and default to pay the debt is proven. The said decision was finally brought before the Supreme Court and the question raised was “whether Section 7(5)(a) is mandatory or a discretionary provision?” SUPREME COURT JUDGMENT Vidarbha Industries’ Stance Vidarbha Industries basis the facts stated that the only reason for the existence of debt was the pending appeal and once the same is adjudicated in its favor, it would realize a sum of INR1,730 Crores (Indian Rupees One Thousand Seven Hundred and Thirty Crores only) and would be able to satisfy the debt. Basis the law, it was strongly contended that a perusal of Section 7(5)(a) indicates the use of “may” when admitting an application for initiating the CIRP process. Hence, Vidarbha Industries averred that the NCLT can reject an application even if there is existence of debt for meeting the ends of justice and achieving the true objective of the IBC, i.e., revival of the company and value maximization. Axis Bank’s Stance Solely relying on the statute, Axis Bank Ltd. vehemently argued that once default in payment of dues has been admitted, application must be allowed. While relying on Swiss Ribbons Pvt. Ltd. & Anr. v Union of India & Ors. [2] it was contended that the legislative policy as established by the IBC was to shift from “inability to pay debts” to “determination of default.” It was further stated that the adjudicating authority under Section 7 was merely required to ascertain existence of default within 14 days of receipt of such application and if the default was found, the adjudicating authority should allow the application. It was concludingly argued that the said section was mandatory in nature and pointed out that since the application being instituted in the NCLT, one year had lapsed and there was no change in the solvency of Vidarbha Industries. JUDGMENT OF THE SUPREME COURT The Supreme Court stated that both the previous fora as per the requirements of Section 7 of the IBC had only observed whether a debt and requisite default had occurred. It concluded that both the institutions had not entered into the merits of the matter. While not agreeing with the view taken by the previous forums, the Supreme Court held that the award of the ATEPL cannot completely be disregarded, and the viability and overall financial health of Vidarbha Industries cannot be held as extraneous matters. While holding that the use of the word “may” under Section 7(5) to be directory, the Supreme Court stated that the rule of literal construction must be taken into consideration while viewing statutes. The Supreme Court also enumerated the difference between the CIRP Proceedings lodged by an Operational Creditor and Financial Creditor. While the former under Section 9(5) having filed an application “shall” be allowed to initiate CIRP upon existence of debt and default therein, the latter “may” be permitted to do the same if the tribunal is satisfied that no other reasons preclude the application from being allowed as was seen in the present case. Due to these reasons, the Orders
Compliance Checklist – Foreign Companies under the Companies Act 2013(“Act”)
In the age of globalization, foreign companies venturing into India encounter the comprehensive regulatory framework of the Companies Act 2013 (the “Act”), governing their operations, management, and compliance obligations. Navigating this landscape is vital to ensure legal adherence, transparency, and market presence. The Act mandates foreign companies to meet diverse compliance requirements, spanning registration, operations, and reporting, aimed at safeguarding stakeholders, ensuring fairness, and upholding corporate governance. This article offers a tailored “Compliances Checklist,” guiding foreign companies to establish, sustain, and prosper in India while conforming to legal standards. By addressing these obligations, businesses can mitigate risks, foster growth, and align with the country’s business environment. Definition of Foreign Company: – As per section 2(42) of the Act, a foreign company is any company or body corporate incorporated outside India which, — (a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and (b) conducts any business activity in India in any other manner. Governing Chapter and Sections of the Act: – Chapter XXII of the Act, Section 379 to 393. Applicable Rules: – The Companies (Registration of Foreign Companies Rules) 2014 (“Rules”). Outlined below is the compliance checklist for foreign companies under the Act – Sr. No Activity e-Form Required Documents/Information required Timeline Establishment of place of business in IndiaRef: – Section 380 of the Act read with (i) Rule 3 of The Companies (Registration of Foreign Companies Rules) 2014 and (ii) Instruction Kit for filing Form no. FC-1. FC-1 Certified copy of the chartered documents and/or other instrument constituting or defining the constitution of the company and, if the instrument is not in the English language, a certified translation thereof in the English language.Full address of the registered or principal office of the company.List of directors and secretary of the company.Name and address or the names and addresses of one or more persons resident in India authorised to accept on behalf of the company service of process and any notices or other documents required to be served on the company.Full address of the office of the company in India which is deemed to be its principal place of business in India.Power of attorney or board resolution in favour of the authorised representative(s)Particulars of opening and closing of a place of business in India on earlier occasion or occasions.Declaration that none of the directors of the company or the authorised representative in India has ever been convicted or debarred from the formation of companies and management in India or abroad.Translated version of the documents in English (in case the documents attached are not in English). Within 30 days of establishment of place of business in India. Alteration of Charter Documents, change in the registered office of the company in the country of incorporation, change in address in India, Change in Directors, secretary, authorised representative, Intimation of New place of business in India, closure of place of business in IndiaRef: – Section 380 of the Act read with (i) Rule 3 of the Companies (Registration of Foreign Companies Rules) 2014 and (ii) Instruction Kit for filing Form no. FC-2. FC-2 Certified true copy of the Board resolution approving such change.Copy of the general meeting resolution approving such change.Copy of approval letter if any approval is required for such alteration.Translated version of the documents in English (in case documents attached are not in English). Within 30 days of such change/alterationbeing made Filing of Financial StatementsRef: – Section 381 of the Act read with (i) Rules 4,5 and 6 of the Companies (Registration of Foreign Companies Rules) 2014 and (ii)Instruction Kit for filing Form no. FC-3. FC-3 Copy of the latest consolidated financial statement of the parent company.Copy of balance sheet and profit and loss account duly authenticated under section 381(1).Statement of related party transactions.Statement of repatriation of profits.Statement of transfer of funds between the place of business of a foreign company in India and any other related party of the foreign company outside India including its holding, subsidiary and associate company;Copy of Approval letter of extension of validity period if applicable;Approval of Reserve Bank of India or any other authority as may be required;Details of other entity(s) through CSR Activities have been undertaken if applicable.Translated version of the documents in English (in case the documents attached are not in English). Within 6 months of the close of the financial year of the foreign company to which the financial statements relate. Annual ReturnRef: – Rule 7 of The Companies (Registration of Foreign Companies Rules) 2014 read along with Instruction Kit for Form no. FC-4. FC-4 Details of Promoters, Directors and Key managerial personnel and changes therein since the close of the previous financial year;Details of directors and key managerial personnel and their remuneration;Details of the meeting of the members or class thereof, board and its various committees along with attendance details;Particulars of members and debenture holders along with changes therein since the close of the previous financial year. Within 60 days from the last day of its financial year Appointment of Auditor for audit of accounts pertaining to the Indian business operationsRef: – Section 139 and 381 of the Act read with Rule 4 and 5 of The Companies (Registration of Foreign Companies Rules) 2014. ADT-1 Certified copy of the resolution for the appointment of an auditor;Consent and eligibility certificate from proposed auditor. Within 15 days of the appointment of the auditor – Surendra Rahalkar, Associate, Solomon & Co. About Solomon & Co. Solomon & Co., (Advocates & Solicitors) was founded in 1909 and is amongst India’s oldest law firms. The Firm is a full-service firm that provides legal services to Indian and international companies and high-net-worth individuals on all aspects of Indian law. “Disclaimer” The information contained on this article is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. The application and impact of laws can vary widely based on the specific facts involved.
