Weekly Highlights from NCLAT: Significant Orders under IBC (May 1st - May 15th, 2025)
The National Company Law Appellate Tribunal (NCLAT) made several key rulings under the Insolvency and Bankruptcy Code (IBC) during the period from April 1, 2025, to April 15, 2025. These decisions addressed important procedural and substantive issues related to communication in insolvency proceedings and the enforcement of financial debts.
In the case of Akhilesh Kumar v. Bank of Baroda, the NCLAT held that serving a notice or legal process on a corporate debtor at the email address registered with the Ministry of Corporate Affairs complies with rule 38 of the NCLT Rules, 2016, even if that email address was not obtained from any application, petition, or reply filed by the corporate debtor. This decision clarified the acceptability of using official MCA-recorded email addresses for service of documents in insolvency proceedings.
In the case of Bahadur Ram Mallah v. Assets Reconstruction Company Limited, the Tribunal ruled that a global settlement agreement between a corporate debtor and a financial creditor does not alter the nature of the underlying financial debt. Consequently, if the settlement agreement is breached, the financial creditor is still entitled to file a Section 7 application based on the original debt. The NCLAT also emphasized that a Debt Recovery Tribunal (DRT) decree confirming debt and default cannot be ignored merely because an appeal against the decree is pending, especially when no stay on the decree has been granted.
Other significant rulings during this period include the NCLAT's clarification that financial creditors are permitted to jointly file an application, but operational creditors need to individually satisfy the threshold of default under Section 4. The NCLAT also clarified that for an application under Section 9 of the IBC, the threshold default should be assessed at the time of filing, not at the time of admission.
The NCLAT further held that in the absence of any clause for interest in the supply agreement, stipulation of interest in the invoices can only override such a written agreement upon mutual consent by both parties. The NCLAT also stated that service of the demand notice under Section 8 of the Code is valid if sent to the registered email address of the corporate debtor, even if the email is non-operational.
In a case dealing with the issue of the suspended management's locus to challenge the quantum of claims admitted by the resolution professional and their right to receive a detailed valuation report, the NCLAT observed that the suspended director who was also a personal guarantor had no locus to challenge the quantum of such claim and there was no statutory requirement of sharing valuation report with the suspended board.
Lastly, the NCLAT held that consideration received as an advance under an agreement to sell an immovable property, which was later sought to be refunded with interest due to non-performance, cannot amount to a financial debt under Section 5(8) of the Code.
These decisions represent significant clarifications by NCLAT on service of notices, the effect of settlement agreements on debt recovery, the assessment of default, the stipulation of interest, service of demand notices, the locus of suspended management, and the nature of advanced payments under the IBC in early April 2025.
In the context of finance and business, the NCLAT in Akhilesh Kumar v. Bank of Baroda case ruled that serving a notice at the email address registered with the Ministry of Corporate Affairs for service of documents in insolvency proceedings is acceptable, even without being obtained from any filing by the corporate debtor. Conversely, in Bahadur Ram Mallah v. Assets Reconstruction Company Limited, the NCLAT determined that a global settlement agreement between a corporate debtor and a financial creditor does not change the nature of the financial debt, and if the settlement is breached, the financial creditor can still file a Section 7 application based on the original debt.
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