The National Company Law Appellate Tribunal’s (NCLAT) Wednesday order to reinstate Cyrus Mistry as the executive chairman of Tata Sons diametrically reverses a judgment delivered by the Mumbai bench of the National Company Law Tribunal (NCLT) in July 2017. As the issue is now headed for the Supreme Court, the Tata Sons case is not the first instance where the NCLT and its appellate authority — NCLAT — have delivered sharply different verdicts. The Tata Sons case is one in a series of cases where the tribunal, the appellate court and the SC have had completely different views on the same issue, leading to cascading reversals in sequential verdicts in the same case. Consider the case of Essar Steel: the case was finally put to rest with a Supreme Court judgment clearing ArcelorMittal’s bid this November after more than 835 days in litigation. Multiple intervention applications filed by stakeholders apart, the non-linear understanding and interpretation of Insolvency and Bankruptcy Code (IBC) by the different forums contributed to the delay, with wide vacillations on the question of the powers of committee of creditors (CoC) and issues such as the supremacy of operational or financial creditors, till it was settled by the apex court s November. Initially, the Ahmadabad bench of NCLT had — while approving the plan for Essar Steel — “suggested” that the funds from ArcelorMittal be distributed in 85:15 ratio. The NCLAT censured this observation and held that operational creditors must be given equal footing. It went ahead and changed the terms of ArcelorMittal’s bid to give all creditors 60.7 per cent of their admitted claims. Then, the SC, on a subsequent appeal, held that there must be an absolute “judicial hands-off” and that the supremacy of lenders was non-negotiable. It then went on to restore the original payment structure for lenders. The difference in interpretation of IBC, experts concur, could be due to the nascent stage at which the insolvency resolution process currently is. Others, however, say that there must be “an internally coherent view” of commercial courts on IBC. The insolvency of New Delhi-based Rave Scans, similarly, took two U-turns before being decided. Lenders to Rave Scans, one of the first firms to be taken to NCLT under the IBC, had initially rejected all four bids that came for the firm. After a nudge from the NCLT, they reconsidered one plan, which was later approved. That plan too, however, ran into trouble as one of the financial creditors, Hero Fin Corp, dissented and claimed a higher payout. The NCLT rejected Hero Fin’s contentions, which then approached the NCLAT. The NCLAT upheld the plea and added that if Hero Fin was not given the same treatment as other financial creditors within a month, the resolution plan would stand set aside. Subsequently, when the matter went to the SC, a two-judge Bench of Justices Arun Mishra and S Ravindra Bhat overturned the NCLAT’s decision by simply holding that the resolution process had begun well before the amended regulation (which gave equal footing to dissenting financial creditors in IBC), and thus the appellate tribunal’s decision would be set aside. Apart from inconsistencies in interpretations, many are related to issues of contingent liability, treatment of guarantees, payout to operational creditors, and scope of moratorium, Suharsh Sinha, partner at AZB & Partners, said, adding that on most of these issues the case laws had been inconsistent. The case of Jignesh Shah-promoted La Fin Financial Services threw up another instance of contrasting interpretation of the well-settled law of limitations. IL&FS Financial Services (IFIN) had moved an insolvency plea against La Fin, which the latter challenged, citing that the insolvency plea was barred by limitation. In their respective judgments, the NCLT and NCLAT held that IFIN’s plea was not barred by limitation as it was filed well within the time limit of three years from December 1, 2016, when IBC was introduced. The SC, however, overturned the decision and said that IFIN’s plea was barred by limitation as it was filed well beyond three years from August 2012, when the first default occurred. It also held that IFIN had approached the courts only when La Fin saw its net worth erode in 2015. “That does not mean there is no prospect of the company ever making a profit in the future. It does not also mean that the company abandoned its business and therefore will not be able to pay,” the apex court had said. Experts point out that the difference in interpretation could be as these laws have to be read in consistency with the IBC. “Even for laws that are well established, for example, the ones on laws of limitation are not being read in isolation. They have to be read with the code,” said Karan Mitroo, partner at L&L Partners.
