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IBBI Introduces New Form and Rule Under The Insolvency And Bankruptcy Code, 2016

On 16th August, 2017 the Insolvency and Bankruptcy Board of India (IBBI) introduced a new form called "Form F" and "Rule 9A" as an amendment under the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2017 to enable a person who is yet to receive a payment from an investment from an insolvent company. Under the Insolvency and Bankruptcy Code, 2016 (hereinafter, IBC) creditors are divided into two categories i.e. financial creditor and operational creditor, and creditors can claim for their dues under the following forms i.e. Form B for claims by operational creditors, Form C for claims by financial creditors and Form D for claims by workmen and employees, however, homebuyers did not fall under any of the following categories. Therefore, the IBBI in pursuance of section 196 read with section 240 of the Bankruptcy and Insolvency Code, 2016 has introduced Form F which will provide for forms for submission of claims by creditors other than financial and operational creditors.

This new step has been taken primarily to facilitate the investors who have invested in Jaypee Infratech projects whose interests have been compromised due to the bankruptcy of the said group. After a number of ambiguities were pointed out by the Insolvency Resolution Professional (IRP) appointed for Jaypee Infratech, IBBI revised the regulations wherein owners of undelivered properties can become part of the committee of creditors and stake a claim equivalent to the amount they have paid to realtors. This will enable persons such as homebuyers to make claims for undelivered flats on a company undergoing resolution under the IBC. Now, even homebuyers can make claims against companies which were previously restricted to banks, other creditors and employees. In conclusion, it can be stated that this is a positive step taken by the IBBI to extend the protection available to creditors against corporate debtors.

EBI's Crackdown On Shell Companies: 331 Companies Listed As Shell Firms.

As Government action against black money menace continues, Securities Exchange Board of India (hereinafter, SEBI) has come up with a list of shell companies which consists of listed as well as unlisted companies which are suspected of abetting alleged routing of illicit funds through stock markets. The regulator is inspecting cases where entities are availing long term capital gains benefits through sham transactions in stocks.

On August 7, 2017 SEBI directed the stock exchanges to restrict trading in shares of 331 companies subsequent to them being classified as shell firms. Further, another 107 unlisted entities have been probed into by SEBI, and the stock exchanges and brokers have also been notified with regards to verification of the credentials of these firms, failure of which may lead to these firms being barred from trading in stocks. The list contains companies engaged in real estate, plantation, trading and financial related businesses among others. These lists of companies were shared with SEBI by the Ministry of Corporate Affairs and are based on ongoing investigations by various agencies such as the Income Tax department and Serious Fraud Investigation Office.

A number of companies including Jkumar Infraprojects and Parsvnath Developers have been brought under the ambit of shell companies. These companies would be subjected to surveillance measures which would include an independent audit and also forensic audits, if required. SEBI in communications with Bombay Stock Exchange, National Stock Exchange and Metropolitan Stock Exchange, has advised them to keep the shares of these companies in stage four of the Graded Surveillance Mechanism (GSM) with immediate effect which means that these companies are permitted to trade only once a month under trade-to-trade category. On verification, if appropriate credentials or fundamentals about the existence of these companies are not found then "compulsory delisting" of these companies would be initiated.

On 11th August, 2017 the Security Appellate Tribunal (hereinafter, SAT) lifted SEBI's trading restrictions on shares of six suspected shell companies, including Parsvnath Developers among others such as Kabvit Industries, Pincon Spirit, Signet Industries, SQS India BFSI and KKalpana Industries. According to these companies, SEBI could not have issued the impugned communication without giving an opportunity of hearing. In these circumstances, considering the appellants as suspected shell companies has seriously prejudiced the reputation of the appellants in the securities market, as per the submissions. It was submitted before the SAT by the companies that the communication was issued on August 7, 2017 without giving an opportunity of hearing to the appellants and was "arbitrary, unreasonable, whimsical and is issued without application of mind."

23 August 2017
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