Lawsikho Blog

In the first part of the article titled “Your ultimate guide to drafting an appeal before the NCLAT under the IBC”, I mentioned filing a separate and independent application for stay on operation of the impugned order, alongside the memorandum of appeal. In this part, we will learn how to draft that very stay application effectively.

Introduction

Think of a situation where you have drafted a solid appeal, stated every fact, identified every issue and touched upon every ground. It’s filed within the prescribed period of limitation. You’ve even included a prayer to stay the impugned order. 

Two weeks later, while your appeal quietly waits its turn on the board, the consequences of the impugned order play out in real time. The resolution plan is approved. CoC meeting is conducted minus your client, and the resolution plan is approved, where your claim amount is ignored. The very act you are appealing against has been executed.

And the damage is done. 

Now tell me, how will you avoid such a situation? 

By filing an interlocutory application for a stay on the operation of the impugned order, along with the memorandum of appeal?

Absolutely.   

That is because appellate forums review legality, but not always the consequences once they have materialised. And that is precisely why a separate interlocutory application for stay is not just a formality. It is your shield. Without it, you may win the battle on paper but lose everything on the ground.

Before we move to the draft of the interlocutory application, let us look at some pertinent rules prescribed under the National Company Law Appellate Tribunal Rules, 2016 (“the Rules”). 

But even before that, know what is and what is not an interlocutory application as given under the Rules. 

As per rule 2(f) of the Rules, an “interlocutory application” is an application in any appeal already instituted in the Appellate Tribunal but not being a proceeding for execution of the order or direction of the Appellate Tribunal. 

What are the rules to bear in mind while drafting an interlocutory application?  

Just like in the case of an appeal, the Rules govern the procedure for filing and handling interlocutory applications (IAs) before the NCLAT. 

Here are the key rules that you must follow while drafting the IA: 

• As per Rule 31, every IA shall be filed in the prescribed form (Form NCLAT-2) with the requisite fee, unless otherwise specified.
• Such an IA shall be accompanied by an affidavit in its support verifying the truth of the statements made in the application.
• The IA and annexed documents must be in English. If any document is in another Indian language, a certified English translation must be attached.
• The IA must be typed, printed or lithographed, double-spaced, on one side of standard petition paper.
• Margins must be kept as below:

     – Top: 4 cm

     – Left: 5 cm

     – Right: 2.5 cm

• The IA must be paginated, indexed and stitched into a paper book format.
• The IA must include the cause title, formatted as:

    Before the National Company Law Appellate Tribunal

At the Principal Bench, New Delhi 

• The IA should be divided into separately numbered paragraphs, each addressing a single point, fact, or allegation for clarity. 
• Include the full name, parentage, age, description (e.g., “Financial Creditor”), and address of each party. If a party is represented (e.g., by a resolution professional), this must be clearly stated.
• IAs must be filed in triplicate 
• Filing can be done in person, by a duly authorized representative, or by an advocate who has filed a vakalatnama.
• The IA must include an index (in triplicate) listing all attached documents, their descriptions, and details of the fee paid. 
• Every IA must be accompanied by a certified copy of the relevant order (e.g., impugned NCLT order for a stay application).
• The IA must be signed by the authorised representative or advocate at the bottom of each pleading.
• As per the NCLAT Rules, the court fee for filing an interlocutory application shall be paid. 
• An advance copy of the IA, along with all enclosures, must be served on all respondents and interested parties (e.g., resolution professional, Committee of Creditors) before filing.

So, this has happened with me quite a few times, where applicants serve interlocutory applications on their opponents just the night before (in worst cases, the same morning) the hearing. While it may be a clever move, it is unfair. The respondent barely gets time to engage counsel or prepare. At the very least, give 24 to 48 hours’ notice to ensure a fair opportunity to respond.

• Service can be effected via registered post, speed post, or electronic service. 
• The IA must include the respondent’s address for service (postal address, email, phone number).  

Drafting an interlocutory application

You may have read up on the detailed facts of this case in the first part of my article on “Your ultimate guide to draft an appeal before the NCLAT under the IBC”.  

So here is a concise version of those facts for your convenience and reference. 

The Corporate Debtor, Santra Properties Pvt. Ltd., was admitted into CIRP on 03.08.2020. The Appellant, Home Leasing Pvt. Ltd., is a Financial Creditor that lent a total of Rs. 53.5 crores for two real estate projects. 

The Corporate Debtor defaulted. It paid reduced interest until 2012 and ceased payments thereafter. It also violated the MoUs by selling some flats to third parties, prompting even an FIR against its promoter.

When the CIRP commenced against the Corporate Debtor, the Appellant filed its claim for Rs. 121.50 crores (including accrued interest). However, the Resolution Professional admitted only Rs. 1.32 crores, without any detailed reasoning. This, in turn drastically reduced the Appellant’s voting share in the CoC to 0.81%. The NCLT upheld this rejection.

The Appellant has challenged this before the NCLAT. However, in the absence of a stay on the NCLT’s order or the CoC’s ongoing actions, the resolution process is progressing based on the reduced claim. 

Hence, this Interim Application for stay because without it, the appeal itself may be rendered infructuous.

Before we begin to draft this IA, let me give you some generic pointers so that you can brace yourself accordingly: 

• IAs are usually prepared in urgency (sometimes extreme), and in case it is not, then it is accompanied by the memorandum of appeal, which contains ALL the possible relevant averments. So keep your IA short, as short as 5-7 pages. 
• Do not state facts in detail. Simply give a background of the case for a flow in reading. 
• Last and most importantly, make out a case, plead and argue on the following points vehemently: 

1. You have a prima facie case to obtain urgent relief. 
2. If no such relief is granted, the applicant will suffer irreparable harm and injury. 
3. That balance of convenience is in favour of the applicant. 

Let me explain to you the concepts of (with the help of an example) prima facie case, irreparable harm and balance of convenience. 

For instance:

• A builder is about to sell a property.
• A buyer sues, claiming to have already paid for it under an earlier agreement.
• The buyer files an application seeking an interim stay on the sale of the property until the court decides the matter.

In this case, there is:

• A prima facie case: The buyer has produced payment receipts, so there is a case to be tried.
• Irreparable harm: If the property is sold to a third party, the buyer’s rights will be harmed.
• Balance of convenience:

1. If a stay is not granted, the buyer loses a specific property and faces complex litigation to recover.
2. If a stay is granted, the seller merely has to wait to complete the sale.

Now you think, should the interim relief to stay the sale be granted?  

Definitely. 

Because the buyer will be more inconvenienced or harmed if interim relief is refused and the matter should be ruled in favour of the less damaging option until final judgment.

Having conveyed what I had to, I shall now discuss the IA. 

The format of the appeal must be as per Form NCLAT-2 of the Rules. 

The IA begins with a cause title that mentions the tribunal where it is filed, the number of the IA and of the appeal under which this IA is filed, the purpose for which it is filed and finally, the names of the parties. 

IN THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL,

 PRINCIPAL BENCH AT NEW DELHI 

 I.A. NO. ______ OF 2024

IN 

COMPANY APPEAL (AT) (INS.) NO. _____ OF 2024

Versus

In an IA, you only need to mention the names of the parties and not the full title (i.e. along with the registered addresses). This is because the appeal, along with which it was filed, already contains the full title. 

Like in every other application/petition that we have seen so far, even here, you need to state the purpose of filing this IA. 

APPLICATION FOR STAY 

MOST RESPECTFULLY SHOWETH 

A bench of a Tribunal goes through multiple IAs in a day. Thus, it is for their convenience and to immediately convey, the applicant must, at the outset itself, enumerate the reliefs sought.  

A. Relief/s

The Appellant submits that the present Application has been made bona fide and in the interest of justice. In view of the aforementioned, the Appellant/Applicant humbly prays:

1. Pending the hearing and final disposal of the present Appeal, this Hon’ble Tribunal may be pleased to stay the effect and operation of the Impugned Order dated 19th December 2023 passed by the Hon’ble National Company Law Tribunal, Mumbai Bench, Court-I, in the interim application filed in the CIRP petition. 
2. Pending the hearing and final disposal of the present Appeal, this Hon’ble Tribunal may be pleased to stay the hearing of the interim application filed by the Respondent for approval of the resolution plan for the Corporate Debtor;
3. Pending the hearing and final disposal of the present Appeal, this Hon’ble Tribunal may be pleased to restrain the Respondent from holding any meetings of the CoC;
4. The Hon’ble Appellate Tribunal be pleased to grant an ad interim order in terms of prayers (a) and (b); 
5. Pass such other reliefs as this Hon’ble Tribunal deems fit in the facts of the matter. 

B. Brief facts

In an IA, you need to state facts that are necessary to decide the present application only and not the entire appeal. So, selectively and mindfully state facts. Like I mentioned earlier, the length of the IAs needs to be less than 10 pages. 

Without much ado, your first paragraph needs to talk about the impugned order as that forms the basis of the appeal and thus, this IA.  

1. The present Application is filed by the Applicant inter alia for stay of the order dated 19.12.2023 (“Impugned Order”) passed by the Hon’ble NCLT in an IA filed in CIRP petition filed by the Appellant under section 60(5) of the IBC.

This application emanates from the appeal filed. Thus, the next averment will ensure that the appeal and the IA are read in harmony and not in isolation.  

2. The Applicant submits that the facts and circumstances in which the above Appeal has been filed have been enumerated in the memorandum of appeal filed herewith. For the sake of brevity, the Applicant is not repeating the statements made in the Appeal, but the same may be treated as part and parcel of the present Application.

From here on, we shall give details (only and only that is necessary) about the transaction, necessary proceedings before the NCLT and discuss how the cause of action arose. 

3. Santra Properties Limited (“Corporate Debtor”) is a real estate developer. The CIRP of the Corporate Debtor commenced on 3rd August 2020 under the supervision of the National Company Law Tribunal, Mumbai Bench, Court Room- 1 (“NCLT”).
4. The Applicant had lent monies to the Corporate Debtor for two of its real estate projects, viz., the Project A (Rs. 13.5 crores) and the Project B (Rs. 40 crores). Against these advances, the Corporate Debtor had paid interest @ 12% p.a. The Applicant filed its claim with the Resolution Professional (“RP”) for the remainder of the debt due and payable, i.e. principal of Rs. 37.91 crores and interest of Rs. 83.58 crores.
5. The RP admitted the Applicant as a financial creditor. However, the RP only admitted the Appellant’s claim for a sum of Rs. 1.32 crores. The RP relied on the books of accounts of the Corporate Debtor to contend that no interest was payable on the advances and appropriated all payments made by the Corporate Debtor against the principal. Hence, the Appellant filed an interim application before the Hon’ble NCLT challenging the quantum by which the claim was admitted.

Briefly talk about the issues/errors with the impugned order. 

6. By way of the Impugned Order dated 19th December 2023, the Hon’ble NCLT “partly allowed” the Application. The Impugned Order dated 19th December 2023 is indecipherable. In the Impugned Order, the Hon’ble NCLT has rejected the Appellant’s entire claim against the Project B on baseless ground that the project was transferred to a subsidiary of the Corporate Debtor, viz. SPDPL. Further, it is unclear if in the Impugned Order, the Hon’ble NCLT has also recategorised the

Appellant as “Other Creditor” qua the claim against the Project A, or has directed the RP to admit a claim for increased quantum against the Project A  as “Other Creditor”. All these conclusions ex facie contradict the Hon’ble NCLT’s finding that the Appellant had given loans which were repayable with interest at 12% p.a. Hence, the present Appeal. 

C. Grounds

Instead of elaborating on the facts, elaborate on the grounds. Your grounds must categorically state why exactly the order should be passed in your favour. A lot of course depends on the argument, but you can compel the judge by crisply stating the grounds. 

The Applicants have thus filed the present application on the following grounds, which are without prejudice to one another:

1. The nature of the Appellant’s claim was not an issue in controversy before the Hon’ble NCLT. The RP had already categorised the Appellant as a financial creditor. That categorisation was not under challenge. The only issue under challenge before the Hon’ble NCLT was the quantum admitted by the RP. The Hon’ble NCLT has exceeded the scope of its jurisdiction by recategorising the Appellant’s claim.
   
2. Once the RP had admitted the Appellant as a financial creditor, and that categorisation was not under challenge either by the RP or the Appellant, it was not within the scope of the Hon’ble NCLT’s powers to usurp the RP’s jurisdiction and recategorise the Appellant’s claim to “Other Debt”.

3. THAT the Hon’ble NCLT could not have completely ignored the books of accounts of the Corporate Debtor and that of the Appellant both of which asserted that monies to the extent of (atleast) Rs. 1,09,26,709/- and Rs. 22,75,037/- were payable by the Corporate Debtor to the Appellant against loan advanced by the Appellant towards Project B and Project A respectively, aggregating to Rs. 1,32,01,749/-. The RP admitted the Appellant’s claim to the extent of Rs. 1,32,01,749/- basis the books of the Corporate Debtor and admissions of the Corporate Debtor in its Affidavit dated 15th October 2019, filed before the NCLT. Resultantly, only the quantum thereof was disputed. The Impugned Order contravenes the books of accounts of the Corporate Debtor and admissions of the Corporate Debtor.

4. The findings of the Hon’ble NCLT are patently contradictory and internally inconsistent. In paragraph no. 4.3, the Hon’ble NCLT has held that the Appellant had given loans repayable with interest @ 12% p.a. That being so, there was no basis whatsoever for the Hon’ble NCLT to contradict itself by holding that the transaction qua the Project A was “other debt” in paragraph no. 4.6. of the Impugned Order.

5. The finding of the Hon’ble NCLT qua the Project B, i.e. that the same had been transferred to SPDPL, was completely baseless and contrary to the record. The transactions between the Appellant and the Corporate Debtor on the one hand and between the Appellant and SPDPL on the other hand were entirely independent. There was no overlap between the two. The finding rendered by the Hon’ble NCLT is completely misconceived. 

D. Balance of convenience 

At the end, you need to persuade the judge that if this IA is not allowed and a stay is not granted, the applicant will suffer grave injury and that the balance of convenience is in favour of the applicant and against the Respondent. 

7. It is humbly submitted that if the Impugned Order is not stayed, the Appellant will suffer grave prejudice and irreparable loss. The balance of convenience is in favour of the Appellant and against the Respondents. 

8. That it is submitted that an IA for approval of the resolution plan is filed and is pending adjudication before the NCLT. That if no relief is granted and the resolution plan is approved, the same would cause irreparable loss to the Applicant. 

DECLARATION  

It is important to give a declaration that the information provided in the application is true and correct and that nothing is concealed or suppressed.   

The applicant above named hereby solemnly declares that nothing material has been concealed or suppressed and further declares that the enclosures and typed set of material papers relied upon and filed herewith are true copies of the originals or fair reproductions of the originals or true translations thereof.  

Verified at_________dated at _______this day __________of _______20 .  

VERIFICATION

The officer in charge of the Applicant, who is aware of the facts of the case, must verify this application.  

I __________________(Name of the applicant) S/o.W/o.D/o. (indicate any one, as the case may be ) ___________age ____________working as __________ in the office of _______________resident of _______________ do hereby verify that the contents of the paras _____________to ___________are true to my personal knowledge / derived from official record ) and para _________ to _______are believed to be true on legal advice and that I have not suppressed any material facts.  

Date :  

Place :  

Signature of the Appellant/Petitioner or authorised officer

What is the process followed for adjudicating the interlocutory application?

What renders an application defective? 

 An IA may be considered defective if:

• It does not comply with formatting requirements as required under the Rules.
• The prescribed fee is unpaid or insufficient.
• The affidavit is missing or improperly verified.
• The certified copy of the relevant order (e.g., impugned order) is not annexed.
• Proof of service to respondents is absent.

The NCLAT shall notify the applicant of defects. The applicant must rectify the defects within 7 days to avoid rejection.

FAQs 

1. Is this application listed any differently from the main petition?

No. Rules for listing this application are the same as those of the main petition. You may refer to my article on “Your Ultimate Guide on drafting an appeal before the NCLAT” for more information. 

2. What is the court fee payable on such an application? In whose favour is the DD drawn on? 

The court fee payable is Rs. 1000/-. 

Demand draft is to be drawn in favour of the “Pay and Accounts Officer, Ministry of Corporate Affairs”.

3. When can an IA be filed before the NCLAT?

An IA can be filed:

1. Along with an appeal, while filing an appeal from an order of the NCLT; 
2. During the pendency of an appeal, to seek interim relief or directions while the appeal is being adjudicated.
3. In exceptional cases, if urgent relief is sought in ongoing proceedings (e.g., urgent listing due to time-sensitive issues).
4.  What are the purposes for which the IAs are filed against an NCLT order?

IAs may be filed to seek a stay on the operation of the impugned order, for condonation of delay, to bring additional evidence on record, for injunction restraining actions such as CoC meetings, asset disposals or resolution plan approvals.

5. What documents must be annexed with an IA?

Mandatory documents include:

• Certified copy of the NCLT order 
• Verifying the IA’s facts and confirming no suppression of material facts. 
• Proof of service: Postal/courier receipts or email delivery reports showing service to respondents.
• Index: Listing all annexed documents with descriptions
• Supporting evidence: Relevant documents like MoUs, correspondence, payment records, or CoC notices to substantiate the grounds (e.g., urgency for stay).

6. What grounds should be raised in an IA for a stay against an NCLT order?

To secure a stay, the IA must demonstrate: a prima facie case, irreparable damage, balance of convenience. 

7. Can an IA decision be challenged?

Yes, the NCLAT’s decision on an IA can be challenged before the Hon’ble Supreme Court by filing a Special Leave Petition (SLP) within 45 days of the NCLAT order. In case of delay in filing the SLP, the Hon’ble Supreme Court may condone the delay in case a sufficient cause is shown.