2017 (6) TMI 959 - AT - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - Application under Insolvency & Bankruptcy Code, 2016 - Whether a notice is required to be given to the Corporate Debtor for initiation of Corporate Insolvency Resolution Process under I&B Code, 2016 and if so, at what stage and for what purpose? - whether a Corporate Debtor who is enjoying the benefit of MRV Act, can be subjected to I&B Code 2016? Held that - Adjudicating Authority is bound to issue a limited notice to the corporate debtor before admitting a case for ascertainment of existence of default based on material submitted by the corporate debtor and to find out whether the application is complete and or there is any other defect required to be removed. Adherence to Principles of natural justice would not mean that in every situation the adjudicating authority is required to afford reasonable opportunity of hearing to the Corporate debtor before passing its order. In the present case though no notice was given to the Appellant before admission of the case but we find that the Appellant intervened before the admission of the case and all the objections raised by appellant has been noticed, discussed and considered by the adjudicating authority while passing the impugned order dated 17th January 2017. Thereby, merely on the ground that the Appellant was not given any notice before admission of the case cannot render the impugned order illegal as the Appellant has already been heard. If the impugned order is set aside and the case is remitted back to the adjudicating authority, it would be useless formality and would be futile to order its observance as the result would not be different. Therefore, order to follow the principles of natural justice in the present case does not arise. In some of the cases initiation of Insolvency Resolution Process may have adverse consequences on the welfare of the Company. Therefore, it will be imperative for the adjudicating authority to adopt a cautious approach in admitting Insolvency Application by ensuring adherence to the principle of natural justice. Benefit under MRU Act, 1956 - Held that - The two enactments operate in entirely different fields. This is further made clear by the fact that the MRU Act is enacted under Entry 23 of List III while the Code has been enacted under Entry 9 of the List III. There is no repugnancy between I&B Code, 2016 and the MRU Act as they both operate in different fields. The Parliament has expressly stated that the provisions of the I&B Code, 2016 (which is a later enactment to the MRU Act) shall have effect notwithstanding the provisions of any other law for the time being in force. This stipulation does not mean that the provisions of MRU Act or for that matter any other law are repugnant to the provisions of the Code. Appellant is not entitled to derive any advantage from MRU Act, 1956 to stall the insolvency resolution process under Section 7 of the Insolvency & Bankruptcy Code, 2016 Once it is satisfied it is required to admit the case but in case the application is incomplete application, the financial creditor is to be granted seven days time to complete the application. However, in a case where there is no default or defects cannot be rectified, or the record enclosed is misleading, the application has to be rejected. The adjudicating authority is not required to look into any other factor, including the question whether permission or consent has been obtained from one or other authority, including the JLF. Therefore, the contention of the petition that the Respondent has not obtained permission or consent of JLF to the present proceeding which will be adversely affect loan of other members cannot be accepted and fit to be rejected. In the aforesaid circumstances the adjudicating authority having satisfied on all counts, including default and that the application is complete and that there is no disciplinary proceeding pending against the Insolvency Resolution Professional, no interference is called for against the impugned judgment.

Summary

Issues Involved:
1. Notice Requirement for Corporate Insolvency Resolution Process (CIRP) under I&B Code, 2016.
2. Precedence of Maharashtra Relief Undertaking (Special Provisions) Act, 1958 (MRU Act) over I&B Code, 2016.
3. Requirement of Joint Lender Forum (JLF) consent for filing an application under Section 7 of the I&B Code, 2016.

Detailed Analysis:

1. Notice Requirement for CIRP under I&B Code, 2016:
The judgment extensively discusses the necessity of issuing a notice to the corporate debtor before admitting an insolvency application under Section 7 or 9 of the I&B Code, 2016. The tribunal highlighted that the principles of natural justice mandate that the corporate debtor should be given a limited notice for the ascertainment of default based on the material submitted by the financial creditor. This is crucial due to the serious civil consequences of admitting such an application, including the appointment of an Interim Resolution Professional and the removal of the board of directors. The tribunal referred to various Supreme Court decisions to emphasize that the principles of natural justice should be adhered to unless specifically excluded by statute. The tribunal concluded that, although no specific provision mandates a hearing under the I&B Code, the principles of natural justice necessitate a limited notice to the corporate debtor before admission.

2. Precedence of MRU Act over I&B Code, 2016:
The tribunal examined whether the MRU Act, 1958, which provides certain protections to industrial undertakings, would prevail over the I&B Code, 2016. It was argued that the MRU Act, being a beneficial piece of legislation, should override the I&B Code. However, the tribunal noted that the MRU Act is limited in scope to the acts listed in its schedule, primarily related to employment and welfare. The I&B Code, 2016, with its non-obstante clause (Section 238), overrides any inconsistent provisions of other laws, including the MRU Act. The tribunal emphasized that the two statutes operate in different fields, with the MRU Act focusing on preventing unemployment and the I&B Code on insolvency resolution and reorganization. Therefore, the I&B Code, 2016, prevails over the MRU Act in matters of insolvency.

3. Requirement of JLF Consent for Filing Application under Section 7 of I&B Code, 2016:
The tribunal addressed the contention that the financial creditor (Respondent No. 1) should have obtained prior consent from the Joint Lender Forum (JLF) before initiating insolvency proceedings. The tribunal clarified that the adjudicating authority's role is limited to ascertaining the existence of default, completeness of the application, and the absence of disciplinary proceedings against the proposed Insolvency Resolution Professional. It is not required to consider whether the financial creditor obtained JLF consent. The tribunal rejected the argument that lack of JLF consent could adversely affect other lenders, stating that such considerations fall outside the scope of the adjudicating authority's mandate under Section 7 of the I&B Code.

Conclusion:
The tribunal dismissed the appeal, upholding the adjudicating authority's decision to admit the insolvency application. It emphasized the necessity of adhering to the principles of natural justice by issuing a limited notice to the corporate debtor before admission, affirmed the precedence of the I&B Code over the MRU Act, and rejected the requirement of JLF consent for filing an application under Section 7. The judgment underscores the importance of procedural fairness in insolvency proceedings and the supremacy of the I&B Code in matters of insolvency resolution.