2018 (6) TMI 491 - AT - Insolvency and Bankruptcy

Corporate insolvency proceedings - infirmity in the scheme - Held that - The Scheme was framed without notice to the appellant - unsecured creditor. The Scheme which is deemed to be a Resolution Plan is in contravention of Section 30(2)(e) of the I&B Code i.e. not in accordance with the provisions of law time being in force. Committee of Creditors are supposed to approve the Resolution Plan and the Resolution Applicant is supposed to pay the dues but no such provision has been made in the scheme. The Resolution Plan contravenes the provisions of the Income-tax Act, as alleged by the Principal Commissioner of Income-Tax-7. If the impugned Schemes are treated to be approved (Resolution Plan) under sub-section (1) of Section 31 of the I & B Code they being against the provisions of the existing laws and being in violative of clause (e) of sub-section (2) of Section 30 of the I&B Code are illegal. Though, we find that the impugned Schemes dated 11th March, 2010 and 28th July, 2016 are illegal, however, in absence of our jurisdiction to exercise of powers under Section 61 of the I&B Code and appeals being barred by limitation, we are not interfering with the illegal Schemes dated 11th March, 2010 and 28th July, 2016 though we hold them as illegal. In absence of any provision to get the Schemes in question executed through any court of Competent jurisdiction, the relevant provision(s) having been repealed, the appellant(s) may raise the question, if the respondent(s) move before any court of Law for implementation of the Schemes.

Summary

Issues:
1. Appeal under Section 61(1) of the Insolvency and Bankruptcy Code, 2016 against orders passed by the Board for Industrial and Financial Reconstruction.
2. Validity of Notification No. S.O. 1683 (E) dated 24th May, 2017 amending 'The Eighth Schedule' of the I&B Code.
3. Jurisdiction of the National Company Law Appellate Tribunal (NCLAT) to entertain appeals beyond the prescribed time limit.
4. Legality and compliance of the impugned Scheme dated 11th March, 2010 and 28th July, 2016.
5. Authority to execute the Schemes in question post their declaration as illegal.

Analysis:

1. The appeal(s) under Section 61(1) of the Insolvency and Bankruptcy Code, 2016 was filed against orders dated 11th March, 2010 and 28th July, 2016 passed by the Board for Industrial and Financial Reconstruction (BIFR). The appeal was preferred within 90 days before the National Company Law Appellate Tribunal (NCLAT) following the amendment in 'The Eighth Schedule' of the I&B Code through Notification No. S.O. 1683 (E) dated 24th May, 2017.

2. The NCLAT considered the validity of Notification No. S.O. 1683 (E) dated 24th May, 2017 in light of the 'Principal Director General of Income Tax (Admn. & TPS) vs. M/s. Spartek Ceramics India Ltd.' case. It was observed that the Central Government's grounds for the notification were in conflict with the provisions of the I&B Code. The notification extended the appeal period beyond the statutory limit of thirty days, which was not permissible under the Code.

3. The NCLAT clarified that appeals under Section 61 of the I&B Code must be filed within thirty days, with a provision for a fifteen-day extension for sufficient cause. The notification allowing a ninety-day appeal period was deemed contrary to the statutory provisions. The Tribunal held that it lacked jurisdiction to entertain appeals beyond forty-five days from the Adjudicating Authority's order, as specified in the I&B Code.

4. While refraining from a specific declaration due to judicial decorum, the NCLAT analyzed the merits of the appeals. It found infirmities in the impugned Scheme, including lack of notice to an unsecured creditor, non-compliance with I&B Code provisions, absence of creditor approval in the Scheme, and contravention of the Income-tax Act. Consequently, the Schemes dated 11th March, 2010 and 28th July, 2016 were deemed illegal.

5. Despite declaring the Schemes illegal, the NCLAT refrained from interference due to jurisdictional limitations and the appeals being time-barred. It highlighted the absence of provisions for executing the illegal Schemes through a competent court, leaving the question of implementation to the parties involved. The appeals were disposed of with no order as to costs.