9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (2) TMI 466 - HC - Insolvency and BankruptcyApplicability of effect of amendment in notification dated 24.03.2020 - seeking declaration that the notification dated 24.03.2020 whereby the minimum amount of default was specified as ₹ 1 Crore is prospective and would apply only to cases where the default occurred on or after 24.3.2020 - seeking declaration that the notification will not apply to cases where mandatory notice under Section 8 of the IBC has been issued by the operational creditor and the stipulated 10 days' period had elapsed prior to the date of notification - application which relates to a defaulted amount less than ₹ 1 crore can be filed after 24.3.2020, on which date Ext. P5 amendment to Section 4 was introduced or not? - prospectivity of Ext. P5 has to be decided on the basis of the defaulted amount or on the basis of the date of default? - Whether Ext. P7 order of the NCLT can be challenged in a proceedings under Article 226 or should the petitioner be relegated to the appellate remedy? Maintainability of the writ petition under Article 226 of the Constitution of India, to challenge Ext. P7 order of the Tribunal - HELD THAT - It is well settled by a catena of decisions that exercising or not exercising jurisdiction under Article 226 on issues where an alternate remedy is available, it is more a rule of self restraint. It has been consistently held that alternate remedy will not be a reason for not exercising jurisdiction when the issue relates to enforcement of the fundamental right or violation of principles of natural justice or where the proceedings challenged are without jurisdiction or in cases where the validity of a Statute is challenged. Whether the Tribunal had jurisdiction to entertain Ext. P1 application in the light of Ext. P5 amendment? - HELD THAT - Since the amount is less than ₹ 1 Crore, if an application had been filed before 24.3.2020, it would have conformed with the minimum default which had been prescribed at that point of time. However, admittedly, the application was filed six months after the amendment. It is in these circumstances that the 2nd respondent has raised a claim that for the purpose of setting in motion a corporate insolvency resolution process, what is required is the occurrence of a default of more than ₹ 1 lakh prior to 24.3.2020. Since no time limit has been prescribed for preferring an application after the delivery of notice, it is submitted that the date of filing of application is not the material aspect that has to be looked into. The contention that the operational creditors will be left with no alternate and efficacious remedy also is not correct. As held by the Hon'ble Supreme Court in Manish Kumar 2021 (1) TMI 802 - SUPREME COURT , the IBC is not enacted to provide for a manner of recovery of debts by the creditors. It is to provide for insolvency resolution. The purpose of the IBC is to protect the rights of the debtors as well as the creditors. It is in the above background that the provisions relating to the IBC have to be understood. By providing for insolvency resolution in case of corporate debtors whose debt is above a specified amount, it can be seen that the very purpose is not to include cases where the debt is lesser than the said amount. None of the rights available to a creditor as against a debtor are taken away in the process. So also the contention that in Manish Kumar (supra), the Apex Court has held that a right accrued cannot be taken away does not appear to be correct, in view of the findings regarding the manner in which a vested right can be modified. In the case on hand, the petitioner could have filed an application before the Tribunal before 24.3.2020. But, after 24.3.2020, the right to approach the Tribunal stood modified and it is only when there is minimum default of ₹ 1 Crore, an application can be filed. As such, Ext. P1 could not have been filed after Ext. P5 amendment. Since Section 4 deals with applicability of the provisions of Part II, it is necessarily a provision which gives jurisdiction to the Adjudicating Authority. Once the application of Part II is taken away for debts more than ₹ 1 Crore, there is no further jurisdiction available under the Statute to the NCLT to act as an Adjudicating Authority under the IBC. It is hence a clear case of total want of jurisdiction - In Ext. P9 order, the Tribunal has held that the notification dated 24.03.2020 is prospective in nature and it is not retrospective or retro-active in nature. It is further stated by the Tribunal that notification will not apply to pending applications before the concerned Adjudicating Authority under the IBC prior to the issuance of the aforesaid notification. The Tribunal has gone wrong in its interpretation of Section 4 of the Act. Section 4, after amendment on 24.3.2020 clearly says that Part II of the IBC shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of default is ₹ 1 Crore. As per Section 3(12) of the IBC, default means nonpayment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be. What is to be noted is that Corporate debtors who are in default of less than ₹ 1 lakh prior to the amendment and ₹ 1 Crore after the amendment, also are defaulters. However, whether a proceeding for insolvency or liquidation of such corporate debtor should be initiated would depend on the amount in default. The writ petition under Article 226 is maintainable and there is no necessity or purpose for relegating the petitioner to the alternate remedy. Nor is it necessary to decide on the question whether an appeal is maintainable under the IBC against the order of the Tribunal on a preliminary issue regarding jurisdiction - Application disposed off.
Issues Involved
1. Whether an application relating to a defaulted amount less than ?1 crore can be filed after the amendment to Section 4 of the IBC on 24.03.2020. 2. Whether the prospectivity of the amendment to Section 4 should be determined based on the defaulted amount or the date of default. 3. Whether the order of the NCLT can be challenged under Article 226 or if the petitioner should be relegated to the appellate remedy. Issue-wise Detailed Analysis Issue 1: Filing an Application for Defaulted Amount Less Than ?1 Crore Post-Amendment The core dispute in W.P.(C) No. 27636 of 2020 revolves around the maintainability of an application filed under the IBC after the amendment to Section 4, which raised the minimum default amount to ?1 crore. The petitioner argued that since the application was filed on 25.09.2020, after the amendment came into effect on 24.03.2020, the application should not be maintainable as the defaulted amount was less than ?1 crore. The NCLT had earlier found the application maintainable, reasoning that the notification under Section 4 would not save the petitioner from insolvency proceedings for defaults occurring before the pandemic. Issue 2: Determining Prospectivity Based on Defaulted Amount or Date of Default The petitioner contended that the amendment should apply prospectively based on the date of filing the application, not the date of default. The argument was that the IBC’s provisions, especially after the amendment, should apply to defaults of ?1 crore or more, irrespective of when the default occurred. Conversely, the respondent argued that the right to file an application should be based on the occurrence of the default and the issuance of the demand notice before the amendment. Issue 3: Challenging NCLT Order Under Article 226 The petitioner also questioned whether the NCLT's order could be challenged under Article 226 of the Constitution. The petitioner argued that the Tribunal lacked jurisdiction to entertain the application post-amendment, making the writ petition maintainable. The respondent countered that a writ petition should not be entertained due to the availability of an alternate remedy and that the NCLT's order was not issued without jurisdiction but was a wrongful exercise of jurisdiction. Analysis and Consideration Maintainability of the Writ Petition The court held that the writ petition under Article 226 was maintainable. It emphasized that the NCLT, being a statutory body, must operate within the jurisdiction defined by the statute. The court referenced the Supreme Court's decision in Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., which reiterated that non-exercise of jurisdiction under Article 226 is a rule of self-restraint and not an absolute bar. Jurisdiction of NCLT Post-Amendment The court found that the NCLT lacked jurisdiction to entertain applications for defaults less than ?1 crore post-amendment. It noted that Section 4 of the IBC, as amended, clearly stipulates that Part II of the IBC applies only to defaults of ?1 crore or more. The court referenced the Supreme Court's decision in Manish Kumar v. Union of India, which held that the litmus test for the applicability of the IBC is the existence of a default as defined in Section 4 at the time of filing the application. Interpretation of the Amendment The court emphasized that the statutory language of the amendment was clear and unambiguous. It held that the amendment to Section 4, which raised the minimum default amount to ?1 crore, applied to all applications filed after 24.03.2020, regardless of when the default occurred. The court rejected the respondent's argument that the right to file an application should be based on the date of default and the issuance of the demand notice. Conclusion The court allowed W.P.(C) No. 27636 of 2020, setting aside the NCLT’s order and declaring that the application could not be entertained under the amended Section 4. It dismissed W.P.(C) No. 14158 of 2021, stating that the declaration sought could not be granted as the litmus test for maintainability is the existence of a default as defined under Section 4 of the IBC.
|
