2017 (6) TMI 655 - Tri - Insolvency and Bankruptcy

Applicability of provisions of Section 433 of the Companies Act, 1956 or the provisions of Insolvency and Bankruptcy Code, 2016 - insolvency resolution process triggering - Held that - The new legislation cannot be presumed to apply retrospectively if it affects the substantive or vested rights of the parties unless it is expressly provided or it becomes evident from necessary intendment. In case the new legislation is procedural then it is presumed to operate retrospectively. In the present case, the petitioner has filed the company petition before the Hon ble High Court of Delhi on 16.10.2016 and therefore, it is claimed that the petition continued to be one for winding up under Section 433 (e) of the Companies Act, 1956 as all the rights of the petitioner are deemed to have crystalized and vested on the aforesaid date. We are afraid that no such interpretation of general application as sought to be claimed on behalf of the petitioner is acceptable because there is no substantive or vested right with the petitioner to seek winding up of the respondent company till the time the process of winding up has been initiated. The aforesaid aspect has been taken care of by the Transfer Rules which provide that all those cases where notices have been served were to be retained by the Hon ble High Court and in rest of the cases where notices could not be served were to be transferred to this Tribunal. Moreover, the nature of the remedy in sum and substance continues to be available in the form of Insolvency and Bankruptcy which may eventually results into liquidation of the respondent company. Thus the result is similar to the one which would be achieved in case of winding up. It needs to be further added that right becomes a vested right only when its acquired and is enjoyed by a litigant. Merely by filing a petition no right is acquired leave aside the enjoyment of such a right. Therefore, we are unable to persuade ourselves to accept first contention raised by the petitioner. In the absence of demand notice under Section 8 (1) of the Code, the petitioner could not have approached this Tribunal for initiation of insolvency resolution process against the respondent company. In the present case, there are many other defects pointed out by the learned counsel for the respondent. Therefore, we find that the present application is incomplete as the same is liable to be dismissed.

Summary

Issues Involved:
1. Applicability of Section 433 of the Companies Act, 1956 versus the Insolvency and Bankruptcy Code, 2016.
2. Compliance with procedural requirements under the Insolvency and Bankruptcy Code, 2016.
3. Substantive rights of the petitioner and their retrospective application.
4. Validity of the demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016.
5. Time-barred claims under the Limitation Act, 1963.

Issue-wise Detailed Analysis:

1. Applicability of Section 433 of the Companies Act, 1956 versus the Insolvency and Bankruptcy Code, 2016:

The petitioner argued that the provisions of Section 433 of the Companies Act, 1956 should continue to apply as the rights were vested when the petition was filed in July 2016. The Tribunal noted that the provisions concerning the inability to pay debts under Section 433(e) of the Companies Act, 1956 have been deleted and replaced by the Insolvency and Bankruptcy Code, 2016. The Tribunal emphasized that the new provisions under Sections 271 and 272 of the Companies Act, 2013 do not include the inability to pay debts as a ground for winding up. The Tribunal concluded that the right to seek winding up was not a vested right and thus, the provisions of the Insolvency and Bankruptcy Code, 2016 would apply.

2. Compliance with procedural requirements under the Insolvency and Bankruptcy Code, 2016:

The petitioner failed to comply with the procedural requirements under the Insolvency and Bankruptcy Code, 2016. Specifically, no demand notice under Section 8(1) of the Code was issued. The Tribunal highlighted that the issuance of a demand notice is a condition precedent for filing an application under Section 9 of the Code. The Tribunal referenced the National Company Law Appellate Tribunal's decision in Era Engineering Ltd. v. Prideco Commercial Projects (P.) Ltd., which emphasized the necessity of a demand notice. Consequently, the Tribunal found the application incomplete and liable to be dismissed.

3. Substantive rights of the petitioner and their retrospective application:

The petitioner argued that the substantive rights vested at the time of filing the petition should not be altered by subsequent legislation. The Tribunal referred to the Supreme Court's judgment in R. Radhakrishnan v. Secretary, State of Tamilnadu, which distinguishes between procedural and substantive rights. The Tribunal concluded that the right to seek winding up was not a vested right and that the procedural changes brought by the Insolvency and Bankruptcy Code, 2016 applied retrospectively.

4. Validity of the demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016:

The Tribunal found that the petitioner did not issue a demand notice as required under Section 8(1) of the Insolvency and Bankruptcy Code, 2016. The petitioner’s reliance on the notice issued under Section 433(e) of the Companies Act, 1956 was rejected, as the Tribunal emphasized that the two notices serve different purposes and are not interchangeable.

5. Time-barred claims under the Limitation Act, 1963:

The respondent argued that the claims made by the petitioner were time-barred under the Limitation Act, 1963. The Tribunal did not specifically address this issue in detail, as the application was dismissed on procedural grounds. However, it was noted that the claims spanned from 2011-2016, potentially implicating limitation issues.

Conclusion:

The application was dismissed as premature due to non-compliance with the statutory provisions of the Insolvency and Bankruptcy Code, 2016. The petitioner was granted liberty to file a fresh application after complying with all the necessary statutory provisions.