2020 (9) TMI 223 - Tri - Insolvency and Bankruptcy

Suspension of initiation of corporate insolvency resolution process - insertion of Section 10A to I B Code, 2016 - applicability of said section to the present case - the date of alleged default of the claim amount is stated to be 30th April 2020 and it is claimed that the stated case of the Respondent/Operational Creditor itself being a date subsequent to that dealt with by Section 10A of the I B Code, 2016 - Retrospective application of the statute. HELD THAT - While the main provision of Section 10A taken together with the Explanation makes it clear that a 'Lakshman Rekha', so to say, has been demarcated by providing the relevant date of 25.03.2020 in relation to a default' and for filing an application for the initiation of CIRP against the corporate persons for the defaults occurring on or thereafter, however it must be noted that the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 (No. 9 of 2020) inserting Section 10A was in itself notified only on 05.06.2020 in the Gazette of India, even though, pegging the disability to file an application for initiation of CIRP to the defaults arising on or after 25th March 2020. At this juncture, it will be essential to understand as to why the relevant date has been fixed as 25th March 2020 and not some other date in between 25th March 2020 and the date of notification or for that matter the date of notification itself, namely 05.06.2020. This can be best explained again by looking into the objects and reasons for promulgation of the Ordinance (No. 9 of 2020) wherein it seen that the relevant date, namely 25.03.2020 happens to be the date when the nation-wide lockdown came into force to combat the spread of COVID-19. Thus, while the prevalence of the global pandemic caused uncertainty and stress for business for reasons beyond their control, the lockdown which came into force additionally caused a disruption to the normal business operations. Retrospective application of the statute - HELD THAT - The main provision of Section 10A taken together with objects reasons resulting in the promulgation of Ordinance (No. 9 of 2020) demonstrates that it is to be made applicable retrospectively to the defaults arising on or after 25th March 2020. Whether Section 10A, newly inserted in I B Code by the promulgation of the Ordinance (No.9 of 2020) has a retrospective applicability and retroactive effect? - HELD THAT - From a plain reading of the main provision of Section 10A of I B Code it is clear that in relation to defaults arising on or after 25th March 2020, no application for initiation of CIRP shall be filed for a period of six months or such further period not exceeding one year as may be notified in this behalf. The duration of suspension in relation to filing of application initially is pegged at six months extendable to a further period not exceeding one year. It is to be noted that in relation to Sections 7, 9 and 10 it is the 'default' on the part of the Corporate Debtor to pay the debt due which can trigger the filing of a petition and not otherwise. Where there is no debt as defined in Section 3(11) of the Code which is due and payable and no default as defined under Section 3(12) of the Code which had occasioned in it is payment, there is no question of any cause for a creditor to invoke the provisions of I B Code seeking for the initiation of CIRP. Thus, in the normal run of Section 7, 9 and 10 it is a sine qua non for the existence of a debt and its default and if both stand established this Tribunal is required to initiate the CIRP of the corporate debtor. The proviso to main provision of Section 10A makes it abundantly clear that the hands of the clock were not required to be temporarily frozen for a period of six months or such further period not exceeding one year but are required to be permanently interdicted in relation to defaults occurring on or after 25.03.2020 by the use of the term no application shall ever be filed' for initiation of CIRP of a corporate debtor for the said default arising during the said period - endeavoring to define the relevant period in the main proviso initially for a minimum fixed period of six months commencing from 25.03.2020, the main provision leaves it open to the Executive to either limit it to the six months period ending on 25.09.2020 or cause it to be extended for a further period not exceeding one year i.e. till 25.03.2021. Having dealt with the power of the Executive to promulgate laws having retrospective effect based on decided case laws and also answering the question posed in relation to the retrospectivity of the applicability of Section 10A by relating it back to 25.03.2020 being the relevant date to be reckoned in relation to suspension of filing of application seeking for initiation of CIRP in the affirmative, it is only required of this Tribunal to ascertain as to whether the date of default falls within or outside the 'Lakshman Rekha', namely 25.03.2020 drawn by the legislation by way of the Ordinance (No. 9 of 2020) promulgated on 05.06.2020 in the present case. Whether the date of default falls prior to or on or after 25.03.2020 to determine whether the application is to be proceeded any further or alternatively this Tribunal is to restrain itself from the exercise of its Jurisdiction available to it under section 9 due to the applicability of Section 10A? - HELD THAT - Though rejection of the plaint under Order VII Rule 11 does not preclude the plaintiffs from presenting a fresh plaint in terms of Rule 13 thereof, in the case of I B Code, 2016 in view of the express terms of proviso to Section 10A of the Code the same may not be possible. Be that as it may, what is material to be noted is that in relation to the rejection of a plaint the focus of the Civil Court is required to be in relation to the plaint and its averments and the written statement, if any filed by the defendant is relegated to irrelevancy. Correlating with the date on which the operational debt fell due and the date of default, both being disclosed as 30.04.2020, the details of transactions on account of which the debt fell due, for sake of brevity not repeated, consistently asserts the said date to be the date of default even according to the averments made by the respondent/operational creditor germane for the consideration of the present application filed by the applicant/corporate debtor. Hence the endeavour on the part of the Operational Creditor/respondent, after the promulgation of the Ordinance fixing the cut off or relevant date as 25.03.2020 and to portray as if the default had occurred even prior to the relevant date of 25.03.2020 and in the circumstances the petition in IBA/215/2020 should be proceeded with, cannot be accepted as the petitioner who approaches this Tribunal should be consistent in his pleadings and cannot be allowed to resile from it in order to suit his convenience. The Executive in the Promulgation of the Ordinance to meet an extra-ordinary situation and to avoid causing further stress to the already beleaguered businesses due to the prevalence of COVID pandemics throughout the world, including India and also in addition affected by the lock down enforced by the Union as well as the States of the Union, all beyond their control have chosen to suspend filing of any application in relation to defaults arising on or after 25.03.2020 under Section 7, 9 and 10 of I B Code for a period of six months extendable by a further period not exceeding one year as per the main provision of Section 10A newly inserted and further by virtue of proviso thereunder to the main provision of Section 10A has further qualified the main proviso that in relation to default arising on or after 25.03.2020 (incidentally the date on which the lock down came into force) and during the said period to be correlated with the main provision of Section 10A which for the time being is specified as six months extendable up to a year, no application shall ever be filed thereby both the main provision as well as the proviso making it amply clear that the suspension in filing the application in relation to defaults arising on or after 25.03.2020 is to be made applicable retrospectively from the said date. The Explanation given under Section 10A only reinforces the retrospectivity in the applicability of Section 10A in as much as providing that the defaults which had occurred prior to the date of 25.03.2020, Section 10A will not apply thereby clearly demarcating defaults arising on or after 25.03.2020 and till such period as may be extended as given in the main provision of Section 10A not exceeding a year, as a class in itself due to the prevalence of the extraordinary situation as stated in the objects and reasons leading to the promulgation of the Ordinance. Thus, as a consequence of the applicability of the newly inserted Section 10A of the I B Code to the instant case, in view of the alleged default if any, had occurred even according to the own admission of the respondent/operational creditor as to be that of 30.04.2020, both in the petition/main application filed in Form 5 in IBA/215/2020 as well as the demand notice issued prior to it in Form 3, both forms statutorily prescribed under the AAA Rules and as required to be completed and filed by an Operational Creditor while approaching this Tribunal, this Tribunal cannot proceed any further in relation to the petition in IBA/215/2020 due to the bar created by law, namely the newly inserted Section 10A of I B Code by virtue of The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 promulgated by the Executive and published in the Gazette of India on 05.06.2020, coming into force at once and in the circumstances this Tribunal is constrained to allow the instant application. Application allowed.

Summary

Issues Involved:
1. Applicability of Section 10A of the Insolvency and Bankruptcy Code, 2016.
2. Retrospective effect of the Ordinance (No. 9 of 2020) promulgated on 05.06.2020.
3. Determination of the date of default for the initiation of Corporate Insolvency Resolution Process (CIRP).

Analysis:

1. Applicability of Section 10A of the Insolvency and Bankruptcy Code, 2016:
The main issue revolved around whether the newly inserted Section 10A, which suspends the initiation of CIRP for defaults arising on or after 25th March 2020, applies to the petition filed by the Operational Creditor. The Tribunal noted that Section 10A explicitly states that no application for initiation of CIRP shall be filed for any default arising on or after 25th March 2020, for a period of six months, extendable up to one year. The Tribunal emphasized that the intent behind this provision was to provide relief to businesses affected by the COVID-19 pandemic and the ensuing lockdown.

2. Retrospective Effect of the Ordinance (No. 9 of 2020) Promulgated on 05.06.2020:
The Tribunal addressed whether the Ordinance has retrospective applicability. It was noted that the Ordinance, although promulgated on 05.06.2020, explicitly mentions that it applies to defaults arising on or after 25th March 2020. The Tribunal relied on the objects and reasons for the promulgation of the Ordinance, which highlighted the extraordinary situation caused by the COVID-19 pandemic and the lockdown. The Tribunal concluded that the Ordinance has retrospective effect, as it aims to prevent businesses already under stress due to the pandemic from being pushed into insolvency proceedings.

3. Determination of the Date of Default for the Initiation of CIRP:
The Tribunal examined the date of default as stated by the Operational Creditor in the petition and the demand notice. Both documents indicated that the default occurred on 30th April 2020. The Tribunal emphasized that the date of default is crucial in determining the applicability of Section 10A. Since the default occurred after 25th March 2020, the Tribunal held that the petition is barred by the newly inserted Section 10A.

Conclusion:
The Tribunal concluded that the petition filed by the Operational Creditor is barred by Section 10A of the Insolvency and Bankruptcy Code, 2016, as the default occurred on 30th April 2020, which falls within the period specified in Section 10A. The Tribunal allowed the application filed by the Corporate Debtor, seeking to dispose of the main petition in terms of Section 10A. Consequently, the main petition was rejected, and all connected applications were closed.