2020 (10) TMI 915 - AT - Insolvency and Bankruptcy

Maintainability of application - suspension of initiation of CIRP - bar created by law in terms of the newly inserted Section 10A coming into force - whether an application for initiation of CIRP of a Corporate Debtor in respect of default committed before 25th March, 2020 but filed before 05th June, 2020 i.e. the date on which amending ordinance came into force, in respect of such default, would be maintainable in view of the express bar created by the main provision of Section 10A? HELD THAT - It is by now well settled that a substantive administrative right cannot be taken away except by clear indication of intention to that effect by an express statutory provision or by necessary implication. No statute, unless it deals with procedure only, can be construed to have retrospective operation unless there is an express provision to that effect or same can be inferred by necessary implication. The Section, beginning with a non-obstante clause overriding provisions of Sections 7, 9 10 of the I B Code places an embargo on filing of application for initiation of CIRP of a Corporate Debtor for any default arising on or after 25th March, 2020 for a period of six months or such further period as may be notified but not exceeding one year from such date. This provision is clearly prohibitory in nature and filing of applications under Sections 7, 9 10 in respect of default arising on or after 25th March, 2020 is clearly barred for the specified period of six months or the extended period not exceeding one year, if so notified. Proviso to this main provision creates a further bar qua a default that may occur during the specified period. This construction is placed on the proviso adopting purposive interpretation to advance the intended object of the Ordinance viz. to prevent corporate persons experiencing distress due to impact of COVID-19 pandemic. Any other interpretation would lead to absurdity and defeat the object of the amending Ordinance. The explanation clarifies that Section 10A cannot be interpreted to apply the embargo in terms of main provision to any default committed before 25th March, 2020 - An eligible applicant could, by no stretch of imagination, have the foresight of having even an inkling of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020being promulgated. The bar on initiation cannot operate in respect of applications filed for initiation of CIRP by the eligible applicant in respect of default committed before 25th March, 2020 though such application has been filed after 25th March, 2020 but before enforcement of Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 on 5th June, 2020. Such interpretation not only serves the object of basic legislation but also goes along the tone and tenor of Section 10A with the explanation appended thereto clarifying the mist, if any, surrounding, the newly inserted provision. In the present case, it can be seen that in Form-5 i.e. the application to the Adjudicating Authority as also in Form-3 i.e. Demand Notice, the Appellant- Operational Creditor has specified 30th April, 2020 as the date of default which clearly goes beyond the cut-off date. Therefore, the Adjudicating Authority was perfectly justified in rejecting the application under Section 9 of the I B Code at the instance of Appellant- Operational Creditor as the default has occurred after the cut-off date and the bar imposed under Section 10A was clearly attracted. Appeal dismissed.

Summary

Issues Involved:
1. Interpretation and applicability of Section 10A of the Insolvency and Bankruptcy Code (I&B Code).
2. Distinction between "initiation" and "commencement" of Corporate Insolvency Resolution Process (CIRP).
3. Impact of Section 10A on applications filed before its promulgation.
4. Legislative intent behind the suspension of CIRP due to COVID-19.

Detailed Analysis:

1. Interpretation and Applicability of Section 10A of the I&B Code:
The core issue is whether Section 10A, which suspends the initiation of CIRP for defaults arising on or after 25th March 2020, applies to applications filed before its promulgation on 5th June 2020. Section 10A states: "no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf." The tribunal emphasized that the provision is prohibitory in nature, barring the filing of applications for defaults arising on or after 25th March 2020 for the specified period.

2. Distinction between "Initiation" and "Commencement" of CIRP:
The appellant argued that Section 10A deals with "initiation" and not "commencement" of CIRP, drawing a distinction between the two. "Initiation date" is defined under Section 5(11) of the I&B Code as the date on which an application is made to the Adjudicating Authority, while "Insolvency Commencement Date" under Section 5(12) refers to the date of admission of the application. The tribunal clarified that "initiation" refers to the filing of the application by the creditor, whereas "commencement" refers to the admission of the application by the Adjudicating Authority.

3. Impact of Section 10A on Applications Filed Before Its Promulgation:
The tribunal examined whether applications filed before 5th June 2020 for defaults occurring after 25th March 2020 are maintainable. It concluded that the bar on filing applications under Section 10A is retrospective, applying to defaults arising on or after 25th March 2020, regardless of the filing date. The tribunal held that the legislative intent was to prevent the initiation of CIRP for defaults during the specified period due to the economic impact of COVID-19.

4. Legislative Intent Behind the Suspension of CIRP Due to COVID-19:
The respondent argued that initiating insolvency proceedings during the economic downturn caused by COVID-19 would be counterproductive and detrimental to economic revival. The tribunal agreed, noting that the legislative intent was to provide relief to businesses affected by the pandemic. The tribunal adopted a purposive interpretation of Section 10A, emphasizing that the provision aims to prevent corporate distress and support economic recovery.

Conclusion:
The tribunal upheld the Adjudicating Authority's decision to reject the application under Section 9 of the I&B Code, as the default occurred after the cut-off date of 25th March 2020, and the bar under Section 10A was applicable. The appeal was dismissed with no order as to costs.