2022 (12) TMI 1061 - HC - Insolvency and Bankruptcy

Extension of period of insolvency resolution proceeding, beyond limit - whether upon an insolvency resolution proceeding being not completed within the period granted which also includes an extension, whether a subsequent extension would be permissible under the law? - whether the non-obstante provision in Section 60 (5) also includes the other provisions of the IBC of 2016? - whether irrespective of the provisions of the IBC of 2016 a subsequent extension can be granted on a resolution of approval by a majority of the members of the COC? HELD THAT - A reading of the afore-extracted minutes of the resolution of the COC dated 12.08.2022 makes it discernible that there is a revised resolution plan submitted by the resolution applicant and circulated in the meeting and further that one of the secured creditor Bank has insisted upon to make an application to the adjudicating authority requesting for further extension of 30 days and in the said situation, the COC through its resolution had required the RP to approach the adjudicating authority for extension of the CIRP process by another 30 days. It is stated that the provisions in the resolution plan are being projected to be a part of the resolution proceeding to put the corporate debtor back on its feet. A reading of the afore-extracted portion of the resolution plan makes it discernible that the resolution plan is more of corporate takeover by means of lease/rent of the corporate debtor rather than it being a plan to bring the corporate debtor back to its feet. Taking over a corporate management under the law is governed by a different set of provision and it cannot per-se be said to be a part of a resolution plan to bring the corporate debtor back to its feet - as the reading of the resolution plan produced before the Court does not make it discernible that it is a resolution plan to bring the corporate debtor back to its feet, it cannot be accepted. A reading of section 60(5) makes it discernible that it is a provision with a non-obstante clause that notwithstanding anything contrary contained in any other law gives a jurisdiction to the NCLT to entertain or dispose of any application or proceeding by or against the corporate debtor or corporate person; any claim made by or against the corporate debtor or corporate person including claims by or against any of its subsidiaries situated in India; or any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code - section 60(5) of the IBC of 2016 would now have to be understood that an application under section 60 (5) to be maintainable notwithstanding anything contained in any other law would not also mean notwithstanding anything contained in the other provisions of the IBC of 2016 itself, but any other law other than the IBC of 2016. From such point of view when there is a specific provision on the question of maintainability of a claim for subsequent extension under the first proviso to section 12, the provisions of section 60(5) cannot be invoked to take advantage of the non-obstante clause to make an application for subsequent extension maintainable in spite of the specific bar on its maintainability provided in the first proviso to section 12. Petition allowed.

Summary

Issues Involved:
1. Permissibility of Subsequent Extension of CIRP Period
2. Interpretation of Section 60(5) of the IBC, 2016
3. Validity of Extension Based on COC Resolution

Detailed Analysis:

1. Permissibility of Subsequent Extension of CIRP Period:
The primary issue was whether a subsequent extension of the Corporate Insolvency Resolution Process (CIRP) period, beyond the initial extension, is permissible under the law. The court examined the first proviso to Section 12 of the Insolvency and Bankruptcy Code, 2016 (IBC), which states, "any extension of the period of CIRP under this section shall not be granted more than once." The court interpreted this to mean that no extensions beyond the first granted extension are permissible, irrespective of any circumstances presented. The court cited precedents like Laxman Lal vs. State of Rajasthan and Ashraf Khan vs. State of Gujarat to support the interpretation that negative words in statutes are rarely directory and usually mandatory.

The court also examined the second proviso to Section 12, which mandates that the CIRP must be completed within 330 days, including any extensions and time taken in legal proceedings. The court concluded that the second proviso does not dilute the first proviso's restriction on multiple extensions. The second proviso merely sets an outer limit for completing the CIRP but does not allow for successive extensions beyond the first granted extension.

2. Interpretation of Section 60(5) of the IBC, 2016:
The court addressed whether Section 60(5) of the IBC, which allows the National Company Law Tribunal (NCLT) to entertain or dispose of any application or proceeding by or against the corporate debtor, could be invoked to grant a subsequent extension. The court clarified that the non-obstante clause in Section 60(5) applies to any other law but not to other provisions within the IBC itself. The court cited the Supreme Court's interpretation in P. Virudhachalam vs. Management of Lotus Mills, which held that non-obstante clauses do not override provisions within the same statute. Therefore, the court concluded that Section 60(5) could not be used to bypass the explicit restriction in the first proviso to Section 12.

3. Validity of Extension Based on COC Resolution:
The court also examined whether the extension granted based on a resolution approved by 87.26% of the Committee of Creditors (COC) members was valid. The court referred to the Supreme Court's judgment in Essar Steel India Ltd, which allows for extensions beyond 330 days only if a short period is left for completing the CIRP and it is in the interest of all stakeholders to put the corporate debtor back on its feet instead of liquidation. The court found that the resolution plan presented did not indicate that only a short period was left for completing the CIRP or that it would bring the corporate debtor back to its feet. Instead, the resolution plan appeared to be a corporate takeover rather than a genuine effort to revive the debtor.

Conclusion:
The court set aside the NCLT's order dated 25.08.2022, which granted a subsequent extension, ruling it impermissible under the law. The court allowed the writ petition to the extent indicated and clarified that this decision does not preclude the corporate debtor or creditors from pursuing further legal remedies as permissible under the law.