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TMI Blog2020 (10) TMI 1071X X X X Extracts X X X X X X X X Extracts X X X X ..... olution process begins. Default is defined in Section 3(12) in a very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non- payment of even part thereof or an installment amount. The Code gets triggered the moment default is of ₹ 1 lakh or more in view of Section 4 of the Code. The corporate insolvency resolution process may be triggered even by the corporate debtor itself or a Financial Creditor or Operational Creditor. A clear distinction is made by the Code between debt owned to Financial Creditors and Operational Creditors. The Code has further prescribed that when it comes to Financial Creditor, triggering the process under Section 7 becomes relevant under the explanation to Section 7(1), a default is in respect of financial debt owned by any Financial Creditor of the Corporate Debtor, it needs to be a debt owned to the applicant Financial Creditor. A debt may not be due if it is not payable in law or in fact, but the moment the adjudicating authority is satisfied that a debt has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the default within sev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 against the Corporate Debtor (CD), whereas the respondent No.4 is the Interim Resolution Professional (IRP) that came to be appointed as IRP of the CD vide impugned order and thereafter, replaced by the said RP. 2.1 The little facts emanating this controversy which are projected before the Court are that CD and respondent No.3, who is BMW India Financial Services Private Limited had been entering into dealership agreement for selling BMW vehicles in the State of Gujarat since 2017. It has been asserted on oath by petitioner that from time to time, new agreements were executed / renewal letters were signed to continue the dealership. Each time, the dealership agreement was entered into between respondent No.2 and CD and the same was for duration of only one year with the understanding between CD and respondent No.2 that in the event there was no adverse cause, then respondent No.2 would continue to renew the dealership agreement because dealership agreement requires large capital investment on the part of CD. According to the petitioner, the dealership agreement came to be renewed in the year 2007 to 2013 and CD was given the territory of Gujarat for sale of BMW vehicles and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed admission. Since the respondent No.2 was profiting out of this kind of sale from outside territory, did not take up the issue seriously and all the time with a dishonest and fraudulent intention the respondent No.2 - BMW India Private Limited (not respondent No.3) induced CD to enter into dealership agreement from the year 2014. Huge capital investment was incurred by CD in setting up a new showroom facility at Ahmedabad, in addition to the places at Surat, Rajkot which roughly around ₹ 30 crores and this was very much within the knowledge of respondent No.2. It was also within the knowledge of respondent No.2 company that CD effectively made approximately ₹ 3 crores as a profit each year. But then conveniently ignored the plight of CD, who is suffering tremendous amount of injury and loss and simply was gaining unfair advantage for sale of BMW vehicles to the customers of Gujarat by hook and by crook. This has resulted into not only series of exchange of correspondence between CD and respondent No.2 but, simultaneously also, resulted into initiation of seeking arbitration since the CD was compelled to file an Arbitration Petition No.204 of 2020 in the High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entuality, it seems that CD moved an application raising all these contentions against respondent No.2 and respondent No.3 which was registered as IA No.300 of 2018 along with copies of reply and other sets of documents. Prior to this, in and around December, 2017 and January, 2018, the CD had also filed one application as stated above under Section 9 of the Arbitration and Conciliation Act, 1996 which was registered as O.M.P (I) (COMM.) 559 of 2017 against respondent No.2 and respondent No.3. But the said application came to be dismissed on 15.1.2018 and in the light of aforesaid sequence of events, the CD issued notice on 18.7.2018 to respondents invoking arbitration, requesting for the matter to be referred to composite arbitration between CD and respondents. According to the petitioner, by placing reliance upon the principle laid down by the Apex Court in (2013) 1 SCC 64, a request was made to refer the matter to composite arbitration since the transactions in question are intrinsically connected to each other and the agreements are with group companies being respondent Nos.1 and 2, who have ultimately the same owner being BMW AG. The respondent No.1 vide their letters dated 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d according to the petitioner, this statement goes to show that Interim Resolution Professional was, in fact, acting at the behest of the BMW group, to whom the Interim Resolution Professional has given 88.57% voting share in the Committee of Creditors, who will decide the fate of corporate insolvency resolution process of the CD. 3. Now, it is in this background of fact, by raising several issues and the multiple contentions, the petitioner, who is the promoter, shareholder and suspended Board of Director, has invoked extraordinary jurisdiction of this Court under Article 226 of the Constitution of India and prays for the reliefs which are stated herein-above. 4. Mr.Navin Pahwa, learned Senior Advocate appearing with Mr.Arjun R. Sheth, learned advocate for the petitioner, has argued the matter at length and taken the Court to chronology of events and has raised multiple contentions. 5. Shri Navin Pahwa, learned Senior Advocate has submitted that there were several contentions raised before the NCLT, Ahmedabad but while passing the order impugned in the petition, the same appears to have not been dealt with. In the written objection, a specific contention is raised that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Senior Advocate, has further submitted that even otherwise, the order of NCLT was bad in view of the fact that it has not considered the defence that corporate debtor which had a counter claim of sizable amount against the petitioning financial creditor and if this application is to be strictly treated as Section 7 application of IBC, this pre- existing claim / dispute would not be gone into and, therefore, a specific objection has been raised with regard to this peculiarity of circumstance that the application ought to have been treated as Section 9 application and not Section 7 of IBC. Since the claim generates out of and relates to sell of vehicle and as such, it cannot be said to be financial debt but it is an operational debt. Shri Navin Pahwa, learned Senior Advocate, has further submitted that peculiar background of this fact requires that the Tribunal instead of mechanically summarizing the issue, ought to have at length examined the plight of the CD. A systematic collusive effort is being made by respondent No.3 in connivance with respondent No.2, which, if allowed to be operated, will ruin completely the prospects of the CD since huge amount is invested on such busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 2016, insolvency resolution in India took 4.3 years on an average, which was much higher when compared with the other countries and the World Bank's Ease of Doing Business Index, 2015, ranked India as country number 135 out of 190 countries on the ease of resolving insolvency based on various indicia. 7. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in a very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non- payment of even part thereof or an installment amount. The Code gets triggered the moment default is of ₹ 1 lakh or more in view of Section 4 of the Code. The corporate insolvency resolution process may be triggered even by the corporate debtor itself or a Financial Creditor or Operational Creditor. A clear distinction is made by the Code between debt owned to Financial Creditors and Operational Creditors. The Code has further prescribed that when it comes to Financial Creditor, triggering the process under Section 7 becomes relevant under the explanation to Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity and public announcement is made stating inter-alia the last date of submission of claims and the details of the interim resolution professional, who shall be vested in management of Corporate Debtor and be responsible for receiving claims and as such, importantly, this is a major departure from previous legislation on the subject. A moment adjudicating authority approves resolution plan, the moratorium order passed by the authority under Section 14 of the Code shall cease to have effect. The scheme of the Code is to make an attempt by divesting the erstwhile management of its power and vesting it in professional agency to continue the business of Corporate body as a going concern until the Resolution plan is drawn up in which event the management is handed over under the plan, so that the corporate body is able to pay back its debt and get back to its feet. All this is to be done within a period of six months with a maximum extension of another 90 days or else the chopper comes down and the liquidation process begins and so this is the scheme in which a special legislation has come out with a procedure to deal with a situation. 10. In a very recent time, the Apex Court was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olative of Article 14 of the Constitution of India and has observed as under : Where there is challenge to the constitutional validity of a law enacted by the legislature, the Court must keep in view that there is always a presumption of constitutionality of an enactment, and a clear transgression of constitutional principles must be shown. The fundamental nature and importance of the legislative process needs to be recognised by the Court and due regard and deference must be accorded to the legislative process. The two dimensions of Article 14 in its application to legislation and rendering legislation invalid are now well recognised and these are: (i) discrimination, based on an impermissible or invalid classification, and (ii) excessive delegation of powers; conferment of uncanalised and unguided powers on the executive, whether in the form of delegated legislation or by way of conferment of authority to pass administrative orders--if such conferment is without any guidance, control or checks, it is violative of Article 14 of the Constitution. The Court also needs to be mindful that a legislation does not become unconstitutional merely because there is another view or becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manage the company, the erstwhile directors, who are no longer is management, cannot maintain the appeal on behalf of the company. This issue was taken up by the Apex Court in a decision of Innoventive Industries Limited v. ICICI Bank Anr., reported in (2018) 1 SCC 407, wherein one of the issues raised before the Apex Court was whether appeals by the directors of a company, who are no longer in management, was maintainable after an Interim Resolution Professional had been appointed and the answer is that once insolvency professional is appointed, such appeal on behalf of the company would not be maintainable at the instance of erstwhile directors, since they are no longer in management. 14. Yet another issue relates to principles of natural justice was also cropped up for consideration before the National Company Law Tribunal, New Delhi in this very case of Innoventive Industries Limited, in which on analysis of the relevant case law, the appellate Tribunal, while dealing with the vires of Section 7 of the Code, has opined that principle of natural justice is inbuilt in the scheme of Section 7 as well and as such, it would be open for the parties to agitate their respective g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) Debt is due and defaulted. (d) Default has occurred on various dates starting from 10.04.2016 onwards as per Annexure IV/27 Colly. (e) Petition has been filed on 13.11.2017 i.e. within the limitation period. (f) Copy of the Application filed before the Tribunal has been sent to the Corporate Debtor and the application filed by the Petitioner under Section 7 of IBC is found to be complete for the purpose of initiation of Corporate Insolvency Resolution Process against the Corporate- Debtor-Company. Hence, the present IB Petition CP(IB) No. 161 of 2017 is admitted with the following Directions/observations. The date of admission of this petition is 04.06.2020. 17. Simultaneously, the attempt which was made by the petitioner to point out that there is a collusion between respondent Nos.2 and 3 and fraud being committed by respondent No.2, an application was given by corporate debtor being IA No.300 of 2018 appears to be under Section 65 of the Code. But then the adjudicating authority has clearly observed that respondent No.2 is not a party in the original main petition i.e. CP (IB) No.161 of 2017 and as such, there is no locus to be impleaded in the main proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Professional is further directed to make public announcement of moratorium in respect of Corporate Debtor Company soon after receipt of an authenticated copy of this order and to act further as per the order/direction issued by this Adjudicating Authority and to follow the provisions Under Section 13 and 14 and other relevant provisions of the Insolvency and Bankruptcy Code. 22. As per the provisions of Section 13 and 14 of the I.B. Code on the date of commencement of insolvency, this Adjudicating Authority declares moratorium with effect from today for prohibiting all of the following, namely: I. (a) The institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal arbitration panel or other authority. (b) Transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein. (c) Any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pursue any other legal remedy which may be available. This conclusion is also arrived at on the basis of well defined proposition of law laid down by the Apex Court even on the issue of exercise of extraordinary jurisdiction and the parameters which are prescribed in Para.6 of the said decision of the Apex Court in case of Sameer Suresh Gupta v. Rahul Kumar Agrawal, reported in (2013) 9 SCC 374, this Court is of the opinion that no case is made out to invoke extraordinary jurisdiction. Since the Court has relied upon the aforesaid decision, the relevant observations contained in Para.6 are reproduced hereinafter : 6. In our view, the impugned order is liable to be set aside because while deciding the writ petition filed by the respondent the learned Single Judge ignored the limitations of the High Court's jurisdiction under Article 227 of the Constitution. The parameters for exercise of power by the High Court under that Article were considered by the two Judge Bench of this Court in Surya Dev Rai v. Ram Chander Rai and Ors., 2003 6 SCC 675. After considering various facets of the issue, the two Judge Bench culled out the following principles: (1) Amendment by Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The power to issue a writ of certiorari and the supervisory jurisdiction are to be exercised sparingly and only in appropriate cases where the judicial conscience of the High Court dictates it to act lest a gross failure of justice or grave injustice should occasion. Care, caution and circumspection need to be exercised, when any of the abovesaid two jurisdictions is sought to be invoked during the pendency of any suit or proceedings in a subordinate court and the error though calling for correction is yet capable of being corrected at the conclusion of the proceedings in an appeal or revision preferred there against and entertaining a petition invoking certiorari or supervisory jurisdiction of High Court would obstruct the smooth flow and/or early disposal of the suit or proceedings. The High Court may feel inclined to intervene where the error is such, as, if not corrected at that very moment, may become incapable of correction at a later stage and refusal to intervene would result in travesty of justice or where such refusal itself would result in prolonging of the lis. (8) The High Court in exercise of certiorari or supervisory jurisdiction will not covert itself into a C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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