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TMI Blog2020 (11) TMI 677X X X X Extracts X X X X X X X X Extracts X X X X ..... he Respondent, i.e. IRP, was mainly aggrieved by the issuance of notification dated 19/10/2018 under Section 4 of the MPID Act. As set out hereinabove Section 7 of MPID Act provides a remedy to the aggrieved person including the present Respondent, i.e. IRP, to approach the Designated Court pointing out the objection to the attachment of any property of the Financial Establishment or any portion thereof. The Designated Court is empowered to either make the order of attachment passed under sub-Section 1 of Section 4 absolute or varying it by releasing a portion of the property from attachment or cancelling the order of attachment entirely. Thus, it is clear that the Respondent-IRP is having a remedy to approach the Designated Court under Section 7 of the MPID Act. A bare reading of the provisions of the MPID Act clearly demonstrates that action taken under the MPID Act is to be challenged before the Designated Court under the MPID Act and the order passed by the Designated Court can be challenged in appeal before the High Court under section 11 of the MPID Act. Thus it is clear that Section 18 of the I.B. Code specifying duties of interim resolution professional, although provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.B. Code, which is also the Financial Establishment under the MPID Act and de-freezing of the corporate Debtor s account attached in MPID proceedings is ordered. This order is the subject matter of challenge in this petition. 2. Heard Mr.Y.G.Patil, learned AGP for the Petitioner and Mr.Abhishek Anand, learned Counsel for the Respondents. 3. Rule. Rule made returnable forthwith. By consent of the parties, taken up for final hearing at the stage of admission. Learned Counsel waives service for the Respondent. 4. The State of Maharashtra through the Deputy Collector and Competent Authority (NSEL), by the present Writ Petition filed under Article 226 and 227 of the Constitution of India, has approached this Court challenging the legality and validity of the order dated 28/01/2019 passed by the Member (Judicial), National Company Law Tribunal, Mumbai Bench in M.A.No.1372/2018 in CP(IB)1138(MB)/2017. By the said order, National Company Law Tribunal (NCLT) directed de-freezing of bank account No.1952320006245 in HDFC Bank, Karnal, Haryana, (hereinafter referred to as said account ) in the name of Dunar Foods Ltd. 5. Some of the factual aspects set out in the petition are as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of about ₹ 5600 crores to about 13000 investors. The members of the NSEL fraudulently obtained huge funds from the NSEL against non-existent stocks of commodities. There was a semblance of trading, which was actually being done in non-existent goods, by issuing forged warehouse receipts. Further, the warehouses, which were an integral part of the NSEL as the commodities were required to be deposited in the exchange designated and certified warehouses as part of the pay-in obligations, lacked capacity and some of them had no stocks. (vi) The NSEL vide their circular dated 14/8/2013 announced a settlement schedule. According to this schedule, NSEL had to make payouts of ₹ 5,574.31 crores to its members. The settlement calendar announced by NSEL was spread over 30 weeks for pay-out on pro-rata basis to 148 members. The NSEL subsequently defaulted in all the payouts since the announcement of the settlement plan. (vii) The investigation revealed that the mode of transaction that the NSEL was allowed by the Government of India was not followed by the NSEL, and that the NSEL had promised attractive returns to persons who had traded on the NSEL platform. The NSEL had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs, by the order dated 22/12/2017, the said petition was admitted by the NCLT and Mr. Anil Kohli was appointed as IRP and directed to comply with provisions of sections 13 and 15 onwards of the I.B. Code. It was further directed that as the petition was held fit for admission , hence as a consequence Moratorium as prescribed under section 14 of the I.B.Code would commence. It was further directed that on enforcement of Moratorium, certain prohibitions were applicable, such as institution of any Suit before a Court of Law, transferring of any Asset of the Debtor, encumbering any rights over the assets of the Debtor. However, it was also clarified that the supply of essential goods of services to the Corporate Debtor shall not be terminated during Moratorium period. It shall be effective till completion of the Insolvency Resolution Process or until the approval of the Resolution Plan as prescribed under section 31 of the I.B. Code. Accordingly, the said petition stood admitted. The Corporate Insolvency Resolution Process commenced from the date of the order. 8. It is significant to note that on 20/02/2018, M.A.No.237/2018 was filed by Dunar Foods Ltd. through IRP under section 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the order of attachment absolute and for hearing objections to the same by the Designated Court. He further submitted that the Designated Court, after hearing the objections, can either make the attachment order absolute, or it can be varied by releasing a portion of the property from attachment or canceling the attachment order. Any order passed by the Designated Court is appealable before the High Court within 60 days from the date of the order. He submitted that provisions of the MPID Act are very clear and, therefore, it is obvious that NCLT has no jurisdiction to interfere with the attachment order issued by the Government of Maharashtra by exercising power under section 4 of the MPID Act. He submitted that in fact the Respondent had submitted to the jurisdiction of the MPID Court by filing M.A.No.237 of 2018 in MPID Case No.1 of 2014. He submitted that the issue of jurisdiction was specifically raised before the NCLT, however, the NCLT completely ignored the same while passing the impugned order. The learned AGP, while dealing with the contention raised regarding maintainability of the Writ Petition in view of availability of the alternate remedy of an appeal under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NCLT shall have jurisdiction to entertain or dispose of any application or proceedings 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 and 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 the I.B. Code. He submitted that section 61 provides for appeals to the Appellate Authority, namely, National Company Law Appellate Tribunal and section 62 provides for appeals to the Supreme Court. He submitted that it is the exclusive jurisdiction of National Company Law Tribunal to entertain and dispose of proceedings which are contemplated under the I.B. Code. He submitted that by section 63, jurisdiction of the Civil Court or any authority is specifically barred in respect of any matter on which National Company Law Tribunal or National Company Law Appellate Tribunal have jurisdiction under this Code. Therefore, it is his submission that the impugned order passed by NCLT is within the jurisdiction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are making it very clear that we will not be dealing with the merits of the case, namely, whether in view of order dated 22.12.2017 of NCLT admitting the petition and appointing IRP and inter alia directing that moratorium as prescribed under Section 14 shall commence, no steps under MPID Act can be taken or continued and also whether the attachment of the properties of Dunar Foods Ltd. are required to be set aside. We make it very clear that we are only dealing with the forum which should be approached concerning the action taken under the MPID Act. 15. Before determining the above issues, it is necessary to see the relevant provisions of the MPID Act as well as of the I.B. Code. Certain important aspects of the MPID Act are set out herein below:- (i) The MPID Act was enacted to protect the interest of depositors in financial establishments and matters relating thereto. (ii) Financial establishment , as defined in Section 2(d), means any person accepting deposit under any scheme or arrangement or in any other manner but does not include a corporation or a co-operative society owned or controlled by any State Government or the Central Government or a banking company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt may think fit. (vii) Sub-Section (2) of Section 4 provides that on publication of an order under sub-section (1), all properties and assets of the Financial Establishment and persons mentioned therein shall forthwith vest in the Competent Authority appointed by the Government, pending further order from the Designated Court. (viii) Sub-Section (2) of Section 5 provides that the Competent Authority shall have such other powers as may be necessary for carrying out the purposes of this Act. (ix) Section 6 is regarding constitution of one or more Designated Courts in the cadre of a District and Sessions Judge for such area or areas or for such case or class or group of cases, as may be specified in the notification. (x) Sub-Section (3) of Section 5 provides that the Competent Authority shall, within thirty days from the date of the publication of the said order, apply to the Designated Court, accompanied by one or more affidavits stating the grounds on which the Government has issued the said order under section 4 and the amount of money or other property believed to have been acquired out of the deposits and the details, if any, of persons in whose name such pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order. [Section 11] (xvi) Section 13 is concerning the procedure and power of the Designated Court concerning cognizance of offences and provides that the Designated Court may take cognizance of the offence and shall follow the procedure prescribed in the Code of Criminal Procedure, 1973 for the trial of warrant cases by Magistrates. 16. After setting out the important provisions of the MPID Act, it is also required to be noted that a Full Bench of this Court in the case between Vijay C. Pulijal vs. State of Maharashtra. reported in (2005) 4 CTC 705 (Bom.) held that the provisions of MPID Act are ultravires for want of legislative competence of the State legislature. The Full Bench of this Court took a view that the MPID Act transgressed into the field reserved for Parliament. The Full Bench held that the subject matter covered by the MPID Act squarely falls within the ambit of section 58-A and 58-AA of the Companies Act. However, the Supreme Court in the case between K.K. Baskaran Vs. State represented by its Secretary, Tamil Nadu Ors. reported in 2011 (3) SCC 793 upheld the constitutional validity of a similar enactment enacted in Tamilnadu and observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Designated Court can be challenged in appeal before the High Court under section 11 of the MPID Act. It is also important to note that under section 13 of the MPID Act, the Designated Court is even empowered to take cognizance of the offence and while trying the accused person, the Designated Court shall follow the procedure prescribed in the Code of Criminal Procedure, 1972, and for the purposes of the provisions of the Code of Criminal Procedure, 1972, the Designated Court shall be deemed to be a Magistrate. 18. We will hereafter examine the impact of the provisions of the I.B. Code, particularly when application for initiating corporate insolvency resolution process is admitted by the NCLT and moratorium is declared by the NCLT as contemplated under section 14 of the I.B. Code, on the jurisdiction of the Designated Court under the MPID Act. 19. Therefore, we will first examine the provisions of I.B. Code on which learned Counsel of the Respondent has relied and certain other relevant provisions. The same are referred to hereinbelow : (i) At the outset, it is to be noted that I.B. Code was enacted to consolidate and amend the laws relating to re-organization and insol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of corporate insolvency resolution process by operational creditor. (x) Section 10 provides for filing application for initiation of corporate insolvency resolution process by corporate applicant. (xi) Section 13 provides that Adjudicating Authority, after admission of the application under section 7 or section 9 or section 10, shall by an order (a) declare moratorium for the purposes referred to in section 14; (b) cause a public announcement of the initiation of corporate insolvency resolution process and call for submission of claims under section 15; and (c) appoint an interim resolution professional in the manner as laid down in section 16. (xii) Section 5(27) defines a resolution professional , to mean an insolvency professional appointed to conduct the corporate insolvency resolution process and includes an interim resolution professional; (xiii) Section 14 provides for Moratorium and inter alia provides that on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:-- (a) the institution of suits or continuation of pending suits or proceedings against the corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interim resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern. (xix) Section 25 provides that it shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including continued business operations of the corporate debtor. (xx) Section 29A specifies persons who are not eligible to be resolution applicant, such persons are not eligible to submit a resolution plan. (xxi) Section 30 is concerning submission of resolution plan and section 31 provides for approval of resolution plan. (xxii) Section 32A is concerning liability for prior offences, etc and specifies that notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such offence from the date the resolution plan has been approved by the Adjudicating Authority under section 31, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the property of the corporate debtor in relation to an offence shall include the attachment, seizure, retention or confiscation of such property under such law as may be applicable to the corporate debtor; (ii) nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfils the requirements specified in this section, against whom such an action may be taken under such law as may be applicable. (3) Subject to the provisions contained in sub-sections (1) and (2), and notwithstanding the immunity given in this section, the corporate debtor and any person who may be required to provide assistance under such law as may be applicable to such corporate debtor or person, shall extend all assistance and cooperation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process. (xxiii) Section 60 provides that the Adjudicating Authority, in relation to insolvency resolution and liquidation for corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd discharge such powers and functions as are or may be, conferred on it by or under the Companies Act or any other law for the time being in force. Insofar as NCLAT is concerned, Section 410 of the Companies Act merely states that the Central Government shall constitute an Appellate Tribunal for hearing appeals against the Orders of the Tribunal. The matters that fall within the jurisdiction of the NCLT, under the Companies Act, 2013, lie scattered all over the Companies Act. Therefore, Sections 420 and 424 of the Companies Act, 2013 indicate in broad terms, merely the procedure to be followed by the NCLT and NCLAT before passing orders. However, there are no separate provisions in the Companies Act, exclusively dealing with the jurisdiction and powers of NCLT. 22. In paragraph 31 of the judgment of Embassy Property Developments Pvt. Ltd. (supra), Section 60 of the I.B. Code was quoted and sub-Sections (4) and (5) of Section 60 were stated to give an indication respectively about the powers and jurisdiction of the NCLT. Paragraph 32 of the said judgment is also relevant and the same is set out herein below: 32. Subsection (4) of Section 60 of IBC, 2016 states that the NC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of initiation of CIRP. If Section 60(5)(c) of IBC is interpreted to include all questions of law or facts under the sky, an Interim Resolution Professional/Resolution Professional will then claim a right to challenge the order of the Income Tax Appellate Tribunal before the NCLT, instead of moving a statutory appeal under Section 260A of the Income Tax Act, 1961. Therefore the jurisdiction of the NCLT delineated in Section 60(5) cannot be stretched so far as to bring absurd results. (It will be a different matter, if proceedings under statutes like Income Tax Act had attained finality, fastening a liability upon the corporate debtor, since, in such cases, the dues payable to the Government would come within the meaning of the expression operational debt under Section 5(21), making the Government an operational creditor in terms of Section 5(20). The moment the dues to the Government are crystalised and what remains is only payment, the claim of the Government will have to be adjudicated and paid only in a manner prescribed in the resolution plan as approved by the Adjudicating Authority, namely the NCLT. 38. It was argued by all the learned Senior Counsel on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et over which the corporate debtor has ownership rights, subject to the determination of ownership by a court or other authority. In fact an asset owned by a third party, but which is in the possession of the corporate debtor under contractual arrangements, is specifically kept out of the definition of the term assets under the Explanation to Section 18. This assumes significance in view of the language used in Sections 18 and 25 in contrast to the language employed in Section 20. Section 18 speaks about the duties of the interim resolution professional and Section 25 speaks about the duties of resolution professional. These two provisions use the word assets , while Section 20(1) uses the word property together with the word value . Sections 18 and 25 do not use the expression property . Another important aspect is that under Section 25 (2) (b) of IBC, 2016, the resolution professional is obliged to represent and act on behalf of the corporate debtor with third parties and exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial and arbitration proceedings. Section 25(1) and 25(2)(b) reads as follows: 25. Duties of resolution professional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the I.B. Code and the orders passed by the Adjudicating Authority under section 7 of I.B. Code and other relevant orders and rule on their interplay. 25. The properties attached under various notifications issued from time to time by exercising power under section 4 of the MPID Act in the MPID proceedings include the properties of Dunar Foods Ltd. Any application for cancelling any such action of attachment is to be considered by the Designated Court under the MPID Act. 26. The learned counsel of the Respondent relied on judgments of Hon ble Supreme Court in West U.P. Sugar Mills Association(supra), M.Karunanidhi (supra) and Innoventive Industries Ltd.(supra). All these judgments are on the issue of repugnancy. In paragraph 50 of Innoventive Industries Ltd. (supra), the following propositions are set out. 50. The case law referred to above, therefore, yields the following propositions: i) Repugnancy under Article 254 arises only if both the Parliamentary (or existing law) and the State law are referable to List III in the 7 th Schedule to the Constitution of India. ii) In order to determine whether the Parliamentary (or existing law) is referable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Parliamentary statute has adopted a plan or scheme which will be hindered and/or obstructed by giving effect to the State law. It can then be said that the State law trenches upon the Parliamentary statute. Negatively put, where Parliamentary legislation does not purport to be exhaustive or unqualified, but itself permits or recognises other laws restricting or qualifying the general provisions made in it, there can be said to be no repugnancy. viii) A conflict may arise when Parliamentary law and State law seek to exercise their powers over the same subject matter. This need not be in the form of a direct conflict, where one says do and the other says don t . Laws under this head are repugnant even if the rule of conduct prescribed by both laws is identical. The test that has been applied in such cases is based on the principle on which the rule of implied repeal rests, namely, that if the subject matter of the State legislation or part thereof is identical with that of the Parliamentary legislation, so that they cannot both stand together, then the State legislation will be said to be repugnant to the Parliamentary legislation. However, if the State legislation or part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the MPID Act and can point out the provisions of the I.B. Code to the Designated Court. The statement of law which is applicable to the present case as found in paragraphs 40 and 41 in the judgment of Embassy Property Developments Pvt. Ltd. (supra) is, at the cost of repetition, again quoted hereinbelow: 40. If NCLT has been conferred with jurisdiction to decide all types of claims to property, of the corporate debtor, Section 18(f)(vi) would not have made the task of the interim resolution professional in taking control and custody of an asset over which the corporate debtor has ownership rights, subject to the determination of ownership by a court or other authority. 41. This shows that wherever the corporate debtor has to exercise rights in judicial, quasi-judicial proceedings, the resolution professional cannot short-circuit the same and bring a claim before NCLT taking advantage of Section 60(5). Thus it is clear that the appropriate forum to challenge the attachment of the account of the Respondent is the Designated Court under MPID Act where the Respondent can raise all contentions on merits and also can point out the provisions of I.B. Code and the effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and after hearing all the parties, an order was passed and certain directions in the interest of depositors as contemplated under the MPID Act were also issued. 29. The learned counsel for the Petitioner has also relied on the judgment of NCLAT in the case of JSW Steel Ltd.(supra) wherein it has been held that the action of Directorate of Enforcement did not meet the criteria under Section 32-A (1) (b) of I.B. Code. However, in the present case, the Designated Court under MPID Act will examine the said aspect and therefore, the said judgment is not applicable to the present case. 30. Thus, in view of the above discussion, we hold that the NCLT has no jurisdiction to examine legality or validity of action taken under MPID Act and it is only the Designated Court constituted under Section 6 of the MPID Act that will have exclusive jurisdiction to deal with the same. Therefore, the impugned order passed by the NCLT is without jurisdiction and therefore, amenable to a challenge in our writ jurisdiction. 31. Thus, it is clear that the only remedy for Respondent-IRP is to approach the Designated Court under Section 7 of the MPID Act. Therefore, the impugned order passed by NCL ..... X X X X Extracts X X X X X X X X Extracts X X X X
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