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TMI Blog2022 (2) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity to answer the same. In event, it is accepted that power under Section 235A can be exercised by the Adjudicating Authority while passing orders on an I.A filed for different reliefs pertaining to CIRP, the person punished with fine may be deprived of his right to answer charge of an offence. The present case is an example which fully supports the interpretation which we have put on Section 235A. When the allegation of Resolution Professional was that Appellant has contravened the Moratorium there was allegation of commission of an offences on which punishment could have been awarded after following the procedure under Section 236. An act which is termed as offence within specific provision of Chapter VII of Part-II could not have been indirectly dealt with by the Adjudicating Authority by imposing a fine - the fine imposed by the Adjudicating Authority of ₹ 20 Lakh on the Appellant in exercise of powers under Section 235A was beyond jurisdiction and direction insofar as in para 15(c) is to be set aside. Whether Record Management Services are critical services within the meaning of Section 14(2A) which should not be terminated during the period of Moratorium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... okhale, Ms. Diksha Gupta, Advocates. For the Respondent : Mr. Nirman Sharma, Mr. Pulkitesh Dutt Tiwari, Mr. Bency Ramakrishnan, Advocates. JUDGMENT Ashok Bhushan, J. 1. This Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 ( Code for short) has been filed against the order dated 29.10.2021 of the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Court III, allowing I.A. No. 1239/2020 I.A. No. 484/2021 filed by the Resolution Professional and rejecting the I.A. No. 1628/2021 filed by the Appellant in CP/(IB) 2640/2019. Brief facts necessary for deciding this Appeal are:- The Appellant No.1 entered into Record Management Agreement with Corporate Debtor on 15.01.2007 under which Agreement M/s. Writer Information Management Services , a division of P.N. Writer Co. Pvt. Ltd. agreed to provide record management services to Cox Kings for its record. The Agreement contained details of pricing etc. In terms of the payment procedure under the terms of Agreement, the Corporate Debtor was required to pay to the Appellant No.1 charges for the said services within 15 days from the date of receipt of monthly invoices raised by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Writer Business Services Pvt. Ltd. as a going concern business. The copy of the order of Bombay High Court dated 23.10.2015 approving the scheme was also filed along with the Reply. It was stated that current services in question are being provided by Writer Business Services Pvt. Ltd. . It was pleaded that Respondent to the Application is unconnected party. It was stated that Writer Business Services Pvt. Ltd. continued to provide service as per the contract even after the commencement of Moratorium period. It was stated that the payment has been made only till 31.01.2020. Details of invoices raised from 01.02.2020 to 30.06.2020 were also mentioned in the Reply. Another Application I.A. No. 484 of 2021 was preferred by the Resolution Professional praying for a declaration that the Respondent is not entitled to any payments in terms of the Agreement towards record management services and record retrieval services after commencement of CIRP of the Corporate Debtor from 22.10.2019. Direction was also sought for refunding the money received by the Appellant from the Corporate Debtor. An amount of ₹ 6.22 Crores was also claimed towards losses suffered by the Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly proved that Appellant No.2 arrayed by Resolution Professional as Respondent has nothing to do with dispute and has wrongly been impleaded but still without considering the aforesaid facts directions have been issued to Appellant No.2 who was arrayed as Respondent in the I.A. It is submitted that the Adjudicating Authority committed error in imposing fine by the impugned judgment after referring to Section 235A of the Code whereas power to impose fine and punish any person is to be exercised only in accordance with Section 236 on a complaint filed by Central Government or by the Board. Adjudicating Authority has no jurisdiction to impose punishment or fine of ₹ 20 Lakh on the Appellant. It is submitted that for imposing punishment which is an offence it is only Special Court as referred to in Section 236 who can award any punishment including punishment of fine. Section 235A is not a provision for imposing cost as has been referred to in paragraph 13 of the judgment. It is submitted that even after CIRP proceeding, the Appellants were provided record management services although after February 2020 no payment has been made to the Appellants. It is submitted that advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the impugned judgment on the Appellant? (ii) Whether Record Management Services are critical services within the meaning of Section 14(2A) which should not be terminated during the period of Moratorium and the Adjudicating Authority is right in issuing direction to Appellant to continue to provide Record Management Services during CIRP period? (iii) Whether Adjudicating Authority has rightly issued direction to the Appellant to refund the amount received from the Resolution Professional after initiation of CIRP? QUESTION No.1 7. Section 235A which falls for consideration in this Appeal has been inserted in the Code by Act 8 of 2018 w.e.f. 23.11.2017. Section 235A was inserted in the Code vide Ordinance by Insolvency Bankruptcy Code Ordinance, 2017 (No. 7/2017). On the date when Ordinance was issued i.e. 27.11.2017 Press Information Bureau, Government of India, Ministry of Corporate Affairs issued orders highlighting on aims of the Ordinance. The press release outline the object of amendment which is to the following effect:- The Government of India promulgated today the Ordinance to amend the Insolvency and Bankruptcy Code, 2016 (the Code). Earlier the Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different offences and punishment for such offences. For example, we may notice Section 68, which is to the following effect:- 68. Punishment for concealment of property. - Where any officer of the corporate debtor has, (i) within the twelve months immediately preceding the insolvency commencement date, (a) wilfully concealed any property or part of such property of the corporate debtor or concealed any debt due to, or from, the corporate debtor, of the value of ten thousand rupees or more; or (b) fraudulently removed any part of the property of the corporate debtor of the value of ten thousand rupees or more; or (c) wilfully concealed, destroyed, mutilated or falsified any book or paper affecting or relating to the property of the corporate debtor or its affairs, or (d) wilfully made any false entry in any book or paper affecting or relating to the property of the corporate debtor or its affairs, or (e) fraudulently parted with, altered or made any omission in any document affecting or relating to the property of the corporate debtor or its affairs, or (f) wilfully created any security interest over, transferred or disposed of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the Adjudicating Authority may impose upon a such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees. (2) If, any person initiates voluntary liquidation proceedings with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees but may extend to one crore rupees. [(3) If any person initiates the pre-packaged insolvency resolution process- (a) fraudulently or with malicious intent for any purpose other than for the resolution of insolvency; or (b) with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees.] 12. Section 236 deals with Trial of offences by Special Court . Section 236 is as follows:- 236. Trial of offences by Special Court. - (1) Notwithstanding anything in the Code of Criminal Procedure, 1973(2 of 1974), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of Foreign Exchange Regulation Act, 1947 where penalty was imposed under Section 23(1)(a) of the FERA Act, 1947. The argument raised before the Apex Court was that the provisions of Section 23 was a penal provision which is quasi-criminal in nature hence, unless criminality is established penalty cannot be imposed. Madras High Court has set aside the penalty on the ground that no finding has been recorded regarding provisions of mens rea on the part of the offender, against which the Appeal was filed. We may first notice the provisions of Section 23(1)(a) which provisions came for consideration before the Hon ble Supreme Court. The relevant provisions has been quoted in paragraph 4 of the judgment which is to the following effect:- 4. With a view to answer these questions, it would be appropriate to first notice the relevant provisions of Section 10 and 23 of FERA, 1947, as they stood at the Material time, (prior to the amendment of the FERA in 1964 and 1973). Those provisions read thus,: xxx xxx xxx Section 23. Penalty and procedure.- (1) If any person contravenes the provisions of Section 4, Section 5, Section 9, Section 10, Sub-section (2) of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Criminal Courts trying an accused' for commission of an offence, as understood in the general context. They perform quasi-judicial functions and do not act as Courts but only as administrators' and adjudicators'. In the proceedings before them, they do not try an accused for commission of any crime (not merely an offence) but determine the liability of the contravenor for the breach of his obligations imposed under the Act. They impose penalty' for the breach of the civil obligations' laid down under the Act and not impose any sentence for the commission of an offence. The expression penalty' is a word of wide significance. Sometime, it means recovery of an amount as a penal measure even in civil proceedings. An exaction which is not compensatory in character is also termed as a penalty'. When penalty is imposed by an adjudicating officer, it is done so in adjudicator proceedings' and not by way of fine as a result of prosecution of an accused' for commission of an offence in a criminal Court. Therefore, merely because penalty' clause exists in Section 23(1)(a), the nature of the proceedings under that Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and Ors.- (2005) 7 SCC 615 explaining the meaning of penalty stated in paragraph 12:- 12. In the light of the above judgments as applicable to the provisions of the said 1997 Act, we are of the view that the High Court had erred in striking down section 10(3) as ultra vires articles 14 and 19(1)(g) of the Constitution. Penalty is a slippery word and it has to be understood in the context in which it is used in a given statute. A penalty may be the subject-matter of a breach of statutory duty or it may be the subject-matter of a complaint. In ordinary parlance, the proceedings may cover penalties for avoidance of civil liabilities which do not constitute offences against the State. This distinction is responsible for any enactment intended to protect public revenue. Thus, all penalties do not flow from an offence as is commonly understood but all offences lead to a penalty. Whereas the former is a penalty which flows from a disregard of statutory provisions, the latter is entailed where there is mens rea and is made the subject-matter of adjudication. In our view, penalty under section 10(3) of the Act is compensatory. It is levied for breach of a statutory duty fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rhaps not properly so-called, imposed by an organisation such as the Institute of Chartered Accountants. That institute is inter alia a regulatory body which regulates the conduct of its members entitled to describe themselves as chartered accountants. The relationship between the institute and its members is, it seems to me, a contractual one in which in order to attract the right to call themselves chartered accountants members enter into a contract with the institute to obey its rules and, amongst other things, to submit themselves to the hearing and verdict of disciplinary tribunals instituted by the institute itself. It is accepted by Mr. Marcus that one of the penalties which a disciplinary tribunal of the Institute of Chartered Accountants is able to impose is a financial penalty. 22. The above authority also supports our view that punishment of fine is a fine which is imposed on a delinquent for an offence. 23. The Code has used both the expressions punishment and fine. The use of expressions punishment and fine has been in reference to the provisions which provision in Chapter VII of Part-II and Chapter VII of Part-III in reference to offence which are enumera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Respondent is not entitled to any payment in terms of the Agreement towards Record Management Services and Record Retrieval Services after commencement of CIRP of the Corporate Debtor from 22nd October 2019 onwards; c. Pass an order directing the Respondent to refund the monies received by it from the Corporate Debtor in terms of the Agreement towards Record Management Services and Record Retrieval Services (as defined hereinafter); d. Pass an order directing the Respondent to pay an amount ₹ 6,22,25,415 (Rupees Six Crore Twenty Two Lakhs Twenty Five Thousand Four Hundred and Fifteen), as specified in Exhibit S , to the Corporate Debtor towards the losses suffered by the Corporate Debtor on account of the refusal of the Respondent to provide uninterrupted critical services in terms of the Agreement. 26. Section 74 of the Code which is part of Chapter VII of Part-II specifically provide for punishment for contravention of Moratorium or Resolution Plan . Section 74 is as follows:- 74. Punishment for contravention of moratorium or the resolution plan. - (1) Where the corporate debtor or any of its officer violates the provisions of section 14, any suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified. 30. In the facts of the present case, Resolution Professional was of the opinion that services of record management services are critical services for Corporate Debtor and it should be provided during period of Moratorium. In the facts of the present case, we are of the view that record management services can fall within the definition of critical services as referred to in sub-section (2A) of Section 14. The Appellant in this Appeal has categorically stated that they have continued to provide record management services during CIRP proceedings, we do not find any error in the direction issued by the Adjudicating Authority in paragraph 15(A) to continue providing its services to the Corporate Debtor. Hence, direction issued in paragraph 15(A) is affirmed. 31. In the Rejoinder filed by the Appellants an order dated 06.12.2021 has been brought on record by which order Adjudicating Authority has directed for liquidation of the Corporate Debtor. The CIRP thus has come to an end w.e.f. 16.12.2021. QUESTION NO.3: 32. Appellants in its Affidavit has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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