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TMI Blog2022 (2) TMI 466X X X X Extracts X X X X X X X X Extracts X X X X ..... ate remedy? Maintainability of the writ petition under Article 226 of the Constitution of India, to challenge Ext. P7 order of the Tribunal - HELD THAT:- It is well settled by a catena of decisions that exercising or not exercising jurisdiction under Article 226 on issues where an alternate remedy is available, it is more a rule of self restraint. It has been consistently held that alternate remedy will not be a reason for not exercising jurisdiction when the issue relates to enforcement of the fundamental right or violation of principles of natural justice or where the proceedings challenged are without jurisdiction or in cases where the validity of a Statute is challenged. Whether the Tribunal had jurisdiction to entertain Ext. P1 application in the light of Ext. P5 amendment? - HELD THAT:- Since the amount is less than ₹ 1 Crore, if an application had been filed before 24.3.2020, it would have conformed with the minimum default which had been prescribed at that point of time. However, admittedly, the application was filed six months after the amendment. It is in these circumstances that the 2nd respondent has raised a claim that for the purpose of setting in mot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification will not apply to pending applications before the concerned Adjudicating Authority under the IBC prior to the issuance of the aforesaid notification. The Tribunal has gone wrong in its interpretation of Section 4 of the Act. Section 4, after amendment on 24.3.2020 clearly says that Part II of the IBC shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of default is ₹ 1 Crore. As per Section 3(12) of the IBC, default means nonpayment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be. What is to be noted is that Corporate debtors who are in default of less than ₹ 1 lakh prior to the amendment and ₹ 1 Crore after the amendment, also are defaulters. However, whether a proceeding for insolvency or liquidation of such corporate debtor should be initiated would depend on the amount in default. The writ petition under Article 226 is maintainable and there is no necessity or purpose for relegating the petitioner to the alternate remedy. Nor is it necessary to decide on the questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irector seeking to discredit the company and its shareholders. The petitioner preferred I.A. No. 175/KOB/2020 under Rule 32 of the National Company Law Tribunal Rules ('NCLT Rules' for short) praying that the maintainability of the application may be considered as a preliminary issue. Ext. P4 is the application. Reliance was placed on notification No. SO1205(E) dated 24.3.2020 published by the Ministry Corporate Affairs, Government of India, whereby Section 4 of the IBC was amended and the minimum amount of default was increased to ₹ 1 Crore. It is submitted that unless the application relates to a default of an amount of more than ₹ 1 Crore, the same will not be maintainable before the 1st respondent. The National Company Law Tribunal ('NCLT' for short) has on 01.12.2020 issued Ext. P7 order in I.A. No. 175/KOB/2020 finding that the application filed by the 2nd respondent is maintainable. It can be seen from Ext. P7 order that the reasoning of the 1st respondent is that the notification under Section 4 will not save the petitioner from the initiation of insolvency proceedings with respect to defaults which had taken place before the pandemic and the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy and liquidation of corporate debtors where the minimum amount of the default is one Crore rupees: Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees: Provided further that the Central Government may, by notification, specify such minimum amount of default of higher value, which shall not be more than one crore rupees, for matters relating to the pre-packaged insolvency resolution process of corporate debtors under Chapter III-A. 5. Definitions.--In this Part, unless the context otherwise requires,-- (1) to (4) xxxxxxx xxxxxxx xxxxxxx xxxxxxx (5) corporate applicant means-- (a) corporate debtor; or (b) a member or partner of the corporate debtor who is authorised to make an application for the corporate insolvency resolution process or the prepackaged insolvency resolution process, as the case may be, under the constitutional document of the corporate debtor; or (c) an individual who is in charge of managing the operations and resources of the corporate debtor; or (d) a person who has the control and supervision over the financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten per cent of the total number of such allottees under the same real estate project, whichever is less: Provided also that where an application for initiating the corporate insolvency resolution process against a corporate debtor has been filed by a financial creditor referred to in the first and second provisos and has not been admitted by the Adjudicating Authority before the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to comply with the requirements of the first or second proviso within thirty days of the commencement of the said Act, failing which the application shall be deemed to be withdrawn before its admission. Explanation.--For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under subsection (1) in such form and manner and accompanied with su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e default to the corporate debtor in such form and manner as may be prescribed. (2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor-- (a) existence of a dispute, if any, or record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute; (b) the payment of unpaid operational debt-- (i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or (ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor. Explanation.--For the purposes of this section, a demand notice means a notice served by an operational creditor to the corporate debtor demanding payment of the operational debt in respect of which the default has occurred. 9. Application for initiation of corporate insolvency resolution process by operational creditor.--(1) After the expiry of the period of ten days from the date of delivery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e such decision to the operational creditor and the corporate debtor, if-- (a) the application made under sub-section (2) is incomplete; (b) there has been payment of the unpaid operational debt; (c) the creditor has not delivered the invoice or notice for payment to the corporate debtor; (d) notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or (e) any disciplinary proceeding is pending against any proposed resolution professional: Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the Adjudicating Authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5) of this section. 10. Initiation of corporate insolvency resolution process by corporate applicant.--(1) Where a corporate debtor has committed a default, a corporate applicant thereof may file an application for initiating corporate insolvency re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 25th March, 2020. 60. Adjudicating Authority for corporate persons.--(1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located. (2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of such corporate debtor shall be filed before such National Company Law Tribunal. (3) An insolvency resolution process or [liquidation or bankruptcy proceeding of a corporate guarantor or personal guarantor, as the case may be, of the corporate debtor pending in any court or tribunal shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board; (iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or (v) the resolution plan does not comply with any other criteria specified by the Board. (4) An appeal against a liquidation order passed under Section 33, or subsection (4) of Section 54-L, or sub-section (4) of Section 54-N, may be filed on grounds of material irregularity or fraud committed in relation to such a liquidation order. (5) An appeal against an order for initiation of corporate insolvency resolution process passed under sub-section (2) of Section 54-O, may be filed on grounds of material irregularity or fraud committed in relation to such an order. QUESTIONS POSED 8. The questions that arise for decision on the basis of the contentions raised on either side are as follows: (a) Whether Ext. P1 application which relates to a defaulted amount less than ₹ 1 crore can be filed after 24.3.2020, on which date Ext. P5 amendment to Section 4 was introduced? (b) Whether the prospectivity of Ext. P5 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... file an application before the Adjudicating Authority, as can be seen from Section 9. Section 9(5) requires the Adjudicating Authority to either admit or reject the application within 14 days. Section 9(6) says that the Corporate insolvency resolution process shall commence from the date of admission of the application. It is the case of the petitioner that the petition was filed even before the expiry of 10 days and that the debt itself is disputed. It is submitted that the above contentions are on the merits of the claim and even otherwise the application cannot be maintained owing to the fact that the debt involved is less than ₹ 1 Crore and application has been filed after Ext. P5 amendment was introduced in Section 4 of the IBC. 10. In the case on hand, Ext. P1 would show that the application was signed on 07.03.2020. According to the 2nd respondent, the amounts were due as early as on 06.07.2019. On 25.02.2020 a demand notice in Form 3 was sent to the petitioner. Admittedly, the petition was filed before the NCLT only on 25.09.2020. If the petition had been filed before 24.03.2020, there can be no doubt regarding its maintainability, since on that day the amendment h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en proceedings initiated at the instance of a financial creditor and an operational creditor and submits that as far as operational creditors are concerned, their right to approach the Adjudicating Authority does not commence immediately on the occurrence of a default. In order to ripen into a right to approach the Adjudicating Authority, a demand notice has to be delivered to the corporate debtor showing the unpaid operational debt in such form and manner as may be prescribed and thereafter 10 days should have elapsed, during which time the corporate debtor has to bring to the notice of the operational creditor the existence of a dispute in relation to such debt or pay the unpaid operational debt in the manner stated in Section 8. An application under Section 9 can be filed only after the expiry of the 10 days from the date of delivery of the notice or invoice demanding payment, stipulated in Section 8. It is pointed out that the application shows that a notice was sent on 25.2.2020 and the same was received by the corporate debtor on 2.3.2020. The application and the affidavit of service are seen to have been signed on 7.3.2020, within 10 days. However, it was not filed before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it necessary, the word 'default' has been circumscribed by the date of the default. It is hence submitted that as far as Section 4 is concerned, what is material is the date on which the application is filed and not the date of default. 13. Another instance pointed out by the Senior Counsel is a subsequent amendment which was brought in on 13.3.2021, whereby a proviso has been added in Section 7 above the Explanation, to the effect that where an application filed by a financial creditor but awaiting admission by the Adjudicating Authority before the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to comply further requirements of the first and second provisos which had also been added by the said amendment, within 30 days of the commencement of the Act, failing which the application shall be deemed to have been withdrawn before its admission. It is contended that the Legislature has made it clear that even in cases where the application is filed and not admitted as required under Section 10(4), the application has to be amended in terms of the amendment of the Statute in order to make it maintainable. 14. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to safeguard the rights of the debtors, in the light of the spread of the Covid 19 pandemic. It is submitted that it is only to prevent large scale insolvencies due to the financial stress caused by the pandemic, the Government notified the minimum amount of default as ₹ 1 Crore instead of ₹ 1 Lakh. It is hence submitted that the amendment was not brought in to save cases where the default had occurred much prior to the Covid 19 pandemic, and where notice had also been issued prior to the lock down imposed by the Government and before 24.3.2020 from which day alone the amendment can be effective. The counsel further contends that a writ petition under Article 226 cannot be maintained against the order of NCLT. Reference is made to the judgment of a Division Bench of this Court in Sulochana Gupta v. RBG Enterprises in W.A. 1083 of 2020. It is also contended that the Legislature has in Section 60(5)(c) conferred jurisdiction on the NCLT to decide any question of law or facts arising out of or in relation to insolvency resolution. It is submitted that the word used is insolvency resolution and not insolvency resolution process which commences on the admission of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles of natural justice or where the proceedings challenged are without jurisdiction or in cases where the validity of a Statute is challenged. Recently the Hon'ble Supreme Court has in the decision in Ghanashyam Mishra Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. reported in [ (2021) 9 SCC 657] held in para. 137 as follows; 137. As held by this Court in a catena of cases including in Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad, Muzaffarnagar [Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad, Muzaffarnagar, (1969) 1 SCR 518 : AIR 1969 SC 556], Whirlpool Corpn. v. Registrar of Trade Marks [Whirlpool Corpn. v. Registrar of Trade Marks, (1998) 8 SCC 1], Nivedita Sharma v. COAI [Nivedita Sharma v. COAI, (2011) 14 SCC 337 : (2012) 4 SCC (Civ) 947], Embassy Property Developments (P) Ltd. v. State of Karnataka [Embassy Property Developments (P) Ltd. v. State of Karnataka, (2020) 13 SCC 308] and recently in Kalpraj Dharamshi [Kalpraj Dharamshi v. Kotak Investment Advisors Ltd., (2021) 10 SCC 401], that non-exercise of jurisdiction under Article 226 is a rule of self-restraint. It has been consistently held that the alternate remedy w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed at that point of time. However, admittedly, the application was filed six months after the amendment. It is in these circumstances that the 2nd respondent has raised a claim that for the purpose of setting in motion a corporate insolvency resolution process, what is required is the occurrence of a default of more than ₹ 1 lakh prior to 24.3.2020. Since no time limit has been prescribed for preferring an application after the delivery of notice, it is submitted that the date of filing of application is not the material aspect that has to be looked into. 19. The Hon'ble Supreme Court has in its recent decision in Manish Kumar v. Union of India reported in [ (2021) 5 SCC 1] considered the constitutionality of the amendments made to Section 7(1) and Section 11 of the IBC and the introduction of Section 32A in the IBC by Insolvency and Bankruptcy Code (Amendment) Act, 2020. The Hon'ble Supreme Court considered the scope and purpose of several provisions of the IBC. Confronted with the above judgment, the counsel for the 2nd respondent submitted that the judgment in Manish Kumar (supra) does not in any way affect the maintainability of Ext. P1 application. It is subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th reference to the date of issuance of the mandatory demand notice under Section 8 of IBC. 20. The contentions put forward by the counsel for the 2nd respondent, though attractive at the first blush, do not appear to be fully correct. The Hon'ble Supreme Court while considering the scope of the IBC has considered Section 4 of the Code as amended by Ext. P5. Paras. 161 and 168 of the judgment are extracted below; 161. In this context, it is necessary to recapture Section 4 of the Code. It reads as follows: 4. Application of this Part.--(1) This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees: Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees. The amount is now fixed at ₹ 1 crore. xxxxxxx xxxxxxx xxxxxxx xxxxxxx xxxxxxx 168. It is, therefore, clear that the requirement of the Code in regard to an application by a financial creditor does not mandate that the financial debt is owed to the applicant in terms of the Explanation. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the requirements of provisos 1 and 2 have to be complied with, failing which the applications shall be deemed to have been withdrawn. The result was that an applicant who had already approached the NCLT would face with a situation of the application being withdrawn, if he does not comply with the amended provision. The above aspect was considered by the Hon'ble Supreme Court. The Apex Court held that the proviso is in effect retrospective. It was held in paragraph 404 of the judgment that every sovereign legislature is clothed with competence to make retrospective laws. It is open to the legislature, while making retrospective law, to take away vested rights. It is further held that if a vested right can be taken away by a retrospective law, there can be no reason why the Legislature cannot modify the vested rights. The Court further held in paragraph 406 that if the existing right is modified or taken away and it is to have operation only from the date of new law, it would obviously have only prospective operation and it would not be a retrospective law. The above observations were made by the Hon'ble Supreme Court after noticing that even the right of action should condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication before the Tribunal before 24.3.2020. But, after 24.3.2020, the right to approach the Tribunal stood modified and it is only when there is minimum default of ₹ 1 Crore, an application can be filed. As such, Ext. P1 could not have been filed after Ext. P5 amendment. Since Section 4 deals with applicability of the provisions of Part II, it is necessarily a provision which gives jurisdiction to the Adjudicating Authority. Once the application of Part II is taken away for debts more than ₹ 1 Crore, there is no further jurisdiction available under the Statute to the NCLT to act as an Adjudicating Authority under the IBC. It is hence a clear case of total want of jurisdiction. 24. In Ext. P9 order, the Tribunal has held that the notification dated 24.03.2020 is prospective in nature and it is not retrospective or retro-active in nature. It is further stated by the Tribunal that notification will not apply to pending applications before the concerned Adjudicating Authority under the IBC prior to the issuance of the aforesaid notification. Ext. P9 was an order of the Tribunal at New Delhi and the issue was concerning an application which had been filed and was pend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be read by replacing the words one lakh rupees by rupees one crore . As such, from the date of amendment, Part II of the IBC can apply only to matters relating to insolvency and liquidation of corporate debtors, where the minimum amount of default is ₹ 1 Crore. (emphasis supplied). Once that is the position, the application of Part II itself is taken away with effect from 24.03.2020 as far as defaults less than ₹ 1 Crore are concerned and hence no application can be filed after 24.03.2020 regarding an amount where the default is less than ₹ 1 Crore. By application of Section 10A, even in cases where the default is more than ₹ 1 Crore, an application cannot be filed for a period of six months from 24.3.2020. There can be no other understanding of the statutory provisions, as there is no ambiguity in the language. It is well settled that the grammatical and ordinary sense of the words of the Statute should be adhered to, unless that would lead to absurdity, or some repugnance or inconsistency with the rest of the provisions of the statute. In the words of Viscount Simon L.C. The golden rule is that the words of a statute must prima facie be given their ..... X X X X Extracts X X X X X X X X Extracts X X X X
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