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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 ..... who is the 2nd respondent in W.P.(C) No. 27636 of 2020. THE DISPUTE IN BRIEF W.P.(C) No. 27636 of 2020 3. This writ petition has been filed challenging the order of the Adjudicating Authority under the Insolvency and Bankruptcy Code (hereinafter referred to as 'IBC'). The facts that will be relevant for deciding the case are as follows; 4. The petitioner is a Private Limited Company engaged in the activities of developing software and promoting advancement in the field of Information Technology. The 2nd respondent has filed IBA/34/KOB/2020 before the 1st respondent claiming to be an operational creditor and arraying the petitioner as a corporate debtor under the provisions of the IBC. The case of the 2nd respondent is that amounts due to the 2nd respondent have not been paid by the petitioner. According to the petitioner, the petition is not maintainable before the 1st respondent. The petitioner has disputed the alleged debts in their counter statement filed before the 1st respondent. According to them, amounts are actually due from the 2nd respondent to the petitioner. It is submitted that the 2nd respondent is a former Director and shareholder, who had sold the entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion dated 24.03.2020 whereby the minimum amount of default was specified as Rs. 1 Crore is prospective and would apply only to cases where the default occurred on or after 24.3.2020. There is also a prayer for a declaration that the notification will not apply to cases where mandatory notice under Section 8 of the IBC has been issued by the operational creditor and the stipulated 10 days' period had elapsed prior to the date of notification. RELEVANT STATUTORY PROVISIONS 6. The Code has undergone several amendments after it came into force. The provisions of the Code prior to Ext. P5 and after Ext. P5, which are relevant for the purpose of deciding the above writ petitions are extracted below. Section 4 prior to Ext. P5 reads thus; "4. (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." 7. After Ext. P5 and some other amendments, Sections 4, 5, 6, 7, 8, 9, 10 and 10A read thus: "4. Application of this Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter. 7. Initiation of corporate insolvency resolution process by financial creditor.--(1) A financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government, may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred: Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6-A) of Section 21, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such creditors in the same class or not less than ten per cent of the total number of such creditors in the same class, whichever is less: Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application: Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days 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). (7) The Adjudicating Authority shall communicate-- (a) the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor; (b) the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be. 8. Insolvency resolution by operational creditor.--(1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of an unpaid operational debt by the corporate debtor or such other information, as may be prescribed. (4) An operational creditor initiating a corporate insolvency resolution process under this section, may propose a resolution professional to act as an interim resolution professional. (5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order-- (i) admit the application and communicate such decision to the operational creditor and the corporate debtor if,-- (a) the application made under sub-section (2) is complete; (b) there is no payment of the unpaid operational debt; (c) the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor; (d) no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and (e) there is no disciplinary proceeding pending against any resolution professional proposed under sub-section (4), if any. (ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if-- (a) the application made under sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin seven days from the date of receipt of such notice from the Adjudicating Authority. (5) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (4) of this section. 10-A. Suspension of initiation of corporate insolvency resolution process.--Notwithstanding anything contained in Sections 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf: Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period. Explanation.--For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before 25th March, 2020." 60. Adjudicating Authority for corporate persons.--(1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal. (2) Every appeal under sub-section (1) shall be filed within thirty days before the National Company Law Appellate Tribunal: Provided that the National Company Law Appellate Tribunal may allow an appeal to be filed after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing the appeal but such period shall not exceed fifteen days. (3) An appeal against an order approving a resolution plan under Section 31 may be filed on the following grounds, namely-- (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force; (ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; (iii) the debts owed to operational creditors 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 7 is concerned, a financial creditor can initiate a proceeding when a default has occurred. In the case of an operational creditor, on the occurrence of a default, he has to deliver a demand notice of unpaid operational debt in such form and manner as may be prescribed in the rules. Section 8(2) says that a corporate debtor shall within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor the existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute or the payment of unpaid operational debt. It is only after the expiry of a period of 10 days after the delivery of the notice under sub-section (1) of Section 8, and, if the operational creditor does not receive payment or notice of a dispute, that he may 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e debtors who can be stated to be in default as per Section 4 can be proceeded against under Part II of the IBC. A proceeding under Part II of the IBC could have been initiated against debtors whose defaulted amount is Rs. 1 lakh or more, prior to 24.3.2020. After Ext. P5 such proceedings can be initiated only if the default is of an amount of Rs. 1 Crore or more. The counsel also points out that even in Ext. P1 petition, the 2nd respondent has only stated that on 25.02.2020 notice was sent. The signature in the petition was affixed on 07.03.2020 before the 10 days' period after issuance of the notice elapsed and within 5 days of the receipt of the notice by the petitioner. It is submitted that the date of signing need not be looked into, since the petition was filed only in September, 2020 and it cannot relate back to 07.03.2020 by any known legal principle. The counsel points out the difference between 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 10A of the IBC was brought into force as per an amendment brought in on 5.6.2020. As per Section 10A, no application can be filed for any default arising on or after 25.3.2020 for a period of six months or such further period not exceeding one year from such date as may be notified in that behalf. By way of an explanation to Section 10A, it has been clarified that the provisions of the Section will not apply to any default committed before 25.3.2020. Since Ext. P5 amendment was brought in before Section 10A, the default referred to in Section 10A can only be relating a minimum amount of default of Rs. 1 Crore. The Senior Counsel pointed out that while amending Section 4 to expand the amount of default as Rs. 1 Crore, the Legislature did not think it necessary to add any explanation in lines of the one coming under Section 10A. It is hence submitted that wherever the Legislature thought 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a writ petition cannot be maintained in the light of specific alternate remedy which has been prescribed in the Statute. It is further submitted that as held in Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors. reported in [ (2020) 13 SCC 308], the question to be considered is whether it is a case of lack of jurisdiction on the part of NCLT or a mere wrongful exercise of a recognised jurisdiction like asking a wrong question or applying a wrong test or granting a wrong relief. The counsel submits that Ext. P7 order can at best be considered as a case of wrong exercise of jurisdiction and not as an order which is issued without any jurisdiction. On the above contention, the counsel submits that the petitioner cannot maintain a writ petition. The counsel also referred to the Objects and Reasons for the amendment of IBC, which according to the counsel was brought in only 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 Rs. 1 Crore instead of Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legislature has exercised its power to state so, as can be seen from the amendment to Section 7 and since no such date of coming into force has been mentioned in the Section, it should be treated as prospective, so as to affect cases where the default occurred after 24.3.2020. ANALYSIS AND CONSIDERATION of THE CONTENTIONS 17. I will first deal with the question of maintainability of the writ petition under Article 226 of the Constitution of India, to challenge Ext. P7 order of the Tribunal. 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. 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 65 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the statutory provisions, apart from the occurrence of a default, there is requirement of delivering the demand notice and a passage of 10 days thereafter during which time the corporate debtor is required to either bring to the notice of the operational creditor the existence of a dispute or to make payment of operational debt in the manner prescribed. The above statutory requirement has been noticed by the Hon'ble Supreme Court in the judgment in Kay Bouvet Engg. Ltd. v. Overseas Infrastructure Alliance (India) (P) Ltd. reported in [ (2021) 10 SCC 483]. In the case on hand, a notice as required under Section 8 had been issued prior to the coming into force of Ext. P5 amendment. Since the amount is less than Rs. 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 motion a corporate insolvency resolution process, what is required is the occurrence of a default of more than Rs. 1 lakh prio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternate remedies, but there is no such alternate remedy for recovery of the amounts for the operational creditor. It is further contended that the decision of the Supreme Court supports the contention of the 2nd respondent that wherever the Statute intended to give retrospective operation, it has done so and it is conspicuously absent in Section 4. Another contention raised is that the Hon'ble Supreme Court has held that subsequent repeal will not affect vested right and hence accrued right of the 2nd respondent cannot be taken away by the amendment. Reference is made to paragraphs 274, 275 and 346 of the judgment. It is contended that there is a complete ouster of jurisdiction of the NCLT by the amendment to Section 4 and hence it can only be understood to mean that the default should be determined solely on the basis of its occurrence with 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditor, operational creditor and the corporate debtor themselves. The Hon'ble Supreme Court in the said decision also considered the effect of amendments of vested rights. The Hon'ble Supreme Court was considering the amendment of Section 7, where, by addition of three provisos, vested rights were taken away. Prior to the amendments that were in question, an application under Section 7 could have been filed by financial creditor on his own or along with others with regard to a default that had occurred not only as against the applicant alone. By addition of the provisos 1 and 2, certain restrictions were made as to the number of financial creditors who should join in the application. By the third proviso, it was made clear that even in case of applications that had been filed and are pending admission, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for insolvency resolution. The purpose of the IBC is to protect the rights of the debtors as well as the creditors. It is in the above background that the provisions relating to the IBC have to be understood. By providing for insolvency resolution in case of corporate debtors whose debt is above a specified amount, it can be seen that the very purpose is not to include cases where the debt is lesser than the said amount. None of the rights available to a creditor as against a debtor are taken away in the process. So also the contention that in Manish Kumar (supra), the Apex Court has held that a right accrued cannot be taken away does not appear to be correct, in view of the findings regarding the manner in which a vested right can be modified. 23. In the case on hand, the petitioner could have filed an application 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 Rs. 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 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be noted is that Corporate debtors who are in default of less than Rs. 1 lakh prior to the amendment and Rs. 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. It is only if the Corporate debtor has incurred a default of at least the minimum amount stated in Section 4 that a proceeding under the provisions of the IBC under Part II can be initiated. The minimum amount of default is statutorily fixed, with power available to the Government to refix, upto a sum of Rs. 1 Crore. Once the Government has exercised the said power by issuance of a notification fixing the minimum amount of default as Rs. 1 Crore, the Section will have 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 Rs. 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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