9911796707
TMI Blog2024 (6) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... are to be instituted has to be given an opportunity. Whether the statutory requirement under Section 35 Sub-section (5) proviso to obtain prior approval of the Adjudicating Authority by the Liquidator to institute a suit or proceeding on behalf of the Corporate Debtor is a mandatory requirement or only a directory requirement? - HELD THAT:- The legislative scheme as occurring in Section 33(5) is clear and categorical and the legislative intendment is clear that after the liquidation order is passed, no suit or legal proceeding is instituted by or against the Corporate Debtor with only one exception that suit or legal proceeding on behalf of the Corporate Debtor can be instituted with the prior approval of the Adjudicating Authority - looking to the statutory scheme, in use of the prohibitory word in Section 33(5), are satisfied that the requirement of prior approval by the Adjudicating Authority for instituting any suit or proceeding is mandatory and cannot be held to be directory. The mere fact that no consequences has been provided in the provision, cannot be a ground to treat the requirement as directory. The statutory requirement under Section 35 Sub-section (5) proviso to obt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any notice or opportunity to the party against whom proceedings are to be instituted - Before granting approval under Section 33(5) proviso to institute proceedings by the Liquidator on behalf of the Corporate Debtor, the party against whom proceedings are to be instituted is not to be given a notice or hearing necessarily. Whether the impugned order dated 07.02.2024 passed by the Adjudicating Authority is unsustainable and deserves to be set aside? - HELD THAT:- The adequate reasons were given by the Adjudicating Authority for granting ex-post factor approval. The prayer made before the Adjudicating Authority was prayer to permit the Liquidator to continue and proceed with the Section 7 proceedings, which having been granted, the Liquidator was entitled to proceed with the Section 7 proceedings - the order of the Adjudicating Authority is not unsustainable. There are no ground to interfere with the order of the Adjudicating Authority - appeal dismissed. - [ Justice Ashok Bhushan ] Chairperson And [ Arun Baroka ] Member ( Technical ) For the Appellants : Mr. Gyanendra Kumar, Mr. Rahul Jain and Ms. Rhea Verma, Advocates For the Respondent : Mr. Navin Pahwa, Sr. Advocate with Mr. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the erstwhile Resolution Professional as well as the Liquidator has issued Demand Notice to the Appellants and the Appellants failed to redeem the amount and pay the amount due to the Corporate Debtor. (v) The Liquidator filed an application being IA/189(AHM)2024 in IA 794 of 2020 in CP(IB) 171 of 2017 praying for various reliefs. The Adjudicating Authority heard the I.A. filed by the Liquidator and by order dated 07.02.2024 allowed the I.A. and granted ex-post facto approval to the Liquidator to continue and proceed with the Company Petitions filed by the Liquidator against the Appellants. (vi) Aggrieved by the order dated 07.02.2024 granting ex-post facto approval to the Liquidator, these Appeals have been filed by the Appellants. 2. We have heard Shri Gyanendra Kumar, learned counsel for the Appellants and Shri Navin Pahwa, learned senior counsel with Mr. Himanshu Satija, learned counsel appearing for the Liquidator. 3. Learned counsel for the Appellant challenging the impugned order submits that the Adjudicating Authority has no jurisdiction to grant ex-post facto approval of Section 7 application which were filed by the Liquidator without obtaining prior approval of the Adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, the provision is always treated as directory. Since the section does not expressly provide for nullification of the proceedings as a consequence of non-compliance with the requirement of the section, it only renders the provision directory in nature. It is submitted that there are other provisions in the code like Section 28(3), Section 28(4) and Section 25A(3) which expressly provides for consequences for non-compliance of said section. Not providing of any consequence of breach in Section 33(5) is clear indicator of the intention of the legislature that breach of Section 33(5) is not viewed as breach of any mandatory provision. The Liquidator is also empowered to initiate proceedings on behalf of the Corporate Debtor by virtue of Section 35(1)(k) of the Code. It is submitted that Section 33(5) has to be read with object and purposes of the statute which is to maximize the value of the assets of the Corporate Debtor. The Liquidator in fulfilment of objectives mentioned in the statute has initiated proceeding under Section 7 against the Appellants who failed to redeem the bonds. The objective of Section 33(5) is that the Adjudicating Authority be made aware of the actions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority. 8. There was similar provisions in Companies Act, 1913 as well as Companies Act, 1956 which provides that after winding up order of the Company no suit or other legal proceeding can be instituted by or against a Corporate Debtor without leave of the court. Section 171 of the Companies Act, 1913 is as follows: 171. When a winding up order has been made, no suit or other legal proceeding shall be proceeded with or commenced against the company except by leave of the Court, and subject to such terms as the Court may impose. 9. Similar provision being Section 446 was in Companies Act, 1956, which provides as follows: 446. SUITS STAYED ON WINDING UP ORDER (1) When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the 1[Tribunal] and subject to such terms as the 1[Tribunal] may impose. (2) The 2[Tribunal] shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sub-section (5) of section 33 of the Insolvency and Bankruptcy Code, 2016 for instituting legal proceedings under section 7 of the Insolvency and Bankruptcy Code, 2016 by the Liquidator on behalf of the corporate debtor against 5 bond issuer entities namely Avocado Reality Private Limited, Budding Mercantile Company Private Limited, Replenish Realty Private Limited, Slimline Realty Private Limited and Winsome Realty Private Limited for the debt they owe towards corporate debtor and having defaulted in repayment of the same on due date; c) To permit the Liquidator to continue and proceed with Company Petition No. IB/1022/2023, and Company Petition No. IB/1021/2023, pending before Hon'ble NCLT Mumbai bench as filed under section 7 of the Insolvency and bankruptcy Code, 2016 by the Liquidator on behalf of corporate debtor; d) To further permit the Liquidator to file any fresh applications against all or any of the 5 bond issuer entities, if any of the petitions as specified in prayer (c) above gets dismissed on the ground of non-availability of the prior approval of the Adjudicating Authority under sub-section (5) of section 33 of the Insolvency and Bankruptcy Code, 2016; e) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Authority. The question to be answered is as to whether requirement of prior approval of the Adjudicating Authority for instituting a suit or proceeding by the Liquidator is a mandatory requirement or a directory requirement. Learned counsel for the parties have relied on various judgments of Hon ble Supreme Court and this Tribunal on statutory interpretation, which need to be briefly noticed. 13. Learned counsel for the Appellant has relied on judgment of the Hon ble Supreme Court in AIR 1956 SC 1296, State of Rajasthan vs. Leela Jain . Hon ble Supreme Court had occasion to consider the provisions of Jaipur Municipal Act, 1943. The Hon ble Supreme Court in the above case has laid down that it is not permissible to omit or delete words from the operative part of an enactment, which have meaning and significance. Following observations were made in Para 11 of the judgment: 11. With due respect to the learned Judges we do not find it possible to agree that it is permissible to omit or delete words from the operative part of an enactment, which have meaning and significance in their normal connotation merely on the ground that according to the view of the Court it is inconsistent w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Government to give by notification in the Official Gazette not less than 3 months' notice of its intention to add to or omit from or otherwise amend the Second Schedule. The primary key to the problem whether a statutory provision is mandatory or directory, is the intention of the law-maker as expressed in the law, itself. The reason behind the provision may be a further aid to the ascertainment of that intention. If the legislative intent is expressed clearly and strongly in imperative words, such as the use of must instead of shall , that will itself be sufficient to hold the provision to be mandatory, and it will not be necessary to pursue the enquiry further. If the provision is couched in prohibitive or negative language, it can rarely be directory, the use of peremptory language in a negative form is per se indicative of the intent that the provision is to be mandatory. (Crawford, The Construction of Statutes, pp. 523-24). Here the language of sub-section (2) of Section 6 is emphatically prohibitive, it commands the Government in unambiguous negative terms that the period of the requisite notice must not be less than three months. 16. We may refer to another judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusion that the language used by the legislature is plain or ambiguous can only be arrived at by studying the statute as a whole. Every word and expression which the legislature uses has to be given its proper and effective meaning, as the legislature uses no expression without purpose and meaning. The principle that the statute must be read as a whole is equally applicable to different parts of the same section. The section must be construed as a whole whether or not one of the parts is a saving clause or a proviso. It is not permissible to omit any part of it, the whole section should be read together as held in State of Bihar v. Hira Lal Kejriwal. 18. Learned counsel for the Appellant has also placed reliance on constitutional bench judgment of Hon ble Supreme Court in (2020) 5 SCC 757, New India Assurance Co. Ltd. vs. Hilli Multipurpose Cold Storage Pvt. Ltd. . The Constitution Bench had occasion to consider the provisions of Consumer Protection Act, 1986, Section 13 which provides for limitation for filing reply/response. The question was as to whether the time provided for filing of reply is a mandatory provision or the provision is discretionary to extend the period prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e where the statute contained express provisions . Further, in India House v. Kishan N. Lalwani, this Court held that The period of limitation statutorily prescribed has to be strictly adhered to and cannot be relaxed or departed from for equitable considerations . 27. It is thus settled law that where the provision of the Act is clear and unambiguous, it has no scope for any interpretation on equitable ground. 19. Judgment of this Tribunal in Company Appeal (AT) (Ins.) No.292 of 2022, Amit Jain vs. Siemens Financial Services Pvt. Ltd. has also been relied by the Appellant where this Tribunal noticing the principles of statutory interpretation held that when a word of statute is clear, plan and unambiguous the courts are bound to give effect to that meaning irrespective of consequences. 20. Learned counsel for the Respondent has placed reliance on judgment of this Tribunal in Company Appeal (AT) (Ins.) No.807 of 2023, Soneko Marketing Private Limited vs. Girish Sriram Jundeja Ors. . It is submitted by learned counsel for the Respondent that this Tribunal had occasion to interpret Section 31(4) of the I B Code and this Tribunal held that requirement provided in Section 31(4) proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Plan by the CoC, it will lead to incongruous result, the CIRP cannot be frozen or cannot be put at halt because an application is submitted before the CCI. Looking to the timeline provided in the Code and that of the Competition Act and to hold that prior approval of CCI is required prior to approval of Plan by the CoC, mandatorily will lead to adverse effect on the CIRP. We may, however, observe that even if the requirement of approval by the CCI, prior to approval by the CoC is held to be directory , that does not mean that provision of Section 31(4) is not to be complied with. The proviso to Section 31(4) is clear as to what was contemplated was approval by the CCI prior to approval of CoC. Hence, in all cases the law has to be complied with. It cannot be held that since provision is there, approval by CCI has to be obtained prior to approval of Plan by the Adjudicating Authority. We have noticed above the judgments of this Tribunal where it has been laid down that approval by CCI, prior to approval by the CoC is directory because there is no consequences provided for non-compliance of Section 31(4) proviso. 34. In the present case, we have noticed that RFRP provided that CCI s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . B. Six Holiday Resorts (P) Ltd. [(2010) 5 SCC 186] ] 21. The proviso to a particular provision of a statute, only embraces the field which is covered by the main provision, by carving out an exception to the said main provision. (Vide Ram Narain Sons Ltd. v. CST [AIR 1955 SC 765], AIR p. 769, para 10 and A.N. Sehgal v. Raje Ram Sheoran [1992 Supp (1) SCC 304 : 1993 SCC (L S) 675 : (1993) 4 ATC 559 : AIR 1991 SC 1406] , SCC p. 315, para 14.) 23. Now reverting to Section 33 Sub-section (5) of the IBC Code, it is clear that Section 33 Sub-section (5) uses a negative expression and contains an injunction that no suit or other legal proceeding shall be instituted by or against the Corporate Debtor, when the liquidation order has been passed. The legislative intendment of the said provision is clear i.e. that no suit or proceeding be instituted by or against the Corporate Debtor to protect the liquidation estate. Further, institution of proceeding by the Corporate Debtor has also prohibited so as to save the liquidation estate from unnecessary expenses. There is an exception to the above injunction i.e. legal proceeding may be instituted by the liquidator, on behalf of the corporate de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of Resolution of the Executive Council of the University adopted on 26-6-1995, therefore, hold good and now that the State Government has approved the Resolution of the Executive Council of the University adopted on 26-6-1995 by Order dated 10-10-2002, the promotions made on the basis of the Resolution dated 26-6-1995 of the Executive Council of the University hold good and cannot be set aside by this Court. 11. In Black's Law Dictionary (5th Edn.), the word approval has been explained thus: Approval. The act of confirming, ratifying, assenting, sanctioning, or consenting to some act or thing done by another. Hence, approval to an act or decision can also be subsequent to the act or decision. 12. In U.P. Avas Evam Vikas Parishad, this Court made the distinction between permission, prior approval and approval. Para 6 of the judgment is quoted hereinbelow: (SCC pp. 458-59) 6. This Court in LIC v. Escorts Ltd., considering the distinction between special permission and general permission , previous approval or prior approval in para 63 held that: (SCC p. 313) 63. we are conscious that the word prior or previous may be implied if the contextual situation or the object and des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction was approved by the assessing authority. The Court also pointed out that if in those cases where prior approval is required, expression prior has to be in the particular provision. In the proviso to sub-section (1) of Section 3-A word prior is conspicuous. For all these reasons, it was not a case for levying any penalty upon the appellant. We, therefore, allow this appeal and set aside the impugned judgment [Bajaj Hindustan Ltd. v. State of U.P., Misc. Single No. 3088 of 1999, order dated 30-9-2004 (All)] of the High Court as well as the penalty. No order as to costs. 25. The legislative scheme as occurring in Section 33(5) is clear and categorical and the legislative intendment is clear that after the liquidation order is passed, no suit or legal proceeding is instituted by or against the Corporate Debtor with only one exception that suit or legal proceeding on behalf of the Corporate Debtor can be instituted with the prior approval of the Adjudicating Authority. 26. We, thus, looking to the statutory scheme, in use of the prohibitory word in Section 33(5), are satisfied that the requirement of prior approval by the Adjudicating Authority for instituting any suit or proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 171 of Companies Act, 1913 and Section 446 of Companies Act, 1956. We first come to the judgment of Hon ble Supreme Court in (1970) 3 SCC 900, Bansidhar Shankarlal vs. Mohd. Ibrahim Anr. . In the above case, the plaintiff had obtained a decree against the company on 13.05.1955. Subsequently, on 22.08.1955, an order of winding up of company was passed. The plaintiff filed application for enforcement against the company without obtaining leave of the High Court under Section 171. On motion of the plaintiff, application filed for enforcement of decree was refused on the ground that application for enforcement was not maintainable since no leave of the High Court was obtained by the Company Court. The plaintiff filed an application to take leave, which was granted. The objection filed to the execution proceeding was rejected against which second appeal was filed, in which order of dismissal was confirmed by the Additional District Judge. Plaintiff filed appeal in the Hon ble Supreme Court which was also rejected. The argument which was addressed before the Hon ble Supreme Court is noticed in Para 3 of the judgment, which is as follows: 3. Counsel for the appellant says that the Subordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visional liquidator has been appointed, no suit or other legal proceeding shall be proceeded with or commenced against the Company except by leave of the Court and subject to such terms as the Court may impose. [21 Com Cas 110] This section is in terms analogous to Section 231 of the English Companies Act, 1948 (11 and 12 Geo. 6 Ch. 38). The object of Section 171 is plain. It is intended to ensure that the assets of a company ordered to be wound up by the Court shall be administered for the benefit of all the creditors, and that some creditors only shall not obtain an advantage over others by instituting or prosecuting proceedings against the company. The section is intended to maintain control of the Court which has made an order for winding up on proceedings which may be pending against the company or may be initiated after the order of winding up, and the Court may remain seized of all those matters so that its affairs are administered equitably and in an orderly fashion 30. Hon ble Supreme Court in the above context laid down following in Para 6 and 7: 6. When the Second Appeal No. 1380 of 1954 was pending before the High Court of Calcutta at the instance of the Company and Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing up a debenture-holder's action, whether previously or subsequently commenced, will be given unless the liquidator is able and willing to give in the winding up the relief which could be obtained in the action. The Calcutta High Court in Suresh Chandra v. Bank of Calcutta [(1950) 54 Cal WN 832 (FB)] examined the decisions of the English courts in some details and observed that as regards Section 171 of the Indian Companies Act, 1913, the High Court has jurisdiction to grant leave to proceed with the suit or other proceedings against a company in liquidation even if such leave was not obtained for its commencement. The proceedings may at best be regarded as instituted on the date on which the leave was obtained from the High Court. 31. What was held by the Hon ble Supreme Court in Para 7 is clear that the Supreme Court held that the proceeding initiated without leave of the Court may be regarded as ineffective until leave is obtained but once leave is obtained the proceeding will be deemed instituted on the date granting leave. The Hon ble Supreme Court in Para 8 has expressed disagreement with Calcutta High Court in the matter of Har Narain Misra v. Kanhaiya Lal Lohawalla . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n if such application were made, the Court would have no jurisdiction to grant it. As I read s. 171 it means that leave to proceed with a pending legal proceeding can only be granted where that proceeding has been instituted prior to the winding-up order. I do not consider that the Court has jurisdiction to give the plaintiff leave to continue a suit instituted without leave subsequent to the winding-up order. 34. The Calcutta High Court relying on the judgment in Steel Construction Company Ltd. (Supra) held that suit must be dismissed it having been filed without obtaining leave of the Company Court. The above view was expressly disapproved by Para 8, as noted above. 35. Another judgment of Andhra Pradesh High Court reported in AIR 1960 AP 74, Godavari Sugar and Refineries Ltd. v. Kambhampati Gopalakrishnamurthy was a case where the question was considered as to whether leave of Court is a condition precedent. The Andhra Pradesh High Court also took the view that the proceeding which was initiated without leave was held to be incompetent. The Calcutta High Court, however, has held that if the Respondent want to proceed with execution, he may take leave of the Winding Up Court. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court. 19. Reflecting on the said provision, this Court in Central Bank of India v. Elmot Engg. Co. [(1994) 4 SCC 159] has ruled that it aims at safeguarding the assets of a company in winding up against wasteful or expensive litigation as far as matters which could be expeditiously and cheaply decided by the Company Court are concerned. In granting leave under the said provision, the court always takes into consideration whether the company is likely to be exposed to unnecessary litigation and cost. 20. In Ammonia Supplies Corpn. (P) Ltd. v. Modern Plastic Containers (P) Ltd. [(1998) 7 SCC 105], while dealing with power under Section 446(1) of the 1956 Act, it has been observed that in the said sub-section the words used would indicate that the discretion to exercise such power is with the Company Court. 21. In State of J K v. UCO Bank [(2005) 10 SCC 331], while interpreting Section 446(1) of the 1956 Act, the Court opined that a suit cannot be instituted once a winding-up order is passed except by leave of the court. The two-Judge Bench referred to the ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... likely to be exposed to unnecessary litigation and cost. 38. Learned counsel for the Appellant has also relied on two judgments of Allahabad High Court in (2005) ILR 2 All 580, Vivek Srivastava vs. Union of India Ors. and another judgment of Allahabad High Court in (2017) 4 UPLBC 2717, Pawan Kumar Mishra vs. Joint Director of Education and Ors. to support his submission that when prior approval is contemplated, any action taken in breach, without obtaining prior permission/ prior approval, the action will be nullity. In Vivek Srivastava vs. Union of India Ors. (Supra), the Allahabad High Court had occasion to consider the provisions of Cantonment Land Administration Rules, 1937. Rule 14 Clause (3) provided that the land in Class-A(1) land shall not be used or occupied for any other purpose other than those stated in sub Rule (1) of Rule 5 without the previous sanction of the Central Government. In Para 36 of the judgment following was held: 36. From a perusal of the aforesaid Rules, especially Rules 3, 5, 7, 10, sub clause (vi) and (vii) of Rule 10 read with Rule 13(2) and sub clause (3) and (5) of Rule 14, makes it abundantly clear beyond a reasonable doubt, that no addition or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approval, hence, it was held that appointment was void. In Para 16 following was held: 16. In the light of the aforesaid, we find that admittedly the appellant was appointed without seeking prior approval from the District Inspector of Schools. The said appointment was wholly illegal and was a void order, which conferred no right on the appellant. 41. The above two judgments relied by the Appellant were on their own facts and the High Court in the facts of those cases and statutory provision took the view that action without prior approval was nullity. 42. In the present case, we have noticed the judgment of Hon ble Supreme Court in Bansidhar Shankarlal vs. Mohd. Ibrahim Anr. (Supra), where considering Section 171 the Hon ble Supreme Court has laid down that if the proceedings are initiated without leave of the Court, the proceeding shall be unauthorized. However, it shall become competent from the date when the leave is granted. The above judgment, thus, clearly says that institution of proceeding shall not be void or nullity when it has been filed without leave of the Court. 43. Learned counsel for the Appellant submits that the judgment of Hon ble Supreme Court in Bansidhar Sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icating Authority, the legislative scheme does not indicate any notice or opportunity to the party against whom proceedings are to be instituted. Question No.4 is answered in following words: Answer No.4: Before granting approval under Section 33(5) proviso to institute proceedings by the Liquidator on behalf of the Corporate Debtor, the party against whom proceedings are to be instituted is not to be given a notice or hearing necessarily. Question No. 5 : 46. Learned counsel for the Appellant has contended that the Adjudicating Authority has without any reason passed a non-speaking order. For grant of an ex-post facto approval, the Adjudicating Authority was required to give reason. It is submitted that ex-post facto approval cannot be granted mechanically. 47. In the order of the Adjudicating Authority it is noticed that the Adjudicating Authority has granted extension of liquidation period. In Para 11 of the judgment extension dated 16.01.2024 is referred to. Learned counsel for the Respondent has brought on record the order of the Adjudicating Authority passed on 16.01.2024 where the Adjudicating Authority has noticed about the proceedings initiated by the Liquidator for debt o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders were well within its knowledge and in Para 17 it has been observed by the Adjudicating Authority that since only asset of the Corporate Debtor is bonds held by five entities, in the interest of the Corporate Debtor in order to maximize the value during the liquidation, prayer (b) and (c) were allowed. Para 17 of the judgment has already noticed above. 49. We, thus, are of the view that adequate reasons were given by the Adjudicating Authority for granting ex-post factor approval. Prayer (c) made before the Adjudicating Authority was prayer to permit the Liquidator to continue and proceed with the Section 7 proceedings, which having been granted, the Liquidator was entitled to proceed with the Section 7 proceedings. We, thus, do not find the order of the Adjudicating Authority unsustainable. 50. Before, we close we record that Shri Gyanendra Kumar, learned counsel for the Appellant has advanced his submission with great ability and clarity. Shri Navin Pahwa, learned senior counsel for the Respondent has placed before us all relevant precedents to enable us to decide intricate questions of law involved in these appeals. 51. In view of the foregoing discussion, we do not find an ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
