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TMI Blog2024 (6) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of Section 7 applications which were filed by the Liquidator against the Appellants' companies. All the Appeals arise from same set of facts and raises common question of law, hence, they were heard together and are being decided by this common judgment. It shall be sufficient to refer to Company Appeal (AT) (Ins.) No.690 of 2024 for deciding all these appeals. Brief facts of the case giving rise to these appeals are: (i) The Corporate Debtor - Reliance Marine & Offshore Limited (hereinafter referred to as 'RMOL') was admitted to Corporate Insolvency Resolution Process (CIRP) vide order dated 21.08.2019. (ii) The order of Liquidation was passed against RMOL on 06.12.2021. The Respondent - Jigar Bhatt was appointed as Liquidator. The Liquidator issued Demand Notice to the Appellants to make payment with respect to Non-Convertible Unsecured Bonds subscribed by the Corporate Debtor. (iii) No payments having been made by the Appellants, the Liquidator in September, 2023 filed Section 7 applications against the Appellants. Section 7 application filed against M/s Slimline Realty Private Limited was registered as Company Petition (IB) No.1007/2023. Similarly, with regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining prior approval of the Adjudicating Authority. It is submitted that the provision under Section 33(5) is a mandatory provision according to which Liquidator was not competent to initiate any proceeding on behalf of the Corporate Debtor without obtaining prior approval. The prior approval contemplated under Section 33(5) proviso cannot be equated with post-facto approval. The proceeding initiated by the Liquidator without obtaining prior approval is void and nullity and cannot be cured by any post-facto approval. There is distinction between expressions 'sanction/permission', 'approval' and 'prior approval'. When a statute requires a sanction, permission or approval, a post-facto approval may cure the defect. However, when a statute mandates a prior approval, defect in initiation of proceedings cannot be cured by post-facto approval. The language of provisions under Section 33(5) are clear, plan and unambiguous. The expression 'prior approval' has been used cautiously and every word used in the statute has to be given its proper and effective meaning, as the legislature uses no expression without purpose or meaning. It is submitted that order dated 07.02.2024 has been passed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cations filed by the Liquidator, two applications have already been admitted by the Adjudicating Authority and with respect to three other applications order have already been reserved. 5. Learned counsel for both the parties have placed reliance on various judgments of Hon'ble Supreme Court, High Court and this Tribunal in support of their respective submissions which shall be considered hereinafter. 6. On submission of learned counsel for the parties following issues arise for consideration in these appeals: (1) 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? (2) What are the consequences and status of the proceedings instituted by the Liquidator on behalf of the Corporate Debtor without prior approval of the Adjudicating Authority? (3) Whether a post facto approval granted by the Adjudicating Authority of proceedings instituted by the Liquidator without obtaining prior approval shall make the proceedings authorized/ competent? (4) Whether before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 by or in respect of the company; (d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company; whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960. (3) 3[***] (4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a high Court." 10. From the facts as noticed above, it is clear that order of liquidation was passed on 06.01.2021. After passing of order of liquidation, the Liquidator sent Demand Notice to the Appellants to make payment due from July, 2019 to the Corporate Debtor. The Stakeholders Consultation Committee (SCC) was constituted after order of liquidation. The SCC did not accede to the request of the Liquidator for initiating proceeding against the Appellant companies. The Liquidator, however, on 30.09.2023 filed application against the Appellants unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icating Authority is as follows: "15. The only asset of the Corporate Debtor is the bond issued by the 5 entities as mentioned above. The liquidator has initiated Section 7 proceedings against the 5 entities. In terms of Section 33(5) of the IBC, 2016, no prior permission was taken from this Tribunal before initiation of such proceedings. 16. By this application, the liquidator seeks post facto approval of the action already initiated by the liquidator. 17. As the only assets of the Corporate Debtor is bond held by 5 entities, in the interest of the Corporate Debtor and in order to maximize the value during the liquidation process, this Adjudicating Authority hereby allows prayer (b) and (c) as stated above. In view of the above, this application i.e. IA/189(AHM)2024 is allowed and accordingly disposed off." Question No.1 12. We need to first examine as to whether the provision of Section 33(5) is a mandatory provision as contended by learned counsel for the Appellant or the provision is only directory as submitted by learned counsel for the Respondent. When we look into the expression used in Section 33 Sub-section (5), Section 33(5) provides that when a liquidation order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es which are not in accord with the notions of propriety or justice entertained by the Court." 14. Next judgment relied by learned counsel for the Appellant is judgment of Hon'ble Supreme Court in "Gurudevdatta Vksss Maryadit and Others vs. State of Maharashtra and Others, (2001) 4 SCC 534". The Hon'ble Supreme Court in the above judgment after noticing earlier judgments on the statutory interpretation laid down that it is cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense. Following was observed in Para 26: "26. Further we wish to clarify that it is a cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to some absurdity or unless there is something in the context or in the object of the statute to suggest to the contrary. The golden rule is that the words of a statute must prima facie be given their ordinary meaning. It is yet another rule of construction that when the words of the statute are clear, plain and unambiguous, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te is mandatory, it is clothed with a negative command. In Para 18 of the judgment following has been laid down: "18. It is obvious that Section 20-A(1) is a mandatory requirement of law. First, it starts with an overriding clause and, thereafter, to emphasise its mandatory nature, it uses the expression "No" after the overriding clause. Whenever the intent of a statute is mandatory, it is clothed with a negative command. Reference in this connection can be made to G.P. Singh's Principles of Statutory Interpretation, 12th Edn., at pp. 404-05, the learned author has stated: "... As stated by CRAWFORD: 'Prohibitive or negative words can rarely, if ever, be directory. And this is so even though the statute provides no penalty for disobedience.' As observed by SUBBARAO, J.: 'Negative words are clearly prohibitory and are ordinarily used as a legislative device to make a statute imperative.' Section 80 and Section 87-B of the Code of Civil Procedure, 1908; Section 77 of the Railways Act, 1890; Section 15 of the Bombay Rent Act, 1947; Section 213 of the Succession Act, 1925; Section 5-A of the Prevention of Corruption Act, 1947; Section 7 of the Stamp Act, 1899; Section 108 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 22, 25, 26 and 27 following has been laid down: "22. This Court in Lachmi Narain v. Union of India has held that: (SCC p. 969, para 68) "68. ... 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." Further, hardship cannot be a ground for changing the mandatory nature of the statute, as has been held by this Court in Bhikraj Jaipuria v. Union of India and Fairgrowth Investments Ltd. v. Custodian. Hardship cannot thus be a ground to interpret the provision so as to enlarge the time, where the statute provides for a specific time, which, in our opinion, has to be complied in letter and spirit. 25. The contention of the learned counsel for the respondent is that by not leaving a discretion with the District Forum for extending the period of limitation for filing the response before it by the opposite party, grave injustice would be caused as there could be circumstances beyond the control of the opposite party because of which the opposite party may not be able to file the response within the period of 30 days ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later. Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002, the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.]" 21. This Tribunal, in the above case, after considering the timelines came to the conclusion that requirement of approval of CCI is mandatory whereas requirement of approval by CCI prior to CoC is directory. In Para 33 and 34 of the judgment following was laid down: "33. We have noticed above that approval of the CCI, which is provided for a combination and the time prescribed under the Competition Act is 210 days. We have also noticed that CIRP Regulations also provide a timeline. Section 12 of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even after the approval by the CoC, which was in accordance with the prevalent legal position as settled by this Tribunal in Arcelor Mittal and other cases. We thus are of the view that Section 31, sub-section (4) proviso has to be read to mean that though the approval by the CCI is 'mandatory', the approval by the CCI prior to approval of CoC is 'directory'. We, thus, do not find any error in the order of the Adjudicating Authority dated 28.04.2023 rejecting the I.A. No.1497/KB/2022 filed by the Independent Sugar Corporation Ltd." 22. We may also notice one more judgment of the Hon'ble Supreme Court on interpretation of a proviso in "(2013) 11 SCC 451, Rohitash Kumar & Ors. vs. Om Prakash Sharma and Others", where the Hon'ble Supreme Court reiterated the principles for interpretation of a proviso. In Para 20 and 21 following was laid down: "Interpretation of the proviso 20. The normal function of a proviso is generally to provide for an exception i.e. exception of something that is outside the ambit of the usual intention of the enactment, or to qualify something enacted therein, which, but for the proviso would be within the purview of such enactment. Thus, its purpose is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent that prior approval of the Adjudicating Authority is directory, the Liquidator will be free to initiate proceedings against any entity without obtaining prior approval of the Adjudicating Authority, which cannot be the intendment of the provision of Section 33(5). 24. Learned counsel for the Appellant has referred to judgment of Hon'ble Supreme Court in "(2016) 12 SCC 613, Bajaj Hindustan Ltd. Vs. State of Uttar Pradesh & Ors.", where the Hon'ble Supreme Court has noticed the various expressions including 'approval', 'prior approval'. The Hon'ble Supreme Court has occasion to consider provisions of Uttar Pradesh Sugarcane Purchase Act, 1961. In Para 6 and 7 of the judgment following was laid down: "6. From the aforesaid facts, what emerges is that there is no evasion of any tax. The claim of the appellant that it had paid the tax at the time of removal of the bags from the godown is not disputed by the assessing authority. In fact, as mentioned above, while granting ex post facto approval, the assessing authority had satisfied itself about the due payment of the entire tax at the time of removal of the bags and that there was no evasion of tax. In these circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 29(1) [of the Act]." Ordinarily, the difference between approval and permission is that in the first case the action holds good until it is disapproved, while in the other case it does not become effective until permission is obtained. But permission subsequently granted may validate the previous Act. As to the word "approval" in Section 32(2)(b) of the Industrial Disputes Act, it was stated in Lord Krishna Textile Mills v. Workmen, that the Management need not obtain the previous consent before taking any action. The requirement that the Management must obtain approval was distinguished from the requirement that it must obtain permission, of which mention is made in Section 33(1).' *** 15. The words used in Section 21(xiii) are not "with the permission of the State Government" nor "with the prior approval of the State Government", but "with the approval of the State Government". If the words used were "with the permission of the State Government", then without the permission of the State Government the Executive Council of the University could not determine the terms and conditions of service of the non-teaching staff. Similarly, if the words used were "with the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been provided in the provision, cannot be a ground to treat the requirement as directory. We have noticed the judgments of Hon'ble Supreme Court as above that every word used in a statute has to be given its proper and effective meaning, as the legislature does not use any word without any purpose and object. Use of prohibitory and negative language, even if no consequences are provided, is treated as mandatory requirement. We, thus, agree with the submission of learned counsel for the Appellant that the requirement as contemplated in Section 33(5) proviso of obtaining prior approval by the Liquidator is a mandatory requirement. We, thus, answer the Question No.1 in following manner: Answer No.1: 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. Question No. 2 and 3 27. Both the questions being interconnected are being taken together. As noted above no consequences has been provided for non-compliance of Section 33(5) in the statute itself. It is relevant to notice that with respect to certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decree in Second Appeal No. 1380 of 1954, unless the High Court of Calcutta in its company jurisdiction granted leave to execute the decree under Section 171 of the Indian Companies Act, 1913. Counsel urged that leave of the High Court is by the terms of Section 171 of the Indian Companies Act made a condition precedent to the institution of a proceeding against a company ordered to be wound up by the Court and that the application for execution of the decree without, in the first instance, obtaining leave of the High Court was entertained without authority. The question sought to be raised in the proposed appeal, it was urged, was of general or public importance. In any case it was contended that there is conflict of opinion among the courts in India on the true interpretation of Section 171 of the Indian Companies Act, 1913, and Section 446 of the Companies Act, 1956 (which replaced Section 171 of the Act of 1913), and the High Court was bound to grant the certificate applied for either under Section 133(1)(b) or under Article 133(1)(c) or both the clauses." 29. Hon'ble Supreme Court also noticed two earlier judgments of Calcutta High Court and Andhra Pradesh High Court where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Court in enjectment, the Company was ordered to be wound up by order of the High Court of Calcutta and the liquidators were appointed. The liquidators prosecuted the appeal. There is no evidence on the record whether the liquidators obtained the sanction of the Court under Section 179(1)(a) of the Companies Act, 1913. But there is no reason to suppose that the liquidators did not obtain the sanction of the Court. If sanction of the Court under Section 179 to prosecute the appeal before the High Court was obtained, and it must be so assumed, the contention raised on behalf of Bansidhar loses all significance for an execution application is only a continuation of the suit and the control of the High Court enures during the execution proceeding also. If the sanction of the Court has been obtained for the prosecution of the suit, it would be plainly unnecessary to obtain fresh sanction to the institution of execution proceeding at the instance of the successful party. It is true that the sanction obtained by the liquidators is granted under Section 179 of the Companies Act to initiate or enforce a claim of the company or to defend an action, whereas the leave of the Court to institut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llows: "8. Considering the question both on principle and authority we are unable to agree with the view expressed by the Calcutta High Court in Har Narain Misra case and in Godavari Sugar and Refineries Ltd. case by the Andhra Pradesh High Court." 32. We may notice both of the above judgments, to notice that what was disapproved by the Hon'ble Supreme Court. In "AIR 1940 Cal 166, Har Narain Misra v. Kanhaiya Lal Lohawalla", the Calcutta High Court relied on its earlier judgment in "Steel Construction Company Ltd., (1935) 40 C.W.N 312". The facts of the case are noticed in following words: "PANCKRIDGE J. This application raises a question of some importance. In December last year the plaintiff filed a suit against Kanhaiya Lal Lohawalla and the Rajputana Films Co., Ltd. It now appears that, prior to the institution of the suit, that is to say, on October 6, 1938, an order was made at the instance of a creditor by the District Judge of Ajmere for the compulsory liquidation of the defendant company. The plaintiff states that, at the time when the suit was instituted, he was unaware of the order for compulsory liquidation, and, accordingly, he made no application to the Court, ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court in "Bansidhar Shankarlal vs. Mohd. Ibrahim & Anr." (Supra) has expressly disapproved the law laid down by the Calcutta High Court and the Andhra Pradesh High Court. The judgment of Hon'ble Supreme Court makes the law clear that the proceedings initiated without leave of the Court are ineffective and they will be deemed to be instituted on the date when leave is granted. 36. Now we come to next judgment relied by the Respondent i.e. judgment of the Hon'ble Supreme Court in "(2013) 15 SCC 655, Erach Boman Khavar v. Tukaram Shridhar Bhat & Anr.". The Hon'ble Supreme Court in the above case had occasion to consider Section 446 of the Companies Act, 1956. The Hon'ble Supreme Court held that grant of leave of Court under Section 446 is not a condition precedent for initiating civil action or the legal proceedings. Referring to Section 446, the Hon'ble Supreme Court has noticed the object of the provision. In Para 18 to 22 following was held: "18. To appreciate the submissions in their proper perspective, we may refer to Section 446 of the 1956 Act which reads as follows: "446. Suits stayed on winding-up order.-(1) When a winding-up order has been made or the Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The two-Judge Bench referred to the earlier decision rendered in Bansidhar Shankarlal v. Mohd. Ibrahim [(1970) 3 SCC 900] , wherein the leave had been obtained at the time of filing of the suit and the question was whether fresh leave ought to be obtained before proceeding under Section 446(1) of the 1956 Act before institution of execution proceedings. The Court considered the contrary views expressed by different High Courts on the effect and purport of Section 446(1) of the 1956 Act and came to the conclusion that the view that failure to obtain leave prior to institution of suit would not debar the court from granting such leave subsequently and that the only consequence of the same would be that the proceedings would be regarded as having been instituted on the date on which the leave was obtained from the High Court. 22. We have referred to the aforesaid decisions solely for two purposes. First, grant of leave of the court is not a condition precedent for initiation of a civil action or the legal proceedings. It is because the section does not expressly provide for annulment of a proceeding that is undertaken without the leave of the court. There can be no shadow of doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t abundantly clear beyond a reasonable doubt, that no addition or alteration in the General Land Register could be made except with the previous sanction of the Central Government and that no building of any kind, either permanent or temporary, can be erected on Class-A and, except with the previous sanction and subject to such conditions as may be imposed by the Central Government." 39. In the above context, the Allahabad High Court held that any sanction afterwards cannot cure the initial defect. In Para 47 and 48 following was held: "47. In Shiv Gorakh Nath Charitable Society, Kanpur and Ors. v. Cantonment Board, Kanpur and Ors., 1997(3) AIR 616, a Division Bench of this Court held that where constructions were made without prior permission, post facto permission cannot be granted and that the constructions has to be dismantled. 48. From the aforesaid it is clear that seeking previous approval from the Central Government is not an empty formality or an automatic event to be given on the mere asking. The Central Government is required to perform its duties in terms of the provisions contained in the aforesaid Rules of 1937 and the Central Government is also required to act i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the Appellant submits that the judgment of Hon'ble Supreme Court in "Bansidhar Shankarlal vs. Mohd. Ibrahim & Anr." (Supra) and "Erach Boman Khavar v. Tukaram Shridhar Bhat & Anr." (Supra) cannot be applied in Section 33(5) since the use of expression in Section 171 and Section 446 was 'leave of the Court' whereas in Section 33(5) the expression 'prior approval' is used. It is submitted that 'leave of the Court' and 'prior approval' are two different expressions. 44. When we look into the provision of Section 171 and Section 446, it is clear that leave of the Court has to be prior to the instituting any proceeding. Thus, the expression 'leave of the Court' and 'prior approval' denotes same meaning i.e. leave of the Court/ prior approval before any proceeding is instituted by the Liquidator. The legislative scheme which was earlier operating in the Companies Act, 1913 and Companies Act, 1956 has been carried forward by the IBC in so far as requirement under Section 33(5) are concerned. We, thus, are of the view that the judgment of Hon'ble Supreme Court in "Bansidhar Shankarlal vs. Mohd. Ibrahim & Anr." (Supra) and "Erach Boman Khavar v. Tukaram Shridhar Bhat & Anr." (Supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed on 16.01.2024 where the Adjudicating Authority has noticed about the proceedings initiated by the Liquidator for debt of Rs.306.73 Crores. It is useful to extract order dated 16.01.2024, which is to the following effect: "ORDER IA/65(AHM)2024 in IA 794 of 2020 This is an application filed by the liquidator seeking the following prayers: (a) Allow the present application : (b) Pass the appropriate order under sub-regulation (2) of Regulation 44 of the IBBI (Liquidation Process) Regulations, 2016 allowing further 12 months from 11.01.2024 for liquidation of the corporate debtor in the interest of justice; (c) Such other reliefs as this Hon'ble Tribunal may deem fit and proper in the facts and circumstances of the present case : Learned Liquidator. Mr. Jigar Bhatt present during the hearing and states that 4th Meeting of SCC was held on 02.01.2024 wherein the agenda for extending the liquidation period of the corporate debtor was discussed and deliberated upon. On Page No. 175 of this application the learned liquidator has given the outcome which concluded on 04.01.2024 at 6:00 PM and extended till 05.01.2024 at 6:00 PM. It is seen that the 38.76% of the SCC ..... X X X X Extracts X X X X X X X X Extracts X X X X
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