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TMI Blog2024 (11) TMI 676X X X X Extracts X X X X X X X X Extracts X X X X ..... n the context of presentation of election petition under Section 81 of the Representation of the People Act, 1951 that the Supreme Court discussed the difference between the ministerial function and adjudicatory function and further that by which authority and at which stage such functions, both of different kinds, could be performed. The gist of the plea raised by the appellant was the petition should have been presented either before the Designated Election Judge or the Chief Justice of the High Court and that having not been done, the petition was liable to be dismissed without trial. The Supreme Court considered the question as to whether the High Court was competent to frame rule for making provision for receiving the election petitions presented to the High Court under Section 81 of the Representation of the People Act. It is in that context that the Supreme Court elucidated the difference between ministerial act and adjudicatory act. It was observed, By no stretch of imagination can it be said that the presentation of an election petition is part of the trial of an election petition . The Supreme Court in Jamal Uddin Ahmad observed that the judicial function entrusted to a J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as to when the adjudicatory function of adjudicatory authority commences. It was held that adjudicatory function of adjudicatory authority commences under Part III of the Code, 2016 after submission of a recommendatory report by the resolution professional. In challenging the constitutional validity of Section 95 to Section 100 of the Code, 2016 which was negatived by the Supreme Court, the same nature of submissions were advanced on behalf of the petitioners before the Supreme Court - Inasmuch as without judicial intervention for adjudication, there would operate an automatic interim moratorium, for the resolution professional would be appointed who would seek from the guarantor and would examine the information received and then submit report. Adjudicatory Stage Subsequent - HELD THAT:- It is an inescapable conclusion that even the stage when the resolution professional functions together the information to prepare the report to be submitted to the adjudicatory authority-NCLT, the adjudicatory stage does not reach and no adjudication of rights of the parties takes place. Therefore, it could not be said at any stretch of imagination that the Registrar, NCTL, while accepting or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and order of learned Single Judge dated 6th March 2024 passed in writ petition No.26977 of 2023, allowing the petition, is hereby set aside - Appeal allowed. - THE HON BLE MR. N.V. ANJARIA, CHIEF JUSTICE AND THE HON'BLE MR. JUSTICE K.V. ARAVIND FOR THE APPELLANT: SRI S. BASAVARAJ, SENIOR ADVOCATE SRI M.S. SHAM SUNDAR, SENIOR ADVOCATE A/W SRI ANISH ACHARYA, ADVOCATE FOR THE RESPONDENTS: SRI OM PRAKASH, SENIOR ADVOCATE A/W SRI S. KIRAN KUMAR, ADVOCATE FOR C/R1 SRI KUMAR M.N. C.A.V. JUDGMENT (PER: HON'BLE THE CHIEF JUSTICE MR. JUSTICE N.V. ANJARIA) Whether the aspect about the maintainability of petition filed under Section 95 of the Insolvency and Bankruptcy Code, 2016 for its merit content could be examined by the Registrar of the National Company Law Tribunal at the stage of its filing and presentation; Whether it is permissible in law for the Registrar of the National Company Law Tribunal (NCLT) to enter into even the elementary adjudicatory process in relation to controversy between the parties; Whether receiving and registering the petition under Section 95 of the Insolvency Code is a ministerial function or also permits an adjudicatory act at that stage by the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest in the said private limited company, it was stated. The said Manyata Infrastructure Pvt. Ltd. and the petitioner, it was averred, have been instrumental in developing several projects as a leader in the field of construction. It was stated that, the petitioner along with the land owners of certain properties entered into Memorandum of Understanding dated 23rd December 2009 and Addendum dated 20th July 2012 with respondent No.2-appellant herein-Buyont Technology. 3.1.1 In light of the said Memorandum of Understanding, the petitioner firm Manyata Pvt. Ltd. and appellant have entered into separate joint developmental agreements between the years 2010 and 2015. It was further stated that the joint development agreements covering in total 103 Acres of land. The petitioner produced one of such agreement dated 26th August 2010. 3.1.2 It was alleged by the petitioner that the appellant did not commence the development works, delayed the same and failed to discharge its contractual obligation, that the construction activity is at a stand-still and that losses were suffered. Consequently, by notice dated 7th February 2019, the petitioner and Manyata Pvt. Ltd., terminated six of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2 was only to delay the arbitration proceedings. It was claimed that the appellant wanted to take benefit of Section 96 of the Insolvency Code inasmuch as upon filing of the petition under Section 95 of the Code, the provision of Section 96 would operate under which an interim moratorium would come into force. It was submitted that the petition under Section 95 of the Code could not have been registered by respondent No.1-Registrar, NCLT. Section 95 Petition 3.2 The case and contents of the petition under Section 95 of the Insolvency Code filed by the creditor-M/s. Buoyant Technology Limited-appellant herein, may be highlighted. It is stated that the petition was against the personal guarantors. It was stated that admittedly there was a default on part of the said corporate debtors which had failed to discharge its obligation under the Loan Agreement dated 6th November 2012 as also in respect of invocation of personal guarantors. It was stated that the corporate debtor-Manyata Infrastructure Private Limited was a private limited company registered under the Companies Act, 2013 and was an affiliate entity of Manyata Reallty and that the individual partners of the firm had interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nches would be initially treated as loan/financial debt. It was stated that as a consequence, Loan Agreement dated 6th November 2012 was entered into which was a separate and independent document, which was duly executed by the applicant-financial creditor and the corporate debtor as well as its affiliated entity. 3.2.5 It was further averred that both the entities-corporate debtor and its affiliate concern agreed to treat the initially disbursed sum of Rs. 40 crores to be a financial debt within the meaning of Section 5(8) of the Code. The applicant furnished the details thereof as part of the pleadings, the details of the treatment of total of Rs. 183,50,00,000/- in various trenches on various dates to the said entities. It was sought to be highlighted that the loan agreement envisaged certain conditions attached to the advancement of Rs. 40 crores and the conditions were to be fulfilled by the said entities on or before 31.03.2013 failing which, the said money was to be returned to the financial creditor-applicant along with interest. 3.2.6 It was the case that there is material breach of the covenants of the loan agreement and the corporate debtor and its affiliated entity fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amed the question as to whether petition filed by the appellant was maintainable under Section 95 of the Code, thus proceeded to address the merits of the petition. The core question required to be considered was whether the Registrar while receiving the petition could go into the merits and to decide the maintainability. 3.3.1 Learned Single Judge proceeded to consider merits and to analyse the provisions of the Code including the definition of corporate person , corporate debtor and consider the aspect that prima facie respondent was partnership firm and that in view of notification dated 15th November 2019, the provisions were not invocable. Learned Single Judge held that there was no personal corporate guarantor and insolvency resolution process could not have been initiated by the petitioner. 3.3.2 The submission of the appellant-respondent was that respondent No.1-Registrar at the stage of scrutiny of the petition cannot decide on the maintainability and could not have judged whether the petition fell within the ambit of the provisions. The contention that the petition was at the stage of scrutiny and had never come up before the Tribunal was negatived by learned Single Judge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess against (a) any one or more partners of the firm; or (b) the firm. (3) Where an application has been made against one partner in a firm, any other application against another partner in the same firm shall be presented in or transferred to the Adjudicating Authority in which the first mentioned application is pending for adjudication and such Adjudicating Authority may give such directions for consolidating the proceedings under the applications as it thinks just. (4) An application under sub-section (1) shall be accompanied with details and documents relating to (a) the debts owed by the debtor to the creditor or creditors submitting the application for insolvency resolution process as on the date of application; (b) the failure by the debtor to pay the debt within a period of fourteen days of the service of the notice of demand; and (c) relevant evidence of such default or non-repayment of debt. (5) The creditor shall also provide a copy of the application made under sub-section (1) to the debtor. (6) The application referred to in sub-section (1) shall be in such form and manner and accompanied by such fee as may be prescribed. (7) The details and documents required to be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icant has provided information and given explanation sought by the resolution professional under sub-section (4). (7) After examination of the application under sub-section (6), he may recommend acceptance or rejection of the application in his report. (8) Where the resolution professional finds that the debtor is eligible for a fresh start under Chapter II, the resolution professional shall submit a report recommending that the application by the debtor under section 94 be treated as an application under section 81 by the Adjudicating Authority. (9) The resolution professional shall record the reasons for recommending the acceptance or rejection of the application in the report under sub-section (7). (10) The resolution professional shall give a copy of the report under sub-section (7) to the debtor or the creditor, as the case may be. 3.4.4 Section 100 is about the admission or rejection of the application, reading as under, 100. Admission or rejection of application (1) The Adjudicating Authority shall, within fourteen days from the date of submission of the report under section 99 pass an order either admitting or rejecting the application referred to in sections 94 or 95, as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the partners of the respondent were personal corporate guarantors by pointing out aspects of loan having been taken jointly by Manyata Reallty and the Pvt. Ltd. Company-Manyata Infrastructure, the nature of liability of the partners under the law and various other attendant aspects, which according to the learned counsel make the persons personal corporate guarantors. It is not necessary to elaborate these submissions, and give finding thereon, in view of what is being decided herein. 4.1.2 Learned Senior Advocate submitted that merely that moratorium under Section 96 of the Insolvency Code would come into operation upon filing of Section 95 petition, is no ground to judge the maintainability and to debar the creditor or debtor to initiate the action permissible under the law. It was submitted that coming into force of interim moratorium is statutory consequence. It was further submitted the appellant also filed a petition under Section 7 of the Insolvency and Bankruptcy Code against the Company, which Company is a corporate debtor. It was submitted that for Section 7 petition, no interim moratorium would come into effect, unlike upon filing of Section 95 petition. He relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in Lalit Kumar Jain v. Union of India [(2021) 9 SCC 321] was referred to for the observations contained in paragraph 95, to highlight the provisions in part-III of the Code as they operate before amendment of 2018 and post amendment. Several decisions were relied on by learned Senior Advocate for the respondent to advance legal propositions and to buttress his submissions. On the basis of the decision of the Supreme Court in S. Govinda Menon v. Union of India [AIR 1967 SC 1274], it was submitted by referring to observations in paragraph 5 thereof that writ of prohibition is issued to restrain the court or inferior tribunal from exercising a jurisdiction which they do not possess or when they exceed the jurisdiction. For same proposition, another decision in Bengal Immunity Company Ltd. v. State of Bihar [AIR 1955 SC 661, paragraphs 52 and 53] was pressed into service. 4.2.4 With reference to paragraph 334 in the decision of the Apex Court in Mafatlal Industries Ltd. v. Union of India [(1997) 5 SCC 536], the concept of jurisdiction was highlighted. Yet another decision in Indian Farmers Fertilisers Cooperative Society Ltd. v. Bhadra Products [(2018) 2 SCC 534], was rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tition was presented before the Stamp Reporter-cum-Oath Commissioner of the High Court of Assam. The Stamp Reporter received the election petition, conducted preliminary scrutiny and put up the same before the Designated Election Judge. The appellant upon receipt of the copy of the election petition filed an application raising a preliminary objection to the maintainability of the petition, seeking its dismissal in limine under Section 86 of the Representation of the People Act on the ground of non- compliance with Section 81 of the Act. 5.1.2 The gist of the plea raised by the appellant was the petition should have been presented either before the Designated Election Judge or the Chief Justice of the High Court and that having not been done, the petition was liable to be dismissed without trial. The Supreme Court considered the question as to whether the High Court was competent to frame rule for making provision for receiving the election petitions presented to the High Court under Section 81 of the Representation of the People Act. It is in that context that the Supreme Court elucidated the difference between ministerial act and adjudicatory act. It was observed, By no stretch o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion are called courts of law or courts of justice. Administration consists of the operations, whatever their intrinsic nature may be, which are performed by administrators; and administrators are all State officials who are neither legislators nor judges (See Constitutional and Administrative Law, Philips and Jackson, Sixth Edition, p. 13). P. Ramnath Aiyer's Law Lexicon defines judicial function as the doing of something in the nature of or in the course of an action in court, (p. 1015). The distinction between judicial and ministerial acts is: If a judge dealing with a particular matter has to exercise his discretion in arriving at a decision, he is acting judicially; if on the other hand, he is merely required to do a particular act and is precluded from entering into the merits of the matter, he is said to be acting ministerially. (para 14) (emphasis supplied) 5.1.5(a) The Supreme Court proceeded further to elaborate, Judicial function is exercised under legal authority to decide on the disputes, after hearing the parties, may be after making an enquiry, and the decision affects the rights and obligations of the parties. There is a duty to act judicially. The Judge may cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted with the Registrar is maintainable, is a part of merit and it necessarily travels in the realm of judicial function. The Registrar is not entitled to look into this aspect. 5.2.1 The Supreme Court clearly stated that receiving an election petition presented under Section 81 of the Act is certainly not a judicial function which needs to be performed by a Judge alone. In the same way, presentation of petition under Section 95 of the Insolvency Code before the Registrar, NCLT is not a judicial function and the judicial scrutiny does not take place at such stage. As there is no discretion in receiving an election petition and it is to be received when presented in the same conceptual way, the Registrar does not have any discretion to judge the maintainability of petition under Section 95 of the Code and for that purpose go into the merit part of the contents of the petition. It is a ministerial function simpliciter. 5.2.2 If the Registrar who is a purely administrative authority is entrusted with the power or permission to examine the presentation of the petition for its merit contents, the adjudicatory stages statutorily contemplated in the Insolvency Code would turn upside down. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resolution professional in Part-III. 5.3.1 Section 94 and 95 of the Code provide for application for the debtor or creditor for the initiation of the insolvency resolution process in relation to insolvencies and bankruptcies of the individuals and partnership firms. Section 97 provides for appointment of resolution professionals. In contrast to Part-II provisions where the role of adjudicating authority is contemplated right at the threshold, the appointment of resolution professionals under Part-III provisions does not mark commencement of adjudicatory process. The duties of the resolution professionals appointed under Part-III are as contained in Section 99. 5.3.2 The resolution professional examines the application which may have been filed under Section 94 or 95 of the Code, thereafter the resolution professional may require a debtor to prove the debt claimed to have been unpaid. The information which the resolution professional gathers is to be channelised for the purpose of functions to be discharged by him under Section 99(1) of the Code. Section 99 provides for submission of report by the resolution professional to the adjudicating authority for approval or rejection of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of a report. Upon the submission of the report, the matter then lies within the jurisdiction of the adjudicating authority. This is evident from the fact that Section 100(1) stipulates that the adjudicating authority has to pass an order either admitting or rejecting the application within fourteen days from the date of the submission of the report under Section 99. (para 53) 5.3.5 It was further observed in paragraph 54 that it was salient aspect to emerge that the resolution professional does not possess any adjudicatory function in terms of provisions of Section 99. The Legislature considered it appropriate to impose the resolution professional before the adjudicatory function of the adjudicatory authority which commences under Section 100. It was stated that the resolution professional does not have the power under part III which is counter part as in part II, it was observed that under Section 99, part III which is ascribed to the resolution professional to that of a facilitatory and is to gather the relevant information on the basis of the application which is submitted under Section 94 of Section 95 of the Code, 2016. 5.3.6 The Supreme Court further stated thus, ...The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tcy if it rejects the application on the ground that it was intended to defraud the creditors or the resolution professional. The provisions dealing with moratorium under Section 101(2) (c) correspond broadly to the provisions of Section 14(1)(b) in relation to Part II. Significantly, clause (c) of Section 101(2) which places a restraint on the transfer, alienation or disposal of assets does not find a place in Section 96(1)(b). It consequently operates only after the admission of an application under Section 100. (para 59) 5.4.2 The Supreme Court further observed, This analysis would indicate that the adjudicatory function of the adjudicating authority commences, under Part III, after the submission of a recommendatory report by the resolution professional. Evidently, bearing in mind the clear differences between CIRP under Part II and insolvency resolution process for individuals and partnership under Part III, the legislature has carefully calibrated: (i) The role of the resolution professional; (ii) The imposition of the moratorium; and (iii) The stage at which the adjudicating authority steps in under Part II, on one hand, and Part III, on the other. (para 60) 5.4.3 The submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (1) can be initiated only in respect of partnership debt owed to the creditor. The court rejected the contention to observe that it was not a correct reading and that provisions of sub-section (2) cannot control the ambit of sub- section (1) of Section 95. This interpretation is of significance also in the context of the present controversy. 5.4.6 Conclusions were drawn by the Apex Court in paragraph 86 and in paragraph 86.6, it was in terms observed and held that no judicial determination takes place until the adjudicating authority decides under Section 100 whether to accept or reject the application. It was stated that the report of the resolution professional was only recommendatory which would not bind the adjudicatory authority. Moratorium A Statutory Effect 6. The contention that moratorium period would come into play by virtue of operation of Section 96 of the Code, and therefore the Registrar while registering the application under Section 95 is permitted or is justified to look into and assess the merits in relation to maintainability of the petition is misconceived and does not stand to reason, when the filing and registering of the application under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 100 of the Code would operate. The resolution professional would examine the application as to whether it satisfies the requirements of Section 94 or 95, as the case may be, to recommend the acceptance or rejection of the application by submitting a report. As held in Dilip B Jiwrajka (supra), the stage of discharge of duties by the resolution professional as above is not the adjudicatory process and the functions which the resolution professional performs are not adjudicatory in nature. Therefore, it is impossible to conclude that the Registrar at the stage of receipt of the petition filed under Section 94 or 95 of the Code by the debtor or creditor, which is a stage even prior to Section 97 and 99 of the Code can decide on the maintainability of the petition by entering into merit and thus the realm of adjudication. 8. The submission of learned advocate for the appellant could not brushed aside lightly when it was contended that the prayers made in the writ petition was in the nature of anti-suit injunction. The petitioner by seeking declaration as prayed for wanted thwart at the threshold from presentation of the petition under Section 95 of the Code which was not permissibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as the case may be, has no judicial trapping. (iv) It is not permissible for the Registrar, NCLT, to go into the merits of the petition and/or to decide about maintainability thereof on merits, for, the Registrar does not discharge any adjudicatory or judicial function at this stage. (v) Once the petition under Sections 94 or 95 of the Code, as the case may be, is filed and registered, it will follow the course contemplated in Sections 96 to 100. The operation of all these provisions is statutory. (vi) The resolution professional who would be appointed under Section 97, is required to submit report to the adjudicating authority recommending for approval or rejection of the application. (vii) In view of the decision of the Supreme Court in Dilip B. Jiwrajka (supra), this stage also is not adjudicatory. (viii) It is the stage of Section 100 of the Insolvency and Bankruptcy Code, 2016, which marks the commencement of adjudicatory process. (ix) The adjudicating authority within the stipulated time, upon submission of the report under Section 99, shall either admit or reject the application referred to in Sections 94 or 95, as the case may be. (x) It therefore necessarily follows that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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