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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 ..... es; 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 Registrar, NCLT; At what stage the adjudicatory functions starts under the provisions of Chapter-III, Part-III of the Insolvency and Bankruptcy Code, 2016; 1.1 These are the questions arise for their analysis and decision while examining the challenge to the judgment and order dated 6th March 2024 of learned Single Judge, in the present appeal, preferred by the appellant-original respondent No.2, under Section 4 of the Karnataka High Court Act, 1961. The Challenge 2. Learned Single Judge allowed the writ petition. It was declared that e-filing of the petition by the appellant herein under Section 95 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the 'Insolvency Code') to be non est and illegal, consequently setting aside all the connected proceedings. It was provided that any action taken upon registration of the proceedings shall stand obliterated. 2.1 In the writ petition filed under Article 226 of the Constitution, the prayers made were to declare that the e-filing of petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 joint development agreements and partially terminated three. 3.1.3 The issues and differences worsened. The petitioner- Manyata Infrastructure Private Limited issued notice dated 16.07.2022 to the appellant reiterating the termination of Joint Development Agreements. It was stated that the Memorandum of Understanding dated 23.12.2009 as well as each of the joint development agreements contained arbitration covenant. The disputes between the parties came to be referred to the panel of three arbitrators which was constituted pursuant to the notice dated 10.10.2022 by the Manyata Development Private Limited by invoking the arbitration clause. It is the allegation of the petitioner that the appellant herein was interested in delaying the arbitration proceedings and several proceedings were instituted by it before the several courts. The details of such legal proceedings were mentioned in the petition. It was also alleged that the arbitral proceedings had reached at an advanced stage. 3.1.4 It was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 in the said private limited company. It was further stated that number of agreements were entered into amongst the financial creditor-applicant-appellant, the corporate debtor-Manyata Infrastructure as well as its affiliate concern-Manyata Reallty. 3.2.1 Following was the case pleaded in paragraph 4 of the petition under Section 95, "The substructure of the Loan Agreement dated 06.11.2012 was such that the M/s Manyata Reallty had undertaken to stood as the Corporate Guarantor and the partners of the aforesaid firm. Personal Guarantors/ Respondents of the present Application, had accordingly undertaken to serve as the Guarantors in respect to the loan availed by the Corporate Debtor/Principal Borrower." 3.2.2 It was further pleaded as under, "... Although the M/s Manyata Reallty would also qualify to be the Corporate Guarantor, yet since it is a settled proposition of law that any partnership concern constituted under the provisions of the Indian Partnership Act, 1932, by virtue of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned 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 failed to respond despite the applicant- financial creditor called upon them to repay the said loan amount. 3.2.7 It was further pleaded and contended, extracting from paragraph 13 of the application, "It is pertinent to accentuate herein that that the structure of the financial transaction arising out of the Contractual Framework was restructured in such a manner that the Corporate Debtor would be deemed to be the Principal Borrower and the affiliated entity, namely, M/s Manyata Reallty along with its all partners would be deemed to be the Personal Guarantors and the Corporate Guarantor, as the case may be. Since the Guarantor namely, M/s Manyata Reallty, is a registered partnership firms thus the partners of the said firm are jointly and severally liable for the acts of the firm and thereby would also be deemed to be personal guarantors. Therefore, in the light of the well settled legal proposition that the liability of partners in any partnership firm, also applicable in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld 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 observing thus, extracting from paragraph 16 of the judgment, "I decline to accept the said submission, as it is fundamentally flawed. If a quasi judicial authority or a Tribunal does not have jurisdiction to entertain a petition merely because it is at the stage of filing, it cannot be permitted to be proceeded further. If these submissions of the learned senior counsel is to be accepted, then it would be diluting the concept of jurisdiction itself, which dilution this Court would never even attempt to make. Therefore, if the petition is not fileable before the Tribunal, it cannot be allowed to be proceeded up to the stage of whether it is entertainable. A non-fileable petition has dire consequences, let alone its entertainment. Therefore, such proceedings which are on the face of it, de hors jurisdiction must be nipped in the bud and should never be allowed to germinate any further.'' (para 16) 3.3.3 Learned Single Judge leaned towards the aspect that the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so 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 submitted under sub-section (4) shall be such as may be specified." 3.4.2 Section 96 says that when an application is filed under Section 94 or 95 of the Code, an interim moratorium shall commence in relation to all the debts and shall cease to have effect on the date of admission of such application. During the interim moratorium period, any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed and the creditors of the debtor shall not initiate any legal action in respect of any debt. The next provision is Section 97 under which the appointment of resolution professional is provided for. Section 98 is about the replacement of the resolution professional. 3.4.3 Section 99 provides for submission of the report by resolution professional. The Section is extracted, "99. Submission of report by resolution professional.- (1) The resolution professional shall examine the application re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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 the case may be. (2) Where the Adjudicating Authority admits an application under sub-section (1), it may, on the request of the resolution professional, issue instructions for the purpose of conducting negotiations between the debtor and creditors and for arriving at a repayment plan. (3) The Adjudicating Authority shall provide a copy of the order passed under sub-section (1) along with the report of the resolution professional and the application referred to in sections 94 or 95, as the case may be, to the creditors within seven days from the date of the said order. (4) If the application referred to in sections 94 or 95, as the case may be, is rejected by the Adjudicating Authority on the basis of report submitted by the resolution professional that the application was made with the intention to defraud his creditors or the resolution professional, the order under sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. 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 on several decisions as to continuance of arbitral proceedings vis-a-vis the coming into operation of moratorium. 4.1.3 Learned Senior Advocate for the appellant extensively relied on the decision of the Supreme Court in Dilip B Jiwrajka (supra). On the basis of the law laid down by the Apex Court, it was submitted that the adjudicatory role could never be attributed to respondent No.1-Registrar, NCLT, when he receives and registers petition under Section 95 of the Code. It was submitted that the petition has to travel through stages before it reaches at the juncture where it would be adjudicated for its maintainability, and therefore for approval or rejection by the adjudicating authority. Submissions of respondents-original petitioners 4.2 Learned Senior Advocate for the respondent-original petitioner, on the other hand steadfastly supported the judgment of le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 relied on, again to submit that the 'jurisdiction' is a coat of many colours and the word take the colour from the context it is placed. 4.2.5 Learned Advocate proceeded to explain the nature and power of jurisdiction under Article 226 of the Constitution from paragraphs 15 to 18 in Embassy Property Developments (P) Ltd. v. State of Karnataka [(2020) 13 SCC 308]. For similar purpose, and also to highlight when the writ of certiorari could be issued, yet another decision of the Apex Court in Central Council of Research in Ayurvedic Sciences v. Bikaratan Das [2023 SCC Online SC 996], was referred to for its paragraphs 53 to 60. Ministerial versus Adjudicatory 5. Since in accepting the prayer of the petitioner and setting at naught the filing of the petition under Section 95 of the Code by the appellant, the learned Single Judge has viewed that the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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". 5.1.3 The Supreme Court stated that the term "High Court" in Section 81 denoted the institution as a whole and not literally the High Court as constituted within the meaning of Article 216 of the Constitution. Even as it was highlighted that the functions discharged by a High Court is divisible broadly into judicial and administrative functions. It was stated that the judicial functions cannot be delegated which are to be essentially discharged by the Judges. On the other hand, the administrative functions need not necessarily be discharged by themselves. There may be administrative or ministerial staff which is, although part of the High Court, are invested with discharging of administrative and ministerial functi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 construe the law and apply it to a particular state of facts presented for the determination of controversy. A ministerial act, on the other hand, may be defined to be one which a person performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard to, or the exercise of, his own judgment upon the propriety of the act done (Law Lexicon, Ibid., p. 1234). In ministerial duty nothing is left to discretion; it is a simple, definite duty. Presentation of election petition to the High Court within the meaning of Section 81 of the Act without anything more would mean delivery of election petition to the High Court through one of its officers competent or authorized to receive the same on behalf of and for the High Court." (para 14) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The judicial task of examining the merits of the case of the party presenting the petition including its maintainability is a matter to be examined only by the NCLT at the stage when such stage is reached. If at the stage of presentation of petition such aspects are permitted to be gone into by the ministerial staff, it may lead to even corrupt practices and serious errors of judgments. Even otherwise, the issues which are in the judicial domain cannot be permitted to be dealt with or tested by the administrative wing. It would amount to topsy turving the entire legal framework and adjudicatory mechanism. If the administrative authority is permitted to go into the merits, it would amount to creating additional tier in the adjudicatory framework. 5.2.3 There will be gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 application. Section 100 contemplates admission or rejection of the application by the adjudicating authority. 'Adjudicating Authority' as defined in Section 5(1) is the National Company Law Tribunal constituted under Section 408 of the Companies Act, 2013. 5.3.3 The issue as to whether when the adjudicating function commences under the Insolvency and Bankruptcy Code, 2016 could be said to be no longer res integra in view of the judgment of Supreme Court in Dilip B. Jiwrajka (supra). The Supreme Court stated therein 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 profes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 role under Section 99 which is ascribed to the resolution professional is that of a facilitator and is to gather relevant information on the basis of the application which has been submitted under Section 94 or Section 95 and after carrying out the process which is referred to in sub-section (2), sub- section (4) and sub-section (6) of Section 99, to submit a report recommending the acceptance or rejection of the application. Significantly, the statute has used the expression "examine the application", "ascertain" and "satisfies the requirements" and "recommend" the acceptance or rejection of the application. The use of these expressions leaves no manner of doubt that the resolution professional is not intended to perform an adjudicatory function or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 submission was negatived by the Supreme Court that an adjudicatory role should be interposed on the stage of Section 94(5). The role of adjudicating authority was highlighted in the following observations. The adjudicatory sphere commences once the realm of functions of resolution professional ends, "Section 100(1) stipulates that the adjudicating authority must issue an order within fourteen days of receiving the report, either admitting or rejecting the application filed under Sections 94 or 95, depending on the circumstances. Importantly, the adjudicating authority does not mechanically accept or reject applications based solely on the resolution professional's report. Instead, it must actively engage in a fair process, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 95 of the Code in its nature does not travel beyond administrative process and that it is a procedural exercise. The moratorium under Section 96 of the Code is a statutory contemplation to operate as a sequator. A party filing an application under Section 95 of the Code would automatically get advantage of operation of Section 96. 6.1 This by itself does not give credence to the argument that for such reason the Registrar would be entitled to go into the aspect of maintainability of the petition and for that purpose to delve into the merit part thereof. When legitimately invoked, any provision of law can be used either as a shield or as a sword to assert, defend and protect the rights by litigant. Filing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 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 permissible once it was filed with procedural compliance. It could be contended on the basis of the principles laid down by the Supreme Court in Modi Entertainment Network and another Vs. W.S.G. Cricket Pte. Ltd, (AIR 2003 SC 1177) that injunction in the nature of anti-suit injunction could hardly be granted inasmuch as it has the effect of interfering with the jurisdiction of the Court. 8.1 In the writ petition, Article 226 of the Constitution was invoked to seek a prayer that the petition of the appellant under Section 95 of the Code should not be registered and that the registration was illegal. It is difficult to hold that the prayer of such kind could have been made in the writ jurisdiction, much less cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. (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 the adjudicatory function could not be pinned or performed at the stage of receipt of the petition by the Registrar, who has no legal sanction to assume the role of adjudicator to decide the maintainability of the petition. Result 10.1 Resultantly and in view of what is held above, the judgment 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. 10.2 As a consequence of setting aside of impugned judgment and order of learned Single Judge, appellant's petition No.2903111/01786/2023 presented under Section 95 of the Insolvency and Bankruptcy Code, 2016 shall stand restored. It shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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