Rajasthan High Court Bench comprising Justice Manindra Mohan Shrivastava and Justice Madan Gopal Vyas,issued notice in the petition while dealing with a plea challenging constitutional validity of section Section 7 of Insolvency Bankruptcy Code, 201,6 to the extent it facilitates a joint application by multiple financial creditors, to prove the minimum default of one crore rupees.
Background:
The plea filed by the Petitioner,Vishnu Oil Mill Private Ltd. stated that as per Section 4 of the IBC, the minimum default for triggering CIRP against a Corporate Debtor was Rs. One Lakh before 24.03.2020. However, owing to the economic disruption caused by the onset of COVID-19 pandemic, the aforesaid requirement of minimum default was increased to One crore rupees on 24.03.2020, added the plea.
As per the petitioner, the respondents filed a joint petition under Section 7 for initiating Corporate Insolvency Resolution Process (CIRP) against the petitioner, claiming themselves to be financial creditors and jointly proving a default of more than one crore rupees before the NCLT, Jaipur Bench. However, the said Respondents individually have claimed a default of much less than One Crores rupees.
It was alleged in the Plea that despite increase in the threshold of the minimum default to trigger CIRP to one crore, the NCLT, vide impugned order dated 22.12.2021, has issued notices on the application filed by the Respondent Nos. 4 to 7 who are claiming themselves to be financial creditors but not a single of them have demonstrated a default of one crore rupees or more on his/her own.
In furtherance, the petitioner has challenged the constitutionality of Section 7.
Grounds for challenging the constitutionality of IBC was based on two grounds:
(1) The mechanism of joint application is only contemplated for financial creditors and not for operational creditors. Accordingly, if financial creditors are allowed to prove the minimum default jointly, the same would be manifestly arbitrary and discriminatory treatment vis-à-vis a operational creditors who is necessarily required to prove minimum default of one crore individually and not jointly;
(2) The mechanism of joint application envisaged under Section 7 of IBC is required to be read down to the extent that financial creditors may file an application jointly, however, one or more of such financial creditors shall individually be able to prove a default of less than one crore rupees to trigger CIRP against a corporate debtor. Such reading down of the provisions would also subserve and keep intact the objectives of minimum default threshold of one crore prescribed under the IBC, which was especially increased in the wake of economic disruption caused by the COVID-19 pandemic.
The petitioner in the present plea prayed for a writ declaring unconstitutional the provisions of Section 7 of the IBC Code. Furthermore, it prayed for a direction expounding that the default of one crore rupees as required under Section 4 of the IBC is required to be proved vis-à-vis one financial creditor and not jointly with other financial creditors. It was urged that the impugned order dated 22.12.2021 passed by the NCLT be quashed.
Order of the Court:
Bench ordered that,
"Issue notice to respondents. Learned counsel appearing for Union of India Mr. Mukesh Rajpurohit, Additional Solicitor General takes notice and is granted three weeks' time to file reply. Let notices be issued to respondent Nos. 4 to 7, returnable within three weeks."
Case Title: Vishnu Oil Mill Private Ltd. v. Union of India
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