Kerala High Court
Cyriac Njavally vs Union Of India on 1 February, 2022
W.P.(C)Nos.27636 of 2020 &
14158 of 2021 1
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE T.R.RAVI
TUESDAY, THE 1ST DAY OF FEBRUARY 2022 / 12TH MAGHA, 1943
WP(C) NO. 27636 OF 2020
PETITIONER:
M/S. THARAKAN WEB INNOVATIONS PVT. LTD.
EP/XII 492A EZHUPUNNA P.O., ALAPPUZHA,
KERALA-688 548, REPRESENTED BY ITS DIRECTOR
MR.SHAMEEM PALYKANDY JALEEL.
BY ADVS.
SRI JOSEPH KODIANTHARA (SR.)
SRI.ISAAC THOMAS
SHRI.SHARAD JOSEPH KODIANTHARA
RESPONDENTS:
1 NATIONAL COMPANY LAW TRIBUNAL
KOCHI BENCH, COMPANY LAW BHAVAN, BMC ROAD,
THRIKKAKARA, KAKKANAD, KOCHI-682 021,
REPRESENTED BY ITS DEPUTY REGISTRAR.
2 CYRIAC NJAVALLY,
NJAVALLY HOUSE, CHITTETHUKARA,
KAKKANAD, CSEZ P.O.,
ERNAKULAM-682 037.
BY ADVS.
SHRI.S.MANU, ASG OF INDIA
SRI.G.HARIKUMAR (GOPINATHAN NAIR)
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
10.11.2021, THE COURT ON 01.2.2022 (ALONG WITH WPC.14158/2021)
DELIVERED THE FOLLOWING:
W.P.(C)Nos.27636 of 2020 &
14158 of 2021 2
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE T.R.RAVI
TUESDAY, THE 1ST DAY OF FEBRUARY 2022 / 12TH MAGHA, 1943
WP(C) NO. 14158 OF 2021
PETITIONERS:
CYRIAC NJAVALLY,
AGED 37 YEARS
NJAVALLIL HOUSE, CHITTETHUKARA,
KAKKANAD, CSEZ P.O.,
KOCHI-682 037.
BY ADVS.
G.HARIKUMAR (GOPINATHAN NAIR)
AKHIL SURESH
RESPONDENTS:
1 UNION OF INDIA,
THE MINISTRY OF CORPORATE AFFAIRS,
REPRESENTED BY ITS SECRETARY, "A" WING,
SHASTRI BHAWAN, RAJENDRA PRASAD ROAD,
NEW DELHI-110 001.
2 M/S. THARAKAN WEB INNOVATIONS PVT.LTD.,
ALAPPUZHA, KERALA-688 548,
REPRESENTED BY ITS DIRECTOR.
BY ADVS.
R1 BY SRI S.MANU (ASGI)
R2 BY SRI JOSEPH KODIANTHARA (SR.)
SRI ISAAC THOMAS
SRI SHARAD JOSEPH KODANTHARA
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
03.08.2021, THE COURT ON 01.02.2022 (ALONG WITH WPC 27636/2020)
DELIVERED THE FOLLOWING:
W.P.(C)Nos.27636 of 2020 &
14158 of 2021 3
"CR"
T.R.RAVI,J.
-----------------------------
W.P.(C)Nos.27636 of 2020 & 14158 of 2021
-------------------------------
Dated this the 1st day of February, 2022
JUDGMENT
The issues involved in these writ petitions are intrinsically
connected and the parties are also same. The writ petitions are
hence heard and disposed of together. The reference to the parties
and exhibits is, as they appear in W.P.(C)No.27636 of 2020.
2. Heard Sri Joseph Kodianthara, learned Senior Advocate
instructed by Sri Isaac Thomas on behalf of the petitioner in W.P.
(C)No.27636 of 2020 and Sri Hari Kumar G.Nair, learned counsel for
the petitioner in W.P.(C)No.14158 of 2021, who is the 2 nd respondent
in W.P.(C)No.27636 of 2020.
THE DISPUTE IN BRIEF
W.P.(C)No.27636 of 2020
3. This writ petition has been filed challenging the order of
the Adjudicating Authority under the Insolvency and Bankruptcy
W.P.(C)Nos.27636 of 2020 &
Code (hereinafter referred to as 'IBC'). The facts that will be
relevant for deciding the case are as follows;
4. The petitioner is a Private Limited Company engaged in
the activities of developing software and promoting advancement in
the field of Information Technology. The 2nd respondent has filed
IBA/34/KOB/2020 before the 1st respondent claiming to be an
operational creditor and arraying the petitioner as a corporate debtor
under the provisions of the IBC. The case of the 2 nd respondent is
that amounts due to the 2nd respondent have not been paid by the
petitioner. According to the petitioner, the petition is not
maintainable before the 1st respondent. The petitioner has disputed
the alleged debts in their counter statement filed before the 1 st
respondent. According to them, amounts are actually due from the
2nd respondent to the petitioner. It is submitted that the 2 nd
respondent is a former Director and shareholder, who had sold the
entirety of the shares after stepping down as Director and the
application has been filed only as a disgruntled Director seeking to
discredit the company and its shareholders. The petitioner preferred
I.A.No.175/KOB/2020 under Rule 32 of the National Company Law
W.P.(C)Nos.27636 of 2020 &
Tribunal Rules ('NCLT Rules' for short) praying that the
maintainability of the application may be considered as a preliminary
issue. Ext.P4 is the application. Reliance was placed on notification
No.S4/1205 (E) dated 24.3.2020 published by the Ministry
Corporate Affairs, Government of India, whereby Section 4 of the
IBC was amended and the minimum amount of default was
increased to Rs.1 Crore. It is submitted that unless the application
relates to a default of an amount of more than Rs.1 Crore, the same
will not be maintainable before the 1st respondent. The National
Company Law Tribunal ('NCLT' for short) has on 01.12.2020 issued
Ext.P7 order in I.A.No.175/KOB/2020 finding that the application
filed by the 2nd respondent is maintainable. It can be seen from
Ext.P7 order that the reasoning of the 1 st respondent is that the
notification under Section 4 will not save the petitioner from the
initiation of insolvency proceedings with respect to defaults which
had taken place before the pandemic and the resultant financial
crisis. According to the petitioner, on 25.9.2020 on which date the
application which is seen dated 7.3.2020 was filed before the 1 st
respondent, the Government order dated 24.03.2020 has already
W.P.(C)Nos.27636 of 2020 &
come into force and the amount claimed in the application is less
than Rs.1 Crore. It is pointed out that the Form 3 notice
contemplated under Sections 8 and 9 of the IBC was served on the
petitioner only on 02.03.2020 and the complaint could have been
filed only after the mandatory period of 10 days after receipt of the
Form 3 notice. It is submitted that even if the date on the complaint
is to be taken as the relevant date, the complaint could not have
been filed on 07.03.2020, which is not after the 10 days stipulated in
the statute. Several other defects are also pointed out. However,
the main issue revolves around the question whether Ext.P5 which is
the amendment of Section 4 will be applicable to cases where the
default had occurred prior to the date of amendment.
W.P.(C)No.14158 of 2021
5. The prayer in this writ petition is for a declaration that the
notification dated 24.03.2020 whereby the minimum amount of
default was specified as Rs.1 Crore is prospective and would apply
only to cases where the default occurred on or after 24.3.2020.
There is also a prayer for a declaration that the notification will not
apply to cases where mandatory notice under Section 8 of the IBC
W.P.(C)Nos.27636 of 2020 &
has been issued by the operational creditor and the stipulated 10
days' period had elapsed prior to the date of notification.
RELEVANT STATUTORY PROVISIONS
6. The Code has undergone several amendments after it
came into force. The provisions of the Code prior to Ext.P5 and after
Ext.P5, which are relevant for the purpose of deciding the above writ
petitions are extracted below. Section 4 prior to Ext.P5 reads thus;
"4. (1) This Part shall apply to matters relating to the
insolvency and liquidation of corporate debtors where the
minimum amount of the default is one lakh rupees:
Provided that the Central Government may, by notification,
specify the minimum amount of default of higher value which
shall not be more than one crore rupees."
7. After Ext.P5 and some other amendments, Sections 4, 5,
6, 7, 8, 9, 10 and 10A read thus:
"4. Application of this Part.--(1) This Part shall apply to
matters relating to the insolvency and liquidation of corporate
debtors where the minimum amount of the default is one Crore
rupees:
Provided that the Central Government may, by notification,
specify the minimum amount of default of higher value which
shall not be more than one crore rupees:
Provided further that the Central Government may, by
notification, specify such minimum amount of default of higher
value, which shall not be more than one crore rupees, for
W.P.(C)Nos.27636 of 2020 &
matters relating to the pre-packaged insolvency resolution
process of corporate debtors under Chapter III-A.
5.Definitions.--In this Part, unless the context otherwise
requires,--
(1) to (4) xxxxxxx xxxxxxx xxxxxxx xxxxxxx
(5) "corporate applicant" means--
(a) corporate debtor; or
(b) a member or partner of the corporate debtor who is
authorised to make an application for the corporate insolvency
resolution process or the prepackaged insolvency resolution
process, as the case may be, under the constitutional document
of the corporate debtor; or
(c) an individual who is in charge of managing the operations
and resources of the corporate debtor; or
(d) a person who has the control and supervision over the
financial affairs of the corporate debtor;
(6) xxxxxxx xxxxxxx xxxxxxx xxxxxxx
(7) "financial creditor" means any person to whom a financial
debt is owed and includes a person to whom such debt has
been legally assigned or transferred to;
xxxxxxx xxxxxxx xxxxxxx xxxxxxx xxxxxxx
(11) "initiation date" means the date on which a financial
creditor, corporate applicant or operational creditor, as the case
may be, makes an application to the Adjudicating Authority for
initiating corporate insolvency resolution process or pre-
packaged insolvency resolution process, as the case may be;
(12) "insolvency commencement date" means the date of
admission of an application for initiating corporate insolvency
resolution process by the Adjudicating Authority under Sections
7, 9 or Section 10, as the case may be:
xxxxxxx xxxxxxx xxxxxxx xxxxxxx xxxxxxx
W.P.(C)Nos.27636 of 2020 &
(20) "operational creditor" means a person to whom an
operational debt is owed and includes any person to whom
such debt has been legally assigned or transferred;
6. Persons who may initiate corporate insolvency
resolution process.--Where any corporate debtor commits a
default, a financial creditor, an operational creditor or the
corporate debtor itself may initiate corporate insolvency
resolution process in respect of such corporate debtor in the
manner as provided under this Chapter.
7. Initiation of corporate insolvency resolution process
by financial creditor.--(1) A financial creditor either by itself
or jointly with other financial creditors, or any other person on
behalf of the financial creditor, as may be notified by the
Central Government, may file an application for initiating
corporate insolvency resolution process against a corporate
debtor before the Adjudicating Authority when a default has
occurred:
Provided that for the financial creditors, referred to in clauses
(a) and (b) of sub-section (6-A) of Section 21, an application
for initiating corporate insolvency resolution process against the
corporate debtor shall be filed jointly by not less than one
hundred of such creditors in the same class or not less than ten
per cent. of the total number of such creditors in the same
class, whichever is less:
Provided further that for financial creditors who are allottees
under a real estate project, an application for initiating
corporate insolvency resolution process against the corporate
debtor shall be filed jointly by not less than one hundred of
such allottees under the same real estate project or not less
than ten per cent. of the total number of such allottees under
the same real estate project, whichever is less:
W.P.(C)Nos.27636 of 2020 &
Provided also that where an application for initiating the
corporate insolvency resolution process against a corporate
debtor has been filed by a financial creditor referred to in the
first and second provisos and has not been admitted by the
Adjudicating Authority before the commencement of the
Insolvency and Bankruptcy Code (Amendment) Act, 2020, such
application shall be modified to comply with the requirements
of the first or second proviso within thirty days of the
commencement of the said Act, failing which the application
shall be deemed to be withdrawn before its admission.
Explanation.--For the purposes of this sub-section, a default
includes a default in respect of a financial debt owed not only
to the applicant financial creditor but to any other financial
creditor of the corporate debtor.
(2) The financial creditor shall make an application under sub-
section (1) in such form and manner and accompanied with
such fee as may be prescribed.
(3) The financial creditor shall, along with the application
furnish--
(a) record of the default recorded with the
information utility or such other record or evidence
of default as may be specified;
(b) the name of the resolution professional proposed
to act as an interim resolution professional; and
(c) any other information as may be specified by the
Board.
(4) The Adjudicating Authority shall, within fourteen days of the
receipt of the application under sub-section (2), ascertain the
existence of a default from the records of an information utility
or on the basis of other evidence furnished by the financial
creditor under sub-section (3):
W.P.(C)Nos.27636 of 2020 &
Provided that if the Adjudicating Authority has not ascertained
the existence of default and passed an order under sub-section
(5) within such time, it shall record its reasons in writing for
the same.
(5) Where the Adjudicating Authority is satisfied that--
(a) a default has occurred and the application under
sub-section (2) is complete, and there is no
disciplinary proceedings pending against the
proposed resolution professional, it may, by order,
admit such application; or
(b) default has not occurred or the application under
sub-section (2) is incomplete or any disciplinary
proceeding is pending against the proposed
resolution professional, it may, by order, reject such
application:
Provided that the Adjudicating Authority shall, before rejecting
the application under clause (b) of sub-section (5), give a
notice to the applicant to rectify the defect in his application
within seven days of receipt of such notice from the
Adjudicating Authority.
(6) The corporate insolvency resolution process shall
commence from the date of admission of the application under
sub-section (5).
(7) The Adjudicating Authority shall communicate--
(a) the order under clause (a) of sub-section (5) to
the financial creditor and the corporate debtor;
(b) the order under clause (b) of sub-section (5) to
the financial creditor, within seven days of admission
or rejection of such application, as the case may be.
8. Insolvency resolution by operational creditor.--(1) An
operational creditor may, on the occurrence of a default, deliver
W.P.(C)Nos.27636 of 2020 &
a demand notice of unpaid operational debtor copy of an
invoice demanding payment of the amount involved in the
default to the corporate debtor in such form and manner as
may be prescribed.
(2) The corporate debtor shall, within a period of ten days of
the receipt of the demand notice or copy of the invoice
mentioned in sub-section (1) bring to the notice of the
operational creditor--
(a) existence of a dispute, if any, or record of the
pendency of the suit or arbitration proceedings filed
before the receipt of such notice or invoice in
relation to such dispute;
(b) the payment of unpaid operational debt--
(i) by sending an attested copy of the record of electronic
transfer of the unpaid amount from the bank account of the
corporate debtor; or
(ii) by sending an attested copy of record that the operational
creditor has encashed a cheque issued by the corporate debtor.
Explanation.--For the purposes of this section, a "demand
notice" means a notice served by an operational creditor to the
corporate debtor demanding payment of the operational debt in
respect of which the default has occurred.
9. Application for initiation of corporate insolvency
resolution process by operational creditor.--(1) After the
expiry of the period of ten days from the date of delivery of the
notice or invoice demanding payment under sub-section (1) of
Section 8, if the operational creditor does not receive payment
from the corporate debtor or notice of the dispute under sub-
section (2) of Section 8, the operational creditor may file an
application before the Adjudicating Authority for initiating a
corporate insolvency resolution process.
W.P.(C)Nos.27636 of 2020 &
(2) The application under sub-section (1) shall be filed in such
form and manner and accompanied with such fee as may be
prescribed.
(3) The operational creditor shall, along with the application
furnish--
(a) a copy of the invoice demanding payment or
demand notice delivered by the operational creditor
to the corporate debtor;
(b) an affidavit to the effect that there is no notice
given by the corporate debtor relating to a dispute of
the unpaid operational debt;
(c) a copy of the certificate from the financial
institutions maintaining accounts of the operational
creditor confirming that there is no payment of an
unpaid operational debt by the corporate debtor, if
available;
(d) a copy of any record with information utility
confirming that there is no payment of an unpaid
operational debt by the corporate debtor, if
available; and
(e) any other proof confirming that there is no
payment of an unpaid operational debt by the
corporate debtor or such other information, as may
be prescribed.
(4) An operational creditor initiating a corporate insolvency
resolution process under this section, may propose a resolution
professional to act as an interim resolution professional.
(5) The Adjudicating Authority shall, within fourteen days of the
receipt of the application under sub-section (2), by an order--
(i) admit the application and communicate such decision to the
operational creditor and the corporate debtor if,--
W.P.(C)Nos.27636 of 2020 &
(a) the application made under sub-section (2) is
complete;
(b) there is no payment of the unpaid operational
debt;
(c) the invoice or notice for payment to the
corporate debtor has been delivered by the
operational creditor;
(d) no notice of dispute has been received by the
operational creditor or there is no record of dispute
in the information utility; and
(e) there is no disciplinary proceeding pending
against any resolution professional proposed under
sub-section (4), if any.
(ii) reject the application and communicate such decision to the
operational creditor and the corporate debtor, if--
(a) the application made under sub-section (2) is
incomplete;
(b) there has been payment of the unpaid
operational debt;
(c) the creditor has not delivered the invoice or
notice for payment to the corporate debtor;
(d) notice of dispute has been received by the
operational creditor or there is a record of dispute in
the information utility; or
(e) any disciplinary proceeding is pending against
any proposed resolution professional:
Provided that Adjudicating Authority, shall before rejecting an
application under sub-clause (a) of clause (ii) give a notice to
the applicant to rectify the defect in his application within seven
days of the date of receipt of such notice from the Adjudicating
Authority.
W.P.(C)Nos.27636 of 2020 &
(6) The corporate insolvency resolution process shall
commence from the date of admission of the application under
sub-section (5) of this section.
10. Initiation of corporate insolvency resolution process
by corporate applicant.--(1) Where a corporate debtor has
committed a default, a corporate applicant thereof may file an
application for initiating corporate insolvency resolution process
with the Adjudicating Authority.
(2) The application under sub-section (1) shall be filed in such
form, containing such particulars and in such manner and
accompanied with such fee as may be prescribed.
[(3) The corporate applicant shall, along with the application,
furnish--
(a) the information relating to its books of account
and such other documents for such period as may be
specified;
(b) the information relating to the resolution
professional proposed to be appointed as an interim
resolution professional; and
(c) the special resolution passed by shareholders of
the corporate debtor or the resolution passed by at
least three-fourth of the total number of partners of
the corporate debtor, as the case may be, approving
filing of the application.
(4) The Adjudicating Authority shall, within a period of fourteen
days of the receipt of the application, by an order--
(a) admit the application, if it is complete and no
disciplinary proceeding is pending against the
proposed resolution professional; or
(b) reject the application, if it is incomplete or any
disciplinary proceeding is pending against the
W.P.(C)Nos.27636 of 2020 &
proposed resolution professional:
Provided that Adjudicating Authority shall, before rejecting an
application, give a notice to the applicant to rectify the defects
in his application within seven days from the date of receipt of
such notice from the Adjudicating Authority.
(5) The corporate insolvency resolution process shall
commence from the date of admission of the application under
sub-section (4) of this section.
10-A. Suspension of initiation of corporate insolvency
resolution process.-- Notwithstanding anything contained in
Sections 7, 9 and 10, no application for initiation of corporate
insolvency resolution process of a corporate debtor shall be
filed, for any default arising on or after 25 th March, 2020 for a
period of six months or such further period, not exceeding one
year from such date, as may be notified in this behalf:
Provided that no application shall ever be filed for initiation of
corporate insolvency resolution process of a corporate debtor
for the said default occurring during the said period.
Explanation.--For the removal of doubts, it is hereby clarified
that the provisions of this section shall not apply to any default
committed under the said sections before 25th March, 2020."
60. Adjudicating Authority for corporate persons.--(1) The
Adjudicating Authority, in relation to insolvency resolution and
liquidation for corporate persons including corporate debtors
and personal guarantors thereof shall be the National Company
Law Tribunal having territorial jurisdiction over the place where
the registered office of the corporate person is located.
(2) Without prejudice to sub-section (1) and notwithstanding
anything to the contrary contained in this Code, where a
corporate insolvency resolution process or liquidation
W.P.(C)Nos.27636 of 2020 &
proceeding of a corporate debtor is pending before a National
Company Law Tribunal, an application relating to the insolvency
resolution or liquidation or bankruptcy of a corporate guarantor
or personal guarantor, as the case may be, of such corporate
debtor shall be filed before such National Company Law
Tribunal.
(3) An insolvency resolution process or [liquidation or
bankruptcy proceeding of a corporate guarantor or personal
guarantor, as the case may be, of the corporate debtor pending
in any court or tribunal shall stand transferred to the
Adjudicating Authority dealing with insolvency resolution
process or liquidation proceeding of such corporate debtor.
(4) The National Company Law Tribunal shall be vested with all
the powers of the Debts Recovery Tribunal as contemplated
under Part III of this Code for the purpose of sub-section (2).
(5) Notwithstanding anything to the contrary contained in any
other law for the time being in force, the National Company
Law Tribunal shall have jurisdiction to entertain or dispose of
--
(a) any application or proceeding by or against the
corporate debtor or corporate person;
(b) any claim made by or against the corporate
debtor or corporate person, including claims by or
against any of its subsidiaries situated in India; and
(c) any question of priorities or any question of law
or facts, arising out of or in relation to the
insolvency resolution or liquidation proceedings of
the corporate debtor or corporate person under
this Code.
(6) Notwithstanding anything contained in the Limitation Act,
1963 (36 of 1963) or in any other law for the time being in
W.P.(C)Nos.27636 of 2020 &
force, in computing the period of limitation specified for any
suit or application by or against a corporate debtor for which an
order of moratorium has been made under this Part, the period
during which such moratorium is in place shall be excluded.
61. Appeals and Appellate Authority.--(1) Notwithstanding
anything to the contrary contained under the Companies Act,
2013, any person aggrieved by the order of the Adjudicating
Authority under this part may prefer an appeal to the National
Company Law Appellate Tribunal.
(2) Every appeal under sub-section (1) shall be filed within
thirty days before the National Company Law Appellate
Tribunal:
Provided that the National Company Law Appellate Tribunal
may allow an appeal to be filed after the expiry of the said
period of thirty days if it is satisfied that there was sufficient
cause for not filing the appeal but such period shall not
exceed fifteen days.
(3) An appeal against an order approving a resolution plan
under Section 31 may be filed on the following grounds,
namely --
(i) the approved resolution plan is in contravention
of the provisions of any law for the time
being in force;
(ii) there has been material irregularity in exercise of
the powers by the resolution professional during the
corporate insolvency resolution period;
(iii) the debts owed to operational creditors of the
corporate debtor have not been provided for in
the resolution plan in the manner specified by the
Board;
(iv) the insolvency resolution process costs have not
W.P.(C)Nos.27636 of 2020 &
been provided for repayment in priority to all other
debts; or
(v) the resolution plan does not comply with any
other criteria specified by the Board.
(4) An appeal against a liquidation order passed under Section
33, or subsection (4) of Section 54-L, or sub-section (4) of
Section 54-N, may be filed on grounds of material irregularity
or fraud committed in relation to such a liquidation order.
(5) An appeal against an order for initiation of corporate
insolvency resolution process passed under sub-section (2) of
Section 54-O, may be filed on grounds of material irregularity
or fraud committed in relation to such an order.
QUESTIONS POSED
8. The questions that arise for decision on the basis of the
contentions raised on either side are as follows:
(a) Whether Ext.P1 application which relates to a
defaulted amount less than Rs.1 crore can be filed after
24.3.2020, on which date Ext.P5 amendment to Section 4
was introduced ?
(b) Whether the prospectivity of Ext.P5 has to be
decided on the basis of the defaulted amount or on the
basis of the date of default ?
(c) Whether Ext.P7 order of the NCLT can be
challenged in a proceedings under Article 226 or should
W.P.(C)Nos.27636 of 2020 &
the petitioner be relegated to the appellate remedy?
GIST OF THE ARGUMENTS
9. The Senior Counsel appearing for the petitioner submits
that the application was filed before the 1st respondent on
25.09.2020, while the amendment had come into effect on
24.03.2020. As such the petitioner cannot be treated as coming
within the definition of 'defaulter' and cannot be treated as having
become insolvent; which alone can be the basis for an application of
the provisions of the IBC. Only if the debt is more than Rs.1 Crore, a
person can be treated as having become insolvent under the IBC
and an application can be filed before the 1 st respondent. It is
further pointed out that the 2nd respondent is not a financial creditor,
but only an operational creditor. The counsel referred to Section
5(7), which defines a 'financial creditor' and Section 5(20) which
defines an 'operational creditor'. Reference is made to Section 7
which deals with initiation of Corporate Insolvency Resolution
process by the Financial Creditor, Section 8 which deals with that
initiated by operational creditor and Section 9 which deals with the
application for initiation of Corporate Insolvency Resolution process
W.P.(C)Nos.27636 of 2020 &
by an operational creditor. As far as Section 7 is concerned, a
financial creditor can initiate a proceeding when a default has
occurred. In the case of an operational creditor, on the occurrence
of a default, he has to deliver a demand notice of unpaid operational
debt in such form and manner as may be prescribed in the rules.
Section 8(2) says that a corporate debtor shall within a period of 10
days of receipt of the demand notice or copy of the invoice
mentioned in sub-section (1) bring to the notice of the operational
creditor the existence of a dispute, if any, and record of the
pendency of the suit or arbitration proceedings filed before the
receipt of such notice or invoice in relation to such dispute or the
payment of unpaid operational debt. It is only after the expiry of a
period of 10 days after the delivery of the notice under sub-section
(1) of Section 8, and, if the operational creditor does not receive
payment or notice of a dispute, that he may file an application
before the Adjudicating Authority, as can be seen from Section 9.
Section 9(5) requires the Adjudicating Authority to either admit or
reject the application within 14 days. Section 9(6) says that the
Corporate insolvency resolution process shall commence from the
W.P.(C)Nos.27636 of 2020 &
date of admission of the application. It is the case of the petitioner
that the petition was filed even before the expiry of 10 days and that
the debt itself is disputed. It is submitted that the above
contentions are on the merits of the claim and even otherwise the
application cannot be maintained owing to the fact that the debt
involved is less than Rs.1 Crore and application has been filed after
Ext.P5 amendment was introduced in Section 4 of the IBC.
10. In the case on hand, Ext.P1 would show that the
application was signed on 07.03.2020. According to the 2 nd
respondent, the amounts were due as early as on 06.07.2019. On
25.02.2020 a demand notice in Form 3 was sent to the petitioner.
Admittedly, the petition was filed before the NCLT only on
25.09.2020. If the petition had been filed before 24.03.2020, there
can be no doubt regarding its maintainability, since on that day the
amendment has not come into force. It is in this background that
Ext.P4 I.A.No.175/KOB/2020 was filed by the petitioner under Rule
32 of the NCLT Rules praying that the maintainability of the
application may be considered as a preliminary issue.
11. Senior counsel referred to Section 10 of the Act which
W.P.(C)Nos.27636 of 2020 &
deals with applications filed by the Corporate Applicant, which also
contains provisions similar to Section 9. Even under Section 10, the
Adjudicating Authority shall within a period of 14 days from the
receipt of an application, by an order admit the application, if it is
complete. It is pointed out that going by Section 10(5), the
corporate insolvency resolution process shall commence from the
date of admission of the application under sub-section (4) of the
Section. Thus it can be seen that a corporate insolvency resolution
process, whether initiated at the instance of a financial creditor or a
corporate creditor or a corporate applicant, shall commence only on
the date on which the application is admitted. In this respect, the
counsel points out Ext.P2, which is the first order passed by the 1 st
respondent. In Ext.P2 the Tribunal has clearly stated that notice was
issued on 25.02.2020 and hence cause of action arose on
25.03.2020. What is omitted to be noticed was that, a mere reading
of the provisions of the IBC will show that in all cases where there is
a cause of action for demanding an amount, a petition for insolvency
cannot be filed. Only those debtors who can be stated to be in
default as per Section 4 can be proceeded against under Part II of
W.P.(C)Nos.27636 of 2020 &
the IBC. A proceeding under Part II of the IBC could have been
initiated against debtors whose defaulted amount is Rs.1 lakh or
more, prior to 24.3.2020. After Ext.P5 such proceedings can be
initiated only if the default is of an amount of Rs.1 Crore or more.
The counsel also points out that even in Ext.P1 petition, the 2 nd
respondent has only stated that on 25.02.2020 notice was sent. The
signature in the petition was affixed on 07.03.2020 before the 10
days' period after issuance of the notice elapsed and within 5 days of
the receipt of the notice by the petitioner. It is submitted that the
date of signing need not be looked into, since the petition was filed
only in September, 2020 and it cannot relate back to 07.03.2020 by
any known legal principle. The counsel points out the difference
between proceedings initiated at the instance of a financial creditor
and an operational creditor and submits that as far as operational
creditors are concerned, their right to approach the Adjudicating
Authority does not commence immediately on the occurrence of a
default. In order to ripen into a right to approach the Adjudicating
Authority, a demand notice has to be delivered to the corporate
debtor showing the unpaid operational debt in such form and
W.P.(C)Nos.27636 of 2020 &
manner as may be prescribed and thereafter 10 days should have
elapsed, during which time the corporate debtor has to bring to the
notice of the operational creditor the existence of a dispute in
relation to such debt or pay the unpaid operational debt in the
manner stated in Section 8. An application under Section 9 can be
filed only after the expiry of the 10 days from the date of delivery of
the notice or invoice demanding payment, stipulated in Section 8. It
is pointed out that the application shows that a notice was sent on
25.2.2020 and the same was received by the corporate debtor on
2.3.2020. The application and the affidavit of service are seen to
have been signed on 7.3.2020, within 10 days. However, it was not
filed before the date on which the notification, whereby the
minimum default amount was increased to Rs.1 Crore was issued. It
is further pointed that the affidavit in support of the application as
required under the IBC has been verified by the Advocate and
Notary on 17.3.2020. The counsel pointed out that the affidavit of
service which has been annexed to Ext.P1 application which shows
the date of signing by the deponent as 7.3.2020 is clearly defective
since the affidavit could not have been dated prior to the date on
W.P.(C)Nos.27636 of 2020 &
which the affidavit in support of Ext.P1 application was verified
before the Notary. The counsel also pointed out that the date on
which the application was despatched is 12.6.2020. The counsel
pointed out that going by Section 9(5) of IBC, the Adjudicating
Authority has to admit the application within a period of 14 days
from the date of the application by an order or reject the application
and it is only on admission of the application, the corporate
insolvency resolution process shall commence, as is seen from
Section 9(6). On the basis of the statutory provisions, the counsel
submits that the maintainability of a petition under the IBC has to be
determined on the basis of the date on which the corporate
insolvency resolution process commences. It is submitted that the
first order of the Tribunal is dated 28.9.2020 and hence, at best, the
date of commencement can only be 28.9.2020 and could not have
been a date prior to Ext.P5 notification.
12. Section 10A of the IBC was brought into force as per an
amendment brought in on 5.6.2020. As per Section 10A, no
application can be filed for any default arising on or after 25.3.2020
for a period of six months or such further period not exceeding one
W.P.(C)Nos.27636 of 2020 &
year from such date as may be notified in that behalf. By way of an
explanation to Section 10A, it has been clarified that the provisions
of the Section will not apply to any default committed before
25.3.2020. Since Ext.P5 amendment was brought in before Section
10A, the default referred to in Section 10A can only be relating a
minimum amount of default of Rs.1 Crore. The Senior Counsel
pointed out that while amending Section 4 to expand the amount of
default as Rs.1 Crore, the Legislature did not think it necessary to
add any explanation in lines of the one coming under Section 10A.
It is hence submitted that wherever the Legislature thought it
necessary, the word 'default' has been circumscribed by the date of
the default. It is hence submitted that as far as Section 4 is
concerned, what is material is the date on which the application is
filed and not the date of default.
13. Another instance pointed out by the Senior Counsel is a
subsequent amendment which was brought in on 13.3.2021,
whereby a proviso has been added in Section 7 above the
Explanation, to the effect that where an application filed by a
financial creditor but awaiting admission by the Adjudicating
W.P.(C)Nos.27636 of 2020 &
Authority before the commencement of the Insolvency and
Bankruptcy Code (Amendment) Act, 2020, such application shall be
modified to comply further requirements of the first and second
provisos which had also been added by the said amendment, within
30 days of the commencement of the Act, failing which the
application shall be deemed to have been withdrawn before its
admission. It is contended that the Legislature has made it clear
that even in cases where the application is filed and not admitted as
required under Section 10(4), the application has to be amended in
terms of the amendment of the Statute in order to make it
maintainable.
14. On the question whether an alternate remedy of appeal is
available against Ext.P7 order issued by the Tribunal regarding the
maintainability, it is submitted that the orders have been issued by
the Tribunal under Rule 32 of the NCLT Rules, 2016 and it cannot be
treated as an order appealable under Section 61 of the Code. It is
submitted that the order is only an order on an interlocutory
application. Reliance is placed on the judgments in Bomin Private
Limited v. Union of India [1981 (8) ELT 18 (Guj.)], Ram and
W.P.(C)Nos.27636 of 2020 &
Shyam Company v. State of Haryana & Ors. [(1985) 3 SCC
267] and Calcutta Discount Co.Ltd. v. Income-tax Officer,
Companies District I, Calcutta & Anr. [AIR 1961 SC 372] to
submit that a writ petition is maintainable in such circumstances and
even if there is an alternate remedy, it will not be a bar. It is
submitted that an appeal is not provided in clear terms and what is
provided is an appeal under the NCLT Rules. Moreover, since the
question relates to the inherent bar of jurisdiction and a total
absence of the jurisdictional facts required for exercise of power by
the Tribunal, the writ petition is maintainable. It is further submitted
that the only question to be decided is a pure question of law as to
whether Section 4 as amended is to be applied in cases of defaults
which had occurred prior to the date of the amendment, whether or
not an application has been filed before the Tribunal.
15. Sri Hari Kumar G. Nair, appearing for the 2 nd respondent
submitted that a writ petition cannot be maintained in the light of
specific alternate remedy which has been prescribed in the Statute.
It is further submitted that as held in Embassy Property
Developments Pvt. Ltd. v. State of Karnataka & Ors. reported
W.P.(C)Nos.27636 of 2020 &
in [(2020) 13 SCC 308], the question to be considered is whether
it is a case of lack of jurisdiction on the part of NCLT or a mere
wrongful exercise of a recognised jurisdiction like asking a wrong
question or applying a wrong test or granting a wrong relief. The
counsel submits that Ext.P7 order can at best be considered as a
case of wrong exercise of jurisdiction and not as an order which is
issued without any jurisdiction. On the above contention, the counsel
submits that the petitioner cannot maintain a writ petition. The
counsel also referred to the Objects and Reasons for the amendment
of IBC, which according to the counsel was brought in only to
safeguard the rights of the debtors, in the light of the spread of the
Covid 19 pandemic. It is submitted that it is only to prevent large
scale insolvencies due to the financial stress caused by the
pandemic, the Government notified the minimum amount of default
as Rs.1 Crore instead of Rs.1 Lakh. It is hence submitted that the
amendment was not brought in to save cases where the default had
occurred much prior to the Covid 19 pandemic, and where notice
had also been issued prior to the lock down imposed by the
Government and before 24.3.2020 from which day alone the
W.P.(C)Nos.27636 of 2020 &
amendment can be effective. The counsel further contends that a
writ petition under Article 226 cannot be maintained against the
order of NCLT. Reference is made to the judgment of a Division
Bench of this Court in Sulochana Gupta v. RBG Enterprises in
W.A.1083 of 2020. It is also contended that the Legislature has in
Section 60(5)(c) conferred jurisdiction on the NCLT to decide any
question of law or facts arising out of or in relation to insolvency
resolution. It is submitted that the word used is "insolvency
resolution" and not "insolvency resolution process" which
commences on the admission of the petition. The contention is that
the question of maintainability is one which comes within the
parameter of question of law relating to insolvency resolution and
when an order is issued by the Tribunal on such question by a
process of interpretation, an appeal is maintainable under Section
61. Reliance is placed on the decision in M/s Doypack Systems
Private Ltd. v. Union of India [(1988) 2 SCC 299]. Another
contention that is advanced is that application of the literal rule of
interpretation will defeat the object of the legislation and the
intention of the Executive in issuing Ext.P5 notification. It is
W.P.(C)Nos.27636 of 2020 &
contended that if a notification is capable of two interpretations and
the Tribunal has taken one possible view, the same cannot be
corrected by issuance of a writ of certiorari. Reliance is placed on the
judgment of this Court in George v. District Munsiff, Kanjirapally
[1965 KLT 819] and that of the High Court of Calcutta in Kolkata
Municipal Corporation and Anr. v. Union of India WPA No.977
of 2020.
16. The counsel for the 2 nd respondent further contends that
the phrase "amount of default" occurs only in Section 8 and not
under Section 9, which according to the counsel is only
consequential. Once a default has occurred and notice has been
issued under Section 8 the right has crystalized; is the contention. It
is also contended that the law on the date of accrual of the right has
to be applied. It is also contended that where it is necessary to have
retrospective application, the legislature has exercised its power to
state so, as can be seen from the amendment to Section 7 and since
no such date of coming into force has been mentioned in the
Section, it should be treated as prospective, so as to affect cases
where the default occurred after 24.3.2020.
W.P.(C)Nos.27636 of 2020 &
ANALYSIS AND CONSIDERATION OF THE CONTENTIONS
17. I will first deal with the question of maintainability of the
writ petition under Article 226 of the Constitution of India, to
challenge Ext.P7 order of the Tribunal. It is well settled by a catena
of decisions that exercising or not exercising jurisdiction under
Article 226 on issues where an alternate remedy is available, it is
more a rule of self restraint. It has been consistently held that
alternate remedy will not be a reason for not exercising jurisdiction
when the issue relates to enforcement of the fundamental right or
violation of principles of natural justice or where the proceedings
challenged are without jurisdiction or in cases where the validity of a
Statute is challenged. Recently the Hon'ble Supreme Court has in
the decision in Ghnashyam Mishra & Sons (P) Ltd. v. Edelweiss
Asset Reconstruction Co. Ltd. reported in [(2021) 9 SCC 657]
held in para.137 as follows;
"137. As held by this Court in a catena of cases including
in Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad,
Muzaffarnagar [Baburam Prakash Chandra Maheshwari v. Antarim
Zila Parishad, Muzaffarnagar, (1969) 1 SCR 518 : AIR 1969 SC
556], Whirlpool Corpn. v. Registrar of Trade Marks [Whirlpool
Corpn. v. Registrar of Trade Marks, (1998) 8 SCC 1] , Nivedita
Sharma v. COAI [Nivedita Sharma v. COAI, (2011) 14 SCC 337 :
W.P.(C)Nos.27636 of 2020 &
(2012) 4 SCC (Civ) 947] , Embassy Property Developments (P)
Ltd. v. State of Karnataka [Embassy Property Developments (P)
Ltd. v. State of Karnataka, (2020) 13 SCC 308] and recently
in Kalpraj Dharamshi [Kalpraj Dharamshi v. Kotak Investment
Advisors Ltd., (2021) 10 SCC 401 : 2021 SCC OnLine SC 204] ,
that non-exercise of jurisdiction under Article 226 is a rule of self-
restraint. It has been consistently held that the alternate remedy
would not operate as a bar in at least three contingencies, namely,
(1) where the writ petition has been filed for the
enforcement of any of the fundamental rights;
(2) where there has been a violation of the principle of
natural justice; and
(3) where the order or proceedings are wholly without
jurisdiction or the vires of an Act is challenged."
It is hence not necessary to deal with all the decisions that have
been cited at the Bar on the issue. The only question that has to be
looked into is whether the Tribunal had jurisdiction to entertain
Ext.P1 application in the light of Ext.P5 amendment.
18. Coming to the question of jurisdiction, the National
Company Law Tribunal has been made the Adjudicating Authority for
the purpose of the IBC by provisions of a Statute. Since the
Adjudicating Authority is a creature of the Statute, its jurisdiction is
only that which has been statutorily defined, recognised and
conferred. The Adjudicating Authority as a body owing its existence
to the Statute must abide by the nature and extent of its jurisdiction
W.P.(C)Nos.27636 of 2020 &
as defined in the Statute itself (See Pratap Technocrats (P) Ltd.
v. Reliance Infratel Ltd. (Monitoring Committee) reported in
[(2021) 10 SCC 623]. The corporate insolvency resolution process
gets triggered the moment there is a default as mentioned in
Section 4 of the IBC. The triggering can be at the instance of the
corporate debtor itself or a financial creditor or an operational
creditor. As far as an operational creditor is concerned, going by the
statutory provisions, apart from the occurrence of a default, there is
requirement of delivering the demand notice and a passage of 10
days thereafter during which time the corporate debtor is required to
either bring to the notice of the operational creditor the existence of
a dispute or to make payment of operational debt in the manner
prescribed. The above statutory requirement has been noticed by
the Hon'ble Supreme Court in the judgment in Kay Bouvet Engg.
Ltd. v. Overseas Infrastructure Alliance (India) (P) Ltd.
reported in [(2021) 10 SCC 483]. In the case on hand, a notice as
required under Section 8 had been issued prior to the coming into
force of Ext.P5 amendment. Since the amount is less than Rs.1
Crore, if an application had been filed before 24.3.2020, it would
W.P.(C)Nos.27636 of 2020 &
have conformed with the minimum default which had been
prescribed at that point of time. However, admittedly, the
application was filed six months after the amendment. It is in these
circumstances that the 2nd respondent has raised a claim that for the
purpose of setting in motion a corporate insolvency resolution
process, what is required is the occurrence of a default of more than
Rs.1 lakh prior to 24.3.2020. Since no time limit has been
prescribed for preferring an application after the delivery of notice, it
is submitted that the date of filing of application is not the material
aspect that has to be looked into.
19. The Hon'ble Supreme Court has in its recent decision in
Manish Kumar v. Union of India reported in [(2021) 5 SCC 1]
considered the constitutionality of the amendments made to Section
7(1) and Section 11 of the IBC and the introduction of Section 32A
in the IBC by Insolvency and Bankruptcy Code (Amendment) Act,
2020. The Hon'ble Supreme Court considered the scope and
purpose of several provisions of the IBC. Confronted with the above
judgment, the counsel for the 2nd respondent submitted that the
judgment in Manish Kumar (supra) does not in any way affect the
W.P.(C)Nos.27636 of 2020 &
maintainability of Ext.P1 application. It is submitted that applications
under Section 7 and Section 9 stand on different footings and the
judgment deals with applications by financial creditors and does not
consider the maintainability of an application under Section 9 by an
operational creditor. It is submitted that the Apex Court was
considering a case of class action while as far as operational
creditors are concerned, it is not a class action and every operational
creditor, to maintain an application, has to comply with the
conditions required under Section 8 and Section 9. Reference is
made to paragraphs 203 and 135 of the judgment to show that the
Apex Court was dealing with "default" in cases of applications filed
by financial creditors. It is further contended that as far as financial
creditors are concerned, it is the occurrence of a default, while in the
case of an operational creditor, it does not stop with that and further
actions are required on the part of the operational creditor like
sending notice as contemplated in Section 8. It is pointed out that
the word occurrence of default is mentioned only in Section 8 and
not in Section 9 and hence it can only be understood to mean that
the default should be as on the date of the demand. It is contended
W.P.(C)Nos.27636 of 2020 &
that Section 9 permits action if the amount demanded in the notice
under Section 8 is not paid within 10 days and hence action is only
regarding the amount demanded. It is further contended that the
Apex Court has found that in case of allottees even if they fail to
satisfy the threshold criteria they have alternate remedies, but there
is no such alternate remedy for recovery of the amounts for the
operational creditor. It is further contended that the decision of the
Supreme Court supports the contention of the 2 nd respondent that
wherever the Statute intended to give retrospective operation, it has
done so and it is conspicuously absent in Section 4. Another
contention raised is that the Hon'ble Supreme Court has held that
subsequent repeal will not affect vested right and hence accrued
right of the 2nd respondent cannot be taken away by the
amendment. Reference is made to paragraphs 274, 275 and 346 of
the judgment. It is contended that there is a complete ouster of
jurisdiction of the NCLT by the amendment to Section 4 and hence it
can only be understood to mean that the default should be
determined solely on the basis of its occurrence with reference to
the date of issuance of the mandatory demand notice under Section
W.P.(C)Nos.27636 of 2020 &
8 of IBC.
20. The contentions put forward by the counsel for the 2 nd
respondent, though attractive at the first blush, do not appear to be
fully correct. The Hon'ble Supreme Court while considering the
scope of the IBC has considered Section 4 of the Code as amended
by Ext.P5. Paras.161 and 168 of the judgment are extracted below;
"161. In this context, it is necessary to recapture Section 4 of the
Code. It reads as follows:
"4. Application of this Part.--(1) This Part shall apply to
matters relating to the insolvency and liquidation of
corporate debtors where the minimum amount of the
default is one lakh rupees:
Provided that the Central Government may, by notification,
specify the minimum amount of default of higher value
which shall not be more than one crore rupees."
The amount is now fixed at Rs 1 crore.
xxxxxxx xxxxxxx xxxxxxx xxxxxxx xxxxxxx
168. It is, therefore, clear that the requirement of the Code in
regard to an application by a financial creditor does not mandate
that the financial debt is owed to the applicant in terms of the
Explanation. This is for the reason that apparently that the CIRP
and which, if unsuccessful, is followed by the liquidation procedure
is in all a proceeding, in rem. The law giver has envisaged in the
Code, an action, merely for setting in motion the process initially.
The litmus test on the anvil of which, the adjudicating
authority will scrutinise the matter, is only the existence of
the default, as defined in Section 4 of the Code. As on date,
W.P.(C)Nos.27636 of 2020 &
the amount of default is pegged at Rs 1 crore. Present a
financial debt which has not been paid, the doors are thrown open
for the processes under the Code to flow in and overwhelm the
corporate debtor. The further barrier is limitation, no doubt, as
noticed in B.K. Educational Services (P) Ltd. v. Parag Gupta &
Associates [B.K. Educational Services (P) Ltd. v. Parag Gupta &
Associates, (2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528] ."
(emphasis supplied)
21. Even though the Apex Court was referring the financial
debt, it can be seen that the Hon'ble Supreme Court has clearly held
that the existence of a default as defined in Section 4 of the Code is
the litmus test on the anvil of which, the Adjudicating Authority gets
jurisdiction to entertain an application. The litmus test cannot
change depending on whether the application is filed under Sections
7 or 9 or 10. The litmus test is the test for the applicability of the
entire Part II. Since applications under Sections 7 or 9 or 10 are all
part of the resolution process contained in Part II, the litmus test
necessarily applies to applications filed by the financial creditor,
operational creditor and the corporate debtor themselves. The
Hon'ble Supreme Court in the said decision also considered the
effect of amendments of vested rights. The Hon'ble Supreme Court
was considering the amendment of Section 7, where, by addition of
W.P.(C)Nos.27636 of 2020 &
three provisos, vested rights were taken away. Prior to the
amendments that were in question, an application under Section 7
could have been filed by financial creditor on his own or along with
others with regard to a default that had occurred not only as against
the applicant alone. By addition of the provisos 1 and 2, certain
restrictions were made as to the number of financial creditors who
should join in the application. By the third proviso, it was made clear
that even in case of applications that had been filed and are pending
admission, the requirements of provisos 1 and 2 have to be complied
with, failing which the applications shall be deemed to have been
withdrawn. The result was that an applicant who had already
approached the NCLT would face with a situation of the application
being withdrawn, if he does not comply with the amended provision.
The above aspect was considered by the Hon'ble Supreme Court.
The Apex Court held that the proviso is in effect retrospective. It was
held in paragraph 404 of the judgment that every sovereign
legislature is clothed with competence to make retrospective laws.
It is open to the legislature, while making retrospective law, to take
away vested rights. It is further held that if a vested right can be
W.P.(C)Nos.27636 of 2020 &
taken away by a retrospective law, there can be no reason why the
Legislature cannot modify the vested rights. The Court further held
in paragraph 406 that if the existing right is modified or taken away
and it is to have operation only from the date of new law, it would
obviously have only prospective operation and it would not be a
retrospective law. The above observations were made by the Hon'ble
Supreme Court after noticing that even the right of action should
conditions otherwise exist, can also be a vested right. The Court
upheld the amendments. However, it was held that the withdrawal of
the application which is the effect of a statutory provision, will not
take away the right to approach the Tribunal again, after complying
with the requirements of provisos 1 and 2. While holding so, the
Apex Court also made clear in paragraph 435 that what is relevant
for deciding the maintainability is the law which was in force at the
time of filing the application. Paragraph 435 is extracted below.
"435. This is a case where the law giver has not left anything to
speculation or doubt. We have already indicated about the effect of
the proviso mandating the compulsory withdrawal of the
application. We are of the view that this is a case, where the law, in
question, is retrospective, in that, contrary to the requirement in
the law, at the time, when the application was filed, a new
requirement is placed, even though, it is sought to be done by
W.P.(C)Nos.27636 of 2020 &
superimposing this condition, not at the time, when the application
was filed, which really is the relevant time to determine the
question of maintainability of the application, with reference to
what the law provided in regard to who can move the application
but at the stage of the new law."
22. The contention that the operational creditors will be left
with no alternate and efficacious remedy also is not correct. As held
by the Hon'ble Supreme Court in Manish Kumar (supra), the IBC
is not enacted to provide for a manner of recovery of debts by the
creditors. It is to provide for insolvency resolution. The purpose of
the IBC is to protect the rights of the debtors as well as the
creditors. It is in the above background that the provisions relating
to the IBC have to be understood. By providing for insolvency
resolution in case of corporate debtors whose debt is above a
specified amount, it can be seen that the very purpose is not to
include cases where the debt is lesser than the said amount. None
of the rights available to a creditor as against a debtor are taken
away in the process. So also the contention that in Manish Kumar
(supra), the Apex Court has held that a right accrued cannot be
taken away does not appear to be correct, in view of the findings
regarding the manner in which a vested right can be modified.
W.P.(C)Nos.27636 of 2020 &
23. In the case on hand, the petitioner could have filed an
application before the Tribunal before 24.3.2020. But, after
24.3.2020, the right to approach the Tribunal stood modified and it
is only when there is minimum default of Rs.1 Crore, an application
can be filed. As such, Ext.P1 could not have been filed after Ext.P5
amendment. Since Section 4 deals with applicability of the provisions
of Part II, it is necessarily a provision which gives jurisdiction to the
Adjudicating Authority. Once the application of Part II is taken away
for debts more than Rs.1 Crore, there is no further jurisdiction
available under the Statute to the NCLT to act as an Adjudicating
Authority under the IBC. It is hence a clear case of total want of
jurisdiction.
24. In Ext.P9 order, the Tribunal has held that the notification
dated 24.03.2020 is prospective in nature and it is not retrospective
or retro-active in nature. It is further stated by the Tribunal that
notification will not apply to pending applications before the
concerned Adjudicating Authority under the IBC prior to the issuance
of the aforesaid notification. Ext.P9 was an order of the Tribunal at
New Delhi and the issue was concerning an application which had
W.P.(C)Nos.27636 of 2020 &
been filed and was pending before the Tribunal. The order of the
National Company Law Appellate Tribunal, Principal Bench, New
Delhi in Company Appeal (AT) (Ins) No.813 of 2021 was placed
before the Court in which the order Ext.P9 was also considered. The
Appellate Tribunal found that on facts, in the case considered in
Ext.P9 demand notice under Section 8 was issued on 31.7.2019 and
the application under Section 9 was filed on 5.9.2019 which were
both before 24.3.2020, on which date the threshold limit was
increased to Rs.1 Crore. The Tribunal hence found that the said
decision cannot be relied upon to decide whether a petition can be
maintained for an amount of less than Rs.1 Crore after 24.3.2020.
The Appellate Tribunal went on to hold that the threshold limit will be
applicable for applications filed under Section 7 or Section 9 on or
after 24.3.2020, even if the debt is on a date earlier than 24.3.2020.
The above view of the Tribunal is in consonance with the decision of
the Hon'ble Supreme Court in Manish Kumar (supra).
25. Even otherwise, the Tribunal has in my opinion, gone
wrong in its interpretation of Section 4 of the Act. Section 4, after
amendment on 24.3.2020 clearly says that Part II of the IBC shall
W.P.(C)Nos.27636 of 2020 &
apply to matters relating to the insolvency and liquidation of
corporate debtors where the minimum amount of default is Rs.1
Crore. As per Section 3(12) of the IBC, "default" means non-
payment of debt when whole or any part or instalment of the
amount of debt has become due and payable and is not paid by the
debtor or the corporate debtor, as the case may be. What is to be
noted is that Corporate debtors who are in default of less than Rs.1
lakh prior to the amendment and Rs.1 Crore after the amendment,
also are defaulters. However, whether a proceeding for insolvency or
liquidation of such corporate debtor should be initiated would depend
on the amount in default. It is only if the Corporate debtor has
incurred a default of at least the minimum amount stated in Section
4 that a proceeding under the provisions of the IBC under Part II can
be initiated. The minimum amount of default is statutorily fixed, with
power available to the Government to refix, upto a sum of Rs.1
Crore. Once the Government has exercised the said power by
issuance of a notification fixing the minimum amount of default as
Rs.1 Crore, the Section will have to be read by replacing the words
"one lakh rupees" by "rupees one crore". As such, from the date
W.P.(C)Nos.27636 of 2020 &
of amendment, Part II of the IBC can apply only to matters
relating to insolvency and liquidation of corporate debtors,
where the minimum amount of default is Rs.1 Crore.
(emphasis supplied). Once that is the position, the application of
Part II itself is taken away with effect from 24.03.2020 as far as
defaults less than Rs.1 Crore are concerned and hence no application
can be filed after 24.03.2020 regarding an amount where the default
is less than Rs.1 Crore. By application of Section 10A, even in cases
where the default is more than Rs.1 Crore, an application cannot be
filed for a period of six months from 24.3.2020. There can be no
other understanding of the statutory provisions, as there is no
ambiguity in the language. It is well settled that the grammatical
and ordinary sense of the words of the Statute should be adhered to,
unless that would lead to absurdity, or some repugnance or
inconsistency with the rest of the provisions of the statute. In the
words of Viscount Simon L.C. "The golden rule is that the words of
a statute must prima facie be given their ordinary meaning......
Judges are not called upon to apply their opinions of sound policy so
as to modify the plain meaning of statutory words, but where, in
W.P.(C)Nos.27636 of 2020 &
construing general words the meaning of which is not entirely plain
there are adequate reasons for doubting whether the Legislature
could have been intending so wide an interpretation as would
disregard fundamental principles, then we may be justified in
adopting a narrower construction" (see Nokes v. Doncaster
Amalgamated Collieries Ltd., [(1940) AC 1014 (HL)],
Chandvarkar Sita Ratna Rao v. Ashalata S.Guram [(1986) 4
SCC 447] and B.Parmanand v. Mohan Koikal [(2011) 4 SCC
266)]. The above observations are fully supported by the judgment
of the Apex Court in Manish Kumar (supra), wherein the Hon'ble
Supreme Court categorically held that the litmus test is whether
there exists a default as defined in Section 4 of IBC, on the date of
the application.
26. In the light of the view taken above regarding the
jurisdiction of the Tribunal, the writ petition under Article 226 is
maintainable and there is no necessity or purpose for relegating the
petitioner to the alternate remedy. Nor is it necessary to decide on
the question whether an appeal is maintainable under the IBC
against the order of the Tribunal on a preliminary issue regarding
W.P.(C)Nos.27636 of 2020 &
jurisdiction.
27. In the result, W.P.(C)No.27636 of 2020 is allowed. Ext.P7
order of the NCLT is set aside and it is declared that Ext.P1
application cannot be entertained by the 1 st respondent in the light
of Ext.P5 amendment to Section 4. W.P.(C)No.14158 of 2021 is
dismissed, since the declaration sought for cannot be granted in
view of the finding that the litmus test on the anvil is whether there
exists a default as defined under Section 4 of the IBC, which if
answered in the affirmative alone will give rise to a petition under
Sections 7, 8, 9 and 10 of the IBC.
Sd/-
T.R.RAVI
JUDGE
dsn
W.P.(C)Nos.27636 of 2020 &
APPENDIX OF WP(C) 27636/2020
PETITIONER EXHIBITS
EXHIBIT P1 TRUE COPY OF IBA/34/KOB/2020 DATED 07.03.2020
FILED ON 25.09.2020 BY THE 2ND RESPONDENT BEFORE
THE 1ST RESPONDENT.
EXHIBIT P2 TRUE COPY OF INTERIM ORDER DATED 28.09.2020
PASSED BY THE 1ST RESPONDENT IN IBA/34/KOB/2020.
EXHIBIT P3 TRUE COPY OF COUNTER STATEMENT DATED 08.10.2020
FILED BY THE PETITIONER IN IBA/34/KOB/2020.
EXHIBIT P4 TRUE COPY OF IA 175/KIB/2020 WITHOUT ANNEXURES
FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT
IN IA/34/KOB/2020.
EXHIBIT P5 TRUE COPY OF NOTIFICATION NO.SO 1205(E) DATED
24.03.2020 PUBLISHED BY THE MINISTRY OF
CORPORATION AFFAIRS, GOVERNMENT OF INDIA, IN THE
GAZETTE OF INDIA.
EXHIBIT P6 TRUE COPY OF ARGUMENT NOTE DATED 23.11.2020 FILED
ON BEHALF OF THE PETITIONER BEFORE THE 1ST
RESPONDENT IN IA 175/KOB/2020 IN IBA/34/KOB/2020.
EXHIBIT P7 TRUE COPY OF ORDER DATED 01.12.2020 PASSED BY THE
1ST RESPONDENT IN IA 175/KOB/2020 IN
IBA/34/KOB/2020.
EXHIBIT P8 TRUE COPY OF ORDER DATED 16.03.2020 OF THE
NATIONAL COMPANY LAW APPELLATE TRIBUNAL IN
COMPANY APPEAL (AT)(INSOLVENCY) NO.429 OF 2020 IN
THE CASE OF KERALA AYURVEDA LTD. VS. GLOBAL
BEVERAGES LTD.
EXHIBIT P9 TRUE COPY OF DECISION OF THE HON'BLE NATIONAL
COMPANY LAW APPELLATE TRIBUNAL IN CA(AT)
(INSOLVENCY) NO.557 OF 2020.
EXHIBIT P10 TRUE COPY OF ORDER DATED 23.06.2020 PASSED BY THE
HON'BLE DELHI HIGH COURT IN WPC NO.3685 OF 2020.
EXT.R2(A) TRUE COPY OF THE JUDGMENT IN WA No.1083/2020
DT.9.9.2020 OF THIS COURT.
W.P.(C)Nos.27636 of 2020 &
APPENDIX OF WP(C) 14158/2021
PETITIONER EXHIBITS
Exhibit P1 A TRUE COPY OF THE DEMAND NOTICE AS IN
FORM 3 UNDER RULE 5 DATED 25.02.2020.
Exhibit P2 A TRUE COPY OF THE IBA 34/KOB/2020 DATED
07.03.2020 FILED BY THE PETITIONER ON
25.09.2020.
Exhibit P3 A TRUE COPY OF THE NOTIFICATION NO.SI 1205
(E) DATED 24.03.2020 PUBLISHED BY 1ST
RESPONDENT.
Exhibit P4 A TRUE COPY OF THE EXTRACT OF PRESS
RELEASE ISSUED BY THE MINISTRY OF FINANCE,
GOVERNMENT OF INDIA DATED 24.03.2020.
