On 9th February 2021,The Supreme Court of India in the case of Ramesh Kymal vs M/s Siemens Gamesa Renewable Power Pvt Ltd. comprising of division Bench Justice Dr Dhananjaya Y Chandrachud and Justice Mr. Shah stated that the correct interpretation of Section 10A cannot be merely based on the language of the provision; rather it must take into account the object of the Ordinance and the extraordinary circumstances in which it was promulgated and retrospective bar on the filing of applications for the commencement of CIRP during the stipulated period does not extinguish the debt owed by the corporate debtor or the right of creditors to recover it.
Factual Background of the Case
The appellant claims that a sum of INR 104,11,76,479 is due and payable to him pursuant to his resignation “from all capacities held by him in the respondent in accordance with the various Employment Agreements/Incentive Agreements” entered into by him with the respondent during his tenure as Chairman and Managing Director. The appellant entered into an Employment Agreement with the respondent on 16 July 2009.
On 21 January 2020, the appellant submitted his resignation to the respondent and its parent entity, detailing the entitlements which he claimed under the Employment and Incentive Agreements.
On 28 January 2020, the respondent acknowledged receipt of the letter of resignation and requested the appellant to continue in employment beyond the 60 days’ notice period stipulated in the Employment Agreement. According to the appellant, he agreed to continue to provide his services to the respondent till 30 April 2020.
On 11 May 2020, the appellant filed an application under Section 9 of the IBC on the ground that there was a default in the payment of his operational dues. During the pendency of the application, an Ordinance was promulgated by the President of India, on 5 June 2020 by which Section 10A was inserted into the IBC, which suspended the initiation of Corporate Insolvency resolution Process (CIRP)
The respondent filed an application seeking the dismissal of the appellant’s application on the basis of the newly inserted provisions of Section 10A. The NCLT upheld the submission of the respondent, holding that a bar has been created by the newly inserted provisions of Section 10A. This decision has been upheld in appeal by the NCLAT.
Issue before the Court
The issue before the Court:-
- Whether the provisions of Section 10A stand attracted to an application under Section 9 which was filed before 5 June 2020 (the date on which the provision came into force) in respect of a default which has occurred after 25 March 2020.
Petitioner Contentions
The petitioner in its contentions submits before the Court that,
- Section 10A creates a bar to the ‘filing of applications’ under Sections 7, 9 and 10 in relation to defaults committed on or after 25 March 2020 for a period of six months, which can be extended up to one year;
- The Ordinance and the Act which replaced it do not provide for the retrospective application of Section 10A either expressly or by necessary implication to applications which had already been filed and were pending on 5 June 2020;
- Section 10A prohibits the filing of a fresh application in relation to defaults occurring on or after 25 March 2020, once Section 10A has been notified (i.e., after 5 June 2020);
- Section 10A uses the expressions “shall be filed” and “shall ever filed” which are indicative of the prospective nature of the statutory provision in its application to proceedings which were initiated after 5 June 2020.
Further, the Petitioner in its contention submits before the Court that,
“It is necessary for the Court and the tribunals to deduce as to whether the cause of financial distress is or is not attributable to the Covid-19 pandemic. In the present case, it was asserted that the onset of Covid-19, which was the reason for the insertion of Section 10A, has nothing to do with the default of the respondent to pay the outstanding operational debt of the appellant, which owes its existence even before the onset of the pandemic. Hence, it has been submitted that the event of default (30 April 2020) in the notice of demand cannot be read in isolation.”
Respondents Contentions
The Respondent in its contentions submits before the Court that,
- The legislative intent in the insertion of Section 10A was to deal with an extraordinary event, the outbreak of COVID-19 pandemic, which led to financial distress faced by corporate entities;
- Section 10A is prefaced with a non-obstante clause which overrides Sections 7, 9 and 10;
- Section 10A provides a cut-off date of 25 March 2020 and it is evident from the substantive part of the provision, as well as from the proviso and the explanation, that no application can be filed for the initiation of the CIRP for a default occurring on and after 25 March 2020, for a period of six months or as extended upon a notification.
Further, the Respondent in its contentions stated before the Court that,
“the proviso to Section 10A stipulates that “no application shall ever be filed” for the initiation of the CIRP of a corporate debtor “for the said default occurring during the said period”. The explanation which has been inserted for the removal of doubts clarifies that Section 10A shall not apply to any default which has been committed under Sections 7, 9 and 10 before 25 March 2020.”
Court Findings
The Court in its findings stated before the Court that,
- the correct interpretation of Section 10A cannot be merely based on the language of the provision; rather it must take into account the object of the Ordinance and the extraordinary circumstances in which it was promulgated.
- the retrospective bar on the filing of applications for the commencement of CIRP during the stipulated period does not extinguish the debt owed by the corporate debtor or the right of creditors to recover it.
- It was cognizant of the fact that resolution applicants may not come forth to take up the process of the resolution of insolvencies (this as we have seen was referred to in the recitals to the Ordinance), which would lead to instances of the corporate debtors going under liquidation and no longer remaining a going concern. This would go against the very object of the IBC, as has been noted by a two-Judge bench of this Court in its judgment in Swiss Ribbons (P) Ltd. v. Union of India.
Judgment
The Court in its judgment stated that,
“The embargo contained in Section 10A must receive a purposive construction which will advance the object which was sought to be achieved by enacting the provision.”
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