2021 (11) TMI 478 - HC - Insolvency and Bankruptcy

Court allows Corporate Creditors to proceed under Insolvency and Bankruptcy Code without waiting for Company's review process.

The Court held that the Corporate Creditors (R3 and R4) were not required to wait for the Review process initiated by the Appellant Company before ... Corporate creditors' right to invoke the Insolvency and Bankruptcy Code - review of tariff order by the regulatory commission - writ jurisdiction under Article 226 to secure commercial certainty - prerogative extraordinary jurisdiction to do complete justice - RBI Framework for Resolution of Stressed Assets - role of the regulatory commission in adjudicating arithmetical errors on the face of record - commercial restructuring versus independent statutory remedy under the IBCCorporate creditors' right to invoke the Insolvency and Bankruptcy Code - commercial restructuring versus independent statutory remedy under the IBC - review of tariff order by the regulatory commission - Whether the Corporate Creditors (R3 and R4) were required to await the outcome of the Review petition before invoking the IBC. - HELD THAT: - The Court held that the pronouncement of the Tariff Order by the Commission on 31 May 2021 fulfilled the key pre-condition contemplated in the consortium restructuring discussions and did not, as a matter of law, fetter the Corporate Creditors from initiating IBC proceedings. From a commercial standpoint the IBC is an independent statutory remedy and a claimed non-viable tariff returned by the Commission does not prevent creditors from realising their debts. The Court observed, however, that the issue of whether the parties' consortium consensus contemplated only the pronouncement of any Tariff Order or required a 'viable' tariff is a matter for commercial debate between the parties. The Court also noted factual indicia (failure to infuse agreed working capital) that justified the creditors' unilateral recourse to the NCLT. While recognising that a review application pointing to arithmetical omissions was not manifestly frivolous and that tariff determination is essentially an arithmetical/expert exercise for the Commission, the Court concluded that creditors cannot be put to wait indefinitely for adjudication of the review where restructuring has effectively collapsed. Consequently the invocation of the IBC by R3 and R4 was not impermissibly restrained by the mere pendency of the Review petition.R3 and R4 were not required to await the outcome of the Review petition before invoking the IBC; their initiation of insolvency proceedings was not barred by the pendency of the Review.Review of tariff order by the regulatory commission - role of the regulatory commission in adjudicating arithmetical errors on the face of record - Direction to the Commission to adjudicate the Review Petition filed by the Company. - HELD THAT: - Although the Court did not decide the merits of the Review, it recognised that the Review application alleging arithmetical omissions prima facie was not a mere cosmetic exercise and that tariff fixation involves technical/arithmetic issues for expert determination by the Commission. In the exercise of its supervisory jurisdiction aimed at securing commercial certainty between parties whose dealings affect public supply of electricity, the Court directed the Commission to decide the Review Petition on its merits within a fixed timeline to prevent indefinite pendency impeding parties' legal options. The Court thus required the regulatory adjudicatory process to be expeditiously completed, without prejudicing the parties' rights.The Commission was directed to adjudicate the Review Petition on merits within six weeks from communication of the order.Writ jurisdiction under Article 226 to secure commercial certainty - prerogative extraordinary jurisdiction to do complete justice - Whether the High Court could entertain writ jurisdiction to intervene in the dispute between the Corporate Debtor and Corporate Creditors. - HELD THAT: - The Court held that Article 226 jurisdiction is not ousted merely because commercial or insolvency remedies exist; High Courts possess extraordinary prerogative powers to do complete justice and to secure certainty in commercial transactions, particularly where public-law elements (state-owned creditors and supply of electricity as a public purpose) are involved. The Court invoked authority for the proposition that High Courts can exercise powers to effectuate complete justice. Exercising that jurisdiction, the Court refrained from deciding the substantive competing claims but issued directions intended to facilitate a final commercial appraisal (including a further consortium meeting) and prompt regulatory adjudication before parties proceed with their chosen remedies.The High Court was competent to exercise writ jurisdiction to issue directions aimed at securing commercial certainty and to order procedural steps without adjudicating the merits of competing commercial claims.Final Conclusion: The High Court held that the creditors were not required to postpone invoking the IBC solely because a Review of the Tariff Order was pending; however, in the interest of commercial certainty and fairness it directed the Commission to decide the pending Review within six weeks and directed the parties to revisit fulfillment of consortium pre-conditions in a further meeting, while declining to enter into merits of the disputes. Issues Involved:1. Whether the Corporate Creditors (R3 and R4) are required to wait for the Review process initiated by the Appellant Company before proceeding under the Insolvency and Bankruptcy Code (IBC).2. The propriety of the unilateral invocation of the IBC by R3 and R4.3. The jurisdiction of the Writ Court in addressing the actions of R3 and R4.Issue-wise Detailed Analysis:1. Requirement for Corporate Creditors to Wait for Review Process:The core issue is whether R3 and R4 must wait for the Appellant Company's Review process of the Tariff Order by the West Bengal Electricity Regulatory Commission (Commission) before proceeding under the IBC. The Appellant Company, a thermal power generator, sought a Review of the Tariff Order dated May 31, 2021, citing arithmetical omissions. The Review was filed on June 11, 2021, and is pending. The Appellant argued that R3 and R4's action under the IBC without awaiting the Review's outcome is premature and affects the restructuring process agreed upon in a Consortium Meeting on February 17, 2021.2. Propriety of Unilateral Invocation of the IBC:The Appellant contended that R3 and R4's unilateral invocation of the IBC contravenes the restructuring proposal under the RBI Framework of 2019 and the consensus reached in the Consortium Meeting, which emphasized the importance of the Tariff Order for restructuring. The Appellant argued that the IBC proceedings initiated by R3 and R4 are abrupt and deny the Company the opportunity to resolve the tariff issues, impacting its right to do business under Article 19 of the Constitution of India.Conversely, R3 and R4 argued that the restructuring agreement is a private contract and the Tariff Order's pronouncement on May 31, 2021, fulfilled the pre-condition for restructuring. They maintained that the Appellant's non-acceptance of the Tariff Order does not bind them, and they are free to invoke the IBC to realize their debts. They cited precedents indicating that IBC proceedings are competent to address the restructuring of stressed assets.3. Jurisdiction of the Writ Court:The Court examined whether it could intervene in the matter, given the public law element due to the nature of the Appellant's business (electricity generation) and the involvement of state entities (R3 and R4). The Court noted that the Tariff Order is fundamental to both parties and its failure necessitated revisiting their positions. The Court emphasized its duty to do complete justice and directed the Commission to adjudicate the Review Petition within six weeks. It also instructed R3 and R4 to address the Tariff Order in a second Consortium Meeting with the Appellant Company.Findings and Directions:A) The Tariff Order was a key pre-condition for restructuring.B) Both parties took steps to obtain the Tariff Order.C) The Tariff Order was crucial for the Appellant's financial viability.D) The non-viability of the Tariff Order does not prevent R3 and R4 from invoking the IBC.E) The problem of the non-viable Tariff Order is solely the Appellant's issue.F) The Review Application points to significant arithmetical omissions.G) The Commission must decide on the Review Application's merits.H) Corporate Creditors cannot wait indefinitely for the tariff adjudication process.I) The Appellant failed in key commitments, justifying R3 and R4's IBC action.J) The Writ Court can exercise jurisdiction due to the public law element.K) Equity and commercial law must balance predictability and justice.L) High Courts have the power to do complete justice.M) Parties should re-visit the Tariff Order before proceeding with legal options.N) The IBC proceedings' primacy and the Appellant's survival should be considered.Final Directions:I) The Commission to adjudicate the Review Petition within six weeks.II) R3 and R4 to address the Tariff Order in a second Consortium Meeting with the Appellant.III) The Court did not delve into the merits but acted to ensure complete justice.The judgment and order of the Single Bench dated July 2, 2021, were modified accordingly. The appeal and application were disposed of with no order as to costs.