2022 (1) TMI 516 - AT - Insolvency and Bankruptcy

Tribunal upholds Financial Creditor's right under Insolvency & Bankruptcy Code

The Tribunal held that the application under Section 7 of the Insolvency and Bankruptcy Code was maintainable, emphasizing the special remedy provided to ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - Doctrine of stare decisis - existence of debt and dispute or not - HELD THAT:- Section 7 of the ‘I&B Code’ is special remedy provided to Financial Creditors. The Financial Creditor can take recourse to Section 7 when a default has occurred. Present is a case where Application under Section 7 has been filed when a default has occurred. The remedy under Section 7 is special remedy and the provision of ‘I&B Code’ has been given overriding effect from any other law or instrument. A reading of Section 238 indicates that provisions of the Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Thus, what is overridden by the ‘I&B Code’ is both inconsistency with any other law or any instrument having effect. The mortgage is an instrument. The terms and conditions of the mortgage thus cannot claim any superior status and proceedings under Section 7 can be availed irrespective of any contrary or inconsistent condition in mortgage - the mortgage entered between the parties in the present case does not have any inconsistent condition rather the mortgage itself reserves and protects other remedies which are available to the Financial Creditor in any other law. Doctrine of stare decisis means to stand by decided cases. The principle behind the doctrine is that men who are governed by law should be fixed definite and known and when a law is declared by Court of Competent Jurisdiction in absence of any palpable mistake or error, it is required to be followed. Doctrine of stare decisis is wholesome doctrine which gives certainty to law and guide the people to mould their affairs in future. The doctrine is fully attracted on the statutory Tribunal which is well settled - There can be no doubt that the principle of stare decisis is fully applicable on judgments delivered by the NCLT as well as this Appellate Tribunal. Both NCLT and this Tribunal are bound by doctrine of stare decisis. At this juncture, we may clarify that what is binding as a precedent on Company Law Tribunal is the judgment of jurisdictional Tribunal. Judgment delivered by NCLT in other jurisdiction have only persuasive value. It is well settled that per incuriam is exception to the rule of precedent. Incuria literally means carelessness. In practice, per incuriam appears to us per ignorantiam. When judgment is rendered in ignorance of binding statute or binding authority the judgment is said to be per incuriam. The Financial Creditor has full right to initiate action under Section 7 for non-payment of dues - no error has been committed by the Adjudicating Authority in admitting Section 7 Application filed by the Financial Creditor - appeal dismissed. Issues Involved:1. Maintainability of the Application under Section 7 of the Insolvency and Bankruptcy Code (I&B Code), 2016.2. The effect of secured assets on the rights of the Financial Creditor.3. Applicability of the doctrine of stare decisis in the context of co-ordinate Bench judgments.Issue-wise Detailed Analysis:1. Maintainability of the Application under Section 7 of the Insolvency and Bankruptcy Code (I&B Code), 2016:The Corporate Debtor obtained two loans from the Financial Creditor, secured by mortgage deeds. The Financial Creditor filed an application under Section 7 of the I&B Code due to default. The Corporate Debtor argued that the Financial Creditor should have realized the amount from the secured assets rather than filing under Section 7. The Financial Creditor maintained that the application was within jurisdiction and fully maintainable, as the Mortgage Deed did not restrict the right to seek remedy under Section 7.The Tribunal held that Section 7 of the I&B Code provides a special remedy to Financial Creditors when a default occurs. The I&B Code has an overriding effect under Section 238, which states that the provisions of the Code shall prevail over any other law or instrument. Thus, the Tribunal concluded that the application under Section 7 was maintainable, irrespective of the secured assets.2. The effect of secured assets on the rights of the Financial Creditor:The Corporate Debtor argued that the Financial Creditor should have realized the dues from the secured assets as per the Mortgage Deed. The Financial Creditor countered that the Mortgage Deed allowed for other remedies and did not restrict the right to file under Section 7.The Tribunal examined clauses 11.3 and 19.4 of the Mortgage Deed, which did not impose any embargo on the Financial Creditor from seeking remedies under the law. Clause 11.3 allowed the Mortgagee to deal with the mortgaged properties without prejudice to other rights and remedies. Clause 19.4 preserved the Mortgagee's right to other remedies available under the law. The Tribunal concluded that the Financial Creditor had the choice to recover dues from secured assets or take other legal recourse, including filing under Section 7.3. Applicability of the doctrine of stare decisis in the context of co-ordinate Bench judgments:The Corporate Debtor cited a co-ordinate Bench judgment in 'Beacon Trusteeship Limited vs. Neptune Ventures and Developers Private Limited,' where a similar application under Section 7 was rejected. The Tribunal noted that the same Judicial Member had taken a contrary view in another case, 'IDBI Trusteeship Services Ltd. V. Ornate Spaces Pvt. Ltd.,' and thus did not follow the 'Beacon Trusteeship Limited' judgment.The Tribunal emphasized the principle of stare decisis, which requires consistency in judicial decisions. However, it clarified that judgments from other jurisdictions have persuasive value, not binding precedent. The Tribunal further noted that the 'Beacon Trusteeship Limited' judgment did not consider Section 238 of the I&B Code, which gives the Code an overriding effect. As the judgment was rendered in ignorance of a binding statute, it was deemed per incuriam and not a binding precedent.The Tribunal referred to the Supreme Court's judgment in 'Gujarat Urja Vikas Nigam Limited vs. Amit Gupta and Others,' which held that Section 238 of the I&B Code overrides any inconsistent provisions in other agreements or instruments. Consequently, the Tribunal concluded that the judgment in 'Beacon Trusteeship Limited' was not binding and upheld the maintainability of the Section 7 application.Conclusion:The Tribunal dismissed the appeal, affirming that the application under Section 7 was maintainable and that the Financial Creditor had the right to seek remedies under the I&B Code, irrespective of the secured assets. The doctrine of stare decisis was acknowledged, but the Tribunal clarified that the 'Beacon Trusteeship Limited' judgment was not binding due to its failure to consider Section 238 of the I&B Code.