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2017 (12) TMI 392
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.... petitioner company. 2. W.P. No.29085 has been filed for a Writ of Mandamus, forbearing the Registrar, National Company Law Tribunal, Chennai, 1st respondent herein, from proceeding further with the Application filed by the M/s.Asset Reconstruction Company (India) Limited, (ARCIL), Mumbai, 2nd respondent herein, in Application No.603/2017 under Section 7 of Insolvency and Bankruptcy Code, 2016 to initiate corporate insolvency resolution process against the company pending disposal of OA filed by the 2nd respondent in O.A.29/2016 on the file of DRT-I, Chennai, and Review Application No.3 of 2017 in OA No.430/2014 on the file of DRT-II, Chennai and consideration of the One Time Settlement Proposal given by the 1st petitioner company. 3. As facts involved in both the writ petitions and the reliefs claimed are similar, they are heard together and taken up for common disposal. 4. The second petitioner is the Director of the 1st petitioner Company and he has filed the writ petitions for the relief stated supra. The company is in the business constructing commercial Mall projects including shopping complex, food court and multiplex theatres. The first petitioner Compa....
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.... Overseas Bank (IOB) was restrained from alienating the properties given by the debtor/guarantor as security. 6. The petitioners have contended that as per the guidelines of the Reserve Bank of India, OTS has to be placed before the Board and the Board has to take a decision, on the said OTS Proposal before the same is rejected. The said procedure was not followed, but M/s.Indian Overseas Bank (IOB) has increased only Rs. 35 Lakhs from the petitioner company's offer and assigned the debt in favour of the said 2nd respondent, which was challenged by the petitioner Company by filing a Writ Petition No.8351 of 2016, before this Court and a Hon'ble Division Bench of this Court directed the petitioner to take all possible defence before the DRT-I and also seek for OTS and further held that it is for the Tribunal to consider the same and pass orders with one month from the said date and directed status quo to be maintained till one month. A similar Order was passed in W.P.No.7953/2014, dated 21.03.2014. 7. The first petitioner company has filed S.I.A.No.72/2016 in S.A.No.113/2012, seeking for a relief to set aside the assignment of the petitioner's debt by the M/s.India....
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....g of M/s.Indian Overseas Bank (IOB) and Oriental Bank of Commerce (OBC), which has been assigned to the said creditor, while executing the Assignment Deed was Rs. 19.35 Crores and Rs. 22.35 Crores respectively, and the petitioner company is willing to settle the above said principal along with simple interest as prescribed by the Guidelines of Reserve Bank of India. Since the petitioner Company is willing to pay the outstanding amounts to the 2nd respondent on the determination of the quantum of the same by the DRT, the application filed by the 2nd respondent before the National Company Law Tribunal is totally unnecessary and has no merit. 12. When the proceedings before the Debt Recovery Tribunal is pending adjudication for determination of quantum of liability of the petitioner parallel proceedings before the NCLT will defeat the purpose of the said proceedings. More so, when the applicant before NCLT, has relied on the said proceedings, as an evidence for default. When proceedings with respect to computation of debt is pending adjudication before the DRT, approaching NCLT would amount to forum shopping. Though NCLT is not technically prevented under law from proceeding ....
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....o.7953/2014, dated 21.03.2014 and W.P.No.8351/2016, dated 28.06.2017, directing the petitioner to approach the Debt Recovery Tribunal to work out the remedies and pursuant to the orders of this Court the DRT has been adjudicating the claims of the petitioner company. In such circumstances proceedings before DRT should work themselves out and any action to the contrary will conflict with the Orders of this Court. (v) The Directors and shareholders of the company are affected parties. They are entitled to their rights of business and ownership which are constitutionally protected rights under Art 19(1)(g) and 300 A. Admission of the petition under section 7 and consequential appointment of an. insolvency professional will deny the valuable rights of the petitioners and other share holder and other directors of the 1st petitioner their right to manage and have a say in the repayment of debt and running of the company. It is submitted that when a person is willing to repay and making efforts to pay, he is entitled to a fair opportunity and cannot be striped of his rights of management of his property . (vi) The appointment of Insolvency Professional and Moratorium, wi....
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....mprove ease of doing business, and facilitate more investments leading to higher economic growth and development. 3. The Code seeks to provide for designating the NCLT and DRT as the Adjudicating Authorities for corporate persons and firms and individuals, respectively, for resolution of insolvency, liquidation and bankruptcy. The Code separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects. The Code also seeks to provide for establishment of the Insolvency and Bankruptcy Board of India (Board) for regulation of insolvency professionals, insolvency professional agencies and information utilities. Till the Board is established, the Central Government shall exercise all powers of the Board or designate any financial sector regulator to exercise the powers and functions of the Board. Insolvency professionals will assist in completion of insolvency resolution, liquidation and bankruptcy proceedings envisaged in the Code. Information Utilities would collect, collate, authenticate and disseminate financial information to facilitate such proceedings. The Code also proposes to establish a fund to be called the Insolvency and Bankruptcy Fund of....
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....l creditor. Chapter II of the Insolvency and Bankruptcy Code, 2016, deals with Corporate Insolvency Resolution Process. Section 6 of the Code, deals with persons, who may initiate corporate insolvency resolution process and the said Section is extracted hereunder: "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." 21. Section 7 of the Code deals with initiation of corporate insolvency resolution process by a financial creditor and the same reads as follows: "7. (1) A financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. 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 fin....
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....n of corporate insolvency resolution process by corporate applicant. 11 Persons not entitled to make application. 12 Time-limit for completion of insolvency resolution process. 13 Declaration of moratorium and public announcement. 14 Moratorium. 15 Public announcement of corporate insolvency resolution process. 16 Appointment and tenure of interim resolution professional. 17 Management of affairs of corporate debtor by interim resolution professional 18 Duties of interim resolution professional. 19 Personnel to extend cooperation to interim resolution professional. 20 Management of operations of corporate debtor as going concern. 21 Committee of creditors. 22 Appointment of resolution professional. 23 Resolution professional to conduct corporate insolvency resolution process. 24 Meeting of committee of creditors. 25 Duties of resolution professional. 26 Application for avoidance of transactions not to affect proceedings. 27 Replacement of resolution professional by committee of creditors 28 Approval of committee of creditors for certain actions. 29 Preparation of inform....
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....ution. As per Sub-Section (5) of Section 7, 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." 25. Though Mr.Niranjan Rajagopalan, learned counsel for the petitioner submitted that applications filed under Section 7 of the Code, are admitted mechanically by the National Company Law Tribunal and the moment, such application is admitted, the corporate insolvency resolution process comes into operation and in such circumstances, the Company, sought to be declared as insolvent or the directors, as the case may be, has no say, except to go by the procedure set out and therefore, intervention of the said process is required, we are not inclined to accept the said contention, for the reason that if the adjudicating authority....
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....corporate debtor. (4) The National Company Law Tribunal shall be vested with all the powers of the Debt 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 or in any other law for the time being in 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 duri....
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....have jurisdiction to entertain any suit or proceedings in respect of any matter on which National Company Law Tribunal or the National Company Law Appellate Tribunal has jurisdiction under this Code. 31. Section 64 of the Code deals with expeditious disposal of the applications and the same is extracted hereunder: "64. (1) Where an application is not disposed of or an order is not passed within the period specified in this Code, the National Company Law Tribunal or the National Company Law Appellate Tribunal, as the case may be, shall record the reasons for not doing so within the period so specified; and the President of the National Company Law Tribunal or the Chairperson of the National Company Law Appellate Tribunal, as the case may be, may, after taking into account the reasons so recorded, extend the period specified in the Act but not exceeding ten days. (2) No injunction shall be granted by any court, tribunal or authority in respect of any action taken, or to be taken, in pursuance of any power conferred on the National Company Law Tribunal or the National Company Law Appellate Tribunal under this Code." 32. Part IV of the Code deals with regulation....
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....ractices in its governance; (n) maintain websites and such other universally accessible repositories of electronic information as may be necessary; (o) enter into memorandum of understanding with any other statutory authorities; (p) issue necessary guidelines to the insolvency professional agencies, insolvency professionals and information utilities; (q) specify mechanism for redressal of grievances against insolvency professionals, insolvency professional agencies and information utilities and pass orders relating to complaints filed against the aforesaid for compliance of the provisions of this Code and the regulations issued hereunder; (r) conduct periodic study, research and audit the functioning and performance of to the insolvency professional agencies, insolvency professionals and information utilities at such intervals as may be specified by the Board; (s) specify mechanisms for issuing regulations, including the conduct of public consultation processes before notification of any regulations; (t) make regulations and guidelines on matters relating to insolvency and bankruptcy as may be required under this Code, ....
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....eived as penalty imposed against any insolvency professional. (3) Notwithstanding anything contained in any other law for the time being in force, while exercising the powers under this Code, the Board shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely: (i) the discovery and production of books of account and other documents, at such place and such time as may be specified by the Board; (ii) summoning and enforcing the attendance of persons and examining them on oath; (iii) inspection of any books, registers and other documents of any person at any place; (iv) issuing of commissions for the examination of witnesses or documents." 33. As per Section 231 of the Code, 2016, no civil court shall have jurisdiction in respect of any matter in which the Adjudicating Authority is empowered by, or under, this Code to pass any order and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any order passed by such Adjudicating Authority under this Code....
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.... eligible to be appointed as a resolution professional for a fast track process of a corporate debtor if he, and all partners and directors of the insolvency professional entity of which he is a partner or director, are independent of the corporate debtor. Explanation A person shall be considered independent of the corporate debtor, if he (a) is eligible to be appointed as an independent director on the board of the corporate debtor under section 149 of the Companies Act, 2013 (18 of 2013), where the corporate debtor is a company; (b) is not a related party of the corporate debtor; or (c) has not been an employee or proprietor or a partner: 1) of a firm of auditors or company secretaries in practice or cost auditors of the corporate debtor; or 2) of a legal or a consulting firm, which has or had any transaction with the corporate debtor amounting to ten per cent or more of the gross turnover of such firm, at any time in the preceding three years. (2) An insolvency professional shall not be eligible to be appointed as a resolution professional if he, or the insolvency professional entity of which he is ....
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....y, of the corporate debtor; and (iii) be hosted on the website, if any, designated by the Board for the purpose, (c) provide the last date for submission of proofs of claim, which shall be ten days from the date of appointment of the interim resolution professional. (3) The applicant shall bear the expenses of the public announcement which may be reimbursed by the committee to the extent it ratifies them. Explanation-The expenses on the public announcement shall not form part of fast track process costs." 39. Chapter IV of the Regulations, 2017, deals with proof of claims. Relevant Regulations in the said Chapter read as follows: "8. Claims by financial creditors:- (1) A financial creditor shall submit proof of claim to the interim resolution professional in electronic form in Form C: Provided that such person may submit supplementary documents or clarifications in support of the claim before the constitution of the committee. (2) The existence of debt due to the financial creditor may be proved on the basis of - (a) the records available with an information utility, if any; or (b) other relevant do....
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....e first meeting of the committee. 14. Determination of amount of claim:- (1) Where the amount claimed by a creditor is not precise or cannot be determined due to any contingency or other reason, the interim resolution professional or the resolution professional, as the case may be, shall make the best estimate of the amount of the claim based on the information available with him. (2) The interim resolution professional or the resolution professional, as the case may be, shall revise the amount of claims admitted, including the estimates of claims made under sub-regulation (1), as soon as may be practicable, when he receives additional information warranting such revision." 40. Regulation 16 of Chapter V, deals with Committee with only operational creditors and the same is extracted hereunder: "(1) Where the corporate debtor has no financial debt or where all financial creditors are related parties of the corporate debtor, the committee shall be set up in accordance with this Regulation. (2) The committee formed under this Regulation shall consist of following members: - (a) eighteen largest operational creditors by value:....
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....begins. Default is defined in Section 3(12) in very wide terms as meaning nonpayment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of debt , we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a claim and for the meaning of claim , we have to go back to Section 3(6) which defines claim to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. A distinction is made by the Code between debts owed to financial creditors and operational creditors. A financial creditor has been defined under Section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in Section 5(8) to mean a debt which is disbursed against consideration for the time value of money. As opposed to this, an operational creditor means a person to whom an operational debt is owed and an operational ....
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.... scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in subsection (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code. 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is due i.e. payable unless....
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....n. It is only when such plan is approved by a vote of not less than 75% of the voting share of the financial creditors and the adjudicating authority is satisfied that the plan, as approved, meets the statutory requirements mentioned in Section 30, that it ultimately approves such plan, which is then binding on the corporate debtor as well as its employees, members, creditors, guarantors and other stakeholders. Importantly, and this is a major departure from previous legislation on the subject, the moment the adjudicating authority approves the resolution plan, the moratorium order passed by the authority under Section 14 shall cease to have effect. The scheme of the Code, therefore, is to make an attempt, by divesting the erstwhile management of its powers and vesting it in a professional agency, to continue the business of the corporate body as a going concern until a resolution plan is drawn up, in which event the management is handed over under the plan so that the corporate body is able to pay back its debts and get back on its feet. All this is to be done within a period of 6 months with a maximum extension of another 90 days or else the chopper comes down and the liquidation....
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....nd that the burden is upon him, who attacks it, to show that there has been a clear violation of the constitutional principles. The courts, it is accepted, must presume that the legislature understands and correctly appreciates the needs of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds. It must be borne in mind that the legislature is free to recognise degrees of harm and may confine its restrictions to those cases where the need is deemed to be the clearest and finally that in order to sustain the presumption of constitutionality the Court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation." (iii) In Mahant Moti Das v. S.P.Sahi, the Special Officer In Charge of Hindu Religious Trust & Ors. reported in AIR 1959 SC 942, the Hon'ble Supreme Court, held as follows: "The decisions of this Court further establish that there is a presumption in favour of the constitutionality of an enactment and the burden is upon him who attack....
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....position thus : "........The presumption is always in favour of the constitutionality of an enactment, since it must be assumed that the legislature understands and correctly appreciates the needs of its own people, and its laws are directed to problems made manifest by experience and its discriminations are based on adequate grounds." (vi) In Pathumma and others v. State of Kerala reported in AIR 1978 SC 771 = 1978 SCR (2) 537, a Constitutional Bench of the Hon'ble Supreme Court held as follows: "It is obvious that the legislature is in the best position to understand and appreciate the needs of the people as enjoined by the Constitution to bring about social reforms for the upliftment of the backward and the weak-or sections of the society and for the improvement of the lot of poor people. The Court will therefore, interfere in this process only when the statute is clearly violative of the right conferred on the citizen under Part III of the Constitution or when the Act is beyond the legislative competence of the legislature or such other grounds. It is for this reason that the Courts have recognised that there is always a presumption in favour of the con....
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....st be upheld whatever a court may think of it. (See State of Bombay v. F.N.Balsara [AIR 1951 SC 318]) (x) In Government Of Andhra Pradesh & Ors vs Smt.P.Laxmi Devi reported in 2008 (4) SCC 720, the Hon'ble Supreme Court has considered few decisions, on the presumption in favour of the constitutionality, as follows: "58. The U.S. Supreme Court enunciated the principle that there is a presumption in favour of the constitutionality of Statute, and the burden is always upon the person who attacks it to show that there has been a clear transgression of a constitutional provision. This view was adopted by the Constitution Bench of this Court in Charanjit Lal Chowdhury v. Union of India and others [AIR 1951 SC 41 (para 10)], which observed: "Prima facie, the argument appears to be a plausible one, but it requires a careful examination, and while examining it, two principles have to be borne in mind : (1) that a law may be constitutional even through it relates to a single individual, in those cases where on account of some special circumstances or reasons applicable to him and not applicable to others, that single individual may be treated as a class by h....
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.... statute cannot be declared unconstitutional merely because in the opinion of the court it violates one or more of the principles of liberty, of the spirit of the Constitution, unless such principles and that spirit are found in the terms of the Constitution" (emphasis supplied) 60. Similarly in Union of India v. Elphinstone Spinning and Weaving Co. Ltd., and another, AIR 2001 SC 724 (vide para 9) a Constitution Bench of this Court observed : "There is always a presumption that the legislature does not exceed its jurisdiction and the burden of establishing that the legislature has transgressed constitutional mandates such as, those relating to fundamental rights is always on the person who challenges its vires. Unless it becomes clear beyond reasonable doubt that the legislation in question transgresses the limits laid down by the organic law of the Constitution it must be allowed to stand as the true expression of the national will Shell Company of Australia vs. Federal Commissioner of Taxation, 1931 AC 275 (Privy Council). The aforesaid principle, however, is subject to one exception that if a citizen is able to establish that the legislation has invaded his fun....
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....he Hon'ble Supreme Court, held as follows: "46. To examine constitutionality of a statute in its correct perspective, we have to bear in mind certain fundamental principles as afore-recorded. There is presumption of constitutionality in favour of legislation. The Legislature has the power to carve out a classification which is based upon intelligible differentia and has rational nexus to the object of the Act. The burden to prove that the enacted law offends any of the Articles under Part III of the Constitution is on the one who questions the constitutionality and shows that despite such presumption in favour of the legislation, it is unfair, unjust and unreasonable." 44. M/s.Innoventive Industries Ltd.,'s case (cited supra), has also considered several authoritative pronouncements, under Article 142 of the Constitution of India, dealing with repugnancy between the Central and State laws. At Paragraph 50, the Hon'ble Supreme Court, culled out the preposition of law, as hereunder: "i) Repugnancy under Article 254 arises only if both the Parliamentary (or existing law) and the State law are referable to List III in the 7th Sch....
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....atter as the Parliamentary law to any extent, it must give way. One test of seeing whether the subject matter of the Parliamentary law is encroached upon is to find out whether the Parliamentary statute has adopted a plan or scheme which will be hindered and/or obstructed by giving effect to the State law. It can then be said that the State law trenches upon the Parliamentary statute. Negatively put, where Parliamentary legislation does not purport to be exhaustive or unqualified, but itself permits or recognises other laws restricting or qualifying the general provisions made in it, there can be said to be no repugnancy. viii) A conflict may arise when Parliamentary law and State law seek to exercise their powers over the same subject matter. This need not be in the form of a direct conflict, where one says do and the other says don t . Laws under this head are repugnant even if the rule of conduct prescribed by both laws is identical. The test that has been applied in such cases is based on the principle on which the rule of implied repeal rests, namely, that if the subject matter of the State legislation or part thereof is identical with that of the Pa....
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.... (253) and (254) xxx xxx xxx 255. Amendments of Act 18 of 2013. The Companies Act, 2013 shall be amended in the manner specified in the Eleventh Schedule. 53. It is settled law that a consolidating and amending act like the present Central enactment forms a code complete in itself and is exhaustive of the matters dealt with therein. In Ravula Subba Rao and another v. The Commissioner of Income Tax, Madras, (1956) S.C.R. 577, this Court held: The Act is, as stated in the preamble, one to consolidate and amend the law relating to income tax. The rule of construction to be applied to such a statute is thus stated by Lord Herschell in Bank of England v. Vagliano [(1891) AC 107, 141]: I think the proper course is in the first instance to examine the language of the statute, and to ask what is its natural meaning, uninfluenced by any considerations derived from the previous state of the law, and not to start with inquiring how the law previously stood, and then, assuming that it was probably intended to leave it unaltered... We must therefore construe the provisions of the Indian Income-tax Act as forming a code complete i....
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...., (1977) 3 SCC 280, this Court dealt with a Goa regulation vis-`-vis the Code of Criminal Procedure. In that context, this Court observed: A Code is complete and that marks the distinction between a Code and an ordinary enactment. The Criminal Procedure Code, by that canon, is selfcontained and complete. (at page 282) There can be no doubt, therefore, that the Code is a Parliamentary law that is an exhaustive code on the subject matter of insolvency in relation to corporate entities, and is made under Entry 9, List III in the 7th Schedule which reads as under: 9. Bankruptcy and insolvency 54. On reading its provisions, the moment initiation of the corporate insolvency resolution process takes place, a moratorium is announced by the adjudicating authority vide Sections 13 and 14 of the Code, by which institution of suits and pending proceedings etc. cannot be proceeded with. This continues until the approval of a resolution plan under Section 31 of the said Code. In the interim, an interim resolution professional is appointed under Section 16 to manage the affairs of corporate debtors under Section 17. 55. It is clear, therefo....
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....he Maharashtra Act. For these reasons, we are of the view that the Maharashtra Act cannot stand in the way of the corporate insolvency resolution process under the Code." 46. During the course of hearing of the instant writ petition, submission has been made by the learned counsel for the petitioners that a counter affidavit has been filed, to the application under Section 7 of the Code, before the NCLT, opposing the admissibility of the application filed by the 2nd respondent. When admission of the application filed, under Section 7 of the Code, is opposed before the Tribunal, we do not want to record any finding, as to whether, notice is required under Section 7(5)(a), except to observe that the Hon'ble Supreme Court, in M/s.Innoventive Industries Ltd.,'s case (cited supra), has held that Insolvency and Bankruptcy Code, 2016, is a comprehensive code. 47. Moment, an application is admitted, under Section 7 of the Insolvency and Bankruptcy Code, 2016, a detailed procedure is set out in the Insolvency and Bankruptcy Code, 2016 and Rules and Regulations have framed. In the light of the decision of the Hon'ble Supreme Court, in M/s.Innoventive Industries Ltd....