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2020 (9) TMI 223
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....y the Promulgation of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 (No. 9 of 2020) published in the Gazette of India on 05.06.2020 whereby a new Section, namely Section 10A, of which alone we are presently concerned, has been inserted after Section 10 of the Principal Act which reads as follows:- Section 10A 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 25th 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" (emphasis supplied) 2. In the....
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....Code and all of them were posted for arguments on 15.06.2020, the instant Application was taken up for consideration first and for its disposal as specifically recorded in the Order dated 15.06.2020. Perusal of the said Order dated 15.06.2020 also specifically shows that Ld. Senior Counsel Mr. Arvindh Pandian, who appeared on behalf of the Respondent in the instant Application has sought to resist the Application based on the plea of demurrer and stated that the Respondent was hence not inclined to file a counter to the Application and in the circumstances the hearing in the instant Application alone was taken up and the arguments of the Ld. Senior Counsels of both the parties were heard in detail taking into consideration the important development which had taken place by way of promulgation of an Ordinance (No. 9 of 2020) inserting Section 10A to I&B Code as noted above. The parties, it must be noted, were also given an opportunity to file their written submissions, if any, and such opportunity, it is seen, seems to have been availed by both parties as can be gathered from the records of the Tribunal. 5. Upon a combined consideration of the respective oral as well as written s....
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....he Ordinance was made retrospectively applicable on and from 25th March 2020, even though it came to be published in the Gazette of India only on 05th June 2020. The Ordinance, it is submitted, was promulgated taking into consideration the extraordinary situation prevalent all over the world, including India impacting the business, financial markets and economy which had created uncertainty and stress for business for reasons beyond the control of corporate persons, this Tribunal is hence required to suspend the proceedings forthwith by virtue of Section 10A of I&B Code, 2016 as amended irrespective of any default has been allegedly committed or not and whether being admitted or not, without prejudice to the contentions on the part of the applicant that no default has been committed by the Applicant/Corporate Debtor. 7. To draw support for the submissions as above, Ld. Senior Counsel for the Applicant heavily places reliance on the Objects and reasons for the promulgation of the Ordinance published on 05.06.2020 and as can be gathered from it, as well as by dissecting the provisions of Section 10A minutely to demonstrate the situations under which the suspension of the proceedin....
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....art of the applicant in relation to the claim and in the circumstances it warrants in effect for IBA 215/2020 to be admitted and consequentially to initiate the Corporate Insolvency Resolution Process as well, in relation to the applicant/corporate debtor. 9. Further, in any case it is also contended on the part of the respondent that if there was no financial distress arising out of COVID pandemic, however there has been a default on the part of the Corporate Debtor, then the protection of the newly inserted Section 10A will not come into play as it is evident from the intention in promulgating the Ordinance that the benefit of the newly inserted Section 10A is to be available only to those who have in effect committed a 'default' in the context of Section 7 or Section 9 of I&B Code and such a default arises out of the financial distress due to the COVID pandemic being prevalent. In this connection it is pointed out by the respondent that the applicant in effect has admitted to the liability to pay to the respondent/Operational Creditor vide communication dated 27.03.2020 filed in page No. 142 of the typed set filed along with the petition and has also admitted vide com....
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....cation which precisely seems to be the bone of contention as between the parties as to its scope as can be deduced from the submissions made ably by the Learned Senior Counsels for the respective parties and culled out as above. 12. It is to be seen that the power to promulgate Ordinances thereby in effect to legislate on the part of the Executive, even though normally it is the function of the Legislature to enact legislation, is enshrined in Article 123 of our Constitution in relation to the Union and being of importance to the context on hand is reproduced below:- Article 123 of the Indian Constitution 123. Power of President to promulgate Ordinances during recess of Parliament (1) If at any time, except when both Houses of Parliament are in session, the President is satisfied that circumstances exist which render it necessary for him to take immediate action, he may promulgate such Ordinance as the circumstances appear to him to require (2) An Ordinance promulgated under this article shall have the same force and effect as an Act of Parliament, but every such Ordinance (a) shall be laid before both House of Parliament and shall ce....
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....ntrary to all democratic norms that the Executive should have the power to make a law, but in order to meet an emergent situation, this power is conferred on the Governor and an Ordinance issued by the Governor in exercise of this power must, therefore, of necessity be limited in point of time. That is why it is provided that the Ordinance shall cease to operate on the expiration of six weeks from the date of assembling of the Legislature. Even though D.C. Wadhwa & Ors's case quoted supra, was decided in the context of the power of the Executive of a State to re-promulgate an Ordinance repeatedly without adhering to the compliance of the conditions laid down in the relevant Article in placing it before the Legislature concerned, however the above observations made and extracted generally in relation to the Ordinance making power of the Executive and the circumstances compelling to make it, are of relevance, which can also be equally applied to Article 123 to that of the Ordinance promulgated by the Executive of the Union conferred on the President of India. It is required to be noted which is of great relevance to the case on hand for interpreting the provisions of the Ordin....
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....Objects and reasons for bringing out the Ordinance, it is manifest that the Executive was concerned about the COVID - 19 pandemics being all over the world including India and: i) In relation to the impact it will have on the business, financial markets and economy as a whole including India; ii) The likely stress and uncertainty it will create for businesses beyond their control; iii) The disruption to the business created in view of the nationwide lock down which is in force since 25th March 2020; iv) Difficulty in finding adequate number of resolution applicants to rescue the corporate persons in case of default under the circumstances; v) In view of the factors mentioned in (i) to (iv) above with a view to prevent the corporate persons already experiencing distress on account of unprecedented situation being pushed into insolvency proceedings, to suspend Section 7, 9 and 10 of I&B Code; vi) In view of the unprecedented situation, to exclude the defaults arising on account of the said unprecedented situation for the purpose of insolvency proceedings; vii) Since Parliament being not in session and the President being ....
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.... seen, opens with a non-obstante clause thereby overriding the provisions of Section 7, 9 and 10 initially for a period of six months with a saving for a further extension of the said period not exceeding one year from such date as may be notified in this behalf, in relation to filing of an application seeking for the initiation of CIRP of a corporate debtor in relation to default arising on or after 25th March 2020. 20. In the circumstances, a question arises as to what will happen to those cases where the date of default is anterior to the relevant date as specified in the main provision of Section 10A, namely 25.03.2020. This doubt is sought to be clarified by way of an Explanation provided at the foot of Section 10A itself stating that the provisions of Section 10A shall not apply to the defaults which had arisen in relation to a corporate debtor prior to the relevant date of 25.03.2020 and hence the creditors of such a corporate debtor or the corporate debtor as a corporate applicant are not restrained to move this Tribunal under the relevant provisions, as may be applicable, seeking for the initiation of CIRP under such circumstances as they are not prevented from doing it....
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....isions of the Companies Act, 2013 as well as under I&B Code, 2016, one such application being the petition filed by the respondent herein seeking for listing of IBA 215/2020 in order to obtain urgent orders. The application was allowed to be listed in the cause list in view of the decision of Hon'ble NCLAT passed in NUI Pulp and Paper Industries (P) Ltd. -vs-Roxel Trading GMBH in Company Appeal (AT) (INS) 664 of 2019 for entertaining such applications filed. At this stage a mention of dates in relation to the instant case becomes crucial as evident from the records of this Tribunal: 11.05.2020 - Date of filing the petition along With urgent application seeking For interim directions filed in Application No. 342 of 2020. 19.05.2020 - Listed for the 1st time. Interim Directions not given in IA/342 Of 2020. For Completion of pleadings in the Application as well as main CP/IBA/215/2020. Adj. to 26.05.20 26.05.2020 - Counter filed by the respondent/CD-Applicant herein. Application under Section 65 of I&B Code also filed by the CD/Applicant Herein against the OC/Respdt. For completion of pleadings and for arguments posted to 15.6.20. In between 26.05.202....
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.... be interpreted as follows as evident from paragraph 2.6.3 of the written submissions filed by the Applicant, namely:- 2.6.3 The proviso, however, specifically contemplates two separate scenarios in relation to the defaults which have occurred or will occur during the Suspension Period - (i) the intervening time period between 25 March 2020 and 5 June 2020, when insolvency applications may have been filed; and (ii) post the suspension period, i.e. 24 September 2020 (or 24 March 2021, as the case maybe), when insolvency application filings may resume. Therefore, with a view to ensure that the legislative intent was clear and covers the entire gamut of possible scenarios, the word "ever" was incorporated in the proviso. 26. Laying particular emphasis on the term 'ever' as contained in the proviso to Section 10A, it is submitted on the part of the applicant that the said term has been inserted to cover both the pending application filed in relation to defaults which have occurred on or after 25th March 2020 or the future applications that may be filed, post the period of suspension in relation to defaults arising during the said period. It is further submitted, fai....
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.... statue by the Courts, where the words of the statue are clear and unambiguous and recourse to other principles of interpretation can be applied only in exceptional cases when faced with an apparently defective provision in the statute and where such defective or anomaly may make the literal compliance of the provision impossible or absurd or so impractical as to defeat the very object of the provision. iv) Bharat Singh v. Management of New Delhi Tuberculosis Centre [1986 (2) SCC 614): Retrospective effect to a statute can be given even to pending proceedings or even when the awards have been passed by the Tribunals a couple of days prior to the enactment of the Statute. Having laid bare the rival submissions of the parties in somewhat greater detail in relation to the question framed as to whether the provisions of newly inserted Section 10A of the Ordinance (No. 9 of 2020) promulgated on 05.06.2020 will have its applicability to the instant case on hand or not, we proceed to answer the same as follows:- 28. ON THE ASPECT OF RETROSPECTIVE APPLICATION OF A STATUTE: 28.1. Firstly, from the list of citations relied on by the respondent it is seen that the r....
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....ns of the Constitution in respect of appropriate entries in the Seventh Schedule. This Court, in Union of India v. Madan Gopal Kabra held that the legislature can always legislate retrospectively, unless there is any prohibition under the Constitution which has created it. But the same rule cannot obviously be applied to the Central Government exercising delegated legislative power, for the scope of their power is not coextensive with that of Parliament. This distinction is clearly brought out by the learned-Judges of the Allahabad High Court in Modi Food Products Ltd. v. Commissioner of Sales Tax, U.P. wherein the learned Judges observed: "A legislature can certainly give retrospective effect to pieces of legislation passed by it but an executive Government exercising subordinate and delegated legislative powers, cannot make legislation retrospective in effect unless that power is expressly conferred." 28.2. However, in the instant case, unlike the Arrowline's case where a Notification was issued by the Central Government as a delegate, here we are confronted with an Ordinance promulgated by the Executive in exercise of the power vested to it under Article 123 of the Consti....
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....s support for the above proposition and to establish that the main provision of Section 10A taken together with objects reasons resulting in the promulgation of Ordinance (No. 9 of 2020) demonstrates that it is to be made applicable retrospectively to the defaults arising on or after 25th March 2020. 29. WHETHER SECTION 10A, NEWLY INSERTED IN I&B CODE BY THE PROMULGATION OF THE ORDINANCE (NO. 9 OF 2020) HAS A RETROSPECTIVE APPLICABILITY AND RETROACTIVE EFFECT: 29.1. Having seen that a legislation can have a retrospective application affecting even in relation to substantive or vested rights accrued, now the question falls for consideration is as to whether Section 10A as newly inserted by the Amendment Ordinance (No. 9 of 2020) can be applied retrospectively and as to whether there is an express provision or clear implication contained in the legislation itself to this effect or even if the above is not to be found in the legislation (i.e. Ordinance (No. 9 of 2020) whether there is an existence of the intention of the Executive to make it apparent as to its retrospective operation by looking into the circumstances attendant in promulgating the Ordinance (No. 9 of 2020). 29....
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....djudicating authority may reject an application and not otherwise. (emphasis supplied) 29.3. Similarly, in relation to an Operational Debt and its default, the Hon'ble SC while dealing with its admission or rejection by this Tribunal when confronted with an application under Section 9 of the Code has held in Mobilox Case as follows: 24. The scheme under Sections 8 and 9 of the Code, appears to be that an operational creditor, as defined, may, on the occurrence of a default (i.e., on non-payment of a debt, any part whereof has become due and payable and has not been repaid), deliver a demand notice of such unpaid operational debt or deliver the copy of an invoice demanding payment of such amount to the corporate debtor in the form set out in Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with Form 3 or 4, as the case may be (Section 8(1)). Within a period of 10 days of the receipt of such demand notice or copy of invoice, the corporate debtor must bring to the notice of the operational creditor the existence of a dispute and/or the record of the pendency of a suit or arbitration proceeding filed before the re....
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.... that either there is no repayment of the unpaid operational debt after the invoice (Section 9(5)(i)(b)) or the invoice or notice of payment to the corporate debtor has been delivered by the operational creditor (Section 9(5)(i)(c)), or that no notice of dispute has been received by the operational creditor from the corporate debtor or that there is no record of such dispute in the information utility (Section 9(5)(i)(d)), or that there is no disciplinary proceeding pending against any resolution professional proposed by the operational creditor (Section 9(5)(i)(e)), it shall admit the application within 14 days of the receipt of the application, after which the corporate insolvency resolution process gets triggered. On the other hand, the adjudicating authority shall, within 14 days of the receipt of an application by the operational creditor, reject such application if the application is incomplete and has not been completed within the period of 7 days granted by the proviso (Section 9(5)(ii)(a)). It may also reject the application where there has been repayment of the operational debt (Section 9(5)(ii)(b)), or the creditor has not delivered the invoice or notice for payment to t....
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....fter 25.03.2020, initially for a period of six months with an option to extend not exceeding one year. Thus, for the time being the hands of the clock have been stopped in relation to defaults occurring on or after 25.03.2020, all in view of the objects and reasons stated in the Ordinance itself, which at the cost of repetition arising out of the prevalence of the pandemic throughout the world including India, causing a stress to the businesses, financial markets and economy and further the lockdown enforced from 25.03.2020 disrupting additionally the normal business operations. 29.5. The proviso to main provision of Section 10A makes it abundantly clear that the hands of the clock were not required to be temporarily frozen for a period of six months or such further period not exceeding one year but are required to be permanently interdicted in relation to defaults occurring on or after 25.03.2020 by the use of the term no application shall ever be filed' for initiation of CIRP of a corporate debtor for the said default arising during the said period. 29.6. The main provision of Section 10A taken in tandem with the proviso thereunder seems to have given scope for differin....
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....n to government contractors having been affected by supply chain disruptions arising from corona virus related issues and consequent delays of government contracts, the Ministry of Finance had chosen to issue an office memorandum directing all ministries to treat disruption due to virus outbreak as case of natural calamity and the disruptions due to corona virus may be treated as 'force majeure' events. 29.9. Since each and every word used in a piece of legislation is to be presumed as relevant and no part of the statute is required to be considered as superfluous or made without any purpose, the proviso to the main provision of Section 10A as pointed out by the counsels for the parties to canvass for their respective positions is also required to be considered by this Tribunal in order to ascertain the role of the said proviso in the scheme of Section 10A as newly inserted. The role of a proviso to a main section has been generally delineated by the Apex Court in several of its judgments, one being that of Laxminarayan R. Bhattad & Ors. V. State Of Maharashtra & Anr. in Civil Appeal No. 6345 of 2001 rendered on 04.04.2003 and Reported in SpotLaw 2014 = (2003) 3 S.C.R. 4....
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....d in the main provision. Thus in the absence of the proviso, the suspension of filing of an application under Section 7, 9 and 10 in relation to defaults arising on and from 25.03.2020 would have been applicable only for a period of six months i.e. up till 25.09.2020 or at the utmost until a year i.e. 25.03.2021 taking into consideration the main provision of Section 10A of I & B Code as amended. However, the insertion of the Proviso makes the suspension in the filing of an application as envisaged in the main provision in relation to 'defaults' falling within the specified period forever by the use of the term shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor 29.12. In this connection, it must be noted in relation to the facts of the present case, the respondent contended that even according to the admission of the applicant, being by way of an email communication dated 02.04.2020 taken together with email dated 27.03.2020, COVID situation is not having any impact in relation to the arrangement with the respondent/Operational Creditor. However, what is required to be noted in this regard, is that the Ordinance (No. 9 of ....
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....of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute;" It will be seen from a reading of Section 8(2)(a) that the corporate debtor shall, within a period of 10 days of the receipt of the demand notice, bring to the notice of the operational creditor the existence of a "dispute". We have seen that "dispute" as defined in Section 5(6) includes a suit or arbitration proceeding relating to certain matters. Again, under Section 8(2)(a), the corporate debtor may, in the alternative, disclose the pendency of a suit or arbitration proceedings filed before the receipt of the demand notice. It is clear therefore, that at least in the case of an operational creditor, "default" must be non-payment of amounts that have become due and payable in law. The "dispute" or pendency of a suit or arbitration proceedings would necessarily bring in the Limitation Act, for if a suit or arbitration proceeding is time-barred, it would be liable to be dismissed. This again is an important pointer to the fact that when the expression "due" and "due and payable" occur in Sections 3(11) and 3(12) of the Code, they refer to a "default" which is non-....
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....demic coupled with the lock down enforced or otherwise and the defence/dispute which can be put forth in this regard by a corporate debtor that the default, if any had occurred only due to the pandemic as well as the attendant lock down imposed thereby frustrating the performance on its part inviting the application of doctrine of frustration. 29.15. This Tribunal is hence of the view that Section 10A relates back to the date of 25.03.2020 in reckoning the date of default for the reasons above noted, even though the Ordinance got Promulgated only on 05.06.2020 and published in the Gazette of India, and in case the 'default' had occurred on or after 25.03.2020 then this Tribunal should desist from entertaining such an application, even though filed between the date of 25.03.2020 and 05.06.2020 that too both the dates being within the six month period initially specified under Section 10A and in view of the interdiction imposed by I&B Code itself in relation to filing a Section 7, 9 and 10 application ever in relation to defaults arising on or after 25.03.2020 for a period of six months therefrom extendable up to a period of one year by virtue of the newly inserted Section....
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....ope of Order 7 Rule 11 CPC, particularly in relation clause (a) and (d) thereunder in the matter of Sopan Sukhdeo Sable and others Vs. Assistant Charity Commissioner and others, reported in (2004) 3 SCC 137 the Apex Court has observed as follows: Before dealing with the factual scenario, the spectrum of Order VII Rule 11 in the legal ambit needs to be noted. In Saleem Bhai and Ors. v. State of Maharashtra and Ors. ( 2003 (1) SCC 557) it was held with reference to Order VII Rule 11 of the Code that the relevant facts which need to be looked into for deciding an application thereunder are the averments in the plaint. The trial Court can exercise the power at any stage of the suit - before registering the plaint or after issuing summons to the defendant at any time before the conclusion of the trial. For the purposes of deciding an application under clauses (a) and (d) of Order VII Rule 11 of the Code, the averments in the plaint. are the germane; the pleas taken by the defendant in the written statement would be wholly irrelevant at that stage. Rule 11 of Order VII lays down an independent remedy made available to the defendant to challenge the maintainabil....
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....egard is required to follow a sequence of procedure including the issue of a demand notice or invoice demanding payment as contemplated under Section 8 of I&B Code in Form 3/Form 4 as the case may be and as prescribed under the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (for brevity referred to hereinafter as 'AAA Rules') and on failure to either pay or demonstrate a dispute within a period of 10 days upon receipt of Demand Notice, is required to prefer it must be noted in the specified form, namely Form 5, as prescribed again under the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016. It is seen that while issuing Form 4 of the AAA Rules, necessarily Form 3 being the Invoice demanding payment is also required to be issued. In Form 3 of the AAA Rules it is significant to note that under the caption 'Particulars of Operational Debt', it is required of the Operational Creditor to specifically give particulars in relation to the Operational Debt under Clause (1) and Clause (2) as follows: - Clause 1. Total amount of debt, details of transactions On account of which debt fell due, and the Date from whi....
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.... 104,11,76,479 (Indian Rupees Hundred Four Crore Eleven Lakhs Seventy Six Thousand Four Hundred Seventy Nine) as on 30.04.2020 Along with interest @ 18% (eighteen percent) p.a. till the date of realization of entire payment. Details of transactions on account of which debt fell due Xxxxxxxxxxxxxxxxxxxxx And the date from which such debt fell due Date from which such debt fell due: 30.04.2020 2. Amount claimed to be in Default The total amount due from the Corporate Debtor is a sum of INR 104,11,76,479 (Indian Rupees Hundred Four Crore Eleven Lakhs Seventy Six Thousand Four Hundred Seventy Nine) as on 30.04.2020 Along with interest @ 18% (eighteen percent) p.a. till the date of realization of entire payment. And the date on which such Default occurred 30.04.2020 30.5. It is required to be noted that correlating with the date on which the operational debt fell due and the date of default, both being disclosed as 30.04.2020, the details of transactions on account of which the debt fell due, for sake of brevity not repeated, consistently asserts the said date ....