TaxTMI 
TaxTMI 
TaxTMI 
2020 (9) TMI 223
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....ankruptcy 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 light of the insertion of Section 10A to I&B Code, 2016 as extracted above, it....
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....on 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 submissions of the parties and from the averments made by the Applicant in the applica....
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....azette 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 proceedings under Sections 7, 9 and 10 of I & B Code for triggering an insolvency process on the part of a creditor to a default occu....
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....nd 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 communication dated 02.04.2020 filed in page No. 144 of the typed set to the petition that COVID situation is not having any impact....
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....ls 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 cease to operate at the expiration of six weeks from the reassemble of Parliament, or, if before the expiration of that period resolutions disapproving it are passed by both Houses, upon the passing of the second ....
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....fore, 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 Ordinance in relation to its applicability of the newly inserted Section 10A to I&B Code is the compelling circumstance necessitating the Executive to take such immediate action to subserve the interest of the public arising out of the inability of the Le....
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....inty 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 satisfied as to the necessity for immediate action, in exercise of the powers conferred by 'clause (1) of Article 123, the promulgation of the Ordinance with a view to amend the Principal Act, namely I&B Code by insertion of Section 10A in order to achieve the above objects. 16. Thus the intendment of the Executive in the promulgation of the Ordinance has been explicitly s....
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....ing 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 as compared to the bar which had been put up for the defaults committed on or after the relevant date of 25.03.2020. 21. While the main provision of Section 10A taken together with the Explanation makes it clear that a 'Lakshman Rekha', so to say, has been demarcated by providing the relevant date of 25.03.2020 in relation to a "default' and for filing an application for th....
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....ppeal (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 26.05.2020 and the next date of hearing fixed thereafter, namely, 15.06.2020 the Executive of the Union of India chose to promulgate the Ordinance (No. 9 of 2020) inserting inter alia Section 10A to I&B Code published on 05.06.2020 which already seen in the opening paragraph of the instant order has provoked the Applicant/Corporate Debtor to file this Application seeking for the main petition in IBA/215/2020 to be dealt with....
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....st 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, failure on the part of the Tribunal to construe the provisions of Section 10A taken as a whole, in particular the proviso as construed on the part of Applicant, will lead to absurdity and irrationality by subjecting similarly placed corporate debtors and creditors to different treatment without any cogent basis for the same and in the circumstances the date of filing cannot determine the rights of the parties in view of the prevale....
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....86 (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 respondent had chosen to cite a decision by this Tribunal passed in Arrowline Organic Products Pvt. Ltd. vs. Rockwell Industries Ltd., IA/341/2020 in IBA 1031/2019, wherein one of us sitting singly (R. Varadharajan) had delivered the judgment to the effect that the Central Government Notification dated 24.03.2020 enhancing the minimum pecuniary limits from Rs. 1 Lakh to Rs. 1 crore in order to maintain a petition before this Tribunal by virtue of the power delegated by the Legislature while e....
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....ned-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 Constitution of India which, from a reading of the said Article extracted in paragraph supra for ready reference taken together with the observations relating to Ordinances as made by the Hon'ble SC in D.P. Wadhwa's case also extracted in paragraph supra clearly establishes that, save the time limit of its validity, for all other intents and purposes it is required to be treated at par with a piece of legislation as may be enacted by the Legislature, namely the Parliament. Thus, this essential distinction....
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....etrospective 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). 29.2. From a plain reading of the main provision of Section 10A of I&B Code it is clear that in relation to defaults arising on or after 25th March 2020, no application for initiation of CIRP shall be filed for a period of six months or such further period not exceeding one year as may be notified in this behalf. The duration of suspension in relation to filing of application initially is pegged at six months extendable to a further period not exceeding one year. It is to be noted that in relation to Sections 7, 9 and ....
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....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 receipt of such notice or invoice in relation to such dispute (Section 8(2)(a)). What is important is that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing - i.e. it must exist before the receipt of the demand notice or invoice, as the case may be. In case the unpaid operational debt has been repaid, the corporate debtor shall within a period of the selfsame 10 days send an attested copy of the record of the electronic transfer of the unpaid amount from the bank account of the corporate debtor or se....
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....editor (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 the corporate debtor (Section 9(5)(ii)(c)). It may also reject the application if the notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility (Section 9(5)(ii)(d)). Section 9(5)(ii)(d) refers to the notice of an existing dispute that has so been received, as it must be read with Section 8(2)(a). Also, if any disciplinary proceeding is pending against any proposed resolution professional, the-application may be rejected (Section 9(5)(ii)(e)). (emphasis supplied) 25. Theref....
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....l 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 differing interpretation as the main provision specifies a restricted period of suspension and uses the term "shall be filed' whereas the proviso specifies a permanent suspension by the usage of the term "shall ever be filed' as above noted. However, endeavour of the Ordinance in relation to the main provision seems to define the "Lock Down' period due to the prevalence of the pandemic, however, uncertain it may be, which came to be enforced on 25.03.2020 as stated in the objects and reasons and which explains the said date being specified as the relevant d....
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....erfluous 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. 409 and paragraph 51 of the said judgment reads as follows:- 51. A proviso, as is well-known, may serve different purpose; (i) qualifying or excepting certain provisions from the main enactment; (ii) it may entirely change the very concept or the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable; (iii) it may be so embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and (iv) it may be us....
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.... 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 2020) promulgated is intended to shield and protect the entire body of Corporate Debtors, irrespective of the reasons attributable to such default arising during the said period commencing from 25.03.2020 in relation to an Operational Debt or Financial Debt whether they are admitted or not by the concerned debtors, as otherwise the inclusion of Corporate Debtor itself as a Corporate Applicant under Section 10 would not have been included within the ambit of the main provision. 29.13. At this stage it will be appropriate to also refer to the decision of the Hon'ble Supreme Court rendered in B. K. ....
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....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-payment of a debt that is due in law, i.e., that such debt is not barred by the law of limitation. It is well settled that where the same word occurs in a similar context, the draftsman of the statute intends that the word bears the same meaning throughout the statute (see Bhogilal Chunilal Pandya v. State of Bombay, 1959 Supp. (1) SCR 310 at 313-314). It is thus clear that the expression "default" bears the same meaning in Sections 7 and 8 of the Code, making it clear that the corporate insolvency resolution process against a corporate debtor can only be initiated either by a financial or operational creditor in relation t....
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....ult' 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 10A in the Code and the words and terms of the statute leave no doubt and expressly provide for the same and there is no ambiguity in this regard. 29.16. Thus, having dealt with the power of the Executive to promulgate laws having retrospective effect based on decided case laws and also answering the question posed in relation to the retrospectivity of the applicability of Section 10A by relating it back to 25.03.2020 being the relevant date to be reckoned in relation to suspension of filing of application seeking for initiation of CIRP in the affirmative, it is only required of this Tribunal to ascertain as to whether the d....
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....rt 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 maintainability of the suit itself, irrespective of his right to contest the same on merits. The law ostensibly does not contemplate at any stage when the objections can be raised, and also does not say in express terms about the filing of a written statement. Instead, the word 'shall' is used clearly implying thereby that it casts a duty on the Court to perform its obligations in rejecting the plaint when the same is hit by any of the infirmities provided in the four clauses of Rule 11, even without intervention of the defendant. 30.2. However, though rejection of the plaint under Order VII Rule 11 does not preclude the plaintiffs from presenting a fresh ....
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....s 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 which such debt fell due Clause 2. Amount claimed to be in default and the Date on which such default occurred 30.3. It is important to note that the above mentioned details are again required to be reflected in Form 5, being the form of application to be preferred by an Operational Creditor after due compliance of all the formalities as are required and more fully enunciated by the Hon'ble Supreme Court in Mobilox's case as extracted. Part IV of Form 5 seeks from the Operational Creditor the particulars of an Operational Debt, again under clause 1 and 2 of Part IV which are to the following effect: Clause 1. Total amount of debt, details of transactions....
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....hteen 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 to be the date of default even according to the averments made by the respondent/operational creditor germane for the consideration of the present application filed by the applicant/corporate debtor. Hence the endeavour on the part of the Operational Creditor/respondent, after the promulgation of the Ordinance fixing the cut off or relevant date as 25.03.2020 and to portray as if the default had occurred even prior to the relevant date of 25.03.2020 and in the circumstances the petition in IBA/215/2020 should be proceeded with, cannot be accepted as the petitioner who approaches this Tribunal should be consistent in his pleadings and cannot be allowed to resile from it in order to suit his convenience. 31. Taking into consideration the above di....