TaxTMI 
TaxTMI 
2020 (11) TMI 677
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....resorting to the remedy provided under the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as "I.B. Code"). On the application of a "Financial Creditor" as contemplated under I.B. Code, an Interim Resolution Professional (hereinafter referred as "IRP") is appointed by NCLT by exercising power under section 7 of the I.B. Code against the Corporate Debtor as contemplated under I.B. Code, which is also the Financial Establishment under the MPID Act and de-freezing of the corporate Debtor's account attached in MPID proceedings is ordered. This order is the subject matter of challenge in this petition. 2. Heard Mr.Y.G.Patil, learned AGP for the Petitioner and Mr.Abhishek Anand, learned Counsel for the Respondents. 3. Rule. Rule made returnable forthwith. By consent of the parties, taken up for final hearing at the stage of admission. Learned Counsel waives service for the Respondent. 4. The State of Maharashtra through the Deputy Collector and Competent Authority (NSEL), by the present Writ Petition filed under Article 226 and 227 of the Constitution of India, has approached this Court challenging the legality and validity of the order dated 28/01/2019 passed by the....
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....nd purchase of commodities traded on its platform subject to certain conditions. (iv) In the Writ Petition, the manner in which NSEL was working has been set out in detail. (v) As per the FIR, during the initial contracts, member companies squared off the contracts on the dates of maturity. However, later on, these companies did not honour their commitments and caused wrongful loss of about Rs. 5600 crores to about 13000 investors. The members of the NSEL fraudulently obtained huge funds from the NSEL against non-existent stocks of commodities. There was a semblance of trading, which was actually being done in non-existent goods, by issuing forged warehouse receipts. Further, the warehouses, which were an integral part of the NSEL as the commodities were required to be deposited in the exchange designated and certified warehouses as part of the pay-in obligations, lacked capacity and some of them had no stocks. (vi) The NSEL vide their circular dated 14/8/2013 announced a settlement schedule. According to this schedule, NSEL had to make payouts of Rs. 5,574.31 crores to its members. The settlement calendar announced by NSEL was spread over 30 weeks for pa....
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....he said investigation by EOW was going on and when the authorities were taking action under MPID Act, simultaneously on 27/06/2017, the State Bank of India, a Financial Creditor of M/s. Dunar Foods Ltd., invoked the jurisdiction under section 7 of the I.B. Code for the defaulted financial debt of Rs. 758,73,62,546/outstanding against the Corporate Debtor M/s.Dunar Foods Ltd. In the said proceedings, by the order dated 22/12/2017, the said petition was admitted by the NCLT and Mr. Anil Kohli was appointed as IRP and directed to comply with provisions of sections 13 and 15 onwards of the I.B. Code. It was further directed that as the petition was held fit for "admission", hence as a consequence Moratorium as prescribed under section 14 of the I.B.Code would commence. It was further directed that on enforcement of Moratorium, certain prohibitions were applicable, such as institution of any Suit before a Court of Law, transferring of any Asset of the Debtor, encumbering any rights over the assets of the Debtor. However, it was also clarified that the supply of essential goods of services to the Corporate Debtor shall not be terminated during Moratorium period. It shall be effective til....
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....etition. 10. Mr.Patil, learned AGP, submitted that the NCLT has no jurisdiction and no authority under law to pass the impugned order. He submitted that MPID Act is a special statute, which has as its object the protection of interest of depositors of Financial Establishments and matters relating thereto. He submitted that there is an elaborate procedure for attachment and for hearing and making the order of attachment absolute and for hearing objections to the same by the Designated Court. He further submitted that the Designated Court, after hearing the objections, can either make the attachment order absolute, or it can be varied by releasing a portion of the property from attachment or canceling the attachment order. Any order passed by the Designated Court is appealable before the High Court within 60 days from the date of the order. He submitted that provisions of the MPID Act are very clear and, therefore, it is obvious that NCLT has no jurisdiction to interfere with the attachment order issued by the Government of Maharashtra by exercising power under section 4 of the MPID Act. He submitted that in fact the Respondent had submitted to the jurisdiction of the MPID Court b....
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....olution and liquidation for corporate persons, including the corporate debtor, and personal guarantors thereof, shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located. He pointed out section 60(5) which provides that notwithstanding anything contrary contained in any other law for the time being in force, the NCLT shall have jurisdiction to entertain or dispose of any application or proceedings by or against the corporate debtor or corporate person, 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 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 the I.B. Code. He submitted that section 61 provides for appeals to the Appellate Authority, namely, National Company Law Appellate Tribunal and section 62 provides for appeals to the Supreme Court. He submitted that it is the exclusive jurisdiction of National Company Law Tribunal to entertain and dispo....
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....of alternate remedy of appeal provided under Section 61 of the I.B. Code to the National Company Law Appellate Tribunal (for short "NCLAT") ? 2. Whether notification issued under Section 4 of the MPID Act and consequent attachment of the property including the bank account of the corporate debtor can be challenged by approaching NCLT under Section 60(5) of the I.B. Code ? Before considering the above questions, we are making it very clear that we will not be dealing with the merits of the case, namely, whether in view of order dated 22.12.2017 of NCLT admitting the petition and appointing IRP and inter alia directing that moratorium as prescribed under Section 14 shall commence, no steps under MPID Act can be taken or continued and also whether the attachment of the properties of Dunar Foods Ltd. are required to be set aside. We make it very clear that we are only dealing with the forum which should be approached concerning the action taken under the MPID Act. 15. Before determining the above issues, it is necessary to see the relevant provisions of the MPID Act as well as of the I.B. Code. Certain important aspects of the MPID Act are set out herein below:- ....
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.... such Financial Establishment either in its own name or in the name of any other person from out of the deposits collected by the Financial Establishment, or if it transpires that such money or other property is not available for attachment or not sufficient for repayment of the deposits, such other property of the said Financial Establishment or the promoter, director, partner or manager or member of the said Financial Establishment as the Government may think fit. (vii) Sub-Section (2) of Section 4 provides that on publication of an order under sub-section (1), all properties and assets of the Financial Establishment and persons mentioned therein shall forthwith vest in the Competent Authority appointed by the Government, pending further order from the Designated Court. (viii) Sub-Section (2) of Section 5 provides that the Competent Authority shall have such other powers as may be necessary for carrying out the purposes of this Act. (ix) Section 6 is regarding constitution of one or more Designated Courts in the cadre of a District and Sessions Judge for such area or areas or for such case or class or group of cases, as may be specified in the notificat....
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....e required to adduce evidence to show that on the date of the attachment he had some interest in the property attached. (xiv) After investigation as aforesaid, the Designated Court shall pass an order either making the Attachment Order absolute, or varying it by releasing a portion of the property from attachment, or cancelling the Attachment Order. [Section 7(6)] (xv) Any Order of the Designated Court is appealable to the High Court within 60 days from the date of the order. [Section 11] (xvi) Section 13 is concerning the procedure and power of the Designated Court concerning cognizance of offences and provides that the Designated Court may take cognizance of the offence and shall follow the procedure prescribed in the Code of Criminal Procedure, 1973 for the trial of warrant cases by Magistrates. 16. After setting out the important provisions of the MPID Act, it is also required to be noted that a Full Bench of this Court in the case between Vijay C. Pulijal vs. State of Maharashtra. reported in (2005) 4 CTC 705 (Bom.) held that the provisions of MPID Act are ultravires for want of legislative competence of the State legislature. The Full Bench of th....
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....d under sub-Section 1 of Section 4 absolute or varying it by releasing a portion of the property from attachment or cancelling the order of attachment entirely. Thus, it is clear that the Respondent-IRP is having a remedy to approach the Designated Court under Section 7 of the MPID Act. A bare reading of the provisions of the MPID Act clearly demonstrates that action taken under the MPID Act is to be challenged before the Designated Court under the MPID Act and the order passed by the Designated Court can be challenged in appeal before the High Court under section 11 of the MPID Act. It is also important to note that under section 13 of the MPID Act, the Designated Court is even empowered to take cognizance of the offence and while trying the accused person, the Designated Court shall follow the procedure prescribed in the Code of Criminal Procedure, 1972, and for the purposes of the provisions of the Code of Criminal Procedure, 1972, the Designated Court shall be deemed to be a Magistrate. 18. We will hereafter examine the impact of the provisions of the I.B. Code, particularly when application for initiating corporate insolvency resolution process is admitted by the NCLT and m....
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....Law Tribunal constituted under section 408 of the Companies Act. (viii) Section 7 provides that a financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government, may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. (ix) Section 9 provides for filing application for initiation of corporate insolvency resolution process by operational creditor. (x) Section 10 provides for filing application for initiation of corporate insolvency resolution process by corporate applicant. (xi) Section 13 provides that Adjudicating Authority, after admission of the application under section 7 or section 9 or section 10, shall by an order (a) declare moratorium for the purposes referred to in section 14; (b) cause a public announcement of the initiation of corporate insolvency resolution process and call for submission of claims under section 15; and (c) appoint an interim resolution professional in the manner as laid down in section 16. ....
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....l act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional. (xvii) Section 18 specifies duties of Interim Resolution Professional and section 18(f), read with section 18(f)(vi), provides that the IRP shall take control and custody of any asset over which the corporate debtor has ownership rights, subject to the determination of ownership by a court, or authority. (xviii) Section 20 provides that the interim resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern. (xix) Section 25 provides that it shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including continued business operations of the corporate debtor. (xx) Section 29A specifies persons who are not eligible to be resolution applicant, such persons are not eligible to submit a resolution plan. (xxi) Section 30 is concerning submission o....
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....ovisions of Chapter III of Part II of this Code to a person, who was not (i) a promoter or in the management or control of the corporate debtor or a related party of such a person; or (ii) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court. Explanation.--For the purposes of this sub-section, it is hereby clarified that,-- (i) an action against the property of the corporate debtor in relation to an offence shall include the attachment, seizure, retention or confiscation of such property under such law as may be applicable to the corporate debtor; (ii) nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfils the requirements specified in this section, against whom such an action may be ....
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....r the provisions of I.B. Code. 21. Shri Y.D.Patil, learned AGP relied on the judgment of Hon'ble Supreme Court in the case of Embassy Property Developments Pvt. Ltd. (supra). While dealing with the jurisdiction of NCLT particularly in the light of provisions of I.B. Code, it has been held in that case as follows : "30. NCLT and NCLAT are constituted, not under the IBC, 2016 but under Sections 408 and 410 of the Companies Act, 2013. Without specifically defining the powers and functions of the NCLT, Section 408 of the Companies Act, 2013 simply states that the Central Government shall constitute a National Company Law Tribunal, to exercise and discharge such powers and functions as are or may be, conferred on it by or under the Companies Act or any other law for the time being in force. Insofar as NCLAT is concerned, Section 410 of the Companies Act merely states that the Central Government shall constitute an Appellate Tribunal for hearing appeals against the Orders of the Tribunal. The matters that fall within the jurisdiction of the NCLT, under the Companies Act, 2013, lie scattered all over the Companies Act. Therefore, Sections 420 and 424 of the Companies Act, 2013....
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.... as it speaks about the jurisdiction of the NCLT. Clause (c) of Subsection (5) of Section 60 is very broad in its sweep, in that it speaks about any question of law or fact, arising out of or in relation to insolvency resolution. But a decision taken by the government or a statutory authority in relation to a matter which is in the realm of public law, cannot, by any stretch of imagination, be brought within the fold of the phrase "arising out of or in relation to the insolvency resolution" appearing in Clause (c) of Subsection (5). Let us take for instance a case where a corporate debtor had suffered an order at the hands of the Income Tax Appellate Tribunal, at the time of initiation of CIRP. If Section 60(5)(c) of IBC is interpreted to include all questions of law or facts under the sky, an Interim Resolution Professional/Resolution Professional will then claim a right to challenge the order of the Income Tax Appellate Tribunal before the NCLT, instead of moving a statutory appeal under Section 260A of the Income Tax Act, 1961. Therefore the jurisdiction of the NCLT delineated in Section 60(5) cannot be stretched so far as to bring absurd results. (It will be a different matter,....
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.... (g) ... Explanation. For the purposes of this section, the term 'assets' shall not include the following namely: (a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment; (b) assets of any Indian or foreign subsidiary of the corporate debtor; and (c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator." "40. If NCLT has been conferred with jurisdiction to decide all types of claims to property, of the corporate debtor, Section 18(f)(vi) would not have made the task of the interim resolution professional in taking control and custody of an asset over which the corporate debtor has ownership rights, subject to the determination of ownership by a court or other authority. In fact an asset owned by a third party, but which is in the possession of the corporate debtor under contractual arrangements, is specifically kept out of the definition of the term "assets" under the Explanation to Section 18. This assumes significance in view of the language used in Sections 18 and 25 in contrast t....
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....D Act. 24. The learned counsel for the Petitioner has heavily relied on Section 32(A) of the I.B. Code. The same is already reproduced above. A bare perusal of Section 32(A) of I.B. Code clearly shows that liability of corporate debtor is not wiped out entirely. There are several criteria which are enumerated in section 32(A) before ceasing the liability for the offfences. Thus, it is clear that the Designated Court under the MPID Act after hearing all the parties concerned, would have to decide the issue as to criminal liability. Thus, in any case it is very clear that it is the Designated Court under the MPID Act that will alone have jurisdiction to decide the same. However, the Designated Court under MPID Act has to take into consideration the provisions of the I.B. Code and the orders passed by the Adjudicating Authority under section 7 of I.B. Code and other relevant orders and rule on their interplay. 25. The properties attached under various notifications issued from time to time by exercising power under section 4 of the MPID Act in the MPID proceedings include the properties of Dunar Foods Ltd. Any application for cancelling any such action of attachment is to be con....
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....as to bring the two Acts or parts thereof into direct collision with each other, reaching a situation where it is impossible to obey the one without disobeying the other. This happens when two enactments produce different legal results when applied to the same facts. vii) Though there may be no direct conflict, a State law may be in operative because the Parliamentary law is intended to be a complete, exhaustive or exclusive code. In such a case, the State law is inconsistent and repugnant, even though obedience to both laws is possible, because so long as the State law is referable to the same subject matter 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 m....
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.... (iii) Alternatively to submissions at Sr. Nos.(i) and (ii), he submitted that, as IRP was appointed by NCLT on 22.12.2017 and the attachment of the said account took place subsequently by issuance of notification dated 19.10.2018 issued under Section 4 of the MPID Act, although the attachment of other properties which are subject matter of section 4 notification issued earlier may be permissible, at least, the attachment of the said account is totally impermissible. 27. We have already made it clear that in the present Writ Petition we are only examining the aspect regarding the forum in which the action taken under the MPID Act can be challenged and not the merits of the case. In fact, the Respondent can file objections to the attachment under Section 7 of the MPID Act before the Designated Court under the MPID Act and can point out the provisions of the I.B. Code to the Designated Court. The statement of law which is applicable to the present case as found in paragraphs 40 and 41 in the judgment of Embassy Property Developments Pvt. Ltd. (supra) is, at the cost of repetition, again quoted hereinbelow: "40. If NCLT has been conferred with jurisdiction to decide al....
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....mputers, furnitures and fixture in premises at Sr.5 and 24 of the notification. 3. The Competent Authority and EOW are directed to hand over amount of Rs. 40 Lakhs alongwith accrued interest, if any to the applicant, within two weeks from today. 4. The Competent Authority is directed to the represent all depositors/investors before the applicant/intervener and to file the claims on their behalf. CA shall do all acts necessary for safeguarding and protecting the interest of depositors in Roofit Industries. Date: 18.08.2017 A. S. Kaloti Special Judge, M.P.I.D. Act & Addl. Sessions Judge, City Civil & Sessions Judge At Bombay. " Thus, even the said order, on which reliance is placed by the Respondents, shows that the IRP in that case approached the Designated Court under the MPID Act and after hearing all the parties, an order was passed and certain directions in the interest of depositors as contemplated under the MPID Act were also issued. 29. The learned counsel for the Petitioner has also relied on the judgment of NCLAT in the case of JSW Steel Ltd.(supra) wherein it has been held that the action of Directorate of Enforcement did not me....