TaxTMI 
TaxTMI 
2022 (2) TMI 466
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.... petitioner in W.P.(C) No. 14158 of 2021, who is the 2nd respondent in W.P.(C) No. 27636 of 2020. THE DISPUTE IN BRIEF W.P.(C) No. 27636 of 2020 3. This writ petition has been filed challenging the order of the Adjudicating Authority under the Insolvency and Bankruptcy Code (hereinafter referred to as 'IBC'). The facts that will be relevant for deciding the case are as follows; 4. The petitioner is a Private Limited Company engaged in the activities of developing software and promoting advancement in the field of Information Technology. The 2nd respondent has filed IBA/34/KOB/2020 before the 1st respondent claiming to be an operational creditor and arraying the petitioner as a corporate debtor under the provisions of the IBC. The case of the 2nd respondent is that amounts due to the 2nd respondent have not been paid by the petitioner. According to the petitioner, the petition is not maintainable before the 1st respondent. The petitioner has disputed the alleged debts in their counter statement filed before the 1st respondent. According to them, amounts are actually due from the 2nd respondent to the petitioner. It is submitted that the 2nd respondent is a former....
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....writ petition is for a declaration that the notification dated 24.03.2020 whereby the minimum amount of default was specified as Rs. 1 Crore is prospective and would apply only to cases where the default occurred on or after 24.3.2020. There is also a prayer for a declaration that the notification will not apply to cases where mandatory notice under Section 8 of the IBC has been issued by the operational creditor and the stipulated 10 days' period had elapsed prior to the date of notification. RELEVANT STATUTORY PROVISIONS 6. The Code has undergone several amendments after it came into force. The provisions of the Code prior to Ext. P5 and after Ext. P5, which are relevant for the purpose of deciding the above writ petitions are extracted below. Section 4 prior to Ext. P5 reads thus; "4. (1) This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees: Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees." 7. After Ext. P5 and some other amendments, Sect....
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....h debt has been legally assigned or transferred; 6. Persons who may initiate corporate insolvency resolution process.--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. 7. Initiation of corporate insolvency resolution process by financial creditor.--(1) 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: Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6-A) of Section 21, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such creditors in the same class or not less than ten per cent of the total number of such....
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....judicating 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: Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5). (7) The Adjudicating Authority shall communicate-- (a) the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor; (b) the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission....
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.... copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available; (d) a copy of any record with information utility confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available; and (e) any other proof confirming that there is no payment of an unpaid operational debt by the corporate debtor or such other information, as may be prescribed. (4) An operational creditor initiating a corporate insolvency resolution process under this section, may propose a resolution professional to act as an interim resolution professional. (5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order-- (i) admit the application and communicate such decision to the operational creditor and the corporate debtor if,-- (a) the application made under sub-section (2) is complete; (b) there is no payment of the unpaid operational debt; (c) the invoice or notice for payment to the corporat....
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.... approving filing of the application. (4) The Adjudicating Authority shall, within a period of fourteen days of the receipt of the application, by an order-- (a) admit the application, if it is complete and no disciplinary proceeding is pending against the proposed resolution professional; or (b) reject the application, if it is incomplete or any disciplinary proceeding is pending against the proposed resolution professional: Provided that Adjudicating Authority shall, before rejecting an application, give a notice to the applicant to rectify the defects in his application within seven days from the date of receipt of such notice from the Adjudicating Authority. (5) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (4) of this section. 10-A. 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 ....
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.... 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 (36 of 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 during which such moratorium is in place shall be excluded. 61. Appeals and Appellate Authority.--(1) Notwithstanding anything to the contrary contained under the Companies Act, 2013, any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal. (2) Every appeal under sub-section (1) shall be filed within thirty days before the National Company Law Appellate Tribunal: Provided that the National Company Law Appellate Tribunal may allow an appeal to be filed after the expiry of the said period of thirty days if it is satisfied that there was sufficient cau....
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.... an application of the provisions of the IBC. Only if the debt is more than Rs. 1 Crore, a person can be treated as having become insolvent under the IBC and an application can be filed before the 1st respondent. It is further pointed out that the 2nd respondent is not a financial creditor, but only an operational creditor. The counsel referred to Section 5(7), which defines a 'financial creditor' and Section 5(20) which defines an 'operational creditor'. Reference is made to Section 7 which deals with initiation of Corporate Insolvency Resolution process by the Financial Creditor, Section 8 which deals with that initiated by operational creditor and Section 9 which deals with the application for initiation of Corporate Insolvency Resolution process by an operational creditor. As far as Section 7 is concerned, a financial creditor can initiate a proceeding when a default has occurred. In the case of an operational creditor, on the occurrence of a default, he has to deliver a demand notice of unpaid operational debt in such form and manner as may be prescribed in the rules. Section 8(2) says that a corporate debtor shall within a period of 10 days of receipt of the d....
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....cy resolution process shall commence from the date of admission of the application under sub-section (4) of the Section. Thus it can be seen that a corporate insolvency resolution process, whether initiated at the instance of a financial creditor or a corporate creditor or a corporate applicant, shall commence only on the date on which the application is admitted. In this respect, the counsel points out Ext. P2, which is the first order passed by the 1st respondent. In Ext. P2 the Tribunal has clearly stated that notice was issued on 25.02.2020 and hence cause of action arose on 25.03.2020. What is omitted to be noticed was that, a mere reading of the provisions of the IBC will show that in all cases where there is a cause of action for demanding an amount, a petition for insolvency cannot be filed. Only those debtors who can be stated to be in default as per Section 4 can be proceeded against under Part II of the IBC. A proceeding under Part II of the IBC could have been initiated against debtors whose defaulted amount is Rs. 1 lakh or more, prior to 24.3.2020. After Ext. P5 such proceedings can be initiated only if the default is of an amount of Rs. 1 Crore or more. The counsel a....
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....cation was despatched is 12.6.2020. The counsel pointed out that going by Section 9(5) of IBC, the Adjudicating Authority has to admit the application within a period of 14 days from the date of the application by an order or reject the application and it is only on admission of the application, the corporate insolvency resolution process shall commence, as is seen from Section 9(6). On the basis of the statutory provisions, the counsel submits that the maintainability of a petition under the IBC has to be determined on the basis of the date on which the corporate insolvency resolution process commences. It is submitted that the first order of the Tribunal is dated 28.9.2020 and hence, at best, the date of commencement can only be 28.9.2020 and could not have been a date prior to Ext. P5 notification. 12. Section 10A of the IBC was brought into force as per an amendment brought in on 5.6.2020. As per Section 10A, no application can be filed for any default arising on or after 25.3.2020 for a period of six months or such further period not exceeding one year from such date as may be notified in that behalf. By way of an explanation to Section 10A, it has been clarified that the p....
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.... 1961 SC 372] to submit that a writ petition is maintainable in such circumstances and even if there is an alternate remedy, it will not be a bar. It is submitted that an appeal is not provided in clear terms and what is provided is an appeal under the NCLT Rules. Moreover, since the question relates to the inherent bar of jurisdiction and a total absence of the jurisdictional facts required for exercise of power by the Tribunal, the writ petition is maintainable. It is further submitted that the only question to be decided is a pure question of law as to whether Section 4 as amended is to be applied in cases of defaults which had occurred prior to the date of the amendment, whether or not an application has been filed before the Tribunal. 15. Sri Hari Kumar G. Nair, appearing for the 2nd respondent submitted that a writ petition cannot be maintained in the light of specific alternate remedy which has been prescribed in the Statute. It is further submitted that as held in Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors. reported in [ (2020) 13 SCC 308], the question to be considered is whether it is a case of lack of jurisdiction on the part of NCLT or a mere....
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....s and the Tribunal has taken one possible view, the same cannot be corrected by issuance of a writ of certiorari. Reliance is placed on the judgment of this Court in George v. District Munsiff, Kanjirapally [1965 KLT 819] and that of the High Court of Calcutta in Kolkata Municipal Corporation and Anr. v. Union of India WPA No. 977 of 2020. 16. The counsel for the 2nd respondent further contends that the phrase "amount of default" occurs only in Section 8 and not under Section 9, which according to the counsel is only consequential. Once a default has occurred and notice has been issued under Section 8 the right has crystalized; is the contention. It is also contended that the law on the date of accrual of the right has to be applied. It is also contended that where it is necessary to have retrospective application, the legislature has exercised its power to state so, as can be seen from the amendment to Section 7 and since no such date of coming into force has been mentioned in the Section, it should be treated as prospective, so as to affect cases where the default occurred after 24.3.2020. ANALYSIS AND CONSIDERATION of THE CONTENTIONS 17. I will first deal with the quest....
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...., the National Company Law Tribunal has been made the Adjudicating Authority for the purpose of the IBC by provisions of a Statute. Since the Adjudicating Authority is a creature of the Statute, its jurisdiction is only that which has been statutorily defined, recognised and conferred. The Adjudicating Authority as a body owing its existence to the Statute must abide by the nature and extent of its jurisdiction as defined in the Statute itself (See Pratap Technocrats (P) Ltd. v. Reliance Infratel Ltd. (Monitoring Committee) reported in [ (2021) 10 SCC 623]. The corporate insolvency resolution process gets triggered the moment there is a default as mentioned in Section 4 of the IBC. The triggering can be at the instance of the corporate debtor itself or a financial creditor or an operational creditor. As far as an operational creditor is concerned, going by the statutory provisions, apart from the occurrence of a default, there is requirement of delivering the demand notice and a passage of 10 days thereafter during which time the corporate debtor is required to either bring to the notice of the operational creditor the existence of a dispute or to make payment of operational debt i....
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....filed by financial creditors. It is further contended that as far as financial creditors are concerned, it is the occurrence of a default, while in the case of an operational creditor, it does not stop with that and further actions are required on the part of the operational creditor like sending notice as contemplated in Section 8. It is pointed out that the word occurrence of default is mentioned only in Section 8 and not in Section 9 and hence it can only be understood to mean that the default should be as on the date of the demand. It is contended that Section 9 permits action if the amount demanded in the notice under Section 8 is not paid within 10 days and hence action is only regarding the amount demanded. It is further contended that the Apex Court has found that in case of allottees even if they fail to satisfy the threshold criteria they have alternate remedies, but there is no such alternate remedy for recovery of the amounts for the operational creditor. It is further contended that the decision of the Supreme Court supports the contention of the 2nd respondent that wherever the Statute intended to give retrospective operation, it has done so and it is conspicuously ab....
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....r is limitation, no doubt, as noticed in B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates [B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528]." (emphasis supplied) 21. Even though the Apex Court was referring the financial debt, it can be seen that the Hon'ble Supreme Court has clearly held that the existence of a default as defined in Section 4 of the Code is the litmus test on the anvil of which, the Adjudicating Authority gets jurisdiction to entertain an application. The litmus test cannot change depending on whether the application is filed under Sections 7 or 9 or 10. The litmus test is the test for the applicability of the entire Part II. Since applications under Sections 7 or 9 or 10 are all part of the resolution process contained in Part II, the litmus test necessarily applies to applications filed by the financial creditor, operational creditor and the corporate debtor themselves. The Hon'ble Supreme Court in the said decision also considered the effect of amendments of vested rights. The Hon'ble Supreme Court was considering the amendment of Section 7, where, by addition of three provi....
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.... the effect of the proviso mandating the compulsory withdrawal of the application. We are of the view that this is a case, where the law, in question, is retrospective, in that, contrary to the requirement in the law, at the time, when the application was filed, a new requirement is placed, even though, it is sought to be done by superimposing this condition, not at the time, when the application was filed, which really is the relevant time to determine the question of maintainability of the application, with reference to what the law provided in regard to who can move the application but at the stage of the new law." 22. The contention that the operational creditors will be left with no alternate and efficacious remedy also is not correct. As held by the Hon'ble Supreme Court in Manish Kumar (supra), the IBC is not enacted to provide for a manner of recovery of debts by the creditors. It is to provide for insolvency resolution. The purpose of the IBC is to protect the rights of the debtors as well as the creditors. It is in the above background that the provisions relating to the IBC have to be understood. By providing for insolvency resolution in case of corporate debtors ....
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..... 1 Crore after 24.3.2020. The Appellate Tribunal went on to hold that the threshold limit will be applicable for applications filed under Section 7 or Section 9 on or after 24.3.2020, even if the debt is on a date earlier than 24.3.2020. The above view of the Tribunal is in consonance with the decision of the Hon'ble Supreme Court in Manish Kumar (supra). 25. Even otherwise, the Tribunal has in my opinion, gone wrong in its interpretation of Section 4 of the Act. Section 4, after amendment on 24.3.2020 clearly says that Part II of the IBC shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of default is Rs. 1 Crore. As per Section 3(12) of the IBC, "default" means nonpayment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be. What is to be noted is that Corporate debtors who are in default of less than Rs. 1 lakh prior to the amendment and Rs. 1 Crore after the amendment, also are defaulters. However, whether a proceeding for insolvency or liquidation of such corporate debtor should be initiated woul....