TaxTMI 
TaxTMI 
2024 (6) TMI 91
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....Liquidator seeking ex-post facto approval in respect of Section 7 applications which were filed by the Liquidator against the Appellants' companies. All the Appeals arise from same set of facts and raises common question of law, hence, they were heard together and are being decided by this common judgment. It shall be sufficient to refer to Company Appeal (AT) (Ins.) No.690 of 2024 for deciding all these appeals. Brief facts of the case giving rise to these appeals are: (i) The Corporate Debtor - Reliance Marine & Offshore Limited (hereinafter referred to as 'RMOL') was admitted to Corporate Insolvency Resolution Process (CIRP) vide order dated 21.08.2019. (ii) The order of Liquidation was passed against RMOL on 06.12.2021. The Respondent - Jigar Bhatt was appointed as Liquidator. The Liquidator issued Demand Notice to the Appellants to make payment with respect to Non-Convertible Unsecured Bonds subscribed by the Corporate Debtor. (iii) No payments having been made by the Appellants, the Liquidator in September, 2023 filed Section 7 applications against the Appellants. Section 7 application filed against M/s Slimline Realty Private Limited was registered....
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....tion that a suit or legal proceeding may be instituted by the Liquidator only after obtaining prior approval of the Adjudicating Authority. It is submitted that the provision under Section 33(5) is a mandatory provision according to which Liquidator was not competent to initiate any proceeding on behalf of the Corporate Debtor without obtaining prior approval. The prior approval contemplated under Section 33(5) proviso cannot be equated with post-facto approval. The proceeding initiated by the Liquidator without obtaining prior approval is void and nullity and cannot be cured by any post-facto approval. There is distinction between expressions 'sanction/permission', 'approval' and 'prior approval'. When a statute requires a sanction, permission or approval, a post-facto approval may cure the defect. However, when a statute mandates a prior approval, defect in initiation of proceedings cannot be cured by post-facto approval. The language of provisions under Section 33(5) are clear, plan and unambiguous. The expression 'prior approval' has been used cautiously and every word used in the statute has to be given its proper and effective meaning, as the legislature uses no expression wi....
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.... of court is not condition precedent. It is submitted that out of the five Section 7 applications filed by the Liquidator, two applications have already been admitted by the Adjudicating Authority and with respect to three other applications order have already been reserved. 5. Learned counsel for both the parties have placed reliance on various judgments of Hon'ble Supreme Court, High Court and this Tribunal in support of their respective submissions which shall be considered hereinafter. 6. On submission of learned counsel for the parties following issues arise for consideration in these appeals: (1) Whether the statutory requirement under Section 35 Sub-section (5) proviso to obtain prior approval of the Adjudicating Authority by the Liquidator to institute a suit or proceeding on behalf of the Corporate Debtor is a mandatory requirement or only a directory requirement? (2) What are the consequences and status of the proceedings instituted by the Liquidator on behalf of the Corporate Debtor without prior approval of the Adjudicating Authority? (3) Whether a post facto approval granted by the Adjudicating Authority of proceedings instituted by the....
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....nst the company; (b) any claim made by or against the company (including claims by or against any of its branches in India); (c) any application made under section 391 by or in respect of the company; (d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company; whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960. (3) 3[***] (4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a high Court." 10. From the facts as noticed above, it is clear that order of liquidation was passed on 06.01.2021. After passing of order of liquidation, the Liquidator sent Demand Notice to the Appellants to make payment due from July, 2019 to the Corporate Debtor. The Stakeholders Consultation Committee (SCC) was constituted after order o....
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.... and proper in the interest of justice and facts and circumstances of the present case in the interest of justice." 11. The Adjudicating Authority by the impugned order has granted prayers (b) and (c) in Para 15, 16 and 17 of the order of the Adjudicating Authority is as follows: "15. The only asset of the Corporate Debtor is the bond issued by the 5 entities as mentioned above. The liquidator has initiated Section 7 proceedings against the 5 entities. In terms of Section 33(5) of the IBC, 2016, no prior permission was taken from this Tribunal before initiation of such proceedings. 16. By this application, the liquidator seeks post facto approval of the action already initiated by the liquidator. 17. As the only assets of the Corporate Debtor is bond held by 5 entities, in the interest of the Corporate Debtor and in order to maximize the value during the liquidation process, this Adjudicating Authority hereby allows prayer (b) and (c) as stated above. In view of the above, this application i.e. IA/189(AHM)2024 is allowed and accordingly disposed off." Question No.1 12. We need to first examine as to whether the provision of Section 33(5) is a man....
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....spirit underlying the enactment. Unless the words are unmeaning or absurd, it would not be in accord with any sound principle of construction to refuse to give effect to the provisions of a statute on the very elusive ground that to give them their ordinary meaning leads to consequences which are not in accord with the notions of propriety or justice entertained by the Court." 14. Next judgment relied by learned counsel for the Appellant is judgment of Hon'ble Supreme Court in "Gurudevdatta Vksss Maryadit and Others vs. State of Maharashtra and Others, (2001) 4 SCC 534". The Hon'ble Supreme Court in the above judgment after noticing earlier judgments on the statutory interpretation laid down that it is cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense. Following was observed in Para 26: "26. Further we wish to clarify that it is a cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to some absurdity or unless ther....
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.... may refer to another judgment of Hon'ble Supreme Court in "(2011) 6 SCC 358, Rangku Dutta v. State of Assam", where the Hon'ble Supreme Court noticing express provision under Section 20 Sub-section (a) of Terrorist and Disruptive Activities (Prevention) Act, 1987 held that whenever the intent of a statute is mandatory, it is clothed with a negative command. In Para 18 of the judgment following has been laid down: "18. It is obvious that Section 20-A(1) is a mandatory requirement of law. First, it starts with an overriding clause and, thereafter, to emphasise its mandatory nature, it uses the expression "No" after the overriding clause. Whenever the intent of a statute is mandatory, it is clothed with a negative command. Reference in this connection can be made to G.P. Singh's Principles of Statutory Interpretation, 12th Edn., at pp. 404-05, the learned author has stated: "... As stated by CRAWFORD: 'Prohibitive or negative words can rarely, if ever, be directory. And this is so even though the statute provides no penalty for disobedience.' As observed by SUBBARAO, J.: 'Negative words are clearly prohibitory and are ordinarily used as a legislative device to make a sta....
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.... is a mandatory provision or the provision is discretionary to extend the period prescribed. The Hon'ble Supreme Court held that in the said case that hardship cannot be a ground for changing the mandatory nature of the statute and that law prevails over equity, as equity can only supplement the law, and not supplant it. In Para 22, 25, 26 and 27 following has been laid down: "22. This Court in Lachmi Narain v. Union of India has held that: (SCC p. 969, para 68) "68. ... If the provision is couched in prohibitive or negative language, it can rarely be directory, the use of peremptory language in a negative form is per se indicative of the intent that the provision is to be mandatory." Further, hardship cannot be a ground for changing the mandatory nature of the statute, as has been held by this Court in Bhikraj Jaipuria v. Union of India and Fairgrowth Investments Ltd. v. Custodian. Hardship cannot thus be a ground to interpret the provision so as to enlarge the time, where the statute provides for a specific time, which, in our opinion, has to be complied in letter and spirit. 25. The contention of the learned counsel for the respondent is that ....
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....counsel for the Respondent that this Tribunal had occasion to interpret Section 31(4) of the I&B Code and this Tribunal held that requirement provided in Section 31(4) proviso that approval of CCI be obtained prior to approval of CoC has been held to be directory. Section 31(4) of the I&B Code, which came for consideration in the above case is as follows: "2[(4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later. Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002, the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.]" 21. This Tribunal, in the above case, after considering the timelines came to the conclusion that requirement of appr....
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.... approval by CCI, prior to approval by the CoC is 'directory' because there is no consequences provided for non-compliance of Section 31(4) proviso. 34. In the present case, we have noticed that RFRP provided that CCI's approval has to be obtained prior to approval of Plan by the CoC, which RFRP was in accordance with Section 31(4). Although, the RP subsequently clarified that approval can be obtained even after the approval by the CoC, which was in accordance with the prevalent legal position as settled by this Tribunal in Arcelor Mittal and other cases. We thus are of the view that Section 31, sub-section (4) proviso has to be read to mean that though the approval by the CCI is 'mandatory', the approval by the CCI prior to approval of CoC is 'directory'. We, thus, do not find any error in the order of the Adjudicating Authority dated 28.04.2023 rejecting the I.A. No.1497/KB/2022 filed by the Independent Sugar Corporation Ltd." 22. We may also notice one more judgment of the Hon'ble Supreme Court on interpretation of a proviso in "(2013) 11 SCC 451, Rohitash Kumar & Ors. vs. Om Prakash Sharma and Others", where the Hon'ble Supreme Court reiterated the principles for in....
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....tion of proceeding by the Corporate Debtor has also prohibited so as to save the liquidation estate from unnecessary expenses. There is an exception to the above injunction i.e. legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority. The proviso is an exception to the main provision of Section 33(5). In event, we accept the submission of the Respondent that prior approval of the Adjudicating Authority is directory, the Liquidator will be free to initiate proceedings against any entity without obtaining prior approval of the Adjudicating Authority, which cannot be the intendment of the provision of Section 33(5). 24. Learned counsel for the Appellant has referred to judgment of Hon'ble Supreme Court in "(2016) 12 SCC 613, Bajaj Hindustan Ltd. Vs. State of Uttar Pradesh & Ors.", where the Hon'ble Supreme Court has noticed the various expressions including 'approval', 'prior approval'. The Hon'ble Supreme Court has occasion to consider provisions of Uttar Pradesh Sugarcane Purchase Act, 1961. In Para 6 and 7 of the judgment following was laid down: "6. From the aforesaid facts, what eme....
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.... 458-59) '6. This Court in LIC v. Escorts Ltd., considering the distinction between "special permission" and "general permission", "previous approval" or "prior approval" in para 63 held that: (SCC p. 313) "63. ... we are conscious that the word "prior" or "previous" may be implied if the contextual situation or the object and design of the legislation demands it, we find no such compelling circumstances justifying reading any such implication into Section 29(1) [of the Act]." Ordinarily, the difference between approval and permission is that in the first case the action holds good until it is disapproved, while in the other case it does not become effective until permission is obtained. But permission subsequently granted may validate the previous Act. As to the word "approval" in Section 32(2)(b) of the Industrial Disputes Act, it was stated in Lord Krishna Textile Mills v. Workmen, that the Management need not obtain the previous consent before taking any action. The requirement that the Management must obtain approval was distinguished from the requirement that it must obtain permission, of which mention is made in Section 33(1).' *** ....
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....r against the Corporate Debtor with only one exception that suit or legal proceeding on behalf of the Corporate Debtor can be instituted with the prior approval of the Adjudicating Authority. 26. We, thus, looking to the statutory scheme, in use of the prohibitory word in Section 33(5), are satisfied that the requirement of prior approval by the Adjudicating Authority for instituting any suit or proceeding is mandatory and cannot be held to be directory. The mere fact that no consequences has been provided in the provision, cannot be a ground to treat the requirement as directory. We have noticed the judgments of Hon'ble Supreme Court as above that every word used in a statute has to be given its proper and effective meaning, as the legislature does not use any word without any purpose and object. Use of prohibitory and negative language, even if no consequences are provided, is treated as mandatory requirement. We, thus, agree with the submission of learned counsel for the Appellant that the requirement as contemplated in Section 33(5) proviso of obtaining prior approval by the Liquidator is a mandatory requirement. We, thus, answer the Question No.1 in following manner: Ans....
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....leave, which was granted. The objection filed to the execution proceeding was rejected against which second appeal was filed, in which order of dismissal was confirmed by the Additional District Judge. Plaintiff filed appeal in the Hon'ble Supreme Court which was also rejected. The argument which was addressed before the Hon'ble Supreme Court is noticed in Para 3 of the judgment, which is as follows: "3. Counsel for the appellant says that the Subordinate Judge was incompetent to entertain the application for executing the decree in Second Appeal No. 1380 of 1954, unless the High Court of Calcutta in its company jurisdiction granted leave to execute the decree under Section 171 of the Indian Companies Act, 1913. Counsel urged that leave of the High Court is by the terms of Section 171 of the Indian Companies Act made a condition precedent to the institution of a proceeding against a company ordered to be wound up by the Court and that the application for execution of the decree without, in the first instance, obtaining leave of the High Court was entertained without authority. The question sought to be raised in the proposed appeal, it was urged, was of general or public i....
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....to maintain control of the Court which has made an order for winding up on proceedings which may be pending against the company or may be initiated after the order of winding up, and the Court may remain seized of all those matters so that its affairs are administered equitably and in an orderly fashion" 30. Hon'ble Supreme Court in the above context laid down following in Para 6 and 7: "6. When the Second Appeal No. 1380 of 1954 was pending before the High Court of Calcutta at the instance of the Company and Bansidhar against the decree passed by the District Court in enjectment, the Company was ordered to be wound up by order of the High Court of Calcutta and the liquidators were appointed. The liquidators prosecuted the appeal. There is no evidence on the record whether the liquidators obtained the sanction of the Court under Section 179(1)(a) of the Companies Act, 1913. But there is no reason to suppose that the liquidators did not obtain the sanction of the Court. If sanction of the Court under Section 179 to prosecute the appeal before the High Court was obtained, and it must be so assumed, the contention raised on behalf of Bansidhar loses all significance for an....
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.... proceedings may at best be regarded as instituted on the date on which the leave was obtained from the High Court." 31. What was held by the Hon'ble Supreme Court in Para 7 is clear that the Supreme Court held that the proceeding initiated without leave of the Court may be regarded as ineffective until leave is obtained but once leave is obtained the proceeding will be deemed instituted on the date granting leave. The Hon'ble Supreme Court in Para 8 has expressed disagreement with Calcutta High Court in the matter of "Har Narain Misra v. Kanhaiya Lal Lohawalla". Para 8 of the judgment is as follows: "8. Considering the question both on principle and authority we are unable to agree with the view expressed by the Calcutta High Court in Har Narain Misra case and in Godavari Sugar and Refineries Ltd. case by the Andhra Pradesh High Court." 32. We may notice both of the above judgments, to notice that what was disapproved by the Hon'ble Supreme Court. In "AIR 1940 Cal 166, Har Narain Misra v. Kanhaiya Lal Lohawalla", the Calcutta High Court relied on its earlier judgment in "Steel Construction Company Ltd., (1935) 40 C.W.N 312". The facts of the case are noticed in foll....
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.... obtaining leave of the Company Court. The above view was expressly disapproved by Para 8, as noted above. 35. Another judgment of Andhra Pradesh High Court reported in "AIR 1960 AP 74, Godavari Sugar and Refineries Ltd. v. Kambhampati Gopalakrishnamurthy" was a case where the question was considered as to whether leave of Court is a condition precedent. The Andhra Pradesh High Court also took the view that the proceeding which was initiated without leave was held to be incompetent. The Calcutta High Court, however, has held that if the Respondent want to proceed with execution, he may take leave of the Winding Up Court. The Hon'ble Supreme Court in "Bansidhar Shankarlal vs. Mohd. Ibrahim & Anr." (Supra) has expressly disapproved the law laid down by the Calcutta High Court and the Andhra Pradesh High Court. The judgment of Hon'ble Supreme Court makes the law clear that the proceedings initiated without leave of the Court are ineffective and they will be deemed to be instituted on the date when leave is granted. 36. Now we come to next judgment relied by the Respondent i.e. judgment of the Hon'ble Supreme Court in "(2013) 15 SCC 655, Erach Boman Khavar v. Tukaram Shridhar Bha....
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....rned. In granting leave under the said provision, the court always takes into consideration whether the company is likely to be exposed to unnecessary litigation and cost. 20. In Ammonia Supplies Corpn. (P) Ltd. v. Modern Plastic Containers (P) Ltd. [(1998) 7 SCC 105], while dealing with power under Section 446(1) of the 1956 Act, it has been observed that in the said sub-section the words used would indicate that the discretion to exercise such power is with the Company Court. 21. In State of J&K v. UCO Bank [(2005) 10 SCC 331], while interpreting Section 446(1) of the 1956 Act, the Court opined that a suit cannot be instituted once a winding-up order is passed except by leave of the court. The two-Judge Bench referred to the earlier decision rendered in Bansidhar Shankarlal v. Mohd. Ibrahim [(1970) 3 SCC 900] , wherein the leave had been obtained at the time of filing of the suit and the question was whether fresh leave ought to be obtained before proceeding under Section 446(1) of the 1956 Act before institution of execution proceedings. The Court considered the contrary views expressed by different High Courts on the effect and purport of Section 446(1) of the....
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....emplated, any action taken in breach, without obtaining prior permission/ prior approval, the action will be nullity. In "Vivek Srivastava vs. Union of India & Ors." (Supra), the Allahabad High Court had occasion to consider the provisions of Cantonment Land Administration Rules, 1937. Rule 14 Clause (3) provided that the land in Class-A(1) land shall not be used or occupied for any other purpose other than those stated in sub Rule (1) of Rule 5 without the previous sanction of the Central Government. In Para 36 of the judgment following was held: "36. From a perusal of the aforesaid Rules, especially Rules 3, 5, 7, 10, sub clause (vi) and (vii) of Rule 10 read with Rule 13(2) and sub clause (3) and (5) of Rule 14, makes it abundantly clear beyond a reasonable doubt, that no addition or alteration in the General Land Register could be made except with the previous sanction of the Central Government and that no building of any kind, either permanent or temporary, can be erected on Class-A and, except with the previous sanction and subject to such conditions as may be imposed by the Central Government." 39. In the above context, the Allahabad High Court held that any sanc....
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....41. The above two judgments relied by the Appellant were on their own facts and the High Court in the facts of those cases and statutory provision took the view that action without prior approval was nullity. 42. In the present case, we have noticed the judgment of Hon'ble Supreme Court in "Bansidhar Shankarlal vs. Mohd. Ibrahim & Anr." (Supra), where considering Section 171 the Hon'ble Supreme Court has laid down that if the proceedings are initiated without leave of the Court, the proceeding shall be unauthorized. However, it shall become competent from the date when the leave is granted. The above judgment, thus, clearly says that institution of proceeding shall not be void or nullity when it has been filed without leave of the Court. 43. Learned counsel for the Appellant submits that the judgment of Hon'ble Supreme Court in "Bansidhar Shankarlal vs. Mohd. Ibrahim & Anr." (Supra) and "Erach Boman Khavar v. Tukaram Shridhar Bhat & Anr." (Supra) cannot be applied in Section 33(5) since the use of expression in Section 171 and Section 446 was 'leave of the Court' whereas in Section 33(5) the expression 'prior approval' is used. It is submitted that 'leave of the Court' and 'p....
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....dator on behalf of the Corporate Debtor, the party against whom proceedings are to be instituted is not to be given a notice or hearing necessarily. Question No. 5 : 46. Learned counsel for the Appellant has contended that the Adjudicating Authority has without any reason passed a non-speaking order. For grant of an ex-post facto approval, the Adjudicating Authority was required to give reason. It is submitted that ex-post facto approval cannot be granted mechanically. 47. In the order of the Adjudicating Authority it is noticed that the Adjudicating Authority has granted extension of liquidation period. In Para 11 of the judgment extension dated 16.01.2024 is referred to. Learned counsel for the Respondent has brought on record the order of the Adjudicating Authority passed on 16.01.2024 where the Adjudicating Authority has noticed about the proceedings initiated by the Liquidator for debt of Rs.306.73 Crores. It is useful to extract order dated 16.01.2024, which is to the following effect: "ORDER IA/65(AHM)2024 in IA 794 of 2020 This is an application filed by the liquidator seeking the following prayers: (a) Allow the present applicat....