TaxTMI 
TaxTMI 
2024 (11) TMI 676
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....in relation to controversy between the parties; Whether receiving and registering the petition under Section 95 of the Insolvency Code is a ministerial function or also permits an adjudicatory act at that stage by the Registrar, NCLT; At what stage the adjudicatory functions starts under the provisions of Chapter-III, Part-III of the Insolvency and Bankruptcy Code, 2016; 1.1 These are the questions arise for their analysis and decision while examining the challenge to the judgment and order dated 6th March 2024 of learned Single Judge, in the present appeal, preferred by the appellant-original respondent No.2, under Section 4 of the Karnataka High Court Act, 1961. The Challenge 2. Learned Single Judge allowed the writ petition. It was declared that e-filing of the petition by the appellant herein under Section 95 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the 'Insolvency Code') to be non est and illegal, consequently setting aside all the connected proceedings. It was provided that any action taken upon registration of the proceedings shall stand obliterated. 2.1 In the writ petition filed under Article 226 of the Constitution, the pra....
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....ayed the same and failed to discharge its contractual obligation, that the construction activity is at a stand-still and that losses were suffered. Consequently, by notice dated 7th February 2019, the petitioner and Manyata Pvt. Ltd., terminated six of the joint development agreements and partially terminated three. 3.1.3 The issues and differences worsened. The petitioner- Manyata Infrastructure Private Limited issued notice dated 16.07.2022 to the appellant reiterating the termination of Joint Development Agreements. It was stated that the Memorandum of Understanding dated 23.12.2009 as well as each of the joint development agreements contained arbitration covenant. The disputes between the parties came to be referred to the panel of three arbitrators which was constituted pursuant to the notice dated 10.10.2022 by the Manyata Development Private Limited by invoking the arbitration clause. It is the allegation of the petitioner that the appellant herein was interested in delaying the arbitration proceedings and several proceedings were instituted by it before the several courts. The details of such legal proceedings were mentioned in the petition. It was also alleged that the ....
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....ersonal guarantors. It was stated that the corporate debtor-Manyata Infrastructure Private Limited was a private limited company registered under the Companies Act, 2013 and was an affiliate entity of Manyata Reallty and that the individual partners of the firm had interest in the said private limited company. It was further stated that number of agreements were entered into amongst the financial creditor-applicant-appellant, the corporate debtor-Manyata Infrastructure as well as its affiliate concern-Manyata Reallty. 3.2.1 Following was the case pleaded in paragraph 4 of the petition under Section 95, "The substructure of the Loan Agreement dated 06.11.2012 was such that the M/s Manyata Reallty had undertaken to stood as the Corporate Guarantor and the partners of the aforesaid firm. Personal Guarantors/ Respondents of the present Application, had accordingly undertaken to serve as the Guarantors in respect to the loan availed by the Corporate Debtor/Principal Borrower." 3.2.2 It was further pleaded as under, "... Although the M/s Manyata Reallty would also qualify to be the Corporate Guarantor, yet since it is a settled proposition of law that any partners....
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....o be fulfilled by the said entities on or before 31.03.2013 failing which, the said money was to be returned to the financial creditor-applicant along with interest. 3.2.6 It was the case that there is material breach of the covenants of the loan agreement and the corporate debtor and its affiliated entity failed to respond despite the applicant- financial creditor called upon them to repay the said loan amount. 3.2.7 It was further pleaded and contended, extracting from paragraph 13 of the application, "It is pertinent to accentuate herein that that the structure of the financial transaction arising out of the Contractual Framework was restructured in such a manner that the Corporate Debtor would be deemed to be the Principal Borrower and the affiliated entity, namely, M/s Manyata Reallty along with its all partners would be deemed to be the Personal Guarantors and the Corporate Guarantor, as the case may be. Since the Guarantor namely, M/s Manyata Reallty, is a registered partnership firms thus the partners of the said firm are jointly and severally liable for the acts of the firm and thereby would also be deemed to be personal guarantors. Therefore, in the light o....
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....pondent was that respondent No.1-Registrar at the stage of scrutiny of the petition cannot decide on the maintainability and could not have judged whether the petition fell within the ambit of the provisions. The contention that the petition was at the stage of scrutiny and had never come up before the Tribunal was negatived by learned Single Judge observing thus, extracting from paragraph 16 of the judgment, "I decline to accept the said submission, as it is fundamentally flawed. If a quasi judicial authority or a Tribunal does not have jurisdiction to entertain a petition merely because it is at the stage of filing, it cannot be permitted to be proceeded further. If these submissions of the learned senior counsel is to be accepted, then it would be diluting the concept of jurisdiction itself, which dilution this Court would never even attempt to make. Therefore, if the petition is not fileable before the Tribunal, it cannot be allowed to be proceeded up to the stage of whether it is entertainable. A non-fileable petition has dire consequences, let alone its entertainment. Therefore, such proceedings which are on the face of it, de hors jurisdiction must be nipped in the ....
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....lure by the debtor to pay the debt within a period of fourteen days of the service of the notice of demand; and (c) relevant evidence of such default or non-repayment of debt. (5) The creditor shall also provide a copy of the application made under sub-section (1) to the debtor. (6) The application referred to in sub-section (1) shall be in such form and manner and accompanied by such fee as may be prescribed. (7) The details and documents required to be submitted under sub-section (4) shall be such as may be specified." 3.4.2 Section 96 says that when an application is filed under Section 94 or 95 of the Code, an interim moratorium shall commence in relation to all the debts and shall cease to have effect on the date of admission of such application. During the interim moratorium period, any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed and the creditors of the debtor shall not initiate any legal action in respect of any debt. The next provision is Section 97 under which the appointment of resolution professional is provided for. Section 98 is about the replacement of the resolution professional....
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....e resolution professional shall record the reasons for recommending the acceptance or rejection of the application in the report under sub-section (7). (10) The resolution professional shall give a copy of the report under sub-section (7) to the debtor or the creditor, as the case may be." 3.4.4 Section 100 is about the admission or rejection of the application, reading as under, "100. Admission or rejection of application - (1) The Adjudicating Authority shall, within fourteen days from the date of submission of the report under section 99 pass an order either admitting or rejecting the application referred to in sections 94 or 95, as the case may be. (2) Where the Adjudicating Authority admits an application under sub-section (1), it may, on the request of the resolution professional, issue instructions for the purpose of conducting negotiations between the debtor and creditors and for arriving at a repayment plan. (3) The Adjudicating Authority shall provide a copy of the order passed under sub-section (1) along with the report of the resolution professional and the application referred to in sections 94 or 95, as the case may be, ....
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....cided herein. 4.1.2 Learned Senior Advocate submitted that merely that moratorium under Section 96 of the Insolvency Code would come into operation upon filing of Section 95 petition, is no ground to judge the maintainability and to debar the creditor or debtor to initiate the action permissible under the law. It was submitted that coming into force of interim moratorium is statutory consequence. It was further submitted the appellant also filed a petition under Section 7 of the Insolvency and Bankruptcy Code against the Company, which Company is a corporate debtor. It was submitted that for Section 7 petition, no interim moratorium would come into effect, unlike upon filing of Section 95 petition. He relied on several decisions as to continuance of arbitral proceedings vis-a-vis the coming into operation of moratorium. 4.1.3 Learned Senior Advocate for the appellant extensively relied on the decision of the Supreme Court in Dilip B Jiwrajka (supra). On the basis of the law laid down by the Apex Court, it was submitted that the adjudicatory role could never be attributed to respondent No.1-Registrar, NCLT, when he receives and registers petition under Section 95 of the Code. ....
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.... Menon v. Union of India [AIR 1967 SC 1274], it was submitted by referring to observations in paragraph 5 thereof that writ of prohibition is issued to restrain the court or inferior tribunal from exercising a jurisdiction which they do not possess or when they exceed the jurisdiction. For same proposition, another decision in Bengal Immunity Company Ltd. v. State of Bihar [AIR 1955 SC 661, paragraphs 52 and 53] was pressed into service. 4.2.4 With reference to paragraph 334 in the decision of the Apex Court in Mafatlal Industries Ltd. v. Union of India [(1997) 5 SCC 536], the concept of 'jurisdiction' was highlighted. Yet another decision in Indian Farmers Fertilisers Cooperative Society Ltd. v. Bhadra Products [(2018) 2 SCC 534], was relied on, again to submit that the 'jurisdiction' is a coat of many colours and the word take the colour from the context it is placed. 4.2.5 Learned Advocate proceeded to explain the nature and power of jurisdiction under Article 226 of the Constitution from paragraphs 15 to 18 in Embassy Property Developments (P) Ltd. v. State of Karnataka [(2020) 13 SCC 308]. For similar purpose, and also to highlight when the writ of certiorari could be is....
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.... Section 86 of the Representation of the People Act on the ground of non- compliance with Section 81 of the Act. 5.1.2 The gist of the plea raised by the appellant was the petition should have been presented either before the Designated Election Judge or the Chief Justice of the High Court and that having not been done, the petition was liable to be dismissed without trial. The Supreme Court considered the question as to whether the High Court was competent to frame rule for making provision for receiving the election petitions presented to the High Court under Section 81 of the Representation of the People Act. It is in that context that the Supreme Court elucidated the difference between ministerial act and adjudicatory act. It was observed, "By no stretch of imagination can it be said that the "presentation" of an election petition is part of the "trial" of an election petition". 5.1.3 The Supreme Court stated that the term "High Court" in Section 81 denoted the institution as a whole and not literally the High Court as constituted within the meaning of Article 216 of the Constitution. Even as it was highlighted that the functions discharged by a High Court is divisible br....
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....yer's Law Lexicon defines judicial function as the doing of something in the nature of or in the course of an action in court, (p. 1015). The distinction between "judicial" and "ministerial acts" is: If a judge dealing with a particular matter has to exercise his discretion in arriving at a decision, he is acting judicially; if on the other hand, he is merely required to do a particular act and is precluded from entering into the merits of the matter, he is said to be acting ministerially." (para 14) (emphasis supplied) 5.1.5(a) The Supreme Court proceeded further to elaborate, "Judicial function is exercised under legal authority to decide on the disputes, after hearing the parties, may be after making an enquiry, and the decision affects the rights and obligations of the parties. There is a duty to act judicially. The Judge may construe the law and apply it to a particular state of facts presented for the determination of controversy. A ministerial act, on the other hand, may be defined to be one which a person performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard to, or the....
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....certainly not a judicial function which needs to be performed by a Judge alone. In the same way, presentation of petition under Section 95 of the Insolvency Code before the Registrar, NCLT is not a judicial function and the judicial scrutiny does not take place at such stage. As there is no discretion in receiving an election petition and it is to be received when presented in the same conceptual way, the Registrar does not have any discretion to judge the maintainability of petition under Section 95 of the Code and for that purpose go into the merit part of the contents of the petition. It is a ministerial function simpliciter. 5.2.2 If the Registrar who is a purely administrative authority is entrusted with the power or permission to examine the presentation of the petition for its merit contents, the adjudicatory stages statutorily contemplated in the Insolvency Code would turn upside down. The judicial task of examining the merits of the case of the party presenting the petition including its maintainability is a matter to be examined only by the NCLT at the stage when such stage is reached. If at the stage of presentation of petition such aspects are permitted to be gone in....
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....97 provides for appointment of resolution professionals. In contrast to Part-II provisions where the role of adjudicating authority is contemplated right at the threshold, the appointment of resolution professionals under Part-III provisions does not mark commencement of adjudicatory process. The duties of the resolution professionals appointed under Part-III are as contained in Section 99. 5.3.2 The resolution professional examines the application which may have been filed under Section 94 or 95 of the Code, thereafter the resolution professional may require a debtor to prove the debt claimed to have been unpaid. The information which the resolution professional gathers is to be channelised for the purpose of functions to be discharged by him under Section 99(1) of the Code. Section 99 provides for submission of report by the resolution professional to the adjudicating authority for approval or rejection of the application. Section 100 contemplates admission or rejection of the application by the adjudicating authority. 'Adjudicating Authority' as defined in Section 5(1) is the National Company Law Tribunal constituted under Section 408 of the Companies Act, 2013. 5.3.3 The ....
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....tting or rejecting the application within fourteen days from the date of the submission of the report under Section 99." (para 53) 5.3.5 It was further observed in paragraph 54 that it was salient aspect to emerge that the resolution professional does not possess any adjudicatory function in terms of provisions of Section 99. The Legislature considered it appropriate to impose the resolution professional before the adjudicatory function of the adjudicatory authority which commences under Section 100. It was stated that the resolution professional does not have the power under part III which is counter part as in part II, it was observed that under Section 99, part III which is ascribed to the resolution professional to that of a facilitatory and is to gather the relevant information on the basis of the application which is submitted under Section 94 of Section 95 of the Code, 2016. 5.3.6 The Supreme Court further stated thus, "...The role under Section 99 which is ascribed to the resolution professional is that of a facilitator and is to gather relevant information on the basis of the application which has been submitted under Section 94 or Section 95 and after carry....
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....o the provisions of Section 14(1)(b) in relation to Part II. Significantly, clause (c) of Section 101(2) which places a restraint on the transfer, alienation or disposal of assets does not find a place in Section 96(1)(b). It consequently operates only after the admission of an application under Section 100." (para 59) 5.4.2 The Supreme Court further observed, "This analysis would indicate that the adjudicatory function of the adjudicating authority commences, under Part III, after the submission of a recommendatory report by the resolution professional. Evidently, bearing in mind the clear differences between CIRP under Part II and insolvency resolution process for individuals and partnership under Part III, the legislature has carefully calibrated: (i) The role of the resolution professional; (ii) The imposition of the moratorium; and (iii) The stage at which the adjudicating authority steps in under Part II, on one hand, and Part III, on the other." (para 60) 5.4.3 The submission was negatived by the Supreme Court that an adjudicatory role should be interposed on the stage of Section 94(5). The role of adjudicating authority was highligh....
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....rve that it was not a correct reading and that provisions of sub-section (2) cannot control the ambit of sub- section (1) of Section 95. This interpretation is of significance also in the context of the present controversy. 5.4.6 Conclusions were drawn by the Apex Court in paragraph 86 and in paragraph 86.6, it was in terms observed and held that no judicial determination takes place until the adjudicating authority decides under Section 100 whether to accept or reject the application. It was stated that the report of the resolution professional was only recommendatory which would not bind the adjudicatory authority. Moratorium A Statutory Effect 6. The contention that moratorium period would come into play by virtue of operation of Section 96 of the Code, and therefore the Registrar while registering the application under Section 95 is permitted or is justified to look into and assess the merits in relation to maintainability of the petition is misconceived and does not stand to reason, when the filing and registering of the application under Section 95 of the Code in its nature does not travel beyond administrative process and that it is a procedural exercise. The morato....
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....t satisfies the requirements of Section 94 or 95, as the case may be, to recommend the acceptance or rejection of the application by submitting a report. As held in Dilip B Jiwrajka (supra), the stage of discharge of duties by the resolution professional as above is not the adjudicatory process and the functions which the resolution professional performs are not adjudicatory in nature. Therefore, it is impossible to conclude that the Registrar at the stage of receipt of the petition filed under Section 94 or 95 of the Code by the debtor or creditor, which is a stage even prior to Section 97 and 99 of the Code can decide on the maintainability of the petition by entering into merit and thus the realm of adjudication. 8. The submission of learned advocate for the appellant could not brushed aside lightly when it was contended that the prayers made in the writ petition was in the nature of anti-suit injunction. The petitioner by seeking declaration as prayed for wanted thwart at the threshold from presentation of the petition under Section 95 of the Code which was not permissible once it was filed with procedural compliance. It could be contended on the basis of the principles laid....