Madhusudan Tantia vs Amit Choraria & Anr

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI Company Appeal (AT) (Insolvency) No. 557 of 2020 [Arising out of Order dated 20.05.2020 passed by the National Company Law Tribunal, Kolkata Bench, Kolkata in C.P. (IB) No.1735/KB/2019].

IN THE MATTER OF: Madhusudan Tantia 4, Sarat Chatterjee Avenue, Kolkata - 700029. ...Appellant

Versus

Amit Choraria 14/2, Old China Bazar Street, 4th Floor, Room No. 401, Kolkata - 700001. .......Respondent No. 1

Foseco India Limited Ghat Nos. 922 & 923, Sanaswadi, Taluka Shirur, Pune - 412208. ........Respondent No. 2

Present:

For Appellant: Mr. Jishnu Saha, Sr. Advocate with Mr. Dhirendra Nath Sharma, Mr. Sanjay Ginodia and Mr. Ishan Saha, Advocates

For Respondent: Mr. H.M. Choraria, Advocate for R-1 Mr. Anjan Kumar Roy, Advocate for R-2 Mr. Amit Choraria, IRP

1 Company Appeal (AT) (Insolvency) No. 557 of 2020

Venugopal M. J

Introduction

The Appellant has preferred the instant Company Appeal (AT) (Insolvency)

No. 557 of 2020 as an 'Aggrieved Person' being dissatisfied with the Impugned

order dated 20.05.2020 passed by the Adjudicating Authority 'National Company

Law Tribunal', Kolkata Bench, Kolkata in C.P. (IB) No.1735/KB/2019.

2. The 'Adjudicating Authority' ('NCLT') Kolkata Bench, Kolkata while passing

the Impugned order dated 20.05.2020 in C.P. (IB) No.1735/KB/2019 had

observed the following: -

"The Central Government by

notification dated 24.03.2020

enhanced the minimum amount of

default limit from one lakh to 1 crore

for initiating CIRP as against small

and medium scale industries. So,

question raised by the learned counsel

is that whether notification is under

section 4 of the Code raising the 2 Company Appeal (AT) (Insolvency) No. 557 of 2020 minimum default limit be applicable to

the applications pending for

admission? It is a well settled law that

a statute is presumed to be prospective

unless it is held to be retrospective,

either expressly or by necessary

implication. When the amendment to

Section 4 of IBC was inserted a proviso

enhancing the pecuniary jurisdiction

for filing applications as against small

and medium scale industries nowhere

in the notification mentioned that its

application will be retrospective.

Therefore, it appears to me that the

amendment shall be considered as

prospective and not retrospective. The

facts in the cited decisions are not at

all similar to the facts in the case in

hand and hence not helpful to

strengthen the said submission on the

side of the CD. In view of the matter, I

do not find any illegality in

3 Company Appeal (AT) (Insolvency) No. 557 of 2020 pronouncing the order on today

through VC.

This is an application filed u/s 9 of

IB Code for initiation of Corporate

Insolvency Resolution Process against the

Company who is dealing with business of

manufacturing and supply of chemicals

and allied products related to foundry and

steel industries, such as, resins, coating for

ferrous and non-ferrous foundries, sleeves,

fluxes, metal treatment products of

foundries.

According to the Ld. PCS for the

operational creditor, since the corporate

debtor failed to pay the amount, it is

entitled to claim the amount due to the tune

of Rs. 90,00,919.10. None of the invoices

contains the terms stipulating the corporate

debtor to pay interest for the delayed

payment of the amount found due to the

operational creditor. The corporate debtor

having not disputed its liability, the amount

4 Company Appeal (AT) (Insolvency) No. 557 of 2020 as claimed by the operational creditor

towards the material cost less the interest

is found due and payable by the corporate

debtor.

The Ld. P CS for the operational

creditors further submits that despite

repeated demands, the corporate debtor

failed to pay the operational debt and

therefore a demand notice under Rule 5 of

the Insolvency and Bankruptcy (Application

to Adjudicating Authority) 2016 was issued

and the corporate debtor was in receipt of

the demand notice. The CD neither sent a

reply nor paid the amount found due to the

operational creditor and not raised any

dispute. The claim is also not barred by the

law of limitation. Accordingly, the claim of

the operational creditors is found

sustainable under the law.

In compliance of Sec. 9(3)(b) if IB Code

the applicant has produced an affidavit and

a statement of bank a/c also seen produced

5 Company Appeal (AT) (Insolvency) No. 557 of 2020 on the side of operational creditor in

compliance of section 9(3)(c) therefore, all the

requirements are made out in the case in

hand. The operational creditor has also

proposed the name of Resolution

Professional, Shri Amit Choraria,

Registration No. IBBI/IPA-001/IP-

P01345/2018-2019/12129. Written

communication under Form 2 reveals that

there is no disciplinary proceedings pending

against the proposed IRP. That being so, the

operational creditor succeeds in proving that

the application under sub-sec. (2) of sec. 9 of

IB Code 2016 is complete; that there is no

payment of the unpaid operational debt and

that there is a service of demand notice with

invoices. Despite receipt of the demand

notice, there is no payment on the side of the

corporate debtor, no pre-existing dispute

also alleged or proved. The Ld. Counsel for

the CD not raised any dispute at the time of

hearing, other than his request for time to

settle the matter. There is no disciplinary 6 Company Appeal (AT) (Insolvency) No. 557 of 2020 proceedings against the RP proposed under

sub-sec. (4) of sec. 9 of IB code, 2016 and

accordingly this application is complete and

therefore, liable to be admitted."

and resultantly admitted the application for CIRP against the 'Corporate

Debtor' and further declared a moratorium etc.

Resume of Facts

3. According to the Appellant he is a majority shareholder and one of the

Directors on the 'Suspended Board of Directors' of the 'Corporate Debtor' and he

is affected and prejudiced by the Impugned Order in admitting the application

and initiating 'Corporate Insolvency Resolution Process' as against the

'Corporate Debtor' (Om Boseco Rail Products Ltd., Bengal).

4. During September, 2019, the 2nd Respondent / Operational Creditor

projected an application against the 'Corporate Debtor' under section 9 of the

'I&B' Code being C.P. (IB) No.1735/KB/2019 before the 'Adjudicating Authority'

('NCLT') Kolkata Bench, Kolkata and that the said application was taken up for

consideration by the 'Adjudicating Authority'. As a matter of fact, the matter was

proceeded 'Ex-Parte', since the 'Corporate Debtor' was not represented. After

coming to know of the fact that the 'Corporate Debtor' was proceeded ex-parte,

an application was filed by the 'Corporate Debtor' in CA No. 107/KB/2020

7 Company Appeal (AT) (Insolvency) No. 557 of 2020 praying for setting aside the direction given by the 'Adjudicating Authority'

whereby among other things, the matter was marked 'ex-parte'.

5. The Learned 'Adjudicating Authority' after hearing the submissions made

in CA No. 107/KB/2020 passed an order on 17.01.2020 by permitting the

'Corporate Debtor' to file its 'Reply Affidavit' on payment of cost of Rs. one lakh

to the 2nd Respondent / 'Operational Creditor'. On 03.02.2020, for further

consideration, the matter was taken up for consideration and the application of

the 'Corporate Debtor' bearing CA No. 107/KB/2020 was dismissed. Although,

as directed, the 'Corporate Debtor' had paid the cost, the 'Corporate Debtor'

could not file a 'Reply Affidavit' within the time specified by the 'Adjudicating

Authority' and no further extension of time in this regard was granted. On

13.03.2020, the matter was fixed for final hearing, in the absence of any 'Reply

Affidavit' of the 'Corporate Debtor'.

6. The matter was taken up on 13.03.2020 and the 'Order' was 'Reserved'.

On behalf of the 'Corporate Debtor' it was submitted that there was a possibility

to settle the matter 'Out of Court', if some further time was granted and that the

parties might arrive at a settlement. In reality, during the pendency of the

application, the 'Corporate Debtor' had paid a sum of Rs. 17,80,831 only to the

'Operational Creditor'. Still the 'Adjudicating Authority' proceeded to record that

hearing was concluded and order was 'Reserved'. However, it was observed by

the 'Adjudicating Authority' that the order was likely to be pronounced after

seven days and in the event, settlement was arrived at between the parties during

8 Company Appeal (AT) (Insolvency) No. 557 of 2020 such period, the same should be reported at once for the purpose of recording

'closure of the proceeding'.

7. After the hearing was over on 13.03.2020, the 'Corporate Debtor' on

17.03.2020, sent an e.mail to the 'Operational Creditor' giving its proposal for

settling the matter out of court. However, soon thereafter because of the COVID-

19 pandemic, the lockdown was declared by the Central Government w.e.f.

March 25th, 2020 and regular functioning of all 'Courts' and 'Tribunals' all over

the country was disrupted.

8. Because of the closure of the 'Adjudicating Authority' ('NCLT') Kolkata

Bench since March 23rd, 2020, the matter had not appeared in the 'Cause List'

till May, 20th and that in the meantime, the 'Operational Creditor' had through

e.mail dated 01.04.2020 reverted to the 'Corporate Debtor's' e.mail dated

17.03.2020 declining the settlement proposal forwarded by the 'Corporate

Debtor' and suggesting an alternative proposal instead.

9. On 16.05.2020, the Learned Counsel on record for the 'Corporate Debtor'

received a call from the registry of the 'Adjudicating Authority' wherefrom the

'Corporate Debtor' came to learn that the said application filed by the

'Operational Creditor' would be appearing on May, 20th, 2020 for pronouncement

of order by video conferencing. When the said application was taken up on

20.05.2020 through video conferencing the Learned Counsels representing the

'Operational Creditor' and the 'Corporate Debtor' made submissions and that on

behalf of the 'Corporate Debtor' to judicial precedents in support of the

proposition that amendment to Section 4 of the 'I&B' Code ought to be given a 9 Company Appeal (AT) (Insolvency) No. 557 of 2020 retrospective application were relied upon. However, the 'Adjudicating

Authority' on 20.05.2020 pronounced the impugned order whereby and

whereunder the said application was admitted.

Appellant's Contentions

10. The Learned Counsel for the Appellant submits that the 'Adjudicating

Authority' while passing the impugned order had committed an error in Law and

on facts by failing to appreciate that by reason of the amendment to Section 4 of

the 'I&B' Code, the application was no longer maintainable in Law and was

barred by Law and hence the Authority should have dismissed the application

because of the simple reason that the amendment in issue is having retrospective

effect.

11. The Learned Counsel for the Appellant submits that in the application, the

total claim of the 'Operational Creditor' is Rs. 90,009,19.10 (Rupees ninety lakhs

nine hundred and nineteen and ten paise only) which is below the threshold limit

of Rs. one crore as the minimum amount of default for the purpose of preferring

an application under Sections 7 or 9 and 10 of the 'I&B' Code.

12. The Learned Counsel for the Appellant points out that the 'Adjudicating

Authority' had failed to appreciate the ratio of the decision in CP (IB) No.

615/KB/2018 dated 15th November, 2018 (Re: Shri Munisuvrata Agri

International Limited) which was affirmed by this Tribunal in Company Appeal

(AT)(Ins.) No. 84/2019 dated 24.01.2020. Furthermore, the impugned order was

passed by the 'Adjudicating Authority' on the basis of erroneous assumption,

10 Company Appeal (AT) (Insolvency) No. 557 of 2020 surmises and conjectures apart from that, the 'Adjudicating Authority' had

exceeded its jurisdiction wrongly and in fact the application filed by the

'Operational Creditor' under Section 9 of the Code is per-se not maintainable, in

Law.

13. The Learned Counsel for the Appellant proceeds to point out that the

Ministry of Corporate Affairs (MCA) notification of 24.03.2020 specifying the

minimum amount of default to be Rs. 1 crore renders the entirety of part II

including not only the filing of applications u/s 9(1) of the Code but also their

admission u/s 9(5) (i) as inapplicable in respect of defaults below the minimum

value of 1 crore, and, therefore, the effect of notification is that any application

where the default is less than Rs. 1 crore cannot be admitted, cannot result in

appointment of an IRP, cannot result in declaration of moratorium, etc.

14. The Learned Counsel for the Appellant contends that in the decisions of

Hon'ble Supreme Court in 'Thirumalai Chemicals Ltd.' v. 'UOI & Ors.'

reported in (2011) 6 SCC at page 739 and 'B.K. Educational Services(P) Ltd.'

(2019) 11 SCC 633 that the right conferred on an applicant to file an application

under the Code may be a substantive right but the requirement to be meted out

for initiating CIRP process upon filing an application under the Code is

procedural in nature.

15. It is represented on behalf of the Learned Counsel for the Appellant that a

primary duty of the court is to give effect to the intention of the legislature as

expressed in the words used by it and no outside consideration can be called in 11 Company Appeal (AT) (Insolvency) No. 557 of 2020 aid to find that intention and relies on the decisions of Hon'ble Supreme Court

(i) 'Union of India' V. 'Deoki Nandan Aggarwal' (1992) Supplement (1) SCC

323(para 14); (ii) 'Nasiruddin & Ors.' V. 'Sita Ram Agarwal' (2003) 2 SCC

page 577 (para 37; and (iii) 'Satheedevi' V. 'Prasana & Anr.' (2010) 5 SCC

page 622 (para 12,13).

16. The Learned Counsel for the Appellant takes a plea that interpretation that

language in certain statute cannot be regarded as strictly accurate is not

permitted and refers to the decision of Hon'ble Supreme Court 'Avtar Singh'

V. 'State of Punjab' AIR 1965 Supreme Court page 666 para 6. Further, it is

the stand of the Appellant that no part of a statute can be considered to be a

surplus age as per decision of Hon'ble Supreme Court 'Hardeep Singh' V.

'State of Punjab' (2014)3 SCC page 92 (paras 44,45).

17. The Learned Counsel for the Appellant refers to the decision of Hon'ble

Supreme Court 'Rafiquennessa' V. 'Lal Bahadur Chetri' AIR 1964 Supreme

Court page 1511 wherein at paragraph 9 it is observed as under: -

".............It is not

disputed by him that the legislature is

competent to take away vested rights

by means of retrospective legislation

similarly, the legislature is

undoubtedly competent to make laws

which over ride and materially affect 12 Company Appeal (AT) (Insolvency) No. 557 of 2020 the terms of contracts between the

parties; but the argument is that

unless a clear and unambiguous

intention is indicated by the

legislature by adopting suitable

words in that behalf, no provision of a

statute should be given retrospective

operation if by such operation vested

rights are likely to be affected. These

principles are unexceptionable and as

a matter of law, no objection can be

taken to them. Mr. Chatterjee has

relied upon the well-known

observations made by Wright, J in Re

Athlumney Ex Parte or Wilson (1898)

2 Q.B.D. at page 547, when the

learned judge said that it is a general

rule that when the legislature alters

the rights of parties by taking away or

conferring any right of action, its

enactments, unless in express terms

they apply to pending actions do not

affect them. He added that there was 13 Company Appeal (AT) (Insolvency) No. 557 of 2020 one exception to that rule namely that

where enactments merely affect

procedure and do not extend to rights

of action, they have been held to

apply to existing rights. In order to

make the statement of the law,

relating to the relevant rule of

construction which has to be adopted

in dealing with the effect of statutory

provisions in this connection we ought

to add that retrospective operation of

a statutory provision can be inferred

even in cases where such

retrospective operation appears to be

clearly implicit in the provision

construed in the context where it

occurs. In other words, a statutory

provision is held to be retrospective

either when it is so declared by

expressed terms, or the intention to

make it retroactive clearly follows

from the relevant words and the

context in which they occur."

14 Company Appeal (AT) (Insolvency) No. 557 of 2020

18. The Learned Counsel for the Appellant emphatically projects an argument

that the ambit of Section 4 is not confined only to filing of applications u/s 9(1)

of the Code, but extends to all matters under part II including the admission of

such applications u/s 9(5)(i) is clear from the use of expression 'relating to the

Insolvency & Liquidation of Corporate Debtors' and refers to the decision of

Hon'ble Supreme Court 'Renusagar Power Company Ltd.' V. 'General

Electric Company' (1984), 4 SCC page 679 (para 25), followed in 'Govind

Prasad Sharma' V. 'Doon Valley Officers Cooperative Housing Society

Limited' (2018) 11 SC 501 (para 4); 'Thyssen Stahlunion GMBH' V. 'SAIL

(1999) 9 SCC 334 (para 23,24); 'Mansukhlal Dhanraj Jain' V. 'Eknath Vithal

Ogale (1995) 2 SCC 665; 'Dhanrajmal Gobindram' V. 'Shamji Kalidas & Co.'

AIR 1961 SC 1285; 'Navin Chemicals' V. 'Collector of Customs'-(1993) 4

SCC 320.

19. Advancing his arguments, the Learned Counsel for the Appellant contends

that the advent of notification of 24.03.2020 divests the Learned 'Adjudicating

Authority' of jurisdiction in respect of pending applications u/s 9(1) pertaining

to the minimum default complained of, which is less than Rs. one crore and

there is no vested right in pending proceedings. In this connection, the Learned

Counsel for the Appellant refers to the decision of Hon'ble Supreme Court

'Durga Hotel Complex' V. 'Reserve Bank of India' reported in (2007) 5 SCC

page 120 (vide paragraphs 12 to 14) wherein it was held that the Banking

'Ombudsman' was divested of jurisdiction upon a proceeding being filed before

15 Company Appeal (AT) (Insolvency) No. 557 of 2020 the 'Debt Recovery Tribunal' although the complaint made before him was prior

at point of time.

20. The Learned Counsel for the Appellant cites the decision 'Sefali Roy

Chowdhury' V. 'A.K.Dutta' 1976 (3) Supreme Court Cases at page 602 at

special page 606 wherein at paragraph 6 it is among other things observed as

follows:-

"............According to

him the suit must continue to be

governed by the 1950 Act even

after its repeal in view of Section 40

unaffected by the provisions of the

1956 Act. Section of 40 of the 1956

Act keeps alive a proceeding

pending on the date when the 1950

Act was repealed as if it is still in

force and has not been repealed.

This however, does not mean that

even if the 1956 Act created a new

right in favour of the sub-tenant, he

would be denied this right because

a suit for ejectment was pending

against him when the Act came into

16 Company Appeal (AT) (Insolvency) No. 557 of 2020 force. 'Tenant' as defined in

Section 2(h) of the 1956 Act

includes a person continuing in

possession after the termination of

his tenancy until a decree or order

for eviction has been made against

him. A sub-tenant is also a tenant

and when the order under Section

16(3) was made no decree or order

for eviction had been passed

against him. That being so, we do

not see why he should not be

entitled to the benefit conferred by

Section 16(3). The intention of the

legislature which is paramount, is

clear - to upgrade the sub-tenant

and make him a tenant directly

under the superior landlord. This is

a new right given to the sub-tenant

and though the pending proceeding

may continue to be regulated by the

repealed statute in view of Section

40, there is nothing in that section 17 Company Appeal (AT) (Insolvency) No. 557 of 2020 to suggest that sub-tenant against

whom a suit was pending will be

denied this additional right. The

High Court has held that effect of

the order under Section 16(3) must

be considered in the suit. Thus the

suit may continue inspite of the

repeal of the 1950 Act, but the right

acquired by the sub-tenant under

the 1956 Act has to be given effect

to and the suit decided accordingly.

It must therefore be held that the

relationship of landlord and tenant

ceased between the parties on the

date when the order under Section

16(3) was made."

21. Also, on behalf of the Appellant, the following decisions are referred to: -

(a) In the decision 'Rao Shiv Bahadur Singh' V. 'State of 'Vindhya

Pradesh' AIR 1953 Supreme Court at page 394 wherein at paragraph 10 and

24 it is interalia observed as under: -

"10..........It cannot therefore be

doubted that the phrase "law in force" as 18 Company Appeal (AT) (Insolvency) No. 557 of 2020 used in Article 20 must be understood in

its natural sense as being the law in fact

in existence and in operation at the time

of the commission of the offence as

distinct from the law "deemed" to have

become operative by virtue of the power of

legislature to pass retrospective laws it

follows that if the appellants are able to

substantiate their contention that the acts

charged as offences in this case have

become such only by virtue of Ordinance

48 of 1949 which has admittedly been

passed subsequent to the commission

thereof, then they would be entitled to the

benefit of Article 20 of constitution and to

have the convictions set aside etc."

"24. As regards the amendments in the

Criminal Procedure Code brought about

by Ordinances 15 of 1948 dated 31st

December, 1948, and 27 of 1949 dated

3rd May, 1949, no detailed consideration

is necessary in view of what has been

19 Company Appeal (AT) (Insolvency) No. 557 of 2020 held at the outset that the constitutional

objection under Article 20 does not apply

to a change in procedure or change of

code. Items 62 and 63 of Section 2 of

Ordinance 15 of 1948 would seem to

indicate that the jurisdiction which the

criminal courts of Vindhya Pradesh

previously had to tried extra-territorial

offences was probably lost thereby. If so,

the jurisdiction was restored under

Ordinance 27 of 1949 by the amendment

thereby of the said items 62 and 63 thus

bringing it into line with section 188 of the

Criminal Procedure Code, with a requisite

adaptation. Hence, the power of the

Vindhya Pradesh courts to hold trials for

extra-territorial offences which was

probably interrupted from 31st December,

1948 was restored on 3rd May, 1949,

before the trial in this case, commenced

with retrospective operation i.e. as from

the date of the prior Ordinance i.e. 31st

December, 1948."

20 Company Appeal (AT) (Insolvency) No. 557 of 2020

22. In the decision of Hon'ble Supreme Court 'Securities and Exchange Board

of India' V. 'Classic Credit Ltd.' (2018) 13 Supreme Court Cases at page 1 at

special page 3 wherein it is observed as follows: -

"Procedural amendments are

presumed to be retrospective in

nature, unless the amending

statute expressly or impliedly

provides otherwise. Generally

change of "forum" of trial is

procedural, and normally

following the above proposition, it

is presumed to be retrospective in

nature unless the amending

statute provides otherwise.

Change of "forum" being

procedural, the amendment of the

'forum' would operate

retrospectively irrespective of

whether the offence allegedly

committed by the accused was

committed prior to the

amendment."

21 Company Appeal (AT) (Insolvency) No. 557 of 2020

23. The Learned Counsel for the Appellant submits that Section 6 of the

General Clauses Act does not confer any vested right in pending legal proceeding

and that Section 6 only relates to the effect of repeal of provisions and the

omission of the minimum default specified in Section 4 of the 'I&B' Code earlier

to the notification of 24.03.2020 is not a repeal one and refers to the decisions

of Hon'ble Supreme Court (a) 'Rayala Corporation' V. 'Directorate of

Enforcement' (1969) 2 SCC 412; (b) 'Kolhapur Canesugar Works Ltd.' V.

'UOI' (2000) 2 SCC 536; 'General Finance Co.' V. 'Assistant Commissioner

of Income Tax' (2002) 7 SCC 1 (para 4).

24. It is the contention of Learned Counsel for the Appellant that Section 6 of

the General Clauses Act provides for the effect of the Appeal unless a contrary

'intention appears' and further that the contrary intention in the instant case is

apparent from the language of Section 4 of the Code itself which relates to the

entirety of part II of the Code. Besides this, it is the submission of the Learned

Counsel for the Appellant that even if it be held that no different intention

appears, section 4 of the Code being procedural in nature, the notification of 24th

March, 2020 must have 'Retrospective Operation'.

25. The Learned Counsel for the Appellant contends that Laws are made justly

for the benefit of individuals and the community as a whole may relate to a time

antecedent to their commencement and that the presumption against

retrospectivity may in such cases be rebutted by necessary implication from the

22 Company Appeal (AT) (Insolvency) No. 557 of 2020 language employed in the statute as per decision of the Hon'ble Supreme Court

in 'Mithilesh Kumari' V. 'Prem Bihari Khare' (1989) 2 SCC page 95.

26. Apart from that, an argument is advanced on behalf of the Appellant that

the presumption against retrospective operation is not applicable to curative or

declaratory statutes as per decision of the Hon'ble Supreme Court 'Zile Singh'

V. 'State of Haryana' (2004) 8 SCC 1 (para 14). Also that, a plea is projected

on the side of the Appellant that a new Law is made to cure and acknowledge

evil for the benefit of community as a whole and in short from a holistic reading

of Section 4 coupled with Section 9(1) and Section 9(5)(i) of the 'I&B' Code and

together with the rules of statutory interpretation, there can be no modicum of

doubt that it is the intendment of the Ministry of Corporate Affairs, Govt. of India

for the notification of 24.03.2020 to have retrospective operation barring the

admission of pending applications which alleged default below the minimum

threshold of Rs. 1 crore.

27. The Learned Counsel for the Appellant submits that the impugned order

passed by the 'Adjudicating Authority' is not sustainable pursuant to the

notification dated 24.03.2020 issued by the Ministry of Corporate Affairs, Govt.

of India.

Pleas of 1st Respondent

28. Section 12 of the 'I&B' Code prescribes that within 330 days whole process

of CIRP has to be completed and the period of 330 days includes the period of

23 Company Appeal (AT) (Insolvency) No. 557 of 2020 litigations also and already 54 days had gone by any further extension may go

against smooth completion of CIRP to maximizing the value for the stakeholders.

Moreover, Regulation 27 provides that 'Valuers' have to be appointed within 47

days of commencement of CIRP. In fact, Regulation 36(1) provides for release

of IM with 54 days and Regulation 36A provides for publication of form G by the

IRP within 75 days of CIRP commencement and any further extension of stay to

hold the meeting of 'Committee of Creditors' to ensure various compliances and

some peculiar and regular issues are required to be taken up by the 'Committee

of Creditors'.

Submissions of 2nd Respondent

29. The Learned Counsel for the 2nd Respondent submits that the notification

dated 24.03.2020 cannot have retrospective effect because of the fact that

Section 9 of the 'I&B' Code provides substantive right to file an application to

initiate CIRP which cannot be taken away on a future date with retrospective

effect.

30. The Learned Counsel for the 2nd Respondent submits that a statute which

normally changes the procedure but also creates new rights and liabilities shall

be construed to be prospective in operation unless otherwise provided, either

expressly or by necessary implication as per decisions (i) 'Hitendra Vishnu

Thakur & Ors.' V. 'State of Maharashtra & Ors.' 1995 CRI LJ 517 (ii) 'Shyam

Sunder' V. 'Ram Kumar & Anr.' (2001) 8 SCC 24 (iii) 'Janardan Reddy' V.

'The State' (1950) 1 SCR 940.

24 Company Appeal (AT) (Insolvency) No. 557 of 2020

31. It is represented on behalf of the Learned Counsel for the 2nd Respondent

that under 'Delegated Legislation' could not issue a 'Notification' with

retrospective effect or to deprive the rights already accrued to the parties at the

time of filing of the petition and refers to the Hon'ble Supreme Court decisions

(1) Dr. Indramani Pyarelal Gupta V. 'W.R. Nath & Ors.', April 11, 1962, AIR

1963 SC 274 (ii) 'Bakul Cashew Co. & Ors.' V. 'Sales Tax Officer & Anr.'

Quilon, March 12, 1986, 1987 AIR 2239, 1986 SCR (1) 610.

32. The Learned Counsel for the 2nd Respondent brings it to the notice of this

Tribunal that in the present case multiple defaults took place in 2018 and that

the 'Demand Notice' was issued on 31.07.2019 and that the petition or

application was filed in form 5 on 05.09.2019. In this connection, the Learned

Counsel for the 2nd Respondent comes out with an argument that a conjoin

reading of the definition of the term 'Default' together with the provisions of

Section 4, 8 and 9 of 'I&B' Code would show that an 'Operational Creditor'

acquires the right to come under the provisions of the Code by issuing a 'Demand

Notice' u/s 8 on the occurrence of default.

33. The Learned Counsel for the 2nd Respondent takes a stand that the scheme

of Section 9 would exhibit that once an application or petition has been filed u/s

9(1) of the Code, the same must be admitted, if the conditions are satisfied as

per Section 9(5) r/w Section 9(2) to Section 9(4). Added further, the expression

in Section 4 of the 'I&B' Code that this section shall apply to part II of IBC, 2016

refer to the machinery of the statute and the provisions as applicable at the time

25 Company Appeal (AT) (Insolvency) No. 557 of 2020 of filing the application or petition would continued to be applied inspite of

subsequent amendment as the right of action being a substantive right cannot

be affected as per decision of Hon'ble Supreme Court in 'Govind Das & Ors.'

V. 'Income Tax Officer & Ors.' reported in AIR 1977 Supreme Court page

552.

34. The Learned Counsel for the 2nd Respondent submits that the

'Adjudicating Authority' had admitted the C.P. (IB) No.1735/KB/2019 after

ensuring:- (i) That there were defaults by the Corporate Debtor in payment of the

Operational Debt, (ii) That Demand Notice was duly served on the corporate

debtor, (iii) Application/petition under Section 9 of IBC 2016 was in accordance

with section 9 and was complete, (iv) The propose IRP does not have any pending

disciplinary cases (v) Notice was served on the corporate debtor by post and by

email, (vi) Corporate debtor submitted at NCLT that the notice was received by

post but the director overlooked it. It was also submitted that the email at which

notice was mailed is not in use even though the said email is as per the records of

the Ministry of Corporate Affairs, (vii) That the Corporate debtor failed to submit

any reply even after liberty to file within extended time was granted.

Appellant's Reply

35. According to the Learned Counsel for the Appellant, the proviso to Section

4 of the Code clearly gave power to the Central Government to make such

notification and as the said proviso is not incompatible with or contrary to any

26 Company Appeal (AT) (Insolvency) No. 557 of 2020 specific provision of the 'I&B' Code, the Central Government was well within its

right to make the notification 'Retrospective' in its operation.

36. The Learned Counsel for the Appellant points out that in the decision of

Hon'ble Supreme Court 'Dr. Indramani Pyarelal Gupta V. 'W.R. Nath & Ors.',

April 11, 1962, AIR 1963 SC 274 at paragraph 14 it is observed that - "What we

are here concerned with is whether it is legally competent to vest a particular

power in a statutory body, and in regard to this, the proper rule of interpretation

of this would be that unless the nature of the power is such as to be incompatible

for the purpose for which the body is created, or unless the particular power is

contra-indicated by and specific provision of the enactment bringing the body into

existence, any power which would further the provisions of the act could be legally

conferred on it".

37. Apart from that, in the aforesaid decision at paragraph 27 "it is clear law

that a statute which could validly enact a law with retrospective effect, in

expressed terms validly confer upon a rule making authority a power to make a

rule or frame a byelaw having retrospective operation."

38. It is the stand of the Appellant that the proviso to Section 4 of the 'I&B'

Code clearly gave the Central Government power to make such notification and

that the Central Government is well within its rights to make the notification

retrospective in its operation, because of the fact that the said proviso is not

contrary to any specific provision of the 'I&B' Code.

27 Company Appeal (AT) (Insolvency) No. 557 of 2020 Legal Scenario

39. Be it noted, that a 'Statute' is an edict of Legislature. Further, a 'Statute'

is to be construed according to the intent of those that make it as per decision

'Stock' V. 'Frank Jones Tipton Ltd.' (1978) All ER 948, 951. As a matter of

fact, the duty of 'Judicature' is to act based on the true intention of the legislature

- the mens or sententia legis.

40. It must be borne in mind that the correct interpretation is one that best

harmonises the words with the object of the 'Statute'. If two interpretations are

quite possible, the Court / Tribunal is to prefer that which advances the remedy

and suppress the mischief as the legislature envisaged. Further, a construction

giving rise to anomalies should be avoided as per decision of the Hon'ble Supreme

Court 'Veluswami Thevar' V. 'G.Raja Nainar' reported in AIR 1959 Supreme

Court p 422 at 427, 428. Also, that in the decision 'Grundy' V. 'Pinniger' (1852)

1 De GM & G 502 it is observed that 'to adhere as closely as possible, to the literal

meaning of the words used" according to Lord Cranworth (when Lord Justice) a

'Cardinal Rule from which if he depart', we launch into a sea of difficulties which it

is not easy to fathom."

41. At this stage, this Tribunal worth recalls and recollects the decision of

Hon'ble Supreme Court 'Atlas Cycles Industries Ltd.' V. 'State of Haryana'

AIR (1977) Supreme Court p.121 wherein it is observed that the word

'Notification' is normally employed in the context of conditional legislation e.g. to

bring into operation the enabling Act or to grant exemptions from its provisions or

to extend its operation to the new persons or objects. It is to be pointed out that 28 Company Appeal (AT) (Insolvency) No. 557 of 2020 just because a 'Notification' substitutes something in an earlier notification, the

substitution cannot have retrospective operation.

42. It is to be remembered that the aim oriented approach, however, is not to

be carried to the extent of causing violence to the plain language used by re-writing

the section or substituting the words in place of the actual words employed by the

Legislature. According to Viscount Simon L.c. the Golden rule is that the words

of 'Statute' must Prima facie be given their ordinary meaning as per decision

'Nokes' V. 'Doncaster Amalgamated Collieries Ltd.' (1940) A.C. 1014.

43. In the words of Lord Brougham, the rule of construction is 'to take the

words as the Legislature have given that and to take the meaning which the words

naturally imply, unless the construction of those words is either by the preamble or

by the context of the words in question controlled or altered' as per decision

'Crawford' V. 'S Pooner' (1846) 4 MIA 179 at 181.

Analysis

44. Before the 'Adjudicating Authority' the 2nd Respondent / Applicant /

Operational Creditor (Foseco India Ltd.) filed an application for commencing the

'Corporate Insolvency Resolution Process' as per Section 9 of 'I&B' Code r/w Rule

6 of the Insolvency & Bankruptcy(Application to Adjudicating Authority) Rules,

2016 in the form 5 filed by the 2nd Respondent / Operational Creditor in part-IV

S.No. 1, the total amount of debt is mentioned as 'Principal amount of debt: Rs.

78,52,663.00 (Rupees seventy-eight lakhs fifty-two thousand six hundred and

sixty-three only) plus interest upto 31st July, 2019 @ PLR + 1%: Rs. 11,48,256.10

(Rupees eleven lakhs forty-eight thousand two hundred and fifty-six ten paise 29 Company Appeal (AT) (Insolvency) No. 557 of 2020 only). The total debt was mentioned as Rs. 90,00,919.10 (Rupees Ninety Lakh

Nine Hundred Nineteen and Ten Paisa only). According to the 2nd Respondent /

Operational Creditor the total debt as on August 26th, 2019 was Rs. 90,68,563.96.

45. In fact, the dates of default were (i) 11.4.2018, 28.4.2018 and 17.6.2018

the date of demand notice was on 31.07.2019. The Section 9 Application was filed

before the 'Adjudicating Authority' on 5.9.2019. The date of first hearing was on

17.10.2019 and on 20.12.2019 an Ex-parte order was passed. The 'Corporate

Debtor' was provided with an opportunity to project its reply on 17.01.2020 and

prayed for further time on 03.02.2020 etc. Further, 'order' was reserved on

13.03.2020 and the same was pronounced on 20.05.2020.

46. A mere glance of the letter dated 17.03.2020 of the Director of the

'Corporate Debtor' addressed to the 2nd Respondent / Operational Creditor merely

points out that the business of the Company was severely affected and that the

'Bank Account' of the Company became 'NPA' and further that out of the total dues

of Rs. 60,71,832/-, starting 1st April, 2020 it would like to pay of the remaining

amount in 15 monthly instalments, wherein the 1st three instalments will be of

Rs. 2,00,000/- each and the 4th to the 14th instalment will be of Rs. 5 lakh each

and the 15th instalment will be Rs. 4,71,832/- thus liquidating the total dues.

Also, in the said letter it was mentioned that the 'Corporate Debtor' would hand

over the first PDC for Rs. 2,00,000/- to the Operational Creditor on or before 27th

March, 2020 and the remaining instalments would be paid through RTGS and

such transfer would be done by 15th of every month.

30 Company Appeal (AT) (Insolvency) No. 557 of 2020

47. In the instant case on hand, it is crystalline clear that the 'Corporate

Debtor' had accepted and agreed to make payment of the outstanding debt, as

rightly observed by the 'Adjudicating Authority' in the impugned order. In short,

no iota of any dispute / controversy was raised by the 'Corporate Debtor'. The 2nd

Respondent / Operational Creditor issued a Demand Notice to the 'Corporate

Debtor' owing to the failure in effecting payment of the outstanding debt. In

reality, the Demand Notice was served on the 'Corporate Debtor' on 01.08.2019,

which is not disputed. For the Demand Notice in issue, the 'Corporate Debtor'

had not given any reply to the 2nd Respondent / Operational Creditor. Although,

adequate opportunities were provided to the 'Corporate Debtor' by the

'Adjudicating Authority' no endeavor was made to make payment in respect of the

outstanding debt.

48. The 2nd Respondent / Operational Creditor before the 'Adjudicating

Authority' had produced the statement of 'Bank Account' and also an Affidavit and

as such the 2nd Respondent / Operational Creditor had fulfilled the requirements

as per the ingredients of 'I&B' Code. To put it succinctly, there was no payment

made on the part of the 'Corporate Debtor' after receipt of Demand Notice from the

2nd Respondent / Operational Creditor. Hence, this Tribunal without any haziness

comes to a consequent conclusion that the 'Adjudicating Authority' had rightly

admitted the application and in this regard, there is no legal flaw, as opined by

this Tribunal.

49. Dealing with the aspect of as to whether the notification issued by the Jt.

Secy. of Ministry of Corporate Affairs, Govt. of India dated 24.03.2020 in Section 31 Company Appeal (AT) (Insolvency) No. 557 of 2020 4 of the 'I&B' Code has a retrospective or prospective effect, at this juncture, this

Tribunal makes a useful reference to the said notification which runs to the effect

"S.O. 1205(E).- In exercise of the powers conferred by the proviso to section

4 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central

Government hereby specifies one crore rupees as the minimum amount of

default for the purposes of the said section".

[F.No. 30/9/2020 - Insolvency]

50. The plea taken on behalf of the Appellant is that the amendment which

was introduced in Section 4 of the 'I&B' Code was retrospective in nature and

would apply to the date of commencement. Per contra, the stand of the 2nd

Respondent / Operational Creditor is that Section 9 of the Code provides

substantive right to file an application in triggering the 'Corporate Insolvency

Resolution Process' which cannot be taken away on a future date with

retrospective effect. Further, the Learned Counsel for the 2nd Respondent points

out that when a 'Statute' which changes not only the procedure but also confers

/ creates new rights and liabilities, the same shall be construed to be prospective

in operation unless otherwise provided, either expressly or by necessary

implication.

51. It is significant to point out that the 'Duty of Judges' is to expound and

not to legislate is a primordial rule. Moreover, the transience of justice at the

hands of Law troubles a judge's conscience. It is an axiomatic principle in Law

that a judgement / an order of a Court of Law / Tribunal is to be written after

much travail and productive disposition. As a matter of fact, the judicial key to 32 Company Appeal (AT) (Insolvency) No. 557 of 2020 the construction is the composite perception of the 'Deha' and the 'Dehi' of the

provision as per decision of Hon'ble Supreme Court reported in 'Chairman,

Board of Mining Examination and Chief Inspector of Mines' V. 'Ramjee' AIR

1977 Supreme Court page 965, 968.

52. According to the Learned Counsel for the 2nd Respondent in respect of the

pending proceedings the 'state of affairs' remains unaffected by the changes in

Law, when they pertain to the determination of substantive rights. Further, in the

absence of clear indication of a contrary intention in the notification issued on

24.03.2020 by the Ministry of Corporate Affairs, Government of India, then the

substantive rights of individuals to an action is to be decided by the Law that

existed when the action was initiated / commenced as the case may be.

53. Indeed, in the present case, notwithstanding the fact, the Central

Government is delegated with a power to quantify the amount of default at any

time after the enactment of the 'I&B' Code, this power will not deprive / deny the

right which had already accrued to the concerned stakeholders, (including the

2nd Respondent / Operational Creditor) at the time of projecting the C.P. (IB)

No.1735/KB/2019 before the 'Adjudicating Authority'.

54. Section 3(12) of the 'I&B' Code defines "default" meaning non-payment 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. Section 4 of Chapter I preliminary speaks of 'Application of this Part'

[Part III]. Section 8 of the Code deals with 'Insolvency resolution by operational

33 Company Appeal (AT) (Insolvency) No. 557 of 2020 creditor'. Section 9 pertains to 'Application for initiation of corporate insolvency

resolution process by operational creditor'.

55. It is to be remembered that on the occurrence of default, the operational

creditor gets the right to trigger the 'CIRP' process. Section 9(1) of the Code confers

a substantive right to file and to initiate 'CIRP' against the corporate debtor. It is

needless for this Tribunal to point out that upon an application / petition being

filed by the concerned person in terms of the ingredients of Section 9(1) of the

Code and the default sum is quite in tune with Section 4 of the Code, the

application / petition is to be admitted by the 'Adjudicating Authority', of course

subject to the ingredients of Section 9(2) to Section 9(5) of the Code.

56. As far as the present case is concerned, this Tribunal, after carefully and

with great circumspection, ongoing through the contents of the notification dated

24.03.2020 issued by the Ministry of Corporate Affairs, Government of India,

whereby and whereunder the minimum amount of default limit was specified as

Rs. one crore (obviously raising the minimum amount from Rs. one lakh to one

crore) unerringly comes to a definite conclusion that the said notification is only

'Prospective in nature' and not a 'retrospective' one because of the simple reason

the said notification does not in express term speaks about the applicability of

'retrospective' or 'retroactive' operation. Suffice it for this Tribunal to point out

that from the tenor, spirit and the plain words employed in the notification dated

24.03.2020 of the Ministry of Corporate Affairs, Government of India, one cannot

infer an intention to take or make it retrospective as in this regard, the relevant

words are conspicuously absent and besides there being no implicit inference to 34 Company Appeal (AT) (Insolvency) No. 557 of 2020 be drawn for such a construction in the context in issue. That apart, if the

notification dated 24.03.2020 of the Ministry of Corporate Affairs, Government of

India, is made applicable to the pending applications of IBC (filed earlier to the

notification in issue) it will create absurd results of wider implications /

complications.

57. In view of the upshot and also this Tribunal, on a careful consideration of

respective contentions advanced on either side and considering the facts and

circumstances of the instant case in a conspectus fashion holds unhesitatingly

that the notification dated 24.03.2020 of the Ministry of Corporate Affairs,

Government of India, is prospective in nature and it is not retrospective or

retroactive in nature. Further, the said notification will not apply to the pending

applications filed before the concerned 'Adjudicating Authority' (Authorities),

under IBC (waiting for admission), prior to the issuance of the aforesaid

notification, as opined by this Tribunal. Viewed in the above prospectives, the

conclusion arrived at by the 'Adjudicating Authority' in the impugned order to the

effect that the notification dated 24.03.2020 of the Ministry of Corporate Affairs,

Government of India, shall be considered as prospective and not retrospective and

the finding that there was no payment on the side of 'Corporate Debtor' after

receipt of Demand Notice, no pre-existing dispute also alleged or proved and

ultimately admitting the application filed by the 2nd Respondent / Operational

Creditor are free from legal infirmities. Resultantly, the instant Appeal fails.

Result

In fine the present Appeal is dismissed. No Costs.

35 Company Appeal (AT) (Insolvency) No. 557 of 2020 All pending Interlocutory Applications are closed. However, the Appellant is

directed to file the certified copy of the impugned order dated 20.05.2020 of the

'Adjudicating Authority' within one week from today.

[Justice Venugopal. M] Member (Judicial)

[V.P. Singh] Member (Technical)

[Shreesha Merla] Member (Technical)

NEW DELHI

12th October, 2020

ss

36 Company Appeal (AT) (Insolvency) No. 557 of 2020