Pr. Commissioner Of Income-Tax-7 vs Modern Terry Towels Ltd. & Ors

National Engineering Industries Ltd. ...Appellant

Versus

Cimmco Birla Ltd. ...Respondent

Present:

For Appellant : Mr. Ratnil Chauhan, Advocate

Company Appeal (AT) (Insolvency) No. 192 of 2018

IN THE MATTER OF:

Pr. Commissioner of Income-tax-7 ...Appellant

Versus

M/s. Modern Terry Towels Ltd. & Ors. ...Respondents

Present:

For Appellant : Mr. Ajit Sharma, Mr. Asheesh Jain, Mr. Adnan Siddiqui and Mr. Mayank Aggarwal, Advocate

For Respondents: Mr. Ved Jain and Mr. Pranjal Srivastava, Advocates

ORDER

30.05.2018 This appeal(s) has been preferred under Section 61(1) of the

Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the 'I&B Code')

against order dated 11th March, 2010 and 28th July, 2016 passed by the Board 2

for Industrial and Financial Reconstruction, New Delhi (for short, 'BIFR') referred

to as the BIFR Case No. 372 of 2000.

2. The appeal(s) has been preferred in view of Notification No. S.O. 1683 (E)

dated 24th May, 2017, issued by the Central Government whereby and

whereunder 'The Eighth Schedule' of the I&B Code has been amended and the

order passed by the BIFR has been ordered to be treated an order passed by the

Adjudicating Authority under Section 31(1) of the I&B Code and thereby

preferred appeal within 90 days before the National Company Law Appellate

Tribunal (NCLAT).

3. The aforesaid Notification No. S.O. 1683 (E) dated 24th May, 2017 fell for

consideration before this Appellate Tribunal in the 'Principal Director General of

Income Tax (Admn. & TPS) vs. M/s. Spartek Ceramics India Ltd. & anr.' -

'Company Appeal (AT) (insolvency) No. 160 of 2017' and analogous case. In the

aforesaid appeals, this Appellate Tribunal by judgment dated 28th May, 2018

while pointed out the infirmity in the Notification No. S.O. 1683 (E) dated 24th

May, 2017 held that :

"44. If the intention of the legislature/Parliament

substituting sub-clause (b) of Section 4 (by Eighth

Schedule) is looked into, we find that the executive

instruction issued by the Central Government under

Section 242 is contrary to the provisions of sub-

clause (b) of Section 4 of the 'SICA Repeal Act, 2003'.

45. In view of the aforesaid discussion, we find that the

grounds shown by the Central Government in

Company Appeal (AT) (Insolvency) Nos. 151 & 192 of 2018 3

Notification S.O. 1683(E) dated 24th May, 2017 for

exercising powers conferred under Section 242 are in

conflict with the amended sub-clause (b) of Section 4

of the 'SICA Repeal Act, 2003'.

xx xx xx xx

50. From the aforesaid provision, it is clear that the

grounds to prefer appeal under Section 61 of the 'I&B

Code' against an order of approval of plan passed by

the Adjudicating Authority under Section 31, should

be such as mentioned in sub-section (3) of Section 61.

As per sub-section (2) of Section 61, the appeal is

required to be filed within thirty days before the

NCLAT. The Appellate Tribunal is empowered to

condone the delay of 'another fifteen days' after the

expiry of the period of thirty days in preferring the

appeal that too for sufficient cause. It has no power

to condone the delay if appeal under Section 61 is

preferred beyond fifteen days from the date of the

expiry of the period of thirty days. Meaning thereby,

no appeal under sub-section (1) of Section 61 can be

entertained after forty-five days of knowledge of the

order passed by the Adjudicating Authority.

Company Appeal (AT) (Insolvency) Nos. 151 & 192 of 2018 4

51. The impugned Notification S.O. 1683(E) dated 24th

May, 2017 was notified after five months twenty-

seven days of enactment of the 'I&B Code' (came into

force from 1st December, 2016). All Schemes have

been framed by the Board prior to 1st December,

2016 i.e. before coming into force of the 'I&B Code'

i.e. much more than five months twenty-seven days

back (177 days).

52. The limitation of thirty days has been prescribed

under sub-section (2) of Section 61 for preferring an

appeal against an order passed by the Adjudicating

Authority, including the order passed under section

31(1) of the 'I&B Code'. The Appellate Tribunal for

sufficient cause can condone the delay but such

period cannot exceed fifteen days. Therefore, no

appeal can be entertained after forty-five days of

knowledge of order. The Central Government,

thereby cannot grant ninety days' period to prefer an

appeal under section 61(1), which is contrary to

Section 61(2) of the 'I&B Code'.

53. The 'difficulty' as contemplated under Section 242 of

the 'I&B Code' has not been mentioned by the

Central Government in the notification in question.

Company Appeal (AT) (Insolvency) Nos. 151 & 192 of 2018 5

The Central Government in exercise of its powers

conferred under Section 242, is competent to make

provision to remove the difficulty in giving effect to the

provisions of the 'I&B Code', but it cannot be in

conflict with nor can change the substantive

provisions of the 'I&B Code'. The period of limitation

as prescribed by Notification S.O. 1683(E) dated 24th

May, 2017 being in conflict with the maximum period

of limitation granted under sub-section (2) of Section

61 of the 'I&B Code' and beyond forty-five days, the

NCLAT having not empowered to entertain the

appeal. The NCLAT has no jurisdiction to entertain

an appeal under Section 61 beyond the period of

forty-five days.

54. The NCLAT, having been empowered by the

Parliament to hear the appeal under provisions of the

Companies Act, 2013, 'I&B Code, 2016' and the

Competition Act, 2003, the Central Government

cannot empower the Appellate Tribunal to hear an

appeal pursuant to Notification S.O. 1683(E) dated

24th May, 2017.

55. For the reasons aforesaid, we hold that both the

appeals preferred by 'Pr. Director General of Income

Company Appeal (AT) (Insolvency) Nos. 151 & 192 of 2018 6

Tax (Admn. & TPS)' and 'GMB Ceramics India Ltd. &

Ors.' against the Scheme framed by the Board are

barred by limitation and otherwise not maintainable

under Section 61 of the 'I&B Code'.

4. In view of the aforesaid finding, we hold that the present appeal under

Section 61(1) is not maintainable and otherwise also barred by limitation

prescribed under sub-section (2) of Section 61.

5. However, this Appellate Tribunal to maintain judicial decorum in 'Principal

Director General of Income Tax (Admn. & TPS) (Supra) observed as follows :

"57. To maintain the judicial decorum, though we have

noticed the conflict in the order passed by the Hon'ble

High Court of Delhi and the Notification S.O. 1683(E)

dated 24th May, 2017, we refrain from giving any

specific declaration about the same.

In spite of observations as made above, the

next question requires consideration is that if

otherwise the appeals are maintainable the impugned

Scheme is legal or not."

6. While so observing, this Appellate Tribunal had also gone into the merits

of the appeals.

7. Though we are not supposed to decide the merit of the appeal(s), but if the

arguments of the appellant is accepted, we find that there are infirmity in the

scheme in question :

Company Appeal (AT) (Insolvency) Nos. 151 & 192 of 2018 7

(i) The Scheme was framed without notice to the appellant - unsecured

creditor.

(ii) The Scheme which is deemed to be a 'Resolution Plan' is in

contravention of Section 30(2)(e) of the I&B Code i.e. not in

accordance with the provisions of law time being in force. For

example, if there is a material irregularity in exercising of the powers

by the 'Insolvency Resolution Professional' during the 'corporate

insolvency resolution process; whether 'debts' owed to the

'Operational Creditor' is to be provided in the 'Resolution Plan'. It

has not been decided nor the 'scheme' complies with the guidelines

prescribed in the 'Insolvency and Bankruptcy Board of India' and

the provisions of the 'I&B Code'.

(iii) The 'Committee of Creditors' are supposed to approve the

'Resolution Plan' and the 'Resolution Applicant' is supposed to pay

the dues but no such provision has been made in the scheme.

(iv) The 'Resolution Plan' contravenes the provisions of the Income-tax

Act, as alleged by the Principal Commissioner of Income-Tax-7.

Thus, if the impugned Schemes are treated to be approved

(Resolution Plan) under sub-section (1) of Section 31 of the 'I & B Code'

they being against the provisions of the existing laws and being in violative

of clause (e) of sub-section (2) of Section 30 of the I&B Code are illegal.

8. Though, we find that the impugned Schemes dated 11th March, 2010 and

28th July, 2016 are illegal, however, in absence of our jurisdiction to exercise of

powers under Section 61 of the 'I&B Code' and appeals being barred by

Company Appeal (AT) (Insolvency) Nos. 151 & 192 of 2018 8

limitation, we are not interfering with the illegal Schemes dated 11th March, 2010

and 28th July, 2016 though we hold them as illegal.

9. Further, in absence of any provision to get the Schemes in question

executed through any court of Competent jurisdiction, the relevant provision(s)

having been repealed, the appellant(s) may raise the question, if the

respondent(s) move before any court of Law for implementation of the Schemes.

10. Both the appeal(s) are disposed of with aforesaid observations. However,

in the facts and circumstances of the case, there shall be no order as to costs.

[Justice S.J. Mukhopadhaya] Chairperson

[ Justice Bansi Lal Bhat ] Member (Judicial)

/ns/gc

Company Appeal (AT) (Insolvency) Nos. 151 & 192 of 2018