Case BriefsSupreme Court

Supreme Court: The bench of Indira Banerjee* and JK Maheshwari, JJ has rejected the view of NCLT and NCLAT that once it is found that a debt existed, and a Corporate Debtor is in default in payment of the debt there would be no option to the Adjudicating Authority (NCLT) but to admit the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).

Going by the scheme of IBC and the legislative intent, the Court observed that the Adjudicating Authority (NCLT) would have to exercise its discretion to admit an application under Section 7 of the IBC of the IBC and initiate CIRP on satisfaction of the existence of a financial debt and default on the part of the Corporate Debtor in payment of the debt, unless there are good reasons not to admit the petition.

However, even though Section 7 (5)(a) of the IBC may confer discretionary power on the Adjudicating Authority, such discretionary power cannot be exercised arbitrarily or capriciously. If the facts and circumstances warrant exercise of discretion in a particular manner, discretion would have to be exercised in that manner.

“The object of the IBC is to first try and revive the company and not to spell its death knell. This objective cannot be lost sight of, when exercising powers under Section 7 of the IBC or interpreting the said Section.”

Stating that the Adjudicating Authority (NCLT) has to consider the grounds made out by the Corporate Debtor against admission, on its own merits, the Court explained by way of the following illustration,

“When admission is opposed on the ground of existence of an award or a decree in favour of the Corporate Debtor, and the Awarded/decretal amount exceeds the amount of the debt, the Adjudicating Authority would have to exercise its discretion under Section 7(5)(a) of the IBC to keep the admission of the application of the Financial Creditor in abeyance, unless there is good reason not to do so. The Adjudicating Authority may, for example, admit the application of the Financial Creditor, notwithstanding any award or decree, if the Award/Decretal amount is incapable of realisation.”

Facts of the case

In the case at hand, the Appellant, a Power Generating Company, was awarded the contract for implementation of a Group Power Project (GPP) by the Maharashtra Industrial Development Corporation (MIDC). The GPP was later converted into an Independent Power Project (IPP). When the appellant was disallowed the actual fuel cost for the Financial Years 2014-2015 and 2015-2016 by the Maharashtra Electricity Regulatory Commission (MERC), it approached the Appellate Tribunal for Electricity (APTEL), challenging the same.

APTEL allowed the appeal and directed MERC to allow the Appellant the actual cost of coal purchased for Unit-1, capped to the fuel cost for Unit 2 in terms of the FSA that had been executed, till such time as a FSA was executed in respect of Unit 1. The Appellant claims that a sum of Rs.1,730 Crores is due to the Appellant in terms of the said order of APTEL.

NCLT simply brushed aside the case of the Appellant that an amount of Rs.1,730 Crores was realizable by the Appellant in terms of the order passed by APTEL in favour of the Appellant, with the cursory observation that disputes if any between the Appellant and the recipient of electricity or between the Appellant and the Electricity Regulatory Commission were inconsequential.

Referring to the judgment in Swiss Ribbons v. Union of Indian, (2019) 4 SCC 17, the NCLT held that the imperativeness of timely resolution of a Corporate Debtor, who was in the red, indicated that no other extraneous matter should come in the way of expeditiously deciding a petition under Section 7 or under Section 9 of the IBC. NCLAT affirmed the NCLT’s finding while observing that NCLT was only required to see whether there had been a debt and the Corporate Debtor had defaulted in making repayment of the debt, and that these two aspects, if satisfied, would trigger the CIRP.

Ruling

The Court observed There can be no doubt that a Corporate Debtor who is in the red should be resolved expeditiously, following the timelines in the IBC. No extraneous matter should come in the way. However, the viability and overall financial health of the Corporate Debtor are not extraneous matters.

On NCLT’s finding that the dispute of the Corporate Debtor with the Electricity Regulator or the recipient of electricity would be extraneous to the matters involved in the petition, the Court observed that while the disputes with the Electricity Regulator or the Recipient of Electricity may not be of much relevance, an award of the APTEL in favour of the Corporate Debtor, cannot be completely be disregarded by the NCLT, when it is claimed that, in terms of the Award, a sum of Rs.1,730 crores, that is, an amount far exceeding the claim of the Financial Creditor, is realisable by the Corporate Debtor.

Further, the Court was of the opinion that NCLAT erred in holding that NCLT was only required to see whether there had been a debt and the Corporate Debtor had defaulted in making repayment of the debt, and that these two aspects, if satisfied, would trigger the CIRP.

“The existence of a financial debt and default in payment thereof only gave the financial creditor the right to apply for initiation of CIRP. The Adjudicating Authority (NCLT) was require to apply its mind to relevant factors including the feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, the impact of MERC’s appeal, pending in this Court, order of APTEL referred to above and the over all financial health and viability of the Corporate Debtor under its existing management.”

The Court, hence, set aside the NCLAT and NCLT orders and directed NCLT to re-consider the application of the Appellant for stay of further proceedings on merits in accordance with law.

[Vidarbha Industries Power Ltd v. Axis Bank Ltd.,2022 SCC OnLine SC 841, decided on 12.07.2022]


*Judgment by: Justice Indira Banerjee


Counsels

For Financial Creditor: Senior Advocate Dhruv Mehta

For Appellant: Senior Advocate Jaideep Gupta

Financial Creditor
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, New Delhi: In a case where a Resolution Professional (RP) had submitted a report even prior to the order by the Adjudicating Authority that had appointed him, the bench of of H. V. Subba Rao, Judicial Member and Chandra Bhan Singh, Technical Member, has asked him to submit a fresh report.

The petition was filed by Bank of Baroda for initiation of Insolvency Resolution Process under Section 95(1) of Insolvency and Bankruptcy Code, 2016. It was passed against Mr. Pawan V Kikavat, Personal Guarantor of Mahavir Roads and Infrastructure Pvt. Ltd.

The counsel for the Bank of Baroda mentioned the demand notice dated 06-11-2020 invoking the Guarantee against the Personal Guarantor. He also gave proof of delivery of the demand notice. The deed of Guarantee dated 26-04-2012 executed by Bank of Baroda was also brought to the notice of the Bench. The petitioner also suggested the name of RP, Mr. Kairav Anil Trivedi, to conduct the Insolvency Resolution Process.

The counsel for the Personal Guarantor opposed the maintainability of the Petition pointing out that the RP has already filed his report without there being any order passed by the Adjudicating Authority appointing him and directing him to do so.

The issue was whether the report filed by RP without him receiving directions can be taken on record or a separate order should be filed by RP on the directions given.

The Bench appointed Kairav Anil Trivedi to submit a fresh report after examining the petition within 10 days of the date of this order.


[Bank of Baroda Limited v Pawan V Kikavat, 20 C.P. (IB)-140(MB)/2022, decided on 29-06-2022]


Counsels:

For Petitioner: Kairav Trivedi, PCA

For Personal Guarantor: Advocate Nausher Kohli


Case BriefsSupreme Court

Supreme Court of India: The Bench of M.R. Shah and Aniruddha Bose, JJ., observed that,

“Appellate Tribunal has jurisdiction or power to condone the delay not exceeding 15 days from the completion of 30 days, the statutory period of limitation.”

Aggrieved and dissatisfied with impugned order passed by the National Company Law Appellate Tribunal by which NCLAT refused to condone delay of 44 days in preferring the appeal against the order passed by the National Company Law Tribunal rejecting the claim of the appellant. Appellant has preferred the present appeal.

Factual Background

State Bank of India (SBI) had initiated the insolvency proceedings before the NCLT under Section 7 of the Insolvency and Bankruptcy Code, 2016 against Dunar Foods Limited (Corporate Debtor) on the ground that Corporate Debtor had taken credit limits by hypothecating the commodities kept in the warehouses of the appellant.

It was stated that there was a delay of 44 days in preferring the appeal before NCLAT as the said appeal was required to be filed within a maximum period of 45 days (30 days + 15 days). However, there was a further delay of 44 days beyond a total period of 45 days.

Therefore, considering Section 61(2) of IBC which provides for powers to the Appellate Tribunal to condone delay of only 15 days which it can condone over the period of 30 days, if there is a sufficient cause, by impugned order, the Appellate Tribunal dismissed the appeal on the ground that the tribunal had no jurisdiction to condone the delay beyond 15 days and thereby the appeal was barred by limitation.

Analysis, Law and Decision

Bench noted that the appellant had applied for the certified copy of the order passed by the adjudicating authority after a delay of 34 days. Hence the said copy of the order was applied beyond the prescribed period of limitation i.e. beyond 30 days.

As the Appellate Tribunal can condone the delay up to a period of 15 days only, the Appellate Tribunal refused to condone the delay which was beyond 15 days from completion of 30 days, i.e., in the present case delay of 44 days and consequently dismissed the appeal.

 Hence, the appellate tribunal did not commit any error.

Further, the Court stated that in a case there may arise a situation where the applicant may not be in a position to file the appeal within a statutory period of limitation and even within the extended maximum period of appeal which could be condoned owing to genuineness, viz., illness, accident, etc. However, Parliament has not carved any exception of such a situation.

“…courts have no jurisdiction and/or authority to carve out any exception. If the courts carve out an exception, it would amount to legislate which would in turn might be inserting the provision to the statute, which is not permissible.”

In the decision of Popat Bahiru Govardhane v.  Special Land Acquisition Officer, (2013) 10 SCC 765, this Court has observed and held that it is a settled legal position that the law of limitation may harshly affect a particular party but it has to be applied with all its rigour when the Statute so prescribes.

Further, in the decision of this Court in Oil & Natural Gas Corporation Limited v. Gujarat Energy Transmission Corporation Limited, (2017) 5 SCC 42, the question was with respect to delay beyond 120 days in preferring the appeal under Section 125 of the Electricity Act and the question arose whether the delay beyond 120 days in preferring the appeal is condonable or not. After considering various earlier decisions of this Court on the point and considering the language used in Section 125 [2] of the Electricity Act which provided that delay beyond 120 days is not condonable, this Court has observed and held that it is not condonable and it cannot be condoned, even taking recourse to Article 142 of the Constitution.

Hence, Supreme Court held that delay beyond 15 days in preferring the appeal is uncondonable, the same cannot be condoned even in exercise of powers under Article 142 of the Constitution.

Conclusion 

“…considering the fact that even the certified copy of the order passed by the adjudicating authority was applied beyond the period of 30 days and as observed hereinabove there was a delay of 44 days in preferring the appeal which was beyond the period of 15 days which maximum could have been condoned and in view of specific statutory provision contained in Section 61(2) of the IB Code, it cannot be said that the NCLAT has committed any error in dismissing the appeal on the ground of limitation by observing that it has no jurisdiction and/or power to condone the delay exceeding 15 days.”

In view of the above discussion, the appeal failed and was dismissed. [National Spot Exchange Ltd. v. Anil Kohli, 2021 SCC OnLine SC 716, decided on 14-09-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Coram of Justice Jarat Kumar Jain, Judicial Member and Ashok Kumar Mishra, Technical Member, dismissed an appeal on no finding any infirmity in the impugned order. However, requested the adjudicating authority to consider the application before approving any Resolution Plan.

In the instant matter an impugned order of the National Company Law Tribunal, Guwahati was challenged on the ground that the Resolution Plan was accepted by 91.84% of the members of the ‘Committee of Creditors’ (CoC) but the approval for the same is pending before the Adjudicating Authority.

The Adjudicating Authority was of the opinion,

“…we are of the considered view that the Suspended Management of the Corporate Debtor (CD) be given a chance to submit Resolution Plan as prayed for. And go by the set precedents the pleadings of the Suspended Management to give him a chance for submitting a Resolution Plan, after the final judgment, being as an MSME Unit is reasonable”.

The Adjudicating Authority had also raised an issue of how the ‘Financial Creditor’ claimed 43 times of the amount of loan disbursed 21 years back when the Financial Creditor was under RBI Regulations, and the issue that the guarantee was invoked by the original lenders – IBBI for an amount of Rs.5,42,94,868, which was 24 times of the claimed amount in 18 years.

While referring to the judgments cited by the Appellants, the Tribunal stated that the applicability of the same was under dark as the Adjudicating Authority had only permitted for giving an opportunity to MSME to submit a concrete, composite, feasible and a viable resolution plan, and no other one was allowed to submit any plan other than the Resolution plan already submitted by the Resolution Applicant.

The Tribunal further noted,

“…there is no harm in giving an opportunity to the MSME in accordance with the provisions of the Code for keeping the promotion of entrepreneurship alive. The Adjudicating Authority has only provided an opportunity to the MSME and has given the liberty to the CoC to negotiate with existing Resolution Applicant and MSME unit also and accept the one which is commercially viable and technically feasible”.

On not finding any infirmity in the order, the Appellate Tribunal dismissed the appeal[PLBB Products Pvt. Ltd. v. Piyush Periwal, Company Appeal (AT) (Insolvency) No. 160 of 2021, decided on 07-09-2021]


Agatha Shukla, Editorial Assistant has reported this brief.


For the Appellant :

Mr Abhijeet Sinha, Mr Lzafeer Ahmad BF and Mr Aditya Shukla, Advocates.

For the Respondents :

Mr Jishnu Saha, Sr. Advocate with Mr Abhijit Sarkar, Advocates for Respondent No. 1.

Mr Sidhartha Barua and Mr Praful Jindal, Advocates for Respondent No. 2.

Mr Anand Verma and Mr Abhishek Prasad, Advocates for Respondent No. 3.

CBDT
Legislation UpdatesRules & Regulations

On August 18, 2021, the Central Board of Direct Taxes (CBDT) has issued the Income-tax (24th Amendment) Rules, 2021 to further amend the Income-tax Rules, 1962.

Key highlights:

 

  • Rule 12AA, which specifies, Prescribed person has been Inserted, namely:

“12AA – For the purpose of clause (c) or clause (cd), as the case may be, of section 140, any other person shall be the person, appointed by the Adjudicating Authority for discharging the duties and functions of an interim resolution professional, a resolution professional, or a liquidator, as the case may be, under the Insolvency and Bankruptcy Code, 2016 (31 of 2016) and the rules and regulations made thereunder.

Explanation– For the purposes of this rule, “Adjudicating Authority” shall have the same meaning as assigned to it in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016).”

  • Rule 51B, which specifies, Appearance by Authorised Representative in certain cases, has been Inserted, namely:

“51B. – For the purposes of clause (viii) of sub-section (2) of section 288, any other person, in respect of a company or a limited liability partnership, as the case may be, shall be the person appointed by the Adjudicating Authority for discharging the duties and functions of an interim resolution professional, a resolution professional, or a liquidator, as the case may be, under the Insolvency and Bankruptcy Code, 2016 (31 of 2016) and the rules and regulations made thereunder.

Explanation––For the purposes of this rule “Adjudicating Authority” shall have the same meaning as assigned to it in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016).”

Case BriefsSupreme Court

Supreme Court: In the case relating to confiscation of a large quantity of yellow peas imported from China, the 3-judge bench of AM Khanwilkar, Dinesh Maheshwari* and Krishna Murai, JJ has held that the goods in question are to be held liable to absolute confiscation but with a relaxation of allowing reexport, on payment of the necessary redemption fine and subject to the importer discharging other statutory obligations. 

Noticing that the personal interests of the importers who made improper imports are pitted against the interests of national economy and more particularly, the interests of farmers, the Court said, 

“When personal business interests of importers clash with public interest, the former has to, obviously, give way to the latter.” 

Notifications at the core of the Controversy

In March, 2019, the Central Government, in exercise of its power under Section 3 of the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act) read with paragraphs 1.02 and 2.01 of the Foreign Trade Policy 2015-2020, amended the import policy conditions relating to various items of Chapter 7 of the Indian Trade Classifications (Harmonized System) 2017, Schedule I by way of S.O. Nos. 1478(E), 1479(E), 1480(E) and 1481(E) dated 29.03.2019. These were followed by the trade notice dated 16.04.2019 by the DGFT.

These notifications were earlier challenged were challenged for being in the nature of ‘quantitative restrictions’ under Section 9A of the FTDR Act, which could be only imposed by the Central Government after conducting such enquiry, as is deemed fit, and on being satisfied that the “goods are imported into India in such quantities and under such conditions as to cause or threatens to cause serious injury to domestic industry.”

However, the Supreme Court, in Union of India v. Agricas LLP, 2020 SCC OnLine SC 67, held them valid as they were issued in accordance with the power conferred in the Central Government in terms of sub-section (2) to Section 3 of the FTDR Act. It was also held that the powers of the Central Government by an order imposing restriction on imports under sub-section (2) to Section 3 is not entirely curtailed by Section 9A of the FTDR Act.

Read our detailed report on the Agricus verdict here

9A of FTDR Act does not negate Central Govt’s power to impose restrictions on imports under Section 3(2): SC

Why do the goods in question fall under the ‘prohibited goods’ category?

Sub-section (3) of Section 3 of the FTDR Act applies to the goods in question and, for having been imported under the cover of the interim orders but, contrary to the notifications and the trade notice issued 92 under the FTDR Act and without the requisite licence, these goods shall be deemed to be prohibited goods under Section 11 of the Customs Act; and all the provisions of the Customs Act shall have effect over these goods and their import accordingly.

Further, only the particular restricted quantity of the commodities covered by the said notifications could have been imported and that too, under a licence. Therefore, any import within the cap (like that of 1.5 lakh MTs) under a licence is the import of restricted goods but, every import of goods in excess of the cap so provided by the notifications, is not that of restricted goods but is clearly an import of prohibited goods.

Hence, the goods in question, having been imported in contravention of the notifications dated 29.03.2019 and trade notice dated 16.04.2019; and being of import beyond the permissible quantity and without licence, are ‘prohibited goods’ for the purpose of the Customs Act.

Why are the goods in question liable to absolute confiscation?

The true scope of Section 125 of the Customs Act, 1962 comes into picture to decide this question. The latter part of Section 125 of the Customs Act obligates the release of confiscated goods (i.e., other than prohibited goods) against redemption fine but, the earlier part of this provision makes no such compulsion as regards the prohibited goods; and it is left to the discretion of the Adjudicating Authority that it may give an option for payment of fine in lieu of confiscation. It is innate in this provision that if the Adjudicating Authority does not choose to give such an option, the result would be of absolute confiscation.

In the case at hand, the Adjudicating Authority had given such an option of payment of fine in lieu of confiscation with imposition of penalty whereas the Appellate Authority has found faults in such exercise of discretion and has ordered absolute confiscation with enhancement of the amount of penalty.

However, an authority acting under the Customs Act, when exercising discretion conferred by Section 125 thereof, has to ensure that such exercise is in furtherance of accomplishment of the purpose underlying conferment of such power. The purpose behind leaving such discretion with the Adjudicating Authority in relation to prohibited goods is, obviously, to ensure that all the pros and cons shall be weighed before taking a final decision for release or absolute confiscation of goods.

“It is true that, ordinarily, when a statutory authority is invested with discretion, the same deserves to be left for exercise by that authority but the significant factors in the present case are that the Adjudicating Authority had exercised the discretion in a particular manner without regard to the other alternative available; and the Appellate Authority has found such exercise of discretion by the Adjudicating Authority wholly unjustified.”

In the present case, it was evident that the Adjudicating Authority’s orders were not passed in a proper exercise of discretion. The Adjudicating Authority did not even pause to consider if the other alternative of absolute confiscation was available to it in its discretion as per the first part of Section 125(1) of the Customs Act and proceeded as if it has to give the option of payment of fine in lieu of confiscation.

“Such exercise of discretion by the Adjudicating Authority was more of assumptive and ritualistic nature rather than of a conscious as also cautious adherence to the applicable principles. The Appellate Authority, on the other hand, has stated various reasons as to why the option of absolute confiscation was the only proper exercise of discretion in the present matter.”

Importer’s personal interest versus National Interest

Clearly, in the present case, the personal interests of the importers who made improper imports were pitted against the interests of national economy and more particularly, the interests of farmers. Hence, this factor alone was sufficient to find the direction in which discretion ought to be exercised in these matters.

Hence, the discretion in the cases of present nature, involving far-reaching impact on national economy, cannot be exercised only with reference to the hardship suggested by the importers, who had made such improper imports only for personal gains.

“The imports in question suffer from the vices of breach of law as also lack of bona fide and the only proper exercise of discretion would be of absolute confiscation and ensuring that these tainted goods do not enter Indian markets. Imposition of penalty on such importers; and rather heavier penalty on those who have been able to get some part of goods released is, obviously, warranted.”

The Court, hence, said that

Directions

  • The subject goods are held liable to absolute confiscation but, in continuity with the order dated 18.03.2021 in these appeals, it is provided that if the importer concerned opts for re-export, within another period of two weeks from today, such a prayer for reexport may be granted by the authorities after recovery of the necessary redemption fine and subject to the importer discharging other statutory obligations. If no such option is exercised within two weeks from the date of the order, the goods shall stand confiscated absolutely.
  • The respondent-importers shall pay costs of this litigation to the appellants, quantified at Rs. 2,00,000/- (Rupees two lakhs) each.

“The respondent-importers being responsible for the improper imports as also for the present litigation, apart from other consequences, also deserve to be saddled with heavier costs.”

[Union of India v. Raj Grow Impex LLP,  2021 SCC OnLine SC 429, decided on 17.06.2021]


*Judgment by: Justice Dinesh Maheshwari 

Know Thy Judge | Justice Dinesh Maheshwari

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal– A Coram of Bansi Lal Bhatt, J. (Acting Chairperson) and Dr Ashok Kumar Mishra (Technical Member) ordered for initiation for liquidation of the Corporate Debtor, while setting aside the impugned order passed by the Adjudicating Authority. Further held, “…that neither the Adjudicating Authority nor the Appellate Authority is supposed to look into the commercial wisdom of ‘Committee of Creditors’ (CoC)…”.

To state the facts briefly, an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) was filed by SREI Infrastructure Finance Limited (also the financial creditor), and the Adjudicating Authority had accepted the petition in respect of the Corporate Debtor (M/s. K.S Oils Ltd.)  and ordered for Corporate Insolvency Resolution Process (‘CIRP’). Since the maximum statutory period of 270 days concluded without a Resolution Plan approved by CoC, the Resolution Professional (RP), the appellant, filed an Intervention Application to consider passing of orders for liquidation of the Corporate Debtor under Chapter –III of the Code. However, the Adjudicating Authority asked the RP to consider subsequent addendums which were rejected by the CoC repetitively. State Bank of India, one of the CoC members filed an appeal before the Appellate Tribunal on the ground that Adjudicating Authority has not adhered to the timelines of CIRP and has not passed liquidation order even after completion of maximum period allowed under CIRP requiring Adjudicating Authority under Part-III of the Code for initiation of Liquidation. Therefore, even after the lapse of 981 days and repeated compliance by the RP of the direction of the Adjudicating Authority, no initiation of liquidation was considered.

The Coram was of the opinion, “…No doubt, reorganisation and Insolvency Resolution is the prime purpose of the Act but with a rider in a time bound manner as well as maximization of the value of assets of such Corporate Debtor. This also suggests that the need for giving multiple opportunities to the sole Resolution Applicant is not warranted to defeat the very purpose of the Act…”. Also, “…It is unfortunate to observe that even after the lapse of 981 days and repeated compliance by the RP of the direction of the Adjudicating Authority; the Adjudicating Authority has not yet considered initiation of Liquidation as per Section 33 / Chapter –III of the Code…”. While rejecting the Intervention application, it was of the opinion that accepting it , “will violate the principles of natural justice as the Code and the Regulator IBBI has prescribed a process for selection of Resolution Applicant which initially starts with Invitation for Expression of Interest (EOI) followed by Information Memorandum, Evaluation Matrix and a request for Resolution Plan in accordance with Chapter –X of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016”. Further made it abundantly clear that, “time is the essence of the Code. The Adjudicating Authority naturally, is to keep this factor in mind”.

 Further held that, “we are no way inclined to allow the Intervention Application and accordingly, the Intervention Application is rejected at the very threshold”. Due regards were even given to the fact that the global pandemic could have acted as a possible hindrance but allowing repeated reference of Resolution Applicant for the consideration when CoC kept rejecting the variants.   And thus initiated the processing for liquidation, and appointed the appellant, Insolvency Professional as the liquidator.[Kuldeep Verma v. State Bank of India, 2021 SCC OnLine NCLAT 36, decided on 16-03-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Appellate Tribunal for SAFEMA, FEMA, PMLA, NDPS & PBPT Act: Justice Manmohan Singh (Chairman), dismissed an appeal filed by a company challenging a show-cause notice for retention of its property, on the ground that no hardship was caused to the appellant-company by the impugned notice.

In the present case, FIR was registered by CBI against Videocon International Electronics Limited under Sections 120-B and 420 of Penal Code, 1860 and Sections 7 and 13(2) of Prevention of Corruption Act, 1988. It is pertinent to note that appellant’s name was not mentioned in the said FIR. An Enforcement Case Information Report (ECIR) was recorded, but appellant was not even supplied a copy of that report. Search was conducted by Enforcement Directorate (ED) at the appellant’s offices and various documents were seized without even mentioning what those files pertained to. An application was filed by the ED under Section 17(4) of the Prevention of Money Laundering Act, 2002 seeking retention of the seized property. The said application was allowed by the Adjudicating Authority, and appellant was served a show-cause notice under Section 8(1) PMLA seeking his reply as to sources of procurement of property seized. Aggrieved by the said order, the instant appeal was filed.

Learned counsels Vinit Virmani and  R.K. Gosain appearing on behalf of the appellant, submitted that the impugned notice was issued on the basis of reason to believe and there was non-application of mind because the Authority did not even peruse the report of records seized. Further, the details of seizure documents were not in the manner prescribed. Since a proper list of documents had not been supplied to the appellant, it was not even aware of the contents of seized documents. It was further contended that the name of the appellant was not even mentioned in the FIR. Lastly, the seizure memo prepared was contrary to Rule 3(3)(A) of PMLA (Restoration of Property) Rules read with Rule 5 of PMLA (Forms, Search & Seizure, Etc.) Rules, 2005.

Counsels for the respondent, Nitesh Rana and A.R. Aditya, submitted that the appeal filed was not maintainable. They argued that before issuing the notice, if there are certain mistakes and defects or omissions, the notice already issued cannot be declared invalid at this stage, under Section 68 of PMLA. It was contended that the Adjudicating Authority did not pass an order, but had merely issued a show-cause notice. An appeal can be filed under Section 26(1) PMLA before this Tribunal only against an order of the Adjudicating Authority which has been passed under Section 8(4) of PMLA. Further, if an appeal is allowed against every procedural act of the Adjudicating Authority, as is the case of appellant, it would lead to multiplicity of proceedings. Respondent’s counsels admitted that a thirty-day notice, as mandated under Section 8 PMLA, was not given prior to issuance of show-cause notice. But he submitted that it was a curable defect under Section 68 PMLA, and that appellant could still be given 30 days to file a reply to the notice.

The Tribunal placed reliance on Farida Begum Biswas v. UOI, 2015 SCC OnLine Del 11834 where it was held that “Any person aggrieved by an order made by the Adjudicating Authority under Section 8 of PMLA can avail the remedy of appeal under Section 26 of PMLA to the Appellate Tribunal” It was opined that an appeal under Section 26 PMLA may or may not be maintainable. An appeal before PMLA may be maintainable in exceptional circumstances such as great hardship being caused to a party, abuse of the law, injustice, irreparable loss and great prejudice to party concerned. Thus, maintainability as an issue could only be decided on the facts and circumstances of each case.

It was noted that in the present case, the respondent had merely seized two files containing papers, and the appellants were entitled to receive copies of the same under Section 21(2) PMLA at the appropriate time. Therefore, no hardship was being caused to the appellant if the objections raised by it would be decided by the Adjudicating Authority within a time-bound manner. Moreover, appellant always had the remedy to challenge the Authority’s order in appeal after the retention order under Section 17(4) PMLA is passed.

In view of the above, the present appeal was dismissed.[Pacific Capital Services (P) Ltd v. Deputy Director, Directorate of Enforcement, Mumbai, 2019 SCC OnLine ATPMLA 26, decided on 30-05-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Service Tax Appellate Tribunal (CESTAT): This appeal was filed by Revenue before a Coram of Madhu Mohan Damodhar (Technical Member) and P. Dinesha (Judicial Member) being aggrieved by the impugned order where appeal of assessee was allowed on the ground that unwarranted removal were based on the recorded statements with no corroborative evidence.

Facts leading to the dispute were that assessee was found to have maintained two invoices of same number with different dates and different value but accounting only one of the two. Ms T. Usha Devi, learned Deputy Commissioner on behalf of the Revenue, contended that the assessee had maintained duplicate invoices which on being contested was not rebutted and can be considered as sufficient proof that there was unwarranted activity. Whereas Mr M.A. Mudimannan, learned counsel appearing for the assessee, supported the findings of the Commissioner made in the appeal.

Tribunal was of the view that the duplicate invoices caused difference between physical production quantity in the stock register and that in respect of only the duplicate invoices the unwarranted removal will have to sustain. The adjudicating authority was directed to re-work the demand which was based on duplicate invoice. Therefore, this appeal was partly allowed and partly remanded. [CCE v. A.R. Metallurgicals (P) Ltd., 2019 SCC OnLine CESTAT 81, Order dated 01-05-2019]

Case BriefsHigh Courts

Calcutta High Court: Debangsu Basak, J., dismissed a petition filed by State Fisheries Development Corporation relating to a land dispute with the State.

The petitioner was a Government of W.B. undertaking engaged in the business of pisciculture. It obtained land from the District Administration. According to the petitioner, the State was now wrongfully seeking to resume possession of land. It was stated that the State was not entitled to do so in view of Section 8 of the W.B. Inland Fisheries Act, 1984. However, the District Magistrate initiated proceedings for eviction of the petitioner. The petitioner filed a writ petition that resulted in requiring the DM to give fresh hearing to the petitioners. Accordingly, the DM heard the parties afresh. The petitioner was represented before the DM. A prayer for adjournment was made which was rejected. Thereafter, the DM ordered the eviction of the petitioner.

 Shanti Das, Advocate for the petitioner submitted that the said rejection resulted in the violation of principles of natural justice and therefore the order of the DM was not sustainable. Per contra, Sakya Sen, Advocate appearing for the respondent supported the eviction order passed by the DM.

Having regard to the rival submissions, the Court found that the State required the subject land for the purpose of eco-tourism project. It was noted that the petitioner was afforded a reasonable opportunity of hearing. Holding that there was no infirmity in rejection of the prayer, the Court observed, “An adjudicating authority is entitled to reject adjudicating authority did not allow the petitioners’ prayer for adjournment. There is no infirmity in the rejection of such prayer. Merely, because the adjudicating authority rejected a prayer for adjournment ipso facto does not mean that, the proceeding stands vitiated by breach of principles of natural justice. The petitioner was afforded a reasonable opportunity of hearing. The petitioner did not avail of the same. That does not tantamount to the adjudicating authority acting in breach of the principles of natural justice warranting intervention by the Writ Court.” Finding no reason to interfere in the decision of the DM, the Court dismissed the present petition. [State Fisheries Development Corpn. Ltd. v. DM, Purba Medinipur, 2019 SCC OnLine Cal 295, dated 01-03-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Appellate Tribunal for Prevention of Money Laundering Act: The Bench of Manmohan Singh, J. and G.C. Mishra (Member) allowed an appeal filed against the order of Adjudicating Authority directing freezing of accounts.

Respondent herein had filed an application under Section 17(4) of the Prevention of Money Laundering Act, 2002 for extending the debit freeze on 49 accounts which were involved in money laundering in order to locate proceed of crime for the purpose of further investigation. The said application was rejected holding that the same was beyond the scope of Sections 17(1-A) and 17(4) of PMLA.

Section 17(1-A) of the Act states that “where it is not practicable to seize such record or property, the authorized officer may make an order to freeze such property whereupon the property shall not be transferred or otherwise dealt with, except with the prior permission of the officer”. It is well settled that if the statute requires a thing to be done in a particular manner, it must be in that manner otherwise the action is vitiated. On realizing its mistake about freezing, the Adjudicating Authority directed respondent to file a fresh application, and in that application, it passed a fresh order directing freezing of accounts. The present appeal has been filed against this fresh order of the Adjudicating Authority under Section 26 of PMLA.

The Tribunal opined that the Adjudicating Authority had exceeded its jurisdiction in directing the respondent to file a fresh application. Such jurisdiction was not within its domain as the previous application of respondent was decided on merits.  It was concluded that the second application filed by the respondent was not maintainable on the basis of the same material. In view thereof, the impugned order was held to be not sustainable in law and the same was set-aside.[Abhishek Paddar Haripoddar v. Deputy Director, Directorate of Enforcement, Patna, FPA-PMLA-2323/PTN/2018, decided on 01-02-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Bench of Justice S.J. Mukhopadhaya, Chairperson and Justice Bansi Lal Bhat, Member (Judicial) directed the National Company Law Tribunal (Ahmedabad) to pass appropriate order on application filed by Financial Creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016 without adjourning the matter further.

The present appeal was preferred by Corporate Debtor against an order of NCLT whereby it had adjourned the matter giving time to Financial Creditor for submitting clarifications/removal of defects. Pratik Tripathi, Company Secretary appearing for Corporate Debtor submitted that the matter was pending for one year and NCLT had not passed any order either admitting or rejecting the application filed under Section 7.

The Appellate Tribunal noted that the matter in issue was already settled in Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 which made clear that NCLT is not required to decide mismatch of ‘debt’ and it cannot be a ground reject the claim if the amount due is more than Rs 1 lakh and there is a ‘default’. The Appellate Tribunal did not see any reason as to why NCLT kept adjourning the case which was pending for admission since 2017. It was categorically observed,

“The Insolvency Code provides a specific time frame to complete the process and the Adjudicating Authority should take it seriously and cannot adjourn the matter on one or the other ground…”

In such view of the matter, the appeal was disposed of by directing NCLT decide the pending application on merits on the next date without adjourning the matter. [Dhar Textile Mills Ltd. v. Asset Reconstruction Co. (India) Ltd., 2019 SCC OnLine NCLAT 3, Order dated 07-01-2019]