Case BriefsSupreme Court

Supreme Court: In a long awaited verdict in the Tata-Mistry Row, the 3-judge bench of SA Bobde, CJ and AS Bopanna and V. Ramasubramanian, JJ has upheld the removal of Cyrus Mistry as Chairman by the Tata Sons and has also answered all questions in favour of Tata Sons. The Court said that NCLAT has, by reinstating Mistry without any pleading or prayer, has forced upon the appellant an Executive Chairman, who now is unable to support his own reinstatement.” 

The Court said,

“The relief of reinstatement granted by the Tribunal, was too big a pill even for the complainant companies, and perhaps Cyrus Mistry, to swallow.”

The dispute

From 25.06.1980 to 15.12.2004 Shri Pallonji S. Mistry, the father of Cyrus Pallonji Mistry was a Non-Executive Director on the Board of Tata Sons. On 10.08.2006 Cyrus Mistry was appointed as a Non¬Executive Director on the Board and by a Resolution of the Board of Directors of Tata Sons dated 16.03.2012, Mistry was appointed as Executive Deputy Chairman for a period of five years from 01.04.2012 to 31.03.2017, subject however to the approval of the shareholders at a General Meeting.

He was then redesignated as the Executive Chairman with effect from 29.12.2012, even while designating Ratan Tata as Chairman Emeritus.

On 24.10.2016, the Board of Directors of Tata Sons replaced Mistry with Ratan Tata as the interim NonExecutive Chairman. It is relevant to note that Mistry was replaced only from the post of Executive Chairman and it was left to his choice to continue or not, as Non¬Executive Director of Tata Sons.

As a follow up, certain things happened and by separate Resolutions passed at the meetings of the shareholders of Tata Industries Limited, Tata Consultancy Service  Limited and  Tata Teleservices Limited, Mistry was removed from Directorship of those companies.

Mistry then resigned from the Directorship of a few other operating companies such as the Indian Hotels Company Limited, Tata Steel Limited, Tata Motors Limited, Tata Chemicals Limited and Tata Power Company Limited, after coming to know of the impending resolutions to remove him from Directorship.

Thereafter, 2 companies by name, Cyrus Investments Private Limited and Sterling Investment Corporation Private Limited, in which CPM holds a controlling interest, filed a company petition before the National Company Law Tribunal under Sections 241 and 242 read with 244 of the Companies Act, 2013, on the grounds of unfair prejudice, oppression and mismanagement.

NCLT on Mistry’s removal

  • The removal of CPM as Executive Chairman of Tata Sons on 24.10.2016 and his removal as   Director on 06.02.2017, were on account of trust deficit and there was no question of a Selection Committee going into the issue of his removal. n
  • There was no material to hold that CPM was removed on account of purported legacy issues. CPM created a situation where he is not accountable either to the majority shareholders or to the Trust nominee Directors and hence his removal.
  • The letter dated 25.10.2016 issued by CPM could not have been leaked to the media by anyone other than CPM and hence his removal from Directorship on 06.02.2017 became inevitable.

NCLAT on Mistry’s removal

  • Ratan Tata was determined to remove Mistry even prior to the meeting of the board and the majority shareholders of Tata Trust knew that there was a requirement of advance notice before the removal.
  • There is nothing on the record to suggest that the Board of Directors or any of the trusts, namely— Sir Dorabji Tata Trust or the Sir Ratan Tata Trust at any time expressed displeasure about the performance of Mistry.
  • The record suggests that the removal of CPM had nothing to do with any lack of performance. On the other hand, the material on record shows that the Company under the leadership of Mistry performed well which was praised by the ‘Nomination and Remuneration Committee’ a Statutory Committee under Section 178, on 28th June, 2016 i.e. just few months before he was removed.

Supreme Court on NCLT and NCLAT’s approach

NCLT dealt with every one of the allegations of oppression and mismanagement and recorded reasoned findings. But NCLAT, despite being a final court of facts, did not deal with the allegations one by one nor did the NCLAT render any opinion on the correctness or otherwise of 64 the findings recorded by NCLT. Instead, the NCLAT summarised in one paragraph, its conclusion on some of the allegations, without any kind of reasoning.

“The allegations relating to (i) over priced and bleeding Corus acquisition (ii) doomed Nano car project (iii) undue favours to Siva and Sterling (iv) loan by Kalimati to Siva (v) sale of flat to Mehli Mistry (vi) the unjust enrichment of the companies controlled by Mehli Mistry (vii) the Aviation industry misadventures (viii) losses due to purchase of the shares of Tata Motors etc., were not individually dealt with by NCLAT, though NCLT had addressed each one of these issues and recorded findings in favour of Tata Sons. Therefore, there is no escape from the conclusion that NCLAT did  not expressly overturn the findings of facts recorded by NCLT, on these  allegations.”

Supreme Court on NCLAT’s decision to reinstate Mistry

Sections 241 and 242 of the Companies Act, 2013 do not specifically confer the power of reinstatement, nor is there any scope for holding that such a power to reinstate can be implied or inferred from any of the powers specifically conferred.

The following words at the end of sub¬section (1) of 242 “the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit” cannot be interpreted a conferring on the Tribunal any implied power of directing reinstatement of a director or other officer of the company who has been removed from such office.

“These words can only be interpreted to mean as conferring the power to make such order as the Tribunal thinks fit, where the power to make such an order is not specifically conferred but is found necessary to remove any doubts and give effect to an order for which the power is specifically conferred.”

Hence, the architecture of Sections 241 and 242 does not permit the Tribunal to read into the Sections, a power to make an order (for reinstatement) which is barred by law vide Section 14 of the Specific Relief Act, 1963 with or without the amendment in 2018.

Further, NCLAT appears to have granted the relief of reinstatement gratis without any foundation in pleadings, without any prayer and without any basis in law, thereby forcing upon the appellant an Executive Chairman, who now is unable to support his own reinstatement.

Not just this, but NCLAT has gone to the extent of reinstating Mistry not only on the Board of Tata Sons, but also on the Board of Tata group companies, without they being parties, without there being any complaint against those companies under section 241 and without there being any prayer against them. These companies have followed the procedure prescribed by Statute and the Articles and they have validly passed resolutions for his removal.

For instance, TCS granted an opportunity to CPM and held a general meeting in which 93.11% of the shareholders, including public institutions who hold 57.46% of shares supported the resolution. In any case CPM’s tenure itself was to come to an end on 16.06.2017 but NCLAT passed the impugned order reinstating him “for the rest of the tenure”.

“Now by virtue of the impugned order, CPM will have to be reinstated even on the Board of companies from which he has resigned. This is why even the complainant companies have found it extremely difficult to support the order.”

Interestingly, one of the grounds of challenge to the order of NCLAT, raised by SP group in their appeal is that the Tribunal ought not to have granted the relief of reinstatement. Mistry has himself stated clearly that he had no intent to once again taken charge of Executive Chairman and Director of the Tata Group companies.

[Tata Consultancy Services Ltd. v. Cyrus Investments Private Ltd., 2021 SCC OnLine SC 272, decided on 26.03.2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A Coram of Justice Jarat Kumar Jain (Judicial Member) and Kanthi Narahari (Technical Member) accepted an appeal holding the impugned order, modifying the date of appointment, to be unwarranted.

In the present appeal, the appellant under Sections 230 to 232 of the Companies Act, 2013 submitted a scheme for amalgamation of the Transferor Company (Accelyst Solutions Pvt Ltd) into Transferee Company (Payment Technologies Pvt. Ltd.). NCLT, Delhi, even approved the scheme of amalgamation and the appointed date 07.10.2017. However, NCLT, Mumbai, modified the appointed date from 07.10.2017 to 01.04.2018, on the ground that considerable time has lapsed from the appointed date as mentioned in scheme with varying Board Resolution of the Scheme dated 27.03.2018 and Valuation Report dated 22.03.2018.

The counsel for the appellant submitted that NCLT, Mumbai while modifying the appointed date has not assigned any reason for modification and has failed to consider the fact that it had already been approved and therefore, condone the delay and extend the time for compliance.

 Reliance was placed on Miheer H. Mafatlal v. Mafatlal Industries Ltd. (1997) 1 SCC 579 which was later approved in Hindustan Lever v. State of Maharashtra, (2004) 9 SCC 438. Even the Court considered it useful to refer to the same. The following paragraphs were quoted while placing heavy consideration:

“…11. While exercising its power in sanctioning a scheme of arrangement, the Court has to examine as to whether the provisions of the statute have been complied with. Once the Court finds that the parameters set out in Section 394 of the Companies Act have been met then the Court would have no further jurisdiction to sit in appeal over the commercial wisdom of the class of persons who with their eyes open give their approval, even if, in the view of the Court better scheme could have been framed…” The subsequent paragraphs laid down the broad contours of the jurisdiction of the company court in granting sanction to the scheme. Further quoted, “…the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed…”.

Therefore, considering the facts, it was clear that the appellant fulfilled all the requisite statutory compliances. The impugned order so far as the modification of appointed date was concerned was set aside, and the date which was approved by the shareholder of the appellant company was fixed.[Accelyst Solutions Pvt Ltd v. Freecharge Payment Technologies Pvt Ltd, Company Appeal (at) No.15/2021, decided on 24-03-2021]

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 BriefsSupreme Court

Supreme Court: The 3-judge bench of AM Khanwilkar, BR Gavai and Krishna Murari has held that the commercial wisdom of Committee of Creditors (CoC) is not to be interfered with, excepting the limited scope as provided under Sections 30 and 31 of the Insolvency and Bankruptcy Code, 2016 (IBC).

Taking note of various decision of the Supreme Court, the Court held that the legislative scheme is unambiguous. The legislature has consciously not provided any ground to challenge the “commercial wisdom” of the individual financial creditors or their collective decision before the Adjudicating Authority and that the decision of CoC’s ‘commercial wisdom’ is made non-justiciable.

“… the appeal is a creature of statute and that the statute has not invested jurisdiction and authority either with NCLT or NCLAT, to review the commercial decision exercised by CoC of approving the resolution plan or rejecting the same.”

deciding key economic question in the bankruptcy process, the only one correct forum for evaluating such possibilities, and making a decision was, a creditors committee, wherein all financial creditors have votes in proportion to the magnitude of debt that they hold.

It is not open to the Adjudicating Authority or Appellate Authority to reckon any other factor other than specified in Sections 30(2)or 61(3) of IBC.

The commercial wisdom of CoC has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the IBC. The opinion expressed by CoC after due deliberations in the meetings through voting, as per voting shares, is a collective business decision.

“… the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis.”

In an enquiry under Section 31, the limited enquiry that the Adjudicating Authority is permitted is, as to whether the resolution plan provides:

(i) the payment of insolvency resolution process costs in a specified manner in priority to the repayment of other debts of the corporate debtor,

(ii) the repayment of the debts of operational creditors in prescribed manner,

(iii) the management of the affairs of the corporate debtor,

(iv) the implementation and supervision of the resolution plan,

(v) the plan does not contravene any of the provisions of the law for the time being in force,

(vi) conforms to such other requirements as may be specified by the Board.

[Kalparaj Dharamshi v. Kotak Investment Advisors Ltd, 2021 SCC OnLine SC 204, decided on 10.03.2021]

*Judgment by: Justice BR Gavai

Appearances before the Court by:

For Kalparaj: Senior Advocates Mukul Rohatgi, Dr. Abhishek Manu Singhvi and Pinaki Mishra,

For Deutsche Bank and CoC: Senior Advocate K.V. Viswanathan

For Fourth Dimension Solutions Limited: Senior Advocates C.A. Sundaram, Gopal Sankar Narayanan and P.P. Chaudary,

For RP: Senior Advocates Shyam Divan

For KIAL: Senior Advocate: Senior Advocate Neeraj Kishan Kaul

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal (NCAT): A Coram of Justice A.I.S. Cheema (Judicial member) and Dr Alok Srivastava (Technical member) dismissed an appeal on the grounds of it being repetitive.

In the instant case, the appellant was aggrieved by non-payment of his salary and illegal actions by the Resolution Professional. The appellant had approached the NCLT for addressing his grievance for payment of his salary or for the inclusion of his salary expenses as CIRP cost in the Resolution Plan. Later an appeal was filed before the NCLAT, which had directed the adjudicating authority to provide an opportunity to the Appellant before taking a decision regarding the Resolution Plan.

Now, the Appellant contended, that the impugned order, the authority did record as intervener but the grievances and detailed arguments/written-submissions advanced by the Appellant before the Adjudicating Authority were not addressed, admitted nor discussed.  Whereas the counsel for the respondent submitted that legitimate grievances of the Appellant were included in the Resolution Plan and also have been duly paid. Further, it was submitted that the present appeal was nothing but a reproduction of the claims made earlier in the appeal.

Therefore, the Coram was of the opining that, “what appears is that the Appellant is reagitating what is already recorded in the order dated 17.02.2021 and only because the liberty was given, the present Appeal is filed”. On the same ground, the appeal stood dismissed.[Sundeep Thakar v. Raj Ralhan, Company Appeal (AT) (Insolvency) No. 170 of 2021, decided on 08-03-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal- A Coram of Anant Bijay Singh, J. (Judicial Member) and Shreesha Merla (Technical Member) dismissed an appeal while affirming the impugned order where the appellant made a default in making payments.

In the present case, the Respondent was the operational creditor who sold, supplied and delivered goods to the Appellant. The goods were delivered under 12 bills for an aggregate amount of Rs. 7,15,940. The appellant paid a sum of Rs. 40,000/- through a cheque dated 16-02-2016, which was even adjusted to the running amount. The Appellant issued a cheque dated 12-01-2016 of Rs. 44,298/- which later got dishonoured for the reason “Payment stopped by drawer”. Subsequently, a demand notice was sent for the payment of the unpaid operation debt. However, there was no reply to the notice. The Appellant accepted and acknowledged the confirmation of accounts sent by the respondent. Therefore a default in cheque was realised and now the question was, what is the date of payment in the circumstances of this case for the purpose of Section 20 of the Limitation Act. Thus the provisions of Section 8 and 9 on Insolvency and Bankruptcy Code read with Rule 6 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 were invoked. Therefore, legal proceeding under Section 138 of the Negotiable Instrument Act was initiated.

On perusal of the records, it was held, that the issuance of cheque indicates acknowledgement of the debt although the cheque dishonoured for the reason “payment stopped by drawer”. It was also noted that “the respondent made part payment on 16-02-2016, after which no payment was made and cheque issue on 12-01-2016 was returned dishonoured”. Also, the cheque was well within the period of limitation, therefore period of limitation and fresh limitation is out of bound, as contended by the Appellants. Hence, on finding no infirmity with the impugned order, the appeal was dismissed.[Rajendreakumar Kudanmal Jain, In re, Company Appeal (AT) (Insolvency) No. 366 of 2020, decided on 04-03-2021]

Case BriefsHigh Courts

Delhi High Court: Prathiba M. Singh, J., addressed a concern wherein it was stated that the NCLAT and NCLT ought to have an open link where parties who are interested can join the proceedings.

The instant petition was filed to seek the provision of open or virtual links for attending hearings in the National Company Law Tribunal and National Company Law Appellate Tribunal.

High Court’s opinion on perusal of the affidavits filed on behalf of the NCLT and NCLAT was that the forums like NCLT and NCLAT, which have a high quantum of work, ought to be permitted to regulate their own procedure so long as the same is not arbitrary.

In virtual hearings, there is a possibility of enormous disturbance if there is no regulated entry.

NCLAT and NCLT submitted that whenever links are required, there are separate ‘active’ and ‘viewing’ links shared with the parties. They also added their concern that lawyers mention matters which may not have been listed on the particular date causing enormous disruption in the hearings if open links would be provided.

Hence in view of the facts and circumstances, Bench directed NCLT and NCLAT to regulate their own procedure for virtual hearing platforms so long as it is ensured that if any particular party requests for a link, the same would be considered in a fair, transparent and non-arbitrary manner.

To the extent possible, parties would be permitted to view the proceedings.

 While concluding, High Court held that since virtual hearings are a measure adopted to ensure that Tribunals and Courts are functioning during the COVID-19 pandemic, the Petitioner, if he wishes to join any particular hearing, may write an e-mail at least 24 hours in advance to the Deputy Registrar of the NCLT and NCLAT. The same shall be considered in accordance with the NCLT and NCLAT’s own procedure, in a fair, transparent and non-arbitrary manner. [Deepak Khosla v. NCLAT, 2021 SCC OnLine Del 1214, decided on 08-03-2021]

Advocates who appeared before the Court:

For the Petitioner: Deepak Khosla, Advocate

For the Respondents: Chetan Sharma, ASG with Dev P. Bhardwaj, CGSC, Amit Gupta, Vinay Yadav, Sahaj Garg, Akshay Gadeock &  R.V. Prabhat, Advocates for UOI.

Case BriefsSupreme Court

Supreme Court: The bench of Dr. DY Chandrachud* and MR Shah, JJ has held that under Insolvency and Bankruptcy Code, 2016 (IBC), NCLT has jurisdiction to adjudicate disputes which arise solely from or which relate to the insolvency of the Corporate Debtor. The Court, however, issued a note of caution to the NCLT and NCLAT to ensure that “they do not usurp the legitimate jurisdiction of other courts, tribunals and fora when the dispute is one which does not arise solely from or relate to the insolvency of the Corporate Debtor. The nexus with the insolvency of the Corporate Debtor must exist.”

Jurisdiction of the NCLT/NCLAT over contractual disputes

“NCLT owes its existence to statute. The powers and functions which it exercises are those which are conferred upon it by law, in this case, the IBC.”

The NCLT has been constituted under Section 408 of the Companies Act, 2013 ―to exercise and discharge such powers and functions as are, or may be, conferred on it by or under this Act or any other law for the time being in force.

Sub-section (1) of Section 60 provides the NCLT with territorial jurisdiction over the place where the registered office of the corporate person is located. NCLT shall be the adjudicating authority ―in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors.

The institutional framework under the IBC contemplated the establishment of a single forum to deal with matters of insolvency, which were distributed earlier across multiple fora. In the absence of a court exercising exclusive jurisdiction over matters relating to insolvency, the corporate debtor would have to file and/or defend multiple proceedings in different fora. These proceedings may cause undue delay in the insolvency resolution process due to multiple proceedings in trial courts and courts of appeal.

“A delay in completion of the insolvency proceedings would diminish the value of the debtor‘s assets and hamper the prospects of a successful reorganization or liquidation. For the success of an insolvency regime, it is necessary that insolvency proceedings are dealt with in a timely, effective and efficient manner.”

Residuary jurisdiction of the NCLT under section 60(5)(c)

The residuary jurisdiction conferred by statute may extend to matters which are not specifically enumerated under a legislation. While a residuary jurisdiction of a court confers it wide powers, its jurisdiction cannot be in contravention of the provisions of the concerned statute.

The residuary jurisdiction of the NCLT under Section 60(5)(c) of the IBC provides it a wide discretion to adjudicate questions of law or fact arising from or in relation to the insolvency resolution proceedings.

“If the jurisdiction of the NCLT were to be confined to actions prohibited by Section 14 of the IBC, there would have been no requirement for the legislature to enact Section 60(5)(c) of the IBC. Section 60(5)(c) would be rendered otiose if Section 14 is held to be the exhaustive of the grounds of judicial intervention contemplated under the IBC in matters of preserving the value of the corporate debtor and its status as a ‘going concern’. “

Ruling on facts 

In the present case, NCLT stayed the termination by the Gujarat Urja Vikas Nigam Limited of its Power Purchase Agreement (PPA) with Astonfield Solar (Gujarat) Private Limited on the ground of insolvency. The order of the NCLT was passed in applications moved by the Resolution Professional of the Corporate Debtor and Exim Bank under Section 60(5) of the Insolvency and Bankruptcy Code, 2016. On 15 October 2019, the NCLAT dismissed the appeal by Gujarat Urja Vikas Nigam Limited under Section 61 of the IBC.

The PPA was terminated solely on the ground of insolvency, since the event of default contemplated under Article 9.2.1(e) was the commencement of insolvency proceedings against the Corporate Debtor. Hence, the NCLT was empowered to restrain the appellant from terminating the PPA. In the absence of the insolvency of the Corporate Debtor, there would be no ground to terminate the PPA. The termination is not on a ground independent of the insolvency. The present dispute solely arises out of and relates to the insolvency of the Corporate Debtor.

“The PPA has been terminated solely on the ground of insolvency, which gives the NCLT jurisdiction under Section 60(5)(c) to adjudicate this matter and invalidate the termination of the PPA as it is the forum vested with the responsibility of ensuring the continuation of the insolvency resolution process, which requires preservation of the Corporate Debtor as a going concern. In view of the centrality of the PPA to the CIRP in the unique factual matrix of this case, this Court must adopt an interpretation of the NCLT‘s residuary jurisdiction which comports with the broader goals of the IBC.”

The Court further explained that the adjudication of disputes that arise dehors the insolvency of the Corporate Debtor, the RP must approach the relevant competent authority. For instance, if the dispute in the present matter related to the non-supply of electricity, the RP would not have been entitled to invoke the jurisdiction of the NCLT under the IBC. However, since the dispute in the present case has arisen solely on the ground of the insolvency of the Corporate Debtor, NCLT is empowered to adjudicate this dispute under Section 60(5)(c) of the IBC.

The Court took further care to clarify that,

“Judicial intervention should not create a fertile ground for the revival of the regime under section 22 of SICA which provided for suspension of wide-ranging contracts. Section 22 of the SICA cannot be brought in through the back door. The basis of our intervention in this case arises from the fact that if we allow the termination of the PPA which is the sole contract of the Corporate Debtor, governing the supply of electricity which it generates, it will pull the rug out from under the CIRP, making the corporate death of the Corporate Debtor a foregone conclusion.”


“NCLT‘s jurisdiction shall always be circumscribed by the supervisory role envisaged for it under the IBC, which sought to make the process driven by trained resolution professionals.”

The jurisdiction of the NCLT under Section 60(5)(c) of the IBC cannot be invoked in matters where a termination may take place on grounds unrelated to the insolvency of the corporate debtor. Even more crucially, it cannot even be invoked in the event of a legitimate termination of a contract based on an ipso facto clause, if such termination will not have the effect of making certain the death of the corporate debtor. As such, in all future cases, NCLT would have to be wary of setting aside valid contractual terminations which would merely dilute the value of the corporate debtor, and not push it to its corporate death by virtue of it being the corporate debtor‘s sole contract.

Section 60(5)(c) of the IBC vests the NCLT with wide powers since it can entertain and dispose of any question of fact or law arising out or in relation to the insolvency resolution process. However,

“NCLT‘s residuary jurisdiction, though wide, is nonetheless defined by the text of the IBC. Specifically, the NCLT cannot do what the IBC consciously did not provide it the power to do.”

The Court, however, made it clear that it’s finding on the validity of the exercise of residuary power by the NCLT is premised on the facts of the case at hand and that it was not laying down a general principle on the contours of the exercise of residuary power by the NCLT. However, it is pertinent to mention that the NCLT cannot exercise its jurisdiction over matters dehors the insolvency proceedings since such matters would fall outside the realm of IBC.

[Gujarat Urja Vikas Nigam Limited v. Amit Gupta,  2021 SCC OnLine SC 194, decided on 08.03.2021]

*Judgment by: Justice Dr. DY Chandrachud

Know Thy Judge| Justice Dr. DY Chandrachud

Appearances before the Court by”

For appellant: Senior Advocate Shyam Diwan and Advocate Ranjitha Ramachandran

For Respondent: Senior Advocate C U Singh and Nakul Dewan

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Authority Tribunal (NCLAT), New Delhi: The Bench of Justice Bansi Lal Bhatt (Acting Chairperson), Shreesha Merla (Technical member) and V.P. Singh (Technical Member) dismissed an appeal on an impugned order with a 2:1 majority judgment. It was of the opinion that it cannot be held to be an erroneous conclusion warranting interference.

In the present case, the Appellant was the auction purchaser of the property in question, owned by the Corporate Debtor, prior to initiation of CIRP against the Corporate Debtor. The Corporate Debtor had committed default in respect of financial debt, therefore, for recovery of its dues against the Corporate Debtor through sale of land, building, plant and machinery etc., Allahabad Bank in its capacity as a Financial Creditor, sold off the property under the provisions of SARFAESI Act, 2002 (“the Act, 2002”). Then the Appellant submitted the bid along with earnest money deposit of Rs.2.74 Crores for participating in e-auction. The sale had taken place before the commencement of CIRP in respect of the Corporate Debtor. It was further submitted that the Allahabad Bank which issued the notice of sale of property on ‘As is where is basis, as is what is basis, whatever there is basis’, specifically made it clear that the property was free of encumbrances other than those specifically mentioned therein. . Then the Appellant submitted the bid along with earnest money deposit of Rs.2.74 Crores for participating in the e-auction.

Now the question before the Adjudicating Authority was to determine whether the liability towards workmen and employees as also other liabilities pertaining to Corporate Debtor are payable by the purchaser of Unit No.1 or whether the same continues to be admissible against the Corporate Debtor.

The landmark judgment of “Punjab Urban Planning and Development Authority v. Raghu Nath Gupta, (2012) 8 SCC 197 was referred to, which states, “…We may reiterate that after having accepted the offer of the commercial plots in a public auction with a super imposed condition i.e. on “as is where is” basis and after having accepted the terms and conditions of the allotment letter, including installment facility for payment, respondents cannot say that they are not bound by the terms and conditions of the auction notice, as well as that of the allotment letter…”. The Bench found it an absolutely appropriate reasoning to refute the Appellant. And it further was of the opinion that, mentioning it was free from encumbrances would be inconsequential as long as the liabilities known to the Allahabad Bank and brought to the notice of auction purchaser remain undischarged.

The Bench, was thus of the opinion that, “…On perusal of the documents, it was clear that the auction purchaser was aware of all the dues outstanding against the Corporate Debtor and the terms of the sale but it proceeded to participate in the auction…”.

And that the appeal paper book brought it to the fore that all liabilities qua the assets within the knowledge of the Allahabad Bank were reiterated to be paid by the purchaser which included the demand in respect of recovery of PF Department, Income Tax dues, Employee salary dues, outstanding labour payment, retired workers dues, pending dues of Mahendra Orthopaedic Centre, claims in respect of salary under Industrial Dispute matter, claims in terms of demand notice under Section 8 of the ‘I&B Code’ and other demands with the express stipulation that all liabilities on the assets shall be paid by the Appellant. And hence the same was dismissed.


In a dissenting opinion, it was held that the Adjudicating Authority had exceeded its jurisdiction in determining third party liabilities in the process.

It further suggested that, “…Even otherwise, the property’ land, plant and machinery has been sold to the Appellant free from all encumbrances. The Appellant had acquired only Part of the property/Assets of the Corporate Debtor and not the Company itself. Therefore, the liabilities of the Company ASSIL had been wrongly fastened upon the Appellant…”

 It was also stated that “…It is also pertinent to mention that in the instant case, the entire process of auction sale was completed before the commencement of the Corporate Insolvency Process against the Corporate Debtor ASSIL. Given the law laid down by the Hon’ble Supreme Court in Embassy property (supra), it is clear that Resolution Professional cannot short-circuit the process, to bring a claim before the NCLT taking advantage of Section 60 (5) of the Code…”.

[Tarun International Ltd. v. Vikram Bajaj (RP for Anil Special Steel Industries Ltd.), Company Appeal (AT) (Insolvency) No.1194 of 2019, decided on 03-03-2021]

Hot Off The PressNews

It has been notified vide an Order dated 23-02-2021 that all NCLT Benches shall start regular Physical hearing w.e.f 01-03-2021, in case any counsel/ representative of party expresses difficulty in physical hearing, he/ she may be permitted for virtual hearing.

However, there are a few Benches that shall remain attending the matters through video conference. The list can be seen by clicking on the below link:


National Company Law Tribunal

[Order dt. 23-02-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Division Bench of Justice Bansi Lal Bhat (Acting Chairperson) and Dr Ashok Kumar Mishra (Technical Member) observed that:

“I&B Code would not permit the Adjudicating Authority to make a roving enquiry into the aspect of solvency or insolvency of the Corporate Debtor except to the extent of the Financial Creditors or the Operational Creditors, who sought triggering of Corporate Insolvency Resolution Process.”

Present appeal has been heard in ex-parte.

Bench notes that the application of appellant filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 has not been admitted or rejected by the Adjudicating Authority (NCLT, Bengaluru Bench).

Adjudicating Authority disposed of the application directing the respondent to make endeavours for resolution in respect of outstanding debt, failing which the appellant would be at liberty to invoke the arbitration clause contained in the Agreement.

The above finding of the Adjudicating Authority was found to be unique and not in conformity with the provisions embodied in Section 9 (5) of the I&B Code, hence cannot be supported.

Section 9(5) of the I&B Code, 2016:

“9(5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order—

(i) admit the application and communicate such decision to the operational creditor and the corporate debtor if,—

(a) the application made under sub-section (2) is complete;

(b) there is no repayment of the unpaid operational debt;

(c) the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor;

(d) no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and

(e) there is no disciplinary proceeding pending against any resolution professional proposed under sub-section (4), if any.

  1. ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if—

(a) the application made under sub-section (2) is incomplete;

(b) there has been repayment of the unpaid operational debt;

(c) the creditor has not delivered the invoice or notice for payment to the corporate debtor;

(d) notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or

(e) any disciplinary proceeding is pending against any proposed resolution professional:

Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the adjudicating Authority.”

The above provision abundantly makes it clear that the Adjudicating Authority has only two options, either to admit Application or to reject the same. No third option or course is postulated by law.

Appellant’s counsel invited Tribunal’s attention to the fact that the Adjudicating Authority took note of the fact that the respondent did not respond to the Demand Notice, demanding the outstanding amount in respect of the four invoices noticed in the impugned order.

Further another point was brought in from the impugned order wherein it was observed that mere acceptance of the debt in question by the Respondent would not automatically entitle the Appellant to invoke the provisions of the Code, unless the debt and default is undisputed and proved to the satisfaction of the Adjudicating Authority.

Bench in view of the above expressed that the Adjudicating Authority should have, in absence of any dispute contemplated under Section 8(2) having been raised by the Respondent as a pre-existing dispute or that the claim of Appellant had been satisfied, proceeded to admit the Application, as no dispute had been raised before it, justifying its disinclination to admit the Application.

We cannot understand as to how the availability of alternate remedy would render the debt and default disputed.

Tribunal further added to its reasoning that

In absence of pre-existing dispute having been raised by the Corporate Debtor or it being demonstrated that a suit or arbitration was pending in respect of the operational debt, in respect whereof Corporate Debtor was alleged to have committed default, the Adjudicating Authority would not be justified in drawing a conclusion in respect of there being dispute as regards debt and default merely on the strength of an Agreement relied upon by the Appellant.

Adjudicating Authority clearly landed in error by observing that the course adopted by it was warranted on the principle of ease of doing business, ignoring the fact that such course was not available to it, ease of doing business only being an objective of the legislation.

Hence, while allowing the appeal and setting aside the impugned order, Tribunal directed the Adjudicating Authority to pass an order of admission. [Sodexo India Service (P) Ltd. v. Chemizol Additives (P) Ltd., 2021 SCC OnLine NCLAT 18, decided on 22-02-2021]

Op EdsOP. ED.

In the backdrop of the pandemic, much discussion on the Insolvency and Bankruptcy Code, 2016[1] (the Code) has revolved around whether creditors should continue to have a right to commence insolvency proceedings. However, the pandemic induced lockdowns and the recession that has followed have also raised important questions pertaining to the rights of resolution applicants (RA). The scheme of the Code is such that when insolvency resolution proceedings are initiated against a corporate debtor (CD), a committee of its creditors (CoC) calls for bids from parties who may be interested in taking over or purchasing the assets or business of that company. The party whose bid is accepted is the successful RA under the Code.

Expectedly, after the pandemic, financial pressures have mounted not only on companies who have debts due to banks and other lenders, but also on such RAs. To successfully buy the assets and businesses of CDs, an RA would have to infuse sizable sums of money. Generally, this money is arranged for in two to three different ways. One source of funds is the cash in hand that the RA may have. A second is the revenues that can be generated from the business and assets of the CD. A third is fresh debt raised from the market to pay off the institutional lenders of the CD. In the present recession-hit economy, it is only natural that all these sources of funds would be under some stress. Therefore, it is likely that RAs may no longer want to purchase companies that they were interested in before the lockdown. To cut the long story short, RAs may want to withdraw from the corporate insolvency resolution process (CIRP). Pertinently though, the question of withdrawal from the CIRP is not relevant only in the context of a recession-hit economy. It is an independent question of law that needs to be answered sooner rather than later.

It is in this context that a recent decision of the National Company Law Appellate Tribunal (NCLAT) in Kundan Care Products v. Amit Gupta[2] assumes significance. The NCLAT held that a successful RA is not entitled to withdraw a resolution plan (the plan). The appellant, Kundan Care, had emerged as the successful RA in the CIRP of Astonfield Solar (Gujarat) Pvt. Ltd. (Astonfield). Although Kundan Care’s plan had been accepted by the CoC on, it was yet to be approved by the NCLT. In the meantime, Kundan Care approached the NCLT to withdraw its plan, on the grounds that the plan had been rendered commercially unviable due to delay in concluding the CIRP. The NCLT rejected this application, prompting Kundan Care to prefer an appeal.

Before the NCLAT, Kundan Care argued that the Code does not contain any provision to compel specific performance of the plan. As a corollary, an application to withdraw a plan found to be unviable had to be permitted.

The NCLAT not only declined to grant permission to withdraw, but also held that “the argument advanced on behalf of the appellant that there is no provision in the  Insolvency and Bankruptcy Code compelling specific performance of resolution plan by the successful resolution applicant has to be repelled”. The NCLAT provided four distinct reasons for the same:

 (a) First, that the Code had no specific provision permitting withdrawal of accepted plans.

(b) Second, once the plan was approved, it became a binding contract between the parties, which “is not a contract of personal service which may be legally unenforceable”.

(c) Third, the RA would be estopped from “wiggling out” of the liabilities flowing from the resolution plan.

(d) Fourth, the assets of the CD were bound to deplete during the time consumed by the CIRP process, and if this were accepted as a ground for withdrawal, every RA would “walk out with impunity”.

The overarching rationale behind the decision was that any withdrawal by the RA could bring about “disastrous consequences” for the CD, and push the CD into liquidation. The NCLAT also observed that by permitting withdrawal, it would be interfering with the commercial wisdom of the CoC. This decision was then carried in appeal before the Supreme Court, which was pleased to grant an ad interim stay on the judgment.

Necessarily, this question will now be resolved by the Supreme Court. However, there are several legal issues that subliminally undercut the decision of the NCLAT, and which we believe merit a widespread discussion..

No specific provision permitting withdrawal

 The absence of a specific provision in the Code permitting withdrawal only means that the NCLT lacks the jurisdiction to entertain an application for withdrawal. This is borne out by the decision in Educomp Solutions Ltd. v. Ebix Singapore Pte. Ltd.[3], where the NCLAT held that the adjudicating authority had no jurisdiction to entertain an application for the withdrawal of a plan after it had been approved.

However, this does not mean the withdrawal of a resolution plan is always prohibited by the Code. Let us consider a scenario, as in the present case, where the plan is yet to be approved by the NCLT. Section 31 of the Code needs the adjudicating authority to assess whether a plan may be implemented efficiently, before approving the plan. An RA who at the outset suggests that it may no longer be in a position to abide by the plan on account of a downturn in the economy or otherwise, would be a prime indicator of the fact that the plan may not be successfully implemented. In such cases, the plan ought to be rejected by the NCLT. In effect, even without considering a separate application for withdrawal, the NCLT can indirectly permit the RA to withdraw.

A separate application for withdrawal is not needed because the Code envisages liquidation as the solution in such situations. Sections 33(3) and (4) clearly stipulate that where a plan has been contravened, the adjudicating authority “shall pass a liquidation order”, upon application by an aggrieved party. Thus, instead of compelling an unwilling RA to perform a plan, the Code rightly considers liquidation as an efficacious alternative to the CIRP. Liquidation also follows when CIRP fails.

The NCLAT’s suggestion that liquidation would necessarily be a worse outcome, that has to be avoided at all costs, is not borne out by the Code. In fact, sale of assets in liquidation in a time-bound fashion may be more effective than protracted litigation to compel an RA to abide by the plan.

Resolution Plan is a binding contract capable of specific performance

 By holding that withdrawal cannot be permitted, the NCLAT in Kundan Care[4] effectively holds that the NCLT has the power to compel an RA to specifically perform a plan. This is directly contrary to the NCLAT’s own decision in Metalyst Forging Ltd. v. Deccan Value Investors LP[5], where the NCLAT observed as follows:

“In the aforesaid background, the adjudicating authority (National Company Law Tribunal), Mumbai Bench rightly observed that the Insolvency and Bankruptcy Code do(es) not confer any power and jurisdiction on the adjudicating authority to compel specific performance of a plan by an unwilling resolution applicant ”.

It is now a well-settled position in law that specific performance may only be awarded of a contract[6]. Whether a plan is a contract is itself ambiguous. The scheme of the Code is such that various RAs who may be interested in the assets of a CD submit their plans to the resolution professional of the CD, who in turn places them before the CoC. By an internally decided mechanism, this Committee then selects one of the plans as the successful plan.

Following this logic, the two parties to the contract would have to be the CoC and the RA.  Were the plan a “contract”, it would only bind the parties thereto. However, Section 31 makes it clear that the plan is a document in rem – it binds every stakeholder of the CD, including those who may not have consented to the plan. Moreover, for there to be a concluded contract there must be an offer and an acceptance. In a CIRP though, the mere acceptance of one of a plan, does not amount to an acceptance of the offer. This is simply because a plan comes into force and becomes legally binding only if it is approved by the NCLT. No concluded contract comes to be only on the CoC selecting a plan.

Further, the transaction covered under the plan indicates that it is not truly a “contract” at all. Under a plan, the consideration that flows to the RA is control over the CD.  However, the CD does not belong to the CoC – under company law, the CD is owned by its shareholders. It is a settled position in law that a party cannot pass a better title than what she possesses. Therefore, conventionally the CoC would have no authority to transfer the CD. Ownership and control would have to be passed by shareholders themselves, either as parties to the contract or at the behest of the CoC. However, this is evidently not the case in a plan. Therefore, the power given to the CoC to “transfer” the Company is only statutory and not contractual in nature.

In any case, even if a plan is assumed to be a concluded contract, it is not one of which specific performance can be awarded. Under Section 14(b) of the Specific Relief Act, a resolution plan would be a contract which needs constant supervision by the court and is thus, not capable of specific performance. Suppose, for a moment, that the CD operated a restaurant chain and was taken over by an RA in the CIRP. The plan submitted by the RA envisioned that 30% of the revenues earned through the restaurant business every year would be used to pay off the debts of the CD. In the current climate, the RA no longer wants to proceed with adding a restaurant chain to its line of businesses. To compel the RA to specifically perform this contract would mean that he would necessarily have to operate a chain of restaurants, do business and garner revenues. These are obligations that no court can constantly supervise. Similarly, when a plan envisages that an RA will raise fresh debt to finance the older debts of the CD, a court cannot compel him to take a loan. Therefore, we say that even if a plan were assumed to be a contract, it is not one of which specific performance can be readily awarded by a civil court.


 The other prominent reason provided by the NCLAT to repel Kundan Care’s submissions was that it was barred by estoppel from withdrawing the plan. At the outset, it is seen that the decision is internally inconsistent on this point. As we have seen above, the NCLAT considers the plan to be a concluded contract. Once that is so, it is doubtful whether a question of estoppel can arise –– estoppel is a doctrine which enforces promises when there is no contract, on the basis that the other party has relied upon the promise and acted to his detriment. When there is a contractual relationship, remedies would presumably exist under the contract and estoppel would not coexist.

In any case, there are other reasons why estoppel cannot apply here. First, the courts have previously had the occasion to observe that the highest bidder in an auction is not estopped from retracting his bid.[7] Rightly so, because this is not a scenario where an equitable intervention is warranted. When an auction fails, property may be reauctioned or the bidder may be sued for damages or, as in the present case, the company may be liquidated. This, as stated, is also the scheme of the Code, which provides for liquidation of companies where plans cannot be successfully implemented. Second, injuncting an RA from withdrawing on the grounds of estoppel, would be tantamount to indirectly awarding specific performance of a contract that is not capable of specific performance.


 Based on our opinion on the issues that arise in this context, we contend that the decision of the NCLAT in Kundan Care[8] is incorrect and deserves to be revisited. Otherwise, we might find ourselves in a situation where struggling businesses are handed over to unwilling RAs, who are looking for every opportunity to exit. These outcomes may well be counterproductive. Moreover, there is also the associated question of refund of performance guarantees and/or earnest money deposits usually provided by RAs along with the plan. This is an independent question, which too will have to be considered by the SC when it revisits Kundan Care[9]. For the paucity of space though, we have not examined it in this piece.

Advocate, Bombay High Court. Graduated from National Law School of India University, Bangalore, BCL from University of Oxford. Works in the chambers of Mr Shyam Kapadia.

‡ Advocate, Bombay High Court. Graduated from National Law School of India University, Bangalore. Works in the chambers of Sr. Advocate Mr Venkatesh Dhond.

[1] Insolvency and Bankruptcy Code, 2016

[2] 2020 SCC OnLine NCLAT 670

[3] 2020 SCC OnLine NCLAT 592

[4] 2020 SCC OnLine NCLAT 670.

[5] 2020 SCC OnLine NCLAT 837.

[6] Kerala Financial Corpn. v. Vincent Paul, (2011) 4 SCC 171 and Amrit Lal Suri v. C.P. Gupta, 1990 SCC OnLine Del 87

[7] Vishal Builders (P) Ltd. v. Delhi Development Authority, 1977 SCC OnLine Del 29  and Shakharamseth Employees Union v. ICICI Bank Limited, 2009 SCC OnLine Bom 1707

[8] 2020 SCC OnLine NCLAT 670.

[9] Ibid.

Legislation UpdatesNotifications

The term of office of Justice (Retd.) Bansi Lal Bhat, Member (Judicial) as officiating Chairperson, National Company Law Appellate Tribunal (NCLAT) extended for a period of three months w.e.f. 01-01-2021 or till the appointment of regular Chairperson in NCLAT or until further orders, whichever is the earliest.


Ministry of Corporate Affairs

[Notification dt. 15-01-2021]

Appointments & TransfersNews

Central Government revises the tenure of Justice (Retd.)Bansi Lal Bhat and Justice (Retd.) A.I.S. Cheema as Judicial Member, National Company Law Appellate Tribunal (NCLAT) for a period till their attaining the age of 67 years, or until further orders, whichever is earlier.


Ministry of Corporate Affairs


Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT), New Delhi: The Bench of Justice Bansi Lal Bhat (Acting Chairperson) and Justice Venugopal M. (Judicial Member), Justice Anant Bijay Singh (Judicial Member), Kanthi Narahari (Technical Member) and Shreesha Merla (Technical member), while addressing the present matter observed that:

“…for purpose of computing the period of limitation under Section 7 of I&B Code, the date of default is NPA.”


The three-member Bench of this Appellate Tribunal had opined that the decision rendered by the 5-member Bench of this Appellate Tribunal in V. Padmakumar v. Stressed Assets Stabilization Fund (SASF),2020 SCC OnLine NCLAT 417required reconsideration.

Issue formulated by the three-member Referral Bench, as noticed in the reference order was as follows:

“Hon’ble Supreme Court and various Hon’ble High Courts have consistently held that an entry made in the Company’s Balance Sheet amounts to an acknowledgement of debt under Section 18 of the Limitation Act, 1963, in view of the settled law, V. Padmakumar’s Case requires reconsideration.”

Facts and Contentions

Corporate Debtor had defaulted in repaying the dues availed as a loan from the Consortium Lenders leading to recalling of the loan facility by the Financial Creditor — State Bank of India and the Consortium Lenders issuing notices under Section 13(2) of the SARFAESI Act, 2002 demanding total amount of Rs 59,97,80,02,973. 
Corporate Debtor failed to discharge its liability.
When the Financial Creditor initiated CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor, Lenders had assigned the debt in favour of ‘Asset Reconstruction Company (India) Ltd. NCLT, Kolkata Bench on being satisfied that debt and default were established, admitted the application. Further on being aggrieved with the same, Ex-Director of Corporate Debtor filed an appeal against the admission order in light of Corporate Debtor’s account being declared as NPA in 2014 and application under Section 7 was filed in 2018 after a delay of around 5 years, hence the same was barred by limitation.
Financial Creditor contended that the right to sue for the first time accrued to it upon the classification of the accounts as NPA in 2013 but thereafter, Corporate Debtor had admitted time and again and unequivocally acknowledged its debt in the Balance Sheets for the years ending 31st March, 2015, 31st March, 2016 and 31st March, 2017.
Hence, the right to sue stood extended in terms of Section 18 of the Limitation Act, 1963.
Referral Bench had declined to accept the argument that Section 18 of the Limitation Act, 1963 is not applicable Insolvency Cases and proceeded to record the reasons for reconsideration of V. Padmakumar’s Judgment.

Analysis, Law and Decision

Bench noted that in ‘V. Padmakumar’s Case’, IDBI had advanced financial assistance of Rs 600 Lakhs by way of Term Loan Agreement dated 02-03-2000 to the Corporate Debtor and the loan was duly secured.
Further, the Corporate Debtor’s account was classified as NPA in 2002, later IDBI initiated recovery proceedings in 2007. Recovery Certification was issued in 2009 which was reflected in the Balance Sheet dated 31-03-2012.
Limitation Period
This Appellate Tribunal noted the decisions delivered by Supreme Court in Jignesh Shah v. Union of India(2019) 10 SCC 750, Gaurav Hargovindbhai Dave v. Asset Reconstructions Company (India) Ltd.  – (2019) 10 SCC 572, Vashdeo R. Bhojwani v. Abhyudaya Co-operative Bank Ltd.(2019) 9 SCC 158, and the decision of this Appellate Tribunal in V. Hotels Ltd. v. Asset Reconstruction Company (India) Ltd.– Company Appeal (AT) (Insolvency) No. 525 of 2019, decided on 11-12-2019, was of the view that for the purpose of computing the limitation period for application under Section 7 the date of default was NPA and hence a crucial date.
5-Member Bench further dealt with the acknowledgement of claim in audited Balance Sheet of Corporate Debtor to arrive at a finding as to whether such acknowledgement would fall within the ambit of Section 18 of Limitation Act, 1963.
Bench expressed that the Referral bench failed to take note of the fact that the 5-Member Bench Judgment rendered in ‘V. Padmakumar’s Case’ with a majority of 4:1 was delivered to remove uncertainty arising out of the conflicting verdicts of Benches of co-equal strength in ‘V. Hotel’s Case’ and ‘ Ugro Capital Ltd.’s Case’.

Once a Larger Bench of this Appellate Tribunal came to be constituted in the wake of two conflicting judgments rendered by Benches of co-equal strength on the issue, one of the two Benches having failed to notice the judgment of the Supreme Court on the subject, the issue raised by the Referral Bench can no more be said to be res integra, in so far as the jurisdiction exercised by this Appellate Tribunal under I&B Code is concerned.


  • For purpose of computing, the period of limitation under Section 7, the date of default is NPA.
  • In Supreme Court’s decision of Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Ltd., Civil Appeal No. 6347 of 2019, it was observed that Section 18 of the Limitation Act, 1963 would have no application to proceedings under the I&B Code. Therefore the issue raised as regards acknowledgement of liability by reflection in the Balance Sheet/Annual Return would be irrelevant.
  • The remedy available under the I&B Code is a remedy distinct from remedy available in civil jurisdiction/ recovery mechanism and since the I&B Code is not a complete Code, provisions of Limitation Act are attracted to proceedings under it before NCLT and NCLAT as far as applicable i.e. in regard to matters not specifically provided for in I&B Code.
  • The whole mechanism of triggering of Corporate Insolvency Resolution Process revolves around the concept of ‘debt’ and ‘default’.
  • There is no room for doubt that the date of default in regard to an application under Section 7 of I&B Code is the date of classification of the account of Corporate Debtor as NPA.
  • The date of default is extendable within the ambit of Section 18 of Limitation Act on the basis of an acknowledgement in writing made by the Corporate Debtor before the expiry of the limitation period.

Whether a reflection of debt in the Balance Sheet/ Annual Return of a Corporate Debtor would amount to acknowledgement under Section 18 of the Limitation Act?

“…the finding has been recorded by the five Member Bench in the context of a judgment or a decree passed for recovery of money by Civil Court/ Debt Recovery Tribunal which cannot shift forward the date of default for purposes of computing limitation for filing of an application under Section 7 of the I&B Code and the fact that filing of Balance Sheet/ Annual Report being mandatory under Section 92(4) of Companies Act, failing of which attracts penal action under Section 92(5) & (6).”

Tribunal also added to its observations that Referral Bench failed to draw a distinction between the ‘recovery proceedings’ and the ‘insolvency resolution process’.

I&B Code provides timelines for resolution of insolvency issues and proceedings thereunder cannot be equated with the ‘recovery proceedings’.

Hence, in view fo the above discussions, Bench opined that :

the order of reference which, in letter and spirit, is more akin to a judgment of an Appellate Court appreciating the findings and judgment in ‘V. Padmakumar’s Case’ is incompetent and deserves to be rejected.

Judicial Indiscipline

Tribunal went on to express that ‘Judicial indiscipline’ creates uncertainty and impairs public faith in the Rule of Law.

Crossing the red line by disregarding the binding precedent results in making the legal proposition uncertain. Such misadventure creates uncertainty as regards the settled position of law.

Cases referred by the Tribunal for the above-stated:

  • Central Board of Dawoodi Bohra Community v. State of Maharashtra, (2005) 2 SCC 673: It was held that a decision delivered by a Bench of larger strength is binding on any subsequent Bench of lesser or coequal strength.

A Bench of co-equal strength can only express an opinion doubting the correctness of the view taken by the earlier Bench of co-equal strength.

  • Keshav Mills Co. Ltd. v. CIT, (1965) 2 SCR 908: It was held that the nature of infirmity or error would be one of the factors in making a reference. Whether patent aspects of question remained unnoticed or was the attention of Court not drawn to any relevant and material statutory provision or was any previous decision of the Supreme Court not noticed would be the relevant factors.
  • In Supreme Court Advocates on Record Association v. Union of India, (2016) 5 SCC 1, it was held that the Court should not, except when it is demonstrated beyond all reasonable doubt that its previous ruling given after due deliberation and a full hearing was erroneous, revisit earlier decision so that the law remains certain.

In CCE v. Matador Foam, (2005) 2 SCC 59, the following was observed:

“….. These being judgments of coordinate benches were binding on the Tribunal. Judicial discipline required that the Tribunal follow those judgments. If the Tribunal felt that those judgments were not correct, it should have referred the case to a larger bench.”

Hence, in light of the above, Tribunal held that:

Following of the judicial precedent of a Bench of equal strength and of a Larger Bench as in the instant case, is a matter of judicial discipline.

While parting with the decision, Bench recorded that

It is not open to the Referral Bench to appreciate the judgment rendered by the earlier Bench as if sitting in appeal to hold that the view is erroneous. Escaping of attention of the earlier Bench as regards a binding judicial precedent or a patent error is of relevance but not an evaluation of earlier judgment as if sitting in appeal.

Referral Bench overlooked all legal considerations. Company Appeal (AT) (Insolvency) No. 385 of 2020 be listed for regular hearing on 11-01-2021.[Bishal Jaiswal v. Asset Reconstruction Company (India) Ltd., Reference made by Three Member Bench in Company Appeal (AT) (Insolvency) No. 385 of 2020, decided on 22-12-2020]

Op EdsOP. ED.

Recently, NCLAT in Madhusudan Tantia v. Amit Choraria[1] has dealt with the issue relating to nature of the Notification dated 24.03.2020 (“the Notification”) issued by the Central Government[2] under Section 4 of the Insolvency and Bankruptcy Code, 2016[3] (“IBC”), whereby the threshold amount of default for applicability of Part II was enhanced from Rs 1 lakh to Rs 1 crore. While in the present article we do not comment on the correctness of the conclusion arrived at by NCLAT, the following reasons for arriving at the conclusion that the Notification is prospective in nature begs a fresh assessment:

  • The Notification does not in express terms clarify if it was intended to have ‘retrospective’ or ‘retroactive’ operation;
  • An inference of intention is not warranted when the relevant words evincing such intention are conspicuously absent;
  • In the absence of a clear indication of a contrary intention, the substantive rights of individuals to an action are to be decided by the law in existence.

Power to issue notification in terms of Section 4 and for that matter, even making of rules[4] or regulations[5] under the other provisions of IBC, is an exercise of delegated legislative power conferred under the IBC.[6]

A bare perusal of the judgment of NCLAT clearly shows that for the purpose of arriving at the conclusion, reliance has been placed upon the provisions of the General Clauses Act, 1897 (“the General Clauses Act”) for deciding whether the Notification is prospective or retrospective. The said reliance, is in itself, misplaced and renders the judgment per incuriam. Application of the General Clauses Act is restricted to ‘Central Act’ or ‘Regulation’.[7] The expressions ‘Central Act’ and ‘Regulation’ are defined under the General Clauses Act by using the expressions “shall mean” and “shall include”. It is settled law that usage of these expressions suggest an inference that the definition is exhaustive.[8] Insofar as is relevant, the expression ‘Central Act’ is defined to mean an Act of Parliament and ‘Regulation’ is defined to mean a regulation made by the President under Articles 240/243 of Constitution of India and regulation made by the Central Government under the Government of India Act, 1870/1915/1935.[9]

Adverting to Section 4 of IBC, the Central Government acting as a delegate of the legislature has been entrusted with the authority to issue such a notification. Pertinently, the said power to issue such notification, does not elevate the notification, being an exercise of power of delegated legislation, to the status of an Act of Parliament.[10] Further, the expression ‘Regulation’ has also been given a constricted definition under the General Clauses Act and its contours are confined to specific species of regulations and will not include all subordinate legislations or notifications issued by a delegate of the legislature acting in pursuance of a statutory authority.[11] Further, it is also important to note that under IBC, the regulation-making power is vested in Insolvency and Bankruptcy Board of India, being the regulatory authority established under IBC.

Re: The cut-off time of a notification coming into force

Another issue which needs to be analysed is regarding the law governing the e-publication of legislation including delegated legislation. The following have to be borne in mind while analysing this aspect:

  1. The issue becomes more critical having regard to the fact that on 30.09.2015, the Ministry of Urban Development issued an Office Memorandum bearing No.                 O-17022/1/2015-PSP-l, whereby the practice of physical printing was discontinued and replaced it with the electronic gazette. It further specifies that the date of publishing shall be the date of e-publication on official website by way of electronic gazette in respect of Gazette notification.
  2. Equally important is the issue whether the notification which is uploaded in the e-Gazette at the particular time of the day would come into effect from 0000 hours on that day itself i.e. be applicable during that entire day or it would into force at the precise time of its publication. Legislature being aware of Section 8 of the Information Technology Act, 2000 creates a legal basis for the publication of laws through e-gazettes.[12]A notification issued by the government pursuant to the conferment of statutory power is distinct from an act of the legislature. Administrative notifications, even when they are issued in pursuance of an enabling statutory framework, are subject to the statute. Delegated legislation does not lose its character even when it has the same force and effect as if it is contained in the statute.[13]

With the change in the manner of publishing gazette notifications from analog to digital, the precise time when the gazette is published in the electronic mode assumes significance. The Notification, which is akin to the exercise of delegated legislative power, cannot operate retrospectively, unless authorised by statute.[14] Section 4 does not contain language indicative of a legislative intent to authorise the Central Government to issue notifications with retrospective or retroactive operation, either expressly or by implication.[15] Since the parent statute i.e. IBC does not contain the language enabling the Central Government to issue retrospective or retroactive notifications, NCLAT ought not to have entered into the exercise of looking into such wordings in the Notification. Such language/ power, wherever envisaged, forms part of the delegated power under the parent statute. Accordingly, NCLAT ought to have looked at the provisions of parent statute i.e. IBC to determine whether the legislature intended to confer the power on the central government to issue a notification with retrospective or retroactive effect. Importantly, Section 4 of IBC has clearly delineated the confines of the delegated power by prescribing the maximum amount within which the minimum default amount could be specified by a notification.

Further, it is well settled that Parliament and the State Legislatures possess the power to enact legislation, with prospective and retrospective effect, subject to due observance and compliance of constitutional requirements.[16] Therefore, the hunch of NCLAT of locating the words of retrospective operation in the Notification was not appropriate and it should have limited its enquiry to the language of Section 4 itself.

*Anurag Tripathi (2009-14) National Law University Odisha, now working as in-house counsel at an Indian Conglomerate and may be reached at

**Naman Singh Bagga (2010-15) National Law University Odisha, now working as  Senior Associate at L&L Partners Law Offices and may be reached

[The views expressed herein are personal and does not represent views of any organisation.]

[1] Madhusudan Tantia v. Amit Choraria, 2020 SCC OnLine NCLAT 713.

[2]Ministry of Corporate Affairs, Government of India.

[3] Insolvency and Bankruptcy Code, 2016

[4] Section 239 IBC.

[5] Section 240 IBC.

[6]Union of India  v. G.S. Chatha Rice Mills, 2020 SCC OnLine SC 770.

[7] Section 5(3), The General Clauses Act, 1897.

[8]P. Kasilingam  v. P.S.G. College of Technology, 1995 Supp (2) SCC 348  (regarding interpretation of definitions using the words “means and includes”).

[9] Section 3(7), The General Clauses Act, 1897

Union of India  v. G.S. Chatha Rice Mills, 2020 SCC OnLine SC 770.

[10] Union of India  v. G.S. Chatha Rice Mills, 2020 SCC OnLine SC 770, para 81; Securities and Exchange Board of India v. Magnum Equity Services Ltd., (2015) 16 SCC 721.

[11]Union of India  v. G.S. Chatha Rice Mills, 2020 SCC OnLine SC 770, para 79.

[12]Union of India v. G.S. Chatha Rice Mills, 2020 SCC OnLine SC 770, para 99.

[13]Chief Inspector of Mines v. Lala Karam Chand Thapar, AIR 1961 SC 838;

K.I. Shephard v. Union of India, (1987) 4 SCC 431;

Hukum Chand v. Union of India, (1972) 2 SCC 601;

Union of India  v. G.S. Chatha Rice Mills, 2020 SCC OnLine SC 770, para 114.

[14]Union of India  v. G.S. Chatha Rice Mills, 2020 SCC OnLine SC 770, para 106.

[15]Federation of Indian Minerals Industries v. Union of India, (2017) 16 SCC 186, para 112;

Union of India  v. G.S. Chatha Rice Mills , 2020 SCC OnLine SC 770, para 113.

[16]Union of India  v. G.S. Chatha Rice Mills, 2020 SCC OnLine SC 770, paras 114 & 118.

Case BriefsSupreme Court

Supreme Court: In a plea seeking inquiry into the alleged anti-competitive practices of Ola and Uber of entering into price-fixing agreement, the 3-judge bench of RF Nariman*, KM Joseph, Krishna Murari, JJ has refused to interfere with the concurrent finding of CCI and NCLAT that Ola and Uber do not facilitate cartelization or anti-competitive practices between drivers, who are independent individuals, who act independently of each other, so as to attract the application of section 3 of the Competition Act, 2002.

Why was an inquiry sought?

An informant sought that the Competition Commission of India initiate an inquiry, under section 26(2) of the Competition Act, 2002, into the alleged anti-competitive conduct of ANI Technologies Pvt. Ltd. [Ola], and Uber India Systems Pvt. Ltd., Uber B.V. and Uber Technologies Inc. [Uber], alleging that they entered into price-fixing agreements in contravention of section 3(1) read with section 3(3)(a) of the Act, and engaged in resale price maintenance in contravention of section 3(1) 1 read with section 3(4)(e) of the Act. According to the Informant, Uber and Ola provide radio taxi services and essentially operate as platforms through mobile applications which allow riders and drivers, that is, two sides of the platform, to interact. Due to algorithmic pricing, neither are riders able to negotiate fares with individual drivers for rides that are booked through the apps, nor are the drivers able to offer any discounts. Thus, the pricing algorithm takes away the freedom of riders and drivers to choose the best price on the basis of competition, as both have to accept the price set by the pricing algorithm.

Further, despite the fact that the drivers are independent entities who are not employees or agents of Ola or Uber, the driver is bound to accept the trip fare reflected in the app at the end of the trip, without having any discretion insofar as the same is concerned. The drivers receive their share of the fare only after the deduction of a commission by Ola and Uber for the services offered to the rider.

What did the counsels say?

Senior Advocate Abhishek Manu Singhvi, appearing on behalf of Uber, walked the Court through the concurrent findings of fact of the CCI and the NCLAT and said that every driver of a taxi cab, who uses the Ola or Uber app, can have several such apps including both Ola, Uber and the apps of some of their competitors, and can take private rides de hors these apps as well.

Advocate Rajshekhar Rao, appearing for Ola, agreed with Dr. Singhvi’s submissions on merit but questioned the locus standi of the informant, an “independent practitioner of law”. He, thus, prayed before the Supreme Court that “in such cases heavy costs should be imposed to deter such persons from approaching the CCI with frivolous and/or mala fide information, filed at the behest of competitors.”

Additional Solicitor General Balbir Singh, appearing on behalf of the CCI, however, stated that though he would support the CCI’s Order closing the case, he would also support the right of the Appellant to approach the CCI with information.

What did the Supreme Court say?

Informant’s locus standi

A reading of the provisions of Competition Act, 2002 and the Competition Commission of India (General) Regulations, 2009 shows that “any person” may provide information to the CCI, which may then act upon it in accordance with the provisions of the Act. The definition of “person” in section 2(l) of the Act is an inclusive one and is extremely wide, including individuals of all kinds and every artificial juridical person.

Section 19(1) of the Act originally provided for the “receipt of a complaint” from any person, consumer or their association, or trade association. This expression was then substituted with the expression “receipt of any information in such manner and” by the 2007 Amendment. This substitution is not without significance.

A complaint could be filed only from a person who was aggrieved by a particular action, information may be received from any person, obviously whether such person is or is not personally affected. This is for the reason that the proceedings under the Act are proceedings in rem which affect the public interest. That the CCI may inquire into any alleged contravention of the provisions of the Act on its own motion, is also laid down in section 19(1) of the Act.

“Even while exercising suo motu powers, the CCI may receive information from any person and not merely from a person who is aggrieved by the conduct that is alleged to have occurred. This also follows from a reading of section 35 of the Act, in which the earlier expression “complainant or defendant” has been substituted by the expression, “person or an enterprise,” setting out that the informant may appear either in person, or through one or more agents, before the CCI to present the information that he has gathered.”

However, Section 45 of the Act is a deterrent against persons who provide information to the CCI, mala fide or recklessly, inasmuch as false statements and omissions of material facts are punishable with a penalty which may extend to the hefty amount of rupees one crore, with the CCI being empowered to pass other such orders as it deems fit.

“This, and the judicious use of heavy costs being imposed when the information supplied is either frivolous or mala fide, can keep in check what is described as the growing tendency of persons being “set up” by rivals in the trade.”

The 2009 Regulations also do not require the informant to state how he is personally aggrieved by the contravention of the Act, but only requires a statement of facts and details of the alleged contravention to be set out in the information filed. Also, regulation 25 shows that public interest must be foremost in the consideration of the CCI when an application is made to it in writing that a person or enterprise has substantial interest in the outcome of the proceedings, and such person may therefore be allowed to take part in the proceedings. Further,

“CCI must maintain confidentiality of the identity of an informant on a request made to it in writing, so that such informant be free from harassment by persons involved in contravening the Act.”

“Person aggrieved”

Since the CCI and the NCLAT deal with practices which have an adverse effect on competition in derogation of the interest of consumers, the Act vests powers in the CCI and enables it to act in rem, in public interest. Hence, a “person aggrieved” must, in the context of the Act, be understood widely and not be constructed narrowly.

Further, it is not without significance that the expressions used in sections 53B and 53T of the Act are “any person”, thereby signifying that all persons who bring to the CCI information of practices that are contrary to the provisions of the Act, could be said to be aggrieved by an adverse order of the CCI in case it refuses to act upon the information supplied. By way of contrast, section 53N(3) speaks of making payment to an applicant as compensation for the loss or damage caused to the applicant as a result of any contravention of the provisions of Chapter II of the Act, having been committed by an enterprise. By this sub-section, clearly, therefore, “any person” who makes an application for compensation, under sub-section (1) of section 53N of the Act, would refer only to persons who have suffered loss or damage, thereby, qualifying the expression “any person” as being a person who has suffered loss or damage.

It was, hence, noticed,

“when the CCI performs inquisitorial, as opposed to adjudicatory functions, the doors of approaching the CCI and the appellate authority, i.e., the NCLAT, must be kept wide open in public interest, so as to subserve the high public purpose of the Act.”

[Samir Agrawal v. Competition Commission on India, 2020 SCC OnLine SC 1024, decided on 15.12.2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Bench of Justice Venugopal M. (Judicial Member) and V.P. Singh (Technical Member) and Shreesha Merla (Technical Member), while addressing the present Company Appeal observed that:

No penalty can be saddled either under Section 65(1) or (2) of the Code without recording an opinion that a prima facie case is established to suggest that a person ‘fraudulently’ or with malicious intent for the purpose other than the resolution of Insolvency or Liquidation or with an intent to defraud any person has filed the Application.

The instant appeal emanates from the Order passed by National Company Law Tribunal Delhi whereby application under Section 7 of the Insolvency and Bankruptcy Code 2016 was admitted.

Factual Matrix

Corporate Debtor is a builder of High-End Project wherein a flat was booked for a total sale consideration of Rs 3,80,10,000. 

Respondents were the second purchasers of the above-stated flat booked vide Agreement Buyer Agreement. As per Agreement, the completion period was 36 months plus six months as a grace period, i.e. February 2015.

Appellant contended that after adjusting the payments made by the Original buyer, the respondent paid a total sum of Rs 2,75,55,186 as against the total cost of the flat as Rs 3,80,10,000. The last payment was made by the respondents on 26-08-2013, and after that, despite several reminders, no payment was made.

Respondents opted for a Construction linked plan but failed to pay the instalments on time.

Appellants submitted that the respondents are defaulters. Therefore, Corporate Debtor was constrained to cancel their allotment.

Respondents initiated the proceedings under Section 7 of the Insolvency and Bankruptcy Code against the appellant.

Appellant pleaded that the proceedings initiated by respondents 1 and 2 are against the provisions of the Code and have been done so, to pressurise the Corporate Debtor.

Further, respondent 1/Homebuyer submitted that as per the Agreement, possession was to be handed over within 36 months from the date of commencement of the construction or execution of the Agreement, whichever is later.

Despite the assurances, the Appellant failed to deliver the possession of the said unit to the Respondents. Therefore, the Respondents/Financial Creditor had filed the Application under Section 7 of the Code.

NCLT observed that the Corporate Debtor did not hand over the possession of the flat to the Financial Creditor as the construction work could not be completed within the stipulated time and there was no proof of extension of time by the Authority concerned. A debt of more than Rs 1 lakh was due and payable, which the Corporate Debtor failed to pay.

In view of the above circumstances, application wad admitted by NCLT and the same has been challenged in the instant appeal.

Issues for Consideration:

  1. Whether the Corporate Debtor has committed default in not completing the Construction of the flat in time and handing over possession of the same in terms of Agreement?
  2. Whether Financial Creditor/Home Buyer committed default in making payment of the instalments as per ‘ABA’ under construction link Plan?
  3. Whether the Application under Section 7 of the Code is filed fraudulently with malicious intent for the purposes other than for the Resolution of Insolvency or liquidation, as defined under Section 65 of the I&B Code, 2016?
  4. Whether the application is barred by limitation?

Analysis and Decision

On considering the above-stated issues, Bench observed that the Corporate had committed default in completing the construction work of the flat n time and failed to deliver the possession on the stipulated date as per the Agreement.

In a reply to a notice, Corporate Debtor himself admitted that unlike other builders who have abandoned the project and stopped the work, it is completing the Project which is at the final stage where flooring and finishing work is underway.

It was observed from the Agreement that under the Construction linked payment plan, it is mandatory to issue demand notice for instalments in the commencement of respective stages of Construction by speed post or courier.

In the instant case, there was no evidence to show that the demand notice at the respective stages of Construction was ever sent to the Allottee. Whereas, Clause 2.18 of the Agreement makes it mandatory to send the Notice to the Allottee under Construction linked plan. No compliance of conditions of Clause 2.17 and 2.18 were made in the instant case.

Hence, in the present case, it is difficult to ascertain as to when Instalment became due, at the start of the respective stage of the Construction.

Bench observed that:

Mandatory condition of issuing Notice through speed post or courier to the Allottee, at every stage of Construction as per Agreement has not been followed.

Hence, it cannot be concluded that the allotted committed any default in paying the instalment when due and the fact that the flat was to be delivered latest by 2nd week of February 2016, but construction work was still going on in the year 2018 also cannot be denied.

Justification for Invoking Section 65 of the Code

In accordance with the Supreme Court decision in Pioneer’ Urban Land Infrastructure v. Union of India, (2019) 8 S SCC 416, Corporate Debtor has the responsibility to furnish the details of default. It was held that:

“Under Section 65 of the Code, the real estate developer can also point out that the insolvency resolution process under the Code has been invoked fraudulently, with malicious intent, or for any purpose other than the resolution of Insolvency. The Allottee does not, in fact, want to go ahead with its obligation to take possession of the flat/Apartment under RERA, but wants to jump ship and really get back, by way of this coercive measure, monies already paid by it. The Allottee does not, in fact, want to go ahead with its obligation to take possession of the flat/Apartment under RERA, but wants to jump ship and really get back, by way of this coercive measure, monies already paid by it.”

Bench stressed upon the point that Section 65 of the Code is not meant to negate the process under Section 7 or 9 of the Code. Penal action under Section 65 can be taken only when the provision of the Code has been invoked fraudulently, with malicious intent.

In the Supreme Court decision of Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17, it was held that:

“…in order to protect the corporate debtor from being dragged into the corporate insolvency resolution process mala fide, the Code prescribes penalties.”

Hence, from the above discussion, it is clear that

the Code provides stringent action under Section 65 against the person who initiates proceedings under the Code fraudulently or with malicious intent, for the purpose other than the resolution of Insolvency or liquidation under the Code.

Requirement for levying penalty under Section 65 IBC is that a ‘prima facie’ opinion is required to be arrived at that a person has filed the petition for initiation of proceedings fraudulently or with malicious intent.

While parting with the decision, Tribunal held that the Real Estate Developer failed to prove that Allottee is a speculative Investor and is not genuinely interested in purchasing the flat and initiated proceeding under the Code to pressurise the Corporate Debtor.

Thus, Tribunal found no justification to invoke Section 65 of the I&B Code against the Allottee.


NCLT’s order requires no interference. [Amit Katyal v. Meera Ahuja, 2020 SCC OnLine NCLAT 748, decided on 09-11-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Appellate Tribunal (NCLAT): The Division Bench of Justice A.I.S Cheena (Judicial Member) and V.P. Singh (Technical Member) reinforced that in the matter of guarantee, CIRP can proceed simultaneously against the Principal Borrower as well as Guarantor.

The instant appeal was filed under Section 61(1) of the Insolvency and Bankruptcy Code, 2016 (IBC) against the impugned order dated 04-03-2020 passed by Adjudicating Authority.

Appellant –State Bank of India filed the Application against Respondent –Athena Energy Ventures Private Limited — Corporate Debtor who was Corporate Guarantor for Athena Chattisgarh Power Ltd.

The application was filed as Borrower committed default in repayment of the financial assistance provided to the Borrower.

It has been stated that the borrower availed financial assistance from the appellant bank and other banks, in the consortium and had executed necessary documents in favour of the appellant and other consortium banks.

When the need for the Borrower increased, the Respondent which is a joint venture and promoter of Borrower came forward and executed corporate guarantee and documents in favour of the Appellant and other consortium of banks.

It has been added that respondent was under the obligation to see that amounts availed under the finance from the appellant was repaid by the borrower.

Due to the default bein committed by the borrower, appellant had filed an application under Section 7 of the IBC against the borrower before the adjudicating authority.

The instant application was filed under Section 7 of IBC to seek initiation of CIRP against Respondent-Corporate Guarantor.

Respondent opposed the application claiming that the application was arising out of the very same transaction and very same common loan agreement as amended by first amendment agreement followed by the Second Amendment Agreement and thus the application filed by the appellant against respondent was duplicating the claim which was not permissible.

Decision of the Adjudicating Authority

Relying on the decision of Vishnu Kumar Agarwal v. Piramal Enterprise Ltd.2019 SCC OnLine NCLAT 81 the Adjudicating Authority declined to admit the Application as it was on the same set of facts, claim and default for which CIRP was already initiated and was in progress and where according to the Adjudicating Authority, the claim of Applicant had already been admitted. Thus, the Application of the Appellant against the Respondent came to be rejected.

Hence, the present appeal was filed against the above Judgment of the Adjudicating Authority.

Analysis and Decision 

The main issue which Bench referred to was:

“Whether the ‘Corporate Insolvency Resolution Process’ can be initiated against two ‘Corporate Guarantors’ simultaneously for the same set of debt and default?”

Bench stated that this Tribunal while dealing with the above-stated issue referred to the Judgment in the matter of Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, where the scheme of the Code was discussed by the Supreme Court. This Court took note of the definition of Financial Creditor and financial debt, and raised the question whether for the same very claim and for same very default, the Application under Section 7 against the other Corporate Debtor (Guarantor 1) can be “initiated”.

Further, adding to the above, Tribunal stated that considering the issues which were before this Tribunal when the matter of Vishnu Kumar Agarwal v. Piramal Enterprise Ltd. was decided, it is clear that the issue was relating to question whether CIRP can be initiated against two Corporate Guarantors simultaneously for the same set of debt and default. The issue was not whether Application can be filed against the Principal Borrower as well as the Corporate Guarantor. The observations made in the Judgement that second application for the same set of claim and default can not be admitted against the Corporate Guarantor or Principal Borrower was not an issue in the matter of Vishnu Kumar Agarwal v. Piramal Enterprise Ltd.

Apart from the above observations, the decision in the matter of Vishnu Kumar Agarwal v. Piramal Enterprise Ltd. did not notice sub-sections 2 and 3 of Section 60 of IBC.

In Sub-Section 2, the earlier words were “bankruptcy of a personal guarantor of such corporate debtor”. These words were later on substituted by the words “liquidation or bankruptcy of a corporate guarantor or personal guarantor as the case may be, of such Corporate Debtor”. These words were substituted by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018.

In the matter of SBI v. Ramakrishnan, (2018) 17 SCC 394, which was pronounced 3 days before the above-stated amendment, Section 60 (2) and (3) as they stood before the amendment was enforced.

Bench observed that,

If the provisions of Section 60(2) and (3) are kept in view, it can be said that IBC has no aversion to simultaneously proceeding against the Corporate Debtor and Corporate Guarantor.

If two applications can be filed, for the same amount against Principal Borrower and Guarantor keeping in view the above provisions, the Applications can also be maintained.

It is for such reason that Section 60 (3) provides that if insolvency resolution process or liquidation or bankruptcy proceedings of a Corporate Guarantor or Personal Guarantor as the case may be of the Corporate Debtor is pending in any Court or Tribunal, it shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such Corporate Debtor.

Tribunal also found substance in the argument placed by the appellant’s counsel in regard to the Report of Insolvency Law Committee. ILC rightly referred to the subsequent Judgment of Edelweiss Asset Reconstruction Company Ltd. v. Sachet Infrastructure Ltd.,2019 SCC OnLine NCLAT 592 which permitted simultaneously initiation of CIRP’s against Principal Borrower and its Corporate Guarantors.

Adding to the above, the Bench also stated that ILC rightly observed that provisions are there in the form of Section 60(2) and (3) and no amendment or legal changes were required at the moment.

Hence Tribunal observed that simultaneously remedy is central to a contract of guarantee and where Principal Borrower and surety are undergoing CIRP, the Creditor should be able to file claims in CIRP of both of them.IBC does not prevent this.

Under the Contract of Guarantee, it is only when the Creditor would receive the amount, the question of no more due or adjustment would arise.

While parting with its decision, Tribunal held that it is clear in the matter of guarantee, CIRP can proceed against the Principal Borrower as well as Guarantor.

Tribunal in view of the above-stated reasons could not interpret the law as interpreted in the matter of “Piramal.”

Hence, the decision of the Adjudicating Authority was upheld. [State Bank of India v. Athena Energy, 2020 SCC OnLine NCLAT 774, decided on 24-11-2020]

Advocates who appeared in the instant case:

For Appellant: Advocates V.M. Kannan, Sambit Panja and Sanjay Kapur.

For Respondent: Ramesh Babu Paluta, Advocate

Op EdsOP. ED.

Parliament of India enacted the Insolvency and Bankruptcy Code, 2016[1] (“the Code”) to consolidate laws relating to insolvency and bankruptcy in India and provide an effective legal framework for timely resolution of the companies. The Code provided Financial Creditors and Operational Creditors with the right to initiate the Corporate Insolvency Resolution Process (“CIRP”), against a Corporate Debtor under Sections 7 and 9 respectively.

I.  Allottees as Financial Creditors – a step forward

The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018[2] (“the IBC Amendment, 2018”) included the allottees of real estate projects as financial creditors under the Code. Hereafter, the allottees could apply to initiate the CIRP against the Corporate Debtors (“real estate developer”) alike other financial creditors i.e. banks and financial institutions. The Supreme Court of India in Pioneer Urban Land and Infrastructure Ltd. v. Union of India[3]  (“Pioneer”) upheld the constitutional validity of the inclusion of allottees as financial creditors [“allottee(s)”] on 09.08.2019. The Court also categorically refused reading into any limitation like pre-requisite minimum threshold in terms of numbers or otherwise on the right of allottees to approach the Tribunal and trigger the resolution process.[4] Thus, an allottee of a real estate project was given a right to initiate the CIRP like other financial creditors “either by itself or jointly with other financial creditors” against a real estate developer on the occurrence of a default under Section 7 of the Code.

II. The legislative retraction – a limitation imposed

However, first, the President of India promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019[5] (“the Ordinance”) on 28.12.2019 as a stop-gap arrangement to limit the accessibility of individual allottees or to the Tribunal if a minimum threshold limit is not met. Section 3 of the Ordinance amended Section 7 of the Code by adding three provisos. The second proviso placed a condition on the allottees of at least being 100 or 10% of the total number of allottees, whichever is less, in the “same real estate project” to apply for initiation of the CIRP. Moreover, the third proviso directed the applicants of the pending applications which have yet not been admitted by the Tribunal shall be modified in conformity of the abovesaid minimum threshold within a period of one month i.e. by 28.01.2020, failing which such applications shall be automatically deemed as withdrawn.

The Ordinance was approved by Parliament on 13.03.2020 vide the enactment of the Insolvency and Bankruptcy Code (Amendment) Act, 2020[6] (“the IBC Amendment, 2020”) with identical provisions. Like the Ordinance, the IBC Amendment, 2020 has imposed pre-requisite minimum threshold for allottees of real estate project to approach the Tribunal under Section 7 of the Code vide an identical Section 3. In a writ petition titled Manish Kumar v. Union of India[7] , the provision has been challenged as violative of Article 14 of the Constitution of India. Primarily, the amendment has been challenged on the ground of being class legislation without any reasonable differentia and its retrospective application as manifestly arbitrary. The Court ordered status quo on 13.01.2020.[8]

With this background, the present article first, examines the wholesome effect of the condition imposed on allottee who was earlier given the right to apply for initiation of the CIRP individually, like other Financial Creditors. Second, the authors aver that the amendment in Section 7 vide the second and third provisos was uncalled for in light of the existing mechanism under the Code and the alternatives which were available with the legislature. Last, the authors suggest the possible middle way available now with the Court in pending writ petition.

 III. Repairing effect of the second and third provisos to Section 3 of the IBC Amendment, 2020

The abovesaid limitation on the allottees of a real estate project is placed as a consequence of several apprehensions and after-effects of inclusion of allottees under Section 7 at par with other financial creditors. Their inclusion as financial creditor was followed with a surge in applications against the real estate developers before the Tribunal. Numerous independent applications were filed by allottees against the same real estate developers. Nearly, all the real estate companies[9] found themselves in hot water before the Tribunal as Corporate Debtors for defaults committed in timely completion of the projects and handover of timely possessions. This brought the real estate developers on their tenterhooks and they raised concerns of being entangled in malicious applications by multiple allottees which have severely affected their regular working. It was also argued that the Code has been used as a “debt recovery mechanism” instead of reviving such a corporate entity.

The Preamble of the Ordinance, the recent Standing Committee Report[10], or the IBC Amendment, 2020 does not state any specific reason to amend Section 7 of the Code. However, considering the abovesaid circumstances, the amendment can be inferred to have been brought in principally to cure two ills. First, all the allottees of the same project can be clubbed before-hand for efficiency in the hearings before the Tribunal and resolution process. Second, the legislature intends to bar applications by individual allottees who with the provided liberty and access to the Tribunal, could single-handedly topple down the existence of the real estate developer maliciously, despite, the entity being a going-concern and in the hands of good management. This would consequentially revive and also keep the real estate industry alive to the market needs.

Thus, the legislature amended Section 7 to alleviate the anxiety and troubles of the real estate developers. The amendment attempts to alleviate the miseries of the real estate developers due to multiple applications and keep the real estate sector alive and responsive to their needs in the development of the country. The amendment has been welcomed by the real estate developers who had been brought before the Tribunal maliciously or on minor defaults with the sole purpose of refund, instead of a revival of the entity.

 IV. Impairing effect of the second and third provisos to Section 3 of the Ordinance

In contrast to the above said, the amendment has, however, impaired the right of the allottees who will now be not able to approach the Tribunal individually and independently or jointly, unlike other financial creditors and operational creditors, if the required minimum threshold is not met. The legislature has imposed minimum thresholds of 100 or 10% with retrospective applicability on the allottees who were included as financial creditors seeing their contribution in the projects and their condition of suffering for years.

Apart from the objections to the constitutional validity, the amendment in Section 7 gives rise to several anomalies which will need redressal by the Court or legislature in future.  The amendment also gives rise to several severe consequential hardships and inconvenience to the allottees, particularly due to its retrospective applicability.  These can be noted as follows:

i. Anomalies due to the amendment

First, as aforesaid the pending applications had to be “modified” within a period of one month. If a party fails to comply with the second proviso to Section 3 of the IBC Amendment, 2020, the application will be deemed withdrawn. But the legislature has not explained what is meant by the term “modified[11] used in the third proviso to Section 3 of the Ordinance and the IBC Amendment, 2020. Does it merely mean amending the application wherein a party avers to having the requisite numbers along with a list of such allottees or does it mean that all the allottees whose applications are pending before the Tribunal or allottees who intend to apply shall be consolidated under one umbrella application pending before the Tribunal and thereafter be proceeded collectively?

Second, the amendment does not state whether the required strength of 100 or 10% of the total number of allottees, whichever is less, is mandated to be required only at the stage of initiating the proceedings or whether the strength needs to be continued and maintained all through. What will be the consequence if one or some allottees settle with the real estate developer and the requisite numbers then fall short subsequently? The Courts while interpreting Section 241 of the Companies Act, 2013 which provides a similar threshold for initiation of the proceedings of operation and mismanagement has held that the validity of petitions must be judged as they were at the time of its presentation. The legislature could have clarified this under the Code right from the inception and avert any such anomalies. Moreover, this may also give rise to mischiefs by several developers who may settle out of court with one or more allottees to make the proceedings infructuous.

Third, it would be interesting to see, if the said 10% criteria can include an allottee who may have defaulted in making payments to the developer considering the delay and default on part of the developer, can form part of the 10% group or not. To draw a parallel with the shareholders of a company filing under Section 241 of the Companies Act, 2013, a member is disqualified to file whose calls are in arrears or whose shares are partly paid-up or who is a holder of a share warrant.

Last, Section 245 of the Companies Act, 2013 or Section 12(1)(c) of the Consumer Protection Act, 1986 delineate the procedure and conditions for a class action. However, the Code or the amendment does not provide any contours for a class action before the Tribunal.

ii. Consequential hardship and inconvenience to allottees

First, it is pertinent to note that the remedies under the Code are concurrent[12]  and does not bar remedies of different natures before different forums in different parts of the country. The legislature failed to appreciate the hardship in consolidating all or some of the allottees to meet the requisite threshold from different jurisdictions. For example, Section 11 of the Consumer Protection Act, 1986 provides for the institution of complaint in a district forum at a place of business of opposite party or where the cause of action wholly or in part arose. However, Section 60 of the Insolvency and Bankruptcy Code, 2016 mandates the proceedings to be initiated only at the place where the corporate person has its registered office. Thus, the proceedings against the same real estate developer for the same project may be pending in different forums at different stages and in different jurisdictions. In such cases, bona fide applicants will fail to consolidate all allottees under one umbrella application or provide the number of pending disputes against the same real estate developer.

Second, the above hardship in consolidation is further elevated due to non-existence of any public record along with particular details of the allottees who have availed different remedies against the same project. Along with the amendment, the legislature should have brought a law which mandated the real estate developers to maintain the list of allottees of a project on a public platform. Until the real estate developers had complied with this requirement or until the time to comply expired, the right of the allottees to apply for initiating the CIRP should not have been curtailed.

Last, the legislature failed to realise that deemed withdrawal of applications filed but not admitted by the Tribunal within a period of one month will deny the applicants fruits of their already incurred litigation costs i.e. court fee and advocate fee. It will further encumber the allottees with afresh litigation costs for initiating de novo proceedings before other available forums. In many cases, the parties will have to also go through the hassles of agreeing to a common lawyer. This will be setting the clock backwards. It is pertinent to note that the Code provides summary proceedings and averting undue delay and a timely resolution was one of the prime objectives behind the enactment of the Code. However, the wholesome effect of Section 3 of the Amendment Ordinance, 2019 is contrary to the said objects of the Code.

V. Whether the second and third provisos to Section 3 of the IBC Amendment, 2020 are uncalled for?

On equating the pros and cons of the amendment in Section 7 of the Code and subsequently discussed alternatives, the authors are of the view that the amendment was uncalled for and in particular, to the extent of its applicability to pending applications. The legislature might have intended to balance the interest of the allottees and real estate developers but, there did already exist sufficient mechanism under the Code and the legislature had more feasible alternatives to address the concerns of the real estate developers.

i. Sufficient mechanism in place to check malicious applications

First, it is pertinent to note that on the admission of an application the Tribunal makes a public announcement and declares a moratorium under Section 14 of the Code. Other creditors like allottees, banks, and financial institutions can submit their claim before the Interim Resolution Applicant (“IRP”) or Resolution Applicant (“RP”). Thus, the intended clubbing and collating automatically happens with the admission of one application. After verification of their claims by the IRP or IP, they all can be part of the Committee of Creditors.

Second, the Code already provides an efficient statutory mechanism to keep a check on the apprehended mala fide applications whereby an allottee is apprehended to single-handedly topple down of the management or existence of the real estate developer despite it being a going concern. One, Section 65 of the Code already provides penalties ranging from Rs. 1 lakh to Rs. 1 crore on fraudulent or malicious initiation of proceedings. The Tribunal always has the power to impose costs on such applicants [See Navin Raheja v. Shilpa Jain[13] (Navin Raheja)]. For example,  in Ram Pal Suhag  v. Sweta Estates Pvt. Ltd.[14] the Tribunal imposed a cost of Rs. 50,000 on the frivolous application filed to arm twist the real estate developer . Two, similarly, Section 75 of the Code provides for a penalty of Rs. 1 lakh to 1 crore if the applicant under Section 7 knowingly falsely states a material fact or omits to state any material fact in the application. Three, if a real estate developer fears cessation of the Company, there are already several stages for the parties can amicably settle[15] . Merely an attempt to settle the dispute cannot be imputed with allottee being a malicious applicant or that the applicant is using the Code as “debt recovery mechanism”.

Third, the Supreme Court specifically stated that “in a Section 7 application made by an allottee, the NCLT’s ‘satisfaction’ will be with both eyes open – the NCLT will not turn a Nelson’s eye to legitimate defences by a real estate developers”.[16] Thus, the Court will not sit merely as a mere rubber stamp to allow mala fide applications. The Tribunal can always dismiss an application if the real estate developer raises viable defences.

For example, an application may be dismissed if a real estate developer proves the occurrence of force majeure, actions inactions and omissions on the part of the Government or Authority, or default in payment by the allottees, or allottee not taking possession to earn higher interest etc. Inter alia other decisions, the NCLAT in Parvesh Magoo v. IREO Grace Realtech Pvt. Ltd.[17] dismissed the application of the allottee noting the force majeure and the fact that the apartment of the allottee was ready for possession. Similarly, in Navin Raheja[18]  the NCLAT allowed the appeal against the order of the Tribunal admitting Section 7 application. The Court held that if a delay is due to force majeure it cannot be alleged that the corporate debtor defaulted in delivering the possession”.

Fourth, the Supreme Court has already held that once an application is admitted by the Tribunal “it is a proceeding in rem which, after being triggered, goes completely outside the control of the allottee who triggers it….Under the Code, he may never get a refund of the entire principal, let alone interest….[He is] always taking the risk that if no one were to come forward, corporate death must ensue and the allottee must then stand in line to receive whatever is given to him in winding up” .[19]

Thus, an allottee cannot singlehandedly liquidate a real estate developer for his refund. “If the intention of the allottees is only for the refund of money and not the possession of apartment/ flat/premises, then the ‘Corporate Debtor’ may bring it to the notice of the Adjudicating Authority”.[20] Liquidation is the last consequence where the prior steps of revival fail. Thus, an allottee cannot straightway liquidate a company to recover his debts.

Last, it must be noted that a reasonably high court fee of Rs. 25,000 also inadvertently keeps a check on the filing of bona fide applications.

ii.   Alternatives

First, the legislature could have instead, increased the costs or penalty on the malicious and fraudulent applications under Section 65 of the Code to deter malicious applicants. The legislature could have harnessed exercise of the power of the Tribunal under Section 65 to contain malicious applications, if needed.

The legislature could have attempted to define malicious applications i.e. non-disclosure of material facts in the application or non-performance or non-compliance to the material terms of the agreement including but not limited to default in payment of instalments or taking of possession. Similarly, the legislature could have enlisted some defences available to the real estate developer i.e. as aforesaid, force majeure, or default on part of the applicant. To draw a parallel with the shareholders of a company filing under Section 241 of the Companies Act, 2013, a member is disqualified to file whose calls are in arrears or whose shares are partly paid up. Thus, such allottees in default could have been restricted as being applicants under Section 7 of the Code.

Second, it is pertinent to note that Section 4 of the Code already provides the Central Government power to increase the pre-requisite of default from Rs. 1 lakh to any amount till Rs 1 crore. Thus, the Central Government could have easily increased the minimum threshold of default amount for the allottees of real estate project to approach under Section 7 of the Code i.e. Rs 10 lakh or 20 lakh for individual allottees. It must be noted that on 24.03.2020 the Government has raised the amount of default to Rs. 1 crore for all the creditors under Section 4 of the Code in view of the outbreak of Covid-19 epidemic. Similar step by the legislature for the allottees could have averted all legislative hassles and the above-discussed anomalies and hardships, arising out of Section 3 of the IBC Amendment, 2020.

Thus, given this position of law and alternatives, there was no viable reason to disable an individual allottee from applying without requisite numbers. The Tribunal already had sufficient mechanism to check mala fide applications.  Even if this pre-requisite is deemed essential to save a real estate developer from malicious applications, its retrospective application only adds to miseries of the allottees. A mere surge in applications and apprehensions of real estate developers cannot be a ground for curtailing the remedy of allottees. The legislature could have easily averted the hardships and anomalies had it adopted any of the above-suggested alternatives. Moreover, it is difficult to appreciate the mala fide intents of an allottee in an application for revival of the company wherein the applicant has invested his life savings to purchase an abode and the real estate developer has defaulted in handing over the possession. Thus, the amendment in Section 7 on the allottees of a real estate project was uncalled for, particularly with a retrospective effect.

VI. The middle way

In light of the abovesaid, it is also difficult to aver that the surge in applications has not severely affected the working of the real estate developers. The litigation costs and replies to multiple applications do severely affect the normal functioning of these companies. In such a situation where the legislature felt the existing mechanism as not sufficient to check the disruptions due to multiple applications it would have been reasonable to give the amendment a prospective application only i.e. application filed after 28.12.2019, provided it withstands the test of constitutionality under Article 14 of the Constitution of India.

Further, the legislature could state that a minimum threshold is required to be met at the time of the first hearing before the Tribunal. Moreover, the legislature needs to find a way out for an authentic public record for a list of allottees, which will avoid unnecessary protraction of this efficient and speedy resolution proceedings due to hearings on this preliminary issue of whether the application meets the minimum threshold. It must be remembered that the proceedings under the Code are summary proceedings.

VII. Concluding remarks

Apart from other objections not subject of discussion in the present article i.e. the Ordinance and the amendment to Section 7 being violative of Article 14 of the Constitution, pending before the Supreme Court, the legislature has overviewed the above-noted consequent anomalies and hardships which is causing and is likely to continue causing grave injustice and hardship to the allottees of real estate project. The legislature may have intended to balance the equities of real estate developers, allottees, and the real estate market, but the legislature missed to appreciate the abovesaid anomalies and hardships caused to the already oppressed allottees and the retrospective applicability of the amendment runs it excessive.

In view of the authors, such a retraction by the legislature after recognising a right of the individual applicant dissuades faith reposed by the applicants, in the purported “beneficial legislation” like the Code. Such flickering enactments by the legislature makes applicants or litigants dissuade from such remedies, created for their benefit. The legislature should have, if deemed necessary, applied the amendment to future applications only. Additionally, the legislature could have easily avoided consequent anomalies by use of terms like “impleadment” instead of “modified”; stating that the pre-requisite criterion as, “….whichever is less, at the time of filing of the application” in the third proviso. Such legislation could contain the faith of the already oppressed allottees in such purported beneficial legislations who filed for initiation of the CIRP being mindful of the decision of the Court in Pioneer[21].

*Advocates, Supreme Court of India and High Court of Delhi

[1] The Insolvency and Bankruptcy Code, 2016

[2] The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018

[3] (2019) 8 SCC 416

[4] Ibid, paras 56-57

[5] The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019

[6] The Insolvency and Bankruptcy Code (Amendment) Act, 2020

[7] 2020 SCC OnLine SC 384


[9] Business Today, “Real estate tops bankruptcy chart; construction, metals and textiles follow”, dated 19-2-2019

[10] Standing Committee On Finance (2019-2020), Sixth Report, The Insolvency and Bankruptcy (Second Amendment) Bill, 2019 

[11] Pareekshit Bishnoi, “IBC Ordinance, 2019: Impleadment of Allottees in a Pending Application”, IndiaCorpLaw, dated 16-3-2020 

[12] Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416, para 86(ii)

[13] 2020 SCC OnLine NCLAT 46, para 33

[14] IB-1637 (ND)/2019, order dated 24-09-2019 (NCLT, New Delhi Bench), paras 5-6

[15] Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416, para 14

[16]Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416, para 56

[17] 2020 SCC OnLine NCLAT 421, para 15

[18] 2020 SCC OnLine NCLAT 46, para 55

[19]Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416, para 39

[20] 2020 SCC OnLine NCLAT 46, paras 33-37, 45-47 and 53-55

[21]Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416