Case BriefsSupreme Court

Supreme Court: A Division Bench of Indira Banerjee and V. Ramasubramanian, JJ. held that there is no bar in law to amendment of pleadings in an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 or to filing of additional documents apart from those initially filed, at any time until a final order either admitting or dismissing the application has been passed.

The Court also held that an application under Section 7 for imitation of corporate insolvency resolution process against a corporate debtor is not be barred by limitation if there is an acknowledgement of the debt by the corporate debtor before expiry of the limitation period. Such acknowledgment can be by way of statement of accounts, balance sheets, financial statements and offer of one time settlement.

Moreover, a final judgment and/or decree of any court or tribunal or any arbitral award for payment of money, if not satisfied, would fall within the ambit of a financial debt, enabling the creditor to initiate proceedings under Section 7.

Factual Matrix and Timeline

In 2011, Dena Bank sanctioned a term loan of to the Corporate Debtor, which was to be repaid in 24 quarterly installments. The Corporate Debtor defaulted in repayment and their account was declared Non Performing Asset (“NPA”) in December 2013. In 2014, the Bank sent a letter to the Corporate Debtor to repay the outstanding dues. However, no payment was made.

In 2015, the Bank initiated proceedings before the Debts Recovery Tribunal (“DRT”) for recovery of outstanding dues from the Corporate Debtor. By a letter dated 5 January 2015, the Corporate Debtor requested the Bank to restructure the loan. Again, on 3 March 2017, while proceedings were pending before DRT, the Corporate Debtor gave an offer for one time settlement of the term loan account, which  was rejected by the Bank. On 27 March 2017, DRT passed an order against the Corporate Debtor for recovery of outstanding dues to the Bank. In May 2017, DRT issued a Recovery Certificate in favour of the Bank. Thereafter in June 2017, the Corporate Debtor once again gave the Bank a proposal for one time settlement to mutually settle the loan amount.

In October 2018, the Bank sought initiation of corporate insolvency resolution process against the Corporate Debtor. It filed a petition under Section 7 of the Insolvency and Bankruptcy Code (“IBC”) before the National Company Law Tribunal, Bengaluru. Thereafter, twice in 2019, the Bank filed applications for permission to place additional documents on record. Both these applications were allowed by NCLT. In March 2019, NCLT passed an order to admit the Section 7 petition filed by the Bank.

Appeal

The Corporate Debtor challenged the order of NCLT in an appeal under Section 61 IBC before the National Company Law Appellate Tribunal. The NCLAT allowed the appeal reversed the order of NCLT. Aggrieved, the Bank approached the Supreme Court.

Issues

Three questions arose for consideration of the Court:

(i) Whether a petition under Section 7 IBC would be barred by limitation, on the sole ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, even though the Corporate Debtor might subsequently have acknowledged its liability to the appellant Bank, within a period of three years prior to the date of filing of the Section 7 petition, by making a proposal for a one time settlement, or by acknowledging the debt in its statutory balance sheets and books of accounts.

(ii) Whether a final judgment and decree of DRT in favour of financial creditor, or the issuance of a Certificate of Recovery in favour of financial creditor, would give rise to a fresh cause of action to financial creditor to initiate proceedings under Section 7 IBC within three years from the date of the final judgment and decree, and/or within three years from the date of issuance of the Certificate of Recovery.

(iii) Whether there is any bar in law to the amendment of pleadings, in a petition under Section 7 IBC, or to the filing of additional documents, apart from those filed initially, along with the Section 7 petition in Form-1 given in the Annexure to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (“2016 Adjudicating Authority Rules”).

Analysis and Observations

Interpretation of the Code

Discussing the object of IBC, the Court observed that it is imperative that provisions of IBC and Rules and Regulations framed thereunder be construed liberally, in a purposive manner to further the objects of enactment of the statute, and not be given a narrow, pedantic interpretation which defeats its purposes.

Permissibility of amending Section 7 petition for filing additional documents

On a careful reading of IBC provisions and in particular the provisions of Section 7(2) to (5) read with the 2016 Adjudicating Authority Rules, the Court reached a conclusion that there is no bar to the filing of documents at any time until a final order either admitting or dismissing the application has been passed.

The Court noted that under Section 7(2) IBC, a financial creditor is required to apply for initiation of corporate insolvency resolution process against a corporate debtor in the prescribed Form-1 under the 2016 Adjudicating Authority Rules. Since a financial creditor is required to apply under Section 7 IBC in statutory Form-1, the financial creditor can only fill in particulars as specified in the various columns of the Form. There is no scope for elaborate pleadings. The Court observed:

An application to the Adjudicating Authority (NCLT) under Section 7 of the IBC in the prescribed form, cannot therefore, be compared with the plaint in a suit. Such application cannot be judged by the same standards, as a plaint in a suit, or any other pleadings in a Court of law.

The Court summed up the discussion on this point by mentioning that there is no bar in law to amendment of pleadings in an application under Section 7 IBC, or to filing of additional documents, apart from those initially filed along with application under Section 7 in Form-1. It was observed:

In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that NCLT committed any illegality or error in permitting the Bank to file additional documents.

However, the Court added that depending on the facts and circumstances of the case, when there is inordinate delay, the adjudicating authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order.

Lastly, it was clarified that Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1 is not an authority for the proposition that there can be no amendment of pleadings at the fag end of NCLT proceedings. Moreover, in the instant case, the amendments were not made at the fag end of the proceedings but within 2/3 months of their initiation, before admission of the petition under Section 7 IBC.

Limitation and effect of acknowledgment of debt

Under the scheme of IBC, the insolvency resolution process begins when a default takes place, in the sense that a debt becomes due and is not paid. Before considering the main point, the Court noted that there can be no dispute with the proposition that in terms of Article 137 of Limitation Act, 1963, the period of limitation for making an application under Section 7 IBC is three years from the date of accrual of the right to sue, that is, the date of default.

However, as per Section 18 of Limitation Act, an acknowledgement of present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. The acknowledgement must be made before the relevant period of limitation has expired. Relying on Sesh Nath Singh v. Baidyabati Sheoraphuli Coop. Bank Ltd., 2021 SCC Online SC 244 and Laxmi Pat Surana v. Union Bank of India, 2021 SCC Online SC 267, the Court reiterated that there is no reason to exclude the effect of Section 18 of the Limitation Act to proceedings initiated under IBC.

Relying further on Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal, 2021 SCC Online SC 321, the Court noted that:

It is well settled that entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgment under Section 18 of the Limitation Act.

In view of such law, the Court concluded that NCLAT’s finding that there was nothing on record to suggest that the Corporate Debtor acknowledged the debt within three years and agreed to pay debt, was not sustainable in law in view of the statement of accounts/balance sheets/financial statements for the years 2016-2017 and 2017-2018 and the offer of one time settlement including in particular the offer of one time settlement made on 3 March 2017.

In the instant case, Rs 1.11 crore had been paid towards outstanding interest on 28 March 2014 and the offer of one time settlement was within three years thereafter. In any case, NCLAT overlooked the fact that a Certificate of Recovery was issued by DRT in favour of the Bank on 25 May 2017. The Corporate Debtor did not pay dues in terms of the Certificate of Recovery. The Court held:

The Certificate of Recovery in itself gives a fresh cause of action to the Appellant Bank to institute a petition under Section 7 of IBC. The petition under Section 7 IBC was well within three years from 28th March 2014.

The Court relied on Jignesh Shah v. Union of India, (2019) 10 SCC 750 for concluding that a final judgment and/or decree of any court or tribunal or any arbitral award for payment of money, if not satisfied, would fall within the ambit of a financial debt, enabling the creditor to initiate proceedings under Section 7 IBC.

Before concluding, the Court considered that when the petition under Section 7 IBC was filed, the date of default was mentioned as 30 September 2013 and the date of declaration of term loan account of the Corporate Debtor as NPA was stated as 31 December 2013. However, according to the Court, it was not correct to say that there was no averment in the petition of any acknowledgment of debt. Such averments were duly incorporated by way of amendment, and NCLT rightly looked into the amended pleadings to admit the petition of Bank. The Court reiterated:

Even assuming that documents were brought on record at a later stage … the Adjudicating Authority was not precluded from considering the same. The documents were brought on record before any final decision was taken in the petition under Section 7 of IBC.

Decision

For the reasons discussed above, the Supreme Court held that the Section 7 IBC petition filed by Dena Bank was admissible. The impugned judgment of NCLAT was unsustainable which was set aside. [Dena Bank v. C. Shivakumar Reddy, 2021 SCC OnLine SC 543, decided on 4-8-2021]


Tejaswi Pandit, Senior Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: The 3-Judge Bench of Rohinton Fali Nariman, Navin Sinha and K.M. Joseph, JJ., in a 465-pages long judgment, upheld the validity of several provisions of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, albeit with directions given in exercise of powers under Article 142 of the Constitution of India. While so upholding the impugned amendments, the Bench expressed an observation that:

“There is nothing like a perfect law and as with all human institutions, there are bound to be imperfections. What is significant is however for the court ruling on constitutionality, the law must present a clear departure from constitutional limits.”

The Challenge

In the instant matter, the petitioners approached the Court calling in question the following Sections of the Insolvency and Bankruptcy Code (Amendment) Act, 2020: Sections 3, 4 and 10.

Section 3 of the impugned amendment, amends Section 7(1) of the Insolvency and Bankruptcy Code, 2016 (“IBC”). It incorporates 3 provisos to Section 7(1).

Section 4 of the impugned amendment, incorporates an additional Explanation in Section 11 (Explanation II) IBC.

Section 10 of the impugned amendment inserts Section 32-A in IBC.

The Petitioners

Majority of the petitioners were the allottees under the real estate projects and they have trained the constitutional gun at the impugned provisos.

Under the second proviso, a new threshold was declared for an allottee to move an application under Section 7 for triggering the insolvency resolution process under IBC. The threshold is the requirement that there should be at least 100 allottees to support the application or 10% of the total allottees whichever is less. Moreover, they should belong to the same project.

Some other petitioners were money lenders, who stepped in to provide finance for the real estate projects. They were also visited with the requirement which is imposed upon them under the first impugned proviso which is on similar lines as those comprised in the second proviso.

Point-wise Discussion & Observations

A. Challenging a Plenary Law

The Court noted the following two contentions urged by some of the petitioners:

A.1. The law was created by way of pandering to the real estate lobby and succumbing to their pressure or by way of placating their vested interests.

In regard with this contention, Court stated that such an argument is nothing but a thinly disguised attempt at questioning the law of the Legislature based on malice. It was observed:

“While malice may furnish a ground in an appropriate case to veto administrative action it is trite that malice does not furnish a ground to attack a plenary law.”

 Reliance was placed on the earlier Supreme Court decisions in K. Nagaraj v. State of A.P., (1985) 1 SCC 523 and State of H.P. v. Narain Singh, (2009) 13 SCC 165.

A.2. Another contention was that, due to its stand before the Court in Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416, the supreme legislature was estopped by the principle of promissory estoppel from enacting the impugned enactment.

To this, the Court answered that: “A supreme legislature cannot be cribbed, cabined or confined by the doctrine of promissory estoppel or estoppel. It acts as a sovereign body.

The theory of promissory estoppel, on the one hand, has witnessed an incredible trajectory of growth but it is incontestable that it serves as an effective deterrent to prevent injustice from a Government or its agencies which seek to resile from a representation made by them, without just cause. Reliance was placed on Union of India v. Godfrey Philips( India) Ltd, (1985) 4 SCC 369.

B. Challenge to newly inserted Provisos in S. 7(1)

Under the impugned provisos inserted in Section 7(1) of the Code, an application by an allottee, can be made only if there are hundred allottees or a number representing one-tenth of the total number of allottees, whichever is less, with a further rider that the allottees must be part of the same real estate project.

B.1. Allottee and Real Estate Project

The Court was of the opinion that the definition of the word “allottee” appears to be split up into three categories broadly, they are- plot, apartment and buildings. In the context of the impugned proviso, in calculating the total number of allottees, the question must be decided with reference to real nature of the real estate project in which the applicant is an allottee. If it is in the case of an apartment, then necessarily all persons to whom allotment had been made would be treated as allottees for calculating the figure mentioned in the impugned proviso. As to what would constitute the “real estate project”, it must depend on the terms and conditions and scope of a particular real estate project in which allottees are a part of. These are factual matters to be considered in the facts of each case.

B.2. Workability of Default

 Since, default can be qua any of the applicants, and even a person, who is not an applicant, and the action is, one which is understood to be in rem, in that, the procedures, under IBC, would bind the entire set of stakeholders, including the whole of the allottees, the Court saw no merit in the contention of the petitioner based on the theory of default, rendering the provisions unworkable and arbitrary.

It was explained that if a law contemplates that the default in a sum of R 1 crore can be towards any financial creditor, even if he is not an applicant, the fact that the debt is barred as against some of the financial creditors, who are applicants, whereas, the application by some others, or even one who have moved jointly, fulfill the requirement of default, both in terms of the sum and it not being barred, the application would still lie.

B.3. Allottees to be from same real estate project: Constitutionality 

The rationale behind confining allottees to the same real estate project is to promote the object of IBC. Once the threshold requirement can pass muster when tested in the anvil of a challenge based on Articles 14, 19 and 21, then, there is both logic and reason behind the legislative value judgment that the allottees who must join the application under the impugned provisos must be related to the same real estate project. If it is to embrace the total number of allottees of all projects, which a Promoter of a real estate project, may be having, it will make the task of the applicant himself more cumbersome.

B.4. Point of time to comply with the Threshold Requirements

There can be no doubt that the requirement of a threshold under the impugned proviso in Section 7(1) must be fulfilled as on the date of the filing of the application. In the matter of presentation of an application under Section 7, if the threshold requirement under the impugned provisos stands fulfilled, the requirement of the law must be treated as fulfilled.

B.5. Holding by family members and joint holdings: Whether Single Allottee

 In the case of a joint allotment of an apartment, plot or a building to more than one person, the allotment can only be treated as a single allotment. This for the reason that the object of the Statute, admittedly, is to ensure that there is a critical mass of persons (allottees), who agree that the time is ripe to invoke IBC and to submit to the inexorable processes under IBC, with all its attendant perils.

B.6. No power of waiver to Central Government unlike in Companies Act

 Section 399(4) of the Companies Act, 1956, empowers the Central Government to waive certain requirements allowing applicants to approach the Tribunal, if found just and equitable.

However, the scheme of IBC is unique and its objects are vividly different from that of the Companies Act. Consequently, if the Legislature felt that threshold requirement representing a critical mass of allottees alone would satisfy the requirement of a valid institution of an application under Section 7, it cannot be dubbed as either discriminatory or arbitrary.

B.7. Or. 1 R. 8 CPC and S. 12, Consumer Protection Act

Under Order 1 Rule 8 CPC, where there are numerous persons having the same interest in one suit, one or more such persons can, with the permission of the court, sue or be sued or may defend such suit on behalf of or for the benefit of all persons so interested, at the instance of a single person with whom numerous persons share the same interest. Similar is the provision of Section 12 of the Consumer Protection Act, 1986.

However, it is important to not be oblivious to the scheme of IBC and to distinguish it from a civil suit laid invoking Order 1 Rule 8 or the consumer complaint presented by one consumer, sharing the same interest with numerous others. As to whether the procedure contemplated in Order I Rule 8 is suitable, more appropriate and even more fair, is a matter, entirely in the realm of legislative choice and policy.

“Invalidating a law made by a competent Legislature, on the basis of what the Court may be induced to conclude, as a better arrangement or a more wise and even fairer system, is constitutionally impermissible. If, the impugned provisions are otherwise not infirm, they must pass muster.”

 B.8. The Pioneer judgment: Are amendments violative of it

In Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416, certain amendments to IBC were challenged. The challenged provisions included the Explanation added to Section 5(8)(f).

After culling out the findings of the Court in the Pioneer judgment, the Court opined that the impugned provisos do not set at naught the ruling in Pioneer judgment. In a challenge by real estate developers upholding the provisions in the manner done including the Explanation in Section 5(8)(f) and allaying the apprehension about abuse by individual allottees cannot detract from the law giver amending the very law on its understanding of the working of IBC at the instance of certain groups of applicants and impact it produces on the economy and the frustration of the sublime goals of the law.

B.9. Information Asymmetry

 It was contended that the information relating to allottees in respect of real estate projects and the debenture holders and security holders in regard to the first proviso is not available, which makes it arbitrary and unworkable.

On this, the Court noted that as far as allottees are concerned in regard to apartments and plots, Section 11(1)(b) of the RERA makes it mandatory for the promoter to make available information regarding the bookings. The Court conflated bookings with allotments. Further, the Association of allottees has to be formed under the mandate of the law it is expected to play an important role. It was stated:

“The law giver has therefore created a mechanism, namely, the association of allottees through which the allottees are expected to gather information about the status of the allotments including the names and addresses of the allottees.”

Similarly, contention regarding non-availability of information regarding debenture holders and security holders was turned down in view of statutory mechanism comprised in the provisions of the Companies Act 2013, namely Section 88.

B.10. The first and second provisos classification

The petitioners emphasised the principle that the object itself cannot be discriminate. It was pointed out that the object in the case of impugned provisos between different sections of financial creditors is such discrimination. Further, the corporate debtors are discriminated again in that builders are accorded special treatment qua other corporate debtors.

Following a plethora of judicial precedents, the Court concluded that:

“It is clear that the law does not interdict the creation of a class within a class absolutely. Should there be a rational basis for creating a sub-class within a class, then, it is not impermissible.”

It was noted that allottees are indeed financial creditors. They do possess certain characteristics, however, which appear to have appealed to the Legislature as setting them apart from the generality of financial creditors. These features are: (i) Numerosity; (ii) Heterogeneity; (iii) Individuality in decision making.

“In the case of the allottees of a real estate project, it is the approach of the Legislature that in a real estate project there would be large number of allottees. There can be hundreds or even thousands of allottees in a project. If a single allottee, as a financial creditor, is allowed to move an application under Section 7, the interests of all the other allottees may be put in peril. This is for the reason that as stakeholders in the real estate project, having invested money and time and looking forward to obtaining possession of the flat or apartment and faced with the same state of affairs as the allottee, who moves the application under Section 7 IBC, the other allottees may have a different take of the whole scenario.”

It was added that some of them may approach the Authority under the RERA. Others may, instead, resort to the fora under the Consumer Protection Act, though, the remedy of a civil suit is, no doubt, not ruled out. In such circumstances, if the Legislature, taking into consideration, the sheer numbers of a group of creditors, viz., the allottees of real estate projects, finds this to be an intelligible differentia, which distinguishes the allottees from the other financial creditors, who are not found to possess the characteristics of numerosity, then, it is not for the Court to sit in judgment over the wisdom of such a measure.

“This is not a case where there is no intelligible differentia. The law under scrutiny is an economic measure. As laid down by this Court, in dealing with the challenge on the anvil of Article 14, the Court will not adopt a doctrinaire approach.”

 B.11. Allottees v. Operational Creditors

One of the contentions raised by petitioners was as regards the hostile discrimination between petitioner (allottees) and operational creditors. The advantages which financial creditor have over operational creditors was referred to.

The Court was of the view that as far as the argument relating to violation of Article 14 qua operational creditor was concerned, there is no merit in the same. Quite apart from the fact that under IBC they are dealt with under different provisions and a different procedure is entailed thereunder, even the earlier decisions have treated the financial creditor differently from the operational creditor. Reliance was placed on Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407; Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17 and Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416. It was observed:

“While it may be true that the allottee is not a secured creditor and he is not in the position of a bank or the financial institution, the contentions of the petitioners that there is hostile discrimination forbidden (under) Article 14 is untenable. There cannot be any doubt that intrinsically a financial creditor and an operational creditor are distinct.”

It was noted that it is not a case where the right of the allottee is completely taken away. All that has happened is a half-way house is built between extreme positions, viz., denying the right altogether to the allottee to move the application under Section 7 IBC and giving an unbridled license to a single person to hold the real estate project and all the stakeholders thereunder hostage to a proceeding under IBC which must certainly pass inexorably within a stipulated period of time should circumstances exists under Section 33 into corporate death with the unavoidable consequence of all allottees and not merely the applicant under Section 7 being visited with payment out of the liquidation value, the amounts which are only due to the unsecured creditor.

C. Challenge to newly inserted Explanation II to S. 11

It was contended that an Explanation cannot modify the main provision to which it is an Explanation. Section 11(a) and Section 11(b) unequivocally bar a Corporate Debtor from filing a Corporate Insolvency Resolution Process application qua another Corporate Debtor under Section 7 and Section 9 IBC. It was complained that the label of an Explanation has been used to substantially amend, which is an arbitrary and irrational exercise of power.

It was pointed out that the word “includes” in Explanation I to Section 11 would indicate that an Application for CIRP is barred not only against itself but also against any other Corporate Debtor when the applicant-Corporate Debtor is found placed in circumstances expressed in Section 11. If the purport of  Explanation II, which was impugned, is that the intention of the law was to only bar an Application for CIRP by a Corporate Debtor against itself, then, it will be unworkable and practically impossible. Explanation II, it was contended, is manifestly arbitrary. It was further contended that the amendment cannot be used retrospectively and take away the vested right.

Dealing with this challenge, the Court analysed the limbs of Section 11 and  Explanation I. Then finally coming to Explanation II, it was opined that The intention of the Legislature was always to target the corporate debtor only insofar as it purported to prohibit application by the corporate debtor against itself, to prevent abuse of the provisions of IBC. It could never had been the intention of the Legislature to create an obstacle in the path of the corporate debtor, in any of the circumstances contained in Section 11, from maximizing its assets by trying to recover the liabilities due to it from others. It was further held:

“The provisions of the impugned Explanation II, thus, clearly amount to a clarificatory amendment. A clarificatory amendment, it is not even in dispute, is retrospective in nature.”

D. Challenge to newly inserted S. 32-A

It was contended that the immunity granted to the corporate debtors and its assets acquired from the proceeds of crimes and any criminal liability arising from the offences of the erstwhile management for the offences committed prior to initiation of CIRP and approval of the resolution plan by the adjudicating authority further jeopardizes the interest of the allottees/creditors. It will cause huge losses which is sought to be prevented under the provisions of the Prevention of Money Laundering Act, 2002. Section 32-A, it was argued, is therefore arbitrary, ultra vires and violative of Article 300-A and Articles 14, 19 and 21.

Answering this, the Court was of the clear view that no case whatsoever is made out to seek invalidation of Section 32-A. The boundaries of the Court’s jurisdiction are clear. The wisdom of the legislation is not open to judicial review. It was observed:

“The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away. They remain liable. The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate.”

Further, it was stated that it must be remembered that the immunity is premised on various conditions being fulfilled. In Court’s opinion, there was no basis at all to impugn the Section on the ground that it violates Articles 19, 21 or 300A.

E. Restrospectivity in third proviso to S. 7 and effect on vested rights

The third proviso is a one-time affair. It is intended only to deal with those applications, under Section 7, which were filed prior to 28.12.2019. In other words, the legislative intention was to ensure that no application under Section 7 could be filed after 28.12.2019, except upon complying with the requirements in the first and second provisos. The Legislature did not stop there. It has clearly intended that the threshold requirement it imposed, will apply to all those applications, which were filed, prior to 28.12.2019 as well, subject to the exception that the applications, so filed, had not been admitted, under Section 7(5).

The Court considered, whether the right under the unamended Section 7 was a vested right of the financial creditors or allottees covered by the provisos 1 and 2, respectively.

It was the Court’s view that there is a right which is vested in the cases where, the petitioners have filed application, fulfilling the requirements under unamended Section 7 of IBC. The very act of filing the application, even satisfies the apparent test propounded by the Additional Solicitor General, that the right under Section 7 is only one to take advantage of the statute and unless advantage is actually availed it does not create an accrued right. When applications were filed under the unamended provisions of Section 7, at any rate it would transform into a vested right. The vested right is to proceed with the action till its logical and legal conclusion.

It was noted, every sovereign Legislature is clothed with competence to make retrospective laws. It is open to the Legislature, while making retrospective law, to take away vested rights. If a vested right can be taken away by a retrospective law, there can be no reason why the Legislature cannot modify the vested rights.

During the course of discussion, it was also noted that imposing the threshold requirement under the third proviso, is not a mere matter of procedure. It impairs vested rights. It has conditioned the right instead, in the manner provided in the first and the second proviso. The Court already upheld the first and second proviso, which, in fact, operates only in the future. In that sense, the Legislature has purported to equate persons who had not filed applications with persons like the petitioners who had filed the applications under the unamended law.

Lastly, the Court discussed certain factors including clarity regarding “withdrawal” under the third proviso, as also the question of court fees. Analysing such points, the Court finally passed certain directions.

Conclusion & Relief

The Court upheld the impugned amendments, albeit subject to certain directions issued under Article 32 of the Constitution:

(i) If any of the petitioners move applications in respect of the same default, as alleged in their applications, within a period of two months from today, also compliant with either the first or the second proviso under Section 7(1), as the case may be, then, they will be exempted from the requirement of payment of court fees, in the manner, which we have detailed in the paragraph just herein before.

(ii) If applications are moved under Section 7 by the petitioners, within a period of two months from today, in compliance with either of the provisos, as the case may be, and the application would be barred under Article 137 of the Limitation Act, on the default alleged in the applications, which were already filed, if the petitioner file applications under Section 5 of the Limitation Act, the period of time spent before the Adjudicating Authority, the Adjudicating Authority shall allow the applications and the period of delay shall be condoned in regard to the period, during which, the earlier applications filed by them, which is the subject matter of the third proviso, was pending before the Adjudicating Authority.

(iii) The time limit of two months is fixed only for conferring the benefits of exemption from court fees and for condonation of the delay caused by the applications pending before the Adjudicating Authority. In other words, it is always open to the petitioners to file applications, even after the period of two months and seek the benefit of condonation of delay under Section 5 of the Limitation Act, in regard to the period, during which, the applications were pending before the Adjudicating Authority, which were filed under the unamended Section 7, as also thereafter. [Manish Kumar v. Union of India, 2021 SCC OnLine SC 30, dated 19-01-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, Mumbai: The Bench of Bhaskara Pantula Mohan, Member (Judicial) and V. Nallasenapathy, Member (Technical) allowed a petition filed by TJSB Sahakari Bank (“the Bankfor admission of an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

The Bank was a member of the “SVC Bank Consortium” that sanctioned credit facilities to the Unimetal Castings Ltd. (“Corporate Debtor”) on 25-2-2013. The Bank sought initiation of Insolvency Resolution Process against the Corporate Debtor under Section 7 on the ground of default in repayment of the loan to the extent of more than Rs 6.38 crores.

Aditya Pimple, Advocate instructed by MAG Legal representing the Corporate Debtor raised various contentions to oppose the application of the Bank. One of the contentions related to applicability of Limitation Act, 1963 was that the claim of the Bank was barred under Article 137. For this, he relied on a recent judgment in B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates, 2018 SCC OnLine SC 1921 wherein the Supreme Court clarified that the Limitation Act, 1963 is applicable to Insolvency and Bankruptcy Code, 2016. It was submitted that the date of alleged default was 30-06-2015 (the date on which Corporate Debtor’s account was declared a Non-Performing Asset). Furthermore, since the petition was filed on 23-8-2018, i.e., after more than 3 years of the date on which the cause of action arose (and also the right to apply accrued), therefore it was barred by limitation.

Per contra, Nausher Kohli, Advocate instructed by DSK Legal who appeared for the Bank, submitted that the Bank’s name and loan was shown in the balance sheet of the Corporate Debtor for the Financial Year ending 2017. This according to hi was an acknowledgement of liability. And therefore, it was contended that the debt was not barred by limitation even when the insolvency application was filed after 3 years from the date of default.

The tribunal noted that the Corporate Debtor did not dispute the fact the loan was shown as a liability in its balance sheet. It was observed, ” when the liability is shown in the balance sheet, that is a clear acknowledgement of debt by the Corporate debtor. There are umpteen numbers of judgments to say that the debt shown in the balance sheet is an acknowledgement of liability.” In such a view, the Tribunal held that the contention of the Corporate Debtor would not hold water. Having been satisfied that the Corporate debtor defaulted in making a payment towards its liability to the Bank, the Tribunal allowed the petition and admitted the bank’s application filed under Section 7 IBC. [TJSB Sahakari Bank Ltd. v. Unimetal Castings Ltd., CP (IB)-3622/I&BP/MB/2108 dated 25-01-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): Justice Bansi Lal Bhat, Member (Judicial) disposed of an appeal by Asset Reconstruction Co. (India) Ltd. with a direction to National Company Law Tribunal, Ahmedabad to expedite the disposal of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 pending before it.

Dinkar Singh, Advocate representing the appellant Asset Reconstruction Co. (Financial Creditor) submitted that an application under Section 7 for initiation of Insolvency Resolution Process against the respondent GPT Steel Industries Ltd. (Corporate Debtor) was pending before NCLT at pre-admission stage since 1-3-2018 and the matter was being adjourned time and again.

The Appellate Tribunal was dismayed to notice that a limited enquiry had been converted into a full-dressed trial. It was also stated that pre-admission proceedings cannot be permitted to protract. It was further reiterated, “Corporate Insolvency Resolution Process is not a recovery proceeding and the Adjudicating Authority has to strictly adhere to the rules of procedure and the timelines set out in the IBC. The Adjudicating Authority should be alive to the object sought to be achieved by the IBC and ensure that all efforts to derail the process are frustrated.” Having observed thus, the Appellate Tribunal disposed of the appeal by directing NCLT to expedite the disposal of the application pending before it, preferably within 2 weeks of the date of this order. [Asset Reconstruction Co. (India) Ltd. v. GPT Steel Industries Ltd., 2019 SCC OnLine NCLAT 6, dated 15-02-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Bench of Justice S.J. Mukhopadhaya, Chairperson and Justice Bansi Lal Bhat, Member (Judicial) allowed an appeal filed against the order of National Company Law Tribunal (New Delhi) whereby it had admitted respondent’s application under Section 7 of the Insolvency and Bankruptcy Code, 2016 and appointed an Interim Resolution Professional.

Senior Advocate K. Venugopal assisted by Pawan Sharma, Anuj Shah and Rishabh Sharma, Advocates representing the appellant–Shareholder of the Corporate Debtor, submitted that NCLT failed to notice inter alia that the parties had already settled the claim. The factum of the settlement was accepted by Ashish Agarwal, Advocate appearing for the respondent.

It was informed by the Interim Resolution Professional that advertisement was issued asking for claims but Committee of Creditors was not yet constituted.

The Appellate Tribunal relied on Swiss Ribbons (P) Ltd. v. Union of India, 2019 SCC OnLine SC 73 wherein the Supreme Court held, “at any stage where the committee of creditors is not yet constituted, a party can approach the NCLT directly, which Tribunal may, in exercise of its inherent powers under Rule 11 of the NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement.”

In such view of the matter, the impugned order of NCLT was set aside as the parties had settled the claim before the constitution of Committee of Creditors and the respondent did not want to proceed with the matter. The appeal was thus allowed. [Arjun Puri v. Kunal Prasad, 2019 SCC OnLine NCLAT 5, dated 31-01-2019]