2022 (2) TMI 466 - KERALA HIGH COURT

Applicability of effect of amendment in notification dated 24.03.2020 - seeking declaration that the notification dated 24.03.2020 whereby the minimum amount of default was specified as ₹ 1 Crore is prospective and would apply only to cases where the default occurred on or after 24.3.2020 - seeking declaration that the notification will not apply to cases where mandatory notice under Section 8 of the IBC has been issued by the operational creditor and the stipulated 10 days' period had elapsed prior to the date of notification - application which relates to a defaulted amount less than ₹ 1 crore can be filed after 24.3.2020, on which date Ext. P5 amendment to Section 4 was introduced or not? - prospectivity of Ext. P5 has to be decided on the basis of the defaulted amount or on the basis of the date of default? - Whether Ext. P7 order of the NCLT can be challenged in a proceedings under Article 226 or should the petitioner be relegated to the appellate remedy?

Maintainability of the writ petition under Article 226 of the Constitution of India, to challenge Ext. P7 order of the Tribunal - HELD THAT:- It is well settled by a catena of decisions that exercising or not exercising jurisdiction under Article 226 on issues where an alternate remedy is available, it is more a rule of self restraint. It has been consistently held that alternate remedy will not be a reason for not exercising jurisdiction when the issue relates to enforcement of the fundamental right or violation of principles of natural justice or where the proceedings challenged are without jurisdiction or in cases where the validity of a Statute is challenged.

Whether the Tribunal had jurisdiction to entertain Ext. P1 application in the light of Ext. P5 amendment? - HELD THAT:- Since the amount is less than ₹ 1 Crore, if an application had been filed before 24.3.2020, it would have conformed with the minimum default which had been prescribed at that point of time. However, admittedly, the application was filed six months after the amendment. It is in these circumstances that the 2nd respondent has raised a claim that for the purpose of setting in motion a corporate insolvency resolution process, what is required is the occurrence of a default of more than ₹ 1 lakh prior to 24.3.2020. Since no time limit has been prescribed for preferring an application after the delivery of notice, it is submitted that the date of filing of application is not the material aspect that has to be looked into.

The contention that the operational creditors will be left with no alternate and efficacious remedy also is not correct. As held by the Hon'ble Supreme Court in Manish Kumar [[2021 (1) TMI 802 - SUPREME COURT]], the IBC is not enacted to provide for a manner of recovery of debts by the creditors. It is to provide for insolvency resolution. The purpose of the IBC is to protect the rights of the debtors as well as the creditors. It is in the above background that the provisions relating to the IBC have to be understood. By providing for insolvency resolution in case of corporate debtors whose debt is above a specified amount, it can be seen that the very purpose is not to include cases where the debt is lesser than the said amount. None of the rights available to a creditor as against a debtor are taken away in the process. So also the contention that in Manish Kumar (supra), the Apex Court has held that a right accrued cannot be taken away does not appear to be correct, in view of the findings regarding the manner in which a vested right can be modified.

In the case on hand, the petitioner could have filed an application before the Tribunal before 24.3.2020. But, after 24.3.2020, the right to approach the Tribunal stood modified and it is only when there is minimum default of ₹ 1 Crore, an application can be filed. As such, Ext. P1 could not have been filed after Ext. P5 amendment. Since Section 4 deals with applicability of the provisions of Part II, it is necessarily a provision which gives jurisdiction to the Adjudicating Authority. Once the application of Part II is taken away for debts more than ₹ 1 Crore, there is no further jurisdiction available under the Statute to the NCLT to act as an Adjudicating Authority under the IBC. It is hence a clear case of total want of jurisdiction - In Ext. P9 order, the Tribunal has held that the notification dated 24.03.2020 is prospective in nature and it is not retrospective or retro-active in nature. It is further stated by the Tribunal that notification will not apply to pending applications before the concerned Adjudicating Authority under the IBC prior to the issuance of the aforesaid notification.

The Tribunal has gone wrong in its interpretation of Section 4 of the Act. Section 4, after amendment on 24.3.2020 clearly says that Part II of the IBC shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of default is ₹ 1 Crore. As per Section 3(12) of the IBC, "default" means nonpayment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be. What is to be noted is that Corporate debtors who are in default of less than ₹ 1 lakh prior to the amendment and ₹ 1 Crore after the amendment, also are defaulters. However, whether a proceeding for insolvency or liquidation of such corporate debtor should be initiated would depend on the amount in default.

The writ petition under Article 226 is maintainable and there is no necessity or purpose for relegating the petitioner to the alternate remedy. Nor is it necessary to decide on the question whether an appeal is maintainable under the IBC against the order of the Tribunal on a preliminary issue regarding jurisdiction - Application disposed off.