TMI Blog2017 (6) TMI 959X X X X Extracts X X X X X X X X Extracts X X X X ..... vened before the admission of the case and all the objections raised by appellant has been noticed, discussed and considered by the 'adjudicating authority' while passing the impugned order dated 17th January 2017. Thereby, merely on the ground that the Appellant was not given any notice before admission of the case cannot render the impugned order illegal as the Appellant has already been heard. If the impugned order is set aside and the case is remitted back to the adjudicating authority, it would be 'useless formality' and would be futile to order its observance as the result would not be different. Therefore, order to follow the principles of natural justice in the present case does not arise. In some of the cases initiation of Insolvency Resolution Process may have adverse consequences on the welfare of the Company. Therefore, it will be imperative for the “adjudicating authority” to adopt a cautious approach in admitting Insolvency Application by ensuring adherence to the principle of natural justice. Benefit under MRU Act, 1956 - Held that:- The two enactments operate in entirely different fields. This is further made clear by the fact that the MRU Act is enacted under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ti Mukhopadhaya, J. These appeals have been preferred by the Appellant! Corporate Debtor - M/s. Innoventive Industries Limited against order(s) dated 17th January, 2017 and 23rd January, 2017 passed by the 'adjudicating authority' (National Company Law Tribunal), Mumbai Bench, Mumbai (hereinafter referred to as 'Adjudicating Authority') under Section 7 of the Insolvency Bankruptcy Code, 2016 (hereinafter referred to as I B Code 2016) in C.P. No. 1/I BP/NCLT/MB/MAH/20 16. 2. By the impugned order dated 17th January 2017, the 'adjudicating authority' rejected all the contentions raised by the Appellant/Corporate Debtor and held that the application preferred by the financial creditor - M/s. ICICI Bank - (respondent herein) is complete under sub-section (2) of Section 7 of the Insolvency Bankruptcy Code, 2016 and admitted the application declaring 'moratorium' in regard to the affairs of the company; appointed 'Interim Resolution Professional' and passed interim order (s) in terms of Section 7 of the Insolvency Bankruptcy Code, 2016. 3. In the other impugned order dated 23rd January, 2017 the 'adjudicating authority' whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial undertakings will prevail over I B Code, 2016. 8. Ld. Senior Counsel submitted that MRU Act, 1958 being a legislation referable to Entry 24 of List II of Schedule 7 of the Constitution of India operates in different fields overriding the provisions of I B Code, 2016. 9. It was also submitted that MRU Act being a beneficial piece of legislation and the State legislature having competent to enact it and the field being exclusively reserved for State legislature, will prevail over the I B Code 2016, even if it may incidentally encroach upon field occupied by some other enactment. He placed reliance on Hon'ble Supreme Court decision in Vishal N. Kalsaria v. Bank of India [2016] 134 SCL 268/65 taxmann.com 280; Gram Panchayat v. Maiwinder Singh [1985] 3 SCC 661; Ishwari Khetan Sugar Mills (P.) Ltd. v. State of UP [1980] 4 SCC 136. 10. It was further contended that there was complete non- application of mind by the Ld. Tribunal. According to him, Sub- section (4) and (5) of Section 7 of Code, 2016 casts duty on the Tribunal to first ascertain default and satisfy itself of default. The ascertaining of the fact that whether there is default or not can be satisfactorily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (k), (1), (m) and (o) of the reply filed by Respondent No. 2 before the Tribunal. 14. According to appellant, Respondent No. 1 has attempted to manufacture a default by its own conduct/default. A party which has defaulted its obligation cannot complaint about other's alleged default. Respondent No. 1 has not performed its obligation on the one hand and on the other had has wrongly adjusted the amounts due to the Appellant, in other accounts. 15. Ld. Senior Counsel for the Appellant further contended that Respondent No. 1 has not obtained permission/consent from Joint Lender Forum (hereinafter referred to as 'JLF' for short) to initiate the present proceedings even though their application would adversely affect the loans of other members of JLF. In fact, Respondent No. 1 had applied for such permission but it was not granted. Against the total loan of ₹ 90 crores given by other members to JLF, Respondent No. 1 has not given anything and the Appellant has already paid about thrice the amount. The other members of JLF have, therefore, no such grievance against the Appellant. 16. Mr Ramji Srinivasan, Ld. Senior Counsel for the 1St Respondent submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication is required to be provided as specified under sub-Rule (3) of Rule 4 of the Rules. No other notice is required to be provided by the 'adjudicating authority'. Further, according to Ld. Sr. Counsel for the Financial creditor, Section 424 of the Companies Act, 2013 does not extend to create an absolute right of hearing under the scheme of the Code. Reliance was placed on different Supreme Court Decisions, which will be discussed at appropriate stage. 20. According to Ld. Sr. Counsel for the Respondent, the protection granted under the Notification issued under Section 4 of the MRU Act is limited to the enactments as specified in the Schedule to the MRU Act. The MRU Act specifies only certain acts to which the restriction applies and the same cannot be extended to any other legislation. Further, according to him, the I B Code, 2016 has a clear non-obstante clause (Section 238) which overrides operation of MRU Act. He placed reliance on certain other Supreme Court decisions. 21. He further submitted that the order of the 'adjudicating authority' considers the submissions made by the appellant and provide reasoned grounds for rejection of the First Interim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eat the ends ofjustice, or to make the law 'lifeless, absurd, stultifying, self-defeating or plainly contrary to the common sense of the situation'. Since the life of the law is not logic but experience and every legal proposition must, in the ultimate analysis, be tested on the touchstone of pragmatic realism, the audi alteram partem rule would, by the experiential test, be excluded, if importing the right to be heard has the effect of paralysing the administrati'e process or the need for promptitude or the urgency of the situation so demands. But at the same time it must be remembered that this is a rule of vital importance in the field of administrative law and it must not be jettisoned save in very exceptional circumstances where compulsive necessity so demands. It is a wholesome rule designed to- secure the rule of law and the court should not be too ready to eschew it in its application to a given case. True rue it is that in questions of this kind a fanatical or doctrinaire approach should be avoided, but that does not mean that merely because the traditional methodology of a formalised hearing may have the effect of stultifying the exercise of the statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... real apprehension that the holder of the passport may leave the country if he becomes aware of any intention on the part of the Passport Authority or the Government to revoke or impound the passport. But that itself would not justify denial of an opportunity to the holder of the passport to state his case before the final order is passed. It cannot be disputed that the legislature has not by express provision excluded the right to be heard 26. In Swadeshi Cotton Mills v. Union of India [1981] 1 SCC 664, Sarkaria, J. speaking for the majority noticed the concept of basic facets of natural justice, the twin principles, namely, audi alteram partem and nemojudex in re sua, the decisions rendered in Maneka Gandhi (supra), State of Orissa v. Dr. Bina Pani Dei AIR 1967 SC 1269 and A.K. Kraipak v. Union of India [1969] 2 SCC 262 and held- 31. The rules of natural justice can operate only in areas not covered by any law validly made. They can supplement the law but cannot supplant it (Per Hegde, J. in A.K. Kraipak, 2 SCC 262). If a statutory provision either specifically or by inevitable implication excludes the application of the rules of natural justice, then the Court cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight be narrowed. Where the statute is silent about the observance of the principles of natural justice, such statutory silence is taken to imply compliance with the principles of natural justice. The implication of natural justice being presumptive it may be excluded by express words of statute or by necessary intendment. Where the conflict is between the public interest and the private interest, the presumption must necessarily be weak and may, therefore, be readily displaced. 29. In Union of India v. W.N. Chadha 1993 Supp. (4) SCC 260 their Lordships, while adverting to the issue of applicability of the doctrine of natural justice, have ruled as follows: 79. The rule of audi alteram partem is a rule of justice and its application is excluded where the rule will itself lead to injustice. In A. S. de Smith's Judicial Review of Administrative Action, 4th Ed. at page 184, it is stated that in administrative law, a prima facie right to prior notice and opportunity to be heard may be held to be excluded by implication in the presence of some factors, singly or in combination with another. Those special factors are mentioned under items (1) to (10) under the heading Excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the principles of natural justice expressly or by necessary implication. In other respects the principles of natural justice would apply unless the employer should justice its exclusion on given special and exceptional exigencies. 31. In Dr. Rash Lal Yadav v. State of Bihar [1994] 5 SCC 267, the Apex Court, after referring to the decisions in A.K. Kraipak (supra), Dr. Bina Pani Dei (supra), J N Sinha (supra), Swadeshi Cotton Mills (supra) and Mohinder Singh Gill v. Chief Election Commissioner [1978] 1 SCC 405, held as follows:- 9. What emerges from the above discussion is that unless the law expressly or by necessary implication excludes the application of the rule of natural justice, courts will read the said requirement in enactments that are silent and insist on its application even in cases of administrative action having civil consequences. However, in this case, the High Court has, having regard to the legislative history, concluded that the deliberate omission of the proviso that existed in Sub-section (7) of section 10 of the Ordinance (1980) while re-enacting the said sub-section in the Act, unmistakably reveals the legislature's intendment to exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efusal of remedies in discretion, (iv) doctrine of pleasure such as the power to dismiss an employee at pleasure, (v) express legislation. 37. In A.K. Kraipak (supra), Hon'ble Supreme Court observed that: .The aim of the rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice. These rules can operate only in areas not covered by any law validly made. In other words they do not supplant the law of the land but supplement it . 38. In C.B. Gautam v. Union of India [1993] 1 SCC 78, Hon'ble Apex Court was of the view: It is true that if a statutory provision can be read consistently with the principles of natural justice, the courts should do so because it must be presumed that the legislatures and the statutory authorities intend to act in accordance with the principles of natural justice. But If, on the other hand, a statutory provision either specifically or by necessary implication excludes the application of any or all the principles of natural justice then the court cannot ignore the mandate of the Legislature or the statutory authority and read into the concerned provision the principles of natural jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44. Sub-section (1) of Section 5 defines adjudicating authority for the purpose of that part means National Company Law Tribunal , (NCLT) constituted under Section 408 of the Companies Act, 2013 (18 of 2013). 45. Section 420 of the Companies Act, 2013 relate to 'orders of Tribunal'. Sub-Section (1) of Section 420 mandates the Tribunal to provide the parties before it, the reasonable opportunity of being heard before passing orders as it thinks fit, as quoted below:- 420. Orders of Tribunal.- (1) The Tribunal may, after giving the parties to any proceeding before it, a reasonable opportunity of being heard, pass such orders thereon as it thinks fit. 46. I B Code, 2016 empowers 'adjudicating authority' to pass orders under Section 7, 9 and 10 of the Code, 2016 and not the National Company Law Tribunal. It is by virtue of the definition under sub-Section (1) of Section 5 read with section 60 of the I B Code, 2016, the National Company Law Tribunal plays role of an adjudicating authority . 47. Section 60 of the I B Code, 2016 which relate to 'Adjudicating Authority' for corporate persons which empowers the National Company Law Tribunal t ..... 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(2) The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging their functions under this Act (or under the Insolvency and Bankruptcy Code 2016,) the same powers as are vested in a civil court under th Code of Civil Procedure, 1908 while trying a suit in respect of the following matters, namely: - (a) summoning and enforcing the attendance of any person and examining him on oath; (b) requiring the discovery and production of documents; (c) receiving evidence on affidavits; (d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872, requisitioning any public record or document or a copy of such record or document from any office; (e) issuing commissions for the examination of witnesses or documents; (f) dismissing a representation for default or deciding it ex parte; (g) setting aside any order of dismissal of any representation for default or any order passed by it exparte; and (h) any other matter which may be prescribed. (3) Any order made by the Tribunal or the Appellate Tribunal may be enforced by that Tribunal in the same manner as if it were a decree made by a court in a su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of the Act of 2013 or the Insolvency and Bankruptcy Code of 2016 and any Rules made thereunder. The Code of 2016 read with the Rules 2016 is silent on the procedure to be adopted at the hearing of an application under section 7 presented before the NCLT, that is to say, it is silent whether a party respondent has a right of hearing before the adjudicating authority or not. Section 424 of the Companies Act, 2013 requires the NCLT and NCLAT to adhere to the principles of the natural justice above anything else. It also allows the NCLT and NCLAT the power to regulate their own procedure. Fetters of the Code of Civil Procedure, 1908 does not bind it. However, it is required to apply its principles. Principles of natural justice require an authority to hear the other party. In an application under Section 7 of the Code of 2016, the financial creditor is the applicant while the corporate debtor is the respondent. A proceeding for declaration of insolvency of a company has drastic consequences for a company. Such proceeding may end up in its liquidation. A person cannot be condemned unheard. Where a statute is silent on the right of hearing and it does not in express terms, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principles of natural justice by NCLT or NCLAT would not mean that in every situation, NCLT or NCLAT is required to afford a reasonable opportunity of hearing to the respondent before passing its order. In a given case, a situation may arise which may require NCLT to pass an ex-parte ad interim order against a respondent. Therefore, in such situation NCLT, it may proceed to pass an ex-parte ad interim order, however, after recording the reasons for grant of such an order and why it has chosen not to adhere to the principles of natural justice at that stage. It must, thereafter proceed to afford the party respondent an opportunity of hearing before confirming such ex-parte ad interim order. In the facts of the present case, the learned senior advocate for the petitioner submits that, orders have been passed by the NCLT without adherence to the principles of natural justice. The respondent was not heard by the NCLT before passing the order. It would be open to the parties to agitate their respective grievances with regard to any order of NCLT or NCLAT as the case may be in accordance with law. It is also open to the parties to point out that the NCLT and the NCLAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustice would not mean that in every situation the adjudicating authority is required to afford reasonable opportunity of hearing to the Corporate debtor before passing its order. Purpose of Issuance of Notice: 54. Section 7 of the Code provides for process of initiation of corporate Insolvency Resolution process by a financial creditor, Section 8 and 9 provide for process of initiation of Insolvency Resolution process by an operational creditor and Section 10 of the Code provides for process of initiation of Insolvency Resolution process by the corporate debtor itself. 55. Process of initiation of Insolvency Resolution process by a financial creditor is provided in Section 7 of the I B Code. As per sub-section (1) of Section 7 of the I B Code, the trigger for filing of an application by a financial creditor before the Adjudicating Authority is when a default in respect of any financial debt has occurred. Sub-section (2) of Section 7 provides that the financial creditor shall make an application in prescribed form and manner and with prescribed documents, including: i. record of the default recorded with the information utility or such other record or evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (1) of Section 8 of the I B Code. The operational creditor would receive either the payment or a notice of dispute in terms of sub-section (2) of Section 8 of the I B Code. 62. Thus, it is evident from Section 9 of the I B Code that the Adjudicating Authority has to, within fourteen days of the receipt of the application under sub-section (2), either admit or reject the application. Section 9 has two-fold situations insofar as notice of dispute is concerned. As per sub-section (5) (1) of Section 9, the Adjudicating Authority can admit the application in case no notice raising the dispute is received by the operational creditor (as verified by the operational creditor on affidavit) and there is no record of a dispute is with the information utility. On the other hand, sub-section (5) of Section 9(5) mandates the Adjudicating Authority to reject the application if the operational creditor has received notice of dispute from the corporate debtor. Section 9 thus makes it distinct from Section 7. While in Section 7, occurrence of default has to be ascertained and satisfaction recorded by the Adjudicating Authority, there no similar provision under Section 9. The use of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority, it would be 'useless formality' and would be futile to order its observance as the result would not be different. Therefore, order to follow the principles of natural justice in the present case does not arise. 66. However, in some of the cases initiation of Insolvency Resolution Process may have adverse consequences on the welfare of the Company. Therefore, it will be imperative for the adjudicating authority to adopt a cautious approach in admitting Insolvency Application by ensuring adherence to the principle of natural justice. 67. The next question is whether the Appellant can claim any protection having granted benefit under MRU Act, 1956. The protection granted by notification issued under Section 4 of the MRU Act, 1956 is limited to the enactments as specified in the Schedule to the MRU Act, as apparent from Section 4(1) (a) (1) of the MRU Act and provides as follows: - 4. (1) Notwithstanding any law, usage, custom, contract, instrument, decree, order, award, submission, settlement, standing order or other provision whatsoever, the State Government may, by notification in the official Gazette, direct that- (a) in relation to any relief u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which overrides the operation of the MRU Act. As per Section 238 of the I B Code, 2016 the provisions of the Code are to are to be given effect to notwithstanding anything contrary contained any other law or any instrument having effect under such law. Section 238 states as follows:- 238 - The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in anti other law for the time being in force or anti instrument havina effect by virtue of any such law. 71. In light of the aforementioned non-obstante provision (which is a subsequent Union Law), the provisions of the I B Code, 2016 shall prevail over the provisions of the MRU Act and any instrument issued under the MRU Act including the Notification. 72. It was submitted on behalf of the Appellant that by virtue of the provisions of Sections 3 and 4 of the MRU Act read with the notification issued thereunder, a creditor is restrained from exercising its statutory rights under the provisions of the Code. But such submission cannot be accepted as Section 238 of the I B Code, 2016 clearly mandates that the provisions of the I B Code, 2016 shall have effect, notwithstanding anythi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83] 4 SCC 45 and observed as follows:- 55. Thereafter, the Court proceeded to state that: (Hoechst Pharmaceuticals Ltd. case [Hoechst Pharmaceuticals Ltd. v. State of Bihar, [1983] 4 SCC 45:1983 SCC (Tax) 248: AIR 1983 SC 1019], SCC pp. 89-90, para 69) 69 ..The question of repugnancy under Article 254(1) between a law made by Parliament and a law made by the State Legislature arises only in case both the legislations occupy the same field with respect to one of the matters enumerated in the Concurrent List, and there is direct conflict between the two laws. It is only when both these requirements are fulfilled that the State law will, to the extent of repugnancy, become void. Article 254(1) has no application to cases of repugnancy due to overlapping found between List U on the one hand and List land List III on the other. If such overlapping exists in any particular case, the State law will be ultra vires because of the non obstante clause in Article 246(1) read with the opening words 'subject to' in Article 246(3). In such a case, the State law will fail not because of repugnance to the Union law but due to want of legislative competence. It is no doubt true th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king Journalists (Fixation of Rates and Wages) Act, 1958 would have prevailed over the State enactment. 77. In Madras Petrochem Ltd. v. BIFR [2016] 34 SCL 193/66 taxmann.com 17 (SC), the Hon'ble Supreme Court was considering the question whether pendency of reference before BIFR bar enforcement of secured assets under SARFAESI Act, 2002. In the said case, the Hon'ble Supreme Court having noticed the earlier decisions observed: 29. On the other hand, in Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. [Solidaire India Ltd. v. Fairgrowth Financial Services Ltd., (2001) 3 SCC 71], it was the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992 which came up for consideration vis- -vis the Sick Industrial Companies (Special Provisions) Act, 1985. In paras 9 and 10 of this Court's judgment, this Court noted that both Acts were special Acts. In a significant extract from a Special Court judgment, which was approved by this Court, it was stated that the Special Courts Act, 1992, being a later enactment and also containing a non obstante clause, would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any other law for the time being in force in Section 37. If a literal meaning is given to the said expression, Section 35 will become completely otiose as all other laws will then be in addition to and not in derogation of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Obviously this could not have been the parliamentary intendment, after providing in Section 35 that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 will prevail over all other laws that are inconsistent therewith. A middle ground has, therefore, necessarily to be taken. According to us, the two apparently conflicting sections can best be harmonised by giving meaning to both. This can only be done by limiting the scope of the expression or any other law for the time being in force contained in Section 37. This expression will, therefore, have to be held to mean other laws having relation to the securities market only, as the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 is the only other special law, apart from the Securitisation and Reconstruction of Financial Assets and Enf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of other evidence furnished by the financial creditor under sub-section (3). Under Section 5 of Section 7, the 'adjudicating authority' is required to satisfy - (a) Whether a default has occurred; (b) Whether an application is complete; and (c) Whether any disciplinary proceeding is against the proposed Insolvency Resolution Professional. 83. Once it is satisfied it is required to admit the case but in case the application is incomplete application, the financial creditor is to be granted seven days' time to complete the application. However, in a case where there is no default or defects cannot be rectified, or the record enclosed is misleading, the application has to be rejected. 84. Beyond the aforesaid practice, the 'adjudicating authority' is not required to look into any other factor, including the question whether permission or consent has been obtained from one or other authority, including the JLF. Therefore, the contention of the petition that the Respondent has not obtained permission or consent of JLF to the present proceeding which will be adversely affect loan of other members cannot be accepted and fit to be rejected. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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