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M/s. Anandram Developers Private Limited, Mukundan Vijayan Versus The National Company Law Tribunal, M/s. Asset Reconstruction Company (India) Limited, (ARCIL)

2017 (12) TMI 392 - MADRAS HIGH COURT

Corporate insolvency procedures - Held that:- An application is admitted, under Section 7 of the Insolvency and Bankruptcy Code, 2016, a detailed procedure is set out in the Insolvency and Bankruptcy Code, 2016 and Rules and Regulations have framed. In the light of the decision of the Hon'ble Supreme Court, in M/s.Innoventive Industries Ltd.'s case (2017 (9) TMI 58 - SUPREME COURT OF INDIA) which has thread analysed the code, the contention that the rights of the Company and its Directors, as we .....

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ustrial Companies (Special Provisions) Act, 1985; the Recovery of Debts Due to the Banks and Financial Institutions Act, 1993; the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Companies Act, 2003; Insolvency and Bankruptcy law and other laws. - As per Section 238 of the Insolvency and Bankruptcy Code, 2016, provisions of the Code shall have the effect, notwithstanding anything inconsistent therewith, contained in any other law, for the .....

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7 of the Code, if the adjudicating authority is satisfied that default has not occurred or the application is complete and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application. Contention of the learned counsel that applications are mechanically admitted, cannot be accepted. Contention that approach of the 2nd respondent to NCLT, amounts to forum shopping is not tenable, as the Code enables filing of an application, n .....

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f Mandamus, forbearing M/s.Asset Reconstruction Company (India) Limited, (ARCIL), Mumbai, 2nd respondent herein, from proceeding with the Application No.603/2017 under Section 7 of Insolvency and Bankruptcy Code, 2016 before the the Registrar, National Company Law Tribunal, Chennai, 1st respondent herein, pending disposal of OA filed by the 2nd respondent in O.A.29/2016 on the file of DRT-I, Chennai, and Review Application No.3 of 2017 in OA No.430/2014 on the file of DRT-II, Chennai and conside .....

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process against the company pending disposal of OA filed by the 2nd respondent in O.A.29/2016 on the file of DRT-I, Chennai, and Review Application No.3 of 2017 in OA No.430/2014 on the file of DRT-II, Chennai and consideration of the One Time Settlement Proposal given by the 1st petitioner company. 3. As facts involved in both the writ petitions and the reliefs claimed are similar, they are heard together and taken up for common disposal. 4. The second petitioner is the Director of the 1st peti .....

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ar 2005. The cost of the said project was approximately ₹ 515 crores. In addition to the Term Loan sanctioned by M/s.Indian Overseas Bank (IOB)and M/s.Oriental Bank of Commerce (OBC), the Promoters of the petitioner Company have also contributed a sum of ₹ 260 crores from their resources. The first petitioner Company has approached M/s.Indian Overseas Bank (IOB) for a further fund of ₹ 100 crores for completion of the said project. Though M/s.Indian Overseas Bank (IOB) initiall .....

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Crores, as against a sum of ₹ 60 Crores borrowed from the banks, which establishes the bona fides of the first petitioner company in discharging their liabilities. When the first petitioner company approached the above said banking institutions for One Time Settlement (OTS) in March 2014 by offering ₹ 19 Crores to M/s.Indian Overseas Bank (IOB) and ₹ 21.00 Crores to M/s.Oriental Bank of Commerce (OBC), respectively, the banking institutions refused to consider the same, but im .....

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guarantor for the financial facilities availed by the petitioner, has also filed S.A.No.113/2012 before the DRT-1, Chennai and has obtained a status quo order by which M/s.Indian Overseas Bank (IOB) was restrained from alienating the properties given by the debtor/guarantor as security. 6. The petitioners have contended that as per the guidelines of the Reserve Bank of India, OTS has to be placed before the Board and the Board has to take a decision, on the said OTS Proposal before the same is .....

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Tribunal to consider the same and pass orders with one month from the said date and directed status quo to be maintained till one month. A similar Order was passed in W.P.No.7953/2014, dated 21.03.2014. 7. The first petitioner company has filed S.I.A.No.72/2016 in S.A.No.113/2012, seeking for a relief to set aside the assignment of the petitioner's debt by the M/s.Indian Overseas Bank (IOB) to the 2nd respondent, by assignment deed dated 10-02-2015 and consequently, to direct M/s.Indian Ove .....

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pondent for consideration, without following the procedure laid down by RBI, the 2nd respondent simply replied, stating that it is not acceptable to them. In the meanwhile, the DRT-II, has passed an order in O.A.No.430/2014 (filed by M/s.Indian Overseas Bank (IOB), directing the petitioner to pay the a sum of ₹ 22 Crores with simple interest @ 12% per annum. Therefore, the petitioner has filed the Review Petition before the DRT-II pointing out the patent error in the said order and disclos .....

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ending disposal. When the matter stood thus, the 2nd respondent has filed an application to initiate Corporate Insolvency Resolution under Section 7 of the Bankruptcy Code 2016 r/w. Bankruptcy (Application to Adjudicating Authority Rules, 2016) in Application No.603/2017, on 05.09.2017 before the National Company Law Tribunal, Chennai Bench, the first respondent herein. 10. The petitioner company has arranged the required funds through a well reputed lender, who is willing to pay the OTS amount .....

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the petitioner company is willing to settle the above said principal along with simple interest as prescribed by the Guidelines of Reserve Bank of India. Since the petitioner Company is willing to pay the outstanding amounts to the 2nd respondent on the determination of the quantum of the same by the DRT, the application filed by the 2nd respondent before the National Company Law Tribunal is totally unnecessary and has no merit. 12. When the proceedings before the Debt Recovery Tribunal is pendi .....

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of the Insolvency and Bankruptcy Code, 2016, as the issue involves, questions of fundamental rights to business and property, proceedings initiated are violative of Articles 14, 19 and 300-A of the Constitution of India. 13. According to the petitioners, the scheme of the 2016 code is such that, it divests the Directors and shareholders of any authority over the Company which they run, and vests it with the Creditors. The business of the company and its assets are indirectly held by and belong .....

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a duty to act fair. In the above circumstances the petitioner has filed these writ petitions on the following grounds: "(i) Action of the 2nd respondent in initiating parallel proceedings before the DRT and CLT, especially when adjudication in the former is pending is arbitrary and unfair. When a person chooses a forum and is prosecuting a remedy, he is estopped from initiating any other proceeding conflicting the same. The action of the 2nd Respondent will also amount to forum shopping. ( .....

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itioner has preferred a Review petition pointing out errors in adjudication amount and in the circumstances, if the NCLT proceeds to issue a moratorium, then the proceedings will come to a standstill and any negotiation will take place upon erroneous premise. (iv) Orders have been passed by the Division Bench of this Court in W.P.No.7953/2014, dated 21.03.2014 and W.P.No.8351/2016, dated 28.06.2017, directing the petitioner to approach the Debt Recovery Tribunal to work out the remedies and purs .....

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consequential appointment of an. insolvency professional will deny the valuable rights of the petitioners and other share holder and other directors of the 1st petitioner their right to manage and have a say in the repayment of debt and running of the company. It is submitted that when a person is willing to repay and making efforts to pay, he is entitled to a fair opportunity and cannot be striped of his rights of management of his property . (vi) The appointment of Insolvency Professional and .....

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ok, at the statement of objects and reasons, for enacting the Insolvency and Bankruptcy Code, 2016, as follows: "There is no single law in India that deals with insolvency and bankruptcy. Provisions relating to insolvency and bankruptcy for companies can be found in the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest .....

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s. The existing framework for insolvency and bankruptcy is inadequate, ineffective and results in undue delays in resolution, and therefore the proposed legislation. 2. The objective of the Insolvency and Bankruptcy Code, 2015 is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit .....

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elopment. 3. The Code seeks to provide for designating the NCLT and DRT as the Adjudicating Authorities for corporate persons and firms and individuals, respectively, for resolution of insolvency, liquidation and bankruptcy. The Code separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects. The Code also seeks to provide for establishment of the Insolvency and Bankruptcy Board of India (Board) for regulation of insolvency professionals, insolvency professiona .....

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de also proposes to establish a fund to be called the Insolvency and Bankruptcy Fund of India for the purposes specified in the Code. 4. The Code seeks to provide for amendments in the Indian Partnership Act, 1932, the Central Excise Act, 1944, Customs Act, 1962, Income-Tax Act, 1961, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Finance Act, 1994, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Sick Ind .....

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lability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto. 18. As per Section 1(3), the Code shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint. Proviso to the said Section states that different dates may be appointed for differe .....

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porated with limited liability under any law for the time being in force but shall not include any financial service provider. "Insolvency Professional Agency", defined in Sub-Section (20) of Section 5 of the Code, means, any person registered with the Board under section 201 as an insolvency professional agency. 20. In the case on hand, initiation of corporate insolvency resolution process, has been made by the Asset Reconstruction Company (India) Limited, (ARCIL), a financial credito .....

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under this Chapter." 21. Section 7 of the Code deals with initiation of corporate insolvency resolution process by a financial creditor and the same reads as follows: "7. (1) A financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation. For the purposes of this sub-section, a default inclu .....

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ied; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. (4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3). (5) Where the Adjudicating Authority is sat .....

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ore rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5). (7) The Adjudicating Authority shall communicate (a) the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor; ( .....

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entitled to make application. 12 Time-limit for completion of insolvency resolution process. 13 Declaration of moratorium and public announcement. 14 Moratorium. 15 Public announcement of corporate insolvency resolution process. 16 Appointment and tenure of interim resolution professional. 17 Management of affairs of corporate debtor by interim resolution professional 18 Duties of interim resolution professional. 19 Personnel to extend cooperation to interim resolution professional. 20 Managemen .....

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rmation memorandum. 30 Submission of resolution plan. 31 Approval of resolution plan. 32 Appeal. 23. Considering the averments to the supporting affidavit, suffice to extract what Section 14 of the Code, states on Moratorium, "(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely: (a) the institution of suits or continuation of pending suits or proc .....

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ion of Financial Assets and Enforcement of Security Interest Act, 2002; (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in c .....

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order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be." 24. Thus, Chapter II of the Code, 2016, sets out the measures to be taken in the process of corporate insolvency resolution. As per Sub-Section (5) of Section 7, where the Adjudicating Authority is satisfied that, "(a) a default has occurred and the application under sub-section (2) is complete, and there is no .....

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ally by the National Company Law Tribunal and the moment, such application is admitted, the corporate insolvency resolution process comes into operation and in such circumstances, the Company, sought to be declared as insolvent or the directors, as the case may be, has no say, except to go by the procedure set out and therefore, intervention of the said process is required, we are not inclined to accept the said contention, for the reason that if the adjudicating authority is satisfied that defa .....

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ty. 26. As per sub-Section (7) of Section 7 of the Code, 2016, (7) The Adjudicating Authority shall communicate the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor and also the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be. According to the petitioner, proceedings initiated under the SARFAESI Act, 2002, have to be continued. Submission of the lea .....

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ional Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located. (2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or bankruptcy of a personal guarantor of such corpor .....

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his Code for the purpose of sub-section (2). (5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of (a) any application or proceeding by or against the corporate debtor or corporate person; (b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and (c) any question of priori .....

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ch moratorium is in place shall be excluded." 28. As per sub-Section (4) of Section 60 of the Code, the National Company Law Tribunal shall be vested with all the powers of the Debt Recovery Tribunal as contemplated under Part III of this Code for the purpose of sub-section (2) of Section 60 of the Code. 29. Section 61 of the Code deals with the appeals and appellate authority and it reads thus, "61. (1) Notwithstanding anything to the contrary contained under the Companies Act 2013, a .....

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period shall not exceed fifteen days. (3) An appeal against an order approving a resolution plan under section 31 may be filed onthe following grounds, namely: (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force; (ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; (iii) the debts owed to operational creditors of the corporate debtor have not .....

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e, any person aggrieved by an order of the National Company Law Appellate Tribunal may file an appeal to the Supreme Court on a question of law arising out of such order under this Code within forty-five days from the date of receipt of such order. As per Section 63, no civil court or authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which National Company Law Tribunal or the National Company Law Appellate Tribunal has jurisdiction under this Code .....

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ional Company Law Appellate Tribunal, as the case may be, may, after taking into account the reasons so recorded, extend the period specified in the Act but not exceeding ten days. (2) No injunction shall be granted by any court, tribunal or authority in respect of any action taken, or to be taken, in pursuance of any power conferred on the National Company Law Tribunal or the National Company Law Appellate Tribunal under this Code." 32. Part IV of the Code deals with regulation of insolven .....

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nimum eligibility requirements for registration of insolvency professional agencies, insolvency professionals and information utilities; (c) levy fee or other charges for the registration of insolvency professional agencies, insolvency professionals and information utilities; (d) specify by regulations standards for the functioning of insolvency professional agencies, insolvency professionals and information utilities; (e) lay down by regulations the minimum curriculum for the examination of the .....

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y be required for compliance of the provisions of this Code and the regulations issued hereunder; (h) call for any information and records from the insolvency professional agencies, insolvency professionals and information utilities; (i) publish such information, data, research studies and other information as may be specified by regulations; (j) specify by regulations the manner of collecting and storing data by the information utilities and for providing access to such data; (k) collect and ma .....

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necessary guidelines to the insolvency professional agencies, insolvency professionals and information utilities; (q) specify mechanism for redressal of grievances against insolvency professionals, insolvency professional agencies and information utilities and pass orders relating to complaints filed against the aforesaid for compliance of the provisions of this Code and the regulations issued hereunder; (r) conduct periodic study, research and audit the functioning and performance of to the ins .....

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erform such other functions as may be prescribed. (2) The Board may make model bye-laws to be to adopted by insolvency professional agencies which may provide for (a) the minimum standards of professional competence of the members of insolvency professional agencies; (b) the standards for professional and ethical conduct of the members of insolvency professional agencies; (c) requirements for enrolment of persons as members of insolvency professional agencies which shall be non-discriminatory; E .....

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and the time for submitting such information; (g) the specific classes of persons to whom services shall be provided at concessional rates or for no remuneration by members; (h) the grounds on which penalties may be levied upon the members of insolvency professional agencies and the manner thereof; (i) a fair and transparent mechanism for redressal of grievances against the members of insolvency professional agencies; (j) the grounds under which the insolvency professionals may be expelled from .....

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conducting disciplinary proceedings against its members and imposing penalties; (q) the manner of utilising the amount received as penalty imposed against any insolvency professional. (3) Notwithstanding anything contained in any other law for the time being in force, while exercising the powers under this Code, the Board shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely: (i) the dis .....

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udicating Authority is empowered by, or under, this Code to pass any order and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any order passed by such Adjudicating Authority under this Code. 34. As per Section 238, the provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law .....

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corporate insolvency resolution process against a corporate debtor under section 7 of the Code in Form 1, accompanied with documents and records required therein and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. (2) Where the applicant under sub-rule (1) is an assignee or transferee of a financial contract, the application shall be accompanied with a copy of the assignment or transfer agreement and other rele .....

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fore its admission." 37. In exercise of the powers conferred under sections 58, 196 and 208 read with section 240 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Insolvency and Bankruptcy Board of India has framed the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017. Chapter II speaks about Eligibility for resolution professional, Access to books, Extortionate credit transaction and relevant regulations .....

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ndent director on the board of the corporate debtor under section 149 of the Companies Act, 2013 (18 of 2013), where the corporate debtor is a company; (b) is not a related party of the corporate debtor; or (c) has not been an employee or proprietor or a partner: 1) of a firm of auditors or company secretaries in practice or cost auditors of the corporate debtor; or 2) of a legal or a consulting firm, which has or had any transaction with the corporate debtor amounting to ten per cent or more of .....

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ion professional if the insolvency professional entity of which he is a director or a partner, or any other partner or director of such insolvency professional entity represents any other stakeholders in the same fast track process. 4. Access to books. Without prejudice to section 17(2)(d), the interim resolution professional may access the books of account, records and other relevant documents and information, to the extent relevant for discharging his duties under the Code, of the corporate de .....

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re the corporate debtor to make exorbitant payments in respect of the credit provided; or (b) are unconscionable under the principles of law relating to contracts." 38. Chapter III speaks about public announcement and Regulation 6 reads thus, "6. Public announcement. (1) An insolvency professional shall make a public announcement immediately on his appointment as an interim resolution professional. Explanation: Immediately means not later than three days from the date of his appointmen .....

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osted on the website, if any, designated by the Board for the purpose, (c) provide the last date for submission of proofs of claim, which shall be ten days from the date of appointment of the interim resolution professional. (3) The applicant shall bear the expenses of the public announcement which may be reimbursed by the committee to the extent it ratifies them. Explanation-The expenses on the public announcement shall not form part of fast track process costs." 39. Chapter IV of the Regu .....

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the records available with an information utility, if any; or (b) other relevant documents, including - (i) a financial contract supported by financial statements as evidence of the debt; (ii) a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor; (iii) financial statements showing that the debt has not been repaid; or (iv) an order of a court or tribunal that has adjudicated upon the non-payment .....

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m within the time stipulated in the public announcement, may submit proof of such claim to the interim resolution professional or the resolution professional, as the case may be, till the approval of a resolution plan by the committee. (3) Where the creditor in sub-regulation (2) is a financial creditor, it shall be included in the committee from the date of admission of such claim: Provided that such inclusion shall not affect the validity of any decision taken by the committee prior to such in .....

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of creditors shall be (a) available for inspection by the persons who submitted proofs of claim; (b) available for inspection by members, partners, directors and guarantors of the corporate debtor; (c) displayed on the website, if any, of the corporate debtor; (d) filed with the Adjudicating Authority; and (e) presented at the first meeting of the committee. 14. Determination of amount of claim:- (1) Where the amount claimed by a creditor is not precise or cannot be determined due to any contin .....

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revision." 40. Regulation 16 of Chapter V, deals with Committee with only operational creditors and the same is extracted hereunder: "(1) Where the corporate debtor has no financial debt or where all financial creditors are related parties of the corporate debtor, the committee shall be set up in accordance with this Regulation. (2) The committee formed under this Regulation shall consist of following members: - (a) eighteen largest operational creditors by value: Provided that if the .....

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tive, as the case may be, to the total debt. Explanation For the purposes of this sub-regulation, total debt means the sum of- (a) the amount of debt due to the creditors listed in sub-regulation 2(a); (b) the amount of the aggregate debt due to workmen under sub-regulation 2(b); and (c) the amount of the aggregate debt due to employees under sub-regulation 2(c). (4) A committee formed under this Regulation and its members shall have the same rights, powers, duties and obligations as a committee .....

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t and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto. 42. In M/s.Innoventive Industries Ltd., v. ICICI Bank reported in 2017 SCC Online 1025, the Hon'ble Supreme Court, dealt with the repugnancy in Insolvency and Bankruptcy Code, 2016 and Maharastra Act, regarding "moratorium". Referring to .....

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bt , we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a claim and for the meaning of claim , we have to go back to Section 3(6) which defines claim to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. A distinct .....

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ision of goods or services. 28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to .....

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he applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where .....

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the defect within 7 days of receipt of a notice from the adjudicating authority. Under subsection (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. 29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to t .....

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f such a dispute, the operational creditor gets out of the clutches of the Code. 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is due i.e. payable unless interdicted by some law or .....

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of not exceeding 90 days if the committee of creditors by a voting of 75% of voting shares so decides. It can be seen that time is of essence in seeing whether the corporate body can be put back on its feet, so as to stave off liquidation. 32. As soon as the application is admitted, a moratorium in terms of Section 14 of the Code is to be declared by the adjudicating authority and a public announcement is made stating, inter alia, the last date for submission of claims and the details of the int .....

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1 of the Act. Decisions by this committee are to be taken by a vote of not less than 75% of the voting share of the financial creditors. Under Section 28, a resolution professional, who is none other than an interim resolution professional who is appointed to carry out the resolution process, is then given wide powers to raise finances, create security interests, etc. subject to prior approval of the committee of creditors. 33. Under Section 30, any person who is interested in putting the corpor .....

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atisfied that the plan, as approved, meets the statutory requirements mentioned in Section 30, that it ultimately approves such plan, which is then binding on the corporate debtor as well as its employees, members, creditors, guarantors and other stakeholders. Importantly, and this is a major departure from previous legislation on the subject, the moment the adjudicating authority approves the resolution plan, the moratorium order passed by the authority under Section 14 shall cease to have effe .....

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lse the chopper comes down and the liquidation process begins." 43. During the course of arguments, Mr.Niranjan Rajagopalan, learned counsel for the petitioners submitted that a writ petition has been filed, challenging the Insolvency and Bankruptcy Code, 2016 and that there is no stay. On the above submission, this Court deems it fit to consider few decisions of the Hon'ble Supreme Court, on the presumption of the constitutionality of an enactment, (i) A Full Bench of the Hon'ble S .....

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ts laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds; (d) that the legislature is free to recognise degrees of harm and may confine its restrictions to those cases where the need is deemed to be the clearest ; (e) that in order to sustain the presumption of constitutionality the court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts whi .....

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ubjecting certain individuals or corporations to hostile or discriminating legislation." (ii) In Mohd. Hanif Quareshi v. The State of Bihar reported in 1958 AIR 731, the Hon'ble Supreme Court observed as follows :- "The pronouncements of this Court further establish, amongst other things, that there is always a presumption in favour of the constitutionality of an enactment and that the burden is upon him, who attacks it, to show that there has been a clear violation of the constitu .....

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on of constitutionality the Court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation." (iii) In Mahant Moti Das v. S.P.Sahi, the Special Officer In Charge of Hindu Religious Trust & Ors. reported in AIR 1959 SC 942, the Hon'ble Supreme Court, held as follows: "The decisions of this Court further establish that there is a presump .....

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y confine its restrictions to those cases where the need is deemed to be the clearest......" (iv) In State of Uttar Pradesh v. Kartar Singh reported in AIR 1964 SC 1135, the Constitution Bench of the Hon'ble Supreme Court held that where a party seeks to impeach the validity of a rule on the ground of such rule offending Article 14, the burden is on him to plead and prove infirmity. This Court said : "........., if the rule has to be struck down as imposing unreasonable or discrimi .....

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s on him to plead and prove the infirmity is too well established to need elaboration. If, therefore, the respondent desired to challenge the validity of the rule on the ground either of its unreasonableness or its discriminatory nature, he had to lay a foundation for it by setting out the facts necessary to sustain such a plea and adduce cogent and convincing evidence to make out his case, for there is a presumption that every factor which is relevant or material has been taken into account in .....

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"........The presumption is always in favour of the constitutionality of an enactment, since it must be assumed that the legislature understands and correctly appreciates the needs of its own people, and its laws are directed to problems made manifest by experience and its discriminations are based on adequate grounds." (vi) In Pathumma and others v. State of Kerala reported in AIR 1978 SC 771 = 1978 SCR (2) 537, a Constitutional Bench of the Hon'ble Supreme Court held as follows: .....

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the legislative competence of the legislature or such other grounds. It is for this reason that the Courts have recognised that there is always a presumption in favour of the constitutionality of a statute and the onus to prove its invalidity lies on the party which assails the same." (vii) In M.L.Kamra v. Chairman-Cum-Managing Director, New India Assurance Co. Ltd., reported in 1992 AIR 1072 : 1992 SCR (1) 220, the Hon'ble Supreme Court held as follows: "It is settled law that the .....

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ghts guaranteed under Part III of the constitution." (viii) In Peoples Union for Civil Liberties v. Union of India reported in 2004 (2) SCC 476, the Hon'ble Supreme Court held that a statute carries with it a presumption of constitutionality and such a presumption extends also to a law which has been enacted for imposing reasonable restrictions in the fundamental right. It is further held that a further presumption may also be drawn that the statutory authority would not exercise the po .....

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utionality of a law is to resolve it in favour of its validity . Where the validity of a statute is questioned and there are two interpretations, one of which would make the law valid and the other void, the former must be preferred and the validity of law upheld. In pronouncing on the constitutional validity of a statute, the court is not concerned with the wisdom or unwisdom, the justice or injustice of the law. If that which is passed into law is within the scope of the power conferred on a l .....

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utionality of Statute, and the burden is always upon the person who attacks it to show that there has been a clear transgression of a constitutional provision. This view was adopted by the Constitution Bench of this Court in Charanjit Lal Chowdhury v. Union of India and others [AIR 1951 SC 41 (para 10)], which observed: "Prima facie, the argument appears to be a plausible one, but it requires a careful examination, and while examining it, two principles have to be borne in mind : (1) that a .....

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that there has been a clear transgression of the constitutional principles. A clear enunciation of this latter doctrine is to be found in Middleton vs. Texas Power and L. Company, (248 U.S. 152 and 157), in which the relevant passage runs as follows : It must be presumed that a legislature understands and correctly appreciates the need of its own people, that its laws are directed to problems made manifest by expression and that its discriminations are based upon adequate grounds." and thi .....

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re enact laws which they consider to be reasonable for the purpose for which they are enacted. Presumption is, therefore, in favour of the constitutionality of an enactment, vide Charanjit Lal Chaowdhury v. Union of India, 1950 SCR 869: AIR 1951 SC 41); State of Bombay v. F.N.Bulsara, 1951 SCR 682: (AIR 1951 SC 318), Mahant Moti Das v. S.P.Sahi (AIR 1959 SC 942)". The following passage in Seervai, Constitutional Law of India (3rd Edn.) page 119 found approval in Delhi Transport Corporation .....

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nstitutionality of a law is to resolve it in favour of its validity'. 2) A statute cannot be declared unconstitutional merely because in the opinion of the court it violates one or more of the principles of liberty, of the spirit of the Constitution, unless such principles and that spirit are found in the terms of the Constitution" (emphasis supplied) 60. Similarly in Union of India v. Elphinstone Spinning and Weaving Co. Ltd., and another, AIR 2001 SC 724 (vide para 9) a Constitution B .....

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ue expression of the national will Shell Company of Australia vs. Federal Commissioner of Taxation, 1931 AC 275 (Privy Council). The aforesaid principle, however, is subject to one exception that if a citizen is able to establish that the legislation has invaded his fundamental rights then the State must justify that the law is saved. It is also a cardinal rule of construction that if one construction being given the statute will become ultra vires the powers of the legislature whereas on anothe .....

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e presumption of constitutionality. The Court should try to sustain its validity to the extent possible. It should strike down the enactment only when it is not possible to sustain it. The Court should not approach the enactment with a view to pick holes or to search for defects of drafting, much less inexactitude of language employed. Indeed, any such defects of drafting should be ironed out as part of the attempt to sustain the validity/constitutionality of the enactment. After all, an Act mad .....

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be assumed that the legislature understands and appreciates the need of the people, that the laws it enacts are directed to problems which are made manifest by experience, and that the elected representatives assembled in a legislature enact laws which they consider to be reasonable for the purpose for which they are enacted. Presumption is, therefore, in favour of the constitutionality of an enactment. Charanjit Lal v. Union of India, 1950 SCR 869: (AIR 1951 SC 41); State of Bombay v. F.N.Bauls .....

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ntelligible differentia and has rational nexus to the object of the Act. The burden to prove that the enacted law offends any of the Articles under Part III of the Constitution is on the one who questions the constitutionality and shows that despite such presumption in favour of the legislation, it is unfair, unjust and unreasonable." 44. M/s.Innoventive Industries Ltd.,'s case (cited supra), has also considered several authoritative pronouncements, under Article 142 of the Constitution .....

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rable to the Concurrent List, the doctrine of pith and substance must be applied in order to find out as to where in pith and substance the competing statutes as a whole fall. It is only if both fall, as a whole, within the Concurrent List, that repugnancy can be applied to determine as to whether one particular statute or part thereof has to give way to the other. iii) The question is what is the subject matter of the statutes in question and not as to which entry in List III the competing stat .....

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them both so as to avoid repugnancy care should be taken to see whether the two do not really operate in different fields qua different subject matters. v) Repugnancy must exist in fact and not depend upon a mere possibility. vi) Repugnancy may be direct in the sense that there is inconsistency in the actual terms of the competing statutes and there is, therefore, a direct conflict between two or more provisions of the competing statutes. In this sense, the inconsistency must be clear and direc .....

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stent and repugnant, even though obedience to both laws is possible, because so long as the State law is referable to the same subject matter as the Parliamentary law to any extent, it must give way. One test of seeing whether the subject matter of the Parliamentary law is encroached upon is to find out whether the Parliamentary statute has adopted a plan or scheme which will be hindered and/or obstructed by giving effect to the State law. It can then be said that the State law trenches upon the .....

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s head are repugnant even if the rule of conduct prescribed by both laws is identical. The test that has been applied in such cases is based on the principle on which the rule of implied repeal rests, namely, that if the subject matter of the State legislation or part thereof is identical with that of the Parliamentary legislation, so that they cannot both stand together, then the State legislation will be said to be repugnant to the Parliamentary legislation. However, if the State legislation o .....

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amentary legislation or an existing law if the case falls within Article 254(2), and Presidential assent is received for State legislation, in which case State legislation prevails over Parliamentary legislation or an existing law within that State. Here again, the State law must give way to any subsequent Parliamentary law which adds to, amends, varies or repeals the law made by the legislature of the State, by virtue of the operation of Article 254(2) proviso." 45. With reference to the c .....

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51 of 1993. The Recovery of Debts due to Banks and Financial Institutions Act, 1993 shall be amended in the manner specified in the Fifth Schedule. 250. Amendments of Act 32 of 1994. The Finance Act, 1994 shall be amended in the manner specified in the Sixth Schedule. 251. Amendments of Act 54 of 2002. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 shall be amended in the manner specified in the Seventh Schedule. 252. Amendments of Act 1 .....

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another v. The Commissioner of Income Tax, Madras, (1956) S.C.R. 577, this Court held: The Act is, as stated in the preamble, one to consolidate and amend the law relating to income tax. The rule of construction to be applied to such a statute is thus stated by Lord Herschell in Bank of England v. Vagliano [(1891) AC 107, 141]: I think the proper course is in the first instance to examine the language of the statute, and to ask what is its natural meaning, uninfluenced by any considerations deri .....

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t of 1940 is a consolidating and amending statute and is for all purposes a code relating to arbitration. In dealing with the interpretation of the Indian Succession Act, 1865, the Privy Council in Narendra Nath Sircar v. Kamlabasini Desai [(1896) LR 23, IA 18] observed that a code must be construed according to the natural meaning of the language used and not on the presumption that it was intended to leave the existing law unaltered. The Judicial Committee approved of the observations of Lord .....

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tation in conformity with this view. If a statute, intended to embody in a code a particular branch of the law, is to be treated in this fashion, it appears to me that its utility will be almost entirely destroyed, and the very object with which it was enacted will be frustrated. The purpose of such a statute surely was that on any point specifically dealt with by it the law should be ascertained by interpreting the language used instead of, as before, by roaming over a vast number of authoritie .....

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found in the statute . (at pages 506-508) In Joseph Peter v. State of Goa, Daman and Diu, (1977) 3 SCC 280, this Court dealt with a Goa regulation vis-vis the Code of Criminal Procedure. In that context, this Court observed: A Code is complete and that marks the distinction between a Code and an ordinary enactment. The Criminal Procedure Code, by that canon, is selfcontained and complete. (at page 282) There can be no doubt, therefore, that the Code is a Parliamentary law that is an exhaustive c .....

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proval of a resolution plan under Section 31 of the said Code. In the interim, an interim resolution professional is appointed under Section 16 to manage the affairs of corporate debtors under Section 17. 55. It is clear, therefore, that the earlier State law is repugnant to the later Parliamentary enactment as under the said State law, the State Government may take over the management of the relief undertaking, after which a temporary moratorium in much the same manner as that contained in Sect .....

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professional. Also, the moratorium imposed under Section 4 of the Maharashtra Act would directly clash with the moratorium to be issued under Sections 13 and 14 of the Code. It will be noticed that whereas the moratorium imposed under the Maharashtra Act is discretionary and may relate to one or more of the matters contained in Section 4(1), the moratorium imposed under the Code relates to all matters listed in Section 14 and follows as a matter of course. In the present case it is clear, theref .....

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e of Article 254 (1), would operate to render the Maharashtra Act void vis-vis action taken under the later Central enactment. Also, Section 238 of the Code reads as under: Sec. 238. Provisions of this Code to override other laws.- The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. It is clear that the later non-obstante clause of the Parli .....

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re the NCLT, opposing the admissibility of the application filed by the 2nd respondent. When admission of the application filed, under Section 7 of the Code, is opposed before the Tribunal, we do not want to record any finding, as to whether, notice is required under Section 7(5)(a), except to observe that the Hon'ble Supreme Court, in M/s.Innoventive Industries Ltd.,'s case (cited supra), has held that Insolvency and Bankruptcy Code, 2016, is a comprehensive code. 47. Moment, an applica .....

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nder Section 7 of the Code, is admitted and that therefore, the whole proceedings by NCLT, require to be stalled, cannot be accepted. 48. Further contention of the petitioners that the action of the 2nd respondent in approaching the NCLT, would amount to forum shopping, also cannot be countenanced, for the reason, Insolvency and Bankruptcy Code, 2016, has been enacted, consolidating various enactments, such as, Sick Industrial Companies (Special Provisions) Act, 1985; the Recovery of Debts Due t .....

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