TMI Blog2021 (2) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... CIRP in respect of a default which has occurred on or after 25 March 2020 for a period of six months, extendable up to one year as notified. The explanation which has been introduced to remove doubts places the matter beyond doubt by clarifying that the statutory provision shall not apply to any default before 25 March 2020. The substantive part of Section 10A is to be construed harmoniously with the first proviso and the explanation - it is evident that Parliament intended to impose a bar on the filing of applications for the commencement of the CIRP in respect of a corporate debtor for a default occurring on or after 25 March 2020; the embargo remaining in force for a period of six months, extendable to one year. Acceptance of the submission of the appellant would defeat the very purpose and object underlying the insertion of Section 10A. For, it would leave a whole class of corporate debtors where the default has occurred on or after 25 March 2020 outside the pale of protection because the application was filed before 5 June 2020. The correct interpretation of Section 10A cannot be merely based on the language of the provision; rather it must take into account the object of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 July 2020, holding that in view of the provisions of Section 10A, which have been inserted by Act 17 of 2020 (the Amending Act ) with retrospective effect from 5 June 2020, the application filed by the appellant as an operational creditor under Section 9 was not maintainable. 2 Some of the salient facts set out in the appeal are being adverted to in order to indicate the broad contours of the controversy. The issue involved raises a question of law. Hence, while setting out the facts as set up in the appeal, we need to clarify that the factual dispute has not arisen for adjudication. 3 The appellant claims that a sum of INR 104,11,76,479 is due and payable to him pursuant to his resignation from all capacities held by him in the respondent in accordance with the various Employment Agreements/Incentive Agreements entered into by him with the respondent during his tenure as Chairman and Managing Director. The appellant entered into an Employment Agreement with the respondent on 16 July 2009. Another Employment Agreement was entered into on 16 December 2013, effective from 1 January 2014, which superseded the previous agreement. The Employment Agreement dated 16 December 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate insolvency resolution process of a corporate debtor for the said default occurring during the said period. Explanation For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before 25th March, 2020. 7 The respondent filed an application- IA 395 of 2020 seeking the dismissal of the appellant s application on the basis of the newly inserted provisions of Section 10A. The NCLT upheld the submission of the respondent, holding that a bar has been created by the newly inserted provisions of Section 10A. This decision has been upheld in appeal by the NCLAT. 8 The issue which falls for determination in this appeal is whether the provisions of Section 10A stand attracted to an application under Section 9 which was filed before 5 June 2020 (the date on which the provision came into force) in respect of a default which has occurred after 25 March 2020. Before proceeding to discuss the rival submissions, it is necessary to preface the discussion with reference to three significant dates which have a bearing on the present proceedings: 30 April 2020 date of default a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the letter of resignation was tendered and that the second date of default' was 23 March 2020 when the sixty days notice period from the letter of resignation submitted by the appellant concluded. This attempt to set back the date of default to either 21 January 2020 or 23 March 2020 is plainly untenable for the reason that it is contrary to the disclosure made by the appellant in the demand notice which has been issued in pursuance of the provisions of Section 8(1) and Section 9 of the IBC. The demand notice triggers further actions which are adopted towards the initiation of the insolvency resolution process. The question which needs to be resolved is whether Section 10A would stand attracted to a situation such as the present where the application under Section 9 was filed prior to 5 June 2020, when Section 10A was inserted, and in respect of a default which has taken place after 25 March 2020. 11 Mr Neeraj Kishan Kaul submits that: (i) Section 10A creates a bar to the 'filing of applications' under Sections 7, 9 and 10 in relation to defaults committed on or after 25 March 2020 for a period of six months, which can be extended up to one year; (ii) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d-19 provides the backdrop to the insertion of Section 10A. The underlying rationale for the insertion of Section 10A has been explained in the recitals to the Ordinance, which are extracted below: AND WHEREAS COVID-19 pandemic has impacted business, financial markets and economy all over the world, including India, and created uncertainty and stress for business for reasons beyond their control; AND WHEREAS a nationwide lockdown is in force since 25th March, 2020 to combat the spread of COVID-19 which has added to disruption of normal business operations; AND WHEREAS it is difficult to find adequate number of resolution applicants to rescue the corporate person who may default in discharge of their debt obligation; AND WHEREAS it is considered expedient to suspend under sections 7, 9 and I 0 of the Insolvency and Bankruptcy Code, 2016 to prevent corporate persons which are experiencing distress on account of unprecedented situation. being pushed into insolvency proceedings under the Court for some time; AND WHEREAS it is considered expedient to exclude the defaults arising on account of unprecedented situation for the purposes of insolvency proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RP of a corporate debtor shall be filed for a period of six months or such further period not exceeding one year from such date as may be notified in this behalf. The expression from such date is evidently intended to refer to 25 March 2020 so that for a period of six months (extendable to one year by notification) no application for the initiation of the CIRP can be filed. The submission of the appellant is that the expression shall be filed is indicative of a legislative intent to make the provision prospective so as to apply only to those applications which were filed after 5 June 2020 when the provision was inserted. Such a construction cannot be accepted. 21 The date of 25 March 2020 has consciously been provided by the legislature in the recitals to the Ordinance and Section 10A, since it coincides with the date on which the national lockdown was declared in India due to the onset of the Covid-19 pandemic. In Sardar Inder Singh vs State of Rajasthan 1957 SCR 605 , the Rajpramukh promulgated the Rajasthan (Protection of Tenants) Ordinance (9 of 1949) on 21 June 1949 which, inter alia, provided for the reinstatement of tenants who had been in occupation on 1 April 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a matter exclusively for the Legislature to determine, and the propriety of that determination is not open to question in courts. We should add that the petitioners sought to dispute the correctness of the recitals in the preamble. This they clearly cannot do. Vide the observations of Holmes, J. in Block v. Hirsh [(1920) 65 LEd 865 : (1920) 256 US 135]. 12. A more substantial contention is the one based on Section 15, which authorises the Government to exempt any person or class of persons from the operation of the Act. It is argued that that section does not lay down the principles on which exemption could be granted, and that the decision of the matter is left to the unfettered and uncanalised discretion of the Government, and is therefore repugnant to Article 14. It is true that that section does not itself indicate the grounds on which exemption could be granted, but the preamble to the Ordinance sets out with sufficient clearness the policy of the legislature; and as that governs Section 15 of the Ordinance, the decision of the Government thereunder cannot be said to be unguided (emphasis supplied) 22 The language of the provision is not always decisive to arri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod of six months, extendable up to one year as notified. The explanation which has been introduced to remove doubts places the matter beyond doubt by clarifying that the statutory provision shall not apply to any default before 25 March 2020. The substantive part of Section 10A is to be construed harmoniously with the first proviso and the explanation. Reading the provisions together, it is evident that Parliament intended to impose a bar on the filing of applications for the commencement of the CIRP in respect of a corporate debtor for a default occurring on or after 25 March 2020; the embargo remaining in force for a period of six months, extendable to one year. Acceptance of the submission of the appellant would defeat the very purpose and object underlying the insertion of Section 10A. For, it would leave a whole class of corporate debtors where the default has occurred on or after 25 March 2020 outside the pale of protection because the application was filed before 5 June 2020. 24 We have already clarified that the correct interpretation of Section 10A cannot be merely based on the language of the provision; rather it must take into account the object of the Ordinance and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mise their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. (See ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] at para 83, fn 3). Hence, the embargo contained in Section 10A must receive a purposive construction which will advance the object which was sought to be achieved by enacting the provision. We are therefore unable to accept the contention of the appellant. 26 The date of the initiation of the CIRP is the date on which a financial creditor, operational creditor or corporate applicant makes ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
