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TMI Blog2022 (2) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... n CP/(IB) 2640/2019. Brief facts necessary for deciding this Appeal are:- The Appellant No.1 entered into Record Management Agreement with Corporate Debtor on 15.01.2007 under which Agreement 'M/s. Writer Information Management Services', a division of P.N. Writer & Co. Pvt. Ltd. agreed to provide record management services to 'Cox & Kings' for its record. The Agreement contained details of pricing etc. In terms of the payment procedure under the terms of Agreement, the Corporate Debtor was required to pay to the Appellant No.1 charges for the said services within 15 days from the date of receipt of monthly invoices raised by the Appellant. On 22.10.2019, Adjudicating Authority passed an order initiating Corporate Insolvency Resolution Process ("CIRP" for short) against Corporate Debtor- 'Cox & Kings'. A Moratorium under Section 14 of the Code was also declared. After public announcement on 26.10.2019, the Appellant filed its claim in Form-B raising a claim of Rs. 24,60,525/- against the Corporate Debtor. The Respondent- Mr. Ashutosh Agrawala was appointed as Resolution Professional on 10.01.2020. In 4th Committee of Creditors meeting held on 30.01.2020, the Resolution Professiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only till 31.01.2020. Details of invoices raised from 01.02.2020 to 30.06.2020 were also mentioned in the Reply. Another Application I.A. No. 484 of 2021 was preferred by the Resolution Professional praying for a declaration that the Respondent is not entitled to any payments in terms of the Agreement towards record management services and record retrieval services after commencement of CIRP of the Corporate Debtor from 22.10.2019. Direction was also sought for refunding the money received by the Appellant from the Corporate Debtor. An amount of Rs. 6.22 Crores was also claimed towards losses suffered by the Corporate Debtor on account of the refusal of the Respondent to provide uninterrupted critical services. The Appellant No.1 has also filed I.A No. 1628/2021 where the Appellant sought a declaration that the Applicant is entitled for payment of services and also payment for storage charges in advance for the next three years or till such further period if the Respondent wishes to continue the storage of records. Declaration was also sought that in event the Corporate Debtor fails to make payment then the Applicant will be entitled to suspend all retrievals services till such p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Board. Adjudicating Authority has no jurisdiction to impose punishment or fine of Rs. 20 Lakh on the Appellant. It is submitted that for imposing punishment which is an offence it is only Special Court as referred to in Section 236 who can award any punishment including punishment of fine. Section 235A is not a provision for imposing cost as has been referred to in paragraph 13 of the judgment. It is submitted that even after CIRP proceeding, the Appellants were provided record management services although after February 2020 no payment has been made to the Appellants. It is submitted that advance payment which was asked by Appellants was with regard to after services i.e. service of packing and others which was not part of the earlier Agreement. Appellant had never asked for advance payment for providing record management services as for which agreement was entered with Corporate Debtor. It is submitted that part of payment which was received by the Appellant was in response to the invoices and there was no justification for directing refund of said payment. Insofar as direction (A) in para 15 in order is concerned, the Appellants have been provided its services as per Agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en inserted in the Code by Act 8 of 2018 w.e.f. 23.11.2017. Section 235A was inserted in the Code vide Ordinance by Insolvency Bankruptcy Code Ordinance, 2017 (No. 7/2017). On the date when Ordinance was issued i.e. 27.11.2017 Press Information Bureau, Government of India, Ministry of Corporate Affairs issued orders highlighting on aims of the Ordinance. The press release outline the object of amendment which is to the following effect:- "The Government of India promulgated today the Ordinance to amend the Insolvency and Bankruptcy Code, 2016 (the Code). Earlier the President of India had given his assent to the Ordinance to amend the Code. The Ordinance aims at putting in place safeguards to prevent unscrupulous, undesirable persons from misusing or vitiating the provisions of the Code. The amendments aim to keep-out such persons who have wilfully defaulted, are associated with non-performing assets, or are habitually non-compliant and, therefore, are likely to be a risk to successful resolution of insolvency of a company. In addition to putting in place restrictions for such persons to participate in the resolution or liquidation process, the Amendment also provides such che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) wilfully concealed, destroyed, mutilated or falsified any book or paper affecting or relating to the property of the corporate debtor or its affairs, or (d) wilfully made any false entry in any book or paper affecting or relating to the property of the corporate debtor or its affairs, or (e) fraudulently parted with, altered or made any omission in any document affecting or relating to the property of the corporate debtor or its affairs, or (f) wilfully created any security interest over, transferred or disposed of any property of the corporate debtor which has been obtained on credit and has not been paid for unless such creation, transfer or disposal was in the ordinary course of the business of the corporate debtor, or (g) wilfully concealed the knowledge of the doing by others of any of the acts mentioned in clauses (c), (d) or clause (e); or (ii) at any time after the insolvency commencement date, committed any of the acts mentioned in sub-clause (a) to (f) of clause (i) or has the knowledge of the doing by others of any of the things mentioned in sub-clauses (c) to (e) of clause (i); or (iii) at any time after the insolvency commencement date, taken in pawn or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alicious intent for any purpose other than for the resolution of insolvency; or (b) with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees.]" 12. Section 236 deals with 'Trial of offences by Special Court'. Section 236 is as follows:- "236. Trial of offences by Special Court. - (1) Notwithstanding anything in the Code of Criminal Procedure, 1973(2 of 1974), offences under of this Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013 (18 of 2013). (2) No Court shall take cognizance of any offence punishable under this Act, save on a complaint made by the Board or the Central Government or any person authorised by the Central Government in this behalf. (3) The provisions of the Code of Criminal Procedure, 1973 shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be deemed to be a Court of Session and the person conducting a prosecution before a Special Court shall be deemed to be a Public Prosecutor. (4) Notwithstanding anything c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment which is to the following effect:- "4. With a view to answer these questions, it would be appropriate to first notice the relevant provisions of Section 10 and 23 of FERA, 1947, as they stood at the Material time, (prior to the amendment of the FERA in 1964 and 1973). Those provisions read thus,: xxx xxx xxx Section 23. Penalty and procedure.- (1) If any person contravenes the provisions of Section 4, Section 5, Section 9, Section 10, Sub-section (2) of Section 12, Section 17, Section 18A or Section 18B or of any rule, direction or order made thereunder, he shall (a) be liable to such penalty not exceeding three times the value of the foreign exchange in respect of which the contravention has taken place, or five thousand rupees, whichever is more, as may be adjudged by the Directorate of Enforcement in the manner hereinafter provided, or (b)... 23. (1-A)-23-EEE * ** * * 23F. If any person fails to pay the penalty imposed by the Director of Enforcement or the Appellate Board, or fails to comply with any of their directions or orders, he shall, on conviction before a Court, be punishable with imprisonment for a term which may extend to two years, or with fine, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven in civil proceedings. An exaction which is not compensatory in character is also termed as a "penalty'. When penalty is imposed by an adjudicating officer, it is done so in "adjudicator proceedings' and not by way of fine as a result of "prosecution" of an "accused' for commission of an "offence" in a criminal Court. Therefore, merely because "penalty' clause exists in Section 23(1)(a), the nature of the proceedings under that Section is not changed from "adjudicator' to "criminal' prosecution. An order made by an adjudicating authority under the Act is not that of conviction but of determination of the breach of the civil obligation by the offender." 17. The Hon'ble Supreme Court in the above case laid down that penalty is imposed by the Adjudicating Authority in adjudicatory proceedings and not by way of fine as a result of prosecution of an accused. The Hon'ble Supreme Court was interpreting Section 23(1)(a) which specifically provided imposition of penalty not exceeding three times the value of the foreign exchange. There was no indication that Section 23 provided for penalty for any offence. The above judgment does not help the Respondent in the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tect public revenue. Thus, all penalties do not flow from an offence as is commonly understood but all offences lead to a penalty. Whereas the former is a penalty which flows from a disregard of statutory provisions, the latter is entailed where there is mens rea and is made the subject-matter of adjudication. In our view, penalty under section 10(3) of the Act is compensatory. It is levied for breach of a statutory duty for non-payment of tax under the Act. Section 10(3) is enacted to protect public revenue. It is enacted as a deterrent for tax evasion. If the statutory dues of the State are paid, there is no question of imposition of heavy penalty. Everything which is incidental to the main purpose of a power is contained within the power itself. The power to impose penalty is for the purpose of vindicating the main power which is conferred by the statute in question. Deterrence is the main theme of object behind that imposition of penalty under section 10(3)." 21. We may also refer to one judgment of UK High Court reported in (2004) EWHC 3010 (Ch). The High Court has occasion to consider Rule 12.3(2) of the Insolvency Rules, 1986 where the expression of fine was held to be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. The above authority also supports our view that punishment of fine is a fine which is imposed on a delinquent for an offence. 23. The Code has used both the expressions punishment and fine. The use of expressions 'punishment' and 'fine' has been in reference to the provisions which provision in Chapter VII of Part-II and Chapter VII of Part-III in reference to offence which are enumerated in Code. A question will be asked as to why Section 235A has not been inserted in Chapter VII of Part-II or Chapter VII of Part-III. The answer is obvious i.e. since Section 235A encompasses contravention of any of the provisions of the Code, Rules and Regulations, it was placed in Part-V i.e. Miscellaneous. Placing of Section 235A in Part-II & III while dealing with specific offences in Chapter VII would not have been appropriate. The use of expression 'punishable with fine' in Section 235A makes it is nearer to the nature of acts defined in Chapter VII Part II and Chapter VII Part-III, Section 235A is not a provision which empowers the Adjudicating Authority to impose penalty. Applying the definition of offences as contained in Section 3(38) of the General Clauses Act, 1897 in Section 235A, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement." 26. Section 74 of the Code which is part of Chapter VII of Part-II specifically provide for 'punishment for contravention of Moratorium or Resolution Plan'. Section 74 is as follows:- "74. Punishment for contravention of moratorium or the resolution plan. - (1) Where the corporate debtor or any of its officer violates the provisions of section 14, any such officer who knowingly or wilfully committed or authorised or permitted such contravention shall be punishable with imprisonment for a term which shall not be less than three years, but may extend to five years or with fine which shall not be less than one lakh rupees, but may extend to three lakh rupees, or with both. (2) Where any creditor violates the provisions of section 14, any person who knowingly and wilfully authorised or permitted such contravention by a creditor shall be punishable with imprisonment for a term which shall not be less than one year, but may extend to five years, or with fine which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both. (3) Where the corporate debtor, any of its officers or creditors or any person on whom the approved resolution plan is bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , direction issued in paragraph 15(A) is affirmed. 31. In the Rejoinder filed by the Appellants an order dated 06.12.2021 has been brought on record by which order Adjudicating Authority has directed for liquidation of the Corporate Debtor. The CIRP thus has come to an end w.e.f. 16.12.2021. QUESTION NO.3: 32. Appellants in its Affidavit has stated that Appellant has continued to provide record management services after initiation of CIRP also and advance payment which was asked for was only with respect to future services i.e. service of packing etc. which payment was not asked for services which were continued from earlier. It is on the record that Appellant has issued invoices for payment for the services provided during CIRP and part payment was made during the period. The prayer of the Resolution Professional in his second Application i.e. I.A. 484 of 2021, the direction be issued to the Appellants that they are not entitled to receive any payment for services during CIRP period could not have been granted. We thus are of the view that there was no occasion for the Adjudicating Authority to issue any direction to refund the amount which has already been paid by the Resoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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