The Adjudicating Authority NCLT, Chennai Bench, has by its Judgment dated 9th July 2020 dismissed the IBC Petition No. 215/2020 filed by Ramesh Kymal v/s M/s. Siemens Gamesa Renewable Power Pvt Ltd, in view of an Interlocutory Application No. IA/395/2020 preferred by the Corporate Debtor challenging the maintainability of the I&B Petition on the point of promulgation of IBC (Amendment) Ordinance, 2020 published in Gazette of India on 05/06/2020, inserting new Section 10A in “the Principal Act”.

Facts of the case:

An Application u/s 9 was filed by the Operational Creditor on 11th May 2020, claiming an amount of Rs.104.11 Crores from the Corporate Debtor. The date of default mentioned in Form 5 was 30/04/2020.

On 05/06/2020, the Government introduced an Amendment Ordinance thereby inserting new Section 10A quoted hereinbelow:

“Notwithstanding anything contained in Section 7, 9 and 10, no application for initiation of Corporate Insolvency Resolution Process of a Corporate Debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf;

Provided that no application shall ever be filed for initiation of Corporate Insolvency Resolution Process of a Corporate Debtor for the said default occurring during the said period

Explanation: for 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”

In view of the Ordinance, the Corporate Debtor filed an urgent Application No. 394 of 2020 for hearing of the Interlocutory Application No. 395 of 2020 for deciding the maintainability of the main Petition No. 215 of 2020.

Contentions of Operational Creditor

Operational Creditor resisted the Application on the basis of demurrer and contended that since the Petition was already filed on 11th May 2020 and subsequently heard on 19th May 2020 and 26th May 2020 and adjourned for final hearing thereafter, prior to the promulgation of the Ordinance on 5th June 2020. The proceedings are required to be continued and not to be suspended as sought for by the Corporate Debtor trying to take shelter under the newly inserted Section 10A of the IBC. It was further contended that the filing of the Application in effect, itself demonstrates the admission of default on the part of the Corporate Debtor.

It was also contended that if there was no financial distress arising out of COVID pandemic, however, there has been default on the part of the Corporate Debtor then the protection of the newly inserted Section 10A will not come into play as evident from the intention in promulgation of the Ordinance that it is available only to those who have in effect committed a default and such default arises out of financial distress due to COVID pandemic being prevalent. The Corporate Debtor has in effect admitted to the liability to pay to the Operational Creditor vide communication dated 27th March 2020 and 2nd April 2020. As such the petition was not impacted by the COVID situation.

Contentions of the Corporate Debtor.

The Corporate Debtor canvassed for the suspension of the proceedings in the main petition in IBA No. 215 of 2020 on the grounds that the default as per the admission of the Operational Creditor is of dated 30th April 2020, as evident from the documents, both Application as well as Demand Notice, which is posterior to the date from which the Ordinance was made retrospectively applicable on and from 25th March 2020 even though it came to be published in the Gazette of India only 5th June 2020.

The Ordinance was promulgated taking into consideration the extraordinary situation prevalent all over the world, including India impacting business, financial markets and economy which had created uncertainty and stress for business for reasons beyond control of corporate persons, hence suspension of the IBC proceedings by virtue of section 10A of I & B Code 2016.

Questions which arose for consideration of the Adjudicating Authority

i) What will happen to those cases where the date of default is anterior to the relevant dare as specified in the main provision of Section 10A namely 25/03/2020 ?

ii) What will happen to those cases which had been filed during the interregnum of the relevant date of 25/03/2020 and the date of promulgation of the Ordinance 05/06/2020 ?

iii) Whether the Ordinance (No. 9 of 2020) will have applicability to the IBC Petition ?

Observations & Findings of the Adjudicating Authority

Findings to question no. (i)

The Tribunal cannot be considered as a ‘Civil Court’ leave alone a Constitutional Court which alone has the power to judicially review any legislation, irrespective of its nature and in the circumstances the contour are quite clear within which the Tribunal can traverse in relation to the interpretation of Section 10A newly inserted by virtue of recently promulgated Ordinance with effect from 5th June 2020.

The Adjudicating Authority considered Article 123 of importance as the power to promulgate Ordinances on the part of the Executive is enshrined in said Article :

123. Power of President to promulgate Ordinances during recess of Parliament

(1) If at any time, except when both Houses of Parliament are in session, the President is satisfied that circumstances exists which render I necessary for him to take immediate action, he may promulgate such Ordinance as the circumstances appear to him to require

(2) An Ordinance promulgated under this article shall have the same force and effect as an Act of parliament, but every such Ordinance
(a) shall be laid before both House of Parliament and shall cease to operate at the expiration of six weeks from the reassemble of Parliament, or, if before the expiration of that period resolutions disapproving it are passed by both Houses, upon the passing of the second of those resolutions; and
(b) many be withdrawn at any time by the President Explanation Where the Houses of Parliament are summoned to reassemble on different dates, the period of six weeks shall be reckoned from the later of those dates for the purpose of this clause.

(3) If and so far as an Ordinance under this article makes any provisions which Parliament would not under this Constitution be competent to enact, it shall be void.

The provisions of the Ordinance promulgated by the Executive in exercise of the power vested in it under Article 123 of the Constitution of India which taken together with the observations relating to the Ordinances as succinctly brought about by the Apex Court in Dr. D.C. Wadhwa & Ors v/s. State of Bihar & Ors (1987) 1 SCC 789, clearly establishes that save the limit of its validity for all other intents and purposes it is required to be treated at par with the piece of legislation as may be enacted by the Legislature, namely the Parliament.

The Adjudicating Authority also relied on reasons and objects for promulgation of the Ordinance (No. 9 of 2020) concerning the COVID-19 pandemics being all over the world including India and:
(i) In relation to the impact it will have on the businesses, financial markets and economy as a whole including India;
(ii) The likely stress and uncertainty it will create for businesses beyond their control;
(iii) The disruption to the business created in view of the nationwide lockdown which is in force since 25 March 2020;
(iv) Difficulty in finding adequate number of resolution applicants to rescue the corporate persons in case of default under the circumstances;
(v) To prevent the corporate persons already experiencing distress on account of unprecedented situation being pushed into proceedings, to suspend section 7, 9 and 10 of I&B Code;
(vi) To exclude the defaults arising on account of the said unprecedented situation for the purpose of insolvency proceedings;
(vii) Since Parliament being not in session and the President being satisfied as to the necessity for immediate action, in exercise of the powers conferred by clause (1) of Article 123, the promulgation of the Ordinance with a view to amend the Principal Act, namely I&B Code by insertion of section 10A in order to achieve the above objects.

The said Section 10A opens with an non-obstante clause thereby overriding the provisions of section 7, 9 and 10 initially for a period of six months with a saving for a further extension of the said period not exceeding one year from such date as may be notified in relation to the filing of an application seeking initiation of CIRP of a corporate debtor in relation to default arising on or after 25th March 2020.

Thus, cases where the date of default is anterior to the relevant date as specified in the main provisions of Section 10A, namely 25th March 2020, the doubt is sought to be clarified by way of an explanation provided at the foot of section 10A itself stating that the provisions of section 10A shall not apply to default which had arisen in relation to a corporate debtor prior to the relevant date of 25th March 2020 and hence the creditors of such a corporate debtor or the corporate debtor as a corporate applicant are not restrained from initiation of CIRP as they are not prevented from doing it as compared to the bar which had been put up for the defaults committed on or after the relevant date of 25 March 2020.

Findings to question no. (i)

ON THE ASPECT OF RESTROSEPCTIVE APPLICATION OF A STATUTE:

It is the ‘default’ on the part of the Corporate Debtor to pay the debt due which can trigger the filing of the a petition and not otherwise. In the normal run of section 7,9 and 10 it is a sine qua non for the existence of a debt and its default, as was decided in the cases viz;

(i) Innoventive Industries v/s ICICI Bank & Anr (2018) 1 SCC 407 in relation to a financial debt and its default;

(ii) Mobilox Innovations v/s Kirusa Software Private Limited (2018) 1 SCC 353 in relation to an operational Debt and its default.

Reliance was also placed on decision rendered by the Hon’ble Supreme Court in B.K. Educational Services Private Limited v/s Parag Gupta (2018) SCC Online SC 1921 dealing with the issue of applicability of the law of Limitation to I&B Code in relation to the financial and operational debts and its default, since it also dealt with the reckoning of dates to ascertain whether a debt is capable of being enforced in law.

Further, the Hon’ble Supreme Court in re: Shah Bhojraj Kuverji Oil Mills and Ginny Factory v/s Subbhash Chandra Yograj Sinha (1962 2 SCR 159), held that “while it was the ordinary rule that substantive rights should not be held to be taken away except by express provisions or clear implications, many Acts, though prospective in form, have been given retrospective operations, if the intention of legislature is apparent. This is more, when Acts are passed to protect the public against evil or abuse”

The Adjudicating Authority therefore appreciated that an Act, by express provisions contained therein or by necessary implication or intendment is capable of making the law retrospective in its operation. Similarly, the main provision of Section 10A taken together with objects reasons resulting in the promulgation of Ordinance (No. 9 of 2020) demonstrates that it is to be made applicable retrospectively to the defaults arising on or after 25th March 2020.

WHETHER SECTION 10A, NEWLY INSETRED IN I&B CODE BY THE PROMULGATION OF THE ORDINANCE (NO. 9 OF 2020) HAS A RETROSPECTIVE APPLICABILITY AND RETOACTIVE EFFECT:

Section 10A relates to the date of 25th March 2020 in reckoning the date of default, even though the Ordinance got promulgated only on 5th June 2020 and published in the Gazette of India. In case the default occurred on or after 25th March 2020 then the Tribunal should desist from entertaining such an application, even though filed between the date of 25th March 2020 and 5th June 2020 that too both the dates being within the six months period, specified under section 10A, in view of the interdiction imposed by the I&B Code itself in filing a section 7, 9 and 10 application in relation to default arising on or after 25 th March 2020.

The proviso to main provisions of Section 10A makes it abundantly clear that the hands of the clock are not required to be temporarily frozen for a period of six months or such further period not exceeding one year but are required to be permanently interdicted in relation to faults occurring on or after 25.03.2020 by the use of the term ‘no application shall ever be filed’. The normal functioning of a proviso is to except something out of the enactment or to qualify something which, but for the proviso, would be within the purview of the enactment, re: Laxminarayan R. Bhattad & Ors v/s State of Maharashtra & Anr in Civil Appeal No. 6345 of 2001 (2003) 3 SCR 409.

Hence, the question posed in relation to the retrospectivity of the applicability of Section 10A relating to suspension of filing application for initiation of CIRP was answered in affirmative

WHETHER THE DATE OF DEFAULT FALLS PRIOR TO OR ON OR AFTER 25.03.2020 TO DETERMINE WHETHER THE APPLICATION IS TO BE PROCEEDED ANY FURHTER OR ALTERNATIVELY THIS TIBUNAL IS TO RESTRAIN ITSELF FROM THE EXERCISE OF ITS JURISDICTION AVAILABLE TO IT UNDER SECTION 9 DUE TO THE APPLICABILITY OF SECTION 10A:

The Adjudicating Authority considered the ambit and scope of Order 7 Rule 11 particularly in relation to clause (a) and (d) as observed by the Apex Court in the matter of Sapan Sukhdeo Sable & Ors v/s Assistant Charity Commissioner And Ors (2004) 3 SCC 137. The rejection of the plaint does not preclude the plaintiffs from presenting a fresh plaint in terms of Rule 13 thereof, however in case of new Section 10A of the I&B Code 2016, the same may not be possible, there is a bar/interdiction of the Code as the phrase ‘shall ever be filed’ is used in relation to the period specified in the main provision in relation to default occurring during the on or from 25th March 2020. If averments made in the petition point out that the default has occurred during the specified initial period of six months or as may be further specified not exceeding one year commencing from and on from 25th March 2020, the Tribunal is not required to look any further and the counter statement /reply statement and the pleadings contained therein in this regards become wholly irrelevant.

Decision:

Taking into view of the above discussions, the Adjudicating Authority in its considered view that the Executive, in the Promulgation of the Ordinance to meet an extraordinary situationand to avoid causing further stress to the already beleaguered businesses due to COVID pandemic throughout the world and also in addition affected by the lock down enforced by the state of the Union, all beyond their control, have chosen to suspend the filing of any application in relation to defaults arising on or after 25.03.2020.

As a consequences of applicability of newly inserted Section 10A of the IBC to the instant case, in view of the alleged default if any had occurred even according to the own admission of the Operational Creditor as to be that of 30/04/2020, due to bar created by law, rejected the petition.