NCLAT (12.10.2020) in Madhusudan Tantia Vs. Amit Choraria [Company Appeal (AT) (Insolvency) No. 557 of 2020] held that; that the notification dated 24.03.2020 of the Ministry of Corporate Affairs, Government of India, is prospective in nature and it is not retrospective or retroactive in nature. Further, the said notification will not apply to the pending applications filed before the concerned ‘Adjudicating Authority’ (Authorities), under IBC (waiting for admission), prior to the issuance of the aforesaid notification,
Facts of the Case;
The Operational Creditor (Foseco India Ltd.) filed an application for commencing the CIRP asper Section 9 of Code, the total amount of debt was mentioned as Rs. 90,00,919.10/-.
The dates of default were 11.4.2018, 28.4.2018 and 17.6.2018.
The date of demand notice was on 31.07.2019.
The Section 9 Application was filed before the Adjudicating Authority on 05.09.2019. Adjudicating Authority admitted the application on 20.05.2020
Excerpts of the order;
# 3. According to the Appellant he is a majority shareholder and one of the Directors on the ‘Suspended Board of Directors’ of the ‘Corporate Debtor’ and he is affected and prejudiced by the Impugned Order in admitting the application and initiating ‘Corporate Insolvency Resolution Process’ as against the ‘Corporate Debtor’ (Om Boseco Rail Products Ltd., Bengal).
Appellant’s Contentions
# 10. The Learned Counsel for the Appellant submits that the ‘Adjudicating Authority’ while passing the impugned order had committed an error in Law and on facts by failing to appreciate that by reason of the amendment to Section 4 of the ‘I&B’ Code, the application was no longer maintainable in Law and was barred by Law and hence the Authority should have dismissed the application because of the simple reason that the amendment in issue is having retrospective effect.
# 11. The Learned Counsel for the Appellant submits that in the application, the total claim of the ‘Operational Creditor’ is Rs. 90,009,19.10 (Rupees ninety lakhs nine hundred and nineteen and ten paise only) which is below the threshold limit of Rs. one crore as the minimum amount of default for the purpose of preferring an application under Sections 7 or 9 and 10 of the ‘I&B’ Code.
# 27. The Learned Counsel for the Appellant submits that the impugned order passed by the ‘Adjudicating Authority’ is not sustainable pursuant to the notification dated 24.03.2020 issued by the Ministry of Corporate Affairs, Govt. of India.
Submissions of 2nd Respondent
# 29. The Learned Counsel for the 2nd Respondent submits that the notification dated 24.03.2020 cannot have retrospective effect because of the fact that Section 9 of the ‘I&B’ Code provides substantive right to file an application to initiate CIRP which cannot be taken away on a future date with retrospective effect.
# 31. It is represented on behalf of the Learned Counsel for the 2nd Respondent that under ‘Delegated Legislation’ could not issue a ‘Notification’ with retrospective effect or to deprive the rights already accrued to the parties at the time of filing of the petition and refers to the Hon’ble Supreme Court decisions (i) Dr. Indramani Pyarelal Gupta V. ‘W.R. Nath & Ors.’, April 11, 1962, AIR 1963 SC 274 (ii) ‘Bakul Cashew Co. & Ors.’ V. ‘Sales Tax Officer & Anr.’ Quilon, March 12, 1986, 1987 AIR 2239, 1986 SCR (1) 610.
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# 34. The Learned Counsel for the 2nd Respondent submits that the ‘Adjudicating Authority’ had admitted the C.P. (IB) No.1735/KB/2019 after ensuring:-
(i) That there were defaults by the Corporate Debtor in payment of the Operational Debt, (ii) That Demand Notice was duly served on the corporate debtor,
(iii) Application/petition under Section 9 of IBC 2016 was in accordance with section 9 and was complete,
(iv) The propose IRP does not have any pending disciplinary cases
(v) Notice was served on the corporate debtor by post and by email,
(vi) Corporate debtor submitted at NCLT that the notice was received by post but the director overlooked it. It was also submitted that the email at which notice was mailed is not in use even though the said email is as per the records of the Ministry of Corporate Affairs,
(vii) That the Corporate debtor failed to submit any reply even after liberty to file within extended time was granted.
# 41. At this stage, this Tribunal worth recalls and recollects the decision of Hon’ble Supreme Court ‘Atlas Cycles Industries Ltd.’ V. ‘State of Haryana’ AIR (1977) Supreme Court p.121 wherein it is observed that the word ‘Notification’ is normally employed in the context of conditional legislation e.g. to bring into operation the enabling Act or to grant exemptions from its provisions or to extend its operation to the new persons or objects. It is to be pointed out that just because a ‘Notification’ substitutes something in an earlier notification, the substitution cannot have retrospective operation.
# 48. The 2nd Respondent / Operational Creditor before the ‘Adjudicating Authority’ had produced the statement of ‘Bank Account’ and also an Affidavit and as such the 2nd Respondent / Operational Creditor had fulfilled the requirements as per the ingredients of ‘I&B’ Code. To put it succinctly, there was no payment made on the part of the ‘Corporate Debtor’ after receipt of Demand Notice from the 2nd Respondent / Operational Creditor. Hence, this Tribunal without any haziness comes to a consequent conclusion that the ‘Adjudicating Authority’ had rightly admitted the application and in this regard, there is no legal flaw, as opined by this Tribunal.
# 49. Dealing with the aspect of as to whether the notification issued by the Jt. Secy. of Ministry of Corporate Affairs, Govt. of India dated 24.03.2020 in Section 4 of the ‘I&B’ Code has a retrospective or prospective effect, at this juncture, this Tribunal makes a useful reference to the said notification which runs to the effect
“S.O. 1205(E).- In exercise of the powers conferred by the proviso to section 4 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central Government hereby specifies one crore rupees as the minimum amount of default for the purposes of the said section”.
# 53. Indeed, in the present case, notwithstanding the fact, the Central Government is delegated with a power to quantify the amount of default at any time after the enactment of the ‘I&B’ Code, this power will not deprive / deny the right which had already accrued to the concerned stakeholders, (including the 2nd Respondent / Operational Creditor) at the time of projecting the C.P. (IB) No.1735/KB/2019 before the ‘Adjudicating Authority’.
# 55. It is to be remembered that on the occurrence of default, the operational creditor gets the right to trigger the ‘CIRP’ process. Section 9(1) of the Code confers a substantive right to file and to initiate ‘CIRP’ against the corporate debtor. It is needless for this Tribunal to point out that upon an application / petition being filed by the concerned person in terms of the ingredients of Section 9(1) of the Code and the default sum is quite in tune with Section 4 of the Code, the application / petition is to be admitted by the ‘Adjudicating Authority’, of course subject to the ingredients of Section 9(2) to Section 9(5) of the Code.
# 57. In view of the upshot and also this Tribunal, on a careful consideration of respective contentions advanced on either side and considering the facts and circumstances of the instant case in a conspectus fashion holds unhesitatingly that the notification dated 24.03.2020 of the Ministry of Corporate Affairs, Government of India, is prospective in nature and it is not retrospective or retroactive in nature. Further, the said notification will not apply to the pending applications filed before the concerned ‘Adjudicating Authority’ (Authorities), under IBC (waiting for admission), prior to the issuance of the aforesaid notification, as opined by this Tribunal. Viewed in the above perspectives, the conclusion arrived at by the ‘Adjudicating Authority’ in the impugned order to the effect that the notification dated 24.03.2020 of the Ministry of Corporate Affairs, Government of India, shall be considered as prospective and not retrospective and the finding that there was no payment on the side of ‘Corporate Debtor’ after receipt of Demand Notice, no pre-existing dispute also alleged or proved and ultimately admitting the application filed by the 2nd Respondent / Operational Creditor are free from legal infirmities. Resultantly, the instant Appeal fails.
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