Wednesday, 10 February 2021

Ramesh Kymal Vs Siemens Gamesa Renewable Power Pvt Ltd. - Provisions of Section 10A are retrospective.

SCI (09.02.2021) in Ramesh Kymal Vs Siemens Gamesa Renewable Power Pvt Ltd. [Civil Appeal No. 4050 of 2020] held that; 

  • 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.


Excerpts of the order;

# 1 The appellate jurisdiction of this Court under Section 62 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) has been invoked to challenge the judgement and order of the National Company Law Appellate Tribunal (“NCLAT” or “Appellate Tribunal”) dated 19 October 2020. The NCLAT affirmed the decision of the National Company Law Tribunal (“NCLT” or “Adjudication Authority”) dated 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.


# 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. . . .


# 5 On 28 April 2020, a termination letter was addressed to the appellant. The appellant issued a demand notice on 30 April 2020 in Form 3 of the IBC. The demand notice specified that the date of default was 30 April 2020.


# 6 On 11 May 2020, the appellant filed an application under Section 9 of the IBC on the ground that there was a default in the payment of his operational dues. During the pendency of the application, an Ordinance was promulgated by the President of India on 5 June 2020 by which Section 10A was inserted into the IBC. Section 10A reads as follows:

  • “10A. Suspension of initiation of corporate insolvency resolution process.— Notwithstanding anything contained in sections 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 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 application3 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 as set up in Form 3;

  • 11 May 2020 – date of institution of the application under Section 9; an

  •  5 June 2020 – date on which Section 10A was inserted in the IBC.


# 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 Ordinance and the Act which replaced it do not provide for the retrospective application of Section 10A either expressly or by necessary implication to applications which had already been filed and were pending on 5 June 2020;

  • (iii) Section 10A prohibits the filing of a fresh application in relation to defaults occurring on or after 25 March 2020, once Section 10A has been notified (i.e., after 5 June 2020);

  • (iv) Section 10A uses the expressions "shall be filed" and "shall ever filed" which are indicative of the prospective nature of the statutory provision in its application to proceedings which were initiated after 5 June 2020; and

  • (v) The IBC makes a clear distinction between the "initiation date" under Section 5(11) and the "insolvency commencement date" under Section 5(12).


# 13 Opposing the above submissions, it has been urged by Mr Gopal Jain, learned Senior Counsel on behalf of the respondent, that:

  • (i) The legislative intent in the insertion of Section 10A was to deal with an extraordinary event, the outbreak of Covid-19 pandemic, which led to financial distress faced by corporate entities;

  • (ii) Section 10A is prefaced with a non-obstante clause which overrides Sections 7, 9 and 10; and

  • (iii) Section 10A provides a cut-off date of 25 March 2020 and it is evident from the substantive part of the provision, as well as from the proviso and the explanation, that no application can be filed for the initiation of the CIRP for a default occurring on and after 25 March 2020, for a period of six months or as extended upon a notification.


# 14 The rival submissions can now be considered.


# 16 Section 10A is prefaced with a non-obstante provision which has the effect of overriding Sections 7, 9 and 10. Section 10A provides that:

  • (i) no application for the initiation of the CIRP by a corporate debtor shall be filed;

  • (ii) for any default arising on or after 25 March 2020; and

  • (iii) 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 proviso to Section 10A stipulates that "no application shall ever be filed" for the initiation of the CIRP of a corporate debtor "for the said default occurring during the said period". The explanation which has been inserted for the removal of doubts clarifies that Section 10A shall not apply to any default which has been committed under Sections 7, 9 and 10 before 25 March 2020.


# 20 The substantive part of Section 10A adverts to an application for the initiation of the CIRP. It stipulates that for any default arising on or after 25 March 2020, no application for initiating the CIRP 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.


# 23 Adopting the construction which has been suggested by the appellant would defeat the object and intent underlying the insertion of Section 10A. The onset of the Covid-19 pandemic is a cataclysmic event which has serious repercussions on the financial health of corporate enterprises. The Ordinance and the Amending Act enacted by Parliament, adopt 25 March 2020 as the cut-off date. The proviso to Section 10A stipulates that "no application shall ever be filed" for the initiation of the CIRP "for the said default occurring during the said period”. The expression "shall ever be filed" is a clear indicator that the intent of the legislature is to bar the institution of any application for the commencement of the 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. 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 the extraordinary circumstances in which it was promulgated. It must be noted, however, that the retrospective bar on the filing of applications for the commencement of CIRP during the stipulated period does not extinguish the debt owed by the corporate debtor or the right of creditors to recover it.


# 27 We are in agreement with the view which has been taken by the NCLAT for the reasons which have been set out earlier in the course of this judgment. We affirm the conclusion of the NCLAT. The appeal is accordingly dismissed. There shall be no order as to costs.


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The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.