Supreme Court

JK Jute Mill Mazdoor Morcha Vs. Juggilal Kamlapat Jute Mills Company Ltd. and Ors.

MANU/SC/0626/2019

30.04.2019

Insolvency

A registered trade union can maintain a petition as an operational creditor on behalf of its members

The present appeal raises an important question as to whether a trade union could be said to be an operational creditor for the purpose of the Insolvency and Bankruptcy Code, 2016 (Code). The facts of the present case reveal a long-drawn saga of a jute mill being closed and reopened several times until finally, it has been closed for good on 7th March, 2014. Proceedings were pending under Act, 1985. On 14th March, 2017, the Appellant issued a demand notice on behalf of roughly 3000 workers under Section 8 of the Code for outstanding dues of workers. This was replied to by Respondent No. 1.

The National Company Law Tribunal [NCLT] held that, a trade union not being covered as an operational creditor, the petition would have to be dismissed. By the impugned order, the National Company Law Appellate Tribunal [NCLAT] did likewise and dismissed the appeal filed by the Appellant, stating that each worker may file an individual application before the NCLT.

A trade union is certainly an entity established under a statute-namely, the Trade Unions Act, and would therefore fall within the definition of "person" under Sections 3(23) of the Code. This being so, it is clear that an "operational debt", meaning a claim in respect of employment, could certainly be made by a person duly authorised to make such claim on behalf of a workman. Rule 6, Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 also recognises the fact that claims may be made not only in an individual capacity, but also conjointly.

Further, a registered trade union recognised by Section 8 of Act, makes it clear that it can sue and be sued as a body corporate under Section 13 of that Act. A registered trade union which is formed for the purpose of regulating the relations between workmen and their employer can maintain a petition as an operational creditor on behalf of its members.

The NCLAT, by the impugned judgment, is not correct in refusing to go into whether the trade union would come within the definition of "person" under Section 3(23) of the Code. Equally, the NCLAT is not correct in stating that, a trade union would not be an operational creditor as no services are rendered by the trade union to the corporate debtor. The trade union represents its members who are workers, to whom dues may be owed by the employer, which are certainly debts owed for services rendered by each individual workman, who are collectively represented by the trade union.

Equally, to state that for each workman there will be a separate cause of action, a separate claim, and a separate date of default would ignore the fact that, a joint petition could be filed under Rule 6 read with Form 5 of the Rules, 2016, with authority from several workmen to one of them to file such petition on behalf of all. The appeal is allowed and the judgment of the NCLAT is set aside. The matter is now remanded to the NCLAT who will decide the appeal on merits expeditiously.

Tags : Operational creditor Trade union Representation

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NATIONAL COMPANY LAW APPELLATE TRIBUNAL

R.G. Steels Vs. Berrys Auto Ancillaries (P) Ltd.

MANU/NC/6782/2019

23.09.2019

Company

A Sole Proprietary Concern is not a person under Section 3(23) of IBC and it cannot initiate insolvency proceedings

In present case, RG Steels (Petitioner) has approached present Tribunal as Operational Creditor (OC) under the provisions of Section 9 of Insolvency and Bankruptcy Code, 2016 (IBC, 2016) seeking for the initiation of Corporate Insolvency Resolution Process (CIRP) in relation to M/s. Berrys Auto Ancillaries Private Limited Corporate Debtor (CD) for the amounts allegedly unpaid and in default.

Record of proceedings available before present Tribunal shows that upon Notice, the CD had entered appearance through its Counsel who has also filed a reply to the Petition. The petition under the circumstances, in view of the completion of pleadings, was heard on 6.9.2019. Prima facie from the Petition, it is evident that the petition has been preferred by M/s. RG Steels stated to be a Sole Proprietary Concern. However, by virtue of definition as contained in Section 3(23) of IBC, 2016 a person even though includes an individual it does not include within its ambit a Sole Proprietary Concern.

It is also required to note that, from the points out to the documents as filed along with the petition by the Petitioner itself represents that rate as charged by the OC to the CD had been disputed even prior to the issue of a demand Notice by the OC.

Thus, there seems to be a pre-existence of dispute as between the OC and CD in relation to rates charged (and total debt) by the OC to CD and the same being a pre-existing dispute as evident from the documents filed by the petitioner itself before this tribunal. Hence, based on the above namely a Sole proprietary concern taking into consideration the definition of a "person" is not entitled to approach this Tribunal on its own and also in view of the pre-existing dispute evident on consideration of the merits of claim made by the OC against CD, present petition stands dismissed.

Tags : Default CIRP Initiation

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Supreme Court

Pioneer Urban Land and Infrastructure Limited and Ors. Vs. Union of India (UOI) and Ors.

MANU/SC/1071/2019

09.08.2019

Insolvency

Allottees of real estate projects are "financial creditors" and may trigger the IBC against the real estate developer

Writ petitions have been filed in present Court to challenge the constitutional validity of amendments made to the Code, pursuant to a report prepared by the Insolvency Law Committee dated 26th March, 2018 ("Insolvency Committee Report"). The amendments so made deem allottees of real estate projects to be "financial creditors" so that they may trigger the Insolvency and Bankruptcy Code, 2016, (IBC) under Section 7 of IBC thereof, against the real estate developer. In addition, being financial creditors, they are entitled to be represented in the Committee of Creditors by authorised representatives.

The IBC is a beneficial legislation which can be triggered to put the corporate debtor back on its feet in the interest of unsecured creditors like allottees, who are vitally interested in the financial health of the corporate debtor, so that a replaced management may then carry out the real estate project as originally envisaged and deliver the flat/apartment as soon as possible and/or pay compensation in the event of late delivery, or non-delivery, or refund amounts advanced together with interest. It cannot be said that Article 19(1)(g) of Constitution of India, 1950 has been infracted and not saved by Article 19(6) as the Amendment Act is made in public interest, and it cannot be said to be an unreasonable restriction on the Petitioner's fundamental right under Article 19(1)(g) of Constitution. Also, there is no infraction of Article 300-A, as no person is deprived of its property without authority of a constitutionally valid law.

Allottees/home buyers were included in the main provision, i.e. Section 5(8)(f) with effect from the inception of the Code, the explanation being added in 2018 merely to clarify doubts that had arisen. The Amendment Act to the Code does not infringe Articles 14, 19(1)(g) read with Article 19(6), or 300-A of the Constitution.

The Real Estate Regulatory Authority, 2016 (RERA) is to be read harmoniously with the Code, as amended by the Amendment Act. It is only in the event of conflict that the Code will prevail over the RERA. Remedies that are given to allottees of flats/apartments are therefore concurrent remedies, such allottees of flats/apartments being in a position to avail of remedies under the Consumer Protection Act, 1986, RERA as well as the triggering of the Code. Section 5(8)(f) as it originally appeared in the Code being a residuary provision, always subsumed within it allottees of flats/apartments. The explanation together with the deeming fiction added by the Amendment Act is only clarificatory of this position in law.

Given the declaration of the constitutional validity of the Amendment Act, it is absolutely necessary that the NCLT and the NCLAT are manned with sufficient members to deal with litigation that may arise under the Code generally, and from the real estate sector in particular. Appeals disposed off.

Tags : Allottees Real estate projects Amendment

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NATIONAL COMPANY LAW APPELLATE TRIBUNAL

Central Bank of India Vs. NCML Industries Limited

MANU/NC/1393/2017

07.11.2017

Insolvency

In case of default, Financial creditor either by itself or jointly with other financial creditor could file application for initiating CIRP against Corporate Debtor

The 'Financial Creditor'-Central Bank of India has filed the instant application under Section 7 of the Insolvency and Bankruptcy Code, 2016 ('the Code') with a prayer to trigger the Corporate Insolvency Resolution Process in the matter of NCML Industries Limited. The 'financial creditor' is a body corporate constituted by and under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 ('Banking Companies Act'). The Corporate Debtor-NCML Industries Limited was incorporated on 26.09.1996. In the application, the Financial Creditor has given the details of financial debt granted to the 'Corporate Debtor' with the dates of disbursement.

The 'financial creditor' has placed on record an overwhelming evidence to prove the amount advanced and secured by Corporate guarantees. The 'corporate debtor' has opposed the admission of the application by arguing that, the petition is incomplete as no statutory details required in part IV of the prescribed form have been given. It is appropriate to mention that, the proforma has been prescribed by Rule 4 of the Rules known as Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. In part IV two columns are mentioned namely (1) total amount of debt granted with date(s) of disbursement (2) amount claimed to be in default and the date on which the default occurred. The Petitioner has given the particulars of financial debt in part IV satisfying all the aforesaid requirements.

Another objection raised by the Corporate Debtor is that the petition was not maintainable without joining the lead Bank. This objection would not detain present Tribunal as Section 7 of the Code itself shows that a financial creditor either by itself or jointly with other financial creditor may file an application for initiating Corporate Insolvency Resolution Process against a Corporate Debtor when a default has occurred. Therefore, there is no obligation to join the lead Bank.

Present petition is admitted. Shri Gian Chand Narang who is duly registered with Insolvency and Bankruptcy Board of India is hereby appointed as an Interim Resolution Professional.

In pursuance of Section 13(2) of the Code, it is directed that public announcement shall be made by the Interim Resolution Professional immediately (3 days as prescribed by Regulations) with regard to admission of this application under Section 7 of the Code. It is made clear that the provisions of moratorium shall not apply to transactions which might be notified by the Central Government or the supply of the essential goods or services to the Corporate Debtor as may be specified, are not to be terminated or suspended or interrupted during the moratorium period.

The Interim Resolution Professional shall perform all his functions contemplated by Sections 15, 17, 18, 19, 20 & 21 of the Code and transact proceedings with utmost dedication, honesty and strictly in accordance with the provisions of the 'Code', Rules and Regulations. The Petition is disposed of.

Tags : Financial debt CIRP Appointment

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NATIONAL COMPANY LAW APPELLATE TRIBUNAL

Bimalkumar Manubhai Savalia Vs Bank of India

MANU/NL/0175/2020

05.03.2020

Insolvency

Limitation period will not be extended in SARFAESI & DRT Proceedings on part payment under IBC

The Appeal preferred by a Shareholder and Director of the Corporate Debtor challenging the order passed by the Adjudicating Authority (National Company Law Tribunal). The Adjudicating Authority admitted the Application filed by the Respondent No. 1 herein in the capacity as Financial Creditor under Section 7 of Insolvency and Bankruptcy Code, 2016 ('IBC') on the ground that the Corporate Debtor defaulted in payment of debt/loan facility availed by the Corporate Debtor.

Learned Counsel for the Appellant submitted that the Application filed by the Respondent No. 1 herein before the Adjudicating Authority was contested by filing objections to the said Application and took a specific stand that the Application filed by the Financial Creditor was time barred. He submits that the Adjudicating Authority admitted the Application and initiated Corporate Insolvency Resolution Process (in short 'CIRP') of the Corporate Debtor. Learned Counsel for Appellant submitted that the Adjudicating Authority did not consider the objections taken by the Corporate Debtor. Hence, the present Appeal has been filed.

The main ground taken by the Appellant is with regard to the Application filed by 1st Respondent under Section 7 of IBC is time barred. Issue raised in present case is whether the Application filed on 30th August, 2018 is within limitation period in view of Article 137 of Limitation Act, 1963 which is applicable to Application under Sections 7 & 9 of IBC as held by Supreme Court in "B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta & Associates".

With regard to the limitation, the Adjudicating Authority observed that the date of mortgage is 18th November, 2010, The Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 ('SARFAESI') and Debt Recovery Tribunal ('DRT') started in 2017, One Time Settle (OTS) revised offer from 12 Crores to 14.56 Cores, vide letter dated 01.06.2016 was submitted by the Corporate Debtor to the Financial Creditor-Bank and the credits have come to the loan account on 31st March, 2017. The Adjudicating Authority, held that the Application is within limitation taking into account the OTS proposal dated 1st June, 2016 and the amounts which have come from the Guarantor into the loan account of the Financial Creditor on 31st March, 2017.

Present Tribunal is of the view that, the SARFAESI and DRT proceeding will not extent the period of limitation since those proceedings are independent and as per Section 238 of IBC, the Insolvency and Bankruptcy Code is a complete Code and will have overriding effect on other laws. Therefore, the proceedings initiated or pending in DRT, either initiated under SARFAESI or under debts and due to Banks and Financial Institutions cannot be taken into account for the purposes of limitation. OTS was not accepted by the 1st Respondent/the Financial Creditor, therefore, the same cannot be treated as an acknowledgement in view of Section 18 of the Limitation Act, 1963.

The Respondent No. 1 failed to establish the Application filed within the period of limitation. In view of the judgment of the Hon'ble Supreme Court in the matter of "B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta & Associates", application is barred by limitation. In the present case, there is no acknowledge issued by Appellant/Corporate Debtor prior to expiry of 3 years or from the date of default. Therefore, the Application filed by the 1st Respondent before the Adjudicating Authority on 30th August, 2018 is beyond the period of limitation. The Impugned Order passed by the Adjudicating Authority is quashed and set aside. Appeal allowed.

Tags : Limitation period Extension Validity

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Supreme Court

K. Sashidhar Vs. Indian Overseas Bank and Ors.

MANU/SC/0189/2019

05.02.2019

Company

NCLT or NCLAT are not empowered under IBC, 2016 to reverse commercial decision of CoC

Appeals was against impugned order of NCLAT and High Court dismissing appeal filed by Appellant observing that, requirement of approval of resolution plan by vote of not less than 75% of voting share of financial creditors was mandatory. The question raised in present matter is whether resolution plan of concerned corporate debtor(s) had not been approved by requisite percent of voting share of financial creditors.

Admittedly, in case of corporate debtor KS & PIPL, resolution plan, when it was put to vote in meeting of CoC held on 27th October, 2017, could garner approval of only 55.73% of voting share of financial creditors and even if subsequent approval accorded by email (by 10.94%) was taken into account, it did not fulfill requisite vote of not less than 75% of voting share of financial creditors. On other hand, resolution plan was expressly rejected by 15.15% in CoC meeting and later additionally by 11.82% by email. Thus, resolution plan was expressly rejected by not less than 25% of voting share of financial creditors. In such a case, resolution professional was under no obligation to submit resolution plan under Section 30(6) of I & B Code to adjudicating authority. Instead, it was a case to be proceeded by adjudicating authority under Section 33(1) of I & B Code.

Similarly, in case of corporate debtor IIL, resolution plan received approval of only 66.57% of voting share of financial creditors and 33.43% voted against resolution plan. This being indisputable position, NCLAT opined that, resolution plan was deemed to be rejected by CoC and concomitant was to initiate liquidation process concerning two corporate debtors.

In the I & B Code and the Regulations framed thereunder as applicable in October 2017, there was no need for the dissenting financial creditors to record reasons for disapproving or rejecting a resolution plan. Further, there is no provision in the I & B Code which empowers the adjudicating authority (NCLT) to oversee the justness of the approach of the dissenting financial creditors in rejecting the proposed resolution plan or to engage in judicial review thereof. Concededly, the inquiry by the resolution professional precedes the consideration of the resolution plan by the CoC. The resolution professional is not required to express his opinion on matters within the domain of the financial creditor(s), to approve or reject the resolution plan, under Section 30(4) of the I & B Code.

The Adjudicating Authority (NCLT) may cause an enquiry into the "approved" resolution plan on limited grounds referred to in Section 30(2) read with Section 31(1) of the I & B Code. It cannot make any other inquiry nor is competent to issue any direction in relation to the exercise of commercial wisdom of the financial creditors-be it for approving, rejecting or abstaining, as the case may be. Even the inquiry before the Appellate Authority (NCLAT) is limited to the grounds Under Section 61(3) of the I & B Code. It does not postulate jurisdiction to undertake scrutiny of the justness of the opinion expressed by financial creditors at the time of voting.

If the opposition to the proposed resolution plan is purely a commercial or business decision, the same, being non-justiciable, is not open to challenge before the Adjudicating Authority (NCLT) or for that matter the Appellate Authority (NCLAT). If so, non-recording of any reason for taking such commercial decision will be of no avail. In the present case, admittedly, the dissenting financial creditors have rejected the resolution plan in exercise of business/commercial decision and not because of non-compliance of the grounds specified in Section 30(2) or Section 61(3) of I & B Code, as such. Resultantly, the amended Regulation pressed into service, will be of no avail.

There was no indication either in report of Committee or in Amendment Act of 2018 that, legislature intended to undo decisions of the CoC already taken prior to 6th day of June, 2018. As regards application by resolution applicant for taking his revised resolution plan on record, same was also devoid of merits as it was not open to Adjudicating Authority to entertain a revised resolution plan after expiry of statutory period of 270 days. Accordingly, no fault could be found with NCLAT for not entertaining such application.

NCLAT had justly concluded in impugned decision that, resolution plan of concerned corporate debtor(s) had not been approved by requisite percent of voting share of financial creditors; and in absence of any alternative resolution plan presented within statutory period of 270 days, inevitable sequel was to initiate liquidation process under Section 33 of I & B Code. Appeals dismissed.

Tags : Rejection Resolution plan Legality

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