Supreme Court

Ramesh Kymal Vs. Siemens Gamesa Renewable Power Pvt. Ltd.

MANU/SC/0061/2021

09.02.2021

Insolvency

Bar under Section 10A of IBC against initiation of CIRP is retrospective and is applicable to applications filed from 25th March, 2020

The appellate jurisdiction of present Court under Section 62 of the Insolvency and Bankruptcy Code, 2016 ("IBC") has been invoked to challenge the judgment and order of the National Company Law Appellate Tribunal (NCLAT or Appellate Tribunal"). The NCLAT affirmed the decision of the National Company Law Tribunal ("NCLT" or "Adjudication Authority") 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 of IBC was not maintainable.

The issue which falls for determination in present appeal is whether the provisions of Section 10A of IBC stand attracted to an application under Section 9 of IBC 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.

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.

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.

The date of the initiation of the CIRP is the date on which a financial creditor, operational creditor or corporate applicant makes an application to the adjudicating authority for initiating the process. On the other hand, the insolvency commencement date is the date of the admission of the application. The conclusion of the NCLAT is affirmed. Appeal dismissed.

Tags : Initiation CIRP Interpretation Provision

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