Insolvency and Bankruptcy Code, 2016 – Embargo in s.10A – Applicability of – Application u/s.9 filed before 05 June 2020, in respect of a default which had occurred after 25 March 2020 – Maintainability of, in view of insertion of s.10A(inserted by Act 17 of 2020) with retrospective effect from 05 June 2020 – Application held not maintainable by NCLT – Decision affirmed by NCLAT – On appeal, held:Language of the provision is not always decisive of its prospective or retrospective application rather its object must also be taken into account – Expression “from such date” in s.10A evidently refers to 25 March 2020 which was consciously provided by the legislature since it coincides with the date on which the national lockdown was declared due to the onset of the Covid-19 pandemic – Substantive part of s.10A is to be construed harmoniously with the first proviso and the explanation – Expression “shall ever be filed” in the proviso is a clear indicator that the intent of the legislature is to bar the institution of any application for the commencement of the Corporate Insolvency Resolution Process (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 – Conclusion of NCLAT affirmed – Interpretation of Statutes – Harmonious, Purposive Construction.
Insolvency and Bankruptcy Code, 2016 – s.10A – Object of – Discussed.
Insolvency and Bankruptcy Code, 2016 – ss.5(11), (12), 7(6), 8, 9(6), 10(5) – Difference between “initiation date” and “insolvency commencement date” – Discussed.
Insolvency and Bankruptcy Code, 2016 – ss.8(1), 9 – Date of default –Attempt to set back the date of default from 30 April 2020 to either 21 January 2020 or 23 March 2020 – Held:Untenable, as it is contrary to the disclosure made by the appellant in the demand notice issued in pursuance of the provisions of s.8(1) and s.9 –Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 – r.5.
Words & Phrases:
“shall be filed” in first proviso to s.10A–Plea of the appellant is that the said expression indicates prospective nature of the provision so as to apply only to the applications filed after 05 June 2020, the date on which the provision was inserted– Held: Rejected– Insolvency and Bankruptcy Code, 2016 – s.10A.
“from such date” in s.10A –Intention of Legislature – Discussed – Insolvency and Bankruptcy Code, 2016 – s.10A. Dismissing the appeal, the Court
HELD: 1.1 The attempt to set back the date of default to either 21 January 2020 or 23 March 2020 is plainly untenable for the reason that it is contrary to the disclosure made by the appellant in the demand notice which has been issued in pursuance of the provisions of Section 8(1) and Section 9 of the IBC.[Para 10][990-F-G]
1.2 The financial distress caused by the outbreak of Covid19 provides the backdrop to the insertion of Section 10A. The underlying rationale for the insertion of Section 10A has been explained in the recitals to the Ordinance. Section 10A is prefaced with a non-obstante provision which has the effect of overriding Sections 7, 9 and 10. 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.Section 10A makes a reference to the initiation of the CIRP. Clauses (11) and (12) of Section 5 of the IBC define two distinct concepts. Section 5(11) stipulates that the date on which a financial creditor, corporate applicant or operational creditor makes an application to the adjudicating authority for initiating the CIRP is the “initiation date”. Distinguished from this is the “insolvency commencement date”, which is the date on which the application for initiating the CIRP under Sections 7, 9 or 10, as the case may be, is admitted by the Adjudicating Authority.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 date of 25 March 2020 has consciously been provided by the legislature in the recitals to the Ordinance and Section 10A, since it coincides with the date on which the national lockdown was declared in India due to the onset of the Covid-19 pandemic. [Para 15-17, 19-21][992-CD; 993-A-E, H; 994-A-C, D-E]
Sardar Inder Singh v. State of Rajasthan [1957] SCR
605 – relied on.
1.3 The language of the provision is not always decisive to arrive at a determination whether the provision if applicable prospectively or retrospectively. 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 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. 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. However, 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. Section 10A does not contain any requirement that the Adjudicating Authority must launch into an enquiry into whether, and if so to what extent, the financial health of the corporate debtor was affected by the onset of the Covid-19 pandemic. Parliament has stepped in legislatively because of the widespread distress caused by an unheralded public health crisis. Hence, the embargo contained in Section 10A must receive a purposive construction which will advance the object which was sought to be achieved by enacting the provision. [Paras 2225][996-B-C, G-H; 997-A-H; 999-A-B] Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC
17 : [2019] 3 SCR 535 – relied on.
Principles of Statutory Interpretation (1st edn., Lexis Nexis 2015) by Justice G.P. Singh – referred to.
1.4 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. This distinction is also evident from the provisions of sub-section (6) of Section 7, sub-section (6) of Section 9 and sub-section (5) of Section 10. NCLAT has explained the difference between the initiation of the CIRP and its commencement succinctly. The conclusion of the NCLAT is affirmed. [Paras 26, 27][999-B-D, 1000-B]
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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