National Company Law Appellate Tribunal
B.Sreekala vs Al Sadiq Sweets on 13 December, 2021
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NATIONAL COMPANY LAW APPELLATE TRIBUNAL
CHENNAI BENCH, CHENNAI
APPELLATE JURISDICTION
COMPANY APPEAL (AT)(CH)(INS) NO.55/2021
(Arising out of Order dated 26th February, 2021 passed by the
Adjudicating Authority (National Company Law Tribunal,
Kochi Bench, Kerala) in IBA/35/KOB/2020)
In the matter of:
B. Sreekala
W/o Late K. Muraleedharan Pilla
Residing At TC-45/464
Mampuzha, Thamalam, Poojapura P.O.
Trivandrum, Kerala State Pin 695012 Appellant
Vs
Al Sadiq Sweets
P.O. Box No. 161, Doha Qatar
Through its Authorised Representative
Mr Ladley Mohan Mathur
R/o Flat No.C.201, Crossing Republik,
Arihant Ambience, Ghaziabad
Uttar Pradesh 201016 1st Respondent
Ms Baiju P
Room NO.7/845d-6
3rd Floor
Koyenco Bazar, S.M. Street,
Calicut, Kozhikode,
Kerala 673001 2nd Respondent
Present: Mr Avinash Krishnan Ravi, Advocate for Mr. Sankar P
Pankcker, Advocate, Mr. Jerin Asher Sojan, Advocate for
Appellant.
Mr Maninder Singh, Senior Advocate for Mr. Vikram Kalra,
Advocate and Mr. B. Divakaran, Advocate for 1st Respondent.
Mrs J. Parimalam, Advocate (IRP) for 2nd Respondent.
Company Appeal (AT)(CH)(Ins) No. 55 of 2021
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JUDGEMENT
VIRTUAL MODE M. VENUGOPAL, (J) PREAMBLE The 'Appellant/Promotor/Director' of the ''Corporate Debtor'' has preferred the instant Comp. App.(AT)(CH)(Ins) No.55/2021 arising out of the order passed by the 'Adjudicating Authority; (National Company Law Tribunal, Kochi Bench, Kerala) in IBA/35/KOB/2020 as an 'Aggrieved Person' being dis-satisfied with the order dated 26.02.2021 in IBA/35/KOB/2021 (filed by the 1st Respondent/Applicant/Operational Creditor).
2. The 'Adjudicating Authority' while passing the impugned order dated 26.02.2021 in IBA/35/KOB/2020 at paragraph 22 to 35 had observed the following:-
22. "Dealing with the aspect as to whether the notification issued by the Jt. Secy. of Ministry of Corporate Affairs, Govt. of India dated 24.03.2020 under 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 that:- "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".
Company Appeal (AT)(CH)(Ins) No. 55 of 2021 3
23. In the absence of clear indication of a contrary intention in the notification issued on 24.03.2020 by the Ministry of Corporate Affairs, Government of India, then the substantive rights of individuals to an action is to be decided by the Law that existed when the action was initiated as the case may be. 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 deny the right which had already accrued to an Operational Creditor at the time of default of the debt.
24. On the occurrence of default, the Operational Creditor gets the right to trigger the 'CIR 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 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 is to be admitted by the 'Adjudicating Authority', of course subject to the ingredients of Sections 9(2) & 9(5) of the Code.
25. Coming to the issue in this case, this Tribunal, after carefully going through the contents of the notification dated 24.03.2020 issued by the Ministry of Corporate Affairs, Government of India, whereby the minimum amount of default limit was specified as Rs. One Crore (obviously raising the minimum amount from Rs. One Lakh to One Crore) precisely comes to a definite conclusion that the said notification is only 'prospective in nature' and not 'a retrospective one' because for the simple reason that Company Appeal (AT)(CH)(Ins) No. 55 of 2021 4 the said notification does not in express term speaks about the applicability of 'retrospective' or 'retroactive' operation.
26. On a perusal of the records, it is seen that the Notification dated 24.03.2020 does not save the Applicant from the initiation of insolvency especially in cases where defaults towards creditors have taken place before the pandemic and the resultant financial crisis. Such an interpretation would be contrary to the intention of the executive in exercise of its power of delegated legislation. Thus, if the intention was to provide for a blanket protection to 'Corporate Debtor's from being dragged to the NCLT irrespective of when or what extent a default has taken place, it would necessarily require a legislative amendment, and that a mere issuance of the notification would not suffice. This Tribunal vide order dated 16.10.2020 had already observed that since the cause of action arose (on 03.01.2020) before 25.03.2020, this application is maintainable and therefore, this point of non-maintainability has no legs to stand.
27. The next issue which falls for determination in this application is whether the provisions of Section 10A stand attracted to an application under Section 9 which was filed after 5th June 2020 (the date on which the provision came into force) in respect of a default which has occurred after 25 March 2020.
28. On 16th September 2020, the applicant 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 5th June Company Appeal (AT)(CH)(Ins) No. 55 of 2021 5 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."
29. In the present case, the 'Corporate Debtor' prayed for dismissal of the application on the basis of the newly inserted provisions of Section 10A. Before proceeding, it is necessary to preface the discussion with reference to three significant dates which have a bearing on the present proceedings:
*3rd January 2020 - date of default as set up in Form 3 (Demand Notice); • 16th September 2020 - date of institution of the application under Section 9; and • 5th June 2020 - date on which Section 10A was inserted in the IBC
30. Under Section 9(1), the Operational Creditor may file an application before the Adjudicating Authority for initiating the Corporate Insolvency Resolution Process ("CIRP"), after the expiry of a period of ten days from Company Appeal (AT)(CH)(Ins) No. 55 of 2021 6 the date of delivery of the notice (or invoice demanding payment) under Sub-Section (1) of Section 8, if the operational creditor does not receive payment from the 'Corporate Debtor' or a notice of the dispute under Sub- Section (2) of Section 8. In the present case, it was asserted that the onset of Covid-19, which was the reason for the insertion of Section 10A, has nothing to do with the default as the part of the respondent in paying the outstanding operational debt of the applicant, which owes its existence even before the onset of the pandemic. 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.
31. For further clarification the decision of the Hon'ble Supreme Court in Ramesh Kymal Versus M/s Siemens Gamesa Renewable Power Pvt Ltd- Civil Appeal No. 4050 of 2020 may be referred to the relevant portions, are quoted below:
"17. 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, namely: 11 (i) the initiation date; and (ii) the insolvency commencement date.
18. The "initiation date" is defined in Section 5(11) in the following terms:
"5(11) "initiation date" means the date on which a financial creditor, corporate applicant or operational creditor, as the Company Appeal (AT)(CH)(Ins) No. 55 of 2021 7 case may be, makes an application to the Adjudicating Authority for initiating corporate insolvency resolution process;"
The expression "insolvency commencement date" is defined in Section 5(12) in the following terms:
"5(12) "insolvency commencement date" means the date of admission of an application for initiating corporate insolvency resolution process by the Adjudicating Authority under sections 7, 9 or section 10, as the case may be:"
xxxxxx
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. 25 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. It was cognizant of the fact that resolution applicants may not come forth Company Appeal (AT)(CH)(Ins) No. 55 of 2021 8 to take up the process of the resolution of insolvencies (this as we have seen was referred to in the recitals to the Ordinance), which would lead to instances of the 'Corporate Debtor's going under liquidation and no longer remaining a going concern. This would go against the very object of the IBC, as has been noted by a two- Judge bench of this Court in its judgment in Swiss Ribbons (P) Ltd. v. Union of India."
32. 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.
33. In view of the above discussions, this Tribunal is of the view that the Executive in the Promulgation of the Ordinance to meet an extraordinary situation and to avoid causing further stress to the already beleaguered businesses due to COVID pandemic throughout the world and also in addition affected by the lock down enforced by the State of the Union, all beyond their control have chosen to suspend the filing of any application in relation to defaults arising on or after 25.03.2020 and not prior to it. In this application, the 'Corporate Debtor' on 31.12.2019 assured the Operational Creditor that the shipment of goods would be made within one week, but the same was not shipped on 14.01.2020. The date of refusal to deliver the goods and return the money is not to be treated as the date of default, as the date of default occurred on the date of shipment Company Appeal (AT)(CH)(Ins) No. 55 of 2021 9 which was not fulfilled and complied by the 'Corporate Debtor' and the acknowledgement made thereafter. The date of default is the date on which the 'Corporate Debtor' failed to fulfil the obligation. Therefore, it seems that the 'Corporate Debtor' is trying to take undue benefits of the lockdown and Section 10A inserted into the IBC.
34. As regards the question of pre-existing dispute, this Tribunal finds that the Demand Notice under Section 8 of the IBC, 2016 was served to the 'Corporate Debtor' through email on 01.01.2020 & by speed-post as well which was received by the 'Corporate Debtor' on 10.08.2020. Even after receipt of the same, the 'Corporate Debtor' failed to bring to the notice of the Operational Creditor the existence of any pre-existing dispute within 10 days of the receipt of the Demand Notice as stipulated in Section 8(2) of the IBC, 2016. Lately, on 05.09.2020 the Operational Creditor received a reply to the Demand Notice through email sent by the 'Corporate Debtor', which was ante-dated as "18.08.2020" to fall under the 10-day period. The Counsel for the Operational Creditor stated that he had also received the same reply to the Demand Notice U/s 8 of the IBC from the 'Corporate Debtor' by speed-post on 10.09.2020 which was posted only on 05.09.2020 as clearly evident from the post receipt attached to the envelope. The same is beyond the 10 days limitation as prescribed U/s 8(2) of the IBC 2016. It is found that in the said reply the 'Corporate Debtor' has acknowledged its debt, default and the issuance of the Proforma Invoice along-with the payment received by him. Therefore, dispute attempted to be raised through this reply does not fall Company Appeal (AT)(CH)(Ins) No. 55 of 2021 10 under the definition of 'dispute' as provided under Section 5(6) of the IBC, 2016.
35. In view of the aforesaid detailed discussions, this Tribunal finds that the application made by the Operational Creditor is complete in all respects as required by law and that the 'Corporate Debtor' is in default of a debt due and payable, and the default is in excess of minimum amount of One Lakh rupees stipulated under Section 4(1) of the IBC. Therefore, the default stands established and there is no reason to deny the admission of the Application. Hence, the Adjudicating Authority decided to admit this application and orders initiation of CIRP against the 'Corporate Debtor'."
and ultimately admitted the 'Application' by appointing Ms Baiju P as an 'Interim Resolution Professional' of the ''Corporate Debtor'' and declared moratorium etc..
APPELLANT'S SUBMISSIONS
3. The Learned Counsel for the 'Appellant' contends that the 1st Respondent had through mutual contacts had approached ''Corporate Debtor'' for different grades of Indian Cashew Kennels to be exported to Qatar, as the 1st Respondent is engaged in the business of Restaurants, confectionaries and trading nus. According to the 'Appellant', the 1st Respondent had communicated and entered into an agreement vide WhatsApp messages. As a matter of fact, on 25.11.2019 an agreement was in place via WhatsApp Messages between the 'Authorised Representative of the Respondent' and the ''Corporate Debtor'' and a 'proforma invoice' was raised by the ''Corporate Debtor'' to the 1st Respondent.
Company Appeal (AT)(CH)(Ins) No. 55 of 2021 11
4. It is represented on behalf of the 'Appellant' that on 01.12.2019, the 'Corporate Debtor' had received a payment of USD 1 lakh from the Respondent, which was duly acknowledged. Furthermore, there was series of messages sent by the Respondent and the 'Corporate Debtor' through WhatsApp, since then and on 17th March, 2020 1st Respondent had made request for new requirements to comply with protocol in 'shipment of the goods'. Besides this on 19.04.2020, the Respondent and the 'Corporate Debtor' mutually agreed to extend the date of performance of the agreement. On 24th April, 2020, the Respondent made a demand for the advance money which was paid to the 'Corporate Debtor' through the proforma invoice raised by the 'Corporate Debtor' on 25.11.2019
5. The stand of the Appellant is that on 27.06.2020, the 1st Respondent sent a notice through WhatsApp for taking legal action against the 'Corporate Debtor', seeking interest, opportunity cost, Lawyers charges. Apart from that, a Form III as per Section 8 of the I&B Code 2016 was issued on 1.8.2020 by the legal representatives of the Respondent for USD 1 lakh together with interest of 18% till date of payment.
6. The Learned Counsel for the Appellant contends that 1st Respondent had admitted in para 9 of the application form V under Section 9 of the I&B Code that the 'debt' is due and payable on 30.04.2020, which is after the Code for date of 25.03.2020 under Section 10A of the Code. The clear cut stand of the Appellant is that the 1st Respondent in order to bring the application within Section 10 A of the Code had stated that the 'date of default' was 3.1.2020. In fact, the 1st Respondent had not submitted any evidence that Company Appeal (AT)(CH)(Ins) No. 55 of 2021 12 the default was committed on 03.01.2020 except agreeing for a date of delivery of 'Goods'.
7. The Learned Counsel for the Appellant adverts to the relevant extract of paragraph 9 of the Application filed before the 'Adjudicating Authority' which runs as under:
9. "That the 'Corporate Debtor' having failed to fulfil his obligation left the Operational Creditor with no other option but to request the 'Corporate Debtor' to return the advance payment on 30.04.2020 to which the 'Corporate Debtor' assured that the same would be transferred/returned soon......"
8. The Learned Counsel for the Appellant brings to the notice of this Tribunal that the initial purpose of the Contract was during January, 2020, but the same was extended from time to time with mutual knowledge and consent as seen from the 'WhatsApp conversation'. Indeed, the last date agreed for export was on 25.4.2020 and on 25.04.2020, the 1st Respondent terminated the contract, therefore, the debt became due and payable when the Respondent cancels the order and directed the ''Corporate Debtor'' to return the money.
9. The pivotal plea taken on behalf of the Appellant is that the obligation of the 'Corporate Debtor' was to perform the export of goods and the liability arises when the 'Contract' was terminated on 30.04.2020 and when the 'Corporate Debtor' was directed to return the money. As such, the 1st Respondent cannot bring a default early to the date of 30.04.2020. In this connection, the Learned Counsel for the Appellant comes out with an Company Appeal (AT)(CH)(Ins) No. 55 of 2021 13 argument that the 'Adjudicating Authority' without appreciating the fact that the 'Jurisdiction of the Tribunal' is determined based on the date of filing of the application which was Rs.1 crore, and not on the basis of the date on which the alleged 'cause of action' might have arisen.
10. The Learned Counsel for the Appellant contends that the 'Adjudicating Authority' had failed to appreciate that on the date of filing of the application under the Code i.e. 16.09.2020 the 'Jurisdiction Threshold' for filing an 'application' under the I&B Code 2016 was Rs.1 crore, the same being notified by the Central Government in S.O. 1205(E) dated 24.03.2020 issued under Section 4 of the I&B Code, 2016.
11. The Learned Counsel for the Appellant submits that the 'Adjudicating Authority; had incorrectly interpreted the judgement of the Hon'ble Supreme Court in the matter of Ramesh Khymal V. Siemens Gamesa in Civil Appeal No.4050 of 2020 wherein it was clearly observed and held that the parties are bound by the pleadings, and in any case, when the date of default is after 25.03.2020 the application under Section 9 would be barred by Section 10A of the I&B Code, 2016.
12. According to the Learned Counsel for the Appellant the judgement of this Tribunal in Andal Bonumalla V. Tomato Trading LLP (vide Company Appeal (AT)(Ins) No.752 of 2019 where this Tribunal held that amounts paid as Advance would not fall within the term 'Operational Debt' for the purpose of the I&B Code, 2016.
13. The Learned Counsel for the Appellant adverts to the Judgement of this Tribunal in Madhusudan Tantia V. Amit Choraria (Comp. App. (AT)(Ins) Company Appeal (AT)(CH)(Ins) No. 55 of 2021 14 No.557/2020) wherein it is held that the notification is prospective in nature and it does not apply to pending applications. Moreover, it is projected on the side of the Appellant that the right of a person is decided by Law that existed on the date of filing of the 'Application'.
14. The Learned Counsel for the Appellant proceeds to point out that the 1st Respondent/Operational Creditor has initiated the 'Corporate Insolvency Proceedings' on 16.09.2020 which is after the 24.03.2020 notification. Added further, it is the stand of the Appellant that 'initiation date' does not mean 'the date of default' which is the date when actually the application is preferred before the 'Adjudicating Authority'. In this regard, the Learned Counsel for the Appellant refers to the definition Section 5(1) of the I&B Code, 2016 which enjoins that:
5(11) "initiation date" means the date on which a financial creditor, corporate applicant or operational creditor, as the case may be, makes an application to the Adjudicating Authority for initiating corporate insolvency resolution process;
15. The Learned Counsel for the Appellant comes out with the plea that a plain reading of the ingredients of Section 5(11) and Section 9 of the I&B Code, 2016 make it clear that even issuing 'Demand Notice' under Section 8 of the I&B Code cannot to be considered as the date of initiation of 'CIRP process'.
16. The Learned Counsel for the Appellant contends that the Application filed by the 1st Respondent under Section 9 of the I&B Code is not maintainable as per Section 10A of the I&B Code, 2016. In this connection, the Learned Counsel for the Appellant points out that the 1st Respondent in Company Appeal (AT)(CH)(Ins) No. 55 of 2021 15 its application before the 'Adjudicating Authority' had mentioned that the 'Debt' was due and payable on 30.04.2020, which is after the cut-off date of 25.03.2020 under Section 10A of the Code. Also that the 1st Respondent had stated that the default date was 03.01.2020 and no evidence was produced that the default was committed on 03.01.2020 except agreeing for date of delivery.
17. The Learned Counsel for the Appellant points out that the contract for delivery of goods was continuing till 25.04.2020 and that the contract was terminated on 24.04.2020 and that the amount under the Contract was due and payable on 25.04.2020 and according to the 1st Respondent itself which is 30.04.2020. In fact, it is the contention of the Appellant that till 30.04.2020 the obligation of the 'Corporate Debtor' was to perform the Export and the liability arises when the contract was terminated on 30.04.2020 and that the ''Corporate Debtor'' was directed to return the money. In as much as the 1st Respondent cannot bring a default earlier to 30.04.2020, the application filed by the 1st Respondent/Operational Creditor before the 'Adjudicating Authority' is liable to be dismissed for 'want of jurisdiction' as per Section 10A of the Code.
18. The Learned Counsel for the Appellant submits that the 1st Respondent will not come under the definition of 'Operational Creditor' as per Section 5(20) of the I&B Code, 2016, since it is an admitted fact that the 1st Respondent had only made an advance towards the purchase of goods.
19. The Learned Counsel for the Appellant submits that the 1st Respondent had admitted that the purchase order was issued through various Company Appeal (AT)(CH)(Ins) No. 55 of 2021 16 negotiations and sample testing which was during 30th September, 2018 and that the purchase order was placed after period of one year i.e. on 25.11.2019. Indeed, though the ''Corporate Debtor'' was willing to deliver the goods, there was complete disruption in the procurement and processing in the month of February, March and April, 2020 and hence the 'Corporate Debtor' could not deliver the goods before the agreed date of 25.04.2020 as the Central Government and State Government imposed lockdown with effect from 25.03.2020.
20. The Learned Counsel for the Appellant brings it to the notice of this 'Tribunal' as against the below purchase order dated 25.11.2019 the 1st Respondent had made an advance of USD 1,00,000 and the same is as follows:-
S. No Grade Quantity Order Value in USD
1 W 180Grade 400 92000
2 W240 200 36000
3 W320 Grade 100 16500
Total 144,500.00
21. The Learned Counsel for the Appellant contends that a mere perusal of the WhatsApp communication between the parties exhibits that the ''Corporate Debtor'' was willing to ship the entire goods except W180 grade 300 cartons initially. But the 1st respondent has refused to take partial delivery and immediately the 'Lock Down' had started and that the 'Contract' was frustrated on account of 'Force Majeure.'' Company Appeal (AT)(CH)(Ins) No. 55 of 2021 17
22. The other plea advanced on behalf of the Appellant is that in view of the fact that the ''Corporate Debtor'' had suffered damage on account of abrupt termination of the contract, during lock down, the liability between the parties cannot be decided in the application/petition filed under the Code.
23. In fact, the aspect of damage suffered by the ''Corporate Debtor'' owing to the termination of the contract is to be decided in a proper 'Trial' proceedings and, therefore, the application filed by the 1st Respondent/ Applicant before the 'Adjudicating Authority' is to be dismissed.
24. The Learned Counsel for the Appellant contends that the 1st Respondent/Applicant had utilised the I&B Code, 2016 as a tool for recovery of his money, which is against the object and spirit of the Code. APPELLANT'S DECISIONS
25. The Learned Counsel for the Appellant takes a stand that the Hon'ble High Court of Delhi in the matter of Pankaj Agarwal V. Union of India (WPC 3685 of 2020) wherein at paragraph 5 and 6 had observed as under:-
5. "The notification dated 24th March 2020 has changed the `minimum amount of default' from one lakh rupees to one crore rupees in respect of `Insolvency Resolution and Liquidation for corporate persons' in Part II of the Code. The proceedings in the present case have been commenced under Section 9 of the IBC which is in Part II of the Code. The purpose of the notification was to ensure that Small and Medium Enterprises viz., SMEs and MSMEs are not subjected to Insolvency proceedings during the lockdown or immediately thereafter. The present writ petition accordingly Company Appeal (AT)(CH)(Ins) No. 55 of 2021 18 deserves consideration. Prima facie, this is an error by the NCLT, as the notification dated 24th March 2020 was clearly applicable. Subject to the Petitioner depositing an amount of Rs.10 lakhs with the ld. Registrar General of this Court, the order of the NCLT dated 29th May, 2020 shall remain stayed till the next date of hearing. The deposit shall be made within two weeks. The Company - VMA Enterprises Pvt Ltd. is permitted to carry on its day to day operations. However, the IRP is given liberty to approach this Court in case he deems fit for any further directions.
6. Ld. ASG, who is appearing for the Union of India is requested to bring to the notice of the NCLT the notification dated 24th March, 2020 which is placed at page 60 of the present petition."
26. The Learned Counsel for the 'Appellant' refers to the Judgement of this Tribunal in the matter of Madhusudan Tantia V. Amit Choraria (Comp. App. (AT)(Ins) No.557/2020) wherein at paragraph 51 to 56 it is observed as under:-
51. "It is significant to point out that the 'Duty of Judges' is to expound and not to legislate is a primordial rule. Moreover, the transience of justice at the hands of Law troubles a judge's conscience. It is an axiomatic principle in Law that a judgement / an order of a Court of Law / Tribunal is to be written after much travail and productive disposition. As a matter of fact, the judicial key to the construction is the composite perception of the 'Deha' and the 'Dehi' of the provision as per decision of Hon'ble Supreme Court reported in 'Chairman, Board of Mining Examination and Company Appeal (AT)(CH)(Ins) No. 55 of 2021 19 Chief Inspector of Mines' V. 'Ramjee' AIR 1977 Supreme Court page 965,
968.
52. According to the Learned Counsel for the 2nd Respondent in respect of the pending proceedings the 'state of affairs' remains unaffected by the changes in Law, when they pertain to the determination of substantive rights. Further, in the absence of clear indication of a contrary intention in the notification issued on 24.03.2020 by the Ministry of Corporate Affairs, Government of India, then the substantive rights of individuals to an action is to be decided by the Law that existed when the action was initiated / commenced as the case may be.
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'.
54. Section 3(12) of the 'I&B' Code defines "default" meaning non-
payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not (paid) by the debtor or the 'Corporate Debtor', as the case may be. Section 4 of Chapter I preliminary speaks of 'Application of this Part' [Part III]. Section 8 of the Code deals with 'Insolvency resolution by operational creditor'. Section 9 pertains to Company Appeal (AT)(CH)(Ins) No. 55 of 2021 20 'Application for initiation of corporate insolvency resolution process by operational creditor'.
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.
56. As far as the present case is concerned, this Tribunal, after carefully and with great circumspection, ongoing through the contents of the notification dated 24.03.2020 issued by the Ministry of Corporate Affairs, Government of India, whereby and whereunder the minimum amount of default limit was specified as Rs. one crore (obviously raising the minimum amount from Rs. one lakh to one crore) unerringly comes to a definite conclusion that the said notification is only 'Prospective in nature' and not a 'retrospective' one because of the simple reason the said notification does not in express term speaks about the applicability of 'retrospective' or 'retroactive' operation. Suffice it for this Tribunal to point out that from the tenor, spirit and the plain words employed in the notification dated 24.03.2020 of the Ministry of Corporate Affairs, Government of India, one cannot infer an intention to take or make it Company Appeal (AT)(CH)(Ins) No. 55 of 2021 21 retrospective as in this regard, the relevant words are conspicuously absent and besides there being no implicit inference to be drawn for such a construction in the context in issue. That apart, if the notification dated 24.03.2020 of the Ministry of Corporate Affairs, Government of India, is made applicable to the pending applications of IBC (filed earlier to the notification in issue) it will create absurd results of wider implications / complications."
27. The Learned Counsel for the Appellant in support of the plea that there ought to be a delivery of goods or provision of service in order to come within the ambit of 'Operational Debt' as per Section 5(21) of the Code, cites the judgement of this Tribunal dated 20.08.2020 in Smt Andal Bonumalla V. Tomato Trading LLP & Another wherein at paragraph 13 and 14 it is observed as under:-
13. "This Appellate Tribunal in the case of Kavita Anil Taneja (Supra) held that:-
"Section 5(20) defines 'Operational Creditor' which is r/w Section 5(21) which defines 'Operational Debt'. In the present case, it is clear from the work order that the amount of Rs. 2,60,000,00/- was advanced by the Respondent 'M/s. ISMT Ltd. to the ''Corporate Debtor'' for supply of 10,000 Metric Tons of Indonesian Thermal Coal. From the aforesaid fact, we find that the Respondent had not supplied any goods nor provided any services and, therefore, it does not come within the meaning of Operational Creditor"
Company Appeal (AT)(CH)(Ins) No. 55 of 2021 22 We have taken the same view in the case of Roma Infrastructure India Pvt. Ltd. (Supra)and held that Roma Infrastructure India Pvt. Ltd. has not supplied the goods nor provided any services to the Respondent A.S. Iron and Steel (I) Pvt. Ltd. It advanced payment to Respondent (Operational Creditor) for supply of goods cannot be treated to be an Operational Debt and the Application under Section 9 of I&B Code, was not maintainable.
14. As aforesaid, we are of the considered view that the advance amount paid by the Respondent No. 1 to Respondent No. 2 for supply of Sugar is not an Operational Debt. Learned Adjudicating Authority erroneously admitted the Application. Thus, the Appeal is allowed and the impugned order dated 03.06.2019 is set aside."
28. The Learned Counsel for the Appellant relies on the Judgement of the Hon'ble Supreme Court in the matter of Ramesh Kymal V Seimens Gamesa Renewable Power Ltd (vide CA No.4050 of 2020) wherein at para 23 and 24 it is observed as under:-
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 Company Appeal (AT)(CH)(Ins) No. 55 of 2021 23 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 Debtor's 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 Company Appeal (AT)(CH)(Ins) No. 55 of 2021 24 the debt owed by the 'Corporate Debtor' or the right of creditors to recover it."
29. The Learned Counsel for the Appellant cites the decision of the Hon'ble Supreme Court in the matter of Kav Bouvet Engg Ltd Vs Overseas Infrastructure Alliance (I) Pvt Ltd (vide Civil Appeal No.1137/2019 decided on 10th August, 2021) eported in 2021 SCC OnLine SC 570 wherein at paragraph 31 and 33 it is observed and held as follows:-
31."It is thus abundantly clear that the case of Kay Bouvet that the amount of Rs.47,12,10,000/ which was paid to it by Overseas, was paid on behalf of Mashkour from the funds released to Overseas by Exim Bank on behalf of Mashkour, cannot be said to be a dispute which is spurious, illusory or not supported by the evidence placed on record. The material placed on record amply clarifies that the initial payment which was made to Kay Bouvet as a subContractor by Overseas who was a Contractor, was made on behalf of Mashkour and from the funds received by Overseas from Mashkour. It will also be clear that when a new contract was entered into between Mashkour and Kay Bouvet directly, Mashkour had directed the said amount of Rs.47,12,10,000/ to be adjusted against the supplies to be made to Mashkour Sugar Company Ltd. for the purpose of completing the Project. On the contrary, the documents clarify that the termination of the contract with Overseas would not absolve Overseas of any liability for the Company Appeal (AT)(CH)(Ins) No. 55 of 2021 25 balance of the LoC 1st tranche of 25 Million disbursed to them other than USD 10.62 paid to Kay Bouvet.
33. Resultantly, this appeal is allowed and the impugned order dated 21st December 2018, passed by NCLAT is quashed and set aside. The order passed by NCLT dated 26th July 201 8, is maintained."
30. The Learned Counsel for the Appellant refers to the Order of this Tribunal dated 25.10.2021 in Jumbo Paper Products V. Hansraj Agrofresh Pvt Ltd (vide Comp.App.(AT)(Ins) No.813/2021) wherein at paragraph 3 and 10 it is observed as under:-
3. "The Learned Counsel for the Appellant-Operational Creditor has argued that Operational Creditor used to provide corrugated paper boxes/cartons to the 'Corporate Debtor' and he has claimed that the 'Corporate Debtor' never raised any dispute about quality or quantity of the supplied goods when he was supplying them. Since some payment was pending with the 'Corporate Debtor', the Operational Creditor sent demand notice under section 9 to the 'Corporate Debtor'. In reply to this demand notice, the 'Corporate Debtor' again did not advert to any pre-
existing dispute about the quality or quantity of the goods supplied but only sought time to clear the dues. The Operational Creditor thereafter filed application under section 9 of IBC 0n 13.9.2020 since there was a debt in default since 27.5.2018 till 23.6.2018."
Company Appeal (AT)(CH)(Ins) No. 55 of 2021 26 xxx
10. The other judgments cited by learned Counsel for Appellant broadly lay down that any statute/law can be applied retrospectively only if explicit provision regarding its retrospective application is made in the statute. It is seen that notification dated 24.3.2020 (supra) makes it unambiguously clear that the threshold limit to be considered for section 9 application will be Rs. 1 crore. This threshold limit will be applicable for application filed u/s 7 or 9 on or after 24.3.3020 even if debt is of a date earlier than 24.3.2020. Since the application under section 9 which is the subject matter of this appeal was filed on 13.9.2020, therefore the threshold limit of Rs. 1 crore of debt will be applicable in the present case."
1ST RESPONDENT'S CONTENTIONS
31. The Learned Senior Counsel for the 1st Respondent/Applicant/ Operational Creditor submits that the 'Adjudicating Authority' as per order dated 16.10.2020 had rightly held that the 'default' in the instant case took place on 03.01.2020, much before 25.03.2020, In this regard, the Learned Counsel for the 1st Respondent points out that the explanation of Section 10A of the Code itself states that the provisions of Section 10A shall not apply to the default committed earlier to 25.03.2020, therefore, the application filed by the 1st Respondent/Applicant under Section 9 of the Code is neither hit by the bar of amendment to Section 4 nor that of Section 10A of the Code.
32. Advancing his arguments, the Learned Counsel for the 1st Respondent contends that there was no pre-existing dispute ever between 1st Respondent Company Appeal (AT)(CH)(Ins) No. 55 of 2021 27 and the Appellant. Further, the Appellant had not raised any 'pre-existing' dispute before the issuance of demand notice as per Section 8 of the Code or within 10 days of the receipt of the notice under Section 8 by the 1st Respondent, which was served to the Appellant through email on 01.8.2020 and received by the 'Appellant' through speed post on 10.08.2020.
33. It is represented on behalf of the 1st Respondent that after the lapse of the statutory period of 10 days, the Learned Counsel for the 1st Respondent/Applicant received a frivolous reply to the demand notice through email sent by the applicant ante dated 18.08.2020 to come under the 10 days period of limitation, as contemplated under Section 8(2) of the Code.
34. The Learned Counsel for the 1st Respondent points out that the Learned Counsel for the 1st Respondent received the same reply to the demand notice under Section 8 of the Code from the Appellant through speed post on 10.09.2020 which was posted only on 05.09.2020 and this was clearly evident from the postal receipt attached to the envelop. Indeed, in the said reply the Appellant had acknowledged and admitted the debt and default and issuance of proforma invoice alongwith the payment received by him.
35. The Learned Counsel for the 1st Respondent points out that the Appellant in reply had stated that having procured and stored different grade of cashew and the same being perishable goods were disposed of at throw away prices. But the Appellant had failed to produce any proof evidencing any procurement, storage or disposal of the cashews and raising only false stories, to mislead this Tribunal, as an afterthought. Company Appeal (AT)(CH)(Ins) No. 55 of 2021 28
36. Expatiating his submissions, the Learned Counsel for the 1st Respondent contends that the Appellant had sufficient time to fulfil the contractual obligations viz; on 03.01.2020 when the 1st default took place and in between the period from 03.01.2020 to 25.03.2020 when the lock down was imposed. As a matter of fact, it is the version of the 1st Respondent that the 'Appellant' after 03.01.2020 had defaulted on all later dates.
37. The Learned Counsel 1st Respondent brings it to the notice of this 'Tribunal' that the 'Appellant' at para 12 of the reply filed before the 'Adjudicating Authority' (To the Application filed by the 1st Respondent/Applicant) had acknowledged (i) as to the existence of a 'contract'
(ii) the failure to perform the obligations as per 'Contract'.
38. The Learned Counsel for the 1st Respondent places reliance on the Judgement of the Hon'ble Supreme Court in Alka Bose V. Parmatma Devi & Ors (Vide Civil Appeal No.6197 of 2000 decided on 17.12.2008) wherein it is held that even a 'Sale Agreement' can be 'oral' and have the same binding value and enforceability as a 'Written Agreement. Also. the Learned Counsel for the 1st Respondent refers to the decision of Hon'ble High Court of Delhi in Nanak Builders and Investors Pvt Ltd V.Vinod Kumar Alag AIR 1991 Delhi 315 wherein it is observed and held that even an oral agreement can be a valid and enforceable contract.
39. The Learned Counsel for the 1st Respondent submits that the Appellant had failed to produce evidence before the 'Adjudicating Authority' to show that there was a 'pre-existing dispute' between the parties and the same was rightly mentioned in the impugned order.
Company Appeal (AT)(CH)(Ins) No. 55 of 2021 29
40. According to the Learned Counsel for the 1st Respondent, 1st Respondent/Applicant had transferred a sum of USD 1,00,000 to the Appellant, as per 'proforma invoice' and that the 'Appellant' had to discharge the debt/obligation by exporting the cashews, in the light of the Contract. As a matter of fact, the 'Default' took place when the Appellant had failed to fulfil the obligation of shipping the goods to the 1st Respondent in the first week of January and all subsequent days when the Appellant had failed to fulfil the obligation of shipping the goods. Besides this, after the default on 03.01.2020, based on the Appellant's requests there was 'mere Accommodation' and not an 'Extension of the Contract' as alleged.
41. The Learned Counsel for the 1st Respondent contends that the communication dated 25.11.2019 and 31.12.2019 between the parties and relied upon by the Appellant confirms the shipment by the Appellant to be despatched in the 1st week of January, 2020 and further that the WhatsApp conversation between the 1st Respondent/Applicant and the Appellant vindicates the 1st Respondent's stand with respect to the 'Contract', contractual obligations of both sides, delivery time lines and the default in delivery lines and failure on Appellant's side, in satisfying the contractual obligations.
42. It is the stand of the 1st Respondent that the 'date of refusal' to the 'deliver the goods' and return the money is not to be treated as the date of default in view of the fact that the default took place on 03.01.2020 when the promised date of shipment was not satisfied and complied with by the Appellant, which was rightly held so by the 'Adjudicating Authority' orders Company Appeal (AT)(CH)(Ins) No. 55 of 2021 30 dated 16.10.2020. Further, it is pointed out on the side of the 1st Respondent when the 'Corporate Debtor' had failed to satisfy his/its obligations, the same is to be treated as the date of default and that is the 'essence' of the 'Agreement'.
43. The Learned Counsel for the 1st Respondent advert to Section 5(20) and 5(21) of the I&B Code which reads as under:-
(20) "operational creditor" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred;
(21) "operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;"
and comes without an argument that when there are payments made in advance and when the Agreement provides for supply of the goods, and rendering of services and the operational creditor's claim was in respect of such provision of goods and services, then, when the operational creditor had advanced payment as per the Contract towards such goods and services, then he will have a claim in respect of the provision of goods or services bringing him within the definition of 'Operational Creditor' to whom an 'Operational Debt' was owed by the ''Corporate Debtor''
44. The Learned Counsel for the 1st Respondent points out that in 'proforma invoice' advance payment of 70% was expressly mentioned and that the Company Appeal (AT)(CH)(Ins) No. 55 of 2021 31 Agreement between the 1st Respondent/Applicant was for provision and supply of goods and rendering of services of the 'Appellant' for which the proforma invoice was issued and that the 1st Respondent/applicant had advanced a sum of USD 1,00,000.
1st RESPONDENT'S DECISIONS
45. The Learned Counsel for the 1st Respondent refers to the Judgement of Hon'ble Supreme Court dated 21.09.2017 in Civil Appeal No.9405/2017 in Mobilox Innovations Pvt Ltd V. Kirusa Software Pvt Ltd wherein at paragraph 40 it is observed as under:
40 "It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the "existence" of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the "dispute" is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated Company Appeal (AT)(CH)(Ins) No. 55 of 2021 32 above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application."
46. The Learned Counsel for the 1st Respondent cites the Order of this Tribunal dated 16.1.2020 in Unistill Alcoblends Pvt Ltd Vs India Brewery and Distillery Pvt Ltd (vide Comp App (AT)(Ins) No.162/2019) wherein at paragraph 6 to 8 it is observed as under:-
6. "The learned Counsel states that although the amount is shown under the heading of long term borrowings, the nature of dealings between the parties are apparent from the Agreement which they entered into and the business dealings which they had and which are reflected even in the various acknowledgements issued by the Respondent.
7. Considering the documents pointed out by the leaned Counsel for the Appellant, and the fact that the learned Counsel for the Respondent is unable to show us any document before the Notice under Section 8 was issued which would indicate that there was any dispute communicated by the Respondent to the Appellant, we find that the Adjudicating Authority erred in dismissing the Section 9 Application observing that "it is deemed that there is dispute prior filing the instant petition". What was relevant was to see whether there was pre-existing dispute when Section 8 Notice was issued.
8. There is nothing to show that there was any other reason why Section 9 Application was required to be rejected."
Company Appeal (AT)(CH)(Ins) No. 55 of 2021 33
47. The Learned Counsel for the 1st Respondent cites the decision of the Hon'ble Supreme Court in Kaushalya Devi & Ors V. Baijnath Sayal (deceased) & Ors reported in (1961)3 SCR 769 wherein at para 12 it is observed as under:
12. "It is urged for the appellants that an appeal is a continuation of the suit and so the appellants would be entitled to challenge the impugned preliminary decree as much by an application made in the suit itself as by an appeal preferred against the final decree passed in the said suit.
It is true that the proceedings in appeal can be regarded as a continuation of the proceedings in suit; but the decision of the question as to whether the appellants can challenge the said preliminary decree in their appeal against the final decree must in the present case be governed by the provisions of s. 97 of the Code. The whole object of enacting s. 97 was to make it clear that any party feeling aggrieved by a preliminary decree must appeal against that decree; if he fails to appeal against such a decree the correctness of such a decree cannot be challenged by way of an appeal against the final decree, which means that the preliminary decree would be taken to have been correctly passed. When s. 97 provides that the correctness of the preliminary decree cannot be challenged if no appeal is preferred against it, it clearly provides that if it is not challenged in appeal it would be treated as correct and binding on the parties. In such a case an appeal against the final decree would inevitably be limited to the points arising from proceedings taken subsequent to the preliminary decree and the same would be dealt with Company Appeal (AT)(CH)(Ins) No. 55 of 2021 34 on the basis that the preliminary decree was correct and is beyond challenge. It would be idle to contend that what is prohibited is a challenge to the factual correctness of the decree on the merits, because if the said decree is voidable, as in the present case, the very point as to its voidable character is a part of the merits of the dispute between the parties. Whether or not 0. 32, r. 7(1) applies to the case would certainly be a matter of dispute in such a case and the object of s. 97 is precisely to disallow any such dispute being raised if the preliminary decree is not challenged by appeal. The whole object which s. 97 intends to achieve would be frustrated if it is held that only the factual correctness of the decree cannot be challenged but its legal validity can be even though an appeal against the preliminary decree has not been filed. Therefore, in our opinion, the High Court was right in coming to the conclusion that it was not open to the appellants to challenge the validity of the preliminary decree in the appeal which they had preferred against the final decree before the said High Court."
and submits that in the instant case the 'default' took place on 03.01.2020, which fact was arrived at by the 'Adjudicating Authority' as per order dated 16.10.2020 which was not assailed by the Appellant till date and, therefore, the said order has become a conclusive, final and binding one upon the Appellant.
48. The Learned Counsel for the 1st Respondent refers to the para 18 of Judgement of the Hon'ble Supreme Court in the matter of Kav Bouvet Engg Ltd Vs Overseas Infrastructure Alliance (I) Pvt Ltd (vide Civil Appeal Company Appeal (AT)(CH)(Ins) No. 55 of 2021 35 No.1137/2019 decided on 10th August, 2021) reported in 2021 SCC OnLine SC 570 to the effect -
18........"we clarify that though arguments have been advanced at the Bar with regard to the questions as to whether the so called claim made by Overseas would be considered to be an Operational Debt and as to whether Overseas could be considered an 'Operation Creditor'. We donot find it necessary to go into the said question, in as much as the present Appeal can be decided only on a short question as to whether Kav Bouvet has been in a position to make out the case of 'existence of dispute" or not."
49. The Learned Counsel for the 1st Respondent cites the decision of Hon'ble Supreme Court in Krishena Kumar V. Union of India & Ors (1990) 4 SCC 207 at Special Pages at 226 and 233 wherein at paragraphs 19 and 33 it is observed as under:
19. "The doctrine of precedent, that is, being bound by a previous decision, is limited to the decision itself and as to what is necessarily involved in it. It does not mean that this Court is bound by the various reasons given in support of it, especially when they contain "propositions wider than the case itself required." This was what Lord Selbourne said in Caledonian Railway Co V. Walker's Trustees (1882) 7 App Cas 259) and Lord Halsbury in Quinn V. Leathen (1901)AC 495, 502). Sir Frederick Pullock has also said : "Judicial authority belongs not to the exact words used in this or that judgmnet, nor even to all the reason given, but only to the principles accepted and applied as necessary grounds of the decision."
Company Appeal (AT)(CH)(Ins) No. 55 of 2021 36 33,"Stare decisis et non guieta movere. To adhere to prece- dent and not to unsettle things which are settled. But it applies to litigated facts and necessarily decided ques- tions. Apart from Article 14 of the Constitution 33of India, the policy of courts is to stand by precedent and not to disturb settled point. When court has once laid down a principle of law as applicable to certain state of facts, it will adhere to that principle, and apply it to all future cases where facts are substantially the same. A deliberate and solemn decision of court made after argument on question of law fairly arising in the case, and necessary to its determina- tion, is an authority, or binding precedent in the same court, or in other courts of equal or lower rank in subsequent cases where the very point is again in controversy unless there are occasions when departure is rendered necessary to vindicate plain, obvious principles of law and remedy continued injustice. It should be invariably applied and should not ordinarily be departed from where decision is of long standing and rights have been acquired under it, unless considerations of public policy demand it. But in Nakara it was never required to be decided that all the retirees formed a class and no further classification was permissible."
50. The Learned Counsel for the 1st Respondent relies on the decision of Hon'ble Supreme Court in Fida Hussain & Ors V. Moradabad Development Authority and Anr. (2011) 12 SCC 615 at Spl. Page 626 wherein at paragraph 21 it is observed as under:
21. "It is now well settled that a decision of this Court based on specific facts does not operate as a precedent for future cases. Only the principles of law that emanate from a judgment of this Court, which have aided in reaching a conclusion of the problem, are binding precedents within the meaning of Article 141 However, if the question of law before the Court is same as in the previous case, the judgment of the Court in the former Company Appeal (AT)(CH)(Ins) No. 55 of 2021 37 is binding in the latter, for the reason that the question of law before the Court is already settled. In other words, if the Court determines a certain issue for a certain set of facts, then, that issue stands determined for any other matter on the same set of facts."
51. The Learned Counsel for the 1st Respondent seeks in aid of the decision of the Hon'ble Supreme Court in Bakul Cashew Co & Ors Vs Sales Tax Officer, Quilon & Anr. (1986) 2 SCC at page 365 at Spl Page 371 and 372 wherein at paragraph 8 and 10 it is observed as under:-
8. "As regards the power of Government to cancel the notification which had been issued earlier, the High Court has upheld the power of the Government to do so. We think that the High Court was right in taking that view. The liability to pay sales tax arose at the point of time when the purchases were made. The power of exemption in the instant case was exercised through a retrospective notification which was a piece of subordinate legislation. It has been held by this Court that an authority which has the power to make subordinate legislation cannot make it with retrospective effect unless it is so authorised by the legislature which has conferred that power on it.
The law on the above point is neatly summarised in Income Tax Officer v. M.C. Ponnoosse & Ors. [1970] 1 S.C.R. 678 at pages 681-682 thus :
"Now it is open to a soverign legislature to enact laws which have retrospective operation. Even when the Parliament enacts retrospective laws such laws are - in the words of Willes, J. in Phillips v. Eyre (40 Law Company Appeal (AT)(CH)(Ins) No. 55 of 2021 38 J. Rep (N.S.) Q.B. 28 at p.37) - 'no doubt prima facie of questionable policy and contrary to the general principle that legislation by which the conduct of mankind is to be regulated ought, when introduced for the first time, to deal with future acts, and ought not to change the character of past transactions carried on upon the faith of the then existing law.' The courts will not, therefore, ascribe retrospectivity to new laws affecting rights unless by express words or necessary implication it appears that such was the intention of the legislature. The Parliament can delegate its legislative power within the recognised limits. Where any rule or regulation is made by the person or authority to whom such powers have been delegated by the legislature it may or may not be possible to make the same so as to give retrospective operation. It will depend on the language employed in the statutory provision which may in express terms or by necessary implication empower the authority concerned to make a rule or regulation with retrospective effect. But where no such language is to be found it has been held by the courts that the person or authority exercising subordinate legislative functions cannot make a rule, regulation or bye- law which can operate with retrospective effect; (see Subba Rao, J. in Dr. Indramani Pyarelal Gupta v. W.R. Nathu & Others (1963 S.C.R. 721) - the majority not having expressed any different opinion on the point; Modi Food Products Ltd. v. Commissioner of Sales Tax U.P. (A.I.R. 1956 All. 35); India Sugar Refineries Ltd. v. State of Mysore (A.I.R. 1960 Mys. 326) and General S. Shivdev Singh & Anr. v. The State of Punjab & Others (1959 P.L.R. 514)."
Company Appeal (AT)(CH)(Ins) No. 55 of 2021 39
10. "By the addition of the words 'either prospectively or retrospectively' by the aforesaid amendment, the State Legislature has now conferred the necessary power on the State Government to grant exemption with retrospective effect. This amendment also suggests that earlier the Government had no such power to grant exemption with retrospective effect."
52. The Learned Counsel for the 1st Respondent refers to the decision of the Hon'ble Supreme Court in S.L. Srnivas Jute Twine Mills P Ltd V Union of India & Ors reported (2006) 2 SCC 740 at Spl Page 744 wherein at paragraph 13 and 14 it is observed as under:-
13. "In Jayantilal Amrathlal Vs Union of India (AIR 1971 SC 1193), it has been laid down as under : "In order to see whether the rights and liabilities under the repealed law have been put to an end by the new enactment, the proper approach is not to enquire if the new enactment has by its new provisions kept alive the rights and liabilities under the repealed law but whether it has taken away those rights and liabilities.
The absence of a saving clause in a new enactment preserving the rights and liabilities under the repeated law is neither material nor decisive of the question."
"14.Now it is well settled rule of interpretation hallowed by time and sanctified by judicial decisions that unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than Company Appeal (AT)(CH)(Ins) No. 55 of 2021 40 as regards matters of procedure. The general-rule as stated by HALSBURY in Vol. 36 of the LAWS OF ENGLAND (3rd Edn,) and reiterated in several decisions of this Court as well as English Courts is that all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only."
53. The Learned Counsel for the 1st Respondent adverts to the decision of the Hon'ble Supreme in Director General of Foreign Trade and Anr. Vs Kanak Exports and Anor (2016) 2 SCC 226 wherein at paragraph 110.2 - 110.5 it is observed as under:-
110.2 State of Rajasthan & Ors. v. Basant Agrotech (India) Ltd.11 "21. There is no dispute over the fact that the legislature can make a law retrospectively or prospectively subject to justifiability and acceptability within the constitutional parameters. A subordinate legislation can be given retrospective effect if a power in this behalf is contained in the principal Act. In this regard we may refer with profit to the decision in Mahabir Vegetable Oils (P) Ltd. v. State of Haryana (2006) 3 SCC 620, wherein it has been held that:
Company Appeal (AT)(CH)(Ins) No. 55 of 2021 41 "41. We may at this stage consider the effect of omission of the said note.
It is beyond any cavil that a subordinate legislation can be given a retrospective effect and retroactive operation, if any power in this behalf is contained in the main Act. The rule-making 10 (2006) 13 SCC 542 11 (2013) 15 SCC 1 Page 96 96 power is a species of delegated legislation. A delegatee therefore can make rules only within the four corners thereof.
42. It is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication." ( 110.3 Keshavlal Jethalal Shah v. Mohanlal Bhagwandas & Anr. (AIR p. 1339, para 8) "8. The Counsel for the respondent also submitted that Section 29(2) as amended was intended to have retrospective operation, because the Amending Act was in the nature of explanatory legislation. There is nothing in the language of Section 29(2) as amended, which may indicate that it was intended to be retrospective in operation. Section 29(2) as amended in terms confers jurisdiction upon the High Court to call for the record of a case for the purpose of satisfying itself that the decision in appeal was according to law, which the High Court did not possess before the date of the Amending Act. The amending clause does not seek to explain any pre-existing legislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising revisional jurisdiction was before the amendment derived from Section Company Appeal (AT)(CH)(Ins) No. 55 of 2021 42 115 Code of Civil Procedure, and the legislature has by the Amending Act attempted to explain the meaning of that provision. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. Section 29(2) before it was enacted, was precise in its implication as well as in its expression: the meaning of the words used was not in doubt, and there was no omission in its phraseology which was required to be supplied by the amendment." 110.4 CIT v. Vatika Township Private Ltd.(SCC pp.21-22 & 24, paras 28-29 and
33) "28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips vs. Eyre, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first Company Appeal (AT)(CH)(Ins) No. 55 of 2021 43 time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.
29. The obvious basis of the principle against retrospectivity is the principle of 'fairness', which must be the basis of every legal rule as was observed in the decision reported in L'Office Cherifien des Phosphates v. Yamashita- Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later.
33. A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas & Anr.16, while considering the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as followsAIR p 1339, para 8) "The amending clause does not seek to explain any pre-existing legislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising revisional jurisdiction was before the amendment derived from Section 115, Code of Civil Procedure, Company Appeal (AT)(CH)(Ins) No. 55 of 2021 44 and the legislature has by the amending Act attempted to explain the meaning of that provision. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act."
11o.5 Trimbak Damodhar Rajpurkar v. Assaram Hiraman Patil & Others (AIR pp.1760-61, para 8-11) "8. Besides, it is necessary to bear in mind that the right of the appellant to eject the respondents would arise only on the termination of the tenancy, and in the present case it would have been available to him on 31-3-1953 if the statutory provision had not in the meanwhile extended the life of the tenancy. It is true that the appellant gave notice to the respondents on 11-3-1952 as he was then no doubt entitled to do; but his right as a landlord to obtain possession did not accrue merely on the giving of the notice, it accrued in his favour on the date when the lease expired. It is only after the period specified in the notice is over and the tenancy has in fact expired that the landlord gets a right to eject the tenant and obtain possession of the land. Considered from this point of view, before the right accrued to the appellant to eject the respondents amending Act 33 of 1952 stepped in and deprived him of that right by requiring him to comply with the statutory requirement as to a valid notice which has to be given for ejecting tenants.
9. In this connection it is relevant to distinguish between an existing right and a vested right. Where a statute operates in future it cannot be said to be retrospective merely because within the sweep of its operation all Company Appeal (AT)(CH)(Ins) No. 55 of 2021 45 existing rights are included. As observed by Buckley, L.J. in West v. Gwynne retrospective operation is one matter and interference with existing rights is another.
"........If an Act provides that as at a past date the law shall be taken to have been that which it was not, that Act I understand to be retrospective. That is not this case. The question here is whether a certain provision as to the contents of leases is addressed to the case of all leases or only of some, namely, leases executed after the passing of the Act. The question is as to the ambit and scope of the Act, and not as to the date as from which the new law, as enacted by the Act, is to be taken to have been the law."
These observations were made in dealing with the question as to the retrospective construction of Section 3 of the Conveyancing and Law of Property Act, 1892 (55 & 56 Vict. c. 13). In substance Section 3 provided that in all leases containing a covenant, condition or agreement against assigning, underletting, or parting with the possession, or disposing of the land or property leased without licence or consent, such covenant, condition or agreement shall, unless the lease contains an expressed provision to the contrary, be deemed to be subject to a proviso to the effect that no fine or sum of money in the nature of a fine shall be payable for or in respect of such licence or consent. It was held that the provisions of the said section applied to all leases whether executed before or after the commencement of the Act; and, according to Buckley, L.J., this construction did not make the Act retrospective in operation; it merely Company Appeal (AT)(CH)(Ins) No. 55 of 2021 46 affected in future existing rights under all leases whether executed before or after the date of the Act. The position in regard to the operation of Section 5(1) of the amending Act with which we are concerned appears to us to be substantially similar.
10. A similar question had been raised for the decision of this Court in Jivabhai Purshottam v. Chhagan Karson in regard to the retrospective operation of Section 34(2)(a) of the said amending Act 33 of 1952 and this Court has approved of the decision of the Full Bench of the Bombay High Court on that point in Durlabbhai Fakirbhai v. Jhaverbhai Bhikabhai . It was held in Durlabbhai case that the relevant provision of the amending Act would apply to all proceedings where the period of notice had expired after the amending Act had come into force and that the effect of the amending Act was no more than this that it imposed a new and additional limitation on the right of the landlord to obtain possession from his tenant. It was observed in that judgment that (Juvabhai Purshottam Cases, AIR p. 1493, para 4) "4..........a notice under Section 34(1) is merely a declaration to the tenant of the intention of the landlord to terminate the tenancy; but it is always open to the landlord not to carry out his intention. Therefore, for the application of the restriction under sub-section 2(a) on the right of the landlord to terminate the tenancy, the crucial date is not the date of notice but the date on which the right to terminate matures; that is the date on which the tenancy stands terminated".
Company Appeal (AT)(CH)(Ins) No. 55 of 2021 47
54. The Learned Counsel for the 1st Respondent relies on the Judgement of the Hon'ble Supreme Court in Ramesh Kyamel Vs Seimens Ganesa Renewable Power Pvt Ltd (Civil Appeal No.4050 of 2020) wherein at paragraph 25 and 26 it is observed as under:-
25. "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. It was cognizant of the fact that resolution applicants may not come forth to take up the process of the resolution of insolvencies (this as we have seen was referred to in the recitals to the Ordinance), which would lead to instances of the 'Corporate Debtor's going under liquidation and no longer remaining a going concern. This would go against the very object of the IBC, as has been noted by a two-Judge bench of this Court in its judgment in Swiss Ribbons (P) Ltd. v. Union of India (2019)(4)SCC 17 . Speaking through Justice Rohinton F Nariman, the Court held as follows: "27. As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganisation and insolvency resolution of 'Corporate Debtor's.
Unless such reorganisation is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in Company Appeal (AT)(CH)(Ins) No. 55 of 2021 48 turn, will promote entrepreneurship as the persons in management of the 'Corporate Debtor' are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the 'Corporate Debtor' is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the 'Corporate Debtor' itself becomes a beneficiary of the resolution scheme--workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximise their investment. Timely resolution of a 'Corporate Debtor' who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the 'Corporate Debtor' as a going concern. (See ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] at para 83, fn 3)." 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. We are therefore unable to accept the contention of the appellant. Company Appeal (AT)(CH)(Ins) No. 55 of 2021 49 26 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. Section 7 deals with the initiation of the CIRP by a financial creditor; Section 8 provides for the insolvency resolution by an operational creditor; Section 9 provides for the application for initiation of the CIRP by an operational creditor; and Section 10 provides for the initiation of the CIRP by a corporate applicant. NCLAT has explained the difference between the initiation of the CIRP and its commencement succinctly, when it observed: "13. Reading the two definition clauses in juxtaposition, it emerges that while the first viz. 'initiation date' is referable to filing of application by the eligible applicant, the later viz. 'commencement date' refers to passing of order of admission of application by the Adjudicating Authority. The 'initiation date' ascribes a role to the eligible applicant whereas the 'commencement date rests upon exercise of power vested in the Adjudicating Authority. Adopting this interpretation would leave no scope for initiation of CIRP of a 'Corporate Debtor' at the instance of eligible applicant in respect of Default arising on or after 25th March, 2020 as the provision engrafted in Section 10A clearly bars filing of such application by the eligible applicant for initiation of CIRP of 'Corporate Debtor' in respect of such default. The bar created is retrospective as the cut-off date has been fixed as 25th March, 2020 Company Appeal (AT)(CH)(Ins) No. 55 of 2021 50 while the newly inserted Section 10A introduced through the Ordinance has come into effect on 5th June, 2020. The object of the legislation has been to suspend operation of Sections 7, 9 & 10 in respect of defaults arising on or after 25th March, 2020 i.e. the date on which Nationwide lockdown was enforced disrupting normal business operations and impacting the economy globally. Indeed, the explanation removes the doubt 19 by clarifying that such bar shall not operate in respect of any default committed prior to 25th March, 2020."
55. The Learned Counsel cites the decision of the Hon'ble Supreme Court in State of Punjab and Anr Vs Devans Modern Breweries Ltd & Anr. (2004) 11 SCC 26 wherein at paragraph 339 it is observed as under:
339. "Judicial discipline envisages that a coordinate bench follow the decision of earlier coordinate bench. If a coordinate bench does not agree with the principles of law enunciated by another bench, the matter may be referred only to a larger bench. (See Pradip Chandra Parija v. Pramod Chandra Patnaik, followed in State of Tripura v. Roop Chand Das and Ors., But no decision can be arrived at contrary to or inconsistent with the law laid down by the coordinate bench. Kalyani Stores (supra) and K.K. Narula (supra) both have been rendered by the Constitution Benches. The said decisions, therefore, cannot be thrown out for any purpose whatsoever; more so when both of them if applied collectively lead to a contrary decision proposed by the majority."
Company Appeal (AT)(CH)(Ins) No. 55 of 2021 51
56. The Learned Counsel for the 1st Respondent relies on the decision of the Hon'ble Supreme Court in S. Kasi V. State through Inspector of Police (2020) SCC OnLine SC 529 wherein at paragraph 31 it is observed as under:-
31. "Learned Single Judge in the impugned judgment has taken a contrary view to the earlier judgment of learned Single Judge in Settu versus The State (supra). It is well settled that a coordinate Bench cannot take a contrary view and in event there was any doubt, a coordinate Bench only can refer the matter for consideration by a Larger Bench. The judicial discipline ordains so. This Court in State of Punjab and another versus Devans Modern Breweries ltd. and another, (2004) 11 SCC 26, in paragraph 339 laid down following:-
"339. Judicial discipline envisages that a coordinate Bench follow the decision of an earlier coordinate Bench. If a coordinate Bench does not agree with the principles of law enunciated by another Bench, the matter may be referred only to a Larger Bench.(See Pradip Chandra Parija V. Pramod Chandra Patnaik) , (2002) 1 SCC 1 followed in Union of India Vs. Hansoli Devi, (2002) 7 SCC 273. But no decision can be arrived at contrary to or inconsistent with the law laid down by the coordinate Bench. Kalyani Stores (supra) and K.K. Narula (supra) both have been rendered by the Constitution Benches. The said decisions, therefore, cannot be thrown out for any purpose whatsoever; more so when both of them if applied collectively lead to a contrary decision proposed by the majority."
DISCUSSIONS
57. The 1st Respondent/Petitioner/Operational Creditor in IBA/35/KO/ 2020 (filed under Section 9 of the I&B Code r/w Rule 6 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 before the Company Appeal (AT)(CH)(Ins) No. 55 of 2021 52 'Adjudicating Authority' (National Company Law Tribunal, Kochi Bench) under Part IV 'Particulars of Operational Debt' in Sl.No.1 had mentioned hereunder:-
Particulars of Operational Debt 1 Total amount of debt, details of Total amount of debt transactions on account of which debt fell due, and the USD 1,13,500/- is outstanding date from which such debt fell payable by the 'Corporate due. Debtor' to the Operational Creditor including interest @ 18% p.a. amounting to USD $ 13,500 as on 31st August, 2020 due to delay in refund of the advance payments made the 'Corporate Debtor' on 1st December, 2019 with further interest to be calculated till the actual date of payment.
58. It is the stand of the 1st Respondent/Operational Creditor that believing the inducements and representations of the ''Corporate Debtor'', had agreed to procure the 'Cashew Nuts' from them and further that the ''Corporate Debtor'' had raised the proforma invoice of USD 1,44,500 dated 25.11.2019 to the Operational Creditor and demanded that 70% of the 'proforma invoice' be transferred to them in the beginning.
59. The 1st Respondent/Operational Creditor made the 70% payment amounting to USD 1,00,000 against the 'proforma invoice' to the ''Corporate Debtor'' on 01.12.2019 and the remaining 30% was to be paid against the full Company Appeal (AT)(CH)(Ins) No. 55 of 2021 53 set of export documents. In fact, the 'advance payment' of USD 1.00.000 was duly received and acknowledged by the 'Corporate Debtor'.
60. According to the 1st Respondent/Operational Creditor, the 'Corporate Debtor' had duly acknowledged the receipt of transfer amount on 03.12.2019 and undertook to supply the material within one month of the receipt of the 70% of the advance amount. But the 'Corporate Debtor' had failed to do so and was unsuccessful in arranging the full set of export documents till date.
61. It comes to be known that on repeated telephonic and electronic communications through WhatsApp, the 'Corporate Debtor' according to the Appellant made excuses on some pretext or the other and the ordered 'Cashew Kernels' were never exported to the Operational Creditor, although substantial sum was transferred to the ''Corporate Debtor''. Therefore, the 1st Respondent/Operational Creditor had requested the ''Corporate Debtor'' to return the advance payment on 30.04.2020 to which the ''Corporate Debtor'' acknowledged his debt and assured that the same would be transferred soon.
62. The grievance of the 1st Respondent/Operational Creditor is that that the 'Corporate Debtor' had delayed to fulfil its commitment of refunding the due amount to the 'Operational Creditor'. A 'Demand Notice' under Section 8 of the I&B Code (vide Form 3 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 to the 'Corporate Debtor' was issued by the 1st Respondent/Operational Creditor, on 1.8.2020 through 'WhatsApp' and 'email'. The notice was also sent through speed post on 04.08.2020 which was received by the 'Corporate Debtor' on 10.08.2020. Company Appeal (AT)(CH)(Ins) No. 55 of 2021 54
63. The plea of the 1st Respondent is that the 'Corporate Debtor' had not made any payment of 'Debt' and also not raised any dispute in terms of the ingredients of Section 8(2) of the I&B Code relating to the 'Debt', within 10 days of the receipt of notice dated 20.08.2020. However, on 05.09.2020, the Learned Advocate of the 'Operational Creditor' had received a reply from the 'Corporate Debtor' to the 'Demand Notice' (under Section 8 of the Code) through email which is a 'Concocted', 'Misleading' and 'Untenable' one. Also through speed post on 10.09.2020, the Advocate of the 1st Respondent/ Operational Creditor received a 'Reply' through 'Speed Post'.
64. The clear cut stand of the 1st Respondent/Operational Creditor is that the total sum due and payable it for the default committed by the ''Corporate Debtor'' is USD 1,00,000 and interest at 18 % per annum amounting to USD 13,500. The date of default according to the Appellant took place on 03.01.2020 when the 'Cashew Kernel/shipment was to be dispatched by the ''Corporate Debtor'' who has failed to despatch the same inspite of several reminders. Furthermore, on numerous other occasions, the default arose when the Operational Creditor had demanded the return of the amount advance to the ''Corporate Debtor''.
65. The other stance of the 1st Respondent/Operational Creditor is that the 'Corporate Debtor' had failed to raise any plausible contention and the dispute attempted to be raised is a feeble one, unsupported by any evidence.
66. The 'Corporate Debtor'' before the 'Adjudicating Authority' had filed a 'Reply' to IBA/35/KOB/2020 stating that the 'Application' was filed on Company Appeal (AT)(CH)(Ins) No. 55 of 2021 55 16.09.2020 and that the statutory 'Demand Notice' under Section 8 of the Code was received on 14.08.2020 and the minimum amount of default as mentioned by the Applicant in its Application was USD 1,00,000 being equivalent to Rs.74,87,000/- (considering the exchange rate of Rs.74.87). The interest claimed is Rs.12000 USD, approximately equivalent to Rs.8,98,440/- and including the principal dues, the total amount alleged to be claimed in default by the Applicant was Rs.83,85,440/- and the said amount in default being less than Rs.1 crore, the application filed by the 1st Respondent/ Operational Creditor is liable to be rejected at the threshold.
67. The ''Corporate Debtor'' took a stand before the 'Adjudicating Authority' in its 'Reply' that the 'Default Date' according to the 1st Respondent/ Operational Creditor was 03.01.2020 and that the date of export of the goods viz; timeline for performing the contract was extended from time to time by consent and the last date agreed for export was on 25.04.2020 and that the ''Corporate Debtor'' could not procure and 'Export' the Goods because of the Lockdown before 25.04.2020. In fact, the 1st Respondent/ Operational Creditor had refused the ''Corporate Debtor'' from exporting the goods after 25.04.2020 and insisted for the return of the amount paid in advance.
68. The legal plea taken on behalf of the ''Corporate Debtor'' in its reply before the Adjudicating Authority is that even assuming, without admitting 25.04.2020 is the date of the refusal of the goods and the return of the money is considered as the date of default, the 1st Respondent/Operational Creditor is ineligible to prefer an application under Section 9 of the Code, since the said date will fall within the period of 25.03.2020 and 25.09.2020. As such Company Appeal (AT)(CH)(Ins) No. 55 of 2021 56 the application is liable to be dismissed for want of jurisdiction as per Section 10A of the I&B Code.
69. According to the ''Corporate Debtor'', the 'Application' filed by the 1st Respondent/Operational Creditor is not maintainable because of the fact there was a 'Pre-existing' dispute between the parties in respect of the 'Contract' including the 'purchase terms',' procurement terms, delivery terms, repayment terms, interest terms and the failure to perform the 'Contract' beyond the control of the 'Corporate Debtor' due to 'Force Majeure' arising out of Covid19 pandemic. Indeed, the 'Pre-existing dispute' was very much before the issuance of 'Demand Notice' and, therefore, the Application filed by the 1st Respondent/Operational Creditor is not maintainable.
70. The plea of the ''Corporate Debtor'' is that there is no contract or agreement between the parties to the award of the 'Interest' on account 'Delay' or 'Default' in performing the Contract and further none of the documents. of the 1st Respondent/ Operational Creditor proves that the ''Corporate Debtor'' had agreed to pay any interest of 18%, as claimed.
71. According to the Learned Counsel for the Appellant, the object of the I&B Code is not for recovery of money and in short in the instant case there is a dispute of the debt and further that the WhatsApp communication furnished by the 1st Respondent/Operational Creditor itself proves the dispute and hence the application filed by the 1st Respondent/Operational Creditor is liable to be rejected.
I&B CODE PROVISIONS Company Appeal (AT)(CH)(Ins) No. 55 of 2021 57
72. Be it noted, Section 5(21) of the I&B Code, 2016 defines 'Operational Debt' meaning a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;
73. Section 5(20) of the Code defines 'Operational Creditor' meaning a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred;
74. Section 5(7) of the Code defines 'financial creditor' means any person to whom a financial debt is owed and includes a person in whom such debt has been legally assigned or transferred to.
75. Section 5(8) of the Code defines 'financial debt' means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes--
(a) money borrowed against the payment of interest;
(b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent;
(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
(d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Company Appeal (AT)(CH)(Ins) No. 55 of 2021 58 Accounting Standards or such other accounting standards as may be prescribed;
(e) receivables sold or discounted other than any receivables sold on nonrecourse basis;
(f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;
(g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account;
(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution;
(i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;
76. Adjudicating Authority.
As seen from the I&B Code, 2016 an 'Adjudicating Authority' does not decide a suit/money claim and the 'CIRP' is not determined by the 'Court'. In the initial stage, an 'Adjudicating Authority' is required to take appropriate Company Appeal (AT)(CH)(Ins) No. 55 of 2021 59 steps for 'Resolution' of the 'Corporate Debtor' under 'Insolvency'. No wonder, 'Resolution Process' is not a 'Litigation' by any stretch of imagination. 77 In the instant case, the application under Section 9 of the I&B Code (IBA/35/KOB/2020) was filed on 16.09.2020. The Section 8 Demand Notice to the 'Corporate Debtor' was sent by WhatsApp and email on 01.08.2020 and further that the said Notice, by way of caution was sent through speed post on 04.08.2020 which was received by the ''Corporate Debtor'' on 10.08.2020, as averred by the 1st Respondent/Operational Creditor in Part IV of its application at Sl.No.8.
78. The 'Corporate Debtor' before the 'Adjudicating Authority' had taken a stand that there was no 'Contract' or agreement between the parties in regard to the award of 'Interest' at 18%, as claimed by the 'Operational Creditor' and that the object of I&B Code, 2016 is not a recovery of money and the frustration of contract, reasons for failure of export, inspection of goods on account of Covid lock down require detail rumination in fixing the liabilities of the ''Corporate Debtor''. In short, according to the ''Corporate Debtor',' there exists a 'Dispute' and the determination of 'Default' require and elaborate examination of facts and letting in of evidence to be adduced by the respective parties.
79. In this connection this 'Tribunal' aptly refers to the decision of the Hon'ble Supreme Court in Ramesh Kymal V. Siemens Gamesa Renewable Power Pvt Ltd reported in (2021) 3 Supreme Court Cases 224 as Spl. Pages 235 and 237 wherein at paragraphs 28, 30, 33 and 34 it is observed as under:
Company Appeal (AT)(CH)(Ins) No. 55 of 2021 60
28. "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 Debtor's 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.".
30. "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. It was cognizant of the fact that resolution applicants may not come forth to take up the process of the resolution of insolvencies (this as we have seen was referred to in the recitals to the Ordinance), which would lead to instances of the 'Corporate Debtor's going under liquidation and no longer remaining a going concern. This would go against the very object of the IBC, as has been noted by a two-Judge bench of this Court in its judgment in Swiss Ribbons (P) Ltd. v. Union of India7."
Company Appeal (AT)(CH)(Ins) No. 55 of 2021 61
33. 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. Section 7 deals with the initiation of the CIRP by a financial creditor; Section 8 provides for the insolvency resolution by an operational creditor; Section 9 provides for the application for initiation of the CIRP by an operational creditor; and Section 10 provides for the initiation of the CIRP by a corporate applicant.
34. NCLAT has explained the difference between the initiation of the CIRP and its commencement succinctly, when it observed:
13. "Reading the two definition clauses in juxtaposition, it emerges that while the first viz. 'initiation date' is referable to filing of application by the eligible applicant, the later viz. 'commencement date' refers to passing of order of admission of application by the Adjudicating Authority. The 'initiation date' ascribes a role to the eligible applicant whereas the 'commencement date rests upon exercise of power vested in the Adjudicating Authority. Adopting this interpretation would leave no scope for initiation of CIRP of a 'Corporate Debtor' at the instance of eligible applicant in respect of Default arising on or after 25th March, 2020 as the provision engrafted in Section 10A clearly bars filing of such application by Company Appeal (AT)(CH)(Ins) No. 55 of 2021 62 the eligible applicant for initiation of CIRP of 'Corporate Debtor' in respect of such default. The bar created is retrospective as the cut-
off date has been fixed as 25th March, 2020 while the newly inserted Section 10A introduced through the Ordinance has come into effect on 5th June, 2020. The object of the legislation has been to suspend operation of Sections 7, 9 & 10 in respect of defaults arising on or after 25th March, 2020 i.e. the date on which Nationwide lockdown was enforced disrupting normal business operations and impacting the economy globally. Indeed, the explanation removes the doubt 19 by clarifying that such bar shall not operate in respect of any default committed prior to 25th March, 2020."
80. It is to be pointed out that a change in Law is a procedural one. A party is to avail the change in I & B Code, 2016, notwithstanding the fact his/its actionable right of 'cause of action' had arisen earlier to an amendment that has been brought about, increasing the threshold limit to Rs. 1 Crore [vide Notification dated 24.03.2000 issued by the 'Ministry of Corporate Affairs' in S.O. 1205(E)] for considering the Application filed under Section 7 or 9 of I&B Code on after 24.03.2020, even if the 'Debt' is of a date prior to 24.03.2020. In law, a Party has no vested right in respect of a 'Fora', albeit he has a 'Actionable Right'. After all, the impediment in Section 10(A) of the I & B Code is to be viewed from the point of view of the purpose and object sought to be achieved in enacting the same by the Parliament in its wisdom. Company Appeal (AT)(CH)(Ins) No. 55 of 2021 63
81. In regard to the facts of the present case on hand are even though the 'Date of Default' was on 03.01.2020, the application under Section 9 of I&B Code was filed by the 'Operational Creditor/Applicant' before the 'Adjudicating Authority' on 16.09.2020 wherein the 'Operational Creditor' had claimed a total amount of debt USD 1,13,500 payable by the 'Corporate Debtor' to it including interest at 18% per annum amounting to USD 13,500 as on 31.08.2020, in view of the fact that the contract was terminated on 30.04.2020, there being a dispute in regard to the contract for delivery of goods (in respect of supply of cashew kernels) between the parties, the threshold limit under Section 10A of the Code for initiation of CIRP is Rs. 1 Crore (vide Notification to Section 4 of the Code dated 24.03.2020, in the instant case, the 'Default' claimed from ''Corporate Debtor'' is USD 1,00,000 and 'interest' @ 18% per annum amounting to USD 13,500 and the interest being denied by the ''Corporate Debtor'' there being no contract for paying the interest between the parties) and this 'Tribunal' taking note of the fact that under the 'Contract' the amount was due and payable on 25.04.2020, comes to a consequent conclusion that as per provision of Section 10A, the application filed by the 'Operational Creditor'/petitioner under Section 9 of the Code is not maintainable and in short, the employment of the words 'no application for initiation of 'CIRP' of 'Corporate Debtor' shall be filed for any default arising on or after 25.03.2020 for a period of six months or such further period not exceeding one year from such date as may be notified in this behalf etc.' is applicable to the application filed by the 'Operational Creditor' filed in IBA/35/KOB/2020 as opined by this Tribunal. Viewed in that perspective, the contra observations/views arrived at by the 'Adjudicating Company Appeal (AT)(CH)(Ins) No. 55 of 2021 64 Authority' in the impugned order dated 26.02.2021, admitting the application in IBA/35/ KOB/2020 and declaring moratorium etc. are clearly unsustainable in the eye of Law. Hence, this 'Tribunal' is perforced to interfere with the impugned order dated 26.02.2021 in IBA/35/KOB/2020 passed by the 'Adjudicating Authority' in admitting the Section 9 application of the Code and sets aside the same. Resultantly, the Appeal succeeds. CONCLUSION In fine, the instant Comp App. (AT)(CH)(Ins) No.55 of 2021 is allowed. No costs. Connected IA pending, if any, is closed. The Application in IBA/35/KOB/2020 filed by the 1st Respondent/Applicant/Operational Creditor before the 'Adjudicating Authority' (under Section 9 of the Code) is dismissed. As a logical corollary, the Order(s) passed by the 'Adjudicating Authority' in appointing 'Interim Resolution Professional', declaring 'Moratorium' etc. and all other Orders passed by the Adjudicating Authority', pursuant to the impugned order dated 26.02.2021 and actions taken by the 'Resolution Professional' including the 'Advertisement' published in the 'Newspaper' calling for Applications, all such Orders and actions are declared illegal and they are set aside. The 'Corporate Debtor' is released from all the rigour of law and is allowed to function independently with immediate effect.
The 'Adjudicating Authority' will now close the 'proceedings' and is required to fix the 'Fee' of the 'Interim Resolution Professional' and that the 'Corporate Debtor' is required to pay the 'Fees' for the period the 'Interim Resolution Professional' had discharged his duties. Company Appeal (AT)(CH)(Ins) No. 55 of 2021 65 Before parting with the case, this 'Tribunal' makes it clear that the dismissal of the Section 9 Application in IBA/35/KOB/2020 will not preclude the 1st Respondent/Applicant to seek appropriate remedy before the 'Competent Forum' against the 'Corporate Debtor' in the manner known to law and in accordance with Law, if it so desires/advised.
(Justice M. Venugopal)
Member (Judicial)
(Mr. Kanthi Narahari)
Member (Technical)
Dated: 13-12-2021
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Company Appeal (AT)(CH)(Ins) No. 55 of 2021