Gujarat High Court
Shivam Water Treaters Pvt Ltd vs Union Of India on 20 April, 2018
Bench: R.Subhash Reddy, Vipul M. Pancholi
C/SCA/19808/2017 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 19808 of 2017
With
CIVIL APPLICATION NO. 1 of 2018
With
R/SPECIAL CIVIL APPLICATION NO. 243 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE CHIEF JUSTICE MR. R.SUBHASH REDDY
and
HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI
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1 Whether Reporters of Local Papers may be allowed to Yes
see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy of the No
judgment ?
4 Whether this case involves a substantial question of law Yes
as to the interpretation of the Constitution of India or any
order made thereunder ?
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SHIVAM WATER TREATERS PVT LTD
Versus
UNION OF INDIA
==========================================================
Appearance:
MR KAMAL TRIVEDI, SR. ADVOCATE WITH MR VISHWAS K SHAH(5364)
for the PETITIONER(s) No. 1
MR DEVANG VYAS(2794) for the RESPONDENT(s) No. 1
MR MIHIR JOSHI, SR. ADVOCATE WITH MR. SAHIL M SHAH(6318) for the
RESPONDENT(s) No. 2
NOTICE SERVED BY DS(5) for the RESPONDENT(s) No. 3,4,5
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CORAM: HONOURABLE THE CHIEF JUSTICE MR. R.SUBHASH REDDY
and
Page 1 of 26
C/SCA/19808/2017 CAV JUDGMENT
HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI
Date : 20/04/2018
CAV JUDGMENT
(PER : HONOURABLE THE CHIEF JUSTICE MR. R.SUBHASH REDDY) [1] The Special Civil Application No.19808 of 2017 is filed by the applicant company which is registered under the Companies Act and Special Civil Application No.243 of 2018 is filed by the Director and share holder of the said Company.
[2] As in both the petitions, similar reliefs are sought, they are heard together. We take Special Civil Application No.19808 of 2017 as lead matter.
[3] Special Civil Application No.19808 of 2017 is filed under Article 226 of the Constitution of India with the prayers which read as under : "9A. Be pleased to declare S. 5(7), 6, 7, 12, 29, 214(f), 231 and 238 of Insolvency and Bankruptcy Code, 2016 as ultra vires the Constitution of India, 1950 and/or Indian Evidence Act, and/or Recovery of Debts and the Bankruptcy Code 1993 and/or Securitisation Act, 2002.
9AB Be pleased to declare the appointments made of the Page 2 of 26 C/SCA/19808/2017 CAV JUDGMENT Technical members, National Company Law Appellate Tribunal, New Delhi and Members, National Company Law Tribunal as unconstitutional and no est and nullity and void ab intio.
9AC Be pleased to declare that S. 172 and 184 of Finance Act 2017 as ultra vires the Constitution of India. 9AD Be pleased to declare S. 3 (12) and S. 62 of Insolvency and Bankruptcy Code, 2016 as ultra vires the Constitution of India.
B. Be pleased to declare S. 409(2) and s. 419 of Companies Act, 2013 as ultra vires the Constitution of India, 1950 C. Be pleased to declare notification dated 12.08.16 and 28.09.2017 as ultra vires the Constitution of India, 1950 and/or Companies Act, 2013.
D. Be pleased to quash and set side the Insolvency Petition filed against the petitioner by respondent Trust before the National Company Law Tribunal at Ahmedabad.
E. Pending admission, hearing and final disposal of the petition, be pleased to direct NCLT, Ahmedabad to forbear, prohibit, restrain and injuct from hearing the petition filed by respondent No.2 Trust under Section 7 of IBC Code, 2016. Page 3 of 26 C/SCA/19808/2017 CAV JUDGMENT
F. Cost of this petition be awarded.
G. Such further and other relief, order or direction which
may be just, fit, proper and equitable in the facts and circumstances of the petition."
[4] By seeking the above reliefs, the petitioner herein has questioned the validity of various provisions of Insolvency and Bankruptcy Code, 2016 ('the Code, 2016' for short) and the Constitution of National Company Law Tribunal and Sections 172 and 184 of the Finance Act, 2017.
[5] When the matter was called for hearing on 15.01.2018, copy of the order dated 20.11.2017 passed by the Hon'ble Supreme Court in Writ Petition (Civil) No.640 of 2017 in the case of Central Administrative Tribunal v/s. Union of India and Ors. was produced. [6] In view of such order produced before this Court, this Court in the order dated 15.01.2018 passed in this petition has observed that it is open to the parties to approach Hon'ble Supreme Court to seek clarification. Against the order dated 15.01.2018, passed in this petition, the matter was carried before Hon'ble Supreme Court by way of Special Leave to Appeal (C) No.1740 of 2018 by the petitioner. In the aforesaid matter, the Hon'ble Supreme Court on 25.01.2018 has passed following order : Page 4 of 26 C/SCA/19808/2017 CAV JUDGMENT "Having heard learned counsel for the parties, we are only inclined to request the High Court to address the relief limited to any action taken by the respondents or any order passed by National Company Law Tribunal. Barring this, the High Court should not address any other relief sought in the prayer clause. The High Court is requested not to enter into the debate pertaining to the validity of the Insolvency and Bankruptcy Code, 2016 or the constitutional validity of the National Company Law Tribunal.
Our present order does not debar the petitioner to challenge the validity of composition of the National Company Law Tribunal and the validity or the constitutionality of the Insolvency and Bankruptcy Code, 2016 before this Court under Article 32 of the Constitution.
The special leave petition stands disposed of accordingly. No order as to costs."
[7] In view of above order passed by Hon'ble Supreme Court, this Court cannot examine the reliefs sought for with regard to validity of the provisions of Insolvency and Bankruptcy Code, 2016 and also constitutional validity of National Company Law Tribunal. Apart from such reliefs, the petitioner has questioned maintainability of the petition filed by the respondent No.2, under Section 7 of the Insolvency and Bankruptcy Code, 2016. We, therefore, confine our consideration to that extent only. To consider said aspects, we refer to necessary facts of the case which are as under.
Page 5 of 26 C/SCA/19808/2017 CAV JUDGMENT [8] The petitioner is Company registered under the Companies Act. The petitioner company has availed loan from State Bank of India and Allahabad Bank. In view of default committed by the petitioner, the accounts of the petitioner were declared as NPAs. At first instance, Original Application No.154 of 2012 came to be filed by the State Bank of India to recover its dues of Rs.41,88,83,328.99 paise with further interest. Another Original Application No.180 of 2012 also came to be filed by the same Bank under Section 19 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 ("RDDB Act, 1993" for short) to recover its dues of Rs.8,98,94,943/ with interest. State Bank of India has assigned debt of the petitioner to respondent Trust - ARCIL by way of Assignment Agreement dated 28.03.2014. The 2nd respondent - Trust had filed application before the Debts Recovery Tribunal to substitute itself in place of Bank in the aforesaid Original Applications. The amendment application of the respondent Trust for substitution was allowed by the DRT, Ahmedabad by order dated 17.04.2015 meaning thereby, amended Original Applications came to be filed in the both the cases before DRT, Ahmedabad by 2nd respondent. Thereafter, the petitioner has filed Misc. Application in the aforesaid matters, raising preliminary issues seeking dismissal of Original Applications. In the Misc. Applications, it was case of the petitioner that there is no valid assignment deed in favour of 2nd respondent - Trust and assignment Page 6 of 26 C/SCA/19808/2017 CAV JUDGMENT deed was executed by the person who was not competent to execute the same. In that view of the matter, the petition filed cannot be entertained. DRT, Ahmedabad by order dated 10.06.2016 allowed the applications raising preliminary issues filed by the petitioner and dismissed both the applications of 2nd respondent. DRT, Ahmedabad has held that 2nd respondent is not competent to take action and assignment deed was not proper, as much as required stamp duty was not paid etc. The 2nd respondent - Trust has preferred Special Civil Application Nos.10621 of 2016 and 10622 of 2016 before this Court and this Court has allowed the petitions by common judgment dated 18.10.2016 by observing that it was not necessary for DRT, Ahmedabad to go into such issues at this stage and such issues can be decided at the stage of final hearing. The petitioner has challenged the order dated 18.10.2016 passed by this Court by way of Special Leave Petition (C) No.6712 of 2017, before Hon'ble Supreme Court. The said petitions were not entertained and disposed by passing following order on 27.03.2017: "In view of the liberty granted by the High Court in paragraph 8 of the impugned order leaving it open for the contesting parties to agitate all contentions/defences in the course of the trial, we do not consider the present to be a fit case for interference. The present Special Leave Petitions, therefore, are not entertained and are disposed of accordingly. We make it clear that we have expressed no opinion on merits The learned Tribunal will decide the case(s) without being influenced by any of the observations recorded by the Page 7 of 26 C/SCA/19808/2017 CAV JUDGMENT High Court in the order(s) under challenge."
[9] The petitioner thereafter, preferred Courter Claim of Rs.90 Crores before the DRT against the 2nd respondent - Trust. When proceedings were initiated under the Securitisation Act by 2nd respondent - Trust, said proceedings were challenged by the petitioner before the DRT by way of Securitisation Application No.24, 25 and 56 of 2017. The DRT on 10.06.2016 has allowed the Securitisation Applications and it is brought to our notice that even such orders were challenged before this Court. By virtue of orders passed by the Co ordinate Bench of this Court in Special Civil Application Nos.10621 of 2016 and 10622 of 2016 on 18.10.2016, and order passed by the Hon'ble Supreme Court confirming the aforesaid common judgment passed by this Court, proceedings initiated before the DRT under RDDB Act are pending consideration.
[10] At this stage, 2nd respondent - Trust has filed application as financial creditor to initiate corporate insolvency resolution process under the section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Said application is filed by 2nd respondent - Trust acting in its capacity as Trustee of ARCIL AST IV Trust, a company incorporated under the Companies Act, 1956. Filing Page 8 of 26 C/SCA/19808/2017 CAV JUDGMENT of such application and entertaining the application by the Tribunal is challenged on various grounds.
[11] Heard Shri Kamal Trivedi, learned Senior Counsel for the petitioner and Shri Mihir Joshi, learned Senior Counsel for 2nd respondent - Trust at the stage of admission.
[12] It is the case of the petitioner that when application of 2nd respondent - Trust filed under RDDB Act is pending before the DRT, it is not open for the 2nd respondent to move application under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the 3rd respondent - Tribunal.
[13] It is contended by Shri Kamal Trivedi, learned Senior Counsel appearing for the petitioner that there is no valid assignment deed / transfer in favour of 2nd respondent - Trust, and in absence of any mechanism provided to examine such aspects by the 3rd respondent - Tribunal, the petition filed by 2nd respondent - Trust under section 7 of the Code, 2016 is not maintainable. It is submitted that there exists a dispute on the default and validity of assignment in favour of 2nd respondent - Trust, as such in view of limited power conferred on the Tribunal under the provisions of the Insolvency and Bankruptcy Code, 2016, the application filed by 2nd respondent Trust cannot be examined. Page 9 of 26 C/SCA/19808/2017 CAV JUDGMENT It is submitted that with regard to earlier orders passed by this Court on the maintainability of the objections raised by the petitioner and validity of assignment deed, it is a matter to be gone into after trial as observed by this Court. It is submitted that when such order is passed and application filed by the 2nd respondent - Trust is pending consideration under the RDDB Act, 1993, the petition is moved only to deprive right of the petitioner to challenge validity of assignment deed. It is also submitted that in view of counter claim filed by the petitioner claiming Rs.90 Crores, it is for the DRT to examine the same. It is further submitted that as much as the overriding provision in RDDB Act, 1993 is not interfered with in the later enactment i.e. Insolvency and Bankruptcy Code, 2016, the Debts Recovery Tribunal will continue to have authority and jurisdiction to decide the claim of the 2nd respondent. In support of his arguments, Shri Kamal Trivedi has relied on the decisions in the case of Allahabad Bank v/s. Canara Bank reported in (2000) 4 SCC 406, in the case of KSL and Industries Ltd. v/s. Arihant Threads Limited and Ors. reported in (2015) 1 SCC 166, in the case of Innoventive Industries Limited v/s. ICICI Bank and Anr. reported in (2018) 1 SCC 407 and in the case of Sree Metaliks Limited and Ors. v/s. Union of India of the High Court of Calcutta reported in MANU/WB/0236/2017.
[14] On the other hand, Shri Mihir Joshi, learned Senior Counsel Page 10 of 26 C/SCA/19808/2017 CAV JUDGMENT appearing for 2nd respondent - Trust has submitted that in view of orders passed by the Hon'ble Supreme Court, validity of Insolvency and Bankruptcy Code, 2016 or constitutional validity of NCLT cannot be gone into, as such, there is no merit in this petition so as to examine the claim of the petitioner. With reference to objections raised by the petitioner on the maintainability of the petition filed by the 2nd respondent - Trust under the Insolvency and Bankruptcy Code, 2016, it is submitted by Shri Joshi that merely because a dispute is raised on the default, same will not come in the way of moving application under Section 7 of the Code, 2016. It is submitted that if same is allowed, every borrower, will raise such disputes and try to scuttle the process under the provisions of the Insolvency and Bankruptcy Code, 2016. It is submitted that adequate opportunity and safeguard are provided under section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Shri Joshi, learned Senior Counsel has relied on the judgment in the case of Innoventive Industries Ltd. v/s. ICICI Bank and Anr. reported in (2018) 1 SCC 407 and prayed for dismissal of the petition.
[15] Having heard learned Counsels on both sides, we have perused the material on record. Before we deal with the arguments advanced on both the sides, we deem it appropriate to refer certain Page 11 of 26 C/SCA/19808/2017 CAV JUDGMENT provisions of Insolvency and Bankruptcy Code, 2016. Insolvency and Bankruptcy Code, 2016 is enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an insolvency and bankruptcy Board of India and for the matters connected therewith or incidental thereto.
[16] Section 5(7) of the Code, 2016 defines financial creditor. Definition of said section reads as under : "5(7) financial creditor means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to."
[17] Chapter - II of the Code, 2016 deals with persons who may initiate corporate insolvency resolution process. Section 7 of the Act is a provision for initiation of corporate insolvency resolution process by financial creditor. Section 7 of the Code, 2016 reads as under : "Section 7. Initiation of corporate insolvency resolution process by financial creditor. (1) A financial creditor either by itself or jointly with other Page 12 of 26 C/SCA/19808/2017 CAV JUDGMENT financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.
Explanation.--For the purposes of this subsection, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor.
(2) The financial creditor shall make an application under subsection (1) in such form and manner and accompanied with such fee as may be prescribed.
(3) The financial creditor shall, along with the application furnish--
(a) record of the default recorded with the information utility or such other record or evidence of default as may be specified;
(b) the name of the resolution professional proposed to act as an interim resolution professional; and
(c) any other information as may be specified by the Board. (4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under subsection (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under subsection (3).
(5) Where the Adjudicating Authority is satisfied that--
(a) a default has occurred and the application under sub section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or
(b) default has not occurred or the application under sub Page 13 of 26 C/SCA/19808/2017 CAV JUDGMENT section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application:
Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of subsection (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority.
(6) The corporate insolvency resolution process shall commence from the date of admission of the application under subsection (5).
(7) The Adjudicating Authority shall communicate--
(a) the order under clause (a) of subsection (5) to the financial creditor and the corporate debtor;
(b) the order under clause (b) of subsection (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be."
[18] In exercise of powers under Section 239 read with sections 7,8,9 and 10 of the Insolvency and Bankruptcy Code, 2016, Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 ('the Rules' for short) are framed. Relevant rules for this petition is Rule 4, which deals with the application by financial creditor. Rule 4 of the said Rules reads as under : "4(1) A financial creditor, either by itself or jointly, shall make an application for initiating the corporate insolvency resolution process against a corporate debtor under Section 7 Page 14 of 26 C/SCA/19808/2017 CAV JUDGMENT of the Code in Form 1, accompanied with documents and records required therein and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
(2) Where the applicant under subrule (1) is an assignee or transferee of a financial contract, the application shall be accompanied with a copy of the assignment or transfer agreement and other relevant documentation to demonstrate the assignment or transfer.
(3) The applicant shall dispatch forthwith, a copy of the application filed with the Adjudicating Authority, by registered post or speed post to the registered office of the corporate debtor.
(4) In case the application is made jointly by financial creditors, they may nominate one amongst them to act on their behalf."
[19] From reading of above said provisions under Section 5(7) read with section 7 of the Code, 2016 and Rule 4 of the Rules referred above, it is clear that a person to whom debt has been legally assigned or transferred to, is also a financial creditor and he is entitled to initiate corporate insolvency resolution process. Such process can be initiated by making an application in Form 1 by enclosing documents required in the regulations and where the applicant is an assignee or transferee of a financial contract, the application shall be accompanied with a copy of assignment or transfer agreement and other relevant documentation to Page 15 of 26 C/SCA/19808/2017 CAV JUDGMENT demonstrate the assignment or transfer. From the material placed on record, it is clear that at the first instance, the State Bank of India has filed application under RDDB Act, 1993 before the DRT, Ahmedabad, in which, 2nd respondent - Trust has come on record as applicant pursuant to assignment deed dated 28.03.2014 executed by State Bank of India. In the aforesaid applications being O.A. Nos.154 and 180 of 2012, which are pending before the DRT, Ahmedabad, the petitioner has raised preliminary objections. On such objections, the Tribunal in the order dated 10.06.2016 has held that security documents are not properly stamped, as such, said documents are not permissible in evidence and lost its enforceability. Further, the Tribunal has held that assignment of debt is permitted in favour of the Bank and in favour of an Asset Reconstruction Company only but not in favour of a Trust. It is held that in the present case, by assignment agreement, the State Bank of India has assigned the debts and securities in favour of an Asset Reconstruction Company i.e. ARCIL acting in the capacity as trustee of ARCIL AST IV Trust. Therefore, it is held that agreement is not enforceable in the eyes of law. It is further held that as per provisions of sections 2(d), 2(h), 17 and 19 of the RDDB Act, they do not permit a Trust to file Original Application before Tribunal for recovery of its dues. The Tribunal has also recorded a finding that assignment agreement was executed on 28.03.2014 and same is registered on 24.07.2014 and Page 16 of 26 C/SCA/19808/2017 CAV JUDGMENT letters of authority which are issued by the assignor are dated 23.07.2014. As such, it was held by the Tribunal that the day on which the assignment agreement was executed, the concerned persons had no authority to execute the same. In view of such findings, the Tribunal has held that agreement favouring a trust is neither a valid document nor the transfer is valid one.
[20] When such order passed by the Tribunal in the aforesaid Original Applications were challenged by the 2nd respondent before this Court, this Court has allowed the petitions mainly on the ground that such aspects can be considered after trial, at the stage of disposal but not as preliminary issue. Para 7.11. 712 and 8 of the order dated 18.10.2016 passed by Division Bench of this Court in Special Civil Application No.10621 of 2016 and 10622 of 2016 reads as under : "[7.11] Under the circumstances, more particularly, when there are serious contentious issues with respect to locus of ARCIL to maintain / continue to maintain the suit before the learned Tribunal for recovery of the dues under the Assignment Agreement dated 28.03.2014 visavis under the Securitization Act as well as RDDB Act, we are of the opinion that the learned Tribunal has materially erred in dismissing the original applications on the aforesaid ground and that too at this stage and the learned Tribunal ought to have permitted the parties to raise the aforesaid issues at appropriate stage of Page 17 of 26 C/SCA/19808/2017 CAV JUDGMENT trial and the learned Tribunal ought to have considered the aforesaid issues at appropriate stage but not at this stage and ought not to have dismissed the applications at the threshold. Therefore, we are of the opinion that the impugned orders passed by the learned Tribunal dismissing the original applications on the aforesaid ground at this stage cannot be sustained and the same deserves to be quashed and set aside. [7.12] Now, so far as the submission on behalf of the respondents herein - original defendants that as the petitioners have alternative statutory remedy available by way of preferring appeal before the Debts Recovery Appellate Tribunal and therefore, the present petitions may not be entertained is concerned, as observed hereinabove, after hearing the learned Counsel appearing for respective parties more particularly learned Counsel appearing for the respective respondents, who are on caveat, this Court issued the notice for final disposal. Therefore, thereafter, the petitions cannot be dismissed on the ground of availability of alternative remedy of appeal before the learned Debts Recovery Appellate Tribunal. Apart from the above, as observed hereinabove, the impugned orders passed by the learned Tribunal are found to be wholly without jurisdiction more particularly dismissing the original applications on the ground that the loan documents and the Assignment Deed are insufficiently stamped and therefore, not admissible in evidence and also so far as the directions issued to the Registry as well as the Collector of Stamps and Chief Controlling Revenue Authority. Under the circumstances, we are of the opinion that this is a fit case to exercise powers under Articles 226/227 of the Page 18 of 26 C/SCA/19808/2017 CAV JUDGMENT Constitution of India and the present petitions are not required to be dismissed on the ground of availability of alternative statutory remedy by way of appeal before the learned Debts Recovery Appellate Tribunal more particularly when the issues involved in the petitions are questions of law, which are referred to hereinabove.
[8.0] In view of the above and for the reasons stated above, both these Special Civil Applications succeed. Impugned judgment and order dated 10.06.2016 passed by the learned Debts Recovery Tribunal - I, Ahmedabad in Original Application No.154/2012 and 180/2012 are hereby quashed and set aside and the respective original applications are ordered to be restored on the file of the learned Tribunal and the learned Tribunal to decide and dispose of the respective original applications in accordance with law and on merits and at the earliest. However, it is observed and made clear that all the contentions / defences which may be available to the respective parties are kept open, to be considered by the learned Tribunal in accordance with law and on merits. Rule is made absolute to the aforesaid extent in each of the petitions. In the facts and circumstances of the case, there shall be no order as to costs."
[21] When the above order is questioned by the petitioner before the Hon'ble Supreme Court, the Hon'ble Supreme Court has not interfered with the order of this Court in view of findings recorded by this Court in para 8 of the order dated 18.10.2016, in which this Court has kept open such contentious issues to be considered during the course Page 19 of 26 C/SCA/19808/2017 CAV JUDGMENT of trial.
[22] Mainly, it is the case of the petitioner that there is serious dispute on the claim made by 2nd respondent. It is submitted that there is counter claim made by the petitioner claiming an amount of Rs.90 Crores, which is pending before the DRT. It is the case of the petitioner that in absence of any opportunity to the petitioner, the 3rd respondent - Tribunal cannot adjudicate on the validity of assignment deed, power of authority of assignor and existence of dispute and as such, the petition filed by 2nd respondent cannot be entertained, but from the perusal of the provision under Section 5(7) - financial creditor and scheme as contemplated under section 7 of the Code, 2016 read with Rule 4 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, we are of the view that it is premature to entertain such plea at this stage. 3rd respondent - Tribunal is required to follow mandate of law and examine the petitions and relevant documents which are filed along with the petitions, more so when application is filed by assignee of debt, as financial creditor. [23] Further, it is clear from the material placed on record along with IA No.1 of 2018 in this petition, that the Tribunal by order dated 26.02.2018 has invited objections from the petitioner on the application filed. In view of such opportunity given, if there is any objection with Page 20 of 26 C/SCA/19808/2017 CAV JUDGMENT regard to validity of assignment deed and transfer of debt in favour of 2nd respondent by the State Bank of India, it is always open to raise such objection by enclosing necessary documents, in which event, it is obligatory on the part of 3rd respondent Tribunal to examine such documents before taking further steps in accordance with the Code of 2016. In view of such opportunity provided, it cannot be said that Tribunal has no authority to look into such objections at all. When the application is filed by 2nd respondent as financial creditor, as a assignee of debt, it is clear from the definition of financial creditor that such debt must be legally assigned or transferred to and unless it is held that debt has been legally assigned or transferred to, 2nd respondent will not fit into claim of financial creditor as defined under section 5(7) of the Code, 2016. Further, it is clear from Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 that where the application of the financial creditor is under subrule (1) of Rule 4, the application shall be accompanied with a copy of the assignment or transfer agreement and other relevant documentation to demonstrate the assignment or transfer in favour of the applicant. In view of such Rule and provision under Section 7(5) of the Code, 2016, it is for the adjudicating authority to satisfy on legality and validity of transfer of debt by way of assignment deed in favour of the 2nd respondent, so as to come to the conclusion that default has occurred Page 21 of 26 C/SCA/19808/2017 CAV JUDGMENT before ordering admission of the application. In the case on hand, it is to be noted that when 2nd respondent has come on record as assignee of financial creditor i.e. State Bank of India, the petitioner has raised preliminary objection questioning validity of transfer of debt by way of assignment in favour of 2nd respondent, which is upheld by the Tribunal, but same is set aside by this Court mainly by observing that such contentious issues can be gone into at appropriate stage of trial, but not before. On the aforesaid grounds, the petitions were allowed and the matter was carried to the Hon'ble Supreme Court, even Hon'ble Supreme Court has observed that in view of observations made by this Court in para 8 of the common judgment dated 18.10.2016 passed by this Court, order is not interfered with. Having regard to objections raised, if opportunity is not given to the corporate debtor to raise objections with supporting documents, before admitting petitions, it will run contrary to the object and scheme under Section 7(4) and 7(5) of the Code, 2016. [24] Under the scheme of Insolvency and Bankruptcy Code, 2016, when the Adjudicating Authority receives application under Section 7 of the Code, 2016, for initiation of corporate insolvency resolution process by financial creditor, the Adjudicating Authority is required to ascertain the existence of a default from the records of information utility or on the basis of other evidence furnished by the financial creditor under subsection 4 of the Code, 2016. Only thereafter, Page 22 of 26 C/SCA/19808/2017 CAV JUDGMENT when the Adjudicating Authority is satisfied that default has occurred, and application made under subsection (2) is complete, it may, by order, admit such application. When the application is filed by the financial creditor as a assignee or transferee of the financial contract, the application is required to be accompanied with the copy of assignment or transfer agreement and other relevant documentation to demonstrate the assignment or transfer. Same is clear from Rule 2 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. A cumulative reading of Section 7 (4) and (5) of the Code, 2016 coupled with Rule 4 of the Rules referred above, it is clear that when transfer or assignment of debt is objected to, it is obligatory on the part of the Adjudicating Authority to deal with such objections before recording existence of default and satisfaction as contemplated under Section 7(5) of the Code, 2016. Statutory requirement of ascertainment of default brings within its wake the extension of a reasonable opportunity to the corporate debtor to substantiate by document or otherwise, to demonstrate that there is neither valid assignment of debt nor existence of default to the applicant. It is also clear from the Rules, where the application is by assignee or transferee of a financial contract, the applicant shall dispatch forthwith, a copy of the application filed with the Adjudicating Authority, by registered post or speed post to the registered office of the corporate debtor. It is clear from such provision Page 23 of 26 C/SCA/19808/2017 CAV JUDGMENT that if the Corporate debtor is having any objection on such application, on receipt of copy of the application by him, he can put forth his objection either on the validity of transfer or to show that there is no existence of default.
[25] Learned Senior Counsel Shri Kamal Trivedi appearing for the petitioner has relied judgment of the Hon'ble Supreme Court in the case of Allahabad Bank v/s. Canara Bank (supra). In the aforesaid judgment, the Hon'ble Supreme Court has considered jurisdiction of DRT and Recovery Officer visavis provisions of powers of Company Court, when winding up petition is pending. While examining the aforesaid aspect, the Hon'ble Supreme Court has held that in case of conflict between two special laws, by applying maxim of Generalia specialibus non derogant, later Act ie. RDDB, 1993 will prevail. In the aforesaid judgment, it is held that jurisdiction of the Tribunal with regard to adjudication is exclusive. The RDDB Act, 1993 requires the Tribunal alone to decide the applications for recovery of debts due to banks or financial institutions.
[26] Learned Counsel appearing for the petitioner has also on the judgment of the Hon'ble Supreme Court in the case of KSL and Industries Limited v/s. Arihant Threads Limited and Ors.(supra) wherein, the Hon'ble Supreme Court has considered provisions of non Page 24 of 26 C/SCA/19808/2017 CAV JUDGMENT obstante clause as contemplated under Section 32 of SICA Act, 1985 vis avis non obstante clause under Section 34(1) of RDDB Act, 1993. In the aforesaid judgment, having regard to intention of legislation, the Hon'ble Supreme Court has held that non obstante clause in SICA Act shall prevail over the provisions of RDDB Act, 1993, though RDDB Act is later enactment.
[27] Further in the case of Innoventive Industries Limited v/s. ICICI Bank and Anr. (supra), in para 28, the Hon'ble Supreme Court has held that at the stage of section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the 'debt' which may also include a disputed claim, is not due. Therefore, in that view of the matter, it is always open for the corporate debtor to point out to the adjudicating authority that default has not occurred to the respondent applicant, in absence of any valid assignment of debt as defined under section 5(7) of the Code, 2016. [28] In the case of Sree Metaliks Limited v/s. Union of India (supra), the learned Single Judge of Calcutta High Court has also held that to examine the existence of default and at the stage of section 7(4) of the Code, 2016, opportunity is to be given to the corporate debtor. Page 25 of 26 C/SCA/19808/2017 CAV JUDGMENT [29] In view of the order passed by the Hon'ble Supreme Court, we decline to entertain these petitions to examine the validity of the provisions of Insolvency and Bankruptcy Code, 2016 and constitution of NCLT. However, having regard to the peculiar circumstances of the case, keeping in mind the earlier orders passed by this Court and the Hon'ble Supreme Court, we deem it appropriate to dispose of both these Special Civil Applications, by directing the 3rd respondent - Tribunal to consider the objections of the petitioners viz., that there is no legal and valid assignment or transfer of debt in favour of 2nd respondent, so as to fit into the definition of financial creditor within the meaning of section 5(7) of the Code, 2016, before passing appropriate orders for admission and further orders on the application filed by the 2nd respondent. [30] With the above directions, both the petitions are disposed of. Civil Application also stands disposed of.
(R.SUBHASH REDDY, CJ) (VIPUL M. PANCHOLI, J) SATISH Page 26 of 26