Bombay High Court
Bank Of Baroda vs Union Of India Through The Ministry Of ... on 3 May, 2024
Author: B. P. Colabawalla
Bench: B. P. Colabawalla
2024:BHC-OS:7337-DB
16 WPL 34152-23.doc
LAXMI
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
SUBHASH
SONTAKKE ORDINARY ORIGINAL CIVIL JURISDICTION
Digitally signed by
LAXMI SUBHASH
SONTAKKE
Date: 2024.05.07
WRIT PETITION (L) NO. 34152 OF 2023
15:59:20 +0530
Bank of Baroda .. Petitioner
Versus
Union of India
through the Ministry of Corporate Affairs & Anr. .. Respondents
Adv. Cyrus Ardeshir a/w Archit Virmani, Atul Gupta & Anshul
Kochar for the Petitioner.
Adv. Ashish Mehta a/w Himanshu Shiny i/b. Ethos Legal Alliance
for Respondent Nos. 1 and 2.
Mr. R. S. Sonawane, Dy. Registrar, NCLT, Mumbai is present.
CORAM: B. P. COLABAWALLA &
SOMASEKHAR SUNDARESAN, JJ.
DATE: MAY 03, 2024
P. C.
1. By the present Writ Petition, the Petitioner is seeking appropriate orders to be passed directing Respondent No.2 (Ld. Registrar, NCLT, Mumbai) to comply with provisions of Rule 28 of the National Company Law Tribunal Rules, 2016 ("NCLT Rules") and ensure timely registration, numbering and disposal of applications filed under Section 94 and Section 95 of Insolvency and Bankruptcy Code, 2016 ("IBC"). These reliefs are sought on the Page 1 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc basis that Section 96(1) of the IBC provides for an interim moratorium to be initiated upon filing of an application under Section 94 or Section 95 of the IBC and in order to uphold the essence of the provisions, including the timelines provided, it is the duty of the Respondents to ensure that proper procedure is in place and rules pertaining to filing, refiling, registration and numbering be complied with. The Petitioner has highlighted the extreme delay in compliance with objections and further delay in declining of matters for non-compliance by the Respondent No.2 which has resulted in the interim moratorium continuing against the personal guarantors for an extremely unreasonable period of time. This, in turn, hampers recovery proceedings for the Banks and Financial Institutions such as the Petitioner.
2. Before referring to the submissions made by the Petitioner and the Respondents, it would be appropriate to set out facts in brief which form the basis of the present Petition:
3. The Petitioner is the Bank of Baroda and is a bank within the meaning of section 2(1) (c) & (d) of the Securitization Page 2 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act"). The Petitioner has claimed that there are several matters pending before the Hon'ble NCLT under Section 94 and Section 95 of the IBC which are at the lodging number stage for an unreasonable amount of time, and due to the interim moratorium, the Petitioner is unable to enforce its rights under SARFAESI Act. The Petitioner has accordingly narrated the facts pertaining to some of its accounts. The details of the same are mentioned below:
Account of Jayesh R Shah and Nilesh R Shah a. Mr. Jayesh R Shah ("Mr. J Shah"), Mr. Nilesh R Shah ("Mr. N Shah"), along with Mr. Vatsal Jayesh Shah, Mr. Zenil Jayesh Shah, Mrs. Neeta N Shah, Mrs. Paru J Shah and Rasiklal Sankalchand Jewellers Pvt. Ltd. approached the Petitioner for grant of loan facilities as co-borrowers. The Petitioner sanctioned and granted a home loan being Baroda Home Loan of INR 7,18,00,000/- (Rupees Seven Crore and Eighteen Lacs) on 3rd January 2019. As security for the Home Loan, the property being Flat No. 502, 5th Floor, I wing, Page 3 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc Kukreja Palace, Ghatkopar, Taluka Kurla, Mumbai ("Mortgaged Property") was mortgaged with the Petitioner.
b. The Petitioner, vide subsequent sanction, granted further facilities being top up loan of INR 2,11,00,000/- (Rupees Two Crores Eleven Lacs) and Personal Suvidha Loan of INR 22,00,000/- (Rupees Twenty-Two Lacs). c. The total loan facilities granted by the Petitioner was INR 9,51,00,000/- (Rupees Nine Crores Fifty One Lacs). d. Due to the defaults committed by the borrowers, the loan account of the Borrowers was classified as NPA on 30 th November 2019 by the Petitioner.
e. The Petitioner thereafter initiated proceedings under the SARFAESI Act and the rules framed thereunder. The Petitioner also obtained an order under Section 14 of the SARFAESI Act before the Ld. Additional Chief Metropolitan Magistrate, 3rd Court, Esplanade, Mumbai ("Ld. ACMM") on 10th August 2022 to obtain/get physical possession of inter Page 4 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc alia the Mortgaged Property.
f. The Petitioner, in accordance with applicable laws and procedure, issued a sale notice being e-auction notice dated 24th February 2023 for conducting sale by auction of the Mortgaged Property which was scheduled for 29th March 2023.
g. Pursuant to the Section 14 Order, the Petitioner continued to pursue its rights under the SARFAESI Act, and dates were scheduled for taking of physical possession of the Mortgaged Property. The Petitioner took physical possession of the Mortgaged Property on 17th March 2023. h. While the sale pursuant to notice issued on 24 th February 2023 was to be conducted, the Petitioner received a communication dated 27th March 2023 from the advocates of the Mr. J Shah and Mr. N Shah. Vide the said notice, it was claimed that they have filed a personal insolvency application under Section 94 of the IBC on 18th March 2023. The application under Section 94 filed by Mr. J Shah has Filing Page 5 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc Number 2709138023972023 and the application under Section 94 filed by Mr. N Shah has Filing Number 2709138023982023 ("collectively referred to as "Section 94 Applications").
i. It was further stated that an interim moratorium has commenced with effect from 18th March 2023. j. As a result of the interim moratorium, there has been a stay against the Petitioner from proceeding with its action and measures under SARFAESI Act.
k. From a perusal of the Section 94 Applications and the status of the same on the official website of the Hon'ble NCLT as on the date of filing of the present writ petition, it was submitted that the Section 94 Applications have been pending on efiling number since 18.03.2023 and objections were raised on 21.04.2023 which were not removed till the date of filing of the present Petition. Therefore, the interim moratorium was applicable against Mr. J Shah and Mr. N Shah for a period of 265 days and the proceedings under Section 94 did not even Page 6 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc commence on such date as the Section 94 Applications were not numbered/registered.
l. Similarly, the Petitioner has brought on record facts pertaining to another account of Mr. S.B Shah where a Section 95 Application was filed and the interim moratorium has been running for a period of 64 days from the date of e- filing and the objections in the same were not complied with by the applicants therein till the date of filing of the present Petition.
m. The Petitioner submitted that the above-mentioned issue is not limited to these three accounts but is being faced by several financial institutions/secured creditors and enforcement measures are being stalled by borrowers and guarantors misusing the provisions of Section 94 and Section
95. According to the Petitioner the provisions of Section 94 & 95 of the IBC are a tool in the hands of unscrupulous borrowers/mortgagors, who file applications under Section 94 and/or 95 of the IBC, and thereafter not remove the office Page 7 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc objections and enjoy the interim moratorium.
4. In light of the aforementioned facts, the Petitioner has submitted that:
a. Several of the applications including the Section 94 and Section 95 Applications mentioned hereinabove are on filing number and no effort has been made by the defaulters to register and number the applications or have the same listed and heard.
b. The manner in which the applications have been filed and proceedings conducted, has led to defeating of procedures and timelines prescribed under the provisions of the IBC which are applicable to insolvency of personal guarantors. It is submitted that the delay is impacting the scheme of the provisions under the IBC. c. It is the contention of the Petitioner that the defaulters (borrowers or personal guarantors), with respect to the facilities granted by the secured creditors/financial institutions are seeking to take undue advantage of the Page 8 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc interim moratorium to defeat the rights of the secured creditors such as the Petitioner.
d. It is submitted that the legislative intent which is discernible from the provisions and the scheme of the IBC is that the interim moratorium under Section 96 should be for a limited duration.
e. It is submitted that Section 96(1) of IBC provides for interim moratorium to be initiated upon filing of the application under Section 94 or Section 95 of IBC. In order to uphold the essence of the provisions, including the timelines provided, it is the duty of the Respondents to ensure that proper procedures are in place and rules pertaining to filing and refiling are enforced. It is essential for the Respondents to comply with the existing rules and avoid a situation where the provisions are being misused by a section of individuals. f. It is submitted that the failure of the Respondents to enforce the filing procedure and rules and failure to ensure that timelines are adhered to, has resulted in failure to uphold Page 9 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc the essence of the timelines mentioned under the IBC and the interim moratorium (which bars the creditors from initiating any legal action or proceeding in respect of any debt during the interim moratorium).
g. It is submitted that Respondent No.2 ought to take timely action against the failure of the Applicants filing Section 94 and Section 95 Applications in complying with objections and not diligently pursuing the case. It is submitted that substantial time has passed since filing of applications but no action under Rule 28 of the NCLT Rules have been initiated by the Respondent No.2. Similar notices issued by the NCLT Ahmedabad were brought on record indicating compliance with Rule 28 being done by other benches of the NCLT.
h. It is further submitted that the intention of the legislature is not to provide an indefinite interim moratorium to the defaulters and defeat the rights of the financial institutions/secured creditors.
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5. Notice was issued to Respondent No.1 and Respondent No.2. Directions were issued for filing of a reply to bring on record the statistics pertaining to the number of applications filed, details of timelines for which such applications have been pending and Respondent No.2's compliance with the timelines under Rule 28 of NCLT Rules. Respondent No.2 has filed its reply and addressed the issues including shortage of staff. Respondent No.2 has also stated that Rule 28 is being complied with, however, due to the volume of matters being filed, timely compliance of the same has not been possible.
6. Before proceeding further, we would like to state the relevant provisions:
7. The relevant provisions of the IBC are reproduced herein below:
"Section 94: Application by debtor to initiate insolvency resolution process.
(1) A debtor who commits a default may apply, either personally or through a resolution professional, to the Page 11 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc Adjudicating Authority for initiating the insolvency resolution process, by submitting an application.
(2) Where the debtor is a partner of a firm, such debtor shall not apply under this Chapter to the Adjudicating Authority in respect of the firm unless all or a majority of the partners of the firm file the application jointly. (3) An application under sub-section (1) shall be submitted only in respect of debts which are not excluded debts.
(4) A debtor shall not be entitled to make an application under sub-section (1) if he is--
(a) an undischarged bankrupt;
(b) undergoing a fresh start process;
(c) undergoing an insolvency resolution process; or
(d) undergoing a bankruptcy process.
(5) A debtor shall not be eligible to apply under sub- section (1) if an application under this Chapter has been admitted in respect of the debtor during the period of twelve months preceding the date of submission of the application under this section. (6) The application referred to in sub-section (1) shall be in such form and manner and accompanied with such fee as may be prescribed."
"Section 95: Application by creditor to initiate insolvency resolution process.
(1) A creditor may apply either by himself, or jointly with other creditors, or through a resolution professional to the Adjudicating Authority for initiating an insolvency resolution process under this section by submitting an application.
(2) A creditor may apply under sub-section (1) in relation to any partnership debt owed to him for initiating an insolvency resolution process against--
(a) any one or more partners of the firm; or
(b) the firm.Page 12 of 22
MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc (3) Where an application has been made against one partner in a firm, any other application against another partner in the same firm shall be presented in or transferred to the Adjudicating Authority in which the first mentioned application is pending for adjudication and such Adjudicating Authority may give such directions for consolidating the proceedings under the applications as it thinks just.
(4) An application under sub-section (1) shall be accompanied with details and documents relating to--
(a) the debts owed by the debtor to the creditor or creditors submitting the application for insolvency resolution process as on the date of application;
(b) the failure by the debtor to pay the debt within a period of fourteen days of the service of the notice of demand; and
(c) relevant evidence of such default or non-repayment of debt.
(5) The creditor shall also provide a copy of the application made under sub-section (1) to the debtor. (6) The application referred to in sub-section (1) shall be in such form and manner and accompanied by such fee as may be prescribed.
(7) The details and documents required to be submitted under sub-section (4) shall be such as may be specified."
"96. Interim Moratorium (1) When an application is filed under Section 94 or Section 95 -
(a) an interim moratorium shall commence on the date of the application in relation to all debts and shall cease to have effect on the date of admission of such application; and
(b) during the interim-moratorium period -
(i) any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed; and Page 13 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc
(ii) the creditors of the debtor shall not initiate any legal action of proceedings in respect of any debt."
8. It is also pertinent to reproduce Rule 28 of the NCLT Rules. The National Company Law Tribunal Rules, 2016 provide for rules and procedure for institution of proceedings, petition, appeals etc. Rule 28 provides for endorsement and scrutiny of petitions or appeals or documents. The relevant Rule is reproduced hereinbelow -
28. Endorsement and scrutiny of petition or appeal or document.- (1) The person in charge of the filing counter shall immediately on receipt of petition or appeal or application or document affix the date stamp of Tribunal thereon and also on the additional copies of the index and return the acknowledgement to the party and he shall also affix his initials on the stamp affixed on the first page of the copies and enter the particulars of all such documents in the register after daily filing and assign a diary number which shall be entered below the date stamp and thereafter cause it to be sent for scrutiny.
(2) If, on scrutiny, the appeal or petition or application or document is found to be defective, such document shall, after notice to the party, be returned for compliance and if there is a failure to comply within seven days from the date of return, the same shall be placed before the Registrar who may pass appropriate orders.
(3) The Registrar may for sufficient cause return the said document for rectification or amendment to the Page 14 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc party filing the same, and for this purpose may allow to the party concerned such reasonable time as he may consider necessary or extend the time for compliance. (4) Where the party fails to take any step for the removal of the defect within the time fixed for the same, the Registrar may, for reasons to be recorded in writing, decline to register the pleading or document.
9. Rule 28 provides that once a document has been filed by a party, and the registry has scrutinized the documents and objections notified for compliance, the party ought to comply within seven days from the date of return (notification of the objections). In the event there is a failure to comply within seven days, then the document shall be placed before the Registrar who may pass appropriate orders. The Registrar may grant extension of time for compliance at his discretion based on sufficient cause being established. Rule 28(4) clearly stipulates that when a party fails to take any step for removal of the defect within the time fixed for the same, the Registrar may, for reasons to be recorded in writing, decline to register the pleading or document. 10 The pendency of the applications under Section 94 and Section 95 indicate that the Rules are not being complied with in a Page 15 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc timely manner.
11. However, during the pendency of the present Writ Petition, the Respondent No.2 has actively taken steps under Rule 28 of the NCLT Rules. Details of the same are given below:
a. Notice issued under Rule 28 (2) dated 4 th December 2023 notifying a list of matters where the defects were to be removed within 7 days failing which suitable orders would be passed in accordance with Rule 28 (3). This notice was pertaining to matters pending between January 2023 and July 2023. b. Notice issued under Rule 28(3) dated 8th January 2024 stating that matters where objections are not removed till 15th January 2024 will be dealt with in accordance with Rule 28(3) and Rule 28(4). c. Notice issued under Rule 28(4) dated 20th February 2024 declining to register the matters where parties failed to comply according to the notices dated Page 16 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc 4th December 2023 and 8th January 2024. Vide this notice, the matters pending between January 2023 and July 2023 were dealt with. In this list, there were 57 applications pending under Section 95 of IBC and 12 applications pending under Section 94 of IBC.
d. Notice issued under Rule 28 (2) dated 28th February 2024 notifying a list of matters where the defects were to be removed within 7 days failing which suitable orders would be passed in accordance with Rule 28 (3). This notice was pertaining to matters pending between July 2023 and January 2024. e. Notice issued under Rule 28(3) dated 11th March 2024 stating that matters where objections are not removed till 15th January 2024 will be dealt with in accordance with Rule 28(3) and Rule 28(4). f. Notice issued under Rule 28(4) dated 3 rd April 2024 declining to register the matters where parties failed to comply according to the notices dated 28 th Page 17 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc February 2024 and 11th March 2024. Vide this notice, the matters pending between July 2023 and January 2024 were dealt with. In this list, there were 48 applications pending under Section 95 of IBC and 17 applications pending under Section 94 of IBC. g. Notice issued under Rule 28 (2) dated 22 nd April 2024 notifying a list of matters where the defects were to be removed within 7 days failing which suitable orders would be passed in accordance with Rule 28 (3). This notice was pertaining to matters pending between 1st January 2024 and 31st January 2024.
12. It is pertinent to note that the applications mentioned in the petition were also part of the list. The Section 94 Applications of Mr. N Shah and Mr. J Shah were declined to be registered after being pending on e-filing number for a period of 339 days. The Section 95 Applications against Mr. SB Shah was declined to be registered after being pending on e-filing number for a period of 181 days. This Page 18 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc indicates that the interim moratorium in these mentioned matters itself was lasting for the said period of time.
13. In order to address the issue pertaining to delay in compliance with Rule 28 of NCLT Rules, and to ensure that the scheme of the provisions pertaining to personal guarantors is not defeated by an extended interim moratorium, to streamline the procedure and to ensure expeditious listing of the matters before the Tribunal, the following timelines and process are being laid down to be applicable for proceedings filed under Section 94 and Section 95 of the IBC:
a. Respondent No.2 will notify the objections in accordance with Rule 28 (2) within a period of 7 days from filing of the Section 94 or Section 95 Applications; b. Respondent No.2 will issue a notice under Rule 28(2) on a monthly basis notifying the matters where the objection has not been removed within the period of 7 days as provided by the Respondent No.2; Page 19 of 22
MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc c. Within a period of 15 days from the issuance of the notice mentioned in clause (b) above, Respondent No.2 will issue a notice under Rule 28(3) and Rule 28 (4) stating that matters where compliance is not carried out will be proceeded to be dealt with in accordance with Rule 28(4). The timeframe given for compliance in this notice will be 30 days from the date of notice. On the expiry of such period of 30 days, Respondent No.2 shall within a period of 7 days issue a notice under Rule 28(4) declining to register the matters where compliance has not been carried out. Within the said period of 7 days the online status must be immediately updated to 'dismissed as declined to register'. d. Where the Applicant purported to comply with the objections notified and refiles the application, Respondent No.2 shall scrutinize the said purported compliance within a period of 7 days from such refiling of the application. It is made clear that the if the applicant has not complied, then Respondent No.2 shall within a period of 7 days issue a Page 20 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 ::: 16 WPL 34152-23.doc notice under Rule 28(4) declining to register the application.
14. The abovementioned timelines and procedure are being laid down after hearing the Respondents at great length. These timelines shall be adhered to.
15. In addition to the above, considering that interim moratorium commences on e-filing of the applications, i.e., uploading of the document prior to any scrutiny, there is a possibility that parties who have had their applications declined due to failure to comply with the notices and timelines issued by Respondent No.2, proceed to e-file their applications again. In such cases, the aggrieved persons have a remedy under Rule 63 of the NCLT Rules to prefer an appeal within the period stipulated. Any application which had earlier been dismissed and is refiled without resorting to the due process under law, ought not to be considered valid and shall not be considered as 'filed' for the purposes of Section 96 of the IBC. The same shall be ignored and no cognizance shall be taken of the same. Page 21 of 22
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16. The present petition is disposed of in the aforesaid terms.However, there shall be no order as to costs. 17 This order will be digitally signed by the Private Secretary/ Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order. [SOMASEKHAR SUNDARESAN,J.] [B. P. COLABAWALLA, J.] Page 22 of 22 MAY 03, 2024 Laxmi ::: Uploaded on - 07/05/2024 ::: Downloaded on - 16/05/2024 08:54:04 :::