1. Operational creditor — Application for initiation of CIRP under Section 9, IBC — Default occurring after March 25, 2020 — Application filed before insertion of Section 10A. (Para 1 , 3 , 4 , 5 , 6 , 7 , 8 , 9 )
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2021 Supreme(SC) 59
SUPREME COURT OF INDIA
DHANANJAYA Y. CHANDRACHUD, M.R. SHAH, JJ.
RAMESH KYMAL – APPELLANT
VERSUS
M/S SIEMENS GAMESA RENEWABLE POWER PVT LTD. – RESPONDENT
Civil Appeal No. 4050 of 2020
Decided on : 09-02-2021
Important Points
IMPORTANT POINTS
(1) Language of provision is not always decisive to arrive at a determination whether provision if applicable prospectively or retrospectively.
(2) Retrospective bar on filing of applications for commencement of CIRP during stipulated period does not extinguish debt owed by corporate debtor or right of creditors to recover it.
(1) Language of provision is not always decisive to arrive at a determination whether provision if applicable prospectively or retrospectively.
(2) Retrospective bar on filing of applications for commencement of CIRP during stipulated period does not extinguish debt owed by corporate debtor or right of creditors to recover it.
Subject
Insolvency and Bankruptcy - Corporate Insolvency Resolution Process (CIRP)
Act Referred
Headnote
Insolvency and Bankruptcy Code, 2016 – Section 10A – Suspension of initiation of corporate insolvency resolution process – Language of provision is not always decisive to arrive at a determination whether provision if applicable prospectively or retrospectively – Correct interpretation of Section 10A cannot be merely based on language of provision; rather it must take into account object of Ordinance and extraordinary circumstances in which it was promulgated – However, retrospective bar on filing of applications for commencement of CIRP during stipulated period does not extinguish debt owed by corporate debtor or right of creditors to recover it – Section 10A does not contain any requirement that Adjudicating Authority must launch into an enquiry into whether, and if so to what extent, financial health of corporate debtor was affected by onset of Covid-19 pandemic – Embargo contained in Section 10A must receive a purposive construction which will advance object which was sought to be achieved by enacting the provision – Date of initiation of CIRP is date on which a financial creditor, operational creditor or corporate applicant makes an application to adjudicating authority for initiating process – On other hand, insolvency commencement date is date of admission of application – View been taken by NCLAT upheld. (Paras 22, 24, 25, 26 and 27)
Facts of the case:
Appellate jurisdiction of this Court under Section 62 of Insolvency and Bankruptcy Code, 2016 (IBC) has been invoked to challenge the judgement and order of the National Company Law Appellate Tribunal (NCLAT or Appellate Tribunal) dated 19 October 2020. The NCLAT affirmed the decision of the National Company Law Tribunal (NCLT or Adjudication Authority) dated 9 July 2020, holding that in view of the provisions of Section 10A, which have been inserted by Act 17 of 2020 (Amending Act) with retrospective effect from 5 June 2020, application filed by the appellant as an operational creditor under Section 9 was not maintainable. Issue which falls for determination in this appeal is whether the provisions of Section 10A stand attracted to an application under Section 9 which was filed before 5 June 2020 (the date on which the provision came into force) in respect of a default which has occurred after 25 March 2020.
Findings of Court:
Parliament intended to impose a bar on the filing of applications for the commencement of the CIRP in respect of a corporate debtor for a default occurring on or after 25 March 2020; the embargo remaining in force for a period of six months, extendable to one year. Acceptance of the submission of the appellant would defeat the very purpose and object underlying the insertion of Section 10A. For, it would leave a whole class of corporate debtors where the default has occurred on or after 25 March 2020 outside the pale of protection because the application was filed before 5 June 2020.
Result : Appeal dismissed.
Legal Category Hierarchy
Advocates Appeared:
For the Appellant(s) :Goutham Shivshankar, Advocate
For the Respondent(s):Samudra Sarangi, Azmat Hayat Amanullah, Shruti Raina, Srishti Khare, Advocates
For the Appellant(s) :Goutham Shivshankar, Advocate
For the Respondent(s):Samudra Sarangi, Azmat Hayat Amanullah, Shruti Raina, Srishti Khare, Advocates
Table of Contents
2. Whether Section 10A bars applications filed before its insertion date for defaults occurring after March 25, 2020, or applies only to applications filed after June 5, 2020. (Para 11 , 12 , 13 )
3. Purposive construction of Section 10A — Intent to protect corporate debtors from pandemic-induced distress — Non-obstante clause overriding Sections 7, 9, and 10. (Para 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 )
4. Section 10A bars the initiation of CIRP for defaults occurring on or after March 25, 2020, applying retrospectively to applications filed before the provision's insertion date. (Para 23 , 26 )
5. Appeal dismissed — Decision of NCLAT affirmed. (Para 27 , 28 )
6. Does Section 10A apply to applications filed before its insertion date?
Yes. The court held that Section 10A bars the initiation of CIRP for any default occurring on or after March 25, 2020, regardless of whether the application was filed before the provision came into force on June 5, 2020. (Para 20 , 23 , 26 )
7. How should the phrase shall be filed in Section 10A be interpreted?
It must be interpreted purposively rather than literally. The legislative intent was to protect corporate debtors from pandemic-related financial distress, meaning the bar applies to any application for defaults occurring after the cut-off date. (Para 20 , 23 , 24 )
8. What is the difference between initiation date and insolvency commencement date under the IBC?
The initiation date is the date on which a creditor or corporate applicant makes an application to the Adjudicating Authority. The insolvency commencement date is the date on which the Adjudicating Authority admits that application. (Para 17 , 18 , 19 , 26 )
9. Does the bar under Section 10A extinguish the underlying debt owed by the corporate debtor?
No. The retrospective bar on filing 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. (Para 24 )
JUDGMENT :
Dr. Dhananjaya Y. Chandrachud, J
1. The appellate jurisdiction of this Court under Section 62 of the Insolvency and Bankruptcy Code, 2016 (“IBC” ) has been invoked to challenge the judgment and order of the National Company Law Appellate Tribunal (“NCLAT” or “Appellate Tribunal”) dated 19 October 2020. The NCLAT affirmed the decision of the National Company Law Tribunal (“NCLT” or “Adjudication Authority”) dated 9 July 2020, holding that in view of the provisions of Section 10A, which have been inserted by Act 17 of 2020 (the “Amending Act”) with retrospective effect from 5 June 2020, the application filed by the appellant as an operational creditor under Section 9 was not maintainable.
2. Some of the salient facts set out in the appeal are being adverted to in order to indicate the broad contours of the controversy. The issue involved raises a question of law. Hence, while setting out the facts as set up in the appeal, we need to clarify that the factual dispute has not arisen for adjudication.
3. The appellant claims that a sum of INR 104,11,76,479 is due and payable to him pursuant to his resignation “from all capacities held by him in the respondent in accordance with the various Employment Agreements/Incentive Agreements” entered into by him with the respondent during his tenure as Chairman and Managing Director. The appellant entered into an Employment Agreement with the respondent on 16 July 2009. Another Employment Agreement was entered into on 16 December 2013, effective from 1 January 2014, which superseded the previous agreement. The Employment Agreement dated 16 December 2013 was coupled with an Incentive Agreement signed on the same date. The Incentive Agreement is stated to have been amended and restated on 17 April 2015, along with a further amendment through a Side Letter dated 20 April 2015. Further, the new Employment Agreement was amended through a Letter Amendment No. 1 dated 17 April 2015.
4. On 21 January 2020, the appellant submitted his resignation to the respondent and its parent entity, detailing the entitlements which he claimed under the Employment and Incentive Agreements. On 28 January 2020, the respondent acknowledged receipt of the letter of resignation and requested the appellant to continue in employment beyond the 60 days’ notice period stipulated in the Employment Agreement. According to the appellant, he agreed to continue to provide his services to the respondent till 30 April 2020. There was an exchange of communications between the parties and, according to the appellant, by an email dated 27 March 2020, the respondent confirmed the payments which were due and payable to him under the letter of resignation (except for point 12). The appellant is stated to have addressed a final reminder by an email dated 27 April 2020, three days prior to the extended notice period came to an end.
5. On 28 April 2020, a termination letter was addressed to the appellant. The appellant issued a demand notice on 30 April 2020 in Form 3 of the IBC. The demand notice specified that the date of default was 30 April 2020.
6. On 11 May 2020, the appellant filed an application1[IBA/215/2020] 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, 2[Ordinance 9 of 2020 (the “Ordinance”)] was promulgated by the President of India on 5 June 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 corpor
