Insolvency & BankruptcyNational Company Law Tribunal & NCLATProspective Application of enhanced IBC threshold for CIRP

NATIONAL COMPANY LAW TRIBUNAL

CHENNAI BENCH

M/s Arrowline Organic Products Pvt. Ltd. v. M/s Rockwell Industries Limited

IA/341/2020 in IBA/1031/2019 | Date: 02.06.2020

FACTS 

M/s Rockwell Industries Limited (hereinafter referred as the Respondent/ Operational Creditor) filed an application for initiation of Corporate Insolvency Resolution Process (hereinafter refereed as CIRP) under Section 9 of the Insolvency & Bankruptcy Code, 2016 (I&B Code) against M/s Arrowline Organic Products Pvt. Ltd. (hereinafter referred as the Applicant/Corporate Debtor) and an order of admission was passed by the Adjudicating Authority dated 05.05.2020. 

However, a notification was issued by the Central Government under Section 4 of the Code wherein the minimum threshold limit has been increased to Rs.  1 Crore from Rs. 1 Lakh for maintaining the petition before the Tribunal.

Therefore, in effect to the same, the Applicant filed the present application before the Tribunal to recall the order dated 05.05.2020 under Section 420 of the Companies Act, 2013 and Rule 11 of the NCLT Rules, 2016.

The present application has been filed for the invocation of the inherent powers of the Tribunal since the amount of claim as made by the Respondent seeking for initiation of CIRP falls below the threshold limit of Rs. 1 Crore and as per the Applicant’s position the said notification will have a retrospective application.

ISSUES BEFORE THE TRIBUNAL 

The following issues were considered by the Tribunal:

1. Whether the Tribunal has power to recall or review an order passed on merits?

2. Whether the notification issued by the Central Government through the Ministry of Corporate Affairs dated 24.03.2020 is applicable retrospectively?

OBSERVATIONS OF THE TRIBUNAL 

The Respondent placed reliance on the case of Dr. Indramani Pyarelal Gupta v. W.R. Nath AIR 1963 SC 274 and Bakul Cashew Co. v. Sales Tax Officer Quilon 1986 2 SCC 365, wherein the emphasis was laid on the aspect that where the power has been delegated to an authority by the legislature and in exercise of such delegation, the delegate seeks to notify then under such situation the notification can have only prospective application.

Further, the Respondent also relied on several cases discussing that the power to review/recall of the order is not available under Section 420 of the Act and for the same emphasis was laid on Hero Exports v. K. Vasudevan Orde dated 11.02.2020 in CRP No. 499/2020 and Dinesh Goyal v. DCB Banl Limited,Order dated 10.07.2019 in Company Appeal 702 of 2019.

The Tribunal mentioned that the notification has been issued by the Central Government through the Ministry of Corporate Affairs in exercise of powers conferred to it by the proviso to Section 4 of the Code.

Since 01.12.2016, the minimum threshold of Rs. 1 Lakh was left untouched despite the power being possessed by the Central Government under the Code and if the Applicant’s stand on retrospective application is to be considered, then all the applications filed under Section 7, 9 and 10 of the Code and which are pending from the date of inception of the Code till 24.03.2020 are required to be dismissed.

The pertinent question which was considered by the Tribunal was that:

“In the absence of the Code granting such a power to the delgatee to make such retrospective application, can the delegate exercise such a power thereby virtually effacing at one stoke the hitherto filed applications falling within the range of Rs. 1 Lakh and the now enhanced limit of Rs. 1 Crore?”

Further, it was discussed in the case of Kriti Kapoor v. Union of India Civil Writ Petition No. 21860/2018 that the nature of the power exercised by the Central Government pursuant to the power granted by the Legislature under sub-Section 4 of Section 1 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB&FI Act) falls within the realm of ‘Conditional Legislation’.

The Court upheld the validity of the notification and did not address the issue as to whether the said notification has to be applicable retrospectively but issued a subsequent clarification dated 01.08.2019 about the applicability that: 

“4. It is hereby clarified that the cases having suit value between Rs. 10 Lakh and Rs. 20 Lakhs, which have been filed before the DRTs during the stay period (i.e.) from 26.09.2018 to 30.06.2019 may continue in DRTs till conclusion so that no prejudice shall be caused to parties who have filed such suits in good faith. Cases filed on or after 01.07.20219, may be transferred to the Civil Courts by all the DRTs.”

The clarification makes it clear that the notification dated 06.09.2018 for the threshold change under the RDDB&FI Act is to apply only prospectively.

Similarly, in the absence of any date being specified in the notification dated 24.03.2020, analysing the decisions in relation to the applicability of a law retrospectively, it will make sense to treat the notification in a prospective manner.

CONCLUSION

The Tribunal held that in the absence of any power of recall or review being available to the Tribunal, the present case at hand does not fall within the confines of Section 420 of the Companies Act, 2013 nor Rule 11 of the NCALT Rules, 2016. As recourse, the Applicant should have approached the Appellate Tribunal under Section 61 of the Code.

Further, it was considered that since the Tribunal has been created under a statute, it does not have the power of judicial review in relation to scrutiny of enactments or even the rules and regulations framed thereunder including the notification issued by the Central Government.

 The Tribunal also relied upon the case of Karnai Kaur v. State of Punjab (2015) 3 SCC 206 wherein it was observed that:

“25. In construing the articles of the Constitution we must bear in mind certain cardinal rules of construction. It has been said in Hough v. Windus [1884] 12 Q.B.D.224, that “statutes should be interpreted; if possible, so as to respect vested right.” The golden rule of construction is that, in the absence of anything in the enactment to show that it is to have retrospective operation, it cannot be so constructed as to have the effect of altering the law applicable to a claim in litigation at the time when the Act was passed [Leeds and County Bank Ltd. v. Walker (1883) 11 Q.B.D. 84; Moon v. Durden (1848) 2 Ex. 22; 76 R.R. 479].

The following observation of Rankin C.J. in Sadar Ali v. Dalimuddin (supra) at page 520 is also apposite and helpful : “Unless the contrary can be shown the provision which takes away the jurisdiction is itself     subject to the implied saving of the litigant’s right.”  

In Janardan Reddy v. The State [1950] 1SCR940 Kania C.J. in delivering the judgment of the Court observed that our Constitution is generally speaking prospective in its operation and is not to have retroactive operation in the absence of any express provision to that effect.

The same principle was reiterated in Keshavan Madhava Menon v. The State of Bombay 1951CriLJ680 and finally in Dajisaheb Mane and Others v. Shankar Rao Vithal Rao [1955]2SCR872 to which reference will be made in greater detail hereafter.”

The Tribunal came to a conclusion after considering all the claims and judicial pronouncements that there can be no retrospective application and the order passed against the Applicant was well within the pecuniary jurisdiction and was correct.

AMLEGALS REMARKS 

The Tribunal analysed the distinction in relation to the legislative competence of a legislature while enacting or amending the law, with regards to its retrospective application as compared to the power available to a delegate which empowers it to make a conditional legislation.

The ration on distinction was laid down in the case of Dr. Indramaniyarelal Gupta v. W. R. NathAIR 1963 SC 274 wherein it was observed that a legislature can certainly give retrospective effect to pieces of legislation passed by it but the Government having delegated legislative powers, cannot make legislation retrospective in effect unless that power is expressly conferred upon it.

Hence, the Tribunal in the present case held that;

“39. the Notification issued by the Central Government through the Ministry of Corporate Affairs dated 24.03.2020 bearing S.O 1205(E) in view of the detailed discussions in relation to the issue of its Applicability, can be considered only as prospective, (i.e.) applicable from 24.03.2020. The law which was prevalent on the date when the main CP in IBA/1031/2019 was filed, proceeded with and when the matter was finally heard and reserved thereafter on 04.03.2020, it is required to be disposed of by this Tribunal  considering only the pecuniary limits of Rs. 1 Lakh for maintaining a Petition under Section 9 of I&B Code, 2016 by an Operational Creditor, and in circumstances, this Tribunal at the time of pronouncement hence was not lacking in pecuniary jurisdiction.”

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