High Court Cases – Limited Insolvency Examination w.e.f. 1st January, 2021
1. Sree Metaliks Ltd. and Anr v Union of India and Anr. (W.P. 7144 (W)-2017) in High Court of Judicature at Calcutta
Case Citation:  ibclaw.in 03 HC
A person cannot be condemned unheard. Where a statute is silent on the right of hearing and it does not in express terms, oust the principles of natural justice, the same can and should be read into in. When the NCLT receives an application under Section 7 of the Code of 2016, therefore, it must afford a reasonable opportunity of hearing to the corporate debtor as Section 424 of the Companies Act, 2013 mandates it to ascertain the existence of default as claimed by the financial creditor in the application.
The proceedings before the NCLT are adversarial in nature. Both the sides are, therefore, entitled to a reasonable opportunity of hearing.
Analysis of Case:
Section 7 read with section 61 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudication Authority) Rules, 2016 and Section 424 of the Companies Act, 2013 – Initiation of Corporate Insolvency Resolution Process by Financial Creditor
Facts of the Case:
An application under section 7 of the Code of 2016 was filed against the first petitioner (Corporate Debtor) before the NCLT Kolkata Bench. According to the first petitioner it had received a notice from a firm of practicing company Secretaries with regard to the filing of the Company Petition, however the notice does not contain any information as to the date of hearing of the company petition. The Corporate Debtor further contended that NCLT had proceeded to admit the company petition without affording any opportunity of hearing to it and therefore NCLT had acted in breach of the principles of natural justice in doing so. The order of NCLT was assailed by the Corporate Debtor before the NCLAT. The Corporate Debtor submitted that it had no objection to the admission of the Insolvency petition but objected to the appointment of the IRP. However, it did not press the point of breach of the principles of natural justice before NCLAT. The NCLAT disposed the appeal and only replaced the IRP appointed by the NCLT.
A writ petition was filed before the Calcutta High Court by the corporate debtor on the ground that Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code of 2016) and the relevant Rules under the Insolvency and Bankruptcy (Application to the Adjudicating Authority) Rules, 2016 are vires as it does not afford any opportunity of hearing to a corporate debtor in a petition filed under Section 7 of the Code of 2016.
In the scheme of the Code of 2016, an application under Section 7 of the Code of 2016 is to be first made before the NCLT. An appeal of the order of NCLT will lie before the NCLAT. NCLT and NCLAT are constituted under the provisions of the Companies Act, 2013 (Act, 2013). The procedure before the NCLT and the NCLAT is guided by Section 424 of the Companies Act, 2013.
Section 424 of the Companies Act, 2013 requires the NCLT and NCLAT to adhere to the principles of the natural justice above anything else. It also allows the NCLT and NCLAT the power to regulate their own procedure. Fretters of the Code of Civil Procedure, 1908 does not bind it. However, it is required to apply its principles. Principles of natural justice require an authority to hear the other party. In an application under Section 7 of the Code of 2016, the financial creditor is the applicant while the corporate debtor is the respondent. A proceeding for declaration of insolvency of a company has drastic consequences for a company. Such proceeding may end up in its liquidation. A person cannot be condemned unheard. Where a statute is silent on the right of hearing and it does not in express terms, oust the principles of natural justice, the same can and should be read into in. When the NCLT receives an application under Section 7 of the Code of 2016, therefore, it must afford a reasonable opportunity of hearing to the corporate debtor as Section 424 of the Companies Act, 2013 mandates it to ascertain the existence of default as claimed by the financial creditor in the application. The NCLT is, therefore, obliged to afford a reasonable opportunity to the financial debtor to contest such claim of default by filing a written objection or any other written document as the NCLT may direct and provide a reasonable opportunity of hearing to the corporate debtor prior to admitting the petition filed under Section 7 of the Code of 2016. Section 7(4) of the Code of 2016 requires the NCLT to ascertain the default of the corporate debtor. Such ascertainment of default must necessarily involve the consideration of the documentary claim of the financial creditor. This 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, that there does not exist a default as claimed against it. The proceedings before the NCLT are adversarial in nature. Both the sides are, therefore, entitled to a reasonable opportunity of hearing.
2. Cushman and Wakefield India Private Limited v UOI [W.P.(C) 9883/2018, CM No. 38508/2018] High Court of New Delhi
Case Citation:  ibclaw.in 03 HC
The challenge in these petitions is to declare Rule 3(2) of the Companies (Registered Valuers and Valuation)
Rules, 2017 as unconstitutional for violating Article 14, Article 19(1)(g) and Article 301 of the Constitution of India. The Rule 3(2) is reproduced as under:
X X X X X X
(2) No partnership entity or company shall be eligible to be a registered valuer if-
(a) it has been set up for objects other than for rendering professional or financial services, including valuation services and that in the case of a company, it is a subsidiary, joint venture or associate or another company or body corporate.”
Whether a company, other than a subsidiary company, joint venture or associate of other company forms a separate class for the purpose of eligibility for registration as a valuer under the subject Rules, and as such whether the said classification is reasonable. In other words, whether exclusion of a subsidiary company, joint venture or associate of other company, for purpose of eligibility for registration as valuer is reasonable. The answer to the same has to be in the affirmative.
3. Ultra Tech Cement Ltd. v Union of India [D.B. Civil Writ Petition No. 9480-2019] High Court of Rajasthan
Case Citation:  ibclaw.in 21 HC
Facts of the case
Binani Cement Company suffered huge losses and was unable to pay the debts to the Financial Creditor i.e. Bank of Baroda, which preferred an insolvency application being Company Petition under Section 7 of Code before the NCLT Kolkata Bench. A CIRP was initiated by the NCLT and an IRP was appointed. The petitioner company was one of the resolution applicants in the CIRP and the resolution plan submitted by Ultra Tech was approved unanimously in the CoC Meeting.
While considering the resolution plan, the NCLT duly approved proportion/distribution of the payment to be made by the petitioner company to all the creditors. The resolution professional collated claims of all operational creditors after following the due process of law and with due diligence, verified the claim of the respondent Goods and Service Tax Department to the extent of Rs.72.85 crores towards liabilities of excise duty and service tax. He, also determined that liquidation value of the Binani Cement was Rs.2300/- crores which was much less than the outstanding debt and thus, the liquidation value available to the operational creditors including the respondent revenue would be zero.
The resolution plan was approved by the NCLAT vide order dated 14.11.2018. The Bank of Baroda being a financial creditor challenged the resolution plan affirmed by the NCLAT before Hon’ble the Supreme Court which affirmed the order of the NCLAT vide order dated 19.11.2018. Pursuant to receiving this final seal of approval of the resolution plan, the petitioner Ultra Tech took over the management and operations of Binani Cement Ltd. and the name of the company was changed to Ultra Tech Nathdwara Cement Ltd. The resolution plan was fully implemented and payments in its terms were duly made to all the creditors including the statutory creditors.
Despite the resolution plan having attained finality and having been executed, the respondents(GST Dept.) herein have raised numerous demands from the petitioner for the period from April 2012 to June 2017 and interest upto 25.7.2017. Having made the full and final payment as proposed by the resolution professional, the petitioner addressed a letter dated 26.11.2018 to the respondents informing them of the payment of dues as admitted by the CIRP and reminded them that all remaining claims and proceedings stood extinguished in terms of the resolution plan. Having failed to get any positive response from the respondents, the petitioner company has approached this Court through this writ petition under Article 226 of the Constitution of India seeking the relief referred to supra.
Contentions of parties
Learned counsel for the petitioner company urged that that the resolution plan submitted by the resolution professional attained finality after approval by the COC and cannot be questioned in a court of law. It was further submitted that the financial creditors are given a precedence in the scheme of the Act when the resolution plan is being finalized and the statutory and operational creditors have to make a sacrifice. They further contended that the approved resolution plan has been affirmed by the NCLAT by a well reasoned judgment dated 14.11.2018 passed in Company Appeal (AT) Insolvency No.188/2018 and thereafter, by Hon’ble the Supreme Court vide order dated 19.11.2018 passed in Civil Appeal No.10998/2018 and thus, the respondents authorities of GST Department had no jurisdiction to raise demands from the petitioner for the period prior to the date on which, the petitioner company took over the company under liquidation i.e. Binani Cement Ltd. after the resolution plan was finalized and approved.
Learned counsel representing the respondents vehemently and fervently opposed the submissions advanced by the petitioner’s counsel and urged that the department was not heard by the COC before finalizing the resolution plan and as such, it is not bound by the same. He further contended that the mere summary rejection of the SLP preferred by the department against the resolution plan would not foreclose the right of the department to raise its valid demands from the successful resolution applicant. Nonetheless, Shri Saraswat was not in a position to dispute the fact that the SLP preferred by the department before Hon’ble the Supreme Court covered all issues including the issue that the department was not heard by the COC.
Decision of the High Court
Hon’ble Rajasthan High Court held that it cannot be gainsaid that the controversy at hand hours around the simple issue as to whether the resolution plan approved by the COC is binding on the department or not. In this regard, it is trite to note that as per the amended Section 31 of the IBC, the Central Govt., State Govt. or any other local authority to whom, a debt in respect of payment of dues arising under any law for the time being in force are owed, have been brought under the umbrella of the resolution plan approved by the adjudicating officer which has been made binding on such governments and local authorities. The purpose of the IBC is salutary as it has been enacted to ensure that an industry under distress does not fade into oblivion and can be revived by virtue of the resolution plan. Once the offer of the resolution applicant is accepted and the resolution plan is approved by the appropriate authority, the same is binding on all concerned to whom the industry concern may be having statutory dues. No right of audience is given in the resolution proceedings to the operational creditors viz. the Central Govt. or the State Govt. as the case may be.
The High Court considered in light of the ratio of the Essar Steel judgment and the stance of Hon’ble the Finance Minister before the upper house of the Parliament on the amendment in Section 31, it is clear that the financial creditors have to be given a precedence in the ratio of payments when the resolution plan is being finalized. It is the financial creditors who are given right to vote in the COC whereas, the operational creditors viz. Commercial Taxes Department of the Central Government or the State Government as the case may be, have no right of audience. The purpose of the statute is very clear that it intends to revive the dying industry by providing an opportunity to a resolution applicant to take over the same and begin the operation on a clean slate. For that purpose, the evaluation of all dues and liabilities as they exist on the date of finalization of the resolution plan have been left in the exclusive domain of the resolution professional with the approval of the COC. The courts are given an extremely limited power of judicial review into the resolution plan duly approved by the COC. In the case at hand, the situation has proceeded much further. The operational creditors i.e. the Commercial Taxes Department of Govt. of Rajasthan as well as the respondent Commissioner of Goods and Service Tax assailed the resolution plan by filing appeals before Hon’ble the Supreme Court with a specific plea that their dues have not been accounted for by the COC in the resolution plan. The objection so raised stands repelled with the rejection of the appeals by Hon’ble The Supreme Court. In addition thereto, it may be mentioned here that from the two possible situations; one being liquidation and the other being revival, the respondents will gain significantly in the later because as per the assessed liquidity value, their dues have been assessed as nil, whereas as per the resolution plan with revival of the industry at the instance of the resolution applicant (the petitioner company herein), their rights have been secured to the extent of Rs.72 crores odd. It may be emphasized here that the amount of Rs.72 crores assessed by the resolution professional in favour of the respondent GST Department has already been deposited by the successful resolution applicant i.e. the petitioner company.
The High Court quashed the demand notices and held that we are of the firm opinion that the respondents would be acting in a totally illegal and arbitrary manner while pressing for demands raised vide the notices which are impugned in this writ petition and any other demands which they may contemplate for the period prior to the resolution plan being finalized. The demand notices are ex-facie illegal, arbitrary and per-se and cannot be sustained.
4. Univalue Projects Pvt. Ltd. v The Union of India & Ors. [WP No. 5595(W) of 2020 with C.A.N 3347 of 2020 and others’ petitions] High Court of Calcutta
Case Citation:  ibclaw.in 25 HC
These writ petitions have been filed by the petitioners under Article 226 of the Constitution of India, in which a stern challenge has been mounted to an impugned order dated May 12, 2020 issued by the Registrar of the NCLT at its Principal Bench in New Delhi ( “Respondent No. 3”), that prime facie, appears to have been issued with the approval of the Hon’ble Acting President of the NCLT, New Delhi (“Respondent No. 2”).
It appears that the order dated May 12, 2020 imposes a mandatory prescription on all financial creditors, as defined under the extant provisions of the IBC, 2016 to submit certain financial information as a record of default before the Information Utility (“IU”) as a condition precedent for filing any new application under Section 7 of the IBC, 2016. The order further transcends to impose this purported mandatory prescription retrospectively on all those applicants / financial creditors who have pre-existing applications filed under Section 7 of the IBC, 2016 and pending before the various Benches of the NCLT, prior to such final hearing of these applications.
Hierarchy of legal norms
Based on the jurist Kelsen’s ‘Pure Theory of Law’, the Supreme Court in the case of Government of Andhra Pradesh –v- P. Laxmi Devi (Smt), (2008) 4 SCC 720 the hierarchy of legal norms involved in this case is concerned and I adumbrate it as follows:
- Provisions of the CA, 2013 and IBC, 2016 as they are Acts passed by the Parliament;
- Rules enacted by the Central Government and Regulations enacted by the IBBI under powers granted by Sec. 239 and Sec. 240 of the IBC, 2016 respectively;
- NCLT/NCLAT regulating their own procedure subject to Sec. 424 of the CA, 2013 and the NCLT/NCLAT Rules, 2016.
The term “as may be specified” used in Sec. 7(3)(a) is not applicable to all the three categories
The Court held that while both the NCLT and NCLAT have been conferred with powers to regulate their own procedure, such use of its power is circumscribed and subject to inter alia, the principles of natural justice as well as the provisions of CA, 2013 or the IBC, 2016, inclusive of any rules/ regulations made under the IBC, 2016 by the regulatory body, IBBI. Therefore, the powers of the NCLT and NCLAT is limited both by principles of natural justice as well as statutory provisions and regulations framed under such legislations.
What confounds me is that fact that the impugned order is silent on the enabling provision of law, that is, either the statutory or delegated source of power which enabled the NCLT to issue the order. Mr. Kundalia had argued that based on Section 424 of the CA, 2013, both the NCLT and NCLAT were vested with powers to regulate their own procedures. It was his submission that the impugned order dated May 12, 2020 was nothing but the implementation of the mandatory and necessary requirement and compliance of various provisions of the IBC, 2016. Per contra, the petitioners have vehemently submitted that the impugned exercise of power fell foul to the provisions of the CA, 2013, the IBC, 2016 and the rules made under the IBC.
Clause (a) of sub-section 3 of Section 7 clearly states that the financial creditor shall furnish along with the application record of the default recorded with the information utility or such other record or evidence of default as may be specified. As is evident, the clause is disjunctive in nature and when the word “or” is used in drafting of positive conditions, the positive conditions separated by “or” are read in the alternative.1 The three categories of evidence that can be provided are as follows: (a) record of the default recorded with the information utility; (b) such other record; (c) evidence of default as may be specified. The disjunctive use of the above makes it clear that either of the three may be provided by the financial creditor to the adjudicating authority. As per Mr. Kundalia’s arguments, the term “as may be specified” is applicable to all the three categories and not just to the evidence in default. In my view, if the intention of the legislature was to make the term applicable to all three categories a comma would have been inserted after the word “default”. Following the principles of litera legis, I am of the view that the legislature had no intention to extend the term “as may be specified” to all the three categories. Furthermore, on a plain reading, I do not find this to be a case of casus omissus,2 and therefore do not intend to add any punctuation mark (comma) to change the intent of the legislature. In conclusion, on a plain reading of the above provision, it is immanent that three different categories of documents are available to a financial creditor to prove proof of default by a corporate debtor. In light of the above findings itself, the lis is resolved squarely in favour of the petitioners as the impugned order falls foul as it seeks to limit the intent of the legislature to the submission of only one document, that is, category (a) above. However, since submissions have been made on various aspects and diligent and painstaking efforts have been gone into by the counsels appearing, I intend to answer all the issues and arguments advanced. [para 46]
On a close due diligence of the various provisions above, including section 7 of the IBC, 2016 read with Rule 4 of the AA Rules, 2016 and Form-1 therein, and regulation 8 of the CIRP Regulations, 2016, observations of the Supreme Court in paragraph 32 (provided above), it becomes crystal clear that apart from the financial information of the IU, eight classes of documents can be considered to be sources that evidence a “financial debt”.
5. Tata Steel BSL Limited & Anr. v Union of India & Anr. [WP(CRL) 3037-2019] High Court of New Delhi
Case Citation:  ibclaw.in 22 HC
Facts of the case
It is stated in terms of the Code, a financial creditor of the petitioner (then known as Bhushan Steel Limited) had initiated the CIRP by filing a petition before the NCLT. The said petition was admitted on 26.07.2017. Thereafter, Tata Steel Limited had submitted a Resolution Plan with respect to the petitioner (then known as Bhushan Steel Limited), which was approved by the Committee of Creditors on 20.03.2018 and by Adjudicating Authority (NCLT) on 15.05.2018. The said order dated 15.05.2018 was impugned before the NCLAT in CA(AT)(I)-221/2018 and connected matters. The same was dismissed by NCLAT on 10.08.2018. Thereafter, 72.65% of the petitioner’s equity capital was acquired by Tata Steel Limited. In terms of the Resolution Plan, the management of the petitioner company has been taken over by new promoters, who are not connected with the previous management.
The petitioner has filed the present petition impugning an order dated 16.08.2019 in CC No. 770/2019 captioned ‘Serious Fraud Investigation Office v. Bhushan Steel Limited’, whereby the Trial Court had taken cognizance of the offences punishable under the Companies Act, 2013; offences punishable under the Companies Act, 1956 and; certain offences under the Indian Penal Code, 1860.
Decision of the High Court
Hon’ble High Court held that it is clear from the express language of the provision of section 32A of the Code that a Corporate Debtor would not be liable for any offence committed prior to commencement of the CIRP and the corporate debtor would not be prosecuted if a resolution plan has been approved by the Adjudicating Authority. In the present case, there is no dispute that a resolution plan has been approved by the Adjudicating Authority (NCLT) and in the circumstances, there is much merit in the contention that the petitioner cannot be prosecuted and is liable to be discharged. The petition is, accordingly, allowed and the impugned order dated 16.08.2019 and the impugned summons dated 21.08.2019, are set aside. The impugned compliant (CC No. 770/2019) against the petitioner, is also set aside.
Further the High Court clarified that this order will not affect the prosecution of the erstwhile promoters or any of the officers who may be directly responsible for committing the offences in relation to the affairs of the petitioner company.
6. Jotun India Pvt. Ltd. v PSL Ltd. (CA No. 572 of 2017 in CP No. 434 of 2015), in High Court of Judicature at Bombay
Case Citation:  ibclaw.in 01 HC
Facts of the Case:
Respondent applicant PSL Limited, who is respondent in the company petitions, has filed this application seeking the order dated 19th July 2017 in company application (lodging) no.333 of 2017 be vacated/recalled. By this nonspeaking order, the Learned Company Judge was pleased to stay the proceedings filed by respondent applicant under Section 10 of Insolvency and Bankruptcy Code, 2016 (“IBC”) before National Company Law Tribunal (NCLT), Ahmedabad for insolvency resolution.
The issue which arises for consideration in the present application is whether the Company Court has any jurisdiction to stay the proceedings filed by a Corporate Debtor before NCLT even though a previously instituted company petition by a creditor may have been admitted (and therefore does not get transferred to NCLT) but where a provisional liquidator has not been appointed.
A. IBC-strict time bound- It is apparent from a reading of the object and purpose for which IBC has been enacted is to set up an Insolvency and Bankruptcy resolution process, which has to be implemented in a strict time bound manner, by the appointment of an IRP and creation of a creditors Committee.
B. It has now been held by the Supreme Court in Bank of New York Mellon (2017) 5 SCC 1) that by virtue of Section 252 of IBC, even in the case of a company where a winding up order has been passed, it is open to such a company, whose reference was deemed to be pending with BIFR, to seek remedies under IBC before NCLT.
C. Admission of the winding up petition by the jurisdictional High Court would not mean that NCLT either loses jurisdiction or cannot exercise jurisdiction in case of a petition which is filed by another creditor (financial, operational or the company itself under section 10 of IBC).
D. IBC should prevail over the Companies Act, 2013–The Hon’ble Supreme Court in the case of Madura Coats Ltd. v. Modi Rubber Ltd. (2016) 7 SCC 603) has held that the provisions of SICA would prevail over the provisions of the Companies Act and proceedings under the Companies Act must give way to proceedings under SICA. Therefore, since SICA is repealed and replaced by IBC (S. 252 read with VIII Schedule of IBC), the provisions of IBC should prevail over the provisions of the Companies Act, 2013.
There is express as well as an implied intention on the part of the legislature to (i) take away the right to file winding up petitions under the Companies Act, 1956; and (ii) to apply the provisions of IBC without exception to all proceedings undertaken regarding insolvency resolution and revival of companies. This is also apparent from the peremptory and express language of Sections 14, 63 and 64 (2) of IBC.
E. The winding up petitions retained by the High Court are being decided under the Companies Act, 1956 only as a transitional provision. It only provides that winding up proceedings under Section 433 (1) (e) pending in the High Court would continue in the High Court Prasanta Kumar Mitra and Ors. vs. India Steam Laundry (2017) 201 CompCas 509 (Cal).
F. NCLT & DRT are not a court subordinate to High Court-NCLT is not a court subordinate to the High Court and hence as prohibited by the provisions of Section 41 (b) of the Specific Relief Act, 1963 no injunction can be granted by the High Court against a corporate debtor from institution of proceedings in NCLT.
It has been held by this Hon’ble Court in the case of Rentworks India Pvt. Ltd. (Supra) while considering whether DRT was subordinate to the High Court in paragraph 19 held that DRT is not a court subordinate to this court when the latter exercises its ordinary original civil jurisdiction. If that is so, this court cannot, whilst hearing a suit in its ordinary original civil jurisdiction, injunct any bank from prosecuting a proceeding before the DRT.
G. Injunction–It may also be noted that apart from there being no provision in the Companies Act, 1956 to injunct proceedings before NCLT instituted under IBC, petitioner cannot take recourse under the inherent powers of the High Court to support the impugned order. This argument has been expressly rejected by the Hon’ble Supreme Court in Cotton Corporation of India Limited (supra).
It has been held in the case of M/s. Rishabh Agro Industries Ltd. (Supra) that even after a winding up order is passed the provisions of Section 22 of SICA apply and the Court under the Companies Act, 1956 would have no power to injunct proceedings before BIFR in view of Section 22 of SICA.
The IBC is admittedly a successor statute to SICA, and Section 64 (2) of IBC being parimateria to Section 22 of SICA, the argument that the Company Court has the power to injunct proceedings before under NCLT in cases of pending winding up petitions is entirely misplaced and contrary to legislative intent.
H. The Company Court has the jurisdiction to recall an earlier order-As per rule 6 of the Companies (Court) Rules, 1959, the provisions of the Code of Civil Procedure, 1908, will apply to proceedings under the Companies Act, 1956, unless such application would be contrary to the express provisions of the said rules. Rule 9 of the Companies (Court) Rules, 1959, provides that the Company Court may exercise its inherent powers. Section 141 of the Code of Civil Procedure, 1908, makes it applicable to all proceedings in any court of civil jurisdiction. A combined reading will show that the Company Court has ample powers to recall any order previously passed by it [Dr. Writers Food Products Private Limited (supra)].
I. An order can be recalled if it was passed without jurisdiction-The Hon’ble Supreme Court of India has held that an order may be recalled by a court or tribunal if there was an inherent lack of jurisdiction to pass such an order [Budhia Swain &Ors v. Gopinath Deb &Ors (supra)].
Analysis of the case:
Whether the Company Court has any jurisdiction to stay the proceedings filed by a Corporate Debtor before NCLT even though a previously instituted company petition by a creditor may have been admitted (and therefore does not get transferred to NCLT) but where a provisional liquidator has not been appointed.
7. Dr. Vidya Sagar Garg v Insolvency and Bankruptcy Board of India (W.P. (C)9520/2017, CM Appl. 38726-38727/2017), in High Court of Judicature at New Delhi
Case Citation:  ibclaw.in 02 HC
1. This is a writ petition which is directed against the order dated 12.10.2017, passed by the Insolvency and Bankruptcy Board of India (in short “the Board”) via which, petitioner’s application under Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulations, 2016 (in short “2016 Regulation”) seeking registration as an Insolvency Profession (I.P.) has been rejected via the impugned order.
1.1 Inter alia, the ground on which the petitioner’s application has been rejected is that he is not a fit and proper person under Regulation 4(g)(i) of the 2016 Regulation.
2. What is not disputed before me by the learned counsel for the petitioner is that an FIR bearing No.RC/219/2012, dated 3.7.2012, has been registered against the petitioner.
2.1 As a matter of fact, the registration of the FIR has been followed by the prosecution filing a chargesheet in the matter, on 17.02.2014.
3. Counsel for the petitioner says that the petitioner has no role in the alleged infraction of law, as reflected in the aforementioned FIR and/ or the chargesheet. It is also contended that an application for discharge has been filed before the concerned Trial Court. I am told that the application for discharge was filed as far back as on 13.01.2016.
4. On the other hand, learned counsel for the respondent says that given these antecedents the petitioner is not a fit and proper person and, therefore, the conclusion reached in the impugned order need not be disturbed. Counsel for the respondent, however, states fairly that the matter would attain a different connotation and perspective, if the discharge application filed by the petitioner is allowed by the concerned Trial Court.
5. In these circumstances, I am of the view that this writ petition at this juncture is in a sense pre-mature. The petitioner, therefore, is given liberty to approach this Court, once the discharge application is disposed of by the concerned Trial Court.
6. Given the fact that the discharge application was filed as far back as on 13.01.2016, the concerned Trial Court is requested to take up the application for adjudication and dispose of the same at the earliest.
7. Learned counsel for the respondent, at this stage says that if the Trial Court allows the discharge application then the respondent could consider the case of the petitioner anew, if an application is made, notwithstanding the fact that the impugned order has been passed. This submission made by the learned counsel, on instructions, is taken on record.
7.1 In my view, the respondent should have no difficulty in considering a fresh application, if such circumstance arises, as it would, in a sense, give rise to certain facts which obviously were not considered while passing the impugned order.
8. Writ petition is disposed of. Consequently, the pending applications are also disposed of.
8. Leo Edibles & Fats Ltd. v The Tax Recovery Officer (Central), Income Tax Dept., Hyderabad) and others (W.P. No. 8560 of 2018), in High Court of Judicature at Hyderabad
Case Citation:  ibclaw.in 12 HC
1. The Court held that the Income-tax Department cannot claim any priority merely because of the fact that the order of attachment issued by him was long prior to the initiation of liquidation proceedings under the IBC against the Corporate Debtor.
2. In so far as liquidation of a company under the IBC is concerned, Section 178 of Income Tax Act, 1961 stands excluded by virtue of the amendment of Section 178(6) with effect from 01.11.2016, in accordance with the provisions of Section 247 of the IBC read with the Third Schedule appended thereto. Therefore, in the event an assessee company is in liquidation under the IBC, the Income-tax Department can no longer claim a priority in respect of clearance of tax dues of the said company, as provided under Sections 178(2) and (3) of the Income Tax Act, 1961.
3. In the context of liquidation of an assessee company under the provisions of the IBC, the Income-tax Department, not being a secured creditor, must necessarily take recourse to distribution of the liquidation assets as per Section 53 of the IBC. Section 53(1) provides the order of priority for such distribution and any amount due to the Central Government and the State Government comes fifth in the order of priority under Clause (e) thereof.
4. It is therefore clear that tax dues, being an input to the Consolidated Fund of India and of the States, clearly come within the ambit of Section 53(1)(e) of the IBC. If the Legislature, in its wisdom, assigned the fifth position in the order of priority to such dues, it is not for this Court to delve into or belittle the rationale underlying the same.
5. It may however be noticed that by virtue of the amendment of Section 178(6) of the Income Tax Act, 1961 by Section 247 of the IBC read with the Third Schedule appended thereto, the whole of Section 178 has no application to liquidation proceedings initiated under the IBC. Therefore, if the only source for treating the Income-tax Department as a secured creditor is the language used in Sections 178(3) and (4) of the Income Tax Act, 1961, the said provisions stand excluded when it comes to the liquidation proceedings under the IBC.
6. Even if the order of attachment constitutes an encumbrance on the property, it still does not have the effect of taking it out of the purview of Section 36(3)(b) of the IBC.
7. Order of attachment therefore cannot be taken to be a bar for completion of the sale effected by the Liquidator under the provisions of the IBC. The Income-tax, Department necessarily has to submit the claim to the Liquidator for consideration as and when the distribution of the assets, in terms of Section 53(1) of the Code, is taken up.
Easy to understand the judgment, read the following terms used in the judgment:
|VNR Infrastructures Limited||Company in liquidation|
|Leo Edibles & Fats Limited||Petitioner Company (Buyer of liquidated assets under e-auction)|
|Income-tax, Department, Hyderabad||First respondent|
|Sub-Registrar, Erragadda, Hyderabad||Fourth respondent,|
|Liquidator of VNR Infrastructures Limited||Fifth respondent|
|Income Tax Dept. Notice of Attachment||28.10.2016|
|Date of Notice in Newspaper regarding e-auction||29.12.2017|
|e-auction sale date as per Notice||31.01.2018|
|Letter issued confirming the sale in favour of the petitioner||31.01.2018|
|Sale letter issued||01.02.2018|
|Sale letter received by the petitioner company||19.02.2018|
|Interim Order by Court (not this order)||15.03.2018|
9. The Deputy Director, Directorate of Enforcement Delhi v Axis Bank & Ors. [Crl.A. 143/2018 and Crl MA 2262-2018] High Court of Delhi
Case Citation:  ibclaw.in 06 HC
Summary of the decision of the Hon’ble High Court as under :-
(i). The process of attachment (leading to confiscation) of proceeds of crime under PMLA is in the nature of civil sanction which runs parallel to investigation and criminal action vis-a-vis the offence of money-laundering.
(ii). The empowered enforcement officer is expected to assess, even if tentatively, the value of proceeds of crime so as to ensure such proceeds or other assets of equivalent value of the offender of money-laundering are subjected to attachment, the evaluation being open to modification in light of evidence gathered during investigation.
(iii). The empowered enforcement officer has the authority of law in PMLA to attach not only a “tainted property” – that is to say a property acquired or obtained, directly or indirectly, from proceeds of criminal activity constituting a scheduled offence – but also any other asset or property of equivalent value of the offender of money-laundering, the latter not bearing any taint but being alternative attachable property (or deemed tainted property) on account of its link or nexus with the offence (or offender) of money-laundering.
(iv). If the “tainted property” respecting which there is evidence available to show the same to have been derived or obtained as a result of criminal activity relating to a scheduled offence is not traceable, or the same for some reason cannot be reached, or to the extent found is deficient, the empowered enforcement officer may attach any other asset (“the alternative attachable property” or “deemed tainted property”) of the person accused of (or charged with) offence of money-laundering provided it is near or equivalent in value to the former, the order of confiscation being restricted to take over by the government of illicit gains of crime.
(v). If the person accused of (or charged with) the offence of money-laundering objects to the attachment, his claim being that the property attached was not acquired or obtained (directly or indirectly) from criminal activity, the burden of proving facts in support of such claim is to be discharged by him.
(vi). The objective of PMLA being distinct from the purpose of RDBA, SARFAESI Act and Insolvency Code, the latter three legislations do not prevail over the former.
(vii). The PMLA, by virtue of section 71, has the overriding effect over other existing laws in the matter of dealing with “money-laundering” and “proceeds of crime” relating thereto.
(viii). The PMLA, RDBA, SARFAESI Act and Insolvency Code (or such other laws) must co-exist, each to be construed and enforced in harmony, without one being in derogation of the other with regard to the assets respecting which there is material available to show the same to have been “derived or obtained” as a result of “criminal activity relating to a scheduled offence” and consequently being “proceeds of crime”, within the mischief of PMLA.
(ix). If the property of a person other than the one accused of (or charged with) the offence of money-laundering, i.e. a third party, is sought to be attached and there is evidence available to show that such property before its acquisition was held by the person accused of money-laundering (or his abettor), or it was involved in a transaction which had inter-connection with transactions concerning money-laundering, the burden of proving facts to the contrary so as to seek release of such property from attachment is on the person who so contends.
(x). The charge or encumbrance of a third party in a property attached under PMLA cannot be treated or declared as “void” unless material is available to show that it was created “to defeat” the said law, such declaration rendering such property available for attachment and confiscation under PMLA, free from such encumbrance.
(xi). A party in order to be considered as a “bonafide third party claimant” for its claim in a property being subjected to attachment under PMLA to be entertained must show, by cogent evidence, that it had acquired interest in such property lawfully and for adequate consideration, the party itself not being privy to, or complicit in, the offence of money-laundering, and that it has made all compliances with the existing law including, if so required, by having said security interest registered.
(xii). An order of attachment under PMLA is not illegal only because a secured creditor has a prior secured interest (charge) in the property, within the meaning of the expressions used in RDBA and SARFAESI Act. Similarly, mere issuance of an order of attachment under PMLA does not ipso facto render illegal a prior charge or encumbrance of a secured creditor, the claim of the latter for release (or restoration) from PMLA attachment being dependent on its bonafides.
(xiii). If it is shown by cogent evidence by the bonafide third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property), claiming that it had acquired the same at a time around or after the commission of the proscribed criminal activity, in order to establish a legitimate claim for its release from attachment it must additionally prove that it had taken “due diligence” (e.g. taking reasonable precautions and after due inquiry) to ensure that it was not a tainted asset and the transactions indulged in were legitimate at the time of acquisition of such interest.
(xiv). If it is shown by cogent evidence by the bonafide third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property) claiming that it had acquired the same at a time anterior to the commission of the proscribed criminal activity, the property to the extent of such interest of the third party will not be subjected to confiscation so long as the charge or encumbrance of such third party subsists, the attachment under PMLA being valid or operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third party.
(xv). If the bonafide third party claimant (as aforesaid) is a “secured creditor”, pursuing enforcement of “security interest” in the property (secured asset) sought to be attached, it being an alternative attachable property (or deemed tainted property), it having acquired such interest from person(s) accused of (or charged with) the offence of money-laundering (or his abettor), or from any other person through such transaction (or inter-connected transactions) as involve(s) criminal activity relating to a scheduled offence, such third party (secured creditor) having initiated action in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the directions of such attachment under PMLA shall be valid and operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third party.
(xvi). In the situations covered by the preceding two sub-paragraphs, the bonafide third party claimant shall be accountable to the enforcement authorities for the “excess” value of the property subjected to PMLA attachment.
(xvii). If the order confirming the attachment has attained finality, or if the order of confiscation has been passed, or if the trial of a case under Section 4 PMLA has commenced, the claim of a party asserting to have acted bonafide or having legitimate interest in the nature mentioned above will be inquired into and adjudicated upon only by the special court.