In exercise inherent powers, can NCLT subsume powers of the Central Govt. under Companies Act, 2013 or the Insolvency and Bankruptcy Code?
– By Advocate Prakash K. Pandya, Mumbai
National Company Law Tribunal (NCLT) is created by the Companies Act, 2013. It is conferred adjudicatory power, inter alia, under the Insolvency and Bankruptcy Code, 2016 (IBC). Under IBC, it is referred to as the Adjudicating Authority (AA). There are no separate provisions in the Companies Act, exclusively dealing with the jurisdiction and powers of NCLT, as observed by Hon’ble Supreme Court in Embassy Property Developments (P) Ltd. v. State of Karnataka [2020] ibclaw.in 12 SC.
In view of the said observation of the Apex Court, and from the order dated 19th May 2021 of the Hon’ble AA, Mumbai bench in the matter of Kamla Industrial Park Limited V/s. Monitoring Committee of Corporate Debtor and Registrar of Companies, Mumbai (2021) ibclaw.in 179 NCLT (the ‘impugned order’)following question arises:
1) Can AA while dealing with application under IBC give relief, which under the Companies Act 2013 can be given only by the Central Government?
2) Can inherent powers under Rule 11 of the NCLT Rules 2016 be exercised by AA for the substantive and effective justice, ignoring the statutory provisions?
The said /impugned order is passed upon the application filed before the AA by Kamla Industrial Park Limited, the resolution applicant for Metallica Industries Limited (the Corporate Debtor / CD), under the provisions of the IBC.
It appears from the impugned order that the Resolution Applicant (RA) therein was facing several difficulties in implementing the resolution plan which was earlier approved by the AA (on 16.10.2019) as regards compliance of applicable laws. The difficulties so faced, inter alia, included delay in filing of financial statements and annual returns with the Registrar of Companies (ROC) under the Companies Act 2013, which was attributed to negligence of the previous management of the CD, information / data not provided by the erstwhile Directors, etc. and consequently penalty and prosecution the CD and the RA may have to face from the ROC. To avoid penalty and prosecution, RA approached the ROC but was of no benefit. And hence the RA approached the AA seeking reliefs, under inherent powers, under Rule 11 of the NCLT Rules. Respondent no.1 the Monitoring Committee and Respondent No. 2 being the ROC.
By the impugned order, the AA, in exercise of its inherent power under rule 11 of the NCLT Rules 2016, granted these reliefs:
“i. The present management of the Corporate Debtor shall be permitted to approve the accounts and returns of the Corporate Debtor for the period prior to 16.10.2019 in its next meeting. The Applicant shall file the relevant Returns and Statement for the period within three months hence. The action shall not invite any penalty whatsoever from the Respondent No. 2.
ii. The Corporate Debtor is permitted to file Accounts and Returns subsequent to 16.10.2019, within a period of three months hence and the same shall be accepted without any penalty.”
(emphasis supplied)
Neither the Companies Act, 2013 nor the IBC grant the NCLT or the AA any power to waive the penalty for delay in filing Annual Returns and the financial statements, which is a requirement of section 92 and section 137 of Companies Act 2013, respectively. Let’s look at those provisions.
Sub-section (5) of Section 92 is relevant and it reads-
“(5) If any company fails to file its annual return under sub-section (4), before the expiry of the period specified therein, such company and its every officer who is in default shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is an default.”
Further, as regards, the financial statements, sub-section (3) of Section 137 of the Companies Act 2013 states-
“(3) If a company fails to file the copy of the financial statements under sub-section (1) or sub-section (2), as the case may be, before the expiry of the period specified therein the company shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of two lakh rupees, and the managing director and the Chief Financial Officer of the company, if any, and, in the absence of the managing director and the Chief Financial Officer, any other director who is charged by the Board with the responsibility of complying with the provisions of this section, and, in the absence of any such director, all the directors of the company, shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of fifty thousand rupees.”
It is clear from the said Section 92(5) and 137(3) that for delay in filing annual return and financial statement, company and its officer are liable to penalty.
And power to adjudicate penalties under the Companies Act 2013 vests with the Central Government or with the officers appointed for the purpose by the Central Government, under section 454 of the Companies Act 2013. Accordingly, Ministry of Corporate Affairs/MCA has notified the Companies (Adjudication of Penalties) Rules, 2014 for the purpose and vide Notification No. S.O. 831(E) dated 24.03.2015 it has appointed various ROCs across country as the Adjudicating Officer under the said Rules for adjudging penalties, inter alia, for contravention of Section 92 and 137 of the Companies Act, 2013.
Thus, power to adjudicate penalty is not with the NCLT or the AA. Nor there is any provision authorising NCLT or AA to waive penalty under the Companies Act, 2013.
Further by the impugned order, Hon’ble AA has in exercise of its inherent power under Rule 11 of the NCLT Rules, 2016 exceeded its jurisdiction conferred upon it by the IBC, as by the impugned order it has provided three reliefs viz. (i) permitted delayed filing of annual returns and financial statements by extending the period of filing beyond what is provided u/Ss. 92 and 137 of the Companies Act 2013; (2) provided immunity from the penalty for such delay; and (3) extended time for filing annual returns and financial statements by three months and as a consequence no late filing fees u/s.403 of the Companies Act 2013 becomes payable, which otherwise is payable @ Rs.100/- per day per document (annual return and financial statement), as per Para 1.D of the Annexure to of the Companies (Registration of Offices and Fees) Rules, 2014 to be read with rule 12 thereof.
The resultant condonation of delay by the impugned order of AA, can be granted only by the Central Government u/s. 460(b) of the Companies Act, 2013 or where such powers are delegated by the Central Government u/s.458 of the Companies Act 2013 upon any authority or officer, by such delegatee. However, till date the Central Government has not delegated its powers pursuant to Section 458 upon any other authority or officers for condonation of delay in filing of documents (including annual return and financial statements) under the Companies Act 2013.
Disregarding submission of the ROC without assigning reasons:
The ROC (as Respondent) rightly submitted to the Hon’ble AA that the requirements of the Companies Act 2013 are statutory in nature and thus cannot be waived by Hon’ble NCLT. However, without assigning any reasons for ignoring the plea of the ROC or without considering its own authority, Hon’ble NCLT extended its jurisdiction and observed at para 13 of the impugned order that
“…. The e-Filing of statements and returns obviously could not have envisaged all eventualities arising out of a successful resolution of a Corporate Debtor”.
Thus, Hon’ble AA miserably failed to examine its jurisdiction while extending statutory period for filing documents with the ROC and waiving penalty under the Companies Act 2013.
It is established principle of law that the NCLT, which is a creature of a statute viz. the Companies Act 2013, cannot pass orders in respect of matters for which jurisdiction is not conferred upon it – as held by Hon’ble Supreme Court in Transcore v. Union of India (2008) 1 SCC 125 in respect of DRT that it is a tribunal which is a creature of statute and it has no inherent power which exists in civil court; also in Om Prakash Gupta v. Dr. Rattan Singh, (1964) 1 SCR 259 in respect of tribunal under the Rent Control Act.
Inherent powers:
Since the NCLT has passed the impugned order per inherent powers under Rule 11 of the NCLT Rules, 2016, let’s look at the same. It reads:
“Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of process of the tribunal.”
From the above rule 11, it is clear that wide powers are with NCLT to make necessary orders for ‘meeting ends of justice’ or to ‘prevent’ (kind of anticipatory) abuse of process of the tribunal.
Even Supreme Court of India, in exercise of its power under Article 142 of the Constitution, is not expected to issue direction in contravention of law or to direct the statutory authority to act in contravention of law, Poonam v. Sumit Tanwar (2010) 4 SCC 460.
In Supreme Court Bar Assn. v. Union of India (1998) 4 SCC 409, Apex Court overruled V. C. Mishra case, (1995) 2 SCC 584 on the point that while exercising power under Art.142, the court can ignore statutory provisions expressly dealing with the subject.
Further, when exercising power under Article 142, Supreme Court cannot make any decree or order inconsistent with, repugnant to, or in violation of, the express statutory provisions, nor is the power exercised merely in sympathy. See Manish Goel v. Rohini Goel (2010) 4 SCC 393; A. R. Antulay v. R. S. Nayak, (1988) 2 SCC 602; Delhi Judicial Service Assn. v. State of Gujarat (1991) 4 SCC 406; Lakshmidas Morarji v. Behrose Darab Madan (2009) 10 SCC 425; J. Jayalalithaa v. State of Karnataka (2014) 2 SCC 401.
Clearly, direction by the AA to ROC to act beyond the powers under the Companies Act is in the teeth of the said Apex court’s ruling.
Thus, in passing the impugned order under its inherent powers, AA has usurped the power of Central Govt. under the Companies Act 2013.
Incorrect reliance on Apex Court decision in Essar Steel’s matter:
Hon’ble AA at para 19 of the impugned order relied upon precedent set by Hon’ble Apex Court in Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors. [2019] ibclaw.in 07 SC to advance cause of a successful resolution applicant under the IBC. Hon’ble NCLT recognizes at the opening line of para 20 of the impugned order that “Though the present predicament faced by the Applicant is not in respect of any new claim, the principle and sentiment echoed by the Hon’ble Court can be applied to resolve the present imbroglio.”
Clearly the ruling of the Apex Court in Essar Steel’s case does not set any principle that compliance of the legal provisions can be relaxed by the Courts, much less NCLT / AA.
The reference to ‘fresh slate’ in the Essar Steel’s case is in connection with Sec. 31(1) of the IBC when a resolution plan is approved, the same is binding upon all stakeholders and reference therein that the resolution plan shall be binding upon the Government is only in respect of payment of dues by CD to the Government, at the time of commencement of corporate insolvency resolution process (CIRP).
Can AA / NCLT grant relief on the principle that procedural law are handmaid of justice?
In the impugned order, Hon’ble AA observes, at para 18:
“It is settled that when the technical considerations are pitted against the substantial justice, cause of substantial justice would be preferred. Therefore, interest of justice requires that the Applicant shall have to be provided with all the support for getting the statutory compliances done.”
Further, the dangerous proposition advocated by Hon’ble NCLT at para 20 of the impugned order. It refers to the five rulings of Hon’ble Supreme Court to buttress that, procedures are handmaidens of justice and not meant to hamper the cause of justice.
Reliance on the said principle is totally misplaced and in fact is not applicable. Each of the said five decision relied by AA are:
- In Shaik Salim Haji Abdul v. Mr. Kumar & others: AIR 2006 SC 396 – In this case, the issue was pertaining to procedural compliance with respect to submission of written submission within 90 days as per Order 8 Rule 1 of C.P.C. and there was a delay of one day beyond the time granted by the trial court, as the last day happen to be Sunday. The ruling is based on the principle that party cannot be made to suffer on account of an act of the Court. In this context it was held that rules of procedure are handmaidens of justice.
- In Sardar Amarjit Singh Kalra v. Pramod Gupta: (2003) 3 SCC 272 – In this case, the context was delay in filing applications to implead in existing proceedings. And in the said context, constitutional bench of the Apex Court held that (para 26) the provisions of Order 22 CPC are not to be construed as rigid matter of principle but must ever be viewed as a flexible tool of convenience in the administration of justice.
- In Balaji v. Virender Singh: (2004) 8 SCC 312 – In this case, the question was approaching Central Registrar (‘CR’) of Multi-State Co-operative Societies after prescribed period of 30 days for challenging election. And it was held by the Apex Court that in election dispute raised before the CR, rigorous rules of pleadings under CPC do not apply. And in that context Supreme Court stated that (at para 10) “….the procedure would not be used to discourage the substantial and effective justice but would be so construed as to advance the cause of justice”, reciting observation from Sardar Amarjit Singh Kalra (supra).
- In Collector, Land Acquisition v. Mst. Katiji: AIR 1987 SC 1353 – In this case, the context was ‘sufficient cause’ under Sec.5 of the Limitation Act for there was a delay of four days in filing appeal by the State against enhancement of compensation for land acquisition. And in this context Apex Court at para 3 reminds lower courts about liberal approach to be adopted while dealing with ‘sufficient cause’ under sec.5 of the Limitation Act.
- In Laxmibai v. Bhagwantbuva (2013) 4 SCC 97 – In this case, parents while adopting a child, had signed the adoption deed as witness and not as parents. Apex Court held that there was substantial compliance by parents and in this context observed at para 49 that “When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred and the courts may in the larger interests of administration of justice may excuse or overlook a mere irregularity or a trivial breach of law for doing real and substantial justice to the parties and pass orders which will serve the interest of justice best.”
In fact, in a very recent case of Antanium Holdings Pte. Ltd., Vs. Sujana Universal Industries Limited, 2021 SCC OnLine NCLAT 167, (decided on 17.05.2021), the National Company Law Appellate Tribunal, Chennai Bench held, at para 22:
“22. However, the Resolution Plan approved shall not construe any waiver to any statutory obligations/liabilities arising out of the approved Resolution Plan and shall be dealt in accordance with the appropriate Authorities as per relevant Laws. This Adjudicating Authority is of the considered view that if any waiver is sought in the Resolution Plan, the same shall be subject to approval by the concerned Authorities. The same view has also been held by Hon’ble Principal Bench, NCLT in the case of Parveen Bansal Vs. Amit Spinning Industries Ltd. In CA No.360(PB) 2018 in CP No. (IB) 131 (PB)/2017.”
Conclusion:
To conclude, the legislature has not enacted any provision under the IBC or the Companies Act 2013 granting any authority to the NCLT to relax time lines for filing any document under Companies Act or to waive penalty thereunder. And in the absence of such an authority, NCLT cannot exercise its inherent powers under Rule 11 of the NCLT Rules to provide reliefs for which authority is with the Central Govt. under the Companies Act.
The danger of such usurpation of power by NCLT may lead to a situation where successful Resolution Applicants would come before it, seeking exemption from statutory obligations and penalties arising during and after CIRP.
And hence the said order dt. 19th May 2021 is ‘per incuriam’ as held in A.R. Antulay v. R. S. Nayak, (1988) 2 SCC 602. Hon’ble NCLAT may declare the impugned order as ‘per incuriam’ to avoid wrong notion about extent of inherent powers of AA / NCLT, as ratio of a case can be extended to other identical situations, factual and legal, as held in Deena v. Union of India, (1983) 4 SCC 645.
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