Case Law Details
Akshay Jhunjhunwala & Anr. Vs Union of India (Calcutta High Court)
The petitioners have assailed the vires of Sections 7, 8 and 9 of the Insolvency and Bankruptcy Code, 2016.
Learned Senior Advocate appearing for the petitioners has submitted that, the second respondent is a corporate debtor in respect of whom a proceeding under the Code of 2016, is pending adjudication before the National Company Law Tribunal (NCLT), Kolkata. The Code of 2016, according to him, makes a distinction between a financial creditor and an operational creditor in respect of a corporate debtor which does not have a rational and intelligible basis. The differentiation between the two categories of creditors being unintelligible and irrational, the provisions of Sections 7, 8 and 9 of the Code of 2016 should be struck down. He has submitted that, undue preference has been given to a financial creditor. A financial creditor has a right to be in the Committee of Creditors (COC) of a corporate debtor in an insolvency proceeding. An operational creditor, although such creditor may have a claim far in excess than that of the financial creditor, will have no say in the Committee of Creditors. In a given situation, a corporate debtor may have only one financial creditor. Such financial creditor will constitute COC, without any participation from any other category of creditors of a corporate debtor including that of an operational creditor, although such operational creditor in a given case may have a claim in excess of the financial creditor and the number of operational creditors may exceed the number of financial creditors. Such a distinction between two categories of creditors in respect of the same financial debtor is unjust, unfair, impracticable, irrational and ought not to be countenanced by a Court. The distinctions sought to be introduced by the Code of 2016 in respect of a financial and an operational creditor for corporate debtor has been highlighted by the learned Senior Advocate for the petitioners. He has referred to Sections 3(6), (10), (11), (12), Section 5(6), (7), (8), (20) (21), Section 6, Section 7, Section 8 and Section 9 of the Code of 2016 in this regard.
Learned Senior Advocate for the petitioners has submitted that, the Code of 2016 does not empower the adjudicating authority to look into the validity and sufficiency of a claim lodged by a financial creditor whereas a deeper and a better scrutiny is sought to be introduced in respect of an operational creditor. In both the events, learned Senior Advocate for the petitioners has submitted that, the scope of enquiry as contemplated under the Code of 2016 or at least as the learned Presiding Officers of NCLTs seek to enforce, are within such extreme limited parameters that, justice so far as a corporate debtor is concerned stands affected. He has submitted that, a corporate debtor does not have a platform on which the corporate debtor can get on board along with its creditors to face and challenge the validity, sufficiency, legality and the quantum of the claim leveled against it by any category of creditor, be it the financial or the operational one. In case of an operational creditor, however, the Code envisages a slightly better position for a corporate debtor although such so-called better position is also insufficient. According to him, Section 7 of the Code of 2016 as it stands today does not permit a corporate debtor to claim either set off or make a counter claim, a valid defence against the financial creditor. A corporate debtor does not have a platform to contend that, it has a valid ground so as to deny the liability towards the financial creditor. He has given few examples where the Code of 2016 is lacking. He has submitted that, by reason of Section 231 and 238 of the Code of 2016, the corporate debtor and in fact, no stake holder connected or concerned with the corporate debtor, can approach any other forum for the purpose of obtaining an injunction against a proceeding pending before a Tribunal under the Code of 2016.
Learned Senior Advocate for the petitioners has submitted that, the distinction sought to be introduced by the Code of 2016 between a financial creditor and an operational one is without any basis. The claim of the operational creditor and its money value would, in a given case, be of the same quality and value than that of the financial creditor. The financial creditor should also be visited with the same rigours as visited in case of an operational creditor. Therefore, the difference introduced by the Code of 2016 is not on an intelligible criterion. Drastic consequences of the Code of 2016 aggravate the unequalness amongst the creditors. He has referred to 2017 Volume 203 Company Cases page 442 ( Sree Metaliks Ltd. & Anr. v. Union of India & Anr.), 2017 Supreme Court Cases Online (SC) page 1025 (M/S. Innoventive Industries Ltd. v. ICICI Bank & Anr.), 2017 Supreme Court Cases Online (SC) page 1154 (Mobilox Innovations Private Limited v. Kirusa Software Private Limited) in support of his contentions.
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