Ramesh Kymal Vs Siemens Gamesa Renewable Power Pvt Ltd. (Supreme Court of India)
Bar against initiation of CIRP applies to applications filed from 25 March 2020 even if application filed before date of amendment
Conclusion: Section 10A of the Insolvency and Bankruptcy Code (IBC) barred 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, even if such application was filed before the date on which the amendment came into force i.e. 5 June 2020.
Held: The appellate jurisdiction of Supreme Court under Section 62 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) had been invoked to challenge the judgement and order of the National Company Law Appellate Tribunal (“NCLAT”) dated 19 October 2020. 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 assessee as an operational creditor under Section 9 was not maintainable. The issue which falls for determination in the appeal was 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. It was held that the proviso to Section 10A stipulates that “no application shall ever be filed” for the initiation of the CIRP “for the said default occurring during the said period”. The expression “shall ever be filed” is a clear indicator that the intent of the legislature is to bar the institution of any application for the commencement of the CIRP in respect of a default which has occurred on or after 25 March 2020 for a period of six months, extendable up to one year as notified. The explanation which has been introduced to remove doubts places the matter beyond doubt by clarifying that the statutory provision shall not apply to any default before 25 March 2020. The substantive part of Section 10A is to be construed harmoniously with the first proviso and the explanation. Reading the provisions together, it is evident that 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. the correct interpretation of Section 10A cannot be merely based on the language of the provision; rather it must take into account the object of the Ordinance and the extraordinary circumstances in which it was promulgated. It must be noted, however, that the retrospective bar on the filing of 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. The object of the legislation has been to suspend operation of Sections 7, 9 & 10 in respect of defaults arising on or after 25th March, 2020 i.e. the date on which Nationwide lockdown was enforced disrupting normal business operations and impacting the economy globally. Indeed, the explanation removes the doubt by clarifying that such bar shall not operate in respect of any default committed prior to 25th March, 2020.
FULL TEXT OF THE SUPREME COURT JUDGEMENT
1. The appellate jurisdiction of this Court under Section 62 of the 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 (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 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 Ordinance2 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 corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period.
Explanation – For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before 25th March, 2020.”
7 The respondent filed an application3 seeking the dismissal of the appellant’s application on the basis of the newly inserted provisions of Section 10A. The NCLT upheld the submission of the respondent, holding that a bar has been created by the newly inserted provisions of Section 10A. This decision has been upheld in appeal by the NCLAT.
8 The 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. Before proceeding to discuss the rival submissions, it is necessary to preface the discussion with reference to three significant dates which have a bearing on the present proceedings:
