4. Vashdeo R. Bhojwani vs. Abhyudaya
Co-operative Bank Ltd. [2019] 109
taxmann.com 198 (SC) Civil Appeal No.
11020 of 2018 Date of order: 2nd
September, 2019
Section 7 of Insolvency and Bankruptcy Code, 2016 read with article 137
and section 23 of the Limitation Act – Application u/s 7 or 9 cannot be moved
if more than three years have lapsed since the default giving rise to the
application – Default does not constitute a continuing wrong – The loss is a
continuing damage arising as a result of the wrong
FACTS
V made a default of
Rs. 6.7 crores and was declared as a non-performing asset (NPA) by A Bank on 23rd
December, 1999. A recovery certificate dated 24th December, 2001 was
issued for this amount. A Bank filed a petition against V on 21st
July, 2017 before the National Company Law Tribunal (NCLT) claiming that this
amount together with interest which kept ticking from 1998, was payable to it.
The loan initially granted to Respondent No. 2 had originally been assigned and
after a merger with a co-operative bank in 2006, A Bank became a financial
creditor to whom these moneys were owed. NCLT admitted the petition stating
that no period of limitation would attach since the default continued.
The appeal filed
before National Company Law Appellate Tribunal was dismissed on the ground that
since the cause of action continued, no limitation period would attach.
Aggrieved by the
order, an appeal was filed before the Supreme Court.
HELD
After hearing both
sides, the Supreme Court referred to its own judgement in B.K.
Educational Services Private Limited vs. Parag Gupta and Associates, 2018 (14)
Scale 482. It was held that the Limitation Act applied to the petitions
filed u/s 7 and 9 of the Insolvency and Bankruptcy Code, 2016. The judgement
stated that the application would be barred under Article 137 of the Limitation
Act if the default occurred more than three years prior to the date of filing
the application.
It was urged before
the Supreme Court that in order to save the case, provisions of section 23 of
the Limitation Act would apply. The Court, relying on Balkrishna Savalram
Pujari and others vs. Shree Dnyaneshwar Maharaj Sansthan and others [1959],
Supp. (2) S.C.R. 476, held that section 23 of the Limitation Act refers
not to a continuing right but to a continuing wrong. If the wrongful act causes
an injury which is complete, there is no continuing wrong even though the
damage resulting from the act may continue. If, however, a wrongful act is of
such a character that the injury caused by it itself continues, then the act
constitutes a continuing wrong. A distinction between the injury caused by the
wrongful act and what may be described as the effect of the said injury was
important.
The Supreme Court,
setting aside the orders of the NCLT and the NCLAT, held that when the Recovery
Certificate dated 24th December, 2001 was issued, the Certificate
injured effectively and completely the appellant’s rights as a result of which
limitation would have begun ticking. The suit was held to be time-barred but
there was no order as to costs.
5. Duncans Industries Ltd. vs. A.J. Agrochem [2019] 110
taxmann.com 131 (SC) Civil Appeal No. 5120
of 2019 Date of order: 4th
October, 2019
Insolvency and
Bankruptcy Code, 2016 – Consent of Central Government was not required to be
obtained for initiating proceedings under the Code where notification to take
over the management of tea units of a company by the authorised personnel of
Central Government was already issued – Provisions of the Code would have an
overriding effect over the provisions of Tea Act, 1953
FACTS
D Co is a company
that owns and manages 14 tea gardens. A Co supplied pesticides, insecticides,
herbicides, etc., to D Co and accordingly was its operational creditor. A sum
of Rs. 41,55,500 was payable by D Co to A Co and, therefore, proceedings u/s 9
of the Insolvency and Bankruptcy Code, 2016 (the Code) were initiated. The
Central Government, vide notification dated 28th January, 2016, in
exercise of its power u/s 16E of the Tea Act, 1953 had taken over the control
of seven of the tea gardens of D Co. The notification of the Central Government
was challenged before the Calcutta High Court and it had, by an interim order,
restored the management of the tea gardens to D Co.
Section 16G of the
Tea Act provided that prior consent of the Central Government was required to
initiate the winding up, or appointment of receiver of the company, once the
management of its tea unit was taken over by the Central Government. D Co
submitted that since this consent was not in place, application u/s 9 of the
Code could not be admitted. The NCLT upheld this contention and dismissed the
application filed.
Aggrieved, A Co
filed an appeal with the NCLAT which, after hearing both the sides, reversed
the order passed by the NCLT and held that a petition u/s 9 would be
maintainable even though the consent of the Central Government had not been
obtained.
Aggrieved by the
order of the NCLAT, D Co filed an appeal before the Supreme Court and raised
the following arguments:
(i) Section 16G of the Tea Act specifically
governed the situation of D Co. Further, ‘winding up’ process under the
Companies Act, 1956 includes the insolvency proceedings under the Code;
(ii) The order of the Calcutta High Court did not
stay the notification issued by the Central Government but only provided
interim relief;
(iii) Section 238 of the Code which provides it an
overriding effect comes into play only when there is an inconsistency in the
provisions of two statutes. It would not apply when there is no conflict. As
such, there is no conflict between the Tea Act and the Code. Section 16G only
requires obtaining consent before initiation of proceedings of winding up.
A Co made the
following arguments:
(a) The Code is an entire code in itself. A
prerequisite of obtaining consent cannot be imported and / or read into the
Code when the self-contained Code itself does not provide for it;
(b) Importing the requirement of obtaining consent
of the Central Government would be contrary to legislative intent sought to be
achieved and to the overriding nature of the Code. Further, as both the Tea Act
and the Code have the objective of restarting or revival of the company, provisions
of the Code would prevail in terms of section 238 of the Code;
(c) It was submitted that section 16G(1) of the
Tea Act does not automatically get triggered with the issuance of a
notification u/s 16E(1) of the Tea Act, but becomes applicable once the
management of a tea undertaking or tea unit owned by a company has been taken
over by the Tea Board. Pursuant to the interim order of the High Court, D Co
continues to be in control and management of the tea units / gardens;
(d) Further, section 16G(1)(c) of the Tea Act is
applicable to a proceeding for ‘winding up’ and not to proceeding for
initiation of ‘corporate insolvency resolution process’, as the two are not one
and the same proceedings.
HELD
The Supreme Court
examined the provisions of section 16G of the Tea Act and also heard both the
parties at length. It was observed that pursuant to the interim order of the
High Court, D Co continued to be in management and control of the tea estates,
despite the notification u/s 16E dated 28th January, 2016. In the
facts of the case, provisions of section 16G would not be applicable at all.
The Court held that section 16G of the Tea Act shall be applicable only in a
case where the actual management of a tea undertaking or tea unit owned by a
company has been taken over by any person or body of persons authorised by the
Central Government under the Tea Act. Therefore, taking over the actual
management and control by the Central Government or by any person or body of
persons authorised by the Central Government is sine qua non before
section 16G of the Tea Act is made applicable. Accordingly, in the
circumstances of the case, the provisions of section 16G of the Tea Act would
not apply.
The Court observed
that the Insolvency and Bankruptcy Code, 2016 was a complete code in itself. It
took note of its own verdict in the case of Innoventive Industries Ltd.
vs. ICICI Bank, (2018) 1 SCC 407: (2018) 1 SCC (Civ) 356 and proceeded
to hold that the entire ‘corporate insolvency resolution process’ as such could
not be equated with ‘winding-up proceedings’. The proceedings u/s 9 of the Code
were not limited and / or restricted to winding up and / or appointment of
receiver only. The winding up / liquidation of the company would be the last
resort and only in the eventuality that the corporate insolvency resolution
process fails. The focus of the legislation was to ensure revival of business
and by protecting the corporate debtor from its own management and from a
corporate debt by liquidation. The procedure was required to be completed in a
time-bound manner.
It was held that
the Code having been passed subsequent to the Tea Act would have an overriding
effect. Further, prior consent of the Central Government before initiation of
the proceedings u/s 7 or 9 of the IBC would not be required; and even without
such consent of the Central Government the insolvency proceedings u/s 7 or 9 of
the Code shall be maintainable.
The order passed by
NCLAT was upheld and the appeal was dismissed without any costs.
6.
Yashodhara Shroff vs. Union of India [2019] 106 taxmann.com 297 (Kar.) Date of order: 12th June, 2019
Companies Act – Section 164(2)(a)
disqualifying directors of companies from office for a period of 5 years on
failure to submit annual returns and statements for 3 consecutive years is not ultra
vires Constitution – the period prior to 1st April, 2014 cannot
be reckoned for the purpose of applying the disqualification under the said
provision along with the period subsequent thereto
FACTS
The petitioner Y
challenged the list published by the Ministry of Corporate Affairs (MCA) in
September, 2017 whereby nearly 3,00,000 directors were disqualified u/s
164(2)(a) and section 167(1)(a) of the Companies Act, 2013 for failing to file
annual returns and statements for a period of three consecutive years.
Further, the
petitioners also contended that there had been an arbitrary exercise of power
by the MCA in disqualifying the petitioners as directors of the respective
companies by giving retrospective operation to the aforesaid provisions of the
Act.
HELD
The High Court
observed as under:
The object of
disqualifying a person as a Director of a company on account of circumstances
mentioned in section 164 and the provisions of section 167 is to bring in a
higher degree of transparency and accountability in corporate governance, which
is necessary to protect the interest of investors and ensure compliance in
filing the annual accounts and annual returns which are a means of disclosure
to all stakeholders.
Further, section
164(2) applies to both private as well as public companies, as against section
274(1)(g) of the Companies Act, 1956.
The High Court,
after deliberations, held as under:
(i) Where the disqualification of the
petitioners is based on taking into consideration any financial year ‘prior to
1st April, 2014 as well as subsequent thereto’ while
reckoning continuous period of three financial years u/s 164(2)(a) of the Act, such
a disqualification is bad in law;
(ii) If the disqualification of the directors is
based on taking into consideration any financial year prior to 1st
April, 2014 only, i.e., the disqualification has occurred under the
provisions of the 1956 Act, such disqualification is not bad in law;
(iii) If the disqualification of the directors is
based on taking into consideration three continuous financial years
subsequent to 1st April, 2014, such disqualification is not
bad in law.
With regard to the
constitutional validity of the proviso of section 167(1)(a) of the Companies
Act, 2013, the Court ruled that the said provision does not violate Articles 14
and 19(1)(g) of the Constitution as it is made in the interest of the general public.
