6
Ramco Systems Ltd. vs. SpiceJet Ltd.
[2019] 105 taxmann.com 175 (NCLAT)
Company Appeal (AT) (Insolvency) No.
31
of 2018
Date of order: 8th May, 2019
Section 9 of the Insolvency and Bankruptcy Code, 2016 – When
Operational creditor could not establish that invoices in respect of debt due
and payable were actually forwarded to the corporate debtor and received by it,
claim u/s. 9 could not be maintained for want of consistency and clear
documentation of debt due
FACTS
R Co entered into “Aviation Software Solutions Agreements”
dated 13.05.2013 consisting of four agreements, all of even date, with S Co.
There were certain amendments made on 01.07.2014 which reduced the number of
authorised licences, amongst others.
By an email sent on 19.01.2016, R Co submitted that an amount
of Rs. 62.89 lakhs was payable and an invoice of the same was intimated to S Co
by email on that day. The invoices relate to documents dated 30.05.2013 and
23.07.2014. S Co, on the other hand, submitted that all the claims depended on
invoices raised in the year 2013-14 and were barred by limitation.
Next, R Co issued a demand notice u/s. 8(1) on 24.04.2017
without attaching the invoices relating to the debt which was payable. S Co, on
the other hand, claimed that it never received the invoices in question.
R Co filed an application with the NCLT u/s. 9 of the Code.
NCLT dismissed the said petition on the grounds of inconsistency in the overall
payments and the non-compliance with the provisions of section 9(3)(c) by the
“Operational Creditor”. NCLT further observed that S Co had made certain
payments to R Co. R Co then filed an appeal before the NCLAT.
HELD
The Appellate Tribunal held that there was no record to show
that invoices dated 23.07.2014 were received or forwarded to S Co. Therefore,
the demand notice issued on 24.04.2017 as related to invoice dated 23.07.2014,
though it cannot be held to be barred by limitation, but in absence of specific
evidence relating to invoices actually forwarded by R CO and there being a
doubt, it was held that the NCLT had rightly refused to entertain the
application u/s. 9 which required strict proof of debt and default.
It was further held that this order would not come in the way
of R Co to move before a court of competent jurisdiction for appropriate
relief.
7
JK Jute Mill Mazdoor Morcha vs.
Juggilal Kamlapat Jute Mills Company Ltd.
[2019] 105 taxmann.com 1 (SC)
Civil Appeal No. 20978 of 2017
Date of order: 30th
April, 2019
Section 5(20) of the Insolvency and Bankruptcy Code, 2016
– Registered trade unions qualify as “person” within the meaning of section
3(23) – The statement that there were no services rendered by them to the
corporate debtor was of no significance – Registered trade unions represent
their members who are workers, to whom dues may be owed by the employer –
Registered trade unions can thus qualify as operational creditors that are
capable of filing and maintaining a petition on behalf of their members
FACTS
J Co was a jute mill that was closed and reopened several
times until, finally, it was closed for good on 07.03.2014. Proceedings were
pending under the Sick Industrial Companies (Special Provisions) Act, 1985. On
14.03.2017, JM being the trade union of J Co, issued a demand notice on behalf
of roughly 3,000 workers u/s. 8 of the Insolvency and Bankruptcy Code, 2016
(“the Code”) for outstanding dues of workers. J Co replied to the same on
31.03.2017. The National Company Law Tribunal (“NCLT”) dismissed the petition
filed by JM on the grounds that a trade union was not an operational creditor.
On 12.09.2017, the National Company Law Appellate Tribunal (“NCLAT”) followed
suit and dismissed the appeal filed by JM.
Aggrieved, JM filed an
appeal before the Supreme Court. It was their contention that a trade union
being a person would qualify as an operational creditor within the meaning of
the Code. If a purposive interpretation is given to the provisions of the Code,
the same would result in maintenance of the application. J Co argued that there
were no services rendered by the registered trade union to it to claim any dues
which could be termed as debt, and as such the trade unions would not come
within the definition of operational creditors. That apart, each claim of each
workman was a separate cause of action in law and, therefore, there are
separate dates of default of each debt. That being so, a collective application
under the rubric of a registered trade union would not be maintainable.
HELD
The Supreme Court examined
the provisions of sections 5(20), 5(21), 3(23) of the Code; Rule 6 of the
Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016
(“the Rules”); as well as the provisions of the Trade Unions Act.
The Court observed that a
trade union was an entity established under a statute – namely, the Trade
Unions Act, and would therefore fall within the definition of
“person” u/s. 3(23) of the Code. Thus, a claim in respect of
employment could certainly be made by a person duly authorised to make such
claim on behalf of a workman. Rule 6 of the Rules also recognises the fact that
claims may be made not only in an individual capacity but also conjointly.
It was further held that a
trade union, like a company, trust, partnership, or limited liability
partnership, when registered under the Trade Union Act, would be
“established” under that Act in the sense of being governed by that
Act.
Also, it was observed that
instead of one consolidated petition by a trade union representing a number of
workmen, filing individual petitions would be burdensome as each workman would
thereafter have to pay insolvency resolution process costs, costs of the
interim resolution professional, costs of appointing valuers, etc., under the
provisions of the Code read with Regulations 31 and 33 of the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016.
A registered trade union which is formed for the purpose of
regulating the relations between workmen and their employer can maintain a
petition as an operational creditor on behalf of its members. The Supreme Court
further observed that procedure was a handmaid of justice, and is meant to
serve the justice.
The Court held that NCLAT was incorrect in not going into
whether a trade union was a person or not as well as holding that a trade union
would not be an operational creditor as no services are rendered by the trade
union to J Co. It was also observed that if one were to state that for each
workman there would be a separate cause of action, a separate claim and a
separate date of default, this would ignore the fact that a joint petition
could be filed under Rule 6 read with Form 5 of the Rules.
The judgement of NCLAT was set aside and the appeal was
allowed with a direction to NCLAT to decide the appeal on merits expeditiously.
8
Serious Fraud
Investigation Office vs. Rahul Modi
[2019] 103 taxmann.com 408
(SC)
Criminal Appeal Nos. 538,
539 of 2019
Date of order: 27th
March, 2019
CL: Prescription of period within which a report has to be
submitted to Central Government under sub-section (3) of section 212 is purely
directory – Even after expiry of such stipulated period, mandate in favour of
Serious Fraud Investigation Officer (SFIO) and the assignment of investigation
under s/s. (1) would not come to an end – The only logical end as contemplated
is after completion of investigation when a final report or “investigation
report” is submitted in terms of sub-section (12) of section 212
FACTS
The investigation was assigned to SFIO vide order dated
20.06.2018. The order stipulated that the inspectors should complete their
investigation and submit their report to the Central Government within three
months. The period of three months expired on 19.09.2018. The proposal to
arrest three accused persons was placed before the Director, SFIO and approval
was granted by him on 10.12.2018. After they were arrested, the accused were
produced before the Judicial Magistrate, who by his order dated 11.12.2018
remanded them to custody till 14.12.2018, to be produced before the Special
Court on that day. On 13.12.2018 extension of time for completing investigation
of the case was preferred by the SFIO which was accepted on 14.12.2018,
granting an extension up to 30.06.2019.
On 14.12.2018 the Special
Court, Gurugram, remanded the accused to custody till 18.12. 2018. On
17.12.2018, the accused (respondents herein) preferred Writ Petitions which
came up for hearing for the first time before the High Court of Delhi on
18.12.2018. On that day itself, the accused were further remanded to police
custody till 21.12.2018. On 20.12.2018 the Writ Petitions were entertained and
the order which is under appeal was passed. Pursuant to the said order, the
original writ petitioners (the respondents herein) were released on bail.
The principal issues which arise in the matter are whether
the High Court was right and justified in entertaining the petition and in
passing the order of release under appeal?
HELD
The Supreme Court (SC) examined the provisions related to
SFIO in detail as under:
1. Section 212 empowers the Central Government to assign the
investigation into the affairs of a company to SFIO. Upon such assignment the
Director, SFIO may designate such number of inspectors under sub-section (1)
and shall cause the affairs of the company to be investigated by an
Investigating Officer under s/s.(4).
2. The expression used in s/s. (1) is “assign the
investigation”. S/s. (2) incorporates an important principle that upon such
assignment by the Central Government to SFIO, no other investigating agency of
the Central Government or any State Government can proceed with investigation
in respect of any offence punishable under the 2013 Act and is bound to
transfer the documents and records in respect of such offence under the 2013
Act to the SFIO.
3. Under s/s. (3) where the investigation is so assigned by
the Central Government to the SFIO, the investigation must be conducted and a
report has to be submitted to the Central Government within such period as may
be specified.
4. The subsequent provisions then contemplate various stages
of investigation including arrest under s/s. (8) and that SFIO is to submit an
interim report to the Central Government, if it is so directed under s/s.
(11). Further, according to sub-section (12), on completion of the
investigation, SFIO is to submit the “investigation report” to the
Central Government. Under s/s. (14) on receipt of said “investigation report”
the Central Government may direct SFIO to initiate prosecution against
the company.
5. The “investigation report” under s/s. (12) is to be
submitted on completion of the investigation, whereas report under s/s. (11) is
in the nature of an interim report and is to be submitted if the Central Government
so directs.
6. In the backdrop of these provisions the Supreme Court had
to consider whether the period within which a report is contemplated to be
submitted to the Central Government under s/s. (3) is mandatory.
The Supreme Court, on the basis of an analysis of the above
provisions, concluded as under:
- Section 212(3) of the 2013 Act
by itself does not lay down any fixed period within which the report has to be
submitted. Even under s/s. (12) which is regarding “investigation report”,
again, there is no stipulation of any period. In fact, such a report under s/s.
(12) is to be submitted “on completion of the investigation”. There is no
stipulation of any fixed period for completion of investigation which is
consistent with normal principles under the general law.
- Again, sub-section (2) of
section 212 of the 2013 Act does not speak of any re-transfer of the relevant
documents and records from SFIO back to the said investigating agencies after
any period or occurrence of an event. For example, u/s. 6 of the National
Investigation Agency Act, 2008 (“NIA Act” for short) the Agency (NIA) can be
directed by the Central Government to investigate the scheduled offence under
the NIA Act and where such direction is given, the State Government is not to proceed
with any pending investigation and must forthwith transmit the relevant
documents and records to the Agency (NIA). But u/s. 7 of the NIA Act, the
Agency may, with previous approval, transfer the case to the State Government
for investigation and trial of the offence.
- The very expression “assign” in
section 212(3) of the 2013 Act contemplates transfer of investigation for all
purposes where after the original Investigating Agencies of the Central
Government or any State Government are completely divested of any power to
conduct and complete the investigation in respect of the offences contemplated
therein. The transfer under sub-section (2) of section 212 would not stand
revoked or recalled in any contingency. If a time limit is construed and
contemplated within which the investigation must be completed then logically,
the provisions would have dealt with as to what must happen if the time limit
is not adhered to.
- The statute must also have
contemplated a situation that a valid investigation undertaken by any
investigating agency of the Central Government or State Government which was
transferred to SFIO must then be re-transferred to the said investigating
agencies. But the statute does not contemplate that. The transfer is
irrevocable and cannot be recalled in any manner. Once assigned, SFIO continues
to have the power to conduct and complete investigation. The statute has not
prescribed any period for completion of investigation. The prescription in the
instant case came in the order of 20.06.2018. Whether such prescription in the
order could be taken as curtailing the powers of the SFIO is the issue.
- It is well settled that while
laying down a particular procedure if no negative or adverse consequences
are contemplated for non-adherence to such procedure, the relevant provision is
normally not taken to be mandatory and is considered to be purely directory.
Furthermore, the provision has to be seen in the context in which it occurs in
the statute. There are three basic features which are present in this matter:
1. Absolute transfer of investigation in terms of section
212(2) of the 2013 Act in favour of SFIO and upon such transfer all documents
and records are required to be transferred to SFIO by every other investigating
agency.
2. For completion of investigation, sub-section (12) of
section 212 does not contemplate any period.
3. Under sub-section (11) of section 212 there could be
interim reports as and when directed.
- In the face of these three
salient features, the Supreme Court held that the prescription of period within
which a report is to be submitted by SFIO under sub-section (3) of section 212
is for completion of period of investigation and on the expiry of that period
the mandate in favour of SFIO must come to an end. If it was to come to an
end, the legislation would have contemplated certain results including
re-transfer of investigation back to the original investigating agencies which
were directed to transfer the entire record under sub-section (2) of section
212.
- In the absence of any clear
stipulation, the Supreme Court further held that an interpretation that with
the expiry of the period, the mandate in favour of SFIO must come to an end
will cause great violence to the scheme of legislation. If such interpretation
is accepted, with the transfer of investigation in terms of sub-section (2) of
section 212 the original investigating agencies would be divested of power to
investigate and with the expiry of mandate, SFIO would also be powerless which
would lead to an incongruous situation that serious frauds would remain beyond
investigation.
- The only construction which is,
possible therefore, is that the prescription of period within which a report
has to be submitted to the Central Government under sub-section (3) of section
212 is purely directory. Even after the expiry of such stipulated
period, the mandate in favour of the SFIO and the assignment of investigation
under s/s. (1) would not come to an end. The only logical end as contemplated is
after completion of investigation when a final report or “investigation report”
is submitted in terms of sub-section (12) of section 212.
- It cannot, therefore, be said
that in the case discussed above the mandate came to an end on 19.09.2018 and
the arrest effected on 10.12.2018 under the orders passed by Director, SFIO was
in any way illegal or unauthorised by law. In any case, extension was granted
in the present case by the Central Government on 14.12.2018. But that is
completely besides the point since the original arrest itself was not in any
way illegal.
The Supreme Court accordingly concluded that the High Court
had completely erred in proceeding on that premise and in passing the order of
release of the respondents herein.
