Author name: CBCL

[By Ashutosh Anand & Shalini Puri] The author are students at National University of Study and Research in Law, Ranchi.   Introduction The National Company Law Tribunal (“NCLT”) and National Company Law Appellate Tribunal (“NCLAT”) have transformed the Indian insolvency regime by affording a single platform for resolution, specialised expertise, a creditor-friendly approach, efficient resolution mechanisms such as Corporate Insolvency Resolution Process, time-bound resolution, and an appellate body for review. However, there is persistence of a grey area regarding the powers of the NCLT and NCLAT in recalling their judgment. The concept of ‘Recall’ refers to a process by which the court, legislature, or administrative organisations withdraw or cancel their previous judgments or actions. On the other hand, ‘Review’ involves the court, legislature, or any other body re-examining their decisions. By using the method of review, the aforementioned bodies try to rectify the error in an act, judgement, or legislation. The NCLAT’s three-member bench in 2019, in the matter of Agarwal Coal Corporation Private Limited v. Sun Paper Mill Limited & Anr.[1] laid down a strong proposition of law of absence of any power or express provision of review and recall vested with the ‘Adjudicating Authority,’ i.e., the NCLT, and the ‘Appellate Authority’, i.e., the NCLAT, in the Insolvency and Bankruptcy Code, 2016 (“the Code”). Hence, a judgment or an order passed by the same shall neither be reviewed nor recalled. Subsequently, another three-member bench of the NCLAT in Rajendra Mulchand Varma & Ors. v. K.L.J Resources Ltd. & Anr.[2] vehemently adhered to the ratio in the Agarwal Coal Corporation case. Therefore, it became binding on the NCLT and NCLAT not to recall their judgments or orders.[3] However, the landmark case called UBI v. Dinkar T. Venkatasubramanian & Ors.[4] was heard by a three-member bench of the NCLAT in 2023. The case raised an important legal question about whether the NCLT and NCLAT, despite lacking the power to review judgments under the Code, could consider an application for recalling a judgment if sufficient grounds were presented. To address this issue, the three-member bench referred the matter to a five-member bench for further deliberation. After thorough consideration, the NCLAT ruled in the affirmative. In light of the same, this piece tries to highlight the rudimentary jurisprudential difference between the definitions of review and recall. Furthermore, by navigating through the legal standing under the scheme of the Code of Criminal Procedure, 1973, (“CrPC”) and a plethora of precedents, the piece tries to find the conceptual distinction between review and recall. Further, it discusses the inherent powers of the Tribunal in relation to Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 (“NCLAT Rules”), and how that inherent power is to be utilised by the Tribunal to recall a decision. The piece also lists out the practical aspects of non-deliverance of justice in case a Court or a Tribunal is not able to recall its decisions. An Underlined Distinction between Review and Recall According to Black’s Law Dictionary, the phrase ‘recall a judgment’ means to revoke or reverse a judgment for matters of fact or when a judgment is annulled because of errors of law.[5] On the contrary, the Dictionary says that the word ‘review’ means to examine judicially, a reconsideration, second view or examination, revision, or consideration for purposes of correction. Review is used especially for the examination of a cause by an appellate court and for a second investigation.[6] In Vijaya Sri v. State of Andhra Pradesh,[7] the Court, after analysing the combined definitions of review and recall from various authoritative dictionaries, concluded that recall necessitates the complete abrogation of a judgment or final order. In contrast, review refers to the continuation of the initial judgment or order with specific modifications, along with a re-examination and reconsideration of the said decision. As a result, the power to recall a judgment differs from the power to review it.[8] The contentions related to review and recalling have also been persistently seen in the CrPC. Section 362 of the CrPC has been held to be mandatory and puts a complete bar on review, except only to correct arithmetic or clerical errors. Additionally, it has been held that Section 482 of the CrPC cannot be invoked for the purposes of reviewing or altering the judgment. Nevertheless, it is important to note that recalling is different from reviewing and altering a judgment. Section 482 permits wide enough powers to the court to cover any type of case for the purpose of it being recalled or re-heard, if three conditions mentioned therein so warrant, viz. (a) to implement any order issued under the CrPC; (b) to safeguard against the misuse of the judicial process; and (c) to ensure the achievement of justice.[9] However, a difficult and complex situation arises when there is  no express provision regarding the recalling of a judgment in the statute. This question was answered by the Apex Court in Grindlays Bank Ltd. vs. Central Government Industrial Tribunal & Ors.,[10] wherein an application was filed to set aside an award given by the Industrial Tribunal. There was no express provision in the Industrial Disputes Act, 1947 or the Rules framed thereunder that provided for setting aside an ex-parte order. However, the Court held that even though there was an absence of an express provision to set aside the award, the Tribunal has jurisdiction to pass the order, which is an ancillary and incidental power to discharge its functions effectively.[11] The Tussle of Interpretation Nevertheless, the ratio given in the Agarwal Coal Corporation case and the Rajendra Mulchand Varma case, as mentioned in the introduction, made it impossible for the NCLT or NCLAT to recall their decisions which posed a grave jurisprudential flaw in the justice system. Numerous cases have emerged where the Tribunal discovered that its decisions were influenced by fraudulent practices by the parties involved, or the Tribunal itself made mistakes that unfairly affected one party. Additionally, instances were found where the parties deceived the Tribunal, leading to unjust outcomes.

[By Ritik Jhanwar & Kiran Nilawar] The authors are students at Gujarat National Law Univeristy.   Introduction In this article the author would highlight the interpretation of word ‘may’ in Section 7 of Insolvency and Bankruptcy Code, 2016 (“IBC”) and the difference between ‘may’ and ‘shall’ of Section 7 and 9 of the IBC respectively which are two mirror provisions in their application. The author would also explore the discretion exercised by adjudicating authority while deciding to admit any application filed under Section 7 of IBC in light of the recent judgement of the Supreme Court in M. Suresh Kumar Reddy v. Canara Bank & Ors.[1] The legal issue that this article clarifies comes into its existence because of the provisions Section 7 and Section 9 of the Insolvency and Bankruptcy Code (“IBC”) which are almost mirror provisions apart from the fact that while the former mentions application for Corporate Insolvency Resolution Process (“CIRP”) by Financial Creditors and the latter talks about the application by Operational Creditors. The issue stems from the fact that Section 7 (5) uses the word ‘may’ while section 9 uses the word ‘shall’ thus leading to conundrum as to whether Section 7 (5) confers discretion on the part of Adjudicating Authority while deciding an application for CIRP filed by Financial Creditors. In the Innoventive Industries Ltd. v. ICICI Bank and Ors.[2] (hereinafter “Innoventive Industries”), the Supreme Court stated that Section 7(5) of the Code confers the Adjudicating Authority to either accept or reject an application based on their assessment of whether a default has taken place or not. In Pratap Technocrats (P) Ltd. and Ors. v. Monitoring Committee of Reliance Infratel Limited and Ors.[3] (hereinafter “Pratap Technocrats”) it was further emphasized that a default refers to the failure to make a timely payment of a debt, and the jurisdiction of the Adjudicating Authority  is limited to identifying such defaults by the corporate debtor. Once the Adjudicating Authority is satisfied that a default has taken place, the application should be admitted, as long as it is properly filled out and there are no ongoing disciplinary actions against the proposed Resolution Professional. A similar stance was taken in E.S Krishnamurthy and Ors. v. Bharat Hi-Tech Builders Private Limited[4](hereinafter “E.S. Krishnamurthy”) wherein the Apex Court held that the Adjudicating Authority has only two options under Section 7(5) of the Code: either to accept or reject the application based on the verification of whether a default has taken place or not. But a contrary stance is taken in the case of Vidarbha Industries Power Limited v Axis Bank Limited[5] (hereinafter “Vidarbha Industries”), wherein some of the major issues that were discussed were: Whether there is a distinction between Section 7(5) and Section 9(5) of the IBC, 2016? Whether Section 7(5) of the IBC is a mandatory provision? The apex court while deciding these issues observed that Section 9 of the Code deals with initiation of CIRP by operational creditor, wherein a mandatory demand notice to be served on the Corporate Debtor by the Operational Creditor and after the expiry of 10 days of the notice and Operation Creditor without receiving the payment due or a notice of dispute by the Corporate Debtor, the Operational Creditor becomes qualified to file application to initiate CIRP before the Adjudicating Authority. Section 9(5)(i) also entails some conditions to be fulfilled for admitting the application by the Adjudicating Authority. On the contrary, Section 7(5) of the IBC deals with initiation of CIRP by the financial creditors. The court also observed that there was some legislature wisdom that led to using of word “may” in Section 7(5) and “shall” in Section 9(5) of the Code. Thus, an application under Section 9(5) is intended to be a mandatory provision but an application under Section 7(5) to be interpreted as a discretionary provision. The justification for this interpretation is rooted in the distinction between the business activities of financial creditors, who concentrate in investing and financing activities, whereas operational creditors, who often involves in supplying goods and services. Financial credits are typically characterized by larger amounts, secured assets, and longer repayment periods, while operational credit tends to involve smaller amounts, lack of collateral, and shorter repayment terms. As a result, it is inappropriate to compare the financial strength and business nature of a Financial Creditor with that of an Operational Creditor involved in the supply of goods and services. The non-payment of acknowledged dues can have a much more severe impact on an operational creditor compared to a financial creditor. Thus, court held that while deciding application filed by financial creditors under Section 7(5) of the IBC, the adjudicating authority has been conferred discretion. Adjudicating Authority may exercise this discretion while taking into account the overall financial health and viability of the corporate debtor and the relevant facts. From the above-mentioned judgements, a key conclusion that can be drawn is that while Innoventive Industries, Pratap Technocrats and E.S Krishnamurthy reiterate the delimited power of the Adjudicating Authority in the admittance of an application under Section 7 of the Code thus supporting the interpretation of mandatory nature of Section 7(5) of the Code, the decision in Vidarbha Industries supports the interpretation that discretionary nature of Section 7(5) of the Code. The position of law regarding nature of Section 7 of the Code was that of Vidarbha Industries only i.e., discretionary nature. Therefore, the Adjudicating Authority has discretion while deciding an application for CIRP filed by financial creditors under Section 7 (5) of the IBC by virtue of the word used in the provision “may” in the section. But this position was recently questioned in the case of M. Suresh Kumar Reddy v. Canara Bank & Ors.[6] Suresh Kumar Reddy v. Canara Bank & Ors. (hereinafter “M. Suresh Kumar Reddy”) Brief facts: Respondent bank had sanctioned a Secured Overdraft Facility of Rs. 12 Crores and a Guarantee Limit of Rs. 110 Crores to the Corporate Debtor on 28 February, 2017. However due to irregularities committed by the Corporate

[By Priyanshu Mishra] The author is a student at National Law School of India University.   Introduction The implementation of the Insolvency and Bankruptcy Code (Hereinafter as “IBC”) was intended to tackle the increasing problem of loan defaults and non-performing assets (Hereinafter as “NPA”). Unlike the previous insolvency law, the IBC focused on reviving companies rather than liquidating them and gave priority to the interests of creditors. Under the IBC, financial creditors played a crucial role as part of the Committee of Creditors (Hereinafter as “CoC”), which held significant decision-making power in the corporate insolvency resolution process (Hereinafter as “CIRP”). However, in a recent case (MK Rajagopalan v Dr Periasamy Palani Gounder), the Supreme Court ruled that the principle of commercial wisdom cannot be stretched too far to overlook a significant flaw in the functioning of the CoC. This article seeks to explore the implications of this court ruling on the principle of Commercial Wisdom of the CoC. It also questions the absolute authority of the CoC based on the principle of commercial wisdom and suggests the implementation of a Code of Conduct to govern the actions of CoC members. Legal Precedence: Examining existing jurisprudence on the Principle of Commercial Wisdom of the COC. In the landmark case of Vallal RCK v M/s Siva Industries, the Supreme Court established that the adjudicatory authority cannot scrutinize the details of a settlement plan approved by the CoC when assessing a resolution application under section 12A. Similarly, in the case of Ashish Saraf v Bhuvan Madan, the Court emphasized that the CoC has the responsibility of making business decisions regarding the approval or rejection of a resolution plan. This includes evaluating its feasibility and viability, and such decisions are considered beyond the scope of judicial review. Furthermore, in the case of K Shashidhar v Indian Overseas Bank, the Supreme Court concluded that the adjudicating body (NCLT) cannot dispute the autonomy of the CoC, but Judicial Review is limited to the grounds provided in the Act itself, which is a self-contained code. As a result, the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) cannot overrule CoC rulings. The Court reiterated this stance in the case of Committee of Creditors of Essar Steel India Ltd v Satish Kumar Gupta and Ors, emphasizing that adjudicatory bodies should exercise their jurisdiction as defined in the IBC. They must adhere to the guidelines outlined in Section 30(2) of the IBC and exercise their judicial review power in accordance with Section 32 of the IBC. A similar question arose in the Kalpraj Dharmshi case, where the Court reaffirmed that adjudicatory bodies cannot interfere with the commercial decisions made by the CoC. Examining the Court’s Role in CoC Decision-Making in the present case: Opening Pandora’s box? The Courts have generally interpreted the principle of commercial wisdom of the CoC as non-justiciable, granting significant discretion to CoC members, as discussed earlier. However, in this particular case, the Court aimed to limit the broad interpretation of the principle of commercial wisdom while also ensuring limited judicial intervention in insolvency proceedings. The Court found the resolution plan to be in violation of Section 88 of the Trust Act, the IBC Act (specifically Section 29A), and the Companies Act (specifically Section 164(3)), which rendered the resolution applicant ineligible for the insolvency proceedings. The Court clarified that the commercial wisdom of the CoC refers to a well-considered decision made by the CoC in the best interests of both commercial aspects and corporate revival. In its judgment, the Court sought to define the boundaries of the principle of commercial wisdom within insolvency proceedings, adopting a balanced approach. It also emphasized that judicial intervention should not be disregarded under the pretext of the principle of commercial wisdom of the CoC. The Court recognized that resolving legal conflicts, which are necessary for enforcing the resolution settlement, can only be accomplished through the court’s interpretation of the law. Therefore, the Court stated that limited judicial intervention in the conduct of CoC members is necessary but should focus on matters beyond the scope of the principle of commercial wisdom. However, while the Court’s approach was commendable, it raised certain unaddressed concerns. By balancing the principle of commercial wisdom of the CoC and the power of judicial review, the Court inadvertently risks increasing never-ending litigation. This outcome is contrary to the legislative intent, which aims to ensure effective and efficient insolvency proceedings for debt-ridden companies. In previous cases such as Essar Steel and Swiss Ribbon, the Court emphasized that the relevance of the commercial wisdom of the CoC is to expedite the resolution process of insolvent companies. Therefore, to align the legislature’s intent with the court’s reasoning on the principle of commercial wisdom of the CoC, it is necessary to establish accountability and transparency within the CoC’s decision-making process. This can be achieved by implementing a structured framework that specifies the conduct and procedures for insolvency proceedings. However, before implementing such a framework, it is crucial to identify the potential challenges within the insolvency proceedings. In analyzing the current CoC framework, three major problems emerge: procedural delays, difficulties in consensus building, and unreasonable haircuts (reductions in the value of creditors’ claims). These issues primarily stem from the unrestricted authority granted to CoC members, who are shielded from judicial scrutiny under the principle of commercial wisdom. Procedural Delay: The Essar Steel case highlighted that the Bankruptcy Law Reform Committee Report of 2015 emphasized the importance of speed in insolvency proceedings in India. However, data from the report indicated that 71% of insolvency cases exceeded the stipulated 180-day timeline. This significant deviation from the intended objective of the code indicates a clear issue with procedural delays. In the Jindal Saxena Financial Service Pvt Ltd v Mayfair Capital Pvt Ltd, the Court identified that a major cause of delay in insolvency proceedings is the lack of decision-making power given to nominated members of financial institutions within the CoC.[1] This leads to time-consuming internal approval processes within financial

[By Shubh Jaiswal & Mayannk Sharma] The authors are students at Jindal Global Law School.   Introduction A division bench of the Apex Court is set to hear the applicant on 26th July in the case of SEBI vs Rohit Sehgal, which has been pending before it since 2019. The appeal arises out of an order by the NCLAT, which had previously upheld an order of the NCLT admitting an insolvency application under Section 7 of the IBC and subsequently declaring a moratorium under Section 14 of the act. The SEBI had contended that the Corporate Debtor had violated Regulation 3 of the Collective Investment Scheme Regulations and consequently, had attached the debtor’s properties. While the Securities Appellate Tribunal had upheld this direction, the NCLT (and NCLAT) had observed that SEBI could not recover their dues (as per the procedure laid out in Section 28A of the SEBI Act) during the imposition of a moratorium due to the non-obstante clause present in the IBC—which postulates that the provisions of the IBC shall have effect even if they are inconsistent with another law. It is precisely this position of the NCLT that this article intends to critique. After exploring the arguments furthered by proponents of this position vis-à-vis Section 238 of the IBC (i.e., the non-obstante clause) that assert that the IBC should prevail as it was enacted after the SEBI Act, we take the opposite stance. We contend this position on the primary ground that the IBC would prevail over the SEBI Act only if there were a manifest inconsistency between the 2 acts—however such is not the case as the IBC and SEBI Act deal with entirely different subject matters. Furthermore, we elucidate how allowing the SEBI to recover its dues as an operational creditor barely benefits the watchdog and instead, propose a harmonious interpretation of the two statutes that would ensure that the legislative intents of both the statutes is furthered. Battle of the Non-Obstantes: the Conundrum Explained In essence, the dispute between the legislations arises due to the IBC’s “creditor in control” regime, that empowers the “Adjudicating Authority” to issue a moratorium on the NCLT’s admission of an application of the Corporate Insolvency Resolution Process (“CIRP”). This power, enshrined in Section 14 of the IBC, prohibits inter alia the institution of fresh suits, continuation of pending suits and the execution of any judgement, decree, or order till the culmination of the CIRP, i.e., till the resolution plan is approved by the NCLT or liquidation proceedings are initiated. Thus, once the moratorium period kicks in, the corporate debtor (i.e., the corporate person that owes the debt) is protected from all proceedings, including those that demand the recovery of dues before a court of law, tribunal or “any other authority”. The efficacy of such shielding under Section 14 is catalysed when read with Section 238 of the IBC, which contains a non-obstante clause and consequently, authorises the IBC to have primacy (and an over-riding effect) over all existing laws, provided they are “inconsistent” with its provisions. On the contrary, Section 28A of the SEBI Act allows the SEBI to recover proceeds or any other penalties imposed by it via attachment and sale of property, bank accounts etc. The SEBI does so when a perpetrator is unable to pay a penalty/dues or fails to comply with an order issued by it. This provision is further bolstered by a non-obstante clause of its own—Section 28A (3)—which postulates that the recovery of any amount under Section 28A (1), would precede over “any other claim” against the said person. The conundrum, thus, is plainly apparent. Can the SEBI exercise its power to recover penalties/dues from corporate debtors even when a moratorium (that expressly prohibits such action) has been imposed? The jurisprudence on this issue has not been established concretely—while the decisions of the NCLT have held the IBC to be supreme, a catena of other decisions have opined otherwise. When Late is Great: Analysing the intent behind Section 14 Academicians assert that the SEBI’s power under Section 28A is rendered void (and futile) against companies undergoing CIRP and base their claim on 2 primary contentions—the legislative intent behind Section 14 and the principle of generalia specialibus non derogant. The Apex Court, in Rajendra K. Bhutta, has previously affirmed that the objective behind the introduction of Section 14 was to maintain a “statutory status quo” on the Corporate Debtor and his assets, to ensure that the Resolution Professional could fulfil his role effectively—without any outside intervention or impediments. Along similar lines, in the case of Bhanu Ram, the NCLT stipulated that the legislature intended that the Interim Resolution Professional carry out the day-to-day affairs of the corporate debtor, and accordingly drafted Section 14 in a manner that allowed him to do so effectively. As the possession of the debtor’s property is sine qua non for the Interim Resolution Professional (“IRP”) to effectively carry out their function, the NCLT Bench unanimously held that Section 28A could not be imposed by the SEBI during a moratorium on the debtor. Furthermore, the NCLAT in Anju Aggarwal, posited that regulatory entities such as SEBI and the Bombay Stock Exchange fit within the contours of “other authority. In that regard, the tribunal declared that Section 14 (1) (a) of the code included the SEBI (Listing Obligations and Disclosure Requirements) Regulations within its ambit, and a corporate debtor need not comply with them after a moratorium had been issued in light of Section 238 of the IBC. It is precisely in this regard that innumerable academics contend that the objects and purposes of the IBC, when read with the aforementioned precedents, unequivocally showcase that the moratorium period hinders all statutory bodies, including the SEBI from collecting their dues. The NCLT also placed reliance on the Supreme Court decision in Monnet Ispat and Energy Limited which had  held that the IBC would prevail over all inconsistent laws (including the Income Tax Act),  while acknowledging the supremacy of the non-obstante clause in