Author name: CBCL

[By Yash Sinha]  The author is an Advocate based out of Delhi.  The Insolvency and Bankruptcy Code, 2016 (‘IBC’) contains a residuary jurisdiction clause under Sec. 60(5)(c). The Supreme Court has attempted to put in words the inferable scope of the same twice in 2021: once in Gujarat Urja Vikas v. Amit Gupta(‘Amit Gupta’), followed by the very recent judgment in the case of TATA Consultancy Services Limited v. Vishal Ghisulal Jain, Resolution Professional, SK Wheels Private Limited(‘TATA’). More interestingly, these judgments deal with the boundaries of IBC’s residuary jurisdiction to adjudicate contractual disputes. This article attempts to confirm the validity of these judgments by viewing their rationale through a completely different prism: the limited territorial jurisdiction conferred by the IBC upon the NCLT. The author proposes that Sec. 60(5)(c) dissuades the inclusion of contractual disputes within its purview due to this singular reason. Consequently, given the differences in valid yet separate territorial jurisdictions for contractual and insolvency disputes, the judgment in TATA rightly reads Sec. 60(5)(c) as extremely restrictive. Section I of this article summarises the holdings and the underlying premises of the Supreme Court (‘the Court’) in Amit Gupta and TATA. Therein, the singular focus will be the scope of the residuary jurisdiction clause qua contractual disputes determined by both the decisions. Section II argues and confirms that contractual disputes are best left outside of the NCLT’s ambit, given the jurisdictional scheme of the IBC. It argues that any contrary interpretation leads to disturbing the territorial jurisdiction of the IBC. Therefore, any extra-territorial jurisdiction to the NCLT through Sec. 60(5)(c) is demonstrated as barred by both jurisprudence and rules of interpretation. Supreme Court’s phased analyses A.    The restriction is seeded: Amit Gupta Amit Gupta witnessed one of the contracting parties failing to service its debt to a certain financier, the third party to the contract. Furthermore, the same party failed to discharge its other performative obligations to the second party. The second party claimed this to be a default for the purposes of Sec. 10 of the IBC. The third-party financier intervened by way of an application under the residuary jurisdiction clause. It prayed for an injunction to preclude any termination of the agreement, which was granted by the NCLT.  Consequently, the Supreme Court was approached and posed with determining the validity of the NCLT’s admission of the application filed under Sec. 60(5)(c). The Court upheld the final order of the NCLT, thereby, holding in favour of the financier by advancing two reasons. Firstly, the Court stated that contractual termination was not covered by Sec. 14. That is, the moratorium clause of the IBC does not put a hold on such disputes being raised in spite of an IBC proceeding already underway. This was inferred as denoting the probable application of Sec. 60(5)(c). Secondly, Sec. 238 was read by the Court as re-asserting the IBC as lex specialis, which overrides general legislation. These two factors were collectively taken to interpret the phrase “questions of law or fact arising from or in relation to the insolvency resolution proceedings” occurring in Sec. 60(5)(c), liberally. However, this was disclaimed as a holding specific to the facts of Amit Gupta. Regardless, it was categorically stated that irrespective of the facts of any case in the future, NCLT, while exercising its jurisdiction under IBC, cannot adjudicate upon disputes which are completely unrelated to the insolvency proceedings. Succinctly put, the termination of the contract may have had some implication on the financier’s rights as a creditor. This alone justified the utilisation of the residuary jurisdiction clause. It is this holding that has come to be affirmed verbatim in TATA. However, this time the Court detailed the underlying premise for its position. B.Better exposition of the restriction: TATA To begin with, TATA saw one contracting party attempting to terminate an agreement for the other’s lapses. The lapse pertained to executing an agreed-upon construction within the stipulated time. The party in breach, however, was undergoing insolvency resolution proceedings from before. Notably, the contract in question was entered into before the initiation of the insolvency proceedings. The contract being a source of future income, the breaching party challenged the attempted termination so that its insolvency resolution was not adversely affected. Failing this, it claimed that the termination would have a direct and adverse impact on the latter. Consequently, it approached the NCLT under the residuary jurisdiction clause challenging the same as well as sought an ad-interim stay. The NCLT and NCLAT having upheld the application, the Court was again asked to verify if Amit Gupta applied. The Court answered the question in the negative and held the corporate debtor’s application to be lacking in the jurisdiction. While the principles of Amit Gupta were re-iterated, the Court went a step further to delineate the boundaries of the residuary jurisdiction clause. It stated that the clause does not cure the patent lack of jurisdiction of IBC courts. This infirmity exists when the subject of such applications is wholly unrelated to the insolvency proceedings. The notices alleging lapses, which preceded the termination notice, had no bearing upon the insolvency proceedings which were underway. Succinctly put, a contracting party may be a corporate debtor to some unrelated insolvency proceedings. However, the Court states, this contractual relationship per se ought not to guarantee the interference of the IBC. Territorial jurisdiction as a bar on an entertaining contractual dispute There exists no categorical assertion by the Court on one aspect of Sec. 60(5)(c): its extra-territorial application. That is, whether it can be applied to override Sec. 60(1) of the IBC to allow any contractual party to initiate/join insolvency proceedings when no registered offices of the corporate debtor exist. The territorial jurisdiction for a court of law in case of a contractual dispute is governed by principles laid down in the case of A.B.C. Laminart Private Limited v. A. P Agencies, Salem read with those in Bhagwandas Goverdhandas Kedia v. M/S. Girdharilal Parshottamdas. Summed up collectively, these precedents state that the place of

[By Aayush Mishra] The author is a student at the Himachal Pradesh National Law University, Shimla.  Introduction Recently, on the 22nd of October 2021, the Supreme Court in the case of V. Nagarajan v. SKS Ispat and Power Limited shed light on the period of limitation to file an appeal against an Order under Section 61 of the Insolvency and Bankruptcy Code of 2016 (IBC, hereinafter). The Court held that the period of limitation shall begin to function as soon as the Order is pronounced and the same shall not have any bearing upon the date on which the said Order is uploaded. Consequently, if any party has failed to file an application to secure a copy of such Order, they shall not be allowed a respite of extension in the period of limitation on the ground of delay in uploading of such Order. In the forthcoming article, the author discusses the uncertainty regarding the limitation period that used to surround the IBC. Thereafter, the confusion concerning the applicability of the Companies Act in place of IBC for the production of a certified copy of the Order is dealt with. A distinction has been made between the circumstances in which the certified copy has to be made available to the appellant in contrast to when the appellant himself is required to apply for the same. Lastly, these uncertainties and distinctions have been succinctly analyzed with the help of relevant precedents and statutory provisions. Confusion Around Beginning of Limitation Period The appeal in the present matter emerged from the impugned order of the National Company Law Appellate Tribunal (NCLAT, hereinafter), as the same had dismissed the plea of the appellant for being barred by limitation. The appellant had filed a miscellaneous application pertaining to a liquidation proceeding before the National Company Law Tribunal (NCLT, hereinafter), seeking interim relief against the invocation of a bank guarantee against the corporate debtor by one of the respondents. However, based on its understanding that performance guarantees do not form a part of ‘Security Interest’ as per Section 3(31) of the IBC, the NCLT refused to grant an injunction in favour of the appellant in its Order dated 31st December 2019. While the appellant had agreed to his presence before the NCLT during the pronouncement of this Order, he highlighted that the copy of this Order had been uploaded only on March 12, 2020. Subsequent to this, the appellant pointed towards the COVID-19 nationwide lockdown, due to which the appeal before the NCLAT could be filed only on June 8, 2020. It is also due to this reason that the appellant had filed for an exemption from filing a certified copy of the Order because the same never got issued. Nevertheless, the NCLAT resorted to Section 61(2) of the IBC which allows a limitation period of 30 days, extendable by 15 days, and held that appeal under Section 61 was barred by this limitation period. Herein, this limitation period expired on February 14, 2020 (45 days over NCLT Order). In addition, while acknowledging the absence of a certified copy of the impugned Order in the appeal as mandated by Rule 22(2) of NCLAT Rules, the Tribunal further observed that the appellant had failed to provide any evidence that the certified copy was never issued to him. Overlap in Interpretation of Companies Act and IBC Provisions The major point of cause that the appellant raised was the imposition of nationwide lockdown as a result of the pandemic. Due to the lockdown, the NCLT had halted the clock of limitation with effect from March 15, 2020. Based on this rationale, the appellant claimed that the appeal had been de jure filed within three days of the release of Order, which was on March 12, 2020. Furthermore, the appellant highlighted Rule 14 of the NCLAT Rules that grants a waiver from adherence to any other rules under special circumstances. In addition to this, the appellant presented his interpretation of Section 420(3) of the Companies Act 2013, read with Rule 50 of NCLT Rules, and expressed that a certified copy of the Order is to be sent to concerned parties. In this light, he sought reliance on Sagufa Ahmed v. Upper Assam Plywood Products Private Limited, wherein the Supreme Court had held that the limitation period would start only and exactly from the date on which a copy of the Order is ‘made accessible’ to the aggrieved party. It is also to be necessarily noted that the appellants had placed reliance on Section 12 of the Limitation Act 1963 and claimed that a certified copy is to be made accessible to the aggrieved party and the same has been statutorily mandated. Also, since the Sagufa Ahmad ruling was predominantly under the umbrella of the Companies Act, the appellant had also relied on the case of B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, wherein the court had expressed that all proceedings under Chapter XXVII of Companies Act shall apply to that of the IBC. ‘made available’ – A Key Phrase The Respondents submitted that the IBC by no means directs or implies that the limitation period shall start from the date on which the certified copy of Order has been ‘made available to the aggrieved party. Aggrieved parties cannot possibly be expected to wait indefinitely for the copy of the Order to be provided to them. In any circumstance, it is expected out of a responsible party to make a timely application for the certified copy of the Court Order. Furthermore, the respondents stressed upon appellant’s presence during the pronouncement of the Order and precisely referred to the court observation in Pr. Director-General of Income Tax v. Spartek Ceramics India Ltd., wherein it was held that the period of limitation begins from the date on which the contesting party has attained ‘knowledge’ of Order when pronounced. Highlighting that the IBC is a special statute and time is an intrinsic essence in it, the respondents further relied upon the

[By Divyanshi Srivastava]  The author is a law graduate of Guru Gobind Singh Indraprastha University. The Insolvency and Bankruptcy Code, 2016 (“IBC”/ “Code”) was enacted to fix an ailing system. Due to the multiple contrary and complex legal arrangements, a simple, coherent, and effective framework was the need of the hour, and the IBC is a denouement of the same. However, despite its exhaustive nature, the journey of the Code, since its birth has been a bittersweet symphony, traversing numerous challenges. While the Code is a specialized and dynamic piece of legislation, given its young age, the jurisprudence around it is still inchoate. In this respect, where Section 5(13) of the IBC provides that “insolvency resolution process costs” would include any fees payable to resolution professional (“RP”) and any costs incurred by the RP in running the business of the Corporate Debtor (“CD”). The section is silent about the success fee. Further, the Code also does not have any provision stipulating that RPs can charge a success fee. In this respect, when in a recent case of Jayesh N. Sanghrajka, erstwhile R.P. of Ariisto Developers Pvt. Ltd. v. Monitoring Agency nominated by Committee of Creditors of Ariisto Developers Pvt. Ltd., the Hon’ble National Company Law Appellate Tribunal (“NCLAT”) was presented with an issue surrounding success fees charged by RP and whether the same formed part of the commercial wisdom of the Committee of Creditors (“CoC”), the NCLAT categorically held otherwise. And further laid down that success fee which is more in the nature of the contingency and speculative cannot be charged by the RP. Conspectus of the Case The judgment emanated from an appeal filed by the RP (“Appellant”) of Ariisto Developers Pvt. Ltd. (“Corporate Debtor”) against the observation of the National Company Law Tribunal (“NCLT”/ “Adjudicating Authority”). Since in the matter, the Respondent was the Monitoring Committee – a formal party – and the issues were primarily legal in nature, the Appellate Tribunal appointed an Amicus Curiae, as the response of the Respondent was not necessary. In the impugned order, the Adjudicating Authority had approved the resolution plan submitted by Prestige Estates Projects Ltd. for the CD but disallowed the success fees amounting to Rs. 3 Crores charged by the RP as unreasonable. Aggrieved by the same, the Appellant filed an appeal and contended that the approval of the success fees by the CoC was a commercial decision of the CoC, and hence, could not have been interfered with. The Appellant, as ammunition to its argument, referred to an IBBI Circular, dated 12/06/2018 and relied upon Regulation 34 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 stating that the CoC has to fix the expenses which will be incurred by the RP and such expenses include the fee for the RP. The Amicus Curiae per contra, referred to Section 208(2) of the Code and submitted that the Insolvency Professional is required to abide by the code of conduct stipulated in the said section and therefore, has to take reasonable care and diligence while performing his duties. The Amicus Curiae also referred to the said circular and submitted that as per the provisions, it is clear that the remuneration charged by the RP need to be “a reasonable reflection of the work undertaken”. Moreover, the Amicus Curiae contended that reliance upon the said IBBI Circular by the Appellant was misplaced as the same did not provide, prescribe, recommend, promote, endorse or sanctify payment of success fees. The Amicus Curiae even argued that a perusal of the provisions surrounding the subject makes it clear that RPs have to perform their duties objectively. The Appellate Tribunal, at the outset, iterated that the Code or Regulations thereunder have not provided for any fee on a speculative basis and the term “success fee” itself is contradictory to the fundamental principle that insolvency professionals shall render their services for a fee which is a “reasonable reflection of their work.” The NCLAT also noted that irrespective of the stage at which the success fee is claimed, charging such a fee would only have an adverse impact on the insolvency resolution process, as RPs are required to perform their duties under the Code independently and disinterested. Further, the Appellate Tribunal, agreeing with the submission of the Amicus Curiae that a Circular cannot be equated with the Rules and Regulations framed under the provisions of the Code, noted that even the Circular dated 12/06/2018 does not make success fee or contingency fee payable and an indirect reference to the same cannot be understood to mean that success fee is legally chargeable or payable. Furthermore, the NCLAT also approved the Amicus Curiae’s reliance on the decision in Alok Kaushik v. Bhuvaneshwari Ramanathan &Ors., wherein it was held that the NCLAT has the power to determine the fee and expenses payable to a professional; and finally held that success fee in the instant matter could not be charged and “even if it is to be said that it is chargeable, we find that in the present matter, the manner in which, it was last minute pushed at the time of approval of the Resolution Plan and the quantum are both improper and incorrect.” Analysis The said decision of the Appellate Tribunal that success fee which is contingent and speculative is not chargeable, is not only pertinent but also in harmony with the Bar Council of India Rules, 1975. For as per Rule 21of Chapter II of Part VI of the said Rules, advocates are barred from stipulating fees which is contingent on the result of the litigation. Moreover, the Hon’ble Supreme Court in the case of V.C. Rangadurai v. D. Gopalan has held that the relationship between a lawyer and their client is fiduciary in nature, and therefore, lawyers have to act in the best interest of their clients. At the same time, the relationship between the RP and CoC is fiduciary in nature is rather apparent and therefore, incontrovertible; and since the RP has to manage