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Insolvency and Bankruptcy Code: Challenged provisions are not unconstitutional

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Challenge the constitutional validity of Sections 95 to 100 of the Insolvency and Bankruptcy Code 2016 (Para 2)

The principle aims of the IBC are to promote investment, and resolution of insolvencies of corporate persons, firms, and individuals in a time bound manner. The IBC consolidated and amended a web of laws which had led to an ineffective and inefficient mechanism for resolution of insolvencies marked with significant delays. (Para 3)

Part III of the IBC deals with insolvency resolution and bankruptcy for individuals and partnership firms. Chapter III of Part III which is titled “Insolvency Resolution Process” (“IRP”) comprises of Sections 94 to 120. Prior to the introduction of the IBC, insolvency in relation to individuals was governed by the provisions of the Presidency Towns Insolvency Act 1909 and the Provincial Insolvency Act 1920, both of which stand repealed. (Para 4)

The provisions of the IBC apply to personal guarantors to corporate debtors. (Para 5)

In view of the above analysis, it now becomes necessary to analyse as to whether there is any substance in the challenge to the constitutional validity of the provisions of Sections 95 to 100. We have already indicated that the function of the resolution professional under Section 99 is purely facilitative. The task before the resolution professional is not to adjudicate but to collate and collect information on the application under Section 94 or Section 95 before submitting a report to the adjudicating authority. When interpreting Part II of the IBC, the Courts have inferred the necessity of granting an opportunity to a debtor before initiating the insolvency resolution process against them. This includes the provision of a copy of the application and all relevant documents. Although Section 100 of the IBC does not explicitly mention a hearing for a debtor, the requirement of a hearing has to be read into Section 100. In legal interpretation, when a statute is silent on a specific aspect, like a hearing, and there is no explicit prohibition, the courts may imply or read in such a requirement. [Swadeshi Cotton Mills v. Union of India, (1981) 1 SCC 664; Mangilal v. State of M.P., (2004) 2 SCC 447 and Manohar v. State of Maharashtra, (2012) 13 SCC 14.] The key point is that the lack of explicit mention of a hearing in a provision does not automatically make it unconstitutional because such a requirement can be read into the statute. (Para 79)

The second incidental submission which was urged is that the provisions of Sections 95 to 100 are retroactive in nature since they would operate in respect of guarantees which may have been executed before the statutory provisions were brought into force. It is a well settled principle that a law is not retrospective in nature merely because some parts of the cause of action on which the law operates has arisen in the past. Prior to the commencement of the IBC, the field was governed by the Presidency Towns Insolvency Act 1909 and the Provincial Insolvency Act 1920. With the enactment of the IBC, the insolvency resolution process in relation to individuals and partnership firms is governed by Part III of the IBC. The IBC cannot be held as operating in a retroactive manner so as to violate Article 14 of the Constitution. (Para 84)

For the above reasons, we have come to the conclusion that the impugned provisions of the IBC do not suffer from any manifest arbitrariness so as to offend Article 14 of the Constitution. This is subject to the clarification on the interpretation of Section 99 in the text of this judgement. (Para 85)

We summarise the conclusion of this judgment below:

(i) No judicial adjudication is involved at the stages envisaged in Sections 95 to Section 99 of the IBC;

(ii) The resolution professional appointed under Section 97 serves a facilitative role of collating all the facts relevant to the examination of the application for the commencement of the insolvency resolution process which has been preferred under Section 94 or Section 95. The report to be submitted to the adjudicatory authority is recommendatory in nature on whether to accept or reject the application;

(iii) The submission that a hearing should be conducted by the adjudicatory authority for the purpose of determining ‘jurisdictional facts’ at the stage when it appoints a resolution professional under Section 97(5) of the IBC is rejected. No such adjudicatory function is contemplated at that stage. To read in such a requirement at that stage would be to rewrite the statute which is impermissible in the exercise of judicial review;

(iv) The resolution professional may exercise the powers vested under Section 99(4) of the IBC for the purpose of examining the application for insolvency resolution and to seek information on matters relevant to the application in order to facilitate the submission of the report recommending the acceptance or rejection of the application;

(v) There is no violation of natural justice under Section 95 to Section 100 of the IBC as the debtor is not deprived of an opportunity to participate in the process of the examination of the application by the resolution professional;

(vi) No judicial determination takes place until the adjudicating authority decides under Section 100 whether to accept or reject the application. The report of the resolution professional is only recommendatory in nature and hence does not bind the adjudicatory authority when it exercises its jurisdiction under Section 100;

(vii) The adjudicatory authority must observe the principles of natural justice when it exercises jurisdiction under Section 100 for the purpose of determining whether to accept or reject the application;

(viii) The purpose of the interim-moratorium under Section 96 is to protect the debtor from further legal proceedings; and

(ix) The provisions of Section 95 to Section 100 of the IBC are not unconstitutional as they do not violate Article 14 and Article 21 of the Constitution. (Para 86)

The writ petitions are accordingly dismissed. (Para 87)

SUPREME COURT OF INDIA

2023 STPL(Web) 443 SC

[2023 INSC 1018]

Dilip B Jiwrajka Vs. Union Of India & Ors.

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1110/2023 W.P.(C) No. 1040/2023 W.P.(C) No. 1132/2023 W.P.(C) No. 1107/2023 W.P.(C) No. 1171/2023 W.P.(C) No. 1221/2023 W.P.(C) No. 1233/2023 W.P.(C) No. 1217/2023 W.P.(C) No. 1194/2023 W.P.(C) No. 1242/2023-Decided on 9-11-2023

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Breach of peace: It must disturb public order, not just personal peace

May 20, 2024 No Comments

Code of Criminal Procedure, 1973 – Sections 145, 146- Breach of peace – Emergency situation – Possession dispute – Civil litigation – Non-application of mind – Proceeding under Section 145 – Attachment under Section 146 – The application under Section 482 of the Code of Criminal Procedure, 1973 challenges the orders by the Executive Magistrate, concerning a dispute under Section 145 of the Code of Criminal Procedure, 1973 and subsequent attachment under Section 146(1) of the same.

The petitioner contests the legality of both orders, asserting that the initiation of the proceeding and the attachment were illegal and an abuse of process. It’s argued that the jurisdiction under Section 145 can only be invoked if there’s a likelihood of a breach of peace, which wasn’t sufficiently demonstrated in this case.

The petitioner highlights that the attachment order was passed ex-parte without affording them an opportunity to respond, which is contrary to the exceptional circumstances required for such an order. Reference is made to legal precedent discouraging parallel criminal proceedings when a civil litigation is pending regarding property possession, emphasizing the binding nature of civil court decrees.

The respondents counter by claiming entitlement to the land based on a partition deed and subsequent court judgments. They argue that emergency circumstances justified the attachment due to the petitioner’s attempt to construct on disputed land.

Legal precedents are cited to emphasize that the existence of an emergency, not just the use of the term “emergency,” warrants attachment under Section 146.

The judgment critically examines the orders and the circumstances leading to them. It observes discrepancies between the assertions made in the complaint and police report, highlighting the absence of clear grounds for apprehension of breach of peace.The judgment reiterates the requirement for a dispute likely to cause a breach of peace under Section 145, emphasizing that it must disturb public order, not just personal peace.

It concludes that the impugned orders suffer from non-application of mind and jurisdictional error, resulting in injustice to the petitioner. Consequently, both orders are quashed, and the petition is allowed. Important Paragraph Numbers of Judgment: (Para 13, 19, 30, 31)

GAUHATI HIGH COURT

2023 STPL(Web) 183 Gauhati

[2024 STPL 1651 Gauhati]

Md. Osman Ali Saikia And Anr. Vs. Chand Mahamod Saikia And 2 Ors.

Crl.Pet. 239 of 2021-Decided on 8-11-2023

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Electricity: Outstanding arrears from previous owner

May 20, 2024 No Comments

Constitution of India, Article 226 – Assam Electricity Regulatory Commission [Electricity Supply Code and Related Matters] Regulations, 2004 – Electricity Act, 2003 – Section 43, 49, 50, 56 – Electricity – Outstanding arrears from previous owner – The petitioner, a partnership firm, sought a writ petition under Article 226 challenging a decision by the Assam Power Distribution Company Limited (APDCL) to deny a new electricity connection to their premises due to outstanding arrears from previous electricity bills.

The court directed interim relief for immediate electricity connection, subject to 50% payment of outstanding dues, with the remaining 50% to be paid upon dismissal of the writ petition.

The petitioner participated in an auction sale of a property and purchased a portion of land with a Business Centre cum Market Complex. They subsequently applied for a new electricity connection, which was denied by APDCL citing outstanding dues.

The court referred to the Assam Electricity Regulatory Commission [Electricity Supply Code and Related Matters] Regulations, 2004 and the Electricity Act, 2003. It cited a Supreme Court decision (K.C. Ninan vs. Kerala State Electricity Board) regarding the liability of auction purchasers for previous dues in properties sold on ‘as is where is’ basis.

The court dismissed the writ petition, holding the petitioner liable for outstanding electricity dues as per the auction sale agreement. It directed the petitioner to pay the outstanding dues as per the interim order, with APDCL waiving the accrued interest on the principal dues. (Para 15, 16)

GAUHATI HIGH COURT

2023 STPL(Web) 182 Gauhati

[2024 STPL 1650 Gauhati]

M/S Borah And Companyjiban Phukan Nagar Vs. Assam Power Distribution Company Ltd. And 3 Ors.

WP(C) 989 of 2014-Decided on 7-11-2023

2023 STPL(Web) 182 Gauhati

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Executive instructions cannot nullify statutory rules

May 16, 2024 No Comments

Assam Bonded Warehouse Rules, 1965 – Rule 7 – Refund of Charges – Administrative Order – Statutory Rules – The present writ petition contested an order issued by the Secretary to the Government of Assam, Excise Department, reintroducing establishment charges under Rule 7 of the Assam Bonded Warehouse Rules, 1965, despite their abolition by the Assam Bonded Warehouse (Amendment) Rules, 2005.

The Court held that executive instructions cannot nullify statutory rules. Citing the principle established in K. Kuppusamy case, it ruled that until a rule is amended, it remains applicable. Consequently, the impugned order was set aside as ultra vires. Regarding refund, relying on Mafatlal Industries Ltd. case, the Court directed the petitioner to present evidence to the Excise Commissioner, who would determine entitlement to refund within four months, considering whether the petitioner passed on the burden of charges to retailers. (Para 15)

GAUHATI HIGH COURT

2023 STPL(Web) 181 Gauhati

[2024 STPL 1649 Gauhati]

M/S Centenary Distilleries P Ltd. Vs. State Of Assam And 2 Ors.

WP(C) 2875 of 2014-Decided on 7-11-2023

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Land Disputes: Binding nature of Civil Court’s decree on Revenue Courts

May 16, 2024 No Comments

Land Disputes – Binding nature of Civil Court’s decree on Revenue Courts – The instant writ petition challenged a judgment of the Assam Board of Revenue concerning a land dispute. The dispute pertained to a plot of land associated with the Dargah of Pir Saheb. The Civil Court in Title Suit No.176/1978 had decreed in favor of the Petitioners’ predecessor, declaring their right, title, and possession over the land. The State of Assam was restrained from interference. Subsequently, the Settlement Officer issued a Khatian in favor of the Petitioners’ predecessor, and a new Dag was created. However, the Assam Board of Revenue, in its impugned judgment, disregarded the Civil Court’s decree and cancelled the Khatian issued to the Petitioners’ predecessor.

This action was deemed contrary to established principles, as Civil Court decrees are binding on Revenue Courts. Therefore, the High Court set aside the impugned judgment, restoring the Khatian to the Petitioners’ predecessor. (Para 12)

GAUHATI HIGH COURT

2023 STPL(Web) 180 Gauhati

[2024 STPL 1648 Gauhati]

Sayed Moinuddin Ahmed Vs. State Of Assam And 3 Ors.

WP(C) 4701 of 2013-Decided on 7-11-2023

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