CHD Developers Ltd vs Mr. Shailendra Kumar Agarwal & Ors.

“IA-3591/2022 & IA-3592/2022

At request, both the applications stands adjourned to 24.08.2022.

CP. No. (IBPP)-02(PB)/2022

Heard Mr. Sumant Batra, Ld. Counsel for the respondent, Mr. Abhishek Anand, Ld. Counsel for Buyers Welfare Association, Mr. Sidharth Chopra, Ld. Counsel for the Home Buyers & Mr. Piyush Singh, Ld. Counsel.

We have heard about the interpretation of Section 54C read with 54A of chapter 3A as well as Section 11A and other provisions in relation to the appreciation of cases under various provisions like 7, 9, 10 & 54A of IBC.

For further arguments, list the matter for physical hearing on 24.08.2022.”

“Mr. Sumant Batra, Ld. Counsel assisted by Mr. C S Gupta, Ld. Counsel appearing for M/s. CHD Developers Limited., has now proposed Pre-Packaged Insolvency Resolution Process, with respect to the corporate debtor under Chapter III-A by way of filing an application and thereby invoking the Section 54C of IBC.

The matter was first taken up by this Bench, on 26.07.2022. On that day we noted that the petition under Section 54C of IBC was filed on 12.07.2022 and we heard Ld. Counsel Mr. Sumant Batra, on 26.07.2022. It will be pertinent to point out that on the day of first appearance and subsequent days, it is observed that a Section 7 petition filed by the home buyers namely Mr. Rajeev Kumra & Ors. ((IB)-1081(PB)/2020), was already filed on 21.10.2020 and in this matter after several hearings, arguments were heard and Order was reserved on 01.03.2021 by the then Bench of Actg. President. On 31.05.2021 the matter was de-reserved by the then Actg. President at the end of his tenure and thereafter it has been adjourned from time to time, and it is still pending for adjudication.

On this peculiar fact, taking note of Section 11A of IBC, which deals with the manner in which disposal of applications under Section 54C and under Section 7 or 9 or 10 of the IBC should be considered by this Adjudicating Authority, we have heard Ld. Counsel Mr. Sumant Batra, at length on various dates. He has submitted certain reports, documents etc., supporting his arguments. We have also heard Mr. Piyush Singh, Ld. Counsel for the petitioner in (IB)-1081(PB)/2020.

The preliminary issue that arises for consideration is whether a pre-packaged application can be entertained, when a petition under Section 7 of IBC is pending before this Tribunal long before the coming into force of Pre-Packaged Ordinance dated 04.04.2021. In this regard, we are inclined to issue notice to the limited extent for examining the issue on the admissibility of the pre-packaged application in the light of Section 11A of IBC.

We issue notice to the Parties in CP. No. (IB)-1081(PB)/2020 and in CP. No. (IB)-556(PB)/2022. We also allow other home As buyers related to this Corporate Debtor i.e. M/s. CHD Developers Limited, who would like to present their point of view on this preliminary issue alone.

The Present matter to be listed for next date of hearing on 30.08.2022, at the top of the cause-list.”

“Arguments heard. Orders reserved.”

“In relation to all these matters Mr. Sumant Batra, Advocate is present for the Corporate Debtor through Video Conferencing Mode.

In relation to Item No. 1 being a Petition filed by the Homebuyers, the Petitioners are being represented by Mr. Gaurav Mitra, Senior Advocate. In relation to Item No. 3 which has also been filed by the Homebuyers is being represented by Mr. Piyuesh Singh, Advocate.

In relation to Item Nos. 2, 4 & 5 as filed by the Operational Creditors, the respective Operational Creditors in Item Nos. 2 and 4 are being represented by Mr. Naresh Kumar Joshi, Advocate and Mr. Sougata Ganguli, Advocate.

No representation for Item No. 5.

It is also brought to the notice of this Tribunal that the matter in Item No. 1 was heard in detail and order was also reserved by the erstwhile Principal Bench, however, the order was not pronounced and the matters came to be de-reserved for fresh hearing. Under the circumstances, the matter(s) has been listed before this Tribunal.

In relation to Item No. 1, it is brought to the notice of this Tribunal by the Ld. Advocate for the Corporate Debtor as well as by the Ld. Senior Advocate appearing for the Petitioners that since initially at the time of filing the Petition since the compliance as mandated under the provisions of the Insolvency & Bankruptcy Code, 2016 more particularly Section 5(8) of the Insolvency & Bankruptcy Code, 2016 as amended has not been complied with.

However, subsequently in view of the judgement passed by the Hon’ble Supreme Court in Pioneer’s case, the amendment incorporated came to be sustained by the Hon’ble Supreme Court and in the circumstances the Homebuyers subject to compliance with requisite qualifications as prescribed under Section 5(8) was entitled to proceed with the matter.

By virtue of the time granted by the Hon’ble Supreme Court, endeavour was made by the Homebuyers in Item No. 1 to comply with qualification standards as prescribed, but there has been some delay and the same was heard since it was agitated before this Tribunal by the Corporate Debtor by the erstwhile Principal Bench.

In relation to Item No. 3, it is brought to the notice of this Tribunal by the Ld. Advocate for the Petitioner that no such issue had been raised in so far as this Petition is concerned as 128 Homebuyers have joined together and initiated the process before this Tribunal and that they have fully complied with requisite compliances as mandated under the provisions of the Insolvency & Bankruptcy Code, 2016 for the Homebuyers to file a Petition.

In relation to Item Nos. 2, 4 & 5 being Petitions filed by the Operational Creditors, it is also brought to the notice of this Tribunal by the Ld. Advocate for the Corporate Debtor that the Corporate Debtor does not have any objection in CIRP being initiated against the Corporate Debtor.

Since all the Petitions namely Item Nos. 1 to 5 are in respect of initiation of CIRP, in view of the statement made by the Ld. Advocate for the Corporate Debtor, we direct the Corporate Debtor to file a suitable Board Resolution to this effect as well as an Affidavit supporting the same before this Tribunal on or before the next date of hearing. Ass In relation to Item Nos. 1 and 3, Mr. Sandeep Buharia, Advocate brings to the notice of this Tribunal that Intervening Application has been filed in these Petitions filed by the Homebuyers in IA-4716/2020 in Item No. 1 and IA-569/2020 in Item No. 3. In the circumstances, let these Applications be also posted along with the concerned main Petitions on the date of hearing. Post these matters on 16.07.2021.”

“WHEREAS COVID-19 pandemic has impacted businesses, financial markets and economies all over the world, including India, and has impacted the business operations of micro, small and medium enterprises and exposed many of them to financial distress; AND WHEREAS the Government has taken several measures to mitigate the distress caused by the pandemic, including increasing the minimum amount of default for initiation of corporate insolvency resolution process to one crore rupees, and suspending filing of applications for initiation of corporate insolvency resolution process in respect of the defaults arising during the period of one year beginning from 25^th March, 2020. AND WHEREAS such suspension for filing of applications for initiation of corporate insolvency resolution process has ended on 24th March 2021; AND WHEREAS the country has shown remarkable resilience, be it tackling the pandemic or ensuring economic recovery; AND WHEREAS micro, small and medium enterprises are critical for India’s economy as they contribute significantly to its gross domestic product and provide employment to a sizeable population; AND WHEREAS it is considered necessary to urgently address the specific requirements of micro, small and medium enterprises relating to the resolution of their insolvency, due to the unique nature of their businesses and simpler corporate structures; AND WHEREAS it is considered expedient to provide an efficient alternative insolvency resolution process for corporate persons classified as micro, small and medium enterprises under the Insolvency and Bankruptcy Code, 2016, ensuring quicker, cost-effective and value maximising outcomes for all the stakeholders, in a manner which is least disruptive to the continuity of their businesses and which preserves jobs; AND WHEREAS in order to achieve these objectives, it is considered expedient to introduce a pre-packaged insolvency resolution process for corporate persons classified as micro, small and medium enterprises;

“3.2

As discussed above, the Committee decided that the pre-pack process should be available only to corporate debtors that are MSMEs as an alternative to the CIRP under the Code (see para 2.4.). In this regard, the Committee noted that the Code should provide that the pre-pack process is available for corporate debtors classified as 'MSMEs' as per Section 7(1) of the MSME Development Act, 2006. This reference to the definition of an MSME has been used under the Explanation to Section 240A of the Code, and the Committee discussed that jurisprudence developed on the interpretation of the reference to the definition of MSMEs as under Section 240A may be applicable to the pre-pack process as well.

3.3.

Further, the Committee considered if default should be a requisite criterion for eligibility to apply to the pre-pack process. In this regard, the Sub-committee had recommended that a default by the corporate debtor should be required in the present framework. It had suggested that the pre-pack process may be implemented in phases and in the first phase, it may commence in respect of corporate debtors with "defaults from Rs.1 lakh to Rs.1 crore and COVID-19 defaults for which CIRP is not available today.

3.4.

The Committee agreed with the recommendation of the Sub-committee that the corporate debtor should have committed a default to be eligible for the pre-pack process. It discussed that since the pre-pack process is a mechanism to resolve 'insolvency', it should require the corporate debtor to establish that it is facing financial distress. Notably, introduction of the default test in the Code for determination of insolvency was deliberated by the BLRC Report extensively, and it was noted that such test may promote early detection and resolution of insolvency68. Considering that the jurisprudence on proving default has now settled under the CIRP, the Committee noted that there may be no merit in introducing a new standard for proving distress. Thus, it agreed that the MSME corporate debtor should have committed a default to be eligible to initiate a pre-pack process. (emphasis supplied)

“3.7.

Section 29A lays down the requirements that a person has to fulfil to be a resolution applicant during the CIRP. This means that in order to submit a resolution plan in a CIRP, a person would have to be eligible as per the provisions of Section 29A. Where the corporate debtor undergoing CIRP is an MSME, Section 240A provides that the resolution applicant is exempted from certain requirements of Section 29A (clauses (c) and (h)).”

3.13.

The Committee noted that the pre-pack process is an alternative to the CIRP, and therefore, the corporate debtor may choose to go for either process at a given point of time. Thus, the Committee agreed that the Code should provide that a corporate debtor in respect of whom a CIRP has been admitted, would not be eligible to apply for the pre-pack process.

3.14.

Further, there may be scenarios where an application for CIRP and pre-pack are pending together. The Committee deliberated on whether the Code should lay down the order in which the Adjudicating Authority may consider such applications. It noted that ordinarily, the Adjudicating Authority would dispose of the application that has been filed first. However, since the corporate debtor will need to make preparations before being able to file an application to initiate the pre-pack process, CIRP applications may often be filed (and remain pending) before a pre-pack application is filed. If the Adjudicating Authority then considers the CIRP application first, it would lead to very few instances of a corporate debtor being able to avail the pre-pack process.

3.15.

Moreover, although the Code envisages that a CIRP application should be disposed of within 14 days of its filing, such disposal takes much longer in practice. Where a CIRP application has been filed and is pending for a long period, the corporate debtor may not have certainty on the feasibility of negotiating a base resolution plan in the absence of rules on prioritising simultaneous CIRP and pre-pack applications. Even if a base resolution plan has been negotiated by the corporate debtor in such a scenario, delay in disposal of CIRP application may lead to value erosion and make the negotiated plan moot. Further, different NCLTs may adopt different practices on the manner of disposal of simultaneous applications - leading to inconsistent practices. For instance, some NCLTs may give preference to pre-pack process applications since there is prior negotiation between parties, whereas others may entertain applications on the basis of the date of filing.

3.16.

Thus, the Committee noted that the mechanism for determining the priority for disposing pre-pack and CIRP applications that are simultaneously pending should be laid down in the Code. In this regard, the Committee decided that the following principles may be reflected in the Code -

a. Where an application for initiating a pre-pack process is filed first, the Adjudicating Authority should first decide whether to admit or reject such application, before considering any CIRP application that is filed subsequently. This approach provides an objective manner of dealing with simultaneous applications as it considers the application that has been filed first before any subsequent applications.

b. Where an application for initiating CIRP is filed and subsequently a pre-pack application is filed within 14 days of the former, the Adjudicating Authority should first dispose of the application for initiating the pre-pack process.

Although under this approach the application that has been filed subsequently is to be disposed first, such a provision may be necessary to allow effective access to pre-packs in practice. The filing of a pre-pack application requires more preparation while CIRP applications can often be filed (and are indeed filed) immediately on default. Further, certain creditors may rush to file a CIRP application if they discover that the corporate debtor is attempting to negotiate a base resolution plan with its creditors. This may make accessibility to pre-packs limited, hindering quicker and cost-effective resolution of the stress faced by MSME corporate debtors. Therefore, the Committee thought that it would be suitable to allow corporate debtors a small window, after the filing of a CIRP application, to file a pre-pack application that would be considered first. In practice, this will only help debtors that are at an advanced stage of preparation for filing the pre- pack application.

c. Where an application for initiating CIRP is filed and subsequently a pre-pack application is filed after 14 days of former, the Adjudicating Authority should first dispose of the application for initiating CIRP. As with (a), this approach provides an objective manner of dealing with simultaneous applications as it considers the application that has been filed first before any subsequent applications.

d. In order for this mechanism outlined in paragraph b and c. to work as intended, the Committee noted that it was critical that the 14-day time- limit be strictly adhered to (see para 4.9.). The filing systems of the NCLTs will need to monitor this closely to prevent abuse of the process.

“iii. Overlap with CIRP

A corporate debtor that is undergoing a CIRP should not be eligible to apply for a pre-pack process. Further, if applications for initiating a pre-pack process and a CIRP in respect of the same corporate debtor are simultaneously pending, they should be disposed of in the following manner (Para 3.16.): -

a. Where an application for initiating a pre-pack process is filed first and subsequently a CIRP application is filed, the Adjudicating Authority should first dispose of the application for initiating the pre-pack process.

b. Where an application for initiating a CIRP is filed and subsequently a pre-pack application is filed within 14 days of the former, the Adjudicating Authority should first dispose of the application for initiating the pre-pack process.

c. Where an application for initiating a CIRP is filed and subsequently a pre-pack application is filed after 14 days, the Adjudicating Authority should first dispose of the application for initiating CIRP.”

“11A. (1) Where an application filed under section 54C is pending, the Adjudicating Authority shall pass an order to admit or reject such application, before considering any application filed under section 7 or section 9 or section 10 during the pendency of such application under section 54C, in respect of the same corporate debtor.

(2)

Where an application under section 54C is filed within fourteen days of filing of any application under section 7 or section 9 or section 10, which is pending, in respect of the same corporate debtor, then, notwithstanding anything contained in sections 7, 9 and 10, the Adjudicating Authority shall first dispose of the application under Section 54C.

(3)

Where an application under section 54C is filed after fourteen days of the filing of any application under section 7 or section 9 or section 10, in respect of the same corporate debtor, the Adjudicating Authority shall first dispose of the application under section 7 or section 9 or section 10.

(4)

The provisions of this section shall not apply where an application under section 7 or section 9 or section 10 is filed and pending as on the date of the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021.”

“64.

A statute dealing with substantive rights differs from a statute which relates to procedure or evidence or is declaratory in nature inasmuch as while a statute dealing with substantive rights is prima facie prospective unless it is expressly or by necessary implication made to have retrospective effect, a statute concerned mainly with matters of procedure or evidence or which is declaratory in nature has to be construed as retrospective unless there is a clear indication that such was not the intention of the legislature. A statute is regarded as retrospective if it operates on cases or facts coming into existence before its commencement in the sense that it affects, even if for the future only, the character or consequences of transactions previously entered into or of other past conduct. By virtue of the presumption against retrospective applicability of laws dealing with substantive rights transactions are neither invalidated by reason of their failure to comply with formal requirements subsequently imposed, nor open to attack under powers of avoidance subsequently conferred. They are also not rendered valid by subsequent relaxations of the law, whether relating to form or to substance. Similarly, provisions in which a contrary intention does not appear neither impose new liabilities in respect of events taking place before their commencement, nor relieve persons from liabilities then existing, and the view that existing obligations were not intended to be affected has been taken in varying degrees even of provisions expressly prohibiting proceedings. (See Halsbury’s Laws of England, 4^th Edn., Vol. 44, paras 921, 922, 925 and 926.)

65.

These principles are equally applicable to amendatory statutes. According to Crawford:

“Amendatory statutes are subject to the general principles ... relative to retroactive operation. Like original statutes, they will not be given retroactive construction, unless the language clearly makes such construction necessary. In other words, the amendment will usually take effect only from the date of its enactment and will have no application to prior transactions, in the absence of an expressed intent or an intent clearly implied to the contrary. Indeed there is a presumption that an amendment shall operate prospectively.”

“24.

Further, we are of the view that the judgments cited by NCLAT and the principle contained therein applied while deciding that period of fourteen days within which the adjudicating authority has to pass the order is not mandatory but directory in nature would equally apply while interpreting the proviso to sub-section (5) of Section 7, Section 9 or sub-section (4) of Section 10 as well. After all, the applicant does not gain anything by not removing the objections inasmuch as till the objections are removed, such an application would not be entertained. Therefore, it is in the interest of the applicant to remove the defects as early as possible.”

13.

The interpretation function of the Court is to discover the true legislative intent, it is trite that in interpreting a statute the Court must, if the words are clear, plain, unambiguous and reasonably susceptible to only one meaning, give to the words that meaning, irrespective of the consequences. Those words must be expounded in their natural and ordinary sense. When a language is plain and unambiguous and admits of only one meaning no question of construction of statute arises, for the Act speaks for itself. Courts are not concerned with the policy involved or that the results are injurious or otherwise, which may follow from giving effect to the language used. If the words used are capable of one construction only then it would not be open to the Courts to adopt any other hypothetical construction on the ground that such construction is more consistent with the alleged object and policy of the Act. In considering whether there is ambiguity, the Court must look at the statute as a whole and consider the appropriateness of the meaning in a particular context avoiding absurdity and inconsistencies or unreasonableness which may render the statute unconstitutional.

14.

It is equally well-settled that in interpreting a statute, effort should be made to give effect to each and every word used by the Legislature. The Courts always presume that the Legislature inserted every part thereof for a purpose and the legislative intention is that every part of the statute should have effect. A construction which attributes redundancy to the legislature will not be accepted except for compelling reasons such as obvious drafting errors.

15.

It is well settled that literal interpretation should be given to a statute if the same does not lead to an absurdity

"Unless there is any ambiguity it would not be open to the Court to depart from the normal rule of construction which is that the intention of the Legislature should be primarily gathered from the words which are used. It is only when the words used are ambiguous that they would stand to be examined and construed in the light of surrounding circumstances and constitutional principle and practice."

The cardinal rule of construction of statutes is to read the statutes literally, that is, by giving to the words their ordinary, natural and grammatical meaning. If, however, such a reading leads to absurdity and the words are susceptible of another meaning, the Court may adopt the same. But if no such alternative construction is possible, the Court must adopt the ordinary rule of literal interpretation. In the present case, the literal construction leads to no apparent absurdity and therefore, there can be no compelling reason for departing from that golden rule of construction.

35.

In a case where the statutory provision is plain and unambiguous, the court shall not interpret the same in a different manner, only because of harsh consequences arising therefrom...

37.

The courts jurisdiction to interpret a statute can be invoked when the same is ambiguous. It is well known that in a given case the court can iron out the fabric but it cannot change the texture of the fabric. It cannot enlarge the scope of legislation or intention when the language of the provision is plain and unambiguous. It cannot add or subtract words to a statute or read something into it which is not there. It cannot rewrite or recast legislation. It is also necessary to determine that there exists a presumption that the legislature has not used any superfluous words. It is well settled that the real intention of the legislation must be gathered from the language used. ...But the intention of the legislature must be found out from the scheme of the Act.(xxiii) In Indian Dental Association, Kerala v. Union of India reported in 2004 (1) Kant. LJ 282, the Court held that, The cardinal rule for the construction of Acts of Parliament is that they should be construed according to the intention expressed in the Acts themselves. The object of all interpretation is to discover the intention of Parliament, "but the intention of Parliament must be deduced from the language used", for it is well-accepted that the beliefs and assumptions of those who frame Acts of Parliament cannot make the law. If the words of the statute are themselves precise and unambiguous, then no more can be necessary than to expound those words in their ordinary and natural sense. Where the language of an Act is clear and explicit, the Court must give effect to it, whatever may be the consequences, for in that case the words of the statute speak the intention of the Legislature. Where the language is plain and admits of but one meaning, the task of interpretation can hardly be said to arise. The decision in a case calls for a full and fair application of particular statutory language to particular facts as found. It is a corollary to the general rule of literal construction that nothing is to be added to or taken from a statute unless there are adequate grounds to justify the inference that the Legislature intended something which it omitted to express. A construction which would leave without effect any part of the language of a statute will normally be rejected.

“12.

It is said that a statute is an edict of the legislature. The elementary principle of interpreting or construing a statute is to gather the mens or sententia legis of the legislature.”

“It is a trite principle of interpretation that the words of a statute must be construed according to the plain, literal, and grammatical meaning of the words”