Sumit Binani, RP of KSK Mahanadi Power Company Ltd. vs Power Finance Corporation Ltd.

NCLT, Hyderabad directed the initiation of the CIRP (Corporate Insolvency Resolution Process) proceedings under Section 7 of the I & B Code, against M/s. KSK Mahanadi Power Company Limited on 03.10.2019 in CP No.492/07/HDB/2019.

Punjab National Bank (PNB) filed application under Section 7 of the I & B Code against M/s. KSK Water Infrastructure Pvt. Ltd. on 24.10.2019.

PNB as lead FC for KSK Water filed IA 32/2020 in CP/492/07/HDB/2019 seeking consolidation of CIRP of KSK Water with CIRP of KSK Mahanadi on 26.11.2019.

On 20.02.2020 Axis Bank filed application under Section 7 of the code against Raigarh Champa Rail Infrastructure Private Limited (RCRIPL).

On 03.07.2020 Axis Bank filed application before NCLT for consolidation of CIRP of RCRIPL with CIRP of KSK Mahanadi in CP 492/07/HDB/2019.

These 2 consolidation applications were filed on the grounds that CIRP of all 3 entities done together will maximize the value of the entities and bring in effective resolution of the CD along with the other 2 entities because their business are inextricably interlinked and there is complete interdependence in their business operations.

While decision on Section 7 applications with respect to KSK Water and RCRIPL and on the consolidation application were pending before NCLT, the RP (Resolution Professional) sought extension of time of 90 days vide IA 471/2020 and NCLT allowed the same on 07.07.2020.

Again RP on 21.07.2020 filed IA 661/2020 seeking exclusion of 76 days on grounds of Covid Pandemic, change of RP, time taken to decide on IA 471/2020 etc., and this was allowed by NCLT on 07.09.2020. With this, the time limit of 270 days granted to complete CIRP of the CD stood to end as on 27.11.2020.

On 06.10.2020 the RP again filed an application IA 929/2020, seeking a further exclusion of 102 days on grounds of pendency of under Section 7 applications of related entities and pendency of consolidation applications.

NCLT in its order dated 26.11.2020 declined to grant exclusion of time on account of pendency of applications as above and allowed only 67 days for exclusion on account of Covid-induced lockdown and accordingly directed that with this exclusion CIRP period stands extended up to 02.02.2021 by which RP must complete CIRP.

Against this order dated 26.11.2020 the instant Appeal has been filed before this Tribunal. Taking up the case NCLAT granted stay on the Impugned Order on 20.12.2020. Subsequently, on application by RP, NCLAT on 08.04.2021 clarified that CIRP of the CD may continue as per Law and the stay order will not come in the way.

In another order dated 27.01.2021 NCLAT requested NCLT to decide on the Consolidation Application as early as possible. NCLT on 12.02.2021 dismissed the Consolidation Application.

Against this order, Company Appeal (AT) (CH) (Ins) No.46/2021 was filed before NCLAT which was permitted to be withdrawn by NCLAT on 11.06.2024.

Thus, finally there remains the 2 Company Appeals CA (AT) (CH) (Ins) No.1116/2020 filed by RP of the CD and CA (AT) (CH) (Ins) No.1097/2020, filed by CoC to be decided upon, in which the order of NCLT dated 26.11.2020 declining to exclude 102 days from CIRP Timelines is being challenged.

The prayer as sought for by the Appellant in CA (AT) (CH) (Ins) No. 1116/2020 is, that the prayer which they have made in the Application bearing the IA No. 929/2020, seeking an exclusion of 102 days, should be granted in its totality and it should not be restricted to 67 days of exclusion only, which has been granted by the Impugned Order under challenge, meaning thereby that in so far as the instant Appeal is concerned, the issue in consideration will be limited to the extent of denial of extension/exclusion of time period of (102-67=) 35 days.

In the connected appeal CA (AT) (CH) (Ins) No.1097/2020, though there is a marginal distinction of facts, but primarily the prayer still remains the same, based upon the conclusion which has been drawn in Para – 6 of the Impugned Judgment dated 26.11.2020 as it has been rendered in IA No. 929/2020, in CP No.492/07/HDB/2019 under consideration before the NCLT, Hyderabad Bench, Hyderabad, that the decision not to grant exclusion of 102 days on the ground that ‘pendency of section 7 Application or Consolidation Application cannot be the reason for excluding any period from the CIRP period’, be set aside, and that Adjudicating Authority be directed to decide on the Section 7 application in respect of related entities and the Consolidated Application at the earliest and to allow 102 days of exclusion as proved for.

As far as the issue of consolidation of the CIRP Proceedings of the CD & 2 related entities are concerned, at this stage, we are not required to venture into the same, because that is no more pressed in by the counsel for the Appellants to the two Company Appeals and since same has been laid to rest in an appellate proceeding drawn before this Tribunal. As the parties are not pressing upon the aspect of the need for consolidation of the respective CIRP Proceedings, we are not required to express upon our view pertaining to as to whether the consolidation could at all have been an aspect which could be taken into consideration for determining the instant Appeals. Thus, the question which ultimately has emerged for our consideration is as to whether the period of pendency of the consolidation application as preferred in the company petition, both at the level of NCLT and of this Tribunal till the same was finally decided by the Appellate Tribunal, could be excluded from the period as prescribed for completion of CIRP proceedings as provided under Section 12.

Consolidation of Company Petitions, is not a procedure prescribed under the I & B Code, which since being an exclusively a special statute, has got its self-contained procedure. A procedural law cannot be permitted to be, disturbed or modified by a way of an interpretation of law or in a manner to suit a particular need in a particular case depending upon the facts of the case, because the procedural law particularly aims at to attain the objective of the Act and if it is permitted to be altered, it may at times lead to judicial impropriety and distortion too. Once the consolidation is not a philosophy as prescribed under I & B Code nor has it been envisaged by the framers of law, the same could not be introduced through an interpretation of law. As it has been informed by the Learned Counsel for the Appellant, that it is an issue pending and is subject matter of consideration in a proceeding under Section 62 of I & B Code, before the Hon’ble Apex Court, hence, from that perspective we are not expressing any opinion on the aspect, as to whether there could at all be a consolidation of company cases under the provision of the I & B Code particularly when the statute itself is silent and when it is not procedurally prescribed under the I & B Code and because the issue is yet to be delved by the Hon’ble Apex Court.

The Learned Counsel for the Appellant submits that the issue which is required to be dealt with by us, is as to whether “the period during which the consolidation proceedings of the Company Petitions were pending, whether the said period at all be could be excluded by virtue of the 2^nd proviso to Section 12(3) of I & B Code”. Proviso to Section 12(3) is extracted hereunder: -

As far as we are concerned, we are of the view that the legislature while enacting the statute, has used the word “extension” only. The word “extension” would literally mean commencement of an activity from the stage from which it has ended on a particular day. An expression “extension”, cannot be a meant to be read as a synonym to an “exclusion” which means exclusion of a period which has already concluded because of any procedural act, or on the culmination of the act prescribed under law and that is why the law has defined the terms “exclusion” and “extension”, distinctly. In the Oxford Dictionary, 10^th edition the word “extension” and ‘exclusion’ have been used and described in the following manner: -

If a logical interpretation is given to the description of the word extension as extracted above, it means that it is a continuation or an addition or an enlargement of an act, which has already been partially carried out, and for that reason it will not include within its ambit the concept of “exclusion” as it has been prayed for by the appellant herein for the purposes of extension of the period under the 2^nd proviso to 12(3), stipulated for conclusion of the CIRP proceedings by excluding certain time period within it. The word “extension” ordinarily implies the prior existence of something which is to be extended further.

The said concept has been dealt with in the matter of State Vs Greaves C52 where it was being decided by the court in the context of the procedure provided under the Companies Act. In the above-mentioned case of the United States, under the bankruptcy laws, it was held that extension proposal of an agreement as a part of the creditors agreement will mean that the agreement has been extended beyond the time when the agreement itself has lost its life. The said principle has been determined by the Hon’ble Apex Court of the Hon’ble United States, where it has been prescribed that extension granted under the Bankruptcy Act proceeding will mean that the debtor merely obtains extension of time, within which to pay the full amount due to be paid. It means that it only takes its birth as soon as the period of remittance of amount expires. Thus, the term “extension” in its literal context cannot be used as the synonym to the word “exclusion”. The word ‘extension’ bears the same meaning in the matters of the Mercantile Law, where the word extension is to be interpreted as that when there is an agreement between a debtor and his creditors by which they are allowed to do a particular act and if the act is not completed within a specified time frame for whatsoever governing reasons, if the time is to be extended, it would be extended on certain terms and conditions to complete the incomplete act and that will constitute an ‘extension’. For example, “An extension of the life of a patent”, for an additional period of 7 years would only commence from the period when actual the life of a patent already assigned expires, and not otherwise.

If we read the language of Section 12 of I & B Code, which is extracted hereunder: -

The legislature had specifically used the word “extension” and has deliberately, not used the word “exclusion” under Section 12. That is why if the implication of Section 12(2) is taken into consideration, it literally provides for the extension of the period of the CIRP proceedings which does not contemplate an exclusion of the period spent in certain other incidental proceedings, by the parties to a company petition for the purposes of meeting the intention of Section 12(2). An exception has been attempted to be carved out by the Learned Counsel for the Appellant by arguing that the ‘period to be extended’, therein also will mean ‘period to be excluded’, as the same is included under the 2^nd proviso of Section 12(3) which is extracted hereunder: -

IN COMMERCIAL LAW, Extension is an indulgence by giving time to pay a debt, or to perform an obligation; based on an agreement made between a debtor and his creditors, by which the latter in order to enable the former embarrassed in his circumstances, to retrieve his standing, agree to wait for a definite length of time after their several claims should become due and payable, before they will demand payment. These will include 1. A postponement of the date on which a loan has to be repaid. 2. A prolonging of the life of a documentary credit or other financial instrument.

The word ‘extension’ when used in its proper and usual sense in connection with a lease means a prolongation of the lease. Provash Chandra Dalvi v Biswanath Banerjee, AIR 1989 SC 1834, 1839. [Calcutta Thika Tenaney Act (2 of 1949), section 2(5)].

The term ‘extension’ means enlargements, expansion, lengthen, prolong, which is permissible only when an incumbent is already in service, but after he has ceased to be the holder of the post and is not in service, he cannot claim ‘extension’ [Hamiduddin Salahuddin v State of U.P. 2006 (1) ALJ 717-718, para 4].

The word ‘extension’ imports the continuance of an existing thing and must have its effect given to where it occurs. National Industrial Corporation Ltd v Registrar of Cos, AIR 1963 Pun 239, 241.

‘Extension’, is the enlarging or giving further duration to, any existing right, but “does not import the re-vesting of an expired right; that would not be an ‘Extension’ but a ‘Re-creation’” (per RICHARDSON, Brooke v Clarke, 1 B & Aid. 399)

The Counsel for the Appellant contends that owing to the expression given under the Section 12(3) and 2^nd Proviso thereto, where it provides for extension of time for the period of corporate insolvency resolution process and for the time taken in legal proceedings in relation to such resolution process of the Corporate Debtor, it clearly provides for that the “extension”, could be granted in those cases where there is a pending proceeding and also that period of engagement in such proceeding therein is to be excluded. Hence, he contends that the exclusion is a concept which is a self-contained provision under the 2^nd proviso to 12(3).

The interpretation to these expressions, becomes an important issue to be dealt with by us. We are of the view that when an exception has been carved out by the 2^nd proviso of Section 12(3), it will mean that this exception could only be in relation to the proceedings which are contemplated under the I & B Code and not otherwise which has been attempted to be argued by the counsel for the appellant, who contends that the proceedings for consolidation of the cases will fall to be within the domain of the expression of the legal proceedings and hence the period as engaged therein, in carrying the proceedings for consolidation of Company Petitions should be excluded for the purposes of determining the end date of the completion of the CIRP proceedings.

We are in disagreement to this argument, for the reason being, that it is only those legal proceedings which will qualify for exclusion provided they satisfy the subsequent expression given under the 2^nd proviso, that is “in relation to such resolution process of the corporate debtor”. The word used ‘in relation’, therein would always mean to be a proceedings in context of the process contemplated under the I & B Code in relation to the completing of the resolution process. Thus, the period spent in consolidation proceedings will not fall under the ambit of the expression “the time taken in the legal proceedings”, within the provision of the Act particularly when the consolidation of CIRP Proceedings, is not a concept or a procedure which has been provided under the I & B Code. It has to be kept in mind that any act which has not been provided procedurally, cannot be introduced by a judicial interpretation to extend the ambit of the provisions, which can be exploited by a party to its benefit, by filing applications which are not contemplated under the Act. That is why the legislature under the 2^nd proviso has intentionally used the “legal proceedings”, and legal proceedings here would mean to be a legal proceedings which is prescribed under the Code itself and not otherwise. As already observed above and determined by the coordinate bench of this Tribunal, consolidation since not being a concept or a procedure provided under the Code, cannot be given a status of being the “legal proceedings”, for the purposes of these Appeals. It is also to be noted that the issue is now subjudice before the Hon’ble Apex court.

We may not be turning into this aspect any further, but still we would not desist from holding the view that “consolidation of petitions” will not be falling within the definition of the “legal process or proceedings”, within the ambit of 2^nd Proviso to Section 12(3) of the Code, because it does not happen to be recognized process under Law, in relation to the process intended to for the purposes of completion of the CIRP process. Accordingly, this aspect is answered against the argument extended by the appellant.

There is another reason as to why we feel that the term “extension”, which has been used under Section 12 cannot be used as the synonym to the word “exclusion”. ‘Exclusion’ yet again as per the Oxford Dictionary, means that “ a party to a cause if he is not satisfying to a certain procedure, as it has been resorted to, as if it has been intended to exclude the said process from being considered in a proceedings”. The term “exclusion” herein would mean exclusion of a process by which a party is not satisfied or who wants to withdraw from the said process. But this term “exclusion” does not mean an exclusion of the period engaged to pursue it, as it has been sought to be pressed by the counsel or the appellant so as to exclude the period, which was involved in the proceedings with regards to the consolidation of company petitions, because if the principle as sought to be pressed by the appellant is taken into consideration it will be having an altogether different impact according to the facts of the case, because that it will be on contrary to the provisions of Section 12 which did not use the word exclusion and coupled with the fact that the use of word exclusion herein may be procedurally misused by the parties to gain time for their own benefit by filing applications such as consolidation application which was not procedurally prescribed under the statute.

It was further argued by the Learned Counsel for the Appellant, that the exclusion is a concept which could be borrowed from the provisions contained under Regulation 40 and especially 40-C of IBBI (Insolvency Resolution Process for Corporation Persons), Regulations, 2016.

Regulation 40 of the I & B Code is extracted hereunder: -

The tenacity of the argument of the Learned Counsel for the Appellant is not acceptable because once again Regulation 40 does not give any expression for the term ‘exclusion of time’; it too only contemplates extension of the Corporate Insolvency Resolution Process period. Regulation 40-C provides that the period of lockdown in the wave of Covid outbreak shall not be counted for the timeline of any activity in relation to CIRP Process. But this is a very specific dispensation and cannot be applied in any other context. Furthermore, there is another reason for not to accept the argument of the Learned Counsel for the Appellant in the light of the interpretation given by him to Regulation 40, the reason being that it needs no judicial deliberation to hold that regulations are subordinate legislations, prescribed to be framed under the provisions contained under Section 240 of the I & B Code. Section 240 of the I & B Code prescribes that regulations may be framed which are, “consistent with the Code and Rules”, meaning thereby any regulation which intends to distort the application of the principal provisions under the Code or takes the form of being inconsistent to the provisions of the Code, then it will not have precedence over the principal statute. Thus, the plea that use of the principle of ‘exclusion of time’, is mandated by Regulation 40 of IBBI (Insolvency Resolution Process for Corporation Persons) Rules 2016 lacks merit and is not maintainable.

The Learned Counsel for the Appellant has further attempted to impress upon this Tribunal by drawing its attention to make out a case for interference in favour of ‘exclusion of time’, by applying the law, as prescribed under section 60(5) of the Code. Particularly he has referred to the provisions contained under Sub-Section 5(c) of section 60 of the Code which is extracted hereunder: -

The Counsel of Appellant has attempted to argue that the exclusion of 102 days from CIRP timelines can be ordered by this Tribunal under Section 60(5)(C) of the Code as this is a matter of priority on the grounds that CIRP has to be done successfully failing which Rs.29330 crore of credit and electricity supply to 6 states will be at risk and as the Impugned Order is creating an impediment which needs to be set right. We are of the view that logical interpretation has to be given to provisions of Section 60(5)(C), that even if there is a provision for “exclusion” of a period under the statute, that has had to be read as if it is an “extension” of time, to meet out the purpose of Section 12 of I & B Code. Having gone through the Sub-Section 5(c) of Section 60, which has been extracted above, we are clear that whenever there is a question of “priorities” to be decided, those priorities would be depending upon the facts of each case and in that eventuality the powers would be exercised by the Tribunal only when it is exigent in nature in order to meet the intention of the Act which is that all efforts should be taken to conclude resolution process successfully and that liquidation would be by way of last resort. Thus, certain minor time extensions can be granted under the provisions of Section 12. We are of the view that if Section 12 in itself, which has been extracted above, is read in its entirety and as has been already held by the Hon’ble Apex Court, it is evident that the period prescribed therein for the purposes of completion of CIRP proceedings are only directory in nature and not mandatory and that is quite explicit from the provisions of Section 12 itself when it prescribes for various phases of extension of time period for completion of CIRP Proceedings and that there is no straight jacketed formula which has been uniformly prescribed to be adopted for grant of the extension of period for the purposes of completion of CIRP process. Once the law itself has prescribed for certain latitude for grant of extension of time, though within the ambit of Section 12 of the I & B Code, and since the provision has been made directory in nature and not mandatory, the provision of extension time period is to be liberally construed for the purposes to meet out the objectives of the CIRP proceedings, so as to prevent liquidation from being imposed on the parties to the company petition to the maximum extent possible. If the construction of the language under Regulation 40 is to be read in harmony with the provisions of Section 12, keeping in mind the overall objectives of the ‘code’, the term “exclusion”, though in its literal connotation may be having different legal expression and impact, tends to fall within the ambit of the term ‘extension’, as contemplated under section 12 for the purpose of completion of the CIRP proceedings. Owing to the above, in principle, we are not in agreement with the argument that the proceedings could be consolidated under the procedural law prescribed under the I & B Code and as already observed, we are not dealing with that said issue at present because, it had already been closed in the instant case. We are also unable to agree with the argument that period spent in such Consolidation proceedings will amount to “time taken in legal proceedings in related to such resolution process”. Having held so, in the context of the objectives of the Code and the paramount need to bring the resolution process to a successful conclusion so as to avoid liquidation and in view of the fact that the Appellants were not responsible for pendency of Consolidation Applications and section 7 Application of related entities, we are of the view that the prayer for ‘exclusion of 102 days’ may be considered as extension of 102 days under Section 12 of the Code and that the prayer is not without merits and as 67 days has already been granted vide the Impugned Order, the remaining 35 days of extension of time would stand hereby granted.

Accordingly, the extension of 35 days is granted, for the purposes of completion of CIRP proceedings in addition to extensions/exclusions already granted by NCLT, Hyderabad. It is made clear that even though CIRP Process is long overdue and that extensions/exclusions have already been granted earlier, but still in order to meet the objective of the Code, the extension is being granted for a period of 35 days and it is hoped and trusted that the Resolution Professional, will complete the CIRP proceedings within the aforesaid time frame. Subject to the above, the Appeals would stand disposed of.

This order of extension of 35 days would be determined from the date of uploading of this Order and hence all pending applications would be deemed to be disposed of.