Slimline Realty Private Limited & Ors. vs. Jigar Bhatt & Ors. [Company Appeal (AT) (Insolvency) No. 690,693,694,695 & 714 of 2024
Facts:
1) The Corporate Debtor – Reliance Marine & Offshore Limited (hereinafter referred to as ‘RMOL’) was admitted to Corporate Insolvency Resolution Process (CIRP) vide order dated 21.08.2019. (ii) The order of Liquidation was passed against RMOL on 06.12.2021. The Respondent – Jigar Bhatt was appointed as Liquidator. The Liquidator issued Demand Notice to the Appellants to make payment with respect to Non-Convertible Unsecured Bonds subscribed by the Corporate Debtor.
2) The payments having been made by the Appellants, the Liquidator in September, 2023 filed Section 7 applications against the Appellants. Section 7 application filed against M/s Slimline Realty Private Limited was registered as Company Petition (IB) No.1007/2023.
3) The case set up by the Liquidator in Section 7 application was that the Corporate Debtor has no business, no physical assets or any employees. The only asset of the Corporate Debtor is subscription in Non-Convertible Unsecured Bonds of five private limited entities (Appellants herein). The Bonds were subscribed in the year 2013 and were due for redemption on 25.07.2019 and have a face value of Rs.306.73 crore which has to be redeemed at 40% premium. The management of the Corporate Debtor and the erstwhile Resolution Professional as well as the Liquidator has issued Demand Notice to the Appellants and the Appellants failed to redeem the amount and pay the amount due to the Corporate Debtor
4) The Liquidator filed an application being IA/189(AHM)2024 in IA 794 of 2020 in CP(IB) 171 of 2017 praying for various reliefs. The Adjudicating Authority heard the I.A. filed by the Liquidator and by order dated 07.02.2024 allowed the I.A. and granted ex-post facto approval to the Liquidator to continue and proceed with the Company Petitions filed by the Liquidator against the Appellants. Appeal is filed challenging the order.
Issue: Whether the appeal can be allowed ?
Arguments:
Appellant:
1) Counsel submitted that Adjudicating Authority has no jurisdiction to grant expost facto approval of Section 7 application which were filed by the Liquidator without obtaining prior approval of the Adjudicating Authority as contemplated in Section 33(5) of the IBC Code.
2) It was submitted that the provision under Section 33(5) is a mandatory provision according to which Liquidator was not competent to initiate any proceeding on behalf of the Corporate Debtor without obtaining prior approval. The prior approval contemplated under Section 33(5) proviso cannot be equated with post-facto approval.
3) The proceeding initiated by the Liquidator without obtaining prior approval is void and nullity and cannot be cured by any post-facto approval. There is distinction between expressions ‘sanction/permission’, ‘approval’ and ‘prior approval’. When a statute requires a sanction, permission or approval, a post-facto approval may cure the defect. However, when a statute mandates a prior approval, defect in initiation of proceedings cannot be cured by post-facto approval.
Respondent:
1) Counsel submitted that the provision of Section 33(5) of the Code is only directory and not mandatory in nature. It is submitted that the provision under Section 33(5) does not provide for any consequences for its non-compliance. When no consequences are provided, the provision is always treated as directory. Since the section does not expressly provide for nullification of the proceedings as a consequence of non-compliance with the requirement of the section, it only renders the provision directory in nature.
2) It was submitted that there are other provisions in the code like Section 28(3), Section 28(4) and Section 25A(3) which expressly provides for consequences for non-compliance of said section. Not providing of any consequence of breach in Section 33(5) is clear indicator of the intention of the legislature that breach of Section 33(5) is not viewed as breach of any mandatory provision. The Liquidator is also empowered to initiate proceedings on behalf of the Corporate Debtor by virtue of Section 35(1)(k) of the Code.
Decision: NCLAT dismissed the appeal.
Rationale:
1) When we look into the expression used in Section 33 Subsection (5), Section 33(5) provides that when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor. The provision begins with a negative injunction with regard to suit or legal proceeding by or against the Corporate Debtor after an order of liquidation has been passed. The object of such provision is not far to seek. When a liquidation order has been passed, the estate of the Corporate Debtor has to be protected, hence, there is an embargo on initiating any suit or legal proceeding against the Corporate Debtor.
2) It held that looking to the statutory scheme, in use of the prohibitory word in Section 33(5), are satisfied that the requirement of prior approval by the Adjudicating Authority for instituting any suit or proceeding is mandatory and cannot be held to be directory. The mere fact that no consequences has been provided in the provision, cannot be a ground to treat the requirement as directory.
3) The consequence of the proceedings instituted by the Liquidator on behalf of the Corporate Debtor without prior approval of the Adjudicating Authority under Section 33(5) is unauthorized and incompetent. Post facto approval granted by the Adjudicating Authority with regard to continuation of proceedings already instituted by the Liquidator which were instituted without obtaining prior approval shall make the proceedings authorized and competent from the date when post facto approval is granted.
Order:
