SECTION 60 (5) OF IBC 2016 & ITS PARAMETER DEFINED

 

Section 60 (5) of IBC 2016 & its parameter DEFINED

 

The Insolvency & Bankruptcy Code (IBC) 2016 after its enactment and in the proceedings before National Company Law Tribunal  (NCLT) and before National Company Law Appellate  Tribunal  (NCLAT) are flooded with applications by third party applicants such as Resolution Applicants (RAs) and also by the Financial Creditor (FC) or Operational Creditor (OC), once, the insolvency petition is admitted and resolution professionals are appointed for Corporate Insolvency resolution proceedings (CIRP) and the outlet for preferring such application is provided under Section 60(5) of the IBC Code 2016.The Resolution Professionals(RP) on behalf of CoC ( Committee of Creditors) also prefer applications in respect of CIRP of Corporate Debtor (CD) company and therefore, section 60(5) of the IBC 2016 is in vogue and its parameter are now redrawn by Supreme Court.

The Supreme Court in a matter reported as 2024 INSC 102 GREATER NOIDA INDUSTRIAL DEVELOPMENT AUTHORITY Vs  PRABHJIT SINGH SONI & ANR (Civil Appeal Nos.7590-7591 of 2023) has dealt with the parameter of section 60(5) of the Code in greater detail.

 

The Supreme Court had to deal with the issue in view of the fact that vide order dated 05.04.2021, NCLT had dismissed the application filed by the appellant under Section 60(5) of the IBC in Company Petition No. (IB)-272 (ND)/ 2019 and the NCLAT had also dismissed the Company Appeal No. 867 of 2021 and CP, whereby the appellant was Seeking to recall the order inter alia, questioning the decision of the Resolution Professional(RP) in treating the appellant as an Operational Creditor and not informing the appellant about the meetings of the Committee of Creditors (CoC). The NCLAT had dismissed the appeal preferred u/s 62 of the Code and therefore the Civil Appeal was preferred before the hon’ble Supreme Court for adjudication of the ambit of Section 60(5) of the Code apart from other facets of CIRP.

The following issues in Greater Noida (Supra) therefore have emerged arisen for consideration of Supreme Court in the appeal:

(i) Whether in exercise of powers under sub-section (5) of Section 60, the Adjudicating Authority (i.e.NCLT) can recall an order of approval passed under sub-section (1) of Section 31 of the IBC?.

(ii) Whether the application for recall of the order was barred by time?

(iii) Whether the resolution plan put forth by the Resolution Applicant did not meet the requirements of sub-section (2) of Section 30 of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016?

(iv) As to what relief, if any, the appellant is entitled to?

 

The paragraphs no. 29,30 and 32 of Greater Noida (Supra) shall be worthy of reference. It is held/observed as under:

29. Explaining the scheme of the CIRP under the IBC, in Ghanashyam Mishra & Sons (P) Ltd. vs. Edelweiss Asset Reconstruction Co. Ltd. (2021) 9 SCC 657 (paragraph 93), a three-Judge Bench of this Court observed that one of the principal objects of the IBC is to provide for revival of the Corporate Debtor (CD) and to make it a going concern. The RP on commencement of CIRP is required to issue a publication inviting claims from all the stakeholders; thereafter, on basis of claims received, the RP is required to collate the information and submit necessary details in the information memorandum; the resolution applicant(s) submit their plan(s) on the basis of the details provided in the information memorandum; the resolution plan(s) undergo deep scrutiny by RP as well as COC; in the negotiations that may be held between COC and the resolution applicant, various modifications may be made so as to ensure that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the CD is revived and is made an ongoing concern; after COC approves the plan, the adjudicating authority is required to arrive at a subjective satisfaction that the plan conforms to the requirements as are provided in sub-section (2) of Section 30 of IBC; and only thereafter, the adjudicating authority can grant its approval to the plan”.

 

“30. What is clear from the provisions of the IBC and the Regulations noticed above is, that the RP is under a statutory obligation to collate the data obtained from (a) the claim(s) made before it and (b) information gathered from the records including those maintained by the CD. The data so collated forms part of the information memorandum. Based on that information, the resolution applicant(s) submit(s) plan. In consequence, even if a claim submitted by a creditor against the CD is in a Form not as specified in the CIRP Regulations, 2016, the same has to be given due consideration by the IRP or the RP, as the case may be, if it is otherwise verifiable, either from the proof submitted by the creditor or from the records maintained by the CD. A fortiori, if a claim is submitted by an operational creditor claiming itself as a financial creditor, the claim would have to be accorded due consideration in the category to which it belongs provided it is verifiable”.

32. In Jaypee Kensington Boulevard Apartments Welfare Association vs. NBCC (India) Ltd., (2022) 1 SCC 401, a three- Judge Bench of this Court had occasion to examine the scope of judicial review exercisable by: (a) the Adjudicating Authority, under Section 31 (1), over a resolution plan approved by the COC; and (b) the Appellate Authority exercising its power under Section 32 read with Section 61 (3) of the IBC. After examining the relevant provisions of the IBC and the Regulations framed thereunder, and upon a survey of various judicial pronouncements on the subject, the scope of judicial review was summarised as follows:

“108. To put in a nutshell, the adjudicating authority has limited jurisdiction in the matter of approval of a resolution plan, which is well defined and circumscribed by Sections 30(2) and 31 of the Code read with the parameters delineated by this Court in the decisions above referred. The jurisdiction of the appellate authority is also circumscribed by the limited grounds of appeal provided in Section 61 of the Code. In the adjudicatory process concerning a resolution plan under IBC, there is no scope for interference with the commercial aspects of the decision of the CoC; and there is no scope for substituting any commercial term of the resolution plan approved by the CoC. Within its limited jurisdiction, if the adjudicating authority or the appellate authority, as the case may be, would find any shortcoming in the resolution plan vis-à-vis the specified parameters, it would only send the resolution plan back to the Committee of Creditors, for re-submission after satisfying the parameters delineated by the Code and exposited by this Court”.

 

The Supreme Court has held that in the present case, a perusal of the approval order dated 04.08.2020 would reveal that the resolution plan put forth by the resolution applicant refers to the appellant as a creditor who had not submitted its claim. Further, the dues shown payable to the appellant are Rs. 13,47,40,819/- when, according to the appellant, its claim was for Rs. 43,40,31,951/- Not only that, the amount proposed to be paid is just Rs.1,34,74,082/-, that too, payable by conversion of dues into square feet of area to be completed and payment to be made, on square feet basis, at the time of registration of each of the units.

In Budhia Swain vs. Gopinath Deb(1999) 4 SCC 396 , after considering a number of decisions, a two-Judge Bench of this Court observed:

“8. In our opinion a tribunal or a court may recall an order earlier made by it if

(i) the proceedings culminating into an order suffer from the inherent lack of jurisdiction and such lack of jurisdiction is patent,

(ii) there exists fraud or collusion in obtaining the judgment,

(iii) there has been a mistake of the court prejudicing a party, or

(iv) a judgment was rendered in ignorance of the fact that a necessary party had not been served at all or had died and the estate was not represented.

The power to recall a judgment will not be exercised when the ground for reopening the proceedings or vacating the judgment was available to be pleaded in the original action, but was not done or where a proper remedy in some other proceeding such as by way of appeal or revision was available but was not availed. The right to seek vacation of a judgment may be lost by waiver, estoppel or acquiescence.”

The Power of review

The Full bench of NCLAT In a recent decision captioned as  Union Bank of India vs. Dinakar T. Vekatasubramanian & Ors.) has held that though the power to review is not conferred upon the Tribunal but power to recall its judgment is inherent in the Tribunal and is preserved by Rule 11 of the NCLT Rules, 2016. It was held that power of recall of a judgment can be exercised when any procedural error is committed in delivering the earlier judgment; for example, necessary party has not been served or necessary party was not before the Tribunal when judgment was delivered adverse to a party. It was observed that there may be other grounds for recall of a judgment one of them being where fraud is played on the Court in obtaining a judgment.

The Supreme Court has noted that decision of NCLAT was upheld by a two-Judge Bench of the Supreme Court vide order dated 31.07.2023 in Civil Appeal No.4620 of 2023 (Union Bank of India vs. Financial Creditors of M/s Amtek Auto Ltd. & Ors.).

Thus, it is obvious that a Court or a Tribunal, in absence of any provision to the contrary, has inherent power to recall an order to secure the ends of justice and/or to prevent abuse of the process of the Court. Neither the IBC nor the Regulations framed thereunder, in any way, prohibit, exercise of such inherent power. Rather, Section 60(5)(c) of the IBC, which opens with a non-obstante clause, empowers the NCLT (the Adjudicating Authority) to entertain or dispose of any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under the IBC. Moreover, Rule 11 of the NCLT Rules, 2016 also preserves the inherent power of the Tribunal. Therefore, even in absence of a specific provision empowering the Tribunal to recall its order, the Tribunal has power to recall its order. However, such power is to be exercised sparingly, and not as a tool to re-hear the matter. Ordinarily, though, an application for recall of an order is maintainable on limited grounds, inter alia, where:

(a)  the order is without jurisdiction;

(b) the party aggrieved with the order is not served with notice of the proceedings in which the order under recall has been passed; and

(c) the order has been obtained by misrepresentation of facts or by playing fraud upon the Court /Tribunal resulting in gross failure of justice.

 

According to Supreme Court what therefore clearly emerges is that a Tribunal or a Court is inherently invested with such ancillary or incidental powers as may be necessary to discharge its functions effectively for the purpose of doing justice between the parties to the lis and unless, any statutory prohibition is there, in an appropriate case, a court or tribunal can recall its order in exercise of such ancillary or incidental powers.

The Supreme Court has held categorically that the resolution plan did not meet the requirements of Section 30(2) of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016 for the following reasons:

a.       The resolution plan disclosed that the appellant did not submit its claim, when the unrebutted case of the appellant had been that it had submitted its claim with proof on 30.01.2020 for a sum of Rs.43,40,31,951/- Even if the record indicated that the appellant was advised to submit its claim in Form B (meant for operational creditor) in place of Form C (meant of financial creditor), however, the claim of the appellant could not be sidetracked ,merely because it was filed in a different Form, since submission of Form shall be directory and the relevant  criteria shall be that the claim should be lodged with proof . Not acknowledging the claim under resolution plan, but there was omission and errors which substantially affected the resolution plan. It was further observed that withholding the information adversely affected the interest of the appellant because, firstly, it affected its right of being served notice of the meeting of the COC, available under Section 24 (3) (c) of the IBC to an operational creditor with aggregate dues of not less than ten percent of the debt and, secondly, in the proposed plan, outlay for the appellant got reduced, being a percentage of the dues payable. The resolution plan thus stood vitiated and  NCLT and NCLAT failed to take note of that.

b.       The resolution plan did not specifically place the appellant in the category of a secured creditor even though, by virtue of Section 13-A of the 1976 Act, in respect of the amount payable to it, a charge was created on the assets of the CD. As per Regulation 37 of the CIRP Regulations 2016, a resolution plan must provide for the measures, as may be necessary, for insolvency resolution of the CD for maximization of value of its assets, including, but not limited to, satisfaction or modification of any security interest. Further, as per Explanation 1, distribution under clause (b) of sub-section (2) of Section 30 must be fair and equitable to each class of creditors. Non placement of the appellant in the class of secured creditors did affect its interest. The NCLT and NCLAT failed to notice that anomaly.

c.       No doubt, ordinarily, feasibility and viability of a plan are economic decisions best left to the commercial wisdom of the COC. However, where the plan envisages use of land not owned by the CD but by a third party, such as the appellant, which is a statutory body, bound by its own rules and regulations having statutory flavour, there has to be a closer examination of the plan’s feasibility. The CD had defaulted in payment of installments and that allegedly, resulted in raising of demand and issuance of pre-cancellation notice. In these circumstances, whether the resolution plan envisaged necessary approvals of the statutory authority is an important aspect on which feasibility of the plan depends. The order of approval did not envisage such approvals. But neither NCLT nor NCLAT dealt with those aspects

The Supreme Court has observed in Greater Noida (Supra) that the recall application was filed by the appellant claiming inter alia that-

(a) the appellant was not informed of the meetings of the COC;

(b) the proceedings up to the stage of approval of the resolution plan by the Adjudicating Authority were ex parte;

(c) the RP misrepresented that the appellant had submitted no claim when, otherwise, a claim was submitted of an amount higher than what was shown outstanding towards the appellant; and

(d) there was gross mistake on part of the Adjudicating Authority in approving the plan which did not fulfill the conditions laid down in sub-section (2) of Section 30 of the IBC.

 

The aforesaid contentions of the appellant was vital and could not have been ignored. The hon’ble Supreme Court has further noted that NCLT as well as NCLAT while deciding the application /appeal failed to note that-

(a) the appellant had not been served notice of the meeting of the COC;

(b) the entire proceedings up to the stage of approval of the           resolution plan were ex parte to the appellant;

(c) the appellant had submitted its claim, and was a secured creditor by operation of law, yet the resolution plan projected the appellant as one who did not submit its claim; and

(d) the resolution plan did not meet all the parameters laid down in sub-section (2) of Section 30 of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016

                                       

Time barred Claim

The Supreme Court has held that the Recall Application was not barred by time, since, I.A. No.344/ 2021 was filed on 6.10.2020 upon getting information on 24.09.2020 from the monitoring agency regarding approval of the plan. Likewise, I.A. No.1380/ 2021 was filed on 15.03.2021 immediately when suspension of the period of limitation for any suit, appeal, application or proceeding, between 15.03.2020 and 14.03.2021, was lifted in terms of this Court’s order dated 8.03.2021 in RE: Cognizance For Extension of Limitation (supra). Thus, the plea that the applications were barred by limitation was untenable. It was also held that the Resolution Plan did not meet the requirements of Section 30 (2) of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016.

Thus, the Supreme Court had allowed the appeal of the appellant. The order dated 04.08.2020 passed by the NCLT approving the resolution plan is set aside. The resolution plan was sent back to the COC for re-submission after satisfying the parameters set out by the Code as exposited above.

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                                                                                                                        Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

NCLT- IN THE GARB OF MAXIMIZATION OF VALUE, CAN RESOLUTION PROCESS BE DEFERRED?

 

NCLT- In the garb of maximization of value, can Resolution process be deferred?

 

The National Company Law Tribunals (NCLTs) are constituted inter alia to deal with sale of assets in dissolution process of corporate debtor company and as a prelude thereto, the prospect of rehabilitation of the corporate debtor (CD) company including its taking over as a going concern by the prospective bidders are mooted and resolution professional (RP) is appointed for seeking bid from resolution applicant. The Committee of Creditors (CoC) are appointed amongst the creditors to the corporate debtor and resolution professional invites the proposal from the prospective resolution applicants (PRAs) and proposals submitted by prospective resolution applicants  are scrutinized by Resolution Professional and CoC for finalizing the resolution process and for approval of resolution process before the Adjudicating Authority (AA). Of course, if resolution process fails, then process of dissolution may start. The present write up however remains confined to resolution process. It is also obvious that the underlying object of the IBC is to facilitate the rehabilitation of corporate debtor company, preferably as a going concern, therefore, the resolution process assumes significance. What is also important in this context is to achieve the objective of resolution process so as to ensure the maximization of assets of corporate debtor company within the stipulated time frame as per the IBC Code. What are the fetters to that and law enunciated in this regard shall be analysed hereinafter.

In the perspective, it may be worthwhile to cull out the details in a matter captioned as Jindal Power Limited Vs Dhiren Shantilal Shah & Ors Company Appeal (AT) (Insolvency) No. 1166-1167 of 2023 the NCLAT (National Company Law Appellate Tribunal). The NCLAT while adjudicating appeal filed against the NCLT, Mumbai, has dealt with the issue of maximization of value of corporate debtor company in resolution plan and whether CIRP (Corporate Insolvency Resolution process) can be deferred beyond stipulated time frame as per IBC Code and ruled framed thereunder.

The issue before the Appellate Tribunal was to determine whether the Appellant, namely Jindal Power Limited (“JPL”) could be allowed to submit a resolution plan for value maximization of the Corporate Debtor (Tuticorin Coal Terminal Pvt) under the existing provisions of the Code and the Regulations, particularly, Regulation 39(1-B) read with Regulation 36-B(7) of IBBI (CIRP) Regulations, 2016.

To put in perspective, the Appeal was filed by “JPL” under Section 61 of the IBC Code 2016 against the impugned Order dated 22.08.2023 passed by the National Company Law Tribunal, Mumbai Bench – IV (“Adjudicating Authority” or “AA”) which has held that the Appellant was ineligible to submit a Resolution Plan for the Corporate Debtor. The Appellant has also further challenged the Order dated 27.07.2023 to the extent that the Adjudicating Authority Adjudicating Authority has wrongly disallowed JPL from submitting a resolution plan for the Corporate Debtor, on account of a purported statutory bar under Regulation 39(1-B) read with Regulation 36-B(7) of the Insolvency and Bankruptcy Board of India(IBBI) & (Insolvency Resolution Process of Corporate Persons) Regulations, 2016 (“CIRP Regulations’”), as per which a resolution plan for a Corporate Debtor cannot be received from a person, who does not appear in the final list of prospective resolution applicants published by a Resolution Professional under Regulation 36-A(12) of the CIRP Regulations, 2016.

 

                                  The factual matrix

The Corporate Debtor viz. Tuticorin Coal Terminal Pvt. Ltd. is a company (formed as Special Purpose Vehicle-SPV) and was engaged in the business of development of North Cargo Berth II for handling bulk cargo at Tuticorin Port on Design, Build, Finance, Operate and Transfer (DBFOT) basis. A  proceeding under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“Code”) was initiated in 2019 against the Corporate Debtor by Bank of India, being one of its financial creditors, before the Adjudicating Authority(AA). The Adjudicating Authority in its order dated 20.02.2020 allowed the Section 7 Petition and initiated CIRP proceeding against the Corporate Debtor. The Adjudicating Authority had also appointed  Interim Resolution Professional (“IRP”), who was later confirmed as a Resolution Professional (“RP”) by the Committee of Creditors (“CoC”) on 20.02.2020. It is a matter of record that on 08.09.2020, the RP had issued an “Invitation for Resolution Plan” (“Form G”) under Regulation 36-A of the CIRP Regulations. On 06.10.2020 timelines for submission of Expression of Interest (“EoI”) and issuance of final list of Prospective Resolution Applicants (PRAs) was extended to 12.10.2020 and 31.10.2020 respectively.

The RP had received seven (7) EoIs from Prospective Resolution Applicants (“PRAs”) for submission of a resolution plan for the Corporate Debtor. Out of seven (7) EOIs, only six (6) were eligible PRAs. The Final list was issued under Regulation 36-A(12) with six (6) PRAs in the final list. In the year 2021, RP received resolution plans only from two (2) PRAs out of the final list of PRAs. These were presented before the CoC, but were not accepted by the CoC. Thereafter, RP filed application on 20.08.2021 seeking liquidation of the Corporate Debtor. During the pendency of the Liquidation Application, another application was filed by M/s SEAHAWK (SHAL Group). The SEAHAWK was not in the final list of PRAs seeking submission of a resolution plan for the Corporate Debtor.

The AA vide order dated 29.11.2022 was pleased to allow the application by noting as under:

“This is an application filed by the Resolution Applicant for seeking relief of the Committee of Creditor (COC) to consider the Resolution Plan. The RP is directed to submit the Resolution Plan, submitted by the Proposed Resolution Applicant before the CoC and further, COC is directed to consider the Resolution Plan which is submitted by the Applicant as per Law”.

Accordingly, M/s SEAHAWK was given an opportunity to submit a resolution plan for the Corporate Debtor, however, no resolution plan was submitted by SEAHAWK even till 04.01.2024 and no such resolution plan was placed before the CoC for consideration or approval. Further according to RP M/s SEAPOL was just an “Intervenor” and its claim that CoC had rejected the resolution plan submitted by M/s SEAHAWK due to the fact that it was in contravention and in violation of Regulation 39(1-B) and Regulation 36-B(7) of the CIRP Regulations was factually incorrect and without any basis. The intervenor is merely a prospective resolution applicant, who is not privy to the discussions in the meetings of the CoC or has access to information concerning the resolution plans submitted to the RP.

In the meanwhile, yet another Interlocutory Application was filed by the M/s SEAPOL, which was one of the PRAs in the final list of PRAs, seeking submission of a resolution plan for the Corporate Debtor.

The AA vide order dated 09.01.2023, was pleased to allow the I.A. No.3535 of 2022 with following term:

“Learned Counsel for the Applicant submits that they have submitted the proposed resolution plan with the RP. However, the same was not considered and now the Liquidation Application is filed….” And held “This bench directs the RP to withdraw the Liquidation Application and put the proposed Resolution Plan before the CoC for consideration.”

Thus, the Liquidation Application was dismissed as withdrawn and M/s SEAPOL was given an opportunity to submit the resolution plan for the Corporate Debtor. Pursuant to the 09.01.2023 order M/s SEAPOL submitted their resolution plan for the Corporate Debtor on 18.02.2023.

The JPL on 12.07.2023 sent an EoI for the Corporate Debtor to the RP showing its interest to participate in the CIRP process of the Corporate Debtor. At that time RP was considering the proposals of M/s SEAPOL and a proposal of M/s VOCPA (which was submitted under the guidelines for dealing with stressed Public Private Partnership Projects (PPP) at Major Ports). However, RP/CoC did not approve the proposal of M/s VOCPA. Further, RP could not have suo-moto considered the EOI of JPL, since the last date for receipt of EoI had already lapsed.

Therefore, on 14.07.2023 the RP placed the EoI before 45th Meeting of CoC. However, considering the restrictions in Regulation 39(1-B) of the CIRP Regulations, the RP suggested the Appellant to take appropriate directions from the Adjudicating Authority. Pursuant to this, on 21.07.2023, the Appellant, therefore had  filed I.A No. 3223 of 2023 with the Adjudicating Authority inter alia seeking permission to submit a Resolution Plan. By the 27.07.2023 order the Adjudicating Authority allowed and disposed of this I.A. passed the following order:

“In view of these facts, this Bench feels that the Applicant in IA- 3223/2023 be allowed an opportunity to submit the Resolution Plan, considering that the Court intends to maximise the value. However, this opportunity shall be subject to compliance with the provisions contained in Regulation 39(1)(b) r/w 36B(7) of CIRP Regulations, which stipulates that such Applicant should be one of Resolution Applicants in the final list of prospective Resolution Applicants and the RP will extend the time line for submission of Resolution Plan after approval of CoC”. (Emphasis Supplied)

The Appellant has also challenged the above Order dated 27.07.2023 passed in I.A. No. 3223 of 2023, in as much as, even though, the Adjudicating Authority had allowed it to submit a resolution plan for the Corporate Debtor, but it was subject to compliance with Regulation 39(1-B) read with Regulation 36-B(7), which stipulates that Appellant should be in the final list of the PRAs.

Faced with above, the Resolution Professional (RP) had also sought clarification from AA alleging contradiction in the 27th July order, i.e. on one hand, it allowed submission of resolution plan by JPL for maximisation of the value of the assets of the Corporate Debtor as per preamble of the code, yet on the other hand sought compliance of Regulation 39(1-B) and Regulation 36-B(7) of the CIRP Regulations. Therefore, RP requested JPL to seek clarification of the 27th July order. However, the JPL stated that RP is required to re-issue the RFRP (with the approval of the CoC) in terms of Regulation 36-B(7) of the CIRP Regulations to the PRAs appearing in the final list of PRAs published by the RP, which according to JPL should now include its name also, by virtue of the 27th July order.

Grounds of AppeAL

The main ground of JPL is that by accepting the resolution plan it will maximise the value of the assets of the Corporate Debtor, which is in line with the primary objective of the Insolvency and Bankruptcy Code, 2023 (“Code”). The order dated 22.08.2023 of the Adjudicating Authority is contrary to the preamble and to the objective of the Code, which is to maximise the value of the assets of the corporate debtor. It also raises the issue that due to change in economic conditions since 31.10.2022, there may be now more participants, who could be interested in participating in the CIRP, including the Appellant which would help in maximising the value of the Corporate Debtor.

It also raises the issue that the Adjudicating Authority, vide its order dated 29.11.2022, had allowed M/s SEAHAWK to submit its resolution plan even though it was not in the final list of the PRAs. Further, M/s SEAPOL had initially missed the prescribed period to submit its resolution plan, which was later allowed with the permission of Adjudicating Authority and it finalised its submission, with multiple revisions only on 22.08.2023.

The Appellant also relied upon following judgments:

i. Kalpraj Dharamshi Vs. Kotak Investment Advisors Ltd. (2021) 10 SCC 401 wherein the Hon’ble Supreme Court held that the commercial wisdom of the CoC is paramount and any decision of the CoC before the expiry of the timeline specified under the I&B Code is sacrosanct.

ii. Vistra ITCL (India) Ltd. Vs. Torrent Investments Pvt. Ltd. dated 02.03.2020 in CA(AT) (Ins) No. 132, 133 & 134 of 2023 wherein NCLAT held that the CIRP Regulations cannot be read as a fetter on the power of the CoC to discuss and deliberate and take further steps of negotiations with the resolution applicants.

iii. Ramneek Goel Vs. Sunil Bajab & Ors. 2023 SCC OnLine NCLAT 515 has also held that any EOI submitted prior to the expiry of 330 days of the CIRP process can be considered by the CoC, if it is in the interest of stakeholders to achieve value maximisation. Further, the Appellant submits that EoI was submitted on 12.07.2023 by the Appellant, which was within 270 days of the CIRP process.

According to appellant, the Regulations cannot be read as a fetter on the power of the CoC, to discuss and deliberate and take further steps of negotiation with the resolution applicants. As presently only one plan i.e. of M/s SEAPOL was in consideration, and the revised plan was submitted by M/s SEAPOL as recently as on 22.08.2023 and since RP has stated that with the approval of CoC, it will give an opportunity to M/s SEAPOL also, to revise its resolution plan once again - in the event applicant is granted an opportunity to submit a resolution plan, therefore, the Adjudicating Authority can take a facilitative step towards greater participation to secure maximisation of the value rather than shut the doors to prospective applicants offering better value to the CoC and other stakeholders.

COC

The CoC supported the appeal of JPL while maintaining that the overarching legislative intent of the Code is resolution of the corporate debtor and at the same time maximization of value and relied upon a judgment rendered by a learned 3 Judge bench of the  Supreme Court in the matter of Phoenix ARC (P) Ltd. v. Spade Financial Services Ltd., reported in (2021) 3 SCC 475. It was also submitted that consideration of an additional plan would be in the interest of value maximisation and would afford the Committee of Creditors to choose between the plan that better sub serves the primary consideration of value maximisation of the assets of the corporate debtor.

                  Issue before the Tribunal (NCLAT)

The issue before the NCLAT was to determine whether JPL  could be allowed to submit a resolution plan for value maximization of the Corporate Debtor under the existing provisions of the Code and the Regulations, particularly Regulation 39(1-B) read with Regulation 36-B(7) of IBBI (CIRP) Regulations, 2016.

(1) The NCLAT has observed that the Adjudicating Authority has consistently allowed opportunity to all the resolution applicants as long as they were as per law. In the first case of M/s SEAHAWK, the order clearly states that the CoC is directed to consider the resolution plan, which is submitted by the Applicant as per law and subsequently when JPL approached the Adjudicating Authority, it again acknowledged that an opportunity be given to submit the resolution plan to maximise the value of Corporate Debtor asset. However, this opportunity was subject to compliance with the provisions contained in Regulation 39(1-B) read with Regulation 36-B(7) IBBI (CIRP) Regulations, 2016. In the first case, even though opportunity was given to M/s SEAHAWK, it is confirmed by the RP that the resolution plan was not submitted. The claim of SRA viz. SEPOL that this resolution plan was rejected by the RP/COC on the same ground that it is not in compliance with the provisions contained in Regulation 39(1-B) read with Regulation 36-B(7) IBBI (CIRP) Regulations, 2016 and now in the case of JPL they have changed their stand and recommended for resolution plan to be considered.

(2) The stand taken by the Adjudicating Authority however has been consistent in both the cases of SEAHAWK and SEAPAL. In fact RP and CoC have taken a stand which is contravention of the Regulation 39(1-B) read with Regulation 36-B(7) IBBI (CIRP) Regulations, 2016. In the case of M/s SEAPOL Adjudicating Authority clearly ordered that it did not want to indulge into the commercial wisdom of the CoC, with the rider that let it be in compliance with the provisions contained in Regulation 39(1-B) read with Regulation 36B(7) of the CIRP Regulations.

(3) The concerned Regulations do not permit the proposals to be entertained which are not there in the final list of the PRAs and the Adjudicating Authority has acted as per this provisions. The Adjudicating Authority gave the opportunity, but it was subject to compliance with the provisions contained in Regulation 39(1-B) read with Regulation 36B(7) of CIRP Regulations.

In Ramneek Goel (Supra) NCLAT in para 13 it is observed as under:

“..13. There can be no dispute to the law laid down by the Hon’ble Supreme Court that 330 days is the maximum period provided by the Code for the completion of CIRP. The present is a case where 300 days were expiring on 15.04.2021 and prior to expiry of the 300 days period, a decision was taken to re-publish Form-G. The CoC has reason to take a decision since they received an email from Respondent No.1 offering higher value. The objective of the IBC is to maximize the value of the Corporate Debtor and decision taken by the CoC to republish Form-G cannot be faulted in the facts of the present case…”

In para no. 30 & 31 it is held by NCLAT as under:

30. The justification of the Appellant, and supported by RP/CoC, that by accepting its resolution plan, it maximises the value of the assets of the Corporate Debtor and it is in alignment of the primary objective of the Insolvency and Bankruptcy Code, 2023 (“Code”), cannot be accepted by giving a go by to the Code and particularly Regulations. Firstly, both AA and the Appellate Authority are bound by the Code and Regulations. Secondly, the Apex Court’s judgement relied upon by the Appellant of Kalpraj Dharamshi Vs. Kotak Investment Advisors Ltd. reported in (2021) 10 SCC 401 may not be of any help. This judgment holds that the commercial wisdom of the CoC is paramount and any decision of the CoC before the expiry of the timeline specified under the I&B Code is sacrosanct. And in this case CoC has applied its wisdom and AA has not questioned it as long as the process of resolution plan was not in violation of the Regulations. As and when the RP/CoC recommended in contravention of the Regulations, it was not agreed to by the AA. This is not the commercial wisdom which has been not agreed to by the AA, but the violation of the Regulations. Furthermore, we agree that in the name of the shelter of maximisation of value of assets and commercial wisdom, RP/CoC cannot be permitted to take any decision at any point of time, which is in contravention to the CIRP Regulations”.

31. If unsolicited plans are obtained at any stage it will cause unnecessary avoidable delay in the CIRP process. If resolution plans are allowed to be submitted at any stage, it will make the whole CIRP process unending. To curtail the delay in the CIRP process, it is appropriate to restrain the tendency to consider resolution plans after the time as specified by the CoC and from someone not in the final list of PRAs. This has been the spirit and justification of newly inserted provisions in the Regulations in 2021 and which has been eloquently described in the Discussion Paper of the IBBI, before changes were brought in and which have also been referred to by SRA viz. SEAPOL.

 

(4) The judgment of Kalpraj Dharamshi Vs. Kotak Investment Advisors Ltd. made serious efforts that the CD doesn’t  enter into liquidation and resolution plan as worked out for the maximization of the value of the CD. It first reversed the liquidation orders and allowed resolution plans of SEAHAWK to be considered and then later on resolution plans of SEAPOL and then finally that of JPL, but all that were to be dealt with as per law. As the Regulations did not allow the case of JPL to be allowed by AA, the NCLAT had thus upheld the order of NCLT. The NCLAT had also dealt with the cited judgment captioned as Vistra Ltd. ITCL (India) Ltd. vs. Torrent Investments Pvt. Ltd. & Ors. CA(AT) (Insolvency) No.132, 133 & 134 of 2023 passed by NCLAT. However, it was held that the said judgment was not relevant on the facts of the case, in as much as the above referred judgment deals with Regulation 39(1-A)(b) of CIRP Regulations, whereas presently, in JPL  Regulation 39(1-B) read with Regulation 36B(7) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process of Corporate Persons) Regulations, 2016 was being dealt with.

It is thus held by the NCLAT in para no. 31 and 35, as under:

31.“If unsolicited plans are obtained at any stage it will cause unnecessary avoidable delay in the CIRP process. If resolution plans are allowed to be submitted at any stage, it will make the whole CIRP process unending. To curtail the delay in the CIRP process, it is appropriate to restrain the tendency to consider resolution plans after the time as specified by the CoC and from someone not in the final list of PRAs. This has been the spirit and justification of newly inserted provisions in the Regulations in 2021 and which has been eloquently described in the Discussion Paper of the IBBI, before changes were brought in and which have also been referred to by SRA viz. SEAPOL”.

35. No doubt the whole process prescribed in the Code and supported by Regulations aims at maximization of the value for the Corporate Debtor but it cannot give a go by to the existing specific Regulations as discussed above. In the present case the matter has been reversed from the stage of liquidation and one of the PRA in the final list has been given an opportunity to file its resolution plan and which is to be accepted or rejected by the CoC. Maximisation of the value of the Corporate Debtor can be ensured by other means also, particularly by conducting CIRP in a time-bound manner, simultaneously complying with existing regulations and not bypassing them. The Resolution plans, which enter midway and which were not in the final list of PRAs derail and delay the CIRP proceedings and this has also been noted in the background Discussion paper, before the introduction of new Regulations in 2021.”

(5)     The NCLAT has therefore concluded that the Appellate Authority are bound by the Code and Regulations. Secondly, the Apex Court’s judgment relied upon by the Appellant of Kalpraj Dharamshi Vs. Kotak Investment Advisors Ltd. reported in (2021) 10 SCC 401 may not be of any help. This judgment holds that the commercial wisdom of the CoC is paramount and any decision of the CoC before the expiry of the timeline specified under the I&B Code is sacrosanct. And in this case CoC has applied its wisdom and AA has not questioned it, as long as the process of resolution plan was not in violation of the Regulations. As and when the RP/CoC recommended in contravention of the Regulations, it was not agreed to by the AA. This is not the commercial wisdom which has been not agreed to by the AA, but the violation of the Regulations. Furthermore, the NCLAT agreed that in the name of the shelter of maximisation of value of assets and commercial wisdom, RP/CoC cannot be permitted to take any decision at any point of time, which is in contravention to the CIRP Regulations.

In view of the aforesaid, the Principal bench of NCLAT was therefore pleased to dismiss the appeal of JPL and has further held that in case resolution plan is extended beyond a point would mean contravention and violation of Regulation 39(1- B) read with Regulation 36-B(7) of IBBI (CIRP) Regulations, 2016.

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                                  Anil K Khaware

                                  Founder & Senior Associate 

                                Societylawandjustice.com

LIMITATION PERIOD FOR APPEAL UNDER SECTION 37 OF ARBITRATION ACT

 

Limitation period FOR APPEAL under section 37 of Arbitration Act

The Supreme Court in a matter captioned as Executive Engineer v. M/s Borse Brothers Engineers & Contractors Pvt. Ltd CIVIL APPEAL NO. 999 OF 2021 SLP (CIVIL) No.15278 of 2020 along with other civil appeals has dealt with the issue of limitation period in filing appeal u/s 37 of Arbitration & Conciliation Act 1996 (As amended and up to date). While so doing, the Supreme Court has also overruled its earlier judgment captioned as N.V. International v. the State of Assam CIVIL APPEAL NO. 9244 OF 2019. The Supreme Court was swayed by the very objective of speedy justice as per the provisions of Arbitration & Conciliation Act 1996 (A & C Act or AC Act in short) and it was also further reinforced in Arbitration & Conciliation (Amendment Act) 2015. The Commercial Courts Act 2015 (CCA) and its implication are also dealt with, in as much as the enacted for adjudicating the commercial disputes within the meaning of the CCA is also analysed as the underlying object being speedy disposal of cases.

The Supreme Court has earlier held that that any delay beyond 120 days in the filing of an appeal under Section 37 of A & C Act from an application being either dismissed or allowed under Section 34 of the Arbitration and Conciliation Act, 1996 should not be allowed as it will defeat the overall statutory purpose of arbitration proceedings being decided with utmost despatch.

We know that Section 37 of the Arbitration Act provides for appeals from several orders, including orders made under sections 8, 9, 16 and 17, apart from orders that may be passed under section 34 of the A & C Act.

                 OBJECT & TERMS OF A & C Act

The main objectives of the A & C Act are to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration; and to minimize the supervisory role of courts in the arbitral process. Section 5 of the Act deals with as under:

5. Extent of judicial intervention.—Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.”

Similarly, Section 8 provides as under:

“8. Power to refer parties to arbitration where there is an arbitration agreement.—

(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.

(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof:  [Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.

(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.”

It may also be worthwhile to reproduce the Section 9 of the A & C Act 1996

“9. Interim measures, etc., by Court.—

(2) Where, before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine.”

Similarly, relevant extract of Section 11 of the Act may be perused as under:

“11. Appointment of arbitrators.— xxx xxx xxx

(4) If the appointment procedure in sub-section (3) applies and—

(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or

(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court; xxx xxx xxx

(13) An application made under this section for appointment of an arbitrator or arbitrators shall be disposed of by the Supreme Court or the High Court or the person or institution designated by such Court, as the case maybe, as expeditiously as possible and an endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party”.

Section 13 of the A & C Act contains challenge procedure.

13. Challenge procedure.—

(1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.

(2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section(3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.

(3) Unless, the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.

(4) If a challenge under any procedure agreed upon by the parties or under the procedure under subsection (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.

(5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34.

(6) Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees.”

With a view to clear understanding of the matter in hand, it may be worthwhile to reproduce Section 16, 29 A, and 29 B of the A & C Act. The same is as under::

16. Competence of arbitral tribunal to rule on its jurisdiction.— xxx xxx xxx

16 (2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.”

29A. Time limit for arbitral award.—

(1)  The award in matters other than international commercial arbitration shall be made by the arbitral tribunal within a period of twelve months from the date of completion of pleadings under sub-section (4) of section 23:

Provided that the award in the matter of international commercial arbitration may be made as expeditiously as possible and endeavor may be made to dispose of the matter within a period of twelve months from the date of completion of pleadings under sub-section (4) of section 23.

(2) If the award is made within a period of six months from the date the arbitral tribunal enters upon the reference, the arbitral tribunal shall be entitled to receive such amount of additional fees as the parties may agree.

(3) The parties may, by consent, extend the period specified in sub-section (1) for making award for a further period not exceeding six months.

(4) If the award is not made within the period specified in sub-section (1) or the extended period specified under subsection (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period: 17 Provided that while extending the period under this subsection, if the Court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it may order reduction of fees of arbitrator(s) by not exceeding five per cent. for each month of such delay. Provided further that where an application under subsection (5) is pending, the mandate of the arbitrator shall continue till the disposal of the said application: Provided also that the arbitrator shall be given an opportunity of being heard before the fees is reduced.

(5) The extension of period referred to in sub-section (4) may be on the application of any of the parties and may be granted only for sufficient cause and on such terms and conditions as may be imposed by the Court.

(6) While extending the period referred to in sub-section (4), it shall be open to the Court to substitute one or all of the arbitrators and if one or all of the arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record, and the arbitrator(s) appointed under this section shall be deemed to have received the said evidence and material.

(7) In the event of arbitrator(s) being appointed under this section, the arbitral tribunal thus reconstituted shall be deemed to be in continuation of the previously appointed arbitral tribunal.

(8) It shall be open to the Court to impose actual or exemplary costs upon any of the parties under this section.

(9) An application filed under sub-section (5) shall be disposed of by the Court as expeditiously as possible and endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party”

29B. Fast track procedure.—

(1) Notwithstanding anything contained in this Act, the parties to an arbitration agreement, may, at any stage either before or at the time of appointment of the arbitral tribunal, agree in writing to have their dispute resolved by fast track procedure specified in sub-section (3).

(2) The parties to the arbitration agreement, while agreeing for resolution of dispute by fast track procedure, may agree that the arbitral tribunal shall consist of a sole arbitrator who shall be chosen by the parties.

(3) The arbitral tribunal shall follow the following procedure while conducting arbitration proceedings under sub-section (1):—

(a) The arbitral tribunal shall decide the dispute on the basis of written pleadings, documents and submissions filed by the parties without any oral hearing;

(b) The arbitral tribunal shall have power to call for any further information or clarification from the parties in addition to the pleadings and documents filed by them;

(c) An oral hearing may be held only, if, all the parties make a request or if the arbitral tribunal considers it necessary to have oral hearing for clarifying certain issues;

(d) The arbitral tribunal may dispense with any technical formalities, if an oral hearing is held, and adopt such procedure as deemed appropriate for expeditious disposal of the case.

(4) The award under this section shall be made within a period of six months from the date the arbitral tribunal enters upon the reference.

(5) If the award is not made within the period specified in sub-section (4), the provisions of subsections (3) to (9) of section 29A shall apply to the proceedings.

(6) The fees payable to the arbitrator and the manner of payment of the fees shall be such as may be agreed between the arbitrator and the parties.”

                                  ANALYSIS

After analysis of the aforesaid provisions and applying the principles of Limitation Act, 1963 In Executive Engineer (Supra) the Supreme Court has observed that Section 37 of the Arbitration Act, when read with section 43 thereof, makes it clear that the provisions of the Limitation Act will apply to appeals that are filed under section 37. Articles 116 and 117 of the Limitation Act, which provide for a limitation period of 90 days and 30 days, depending upon whether the appeal is from any other court to a High Court or an intra-High Court appeal. There can be no doubt whatsoever that section 5 of the Limitation Act will apply to the aforesaid appeals, both by virtue of section 43 of the Arbitration Act and by virtue of section 29(2) of the Limitation Act.

Conversely, Section 3 of the Limitation Act provides for the bar of limitation and the same may be read with section 29(2) of the Limitation Act. It provides that subject to the provisions contained in Sections 4 to 24 (inclusive), every suit instituted, appeal preferred, and application made after the prescribed period shall be dismissed, although limitation has not been set up as a defence. “Prescribed period” means that period of limitation computed in accordance 29 with the provisions of the Limitation Act. “Period of limitation” means the period of limitation prescribed for any suit, appeal or application by the Schedule to the Limitation Act [vide Section 2(j) of the said Act]. Section 29 of the Limitation Act relates to savings. Sub-section (2) thereof which is relevant is extracted below:

“29. (2) Where any special or local law prescribes for any suit, appeal or application a period of limitation different from the period prescribed by the Schedule, the provisions of Section 3 shall apply as if such period were the period prescribed by the Schedule and for the purpose of determining any period of limitation prescribed for any suit, appeal or application by any special or local law, the provisions contained in Sections 4 to 24 (inclusive) shall apply only insofar as, and to the extent to which, they are not expressly excluded by such special or local law.”

Article 116 of the Schedule prescribes the period of limitation for appeals to the High Court (90 days) and appeals to any other court (30 days) under the Code of Civil Procedure, 1908. It is now well settled that the words “appeals under the Code of Civil Procedure, 1908” occurring in Article 116 refer not only to appeals preferred under the Code of Civil Procedure, 1908, but also to appeals, where the procedure for filing of such appeals and powers of the court for dealing with such appeals are governed by the Code of Civil Procedure. (See decision of the Constitution Bench in Vidyacharan Shukla v. Khubchand Baghel [AIR 1964 SC 1099] .) Article 119(b) of the Schedule prescribes the period of limitation for filing an application (under the Arbitration Act, 1940), for setting aside an award, as thirty days from the date of service of notice of filing of the award.

The A & C Act is no doubt, a special law, consolidating and amending the law relating to arbitration and matters connected therewith or incidental thereto. The A&C Act does not prescribe the period of limitation, for various proceedings under that Act, except where it intends to prescribe a period different from what is prescribed in the Limitation Act. On the other hand, Section 43 of A & C Act makes the provisions of the Limitation Act, 1963 applicable to proceedings—both in court and in arbitration—under the A&C Act. There is also no express exclusion of application of any provision of the Limitation Act to proceedings under the A&C Act, but there are some specific departures from the general provisions of the Limitation Act, as for example, the proviso to Section 34(3) and sub-sections (2) to (4) of Section 43 of the A& C Act.

We know that the Schedule to the Limitation Act prescribes a period of limitation for appeals or applications to any court, and the special or local law provides for filing of appeals and applications to the court, but does not prescribe any period of limitation in regard to such appeals or applications, the period of limitation prescribed in the Schedule to the Limitation Act will apply to such appeals or applications and consequently, the provisions of Sections 4 to 24 will also apply. It therefore follows that where the special or local law prescribes for any appeal or application, a period of limitation different from the period prescribed by the Schedule to the Limitation Act, then the provisions of Section 29(2) of the said Act will be attracted. In such a situation, the provisions of Section 3 of the Limitation Act shall apply, as if the period of limitation prescribed under the special law was the period prescribed by the Schedule to the Limitation Act, and for the purpose of determining any period of limitation prescribed for the appeal or application by the special law, the provisions contained in Sections 4 to 24 of Limitation Act will apply to the extent to which they are not expressly excluded by such special law. The very object of provision as contained in Section 29(2) of the Limitation Act is to ensure that the principles contained in Sections 4 to 24 of the Limitation Act apply to suits, appeals and applications filed in a court under special or local laws also, even if that prescribes a period of limitation different from what is prescribed in the Limitation Act, of course, except and to the extent of clear exclusion of the application of any or all of those provisions.

Similarly, the Commercial Courts Act (CCA) is applied to the aforesaid appeals, given the definition of “specified value” and the provisions contained in sections 10 and 13 thereof. Thus, it is only when the specified value is for a sum less than Three Lakh rupees that the appellate provision contained in section 37 of the Arbitration Act will be governed, for the purposes of limitation, by Articles 116 and 117 of the Limitation Act. If it is assumed that depending upon which court decides a matter, a limitation period of either 30 or 90 days is provided, may lead to arbitrary results, and that, therefore, the uniform period provided by Article 137 of the Limitation Act should govern appeals as well has not passed muster. According to Supreme Court it is settled that periods of limitation must always to some extent be arbitrary and may result in some hardship, but that should be strictly followed.

A recent judgment of Supreme Court in ICOMM Tele Ltd. v. Punjab State Water Supply and Sewerage Board, (2019) 4 SCC 401, states:

25. Several judgments of this Court have also reiterated that the primary object of arbitration is to reach a final disposal of disputes in a speedy, effective, inexpensive and expeditious manner. Thus, in Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd. [Centrotrade Minerals & Metal Inc. v. Hindustan Copper Ltd., (2017) 2 SCC 228 : 36 (2017) 1 SCC (Civ) 593] , this Court held: (SCC p. 250, para 39) “39. In Union of India v. U.P. State Bridge Corpn. Ltd. [Union of India v. U.P. State Bridge Corpn. Ltd., (2015) 2 SCC 52 : (2015) 1 SCC (Civ) 732] this Court accepted the view [ Indu Malhotra, O.P. Malhotra on the Law and Practice of Arbitration and Conciliation (3rd Edn., Thomson Reuters, 2014).] that the A&C Act has four foundational pillars and then observed in para 16 of the Report that: (SCC p. 64)

‘16. First and paramount principle of the first pillar is ‘fair, speedy and inexpensive trial by an Arbitral Tribunal’. Unnecessary delay or expense would frustrate the very purpose of arbitration.””

31. Thus, from the scheme of the Arbitration Act as well as the aforesaid judgments, condonation of delay under section 5 of the Limitation Act has to be seen in the context of the object of speedy resolution of disputes.

After the enactment of CCA, it is obvious that the bulk of appeals to the appellate court falls under section 37 of the Arbitration Act, are governed by section 13 of the Commercial Courts Act. The Sub-section (1A) of section 13 of the Commercial Courts Act provides the forum for appeals as well as the limitation period to be followed. Section 13 of the Commercial Courts Act being a special law as compared with the Limitation Act which is a general law, which follows from a reading of section 29(2) of the Limitation Act. Section 13(1A) of the Commercial Courts Act lays down a period of limitation of 60 days uniformly for all appeals that are preferred under section 37 of the Arbitration Act.

Whether, the application of section 5 of the Limitation Act is excluded by the scheme of the Commercial Courts Act needs elucidation. Section 13(1A) of the Commercial Courts Act does not contain any provision akin to section 34(3) of the Arbitration Act. Section 13(1A) of the Commercial Courts Act only provides for a limitation period of 60 days from the date of the judgment or order appealed against, without further going into whether delay beyond this period can be condoned or not. If one reads the object of expeditious disposal of appeals is laid down in section 14 of the Commercial Courts Act, then, language of section 14 makes it clear that the period of six months spoken of is directory and not mandatory. As a contrast, section 16 of the Commercial Courts Act read with the Schedule thereof and the amendment made to Order VIII Rule 1 of the CPC as held in BGS SGS SOMA JV v. NHPC, (2020) 4 SCC 234, whereas, section 37 of the Arbitration Act provides the substantive right to appeal, section 13 of the Commercial Courts Act provides the forum and procedure governing the appeal.

If it is to be seen from the perspective of CPC, the defendant in a suit is given 30 days to file a written statement, which period cannot be extended beyond 120 days from the date of service of the summons; and on expiry of the said period, the defendant forfeits the right to file the written statement and the court cannot allow the written statement to be taken on record. This provision was enacted as a result of the judgment of Supreme Court in Salem Advocate Bar Assn. (II) v. Union of India, (2005) 6 SCC 344. 35. In a recent judgment of this Court namely, SCG Contracts (India) (P) Ltd. v. K.S. Chamankar Infrastructure (P) Ltd., (2019) 12 SCC 210, it is held as under:

“8. The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 came into force on 23-10-2015 bringing in their wake certain amendments to the Code of Civil Procedure. In Order 5 Rule 1, sub-rule (1), for the second proviso, the following proviso was substituted: “Provided further that where the defendant fails to file the written statement within the said period of thirty days, he shall be allowed to file the written statement on such other day, as may be specified by the court, for reasons to be recorded in writing and on payment of such costs as the court deems fit, but which shall not be later than one hundred twenty days from the date of service of summons and on expiry of one hundred and twenty days 39 from the date of service of summons, the defendant shall forfeit the right to file the written statement and the court shall not allow the written statement to be taken on record.” Equally, in Order 8 Rule 1, a new proviso was substituted as follows: “Provided that where the defendant fails to file the written statement within the said period of thirty days, he shall be allowed to file the written statement on such other day, as may be specified by the court, for reasons to be recorded in writing and on payment of such costs as the court deems fit, but which shall not be later than one hundred and twenty days from the date of service of summons and on expiry of one hundred and twenty days from the date of service of summons, the defendant shall forfeit the right to file the written statement and the court shall not allow the written statement to be taken on record.”

This was re-emphasised by re-inserting yet another proviso in Order 8 Rule 10 CPC, which reads as under:

“10. Procedure when party fails to present written statement called for by court.—

Where any party from whom a written statement is required under Rule 1 or Rule 9 fails to present the same within the time permitted or fixed by the court, as the case may be, the court shall pronounce judgment against him, or make such order in relation to the suit as it thinks fit and on the pronouncement of such judgment a decree shall be drawn up:

Provided further that no court shall make an order to extend the time provided under Rule 1 of this Order for filing of the written statement.” A perusal of these provisions would show that ordinarily a written statement is to be filed within a period of 30 days. However, grace period of a further 90 days is granted which the Court may employ for reasons to be recorded in writing and payment of such costs as it deems fit to allow such written statement to come on record. What is of great importance is the fact that beyond 120 days from the date of service of summons, the defendant shall forfeit the right to file the written statement and the Court shall not allow the written statement to be taken on record. This is further buttressed by the proviso in Order 8 Rule 10 also adding that the court has no further power to extend the time beyond this period of 120 days.

                                  CONCLUSION

The courts have expressed several reasons supporting the existence of statutes of limitations, namely, (1) that long dormant claims shall hardly entail justice in them, (2) the defendant might have lost the evidence to disprove a stale claim, and (3) a person raising claim should pursue them with reasonable diligence. An unlimited limitation would lead to a sense of insecurity and uncertainty, and therefore, limitation prevents disturbance or deprivation of what may have been acquired in equity and justice by long enjoyment or what may have been lost by a party's own inaction, negligence or laches. After the discussion as per above, the hon’ble Supreme Court has held in Executive Engineer  (Supra) on the facts of the appeal u/s 37 of the A & C Act that a long delay of 75 days beyond the period of 60 days provided by the Commercial Courts Act cannot be condoned. The delay was sought to be condoned on the premise that delay caused due to time consumed in procedural approval and since the appellant is a public entity formed under the Energy department of the State Government, the delay caused in filing the appeal is bona fide and thus the delay deserved to be condoned was negated by the Supreme Court. Moreover, it is also held that, merely because, the government is involved, a different yardstick for condonation of delay cannot be laid down as also held in Postmaster General v. Living Media India Ltd., (2012) 3 SCC 563.

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                              Anil K Khaware

                              Founder & Senior Associate

                              Societylawandjustice.com