Supreme Court: Imposition of Bar u/s 10A IBC Against CIRP Initiation Has A Retrospective Effect

Supreme Court: Imposition of Bar u/s 10A IBC Against CIRP Initiation Has A Retrospective Effect

The Supreme Court of India (SC) has ruled in the case of Ramesh Kamyal (Appellant) v. M/s Siemens Gamesa Renewable Power Pvt Ltd. (Respondent) that Section 10A of the Insolvency and Bankruptcy Code (IBC) restricted the filling of applications for the commencement of the Corporate Insolvency Resolution Process (CIRP) regarding a corporate debtor for a default occurring on or after 25 March 2020, even if such application was filed before 5 June 2020.

The SC bench comprising of Justices Dr. DY Chandrachud and MR Shah observed, "Reading the provisions together, it is evident that Parliament intended to impose a bar on the filing of applications for the commencement of the CIRP in respect of a corporate debtor for a default occurring on or after March 25, 2020; the embargo remaining in force for a period of six months, extends to one year."

The Top Court upheld the decision of the National Company Law Appellate Tribunal (NCLAT) and stated that the restriction imposed on filing of applications for the initiation of the CIRP during the stipulated period will not waive off the right of the corporate debtor or the right of creditors to claim the debt.

The factual background of the case is that the appellant claimed Rs. 104 crore upon his resignation. In January 2020, he put his resignation and he was requested to continue till April 2020 to complete the notice period.

Though the claim was asked by the appellant during his employment in March, it was in April, three days before his date of leaving that his course of employment was put to end without the due payment being made.

An application under Section 9 of the IBC was initiated by the appellant to recover his dues. In June 2020, an ordinance came into force by the President of India through which Section 10A was inserted into the IBC.

It was claimed by the organization that the relief claimed by the appellant was not maintainable as it is barred under Section 10A of the IBC.

The NCLAT affirmed the decision of the NCLT that held that in view of the provisions of Section 10A, which have been inserted by Act 17 of 2020 (the "Amending Act") with retrospective effect from 5 June 2020, the application filed by the appellant as an operational creditor under Section 9 was not maintainable.

Issue before the SC

Whether the provisions of Section 10A would come into play with respect to an application under Section 9 which was filed before 5 June 2020 pertaining to a default that occurred after 25 March 2020?

The Apex Court referred to its judgment of Swiss Ribbons (P) Ltd. v. Union of India(2019) 4 SCC 17 and rejected the contentions of the appellant mentioning that the embargo contained in Section 10A must receive a purposive construction which will advance the object which was sought to be achieved by enacting the provision.

It was further clarified that the date of the initiation of the CIRP is the date on which a financial creditor, operational creditor, or corporate applicant makes an application to the adjudicating authority for initiating the process. On the other hand, the insolvency commencement date is the date of the admission of the application.

According to the Supreme Court, this distinction is also evident from the provisions of sub-section (6) of Section 7, sub-section (6) of Section 9, and sub-section (5) of Section 10. Section 7 deals with the initiation of the CIRP by a financial creditor; Section 8 provides for the insolvency resolution by an operational creditor; Section 9 provides for the application for initiation of the CIRP by an operational creditor, and Section 10 provides for the initiation of the CIRP by a corporate applicant.

The SC concluded that the right proposition that can be construed out of Section 10A cannot be merely based on the language of the provision of IBC and held that the the object of the ordinance and the exceptional circumstances amid which it was formulated must be taken into consideration.