Objective:

The key objective of the IBC was to consolidate and amend the existing laws relating to re-organization and insolvency resolution of Corporate persons, partnership firms and individuals by creating an effective time bound mechanism for compliance of law and for creating ease of doing business, borrowing and lending in India. The idea behind the formation of the code was to keep the company under the insolvency process alive and running, but at the same time with a moto that the defaulting management of the company should bear in mind, that their irresponsible conduct in running of the company, they will loose their positions once the resolution process is initiated.

IBC bill was introduced in Lok Sabha in December 2015 and was passed by the Lok Sabha on 5th may, 2016 and was passed by Rajya Sabha on 11th May, 2016 and after the Presidential Assent, was published in the Gazette of India 28th May, 2016.

Section 243 of IBC, 2016 repealed Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920.

Section 238 provides that the provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.

IBC provides for a separate insolvency process for individuals, Companies, LLP’s and Partnership firms. The process may be initiated either by the debtor or the creditor.

Under IBC four major arms are carved out for the compliance of various provisions:

1. Insolvency and Bankruptcy Board of India: Established under Sub-section (1) of Section 188 of IBC, 2016, for the purpose of acting as the Insolvency regulator, to oversee the insolvency proceedings and to regulate the entities registered under it. This board constitutes of 10 members, which includes representatives of Ministries of Finance and Law and the RBI.

2. Adjudicatory Authority: for the purposes of this Code, means National Company Law Tribunal (NCLT) constituted under section 408 of the Companies Act, 2013 (18 of 2013). The role of Adjudicatory Authority is limited to the extent of overseeing that the applicant has rightly moved an application for initiating the insolvency resolution process and the applicant is competent to invoke the process and once the process is invoked, than to oversee that the provisions and the time lines provided in the code are being adhered to by the IRP.

3. Resolution Process: for the purpose of carrying out the resolution process, the Interim Resolution Professional are appointed by the adjudicatory authority, once the application under section 7,9, or 10 of IBC, 2016 is admitted and the moratorium is announced. IRP is enrolled under section 206 and registered under section 207 of the Code. IRP on appointment shall control the assets of the Corporate debtor during the resolution process (in terms of section 17) and shall make every endeavor to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern. IRP also issues a public notice calling upon all the financial and operational creditors of the corporate debtor to submit their claims before him in a stipulated period. The process is as under:

(1) The Adjudicating Authority, after admission of the application under section 7 or section 9 or section 10, shall, by an order-

(a) declare a moratorium for the purposes referred to in section 14;

(b) cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims under section 15; and

(c) appoint an interim resolution professional in the manner as laid down in section 16.

(2) The public announcement referred to in clause (b) of sub-section (1) shall be made immediately after the appointment of the interim resolution professional.

4. Committee of Creditors (CoC): Interim resolution professional, in terms of section 18 constitutes a CoC which acts in terms of section 21. The committee of creditors shall comprise all financial creditors of the corporate debtor:

Provided that a 1[financial creditor or the authorised representative of the financial creditor referred to in sub-section (6) or sub-section (6A) or sub-section (5) of section 24, if it is a related party of the corporate debtor,] shall not have any right of representation, participation or voting in a meeting of the committee of creditors.

On 13th March, 2020 the Insolvency and Bankruptcy Code (Amendment) Act, 2020 [No. 1 of 2020] was accorded Presidential Assent and the amendments in Sections 5, 7, 11, 14, 16, 21, 23, 29A, 32A, 227, 239 and 240 of IBC were deemed to have come in force with effect from 28th December, 2019.

Owing to Covid-19 pandemic outbreak, the Government of India by bring an Ordinance inserting Section 10A, suspending filing of fresh applications by Financial Creditors, Operational Creditors and the company itself during the period of applicability of Section 10A for insolvency and bankruptcy proceedings. The amendments to IBC were promulgated by President Ramnath Kovind through the Insolvency and Bankruptcy Code Ordinance, 2020. The new rules come into effect immediately, as of June 5.

These changes have been made by inserting Section 10A in the Code, which says,

“Notwithstanding anything contained in Sections 7, 9 an 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020, for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf.

Though this insertion of 10A is temporary in nature as of now as the language suggests but at the same time is very tricky in respect of certain categories of claims in which though default has occurred before 25th March, 2020 but the cause of action is in the nature of continuing one.”

Views Are Personal Only.

(The author is a practicing advocate in the Punjab and Haryana High Court at Chandigarh)

Commercial Courts Act, 2015 (“CC Act, 2015” for short)

This Act came into force with effect from 23rd Day of October, 2015, and further amended on 3rd May, 2018, with primary objective of adjudication of disputes falling under this Act in a swift time bound manner and lesser hassles to the litigating parties and by introducing minimal interference by the higher courts, when the dispute is pending before the Commercial Court constituted under this Act.

To generate confidence of the parties entering into commercial agreement/transactions in the rule of law, so as, to bring about ease of doing business in India and a step of legislature towards improving the ranking of India in the “Ease of Doing Business Index”. Not only does this benefit the litigant, other potential litigants (especially those engaged in trade and commerce) but also advantaged the courts, by the reduction in backlog caused by the quick resolution of commercial disputes. In turn, this will further economic growth, increase foreign investment, and make India an attractive place to do business. Further, it also benefits the economy as a whole given that a robust dispute resolution mechanism is a sine qua non for the all-round development of an economy.

Commercial Courts are constituted under section 3 of this Act, under section 3A Commercial Appellate Courts are designated, Commercial Division of High Court is Constituted under Section 4, Commercial Appellate Division is constituted under Section 5 of the Act.

This Act provides for adjudicating commercial disputes of specified value and matters connected therewith or incidental thereto.

The term “Commercial Dispute” is defined under Section 2(1) (c) and the “Specified Value” is defined under section 2(1)(i) of the Act and now the value of the subject-matter in respect of a suit shall not be less than Rs. 3,00,000/- (Rupees Three Lakh Only) [though earlier in 2015 Act it was “not less than Rs. 1,00,00,000/- (Rupees One Crore only)”]. The mode of determination of specified value has been provided under section 12.

In order to make this legislation more effective a bar has been provided under section 8 of the Act, against revision application or petition against an interlocutory order of a Commercial Court, including an order on the issue of jurisdiction, and any such challenge, shall be raised only in an appeal against the decree of the Commercial Court, only with an exception provided under section 13 of the Act, that an appeal shall lie from such orders passed by a Commercial Division or a Commercial Court that are specifically enumerated under Order XLIII of the Code of Civil Procedure, 1908 (5 of 1908) as amended by this Act and section 37 of the Arbitration and Conciliation Act, 1996.

Section 12A has been added in the amended Act, providing for Pre-institution Mediation in a suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation. The pre-institution mediation process is required to be completed within three months of the making of an application by the plaintiff under subsection 1 of section 12A. The period of mediation may be extended for a further period of two months with the consent of the parties. The period during which the parties remained occupied with the pre-institution mediation, such period shall not be computed for the purpose of limitation under the Limitation Act, 1963.

Section 10 also confers jurisdiction in Arbitration matters where the subject-matter of an arbitration is a commercial dispute of a Specified Value.

In case of an International Commercial Arbitration, all applications or appeals arising out of such arbitration under the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) that have been filed in a High Court, shall be heard and disposed of by the Commercial Division where such Commercial Division has been constituted in such High Court.

In case arbitration is other than an international commercial arbitration, all applications or appeals arising out of such arbitration under the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) that have been filed on the original side of the High Court, shall be heard and disposed of by the Commercial Division where such Commercial Division has been constituted in such High Court.

In case arbitration is other than an international commercial arbitration, all applications or appeals arising out of such arbitration under the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) that would ordinarily lie before any principal civil court of original jurisdiction in a district (not being a High Court) shall be filed in, and heard and disposed of by the Commercial Court exercising territorial jurisdiction over such arbitration where such Commercial Court has been constituted.

Appellate Authority:

Any person aggrieved by the judgment or order of a Commercial Court below the level of a District Judge may appeal to the Commercial Appellate Court within a period of sixty days from the date of judgment or order under section 13 (1).

Any person aggrieved by the judgment or order of a Commercial Court at the level of District Judge exercising original civil jurisdiction or, as the case may be, Commercial Division of a High Court may appeal to the Commercial Appellate Division of that High Court within a period of sixty days from the date of the judgment or order under section 13(1A).

Section 14 contemplates that the Commercial Appellate Court and the Commercial Appellate Division shall endeavour to dispose of appeals filed before it within a period of six months from the date of filing of such appeal.

Case Law:

1. Civil Appeal No. 7843 of 2019 (Arising out of SLP (Civil) No.9391 of 2019) Ambalal Sarabhai Enterprises Ltd. v. K.S. Infraspace LLP & Anr.

The Hon’ble Supreme Court held “it is also necessary to carefully examine and entertain only disputes which actually answers the definition “commercial disputes” as provided under the Act. In the instant case, as already taken note neither the agreement between the parties refers to the nature of the immovable property being exclusively used for trade or commerce as on the date of the agreement nor is there any pleading to that effect in the plaint.”

“A dispute relating to immovable property per se may not be a commercial dispute. But it becomes a commercial dispute, if it falls under sub-clause (vii) of Section 2(1)(c) of the Act viz. “the agreements relating to immovable property used exclusively in trade or commerce”. The words “used exclusively in trade or commerce” are to be interpreted purposefully. The word “used” denotes “actually used” and it cannot be either “ready for use” or “likely to be used” or “to be used”. It should be “actually used”. Such a wide interpretation would defeat the objects of the Act and the fast tracking procedure discussed above.”

2. Civil Appeal No. 9307 of 2019 (Arising Out of SLP (Civil) No. 25618 of 2018) in BGS SGS Soma JV v. NHPC Ltd., Hon’ble Supreme Court held:

The interplay between Section 37 of the Arbitration Act, 1996 and Section 13 of the Commercial Courts Act, 2015, has been laid down in some detail in the judgment in Kandla Export Corporation (supra). The precise question that arose in Kandla Export Corporation (supra) was as to whether an appeal, which was not maintainable under Section 50 of the Arbitration Act,1996, is nonetheless maintainable under Section 13(1) of the Commercial Courts Act, 2015. In this context, after setting out various provisions of the Commercial Courts Act, 2015 and the Arbitration Act, 1996, this Court held:

“13. Section 13(1) of the Commercial Courts Act, with which we are immediately concerned in these appeals, is in two parts. The main provision is, as has been correctly submitted by Shri Giri, a provision which provides for appeals from judgments, orders and decrees of the Commercial Division of the High Court. To this main provision, an exception is carved out by the proviso…”

The proviso goes on to state that an appeal shall lie from such orders passed by the Commercial Division of the High Court that are specifically enumerated under Order 43 of the Code of Civil Procedure Code, 1908, and Section 37 of the Arbitration Act. It will at once be noticed that orders that are not specifically enumerated under Order 43 CPC would, there- fore, not be appealable, and appeals that are mentioned in Section 37 of the Arbitration Act alone are appeals that can be made to the Commercial Appel- late Division of a High Court.

Thus, an order which refers parties to arbitration under Section 8, not being appealable under Section 37(1)(a), would not be appealable under Section 13(1) of the Commercial Courts Act. Similarly, an ap- peal rejecting a plea referred to in sub-sections (2) and (3) of Section 16 of the Arbitration Act would equally not be appealable under Section 37(2)(a) and, therefore, under Section 13(1) of the Commercial Courts Act.

3. Leitz Tooling Systems India Pvt. v. Bharat Bhogilal Patel Review Petition (L) No. 15 of 2019 in Commercial Suit No. 316 of 2018

Hon’ble Bombay High Court answered the following question:

“Whether in view of the amendment to the Code of Civil Procedure, 1908 by a Commercial Court, Commercial Division and Commercial Appellate Division of High Court’s Act, 2015 (4 of 2016), the Defendant can be allowed to file the Written Statement after 120 days from the date of service of Summons in a Commercial Suit”.

“30. I therefore hold that the amendments introduced to the CPC by the Commercial Courts Act are only applicable to Commercial Disputes of a Specified Value and not Commercial Disputes not of a Specified Value such as the present suit. Consequently, amongst other amendments introduced to the CPC by the Commercial Courts Act, the amendment to the CPC mandating that a Written Statement in a Commercial Suit has to be filed within 120 days, will not apply to Commercial Disputes not of a Specified Value.”

Views Are Personal Only.

(The author is a practising advocate in the Punjab and Haryana High Court at Chandigarh)