The language of the provision is not always decisive to arrive at a determination: SC

It is clarified that the correct interpretation of Section 10A cannot be merely based on the language of the provision; rather it must take into account the object of the Ordinance and the extraordinary circumstances in which it was promulgated. (Para 24)

Kymal V/s M/s Siemens Gamesa Renewable Power Pvt Ltd.

Civil Appeal No. 4050 of 2020

Decided on 09th February, 2021

Counsel for Appellants: Mr Neeraj Kishan Kaul

Counsel for Respondents: Mr Gopal Jain

A Two-Judge Bench of the Supreme Court comprising of Justice Dhananjaya Y Chandrachud and Justice MR Shah affirmed the decision of the NCLAT and dismissed the present appeal.

The appellant claims that a sum of INR 104,11,76,479 is due and payable to him pursuant to his resignation in accordance with the various Employment Agreements/Incentive Agreements” entered into by him with the respondent during his tenure as Chairman and Managing Director. The respondent confirmed the payments which were due and payable to him under the letter of resignation. The appellant is stated to have addressed a final reminder by an email dated 27 April 2020. The appellate jurisdiction of this Court under Section 62 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) has been invoked to challenge the judgement and order of the National Company Law Appellate Tribunal (“NCLAT” or “Appellate Tribunal”) dated 19 October 2020. The NCLAT affirmed the decision of the National Company Law Tribunal (“NCLT” or “Adjudication Authority”) dated 9 July 2020, holding 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.

Mr Neeraj Kishan Kaul submitted that: (i) Section 10A creates a bar to the 'filing of applications' under Sections 7, 9 and 10 in relation to defaults committed on or after 25 March 2020 for a period of six months, which can be extended up to one year; (ii) The Ordinance and the Act which replaced it do not provide for the retrospective application of Section 10A either expressly or by necessary implication to applications which had already been filed and were pending on 5 June 2020; (iii) Section 10A prohibits the filing of a fresh application in relation to defaults occurring on or after 25 March 2020, once Section 10A has been notified (i.e., after 5 June 2020). (iv) Section 10A uses the expressions "shall be filed" and "shall ever filed" which are indicative of the prospective nature of the statutory provision in its application to proceedings which were initiated after 5 June 2020; and 8. (v) The IBC makes a clear distinction between the "initiation date" under Section 5(11) and the "insolvency commencement date" under Section 5(12). (vi) In the present case, it was asserted that the onset of Covid-19, which was the reason for the insertion of Section 10A, has nothing to do with the default of the respondent to pay the outstanding operational debt of the appellant, which owes its existence even before the onset of the pandemic. Hence, it has been submitted that the event of default (30 April 2020) in the notice of demand cannot be read in isolation.

Learned Senior Counsel on behalf of the respondent submitted that: (i) The legislative intent in the insertion of Section 10A was to deal with an extraordinary event, the outbreak of Covid-19 pandemic, which led to financial distress faced by corporate entities. (ii) Section 10A is prefaced with a non-obstante clause which overrides Sections 7, 9 and 10; and 9. (iii) Section 10A provides a cut-off date of 25 March 2020 and it is evident from the substantive part of the provision, as well as from the proviso and the explanation, that no application can be filed for the initiation of the CIRP for a default occurring on and after 25 March 2020, for a period of six months or as extended upon a notification.

This court after various arguments observed that

"The proviso to Section 10A stipulates that "no application shall ever be filed" for the initiation of the CIRP "for the said default occurring during the said period”. The expression "shall ever be filed" is a clear indicator that the intent of the legislature is to bar the institution of any application for the commencement of the CIRP in respect of a default which has occurred on or after 25 March 2020 for a period of six months, extendable up to one year as notified. The explanation which has been introduced to remove doubts places the matter beyond doubt by clarifying that the statutory provision shall not apply to any default before 25 March 2020. The substantive part of Section 10A is to be construed harmoniously with the first proviso and the explanation. 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 25 March 2020; the embargo remaining in force for a period of six months, extendable to one year. Acceptance of the submission of the appellant would defeat the very purpose and object underlying the insertion of Section 10A. For, it would leave a whole class of corporate debtors where the default has occurred on or after 25 March 2020 outside the pale of protection because the application was filed before 5 June 2020.” (Para 23)

This Court hence concluded that

“We are in agreement with the view which has been taken by the NCLAT for the reasons which have been set out earlier in the course of this judgment. We affirm the conclusion of the NCLAT. The appeal is accordingly dismissed. There shall be no order as to costs.” (Para 27)

View/Download Judgement: Ramesh Kymal V/s M/s Siemens Gamesa Renewable Power Pvt Ltd.

Risikesh Dhanaki