The Calcutta High Court held that the procedure for submission of financial information under Section 215 of the Insolvency and Bankruptcy Code (IBC), 2016 is not mandatory.
By the virtue of being a financial creditor who has such a pre-existing application filed under Section 7 of the IBC, 2016 pending before the NCLT at its Kolkata Bench, the impugned order has the effect of adversely altering their substantive rights as granted to a creditor under the provisions of the IBC, 2016.
Not restricting themselves to a singular dimension to such a judicial challenge of such order, the petitioner has also urged that this order has been issued was outside the ambit of the parent Act that establishes the NCLT, i.e. the Companies Act, 2013, other relevant provisions of the IBC, 2016 as well as in contravention of prevailing Regulations issued by the Insolvency and Bankruptcy Board of India (IBBI), the regulatory board established under the IBC, 2016.
The two substantial issues were framed.
Firstly, what is the scope of the powers of the NCLT and whether the exercise of the same in the impugned order May 12, 2020 is dehors the IBC, 2016 and the rules and regulations framed thereunder.
Secondly, in the event the answer to the above is in the negative, whether the NCLT could enforce the same retrospectively thereby adversely affecting the rights of the petitioner as a financial creditor under the extant provisions of the IBC, 2016.
The Single Judge Bench of Justice Shekhar B. Saraf pointed out that the NCLT has acted without jurisdiction and exceeded its jurisdiction that is limited within the four corners of Section 424 of the CA, 2013 by passing the impugned order in violation of Section 7(3)(a) of the IBC, 2016.
The court further said that the impugned order is clearly in confrontation with Rule 4 of AA Rules, 2016, and Regulation 8 of the CIRP Regulations, 2016, and thereby defeats the very purpose for which the IBC, 2016 has been enacted.
The court was of the view that financial creditors can rely on either of the modes of evidence at hand to showcase a financial debt, that is, either a record of default from the IU OR any other document as specified which showcases the existence of a financial debt. Such other documents may belong to any of the four classes of documents stated in sub-regulation 2(b) of Regulation 8 of the CIRP, 2016 or as the Supreme Court has observed in Swiss Ribbons (P) Ltd., all the eight classes of documents stated in Part-V to Form-1 appended with the AA Rules, 2016.
Firstly, the court therefore held that Section 215 of the IBC, 2016 is not mandatory in nature.
Secondly, the NCLT could not exercise its inherent powers under Rule 11 of the NCLT Rules, 2016 to promulgate the impugned order dated May 12, 2020.
Thirdly, the court said that as far as the distinction that was sought to be drawn between substantive and procedural laws whereby the tribunal could regulate its own procedure, such powers of the tribunal regulated by a delegated form of legislation cannot rise above their source, that is the CA, 2013 and thereby obstruct the operation of a statutory provision of the parent Act (a substantive provision) and the Rules formulated thereunder.
Lastly, the court held that any delegate under the IBC, 2016, and the CA, 2013, that is, the Central Government, the IBBI, and the NCLT cannot make regulations that have a retrospective effect.
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