Contradictory judgements & Fundamental Right of Equality

Recently, I came across some contradictory judgements of the same bench of NCLAT, which are as follows;

Situation 1. Filing  Claim in  Guarantor’s CIRP (Maturity of claim - invocation of guarantee). 

The question here was whether a creditor can file a claim in the CIRP of  Corporate Guarantor, without invoking guarantee, in other words when the claim has not matured.

NCLAT (14.08.2018) In the matter of Export Import Bank of India and Ors. Vs. RP JEKPL Pvt. Ltd. and Ors. [CA No. 304 of 2017, 16 of 2018 and 302 of 2017]  

 # 53 …………. Any person who has the right to claim payment, as defined under Section 3(6), is supposed to file the claim whether matured or unmatured. The question as to whether there is a default or not is not to be seen.

 # 54. Therefore, stand taken by the respondents that the claim has not been matured cannot be ground to reject the claim.

 # 56. Therefore, we hold that maturity of claim or default of claim or  invocation of guarantee for claiming the amount has no nexus with filing of claim pursuant to public announcement made under Section 13(1)(b) r/w Section 15(1)(c) or for collating the claim under Section 18(1)(b) or for updating claim under Section 25(2)(e).

NCLAT (23.04.2019) Edelweiss Asset Reconstruction Company Limited  Vs Orissa Manganese and Minerals Limited & Ors.[CA (AT) (Insolvency) No. 437, 438, 444,500 of 2018] 

 # 26. It is also not the case of the Appellant- ‘Edelweiss Asset Reconstruction Limited’ that it has not received the amount from the ‘Principal Borrower’ on default and, therefore, it was liable to invoke the Bank Guarantee which it invokes. In this background, the claim having not matured in absence of alleged default on the part of the ‘Principal Borrower’ and for non-invocation of the Bank Guarantee, the Appellant- ‘Edelweiss Asset Reconstruction Limited’ claim cannot be accepted the debt payable by the ‘Corporate Debtor’ as on the date of the admission (initiation of Corporate Insolvency Resolution Process’).

Situation 2. Filing for  insolvency of Principal Borrower & Corporate Guarantor by the same Financial Creditor.

Question here was whether a financial creditor can file application U/s 7, against Corporate Debtor & Corporate Guarantor, simultaneously. As per sub-section (2) of section 60, of the Code, a creditor can file an application relating to the insolvency resolution or liquidation of a corporate guarantor, during the pendency of  CIRP or liquidation proceeding of a corporate debtor.

NCLAT (18.04.2018) State Bank of India Vs. D. S. Rajender Kumar [CA (AT) (Insolvency) No. 87 to 91/2018] 

- #5……….. However, it is made clear that order of ‘Moratorium’ will be applicable only to the proceedings against the ‘Corporate Debtor’ and the ‘Personal Guarantor’, if pending before any court of law/Tribunal or authority but the order of ‘Moratorium’ will not be applicable for filing application for triggering ‘Corporate Insolvency Resolution Process’ under Sections 7 or 9 or 10 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “I&B Code”) against the ‘Guarantor’ or the ‘Personal Guarantor’ under Section 60(2).

NCLAT (08.01.2019) in Dr. Vishnu Kumar Agarwal  Vs  M/s. Piramal Enterprises Ltd [CA (AT) (Insolvency) No. 346 of 2018]

- #32. There is no bar in the ‘I&B Code’ for filing simultaneously two applications under Section 7 against the ‘Principal Borrower’ as well as the ‘Corporate Guarantor(s)’ or against both the ‘Guarantors’. However, once for the same set of claim application under Section 7 filed by the ‘Financial Creditor’ is admitted against one of the ‘Corporate Debtors’ (‘Principal Borrower’ or ‘Corporate Guarantor(s)’), second application by the same ‘Financial Creditor’ for same set of claim and default cannot be admitted against the other ‘Corporate Debtor’ (the ‘Corporate Guarantor(s)’ or the Principal Borrower’). Further, though there is a provision to file joint application under Section 7 by the ‘Financial Creditors’, no application can be filed by the ‘Financial Creditor’ against two or more ‘Corporate Debtors’ on the ground of joint liability (‘Principal Borrower’ and one ‘Corporate Guarantor’, or ‘Principal Borrower’ or two ‘Corporate Guarantors’ or one ‘Corporate Guarantor’ and other ‘Corporate Guarantor’), till it is shown that the ‘Corporate Debtors’ combinedly are joint venture company.

Situation 3. Distribution of funds under resolution plan approved by the CoC.

The question here is whether CoC is empowered to decide the distribution of funds under resolution plan amongst ‘Financial Creditor’ or ‘Operational Creditor or ‘Secured Creditor’ or ‘Unsecured Creditor’ and whether the same can be adjudicated by NCLT / NCLAT.

NCLAT (02.05.2018) in  Darshak Enterprise Pvt. Ltd. Vs.Chhaparia Industries Pvt. Ltd. & Ors.[Company Appeal (AT) (Insolvency) No. 327 of 2017]

- # 6. ………………………..In a particular case, what should be the percentage of claim amount payable to one or other ‘Financial Creditor’ or ‘Operational Creditor or ‘Secured Creditor’ or ‘Unsecured Creditor’ can be decided by the Committee of Creditors based on facts and circumstances of each case. In absence of any discrimination or perverse decision, it is not open to the Adjudicating Authority or this Appellate Tribunal to modify the plan.

SCI (05.02.2019) in  K. Sashidhar :Vs. Indian Overseas Bank & Ors.(Civil appeal no..10673 of  2018)

- # 61. ………………Concededly, if the objection to the resolution plan is on account of infraction of ground(s) specified in Sections 30(2) and 61(3), that must be specifically and expressly raised at the relevant time. For, the approval of the resolution plan by the CoC can be challenged on those grounds. However, if the opposition to the proposed resolution plan is purely a commercial or business decision, the same, being nonjusticiable, is not open to challenge before the Adjudicating Authority (NCLT) or for that matter the Appellate Authority (NCLAT).

NCLAT (04.07.2019) in Standard Chartered Bank Vs. Satish Kumar Gupta, R.P. of Essar Steel Ltd. & Ors.[Company Appeal (AT) (Ins.) No. 242 of 2019] 

- # 200. In view of the aforesaid observations, instead of rejecting the ‘Resolution Plan’ submitted by ‘ArcelorMittal India Pvt. Ltd.’, we modify the plan to safeguard the rights of the ‘Operational Creditors’ and other ‘Financial Creditors’. The impugned order dated 8th March, 2019 stands modified to the extent above.

From the above cases, it can be observed that NCLAT, not only had passed the contradictory judgements, but in situation 3, it had disregarded the law laid down by the Hon’ble SCI in its judgement dated 05.02.2019 quoted supra above. Probably it has lost sight of provisions of the Constitution of India & The Doctrine of “Per Incuriam”.

Constitution of India

As per Article 141 of The Constitution of India, the law laid down by the Hon’ble Supreme Court of India is binding on all courts in India. 

# Article 141. The law declared by the Supreme Court shall be binding on all courts within the territory of India.

The Doctrine of “Per Incuriam”.

i). Constitution Bench of Hon’ble SCI in Union of India v. Raghubir Singh [(1989) 2 SCC 754], observed as under:

-"The doctrine of binding precedent has the merit of promoting certainty and consistency in judicial decisions, and enables an organic development of the law, besides providing assurance to the individual as to the consequence of transactions forming part of his daily affairs. And, therefore, the need for a clear and consistent enunciation of legal principle in the decisions of a court."

ii). Hon’ble SCI  in Government of A.P. and Another v. B. Satyanarayana Rao (dead) by LRs. and Others [(2000) 4 SCC 262], observed as under:

- "The rule of per incuriam can be applied where a court omits to consider a binding precedent of the same court or the superior court rendered on the same issue or where a court omits to consider any statute while deciding that issue."

Another important question arises, whether the contradictory judgements do infringe the “Fundamental Right of Equality” of the individuals (any of the litigant) guaranteed under Article 14  the constitution of India.

Article 14. Right to Equality The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.

I request the seniors in the legal fraternity to examine the issue for remedial measures, including filing of PIL with Hon’ble SCI & to devise a framework to prevent these situations in the future.

Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision. A reader must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.