Imp. Rulings - Resolution Plan & Equity based Jurisdiction of NCLT.

 Imp. Rulings - Resolution Plan & Equity based Jurisdiction of NCLT.

Index;

1. Hon'ble Supreme Court (2021.08.10) Pratap Technocrats (P) Ltd. & Ors. Vs. Monitoring Committee of Reliance Infratel Limited & Anr.[Civil Appeal No 676 of 2021]

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1. Hon'ble Supreme Court (2021.08.10) Pratap Technocrats (P) Ltd. & Ors. Vs. Monitoring Committee of Reliance Infratel Limited & Anr.[Civil Appeal No 676 of 2021] held that;

• # 39. These decisions have laid down that the jurisdiction of the adjudicating authority and the appellate authority cannot extend into entering upon merits of a business decision made by a requisite majority of the CoC in its commercial wisdom. Nor is there a residual equity based jurisdiction in the adjudicating authority or the appellate authority to interfere in this decision, so long as it is otherwise in conformity with the provisions of IBC and the Regulations under the enactment.

• # 40. Certain foreign jurisdictions allow resolution/reorganisation plans to be challenged on grounds of fairness and equity. One of the grounds under which a company voluntary arrangement can be challenged under the United Kingdom’s Insolvency Act, 1986 is that it unfairly prejudices the interests of a creditor of the company12. The United States’ Bankruptcy Code provides that if a restructuring plan has to clamp down on a dissenting class of creditors, one of the conditions that it should satisfy is that it does not unfairly discriminate, and is fair and equitable13. However, under the Indian insolvency regime, it appears that a conscious choice has been made by the legislature to not confer any independent equity based jurisdiction on the adjudicating authority other than the statutory requirements laid down under sub-section (2) of Section 30 IBC.

• # 41. An effort was made by Mr Dushyant Dave, learned Senior Counsel, to persuade this Court to read the guarantees of fair procedure and non-arbitrariness as emanating from the decision of this Court in Maneka Gandhi v. Union of India [Maneka Gandhi v. Union of India, (1978) 1 SCC 248] into the provisions of IBC. IBC, in our view, is a complete code in itself. It defines what is fair and equitable treatment by constituting a comprehensive framework within which the actors partake in the insolvency process. The process envisaged by IBC is a direct representation of certain economic goals of the Indian economy. It is enacted after due deliberation in Parliament and accords rights and obligations that are strictly regulated and coordinated by the statute and its regulations. To argue that a residuary jurisdiction must be exercised to alter the delicate economic coordination that is envisaged by the statute would do violence on its purpose and would be an impermissible exercise of the adjudicating authority’s power of judicial review. The UNCITRAL, in its Legislative Guide on Insolvency Law, has succinctly prefaced its recommendations in the following terms [pp. 14-15.] :

“C. Balancing the goals and key objectives of an insolvency law

15. Since an insolvency regime cannot fully protect the interests of all parties, some of the key policy choices to be made when designing an insolvency law relate to defining the broad goals of the law (rescuing businesses in financial difficulty, protecting employment, protecting the interests of creditors, encouraging the development of an entrepreneurial class) and achieving the desired balance between the specific objectives identified above. Insolvency laws achieve that balance by reapportioning the risks of insolvency in a way that suits a State’s economic, social and political goals. As such, an insolvency law can have widespread effects in the broader economy.”

• Hence, once the requirements of IBC have been fulfilled, the adjudicating authority and the appellate authority are duty-bound to abide by the discipline of the statutory provisions. It needs no emphasis that neither the adjudicating authority nor the appellate authority have an unchartered jurisdiction in equity. The jurisdiction arises within and as a product of a statutory framework.’

• (emphasis supplied)

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M/s. Rajasthan Art Emporium Vs. Kuwait Airways & Anr. - It is a trite law that a party is not entitled to seek relief which he has not prayed for.

SCI (09.11.2023) in M/s. Rajasthan Art Emporium Vs. Kuwait Airways & Anr. [Civil Appeal No. 9106 Of 2012 (Neutral Citation No. 2023 INSC 996)] held that;

•  It is a trite law that a party is not entitled to seek relief which he has not prayed for. 

Excerpts of the Order;    

These two appeals are cross appeals preferred against the order passed by the National Consumer Disputes Redressal Commission1 dated 01.10.2012 in Original Petition No. 229 of 1997 whereby the complaint filed by the appellant/complainant was disposed of while directing respondent no. 1 to pay the appellant/complainant US$ 500750/- or Rs. 20 lakhs is less along with 9% per annum compensation with effect from 31.07.1996 till its realization.

2. The case of the appellant/complainant is that it is an exporter of all kinds of handicrafts goods to several countries including USA. The appellant/complainant had received an order from M/s. Williams Sonoma Inc. USA for supply of handicraft goods. Accordingly, the appellant/complainant had to send three shipments of 1538 packages weighing 26,859.5 kg. to the consignee on an urgent basis, which was specifically informed to the respondents. On 22.07.1996, the goods were tendered to respondent no. 1 through respondent no. 2 after getting an assurance that the shipments will reach destination at Memphis within 7 days and delivery schedule was handed over to the appellant/complainant. As per the schedule, the entire consignment was supposed to reach at Memphis by 31.07.1996.

3. The consignments did not reach the destination at Memphis (USA) as per the delivery schedule. On enquiry, respondent no. 1 expressed its inability to deliver the consignments as per the delivery schedule provided to the  appellant and a revised delivery schedule was given on 05.08.1996, which mentioned the date of delivery on 06.08.1996. However, the consignment did not reach at the destination even as per the revised delivery schedule.

4. On non-receiving the goods, the consignee expressed its anguish by sending a letter dated 23.08.1996 and informed the complainant that the goods are not received in toto, and respondent no. 1 was unable to tell where the remaining cartons are.

5. It is also on record that 69 cartons were lying with Lufthansa. The respondent no. 1, by its letter dated 30.08.1996 addressed to respondent no. 2, accepted the short delivery. On 07.09.1996, the appellant/complainant made a modest claim against the respondents for refund of full freight. In response to the said claim, respondent no. 2 confirmed having short delivered 104 cartons out of 288 cartons but did not state whether the other cartons had arrived at the destination. The appellant served the legal notice dated 04.08.1997 on the respondents, which evoked no response. 

6. Ultimately, the appellant/complainant lodged a complaint before the NCDRC with the prayer that respondent no. 1 be  directed to refund a sum of Rs. 24,48,345/- being the fair charges for the consignments; pay a sum of Rs. 20 lakhs as compensation for loss of business and reputation; pay US$ 7042.00 being the value of the goods short delivered; pay interest @ 18% as well as cost of litigation, which was disposed of as abovesaid. Hence these appeals.

7. Learned counsel for the appellant would submit that admittedly, the shipments booked by the appellant on 24.07.1996, which were to be delivered by 31.07.1996, were delivered to the handling agent of the Consignee only in the month of September, 1996 from 03.09.1996 to 12.09.1996 with delay of more than 40 days.

8. Learned counsel submitted that the goods were tendered to respondent no. 1 on a specific representation that the same will be delivered within seven days, therefore, time is the essence of the contract between the parties. It is next argued that in the case in hand, it is clear from the material on record that respondent no. 1 has been highly negligent in rendering its services to the appellant.

9. Learned counsel further submits that once the NCDRC arrives at the conclusion that there is delay in delivery of consignment due to negligence of respondent no. 1, fair, just and reasonable compensation must be awarded in accordance with conditions of the contract and statutory provisions of the Carriage by Air Act, 1972.

10. Per contra, learned counsel for respondent no. 1 submitted that there was no deficiency in service rendered by respondent no. 1. All reasonable care in performing its duties under the contract of carriage were discharged diligently. He would submit that no specific instructions were given by the appellant with regard to the time by which the consignments had to reach its destination, therefore, time was not the essence of contract entered into between the parties.

11. Learned counsel next submits that respondent no. 1 should not be held liable for delay in service, as in spite of being aware of the fact, the appellant sent the consignment through Kuwait Airways, which has various stops over at Kuwait, Chicago and Memphis, which would consume a lot of time period to deliver the consignment.

12. Learned counsel lastly submits that the compensationawarded by the NCDRC is excessive, unjust and unfair and is based on the conjectures and surmises.

13. We have heard learned counsel for the appellant as well as the respondents at length and perused the material placed on record meticulously.

14. Initially, the NCDRC passed a final order on 21.05.2003 holding that there has been a short delivery of 104 pieces equal to 1822 Kgs. Therefore, in view of Rule 22 of Carriage by Air Act, multiplying this weight by US $ 20 per Kg., the amount payable work out to US $ 36440 which becomes payable by the respondent to the complainant for the loss of goods. This amount was directed to be paid by the respondent along with interest @ 9% from 01.10.1996. In so far as the issue concerning delay in delivering the consignment, the NCDRC found that in the absence of any communication emanating from the respondent No.1-Kuwait Airways promising to deliver the goods by any particular date, the plea raised by the complainant regarding delay in delivering the goods is not sustainable.

15. Challenging the above order dated 21.05.2003 of the NCDRC, the complainant preferred Civil Appeal bearing C.A.No. 8211 of 2003 which was allowed by this Court on 15.03.2011.  This Court observed that the issue concerning delay in delivery of goods has been decided by NCDRC without appreciating the material and evidence available on record. Resultantly, the matter was remitted back to NCDRC for fresh consideration of the complainant case vis-à-vis delay in delivering the consignment.

16. After the remand, the present impugned order has been passed holding that there was delay in delivering the consignment on time for which the complainant is entitled to compensation of 25037.5 Kg. multiplied by US $ 20 Kg. each which comes to US $ 500750 which exceed the sum of Rs. 20 lakhs claimed by the complainant therefore the complainant

was only entitled to have compensation of Rs. 20 lakhs along with interest @ 9% w.e.f. 31.07.1996 till its realization as also the litigation charges and compensation for harassment and mental agony in the sum of Rs. 5 lakhs.

17. Basing on the material available on record, the NCDRC has held that the fax message sent by respondent No.2-agent through whom the consignment was booked to be shipped by the respondent No.1 goes to show that the goods shall be delivered at Chicago Memphis on 29.07.1996, 31.07.1996 and 31.07.1996. However, when the consignment did not reach the destination, appellant - M/s Rajasthan Art Emporium informed the respondents whereafter, the respondent no. 2 provided a revised schedule, however, the shipments did not reach the destination even as per the revised schedule, according to which the goods were to reach the destination on 06.08.1996. 

18. The evidence on record shows that the parts of the shipments were received at Memphis on 30.08.1996 as admitted by the respondent No.1 in its letter dated 24.09.1996. Referring to the documents showing business relation between complainant and his buyer, the NCDRC would observe that the buyer was the largest customer of the complainant. Thus, the complainant has suffered huge loss due to transaction and the goods were received in the first week of September, 1996. 

19. We have perused and examined the material available on record and we are satisfied that the NCDRC has not committed any illegality or perversity in recording the finding that there was delay in delivery of consignment. As a matter of fact, it is an admitted position that the consignment which was booked on 24.07.1996, was delivered after one and a half month i.e. from 03.09.1996 to 12.09.1996.

20. In its reply before the NCDRC, the agent-respondent No.2  Dagga Air Agents) admitted that at the time of booking, the complainant was informed about the tentative date of arrival of goods at Memphis by 31.07.1996 and thereafter a revised schedule was also given to the complainant. Once the agent has issued a time schedule for delivery of consignment, it cannot be said that there is no material indicating that there was no agreement for delivery of the consignment in time. respondent no.1 – Kuwait Airways has never taken the stand in any of the communication arising from its office that the respondent No.2 is not its agents or that there was no agreement or promise by its agent that the consignment will be delivered in 07 days. The NCDRC has rightly noted that the appellant has paid air freight which is ten times more than the sea freight only to ensure that the consignment reaches its destination within a week because sea cargo would have taken 25 to 30 days for delivery and the appellant has paid such huge freight charges for ensuring early delivery, hence, the delay in delivery of consignment has necessarily inflicted damage to the appellant which is liable to be satisfied by the respondent No.1 as provided under Section 19 and 13(3) of the Carriage by Air Act 1972.

21. The provisions contained in Section 19 and 13 (3) of the Carriage by Air Act 1972 read as follows:

• 19. The carrier is liable for damage occasioned by delay in the carriage by air of passengers, luggage or goods.”

• “13 (3). If the carrier admits the loss of the goods, or if the goods have not arrived at the expiration of seven days after the date on which they ought to have arrived, the consignee is entitled to put into force against the carrier the rights which flow from the contract of carriage.”

By virtue of the above provisions, the consignee is entitled to seek damages for delay in delivering the consignment. It is not the case of the respondent No.1 that the respondent No.2 had acted beyond the terms of agency. Neither it is averred that the respondent no.2 was not the agent of respondent No.1. 

22. Section 186 of the Contract Act, 1872 provides that authority of an agent may be expressed or implied. Similarly, Section 188 of the Contract Act, 1872 prescribes that an agent,  having an authority to do an act, has authority to do every lawful thing which is necessary in order to do such act. In Dilawari Exporters v. Alitalia Cargo & Ors. [AIR 1991 SC 409]  this Court has observed in Paragraph 17 to 20 as follows: -

• “17. Section 186 of the Contract Act, 1872 (for short “the Contract Act”) lays down that the authority of an agent may be expressed or implied. As per Section 187 of the Contract Act, an authority is said to be express when it is given by words spoken or written, and an authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, which may be accounted circumstances of the case. 

• 18. Section 188 of the Contract Act prescribes that:

• “188. Extent of agent's authority.—An agent, having an authority to do an act, has authority to do every lawful thing which is necessary in order to do such act.”

• 19. Section 237 of the Contract Act provides that:

• “237. Liability of principal inducing belief that agent's unauthorised acts were authorised.—When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations if he has by his words or conduct induced such third persons to believe that such acts and  obligations were within the scope of the agent's authority.”

• 20. There is no gainsaying that onus to show that the act done by an agent was within the scope of his authority or ostensible authority held or exercised by him is on the person claiming against the principal. This, of course, can be shown by practice as well as by a written instrument. Thus, the question for consideration is whether on the evidence obtaining in the instant case, can it be said that Respondent 3 had an express or implied authority to act on behalf of Respondent 1 as their agent? If Respondent 3 had such an authority, then obviously Respondent 1 was bound by the commitment Respondent 3 had made to the appellant.”

23. In the case at hand, in the absence of a plea by the respondent No.1, that the respondent no. 2 was not its agent or that he had no authority to give schedule of delivery of

consignment, the onus has not been discharged. Therefore, the respondent No.1 is bound by the promise held by its agent - respondent No.2, that the goods shall be delivered within one week and when the time schedule expired and the goods were, in fact, delivered after one and a half month, there was negligent delay in delivery of consignment. 

24. The grievance of the appellant in this appeal is mainly on account of the NCDRC not allowing the entire claim for compensation by calculating the total weight of the subject consignment at 2507.5 Kg. multiplied by US $ 20 per Kg. According to the appellant, in view of Rule 22 (2) of Schedule-III of the Carriage by Air Act, 1972 (as amended by the Hague Protocol) the amount thus calculated would exceed the sum of Rs. 20 lakhs. The appellant would thus claim the entire amount equivalent to US $ 50070 without limiting it to Rs. 20 lakhs. However, on this point also, we approve and sustain the order passed by the NCDRC for the reason that in its complaint under Section 21(a)(i) of the Consumer Protection Act, 1986, the complainant/appellant has sought damages for Rs. 20 lakhs only as compensation for loss of business and reputation. It is a trite law that a party is not entitled to seek relief which he has not prayed for. For this proposition we may profitably refer to this Court’s judgments in 

• Merrrs. Trojan & Co. Vs. RM.N.N. Nagappa Chettiar [AIR 1953 SC 235], 

• Krishna Priya Ganguly etc. etc. Vs. University of Lucknow & Ors [AIR 1984 SC 186,]., 

• Om Prakash & Ors. Vs. Ram Kumar & Ors [AIR 1991 SC 409]., 

• Bharat Amratlal Kothari Vs. Dosukhan Samadkhan Sindhi & Ors [AIR 1991 SC 409]., 

• Manohar Lal (Dead) by Lrs. Vs. Ugrasen (Dead) by Lrs. & Ors.[AIR 1991 SC 409]

25. In view of the forgoing reasons, we are not inclined to interfere with the Order passed by the NCDRC and resultantly both the Civil Appeals deserve to be and are hereby dismissed. The parties shall bear their own costs.

Pending application(s), if any, shall stand disposed of

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Imp. Rulings - Statutory Dues.

 Imp. Rulings - Statutory Dues.

Index;

1. Supreme Court (17.07.2023) In Paschimanchal Vidyut Vitran Nigam Ltd. Vs. Raman Ispat Pvt. Ltd. & Ors.[Civil Appeal Nos. 7976 of 2019, (2023) ibclaw.in 81 SC]

2. Supreme Court (13.04.2021) in Ghanashyam Mishra and Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Company Ltd.  [CIVIL APPEAL NO.8129 OF 2019] 

3. High Court Jharkhand (01.05.2020) in  Electrosteel Steels Limited  V/s The State of Jharkhand & Ors.  [W.P.(T). No. 6324 of 2019]

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Blogger’s Comments; Thus Statutory Dues will consist of  taxes levied or collected by Central or State Govt. under the provisions of a statue & payable into the respective Consolidated Funds. Whereas contractual dues of corporations (i.e. Electricity Board etc.) created by statutes which have distinct juristic entity but whose dues are not payable into the respective Consolidated Funds, may be operational creditors or financial creditors or secured creditors depending on the nature of the transactions entered into by them with the corporate debtor. 

Article 265 in The Constitution Of India 1949

• # Article 265. Taxes not to be imposed save by authority of law No tax shall be levied or collected except by authority of law

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1). Supreme Court (17.07.2023) In Paschimanchal Vidyut Vitran Nigam Ltd. Vs. Raman Ispat Pvt. Ltd. & Ors.[Civil Appeal Nos. 7976 of 2019, (2023) ibclaw.in 81 SC] held that;

• # 46. The specific mention of other class of creditors whose dues are statutory, such as dues payable to workmen or employees, “the provident fund, the pension fund, the gratuity fund” under Section 36(4), which excludes these enumerated amounts from the liquidation, especially clarifies that not all dues owed under statute are treated as ‘government’ dues. In other words, dues payable to statutory corporations which do not fall within the description “amounts due to the central or state government” such as for instance amounts payable to corporations created by statutes which have distinct juristic entity but whose dues do not constitute government dues payable or those payable into the respective Consolidated Funds stand on a different footing. Such corporations may be operational creditors or financial creditors or secured creditors depending on the nature of the transactions entered into by them with the corporate debtor. On the other hand, dues payable or requiring to be credited to the Treasury, such as tax, tariffs, etc. which broadly fall within the ambit of Article 265 of the Constitution are ‘government dues’ and therefore covered by Section 53(1)(f) of the IBC.

• # 47. PVVNL undoubtedly has government participation. However, that does not render it a government or a part of the ‘State Government’. Its functions can be replicated by other entities, both private and public. The supply of electricity, the generation, transmission, and distribution of electricity has been liberalized in terms of the 2003 Act barring certain segments. Private entities are entitled to hold licenses. In this context, it has to be emphasized that private participation as distribution licensees is fairly widespread. For these reasons, it is held that in the present case, dues or amounts payable to PVVNL do not fall within the description of Section 53(1)(f) of the IBC.

• # 50. The Gujarat Value Added Tax Act, 2003 no doubt creates a charge in respect of amounts due and payable or arrears. It would be possible to hold [in the absence of a specific enumeration of government dues as in the present case, in Section 53(1)(e)] that the State is to be treated as a ‘secured creditor’. However, the separate and distinct treatment of amounts payable to secured creditor on the one hand, and dues payable to the government on the other clearly signifies Parliament’s intention to treat the latter differently – and in the present case, having lower priority. As noticed earlier, this intention is also evident from a reading of the preamble to the Act itself.

• # 51. According to the principles of statutory interpretation, when an enactment uses two different expressions, they cannot be construed as having the same meaning. It was held in Member, Board of Revenue v. Anthony Paul Benthall36 that:

• “When two words of different import are used in a statute, in two consecutive provisions, it would be difficult to maintain that they are used in the same sense…”

• This idea is reflected in a subsequent judgment in Brihan Mumbai Mahanagarpalika & Anr. v. Willington Sports Club & Ors.37

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2). Supreme Court (13.04.2021) in Ghanashyam Mishra and Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Company Ltd.  [CIVIL APPEAL NO.8129 OF 2019] held that,

• # 72. In the Rajya Sabha debates, on 29.7.2019, when the Bill for amending I&B  ode came up for discussion, there were certain issues raised by certain Members. While replying to the issues raised by certain Members, the Hon’ble Finance Minister stated thus:

• “IBC has actually an overriding effect. For instance, you asked whether IBC will override SEBI. Section 238 provides that IBC will prevail in case of inconsistency between two laws. Actually, Indian courts will have to decide, in specific cases, depending upon the material before them, but largely, yes, it is IBC. […]

• There is also this question about indemnity for successful resolution applicant. The amendment now is clearly making it binding on the Government. It is one of the ways in which we are providing that. The Government will not raise any further claim. The Government will not make any further claim after resolution plan is approved. So, that is going to be a major, major sense of assurance for the people who are using the resolution plan. Criminal matters alone would be proceeded against individuals and not company. There will be no criminal proceedings against successful resolution applicant. There will be no criminal proceedings against successful resolution applicant for fraud by previous promoters. So, I hope that is absolutely clear. I would want all the hon. Members to recognize this message and communicate further that this Code, therefore, gives that comfort to all new bidders. So now, they need not be scared that the taxman will come after them for the faults of the earlier promoters. No. Once the resolution plan is accepted, the earlier promoters will be dealt with as individuals for their criminality but not the new bidder who is trying to restore the company. So, that is very clear …………….. (emphasis supplied)”

• # 73. It could thus be seen, that in the speech the Hon’ble Finance Minister has categorically stated, that Section 238 provides that I&B Code will prevail in case of inconsistency between two laws. She also stated, that there was question about indemnity for successful resolution applicant and that the amendment was clearly making it binding on the Government. She stated, that the Government will not make any further claim after resolution plan is approved. So, that is going to be a major sense of assurance for the people who are using the resolution plan. She has categorically stated, that she would want all the Hon’ble Members to recognize this message and communicate further that I&B Code gives that comfort to all new bidders. They need not be scared that the taxman will come after them for the faults of the earlier promoters. She further states, that once the resolution plan is accepted, the earlier promoters will be dealt with as individuals for their criminality but not the new bidder who is trying to restore the company.

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High Court Jharkhand (01.05.2020) in  Electrosteel Steels Limited  V/s The State of Jharkhand & Ors.  [W.P.(T). No. 6324 of 2019] held that;

• # 22. We however, find force in the submissions of the learned Additional Advocate General that the tax amount, which had been sought to be realised from the petitioner Company, had already been realised by the petitioner Company from the customers which was to be deposited in the Government Exchequer, but that having not been done by the Company and the amount having been utilized for its business purposes, throughout after the years 2011-12 and onwards, shall certainly amount to criminal misappropriation of the Government money by the Company, and the State Government is entitled to realize the same with the penalty due thereon.

• # 23. There is yet another aspect of the matter. The amount of VAT must have already been realised by the petitioner Company from the customers. In that view of the matter, it is debatable whether the amount of VAT shall be covered by the expressions "debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government", so as to bring it within the definition of "operational debt", as defined in the IB Code. This Tax liability can very well be treated as the amount of tax already realised by the petitioner Company from its customers, on behalf of the State Government, and not the direct debt of the petitioner Company towards the State Government, in which case the tax liabilities of the petitioner Company, for realising which the impugned garnishee order has been issued, may not come within the definition of "operational debt", as defined in the IB Code. The decisions cited by learned counsel for the petitioner in Embassy Property Developments Pvt. Ltd.'s case (supra) and in Monnet Ispat and Energy Ltd.'s case (supra), are of no help to the petitioner Company, as they related to Income Tax dues, which were the direct debts of the corporate debtors in those cases.

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