L. Ramalakshmamma & Anr. Vs. State Bank of India. - On going through word ‘shall’ occurred in Section 97(1) of ‘IBC’ employed in Section 97(1) of ‘IBC’, this ‘Tribunal’ is of the considered view that it is only ‘Directory’ and not ‘Mandatory’ and holds it so.

NCLAT(22.11.2021) In L. Ramalakshmamma & Anr. Vs. State Bank of India. [Company Appeal(AT)(CH)(Insolvency) No. 220 & 221 of 2021] held that; - 

• # 32. A ‘Resolution Professional’ is an indispensable person in ‘Insolvency Resolution Process’, as he has a pivotal part to play. No wonder, an ‘Adjudicating Authority’ can exercise his judicial discretion in appointing a ‘Resolution Professional’ in a given case, based on the facts and circumstances of the case, which float on the surface.

• # 33. Moreover, if viewed from the object and purpose to be achieved by ‘IBC’, the word employed in Section 97(1) “shall” can only be construed as ‘directory’ by any stretch of imagination and not a mandatory one, that too by adopting a purposeful, meaningful, practical, pragmatic and result oriented approach, with a view to prevent an aberration of justice and to secure the ends of justice.

• # 34. In the instant case on hand, on going through word ‘shall’ occurred in Section 97(1) of ‘IBC’ employed in Section 97(1) of ‘IBC’, this ‘Tribunal’ is of the considered view that it is only ‘Directory’ and not ‘Mandatory’ and holds it so,

 

Excerpts of the order;

# 2. The ‘Adjudicating Authority’ had passed the ‘Impugned Orders’ dated 23.07.2021 in I.A.(IBC) No. 346 of 2021 CP(IB) No. 02/95/HDB/2021 and I.A.(IBC) No. 347 of 2021 in CP(IB) No. 03/95/HDB/2021 whereby and whereunder he had appointed Mr. Anil Kohli as an ‘Interim Resolution Professional’ and directed him to file report under Section 90 of IBC, within 5th days from the date of his appointment etc. 

 

# 5. It is represented on behalf of the Appellants that the ‘Adjudicating Authority’ on 27.08.2018 passed an order for liquidation of Lanco Infratech Ltd and because of the reason that no Resolution Plan was approved by the ‘Committee of Creditors’ (in short ‘CoC’), Mr. Savan Godiavala was appointed as ‘Liquidator’.

 

#7. The Learned Counsel for the Appellants points out that in the year 2021, the First Respondent filed Company Petition No. 03/95/MDB/2021 as per Section 95 of ‘IBC’ against the Appellants before the ‘Adjudicating Authority’ and that on 31.05.2021, the Hon’ble Supreme Court of India had upheld the validity of the Rules. Moreover, through an order dated 23.07.2021, the ‘Adjudicating Authority’ had allowed the Application filed by the First Respondent for ‘Urgent Hearing’ and listed the matters for ‘Hearing’ on the same day. In fact, the ‘Adjudicating Authority’ by the ‘‘Impugned Orders’’’ had appointed Mr. Anil Kohli as the ‘IRP’ without adhering to the mandatory Section 97 of ‘IBC’.

 

# 8. The Learned Counsel for the Appellants contends that Section 95(1) of the ‘IBC’ enjoins that a Creditor may, either by himself or through a Resolution Professional file an Application for initiating ‘Insolvency Resolution Process’ against the ‘Personal Guarantor’ or a Partnership Firm. Also, that it is the stand of the Appellants that even Application under Section 95 of ‘IBC’ is filed through Resolution Professional, as in the instant case, then Section 97(1) & (2) of the ‘IBC’ can get attracted.

 

# 10. The Learned Counsel for the Appellants adverts to Rule 8(1) of the Insolvency and Bankruptcy (Application to ‘Adjudicating Authority’ for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 which provides that for the purposes of sub-Section (2) of Section 97 and sub-Section (5) of Section 97. The Board may share the database of the ‘Insolvency Professional’s including the information about disciplinary proceedings against them with the ‘Adjudicating Authority’ from time to time and that the ‘Adjudicating Authority’ shall accordingly pass an order in terms of Section 97(5) of ‘IBC’.

 

# 11. The stand of the Appellants is that the ‘IBC’ 2016 provides that appointment of the ‘IRP’ under Section 97(5) of IBC requires mandatory compliance of Sections 97(1) and 97(2) of IBC read with Rule 8 of Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. Clearly, before ‘IRP’ being appointed the same was to seek confirmation from the IBBI that no disciplinary proceedings are against him. However, in the instant case, the ‘Impugned Orders’ are completely silent as to whether the ‘Adjudicating Authority’ was in receipt of communication issued by the IBBI confirming the appointment of the ‘IRP’ under Section 97 of ‘IBC’ or in receipt of any database to confirm that no disciplinary proceedings are pending against the ‘IRP’ under Rule 8 of Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. Besides this, the ‘Impugned Orders’ had relied on 96(1)(a) of “IBC’ and that the ‘Adjudicating Authority’ had appointed Mr. Anil Kohli as the ‘IRP’.

 

# 12. The prime submission of the Learned Counsel of the Appellants is that the word ‘shall’ has been employed in Section 97 of ‘IBC’ is a mandatory character of the legislative intent and in short Sections 97(1) & 97(2) of ‘IBC’ are mandatory pre-condition which ought to be satisfied before the ‘Adjudicating Authority’ can proceed to pass order under Section 97(5) of ‘IBC’.

 

# 13. The Learned Counsel for the Appellants comes out with the plea that when a statute prescribes certain formalities to be complied with, those prescribed formalities are very much essential to do something which is mandatory in nature and the same cannot be simply ignored or given a goby in haste and in this connection the Learned Counsel for the Appellants places reliance on the decision of the Hon’ble Supreme Court of India in the matter of ‘The State of Haryana and Anr. Versus Raghubir Das’ reported in (1) (1995)1SCC 133 and in ‘Mohan Singh & Ors. Vs. International Airport Authority’ in (1997) 9 SCC 132.

 

# 14. The Learned Counsel for the Appellants takes a state that without determining the aspect of non-compliance of Section 97 of ‘IBC’, any determination under Section 100 of ‘IBC’ shall affect the vital rights of the Appellants. That apart, the Learned Counsel for the Appellants submits that the ‘IBC’ is a complete, exhaustive and inclusive Code and any deviation from the prescribed procedure would defeat the intent and purposes of the Code and refers to the decision of the Hon’ble Supreme Court of India in ‘M/s Innoventive Industries Ltd. Vs. ICICI Bank & Anr.’ Reported in AIR 2017 SC 4084 and ‘M/s Embassy Property Developers Pvt. Ltd. Vs. State of Karnataka’ reported in (2020) 13 SCC 308.

 

# 19 The Learned Counsel for the Respondents by placing reliance on the Judgment of this ‘Tribunal’ in ‘Mr. Ravi Ajit Kulkarnis Vs. State Bank India’ vide Company Appeal (AT)(Insolvency) No. 316 of 2021 contends that the provisions of Sections 97(1) & 97(2) of ‘IBC’ whereby the ‘Adjudicating Authority’ is required to confirm the Board before appointing ‘Resolution Professional’ is directory in nature and the same is not mandatory one. Moreover, the Rule 8(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 specifically mentions that the Board may provide the ‘Adjudicating Authority’ the database containing the requisite details of ‘Resolution Professional’ to enable the ‘Adjudicating Authority’ to appoint ‘Resolution Professional’ in a timely manner to further the objects of ‘IBC’.

  

# 23. The Learned Counsel for the Respondents contends that the use of the word ‘shall’ under Section 97 of ‘IBC’ is directory and not mandatory and call for substantial and not rigid interpretation as used in Section 97 of “IBC’. In this regard, the Learned Counsel for the Respondent adverts to the decision of the Hon’ble Supreme Court in “Kailash Vs. Nanhku & Ors.” reported in (2005) 4 SCC 480 wherein in paragraph-8 it is observed as under:

• “All the rules of procedure are the handmaid of justice. The language employed by the draftsman of processual law may be liberal and stringent, but the fact remains that the object of prescribing procedure is to advance the cause of justice. In an adversarial system, no party should ordinarily be denied the opportunity of participating in the process of justice dispensation. Unless compelled by express and specific language of the Statute, the provisions of the CPC or any other procedural enactment ought not to be construed in a manner which would leave the court helpless to meet extraordinary situations in the ends of justice.”

 

# 24. The Learned Counsel for the Respondents submits that where the expression ‘shall’ has been used it would not necessarily mean that it is mandatory and it will always depend upon the facts of the given case. The conjoint reading of relevant provision together with other provisions of the Rules, the purposes sought to be achieved and the object beginning implementation of such a provision as per decision in ‘Dinesh Chandra Pandey Vs. High Court of M.P. & Anr.’ Reported in (2010) 11 SCC 500.

 

# 25. The Learned Counsel for the Respondents contends that ‘time is the essence of the Code’ and further that the Hon’ble Supreme Court in the decision of ‘Mohan Singh & Ors. Vs. International Airport Authority’ in (1997) 9 SCC 132 has observed and held that the Court is required to keep in view the impact of the Professional necessity of its compliance if the word ‘shall’ is considered as having mandatory character, the mischief that would ensure by such construction.

 

# 32. A ‘Resolution Professional’ is an indispensable person in ‘Insolvency Resolution Process’, as he has a pivotal part to play. No wonder, an ‘Adjudicating Authority’ can exercise his judicial discretion in appointing a ‘Resolution Professional’ in a given case, based on the facts and circumstances of the case, which float on the surface.

 

# 33. Moreover, if viewed from the object and purpose to be achieved by ‘IBC’, the word employed in Section 97(1) “shall” can only be construed as ‘directory’ by any stretch of imagination and not a mandatory one, that too by adopting a purposeful, meaningful, practical, pragmatic and result oriented approach, with a view to prevent an aberration of justice and to secure the ends of justice.

 

# 34. In the instant case on hand, ongoing through word ‘shall’ occurred in Section 97(1) of ‘IBC’ employed in Section 97(1) of ‘IBC’, this ‘Tribunal’ is of the considered view that it is only ‘Directory’ and not ‘Mandatory’ and holds it so, in the teeth of Rule 8(1) of the Insolvency and Bankruptcy (Application to ‘Adjudicating Authority’ for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 and also by which the NCLT may pick up any one from the Panel for appointment of ‘IRP’ Liquidator, Resolution Professional and Bankruptcy Trustee. As such, when the ‘Adjudicating Authority’ had exercised its judicial discretion in fair manner for the appointment of Mr. Anil Kohli as an ‘IRP’, the same cannot be found fault with as opined by this ‘Tribunal’.

 

# 35. In view of the foregoings, the contra plea, taken on behalf of the Appellants that before passing of an order under Section 97(5) of ‘IBC’, the ingredients of sections 91 and 92 of ‘IBC’, are ought to be satisfied, is not acceded to by this ‘Tribunal’. Looking at from any angle, the ‘Impugned Orders’ dated 23.07.2021 in I.A.(IBC) No. 346 of 2021 CP(IB) No. 02/95/HDB/2021 and I.A.(IBC) No. 347 of 2021 in CP(IB) No. 03/95/HDB/2021 for appointment of Mr. Anil Kohli as ‘IRP’ and directing him to file ‘Report’ under Section 99(1)) of ‘IBC’ are free from any legal patent legal errors. Hence, the ‘Appeals’ fail.

 

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