Litigation Arbitration

Sections 184 and 186 of the Finance Act 2017 conferred upon the centre, the rule making power relating to the appointment, tenure, allowances, etc, of members of various Tribunals.

These provisions prescribed the minimum age limit for appointment at 50 years, while capping the tenure of the members at four years, as opposed to the five-year tenure suggested by the Court. These provisions were struck down because they were in derogation to the guidelines issued by the Court in its 2020 judgement, on the same subject. Additionally, the provisions which empowered the search committee to recommend two names for appointment, as well the time period within which they should be appointed, was also struck down, being contrary to the Court’s own guidelines.

Under these regulations, the valuation professional hired by the Insolvency Professional cannot be a relative/related party of the Corporate Debtor, or an auditor of the company, any time in the preceding five years from initiation of proceedings under the Code. Additionally, a director/partner of an insolvency professional entity cannot continue as a resolution professional if the entity, or any other partner/director from the entity represents any other stakeholder in a given Corporate Insolvency Resolution Process.

According to the IBBI, these new regulations are intended to eliminate any potential conflict of interest that the insolvency professionals may have if any of their colleagues are advising any party involved in the case. Similarly, the Board has stated that appointment of the valuer has to be at an ‘arm’s length basis’, so as to ensure neutrality of the entire process.

In the case at hand, the Trial Court had refused to set aside the ex-parte decree, on the ground that the application had been filed after a lapse of the limitation period. Thereafter, the High Court in a Revision Petition called for the papers of the case, and on finally coming to the conclusion that one of the parties was a minor who had not been represented following the procedure under Order XXXII, set aside the decree of the Trial Court.

Finally, the Supreme Court, while upholding the judgement of the High Court, held that the High Court had wide powers of revision under Article 227, and was entitled to set aside the decree even after the limitation period. Further, the Court concluded that since the procedure under Order XXXII had not been followed, severe prejudice would be caused to the minor, and hence set aside the decree of the Trial Court.

(a) provisions for incorporation, regulation arid winding up of co-operative societies based on the principles of democratic member-control, member-economic participation and autonomous functioning;

(b) specifying the maximum number of directors of a cooperative society to be not exceeding twenty-one members;

(c) providing for a fixed term of five years from the date of election in respect of the elected members of the board and its office bearers;

(d) empowering the State Governments to obtain periodic reports of activities and accounts of cooperative societies;

(e) providing for the reservation of one seat for the Scheduled Castes or the Scheduled Tribes and two seats for women on the board of every co-operative society, which have individuals as members from such categories;

(f) providing for offences relating to co-operative societies and penalties in respect of such offences.

The said amendment was challenged before the Gujarat High Court and the Court by its judgment dated 22.04.2013,  declared Part IXB in entirety to be ultra vires for want of ratification by the State Legislatures under Article 368(2) proviso.

While dismissing the appeal filed against the judgement of Gujarat High Court, the Supreme Court observed that on perusal of Constitution 97th Amendment Act  it is clear that by curtailing the width of Entry 32, List II of the 7th Schedule, Part IXB seeks to effect a significant change in Article 246(3) read with Entry 32 List II of the 7th Schedule inasmuch as the State’s exclusive power to make laws with regard to the subject of co-operative societies is significantly curtailed thereby directly impacting the quasi-federal principle contained therein.

The Court upheld the judgement of Gujarat High Court except to the extent that it strikes down the entirety of Part IX B of the Constitution of India. The Court declare that Part-IX B Is operative only insofar as it concerns multi state cooperative societies both within the various states and in union territories of India and not state cooperative societies.

“14. What is important to note is that, far from Section 34 being in the nature of an appellate provision, it provides only for setting aside awards on very limited grounds, such grounds being contained in sub-sections (2) and (3) of Section 34. Secondly, as the marginal note of Section 34 indicates, “recourse” to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-sections (2) and (3). “Recourse” is defined by P Ramanatha Aiyar’s Advanced Law Lexicon (3rd Edition) as the enforcement or method of enforcing a right. Where the right is itself truncated, enforcement of such truncated right can also be only limited in nature. What is clear from a reading of the said provisions is that, given the limited grounds of challenge under sub-sections (2) and (3), an application can only be made to set aside an award. This becomes even clearer when we see subsection (4) under which, on receipt of an application under subsection (1) of Section 34, the court may adjourn the Section 34 proceedings and give the arbitral tribunal an opportunity to resume the arbitral proceedings or take such action as will eliminate the grounds for setting aside the arbitral award. Here again, it is important to note that it is the opinion of the arbitral tribunal which counts in order to eliminate the grounds for setting aside the award, which may be indicated by the court hearing the Section 34 application.”

• Non-compliance of Section 30 (2) (b) of IBC as Bank of Maharashtra is dissenting Financial Creditor who as per plan could not have been paid less than liquidation value.
• Resolution Plan provided that non convertible Debentures would be issued the Adjudicating Authority in Paragraph 24 of the Impugned Order directed payment of cash which would be changing the Resolution Plan as approved and it could not have been done without sending back the matter to CoC.
• The Plan provided meagre amount of Rs. 2900 Crores for admitting liability of Rs. 65,000 Crores and the waiver itself was Rs. 62,100 crores whereby public money has been lost and the Financial Creditor have been settled for merely 5 to 10%.

In addition to grounds above, NCLAT found that NCLT has itself observed that Corporate Debtors in the consolidated proceedings had cash of Rs. 200 Crores and the SRA would bring in just 262 Crores and from that also first payment of Rs. 200 Crores will be brought in 25 Months. Beyond Rs. 262 Crores the rest was being brought in only by way of NCDs to be paid in six years. The NCLT, however, relying upon the commercial wisdom of committee of creditors had suggested and requested to both CoC and the Successful Resolution Applicant to increase the pay-out amount to these Operational Creditors especially MSMEs.

Taking into consideration, the observations in NCLT Order and grounds asserted by the dissenting creditors, the NCLAT was pleased to grant ad-interim stay and status quo ante on the operation of NCLT Order.