THE INSOLVENCY AND BANKRUPTCY CODE, 2016, Law India.

THE INSOLVENCY AND BANKRUPTCY CODE, 2016 NO. 31 OF 2016 [28th May, 2016.]

An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto. BE it enacted by Parliament in the Sixty-seventh Year of the Republic of India as follows:—

PART I PRELIMINARY 1

. (1) This Code may be called the Insolvency and Bankruptcy Code, 2016. (2) It extends to the whole of India: Provided that Part III of this Code shall not extend to the State of Jammu and Kashmir. (3) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint: Short title, extent and commencement.

NEW DELHI, SATURDAY, MAY 28, 2016/JYAISTHA 7, 1938 (SAKA Separate paging is given to this Part in order that it may be filed as a separate compilation

. REGISTERED NO. DL—(N)04/0007/2003—16 MINISTRY OF LAW AND JUSTICE (Legislative Department) New Delhi, the 28th May, 2016/Jyaistha 7, 1938 (Saka)

The following Act of Parliament received the assent of the President on the 28th May, 2016, and is hereby published for general information:—

2 THE GAZETTE OF INDIA EXTRAORDINARY [PART II

— Provided that different dates may be appointed for different provisions of this Code and any reference in any such provision to the commencement of this Code shall be construed as a reference to the commencement of that provision. 2. The provisions of this Code shall apply to— (a) any company incorporated under the Companies Act, 2013 or under any previous company law; (b) any other company governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act; (c) any Limited Liability Partnership incorporated under the Limited Liability Partnership Act, 2008; (d) such other body incorporated under any law for the time being in force, as the Central Government may, by notification, specify in this behalf; and (e) partnership firms and individuals, in relation to their insolvency, liquidation, voluntary liquidation or bankruptcy, as the case may be. 3. In this Code, unless the context otherwise requires,— (1) “Board” means the Insolvency and Bankruptcy Board of India established under sub-section (1) of section 188; (2) “bench” means a bench of the Adjudicating Authority; (3) “bye-laws” mean the bye-laws made by the insolvency professional agency under section 205; (4) “charge” means an interest or lien created on the property or assets of any person or any of its undertakings or both, as the case may be, as security and includes a mortgage; (5) “Chairperson” means the Chairperson of the Board; (6) “claim” means— (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured; (7) “corporate person” means a company as defined in clause (20) of section 2 of the Companies Act, 2013, a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008, or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider; (8) “corporate debtor” means a corporate person who owes a debt to any person; (9) “core services” means services rendered by an information utility for— (a) accepting electronic submission of financial information in such form and manner as may be specified; (b) safe and accurate recording of financial information; (c) authenticating and verifying the financial information submitted by a person; and 18 of 2013. Definitions. 6 of 2009. 18 of 2013. 6 of 2009. Application. SEC. 1

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(d) providing access to information stored with the information utility to persons as may be specified; (10) “creditor” means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decreeholder; (11) “debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; (12) “default” means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be; (13) “financial information”, in relation to a person, means one or more of the following categories of information, namely:— (a) records of the debt of the person; (b) records of liabilities when the person is solvent; (c) records of assets of person over which security interest has been created; (d) records, if any, of instances of default by the person against any debt; (e) records of the balance sheet and cash-flow statements of the person; and (f) such other information as may be specified. (14) “financial institution” means— (a) a scheduled bank; (b) financial institution as defined in section 45-I of the Reserve Bank of India Act, 1934; (c) public financial institution as defined in clause (72) of section 2 of the Companies Act, 2013; and (d) such other institution as the Central Government may by notification specify as a financial institution; (15) “financial product” means securities, contracts of insurance, deposits, credit arrangements including loans and advances by banks and financial institutions, retirement benefit plans, small savings instruments, foreign currency contracts other than contracts to exchange one currency (whether Indian or not) for another which are to be settled immediately, or any other instrument as may be prescribed; (16) “financial service” includes any of the following services, namely:— (a) accepting of deposits; (b) safeguarding and administering assets consisting of financial products, belonging to another person, or agreeing to do so; (c) effecting contracts of insurance; (d) offering, managing or agreeing to manage assets consisting of financial products belonging to another person; (e) rendering or agreeing, for consideration, to render advice on or soliciting for the purposes of— (i) buying, selling, or subscribing to, a financial product; (ii) availing a financial service; or 2 of 1934. 18 of 2013. 4

THE GAZETTE OF INDIA EXTRAORDINARY [PART II— (iii) exercising any right associated with a financial product or financial service; (f) establishing or operating an investment scheme; (g) maintaining or transferring records of ownership of a financial product; (h) underwriting the issuance or subscription of a financial product; or (i) selling, providing, or issuing stored value or payment instruments or providing payment services; (17) “financial service provider” means a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator; (18) “financial sector regulator” means an authority or body constituted under any law for the time being in force to regulate services or transactions of financial sector and includes the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India, the Pension Fund Regulatory Authority and such other regulatory authorities as may be notified by the Central Government; (19) “insolvency professional” means a person enrolled under section 206 with an insolvency professional agency as its member and registered with the Board as an insolvency professional under section 207; (20) “insolvency professional agency” means any person registered with the Board under section 201 as an insolvency professional agency; (21) “information utility” means a person who is registered with the Board as an information utility under section 210; (22) “notification” means a notification published in the Official Gazette, and the terms “notified” and “notify” shall be construed accordingly; (23) “person” includes— (a) an individual; (b) a Hindu Undivided Family; (c) a company; (d) a trust; (e) a partnership; (f) a limited liability partnership; and (g) any other entity established under a statute, and includes a person resident outside India; (24) “person resident in India” shall have the meaning asassigned to such term in clause (v) of section 2 of the Foreign Exchange Management Act, 1999; (25) “person resident outside India” means a person other than a person resident in India; (26 ) “prescribed” means prescribed by rules made by the Central Government; (27) “property” includes money, goods, actionable claims, land and every description of property situated in India or outside India and every description of interest including present or future or vested or contingent interest arising out of, or incidental to, property; 42 of 1999. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 5 (28)

“regulations” means the regulations made by the Board under this Code; (29) “Schedule” means the Schedule annexed to this Code; (30) “secured creditor” means a creditor in favour of whom security interest is created; (31) “security interest” means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person: Provided that security interest shall not include a performance guarantee; (32) “specified” means specified by regulations made by the Board under this Code and the term “specify” shall be construed accordingly; (33) “transaction” includes a agreement or arrangement in writing for the transfer of assets, or funds, goods or services, from or to the corporate debtor; (34) “transfer” includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien; (35) “transfer of property” means transfer of any property and includes a transfer of any interest in the property and creation of any charge upon such property; (36) “workman” shall have the same meaning as assigned to it in clause (s) of section 2 of the Industrial Disputes Act, 1947; (37) words and expressions used but not defined in this Code but defined in the Indian Contract Act, 1872, the Indian Partnership Act, 1932, the Securities Contact (Regulation) Act, 1956, the Securities Exchange Board of India Act, 1992, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Limited Liability Partnership Act, 2008 and the Companies Act, 2013, shall have the meanings respectively assigned to them in those Acts.

 

PART II INSOLVENCY RESOLUTION AND LIQUIDATION FOR CORPORATE PERSONS CHAPTER I PRELIMINARY 4

. (1) This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees: Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees. 5. In this Part, unless the context otherwise requires,— (1) “Adjudicating Authority”, for the purposes of this Part, means National Company Law Tribunal constituted under section 408 of the Companies Act, 2013; (2) “auditor” means a chartered accountant certified to practice as such by the Institute of Chartered Accountants of India under section 6 of the Chartered Accountants Act, 1949; (3) “Chapter” means a Chapter under this Part; (4) “constitutional document”, in relation to a corporate person, includes articles of association, memorandum of association of a company and incorporation document of a Limited Liability Partnership; 14 of 1947. 9 of 1872. 9 of 1932. 42 of 1956. 15 of 1992. 51 of 1993. 6 of 2009. 18 of 2013. Application of this Part. Definitions. 18 of 2013. XXXVIII of 1949.

 

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(5) “corporate applicant” means— (a) corporate debtor; or (b) a member or partner of the corporate debtor who is authorised to make an application for the corporate insolvency resolution process under the constitutional document of the corporate debtor; or (c) an individual who is in charge of managing the operations and resources of the corporate debtor; or (d) a person who has the control and supervision over the financial affairs of the corporate debtor; (6) “dispute” includes a suit or arbitration proceedings relating to— (a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the breach of a representation or warranty; (7) “financial creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to; (8) “financial debt” means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes— (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on nonrecourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause; (9) “financial position”, in relation to any person, means the financial information of a person as on a certain date; (10) “information memorandum” means a memorandum prepared by resolution professional under sub-section (1) of section 29; (11) “initiation date” means the date on which a financial creditor, corporate SEC. 1]

 

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applicant or operational creditor, as the case may be, makes an application to the Adjudicating Authority for initiating corporate insolvency resolution process; (12) “insolvency commencement date” means the date of admission of an application for initiating corporate insolvency resolution process by the Adjudicating Authority under sections 7, 9 or section 10, as the case may be; (13) “insolvency resolution process costs” means— (a) the amount of any interim finance and thecosts incurred in raising such finance; (b) the fees payable to any person acting as a resolution professional; (c) any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern; (d) any costs incurred at the expense of the Government to facilitate the insolvency resolution process; and (e) any other costs as may be specified by the Board; (14) “insolvency resolution process period” means the period of one hundred and eighty days beginning from the insolvency commencement date and ending on one hundred and eightieth day; (15) “interim finance” means any financial debt raised by the resolution professional during the insolvency resolution process period; (16) “liquidation cost” means any cost incurred by the liquidator during the period of liquidation subject to such regulations, as may be specified by the Board; (17) “liquidation commencement date” means the date on which proceedings for liquidation commence in accordance with section 33 or section 59, as the case may be; (18) “liquidator” means an insolvency professional appointed as a liquidator in accordance with the provisions of Chapter III or Chapter V of this Part, as the case may be; (19) “officer” for the purposes of Chapter VII of this Part, means an officer who is in default, as defined in clause (60) of section 2 of the Companies Act, 2013 or a designated partner as defined in clause (j) of section 2 of the Limited Liability Partnership Act, 2008, as the case may be; (20) “operational creditor” means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred; (21) “operational debt” means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority; (22) “personal guarantor” means an individual who is the surety in a contract of guarantee to a corporate debtor; (23) “personnel” includes the directors, managers, key managerial personnel, designated partners and employees, if any, of the corporate debtor; (24) “related party”, in relation to a corporate debtor, means— (a) a director or partner of the corporate debtor or a relative of a director or partner of the corporate debtor; (b) a key managerial personnel of the corporate debtor or a relative of a key managerial personnel of the corporate debtor; 18 of 2013. 6 of 2009. 8

 

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(c) a limited liability partnership or a partnership firm in which a director, partner, or manager of the corporate debtor or his relative is a partner; (d) a private company in which a director, partner or manager of the corporate debtor is a director and holds along with his relatives, more than two per cent. of its share capital; (e) a public company in which a director, partner or manager of the corporate debtor is a director and holds along with relatives, more than two per cent. of its paid-up share capital; (f) anybody corporate whose board of directors, managing director or manager, in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor; (g) any limited liability partnership or a partnership firm whose partners or employees in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor; (h) any person on whose advice, directions or instructions, a director, partner or manager of the corporate debtor is accustomed to act; (i) a body corporate which is a holding, subsidiary or an associate company of the corporate debtor, or a subsidiary of a holding company to which the corporate debtor is a subsidiary; (j) any person who controls more than twenty per cent. of voting rights in the corporate debtor on account of ownership or a voting agreement; (k) any person in whom the corporate debtor controls more than twenty per cent. of voting rights on account of ownership or a voting agreement; (l) any person who can control the composition of the board of directors or corresponding governing body of the corporate debtor; (m) any person who is associated with the corporate debtor on account of— (i) participation in policy making processes of the corporate debtor; or (ii) having more than two directors in common between the corporate debtor and such person; or (iii) interchange of managerial personnel between the corporate debtor and such person; or (iv) provision of essential technical information to, or from, the corporate debtor; (25) “resolution applicant” means any person who submits a resolution plan to the resolution professional; (26) “resolution plan” means a plan proposed by any person for insolvency resolution of the corporate debtor as a going concern in accordance with Part II; (27) “resolution professional”, for the purposes of this Part, means an insolvency professional appointed to conduct the corporate insolvency resolution process and includes an interim resolution professional; and (28) “voting share” means the share of the voting rights of a single financial creditor in the committee of creditors which is based on the proportion of the financial debt owed to such financial creditor in relation to the financial debt owed by the corporate debtor. SEC. 1]

 

 

THE GAZETTE OF INDIA EXTRAORDINARY 9 CHAPTER II CORPORATE INSOLVENCY RESOLUTION PROCESS

6. Where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter. 7. (1) A financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation.—For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application furnish— (a) record of the default recorded with the information utility or such other record or evidence of default as may be specified; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. (4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3). (5) Where the Adjudicating Authority is satisfied that— (a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or (b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application: Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5). (7) The Adjudicating Authority shall communicate— (a) the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor; (b) the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be. 8. (1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed. Persons who may initiate corporate insolvency resolution process. Initiation of corporate insolvency resolution process by financial creditor. Insolvency resolution by operational creditor. 10

 

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(2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor— (a) existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute; (b) the repayment of unpaid operational debt— (i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or (ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor. Explanation.—For the purposes of this section, a “demand notice” means a notice served by an operational creditor to the corporate debtor demanding repayment of the operational debt in respect of which the default has occurred. 9. (1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process. (2) The application under sub-section (1) shall be filed in such form and manner and accompanied with such fee as may be prescribed. (3) The operational creditor shall, along with the application furnish— (a) a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor; (b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt; (c) a copy of the certificate from thefinancial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor; and (d) such other information as may be specified. (4) An operational creditor initiating a corporate insolvency resolution process under this section, may propose a resolution professional to act as an interim resolution professional. (5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order— (i) admit the application and communicate such decision to the operational creditor and the corporate debtor if,— (a) the application made under sub-section (2) is complete; (b) there is no repayment of the unpaid operational debt; (c) the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor; (d) no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and (e) there is no disciplinary proceeding pending against any resolution professional proposed under sub-section (4), if any. Application for initiation of corporate insolvency resolution process by operational creditor. SEC. 1]

 

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(ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if— (a) the application made under sub-section (2) is incomplete; (b) there has been repayment of the unpaid operational debt; (c) the creditor has not delivered the invoice or notice for payment to the corporate debtor; (d) notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or (e) any disciplinary proceeding is pending against any proposed resolution professional: Provided that Adjudicating Authority, shall before rejecting an application under subclause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the adjudicating Authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5) of this section. 10. (1) Where a corporate debtor has committed a default, a corporate applicant thereof may file an application for initiating corporate insolvency resolution process with the Adjudicating Authority. (2) The application under sub-section (1) shall be filed in such form, containing such particulars and in such manner and accompanied with such fee as may be prescribed. (3) The corporate applicant shall, along with the application furnish the information relating to— (a) its books of account and such other documents relating to such period as may be specified; and (b) the resolution professional proposed to be appointed as an interim resolution professional. (4) The Adjudicating Authority shall, within a period of fourteen days of the receipt of the application, by an order— (a) admit the application, if it is complete; or (b) reject the application, if it is incomplete: Provided that Adjudicating Authority shall, before rejecting an application, give a notice to the applicant to rectify the defects in his application within seven days from the date of receipt of such notice from the Adjudicating Authority. (5) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (4) of this section. 11. The following persons shall not be entitled to make an application to initiate corporate insolvency resolution process under this Chapter, namely:— (a) a corporate debtor undergoing a corporate insolvency resolution process; or (b) a corporate debtor having completed corporate insolvency resolution process twelve months preceding the date of making of the application; or (c) a corporate debtor or a financial creditor who has violated any of the terms of resolution plan which was approved twelve months before the date of making of an application under this Chapter; or (d) a corporate debtor in respect of whom a liquidation order has been made. Initiation of corporate insolvency resolution process by corporate applicant. Persons not entitled to make application. 12

 

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— Explanation.—For the purposes of this section, a corporate debtor includes a corporate applicant in respect of such corporate debtor. 12. (1) Subject to sub-section (2), the corporate insolvency resolution process shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process. (2) The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of seventy-five per cent. of the voting shares. (3) On receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied that the subject matter of the case is such that corporate insolvency resolution process cannot be completed within one hundred and eighty days, it may by order extend the duration of such process beyond one hundred and eighty days by such further period as it thinks fit, but not exceeding ninety days: Provided that any extension of the period of corporate insolvency resolution process under this section shall not be granted more than once. 13. (1) The Adjudicating Authority, after admission of the application under section 7 or section 9 or section 10, shall, by an order— (a) declare a moratorium for the purposes referred to in section 14; (b) cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims under section 15; and (c) appoint an interim resolution professional in the manner as laid down in section 16. (2) The public announcement referred to in clause (b) of sub-section (1) shall be made immediately after the appointment of the interim resolution professional. 14. (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:— (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Time-limit for completion of insolvency resolution process. Declaration of moratorium and public announcement. 54 of 2002. Moratorium. SEC. 1]

 

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Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. 15. (1) The public announcement of the corporate insolvency resolution process under the order referred to in section 13 shall contain the following information, namely:— (a) name and address of the corporate debtor under the corporate insolvency resolution process; (b) name of the authority with which the corporate debtor is incorporated or registered; (c) the last date for submission of claims; (d) details of the interim resolution professional who shall be vested with the management of the corporate debtor and be responsible for receiving claims;` (e) penalties for false or misleading claims; and (f) the date on which the corporate insolvency resolution process shall close, which shall be the one hundred and eightieth day from the date of the admission of the application under sections 7, 9 or section 10, as the case may be. (2) The public announcement under this section shall be made in such manner as may be specified. 16. (1) The Adjudicating Authority shall appoint an interim resolution professional within fourteen days from the insolvency commencement date. (2) Where the application for corporate insolvency resolution process is made by a financial creditor or the corporate debtor, as the case may be, the resolution professional, as proposed respectively in the application under section 7 or section 10, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him. (3) Where the application for corporate insolvency resolution process is made by an operational creditor and— (a) no proposal for an interim resolution professional is made,the Adjudicating Authority shall make a reference to the Board for the recommendation of an insolvency professional who may act as an interim resolution professional; (b) a proposal for an interim resolution professional is made under sub-section (4) of section 9, the resolution professional as proposed, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him. (4) The Board shall, within ten days of the receipt of a reference from the Adjudicating Authority under sub-section (3), recommend the name of an insolvency professional to the Adjudicating Authority against whom no disciplinary proceedings are pending. (5) The term of the interim resolution professional shall not exceed thirty days from date of his appointment. 17. (1) From the date of appointment of the interim resolution professional,— (a) the management of the affairs of the corporate debtor shall vest in the interim resolution professional; (b) the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional; Public announcement of corporate insolvency resolution process. Appointment and tenure of interim resolution professional. Management of affairs of corporate debtor by interim resolution professional. 14

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

(c) the officers and managers of the corporate debtor shall report to the interim resolution professional and provide access to such documents and records of the corporate debtor as may be required by the interim resolution professional; (d) the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional. (2) The interim resolution professional vested with the management of the corporate debtor shall— (a) act and execute in the name and on behalf of the corporate debtor all deeds, receipts, and other documents, if any; (b) take such actions, in the manner and subject to such restrictions, as may be specified by the Board; (c) have the authority to access the electronic records of corporate debtor from information utility having financial information of the corporate debtor; (d) have the authority to access the books of account, records and other relevant documents of corporate debtor available with government authorities, statutory auditors, accountants and such other persons as may be specified. 18. The interim resolution professional shall perform the following duties, namely:— (a) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to— (i) business operations for the previous two years; (ii) financial and operational payments for the previous two years; (iii) list of assets and liabilities as on the initiation date; and (iv) such other matters as may be specified; (b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under sections 13 and 15; (c) constitute a committee of creditors; (d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors; (e) file information collected with the information utility, if necessary; and (f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including— (i) assets over which the corporate debtor has ownership rights which may be located in a foreign country; (ii) assets that may or may not be in possession of the corporate debtor; (iii) tangible assets, whether movable or immovable; (iv) intangible assets including intellectual property; (v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies; Duties of interim resolution professional. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 15

(vi) assets subject to the determination of ownership by a court or authority; (g) to perform such other duties as may be specified by the Board. Explanation.—For the purposes of this sub-section, the term “assets” shall not include the following, namely:— (a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment; (b) assets of any Indian or foreign subsidiary of the corporate debtor; and (c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator. 19. (1) The personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor shall extend all assistance and cooperation to the interim resolution professional as may be required by him in managing the affairs of the corporate debtor. (2) Where any personnel of the corporate debtor, its promoter or any other person required to assist or cooperate with the interim resolution professional does not assist or cooperate, the interim resolution professional may make an application to the Adjudicating Authority for necessary directions. (3) The Adjudicating Authority, on receiving an application under sub-section (2), shall by an order, direct such personnel or other person to comply with the instructions of the resolution professional and to cooperate with him in collection of information and management of the corporate debtor. 20. (1) The interim resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern. (2) For the purposes of sub-section (1), the interim resolution professional shall have the authority— (a) to appoint accountants, legal or other professionals as may be necessary; (b) to enter into contracts on behalf of the corporate debtor or to amend or modify the contracts or transactions which were entered into before the commencement of corporate insolvency resolution process; (c) to raise interim finance provided that no security interest shall be created over any encumbered property of the corporate debtor without the prior consent of the creditors whose debt is secured over such encumbered property: Provided that no prior consent of the creditor shall be required where the value of such property is not less than the amount equivalent to twice the amount of the debt. (d) to issue instructions to personnel of the corporate debtor as may be necessary for keeping the corporate debtor as a going concern; and (e) to take all such actions as are necessary to keep the corporate debtor as a going concern. 21. (1) The interim resolution professional shall after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor, constitute a committee of creditors. (2) The committee of creditors shall comprise all financial creditors of the corporate debtor: Provided that a related partyto whom a corporate debtor owes a financial debt shall not have any right of representation, participation or voting in a meeting of the committee of creditors. Personnel to extend cooperation to interim resolution professional. Management of operations of corporate debtor as going concern. Committee of creditors.

 

16 THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

(3) Where the corporate debtor owes financial debts to two or more financial creditors as part of a consortium or agreement, each such financial creditor shall be part of the committee of creditors and their voting share shall be determined on the basis of the financial debts owed to them. (4) Where any person is a financial creditor as well as an operational creditor,— (a) such person shall be a financial creditor to the extent of the financial debt owed by the corporate debtor,and shall be included in the committee of creditors, with voting share proportionate to the extent of financial debts owed to such creditor; (b) such person shall be considered to be an operational creditor to the extent of the operational debt owed by the corporate debtor to such creditor. (5) Where an operational creditor has assigned or legally transferred any operational debt to a financial creditor, the assignee or transferee shall be considered as an operational creditor to the extent of such assignment or legal transfer. (6) Where the terms of the financial debt extended as part of a consortium arrangement or syndicated facility or issued as securities provide for a single trustee or agent to act for all financial creditors, each financial creditor may— (a) authorise the trustee or agent to act on his behalf in the committee of creditors to the extent of his voting share; (b) represent himself in the committee of creditors to the extent of his voting share; (c) appoint an insolvency professional (other than the resolution professional) at his own cost to represent himself in the committee of creditors to the extent of his voting share; or (d) exercise his right to vote to the extent of his voting share with one or more financial creditors jointly or severally. (7) The Board may specify the manner of determining the voting share in respect of financial debts issued as securities under sub-section (6) . (8) All decisions of the committee of creditors shall be taken by a vote of not less than seventy-five per cent. of voting share of the financial creditors: Provided that where a corporate debtor does not have any financial creditors, the committee of creditors shall be constituted and comprise of such persons to exercise such functions in such manner as may be specified by the Board. (9) The committee of creditors shall have the right to require the resolution professional to furnish any financial information in relation to the corporate debtor at any time during the corporate insolvency resolution process. (10) The resolution professional shall make available any financial information so required by the committee of creditors under sub-section (9) within a period of seven days of such requisition. 22. (1) The first meeting of the committee of creditors shall be held within seven days of the constitution of the committee of creditors. (2) The committee of creditors, may, in the first meeting, by a majority vote of not less than seventy-five per cent. of the voting share of the financial creditors, either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional. (3) Where the committee of creditors resolves under sub-section (2)— Appointment of resolution professional. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 17

 

• to continue the interim resolution professional as resolution professional, it shall communicate its decision to the interim resolution professional, the corporate debtor and the Adjudicating Authority; or (b) to replace the interim resolution professional, it shall file an application before the Adjudicating Authority for the appointment of the proposed resolution professional. (4) The Adjudicating Authority shall forward the name of the resolution professional proposed under clause (b) of sub-section (3) to the Board for its confirmation and shall make such appointment after confirmation by the Board. (5) Where the Board does not confirm the name of the proposed resolution professional within ten days of the receipt of the name of the proposed resolution professional, the Adjudicating Authority shall, by order, direct the interim resolution professional to continue to function as the resolution professional until such time as the Board confirms the appointment of the proposed resolution professional. 23. (1) Subject to section 27, the resolution professional shall conduct the entire corporate insolvency resolution process and manage the operations of the corporate debtor during the corporate insolvency resolution process period. (2) The resolution professional shall exercise powers and perform duties as are vested or conferred on the interim resolution professional under this Chapter. (3) In case of any appointment of a resolution professional under sub-sections (4) of section 22, the interim resolution professional shall provide all the information, documents and records pertaining to the corporate debtor in his possession and knowledge to the resolution professional. 24. (1) The members of the committee of creditors may meet in person or by such electronic means as may be specified. (2) All meetings of the committee of creditors shall be conducted by the resolution professional. (3) The resolution professional shall give notice of each meeting of the committee of creditors to— (a) members of Committee of creditors; (b) members of the suspended Board of Directors or the partners of the corporate persons, as the case may be; (c) operational creditors or their representatives if the amount of their aggregate dues is not less than ten per cent. of the debt. (4) The directors, partners and one representative of operational creditors, as referred to in sub-section (3), may attend the meetings of committee of creditors, but shall not have any right to vote in such meetings: Provided that the absence of any such direct or, partner or representative of operational creditors, as the case may be, shall not invalidate proceedings of such meeting. (5) Any creditor who is a member of the committee of creditors may appoint an insolvency professional other than the resolution professional to represent such creditor in a meeting of the committee of creditors: Provided that the fees payable to such insolvency professional representing any individual creditor will be borne by such creditor. Resolution professional to conduct corporate insolvency resolution process. Meeting of committee of creditors. 18

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

(6) Each creditor shall vote in accordance with the voting share assigned to him based on the financial debts owed to such creditor. (7) The resolution professional shall determine the voting share to be assigned to each creditor in the manner specified by the Board. (8) The meetings of the committee of creditors shall be conducted in such manner as may be specified. 25. (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor. (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:— (a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor; (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings; (c) raise interim finances subject to the approval of the committee of creditors under section 28; (d) appoint accountants, legal or other professionals in the manner as specified by Board; (e) maintain an updated list of claims; (f) convene and attend all meetings of the committee of creditors; (g) prepare the information memorandum in accordance with section 29; (h) invite prospective lenders, investors, and any other persons to put forward resolution plans; (i) present all resolution plans at the meetings of the committee of creditors; (j) file application for avoidance of transactions in accordance with Chapter III, if any; and (k) such other actions as may be specified by the Board. 26. The filing of an avoidance application under clause (j) of sub-section (2) of section 25 by the resolution professional shall not affect the proceedings of the corporate insolvency resolution process. 27. (1) Where, at any time during the corporate insolvency resolution process, the committee of creditors is of the opinion that a resolution professional appointed under section 22 is required to be replaced, it may replace him with another resolution professional in the manner provided under this section. (2) The committee of creditors may, at a meeting, by a vote of seventy five per cent. of voting shares, propose to replace the resolution professional appointed under section 22 with another resolution professional. (3) The committee of creditors shall forward the name of the insolvency professional proposed by them to the Adjudicating Authority. (4) The Adjudicating Authority shall forward the name of the proposed resolution professional to the Board for its confirmation and a resolution professional shall be appointed in the same manner as laid down in section 16. Duties of resolution professional. Application for avoidance of transactions not to affect proceedings. Replacement of resolution professional by committee of creditors. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 19 (5)

 

Where any disciplinary proceedings are pending against the proposed resolution professional under sub-section (3), the resolution professional appointed under section 22 shall continue till the appointment of another resolution professional under this section. 28. (1) Notwithstanding anything contained in any other law for the time being in force, the resolution professional, during the corporate insolvency resolution process, shall not take any of the following actions without the prior approval of the committee of creditors namely:— (a) raise any interim finance in excess of the amount as may be decided by the committee of creditors in their meeting; (b) create any security interest over the assets of the corporate debtor; (c) change the capital structure of the corporate debtor, including by way of issuance of additional securities, creating a new class of securities or buying back or redemption of issued securities in case the corporate debtor is a company; (d) record any change in the ownership interest of the corporate debtor; (e) give instructions to financial institutions maintaining accounts of the corporate debtor for a debit transaction from any such accounts in excess of the amount as may be decided by the committee of creditors in their meeting; (f) undertake any related party transaction; (g) amend any constitutional documents of the corporate debtor; (h) delegate its authority to any other person; (i) dispose of or permit the disposal of shares of any shareholder of the corporate debtor or their nominees to third parties; (j) make any change in the management of the corporate debtor or its subsidiary; (k) transfer rights or financial debts or operational debts under material contracts otherwise than in the ordinary course of business; (l) make changes in the appointment or terms of contract of such personnel as specified by the committee of creditors; or (m) make changes in the appointment or terms of contract of statutory auditors or internal auditors of the corporate debtor. (2) The resolution professional shall convene a meeting of the committee of creditors and seek the vote of the creditors prior to taking any of the actions under sub-section (1). (3) No action under sub-section (1) shall be approved by the committee of creditors unless approved by a vote of seventy five per cent. of the voting shares. (4) Where any action under sub-section (1) is taken by the resolution professional without seeking the approval of the committee of creditors in the manner as required in this section, such action shall be void. (5) The committee of creditors may report the actions of the resolution professional under sub-section (4) to the Board for taking necessary actions against him under this Code. 29. (1) The resolution professional shall prepare an information memorandum in such form and manner containing such relevant information as may be specified by the Board for formulating a resolution plan. (2) The resolution professional shall provide to the resolution applicant access to all Approval of committee of creditors for certain actions. Preparation of information memorandum. 20

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

relevant information in physical and electronic form, provided such resolution applicant undertakes— (a) to comply with provisions of law for the time being in force relating to confidentiality and insider trading; (b) to protect any intellectual property of the corporate debtor it may have access to; and (c) not to share relevant information with third parties unless clauses (a) and (b) of this sub-section are complied with. Explanation.—For the purposes of this section, “relevant information” means the information required by the resolution applicant to make the resolution plan for the corporate debtor, which shall include the financial position of the corporate debtor, all information related to disputes by or against the corporate debtor and any other matter pertaining to the corporate debtor as may be specified. 30. (1) A resolution applicant may submit a resolution plan to the resolution professional prepared on the basis of the information memorandum. (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan— (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the repayment of other debts of the corporate debtor; (b) provides for the repayment of the debts of operational creditors in such manner as may be specified by the Board which shall not be less than the amount to be paid to the operational creditors in the event of a liquidation of the corporate debtor under section 53; (c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force; (f) conforms to such other requirements as may be specified by the Board. (3) The resolution professional shall present to the committee of creditors for its approval such resolution plans which confirm the conditions referred to in sub-section (2). (4) The committee of creditors may approve a resolution plan by a vote of not less than seventy five per cent. of voting share of the financial creditors. (5) The resolution applicant may attend the meeting of the committee of creditors in which the resolution plan of the applicant is considered: Provided that the resolution applicant shall not have a right to vote at the meeting of the committee of creditors unless such resolution applicant is also a financial creditor. (6) The resolution professional shall submit the resolution plan as approved by the committee of creditors to the Adjudicating Authority. 31. (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. Submission of resolution plan. Approval of resolution plan. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 21

 

(2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan. (3) After the order of approval under sub-section (1),— (a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and (b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database. 32. Any appeal from an order approving the resolution plan shall be in the manner and on the grounds laid down in sub-section (3) of section 61. CHAPTER III LIQUIDATION PROCESS 33. (1) Where the Adjudicating Authority, — (a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution process under section 56, as the case may be, does not receive a resolution plan under sub-section (6) of section 30; or (b) rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein, it shall— (i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter; (ii) issue a public announcement stating that the corporate debtor is in liquidation; and (iii) require such order to be sent to the authority with which the corporate debtor is registered. (2) Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). (3) Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). (4) On receipt of an application under sub-section (3), if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). (5) Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor: Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority. Appeal. Initiation of liquidation. 22

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

(6) The provisions of sub-section (5) shall not apply to legal proceedings in relation to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

(7) The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator.

34. (1) Where the Adjudicating Authority passes an order for liquidation of the corporate debtor under section 33, the resolution professional appointed for the corporate insolvency resolution process under Chapter II shall act as the liquidator for the purposes of liquidation unless replaced by the Adjudicating Authority under sub-section (4).

(2) On the appointment of a liquidator under this section, all powers of the board of directors, key managerial personnel and the partners of the corporate debtor, as the case may be, shall cease to have effect and shall be vested in the liquidator.

(3) The personnel of the corporate debtor shall extend all assistance and cooperation to the liquidator as may be required by him in managing the affairs of the corporate debtor and provisions of section 19 shall apply in relation to voluntary liquidation process as they apply in relation to liquidation process with the substitution of references to the liquidator for references to the interim resolution professional.

(4) The Adjudicating Authority shall by order replace the resolution professional, if—

(a) the resolution plan submitted by the resolution professional under section 30 was rejected for failure to meet the requirements mentioned in sub-section (2) of section 30; or

(b) the Board recommends the replacement of a resolution professional to the Adjudicating Authority for reasons to be recorded in writing

. (5) For the purposes of clause (a) of sub-section (4), the Adjudicating Authority may direct the Board to propose the name of another insolvency professional to be appointed as a liquidator.

(6) The Board shall propose the name of another insolvency professional within ten days of the direction issued by the Adjudicating Authority under sub-section (5).

(7) The Adjudicating Authority shall, on receipt of the proposal of the Board for the appointment of an insolvency professional as liquidator, by an order appoint such insolvency professional as the liquidator.

(8) An insolvency professional proposed to be appointed as a liquidator shall charge such fee for the conduct of the liquidation proceedings and in such proportion to the value of the liquidation estate assets, as may be specified by the Board.

(9) The fees for the conduct of the liquidation proceedings under sub-section (8) shall be paid to the liquidator from the proceeds of the liquidation estate under section 53.

35. (1) Subject to the directions of the Adjudicating Authority, the liquidator shall have the following powers and duties, namely:—

(a) to verify claims of all the creditors;

(b) to take into his custody or control all the assets, property, effects and actionable claims of the corporate debtor;

(c) to evaluate the assets and property of the corporate debtor in the manner as may be specified by the Board and prepare a report;

(d) to take such measures to protect and preserve the assets and properties of the corporate debtor as he considers necessary; Appointment of liquidator and fee to be paid. Powers and duties of liquidator.

SEC. 1] THE GAZETTE OF INDIA EXTRAORDINARY 23

(e) to carry on the business of the corporate debtor for its beneficial liquidation as he considers necessary;

(f) subject to section 52, to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such manner as may be specified;

(g) to draw, accept, make and endorse any negotiable instruments including bill of exchange, hundi or promissory note in the name and on behalf of the corporate debtor, with the same effect with respect to the liability as if such instruments were drawn, accepted, made or endorsed by or on behalf of the corporate debtor in the ordinary course of its business;

(h) to take out, in his official name, letter of administration to any deceased contributory and to do in his official name any other act necessary for obtaining payment of any money due and payable from a contributory or his estate which cannot be ordinarily done in the name of the corporate debtor, and in all such cases, the money due and payable shall, for the purpose of enabling the liquidator to take out the letter of administration or recover the money, be deemed to be due to the liquidator himself;

(i) to obtain any professional assistance from any person or appoint any professional, in discharge of his duties, obligations and responsibilities;

(j) to invite and settle claims of creditors and claimants and distribute proceeds in accordance with the provisions of this Code;

(k) to institute or defend any suit, prosecution or other legal proceedings, civil or criminal, in the name of on behalf of the corporate debtor;

(l) to investigate the financial affairs of the corporate debtor to determine undervalued or preferential transactions;

(m) to take all such actions, steps, or to sign, execute and verify any paper, deed, receipt document, application, petition, affidavit, bond or instrument and for such purpose to use the common seal, if any, as may be necessary for liquidation, distribution of assets and in discharge of his duties and obligations and functions as liquidator;

(n) to apply to the Adjudicating Authority for such orders or directions as may be necessary for the liquidation of the corporate debtor and to report the progress of the liquidation process in a manner as may be specified by the Board; and

(o) to perform such other functions as may be specified by the Board.

(2) The liquidator shall have the power to consult any of the stakeholders entitled to a distribution of proceeds under section 53: Provided that any such consultation shall not be binding on the liquidator: Provided further that the records of any such consultation shall be made available to all other stakeholders not so consulted, in a manner specified by the Board.

36. (1) For the purposes of liquidation, the liquidator shall form an estate of the assets mentioned in sub-section (3), which will be called the liquidation estate in relation to the corporate debtor.

(2) The liquidator shall hold the liquidation estate as a fiduciary for the benefit of all the creditors.

(3) Subject to sub-section (4), the liquidation estate shall comprise all liquidation estate assets which shall include the following:— Liquidation estate.

24 THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

(a) any assets over which the corporate debtor has ownership rights, including all rights and interests therein as evidenced in the balance sheet of the corporate debtor or an information utility or records in the registry or any depository recording securities of the corporate debtor or by any other means as may be specified by the Board, including shares held in any subsidiary of the corporate debtor;

(b) assets that may or may not be in possession of the corporate debtor including but not limited to encumbered assets;

(c) tangible assets, whether movable or immovable;

(d) intangible assets including but not limited to intellectual property, securities (including shares held in a subsidiary of the corporate debtor) and financial instruments, insurance policies, contractual rights;

(e) assets subject to the determination of ownership by the court or authority;

(f) any assets or their value recovered through proceedings for avoidance of transactions in accordance with this Chapter;

(g) any asset of the corporate debtor in respect of which a secured creditor has relinquished security interest;

(h) any other property belonging to or vested in the corporate debtor at the insolvency commencement date; and

(i) all proceeds of liquidation as and when they are realised.

(4) The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation:—

(a) assets owned by a third party which are in possession of the corporate debtor, including—

(i) assets held in trust for any third party;

(ii) bailment contracts;

(iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund;

(iv) other contractual arrangements which do not stipulate transfer of title but only use of the assets; and

(v) such other assets as may be notified by the Central Government in consultation with any financial sector regulator;

(b) assets in security collateral held by financial services providers and are subject to netting and set-off in multi-lateral trading or clearing transactions;

(c) personal assets of any shareholder or partner of a corporate debtor as the case may be provided such assets are not held on account of avoidance transactions that may be avoided under this Chapter; (d) assets of any Indian or foreign subsidiary of the corporate debtor; or

(e) any other assets as may be specified by the Board, including assets which could be subject to set-off on account of mutual dealings between the corporate debtor and any creditor.

37. (1) Notwithstanding anything contained in any other law for the time being in force, the liquidator shall have the power to access any information systems for the purpose of admission and proof of claims and identification of the liquidation estate assets relating to the corporate debtor from the following sources, namely:— Powers of liquidator to access information.

SEC. 1] THE GAZETTE OF INDIA EXTRAORDINARY 25

(a) an information utility;

(b) credit information systems regulated under any law for the time being in force;

(c) any agency of the Central, State or Local Government including any registration authorities;

(d) information systems for financial and non-financial liabilities regulated under any law for the time being in force;

(e) information systems for securities and assets posted as security interest regulated under any law for the time being in force;

(f) any database maintained by the Board; and (g) any other source as may be specified by the Board.

(2) The creditors may require the liquidator to provide them any financial information relating to the corporate debtor in such manner as may be specified.

(3) The liquidator shall provide information referred to in sub-section (2) to such creditors who have requested for such information within a period of seven days from the date of such request or provide reasons for not providing such information.

38. (1) The liquidator shall receive or collect the claims of creditors within a period of thirty days from the date of the commencement of the liquidation process.

(2) A financial creditor may submit a claim to the liquidator by providing a record of such claim with an information utility: Provided that where the information relating to the claim is not recorded in the information utility, the financial creditor may submit the claim in the same manner as provided for the submission of claims for the operational creditor under sub-section (3).

(3) An operational creditor may submit a claim to the liquidator in such form and in such manner and along with such supporting documents required to prove the claim as may be specified by the Board.

(4) A creditor who is partly a financial creditor and partly an operational creditor shall submit claims to the liquidator to the extent of his financial debt in the manner as provided in sub-section (2) and to the extent of his operational debt under sub-section (3).

(5) A creditor may withdraw or vary his claim under this section within fourteen days of its submission.

39. (1) The liquidator shall verify the claims submitted under section 38 within such time as specified by the Board. (2) The liquidator may require any creditor or the corporate debtor or any other person to produce any other document or evidence which he thinks necessary for the purpose of verifying the whole or any part of the claim.
40. (1) The liquidator may, after verification of claims under section 39, either admit or reject the claim, in whole or in part, as the case may be: Provided that where the liquidator rejects a claim, he shall record in writing the reasons for such rejection

. (2) The liquidator shall communicate his decision of admission or rejection of claims to the creditor and corporate debtor within seven days of such admission or rejection of claims. Consolidation of claims. Verification of claims. Admission or rejection of claims.

26 THE GAZETTE OF INDIA EXTRAORDINARY [PART II— 41.The liquidator shall determine the value of claims admitted under section 40 in such manner as may be specified by the Board.

42. A creditor may appeal to the Adjudicating Authority against the decision of the liquidator rejecting the claims within fourteen days of the receipt of such decision.
43. (1) Where the liquidator or the resolution professional, as the case may be, is of the opinion that the corporate debtor has at a relevant time given a preference in such transactions and in such manner as laid down in sub-section (2) to any persons as referred to in sub-section (4), he shall apply to the Adjudicating Authority for avoidance of preferential transactions and for, one or more of the orders referred to in section
44. (2) A corporate debtor shall be deemed to have given a preference, if—

(a) there is a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and

(b) the transfer under clause (a) has the effect of putting such creditor or a surety or a guarantor in a beneficial position than it would have been in the event of a distribution of assets being made in accordance with section 53.

(3) For the purposes of sub-section (2), a preference shall not include the following transfers—

(a) transfer made in the ordinary course of the business or financial affairs of the corporate debtor or the transferee;

(b) any transfer creating a security interest in property acquired by the corporate debtor to the extent that— (i) such security interest secures new value and was given at the time of or after the signing of a security agreement that contains a description of such property as security interest and was used by corporate debtor to acquire such property; and

(ii) such transfer was registered with an information utility on or before thirty days after the corporate debtor receives possession of such property: Provided that any transfer made in pursuance of the order of a court shall not, preclude such transfer to be deemed as giving of preference by the corporate

debtor. Explanation.—For the purpose of sub-section (3) of this section, “new value” means money or its worth in goods, services, or new credit, or release by the transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the liquidator or the resolution professional under this Code, including proceeds of such property, but does not include a financial debt or operational debt substituted for existing financial debt or operational debt. (4) A preference shall be deemed to be given at a relevant time, if—

(a) it is given to a related party (other than by reason only of being an employee), during the period of two years preceding the insolvency commencement date; or

(b) a preference is given to a person other than a related party during the period of one year preceding the insolvency commencement date. 44. The Adjudicating Authority, may, on an application made by the resolution professional or liquidator under sub-section (1) of section 43, by an order : Determination of valuation of claims. Appeal against the decision of liquidator. Preferential transactions and relevant time. Orders in case of preferential transactions. SEC. 1]

THE GAZETTE OF INDIA EXTRAORDINARY 27

(a) require any property transferred in connection with the giving of the preference to be vested in the corporate debtor;

(b) require any property to be so vested if it represents the application either of the proceeds of sale of property so transferred or of money so transferred;

(c) release or discharge (in whole or in part) of any security interest created by the corporate debtor;

(d) require any person to pay such sums in respect of benefits received by him from the corporate debtor, such sums to the liquidator or the resolution professional, as the Adjudicating Authority may direct;

(e) direct any guarantor, whose financial debts or operational debts owed to any person were released or discharged (in whole or in part) by the giving of the preference, to be under such new or revived financial debts or operational debts to that person as the Adjudicating Authority deems appropriate;

(f) direct for providing security or charge on any property for the discharge of any financial debt or operational debt under the order, and such security or charge to have the same priority as a security or charge released or discharged wholly or in part by the giving of the preference; and

(g) direct for providing the extent to which any person whose property is so vested in the corporate debtor, or on whom financial debts or operational debts are imposed by the order, are to be proved in the liquidation or the corporate insolvency resolution process for financial debts or operational debts which arose from, or were released or discharged wholly or in part by the giving of the preference: Provided that an order under this section shall not—

(a) affect any interest in property which was acquired from a person other than the corporate debtor or any interest derived from such interest and was acquired in good faith and for value;

(b) require a person, who received a benefit from the preferential transaction in good faith and for value to pay a sum to the liquidator or the resolution professional.

Explanation I.—For the purpose of this section, it is clarified that where a person,who has acquired an interest in property from another person other than the corporate debtor, or who has received a benefit from the preference or such another person to whom the corporate debtor gave the preference,—

• had sufficient information of the initiation or commencement of insolvency resolution process of the corporate debtor
• ; (ii) is a related party, it shall be presumed that the interest was acquired or the benefit was received otherwise than in good faith unless the contrary is shown.

Explanation II.—A person shall be deemed to have sufficient information or opportunity to avail such information if a public announcement regarding the corporate insolvency resolution process has been made under section 13. 45. (1) If the liquidator or the resolution professional, as the case may be, on an examination of the transactions of the corporate debtor referred to in sub-section (2) of section 43 determines that certain transactions were made during the relevant period under section 46, which were undervalued, he shall make an application to the Adjudicating Authority to declare such transactions as void and reverse the effect of such transaction in accordance with this Chapter. Avoidance of undervalued transactions.

28 THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

(2) A transaction shall be considered undervalued where the corporate debtor—

(a) makes a gift to a person; or

(b) enters into a transaction with a person which involves the transfer of one or more assets by the corporate debtor for a consideration the value of which is significantly less than the value of the consideration provided by the corporate debtor, and such transaction has not taken place in the ordinary course of business of the corporate debtor.

46. (1) In an application for avoiding a transaction at undervalue, the liquidator or the resolution professional, as the case may be, shall demonstrate that—

(i) such transaction was made with any person within the period of one year preceding the insolvency commencement date; or

(ii) such transaction was made with a related party within the period of two years preceding the insolvency commencement date.

(2) The Adjudicating Authority may require an independent expert to assess evidence relating to the value of the transactions mentioned in this section. 47.

(1) Where an undervalued transaction has taken place and the liquidator or the resolution professional as the case may be, has not reported it to the Adjudicating Authority, a creditor, member or a partner of a corporate debtor, as the case may be, may make an application to the Adjudicating Authority to declare such transactions void and reverse their effect in accordance with this Chapter

. (2) Where the Adjudicating Authority, after examination of the application made under sub-section (1), is satisfied that—

(a) undervalued transactions had occurred; and

(b) liquidator or the resolution professional, as the case may be, after having sufficient information or opportunity to avail information of such transactions did not report such transaction to the Adjudicating Authority, it shall pass an order—

(a) restoring the position as it existed before such transactions and reversing the effects thereof in the manner as laid down in section 45 and section 48;

(b) requiring the Board to initiate disciplinary proceedings against the liquidator or the resolution professional as the case may be.

48. The order of the Adjudicating Authority under sub-section (1) of section 45 may provide for the following:—

(a) require any property transferred as part of the transaction, to be vested in the corporate debtor;

(b) release or discharge (in whole or in part) any security interest granted by the corporate debtor;

(c) require any person to pay such sums, in respect of benefits received by such person, to the liquidator or the resolution professional as the case may be, as the Adjudicating Authority may direct; or

(d) require the payment of such consideration for the transaction as may be determined by an independent expert. Relevant period for avoidable transactions. Application by creditor in cases of undervalued transactions. Order in cases of undervalued transactions.

SEC. 1] THE GAZETTE OF INDIA EXTRAORDINARY 29 49. Where the corporate debtor has entered into an undervalued transaction as referred to in sub-section (2) of section 45 and the Adjudicating Authority is satisfied that such transaction was deliberately entered into by such corporate debtor— (a) for keeping assets of the corporate debtor beyond the reach of any person who is entitled to make a claim against the corporate debtor; or (b) in order to adversely affect the interests of such a person in relation to the claim, the Adjudicating Authority shall make an order— (i) restoring the position as it existed before such transaction as if the transaction had not been entered into; and (ii) protecting the interests of persons who are victims of such transactions: Provided that an order under this section— (a) shall not affect any interest in property which was acquired from a person other than the corporate debtor and was acquired in good faith, for value and without notice of the relevant circumstances, or affect any interest deriving from such an interest, and (b) shall not require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum unless he was a party to the transaction. 50. (1) Where the corporate debtor has been a party to an extortionate credit transaction involving the receipt of financial or operational debt during the period within two years preceding the insolvency commencement date, the liquidator or the resolution professional as the case may be, may make an application for avoidance of such transaction to the Adjudicating Authority if the terms of such transaction required exorbitant payments to be made by the corporate debtor. (2) The Board may specify the circumstances in which a transactions which shall be covered under sub-section (1). Explanation.—For the purpose of this section, it is clarified that any debt extended by any person providing financial services which is in compliance with any law for the time being in force in relation to such debt shall in no event be considered as an extortionate credit transaction. 51. Where the Adjudicating Authority after examining the application made under sub-section (1) of section 50 is satisfied that the terms of a credit transaction required exorbitant payments to be made by the corporate debtor, it shall, by an order— (a) restore the position as it existed prior to such transaction; (b) set aside the whole or part of the debt created on account of the extortionate credit transaction; (c) modify the terms of the transaction; (d) require any person who is, or was, a party to the transaction to repay any amount received by such person; or (e) require any security interest that was created as part of the extortionate credit transaction to be relinquished in favour of the liquidator or the resolution professional, as the case may be. Transactions defrauding creditors. Extortionate credit transactions. Orders of Adjudicating Authority in respect of extorionate credit transactions. 30 THE GAZETTE OF INDIA EXTRAORDINARY [PART II— 52. (1) A secured creditor in the liquidation proceedings may— (a) relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator in the manner specified in section 53; or (b) realise its security interest in the manner specified in this section. (2) Where the secured creditor realises security interest under clause (b) of sub-section (1), he shall inform the liquidator of such security interest and identify the asset subject to such security interest to be realised. (3) Before any security interest is realised by the secured creditor under this section, the liquidator shall verify such security interest and permit the secured creditor to realise only such security interest, the existence of which may be proved either— (a) by the records of such security interest maintained by an information utility; or (b) by such other means as may be specified by the Board. (4) A secured creditor may enforce, realise, settle, compromise or deal with the secured assets in accordance with such law as applicable to the security interest being realised and to the secured creditor and apply the proceeds to recover the debts due to it. (5) If in the course of realising a secured asset, any secured creditor faces resistance from the corporate debtor or any person connected therewith in taking possession of, selling or otherwise disposing off the security, the secured creditor may make an application to the Adjudicating Authority to facilitate the secured creditor to realise such security interest in accordance with law for the time being in force. (6) The Adjudicating Authority, on the receipt of an application from a secured creditor under sub-section (5) may pass such order as may be necessary to permit a secured creditor to realise security interest in accordance with law for the time being in force. (7) Where the enforcement of the security interest under sub-section (4) yields an amount by way of proceeds which is in excess of the debts due to the secured creditor, the secured creditor shall— (a) account to the liquidator for such surplus; and (b) tender to the liquidator any surplus funds received from the enforcement of such secured assets. (8) The amount of insolvency resolution process costs, due from secured creditors who realise their security interests in the manner provided in this section, shall be deducted from the proceeds of any realisation by such secured creditors, and they shall transfer such amounts to the liquidator to be included in the liquidation estate. (9) Where the proceeds of the realisation of the secured assets are not adequate to repay debts owed to the secured creditor, the unpaid debts of such secured creditor shall be paid by the liquidator in the manner specified in clause (e) of sub-section (1) of section 53. 53. (1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely :— (a) the insolvency resolution process costs and the liquidation costs paid in full; Secured creditor in liquidation proceedings. Distribution of assets. SEC. 1] THE GAZETTE OF INDIA EXTRAORDINARY 31 (b) the following debts which shall rank equally between and among the following :— (i) workmen’s dues for the period of twenty-four months preceding the liquidation commencement date; and (ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52; (c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date; (d) financial debts owed to unsecured creditors; (e) the following dues shall rank equally between and among the following:— (i) any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date; (ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest; (f) any remaining debts and dues; (g) preference shareholders, if any; and (h) equity shareholders or partners, as the case may be. (2) Any contractual arrangements between recipients under sub-section (1) with equal ranking, if disrupting the order of priority under that sub-section shall be disregarded by the liquidator. (3) The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed after such deduction. Explanation.—For the purpose of this section— (i) it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of recipients that rank equally, each of the debts will either be paid in full, or will be paid in equal proportion within the same class of recipients, if the proceeds are insufficient to meet the debts in full; and (ii) the term “workmen’s dues” shall have the same meaning as assigned to it in section 326 of the Companies Act, 2013. 54. (1) Where the assets of the corporate debtor have been completely liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of such corporate debtor. (2) The Adjudicating Authority shall on application filed by the liquidator under sub-section (1) order that the corporate debtor shall be dissolved from the date of that order and the corporate debtor shall be dissolved accordingly. (3) A copy of an order under sub-section (2) shall within seven days from the date of such order, be forwarded to the authority with which the corporate debtor is registered. Dissolution of corporate debtor. 18 of 2013.

 

32 THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

CHAPTER IV FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS 55.

 

• A corporate insolvency resolution process carried out in accordance with this Chapter shall be called as fast track corporate insolvency resolution process. (2) An application for fast track corporate insolvency resolution process may be made in respect of the following corporate debtors, namely:— (a) a corporate debtor with assets and income below a level as may be notified by the Central Government; or (b) a corporate debtor with such class of creditors or such amount of debt as may be notified by the Central Government; or (c) such other category of corporate persons as may be notified by the Central Government. 56. (1) Subject to the provisions of sub-section (3), the fast track corporate insolvency resolution process shall be completed within a period of ninety days from the insolvency commencement date. (2) The resolution professional shall file an application to the Adjudicating Authority to extend the period of the fast track corporate insolvency resolution process beyond ninety days if instructed to do so by a resolution passed at a meeting of the committee of creditors and supported by a vote of seventy five percent of the voting share. (3) On receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied that the subject matter of the case is such that fast track corporate insolvency resolution process cannot be completed within a period of ninety days, it may, by order, extend the duration of such process beyond the said period of ninety days by such further period, as it thinks fit, but not exceeding forty-five days: Provided that any extension of the fast track corporate insolvency resolution process under this section shall not be granted more than once. 57. An application for fast track corporate insolvency resolution process may be filed by a creditor or corporate debtor as the case may be, alongwith-— (a) the proof of the existence of default as evidenced by records available with an information utility or such other means as may be specified by the Board; and (b) such other information as may be specified by the Board to establish that the corporate debtor is eligible for fast track corporate insolvency resolution process. Manner of initiating fast track corporate insolvency resolution process. 58. The process for conducting a corporate insolvency resolution process under Chapter II and the provisions relating to offences and penalties under Chapter VII shall apply to this Chapter as the context may require.

 

• CHAPTER V VOLUNTARY LIQUIDATION OF CORPORATE PERSONS 59. (1) A corporate person who intends to liquidate itself voluntarily and has not committed any default may initiate voluntary liquidation proceedings under the provisions of this Chapter. (2) The voluntary liquidation of a corporate person under sub-section (1) shall meet such conditions and procedural requirements as may be specified by the Board. Fast track corporation insolvency resolution process. Time period for completion of fast track corporate insolvency resolution process. Manner of initiating fast track corporate insolvency resolution process. Applicability of Chapter II to this Chapter. Voluntary liquidation of corporate persons. SEC. 1]

 

 

 

• THE GAZETTE OF INDIA EXTRAORDINARY 33 (3) Without prejudice to sub-section (2), voluntary liquidation proceedings of a corporate person registered as a company shall meet the following conditions, namely:— (a) a declaration from majority of the directors of the company verified by an affidavit stating that— (i) they have made a full inquiry into the affairs of the company and they have formed an opinion that either the company has no debt or that it will be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation; and (ii) the company is not being liquidated to defraud any person; (b) the declaration under sub-clause (a) shall be accompanied with the following documents, namely:— (i) audited financial statements and record of business operations of the company for the previous two years or for the period since its incorporation, whichever is later; (ii) a report of the valuation of the assets of the company, if any prepared by a registered valuer; (c) within four weeks of a declaration under sub-clause (a), there shall be— (i) a special resolution of the members of the company in a general meeting requiring the company to be liquidated voluntarily and appointing an insolvency professional to act as the liquidator; or (ii) a resolution of the members of the company in a general meeting requiring the company to be liquidated voluntarily as a result of expiry of the period of its duration, if any, fixed by its articles or on the occurrence of any event in respect of which the articles provide that the company shall be dissolved, as the case may be and appointing an insolvency professional to act as the liquidator: Provided that the company owes any debt to any person, creditors representing twothirds in value of the debt of the company shall approve the resolution passed under sub-clause (c) within seven days of such resolution. (4) The company shall notify the Registrar of Companies and the Board about the resolution under sub-section (3) to liquidate the company within seven days of such resolution or the subsequent approval by the creditors, as the case may be. (5) Subject to approval of the creditors under sub-section (3), the voluntary liquidation proceedings in respect of a company shall be deemed to have commenced from the date of passing of the resolution under sub-clause (c) of sub-section (3). (6) The provisions of sections 35 to 53 of Chapter III and Chapter VII shall apply to voluntary liquidation proceedings for corporate persons with such modifications as may be necessary. (7) Where the affairs of the corporate person have been completely wound up, and its assets completely liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of such corporate person. (8) The Adjudicating Authority shall on anapplication filed by the liquidator under sub-section (7), pass an order that the corporate debtor shall be dissolved from the date of that order and the corporate debtor shall be dissolved accordingly. (9) A copy of an order under sub-section (8) shall within fourteen days from the date of such order, be forwarded to the authority with which the corporate person is registered. 34

 

• THE GAZETTE OF INDIA EXTRAORDINARY [PART II— CHAPTER VI ADJUDICATING AUTHORITY FOR CORPORATE PERSONS 60. (1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate personis located. (2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or bankruptcy of a personal guarantor of such corporate debtor shall be filed before such National Company Law Tribunal. (3) An insolvency resolution process or bankruptcy proceeding of a personal guarantor of the corporate debtor pending in any court or tribunal shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such corporate debtor. (4) The National Company Law Tribunal shall be vested with all the powers of the Debt Recovery Tribunal as contemplated under Part III of this Code for the purpose of sub-section (2). (5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of— (a) any application or proceeding by or against the corporate debtor or corporate person; (b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and (c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code. (6) Notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being in force, in computing the period of limitation specified for any suit or application by or against a corporate debtor for which an order of moratorium has been made under this Part, the period during which such moratorium is in place shall be excluded. 61. (1) Notwithstanding anything to the contrary contained under the Companies Act 2013, any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal. (2) Every appeal under sub-section (1) shall be filed within thirty days before the National Company Law Appellate Tribunal: Provided that the National Company Law Appellate Tribunal may allow an appeal to be filed after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing the appeal but such period shall not exceed fifteen days. (3) An appeal against an order approving a resolution plan under section 31 may be filed onthe following grounds, namely:— (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force; (ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; Adjudicating Authority for corporate persons. Appeals and Appellate Authority. 36 of 1963. 18 of 2013. SEC. 1]

 

• THE GAZETTE OF INDIA EXTRAORDINARY 35 (iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board; (iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or (v) the resolution plan does not comply with any other criteria specified by the Board. (4) An appeal against a liquidation order passed under section 33 may be filed on grounds of material irregularity or fraud committed in relation to such a liquidation order. 62. (1) Any person aggrieved by an order of the National Company Law Appellate Tribunal may file an appeal to the Supreme Court on a question of law arising out of such order under this Code within forty-five days from the date of receipt of such order. (2) The Supreme Court may, if it is satisfied that a person was prevented by sufficient cause from filing an appeal within forty-five days, allow the appeal to be filed within a further period not exceeding fifteen days. 63. No civil court or authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which National Company Law Tribunal or the National Company Law Appellate Tribunal has jurisdiction under this Code. Civil court not to have jurisdiction. 64. (1) Where an application is not disposed of or an order is not passed within the period specified in this Code, the National Company Law Tribunal or the National Company Law Appellate Tribunal, as the case may be, shall record the reasons for not doing so within the period so specified; and the President of the National Company Law Tribunal or the Chairperson of the National Company Law Appellate Tribunal, as the case may be, may, after taking into account the reasons so recorded, extend the period specified in the Act but not exceeding ten days. (2) No injunction shall be granted by any court, tribunal or authority in respect of any action taken, or to be taken, in pursuance of any power conferred on the National Company Law Tribunal or the National Company Law Appellate Tribunal under this Code. 65. (1) If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees. (2) If, any person initiates voluntary liquidation proceedings with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees but may extend to one crore rupees. 66. (1) If during the corporate insolvency resolution process or a liquidation process, it is found that any business of the corporate debtor has been carried on with intent to defraud creditors of the corporate debtor or for any fraudulent purpose, the Adjudicating Authority may on the application of the resolution professional pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit. (2) On an application made by a resolution professional during the corporate insolvency resolution process, the Adjudicating Authority may by an order direct that a director or Appeal to Supreme Court. Civil court not to have jurisdiction. Expeditious disposal of applications. Fraudulent or malicious intiation of proceedings. Fraudulent trading or wrongful trading.

 

• 36 THE GAZETTE OF INDIA EXTRAORDINARY [PART II— partner of the corporate debtor, as the case may be, shall be liable to make such contribution to the assets of the corporate debtor as it may deem fit, if— (a) before the insolvency commencement date, such director or partner knew or ought to have known that the there was no reasonable prospect of avoiding the commencement of a corporate insolvency resolution process in respect of such corporate debtor; and (b) such director or partner did not exercise due diligence in minimising the potential loss to the creditors of the corporate debtor. Explanation.—For the purposes of this section a director or partner of the corporate debtor, as the case may be, shall be deemed to have exercised due diligence if such diligence was reasonably expected of a person carrying out the same functions as are carried out by such director or partner, as the case may be, in relation to the corporate debtor. 67. (1) Where the Adjudicating Authority has passed an order under sub-section (1) or sub-section (2) of section 66, as the case may be, it may give such further directions as it may deem appropriate for giving effect to the order, and in particular, the Adjudicating Authority may— (a) provide for the liability of any person under the order to be a charge on any debt or obligation due from the corporate debtor to him, or on any mortgage or charge or any interest in a mortgage or charge on assets of the corporate debtor held by or vested in him, or any person on his behalf, or any person claiming as assignee from or through the person liable or any person acting on his behalf; and (b) from time to time, make such further directions as may be necessary for enforcing any charge imposed under this section. Explanation.—For the purposes of this section, “assignee” includes a person to whom or in whose favour, by the directions of the person held liable under clause (a) the debt, obligation, mortgage or charge was created, issued or transferred or the interest created, but does not include an assignee for valuable consideration given in good faith and without notice of any of the grounds on which the directions have been made. (2) Where the Adjudicating Authority has passed an order under sub-section (1) or sub-section (2) of section 66, as the case may be, in relation to a person who is a creditor of the corporate debtor, it may, by an order, direct that the whole or any part of any debt owed by the corporate debtor to that person and any interest thereon shall rank in the order of priority of payment under section 53 after all other debts owed by the corporate debtor.

 

• CHAPTER VII OFFENCES AND PENALTIES 68. Where any officer of the corporate debtor has,— (i) within the twelve months immediately preceding the insolvency commencement date,— (a) wilfully concealed any property or part of such property of the corporate debtor or concealed any debt due to, or from, the corporate debtor, of the value of ten thousand rupees or more; or (b) fraudulently removed any part of the property of the corporate debtor of the value of ten thousand rupees or more; or (c) wilfully concealed, destroyed, mutilated or falsified any book or paper affecting or relating to the property of the corporate debtor or its affairs, or Proceedings under section 66. Punishment for concealment of property. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 37 (d) wilfully made any false entry in any book or paper affecting or relating to the property of the corporate debtor or its affairs; or (e) fraudulently parted with, altered or made any omission in any document affecting or relating to the property of the corporate debtor or its affairs; or (f) wilfully created any security interest over, transferred or disposed of any property of the corporate debtor which has been obtained on credit and has not been paid for unless such creation , transfer or disposal was in the ordinary course of the business of the corporate debtor; or (g) wilfully concealed the knowledge of the doing by others of any of the acts mentioned in clauses (c), (d) or clause (e); or (ii) at any time after the insolvency commencement date, committed any of the acts mentioned in sub-clause (a) to (f) of clause (i) or has the knowledge of the doing by others of any of the things mentioned in sub-clauses (c) to (e) of clause (i) ; or (iii) at any time after the insolvency commencement date, taken in pawn or pledge, or otherwise received the property knowing it to be so secured, transferred or disposed, such officer shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to five years, or with fine, which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both: Provided that nothing in this section shall render a person liable to any punishment under this section if he proves that he had no intent to defraud or to conceal the state of affairs of the corporate debtor. 69. On or after the insolvency commencement date, if an officer of the corporate debtor or the corporate debtor— (a) has made or caused to be made any gift or transfer of, or charge on, or has caused or connived in the execution of a decree or order against, the property of the corporate debtor; (b) has concealed or removed any part of the property of the corporate debtor within two months before the date of any unsatisfied judgment, decree or order for payment of money obtained against the corporate debtor, such officer of the corporate debtor or the corporate debtor, as the case may be, shall be punishable with imprisonment for a term which shall not be less than one year, but which may extend to five years, or with fine, which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both: Provided that a person shall not be punishable under this section if the acts mentioned in clause (a) were committed more than five years before the insolvency commencement date; or if he proves that, at the time of commission of those acts, he had no intent to defraud the creditors of the corporate debtor. 70. (1) On or after the insolvency commencement date, where an officer of the corporate debtor— (a) does not disclose to the resolution professional all the details of property of the corporate debtor, and details of transactions thereof, or any such other information as the resolution professional may require; or (b) does not deliver to the resolution professional all or part of the property of the corporate debtor in his control or custody and which he is required to deliver; or Punishment for transactions defrauding creditors. Punishment for misconduct in course of corporate insolvency resolution process. 38

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II— (c) does not deliver to the resolution professional all books and papers in his control or custody belonging to the corporate debtor and which he is required to deliver; or (d) fails to inform there solution professional the information in his knowledge that a debt has been falsely proved by any person during the corporate insolvency resolution process; or (e) prevents the production of any book or paper affecting or relating to the property or affairs of the corporate debtor; or (f) accounts for any part of the property of the corporate debtor by fictitious losses or expenses, or if he has so attempted at any meeting of the creditors of the corporate debtor within the twelve months immediately preceding the insolvency commencement date, he shall be punishable with imprisonment for a term which shall not be less than three years, but which may extend to five years, or with fine, which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both: Provided that nothing in this section shall render a person liable to any punishment under this section if he proves that he had no intent to do so in relation to the state of affairs of the corporate debtor. (2) If an insolvency professional deliberately contravenes the provisions of this Part the shall be punishable with imprisonment for a term which may extend to six months, or with fine which shall not be less than one lakh rupees, but may extend to five lakhs rupees, or with both. 71. On and after the insolvency commencement date, where any person destroys, mutilates, alters or falsifies any books, papers or securities, or makes or is in the knowledge of making of any false or fraudulent entry in any register, books of account or document belonging to the corporate debtor with intent to defraud or deceive any person, he shall be punishable with imprisonment for a term which shall not be less than three years, but which may extend to five years, or with fine which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both. 72. Where an officer of the corporate debtor makes any material and wilful omission in any statement relating to the affairs of the corporate debtor, he shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to five years, or with fine which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both. 73. Where any officer of the corporate debtor— (a) on or after the insolvency commencement date, makes a false representation or commits any fraud for the purpose of obtaining the consent of the creditors of the corporate debtor or any of them to an agreement with reference to the affairs of the corporate debtor, during the corporate insolvency resolution process, or the liquidation process; (b) prior to the insolvency commencement date,has made any false representation, or committed any fraud, for that purpose, he shall be punishable with imprisonment for a term which shall not be less than three years, but may extend to five years or with fine which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both. Punishment for falsification of books of corporate debtor. Punishment for wilful and material omissions from statements relating to affairs of corporate debtor. Punishment for false representations to creditors. SEC. 1

 

] THE GAZETTE OF INDIA EXTRAORDINARY 39 74. (1) Where the corporate debtor or any of its officer violates the provisions of section 14, any such officer who knowingly or wilfully committed or authorised or permitted such contravention shall be punishable with imprisonment for a term which shall not be less than three years, but may extend to five years or with fine which shall not be less than one lakh rupees, but may extend to three lakh rupees, or with both. (2) Where any creditor violates the provisions of section 14, any person who knowingly and wilfully authorised or permitted such contravention by a creditor shall be punishable with imprisonment for a term which shall not be less than one year, but may extend to five years, or with fine which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both. (3) Where the corporate debtor, any of its officers or creditors or any person on whom the approved resolution plan is binding under section 31, knowingly and wilfully contravenes any of the terms of such resolution plan or abets such contravention, such corporate debtor, officer, creditor or person shall be punishable with imprisonment of not less than one year, but may extend to five years, or with fine which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both. 75. Where any person furnishes information in the application made under section 7, which is false in material particulars, knowing it to be false or omits any material fact, knowing it to be material, such person shall be punishable with fine which shall not be less than one lakh rupees, but may extend to one crore rupees. 76. Where— (a) an operational creditor has wilfully or knowingly concealed in an application under section 9 the fact that the corporate debtor had notified him of a dispute in respect of the unpaid operational debt or the full and final repayment of the unpaid operational debt; or (b) any person who knowingly and wilfully authorised or permitted such concealment under clause (a), such operational creditor or person, as the case may be, shall be punishable with imprisonment for a term which shall not be less than one year but may extend to five years or with fine which shall not be less than one lakh rupees but may extend to one crore rupees, or with both. 77. Where— (a) a corporate debtor provides information in the application under section 10 which is false in material particulars, knowing it to be false and omits any material fact, knowing it to be material; or (b) any person who knowingly and wilfully authorised or permitted the furnishing of such information under sub-clause (a), such corporate debtor or person, as the case may be, shall be punishable with imprisonment for a term which shall not be less than three years, but which may extend to five years or with fine which shall not be less than one lakh rupees, but which may extend to one crore rupees, or with both. Explanation.—For the purposes of this section and sections 75 and 76, an application shall be deemed to be false in material particulars in case the facts mentioned or omitted in the application, if true, or not omitted from the application as the case may be, would have been sufficient to determine the existence of a default under this Code. Punishment for contravention of moratorium or the resolution plan. Punishment for false information furnished in application. Punishement for nondisclosure of dispute or repayment of debt by operational creditor. Punishment for providing false information in application made by corporate debtor. 40

 

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II— PART III INSOLVENCY RESOLUTION AND BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS CHAPTER I PRELIMINARY 78. This Part shall apply to matters relating to fresh start, insolvency and bankruptcy of individuals and partnership firms where the amount of the default is not less than one thousand rupees: Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one lakh rupees. 79. In this Part, unless the context otherwise requires,— (1) “Adjudicating Authority” means the Debt Recovery Tribunal constituted under sub-section (1) of section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993; (2) “associate” of the debtor means— (a) a person who belongs to the immediate family of the debtor; (b) a person who is a relative of the debtor or a relative of the spouse of the debtor; (c) a person who is in partnership with the debtor; (d) a person who is a spouse or a relative of any person with whom the debtor is in partnership; (e) a person who is employer of the debtor or employee of the debtor; (f) a person who is a trustee of a trust in which the beneficiaries of the trust include a debtor, or the terms of the trust confer a power on the trustee which may be exercised for the benefit of the debtor; and (g) a company, where the debtor or the debtor along with his associates, own more than fifty per cent. of the share capital of the company or control the appointment of the board of directors of the company. Explanation.—For the purposes of this sub-section, “relative”,with reference to any person, means anyone who is related to another, if— (i) they are members of a Hindu Undivided Family; (ii) one person is related to the other in such manner as may be prescribed; (3) “bankrupt” means— (a) a debtor who has been adjudged as bankrupt by a bankruptcy order under section 126; (b) each of the partners of a firm, where a bankruptcy order under section 126 has been made against a firm; or (c) any person adjudged as an undischarged insolvent; (4) “bankruptcy” means the state of being bankrupt; (5) “bankruptcy debt”, in relation to a bankrupt, means— (a) any debt owed by him as on the bankruptcy commencement date; Application. Definitions. 51 of 1993. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 41 (b) any debt for which he may become liable after bankruptcy commencement date but before his discharge by reason of any transaction entered into before the bankruptcy commencement date; and (c) any interest which is a part of the debt under section 171; (6) “bankruptcy commencement date” means the date on which a bankruptcy order is passed by the Adjudicating Authority under section 126; (7) “bankruptcy order” means an order passed by an Adjudicating Authority under section 126; (8) “bankruptcy process” means a process against a debtor under Chapters IV and V of this Part; (9) “bankruptcy trustee” means the insolvency professional appointed as a trustee for the estate of the bankrupt under section 125; (10) “Chapter” means a chapter under this Part; (11) “committee of creditors” means a committee constituted under section 134; (12) “debtor” includes a judgment-debtor; (13) “discharge order” means an order passed by the Adjudicating Authority discharging the debtor under sections 92, 119 and section 138, as the case may be; (14) “excluded assets” for the purposes of this part includes— (a) unencumbered tools, books, vehicles and other equipment as are necessary to the debtor or bankrupt for his personal use or for the purpose of his employment, business or vocation, (b) unencumbered furniture, household equipment and provisions as are necessary for satisfying the basic domestic needs of the bankrupt and his immediate family; (c) any unencumbered personal ornaments of such value, as may be prescribed, of the debtor or his immediate family which cannot be parted with, in accordance with religious usage; (d) any unencumbered life insurance policy or pension plan taken in the name of debtor or his immediate family; and (e) an unencumbered single dwelling unit owned by the debtor of such value as may be prescribed; (15) “excluded debt” means— (a) liability to pay fine imposed by a court or tribunal; (b) liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other legal obligation; (c) liability to pay maintenance to any person under any law for the time being in force; (d) liability in relation to a student loan; and (e) any other debt as may be prescribed; (16) “firm” means a body of individuals carrying on business in partnership whether or not registered under section 59 of the Indian Partnership Act, 1932; (17) “immediate family” of the debtor means his spouse, dependent children and dependent parents; 9 to 1932. 42

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II— (18) “partnership debt” means a debt for which all the partners in a firm are jointly liable; (19) “qualifying debt” means amount due, which includes interest or any other sum due in respect of the amounts owed under any contract, by the debtor for a liquidated sum either immediately or at certain future time and does not include— (a) an excluded debt; (b) a debt to the extent it is secured; and (c) any debt which has been incurred three months prior to the date of the application for fresh start process; (20) “repayment plan” means a plan prepared by the debtor in consultation with the resolution professional under section 105 containing a proposal to the committee of creditors for restructuring of his debts or affairs; (21) “resolution professional” means an insolvency professional appointed under this part as a resolution professional for conducting the fresh start process or insolvency resolution process; (22) “undischarged bankrupt” means a bankrupt who has not received a discharge order under section 138. CHAPTER II FRESH START PROCESS 80. (1) A debtor, who is unable to pay his debt and fulfils the conditions specified in sub-section (2) , shall be entitled to make an application for a fresh start for discharge of his qualifying debt under this Chapter. (2) A debtor may apply, either personally or through a resolution professional, for a fresh start under this Chapter in respect of his qualifying debts to the Adjudicating Authority if — (a) the gross annual income of the debtor does not exceed sixty thousand rupees; (b) the aggregate value of the assets of the debtor does not exceed twenty thousand rupees; (c) the aggregate value of the qualifying debts does not exceed thirty-five thousand rupees; (d) he is not an undischarged bankrupt; (e) he does not own a dwelling unit, irrespective of whether it is encumbered or not; (f) a fresh start process, insolvency resolution process or bankruptcy process is not subsisting against him; and (g) no previous fresh start order under this Chapter has been made in relation to him in the preceding twelve months of the date of the application for fresh start. 81. (1) When an application is filed under section 80 by a debtor, an interim-moratorium shall commence on the date of filing of said application in relation to all the debts and shall cease to have effect on the date of admission or rejection of such application, as the case may be. (2) During the interim-moratorium period,— (i) any legal action or legal proceeding pending in respect of any of his debts shall be deemed to have been stayed; and Eligibility for making an application. Application for fresh start order. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 43 (ii) no creditor shall initiate any legal action or proceedings in respect of such debt. (3) The application under section 80 shall be in such form and manner and accompanied by such fee, as may be prescribed. (4) The application under sub-section (3) shall contain the following information supported by an affidavit, namely:— (a) a list of all debts owed by the debtor as on the date of the said application along with details relating to the amount of each debt, interest payable thereon and the names of the creditors to whom each debt is owed; (b) the interest payable on the debts and the rate thereof stipulated in the contract; (c) a list of security held in respect of any of the debts; (d) the financial information of the debtor and his immediate family up to two years prior to the date of the application; (e) the particulars of the debtor’s personal details, as may be prescribed; (f) the reasons for making the application; (g) the particulars of any legal proceedings which, to the debtor’s knowledge has been commenced against him; (h) the confirmation that no previous fresh start order under this Chapter has been made in respect of the qualifying debts of the debtor in the preceding twelve months of the date of the application. 82. (1) Where an application under section 80 is filed by the debtor through a resolution professional, the Adjudicating Authority shall direct the Board within seven days of the date of receipt of the application and shall seek confirmation from the Board that there are no disciplinary proceedings against the resolution professional who has submitted such application. (2) The Board shall communicate to the Adjudicating Authority in writing either— (a) confirmation of the appointment of the resolution professional who filed an application under sub-section (1); or (b) rejection of the appointment of the resolution professional who filed an application under sub-section (1) and nominate a resolution professional suitable for the fresh start process. (3) Where an application under section 80 is filed by the debtor himself and not through the resolution professional, the Adjudicating Authority shall direct the Board within seven days of the date of the receipt of an application to nominate a resolution professional for the fresh start process. (4) The Board shall nominate a resolution professional within ten days of receiving the direction issued by the Adjudicating Authority under sub-section (3). (5) The Adjudicating Authority shall by order appoint the resolution professional recommended or nominated by the Board under sub-section (2) or sub-section (4), as the case may be. (6) A resolution professional appointed by the Adjudicating Authority under sub-section (5) shall be provided a copy of the application for fresh start. 83. (1) The resolution professional shall examine the application made under section 80 within ten days of his appointment, and submit a report to the Adjudicating Authority, either recommending acceptance or rejection of the application. Appointment of resolution professional. Examination of application by resolution professional. 44

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II— (2) The report referred to in sub-section (1) shall contain the details of the amounts mentioned in the application which in the opinion of the resolution professional are— (a) qualifying debts; and (b) liabilities eligible for discharge under sub-section (3) of section 92. (3) The resolution professional may call for such further information or explanation in connection with the application as may be required from the debtor or any other person who, in the opinion of the resolution professional, may provide such information. (4) The debtor or any other person, as the case may be, shall furnish such information or explanation within seven days of receipt of the request under sub-section (3). (5) The resolution professional shall presume that the debtor is unable to pay his debts at the date of the application if— (a) in his opinion the information supplied in the application indicates that the debtor is unable to pay his debts and he has no reason to believe that the information supplied is incorrect or incomplete; and (b) he has reason to believe that there is no change in the financial circumstances of the debtor since the date of the application enabling the debtor to pay his debts. (6) The resolution professional shall reject the application, if in his opinion— (a) the debtor does not satisfy the conditions specified under section 80; or (b) the debts disclosed in the application by the debtor are not qualifying debts; or (c) the debtor has deliberately made a false representation or omission in the application or with respect to the documents or information submitted. (7) The resolution professional shall record the reasons for recommending the acceptance or rejection of the application in the report to the Adjudicating Authority under sub-section (1) and shall give a copy of the report to the debtor. 84. (1) The Adjudicating Authority may within fourteen days from the date of submission of the report by the resolution professional, pass an order either admitting or rejecting the application made under sub-section (1) of section 81. (2) The order passed under sub-section (1) accepting the application shall state the amount which has been accepted as qualifying debts by the resolution professional and other amounts eligible for discharge under section 92 for the purposes of the fresh start order. (3) A copy of the order passed by the Adjudicating Authority under sub-section (1) along with a copy of the application shall be provided to the creditors mentioned in the application within seven days of the passing of the order. 85. (1) On the date of admission of the application, the moratorium period shall commence in respect of all the debts. (2) During the moratorium period— (a) any pending legal action or legal proceeding in respect of any debt shall be deemed to have been stayed; and (b) subject to the provisions of section 86, the creditors shall not initiate any legal action or proceedings in respect of any debt. (3) During the moratorium period, the debtor shall— (a) not act as a director of any company, or directly or indirectly take part in or be concerned in the promotion, formation or management of a company; Admission or rejection of application by Adjudicating Authority. Effect of admission of application. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 45 (b) not dispose of or alienate any of his assets; (c) inform his business partners that he is undergoing a fresh start process; (d) be required to inform prior to entering into any financial or commercial transaction of such value as may be notified by the Central Government, either individually or jointly, that he is undergoing a fresh start process; (e) disclose the name under which he enters into business transactions, if it is different from the name in the application admitted under section 84; (f) not travel outside India except with the permission of the Adjudicating Authority. (4) The moratorium ceases to have effect at the end of the period of one hundred and eighty days beginning with the date of admission unless the order admitting the application is revoked under sub-section (2) of section 91. 86. (1) Any creditor mentioned in the order of the Adjudicating Authority under section 84 to whom a qualifying debt is owed may, within a period of ten days from the date of receipt of the order under section 84, object only on the following grounds, namely:— (a) inclusion of a debt as a qualifying debt; or (b) incorrectness of the details of the qualifying debt specified in the order under section 84. (2) A creditor may file an objection under sub-section (1) by way of an application to the resolution professional. (3) The application under sub-section (2) shall be supported by such information and documents as may be prescribed. (4) The resolution professional shall consider every objection made under this section. (5) The resolution professional shall examine the objections under sub-section (2) and either accept or reject the objections, within ten days of the date of the application. (6) The resolution professional may examine any matter that appears to him to be relevant to the making of a final list of qualifying debts for the purposes of section 92. (7) On the basis of the examination under sub-section (5) or sub-section (6), the resolution professional shall— (a) prepare an amended list of qualifying debts for the purpose of the discharge order; (b) make an application to the Adjudicating Authority for directions under section 90; or (c) take such other steps as he considers necessary in relation to the debtor. 87. (1) The debtor or the creditor who is aggrieved by the action taken by the resolution professional under section 86 may, within ten days of such decision, make an application to the Adjudicating Authority challenging such action on any of the following grounds, namely:— (a) that the resolution professional has not given an opportunity to the debtor or the creditor to make a representation; or (b) that the resolution professional colluded with the other party in arriving at the decision; or (c) that the resolution professional has not complied with the requirements of section 86. Objections by creditor and their examination by resolution professional. Application against decision of resolution professional. 46

 

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II— (2) The Adjudicating Authority shall decide the application referred to in sub-section (1) within fourteen days of such application, and make an order as it deems fit. (3) Where the application under sub-section (1) has been allowed by the Adjudicating Authority, it shall forward its order to the Board and the Board may take such action as may be required under Chapter VI of Part IV against the resolution professional. 88. The debtor shall— (a) make available to the resolution professional all information relating to his affairs, attend meetings and comply with the requests of the resolution professional in relation to the fresh start process. (b) inform the resolution professional as soon as reasonably possible of— (i) any material error or omission in relation to the information or document supplied to the resolution professional; or (ii) any change in financial circumstances after the date of application, where such change has an impact on the fresh start process. 89. (1) Where the debtor or the creditor is of the opinion that the resolution professional appointed under section 82 is required to be replaced, he may apply to the Adjudicating Authority for the replacement of such resolution professional. (2) The Adjudicating Authority shall within seven days of the receipt of the application under sub-section (1) make a reference to the Board for replacement of the resolution professional. (3) The Board shall, within ten days of the receipt of a reference from the Adjudicating Authority under sub-section (2), recommend the name of an insolvency professional to the Adjudicating Authority against whom no disciplinary proceedings are pending. (4) The Adjudicating Authority shall appoint another resolution professional for the purposes of the fresh start process on the basis of the recommendation by the Board. (5) The Adjudicating Authority may give directions to the resolution professional replaced under sub-section (4)— (a) to share all information with the new resolution professional in respect of the fresh start process; and (b) to co-operate with the new resolution professional as may be required. 90. (1) The resolution professional may apply to the Adjudicating Authority for any of the following directions, namely:— (a) compliance of any restrictions referred to in sub-section (3) of section 85, in case of non-compliance by the debtor; or (b) compliance of the duties of the debtor referred to in section 88, in case of non-compliance by the debtor. (2) The resolution professional may apply to the Adjudicating Authority for directions in relation to any other matter under this Chapter for which no specific provisions have been made. 91. (1) The resolution professional may submit an application to the Adjudicating Authority seeking revocation of its order made under section 84 on the following grounds, namely :— (a) if due to any change in the financial circumstances of the debtor, the debtor is ineligible for a fresh start process; or General duties of debtor. Replacement of resolution professional. Directions for compliances of restrictions, etc. Revocation of order admitting application. SEC. 1]

 

 

THE GAZETTE OF INDIA EXTRAORDINARY 47

 

(b) non-compliance by the debtor of the restrictions imposed under sub-section (3) of section 85; or (c) if the debtor has acted in a mala fide manner and has wilfully failed to comply with the provisions of this Chapter. (2) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (1), may by order admit or reject the application. (3) On passing of the order admitting the application referred to in sub-section (1) , the moratorium and the fresh start process shall cease to have effect. (4) A copy of the order passed by the Adjudicating Authority under this section shall be provided to the Board for the purpose of recording an entry in the register referred to in section 196. 92. (1) The resolution professional shall prepare a final list of qualifying debts and submit such list to the Adjudicating Authority at least seven days before the moratorium period comes to an end. (2) The Adjudicating Authority shall pass a discharge order at the end of the moratorium period for discharge of the debtor from the qualifying debts mentioned in the list under sub-section (1). (3) Without prejudice to the provisions of sub-section (2), the Adjudicating Authority shall discharge the debtor from the following liabilities, namely:— (a) penalties in respect of the qualifying debts from the date of application till the date of the discharge order; (b) interest including penal interest in respect of the qualifying debts from the date of application till the date of the discharge order; and (c) any other sums owed under any contract in respect of the qualifying debts from the date of application till the date of the discharge order. (4) The discharge order shall not discharge the debtor from any debt not included in sub-section (2) and from any liability not included under sub-section (3). (5) The discharge order shall be forwarded to the Board for the purpose of recording an entry in the register referred to in section 196. (6) A discharge order under sub-section (2) shall not discharge any other person from any liability in respect of the qualifying debts. 93. The resolution professional shall perform his functions and duties in compliance with the code of conduct provided under section 208.

 

 

CHAPTER III INSOLVENCY RESOLUTION PROCESS

 

94. (1) A debtor who commits a default may apply, either personally or through a resolution professional, to the Adjudicating Authority for initiating the insolvency resolution process, by submitting an application. (2) Where the debtor is a partner of a firm, such debtor shall not apply under this Chapter to the Adjudicating Authority in respect of the firm unless all or a majority of the partners of the firm file the application jointly. (3) An application under sub-section (1) shall be submitted only in respect of debts which are not excluded debts. Discharge order. Standard of conduct. Application by debtor to initiate insolvency resolution process.

 

 

48 THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

(4) A debtor shall not be entitled to make an application under sub-section (1) if he is— (a) an undischarged bankrupt; (b) undergoing a fresh start process; (c) undergoing an insolvency resolution process; or (d) undergoing a bankruptcy process. (5) A debtor shall not be eligible to apply under sub-section (1) if an application under this Chapter has been admitted in respect of the debtor during the period of twelve months preceding the date of submission of the application under this section. (6) The application referred to in sub-section (1) shall be in such form and manner and accompanied with such fee as may be prescribed. 95. (1) A creditor may apply either by himself, or jointly with other creditors, or through a resolution professional to the Adjudicating Authority for initiating an insolvency resolution process under this section by submitting an application. (2) A creditor may apply under sub-section (1) in relation to any partnership debt owed to him for initiating an insolvency resolution process against— (a) any one or more partners of the firm; or (b) the firm. (3) Where an application has been made against one partner in a firm, any other application against another partner in the same firm shall be presented in or transferred to the Adjudicating Authority in which the first mentioned application is pending for adjudication and such Adjudicating Authority may give such directions for consolidating the proceedings under the applications as it thinks just. (4) An application under sub-section (1) shall be accompanied with details and documents relating to— (a) the debts owed by the debtor to the creditor or creditors submitting the application for insolvency resolution process as on the date of application; (b) the failure by the debtor to pay the debt within a period of fourteen days of the service of the notice of demand; and (c) relevant evidence of such default or non-repayment of debt. (5) The creditor shall also provide a copy of the application made under sub-section (1) to the debtor. (6) The application referred to in sub-section (1) shall be in such form and manner and accompanied by such fee as may be prescribed. (7) The details and documents required to be submitted under sub-section (4) shall be such as may be specified. 96. (1) When an application is filed under section 94 or section 95— (a) an interim-moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application; and (b) during the interim-moratorium period— (i) any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed; and Application by creditor to initiate insolvency resolution process. Interimmoratorium. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 49

 

• the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt. (2) Where the application has been made in relation to a firm, the interim-moratorium under sub-section (1) shall operate against all the partners of the firm as on the date of the application. (3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. 97. (1) If the application under section 94 or 95 is filed through a resolution professional, the Adjudicating Authority shall direct the Board within seven days of the date of the application to confirm that there are no disciplinary proceedings pending against resolution professional. (2) The Board shall within seven days of receipt of directions under sub-section (1) communicate to the Adjudicating Authority in writing either— (a) confirming the appointment of the resolution professional; or (b) rejecting the appointment of the resolution professional and nominating another resolution professional for the insolvency resolution process. (3) Where an application under section 94 or 95 is filed by the debtor or the creditor himself, as the case may be, and not through the resolution professional, the Adjudicating Authority shall direct the Board, within seven days of the filing of such application, to nominate a resolution professional for the insolvency resolution process. (4) The Board shall nominate a resolution professional within ten days of receiving the direction issued by the Adjudicating Authority under sub-section (3). (5) The Adjudicating Authority shall by order appoint the resolution professional recommended under sub-section (2) or as nominated by the Board under sub-section (4). (6) A resolution professional appointed by the Adjudicating Authority under sub-section (5) shall be provided a copy of the application for insolvency resolution process. 98. (1) Where the debtor or the creditor is of the opinion that the resolution professional appointed under section 97 is required to be replaced, he may apply to the Adjudicating Authority for the replacement of the such resolution professional. (2) The Adjudicating Authority shall within seven days of the receipt of the application under sub-section (1) make a reference to the Board for replacement of the resolution professional. (3) The Board shall, within ten days of the receipt of a reference from the Adjudicating Authority under sub-section (2), recommend the name of the resolution professional to the Adjudicating Authority against whom no disciplinary proceedings are pending. (4) Without prejudice to the provisions contained in sub-section (1), the creditors may apply to the Adjudicating Authority for replacement of the resolution professional where it has been decided in the meeting of the creditors, to replace the resolution professional with a new resolution professional for implementation of the repayment plan. (5) Where the Adjudicating Authority admits an application made under sub-section (1) or sub-section (4) , it shall direct the Board to confirm that there are no disciplinary proceedings pending against the proposed resolution professional. (6) The Board shall send a communication within ten days of receipt of the direction under sub-section (5) either— (a) confirming appointment of the nominated resolution professional; or Appointment of resolution professional. Replacement of resolution professional.

 

• 50 THE GAZETTE OF INDIA EXTRAORDINARY [PART II— (b) rejecting appointment of the nominated resolution professional and recommend a new resolution professional. (7) On the basis of the communication of the Board under sub-section (3) or sub-section (6) , the Adjudicating Authority shall pass an order appointing a new resolution professional. (8) The Adjudicating Authority may give directions to the resolution professional replaced under sub-section (7)— (a) to share all information with the new resolution professional in respect of the insolvency resolution process; and (b) to co-operate with the new resolution professional in such matters as may be required. 99. (1) The resolution professional shall examine the application referred to in section 94 or section 95, as the case may be, within ten days of his appointment, and submit a report to the Adjudicating Authority recommending for approval or rejection of the application. (2) Where the application has been filed under section 95, the resolution professional may require the debtor to prove repayment of the debt claimed as unpaid by the creditor by furnishing— (a) evidence of electronic transfer of the unpaid amount from the bank account of the debtor; (b) evidence of encashment of a cheque issued by the debtor; or (c) a signed acknowledgment by the creditor accepting receipt of dues. (3) Where the debt for which an application has been filed by a creditor is registered with the information utility, the debtor shall not be entitled to dispute the validity of such debt. (4) For the purposes of examining an application, the resolution professional may seek such further information or explanation in connection with the application as may be required from the debtor or the creditor or any other person who, in the opinion of the resolution professional, may provide such information. (5) The person from whom information or explanation is sought under sub-section (4) shall furnish such information or explanation within seven days of receipt of the request. (6) The resolution professional shall examine the application and ascertain that— (a) the application satisfies the requirements set out in section 94 or 95; (b) the applicant has provided information and given explanation sought by the resolution professional under sub-section (4). (7) After examination of the application under sub-section (6), he may recommend acceptance or rejection of the application in his report. (8) Where the resolution professional finds that the debtor is eligible for a fresh start under Chapter II, the resolution professional shall submit a report recommending that the application by the debtor under section 94 be treated as an application under section 81 by the Adjudicating Authority. (9) The resolution professional shall record the reasons for recommending the acceptance or rejection of the application in the report under sub-section (7). (10) The resolution professional shall give a copy of the report under sub-section (7) to the debtor or the creditor, as the case may be. Submission of report by resolution professional. SEC. 1]

 

• THE GAZETTE OF INDIA EXTRAORDINARY 51 100. (1) The Adjudicating Authority shall, within fourteen days from the date of submission of the report under section 99 pass an order either admitting or rejecting the application referred to in section 94 or 95, as the case may be. (2) Where the Adjudicating Authority admits an application under sub-section (1) , it may, on the request of the resolution professional, issue instructions for the purpose of conducting negotiations between the debtor and creditors and for arriving at a repayment plan. (3) The Adjudicating Authority shall provide a copy of the order passed under sub-section (1) along with the report of the resolution professional and the application referred to in section 94 or 95, as the case may be, to the creditors within seven days from the date of the said order. (4) If the application referred to in section 94 or 95, as the case may be, is rejected by the Adjudicating Authority on the basis of report submitted by the resolution professional that the application was made with the intention to defraud his creditors or the resolution professional, the order under sub-section (1) shall record that the creditor is entitled to file for a bankruptcy order under Chapter IV. 101. (1) When the application is admitted under section 100, a moratorium shall commence in relation to all the debts and shall cease to have effect at the end of the period of one hundred and eighty days beginning with the date of admission of the application or on the date the Adjudicating Authority passes an order on the repayment plan under section 114, whichever is earlier. (2) During the moratorium period— (a) any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed; (b) the creditors shall not initiate any legal action or legal proceedings in respect of any debt; and (c) the debtor shall not transfer, alienate, encumber or dispose of any of his assets or his legal rights or beneficial interest therein; (3) Where an order admitting the application under section 96 has been made in relation to a firm, the moratorium under sub-section (1) shall operate against all the partners of the firm. (4) The provisions of this section shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. 102. (1) The Adjudicating Authority shall issue a public notice within seven days of passing the order under section 100 inviting claims from all creditors within twenty-one days of such issue. (2) The notice under sub-section (1) shall include— (a) details of the order admitting the application; (b) particulars of the resolution professional with whom the claims are to be registered; and (c) the last date for submission of claims. (3) The notice shall be— (a) published in at least one English and one vernacular newspaper which is in circulation in the state where the debtor resides; Admission or rejection of application. Moratorium. Public notice and claims from creditors. 52

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

 

 

• (b) affixed in the premises of the Adjudicating Authority; and (c) placed on the website of the Adjudicating Authority. 103. (1) The creditors shall register claims with the resolution professional by sending details of the claims by way of electronic communications or through courier, speed post or registered letter. (2) In addition to the claims referred to in sub-section (1) , the creditor shall provide to the resolution professional, personal information and such particulars as may be prescribed. 104. (1) The resolution professional shall prepare a list of creditors on the basis of— (a) the information disclosed in the application filed by the debtor under section 94 or 95, as the case may be; (b) claims received by the resolution professional under section 102. (2) The resolution professional shall prepare the list mentioned in sub-section (1) within thirty days from the date of the notice. 105. (1) The debtor shall prepare, in consultation with the resolution professional, a repayment plan containing a proposal to the creditors for restructuring of his debts or affairs. (2) The repayment plan may authorise or require the resolution professional to— (a) carry on the debtor’s business or trade on his behalf or in his name; or (b) realise the assets of the debtor; or (c) administer or dispose of any funds of the debtor. (3) The repayment plan shall include the following, namely:— (a) justification for preparation of such repayment plan and reasons on the basis of which the creditors may agree upon the plan; (b) provision for payment of fee to the resolution professional; (c) such other matters as may be specified. 106. (1) The resolution professional shall submit the repayment plan under section 105 along with his report on such plan to the Adjudicating Authority within a period of twenty-one days from the last date of submission of claims under section 102. (2) The report referred in sub-section (1) shall include that— (a) the repayment plan is in compliance with the provisions of any law for the time being in force; (b) the repayment plan has a reasonable prospect of being approved and implemented; and (c) there is a necessity of summoning a meeting of the creditors, if required, to consider the repayment plan: Provided that where the resolution professional recommends that a meeting of the creditors is not required to be summoned, reasons for the same shall be provided. (3) The report referred to in sub-section (2) shall also specify the date on which, and the time and place at which, the meeting should be held if he is of the opinion that a meeting of the creditors should be summoned. Resistering of claims by creditors. Preparation of list of creditors. Repayment plan. Report of resolution professional on repayment plan. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 53

(4) For the purposes of sub-section (3)— (a) the date on which the meeting is to be held shall be not less than fourteen days and not more than twenty eight days from the date of submission of report under sub-section (1); (b) the resolution professional shall consider the convenience of creditors in fixing the date and venue of the meeting of the creditors. 107. (1) The resolution professional shall issue a notice calling the meeting of the creditors at least fourteen days before the date fixed for such meeting. (2) The resolution professional shall send the notice of the meeting to the list of creditors prepared under section 104. (3) The notice sent under sub-section (1) shall state the address of the Adjudicating Authority to which the repayment plan and report of the resolution professional on the repayment plan has been submitted and shall be accompanied by— (a) a copy of the repayment plan; (b) a copy of the statement of affairs of the debtor; (c) a copy of the said report of the resolution professional; and (d) forms for proxy voting. (4) The proxy voting, including electronic proxy voting shall take place in such manner and form as may be specified. 108. (1) The meeting of the creditors shall be conducted in accordance with the provisions of this section and sections 109,110 and 111. (2) In the meeting of the creditors, the creditors may decide to approve, modify or reject the repayment plan. (3) The resolution professional shall ensure that if modifications are suggested by the creditors, consent of the debtor shall be obtained for each modification. (4) The resolution professional may for a sufficient cause adjourn the meeting of the creditors for a period of not more than seven days at a time. 109. (1) A creditor shall be entitled to vote at every meeting of the creditors in respect of the repayment plan in accordance with the voting share assigned to him. (2) The resolution professional shall determine the voting share to be assigned to each creditor in the manner specified by the Board. (3) A creditor shall not be entitled to vote in respect of a debt for an unliquidated amount. (4) A creditor shall not be entitled to vote in a meeting of the creditors if he— (a) is not a creditor mentioned in the list of creditors under section 104; or (b) is an associate of the debtor. 110. (1) Secured creditors shall be entitled to participate and vote in the meetings of the creditors. (2) A secured creditor participating in the meetings of the creditors and voting in relation to the repayment plan shall forfeit his right to enforce the security during the period of the repayment plan in accordance with the terms of the repayment plan. Summoning of meeting of creditors. Conduct of meeting of creditors. Voting rights in meeting of creditors. Rights of secured creditors in relation to repayment plan. 54

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II— (3) Where a secured creditor does not forfeit his right to enforce security, he shall submit an affidavit to the resolution professional at the meeting of the creditors stating— (a) that the right to vote exercised by the secured creditor is only in respect of the unsecured part of the debt; and (b) the estimated value of the unsecured part of the debt. (4) In case a secured creditor participates in the voting on the repayment plan by submitting an affidavit under sub-section (3) , the secured and unsecured parts of the debt shall be treated as separate debts. (5) The concurrence of the secured creditor shall be obtained if he does not participate in the voting on repayment plan but provision of the repayment plan affects his right to enforce security. Explanation.—For the purposes of this section, “period of the repayment plan” means the period from the date of the order passed under section 114 till the date on which the notice is given by the resolution professional under section 117 or report submitted by the resolution professional under section 118, as the case may be. 111. The repayment plan or any modification to the repayment plan shall be approved by a majority of more than three-fourth in value of the creditors present in person or by proxy and voting on the resolution in a meeting of the creditors. 112. (1) The resolution professional shall prepare a report of the meeting of the creditors on repayment plan. (2) The report under sub-section (1) shall contain— (a) whether the repayment plan was approved or rejected and if approved, the list the modifications, if any; (b) the resolutions which were proposed at the meeting and the decision on such resolutions; (c) list of the creditors who were present or represented at the meeting, and the voting records of each creditor for all meetings of the creditors; and (d) such other information as the resolution professional thinks appropriate to make known to the Adjudicating Authority. 113. The resolution professional shall provide a copy of the report of the meeting of creditors prepared under section 99 to— (a) the debtor; (b) the creditors, including those who were not present at the meeting; and (c) the Adjudicating Authority. 114. (1) The Adjudicating Authority shall by an order approve or reject the repayment plan on the basis of the report of the meeting of the creditors submitted by the resolution professional under section 112: Provided that where a meeting of creditors is not summoned, the Adjudicating Authority shall pass an order on the basis of the report prepared by the resolution professional under section 106. (2) The order of the Adjudicating Authority approving the repayment plan may also provide for directions for implementing the repayment plan. Approval of repayment plan by creditors. Report of meeting of creditors on repayment plan. Notice of decisions taken at meeting of creditors. Order of Adjudicating Authority on repayment plan. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 55

(3) Where the Adjudicating Authority is of the opinion that the repayment plan requires modification, it may direct the resolution professional to re-convene a meeting of the creditors for reconsidering the repayment plan. 115. (1) Where the Adjudicating Authority has approved the repayment plan under section 114, such repayment plan shall— (a) take effect as if proposed by the debtor in the meeting; and (b) be binding on creditors mentioned in the repayment plan and the debtor. (2) Where the Adjudicating Authority rejects the repayment plan under section 114, the debtor and the creditors shall be entitled to file an application for bankruptcy under Chapter IV. (3) A copy of the order passed by the Adjudicating Authority under sub-section (2) shall be provided to the Board, for the purpose of recording an entry in the register referred to in section 196. 116. (1) The resolution professional appointed under section 97 or under section 98 shall supervise the implementation of the repayment plan. (2) The resolution professional may apply to the Adjudicating Authority for directions, if necessary, in relation to any particular matter arising under the repayment plan. (3) The Adjudicating Authority may issue directions to the resolution professional on the basis of an application under sub-section (2). 117. (1) The resolution professional shall within fourteen days of the completion of the repayment plan, forward to the persons who are bound by the repayment plan under section 115 and the Adjudicating Authority, the following documents, namely:— (a) a notice that the repayment plan has been fully implemented; and (b) a copy of a report by the resolution professional summarising all receipts and payments made in pursuance of the repayment plan and extent of the implementation of such plan as compared with the repayment plan approved by the meeting of the creditors. (2) The resolution professional may apply to the Adjudicating Authority to extend the time mentioned in sub-section (1) for such further period not exceeding seven days. 118. (1) A repayment plan shall be deemed to have come to an end prematurely if it has not been fully implemented in respect of all persons bound by it within the period as mentioned in the repayment plan. (2) Where a repayment plan comes to an end prematurely under this section, the resolution professional shall submit a report to the Adjudicating Authority which shall state— (a) the receipts and payments made in pursuance of the repayment plan; (b) the reasons for premature end of the repayment plan; and (c) the details of the creditors whose claims have not been fully satisfied. (3) The Adjudicating Authority shall pass an order on the basis of the report submitted under sub-section (2) by the resolution professional that the repayment plan has not been completely implemented. (4) The debtor or the creditor, whose claims under repayment plan have not been fully satisfied, shall be entitled to apply for a bankruptcy order under Chapter IV. Effect of order of Adjudicating Authority on repayment plan. Implementation and supervision of repayment plan. Completion of repayment plan. Repayment plan coming to end prematurely. 56

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

(5) The Adjudicating Authority shall forward to the persons bound by the repayment plan under section 115, a copy of the— (a) report submitted by the resolution professional to the Adjudicating Authority under sub-section (2); and (b) order passed by the Adjudicating Authority under sub-section (3). (6) The Adjudicating Authority shall forward a copy of the order passed under sub-section (4) to the Board, for the purpose of recording entries in the register referred to in section 196. 119. (1) On the basis of the repayment plan, the resolution professional shall apply to the Adjudicating Authority for a discharge order in relation to the debts mentioned in the repayment plan and the Adjudicating Authority may pass such discharge order. (2) The repayment plan may provide for— (a) early discharge; or (b) discharge on complete implementation of the repayment plan. (3) The discharge order shall be forwarded to the Board, for the purpose of recording entries in the register referred to in section 196. (4) The discharge order under sub-section (3) shall not discharge any other person from any liability in respect of his debt. 120. The resolution professional shall perform his functions and duties in compliance with the code of conduct provided under section 208.

 

CHAPTER IV BANKRUPTCY ORDER FOR INDIVIDUALS AND PARTNERSHIP FIRMS

 

121. (1) An application for bankruptcy of a debtor may be made, by a creditor individually or jointly with other creditors or by a debtor, to the Adjudicating Authority in the following circumstances, namely;— (a) where an order has been passed by an Adjudicating Authority under sub-section 4 of section 100; or (b) where an order has been passed by an Adjudicating Authority under sub-section 2 of section 115; or (c) where an order has been passed by an Adjudicating Authority under sub-section 3 of section 118. (2) An application for bankruptcy shall be filed within a period of threemonths of the date of the order passed by the Adjudicating Authority under the sections referred to in sub-section (1). (3) Where the debtor is a firm, the application under sub-section (1) may be filed by any of its partners. 122. (1) The application for bankruptcy by the debtor shall be accompanied by— (a) the records of insolvency resolution process undertaken under Chapter III of Part III; (b) the statement of affairs of the debtor in such form and manner as may be prescribed, on the date of the application for bankruptcy; and (c) a copy of the order passed by the Adjudicating Authority under Chapter III of Part III permitting the debtor to apply for bankruptcy. Discharge order. Standard of conduct. Application for bankruptcy. Application by debtor. SEC. 1]

 

 

THE GAZETTE OF INDIA EXTRAORDINARY 57

 

(2) The debtor may propose an insolvency professional as the bankruptcy trustee in the application for bankruptcy. (3) The application referred to in sub-section (1) shall be in such form and manner and accompanied by such fee as may be prescribed. (4) An application for bankruptcy by the debtor shall not be withdrawn without the leave of the Adjudicating Authority. 123. (1) The application for bankruptcy by the creditor shall be accompanied by— (a) the records of insolvency resolution process undertaken under Chapter III; (b) a copy of the order passed by the Adjudicating Authority under Chapter III permitting the creditor to apply for bankruptcy; (c) details of the debts owed by the debtor to the creditor as on the date of the application for bankruptcy; and (d) such other information as may be prescribed. (2) An application under sub-section (1) made in respect of a debt which is secured, shall be accompanied with— (a) a statement by the creditor having the right to enforce the security that he shall, in the event of a bankruptcy order being made, give up his security for the benefit of all the creditors of the bankrupt; or (b) a statement by the creditor stating— (i) that the application for bankruptcy is only in respect of the unsecured part of the debt; and (ii) an estimated value of the unsecured part of the debt. (3) If a secured creditor makes an application for bankruptcy and submits a statement under clause (b) of sub-section (2), the secured and unsecured parts of the debt shall be treated as separate debts. (4) The creditor may propose an insolvency professional as the bankruptcy trustee in the application for bankruptcy. (5) An application for bankruptcy under sub-section (1), in case of a deceased debtor, may be filed against his legal representatives. (6) The application for bankruptcy shall be in such form and manner and accompanied by such fee as may be prescribed. (7) An application for bankruptcy by the creditor shall not be withdrawn without the permission of the Adjudicating Authority. 124. (1) When an application is filed under sections 122 or 123,— (a) an interim-moratorium shall commence on the date of the making of the application on all actions against the properties of the debtor in respect of his debts and such moratorium shall cease to have effect on the bankruptcy commencement date; and (b) during the interim-moratorium period— (i) any pending legal action or legal proceeding against any property of the debtor in respect of any of his debts shall be deemed to have been stayed; (ii) the creditors of the debtor shall not be entitled to initiate any legal action or legal proceedings against any property of the debtor in respect of any of his debts. Application by creditor. Effect of application. 58

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

(2) Where the application has been made in relation to a firm, the interim-moratorium under sub-section (1) shall operate against all the partners of the firm as on the date of the making of the application. (3) The provisions of this section shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. 125. (1) If an insolvency professional is proposed as the bankruptcy trustee in the application for bankruptcy under section 122 or section 123, the Adjudicating Authority shall direct the Board within seven days of receiving the application for bankruptcy to confirm that there are no disciplinary proceedings pending against such professional. (2) The Board shall within ten days of the receipt of the direction under sub-section (1) in writing either— (a) confirm the appointment of the proposed insolvency professional as the bankruptcy trustee for the bankruptcy process; or (b) reject the appointment of the proposed insolvency professional as the bankruptcy trustee and nominate another bankruptcy trustee for the bankruptcy process. (3) Where a bankruptcy trustee is not proposed by the debtor or creditor under section 122 or 123, the Adjudicating Authority shall direct the Board within seven days of receiving the application to nominate a bankruptcy trustee for the bankruptcy process. (4) The Board shall nominate a bankruptcy trustee within ten days of receiving the direction of the Adjudicating Authority under sub-section (3). (5) The bankruptcy trustee confirmed or nominated under this section shall be appointed as the bankruptcy trustee by the Adjudicating Authority in the bankruptcy order under section 126. 126. (1) The Adjudicating Authority shall pass a bankruptcy order within fourteen days of receiving the confirmation or nomination of the bankruptcy trustee under section 125. (2) The Adjudicating Authority shall provide the following documents to bankrupt, creditors and the bankruptcy trustee within seven days of the passing of the bankruptcy order, namely:— (a) a copy of the application for bankruptcy; and (b) a copy of the bankruptcy order. 127. The bankruptcy order passed by the Adjudicating Authority under section 126 shall continue to have effect till the debtor is discharged under section 138. 128. (1) On the passing of the bankruptcy order under section 126,— (a) the estate of the bankrupt shall vest in the bankruptcy trustee as provided in section 154; (b) the estate of the bankrupt shall be divided among his creditors; (c) subject to provisions of sub-section (2), a creditor of the bankrupt indebted in respect of any debt claimed as a bankruptcy debt shall not— (i) initiate any action against the property of the bankrupt in respect of such debt; or (ii) commence any suit or other legal proceedings except with the leave of the Adjudicating Authority and on such terms as the Adjudicating Authority may impose. Appointment of insolvency professional as bankruptcy trustee. Bankruptcy order. Validity of bankruptcy order. Effect of bankruptcy order. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 59

 

(2) Subject to the provisions of section 123, the bankruptcy order shall not affect the right of any secured creditor to realise or otherwise deal with his security interest in the same manner as he would have been entitled if the bankruptcy order had not been passed: Provided that no secured creditor shall be entitled to any interest in respect of his debt after the bankruptcy commencement date if he does not take any action to realise his security within thirty days from the said date. (3) Where a bankruptcy order under section 126 has been passed against a firm, the order shall operate as if it were a bankruptcy order made against each of the individuals who, on the date of the order, is a partner in the firm. (4) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. 129. (1) Where a bankruptcy order is passed on the application for bankruptcy by a creditor under section 123, the bankrupt shall submit his statement of financial position to the bankruptcy trustee within seven days from the bankruptcy commencement date. (2) The statement of financial position shall be submitted in the such form and manner as may be prescribed. (3) Where the bankrupt is a firm, its partners on the date of the order shall submit a joint statement of financial position of the firm, and each partner of the firm shall submit a statement of his financial position. (4) The bankruptcy trustee may require the bankrupt or any other person to submit in writing further information explaining or modifying any matter contained in the statement of financial position. 130. (1) The Adjudicating Authority shall— (a) send notices within ten days of the bankruptcy commencement date, to the creditors mentioned in— (i) the statement of affairs submitted by the bankrupt under section 129; or (ii) the application for bankruptcy submitted by the bankrupt under section 122. (b) issue a public notice inviting claims from creditors. (2) The public notice under clause (b) of sub-section (1) shall include the last date up to which the claims shall be submitted and such other matters and details as may be prescribed and shall be— (a) published in leading newspapers, one in English and another in vernacular having sufficient circulation where the bankrupt resides; (b) affixed on the premises of the Adjudicating Authority; and (c) placed on the website of the Adjudicating Authority. (3) The notice to the creditors referred to under clause (a) of sub-section (1) shall include such matters and details as may be prescribed. 131. (1) The creditors shall register claims with the bankruptcy trustee within seven days of the publication of the public notice, by sending details of the claims to the bankruptcy trustee in such manner as may be prescribed. (2) The creditor, in addition to the details of his claims, shall provide such other information and in such manner as may be prescribed. Statement of financial position. Public notice inviting claims from creditors. Registration of claims. 60

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

132. The bankruptcy trustee shall, within fourteen days from the bankruptcy commencement date, prepare a list of creditors of the bankrupt on the basis of— (a) the information disclosed by the bankrupt in the application for bankruptcy filed by the bankrupt under section 118 and the statement of affairs filed under section 125; and (b) claims received by the bankruptcy trustee under sub-section (2) of section 130. 133. (1) The bankruptcy trustee shall, within twenty-one days from the bankruptcy commencement date, issue a notice for calling a meeting of the creditors, to every creditor of the bankrupt as mentioned in the list prepared under section 132. (2) The notices issued under sub-section (1) shall— (a) state the date of the meeting of the creditors, which shall not be later than twenty-one days from the bankruptcy commencement date; (b) be accompanied with forms of proxy voting; (c) specify the form and manner in which the proxy voting may take place. (3) The proxy voting, including electronic proxy voting shall take place in such manner and form as may be specified. 134. (1) The bankruptcy trustee shall be the convener of the meeting of the creditors summoned under section 133. (2) The bankruptcy trustee shall decide the quorum for the meeting of the creditors, and conduct the meeting only if the quorum is present. (3) The following business shall be conducted in the meeting of the creditors in which regard a resolution may be passed, namely:— (a) the establishment of a committee of creditors; (b) any other business that the bankruptcy trustee thinks fit to be transacted. (4) The bankruptcy trustee shall cause the minutes of the meeting of the creditors to be recorded, signed and retained as a part of the records of the bankruptcy process. (5) The bankruptcy trustee shall not adjourn the meeting of the creditors for any purpose for more than seven days at a time. 135. (1) Every creditor mentioned in the list under section 132 or his proxy shall be entitled to vote in respect of the resolutions in the meeting of the creditors in accordance with the voting share assigned to him. (2) The resolution professional shall determine the voting share to be assigned to each creditor in the manner specified by the Board. (3) A creditor shall not be entitled to vote in respect of a debt for an unliquidated amount. (4) The following creditors shall not be entitled to vote under this section, namely:— (a) creditors who are not mentioned in the list of creditors under section 132 and those who have not been given a notice by the bankruptcy trustee; (b) creditors who are associates of the bankrupt. 136. The bankruptcy trustee shall conduct the administration and distribution of the estate of the bankrupt in accordance with the provisions of Chapter V. Preparation of list of creditors. Summoning of meeting of creditors. Conduct of meeting of creditors. Voting rights of creditors. Administration and distribution of estate of bankrupt. SEC. 1]

 

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137. (1) The bankruptcy trustee shall convene a meeting of the committee of creditors on completion of the administration and distribution of the estate of the bankrupt in accordance with the provisions of Chapter V. (2) The bankruptcy trustee shall provide the committee of creditors with a report of the administration of the estate of the bankrupt in the meeting of the said committee. (3) The committee of creditors shall approve the report submitted by the bankruptcy trustee under sub-section (2) within seven days of the receipt of the report and determine whether the bankruptcy trustee should be released under section 148. (4) The bankruptcy trustee shall retain sufficient sums from the estate of the bankrupt to meet the expenses of convening and conducting the meeting required under this section during the administration of the estate. 138. (1) The bankruptcy trustee shall apply to the Adjudicating Authority for a discharge order— (a) on the expiry of one year from the bankruptcy commencement date; or (b) within seven days of the approval of the committee of creditors of the completion of administration of the estates of the bankrupt under section 137, where such approval is obtained prior to the period mentioned in clause (a). (2) The Adjudicating Authority shall pass a discharge order on an application by the bankruptcy trustee under sub-section (1). (3) A copy of the discharge order shall be provided to the Board for the purpose of recording an entry in the register referred to in section 196. 139. The discharge order under sub-section (2) of section 138 shall release the bankrupt from all the bankruptcy debt: Provided that discharge shall not— (a) affect the functions of the bankruptcy trustee; or (b) affect the operation of the provisions of Chapters IV and V of Part III; or (c) release the bankrupt from any debt incurred by means of fraud or breach of trust to which he was a party; or (d) discharge the bankrupt from any excluded debt. 140. (1) The bankrupt shall, from the bankruptcy commencement date, be subject to the disqualifications mentioned in this section. (2) In addition to any disqualification under any other law for the time being in force, a bankrupt shall be disqualified from— (a) being appointed or acting as a trustee or representative in respect of any trust, estate or settlement; (b) being appointed or acting as a public servant; (c) being elected to any public office where the appointment to such office is by election; and (d) being elected or sitting or voting as a member of any local authority. (3) Any disqualification to which a bankrupt may be subject under this section shall cease to have effect, if— (a) the bankruptcy order against him is modified or recalled under section 142; or (b) he is discharged under section 138. Completion of administration. Discharge order. Effect of discharge. Disqualification of bankrupt.

 

62 THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

Explanation.—For the purposes of this section, the term “public servant” shall have the same meaning as assigned to it in section 21 of the Indian Penal Code. 141. (1) A bankrupt, from the bankruptcy commencement date, shall— (a) not act as a director of any company, or directly or indirectly take part in or be concerned in the promotion, formation or management of a company; (b) without the previous sanction of the bankruptcy trustee, be prohibited from creating any charge on his estate or taking any further debt; (c) be required to inform his business partners that he is undergoing a bankruptcy process; (d) prior to entering into any financial or commercial transaction of such value as may be prescribed, either individually or jointly, inform all the parties involved in such transaction that he is undergoing a bankruptcy process; (e) without the previous sanction of the Adjudicating Authority, be incompetent to maintain any legal action or proceedings in relation to the bankruptcy debts; and (f) not be permitted to travel overseas without the permission of the Adjudicating Authority. (2) Any restriction to which a bankrupt may be subject under this section shall cease to have effect, if— (a) the bankruptcy order against him is modified or recalled under section 142; or (b) he is discharged under section 138. 142. (1) The Adjudicating Authority may, on an application or suo motu, modify or recall a bankruptcy order, whether or not the bankrupt is discharged, if it appears to the Adjudicating Authority that— (a) there exists an error apparent on the face of such order; or (b) both the bankruptcy debts and the expenses of the bankruptcy have, after the making of the bankruptcy order, either been paid for or secured to the satisfaction of the Adjudicating Authority. (2) Where the Adjudicating Authority modifies or recalls the bankruptcy order under this section, any sale or other disposition of property, payment made or other things duly done by the bankruptcy trustee shall be valid except that the property of the bankrupt shall vest in such person as the Adjudicating Authority may appoint or, in default of any such appointment, revert to the bankrupt on such terms as the Adjudicating Authority may direct. (3) A copy of the order passed by the Adjudicating Authority under sub-section (1) shall be provided to the Board, for the purpose of recording an entry in the register referred to in section 191. (4) The modification or recall of the order by the Adjudicating Authority under sub-section (1) shall be binding on all creditors so far as it relates to any debts due to them which form a part of the bankruptcy. 143. The bankruptcy trustee shall perform his functions and duties in compliance with the code of conduct provided under section 208. 144. (1) A bankruptcy trustee appointed for conducting the bankruptcy process shall charge such fees as may be specified in proportion to the value of the estate of the bankrupt. (2) The fees for the conduct of the bankruptcy process shall be paid to the bankruptcy trustee from the distribution of the estate of the bankrupt in the manner provided in section 178. Restrictions on bankrupt. Modification or recall of bankruptcy order. Standard of conduct. Fees of bankruptcy trustee. 45 of 1860. SEC. 1]

 

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145. (1) Where Committee of creditors is of the opinion that at any time during the bankruptcy process, a bankruptcy trustee appointed under section 125 is required to be replaced, it may replace him with another bankruptcy trustee in the manner provided under this section. (2) The Committee of creditors may, at a meeting, by a vote of seventy-five per cent. of voting share, propose to replace the bankruptcy trustee appointed under section 125 with another bankruptcy trustee. (3) The Committee of creditors may apply to the Adjudicating Authority for the replacement of the bankruptcy trustee. (4) The Adjudicating Authority shall within seven days of the receipt of the application under sub-section (3) direct the Board to recommend for replacement of bankruptcy trustee. (5) The Board shall, within ten days of the direction of the Adjudicating Authority under sub-section (4) , recommend a bankruptcy trustee for replacement against whom no disciplinary proceedings are pending. (6) The Adjudicating Authority shall, by an order, appoint the bankruptcy trustee as recommended by the Board under sub-section (5) within fourteen days of receiving such recommendation. (7) The earlier bankruptcy trustee shall deliver possession of the estate of the bankrupt to the bankruptcy trustee appointed under sub-section (6) , on the date of his appointment. (8) The Adjudicating Authority may give directions to the earlier bankruptcy trustee— (a) to share all information with the new bankruptcy trustee in respect of the bankruptcy process; and (b) to co-operate with the new bankruptcy trustee in such matters as may be required. (9) The earlier bankruptcy trustee replaced under this section shall be released in accordance with the provisions of section 148. (10) The bankruptcy trustee appointed under this section shall give a notice of his appointment to the bankrupt within seven days of his appointment. 146. (1) A bankruptcy trustee may resign if— (a) he intends to cease practising as an insolvency professional; or (b) there is conflict of interest or change of personal circumstances which preclude the further discharge of his duties as a bankruptcy trustee. (2) The Adjudicating Authority shall, within seven days of the acceptance of the resignation of the bankruptcy trustee, direct the Board for his replacement. (3) The Board shall, within ten days of the direction of the Adjudicating Authority under sub-section (2) recommend another bankruptcy trustee as a replacement. (4) The Adjudicating Authority shall appoint the bankruptcy trustee recommended by the Board under sub-section (3) within fourteen days of receiving the recommendation. (5) The replaced bankruptcy trustee shall deliver possession of the estate of the bankrupt to the bankruptcy trustee appointed under sub-section (4), on the date of his appointment. (6) The Adjudicating Authority may give directions to the bankruptcy trustee who has resigned— Replacement of bankruptcy trustee. Resignation by bankruptcy trustee. 64

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

• to share all information with the new bankruptcy trustee in respect of the bankruptcy process; and (b) to co-operate with the new bankruptcy trustee in such matters as may be required. (7) The bankruptcy trustee appointed under this section shall give a notice of his appointment to the committee of creditors and the bankrupt within seven days of his appointment. (8) The bankruptcy trustee replaced under this section shall be released in accordance with the provisions of section 148. 147. (1) If a vacancy occurs in the office of the bankruptcy trustee for any reason other than his replacement or resignation, the vacancy shall be filled in accordance with the provisions of this section. (2) In the event of the occurrence of vacancy referred to in sub-section (1), the Adjudicating Authority shall direct the Board for replacementof a bankruptcy trustee. (3) The Board shall, within ten days of the direction of the Adjudicating Authority under sub-section (2), recommenda bankruptcy trustee as a replacement. (4) The Adjudicating Authority shall appoint the bankruptcy trustee recommended by the Board under sub-section (3) within fourteen days of receiving the recommendation. (5) The earlier bankruptcy trustee shall deliver possession of the estate of the bankrupt to the bankruptcy trustee appointed under sub-section (4), on the date of his appointment. (6) The Adjudicating Authority may give directions to the bankruptcy trustee who has vacated the office— (a) to share all information with the new bankruptcy trustee in respect of the bankruptcy; (b) to co-operate with the new bankruptcy trustee in such matters as may be required. (7) The bankruptcy trustee appointed under sub-section (4) shall give a notice of his appointment to the committee of creditors and the bankrupt within seven days of his appointment. (8) The earlier bankruptcy trustee replaced under this section shall be released in accordance with the provisions of section 148: Provided that this section shall not apply if the vacancy has occurred due to temporary illness or temporary leave of the bankruptcy trustee. 148. (1) A bankruptcy trustee shall be released from his office with effect from the date on which the Adjudicating Authority passes an order appointing a new bankruptcy trustee in the event of replacement, resignation or occurrence of vacancy under sections 145, 146 or section 147, as the case may be. (2) Notwithstanding the release under sub-section (1) , the bankruptcy trustee who has been so released, shall share all information with the new bankruptcy trustee in respect of the bankruptcy process and co-operate with the new bankruptcy trustee in such matters as may be required. (3) A bankruptcy trustee who has completed the administration of the bankruptcy process shall be released of his duties with effect from the date on which the committee of creditors approves the report of the bankruptcy trustee under section 137. Vacancy in office of bankruptcy trustee. Release of bankruptcy trustee. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 65 CHAPTER V ADMINISTRATION AND DISTRIBUTION OF THE ESTATE OF THE BANKRUPT 149.

 

The bankruptcy trustee shall perform the following functions in accordance with the provisions of this Chapter— (a) investigate the affairs of the bankrupt; (b) realise the estate of the bankrupt; and (c) distribute the estate of the bankrupt. 150. (1) The bankrupt shall assist the bankruptcy trustee in carrying out his functions under this Chapter by— (a) giving to the bankruptcy trustee the information of his affairs; (b) attending on the bankruptcy trustee at such times as may be required; (c) giving notice to the bankruptcy trustee of any of the following events which have occurred after the bankruptcy commencement date,— (i) acquisition of any property by the bankrupt; (ii) devolution of any property upon the bankrupt; (iii) increase in the income of the bankrupt; (d) doing all other things as may be prescribed. (2) The bankrupt shall give notice of the increase in income or acquisition or devolution of property under clause (c) of sub-section (1) within seven days of such increase, acquisition or devolution. (3) The bankrupt shall continue to discharge the duties under sub-section (1) other than the duties under clause (c) evenafter the discharge under section 138. 151. For the purpose of performing his functions under this Chapter, the bankruptcy trustee may, by his official name— (a) hold property of every description; (b) make contracts; (c) sue and be sued; (d) enter into engagements in respect of the estate of the bankrupt; (e) employ persons to assist him; (f) execute any power of attorney, deed or other instrument; and (g) do any other act which is necessary or expedient for the purposes of or in connection with the exercise of his rights. 152. The bankruptcy trustee may while discharging his functions under this Chapter,— (a) sell any part of the estate of the bankrupt; (b) give receipts for any money received by him; (c) prove, rank, claim and draw a dividend in respect of such debts due to the bankrupt as are comprised in his estate; (d) where any property comprised in the estate of the bankrupt is held by any person by way of pledge or hypothecation, exercise the right of redemption in respect of any such property subject to the relevant contract by giving notice to the said person; Functions of bankruptcy trustee. Duties of bankrupt towards bankruptcy trustee. Rights of bankruptcy trustee. General powers of bankruptcy trustee. 66

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II

 

— (e) where any part of the estate of the bankrupt consists of securities in a company or any other property which is transferable in the books of a person, exercise the right to transfer the property to the same extent as the bankrupt might have exercised it if he had not become bankrupt; and (f) deal with any property comprised in the estate of the bankrupt to which the bankrupt is beneficially entitled in the same manner as he might have dealt with it. 153. The bankruptcy trustee for the purposes of this Chapter may after procuring the approval of the committee of creditors,— (a) carry on any business of the bankrupt as far as may be necessary for winding it up beneficially; (b) bring, institute or defend any legal action or proceedings relating to the property comprised in the estate of the bankrupt; (c) accept as consideration for the sale of any property a sum of money due at a future time subject to certain stipulations such as security; (d) mortgage or pledge any property for the purpose of raising money for the payment of the debts of the bankrupt; (e) where any right, option or other power forms part of the estate of the bankrupt, make payments or incur liabilities with a view to obtaining, for the benefit of the creditors, any property which is the subject of such right, option or power; (f) refer to arbitration or compromise on such terms as may be agreed, any debts subsisting or supposed to subsist between the bankrupt and any person who may have incurred any liability to the bankrupt; (g) make compromise or other arrangement as may be considered expedient, with the creditors; (h) make compromise or other arrangement as he may deem expedient with respect to any claim arising out of or incidental to the bankrupt’s estate; (i) appoint the bankrupt to— (A) supervise the management of the estate of the bankrupt or any part of it; (B) carry on his business for the benefit of his creditors; (C) assist the bankruptcy trustee in administering the estate of the bankrupt. 154. (1) The estate of the bankrupt shall vest in the bankruptcy trustee immediately from the date of his appointment. (2) The vesting under sub-section (1) shall take effect without any conveyance, assignment or transfer. 155. (1) The estate of the bankrupt shall include,— (a) all property belonging to or vested in the bankrupt at the bankruptcy commencement date; (b) the capacity to exercise and to initiate proceedings for exercising all such powers in or over or in respect of property as might have been exercised by the bankrupt for his own benefit at the bankruptcy commencement date or before the date of the discharge order passed under section 138; and (c) all property which by virtue of any of the provisions of this Chapter is comprised in the estate. (2) The estate of the bankrupt shall not include— Approval of creditors for certain acts. Vesting of estate of bankrupt in bankruptcy trustee. Estate of bankrupt. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 67

 

• excluded assets; (b) property held by the bankrupt on trust for any other person; (c) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund; and (d) such assets as may be notified by the Central Government in consultation with any financial sector regulator. 156. The bankrupt, his banker or agent or any other person having possession of any property, books, papers or other records which bankruptcy trustee is required to take possession for the purposes of the bankruptcy process shall deliver the said property and documents to the bankruptcy trustee. 157. (1) The bankruptcy trustee shall take possession and control of all property, books, papers and other records relating to the estate of the bankrupt or affairs of the bankrupt which belong to him or are in his possession or under his control. (2) Where any part of the estate of the bankrupt consists of things in actionable claims, they shall be deemed to have been assigned to the bankruptcy trustee without any notice of the assignment. 158. (1) Any disposition of property made by the debtor, during the period between the date of filing of the application for bankruptcy and the bankruptcy commencement date shall be void. (2) Any disposition of property made under sub-section (1) shall not give rise to any right against any person, in respect of such property, even if he has received such property before the bankruptcy commencement date in— (a) good faith; (b) for value; and (c) without notice of the filing of the application for bankruptcy. (3) For the purposes of this section, the term “property” means all the property of the debtor, whether or not it is comprised in the estate of the bankrupt, but shall not include property held by the debtor in trust for any other person. 159. (1) The bankruptcy trustee shall be entitled to claim for the estate of the bankrupt, any after-acquired property by giving a notice to the bankrupt. (2) A notice under sub-section (1) shall not be served in respect of— (a) excluded assets; or (b) any property which is acquired by or devolves upon the bankrupt after a discharge order is passed under section 138. (3) The notice under sub-section (2) shall be given within fifteen days from the day on which the acquisition or devolution of the after-acquired property comes to the knowledge of the bankruptcy trustee. (4) For the purposes of sub-section (3)— (a) anything which comes to the knowledge of the bankruptcy trustee shall be deemed to have come to the knowledge of the successor of the bankruptcy trustee at the same time; and (b) anything which comes to the knowledge of a person before he is appointed as a bankruptcy trustee shall be deemed to have come to his knowledge on the date of his appointment as bankruptcy trustee. Delivery of property and documents to bankruptcy trustee. Acquisition of control by bankruptcy trustee. Restrictions on disposition of property. After-acquired property of bankrupt. 68

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

(5) The bankruptcy trustee shall not be entitled, by virtue of this section, to claim from any person who has acquired any right over after-acquired property, in good faith, for value and without notice of the bankruptcy. (6) A notice may be served after the expiry of the period under sub-section (3) only with the approval of the Adjudicating Authority. Explanation.—For the purposes of this section, the term “after-acquired property” means any property which has been acquired by or has devolved upon the bankrupt after the bankruptcy commencement date. 160. (1) The bankruptcy trustee may, by giving notice to the bankrupt or any person interested in the onerous property, disclaim any onerous property which forms a part of the estate of the bankrupt. (2) The bankruptcy trustee may give the notice under sub-section (1) notwithstanding that he has taken possession of the onerous property, endeavoured to sell it or has exercised rights of ownership in relation to it. (3) A notice of disclaimer under sub-section (1) shall— (a) determine, as from the date of such notice, the rights, interests and liabilities of the bankrupt in respect of the onerous property disclaimed; (b) discharge the bankruptcy trustee from all personal liability in respect of the onerous property as from the date of appointment of the bankruptcy trustee. (4) A notice of disclaimer under sub-section (1) shall not be given in respect of the property which has been claimed for the estate of the bankrupt under section 155 without the permission of the committee of creditors. (5) A notice of disclaimer under sub-section (1) shall not affect the rights or liabilities of any other person, and any person who sustains a loss or damage in consequence of the operation of a disclaimer under this section shall be deemed to be a creditor of the bankrupt to the extent of the loss or damage. Explanation.—For the purposes of this section, the term “onerous property” means— (i) any unprofitable contract; and (ii) any other property comprised in the estate of the bankrupt which is unsaleable or not readily saleable, or is such that it may give rise to a claim. 161. (1) No notice of disclaimer under section 160 shall be necessary if— (a) a person interested in the onerous property has applied in writing to the bankruptcy trustee or his predecessor requiring him to decide whether the onerous property should be disclaimed or not; and (b) a decision under clause (a) has not been taken by the bankruptcy trustee within seven days of receipt of the notice. (2) Any onerous property which cannot be disclaimed under sub-section (1) shall be deemed to be part of the estate of the bankrupt. Explanation.—For the purposes of this section, an onerous property is said to be disclaimed where notice in relation to that property has been given by the bankruptcy trustee under section 160. 162. (1) The bankruptcy trustee shall not be entitled to disclaim any leasehold interest, unless a notice of disclaimer has been served on every interested person and— Onerous property of bankrupt. Notice to disclaim onerous property. Disclaimer of leaseholds. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 69

 

• no application objecting to the disclaimer by the interested person, has been filed with respect to the leasehold interest, within fourteen days of the date on which notice was served; and (b) where the application objecting to the disclaimer has been filed by the interested person, the Adjudicating Authority has directed under section 163 that the disclaimer shall take effect. (2) Where the Adjudicating Authority gives a direction under clause (b) of sub-section (1), it may also make order with respect to fixtures, improvements by tenant and other matters arising out of the lease as it may think fit. 163. (1) An application challenging the disclaimer may be made by the following persons under this section to the Adjudicating Authority— (a) any person who claims an interest in the disclaimed property; or (b) any person who is under any liability in respect of the disclaimed property; or (c) where the disclaimed property is a dwelling house, any person who on the date of application for bankruptcy was in occupation of or entitled to occupy that dwelling house. (2) The Adjudicating Authority may on an application under sub-section (1) make an order for the vesting of the disclaimed property in, or for its delivery to any of the persons mentioned in sub-section (1). (3) The Adjudicating Authority shall not make an order in favour of a person who has made an application under clause (b) of sub-section (1) except where it appears to the Adjudicating Authority that it would be just to do so for the purpose of compensating the person. (4) The effect of an order under this section shall be taken into account while assessing loss or damage sustained by any person in consequence of the disclaimer under sub-section (5) of section 160. (5) An order under sub-section (2) vesting property in any person need not be completed by any consequence, assignment or transfer. 164. (1) The bankruptcy trustee may apply to the Adjudicating Authority for an order under this section in respect of an undervalued transaction between a bankrupt and any person. (2) The undervalued transaction referred to in sub-section (1) should have— (a) been entered into during the period of two years ending on the filing of the application for bankruptcy; and (b) caused bankruptcy process to be triggered. (3) A transaction between a bankrupt and his associate entered into during the period of two years preceding the date of making of the application for bankruptcy shall be deemed to be an undervalued transaction under this section. (4) On the application of the bankruptcy trustee under sub-section (1), the Adjudicating Authority may— (a) pass an order declaring an undervalued transaction void; (b) pass an order requiring any property transferred as a part of an undervalued transaction to be vested with the bankruptcy trustee as a part of the estate of the bankrupt; and Challenge against disclaimed property. Undervalued transactions. 70

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

• pass any other order it thinks fit for restoring the position to what it would have been if the bankrupt had not entered into the undervalued transaction. (5) The order under clause (a) of sub-section (4) shall not be passed if it is proved by the bankrupt that the transaction was undertaken in the ordinary course of business of the bankrupt: Provided that the provisions of this sub-section shall not be applicable to undervalued transaction entered into between a bankrupt and his associate under sub-section (3) of this section. (6) For the purposes of this section, a bankrupt enters into an undervalued transaction with any person if— (a) he makes a gift to that person; (b) no consideration has been received by that person from the bankrupt; (c) it is in consideration of marriage; or (d) it is for a consideration, the value of which in money or money’s worth is significantly less than the value in money or money’s worth of the consideration provided by the bankrupt. 165. (1) The bankruptcy trustee may apply to the Adjudicating Authority for an order under this section if a bankrupt has given a preference to any person. (2) The transaction giving preference to an associate of the bankrupt under sub-section (1) should have been entered into by the bankrupt with the associate during the period of two years ending on the date of the application for bankruptcy. (3) Any transaction giving preference not covered under sub-section (2) should have been entered into by the bankrupt during the period of six months ending on the date of the application for bankruptcy. (4) The transaction giving preference under sub-section (2) or under sub-section (3) should have caused the bankruptcy process to be triggered. (5) On the application of the bankruptcy trustee under sub-section (1), the Adjudicating Authority may— (a) pass an order declaring a transaction giving preference void; (b) pass an order requiring any property transferred in respect of a transaction giving preference to be vested with the bankruptcy trustee as a part of the estate of the bankrupt; and (c) pass any other order it thinks fit for restoring the position to what it would have been if the bankrupt had not entered into the transaction giving preference. (6) The Adjudicating Authority shall not pass an order under sub-section (5) unless the bankrupt was influenced in his decision of giving preference to a person by a desire to produce in relation to that person an effect under clause (b) of sub-section (8). (7) For the purpose of sub-section (6), if the person is an associate of the bankrupt, (otherwise than by reason only of being his employee), at the time when the preference was given, it shall be presumed that the bankrupt was influenced in his decision under that subsection. (8) For the purposes of this section, a bankrupt shall be deemed to have entered into a transaction giving preference to any person if— (a) the person is the creditor or surety or guarantor for any debt of the bankrupt; and Preference transactions. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 71

 

• the bankrupt does anything or suffers anything to be done which has the effect of putting that person into a position which, in the event of the debtor becoming a bankrupt, will be better than the position he would have been in, if that thing had not been done. 166. (1) Subject to the provision of sub-section (2), an order passed by the Adjudicating Authority under section 164 or section 165 shall not,— (a) give rise to a right against a person interested in the property which was acquired in an undervalued transaction or a transaction giving preference, whether or not he is the person with whom the bankrupt entered into such transaction; and (b) require any person to pay a sum to the bankruptcy trustee in respect of the benefit received from the undervalued transaction or a transaction giving preference, whether or not he is the person with whom the bankrupt entered into such transaction. (2) The provision of sub-section (1) shall apply only if the interest was acquired or the benefit was received— (a) in good faith; (b) for value; (c) without notice that the bankrupt entered into the transaction at an undervalue or for giving preference; (d) without notice that the bankrupt has filed an application for bankruptcy or a bankruptcy order has been passed; and (e) by any person who at the time of acquiring the interest or receiving the benefit was not an associate of the bankrupt. (3) Any sum required to be paid to the bankruptcy trustee under sub-section (1) shall be included in the estate of the bankrupt. 167. (1) Subject to sub-section (6), on an application by the bankruptcy trustee, the Adjudicating Authority may make an order under this section in respect of extortionate credit transactions to which the bankrupt is or has been a party. (2) The transactions under sub-section (1) should have been entered into by the bankrupt during the period of two years ending on the bankruptcy commencement date. (3) An order of the Adjudicating Authority may— (a) set aside the whole or part of any debt created by the transaction; (b) vary the terms of the transaction or vary the terms on which any security for the purposes of the transaction is held; (c) require any person who has been paid by the bankrupt under any transaction, to pay a sum to the bankruptcy trustee; (d) require any person to surrender to the bankruptcy trustee any property of the bankrupt held as security for the purposes of the transaction. (4) Any sum paid or any property surrendered to the bankruptcy trustee shall be included in the estate of the bankrupt. (5) For the purposes of this section, an extortionate credit transaction is a transaction for or involving the provision of credit to the bankrupt by any person— (a) on terms requiring the bankrupt to make exorbitant payments in respect of the credit provided; or (b) which is unconscionable under the principles of law relating to contracts. Effect of order. Extortionate credit transactions. 72

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

(6) Any debt extended by a person regulated for the provision of financial services in compliance with the law in force in relation to such debt, shall not be considered as an extortionate credit transaction under this section. 168. (1) This section shall apply where a contract has been entered into by the bankrupt with a person before the bankruptcy commencement date. (2) Any party to a contract, other than the bankrupt under sub-section (1), may apply to the Adjudicating Authority for— (a) an order discharging the obligations of the applicant or the bankrupt under the contract; and (b) payment of damages by the party or the bankrupt, for non-performance of the contract or otherwise. (3) Any damages payable by the bankrupt by virtue of an order under clause (b) of sub-section (2) shall be provable as bankruptcy debt. (4) When a bankrupt is a party to the contract under this section jointly with another person, that person may sue or be sued in respect of the contract without joinder of the bankrupt. 169. If a bankrupt dies, the bankruptcy proceedings shall, continue as if he were alive. 170. (1) All the provisions of Chapter V relating to the administration and distribution of the estate of the bankrupt shall, so far as the same are applicable, apply to the administration of the estate of a deceased bankrupt. (2) While administering the estate of a deceased bankrupt, the bankruptcy trustee shall have regard to the claims by the legal representatives of the deceased bankrupt to payment of the proper funeral and testamentary expenses incurred by them. (3) The claims under sub-section (2) shall rank equally to the secured creditors in the priority provided under section 178. (4) If, on the administration of the estate of a deceased bankrupt, any surplus remains in the hands of the bankruptcy trustee after payment in full of all the debts due from the deceased bankrupt, together with the costs of the administration and interest as provided under section 178, such surplus shall be paid to the legal representatives of the estate of the deceased bankrupt or dealt with in such manner as may be prescribed. 171. (1) The bankruptcy trustee shall give notice to each of the creditors to submit proof of debt within fourteen days of preparing the list of creditors under section 132. (2) The proof of debt shall— (a) require the creditor to give full particulars of debt, including the date on which the debt was contracted and the value at which that person assesses it; (b) require the creditor to give full particulars of the security, including the date on which the security was given and the value at which that person assesses it; (c) be in such form and manner as may be prescribed. (3) In case the creditor is a decree holder against the bankrupt, a copy of the decree shall be a valid proof of debt. (4) Where a debt bears interest, that interest shall be provable as part of the debt except in so far as it is owed in respect of any period after the bankruptcy commencement date. Obligations under contracts. Continuance of proceedings on death of bankrupt. Administration of estate of deceased bankrupt. Proof of debt. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 73

 

(5) The bankruptcy trustee shall estimate the value of any bankruptcy debt which does not have a specific value. (6) The value assigned by the bankruptcy trustee under sub-section (5) shall be the amount provable by the concerned creditor. (7) A creditor may prove for a debt where payment would have become due at a date later than the bankruptcy commencement date as if it were owed presently and may receive dividends in a manner as may be prescribed. (8) Where the bankruptcy trustee serves a notice under sub-section (1) and the person on whom the notice is served does not file a proof of security within thirty days after the date of service of the notice, the bankruptcy trustee may, with leave of the Adjudicating Authority, sell or dispose of any property that was subject to the security, free of that security. 172. (1) Where a secured creditor realises his security, he may produce proof of the balance due to him. (2) Where a secured creditor surrenders his security to the bankruptcy trustee for the general benefit of the creditors, he may produce proof of his whole claim. 173. (1) Where before the bankruptcy commencement date, there have been mutual dealings between the bankrupt and any creditor, the bankruptcy trustee shall— (a) take an account of what is due from each party to the other in respect of the mutual dealings and the sums due from one party shall be set-off against the sums due from the other; and (b) only the balance shall be provable as a bankruptcy debt or as the amount payable to the bankruptcy trustee as part of the estate of the bankrupt. (2) Sums due from the bankrupt to another party shall not be included in the account taken by the bankruptcy trustee under sub-section (1), if that other party had notice at the time they became due that an application for bankruptcy relating to the bankrupt was pending. 174. (1) Whenever the bankruptcy trustee has sufficient funds in his hand, he may declare and distribute interim dividend among the creditors in respect of the bankruptcy debts which they have respectively proved. (2) Where the bankruptcy trustee has declared any interim dividend, he shall give notice of such dividend and the manner in which it is proposed to be distributed. (3) In the calculation and distribution of the interim dividend, the bankruptcy trustee shall make provision for— (a) any bankruptcy debts which appear to him to be due to persons who, by reason of the distance of their place of residence, may not have had sufficient time to tender and establish their debts; and (b) any bankruptcy debts which are subject of claims which have not yet been determined; (c) disputed proofs and claims; and (d) expenses necessary for the administration of the estate of the bankrupt. 175. (1) The bankruptcy trustee may, with the approval of the committee of creditors, divide in its existing form amongst the creditors, according to its estimated value, any property in its existing form which from its peculiar nature or other special circumstances cannot be readily or advantageously sold. Proof of debt by secured creditors. Mutual credit and set-off. Distribution of interim dividend. Distribution of property. 74

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

(2) An approval under sub-section (1) shall be sought by the bankruptcy trustee for each transaction, and a person dealing with the bankruptcy trustee in good faith and for value shall not be required to enquire whether any approval required under sub-section (1) has been given. (3) Where the bankruptcy trustee has done anything without the approval of the committee of creditors, the committee may, for the purpose of enabling him to meet his expenses out of the estate of the bankrupt, ratify the act of the bankruptcy trustee. (4) The committee of the creditors shall not ratify the act of the bankruptcy trustee under sub-section (3) unless it is satisfied that the bankruptcy trustee acted in a case of urgency and has sought its ratification without undue delay. 176. (1) Where the bankruptcy trustee has realised the entire estate of the bankrupt or so much of it as could be realised in the opinion of the bankruptcy trustee, he shall give notice— (a) of his intention to declare a final dividend; or (b) that no dividend or further dividend shall be declared. (2) The notice under sub-section (1) shall contain such particulars as may be prescribed and shall require all claims against the estate of the bankrupt to be established by a final date specified in the notice. (3) The Adjudicating Authority may, on the application of any person interested in the administration of the estate of the bankrupt, postpone the final date referred to in sub-section (2). (4) After the final date referred to in sub-section (2) , the bankruptcy trustee shall— (a) defray any outstanding expenses of the bankruptcy out of the estate of the bankrupt; and (b) if he intends to declare a final dividend, declare and distribute that dividend among the creditors who have proved their debts, without regard to the claims of any other persons. (5) If a surplus remains after payment in full with interest to all the creditors of the bankrupt and the payment of the expenses of the bankruptcy, the bankrupt shall be entitled to the surplus. (6) Where a bankruptcy order has been passed in respect of one partner in a firm, a creditor to whom the bankrupt is indebted jointly with the other partners in the firm or any of them shall not receive any dividend out of the separate property of the bankrupt until all the separate creditors have received the full amount of their respective debts. 177. (1) A creditor who has not proved his debt before the declaration of any dividend is not entitled to disturb, by reason that he has not participated in it, the distribution of that dividend or any other dividend declared before his debt was proved, but— (a) when he has proved the debt, he shall be entitled to be paid any dividend or dividends which he has failed to receive, out of any money for the time being available for the payment of any further dividend; and (b) any dividend or dividends payable to him shall be paid before that money is applied to the payment of any such further dividend. (2) No action shall lie against the bankruptcy trustee for a dividend, but if the bankruptcy trustee refuses to pay a dividend payable under sub-section (1), the Adjudicating Authority may order him to— (a) pay the dividend; and Final dividend. Claims of creditors. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 75

 

• pay, out of his own money— (i) interest on the dividend; and (ii) the costs of the proceedings in which the order to pay has been made. 178. (1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or the State Legislature for the time being in force, in the distribution of the final dividend, the following debts shall be paid in priority to all other debts— (a) firstly, the costs and expenses incurred by the bankruptcy trustee for the bankruptcy process in full; (b) secondly,— (i) the workmen’s dues for the period of twenty-four months preceding the bankruptcy commencement date; and (ii) debts owed to secured creditors; (c) thirdly, wages and any unpaid dues owed to employees, other than workmen, of the bankrupt for the period of twelve months preceding the bankruptcy commencement date; (d) fourthly, any amount due to the Central Government and the State Government including the amount to be received on account of Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the bankruptcy commencement date; (e) lastly, all other debts and dues owed by the bankrupt including unsecured debts. (2) The debts in each class specified in sub-section (1) shall rank in the order mentioned in that sub-section but debts of the same class shall rank equally amongst themselves, and shall be paid in full, unless the estate of the bankrupt is insufficient to meet them, in which case they shall abate in equal proportions between themselves. (3) Where any creditor has given any indemnity or has made any payment of moneys by virtue of which any asset of the bankrupt has been recovered, protected or preserved, the Adjudicating Authority may make such order as it thinks just with respect to the distribution of such asset with a view to giving that creditor an advantage over other creditors in consideration of the risks taken by him in so doing. (4) Unsecured creditors shall rank equally amongst themselves unless contractually agreed to the contrary by such creditors. (5) Any surplus remaining after the payment of the debts under sub-section (1) shall be applied in paying interest on those debts in respect of the periods during which they have been outstanding since the bankruptcy commencement date. (6) Interest payments under sub-section (5) shall rank equally irrespective of the nature of the debt. (7) In the case of partners, the partnership property shall be applicable in the first instance in payment of the partnership debts and the separate property of each partner shall be applicable in the first instance in payment of his separate debts. (8) Where there is a surplus of the separate property of the partners, it shall be dealt with as part of the partnership property; and where there is a surplus of the partnership property, it shall be dealt with as part of the respective separate property in proportion to the rights and interests of each partner in the partnership property. Priority of payment of debts. 76

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II— CHAPTER VI ADJUDICATING AUTHORITY FOR INDIVIDUALS AND PARTNERSHIP FIRMS 179

 

. (1) Subject to the provisions of section 60, the Adjudicating Authority, in relation to insolvency matters of individuals and firms shall be the Debt Recovery Tribunal having territorial jurisdiction over the place where the individual debtor actually and voluntarily resides or carries on business or personally works for gain and can entertain an application under this Code regarding such person. (2) The Debt Recovery Tribunal shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain or dispose of— (a) any suit or proceeding by or against the individual debtor; (b) any claim made by or against the individual debtor; (c) any question of priorities or any other question whether of law or facts, arising out of or in relation to insolvency and bankruptcy of the individual debtor or firm under this Code. (3) Notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being in force, in computing the period of limitation specified for any suit or application in the name and on behalf of a debtor for which an order of moratorium has been made under this Part, the period during which such moratorium is in place shall be excluded. 180. (1) No civil court or authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal has jurisdiction under this Code. (2) No injunction shall be granted by any court, tribunal or authority in respect of any action taken, or to be taken, in pursuance of any power conferred on the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal by or under this Code. 181. (1) An appeal from an order of the Debt Recovery Tribunal under this Code shall be filed within thirty days before the Debt Recovery Appellate Tribunal. (2) The Debt Recovery Appellate Tribunal may, if it is satisfied that a person was prevented by sufficient cause from filing an appeal within thirty days, allow the appeal to be filed within a further period not exceeding fifteen days. 182. (1) An appeal from an order of the Debt Recovery Appellate Tribunal on a question of law under this Code shall be filed within forty-five days before the Supreme Court. (2) The Supreme Court may, if it is satisfied that a person was prevented by sufficient cause from filing an appeal within forty-five days, allow the appeal to be filed within a further period not exceeding fifteen days. 183. Where an application is not disposed of or order is not passed within the period specified in this Code, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be, shall record the reasons for not doing so within the period so specified; and the Chairperson of the Debt Recovery Appellate Tribunal, after taking into account the reasons so recorded, extend the period specified in this Code, but not exceeding ten days. Adjudicating Authority for individuals and partnership firms. Civil court not to have jurisdiction. Appeal to Debt Recovery Appellate Tribunal. Appeal to Supreme Court. Expeditious disposal of applications. 14 of 1963. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 77 CHAPTER VII OFFENCES AND PENALTIES 184.

 

• If a debtor or creditor provides information which is false in any material particulars to the resolution professional, he shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to five lakh rupees, or with both. (2) If a creditor promises to vote in favour of the repayment plan dishonestly by accepting any money, property or security from the debtor, he shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to three times the amount or its equivalent of such money, property or security accepted by such creditor, as the case may be, or with both: Provided that where such amount is not quantifiable, the total amount of fine shall not exceed five lakh rupees. 185. If an insolvency professional deliberately contravenes the provisions of this Part, he shall be punishable with imprisonment for a term which may extend to six months, or with fine, which shall not be less than one lakh rupees, but may extend to five lakhs rupees, or with both. 186. If the bankrupt— (a) knowingly makes a false representation or wilfully omits or conceals any material information while making an application for bankruptcy under section 122 or while providing any information during the bankruptcy process, he shall be punishable with imprisonment which may extend to six months, or with fine which may extend to five lakh rupees, or with both; Explanation.—For the purposes of clause (a), a false representation or omission includes non-disclosure of the details of disposal of any property, which but for the disposal, would be comprised in the estate of the bankrupt, other than dispositions made in the ordinary course of business carried on by the bankrupt; (b) fraudulently has failed to provide or deliberately withheld the production of, destroyed, falsified or altered, his books of account, financial information and other records under his custody or control, he shall be punishable with imprisonment which may extend to one year, or with fine, which may extend to five lakh rupees, or with both; (c) has contravened the restrictions under section 140 or the provisions of section 141, he shall be punishable with imprisonment for a term which may extend to six months, or with fine, which may extend to five lakh rupees, or with both; (d) has failed to deliver the possession of any property comprised in the estate of the bankrupt under his possession or control, which he is required to deliver under section 156, he shall be punishable with imprisonment for a term which may extend to six months, or with fine, which may extend to five lakh rupees, or with both; (e) has failed to account, without any reasonable cause or satisfactory explanation, for any loss incurred of any substantial part of his property comprised in the estate of the bankrupt from the date which is twelve months before the filing of the bankruptcy application, he shall be punishable with imprisonment for a term which may extend to two years, or with fine, which may extend to three times of the value of the loss, or with both: Provided that that where such loss is not quantifiable, the total amount of fine imposed shall not exceed five lakh rupees; Punishment for false information, etc., by creditor in insolvency resolution process. Punishment for contravention of provisions. Punishment for false information, concealment, etc., by bankrupt. 78

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

(f) has absconded or attempts to absconds after the bankruptcy commencement date, he shall be punishable with imprisonment for a term which may extend to one year, or with fine, which may extend to five lakh rupees, or with both; Explanation.—For the purposes of this clause, a bankrupt shall be deemed to have absconded if he leaves, or attempts to leave the country without delivering the possession of any property which he is required to deliver to the bankruptcy trustee under section 156. 187. If a bankruptcy trustee,— (a) has fraudulently misapplied,

 

• retained or accounted for any money or property comprised in the estate of the bankrupt; or (b) has wilfully acted in a manner that the estate of the bankrupt has suffered any loss in consequence of breach of any duty of the bankruptcy trustee in carrying out his functions under section 149, he shall be punishable with imprisonment for a term which may extend to three years, or with fine, which shall not be less than three times the amount of the loss caused, or likely to have been caused, to persons concerned on account of such contravention, or with both: Provided that where such loss or unlawful gain is not quantifiable, the total amount of fine imposed shall not exceed five lakh rupees: Provided further that the bankruptcy trustee shall not be liable under this section if he seizes or disposes of any property which is not comprised in the estate of the bankrupt and at that time had reasonable grounds to believe that he is entitled to seize or dispose that property.

 

PART IV REGULATION OF INSOLVENCY PROFESSIONALS, AGENCIES AND INFORMATION UTILITIES CHAPTER I THE INSOLVENCY AND BANKRUPTCY BOARD OF INDIA 188.

 

• With effect from such date as the Central Government may, by notification, appoint, there shall be established, for the purposes of this Code, a Board by the name of the Insolvency and Bankruptcy Board of India. (2) The Board shall be a body corporate by the name aforesaid, having perpetual succession and a common seal, with power, subject to the provisions of this Code, to acquire, hold and dispose of property, both movable and immovable, and to contract, and shall, by the said name, sue or be sued. (3) The head office of the Board shall be at such place in the National Capital Region, as the Central Government may, by notification, specify. Explanation.—For the purposes of this section, the expression “National Capital Region” shall have the same meaning as assigned to it in clause (f) of section 2 of the National Capital Region Planning Board Act, 1985. (4) The Board may establish offices at other places in India. 189. (1) The Board shall consist of the following members who shall be appointed by the Central Government, namely:— (a) a Chairperson; (b) three members from amongst the officers of the Central Government not below the rank of Joint Secretary or equivalent, one each to represent the Ministry of Finance, the Ministry of Corporate Affairs and Ministry of Law, ex officio; Punishment for certain actions. Establishment and incorporation of Board. Constitution of Board. 2 of 1985. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 79

 

• one member to be nominated by the Reserve Bank of India, ex officio; (d) five other members to be nominated by the Central Government, of whom at least three shall be the whole-time members. (2) The Chairperson and the other members shall be persons of ability, integrity and standing, who have shown capacity in dealing with problems relating to insolvency or bankruptcy and have special knowledge and experience in the field of law, finance, economics, accountancy or administration. (3) The appointment of the Chairperson and the members of the Board other than the appointment of an ex officio member under this section shall be made after obtaining the recommendation of a selection committee consisting of— (a) Cabinet Secretary—Chairperson; (b) Secretary to the Government of India to be nominated by the Central Government—Member; (c) Chairperson of the Insolvency and Bankruptcy Board of India (in case of selection of members of the Board)—Member; (d) three experts of repute from the field of finance, law, management, insolvency and related subjects, to be nominated by the Central Government—Members. (4) The term of office of the Chairperson and members (other than ex officio members) shall be five years or till they attain the age of sixty-five years, whichever is earlier, and they shall be eligible for reappointment. (5) The salaries and allowances payable to, and other terms and conditions of service of, the Chairperson and members (other than the ex officio members) shall be such as may be prescribed. 190. The Central Government may remove a member from office if he— (a) is an undischarged bankrupt as defined under Part III; (b) has become physically or mentally incapable of acting as a member; (c) has been convicted of an offence, which in the opinion of the Central Government involves moral turpitude; (d) has, so abused his position as to render his continuation in office detrimental to the public interest: Provided that no member shall be removed under clause (d) unless he has been given a reasonable opportunity of being heard in the matter. 191. Save as otherwise determined by regulations, the Chairperson shall have powers of general superintendence and direction of the affairs of the Board and may also exercise such other powers as may be delegated to him by the Board. . 192. (1) The Board shall meet at such times and places, and observe such rules of procedure in regard to the transaction of business at its meetings (including quorum at such meetings) as may be determined by regulations. (2) The Chairperson, or if, for any reason, the Chairperson is unable to attend any meeting of the Board, any other member chosen by the members present at the meeting shall preside at the meeting. (3) All questions which come up before any meeting of the Board shall be decided by a majority votes of the members present and voting, and, in the event of an equality of votes, the Chairperson, or in his absence, the person presiding, shall have a second or casting vote. Removal of member from office. Powers of Chairperson. Meetings of Board. 80

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

193. Any member, who is a director of a company and who as such director has any direct or indirect pecuniary interest in any matter coming up for consideration at a meeting of the Board, shall, as soon as possible after relevant circumstances have come to his knowledge, disclose the nature of his interest at such meeting and such disclosure shall be recorded in the proceedings of the Board, and the member shall not take any part in any deliberation or decision of the Board with respect to that matter. 194. (1) No act or proceeding of the Board shall be invalid merely by reason of— (a) any vacancy in, or any defect in the constitution of, the Board; or (b) any defect in the appointment of a person acting as a member of the Board; or (c) any irregularity in the procedure of the Board not affecting the merits of the case. (2) The Board may appoint such other officers and employees as it considers necessary for the efficient discharge of its functions in such manner as may be specified. (3) The salaries and allowances payable to, and other terms and conditions of service of, officers and employees of the Board appointed under sub-section (2) shall be such as may be specified by regulations. 195. Until the Board is established, the Central Government may by notification, designate any financial sector regulator to exercise the powers and functions of the Board under this Code.

 

CHAPTER II POWERS AND FUNCTIONS OF THE BOARD 196.

 

• The Board shall, subject to the general direction of the Central Government, perform all or any of the following functions namely:— (a) register insolvency professional agencies, insolvency professionals and information utilities and renew, withdraw, suspend or cancel such registrations; (b) specify the minimum eligibility requirements for registration of insolvency professional agencies, insolvency professionals and information utilities; (c) levy fee or other charges for the registration of insolvency professional agencies, insolvency professionals and information utilities; (d) specify by regulations standards for the functioning of insolvency professional agencies, insolvency professionals and information utilities; (e) lay down by regulations the minimum curriculum for the examination of the insolvency professionals for their enrolment as members of the insolvency professional agencies; (f) carry out inspections and investigations on insolvency professional agencies, insolvency professionals and information utilities and pass such orders as may be required for compliance of the provisions of this Code and the regulations issued hereunder; (g) monitor the performance of insolvency professional agencies, insolvency professionals and information utilities and pass any directions as may be required for compliance of the provisions of this Code and the regulations issued hereunder; (h) call for any information and records from the insolvency professional agencies, insolvency professionals and information utilities; Member not to participate in meetings in certain cases. Vacancies, etc., not to invalidate proceedings of Board, Officers and employees of Board. Power to designate financial sector regulator. Powers and functions of Board. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 81

 

• publish such information, data, research studies and other information as may be specified by regulations; (j) specify by regulations the manner of collecting and storing data by the information utilities and for providing access to such data; (k) collect and maintain records relating to insolvency and bankruptcy cases and disseminate information relating to such cases; (l) constitute such committees as may be required including in particular the committees laid down in section 197; (m) promote transparency and best practices in its governance; (n) maintain websites and such other universally accessible repositories of electronic information as may be necessary; (o) enter into memorandum of understanding with any other statutory authorities; (p) issue necessary guidelines to the insolvency professional agencies, insolvency professionals and information utilities; (q) specify mechanism for redressal of grievances against insolvency professionals, insolvency professional agencies and information utilities and pass orders relating to complaints filed against the aforesaid for compliance of the provisions of this Code and the regulations issued hereunder; (r) conduct periodic study, research and audit the functioning and performance of to the insolvency professional agencies, insolvency professionals and information utilities at such intervals as may be specified by the Board; (s) specify mechanisms for issuing regulations, including the conduct of public consultation processes before notification of any regulations; (t) make regulations and guidelines on matters relating to insolvency and bankruptcy as may be required under this Code, including mechanism for time bound disposal of the assets of the corporate debtor or debtor; and (u) perform such other functions as may be prescribed. (2) The Board may make model bye-laws to be to adopted by insolvency professional agencies which may provide for— (a) the minimum standards of professional competence of the members of insolvency professional agencies; (b) the standards for professional and ethical conduct of the members of insolvency professional agencies; (c) requirements for enrolment of persons as members of insolvency professional agencies which shall be non-discriminatory; Explanation.—For the purposes of this clause, the term “non-discriminatory” means lack of discrimination on the grounds of religion, caste, gender or place of birth and such other grounds as may be specified; (d) the manner of granting membership; (e) setting up of a governing board for internal governance and management of insolvency professional agency in accordance with the regulations specified by the Board; (f) the information required to be submitted by members including the form and the time for submitting such information; 82

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

(g) the specific classes of persons to whom services shall be provided at concessional rates or for no remuneration by members; (h) the grounds on which penalties may be levied upon the members of insolvency professional agencies and the manner thereof; (i) a fair and transparent mechanism for redressal of grievances against the members of insolvency professional agencies; (j) the grounds under which the insolvency professionals may be expelled from the membership of insolvency professional agencies; (k) the quantum of fee and the manner of collecting fee for inducting persons as its members; (l) the procedure for enrolment of persons as members of insolvency professional agency; (m) the manner of conducting examination for enrolment of insolvency professionals; (n) the manner of monitoring and reviewing the working of insolvency professional who are members; (o) the duties and other activities to be performed by members; (p) the manner of conducting disciplinary proceedings against its members and imposing penalties; (q) the manner of utilising the amount received as penalty imposed against any insolvency professional. (3) Notwithstanding anything contained in any other law for the time being in force, while exercising the powers under this Code, the Board shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely:— (i) the discovery and production of books of account and other documents, at such place and such time as may be specified by the Board; (ii) summoning and enforcing the attendance of persons and examining them on oath; (iii) inspection of any books, registers and other documents of any person at any place; (iv) issuing of commissions for the examination of witnesses or documents. 197. The Board may, for the efficient discharge of its functions, may constitute advisory and executive committees or such other committees, as it may deem fit, consisting of a Chairperson and such other members as may be specified by regulations. 198. Notwithstanding anything contained in this Code, where the Board does not perform any act within the period specified under this Code, the relevant Adjudicating Authority may, for reasons to be recorded in writing, condone the delay.

 

 

CHAPTER III INSOLVENCY PROFESSIONAL AGENCIES 199.

 

Save as otherwise provided in this Code, no person shall carry on its business as insolvency professional agencies under this Code and enrol insolvency professionals as its members except under and in accordance with a certificate of registration issued in this behalf by the Board. Constitution of advisory committee, executive committee or other committee. Condonation of delay. No person to function as insolvency professional agency without valid certificate of registration. 5 of 1908. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY.

 

The Board shall have regard to the following principles while registering the insolvency professional agencies under this Code, namely:— (a) to promote the professional development of and regulation of insolvency professionals; (b) to promote the services of competent insolvency professionals to cater to the needs of debtors, creditors and such other persons as may be specified; (c) to promote good professional and ethical conduct amongst insolvency professionals; (d) to protect the interests of debtors, creditors and such other persons as may be specified; (e) to promote the growth of insolvency professional agencies for the effective resolution of insolvency and bankruptcy processes under this Code. 201. (1) Every application for registration shall be made to the Board in such form and manner, containing such particulars, and accompanied by such fee, as may be specified by regulations: Provided that every application received by the Board shall be acknowledged within seven days of its receipt. (2) On receipt of the application under sub-section (1), the Board may, on being satisfied that the application conforms with all requirements specified under sub-section (1), grant a certificate of registration to the applicant or else, reject, by order, such application: Provided that no order rejecting the application shall be made without giving an opportunity of being heard to the applicant: Provided further that every order so made shall be communicated to the applicant within a period of fifteen days. (3) The Board may issue a certificate of registration to the applicant in such form and manner and subject to such terms and conditions as may be specified. (4) The Board may renew the certificate of registration from time to time in such manner and on payment of such fee as may be specified. (5) The Board may, by order, suspend or cancel the certificate of registration granted to an insolvency professional agency on any of the following grounds, namely:— (a) that it has obtained registration by making a false statement or misrepresentation or by any other unlawful means; (b) that it has failed to comply with the requirements of the regulations made by the Board or bye-laws made by the insolvency professional agency; (c) that it has contravened any of the provisions of the Act or the rules or the regulations made thereunder; (d) on any other ground as may be specified by regulations: Provided that no order shall be made under this sub-section unless the insolvency professional agency concerned has been given a reasonable opportunity of being heard: Provided further that no such order shall be passed by any member except whole-time members of the Board. 202. Any insolvency professional agency which is aggrieved by the order of the Board made under section 201 may prefer an appeal to the National Company Law Appellate Tribunal in such form, within such period, and in such manner, as may be specified by regulations. Principles governing registration of insolvency professional agency. Registration of insolvency professional agency. Appeal to National Company Law Appellate Tribunal. 84

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II— 203.

 

The Board may, for the purposes of ensuring that every insolvency professional agency takes into account the objectives sought to be achieved under this Code, make regulations to specify— (a) the setting up of a governing board of an insolvency professional agency; (b) the minimum number of independent members to be on the governing board of the insolvency professional agency; and (c) the number of the insolvency professionals being its members who shall be on the governing board of the insolvency professional agency. 204. An insolvency professional agency shall perform the following functions, namely:— (a) grant membership to persons who fulfil all requirements set out in its byelaws on payment of membership fee; (b) lay down standards of professional conduct for its members; (c) monitor the performance of its members; (d) safeguard the rights, privileges and interests of insolvency professionals who are its members; (e) suspend or cancel the membership of insolvency professionals who are its members on the grounds set out in its bye-laws; (f) redress the grievances of consumers against insolvency professionals who are its members; and (g) publish information about its functions, list of its members, performance of its members and such other information as may be specified by regulations. 205. Subject to the provisions of this Code and any rules or regulations made thereunder and after obtaining the approval of the Board,every insolvency professional agency shall make bye-laws consistent with the model bye-laws specified by the Board under sub-section (2) of section 196

 

. CHAPTER IV INSOLVENCY PROFESSIONALS 206.

 

No person shall render his services as insolvency professional under this Code without being enrolled as a member of an insolvency professional agency and registered with the Board. 207. (1) Every insolvency professional shall, after obtaining the membership of any insolvency professional agency, register himself with the Board within such time, in such manner and on payment of such fee, as may be specified by regulations. (2) The Board may specify the categories of professionals or persons possessing such qualifications and experience in the field of finance, law, management, insolvency or such other field, as it deems fit. 208. (1) Where any insolvency resolution, fresh start, liquidation or bankruptcy process has been initiated, it shall be the function of an insolvency professional to take such actions as may be necessary, in the following matters, namely:— (a) a fresh start order process under Chapter II of Part III; (b) individual insolvency resolution process under Chapter III of Part III; Governing Board of insolvency professional agency. Functions of insolvency professional agencies. Insolvency professional agencies to make bye-laws. Enrolled and registered persons to act as insolvency professionals. Registration of insolvency professionals. Functions and obligations of insolvency professionals. SEC. 1]

 

 

THE GAZETTE OF INDIA EXTRAORDINARY 85

 

• corporate insolvency resolution process under Chapter II of Part II; (d) individual bankruptcy process under Chapter IV of Part III; and (e) liquidation of a corporate debtor firm under Chapter III of Part II. (2) Every insolvency professional shall abide by the following code of conduct:— (a) to take reasonable care and diligence while performing his duties; (b) to comply with all requirements and terms and conditions specified in the bye-laws of the insolvency professional agency of which he is a member; (c) to allow the insolvency professional agency to inspect his records; (d) to submit a copy of the records of every proceeding before the Adjudicating Authority to the Board as well as to the insolvency professional agency of which he is a member; and (e) to perform his functions in such manner and subject to such conditions as may be specified.

 

CHAPTER V INFORMATION UTILITIES 209.

 

Save as otherwise provided in this Code, no person shall carry on its business as information utility under this Code without a certificate of registration issued in that behalf by the Board. 210. (1) Every application for registration shall be made to the Board in such form and manner, containing such particulars, and accompanied by such fee, as may be specified by regulations: Provided that every application received by the Board shall be acknowledged within seven days of its receipt. (2) On receipt of the application under sub-section (1), the Board may, on being satisfied that the application conforms to all requirements specified under sub-section (1), grant a certificate of registration to the applicant or else, reject, by order, such application. (3) The Board may issue a certificate of registration to the applicant in such form and manner and subject to such terms and conditions as may be specified. (4) The Board may renew the certificate of registration from time to time in such manner and on payment of such fee as may be specified by regulations. (5) The Board may, by order, suspend or cancel the certificate of registration granted to an information utility on any of the following grounds, namely:— (a) that it has obtained registration by making a false statement or misrepresentation or any other unlawful means; (b) that it has failed to comply with the requirements of the regulations made by the Board; (c) that it has contravened any of the provisions of the Act or the rules or the regulations made thereunder; (d) on any other ground as may be specified by regulations: Provided that no order shall be made under this sub-section unless the information utility concerned has been given a reasonable opportunity of being heard: No person to function as information utility without certificate of registration. Registration of information utility. 86

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

Provided further that no such order shall be passed by any member except whole-time members of the Board. 211. Any information utility which is aggrieved by the order of the Board made under section 210 may prefer an appeal to the National Company Law Appellate Tribunal in such form, within such period, and in such manner, as may be specified by regulations. 212. The Board may, for ensuring that an information utility takes into account the objectives sought to be achieved under this Code, require every information utility to set up a governing board, with such number of independent members, as may be specified by regulations. 213. An information utility shall provide such services as may be specified including core services to any person if such person complies with the terms and conditions as may be specified by regulations. 214. For the purposes of providing core services to any person, every information utility shall-— (a) create and store financial information in a universally accessible format; (b) accept electronic submissions of financial information from persons who are under obligations to submit financial information under sub-section (1) of section 215, in such form and manner as may be specified by regulations; (c) accept, in specified form and manner, electronic submissions of financial information from persons who intend to submit such information; (d) meet such minimum service quality standards as may be specified by regulations; (e) get the information received from various persons authenticated by all concerned parties before storing such information; (f) provide access to the financial information stored by it to any person who intends to access such information in such manner as may be specified by regulations; (g) publish such statistical information as may be specified by regulations; (h) have inter-operatability with other information utilities. 215. (1) Any person who intends to submit financial information to the information utility or access the information from the information utility shall pay such fee and submit information in such form and manner as may be specified by regulations. (2) A financial creditor shall submit financial information and information relating to assets in relation to which any security interest has been created, in such form and manner as may be specified by regulations. (3) An operational creditor may submit financial information to the information utility in such form and manner as may be specified. 216. (1) A person who intends to update or modify or rectify errors in the financial information submitted under section 215, he may make an application to the information utility for such purpose stating reasons therefor, in such manner and within such time, as may be specified. Appeal to National Company Law Appellate Tribunal. Governing Board of information utility. Core services, etc., of information utilities. Obligations of information utility. Procedure for submission, etc., of financial information. Rights and obligations of persons submitting financial information. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 87

 

• A person who submits financial information to an information utility shall not provide such information to any other person, except to such extent, under such circumstances, and in such manner, as may be specified.

 

• CHAPTER VI INSPECTION AND INVESTIGATION 217.

 

 

 

• Any person aggrieved by the functioning of an insolvency professional agency or insolvency professional or an information utility may file a complaint to the Board in such form, within such time and in such manner as may be specified. 218. (1) Where the Board, on receipt of a complaint under section 217 or has reasonable grounds to believe that any insolvency professional agency or insolvency professional or an information utility has contravened any of the provisions of the Code or the rules or regulations made or directions issued by the Board thereunder, it may, at any time by an order in writing, direct any person or persons to act as an investigating authority to conduct an inspection or investigation of the insolvency professional agency or insolvency professional or an information utility. (2) The inspection or investigation carried out under sub-section (1) of this section shall be conducted within such time and in such manner as may be specified by regulations. (3) The Investigating Authority may, in the course of such inspection or investigation, require any other person who is likely to have any relevant document, record or information to furnish the same, and such person shall be bound to furnish such document, record or information: Provided that the Investigating Authority shall provide detailed reasons to such person before requiring him to furnish such document, record or information. (4) The Investigating Authority may, in the course of its inspection or investigation, enter any building or place where they may have reasons to believe that any such document, record or information relating to the subject-matter of the inquiry may be found and may seize any such document, record or information or take extracts or copies therefrom, subject to the provisions of section 100 of the Code of Criminal Procedure, 1973, insofar as they may be applicable. (5) The Investigating Authority shall keep in its custody the books, registers, other documents and records seized under this section for such period not later than the conclusion of the investigation as it considers necessary and thereafter shall return the same to the concerned person from whose custody or power they were seized: Provided that the Investigating Authority may, before returning such books, registers, other documents and record as aforesaid, place identification marks on them or any part thereof. (6) A detailed report of inspection or investigation shall be submitted to the Board by the Investigating Authority. 219.The Board may, upon completion of an inspection or investigation under section 218, issue a show cause notice to such insolvency professional agency or insolvency professional or information utility, and carry out inspection of such insolvency professional agency or insolvency professional or information utility in such manner, giving such time for giving reply, as may be specified by regulations. Complaints against insolvency professional agency or its member or information utility. Investigation of insolvency professional agency or its member or information utility. Show cause notice to insolvency professional agency or its member or information utility. 88

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II— 220

 

. (1) The Board shall constitute a disciplinary committee to consider the reports of the investigating Authority submitted under sub-section (6) of section 218: Provided that the members of the disciplinary committee shall consist of whole-time members of the Board only. (2) On the examination of the report of the Investigating Authority, if the disciplinary committee is satisfied that sufficient cause exists, it may impose penalty as specified in sub-section (3) or suspend or cancel the registration of the insolvency professional or, suspend or cancel the registration of insolvency professional agency or information utility as the case may be. (3) Where any insolvency professional agency or insolvency professional or an information utility has contravened any provision of this Code or rules or regulations made thereunder, the disciplinary committee may impose penalty which shall be— (i) three times the amount of the loss caused, or likely to have been caused, to persons concerned on account of such contravention; or (ii) three times the amount of the unlawful gain made on account of such contravention, whichever is higher: Provided that where such loss or unlawful gain is not quantifiable, the total amount of the penalty imposed shall not exceed more than one crore rupees. (4) Notwithstanding anything contained in sub-section (3), the Board may direct any person who has made unlawful gain or averted loss by indulging in any activity in contravention of this Code, or the rules or regulations made thereunder, to disgorge an amount equivalent to such unlawful gain or aversion of loss. (5) The Board may take such action as may be required to provide restitution to the person who suffered loss on account of any contravention from the amount so disgorged, if the person who suffered such loss is identifiable and the loss so suffered is directly attributable to such person. (6) The Board may make regulations to specify— (a) the procedure for claiming restitution under sub-section (5); (b) the period within which such restitution may be claimed; and (c) the manner in which restitution of amount may be made.

 

CHAPTER VII FINANCE, ACCOUNTS AND AUDIT 221.

 

The Central Government may, after due appropriation made by Parliament by law in this behalf, make to the Board grants of such sums of money as that Government may think fit for being utilised for the purposes of this Code. 222. (1) There shall be constituted a Fund to be called the Fund of the Insolvency and Bankruptcy Board and there shall be credited thereto— (a) all grants, fees and charges received by the Board under this Code; (b) all sums received by the Board from such other sources as may be decided upon by the Central Government; (c) such other funds as may be specified by the Board or prescribed by the Central Government. (2) The Fund shall be applied for meeting— Appointment of disciplinary committee. Grants by Central Government. Board’s Fund. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 89

 

• the salaries, allowances and other remuneration of the members, officers and other employees of the Board; (b) the expenses of the Board in the discharge of its functions under section 196; (c) the expenses on objects and for purposes authorised by this Code; (d) such other purposes as may be prescribed. 223. (1) The Board shall maintain proper accounts and other relevant records and prepare an annual statement of accounts in such form as may be prescribed by the Central Government in consultation with the Comptroller and Auditor-General of India. (2) The accounts of the Board shall be audited by the Comptroller and Auditor-General of India at such intervals as may be specified by him and any expenditure incurred in connection with such audit shall be payable by the Board to the Comptroller and AuditorGeneral of India. (3) The Comptroller and Auditor-General of India and any other person appointed by him in connection with the audit of the accounts of the Board shall have the same rights and privileges and authority in connection with such audit as the Comptroller and Auditor-General generally has in connection with the audit of the Government accounts and, in particular, shall have the right to demand the production of books, accounts, connected vouchers and other documents and papers and to inspect any of the offices of the Board. (4) The accounts of the Board as certified by the Comptroller and Auditor-General of India or any other person appointed by him in this behalf together with the audit report thereon shall be forwarded annually to the Central Government and that Government shall cause the same to be laid before each House of Parliament.

 

PART V MISCELLENEOUS 224.

 

• There shall be formed a Fund to be called the Insolvency and Bankruptcy Fund (hereafter in this section referred to as the “Fund”) for the purposes of insolvency resolution, liquidation and bankruptcy of persons under the Code. (2) There shall be credited to the Fund the following amounts, namely— (a) the grants made by the Central Government for the purposes of the Fund; (b) the amount deposited by persons as contribution to the Fund; (c) the amount received in the Fund from any other source; and (d) the interest or other income received out of the investment made from the Fund. (3) A person who has contributed any amount to the Fund may, in the event of proceedings initiated in respect of such person under this Code before an Adjudicating Authority, make an application to such Adjudicating Authority for withdrawal of funds not exceeding the amount contributed by it, for making payments to workmen, protecting the assets of such persons, meeting the incidental costs during the proceedings or such other purposes as may be prescribed. (4) The Central Government shall, by notification, appoint an administrator to administer the fund in such manner as may be prescribed. 225. (1) Without prejudice to the foregoing provisions of this Code, the Board shall, in exercise of its powers or the performance of its functions under this Code, be bound by such directions on questions of policy as the Central Government may give in writing to it from time to time: Accounts and audit. Insolvency and Bankruptcy Fund. Power of Central Government to issue directions. 90

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

Provided that the Board shall, as far as practicable, be given an opportunity to express its views before any direction is given under this sub-section. (2) The decision of the Central Government as to whether a question is one of policy or not shall be final. 226. (1) If at any time the Central Government is of opinion— (a) that on account of grave emergency, the Board is unable to discharge the functions and duties imposed on it by or under the provisions of this Code; or (b) that the Board has persistently not complied with any direction issued by the Central Government under this Code or in the discharge of the functions and duties imposed on it by or under the provisions of this Code and as a result of such noncompliance the financial position of the Board or the administration of the Board has deteriorated; or (c) that circumstances exist which render it necessary in the public interest so to do, the Central Government may, by notification, supersede the Board for such period, not exceeding six months, as may be specified in the notification. (2) Upon the publication of a notification under sub-section (1) superseding the Board, — (a) all the members shall, as from the date of supersession, vacate their offices as such; (b) all the powers, functions and duties which may, by or under the provisions of this Code, be exercised or discharged by or on behalf of the Board, shall until the Board is reconstituted under sub-section (3), be exercised and discharged by such person or persons as the Central Government may direct; and (c) all property owned or controlled by the Board shall, until the Board is reconstituted under sub-section (3), vest in the Central Government. (3) On the expiration of the period of supersession specified in the notification issued under sub-section (1), the Central Government may reconstitute the Board by a fresh appointment and in such case any person or persons who vacated their offices under clause (a) of sub-section (2), shall not be deemed disqualified for appointment: Provided that the Central Government may, at any time, before the expiration of the period of supersession, take action under this sub-section. (4) The Central Government shall cause a notification issued under sub-section (1) and a full report of any action taken under this section and the circumstances leading to such action to be laid before each House of Parliament at the earliest. 227. Notwithstanding anything to the contrary examined in this Code or any other law for the time being in force, the Central Government may, if it considers necessary, in consultation with the appropriate financial sector regulators, notify financial service providers or categories of financial service providers for the purpose of their insolvency and liquidation proceedings, which may be conducted under this Code, in such manner as may be prescribed. 228. The Board shall prepare, in such form and at such time in each financial year as may be prescribed, its budget for the next financial year, showing the estimated receipts and expenditure of the Board and forward the same to the Central Government. 229. (1) The Board shall prepare, in such form and at such time in each financial year as may be prescribed, its annual report, giving a full account of its activities during the previous financial year, and submit a copy thereof to the Central Government. (2) A copy of the report received under sub-section (1) shall be laid, as soon as may be after it is received, before each House of Parliament. Power of Central Government to supersede Board. Power of Central Government to notify financial service providers, etc. Budget. Annual report. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 91 230.

 

The Board may, by general or special order in writing delegate to any member or officer of the Board subject to such conditions, if any, as may be specified in the order, such of its powers and functions under this Code (except the powers under section 240 as it may deem necessary. 231. No civil court shall have jurisdiction in respect of any matter in which the Adjudicating Authority is empowered by, or under, this Code to pass any order and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any order passed by such Adjudicating Authority under this Code. 232. The Chairperson, Members, officers and other employees of the Board shall be deemed, when acting or purporting to act in pursuance of any of the provisions of this Code, to be public servants within the meaning of section 21 of the Indian Penal Code. 233. No suit, prosecution or other legal proceeding shall lie against the Government or any officer of the Government, or the Chairperson, Member, officer or other employee of the Board or an insolvency professional or liquidator for anything which is in done or intended to be done in good faith under this Code or the rules or regulations made thereunder. 234. (1) The Central Government may enter into an agreement with the Government of any country outside India for enforcing the provisions of this Code. (2) The Central Government may, by notification in the Official Gazette, direct that the application of provisions of this Code in relation to assets or property of corporate debtor or debtor, including a personal guarantor of a corporate debtor, as the case may be, situated at any place in a country outside India with which reciprocal arrangements have been made, shall be subject to such conditions as may be specified. 235. (1) Notwithstanding anything contained in this Code or any law for the time being in force if, in the course of insolvency resolution process, or liquidation or bankruptcy proceedings, as the case may be, under this Code, the resolution professional, liquidator or bankruptcy trustee, as the case may be, is of the opinion that assets of the corporate debtor or debtor, including a personal guarantor of a corporate debtor, are situated in a country outside India with which reciprocal arrangements have been made under section 234, he may make an application to the Adjudicating Authority that evidence or action relating to such assets is required in connection with such process or proceeding. (2) The Adjudicating Authority on receipt of an application under sub-section (1) and, on being satisfied that evidence or action relating to assets under sub-section (1) is required in connection with insolvency resolution process or liquidation or bankruptcy proceeding, may issue a letter of request to a court or an authority of such country competent to deal with such request. 236. (1) Notwithstanding anything in the Code of Criminal Procedure, 1973, offences under this Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013. (2) No Court shall take cognizance of any offence punishable under this Act, save on a complaint made by the Board or the Central Government or any person authorised by the Central Government in this behalf. (3) The provisions of the Code of Criminal Procedure, 1973 shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be deemed to be a Court of Session and the person conducting a prosecution before a Special Court shall be deemed to be a Public Prosecutor. (4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, in case of a complaint under sub-section (2), the presence of the person authorised by the Delegation. Bar of jurisdiction. Members, officers and employees of Board to the public servants. Protection of action taken in good faith. Agreements with foreign countries. Letter of request to a country outside India in certain cases. Trial of offences by Special Court. 45 of 1860. 2 of 1974. 18 of 2013. 92

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

Central Government or the Board before the Court trying the offences shall not be necessary unless the Court requires his personal attendance at the trial. 237. The High Court may exercise, so far as may be applicable, all the powers conferred by Chapters XXIX and XXX of the Code of Criminal Procedure, 1973 on a High Court, as if a Special Court within the local limits of the jurisdiction of the High Court were a Court of Session trying cases within the local limits of the jurisdiction of the High Court. 238. The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. 239. (1) The Central Government may, by notification, make rules for carrying out the provisions of this Code. (2) Without prejudice to the generality of the provisions of sub-section (1), the Central Government may make rules for any of the following matters, namely:— (a) any other instrument which shall be a financial product under clause (15) of section 3; (b) other accounting standards which shall be a financial debt under clause (d) of sub-section (8) of section 5; (c) the form, the manner and the fee for making application before the Adjudicating Authority for initiating corporate insolvency resolution process by financial creditor under sub-section (2) of section 7; (d) the form and manner in which demand notice may be made and the manner of delivery thereof to the corporate debtor under sub-section (1) of section 8; (e) the form, the manner and the fee for making application before the Adjudicating Authority for initiating corporate insolvency resolution process by operational creditor under sub-section (2) of section 9; (f) the form, the manner and the fee for making application before the Adjudicating Authority for initiating corporate insolvency resolution process by corporate applicant under sub-section (2) of section 10; (g) the persons who shall be relative under clause (ii) of the Explanation to sub-section (1) of section 79; (h) the value of unencumbered single dwelling unit owned by the debtor under clause (e) of sub-section (13) of section 79; (i) the value under clause (c), and any other debt under clause (f), of sub-section (14) of section 79; (j) the form, the manner and the fee for making application for fresh start order under sub-section (3) of section 81; (k) the particulars of the debtor’s personal details under clause (e) of sub-section (3) of section 81; (l) the information and documents to support application under sub-section (3) of section 86; (m) the form, the manner and the fee for making application for initiating the insolvency resolution process by the debtor under sub-section (6) of section 94; (n) the form, the manner and the fee for making application for initiating the insolvency resolution process by the creditor under sub-section (6) of section 95; Appeal and revision. Provisions of this Code to override other laws. Power to make rules. 2 of 1974. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 93

 

(o) the particulars to be provided by the creditor to the resolution professional under sub-section (2) of section 103; (p) the form and the manner for making application for bankruptcy by the debtor under clause (b) of sub-section (1) of section 122; (q) the form and the manner of the statement of affairs of the debtor under sub-section (3) of section 122; (r) the other information under clause (d) of sub-section (1) of section 123; (s) the form, the manner and the fee for making application for bankruptcy under sub-section (6) of section 123; (t) the form and the manner in which statement of financial position shall be submitted under sub-section (2) of section 129; (u) the matters and the details which shall be included in the public notice under sub-section (2) of section 130; (v) the matters and the details which shall be included in the notice to the creditors under sub-section (3) of section 130; the manner of sending details of the claims to the bankruptcy trustee and other information under sub-sections (1) and (2) of section 131; (x) the value of financial or commercial transaction under clause (d) of sub-section (1) of section 141; (y) the other things to be done by a bankrupt to assist bankruptcy trustee in carrying out his functions under clause (d) of sub-section (1) of section 150; (z) the manner of dealing with the surplus under sub-section (4) of section 170; (za) the form and the manner of proof of debt under clause (c) of sub-section (2) of section 171; (zb) the manner of receiving dividends under sub-section (7) of section 171; (zc) the particulars which the notice shall contain under sub-section (2) of section 176; (zd) the salaries and allowances payable to, and other terms and conditions of service of, the Chairperson and members of the Board under sub-section (5) of section 189; (ze) the other functions of the Board under clause (u) of sub-section (1) of section 196; (zf) the other funds under clause (c) of sub-section (1) of section 222; (zg) the other purposes for which the fund shall be applied under clause (d) of sub-section (2) of section 222; (zh) the form in which annual statement of accounts shall be prepared under sub-section (1) of section 223; (zi) the purpose for which application for withdrawal of funds may be made under sub-section (3) of section 224; (zj) the manner of administering the fund under sub-section (4) of section 224; (zk) the manner of conducting insolvency and liquidation proceedings under section 227; (zl) the form and the time for preparing budget by the Board under section 228; 94 THE GAZETTE OF INDIA EXTRAORDINARY [PART II— (zm) the form and the time for preparing annual report under sub-section (1) of section 229; (zn) the time up to which a person appointed to any office shall continue to hold such office under clause (vi) of sub-section (2) of section 243. 240. (1) The Board may, by notification, make regulations consistent with this Code and the rules made thereunder, to carry out the provisions of this Code. (2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters, namely:— (a) the form and the manner of accepting electronic submission of financial information under sub-clause (a) of clause (9) of section 3; (b) the persons to whom access to information stored with the information utility may be provided under sub-clause (d) of clause (9) of section 3; (c) the other information under sub-clause (f) of clause (13) of section 3; (d) the other costs under clause (e) of sub-section (13) of section 5; (e) the cost incurred by the liquidator during the period of liquidation which shall be liquidation cost under sub-section (16) of section 5; (f) the other record or evidence of default under clause (a), and any other information under clause (c), of sub-section (3) of section 7; (g) the other information under clause (d) of sub-section (3) of section 9; (h) the period under clause (a) of sub-section (3) of section 10; (i) the supply of essential goods or services to the corporate debtor under sub-section (2) of section 14; (j) the manner of making public announcement under sub-section (2) of section 15; (k) the manner of taking action and the restrictions thereof under clause (b) of sub-section (2) of section 17; (l) the other persons under clause (d) of sub-section (2) of section 17; (m) the other matters under clause (d) of sub-section (2) of section 17; (n) the other matters under sub-clause (iv) of clause (a), and the other duties to be performed by the interim resolution professional under clause (g), of section 18; (o) the persons who shall comprise the committee of creditors, the functions to be exercised such committee and the manner in which functions shall be exercised under the proviso to sub-section (8) of section 21; (p) the other electronic means by which the members of the committee of creditors may meet under sub-section (1) of section 24; (q) the manner of assigning voting share to each creditor under sub-section (7) of section 24; (r) the manner of conducting the meetings of the committee of creditors under sub-section (8) of section 24; (s) the manner of appointing accountants, lawyers and other advisors under clause (d) of sub-section (2) of section 25; (t) the other actions under clause (k) of sub-section (2) of section 25; (u) the form and the manner in which an information memorandum shall be prepared by the resolution professional sub-section (1) of section 29; Power to make regulations. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 95

 

(v) the other matter pertaining to the corporate debtor under the Explanation to sub-section (2) of section 29; the manner of making payment of insolvency resolution process costs under clause (a), the manner of repayment of debts of operational creditors under clause (b), and the other requirements to which a resolution plan shall conform to under clause (d), of sub-section (2) of section 30; (x) the fee for the conduct of the liquidation proceedings and proportion to the value of the liquidation estate assets under sub-section (8) of section 34; (y) the manner of evaluating the assets and property of the corporate debtor under clause (c), the manner of selling property in parcels under clause (f), the manner of reporting progress of the liquidation process under clause (n), and the other functions to be performed under clause (o), of sub-section (1) of section 35; (z) the manner of making the records available to other stakeholders under sub-section (2) of section 35; (za) the other means under clause (a) of sub-section (3) of section 36; (zb) the other assets under clause (e) of sub-section (4) of section 36; (zc) the other source under clause (g) of sub-section (1) of section 37; (zd) the manner of providing financial information relating to the corporate debtor under sub-section (2) of section 37; (ze) the form, the manner and the supporting documents to be submitted by operational creditor to prove the claim under sub-section (3) of section 38; (zf) the time within which the liquidator shall verify the claims under sub-section (1) of section 39; (zg) the manner of determining the value of claims under section 41; (zh) the manner of relinquishing security interest to the liquidation estate and receiving proceeds from the sale of assets by the liquidator under clause (a), and the manner of realising security interest under clause (b) of sub-section (1) of section 52; (zi) the other means under clause (b) of sub-section (3) of section 52; (zj) the manner in which secured creditor shall be paid by the liquidator under sub-section (9) of section 52; (zk) the period and the manner of distribution of proceeds of sale under sub-section (1) of section 53; (zl) the other means under clause (a) and the other information under clause (b) of section 57; (zm) the conditions and procedural requirements under sub-section (2) of section 59; (zn) the details and the documents required to be submitted under sub-section (7) of section 95; (zo) the other matters under clause (c) of sub-section (3) of section 105; (zp) the manner and form of proxy voting under sub-section (4) of section 107; (zq) the manner of assigning voting share to creditor under sub-section (2) of section 109; (zr) the manner and form of proxy voting under sub-section (3) of section 133; (zs) the fee to be charged under sub-section (1) of section 144; 96

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II

 

— (zt) the appointment of other officers and employees under sub-section (2), and the salaries and allowances payable to, and other terms and conditions of service of, such officers and employees of the Board under sub-section (3), of section 194; (zu) the other information under clause (i) of sub-section (1) of section 196; (zv) the intervals in which the periodic study, research and audit of the functioning and performance of the insolvency professional agencies, insolvency professionals and information utilities under clause (r), and mechanism for disposal of assets under clause (t), of sub-section (1) of section 196; (zw) the place and the time for discovery and production of books of account and other documents under clause (i) of sub-section (3) of section 196; (zx) the other committees to be constituted by the Board and the other members of such committees under section 197; (zy) the other persons under clause (b) and clause (d) of section 200; (zz) the form and the manner of application for registration, the particulars to be contained therein and the fee it shall accompany under sub-section (1) of section 201; (zza) the form and manner of issuing a certificate of registration and the terms and conditions thereof, under sub-section (3) of section 201; (zzb) the manner of renewal of the certificate of registration and the fee therefor, under sub-section (4) of section 201; (zzc) the other ground under clause (d) of sub-section (5) of section 201; (zzd) the form of appeal to the National Company Law Appellate Tribunal, the period within which it shall be filed under section 202; (zze) the other information under clause (g) of section 204; (zzf) the other grounds under Explanation to section 196; (zzg) the setting up of a governing board for its internal governance and management under clause (e), the curriculum under clause (l), the manner of conducting examination under clause (m) , of section 196; (zzh) the time within which, the manner in which, and the fee for registration of insolvency professional under sub-section (1) of section 207; (zzi) the categories of professionals or persons, the qualifications and experience and the fields under sub-section (2) of section 207; (zzj) the manner and the conditions subject to which the insolvency professional shall perform his function under clause (f) of sub-section (2) of section 208; (zzk) the form and manner in which, and the fee for registration of information utility under sub-section (1) of section 210; (zzl) the form and manner for issuing certificate of registration and the terms and conditions thereof, under sub-section (3) of section 210; (zzm) the manner of renewal of the certificate of registration and the fee therefor, under sub-section (4) of section 210; (zzn) the other ground under clause (d) of sub-section (5) of section 210; (zzo) the form, the period and the manner of filling appeal to the National Company Law Appellate Tribunal under section 211; (zzp) the number of independent members under section 212; (zzq) the services to be provided by information utility and the terms and conditions under section 213; SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 97 (zzr

 

) the form and manner of accepting electronic submissions of financial information under clause (b) and clause (c) of section 214; (zzs) the minimum service quality standards under clause (d) of section 214; (zzt) the information to be accessed and the manner of accessing such information under clause (f) of section 214; (zzu) the statistical information to be published under clause (g) of section 214; (zzv) the form, the fee and the manner for submitting or accessing information under sub-section (1) of section 215; (zzw) the form and manner for submitting financial information and information relating to assets under sub-section (2) of section 215; (zzx) the manner and the time within which financial information may be updated or modified or rectified under section 216; (zzy) the form, manner and time of filing complaint under section 217; (zzz) the time and manner of carrying out inspection or investigation under subsection (2) of section 218; (zzza) the manner of carrying out inspection of insolvency professional agency or insolvency professional or information utility and the time for giving reply under section 219; (zzzb) the procedure for claiming restitution under sub-section (6), the period within which such restitution may be claimed and the manner in which restitution of amount may be made under sub-section (7) of section 220; (zzzc) the other funds of clause (c) of sub-section (1) of section 222. 241. Every rule and every regulation made under this Code shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or regulation or both Houses agree that the rule or regulation should not be made, the rule or regulation shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule or regulation. 242. (1) If any difficulty arises in giving effect to the provisions of this Code, the Central Government may, by order, published in the Official Gazette, make such provisions not inconsistent with the provisions of this Code as may appear to be necessary for removing the difficulty: Provided that no order shall be made under this section after the expiry of five years from the commencement of this Code. (2) Every order made under this section shall be laid, as soon as may be after it is made, before each House of Parliament. 243. (1) The Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920 are hereby repealed. (2) Notwithstanding the repeal under sub-sections (1),— (i) all proceedings pending under and relating to the Presidency Towns Insolvency Act 1909, and the Provincial Insolvency Act 1920 immediately before the commencement of this Code shall continue to be governed under the aforementioned Acts and be Rules and regulations to be laid before Parliament. Power to remove difficulties. Repeal of certain enactments and savings. 5 of 1920. 3 of 1909. 98

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II

 

— heard and disposed of by the concerned courts or tribunals, as if the aforementioned Acts have not been repealed; (ii) any order, rule, notification, regulation, appointment, conveyance, mortgage, deed, document or agreement made, fee directed, resolution passed, direction given, proceeding taken, instrument executed or issued, or thing done under or in pursuance of any repealed enactment shall, if in force at the commencement of this Code, continue to be in force, and shall have effect as if the aforementioned Acts have not been repealed; (iii) anything done or any action taken or purported to have been done or taken, including any rule, notification, inspection, order or notice made or issued or any appointment or declaration made or any operation undertaken or any direction given or any proceeding taken or any penalty, punishment, forfeiture or fine imposed under the repealed enactments shall be deemed valid; (iv) any principle or rule of law, or established jurisdiction, form or course of pleading, practice or procedure or existing usage, custom, privilege, restriction or exemption shall not be affected, notwithstanding that the same respectively may have been in any manner affirmed or recognised or derived by, in, or from, the repealed enactments; (v) any prosecution instituted under the repealed enactments and pending immediately before the commencement of this Code before any court or tribunal shall, subject to the provisions of this Code, continue to be heard and disposed of by the concerned court or tribunal; (vi) any person appointed to any office under or by virtue of any repealed enactment shall continue to hold such office until such time as may be prescribed; and (vii) any jurisdiction, custom, liability, right, title, privilege, restriction, exemption, usage, practice, procedure or other matter or thing not in existence or in force shall not be revised or restored. (3) The mention of particular matters in sub-section (2) shall not be held to prejudice the general application of section 6 of the General Clauses Act, 1897 with regard to the effect of repeal of the repealed enactments or provisions of the enactments mentioned in the Schedule. 244. (1) Until the Board is constituted or a financial sector regulator is designated under section 195, as the case may be, the powers and functions of the Board or such designated financial sector regulator, including its power to make regulations, shall be exercised by the Central Government. (2) Without prejudice to the generality of the power under sub-section (1), the Central Government may by regulations provide for the following matters:— (a) recognition of persons, categories of professionals and persons having such qualifications and experience in the field of finance, law, management or insolvency as it deems necessary, as insolvency professionals and insolvency professional agencies under this Code; (b) recognition of persons with technological, statistical, and data protection capability as it deems necessary, as information utilities under this Code; and (c) conduct of the corporate insolvency resolution process, insolvency resolution process, liquidation process, fresh start process and bankruptcy process under this Code. 245. The Indian Partnership Act, 1932 shall be amended in the manner specified in the First Schedule. Transitional provisions. Amendments of Act 9 of 1932. 10 of 1897. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 99 246.

 

The Central Excise Act, 1944 shall be amended in the manner specified in the Second Schedule. 247. The Income- tax Act, 1961 shall be amended in the manner specified in the Third Schedule. 248. The Customs Act, 1962 shall be amended in the manner specified in the Fourth Schedule. 249. The Recovery of Debts due to Banks and Financial Institutions Act, 1993 shall be amended in the manner specified in the Fifth Schedule. 250. The Finance Act, 1994 shall be amended in the manner specified in the Sixth Schedule. 251. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 shall be amended in the manner specified in the Seventh Schedule. 252. The Sick Industrial Companies (Special Provisions) Repeal Act, 2003 shall be amended in the manner specified in the Eighth Schedule. 253. The Payment and Settlement Systems Act, 2007 shall be amended in the manner specified in the Ninth Schedule. 254. The Limited Liability Partnership Act, 2008 shall be amended in the manner specified in the Tenth Schedule. 255. The Companies Act, 2013 shall be amended in the manner specified in the Eleventh Schedule. THE FIRST SCHEDULE (See section 245)

 

AMENDMENT TO THE INDIAN PARTNERSHIP ACT, 1932 ( 9 OF 1932) 1. In section 41, clause (a) shall be omitted.

 

THE SECOND SCHEDULE (See section 246) AMENDMENT TO THE CENTRAL EXCISE ACT, 1944 (1 of 1944)

 

1. In section 11E, for the words, figures and brackets “and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 (54 of 2002) “, the words, figures and brackets “the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 (54 of 2002) and the Insolvency and Bankruptcy Code, 2016” shall be substituted. Amendments of Act 1 of 1944. Amendments of Act 43 of 1961. Amendments of Act 52 of 1962. Amendments of Act 51 of 1993. Amendments of Act 32 of 1994. Amendments of Act 54 of 2002. Amendments of Act 1 of 2004. Amendments of Act 51 of 2007. Amendments of Act 6 of 2009. Amendments of Act 18 of 2013. 100

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II— THE THIRD SCHEDULE (See section 247) AMENDMENT TO THE INCOME-TAX ACT, 1961 (43 OF 1961) In sub-section (6) of section 178, after the words “for the time being in force”, the words and figures “except the provisions of the Insolvency and Bankruptcy Code, 2016” shall be inserted. THE FOURTH SCHEDULE (See section 248) AMENDMENT TO THE CUSTOMS ACT, 1962 (52 OF 1962) In section 142A, for the words and figures “and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 (54 of 2002)”, the words and figures ” the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 and the Insolvency and Bankruptcy Code, 2016″ shall be substituted. THE FIFTH SCHEDULE (See section 249)

 

AMENDMENT TO THE RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993 (51 OF 1993) 1. In the long title, after the words “financial institutions”, the words “, insolvency resolution and bankruptcy of individuals and partnership firms” shall be inserted, namely:—. 2. In section 1,— (a) in sub-section (1), for the words “Due to Banks and Financial Institutions” the words “and Bankruptcy” shall be substituted; (b) in sub-section (4), for the words ” The provision of this Code”, the words “Save as otherwise provided, the provisions of this Code”, shall be substituted. 3. In section 3, after sub-section (1), the following sub-section shall be inserted, namely:— ” (1A) The Central Government shall by notification establish such number of Debts Recovery Tribunals and its benches as it may consider necessary, to exercise the jurisdiction, powers and authority of the Adjudicating Authority conferred on such Tribunal by or under the Insolvency and Bankruptcy Code, 2016.”. 4. In section 8, after sub-section (1), the following section shall be inserted, namely:— ” (1A) The Central Government shall, by notification, establish such number of Debt Recovery Appellate Tribunals to exercise jurisdiction, powers and authority to entertain appeal against the order made by the Adjudicating Authority under Part III of the Insolvency and Bankruptcy Code, 2016.”. 5. In section 17,— (i) after sub-section (1), the following sub-section shall be inserted, namely:— ” (1A) Without prejudice to sub-section (1),— (a) the Tribunal shall exercise, on and from the date to be appointed by the Central Government, the jurisdiction, powers and authority to entertain and decide applications under Part III of Insolvency and Bankruptcy Code, 2016. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 101

 

• the Tribunal shall have circuit sittings in all district headquarters.” (ii) after sub-section (2), the following sub-section shall be inserted, namely:— ” (2A) Without prejudice to sub-section (2), the Appellate Tribunal shall exercise, on and from the date to be appointed by the Central Government, the jurisdiction, powers and authority to entertain appeals against the order made by the Adjudicating Authority under Part III of the Insolvency and Bankruptcy Code, 2016.”. 6. After section 19, the following section shall be inserted, namely:— “19A. The application made to Tribunal for exercising the powers of the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016 shall be dealt with in the manner as provided under that Code.”. 7. In section 20, in sub-section (4) , after the word, brackets and figure “sub-section (1) “, the words, brackets and figures “or under sub-section (1) of section 181 of the Insolvency and Bankruptcy Code, 2016” shall be inserted. THE SIXTH SCHEDULE (See section 250 ) AMENDMENT TO THE FINANCE ACT, 1994 (32 OF 1994) In section 88, for the words and figures “and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 (54 of 2002)”, the words and figures “the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 and the Insolvency and Bankruptcy Code, 2016” shall be substituted. THE SEVENTH SCHEDULE (See section 251)

 

AMENDMENT TO THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 (54 OF 2002) In section 13, in sub-section (9), for the words “In the case of”, the words and figures “Subject to the provisions of the Insolvency and Bankruptcy Code, 2016, in the case of” shall be substituted. THE EIGHTH SCHEDULE (See section 252)

 

AMENDMENT TO THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) REPEAL ACT, 2003 (1 OF 2004) In section 4, for sub-clause (b), the following sub-clause shall be substituted, namely— ” (b) On such date as may be notified by the Central Government in this behalf, any appeal preferred to the Appellate Authority or any reference made or inquiry pending to or before the Board or any proceeding of whatever nature pending before the Appellate Authority or the Board under the Sick Industrial Companies (Special Provisions) Act,1985 (1 of 1986) shall stand abated: Provided that a company in respect of which such appeal or reference or inquiry stands abated under this clause may make reference to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 within one hundred and eighty days from 102

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II

 

— the commencement of the Insolvency and Bankruptcy Code, 2016 in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016: Provided further that no fees shall be payable for making such reference under Insolvency and Bankruptcy Code, 2016 by a company whose appeal or reference or inquiry stands abated under this clause.”.

 

THE NINTH SCHEDULE (See section 253)

AMENDMENT TO THE PAYMENT AND SETTLEMENT SYSTEMS ACT, 2007 (51 OF 2007) 1. In section 23, in sub-sections (4), (5) and (6), after the words and figures “the Banking Regulation Act, 1949 (10 of 1949)” “the Companies Act, 2013 (18 of 2013)”, the words and figures “or the Insolvency and Bankruptcy Code, 2016” shall be inserted. 2. In section 23A, in sub-section (3), after the words and figures “the Companies Act, 2013”, the words and figures “or the Insolvency and Bankruptcy Code, 2016” shall be inserted. THE TENTH SCHEDULE (See section 254)

 

AMENDMENT TO THE LIMITED LIABILITY PARTNERSHIP ACT, 2008 (6 OF 2009) In section 64, Clause (c) shall be omitted.

THE ELEVENTH SCHEDULE (See section 255) AMENDMENTS TO THE COMPANIES ACT, 2013 (18 OF 2013) 1. In section 2,—

• for clause (23), the following clause shall be substituted, namely:— “(23) “Company Liquidator” means a person appointed by the Tribunal as the Company Liquidator in accordance with the provisions of section 275 for the winding up of a company under this Act;”; (b) after clause (94) , the following clause shall be inserted, namely:— “(94A) “winding up” means winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as applicable.”. 2. In section 8, in sub-section (9), for the words “the Rehabilitation and Insolvency Fund formed under section 269”, the words “Insolvency and Bankruptcy Fund formed under section 224 of the Insolvency and Bankruptcy Code, 2016″ shall be substituted. 3. In section 66, in sub-section (8), for the words, brackets and figures ” is unable, within the meaning of sub-section (2) of section 271, to pay the amount of his debt or claim,”, the words and figures “commits a default, within the meaning of section 6 of the Insolvency and Bankruptcy Code, 2016, in respect of the amount of his debt or claim,” shall be substituted. 4. In sections 77, in sub-section (3), after the words “the liquidator”, the words and figures “appointed under this Act or the Insolvency and Bankruptcy Code, 2016, as the case may be,” shall be inserted. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 103 5.

 

In section 117 in sub-section (3), in clause (f), for the word and figures “section 304”, the words and figures “section 59 of the Insolvency and Bankruptcy Code, 2016” shall be substituted. 6. In section 224, in sub-section (2), after the words “wound up under this Act”, the words and figures “or under the Insolvency and Bankruptcy Code, 2016” shall be inserted. 6A. In section 230,— (a) in sub-section (1), after the word “liquidator”, the words “appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be,” shall be inserted; (b) in sub-section (6), after the word “on the liquidator”, the words “appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be,” shall be inserted; 7. In section 249, in sub-section (1), for clause (e), the following clause shall be substituted, namely:— ” (e) is being wound up under Chapter XX of this Act or under the Insolvency and Bankruptcy Code, 2016.”. 8. Sections 253 to 269 shall be omitted. 9. For section 270, the following section shall be substituted, namely:— “270. The provisions of Part I shall apply to the winding up of a company by the Tribunal under this Act.”. 10. For section 271, the following section shall be substituted, namely:— “271. A company may, on a petition under section 272, be wound up by the Tribunal,— (a) if the company has, by special resolution, resolved that the company be wound up by the Tribunal; (b) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality; (c) if on an application made by the Registrar or any other person authorised by the Central Government by notification under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is proper that the company be wound up; (d) if the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years; or (e) if the Tribunal is of the opinion that it is just and equitable that the company should be wound up.”. 12. For section 272, the following section shall be substituted, namely:— “272. (1) Subject to the provisions of this section, a petition to the Tribunal for the winding up of a company shall be presented by— Winding up by Tribunal. Circumstances in which company may be wound up by Tribunal. Petition for winding up. 104

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II— (a) the company; (b) any contributory or contributories; (c) all or any of the persons specified in clauses (a) and (b); (d) the Registrar; (e) any person authorised by the Central Government in that behalf; or (f) in a case falling under clause (b) of section 271, by the Central Government or a State Government. (2) A contributory shall be entitled to present a petition for the winding up of a company, notwithstanding that he may be the holder of fully paid-up shares, or that the company may have no assets at all or may have no surplus assets left for distribution among the shareholders after the satisfaction of its liabilities, and shares in respect of which he is a contributory or some of them were either originally allotted to him or have been held by him, and registered in his name, for at least six months during the eighteen months immediately before the commencement of the winding up or have devolved on him through the death of a former holder. (3) The Registrar shall be entitled to present a petition for winding up under section 271, except on the grounds specified in clause (a) or clause (e) of that sub-section: Provided that the Registrar shall obtain the previous sanction of the Central Government to the presentation of a petition: Provided further that the Central Government shall not accord its sanction unless the company has been given a reasonable opportunity of making representations. (4) A petition presented by the company for winding up before the Tribunal shall be admitted only if accompanied by a statement of affairs in such form and in such manner as may be prescribed. (5) A copy of the petition made under this section shall also be filed with the Registrar and the Registrar shall, without prejudice to any other provisions, submit his views to the Tribunal within sixty days of receipt of such petition.”. 13. In section 275,— (a) for sub-section (2), the following sub-section shall be substituted, namely:— “(2) The provisional liquidator or the Company Liquidator, as the case may, shall be appointed by the Tribunal from amongst the insolvency professionals registered under the Insolvency and Bankruptcy Code, 2016;”; (b) sub-section (4) shall be omitted. 14. For section 280, the following section shall be substituted, namely:— “280. The Tribunal shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of,— (a) any suit or proceeding by or against the company; (b) any claim made by or against the company, including claims by or against any of its branches in India; (c) any application made under section 233; (d) any question of priorities or any other question whatsoever, whether of law or facts, including those relating to assets, business, actions, rights, entitlements, privileges, benefits, duties, responsibilities, obligations or in any matter arising out of, or in relation to winding up of the company, Jurisdiction of Tribunal. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 105

 

whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made or such scheme has been submitted, or is submitted, before or after the order for the winding up of the company is made.”. 15. Section 289 shall be omitted. 15A. The heading “Part II.—Voluntary winding up” shall be omitted. 16. Sections 304 to 323 shall be omitted. 17. Section 325 shall be omitted. 18. For section 326, the following section shall be substituted, namely:— “326. (1) In the winding up of a company under this Act, the following debts shall be paid in priority to all other debts:— (a) workmen’s dues; and (b) where a secured creditor has realised a secured asset, so much of the debts due to such secured creditor as could not be realised by him or the amount of the workmen’s portion in his security (if payable under the law), whichever is less, pari passu with the workmen’s dues: Provided that in case of the winding up of a company, the sums referred to in sub-clauses (i) and (ii) of clause (b) of the Explanation, which are payable for a period of two years preceding the winding up order or such other period as may be prescribed, shall be paid in priority to all other debts (including debts due to secured creditors), within a period of thirty days of sale of assets and shall be subject to such charge over the security of secured creditors as may be prescribed. (2) The debts payable under the proviso to sub-section (1) shall be paid in full before any payment is made to secured creditors and thereafter debts payable under that subsection shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. Explanation.—For the purposes of this section, and section 327— (a) “workmen”, in relation to a company, means the employees of the company, being workmen within the meaning of clause (s) of section 2 of the Industrial Disputes Act, 1947 (14 of 1947); (b) “workmen’s dues”, in relation to a company, means the aggregate of the following sums due from the company to its workmen, namely:— (i) all wages or salary including wages payable for time or piece work and salary earned wholly or in part by way of commission of any workman in respect of services rendered to the company and any compensation payable to any workman under any of the provisions of the Industrial Disputes Act, 1947 (14 of 1947); (ii) all accrued holiday remuneration becoming payable to any workman or, in the case of his death, to any other person in his right on the termination of his employment before or by the effect of the winding up order or resolution; (iii) unless the company is being wound up voluntarily merely for the purposes of reconstruction or amalgamation with another company or unless the company has, at the commencement of the winding up, under such a contract with insurers as is mentioned in section 14 of the Workmen’s Compensation Act, 1923 (19 of 1923), rights capable of being transferred to and vested in the workmen, all amount due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any workman of the company; Overriding preferential payments. 106

 

THE GAZETTE OF INDIA EXTRAORDINARY [PART II—

 

(iv) all sums due to any workman from the provident fund, the pension fund, the gratuity fund or any other fund for the welfare of the workmen, maintained by the company; (c) “workmen’s portion”, in relation to the security of any secured creditor of a company, means the amount which bears to the value of the security the same proportion as the amount of the workmen’s dues bears to the aggregate of the amount of workmen’s dues and the amount of the debts due to the secured creditors. Illustration The value of the security of a secured creditor of a company is Rs. 1,00,000. The total amount of the workmen’s dues is Rs. 1,00,000. The amount of the debts due from the company to its secured creditors is Rs.3,00,000. The aggregate of the amount of workmen’s dues and the amount of debts due to secured creditors is Rs. 4,00,000. The workmen’s portion of the security is, therefore, one-fourth of the value of the security, that is Rs. 25,000.”. 19. In section 327,— (a) after sub-section (6), the following sub-section shall be inserted, namely:— ” (7) Sections 326 and 327 shall not be applicable in the event of liquidation under the Insolvency and Bankruptcy Code, 2016.”; (b) in the Explanation, for clause (c), the following clause shall be substituted, namely:— “(c) the expression “relevant date” means in the case of a company being wound up by the Tribunal, the date of appointment or first appointment of a provisional liquidator, or if no such appointment was made, the date of the winding up order, unless, in either case, the company had commenced to be wound up voluntarily before that date under the Insolvency and Bankruptcy Code, 2016;”. 20. For section 329, the following section shall be substituted, namely:— “329. Any transfer of property, movable or immovable, or any delivery of goods, made by a company, not being a transfer or delivery made in the ordinary course of its business or in favour of a purchaser or encumbrancer in good faith and for valuable consideration, if made within a period of one year before the presentation of a petition for winding up by the Tribunal under this Act shall be void against the Company Liquidator.”. 21. For section 334, the following section shall be substituted, namely:— “334. In the case of a winding up by the Tribunal, any disposition of the property including actionable claims, of the company and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up shall, unless the Tribunal otherwise orders, be void.”. 22. In section 336, in sub-section (1) , in the opening paragraph, for the words “whether by the Tribunal or voluntarily, or which is subsequently ordered to be wound up by the Tribunal or which subsequently passes a resolution for voluntary winding up”, the words “by the Tribunal under this Act or which is subsequently ordered to be wound up by the Tribunal under this Act” shall be substituted. 23. In section 337, for the words “or which subsequently passes a resolution for voluntary winding up,”, the words “under this Act”, shall be substituted. 24. In section 342, sub-sections (2), (3) and (4) shall be omitted. 25. In section 343, for sub-section (1) , the following sub-section shall be substituted, namely— Transfers not in good faith to be void. Transfer, etc., after commencement of winding up to be void. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 107 ”

 

• The Company Liquidator may, with the sanction of the Tribunal, when the company is being wound up by the Tribunal,— (i) pay any class of creditors in full; (ii) make any compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have any claim, present or future, certain or contingent, against the company, or whereby the company may be rendered liable; or (iii) compromise any call or liability to call, debt, and liability capable of resulting in a debt, and any claim, present or future, certain or contingent, ascertained or sounding only in damages, subsisting or alleged to subsist between the company and a contributory or alleged contributory or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the assets or liabilities or the winding up of the company, on such terms as may be agreed, and take any security for the discharge of any such call, debt, liability or claim, and give a complete discharge in respect thereof.”. 26.In section 347, for sub-section (1), the following sub-section shall be substituted, namely— “(1) When the affairs of a company have been completely wound up and it is about to be dissolved, the books and papers of such company and those of the Company Liquidator may be disposed of in such manner as the Tribunal directs.”. 27. In section 348, for sub-section (1), the following sub-section shall be substituted, namely— “(1) If the winding up of a company is not concluded within one year after its commencement, the Company Liquidator shall, unless he is exempted from so doing, either wholly or in part by the Central Government, within two months of the expiry of such year and thereafter until the winding up is concluded, at intervals of not more than one year or at such shorter intervals, if any, as may be prescribed, file a statement in such form containing such particulars as may be prescribed, duly audited, by a person qualified to act as auditor of the company, with respect to the proceedings in, and position of, the liquidation, with the Tribunal: Provided that no such audit as is referred to in this sub-section shall be necessary where the provisions of section 294 apply;”. 28. For section 357, the following section shall be substituted, namely:— “357. The winding up of a company by the Tribunal under this Act shall be deemed to commence at the time of the presentation of the petition for the winding up.”. 29. In section 370, in the proviso, after the words “obtained for the winding up the company”, the words “in accordance with the provisions of this Act or of the Insolvency and Bankruptcy Code, 2016” shall be inserted. 30. In section 372, after the words “The provisions of this Act”, the words “or of the Insolvency and Bankruptcy Code, 2016, as the case may be,” shall be inserted. 31. In section 419, for sub-section (4), the following sub-section shall be substituted, namely:— “(4) The Central Government shall, by notification, establish such number of benches of the Tribunal, as it may consider necessary, to exercise the jurisdiction, powers and authority of the Adjudicating Authority conferred on such Tribunal by or under Part II of the Insolvency and Bankruptcy Code, 2016.”. 32. In section 424,— Commencement of winding up by Tribunal. 108 THE GAZETTE OF INDIA EXTRAORDINARY [PART II— (i) in sub-section (1), after the words, “other provisions of this Act”, the words “or of the Insolvency and Bankruptcy Code, 2016” shall be inserted; (ii) in sub-section (2), after the words, “under this Act”, the words “or under the Insolvency and Bankruptcy Code, 2016” shall be inserted. 33. In section 429, for sub-section (1), the following sub-section shall be substituted, namely:— “(1) The Tribunal may, in any proceedings for winding up of a company under this Act or in any proceedings under the Insolvency and Bankruptcy Code, 2016, in order to take into custody or under its control all property, books of account or other documents, request, in writing, the Chief Metropolitan Magistrate, Chief Judicial Magistrate or the District Collector within whose jurisdiction any such property, books of account or other documents of such company under this Act or of corporate persons under the said Code, are situated or found, to take possession thereof, and the Chief Metropolitan Magistrate, Chief Judicial Magistrate or the District Collector, as the case may be, shall, on such request being made to him,— (a) take possession of such property, books of account or other documents; and (b) cause the same to be entrusted to the Tribunal or other persons authorised by it.”. 34. For section 434, the following section shall be substituted, namely:— “434. (1) On such date as may be notified by the Central Government in this behalf,— (a) all matters, proceedings or cases pending before the Board of Company Law Administration (herein in this section referred to as the Company Law Board) constituted under sub-section (1) of section 10E of the Companies Act, 1956 (1 of 1956), immediately before such date shall stand transferred to the Tribunal and the Tribunal shall dispose of such matters, proceedings or cases in accordance with the provisions of this Act; (b) any person aggrieved by any decision or order of the Company Law Board made before such date may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order: Provided that the High Court may if it is satisfied that the appellant was prevented by sufficient cause from filing an appeal within the said period, allow it to be filed within a further period not exceeding sixty days; and (c) all proceedings under the Companies Act, 1956 (1 of 1956), including proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies, pending immediately before such date before any District Court or High Court, shall stand transferred to the Tribunal and the Tribunal may proceed to deal with such proceedings from the stage before their transfer: Provided that only such proceedings relating to the winding up of companies shall be transferred to the Tribunal that are at a stage as may be prescribed by the Central Government. (2) The Central Government may make rules consistent with the provisions of this Act to ensure timely transfer of all matters, proceedings or cases pending before the Company Law Board or the courts, to the Tribunal under this section.” Transfer of certain pending proceedings. SEC. 1]

 

THE GAZETTE OF INDIA EXTRAORDINARY 109

 

35.In section 468, for sub-section (2), the following sub-section shall be substituted, namely:— ” (2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely:— (i) as to the mode of proceedings to be held for winding up of a company by the Tribunal under this Act; (ii) for the holding of meetings of creditors and members in connection with proceedings under section 230; (iii) for giving effect to the provisions of this Act as to the reduction of the capital; (iv) generally for all applications to be made to the Tribunal under the provisions of this Act; (v) the holding and conducting of meetings to ascertain the wishes of creditors and contributories; (vi) the settling of lists of contributories and the rectifying of the register of members where required, and collecting and applying the assets; (vii) the payment, delivery, conveyance, surrender or transfer of money, property, books or papers to the liquidator; (viii) the making of calls; and (ix) the fixing of a time within which debts and claims shall be proved.”. 36. In Schedule V, in Part II, in section III, for clause (b), the following clause shall be substituted, namely:— “(b) where the company— (i) is a newly incorporated company, for a period of seven years from the date of its incorporation, or (ii) is a sick company, for whom a scheme of revival or rehabilitation has been ordered by the Board for Industrial and Financial Reconstruction for a period of five years from the date of sanction of scheme of revival, or (iii) is a company in relation to which a resolution plan has been approved by the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 for a period of five years from the date of such approval, it may pay remuneration up to two times the amount permissible under section II.”. ————

 

2016. G. NARAYANA RAJU, Secretary to the Govt. of India. GMGIPMRND—1105GI(S3)—28-05-2016. PRINTED BY THE GENERAL MANAGER, GOVERNMENT OF INDIA PRESS, MINTO ROAD, NEW DELHI AND PUBLISHED BY THE CONTROLLER OF PUBLICATIONS, DELHI—2016.

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Setting Aside Ex Parte Divorce Decree under order 9 Rule 13 of CPC.

, it is a specific contention that she came to know about the ex parte decree in the middle of July, 2009. She has also contended that the husband did not inform her of the institution of the divorce proceeding and by this, fraud had been committed upon her.

Anyway, the steps taken for substituted service by the husband become rebuttable and the entire matter reveals the fact of the particular case as to service and there cannot be any straight jacket formula to decide that in this case, summons should be treated as duly served under Order 5 Rule 20 of the C.P.C. Since there is a rebuttal on behalf of the wife, in my view, the learned Trial Judge has rightly set aside the ex parte decree so that, the rights and obligations between the parties arising out of marriage tie could be decided upon hearing both the sides. It is not the case of the husband that immediately on getting the ex parte decree he had married and issues were born out of such marriage and so, in my view, the decision of Parimal (supra) will not be applicable in the instant case. So, in consideration of the nature of the relief sought for in that matrimonial proceeding and such situation, in my view, the learned Trial Judge has rightly dealt with the matter thereby setting aside the ex parte decree. There is no ground to reverse the findings of setting aside the ex parte decree.

Though both the parties to the proceeding are educated and are earning from the respective profession, in my view, the awarding costs against the wife and in favour of the husband to the tune of Rs.5,000/- cannot be sustained in a matrimonial proceeding. Therefore the order of the awarding costs of Rs.5,000/- by the learned Trial Judge be set aside.

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IN THE HIGH COURT AT CALCUTTA CIVIL REVISIONAL JURISDICTION APPELLATE SIDE

C.O. No. 1697 of 2013 Present :

The Hon’ble Mr. Justice Prasenjit Mandal

Sri Prabir Kishore Chakravarty.

Versus

Smt. Soma Chakravarty.

For the petitioner/husband: Mr. Aniruddha Chatterjee, Mr. Kushal Chatterjee.

For the opposite party/wife: Mr. Anit Kr. Rakshit. Heard On: 24.01.2014 & 07.02.2014 Judgement On: February 12, 2014.

Prasenjit Mandal, J.: This application is at the instance of the husband/petitioner and is directed against the judgment and order dated March 19, 2013 passed by the learned Additional District Judge, 14th Court, Alipore in Misc. Case No.16 of 2009 under Order 9 Rule 13 of the C.P.C. arising out of the Matrimonial Suit No.1565 of 2008 (renumbered as Matrimonial Suit No.78 of 2009) thereby allowing the said misc. case with costs of Rs.5,000/- to be paid by the wife/opposite party herein to the husband/petitioner herein. The result is that the ex parte decree for divorce passed on June 29, 2009 in the aforesaid matrimonial suit has been set aside.

The husband/petitioner herein preferred the aforesaid matrimonial suit for divorce before the learned District Judge, Alipore and accordingly, summons was duly served upon the wife/opposite party herein, but, she did not prefer to contest the said matrimonial suit for divorce. As a result, the said matrimonial suit was decreed ex parte on June 29, 2009 thereby decreeing the suit ex parte and declaring that the marriage ties between the parties be dissolved by the decree for divorce under Section 13(1)(ia) of the Hindu Marriage Act, 1955. Thereafter, the wife/opposite party herein filed an application under Order 9 Rule 13 of the C.P.C. and the said application was converted into the Misc. Case No.16 of 2009. Both the parties adduced evidence in support of their contentions and upon analysis of the evidence on record, the learned Trial Judge allowed the said misc. case on March 19, 2013 with costs of Rs.5,000/- thereby setting aside the ex parte decree dated June 29, 2009. Being aggrieved by such judgment and order, the husband/petitioner herein has preferred this application.

The wife/opposite party herein is contesting the said application.

Now, the question is whether the impugned order should be sustained.

Upon hearing the learned Counsel for the parties and on going through the materials on record, I find that before disposal of the said matrimonial suit ex parte on June 29, 2009, the learned Trial Judge took necessary steps for service of summons. Even steps for substituted service under Order 5 Rule 20 of the C.P.C. were also taken up by making a paper publication in a widely circulated newspaper. In spite of that, the wife did not come to contest the said matrimonial suit.

Mr. Kushal Chatterjee, learned Advocate appearing for the husband/petitioner herein has contended that the said application under Order 9 Rule 13 of the C.P.C. is not maintainable at all, in view of the fact that though the ex parte decree had been passed on June 29, 2009, the application for setting aside the ex parte decree was filed only on August 29, 2009 and an interpolation had been made in the application to show that the said application had been filed on July 29, 2009.

He has also contended that since the application under Order 9 Rule 13 of the C.P.C. had been filed beyond the period of limitation, there being no application under Section 5 of the Limitation Act for condonation of the delay, the said application is not maintainable at all being barred by the limitation.

He has also contended that there being an interpolation as to the date of filing of the application, the wife/opposite party herein had committed fraud upon the Court and for that reason, the wife is not entitled to get any relief as sought for in the misc. case.

Mr. Kushal Chatterjee has also contended that the wife has failed to show that she was prevented by sufficient cause from appearing before the Court and the fact that, mere irregularity in the service of summons is not at all a ground for setting aside the ex parte decree under Order 9 Rule 13 of the C.P.C.

He has also drawn my attention to the fact that, during the cross-examination of the wife in Misc. Case No.16 of 2009, it has transpired that she came to learn about the institution of the matrimonial suit against her in the Durgapur Court when she went there to appear in a case under Section 125 of the Cr.P.C.

Moreover, the criminal case under Section 498A had been filed at Alipore Court and so, from the application filed by the husband in the said case it would reveal that the husband had clearly stated about the institution of the said matrimonial suit for divorce.

Mr. Aniruddha Chatterjee, learned Advocate appearing for the petitioner has also added that as per second proviso to Order 9 Rule 13 of the C.P.C., no Court shall set aside a decree passed ex parte merely on the ground that there has been an irregularity in the service of summons, if it is satisfied that the defendant had notice of the date of hearing and had sufficient time to appear and answer the plaintiff’s claim.

In support of the contention Mr. Chatterjee has submitted that in the instant case it is not the case of the wife that no summons was ever served upon her, but, she had no knowledge of the date of hearing of the said suit. The husband had taken all the steps including the steps for substituted service. Not only that, while the husband filed an application for anticipatory bail for the criminal case lodged by the wife under Section 498A of the I.P.C., he stated in the application that he had already filed a suit for divorce and for that reason such criminal case had been filed by the wife.

He has also contended that the wife engaged a lawyer as de facto complainant and he has submitted through the public prosecutor opposing the prayer for bail and so, from such conduct it appears that the declaration of the husband in the said application for bail that he had already filed a suit for divorce proves that the wife had knowledge about the institution of the said suit for divorce. Yet she did not appear in the suit. Since, no application under Section 5 of the Limitation Act has been filed in support of the application under Order 9 Rule 13 of the C.P.C., the same being barred by limitation, the learned Trial Judge was not justified at all in allowing the said application under Order 9 Rule 13 of the C.P.C.

Mr. Aniruddha Chatterjee has also contended that there is no evidence on limitation. The misc. case under Order 9 Rule 13 of the C.P.C. is not maintainable at all and in support of his contention he has referred to the decisions of Mahabir Singh v. Subhas & Ors reported in 2008 (1) SCC 358 particularly paragraph no.6 to 9 thus, he has contended that to set aside a decree passed ex parte, the limitation is 30 days from the date of the decree or where the summons for notice was not duly served, when the applicant had knowledge of the decree. He has also contended that in terms of Section 3 of the Limitation Act, 1963, no Court shall have jurisdiction to entertain any suit or application if the same has been filed after the expiry of the period of limitation.

Mr. Chatterjee has also relied on the second proviso to Order 9 Rule 13 of the C.P.C. and submitted that as per decision of Parimal v. Veena alias Bharti reported in 2011 (3) SCC 545 particularly paragraph no.12, it is obligatory for the Appellate Court not to interfere with an ex parte decree unless it meets the statutory requirement particularly the paragraph no.12 and thus, he has contended that the ex parte decree may be set aside, if the party satisfies the Court that summons had not been duly served or she was prevented by sufficient cause from appearing when the suit was called on for hearing. In the instant case, the appropriate steps were taken under Order 5 Rule 20 of the C.P.c. by publication in a widely circulated newspaper when the notice to the addressee was returned ‘unserved’. So, all the necessary steps had been taken by the husband and, therefore, mere irregularity will not be a ground for setting aside the ex parte decree.

He has also relied upon the decision of Chiranjilal Agarwalla & Anr. v. Jai Hind Investments and Industries Pvt. Ltd. & Anr. reported in AIR 1978 Cal 177 particularly paragraph no.17 and thus, he has contended that mere non-service of summons is not enough to find a cause of action for setting aside a decree. Fraud must be proved for vacating an ex parte decree, otherwise not. Thus, he has contended that the application is not maintainable at all and since fraud had been committed, the said misc. case is liable to be dismissed.

Per contra, Mr. Anit Rakshit learned Advocate appearing for the wife/opposite party herein has contended that, in fact, the application under Order 9 Rule 13 of the C.P.C. had not been filed at all on August 29, 2009 as contended by the husband/petitioner herein but, in fact, it was filed on July 29, 2009 and this fact would reveal from the acknowledgement sheet shown by him to this Court which lays down the date of filing the misc. case on July 29, 2009.

The matrimonial suit was filed in the Court of Alipore and not in any Court under the district of Burdwan. Admittedly, the wife is residing at Durgapur and the husband has contended that he took a rented accommodation at Thakur pukur and he requested the wife to come and stay in the said rental accommodation with the child and the wife has contended that she never stayed in the rented accommodation at Thakurpukur even for a single day. So, when the wife resides outside the jurisdiction of the Court, summons was also to be served upon the wife under the provisions of Order 5 Rule 9(4) and Order 5 Rule 21 of the C.P.C. But, this procedure has not been followed in the instant case.

Having due regard to the submissions of the learned Advocates of both the sides and on perusal of the materials on record, I find that the matrimonial suit is for a decree of divorce at the instance of the husband under Section 13(1)(ia) of the Hindu Marriage Act, 1955 and so, when a decree of desolution of marriage is passed, the marriage tie between the two comes to an end. Admittedly, a child was born in the wedlock and the future of the child is to be considered by passing appropriate orders upon hearing both the sides.

Mr. Anit Rakshit has also pointed out the receipt showing filing of the misc. case under Order 9 Rule 13 of the C.P.C. on July 29, 2009 and thus, he has the materials in support of such contention.

The parties have adduced evidence in support of the respective contentions and from the deposition, it transpires that no notice/summons was served upon the wife through the process server of the Court. Since the wife has taken so other steps such as, filing of a case under Section 125 of the Cr.P.C., a criminal case under Section 498A of the I.P.C. and another case under Section 94 of the C.P.C., it is expected that had she received a notice or summons of the suit for divorce, she would have contested the same. So, the allegation of fraud as contended by the husband cannot be accepted and in my view, the question of limitation does not arise at all, the misc. case having been filed within the statutory period of 30 days from the date of the ex parte decree.

It is a specific contention of the wife that the said application was fixed for hearing, but, she cannot state the exact date of hearing of the said application or the fact that, the said application was fixed for hearing on July 20, 2009. But, it is a specific contention that she came to know about the ex parte decree in the middle of July, 2009. She has also contended that the husband did not inform her of the institution of the divorce proceeding and by this, fraud had been committed upon her.

Anyway, the steps taken for substituted service by the husband become rebuttable and the entire matter reveals the fact of the particular case as to service and there cannot be any straight jacket formula to decide that in this case, summons should be treated as duly served under Order 5 Rule 20 of the C.P.C. Since there is a rebuttal on behalf of the wife, in my view, the learned Trial Judge has rightly set aside the ex parte decree so that, the rights and obligations between the parties arising out of marriage tie could be decided upon hearing both the sides. It is not the case of the husband that immediately on getting the ex parte decree he had married and issues were born out of such marriage and so, in my view, the decision of Parimal (supra) will not be applicable in the instant case. So, in consideration of the nature of the relief sought for in that matrimonial proceeding and such situation, in my view, the learned Trial Judge has rightly dealt with the matter thereby setting aside the ex parte decree. There is no ground to reverse the findings of setting aside the ex parte decree.

Though both the parties to the proceeding are educated and are earning from the respective profession, in my view, the awarding costs against the wife and in favour of the husband to the tune of Rs.5,000/- cannot be sustained in a matrimonial proceeding. Therefore the order of the awarding costs of Rs.5,000/- by the learned Trial Judge be set aside.

The application is, therefore, disposed of in the manner indicated above and the impugned judgment and order is modified to the extent as indicated above.

However, there will be no order as to costs. Urgent xerox certified copy of this order, if applied for, be supplied to the learned Advocates for the parties on their usual undertaking.

(Prasenjit Mandal, J.)

Divorce Transfer Petition in Supreme Court judgments.

“This petition is filed under Section 25 of the Code of Civil Procedure seeking transfer of proceedings initiated by the respondent under Section 13 of the Hindu Marriage Act at Jabalpur. According to the petitioner, who is the wife of the respondent, she will face acute hardship in contesting the proceedings at Jabalpur as she is living at Hyderabad. The marriage took place at Hyderabad. The petitioner has to look after her minor daughter who is living with her.

Undoubtedly under Section 19 of the Hindu Marriage Act, the petition of the present nature could be filed at the place where the marriage is solemnized or the respondent, at the time of the presentation of the petition, resides or where the parties to the marriage last resided together or where the wife is residing on the date of the presentation of the petition, in case she is the petitioner or in certain situations (as stipulated in clause iv) where the petitioner resides. This Court is flooded with petitions of this nature and having regard to the convenience of the wife transfer is normally allowed. However, in the process the litigants have to travel to this Court and spend on litigation. Question is whether this can be avoided?

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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL original JURISDICTION

Transfer petition (CIVIL) NO. 1912 OF 2014

Krishna Veni Nagam                                 …PETITIONER

VERSUS

Harish nagam                                            …RESPONDENT

J U D G M E N T

ADARSH KUMAR GOEL, J

 

1. This transfer petition has been filed for transfer of Case No.179A/2013 u/s 13 of the Hindu Marriage Act, 1955 (the Act) titled “Harish Nagam vs. Krishna Veni Nagam” pending on the file of II Presiding Judge, Family Court, Jabalpur, Madhya Pradesh to the Family Court Hyderabad, Andhra Pradesh.
2. Case of the petitioner-wife is that she was married to the respondent- husband in the year 2008 at Kukatpally, Hyderabad. She was blessed with a girl child in 2009. While living in her in-law’s house at Jabalpur, she was ill-treated. She was subjected to mental and physical torture. She suffered injury on her spinal cord. She left the matrimonial home in 2012.
3. The respondent-husband filed application for restitution of conjugal rights which was later on got dismissed as withdrawn. Thereafter, a divorce petition has been filed at Jabalpur while the petitioner has filed a domestic violence case at Hyderabad. Since the petitioner-wife, along with her minor daughter, is living with her parents, she cannot undertake long journey and contest the proceedings at Jabalpur by neglecting her minor child. She also apprehends threat to her security in attending proceedings at Jabalpur.
4. On 7th January, 2015, notice was issued and stay of proceedings was granted. The matter has been pending in this Court for more than two years.

 

5. On 9th January, 2017 when the matter came-up for hearing, the following order was passed:

“This petition is filed under Section 25 of the Code of Civil Procedure seeking transfer of proceedings initiated by the respondent under Section 13 of the Hindu Marriage Act at Jabalpur. According to the petitioner, who is the wife of the respondent, she will face acute hardship in contesting the proceedings at Jabalpur as she is living at Hyderabad. The marriage took place at Hyderabad. The petitioner has to look after her minor daughter who is living with her.

Undoubtedly under Section 19 of the Hindu Marriage Act, the petition of the present nature could be filed at the place where the marriage is solemnized or the respondent, at the time of the presentation of the petition, resides or where the parties to the marriage last resided together or where the wife is residing on the date of the presentation of the petition, in case she is the petitioner or in certain situations (as stipulated in clause iv) where the petitioner resides. This Court is flooded with petitions of this nature and having regard to the convenience of the wife transfer is normally allowed. However, in the process the litigants have to travel to this Court and spend on litigation. Question is whether this can be avoided?

We are of the view that if orders are to be passed in every individual petition, this causes great hardship to the litigants who have to come to this Court. Moreover in this process, the matrimonial matters which are required to be dealt with expeditiously are delayed. In these circumstances, we are prima facie of the view that we need to consider whether we could pass a general order to the effect that in case where husband files matrimonial proceedings at place where wife does not reside, the court concerned should entertain such petition only on the condition that the husband makes appropriate deposit to bear the expenses of the wife as may be determined by the Court. The Court may also pass orders from time to time for further deposit to ensure that the wife is not handicapped to defend the proceedings. In other cases, the husband may take proceedings before the Court in whose jurisdiction the wife resides which may lessen inconvenience to the parties and avoid delay. Any other option to remedy the situation can also be considered.

However, before passing a final order, we consider it necessary to hear learned Attorney General who may depute some law officer to assist this Court.

List the matter on 31st January, 2017.

We also request Mr. C.A. Sundaram, Senior Advocate to assist this Court as amicus curiae. A set of papers may be furnished to the amicus.” (Emphasis added)

6. Thus, the question is whether an order can be passed so as to provide a better alternative to each individual being required to move this Court.
7. We have already noted that large number of transfer petitions of the present nature are being filed in this Court and are being mechanically allowed. Similar observation was made by this Court more than 10 years ago in Anindita Das v. Srijit Das[1] “…On an average at least 10 to 15 transfer petitions are on board of each court on each admission day.” It has also been observed in a number of cases that in absence of any male member being available to accompany the wife who is party to matrimonial proceedings to a different place, it may render it “expedient for ends of justice” to transfer proceedings[2].
8. Of course in some cases, it was observed that instead of proceedings being transferred, the husband should pay travel, lodging and boarding expenses of the wife and/or person accompanying for each hearing[3]. This trend has also been followed in other matrimonial disputes, including guardianship dispute, etc.[4]
9. Spirit behind the orders of this Court in allowing the transfer petitions filed by wives being almost mechanically allowing is that they are not denied justice on account of their inability to participate in proceedings instituted at a different place on account of difficulty either on account of financial or physical hardship. Our Constitutional scheme provides for guaranteeing equal access to justice[5], power of the State to make special provisions for women and children[6] and duty to uphold the dignity of women[7]. Various steps have been taken in this direction[8].
10. As noted in the Order dated 9th January, 2017 quoted above, Section 19 of the Act permits proceedings to be filed not only at a place where the wife resides but also at place where marriage is solemnized or the place where the parties last resided together. It is mostly in the said situations that the wife has hardship in contesting proceedings. At the same time, under the law the husband is legally entitled to file proceedings at such places. Territorial jurisdiction of court is statutorily laid down in C.P.C. or other concerned statutes.
11. Accordingly, we have heard Shri C.A. Sundaram, learned senior counsel as amicus curiae. Learned amicus has suggested that Section 19 of the Act should be interpreted to mean that the jurisdiction at the place other than where wife resides being available only at the option of the wife or that such jurisdiction will be available in exceptional cases where the wife is employed and the husband is unemployed or where the husband suffers from physical or other handicap or is looking after the minor child. Even though we are unable to give such interpretation in the face of plain language of statute to the contrary and it is for the legislature to make such suitable amendment as may be considered necessary, we are certainly inclined to issue directions in the interest of justice consistent with the statute.
12. Mr. Nadkarni, learned Addl. Solicitor General has suggested that it will be appropriate to give some directions to meet the situation. He submitted that paramount consideration in dealing with the issue ought to be the interest of justice and not mere convenience of the parties. Thus, where husband files a petition at a place away from the residence of the wife, the husband can be required to bear travel and incidental expenses of the wife, if it is so considered appropriate in the interest of justice. At the same time, if the husband has genuine difficulty in making the deposit, proceedings can be conducted by video conferencing. At least one court room in every district court ought to be equipped with the video conferencing facility. The interest of the minor child has also to be kept in mind along with the interest of the senior citizens whose interest may be affected by one of the parties being required to undertake trips to distant places to face the proceedings. Protracted litigation ought to be avoided by better management and coordination so that number of adjournments can be reduced.
13. We have considered the above suggestions. In this respect, we may also refer to the doctrine of forum non conveniens which can be applied in matrimonial proceedings for advancing interest of justice. Under the said doctrine, the court exercises its inherent jurisdiction to stay proceedings at a forum which is considered not to be convenient and there is any other forum which is considered to be more convenient for the interest of all the parties at the ends of justice. In Modi Entertainment Network and anr. v. W.S.G. Cricket Pte. Ltd.[9] this Court observed: “19. In Spiliada Maritime [10]case the House of Lords laid down the following principle:

“The fundamental principle applicable to both the stay of English proceedings on the ground that some other forum was the appropriate forum and also the grant of leave to serve proceedings out of the jurisdiction was that the court would choose that forum in which the case could be tried more suitably for the interest of all the parties and for the ends of justice.” The criteria to determine which was a more appropriate forum, for the purpose of ordering stay of the suit, the court would look for that forum with which the action had the most real and substantial connection in terms of convenience or expense, availability of witnesses, the law governing the relevant transaction and the places where the parties resided or carried on business. If the court concluded that there was no other available forum which was more appropriate than the English court, it would normally refuse a stay. If, however, the court concluded that there was another forum which was prima facie more appropriate, the court would normally grant a stay unless there were circumstances militating against a stay. It was noted that as the dispute concerning the contract in which the proper law was English law, it meant that England was the appropriate forum in which the case could be more suitably tried.” Though these observations have been made in the context of granting anti suit injunction, the principle can be followed in regulating the exercise of jurisdiction of the court where proceedings are instituted. In a civil proceeding, the plaintiff is the dominus litis but if more than one court has jurisdiction, court can determine which is the convenient forum and lay down conditions in the interest of justice subject to which its jurisdiction may be availed[11].

14. One cannot ignore the problem faced by a husband if proceedings are transferred on account of genuine difficulties faced by the wife. The husband may find it difficult to contest proceedings at a place which is convenient to the wife. Thus, transfer is not always a solution acceptable to both the parties. It may be appropriate that available technology of video conferencing is used where both the parties have equal difficulty and there is no place which is convenient to both the parties. We understand that in every district in the country video conferencing is now available. In any case, wherever such facility is available, it ought to be fully utilized and all the High Courts ought to issue appropriate administrative instructions to regulate the use of video conferencing for certain category of cases. Matrimonial cases where one of the parties resides outside court’s jurisdiction is one of such categories. Wherever one or both the parties make a request for use of video conference, proceedings may be conducted on video conferencing, obviating the needs of the party to appear in person. In several cases, this Court has directed recording of evidence by video conferencing[12].
15. The other difficulty faced by the parties living beyond the local jurisdiction of the court is ignorance about availability of suitable legal services. Legal Aid Committee of every district ought to make available selected panel of advocates whose discipline and quality can be suitably regulated and who are ready to provide legal aid at a specified fee. Such panels ought to be notified on the websites of the District Legal Services Authorities/State Legal Services Authorities/National Legal Services Authority. This may enhance access to justice consistent with Article 39A of the Constitution.
16. The advancement of technology ought to be utilized also for service on parties or receiving communication from the parties. Every district court must have at least one e-mail ID. Administrative instructions for directions can be issued to permit the litigants to access the court, especially when litigant is located outside the local jurisdiction of the Court. A designated officer/manager of a district court may suitably respond to such e-mail in the manner permitted as per the administrative instructions. Similarly, a manager/ information officer in every district court may be accessible on a notified telephone during notified hours as per the instructions. These steps may, to some extent, take care of the problems of the litigants. These suggestions may need attention of the High Courts.
17. We are thus of the view that it is necessary to issue certain directions which may provide alternative to seeking transfer of proceedings on account of inability of a party to contest proceedings at a place away from their ordinary residence on the ground that if proceedings are not transferred it will result in denial of justice.
18. We, therefore, direct that in matrimonial or custody matters or in proceedings between parties to a marriage or arising out of disputes between parties to a marriage, wherever the defendants/respondents are located outside the jurisdiction of the court, the court where proceedings are instituted, may examine whether it is in the interest of justice to incorporate any safeguards for ensuring that summoning of defendant/respondent does not result in denial of justice. Order incorporating such safeguards may be sent along with the summons. The safeguards can be:-
19. i) Availability of video conferencing facility.
20. ii) Availability of legal aid service.

iii) Deposit of cost for travel, lodging and boarding in terms of Order XXV CPC.

1. iv) E-mail address/phone number, if any, at which litigant from out station may communicate.
2. We hope the above arrangement may, to an extent, reduce hardship to the litigants as noted above in the Order of this Court dated 9th January, 2017. However, in the present case since the matter is pending in this Court for about three years, we are satisfied that the prayer for transfer may be allowed. Accordingly, we direct that proceedings in Case No.179A/2013 under Section 13 of the Act titled “Harish Nagam vs. Krishna Veni Nagam” pending on the file of II Presiding Judge, Family Court, Jabalpur, Madhya Pradesh shall stand transferred to the Family Court, Hyderabad, Andhra Pradesh. If the parties seek mediation the transferee court may explore the possibility of an amicable settlement through mediation. It will be open to the transferee court to conduct the proceedings or record evidence of the witnesses who are unable to appear in court by way of video conferencing. Records shall be sent by court where proceedings are pending to the transferee court forthwith.
3. The Registry to transmit a copy of this order to the courts concerned. A copy of this order be sent to all the High Courts for appropriate action.
4. We place on record our appreciation for the valuable assistance rendered by Mr. Atmaram N.S. Nadkarni, learned Additional Solicitor General and Mr. C.A. Sundaram, learned Senior Advocate.
5. The transfer petition is disposed of accordingly.

…………..…………………………….J.

 

[ADARSH KUMAR GOEL] .….……………………..……………..J.

 

[UDAY UMESH LALIT] NEW DELHI;

Claims/Insurance Claim/Damages against bill of lading laws in India.

THE INDIAN BILLS OF LADING ACT, 1856

Rights under bills of lading to vest in consignee of endorsee.– Every consignee of goods named in a bill of lading, and every endorsee of a bill of lading to whom the property in the goods therein mentioned shall pass, upon or by reason of such consignment or endorsement shall have transferred to and vested in him all rights of suit, and be subject to the same liabilities in respect of such goods as if the contract contained in the bill of lading had been made with himself.

Not to affect right of stoppage in transitu of claims for freight.– Nothing herein contained shall prejudice or affect any right of stoppage in transitu, 2 or any right to claim freight against the original shipper or owner, or any liability of the consignee or endorsee by reason or in consequence of his being such consignee or endorsee, or of his receipt of the goods by reason or in consequence of such consignment or endorsement.

Bill of lading in hands of consignee, ect., conclusive evidence of the shipment as against master, etc.– Every bill of lading in the hands of a consignee or endorsee for valuable consideration, representing goods to have been shipped on board a vessel, shall be conclusive evidence of such shipment as against the master or other person signing the same, notwithstanding that such goods or some part thereof may not have been so shipped, unless such holder of the bill of lading shall have had actual notice at the time of receiving the same that the goods had not in fact been laden on board: Provided that the master or other person so signing may exonerate himself in respect of such misrepresentation, by showing that it was caused without any default on his part, and wholly by the fraud of the shipper, or of the holder, or some person under whom the holder claims.

Section 2 in The Indian Stamp Act, 1899

2 Definitions. —In this Act, unless there is something repugnant in the subject or context,—

(1) “Banker” includes a bank and any person acting as a banker;

(2) “Bill of exchange” means a bill of exchange as defined by the Negotiable Instruments Act, 1881 (26 of 1881), and includes also a hundi, and any other document entitling or purporting to entitle any person, whether named therein or not, to payment by any other person of, or to draw upon any other person for, any sum of money;

(3) “Bill of exchange payable on demand” includes—

(a) an order for the payment of any sum of money by a bill of exchange or promissory note, or for the delivery of any bill of exchange or promissory note in satisfaction of any sum of money, or for the payment of any sum of money out of any particular fund which may or may not be available, or upon any condition or contingency which may or may not be performed or happen;

(b) an order for the payment of any sum of money weekly, monthly, or at any other stated period; and

(c) a letter of credit, that is to say, any instrument by which one person authorizes another to give credit to the person in whose favour it is drawn;

(4) “Bill of lading” includes a “through bill lading”, but does not include a mate’s receipt;

(5) “Bond” includes—

(a) any instrument whereby a person obliges himself to pay money to another, on condition that the obligation shall be void if a specified act is performed, or is not performed, as the case may be;

(b) any instrument attested by a witness and not payable to order or bearer, whereby a person obliges himself to pay money to another; and

(c) any instrument so attested, whereby a person obliges himself to deliver grain or other agricultural produce to another;

(6) “Chargeable” means, as applied to an instrument executed or first executed after the commencement of this Act, chargeable under this Act, and, as applied to any other instrument, chargeable under the law in force in 3 [India] when such instrument was executed or, where several persons executed the instrument at different times, first executed;

(7) “Cheque” means a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand; 4 [***]

(9) “Collector”—

(a) means, within the limits of the towns of Calcutta, Madras and Bombay, the Collector of Calcutta, Madras and Bombay, respectively, and, without those limits, the Collector of a district, and

(b) includes a Deputy Commissioner and any officer whom 5 [the 6 [State Government]] may, by notification in the Official Gazette, appoint in this behalf;

(10) “Conveyance” includes a conveyance on sale and every instrument by which property, whether movable or immovable, is transferred inter vivos and which is not otherwise specifically provided for by Schedule I;

(11) “Duly stamped”, as applied to an instrument, means that the instrument bears an adhesive or impressed stamp of not less than the proper amount and that such stamp has been affixed or used in accordance with law for time being in force in 3 [India];

(12) “Executed” and “execution”, used with reference to instruments, mean “signed” and “signature”; 7 [***]

(13) “Impressed stamp” includes—

(a) labels affixed and impressed by the proper officer, and

(b) stamps embossed or engraved on stamped paper;

8 [(13A) “ India ” means the territory of India excluding the State of Jammu and Kashmir ;]

(14) “Instrument” includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or record;

(15) “Instrument of partition” means any instrument whereby co-owners of any property divide or agree to divide such property in severalty, and includes also a final order for effecting a partition passed by any revenue-authority or any Civil Court and an award by an arbitrator directing a partition;

(16) “Lease” means a lease of immovable property, and includes also—

(a) a patta;

(b) a Kabuliyat or other undertaking in writing, not being a counterpart of a lease, to cultivate, occupy, or pay or deliver rent for, immovable property;

(c) any instrument by which tolls of any description are let;

(d) any writing on an application for a lease intended to signify that the application is granted;

9 [(16A) “Marketable security” means a security of such a description as to be capable of being sold in any stock market in 10 [ India ] or in the United Kingdom ;]

(17) “Mortgage-deed” includes every instrument whereby, for the purpose of securing money advanced, or to be advanced, by way of loan, or an existing or future debt, or the performance of an engagement, one person transfers, or creates, to, or in favour of, another, a right over or in respect of specified property;

(18) “Paper” includes vellum, parchment or any other material on which an instrument may be written;

(19) “Policy of insurance” includes—

(a) any instrument by which one person, in consideration of a premium, engages to indemnify another against loss, damage or liability arising from an unknown or contingent event;

(b) a life-policy, and any policy insuring any person against accident or sickness, and any other personal insurance; 11 [***]

12 [***]

13 [(19A) “Policy of group insurance” means any instrument covering not less than fifty or such smaller number as the Central Government may approve, either generally or with reference to any particular case, by which an insurer, in consideration of a premium paid by an employer or by an employer and his employees jointly, engages to cover, with or without medical examination and for the sole benefit of persons other than the employer, the lives of all the employees or of any class of them, determined by conditions pertaining to the employment, for amounts of insurance based upon a plan which precludes individual selection;]

(20) “Policy of sea-insurance” or “sea-policy”—

(a) means any insurance made upon any ship or vessel (whether for marine or inland navigation), or upon the machinery, tackle or furniture of any ship or vessel, or upon any goods, merchandise or property of any description whatever on board of any ship or vessel, or upon the freight of, or any other interest which may be lawfully insured in, or relating to, any ship or vessel, and

(b) includes any insurance of goods, merchandise or property for any transit which includes, not only a sea risk within the meaning of clause (a), but also any other risk incidental to the transit insured from the commencement of the transit to the ultimate destination covered by the insurance;

Where any person, in consideration of any sum of money paid or to be paid for additional freight or otherwise, agrees to take upon himself any risk attending goods, merchandise or property of any description whatever while on board of any ship or vessel, or engages to indemnify the owner of any such goods, merchandise or property form any risk, loss or damage, such agreement or engagement shall be deemed to be a contract for sea-insurance;

(21) “Power-of-attorney” includes any instrument (not chargeable with a fee under the law relating to court-fees for the time being in force) empowering a specified person to act for and in the name of the person executing it;

(22) “Promissory note” means a promissory note as defined by the Negotiable Instruments Act, 1881 (26 of 1881); It also includes a note promising the payment of any sum of money out of any particular fund which may or may not be available, or upon any condition or contingency which may or may not be performed or happen;

(23) “Receipt” includes any note, memorandum or writing—

(a) whereby any money, or any bill of exchange, cheque or promissory note is acknowledged to have been received, or

(b) whereby any other movable property is acknowledged to have been received in satisfaction of a debt, or

(c) whereby any debt or demand, or any part of a debt or demand, is acknowledged to have been satisfied or discharged, or

(d) which signifies or imports any such acknowledgment,

and whether the same is or is not signed with the name of any person; 14 [***]

(24) “Settlement” means any non-testamentary disposition, in writing, of movable or immovable property made—

(a) in consideration of marriage,

(b) for the purpose of distributing property of the settler among his family or those for whom he desires to provide, or for the purpose of providing for some person dependent on him, or

(c) for any religious or charitable purpose;

and includes an agreement in writing to make such a disposition 15 [and, where, any such disposition has not been made in writing, any instrument recording, whether by way of declaration of trust or otherwise, the terms of any such disposition]; 16 [***]

17 [(25) “Soldier” includes any person below the rank of non-commissioned officer who is enrolled under the Indian Army Act, 1911 (8 of 1911) 18 ;]

19 [(26) “Stamp” means any mark, seal or endorsement by any agency or person duly authorised by the State Government, and includes an adhesive or impressed stamp, for the purpose of duty chargeable under this Act.]

————————————————————————————————————————————–

The Hon’ble Apex Court held that :-

There is no merit in that submission. We say so because compensation by reference to the value of the goods lost or damaged can be claimed only if the nature or the value of such goods has 32 been declared by the shipper before shipment and inserted in the Bill of Lading. Even assuming that the nature and the valuation of the goods had been declared by the shipper before the shipment the requirement of `insertion of the same in the Bill of Lading’ was not satisfied in the present case. The Bill of Lading does not mention either the nature or the value of the goods. That being so, compensation of rupee equivalent of 666.67 Special Drawing Rights was the only amount that could be awarded by the Commission to the shipper. In as much as the Commission awarded US$1800 it committed a mistake that calls for correction.

.  In the result we dismiss C.A. No.8276 of 2003 but partly allow C.A. Nos.3245 of 2005 and 6232 of 2004 to the extent that the amount of compensation payable to the shipper shall stand reduced to the rupee equivalent of 666.67 Special Drawing Rights only. The order passed by the National Commission shall stand modified to the above extent leaving the parties to bear their own costs.”

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IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICITION

CIVIL APPEAL NO. 3245 OF 2005

Contship Container Lines Ltd. …Appellant

Versus D.K. Lall & Ors. …Respondents

(With C.A. No.6232 of 2004 and C.A. No.8276 of 2003)

T.S. THAKUR, J.

1. These three cross appeals arise out of an order passed by the National Consumer Disputes Redressal Commission, New Delhi (hereinafter referred to as the `National Commission’) whereby it has dismissed the complaint filed 2 by the respondent Shri D.K. Lall, proprietor of M/s Lall Enterprises against respondent-National Insurance Company Ltd. while granting relief in part to the complainant against Contship Container Lines Ltd., the shipping company to whom the consignment in question was entrusted for delivery to the consignee in Barcelona, Spain. The facts giving rise to the controversy may be summarised as under:
2. M/s D.K. Lall Enterprises, a sole proprietary concern, claims to have received an order for export of iron furniture and iron handicraft items from M/s Natural Selection International, a Spanish purchaser of those items. A similar order for export of miniature paintings is also said to have been received by the said concern from M/s Pindikas another concern located in Spain. The case of M/s D.K. Lall Enterprises (hereinafter to as the `Exporter’) is that all the items meant for export in terms of the above orders were packed in 122 different cartons for shipment to the purchasers in Spain. According to the exporter while miniature paintings were packed in one carton meant for 3 export to M/s Pindikas, the iron furniture items meant for export to M/s Natural Selection International were packed in 121 other cartons. These packages were, according to the Exporter, checked and cleared by the Customs Authority at Jodhpur and finally stuffed in one simple container, for which purpose the exporter hired the services of M/s Samrat Shipping & Transport System Pvt. Ltd. through its local agent who forwarded the container to Bombay where it was put on board CMBT Himalaya, a vessel belonging to M/s Contship Container Lines Ltd.-appellant in C.A. No.6232 of 2004. It is noteworthy that the exporter had obtained a Marine Cargo/Inland transit insurance policy to cover risks enumerated in the policy.
3. The case of the exporter is that the consignment reached Barcelona, Spain on 1st March, 1997 and that while 121 cartons had been duly received by M/s Natural Selection International, one carton marked for M/s Pindikas comprising miniature paintings was not so delivered to the consignee. The claim for payment of compensation on 4 account of the alleged deficiency of service having been denied by the Shipping Company as also by the Insurance Company the exporter filed O.P. No.272 of 1997 before the National Consumer Disputes Redressal Commission, New Delhi, claiming compensation to the tune of Rs.39,23,225/- representing the value of the miniature paintings with interest pendente lite and till realization. The respondents contested the claim made against them, inter alia, on the ground that the petitioner was not a consumer and that the case involved complicated questions of fact and law, which could not be determined in summary proceedings before the Consumer Commission. It was also alleged that the exporter had never stuffed/exported the carton containing miniature paintings and that the claim made by the exporter to that effect was false. Reference was made to the Bill of Lading according to which the particulars declared by the shipper/exporter had not been checked by the carrier. It was also alleged that under clause 17 of the Bill of Lading and Article IV Rule 5 of The Indian Carriage of Goods by Sea 5 Act, 1925 the liability of the carrier was limited to 2 SDRs per kg of weight, which came to 400 SDRs for the loss of the undelivered package weighing 200 kgs. equivalent to Rs.21,428/- only. The respondents further alleged that the cartons had not been properly marked with the result that the same could not be segregated before being delivered to the consignee concerned.
4. The Insurance Company also filed a separate reply, alleging that the exporter was in collusion with the buyers trying to perpetrate a fraud on them with a view to making an undeserved & unjust financial gain. The company alleged that the valuation indicated in the policy was C.I.F. + 10% whereas the invoice FOB (Free on Board) and the Bill of Lading was clean. The company asserted that the liability of the seller came to an end no sooner the consignment was loaded on to the ship leaving the exporter with no insurable interest in the consignment.
5. The Commission received three affidavits as evidence one filed by the exporter, the second by Carrier while the third was filed by Mr. Ramesh Goyal, Senior Branch Manager of the Insurance Company. By its order dated 14th July, 2003 the Commission held that the Insurance Policy had been obtained on the representation that the transactions between the exporter and the purchasers were on C.I.F. basis whereas the consignment had in fact been sent on FOB basis which absolved the Insurance Company of any liability for the failure of the insured to maintain utmost good faith essential for a marine insurance policy. The Commission noted that in the declaration of the consignment sent to the insured no details of the conditions of shipment were mentioned. There was thus, in the opinion of the Commission, absence of good faith on that account also. The Commission further held that the policy covered risks only at sea and “that ware house to ware house” coverage was limited to risk arising from inland transit alone. The terms of the policy did not according to the Commission cover the 7 risk till delivery was made to the consignee. The Commission on that basis held that there was no deficiency of service on the part of the Insurance Company.
6. In so far as the claim against the carrier was concerned, the Commission recorded a finding that the service provided by them was deficient but held that the liability of the carrier for payment of compensation to the consignee was limited by the provisions of the Indian Carriers of Goods by Sea Act, 1925. The Commission noted that since no value of goods was given in the Bill of Lading the only amount which the exporter was entitled to was a sum equivalent to 1800$ in Indian rupee as per the then prevailing rate of exchange with interest @ 9% from 1.7.1998 till the date of payment with costs of Rs.10,000/-.

The complaint, so far as M/s Samrat Shipping & Transport System Pvt. Ltd. was concerned, was dismissed on the ground that it was acting only as an agent of the carrier. A review petition filed against the said order by Mr. D.K. Lall 8 having been dismissed by the Commission by its order dated 29th October, 2003, the appellants have filed the present appeals to assail the correctness of the orders passed by the Commission.

7. Two distinct issues fall for our consideration, one touching the liability of the Insurance Company and the other concerning the liability of the carrier. On behalf of the insurance company a two-fold submission was advanced before us. Firstly, it was contended that since the transaction between the exporter and the purchaser in Spain was on FOB basis, the exporter had no insurable interest in the goods once the same were delivered to the carrier. It was argued that in a FOB transaction the property in goods stands transferred to the purchaser no sooner the goods are entrusted to the carrier or at least when the same cross the customs barrier for shipment. This implies that all the risks relating to such goods are that of the purchaser who alone could sue the carrier or insurance company if there was an insurance cover obtained by him for such goods. The terms 9 of the transaction between the shipper and the purchaser did not in the instant case reserve in favour of the shipper any right or interest in the goods so as to constitute an insurable interest within the meaning of Section 7 of the Marine Insurance Act, 1963.
8. Secondly, it was contended that a contract of insurance was based on utmost good faith not only by reason of the general principles governing such contracts but also by reason of Section 19 of the Marine Insurance Act, 1963. The shipper had not, however, observed utmost good faith while obtaining the insurance cover from the respondent-insurance company inasmuch as the shipper had taken out an insurance policy from the company on the representation that the goods were being dispatched on CIF (cost insurance and freight basis) while in reality the goods had been sent by the shipper on FOB basis which constituted a material non-disclosure hence failure of utmost good faith by him within the meaning of Section 19 of the Act aforementioned.
9. Section 3 of the Marine Insurance Act, 1963 defines marine insurance to mean an agreement whereby insurer undertakes to indemnify the assured, in the manner and to the extent thereby agreed, against marine losses, that is to say, losses incidental to a marine adventure. Section 4 of the Act provides that a contract of marine insurance may, by its express terms, or by usage of trade, be extended so as to protect the assured against losses on inland waters or on any land risk which may be incidental to any sea voyage.

Section 5 permits every lawful “marine adventure” to be the subject matter of a contract of marine insurance. The expression “marine adventure” is defined by Section 2(d) in the following words:

“2(d): “marine adventure: includes any adventure where – (i) any insurable property is exposed to maritime perils;

(ii) the earnings or acquisition of any freight, passage money, commission, profit or other pecuniary benefit, or the security for any advances, loans, or disbursements is endangered by the 11 exposure of insurable property to maritime perils;

(iii) any liability to a third party may be incurred by the owner of, or other person interested in or responsible for, insurable property by reason of maritime perils”.

10. The expression “maritime perils” referred to in Section 2(d) supra is defined in Section 2(e) as under:

“2(e) : “maritime perils” means the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints and detainments of princes and people, jettisons, barratry and any other perils which are either of the like kind or may be designated by the policy”.

11. Section 7 of the Act stipulates that subject to the provisions of the Act every person interested in a marine adventure has an insurable interest. It reads:

“Section 7: Insurable interest defined – (1) Subject to the provisions of this Act, every person has an insurable interest who is interested in a marine adventure.

12 (2) In particular a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof”.

12. What is noteworthy is the use of the words “interested in a marine adventure” appearing in Section 7 of the Act.

The expression “interested” has not been defined in the Act although sub-section (2) to Section 7 gives an indication of what would constitute `interest’ in a marine adventure. The question is whether a seller of goods on FOB basis like the complainant in the present case can be said to be `interested in marine adventure’ within the meaning of Section 7. If the answer be in the affirmative, the complainant would have an insurable interest but not otherwise.

13. The provisions of Marine Insurance Act, 1906 enacted by the British Parliament are in pari materia with those contained in the Indian Act. The former is in fact a precursor 13 to the latter. The definition of `insurable interest’ given in the English legislation is the same as the one given in Section 7 of our enactment. Judicial pronouncements by English Courts would, therefore, be both relevant and helpful in understanding the true purport of the expression `insurable interest’.
14. Halsbury’s Laws of England, Fourth Edition has, while dealing with the expression “insurable interest” under the Marine Insurance Act, 1906 prevalent in that country, explained the purport of the expression “interest” in a marine adventure in the following words:

“A person may be said to be interested in an event when, if the event happens, he will gain an advantage, and, if it is frustrated, he will suffer a loss, and it may be stated as a general principle that to constitute an insurable interest it must be an interest such that the peril would by its proximate effect cause damage to the assured, that is to say cause him to lose a benefit or incur a liability.

15. Halsbury’s refers to the decision of House of Lords in Lucena V. Craufurd (1806) 2 Bos & PNR 269 as to the meaning of the expression “insurable interest”:

“A man is interested in a thing to whom advantage may arise or prejudice happen from the circumstances which may attend it;…and whom it importeth that its condition as to safety or other quality should continue.

Interest does not necessarily imply a right to the whole or part of the thing, nor necessarily and exclusively that which may be the subject of privation, but the having some relation to, or concerning the subject of the insurance; which relation or concern by the happening of the perils insured against, may be so effected as to produce a damage, determent or prejudice to the person insuring. And where a man is so circumstanced with respect to matters exposed to certain risks and dangers as to have a moral certainty of advantage or benefit but for those risks and dangers, he may be said to be interested in the safety of the thing. To be interested in the preservation of a thing is to be so circumstanced with respect to it as to have benefit from its existence, prejudice from its destruction.”

16. Dealing with the question whether the seller of goods retains any insurable interest, Halsbury explains:

15 “When, however, the property which is the subject matter of the contract of sale has completely passed from the seller to the buyer or when it has under the contract of sale become completely at the buyers’ risk, the seller ceases to have any insurable interest, and the buyer acquires one. Thus, a contract for the sale of goods to be supplied on board, a particular vessel may be so framed that the property in them and the risk of their loss do not pass to the buyer until a complete cargo has been loaded, in which case the buyer has no insurable interest until the complete cargo has been loaded; or the contract may be so framed that the property in and the risk as to any part of the goods passed to the buyer on shipment, in which case the buyer acquires an insurable interest on any part of the goods then shipped.”

(emphasis supplied)

17. Reference may also be made by us to Macgillivray on Insurance Law. While dealing with insurable interest under contracts for the Sale of Goods, the author has the following to say:

“The unpaid seller of goods who has parted with property in them has no insurable interest in them unless either they remain at his risk or he has a lien, charge or other security interest over them for the price. So 16 long as the risk remains with him, he has an interest whether the property has passed or not, and the measure of his interest is the purchase price or the actual value of the goods, whichever is the greater.

Even when risk and property have both passed, the seller retains an insurable interest in the goods while he still possesses them because, if he is unpaid in whole or part on account of the buyer’s insolvency or for other reasons, he has an interest in respect of his lien for the purchase money.

His possession of the goods would also permit him to insure on the buyer’s behalf if his intention is clear and the policy does not forbid it.”

(emphasis supplied)

18. We may now refer to the provisions of the Sales of Goods Act, 1930 relevant to the transfer of the property in goods to the purchaser specially in a FOB-transaction like the one in the instant case. Section 19 of the said Act provides that in a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred and that for the purpose of ascertaining the 17 intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. Sections 20 to 24 of the said Act prescribe rules for ascertaining the intention of the parties as to the time at which the property is to pass to the buyer.

One of the said rules is that in unconditional contracts for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made irrespective of the fact that the time of payment of the price or the time for the delivery of the goods or both are postponed. Yet another rule contained in Section 23 of the Act is that where contract for the sale of uncertained or future goods by description are unconditionally appropriated to the contract either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods passes to the buyer. So also where the seller delivers the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer and does not reserve the right of disposal, he is deemed to 18 have unconditionally appropriated the goods to the contract. Section 23(2) which stipulates that rule reads:

“Delivery to carrier. – Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract.”

19. Section 25 provides that where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled. In such a case, notwithstanding the delivery of the goods to a buyer or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled.

Section 26 of the Act provides that unless otherwise agreed, the goods remain at the seller’s risk until the property 19 therein is transferred to the buyer but when the property therein is transferred to the buyer, the goods are at the buyer’s risk whether delivery has been made or not. Section 26 may at this stage be extracted:

“Section 26: Risk prima facie passes with property – Unless otherwise agreed, the goods remain at the seller’s risk until the property therein is transferred to the buyer, but, when the property therein is transferred to the buyer, the goods are at the buyer’s risk whether delivery has been made or not:

Provided that, where delivery has been delayed through the fault of either buyer or seller, the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault:

Provided also that nothing in this section shall affect the duties or liabilities of either buyer or seller as a bailee of the goods of the other party.”

20. Section 39, inter alia, provides that delivery of the goods to a carrier whether named by the buyer or not, is prima facie deemed to be delivery of the goods to the buyer. Sections 46 and 47 deal with unpaid seller’s rights and lien and, inter alia, provide that unpaid seller shall, 20 subject to the provisions of the Act and of any law for the time being in force, have a lien on the goods for the price while he is in possession of them and that the seller can retain the possession of the goods until payment or tender of the price in situations where the buyer has become insolvent or goods have been sold on credit, but the term of credit has expired. The lien, however, stands terminated in terms of Section 49 of the Act when the goods are delivered to a carrier for the purpose of transmission to the buyer without reserving the right of disposal of the goods.
21. Coming to the case at hand, the contract of sale was on FOB basis even when the contract of insurance proceeded on the basis that the transactions between the seller and the purchaser and meant to be covered by the policy would be on CIF basis. The distinction between CIF (Cost Insurance and Freight) and FOB (Free on Board) contracts is well recognized in the commercial world. While in the case of CIF contract the seller in the absence of any special contract is bound to do certain things like making an invoice of the 21 goods sold, shipping the goods at the port of shipment, procuring a contract of insurance under which the goods will be delivered at the destination etc., in the case of FOB contracts the goods are delivered free on board the ship.

Once the seller has placed the goods safely on board at his cost and thereby handed over the possession of the goods to the ship in terms of the Bill of Lading or other documents, the responsibility of the seller ceases and the delivery of the goods to the buyer is complete. The goods are from that stage onwards at the risk of the buyer.

22. It is common ground that the seller had, in the case at hand, reserved no right or lien qua the goods in question.

In the absence of any contractual stipulation between the parties the unpaid seller’s lien over the goods recognised in terms of Sections 46 and 47 of the Sale of Goods Act, 1930 stood terminated upon delivery of the goods to the carrier.

The goods were from that stage onwards held by the carrier at the risk of the buyer and the property in the goods stood vested in the buyer. The principle underlying transfer of title 22 in goods in FOB contracts was stated by a Constitution Bench of this Court in B.K. Wadeyar V. Daulatram Rameshwarlal (AIR 1961 SC 311). The question as to the transfer of title in the goods arose in that case in the context of a fiscal provision but the principle relating to the transfer of title in goods in terms of FOB contract was unequivocally recognised. This Court held that in FOB contracts for sale of goods, the property is intended to pass and does pass on the shipment of the goods. The National Commission was, therefore, right in holding that the seller had no insurable interest in the goods thereby absolving the insurance company of the liability to reimburse the loss, if any, arising from the mis-delivery of such goods.

23. We consider it unnecessary to delve any further on this aspect of the matter for in our opinion the claim made by the shipper against the insurance company has been rightly rejected by the National Commission on the ground that the shipper had not observed utmost good faith while obtaining the insurance cover. The principle that insurance is a 23 contract founded on good faith is of vintage value. In Carter V. Boehm (1766) 3 Burr 1905 one of the earliest cases on the subject the principle was stated by Lord Mansfield in the following words:

“Insurance is a contract of speculation.

The special facts upon which the contingent chance is to be computed lie most commonly in the knowledge of assured only; the underwriters trusts to his representation and proceeds upon confidence that he does not keep back any circumstance in his knowledge to mislead the underwriter into a belief that the circumstance does not exist. The keeping back such circumstance is a fraud, and therefore the policy is void. Although the suppression should happen through mistake, without any fraudulent intention, yet still the underwriter is deceived and the policy is void; because the risqui run is really different from the risqui understood and intended to be run at the time of the agreement….The policy would be equally void against the underwriter if he concealed……

Good Faith forbids either party, by concealing what he privately knows, to draw the other into a bargain from his ignorance of the fact, and his believing the contrary.”

24. Section 19 of the Marine Insurance Act, 1963 grants statutory recognition to the above principle. It reads:

24 “19. Insurance is uberrimae fidei. – A contract of marine insurance is a contract based upon the utmost good faith, and if the utmost good faith be not observed by either party, the contract may be avoided by the other party.”

25. In United India Insurance Company Ltd. V. M.K.J. Corporation (1996 (6) SCC 428) this Court declared good faith as the very essence of a contract of insurance in the following words:

“It is a fundamental principle of Insurance law that utmost good faith must be observed by the contracting parties. Good faith forbids either party from concealing (non-disclosure) what he privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary. Just as the insured has a duty to disclose, similarly, it is the duty of the insurers and their agents to disclose all material facts within their knowledge, since obligation of good faith applies to them equally with the assured. The duty of good faith is of a continuing nature.

After the completion of the contract, no material alteration can be made in its terms except by mutual consent. The materiality of a fact is judged by the circumstances existing at the time when the contract is concluded.”

26. To the same effect is the decision of this Court in Modern Insulators Ltd. V. Oriental Insurance Co. Ltd.

(2000 (2) SCC 734) where this Court observed:

“It is the fundamental principle of insurance law that utmost good faith must be observed by the contracting parties and good faith forbids either party from non-disclosure of the facts which the parties know. The insured has a duty to disclose and similarly it is the duty of the insurance company and its agents to disclose all material facts in their knowledge since the obligation of good faith applies to both equally.”

27. The National Commission has, in the instant case, recorded a clear finding the correctness whereof has not been disputed before us that the insurance cover obtained by the exporter envisaged goods being despatched on CIF basis whereas the goods were, in fact, sent on FOB basis.

This was a material departure which breached the duty of utmost good faith cast upon the exporter towards the insurance company. If the proposal for insurance had disclosed that the goods will be sent on FOB basis, the 26 question whether the supplier had any insurable interest in the goods and if he had what premium the company would charge for the same may have assumed importance. Be that as it may, the duty to make a complete disclosure not having been observed by the exporter, the National Commission was justified in holding that the insurance company stood absolved of its liability under the contract and in dismissing the petition qua the said company.

28. That brings us to the question whether the National Commission was justified in holding that the service rendered by the carrier was deficient, and if so, whether it was right in awarding rupee equivalent of US$ 1800 by way of compensation. The National Commission has on appreciation of the material on record come to the conclusion that the consignment meant to be delivered to Pindikas was misdelivered and what was offered to Pindikas did not actually contain miniature paintings meant for the said consignee. That finding is, in our opinion, justified on the material on record from which it is evident that out of 27 122 cartons 121 cartons were delivered to M/s Natural Selection International while the only remaining carton when checked in the presence of the General Counsulate of India was found to contain steel furniture items. The inference, therefore, is that the carton containing miniature paintings had been misdelivered by the carrier who ought to have taken care to deliver the same to the consignee concerned.

The National Commission has rightly rejected the contention that the carton was not properly marked making it difficult for the shipping company to separate the same from other cartons which were meant for M/s Natural Selection International. There is indeed, no room for us to interfere with the findings of the National Commission. The question, however, is whether the National Commission was justified in awarding rupee equivalent of US$ 1800 to the shipper by way of compensation. There are two errors which are evident in the order by the National Commission in that regard. Firstly, the National Commission has instead of going by the number of packages entered in the Bill of 28 Lading gone by the packages mentioned in the packing list.

The Bill of Lading was the only document on the basis of which compensation could be determined against the carrier in terms of the provisions of The Indian Carriage of Goods by Sea Act, 1925 and the Schedule thereto. Section 2 of the said Act provides that the rules set out in the Schedule shall have effect in connection with the carriage of goods by sea in ships carrying foods from any port in India to any other port whether in or outside India. Section 4 requires that every Bill of Lading or similar document of title issued in India to which Rules apply shall contain an express statement that it is to have effect subject to the provisions of the said Rules as applied by the Act. In terms of Rule 5 of Article IV neither the carrier nor the ship shall be liable for any loss or damage to or in connection with goods in excess of the amounts stipulated therein. Rule 5 of Article IV to the extent the same is relevant for our purposes may be extracted at this stage:

29 “5. Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with goods in an amount exceeding 666.67 Special Drawing Rights per package or unit or two Special Drawing Rights per kilogram of gross weight of the goods lost or damaged, whichever is higher, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.

Where a container, pallet or similar article of transport is used to consolidate goods, the number of packages or units enumerated in the bill of lading and as packed in such article of transport shall be deemed to be the number of packages or units for the purposes of this paragraph as far as these packages or units are concerned.

Neither the carrier nor the ship shall be entitled to the benefit of limitation of liability provided for in this paragraph if it is proved that the damage resulted from an act or omission of the carrier done with intent to cause damage, or recklessly and with knowledge that damage would probably result”.

29. A careful reading of the above would show that in cases where a container, pallet or similar article of transport is used to consolidate goods, the number of packages or units 30 enumerated in the Bill of Lading and as packed in such article of transport shall be deemed to be the number of packages or units for purposes of Rule 5 as far as these packages or units are concerned.
30. It is not in dispute that 122 cartons despatched by the shipper were consolidated in a container, nor is it disputed that there was only one package indicated in the Bill of Lading concerning the consignment meant for Pindikas. The National Commission could not go beyond the Bill of Lading and award compensation on the basis of the packing list which may have mentioned several packages consolidated in one bigger package, delivery whereof was acknowledged in the Bill of Lading. The Commission ought to have taken the number of packages to be only one as mentioned in the Bill of Lading.
31. The second error committed by the National Commission is equally manifest. The Commission appears to have gone by the unamended provisions of Rule 5 in which the amount of compensation was stipulated to be US$ 31 100 per package. After the amendment to the Schedule in the year 1992 by Act 28 of 1993 the amount of compensation was to be paid in terms of Special Drawing Rights. As noticed above the shipper would be entitled to the compensation of 666.67 Special Drawing Rights per package or two Special Drawing Rights per kilogram according to the gross weight of the goods lost or damaged whichever is higher. The single package meant for Pindikas weighed 200 kgs. The amount of compensation payable by reference to the weight of the package would come to 400 Special Drawing Rights. The amount of compensation, actually payable would, however, be 666.67 Special Drawing Rights being higher of the two amounts.
32. It was next argued that the shipper would be entitled to the value of the goods misdelivered which according to the shipper was not less than Rs.39,23,225/-. There is no merit in that submission. We say so because compensation by reference to the value of the goods lost or damaged can be claimed only if the nature or the value of such goods has 32 been declared by the shipper before shipment and inserted in the Bill of Lading. Even assuming that the nature and the valuation of the goods had been declared by the shipper before the shipment the requirement of `insertion of the same in the Bill of Lading’ was not satisfied in the present case. The Bill of Lading does not mention either the nature or the value of the goods. That being so, compensation of rupee equivalent of 666.67 Special Drawing Rights was the only amount that could be awarded by the Commission to the shipper. In as much as the Commission awarded US$1800 it committed a mistake that calls for correction.
33. In the result we dismiss C.A. No.8276 of 2003 but partly allow C.A. Nos.3245 of 2005 and 6232 of 2004 to the extent that the amount of compensation payable to the shipper shall stand reduced to the rupee equivalent of 666.67 Special Drawing Rights only. The order passed by the National Commission shall stand modified to the above extent leaving the parties to bear their own costs.

………………………………..J. (MARKANDEY KATJU)

………………………………..J. (T.S. THAKUR)

New Delhi

 

Jurisdiction to file Bill of Lading suit Laws India.

For the sake of convenience, we may reproduce certain relevant clauses of the Bill of Lading (BOL) and provisions of the Indian Carriage of Goods by Sea Act, 1925 (hereinafter referred to as “the Act”) as under :

Bill of Lading “3. Jurisdiction Any dispute arising under the Bill of Lading shall be decided in the country where the carrier has his principal place of business and the law of such country shall apply except as provided elsewhere herein.”

“9. Live Animals and Deck Cargo shall be carried subject to the Hague Rules as referred to in Clause 2 hereof with the exception that notwithstanding anything contained in Clause 19 the Carrier shall not be liable for any loss or damage resulting from any act, neglect or default of his servants in the management of such animals and deck cargo.”

“19. Optional Stowage Unitization

(a) Goods may be stowed by the Carrier as received or, at Carrier’s option, by means of containers, or similar articles of transport use to consolidate goods.

(b) Containers, trailers and transportable tanks whether stowed by the Carrier or received by him in a stowed condition from the Merchant, may be carried on or under deck without notice to the Merchant.

(c) The Carrier’s liability for cargo stowed as aforesaid shall be governed by the Hague Rules as defined above notwithstanding the fact that the goods are being carried on deck and the goods shall contribute to general average and shall receive compensation in general average.”

Indian Carriage of Goods by Sea Act, 1925 “2. Application of Rules : Subject to the provisions of this Act, the rules set out in the Schedule (hereinafter referred to as “the Rules”) shall have effect in relation to and in connection with the carriage of goods by sea in ships carrying goods from any port in India to any other port whether in or outside India.”

“SCHEDULE RULES RELATING TO BILLS OF LADING Article I Definitions In these Rules the following expressions have the meanings hereby assigned to them respectively, that is to say  xxx        xxx         xxx

(c) “Goods” includes goods, wares, merchandises, and articles of every kind whatsoever, except live animals and cargo which by the contract of carriage is stated as being carried on deck and is so carried; [unamended clause]

(c) “Goods” includes any property including live animals as well as containers, pallets or similar articles of transport or packaging supplied by the consignor, irrespective of whether such property is to be or is carried on or under the deck” [as amended by Act 44/2000] “Article III Responsibilities and Liabilities.

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.

 

The Rules of the High Court of Calcutta on the Original Side, Appendix No. 5 under the caption `Admiralty Rules’, the Rules for regulating the procedure and practice in cases brought before the High Court at Calcutta under the Colonial Courts of Admiralty Act, 1890 were framed. The suit was defined to mean any suit, action, or other proceedings instituted in the said court in its jurisdiction under the Colonial Courts of Admiralty Act.

Rule 3 provides for institution of the suit. Under this Rule, a suit shall be instituted by a plaint drawn up, subscribed and verified according to the provisions of the Code of Civil Procedure.

Rule 4 is in relation to the arrest warrant after affidavit which reads as under:

“In suits in rem a warrant for the arrest of property may be issued at the instance either of the plaintiff or of the defendant at any time after the suit has been instituted, but no warrant of arrest shall be issued until an affidavit by the party or his agent has been filed, and the following provisions complied with:-

(a)          The affidavit shall state the name and description of the party at the whose instance the warrant is to be issued, the nature of claim or counter-claim, the name and nature of the property to be arrested, and that the claim or counter-claim has not been satisfied.

(b)          In a suit of wages or of possession the affidavit shall state the national character of the vessel proceeded against; and if against a foreign vessel, that notice of the institution of the suit has been given to the Consul of the State to which the vessel belongs, if there be one resident in Calcutta and a copy of the notice shall be annexed to the affidavit.

(c)           In a suit of bottomry the bottomry bond, and in a foreign language also a notarial translation thereof, shall be produced for the inspection and perusal of the Registrar, and a copy of the bond, or of the translation thereof, certified to be correct shall be annexed to the affidavit.

(d)          In a suit of distribution of Salvage the affidavit shall state the amount of Salvage money awarded or agreed to be accepted, and the name, address and description of the party holding the same.

Rule 6 provides that in suits in rem no service of writ or warrant shall be required when the attorney of the defendant waives service and undertakes in writing to appear and to give security or to pay money into Court in lieu of Security.

Rules 27 provides for caveat to be filed against the arrest warrant. The Court can issue the warrant for the arrest if the affidavit contains the particulars as required under Rule 4.

 

Rule 6 permits the attorney of the defendant to ask for waiving of warrant of arrest by giving an undertaking in writing to appear and to give security.

Supreme Court of India

Mayar (H.K.) Ltd. & Ors vs Owners & Parties, Vessel M.VAuthor

: P Naolekar

Bench: Ruma Pal, P.P. Naolekar

CASE NO.:

Appeal (civil)  867 of 2006

PETITIONER:

Mayar (H.K.) Ltd. & Ors.

RESPONDENT:

Owners & Parties, Vessel M.V. Fortune Express  & Ors

 

DATE OF JUDGMENT: 30/01/2006

BENCH:

RUMA PAL & P.P. NAOLEKAR

JUDGMENT:

JUDGMENT [arising out of Special Leave Petition (Civil) No. 17906 of 2004] P.P. NAOLEKAR, J. :

Leave granted.

This appeal is preferred by the plaintiff-appellants challenging the judgment of the Division Bench of the Calcutta High Court dated 23.8.2004 whereby the plaintiffs’ suit filed in Admiralty jurisdiction was directed to remain permanently stayed and the bank guarantee furnished by the defendant-respondents in the suit was directed to stand immediately discharged. The plaintiff-appellants were also directed to pay the costs. Appellant No. 1 Mayar (H.K.) Limited filed admiralty suit in the High Court at Calcutta on 27.3.2000 in admiralty jurisdiction along with appellants Nos. 2 to 5 with whom a contract to sell the goods was entered into by plaintiff / appellant No.1, against the defendant-respondents alleging, inter alia, that plaintiff / appellant No. 1 (hereinafter called “A-1”) is a company incorporated under the laws of Hong Kong and engaged in the business of export and import of timber logs. By and under a Charter Party Agreement entered into on 7.1.2000 between plaintiff No. 1-Mayar (H.K.) Limited and defendant No. 2-Trustrade Enterprises PTE Ltd., a company incorporated under the appropriate laws of Singapore and carrying on business, inter alia, at 101, Cecil Street 10-04 Tong. Eng. Building, Singapore (description given in the plaint) an owner on behalf of the vessel M.V. “Fortune Express” (hereinafter referred to as “the vessel”), a foreign vessel flying the flag of Singapore, the defendants agreed to carry on board the vessel a quantity of 5200 CBM Barawak Round logs or upto vessel’s full capacity for discharge at the Port of Calcutta, India. In or about January 2000, A-1 purchased various quantities of Malaysian Barawak logs for the purpose of shipment to the Port of Calcutta and to sell the same to various third parties having their offices in West Bengal, India. Under five bills of lading dated 21.2.2000, 17.2.2000, 24.2.2000, 15.2.2000 and 18.2.2000, the defendants agreed to carry on board the said vessel 1638 pieces of logs of different quality measuring 5325.2941 CBM from various ports of Malaysia to the Port of Calcutta, India. At the request of A-1, the five bills of lading were split into 17 bills of lading at the instance of the defendants so as to facilitate sale by A-1 to various buyers in West Bengal, India. The appellants 1 to 5 are the holders in due course and/or endorsees of the six of those bills of lading which dealt with the 642 pieces of logs. As per the stowage plan of the vessel, out of 642 logs, the subject matter of bills of lading, which were loaded on board the vessel, 578 logs were lying on the deck of the vessel. The vessel arrived at the Port of Calcutta on 7.3.2000 and started discharging the cargo lying on its deck from that date till 15.3.2000. At the time of the discharge of the cargo lying on the deck of the vessel, it was found that 456 logs out of 578 logs which were lying on the deck of the vessel were missing and had been short-landed. It has been alleged that in breach of the defendants’ duty as a carrier and/or bailees for reward and/as evidenced by the six bills of lading, the defendants have failed to deliver 456 logs whereby the plaintiffs have suffered loss and damage. The plaintiffs have also alleged that the defendants also acted in breach of their contract entered into with A-1 being the shipper under the aforesaid six bills of lading. The defendants have acted in breach of the Charter Party Agreement entered with A-1 by failing and neglecting to carry on board the vessel from the loading point to the discharge port, the agreed quantity of logs. As the logs were not delivered, all the plaintiffs are entitled to claim from the defendants the proportionate value and expenses incurred on account of the said missing 456 logs which is approximately valued at Rs. 1,30,19,688.44p. as per the particulars stated hereinbelow :

1. Proportionate value of 456 logs of aggregate value of Rs.1,56,87,298.44p. Rs.1,09,13,902.56p.

 

2. Proportionate port charge and other charges

paid in respect of 456 logs.                                                                Rs.     4,14,130.72p.

 

3. Proportionate custom duty paid in respect

of 456 logs.                                                                                             Rs.     5,00,264.73p.

4. Proportionate insurance payment made

in respect of 456 logs.                                                                                        Rs.    10,91,390.43p

———————

Rs.1,30,19,688.44p.

————————-

 

The plaintiffs have also claimed from the defendants interest on the aforesaid sum at the rate of 24 per cent per annum until realization of the entire sum from the defendants. The plaintiffs have prayed for the arrest of the vessel along with her tackle, apparel and furniture. On 27.3.2000 itself, the learned Single Judge of the Calcutta High Court passed an order that it appears that the claim of the plaintiffs arises out of short-landing of the goods as mentioned in the affidavit of arrest amounting to a total sum of Rs.1,30,19,688.44p. The vessel in question is a foreign vessel and does not have any assets within the jurisdiction of the Court. The said vessel is now lying at Kidderpore Dock and if the said vessel is allowed to ply from the said dock then the decree that may have been passed in the suit in favour of the plaintiffs will frustrate the proceedings, as the defendant-respondents have no assets within the jurisdiction of the Court and in view thereof the Marshall is directed to arrest the said vessel M.V. Fortune Express along with her tackle, apparel and furniture. It was made clear in the order that if the said vessel furnishes a bank guarantee for the amount mentioned in the order, with the Registrar, Original Side, High Court, Calcutta, they will be at liberty to apply before the Court for vacation of the order. On 12.4.2000, the Punjab National Bank, Calcutta, submitted a letter of intent before the Registrar, High Court, Original Side, Calcutta regarding furnishing of the bank guarantee on behalf of the defendant-respondents seeking order of the court for release of the vessel. On submission of the letter of intent for furnishing the bank guarantee on behalf of the owners and parties interested in the vessel, i.e., the respondents, dated 12.4.2000, the learned Single Judge of the Calcutta High Court on 12.4.2000 itself has passed an order releasing the vessel from arrest vacating the order of arrest dated 27.3.2000. The order was passed without prejudice to the rights and contentions of the owners of the vessel that the suit is not maintainable. On 17.5.2000, the Punjab National Bank furnished the bank guarantee binding itself and the defendants for the payment of the amount of Rs.1,30,19,688.44p. The guarantee incorporated a term that the defendants and the Bank do thereby submit themselves to the jurisdiction of the Court.

On 7.7.2001, the defendants filed an application purported to be under Order VII Rule 11 of the Code of Civil Procedure 1908 (for short “the Code”) alleging therein that the suit filed by the plaintiffs is liable to be dismissed in limine and as a consequence thereof the bank guarantee is liable to be released, on the grounds that as per Clause 3 of the Bill of Lading (for short “BOL”) the court having jurisdiction to entertain the suit, is the court of the carrier’s country and thus the Calcutta High Court has no jurisdiction to entertain the suit; that the contract for carriage was for deck cargo and, therefore, liability of the carrier was excluded by application of Clause 2 and Clause 9 read with Clause 19 of BOL and the same being binding on the plaintiffs the defendants are not at all liable for payment of the damages; and that the suit does not disclose any cause of action. The learned Single Judge by his order dated 1.7.2002 dismissed the application filed by the defendants for dismissal of the suit relying on the decision of this Court in Chittaranjan Mukherji vs. Barhoo Mahto, AIR 1953 SC 472, that the defendants having received a favourable order from the Indian court cannot turn around and challenge the jurisdiction of the very court at a later stage. It was also held that for application of Clause 9 of BOL and exonerating the carrier from its liability and responsibility, it would be necessary to prove that the loss or damage is the result of any act, neglect or default on account of any servant of the carrier who is in the management of the deck cargo, which is a matter of evidence and cannot be ascertained at the preliminary stage.\

Aggrieved by the said order of the learned Single Judge, an appeal was preferred before the Division Bench of the Calcutta High Court by the defendants which was allowed by order dated 23.8.2004 The Division Bench of the High Court has held that under the forum selection clause (Clause 3) of BOL any dispute arising therefrom shall be decided in the country where the carrier has its principal place of business governing the law of such country and, thus, the Singapore Court alone will have jurisdiction to entertain the suit. Some interesting findings have been arrived at by the Division Bench which have material bearing in deciding the present appeal and, therefore, they are referred herein. The Division Bench has said that the vessel (Fortune Express) having sailed into the Calcutta Port and the claim being of an admiralty nature the Court had jurisdiction by the laws of India in the same manner as it would have jurisdiction if a Singapore trader happened to open up a place of business within the local limits of the ordinary original civil jurisdiction of the Court. The issue is not one of possession of jurisdiction but of its exercise. If the parties have chosen a particular forum and a particular set of laws in the world to govern them, then they are, in the large majority of ordinary cases, to be held to their bargain and not to be allowed to depart therefrom only because one party finds it convenient and, therefore, chooses to do so. The finding as regards the chosen forum of Singapore Court and to be governed by the laws of Singapore has been arrived at by the Division Bench only on the basis of the plaintiffs mentioning that defendant No. 2 Trustrade Enterprises PTE Ltd. is a company incorporated under the appropriate laws of Singapore and is carrying on its business at Singapore. The Court has also observed that the Singapore law with regard to the discharge of liability is quite different. According to the Singapore Act, the Hague Rules have been somewhat amended. For voyages which start from ports of Singapore or even the goods which are first shipped from there, the Act seems to include even deck cargo as goods. There is not a single line in the plaint stating either that the Singapore law is the applicable law or that by reason of the application thereof the goods are not deck cargo. As regards the liability of the defendants, the Court has found that admittedly the goods were carried on the deck and there is no liability of the carrier if the deck cargo is lost. The Court has further held that the defendants by submitting the bank guarantee before the Court did not submit to the jurisdiction of the Court, particularly so when the order dated 12.4.2000 passed by the learned Single Judge specifically mentioned that the order was being passed without prejudice to the rights and contentions of the owners of the vessel that the suit is not maintainable. As regards the submission of the plaintiffs that compelling the plaintiffs to file a suit for damages at this late stage at Singapore Court would be most unjust because the application by the defendants for treating the plaint off the record of the Court had been filed on 7.7.2001 when the order for arrest of the vessel was passed on 27.3.2000 and particularly the plaintiffs’ right would be jeopardized because under Article 3(6) of the Hague Rules, 1924 the carrier and the ship had been absolved of all liability in respect of the loss or damage if suit were not brought within one year after delivery of the goods or the date when the goods should have been delivered, the Court has opined that under Article 3, Clause 6 of the Hague Rules, 1924, the limitation had been with respect to the goods. However, Article 1(c) of the Hague Rules, 1924 mentioned that the cargo which had been carried on deck would not come under the definition of `goods’. Except 135 logs, all others were described in BOL as deck cargo and thus the limitation prescribed for filing of the suit would have no application. The Court has further observed that though the law of Singapore on the point had been different in the sense that even the deck cargo would be considered under the definition of `goods’ , but the plaintiffs had not mentioned a single word in their plaint regarding the applicability of the Singapore law. It was further held that the plaintiffs, from the very outset of the suit, were aware of the fact regarding the appropriate forum and hence now at this stage they could not plead to reap the benefit from their own fault. The Court held that the plaintiffs’ plaint suppressed the forum selection clause relating to the law governing the contract and approached a wrong court to get an ex parte arrest order against the defendants’ vessel. It has been observed that the suppression of fact regarding forum selection was of serious nature and that would be sufficient to dismiss the suit filed by the plaintiffs.

As regards the contention of the plaintiffs that the defendants having submitted to the jurisdiction of the Court, could not challenge the jurisdiction of it at a later stage, the Court has held that the defendants raised the objection regarding the maintainability of the suit at the first opportunity itself which is also reflected in the order. It has been held by the Court that by release of the vessel the defendants have not taken advantage of the Court’s order because instead of the arrested ship lying in wait to satisfy the decree that might be passed a sufficient money equivalent provided by the owners and the parties interested in the ship lies so in wait.

On consideration of the submissions made by the parties before the Division Bench and the relevant provisions of BOL and the provisions of the Indian Carriage of Goods by Sea Act, 1925, the Division Bench has arrived at the following findings :

(i)            The parties have chosen the Singapore Court and the Singapore law by express contract. They should be held bound to it.

(ii)           Arrest of the ship was obtained from the Calcutta High Court in Calcutta wrongfully since it was in breach of the above clause.

(iii)          The defendants never submitted to the Calcutta jurisdiction as they made reservation about the maintainability of the suit within about a fortnight of the arrest when the order for furnishing Bank Guarantee and release of the vessel was obtained on their behalf.

(iv)         Save for 135 longs, the lost logs being 456 in number are covered entirely by the exclusion clause agreed upon which excludes liability for any defaults of the shippers’ servants in the management of the deck cargo.

 

(v)          Deck cargo is that which is described as such in the Bill of Lading and is also carried as such. The admissions in the plaint are clear as to the deck cargo nature of the said balance number of logs and the admissions in the plaint are equally clear that the loss thereof occurred due to the actions or neglect of the defendants’ servants.

(vi)         The plaintiffs suppressed the jurisdiction clause and the liability exclusion clause; arrest of the ship being obtained thereupon the Court should decline to proceed any further on the improper plaint, improperly proceeded with by the plaintiffs.”

The Court has, inter alia, recorded a finding that Order VII Rule 11 of the Code might not in terms be applicable as the plaint discloses the cause of action fully and wholly, but that by reason of the suppression contained in it, had the exclusion clause been inserted, the cause of action would be lost with regard to the lost cargo excepting for 135 logs. Again, under the said Rule the suit might not be held to be barred as such, because the Calcutta High Court does have the necessary admiralty jurisdiction to entertain the plaint and even cause arrest of the ship. The case is not so much on the terms of Order VII Rule 11 of the Code as upon the inherent jurisdiction of the Court, which it always possesses to reject or stay, a plaint by treating it as complete and by notionally removing the suppression for that purpose. After treating the plaint as complete in that manner, if the Court finds that the cause of action is lacking, it can reject the plaint just as it could reject a plaint had it been properly presented along with all relevant and necessary materials. It can also similarly stay a suit permanently. The aforesaid finding clearly indicates that the order of permanent stay of the suit was made by the Division Bench not because the plaint is liable to be rejected on the grounds that it falls within the parameters of Order VII Rule 11 of the Code or the suit is liable to be stayed in exercise of the powers under Section 10 of the Code or that the Court has passed an order under Order VI Rule 16 of the Code which has not been complied with. The Division Bench, in fact, has exercised the jurisdiction for stay of the suit as the plaintiffs did not disclose the forum selection clause whereby the Court at Calcutta had no jurisdiction to entertain the suit and further suppressed the fact that the claim in the suit shall be governed by the laws applicable in the Singapore Court and that plaintiffs have no case because the claim is in regard to deck cargo.

Under Order VII Rule 11 of the Code, the Court has jurisdiction to reject the plaint where it does not disclose a cause of action, where the relief claimed is undervalued and the valuation is not corrected within a time as fixed by the Court, where insufficient court fee is paid and the additional court fee is not supplied within the period given by the Court, and where the suit appears from the statement in the plaint to be barred by any law. Rejection of the plaint in exercise of the powers under Order VII Rule 11 of the Code would be on consideration of the principles laid down by this Court. In T. Arivandandam vs. T.V. Satyapal and Another, (1977) 4 SCC 467, this Court has held that if on a meaningful, not formal, reading of the plaint it is manifestly vexatious, and meritless, in the sense of not disclosing a clear right to sue, the Court should exercise its power under Order VII Rule 11 of the Code taking care to see that the ground mentioned therein is fulfilled. In Roop Lal Sethi vs. Nachhattar Singh Gill, (1982) 3 SCC 487, this Court has held that where the plaint discloses no cause of action, it is obligatory upon the court to reject the plaint as a whole under Order VII Rule 11 of the Code, but the rule does not justify the rejection of any particular portion of a plaint. Therefore, the High Court could not act under Order VII Rule 11(a) of the Code for striking down certain paragraphs nor the High Court could act under Order VI Rule 16 to strike out the paragraphs in absence of anything to show that the averments in those paragraphs are either unnecessary, frivolous or vexatious, or that they are such as may tend to prejudice, embarrass or delay the fair trial of the case, or constitute an abuse of the process of the court. In ITC Ltd. Vs. Debts Recovery Appellate Tribunal, (1998) 2 SCC 70, it was held that the basic question to be decided while dealing with an application filed by the defendant under Order VII Rule 11 of the Code is to find out whether the real cause of action has been set out in the plaint or something illusory has been projected in the plaint with a view to get out of the said provision. In Saleem Bhai and Others vs. State of Maharashtra and Others, (2003) 1 SCC 557, this Court has held that the trial court can exercise its powers under Order VII Rule 11 of the Code at any stage of the suit before registering the plaint or after issuing summons to the defendant at any time before the conclusion of the trial and for the said purpose the averments in the plaint are germane and the pleas taken by the defendant in the written statement would be wholly irrelevant at that stage. In Popat and Kotecha Property vs. State Bank of India Staff Association, (2005) 7 SCC 510, this Court has culled out the legal ambit of Rule 11 of Order VII of the Code in these words :

“There cannot be any compartmentalization, dissection, segregation and inversions of the language of various paragraphs in the plaint. If such a course is adopted it would run counter to the cardinal canon of interpretation according to which a pleading has to be read as a whole to ascertain its true import. It is not permissible to cull out a sentence of a passage and to read it out of the context in isolation. Although it is the substance and not merely the form that has to be looked into, the pleading has to be construed as it stands without addition or subtraction of words or change of its apparent grammatical sense. The intention of the party concerned is to be gathered primarily from the tenor and terms of his pleadings taken as a whole. At the same time, it should be borne in mind that no pedantic approach should be adopted to defeat justice on hair- splitting technicalities.”

From the aforesaid, it is apparent that the plaint cannot be rejected on the basis of the allegations made by the defendant in his written statement or in an application for rejection of the plaint. The Court has to read the entire plaint as a whole to find out whether it discloses a cause of action and if it does, then the plaint cannot be rejected by the Court exercising the powers under Order VII Rule 11 of the Code. Essentially, whether the plaint discloses a cause of action, is a question of fact which has to be gathered on the basis of the averments made in the plaint in its entirety taking those averments to be correct. A cause of action is a bundle of facts which are required to be proved for obtaining relief and for the said purpose, the material facts are required to be stated but not the evidence except in certain cases where the pleadings relied on are in regard to misrepresentation, fraud, wilful default, undue influence or of the same nature. So long as the plaint discloses some cause of action which requires determination by the court, mere fact that in the opinion of the Judge the plaintiff may not succeed cannot be a ground for rejection of the plaint. In the present case, the averments made in the plaint, as has been noticed by us, do disclose the cause of action and, therefore, the High Court has rightly said that the powers under Order VII Rule 11 of the Code cannot be exercised for rejection of the suit filed by the plaintiff-appellants. Similarly, the Court could not have taken the aid of Section 10 of the Code for stay of the suit as there is no previously instituted suit pending in a competent court between the parties raising directly and substantially the same issues as raised in the present suit.

It is contended by Mr. R F Nariman, learned senior counsel appearing for the defendant-respondents that the court has inherent discretionary jurisdiction to stay the proceedings in appropriate matters where the court thinks fit to do so. This jurisdiction of the court to stay the proceedings in appropriate cases is not limited to the jurisdiction conferred on the court in India under Section 10 of the Code. It is distinct from the jurisdiction conferred by the Code and for this proposition reliance was placed on Bhagat Singh Bugga vs. Dewan Jagbir Sawhney, (28) AIR 1941 Calcutta 670, Hansraj Bajaj vs. Indian Overseas Bank Ltd., AIR 1956 Calcutta 33, Krishnan and Another vs. Krishnamurthi and Others, AIR 1982 Madras 101 and M/s. Crescent Petroleum Ltd. vs. “MONCHEGORSK” and Anr., AIR 2000 Bombay 161. In the aforesaid matters, the Court has recognized the inherent power of the High Court to stay the proceedings in appropriate cases. In Bhagat Singh Bugga’s case (supra), it is said that the Code is not exhaustive and does not expressly provide a remedy in all eventualities and, therefore, the Court has in many cases where the circumstances warrant it, and the necessities of the case require it, to act upon the assumption of the possession of an inherent power to act ex debito justitiae and to do real and substantial justice. In exercise of this power, the High Court can restrain a defendant by injunction in another Court in spite of provision of Section 10 of the Code. In Hansraj Bajaj’s case (supra), the High Court put a note of caution while upholding the inherent power of the High Court to stay the suit though filed in a competent court when it said:

“The jurisdiction to stay an otherwise competent suit is to be sparingly exercised and within the strict limits of the rigorous condition, whose principles may be stated thus : the first principle is that a mere balance of convenience is not a sufficient ground for depriving a plaintiff of his right of prosecuting his action in or his right of access to the competent Courts of the land.

The second principle is that the Court stays an action brought within the jurisdiction in respect of a cause of action arising entirely out of the jurisdiction when it is satisfied that the plaintiff will thereby suffer no injustice whereas if the action is continued the defendant will, in defending the action, be the victim of such injustice as to amount to vexation and oppression and which vexation and oppression would not arise for the defendant if the action were brought in another accessible Court where the cause of action arose.

In such a case the Courts have also insisted that the onus is upon the defendant to satisfy the Court, first, that the continuance of the action would work an injustice because it would be oppressive or vexatious to him or would be an abuse of the process of the Court and, secondly, also that the stay will not cause any injustice to the plaintiff. ”

In Krishnan’s case (supra), the Court laid down that if the ends of justice require or it is necessary to prevent the abuse of the process of the court, the court has jurisdiction to stay the trial of a suit pending before it, but the exercise of such power would depend upon the facts and circumstances of each case.

For the sake of convenience, we may reproduce certain relevant clauses of the Bill of Lading (BOL) and provisions of the Indian Carriage of Goods by Sea Act, 1925 (hereinafter referred to as “the Act”) as under :

Bill of Lading “3. Jurisdiction Any dispute arising under the Bill of Lading shall be decided in the country where the carrier has his principal place of business and the law of such country shall apply except as provided elsewhere herein.”

“9. Live Animals and Deck Cargo shall be carried subject to the Hague Rules as referred to in Clause 2 hereof with the exception that notwithstanding anything contained in Clause 19 the Carrier shall not be liable for any loss or damage resulting from any act, neglect or default of his servants in the management of such animals and deck cargo.”

“19. Optional Stowage Unitization

(a) Goods may be stowed by the Carrier as received or, at Carrier’s option, by means of containers, or similar articles of transport use to consolidate goods.

(b) Containers, trailers and transportable tanks whether stowed by the Carrier or received by him in a stowed condition from the Merchant, may be carried on or under deck without notice to the Merchant.

(c) The Carrier’s liability for cargo stowed as aforesaid shall be governed by the Hague Rules as defined above notwithstanding the fact that the goods are being carried on deck and the goods shall contribute to general average and shall receive compensation in general average.”

Indian Carriage of Goods by Sea Act, 1925 “2. Application of Rules : Subject to the provisions of this Act, the rules set out in the Schedule (hereinafter referred to as “the Rules”) shall have effect in relation to and in connection with the carriage of goods by sea in ships carrying goods from any port in India to any other port whether in or outside India.”

“SCHEDULE RULES RELATING TO BILLS OF LADING Article I Definitions In these Rules the following expressions have the meanings hereby assigned to them respectively, that is to say  xxx        xxx         xxx

(c) “Goods” includes goods, wares, merchandises, and articles of every kind whatsoever, except live animals and cargo which by the contract of carriage is stated as being carried on deck and is so carried; [unamended clause]

(c) “Goods” includes any property including live animals as well as containers, pallets or similar articles of transport or packaging supplied by the consignor, irrespective of whether such property is to be or is carried on or under the deck” [as amended by Act 44/2000] “Article III Responsibilities and Liabilities.

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.

*[This period may, however, be extended if the parties so agree after the cause of action has arisen:

Provided that a suit may be brought after the expiry of the period of one year referred to in this sub-paragraph within a further period of not more than three months as allowed by the court]*.

*Added by Act 28/1993

While working out the equity between the parties and directing permanent stay of the suit and release of the bank guarantee, the Division Bench was mainly impressed by two factors that (i) Clause 3 of BOL gives exclusive jurisdiction to the Singapore Court to try and decide any dispute arising between the parties under the BOL and the parties shall be governed by the law which is applicable in Singapore; and (ii) the goods lost being the deck cargo the carrier ship has no liability in respect of the loss or damage as per Clause 9 of BOL. The Division Bench has said that Clause 3 and Clause 9 of BOL are material clauses which should have been pleaded by the plaintiff-appellants in their suit and, therefore, abuse of process of the Court.

As per law of pleadings under Order VI Rule 2 of the Code, every pleading should contain, and contain only, a statement in a concise form of the material facts on which the party relies for his claim or defence, as the case may be. Thus, the facts on which the plaintiff relies to prove his case have to be pleaded by him. Similarly, it is for the defendant to plead the material facts on which his defence stands. The expression `material facts’ has not been defined anywhere, but from the wording of Order VI Rule 2 the material facts would be, upon which a party relies for his claim or defence. The material facts are facts upon which the plaintiff’s cause of action or defendant’s defence depends and the facts which must be proved in order to establish the plaintiff’s right to the relief claimed in the plaint or the defendant’s defence in the written statement. Which particular fact is a material fact and is required to be pleaded by a party, would depend on the facts and circumstances of each case. In A.B.C. Laminart Pvt. Ltd. Vs. A.P. Agencies, Salem, (1989) 2 SCC 163, this Court has considered the ambit of the exclusion clause whereby the jurisdiction of one court is excluded and conferred upon another court by agreement of the parties and said that in a suit for damages for breach of contract, the cause of action consists of making of the contract, and of its breach, so that the suit may be filed either at the place where the contract was made or at the pace where it should have been performed and the breach occurred. When the court has to decide the question of jurisdiction pursuant to an ouster clause, it is necessary to construe the ousting expression or clause properly to see whether there is ouster of jurisdiction of other courts. When the clause is clear, unambiguous and specific accepted notions of contract would bind the parties and unless the absence of ad idem can be shown, the other courts should avoid exercising jurisdiction. As regards construction of the ouster clause when words like `alone’, `only’, `exclusive’ and the like have been used, there may be no difficulty. Even without such words in appropriate cases, the maxim `expressio unius est exclusio alterius’  expression of one is the exclusion of another  may be applied. What is an appropriate case shall depend on the facts of the case. In such a case, mention of one thing may imply exclusion of another. When certain jurisdiction is specified in a contract, an intention to exclude all others from its operation may in such cases be inferred. It has, therefore, to be properly construed. The allegations in the plaint are to the effect that the parties have entered into a contract on 7.1.2000 to carry on board the vessel M.V. Fortune Express under the six split bills of lading 642 logs from the port of Sarawak, Malaysia for discharge at the port of Calcutta, India. As per stowage plan, 578 logs were lying on the deck of the vessel. At the time of the discharge of the cargo lying on the deck of the vessel, it was found that 456 logs out of 578 logs were missing and had been short-landed. The plaintiffs claimed a decree for the proportionate value of 456 logs, port and other charges, custom duty and proportionate insurance payment. As per the plaintiffs’ allegation, the logs, which were to be carried on the vessel owned by the defendants, had not been delivered at the port of destination. Thus, all the material facts on the basis of which the plaintiffs claimed the decree are alleged in the plaint. As the logs were not delivered at the port at Calcutta, the port of destination, the part of cause of action arose within the jurisdiction of the Calcutta Court and, thus, the suit filed by the plaintiffs at Calcutta was maintainable although it may be pleaded by the defendants in their written statement that the Calcutta High Court has no jurisdiction on account of Clause 3 of BOL. For the purpose of the cause of action, it was not necessary for the plaintiffs to plead the ouster of the jurisdiction of the Calcutta Court. In fact, it was for the defendants to plead and prove the ouster of the jurisdiction of the Calcutta Court and conferment of the jurisdiction in the Singapore Court alone. On a bare reading of Clause 3 of BOL, it is clear that any dispute arising under the BOL shall be decided in the country where the carrier has its principal place of business and the law of such country shall apply except as provided elsewhere in the BOL. Therefore, the exclusion clause refers to the jurisdiction of a court where the carrier has its principal place of business. Unless and until it is established that the defendant-carrier has its principal place of business at Singapore, the exclusion clause has no application. Simply because in the cause title of the plaint, the plaintiffs have described defendant No. 2-Trustrade Enterprises PTE Ltd. to be carrying on business at Singapore, would not ipso facto establish the fact that the principal place of business of defendant No.2 (respondent herein) is/was at Singapore to exclude the jurisdiction of the Calcutta Court which admittedly has the jurisdiction to try the suit. Therefore, absence of reference of Clause 3 of BOL in the pleadings cannot be said to be suppression of the material fact as the question of jurisdiction would be required to be adjudicated and decided on the basis of the material placed on record at the trial.

In S.J.S. Business Enterprises (P) Ltd. vs. State of Bihar and Others, (2004) 7 SCC 166, this Court has accepted the principle that the suppression of a material fact by a litigant disqualifies such litigant from obtaining any relief. The rule has been evolved out of the need of the courts to deter a litigant from abusing the process of court by deceiving it. But the suppressed fact must be a material one in the sense that had it not been suppressed it would have had an effect on the merits of the case. It must be a matter which was material for the consideration of the court, whatever view the court may have taken. Reliance was placed on R. vs. General Commrs. for the purposes of the Income Tax Act for the District of Kensington, (1917) 1 KB 486.

Similarly under Clause 9 of BOL, the carrier was not made liable for any loss or damage resulting from any act, neglect or default of his servants in the management of animals and deck cargo. Under this clause, the carrier is excluded from making good any loss or damage to the deck cargo which has resulted from any act, neglect or default of his servants who are in the management of such deck cargo. The facts are yet to come on record that the loss or damage to the deck cargo was the result of any act, neglect or default of the carrier’s servants who were in the management of the deck cargo. In fact, this would be the defence if at all to be raised by the defendants in their written statement. It was not at all required for the plaintiffs to introduce this clause in their plaint. The liability of the defendants to pay or not to pay any loss or damages to the cargo, would depend on proof of certain necessary facts which could only be adjudicated upon at the trial of the suit.

Clause 2 (General Paramount Clause) of BOL reads as under:

“The Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment shall apply to this contract. When no such enactment is in force in the country of shipment, the corresponding legislation of the country of destination shall apply, but in respect of shipments to which no such enactments are compulsorily applicable, the terms of the said Convention shall apply.

Trades where Hague-Visby Rules apply.

The trades where the International Brussels Convention 1924 as amended by the Protocol signed at Brussels on February 23rd 1968. The Hague-Visby Rules apply compulsorily, the provisions of the respective legislation shall be considered incorporated in this Bill of Lading. The Carrier takes all reservations possible under such applicable legislation, relating to the period before loading and after discharging and while the goods are in the charge of another Carrier and to deck cargo and live animals.”

Under this Clause of BOL, the Hague Rules contained in the International Convention for the Unification of Certain Rules Relating to Bills of Lading, Brussels, August 25, 1924 and Protocol to amend the said Convention, Brussels, February 23, 1968, as enacted in the country of shipment shall apply to this contract and if no such enactment is in force in the country of shipment, the corresponding legislation of the country of destination shall apply, but if no such enactments are compulsorily applicable then the terms of the Convention shall apply, that is to say, in the absence of any enactment in the country of shipment or in the country of destination, the Hague Rules shall apply. Under Article 1, clause (c) of the Hague Rules , the goods shall include goods, wares, merchandise, and articles of every kind whatsoever except live animals and cargo which by the contract of carriage is stated as being carried on deck and is so carried. Thus, the cargo which by the contract of carriage is carried on the deck would not be goods under the Hague Rules, whereas under Clause 9 of BOL deck cargo is also included for the purposes of the liability of the carrier if the loss or damage to the goods is not on account of the neglect or default of the servants of the carriage in the management. The question whether the cargo transported by the carrier would be governed by the Hague Rules on account of Clause 2 (General Paramount Clause) or by Clause 9 of BOL would be a question required to be determined by the Court after the parties placed all material evidence before it and could not have been decided by the Division Bench at the preliminary stage. Clause 19 of BOL permits the Carrier to stow the goods either on deck or under deck without notice to the merchant as received by him or at the Carrier’s option by means of containers or similar articles of transport used to consolidate goods. Sub-clause (c) thereof provides that the Carrier’s liability for the cargo stowed shall be governed by the Hague Rules as defined above notwithstanding the fact that the goods are being carried on deck and the goods shall contribute to the general average and shall receive compensation in general average. This clause has reference to Clause 14 of BOL which provides for general average and salvage in respect of goods in the event of accident, danger, damage or disaster before or after commencement of voyage. This clause has no reference to the liability, if any, of the Carrier or the cargo ship for non- delivery of the goods. In any case, without there being material on record, Clause 19 cannot be relied upon for absolving the Carrier from his liability for any damage or loss caused to the goods carried on ship. It is urged by Shri C.S. Sundaram, learned senior counsel for the plaintiff-appellants that on 4.12.2001 reply was filed to the application filed by the defendants under Order VII Rule 11 of the Code wherein the plaintiffs have denied that 578 out of 642 logs were carried on deck or that 456 out of the said 578 logs which were carried on deck had been short- landed; that at the time of filing of the suit, information of the plaintiffs was based on the six split bills of lading contained in Annexures “A” to “F” of the plaint and the representations made on behalf of the defendant No. 2; that it subsequently transpired that the allegation that 578 logs were carried on deck is wholly incorrect and false; and that the original five bills of lading more fully referred to in paragraph 7 of the plaint did not state that the logs were carried on deck. From this, it appears that the plaintiffs are alleging and asserting that the logs were not carried on deck and, therefore, Clause 9 has no application. We are not recording any finding on this issue, but on the basis of the aforesaid factual questions raised, the High Court without going into the merits of the case could not have held that the plaintiffs would not be entitled to a decree on account of Clause 9 of BOL. Besides this, the Court will be required to give meaning to the words used in Clause 9 as to whether the term `loss’ in the Clause has to be separately read or it has to be read and construed as having reference to, damage to deck cargo and whether it will cover the case of shortlanding of the goods and not to damaged goods.

To get the order of stay of a suit on the ground of abuse of process, the applicant must show that plaintiff would not succeed but that he could not possibly succeed on the basis of the pleadings and in the circumstances of the case. In other words, the defendant would be required to show very strong case in his favour. The power would be exercised by the Court if defendant could show to the court that the action impugned is frivolous, vexatious or is taken simply to harass the defendant or where there is no cause of action in law or in equity. The power of the court restraining the proceedings are to be exercised sparingly or only in exceptional cases. The stay of proceedings is a serious interruption in the right, that a party has to proceed with the trial to get it to its legitimate end according to substantive merit of his case. The court to exercise the power to stay the proceedings has to keep in mind that the positive case has been made out by the defendant whereby the court can reach to the conclusion that proceedings, however, indicate an abuse of the process of Court. The High Court has granted stay of proceedings as it found plaintiffs guilty of suppression of jurisdictional clause of BOL and on the finding that plaintiffs have no case on merits, and thus it would be abuse of process of the Court if the plaintiffs are permitted to go ahead with the trial in Calcutta Court. We are not satisfied that the defendants have made out the case on any of the counts. It is urged by the learned senior counsel that where jurisdiction is founded on the basis of cause of action arising in Calcutta Court as non delivery of logs are claimed to be at Calcutta, the defendants are entitled to apply to the court to exercise its discretion to stay the proceedings on the ground of forum non conveniens. It was urged before the High Court and by Shri C.S. Sundaram, learned senior counsel appearing for the appellants before us that the appellants will suffer irreparable injury if they are called upon to file a suit at Singapore Court after the expiry of period of one year, particularly so when the objection to the jurisdiction of the Calcutta Court was raised by the defendants on 7.7.2001 and, therefore, the defendants cannot claim advantage of forum non conveniens.

The argument is based on the basis of Clause (6) of Article III of the Schedule to Indian Carriage of Goods by Sea Act, 1925, wherein it has been provided that in any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered. By Act No. 28 of 1993, it has been provided that this period may be extended if the parties so agree after the cause of action has arisen, and further under the proviso a suit may be brought after the expiry of the period of one year within a further period of not more than three months as allowed by the court. Under Clause (6) of Article III, one year period was provided to file a suit against the carrier or the ship for loss or damages which, by amendment in 1993, has been extended to further period of three months if allowed by the court and can also be extended for a period till the filing of the suit if the parties to the suit agree after the cause of action has arisen. Under Article I of the Schedule, `goods’ are defined and as per the substitution brought about by Act No. 44 of 2000, the goods shall include any property including live animals as well as containers, pallets or similar articles of transport or packaging supplied by the consignor, irrespective of whether such property is to be or is carried on or under the deck. By the amended definition, the deck cargo is also included in the definition of goods provided the deck cargo is in the form of containers, pallets or similar articles of transport or packaging supplied by the consignor. Therefore, on a first reading, the goods transported on a carriage, even if it is a deck cargo, could be subject to the limitation as provided in Clause (6) of Article III, but for Section 2 of the Act which specifies that subject to the provisions of the Act, the rules set out in the Schedule shall have the effect in relation to and in connection with the carriage of goods by sea in ships carrying goods from any port in India to any other port whether in India or outside India. To apply the provisions of the Act and the Schedule thereunder, the goods should be carried by sea in a ship from any port in India to any other port in India or outside India. In the present case, admittedly, the goods in question were carried on the ship from Malaysia for discharge at Calcutta. The goods having not been carried from any port in India, Clause (6) of Article III of the Schedule and the provisions of the Act will have no application for the purposes of limitation. Therefore, it cannot be said that by virtue of the Act, the suit would be barred by limitation if the plaint is required to be presented in the Singapore Court. None of the parties have placed before us the Singapore law applicable to the facts of the present case, nor any argument has been advanced on that basis. The plaintiff- appellants on these facts cannot claim equity on the basis of the provisions of the Act and the limitation provided therein.

In Smith Kline & French Laboratories Ltd. & Ors. Vs. Bloch [ (1983) 2 All ER 72], the first plaintiffs (the English Company) were pharmaceutical company in England and were a wholly owned subsidiary of the second plaintiffs (the U.S. Company) The defendant was a research worker working in England. The defendant brought an action for damages in Pennysylvania against both the English and the U.S. Companies. The English Company (plaintiff) sought an injunction in the English Court to restrain the defendant from further proceedings with his claim in Pennysylvania or from making any further claims outside the jurisdiction of English Court and further sought declarations that the proper law of agreement was that of England and that the English Company were not liable for the breaches complained of. The judge granted the injunction sought. The defendant appealed and it was held while dismissing the appeal that “the Court had jurisdiction to grant an injunction restraining a litigant from continuing proceedings in a foreign court where the parties were amenable to the English jurisdiction and where it is satisfied (a) that justice could be done between the parties in the English forum at substantially less inconvenience and expense; and (b) that the stay of proceedings did not deprive the litigant in the foreign proceedings of any legitimate personal or juridical advantage which would otherwise have been available to him. The jurisdiction was nevertheless to be exercised with great caution. In Spiliada Maritime Corp Vs. Cansulex Ltd. [ (1986) 3 All ER 843], the House of Lords explained the ambit of the principle of forum non conveniens for issuing the order of stay and held:

“(1) The fundamental principle applicable to both the stay of English proceedings on the ground that some other forum was the appropriate forum and also the grant of leave to serve proceedings out of the jurisdiction was that the court would choose that forum in which the case would be tried more suitably for the interests of all the parties and for the ends of justice (2) In the case of an application for a stay of English proceedings the burden of proof lay on the defendant to show that the court should exercise its discretion to grant a stay. Moreover, the defendant was required to show not merely that England was not the natural or appropriate forum for the trial but that there was another available forum which was clearly or distinctly more appropriate than the English forum. In considering whether there was another forum which was more appropriate the court would look for that forum with which the action had the most real and substantial connection, e.g. in terms of convenience or expense, availability of witnesses, the law governing the relevant transaction, and the places where the parties resided or carried on business. If the court concluded that there was no other available forum which was more appropriate than the English court it would normally refuse a stay. If, however, the court concluded that there was another forum which was prima facie more appropriate the court would normally grant a stay unless there were circumstances militating against a stay, e.g. if the plaintiff would not obtain justice in the foreign jurisdiction.”

In this case the Division Bench has held while considering the question of forum non conveniens as under :

“Let us see, therefore, what are the factors weighing in favour of the Indian Courts as against the Courts of Singapore. The evidence regarding shortage of goods was said to be in India. In our opinion this evidence does not justify the continuance of the action in the wrong Court, because the shortage is practically admitted; in any event the proof of it in Singapore is not a matter of any very great difficulty. The other great factor in favour of the Indian action is that the ship Fortune Express lost the goods in the very voyage in which it happened to travel to the Port of Calcutta and that by reason thereof, it could be quite clearly and easily arrested and the security obtained for the action upon the lost logs. This, in our opinion, takes a very one sided view of the matter. The arrest conventions, the decision of the Supreme Court in the case of M.V. Elezabeth, reported at 1993 Supp.(2) SCC page 433, and the various observations therein from, say paragraphs 75 to 85 of the judgment, no doubt show that the Fortune Express could be arrested on an admiralty claim of the present nature. That arrest makes the action of the consignee very much secure. But we are not deciding upon the issue of security; we are deciding upon the issue of appropriate commencement of the action. If the action can be appropriately commenced in Calcutta, security can be obtained and to that extent the consignee can feel safe. This does not mean that the reverse is true. It would be putting the cart before the horse if one were to say that because the plaintiff can commence an action and obtain security here the action should be held as appropriately commenced.

This is not the correct way to look at the case at all. If that were so, parties would be encouraged not to pay the attention to solemnly agreed clauses of forum selection and they would rush to the Admiralty Court even contrary to such a selection clause and obtain arrest, thereafter arguing, that the arrest was most convenient for them, that it produced a security from the shipper, and that if decree should be passed in their favour there would be no difficulty in its execution.

xxx         xxx         xxx The factor for leaning heavily in favour of Singapore is that the parties have chosen Singapore law. We have not had any experts on Singapore law attending the proceedings before us and indeed this choice of law was also suppressed by the plaintiffs like the choice of Court. No doubt, arrest of a ship and the consequent obtaining of security would be of great advantage to a plaintiff if it were shown that the owners of the ship were difficult to trade or had to sue. Not so here. The owners have come forward. They can be sued in their country. There is nothing to show that they are so impecunious or that they are such slippery customers that filing a suit against them in Singapore would be a matter of no use at all.

These factors are not present in the case. We do not see why in view of these circumstances we should not hold the parties to their bargain and send them away from a Court which they had not agreed to come to.”

From the aforesaid, it is apparent that the Court has found that the Calcutta Court has jurisdiction to try the proceedings except when the forum selection clause excludes the jurisdiction of the Court. The Court has also found that the law of Singapore is not known. The case of the defendant carrier/owner of the ship, of exclusion of the Calcutta Court, is solely based on the exclusion clause which conferred jurisdiction on the Court where the defendant has the principal place of business, which according to us has to be determined only after sufficient material is placed before the Court. In Advanced Law Lexicon, 3rd Edition 2005, by P.Ramanatha Aiyar, at page 3717, `principal place of business’ is defined as under: “where the governing power of the corporation is exercised, where those meet in council who have a right to control its affairs and prescribe what policy of the corporation shall be pursued, and not where the labour is performed in executing the requirements of the corporation in transacting its business.

 

The place of a corporation’s chief executive offices, which is typically viewed as the “nerve center”.

.. the place designated as the principal place of business of the corporation in its certificate of incorporation.”

From this, it appears that the principal place of business would be where the governing power of the corporation is exercised or the place of a corporation’s Chief Executive Offices, which is typically viewed as the nerve center or the place designated as the principal place of business of the corporation in its incorporation under the various statutes. Therefore, to arrive at a finding as to which is the principal place of business, the parties would be required to place the relevant material before the Court. The Court cannot arrive at a finding of a particular place being the principal place of business at the preliminary stage of the hearing of the suit. The defendants have not placed any material before the Court that the Singapore Court is another available forum which is clearly or distinctly more appropriate than the Indian Courts. The Court has not taken into consideration that the action commenced by the plaintiff-appellants in Calcutta Court founded on the facts which are most real and substantially connected in terms of convenience or expense, availability of the witnesses and the law governing the relevant transaction in the Indian Court. There is no averment in the application filed by the defendants that continuance of the action in Calcutta High Court would work injustice to them because it is oppressive or vexatious to them or would be an abuse of the process of the Court. There was no material before the Court how the trial at Singapore would be more convenient to the parties vis-`-vis the trial of the suit at Calcutta and that justice could be done between the parties at substantially less inconvenience and expense. Nor it has been shown that stay would not deprive the plaintiffs of legitimate personal or juridical advantage available to them. In the facts of the case, we are not satisfied that there is other forum having jurisdiction, in which the case may be tried more suitably for the interest of all the parties and for ends of justice.

The Rules of the High Court of Calcutta on the Original Side, Appendix No. 5 under the caption `Admiralty Rules’, the Rules for regulating the procedure and practice in cases brought before the High Court at Calcutta under the Colonial Courts of Admiralty Act, 1890 were framed. The suit was defined to mean any suit, action, or other proceedings instituted in the said court in its jurisdiction under the Colonial Courts of Admiralty Act.

Rule 3 provides for institution of the suit. Under this Rule, a suit shall be instituted by a plaint drawn up, subscribed and verified according to the provisions of the Code of Civil Procedure.

Rule 4 is in relation to the arrest warrant after affidavit which reads as under:

“In suits in rem a warrant for the arrest of property may be issued at the instance either of the plaintiff or of the defendant at any time after the suit has been instituted, but no warrant of arrest shall be issued until an affidavit by the party or his agent has been filed, and the following provisions complied with:-

(a)          The affidavit shall state the name and description of the party at the whose instance the warrant is to be issued, the nature of claim or counter-claim, the name and nature of the property to be arrested, and that the claim or counter-claim has not been satisfied.

(b)          In a suit of wages or of possession the affidavit shall state the national character of the vessel proceeded against; and if against a foreign vessel, that notice of the institution of the suit has been given to the Consul of the State to which the vessel belongs, if there be one resident in Calcutta and a copy of the notice shall be annexed to the affidavit.

(c)           In a suit of bottomry the bottomry bond, and in a foreign language also a notarial translation thereof, shall be produced for the inspection and perusal of the Registrar, and a copy of the bond, or of the translation thereof, certified to be correct shall be annexed to the affidavit.

(d)          In a suit of distribution of Salvage the affidavit shall state the amount of Salvage money awarded or agreed to be accepted, and the name, address and description of the party holding the same.

Rule 6 provides that in suits in rem no service of writ or warrant shall be required when the attorney of the defendant waives service and undertakes in writing to appear and to give security or to pay money into Court in lieu of Security.

Rules 27 provides for caveat to be filed against the arrest warrant. The Court can issue the warrant for the arrest if the affidavit contains the particulars as required under Rule 4.

Rule 6 permits the attorney of the defendant to ask for waiving of warrant of arrest by giving an undertaking in writing to appear and to give security. In the present case suit was instituted on 27.3.2000 and affidavit was filed for issuance of warrant of arrest of the vessel along with tackle, apparel and furniture as the same day the court directed for the arrest of the vessel. On 12.4.2000 letter of intention regarding furnishing guarantee on behalf of the Owners & Parties, Vessel M.V. Fortune was filed and on the same date the vessel was directed to be released. In the order of release dated 12.4.2000 the court has specifically mentioned that the order of release was passed without prejudice to the rights and contentions of the owner of the vessel that the suit is not maintainable. Thus, the maintainability of the suit filed by the plaintiff-appellants was the question raised before the court and the court was quite aware of the fact that the defendants are submitting to the jurisdiction of the court subject to their rights and contentions that the suit is not maintainable in the Calcutta High Court. Thus, it cannot be said that at the time of the filing of the letter of intention for furnishing guarantee parties were not aware that the question of the jurisdiction of the court would be raised. Not only the parties the court was also aware that the issue of jurisdiction of the court would be in question. The defendants have not pressed for dismissal of the suit even when the bank guarantee was furnished on 17.5.2000. The defendants have not asserted dismissal of suit on the ground of jurisdiction of the Court at the outset when letter of intention was furnished by the Punjab National Bank on their behalf nor at the time of furnishing bank guarantee and waited till 7.7.2001 to file an application. From reading of Admiralty Rules, it appears that it is a usual and common practice to issue warrant of arrest if the affidavit filed under Rule 4 contains all particulars required. Thus, it cannot be said that arrest of the ship was obtained by the plaintiffs suppressing material facts which would warrant stay of suit by the Court. For the reasons aforementioned, we are of the view that the defendants have not made out a case for stay of the proceedings of Admiralty Suit No. 11 of 2000 pending in the Calcutta High Court and the High Court has committed an error in passing the order of permanent stay and discharging the bank guarantee. The appeal is allowed with costs. The order of the Division Bench of the High Court is set aside. The suit shall now proceed in the Calcutta Court in accordance with law.

THE INDIAN BILLS OF LADING ACT, 1856 Legal Services.

THE INDIAN BILLS OF LADING ACT, 1856

ACT NO. 9 OF 1856 11th April, 1856 An Act to amend the Law relating to Bills of Lading.

Preamble.– Whereas by the custom of merchants a bill of lading of goods being transferable by endorsement, the property in the goods may thereby pass to the endorsee, but nevertheless all rights in respect of the contract contained in the bill of lading continue in the original shipper or owner, and it is expedient that such rights should pass with the property; and whereas it frequently happens that the goods in respect of which bills of lading purport to be signed have has been laden on board, and it is proper that such bills of lading in the hands of a bona fide holder for value should not be questioned by the master or other person signing the same, on the ground of the goods not having been laden as aforesaid: It is enacted is follows:-

1. Rights under bills of lading to vest in consignee of endorsee.– Every consignee of goods named in a bill of lading, and every endorsee of a bill of lading to whom the property in the goods therein mentioned shall pass, upon or by reason of such consignment or endorsement shall have transferred to and vested in him all rights of suit, and be subject to the same liabilities in respect of such goods as if the contract contained in the bill of lading had been made with himself.
2. Not to affect right of stoppage in transitu of claims for freight.– Nothing herein contained shall prejudice or affect any right of stoppage in transitu, 2 or any right to claim freight against the original shipper or owner, or any liability of the consignee or endorsee by reason or in consequence of his being such consignee or endorsee, or of his receipt of the goods by reason or in consequence of such consignment or endorsement.
3. Bill of lading in hands of consignee, ect., conclusive evidence of the shipment as against master, etc.– Every bill of lading in the hands of a consignee or endorsee for valuable consideration, representing goods to have been shipped on board a vessel, shall be conclusive evidence of such shipment as against the master or other person signing the same, notwithstanding that such goods or some part thereof may not have been so shipped, unless such holder of the bill of lading shall have had actual notice at the time of receiving the same that the goods had not in fact been laden on board: Provided that the master or other person so signing may exonerate himself in respect of such misrepresentation, by showing that it was caused without any default on his part, and wholly by the fraud of the shipper, or of the holder, or some person under whom the holder claims.

petition being withdrawn or dismissed, they would not revive.

“In Kamani Metallic Oxides Ltd. V/s Kamani Tubes Ltd. ((1984) 56 Comp Cas 19 (Bom)), it has been laid down that every transactions are not void ab initio. If they were to be void ab initio, then on petition being withdrawn or dismissed, they would not revive. In case petition is withdrawn or dismissed, then transactions would never have been void. The Bombay High Court has observed that the transactions/dispositions are not void ab initio but become void on the passing of an order for winding up or on appointment of a provisional liquidator. Considering the provisions of Section 536(2) read with section 441(2), the Bombay High Court in the case of Kamani Metallic Oxides Ltd. (supra) has laid down thus:-

If they were to be void ab initio, i.e., immediately on their being entered into, then on the petition being withdrawn or dismissed, they would not revive. It is clear that if the petition is withdrawn or dismissed then the transactions would never have been void. This clearly shows that the transactions/dispositions are not void ab initio but become void on the passing of an order for winding up or on appointment of a provisional liquidator. What section 536(2) read with section 441(2) provides for is to convert what was otherwise valid into void by virtue of the legal fiction. Thus the voidness takes effect on the passing of the order of winding up or appointment of provisional liquidator. By virtue of the legal fiction, in section 441(2), it then relates back to the date of presentation of the petition for winding up.”

---

 

IN THE  HIGH COURT OF JUDICATURE FOR RAJASTHAN  AT

JAIPUR BENCH JAIPUR.

Misc.Application No.49 of 2011

In

D.B.Civil Special Appeal (Company) No.2 of 2010

Podar Finance Private Ltd. V/s Official Liquidator.

Date when the order was

reserved                                                                                                              :-              14.9.2011

Date of pronouncement of

order                                                                                                     :-             10.10.2011

PRESENT

HONBLE THE CHIEF JUSTICE MR.ARUN MISHRA

HONBLE MISS JUSTICE BELA M.TRIVEDI

 

 

Mr.J.P.Bhatt, Senior Advocate with Mr.R.C.Joshi for the applicant.

Mr.G.K.Garg, Senior Advocate with Mr.Anuroop Singhi and Mr.Kunal Jaiman for the respondent.

ORDER

BY THE COURT (Per Hon’ble Arun Mishra,CJ)

The Hon’ble Supreme Court vide order dated 11.3.2011 passed in the Petition for Special Leave to Appeal (Civil) No.3580/2011 has observed that the Division Bench of this Court while passing the order dated 25.10.2010 in D.B.C.Special Appeal No.2/2010 while dealing with the issue whether the applicant-Poddar Finance Private Limited (hereinafter referred to as the Poddar Finance) was a contributory or not, has only relied upon the balance sheet of the Company to say that the applicant-Poddar Finance was not a contributory and at the same time, the matter was disposed of in the alternative on the assumption that it may be a contributory. Hence, the Apex Court has required the High Court to record finding on the above issue after taking into consideration all the documents.

 

Pursuant to the aforesaid order of the Apex Court, the applicant-Poddar Finance has filed misc.application no.49/2011 before the Division Bench of this Court on 22.3.2011. It is averred in the application that the applicant-Poddar Finance is holding 1,65,010 equity shares of Rs.10/- each and 12,478 preference shares of Rs.100/- each of M/s Jaipur Spinning and Weaving Mills Ltd. (hereinafter referred to as Jaipur Spinning Mills) and the aforesaid shares were acquired from Shree Shakti Mills Limited, Bombay (hereinafter referred to as Shakti Mills) on 25.1.1979 and transferred on 10.5.1979. The aforesaid shares have been reflected in the balance sheets for the year ended March 1981 and March, 1983. The value of the aforesaid shares was shown Nil in the balance sheet ended March, 1984. On company being wound-up, it was advised that said shares could not be reflected as their value had become Nil for the purpose of accounting, as such, they were removed from the balance sheets of the applicant-Poddar Finance for the subsequent years. The share certificates constitute prima facie evidence of applicant’s title over the shares in question and therefore, Jaipur Spinning Mills and Official Liquidator are estopped from contending contrary. In terms of Section 428 of the Companies Act, 1956 (hereinafter referred to as the Act), the holder of fully paid up shares is deemed to be a contributory. Hence, it was prayed that applicant-Poddar Finance be held to be a contributory of Jaipur Spinning Mills in liquidation and finding to this effect may be sent to the Apex Court.

 

The application has been contested by the Official Liquidator by filing reply contending that list of contributories has not been settled so far. It was necessary for the Ex-management to cooperate the Official Liquidator in the matter of recovery of assets of the company as well as in settling the list of contributories and creditors. Winding up proceedings have already taken place by selling plant and machinery and making payment partly to the secured creditors. It is contended by the Official Liquidator in the reply that applicant-Poddar Finance never approached the Official Liquidator that it is a contributory. The share certificates stood in the name of Shakti Mills and the details of cost of purchase have not been given by the applicant. The provisions for transfer of shares are contained in Sections 108, 108A, 108B, 108C, 108D, 108E, 109, 110 of the Act. Since folio number of the shares claimed to be transferred has been changed, fresh share certificates should have been issued. The shares held by Shakti Mills could not have been transferred legally for the reason that it was under liquidation vide order dated 21.1.1981 passed by Bombay High Court in Company Petition No.308/78, which was presented on 25.4.1978. After presentation of petition, shares could not have been transferred. Transfer of shares is void by virtue of provisions of Section 536(2) of the Act. Reliance has also been placed on the provisions of Sections 531 and 531A of the Act. There is no clear mention in the balance sheet of the applicant-Poddar Finance that money was invested for acquisition of shares in question. The applicant-Poddar Finance has failed to establish that it is a contributory of the company in liquidation.

 

A rejoinder has been filed by the applicant-Poddar Finance. It is submitted that it was obligatory on the part of the Official Liquidator to finalize list of contributories. Reliance has been placed on the provisions contained in Section 428 of the Act. There was no infirmity in the shares obtained by the applicant. The creation of folio and recording thereof on the reverse of the share certificates was the common accepted legal practice that existed at the relevant time. The provisions of Sections 531, 531A and 536 of the Act are not applicable. The Official Liquidator of Shakti Mills in the Company Petition No.70/86 filed before the Bombay High Court sought to recover amount of Rs.17,08,069/- being loss suffered for the sale of the shares at alleged under-value by Shakti Mills to Poddar Finance. Whether aforesaid transfer was under valued is still pending adjudication in the Bombay High Court. Transfer of shares can be questioned only in the Bombay High Court. Every person, who is holder of fully paid up shares of the company in liquidation, is a contributory. Hence, the applicant-Poddar Finance should be treated as contributory of the company in liquidation.

 

In compliance of the order of the Apex Court dated 11.3.2011, the matter was taken up by the Division Bench of this Court for several times, but time was prayed by the applicant. On 26.5.2011, it was pointed out by the parties that list of contributories has not been settled so far in accordance with the provisions of Sections 428 and 467 of the Act and Rules 180 to 196 of the Companies (Court) Rules, 1959 (hereinafter referred to as the Rules). The Official Liquidator has to prepare provisional list of contributories under Rule 180 and notice has to be given of date of settlement of list under section 181 of the Rules. The provisions from Rules 180 to 196 pertain to settlement of the list of contributories in a winding up by the Court. Both the parties prayed that opinion of the Official Liquidator may be obtained with respect to the fact whether applicant-Poddar Finance can be treated to be a contributory and thus, Official Liquidator was asked to submit report. The Official Liquidator furnished the report before the Company Judge opining that applicant-Poddar Finance cannot be treated to be a contributory. Thereafter, on 5.7.2011, both the parties have prayed that opinion of the Company Judge may also be called for and therefore, the Company Judge was requested to send the opinion in accordance with the provisions of the Act and Rules. The Company Judge has remitted the opinion that applicant-Poddar Finance cannot be said to be a contributory.

 

The Official Liquidator in his report has submitted that applicant-Poddar Finance cannot be treated to be a contributory because of the following reasons:-

 

(i)            That 1,65,010/- equity shares of the face value of Rs.10/- each and 12,478 preference shares of the face value of Rs.100/- each were acquired by applicant-M/s Poddar Finance at a throw away price constituting 65% of the paid up capital of Jaipur Spinning Mills in liquidation.

 

(ii)           That balance sheets ending on 31.3.1980 and 31.3.1982 have not been furnished by the applicant, while copies of the balance sheets for the years 1981 and 1983 were not certified to be true copies by Registrar of Companies.

 

(iii)          That in the balance sheets of subsequent years 1984 onwards, the applicant-Poddar Finance has not shown investments made in shares of Jaipur Spinning Mills.

 

(iv)         That there is no due compliance of Section 108A, 108B and 108D of the Act and without prior approval/intimation to the Central Government, shares could not have been acquired.

 

(v)          That transfer of shares in question was void in terms of Sections 531, 531A and 536(1)(b) of the Act.

 

(vi)         That transfer of shares in question in terms of Section 536(2) after commencement of winding up proceedings of Shakti Mills is void.

 

(vii)        That applicant-Poddar Finance has failed to submit any application in any court for validation of transfer of shares in question.

 

(viii)       That transfer of shares in question is under-valued.

 

The Company Judge has assigned the following reasons while recording the finding that applicant-Poddar Finance cannot be treated to be a contributory of Jaipur Spinning Mills in liquidation:-

 

(i)            That transfer of shares in question in the same management by one company to another was made on the under valued price and therefore, transfer of shares cannot be said to be in the interest of creditors, which is paramount consideration and should not be defeated.

 

(ii)           That while examining the question whether the applicant-Poddar Finance is contributory, validity of transfer can be looked into. The Court has not validated the transaction, as such, applicant-Poddar Finance cannot be treated to be a contributory of Jaipur Spinning Mills in liquidation.

 

(iii)          That applicant-Poddar Finance cannot be held to be a contributory merely because it holds fully paid up shares of Jaipur Spinning Mills in liquidation.

 

(iv)         That transfer of shares in question is hit by the provisions of Section 536(2) of the Act.

 

(v)          That provisions of Sections 108A to 108G of the Act are not attracted as it was informed that transferor Shakti Mills was not a company registered under MRTP Act at the relevant point of time when fully paid up shares in question were transferred in favour of applicant-Poddar Finance.

 

It is not in dispute that the applicant-Poddar Finance purchased shares in question of Jaipur Spinning Mills from Shakti Mills for a total consideration of Rs.22,854.50 and the same were transferred on 10.5.1979. Shakti Mills was a holding company while Jaipur Spinning Mills was its subsidiary company. Shri G.N. Poddar is Director in Shakti Mills and also in Jaipur Spinning Mills and his son Ajay Poddar is also Director in Jaipur Spinning Mills and Poddar Finance and his another son Pawan Poddar is Director of applicant-Poddar Finance.

 

It is also not in dispute that a petition for winding-up of Shakti Mills was filed on 25.4.1978 before the Bombay High Court and shares in question were transferred thereafter on 10.5.1979. The winding-up of Shakti Mills was ordered by the Company Judge of the Bombay High Court on 21.1.1981. For winding up of Jaipur Spinning Mills, application was filed on 15.12.1980 and its winding up has been ordered on 2.12.1983.

 

Mr.J.P.Bhatt, learned Senior Advocate appearing with Mr.R.C.Joshi on behalf of the applicant submitted that in view of Section 428 of the Act, the applicant-Poddar Finance has to be treated as contributory of Jaipur Spinning Mills in liquidation. The Bombay High Court has not declared the transaction to be void. The Official Liquidator of Shakti Mills has filed application before the Bombay High Court for realization of Rs.17,08,069 on the ground that transaction was under valued, but not for declaring it to be void. It is for the Bombay High Court to record finding as to invalidity of the transaction of transfer of shares. The application regarding under valuation of the shares in question is still pending consideration. Thus, transaction cannot be said to be void. This Court cannot consider the validity of the transfer of shares in question. The learned Senior Counsel has placed reliance on the decision of the Apex Court in Pankaj Mehra and anr. V/s State of Maharashtra and ors. ((2000) 2 SCC 756) and submitted that finding be recorded that applicant-Poddar Finance is a contributory of Jaipur Spinning Mills in liquidation.

 

Per contra, Mr.G.K.Garg, learned Senior Advocate appearing with Mr.Anuroop Singhi and Mr.Kunal Jaiman on behalf of the respondent-Official Liquidator has submitted that transfer of shares in question is void in view of the provisions contained in Section 536(2) of the Act as Shakti Mills transferred the shares in 1979 in favour of applicant-Poddar Finance after commencement of the winding up proceedings in 1978. The winding up order made in the year 1981 relates back as per the provisions of Section 441 (2) of the Act to the date of commencement of the proceedings by presentation of the application for liquidation. No application has been filed for validation of transfer of shares in question before the Company Judge of either Bombay High Court or this Court. Considering the relationship of Directors of the Companies, the transaction was fraudulent and grossly under valued. It was not in the interest of creditors which is a paramount consideration. The learned Senior Counsel has relied upon the provisions of Sections 531, 531A, 536(2), 537(1)(b) of the Act. The applicant-Poddar Finance has not claimed any investment in Jaipur Spinning Mills as is evident from the balance sheets and thus, cloud is cast over the genuineness of the transaction in question. The Official Liquidator of Shakti Mills appointed by the Bombay High Court has also objected to the transfer of shares in question vide letter dated 2.8.2011. He has relied upon the decisions in Sarigam Containers Pvt. Ltd. and Videocon International Ltd. V/s Magatul Industries Ltd. (in liquidation) through the Official Liquidator, High Court ((2009) 90 SCL 321 (Bom))), Administrator, MCC Finance Ltd. V/s Ramesh Gandhi ((2005) 63 SCL 326 (Mad), In Re:Shivshakti Builders and Financial Company Limited (2011(1) PLJR 943), Ram Janam Sharma V/s JVG Finance Ltd. (2011 IIIAD (Delhi) 280) and Pankaj Mehra and anr. V/s State of Maharashtra and ors.(supra).

 

The only question for consideration is whether the applicant-Poddar Finance can be said to be a contributory under section 428 of the Act. Section 428 is quoted below:-

 

428. Definition of contributory.- The term contributory means every person liable to contribute to the assets of a company in the event of its being wound up, and includes the holder of any shares which are fully paid up; and for the purposes of all proceedings for determining, and all proceedings prior to the final determination of, the persons who are to be deemed contributories, includes any person alleged to be a contributory.

 

As per Section 428, contributory includes holder of any shares which are fully paid up. It includes any person alleged to be a contributory. Section 536(2) of the Act provides that in the case of a winding up by the Court, any transfer of shares in the company or alteration of the status of its members, made after the commencement of the winding up, shall, unless the Court otherwise orders, be void.

 

There is power given to the court to validate the transfer which has taken place after the commencement of the proceedings for winding up of the company. In the instant case, it is admitted fact that petition for winding up of Shakti Mills was presented in the Bombay High Court on 25.4.1978 and its winding up was ordered on 21.1.1981. The transfer of shares in question of Jaipur Spinning Mills was made by Shakti Mills in favour of applicant-Poddar Finance on 10.5.1979. As per provisions of Section 441(2) of the Act, winding up order relates back to the date of presentation of the petition for winding up. In the instant case, winding up of Shakti Mills has been ordered and since the transfer of shares in question was made after commencement of the winding up proceedings, the same is void under section 536(2) of the Act unless otherwise ordered by the Court. It is not the case of the applicant-Poddar Finance that any court has otherwise ordered. Thus, the expression unless otherwise ordered by the Court, any transfer made after the commencement of the winding up proceedings is void has to be given full effect. The Court is given power to validate the transaction. Thus, any disposition would not be ab initio void. The word ‘void’ is not conclusive as Court has been given power to order otherwise. However, the fact remains that in the instant case, the Court has not so far ordered otherwise.

 

In our considered opinion, under section 536 (2) of the Act transaction of transfer of share or other disposition is not required to be annuled by court. It is void unless court orders otherwise. An order to the otherwise is required to be made in order to validate transfer of share/other disposition. It was at option of the applicant to avoid it but he has not chosen that recourse. The submission to the contrary raised by Shri Bhatt cannot be accepted that it was for official liquidator to get transfer of shares declared void or court to make such declaration. It was for Poddar Finance to get transfer of shares validated. Whatever it may be, in the absence of validation, statutory expression as to voidity of transaction mandated in Section 536(2) of the Act has to be given full effect.

 

In Kamani Metallic Oxides Ltd. V/s Kamani Tubes Ltd. ((1984) 56 Comp Cas 19 (Bom)), it has been laid down that every transactions are not void ab initio. If they were to be void ab initio, then on petition being withdrawn or dismissed, they would not revive. In case petition is withdrawn or dismissed, then transactions would never have been void. The Bombay High Court has observed that the transactions/dispositions are not void ab initio but become void on the passing of an order for winding up or on appointment of a provisional liquidator. Considering the provisions of Section 536(2) read with section 441(2), the Bombay High Court in the case of Kamani Metallic Oxides Ltd. (supra) has laid down thus:-

 

If they were to be void ab initio, i.e., immediately on their being entered into, then on the petition being withdrawn or dismissed, they would not revive. It is clear that if the petition is withdrawn or dismissed then the transactions would never have been void. This clearly shows that the transactions/dispositions are not void ab initio but become void on the passing of an order for winding up or on appointment of a provisional liquidator. What section 536(2) read with section 441(2) provides for is to convert what was otherwise valid into void by virtue of the legal fiction. Thus the voidness takes effect on the passing of the order of winding up or appointment of provisional liquidator. By virtue of the legal fiction, in section 441(2), it then relates back to the date of presentation of the petition for winding up.

 

Under section 443 of the Act, the Court may dismiss the petition or make an order of winding up. Under sub-section (2) of Section 443, the Court may refuse to make order of winding up. Before appointing a provisional liquidator, the Court has to give notice to the company and reasonable opportunity to make representation. As per Section 449 of the Act, on a winding up order being made in respect of a company, the official liquidator becomes the liquidator of the company. In the instant case, the order of winding up of Shakti Mills has been passed and official liquidator has been appointed by Bombay High Court with respect to Shakti Mills and thus, transaction in question has to be treated as void unless the court otherwise orders and the court has not ordered otherwise. Consequently, the transaction is void, the applicant- Poddar Finance cannot be said to be a contributory.

 

In Tulsidas Jasraj Parekh V/s Industrial Bank of Western India (AIR 1931 Bom. 2), it has been laid down by the Bombay High Court that any bona fide transaction carried out and completed in the ordinary course of current business will be sanctioned by the Court under Section 227(2) of Companies Act, 1913. On the other hand, it will not allow the assets to be disposed of at the mere pleasure of the company and thus, cause the fundamental principles of equity amongst creditors to be violated.

 

In Sarigam Containers Pvt. Ltd. and Videocon International Limited (supra), the Bombay High Court considering the provisions of Section 536(2) of the Act, has referred to the decision in the case of J.Sen Gupta (Private) Limited ((1962) XXXII Company Cases 876) in which following principles have been laid down:-

 

It seems to me, therefore, upon considering various authorities on this subject that the following principles are doubtless applicable to Sub section (2) of Section 536 of the Companies Act 1956:-

 

1. The Court has an absolute discretion to validate a transaction.

 

2. This discretion is controlled only by the general principles which apply to every kind of judicial discretion.

 

3. The court must have regard to all the surrounding circumstances, and if from all the surrounding circumstances it comes to the conclusion that the transaction should not be void, it is within the power of the court under section 536(2) to say that the transaction is not void.

 

4. If it be found that the transaction was for the benefit of, and in the interests of, the company or for keeping the company going or keeping things going generally, it ought to be confirmed.

 

Thus, the Court has absolute discretion to validate the transaction. However, discretion is to be controlled and exercised judicially. If it is found that the transaction was for the benefit of and in the interest of the company or for keeping the company going or keeping things going generally, it ought to be confirmed.

 

The Bombay High Court in the case of Sarigam Containers Pvt. Ltd. and Videocon International Limited (supra) held that company has to plead and prove that the transaction was for the benefit of and in the interest of the company or for keeping the company going or keeping the things going generally. It is also to be shown as to what were the compelling circumstances necessitating the company in liquidation to enter into such transaction during the pendency of winding up action. In absence of such pleadings that transaction was for the benefit and in the interest of company or for keeping the company going or for keeping things going generally, the question of validating such transaction by the court does not arise. No improper transaction which is covered by Section 536(2) of the Act can be validated by the Court.

 

In Administrator, MCC Finance Ltd. V/s Ramesh Gandhi (supra), the Madras High Court has considered the provisions of Section 536(2) of the Act and has observed that the object of Section 536 seems to be to prevent improper disposition or dissipation of the property or transfer of shares of the company otherwise available for distribution among the creditors of the company in liquidation. If the transfer is not bona fide, in terms of Section 536(2), the transaction would be void. Once winding up has been ordered, the provisions of Section 536(2) are attracted.

 

In Re:Shivshakti Builders and Financial Company Limited (supra), the Patna High Court has observed that any disposition after commencement of the winding up proceedings would be void in view of Section 536(2) of the Act.

 

In the case of Navjivan Mills Ltd., In Re (1986(59) Company Cases 201), the Gujarat High Court has laid down that the Court can exercise jurisdiction under section 536(2) of the Act of giving directions validating proposed transactions pending a petition for winding up but before the winding up order is made for the obvious reason that these transactions are saved from the consequence which may ensue.

 

In Re Gray Inn Construction Company Ltd. (1980 (1) All E.R. 814), the Court of Appeal (Civil Division) has laid down that the court would be very circumspect in the matter of validating the payments and the interest of the creditors as well as the company would be kept upper most in consideration.

 

The Apex Court in NGEF Ltd. V/s Chandra Developers (P) Ltd. And anr. ((2005) 8 SCC 219) has considered the question of permissibility of delegation of power of BIFR to Company Court and held that Section 536(2) of the Act ipso facto does not confer any jurisdiction upon the Company Court to direct sale of assets of a sick company. Once the company is declared sick BIFR retains control over its assets. The Apex Court has considered the provisions of Section 536(2) and the decision in Pankaj Mehra (supra) and observed thus:-

 

53. In Pankaj Mehra V. State of Maharashtra whereupon the learned counsel appearing on behalf of the first respondent placed strong reliance, construction of sub-section (2) of Section 536 of the Companies Act came up for consideration and it was held that having regard to the phraseology used therein, the transaction shall be void unless the court otherwise orders. It is interesting to note that in para 19 thereof, this Court noticed the principles laid down in Gray’s Inn Construction Co.Ltd. Re emphasizing the point that the courts would be very circumspect in the matter of validating the payments and the interests of the creditors as well as the Company would be kept upper most in consideration. Thus, a disposition of assets during the interregnum may not be irretrievably void but the courts are required to exercise power with circumspection and caution.

 

In the case of Pankaj Mehra (supra), the Apex Court has laid down that the word ‘void’ used in Section 536(2) of the Act need not automatically indicate that any disposition would be ab initio void. The provision itself shows that the word ‘void’ is not employed peremptorily since the court has power to order otherwise. The Apex Court has considered difference between the words ‘void’ and ‘voidable’ and laid down that the word ‘void’ used in Section 536(2) of the Act is not employed peremptorily. The Apex Court has further laid down that it cannot be accepted that disposition during the interregnum between the presentation of a petition for winding up and the passing of the order for winding up would be irretrievably void. The Apex Court held thus:-

 

It is difficult to lay down that all dispositions of property made by a company during the interregnum between the presentation of a petition for winding up and the passing of the order for winding up would be null and void. If such a view is taken the business of the company would be paralysed, for, the company may have to deal with very many day-to-day transactions, make payments of salary to the staff and other employees and meet urgent contingencies. An interpretation which could lead to such a catastrophic situation should be averted. That apart, if any such view is adopted, a fraudulent company can deceive any bonafide person transacting business with the company by stage managing a petition to be presented for winding up in order to defeat such bona fide customers. This consequence has been correctly voiced by the Division Bench in the impugned judgment.

 

The Apex Court in the case of Pankaj Mehra (supra) has considered the provisions of Section 536(2) of the Act and the provisions of Section 138 of the Negotiable Instruments Act and held that every transaction is not null and void since the Court has power to order otherwise. The liability under section 138 of NI Act is penal liability. This section creates a statutory offence, which on the confluence of the various factors enumerated therein, commencing with the drawing of the cheque and ending with the failure of the drawer of the cheque to pay the amount covered by it within the time stipulated, ripens into a penal liability. Thus, Section 536(2) of the Act cannot be invoked to escape from the offence under section 138 of NI Act.

 

When we come to the facts of the present case, considering the aspect that interest of creditors is the paramount consideration, the Official Liquidator has rightly opined that transaction in question is grossly under-valued. The Official Liquidator of Shakti Mills has also preferred an application in the Bombay High Court alleging under-value of the transaction by more than Rs.17 lacs. 1,65,010 equity shares of Rs.10/- each and 12,478/- preference shares of Rs.100/- each of Jaipur Spinning Mills were transferred by Shakti Mills in favour of applicant-Poddar Finance for a paltry consideration of Rs.22,854.50. The transaction cannot in any manner be said to be for the benefit and interest of the company or for keeping the company going or keeping things going generally. It has not been shown as to what were the compelling circumstances necessitating Shakti Mills to transfer the shares in question of Jaipur Spinning Mills in favour of applicant-Poddar Finance after commencement of proceedings of winding up. Considering the surrounding circumstances and inter-se relationship of the Directors of all the three managements, the transaction in question cannot be said to be bona fide and it is to be treated as void in view of Section 536(2) of the Act. The court has not ordered otherwise under section 536(2) and even no application has been filed by the applicant for validation in court so as to order otherwise. The applicant has failed to satisfy as to bona fide nature of the transaction in question. Thus, we are of the opinion that transfer in question is to be treated as void in term of Section 536(2) of the Act. On the basis of such transaction, applicant cannot claim to be contributory.

 

No application for validation of transaction in question has been filed by the applicant-Poddar Finance for the last 30 years. In ICICI Ltd. V/s Ahmedabad Manufacturing & Calico Printing Co.Ltd. & anr. ((2004) 9 SCC 747), the Apex Court considered the question that ICICI Bank advanced loans to the Company between 23.2.1976 till 10.7.1986 and on 10.7.1986, an application for winding up was filed and thereafter, two further loans were sanctioned by ICICI to the Company. In 1990, the Company as well as ICICI made an application under section 536(2) of the Act for allowing the disposition of the company’s properties which may have to take place as a consequence of the loans advanced by the ICICI to the company from 1976. The Division Bench set aside the order of Single Bench. The Division Bench opined that what the appellant-ICICI was in fact seeking to do was to convert itself from an unsecured into a secured creditor in respect of transactions which had taken place 15 to 17 years ago. The Apex Court held that Division Bench did not err in rejecting the application of ICICI pertaining to the loan transactions prior to 10.7.1986. The Apex Court further held that the Division Bench was also correct that the grant of leave under section 536(2) would not be appropriate after this delay. Leave under section 536(2) may be granted for the benefit of the company in liquidation or the creditors of the company in general.

 

We find no force in the submission that it is for the Bombay High Court to look into the validity of transfer of shares in question as shares of Jaipur Spinning Mills were transferred in favour of applicant- Poddar Finance by Shakti Mills, Bombay. When winding up of Shakti Mills has been ordered, obviously transaction is void as per statutory mandate of Section 536(2) which cannot be ignored by us while adjudging the question whether the applicant Poddar Finance is contributory or not. The surrounding circumstances show that transaction was not to benefit creditors or to keep company going, it appears to be under-valued also. Unless and until transaction is legal and validated, the applicant-Poddar Finance cannot claim itself to be a contributory and the Company Court and Official Liquidator have rightly opined so. The applicant has as per agreement availed recourse of settlement of its claim as contributory with the Official Liquidator under the provisions of the Act and the Rules. Thereafter, finding has been recorded by the Official Liquidator that applicant cannot be treated to be a contributory and report was submitted to the Company Court and the Company Court has also expressed the same opinion that applicant cannot be held to be a contributory, which we found to be in accordance with the law. Since the transfer of shares in question is void in view of Section 536(2) of the Act, the applicant-Poddar Finance cannot be treated to be a contributory.

 

Coming to the submission of learned Senior Counsel appearing on behalf of the respondent based on Sections 531, 531A and 537(1) of the Act. We may observe that the provisions contained in Section 531 relating to fraudulent preference are not attracted. However, it provides that any transfer within six months before the commencement of winding up in the event of company being wound up shall be deemed a fraudulent preference and be invalid. In the instant case, transfer is after commencement of winding up proceedings. Similarly, provisions contained in Section 531A of the Act provide that any transfer of property by a company not being in good faith or is not in ordinary course of business if made within one year before the presentation of a petition for winding up by the Court, shall be void against the Liquidator. Section 537 of the Act provides for avoidance of certain attachments, executions etc. in winding up by Court. Sub section (1) of Section 537 provides that where any company is being wound up by the Court, any attachment, distress or execution without leave of the court after commencement of the winding up, shall be void. Though the aforesaid provisions are not attracted, but intendment is to prevent fraudulent preference, transactions which are not in good faith or are not effected in ordinary course of business and even attachment, distress or execution are avoided unless permitted by court. In the instant case, provisions of Section 536(2) of the Act are attracted.

 

In view of the discussion made above, we are of the opinion that applicant-Poddar Finance Private Limited is not a contributory of Jaipur Spinning and Weaving Mills Limited in liquidation. Thus, misc. application no.49/2011 filed by the applicant is dismissed. Let the finding recorded by this Court be sent to the Hon’ble Supreme Court in compliance of the order dated 11.3.2011 passed in the Petition for Special Leave to Appeal (Civil) No.3580/2011.

 

(BELA M.TRIVEDI)J.                            (ARUN MISHRA)C.J.