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March 24 Notification on enhanced minimum threshold of Rs 1 crore for IBC proceedings prospective in nature: NCLT

Angelenne

The National Company Law Tribunal, Chennai Bench (NCLT) has held that the March 24 Notification issued by the Central Government on enhanced minimum threshold of Rs 1 crore for initiation on insolvency proceedings is prospective in nature. (NCLT Chennai IBC Order dt. 02.06.2020 - IA 341 of 2020 - Arrowline v. Rockwell)

The order was passed by a Bench of Member (Judicial) R Varadharajan.

Operational Creditor, Rockwell Industries Ltd had filed a plea under Section 9 IBC for initiation of insolvency proceedings against the Corporate Debtor, Arrowline Organic Products. On May 5, an order of admission was passed by the NCLT.

Subsequently, the application was moved by the Corporate Debtor for recall of the admission order in view of the Central Government Notification which raised the minimum threshold limit for initiation on insolvency to Rs 1 crore from Rs 1 lakh.

Claiming that the Notification which was issued on March 24 was retrospective in nature, the Corporate Debtor submitted that since the proceedings in the present case pertained to an amount lesser than Rs 1 crore, the NCLT was required to recall the order of admission.

It was, inter alia, contended that the enhanced pecuniary limit was applicable even to pending cases and the NCLT should have desisted in passing the order of admission, especially when the Corporate Debtor was an MSME which dealt in essential services.

The Operational Creditor, on the other hand, stated that NCLT had no power to either recall or review an order which was passed on merits.

It was submitted that the only recourse available to the Corporate Debtor was filing an appeal under Section 61 IBC before the National Company Law Appellate Tribunal (NCLAT).

It was also pointed out that the default in the present case had occurred much prior to the date of Notification i.e March 24 and even the order was reserved on March 4.

After considering the submissions made by the parties and provisions of law, the NCLT held that it had no power to recall or review its own order.

“..it has become trite by virtue of judicial pronouncements by this Tribunal as well as the Appellate Tribunal, both being creatures of statue, namely Companies Act, 2013 that unless the said statue specifically provides under which it was created for exercise of such a power of review or recall of its own order is not available."

In the absence of any power of recall or review under Section 420 of the Companies Act, 2013 or Rule 11 of the NCLT Rules, the appropriate remedy was an appeal before NCLAT, it said.

As far as the applicability of the March 24 Notification was concerned, NCLT noted that the date from which effect was to be given to the Notification was not spelt out.

After highlighting decisions of courts in India including the Supreme Court, the NCLT observed that a distinction had been drawn in relation to the legislative competence of a legislature while enacting or amending the law as compared to the power available to a delegate in a delegated legislation.

The NCLT thus considered the text of the Notification along with the provisions pursuant to which it was issued and stated that the law did not expressly confer any power on the delegate to issue the March 24 Notification in a retrospective fashion.

“..the Notification issued by the Central Government through the Ministry of Corporate Affairs dated 24.03.2020 .., in view of the detailed discussions in relation to the issue of its Applicability, can be considered only as prospective, i.e. applicable from 24.03.2020.”
NCLT thus held.

The NCLT held that since the present case was heard and reserved for order much before the Notification, the enhanced pecuniary jurisdiction was not applicable to it.

The application was accordingly dismissed.

The Corporate Debtor was represented by Advocate Vishnu Mohan.

The Operational Creditor was represented by Advocate Chandramouli Prabhakar.

Read the Order:

NCLT Chennai IBC Order dt. 02.06.2020 - IA 341 of 2020 - Arrowline v. Rockwell.pdf
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