First Insolvency case under the Code: From NCLT→Bombay HC→ NCLAT

The High Court of Bombay has disposed of the writ petition filed by Innoventive Industries challenging the vires of the Insolvency & Bankruptcy Code, 2016 (Code)..In December 2016, a petition at the Mumbai Bench of National Company Law Tribunal (NCLT) was filed by ICICI Bank in its capacity as a financial creditor under Section 7(1) of the Code against Innoventive Industries. The petition was for initiation of a insolvency resolution process against Innoventive, following an outstanding debt of ₹1,019,177,034..After the petition was filed by ICICI, the NCLT asked the ICICI’s counsel, Zal Andhyarujina if he was opposing the debtor’s right to be heard. Zal told the NCLT that the Code in fact does not give the debtor a right to be heard; however since the case in hand involves a serious question of law, hearing should be given..Ravi Kadam appearing on behalf of Innoventive filed the first application with the NCLT arguing that the notification issued under the Maharashtra Relief Undertakings (Special Provisions) Act, 1958 (MRU Act) in favour of Innoventive ‘suspends’ its ‘liabilities’ from 22 July 2016 to 21 July 2017..Zal, however, pointed out that the Code contains within itself an identical non-obstante clause as the SARFAESI, which has been the subject of similar litigation. In the case of JM Financial Asset Reconstruction vs. the State of Maharashtra & Ors, the Bombay High Court held that actions taken under the SARFAESI Act shall override the provisions of any notifications issued under the MRU Act..After hearing arguments from both sides, the NCLT passed an order on January 17 accepting Zal’s arguments and stating the Code will, in fact, override the provisions of the MRU Act. And on the same day, Kadam filed a second application with the NCLT, contesting the fact that they were ‘in default’. To answer this second application, NCLT passed a second order dated 23 January, the relevant portion of which is as under,.“Having not raised the said plea along with the other application, this Bench hereby held that this application is not entertainable for two reasons, one – the corporate debtor cannot raise objection, because no audience has been given to the corporate debtor in the Code, two – even if right is assumed as exercisable by the Corporate Debtor, since he has not taken this relief in the earlier application, the corporate debtor is barred from raising such plea in subsequent application.”.In between both the orders passed by the NCLT, Innoventive had moved to the Bombay High Court challenging the constitutionality of the Code, more particularly Chapter II i.e. Sections 4-32. After the second order was passed by the NCLT, Innoventive filed an amendment application before the Bombay High Court challenging the second order passed by the NCLT, which denied its ‘right to be heard’..At this point, an interim relief to stay the appointment of the Insolvency Resolution Professional was rejected by the Bombay High Court..During the pendency of the proceedings before the Bombay High Court, an appeal was preferred by Innoventive against both the orders passed by the NCLT with the NCL(Appellate)T. While the matter is currently pending for the NCLAT, the Bombay High Court on 23 February passed an order disposing off the writ petition,.“Since the main order has become subject matter of challenge before the statutory appellate authority, challenge to the vires becomes academic. It is also brought to our notice that the ground of fair opportunity of being heard is also one of the contentions or challenges raised before the appellate authority as violation of principles of natural justice. In that view of the matter, we are of the opinion that in a better case the vires of the enactment could be decided…..Accordingly, this petition is disposed of keeping all the contentions open to be agitated before the appellate authority.”.The matter is listed before the Chairperson’s Court for March 1.