Significance of issuing notice under Sections 10, 31, 33, 94, 99 and 112 of IBC
Simarpreet Kaur Chabbra[1]
LRA NCLT Bengaluru Bench
Abstract
According to the landmark decision of the Hon’ble NCLAT in Go Air Airlines case, it is neither necessary nor mandatory in nature to issue notice to the Creditors before admitting an application of the CIRP under Section 10 of the Code wherein the CD initiates the CIRP against itself. The court has made a resonant distinction between the rationale of issuing notice in Section 7 and 9 of the Code when compared to Section 10. However, the Go Airlines decision, makes an exception for cases where notice can issued to protect the principles of natural justice.
The author in this research paper examines the decision of the Hon’ble NCLAT in Go Airlines (Supra) to state that the importance of keeping the creditors informed of the Corporate Insolvency Process against the Corporate Debtor is inherently present in the Code by way of issuance of public announcement at various stages of the CIRP process. The author analyses the distinction in initiation of CIRP under Section 7 or 9 of the Code as compared to Section 10 of the Code to state that the right to inform the creditors of the CIRP process is mandatory in nature as a matter of natural justice. Secondly, the author argues that even though issuance of notice is termed as “discretionary” by the Hon’ble NCLAT, the principles of natural justice are inherent in the Code through provisions which mandates the requirement of public announcement. Thirdly, the Author examines various stages of the CIRP where issuance of public announcement is provided in the Code.
Introduction
Unlike Section 7, 9 of the I&B Code, 2016 where the requirement of serving notice to the opposite party is an admitted practice of the NCLT as a matter of right, there is nothing under Sections 10, 31, 33, 94, 99 and 112 of the Code to say that the requirement of notice to the opposite party is mandatory in nature. The question whether issuing notice to the Creditors before admitting an Application of CIRP in the context of Section 10 has been dealt with in the case of Go Air Airlines[2]. The NCLAT has upheld the order of Hon’ble NCLT Bench wherein it has observed that,
“However, in order to examine whether issuance of notice is a matter of right to those Creditors under the Section 10 Application, we refer to the Judgement of Hon’ble NCLAT dt.01.02.2017 passed in the matter of M/s Unigreen Global Private Limited v. Punjab National Bank & Ors.[3] On perusal of the judgement of the Hon’ble NCLAT it is observed that a Creditor has limited grounds to object to an application preferred under Section 10 i.e., if the debt is not due and is not payable in law or in fact or Corporate Applicant is not eligible to make an application in view of its ineligibility under Section 11.”
The Hon’ble NCLAT in the GO Air (supra) has held that the party seeking hearing as a matter of right is the one to which the requirement of serving the notice along with the application is mandatory in nature. In the same parlance, the Hon’ble NCLAT has also made an observation that even though there is no requirement to serve the notice to creditors under Section 10, however, to avoid inordinate delay in the conclusion of the proceeding, such matters of notice are clearly a matter of discretion of the NCLT on case to case basis. Such discretion can be applied for larger public interest but the issuance of notice cannot be considered as a matter of right at the pre-admission stage.
It is also relevant to notice that the Hon’ble NCLAT has differentiated between the proceedings under Section 7, 9 and Section 10 by stating that the proceedings under Section 7 and 9 are against each other i.e., in personam where the notice is a matter of right which cannot be claimed under Section 10. Since, we understand the overall proceedings in IBC are in-rem[4] from various interpretations of the Insolvency Code as given by the Hon’ble Supreme Court, it is trite to mention that not just the parties but the rights of general public are affected with initiation of CIRP. Therefore, even though the above provisions do not explicitly mention the requirement of serving notice for want of the opposite party per se, in principle whenever the rights are affected in rem, the requirement of notifying the creditors who may be affected by the initiation of CIRP of the CD becomes a matter of contingency and fall under the principles of natural justice.
The fundamental rationale for issuing notice to the opposite party is to order a specific person to appear at a specific time or some specific purpose. It is also required to intimate the defendant/respondent that the proceedings have been initiated against them in the court of law. Despite there being no explicit provision of notice in the Code for the aforementioned sections, the fact that the Code under Section 15 (as well as specific regulations) provides for “public announcement” of the proceedings under this code has to be appreciated, as the same evidences the fact the insolvency proceedings are proceedings in rem. It also reiterates the mandatory nature of the public announcement which enables intimation to the creditors which may be affected by the proceedings of the NCLT.
In this regard, the Hon’ble NCLT Bengaluru Bench has in fact directed the applicants/RP to notify the creditors regarding the moratorium period issued by the Bench in accordance with the principle of natural justice that flows from the proceedings being in rem. The decision of Hon’ble NCLT Bengaluru Bench dt.20.07.2023 in Mrs. Aruna Kanchana, v. HDB Financial Services Limited & Ors[5] while admitting the petition u/s 94 of the Code directed the RP to cause a “public notice published on behalf of the AA within 7 days of uploading of this order on the NCLT Bengaluru Website inviting claims from all Creditors who shall register the same under S.103 within 21 days of such issuance”.
A similar approach is being followed for proceedings under S.10 of the Code as can be seen from the decision of M/s Dentorth India Private[6] Limited dt.31.01.2023 wherein the NCLT Bengaluru Bench has directed the IRP “to cause a public announcement within three days as contemplated under Regulation 2016 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation 16 of the initiation of CIRP in terms of Section 13 and 15 of the Code.”
The application of this discretion has not only made the work of bench easier but also keeps the principles of natural justice intact by ensuring that the creditors are timely informed of the steps taken by the NCLT which may directly affect their rights. With regards to Section 99 the principle of notice is provided under sub-section 10 itself which mandates the Resolution Professional to give a copy of the report to the debtor or the creditor as the case maybe. The condition of notice u/s 99 as well as u/S 112 of the Code is articulated in Section 113 of the Code which states that:
“The Resolution professional shall provide a copy of the report of the meeting of creditors prepared under section 99 to –
-
- a) debtor
- b) the creditors, including those who were not present at the meeting;
- c) to the Adjudicating Authority.”
Moreover, after perusing the IBBI (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, it is noted that as per Regulation 6, a copy of an application under Section 94 has to be served to every financial creditor and the CD for whom the guarantor is a personal guarantor. Additionally, as per Regulation 9, the copy of the application has to be made available to the resolution professional as well.
Now, coming to the requirement of notice u/s 31 of the Code regarding Approval of Resolution Plan, it is relevant to look at IBBI (Insolvency Resolution Process for Corporate Persons) Regulation 2016 where the steps prior to the Approval of the Resolution Plan are cohesively laid down. As per Regulation 6, “once the CIRP petition is admitted, the IRP has to make public announcement in the newspapers to invite claims of creditors.” Accordingly, as per Reg. 36A(1) the IRP has to publish Form G in the newspapers for inviting the prospective Resolution Applicants to come forth with a Resolution Plan for revival of the CD. Additionally, once the plan is approved by the Adjudicating Authority, Reg.39 (5A) requires the Resolution Professional to intimate “each claimant” the approval of the Resolution Plan and the payment of debts under such plan.
Lastly, under Section 33 of the Code, when the liquidation is initiated against the CD, as per sub-section (7), the order of liquidation is deemed to be a “notice of discharge” to the officers, employees and workmen of the CD. Additionally, as per Reg.12 of the IBBI (Liquidation Process) Regulation, 2016 the provision for public announcement mandates that:
“The liquidator shall make a public announcement in Form B of Schedule II within five days of his appointment…to call upon stakeholders to submit their claims or update their claims during the corporate insolvency resolution process, as on the liquidation commencement date; and provide for the last date for submission or updation of claims which shall be thirty days from the liquidation commencement date.”
The issuance of public announcement as been followed by the NCLT Bengaluru Bench u/s 33 of the Code as evidenced from the decision of M/s Supreme Overseas Exports India Private Limited in CP (IB) 89/2021.
The above discussion on the importance of notice under the aforementioned section clarifies that the greater caution has to be taken of the proceedings in rem and instead of individual notices, the code provides for a “public announcement” for intimation of the creditors. Additionally, through the decision of Go Air (supra) wider discretion is bestowed upon the NCLTs to serve notice on the particular financial creditor/persons on case to case basis. Therefore, while issuance of notice might be discretionary, that does not undermine the right of the general public to be updated with the proceedings of the NCLT as can be seen from the mandatory nature of “public announcement” in various provisions of the Code & Regulations as deliberated in the foregoing discussion.
References:
[1] Adv. Simarpreet Kaur Chabbra, LRA NCLT Bengaluru Bench, [B.A.LLB WBNUJS 2020, LLM NLSIU 2023]
[4] Indus Biotech Private Limited v. Kotak India Venture (Offshore) Fund (formerly Kotak India Venture Limited) & Ors (2021) ibclaw.in 52 SC
[5] C.P. (IB) No.184/BB/2022 (I.A.46/2023)
[6] CP (IB) No.73/BB/2022
