MANISH KUMAR versus UNION OF INDIA AND ANOTHER
[2021] 14 S.C.R. 895, Supreme Court of India, 2021
Outcome: Dismissed (Dismissed)
Segment: Ratio
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remain and found on the basis that he is a mere unsecured creditor in the
order of priority prescribed under Section 53 of the Code. This Court
has painted a more rosy picture for an allottee approaching under the
RERA, as there is a great likelihood, it is noted that the project could be
completed or the full amount of refund together with penalty is awarded.
Thus, the vires of the impugned provisions must be judged without turning
a blind eye to the distinction between the wisdom and the legislative
value judgment behind the Statute being immune from judicial scrutiny
on the one hand and a hostile discrimination falling foul of the mandate
of equality under Article 14, being fatal to the Statute. In this case, while
it may be true that the allottees are unsecured creditors and in that regard,
they are similar to the operational creditors and it also may be true that
many contracts under real estate projects, may not involve large sums
as the subject matter of advances by banks and other financial institutions,
the similarity between the two ends there. What is of greater importance
is the distinctions which we have already noted and the most vital point
which sets them apart, in the matter of pronouncing on the vires of the
provisos under Section 7 is the numerosity of the allottees, and what is
more not being homogeneous in what they want in a particular situation,
since the law has indeed endowed the allottees with different remedies,
having
different implications, be it under the Consumer Protection Act
or under RERA. If the Legislature felt that having regard to the
consequences of an application under the Code, when such a large group
of persons, pull at each other, an additional threshold be erected for
exercising the right under Section 7, certainly, it cannot suffer a
constitutional veto at the hands of Court exercising judicial review of
legislation.  In fact, this Court in Pioneer was invited to hold that the
allottees were more like operational creditors than financial creditors
and many aspects were pointed out and this Court after referring to the
differences pointed out to it in a tabular form in [para 48], rejected the
contentions.  The rejection is supported with reference to the findings in
Swiss Robbin (supra) which is alluded to in para 32 of Pioneer (supra).
214. It is to be noted also that it is not a case where the right of
the allottee is completely taken away. All that has happened is a half-
way house is built between extreme positions, viz., denying the right
altogether to the allottee to move the application under Section 7 of the
Code and giving an unbridled license to a single person to hold the real
estate project and all the stakeholders thereunder hostage to a proceeding
under the Code which must certainly pass inexorably within a stipulated
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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period of time should circumstances exists under Section 33 into corporate
death with the unavoidable consequence of all allottees and not merely
the applicant under Section 7 being visited with payment out of the
liquidation value, the amounts which are only due to the unsecured
creditor.
It must be remembered that, the point of distinction, between a
financial creditor in this case, the allottees of a real estate project and
the operational creditors, as contained in Section 7 on the one hand and
Sections 8 and 9 are preserved. In other words, the operational creditor
still has to cross the threshold of not being shut off from the application
not being processed in the teeth of the defense allowed to the corporate
debtor in regard to an operational creditor. All that has happened is the
Legislature in its wisdom has found that the greater good lies in
conditioning an absolute right which existed in favour of an allottee by
requirements which would ensure some certain element of consensus
among the allottees. It must be remembered that the requirement is a
mere one-tenth of the allottees. This is a number which goes to policy
and lies exclusively within the wisdom of the Legislature. Hence, we
have no hesitation in repelling the contentions in this regard.
DEBENTURE HOLDERS/SECURITY HOLDERS: THE
CHALLENGE TO THE FIRST IMPUGNED PROVISO
215. Shri Rana Mukherjee, learned senior counsel in W.P.(C)
No.579 of 2020 would
submit that the first proviso appears to be clearly
the result of a mistake. It is contended that the target of the legislature
was the problem created by individual allottees invoking section 7 of
IBC. As far as his clients are concerned, they are debenture holders and
other security holders to whom debt is owed by the corporate debtor.
There is no rational basis for imposing a threshold requirement upon the
security holders. Reference is made to the mention of ‘class’.
216. Learned counsel would commend to us the principle of
absurdity. It is pointed out that the principle of absurdity should guide this
Court to read down the first proviso to not apply it in regard to security
holders and debenture holders. In this regard our attention has been
drawn to the decision of this court in Vasant Ganpat Padave (D) by
L.Rs. and Ors. v. Anant Mahadev Sawant (D) through L.Rs. and
Ors.65. It is further brought to the notice of the court that the provision
65 (2019) 12 SCALE 579
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suffers from manifest arbitrariness. Counsel relies upon the judgement
of this Court in Shayara Bano v. Union of India and others66 decision
which witnessed the striking down of the law relating to triple talak.  Per
contra, it is the stand of the Union that Section 21(6A)(a) and (b) read
with Section 25A of the Code contemplated certain classes of financial
creditors as falling in a separate class by themselves.
217. It is the stand of the Union that in regard to certain classes of
creditors, financial creditors, i.e., having regard to the large numbers,
they were to be treated differently. It is accordingly that with the insertion
of sub-section (6A) in section 21 with clause (a) dealing with security
holders including debenture holders which would cover the petitioners
that an authorised representative was to be appointed to be on the
committee of creditors.
218. Section 25A provides for the rights and liabilities of the
authorised representatives who include the authorised representatives
of debenture holders, security holders and finally the allottees. As far as
allottees are concerned, it is the stand of the Union that they would fall
under Section 21 (6A)(b) whereas the security holders including debenture
holders to whom the corporate debtor owes money would fall under
section 21 (6A)(a). In regard to both these categories, in other words,
the feature which stands out is the large number of the creditors as also
the large number of allottees. No
doubt, in the case of allottees there are
other distinguishing features as well. The interplay of the Consumer
Protection Act, the provisions of the Real Estate Regulation Act, the
balancing of the interests of the allottees in the sense of the optimal
securing of the stake of the allottees in the continuance of the real estate
project itself would only strengthen the classification further in regard to
allottees. However, that is not to say that in regard to the debentures and
security holders they can individually be permitted to set in motion CIRP.
In regard to the question of availability of information with respect to
similarly placed debenture holders or security holders, the contention of
the Union is that under section 88 of the Companies Act information is
generated regarding debenture holders and security holders. Anyone
can inspect the records of the company and glean information with which
application can be moved under the first proviso to Section 7(1). In regard
to them also it is the case of the Union that the principle of heterogeneity
applies. Equally, it is the case of the Union that the individual creditor in
66 (2017) 9 SCC 1
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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the said class would make a highly individualised and subjective decision
in regard to whether an application under Section 7 must be moved and
this is sought to be contrasted with the institutional decision-making which
would come into play in regard to banks and other financial institutions.
219. We are of the view that the first proviso is invulnerable. As
pointed out by the learned Additional Solicitor General with the insertion
of sub-section 6A in section 21 as also Section 25A, the intention of the
legislature is to treat the financial creditors differently. They are marked
by unique features in terms of numerosity and heterogeneity is clear.
Section 21 (6A) (a)reads as follows:
“(6A) Where a financial debt –
(a) is in the form of securities or deposits and the terms of the
financial debt provide for appointment of a trustee or agent to act
as authorised representative for all the financial creditors, such
trustee or agent shall act on behalf of such financial creditors;
(b) xxx
xxx
xxx
(c) xxx
xxx
xxx
Section 25A provides as follows:
“ 25A. Rights and duties of authorised representative of
financial creditors.
(1) The authorised representative under sub-section (6) or sub-
section (6A) of section 21 or sub-section (5) of section 24 shall
have the right to participate and vote in meetings of the committee
of creditors on behalf of the financial creditor he represents in
accordance with the prior voting
instructions of such creditors
obtained through physical or electronic means.
(2) It shall be the duty of the authorised representative to circulate
the agenda and minutes of the meeting of the committee of
creditors to the financial creditor he represents.
(3) The authorised representative shall not act against the interest
of the financial creditor he represents and shall always act in
accordance with their prior intructions:
Provided that if the authorised representative represents several
financial creditors, then he shall cast his vote in respect of each
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financial creditor in accordance with instructions received from
each financial creditor, to the extent of his voting share:
Provided further that if any financial creditor does not give prior
instructions through physical or electronic means, the authorised
representative shall abstain from voting on behalf of such creditor.
(3A) Notwithstanding anything to the contrary contained in sub-
section (3), the authorised representative under sub-section (6A)
of section 21 shall cast his vote on behalf of all the financial creditors
he represents in accordance with the decision taken by a vote of
more than fifty per cent. of the voting share of the financial
creditors he represents, who have cast their vote:
Provided that for a vote to be cast in respect of an application
under section 12A, the authorised representative shall cast his
vote in accordance with the provisions of sub-section (3).”
220. These provisions were unsuccessfully challenged before this
Court as evident from the decision in the Pioneer (supra). As pointed out
on behalf of the Union, in the said case the challenge was mounted by
the promoters of real estate projects. These provisions have been accepted
by creditors like the petitioners covered by sub-section 6A. The impact
of the insertion of sub-section 3A in Section 25A is to be noticed. As
already seen section 25A, inter alia, deals with the exercise of rights
and the liabilities of authorised representative of creditors like debenture
holders and allottees. After the insertion of sub-section 3A in section
25A, the majority of the creditors of a class is permitted to call the shots.
It’s view, in other words, will hold sway. This is subject to the Code
otherwise. The legislative understanding is clear that in regard to such
creditors bearing the hallmark of large numbers they are required to be
treated differently. If they are not treated differently it would spell chaos
and the objects of the Code would not be fulfilled. It is an extension of
this basic principle which has led to the insertion of the impugned proviso.
Insisting on a threshold in regard to these categories of creditors would
lead to the halt to indiscriminate litigation which would result in an
uncontrollable docket explosion as far as the authorities which work the
Code are concerned. The debtor who is apparently stressed is relieved
of the last straw on the camel’s back, as it were, by halting individual
creditors whose views are not shared even by a reasonable number of
its peers rushing in with applications. Again, as in the case of the allottees,
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this is not a situation where while treating them as financial creditors
they are totally deprived of the right to apply under Section 7 as part of
the legislative scheme. The legislative policy reflects an attempt at
shielding the corporate debtor from what it considers would be either for
frivolous or avoidable applications. What we mean by avoidable
applications is a decision which would not be taken by similarly placed
creditors keeping in mind the consequences that would ensue not only in
regard to persons falling in the same category but also the generality of
creditors and other stakeholders. All that the amendment is likely to
ensure is that the filing of the application is preceded by a consensus at
least by a minuscule percentage of similarly placed creditors that the
time has come for undertaking a legal odyssey which is beset with perils
for the applicants themselves apart from others. As far as the percentage
of applicants contemplated under the proviso it is clear that it cannot be
dubbed as an arbitrary or capricious figure. The legislature is not wanting
in similar requirements under other laws. The provisions of the Companies
Act, 2013 and its predecessors contained similar provisions.  Allowing
what is described as ‘lone Ranger’ applications beset with extremely
serious ramifications which are at cross purposes with the objects of the
code. This is apart from it in particular spelling avoidable
doom for the
interest of the creditors falling in the same categories. The object of
speed in deciding CIRP proceedings would also be achieved by applying
the threshold to debenture holders and security holders. The dividing line
between wisdom or policy of the legislature and limitation placed by the
Constitution must not be overlooked.
221. The contention based on the applicability of the Absurdity
Doctrine on the Principle that the result which, ‘all mankind without
speculation would unite in rejecting’ can have no application to the
provision. The Code and object of the Code and the unique features
which set apart the creditors involved in this case from the generality of
the creditors, the challenge being to an economic measure and the
consequential latitude that is owed to the legislature renders the Principle
of Absurdity wholly inapposite.
222. There is no scope also having regard to their identification in
paragraph-49 of Pioneer (supra) with reference to their numerosity. They
cannot be heard to complain about their inclusion within the terms of the
1st proviso. Also Section 21(6A)(a) read with Section 25(A) puts the
matter beyond the pale of doubt.
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223. There is no basis for the petitioners to draw any support
from the decision of this Court in 2019(12) SCALE.579. The facts in the
said case presented a clear situation which invited the application of the
Principle.
THE CHALLENGE TO EXPLANATION-II TO SECTION
11 OF THE CODE.
224. The Petitioner, in Writ Petition No. 267 of 2020, challenges
the aforesaid Explanation.
225. As already noticed, the Amendment Act, 2020 received the
assent of the President of India on 13.03.2020 and it is deemed to have
come into force on the 28.12.2019 (be it remembered that the Ordinance,
inserting the same Explanation, had been brought into force on
28.12.2019).
226. The case of the Petitioner, in brief, is as follows:
Respondent No.3 is a subsidiary company of the Petitioner.
Respondent No. 2 is also a corporate body. There were certain
transactions between Respondent Nos.2 and 3. Alleging default
by Respondent No.3, Respondent No.2 had filed an Application
under Section 9 (the application to be filed by an operational
creditor) against Respondent No.3. Respondent No.2 had filed
the application under Section 9 of the Code on 24.08.2018. It is
the further case of the Petitioner that Respondent No.2, on the
other hand, was itself undergoing a CIRP and the CIRP Application
had been admitted against the Second Respondent on 12.09.2017.
It is pointed out that the Respondent No.3 has taken a contention
that Respondent No.2 was disentitled to file an application under
Section
11(a) of the Code as Respondent No.2 was itself facing a
CIRP. It is further contended that during the pendency of the
proceeding against the second Respondent, the Adjudicating
Authority has passed an Order on 19.11.2018 to liquidate
Respondent No.2 under Section 34 of the Code. This development
invites the wrath of Section 11(d) as well. However, the
Adjudicating Authority had, on 24.08.2019, erroneously admitted
the Application filed by Respondent No.2 under the Code. An
Appeal was carried by the Petitioner against the same, which is
pending. It is while so, that the Ordinance came to be promulgated
on 28.12.2019 adding Explanation-II to Section 11 vis-à-vis
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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followed by passing of the impugned, amending Act on similar
lines.
227. The contention of the Petitioner can be summed-up as follows:
An Explanation cannot modify the main provision to which
it is an Explanation.
Section 11(a) and Section 11(b) unequivocally bar a Corporate
Debtor from filing a CIRP Application qua another Corporate
Debtor under Section 7 and Section 9 of the Code. Support is
sought to be drawn from the exposition of the law qua an
explanation laid down in S. Sundaram Pillai and others v. R.
Pattabiraman and others67 and Sonia Bhatia v. State of U.P. and
others68. It is complained that the label of an Explanation has been
used to substantially amend, which is an arbitrary and irrational
exercise of power.
228. It was pointed out that the word ‘includes’ in Explanation-I
to Section 11 would indicate that an Application for CIRP is barred not
only against itself but also against any other Corporate Debtor when the
applicant-Corporate Debtor is found placed in circumstances expressed
in Section 11. It is further contended that the impugned Amendment,
effectively repeals Sections 11(a) and 11(d). If the purport of the
Explanation, which is impugned, is that the intention of the law was to
only bar an Application for CIRP by a Corporate Debtor against itself,
then, it will be unworkable and practically impossible. Explanation-II is
manifestly arbitrary. Support is sought to be drawn from Shayara Bano
(supra). It was further contended that the amendment cannot be used
retrospectively and take away the vested right. In fact, it is contended
that a clarificatory amendment is prospective but Explanation II is in
reality a substantive provision. Attempt is made to lay store by the
Judgment of this Court in Virtual Soft Systems Ltd. v. Commissioner of
Income Tax, Delhi-I69, wherein this Court was dealing with Section 271
of the Income-Tax Act, 1961, in which, an Explanation was added. The
Section in question, was a penal provision.
229. It was further contended that the law has been settled by
National Company Law Tribunal (NCLT) and National Company Law
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Appellate Tribunal (NCLAT) that a Corporate Debtor, covered by Section
11(a) and 11(d), cannot file application for CIPR against another Corporate
Debtor. The impugned amendment cannot be used retrospectively in
cases instituted before 28.12.2019, which is the day on which the
impugned amendment came into force. It is submitted that the amendment
is violative of Article 14 and the relevant law.
230. Respondent No.2, in its submissions, contends as follows:
Respondent No. 3 owes Respondent No.2, more than a
sum of Rs. 26 crores, which is 20 per cent of the liquidation value
of Respondent No.2. It is further contended that the notes on
clause explains the purpose of the provision. The amendment is
defended as reasonable and not arbitrary. It is pointed out that it
will be contrary to the object of the Code if the debt due to the
Corporate Debtor cannot be secured. The duties of the Resolution
Professional under the Code to protect and preserve the assets of
the Corporate Debtor are pointed out. An order of the Appellate
Adjudicating Authority in support of Respondent No.2 is also
pointed out. Explanation-II, it is pointed out, only clarifies what
was always the correct position.
231. Learned Additional Solicitor General, appearing on behalf of
the Union of India would also support the amendment. Reference is
made to the Report dated February, 2020 of the Insolvency Law
Committee, which, inter alia, reads as follows:
“6. ELIGIBILITY OF A CORPORATE DEBTOR TO
INITIATE
CIRP AGAINST OTHER PERSONS
6.1. Under Section 11(a) and (d) of the Code, corporate debtors
“undergoing a corporate insolvency resolution process” and “in
respect of whom a liquidation order has been made” are not
permitted to file an application to initiate CIRP. It was brought to
the Committee that this has created confusion over whether a
corporate debtor which is undergoing CIRP or liquidation process,
may file an application to initiate CIRP against other corporate
persons who are its debtors.
6.2. The Committee noted that different Adjudicating Authorities
had taken different approaches regarding the right of a resolution
professional to initiate CIRP against other corporate debtors. On
the one hand, the right of the resolution professional to initiate
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CIRP against other corporate debtors was upheld by relying on
the statutory duty of the resolution professional to recover
outstanding dues of the corporate debtor under Section 25(2)(b).
On the other hand, the resolution professional had been prevented
from doing so, on the basis of a literal interpretation of Section
11(a). While the Appellate Authority had dismissed the appeals
filed against some of these orders without endorsing either of
these approaches, in Abhay N. Manudhane v Gupta Coal India
Pvt. Ltd., it had taken the latter approach and denied the liquidator
the right to file an application to initiate CIRP against other
corporate debtors (in the context of Section 11(d)).
6.3. However, according to the Notes on Clauses to Section 11,
the section was enacted to prevent “repeated recourse to the
corporate insolvency resolution process in order to delay
repayment of debts due or to keep assets out of the reach of
creditors” and to “ensure finality of the liquidation order” by
preventing a corporate debtor to initiate CIRP after a liquidation
order is passed. Thus, it is clear that Section 11 aims at preventing
a corporate debtor from abusing the statutory process under
Chapter II of Part II of the Code by repeatedly initiating CIRP
against itself or by initiating CIRP even after a liquidation order is
passed against it. The Committee discussed that if Section 11
were instead, interpreted to prevent the
resolution professional or
the liquidator of a corporate debtor from initiating CIRP against
other defaulting entities, it would cause serious detriment to the
ability of a corporate debtor to recover its dues from its debtors.”
ANALYSIS
232. Before we address the argument with regard to the provisions
of the Code, it is necessary to cull-out the principles applicable in regard
to the function of an Explanation. A bench of three learned Judges, in an
off-quoted judgment in S. Sundaram Pillai (supra) came to elaborately
examine the scope of an Explanation. Incidentally, the Court had to deal
with an Explanation which was appended to a proviso and, therefore,
its judgment also deals with the principles applicable in regard to a
proviso. On a conspectus of various decisions, this Court made a survey
of the earlier case law. We may refer to paragraphs-49, 50, 52 and,
finally, its conclusions in paragraph-53 as follows:
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“49. The principles laid down by the aforesaid authors are
fully supported by various authorities of this Court. To quote only
a few, in Burmah Shell Oil Storage and Distributing Co. of
India Ltd. v. CTO [(1961) 1 SCR 902 : AIR 1961 SC 315 : (1960)
11 STC 764] a Constitution Bench decision, Hidayatullah, J.
speaking for the Court, observed thus:
“Now, the Explanation must be interpreted according to
its own tenor, and it is meant to explain clause (1)(fl) of the
Article and not vice versa. It is an error to explain the
Explanation with the aid of the Article, because this reverses
their roles.”
50. In Bihta Cooperative Development Cane Marketing
Union Ltd. v. Bank of Bihar [(1967) 1 SCR 848 : AIR 1967 SC
389 : 37 Com Cas 98] this Court observed thus:
“The Explanation must be read so as to harmonise with
and clear up any ambiguity in the main section. It should not be
so construed as to widen the ambit of the section.”
52. In Dattatraya Govind Mahajan v. State of
Maharashtra [(1977) 2 SCR 790 : (1977) 2 SCC 548 : AIR 1977
SC 915] Bhagwati, J. observed thus: (SCC p. 563, para 9)
“It is true that the orthodox function of an Explanation is
to explain the meaning and effect of the main provision to which
it is an Explanation and to clear up any doubt or ambiguity in
it.... Therefore, even though the provision in question has been
called an Explanation, we must construe it according to its
plain language and not on any a priori considerations.”
53. Thus, from
a conspectus of the authorities referred to
above, it is manifest that the object of an Explanation to a statutory
provision is—
“(a) to explain the meaning and intendment of the Act
itself,
(b) where there is any obscurity or vagueness in the
main enactment, to clarify the same so as to make it consistent
with the dominant object which it seems to subserve,
(c) to provide an additional support to the dominant object
of the Act in order to make it meaningful and purposeful,
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(d) an Explanation cannot in any way interfere with or
change the enactment or any part thereof but where some gap
is left which is relevant for the purpose of the Explanation, in
order to suppress the mischief and advance the object of the
Act it can help or assist the Court in interpreting the true purport
and intendment of the enactment, and
(e) it cannot, however, take away a statutory right with
which any person under a statute has been clothed or set at
naught the working of an Act by becoming an hindrance in the
interpretation of the same.”
233. It is important to actually understand the scope of an
Explanation. We have already noticed the summary of the conclusions
of this Court in S. Sundaram Pillai (supra) at paragraph-53. It may give
the impression that an Explanation, in those circumstances, does not
widen the boundaries of the main provision to which it is an Explanation.
However, it is apposite that we hearken back to what this Court said on
an earlier occasion. In a judgment rendered by four learned Judges in
Hiralal Rattanlal and Ors. v. State of U.P. and another70 this Court had,
while considering the scope of an Explanation in a Taxing Statute, viz.,
the United Provinces Sales Tax Act, 1948, had this to say:
“22. It was next urged that on a true construction of
Explanation II to Section 3-D, no charge can be said to have been
created on the purchases of split or processed pulses. It was firstly
contended that an Explanation cannot extend the scope of the
main section, it can only explain that section. In construing a
statutory provision, the first and the foremost rule of construction
is the literary construction. All that we have to see at the very
outset is what does that provision say? If the provision is
unambiguous and if from that provision, the legislative intent is
clear, we need not call into aid the other rules of construction of
statutes. The other rules of construction of statutes are called into
aid only when the legislative intention is not clear. Ordinarily a
proviso to a section is intended to take out a part of the main
section for special treatment. It is not expected to enlarge the
scope of the main section. But cases have arisen in which this
Court has held that despite the fact that a provision is called proviso,
it is really a separate provision and the so-called proviso has
70 (1973) 1 SCC 216
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substantially altered the main section. In CIT v. Bipinchandra
Maganlal & Co. Ltd., Bombay [AIR 1961 SC 1040 : (1961) 2
SCR 493 : (1961) 41 ITR 290] this Court held that by the fiction in
Section 10(2)(vii) second proviso read with Section 2(6-C) of the
Indian Income Tax Act, 1922 what is really not income is, for the
purpose of computation of assessable income, made taxable
income.
25. On the basis of the language of the Explanation this
Court held that it did not widen the scope of clause (c). But from
what has been said in the case, it is clear that if on a true reading
of an Explanation it appears that it has widened the scope of the
main section, effect be given to legislative intent notwithstanding
the fact that the Legislature named that provision as an Explanation.
In all these matters the courts have to find out the true intention of
the Legislature.”
(Emphasis supplied)
234. Even though, in a later decision in S. Sundaram Pillai (supra),
this Court had adverted to this Judgment when it came to culling out the
propositions, the aspect about an Explanation, widening the scope of a
provision, has not been expressly spelt out. It must be remembered that
the Legislature speaks through the medium of the words it uses. The
nomenclature, it gives to the device, cannot control the express language,
which it employs. If, in effect, in a particular case, an Explanation does
widen the terms of the main provision, it would become the duty of the
Court to
give effect to the will of the Legislature.
235. In fact, with respect to the decision in S. Sundaram Pillai
(supra), it may be necessary to dissect the provisions which fell for
consideration. The Court, in the said case, was dealing with the law
relating to restrictions on eviction of the tenant prevailing in Tamil Nadu.
The substantive provision conferred a right on the landlord to evict a
tenant, should he wilfully fail to pay the rent. There was a proviso,
however, which empowered the Court to grant time to the tenant subject
to the limit of 30 days, should it be found that the non-payment of the
rent was not wilful. It was to this proviso that an Explanation was added.
The Explanation, in turn, provided that if the landlord gave a notice to the
tenant to pay the rent and rent remained unpaid for a period of two
months, it would be construed as a case of wilful default. The arguments,
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which were addressed before this Court, included the contention that
even if a notice was given within the meaning of the Explanation, it
would not control the duty of the Court to find out whether there was
wilful default. It was, while the Court dealt with these arguments, inter
alia, that the Court proceeded to lay down two propositions. Firstly, in a
case where no notice was given by the landlord, within the meaning of
the Explanation, it was for the Court to find out, on the facts and
circumstances, as to whether there was wilful default. The second
proposition, which was laid down was, even if a notice was given under
the Explanation and there was default in payment, it would be treated as
a case of wilful default unless the tenant was able to establish that he
was prevented from making payment on account of circumstances which
prevented him from doing so. We may also notice a still later judgment
of this Court in Sonia Bhatia (supra). In the said case, the question fell
for consideration under the law relating to land reforms. Sub-Section (6)
of Section 5 of the U.P. Imposition of Ceiling on Land Holdings Act,
1960 provided that the transfer made by a person, after a certain date,
was to be ignored. There was a proviso, which, however, excepted
certain transfers. One of the conditions to be met before a case could
fall within the proviso was that the transfer must have been made for
valuable consideration. To
the said proviso, there was again an
Explanation I followed by Explanation II. It reads as follows:
“Explanation I.—For the purposes of this sub-section, the
expression “transfer of land made after the twenty-fourth day of
January, 1971”, includes—
(a) a declaration of a person as a co-tenure-holder made after
the twenty-fourth day of January, 1971 in a suit or proceeding
irrespective of whether such suit or proceeding was pending on
or was instituted after the twenty-fourth day of January, 1971;
(b) any admission, acknowledgement, relinquishment or declaration
in favour of a person to the like effect, made in any other deed or
instrument or in any other manner.
Explanation II: The burden of proving that a case falls within clause
(b) of the proviso shall rest with the party claiming its benefits.”
 236. The transfer in the said case was a gift which attracted the
wrath of the main provision which meant that the transfer had to be
ignored, and the land, which was the subject matter of the gift, had to be
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included in the ceiling account of the donor. This Court appreciated the
scope of the legislation to be just that and rejected the argument based
on the terms of the Explanation and held as follows:
“24. In Bihta Co-operative Development Cane Marketing
Union Ltd. v. Bank of Bihar [AIR 1967 SC 389 : (1967) 1 SCR
848 : 37 Com Cas 98] this Court was called upon to consider the
Explanation to Section 48(1) of the Bihar and Orissa Cooperative
Societies Act, 1935. Therein this Court observed:
“The question then arises whether the first Explanation to the
section widens the scope of sub-section (1) of Section 48 so as to
include claims by registered societies, against non-members even
if the same are not covered by clause (c).”
237. We have made a brief survey of some of the case law by
way of expounding the true province of an Explanation.
238. Coming to the facts of the instant case, it is necessary to
analyse the limbs of Section 11. Sections 7, 9 and 10, read with Section
5, provide for the procedure to be adopted by the Adjudicating Authority
in dealing with applications for initiating CIRP by the financial creditor,
operational creditor and corporate debtor. It is after that Section 11 makes
its appearance in the Code. It purports to declare that an application for
initiating CIRP cannot be made by categories expressly detailed in Section
11. Section 11(a) vetoes an application by a corporate debtor, which is
itself undergoing a CIRP.  An argument sought
to be addressed by the
petitioner is that the purport of the said provision is that it prohibits not
only a corporate debtor, which is undergoing a CIRP, from initiating a
CIRP against itself, which, but for the fact, it is undergoing a CIRP,
would be maintainable under Section 10 of the Code, but it also proscribes
an application by a corporate debtor for initiating a CIRP against another
corporate debtor. It appears to be clear to us, and this will be corroborated
by the further provisions as well, that the real intention of the Legislature
was that the prohibition was only against the corporate debtor, which is
already faced with the CIRP filed by either a financial creditor or
operational creditor, jumping into the fray with an application under Section
10. This appears to be clear from the reports which have been placed
before us.
239. Coming to Section 11(b), it again disables a corporate debtor
which has completed CIRP twelve months preceding the date of the
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making of the application from invoking the Code. It may be demystified
as follows:
On the strength of the application made under Sections 7, 9 or 10,
CIRP is initiated and it is completed at a certain point of time. This
Section is aimed at preventing a further application not eternally but for
a period of twelve months after the expiry of the insolvency resolution
process. Quite apart from the fact that even the petitioners do not lay
store by Section 11(b) and their case is premised on Section 11(a) and
11(d), the importance of Section 11(b) is that it sheds light regarding the
intention of the Legislature to be that the corporate debtor cannot initiate
CIRP against itself under any of the limbs of Section 11, in the
circumstances detailed therein. Section 11(c) again disentitles corporate
debtor, apart from a financial creditor who has violated any terms of a
resolution plan, which was approved twelve months before the making
of the application. In other words, after the Adjudicating Authority
approves a resolution plan under Section 31 of the Code, should a
corporate debtor, inter alia, transgress upon any of the terms of the
resolution plan and it still ventures to again approach the Adjudicating
Authority with an application under Section 10 and attempt to restart the
process all over again within a period of twelve months from the date of
approval, this is declared impermissible under Section 11(c).
240.
Finally, coming to Section 11(d), it disentitles the making of
an application to initiate CIRP by a corporate debtor in respect of whom
a liquidation order has been made. We have already noticed the scheme
of the Code. The Legislature intends to have a two-stages approach to
the problem of insolvency as regards the corporate debtor. On the basis
of an application by the eligible person, a CIRP is initiated. If it is admitted,
a Committee of Creditors is constituted before the curtains are wrung
down on the insolvency resolution process by the inexorable passage of
time, which is fixed under Section 12. If a resolution plan finds approval
at the hands of the Committee of Creditors and also the Adjudicating
Authority, liquidation is staved off. Should there be no resolution plan
within the time limit or the resolution plan is not approved, the curtains
rise for the process of liquidation process to be played out in terms of the
Code. The first act of the drama consists of the order of liquidation to be
passed under Section 33 of the Code. It is this order which is referred to
in Section 11(d). There is also an order of liquidation permissible earlier,
under Section 33(4). No doubt after the introduction of the explanation
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to Section 33(2), an order of liquidation may be passed in terms thereof.
Once, this order is passed, the Legislature intended that a corporate
debtor, in regard to whom the CIRP was initiated and which has
culminated in the order of liquidation being passed after no resolution of
the insolvency took place, cannot again initiate a fresh CIRP, putting
under the carpet, as it were, a whole process in the recent past. In fact,
to use the words “recent past” may not be correct for unlike Section
11(b) and 11(c), in a case, where there is an order for liquidation under
Section 33, then, an application under Section 10, would not be
maintainable. The person disentitled under Section 11(d) would be the
corporate debtor and the disentitlement is qua itself.
241. Now, let us turn to the first Explanation. The Explanation
declares that for the purpose of Section 11, a corporate debtor includes
a corporate applicant in respect of such corporate debtor. There is an
argument raised on behalf of the petitioners which surrounds the word
“included”. The contention appears to be that before the insertion of
Explanation II, which is challenged before us, under Section 11, not only
was an application for initiating CIRP by a corporate debtor against
itself prohibited in the circumstances referred to in Section 11 but it also
contemplated that the CIRP could not be filed by the corporate debtor in
circumstances covered by Section 11 against another corporate debtor.
Otherwise, there was no meaning in using the word “includes”. In order
to appreciate this argument, it is necessary to set out the definition of the
word “corporate applicant” in the Code.
“6(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;”
242. It is to be noticed that under Section 10 of the Code, a
corporate debtor can file an application for CIRP, when there is a default
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by itself. The persons, who can make application under section 10, are
those who are alluded to as in the definition of the word “corporate
applicant”. In other words, an application by the corporate debtor for
initiating a CIRP, when there is a default by the corporate debtor, can be
made not only by the corporate debtor but also any of the other three
categories falling in clauses (b), (c) and (d) of the provision which defines
the word “corporate applicant”. It is to ensure that there was clarity
regarding the question as to whether, while in Section 11, there is a
prohibition against the corporate debtor in various circumstances and it
is disabled from moving an application under Section 10 against itself,
there is no reference to the other persons who are covered by the definition
of the word “corporate applicant”. It is hence that Explanation I was
inserted. In other words, it was to ensure that in the circumstances
contemplated in Section 11, an application under Section 10 could not be
made by any of the categories of persons mentioned in the definition of
the word “corporate applicant”.
243. Now, let us consider finally the impugned Explanation. The
impugned Explanation came to be inserted by the impugned amendment.
Apparently, interpreting Section 11, there appears to have been some
cleavage of opinion. This is apparent from the case set up on behalf of
the petitioners and the case set up on behalf of the
Union of India. The
intention of the Legislature was always to target the corporate debtor
only insofar as it purported to prohibit application by the corporate debtor
against itself, to prevent abuse of the provisions of the Code. It could
never had been the intention of the Legislature to create an obstacle in
the path of the corporate debtor, in any of the circumstances contained
in Section 11, from maximizing its assets by trying to recover the liabilities
due to it from others. Not only does it go against the basic common
sense view but it would frustrate the very object of the Code, if a
corporate debtor is prevented from invoking the provisions of the Code
either by itself or through his resolution professional, who at later stage,
may, don the mantle of its liquidator. The provisions of the impugned
Explanation, thus, clearly amount to a clarificatory amendment. A
clarificatory amendment, it is not even in dispute, is retrospective in nature.
The Explanation merely makes the intention of the Legislature clear
beyond the pale of doubt. The argument of the petitioners that the
amendment came into force only on 28.12.2019 and, therefore, in respect
to applications filed under Sections 7, 9 or 10, it will not have any bearing,
cannot be accepted. The Explanation, in the facts of these cases, is
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clearly clarificatory in nature and it will certainly apply to all pending
applications also.
244. We may notice that these are petitions filed under Article 32
of the Constitution of India, essentially, complaining of violation of
Fundamental Right under Article 14 of the Constitution insofar as the
challenge to the Explanation is concerned, a strained effort is made to
describe this amendment as manifestly arbitrary. To build up this argument,
an attempt is made to contend that an Explanation cannot widen the
provisions or whittle down its scope. We are afraid, that this venture of
attempting to persuade us to hold that an Explanation would be trespassing
the limits of its province, should it widen the scope of the main provisions,
itself has no legs to stand on, as explained earlier. We are unable to
understand how it could be described as being arbitrary for the Legislature
to clarify its intention through the device of an Explanation. The further
attempt to persuade us to overturn the provision on the score that the
Explanation attempts to achieve the result of a repeal of Sections 11(a)
and 11(d), is totally meritless. We are clear in our mind that on a proper
understanding of Sections 11(a) and 11(d), it does nothing of the kind.
Sections 11(a) and 11(d) remain intact in the manner we have propounded.
245. We must record our understanding of the efforts of the
petitioner in the light of the application which is pending and the appeal
also which is
preferred by the petitioner in NCLAT. We are really
concerned and can be called upon only to pronounce on the vires of the
Statute on the score that it is unconstitutional on any ground known to
law. The only ground which is urged before us is the violation of Article
14. This ground does not merit acceptance. The challenge is repelled.
IS SECTION 32A UNCONSTITUTIONAL?
246. Section 32A is challenged by allottees in Writ Petition No.75
of 2020. The petitioners in Writ Petition No.27 of 2020 and Writ Petition
No. 579 of 2020, who are creditors (money lenders) also challenge Section
32A.
247. The petitioners contend that immunity granted to the corporate
debtors and its assets acquired from the proceeds of crimes and any
criminal liability arising from the offences of the erstwhile management
for the offences committed prior to initiation of CIRP and approval of
the resolution plan by the adjudicating authority further jeopardizes the
interest of the allottees/creditors. It will cause huge losses which is sought
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to be prevented under the provisions of the Prevention of Money
Laundering Act, 2002.
248. Section 32A is arbitrary, ultra vires and violative of Article
300A and Articles 14, 19 and 21.
249. The stand of the Union, on the other hand, is as follows:
Section 32A provides immunity to the corporate debtor and
its property when there is approval of the resolution plan resulting
in the change of management of control of corporate debtor. This
is subject to the successful resolution applicant being not involved
in the commission of the offence. Statutory basis has now given
under Section 32A to the law laid down by this Court in the decision
of Committee of Creditors of Essar Steel(supra). This Court took
the view therein that successful resolution applicant cannot be
faced with undecided claim after its resolution plan has been
accepted. The object is to ensure that a successful resolution
applicant starts of on a fresh slate. The relevant extracts of the
Statement of Objects and Reasons relied upon by the Union of
India are as follows:
“STATEMENT OF OBJECTS AND REASONS
                 xxx
2. A need was felt to give the highest priority in repayment to last
mile funding to corporate debtors to prevent insolvency, in case
the company goes into corporate insolvency resolution process or
liquidation, to prevent potential abuse of the Code by certain classes
of financial creditors, to provide immunity against prosecution of
the corporate debtor and action against the property of the
corporate debtor and the successful resolution applicant subject
to fulfilment of certain conditions, and in order to fill the critical
gaps in the corporate insolvency 69 framework, it has become
necessary to amend certain provisions of the Insolvency and
Bankruptcy Code, 2016.
3.The Insolvency and Bankruptcy Code (Second Amendment)
Bill, 2019, inter alia, provides for the following, namely:—
xxx
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(vii) to insert a new section 32A so as to provide that the liability
of a corporate debtor for an offence committed prior to the
commencement of the corporate insolvency resolution process
shall cease under certain circumstances.”
250. Reliance is also placed on the report of the Insolvency Law
Committee. Relevant extracts which have been relied on are as follows:
“PREFACE
v. Liability of corporate debtor for offences committed prior to
initiation of CIRP- in order to address the issue of liability that fall
upon the resolution applicant for offences committed prior to
commencement of CIRP, it has been recommended that a new
section should be inserted which provides that when the corporate
debtor is successfully resolved, it should not be held liable for any
offence committed prior to the commencement of the CIRP, unless
the successful resolution applicant was also involved in the
commission of the offence, or was a related party, promoter or
other person in management and control of the corporate debtor
at the time of or any time following the commission of the offence.
Notwithstanding this, those persons who were responsible to the
corporate debtor for the conduct of its business at the time of the
commission of such offence, should continue to be liable for such
an offence, vicariously or 70 otherwise. The newly inserted section
as mentioned above shall also include protection of property from
enforcement action when taken by successful resolution
applicant.
Also, it was recommended that cooperation and assistance to
authorities investigating the offences committed prior to
commencement of CIRP shall be continued by any person who is
required to provide such assistance under the applicable law.
xxx
Chapter 1: Recommendations regarding the Corporate Insolvency
Resolution Process
xxx
17. LIABILITY OF CORPORATE DEBTOR FOR
OFFENCES COMMITTED PRIOR TO INITIATION OF
CIRP*
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17.1. Section 17 of the Code provides that on commencement of
the CIRP, the powers of management of the corporate debtor
vest with the interim resolution professional. Further, the powers
of the Board of Directors or partners of the corporate debtor
stand suspended, and are to be exercised by the interim resolution
professional. Thereafter, Section 29A, read with Section 35(1)(f),
places restrictions on related parties of the corporate debtor from
proposing a resolution plan and purchasing the property of the
corporate debtor in the CIRP and liquidation process, respectively.
Thus, in most cases, the provisions of the Code effectuate a change
in control of the corporate debtor that results in a clean break of
the corporate debtor from its erstwhile management. However,
the legal form of the corporate debtor continues in the CIRP, and
may be preserved in the resolution plan. Additionally, while the
property of the corporate debtor may also change hands upon
resolution or liquidation, such property also continues to exist, either
as property of the corporate debtor, or in the hands of the
purchaser.
17.2. However, even after commencement of CIRP or after its
successful resolution or liquidation, the corporate debtor, along
with its property, would be susceptible to investigations or
proceedings related to criminal offences committed by it prior to
the commencement of a CIRP, leading to the imposition of certain
liabilities and restrictions on the corporate debtor and its 71
properties even after they were lawfully acquired by a resolution
applicant or a successful bidder, respectively.
Liability where a Resolution Plan has been Approved
17.3. It was brought to the Committee that this had created
apprehension amongst potential resolution applicants, who did not
want to take on the liability for any offences committed prior to
commencement of CIRP. In one case, JSW Steel had specifically
sought certain reliefs and concessions, within an annexure to the
resolution plan it had submitted for approval of the Adjudicating
Authority. Without relief from imposition of the such liability, the
Committee noted that in the long run, potential resolution applicants
could be disincentivised from proposing a resolution plan. The
Committee was also concerned that resolution plans could be priced
lower on an average, even where the corporate debtor did not
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commit any offence and was not subject to investigation, due to
adverse selection by resolution applicants who might be
apprehensive that they might be held liable for offences that they
have not been able to detect due to information asymmetry. Thus,
the threat of liability falling on bona fide persons who acquire the
legal entity, could substantially lower the chances of its successful
takeover by potential resolution applicants.
17.4. This could have substantially hampered the Code’s goal of
value maximisation, and lowered recoveries to creditors, including
financial institutions who take recourse to the Code for resolution
of the NPAs on their balance sheet. At the same time, the
Committee was also conscious that authorities are duty bound to
penalize the commission of any offence, especially in cases
involving substantial public interest. Thus, two competing concerns
need to be balanced.
17.5. The Committee noted that the proceedings under the Code,
which are designed to ensure maximization of value, generally
require transfer of the corporate debtor to bona fide persons. In
fact, Section 29A casts a wide net that disallows any undesirable
person, related party or defaulting entity from acquiring a corporate
debtor. Further, the Code provides for an open process, in which
transfers either require approval of the Adjudicating Authority, or
can be challenged before it. Thus, the CIRP typically culminates
in a change of control to 72 resolution
applicants who are unrelated
to the old management of the corporate debtor and step in to
resolve the insolvency of the corporate debtor following the
approval of a resolution plan by the Adjudicating Authority.
17.6. Given this, the Committee felt that a distinction must be
drawn between the corporate debtor which may have committed
offences under the control of its previous management, prior to
the CIRP, and the corporate debtor that is resolved, and taken
over by an unconnected resolution applicant. While the corporate
debtor’s actions prior to the commencement of the CIRP must be
investigated and penalised, the liability must be affixed only upon
those who were responsible for the corporate debtor’s actions in
this period. However, the new management of the corporate
debtor, which has nothing to do with such past offences, should
not be penalised for the actions of the erstwhile management of
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the corporate debtor, unless they themselves were involved in the
commission of the offence, or were related parties, promoters or
other persons in management and control of the corporate debtor
at the time of or any time following the commission of the offence,
and could acquire the corporate debtor, notwithstanding the
prohibition under Section 29A.
17.7. Thus, the Committee agreed that a new Section should be
inserted to provide that where the corporate debtor is successfully
resolved, it should not be held liable for any offence committed
prior to the commencement of the CIRP, unless the successful
resolution applicant was also involved in the commission of the
offence, or was a related party, promoter or other person in
management and control of the corporate debtor at the time of or
any time following the commission of the offence. 17.8.
Notwithstanding this, those persons who were responsible to the
corporate debtor for the conduct of its business at the time of the
commission of such offence, should continue to be liable for such
an offence, vicariously or otherwise, regardless of the fact that
the corporate debtor’s liability has ceased.
Actions against the Property of the Corporate Debtor
17.9. The Committee also noted that in furtherance of a criminal
investigation and prosecution, the property of a company, which
continues to exist after the resolution or liquidation of a corporate
debtor, may have been
liable to be attached, seized or confiscated.
For instance, the property of a corporate debtor may have been
at risk of attachment, seizure or confiscation where there was
any suspicion that such property was derived out of proceeds of
crime in an offence of money laundering. It was felt that taking
actions against such property, after it is acquired by a resolution
applicant, or a bidder in liquidation, could be contrary to the interest
of value maximisation of the corporate debtor’s assets, by
substantially reducing the chances of finding a willing resolution
applicant or bidder in liquidation, or lowering the price of bids, as
discussed above.
17.10. Thus, the Committee agreed that the property of a corporate
debtor, when taken over by a successful resolution applicant, or
when sold to a bona fide bidder in liquidation under the Code,
should be protected from such enforcement action, and the new
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Section discussed in paragraph 17.7 should provide for the same.
Here too, the Committee agreed that the protection given to the
corporate debtor’s assets should in no way prevent the relevant
investigating authorities from taking action against the property of
persons in the erstwhile management of the corporate debtor, that
may have been involved in the commission of such criminal offence.
17.11. By way of abundant caution, the Committee also recognised
and agreed that in all such cases where the resolution plan is
approved, or where the assets of the corporate debtor are sold
under liquidation, such approved resolution plan or liquidation sale
of the assets of the corporate debtor’s assets would have to result
in a change in control of the corporate debtor to a person who
was not a related party of the corporate debtor at the time of
commission of the offence, and was not involved in the commission
of such criminal offence along with the corporate debtor.
Cooperation in Investigation
17.12. While the Committee felt that the corporate debtor and
bona fide purchasers of the corporate debtor or its property should
not be held liable for offences committed prior to the
commencement of insolvency, the Committee agreed that the
corporate debtor and any person who may be required to provide
assistance under the applicable law should continue to provide
assistance and cooperation to the authorities investigating an
offence committed prior to the commencement
of the CIRP.
Consequently, the Committee recommended the new Section
should provide for such continued cooperation and assistance.”
 The Additional Solicitor General also places reliance on the Sixth
Report of the Standing Committee of Lok Sabha made in March, 2020.
The relevant portion according to the learned ASG are as follows:
“
3.8
“The stakeholders on the above clause furnished the
following suggestion:-
“Though the Bill gives immunity to the corporate debtor
(company as a legal entity) from prior offences, the
individuals responsible for committing such offences on
behalf of the debtor will still be held liable. The question is
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whether the debtor should be absolved of all kinds of prior
offences with such a blanket immunity.”
3.9
The Secretary, Ministry of Corporate Affairs during the
sitting held on 15th January, 2020 remarked:-
“If the bidder, who is coming and participating under the
court supervised competitive process, does not get security
and is not indemnified, there may be a problem.”
3.10
Further, the Ministry furnished the following comment on
the above suggestion:
“…this provision would only apply where the CIRP
culminates in a change in control to a 75 completely
unconnected resolution applicant. As such, a resolution
applicant has nothing to do with the commission of any pre-
CIRP offence whatsoever, and the corporate debtor is now
fundamentally not the same entity as the one that committed
the crime.”
3.11
The Committee are in agreement with the intent of this
amendment to safeguard the position of the Resolution
Applicant(s) by ring-fencing them from prosecution and
liabilities under offences committed by erstwhile promoters
etc. The Committee understand the need for treating the
company or the Corporate Debtor as a cleansed entity for
cases which result in change in the management or control
of the corporate debtor to a person who was not a promotor
or in the management control of the corporate debtor or
related party of such person, or to a person against whom
there are material evidence and pending complaint or report
by
the investigating authority filed in relation to the criminal
offence. The Committee agree that this provision is essential
to provide the Resolution Applicant(s) a fair chance to revive
the unit which otherwise would directly go into liquidation,
which may not be as beneficial to the economy. The
Committee believe that this ring-fencing is essential to
achieve revival or resolution without imposing additional
liabilities on the Resolution Applicant, arising from malafide
acts of the previous promoter or management.”
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251. Apart from the fact that it is intended to give a clean break to
the successful resolution applicant, it is pointed out that it is hedged in
with ample safeguards to avoid any exploitation.  The same are as follows:
 “106. Section 32A was inserted to give a clean break to successful
resolution applicants from the erstwhile management by shielding them
and immunizing them from prosecution and liabilities for offences that
may have been committed prior to the commencement of the CIRP.
Further, ample safeguards have been incorporated in the said provision
to prevent any exploitation, namely:
i. The immunity is attracted only when a resolution plan is approved
by the Adjudicating Authority under section 31 and the resolution
plan results in the change in management or control of the corporate
debtor.
ii. The immunity is granted only to the corporate debtor and its
property, where such property is covered under the resolution
plan approved by the Adjudicating Authority under section 31,
from any liability or prosecution with regard to offences committed
prior to the commencement of the corporate insolvency resolution
process.
iii. Any person who was a promoter or in the management or
control of the corporate debtor or a related party or was in any
manner incharge of, or responsible to the corporate debtor for the
conduct of its business and who was directly or indirectly involved
in the commission of such offence shall continue to be liable to be
prosecuted and punished for such an offence committed by the
corporate debtor notwithstanding that the corporate debtor’s
liability has ceased.
iv. Section 32A does not bar an action against the property of any
person other than the corporate debtor against whom such an
action may be taken under such law as may be applicable.
v. Notwithstanding the immunity given under Section 32A, the
corporate debtor and any person, who may be required to provide
assistance under such law as may be applicable to such corporate
debtor or person, shall extend all assistance and co-operation to
any authority investigating an offence committed prior to the
commencement of the corporate insolvency resolution process.”
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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252. Section 32A has been divided into three parts consisting of
sub-Sections (1) to (3). Under sub-Section (1), notwithstanding anything
contained, either in the Code or in any other law, liability of a corporate
debtor, for an offence committed prior to the commencement of the
CIRP, shall cease. Further, the corporate debtor shall not be liable to be
prosecuted for such an offence. Both, these immunities are subject to
the following conditions:
i.
A Resolution Plan, in regard to the corporate debtor, must be
approved by the Adjudicating Authority under Section 31 of
the Code;
ii.
The Resolution Plan, so approved, must result in the change
in the management or control of the corporate debtor;
iii.
The change in the management or control, under the approved
Resolution Plan, must not be in favour of a person, who was
a promoter, or in the management and control of the corporate
debtor, or in favour of a related party of the corporate debtor;
iv.
The change in the management or control of the corporate
debtor must not be in favour of a person, with regard to whom
the relevant Investigating Authority has material which leads
it to entertain the reason to believe that he had abetted or
conspired for the commission of the offence and has submitted
or filed a Report before the relevant Authority or the Court.
This last limb may require a little more demystification. The
person, who comes to acquire the management and
control
of the corporate person, must not be a person who has abetted
or conspired for the commission of the offence committed by
the corporate debtor prior to the commencement of the CIRP.
Therefore, abetting or conspiracy by the person, who acquires
management and control of the corporate debtor, under a
Resolution Plan, which is approved under Section 31 of the
Code and the filing of the report, would remove the protective
umbrella or immunity erected by Section 32A in regard to an
offence committed by the corporate debtor before the
commencement of the CIRP. To make it even more clear, if
either of the conditions, namely abetting or conspiring followed
by the report, which have been mentioned as aforesaid, are
present, then, the liability of the corporate debtor, for an offence
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committed prior to the commencement of the CIRP, will remain
unaffected.;
253.  The first proviso in sub-Section (1) declares that if there is
approval of a Resolution Plan under Section 31 and a prosecution has
been instituted during the CIRP against the corporate debtor, the corporate
debtor will stand discharged. This is, however, subject to the condition
that the requirements in sub-Section (1), which have been elaborated by
us, have been fulfilled. In other words, if under the approved Resolution
plan, there is a change in the management and control of the corporate
debtor, to a person, who is not a promoter, or in the management and
control of the corporate debtor, or a related party of the corporate debtor,
or the person who acquires control or management of the corporate
debtor, has neither abetted nor conspired in the commission of the offence,
then, the prosecution, if it is instituted after the commencement of the
CIRP and during its pendency, will stand discharged against the corporate
debtor. Under the second proviso to sub-Section (1), however, the
designated partner in respect of the liability partnership or the Officer in
default, as defined under Section 2(60) of the Companies Act, 2013, or
every person, who was, in any manner, in-charge or responsible to the
corporate debtor for the conduct of its business, will continue to be liable
to be prosecuted and punished for the offence committed by the corporate
debtor. This is despite the
extinguishment of the criminal liability of the
corporate debtor under sub-Section (1). Still further, every person, who
was associated with the corporate debtor in any manner, and, who was
directly or indirectly involved in the commission of such offence, in terms
of the Report submitted and Report filed by the Investigating Authority,
will continue to be liable to be prosecuted and punished for the offence
committed by the corporate debtor. Thus, the combined reading of the
various limbs of sub-Section (1) would show that while, on the one hand,
the corporate debtor is freed from the liability for any offence committed
before the commencement of the CIRP, the statutory immunity from the
consequences of the commission of the offence by the corporate debtor
is not available and the criminal liability will continue to haunt the persons,
who were in in-charge of the assets of the corporate debtor, or who
were responsible for the conduct of its business or those who were
associated with the corporate debtor in any manner, and who were directly
or indirectly involved in the commission of the offence, and they will
continue to be liable.
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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254. Coming to sub-Section (2) of Section 32A, it declares a bar
against taking any action against property of the corporate debtor. This
bar also contemplates the connection between the offence committed
by the corporate debtor before the commencement of the CIRP and the
property of the corporate debtor. This bar is conditional to the property
being covered under the Resolution Plan. The further requirement is
that a Resolution Plan must be approved by the Adjudicating Authority
and, finally, the approved plan, must result in a change in control of the
corporate debtor not to a person, who is already identified and described
in sub-Section (1). In other words, the requirements for invoking the bar
against proceeding against the property of the corporate debtor in relation
to an offence committed before the commencement of the CIRP, are as
follows:
(i)
There must be Resolution Plan, which is approved by the
Adjudication Authority under Section 31 of the Code;
(ii) The approved Resolution Plan must result in the change in
control of the corporate debtor to a person, who was not –
(a) a promoter; (b) in the management or control of the
corporate debtor or (c) a related party of the corporate debtor;
(d) a person with regard to whom the investigating authority,
had, on the basis of the material, reason to believe that he has
abetted or conspired for the commission of the offence and
has submitted a Report or a
complaint. If all these aforesaid
conditions are fulfilled then the Law Giver has provided that
no action can be taken against the property of the corporate
debtor in connection with the offence;
The Explanation to sub-Section (2) has clarified that the words
“an action against the property of the corporate debtor in
relation to an offence”, would include the attachment, seizure,
retention or confiscation of such property under the law
applicable to the corporate debtor. Since the word “include” is
used under sub-clause (i) of the Explanation, the word “action”
against the property of the corporate debtor is intended to have
the widest possible amplitude. There is a clear nexus with the
object of the Code. The other part of the clarification, under
the Explanation, is found in the second sub-clause of the
Explanation (ii). Under the second limb of the Explanation, the
Law Giver has clearly articulated the point that as far as the
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property of any person, other than the corporate debtor or any
person who had acquired the property of the corporate debtor
through the CIRP or liquidation process under the Code and
who otherwise fulfil the requirement under Section 32A, action
can be taken against the property of such other person. Thus,
reading sub-Section (1) and sub-Section(2) together, two results
emerge – (i) subject to the requirements embedded in sub-
Section (1), the liability of the corporate, debtor for the offence
committed under the CIRP, will cease; (ii) The property of the
corporate debtor is protected from any legal action again subject
to the safeguards, which we have indicated. The bar against
action against the property, is available, not only to the corporate
debtor but also to any person who acquires property of the
corporate debtor under the CIRP or the liquidation process.
The bar against action against the property of the corporate
debtor is also available in the case of a person subject to the
same limitation as prescribed in sub-Section (1) and also in
sub-Section (2), if he has purchased the property of the
corporate debtor in the proceedings for the liquidation of the
corporate debtor.
255. The last segment of Section 32A makes it obligatory on the
part of the corporate debtor or any person, to whom immunity is provided
under Section 32A, to provide all assistance to the Investigating Officer
qua any offence committed prior to the commencement of the CIRP.
256. The contentions of the petitioners appear to be that this
provision is constitutionally anathema as it confers an undeserved
immunity for the property which would be acquired with the proceeds of
a crime. The provisions of the Prevention of Money-Laundering Act,
2002 (for short, the PMLA) are pressed before us. It is contended that
the prohibition against proceeding against the property, affects the interest
of stakeholders like the petitioners who may be allottees or other
creditors. In short, it appears to be their contention that the provisions
cannot stand the scrutiny of the Court when tested on the anvil of Article
14 of the Constitution of India. The provision is projected as being
manifestly arbitrary. To screen valuable properties from being proceeded
against, result in the gravest prejudice to the home buyers and other
creditors. The stand of the Union of India is clear. The provision is born
out of experience. The Code was enacted in the year 2016. In the course
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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of its working, the experience it has produced, is that, resolution applicants
are reticent in putting up a Resolution Plan, and even if it is forthcoming,
it is not fair to the interest of the corporate debtor and the other stake
holders.
257. We are of the clear view that no case whatsoever is made
out to seek invalidation of Section 32A. The boundaries of this Court’s
jurisdiction are clear. The wisdom of the legislation is not open to judicial
review. Having regard to the object of the Code, the experience of the
working of the code, the interests of all stakeholders including most
importantly the imperative need to attract resolution applicants who would
not shy away from offering reasonable and fair value as part of the
resolution plan if the legislature thought that immunity be granted to the
corporate debtor as also its property, it hardly furnishes a ground for this
this Court to interfere. The provision is carefully thought out. It is not as
if the wrongdoers are allowed to get away. They remain liable. The
extinguishment of the criminal liability of the corporate debtor is
apparently important to the new management to make a clean break
with the past and start on a clean slate. We must also not overlook the
principle that the impugned provision is part of an economic measure.
The reverence courts justifiably hold such laws in cannot but be applicable
in the instant case as well. The provision deals with
reference to offences
committed prior to the commencement of the CIRP. With the admission
of the application the management of the corporate debtor passes into
the hands of the Interim Resolution Professional and thereafter into the
hands of the Resolution Professional subject undoubtedly to the control
by the Committee of Creditors. As far as protection afforded to the
property is concerned there is clearly a rationale behind it. Having regard
to the object of the statute we hardly see any manifest arbitrariness in
the provision.
258. It must be remembered that the immunity is premised on
various conditions being fulfilled. There must be a resolution plan. It
must be approved. There must be a change in the control of the corporate
debtor. The new management cannot be the disguised avatar of the old
management. It cannot even be the related party of the corporate debtor.
The new management cannot be the subject matter of an investigation
which has resulted in material showing abetment or conspiracy for the
commission of the offence and the report or complaint filed thereto.
These ingredients are also insisted upon for claiming exemption of the
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MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
bar from actions against the property. Significantly every person who
was associated with the corporate debtor in any manner and who was
directly or indirectly involved in the commission of the offence in terms
of the report submitted continues to be liable to be prosecuted and punished
for the offence committed by the corporate debtor. The corporate debtor
and its property in the context of the scheme of the code constitute a
distinct subject matter justifying the special treatment accorded to them.
Creation of a criminal offence as also abolishing criminal liability must
ordinarily be left to the judgement of the legislature. Erecting a bar against
action against the property of the corporate debtor when viewed in the
larger context of the objectives sought to be achieved at the forefront of
which is maximisation of the value of the assets which again is to be
achieved at the earliest point of time cannot become the subject of judicial
veto on the ground of violation of Article 14. We would be remiss if we
did not remind ourselves that attaining public welfare very often needs
delicate balancing of conflicting interests. As to what priority must be
accorded to which interest must remain a legislative value judgement
and if seemingly the legislature in its pursuit of the greater good appears
to jettison the interests of some it cannot unless it strikingly ill squares
with some constitutional
mandate suffer invalidation.
259. There is no basis at all to impugn the Section on the ground
that it violates Articles 19, 21 or 300A.
VESTED RIGHT; RETROSPECTIVITY; THE 3rd
PROVISO IN SECTION 7
260.  We will recapitulate the third proviso, at this juncture.
“7(1)
xxx
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Explanation
 xxx
xxx
xxx
xxx
xxx
xxx
Provided also that where an application for initiating the
corporate insolvency resolution process against a corporate debtor
has been filed by a financial creditor referred to in the first and
second provisos and has not been admitted by the Adjudicating
Authority before the commencement of the Insolvency and
Bankruptcy Code (Amendment) Act, 2020, such application shall
be modified to comply with the requirements of the first or second
proviso within thirty days of the commencement of the said Act,
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failing which the application shall be deemed to be withdrawn
before its admission.”
 261. A perusal of the same, makes it clear that the third proviso is
a one-time affair. It is intended only to deal with those applications, under
Section 7, which were filed prior to 28.12.2019, when, by way of the
impugned Ordinance, initially, the threshold requirements came to be
introduced by the first and the second impugned provisos. In other words,
the legislative intention was to ensure that no application under Section 7
could be filed after 28.12.2019, except upon complying with the
requirements in the first and second provisos. The Legislature did not
stop there. It has clearly intended that the threshold requirement it imposed,
will apply to all those applications, which were filed, prior to 28.12.2019
as well, subject to the exception that the applications, so filed, had not
been admitted, under Section 7(5). In other words, the Legislature intended
that in every application, filed under Section 7, by the creditors covered
by the first proviso and by the allottees governed by the second proviso,
should also be embraced by the newly imposed threshold requirement
for which, it was intended, should be complied within 30 days from the
date of the Ordinance.  However, this restriction was not to apply to
those applications which stood admitted as on the date of the Ordinance.
It is also clear that the consequence of
failure to comply with the threshold
requirement, in regard to applications, which have been filed earlier, was
that they would stand withdrawn.
262. In this regard, several contentions are raised. It is pointed
out by the learned Counsel for the petitioners, apart from the plea of
discrimination, which is alleged against the first and second provisos,
that the third proviso, makes a clear incursion into a vested right. The
impugned third proviso is afflicted with the vice of manifest arbitrariness.
It is contended that the petitioners, who had moved an application under
the erstwhile regime, were legally entitled to make such an application,
whether it is by a single allottee or jointly.  This was a substantive right.
Availing such substantive right, under a Statute, when the application
stood instituted, they had the right to continue with the proceeding
unimpaired and unhindered by the new threshold requirement, which
cannot be made applicable in their cases. It is contended that when
there is a repeal of a Statute, the existing rights are saved. In this case,
there was an existing right with the petitioners to institute the application
under Section 7 and, therefore, this right cannot be imperilled by enacting
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the amendment. It is pointed out that the statutory time limit to decide an
application, was fourteen days. This Court, in Pioneer (supra), also
stressed the importance of disposing matters, within the period, even
though, it may have laid down that the period is not inflexibly mandatory
and that it is directory. In the case of the petitioners, the applications
were pending for more than a year. Classifying the applications under
the same head, is arbitrary and irrational. The petitioners have spent
substantial sums towards court fee, legal and other expenses, in addition
to considerable time. There is no provision to ameliorate their losses.
Withdrawals and fresh filing would derail the insolvency process. Our
attention is draw to the judgment of this Court in Hitendra Vishnu Thakur
and others v. State of Maharashtra and others71, wherein this Court laid
down that Statute, which affects substantive right, is presumed to be
prospective, unless made retrospective expressly or by necessary
intendment. Every litigant has a vested right in substantive matters but
no such right exists in procedural law.  The law relating to right of action
and right of appeal, even though remedial, is substantive in nature. A
procedural Statute should not, generally speaking, be applied
retrospectively, where the result would be to create new disabilities or
obligations or to impose new duties in respect of accomplished
transactions. Reliance is placed similarly on the
judgment of this Court
in Ambalal Sarabhai Enterprises Ltd. v. Amrit Lal & Co. and another72.
The period of 30 days is far too short and that too, under an amendment,
which is itself impossible to comply with. In this regard, also judgment of
this Court in B.K. Educational Services Private Ltd. v. Parag Gupta and
Associates73, is referred to. The proviso cannot be applied
retrospectively. The proviso is penal, arbitrary, unjust and unfair. Reliance
is placed on In Re: Pulborough Parish School Board Election, Bourke v.
Nutt74.
263. Per contra, the stand of the respondents in this regard, is as
follows:
The third proviso does not affect any rights of the creditors in
question. By merely filing an application under Section 7, no absolute
right is created. In this regard, reliance is placed on judgments of this
Court in (2004) 1 SCC 663, (2019) 2 SCC 1, (2019) 4 SCC 17, (2015) 3
71 (1994) 4 SCC 602
72 (2001) 8 SCC 397
73 (2019) 11 SCC 633/ 2018 1 IBJ (JP) 649 SC
74 (1894) 1 QB 725
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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SCC 206, (2019) SCCONLINE SC 1478. It is further contended that
the mere right to take advantage of a statue is not a vested right. And in
this regard out attention is drawn to following Judgments – (1961) Vol. 2
All Eng. 721, (1980) 1 SCC 149; Lalji Raja and Sons (supra), (1985) 1
SCC 436. The impugned third proviso is intended to protect the collective
interest of others in a class of creditors. Before admission of an application,
there is no vested right. Therefore, it does not have retrospective
application, in a manner that impairs vested right. This requirement would
ensure that there is no needless multiplicity and no single allottee would
be able to achieve admission and its consequences without having a
certain minimum number of compatriots on board. Even vested right
can be taken away by the Legislature [(1957 SCR 488].
264. The first question, which we would have to answer, is whether
the right under the unamended Section 7 was a vested right of the financial
creditors or allottees covered by the provisos 1 and 2, respectively. This
brings us squarely to the question as to what constitutes a vested right.
Learned ASG contends that there is no vested right till the application is
admitted. It is also contended that the right was only one to take advantage
of a Statute. In Salmond on Jurisprudence, the following characteristics
have been found indispensable to constitute a right:
“41. The characteristics of
a legal right
Every legal right has the five following characteristics: -
(1) It is vested in a person who may be distinguished as the owner
of the right, the subject of it, the person entitled, or the person of
inherence.
(2) It avails against a person, upon whom lies the correlative duty.
He may be distinguished as the person bound, or as the subject of
the duty, or as the person of incidence.
(3) It obliges the person bound to an act or omission in favour of
the person entitled. This may be termed the content of the right.
(4) The act or omission relates to some thing (in the widest sense
of that word), which may be termed the object or subject-matter
of the right.
(5) Every legal right has a title, that is to say, certain facts or
event by reason of which the right has become vested in its owner.”
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265. Legal rights are, in a wider sense, of four distinct kinds.
They are rights, liberties, powers and immunities. Duty is the correlative
of a right, while, no rights correspond to liberties. Liabilities have a nexus
with the power exercised by another person, with regard to whom, the
liability exists in another party. When somebody has an immunity against
another, it disables the latter, and thus, it constitutes a disability for him.
Salmond notes further that the term right is often used in the wide sense
to include liberty by which it is meant to have one left free to do as he
pleases.
266. We may notice the following discussion relating to powers
and liabilities:
“2. Powers and liabilities. Yet another class of legal rights
consists of those which are termed powers. Examples of such
are the following: the right to make a will, or to alienate property;
the power of sale vested in a mortgagee; a landlord’s right of re-
entry; the right to marry one’s deceased wife’s sister; the power
to sue and to prosecute; the right to rescind a contract for fraud;
a power of appointment; a power of appointment; the right of
issuing execution on a judgment; the various powers vested in
judges and other officials for the due fulfilment of their functions.
All these are legal rights-they are legally recognized interests-
they are advantages conferred by the law-but they are rights of a
different species from the two classes which we have already
considered. …… My
right to make a will corresponds to no duty
in any one else. A mortgagee’s power of sale is not the correlative
of any duty imposed upon the mortgagor;
xxx
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A power may be defined as ability conferred upon a person
by law to alter, by his own will directed to that end, the rights,
duties, liabilities or other legal relations, either of himself or of
other persons. …”
(Emphasis supplied)
267. It may be asked whether a right of action is a right or a
power. Is there a duty with anyone in the case of a right to an action?
We need not probe this further as a power is also a right in the wider
sense. The right to sue and right to appeal has been so recognized as we
will notice.
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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268. As far as the distinct kind of legal rights are concerned, in
the classification made by Salmond75 which counts nine distinct legal
classifications of legal rights, we notice the following discussion of
classification between vested and contingent rights. To quote:
“Vested and contingent rights. A right vests when all the
facts have occurred which must by law occur in order for the
person in question to have the right. A right is contingent when
some but not all of the vestive facts, as they are termed, have
occurred. A grant of land to A in fee simple will give A a vested
right of ownership. A grant to A for life and then to B in fee simple
if he survives A, gives B a contingent right. It is contingent because
some of the vestive facts have not yet taken place, and indeed
may neve do so: B may not survive A. if he does, his formerly
contingent right now becomes vested. A contingent right then is a
right that is incomplete.
A contingent right is different, however from a mere hope
of spes. If A leaves B a legacy in his will, B has no right to this
during A’s lifetime. He has no more than a hope that he will obtain
a legacy; he certainly does not have an incomplete right, since it is
open to A at any time to alter his will.”
269. In Garikapati Veeraya (supra), the suit was filed on
22.04.1949. The High Court decreed the suit in an appeal by the plaintiff
on 04.03.1955. The petitioner before this Court contended
that since the
valuation of the suit was more than Rs. 10,000, in terms of the clause 39
of the Letters Patent, 1865, an appeal was maintainable before the
Supreme Court. No doubt this involved the argument that the appeal in
fact lay to the Federal Court as all appeals would lie to the Federal Court
in view of the abolition of the Privy Council in 1949. Since, the Federal
Court was replaced by Supreme Court, the appeal lay before this Court.
270. After consideration of the case law we notice the following
principles which have been laid down by this Court.
“23(i) That the legal pursuit of a remedy, suit, appeal and second
appeal are really but steps in a series of proceedings all connected
by an intrinsic unity and are to be regarded as one legal proceeding.
(ii) The right of appeal is not a mere matter of procedure but is a
substantive right.
75 See “Salmond on Jurisprudence, 12th Edition, P J Fitzgerald”
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(iii) The institution of the suit carries with it the implication that all
rights of appeal then in force are preserved to the parties thereto
till the rest of the career of the suit.
(iv) The right of appeal is a vested right and such a right to enter
the superior court accrues to the litigant and exists as on and from
the date the lis commences and although it may be actually
exercised when the adverse judgment is pronounced such right is
to be governed by the law prevailing at the date of the institution
of the suit or proceeding and not by the law that prevails at the
date of its decision or at the date of the filing of the appeal.
(v) This vested right of appeal can be taken away only by a
subsequent enactment, if it so provides expressly or by necessary
intendment and not otherwise.
(Emphasis supplied)
271. It is clear that the institution of a suit leads to the inference
that the right of appeal is preserved. There is a vested right of appeal.
The vested right of appeal accrues to the litigant and exists from the day
of the institution of the lis (suit). Therefore, while the remedy of an
appeal may be provided under the statute that right becomes a vested
right only from the point of time that the suit is filed either by the appellant
or the opposite party. All of this undoubtedly is subject to a subsequent
enactment not interfering with the right of an appeal.
272. In Lalji Raja and Sons v. Hansraj Nathuram76, this court
inter alia held as
follows:
“16. That a provision to preserve the right accrued under a
repealed Act “was not intended to preserve the abstract rights
conferred by the repealed Act.... It only applies to specific rights
given to an individual upon happening of one or the other of the
events specified in statute see” — Lord Atkin’s observations
in Hamilton Cell v. White. [(1922) 2 KB 422] The mere right,
existing at the date of spealing statute, to take advantage of
provisions of the statute repealed is not a “right accrued” within
the meaning of the usual saving clause — see Abbot v. Minister
for Lands [(1895) AC 425] and G. Ogden Industries Pvt.
Ltd. v. Lucas. [(1969) 1 All ER 121]”
276 (1971) 1 SCC 721
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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273. It is apposite to notice the context in which the said
observations were made. There was an ex parte decree passed by a
Court in West-Bengal in 1949. It was transferred to a Court (Morena) in
Old Madhya Bharat State. The Execution Petition was dismissed on the
ground that it was an ex parte Decree by a foreign court. This Court
noted that Sections 38 and 39 of the Code of Civil Procedure did not
apply on the day in question, and therefore, the transfer orders was
without jurisdiction. On 1st April, 1951 the CPC was extended to former
state of Madhya Bharat. The decree holders sought a fresh transfer of
the decree to the very same court as earlier namely Morena which had
become part of State of Madhya Pradesh to which CPC applied. The
High Court upheld the contention of the judgment debtor that the decree
could not be executed as being of the foreign court. This Court reversed
the High Court judgment. The argument which was raised, was based
on Section 20 of the Code of Civil Procedure (Amendment) Act, 1951,
by which the Code was extended to Madhya Bharat. There was a repeal
of the law that prevailed in the State when the amendment to the CPC in
1951 was made applicable. There was, however, also a proviso which
saved rights privileges, obligations and liabilities acquired, accrued or
incurred. The contention therefore of the judgment debtor was that the
judgment debtor’s right to resist was preserved under the
saving clause.
It was found by this Court that the provisions of CPC enforced in Madhya
Bharat did not confer the right claimed by the judgment debtor. All that
happened as a result of the extension of the Code to the whole of India
in 1951, was that the decrees which could have been executed in the
British India could now be executed in the whole of India. It is, therefore,
in the context of a repeal and as to whether right to take advantage of
the repealed law constituted a right accrued under the usual saving clause
that the observations made in paragraph 16 are to be understood.
274. This Court made reference to a few decisions (paragraph-
16) including Abbott and Minister of Lands77. We think, it is appropriate
that we advert to the issues which were involved in the said cases.
275. In Abbott (supra), the Privy Council had to deal with the
following factual matrix, in short:
The appellant effected a conditional purchase under Section 22
of the Crown Lands Alienation Act, 1861, adjoining the land which he
had acquired in fee simple. He made certain applications, seeking to
77 (1895) AC 425
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make further additional conditional purchases of certain adjoining lands
as also seeking a lease. The questions which arose for the opinion of the
court were three in number. Firstly, the question arose whether the
conditional purchase which the appellant had made, constituted him the
holder of an original conditional purchase, under Section 42 of the Act of
1884. Still further, the question fell for decision as to whether Section 22
of the Crown Lands Act of 1884 reserved the right for the appellant the
right to purchase additional conditional purchases of adjoining crown
lands, which were allowed to the full area of 648 acres allowed by the
repealed Act. Thirdly, the question arose, as to whether supposing him
to be entitled to the additional conditional purchase, was he entitled to
the conditional lease which he had applied for? Section 22 of the 1861
Act was repealed and in the later Act, there was no corresponding
provision to Section 22 but there was a saving proviso which enabled the
appellant, according to him, to make an additional conditional purchase,
as if Section 22 remained in force. The saving clause saved all the accrued
rights and liabilities. Noticing the change in the condition of residence,
which had been earlier imposed, being done away with, the Court went
on to hold as follows:
“It has been very common in the case of repealing statues
to save all rights accrued. If it were held that the effect of this
was to leave it open to any
one who could have taken advantage
of them, the result would be very far-reaching.
It may be, as Windeyer J. observes, that the power to take
advantage of an enactment may without impropriety be termed a
“right”. But the question is whether it is a “right accrued” within
the meaning of the enactment which has to be construed.
Their Lordships think not, and they are confirmed in this
opinion by the fact that the words relied on are found in conjunction
with the words “obligations incurred or imposed”. They think that
the mere right (assuming it to be properly so called existing in the
members of the community or any class of them to take advantage
of an enactment, without any act done by an individual towards
availing himself of that right, cannot properly be deemed a “right
accrued” within the meaning of the enactment.”
276. In Hamilton Gell v. White78, upon a quit notice given by the
landlord, the tenant sought to avail the benefit of Section 11 of the
78 (1922) 2 K.B. 422
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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Agricultural Holdings Act, 1914 by successfully complying with one out
of the two conditions for seeking the compensation. Before the tenant
could comply with the further condition, which was that he should move
the action within two months, after quitting the holding, Section 11 was
repealed. He subsequently made his claim within three months, as limited
by the repealed Section. The matter went to an Arbitrator.  The Arbitrator
stated a special case. He raised two questions. Firstly, whether the tenant
was entitled to claim compensation under the repealing Act of 1920 and,
secondly, whether he could claim under the repealed Act notwithstanding
the repeal. The first question was answered against the tenant, with
which, the Court of Appeal agreed. As regards the second question, the
Court was of the view that the tenant was entitled to succeed. The
following is the reasoning, in short:
“SCRUTTON L.J. …  But it is not suggested by the
appellant that his right to compensation was acquired by his giving
notice of intention to claim it, what gave him the right was the fact
of the landlord having given a notice to quit in view of a sale. The
conditions imposed by s. 11 were conditions, not of the acquisition
of the right, but of its enforcement. Sect. 38 says that repeal of an
Act shall not (c) “affect any right …. acquired …. under any
enactment so repealed,” or (e) “affect any investigation, legal
proceeding, or remedy
in respect of any such right.” As soon as
the tenant had given notice of his intention to claim compensation
under s. 11 he was entitled to have that claim investigated by an
arbitrator. In the course of that arbitration he would no doubt have
to prove that that right in fact existed, that is to say that the notice
to quit was given in view of a sale, and he would also have to
prove the measure of his loss. But he was entitled to have that
investigation, which had been begun, continue, for s. 38 expressly
provides that the investigation shall not be affected by the repeal.
I should like to add that the arbitrator would be well advised to
make his award complete. If he had continued his investigation
and said: If it is found that the tenant had a right I assess the
compensation at so much under the Act of 1908 and so much
under the Act of 1920 we should have been able to give our final
judgment.”
(Emphasis supplied)
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277. The decision thus turned on the point of time at which the
right arose.
278. Atkin LJ., as he then was, agreed that the Appeal should be
allowed and went on to hold as follows:
“ATKIN L.J. …. It is obvious that that provision was not
intended to preserve the abstract rights conferred by the repealed
Act, such for instance as the right of compensation for disturbance
conferred upon tenants generally under the Act of 1908, for if it
were the repealing Act would be altogether inoperative. It only
applies to the specific rights given to an individual upon the
happening of one or other of the events specified in the statute.
Here the necessary event has happened, because the landlord
has, in view of a sale of the property, given the tenant notice to
quit. Under those circumstances the tenant has “acquired a right,”
which would “accrue” when he has quitted his holding, to receive
compensation. …” 
 279. In Odgen Industries Pty. Ltd. v. Haider Doreen
Lucas79,the following facts in a case which originated in Australia may
be noticed. An employee of the appellant died on 7th July, 1965. His
death was materially contributed by injuries, which, in turn, arose out of
and in the course of his employment with the appellants. The employee
was hospitalized in March, 1965 for treatment and he again came to be
hospitalized in 19th June, 1965 and, thereafter, he died on 07.07.1965. He
left behind him the respondent, his widow and two children under the
age of 16, who
were wholly dependent on the employee’s earnings. The
amount of compensation for the dependents would have been calculated
under the Workers Compensation Act, 1958. The Act, however, was
amended by the Workers Compensation (Amendment) Act, 1965. The
Amendment Act, came into force for 01.07.1965. The Amendment Act
increased the benefits payable to the dependents. The High Court of
Australia dismissed the appeal of the employer and affirmed the award
of the Workman’s compensation board paying the increased
compensation under the Amending Act. The Privy Council was called
upon to decide two questions. Firstly, the question was whether, as the
Amendment Act came into operation after the original injury to the
employee, his dependents were entitled to the increased rates prescribed
by the amending Act. Secondly, did the deceased, after the 30.06.1965,
79 3 WLR 75 / (1969) (1) All England Reports 121
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suffer a further injury or aggravation, which gave him new title for the
purpose of the Amendment Act. The Court, went on to hold as inter-alia
follows:
“Under the Act of 1958 the widow did not have to prove
that she was in fact dependent upon the earnings of her husband
though under the Amendment Act she has to do so. Nevertheless,
it is quite clear as a matter of law that no single person can say
under either Act the moment before the death “I shall be a
dependant at the death if I so long live.” First, it must be
established that the death was caused or contributed to by the
accident, secondly that the widow will be the deceased’s widow
at the date of death and not dead or married to some other man,
and the children must show that they are under sixteen. None of
these things can be ascertained (let alone proved) until after the
moment of death of the worker.
In their Lordships’ opinion in section 7 (2)(c) the rights,
privileges and obligations acquired or accrued on the one side and
the liabilities incurred on the other side referred to in that paragraph
are mutual and correlative.
… The object and intent of the Interpretation Act is to
preserve rights and privileges acquired or accrued on the one side
and the corresponding obligation or liability incurred by the person
bound to observe or perform those rights or privileges on the other
side; so that when a subsequent Act repeals or amends those
rights,
privileges and liabilities for the future that would not affect
the pre-existing mutual rights and liabilities of the parties.  …. But
in the view that their Lordships take there is for the purposes of
the Interpretation Act no right in the dependants and no correlative
liability upon the worker’s employers until the moment of death.
Therefore apart altogether from authority their Lordships are of
opinion that the Acts Interpretation Act has no application and the
rights of the dependants and the corresponding liability of the
employer must be tested and ascertained at the date of the death;
at that time there was an obligation upon the employer under and
by virtue of the Act of 1958 as amended by the Amendment Act
to compensate the dependants in accordance with its provisions.
That was the ground of decision of the majority of the High Court
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in their very careful judgments with which their Lordships agree.
…”
(Emphasis supplied)
 280. It will be, at once, noticed that the saving clause in the
repealing Act, was not the basis for the judgment rendered in favour of
the employee. The compensation was ordered based on the law prevalent
at the time of death.
281.  Now, it is necessary to refer to the judgment of this Court in
Isha Valimohamed v. Haji Gulam Mohamad & Haji Dada Trust80. The
facts in the said case are to be noticed in some detail for it may have
bearing on the questions to be answered by us. The Respondent landlord
purported to terminate the tenancy in relation to a building by a notice
dated 12.02.1964 on the ground inter alia of subletting. It must be noticed
that at the time the subletting took place the building was covered by
Saurashtra Rent Control Act, 1951. The said Act provided that the landlord
shall be entitled to recover possession in the case of subletting by the
tenant. It is while this Act was in force that the tenant sublet the premises.
However, the Saurashtra Act came to be repealed by the Bombay Rents,
Hotels and Lodging Houses Rates Control Act, 1947 on 31.12.1963.
Section 51 of the Bombay Act, inter alia, contained the saving clause
that the repeal would not affect any right, privilege, obligation, liability
accrued or incurred under any law so repealed. The notice, terminating
tenancy was issued on 12.02.1964 after the repeal of the ‘Saurashtra
Act’. The High
court took the view that the landlord had an accrued
right under saving clause of the Bombay Act. The suit was brought after
the repeal.
282.  This Court adopted the following reasoning:
If the notice under the Transfer of Property was necessary
to determine the tenancy on the ground of subletting, then the
High Court would not be correct that the respondent landlord had
an accrued right before issue of notice. Thereafter, the Court
went on to consider ‘Hamilton’ (supra) and ‘Abbott’ (supra) inter
alia.
Thereafter, the Court went on to consider the argument as
to whether the landlord had a privilege under the saving clause.
80 (1974) 2 SCC 484
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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Thereafter, what is relevant is that this Court went on to
find that the High Court was not right in proceeding on the basis
of that notice was necessary under Transfer of Property Act to
terminate on the ground that the appellant had sublet the premises.
283.  It is apposite to notice the reasoning in paragraph-16:
“16. Under the Transfer of Property Act, mere sub-letting, by a
tenant, unless the contract of tenancy so provides, is no ground
for terminating the tenancy. Under that Act a landlord cannot
terminate a tenancy on the ground that the tenant had sub-let the
premises unless the contract of tenancy prohibits him from doing
so. The respondent-landlord therefore could not have issued a
notice under any of the provisions of the Transfer of Property Act
to determine the tenancy, as the contract of tenancy did not prohibit
sub-letting by the tenant. To put it, differently, under the Transfer
of Property Act, it is only if the contract of tenancy prohibits sub-
letting by tenant that a landlord can forfeit the tenancy on the
ground that the tenant has sub-let the premises and recover
possession of the same after issuing a notice. Section 111 of the
Transfer of Property Act provides that a lease may be determined
by forfeiture if the tenant commits breach of any of the conditions
of the contract of tenancy which entails a forfeiture of the tenancy.
If sub-letting is not prohibited under the contract of tenancy,
sub-
letting would not be a breach of any condition in the contract of
tenancy which would enable the landlord to forfeit the tenancy on
that score by issuing a notice. If that be so, there was no question
of the respondent landlord terminating the tenancy under the
Transfer of Property Act on the ground that the tenant had sub-
let the premises. It is only under Section 13(1)(e) of the Saurashtra
Act that a landlord was entitled to recover possession of the
property on the basis that the tenant had sub-let the premises;
and, that is because, Section 15 of that Act unconditionally
prohibited a tenant from sub-letting. The Saurashtra Act nowhere
insists that the landlord should issue a notice and terminate the
tenancy before instituting a suit for recovery of possession under
Section 13(1)(e) on the ground that the tenant had sub-let the
premises. The position, therefore, was that the landlord was entitled
to recover possession of the premises under Section 13(1) of the
Saurashtra Act on the ground that the tenant sublet the premises.
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It would follow that a right accrued to the landlord to recover
possession under Section 13(1) of the Saurashtra Act when the
tenant sub-let the premises during the currency of that Act and
the right survived the repeal of that Act under proviso (2) to Section
51 of the Bombay Act and, therefore, the suit for recovery of
possession of the premises under Section 13(1) read with clause
(e) of the Saurashtra Act after the repeal of that Act on the basis
of the sub-letting during the currency of the Saurashtra Act was
maintainable. In this view, we think that the judgment of the High
Court must be upheld and we do so.”
284. Thus, what is relevant, this Court went on to find under the
Saurashtra Act, there was no requirement of any notice to terminate the
tenancy. It was found that the landlord was entitled to recover the
possession under the said Act, if there was subletting. In other words,
the Court went on to hold that a right accrued to the landlord under the
Saurashtra Act upon the appellant subletting the premises. It was during
the pendency of the Saurashtra Act. This right survived the repeal of the
Saurashtra Act and thus the suit under the Saurashtra Act was
maintainable.
285. Apparently, the Court drew support from the principle in
Hamilton (supra). We have already noticed the facts of Hamilton (supra).
The question in short would appear to be as to when the right comes into
existence? If, the right comes into existence then the remedy can be
pursued by the party entitled.
286. This again would necessarily depend upon the terms of the
repealing enactments as also the terms of the saving clause. In the
absence of a saving clause, no doubt a party can also fall back on the
Section 6 of the General Clauses Act, 1897. This is again subject to
what is held about the scope of a saving clause in (1989) 2 SCC 557 as
will be noticed later on.
287. What is further significant to be noticed is that the decision
involved a case where, though styled as a suit, the proceeding under the
Saurashtra Act was a proceeding under a Statute and the right was one
created by the statute and what gave the right to the landlord was an act
of subletting. The said right was what was not wiped out by the repeal.
As already noticed the suit itself was filed after the repeal. The discussion
on the distinction between a privilege and an accrued right in the said
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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decision has been relied upon recently in a judgement by one of us (Justice
R.F. Nariman) in Bombay Stock Exchange v. V.S. Kandalgaonkar81.
288. In New India Assurance Co. Ltd. v. Shanti Misra82, the
husband of the first respondent died as a result of a motor accident. The
suit could be brought under Article 82 of the Limitation Act 1963 within
two years of the accident. On 18.03.1867, the Government of Uttar
Pradesh constituted the claim Tribunal under Section 110 of the Motor
Vehicle Act. The application of the respondents before the Tribunal was
objected to by the appellant insurer. While deciding in favour of the
respondents and holding that the application was maintainable before
the Tribunal, this court, inter-alia, held as follows:
“… If action, before Civil Court was alive where no suit had been
filed “In such cases the vested right of action was not meant to be
extinguished. The remedy of either application under Section 110A
or a civil suit must be available; surely not both.”
289. Thereafter, it was held, inter-alia, as follows:
“5. On the plain language of Sections 110-A and 110-F there should
be no difficulty in taking the view that the change in law was
merely a change of forum i.e. a change of adjectival or procedural
law and not of substantive law. It is a well-established proposition
that such a change of law operates retrospectively and the person
has to go to the new forum even if his cause of
action or right of
action accrued prior to the change of forum. He will have a vested
right of action but not a vested right of forum. If by express words
the new forum is made available only to causes of action arising
after the creation of the forum, then the retrospective operation
of the law is taken away. Otherwise the general rule is to make it
retrospective. The expressions “arising out of an accident”
occurring in sub-section (1) and “over the area in which the
accident occurred”, mentioned in sub-section (2) clearly show
that the change of forum was meant to be operative retrospectively
irrespective of the fact as to when the accident occurred. To that
extent there was no difficulty in giving the answer in a simple
way.”
(Emphasis supplied)
81 (2015) 2 SCC 1
82 (1975) 2 SCC 840
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290. We may also notice that in regard to the question as to whether
a new law of Limitation could extinguish vested right of action, it was
held, inter-alia, as follows:
“7. (2) Even though by and large the law of limitation has been
held to be a procedural law, there are exceptions to this principle.
Generally the law of limitation which is in vogue on the date of the
commencement of the action governs it. But there are certain
exceptions to this principle. The new law of limitation providing a
longer period cannot revive a dead remedy. Nor can it suddenly
extinguish a vested right of action by providing for a shorter period
of limitation.”
It is important to notice paragraph-9:
“9. In Gopeshwar Pal v. Jiban Chandra Chandra [ILR 51 Cal
1125] Jenkins, C.J. delivering the judgment on behalf of the majority
of the Full Bench said at p. 1141:
“Here the plaintiff at the time when the amending Act was passed
had a vested right of suit, and we see nothing in the Act as amended
that demands the construction that the plaintiff was thereby
deprived of a right of suit vested in him at the date of the passing
of the amending Act. It is not (in our opinion) even a fair reading
of Section 184 and the third Schedule of the Bengal Tenancy Act,
as amended, to hold that it was intended to impose an impossible
condition under pain of the forfeiture of a vested right, and we
can only construe the amendment as not applying to cases where
its provisions cannot be obeyed.”
The majority of the Full Bench of the Madras High Court in Rajah
Sahib Meharban-i-Doston Sri Raja Row V.K.M. Surya Row
Bahadur, Sirdar, Rajahmundry Sircar and Rajah of Pittapur v. G.
Venkata Subba Row [ILR 34 Mad 645] has taken the same view
following the Full Bench decision in Gopeshwar Pal case at p.
650. Amendment of the law of limitation could not destroy the
plaintiff’s right of action which was in existence when the Act
came into force. We are conscious of the distinction which was
sought to be made in the application of these principles. It was
said that the right could not be destroyed but recourse to suit
would be available under the old law of limitation. We, however,
think that giving retrospective effect to the change of law in relation
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to the forum, in the context of the object of the change, is
imperative. That being so the principles aforesaid for overcoming
the bar of limitation will be applicable.”
291. This judgment has been followed in Vinod Gurudas Raikar
v. National Insurance Co. Ltd. & ors83 and also in Union of India v.
Harnam Singh84 and recently also by this Court in B.K. Educational
Services (supra).
292. In V. Dhanapal Chettiar v. Yesodai Ammal85, a Bench of
seven learned Judges while taking the view that a notice to quit under
section 106 of the TP Act 1882 was not necessary  for an  Eviction
Petition under any of the State Rent Acts observed in regard to Isha
Valimohamed (supra) that the view taken in the said case that the landlord
could not have issued notice to determine the tenancy on the ground of
subletting under any of the provisions of Transfer of Property Act was
not correct as a notice issued under Section 111 (h) does not require any
ground  to be made out for termination of the tenancy.  It was further
held that the view taken in Isha Valimohamed (supra), in this regard,
would be taken only under Section 111 (g).
293. In D. C. Bhatia v. Union of India86, the Delhi Rent Control
Act came to be amended with effect from 01.12.1988, by which
amendment, the Act was not to apply to any premises, the monthly rent
of which exceeded Rs.3500/-. Dealing with the tenants’ contention that
he had a vested right this Court took the
view that if the tenant is sought
to be evicted before the amendment, they could have taken advantage
of the provisions of the Act to resist such eviction. But this was nothing
more than the right to take advantage of the law and the tenant had
statutory protection only as long as the law remains in force. We may
only notice paragraph-53. It read as under:
“53. The provisions of a repealed statute cannot be relied upon
after it has been repealed. But, what has been acquired under the
Repealed Act cannot be disturbed. But, if any new or further step
is needed to be taken under the Act, that cannot be taken even
after the Act is repealed.”
(Emphasis supplied)
83 (1991) 4 SCC 333
84 (1993) 2 SCC 162
85 (1979) 4 SCC 214
86 (1995) 1 SCC 104
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294. In Mst. Bibi Sayeeda & Ors. v. State of Bihar and Others87,
the Court was to dealing with the meaning of the word ‘Bazar’ in the
Bihar Land Reforms Act, 1950 (Bihar Act 30 of 1950). In the course, of
the said judgement the Court went on to hold that the right of the proprietor
of a State to hold a ‘Mela’ on its own land is a right in the estate being
appurtenant to the ownership of his land. In the context, of property
rights undoubtedly the Court went on to make the following observations:
“17. The word ‘vested’ is defined in Black’s Law Dictionary (6th
Edn.) at p. 1563 as:
“Vested; fixed; accrued; settled; absolute; complete. Having
the character or given the rights of absolute ownership; not
contingent; not subject to be defeated by a condition precedent.”
Rights are ‘vested’ when right to enjoyment, present or
prospective, has become property of some particular person
or persons as present interest; mere expectancy of future
benefits, or contingent interest in property founded on
anticipated continuance of existing laws, does not constitute
vested rights.
In Webster’s Comprehensive Dictionary, (International Edn.) at
p. 1397 ‘vested’ is defined as:
“[L]aw held by a tenure subject to no contingency; complete;
established by law as a permanent right; vested interests.”
295. Though this is a case which dealt with vested right qua
property there is indeed authority for the proposition that the concept of
vested right is not confined to a property
right. In this regard we may
profitably refer to the special bench of judgement of High Court of
Calcutta reported in Gopeshur Pal v. Jiban Chandra Chandra and others88,
referred to by this Court in AIR 1976 SC 237 (supra) when it was, inter
alia, held:
3.‘‘On the contrary, the essential conditions of the two cases are
so distinct that in our opinion it cannot be said that the earlier
decision is, in relation to the circumstances of this case, affected
by the judgment of the Privy Council. It is an established axiom of
construction that though procedure may be regulated by the Act
87 (1996) 9 SCC 516/AIR 1996 SC 1936
88 AIR 1914 Calcutta 806
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for the time being in force, still, the intention to take away a vested
right without compensation or any saving, is not to be imputed to
the Legislature, unless it be expressed in unequivocal terms [cf. The
Commissioner of Public Works v. Logan [L.R. 1903 A.C. 355.]].
That this view is not limited to those cases where rights of property
in the limited sense are involved, is shown by the Colonial Sugar
Refining Co. v. Irving [L.R. 1905 A.C. 369.], where it was held
that an Act ought not to be so construed as to deprive a suitor of
an appeal in a pending action, which belonged to him as of right at
the date of the passing of the Act. Equally is a right of suit a
vested right, and in Jackson v. Woolley [8 Ell. and Bl. 784 (1859).],
the Court of Exchequer Chamber declined, in the absence of
something putting the matter beyond doubt, to put on an Act a
construction that would deprive any person of a right of action
vested in him at the time of the passing of the Act.
4. William, J. said: “It would require words of no ordinary strength
in the statute to induce us to say that it takes away such a vested
right.”
296. In M.S. Shivananda v. Karnataka SRTC89, under an ordinance,
employees of the erstwhile State Carriage Operators were to be absorbed
by State Road Transport corporation subject to certain conditions. The
ratio was provided. The ordinance was replaced by an Act. The ratio,
however, stood altered. This affected
the chances of absorption of the
workers. This led to writ petitions. The question which fell to be decided
with reference to the effect of repeal and what constituted a right. The
court held inter-alia as follows:
“15. The distinction between what is, and what is not a right
preserved by the provisions of Section 6 of the General clauses
Act is often one of great fineness. What is unaffected by the
repeal of a statute is a right acquired or accrued under it and not
a mere “hope or expectation of”, or liberty to apply for, acquiring
a right. In Director of Public Works v. Ho Po Sang [(1961) 2 All
ER 721, 731 (PC)] Lord Morris speaking for the Privy Council,
observed:
“It may be, therefore, that under some repealed enactment, a
right has been given but that, in respect of it, some investigation or
89 (1980) 1 SCC 149
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legal proceeding is necessary. The right is then unaffected and
preserved. It will be preserved even if a process of quantification
is necessary. But there is a manifest distinction between an
investigation in respect of a right and an investigation which is to
decide whether some right should be or should not be given. On a
repeal, the former is preserved by the Interpretation Act. The
latter is not.”(emphasis supplied)
It must be mentioned that the object of Section 31(2)(i) is to
preserve only the things done and action taken under the repealed
Ordinance, and not the rights and privileges acquired and accrued
on the one side, and the corresponding obligation or liability incurred
on the other side, so that if no right acquired under the repealed
Ordinance was preserved, there is no question of any liability being
enforced.
16. Further, it is significant to notice that the saving clause that
we are considering in Section 31(2)(i) of the Act, saved things
done while the Ordinance was in force; it does not purport to
preserve a right acquired under the repealed Ordinance. It is unlike
the usual saving clauses which preserve unaffected by the repeal,
not only things done under the repealed enactment but also the
rights acquired thereunder. It is also clear that even Section 6 of
the General clauses Act, the applicability of which is excluded, is
not intended to preserve the abstract rights conferred by the
repealed Ordinance. It only applies to specific
rights given to an
individual upon the happening of one or other of the events specified
in the statute.”
 297. In Kanaya Ram (supra) the predecessor in interest of the
appellants had applied for purchase of the tenancy right under the Punjab
Security of Land Tenures Act 1953. During the pendency of the
proceedings before the Assistant Collector, certain persons were
impleaded as respondents on the basis that they were the legal heirs of
the landlord. Thereafter, their names were struck off as unnecessary.
On the same day, the application of the predecessor in interest of the
appellants was allowed. Thereafter, there was certain oral sales by the
original land owner. The contention which apparently was taken by the
legal heirs of landlord upon his death was that the original landlord died
during the pendency of the proceedings, and there was change in the
status of the land owners against whom the application under Section
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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18(1) of the Act was made as on that date as his legal heirs became
small land owners. The Financial Commissioner before whom the matter
reached, however, was of the view that the application made by the
appellants predecessor being competent on the date it was filed, the
rights of the parties had to be adjudicated on that basis. The learned
Single Judge of the High Court took the view, however, that the changed
situation brought about by the death of the big land owner had to be
taken into account in determining the right of the tenant. Respondents 3
to 14 who were the legal heirs of the landlord instituted a suit against the
transferees from the landlord on the basis that they were mere
benmaidars of the land owner and no title passed to them as the alleged
sales were not effected by registered instruments under section 54 which
had been extended by the Government of Punjab with effect from
1st April 1955 to the State. The suit came to be decreed. They sought
impleadment before the High Court on the ground that the Collector had
in determining the surplus area of the land of the land owners held that
the sales in favour of respondents 1 and 2 were benami. The Collector
found that on the death of the original land owners, respondents 3 to 14
became small land owners. The Division Bench took the view that no
oral sale could be made, and therefore, the transfers made in favour of
respondents 1 and 2 did not pass any
title. This Court, apart from noticing
the fact that as the special leave had been refused against the main
judgment the appeal was no longer tenable it, held that the original land
owner was not impleaded by the predecessor in interest of the appellants
in his application even though respondents 3 to 14 were impleaded and
they were subsequently deleted on appellant’s objection that they were
not necessary parties.  This Court went on to distinguish the judgment in
Rameshwar and Others v. Jot Ram and Another90 as it was a case
where the tenants after making the requisite application had made the
necessary deposit of the first instalment of the purchase price. It was in
such circumstances noted that the tenants had acquired a vested right to
purchase the land and the case had gone beyond the stage of mere
application under section 18(1). This Court noted that the observation of
the Court that the rights of the parties are determined “by the facts as
they exist on the date of the action” must be held in the context in which
they were made. What is relevant is the following statement is the
judgment in Kanaya Ram (supra):
90 (1976) 1 SCC 194
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“10. ……In the present case, Harditta Ram, the predecessor-in-
title of the appellants, when he made the application for purchase
under Section 18(1) of the Act, had a mere “hope or expectation
of, or liberty to apply for, acquiring a right” and not a “right acquired
or accrued” under Section 18(1). It has been held ever since the
leading case of Abbott v. Minister for Lands [1895 AC 425 : 64
LJPC 167 : 72 LT 402 (PC)] [1895 AC 425 : 64 LJPC 167 : 72 LT
402 (PC)] that a mere right to take advantage of the provisions of
an Act is not an accrued right. Abbott case [1895 AC 425: 64
LJPC 167 : 72 LT 402 (PC)] has been followed by this Court in
a number of decisions. In such a situation, the Court is bound to
take into consideration the subsequent events and mould the relief
accordingly. The decision in Rameshwar case [(1976) 1 SCC 194
: AIR 1976 SC 49 : (1976) 1 SCR 847] clearly turned on the legal
fiction contained in Section 18 (4) (b) of the Act and the death of
the large landholder Teja during the pendency of the appeal before
the Financial Commissioner on which inheritance opened and his
legal heirs became small landholders, could not impair the vested
rights acquired by the tenants by virtue of the order passed by the
Prescribed Authority and the deposit by them of the first instalment
of the purchase price as required under Section 18 (4)(a).”
(Emphasis supplied)
298. While on the ambit of the saving clause we may notice
Bansidhar v. State of
Rajasthan91 while dealing with the fact of saving
clause in a repealing statute the court held as follows:
“28. A saving provision in a repealing statute is not exhaustive of
the rights and obligations so saved or the rights that survive the
repeal. It is observed by this Court in IT Commissioner v. Shah
Sadiq & Sons [(1987) 3 SCC 516 : 1987 SCC (Tax) 270 : AIR
1987 SC 1217, 1221] : (SCC p. 524, para 15)
“... In other words whatever rights are expressly saved by the
‘savings’ provision stand saved. But, that does not mean that rights
which are not saved by the ‘savings’ provision are extinguished
or stand ipso facto terminated by the mere fact that a new statute
repealing the old statute is enacted. Rights which have accrued
91 (1989) 2 SCC 557
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[K. M. JOSEPH, J.]
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are saved unless they are taken away expressly. This is the
principle behind Section 6(c), General Clauses Act, 1897....”
We agree with the High Court that the scheme of the 1973 Act
does not manifest an intention contrary to, and inconsistent with,
the saving of the repealed provisions of Section 5(6-A) and Chapter
III-B of “1955 Act” so far as pending cases are concerned and
that the rights accrued and liabilities incurred under the old law
are not effaced. Appellant’s contention (a) is, in our opinion,
insubstantial.
Re Contention (b)”
 299. Petitioners also rely on the judgment of this Court Hitendra
Vishnu Thakur (supra) and Ambalal Sarabhai Enterprises Ltd. (supra).
300. In Hitendra Vishnu Thakur (supra), the case arose under
the Terrorist and Disruptive Activities (Prevention) Act, 1987 (TADA
Act). Section 20(4) of TADA Act, made Section 167 of the CrPC
applicable with certain modifications. Clause (b) provided for a longer
period, as the period for which remand could be ordered. By an
amendment, w.e.f. 22.05.1993, the period was reduced. Thereafter,
however, another clause, viz., clause (bb) was added, which contained a
proviso. The proviso mandated that if it was not possible to complete
the investigation within a period of 180 days on the Report of the Public
Prosecutor, indicating the progress of the investigation and the specific
reasons for detention beyond 180 days, the designated court should extend
the period upto one year. It was in the context of this provision that this
Court, after noting that the amendment was retrospective and apply to
pending cases, in which, the investigation was not complete on the date
of the Amending Act and the challan had not been filed in the Court, the
Court culled-out the following principles:
“26.
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(i) A statute which affects substantive rights is presumed
to be prospective in operation unless made retrospective, either
expressly or by necessary intendment, whereas a statute which
merely affects procedure, unless such a construction is textually
impossible, is presumed to be retrospective in its application, should
not be given an extended meaning and should be strictly confined
to its clearly defined limits.
(ii) Law relating to forum and limitation is procedural in
nature, whereas law relating to right of action and right of appeal
even though remedial is substantive in nature.
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(iii) Every litigant has a vested right in substantive law but
no such right exists in procedural law.
(iv) A procedural statute should not generally speaking be
applied retrospectively where the result would be to create new
disabilities or obligations or to impose new duties in respect of
transactions already accomplished.
(v) A statute which not only changes the procedure but
also creates new rights and liabilities shall be construed to be
prospective in operation, unless otherwise provided, either
expressly or by necessary implication.”
301. Thereafter, the Court also went on to hold, however, that
both the amendment clauses (b) and (bb) would apply retrospectively to
all pending cases. Thus, it was found that the Amending Act was
retrospective and both the clauses would apply to cases which were
pending investigation on the date when the amendment came into force
and where challan had not been filed till then.
302. In Ambalal Sarabhai Enterprises Ltd. (supra), by an
amendment to the Delhi Rent Control Act, while a petition for eviction
by the respondent landlord was pending on the ground of subletting,
exclusion of the jurisdiction of the Rent Controller with respect of
tenancies fetching monthly rent exceeding Rs.3,500/- was brought into
force. The question arose, inter alia, as to whether the ground of illegal
subletting was a vested right. It also fell for decision as to whether there
was merit in the contention of the appellant tenant that after
the
amendment, the civil court alone had jurisdiction. It was the contention
of the tenant that he had no vested right and the amendment was not
retrospective in operation, and therefore, the civil court alone would have
jurisdiction. The landlord contended that in view of Section 6 of the
General Clauses Act, 1897, the pending proceedings before the Rent
Controller should at any rate continue even if his contention based on
vested right was repelled. This Court went on to hold that the tenant had
no vested right by relying on the judgment of this court in Mohinder
Kumar and others v. State of Haryana and another92 and also in
D. C. Bhatia and others v. Union of India and another93 (the latter
of which decisions is relied upon by the respondent-Union for the
proposition that a right to take advantage of an enactment, would not
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
92 (1985) 4 SCC 221
93 (1995) 1 SCC 104
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create a vested right). Thereafter, this Court went on to hold that the
landlord also did not have a vested right for seeking on the ground of
eviction under Section 14 of the Delhi Rent Control Act. It was found
that Section 14 was only a protective right for a tenant and the various
clauses which constituted a proviso to the protection from eviction by a
landlord could not be construed as a vested right in favour of the landlord.
Having so held, this Court went on to consider the effect of a repeal of
Section 6 of the General Clauses Act. Therein, this Court went on to
hold that the respondent-landlord had a right to continue the proceedings
before the Rent Control Board under Section 6 of the General Clauses
Act. It would be an accrued right in terms of Section 6. We need only
notice paragraphs-26, 35 and 36 of Ambalal Sarabhai Enterprises Ltd.
(supra):
“26. As a general rule, in view of Section 6, the repeal of a statute,
which is not retrospective in operation, does not prima facie affect
the pending proceedings which may be continued as if the repealed
enactment were still in force. In other words, such repeal does
not affect the pending cases which would continue to be concluded
as if the enactment has not been repealed. In fact when a lis
commences, all rights and obligations of the parties get crystallised
on that date. The mandate of Section 6 of the General Clauses
Act is simply to leave the pending
proceedings unaffected which
commenced under the unrepealed provisions unless contrary
intention is expressed. We find clause (c) of Section 6, refers the
words “any right, privilege, obligation … acquired or accrued”
under the repealed statute would not be affected by the repealing
statute. We may hasten to clarify here, mere existence of a right
not being “acquired” or “accrued” on the date of the repeal would
not get protection of Section 6 of the General Clauses Act.
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35. In cases where Section 6 is not applicable, the courts
have to scrutinise and find whether a person under a repealed
statute had any vested right. In case he had, then pending
proceedings would be saved. However, in cases where Section 6
is applicable, it is not merely a vested right but all those covered
under various clauses from (a) to (e) of Section 6. We have already
clarified that right and privilege under it is limited to that which is
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“acquired” and “accrued”. In such cases pending proceedings is
to be continued as if the statute has not been repealed.
36. In view of the aforesaid legal principle emerging, we
come to the conclusion that since proceeding for the eviction of
the tenant was pending when the repealing Act came into
operation, Section 6 of the General Clauses Act would be applicable
in the present case, as it is the landlord’s accrued right in terms of
Section 6. Clause (c) of Section 6 refers to “any right” which
may not be limited as a vested right but is limited to be an accrued
right. The words “any right accrued” in Section 6(c) are wide
enough to include the landlord’s right to evict a tenant in case
proceeding was pending when repeal came in. Thus a pending
proceeding before the Rent Controller for the eviction of a tenant
on the date when the repealing Act came into force would not be
affected by the repealing statute and will be continued and
concluded in accordance with the law as existed under the repealed
statute.”
 303. In Howrah Municipal Corporation and Others v. Ganges
Rope Co. Ltd. and Others94 the first respondent company had applied
for sanction for construction of its complex of seven floors. By order
dated 23.12.1993 the High Court directed sanction to be accorded for
the plan up to the 4th floor provided other requirements are complied
with. It was also observed that the company would be at liberty to seek
further sanction if it was permissible.
Sanction was given and construction
completed as regards the four floors. Relying on the High Court order,
sanction was sought for the remaining floors. The High Court passed an
order expressing the expectation that the order would be passed within
a period of four weeks relying upon the earlier order. There was
correspondence between the parties. While the matter was so pending,
the building rules were amended restricting the height of buildings, inter
alia. The height being restricted, the application for sanction of additional
three floors was rejected. The High Court took the view that the
unamended rules and regulations on the date of submission of the
application seeking sanction for further construction would govern the
matter. This Court on a conspectus of the rules found that the rules did
not contemplate ‘deemed sanction’ or ‘deemed refusal’, and therefore,
without express sanction there could not be construction. The contention
94 (2004) 1 SCC 663
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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however, was that the order of the High court fixing a period to decide
its pending application be treated as creating vested right in favour of
the respondent. This court held as follows:
“37. The argument advanced on the basis of so-called creation
of vested right for obtaining sanction on the basis of the Building
Rules (unamended) as they were on the date of submission of the
application and the order of the High Court fixing a period for
decision of the same, is misconceived. The word “vest” is normally
used where an immediate fixed right in present or future enjoyment
in respect of a property is created. With the long usage the said
word “vest” has also acquired a meaning as “an absolute or
indefeasible right” [see K.J. Aiyer’s Judicial Dictionary (A
Complete Law Lexicon), 13th Edn.]. The context in which the
respondent Company claims a vested right for sanction and which
has been accepted by the Division Bench of the High Court, is
not a right in relation to “ownership or possession of any property”
for which the expression “vest” is generally used. What we can
understand from the claim of a “vested right” set up by the
respondent Company is that on the basis of the Building Rules, as
applicable to their case on the date of making an application for
sanction and the fixed period allotted by the Court for its
consideration, it had a “legitimate” or “settled expectation” to obtain
the sanction. In our
considered opinion, such “settled expectation”,
if any, did not create any vested right to obtain sanction. True it is,
that the respondent Company which can have no control over the
manner of processing of application for sanction by the Corporation
cannot be blamed for delay but during pendency of its application
for sanction, if the State Government, in exercise of its rule-making
power, amended the Building Rules and imposed restrictions on
the heights of buildings on G.T. Road and other wards, such “settled
expectation” has been rendered impossible of fulfilment due to
change in law. The claim based on the alleged “vested right” or
“settled expectation” cannot be set up against statutory provisions
which were brought into force by the State Government by
amending the Building Rules and not by the Corporation against
whom such “vested right” or “settled expectation” is being sought
to be enforced. The “vested right” or “settled expectation” has
been nullified not only by the Corporation but also by the State by
amending the Building Rules. Besides this, such a “settled
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expectation” or the so-called “vested right” cannot be
countenanced against public interest and convenience which are
sought to be served by amendment of the Building Rules and the
resolution of the Corporation issued thereupon.”
304. In Arcelormittal India Private Limited v. Satish Kumar
Gupta & Others95, a judgment rendered by one of us (R.F. Nariman,
J.), this Court dealt with the very Code with which we are concerned. It
concerned the scope of Section 29A of the Code declaring ineligibility of
certain categories of persons to be resolution applicants. In this context,
this Court inter alia, while dealing with the scope of the Code as also
the principle of piercing of corporate veil, and after an exhaustive survey
of the Code and reiterating the principle that it is settled law that a statute
is designed to be workable, a question was posed whether a resolution
plan being turned down under Section 30(2) could be challenged.
Answering this question, the Court held as follows:
“79. Given the timeline referred to above, and given the fact that
a resolution applicant has no vested right that his resolution plan
be considered, it is clear that no challenge can be preferred to the
adjudicating authority at this stage. A writ petition under Article
226 filed before a High Court would also be turned down on the
ground that no right, much less a fundamental right, is affected at
this stage. This is also made clear by the first proviso to Section
30(4), whereby
a Resolution Professional may only invite fresh
resolution plans if no other resolution plan has passed muster.
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82. Take the next stage under Section 30. A Resolution
Professional has presented a resolution plan to the Committee of
Creditors for its approval, but the Committee of Creditors does
not approve such plan after considering its feasibility and viability,
as the requisite vote of not less than 66% of the voting share of
the financial creditors is not obtained. As has been mentioned
hereinabove, the first proviso to Section 30(4) furnishes the answer,
which is that all that can happen at this stage is to require the
Resolution Professional to invite a fresh resolution plan within the
time-limits specified where no other resolution plan is available
with him. It is clear that at this stage again no application before
95 (2019) 2 SCC 1
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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the adjudicating authority could be entertained as there is no vested
right or fundamental right in the resolution applicant to have its
resolution plan approved, and as no adjudication has yet taken
place.
305. In Swiss Ribbons (supra), while dealing with constitutional
validity of Section 29A of the Code declaring certain persons not to be
eligible as resolution applicants, after referring to the decision in
Arcelormittal India Private Ltd. (supra), this Court held as follows:
“97. It is settled law that a statute is not retrospective merely
because it affects existing rights; nor is it retrospective merely
because a part of the requisites for its action is drawn from a time
antecedent to its passing [see State Bank’s Staff Union (Madras
Circle) v. Union of India [State Bank’s Staff Union (Madras
Circle) v. Union of India, (2005) 7 SCC 584 : 2005 SCC (L&S)
994] (at para 21)]. In ArcelorMittal [ArcelorMittal (India) (P)
Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] , this Court has
observed that a resolution applicant has no vested right for
consideration or approval of its resolution plan as follows: (SCC
p. 87, para 82)
“82. Take the next stage under Section 30. A Resolution
Professional has presented a resolution plan to the Committee of
Creditors for its approval, but the Committee of Creditors does
not approve such plan after considering its feasibility and viability,
as the requisite vote of not less than 66%
of the voting share of
the financial creditors is not obtained. As has been mentioned
hereinabove, the first proviso to Section 30(4) furnishes the answer,
which is that all that can happen at this stage is to require the
Resolution Professional to invite a fresh resolution plan within the
time-limits specified where no other resolution plan is available
with him. It is clear that at this stage again no application before
the adjudicating authority could be entertained as there is no vested
right or fundamental right in the resolution applicant to have its
resolution plan approved, and as no adjudication has yet taken
place.”
98. This being the case, it is clear that no vested right is taken
away by application of Section 29-A. However, Shri Viswanathan
pointed out the judgments in Ritesh Agarwal v. SEBI [Ritesh
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Agarwal v. SEBI, (2008) 8 SCC 205] (at para 25), K.S.
Paripoornan v. State of Kerala [K.S. Paripoornan v. State of
Kerala, (1994) 5 SCC 593] (at paras 60-66), Darshan
Singh v. Ram Pal Singh [Darshan Singh v. Ram Pal Singh,
1992 Supp (1) SCC 191] (at para 35), Pyare Lal
Sharma v. Jammu & Kashmir Industries Ltd. [Pyare Lal
Sharma v. Jammu & Kashmir Industries Ltd., (1989) 3 SCC
448 : 1989 SCC (L&S) 484] (at para 21), P.D. Aggarwal v. State
of U.P. [P.D. Aggarwal v. State of U.P., (1987) 3 SCC 622 :
1987 SCC (L&S) 310] (at para 18), and Govind
Das v. CIT [Govind Das v. CIT, (1976) 1 SCC 906 : 1976 SCC
(Tax) 133] (at paras 6 and 11), to argue that if a section operates
on an antecedent set of facts, but affects a vested right, it can be
held to be retrospective, and unless the legislature clearly intends
such retrospectivity, the section should not be construed as such.
Each of these judgments deals with different situations in which
penal and other enactments interfere with vested rights, as a result
of which, they were held to be prospective in nature. However, in
our judgment in ArcelorMittal [ArcelorMittal (India) (P)
Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1], we have already
held that resolution applicants have no vested right to be considered
as such in the resolution process. Shri Mukul Rohatgi, however,
argued that this judgment is distinguishable as no question of
constitutional validity arose in this case, and no issue as to the
vested right of a
promoter fell for consideration. We are of the
view that the observations made in ArcelorMittal [ArcelorMittal
(India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] directly
arose on the facts of the case in order to oust the Ruias as
promoters from the pale of consideration of their resolution plan,
in which context, this Court held that they had no vested right to
be considered as resolution applicants. Accordingly, we follow
the aforesaid judgment. Since a resolution applicant who applies
under Section 29-A(c) has no vested right to apply for being
considered as a resolution applicant, this point is of no avail.”
 306. We may observe that the decisions of this Court in
Arcelormittal India Pvt. Ltd. (supra) and Swiss Robbins (supra) are
inappropriate to the context of the cases before us. We may also notice
the decision of the Court of Appeal in West vs. Gwynne96. The plaintiff
96 (1910) WLR 976
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in the said case who was the landlord of the property wrote to the
defendant, his tenant for his consent for the proposed underlease. The
defendant insisted however on receiving for himself one half of the surplus
rental as a condition for the consent. The suit filed by the plaintiff was
for a declaration that the defendant could not impose such a condition
and that he could give the underlease without any further consent of the
defendant. In the year 1892 (after the lease), section 3 of the
Conveyancing Act 1892 was enacted. The question which arose was
whether it would apply to existing leases as well as and was of general
application or it should be confined to leases after the commencement
of the Act. The said section provided that in all leases containing a
covenant against assigning or under letting without license or consent
such covenant should unless the lease contain an express provision to
the contrary be deemed subject to the proviso that no fine shall be payable
for or in respect of such license or consent. The court took the view that
the words of the section was clear. In fact, we may profitably notice the
words of Joyce, J. whose judgment was the subject matter of the appeal
“the section with which we have to deal with in this case is quite plain to
everyone but a lawyer”. The court of appeal took the view that the
provision was a general enactment based on ground of public policy,
Cozens Hardy M.R.
while agreeing with the general proposition that a
statute is presumed not to have retrospective operation unless a contrary
intention appears by express words or by necessary implication held as
follows:
“Retrospective operation is an inaccurate term. Almost every
statute affects right which would have been existed but for the
statute.
307. Buckley, L.J. went on to hold as follows:
“…To my mind the word “retrospective” is inappropriate, and the
question is not whether the section is retrospective. Retrospective
operation is one matter.  Interference with existing rights is another.
If an Act provides that as at a past date the law shall be taken to
have been that which it was not, that Act I understand to be
retrospective. That is not this case. The question here is whether
a certain provision as to the contents of leases is addressed to the
case of all leases or only of some, namely, leases executed after
the passing of the Act. The question is as to the ambit and scope
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of the Act, and not as to the date as  from which the new law, as
enacted by the Act, is to be taken to have been the law.”
308. Reliance has been placed on the judgment of this court in
B.K. Educational Services Private Limited v. Parag Gupta and
Associates97 which was rendered by one of us (R.F. Nariman, J.).  By
an amendment to the Code with effect from 6.6.2018 Section 238A was
inserted by which the Limitation Act, 1963, was made applicable to the
proceedings and appeals before the authorities including the appellate
tribunal. The question which fell for decision was whether the Limitation
Act 1963 would also apply in respect of application under Section 7
inter alia on and from the commencement of the Code on 1.12.2016 till
the date of the amendment that is 6.6.2018. In answering this question,
this court went on to hold that the CIRP can only be initiated either by a
financial or operational creditor in relation to debts which have not become
time barred.  In the course of its judgment, this Court referred to the
earlier judgment of this Court including the recent judgment of this Court
in M.P. Steel Corporation v. Commissioner of Central Excise98. In
the said decision, this Court has relied upon the earlier judgment reported
in Smt. Shanti Misra (supra) wherein it was laid down inter alia as
follows:
“(2) Even though by and large the law of limitation has been held
to be a procedural law, there are exceptions to this principle.
Generally, the law
of limitation which is in vogue on the date of
the commencement of the action governs it. But there are certain
exceptions to this principle. The new law of limitation providing a
longer period cannot revive a dead remedy. Nor can it suddenly
extinguish vested right of action by providing for a shorter
period of limitation.”
 309. This Court also held that the application filed in 2016 or
2017 cannot suddenly revive a debt which is no longer due as it is time
barred.  Apparently, the petitioners are seeking to lay store by the principle
that a new law cannot extinguish a vested right of action even if it be
pertaining to the period of limitation.
310. A right of appeal is a vested right, as noticed. However, it
becomes vested not because the right is created under the Statute alone.
97 (2019)11 SCC 633
98 (2015) 7 SCC 58
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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It becomes vested, as noticed by this Court in Garikapati Veeraya
(supra), from the date of institution of the suit. What about a right to
sue? In the case of a right to file a civil suit, equally there is a vested
right to file a suit but the question would be as to when does it arise.
From the line of argument pursued on behalf of the Union that in the
case of the right to take advantage of an existing Statute, there is no
accrued right, which means also that there is no vested right, should we
proceed on the basis that the concept of a vested right qua a civil suit,
can be recognized only after the civil suit is filed, at a time when there is
no law, ousting or barring a civil suit and a law is passed, during the
pendency of a civil suit, which again does not expressly bar the suits,
which had already been filed? Since we are in the regions of vested
rights, and every right must have a title to the right, and since every civil
suit is based on a cause of action, could it not be said that the right to sue
becomes vested from the point of time when the cause of action arises?
Since, for every civil suit, there is a period of limitation prescribed, could
it not be said that since a period of limitation has been prescribed for
instituting a suit, the right to sue becomes vested from the first day when
the period of limitation starts to run?
311. Order VII Rule 11 of the Code of Civil Procedure
contemplates rejection
of a plaint, if it does not disclose a cause of action.
The cause of action in a suit, will consist of the facts, which, if not
traversed by the defendant, will entitle the plaintiff to a Decree. The
Schedule to the Limitation Act, 1963, consisting of three columns. The
third column, provides for the time, from which, the period begins to run
for different suits. Article 19 provides for money payable for money
lent. The period of three years, prescribed as period of limitation, begins
to run from the point of time, when the loan is made. This means that, at
any point of time, after the loan is made, but within three years, ordinarily,
a civil suit is to be filed. In the example, we have given, if a suit is filed
towards the end of the three-year period, would it be said that the right
to sue was not available from the first day, when the period of limitation
began to run? We will take another example. Article 73 provides for a
period of one year for a suit for compensation for false imprisonment.
The time, from which the period begins to run, is when the imprisonment
ends. Can it not be said that the prisoner, upon his incarceration coming
to an end, is clothed with a vested right to sue? We would think, that he
is given a right, which is vested in him, when the imprisonment ends. In
fact, it is the illegal imprisonment which is really creates the vested right
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but the period of limitation begins on sound policy only after his release.
Article 113 of the Limitation Act, provides for suits for which there is no
period provided in the schedule. The period of 03 years provided begins
to run when the right to sue accrues. If the right to sue ‘accrued’ within
the meaning of Article 113, can it still be said, that for the purpose of
deciding, the effect of a law purporting to impact the right, there is no
vested right or accrued right till the suit is filed? We will give another
example and that is Article 30, which gives a right to sue on the bond
subject to a condition. The period of limitation is three years. The time
begins to run when the condition is broken. The right to sue clearly could
be said to arise, immediately upon the condition being broken. We may,
in this context also, notice that one of the five characteristics for a legal
right to exist, is that every legal right has a title. It is further stated, in
Salmond on Jurisprudence that every legal right has a title, which are
apparently the facts or events by reason of which the right has become
vested in its owner. Now, it must be noticed also, at this stage that the
Limitation Act, in fact, contemplates the time, within which the suit must
be brought, beginning necessarily on the supposition, that at least, on the
very first day of the period of time, from which a plaintiff can sue, the
right is already vested in him. This would reinforce us in our
view that a
vested right to sue could be said to accrue, and it would always precede
the institution of the suit. At any rate, it could be said to exist from the
very first day, on which the time begins to run, under the Limitation Act.
Thus, a vested right to sue could be tested with reference not to the date
on which the suit is filed as would be the case where a question arises,
whether a right of appeal exists.
312. However, we must consider whether a right of suit is
conferred by a statute. In this regard, we may notice the decision of this
Court in Mardia Chemicals Ltd. and others v. Union of India and others99.
Therein the validity of certain provisions of the SARFAESI Act 2002,
was questioned. Of relevance to us, in these cases is the discussion of
this Court relating to the vires of Section 17(2). The said provision
contemplated a pre-deposit of 75 per cent of the amount by the applicant
under Section 17 before the Tribunal. This Court found the condition of
pre-deposit arbitrary and unreasonable. In this context, this court also
noted the distinction between a civil suit and an appeal and it was found
that an application maintained under section 17 was in the nature of a
suit, it is apposite that we notice the following:
99 (2004) 4 SCC 311
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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“59.We may like to observe that proceedings under Section
17 of the Act, in fact, are not appellate proceedings. It seems to
be a misnomer. In fact it is the initial action which is brought
before a forum as prescribed under the Act, raising grievance
against the action or measures taken by one of the parties to the
contract. It is the stage of initial proceeding like filing a suit in civil
court. As a matter of fact proceedings under Section 17 of the
Act are in lieu of a civil suit which remedy is ordinarily available
but for the bar under Section 34 of the Act in the present case.
We may refer to a decision of this Court in Ganga Bai v. Vijay
Kumar [(1974) 2 SCC 393] where in respect of original and
appellate proceedings a distinction has been drawn as follows:
(SCC p. 397, para 15)
“There is a basic distinction between the right of suit
and the right of appeal. There is an inherent right in every
person to bring a suit of civil nature and unless the suit is barred
by statute one may, at one’s peril, bring a suit of one’s choice.
It is no answer to a suit, howsoever frivolous to claim, that the
law confers no such right to sue. A suit for its maintainability
requires no authority of law and it is enough that no statute
bars the suit. But the position in regard to appeals is quite the
opposite. The right of appeal inheres in no one and therefore
an appeal for its maintainability must have the clear authority
of
law. That explains why the right of appeal is described as a
creature of statute.”
60. The requirement of pre-deposit of any amount at the
first instance of proceedings is not to be found in any of the
decisions cited on behalf of the respondent. All these cases relate
to appeals. The amount of deposit of 75% of the demand, at the
initial proceeding itself sounds unreasonable and oppressive, more
particularly when the secured assets/the management thereof
along with the right to transfer such interest has been taken over
by the secured creditor or in some cases property is also sold.
Requirement of deposit of such a heavy amount on the basis of a
one-sided claim alone, cannot be said to be a reasonable condition
at the first instance itself before start of adjudication of the dispute.
Merely giving power to the Tribunal to waive or reduce the amount,
does not cure the inherent infirmity leaning one-sidedly in favour
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of the party, who, so far has alone been the party to decide the
amount and the fact of default and classifying the dues as NPAs
without participation/association of the borrower in the process.
Such an onerous and oppressive condition should not be left
operative in expectation of reasonable exercise of discretion by
the authority concerned. Placed in a situation as indicated above,
where it may not be possible for the borrower to raise any amount
to make the deposit, his secured assets having already been taken
possession of or sold, such a rider to approach the Tribunal at the
first instance of proceedings, captioned as appeal, renders the
remedy illusory and nugatory.
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64. The condition of pre-deposit in the present case is bad
rendering the remedy illusory on the grounds that: (i) it is imposed
while approaching the adjudicating authority of the first instance,
not in appeal, (ii) there is no determination of the amount due as
yet, (iii) the secured assets or their management with transferable
interest is already taken over and under control of the secured
creditor, (iv) no special reason for double security in respect of an
amount yet to be determined and settled, (v) 75% of the amount
claimed by no means would be a meagre amount, and (vi) it will
leave the borrower in a position where it would not be possible for
him to raise any funds to make deposit of 75% of the undetermined
demand. Such conditions are not alone onerous and
oppressive
but also unreasonable and arbitrary. Therefore, in our view, sub-
section (2) of Section 17 of the Act is unreasonable, arbitrary and
violative of Article 14 of the Constitution.”
(Emphasis supplied)
313. Thus, a right to sue is not created by the statute. It is an
inherent right unless is barred by some law. Therefore, the principle that
a right to take advantage of a statute not being an accrued right may not
apply. We may also use this occasion to repel the argument based on
Mardia Chemicals (supra) that the application under Section 7 is akin
to a civil suit. The context of the application under Section 17 of
SARFAESI Act is completely different from that of the code. The
application under Section 17 of the SARFAESI was found to be in lieu
of a suit. The allottee has other remedies unlike the applicant under
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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Section 17. All the assets of the debtor are taken over. The situation
cannot be compared. No doubt, the argument of the learned ASG is
based on the right under Section 7 of the Code being a mere right to take
advantage of a statute. In Abbott (supra), in the context of a saving
enactment, the Court observed that a mere right assuming it to exist in
the members of the public or any class, then, to take advantage of an
enactment, without any act done by the individual, towards availing
himself of that right, could not be treated as an accrued right under the
enactment. Therefore, the stand appears to be that the right under Section
7 is a mere right to take advantage of an enactment. It is the further
case of the Union, apparently that, only upon an application being filed
and what is more, it is admitted under Section 7(5), that a vested right
would accrue.
314. We do not think that the principles which have been laid
down, may apply in the case of a vested right of action. We take the
view that a plaintiff has a vested right, depending on whether there is a
cause of action and a period of limitation, which has begun to run, which
necessarily involves, the existence of a vested right. In the case of an
application under Section 7 of the Code, we may notice that it is a valuable
right, no doubt, statutory in nature. It cannot be the law that a Statute
cannot create vested rights. Should the ingredients which the
Legislature
contemplate exist in favour of a person as an action in law, it can also be
described as a vested right. The application, under Section 7, is an
application, which attracts the period of limitation, which has already
been noticed. It commences from the time when the right to sue accrues.
In every case, where the period of limitation began to run, in respect of
debt prior to the Code coming into being, the right to sue would have
arisen earlier. In this regard we may refer to Isha Valimohamed (supra).
315. In regard to the effect of this finding on the challenge to the
first and the second provisos in Section 7, we must immediately observe
that the impugned first and second provisos have only prospective
operation. We have already found that the provisos first and second are
valid. They can survive, even if the third proviso is struck down. The
third proviso is on the other hand dependant on the first and second
provisos and cannot survive their invalidation. The vested right cannot
exist merely by reason of Section 7. It must depend upon the vestitive
facts which would create the right in conjunction with Section 7. We
need not probe the matter further in those cases where only the first and
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second provisos can be questioned. This is so in two writ petitions, W.P.
No. 228 of 2020 and W.P. No. 850 of 2020, where, though there are no
applications filed under Section 7 before the amendment, the third proviso
is also challenged, which cannot be countenanced.
316. There is, in our view, a right which is vested in the cases
where, the petitioners have filed application, fulfilling the requirements
under unamended Section 7 of the Code. The very act of filing the
application, even satisfies the apparent test propounded by the Additional
Solicitor General, that the right under Section 7 is only one to take
advantage of the statute and unless advantage is actually availed it does
not create an accrued right. When applications were filed under the
unamended provisions of Section 7, at any rate it would transform into a
vested right. The vested right is to proceed with the action till its logical
and legal conclusion. We are unable to accept the stand of the learned
ASG, that a vested right to emerge still require an order under Section
7(5) of the Code. It is no doubt a stage, when the authority finds there is
default and takes the matter forward including appointing to begin with
the IRP and ordering a moratorium. In this regard, it is to be noted that in
the scheme of the Code, what takes place before admission, is that the
applicant tries to establish the debt and default. This is akin to the stage
of a trial in a suit. No doubt, this happens only
if the application is free
from defects. But this is a far cry from saying that a vested right of
action did not inhere even on the version of the ASG upon the act of the
creditor invoking the Code.
317. In P.D. Aggrawal & others v. State of U.P and others.100,
the Court was dealing with a challenge to statutory rules, inter alia, by
which temporary Assistant Engineers who were working continuously
since the date of their appointment in the cadre of Assistant Engineer
were deprived of their services from the date of substantial appointment
to the temporary post for the purpose of seniority. This Court in the
context of rules and the impact it had held as follows:
“18. It has been held by this Court in E.P. Royappa v. State of
Tamil Nadu [AIR 1974 SC 555, 583 : (1974) 4 SCC 3 : 1974 SCC
(L&S) 165] , Maneka Gandhi v. Union of India [AIR 1978 SC
597, 624 : (1978) 1 SCC 248] that there should not be arbitrariness
in State action and the State action must ensure fairness and
equality of treatment. It is open to judicial review whether any
100 (1987) 3 SCC 622
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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rule or provision of any Act has violated the principles of equality
and non-arbitrariness and thereby invaded the rights of citizens
guaranteed under Articles 14 and 16 of the Constitution….”
It was also after noting the facts stated as follows:
“..Thus the 1969 and 1971 amendments in effect take away from
the officers appointed to the temporary posts in the cadre through
Public Service Commission i.e. after selection by Public Service
Commission, the substantive character of their appointment. These
amendments are not only disadvantageous to the future recruits
against temporary vacancies but they were made applicable
retrospectively from March 1, 1962 even to existing officers
recruited against temporary vacancies through Public Service
Commission. As has been stated hereinbefore that the Government
has power to make retrospective amendments to the Rules but if
the Rules purport to take away the vested rights and are arbitrary
and not reasonable then such retrospective amendments are subject
to judicial scrutiny if they have infringed Articles 14 and 16 of the
Constitution.”
318. We may notice two aspects. Firstly, it was a challenge to a
statutory rule. The Court went on to observe that it could be the overturned
if it is arbitrary.  We have already taken note that in regard to the challenge
to a law made by the legislature under Article 14 that what is required is
that a law must be manifestly arbitrary. The
said concept has been
explained in Shayara Bano (supra) (paragraph-101).
319. In Darshan Singh v. Ram Pal Singh and Ors.101, the
appellants challenged certain alienations as being contrary to custom
under the State law of the year 1920. The matter was at the appellate
stage in suits filed by the appellants.
320. In 1973, the law was amended. On the basis of same, the
High Court dismissed the suit on the basis of that, after the amending
Act came into force there could not be a challenge to the transfer. The
contentions of the appellants was that the amending Act could not be
read as retrospective. The original enactment permitted challenging the
transfer on the ground that the transfer was contrary to custom. It was
this right which was sought to be subjected to certain conditions.
101 1992(Suppl)1 SCC 191
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321. We may notice that this case did not involve a challenge to
the amendment. In the course of the judgement, the Court took the view
what was taken away was the basic right to ‘contest’, the transfer
irrespective of whether it was in a suit or appeal. The Court concluded
that by the amending Act the custom was done away with.
322. In K.S. Paripoornan v. State of Kerala102, the Constitution
Bench had to consider whether Section 23 (I-A) and introduced by the
amending Act 1984 was retrospective. In the majority judgement by S.
C. Agrawal, J., we notice the following:
“64. A statute dealing with substantive rights differs from a statute
which relates to procedure or evidence or is declaratory in nature
inasmuch as while a statute dealing with substantive rights is prima
facie prospective unless it is expressly or by necessary implication
made to have retrospective effect, a statute concerned mainly
with matters of procedure or evidence or which is declaratory in
nature has to be construed as retrospective unless there is a clear
indication that such was not the intention of the legislature. A
statute is regarded retrospective if it operates on cases or facts
coming into existence before its commencement in the sense that
it affects, even if for the future only, the character or consequences
of transactions previously entered into or of other past conduct.
By virtue of the presumption against retrospective applicability of
laws dealing with substantive
rights transactions are neither
invalidated by reason of their failure to comply with formal
requirements subsequently imposed, nor open to attack under
powers of avoidance subsequently conferred. They are also not
rendered valid by subsequent relaxations of the law, whether
relating to form or to substance. Similarly, provisions in which a
contrary intention does not appear neither impose new liabilities
in respect of events taking place before their commencement,
nor relieve persons from liabilities then existing, and the view that
existing obligations were not intended to be affected has been
taken in varying degrees even of provisions expressly prohibiting
proceedings. (See: Halsbury’s Laws of England, 4th Edn. Vol. 44,
paras 921, 922, 925 and 926).”
(Emphasis supplied)
102 (1994) 5 SCC 593
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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323. In State Bank’s Staff Union (Madras Circle) v. Union of
India and others103, an award was passed by the Industrial Tribunal,
which was impugned before the High Court. When the matter was so
pending, the State Bank of India Act came to be amended. The contention
of the appellants was that the amendment was intended to nullify the
decision of the High Court, which was repelled. The Court also
considered the power of the sovereign Legislature to make retrospective
legislation. The Court held as follows:
“21. Every sovereign legislature possesses the right to make
retrospective legislation. The power to make laws includes the
power to give it retrospective effect. Craies on Statute Law (7th
Edn.) at p. 387 defines retrospective statutes in the following words:
“A statute is to be deemed to be retrospective, which
takes away or impairs any vested right acquired under existing
laws, or creates a new obligation, or imposes a new duty, or
attaches a new disability in respect to transactions or
considerations already past.”
22. Judicial Dictionary (13th Edn.) by K.J. Aiyar,
Butterworth, p. 857, states that the word “retrospective” when
used with reference to an enactment may mean (i) affecting an
existing contract; or (ii) reopening up of past, closed and completed
transaction; or (iii) affecting accrued rights and remedies; or (iv)
affecting procedure. Words and Phrases, Permanent Edn., Vol.
37-A, pp. 224-25, defines a
“retrospective or retroactive law” as
one which takes away or impairs vested or accrued rights acquired
under existing laws. A retroactive law takes away or impairs vested
rights acquired under existing laws, or creates a new obligation,
imposes a new duty, or attaches a new disability, in respect to
transactions or considerations already past.
23. In Advanced Law Lexicon by P. Ramanath Aiyar (3rd
Edn., 2005) the expressions “retroactive” and “retrospective” have
been defined as follows at p. 4124, Vol. 4:
“Retroactive. — Acting backward; affecting what is past.
(Of a statute, ruling, etc.) extending in scope or effect to
matters that have occurred in the past. — Also termed
retrospective. (Black’s Law Dictionary, 7th Edn., 1999)
103 AIR 2005 SC 3446 / (2005) 7 SCC 584
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‘ “Retroactivity” is a term often used by lawyers but rarely
defined. On analysis it soon becomes apparent, moreover, that it
is used to cover at least two distinct concepts. The first, which
may be called “true retroactivity”, consists in the application of a
new rule of law to an act or transaction which was completed
before the rule was promulgated. The second concept, which will
be referred to as “quasi-retroactivity”, occurs when a new rule of
law is applied to an act or transaction in the process of
completion…. The foundation of these concepts is the distinction
between completed and pending transactions….’ T.C.
Hartley, Foundations of European Community Law, p. 129
(1981).
Retrospective. — Looking back; contemplating what is past.
Having operation from a past time.
‘Retrospective’ is somewhat ambiguous and that good deal
of confusion has been caused by the fact that it is used in more
senses than one. In general, however, the courts regard as
retrospective any statute which operates on cases or facts coming
into existence before its commencement in the sense that it affects,
even if for the future only, the character or consequences of
transactions previously entered into or of other past conduct. Thus,
a statute is not retrospective merely because it affects existing
rights; nor is it retrospective merely because a part of the requisite
for its action is drawn from a time antecedent to its passing.”
(Vol. 44, Halsbury’s Laws of England, 4th
Edn., p. 570, para
921.)
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25. In Harvard Law Review, Vol. 73, p. 692 it was observed
that:
“It is necessary that the legislature should be able to cure
inadvertent defects in statutes or their administration by making
what has been aptly called ‘small repairs’. Moreover, the individual
who claims that a vested right has arisen from the defect is seeking
a windfall since had the legislature’s or administrator’s action had
the effect it was intended to and could have had, no such right
would have arisen. Thus the interest in the retroactive curing of
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such a defect in the administration of the Government outweighs
the individual’s interest in benefiting from the defect.”
26. The above passage was quoted with approval by the
Constitution Bench of this Court in the case of Asstt. Commr. of
Urban Land Tax v. Buckingham and Carnatic Co. Ltd. [(1969)
2 SCC 55] In considering the question as to whether the legislative
power to amend a provision with retrospective operation has been
reasonably exercised or not, various factors have to be considered.
It was observed in the case of Stott v. Stott Realty Co. [284 NW
635] as noted in Words and Phrases, Permanent Edn., Vol. 37-
A, p. 2250 that:
“The constitutional prohibition of the passage of ‘retroactive
laws’ refers only to retroactive laws that injuriously affect some
substantial or vested right, and does not refer to those remedies
adopted by a legislative body for the purpose of providing a rule to
secure for its citizens the enjoyment of some natural right, equitable
and just in itself, but which they were not able to enforce on account
of defects in the law or its omission to provide the relief necessary
to secure such right.”
27.Craies on Statute Law (7th Edn.) at p. 396 observes
that:
“If a statute is passed for the purpose of protecting the
public against some evil or abuse, it may be allowed to operate
retrospectively, although by such operation it will deprive some
person or persons of a vested right.”
(Emphasis
supplied)
324. The Court also repelled the argument that vested rights cannot
be taken away by the Legislature by way of retrospective legislation. In
paragraph-35, the Court held as follows:
“31. Learned counsel for the appellant submitted that vested rights
cannot be taken away by the legislature by way of retrospective
legislation. The plea is without substance. Whenever any
amendment is brought in force retrospectively or any provision of
the Act is deleted retrospectively, in this process rights of some
are bound to be affected one way or the other. In every case the
exercise by the legislature by introducing a new provision or deleting
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an existing provision with retrospective effect per se does not
amount to violation of Article 14 of the Constitution. The legislature
can change, as observed by this Court in Cauvery Water Disputes
Tribunal, Re [1993 Supp (1) SCC 96 (2)] the basis on which a
decision is given by the Court and thus change the law in general,
which will affect a class of persons and events at large. It cannot,
however, set aside an individual decision inter partes and affect
their rights and liabilities alone. Such an act on the part of the
legislature amounts to exercising the judicial power by the State
and to function as an appellate court or tribunal, which is against
the concept of separation of powers.”
(Emphasis supplied)
SECTION 6 OF GENERAL CLAUSES ACT, 1897
325. In this regard, no support can be drawn from Section 6 of the
General Clauses Act, 1897. Section 6 makes it clear that the rights or
privileges which may be asserted are subject to the law not being couched
contrary to such rights/privileges. In this case it is precisely because the
3rd proviso covers the applications filed prior to the amendment which
had not been admitted, that the petitioners have challenged the provision.
READING DOWN
326. Further, the appeal to invoke the principle of reading down
the proviso is untenable.  In his judgment for the majority Sawant, J. in
Delhi Transport Corpn. v. D.T.C. Mazdoor Congress104 held as
follows:
“255. It is thus clear that the doctrine of reading down or
of
recasting the statute can be applied in limited situations. It is
essentially used, firstly, for saving a statute from being struck down
on account of its unconstitutionality. It is an extension of the
principle that when two interpretations are possible — one
rendering it constitutional and the other making it unconstitutional,
the former should be preferred. The unconstitutionality may spring
from either the incompetence of the legislature to enact the statute
or from its violation of any of the provisions of the Constitution.
The second situation which summons its aid is where the provisions
of the statute are vague and ambiguous and it is possible to gather
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the intentions of the legislature from the object of the statute, the
context in which the provision occurs and the purpose for which it
is made. However, when the provision is cast in a definite and
unambiguous language and its intention is clear, it is not permissible
either to mend or bend it even if such recasting is in accord with
good reason and conscience. In such circumstances, it is not
possible for the court to remake the statute. Its only duty is to
strike it down and leave it to the legislature if it so desires, to
amend it. What is further, if the remaking of the statute by the
courts is to lead to its distortion that course is to be scrupulously
avoided. One of the situations further where the doctrine can
never be called into play is where the statute requires extensive
additions and deletions. Not only it is no part of the court’s duty to
undertake such exercise, but it is beyond its jurisdiction to do so.”
327.  Now, the terms of the proviso are clear.  It does not admit
of more than one interpretation at least in terms of the matter covered
by it. The only area left is the impact of the withdrawal which is to
happen.
328. We may also notice the judgment of this Court in Vijay v.
State of Maharashtra105. The appellant was elected as a member of
the Panchayat in 2000 and elected as the Sarpanch. He was further
elected as Councillor of the Zila Parishad. An amendment was made
with effect from
8.8.2003. Under the marginal note Disqualifications,
Section 14, inter alia, disentitled a person from continuing as a Panchayat
Member if he was elected a Councillor of the Zila Parishad. This Court
found that it was a disqualifying law intended to have retrospective effect.
We may notice para 12 which reads as follows:
“12. The appellant was elected in terms of the provisions of a
statute. The right to be elected was created by a statute and, thus,
can be taken away by a statute. It is now well settled that when a
literal reading of the provision giving retrospective effect does not
produce absurdity or anomaly, the same would not be construed
to be only prospective. The negation is not a rigid rule and varies
with the intention and purport of the legislature, but to apply it in
such a case is a doctrine of fairness. When a law is enacted for
the benefit of the community as a whole, even in the absence of a
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provision, the statute may be held to be retrospective in nature.
The appellant does not and cannot question the competence of
the legislature in this behalf.”
The case did not involve a challenge to the law.  What is significant
is the statement that the right created by a Statute, can be taken away
by a statute.
329.  We find that qua the financial creditors covered by the third
proviso, having invoked, at any rate unamended Section 7, they had a
vested right.
330. They had undoubtedly a vested right to have their actions
carried to its logical and legal end. No doubt, the question of admission
of the application arises under Section 7(5) of the Code. It is open to the
Adjudication Authority to reject the application but that does not mean
that the applicants had no vested right of action. The possibility of a
plaint being rejected under Order VII Rule 11 or an appeal being dismissed
under Order XLI Rule 11 without notice being issued to the respondent
or the fact that the suit can be dismissed at later stages, cannot detract
from the right of the plaintiff or the appellant, being a substantive right.
The same principle should suffice to reject the contention, based on
admission under Section 7(5) alone, giving rise to the vested right in
regard to an applicant under Section 7 of the Code.
331. A vested right is not limited to property rights. A right of
action should conditions otherwise exist, can also be a vested right. Such
a right can be created
by a Statute and even on a repeal of such a
Statute, should conditions otherwise exist, giving a right under the repealed
Statute, the right would remain an accrued right [See Isha Valimohamed
(supra)].
332. No doubt, there may not be a vested right as regard mere
procedure and while limitation, ordinarily, belongs to the domain of
procedure, should new law shorten the existing period of limitation, such
a law would not operate in regard to the right of action which is vested
[See Shanti Misra (supra)]. A party may not have a vested right of
Forum as distinct from the vested right of action [See Shanti Misra
(supra)].
333. Every sovereign Legislature is clothed with competence to
make retrospective laws. It is open to the Legislature, while making
retrospective law, to take away vested rights. If a vested right can be
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taken away by a retrospective law, there can be no reason why the
Legislature cannot modify the vested rights [See State Bank’s Staff
Union (Madras Circle) (supra)].
334. In an action, where the law is not challenged, the Court would
ordinarily proceed as follows. It will presume that a law, which affects
substantive rights, are meant to have prospective operation only. In the
same way, as regards procedural laws or the laws relating to a mere
matter of procedure or of Forum, they carry retrospective impact.
335. A Statute is not retrospective merely because it affects
existing rights. This is, however, in regard to the future operation of law
qua the existing rights. If the existing right is modified or take away and
it is to have operation only from the date of new law, it would obviously
have only prospective operation and it would not be a retrospective law.
336. Declaratory, clarificatory or curative Statutes are allowed to
hold sway in the past. The very nature of the said laws involve the
aspect of public interest which requires sovereign Legislature to remove
defects, clarify aspects which create doubt. The declaratory law again
has the effect of the legislative intention being made clear. It may not be
apposite in the case of these Statutes to paint them with the taint of
retrospectivity.
337. What then is retrospectivity? It is ordinarily the new law
being applied to cases or facts, which came into
existence prior to the
enacting of the law. A retrospective law, in other words, either supplants
an existing law or creates a new one and the Legislature contemplates
that the new law would apply in respect of a completed transaction. It
may amount to reopening, in other words, what is accomplished under
the earlier law, if there was one, or creating a new law, which applies to
a past transaction.
338. “A Statute is to be deemed to be retrospective, which takes
away or impairs any vested right acquired under any existing laws or
creates a new obligation or imposes a new duty or attaches a new
disability in respect to transactions or considerations already passed”.
[See Craies on State Law, 7th Edition, Page-387].
339. In Halsbury’s Laws of England, 4th Edition, Page-570,
paragraph-921, it is, inter alia, stated as follows - “In general, however,
court regarded as retrospective, any Statute, which operates on cases
or facts, coming into existence, before its commencement, in the sense
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that it affects even if for the future only, the character or consequences
of transactions, previously entered into or of other past conduct”.
340. When a Statute made by the sovereign Legislature is found
to have retrospective operation and the challenge is made under Article
14 of the Constitution, (i) the Court must consider whether the law, in its
retrospectivity, manifests forbidden classification. (ii) Whether the law,
in its retrospectivity, produces manifests arbitrariness, (iii) if a law is
alleged to be violative of Article 19(1)(g), firstly, the Court, in an action
by a citizen, would, in the first place, find whether the right claimed,
falls, within the ambit of Article 19(1)(g). The Court will further enquire
as to whether such a law is made, inter alia, by way of placing reasonable
restrictions by looking into the public interest. In the case of law, which
is found to be not unfair, it would also not fall foul of Article 21.
341. Where the law is challenged on the ground that it is violative
of Fundamental Rights under Article 14, necessarily the Court must
enquire whether it is a capricious, irrational, disproportionate, excessive
and, finally, without any determining principle. [see Shayara Bano case
(supra)] The right of a citizen, or for that matter, any person under Article
14, is a right which is personal to him.
342. The golden thread which runs through the grounds making
up the Doctrine of Manifest arbitrariness Injustice,
undoubtedly, consists
of total absence of public interest, of which the sovereign Legislature as
the supreme law giver, is the undoubted custodian. Though made in the
context of the power of the Court in England, in regard to taking into
consideration the concept of fairness, while deciding upon the issue of
retrospectivity, we would think the following passage in the Principles of
Statutory Interpretation by Justice G.P. Singh, made relying upon the
Judgment of the House of Lords in L’Office Cherifien Des Phosphates
and another And Yamashita-Shinnihon Steamship Co. Ltd.106, would
furnish a safe and fairly comprehensive guide, even in the matter of
determining the constitutionality of a retrospective law. Hence, we refer
to the same and would approve of the same.
“… It was observed that the question of fairness will have to be
answered in respect of a particular statute by taking into account
various factors viz., value of the rights which the statute affects;
extent to which that value is diminished or extinguished by the
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suggested retrospective effect of the statute; unfairness of
adversely affecting the rights; clarity of the language used by
Parliament and the circumstances in which the legislation was
created. “All these factors must be weighed together to provide a
direct answer to the question whether the consequences of reading
the statue with the suggested degree of retrospectivity is so unfair
that the words used by Parliament cannot have been intended to
mean what they might appear to say.”
(Emphasis supplied)
343. Having laid down the principles, we shall now apply the same
to the facts of the present cases before us. As far as the nature of the
right in question is concerned, which would include the value of the
rights, it is a right of action. The right of action is, undoubtedly, a vested
right. The role of the applicant essentially fades out after the admission
of the application is made under Section 7(5). The scheme of the Code
has been unraveled by us. The right, which is given, is a right in rem. It
is not a mere personal right, in the sense that it is right in rem. The
applicant is not even required to plead the default qua him as the default
to any financial creditor, in the requisite sum, provided it is not barred
under Article 137, suffices. The consequences of the application would
be that it may land the applicant and also all the stakeholders, in liquidation
of the corporate debtor.
344. As far as, the
manner, in which, the value of the right is
affected or if we may use the word ‘impaired’, it is another most
significant aspect, to be borne in mind. The manner, in which, a particular
Statute carrying retrospective effect, will impair, the rights will depend
on the facts of each case. We have, for instance, noticed the clear
unfairness, which, the Rule in question carried qua a set of employees
in regard to their vested right, in P.D. Aggrawal (supra). The vested
right, in fact, consisted of the right to have certain period reckoned for
the purpose of seniority. As far as the clarity of the language used, there
does not appear to be any ambiguity, and what Parliament intended is,
completely free from doubt. The only area where any ambiguity can be
said to exist – is the effect of the application being treated as withdrawn.
The further aspect, which is to be borne in mind, is the circumstances in
which the legislation is created. It is here that the mischief rule and the
aspect of public interest looms large. At the end of the day, the tussle is
between the individual right versus the public interest. Now, public interest