MANISH KUMAR versus UNION OF INDIA AND ANOTHER
[2021] 14 S.C.R. 895, Supreme Court of India, 2021
Outcome: Dismissed (Dismissed)
Segment: Ratio
A
B
C
D
E
F
G
H
1149
is a concept, which is capable of embracing, within its scope, the interest
of different sections of the public. This would include the sections of the
public to which the applicant himself belongs. Public interest would,
undoubtedly, also encompass, the economy of the country, which can be
understood in terms of all the objects, for which the Code was enacted.
They would include the speed with which the Code is worked. It would
include, also, safeguarding the interests of all the stakeholders. This may
necessarily include the corporate debtor as a stakeholder, being protected
from applications, which are perceived as frivolous or not representing a
critical mass.
345. We have noticed the statistics which has been made available
by the Union. On the eve of the ordinance on the 27.12.2019, it would
appear that 2201 applications, came to be moved, during a period of
nearly eighteen months as in comparison to 253 applications during the
preceding period representing a nearly 10-fold increase.
346. Now, the third proviso, thus, indeed, does not say that as on
the date of filing of the applications, the law was what is contained in the
first and the second provisos. In that sense, it could be said that it was
not retrospective. We have found that when invoking the unamended
Section 7 applications stood moved, they evinced creation of vested rights
to continue with the proceeding. The applications were, no doubt, at the
stage, prior to the admission under
Section 7(5). It is at this stage that
through the device of the third proviso, the Parliament has applied the
principle of first and second proviso of threshold requirement, in respect
of pending applications, which is made to appear as it would have operation
in the future. Now here we must address an argument of the 3rd proviso
going to mere procedure. The financial creditors covered by the 3rd proviso
were clothed with a statutory right under Section 7. This right was
available to be exercised by an individual creditor, by himself or jointly
with others. The imposition of a threshold requirement being a mandatory
and irreducible minimum even, if it is to be achieved as and after the
date of the amendment, constitutes an intrusion into the substantive right
of action vested in the individual creditor. The action of the creditor was
not a completed transaction. As regards his conduct in the past, viz.,
moving under Section 7, it is incomplete but the action was commenced.
But the law (the 3rd proviso) impairs the past action qua the future. We
would find as follows. Imposing the threshold requirement under the 3rd
proviso, is not a mere matter of procedure. It impairs vested rights. It
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1150
SUPREME COURT REPORTS
[2021] 14 S.C.R.
has conditioned the right instead, in the manner provided in the first and
the second proviso. We have already upheld the first and second proviso,
which, in fact, operates only in the future. In that sense, the Legislature
has purported to equate persons who had not filed applications with
persons like the petitioners who had filed the applications under the
unamended law.
347. At this point, we must notice one argument, which is that, the
Law Giver has discriminated between applicants under Section 7, which
were pending at different stages. We may notice, in this regard, however,
that all the applicants share the common characteristic of being applicants
in applications which were not admitted. In fact, most of the applications
would appear to have been filed in the year 2019. Enquiring further into
the different stages in these applications, would go against the principle
that the Court does not look to mathematical nicety or perfection in the
law. The Court also bears in mind, the principle that the law is an economic
measure.
CLARITY REGARDING ‘WITHDRAWAL’ UNDER THE
THIRD PROVISO
348. One of the aspects to be considered is the clarity of a
retrospective law. The requirement of compliance with the threshold
numerical requirements under the first and second proviso is an integral
and inseparable part of the third proviso. Let us have a look at the
consequences that follow if the numerical strength cannot be
cobbled up
by the applicant. The proviso declares that in such an eventuality the
application will be treated as withdrawn before admission. Rule 8, as
noticed by us, provides for power with the Tribunal to allow withdrawal
before admission. Does it mean that an applicant can file a fresh
application after gathering together the requisite numbers? What is the
impact of withdrawal under provisions under the general law? What is
the impact of the law relating to the Limitation Act in respect of the
application which has been withdrawn?
349. In the context of a Civil suit, Order XXIII deals with
withdrawal and adjustment of suit. Order XXIII (1)(4b) prohibits a fresh
suit in respect of the same subject matter (cause of action), if a suit is
withdrawn without permission of the Court under Order XXIII(1)(3).
350. In the facts of the case before us the third proviso does not
indicate as to whether a fresh application after complying with the
A
B
C
D
E
F
G
H
1151
requirement of the ingredients of the first and second proviso is
maintainable. It does not also indicate what would be the position even if
such application is maintainable by the same applicant, with regard to
the periods spent in the context of ruling of this Court that the Limitation
Act applies and the relevant Article is Article 137 and therefore, any
application filed beyond the period of three years from the date of the
default is barred.
351. The other way of looking at these issues is that Order XXIII(1)
applies only in the case of a civil suit. In regard to the application under
Article 137 which is what an application under Section 7 of the Code is,
it could it be said that Order XXIII(1) is inapplicable. Secondly, could it
not be said that it is not a case of a voluntary withdrawal by the applicant
and the withdrawal of the application is declared by the Legislature, and
therefore, Order XXIII(1) would not apply.
352. Section 14 of the Limitation Act, 1963 reads as follows:
“14.Exclusion of time of proceeding bona fide in court without
jurisdiction. —
(1) In computing the period of limitation for any suit the time during
which the plaintiff has been prosecuting with due diligence another
civil proceeding, whether in a court of first instance or of appeal
or revision, against the defendant shall be excluded, where the
proceeding relates to the same matter in issue and is prosecuted
in good faith in a court which, from defect of jurisdiction
or other
cause of a like nature, is unable to entertain it.
(2) In computing the period of limitation for any application, the
time during which the applicant has been prosecuting with due
diligence another civil proceeding, whether in a court of first
instance or of appeal or revision, against the same party for the
same relief shall be excluded, where such proceeding is prosecuted
in good faith in a court which, from defect of jurisdiction or other
cause of a like nature, is unable to entertain it.
(3) Notwithstanding anything contained in rule 2 of Order XXIII
of the Code of Civil Procedure, 1908 (5 of 1908), the provisions
of sub-section (1) shall apply in relation to a fresh suit instituted
on permission granted by the court under rule 1 of that Order
where such permission is granted on the ground that the first suit
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1152
SUPREME COURT REPORTS
[2021] 14 S.C.R.
must fail by reason of a defect in the jurisdiction of the court or
other cause of a like nature.
Explanation.— For the purposes of this section,—
(a) in excluding the time during which a former civil proceeding
was pending, the day on which that proceeding was instituted and
the day on which it ended shall both be counted;
(b) a plaintiff or an applicant resisting an appeal shall be deemed
to be prosecuting a proceeding;
(c) misjoinder of parties or of causes of action shall be deemed to
be a cause of a like nature with defect of jurisdiction.”
353. A perusal of 14(1) shows that it is intended to exclude time in
regard to a civil suit. Section 14(2) covers cases relating to the applications
for which period of limitation is fixed. It contemplates that if such applicant
comes to Court late with a time barred application but is able to show
that he has been prosecuting with due diligence another civil proceeding,
for the same relief, the period, when he was so prosecuting the other
proceeding, can be excluded where the proceeding was prosecuted in
good faith in a Court which from defect of jurisdiction or other cause of
like nature is unable to entertain it. It will be noticed that sub-Section (3)
of Section 14 deals only with the case falling under sub section (1). In
other words, it relates to civil suits. It enables a plaintiff in a subsequent
suit to exclude the period which was consumed in prosecuting an earlier
civil suit which latter suit stood withdrawn with permission granted by
the Court. Therefore, in regard to applications, including applications
under Article 137, it appears, the Law Giver has not contemplated
expressly excluding the time spent in pursuing another proceeding which
stood withdrawn.
354. In regard to power of withdrawal as already noticed Rule 8
of the Insolvency and Bankruptcy (Application of Adjudicating Authority
Rule), 2016 reads as follows:
“Rule (8) withdrawal of application the adjudicating authority may
permit withdrawal of the application may not Rule 4,6,7 as the
case may be on a request made by the applicant before its
admission.”
355. The application made under Rule 4 is the application under
Section 7 by the financial creditor. However, rule 8 is silent as to any
A
B
C
D
E
F
G
H
1153
similar prohibition as is contained in Order XXIII(1)4(b). Unless the
principle of Order XXIII Rule 1 which is based on public policy, is applied,
a fresh application, compliant with the first two provisos in Section 7,
may not be barred. In this regard, since under the Explanation in Section
7(1), default occurs when default qua any financial creditor is made
out, the cause of action can become different, in which case, even the
principle of Order XXIII Rule 1, may not apply.
356. In this regard, since withdrawal is ordained by the third
proviso, it would not be a withdrawal under Rule 8 on request. Secondly,
even for the principle based on public policy to apply to a withdrawal
under Rule 8, there must be a request and withdrawal. We do not
pronounce on the effect of the same, viz., withdrawal on request. Suffice
it to conclude and hold that the withdrawal under the third proviso would
not bar a fresh application by the same party after complying with the
provision of the first or second proviso as the case may be on the same
default.
357. As far as Limitation is concerned, however, on the terms of
Section 14, since 14(1) read with 14(3), contemplates withdrawal of a
suit with permission under Order XXIII Rule 1(4)(b) to enable exclusion
of the period spent in a suit which is withdrawn and Section 14(2) is
what applies to applications including one under, Article 137, the period
spent in the application when it is withdrawn under the 3rd proviso cannot
be excluded under Section 14 (3) of the Limitation Act. However, it may
be open to point out that application is not being entertained within the
meaning of Section 14(2) on account of the law that mandates its
withdrawal on account of the non-compliance of conditions for maintaining
the application it would be. However, we need not pronounce on it, as
we feel that having regard to the Explanation in Section 7, it will always
be open to the applicant to set up a different default to any financial
creditor and move afresh. This unique feature of the Code is highly
relevant in determining the validity of the Amendment. The application
under Section 7 is not meant to be a recovery mechanism. The Code, as
is clear from its title, deals with insolvency resolution, to begin with. If
there is insolvency, the application, with reference to any of the large
number of creditors, suffices.
358. Thus, withdrawal under the third proviso would not be bar a
fresh application even on the same cause of action. It can, at any rate,
be condoned under Section 5 of the Limitation Act. It is here we would
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1154
SUPREME COURT REPORTS
[2021] 14 S.C.R.
also exercise our power under Article 142 to direct that if fresh
applications are filed by the petitioners after complying with the first and
second proviso, then on applications being filed under Section 5, of the
Limitation Act, in regard to the period of pendency of applications, the
authority shall condone the delay. As far as the period after the withdrawal
under the proviso, in view of the power again under Section 5 of the
Limitation Act, certainly we see no reason as to why the periods spent
cannot be explained in terms of B.K. Educational Services (P) Ltd.
(supra). In the above manner, we would interpret the implications of
withdrawal.
359. We would consider the aspect of public interest, which can
be gathered from the conditions obtaining, when the impugned
amendment was made. Under the existing law, Section 7 of the Code
permitted filing of applications by single applicants. It has been realised
by the Legislature that there is dire need to condition the absolute right in
respect of certain classes of financial creditors. We have already upheld
the classification enacted in the first and the second provisos. From the
standpoint of public interest, every application maintained by a single
applicant, is perceived as a veritable threat to the fulfilment of the
objectives of the Code. The continuance of the applications could not,
therefore, be in public interest. It is, as if, the Legislature intended to
apply its brakes in the form of asking the applicants to obtain the consensus
of a minimum number of similar stakeholders, before the applications
could be further processed.
360. Let us consider the impugned proviso with a different
wording. What, if the proviso provided for a longer period of time to
comply with the requirement under the first and second provisos.? In
such a scenario, once the numerical strength, contained in the first and
second provisos, in regard to the persons covered by the same, has
been found to be valid by us, the blemish that would remain is, no doubt,
the Legislature is interfering with the vested right, in the manner done
under the provisos read together. That a vested right can be the subject
matter of retrospective law, cannot be doubted. Since, the law made,
under the Constitution, must pass muster, under Articles 14, 19, 21 and
300A of the Constitution, the issue really boils down to, whether or not,
it is manifestly arbitrary. The further question would arise, under Article
19, as to whether, the law would amount to a reasonable restriction of
the Right under Article 19(1)(g). The Doctrine of Fairness, indeed, has
A
B
C
D
E
F
G
H
1155
been present in the mind of the courts, whenever a law, described as
retrospective, comes up for interpretation with or without a challenge to
the law. In the context of a challenge, on the ground of manifest
arbitrariness, the test to be applied has been articulated as to whether it
is capricious, irrational, does not disclose any principle, betrays absence
of proportionality or whether it is excessive. We must also not lose sight
of the fact that the law in question is an economic measure. This is a
case where the Law Giver has not left anything to speculation or doubt.
We have already indicated about the effect of the proviso mandating
the compulsory withdrawal of the application. We are of the view that
this is a case, where the law, in question, is retrospective, in that, contrary
to the requirement in the law, at the time, when the application was filed,
a new requirement is placed, even though, it is sought to be done by
superimposing this condition, not at the time, when the application was
filed, which really is the relevant time to determine the question of
maintainability of the application, with reference to what the law provided
in regard to who can move the application but at the stage of the new
law.
361. However, we cannot also lose sight of the fact that the
Legislature has power to impair and take away vested rights. The
limitation that flows, however, is from both Article 14 and 19 read with
Article 21. It flows from the Doctrine that
the action of the State must
be fair and reasonable. The question, as to validity of the retrospective
law, is a matter to be judged on a consideration of the facts, the period of
time, over which the retrospective law operates, the impact of the law
on the vested rights, the public interest, the nature of the right, which is
the subject matter of the law and the terms of the law.
362. The nature of the right involved in this case, is the right of the
financial creditors to move an application under Section 7. Though,
Section 7 confers a right upon the financial creditor to file the application,
the proceedings are one in rem. We have already dealt with the scope of
the Code and the consequences it can produce on the stakeholders and
also the real estate project. The Legislature was faced with the situation,
where it felt that the requirement, as to maintainability of the application
under Section 7, must, in regard to pending applications, be modified in
the manner done. There is a determining principle, namely, the perception
from experience about how the entire object of the Code would stand
jeopardised if applications already filed could go on even when a fair
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1156
SUPREME COURT REPORTS
[2021] 14 S.C.R.
and reasonable number of kindred souls are not available to support it.
Once there is a principle, it cannot be capricious, excessive or
disproportionate unless we find the time given under the proviso is
manifestly arbitrary. A vested right under a statute can be taken away
by a retrospective law. A right given under a statute can be taken away
by another statute. We cannot ignore the fact that there was considerable
public interest behind such a law. The sheer numbers, in which
applications proliferated, combined with the results it could produce,
cannot be brushed aside as an irrational or capricious aspect to have
been guided by in making the law. Being an economic measure, the
wider latitude available to the Law Giver, cannot be lost sight of.
363. The issue, which, however remains, is the period of 30 days
made available. Is it reasonable to expect that a single applicant could,
under the aegis of the laws’ collect information, and furthermore, gather
the support of fellow travellers, also inclined to support the applicant, as
required? The third proviso does not provide for the applicant applying
before the Tribunal and seeking extension of the period. It could be also
argued that by granting such extensions, no harm is caused to the
stakeholders, insofar as, all this is done before the admission of the
application, with which alone, the consequences, including the appointment
of the Interim Resolution
Professional and the passing of an Order of
Moratorium, would arise. But here again we would be foraying into
areas of legislative value judgement and be proceeding on the basis of
what would be a fairer law.
364. We have to take the law, therefore, as it is and deal with it on
the touchstone of, whether the law is manifestly arbitrary. We have
already, no doubt, found that by virtue of the statutory mechanism, there
appears to be an information grid available under the law. Undoubtedly,
we would have felt more reassured, if the period had been longer than it
is. The law came as a bolt from the blue as it were.
365. As regards the compelled withdrawal under the third proviso
of the pending applications is concerned, we hold as follows. Once the
Legislature intended that the pending applications must be made compliant
with the threshold requirement, consequences for not doing so had to be
provided. Otherwise, it would have created complete uncertainty and
the applicant would have been dealt with in a manifestly arbitrary manner.
Providing for the consequence of withdrawal before admission, which
we have explained, does not have the consequence of preventing the
A
B
C
D
E
F
G
H
1157
fresh filing, even in regard to the same default, after complying, no doubt,
with the requirement of the first or the second proviso, cannot be dubbed
as arbitrary. No doubt, there is lack of clarity in this regard in the provision
but on an understanding of the law, as we have expounded, the provision
was capable of being understood in the manner done.
366. In regard to the first and the second provisos, they have
only prospective operation. The creditors covered by these provisos,
are not subjected to any time limit (except, no doubt, the bar under Article
137 of the Limitation Act), in the matter of garnering the requisite support.
However, prescribing a time limit in regard to pending applications, cannot
be, per se, described as arbitrary, as otherwise, it would be an endless
and uncertain procedure. The applications would remain part of the docket
and also become a Damocles Sword overhanging the debtor and the
other stakeholders with deleterious consequences also qua the objects
of the Code.
367. Finally, the actual time provided. Is it manifestly unfair? Would
not six weeks, two months or even more lengthier periods, be more fair?
Undoubtedly, it would be, from the point of view of the applicants. Another
way to approach the problem is, was it impossible for the creditor/creditors
to seek information, get into touch with the other creditors and persuade
them to join him/them. As far as court fees is concerned, there is no
extra liability as the
amount remains the same, viz., Rs.25,000/-,
irrespective of the number of applicants. If the condition in the third
proviso was impossible to comply with, then, it would also be manifestly
arbitrary. As far as availability of information is concerned, be it the
mechanism of an Association of Allottees contemplated under the RERA
or the requirement under the said Act to post details of the allotment, at
least, in law, the Legislature was not making a capricious command. So
also, is the case with the creditors covered by the first proviso, having
regard to the clear requirement of Section 88 of the Companies Act,
2013. There are registers, which can be perused and information
gathered.
368. Another aspect of the matter is, if there is insolvency and it
affects creditors, ordinarily, self-interest would guide them into following
the best course available to them. We have also seen the presence of
plural remedies. No doubt, calculation of one-tenth in a case, may,
undoubtedly, require the quantification of total number of creditors. This
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1158
SUPREME COURT REPORTS
[2021] 14 S.C.R.
would be necessary, no doubt, only if hundred creditors cannot be found
to support the application.
369. We have noted the consequences of the deemed withdrawal,
the nature of the right, the Explanation to Section 7, the objects of the
Code, the factual matrix reflecting a ten-fold increase in the applications,
the pressure on the dockets of the bodies, which are charged with the
imperative duty to deal with matters with the highest speed, the impact
on similar stakeholders in the category and the sheer largeness of the
class of creditors. The period could have been more fair to the petitioners
by being longer but that is where we must bear in mind, the limits of our
jurisdiction. Where would the Court draw the line? We find it difficult to
hold that within the time limit of 30 days it is impossible to comply with
the requirements.
370. We have dealt with the aspect relating to the impact of the
statutory withdrawal of the application. Secondly, we must also bear in
mind that the Code was enacted in the year 2016. The period of the
retrospective operation, would appear to be, spread over for a period of
two years and for the most part, it relates to a period of one year. We
have already found that the withdrawal under the third proviso, will not
stand in the way of the applicant, invoking the same default and filing the
application and even the principle of Order XXIII Rule 1 of the CPC will
not apply and will not
bar such application. As far as limitation is
concerned, we have explained as to what is to be the impact. The nature
of the vested right and the impact of the law, the public interest, the
sublime objects, which would be fulfilled, would, in the facts of this case,
constrain us from interfering, even though, this Court may have a different
view about the period of time, which is allowed to the applicant.
371. Lastly, there remains a question of court fees. As far as
court fees is concerned, it is true that in the circumstances of the case,
there is compelled withdrawal of the applications. The other side of the
picture is, even, according to the petitioners, the applications engaged
the Adjudicating Authority and time was spent on the applications. In the
circumstances of these cases, we would resort to our power under Article
142 of the Constitution to order as follows. We would direct that in case
applications are moved by the applicants, who are petitioner before us,
in regard to the very same corporate debtor, in the same real estate
project, as far as allottees are concerned, the applicants shall be exempted
from the requirement of paying court fee. This would obviously be a
A
B
C
D
E
F
G
H
1159
one-time affair. We, however, further make it clear that exemption from
paying court fee, in the case of joint applicants, will be limited only to
once, to a single application in future, in relation to the same subject
matter, as per the application. To make it clear, in a case where there
are more than one applicants in the pending application in respect of real
estate project, if they combine in future application, they would stand
exempted. Secondly, in case, any of the applicants, if they were to move
jointly with the requisite number under the second proviso, the exemption
will be limited only to once. Meaning thereby, if exemption has been
availed of by any one out of the joint applicants, in conjunction with
others, then, the other joint applicants cannot claim exemption. If there
are any applicants, falling under the first proviso, and who are among
the petitioners, in regard to the same corporate debtor, they would also
be entitled to the exemption from payment of the court fee.
RELIEF
372. We uphold the impugned amendments. However, this is
subject to the following directions, which we issue under Article 142 of
the Constitution of India:
i.
If any of the petitioners move applications in respect of the
same default, as alleged in their applications, within a period
of two months from today, also compliant with either the
first or the second proviso under Section 7(1), as the case
may be, then, they will be exempted from the requirement
of
payment of court fees, in the manner, which we have
detailed in the paragraph just herein before.
ii.
Secondly, we direct that if applications are moved under
Section 7 by the petitioners, within a period of two months
from today, in compliance with either of the provisos, as
the case may be, and the application would be barred under
Article 137 of the Limitation Act, on the default alleged in
the applications, which were already filed, if the petitioner
file applications under Section 5 of the Limitation Act, 1963,
the period of time spent before the Adjudicating Authority,
the Adjudicating Authority shall allow the applications and
the period of delay shall be condoned in regard to the period,
during which, the earlier applications filed by them, which
is the subject matter of the third proviso, was pending before
the Adjudicating Authority.
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1160
SUPREME COURT REPORTS
[2021] 14 S.C.R.
iii.
We make it clear that the time limit of two months is fixed
only for conferring the benefits of exemption from court
fees and for condonation of the delay caused by the
applications pending before the Adjudicating Authority. In
other words, it is always open to the petitioners to file
applications, even after the period of two months and seek
the benefit of condonation of delay under Section 5 of the
Limitation Act, in regard to the period, during which, the
applications were pending before the Adjudicating Authority,
which were filed under the unamended Section 7, as also
thereafter.
373. The Writ Petitions and the Transferred Case will stand
dismissed subject to the aforesaid directions and the observations
contained in the Judgment, and we only make it clear that the benefits of
the directions, under Article 142, will be available also to the petitioners
in the Transferred Case.
374. The intervention application (I.A.No.67473 of 2020 in WP
(C)No.26 of 2020) is filed by allottees who have filed application under
Section 7 on 20.9.2019. I.A. No.32863 of 2020 in WP(C) No.53 of 2020
is filed by the allottee for impleadment. He has filed application under
Section 7 of the Code on 19.12.2019. I.A. No.32869 of 2020 WP(C)
No.53 of 2020 is filed by the allottees who have filed the same for
impleadment. They have filed application under Section 7 on 17.9.2019.
I.A.No. 15425 of 2018 in WP (C)No.26 of 2020 is filed by a
corporate
debtor for impleadment. All the above IAs are disposed of in terms of
the judgment as aforesaid. We however make it clear that the directions
we have issued under Article 142 regarding court fees and about
condonation of delay will apply to the applicants who are allottees.
Bibhuti Bhushan Bose
Writ Petitions and Transferred Case dismissed.