INSIGHTS
SC TO NCLT: BE AN ADJUDICATOR... NOT A SUPERVISOR
The SC’s latest salvo
In September, 2018 the Supreme Court said that the National Company Law Tribunal (NCLT) and it appellate authority National Company Law appellate Tribunal (NCLAT) should not interfere in the insolvency resolution proceedings that has been initiated by the insolvency resolution professional and the committee of creditors under the IBC code.
The background
An insolvency petition was filed against Essar steel in June 2017. The steel giant had outstanding debt of Rs. 49,000 crore. The NCLT finally admitted the insolvency petition in August, 2018.
Bids were invited in October, 2018 the course of the insolvency resolution process. Six firms submitted their expression of interest (EOI).Consequent to the introduction of section 29A of the IBC in November, 2017, two bidders bid for the same in the first round in February, 2018. In March, 2018, both bids were rejected on grounds of Section 29A of the IBC. Both bidders – ArcelorMittal and Numetal filed petitions in NCLT challenging the same. Pending this, a second round of bids were invited by the NCLT in April, 2018. The NCLT directed the CoC to reconsider the first round of bids. In April, ArcelorMittal and Numetal moved the NCLAT to reconsider their rejection from bidding. In September, 2018 the NCLAT holds the Numetal bid valid while keeping the ArcelorMittal bid contingent upon them repaying dues to the extent of Rs. 7,000 crores in Uttam Galva and KSS Petron in which they were promoters within three days. Aggrieved by the NCLAT order, ArcelorMittal approaches the SC stating that they were no longer promoters of Uttam Galva and they had divested their stake before bidding for Essar Steel.
The legal technicality
Section 29A of the IBC prohibits related parties of defaulting firms from participating in the resolution process. One of the two firms – ArcelorMittal was rejected as a bidder as it was holding 29% shareholding in Uttam Galva Steel and KSS Petron which defaulted in loan repayments. ArcelorMittal challenged the same before the NCLAT. The Appellate Tribunal ruled that second round bids by other bidders are valid but that of ArcelorMittal shall be contingent upon it clearing the Rs. 7,000 crores plus dues of Uttam Galva and KSS Petron (in which ArcelorMittal owns 29% stake) within 3 days of passing the order. The NCLAT further ruled that the Committee of Creditors (CoC) should expedite its resolution plan which be submitted by the resolution before the adjudicating authority to pass an order in accordance with the law.
The Apex Court observations
While noting that ArcelorMittal sold its stake in Uttam Galva and KSS Petron only few days prior to making the bid for Essar Steel, it held that ArcelorMittal did so with the “sole objective of bidding for Essar Steel”. Additionally, the SC was critical of the role played by the NCL and NCLAT in the insolvency resolution process. The SC has categorically stated that NCLT and NCLAT were only adjudicating bodies and they shall not interfere in the modalities and nitty gritty of the insolvency resolution process initiated by the interim resolution professional (IRP) and the Committee of Creditors (CoC) under the insolvency and bankruptcy code (IBC)
Being adjudicating bodies, the role of the NCLT and NCLAT shall come only after the resolution plan is finalized. By “jumping in” when the IRP and CoC is going on will actually prevent the plan from being executed successfully. The division bench consisting of Justice Rohinton Nariman and Justice Indu Malhotra minced no words in stating that none of process of the corporate insolvency resolution process (CIRP) and the Committee of Creditors (CoC) could not be interdicted (prohibited) by the NCLT / NCLAT. They are adjudicating authorities and not supervisory authorities to get into the minute details of who were invited for bids etc.
The emphasis of the division bench is to ensure that NCLT / NCLAT do not get involved at the time of the CIRP / CoC process. It is only after the resolution plan is finalized that NCLT / NCLAT should ensure that the process followed was in accordance with law.
Accordingly in the first week of October 2018, the Supreme Court passed an order directing ArcelorMittal to pay up the outstanding debts of Uttam Galva within the stipulated time and thereafter bid for Essar Steel. In the third week of October, 2018, just a day before the commencement of the two week deadline, ArcelorMittal agreed to pay all outstanding dues of Uttam Galva and thereafter make a bid for Essar Steel.
SC observation – demarcation of work lines
The SC observation of both the NCLT and NCLAT being “at bay” till Corporate resolution proceedings by an insolvency resolution professional and the meeting of the Committee of Creditors (CoC) is complete makes a clear demarcation of the scope of work in which the NCLT/ NCLAT can involve itself in. This mean that till the moratorium period of 270 days within which time the CIRP and the CoC work is carried out by the insolvency professionals, the NCLT / NCLAT should stay away. It is only after the completion of this process can the NCLT / appellate authority have the right to rule over whether the process is in accordance with the law. It was further observed that some time limit must also be fixed after the CIRP and CoC process within which the NCLT / NCLAT must decide disputes. Else the entire process of dispute resolution will become a wasteful and time consuming exercise. As such the NCLT / NCLAT has its hands more than full with other cases – mergers/de-mergers /acquisitions.
This clear line of demarcation has two fold effects – (i) The role of NCLT is adjudicatory and not supervisory in nature. (ii) By ensuring that the NCLT does not get involved in every stage of the insolvency resolution process, This may lead to lesser number of litigations pending before the NCLT / NCLAT / Courts and thereby make the legal insolvency resolution process speedier and more effective within the 270 period stipulated by the Insolvency and Bankruptcy Code.
WHAT'S BREWING
PREVENTING THE CORRUPT
Corruption is a bane to any economy / country. This is especially true in a country like India with multiple layers of bureaucracy, red tapism and rampant corruption in public services. This severely hampers the ease of doing business not to mention the disrepute and loss of credibility at the global level.
The Prevention of Corruption Act was originally enacted in September 1988 with view to check and curb corruption in public and government agencies. The Act was made applicable to all States except the State of Jammu & Kashmir. It had extensive sections containing the types of offences, the gravity of the nature of offences, the punishments and related issues. Some of the more (in) famous cases that were tried under this law were the 2G spectrum case and the Punjab medical college scam case.
In July, 2018 this Act was amended with sweeping changes. The amendments were essentially aimed at expanding the scope of applicability of the Act and also tightening the existing provisions.
A look at what’s brewing with these amendments:
- It aims to make bribes to a public servant and bribery by commercial organisation an offence. Such offence is punishable with imprisonment and fine.
Person / Entity - Bribe giver (individual)
Punishment / Consequences - Imprisonment of 5 years – 7 years or fine or both
Exception - If a person has been coerced to give bribe and he reports the same to the concerned authority within 7 days of doing so, shall not be charged with the offence. To that extent, the victim of coercion is safeguarded
Person / Entity - Bribe giver (Commercial organisation)
Punishment / Consequences - Person in charge or control such a Director(s), Manager, Secretary shall face imprisonment of 3 years – 7 years. This is criminal liability. The organization has to bear the fine
Exception - If the organization proves that there were adequate policies and measures in place to check such corrupt practices, then it may not face penal consequence. To that extent the onus is on the company to show that it had practices to keep corruption in check
Remarks - The terms “Commercial Organization” and person associated with commercial organization like employees and vendors have been introduced in the Act for the first time
Person / Entity - Abettors to the bribe giving / taking
Punishment / Consequences - Even those who abet such offence shall be liable to imprisonment of 3 years to 7 years and also fine
Person / Entity - Bribe takers
Punishment / Consequences - Imprisonment of 3 years to 7 years and fine
Person / Entity - Habitual offenders (Convicted of such offence and further commits same offence)
Punishment / Consequences - Imprisonment of 5 years to 10 years and also fine
- Prior to the amendments, the Courts were to complete trial within 2 years. Consequent to the amendments, a trial can now be extended by 6 months a time up to a maximum period of 4 years. However, the Act does not lay down the course of action if the trial is not completed by 4 years also.
- “Criminal misconduct” by public servants has also been amended. Consequent to the amendments, a public servant shall be accused of criminal misconduct if he/she misappropriates and or misuses public or government property for personal gain(s) and allows any other person to do so, and if he / she intentionally enriches himself / herself illicitly during the period in office.
- The provisions relating to attachments and seizure of money and or property earned from the offence of bribery shall be administered by a “Special Judge” and not a “District Judge” as contained in the Ordinance.
The above amendments to the Prevention of Corruption Act, 1988 seems to have been included keeping in line with the international legislations on prevention of corruption. The amendments have tried to widen the scope of its applicability to the offence as well as the entity. It is for the first time that commercial organizations have been brought under the ambit of the legislation. The emphasis is to ensure that all organizations have in place clear cut compliance and anti-bribery policies and also adhere to the same. The amendments provide relief to the coerced individuals by providing a timeline for reporting the same. The amendments and the Act itself, if implemented in letter and spirit will go a long way in preventing corruption at grass root levels and ensure ease of doing business in credible India.
MCA
IBBI
SEBI
- Standardized norms for transfer of securities in physical mode [06.11.2018]
- Streamlining the Process of Public Issue of Equity Shares and convertibles [01.11.2018]
- Total Expense Ratio (TER) and Performance Disclosure for Mutual Funds [22.10.2018]
- Participation of Eligible Foreign Entities (EFEs) in the commodity derivatives market [09.10.2018]
- Eligibility conditions for Foreign Portfolio Investors (FPIs) [21.09.2018]
- Know Your Client Requirements for Foreign Portfolio Investors (FPIs) [21.09.2018]
- Amendment to SEBI (Credit Rating Agencies) Regulations, 1999 and modification to SEBI Circular dated May 30, 2018 [19.09.2018]
CIRCULARS & NOTIFICATIONS
THE VERDICT
Rule 3(b) of the kerala hindu places of public worship (authorisation of entry) rules, 1965 unconstitutional and violative of articles 14, 15, 25 & 51(e) of the constitution of india; Fundamental right to worship under article 25(1) of the constitution of india not be gender biased
Landmark Judgment by the Supreme Court of India
Indian Young Lawyers Association & others Vs. The State of Kerala & others
Writ Petition (Civil) no. 373 of 2006
In a historic Judgment having manifold ramifications, a 5 Judge Bench have ruled 4:1 in favour of allowing women in the age group between 10 – 50 years to enter into the temple premises of Lord Ayyappa in Sabarimala – a practice that was hitherto not allowed.
The petitioners, a registered association of young lawyers, filed a writ petition stating that Rule 3(b) of the Kerala Hindu Places of Public Worship (Authorisation of Entry) Rules, 1965 that restricts the entry of women in Sabarimala temple violates Article 14(Right to Equality), Article 15 (Prohibition of Discrimination) and Article 21(Protection of Life & personal liberty) of the Constitution of India.
It was contended that the exclusionary practice violated the right to equality under Article 14 of the Constitution as it was based on physiological factors such as menstruation of the female body. This is arbitrary in nature. This customary practise violates Article 15(1) as it is based on the gender / sex alone. The petitioners contended that this practice of restricting women’s entry into the Sabarimala temple also violates Article 25 of the Constitution which guarantees the fundamental right to an individual to worship or follow any religion. This article does not expressly prohibit women from entering any public temple. It was argued that the devotees of the Sabarimala Lord do not constitute any religious denomination under Article 26 as they do not have a common faith or distinct name. The exclusionary practise of restricting women of certain age groups as they are considered to be impure/ polluted amounts to casting a stigma on them and also tantamount to practicing untouchability which is violative of Article 17 of the Constitution. The Fundamental Right to worship under Article 25(1) is a non-discriminatory right, and is equally available to both men and women alike. The right of a woman to enter the Temple as a devotee is an essential aspect of her right to worship. Article 25(2)(b) is not merely an enabling provision, but provides a substantive right.
The respondents contended that for centuries, it has been a custom to restrict entry of women in the age group of 10 years to 50 years from entering the temple on religious /faith basis. The basis of this restriction – ‘acharas’, belief and customs. The manifestation of the deity at the Sabarimala Temple is in the form of a ‘Naishtik Bramhachari – an eternal celibate who practises strict penance, and the severest form of celibacy. This is the unique characteristic of the deity in Sabarimala. The Lord himself was supposed to have expressly stated the manner of method of undertaking the pilgrimage to Sabarimala – the trek through the forest after observing a 41 day “vratham” or penance. In the course of the “vartham”, the devotees are to alienate totally themselves from the worldly and materialistic pleasures. The idea being to discipline and train the devotees for the evolution of spiritual consciousness leading to self-realization. Since there is abstinence from women as part of spiritual discipline, it is expressly stipulated that women between the ages of 10 years and 50 years should not undertake this pilgrimage. This custom has been in place since the inception of the temple – for centuries now. It is also reiterated that there are over 1,000 temples of Ayyappa temples all over the country and it is only in the Ayyappa temple in Sabarimala where the deity is in the form of a naisthika brahmachari that this restriction exists. In all other temples, women are allowed entry and such temples have their own manner of worship in temples.
It is only in the Sabarimala Ayyappa temple that it is essential practise to restrict entry of women in pilgrimage. It is done with the objective to keeping away from distraction from the female gender and to achieve spiritual discipline and realisation. It is also to preserve the character and form of the deity. Such restriction is with respect to religious faith and practise and custom of worship of the deity in Sabarimala.
According to the respondents, there is no absolute restriction on women entering the temple. Girls below 10 years of age and women above 50 years of age can worship at the Sabarimala Ayyappa temple as well. It is contended that the restriction on entry of women is only to preserve the sacred /divinity of the deity and preserve the penance undertaken by the devotees. It was also contended that religion is a matter of faith. Religious beliefs are held to be sacred by those who have faith. Further, it was argued that by virtue of Article 25(2)(b) ( 1), laws providing for social welfare and social reform, and throwing open of all ”Hindu religious institutions of a public character” to ”all classes and sections of Hindus”) would have no application since there is no ban, but only a limited restriction during the notified period, based on faith, custom and belief, which has been observed since time immemorial. Also there was no violation of Article 17 where caste or religion based “untouchability” practices were being followed. The strongest contention was that the custom is not based on any alleged impurity or disability.
4 out of the 5 Judge Bench, headed by the Chief Justice of India, ruled in favour of removing the restriction of women entering into Sabarimala on the ground that not allowing the woman to enter because they are of procreating age is "derogatory" to them. They were of the view that excluding women of the age group 10-50 from the temple is to deny dignity to women and further that Patriarchal rules have to change. Patriarchy in religion cannot be allowed to trump right to pray and practice religion".
This Judgement is historic in many ways. While it has shown the country’s judiciary to be progressive and gender neutral, it has opened the flood gates for a very basic question – whether Judiciary has the authority to delve into the faith / religious practices of any religion.
LEGAL-EASE
Quash:
To overthrow; to abate; to vacate; to annul; to make void; e.g to quash an indictment.
Rake off:
Share of profits of transaction or business, demanded,paid or otherwise taken illegally. Illegal pay off or bribe, or skimming of profits.
Salvage:
In general, that portion of goods or property which has been saved or remains after a casualty such as fire or other loss.
Tacit:
Existing,inferred, or understood without being openly expressed or stated; implied by silence or silent acquiescence, as a tacit agreement or a tacit understanding. Done or made in silence, implied or indicated, but not actually expressed. Manifested by the refraining from contradiction or objection; inferred from the situation and circumstances, in the absence of express matter.
INFOGRAPHIC
(P)REVIEW
CHICAGO (2000) (Movie)
Based on a 1975 Broadway musical of the same name, the movie version is a musical- crime drama with a stellar ensemble cast – Catherine Zeta Jones, Renee Zellweger, Queen Latifah and Richard Gere.
The story revolves around a housewife Roxie (Zellweger) who is smitten by the Vaudevillian stage musical performance of Velma Kelly (Zeta Jones). Wanting to become like Velma, Roxie becomes physically involved with Fred casely - a man who claiming to have connections in showbiz. When Roxie realises that he merely took her for a ride, she murders him and successfully convinces her innocent husband to take the blame. In the nick of time the truth about her affair is out and she is imprisoned. There she finds Velma Kelly also imprisoned for murdering her sister and Kelly’s husband for having an affair. Kelly rebukes Roxie’s attempt of getting friendly and then begins a (legal) battle of outwitting each other, a fight for the fame that will keep them from the gallows. Helping Roxie in this process is Velma’s lawyer – Billy Flynn (Richard Gere) a flamboyant media friendly lawyer with a reputation to turn his clients into celebrities by garnering public support for them. Roxie and Velma must fight their battle to keep them from the gallows. Watch the movie to find out if their dream of walking free and performing stage musicals will come true.
This movie was the first musical to win Best Picture at the Academy awards since Oliver in 1968. Besides it got nominated for almost all prestigious awards in that year.
Compulsion - Meyer Levin
(Book / Novel)
Meyer Levin was an American journalist - novelist, best known for his work the Leopold and Loeb case, a sensational crime committed in the 20’s on which the novel Compulsion is based. The novel was released in 1956 and the movie of the same name premiered in 1959.
The novel is written based on a true story - two wealthy, intelligent elite students in Chicago of the Jewish community who are so obsessed with the German Philosopher Nietzsche’s idea of the superhuman that both boys decide to prove that they are above the laws of man. They randomly pick and brutally murder a 14 year old Jewish boy. After a much hyped trial, the duo are convicted and held guilty for murder. They are sentenced to life imprisonment plus 99 years in prison. However on of them is killed by a fellow inmate while the other walked free on parole 30 years after committing the crime.
The Author skilfully depicts the many layers to the crime – the diverse personality of the two friends who at times hate each other yet work as a team. The devastation of the victim’s family as they try to comprehend the senseless “thrill” killing and how redemption is sought.
Matlock (1986 - 1995)
(TV Series)
An American Legal drama that ran for 9 seasons, this TV series centred on Benjamin “Ben” Leighton Matlock, a Harvard graduated lawyer who established practice in Atlanta. A very expensive and cantankerous criminal defence attorney, Ben is worth every penny as he and his team would go any length to find the real perpetrator of the crime.
Man, when perfected, is the best of animals, but when separated from law and justice, he is the worst of all
– Aristotle
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