IBC: Retrospective Application of Revised Threshold- An Alternate Perspective

1. INTRODUCTION

1. 1.1In an apparent bid to avoid large-scale insolvencies, especially against the MSMEs, as a result of the financial stress caused by Covid-19 pandemic, the Central Government had, vide notification bearing no. SO 1205(E) dated March 24, 2020 ("Notification"), increased the threshold of the minimum amount of default for the purpose of maintainability of an application for initiation of corporate insolvency resolution process ("CIRP") under Insolvency and Bankruptcy Code, 2016 ("IBC"), from a sum of Rs. 1,00,000 (Rupees One lakh only) to Rs. 1,00,00,000 (Rupees One Crore only).

1. 1.2The notification, which does not indicate any specific date from when the revised threshold is proposed to be effective, has created flutters amongst the industry and the legal community as to the potential impact of such revision on the pending proceedings initiated under the IBC, where the amount of default is lesser than the revised threshold. This has resulted in generation of multiple articles and commentaries, which have prima facie taken the view that the revision would be prospective in nature and would not impact such proceedings which have been initiated before the publication of the Notification in the gazette.

1. 1.3In this paper, we attempt to examine the applicability of the Notification to the following categories of proceedings, which may be pending before different Benches of adjudicating authority or the appellate authority:

• (a)Demand notice under section 8 of IBC has been issued, but application under Section 9 has not been filed;
• (b)Application filed under Section 7, 9 or 10 is pending; and
• (c)An appeal against the decision of adjudicating authority admitting/refusing CIRP against a corporate debtor is pending before the appellate authority.

2. 2.PRINCIPLE OF CONSTRUCTION OF AMENDING STATUTE- PROSPECTIVE, RETROSPECTIVE AND RETROACTIVE

2. 2.1An application of a new law (including changes to an existing law pursuant to an amendment, substitution or repeal) can be either prospective, retrospective or retroactive. For appreciating the contours of each of the expressions, we may refer to the following observations of a Full Bench of Bombay High Court in the case of Badrinarayan Shankar Bhandari v. Omprakash Shankar Bhandari,^[1] which stated that:

"38. (i) A prospective statute operates forwards from the date of its enactment conferring new rights on parties without reference to any anterior event, status or characteristic;

(ii) Retrospective statute, on the other hand, operates backwards, attaches new consequences, though for the future, but to an event that took place before the statute was enacted. It takes away vested rights. Substantive benefits which were already obtained by a party are sought to be taken away because of legislation being given effect to from a date prior to its enactment. The Rules of Interpretation of Statute raise a presumption against such retrospective effect to a legislation. In other words, if the Legislature has not expressly or by necessary implication given effect to a statute from a date prior to its enactment, the Court will not allow retrospective effect being given to a legislation so as to take away the vested rights. Statutes enacted for regulating succession are ordinarily not applicable to successions which had already opened, as otherwise the effect will be to divest the estate from persons in whom it had vested prior to coming into force of the new statutes. Muhammed Abdus Samad v. Qurban Hussain, ILR (26) All. 119 (129) P.C.

(iii) There is the intermediate category called "Retroactive Statute" which does not operate backwards and does not take away vested rights. Though it operates forwards, it is brought into operation by a characteristic or status that arose before it was enacted. For example, a provision of an Act brought into force on 1^st January 2014, the Act applies to a person, who was employed on 1^st January 2014 has two elements:

(a) That the person concerned took employment on 1^st January 2014 – an event.

(b) That the person referred to was an Employee on that day – a characteristic or status which he had acquired before 1^st January 2014.

Insofar as the Act applies to a person, who took employment on 1^st January 2014, the Act is prospective. Insofar as the Act applies to a person, who had taken employment before 1^st January 2014, the Act is retroactive."

(emphasis supplied)

2. 2.2It may, however, be noted that, a Constitution Bench of the Supreme Court in Shah Bhojraj Kuverji Oil Mills and Ginning Factory v. Subhash Chandra Yograj Sinha,^[2] enumerated that a section may be prospective in some parts and retrospective in other parts.

2. 2.3Now that we have understood the difference between the various concepts, we may refer to the following observations of the Supreme Court in Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited,^[3] in the context of the general principles concerning 'prospective application of legislation':

"28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit: law looks forward not backward. As was observed in Phillips v. Eyre [(1870) LR 6 QB 1], a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law."

(emphasis supplied)

2. 2.4A succinct summary of the principles dealing with prospective and retrospective application of a new law or a change in law can be found in the following observation of the Supreme Court in Hitendra Vishnu Thakur v. State of Maharashtra,^[4] wherein the Court held that:

"(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.

(iii) Every litigant has a vested right in substantive law, but no such right exits 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."

(emphasis supplied)

2. 2.5Before we end the discussion, we may also highlight that a delegated or subordinate legislation can only be prospective and not retrospective, unless rule making authority has been vested with power under a statute to make rules with retrospective effect.^[5] Notably, the IBC does not authorise such power to make rules with retrospective effect.

2. 2.6With the benefit of the principles discussed aforesaid, let us now examine the effect of the Notification on proceedings pending under IBC.

3. 3. SECTION 4 AND THE NOTIFICATION

3. 3.1Before delving into the issue at hand, for proper appreciation of the background, let us however note the content of Section 4 of IBC, pursuant to which the Notification was issued and the Notification itself.

3. 3.2Section 4 of IBC reads as follows:

4. Application of this Part.

(1) This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees:

Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees.

(emphasis supplied)

3. 3.3The Notification, increasing the threshold of default, reads as follows:

"In exercise of the powers conferred by the proviso to section 4 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central Government hereby specifies one crore rupees as the minimum amount of default for the purposes of the said section."

(emphasis supplied)

3. 3.4As is apparent from the aforesaid extract, the Notification is silent as to the date from when it is intended to be effective. This may be contrasted against clear enumeration that the Legislature indicated in amendment to Section 7 of IBC [effected pursuant to Insolvency and Bankruptcy Code (Amendment) Act, 2020)], where the revision in criteria as to when a homebuyer can file an application under Section 7 was clarified as follows:

"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, failing which the application shall be deemed to be withdrawn before

its admission."

(emphasis supplied)

4. APPLICABILITY OF THE NOTIFICATION TO PENDING PROCEEDING

4. 4.1In the preceding paragraphs we have noted how the jurisprudence favours a prospective application of a new statutory provision, especially a delegated legislation, where the parent statute does not vest the rule making authority with power under a statute to make rules with retrospective effect. This, coupled with the principle that the rights of the litigants in appeal are determined applying the law in force at the date of the suit,^[6] probably would indicate a construction that would prefer non-application of the revised threshold to the applications or proceedings instituted under IBC, prior to March 24, 2020 (being the date of publication of the Notification).

4. 4.2I, however, offer an alternative argument. In the following paragraphs, I draw references from the decisions of Supreme Courts to argue that the revised threshold would equally be applicable to proceedings instituted before March 24, 2020.

4. 4.3Proceeding where demand notice under Section 8 has been issued, but no application under Section 9 filed

4. 4.3.1We note that demand notice under Section 8 of IBC is not the last step contemplated by law and hence, mere sending of notice would not have effect of creating any vested right in favour of the operational creditor sending the demand notice.

4. 4.3.2 What is the effect of change in law where a notice has been issued, but no further steps have been taken, has been examined by Supreme Court in a number of cases involving eviction of tenants. For instance, in the decision of Jivabhai Purshottam v. Chhagan Karson,^[7] the Court was concerned with the impact of the amendment to Section 34 of the Bombay Tenancy and Agricultural Lands Act, 1948. Sub-section (2-A) was inserted and it came into force on January 12, 1953. Prior thereto, Jivabhai had issued a notice to the tenant on December 31, 1951 terminating the tenancy and as per the requirement of sub-section (1) of Section 34 the notice had to be given at least one year for the tenancy to be determined. But, the noticee gave a longer period and determined the tenancy with effect from March 31, 1953. The amending Act put conditions upon the right of the landlord to terminate the tenancy and thus, Jivabhai's argument was that a vested right had accrued in his favour when he determined the tenancy on December 31, 1951 and therefore, the amendment made on January 12, 1953 could not take away his vested right. Repelling the contention, the Court observed as follows:

"Nor are we impressed by the argument that by applying sub-s. (2-A) to notices issued before the Amending Act came into force we would be taking away the vested right of the landlord. As we have already pointed out, the notice under s. 34 (1) is merely a declaration to the tenant of the landlord's intention to terminate the tenancy and no further proceedings may be taken by the landlord in consequence thereof It is only when the period of notice has expired and the tenancy has terminated that the landlord acquires a vested right to obtain possession of the land. Therefore, the Amending Act did not affect any vested right of the landlords till the tenancy actually stood terminated after the expiry of the notice. Consequently, the provisions of the Amending Act which came into force before the tenancy stood terminated by the notice will have to be taken into consideration in determining the right of the landlord in the matter of the termination of tenancy, for the Amending Act put certain fetters on this right of termination."

(emphasis supplied)

4. 4.3.3The aforesaid decision was followed by Supreme Court in the case of Trimbak Damodhar Raipurkar v. Assaram Hiraman Patil,^[8] where owing to operation of certain legislative amendments the tenancy could not be terminated on the expiry of tenancy except by giving one year's notice and that too on the ground that the lands were required by the landlord for bona fide personal cultivation and that the income of the said lands would be the main source of income of the landlord. The relevant averments about these grounds were required to be made by the landlord in issuing the notice to the tenants for terminating their tenancy. The said amendment came into effect during the pendency of the notice for eviction that already had been dispatched by the landlord in accord with the requirements comprised in the erstwhile statutory provisions. The proceedings instituted by the landlord for ejectment of the tenant failed as the notice of ejectment was not in consonance with the requirement of the new provisions applicable to such tenancy. It was urged on behalf of the landlord that the rigors of the new law would not be attracted to the case at hand as rights had vested in his favour. Repelling such a contention the Apex Court observed:

"8. Besides, it is necessary to bear in mind that the right of the appellant to eject the respondents would arise only on the termination of the tenancy, and in the present case it would have been available to him on March 31, 1953 if the statutory provision had not in the meanwhile extended the life of the tenancy. It is true that the appellant gave notice to the respondents on March 11, 1952 as he was then no doubt entitled to do; but his right as a landlord to obtain possession did not accrue merely on the giving of the notice, it accrued in his favour on the date when the lease expired. It is only after the period specified in the notice is over and the tenancy has in fact expired that the landlord gets a right to eject the tenant and obtain possession of the land. Considered from this point of view, before the right accrued to the appellant to eject the respondents amending Act 33 of 1952 stepped in and deprived him of that right by requiring him to comply with the statutory requirement as to a valid notice which has to be given for ejecting tenants."

(emphasis supplied)

4. 4.3.4In view of the aforesaid decisions,^[9] it is apparent that the threshold specified in the Notification would be applicable to all those cases where only a demand notice under Section 8 has been issued, and no application under Section 9 has been filed.

4. 4.4Proceeding where application(s) under Section 7, 9 or 10 has been filed prior to March 24, 2020 and is pending disposal

4. 4.4.1Can a change in law be applied to original proceedings which is pending before the appropriate authority? There is divergence in views amongst various Benches of the Supreme Court. For instance, a Constitutional Bench of the Supreme Court, in the case of Shyam Sunder v. Ram Kumar,^[10] favoured non-application of the same in the context of adjudication of pre-emption right (which the Court identified to be a substantive right) and observed as follows:

"The result of the aforesaid discussions is that the amending Act being prospective in operation does not affect the rights of the parties to the litigation on the date of adjudication of the pre-emption suit and the appellate court is not required to take into account or give effect to the sustained Section 15 introduced by the amending Act."

(emphasis supplied)

To the same effect is the decision of Supreme Court in the case of State of Punjab v. Bhajan Kaur.^[11]

4. 4.4.2On the other hand, we also have decisions of the Supreme Court observing that it is the duty of a Court, whether it is trying original proceedings or hearing an appeal, to take notice of the change in law affecting pending actions and to give effect to the same.^[12] For a decision of more recent origin supporting such proposition, we may refer to the following observation of the Supreme Court in the case of CoC of Essar Steel India Limited v. Satish Kumar Gupta^[13]:

"82. Equally, Explanation 2 applies the substituted Section to pending proceedings either at the level of the Adjudicating Authority or the Appellate Authority or in a Writ or Civil Court. As has been held in Swiss Ribbons (supra) and ArcelorMittal India (supra) (see paragraph 97 of Swiss Ribbons (supra) and paragraph 82, 84 of ArcelorMittal India (supra)), no vested right inheres in any resolution applicant to have its plan approved under the Code. Also, the Federal Court in Lachmeshwar Prasad Shukul v. Keshwar Lal Chaudhuri AIR 1941 FC 5 and later, this Court in Shiv Shakti Coop. Housing Society, Nagpur v. Swaraj Developers & Ors. (2003) 6 SCC 659 (at paragraphs 16 and 17) have held that an appellate proceeding is a continuation of an original proceeding. This being so, a change in law can always be applied to an original or appellate proceeding. For this reason also, Explanation 2 is constitutionally valid, not having any retrospective operation so as to impair vested rights."

(emphasis supplied)

4. 4.4.3What is apparent from the aforesaid decisions is that, it is difficult to formulate a principle which would govern whether a change in law would apply to a pending proceeding and would depend upon various factors, including whether the effect of such law is to affect vested right. If the effect of an amendment is to extinguish a vested right, the same would prima facie be prospective, unless the legislature had specifically intended such amendment to have a retrospective effect.

If right to file application to initiate CIRP is a Vested Right

4. 4.4.4Before we seek guidance from decisions where the Supreme Court was faced with similar circumstances, let us spend some more time in analysing the nature of right that a creditor has under the IBC. In specific, let us analyse whether the right of a creditor to make an application to initiate corporate insolvency resolution process against a corporate debtor is a vested right or merely an existing right.

4. 4.4.5The expression 'vested rights' is not defined by the legislature in any statute and its contours can be discovered by examining the decisions of the Courts; where on a case by case basis certain rights were held to have vested or accrued in favour of the beneficiaries. A Full Bench of the Punjab & Haryana High Court in Gordhan Dass Baldev Das v. The Governor-General in Council ^[14], explained vested right as follows:

A right is said to be vested when the right to enjoyment, present or prospective, has become the property of some particular person or persons as a present interest, independent or a contingency. It is a right which cannot be taken away without the consent of the owner. (emphasis supplied)

A later Full Bench of Punjab & Haryana High Court in Risaldar Major Amar Singh v. R.L. Aggarwal^[15], had observed as under:

"that rights are said to be vested when they are complete and consummated, so that nothing remains to be done to perfect them. A vested right is a right or interest in property that has become fixed and established, and is no longer open to doubt or controversy. A right in order to be vested must be perfected in the sense that the person to whom it belongs cannot be divested of it without his consent."

(emphasis supplied)

Finally, we may refer to the observation of the Supreme Court in the case of J.S. Yadav v. State of U.P.^[16], where the Court observed as follows:

20. "The word 'vested' is defined in Black's Law Dictionary (6th Edition) at page 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 Edition) at page 1397, 'vested' is defined as:

[L]aw held by a tenure subject to no contingency; complete; established by law as a permanent right; vested interest." (See: Mosammat Bibi Sayeeda & Ors. etc. v. State of Bihar & Ors. etc., AIR 1996 SC 1936).

21. 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". It had a "legitimate" or "settled expectation" to obtain right to enjoy the property etc. Such "settled expectation" can be rendered impossible of fulfilment due to change in law by the Legislature. Besides this, such a "settled 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 law. (Vide: Howrah Municipal Corpn. & Ors. v. Ganges Rope Co. Ltd. & Ors., (2004) 1 SCC 663).

22. Thus, "vested right" is a right independent of any contingency. Such a right can arise from a contract, statute or by operation of law. A vested right can be taken away only if the law specifically or by necessary implication provide for such a course."

(emphasis supplied)

4. 4.4.6If we may summarise the principle that emanates from the aforesaid decisions, for a right to qualify as a vested right, the right needs to be absolute and subject to no contingency. Importantly, contingent interest founded on anticipated continuance of existing laws, does not constitute vested rights.

4. 4.4.7If we analyse the right of a creditor to maintain an application before adjudicating authority under the IBC, we note that such right is not absolute and contingent upon various factors, including the fact that the amount of dispute needs to be in excess of the threshold then applicable. Where the right is conditional, in our view, such right of application by a creditor would not qualify as a vested right, but at the most can qualify as an existing right.

4. 4.4.8What is the distinction between a vested right and an existing right? We refer to the following observation of Supreme Court in the case of Trimbak Damodhar Raipurkar v. Assaram Hiraman Patil^[17]:

"In this connection it is relevant to distinguish between an existing right and a vested right. Where a statute operates in future it cannot be said to be retrospective merely because within the sweep of its operation all existing rights are included. As observed by Buckley, L. J. in West v. Gwynne retrospective operation is one matter and 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 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."

These observations were made in dealing with the question as to the retrospective construction of s. 3 of the Conveyancing and Law of Property Act, 1892 (55 & 56 Vict. c. 13). In substance s. 3 provided that in all leases containing a covenant, condition or agreement against assigning, underletting, or parting with the possession, or disposing of the land or property leased without licence or consent, such covenant, condition or agreement shall, unless the lease contains an expressed provision to the contrary, be deemed to be subject to a proviso to the effect that no fine or sum of money in the nature of a fine shall be payable for or in respect of such licence or consent. It was held that the provisions of the said section applied to all leases whether executed before or after the commencement of the Act; and, according to Buckley, L. J., this construction did not make the Act retrospective in operation; it merely affected in future existing rights under all leases whether executed before or after the date of the Act. The position in regard to the operation of s. 5(1) of the amending Act with which we are concerned appears to us to be substantially similar."

(emphasis supplied)

4. 4.4.9The aforesaid decision was cited with approval in a relatively recent decision of Supreme Court in the case of P. Suseela v. University Grants Commission^[18], where constitutional validity of the University Grants Commission Regulations, 2009 under which NET/SLET was to be the minimum eligibility condition for recruitment and appointment of Lecturers in Universities/Institutions, was under challenge. In the Apex Court, a submission was made that the said Regulations should not be given retrospective effect so as not to prejudicially affect the interest of any person to whom such Regulations may be made applicable. The Apex Court referred to Trimbak Damodhar Raipurkar v. Assaram Hiraman Patil^[19] to make distinction between the existing right and vested right and went on to observe as follows:

"15. Similar is the case on facts here. A vested right would arise only if any of the appellants before us had actually been appointed to the post of Lecturer/Assistant Professors. Till that date, there is no vested right in any of the appellants. At the highest, the appellants could only contend that they have a right to be considered for the post of Lecturer/Assistant Professor. This right is always subject to minimum eligibility conditions, and till such time as the appellants are appointed, different conditions may be laid down at different times. Merely because an additional eligibility condition in the form of a NET test is laid down, it does not mean that any vested right of the appellants is affected, nor does it mean that the regulation laying down such minimum eligibility condition would be retrospective in operation. Such condition would only be prospective as it would apply only at the stage of appointment. It is clear, therefore, that the contentions of the private appellants before us must fail." (emphasis supplied)

4. 4.4.10In other words, if a change in law has the effect of affecting future existing rights by way of inserting an additional criterion, such law cannot be considered as retrospective merely because it would affect an existing right which existed before the change in law.

Effect of Revision on Threshold Pending Proceedings

4. 4.4.11In the preceding paragraphs, we have tried to establish that a creditor's right to file an application under IBC is not a vested right and accordingly, the restriction on a new law to retrospectively affect such right without specific intendment may not apply stricto sensu.

4. 4.4.12Let us then try to seek guidance from decisions where the Supreme Court was faced with similar circumstances.

4. 4.4.13In Mohanlal Chunilal Kothari v. Tribhovan Haribhai Tamboli,^[20] certain lands were situated in the erstwhile State of Baroda before it became a part of the State of Bombay by merger. The Bombay Tenancy and Agricultural Lands Act, 1948 ("1948 Act"), was extended to Baroda on August 1, 1949. Suits were filed in the Civil Court by appellants-landlord, against the respondents who were their tenants on the ground that the latter became trespassers with effect from the beginning of the new agricultural season in May 1951. Decrees for possession were passed by the Civil Court in favour of landlords and the same were confirmed by the First Appellate Court. However, the High Court accepted the appeals and dismissed the suits. It was held that under the provisions of section 3A (1) of the Bombay Tenancy Act, 1939, as amended, a tenant would be deemed to be a protected tenant from August 1, 1950 and that vested right could not be affected by the notification dated April 24, 1951 issued under section 88 (1)(d) of the 1948 Act by which the land in suit was excluded from the operation of the 1948 Act.

4. 4.4.14The Court first considered the scope of Section 88 of the 1948 Act, which read as follows:

"88. Nothing in the foregoing provisions of this Act shall apply:--
(a) to lands held on lease from the Government a local authority or a co-operative society;
(b) to lands held on lease for the benefit of an industrial or commercial undertaking;
(c) to any area within the limits of Greater Bombay and within the limits of the Municipal boroughs of Poona City and Suburba, Ahmedabad, Sholapur, Surat and Hubli and within a distance of two miles of the limits of such boroughs; or
(d) to any area which the State Government may, from time to time, by notification in the Official Gazette, specify as being reserved for urban non-agricultural or industrial developments."

(emphasis supplied)

After noting the same, the Court went on to observe as follows:

"5. It will be noticed that cls. (a), (b) and (c) of S. 88(1) apply to things as they were at the date of the enactment, whereas cl. (d) only authorised the State Government to specify certain areas as being reserved for urban non-agricultural or industrial development, by notification in the Official Gazette, from time to time. Under cls. (a) to (c) of S. 88 (1) it is specifically provided that the Act, from its inception, did not apply to certain areas then identified; whereas cl. (d) has reference to the future. Hence, the State Government could take out of the operation of the Act such areas as it would deem should come within the description of urban non-agricultural or for industrial development. Clause (d), therefore, would come into operation only upon such a notification being issued by the State Government. The portion of the judgment, quoted above, itself makes it clear that the provisions of S. 88 were never intended to divest vested interests. To that extent the decision of this Court is really against the appellants. It is clear that the appellants cannot take advantage of what was a mere slip in so far as cl.(d) was added to the other clauses of S. 88(1), when that clause really did not fall to be considered with reference to the controversy in that case. In other words, this Court never intended in its judgment in Sakharam's case, Civil Appeal No. 185 of 1956, D/-19-4-1961 : (AIR 1963 SC 354) (supra) to lay down that the provisions of cl. (d) of S. 88(1) aforesaid were, only prospective end had no retrospective operation. Unlike cls. (a), (b) and (c) of S. 88 (1), which this Court held to be clearly prospective, those of cl. (d) would in the context have retrospective operation in the sense that it would apply to land which could be covered by the notification to be issued by the Government from time to time so as to take those lands out of the operation of the Act of 1948, granting the protection. So far as cls. (a), (b) and (c) are concerned, the Act of 1948 would not apply at all to lands covered by them. But that would not take away the rights conferred by the earlier Act of 1939 which was being repealed by the Act of 1948. This is made clear by the provision in S. 89(2) which preserves existing rights under the repealed Act, Sakharam's case, Civil Appeal No. 185 of 1956, D/-19-4-1961: (AIR 1963 SC 354,) (supra) was about the effect of cl. (c) on the existing rights under the Act of 1939 and it was in that connection that this Court observed that S. 88 was prospective. But cl.(d) is about the future and unless it has the limited retrospective effect indicated earlier it will be rendered completely nugatory. The intention of the legislature obviously was to take away all the benefits arising out of the Act of 1948 (but not those arising from the Act of 1939) as soon as the notification was made under cl. (d). This is the only way to harmonise the other provisions of the 1948-Act, conferring certain benefits on tenants with the provisions in cl. (d) which is meant to foster urban and industrial development. The observations of the High Court to the contrary are, therefore, not correct."

(emphasis supplied)

4. 4.4.15What is interesting to note from the aforesaid decision is, like in the case of IBC, the 1948 Act allowed the relevant Government to specify, by way of notification, the cases to which the statute would be applicable.^[21]

4. 4.4.16Also, interesting would be to note the decision of the Supreme Court in the case Dahiben v. Vasanji Kevalbhai,^[22] which also arose out of the 1948 Act. As we had noted earlier, sub-clause (c) of Section 88 of the 1948 Act, in its original form, covered area within the limits, inter-alia, of the Municipal borough of Surat and within a distance of two miles of the limit of the borough. However, an amendment was made by Bombay Act 33 of 1952, which substituted a new clause (c) deleting that part of earlier clause (c) which made the Act inapplicable to an area of two miles within the limits of municipal boroughs named in the clause. The question before the Court was whether such amendment would be retrospective in application to exclude the suit land, which, had the amendment not been passed, would not have been covered within the beneficial position of the 1948 Act. The Court ruled in favour of retrospective operation of the amendment by observing as follows:

"16. We have, therefore, to see whether insofar as the amendment at hand is concerned, could it be reasonably said that the same operates retrospectively. It is here that what was observed by the Constitution Bench in Mohanlal case (1963 (2) SCR 707:1963 AIR(SC) 358) becomes relevant. The Bench observed that insofar as clause (d) of Section 88(1) of the Act is concerned, the same would have in the context,

retrospective operation, in the sense that it would apply to land which could be covered by a notification to be issued by the Government from time to time, so as to take those lands out of operation of the Act granting the protection. This observation is dehors what was stated in the latter part of the judgment in which the Bench referred to the cancellation of the notification. If a notification taking away substantive rights of tenants can have retrospective operation, no objection can be taken, according to us, on principle, to a provision taking away substantive rights of landlords having retrospective operation.

17. When an argument was advanced on the basis of cancellation that the same could not take away the right which had accrued to the landlords as a result of the first notification, the Bench found no force in the argument and observed that if the landlords had obtained an effective decree and had succeeded in ejecting the tenants as a result of that decree, which might have become final between the parties, that decree might not have been reopened and the execution taken thereunder might not have been refused. But the second notification had come to be issued during the pendency of the suit, because of which it was held that the court was bound to apply the law as it was found on the date of its judgment, because there was no question of

taking away of any vested rights in the landlords. In the present case, the position is precisely what was found in the Mohanlal case ( 1963 (2) SCR 707 : 1963 AIR(SC) 358) inasmuch as the amendment in question had come into force when the suit of the appellant was pending before the trial court, which goes to show that no vested rights to get possession had accrued to the landlord-plaintiff.

18. In view of the aforesaid, we have no difficulty in holding that insofar as the present case is concerned, the amendment has to be held as applicable to the suit which was pending. Indeed, we would go further and say that even if vested right would have accrued to the landlord by the time the amendment of 1952 came to force, a view could well be taken that the amendment should apply retrospectively."

(emphasis supplied)

4. 4.4.17In view of the aforesaid discussion, one may well be within his right to contend that the Notification would even apply to pending proceedings, which are awaiting disposal and the adjudicating authority may be required to note the change in the law (revision in threshold) for ascertaining whether admission of CIRP to be allowed or not.^[23]

4. 4.5Proceeding where an appeal lies against an order admitting/dismissing an application for initiation of CIRP

4. 4.5.1If we were able to convince the reader that there is an arguable case of applying the revised threshold to even pending proceedings, the argument may be expanded further to even include within its ambit any appeal provisions. For the same proposition, we may refer to the following observation of Supreme Court in the case of Lakshminarayan Guin v. Niranjan Modak,^[24]:

"7. On the question whether the provision applied to pending suits for possession, the learned Judges drew attention to the point of time specifically mentioned in the sub-section. It operated, they said, "when the decree for recovery of possession will have to be passed" and did not refer back to the institution of the suit. By a unanimous judgment the learned Judges held that the sub-section applied to pending suits. In passing, it may be noted that a learned Judges expressed a degree of hesitation on whether a statutory injunction of that nature could be applied retrospectively to appeals against decrees already made. But any doubt on the point must be considered to have been finally removed by this Court when in Mr. Rafiquennessa v. Lal Bahadur Cheetri([1964] 6 S.C.R. 876) another Bench of five Judges, which included J. C. Shah J. who was a member of the Bench in the earlier case, held on an interpretation of clause (a) of sub-s. (1) of the Assam Non-Agricultural Urban Areas Tenancy Act, 1955, which prohibited the eviction of a tenant. that the statutory provision came into play for the protection of the tenant even at the appellate state. The learned Judges relied on the principle that an appeal was a continuation of the suit and that the appeal would be governed by the newly enacted clause (a) of sub-s. (1) of s.5 even though the trial court decree had been passed earlier."

(emphasis supplied)

4. 4.5.2We may also draw your attention to paragraph 4.4.2 herein above, where, in CoC of Essar Steel India Limited v. Satish Kumar Gupta,^[25] the Supreme Court had noted that a change in law can be applied to even appellate proceedings.

4. 4.6 Proceeding where CIRP has been admitted and no appeal is pending or appeal has been disposed

4. 4.6.1The Notification would have no impact. In this regard, one must remember that even if a law is interpreted to have a retroactive effect, a statute is not to be construed so as to have a greater retrospective operation than its language renders necessary.^[26] Accordingly, the admitted cases, where the extent of default is less than the revised threshold, cannot be reopened basis the Notification.

5. PARTING THOUGHTS

The issue regarding applicability of the revised threshold to pending proceedings is a complex one. Whilst the applicability of the Notification to situation where only a demand notice has been sent appears to be pretty settled, such is not the case in so far as proceedings, which are pending before the adjudicating authority, are concerned. Resolution of the issue would require in-depth judicial analysis and we hope that a clarity would be available soon.

Views Are Personal Only

(Arka Majumdar is a Partner with Argus Partners, Solicitors & Advocates. For any queries, comments or suggestions, please contact argusknowledgecentre@argus-p.com.)