Raising Of IBC Threshold : Retrospective Or Prospective?

Assuming for a moment that there will be no suspension of proceedings under Sections 7, 9 and 10 of the IBC, the question that now arises is whether the IBC notification apply prospectively, or will it apply retrospectively to existing/pending applications filed under Sections 7 and 9 as well? The author through this column attempts to analyze this position of law.

APPLICABILITY- WHETHER PROSPECTIVE OR RETROSPECTIVE

The IBC notification does not expressly state as to whether it applies prospectively or retrospectively. Therefore, is it safe to presume that the said notification is deemed to apply prospectively since there is no mention of it applying retrospectively?

On the issue of retrospective operation of a statute, the Hon'ble Supreme Court in S.L. Srinivasa Jute Twine Mills v. Union of India and another^[5] has clearly stated as under,

"18. It is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation…..But the rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the Legislature to affect existing rights, it is deemed to be prospective only 'nova Constitution futuris formam imponere debet non praeteritis'.

In the words of Lord Blanesburg,

"provisions which touch a right in existence at the passing of the statute are not to be applied retrospectively in the absence of express enactment or necessary intendment." ……

"Every statute, it has been said", observed Lopes, L.J., "which takes away or impairs vested rights acquired under existing laws, or creates a new obligation or imposes a new duty, or attaches a new disability in respect of transactions already past, must be presumed to be intended not to have a retrospective effect."……..

As a logical corollary of the general rule, that retrospective operation is not taken to be intended unless that intention is manifested by express words or necessary implication, there is a subordinate rule to the effect that a statute or a section in it is not to be construed so as to have larger retrospective operation than its language renders necessary……... In other words, close attention must be paid to the language of the statutory provision for determining the scope of the retrospectivity intended by Parliament…….." (emphasis supplied)^[6]

The Supreme Court in the aforesaid case was dealing with the amendment to Section 16 of the Employees Provident Fund and Miscellaneous Provisions Act, 1952. In other words, what was before the Supreme Court was a statutory provision and not a notification. Therefore, could it be said that the aforesaid principle of statutory interpretation would also apply to a notification such as the IBC notification? The answer is in the affirmative. Though a notification, is a subordinate or delegated legislation, it is certainly statutory in nature and it is also "law" within the meaning of Article 13 (3) (a) of the Constitution of India, 1950 that finds place in Part III of the Constitution which deals with Fundamental Rights.^[7] Under Article 13 (2) of the Constitution, the State cannot make any law which takes away or abridges the fundamental rights of an individual guaranteed under the Constitution.^[8] Therefore, if a notification has been given statutory backing in Constitutional Law, it certainly has statutory force under general law. Hence, the principle laid down in S.L. Srinivasa (supra) will also apply to notifications issued by the executive.

This issue has further been clarified by the Hon'ble Supreme Court in Director General of Foreign Trade and another v. Kanak Exports and another^[9]. The relevant portion reads as under:

"113. We may, in the first instance, make this legal position clear 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. In the present case, Section 5 of the Act does not give any such power specifically to the Central Government to make rules retrospective. No doubt, this Section confer powers upon the Central Government to 'amend' the policy which has been framed under the aforesaid provisions. However, that by itself would not mean that such a provision empowers the Government to do so retrospective. This legal position is rightly discussed by the Bombay High Court in the impugned judgment in the following words……….:

"26. We are unable to accept the submissions of learned Additional Solicitor General. The word "amend" does not give power to make amendment retrospectively if it is used in relation to the power to make a piece of delegated legislation. The connotation of the word "amend" when it is used for the exercise of power by a legislature cannot be pressed to construe the word "amend" in relation to the power to make delegated legislation….." " (emphasis supplied)^[10]

Neither the proviso to Section 4 nor the Rule making power under Section 239^[11] of the IBC gives any power to the Central Government to make rules retrospectively. Therefore, keeping in mind the aforesaid legal position, it is clear that the IBC notification would apply prospectively and not retrospectively.

It would also not be out of place to refer to Section 6 of the General Clauses Act, 1897^[12]. Though the section deals with the effect of repeal of an enactment, it could serve as a useful analogy whilst dealing with retrospective operation of a statute or a notification. As per Section 6 (e), if a Union Act repeals an enactment, the repeal "shall not affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, or punishment" and "any such investigation, legal proceeding or remedy may be instituted, continued or enforced… as if the repealing Act or Regulation had not been passed." Therefore, by using the same analogy, IBC notification would not in any way be an impediment to pending applications that have been filed under Sections 7 and 9 of the IBC in which the amount due is less than Rs. 1 Crore. The pending "legal proceedings" would continue to be heard by the NCLT under the IB Code notwithstanding the IBC notification as if the same "had not been passed."

CONCLUDING COMMENTS

In conclusion, the author submits that in order to avoid confusion, it would be advisable for the Central Government to specifically clarify that the IBC notification applies prospectively and will not affect pending applications filed under Section 7 and 9 of the IBC prior to 24^th March 2020. So far as proceedings initiated by corporate creditors, perhaps it would be advisable for the Government to make an exception in those cases in which a demand notice under Section 8 of the IBC has already been delivered to the Corporate Debtor in the manner set out in Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.^[13] In such cases, the IBC should be made applicable where a demand notice has already been delivered to the Corporate Debtor irrespective of the amount of the debt due. Clarity would go a long way in ensuring stability and calming nerves in troubled times such as these.