Strategic interactions between Customary Law and Insolvency and Bankruptcy Code - Business Guardian
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Strategic interactions between Customary Law and Insolvency and Bankruptcy Code



In all communities, human behavior is regulated by the customs of the country, whereas in terms of law customs act as the earliest source of legal authority in India. But with the advancement of time, and the face-paced process of globalization, things seem to be evolving at an immeasurable speed hence the applicability of customary law is starting to fade away, whereas the practice and applicability of the new modern law, is becoming the need of the hour to deal with the current day problems.

Many years back India was struck with piles of defaults in debt cases and the law present at that time was not able to provide fair enough solutions and was failing badly. It was soon also realized that mere debt recovery will not exactly inflict the damage being inflicted via the Non-Performing Assets (NPA’s), hence making it the need of the hour to find a more realistic and long-lasting solution to deal with this problem. Hence a brand new regulation i.e the Insolvency and Bankruptcy Code, 2016 (IBC) became enacted on 28 May 2016 and came into force. The Introduction of IBC in the year 2016 has been a great step that has helped to reform the insolvency law landscape in India to a great extent. IBC came into force as powerful legislation with solutions to deal with the NPA trouble along with making sure that a wholesome credit score goes with the flow inside the economic system, which the old customary laws were not able to fulfill at their best. Post the implementation of IBC, as consistent with the World Bank’s data India’s rank in resolving insolvency went from 136 in 2017 to 52 in the year 2020 and seems to only be improving with time.

The Indian legislative framework defines the scope and sphere of each legislation. All of them work under a particular sphere and are confined to the powers stated in their provisions. However, there are several legislations that come into interplay and maintain a harmonious relationship. Similar has been the situation between the Insolvency and Bankruptcy Code and Customs Act. Both acts work in their own spheres and have powers and regulations stated amongst them. The judgment has specified the main provisions of the both act which also states the interplay with other statutes. The overriding effect of IBC is only statute that follows the rule against Customs act.

Recently, on 26th August 2022, the apex court in the case of Sundaresh Bhatt, Liquidator of ABG Shipyard Vs Central Board of Indirect Taxes and Customs, held that IBC will prevail over the Customary Act to the extent that if the moratorium proceedings which is the waiting period set by an authority, commence, then, in that case, the customary law will not have the power to call for any action of recovery for dues or claim title over the goods as well as cannot issue notice to sell the goods in cases of liquidation against the corporate debtor under the terms and regulations of the Customs Act. as, the role of customs act works in another sphere that sometimes collides with other legislations.

This observation by the apex court was made by the bench comprising Chief Justice N.V. Ramana, Justices JK Maheshwari, and Hima Kohli. It was also brought into consideration that in the case where the moratorium is declared under the Bankruptcy Code, even then the customary laws will have limited jurisdiction to assess the quantum and that they can’t take steps for recovery of dues, as IBC, being the more recent statute, overrides the Customs Act. Apart from this, there stands many legal and fundamental reasons that are followed in the present judgment. The arguments of the counsels have also made many of the legislative aspects of both the acts more clear.

The recent judgment has stated the prevailing position of IBC over the Customs Act. In 2017, an order was passed by the National Company Law Tribunal, Ahmedabad. It declared a moratorium under Section 13(1)(a). Section 13(1)(a) of IBC states the declaration of the moratorium for the purposes that are stated in Section 14 of the code. Moratorium refers to the legal authorization that is provided to the debtors for postponing the payment. Moratorium, in the present case, plays a vital role in defining the overriding effect of the code.

Another important aspect here is the initiation of CIRP. CIRP is the Corporate Insolvency Resolution Process which stands as a recovery mechanism for creditors. In the present scenario, CIRP was initiated with the permission of the Interim Resolution Professional. In regards to this, it was stated that warehouse goods must be taken into custody and no auction must be initiated for the same. This states that the procedure of moratorium was being followed as declared by NCLT.

However, in the year 2019, a notice was issued by the customs authority. It was regarding the non-fulfillment of export obligations by the Corporate Debtor. In furtherance, the same, five notices were issued regarding the same issue. This stands against the order passed by NCLT. In furtherance of this scenario, the judgment has been passed by the apex court declaring the positions of the IBC and Customs Act.

The positions of both acts have been clarified. It has been clearly stated by the bench that once the proceedings have been initiated under Section 14 or 33(5) of the IBC, the customs act cannot be bought into action. This limits the powers of authorities under Customs Act and due to the same, in the present case, the decision of NCLAT has been challenged. It has been stated that the IBC is a recent statute as compared to the customs Act. Also, the reference has been given to Section 142A of the Customs Act.

Section 142A of the Customs Act states that the Customs authorities would have the first and foremost charge over the assets of an assessee. However, this is an exception to the cases that are under the purview of the Companies Act 1956, Recovery of Debts Due to Banks and Financial Institutions Act 1993, SARFAESI Act, 2002, and the IBC, 2016”. In the present scenario, NCLT had already passed the order as per IBC. Hence it is due to this, that the customs authorities cannot commence acting against the debtor.

The exceptions that are stated in the section 142A of the Customs Act can also be found in Section 238 of IBC. Also, it clearly mentions that Section 238 overrides any of the provisions of other legislations which is inconsistent with the provisions of IBC. Following the given provisions, the following judgment sets a precedent to be followed in further cases too. As, in the present case, once the CIRP proceedings were initiated as per provisions of IBC, the issuance of notices stands void. This is because the same overrides the provisions of IBC that is again void in nature.

The Bench while pronouncement the judgment has stated that “issuance of notices by the respondents were plainly in the teeth of section 14 of the Code”. As they were done after the initiation of CIRP proceedings and this stands against the statutory provisions. Therefore, respondents have no right to claim goods by issuing various notices.

The decision of the apex court is based on two major aspects- overriding clauses and moratorium in IBC. Firstly, Section 238 of the code is facilitated by Sections 245 to 255 of the code. These provisions deal with the amendments of the other statutes and the overriding effects that they can over the code. As the main objective of IBC is to secure the maximized value of assets of the Corporate Debtor. The IBC states for time-bound resolution of the insolvency issues. As, with the initiation of CIRP, the Committee of Creditors gets control over the corporate debtor. This process is also time bound and after that duration, either the entity is revived or liquidation of the same begins. This also includes the calm period that is provided under IBC.

Another important aspect that follows is the moratorium as specified under Section 14 of the code, it is a principle. This applies in various instances including a company that goes into liquidation. This is an important aspect to be included because the provision of the customs act includes not only the IBC but, other acts too. Codes and acts such as IBC, Companies act, work in cooperation with each other and that is why also provides for a speedy trial. All such instances and provisions specify the necessity and application of IBC over the Customs act.

The IBC has certainly revived the insolvency regime in India. It has been very successful in combating the developing threat of NPAs, however, it has additionally benefited the economy in a plethora of ways. As in line with reports, a total of Rs. 2.5 lakh crores has been brought back into the banking system from 2016 upon the decision of insolvencies beneath IBC. There is a long way beforehand for the Indian insolvency regime to meet various other global challenges.

The main aim of the enactment of IBC was to have a clear and fresh start for the Indian industry. This was for providing opportunities to the market players for fair competition in the market. Also, to have a defined and restricted procedure for the initiation of proceedings. Following of the present case states the importance of IBC in the corporate structure too. As, many of the legislations interplays with the code, it is necessary to look after the overriding provisions of the statute. Therefore, the present judgment plays a vital role in defining and simplifying the process of liquidation. Also, this stands as a specified procedure to be followed by corporate debtors too.

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Disproportionate assets case: Delhi High Court stays Lokpal proceedings initiated against Jharkhand Mukti Morcha chief Shibu Soren



Disproportionate assets case: Delhi High Court stays Lokpal proceedings initiated against Jharkhand Mukti Morcha chief Shibu Soren

On Monday, the Delhi High Court has stayed the proceedings initiated by Lokpal of India under the provisions of the Lokpal & Lokayuktas Act, 2013 against Jharkhand Mukti Morcha (JMM) Chief and Rajya Sabha MP Shibu Soren in connection with a disproportionate case of assets.

The bench comprising of Justice Yashwant Varma observed and has passed an order on Soren’s plea challenging the validity of the said proceedings, claiming that the same was ex facie bad in law and without jurisdiction.

In the present case, the proceedings were initiated by Lokpal of India pursuant to a complaint dated August 5, 2020 filed by BJP’s Nishikant Dubey. Therefore, it has been directed by the CBI to make a preliminary enquiry into the Complaint under section 20(1)(a) of the Lokpal and Lokayuktas Act, 2013. It was claimed by Soren that the said order was not served on him.

While claiming the complaint was false, frivolous and vexatious, Soren in his plea submitted that according to section 53 of the Act and there is a statutory bar against the Lokpal of India assuming jurisdiction to investigate or inquire into any Complaint made after the expiry of seven years from the offence alleged.

The plea reads that the initiation of the proceedings under the Complaint, or at the very least, continuation thereof, once it has been demonstrated by the preliminary inquiry that it pertains to alleged acquisitions prior to the 7-year period and is clearly barred by statute, without jurisdiction and the same is liable to be quashed.

Further, the petition filled submits that the maximum period of 180 days for completion of preliminary enquiry from the date of Complaint expired on February 1, 2021. In this backdrop, it has been stated that by this time, only on July 1, 2021, the comments were sought from Soren which is beyond the prescribed statutory period.

The plea adds that the final preliminary enquiry report was submitted by the CBI on 29.06.2022, about a year and a half after expiry of the 180- day period. Such purported report is void and null and non-est in the eyes of law and cannot be received or considered by the Respondent No.1.

Thus, the court took note of the order passed by Lokpal of India dated August 4, 2022 directing that proceedings under section 20(3) of the Lokpal Act be initiated to determine whether a prima facie case existed to be proceeded against Soren. It is Soren’s case that the order was passed without considering the preliminary objection on jurisdiction being raised by him.

In the said order, the court noted that all the Lokpal of India recorded was that the comments received from the petitioner were forwarded to CBI so as to examine and submit an enquiry report.

It was ordered by the court that the challenge to assumption of jurisdiction by respondent no. 1 (the Lokpal of India) has neither been answered and nor dealt with. Matters require consideration. Subsequently, there will be a stay of proceedings pending before the Lokayukta.

Accordingly, the court will now hear the matter on 14 December.

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The Delhi High Court in the case Narender @ Lala v. State Of NCT Of Delhi observed and has set aside the orders of conviction for murder and sentence of life imprisonment awarded to a man in 2018 who was unrepresented by a lawyer before the Trial Court. Thus, the Delhi High Court has remanded the case back to the Trial Court for cross examination of certain prosecution witnesses.

The division bench comprising of Justice Mukta Gupta and Justice Anish Dayal observed and was of the view that there had been a grave miscarriage of justice to the man as when number of witnesses were examined, he was not represented by a counsel and that the legal aid counsel, who was present before Trial Court and was appointed on the same day and asked to cross- examine the witnesses on the same day.

On March, 2018, Narender was convicted for offence of murder punishable under section 302 of Indian Penal Code, 1860. On 4th May, 2018, he was sentenced by the Trial Court for life imprisonment and also to pay a fine of Rs. 10,000.

In the present case, the case of the prosecution was that the man had committed murder of his wife by strangulating her to death.

In a appeal, it was argued by the man that during the substantial course of trial, he was not represented by a lawyer and hence the trial in the absence of a lawyer had seriously prejudiced him. He thus sought recalling of all the prosecution witnesses and thereby ensuring a fair trial.

The Court observed that the manner in which the trial is conducted, there was a serious denial of fair trial to the appellant and the appellant is required to be given an opportunity to cross-examine the witnesses i.e., the witnesses examined in the absence of the lawyer, or the lawyer having been appointed on the same day from the legal aid and is asked to cross-examine the witnesses.

Further, the court remanded the back to Trial Court for cross-examination of ten prosecution witnesses. Also, the court directed the Trial Court Judge to follow due process of law and also to record the statement of the man under Section 313 CrPC and permit leading the defence evidence if so required.

The Court ordered that the case be listed before the learned Trial Court on 26th September, when Superintendent Tihar Jail will product the appellant before the learned Trial Court and the learned Trial Court is requested to expedite the trial and conclude the same preferably within four months.

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The Supreme Court in the case Dr. B.R. Ambedkar Educational And Cultural Trust v. Hon’ble High Court Jharkhand And Ors. observed and has refused to entertain a plea challenging the non-inclusion of reservation for Scheduled Castes, Scheduled Tribes and Other Backward Classes communities in the process of appointment of District Judges in pursuant to an advertisement issued in March, 2022 by the High Court of Jharkhand. The present petition claimed that the exclusion of reservation violates Jharkhand State Reservation Policy and constitutional guarantee under Article 16(4). Apart from this, it is also in derogation of a resolution being passed by the High Court vouching to implement reservation in the Jharkhand Superior Judicial Service.

The bench comprising of Justice D.Y. Chandrachud and the Justice Hima Kohli observed and has granted liberty to the petitioner to file a petition under Article 226 of the Constitution before the Jharkhand High Court.

The court while considering that the process of appointment as per the concerned notification is underway, Justice Chandrachud asked the petitioner to approach the High Court with respect to future appointments.

It stated that “For the future you can file a petition before the High Court… We will give you liberty to approach the High Court under Article 226 of the Constitution.”

The bench of Justice Chandrachud observed that the Decisions of the Administrative side of the High Court can be challenged before the judicial side of the High Court. You can move the High Court.

In the present case, a writ petition challenging a similar notification was filed in 2017 before the High Court, which was eventually dismissed. It was observed by the High Court that there is no duty vested in the authorities to reserve seats for all posts, more particularly in higher judiciary. Moreover, it had already initiated the appointment process, the High Court opined that it cannot alter the rules midway. Thus, the appeal filed before the Apex Court was also dismissed.

However, in 2018 the Full Court of the Jharkhand High Court had agreed in principle to grant reservation in the recruitment for Jharkhand Superior Judicial Service. The advocates belonging to the SC/ST/OBC communities in 2021 had made representations to the Chief Justice of the High Court requesting for the implementation of the Reservation policy in appointment of District Judges (direct entry from Bar)/ superior judicial service. The impugned notification was issued without incorporating reservation for SC/ST/OBC communities in March 2022.

Mr. Arvind Gupta, Advocate on Record has filled the present petition.

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Right to contest election is not a fundamental right; it is only a right conferred by statute: Supreme Court



Don’t compare Turban, Kirpan with Hijab: SC

The Supreme Court in the case Vishwanath Pratap Singh vs Election Commission of India observed that the right to contest an election is not a fundamental right but only a right conferred by a statute.

The bench comprising of Justice Hemant Gupta and the Justice Sudhanshu Dhulia observed while dismissing a Special Leave Petition filed by Vishwanath Pratap Singh that an individual cannot claim that he has a right to contest election and the said stipulation violates his fundamental right, so as is required under the Act, to file his nomination without any proposer.

Also, the court imposed a cost of Rupees one lakh on Singh.

In the present case, Singh had first approached the Delhi High Court challenging a notification issued by Election Commission of India for election to Rajya Sabha after he was not allowed to file his nomination without a proper proposer being proposing his name. His contentions were rejected by the High Court that his fundamental right of free speech and expression and right to personal liberty has been infringed.

While dismissing the SLP, the Apex Court observed that the writ petition before the High Court was entirely misconceived.

The bench observed while referring to earlier judgments viz Javed v. State of Haryana, (2003) 8 SCC 369 and Rajbala v. State of Haryana (2016) 2 SCC 445 wherein it was stated that the right to contest an election is neither a fundamental right nor a common law right. It is a right conferred by a statute.

However, the Supreme Court in Javed (supra) had made the following observations: Right to contest an election is neither a fundamental right nor a common law right and it is a right conferred by a statute. At the most, in view of Part IX having been added in the Constitution of India that a right to contest election for an office in Panchayat may be said to be a constitutional right and a right originating in the Constitution and given shape by a statute. But even if, it cannot be equated with a fundamental right. It is stated that there is nothing wrong in the same statute which confers the right to contest an election also to provide for the necessary qualifications without which a person cannot offer his candidature for an elective office and also to provide for disqualifications which would disable a person from contesting for, or from holding, an elective statutory office.

It was held in Rajbala (supra) that the right to contest for a seat in either of the two bodies is subject to certain constitutional restrictions and could be restricted further only by a law which the parliament made.

Further, the court added that Singh did not have any right to contest election to the Rajya Sabha in terms of the law made by the Parliament.

The Court stated while dismissing the SLP that the Representation of People Act, 1950 read with the Conduct of Elections Rules, 1961 has contemplated the name of a candidate to be proposed while filling the nomination form. However, it cannot be claimed by an individual that he has a right to contest election and the said stipulation violates his fundamental right, so as to file his nomination without any proposer as is required under the Act.

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Post-conviction compounding of offences is permissible: Himachal Pradesh High Court



The Himachal Pradesh High Court in the case Shri Kantu Ram v Shri Beer Singh recently observed that a court, while exercising powers under Section 147 of the Negotiable Instruments Act and can proceed to compound the offences even after recording of conviction by the courts below.

The bench comprising of Justice Sandeep Sharma observed in a case where the revision Petitioner, who was convicted under Section 138 of the NI Act by the Magistrate Court and was aggrieved by subsequent dismissal of appeal by the Sessions Court and had agreed to pay the amount due and settle the matter.

Thus, the petitioner had sought compounding of offences.

In the present case, the respondent admitted the factum with regard to receipt of the amount due from the accused and expressed that the prayer made on behalf of accused for compounding of offence can be accepted.

However, the High Court allowed the prayer and the offence committed by the Petitioner under Section 138 NI Act was ordered to be compounded.

The Court observed that the Reliance was placed on Damodar S. Prabhu V. Sayed Babalal H. (2010) 5 SCC 663, wherein the Apex Court has categorically held that court, while exercising power under Section 147 of the NI Act and can proceed to compound the offence even after recording of the conviction by the courts below.

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‘Pensionary benefits to employee, who is removed from service for misconduct, is not at par with those who retire on superannuation’



The Jammu and Kashmir and Ladakh High Court in the case Bashir Ahmad Wani v Jammu and Kashmir Grameen Bank and Another recently observed and stated that an employee who is removed from service for misconduct is not at par with those who is being retired on superannuation.

The bench comprising of Justice Sanjeev Kumar observed while dismissing the pension claim made by a former employee of the J&K Grameen Bank, who was removed from service in 2011.

In the present case, the petitioner had sought benefit of the J&K Grameen Bank (Employees) Pension Regulations, 2018 whereby provision was made for terminal benefits.

However, the court disallowed the claims on two grounds:

Firstly, that at the time of removal of the petitioner from service when there were no norms, rules or regulations providing for the benefit of pension to the employees of the respondent-Bank.

In the year 2011, the employees of the respondent-Bank were governed by the J&K Grameen Bank ( the Officers and Employees) Service Regulations, 2010… it is abundantly clear that it does not prescribe imposition of a penalty of removal along with the pensionary benefits.

Secondly, it was opined by the court that though the 2018 Regulations had been made applicable to those employees who were in service between 1st day of September, 1987 and 31st day of March, 2010 and the employees retired from the services of the Bank before 31st day of March, 2018, however, this leeway cannot come to aid of the Petitioner.

The Curt observed that the reason for finding that the Petitioner was not an employee who had “retired” on superannuation from the bank. Rather, he was “removed” for misconduct.

The Court stated that the regulations apply to those employees who retired from the service of the Bank before 31.03.2018 and not the employees who were terminated for misconduct. Viewed thus, the order of removal of the petitioner dated 02.09.2011 holding the petitioner entitled to terminable benefits and cannot, by any stretch of reasoning, be construed to be an order of removal with the benefit of the pension. Neither, the petitioner, at the time of his removal from service, nor with the promulgation of Pension Regulations of 2018, is entitled to the benefit of pension.

Accordingly, the court dismissed the petition.

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