The Hon’ble Bench of the National Company Law Tribunal (NCLT) of Chennai vide order dated 02.06.2020 held that the notification issued by the Central Government on 24.03.2020 under Section 4 of the Insolvency and Bankruptcy Code, 2016 was prospective in nature. As per the said notification, the minimum threshold limit for a petition to be maintainable was increased from Rs. 1, 00,000/- (Rupees One Lakh) to Rs. 1, 00, 00,000/- (Rupees One Crores).
The said order was passed in an application filed by Arrowline Organic Products Pvt. Ltd., a Micro, Small and Medium Enterprise (MSME) wherein it was prayed to the Hon’ble Tribunal to dismiss the Corporate Insolvency Resolution (CIR) Process initiated by the Respondent i.e. Rockwell Industries Limited against them.
Operational Creditor, Rockwell Industries Limited had filed a plea under Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiation of insolvency proceedings against the Corporate Debtor, Arrowline Organic Products. On 05.05.2020, an order of admission was passed by the National Company Law Tribunal (NCLT).
In his submission, Mr. Vishnu Mohan, Counsel for the Applicant/ Corporate Debtor argued that the notification dated 24.03.2020 wherein the minimum threshold was increased to Rs. 1,00,00,000 (Rupees One Crore) was “retrospective” in nature, and therefore prayed to the Hon’ble Tribunal to recall the admission of the Respondent’s petition.
Mr. Vishnu Mohan further added that the enhanced pecuniary limit was applicable even to pending cases and the NCLT should have abstained from passing the order of admission, especially when the Corporate Debtor was an MSME which dealt in essential services especially in times of COVID-19 pandemic when the government is taking a slew of steps to boost the growth of MSME sector.
The Respondent on the other hand submitted that the abovementioned notification was not retrospective in nature and that even after the Central Government’s power under Section 4 of the Insolvency and Bankruptcy Code, 2016 to specify the threshold limit; the Respondent cannot be deprived of his rights already accrued to it at the time of filing the petition.
The Respondent further submitted that, the Tribunal had power to review or recall an order passed on merit, neither under Section 420 of the Companies Act 2013, nor under Rule 11 of the National Company Law Tribunal Rules 2016. While the inherent powers of NCLT could not be invoked in the present case, argued Rockwell Industries, the only remedy available to the Applicant was to go in appeal before the Appellate Authority under Section 61 of the Insolvency and Bankruptcy Code 2016.
It was also pointed out that the default in the present case had occurred much prior to the date of Notification i.e. 24.03.2020 and even the order was reserved on 04.03.2020.
After taking into consideration the arguments of both the parties, R. Vardharajan (Judicial Member) dismissed the present application stating that NCLT did not have the power to recall or review its order and agreeing with the Respondent’s submission, it was further stated that in the absence of power to recall or review under Section 420 of the Companies Act, 2013 or Rule 11 of the NCLT Rules, the appropriate remedy for the Applicant lays in an appeal before NCLAT.
The Hon’ble Tribunal finally held that the notification dated 24.03.2020 was prospective in nature and hence the enhanced pecuniary limit should not be taken into consideration retrospectively.