SC thwarts ex-CEO from initiating insolvency proceedings against Siemens Gamesa
The Supreme Court has thwarted the last ditch attempt of former chief executive officer Ramesh Kymal to initiate insolvency proceedings against Siemens Gamesa, a supplier of wind power solutions, for the latter’s failure in paying Rs 104.11 crore in final settlement after resignation from all capacities held by him in the company.
The Supreme Court in its order on 9 February 2021 agreed with the view of the National Company Law Appellant Tribunal (NCLAT) that Section 10A of the IBC – which suspended IBC for a year with effect from 25 March 2020 – clearly stipulates that “no application shall ever be filed” for the initiation of the CIRP of a corporate debtor for default occurring during the one year period beginning March 25.
The apex court said in its order: “The date of 25 March 2020 has consciously been provided by the legislature in the recitals to the Ordinance and Section 10A, since it coincides with the date on which the national lockdown was declared in India due to the onset of the Covid-19 pandemic.”
Therefore, it rejected the plea of Ramesh Kymal that his insolvency petition filed against Siemens Gamesa was before the date (5 June 2020) on which Section 10 A was inserted in the IBC.
Facts of the case
The appellant – Ramesh Kymal – on 21 January 2020 submitted his resignation from Siemens Gamesa, detailing the entitlements which he claimed under the Employment and Incentive Agreements. On 28 January 2020, the respondent acknowledged receipt of the letter of resignation and requested the appellant to continue in employment beyond the 60 days’ notice period stipulated in the Employment Agreement.
According to the appellant, he agreed to continue to provide his services to the respondent till 30 April 2020. There was an exchange of communications between the parties and, according to the appellant, by an email dated 27 March 2020, the respondent confirmed the payments which were due and payable to him under the letter of resignation. The appellant is stated to have addressed a final reminder by an email on 27 April 2020, three days prior to the extended notice period came to an end.
On 28 April 2020, a termination letter was addressed to the appellant. The appellant issued a demand notice on 30 April 2020 in Form 3 of the IBC. The demand notice specified that the date of default was 30 April 2020.
On 11 May 2020, the appellant filed an application under Section 9 of the IBC on the ground that there was a default in the payment of his operational dues. During the pendency of the application, an Ordinance was promulgated by the President of India on 5 June 2020 by which Section 10A was inserted into the IBC.
Siemens Gamesa later filed an application with the NCLT seeking the dismissal of the appellant’s application on the basis of the newly inserted provisions of Section 10A. The NCLT upheld the submission of the respondent, holding that a bar has been created by the newly inserted provisions of Section 10A. This decision was upheld in appeal by the NCLAT.
Thereafter, Kymal moved Supreme Court against the NCLAT order.
Appellant’s argument
The counsel of Mr Kymal submitted before the apex court that though Section 10A created a bar to ‘filing of applications’ under Sections 7, 9 and 10 in relation to defaults committed on or after 25 March 2020 for a period of six months, which can be extended up to one year, the Ordinance and the Act which replaced it do not provide for the retrospective application of Section 10A either expressly or by necessary implication to applications which had already been filed and were pending on 5 June 2020.
He further submitted that Section 10A prohibits the filing of a fresh application in relation to defaults occurring on or after 25 March 2020, once Section 10A has been notified (after 5 June 2020). He further said that Section 10A uses the expressions “shall be filed” and “shall ever filed” which are indicative of the prospective nature of the statutory provision in its application to proceedings which were initiated after 5 June 2020.
The counsel, on the basis of the above argument, submitted that Section 10A will have no application in case of Siemens Gamesa CEO’s application.
He also urged that in each case it is necessary for the Court and the tribunals to deduce as to whether the cause of financial distress is or is not attributable to the Covid-19 pandemic. “In this particular case, it was asserted that the onset of Covid-19, which was the reason for the insertion of Section 10A, has nothing to do with the default of the respondent to pay the outstanding operational debt of the appellant, which owes its existence even before the onset of the pandemic.
Supreme Court’s observation
The Supreme Court in its order said that Section 10A stipulates that for any default arising on or after 25 March 2020, no application for initiating the CIRP of a corporate debtor shall be filed for a period of six months or such further period not exceeding one year “from such date” as may be notified in this behalf. The expression “from such date”, says the court, is evidently intended to refer to 25 March 2020 so that for a period of six months (extendable to one year by notification) no application for the initiation of the CIRP can be filed.
The court summarily rejected the appellant’s submission that the expression “shall be filed” is indicative of a legislative intent to make the provision prospective so as to apply only to those applications which were filed after 5 June 2020 when the provision was inserted.
It also dismissed the appellant’s submission that it is necessary for the Court and the tribunals to deduce as to whether the cause of financial distress is or is not attributable to the Covid-19 pandemic.
The apex court said that Section 10A does not contain any requirement that the Adjudicating Authority must launch into an enquiry into whether, and if so to what extent, the financial health of the corporate debtor was affected by the onset of the Covid-19 pandemic.
“Parliament has stepped in legislatively because of the widespread distress caused by an unheralded public health crisis. It was cognizant of the fact that resolution applicants may not come forth to take up the process of the resolution of insolvencies (this as we have seen was referred to in the recitals to the Ordinance), which would lead to instances of the corporate debtors going under liquidation and no longer remaining a going concern,” said that court adding that this would go against the very object of the IBC.
