UNIVERSITY MOOT COURT SELECTIONS, GRAND INTRA, 2019

Before,

THE HON’BLE SUPREME COURT OF NARNIA

WRIT PETITION UNDER ARTICLE 32 OF THECONSTITUTION OF NARNIA

INNER PEACE PRIVATE LIMITED………………………………………… PETITIONER

V.

LE TRANQUILLE PRIVATE LIMITED........................................................ RESPONDENT

Clubbed with
INNER PEACE PRIVATE LIMITED……………………………………….…PETITIONER

V.

UNION OF NARNIA…………………………………………………………...RESPONDENT

ON SUBMISSION TO THE SUPREME COURT OF INDIANA

WRITTEN SUBMISSION ON BEHALF OF THE PETITIONER

 MEMEORIAL ON BEHALF OF THE PETIONER

TABLE OF CONTENTS

TABLE OF CONTENTS ................................................................................................................. I

LIST OF ABBREVIATIONS ....................................................................................................... III

INDEX OF AUTHORITIES......................................................................................................... IV

STATEMENTS OF JURISDICTION ........................................................................................... V

STATEMENT OF FACTS ........................................................................................................... VI

STATEMENT OF ISSUES ....................................................................................................... VIII

SUMMARY OF ARGUMENTS .................................................................................................. IX

ARGUMENTS ADVANCED ........................................................................................................ 1

[ISSUE 1]: THIS HON’BLE COURT HAS JURISDICTION TO ENTERTAIN THE

PETITION AND THE PETITION FILED BY INNER PEACE PRIVATE LIMITED IS
MAINTAINABLE ...................................................................................................................... 1

[ISSUE 2]: THE NCLT’S ORDER DATED 17TH NOVEMBER 2018 ADMITTING THE
PETITION UNDER SECTION 10 FILED BY LE TRANQUILLE PRIVATE LIMITED AND
CONSIQUENTIAL PROCEEDINGS THERETO SHOULD BE SET ASIDE. ....................... 2

[ISSUE 3]: THE NCLT WAS NOT RIGHT IN ORDERING THE STAY OF THE ARMORICA
EP BY WAY OF AN INTERIM ORDER. ................................................................................. 4

[3.1] NCLT has no power to decide the jurisdiction of foreign court. ................................... 4

[3.2] Moratorium under IBC applies only within the country ................................................ 5

[ISSUE 4]: SECTIONS 10, 30 (2) (B), 31 (1) AND 65 OF THE IBC ARE
UNCONSTITUTUIONAL ......................................................................................................... 6

[4.1]Section 10 of IBC is unconstitutional ............................................................................. 6

[4.2]: Section 30 (2) (b) is unconstitutional ............................................................................ 9

[4.3]: Section 31 (1) is unconstitutional ................................................................................ 12

[4.4]: Section 65 is unconstitutional ..................................................................................... 15

I
 MEMEORIAL ON BEHALF OF THE PETIONER

PRAYERS..................................................................................................................................... XI

II
 MEMEORIAL ON BEHALF OF THE PETIONER

LIST OF ABBREVIATIONS

A.I.R. All India Reporter

S.C.C. Supreme Court Cases

LT Le Tranquille

IPL Inner Peace Private Limited

NCLT National Company Law Tribunal

BLRC Bankruptcy Law Reforms Committee

IBC Insolvency and Bankruptcy Code

NCLAT National Company Law Appellate Tribunal

CIRP Corporate Insolvency Resolution Process

CONST. Constitution

Ltd. Limited

Pvt. Private

§ Section

¶ Paragraph

Art. Article

III
MEMEORIAL ON BEHALF OF THE PETIONER

INDEX OF AUTHORITIES

IV
 MEMEORIAL ON BEHALF OF THE PETIONER

STATEMENTS OF JURISDICTION

The Petitioner has the honour to submit before the Hon’ble Supreme Court of Narnia the
memorandum for petitioner in the present case under Article 32 of the Constitution of Indiana.

The present memorandum sets forth the facts, contentions and arguments in the present

case.

IN THE HON’BLE SUPREME COURT OF INDIANA

THE PETITIONER HUMBLY SUBMITS TO THE JURISDICTION OF THIS

HON’BLE COURT

V
 MEMEORIAL ON BEHALF OF THE PETIONER

STATEMENT OF FACTS

I. Mr Oogway, born and brought up in Chippingford, Narnia, is a renowned doctor and

founder and Managing Director of Inner Peace Private Limited(IPL), started in 1992, had
created the plant-based remedy for curing insomnia, called The Secret Ingredient
Potion(SIP). Mr. Shifu, a student of Oogway, had played an instrumental role in creation
of SIP as he handled all issues related to the funding of research, he was later appointed
the General Manager of IPL, by Oogway.
II. IPL had obtained several Intellectual Property Rights, including patent of SIP in Narnia
and overseas. At the beginning of the year, Shifu announced his break from the company
for some while and then resigned from the company of 07.05.19, and with that as many as
15 researchers and 20 employees resigned as well.
III. Oogway enquired about the state of affairs after which he found that Dr. Vachir, a close
confidant of Shifu and employee of IPL till 2013, had set-up his own company, Le
Tranquille Pvt. Ltd., in 2014, in which Shifu owned 60% of shares. IPL initiated arbitration
proceeding against Shifu, as result of which IPL was made liable to pay 3 lacs to Shifu
with awards delivered on 21.9.18, against which IPL filed an appeal in the High Court of
Chippingford.
IV. In August 2018, Oogway came around GULLP, which was a product of Le Tranquille and
had breached the intellectual property rights of IPL in the country of Armorica. IPL brought
up a patent infringement suit in this respect against Le Tranquille, which terminated in
IPL’s favour making Le Tranquille liable to pay Narnian Rupees 30 Crores to IPL. IPL
further filed for execution of the default judgement and prayed to attach with it, LT’s real
estate property in Armorica. When the notice was issued, LT presented that it had initiated
voluntary CIRP under Section 10 of I & B Code, which was published, inviting claims
from its creditors and the moratorium phase was in effect.
V. Later to this, IPL and LT contented on the binding nature of the IBC on Armorican court
and it was held that IBC was not binding, along with this, Court of Armorica also passed
the order of attachment of the property (“Armorica EP”).

VI
 MEMEORIAL ON BEHALF OF THE PETIONER

VI. It was stated by Shifu that there was debt of more than Narnian Rs. 60 Crores on Le
Tranquille of more than four years and with respect to its CIRP, appointed Mr. Geriatrix
as the Interim Insolvency Resolution Professional.
VII. Oogway wrote a mail to Mr. Geriatrix seeking information about the CIRP proceedings, in
reply to which Geriatrix asked Oogway to submit his claims. LT had made an application
to NCLT for interim order praying to put a stay on the execution Armorica EP, which
NCLT ruled in its favour saying that the courts of Armorica did not have the jurisdiction
to pass such an order. Parallelly, IPL filed a Writ Petition in the Supreme Court questioning
the constitutional validity of Sections 10, 30 (2) (b), 31 (1) and 65 of the IBC and also a
Transfer Petition to transfer the appeal, filed against the NCLT ruling of non-enforcement
of the Armorican EP, from NCLAT to the apex court, which the Supreme Court approved
to be transferred.

VII
 MEMEORIAL ON BEHALF OF THE PETIONER

STATEMENT OF ISSUES

[ISSUE 1]: WHETHER THIS HON’BLE COURT HAS JURISDICTION TO ENTERTAIN THE
PETITION AND WHETHER THE PETITION FILED BY INNER PEACE PRIVATE LIMITED
IS MAINTAINABLE

[ISSUE 2]: WHETHER THE NCLT’S ORDER DATED 17TH NOVEMBER 2018 ADMITTING
THE PETITION UNDER SECTION 10 FILED BY LE TRANQUILLE PRIVAT ELIMITED
AND CONSIQUENTIAL PROCEEDINGS THERETO SHOULD BE SET ASIDE

[ISSUE 3]: WHETHER THE NCLT WAS RIGHT IN ORDERING THE STAY OF THE
ARMORICA EP BY WAY OF AN INTERIM ORDER

[ISSUE 4]: WHETHER SS. 10, 30 (2) (B), 31 (1) AND 65 OF THE IBC ARE
CONSTITUTUIONAL

VIII
 MEMEORIAL ON BEHALF OF THE PETIONER

SUMMARY OF ARGUMENTS

[ISSUE 1]: THE HON’BLE COURT HAS JURISDICTION TO ENTERTAIN THE

PETITION AND THE PETITION FILED BY INNER PEACE PRIVATE LIMITED IS
MAINTAINABLE.

It is humbly contented before the Hon’ble Supreme Court of Narnia has the jurisdiction to entertain
the petition under Article 32 and the petitioner has the locus standi to file the petition as the
petitioner can be regarded as a creditor as per the definition under the Code. IPL was also aggrieved
by the interim order passed by NCLT staying the order of attachment (Armorica EP) passed by the
court of Armorica. Therefore IPL filed an appeal by virtue of section 61 of the code. Moreover,
the fundamental rights of IPL were violated hence the writ is maintainable before the Supreme
Court of Narnia.

[ISSUE 2]: THE NCLT’S ORDER DATED 17TH NOVEMBER 2018 ADMITTING THE
PETITION UNDER SECTION 10 FILED BY LE TRANQUILLE PRIVAT ELIMITED
AND CONSIQUENTIAL PROCEEDINGS THERETO SHOULD BE SET ASIDE.

It is humbly submitted before the Hon’ble Supreme Court of Narnia that the respondent, namely
Le Tranquille has filed this application under section 10 of I & B Code to initiate corporate
insolvency process fraudulently and with malicious intent for purpose other than resolution of
insolvency. Such can be observed from the timeline of events happening, for it was right after the
Armorican judgement came, that Le Tranquille filed a petition to initiate CIRP. It can easily be
drawn that LT was waiting for the right opportunity to initiate its insolvency proceeding with the
sole motive of obtaining moratorium and displacing all its assets from the clutches of the law.
Therefore, the petition is liable to be set aside.

[ISSUE 3]: THE NCLT WAS NOT RIGHT IN ORDERING THE STAY OF THE
ARMORICA EP BY WAY OF AN INTERIM ORDER.

It was after several proceedings decided in the Court of Armorica that I&B Code could not bar its
judgement from being executed as it did not apply on the said Court. Also, NCLT is not a court

IX
 MEMEORIAL ON BEHALF OF THE PETIONER

but a tribunal and a body that does not have the powers of a "Court" cannot analyze the validity or
legality of a foreign decree, even if there is non-compliance with Indian laws.

Further, after reading the provisions in I&B Code, we can construe that the provisions of the Code
are applicable only to India and on the same logic, it could be inferred that the moratorium under
s. 14 of the IBC would not apply to execution of a foreign award against a CD which has assets
outside India. Consequently, the whole intent of passing the order becomes baseless and thus
concluded passing such an order was not right on NCLT’s part.

[ISSUE 4]: SECTIONS 10, 30 (2) (b), 31(1) AND 65 OF THE IBC ARE
UNCONSTITUTUIONAL.

It is humbly contented before the Hon’ble Supreme Court of Narnia that the section 10 of I&B
Code does not adhere to the principles of natural justice as it does not provide the opportunity of
hearing to the creditors, before the Adjudicating Authority admits an application filed by the
corporate debtor. The absence of such a provision enables the corporate debtor who voluntarily
initiate insolvency proceedings with fraudulent or mala fide intentions to take advantage of the
loop holes present in the statute and evade lawful dues.

Further, the section 30(2)(b) of the Insolvency and Bankruptcy Code is violative of Article 14 as
it is arbitrary and unjustly discriminates different class of creditors. This petition has been called
for irrelevance of Section 53 which lays priorities of distribution in liquidation or the waterfall in
the resolution process. The actual implications of this section would ultimately defeat the
objectives of the Code. Therefore it is liable to be declared unconstitutional.

Furthermore, the section 31(1) of the Insolvency and Bankruptcy Code 2016 is violative of Article
14 of the Narnian Constitution as the basis for accepting or rejecting the resolution plan by the
Adjudicating Authority is not subjective.

Lastly, the section 65 of the Insolvency and Bankruptcy Code 2016 violates the rights of the party
against whom the initiator of CIRP or liquidation proceedings had fraudulent or malicious
intentions. This section empowers the adjudicating authority, on discovery of mala fide intention,
to only impose penalty whereas, ideally the petition is liable to be rejected. Allowing a petition
filed fraudulently or with malicious intent would defeat the purpose of the Code

X
 MEMEORIAL ON BEHALF OF THE PETIONER

ARGUMENTS ADVANCED

[ISSUE 1]: THIS HON’BLE COURT HAS JURISDICTION TO ENTERTAIN THE

PETITION AND THE PETITION FILED BY INNER PEACE PRIVATE LIMITED IS
MAINTAINABLE

It is humbly contented before the Hon’ble Supreme Court of Narnia has the jurisdiction to entertain
the petition under Article 321 and the petitioner has the locus standi to file the petition.

It is argued that a creditor under Insolvency and Bankruptcy Code 2016 is any person to whom a
debt is owed and includes a financial creditor, operational creditor, a secured creditor, an unsecured
creditor and a decree holder2. Inner Peace Limited [IPL], the petitioner, is a decree holder as per
the judgement of the court of Armorica. For the meaning of “debt”, we have to go to Section
3(11)3, which in turn tells us that a debt means a liability of obligation in respect of a “claim” and
for the meaning of “claim”, we have to go back to Section 3(6)4 which defines “claim” to mean a
right to payment even if it is disputed. It is stated that Le Tranquille has the obligation to pay
Narnian Rupees 30 crores as per the judgement delivered by the court of Armorica on 1st November
20185. Therefore, from above definitions and facts provided it can be concluded that Inner Peace
Limited [IPL] is a creditor of Le Tranquille.

It is stated that in order to execute the judgement of patent infringement case the Armorican court
passed an order of attachment (Armorica EP).6 This order of attachment (Armorica EP) was stayed
by the NCLT through an interim order.7 Aggrieved by the order of NCLT, IPL filed an appeal
before NCLAT. IPL has the right to file an appeal under section 61(1)8 of the Code which reads
as:

1
INDIA CONST. art. XXXII.
2
The Insolvency and Bankruptcy Code § 3(10), (2016).
3
The Insolvency and Bankruptcy Code § 3(11), (2016).
4
The Insolvency and Bankruptcy Code § 3(6), (2016).
5
Moot Proposition, ¶ 10.
6
Moot Proposition, ¶ 12.
7
Moot Proposition, ¶ 17.
8
The Insolvency and Bankruptcy Code § 60(1), (2016).

1
 MEMEORIAL ON BEHALF OF THE PETIONER

“61. (1) notwithstanding anything to the contrary contained under the Companies Act 2013, any
person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal
to the National Company Law Appellate Tribunal.”

Later, IPL filed a transfer petition in the Hon’ble court which was accepted. Therefore, from above
stated arguments it can be concluded that IPL has locus standi to file the current petition.

Further, it is argued that the Supreme Court of Narnia has jurisdiction to hear the writ petition filed
by the IPL.

IPL, even though being a creditor, according to the definition given in 3(10), wasn’t given any
opportunity of hearing or representation. LT owed Narnian 30 crore amount of debt to IPL, which
is a significant amount to be considered. It was manifestly arbitrary and unreasonable on the part
of Adjudicating Authority and thus violative of Article 14,9 as it did not issue any notice to IPL
before admitting an insolvency proceeding of LT.

Since, the fundamental rights of IPL were violated therefore it is concluded that the court has
jurisdiction to entertain the petition under Article 3210 and the petition is maintainable.

[ISSUE 2]: THE NCLT’S ORDER DATED 17TH NOVEMBER 2018 ADMITTING THE
PETITION UNDER SECTION 10 FILED BY LE TRANQUILLE PRIVATE LIMITED
AND CONSIQUENTIAL PROCEEDINGS THERETO SHOULD BE SET ASIDE.

It is humbly submitted before the Hon’ble Supreme Court of Narnia that the respondent, namely
Le Tranquille has filed this application under section 1011 of I&B Code to initiate corporate
insolvency process fraudulently and with malicious intent for purpose other than resolution of
insolvency. Le Tranquille has initiated the instant proceedings with an intention to thwart Inner
Peace Limited [IPL] from executing the decree of the Court of Armorica with the sole motive of
obtaining moratorium and displacing all its assets from the clutches of the law. This can clearly be
noticed from the timeline of events happening. It was on 1st November when the court of Armorica
gave the judgement in IPL’s favour, holding that LT was liable to pay Narnian Rupees 30 crores
to the petitioner12 and right when the petitioner demanded for execution of the said default

9
INDIA CONST. art. XIV.
10
INDIA CONST. art. XXXII.
11
The Insolvency and Bankruptcy Code § 10, (2016).
12
Moot Proposition, ¶ 10.

2
 MEMEORIAL ON BEHALF OF THE PETIONER

judgement and filed for it on 22nd of November, LT made a representation that the corporate
insolvency resolution process of the Le Tranquille had commenced on 17th of November13.

Further, when the patent infringement case was initially filed in the Armorican Court, the regular
presence of both the parties was required but LT made only one such appearance and then even
after being given five opportunities it did not make any other appearance nor did it ever question
any other glitch, including the Jurisdiction of the Armorican Court14. But in the current petition
they have contented on the authority of the Armorican Judgement as well. Considering all the
above stated facts, it can easily be drawn that LT was waiting for the right opportunity to initiate
its insolvency proceeding, and was planning since long for this and hence never raised any question
all through the patent infringement proceeding but when was asked to pay the due, it revealed the
fact of initiation of CIRP against him, which it had filed with the ulterior motive of escaping from
the liability to pay the decided damages and avoid the attachment of its real estate property, located
in Armorica.

It is further contended that the corporate applicant, here Shifu, and LT’s other directors, due to
their conduct being indictive of the mala fide intention, should not be permitted to take advantage
of the protective realms offered by the Code in order to abuse the process of the law and to stop
bona fide actions which after significant effort, time and expense have culminated to advanced
stages.

Also, NCLT made no effort to find the motives behind the filing of CIRP, for which it being at the
position of Adjudicating Authority should have made.

Such was seen in the case of M/s. Starlog Enterprises Limited Vs. ICICI Bank Limited15, where
the NCLAT noted that mala fide happenings make it imperative for the NCLT to adopt a cautious
approach in admitting insolvency applications and also ensuring adherence to the principles of
natural justice.

13
Moot prop ¶ 11.
14
Moot prop ¶ 10.
15
M/s. Starlog Enterprises Limited v. I.C.I.C.I. Bank Limited, 2017 S.C.C. OnLine N.C.L.A.T. 13.

3
 MEMEORIAL ON BEHALF OF THE PETIONER

Hence, it is concluded that mere qualification of certain criteria should not make a party eligible
to file the Insolvency Procedure but due process of subjectivity to find out the real intentions
behind it should also be followed.

[ISSUE 3]: THE NCLT WAS NOT RIGHT IN ORDERING THE STAY OF THE
ARMORICA EP BY WAY OF AN INTERIM ORDER.

[3.1] NCLT has no power to decide the jurisdiction of foreign court.

It is humbly submitted before the Hon’ble court that it has been made clear through case laws that
NCLT does not have the power of putting a stay on any foreign judgement. This concern has been
brought up, as in the present case it can be seen that NCLT ruled that the courts of Armorica did
not have the jurisdiction to pass such an order and passed an interim order staying the said
ARMORICA EP16.

Now, it can be observed from the case of Binani Industries Limited v Bank of Baroda & Anr17 that
it is not for the NCLT to decide whether a foreign court had jurisdiction, or whether its finding
was illegal or against the public policy of India or the principles of natural justice. NCLAT
concluded that the CIRP does not cast the Adjudicating Authority, i.e., the NCLT, in the role of a
"Court".

A similar view was observed in the case of Usha Holdings L.L.C. & Anr. Vs Francorp Advisors
Pvt. Ltd. (NCLAT Delhi)18 where it was concluded that since the National Company Law Tribunal
(NCLT) cannot determine whether a foreign decree is legal or enforceable in India while admitting
or rejecting a claim as a debt under the Insolvency and Bankruptcy Code, 2016(IBC).

Consequently, a body that does not have the powers of a "Court" cannot analyze the validity or
legality of a foreign decree, even if there is non-compliance with Indian laws.19

Therefore, in the present case the NCLT was not right in passing an interim order staying the
ARMORICA EP only on the ground that the Armorican court does not have the jurisdiction to

16
Moot Proposition, para 17.
17
Binani Industries Limited v. Bank of Baroda & Anr., 2018 S.C.C. OnLine N.C.L.A.T. 457.
18
Usha Holdings LL.C. & Anr. v. Francorp Advisors Pvt. Ltd. 2018 S.C.C. OnLine N.C.L.A.T. 792.
19
Binani Industries Limited v. Bank of Baroda & Anr., 2018 S.C.C. OnLine N.C.L.A.T. 457.

4
 MEMEORIAL ON BEHALF OF THE PETIONER

pass an order of attachment as NCLT itself does not have the power to question the jurisdiction of
any court.

[3.2] Moratorium under IBC applies only within the country

It must be noted that Section 1(2) of the IBC, clearly states:

“1. (1) This Code may be called the Insolvency and Bankruptcy Code, 2016.

(2) It extends to the whole of India”20

Therefore, we can construe that the provisions of the Code are applicable only to India and on the
21
same logic, it could be inferred that the moratorium under s. 14 of the IBC would not apply to
execution of a foreign award against a CD which has assets outside India.

The Hon'ble High Court of Bombay in Ashapura Minechem Ltd. v Armada (Singapore) Pte. Ltd.
& Ors.22 which was decided in the context of s. 22 23
of the Sick Industrial Companies (Special
Provisions) Act, 1985 ("SICA") which is a similar provision to s. 14 24 of the IBC. The court held
that since the provisions of SICA including Section 22 thereof extend to only the territory of India,
the same do not have any application to proceedings outside India. Thus, there was no requirement
of prior consent of the Board of Industrial and Financial Reconstruction ("BIFR") for taking steps
in execution of foreign awards including filing garnishee proceedings in respect of properties of
the judgment debtor situated outside India.

Moreover, it was affirmed in the case of Power Grid Corporation of India Ltd. vs Jyoti Structures
Ltd 25 that moratorium under Section 14 (1) (a)26 of the code is intended to prohibit debt recovery
actions against the assets of corporate debtor. But, here the claim is arising out of patent
infringement suit and not a debt recovery claim.

20
The Insolvency and Bankruptcy Code § 1, (2016).
21
The Insolvency and Bankruptcy Code § 4, (2016).
22
Ashapura Minechem Ltd. v Armada (Singapore) Pte. Ltd. & Ors., 2016 S.C.C. OnLine Bom. 5326.
23
The Sick Industrial Companies (Special Provisions) Act ("S.I.C.A.") § 22, (1985).
24
The Insolvency and Bankruptcy Code § 14, (2016).
25
Power Grid Corporation of India v. Jyoti Structures Ltd. 142 C.L.A. 285 (2018).
26
The Insolvency and Bankruptcy Code § 14 (1) (a), (2016).

5
 MEMEORIAL ON BEHALF OF THE PETIONER

At present sections 23427 and 23528 of IBC provide for cross border operation of directions and
orders of NCLT. However, the above sections have not been notified, and therefore have no effect.
Any orders passed in India as of now will not have effect outside, unless specifically taken
up/followed up by the Indian government with the foreign state on a case on case basis.29

[ISSUE 4]: SECTIONS 10, 30 (2) (B), 31 (1) AND 65 OF THE IBC ARE
UNCONSTITUTUIONAL

[4.1]Section 10 of IBC is unconstitutional

Firstly, it is humbly contented before the Hon’ble Supreme Court of Narnia that the section 10 of
I&B Code does not adhere to the principles of natural justice as it does not provide the opportunity
of hearing to the creditors, before the Adjudicating Authority admits an application filed by the
corporate debtor.

The Section 10 reads as:

“10. (1) where a corporate debtor has committed a default, a corporate applicant thereof may file
an application for initiating corporate insolvency resolution process with the Adjudicating
Authority.

(2) The application under sub-section (1) shall be filed in such form, containing such particulars
and in such manner and accompanied with such fee as may be prescribed.

(3) 1[The corporate applicant shall, along with the application, furnish—

(a) The information relating to its books of account and such other documents for such period as
may be specified;

(b) The information relating to the resolution professional proposed to be appointed as an interim
resolution professional; and

27
The Insolvency and Bankruptcy Code § 234, (2016).
28
The Insolvency and Bankruptcy Code § 235, (2016).
29
Macquarie Bank Ltd. v. Shilpi Cable Technologies Lt.

6
 MEMEORIAL ON BEHALF OF THE PETIONER

(c) the special resolution passed by shareholders of the corporate debtor or the resolution passed
by at least three-fourth of the total number of partners of the corporate debtor, as the case may
be, approving filing of the application.]

(4) The Adjudicating Authority shall, within a period of fourteen days of the receipt of the
application, by an order—

(a) admit the application, if it is complete 2[and no disciplinary proceeding is pending against the
proposed resolution professional]; or

(b) reject the application, if it is incomplete 3[or any disciplinary proceeding is pending against
the proposed resolution professional]:

Provided that Adjudicating Authority shall, before rejecting an application, give a notice to the
applicant to rectify the defects in his application within seven days from the date of receipt of such
notice from the Adjudicating Authority.

(5) The corporate insolvency resolution process shall commence from the date of admission of the
application under sub-section (4) of this section.”30

It can be observed that in the above stated section there is no such provision which makes it
obligatory on the part of the Adjudicating Authority to issue a notice to all the creditors of the
corporate debtor before admitting the insolvency petition. Issuance of notice to creditors is
important to ascertain if there is existence of any mala fide intention on part of the debtors. The
creditors shall be given an opportunity to present their case as to why the petition should not be
accepted.

It is arbitrary and unreasonable that the creditors are not given an opportunity to present their case
as once insolvency proceeding has been initiated it adversely affect the rights of the creditors.
Thus, it violates Article 1431 and the principles of natural justice. The absence of such a provision
enables the corporate debtor who voluntarily initiate insolvency proceedings with fraudulent or
mala fide intentions to take advantage of the loop holes present in the statute and evade lawful
dues.

30
The Insolvency and Bankruptcy Code § 10, (2016).
31
INDIA CONST. art. XIV.

7
 MEMEORIAL ON BEHALF OF THE PETIONER

It is contented that foreign laws also provide for such provisions wherein the creditors have a say
in determining whether a voluntary petition shall be admitted or not. In UK, the section 332 of
Insolvency Act, 1986 has such provision where if there is voluntary initiation of proceedings and
if the nominee in its report thinks that such a proposal shall be considered by the meeting company
and its creditors then the court shall seek a decision from the company’s creditors as to whether
they approve the proposal. This is primarily done to avoid any misuse of the insolvency procedure
by the corporate debtor.

Secondly, it is contented that section 10 does not contain any provision wherein it makes obligatory
for NCLT to determine ‘default’. In other words, the Adjudicating Authority should not on the
prima facie take default into consideration and admit the application rather it should determine
what caused the default i.e., the incapacity to repay or mere mala fide intention to evade the lawful
dues.

It is argued that the Adjudicating Authority should critically evaluate the books of accounts
submitted by the corporate debtor. A proper scrutiny of the documents submitted should be
conducted by the Adjudicating Authority so as to ascertain whether the corporate debtor actually
wants resolution of insolvency or is seeking mere advantages of moratorium. As during
moratorium, IBC provisions suspends all other legal proceedings against the company which is
going through an insolvency proceeding. The moratorium is available till the case is resolved. This
gives the defaulting debtor a scope to evade judicial proceedings for recovery, enforcement of
security interest, sale or transfer of assets, or termination of essential contracts till the time the
moratorium is enforceable. Adding to it the fact that a minimum debt of rupees one lakh is enough
to apply for insolvency33, and it becomes an attractive option for a corporate debtor with mala fide
intentions.

Hence it is concluded that since there is no provision which provides an opportunity of hearing to
the creditors and there is no provision which sets NCLT’s obligation to determine default the
section is arbitrary and therefore, should be declared unconstitutional.

32
UK Insolvency Code § 3, (1986).
33
The Insolvency and Bankruptcy Code § 4, (2016).

8
 MEMEORIAL ON BEHALF OF THE PETIONER

[4.2]: Section 30 (2) (b) is unconstitutional

It is humbly contented before the Hon’ble Supreme Court of Narnia that the section 30(2)(b) of
the Insolvency and Bankruptcy Code is violative of Article 14 as it is arbitrary and unjustly
discriminates different class of creditors.

Section 30 (2) (b) reads as:

“Section 30: Submission of resolution plan: (2) the resolution professional shall examine each
resolution plan received by him to confirm that each resolution plan—

(b) provides for the payment of the debts of operational creditors in such manner as may be
specified by the Board which shall not be less than the amount to be paid to the operational
creditors in the event of a liquidation of the corporate debtor under section 53;”

This petition has been called for irrelevance of Section 53 which lays priorities of distribution in
liquidation or the waterfall in the resolution process. Reason being, payment under resolution plan
is not a distribution of the proceeds from sale of the assets of the corporate debtor and, therefore,
the resolution applicant cannot take advantage of Section 53 for the purpose of distribution to be
made in favour of one or other stakeholders — financial, operational or otherwise.

Section 53 reads as:

“53. (1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament
or any State Legislature for the time being in force, the proceeds from the sale of the liquidation
assets shall be distributed in the following order of priority and within such period and in such
manner as may be specified, namely :—

(a) The insolvency resolution process costs and the liquidation costs paid in full;

(b) The following debts which shall rank equally between and among the following:

(i) workmen’s dues for the period of twenty-four months preceding the liquidation
commencement date; and
(ii) debts owed to a secured creditor in the event such secured creditor has relinquished
security in the manner set out in section 52;

9
 MEMEORIAL ON BEHALF OF THE PETIONER

(c) Wages and any unpaid dues owed to employees other than workmen for the period of twelve
months preceding the liquidation commencement date;

(d) Financial debts owed to unsecured creditors;

(e) The following dues shall rank equally between and among the following:

(i) any amount due to the Central Government and the State Government including the amount
to be received on account of the Consolidated Fund of India and the Consolidated Fund of
a State, if any, in respect of the whole or any part of the period of two years preceding the
liquidation commencement date;
(ii) debts owed to a secured creditor for any amount unpaid following the enforcement of
security interest;

(f) Any remaining debts and dues;

(g) Preference shareholders, if any; and

(h) Equity shareholders or partners, as the case may be.

(2) Any contractual arrangements between recipients under sub-section (1) with equal ranking, if
disrupting the order of priority under that sub-section shall be disregarded by the liquidator.

(3) the fees payable to the liquidator shall be deducted proportionately from the proceeds payable
to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall
be distributed after such deduction.”34

Financial Creditors are covered under sub-clause b (ii), (d) and e (ii) of sub-section (1) above
whereas Operational Creditors fall under sub-clause (f) of sub-section (1). Hence, Financial
Creditors rank higher than Operational Creditors and their dues are, therefore, required to be paid
in priority over the latter.

The actual implication of these provisions is seen in cases where the Financial Debt of a Corporate
Debtor exceeds its Liquidation Value by a considerable margin and the Resolution Plan offers a
sum that is insufficient to repay the entire Financial Debt. In such cases, by virtue of the waterfall
provision, nothing remains to be paid to Operational Creditors as the resolution amount gets

34
The Insolvency and Bankruptcy Code § 53, (2016).

10
 MEMEORIAL ON BEHALF OF THE PETIONER

exhausted in repaying the debts/sums ranking higher than the dues of Operational Creditors under
Section 53. Only when the resolution amount exceeds the dues of Financial Creditors does the
question of repaying the Operational Creditors arise. At least, this is what the aforesaid provisions
imply.

The decision in the case of Binani Industries35 held that Section 53 cannot be relied upon while
approving the Resolution Plan. The following extracts from the aforesaid decision deserve to be
quoted:

“29. We agree with the submissions made by Mr. Arun Kathpalia, learned Senior Counsel that
Section 53, including explanation given therein cannot be relied upon while approving the
‘Resolution Plan’. …”

Let’s say, the Financial Debt of a Corporate Debtor stands at Rs. 100/- and the Operational Debt
stands at Rs. 50/-. The resolution process commences, and the liquidation value (in other words,
the maximum realizable value from the sale of assets) of the Corporate Debtor is fixed at Rs. 50/-
. In these circumstances, if the Corporate Debtor were to be liquidated under Chapter III, the
waterfall provision would ensure that the entire Rs. 50/-, so raised from sale of assets of the
Corporate Debtor, will be spent towards repaying the Financial Debt and nothing will be left to
repay the Operational Debt.

Now, say, this Corporate Debtor undergoes resolution process under Chapter II and a resolution
plan is approved by the Committee of Creditors, which allocates a sum of Rs. 50/- towards
repayment of dues of creditors of the Corporate Debtor. In these circumstances, on a conjoint
reading and application of Section 30 (2) (b) and Section 53 of the Code, it will be open for the
Resolution Applicant to allocate the entire sum of Rs. 50/- towards (part) repayment of the
Financial Debt, leaving no amount for repayment of the Operational Debt.
It is contended that if such discriminatory instances against operational creditors continue to
happen it would certainly demotivate the creditors and then in such case no creditor will supply
the goods or render services on credit to any ‘Corporate Debtor’. All those who will supply goods
and provide services, will ask for advance payment for such supply of goods or to render services
which will be against the basic principle of the ‘I&B Code’ and will also affect the Indian

35
Binani Cement Industries Ltd. v. Bank of Baroda & Anr., 2018 S.C.C. OnLine N.C.L.A.T. 521.

11
 MEMEORIAL ON BEHALF OF THE PETIONER

economy.36 This would also have serious repercussions on the growth of the entrepreneurship
which is the objective of the Code which also includes maximization of value of assets, availability
of credit and balance the interest of all stakeholders.

Reference could also be made to Bankruptcy Law Reform Committee’s report which clearly stated
that, “The liabilities of all creditors who are not part of negotiation process must also be met in
any negotiated solution.”37

Therefore, it is necessary to balance the ‘Financial Creditors’ and the ‘Operational Creditors’ while
emphasizing on maximization of the assets of the ‘Corporate Debtor’. Any ‘Resolution Plan’ if
shown to be discriminatory against one or other ‘Financial Creditor’ or the ‘Operational Creditor’,
such plan can be held to be against the provisions of the ‘I&B Code’.

Hence, it is concluded that the section 30 (2) (b) is not in consonance with the Article 14 as it is
unreasonably discriminatory toward operational creditors. Also, the consequences of this provision
defeat the very purpose of the Code.

[4.3]: Section 31 (1) is unconstitutional

It is humbly submitted before the Hon’ble Supreme Court of Narnia that the section 31(1) of the
Insolvency and Bankruptcy Code 2016 is violative of Article 14 of the Narnian Constitution as the
basis for accepting or rejecting the resolution plan by the Adjudicating Authority is not subjective.

Section 31(1) reads as:

“31. (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the
committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in
sub-section (2) of section 3038, it shall by order approve the resolution plan which shall be binding
on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders
involved in the resolution plan.”39

36
Binani Cement Industries Ltd. v. Bank of Baroda & Anr., 2018 S.C.C. OnLine N.C.L.A.T. 521.
37
BLRC Report.
38
The Insolvency and Bankruptcy Code § 30, (2016).
39
The Insolvency and Bankruptcy Code § 31(1), (2016).

12
 MEMEORIAL ON BEHALF OF THE PETIONER

It is contented that even though the word “satisfied” is used in the said section it is in respect of
sub-section (2) and sub-section (4) of section 3040. In other words, if the Adjudicating Authority
is satisfied that the resolution plan confers to the sub-section (2) and sub-section (4) of section 30
of the Code it shall approve the plan and it shall be binding on all. There is no provision which
empowers Adjudicating Authority to reject the resolution plan on the ground that the resolution
plan is discriminatory or unfair to some creditors.

In countries like UK and US, there are provisions which provide remedies to creditors against
unfair prejudice. Section 641 of the UK Insolvency Act, 1986 provides that an application can be
filed by any aggrieved person, on the following grounds:

• That the voluntary arrangement unfairly prejudices the interests of a creditor, member or
contributory of the company; and/ or

• That there has been some material irregularity at or in relation to either of the meetings,
the meeting of the company or in relation to the relevant qualifying decision procedure.

If the court is satisfied as to either of the grounds mentioned above, it may either revoke or suspend
the decision approving the voluntary agreement or give directions to summon further meetings, to
consider any revised proposal or reconsider the original proposal.

In the case of Daewoo Singapore Pte Ltd. v. CEL Tractors Pte Ltd.42, Singapore Court of Appeal
held that:

“After a scheme is accepted by the creditors, an objecting creditor can persuade the court to
withhold its approval, or to approve it subject to such alternatives or conditions as it thinks fit.
The objecting creditor would succeed if he can show that the creditors did not vote bona fide for
the benefit of the creditors or the company as a whole, or that the scheme is not fair and
reasonable.”

US courts follow a cramdown test, wherein the court approves the plan over the objections of the
creditor(s), if the plan does not discriminate unfairly, and is “fair and equitable”. The principle
requires that the plan meet certain standards of fairness and is in best interest of creditors. The

40
The Insolvency and Bankruptcy Code § 30, (2016).
41
The UK Insolvency Act § 6, (1986).
42
Daewoo Singapore Pte. Ltd. v. CEL Tractors Pte. Ltd., S.G.C.A. 53 [2001].

13
 MEMEORIAL ON BEHALF OF THE PETIONER

court may confirm over a dissent if the members of the class are unimpaired. Subsection 1129(a)43
of US Bankruptcy Code enumerates the requirement governing confirmation of a plan. The court
is required to confirm a plan if and only if all of the following requirements are met:

(i) plan comply with the applicable provisions of chapter 11, governing contents of the plan; and

(ii) plan have been proposed in good faith, and not by any means forbidden by law.

The criterion of unfair discrimination is not derived from the fair and equitable rule or from the
best interests of creditors test; rather it preserves just treatment of a dissenting class from similarly
placed class. Though different courts employ different tests in determining whether a plan is
discriminates unfairly. In essence, a plan does not discriminate unfairly with respect to a dissenting
class if the plan protects the legal rights of a class in a manner inconsistent with the treatment of
other classes that hold similar rights. Again, no plan is approved if the principal purpose of the
plan is the avoidance of taxes, or if the court determines that the plan is not feasible.

It is contended that the foreign countries have the provisions to ensure that the resolution plan does
not unfairly discriminate any creditor and these provisions promote subjectivity and application of
mind while approving the resolution plan. However, the Narnian I&B Code does not contain any
such provisions. Even if the resolution plan has been approved by the Committee of Creditors with
an ill intention to disadvantage certain class of creditors who are not given representation under
the Code and fulfil the criteria mentioned in section 30 of the Code the Adjudicating Authority
shall be bound to approve such a plan.

The Hon’ble Supreme Court has also affirmed that the resolution plan must be fair and shall not
unjustly discriminate against any creditor.

The case of Binani Cements44 clarified that the approval of the Adjudicating Authority is not a
mere requirement/ formality, although the Adjudicating Authority is not permitted to alter the
terms of the plan, the ultimate authority to approve or reject a plan vests with the Adjudicating
Authority, and for that it should consider the following aspects:

(i) Whether the plan complies with the requirements of Section 30(2)?

43
11 U.S. Code § 1129, ().
44
Rajputana Properties Pvt. Ltd. v. Ultratech Cement Ltd. & Ors., 2018 S.C.C. OnLine S.C. 906.

14
 MEMEORIAL ON BEHALF OF THE PETIONER

(ii) Whether the plan is fair and equitable or there is any unjust discrimination not
envisaged in law?

(iii) Whether the plan adheres to the object of the Code i.e. maximises the value of assets
and balances the interests of all the stakeholders?

Only if the aforesaid questions are answered in satisfactory, the plan is confirmed, if not the
Adjudicating Authority may deny its confirmation.

Hence it is requested that the section 31(1) of the Insolvency and Bankruptcy Code, 2016 be
declared unconstitutional as it lacks subjectivity in the approval of the resolution plan by the
Adjudicating Authority.

[4.4]: Section 65 is unconstitutional

It is humbly submitted before the Hon’ble Supreme Court of Narnia that the section 65 of the
Insolvency and Bankruptcy Code 2016 violates the rights of the party against whom the initiator
of CIRP or liquidation proceedings had fraudulent or malicious intentions.

Section 65 reads as:

“65. (1) If, any person initiates the insolvency resolution process or liquidation proceedings
fraudulently or with malicious intent for any purpose other than for the resolution of insolvency,
or liquidation, as the case may be, the Adjudicating Authority may impose upon such person a
penalty which shall not be less than one lakh rupees, but may extend to one crore rupees.

(2) If, any person initiates voluntary liquidation proceedings with the intent to defraud any person,
the Adjudicating Authority may impose upon such person a penalty which shall not be less than
one lakh rupees but may extend to one crore rupees.”45

This section empowers the adjudicating authority, on discovery of mala fide intention, to only
impose penalty whereas, ideally the petition is liable to be rejected. Allowing a petition filed
fraudulently or with malicious intent would defeat the purpose of the Code.

For example, if a petition is filed by the corporate debtor himself with fraudulent or malicious
intent in order to defraud the creditors and evade lawful debts owed to them and the Adjudicating

45
The Insolvency and Bankruptcy Code § 65, (2016).

15
 MEMEORIAL ON BEHALF OF THE PETIONER

Authority on discovery of this fact imposes penalty under section 65 but does not reject the
petition. In such a case CIRP or liquidation proceedings would continue and the corporate debtor
would succeed in evading the lawful debts. This would certainly violate the rights of the creditors
who cannot recover their dues the corporate debtor owes to them by way of instituting suit as
moratorium bars debt recovery suit against the corporate debtor.

Moreover, the language used in section 6546 uses the words “the Adjudicating Authority may
impose” which means even on discovery of mala fide intentions for initiating insolvency resolution
process or liquidation process the Adjudicating Authority is not bound to impose penalty and there
is excessive discretion given to the Adjudicating Authority which can be said to be arbitrary and
thus, violative of Article 1447 of the Constitution of Narnia.

Furthermore, the slab of penalty specified in section 65 is certainly less for big companies. For big
companies, acting fraudulently, such an amount would not serve any purpose as the penalty
amount is much less than the debts they owe to the creditors. The penalty amount should vary from
company to company depending upon the size of the company.

Hence, it submitted that section 65 should be struck down as this provision is limited to imposition
of penalty as opposed to rejection of the petition for reasons contained therein

46
The Insolvency and Bankruptcy Code § 65, (2016).
47
INDIA CONST., art. XIV.

16
 MEMEORIAL ON BEHALF OF THE PETIONER

PRAYERS

Therefore, in the light of the facts of the case, issues raised, arguments advanced and authorities
cited, this Hon’ble court may be pleased to adjudge and declare that –

• To entertain the writ petition is under the jurisdiction of the Hon’ble Court and the transfer
petition filed by Inner Peace Private Limited in not maintainable.
• The order by NCLT to admit the petition by Le Tranquille Private Limited under Section
10 and its consequential proceedings should be set aside.
• NCLT was not right in ordering the stay on Armorica EP by way of the interim order.
• Sections 10, 30(2) (b), 31(1) and 65 of IBC are unconstitutional.

And may pass any other Order, Direction or Relief in favour of the petitioner that it may deem
fit in the interest of Justice, Equity and Good Conscience.

And for this act of Kindness, the Petitioner shall duty bound forever pray.

SD/-

Counsel for Petitioner

XI