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Strategic interactions between Customary Law and Insolvency and Bankruptcy Code

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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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SC Collegium Recommends elevation of Justice Prasanna B. Varale as Karnataka HC Chief Justice; Recommends New CJs For Orissa, J&K

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The Supreme Court Collegium has recommended elevation of Justice Prasanna B. Varale, Bombay High Court Judge as the Chief Justice of Karnataka High Court.
Justice Prasanna B. Varale was born on 23rd June, 1962 and enrolled as an Advocate on 12th August, 1985. He also served as a lecturer in Law at Ambedkar Law College, Aurangabad from 1990 to 1992 and as the Assistant Government Pleader and Additional Public Prosecutor, High Court Bench at Aurangabad and also as an Additional Standing Counsel for Union of India.
On July, 18., he was elevated to the bench at Bombay High Court.
The Supreme Court Collegium also recommended to elevate of Orissa High Court Judge, Justice Jaswant Singh, as its Chief Justice.
Justice Singh was February 23, 1961 and was enrolled as an Advocate in 1986 in Haryana. In April 1988, he moved to Chandigarh and held the posts of Assistant Advocate General, Deputy Advocate General, Senior Deputy Advocate General and Additional Advocate General, in the office of Advocate General, Haryana, since March 1991.
On December 5, 2007., he was elevated as a Judge of Punjab and Haryana High Court and on 8th October, 2021., he was transferred to the Orissa High Court.
The Collegium also J&K High Court’s Judge, Justice Ali Mohammad Magrey to take charge as the Chief Justice.
Justice Magrey was born on 8th December, 1960 and enrolled as Advocate in the year 1984. However, he remained as standing counsel from 1986 onwards for various State instrumentalities and was appointed as Additional Advocate General in February, 2003. In September 2009, he was appointed as Senior Additional Advocate General.
On 8th March, 2013., he was appointed as Permanent Judge of the Jammu and Kashmir High Court.

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Supreme Court Collegium Recommends Transfer Of 3 Judges To Bombay, Jharkhand & Tripura High Courts

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The Supreme Court Collegium has recommended transfer of three Judges in its meeting held on 28th September, 2022 in the following manner:
The transfer of Justice Sanjaya Kumar Mishra from Uttarakhand High Court to Jharkhand High Court
Justice Mishra was born on December 29, 1961 and has obtained his LL.B. degree in 1987 and in February 1999 joined as Additional District & Sessions Judge. However, he worked as District & Sessions Judge, Sundergarh, Dhenkanal, Special Judge (CBI), Bhubaneswar and has joined as Registrar General of Orissa High Court.
On October 7, 2009., he was elevated as Judge of the Orissa High Court and was transferred to the Uttarakhand High Court on October 11, 2021. Between December 24, 2021 and June 28, 2022, he served as the Acting Chief Justice of Uttarakhand High Court.
The transfer of Justice K. Vinod Chandran from the Kerala High Court to Bombay High Court
Justice K. Vinod Chandran was born on April 25, 1963 and has started his law practice in 1991. Also, he served as a Special Government Pleader (Taxes) of the Government of Kerala from 2007 to 2011. In November 2011, he was sworn-in as Additional Judge of Kerala High Court and was appointed as a Permanent Judge with effect from June 24, 2013.
The transfer of Justice Aparesh Kumar Singh from Jharkhand High Court to Tripura High Court
Justice Singh was born on 7th July, 1965 and got enrolled as an advocate at Patna in 1990. On 24th January, 2012., he was elevated as an Additional Judge of Jharkhand High Court and was confirmed as permanent Judge on 16th January, 2014. Presently, he is holding an additional charge as Executive Chairman of Jharkhand State Legal Services Authority.

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Kerala High Court Directs Union Health Ministry And Department of Pharmaceuticals To File Response: Patents On Life Saving Drugs

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The Kerala High Court while taking serious note in the case XXX v. Union of India of the unaffordability of a life-saving patented medicine for breast cancer, the Court directed a competent officer of the union health ministry and the department of pharmaceuticals for filing their response on the issue within a month.
A direction has been issued by the Court after noting that the matter had to be taken up at the higher level.
The bench of Justice V.G. Arun observed and has warned that if the counter is not filed within the stipulated time, the court would be constrained to proceed with the case based on the “uncontroverted averments in the writ”.
During the hearing, the counsel appearing on behalf of the Department for Promotion of Industry and Internal Trade (DPIIT) and the Controller General of Patents, Patent Department, Standing Counsel T.C. Krishna submitted that the situation to invoke Sections 92 and 100 for compulsory license of the patented drug as sought for in the petition and was not prevalent as of present.
Further, it was asked by the counsel that how far the court could interfere in this case, since the plea had sought that the drug be made available at a reasonable price. Adding to it, he questioned that weather the Court could suggest what a ‘reasonable price’ would be to the government.
In response to the question, it was clarified by advocate Rahul Bajaj that cancer was not part of the list of the notifiable diseases list issued by the Central Government.
The Amicus Curiae, Advocate Maitreyi Sachidananda Hegde submitted that the authority to take decision under Section 92 or Section 100 of the Patent Act ought to be of the Joint Secretary level as the Assistant Patent Officer could not decide whether the issue falls within the government realm or not.
It was also argued by the Amicus that the legal question which has been raised could be decided by the Court.
Further, it was submitted by Amicus that the counter Affidavit that had been submitted by DPIIT and Patent Department suffered from certain drawbacks for not addressing whether reasonable discretion had indeed been exercised in the instant case or not.
The Counsel appearing for the respondent refused while stating that the government has to take the decision in this regard, before the Patent Department could go ahead with compulsory licensing or any other such measure.
Representing an intervenor, Advocate Bajaj pointed out that the right to health in Indian and International spectrum includes within its ambit the right to life-saving medicines, as well. Hence, it was submitted by the counsel that the issue could not merely be looked into from a policy lens alone, but that it is a rights-based issue in itself.
The Court on 16.09.2022., had taken a suo motto cognizance of the issue of unaffordability of patented life-saving medicines, in light of the death of the petitioner who had espoused this cause having not been able to afford the Ribociclib drug for the treatment of her breast cancer.
Accordingly, the court posted the case for the next hearing on 2nd November 2022.

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Allahabad high court: Not mandatory to summon lower court record before deciding state’s plea for grant of leave u/s 378(3) crpc

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The Allahabad High Court in the case State of U.P. v. Vakil S/O Babu Khan observed and has held that it is not mandatory for the High Court to summon the lower court record in every case before deciding the State Government’s application for grant of leave to appeal against an acquittal order as provided under Section 378(3) Cr.P.C.
It stated that section 378 Cr.P.C. provides for filing of appeal in case of acquittal by the State and sub-section 3 of Section 378 Cr.P.C. contemplates for grant of leave for the entertainment of such appeals filled.
The bench comprising of Justice Ashwani Kumar Mishra and Justice Shiv Shanker Prasad observed and has stated that it is for the High Court to decide on the basis of the facts and circumstances of each case that whether the application filled for grant of leave requires the perusal of the lower court records or not.
However, the court was of the view that though the right of the appellate court to summon the lower court record in an appropriate matter always subsists and it is not necessary for the High Court to call for the lower court records for consideration of an application under Section 378(3) Cr.P.C., in every case or as a matter of routine.
The Court also referred to the Apex Court’s ruling in the case of State of Maharastra Vs. Sujay Mangesh Poyarekar (2008) 9 SCC 475, wherein it was observed that the High Court while exercising the power to grant or refuse leave must apply its mind and considering where a prima facie case has been made out or arguable points have been raised and not whether the order of an acquittal would or would not be set aside.
It was observed that the court also took into account sub-section 2 of Section 384 Cr.P.C. which provides that before dismissing an appeal, summarily, the Court may call up for the record of the case. Thus, the court noted that non-summoning of the lower court records in an appeal against conviction is not fatal and that the use of the expression ‘may’ in sub-section (2) clearly suggests that the power to summon the record is only an enabling provision and as shall it is not to be read.
Further, the court stressed that every appeal is not required to be admitted inasmuch as leave must not necessarily be granted in every matter and the exercise of power in that regard is dependent before the Court upon a prima facie assessment of the material placed so as to ascertain whether the appeal raises arguable points or not.
Subsequently, the Court came to the conclusion that it is not mandatory for the High Court to summon the lower court record in every case before deciding the application for grant of leave under Section 378(3) Cr.P.C.
It was added by the court that the right of the appellate court to summon the lower court record in an appropriate matter always subsists and It is for the High Court to decide on the basis of the facts and circumstances of each case that whether the application for grant of leave requires the perusal of the lower court records or not.

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All women, married or unmarried, entitled to safe and legal abortion: SC

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All women, married or unmarried, entitled to safe and legal abortion: SC

In a landmark judgement this week, the Supreme Court held that all women are entitled to a safe and legal abortion. A bench headed by Justice D.Y. Chandrachud said that the meaning of rape must include marital rape for the Medical Termination of Pregnancy Act.
The Supreme Court said that the distinction between married and unmarried women for the purposes of the MTP Act is “artificial and constitutionally unsustainable” and perpetuates the stereotype that only married women indulge in sexual activities.
The rights of reproductive autonomy give similar rights to unmarried women as those to married women, the bench held.
Insisting on a “forward-looking” approach, the Supreme Court on 7 August opined that any discrimination between married and unmarried women in respect of the medical termination of pregnancy law in India that does not allow a single woman to go for an abortion after 20 weeks violates her personal autonomy.
The top court had said that it would interpret the Medical Termination of Pregnancy (MTP) Act and the related rules to see if unmarried women could be allowed to abort up to a 24-week pregnancy on medical advice.
The upper limit for the termination of pregnancy is 24 weeks for married women, with special categories including survivors of rape and other vulnerable women such as the differently-abled and minors; the corresponding window for unmarried women in consensual relationships is 20 weeks.

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SEBI v/s RIL : Review Petition Admitted

The present issue relates back to certain share transactions of RIL in 1994, whereby around 12 crore equity shares of RIL were “fraudulently” allotted to its promoters and group companies.

Tarun Nangia

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SEBI v/s RIL : Review Petition Admitted

The Supreme Court in the case Securities and Exchange Board Of India vs. Reliance Industries Limited & Ors observed and has allowed for listing of the instant petition in open court.

The bench comprising of the Chief Justice Of India U.U. Lalit, Justice J.K. Maheshwari and the Justice HimaKohli observed while considering the facts and circumstances of the case and on the submissions made by the counsel in the review petition. The bench deemed it appropriate to allowe the application filled for the listing of the instant petition in open court.

Background of the Case:

The present issue relates back to certain share transactions of RIL in 1994, whereby around 12 crore equity shares of RIL were “fraudulently” allotted to its promoters and group companies. In 2020, a complaint was filled by S Gurmurthy, the regulatory initiated probe into the alleged irregularities. An opinion was sought by SEBI of former Supreme Court judge Justice BN Srikrishna twice and also the opinion of a Chartered Accountant named YH Malegam.

It was requested by the RBI for disclosure of these opinions and related internal documents. The RIL filed a writ petition before the Bombay High Court, when SEBI turned the request and the same was dismissed in February 2019.

A Criminal complaint was lodged by SEBI in 2020 before Special Judge, Mumbai against RIL alleging offences punishable under SEBI Act and Regulations. The same was rejected by the Court as time-barred. A revision petition was filled by the regulatory before the Bombay High Court challenging the dismissal of the complaint. However, in SEBI’s revision petition, RIL filed an interlocutory application seeking the disclosure of the documents. The High Court adjourned RIL’s application on March 28, 2022 by stating that it can be considered only along with the main revision petition. Therefore, this led to filling of the special leave petition before the Supreme Court.

On September 29, 2022., the matter was circulated in the Supreme Court. Accordingly, the court listed the review petition for next hearing on 12.10.2022.

Case Title: Securities and Exchange Board Of India vs. Reliance Industries Limited & Ors
Case No: W.P.(C) No. 250 of 2022 & W.P.(C) of 1167 of 2022.
Coram: Chief Justice Of India U.U. Lalit, Justice J.K. Maheshwari, Justice Hima Kohli
Date Of Order: 29th Day of September, 2022.

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