Monday 22 March 2021

Role of NCLT in Insolvency Proceedings

The National Companies Law Tribunal (NCLT) was constituted under Section 408 of the Companies Act, 2013 (Companies Act) and has been recognized by the Insolvency and Bankruptcy Code 2016 (Code) as the Adjudicating Authority for the purpose of insolvency resolution as well as the liquidation of corporate persons.

Jurisdiction of NCLT

The Jurisdiction for insolvency resolution and/or liquidation of corporate persons, corporate debtors and personal guarantors lies in that place where the registered office of the corporate entity is situated. To initiate an insolvency resolution process or liquidation of corporate debtor, one must file an Application for the same before having jurisdiction over such place. Likewise, one can voluntarily file for a liquidation of corporate person in the same manner.

The Code has also recognized Debt Recovery Tribunal (DRT) which has been constituted under Section 3(1) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (DRT Act) as the Adjudicating Authority for the purpose of insolvency resolution and bankruptcy of partnership firms and individuals. However, in case of a corporate insolvency resolution process or liquidation proceedings of a corporate debtor is pending before a NCLT wherein an individual is a personal guarantor of such corporate debtor, then an application relating to the insolvency resolution or bankruptcy of personal guarantor of such corporate debtor shall also be filed before such NCLT and such NCLT shall have the powers of DRT dealing with the insolvency resolution or bankruptcy of individual.

Admission by NCLT

According to Section 7(4) of the Code, after an application is filed by the Financial Creditor, for insolvency NCLT has to ascertain the existence of default within 14 days from the receipt of such application. After the NCLT ascertains the existence of a default and no disciplinary proceedings is pending before the proposed IRP, then the Application will be accepted. It is to be noted that the NCLT can reject an application as well, however, before doing so, the Tribunal must serve a notice to the Applicant Creditor in order to rectify default in his application within 7 days.

Declaration of Moratorium by NCLT

As per Section 13 of the Code, for insolvency under NCLT after an Application has been admitted by the NCLT, it must declare a moratorium in terms of Section 14 of the Code prohibiting the following:

1.      The institution of suits or continuation of pending suits or proceedings against the corporate debtor that includes execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority.

2.      Transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

3.      Any action to foreclose recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act);

4.      The recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

Power to Extend the Time Limit for IRP

According to Section 12(1) of the Code, the IRP has to be completed within 180 days and in case of fast tracked IRP under Section 56, it has to be completed within 90 days. However, wherein the Resolution Professional has been instructed by the Committee of Creditor for an extension of time beyond prescribed default maximum time, the Resolution Professional has to file an Application before the NCLT for such extension.

It is pertinent to note that the NCLT can only grant one time extension beyond prescribed default maximum time subject to the satisfaction of the NCLT that such IRP cannot be completed within default maximum time. The extension can only be of maximum 90 days for a normal IRP, and maximum 45 days for fast tracked process.

Initiation of Liquidation by NCLT process

According to Section 33(1) and (2) of the Code, In the event of either of the following situations, the NCLT must pass an order requiring the corporate debtor to be liquidated and initiate its liquidation process:

1.      Where a resolution plan has not been received within the maximum time period allowed for resolution process.

2.      Where the resolution plan received has been rejected as the said plan does not comply with the requirement specified under Section 31 of the Code.

3.      Where the Committee of Creditors through the Resolution Professional intimates the NCLT about its decision to liquidate the corporate debtor during the IRP but before confirmation of resolution plan

Dissolution of Corporate Debtor by NCLT

According to Section 54 of the Code, in the event of complete liquidation of the assets of the Corporate Debtor, the Liquidator has to make an Application before the NCLT to pass an order for the dissolution of such Corporate Debtor which shall come into effect from the date of that order and the corporate debtor shall be dissolved accordingly.

The Dissolution Order must be forwarded to the Authority with which the Corporate Debtor is registered within 7 days from the date of such Order. In case of voluntary liquidation, the time period is of 14 days.

Power in Case of Fraudulent or Malicious Proceedings

Section 65 of the Code empowers the NCLT to deal with cases of fraudulent and malicious initiation of proceedings to ensure proceedings are brought only for the purpose of resolution of insolvency, or liquidation, as the case may be and not for a malicious or fraudulent purpose. The NCLT may impose upon such person mentioned below a penalty which may be between Rs 1, 00,000 to Rs. 1,00,00,000:

1.      Where any person initiates fraudulent or malicious liquidation proceeding or insolvency resolution process

2.      where any person initiates voluntary liquidation proceeding with the intent to defraud any person

Power in Case of Fraudulent or Wrongful Trading

According to Section 66, if during the corporate insolvency resolution process or a liquidation process, it is found that any business of the corporate debtor has been carried on with intent to defraud creditors of the corporate debtor or for any fraudulent purpose, the NCLT has been empowered to pass an order on the application of the resolution professional that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit.

Furthermore, in the following situations, the NCLT may by an application by the Resolution Professional during the corporate IRP, pass an order directing that such director or partner of the corporate debtor mentioned below, shall be liable to make such contribution to the assets of the corporate debtor as it may deem fit:

1.      If before the insolvency commencement date, such director or partner knew or ought to have known that there was no reasonable prospect of avoiding the commencement of a corporate insolvency resolution process in respect of such corporate debtor; and

2.      If such director or partner did not exercise due diligence in minimizing the potential loss to the creditors of the corporate debtor.

FSSAI Penalty for Restaurants and Food Businesses

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The Food Safety and Standards Act, 2006 renders definition for food businesses and food business operators (FBO) including restaurants in India. The Act entails certain statutory requirements and compliances for ensuring food safety and packaging and labelling of food related products in India. The non- compliance of procedural requirements for food businesses and FBO’s attracts FSSAI penalty. These penal provisions are enumerated under the FSS Act for various offences.

FSSAI Penalty Structure

The various FSSAI penalties and offences are enumerated below:

Penalty for selling food not of the nature or substance or quality demanded- This states that any person who sells any food item which is not in compliance with the provisions of the FSS Act or the regulations made thereunder, then the food business shall be liable to a penalty not exceeding five lakh rupees.

Penalty for sub-standard food- Under this any person who manufactures for sale or stores or sells or distributes or imports any article of food for human consumption which is sub-standard, shall be liable to a penalty which may extend to five lakh rupees.

Penalty for misbranded food- A person who manufactures, sale or stores or sells or distributes or imports any food article is misbranded, shall be liable to a penalty which may extend to three lakh rupees.

Penalty for misleading advertisement- The FSSAI punishment for any person who publishes, or is a party to the publication of an advertisement, which is likely to mislead about the nature or substance or quality of any food or gives false guarantee, shall be liable to a penalty which may extend to ten lakh rupees.

Penalty for food containing extraneous matter- Under this any person who manufactures for sale or stores or sells or distributes or imports any article of food for human consumption containing extraneous matter, shall be liable to a penalty which may extend to one lakh rupees.

Penalty for unhygienic or unsanitary processing or manufacturing of food- Any person who, whether by himself or by any other person on his behalf, manufactures or processes any article of food for human consumption under unhygienic or unsanitary conditions, shall be liable to a penalty which may extend to one lakh rupees.

Punishment for Food Adulteration in India

The FSS Act also prescribes punishment for possession of food adulterant and provides that if any person who imports or manufactures for sale, or stores, sells or distribute any adulterant shall be liable –

(i)    to a penalty not exceeding two lakhs rupees- where such adulterant is not injurious to health

(ii)   to a penalty not exceeding ten lakhs rupees- where such adulterant is injurious to health

The Food Laws in India also provides FSSAI punishment for misleading consumers and states that every FBO shall ensure that the labelling and presentation of food, including their shape, appearance or packaging, the packaging materials used, the manner in which they are arranged and the setting in which they are displayed, and the information which is made available about them should not mislead consumers.

The Act also mandates that no person shall commence or carry on any food business without licensing and registration of food business.

All you need to know about filing a Consumer Complaint in India

 Who can file a Consumer Complaint in India?

According to the Consumer Protection Act, 2019 a consumer complaint can be filed by:               

1.      A consumer, or in the case of more than one consumer, one or more consumers may file a complaint;

2.      Any voluntary consumer association registered under the Companies Act, 1956 or any other law, for the time being, enforced;

3.      The Central Government;

4.      Any State Government;

5.      A legal heir or representative of a deceased consumer.

Grounds for Filing a Consumer Complaint- India

A Consumer Complaint can be filed on the grounds of:

  • Deficiency of services
  • Unfair trade practices
  • Manufacturing defect in the product
  • Medical negligence

Consumer Forum Complaint Procedure

The procedure for filing a consumer complaint is enumerated as under:

·         The Complaint can be registered, in person, by the Complainant or through his authorized agent or by post addressed to the Redressal Agency. A Complaint when made in the Consumer Forum i.e. District Forum or State Commission shall be filed in three sets and when it is filed in the National Commission, it shall be filed in four sets with additional sets equal to the number of opposite part(s).

·         Every Complaint shall clearly contain particulars of dispute and the relief claimed and shall also be accompanied by copies of such documents as are necessary to prove the claim made in the Complaint.

Can a Consumer complaint be filed online?

Yes, a complaint under the Consumer Protection Act can be filed online. Thus, a consumer aggrieved with the deficiency in goods or services can lodge a consumer complaint online at the National Consumer Helpline, which can be accessed at https://consumerhelpline.gov.in/.

Limitation for filing Consumer Complaint

A Complaint must be filed within 2 years from the date on which the cause of action/deficiency in service/defect in goods arises. However, a Complaint may also be filed after two years, if the Complainant is able to satisfy the respective Consumer Forum, that he/she had sufficient reasons for not filing the Complaint within the stipulated period.

Consumer Complaint Filing Forums- India

The various Forums in which a Consumer Complaint can be filed are as under:

  1. District Consumer Disputes Redressal Forum or the District Forum
  2. State Consumer Disputes Redressal Commission or the State Commission
  3. National Consumer Disputes Redressal Commission (NCDRC) or the National Commission

Pecuniary Jurisdiction of Consumer Forums in India

The New Act i.e. Consumer Protection Act, 2019 has also enhanced the Pecuniary Jurisdiction of the Consumer Forums

  1. District Consumer Disputes Redressal Forum: The jurisdiction of the District Forum has been enhanced to Rs. 1 cr.
  2. State Consumer Disputes Redressal Commission: The State Jurisdiction shall be able to entertain Complaints whose value is minimum Rs. 1 cr but does not exceed 10 cr.
  3. National Consumer Disputes Redressal Commission: The National Commission, shall be able to entertain Complaints valued above Rs. 10 cr.

For more information on the filing of a consumer the complaint, consumer complaint online, please write to us at info@ssrana.com or submit a query.