Background: Quashing Section 153A Charges

In a historic and landmark ruling on March 7, the Supreme Court of India took a firm and resolute stand by quashing a criminal case against Professor Javed Ahmed Hajam. The esteemed professor had expressed dissent against the abrogation of Article 370 in the region of Jammu and Kashmir, vividly describing the day of abrogation as a ‘Black Day.’ The significance of this judgment extends beyond a mere legal verdict; it delves deep into the heart of democratic principles, especially the critical facets of freedom of expression and dissent, both of which are intrinsic to the constitutional ethos of India. The crux of this legal saga revolves around Professor Javed Ahmed Hajam, who found himself embroiled in legal intricacies as the Maharashtra Police registered a case under Section 153A of the Indian Penal Code. This specific section deals with the promotion of communal disharmony, and the charges were primarily based on WhatsApp messages wherein Professor Hajam criticized the abrogation of Article 370. However, the Supreme Court, in its far-reaching ruling, not only questioned the validity of these charges but also underscored the foundational significance of the right to freedom of speech and expression, a cornerstone of the Indian Constitution.

Legal Analysis: Safeguarding Freedom of Expression

The decision, meticulously articulated by Justices Abhay S Oka and Ujjal Bhuyan, meticulously delves into the core of the WhatsApp messages that became the epicenter of the legal maelstrom. The court unambiguously acknowledged Professor Hajam’s right to critique the abrogation of Article 370, emphasizing that expressions of protest and anguish, including the characterization of the day as a ‘Black Day,’ fall squarely within the ambit of protected forms of dissent. This ruling stands as a robust affirmation of the court’s unwavering commitment to safeguarding the principles of democracy, an essential tenet of the Indian Constitution.

Interpretation of WhatsApp Messages: Context and Intention

Integral to the court’s comprehensive analysis was a careful examination of the context and intention behind the WhatsApp messages in question. The statement designating August 5 as a ‘Black Day’ for Jammu and Kashmir was interpreted as a critique of the abrogation of Article 370, reflecting the appellant’s discontent with the decision. The court, cognizant of the constitutional significance of the abrogation, concluded that Professor Hajam’s critical analysis was well within the bounds of freedom of speech and expression.

Reaffirmation of Freedom of Expression Through Judicial Review

The resounding verdict from the Supreme Court echoes the pivotal role of dissent in a vibrant democracy. It emphatically underscores that citizens not only possess the right to express disagreement with state actions but also that characterizing a specific day as a ‘Black Day’ constitutes a form of ‘protest and anguish’ rather than an attempt to incite hatred. The court emphasized that the Constitution unequivocally guarantees the freedom to criticize decisions of the state, thereby reaffirming the foundational principles of democratic values.

Impact on Reasonable Individuals: Rejecting Concerns of Disharmony

Addressing concerns raised by the High Court regarding the potential promotion of disharmony, the Supreme Court categorically rejected the notion of assessing impact based on ‘weak minds.’ Instead, it advocated evaluating expressions of dissent based on the reasonable person metric, emphasizing that the impact on reasonable individuals is the quintessential factor. The court argued that India, as a democratic republic for over 75 years, comprehends the paramount importance of democratic values, and the test should be applied to the general impact on reasonable people.

Second WhatsApp Message: Independence Day Wishes to Pakistan

The court also delved into the second WhatsApp message, wherein Professor Hajam extended wishes to Pakistan on its Independence Day. In consonance with the High Court’s view, the Supreme Court held that such an act does not attract penal consequences under Section 153A. The court emphatically stated that citizens have the unassailable right to extend good wishes to other countries, asserting that motives cannot be attributed solely based on religious affiliation.

Conclusion: Protecting Freedom of Expression in Critique and Celebration

In the denouement of this legal odyssey, the Supreme Court’s verdict stands as a lighthouse guiding the protection of freedom of expression. By unequivocally quashing charges against Professor Hajam, the court sends a resounding message – criticizing state actions and expressing opinions on matters of public importance are not only integral to the democratic fabric but are also constitutionally safeguarded. The ruling underscores the profound significance of dissent in a democracy, reaffirming constitutional values and ensuring that citizens can freely articulate their views without the specter of legal repercussions. This case sets a monumental precedent, emphatically underscoring the court’s unwavering commitment to upholding the principles enshrined in the Constitution.

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Introduction 

In a significant and unprecedented decision, the Supreme Court of India has nullified the Chandigarh mayoral election, overturning the victory of Bharatiya Janata Party (BJP) candidate Manoj Sonkar as the mayor of the Chandigarh Municipal Corporation. The three-judge Bench, led by Chief Justice of India Dr D.Y. Chandrachud, took a strong stance against the unlawful actions of the returning and presiding officer, Anil Masih, who was found to have tampered with ballot papers during the counting process.

Invalidation of Ballots and Election Quashed 

The Supreme Court held that Anil Masih had unlawfully altered the course of the mayoral elections by invalidating eight ballot papers cast in favor of the Aam Aadmi Party (AAP) candidate, Kuldeep Kumar. While refraining from quashing the entire election process, the Bench invoked its inherent power under Article 142 of the Constitution to treat the eight wrongly invalidated ballots as valid. As a result, AAP’s Kuldeep Kumar was declared the duly elected mayor of the municipal corporation with 20 votes, surpassing the BJP candidate’s 16 votes.

Show Cause Notice and Criminal Prosecution for Anil Masih

The Bench issued a show cause notice to Anil Masih, asking him to explain why he should not be prosecuted for perjury. Masih had initially admitted to putting marks on eight ballot papers but claimed it was due to defacement. However, upon physical verification, the court found no evidence of defacement, leading to doubts about Masih’s credibility. The court ordered criminal prosecution against Masih under section 340 of the Code of Criminal Procedure for allegedly making false statements.

Background of the Chandigarh Mayoral Election Case

The controversy began earlier this month when the Supreme Court criticized Anil Masih for defacing ballot papers in favor of the BJP candidate, calling it a “mockery of democracy.” The court ordered the sequestration of the entire record of the Chandigarh mayor elections and deferred a scheduled municipal corporation meeting. AAP candidate Kuldeep Kumar had filed a petition against the Punjab and Haryana High Court’s refusal to grant interim relief in the case.

Allegations of Ballot Tampering and Video Evidence

Kumar alleged that Masih tampered with ballot papers during the counting process, as seen in a widely reported video. The video showed Masih marking ballot papers with a pen, leading to the invalidation of eight votes for Kumar. Despite raising concerns in the Punjab and Haryana High Court, Kumar received no interim relief, prompting him to approach the Supreme Court.

Supreme Court’s Strong Criticism and Verdict

The Supreme Court strongly criticized Masih’s actions, declaring them a “serious misdemeanour.” The court emphasized that Masih had unlawfully altered the mayoral election and expressed falsehood in his statement before the court. The verdict not only invalidated the election results but also exposed Masih’s deliberate efforts to favor the BJP candidate.

Chandigarh Mayoral Election: Safeguarding Democracy – Conclusion

The Supreme Court’s decision to nullify the Chandigarh mayoral election underscores the importance of upholding democratic principles and fair electoral processes. The court’s strong stance against ballot tampering and its commitment to preserving the integrity of elections send a clear message about the consequences of electoral misconduct. The case serves as a reminder that any attempts to undermine the democratic process will face severe legal scrutiny and consequences.

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Introduction

The fundamental right to life and personal liberty enshrined in Article 21 of the Indian Constitution stands as a cornerstone of individual freedom within the democratic framework. Article 21 declares that “No person shall be deprived of his life or personal liberty except according to procedure established by law”, establishing an inviolable protection for every citizen against arbitrary detention and unwarranted restrictions on personal freedom. This right also forms the basis for judicial scrutiny in matters involving modification and deletion in bail conditions, ensuring that such conditions do not disproportionately infringe on personal liberty.

When an individual transgresses the boundaries of law, the state machinery responds with legal consequences that may involve the curtailment of personal liberty. However, the deprivation of freedom pending trial raises profound constitutional and humanitarian concerns. The criminal justice system recognizes that pre-trial detention should not become a form of punishment before guilt is established, leading to the development of comprehensive bail jurisprudence that balances individual liberty with societal interests, including through mechanisms for modification and deletion in bail conditions when circumstances evolve.

The courts are mandated to consider multiple factors when determining bail applications for non-bailable offences. These considerations encompass the nature and gravity of the alleged offence, the character and antecedents of the accused, the quality of evidence presented, circumstances unique to the accused individual, reasonable apprehension regarding witness tampering or intimidation, broader public interest, and the maintenance of law and order. This multifaceted assessment ensures that bail decisions are neither arbitrary nor prejudicial to either the accused or the prosecution.

The judicial obligation extends beyond mere grant or refusal of bail to encompass the imposition of reasonable and proportionate conditions that serve legitimate procedural purposes. Courts must render bail decisions expeditiously, supported by reasoned analysis that reflects careful consideration of the applicant’s character, conduct, and the prevailing factual circumstances.

Legal Framework Governing Bail Conditions

Statutory Provisions Under the Criminal Procedure Code

The Code of Criminal Procedure, 1973 (CrPC) provides a comprehensive framework for bail-related proceedings through various provisions that delineate the powers, procedures, and limitations governing judicial discretion in bail matters.

Section 437 of the CrPC establishes the foundational principles for granting bail in non-bailable offences. This provision empowers courts to release accused persons on bail while maintaining judicial discretion to impose necessary conditions. The section specifically addresses situations where the accused faces charges carrying potential punishment of seven years or more imprisonment, or offences under specific chapters of the Indian Penal Code.

Sub-section (3) of Section 437 mandates specific conditions for certain categories of offences, requiring that released persons: (a) attend court proceedings in accordance with bond conditions; (b) refrain from committing similar offences; and (c) avoid any direct or indirect inducement, threat, or promise to persons acquainted with case facts that might dissuade them from disclosing information to the court or police, or tampering with evidence.

Section 438 of the CrPC governs anticipatory bail, enabling individuals who reasonably apprehend arrest for non-bailable offences to seek pre-arrest bail. This provision reflects the legislature’s recognition that influential persons sometimes misuse the criminal justice system to implicate rivals in false cases for the purpose of disgrace or harassment.

Section 439 of the CrPC confers special powers upon the High Court and Court of Sessions regarding bail matters. Under Section 439(1)(b), the High Court or the Court of Sessions can exercise modification and deletion in bail conditions imposed by magistrates when releasing an accused on bail. This provision establishes a hierarchical system of judicial review and ensures that bail conditions remain reasonable and proportionate.

Constitutional Framework and Fundamental Rights

The constitutional foundation for bail jurisprudence rests primarily on Article 21, which has been interpreted expansively by the Supreme Court to encompass various dimensions of personal liberty. The courts have consistently held that the right to bail, while not explicitly mentioned in the Constitution, derives from the broader guarantee of personal liberty and the presumption of innocence until proven guilty.

The Supreme Court has emphasized that the object of bail is neither punitive nor preventative. Deprivation of liberty must be considered a punishment, unless it is required to ensure that an accused person will stand his trial when called upon. This principle establishes that pre-trial detention should serve only the limited purpose of securing the accused’s presence during trial proceedings.

Judicial Considerations for Granting Bail

Fundamental Principles Established by the Supreme Court

Based on Section 438(1) of CrPC, the Supreme Court has enumerated a detailed and exhaustive list of considerations while deciding anticipatory bail. These considerations include:

Assessment of Crime Gravity and Accused’s Role: Courts must understand the seriousness of the alleged offence and the specific role attributed to the accused before making arrest or bail decisions. This evaluation helps determine whether the circumstances warrant pre-trial detention or whether release on bail would be appropriate.

Previous Criminal Record: The court examines any prior convictions, particularly for non-bailable offences, as this history may indicate the likelihood of repeat offences or non-compliance with bail conditions. However, previous accusations without convictions should not automatically prejudice bail considerations.

Flight Risk Assessment: Courts evaluate the probability that the applicant might flee from justice, considering factors such as the accused’s roots in the community, family ties, employment status, and financial circumstances that might influence their willingness to abscond.

Potential for Repeat Offences: The assessment includes evaluating whether releasing the accused might lead to similar or other criminal activities, particularly in cases involving ongoing criminal enterprises or patterns of behaviour.

Motivation Behind Accusations: Courts must discern whether the accusations stem from genuine criminal activity or represent attempts to injure or humiliate the applicant through wrongful arrest and detention. This consideration helps prevent misuse of criminal law for personal vendettas.

Specific Role Analysis: Beyond general involvement, courts examine the precise role attributed to each accused person, recognizing that different levels of culpability may warrant different bail considerations.

Evidence Tampering Concerns: Courts assess reasonable apprehensions regarding the accused’s potential to tamper with evidence, intimidate witnesses, or threaten complainants if released on bail.

Conditions Imposed During Bail Grant

Statutory Authority for Condition Imposition

Section 437 of the Code of Criminal Procedure empowers the Court to impose conditions at the time of granting bail. However, this power is not absolute and must be exercised judiciously to ensure that imposed conditions serve legitimate procedural purposes without becoming unduly burdensome or punitive.

The judicial duty encompasses ensuring that bail conditions remain consonant with the statutory framework’s intent and provisions. Courts must avoid imposing conditions that are impractical, unfair, or disproportionate to the circumstances of the case and the accused individual.

Limitations on Condition Imposition

The Supreme Court has established clear boundaries regarding the types and extent of conditions that may be imposed during bail proceedings. In the landmark case of Munish Bhasin and Others v. State (Government of NCT of Delhi) and Another (2009) 4 SCC 45, the Court addressed the issue of onerous bail conditions in a domestic violence case.

The Court held that “It is well settled that while exercising discretion to release an accused under Section 438 of the Code neither the High Court nor the Sessions Court would be justified in imposing freakish conditions. There is no manner of doubt that the court having regard to the facts and circumstances of the case can impose necessary, just and efficacious conditions while enlarging an accused on bail under Section 438 of the Code. However, the accused cannot be subjected to any irrelevant condition at all”.

The Court further emphasized that “While imposing conditions on an accused who approaches the court under Section 438 of the Code, the court should be extremely chary in imposing conditions and should not transgress its jurisdiction or power by imposing the conditions which are not called for at all. There is no manner of doubt that the conditions to be imposed under Section 438 of the Code cannot be harsh, onerous or excessive so as to frustrate the very object of grant of anticipatory bail under Section 438 of the Code”.

Legitimate Purposes for Bail Conditions

Courts may impose conditions that serve specific legitimate purposes within the criminal justice framework. These include:

Securing Court Attendance: Conditions may be designed to ensure the accused’s regular attendance at court proceedings, including requirements for periodic reporting to designated authorities or restrictions on travel without court permission.

Preventing Flight: Reasonable restrictions on movement, surrender of passport, or requirements to remain within specified geographical boundaries may be imposed to prevent the accused from fleeing jurisdiction.

Evidence Protection: Conditions may prohibit direct or indirect contact with witnesses, complainants, or other persons connected to the case to prevent evidence tampering or witness intimidation.

Public Order Maintenance: In appropriate cases, conditions may restrict the accused’s presence in particular areas or association with specific individuals to maintain law and order.

Investigation Cooperation: Requirements for the accused to cooperate with investigating authorities, appear for questioning when summoned, or provide necessary documents may be imposed.

Object and Philosophy of Bail

Supreme Court’s Pronouncement in Sanjay Chandra Case

The Supreme Court’s decision in Sanjay Chandra v. Central Bureau of Investigation (2012) 1 SCC 40 provides crucial guidance on the fundamental philosophy underlying bail jurisprudence. The Court observed that “In bail applications, generally, it has been laid down from the earliest times that the object of bail is to secure the appearance of the accused person at his trial by reasonable amount of bail. The object of bail is neither punitive nor preventative. Deprivation of liberty must be considered a punishment, unless it can be required to ensure that an accused person will stand his trial when called upon”.

This pronouncement establishes several fundamental principles that guide bail jurisprudence:

Prevention of Pre-trial Punishment: The Court emphasized that “The courts owe more than verbal respect to the principle that punishment begins after conviction, and that every man is deemed to be innocent until duly tried and duly found guilty”. This principle ensures that pre-trial detention does not become a form of anticipatory punishment.

Improper Purposes for Bail Refusal: The Court specifically addressed inappropriate motivations for denying bail: “Apart from the question of prevention being the object of refusal of bail, one must not lose sight of the fact that any imprisonment before conviction has a substantial punitive content and it would be improper for any court to refuse bail as a mark of disapproval of former conduct whether the accused has been convicted for it or not or to refuse bail to an unconvicted person for the purpose of giving him a taste of imprisonment as a lesson”.

Discretionary Jurisdiction: The Court noted that “The provisions of CrPC confer discretionary jurisdiction on criminal courts to grant bail to the accused pending trial or in appeal against convictions; since the jurisdiction is discretionary, it has to be exercised with great care and caution by balancing the valuable right of liberty of an individual and the interest of the society in general”.

Constitutional Framework: The Court reaffirmed that “This Court, time and again, has stated that bail is the rule and committal to jail an exception. It has also observed that refusal of bail is a restriction on the personal liberty of the individual guaranteed under Article 21 of the Constitution”.

Interpretation of “Interest of Justice”

The Supreme Court’s decision in Kunal Kumar Tiwari v. State of Bihar (2018) 16 SCC 74 provided important clarification regarding the scope of conditions that may be imposed under Section 437(3)(c) of the CrPC. The Court observed that “Undisputedly, clause (c) of Section 437(3) allows courts to impose conditions in the interest of justice. Palpably, such wordings are capable of accepting broader meaning but such conditions cannot be arbitrary, fanciful or extend beyond the end of provision. Phrase ‘interest of justice’ is used under clause (c) of section 437(3) means ‘good administration of justice’ or ‘advancing the trial process’ and inclusion of broader meaning should be shunned because of purposive interpretation”.

This interpretation establishes that the phrase “interest of justice” should be construed narrowly to encompass only those conditions that genuinely advance the trial process or promote good administration of justice, rather than serving as a catchall provision for imposing arbitrary restrictions.

Modification and Deletion of Bail Conditions

Statutory Framework Under Section 439

Under Section 439, the Court of Sessions or High Court has the power to modify or set aside certain bail conditions on reasonable grounds. This provision reflects the principle of modification and deletion in bail conditions, recognizing that circumstances may change during the pendency of criminal proceedings, thereby necessitating adjustments to previously imposed conditions in the interest of justice.

The power to modification and deletion in bail conditions serves several important functions within the criminal justice system:

Adaptation to Changed Circumstances: As cases progress and new information becomes available, previously imposed conditions may become unnecessary, inappropriate, or unduly burdensome.

Correction of Excessive Conditions: Superior courts may review and modify conditions imposed by lower courts that exceed reasonable bounds or serve no legitimate purpose.

Recognition of Compliance: If the accused is able to satisfy the court that he has followed all the bail conditions and cooperated with the police or investigating authorities then the court may modify or relax the bail conditions.

Grounds for Modification and Deletion in Bail Conditions

Courts consider various factors when evaluating applications for modification of bail conditions:

Demonstrated Compliance: The accused’s track record of adhering to existing bail conditions and cooperating with legal proceedings demonstrates reliability and may justify relaxation of restrictions.

Changed Personal Circumstances: Significant changes in the accused’s personal, professional, or family circumstances may necessitate modification of travel restrictions or other conditions.

Progress of Investigation: As investigations advance and evidence is secured, concerns about evidence tampering or witness intimidation may diminish, justifying relaxation of related conditions.

Proportionality Assessment: Courts may reconsider whether existing conditions remain proportionate to the charges and circumstances of the case.

Travel Restrictions and Their Modification

Constitutional Right to Travel

The right to travel, both within the country and abroad, has been recognized as an integral component of personal liberty under Article 21 of the Constitution. However, this right is not absolute and may be reasonably restricted in the interests of justice and public order.

Courts often impose travel restrictions as bail conditions to ensure the accused’s availability for trial proceedings and prevent flight from justice. These restrictions typically include:

State-wise Restrictions: Prohibiting the accused from leaving the territorial boundaries of a particular state without court permission.

International Travel Bans: Requiring surrender of passports and prohibiting foreign travel during the pendency of proceedings.

Reporting Requirements: Mandating periodic reporting to designated police stations or courts.

Judicial Approach to Travel Restriction Modification

Courts have developed a balanced approach to modifying travel restrictions that recognizes both the need for ensuring the accused’s presence and their legitimate personal and professional requirements.

Professional and Business Necessities: Courts acknowledge that many accused persons have professional obligations or business interests that may require travel. The Gujarat High Court addressed this issue in IMTIYAZ ABDULLA CHAKKIWALA & 2 v. STATE OF GUJARAT & 1 (CR.MA/3236/2012).

In this case, “the accused had to travel often outside of india for the business purposes, the court held to relax and modify the conditions and held that whenever applicant leaves the country and travels abroad, he will inform the Directorate of Revenue Intelligence in advance and the condition imposed shall remain in abeyance and, thereafter, it will be revived automatically”.

Domestic Travel Requirements: The Gujarat High Court also addressed domestic travel restrictions in JAYDEVSINH PRATAPSINH ZALA v. STATE OF GUJARAT (R/CR.MA/1305/2015). The accused “approached the Hon’ble Gujarat High Court seeking modification of condition stating he cannot leave State of Gujarat without prior permission of Sessions Judge concerned. The applicant submitted that view of business assignment and necessity to travel outside the State of Gujarat the above condition operates against the interest of the applicant and in the past he had applied either for modification or relaxation of such condition. The court was pleased to relax the condition and allowed the accused to travel outside of Gujarat while intimating the local police station”.

Procedural Requirements for Travel Modification

When seeking modification of travel restrictions, applicants must typically demonstrate:

Legitimate Purpose: The travel must serve genuine personal, professional, or family needs rather than attempts to evade legal proceedings.

Continued Availability: Assurance that the accused will remain available for court proceedings and investigation requirements.

Advance Notice: Providing adequate notice to investigating agencies and courts regarding travel plans.

Appropriate Safeguards: Willingness to accept modified conditions that address legitimate concerns about flight risk while permitting necessary travel.

Contemporary Judicial Trends and Recent Developments

Supreme Court’s Enhanced Scrutiny of Bail Conditions

Recent Supreme Court decisions have demonstrated increased vigilance regarding excessive or inappropriate bail conditions. The Court has consistently emphasized that bail conditions must serve legitimate procedural purposes rather than operating as disguised forms of punishment or social engineering.

Prohibition of Social Engineering: Courts have rejected attempts to use bail conditions as vehicles for imposing moral or social obligations unrelated to the criminal proceedings. The Supreme Court’s decision in Aparna Bhat v. State of Madhya Pradesh (2021) specifically addressed this issue in the context of sexual offence cases.

Gender Sensitivity: The judiciary has become increasingly aware of the need to avoid bail conditions that perpetuate gender stereotypes or impose patriarchal assumptions about women’s behavior and autonomy.

Economic Considerations: Courts have shown greater sensitivity to the economic impact of bail conditions, recognizing that excessive financial requirements may effectively deny bail to economically disadvantaged accused persons.

Standardization of Bail Practices

The Supreme Court has emphasized the need for consistency in bail practices across different courts and jurisdictions. This includes:

Guidelines for Lower Courts: Higher courts have provided detailed guidance to subordinate courts regarding appropriate considerations for bail decisions and condition imposition.

Training and Awareness: Judicial training programs increasingly emphasize the constitutional dimensions of bail jurisprudence and the importance of protecting individual liberty while serving legitimate procedural needs.

Documentation Requirements: Courts are required to provide detailed reasoning for bail decisions and condition imposition, enabling effective appellate review.

Practical Challenges and Solutions

Administrative Efficiency

The criminal justice system faces significant challenges in implementing effective bail procedures while maintaining administrative efficiency:

Case Load Management: Heavy case loads in many courts can lead to hasty bail decisions without adequate consideration of individual circumstances.

Documentation and Record Keeping: Maintaining comprehensive records of bail conditions and compliance status requires robust administrative systems.

Inter-agency Coordination: Effective implementation of bail conditions often requires coordination between courts, police, and other agencies.

Technology Integration

Modern criminal justice systems increasingly rely on technology to enhance bail administration:

Electronic Monitoring: GPS tracking and other electronic monitoring systems enable courts to impose effective restrictions while allowing greater personal freedom.

Digital Case Management: Computerized case management systems facilitate tracking of bail conditions and compliance status.

Online Reporting: Digital platforms enable accused persons to comply with reporting requirements more efficiently.

Legal Aid and Access to Justice

Ensuring equal access to bail procedures regardless of economic status remains a significant challenge:

Legal Representation: Effective bail advocacy requires competent legal representation, which may not be available to all accused persons.

Financial Resources: Many bail-related requirements involve financial obligations that may be beyond the means of economically disadvantaged individuals.

Information Access: Understanding complex bail procedures and available remedies requires legal knowledge that may not be readily accessible to ordinary citizens.

Conclusion: Evolving Jurisprudence on Modification and Deletion in Bail Conditions

The jurisprudence surrounding modification and deletion of bail conditions reflects the ongoing evolution of criminal justice principles toward greater protection of individual liberty while maintaining essential safeguards for the integrity of legal proceedings. The provision for bail should not be used to detain and arrest an accused person; rather, it should be used to guarantee his appearance at the trial and ensure that, if the accused is found guilty, he will be able to face the legal consequences of the crime as it was done.

Fundamental Principle of Liberty: Depriving the alleged accused of his liberty while the criminal case against him is pending would be unfair and unjust. This principle requires courts to maintain a careful balance between individual rights and societal interests.

Judicial Responsibility: The Court is obligated to consider the facts and circumstances prevailing in the matter, strike a balance between considerations and imposition of reasonable conditions, and then pass the appropriate order. This responsibility encompasses both the initial decision to grant bail and subsequent modifications as circumstances evolve.

Broader Social Impact: The release on bail upon appropriate considerations and imposition of reasonable conditions is significant not only to the accused and his family members who may be dependent on him but also to society as a whole. Effective bail procedures contribute to public confidence in the justice system and promote social stability.

The future development of bail jurisprudence will likely focus on several key areas:

Enhanced Judicial Training: Continuing education for judges regarding constitutional principles, contemporary legal developments, and best practices in bail administration.

Technology Integration: Expanded use of technology to improve efficiency, accuracy, and accessibility of bail procedures while maintaining human judgment in individual cases.

Standardization and Guidelines: Development of more detailed guidelines and standards to promote consistency while preserving necessary judicial discretion.

Access to Justice: Continued efforts to ensure that effective bail procedures remain accessible to all individuals regardless of economic status or social position.

International Best Practices: Learning from successful bail reform initiatives in other jurisdictions while adapting approaches to Indian constitutional and legal frameworks.

The modification and deletion of bail conditions represents a crucial aspect of criminal justice administration that directly impacts individual liberty and public confidence in the legal system. As the jurisprudence continues to evolve, courts must remain vigilant in protecting fundamental rights while serving the legitimate needs of criminal justice administration.

References and Citations

1. Munish Bhasin and Others v. State (Government of NCT of Delhi) and Another, (2009) 4 SCC 45. Available at: https://indiankanoon.org/doc/949074/   
2. Sanjay Chandra v. Central Bureau of Investigation, (2012) 1 SCC 40. Available at: https://www.casemine.com/judgement/in/5609af0ee4b014971141579d
3. Kunal Kumar Tiwari v. State of Bihar, (2018) 16 SCC 74.
4. The Code of Criminal Procedure, 1973, Sections 437, 438, and 439. Available at: https://devgan.in/crpc/chapter_33.php
5. Constitution of India, Article 21.
6. IMTIYAZ ABDULLA CHAKKIWALA & 2 v. STATE OF GUJARAT & 1, CR.MA/3236/2012, Gujarat High Court.
7. JAYDEVSINH PRATAPSINH ZALA v. STATE OF GUJARAT, R/CR.MA/1305/2015, Gujarat High Court.
8. Aparna Bhat v. State of Madhya Pradesh, (2021) SCC.
9. Arnesh Kumar v. State of Bihar, (2014) 8 SCC 273.
10. Guddan @ Roop Narayan v. State of Rajasthan, 2023 LiveLaw (SC) 45.

PDF link

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Introduction

The inclusion of petroleum products within the ambit of Goods and Services Tax (GST) has emerged as one of the most contentious and economically significant issues in India’s taxation landscape since the implementation of GST in July 2017. The current exclusion of petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel from the GST regime represents a deliberate policy choice enshrined in both constitutional provisions and legislative frameworks. This exclusion has far-reaching implications for revenue distribution between the Centre and States, market harmonization, and consumer welfare.

The debate surrounding GST on petroleum products encompasses constitutional mandates, economic considerations, and judicial scrutiny. While Article 279A(5) of the Constitution provides the framework for potential inclusion, the GST Council’s reluctance to exercise this power has led to significant litigation and policy discussions. The matter gained particular prominence following the Kerala High Court’s intervention in Kerala Pradesh Gandhi Darshanvedhi v. Union of India [1], which challenged the GST Council’s decision to maintain the status quo.

Constitutional Framework for GST on Petroleum Products

Article 279A and the GST Council’s Authority

The constitutional foundation for GST on petroleum products is established through Article 279A of the Constitution of India, inserted by the Constitution (One Hundred and First Amendment) Act, 2016. Article 279A(5) specifically states: “The Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel” [2].

This provision creates a unique constitutional arrangement where the GST Council, rather than individual governments, holds the exclusive authority to determine when petroleum products will be brought under the GST umbrella. The provision represents a departure from the general GST framework, where the Council’s role is primarily advisory, by conferring upon it the decisive power to trigger the taxation of these critical commodities.

The constitutional design also incorporates Article 279A(6), which mandates that the GST Council shall be “guided by the need for a harmonised structure of goods and services tax and for the development of a harmonised national market for goods and services.” This provision creates a tension between the goal of market harmonization and the current fragmented taxation system for petroleum products.

Federal Structure and Revenue Sharing Implications

The constitutional framework underlying GST on petroleum products reflects the complex federal structure of India’s taxation system. Under the current arrangement outside GST, states retain substantial autonomy in determining tax rates on petroleum products, which has resulted in significant price variations across states. The constitutional design envisages that bringing petroleum products under GST would fundamentally alter this federal dynamic by subjecting these products to the uniform GST rate structure.

The weighted voting mechanism under Article 279A(9) requires a three-fourths majority for GST Council decisions, with the Centre holding one-third weightage and states collectively holding two-thirds weightage. This structure ensures that any decision regarding petroleum products must have substantial state support, recognizing their significant revenue interests in these commodities.

Legislative Framework Under the CGST Act

Section 9(2) of the CGST Act 2017

The legislative framework for GST on petroleum products is primarily governed by Section 9(2) of the Central Goods and Services Tax Act, 2017, which states: “The central tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council” [3].

This provision creates a suspended animation effect, where the legal framework for taxing petroleum products under GST exists but remains dormant until activated by government notification based on GST Council recommendations. The provision demonstrates the legislature’s recognition that petroleum products require special treatment due to their economic significance and revenue implications.

The legislative structure also ensures that the transition to GST for petroleum products will be coordinated and systematic rather than automatic. This approach acknowledges the need for careful planning regarding rate structures, transition mechanisms, and revenue compensation arrangements before implementation.

Current Taxation Regime for Petroleum Products

Under the existing legislative framework, petroleum products remain subject to the pre-GST taxation regime. The Centre continues to levy excise duty on petroleum products, while states impose Value Added Tax (VAT) or sales tax. This dual taxation structure often results in a cumulative tax burden of 40-60% of the retail price of petroleum products.

The current regime creates several challenges including cascading effect of taxes, lack of input tax credit availability, and price disparities across states. For instance, petrol prices can vary by several rupees per litre between different states due to varying state tax policies.

Petroleum Products Currently Under GST

While the major petroleum products remain outside GST, several petroleum-related products have been brought under the GST framework. The GST law covers various petroleum derivatives and related products with different tax rates:

Petroleum gases in liquefied form attract 5% GST under HSN code 27111900, while petroleum gases in gaseous state are taxed at 18% under HSN code 27112100. Petroleum oils and oils obtained from bituminous minerals (other than crude) with 70% or more petroleum oils by weight are subject to 18% GST under HSN code 27109100.

Raw petroleum coke for anode making used in the aluminum industry attracts 18% GST under HSN code 27131110, provided it meets the specifications of Standard IS 17049. Liquefied petroleum gas (LPG) supplied to non-domestic exempted category customers by companies such as Indian Oil Corporation, Hindustan Petroleum, or Bharat Petroleum is taxed at 5% GST under HSN code 27111200.

Petroleum jelly falls under HSN codes 27129010 and 27129090 and attracts 18% GST. These inclusions demonstrate that the GST framework is technically capable of accommodating petroleum products, and the exclusion of major petroleum products is purely a policy decision rather than a technical limitation.

Economic Implications of GST on Petroleum Products

Revenue Considerations for Centre and States

The exclusion of petroleum products from GST has significant revenue implications for both the Centre and states. Currently, states derive substantial revenue from VAT on petroleum products, which directly accrues to state treasuries without sharing with the Centre. Data from the Petroleum Planning and Analysis Cell shows that state revenues from petroleum taxes increased by 46% from Rs 137,157 crore in 2014-15 to Rs 200,493 crore in 2019-20.

Bringing petroleum products under GST would fundamentally alter this revenue distribution. Under the GST framework, revenues are shared between the Centre and states based on predetermined formulas, which would result in states losing their exclusive control over petroleum tax revenues. This concern has been a primary factor in state resistance to including petroleum products in GST.

The Centre also benefits significantly from excise duties on petroleum products. The combined Centre and state taxes often constitute 50-60% of the retail price of petroleum products, making them crucial revenue sources for both levels of government.

Consumer Impact and Market Harmonization

The inclusion of petroleum products in GST would likely benefit consumers through reduced tax rates and elimination of cascading effects. Under the current GST structure, the maximum tax rate is 28%, which is significantly lower than the combined tax burden on petroleum products under the existing regime.

Market harmonization would be another significant benefit, as GST would eliminate the current price disparities across states. This would promote a truly national market for petroleum products and reduce distortions in transportation and logistics decisions.

The availability of input tax credit under GST would benefit businesses that use petroleum products as inputs, reducing their overall tax burden and improving competitiveness. This would be particularly beneficial for transportation companies, manufacturing units, and other petroleum-intensive industries.

Judicial Intervention: The Kerala High Court Cases

Kerala Pradesh Gandhi Darshanvedhi v. Union of India

The most significant judicial intervention regarding GST on petroleum products came through the case of Kerala Pradesh Gandhi Darshanvedhi v. Union of India before the Kerala High Court [1]. The petition, filed by Kerala Pradesh Gandhi Darshanvedhi, challenged the GST Council’s decision not to include petroleum products under GST.

The petitioner argued that different tax rates levied by state governments on petroleum products resulted in price disparities across the country, impeding the achievement of a harmonized national market as contemplated under Article 279A(6) of the Constitution. The petition also contended that the rise in petroleum product prices had a cascading effect on all commodities, including essential ones, leading to increased cost of living and affecting citizens who did not even directly consume petroleum products.

Court’s Direction and Government Response

The Division Bench comprising Chief Justice S. Manikumar and Justice Shaji P. Chaly initially directed the GST Council to take an appropriate decision on the representation within six weeks. However, the Court was not satisfied with the initial response from the GST Council, which cited the pandemic as a reason for not deliberating on the matter.

The Court observed: “We are not satisfied with the reasons. There should be some discussion and genuine reasons, as to why petroleum products cannot be brought under the GST regime. Further, pandemic period cannot be cited as a reason. It is well known that even during pandemic period, several decisions were taken involving revenue, after deliberations” [4].

Subsequently, the Centre and GST Council filed a counter-affidavit stating that it was “a conscious decision of the GST Council to keep petroleum products outside the GST regime at this stage” and that “these products yield significant revenue for both Centre and States” [5]. The authorities argued that the petition challenged the doctrine of separation of powers by seeking to enforce legislative and policy decisions through judicial intervention.

Constitutional and Legal Arguments

The petitioner raised several constitutional arguments, including violations of Articles 14 and 21 of the Constitution. It was argued that the non-inclusion of petroleum products under GST created arbitrary price differences across states, violating the principle of equality under Article 14. The petition also contended that increased petroleum prices affected the right to life under Article 21 by making essential goods more expensive.

The government countered these arguments by emphasizing that fiscal policy is a function of several factors and may cause hardship to taxpayers. The Centre argued that the government, in its wisdom and considering all relevant factors including the need for resource mobilization amid fiscal constraints, had taken the decision in public interest.

Policy Considerations and Future Prospects

Arguments for Inclusion

Several compelling arguments support the inclusion of petroleum products in GST. Market harmonization would eliminate the current price disparities across states, promoting genuine national market integration. The elimination of cascading effects would reduce the overall tax burden on businesses and consumers.

Input tax credit availability would significantly benefit petroleum-intensive industries, improving their cost structure and competitiveness. The simplified tax structure would reduce compliance costs and administrative burden for both taxpayers and tax authorities.

The inclusion would also align with the original vision of GST as a destination-based consumption tax covering all goods and services except a few specified exclusions.

Arguments Against Inclusion

The primary argument against inclusion relates to revenue implications. Both the Centre and states derive substantial revenues from petroleum taxes under the current regime, and the transition to GST would require careful consideration of revenue compensation mechanisms.

The unique nature of petroleum products as essential commodities with inelastic demand makes them attractive for revenue generation. The government has argued that petroleum products are strategic commodities requiring special treatment from a taxation perspective.

Implementation challenges, including the need to restructure existing tax systems and agreements with petroleum marketing companies, also present significant obstacles.

International Comparisons

The treatment of petroleum products varies across GST/VAT systems globally. Some countries include petroleum products in their GST/VAT systems with special provisions, while others maintain separate excise regimes. The choice often depends on the specific economic and fiscal circumstances of each country.

Impact on Various Stakeholders

Transportation Industry

The transportation industry would be among the biggest beneficiaries of including petroleum products in GST. The availability of input tax credit on diesel purchases would significantly reduce operational costs for commercial vehicle operators. The current regime denies input tax credit on petroleum products, creating a substantial cost burden for transportation companies.

Manufacturing Sector

Manufacturing industries that use petroleum products as inputs or fuel would benefit from input tax credit availability. Industries such as chemicals, pharmaceuticals, plastics, and others that rely heavily on petroleum derivatives would see improved cost structures.

State Governments

State governments face the most significant impact from any change in petroleum taxation. States currently enjoy full discretion in setting VAT rates on petroleum products and retain all revenues. Inclusion in GST would subject these revenues to the federal sharing mechanism, potentially reducing state fiscal autonomy.

Consumers

Consumers would likely benefit from reduced tax rates and elimination of cascading effects, potentially leading to lower fuel prices. However, the actual impact would depend on the GST rate applied to petroleum products and the transition mechanism adopted.

Technical Challenges in Implementation

Rate Determination

Determining appropriate GST rates for petroleum products presents significant challenges. The rates must balance revenue requirements with consumer welfare considerations. Given the current high tax burden on petroleum products, bringing them under the existing GST rate structure might require creating new tax slabs or significantly increasing existing rates.

Transition Mechanism

The transition from the current taxation system to GST would require careful planning to ensure revenue neutrality for both the Centre and states. This might involve interim compensation mechanisms or phased implementation approaches.

Input Tax Credit Framework

Integrating petroleum products into the input tax credit system would require modifications to existing systems and processes. The petroleum marketing companies and distributors would need to adapt their billing and compliance systems to accommodate GST requirements.

Contemporary Developments and Future Outlook

Recent GST Council Discussions

Recent GST Council meetings have continued to defer decisions on petroleum products, citing various economic and administrative considerations. The Council has indicated that the matter remains under consideration, but no definitive timeline has been established for inclusion.

Economic Recovery Context

The COVID-19 pandemic and subsequent economic recovery efforts have added complexity to the petroleum GST debate. Both the Centre and states have relied heavily on petroleum taxes to finance pandemic response measures and economic stimulus packages.

Evolving Energy Landscape

The transition toward renewable energy and electric vehicles adds another dimension to the petroleum GST debate. As the economy gradually shifts away from fossil fuels, the long-term revenue implications of petroleum taxes become uncertain, potentially affecting the urgency of GST inclusion.

Conclusion

The question of including petroleum products under GST represents one of the most complex policy challenges in India’s taxation system. The constitutional framework provides clear authority for the GST Council to make this decision, while the legislative structure offers the necessary legal mechanisms for implementation.

The judicial intervention through the Kerala High Court case has brought renewed focus to this issue, demanding genuine policy reasons for continued exclusion. However, the significant revenue implications for both the Centre and states continue to present formidable obstacles to inclusion.

The path forward requires careful balancing of multiple considerations including revenue neutrality, market harmonization, consumer welfare, and federalism principles. While the technical framework for inclusion exists, the political economy considerations surrounding revenue sharing remain the primary impediment.

The eventual inclusion of petroleum products in GST appears inevitable given the constitutional mandate for market harmonization and the logical completion of the GST system. However, the timing and modalities of such inclusion will depend on achieving consensus among stakeholders on revenue compensation mechanisms and transition arrangements.

The debate over GST on petroleum products ultimately reflects the broader challenges of federal taxation in a diverse economy. The resolution of this issue will set important precedents for managing similar challenges in other sectors and will significantly influence the evolution of India’s GST system.

References

[1] Kerala Pradesh Gandhi Darshanvedhi v. Union of India, Kerala High Court, W.P.(C) No.12481/2021 

[2] Constitution of India, Article 279A(5), available at https://www.constitutionofindia.net/articles/article-279a-goods-and-services-tax-council/ 

[3] Central Goods and Services Tax Act, 2017, Section 9(2), available at https://taxinformation.cbic.gov.in/content/html/tax_repository/gst/acts/2017_CGST_act/active/chapter3/section9_v1.00.html 

[4] “Pandemic Not An Excuse, Give Genuine Reasons: Kerala High Court To Centre Over Non-Inclusion Of Petroleum Products Under GST,” LiveLaw, December 1, 2021, available at https://www.livelaw.in/news-updates/pandemic-not-an-excuse-give-genuine-reasons-kerala-high-court-to-centre-over-non-inclusion-of-petroleum-products-under-gst-186742 

[5] “Yields Significant Revenue: Centre Tells Kerala High Court Non-Inclusion Of Petroleum Products Under GST Was ‘A Conscious Decision’,” LiveLaw, December 8, 2021, available at https://www.livelaw.in/news-updates/yields-significant-revenue-centre-tells-kerala-high-court-non-inclusion-of-petroleum-products-under-gst-was-a-conscious-decision-187234 

[6] Goods and Services Tax Council, available at https://www.gstcouncil.gov.in/gst-council 

Editor’s note:

In a recent development (in the year 2021), Kerala HC to GST Council has asked GST Council to specify the reasons for not including petrol and diesel under GST; The Bench led by Chief Justice S Manikumar passed the directive when a writ petition was filed by the Kerala Pradesh Gandhi Darshanavedi, Thiruvananthapuram, challenged the GST Council’s decision not to include the petroleum products under the GST.

The petitioner pointed out that the GST Council meeting had recently decided that it was not appropriate to include petrol and diesel under the GST at this stage. The Council had met to consider a representation given by the petitioner seeking to bring the products under the GST following the High Court directive.

The petitioner said that the Council had not given any proper reasons for rejecting the request of the petitioner. There was no application of mind by the Council. The present situation was ripe enough to decide as the prices of petrol and diesel were surging on a day-to-day basis, creating a ripple effect on the economy. In fact, the people who did not even consume petrol and diesel were also equally affected.

The petitioner pointed out that different prices were being charged for petrol and diesel in various States in the country due to different rates of tax levied by the State government. It impeded achieving harmonised national market as contemplated under Article 279A(6) of the Constitution. The rise in petroleum products had a cascading effect on all commodities including essential ones, leading to an increase in the cost of living. The prices of fuel need to be rationalised.

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Introduction

The Insolvency and Bankruptcy Code, 2016 (IBC) represents a landmark legislation in India’s commercial law landscape, designed to consolidate and streamline the insolvency resolution process for corporate entities, individuals, and partnerships. Among its various provisions, the threshold limit provision under Section 4 IBC has emerged as one of the most debated and litigated aspects of the Code. This provision establishes the minimum quantum of defaulted debt required to trigger Corporate Insolvency Resolution Process (CIRP) against a corporate debtor, serving as a crucial gatekeeping mechanism to prevent frivolous or vexatious proceedings.

The concept of  threshold limit under IBC serves multiple purposes: protecting debtors from harassment through proceedings initiated for trivial amounts, ensuring judicial resources are utilized efficiently, and maintaining the balance between creditor rights and debtor protection. The IBC’s threshold mechanism has undergone significant evolution since its inception, particularly in response to the COVID-19 pandemic’s economic disruptions.

Historical Development and Legislative Framework

Original Threshold Limit Under Section 4 of IBC

Section 4 of the Insolvency and Bankruptcy Code, 2016, originally established the threshold limit at Rs. 1,00,000 (One Lakh Rupees). The section states: “This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of default is one lakh rupees: Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees” [1].

This provision empowered the Central Government to modify the threshold limit through executive notification, subject to an upper ceiling of Rs. 1 crore. The relatively low initial threshold of Rs. 1 lakh was designed to ensure accessibility of the insolvency process to smaller creditors, particularly operational creditors who typically deal with smaller transaction values.

The COVID-19 Pandemic and Emergency Measures

The outbreak of COVID-19 in early 2020 necessitated extraordinary economic measures to protect businesses from insolvency proceedings during a period of unprecedented financial stress. Recognizing that the existing threshold of Rs. 1 lakh could lead to a flood of insolvency applications against businesses facing temporary liquidity constraints, the Central Government exercised its powers under the proviso to Section 4.

On March 24, 2020, the Ministry of Corporate Affairs issued Notification S.O. 1205(E), which increased the minimum threshold limit for initiating CIRP from Rs. 1,00,000 to Rs. 1,00,00,000 (One Crore Rupees) [2]. This notification was issued under the extraordinary circumstances prevailing due to the pandemic, with the objective of providing relief to corporate debtors facing financial distress due to the nationwide lockdown and economic disruption.

The notification stated: “In exercise of the powers conferred by the proviso to sub-section (1) of section 4 of the Insolvency and Bankruptcy Code, 2016, the Central Government hereby specifies the minimum amount of default as rupees one crore in place of rupees one lakh.” This represented a hundred-fold increase in the threshold limit, fundamentally altering the accessibility and scope of insolvency proceedings under the IBC.

Legal Analysis of the Threshold Enhancement

Statutory Interpretation and Scope

The dramatic increase in the threshold limit from Rs. 1 lakh to Rs. 1 crore fundamentally altered the dynamics of insolvency proceedings under the IBC. This change had several immediate implications for different classes of creditors and the overall effectiveness of the insolvency framework.

For financial creditors operating under Section 7 of the IBC, the impact was relatively limited. Financial creditors typically deal with larger loan amounts and often have the flexibility to aggregate multiple defaults or join with other financial creditors to meet the enhanced threshold. Section 7 permits financial creditors to file applications individually or collectively, providing them with strategic options to overcome the higher threshold requirement.

However, operational creditors governed by Section 9 of the IBC faced significantly greater challenges. Operational creditors, including suppliers, service providers, and contractors, typically have smaller individual exposures and cannot aggregate their claims with other operational creditors in the same manner as financial creditors. The requirement that each operational creditor individually meet the Rs. 1 crore threshold effectively excluded a vast majority of operational creditors from accessing the insolvency process.

Impact on Different Classes of Creditors

The enhanced threshold created a dichotomous effect on the creditor landscape. Large corporate creditors and major financial institutions could still effectively utilize the IBC mechanism, while smaller businesses, individual entrepreneurs, and micro, small, and medium enterprises (MSMEs) found themselves largely excluded from the process. This outcome arguably contradicted one of the IBC’s fundamental objectives of creating an inclusive and accessible insolvency resolution framework.

The differential impact on operational versus financial creditors also raised questions about the equitable treatment of different creditor classes under the Code. While the original design of the IBC sought to balance the interests of various stakeholder categories, the enhanced threshold appeared to create an inherent bias favoring financial creditors over operational creditors.

Judicial Interpretation and Prospective Application

The Landmark Arrowline Organic Products Case

The question of whether the enhanced threshold limit would apply retrospectively or prospectively became the subject of extensive litigation across various National Company Law Tribunals (NCLTs). The most significant judicial pronouncement on this issue came from the NCLT Chennai in the case of M/s Arrowline Organic Products Pvt. Ltd. v. M/s Rockwell Industries Limited [3].

In this case, the corporate debtor challenged the maintainability of insolvency proceedings initiated before March 24, 2020, arguing that the enhanced threshold should apply to all pending cases. The NCLT Chennai, however, rejected this contention and held that the notification increasing the threshold limit would apply only prospectively, not affecting cases where defaults had occurred and proceedings had been initiated before the notification date.

Constitutional and Legislative Principles

The NCLT Chennai’s decision was grounded in well-established constitutional and legislative principles governing the retrospective application of executive notifications. The tribunal relied on several Supreme Court precedents to reach its conclusion, establishing important jurisprudential principles for the application of threshold modifications under the IBC.

In the case of Bakul Cashew Co. vs. Sales Tax Officer Quilon, the Supreme Court established the fundamental principle that only the legislature possesses the inherent power to make laws with retrospective effect [4]. When legislative powers are delegated to executive authorities, such powers are limited in scope and cannot ordinarily be exercised retrospectively unless expressly authorized by the parent statute.

Applying this principle to the IBC context, the NCLT observed that the notification enhancing the threshold limit was issued by the Central Government under delegated legislative powers conferred by Section 4. Since the statute did not expressly authorize retrospective application of such notifications, the enhanced threshold could only apply prospectively to future cases.

The tribunal further strengthened its reasoning by referencing the Supreme Court’s decision in Indramaniyarelal Gupta v. W. R. Nath, which held that while the legislature has inherent powers to enact retrospective legislation, executive authorities exercising delegated powers cannot assume such retrospective authority without express statutory authorization [5].

The Kirti Kapoor Precedent

The NCLT Chennai also drew support from the Division Bench decision of the Rajasthan High Court in Kirti Kapoor v. Union of India, which dealt with similar threshold enhancement under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 [6]. Although the Rajasthan High Court did not explicitly term the notification as prospective, it applied the doctrine of conditional legislation to hold that such notifications should apply only to future applicants.

This precedent provided additional jurisprudential support for the prospective application principle, establishing a consistent judicial approach across different insolvency and debt recovery statutes in India.

Practical Implications and Implementation Challenges

Operational Creditor Disadvantage

The enhanced threshold limit under IBC created significant practical challenges for operational creditors seeking to recover debts through the IBC mechanism. Unlike financial creditors who typically maintain long-term relationships with corporate borrowers and have larger exposure limits, operational creditors often deal with smaller, transaction-specific obligations.

The requirement for individual operational creditors to meet the Rs. 1 crore threshold effectively eliminated the viability of IBC proceedings for most supplier and service provider relationships. This outcome was particularly problematic for MSMEs, which form the backbone of India’s industrial ecosystem but typically have smaller individual transaction values with their corporate customers.

Strategic Implications for Corporate Debtors

From the perspective of corporate debtors, the enhanced threshold provided significant protection against frivolous or harassment-oriented insolvency proceedings. Companies facing temporary financial distress, particularly during the pandemic period, could avoid premature insolvency proceedings initiated by smaller creditors for relatively minor defaults.

However, this protection came at the cost of potentially enabling strategic default behavior by corporate debtors who might delay payments to smaller creditors, knowing that individual creditors would be unable to initiate insolvency proceedings. This moral hazard aspect of the enhanced threshold raised concerns about the overall integrity of commercial relationships and payment disciplines in the corporate sector.

Judicial Efficiency and Resource Allocation

The enhanced threshold also had positive implications for judicial efficiency and resource allocation within the NCLT system. By filtering out smaller-value cases, the enhanced threshold helped reduce the caseload burden on NCLTs, allowing them to focus on larger, more complex insolvency matters that have greater systemic importance.

However, this efficiency gain came at the cost of access to justice for smaller creditors, raising fundamental questions about the appropriate balance between judicial efficiency and stakeholder access to legal remedies.

Contemporary Judicial Developments

NCLT Delhi’s Interpretation

Subsequent to the Chennai NCLT decision, other benches of the NCLT have generally followed the prospective application principle established in the Arrowline case. The NCLT Delhi, in the case of Udit Jain (Sole Proprietor of M/s U.J. Trading Co.) vs. Apace Builders and Contractors Pvt. Ltd, further clarified that the Rs. 1 crore threshold must be fulfilled by the applicant on the date of filing the application [7].

This interpretation added an additional layer of complexity by requiring creditors to ensure that their claim amount meets the threshold requirement at the time of filing, rather than at the time of default occurrence. This temporal distinction has important implications for cases involving interest accrual, penalty charges, and other time-dependent components of debt calculation.

High Court Interventions

The Kerala High Court’s intervention in the threshold limit controversy added another dimension to the judicial discourse. In a case involving insolvency proceedings initiated with respect to an alleged default of Rs. 31 lakhs, the Kerala High Court stayed an NCLT order that had applied the prospective application principle [8]. This intervention highlighted the ongoing judicial debate about the appropriate application of the enhanced threshold limit and suggested that the issue may require definitive resolution by higher judicial authorities.

Regulatory Framework and Current Status

Current Threshold Limit Status under IBC

As of 2025, the enhanced threshold limit of Rs. 1 crore continues to remain in effect, despite the gradual normalization of economic conditions following the pandemic. The persistence of this enhanced threshold has raised questions about whether the temporary pandemic-relief measure has effectively become a permanent feature of the IBC framework.

The continuation of the higher threshold limit suggests that the government may have determined that the enhanced threshold provides benefits beyond pandemic relief, including reduced frivolous litigation and improved judicial efficiency. However, this decision continues to be debated among insolvency practitioners and legal experts.

Regulatory Considerations for Reform

The current threshold framework under the IBC presents several regulatory considerations that may warrant future reform. The stark differential between the original Rs. 1 lakh threshold and the current Rs. 1 crore threshold suggests that an intermediate threshold level might better balance the competing interests of creditor access and debtor protection.

Some legal experts have suggested implementing a graduated threshold system that differentiates between various types of creditors or industries, similar to the approach adopted in some international insolvency jurisdictions. Such an approach could provide tailored threshold limits that reflect the specific characteristics and needs of different sectors of the economy.

Comparative Analysis with International Practices

International Threshold Practices

International insolvency regimes typically employ varying approaches to threshold limits, reflecting different policy priorities and economic contexts. The United States Bankruptcy Code, for instance, does not impose specific monetary thresholds for initiating bankruptcy proceedings but instead relies on other eligibility criteria and procedural safeguards to prevent abuse.

In contrast, the United Kingdom’s insolvency framework employs multiple threshold levels depending on the type of procedure being initiated. For company voluntary arrangements, the threshold is relatively low, while compulsory liquidation requires higher statutory demand amounts. This graduated approach provides flexibility while maintaining appropriate protective mechanisms.

Lessons for Indian Reform

The international experience suggests that threshold limit design should consider sector-specific characteristics, creditor types, and overall economic conditions. A one-size-fits-all approach, as currently employed under the IBC, may not adequately address the diverse needs of India’s complex economic landscape.

Future reforms to the IBC threshold framework could benefit from incorporating flexible mechanisms that allow for periodic adjustment based on economic conditions, inflation indices, or sector-specific considerations. Such adaptive mechanisms could provide the regulatory agility needed to respond to changing economic circumstances without requiring frequent legislative or executive interventions.

Economic Impact and Policy Considerations

Impact on Credit Markets and Commercial Relationships

The enhanced threshold limit under IBC has had significant implications for credit markets and commercial relationships in India. Suppliers and service providers have been compelled to reassess their credit policies and payment terms when dealing with corporate customers, knowing that the IBC remedy may not be available for smaller defaults.

This change has likely contributed to more cautious credit extension practices among operational creditors, potentially affecting the overall liquidity and efficiency of commercial markets. Some businesses have reportedly shifted toward advance payment requirements or shorter credit terms to mitigate the risk of irrecoverable smaller debts.

MSME Sector Implications

The enhanced threshold has disproportionately affected the MSME sector, which typically operates with smaller transaction values and limited financial resources. MSMEs serving larger corporate clients have found themselves in a particularly vulnerable position, lacking effective legal remedies for debt recovery through the IBC process.

This vulnerability has broader economic implications, as MSMEs constitute a significant portion of India’s industrial base and employment generation. The inability of MSMEs to effectively utilize insolvency proceedings for debt recovery may have contributed to increased payment delays and working capital constraints in this crucial sector.

Future Outlook and Recommendations

Need for Balanced Reform

The experience with the enhanced threshold limit under the IBC highlights the need for a more nuanced and balanced approach to threshold design. Future reforms should consider implementing a graduated threshold system that recognizes the different characteristics and needs of various creditor categories.

A potential reform approach could involve establishing different threshold limits for financial creditors, operational creditors, and different industry sectors. Such differentiation could preserve the accessibility of insolvency proceedings for smaller operational creditors while maintaining appropriate safeguards against frivolous litigation.

Technological Solutions and Alternative Mechanisms

The digital transformation of India’s legal and financial systems presents opportunities for developing alternative mechanisms for smaller debt recovery cases. Online dispute resolution platforms, automated recovery systems, and digital payment enforcement mechanisms could provide efficient alternatives to formal insolvency proceedings for smaller defaults.

Integrating such technological solutions with the IBC framework could help address the access to justice concerns raised by the enhanced threshold while maintaining the efficiency benefits of filtering smaller cases out of the formal insolvency process.

Conclusion

The threshold limit provision under the Insolvency and Bankruptcy Code represents a critical balance point between creditor access and debtor protection in India’s insolvency framework. The dramatic increase from Rs. 1 lakh to Rs. 1 crore in response to the COVID-19 pandemic has fundamentally altered the landscape of insolvency proceedings, creating both intended benefits and unintended consequences.

The judicial interpretation establishing the prospective application of the enhanced threshold has provided important jurisprudential clarity while highlighting the constitutional principles governing executive power and retrospective legislation. However, the continued application of the enhanced threshold long after the pandemic emergency raises important questions about the appropriate permanent level for the IBC threshold.

The experience with threshold modification under the IBC offers valuable lessons for future policy development in insolvency law. The need for flexible, adaptive mechanisms that can respond to changing economic conditions while maintaining appropriate stakeholder protections is evident from the challenges experienced during this transition.

As India’s economy continues to evolve and mature, the IBC framework must similarly adapt to ensure that it continues to serve its fundamental objectives of facilitating efficient insolvency resolution while protecting the legitimate interests of all stakeholders. The threshold limit provision, as a key gatekeeping mechanism, will undoubtedly continue to play a crucial role in shaping the effectiveness and accessibility of India’s insolvency regime.

Future reforms should focus on creating a more nuanced and balanced threshold framework that recognizes the diverse needs of India’s complex economic ecosystem while maintaining the efficiency and integrity of the insolvency process. Only through such thoughtful evolution can the IBC continue to serve as an effective tool for economic development and commercial confidence in India’s dynamic business environment.

References

[1] The Insolvency and Bankruptcy Code, 2016, Section 4.

[2] Ministry of Corporate Affairs, Notification S.O. 1205(E) dated March 24, 2020. 

[3] M/s Arrowline Organic Products Pvt. Ltd. v. M/s Rockwell Industries Limited, NCLT Chennai. Available at: https://ibclaw.in/m-s-arrowline-organic-products-pvt-ltd-vs-m-s-rockwell-industries-ltd-nclt/ 

[4] Bakul Cashew Co. vs. Sales Tax Officer Quilon, Supreme Court of India. 

[5] Indramaniyarelal Gupta v. W. R. Nath, Supreme Court of India. 

[6] Kirti Kapoor v. Union of India, Rajasthan High Court.

[7] Udit Jain vs. Apace Builders and Contractors Pvt. Ltd, NCLT Delhi. Available at: https://taxguru.in/corporate-law/ibc-minimum-threshold-rs-1-crore-date-filing-petition.html 

[8] Kerala High Court intervention in threshold limit case. Available at: https://www.livelaw.in/news-updates/ibc-threshold-march-24-notification-one-crore-kerala-high-court-stays-nclt-167125 

[9] Analysis of threshold limit developments. Available at: https://ibclaw.in/important-judgments-on-threshold-limit-increased-from-1-lakh-to-1-crore-for-filing-cirp-application-under-section-7-or-9-of-insolvency-and-bankruptcy-code-2016-ibc/ 

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Introduction

Judiciary in India is the system of courts which interpret and apply the law and settle various legal debates that citizens linger upon from time to time. The Indian Judiciary System administers a common law system which encompasses into the law of the land customs, securities and legislations. The Supreme Court is the apex court, and the last appellate in India while the High Courts are the top judicial bodies in the states controlled and managed by the Chief Justices of the state. Tribunals on the other hand are set up for meting out various administrative and tax related disputes.

Appeal

• High Courts: 

1. The decree or judgment passed by the court can be challenged on the basis of the facts of the case and the legal interpretation of the legal provisions.
2. In the cases where the party to the dispute raises any objection with respect to the territorial and pecuniary of the court passing the judgment and the decree.
3. On the basis of the failure of justice relating to the incompetence of the court.
4. In the cases where the parties to the dispute have not joined in the original suit, in such matters appeal lies against the judgment/ decree of such court.
5. Where there is a challenge to the interpretation of law which are applied by the subordinate court
6. On the grounds of any defect or error or irregularity in the legal proceedings of the case
7. In the cases where the substantial question of law exists and it is affecting the rights of the parties.

• Supreme Court:

The appellate jurisdiction of the Supreme Court can be invoked by a certificate granted by the High Court concerned under Article 132(1), 133(1) or 134 of the Constitution in respect of any judgement, decree or final order of a High Court in both civil and criminal cases, involving substantial questions of law as to the interpretation of the Constitution. Appeals also lie to the Supreme Court in civil matters if the High Court concerned certifies : (a) that the case involves a substantial question of law of general importance, and (b) that, in the opinion of the High Court, the said question needs to be decided by the Supreme Court. In criminal cases, an appeal lies to the Supreme Court if the High Court (a) has on appeal reversed an order of acquittal of an accused person and sentenced him to death or to imprisonment for life or for a period of not less than 10 years, or (b) has withdrawn for trial before itself any case from any Court subordinate to its authority and has in such trial convicted the accused and sentenced him to death or to imprisonment for life or for a period of not less than 10 years, or (c) certified that the case is a fit one for appeal to the Supreme Court. Parliament is authorised to confer on the Supreme Court any further powers to entertain and hear appeals from any judgement, final order or sentence in a criminal proceeding of a High Court.

The Supreme Court has also a very wide appellate jurisdiction over all Courts and Tribunals in India in as much as it may, in its discretion, grant special leave to appeal under Article 136 of the Constitution from any judgment, decree, determination, sentence or order in any cause or matter passed or made by any Court or Tribunal in the territory of India.

• Tribunals:

The Central Government shall constitute an Appellate Tribunal to be called the Customs, Excise and Service Tax Appellate Tribunal consisting of as many judicial and technical members as it thinks fit to exercise the powers and discharge the functions conferred on the Appellate Tribunal by this Act. A judicial member shall be a person who has for at least ten years held a judicial office in the territory of India or who has been a member of the Indian Legal Service and has held a post in Grade I of that service or any equivalent or higher post for at least three years, or who has been an advocate for at least ten years.

Powers

• High Courts:

1. It has the power to control over all the courts and tribunals within its jurisdiction except in the matters of Armed Forces under Article 227.
2. It has the power to withdraw a case pending before any subordinate court if it involves the substantial question of law.
3. It is a Court of Record like the Supreme Court which involves recording of judgements, proceedings etc (Article 215).
4. Under the Article 13 & 226 High Court has the power of judicial review. They have the authority to declare any law or ordinance as unconstitutional if it seems to be against the Constitution of India.
5. It can appoint the administration staff according to the need and can decide their salaries, allowance etc.
6. It issues the rules and regulations for the working of subordinate courts.

• Supreme Court:

1. Power to punish for contempt (civil or criminal) of court with simple imprisonment for 6 months or fine up to Rs. 2000. Civil contempt means wilful disobedience to any judgment. Criminal contempt means doing any act which lowers the authority of the court or causing interference in judicial proceedings.
2. Judicial review to examine the constitutionality of legislative enactments and executive orders. The grounds of review are limited by Parliamentary legislation or rules made by the Supreme Court.
3. Deciding authority regarding the election of President and Vice President.
4. Enquiring authority in the conduct and behaviour of UPSC members.
5. Withdraw cases pending before High Courts and dispose of them themselves.
6. Appointment of ad hoc judges- Article 127 states that if at any time there is a lack of quorum of Judges of Supreme Court, the CJI may with the previous consent of the President and Chief Justice of High Court, concerning request in writing the attendance of Judge of High Court duly qualified to be appointed as Judge of the Supreme Court.
7. Appointment of retired judges of the Supreme Court or High Court – Article 128 states that the CJI at any time with the previous consent of the President and the person to be so appointed can appoint any person who had previously held the office of a Judge of SC.
8. Appointment of acting Chief Justice- Article 126 states that when the office of CJI is vacant or when the Chief Justice is by reason of absence or otherwise unable to perform duties of the office, the President in such a case can appoint a Judge of the court to discharge the duties of the office.
9. Revisory Jurisdiction- The Supreme Court under Article 137 is empowered to review any judgment or order made by it with a view to removing any mistake or error that might have crept in the judgement or order.
10. Supreme Court as a Court of Record- The Supreme Court is a court of record as its decisions are of evidentiary value and cannot be questioned in any court.

• Tribunals:

1. A Tribunal shall not be bound by the procedure laid down in the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and subject to the other provisions of this Act and of any rules made by the Central Government, the Tribunal shall have power to regulate its own procedure including the fixing of places and times of its inquiry and decided whether to sit in public or in private.
2. A tribunal shall decide every application made to it as expeditiously as possible and ordinarily every application shall be decided on a perusal of documents and written representations and after hearing such oral arguments as may be advanced.
3. A Tribunal shall have, for the purposes of discharging its functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely :

(a) Summoning and enforcing the attendance of any person and examining him on oath;

(b) requiring the discovery and production of documents;

(c) receiving evidence on affidavits;

(d) subject to the provisions of section 123 and 124 of the Indian Evidence Act, 1872 (1 of 1872), requisitioning any public record or document or copy of such record or document from any office;

(e) issuing commissions for the examination of witnesses or, documents;

(f) reviewing its decisions;

(g) dismissing a representation for default or deciding it ex parte;

(h) setting aside any order of dismissal of any representation for default or any order passed by it ex parte; and

(i) any other matter which may be prescribed by the Central Government.

Limitations

• High Courts:

The limitation for filing an appeal from a sentence of death passed by court of sessions or the High Court in its original jurisdiction is 30 days and from any other sentence or order to the High Court is 60 days and to any other court is 30 days.

The period of limitation against an order of acquittal is 90 days but where appeal against such order has to be made after seeking special leave of the court, the period of limitation is 30 days.

• Supreme Court:

1. If an appeal under Section 37 is preferred against an arbitral award in arbitration less than the Specified Value, the same would be governed by Article 116 / Article 117 of the Limitation Act. Under these provisions, the limitation period is computed in the manner recorded in Table I above.
2. If an appeal under Section 37 is preferred against an arbitral award in arbitration of a dispute of the Specified Value, the appeal will be governed by Section 13(1A) of the Commercial Courts Act, 2010(hereinafter referred as “CC”) . The limitation period provided under the CC Act being a special law would apply as compared with the Limitation Act which is a general law, as per section 29(2) of the Limitation Act. Section 13(1A) of the CC Act lays down a period of limitation of 60 days for all appeals; this would therefore be the limitation period for filing an appeal under Section 37 of the A&C Act. The Supreme Court considered the judgment in Kandla Export Corpn. v. OCI Corporation, to deal with the interplay between Section 13 of the CC Act and Section 37 of the A&C Act.

• Tribunals

1. Against the Rule of Law: It can be observed that the establishment of the administrative tribunals has repudiated the concept of rule of law. Rule of law was propounded to promote equality before the law and supremacy of ordinary law over the arbitrary functioning of the government. The administrative tribunals somewhere restrict the ambit of the rule of law by providing separate laws and procedures for certain matters.
2. Lack of specified procedure: The administrative adjudicatory bodies do not have any rigid set of rules and procedures. Thus, there is a chance of violation of the principle of natural justice.
3. No prediction of future decisions: Since the administrative tribunals do not follow precedents, it is not possible to predict future decisions.
4. Scope of Arbitrariness: The civil and criminal courts work on a uniform code of procedure as prescribed under C.P.C and Crpc respectively. But the administrative tribunals have no such stringent procedure. They are allowed to make their own procedure which may lead to arbitrariness in the functioning of these tribunals.
5. Absence of legal expertise: It is not necessary that the members of the administrative tribunals must belong to a legal background. They may be the experts of different fields but not essentially trained in judicial work. Therefore, they may lack the required legal expertise which is an indispensable part of resolving disputes.

       Submitted by

        Roshi Surele

The post Powers & Limitation of Tribunal & Appeal To High Court & Supreme Court. appeared first on Bhatt & Joshi Associates.

Introduction

The significance of committee of creditors (hereinafter referred to as ‘CoC’) can be seen throughout the different stages of the Corporate Insolvency Resolution Process (‘CIRP’), in Part II (corporate persons) and Part III (individuals and partnership firms) of the IBC. However, Part II of the IBC does not explicitly define CoC for corporate persons, though CoC is a defined term for individuals and partnership firms in Part III of the IBC.

As per, Sections 18(c) read with 21, once all claims against the corporate debtor are collated the Interim Resolution Professional is duty bound to constitute a CoC. Generally, all the financial creditors make up the CoC and each financial creditor wields voting rights in proportion to the financial debt owed to them. In the situation where a corporate debtor does not have any financial creditors, the proviso to Section 21(8) contemplates and envisages that a CoC will be constituted in terms of Regulation 16 of The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘2016 Regulations’).

The committee of creditors has been enabled and empowered as board of directors under the Insolvency and Bankruptcy Code ( hereinafter referred to as ‘Code’ ), to take the decisions in respect of the Corporate Debtor, during the process of the corporate insolvency resolution process. In pursuance of this enabling system, the adjudicating authority while initiating the process of CIRP for a company, appoints a resolution professional, who executes and co-ordinates all the decision making during the CIRP and thereby conducts the CIRP of the company. As per Section 28 of the code, it is mandatory for Resolution  professionals to take prior approval of the CoC.

Brief history

The primary objective of the codification of Insolvency and Bankruptcy was based on time-bound resolution of debt, maximization of asset-value and revival of the corporate debtor. In the furtherance of the aforementioned objective, the Banking Law Reforms Committee has accentuated upon the “rights of creditors” under the Code. In 2015 report BLRC emphasized on the following-

“… When default takes place, control is supposed to transfer to the creditors; equity owners have no say.”

Not only, BLRC acknowledge the weakness of creditors under the prevalent bankruptcy regime but also, they contended to vest power in the hands of the creditor at the time of financial distress. The same was upheld by the Supreme Court of India in the case of Innoventive Ind. v. ICICI Bank. Thus, further empowering the creditors of the corporate debtor; in order to promote effective resolution of debts and to ensure the revival of the company.

Recent Changes and pertinent Judgements

In the case of Innoventive Industries v. ICICI Bank, the court reiterated and upheld the viewpoint of BLRC committee stating “when the company or a corporate entity makes any kind of default, the control shall necessarily shift to the creditors and shall not remain in the hands of the management of the company.” Further, in the case of Swiss Ribbon v. Union of India, the court ruled that the Financial creditor are involved in the processes of Corporate Debtor from the beginning and hence their presence in restructuring is essential to ascertain and remove the financial stress, which is not present with the operational creditors.” In the case, Phoenix Arc Private Limited v. Spade Financial Services Ltd., the question of law involved was  Section 21 (8) of the Code regarding the creation and constitution of the CoC. The issue demurred, was whether the related party status if extended to a FC shall be as per the present status or shall be as per the time when the financial debt was incurred. In the instant case the court has taken a purposive interpretation rather than literal interpretation and held that if an FC who is a related party tries to do away with such tag of related party through any act and acts in such manner with a sole motive of entering the CoC, shall not be the part of the CoC and will be restricted through provision first of Section 21(2).

Comparison with International Scenarios

As defined under section 21(2) of the Insolvency and Bankruptcy Code, 2016, “the Committee of Creditors(CoC) shall comprise of all financial creditors of the financial debtor provided that…..” this means composition of the committee is already defined under the given code.

However, in the US bankruptcy code, the Creditor’s Committee’s  composition is not predefined, rather a US Bankruptcy trustee is in charge of choosing who will be included in the same.

In Germany, the provisional committee is taken as a compulsory committee according to Sec. 22a para. 1 of the German Insolvency Code. The appointment is resolved upon by the Creditor’s Assembly.

Therefore, the procedure for the appointment of the committee varies vastly when it comes to the appointing body.

Suggestions

There are instances where CoC exercises certain unbridled powers, such as, at the  time of change of Resolution Professional in terms of Section 27 of the IBC, CoC is not obliged to record its reasons. Additionally, the IBC does not subject the resolution plan per se to judicial scrutiny and the limits of judicial review have been circumscribed to the parameters in Section 30(2) and Section 61(3) of the IBC.  IBC has cordoned off the entire bankruptcy framework in such a way that once the Coc is constituted under  Section 21, it exercises exclusive access to negotiations and retains the final hand in dealing business decisions.

Conclusion

The recent judgements explaining the purview of appointment of committee of creditors shall certainly be a boon for the insolvency regime in the country and will lead to development of trust in the same. The above mentioned judgments clear the standpoint regarding who can be appointed in the Committee of Creditors, ensuring that the Resolution Proceedings be not only expeditious but also genuine and fair. 

Submitted by-

  ROSHI SURELE

The post Difference between SICA Vs. IBC appeared first on Bhatt & Joshi Associates.

Introduction

The provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) regulating the obligation of personal guarantors to corporate debtors were affirmed in a recent decision by the Hon’ble Supreme Court in Lalit Kumar Jain v. Union of India. With the judgement in place, creditors can now file insolvency proceedings against people such as promoters, managing directors, and chairpersons who act as personal guarantors on loans made to corporate debtors or goods and services provided to them.

A personal guarantor is a person or an organization who agrees to pay another person’s debt if the latter fails to do so. This concept of ‘guarantee’ is derived from Section 126 of the Indian Contracts Act, 1872.[1] When banks want collateral that equals the risk they are taking by lending to a company that may not be performing well, a promoter or promoter entity is most likely to provide a personal guarantee. It differs from the collateral that businesses provide to banks in order to obtain loans, because Indian corporate law stipulates that individuals, such as promoters, are distinct from businesses, and that the two are distinct entities.

Brief Legal History

The Ministry of Corporate Affairs published a Notification on November 15, 2019, bringing personal guarantors into the scope of insolvency proceedings under the IBC. The goal was to hold the promoters of the defaulting enterprises accountable for providing personal guarantees for the loans taken out by their enterprises. The lenders filed bankruptcy claims against India’s leading business tycoons, including Anil Ambani, Kapil Wadhawan, and Sanjay Singal, in accordance with the requirements. Many promoters opposed the new laws in several high courts, alleging that the promoters alone should not be held accountable for loan repayment failure.

 In October 2021, the Supreme Court reassigned to itself a slew of writ petitions contesting the IBC’s personal insolvency rules that had been pending in several high courts. When the government issued the notification on personal insolvency in December 2019, the provisions were challenged in court by as many as 19 promoters, who claimed that the company was always run by a management board and that the promoters alone should not be held liable for debt repayment default. As many as 75 promoters and guarantors had challenged the personal insolvency provisions by the time the Supreme Court moved all the cases to itself in December 2020.

Outlook of the petitioners

Firstly, the petitioners believed that the Central Government had overstepped its authority by issuing the Notification, which changed Part III of the IBC in an unjustifiable manner. . Because the legislature made the law in its entirety, leaving nothing for the executive to legislate on, it was referred to as “conditional” rather than “delegated.”[2] Further, the petitioners argued that the rules of the Notification, establish a single procedure for a personal guarantor’s insolvency resolution, regardless of whether the creditor is a financial creditor or an operational creditor. In Swiss Ribbons (P.) Ltd. v. Union of India,[3] the court determined that the nature of loan arrangements executed by a corporate debtor with financial creditors differed significantly from contracts with operational creditors for the supply of products and services. Combining financial and operational creditors equates to treating unequal’s alike and a breakdown of the categorization carefully formed by the Parliament.

Lastly, the promoters and guarantors were of the opinion that the guarantor’s obligation was co-extensive[4] with the corporate debtor’s, and if a resolution plan was approved, the personal guarantor’s responsibility would be extinguished as well. The petitioners relied on the decision in the case of Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta[5] wherein the court observed that an approval of a resolution plan in respect of a corporate debtor amounted to the extinction of all outstanding claims against the debtor.

Supreme Court Judgment

The Supreme Court stated that it was clear that the mechanism used by the Central Government to implement certain provisions of the Act had a specific purpose: to achieve the IBC’s objectives in relation to the priorities. “The apex court said there was an intrinsic connection between personal guarantors and their corporate debtors and it was this “intimate” connection that made the government recognize personal guarantors as a “separate species” under the IBC.”[6]

According to the Hon’ble Supreme Court, there appeared to be compelling grounds why the forum for adjudicating insolvency processes should be common which should be through the NCLT. The NCLT would thus be able to look at the big picture, so to speak, of the nature of the assets available, whether during the corporate debtor’s insolvency proceedings or afterward. The Committee of Creditors would be better able to frame realistic resolution plans if they had a complete picture, keeping in mind the possibility of recovering some of the creditor’s dues from personal guarantors. Based on this discussion, the Court concluded that the contested notification was neither a legislative act nor an instance of improper and selective application of the IBC’s provisions.

The court also cleared up a misunderstanding among petitioners that acceptance of a resolution plan for corporate debtors would also discharge the personal guarantor’s obligations and said that The release or discharge of a principal borrower from his or her obligation by operation of law, or as a result of a liquidation or bankruptcy procedure, does not absolve the surety/guarantor of his or her duty arising from an independent contract. As a result, the Notification was found to be legal and valid, and the writ petitions, transferred cases, and transfer petitions in this case were all dismissed.

Analysis and aftermath

The government has started the procedure and currently offers a full solution for the Corporate Debtor’s CIRP as well as the individual who has supplied a guarantee for that Corporate Debtor. As a result, the gap or limitation in the IBC that had previously limited the adjudication of cases involving corporate guarantors solely has been lifted, and creditors will now be entitled to seek repayment from either of them, i.e. the Corporate Debtor or the Personal Guarantor of the Corporate Debtor. Though the obligations were always coextensive legally in accordance with established principles of law, MCA has now brought Corporate Debtor and Personal Guarantor into the same operational platform. Following that, such personal guarantors might file a claim for insolvency with NCLT.

This will be a significant boost because lenders will now be empowered to pursue funds from promoters/personal guarantors if the amount recovered from the Corporate Debtor is insufficient, and in cases where bankers initiate IBC procedures, they may have to re-evaluate the entire ground scenario. Though the development is exactly as expected, it may cause some anxiety among promoters, particularly those who are either facing IBC procedures (or are expecting to face IBC due to defaults) or who are likely to face IBC due to defaults. This may also force promoters to consider and strategize about the extent to which they might use their personal assets to obtain corporate financing.

Similarly, despite such notification, advisers’ jobs may not be easy due to unanswered questions such as how to handle dual legal cases; to what extent can a creditor collect money from a personal guarantor, and the practical challenges of pursuing both for recovery, among others. As a result, these issues may be presented in a court of law shortly, and the appropriate honorable courts will investigate these issues in accordance with the law and equity principles.

Conclusion

Many famous industrialists who are the promoters of debt-ridden enterprises would be concerned by the ruling but many creditors will breathe a sigh of relief as a result of the immediate judgement, which has opened the door to the personal guarantors’ asset pool under the IBC. Personal guarantors are more likely to “arrange” for the payment of the debt to the creditor bank in order to achieve a quick discharge if insolvency proceedings are filed against them.

Though only time will tell how such things develop and how honest courts administer justice, the government appears to be on the right track to achieve its goal of instilling financial discipline among borrowers, particularly corporate borrowers.

[1] Indian Contract act, 1872, Act No. 9, Section 126

[2] Vasu Dev Singh & Ors. v. Union of India & Ors., 2006 12 SCC 753.

[3] Swiss Ribbons (P.) Ltd. v. Union of India, 2019 4 SCC 17

[4] Kundanlal Dabriwala v. Haryana Financial Corporation, 2012 171 Comp Cas 94

[5] Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, 2019 SCC 1478

[6] Lalit Kumar Jain v. Union of India and Ors., Transfer Case (Civil) No. 245/2020

Written by: Aditya Sharma

The post Personal Guarantors Liable for Corporate Debt: Comprehending Supreme Court’s verdict. appeared first on Bhatt & Joshi Associates.

 Introduction: 

A creditors’ committee is a group of people who represent a company’s creditors in a bankruptcy proceeding. As such, a creditors’ committee has broad rights and responsibilities, including devising a reorganization plan for bankrupt companies or deciding whether they should be liquidated. The creditors’ committee is usually further divided between secured and unsecured creditors.

Brief Legal history: 

The Bankruptcy Law Reforms Committee (‘BLRC’) was tasked with the onerous responsibility of rewiring the insolvency and bankruptcy framework in India. The BLRC presented an exhaustive report in November 2015 (‘BLRC Report’) for crafting a comprehensive code.

The Committee of Creditors (‘CoC’) was fashioned as one of the steering bodies driving the insolvency process under the Insolvency and Bankruptcy Code, 2016. Part II of the IBC does not define CoC for corporate persons, though CoC is a defined term for individuals and partnership firms in Part III of the IBC.

Recent Changes: 

Generally, as per IBC, the COC consists of the financial creditors only. In other words, all the Creditors who have financed the corporate debtor against the consideration of time value of money are included in the Committee of Creditors. In case if there are no financial creditors, in such case eighteen largest Operational Creditors along with one representative from workmen and from employee will be the members of the COC. The powers of these members are quite akin to the powers of the members of the financial creditors. The Operational creditors will not find any place in the COC except in case if the debt of the operational creditors are more than 10%, in such case the operational creditors will participate the COC through a representative. after supreme court’s judgement on Essar Steel case, it can be concluded that the Code is moving towards achieving its intended goal of swift redeployment of productive assets trapped in insolvent companies, and discouraging the notion that big loans are the lenders’ problem, not the borrowers’. The net result is significantly positive for credit discipline in India.

Important Judgement:  

Committee of Creditors of Essar Steel India Limited through Authorized Signatory v. Satish Kumar Gupta

A petition for initiating the insolvency resolution process against Essar was admitted by the National Company Law Tribunal. ArcelorMittal was the successful resolution applicant. The resolution plan submitted by ArcelorMittal provided that the operational creditors with an exposure of above INR 1 crore would not be entitled to any distributions. The NCLT approved ArcelorMittal’s resolution plan and asked the CoC to distribute 85% of the amount under the resolution plan amongst financial creditors and the remaining 15% amongst the operational creditors. The decision of NCLT was subsequently challenged. Hon’ble supreme court upheld the primacy of the Committee of Creditors (‘CoC’) in distribution of funds of INR 42,000 crore received under the resolution plan submitted by ArcelorMittal.

Role the COC in CIPR (corporate insolvency resolution process): The Supreme Court upheld the concept of supremacy of the commercial wisdom of the CoC in approval of the resolution plan, provided they take into consideration/ account for interest of all stakeholders.

 Comparison with International Scenarios: 

The Bankruptcy Law Review Committee report 2015 pondered upon various aspects of the Code including the formation and composition of the CoC, concluding that members of the CoC have to be creditors both with the capability to assess viability, as well as be willing to modify terms of existing liabilities in negotiations. With this reasoning, operational creditors were intentionally left out of the CoC under the presumption that such creditors would neither be able to decide on matters regarding the insolvency of the entity, nor would they be willing to take the risk of postponing payments for better future prospects. This reasoning of the BLRC stands in stark contrast with the Legislative Guide on Insolvency Law (“LGIL“) proposed by The United Nations Commission on International Trade Law (“UNCITRAL“), wherein the UNCITRAL recognised that the first key objective of a resolution process is to balance the advantages of near-term debt collection through liquidation against preserving the value of the debtor’s business through reorganization.

UK Insolvency laws: Secured creditors are generally not represented on a creditor committee if they are fully secured or over-secured. Where they are under-secured, however, their interests are more likely to align with those of unsecured creditors and their participation in the committee or in voting by creditors may be appropriate, at least to the extent that they are under-secured. An example of this would be the Company Voluntary Arrangement (CVA) mechanism under UK insolvency laws, where secured creditors are entitled to vote only in specific circumstances.

Under German insolvency law: the creditors vote by groups. The consent of every group is needed. Within a group the majority of creditors (as headcount) and creditors having the majority of debt need to approve the insolvency plan.

Changes and Suggestions:

 The legislature was quick to amend the Code to protect the interests of homebuyers by according them the status of a financial creditor, allowing each and every homebuyer irrespective of the quantum of his financial debt to a vote on the CoC. it has is tilted the already lopsided scales further against operational creditors, ultimately leading to frequent challenges to resolution plans by operational creditors before courts and delaying the resolution process.

Conclusion: 

A comprehensive overhaul of the constitution of the CoC is thus urgently required to preserve the purpose and the actual intent of the Code. A reference could be made to Section 230 of the Companies Act, 2013, where certain provisions are made that secure the interests of all creditors. This security is however, contingent on the actual appointment of operational creditors to the CoC which is the primary need of the hour.

Submitted by: Purvi Goyal

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Introduction

On 4th April 2015, the Commerce and Industry Minister, Govt of India, Mrs. Nirmala Sita Raman, introduced the Indian Foreign Trade Policy for 2015-20. The Foreign Trade Policy has been formulated for five years. It appears into, regulates and legal guidelines are enacted for the export and import of goods. The creation of the Foreign Trade Policy is incorporated with the imaginative and prescient of the Honorable Prime Minister of India on ‘Make in India’, ‘Digital India’, and ‘Skills India’. The government of India has formulated the trade policy as a way to improve ‘ease of doing business’.
Improving export and import will assist India in being a contributor to the prevailing technology of globalization. The approved framework of Foreign Trade Policy is Directorates General of Foreign Trade. The state of the external environment and new features of the global trading landscape such as mega regional agreements and global value chains will profoundly affect India’s trade. Aim is to help various sectors of the Indian economy to gain global competitiveness.

Legal framework

According to Section 5 of the Foreign Trade ( Development and Regulations) Act 1992, the government of India can from time to time formulate laws relating to Foreign Trade Policy. This section also specifies that the laws made should have special provisions or exceptions should be included for Special Economic Zones. The provisions below Foreign Trade Policy are unique provisions and could be successful over well known ones. If any benefits were provided earlier than the date of graduation of the Foreign Trade Policy then it’ll continue.

● DGFT has been assisting the clients by giving them time schedules. It has also provided email id, phone number, a website for the stakeholders to communicate and to facilitate  them. Further, help desks have also been established in different zones. DGFT has also been modernized by allowing an online complaint system. The online complaint system allows users to register complaints and see its status.

● The trading, export, import, development, multilateral and bilateral relations via way of means of the Special Economic Zone is also sorted by the Department.

Trade facilitation

• A system of online complaint has also been formulated wherein the exporters can file online applications who are seeking to get their issues resolved. The Export Data Processing and Monitoring System has been started by the Reserve Bank of India  to look into the exports.

• The Foreign national trading policy additionally introduced the construct of city of Export Excellence that acknowledges cities that have a production of quite Rs. 750 Crore. These cities have the potential to extend quality exports from the country. These cities that are notified are being supplied with financial backing from the Central Government.

•The policy has also resulted in the formation of a National Committee for Trade Facilitation. This Committee was established in response to India’s signature on the World Trade Organization’s Trade Facilitation Agreement. The Committee is in charge of putting the terms of the WTO Trade Facilitation Agreement into action.

World Trade Organization

In 2018, the United States filed a complaint against India at the world trade center The criticism become concerning the guidelines which might be selling exports within side the country. The United States claimed that guidelines to sell exports are in opposition to the guidelines of the World Trade Centre. The United States claimed that the export subsidies can not be maintained and is in opposition to the guidelines of WTO. A document become made after analyzing the criticism by the WTO Panel on this
issue which stated that the provisions of Foreign Policy of India which might be promoting export by making use of export subsidiaries are illegal.

The report launched through the WTO panel may affect the export market of India. These promotional export subsidiaries had usually been a stimulant for the exports. The subsidiaries have supported exports by decreasing the price of exports. This may highly effect the diverse exporting sectors, given the modern scenario of the awful monetary fitness of the us of a and uncertainty because of the change struggle fare of America and China.

Ceasing the advancement of trade might lead to deplorable results within the trade and moment showcase of India. Hence, the nation ought to point to define such remote approaches which are congruent with the approaches of the World Exchange Organization. The Government ought to carefully define.

Objectives of the Foreign Trade Policy in India

1. To enable substantial growth in exports from India and import to India to boost the economy.
2. To improve the balance of payment and trade.
3. To increase the technological ability for manufacturing and cost-effectiveness of enterprise and services, thereby enhancing their aggressive electricity in evaluation to different countries, and to motivate the accomplishment of internationally commonplace requirements of quality.
4. Creation of opportunities by engaging in good and ethical practices.
5.  To ensure long-term growth by providing access to critical raw materials, as well as other components, consumables, and capital goods needed to boost production on and deliver efficient services.
6. provide buyers or clients with high-quality goods and services at globally
competitive rates and quality. ‘Canalization’- an important feature of Foreign
Trade Policy under which specific classes of goods can be imported only by
designated agencies.
7. Creation of opportunities by engaging in good and ethical practices.
8. Establishing the Advance Licensing System for foreign products required for producing numerous products for export. associate degree Advance License is issued by the board General of Foreign Trade to permit nontaxable import of inputs, that ar physically integrated with the export product
9. Allow the import of technology and equipment’s which may help in achieving better international standards of quality and reduce the cost of production.
10. Accelerating the economy’s transition from low-  to high-level economic activities by transforming it into a globally focused and thriving economy

Simplification and Merger of Reward Schemes:

1: Merchandise Exports from India Scheme(MEIS)

The earlier 5 schemes for worthwhile products exports with exceptional styles of responsibility script with various conditions (sector precise or real consumer only) connected to their use, namely, Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agri – Infrastructure Incentive Scrip and VKGUY have now been changed with the aid of using a unmarried scheme referred to as Merchandise Export from India Scheme (MEIS). It is critical to be aware that there could
be no conditionality connected to the scrips issued beneathneath the scheme. For supply of rewards beneathneath MEIS, the international locations had been classified into 3 groups, while the costs of rewards beneathneath MEIS could variety from 2% to 5%. Notified items exported to notified markets could be rewarded on realized FOB price of exports in loose overseas exchange. The debits closer to simple customs responsibility and further responsibility of customs/ excise responsibility/carrier tax could additionally be allowed adjustment as responsibility drawback/CENVAT credit, as in keeping with as per the department of revenue rule.

The basic objective of Merchandise Exports from India Scheme (MEIS) is to offset infrastructural inefficiencies and associated costs involved in export of goods/products, which are produced/manufactured in India, especially those having high export intensity, employment potential and thereby enhancing India’s export competitiveness.

Service Exports from India Scheme (SEIS)

Service Exports from India Scheme (SEIS) has changed in advance Served from India Scheme (SFIS) and pursuits to inspire export of notified offerings from India. It applies to ‘provider vendors placed in India’ as a substitute of ‘Indian provider vendors’. Service vendors placed in India covers exporters who’re presenting offerings from India, irrespective of the charter or profile. Under the brand new policy, the advantage is likewise prolonged to airport operations and floor dealing with offerings protecting seventy seven offerings. Under SEIS, the chosen offerings might be rewarded on the
fees of 3% on internet forex earned. The fee of praise beneathneath SEIS might be primarily based totally on internet forex earned. The praise issued as responsibility credit score script might be freely transferable and usable for all kinds of items and provider tax debits on procurement of offerings/items. Debits might be eligible for CENVAT credit score or drawback.

Conclusion

With the help of foreign trade policies, a country can lead to equality of pricing to ensure a stable demand and supply situation within the economy. Foreign trade policy also enables a nation to import certain products at the time of a natural calamity and therefore manage scarcity when demand is high by providing better quality and quantity of goods. It also assists in raising the standard of living and making commodities available at a lower cost. Therefore, the Foreign Trade Policy in India is a complete policy to enhance the position of India in the international market and create benefits
for all.

India has also been one of the most sought after foreign investment destinations. The MEIS and SEIS are great initiatives to enhance the export of goods and services and has consolidated the various schemes which existed before.

By Sneha Samarpita

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