Deconstructing the Provision of Territorial Jurisdiction of filing application under Insolvency And Bankruptcy Code
SECTION 60 (1) of Insolvency and Bankruptcy Code
Section 60 (1) of the Insolvency And Bankruptcy Code determines the territorial jurisdiction of NCLT, where a petition U/s 7, 9 or 10 of the Code can be filed ‘i.e. wherein the registered office of the Corporate Debtor is located’ (more often than not, the location of registered office is not the place where the cause of action in filing application under insolvency code arises). Registered Office of a company under Section 12 (1) of the Companies Act, 2013 is primarily to enable receiving and acknowledging communications and notices as may be addressed to it. Con-joint reading of Section 60 (1) of the Code with Section 12 (1) of the Companies Act, 2013, no compelling relevance or relationship could be derived as to the territorial jurisdiction of NCLT vis-à-vis a location of the registered office of the corporate debtor, the recital in Section 12 (1) states, the registered office is enabled primarily to receive and acknowledge all communications/notices etc…the oxymoron gets intensified since under Rule 5 (2) (b) of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, permits service of the notice by way of an electronic mail to a whole time director or designated partner or key managerial personnel of the corporate debtor – though Rule 5 (2) (b) primarily concerns operational creditor, but as a matter of factly copy of petition by the financial creditor too is served through electronic mail onto the corporate debtor, quite often at the mail id of the corporate debtor (available in the MCA site), which too is deemed as a valid service of documents.
There is no concept of geographical restriction in a virtual world, so as to foist territorial jurisdiction of NCLT to a place where the registered office of the company is located hence outright regressive. It is axiomatic to state, one needn’t be stationed at the registered office to receive e-mails thus the brick and mortar physical location of a registered office has by far lost it’s relevance in the virtual world, and in any case filing application in NCLT within the territorial jurisdiction of NCLT where the registered office of the company doesn’t accrue any known special advantage either to the corporate debtor or the petitioner.
The legacy of Section 60 (1) of Insolvency And Bankruptcy Code can partly be traced to Section 10 (3) of the Companies Act, 1956, which states the territorial jurisdiction of High Court for the purpose of winding up shall be the place where the registered office of the company being situated; though there is no corresponding Section in the Companies Act, 2013 to that of Section 10 (3) of Companies Act, 1956, a reference is available under Section 434 (1) (c) of the Companies Act, 2013, wherein all proceedings under the Companies Act, 1956 pending before District or High Court shall get transferred to NCLT, except for proceedings related to winding up at stages, as may be prescribed by the Central Government. As regards territorial jurisdiction of NCLT for application under the provisions of Section 270, 271 & 272 of the Companies Act, 2013, concerning winding up of a company the same is determined vis-à-vis the location of the registered office of the company, however importing the said logic into the provisions of Insolvency & Bankruptcy Code holds little water, since liquidation/winding up of the company under the Code is a measure of last resort after all reasonable attempts of reviving the company as a going concern has failed. In fact multiple rulings settled the issue that even at the stage of liquidation ‘Section 33 of the Insolvency & Bankruptcy Code’, nothing inhibits in transferring the company under liquidation without winding up.
The overarching intent of Insolvency & Bankruptcy Code is to secure resolution of a company/corporate debtor, dissipation of the assets of the corporate debtor, to promote entrepreneurial spirit to the exclusion of the incumbent management, in the said backdrop the regressive conditionality of Section 60 (1) of the Code in restricting the filing of insolvency application only in the territorial jurisdiction of NCLT where the registered office is located to the exclusion of other location(s) particularly where the cause of action ‘default’ arose is undermining the relevance of the Insolvency Code, at-least in no way consolidates the intent of Insolvency & Bankruptcy Code. At the cost of repetition registered office of a company is primarily to enable receiving and acknowledging all communications and notices as may be addressed to the corporate debtor – in the virtual world, wherein exchange of communication through online mode is recognised under the Insolvency & Bankruptcy Code, euphemistically a parallel ‘registered office’ exists in the virtual world. Virtual address being as much a reality as a physical address, insistence to have the NCLT jurisdiction only wherein the registered office is located will not only be discriminatory but also manifestly arbitrary, more so since the Insolvency & Bankruptcy Code gets triggered by the creditor be it financial or operational; thus an apparent contradiction to the point of inherent discrimination prejudicing of the creditors who need to organise themselves of legal and administrative support system at a relatively unfamiliar place, where the registered office of the corporate debtor is located; so it might be more appropriate for the applicant to be permitted of an option to file the insolvency application in the territorial jurisdiction of NCLT where the cause of action i.e. default arose – the rational finds support in sub-section (c) of Section 20 of the ‘Code Of Civil Procedure’; concerning the local limits of the jurisdiction of Court for filing ‘Suit’ wherein ‘the cause of action, wholly or in part arises’. Section 17 (1-A) of SARFAESI Act, an Act which can be construed as analogous to Insolvency & Bankruptcy Code, since the cause of action, in triggering of proceedings under both the laws is ‘DEFAULT’ therein thus exists an underlying commonality. Under sub-section (a) & (c) of section 17 (1-A) of SARFAESI permits filing of application either at the place where the cause of action wholly or partly arises or where the branch of the bank or financial institution is maintaining the account of the borrower.
From the perspective of corporate debtor too, it can’t be their case to have the jurisdiction of NCLT in filing the application under Insolvency & Bankruptcy Code, where their registered office is located, to serve the intent & spirit of the Insolvency & Bankruptcy Code.
From the standpoint of pursuing an efficacious remedy under the Insolvency and Bankruptcy Code – it would be in fitness for the law makers to consider amendment to the provisions under Section 60 (1) of the Insolvency And Bankruptcy Code, so as to include an option to file application before the NCLT within whose territorial jurisdiction the cause of action arose.