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 ‘defaultarose  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.