2020 (2) TMI 1701 - AT - Insolvency and Bankruptcy

Arbitration proceedings - initiation of arbitration proceedings against the Corporate Debtor, which was hit by moratorium when CIRP started - Corporate Debtor undergoing liquidation proceedings - Section 35(k) of the Insolvency and Bankruptcy Code, 2016 - HELD THAT - The duty cast on the Liquidator is to institute or defend any Suit, prosecution or other legal proceedings. The same would include conscious decision which a Liquidator may take whether or not in the given set of facts, he needs to defend the proceeding. If the Liquidator has taken the decision, for reasons stated, we do not think that the Appellant has any right to force the Liquidator to come and defend and surrender to the action which the Appellant claims to have initiated. There are no reason to interfere with the Impugned Order. The Appeal has no substance. The Appeal is dismissed at the stage of admission.

Summary

Issues: Liquidator's duty to defend legal proceedings, Arbitration proceedings during liquidation

In this judgment by the National Company Law Appellate Tribunal, the Appellant filed an appeal against an Impugned Order related to arbitration proceedings against a Corporate Debtor undergoing liquidation. The Appellant had initiated arbitration proceedings before the Corporate Insolvency Resolution Process (CIRP) began, but the proceedings were affected by the moratorium during CIRP. The Liquidator, after the liquidation order, appeared once before the arbitrators but did not actively participate, leading to the arbitration proceedings being struck down.

The Appellant argued that under Section 35(k) of the Insolvency and Bankruptcy Code, the Liquidator is obligated to defend legal proceedings, emphasizing that the Liquidator's duty includes defending any suits or proceedings. The Liquidator's role in investigating the financial affairs of the Corporate Debtor was also highlighted as a reason for the Liquidator's obligation to participate in the arbitration proceedings.

On the other hand, the Respondent, representing the Liquidator, contended that the arbitration proceedings pertained to an inter-shareholders dispute that did not directly involve the Corporate Debtor. Therefore, the Liquidator decided not to contest the arbitration proceedings based on this distinction.

The Tribunal noted that the duty of the Liquidator includes defending legal proceedings, but it also recognized the Liquidator's discretion in deciding whether to defend a particular proceeding based on the circumstances. The Tribunal held that if the Liquidator made a conscious decision not to defend the arbitration proceedings, the Appellant could not compel the Liquidator to participate.

Ultimately, the Tribunal found no merit in the appeal and dismissed it at the admission stage, stating that the appeal lacked substance and did not warrant interference with the Impugned Order. No costs were awarded in the judgment.