2019 (1) TMI 1254 - HC - Companies Law

Prayer seeking leave to sue under Clause 12 of Letters Patent - whether Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) is attracted? - Duties of resolution profession (RP) - RP Locus standi, authority or power to initiate proceedings assailing the foreign decree of UK Court Held that - It is for the RP to act on behalf of Corporate debtor i.e., RIPL in this case with third parties and more importantly exercise rights for the benefit of the corporate debtor (second defendant i.e, RIPL in this case) in judicial proceedings. In other words, proposed plaint, which according to the plaintiff is said to be for the benefit of the Corporate Debtor, is a right, which at the highest can be exercised by RP and none else in the light of a conjoint and harmonious reading of Sections 14(1)(a) and 25(2)(b) of IB Code. It is open for RP to initiate suitable proceedings assailing the UK Judgment / decree in tune with the view of NCLAT. In the light of Section 14(1)(a) of IB Code, institution of this suit is prohibited until corporate insolvency resolution process under the IB Code is completed. Though the suit has been styled as a derivative action , this Commercial Division is unable to accept that the intended suit qua proposed plaint is a derivative action - notwithstanding my conclusion that the intended suit is not a derivative action qua second defendant company, this Commercial Division proceeds with the discussion and deliberation in this regard. the stated position of RP that she does not have locus standi, authority or power to initiate proceedings assailing the foreign decree of UK Court in the light of Section 28 of IB Code and Regulation 25 of IB Code Regulations, is unacceptable. In other words, it is made clear that if the RP were to assail the foreign decree of the UK Court, it will be pursuant to her duty under Section 25(2)(b) of IB Code, which has nothing to do with Section 28 or Regulation 25 of IB Code Regulations. In this regard, it is necessary to mention that this Commercial Division has noticed that there is no mention about Section 25 in the four page counter affidavit of RP dated 27.10.2018 spanning 8 paragraphs. Whether RP can initiate a suit in this Commercial Division assailing the foreign decree of the UK Court in the instant case? - It is the considered view of this Commercial Division that the term/expression third parties occurring in Section 25(2)(b) of IB Code is only to enable RP to interact with any or every other entity on behalf of the corporate debtor without being challenged that the RP does not have statutory backing to do so. As an illustration, if the RP were to take up an issue with a Nationalized Bank on behalf of a corporate debtor, the Nationalized Bank may take the position that it is under no obligation to interact with the RP or interact with the RP as RP does not have legislative backing to embark upon such an action though the RP may have been appointed by NCLT, which is a statutory body. Legislature in its wisdom has brought in the expression third parties and built it into Section 25(2)(b) of IB Code as part of adoption of UNCITRAL legislative guide of insolvency, which is the bedrock on which IB Code has been built. As a necessary corollary and inevitable sequitur that RP can act on behalf of corporate debtor against any one. When such an action on behalf of Corporate Debtor runs into the interest of the financial creditor, it necessarily is an issue which has to be looked into, dealt with and decided by NCLT by applying the IB Code. In this regard Section 63 of IB Code kicks in. Once NCLT comes to the conclusion that such a suit has to be filed by RP, the scenario shifts to this Commercial Division without being hit by Section 63 (as rightly held by NCLAT). It is clarified that NCLT will not have to decide about actions of RP in cases where the suit is not against the financial or operational creditor. this Commercial Division deems it appropriate to leave it open to the corporate debtor to assail the stand of the RP that she does not have the locus standi, authority or power to challenge or initiate proceedings before a Court. This can be done by the corporate debtor by taking resort to Section 60(5) of the IB Code. To be noted, the corporate debtor in the instant case is no stranger to Section 60(5) of IB Code, as the corporate debtor has already filed a petition under Section 60(5) being MA 404 of 2018 with regard to the question as to whether guarantee given by RIPL is limited to a particular quantum. This suit is held to be not maintainable, but reserving the rights of corporate debtor (second defendant) to approach NCLT under Section 60(5) of IB Code and further reserving the right of Resolution Professional to file a suit on the same ground with regard to the same issue if the NCLT permits the Resolution Professional to do so.

Summary

Issues Involved: Leave to sue, Section 14(1)(a) of the Insolvency and Bankruptcy Code (IB Code), derivative action, Section 63 of IB Code, Section 25 of IB Code, Section 28 of IB Code, validity of foreign decree, jurisdiction of NCLT.

Detailed Analysis:

1. Leave to Sue and Section 14(1)(a) of IB Code:
The plaintiffs sought leave to sue under Clause 12 of Letters Patent because the first defendant was outside the territorial jurisdiction. The court needed to determine if Section 14(1)(a) of the IB Code, which imposes a moratorium on suits against the corporate debtor during insolvency resolution, was applicable. If Section 14(1)(a) applied, the suit could not proceed.

2. Derivative Action and Applicability of Section 14(1)(a):
The plaintiffs argued that their suit was a derivative action for the benefit of the corporate debtor (RIPL), thus exempt from the moratorium. They relied on the judgment in Power Grid Corporation of India Limited Vs. Jyoti Structures Limited, which held that moratorium under Section 14 does not apply to proceedings that benefit the corporate debtor. However, the court found that this case did not apply because the facts differed significantly. The court concluded that the suit was not a derivative action since the plaintiffs were the entire shareholders and there was no minority versus majority issue.

3. Section 63 of IB Code:
The defendants argued that Section 63 of IB Code barred the court from entertaining the suit because it related to matters under NCLT's jurisdiction. The court held that Section 63 did not apply because it was not adjudicating solvency or creditor rights but determining the validity of a foreign decree.

4. Role and Duties of Resolution Professional (RP) under Section 25 of IB Code:
The court noted that it was the RP's duty under Section 25(2)(b) of IB Code to represent and act on behalf of the corporate debtor in judicial proceedings. The RP's counter-affidavit, which claimed lack of authority to challenge the foreign decree, was misplaced. The court clarified that Section 25(2)(b) duties are distinct from actions requiring creditor approval under Section 28.

5. Validity of Foreign Decree:
The plaintiffs sought to declare a UK Court judgment null and void, arguing it violated Section 13 of CPC. The court noted that the NCLAT had stated the foreign decree's validity could only be challenged in a competent court, not before NCLT. The Supreme Court upheld NCLAT's order, reinforcing this stance.

6. Jurisdiction of NCLT under Section 60(5) of IB Code:
The court held that the RP should seek NCLT's direction under Section 60(5) of IB Code to challenge the foreign decree, as NCLT has exclusive jurisdiction over such matters involving the corporate debtor. The court referenced the Supreme Court's judgment in Arcelormittal India Pvt. Ltd. Vs. Sathish Kumar Gupta, which emphasized NCLT's exclusive jurisdiction.

Conclusion:
The suit was deemed not maintainable due to the moratorium under Section 14(1)(a) of IB Code. The court reserved the right for the corporate debtor to approach NCLT under Section 60(5) and for the RP to file a suit if permitted by NCLT. The court emphasized the need for RP to act in the corporate debtor's interest and clarified the legislative intent behind the RP's duties under Section 25(2)(b).