2022 (9) TMI 860 - HC - Insolvency and Bankruptcy

Maintainability of suit - related parties of the Corporate Debtor or not - commercial arrangements between Spade i.e. the plaintiff herein, AAA and the Corporate Debtor i.e. the defendant No. 1 - financial debt or not - HELD THAT - The present suit for recovery cannot continue against the defendants. Defendant No. 1 is the Corporate Debtor as referred to by Hon'ble Supreme Court in its judgment dated 01.02.2021 Civil Appeal Nos. 2842/2020 and 3063/2020 2021 (2) TMI 91 - SUPREME COURT , defendant No. 2 herein is the erstwhile Director of defendant No. 1 - Once Hon'ble Supreme Court having categorically held that commercial arrangements between the plaintiff and the defendant No. 1 were collusive in nature and that they would not constitute a financial debt , there is no question of any suit being maintainable against either the defendant No.1 or defendant No.2, who is the erstwhile director of defendant No. 1. Similarly, as far as defendant No. 3 is concerned, defendant No. 3 is the auction purchaser of the defendant No. 1 company, carried out by YES Bank under the SARFAESI Act. It is seen that the proceedings before Hon'ble Supreme Court emanated from the applications filed on behalf of YES Bank before the NCLT. Thus, all the issues pertaining to defendant No. 3 have also been considered by Hon'ble Supreme Court. It has been informed by learned counsel appearing for the Resolution Professional that the moratorium in terms of Section 14 of the IBC still continues to operate against the defendant No. 1 company. Thus, there is clear bar to continuation of the present suit in terms of the provisions of the IBC. In view of the categorical findings by Hon'ble Supreme Court and also in view of provisions of IBC, it is held that the present suit cannot continue - application dismissed.

Issues Involved:

1. Withdrawal of vakalatnama by defendant No. 2's counsel.
2. Appointment of Resolution Professional (RP) for defendant No. 1 and the moratorium.
3. Maintainability of the present suit in light of the Supreme Court's judgment.
4. Exclusion of the plaintiff from the Committee of Creditors (CoC) by NCLT and NCLAT.
5. Supreme Court's findings on the plaintiff's status as a financial creditor and related party.
6. Bar to continuation of the present suit under the Insolvency and Bankruptcy Code (IBC).

Issue-wise Detailed Analysis:

1. Withdrawal of vakalatnama by defendant No. 2's counsel:

Mr. Akhilesh Wahal, Advocate, submitted that he has instructions to withdraw their vakalatnama. At request, Mr. Arjun Syal and Mr. Akhilesh Wahal, Advocates, are discharged from appearance on behalf of defendant No. 2.

2. Appointment of Resolution Professional (RP) for defendant No. 1 and the moratorium:

Mr. Mohit Uppal, Advocate, appears for the Resolution Professional and submits that Mr. Jailesh Kumar Grover has been appointed as the RP of defendant No. 1 (Akme Projects Limited). He submits that the moratorium qua the defendant No. 1 company is still in operation. The plaintiff has already submitted its claims before the RP.

3. Maintainability of the present suit in light of the Supreme Court's judgment:

Learned counsel appearing for the RP handed over a copy of the judgment passed by the Hon'ble Supreme Court dated 01.02.2021 in Civil Appeal No. 2842/2020 and Civil Appeal No. 3063/2020 to contend that the present suit is not maintainable in view of the aforesaid judgment.

4. Exclusion of the plaintiff from the Committee of Creditors (CoC) by NCLT and NCLAT:

NCLT held that the plaintiff (Spade Financial Services Limited) along with AAA Landmark Private Limited (AAA) has to be excluded from the CoC formed in relation to the Corporate Insolvency Resolution Process (CIRP) initiated against Akme Projects Ltd. (defendant No. 1). This was upon applications filed by Phoenix Arc Private Limited (Phoenix) and YES Bank under Section 60(5)(C) of the Insolvency and Bankruptcy Code, 2016 (IBC). The NCLT's order dated 19.07.2019 was affirmed by NCLAT on 27.01.2020.

5. Supreme Court's findings on the plaintiff's status as a financial creditor and related party:

The Supreme Court, in its judgment dated 01.02.2021, gave a categorical finding that Spade (the plaintiff) cannot be labeled as a financial creditor of the Corporate Debtor (defendant No. 1) under Section 5(7) of IBC. The Supreme Court also held that Spade and AAA were related parties of the Corporate Debtor under Section 5(24) of IBC. Thus, the decision of NCLAT excluding Spade and AAA from the CoC was affirmed. The Supreme Court set aside the decision of the NCLAT that referred to Spade and AAA as financial creditors.

6. Bar to continuation of the present suit under the Insolvency and Bankruptcy Code (IBC):

The moratorium under Section 14 of the IBC continues to operate against defendant No. 1 company, creating a clear bar to the continuation of the present suit. The Supreme Court's findings and the provisions of IBC indicate that the present suit cannot proceed. The suit is dismissed accordingly.

Conclusion:

In view of the categorical findings by the Hon'ble Supreme Court and the provisions of IBC, the present suit is dismissed. If any cause of action still survives in favor of the plaintiff, the plaintiff would be at liberty to pursue its legal remedies available.

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