2018 (2) TMI 1503 - HC - Companies Law

Insolvency process - delay in getting back the money - sale of the machinery attached by the order of this Court - Held that - As learned Senior Counsel appearing for the respondent/defendant in the suit that the respondent/defendant has obeyed all the orders of this Court and therefore he cannot be penalized for obeying the orders of this Court. The sum and substance of the contentions of Mr.APS.Ahluwalia learned Senior Counsel is that having obeyed the orders under the firm belief that it would get back the money spent by it the respondent cannot be made to wait till the conclusion of the Insolvency Resolution process. All that this Court can do in the present situation is only to sympathize with the 1st respondent/defendant. A bare perusal of the earlier orders passed by this Court would show that the plaintiff in the suit M/s.Falcon Tyres Ltd. is a consistent and willful defaulter. But in view of Section 14 of the Code this Court is denuded of the power to proceed against the properties of a consistent defaulter also. Even proceedings initiated by a secured creditor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 have been included under Sub Cause (c) of Sub Section (1) of Section 14. Therefore unable to accept the submission of the learned Senior Counsel Mr.APS.Ahluwalia that the present proceedings cannot be termed as proceedings within the meaning of Sub Clauses a b c and d of Sub Section (1) of Section 14. Mr.APS.Ahluwalia learned Senior Counsel would also contend that by virtue of the lien created under the Order dated 21.04.2011 the property becomes answerable to the claims of the 1st respondent. Therefore the 1st respondent would be in the position of the secured creditor and hence these proceedings cannot be prohibited by the order of NCLT. A lien created over the property would not divest the ownership of the corporate debtor over the said property. Even claims of secured creditors are barred under Sub Clause (c) of Sub Section (1) of Section 14. Clause (d) of Sub Section (1) of Section 14 includes even proceedings of recovery of any property in possession of a corporate debtor by its owner or lessor. Apart from the wide language of Section 14 Section 238 of the Code gives an overriding effect to the provisions of the Act for any statute or any instrument having the force of the statute. Stay all further proceedings pursuant to the earlier orders in the suit and adjourn the suit till 16th April 2018. Also all further proceedings for sale of the machinery attached by the order of this Court dated 13.08.2012 will stand stayed till the expiry of 180 days from 30.08.2017 or till such extended period as may be granted by the Adjudicating Authority viz. The National Company Law Tribunal Bengaluru.

Summary

Issues Involved:
1. Appointment of Insolvency Resolution Professional and its implications.
2. Application of Section 14 and Section 238 of the Insolvency and Bankruptcy Code (IBC) 2016.
3. Enforcement of lien and recovery proceedings.
4. Compliance with court orders and payment obligations.

Issue 1: Appointment of Insolvency Resolution Professional and its implications

The plaintiff in CS No.65 of 2011, represented by the Insolvency Resolution Professional (IRP) appointed by the National Company Law Tribunal (NCLT), Bengaluru, sought to record the factum of appointment and to stay all further proceedings in the suit. The IRP argued that the proceedings could not continue due to the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code 2016.

Issue 2: Application of Section 14 and Section 238 of the Insolvency and Bankruptcy Code (IBC) 2016

The court examined Section 14 of the IBC, which mandates a moratorium on the institution or continuation of suits or proceedings against the corporate debtor, including the execution of any judgment, decree, or order. Additionally, Section 238 of the IBC provides that the provisions of the Code will have an overriding effect over any other law in force. The court noted that the language of Section 14 is broad and encompasses all kinds of proceedings, including those for the enforcement of a lien.

Issue 3: Enforcement of lien and recovery proceedings

The defendant had expended a significant sum pursuant to court orders, believing it would be reimbursed either by the plaintiff or through the sale of the plaintiff's property. Despite multiple court orders and agreements, the plaintiff failed to comply with payment obligations. The defendant sought to enforce the lien created by the court's order dated 21.04.2011, which included the attachment and auction of the plaintiff's machinery to recover the dues.

Issue 4: Compliance with court orders and payment obligations

The court acknowledged that the defendant had complied with all court orders and had expended monies based on the expectation of reimbursement. However, due to the moratorium under Section 14 of the IBC, the court was constrained to stay further proceedings. The court expressed sympathy for the defendant but emphasized that the provisions of the IBC, particularly Section 14 and Section 238, necessitated the suspension of all recovery proceedings against the corporate debtor.

Conclusion:

The court concluded that it had no option but to stay all further proceedings pursuant to the earlier orders in the suit. The application was allowed, and all further proceedings for the sale of the machinery attached by the court's order dated 13.08.2012 were stayed until the expiry of 180 days from 30.08.2017 or until such extended period as may be granted by the NCLT, Bengaluru.