2018 (12) TMI 654 - HC - Insolvency and Bankruptcy

Operational creditors under the IBC - Claim of the workmen and ex-workmen of the third respondent - whether and if any amount is due and payable by the third respondent to the workmen/ex-workmen? - Held that - An ambiguous stand was taken that workmen or ex-workmen could be classified as operational creditors provided and subject to their claims being genuine. The question whether the workers Union can raise the claim of the ex-workmen/workmen as operational creditors under the IBC is pending before the Supreme Court as NCLT and NCLAT have both rejected their locus. It is, therefore, clear to us that the issue of workers dues etc. have to be examined in an appropriate forum. As per the third respondent, this claim should be examined by the Labour Court/Tribunal. Even if we accept the statement to be correct (indeed this could be a viable solution), interim order against transfer of immovable and capital assets till adjudication is made may be required and necessary to protect interest of the workmen/ex-workmen. On being questioned, why the capital assets and immoveable properties of the third respondent was transferred, the candid and frank answer of the counsel for the third respondent was that the transfers were authorized by the management and there were no stay or interim orders in operation on the dates when transfers were made. Given these facts, we have to express our concern for the ex-workmen/workmen, whose claims have not been decided and adjudicated upon. It is in this context that the order passed by the Supreme Court on 13th November, 2014 and the directions given therein assume importance, for if the ex-workmen/workmen have not been paid their dues, the transfer made by the third respondent to the fourth respondent vide sale deed registered on 2nd July, 2014 would require scrutiny and examination. Of course, any answer would require consideration of the findings recorded in the contempt proceedings vide order dated 18th November, 2016. Thus, even if the ex-workmen/workmen or the Labour Union initiate proceedings under the Industrial Disputes Act, interim protection may be required and necessary against sale, transfer and creation of third party interest in respect of the capital assets and immoveable properties. The Supreme Court has already granted stay of alienation and creation of third party interest of capital assets belonging to and owned by the third respondent. However, the third respondent has already transferred most of its assets to its subsidiaries and hence, protection and restraint orders are required against the subsidiaries. The statute, be it the Companies Act or the IBC, does give primacy to the claims of ex-workmen/workmen. There is urgency and need for determining and deciding the claim and issues raised by ex-workmen/workmen given the fact that the third respondent has transferred and alienated capital assets and immoveable properties to third persons and subsidiary companies, which in turn have again transferred their assets to third persons. There are allegations that true and full transfer considerations have not been recorded and accounted for in the books. The allegation is denied, albeit this issue and contention has to be examined and decided on merits to form a firm and final opinion. This adjudication is to be made in proceedings in accordance with law etc. At present, the question of locus and appropriate jurisdiction/forum having jurisdiction is pending consideration before the Supreme Court, in this writ petition, before the NCLT and also before NCLAT. The writ petition is disposed of in view of the statement made by the counsel for the petitioner, who seeks permission to withdraw the present writ petition with liberty to approach the Supreme Court. In the meanwhile, the statements made by the counsel for the respondent Nos.4, 9 and 10 would continue to operate and apply. These respondents would abide by the statements made for a period of twenty one (21) days from 2nd November, 2018. We are also inclined to extend the stay order restraining the subsidiaries of the third respondent from alienating, transferring or creating third party interests in respect of the capital assets for a period of 21 days from 2nd November, 2018.

Summary

Issues Involved:
1. Constitutionality of Section 4(b) of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 read with Section 252 of the Insolvency and Bankruptcy Code, 2016.
2. Implementation of Supreme Court's directions dated 13-11-2014 and 18-11-2016.
3. Legality of asset sales and lease transactions by the third respondent.
4. Appointment of a Court Receiver for preservation of assets.
5. Interim relief against sale of properties by the third respondent and its subsidiaries.

Detailed Analysis:

1. Constitutionality of Section 4(b) of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 read with Section 252 of the Insolvency and Bankruptcy Code, 2016:
The petitioner challenged the constitutionality of Section 4(b) of the Repeal Act, 2003 read with Section 252 of the IBC, 2016, arguing that it abates proceedings before BIFR & AAIFR without providing an efficacious remedy for implementing Supreme Court’s directions. The court noted that the workmen could invoke the jurisdiction of the NCLT under Sections 6, 8, and 9 of the Code and that the NCLT has the power to examine under-valued transactions under Sections 47 and 49 of the Code without being restricted by a fixed limitation period. The petitioner did not press the prayer challenging the vires of Section 4(b) of the Repeal Act, 2003, and agreed to approach the NCLT for relief.

2. Implementation of Supreme Court's directions dated 13-11-2014 and 18-11-2016:
The Supreme Court in its judgment dated 13-11-2014 had directed the BIFR to determine whether the net worth of the third respondent had turned positive and to consider the scheme for revival of the company. The transfer of Katihar property was also to be assessed by the BIFR. However, before the BIFR could decide, the Repeal Act was enforced, and proceedings before the BIFR abated. The Supreme Court's order dated 18-11-2016 in contempt proceedings found the third respondent and its Directors/servants guilty of violating the interim order dated 8-5-2014 but did not invalidate the sale deed registered on 2-7-2014. The court observed that the directions given by the Supreme Court could be examined and considered under Sections 47 and 49 of the Code by the NCLT.

3. Legality of asset sales and lease transactions by the third respondent:
The petitioner sought to declare several transactions, including the sale of assets at Saifganj, Katihar, Bihar, and lease transactions, as void ab initio. The court noted that the third respondent had transferred immovable properties to its subsidiaries without cash consideration, and these subsidiaries had further sold the properties. The court expressed concern about the lack of clarity on the sale consideration and the need for scrutiny of these transactions. The court directed that the interim orders restraining the transfer, alienation, or creation of third-party rights in the assets of the third respondent and its subsidiaries would continue.

4. Appointment of a Court Receiver for preservation of assets:
The petitioner sought the appointment of a Court Receiver for the preservation of the assets of JK Jute Mills Company Ltd. The court did not specifically address the appointment of a receiver but emphasized the need for interim protection against the sale, transfer, and creation of third-party interests in the assets of the third respondent and its subsidiaries to protect the interests of the workmen/ex-workmen.

5. Interim relief against sale of properties by the third respondent and its subsidiaries:
The court restored the interim orders dated 16-6-2017, 6-7-2017, and 21-8-2017, restraining the third respondent and its subsidiaries from transferring, alienating, or creating third-party rights in any of its assets. The court also noted that the Supreme Court had directed the third respondent to maintain the status quo regarding its assets. The court extended the stay order restraining the subsidiaries of the third respondent from alienating, transferring, or creating third-party interests in respect of the capital assets for a period of 21 days to enable the petitioner and others to seek appropriate orders from the Supreme Court.

Conclusion:
The court disposed of the writ petition, allowing the petitioner to withdraw and approach the Supreme Court. The interim orders restraining the transfer, alienation, or creation of third-party rights in the assets of the third respondent and its subsidiaries were extended for 21 days to enable the petitioner to seek appropriate relief from the Supreme Court. The court emphasized the need for an authoritative pronouncement on the issues pending before the Supreme Court and other forums.