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2019 (4) TMI 253 - HC - Insolvency and BankruptcyCorporate insolvency resolution process - validity of suit or recovery of dues in the trial court - attempt on the part of the petitioner to escape liability of paying dues - Difference between initiation of corporate insolvency process by financial creditors under section 7 of the IBC and insolvency resolution process by operational creditors under section 8 of the IBC - HELD THAT - As relying on M/S. INNOVENTIVE INDUSTRIES LTD. VERSUS ICICI BANK & ANR. 2017 (9) TMI 58 - SUPREME COURT OF INDIA when insolvency resolution is by an operational creditor, the moment there is existence of dispute, the operational creditor gets out of clutches of the IBC. In the present case, although the resolution process was initiated by a financial creditor under section 7 of the IBC, the resolution plan prepared under the provisions of the IBC and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, recognized the claim of respondent No.1 as an operational creditor and under Regulation 38 of the aforesaid Regulation of 2016, priority is given to the amount due to respondent No.1 as an operational creditor over the dues of financial creditors. Thus, when the resolution plan provides for the dues payable to respondent No.1, subject to the pending suit, it cannot be said that any error was committed by the Trial Court in passing the impugned order. The aforesaid position of law, when applied to the facts of the present case clearly demonstrates that the attempt on the part of the petitioner to escape liability of paying dues of respondent No.1 as an operational creditor, was correctly shot down by the Trial Court by passing the impugned order. Therefore, it is held that the suit filed by respondent No.1 cannot be dismissed as claimed by the petitioner in the application at Exhibit 153. Accordingly the writ petition is found to be without any merit and it is dismissed.
Issues Involved:
1. Whether the suit for recovery filed by respondent No.1 could survive after the initiation of the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2006 (IBC). 2. Whether the Trial Court erred in rejecting the application filed by the petitioner for dismissal of the suit. 3. Interpretation of the provisions of the IBC, particularly sections 63 and 238, and their impact on pending civil suits. 4. The effect of the resolution plan approved under the IBC on the claims of operational creditors like respondent No.1. Issue-Wise Detailed Analysis: 1. Whether the suit for recovery filed by respondent No.1 could survive after the initiation of the corporate insolvency resolution process under the IBC: The petitioner contended that the suit for recovery filed by respondent No.1 could not survive after the initiation of the corporate insolvency resolution process under the IBC, asserting that the IBC has an overriding effect over other laws. The petitioner argued that the resolution plan approved by the National Company Law Tribunal (NCLT) and upheld by the National Company Law Appellate Tribunal (NCLAT) extinguished the liability to pay any amount to operational creditors like respondent No.1. However, the court found that the resolution plan recognized sub judice claims of operational creditors and earmarked an operational creditors settlement amount of ?1200 crores to satisfy such claims upon finalization and crystallization in pending civil suits. Therefore, the suit for recovery filed by respondent No.1 could not be dismissed merely because the corporate insolvency resolution process was undertaken. 2. Whether the Trial Court erred in rejecting the application filed by the petitioner for dismissal of the suit: The Trial Court rejected the application filed by the petitioner for dismissal of the suit, holding that the proceedings under the IBC did not extinguish the right of respondent No.1 to continue prosecuting the suit for recovery. The High Court upheld this decision, stating that the resolution plan recognized the claim of respondent No.1 as an operational creditor and provided for the payment of such claims from the operational creditors settlement amount. The court emphasized that a pending civil suit could not be terminated upon the resolution plan attaining finality, as it would lead to a travesty of justice and contradict the scheme of the IBC, which prioritizes the dues of operational creditors. 3. Interpretation of the provisions of the IBC, particularly sections 63 and 238, and their impact on pending civil suits: The petitioner relied on sections 63 and 238 of the IBC to argue that the civil suit filed by respondent No.1 was not maintainable. Section 63 bars the jurisdiction of civil courts in matters on which the NCLT or NCLAT has jurisdiction, and section 238 provides that the IBC overrides other laws. The court clarified that these provisions pertain to the corporate insolvency resolution process and do not imply that pending civil suits would be dismissed upon the resolution plan being approved. The court noted that the resolution plan itself recognized the sub judice claims and provided for their settlement, thus the civil suit could continue to determine the exact amount due from the petitioner. 4. The effect of the resolution plan approved under the IBC on the claims of operational creditors like respondent No.1: The resolution plan dated 03/02/2018 included clauses that recognized the claims of operational creditors, including those that were sub judice. The plan earmarked ?1200 crores as the operational creditors settlement amount to satisfy such claims upon finalization. The court found that the resolution plan did not extinguish the claims of operational creditors but provided a mechanism for their settlement. The court emphasized that the IBC prioritizes the dues of operational creditors over financial creditors and that the resolution plan must be interpreted harmoniously with the provisions of the IBC to ensure justice. Conclusion: The court dismissed the writ petition, holding that the suit for recovery filed by respondent No.1 could not be dismissed merely because the corporate insolvency resolution process was undertaken. The court upheld the Trial Court's decision, stating that the resolution plan recognized the claims of operational creditors and provided for their settlement from the operational creditors settlement amount. The court clarified that sections 63 and 238 of the IBC did not bar the continuation of pending civil suits and that the resolution plan must be interpreted in a manner that ensures justice for operational creditors.
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