2019 (8) TMI 218 - AT - Insolvency and Bankruptcy

Admissibility of application - Initiation of Corporate Insolvency Resolution Process - existence of dispute or not - default in discharging the debt - whether in absence of adjudication of the foreign decree passed by a court in a non-reciprocating, territory, which is relied upon by the Appellant, the Appellant was legally justified in seeking initiation of Corporate Insolvency Resolution Process under Section 9 of the I B Code against the Corporate Debtor? HELD THAT - Section 44A of Civil Procedure Code providing for execution of a foreign decree by filing of a certified copy of such decree passed by a superior court in a reciprocating territory in a District Court has no application and the observations of the Adjudicating Authority in this regard cannot be termed as unwarranted. It is well settled that foreign decree either of reciprocating or non-reciprocating territory not passed on merits or not satisfying the requirements of Section 13 of CPC cannot be the basis of winding up petition. An ex-parte decree based on default summary judgment for non-appearance before a foreign court cannot be relied upon for seeking winding up of a company. Such decree cannot be held conclusive as it has not been given on merits of the case. Admittedly, Appellant is pursuing the litigation before the Bombay High Court in regard to the foreign decree and claim payable thereunder. He cannot be permitted to circumvent the appropriate legal remedy, already pursued, by invoking provisions of Section 9 of I B Code, thereby defeating the fundamental provisions of law governing execution of a foreign decree obtained in ex-parte from a court located in a non-reciprocating territory. Such course is neither legally permissible nor warranted as admittedly the matter is not covered under Section 44A of CPC. The argument advanced warrants outright rejection and is accordingly rejected. The adjudication initiated by the Appellant before Bombay High Court wherein adjudication is sought in regard to foreign decree obtained ex-parte falls within the purview of a pre-existing dispute placing an embargo on the powers of Adjudicating Authority to initiate Corporate Insolvency Resolution Process at the instance of a Corporate Debtor - appeal dismissed.

Issues:
1. Rejection of application under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Dispute regarding debt and maintainability of the application.
3. Appellant's claim based on a foreign decree and operational debt.
4. Legal justification for seeking initiation of Corporate Insolvency Resolution Process.
5. Adjudication of foreign decree and its enforceability in India.
6. Pre-existing dispute and powers of Adjudicating Authority.

Analysis:

1. The judgment revolves around the rejection of an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, by the Adjudicating Authority. The Appellant contested the rejection, arguing that a dispute existed between the parties regarding the debt, which should not have impacted the maintainability of the application.

2. The factual background leading to the application involved the Appellant's appointment by the Corporate Debtor and subsequent disputes regarding work assignment, non-payment of salary, and legal actions taken by the Appellant, including filing a suit in the Labour Court of Kinshasa. The Adjudicating Authority declined the application based on the ongoing civil suit in the Bombay High Court regarding the foreign decree and the lack of reciprocity for executing foreign decrees in India.

3. The Appellant claimed that the non-payment of salary constituted a default, justifying the invocation of Corporate Insolvency Resolution Process under Section 9. However, the Respondent argued that the alleged debt was not crystallized by a court of competent jurisdiction, especially since the foreign decree was ex-parte and not yet conclusive and enforceable in India.

4. The primary issue for determination was whether the Appellant was legally justified in seeking initiation of Corporate Insolvency Resolution Process based on the foreign decree without it being adjudicated in a reciprocating territory. The Court emphasized that the debt must be legally payable for the insolvency process to be invoked, and the foreign decree's enforceability in India was crucial.

5. The judgment highlighted that a foreign decree, especially if ex-parte and lacking adjudication under Section 13 of the Civil Procedure Code, cannot be the sole basis for initiating insolvency proceedings. The Court referenced precedents to support the requirement for a legally payable debt before triggering the Corporate Insolvency Resolution Process.

6. Ultimately, the Court concluded that the ongoing adjudication of the foreign decree in the Bombay High Court constituted a pre-existing dispute, preventing the Adjudicating Authority from initiating the insolvency process. The Appellant was directed to pursue the legal remedy through the pending suit, emphasizing the importance of a debt being crystallized and legally payable before invoking insolvency proceedings.

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