2022 (8) TMI 1157 - AT - Insolvency and Bankruptcy

CIRP - Principles of res-judicata - the debt of the Respondents was declared as Financial Debt - specific contention of the Appellants is that the overruling of judgment invalidated the order/judgment itself but when the order/judgment attained finality, acted upon, the same cannot be reopened on account of overruling of the judgment in different proceedings as the attainment of finality is the basic principle of our legal system - HELD THAT - Once the rights of parties have been considered and declared, the proceedings cannot be reopened on the basis of the judgment which overruled the earlier judgment, since, the purpose of the decision is to crystalise the rights of the parties based on the law prevailing on that date. If such practice of recalling the order passed in subsequent judgment, which overruled the earlier judgment, then litigation will continue forever. To give quietus and settle the rights of the parties, prospective overruling may be applied normally, if the Court directs such prospective application of the law. Once the order of the Adjudicating Authority attains finality on account of affirmation by the Hon ble Apex Court in appeal, the same cannot be reopened. But the simple reason that the Appellants did not raise such issue and consequently, it is hit by the doctrine of constructive resjudicata, though the principle of resjudicata is a part of CPC, the doctrine is applicable to the proceedings in IBC. It is undoubtedly true that once the proceedings are concluded in appeal before the Hon ble Apex Court, the same cannot be reopened and recalled on the ground passed on subsequent judgment which overruled the earlier judgment. Though the learned Counsel for the Appellants would contend that the Adjudicating Authority lacks inherent jurisdiction, this contention holds no substance as the Adjudicating Authority is exclusively invested with inherent jurisdiction to decide the petition filed either under Section 7, 9 or any of the provisions of IBC - It appears that the learned Counsel for the Appellants invented such ground for the first time without any factual foundation in the pleadings before the Adjudicating Authority during 1st round of litigation - there are no merits in the contention of the learned Counsel for the Appellants. Appeal dismissed.

Summary

Issues Involved:

1. Whether the order dated 11.03.2019 passed in CP(IB) No. 1340 of 2018 and the order dated 23.07.2019 should be recalled based on the overruling of the judgment by the Apex Court in "Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited Vs. Axis Bank Limited."�

Issue-wise Detailed Analysis:

1. Validity of the Adjudicating Authority's Order:

The Appellants contended that the order dated 11.03.2019 passed by the Adjudicating Authority in CP(IB) No. 1340 of 2018 should be recalled because the judgment in "Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited Vs. Axis Bank Limited"� (2020) 7 SCC 401, which classified suppliers of materials as Operational Creditors instead of Financial Creditors, overruled the earlier judgment. The Appellants argued that this overruling invalidated the previous decision, making the Respondent No. 2 incompetent to initiate proceedings under Section 7 of the Insolvency and Bankruptcy Code (IBC).

2. Jurisdiction and Finality of the Adjudicating Authority's Order:

The Adjudicating Authority dismissed the petition filed by the Appellants in I.A. No. 1340 of 2020, stating that the earlier decision had attained finality and could not be reopened based on subsequent overruling. The Tribunal emphasized that once a judgment is overruled, it does not retrospectively invalidate the proceedings that have already attained finality. The Tribunal referred to the principles laid down by the Hon'ble Supreme Court in cases like "Sri Budhia Swain & Ors. v. Gopinath Deb & Ors."� (1999) 4 SCC 396, which outlined specific circumstances under which an order can be recalled, none of which applied to the present case.

3. Doctrine of Prospective Overruling:

The Tribunal highlighted the principle of prospective overruling, which is used to avoid reopening settled issues and prevent multiplicity of proceedings. It was noted that the Hon'ble Supreme Court in "Union of India Vs. Madras Telephone SC & ST Social Welfare Assn."� (2006) 8 SCC 662 and other cases, held that once the rights of parties have been determined and the judgment has attained finality, it cannot be reopened on the basis of a subsequent judgment overruling the earlier one. This principle was applied to the present case, affirming that the overruling judgment in Anuj Jain's case does not affect the finality of the earlier proceedings.

4. Constructive Res Judicata:

The Tribunal also referred to the doctrine of constructive res judicata, as applied in IBC proceedings, which prevents reopening of issues that have already been decided and attained finality. The Hon'ble Supreme Court in "Ebix Singapore Pte Ltd. Vs. Committee of Creditors of Educomp,"� Civil Appeal No. 3224 of 2020, confirmed that the principle of res judicata applies to IBC proceedings to avoid endless litigation and ensure finality.

5. Lack of Inherent Jurisdiction:

The Appellants argued that the Adjudicating Authority lacked inherent jurisdiction to treat an Operational Creditor as a Financial Creditor. However, the Tribunal rejected this contention, stating that the Adjudicating Authority is vested with the jurisdiction to decide matters under IBC, including petitions under Section 7 or 9. The Tribunal found no merit in the Appellants' argument and concluded that the Adjudicating Authority did not lack jurisdiction.

Conclusion:

The appeal was dismissed, affirming that the order passed by the Adjudicating Authority had attained finality and could not be reopened based on the subsequent overruling judgment. The Tribunal emphasized the principles of prospective overruling, finality of judgments, and res judicata to prevent endless litigation and ensure the stability of legal proceedings.