2022 (9) TMI 274 - AT - Insolvency and Bankruptcy

Recovery of outstanding amounts from Sundry Debtors under Section 60(5)(b) of the Insolvency and Bankruptcy Code, 2016 - Liquidator is duty bound to prefer Application for recovery of money due to the Corporate Debtor under Regulation 39 of the IBBI (Regulation Process), Regulations, 2016 or not - HELD THAT - The Resolution Professional is required under Section 18 of the Code to take control and custody of the assets of the Corporate Debtor . The amounts stated to be due and payable to the Corporate Debtor by other Sundry Debtors are required to be included in the Information Memorandum and when included, the person/entity purchasing the assets of the Corporate Debtor would have knowledge of the value of the assets/Liquidation Value as stated in the Information Memorandum. The remedy for recovery of debts, disputed or not, cannot be determined in summary proceedings and the Code does not contemplate adjudication of any such nature. Any such steps taken under Section 60(5) of the Code before the Adjudicating Authority, would tantamount to bypassing/short-circuiting the Judicial Proceedings - The Appellant is well within its powers to take appropriate steps to file legal proceedings, if the circumstances so warrant. The Code expressly provides for the Liquidator to institute or defend any Suit, Prosecution or other Legal Proceedings, Civil or Criminal, in the name or on behalf of the Corporate Debtor . There is no illegality or infirmity in the direction given by the Adjudicating Authority - Appeal dismissed.

Summary

Issues Involved:
1. Whether the Adjudicating Authority has the powers to pass Orders under Section 60(5)(b) of the Insolvency and Bankruptcy Code, 2016 for recovery of amounts by the Corporate Debtor against its Sundry Debtors.
2. Whether the Liquidator should approach the Civil Court for recovery of outstanding amounts instead of the Adjudicating Authority.
3. Whether the disputes raised by the Sundry Debtors regarding the dues payable can be adjudicated under the Code.

Issue-wise Detailed Analysis:

1. Powers of Adjudicating Authority under Section 60(5)(b):
The Appeals were filed by the Liquidator of M/s. Oasis Tradelink Ltd. against the Orders dated 26.06.2019 by the National Company Law Tribunal, Ahmedabad Bench, which dismissed the Applications under Section 60(5)(b) of the Insolvency and Bankruptcy Code, 2016. The Adjudicating Authority held that the Liquidator should recover the sums by filing applications under Section 7 or 9 of the Code or approach a Civil Forum. The Liquidator argued that the only remedy available was to approach the Adjudicating Authority under Section 60(5)(b) and cited Section 63 of the Code, which restricts civil courts from entertaining matters under the jurisdiction of the NCLT or NCLAT.

2. Approach to Civil Court for Recovery:
The Liquidator contended that recovering the outstanding amount would benefit the Creditors of the Corporate Debtor and that the responsibility to realize and recover dues is laid down under Regulation 39 of the Insolvency and Bankruptcy Board of India (Regulation Process) Regulations, 2016. The Sundry Debtors argued that the Corporate Debtor failed to supply the requisite goods, causing losses, and any amounts due should be adjudicated in a Civil Suit. The Adjudicating Authority emphasized that the Liquidator should file applications under Section 7 or 9 or approach a Civil Forum, as the Code does not contemplate adjudication of disputed debts in summary proceedings.

3. Adjudication of Disputes Raised by Sundry Debtors:
The Sundry Debtors raised disputes regarding the dues payable, citing non-fulfillment of orders and supply of inferior goods. The Liquidator argued that the Adjudicating Authority should handle these disputes under Section 60(5)(b). However, the Tribunal noted that the disputes require calling for evidence and cannot be resolved in summary proceedings under the Code. The Tribunal referenced the Supreme Court's judgment in 'Embassy Property Development Private Limited' vs. 'State of Karnataka', which stated that NCLT cannot short-circuit judicial proceedings by taking advantage of Section 60(5).

Assessment and Conclusion:
The Tribunal concluded that the Adjudicating Authority does not have the jurisdiction to adjudicate disputed debts in summary proceedings under Section 60(5)(b). The remedy for recovery of debts, disputed or not, should be pursued through appropriate legal proceedings. The Tribunal emphasized that the Code provides for the Liquidator to institute or defend any legal proceedings in the name or on behalf of the Corporate Debtor. The Appeals were dismissed, affirming that the Liquidator should approach the Civil Court for recovery of outstanding amounts. The Tribunal upheld the Adjudicating Authority's decision, finding no illegality or infirmity in the direction given.