2023 (7) TMI 214 - AT - Insolvency and Bankruptcy

Maintainability of application under Section 60(5)(c) of IBC - Liquidation estate - Khagaria Respondent No. 1, a step down subsidiary of the Corporate Debtor - whether its asset can form part of the liquidation estate of the Corporate Debtor in terms of Explanation (d) to sub-section 4 of Section 36 of the Code or not? - HELD THAT - Section 60(5) began with non-obstante clause. Sub-Section 5(c) which is relied provides any question or priorities or any question of law of facts, arising out of or in relation to the Insolvency Resolution or Liquidation Proceedings of the Corporate Debtor the key words under Section 60(5)(c) are ARISING OUT OF OR IN RELATION TO THE INSOLVENCY RESOLUTION OR LIQUIDATION PROCEEDINGs OF THE CORPORATE DEBTOR. What is the meaning of expression arising out of or in relation to has to be examined to find out as to whether Application I.A. No. 2691 of 2022 is maintainable or not. The Hon ble Supreme Court had occasion to consider Section 60(5)(c) in GUJARAT URJA VIKAS NIGAM LIMITED VERSUS MR. AMIT GUPTA AND ORS. 2021 (3) TMI 340 - SUPREME COURT . In the above case, power purchase agreement was entered between the Corporate Debtor and GUVNL. GUVNL issued notices alleging that event of default has occurred, Corporate Debtor was called upon to remedy his default failing which the power purchase agreement was to be terminated. The Corporate Debtor filed an Application under Section 60(5) with regard to notice issued by GUVNL where an Interim Order was passed on 31st May, 2019 restraining the Appellant from terminating PPA till the next date of hearing. The Adjudicating Authority allowed the Application setting aside the notice issued by the GUVNL. Appeal was dismissed by the Appellate Tribunal against which the GUVNL filed an Appeal - The Hon ble Supreme Court noticed earlier judgments of the Supreme Court where expression arising out of or related to were explained. It was noted that word arising out of and relating to have been given expansive interpretation by the Supreme Court. Hon ble Supreme Court however observed that it is necessary to bear in mind the context in which the phrases have been used - It was held by Hon ble Supreme Court that NCLT has jurisdiction to adjudicate dispute which arises only from or which relates to the Insolvency of the Corporate Debtor. Thus, the Adjudicating Authority did not commit any error in holding that Application is maintainable under Section 60(5)(c) of the Code - appeal dismissed.

Summary

Issues Involved:

1. Maintainability of I.A. No. 2691 of 2022 under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016.
2. Jurisdiction of the Adjudicating Authority to decide disputes unrelated to the Corporate Debtor.
3. Inclusion of assets of a subsidiary in the liquidation estate of the Corporate Debtor.

Summary:

1. Maintainability of I.A. No. 2691 of 2022 under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016:

The appeals challenge two orders passed by the National Company Law Tribunal (NCLT), Special Bench, New Delhi, which held I.A. No. 2691 of 2022 maintainable under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016. The State Bank of India (SBI) contended that the application was not maintainable as it involved a contractual dispute between SBI and Khagaria Purnea Highway Project Limited (Khagaria), which could not be made subject to Section 60(5) of the Code. However, the NCLAT held that the application was maintainable as it arose out of or in relation to the Insolvency Resolution or Liquidation proceedings of the Corporate Debtor, Punj Lloyd Limited.

2. Jurisdiction of the Adjudicating Authority to decide disputes unrelated to the Corporate Debtor:

SBI argued that the NCLT had no jurisdiction to decide disputes unrelated to the Corporate Debtor and that the Liquidator did not have the locus to file the application. The NCLAT, referencing the Supreme Court's judgment in Gujarat Urja Vikas Nigam Limited Vs. Amit Gupta, held that NCLT has jurisdiction to adjudicate disputes that arise solely from or relate to the insolvency of the Corporate Debtor. The notice issued by SBI to Khagaria was based on the initiation of the Insolvency Resolution Process against the Corporate Debtor, thereby making the application maintainable under Section 60(5)(c).

3. Inclusion of assets of a subsidiary in the liquidation estate of the Corporate Debtor:

SBI contended that Khagaria, being a step-down subsidiary of the Corporate Debtor, its assets could not form part of the liquidation estate of the Corporate Debtor as per Section 36(4)(d) of the Code. The NCLAT clarified that the issue was not about including the assets of the subsidiary in the liquidation estate but rather the maintainability of the application. The application was based on the Insolvency Resolution Process of the Corporate Debtor, making it relevant under Section 60(5)(c).

Conclusion:

The NCLAT dismissed the appeals, upholding the NCLT's orders that the application was maintainable under Section 60(5)(c) of the Code. The NCLAT did not delve into the merits of the application, leaving it to the NCLT to examine without being influenced by any observations made in this order.