2024 (6) TMI 53 - HC - Insolvency and Bankruptcy

Stay on suit - applicability of moratorium order of the U.S Bankruptcy Court applicable in India - principles of Comity of Nations and Courts, also known as Universalism. Stay on suit - applicability of moratorium order of the U.S Bankruptcy Court applicable in India - HELD THAT - This Court finds that the inherent power of the Court was invoked for stay of the suit, although the Code of Civil Procedure has a specific provision for stay of a suit. Even assuming that nomenclature would not be of any consequence and the application could be treated as an application for stay, the explanation to Section 10 somewhat answers the issue. The philosophy behind such a recognition was that courts should assist insolvency proceedings. Moreover, the moratorium in this case was granted in Chapter 11 cases which deal with insolvency, reorganization, restructuring, etc. The suit does not fall under any of those categories. VIPAN KUMAR SHARMA VERSUS TOSHIAKI AIBA ANR. 2023 (10) TMI 1394 - SC ORDER is also a decision on an insolvency proceeding where properties of the corporate debtor in India was sought to be administered by filing a suit. A suit was filed for administration of the assets in India of a corporate debtor or a person against whom insolvency proceeding was going on in a foreign country. In such a suit, an application for rejection of the plaint was filed and the Hon ble Delhi High Court held that the plaint could not be rejected at the very initial stage, upon noting the pendency of an insolvency proceeding in a foreign country. Principle of Comity of Nations and Comity of Courts - HELD THAT - The conclusion arrived at by the learned trial judge by applying Section 44A and 13 and 14 of the Code of Civil Procedure was with regard to enforcement of foreign decrees and orders of foreign courts with which India did not have reciprocity. However, it cannot be ignored that the principle of Comity of Nations and Comity of Courts had been recognized by the Indian Courts by giving adequate weightage to or considering existence of such order or decree of a foreign court while deciding any proceeding in the domestic court - In the case in hand, however, the plaint case and the reliefs claimed do not indicate that there is any money claim or any other claim which would be covered by Chapter 11 cases in the U.S. Bankruptcy Code and thus the suit can continue. The suit is therefore, not required to be stayed. The distinguishing factor with the moratorium order of the U.S. Court is that by the said order, the management of the petitioner has not been superseded. The management continues. The management can always contest the suit. The revisional application is dismissed.

Issues Involved:
1. Applicability of U.S. Bankruptcy Court's moratorium order in India.
2. Doctrine of Comity of Courts and its recognition in India.
3. Stay of suit under Section 151 of the Code of Civil Procedure, 1908.
4. Jurisdiction and enforceability of foreign court orders in Indian courts.

Summary:

1. Applicability of U.S. Bankruptcy Court's Moratorium Order in India:
The petitioner/defendant No. 1 sought a stay of further proceedings in Title Suit No. 17 of 2023, citing a moratorium order issued by the U.S. Bankruptcy Court under Chapter 11 of the U.S. Bankruptcy Code. The learned Judge rejected the application, holding that the moratorium order of the U.S. Bankruptcy Court was not applicable in India as the U.S.A had not been declared a reciprocating territory for the purpose of Section 44A Code of Civil Procedure. The Court further noted that the Indian Bankruptcy Code, 2016 (IBC 2016) was only applicable within India and that the moratorium order could not be automatically enforceable under Section 44A Code of Civil Procedure.

2. Doctrine of Comity of Courts and its Recognition in India:
The petitioner argued that the doctrine of Comity of Courts required Indian courts to respect and recognize the decisions of competent foreign courts. The U.S. Bankruptcy Court had issued a worldwide stay on all legal proceedings against the petitioner. The petitioner contended that the learned Judge misconstrued the doctrine, as the petitioner was not seeking enforcement of the moratorium order but rather judicial recognition of the proceedings before the U.S. Bankruptcy Court. The petitioner cited various international and Indian precedents to support the argument that foreign insolvency proceedings should be respected under the principles of Comity of Nations and Courts.

3. Stay of Suit under Section 151 of the Code of Civil Procedure, 1908:
The petitioner filed an application u/s 151 of the Code of Civil Procedure, 1908, for a stay of further proceedings in the suit, or alternatively, for an adjournment of 180 days. The learned Judge rejected the application, stating that the inherent power of the Court was invoked for the stay of the suit, although the Code of Civil Procedure has a specific provision for stay of a suit. The Court was not bound to stay the suit only because the proceeding was going on in a foreign country. The explanation to Section 10 of the Code of Civil Procedure clarified that the pendency of a suit in a foreign Court does not preclude the Courts in India from trying a suit founded on the same cause of action.

4. Jurisdiction and Enforceability of Foreign Court Orders in Indian Courts:
The learned Judge noted that the suit was not an insolvency proceeding and that foreign judgments relied upon by the petitioner were in respect of insolvency proceedings. The moratorium in this case was granted in Chapter 11 cases dealing with insolvency, reorganization, restructuring, etc., which did not apply to the present suit. The Court also observed that the principle of Comity of Nations and Courts had been recognized by Indian courts by giving adequate weightage to or considering the existence of such orders or decrees of a foreign court while deciding any proceeding in the domestic court. However, the reliefs claimed in the suit did not indicate any money claim or any other claim covered by Chapter 11 cases in the U.S. Bankruptcy Code. Therefore, the suit could continue and was not required to be stayed.

Conclusion:
The revisional application was dismissed, and the suit was directed to proceed. The Court noted that the order of the U.S. Bankruptcy Court could be considered as one of the factors during the hearing but was not binding to stay the suit. The suit was at the stage of hearing of the application u/s 45 of the Arbitration and Conciliation Act, 1996, and the injunction hearing had not yet taken place. The management of the petitioner had not been superseded by the moratorium order, and thus, the management could contest the suit.

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