2024 (7) TMI 764 - AT - Insolvency and Bankruptcy

Rejection of Section 7 application filed by the Appellant- Financial Creditor - assignment (of debt) agreement or not - intending assignor - corporate debtor continues to be liable for its debt and default or not - HELD THAT - In the present case, Section 7 application is within the jurisdiction of the Adjudicating Authority which application although initially was withdrawn but having been restored by subsequent order of the Adjudicating Authority has to be continued and interim injunction order dated 29.09.2021 issued by the Commercial Court can have no effect on continuance of proceeding under Section 7. The view of the Adjudicating Authority that Appellant cannot proceed against Howrah Mills Co. Ltd. anymore is wholly erroneous and not in accordance with law. Appellant was entitled to proceed against the corporate debtor since debt and default continues and debt against the corporate debtor is not wiped off and in any manner or diminished. The interim injunction order dated 29.09.2021 can have no effect on continuous of Section 7 application. An order of court continues to bind the parties till it is set aside. Till the order of the court subsist, same is liable to be complied with. By proceeding with Section 7 application by the Appellant, no non-compliance of the interim injunction order dated 29.09.2021 can be read. Present is a case where the Appellant is not contending that order dated 29.09.2021 be ignored rather the submission is that the said order has no effect on continuance of Section 7 application which has been revived by the Adjudicating Authority itself to proceed. The debt and default on the part of the corporate debtor still continues. The intending assignment having never taken place, the debt cannot be held to be assigned to Respondent No.2 so that the Respondent No.2 may step into the shoes of the financial creditor of the corporate debtor. Adjudicating Authority committed error in dismissing Section 7 application filed by the financial creditor. Debt and default having been proved, the Adjudicating Authority ought to have admitted Section 7 application and initiated CIRP against the corporate debtor. The order dated 25.01.2024 is set aside - The application under Section 7 filed by the appellant deserves to be admitted. Adjudicating Authority may pass an order of admission along with consequential order within 30 days from the date copy of this order is produced before the Adjudicating Authority.

Issues Involved:
1. Maintainability of Section 7 application against the Corporate Debtor.
2. Impact of the Agreement to Assign dated 15.01.2020.
3. Effect of interim injunction dated 29.09.2021 by the Commercial Court.
4. Jurisdiction of Civil Court under Section 231 of the IBC.
5. Application for deletion of Respondent No.1 from the appeal.

Issue-wise Detailed Analysis:

1. Maintainability of Section 7 Application Against the Corporate Debtor:
The Financial Creditor filed an appeal challenging the rejection of its Section 7 application by the Adjudicating Authority. The Tribunal noted that the Corporate Debtor had availed financial facilities from Federal Bank, which were assigned to the Appellant. Despite an Agreement to Assign with Respondent No.2, the Corporate Debtor continued to be liable for its debts. The Tribunal concluded that the debt and default by the Corporate Debtor persisted, and the Financial Creditor was entitled to pursue the Section 7 application.

2. Impact of the Agreement to Assign Dated 15.01.2020:
The Agreement to Assign was not an assignment agreement but a conditional agreement dependent on the payment of the purchase consideration. The Tribunal highlighted that the full purchase consideration was not paid, and the Agreement to Assign was revoked due to the default by Respondent No.2. Therefore, the debt had not been assigned to Respondent No.2, and the Corporate Debtor remained liable.

3. Effect of Interim Injunction Dated 29.09.2021 by the Commercial Court:
The interim injunction restrained the Appellant from acting on the revocation letter dated 02.03.2020. The Tribunal clarified that this injunction did not affect the maintainability of the Section 7 application, as it was based on the debt and default of the Corporate Debtor, independent of the Agreement to Assign. The Tribunal emphasized that the injunction order did not interdict the continuation of the Section 7 proceedings.

4. Jurisdiction of Civil Court Under Section 231 of the IBC:
Section 231 of the IBC bars civil courts from interfering in matters within the jurisdiction of the Adjudicating Authority. The Tribunal noted that the Section 7 application fell within the jurisdiction of the Adjudicating Authority, and the interim injunction by the Commercial Court could not impede the proceedings under the IBC. The overriding effect of the IBC under Section 238 further supported this position.

5. Application for Deletion of Respondent No.1 from the Appeal:
Respondent No.1, the Corporate Debtor, sought deletion from the appeal. The Tribunal rejected this application, stating that Respondent No.1 was a necessary party in the Section 7 application proceedings.

Conclusion:
The Tribunal allowed the appeal, set aside the order dated 25.01.2024, and directed the Adjudicating Authority to admit the Section 7 application and initiate CIRP against the Corporate Debtor. The Tribunal provided a 30-day window for the Respondent to discharge the debt or enter into a settlement with the Appellant.

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