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TMI Blog2017 (9) TMI 1638X X X X Extracts X X X X X X X X Extracts X X X X ..... t, then the proceeding, which is pending before the Debt Recovery Tribunal, Allahabad cannot go on and the same is stayed till the finalisation of corporate insolvency resolution process or till the NCLT approves the resolution plan under sub-section (1) of Section 31 or passes an order for liquidation of corporate debtor under Section 33, as the case may be. - Writ - C Nos. 30285 and 30033 of 2017 - - - Dated:- 6-9-2017 - M.C. Tripathi, J. For Appellant: Aditya Singh, Navin Sinha and Rahul Agarwal For Respondents: A.S.G.I., Anadi Krishna Narayana, Satish Chaturvedi and Siddharth JUDGMENT M.C. Tripathi,. 1. Heard Shri Navin Sinha, Senior Advocate assisted by Aditya Singh, Rahul Agarwal, K.K. Wadhwa, Avirudh Wadhwa, Anandava Handa and Vipul Kumar for the petitioner in Writ C No. 30285 of 2017 and Shri M.L. Lahoti assisted by Shri Dinesh Kakker and Shri Akash Chandra Maurya for the petitioners in the connected Writ C No. 30033 of 2017 and Shri Satish Chaturvedi Shri Siddharth for the respondents. 2. In both the writ petitions, the petitioners are assailing the orders dated 6.7.2017 passed by the Debt Recovery Tribunal, Allahabad in Original Application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tay of the proceeding before the DRT, Allahabad against them. On 6.7.2017 the DRT heard both the parties and passed the impugned order, staying proceeding against the first respondent i.e. M/s. L.M.L. Limited, a Public Limited Company/borrower on the basis of an order passed by the National Company Law Tribunal (in brevity, NCLT), Allahabad dated 30.5.2017 in Company Petition No. IB (55) ALD/2017, imposing a Moratorium on legal proceedings under Section 14 of the Insolvency and Bankruptcy Code, 2016 (in short, IBC, 2016) and directed the petitioners to give the details of pending applications with foreign authorities for permanent immigration or visa or travelling permits; details of properties they are having in foreign lands and in India; details of business exclusively or under partnership in foreign lands and in India; details of all their movable and immovable assets including bank accounts deposits on affidavits and they have been directed to file their written statement. The order of the DRT dated 6.7.2017 reads as under:- Ld. Counsel Sri S.K. Srivastava is present on behalf of the applicant bank. Ld. counsel Sri Dinesh Kakkar is present on behalf of the defendants. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case applicant bank has filed application under Section 19 of Recovery of Dues Due to Banks Financial Institutions Act, 1993 for recovery of Rs. ₹ 72,75,29,053.71 (Rs. Seventy two crores, seventy five lacs, twenty nine thousand, fifty three and paise seventy one only) on 27.3.2017 and as per directions of this Tribunal took steps through registered post on 26.4.2017. The defendants received the summons so sent and put their appearance on 15.5.2017 i.e. the date fixed and thereafter bank supplied copy of O.A. and defendants sought adjournment to file written statement and keeping in view facts and circumstances of case 30 days time was granted to defendants for filing written statement. Further, in order dated 19.5.2017 this Tribunal categorically observed and advised the parties to the effect that this is a high value case and it is expected that parties to lis will assist this Tribunal for day to day hearing. The defendants instead of filing reply opted to prefer one petition under Insolvency and Bankruptcy Code, 2016 after initiation of recovery proceedings by certain bank. At this stage, counsel for the defendant No. 1 to 4 interrupted and stated that AGM of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their written statement within 07 days failing which they would be liable to pay cost of ₹ 50,000/- as it is a high value case and this Tribunal has already advised parties to lis for day to day hearing. However, proceedings against defendant No. 1 will be in abeyance till further orders of Hon'ble NCLT. Post the matter on 13.7.2017 for further proceedings. 5. The petitioners are directors of the company (in liquidation) and they had inter alia executed a Deed of Guarantee dated 28.3.2005 in favour of the first respondent in pursuance of a Multi Partite Agreement dated 28.3.2005. The petitioners were defendant Nos. 2 to 4 in the impugned proceedings before the Tribunal. It has also been averred that the petitioners were not actively involved in the day-to-day operation of the company (in liq.). The first respondent initiated proceedings being Original Application No. 238 of 2017 (State Bank of India vs. M/s. LML Limited and orders) under the Act of 1993 before the DRT, Allahabad claiming that the second respondent failed to abide by the MPA dated 28.3.2005 and defaulted in the payments due to the SBI and prayed the reliefs, which have been quoted as above. An i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. iii. That the supply of essential goods or services to corporate debtor, if continuing, shall not be terminated or suspended or interrupted during the Moratorium period. iv. That the provisions of Section 14 sub-section (1) shall not apply in such transactions as may be notified by the Central Government in consultation with any financial sector regulator. v. That this Bench hereby appoints Mr. Anil Goel, Registration No. IBBI/1PA-001/IP-00020-2016-2017/1623, Address: AAA Insolvency Professional LLP, E-10A, Kailash Colony, New Delhi-110048, email id:[email protected] as Interim Resolution Professional to carry the functions as mentioned under Insolvency and Bankruptcy Code, 2016. vi. That the public announcement of corporate insolvency resolution process be made immediately as specified under Section 13 of the Code and calling for submissions of claim under Section 15 of the code. Vii. An authentic copy of this order be issued to parties including Interim Resolution Professional after the completion necessary formalities. In view of the above, the Application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en submitted that the entire proceeding before the DRT is completely without jurisdiction precisely in the backdrop that once the proceeding has already been commenced under the IBC 2016 and the Moratorium under Section 14 of IBC 2016 has already been issued and even the parties have put their appearance before the Insolvency Professionals, then the impugned proceedings only against the guarantors of a principal debtor are per se bad specially in the present situation where there is a legal bar/moratorium against the principal debtor imposed by operation of law IBC 2016. The NCLT has already ceased of the process of insolvency resolution against the company (in liq.) under IBC 2016. Moreover, the SBI has also put their appearance in the said proceedings regarding its claim, and by no stretch of imagination the DRT could adjudicate any claims of alleged debt of the second respondent and without determination of debt the DRT cannot proceed against the guarantors. The SBI at no point of time had disassociated itself from the proceeding before the NCLT but it is actively participating in the proceeding. 10. Shri Navin Sinha, Senior Advocate also submitted that the entire action so i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble but insolvent business to rescue such entities, creating value for all stakeholders in the process. The resolution professional shall submit each resolution plan, which conforms to be criteria provided under clauses (a) to (f) of Section 30(2) to the committee of creditors who shall approve a resolution plan by a 755 majority of voting shares. Only, thereafter, the resolution professional may submit the resolution plan as approved by the committee of creditors to the Adjudicating Authority as per provisions contained under Section 30(6) of the IBC 2016. Section 31 deals with approval of resolution plan and provides that if the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. Sufficient safeguards are provided in favour of creditors. Even Section 31(2) provides that where the Adjudicating Authority is satisfied that the reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief can be accorded in the matter. The entire exercise is futile and nullity and as such, this Court should come for rescue and reprieve to the petitioners otherwise the petitioners would suffer irreparable loss and injury. In support of his submission, he has placed reliance on the judgments of Apex Court in Calcutta Discount Company Limited vs. Income Tax Officer, Companies District, I and another AIR 1961 SC 372; Punjab National Bank Ltd. vs. Shri Vikram Cotton Mills and another in Civil Appeal No. 1957 1958 of 1966 decided on 17.9.1969 reported in Punjab National Bank Ltd. vs. Shri Vikram Cotton Mills and another AIR 1970 SC 1973; Oshi Foods Limited and Ors. vs. State Bank of India 1997 (2) MPLJ 643; Karnataka State Financial Corporation vs. N. Narasimahaiah and Ors. AIR 2008 SC 1797 and Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai and Ors. (1998) 8 SCC 1. 15. Shri M.L. Lahoti assisted by Shri Dinesh Kakker, appearing for the petitioners in the connected writ petition, vehemently contended that while passing the order impugned dated 6.7.2017 learned Debt Recovery Tribunal had made certain passing observations that the respondents had deliberately moved to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t come in the way of the DRT in proceeding against the petitioners as guarantors. The proceeding can be initiated against the guarantors for recovery of debt for the reasons mentioned in the order under challenge. Learned NCLT has passed the injunction order relating to the Corporate Debtor and there is no order in favour of the guarantors including the petitioners. There is no legal bar for the DRT not to continue with the proceeding against the guarantors of the principal debtor and the deed of guarantee makes it clear that the proceeding can very well continue in the DRT against the petitioners/guarantors. The IBC 2016 pertains to insolvency resolution, whereas the Act of 1993 pertains to recovery of dues, and as such there is no overlapping between them. The DRT has not committed any error in proceeding against the petitioners/guarantors. 17. Much emphasis has been drawn on paragraphs 11, 14, 15, 16, 17, 18, 64 and 65 of the Deed of Guarantee, which has been executed between the parties on 28.3.2005 (Annexure No. 2 to the writ petition). In clause-2 of the deed of agreement it has been mentioned that in the event of any default on the part of the borrower to comply with or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this Code, unless the context otherwise requires,-- (1) Board means the Insolvency and Bankruptcy Board of India established under sub-section (1) of section 188; (2) bench means a bench of the Adjudicating Authority; (3) bye-laws mean the bye-laws made by the insolvency professional agency under section 205; (4) charge means an interest or lien created on the property or assets of any person or any of its undertakings or both, as the case may be, as security and includes a mortgage; (5) Chairperson means the Chairperson of the Board; (6) claim means-- (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured; (7) corporate person means a company as defined in clause (20) of section 2 of the Companies Act, 2013, a limited liability partnership, as defined in clause (n) of sub-section (1) of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial affairs of the corporate debtor; Chapter II Corporate Insolvency Resolution Process 6. Persons who may initiate corporate insolvency resolution process. Where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter. 7. Initiation of corporate insolvency resolution process by financial creditor (1) A financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation.--For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute, if any, and record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute; (b) the repayment of unpaid operational debt-- (i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or (ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor. Explanation.-- For the purposes of this section, a demand notice means a notice served by an operational creditor to the corporate debtor demanding repayment of the operational debt in respect of which the default has occurred. 10. Initiation of corporate insolvency resolution process by corporate application. (1) Where a corporate debtor has committed a default, a corporate applicant thereof may file an application for initiating corporate insolvency resolution process with the Adjudicating Authority. (2) The application under sub-section (1) shall be filed in such form, containing such particulars and in such manner and accompanied with such fee as may be prescribed. (3) The cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). (3) Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). (4) On receipt of an application under sub-section (3), if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). (5) Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor: Provided that a suit or other legal proceeding m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; and (c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code. (6) Notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being in force, in computing the period of limitation specified for any suit or application by or against a corporate debtor for which an order of moratorium has been made under this Part, the period during which such moratorium is in place shall be excluded. 19. Section 6 provides that where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter. Section 7 deals with initiation of corporate insolvency resolution process by financial creditor and Section 8 deals with insolvency resolution by operational creditor. Sections 10 provides for initiation of corporate insolvency resolution process by corporate application. A corporate applicant may make an application to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. Sufficient safeguards are provided in favour of creditors. Even Section 31(2) provides that where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan. Section 33 provides for the liquidation of the corporate debtor. 21. Section 60 stipulates that the Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof, shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located. As per provisions contained under Section 60 of the IBC, 2016 the National Company Law Tribunal shall be the Adjudicating Authority for insolvency resolution and liquidat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. No doubt the liability is co-extensive, but the entire proceeding is still in fluid stage and for the same cause of action, two split proceedings cannot go simultaneously before the DRT as well as NCLT. 24. The object of IBC, 2016 is categorical and as per provisions contained under Section 60(1) the Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof, shall be the National Company Law Tribunal. In the present matter, admittedly the proceeding has been initiated under the IBC 2016 and the Moratorium under Section 14 of IBC 2016 has already been issued by the NCLT. The NCLT is already ceased with the process of insolvency resolution against the company (in liq.) under IBC 2016 and moreover, the SBI has also put their appearance in the said proceedings regarding its claim. At no point of time the SBI has disassociated itself from the proceeding before the NCLT and it is actively participating in the proceeding. 25. Moreover, the NCLT in its order dated 30.5.2017 prohibited the institution of suits or continuation of pending suit or proceedings against the corporate deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was held in Re. Garner's Motors Ltd. (1) that the scheme when sanctioned by the Court has a statutory operation and the scheme does not release other persons not parties. to the scheme from their obligations.' 14. The High Court, in our judgment, should have stayed the suit and after the ultimate balance due by the Company was determined the Court should have proceeded to decree the claim according to the provisions of cl. 4 of the bond. 15. We accordingly modify the decree passed by the Trial Court and declare that the rights of the Bank against the Company are governed by the scheme: sanctioned by the High Court of Allahabad in Company Case No. 16 of 1956 by their judgment dated May 21, 1956. Liability of Ranjit Singh being only for payment the ultimate balance' which remains due on the cash-credit account with the Bank in favour of the Company. The Court will, when such ultimate balance is determined, proceed to pass a decree in favour of the Bank. 28. In Oshi Foods Limited and Ors. vs. State Bank of India MANU/MP/0202/1997MANU/MP/0202/1997 : AIR 1997 (2) MPLJ 643 learned Single Judge of the High Court of Madhya Pradesh (Gwalior Bench) held that un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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