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TMI Blog2019 (4) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... creditor and under Regulation 38 of the aforesaid Regulation of 2016, priority is given to the amount due to respondent No.1 as an operational creditor over the dues of financial creditors. Thus, when the resolution plan provides for the dues payable to respondent No.1, subject to the pending suit, it cannot be said that any error was committed by the Trial Court in passing the impugned order. The aforesaid position of law, when applied to the facts of the present case clearly demonstrates that the attempt on the part of the petitioner to escape liability of paying dues of respondent No.1 as an operational creditor, was correctly shot down by the Trial Court by passing the impugned order. Therefore, it is held that the suit filed by respondent No.1 cannot be dismissed as claimed by the petitioner in the application at Exhibit153. Accordingly the writ petition is found to be without any merit and it is dismissed. - Writ Petition No. 8620 of 2018 - - - Dated:- 28-3-2019 - MANISH PITALE, J. Mr. Shyam Dewani, counsel for the petitioner. Respondent No.1 in person. None for respondent No.2 ORAL JUDGMENT Heard. 2. Rule. Rule made returnable forthwith. Though r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a resolution professional Mr. Vijay Kumar V. Iyer (C/o Deloitte Touche Tohmatsu India LLP) was appointed. As per the detailed procedure prescribed under the IBC, upon initiation of the said process, public announcements were made to invite applications from creditors, both financial creditors and operational creditors to lay their claim before the resolution professional. Respondent No.1 claiming dues from the said Company i.e. M/s. Bhushan Steel Ltd. for supply of the aforesaid material was an operational creditor , as recognized under section 5 (20) of the IBC. Therefore, respondent No.1 submitted its application as an operational creditor to bring on record its claim against M/s. Bhushan Steel Ltd. and the resolution professional included respondent No.1 in the list of operational creditors. 6. The petitioner herein i.e. M/s. Tata Steel BSL Ltd. submitted its resolution plan as a resolution applicant before the resolution professional under the provisions of the IBC. The resolution professional took into consideration all the material on record and as per the provisions of the IBC, prepared and submitted a resolution plan dated 03/02/2018 before the Adjudicating Authority i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the resolution plan itself provided for a specific identified fund for meeting the liability payable to operational creditors like respondent No.1 and that the suit must reach its logical end for crystallizing the exact amount payable by the petitioner to respondent No.1. 9. By the impugned order dated 25/10/2018, the Trial Court rejected the application filed by the petitioner and it was held that the proceedings undertaken as per the provisions of the IBC did not have the effect of extinguishing the right of respondent No.1 to continue to prosecute the suit for recovery filed against erstwhile M/s. Bhushan Steel Ltd. and now the petitioner. The present writ petition challenges the aforesaid order passed by the Trial Court. 10. Mr. Shyam Dewani, learned counsel appearing for the petitioner, submitted that a proper interpretation of the provisions of the IBC, particularly sections 63 and 238 thereof, would show that the Trial Court was not justified in rejecting the application filed by the petitioner and that the suit filed by respondent No.1 could not survive in the face of the orders passed by the National Company Law Tribunal and the National Company Law Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty House Group Pte. Ltd. v. State Bank of India and others, 2019 SCC OnLine Del 7256. 12. On the other hand, respondent No.1 appearing in person, contended that the impugned order passed by the Trial Court was in consonance with law and that no interference was warranted by this Court, exercising writ jurisdiction. It was submitted that the interpretation sought to be placed on the provisions of the IBC, on behalf of the petitioner, was based on misconception and that a proper construction of the provisions of the IBC demonstrated that the suit for recovery filed by respondent No.1 could not be dismissed, only because the corporate insolvency resolution process had been undertaken as per the provisions of the IBC. It was contended that if the relevant clauses of the resolution plan dated 03/02/2018 were appreciated in the correct perspective, the suit for recovery filed by respondent No.1 was required to be taken to its logical end and the exact amount crystallized upon decision of the Civil Court would then be recoverable from the petitioner out of the operational creditors settlement amount, separately identified in the aforesaid resolution plan. It was submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uires, (1) Adjudicating Authority , for the purposes of this Part, means National Company Law Tribunal constituted under section 408 of the Companies Act, 2013 (18 of 2013); (6) dispute includes a suit or arbitration proceedings relating to- (a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the breach of a representation or warranty; (12) insolvency commencement date means the date of admission of an application for initiating corporate insolvency resolution process by the Adjudicating Authority under sections 7, 9 or section 10, as the case may be; [Provided that where the interim resolution professional is not appointed in the order admitting application under section 7, 9 or section 10, the insolvency commencement date shall be the date on which such interim resolution professional is appointed by the Adjudicating Authority;] (20) operational creditor means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred; (21) operational debt means a claim in respect of the provision of goods or services including employment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or (b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application: Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of subsection (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5). (7) The Adjudicating Authority shall communicate (a) the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor; (b) the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be. 14. Moratorium. (1) Subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... replace the interim resolution professional by another resolution professional. (3) Where the committee of creditors resolve sunder sub-section (2)- (a) to continue the interim resolution professional as resolution professional subject to a written consent from the interim resolution professional in the specified form, it shall communicate its decision to the interim resolution professional, the corporate debtor and the Adjudicating Authority; or (b) to replace the interim resolution professional, it shall file an application before the Adjudicating Authority for the appointment of the proposed resolution professional along with a written consent from the proposed resolution professional in the specified form. (4) The Adjudicating Authority shall forward the name of the resolution professional proposed under clause (b) of sub-section (3) to the Board for its confirmation and shall make such appointment after confirmation by the Board. (5) Where the Board does not confirm the name of the proposed resolution professional within ten days of the receipt of the name of the proposed resolution professional, the Adjudicating Authority shall, by order, direct the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible under section 29-A and may require the resolution professional to invite a fresh resolution plan where no other resolution plan is available with it: Provided further that where the resolution applicant referred to in the first proviso is ineligible under clause (c) of section 29-A, the resolution applicant shall be allowed by the committee of creditors such period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso to clause (c) of section 29-A : Provided also that nothing in the second proviso shall be construed as extension of period for the purposes of the proviso to sub-section 3 of section 12, and the corporate insolvency resolution process shall be completed within the period specified in that sub-section: Provided also that the eligibility criteria in section 29-A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (Ord. 6 of 2018) shall apply to the resolution applicant who has not submitted resolution plan as on the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (Ord. 6 of 2018). (5) The resolution applicant may attend the meeting of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Any appeal from an order approving the resolution plan shall be in the manner and on the grounds laid down in sub-section (3) of section 61. 60. Adjudicating Authority for corporate persons. (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 having territorial jurisdiction over the place where the registered office of the corporate person is located. 63. Civil Court not to have jurisdiction. No civil court or authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which National Company Law Tribunal or the National Company Law Appellate Tribunal has jurisdiction. Civil court not to have jurisdiction. 238. Provisions of this Code to override other laws. The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. 14. A perusal of the above quoted provisions and other provisions of the IBC show that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted, who took over the management of affairs of the corporate debtor i.e. M/s. Bhushan Steel Ltd. and went ahead with the process of preparing a resolution plan. In this process, respondent No.1, also being an operational creditor, approached the resolution professional and staked its claim to the amounts due from the corporate debtor in terms of the aforesaid suit pending before the Trial Court. The relevant documents were also placed by respondent No.1 before the resolution professional. 16. The petitioner as the resolution applicant under section 5(25) of the IBC placed its resolution plan for approval. The said plan was approved by the committee of creditors and it was then placed before the Adjudicating Authority i.e. the National Company Law Tribunal, under section 5 (1) of the IBC. By order dated 15/05/2018 the Adjudicating Authority approved the resolution plan. Some parties, who were aggrieved by the said order, approached the National Company Law Appellate Tribunal to challenge the same, but their appeals were rejected by order dated 10/08/2018 passed by the aforesaid Appellate Authority. Therefore, there is no doubt about the fact that the resolution plan dated 03/02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, as amended, shows that the amounts due to operational creditors under a resolution plan are to be given priority in payment over financial creditors. This is evident from Regulation 38 of the said Regulations, which reads as follows : 38. Mandatory contents of the resolution plan. (1) The amount due to the operational creditors under a resolution plan shall be given priority in payment over financial creditors. (1-A) A resolution plan shall include a statement as to how it has dealt with the interest of all stakeholders, including financial creditors and operational creditors, of the corporate debtor. 20. Thus, the IBC gives importance to the amounts due to operational creditors like respondent No.1. The question is, whether an operational creditor like respondent No.1 could be deprived of amounts due to it, only because a civil suit initiated before the Civil Court is still pending and the dues, if any, are yet to be crystallized. In other words, whether a resolution plan takes into account and encapsulates sub judice claims of operational creditors lik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Creditors Settlement Amount. 8.2 Operational Creditors 8.2.1 The Operational Creditors of the Company are classified under the following five categories of creditors based on the nature of relationship with the Company and the critically of the creditors vis-a-vis the business viability of the Company. Various categories of Operational Creditors shall be paid the amounts detailed in the Section in order to provide an equitable solution for stakeholders of the Company, although, as per the information provided by the Resolution Professional in the information Memorandum, the liquidation value payable to the Operational Creditors under Regulation 38(1)(b) of the CIRP Regulations is NIL. (i) Related Party Creditors; (ii) Capital and Sundry Trade Creditors; (iii) Statutory Creditors ; and (iv) Operational Creditors being employees and workmen. Please refer to Annexure 8 for details of the aforementioned categories of Operational Creditors. 8.2.2. Amounts to be paid to Operational Creditors pursuant to this Plan. (i) As per the Information Memorandum, the Liquidation Value of the Company is less than the Outstanding Financial Debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Excluding Operational Creditors being employees and workmen and Related Party Creditors) based on the details set out in this section is ₹ 1,200 crore (Indian Rupees One Thousand Two Hundred Crore) ( Operational Creditors Settlement Amount ). (vi) If any further claims of Operational Creditors (other than employees and workmen), relating to the period prior to the Effective Date, arise and/or made and/or are admitted, prior to approval of this Plan by the Adjudicating Authority, then the Operational Creditors Settlement Amount shall remain unaltered and shall be paid to the relevant Operational Creditors as specified above (whose claims have been admitted by the Resolution Professional, including those set out in Annexure 8) in accordance with the terms set out hereinabove. 8.2.3 Treatment of Claims by Operational Creditors on Matters under Verification by the Resolution Professional Under the Section 3(11) of the IBC, the term debt is defined to mean ....a liability or obligation in respect of a claim which is due from any person... , and under Section 3(6) of the IBC states that a claim includes a right to payment, whether or not such right is reduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pert determination process), the levying of distress, execution of judgment or otherwise) in any jurisdiction whatsoever for the purpose of obtaining payment of any Liability, or for the purpose of placing the Company into liquidation or any analogous proceedings. 8.7.3. Extinguishment and Waiver of Claims Liabilities (i) Extinguishment and Waiver of Other Claims Liabilities: The Resolution Applicant does not have any knowledge of any liabilities or claims against the Company other than those set out in Annexures 8, 9, 10, 11 and 12. Accordingly, other than the obligations, claims or liabilities set out in Annexures 8, 9, 10, 11 and 12 (i) all obligations, claims and Liabilities (Whether final or contingent, whether disputed or undisputed, and whether or not notified to or claimed against the Company) of the Company, (ii) all outstanding disputes or legal proceedings against the company and (iii) all rights or claims of any person against the Company, in each case, relating to the period prior to the Closing Date, shall immediately irrevocably and unconditionally stand extinguished, waived, withdrawn and abated on and from the Closing Date, and no person sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.6.13 of the resolution plan quoted above can only mean that an operational creditor shall not be entitled to obtain orders for execution of decrees or judgments or to take any such steps that would bring distress to the petitioner, but it does not mean that a legal proceeding pending in a Civil Court or otherwise would stand terminated upon the resolution plan attaining finality. All that the resolution plan provides is an identified operational creditors settlement amount of ₹ 1200 crores from out of which the dues of operational creditors would be satisfied. Therefore, there is no substance in the contentions raised on behalf of the petitioner and no error can be attributed to the Trial Court in passing the impugned order, thereby rejecting the application for dismissal of suit filed on behalf of respondent No.1. 27. The emphasis placed by the learned counsel appearing for the petitioner on section 14 of the IBC and the moratorium contemplated therein, can be of no assistance to the petitioner to show any error in the impugned order passed by the Trial Court. There can be no quarrel with the proposition that upon the commencement of the insolvency proceedings, there sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the resolution applicant has knowledge only of liabilities or claims that are set out in annexures 8, 9, 10, 11 and 12 of the resolution plan and obligations other than those setout in the said annexures would stand irrevocably and unconditionally extinguished. This makes it very clear that the claim of respondent No.1 recognized in the said annexures to the resolution plan is within the knowledge of the petitioner as a resolution applicant and that such claim does not stand extinguished. The aforesaid clause read with the entire resolution plan and its annexures shows that there can be no reason why respondent No.1 should have challenged the resolution plan, because a specific amount of ₹ 1200 crore stood set apart in the resolution plan itself as operational creditors settlement amount and that therefore, it could not be said that upon the resolution plan being approved by the Adjudicating Authority, the aforesaid suit pending before the Trial Court was liable to be dismissed. 30. Since the learned counsel for the petitioner referred to and relied upon number of judgments, it would be necessary to consider them and to examine if the said judgments support the contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allized, the payment of such dues would be subject to result of such proceedings, like the suit filed by respondent No.1 in the present case and a corpus of ₹ 1200 crore stands set apart under the resolution plan for satisfaction of such dues of operational creditors like respondent No.1. Therefore, the ratio of the aforesaid judgment would be of no assistance to the petitioner to claim that the suit filed by respondent No.1 was liable to be dismissed. 32. In Jaipur Metals Electricals Employees Organization v. Jaipur Metals Electricals Ltd. (supra) the Hon'ble Supreme Court was concerned with an order passed by the High Court holding that proceedings before the National Company Law Tribunal were without jurisdiction because Company Petition for winding up proceedings was pending before the High Court. It was held that the proceedings under the IBC before the National Company Law Tribunal must run their entire course. In the present case, the corporate insolvency resolution process stood initiated, leading to the resolution plan and the same was approved by the Adjudicating Authority as well as the Appellate Authority. The resolution plan itself provides an inbu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ims like that of respondent No.1 and there is no question of the proceedings before the Trial Court being in conflict with the resolution plan. As noted above, the resolution plan itself provides for operational creditors settlement amount to take care of the amount due, if any, that would be identified and crystallized in the proceedings before the Trial Court. Hence, the aforesaid judgment of the Delhi High Court does not help the petitioner in the present case. 36. Respondent No.1 relied upon judgment of the Hon'ble Supreme Court in the case of Mobilox Innovations Private Limited v. Kirusa Software Private Limited (supra). In the aforesaid case, the Hon'ble Supreme Court was concerned with the question of existence of a dispute or a suit or other proceedings. The Hon'ble Supreme court has held that the dispute, existence of which is claimed ought not to be spurious, mere bluster, plainly frivolous or vexatious and that such a pre existing dispute could be pursued. In the present case, suit was filed by respondent No.1 way back in the year 2011, wherein the liability was disputed by the petitioner on the ground that sub standard quality of goods were supplied by re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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