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TMI Blog2020 (1) TMI 1540X X X X Extracts X X X X X X X X Extracts X X X X ..... ger canvas and it covers various authorities. Since, the termination provisions/proceedings are void ab-initio, consequent action of invoking bank guarantees is non-est in law and liable to be set aside - Award of fresh tender by Respondent No. 1 under such circumstances, to the detriment of the Corporate Debtor, is also liable to be set aside. The actions of Respondent No. 1 are in violation of letter and spirit of IBC, 2016. The invocation of bank guarantees to the detriment of Corporate Debtor is also completely unsustainable - Provisions for termination included in or connected with instruments of Work Orders No. 1 and 2, are inconsistent inter-alia with Section 20 of IBC, 2016 and are invalid and prohibited under Section 238 of the Code. Moreover, termination proceedings could not be initiated or continued by Respondent No. 1 under bar of moratorium of Section 14 of the Code - Termination of Work orders 1 and 2 and all communication, including notices, in this regard is/are held to be inoperative and null - application disposed off. - IA No. 167/JPR/2020 and IA No. 214/JPR/2020 in CP No. (IB) - 131/9/JPR/2019 - - - Dated:- 7-1-2020 - AJAY KUMAR VATSAVAYI, MEMBER (J) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 (separate work order for Skill Development Centre). Exact timing of termination of this work order is a questionable issue. 3. In the instant IAs, we are only concerned with Work Order No. 1 and Work Order No. 2. Work Order No. 3, which is the topic of contention in IA No. 255/JPR/2020, is the subject matter of proceedings at Hon'ble High Court, Jaipur. For overall appreciation, the position of the work orders is as follows: 4. It is submitted that Respondent No. 1 periodically reminded the Corporate Debtor to accelerate work progress. However, the Corporate Debtor stated that due to non-cooperation of Respondent No. 1 in giving timely approvals and other relevant inputs, the Corporate Debtor was not able to expedite the work progress. In view of this, the Corporate Debtor had to approach the Hon'ble Chief Minister's Office raising ongoing concerns with respect to Respondent No. 1. Consequently, a meeting was held by Mr. P.K. Mittal, MD - RSRDC Ltd., Jaipur on 26.03.2019. From the minutes of the said meeting, it can be ascertained that while there may have been some slip-ups of the Corporate Debtor, but, certain plans, drawings, etc. were also to be provided/obt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o COVID-19 pandemic and the work got halted. In such a scenario, the IRP was handicapped and could not hold meeting of the Committee of Creditors ('CoC')- Even though Unlock 1.0 was implemented from 01.06.2020 and on-site construction was allowed, the functioning of various establishments and supply of labour and other materials continued to be irregular/impaired. 8. Moreover, the Finance Department, Government of Rajasthan vide circular bearing S.No. : P.3(1)Finance/S.P.F.C./2020 dated 08.06.2020 had granted extension of 6 months to all contractual obligations due for fulfilment on and beyond 19.02.2020. The excerpt of the same is produced hereinbelow: Considering the above circumstances, the State Government while taking in account the Lockdown situation caused due COVID-19 pandemic and restrictions thereto, has decided to grant an extension of six (6) months to discharge obligations under contract of supply affected goods and services which are due for completion after 19.02.2020 to all contractors and service providers without alleging imposing any Liquidated Damages and to consider the same. This extension shall be subject to, and granted in accordance with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Order No. 1 and the same was allotted to Respondent No. 4 on 02.07.2020 for ₹ 1,38,68,608.37/-. 11. The overall position of the facts and circumstances emerged as follows: 12. It is seen that none of the Respondents, other than Respondent No. 1, have filed reply in the matter, and it leads to inference they have nothing to say. Respondent No. 1 has filed written submissions and has stated the following: a. On 04.03.2020, when the matter was admitted, there was no lockdown and despite that the IRP never approached to get contracts extended or to extend bank guarantees. b. In light of the pandemic, Respondent No. 1 had extended contract upto 30.06.2020 (Ironically also stated in termination letter of 11.06.2020). c. The IRP did not take adequate timely action and filed IA 214/JPR/2020 only after she was quizzed in hearing of 14.08.2020, even though this Adjudicating Authority was functioning via video conferencing. Moreover, application filed by IRP is done without approval of CoC. d. The legislative intent behind Section 14 of IBC, 2016 is to keep the Corporate Debtor a going concern, but looking at the facts in chrono sequence, it is doubtful if it is a goin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Surya Kant Satapathy Ors.. The Hon'ble NCLAT vide order dated 24.07.2020 upheld the order passed by the Hon'ble Tribunal, Kolkata and dismissed the appeal. e. With respect to issue of maintainability on the ground that application so filed by the IRP is done without the consent of CoC, it is stated that filing of the said application by IRP without seeking prior approval has no effect whatsoever on maintainability of the application as filing of the present application does not come under the purview of Section 28 of IBC, 2016 and does not require the approval of CoC. 14. The issues for determination before this Adjudicating Authority are as follows: a. Whether IA 214/JPR/2020 filed by the IRP without prior concurrence of CoC is maintainable? b. Whether the termination of work orders in the facts and circumstances is in contravention of the letter and spirit of IBC, 2016? c. Whether Respondent No. 1 can invoke bank guarantees in the factual matrix of the case? 15. With respect to the first issue pertaining to maintainability of IA 214/JPR/2020 filed by the IRP under section 60(5) of IBC, 2016 without the prior concurrence of CoC, Section 28 of IBC, 2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mperative to ensure that the Corporate Debtor remains a going concern. 19. The instant case pertains to the work orders of a government entity, which encapsulate a mutual understanding. At a fundamental level, these record the existence of an agreement, i.e. offer, acceptance and consideration between parties creating rights and liabilities. It can be said that a Work Order is an agreement. To ascertain if Work Order is an 'instrument', we refer to Section 2(14) of the Indian Stamp Act, 1899, which reads as follows: Section 2(14): Instrument - instrument includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded. It follows that the definition of the term Instrument is wide enough to cover a Work Order issued on a party, so long as a right or an obligation (liability) is created or recorded. Therefore, Work Order is an instrument for the purpose of Section 238 of IBC, 2016. In context of the matter at hand, it is seen that termination of the Work Orders is interdicting Section 20(1) of IBC, 2016, which is reproduced as hereunder: Management of operations of corporate d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... une 2020. Provisions or enablement for termination, howsoever tagged to or included in work orders, must fall before provisions of the Code if inconsistent therewith; and cannot imperil property or going concern status of the Corporate Debtor, on which Respondent No. 1 brazenly expresses anxieties after endangering it. It can be concluded that work order is an 'instrument' for the purpose of Section 238 of IBC, 2016 and termination during the standstill moratorium period conflicts with provisions of IBC, 2016, that have an overriding effect. Process of termination by a government entity is by action steps in an official proceeding per-se. With respect to Work Order No. 1 this is a botched-up administrative proceeding that should not have been initiated in any case, particularly in shadow and twilight of stoppages under Covid-19 pandemic. 20. Additionally, the above can also be tested on the touchstone of moratorium on suits or proceedings (before judicial or quasi-judicial bodies or entities), or any other authority. Section 14(1)(a) of the Code reads as follows: 14. (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that follows it i.e. debt recovery action against assets of the corporate debtor; (f) the use of narrower term against the corporate debtor in section 14(1)(a) as opposed to the wider phase by or against the corporate debtor used in section 33(5) of the code further makes it evident that section 14(1)(a) is intended to have restrictive meaning and applicability; (g) the Arbitration Act draws a distinction between proceedings under section 34(i.e. objections to the award) and under section 36 (i.e. the enforceability and execution of the award). The proceedings under section 34 are a step prior to the execution of an award. Only after determination of objections under section 34, the party may move a step forward to execute such award and in case the objections are settled against the corporate debtor, its enforceability against the corporate debtor then certainly shall be covered by moratorium of section 14(1)(a). 22. While the above order clarified that 'proceedings' of imperiling nature could not lie against a Corporate Debtor, it did not amplify the range and type of proceedings and field and jurisdiction in which they could germinate per-se. However, the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts, and a board of directors that is dominantly composed of State Government officers. The Board comprises Principal Secretary P.W.D. (Chairman), Secretary Planning, Secretary Commissioner Transport Dept, Secretary Finance, Secretary P.W.D., Chief Engineer Additional Secretary P.W.D., Chief Engineer (Building) P.W.D. of the Govt. of Rajasthan. The only other person on the Board is the Managing Director. Respondent No. 1 conforms to major tests of being an agency of state as elaborated by the Hon'ble Supreme Court in Ramana Dayaram Shetty vs. International Airport Authority of India Ors., (1979) 3 SCC 489, namely financial ownership and management, public functions of execution of government projects, monopolistic stature nurtured by the state and deep and pervasive control of the state government. Thus, while in a colloquial and contemporary perspective, Respondent No. 1 can be deemed to be a governmental authority, it falls under classification of an authority in a conventional and conservative sense also. Hence, initiation or continuation of termination proceedings, by/in an official process, could not have been sustained against the Corporate Debtor, under the prohibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of State of Punjab vs. Davinder Pal Singh Bhullar Ors. etc. AIR 2012 SC 364 has observed the following: 72. It is a settled legal proposition that if initial action is not in consonance with law, all subsequent and consequential proceedings would fall through for the reason that illegality strikes at the root of the order. In such a fact-situation, the legal maxim sublato fundamento cadit opus meaning thereby that foundation being removed, structure/work falls, comes into play and applies on all scores in the present case. 73. In Badrinath v. State of Tamil Nadu Ors., AIR 2000 SC 3243; and State of Kerala v. Puthenkavu N.S.S. Karayogam Anr., (2001) 10 SCC 191, this Court observed that once the basis of a proceeding is gone, all consequential acts, actions, orders would fall to the ground automatically and this principle is applicable to judicial, quasi-judicial and administrative proceedings equally. 76. Thus, in view of the above, we are of the considered opinion that the orders impugned being a nullity, cannot be sustained. As a consequence, subsequent proceedings/orders/FIR/investigation stand automatically vitiated and are liable to be declared non est. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uent invocation of bank guarantees by Respondent No. 1, in the factual situation, is untenable. Respondent No. 3 is hereby directed to place a lien on one or more bank account(s) of Respondent No. 1, at any of the branches of Respondent No. 3, for a cumulative sum equivalent to the total amount of bank guarantees invoked by Respondent No. 1. This sum shall be blocked and held as custodia legis, by Respondent No. 3 under escrow till any further directions of the Adjudicating Authority. In the event of any shortfall in the sum placed under lien, Respondent No. 1 shall open a Fixed Deposit with Respondent No. 3 for the amount of shortfall, which amount shall also be held as custodia legis, as above. d. Respondent No. 1 and 3 are directed not to take any prejudicial action or steps against the Corporate Debtor during the CIRP period without prior approval of the Adjudicating Authority. e. Any fresh tender awarded in this regard, sequencing from root illegal action(s) to detriment of the Corporate Debtor, by Respondent No. 1, is liable to be set aside and is hereby held as invalid and void. f. The Corporate Debtor is at liberty to raise claim(s) for its dues in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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