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TMI Blog2023 (1) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... 2016 ("IBC") pursuant to the order dated 15th May 2018 passed by the National Company Law Tribunal, Mumbai ("NCLT") in C.P. No. (I.B.) 1387 (MB) of 2017. Appellant is being represented in the present proceedings through its Resolution Professional. 3. Respondent in the abovementioned First Appeal, who is applicant in the Interim Application, is a former employee of appellant. 4. LIST OF DATES AND EVENTS : Sr.No. Date Particulars 1. 29th November 2001 Respondent joined appellant as an employee pursuant to an Appointment Letter dated 29th November 2001 issued by appellant. 2. 31st October 2006 Appellant unilaterally terminated respondent's employment. 3. 10th February 2010 Respondent filed Special Civil Suit No. 127/2010 ("Suit") in the Court of Civil Judge, Senior Division, Thane ("Trial Court"), inter alia, challenging the termination of his employment by appellant. 4. 28th April 2010 Appellant filed its written statement in the Suit. 5. March 2011 29th February 2012 Respondent and appellant filed their respective affidavits in lieu of examination-in-chief in the Suit. 6. 30th June 2012 The Trial Court passed a judgment ("Impugned Judgment") directing appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condonation of delay allowed. 18. 13th January 2020 Respondent filed Interim Application No.1161 of 2020 in the First Appeal seeking, inter alia, the following reliefs: a) Release the sum of Rs.17,16,909/deposited by appellant in the Trial Court and order appellant to pay the balance amount due with applicable interest immediately. b) Discharge the surety for Rs.10,00,000/-. This interim application is under consideration now. 19. 27th September 2022 Appellant filed its affidavit in reply to Interim Application No.1161 of 2020 filed by respondent. 20. 4th October 2022 This Court passed an order in Interim Application No.1161 of 2020, inter alia, observing that "even assuming that the First Appeal fails on merits, so long as there is a moratorium in place, the law does not permit a court to allow Bansal to withdraw the amount deposited pending the CIRP." 5. When the Interim Application No.1161 of 2020 referred to in item 18 of the chronology given above, i.e., this interim application, came up for hearing, the counsel for appellant submitted that this Court will not have jurisdiction to entertain and dispose the Interim Application and the amount deposited by appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd every issue concerning the corporate debtor. In Gujarat Urja (Supra), the Apex Court held that NCLT can adjudicate upon only those disputes which arise solely from the insolvency of the corporate debtor under Section 60(5). Therefore, NCLT cannot exercise jurisdiction over every issue concerning the corporate debtor simply because the corporate debtor is in insolvency. Wherever the matter in question falls outside the purview of the IBC, it is the forum which is otherwise vested with jurisdiction in law that is the right forum to adjudicate upon the said matter; (e) Appellant has not established anywhere that the First Appeal and the Interim Application arise solely from the insolvency of the corporate debtor. Since the First Appeal arises out of a challenge against the impugned judgment passed by the Trial Court on the issue of termination of respondent's employment, it has nothing to do with the insolvency of the corporate debtor. In so far as the Interim Application is concerned, it relates to monies deposited as a condition for stay of execution of the impugned judgment and, therefore, by no means can be stated to be arising solely from the insolvency of the corporate debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable because it applies only to the assets belonging to the corporate debtor and as held by the Calcutta High Court in Chowthmull Maganmull V/s. Calcutta Wheat and Seeds Association 1924 SCC OnLine Cal 335, Apex Court in P.S.L. Ramanathan Chettiar & Ors. V/s. O.R.M.P.R.M. Ramanathan Chettiar (1968) 3 SCR: AIR 1968 SC 1049, Madras High Court in Kamakshi Ammal V/s. Pappathi 1975 SCC Online Mad 23, Apex Court in Roshanlal Kuthalia V/s. R.B. Mohan Singh Oberoi (1975) 4 SCC 628, Apex Court in Bank of India V/s. Vijay Transport & Ors. (2000) 8 SCC 512, this Court in Nahar Builders (Supra) and in Raj Shipping Agencies V/s. Barge Madhwa 2020 SCC Online Bom 651 and Apex Court in Chitra Sharma V/s. Union of India (2018) 18 SCC 575, the monies deposited by appellant in the Trial Court pursuant to the order dated 10th December 2012 do not constitute the asset of appellant. Sub-clause (c) of Section 14(1) of IBC also is inapplicable since the present proceedings do not constitute enforcement or recovery of any 'security interest' created by the corporate debtor within the meaning of Section 3(31) of IBC. Sub-clause (d) of Section 14(1) of IBC would apply only in instances where the propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isted on 4th January 2018 when none appeared for appellant and the matter was listed for dismissal. On 15th January 2018, the matter was again listed when none appeared for appellant and the appeal came to be dismissed. Appellant filed an application for restoration which was allowed vide order dated 18th June 2018. However, appellant did not comply and the First Appeal again came to be dismissed. Appellant again filed Interim Application No.25147 of 2018 for condonation of delay, which was allowed vide order dated 19th September 2018. Though the appeal was listed for final hearing, the same could not be taken up due to the weight of the board. That being so, it is clear that the delay has been caused by appellant. (c) All this constitutes a change in facts and circumstances which would warrant respondent/judgment creditor from applying again for release of the amount deposited in this Court if this Court so pleases. I. The amount deposited by appellant in the Trial Court pursuant to the order dated 10th December 2012 is affected by the moratorium under Section 14 of the IBC? 11. This Court, by its order dated 10th December 2012, granted a stay of the impugned judgment on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Andhra Pradesh High Court in Kothamasu Venkata Subbaya V/s. Udattha Pitchayya 1959 SCC OnLine AP 216. 15. Relying upon Keshavlal V/s. Chandulal AIR 1935 Bom. 200, the Court said "In my opinion this is the correct way of regarding the deposit in the present case also; it was primarily a deposit of security rather than a deposit of the decretal debt, and the decree-holder cannot claim it as his own unless the judgment-debtor fails to satisfy the decree by the payment of the money due under the decree." The Court held that all that the decree-holder could claim was the sum found due under the decree with interest and that no more could be given to him, while the profit must go to the person who had made the deposit. The amount which had been deposited did not go towards the satisfaction of the decree, and the decree-holder was entitled in law to proceed against either of the judgment-debtors for the realisation of the entire decretal amount. It follows that the appellant had not made out a case for restitution. The Hon'ble Andhra Pradesh High Court in K.V. Subbayya (Supra) has, therefore, held that even the dismissal of the judgment debtor's appeal does not, on its own, make the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Supreme Court in Roshanlal Kuthalia (Supra), therefore, recognises : (i) the principle that the security furnished by the judgment debtor does not automatically amount to satisfaction of the decree upon the failure of the appeal; (ii) the principle that the title to money deposited in Court changes only upon dismissal of the appeal in favour of the decree holder as it is only then that such deposit may not be withdrawn or substituted by the depositor/judgment debtor; and (iii) the principle that there exists equity in favour of the judgment debtor to the extent of the amount deposited by such judgment debtor in Court. In other words, the Hon'ble Supreme Court, in Roshanlal Kuthalia (Supra) recognised the fact that the title in the money deposited in Court remains with the judgment debtor. A careful perusal of Roshanlal Kuthalia (Supra) and the judgment in Sheo Gholam Sahoo V/s. Rahut Hossein (1906) 4 Cal 6, ILR referred to therein makes it clear that the Hon'ble Supreme Court's observation that the Court holds money deposited in trust for the decree holder applies only to a situation in which the judgment debtor's appeal has failed. The said observations cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ple that the money deposited is the unfettered property of the award holder. It however upholds the principle that the money remains the property of the corporate debtor since otherwise, there would be no question of the money realised by the award holder being subject to the order of the NCLT. The judgment of the Learned Single Judge cannot be read de hors the judgment of the Division Bench of this Court. 19. Lastly, the judgment of the Hon'ble Calcutta High Court in Chowthmull (Supra), relied upon by the learned Amicus Curiae also does not run contrary to the above submissions. In fact, the judgment of the Hon'ble Supreme Court in P.S.L. Ramanathan Chettiar (Supra) expressly says so in dealing with the judgment in Chowthmull (Supra) "The observations in Chowthmull case do not help respondent. In that case, the appeal was not proceeded with by the Official Assignee. Consequently, the decree holder could not be deprived of the money which had been put into court to obtain stay of execution of the decree as but for the order, the decree holder could have levied execution and obtained satisfaction of the decree even before disposal of the appeal". The distinction drawn by the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23. Section 60(5) of the IBC also provides for the matters which the NCLT has the jurisdiction to entertain. Section 60(5) is provides : 60.(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of - (a) any application or proceeding by or against the corporate-debtor or corporate person; (b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; 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. 24. The present Interim Application is both : (i) an application/ proceeding against the corporate debtor, i.e., appellant; and (ii) a claim made against the corporate debtor. The jurisdiction of this Court to entertain the present Interim Application is, therefore, barred on a conjoint reading of Sections 60(5) and 231 of the IBC. The judgments of the Hon'ble Supreme Court in Embassy Property (Supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rising other than on the ground of insolvency of the corporate debtor, the same must be agitated before the relevant fora having jurisdiction to adjudicate such case. In the present case, the main issue is whether or not the judgment creditor (respondent) is entitled to the money deposited by appellant in Court pending the present appeal and pending its ongoing CIRP. The main issue in the present case thus is an issue arising solely on the ground of the insolvency of appellant. In light of the above and in light of Section 60(5) read with Section 231 of the IBC, the NCLT is the appropriate forum to adjudicate the above issue. 28. Therefore, this Court does not have the jurisdiction to entertain and dispose the Interim Application. FINDINGS AND CONCLUSIONS : We hereby proceed to answer two questions that has arisen for our consideration. WHETHER THIS COURT HAS JURISDICTION TO ENTERTAIN AND DISPOSE THE INTERIM APPLICATION : 29. (a) The jurisdiction to adjudicate upon the issue of withdrawal of the monies deposited in the Trial Court pursuant to the order dated 10th December 2012 lies with this Court and not with the NCLT. (b) It is important to note, at the outset, that the NCL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in Embassy Property (Supra) and Gujarat Urja (Supra) has construed this provision narrowly. (e) In Embassy Property (Supra) after underscoring that the NCLT does not have general jurisdiction like that of a Civil Court, the Hon'ble Supreme Court held that under Section 60(5)(c) of the IBC, the NCLT cannot exercise jurisdiction over any and every issue concerning the corporate debtor. The Court held as follows : "37. ...The only provision which can probably throw light on this question would be sub-section (5) of Section 60, as it speaks about the jurisdiction of the NCLT. Clause (c) of sub-section (5) of Section 60 is very broad in its sweep, in that it speaks about any question of law or fact, arising out of or in relation to insolvency resolution. But a decision taken by the Government or a statutory authority in relation to a matter which is in the realm of public law, cannot, by any stretch of imagination, be brought within the fold of the phrase "arising out of or in relation to the insolvency resolution" appearing in clause (c) of sub-section (5). Let us take for instance a case where a corporate debtor had suffered an order at the hands of the Income Tax Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd parties and exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial and arbitration proceedings. Sections 25(1) and 25(2)(b) reads as follows... This shows that wherever the corporate debtor has to exercise rights in judicial, quasi-judicial proceedings, the resolution professional cannot short-circuit the same and bring a claim before NCLT taking advantage of Section 60(5). 41. Therefore in the light of the statutory scheme as culled out from various provisions of the IBC, 2016 it is clear that wherever the corporate debtor has to exercise a right that falls outside the purview of the IBC, 2016 especially in the realm of the public law, they cannot, through the resolution professional, take a bypass and go before NCLT for the enforcement of such a right." (emphasis supplied) (f) In Gujarat Urja (Supra) the Hon'ble Supreme Court laid down the test to ascertain the matters which can be adjudicated upon by the NCLT under Section 60(5)(c) and held that only those disputes which arise solely from the insolvency of the corporate debtor can be entertained by the NCLT under this provision. The Court observed as follows: "69. ... Therefore, considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to an order passed by this Court in the First Appeal as a condition for stay of execution of the Impugned Judgment. By no means is the Interim Application arising solely from the insolvency of the corporate debtor since the monies were deposited much prior to the commencement of CIRP. (j) Appellant has contended that the since the issue in the Interim Application is whether the judgment creditor can withdraw the money deposited by appellant in this Court pending the corporate insolvency resolution process, the issue arises solely from the insolvency of the corporate debtor and therefore, must be adjudicated by the NCLT under Section 60(5). This submission is incorrect for the following reasons : (i) The Impugned Judgment was passed on 30 June 2012. The First Appeal was filed on 5 October 2012. The monies were deposited by appellant in this Court pursuant to the order dated 10th December 2012. This is much before the insolvency commencement date of 15th May 2018. Therefore, the deposit of monies by appellant and the consequent withdrawal of monies by respondent is not arising solely from the insolvency of appellant. (ii) The pendency of corporate insolvency resolution process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the IBC. (c) Sub-section (1) of Section 14 of the IBC reads as follows: "14.(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely: - (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing off 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 (54 of 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...." (d) A bare perusal of Section 14(1) makes it clear that sub-clause (a) only prohibits the institution or conti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the corporate debtor, allowing the withdrawal of the deposited sum does not contravene Section 14 of the IBC. B. The monies deposited in the Trial Court do not constitute the assets of Appellant (m) The sum of Rs.32,16,909/- which has been deposited by appellant with the Trial Court as a condition for stay of the execution of the Impugned Judgment does not constitute the asset of appellant. (n) The position of law on the status of monies deposited in court as a condition for stay of execution of a decree has been settled for almost a century. The Hon'ble Calcutta High Court in Chowthmull (Supra) was called upon to consider an almost identical issue. In that case, the judgment debtor had filed an appeal challenging the decree passed against him. The judgment debtor deposited monies in court as a condition for stay of the decree. During the pendency of the appeal, the judgment debtor was declared as an insolvent. The Official Assignee of the judgment debtor contended that the monies deposited in court by the judgment debtor formed a part of the estate of the judgment debtor and therefore, ought to be distributed amongst the creditors of the judgment debtor. The Court negat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment-debtor as a condition precedent for the grant of stay at the time when the second appeal was admitted, then such money so deposited into court is in custodia legis and is no longer under the control of either the judgment-debtor or the decree-holder. Once the second appeal has been dismissed, the money so deposited and which is in the custody and control of the court automatically becomes the property of the decree-holder and he has a vested right in him to withdraw the said amount. The mere lapse on his part to take out a petition for withdrawal of the amount soon after the dismissal of the second appeal will not militate against him nor will it adversely affect his vested right. When once the second appeal has been dismissed and in consequence the decree for money, though for arrears of rent, has been upheld by this court, then the money deposited by the judgment-debtor loses its character as arrears of rent. It is simply the country's coin, which the decree-holder is entitled to as a result of the money decree obtained by him. Such a vested right which enables him to withdraw the amount in court deposit would not make that amount an 'outstanding rent' payable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable to discharge the decree on disposal of the appeal and for reasons beyond the control or conduct of the judgment-debtor the money is not forthcoming to liquidate the liability can he be asked to pay over again? In Chowthmull Manganmull v. Calcutta Wheat and Seeds Association [ILR (1930) 51 Cal 1010] , Sanderson, C. J. observed (at p. 1013) : 'In my judgment the effect of the order was that the money was paid into court to give security to the plaintiffs that in the event of their succeeding in the appeal they should obtain the fruits of their success. See Bird v. Barstow [(1892) 1 QBD 94]. It may be put in other words viz. that the amount paid into court was the money of the plaintiff respondents subject to their succeeding in the appeal and thereby showing that the decree in their favour by the learned Judge on the original side was correct. The words which were used by Lord Justice James in the case of Ex parte Banner, in re Keyworth [(1874) 9 Ch 379 : 30 LT 620] are applicable to this case. The learned Lord Justice said that the effect of the order was that 'the money which was paid into court belonged to the party who might be eventually found entitled to the sum'.' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and Conciliation Act, 1996 ("1996 Act"). HDIL suffered an award which attained finality. Nahar Builders Limited ("Nahar") sought to withdraw the sum of Rs. 8 crores. At the time of Nahar's request for withdrawal, HDIL had become insolvent. Therefore, HDIL took the defence that in light of the moratorium under Section 14 of the IBC, Nahar could not be allowed to withdraw any amount. This Hon'ble Court rejected HDIL's submission in the following terms: "7. The opposition from HDIL is that since there is a moratorium that has came in to play in view of the insolvency proceedings under the Insolvency & Bankruptcy Code, 2016, the amount of Rs. 8 crores deposited in this Court is 'the property of HDIL' within the meaning of Section 14 of the IBC. That submission does not commend itself. Once an amount is deposited in this Court, it is placed beyond the reach of either party without permission of the Court. It is, therefore, not 'the property' of either party pending an adjudication as to entitlement by the Court. Once the Arbitrator held that it was Nahar Builders that was entitled to this amount, and that award became enforceable as a decree of this court, then no question remained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le proceeds after satisfaction of all claims. By drawing an analogy, the principle can be applied even to the facts of the present case. Once the decretal sum is deposited by the judgment debtor in court, it ceases to be the property of the judgment debtor and is custodia legis. The interest of the judgment debtor would only be to receive any balance after the claims of the judgment creditor are satisfied. (w) At this stage, it is important to deal with the decision of the Hon'ble Supreme Court in Chitra Sharma (Supra). Mr. Bharucha for appellant has relied upon paragraphs 48 and 48.1 of the said decision to contend that the monies deposited with the Trial Court cannot be withdrawn by respondent. This contention in our view, is based on an erroneous reading of the decision in Chitra Sharma (Supra) for two reasons : (a) In Chitra Sharma (Supra), the Hon'ble Supreme Court had directed the deposit of a sum of Rs.2000 Crores (out of which Rs.750 Crores were deposited) after the commencement of CIRP of the corporate debtor. Therefore, as on the date of commencement of CIRP, the amount belonged to the entity which had deposited the money. On the other hand, in the present case, appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is inapposite for the following reasons: (a) The judgment related to a case where one judgment debtor-alleged collusion between the judgment creditor and another judgment debtor. The facts of the case were that despite the judgment creditor succeeding in the appeal, the monies deposited were withdrawn by one of the judgment debtors. Therefore, the other judgment debtor submitted that it should be assumed that the claim of the judgment creditor had been satisfied since the judgment creditor and the judgment debtor were colluding. It is in this context that the Court observed the mere availability of a certain sum for the satisfaction of a decree cannot be equated with the actual satisfaction of a decree and that the amounts deposited were as security and do not ipso facto become the property of the decree holder. The said factual scenario is completely different and therefore, reliance on the said judgment is misplaced. (b) Even this judgment nowhere states that the monies deposited in court continue to be the asset of the judgment debtor. Even though the decree holder may not become the owner of the money deposited in court till the time that the appeal is dismissed, this d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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