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TMI Blog2024 (7) TMI 624X X X X Extracts X X X X X X X X Extracts X X X X ..... BC shall have effect. Insolvency resolution of the Corporate Debtor has to be detected at the earliest and remedial measures are to be taken to bring back the Corporate Debtor on its feet - in view of the overriding provision of Section 238, the proceedings under Section 7 shall not be barred by any proceeding initiated under Section 19. As noted above, Section 19 proceedings are for the purpose of recovery of dues by the Bank and Section 7 proceedings are for insolvency resolution of the Corporate Debtor. Both proceedings covers entirely different field and rejection of proceedings under Section 19 by DRT on 17.06.2022 cannot operate as any bar for Application under Section 7. The determination of default in DRT proceedings, which is pending in Calcutta High Court can have relevance for the purposes of Section 19 Application, but cannot be said to be a reason to hold the proceedings under Section 7 barred, as has been held by the Adjudicating Authority. The Hon ble Supreme Court in Employees Organisation vs. Jaipur Metals Electricals Ltd. [ 2018 (12) TMI 674 - SUPREME COURT ] clearly held in the above case that petition under Section 7 is an independent proceeding, which is unaffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00,000/-. Various documents thereafter were executed. On 28.12.2015, State Bank of Travancore sanctioned the limit of Rs. 1,26,20,00,000/- in favour of the Corporate Debtor. (iii) On 30.09.2016, the loan account of the Corporate Debtor slipped into NPA category w.e.f. 31.03.2013 owing to the default in payment for more than 90 days. On 25.11.2016, the SBI recalled the entire loan and granted 07 days time to close the accounts. (iv) The Respondent - Corporate Debtor having failed to make the payment, proceedings under Section 13 (2) of the SARFAESI Act, 2002 were initiated by the Bank. On 11.09.2018, the SBI filed an application under Section 19 of the Recovery of Debts Due to the Banks and Financial Institutions Act, 1993 ( 1993 Act ). On 07.07.2021, the Corporate Debtor submitted an OTS proposal, acknowledging the outstanding amount and proposing to make the payment. (v) On 01.08.2021, the Appellant filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the IBC ) for initiation of Corporate Insolvency Resolution Process ( CIRP ) against the Corporate Debtor for default of the amount of Rs. 144,70,88,690/-. (vi) On 17.06.2022, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is petition. If this Adjudicating Authority proceed with this petition, there is a possibility of passing of inconsistent order on the same set of facts. This leads to chaos and confusion, this is against the judicial discipline. At this juncture, we feel that the principle and analogy laid down in section 10 of Code of Civil Procedure 1908 is applicable. Section 10 of Code of Civil Procedure 1908 speaks about the stay of subsequently filed suit, where issue in previously instituted suit is substantially same of the subsequently filed suit. The appeal pending before the DRAT is in continuation of the previously filed Application T.A.No.179 of 2020. The subsequently filed petition shall stand stayed. T.A.No.179 of 2020 is earlier application filed prior to filing of this petition. T.A.No.179 of 2020 was dismissed on 17.06.2020. The appeal is now pending before DRAT-Kolkata. The point for consideration involves in this petition and appeal pending , before DRAT is directly and substantially same. In the circumstances, till the finality of the order passed in T.A.No.179 of 2020 reached, it is not prudent to proceed with this petition. When the suit is decreed, the causes of action on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects has been given to the proceedings under IBC and neither Section 10 of the CPC is available, nor pendency or decision of proceedings under Section 19 of the 1993 Act, can be a reason to reject Section 7 Application. Further, the basis of order of the Adjudicating Authority is that application is premature, since no default is committed, whereas, there is continuing default since the Bank is not able to realise amount from the Corporate Debtor. The Company Petition filed under Section 7 by the Bank is not a lis between the Corporate Debtor and the Appellant, but it is a lis in rem. For the purpose of admission of Section 7 Application, only requirement is to determine the existence of debt, which is in default of an amount of Rs.1 crores. The Corporate Debtor on 07.07.2021 has given OTS proposal, which clearly acknowledged the debt and default. The Adjudicating Authority had not considered the effect of OTS proposal in reference to Section 7 Application filed by the SBI. Section 7 Application filed by the Appellant was well within time. 5. Learned Counsel for the Respondent refuting the submission of learned Counsel for the Appellant submits that the DRT heaving held the Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GS FOR COMPUTATION OF AMOUNT AND DAYS OF DEFAULT IN TABULAR FORM) Rs. 144,70,88,690/- (Rupees One Hundred Forty Four Crore Seventy Lakhs Eighty Eight Thousand Six Hundred Ninety Only)as on 19.07.2021. . Date of Default: 30.09.2016 (The Original date of NPA was 31.03.2013. As stated above, the Company was restructured under CDR in September 2013 and subsequently it had failed and exited from CDR in December 2015. The accounts were accordingly classified as NPA on 30.09.2016 w.e.f. 31.03.2013 asper RBI Guidelines and Directives) The proceeding has been filed with in the period of limitation. Proceeding under SARFAESI Act 2002 was initiated on 17.02.2017 and OA No 742 of 2018 being an application under Sec 19 of the RDDBFI Act was filed on 11.09.2018. Thus, the present petition has been filed within limitation. In any event, in the Balance Sheets of the Corporate Debtor and the Income Tax returns for the past period, there is an acknowledgement of debt and a promise to pay and therefore limitation to file this proceeding stands extended till 3 1.03.2023, which is 3 years from the date of the last Balance Sheet and/ or the financial year for which Income Tax returns were filed. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. As you are aware that Covid-19 has adversely effected the business of the company and.in the present circumstance and as per current market scenario, the offer proposed by us for settlement of dues of Abhijeet Ferrotech Limited with State Bank of India is the best which company can offer. Therefore, we would like to seek your approval/sanction to our best possible One Time Settlement proposal as per the broad terms as prescribed in above points . We will be thankful to the bank if our above proposal for settlement of dues of M/s Abhijeet Ferrotech Limited would be accept by bank . Furthermore, after duly consideration and completion of settlement of dues, we request your good office to assure us for providing necessary clearances, NOC's as described in below:- a. Bank to issue necessary NO DUE CERTIFICATE in relation to AFL Account maintained with State Bank of India. b. Bank to withdraw all legal case/suits/applications or any other steps taken in any legal forum including SARFAESI, DRT, NCLT, any Courts, if any and vice versa from our side. c. The names of the Guarantors/Directors will be withdraw and/or deleted from Banks Willful Defaulters List, CIBIL, RBIs Defaulters l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends. 11. The proceedings, which were initiated by the Bank in the year 2018 under Section 19, were proceedings for recovery of dues of the Bank. Section 19 of the 1993 Act provides, filing of an Application by Bank or financial institutions to recover any debt from any person. Section 19(1) of the 1993 Act provides as follows: 19. Application to the Tribunal. - (1)Where a bank or a financial institution has to recover any debt from any person, it may make an application to the Tribunal within the local limits of whose jurisdiction, (a) the branch or any other office of the bank or financial institution is maintaining an account in which debt claimed is outstanding, for the time being; or (aa) Clause (a) renumbered as Clause (aa) by Act No. 44 of 2016.] the defendant, or each of the defendants where there are more than one, at the time of making the application, actually and voluntarily resides, or carries on business, or personally works for gain; or ( b) any of the defendants, where there are more than one, at the time of making the application, actually and voluntarily resides, or carries on business, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefor.] [Inserted by Act No. 1 OF 2013] 12. Section 7 of the IBC is a provision for initiation of CIRP by a Financial Creditor. Section 7 (1) of the IBC is as follows: 7. Initiation of corporate insolvency resolution process by financial creditor. (1) A financial creditor either by itself or jointly with 2 [other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government] may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. 13. IBC is subsequent legislation, which has been given overriding effect by the statute itself. Section 238 of the IBC provides: 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. In paragraph 19 of the judgment as extracted above, the Adjudicating Authority has referred to Section 10 of the CPC and has taken the view that in event the proceeding under Section 7 is proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the statute is that proceedings under the IBC shall have effect. Insolvency resolution of the Corporate Debtor has to be detected at the earliest and remedial measures are to be taken to bring back the Corporate Debtor on its feet. The statute under the IBC never contemplated that proceedings under IBC to await outcome of any previously instituted proceeding under any other statute. The Adjudicating Authority thus, fell into the error in taking the view that Section 10 of CPC is attracted in the facts of present case. Section 7 Application ought to have proceeded with despite pendency of proceedings under Section 19, which at present are pending at the stage of Calcutta High Court as the order of DRT dated 17.06.2022 was set aside by the DRAT vide its order dated 19.03.2024. The question framed by the Adjudicating Authority as extracted above was that whether the proceeding of this petition under Section 7 is barred in view of the order passed by DRT-II dated 17.06.2022. As noted above, in view of the overriding provision of Section 238, the proceedings under Section 7 shall not be barred by any proceeding initiated under Section 19. As noted above, Section 19 proceedings ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eply to Section 7 Application, Corporate Debtor took plea that under the Maharashtra Relief Undertakings (Special Provisions) Act, 1958, all liabilities of the Corporate Debtor except certain liabilities and remedies for enforcement thereof were temporarily suspended, hence the Application under Section 7 could not have been filed. The Corporate Debtor also filed a second application taking another plea that owing to non-release of funds under Master Restructuring Agreement, the Corporate Debtor was unable to pay back its debts as envisaged. It was pleaded that no default has been committed by the Corporate Debtor. The above plea raised by the Corporate Debtor has been noted by the Hon ble Supreme Court in paragraph 5 of the judgment, which is as follows: 5. On this date, a second application was filed by the appellant in which a different plea was taken. This time, the appellant pleaded that owing to non-release of funds under MRA, the appellant was unable to pay back its debts as envisaged. Further, it repaid only some amounts to five lenders, who, according to the appellant, complied with their obligations under MRA. In the aforesaid circumstances, it was pleaded that no default ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signal for Corporate Debtor and when an Application is filed by a Financial Creditor to initiate CIRP under Section 7 and there are ample material that Corporate Debtor is unable to pay its debt and has committed default, the Adjudicating Authority is not required to go into the reasons of default and ignore the real status of the Corporate Debtor and close its eyes to the fact that the Corporate Debtor needs insolvency resolution. Red signal having been flagged by the Applicant, ignoring the precarious financial situation and status of the Corporate Debtor and not taking remedial action to bring back the Corporate Debtor on its track by adopting resolution process as per IBC and reject the Application on the reasons of default, is clearly contrary to the whole Scheme of the IBC. There being sufficient material before the Adjudicating Authority that consistent defaults have been committed by the Corporate Debtor and it is unable to pay its debt, rejection of Section 7 Application on the ground that for default committed by the Corporate It is also relevant to notice that one of the submissions before the Adjudicating Authority that a suit has been filed by the Corporate Debtor befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nara Bank [Allahabad Bank v. Canara Bank, (2000) 4 SCC 406] , this Court had to deal with whether the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 ( the RDB Act ) was a special statute qua the Companies Act, 1956. This Court held that the Companies Act is a general Act and does not prevail against the RDB Act, which was a later Act and which has a non obstante clause that clearly excludes the provisions of the Companies Act in case of conflict. This was stated by the Court as follows: (SCC pp. 426-27, paras 38-40) Special law v. general law 38. At the same time, some High Courts have rightly held that the Companies Act is a general Act and does not prevail under the RDB Act. They have relied upon Union of India v. India Fisheries (P) Ltd. [Union of India v. India Fisheries (P) Ltd., AIR 1966 SC 35 : (1965) 3 SCR 679 : (1965) 57 ITR 331] 39. There can be a situation in law where the same statute is treated as a special statute vis- -vis one legislation and again as a general statute vis- -vis yet another legislation. Such situations do arise as held in LIC v. D.J. Bahadur [LIC v. D.J. Bahadur, (1981) 1 SCC 315 : 1981 SCC (L S) 111] . It was there observed: (SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DB Act, the said Act overrides the Companies Act, to the extent there is anything inconsistent between the Acts. 18. Likewise, in Bakemans Industries (P) Ltd. v. New Cawnpore Flour Mills [Bakemans Industries (P) Ltd. v. New Cawnpore Flour Mills, (2008) 15 SCC 1] , this Court, in the context of the State Financial Corporations Act, 1951 ( the SFC Act ) and the Companies Act, 1956, held that though the SFC Act was an earlier Act of 1951, yet, it would prevail over the winding-up proceedings before a Company Judge, given that the SFC Act is a special statute qua the general powers of the Company Judge under the Companies Act. This was stated as follows: (SCC pp. 20-21, paras 37-38) 37. The 1951 Act indisputably is a special statute. If a financial corporation intends to exercise a statutory power under Section 29 of the 1951 Act, the same will prevail over the general powers of the Company Judge under the Companies Act. 38. There cannot be any doubt whatsoever that the proceedings under Section 29 of the 1951 Act would prevail over a winding- up proceeding before a Company Judge in view of the decision of this Court in International Coach Builders Ltd. v. Karnataka State Financial Cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the creditors in terms of Section 529- A and Section 529 of the Companies Act. (iv) In a case where proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or the SFC Act are not set in motion, the creditor concerned is to approach the Company Court for appropriate directions regarding the realisation of its securities consistent with the relevant provisions of the Companies Act regarding distribution of the assets of the company-in-liquidation. 20. In the above paragraph, it was held that by virtue of Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, overriding the Companies Act, 1956, which is earlier law, applying the same analysis that IBC is contrasted with 1993 Act, IBC being latter enactment, shall have override the RDBBFI Act. Same principles were again reiterated by the Hon ble Supreme Court in paragraph 19 of the judgment. Section 238 was noticed in paragraph 20, where earlier judgment of this Tribunal in Employees Organisation vs. Jaipur Metals Electricals Ltd. was noticed and extracted. In paragraphs 20 and 21, following was held: 20. Indeed, this position has been echoed in several judgments of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment has to be set aside. NCLT proceedings will now continue from the stage at which they have been left off. Obviously, the company petition pending before the High Court cannot be proceeded with further in view of Section 238 of the Code. The writ petitions that are pending before the High Court have also to be disposed of in light of the fact that proceedings under the Code must run their entire course. We, therefore, allow the appeal and set aside the High Court's judgment [Jaipur Metals Electricals Ltd., In re, 2018 SCC OnLine Raj 1472] . 21. Likewise, in Forech [Forech (India) Ltd. v. Edelweiss Assets Reconstruction Co. Ltd., (2019) 18 SCC 549 : (2020) 4 SCC (Civ) 286] , in a situation in which notice had been issued in a winding-up petition and the said petition was ordered to be transferred to NCLT, to be treated as a proceeding under the IBC, this Court clearly held: (SCC p. 560, para 22) 22. This section is of limited application and only bars a corporate debtor from initiating a petition under Section 10 of the Code in respect of whom a liquidation order has been made. From a reading of this section, it does not follow that until a liquidation order has been made a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any class of them; or (b) between a company and its members or any class of them, the Tribunal may, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up, of the liquidator, appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs. Explanation. For the purposes of this sub-section, arrangement includes a reorganisation of the company's share capital by the consolidation of shares of different classes or by the division of shares into shares of different classes, or by both of those methods. What is clear by this Section is that a compromise or arrangement can also be entered into in an IBC proceeding if liquidation is ordered. However, what is of importance is that under the Companies Act, it is only winding up that can be ordered, whereas under the IBC, the primary emphasis is on revival of the corporate debtor through infusion of a new management. 22. One more submission was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Supreme Court in Innoventive Industries vs. ICICI Bank (2018) 1 SCC 407 to support his submission that the Corporate Debtor is entitled to defend Section 7 Application by pointing out that debt is not due. He has referred to paragraph 28 of the judgment of the Hon ble Supreme Court, which is as follows: 28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the Explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n treated as a branch of the law of estoppel though these two doctrines differ in some essential particulars. Rule of res judicata prevents the parties to a judicial determination from litigating the same question over again even though the determination may even be demonstratedly wrong. When the proceedings have attained finality, parties are bound by the judgment and are estopped from questioning it. They cannot litigate again on the same cause of action nor can they litigate any issue which was necessary for decision in the earlier litigation. These two aspects are cause of action estoppel and issue estoppel . These two terms are of common law origin. Again, once an issue has been finally determined, parties cannot subsequently in the same suit advance arguments or adduce further evidence directed to showing that the issue was wrongly determined. Their only remedy is to approach the higher forum if available. The determination of the issue between the parties gives rise to, as noted above, an issue estoppel. It operates in any subsequent proceedings in the same suit in which the issue had been determined. It also operates in subsequent suits between the same parties in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of estoppel, more particularly issue estoppel which flows from principles of evidence such as from Sections 115, 116 and 117 of the Evidence Act, 1872 and from principles of equity. As a principle of evidence, estoppel is treated to be an admission or in the eye of the law something equivalent to an admission of such quality and nature that the maker is not allowed to contradict it. In other words, it works as an impediment or bar to a right of action due to affected person's conduct or action. Estoppel by judgment finds reference in Ahsan Hussain Abdul Ali Bohari v. Maina [Ahsan Hussain Abdul Ali Bohari v. Maina, 1937 SCC OnLine MP 114 : AIR 1938 Nag 129] . It is taken as a bar which precludes the parties after final judgment to reagitate and relitigate the same cause of action or ground of defence or any fact determined by the judgment. If the determination was by a court of competent jurisdiction, the bar will remain operative even if the judgment is perceived to be erroneous. If the parties fail to get rid of an erroneous judgment, they as well as persons claiming through them must remain bound by it. 29. The Hon ble Supreme Court in Satyendra Kumar s case had occasion to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he judgment of the Hon ble Supreme Court, after a decree/ recovery certificate, a fresh cause of action arises for filing a petition under Section 7, hence, when a decree can be passed for Section 7 petition, the reverse must also be true. Observations made by the Hon ble Supreme Court in Dena Bank was in the context of limitation for filing Section 7 Application. It was held that fresh cause of action will give fresh limitation of three years for filing Section 7 Application. The said judgment of the Hon ble Supreme Court is not on the issue, which has arisen before us for consideration in this Appeal. The judgment of Dena Bank also does not render any help to the Appellant. 32. We, thus, are of the considered opinion that order of DRT dated 17.06.2022 and the proceedings under Section 19, which are still inconclusive, cannot be a ground to hold Section 7 Application as barred. The Adjudicating Authority committed error in holding Section 7 Application as barred in view of the order dated 17.06.2022 passed by DRT. 33. In view of the aforesaid discussions and conclusions, we are of the view that order of Adjudicating Authority dated 21.03.2023 is unsustainable. In result, the Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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