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TMI Blog2025 (1) TMI 487X X X X Extracts X X X X X X X X Extracts X X X X ..... licant has been approved under Section 31 of the I B Code by the learned NCLT vide its order dated 11th August, 2023 which is Annexure-2 to the writ petition. It records that on the date of approval of the resolution plan by the adjudicating authority all such claims which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan. Reference made to the decision of the Apex Court in Ghanashyam Mishra Sons Pvt. Ltd [ 2021 (4) TMI 613 - SUPREME COURT ] wherein it has been held that once a resolution plan is duly approved by the Adjudicating Authority under sub-section (1) of section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Govt. any State Govt. or any local authority, guarantors and other stakeholders. In the case of Ghanashyam Mishra Sons Pvt. Ltd the apex court held that one of dominant objects of the I B Code is to see that an attempt has to be made for revival of the corporate debtor and make it a running concern. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red from participating in the tender process for any work advertised by the Government of Tripura (Annexure-1 to the writ petition). 2. The order of blacklisting has been passed after approval of the resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016 on 11th August, 2023 by the learned NCLT, Kolkata whereby the petitioner s management has been transferred to a new management. Earlier the petitioner was blacklisted vide order dated 6th March, 2023 and debarred from participating in any tender process for any work of the Government of Tripura. This was the subject matter of challenge in WP(C) No. 271 of 2023 wherein this court vide order dated 29th May, 2023 quashed the blacklisting order dated 6th March, 2023. Thereafter, the impugned order of blacklisting has been passed. 3. The genesis of the dispute is the allotment of work for providing consultancy services for the Geographic Information System (GIS) based Master Plan Formulation for 20 cities in the State of Tripura under Tripura Town and Country Planning Act, 1975 as per the Request for Proposal issued on 23rd August, 2017 by the respondent. 4. As per the averments of the petitioner, the work was awar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Novel Corona Virus. This, according to the petitioner, brought the entire system to a standstill. Petitioner sought extension of timeline vide letter dated 14th August, 2020. The petitioner also informed that the planning area had increased by three-folds which is not as per the agreement and requested the respondent to increase the consultancy fee proportionately and also the timeline for the period on 25th August, 2020. 7. On 24th December, 2020 the respondents granted time extension for completion of the project work till 30th June, 2021. Petitioner again sought extension of timeline vide letter dated 19th July, 2021. He submitted GIS data for Agartala Khowai to the respondents on 4th August, 2021. The respondents further granted extension of time for completion of project till 31st December, 2021 vide letter dated 1st September, 2021. On 8th October, 2021 the petitioner was admitted into Corporate Insolvency Resolution Process (CIRP) by the National Company Law Tribunal, Kolkata Bench in CP (IB No. 295/KB/2021) under the Insolvency and Bankruptcy Code, 2016. 8. Further, correspondences ensued between the parties and the respondents provided time extension till 22nd July, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the letter dated 06.03.2023 [Annexure-44]. It appears from a bare perusal of the two show-cause notices at Annexure-37 and Annexure-39 dated 15.12.2023 and dated 23.12.2022 that no notice in the eye of law had been issued upon the petitioner proposing to blacklist him and also indicating the proposed quantum of penalty of blacklisting. In this regard, it is apposite to quote the ratio rendered by the Apex Court in case of Gorkha Security Services versus Government (NCT of Delhi) and others reported in (2014) 9 SCC 105 , paragraphs 21 and 22 of which are reproduced hereunder : 21. The central issue, however, pertains to the requirement of stating the action which is proposed to be taken. The fundamental purpose behind the serving of show-cause notice is to make the notice understand the precise case set up against him which he has to meet. This would require the statement of imputations detailing out the alleged breaches and defaults he has committed, so that he gets an opportunity to rebut the same. Another requirement, according to us, is the nature of action which is proposed to be taken for such a breach. That should also be stated so that the noticee is able to point out tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of. 12. This court vide its order dated 15th May, 2023 passed in the same writ petition had clearly indicated that the issue of termination of agreement is not required to be gone into in writ jurisdiction as the petitioner has an alternative remedy through arbitration or before the competent Civil Court, more so, for the reason that the adjudication on the subject may involve determination on disputed questions of fact and evidence as may be required to be adduced by the rival parties. 13. Thereafter, vide letter dated 6th June, 2023 the petitioner invoked the arbitration clause No. 8.2 of the agreement letter dated 7th January, 2019 for reference of the dispute relating to invocation of Performance Bank Guarantee by the respondents of Rs. 95,58,000/- (Rupees Ninety Five Lakhs and Fifty Eight thousand only). 14. The respondents on 10th July, 2023 issued another show cause notice for blacklisting the petitioner for a period of three years. The petitioner submitted its reply vide letter dated 25th July, 2023 and requested for withdrawal of the show cause notice. Thereafter on 11th August, 2023 the learned NCLT, Kolkata approved the resolution plan of the National Asset Reconstructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate debtor in order to make it a growing concern. The further case of the petitioner is that Section 32A of the Code was introduced with an objective that the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under Section 31, if the resolution plan results in the change in the management and control of the corporate debtor to a person who was not a promoter or in the management and control of the corporate debtor. The object behind introducing Section 32A in the Code of 2016 has been referred to in the case of Manish Kumar Vs. Union of India Anr., (2021) 5 SCC 1 paragraphs 317 to 329. 17.1. It is submitted that sub-section (2) of Section 32A declares a bar against taking any action against the property of the corporate debtor. Section 3 (27) of the Code defines property as including money, goods, actionable claims, land and every description of property situated in India or outside India and every description of interest including pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the right of the new management of the petitioner to carry on the petitioner s business on a clean slate under the resolution plan. Reference is also made to Section 238 of the Code of 2016 which provides that the provisions of this Code will override other laws. 19. Learned Senior counsel for the petitioner has assailed the order of blacklisting based on the doctrine of proportionality. It has been argued that an order of blacklisting has civil consequences and operates to the prejudice of a commercial person not only in praesenti but also puts a taint which attaches far beyond and may well spell the death knell of the organization/Institution for all times to come. Reliance has been placed on the case of Vetindia pharmaceuticals Ltd. Vs. State of Uttar Pradesh Anr, (2021) 1 SCC 804, in particular paragraph 12 thereof, to submit that a simplicitor breach of contract cannot justify an order of blacklisting. Reference has also been made to the case of JP Iscon Pvt. Ltd. Vs. State of Gujarat MANU/GJ/1647/2021 , paragraph 95 to 99, where the case of Erusian Equipment and Chemicals Ltd. Vs. State of West Bengal Anr., (1975) 1 SCC 70 has been also relied upon. The Gujarat High Court ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ples of natural justice as the respondents did not deal with the petitioner s contention in response to the notice of blacklisting dated 10th July, 2023. Petitioner had duly submitted its reply in detail on 25th July, 2023 and thereafter again on 11th August, 2023 and 17th August, 2023. The order of blacklisting is also bad as there is no finding that the petitioner s conduct was so deviant that it warranted the imposition of the penalty of blacklisting of the petitioner. Further, the respondent proceeded to pass the order of blacklisting notwithstanding the fact that the contract itself provided for furnishing of performance security by the petitioner, which the respondent had already invoked and encashed. 22. In the aforesaid factual background and legal submissions, learned senior counsel Mr. Jishnu Saha has prayed that the order of blacklisting deserves to be quashed as otherwise it would defeat the very object of the revival of the company under the resolution plan approved by the NCLT, Kolkata under Section 31 of the I B Code, 2016. The order also suffers on grounds of proportionality and violation of principles of natural justice as the grounds raised in the petitioner s rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deployment schedule submitted by the consultant was very sketchy and the deployment period was not clearly mentioned. On-site deployment of experts was negligible looking at the type of work in 20 cities at a time. No approval was sought from the respondents before engaging sub-consultant/Technical professional which attracted Clause No.3.6 of General Conditions of Contract. (vi) The petitioner through its letter dated 17.11.2022 expressed their inability to carry out the project which is not a formal way to terminate the agreement from their part. The petitioner cannot simply walk away from the execution of the work putting the respondent in uncertainty. (vii) The writ petitioner company made false statement and did not disclose the fact that CIRP Order was passed on 08.10.2021. Rather, on 17.11.2022 they expressed their inability to further carry on the work after more than 1(one) year from the date of passing of CIRP Order dated 08.10.2021, which showed that the petitioner did not have the intention to execute the work. This hampered the vision and work program of the Government of Tripura to utilize the proposed master plan for different government works for the benefit of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom any violation of principles of natural justice as it has been passed after due show cause notice upon the petitioner. Reliance is also placed on the case of Deep Industries Ltd. Vs. ONGC Anr., (2020) 15 SCC 706 wherein the Apex Court has observed that the High Court under Article 226 and 227 should be extremely circumspect in interfering with proceedings/orders passed under the Arbitration and Conciliation Act, 1996 and it should interfere only in cases where the orders are patently lacking in inherent jurisdiction. Therefore, once the Arbitral Tribunal has refused to interfere in the blacklisting order this court should not exercise its extra ordinary jurisdiction under Article 226 of the constitution of India. 29. The respondents have also placed reliance on the case of Sukanya Holdings (P) Ltd. Vs. Jayesh H Pandya Others, (2003) 5 SCC 531 , para 16 thereof in order to submit that the splitting of the cause of action on the part of the petitioner by approaching this court against the order of blacklisting is not proper. Reliance is also placed on the case of Rashtriya Ispat Nigam limited Anr Vs. M/S Verma Transport Company, (2006) 7 SCC 275 para 42 thereof and Sukanya Holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serves exemplary action. 32. Based on these submissions, the respondents have opposed the challenge to the impugned order of blacklisting. 33. On the part of the State, it has also been argued by the learned Advocate General that the revival of the company does not exclude or protect the petitioner from the civil consequences arising from the breach of promise resulting in delay in execution of the work despite several extensions by the petitioner. It is the case of the respondents that while the I B Code, 2016 provides for revival of the company and waiver from civil liabilities and also prosecution under Section 32A of the I B Code, the legislature has consciously not provided for waiver of the imposition of penalty of blacklisting or debarment upon an agency like the petitioner for gross mis-conduct and also suppression of facts relating to the NCLT proceedings before the respondents. The order dated 8th October, 2021 passed by the learned NCLT, Kolkata whereby the petitioner was admitted to corporate insolvency resolution process was not even brought to the notice of the respondents. 34. After the earlier order of blacklisting was set aside by this court on the ground of violat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etition. It records that on the date of approval of the resolution plan by the adjudicating authority all such claims which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan. It has referred to the decision of the Apex Court in Ghanashyam Mishra Sons Pvt. Ltd (supra) wherein it has been held that once a resolution plan is duly approved by the Adjudicating Authority under sub-section (1) of section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Govt. any State Govt. or any local authority, guarantors and other stakeholders. The Apex Court also held that all dues including the statutory dues owed to the Central Govt. any State govt. or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued. 39. However, waiver sought in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution plan once it is approved by an adjudicating authority under sub-section (1) of Section 31 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the I B Code )? (ii) As to whether the amendment to Section 31 by Section 7 of Act 26 of 2019 is clarificatory/declaratory or substantive in nature? (iii) As to whether after approval of resolution plan by the adjudicating authority a creditor including the Central Government, State Government or any local authority is entitled to initiate any proceedings for recovery of any of the dues from the corporate debtor, which are not a part of the resolution plan approved by the adjudicating authority? 43. The answer to the aforesaid questions has been provided in paragraph 102 which is extracted hereinunder: 102. In the result, we answer the questions framed by us as under: 102.1. That once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guaran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an. It is at this stage that the plan becomes binding on the corporate debtor, its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. The legislative intent behind this is to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims. If that is permitted, the very calculations on the basis of which the resolution applicant submits its plans would go haywire and the plan would be unworkable. 45. It is not in dispute that upon approval of the resolution plan by the NCLT vide order dated 11th August, 2023 (Annexure-2 to the writ petition) the erstwhile management of the company has been replaced by a new management. The entire allegation of the respondents is directed against the delay in execution of work on the part of the company represented through its erstwhile management. A Company, being a juristic person, is managed by a set of promoters/directors. In this context, it is also necessary to look into the provision of Section 32-A of the Code which provides protection from criminal prosecution to the corporate debtor. 46. Section 32A provides for protection from liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e explanation to this sub-section clarifies that an action against the property of the corporate debtor in relation to an offence shall include the attachment, seizure, retention or confiscation of such property under such law as may be applicable to the corporate debtor. Sub-clause (ii) of this sub-section further provides that nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfils the requirements specified in this section, against whom such an action may be taken under such law as may be applicable. 50. Section 32-A of the I B Code was introduced w.e.f. 28th December, 2019 by Amendment Act 1 of 2020. The provisions of Section 31 and Section 32-A when read together in the light of the opinion of the apex Court rendered in the case of Ghanashyam Mishra Sons Pvt. Ltd (supra) and in the case of Swiss Ribbons (P) Ltd. (supra) do give an insight that the entire purpose of the I B Code is to ensure the revival of the corporate debtor upon approval of the resolution plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in Arun Kumar [ Arun Kumar Jagatramka v. Jindal Steel Power Ltd., (2021) 7 SCC 474] : (Swiss Ribbons case [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] , SCC p. 55, paras 27-28) 27. As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganisation and insolvency resolution of corporate debtors. Unless such reorganisation is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from participating in future tender against the revived company would only defeat the dominant object of the I B Code. As otherwise, the company would not be able to enter into any business on account of the scar and stigma operating due to blacklisting and debarment imposed in respect of a contract which could not been executed allegedly due to the wrong doings or negligence or deliberate misconduct on the part of the erstwhile management of the company. 53. Apart from wrecking vengeance on the corporate debtor operating with a new management which is not responsible for the past misdeeds of the erstwhile management, such an order of blacklisting would not serve any fruitful purpose. Rather it would defeat the corporate debtor from reviving itself after approval of the resolution plan by entering into new business. It is commonly known that nowadays in all such tender documents floated by the state or its instrumentalities or even by private parties, the bidders have to disclose their past history including whether they have been blacklisted or debarred earlier. In such circumstances, the considerations of the bids by the revived company would be vitiated, if its past continues t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s be disproportionate as the petitioner would be practically unable to enter into new contracts and undertake business in order to become a growing and running concern. 58. The Apex Court in Kulja Industries Limited Vs. Chief General Manager, Western Telecom Project Bharat Sanchar Nigam limited Ors., (2014) 14 SCC 731 has explained that debarment is an effective method for disciplining deviant suppliers/contractors who may have committed acts of omission and commission or frauds including misrepresentations, falsification of records and other breaches of the regulations under which such contracts were allotted. It has also been held debarment is never permanent. It would invariably depend upon the nature of the offence committed by the erring contractor. In the facts and circumstances of the case discussed above such disciplining of the revived company for the past deeds of its erstwhile management would be unwarranted and not serve the purpose and the objectives of the I B Code. 59. The issue whether the petitioner had duly informed the respondents about its admission in the CIRP or not would not in the ultimate analysis make a difference on propriety of imposing the penalty of bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The word a matter used in Section 8 indicates that the entire subject matter should be subject to arbitration agreement. In the present case, there is no suit pending as such in relation to the dispute between the parties arising out of the agreement though an arbitration proceeding has been commenced. However, the order of blacklisting was not an issue before the learned Arbitral Tribunal. Even otherwise, the order of blacklisting passed by the State or its instrumentality could be amenable to the writ jurisdiction. Therefore, reliance on the said decision is misplaced. 64. The respondents have taken a stand that challenge to the order of blacklisting in an independent proceeding would lead multiplicity of proceedings and conflicting views which are best avoided. However, as it appears that the learned Arbitral Tribunal has not entertained the plea against the order of blacklisting as no such claim was made before it. In such a case, refusal to entertain a challenge to the order of blacklisting by this Court under Article 226 of the Constitution of India would amount to denying a remedy available in law. 65. Though, the learned counsel for the respondents have sought to distingu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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