2019 (12) TMI 1580 - Tri - Insolvency and Bankruptcy

Tribunal Upholds RP's Authority to Take Possession for CIRP

The Tribunal held that NCLT has the authority to order the RP to take possession of the Shed to facilitate the CIRP process. The judgment affirmed the ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Corporate Applicant/Financial Creditors - existence of debt and dispute or not - HELD THAT:- Hon'ble High Court of Delhi in Liberty House Group Pte Ltd. Vs. State Bank of India and Ors. [2019 (2) TMI 1453 - DELHI HIGH COURT] which dealt with the issue regarding the jurisdiction of the Civil Court to entertain any suit or proceedings and grant interim injunction restraining encashment of bank guarantees and the objection of the defendants to the subject jurisdiction of the Civil Court was for consideration and whether NCLT has the jurisdiction under the I &B Code, 2016 - it can be said that the ratio laid down in the above judgement clearly states that no Civil Court shall have the jurisdiction to entertain any suit or proceedings in respect of any matter on which the National Law Company Tribunal has jurisdiction under the I & B Code, 2016. The Core issue is whether NCLT can order possession of the property of Corporate Applicant to facilitate the CIRP process and allow the Resolution Professional to take possession of the assets of Corporate Applicant, pending adjudication of pending suit filed by Corporate Applicant seeking possession of the shed from the applicant. Section 60(5) and (b)(c) of the Code empowers NCLT to entertain the dispute raised in the suit, section 63 of the Code further bars the jurisdiction of the civil court in matters pertaining to the NCLAT, section 231 of the Code also bar the jurisdiction of the civil court from granting any injunction in respect of any action taken or in pursuance of any order passed by the Adjudicating authority under this Code - Upon conjoint reading of section 60(5), section 63, section 231 and section 238, the jurisdiction of Civil Court is excluded related to the matters related to I & B code. Therefore, it can be held that NCLT can order possession of the property of Corporate Applicant to facilitate the CIRP process and allow the Resolution Professional to take possession of the assets of Corporate Applicant. The principles of comity would be affected if conflicting order were passed by the Civil Court and the NCLT the same would be detrimental to the resolution process. The office of Resolution Professional has become functus officio, the Liquidator has been appointed, the liquidator subject to the directions of the Adjudicating Authority under section 35(1)(b) has the power to take into his custody or control all the assets, property effects an actionable claim of the Corporate Applicant - the non-obstante clause as prescribed section 238 of the I & B Code, 2016, provides that the provisions of the 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. It is the case of Corporate Applicant that he is seeking possession in the suit, whereas the Applicant is only claiming recovery of monies in his suit. There are no restraint orders passed in both the cases. Therefore, the Resolutions Professional's claim for possession of shed before the adjudicating authority in view of CIRP order, can be entertained under the I & B Code - the applicant has also filed his claim before the Resolution Professional and has subjected himself to the jurisdiction of the CIRP. His claim was rejected by the RP. In view of the moratorium, the suit filed by the applicant was temporarily stayed, but the suit filed for recovery of possession filed by the Corporate Applicant would deemed to continue. With the given factual matrix, the CIRP period of 270 days having come to an end, the office of IRP has become functus officio. In view of the overriding powers under section 238 of the Code and Rule 11 of NCLT Rules 2016, and it is directed that Resolution Professional/ Liquidator shall be allowed to take possession of the Shed from the Applicant - the RP/ Liquidator is directed to take possession of the Shed - application disposed off. Issues Involved:1. Legality of the Applicant's occupation of the Shed.2. Jurisdiction of NCLT versus Civil Court in matters of possession and insolvency.3. Rights and duties of the Resolution Professional (RP) under the Insolvency and Bankruptcy Code (IBC), 2016.4. Impact of pending civil suits on the CIRP process.Issue-wise Detailed Analysis:1. Legality of the Applicant's Occupation of the Shed:The Applicant contended that he was not in illegal occupation of the Shed and had been occupying it under an Agreement dated 28th January 1997. He claimed to have been a former employee of the Corporate Applicant and later started his own business in the Shed. The RP argued that the Applicant was in illegal occupation and had breached certain conditions of the Agreement, which entitled the Corporate Applicant to reclaim the Shed.2. Jurisdiction of NCLT versus Civil Court in Matters of Possession and Insolvency:The judgment emphasized that Section 60(5) of the IBC grants NCLT exclusive jurisdiction over matters related to insolvency resolution or liquidation of the Corporate Applicant. Section 63 and Section 231 further bar civil courts from intervening in matters under NCLT's purview. The judgment referenced several cases, including 'Liberty House Group Pte Ltd. Vs. State Bank of India' and 'Innoventive Industries Ltd. Vs. ICICI bank,' to underscore that NCLT has the jurisdiction to entertain and dispose of any application related to the insolvency process, and civil courts cannot grant injunctions in these matters.3. Rights and Duties of the Resolution Professional (RP) under the IBC, 2016:The RP has the duty to take control and custody of any asset over which the Corporate Applicant has ownership rights, even if those assets are not in the Corporate Applicant's possession. The judgment cited 'Swiss Ribbons (P) Ltd. Vs. Union of India,' which clarified that the RP does not have adjudicatory powers but must manage the assets of the Corporate Applicant. The RP's right to claim possession of the Shed was upheld under Section 18 of the IBC, which mandates the RP to take control of the Corporate Applicant's assets.4. Impact of Pending Civil Suits on the CIRP Process:The judgment noted that there were two pending civil suits: one by the Corporate Applicant seeking possession of the Shed and another by the Applicant for recovery of money. The court ruled that the RP's duty to take possession of the Shed was not impeded by these pending suits. The judgment referenced 'Tata Steel BSL Ltd. Vs. Varsha' and other cases to assert that the initiation of CIRP does not extinguish existing legal disputes but places them under the jurisdiction of NCLT.Conclusion:The Tribunal concluded that NCLT has the authority to order the RP to take possession of the Shed to facilitate the CIRP process. The judgment affirmed that the RP's right to take control of the Corporate Applicant's assets is paramount, notwithstanding the pending civil suits. The Tribunal directed the RP/Liquidator to take possession of the Shed from the Applicant, aligning with the decision of Member (Judicial).