2017 (12) TMI 392 - HC - Insolvency and Bankruptcy

Court Upholds Insolvency Proceedings, Dismisses Writ Petitions

The court dismissed the writ petitions, holding that the initiation of the corporate insolvency resolution process by the 2nd respondent under Section 7 ... Corporate insolvency procedures - Held that:- An application is admitted, under Section 7 of the Insolvency and Bankruptcy Code, 2016, a detailed procedure is set out in the Insolvency and Bankruptcy Code, 2016 and Rules and Regulations have framed. In the light of the decision of the Hon'ble Supreme Court, in M/s.Innoventive Industries Ltd.'s case (2017 (9) TMI 58 - SUPREME COURT OF INDIA) which has thread analysed the code, the contention that the rights of the Company and its Directors, as well as the share holders, would be stripped of the moment, an application, under Section 7 of the Code, is admitted and that therefore, the whole proceedings by NCLT, require to be stalled, cannot be accepted. Further contention of the petitioners that the action of the 2nd respondent in approaching the NCLT, would amount to forum shopping, also cannot be countenanced, for the reason, Insolvency and Bankruptcy Code, 2016, has been enacted, consolidating various enactments, such as, Sick Industrial Companies (Special Provisions) Act, 1985; the Recovery of Debts Due to the Banks and Financial Institutions Act, 1993; the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Companies Act, 2003; Insolvency and Bankruptcy law and other laws. As per Section 238 of the Insolvency and Bankruptcy Code, 2016, provisions of the Code shall have the effect, notwithstanding anything inconsistent therewith, contained in any other law, for the time being in force or any instrument, has effect, by virtue of such power. As per Sub-Section (4) of Section 60 of the Code, the National Company Law Tribunal is vested with all the powers of the Debts Recovery Tribunal, as contemplated under Part II of the Code, for the purpose of sub-Section (2) of Section 60 of the Code and therefore, it is for the NCLT to consider, all the materials, and pass appropriate orders. Code enables a financial creditor to make an application, under Section 7 of the Code, if the adjudicating authority is satisfied that default has not occurred or the application is complete and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application. Contention of the learned counsel that applications are mechanically admitted, cannot be accepted. Contention that approach of the 2nd respondent to NCLT, amounts to forum shopping is not tenable, as the Code enables filing of an application, notwithstanding the pendency of any proceedings, under the SARFAESI Act, 2002. When the code has not been stayed, the process envisaged in the code, has to be continued, and cannot be restrained. W.P. dismissed. Issues Involved:1. Whether the initiation of corporate insolvency resolution process by the 2nd respondent under Section 7 of the Insolvency and Bankruptcy Code, 2016 is justified.2. Whether the parallel proceedings before DRT and NCLT amount to forum shopping.3. Whether the actions of the 2nd respondent violate the fundamental rights of the petitioners.4. Whether the NCLT has jurisdiction to proceed with the application despite pending adjudication before DRT.5. Whether the provisions of the Insolvency and Bankruptcy Code, 2016 override other laws.Issue-wise Detailed Analysis:1. Justification of Initiation of Corporate Insolvency Resolution Process:The petitioners argued that the initiation of the corporate insolvency resolution process by the 2nd respondent under Section 7 of the Insolvency and Bankruptcy Code, 2016 is unwarranted since the petitioner company is willing to settle the outstanding amounts. The court referred to Section 7 of the Code, which allows a financial creditor to initiate the process if a default has occurred. The court noted that the Code provides a detailed procedure, including the requirement for the adjudicating authority to be satisfied that a default has occurred before admitting the application.2. Parallel Proceedings and Forum Shopping:The petitioners contended that the initiation of proceedings before the NCLT while adjudication is pending before the DRT amounts to forum shopping. The court rejected this argument, emphasizing that the Insolvency and Bankruptcy Code, 2016 is a comprehensive code that consolidates various enactments. The Code explicitly allows filing an application under Section 7, notwithstanding the pendency of any proceedings under other laws like the SARFAESI Act, 2002.3. Violation of Fundamental Rights:The petitioners claimed that the actions of the 2nd respondent violate their fundamental rights under Articles 14, 19, and 300-A of the Constitution of India. The court referred to the statement of objects and reasons for enacting the Insolvency and Bankruptcy Code, 2016, which aims to provide a time-bound process for insolvency resolution. The court held that the Code's provisions are designed to balance the interests of all stakeholders and do not violate the fundamental rights of the petitioners.4. Jurisdiction of NCLT:The petitioners argued that the NCLT should not proceed with the application while adjudication is pending before the DRT. The court referred to Section 60 of the Code, which designates the NCLT as the adjudicating authority for corporate persons and vests it with all the powers of the DRT. The court held that the NCLT has jurisdiction to proceed with the application and that the Code's provisions override any inconsistent laws.5. Overriding Effect of the Insolvency and Bankruptcy Code, 2016:The court emphasized that Section 238 of the Code states that its provisions shall have effect notwithstanding anything inconsistent in any other law. The court also referred to the Supreme Court's decision in M/s. Innoventive Industries Ltd. v. ICICI Bank, which held that the Code is a comprehensive and exhaustive code on insolvency matters. The court concluded that the Code overrides other laws and that the process envisaged in the Code must be continued.Conclusion:The court dismissed the writ petitions, holding that the initiation of the corporate insolvency resolution process by the 2nd respondent is justified, the parallel proceedings do not amount to forum shopping, the actions of the 2nd respondent do not violate the petitioners' fundamental rights, the NCLT has jurisdiction to proceed, and the provisions of the Insolvency and Bankruptcy Code, 2016 override other laws.