2019 (8) TMI 916 - HC - Insolvency and Bankruptcy

Defendant's Counterclaim Allowed to Proceed with Plaintiff's Suit for Fair Trial

The Court decided that the Defendant's counter claim should proceed alongside the Plaintiff's suit for a fair trial, emphasizing the interconnected nature ... Interpretation of statute - Section 14 of the Insolvency and Bankruptcy Code, 2016 - whether the adjudication of the counter claim would be liable to be stayed in view of Section 14 of the Code? - HELD THAT:- The Court has considered the plaint and the written statement/counter claim. The adjudication of the plaint, defences in the written statement and the amounts claimed in the counter claim would have to be considered as a whole in order to determine as to whether the suit or the counter claim would be liable to be decreed. A counter claim would be in the nature of a suit against the Plaintiff which in this case is the ‘corporate debtor’. Under Section 14(1)(a) of the Code, strictly speaking, a counter claim would be covered by the moratorium which bars ‘the institution of suits or continuation of pending suits or proceedings against the corporate debtor’. A counter claim would be a proceeding against the corporate debtor. However, the counter claim raised in the present case against the corporate debtor ie., the Plaintiff, is integral to the recovery sought by the Plaintiff and is related to the same transaction. Section 14 has created a piquant situation i.e., that the corporate debtor undergoing insolvency proceedings can continue to pursue its claims but the counter claim would be barred under Section 14(1)(a). When such situations arise, the Court has to see whether the purpose and intent behind the imposition of moratorium is being satisfied or defeated. A blinkered approach cannot be followed and the Court cannot blindly stay the counter claim and refer the defendant to the NCLT/RP for filing its claims. Once the counter claims are adjudicated and the amount to be paid/recovered is determined, at that stage, or in execution proceedings, depending upon the situation prevalent, Section 14 could be triggered - the counter claim does not deserve to be stayed under Section 14 of the Code. The suit and the counter claim would proceed to trial before this Court. List before the Joint Registrar on 4th September, 2019 for Plaintiff’s evidence. Issues:Interpretation of Section 14 of the Insolvency and Bankruptcy Code, 2016 in a recovery suit involving a counter claim.Analysis:1. The Plaintiff filed a suit seeking recovery of a specific amount, while the Defendant filed a counter claim asserting its entitlement to a different sum. The Plaintiff has entered insolvency, leading to the question of whether the adjudication of the counter claim should be stayed under Section 14 of the Code.2. The Plaintiff argues that the Defendant's claim is intertwined with the suit and should be adjudicated together. The Plaintiff relies on previous judgments to support the contention that both claims should be heard concurrently by the Court, rather than the Defendant approaching the Resolution Professional for recovery.3. The Defendant's counter claim states that it is not liable to pay the Plaintiff, but instead, the Plaintiff owes the Defendant a significant sum due to breaches by the Plaintiff.4. The Court notes the uncertainty regarding the amounts payable by either party and the interlinked nature of the claims. It emphasizes that the outcome of the suit and counter claim is unpredictable at this stage.5. Referring to a previous judgment, the Court explains that Section 14(1)(a) of the Code does not apply to all proceedings, especially those that do not endanger the assets of the corporate debtor.6. The judgment clarifies that proceedings must have a direct impact on the corporate debtor's assets to fall under the moratorium of Section 14(1)(a) of the Code.7. Citing a similar case, the NCLAT held that claims and counter claims should be heard together unless the counter claim is determined, ensuring a fair adjudication process.8. The Court considers the entirety of the claims, defenses, and counter claim to determine liability. It acknowledges that a counter claim is a proceeding against the corporate debtor but highlights the integral relationship between the Plaintiff's suit and the Defendant's counter claim.9. The Court emphasizes the need for comprehensive adjudication by the same forum to avoid conflicting views on the same transaction. It argues that staying the counter claim prematurely could burden the NCLT/RP with uncertain claims.10. Consequently, the Court decides that the counter claim should proceed alongside the suit for a fair trial, scheduling the next hearing for the Plaintiff's evidence.This thorough analysis of the judgment highlights the complexities involved in interpreting Section 14 of the Insolvency and Bankruptcy Code and the need for a comprehensive adjudication process in cases involving intertwined claims and counter claims.