2019 (11) TMI 1015 - HC - Insolvency and Bankruptcy

High Court stays NCLT's IBC petition order to protect ongoing revival scheme

Sunil Kumar Dahiya Versus Union of India And Ors.

The High Court stayed the NCLT's order admitting a petition under the IBC, appointing an IRP, and declaring a moratorium, to prevent disruption of the ... Revival of the company - Initiation of CIRP - grievance of the Petitioner is that there were a number of investors in VDPL, who had preferred petitions under Sections 529 (A) and 530 of the Companies Act, 1956 before this Court - HELD THAT:- After hearing all the parties and considering the mediation report and the settlement scheme which was agreed to by more than 80% of the creditors, the Court had accepted the first motion and had directed that publication etc. would be made in accordance with the scheme of the IBC - After the scheme was advertised extensively, both in newspapers and on the internet, further hearing was conducted by the Company Court on 13th May, 2019, and judgment has been reserved. The question as to whether the scheme would be finally accepted by the Court and if so, what steps are to be taken, is yet to be pronounced by the Company Court. However, the order of the NCLT, at this stage, has become an interdiction into the proceedings which were pending before the Company Court - What the NCLT has failed to appreciate is that even the judgment in Forech [2019 (1) TMI 1442 - Supreme Court] clearly observes that the objective would be to ensure that there are no parallel proceedings before the High Court and before the NCLT. Though, there is no doubt that the jurisdiction of this Court is not to be exercised under Article 227 if there is an alternate remedy available, in order to avoid conflicting orders from operating in respect of the company, to the detriment of the creditors and other stakeholders, this Court is of the opinion that, while relegating the Petitioner to the NCLAT, the impugned order of the NCLT deserves to be kept in abeyance - In view of the remedy of appeal being available to the Petitioner, to approach the NCLAT, the Petitioner is permitted to approach the NCLAT within four weeks. The NCLAT shall consider the entire matter including the orders passed by the Company Court. All parties who are intervening before the Court today and any other affected parties are permitted to appear before the NCLAT - This Court has not given any opinion on the merits of the revival scheme pending before the Company Court or the order of the NCLT which is under challenge in the present case. Application disposed off. Issues Involved:1. Challenge to the NCLT order dated 10th October 2019.2. Conflict of jurisdiction between the Company Court and NCLT.3. Maintainability of the writ petition.4. Impact of the NCLT order on the revival scheme pending before the Company Court.Detailed Analysis:1. Challenge to the NCLT order dated 10th October 2019:The petitioner, an ex-Director/Promoter of VDPL, challenged the NCLT's order which admitted a petition under Section 7 of the IBC, appointed an IRP, and declared a moratorium under Section 14 of the IBC. The petitioner argued that the NCLT's order halted the revival efforts of VDPL, which were already under consideration by the Company Court.2. Conflict of jurisdiction between the Company Court and NCLT:The petitioner contended that the Company Court had been actively engaged in the revival scheme of VDPL, having admitted petitions under Sections 529(A) and 530 of the Companies Act, 1956, and appointed a Provisional Liquidator. The Company Court facilitated mediation, resulting in a settlement with over 80% of VDPL's creditors. The petitioner argued that the NCLT's order created a jurisdictional conflict, disrupting the ongoing revival process.3. Maintainability of the writ petition:Counsel for the Union of India and other respondents argued that the writ petition was not maintainable due to the availability of an alternative remedy under Section 61 of the IBC, which allows appeals to the NCLAT. They cited Section 63 of the IBC, which bars jurisdiction of civil courts in matters where the NCLT has jurisdiction.4. Impact of the NCLT order on the revival scheme pending before the Company Court:The Company Court had extensively deliberated on the revival scheme, which involved settlements with a significant majority of creditors. The NCLT's order, by appointing an IRP and declaring a moratorium, threatened to nullify these efforts. The Court noted that the NCLT's decision overlooked the Supreme Court's guidance in Forech India Ltd. v. Edelweiss Assets Reconstruction Co. Ltd., which emphasized avoiding parallel proceedings to prevent chaos and ensure effective resolution.Conclusion:The High Court acknowledged the detailed efforts of the Company Court in formulating the revival scheme and the potential disruption caused by the NCLT's order. To prevent conflicting orders and protect the interests of creditors and stakeholders, the High Court stayed the NCLT's order until the Company Court pronounced its judgment or the matter was decided by the NCLAT. The petitioner was directed to approach the NCLAT within four weeks, and the NCLAT was instructed to consider the matter comprehensively, including the orders of the Company Court. The High Court refrained from commenting on the merits of the revival scheme or the NCLT's order. The petition and all pending applications were disposed of accordingly.