2019 (11) TMI 1280 - SC - Insolvency and Bankruptcy

Supreme Court Emphasizes NCLT's Jurisdiction in IBC Insolvency Proceedings, Protects Workmen Rights

The Supreme Court set aside interim orders of Odisha High Court in insolvency proceedings under the IBC, emphasizing NCLT's exclusive jurisdiction and the ... Moratorium under the Insolvency and Bankruptcy Code - Prohibition on institution or continuation of proceedings against the corporate debtor during CIRP - Overriding effect of the Insolvency and Bankruptcy Code over other laws - Bar of jurisdiction of civil courts in matters exercisable by the Adjudicating Authority - Prohibition on alienation or disposal of corporate debtor's assets during moratorium - Claims by workmen and employees under Regulation 9 of the CIRP RegulationsMoratorium under the Insolvency and Bankruptcy Code - Prohibition on institution or continuation of proceedings against the corporate debtor during CIRP - Bar of jurisdiction of civil courts in matters exercisable by the Adjudicating Authority - Prohibition on alienation or disposal of corporate debtor's assets during moratorium - Overriding effect of the Insolvency and Bankruptcy Code over other laws - Whether the High Court could proceed with auction and sale of the corporate debtor's assets after commencement of CIRP and declaration of moratorium by the NCLT. - HELD THAT: - The Court held that once the CIRP against the corporate debtor had commenced and the NCLT had declared a moratorium, the High Court ought not to have proceeded with auction proceedings in respect of the corporate debtor's assets. Section 14 declares a moratorium prohibiting institution or continuation of suits or proceedings and the transfer or disposal of the corporate debtor's assets during the CIRP. Section 238 confers overriding effect to the Code and Section 231 bars civil court jurisdiction where the Adjudicating Authority is empowered by the Code to pass orders. Allowing alienation of the corporate debtor's assets during the moratorium would jeopardise the interests of all stakeholders. For these reasons the impugned interim orders directing auction were set aside and the sale or liquidation of the corporate debtor's assets will be governed by the IBC and the competent Adjudicating Authority. [Paras 9]Impugned interim orders of the High Court directing auction of the corporate debtor's assets after commencement of CIRP were set aside; further sale or liquidation to be governed by the IBC.Claims by workmen and employees under Regulation 9 of the CIRP Regulations - Whether the workmen have a remedy to claim arrears and other dues after commencement of CIRP. - HELD THAT: - The Court observed that the Hirakud Workers' Union may pursue its dues by filing claims under Regulation 9 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 before the interim resolution professional or the competent authority. Regulation 9 prescribes the manner and proof for submission of claims by workmen or an authorised representative where there are numerous workmen, and permits reliance on evidence including court orders adjudicating non-payment of dues. [Paras 10]Workmen permitted to file claims under Regulation 9 of the CIRP Regulations for payment of arrears, salaries and other dues.Final Conclusion: The Civil Appeals are allowed: the Odisha High Court's interim orders directing auction of the corporate debtor's assets after institution of CIRP are set aside; claims of workmen should be pursued under the CIRP regulatory framework, and parties retain liberty to pursue other remedies in accordance with law. Issues Involved:Challenge to interim orders passed by Odisha High Court during insolvency proceedings under IBC.Analysis:Issue 1: Jurisdiction of High Court during insolvency proceedingsThe Supreme Court examined the jurisdiction of the High Court to proceed with auction proceedings of a corporate debtor's assets after the initiation of Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC). It highlighted that once the NCLT declares a moratorium, the High Court should refrain from conducting parallel proceedings that may affect the interests of stakeholders. The Court emphasized the exclusive jurisdiction of NCLT and NCLAT in insolvency matters and the overriding effect of IBC over other laws, as per Sections 238 and 231 of the Code. The judgment set aside the interim orders of the High Court, directing that the sale or liquidation of assets must comply with the IBC provisions.Issue 2: Rights of Workmen and EmployeesRegarding the rights of workmen and employees of the corporate debtor, the Court mentioned Regulation 9 of the Insolvency and Bankruptcy Board of India Regulations. It allowed the Hirakud Workers' Union to file claims for arrears, salaries, and other dues before the competent authority under the IBC regulations. The judgment emphasized the procedural requirements for submitting claims by workmen and employees, ensuring their rights are protected during the insolvency resolution process.Issue 3: Participation of Interested PartiesThe judgment acknowledged the participation of interested parties, such as HINDALCO, in the auction proceedings before the High Court. It granted liberty to parties to pursue legal remedies in accordance with the law. The Court allowed Respondent No. 8 to file an application for addressing objections raised during the auction process, while reserving the right of the Resolution Professional to contest such applications.In conclusion, the Supreme Court's judgment clarified the jurisdictional boundaries of High Courts during insolvency proceedings, safeguarded the rights of workmen and employees, and permitted interested parties to seek appropriate remedies within the framework of the IBC regulations.