2022 (9) TMI 638 - HC - Insolvency and Bankruptcy

Court allows bank to pursue Insolvency proceedings against Zee, broadening recovery options, dismissing contempt petition.

The Court clarified that the Respondent No.1-bank was not prohibited from initiating or maintaining proceedings under the Insolvency and Bankruptcy Code ... Seeking clarification of the order to the effect that this Court never prohibited Respondent No.1-bank from initiating or maintaining proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) against the Appellant-Zee - HELD THAT:- This Court is of the view that the clarification application as to whether the order dated 03rd December, 2021 intended to restrain Respondent No.1-bank from exercising its rights under IBC is not in the nature of a review. In fact, the present application has been filed in accordance with liberty granted to the parties to approach the Court if the need arises. Consequently, the preliminary objection raised by the Appellate-Zee is untenable in law. This Court is of the view that every individual has a right to file any legal proceeding till specifically prohibited by law or by a stay/injunction order granted by a competent Court. In the present case, the Appellant-Zee is seeking to restrain the respondent No.1-bank from initiating IBC proceeding on the strength of the order dated 03rd December, 2021 passed by the learned predecessor Division Bench. However, the order dated 03rd December, 2021 modified the earlier restraint order dated 25th February, 2021 and permitted the Respondent No.1-bank to file recovery proceeding - assuming that IBC proceeding initiated by Respondent No.1bank is not a recovery proceeding, one will have to examine if IBC proceeding initiated by Respondent No.1-bank is violative of order dated 25th February, 2021. It is settled law that IBC proceeding is neither coercive nor adversarial to the interest of corporate debtor and guarantor. Further, it is a settled proposition of law that no interim injunction can be granted where permanent injunction cannot be granted. Accordingly, this Court is of the prima facie opinion that the learned Single Judge rightly held that if the interim injunction was to be granted it would debilitate the Respondent No.1bank’s ability to take recourse to remedies which are available to it in law. Thus, it is clarified that this Court never prohibited Respondent No.1-bank from initiating or maintaining proceedings under the IBC against the Appellant-Zee. Accordingly, there is no disobedience or violation of this Court’s orders dated 25th February, 2021 and 3rd December, 2021 and the contempt petition is without any merit - petition dismissed. Issues Involved:1. Clarification of the order dated 3rd December 2021 regarding the prohibition of initiating proceedings under the Insolvency and Bankruptcy Code (IBC).2. Whether the Respondent No.1-bank's initiation of IBC proceedings is coercive.3. The interpretation of the term 'recovery' in the order dated 3rd December 2021.4. The maintainability of the suit filed by the Appellant-Zee under Section 41(b) of the Specific Relief Act (SRA).5. The relief sought by the Appellant-Zee regarding the interim injunction.Issue-wise Detailed Analysis:1. Clarification of the Order Dated 3rd December 2021:The Respondent No.1-bank sought clarification that the order dated 3rd December 2021 did not prohibit it from initiating or maintaining proceedings under the IBC against the Appellant-Zee. The Court clarified that the application filed by the Respondent No.1-bank was not a review but was in accordance with the liberty granted to the parties to approach the Court if the need arose. Consequently, the preliminary objection raised by the Appellant-Zee was deemed untenable in law.2. Whether the IBC Proceedings are Coercive:The Court examined whether the IBC proceedings initiated by the Respondent No.1-bank constituted coercive steps against the Appellant-Zee. It was noted that the order dated 25th February 2021 only restrained the Respondent No.1-bank from initiating coercive steps. The Court highlighted that the IBC proceedings are neither coercive nor adversarial to the interests of the corporate debtor and guarantor, as established in the Supreme Court judgments in Swiss Ribbons Private Limited v. Union of India and Dena Bank v. C. Shivakumar Reddy. Therefore, the initiation of IBC proceedings by the Respondent No.1-bank did not constitute a coercive step and was not prohibited by the orders dated 25th February 2021 and 3rd December 2021.3. Interpretation of the Term 'Recovery':The Court agreed with the Respondent No.1-bank's submission that the term 'recovery' used in the order dated 3rd December 2021 is a generic term that includes any or all legal remedies available to the bank under applicable laws to realize the amount due. The ultimate objective of the IBC is the resolution of insolvency, which involves the recovery of dues from financial creditors through the proceeds of resolution.4. Maintainability of the Suit Filed by the Appellant-Zee:The Court expressed grave doubts regarding the maintainability of the suit filed by the Appellant-Zee, citing Section 41(b) of the SRA, which prohibits granting an injunction to restrain any person from instituting or prosecuting any proceeding in a court not subordinate to the one from which the injunction is sought. The Supreme Court's judgment in Cotton Corporation of India Limited v. United Industrial Bank Limited supported this view. Consequently, the Court was of the prima facie opinion that the learned Single Judge rightly held that granting an interim injunction would debilitate the Respondent No.1-bank's ability to take recourse to legal remedies.5. Relief Sought by the Appellant-Zee:The Appellant-Zee's applications for stay and interim injunction sought to restrain the Respondent No.1-bank from initiating 'recovery proceedings' only. The Court noted that if the Appellant-Zee's interpretation of the term 'recovery' were accepted, there would be no order restraining the Respondent No.1-bank from initiating IBC proceedings. The issue of whether there had been a default under the DSRA Guarantee Agreement would be examined by the NCLT during the adjudication of the Section 7 application filed by the Respondent No.1-bank.Relief:The Court clarified that it never prohibited the Respondent No.1-bank from initiating or maintaining proceedings under the IBC against the Appellant-Zee. Consequently, there was no disobedience or violation of the Court's orders dated 25th February 2021 and 3rd December 2021. The contempt petition was dismissed, and the application for clarification was disposed of accordingly.