2022 (9) TMI 1221 - HC - Insolvency and Bankruptcy

Review petition success safeguards property rights in insolvency case, court balances moratorium provisions

The review petition was allowed, ensuring that the previous judgment's observations would not impact the Review Petitioner's property rights. The court ... Seeking directions for review of the observations & conclusions as contained in the Judgement and Order [2022 (3) TMI 998 - TRIPURA HIGH COURT]- whether Review Petitioner was not a party to the original PIL proceedings? - HELD THAT:- The Case at hand is an example of the interplay between the explanation to Section 18 and other provisions of the Code on the peculiar facts of the case, in our considered view, the NCLT correctly found that the decreed property was an asset of the Review Petitioner held in trust by the corporate debtor. In fact, it was even being maintained by the Review Petitioner in terms of orders of the Bombay High Court. The said property was merely in possession of the Provisional Liquidator of SRUIL, held in constructive trust for the Review Petitioner. The NCLT has recorded in its order dated 08.10.2021 that the IRP does not have any funds to run the CIRP. This is also borne out by the orders passed by the Bombay High Court, that acknowledge that neither the Provisional Liquidator, nor the IRP was in a position to maintain the property and carry out repairs on the fallen boundary wall due to lack of funds. Further, the IRP has categorically averred before the NCLT, that the creditors of SRUIL had refused to infuse any funds to carry out the CIRP. In this context, the Rs.75,30,00,000/- that is to be received by SRUIL in terms of the orders passed by the Bombay High Court and upheld by the Hon’ble Supreme Court, are crucial to ensure that the CIRP of the corporate debtor in the present matter happens in a meaningful manner. Further, once we have observed that the property itself is not an asset of SRUIL, maximisation of assets of the corporate debtor can be achieved, only by the IRP moving to secure the Rs. 75,30,00,000/-, which surely is a receivable of SRUIL. Looking into the facts pertaining to the case of the Review Petitioner, the Impugned Order did not appreciate the need to balance the considerations of Section 18 of the Code viz-a-viz the moratorium under Section 14 of the Code. The Impugned Order is therefore modified to the extent that it shall not effect the rights of the Review Petitioner to the subject property that has been upheld upto the Supreme Court and also stands crystallised by various orders passed by the Hon’ble Bombay High Court which are still in operation. As held by the NCLT, the conveyance however, shall be subject to the payment of the balance consideration by the Review Petitioner. The Review Petition is allowed. Issues Involved:1. Review of observations and conclusions in the previous judgment.2. The status and rights of decree holders under the Insolvency and Bankruptcy Code (IBC), 2016.3. The applicability of Section 14 and Section 18 of the IBC to the specific facts of the case involving the Review Petitioner.4. The impact of previous court orders and the crystallization of rights before the initiation of the Corporate Insolvency Resolution Process (CIRP).5. The necessity to balance the moratorium under Section 14 of the IBC with the provisions of Section 18.Detailed Analysis:1. Review of Observations and Conclusions in the Previous Judgment:The review petition was filed by Kalpataru Properties Pvt. Ltd. seeking directions for the review of specific observations and conclusions in the judgment dated 14.03.2022, particularly those contained in Paragraphs 8 to 15. The petitioner was not a party to the original PIL proceedings but claimed that the observations adversely affected their ongoing litigation.2. The Status and Rights of Decree Holders Under the IBC:The original PIL challenged the provisions of Section 3(10) of the IBC, arguing that the term 'decree holder' should be treated at par with 'financial creditors.' The court examined the definition of 'creditor' in Section 3(10) and noted that while 'decree holders' are included as creditors, their rights are limited by the IBC, particularly by the moratorium under Section 14(1). The court concluded that an unexecuted decree signifies an 'admitted claim' but cannot be executed during the moratorium period.3. Applicability of Section 14 and Section 18 of the IBC:The court examined Section 14, which imposes a moratorium on the execution of decrees against the corporate debtor. It also considered Section 18, which excludes assets held in trust by the corporate debtor from the CIRP. The NCLT had previously found that the property in question was held in trust for the Review Petitioner and not part of the CIRP, a finding supported by the explanation to Section 18.4. Impact of Previous Court Orders and Crystallization of Rights:The Review Petitioner argued that their rights had crystallized through various court orders before the CIRP initiation. The court noted that the Bombay High Court had directed the conveyance of the property to the Review Petitioner, and the Supreme Court had dismissed SLPs challenging these orders. The NCLT's order recognizing the property as held in trust for the Review Petitioner was also considered.5. Balancing Section 14 Moratorium with Section 18 Provisions:The court acknowledged the need to balance the moratorium under Section 14 with the provisions of Section 18. It found that the NCLT correctly treated the property as an asset held in trust for the Review Petitioner, which did not form part of the CIRP. The court modified the Impugned Order to ensure that it did not affect the Review Petitioner's rights to the property, subject to the payment of the balance consideration.Conclusion:The review petition was allowed to the extent that the previous judgment's observations would not affect the Review Petitioner's rights to the property. The court emphasized the necessity to balance the moratorium provisions with the specific facts of the case, recognizing the crystallized rights of the Review Petitioner upheld by various court orders. Pending applications were also disposed of.