Court allows amendment to substitute Liquidator as defendant, dismisses suit in favor of insolvency proceedings

The court allowed the plaintiff's application to amend the plaint to substitute the Liquidator for defendant no. 1. The Liquidator's appointment necessitated this change, enabling the plaintiff to pursue the claim before the Liquidator. Subsequently, the court dismissed the suit and released bank guarantees as the insolvency proceedings under the Insolvency and Bankruptcy Code took precedence. The court emphasized the overriding effect of the IBC on other laws, directing the release of bank guarantees to the Liquidator for the liquidation process.

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Issues Involved:
1. Amendment of the plaint to substitute the name of the Liquidator for defendant no. 1.
2. Dismissal of the suit and release of bank guarantees due to the insolvency proceedings.

Issue-wise Detailed Analysis:

1. Amendment of the plaint to substitute the name of the Liquidator for defendant no. 1:

The plaintiff filed an application for amending the plaint to delete the name of defendant no. 1 and substitute it with the name of the Liquidator appointed by the National Company Law Tribunal (NCLT). The plaintiff's counsel argued that during the pendency of the suit, a creditor initiated proceedings before the NCLT, leading to the appointment of a Liquidator for defendant no. 1. Initially, Surendra Kumar Agarwal was appointed as the Liquidator, who was later replaced by Krishna Kumar Chhaparia. The Liquidator issued a public announcement calling for claims from stakeholders, to which the plaintiff responded. Although the Liquidator initially rejected the plaintiff's claim, the National Company Law Appellate Tribunal allowed the plaintiff's appeal, enabling the plaintiff to file the claim before the Liquidator. Given the appointment of the Liquidator, the plaintiff sought to amend the plaint accordingly. The court, after perusing the application and relevant documents, acknowledged the necessity of the amendment and allowed the plaintiff's prayer. Consequently, the application (GA 3 of 2022) was disposed of.

2. Dismissal of the suit and release of bank guarantees due to the insolvency proceedings:

The Liquidator, Krishna Kumar Chhaparia, filed an application seeking the dismissal of the suit and the release of bank guarantees submitted by defendant no. 1. The background of the case involved the plaintiff initially filing a winding-up petition against defendant no. 1 due to default in payment of dues, which led to an order by the court requiring the defendant to furnish bank guarantees. During the pendency of the suit, a financial creditor filed an insolvency petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), resulting in the commencement of the corporate insolvency resolution process and the appointment of a Liquidator. The Liquidator took custody of the defendant company's assets and called for claims from stakeholders, including the plaintiff. The plaintiff's claim, initially rejected by the Liquidator for being time-barred, was later admitted by the Tribunal upon appeal.

The Liquidator argued that under Section 238 of the IBC, the provisions of the Code override other laws, and the suit could not proceed further as the plaintiff's claim was now under the Liquidator's adjudication. The court referred to precedents, including the Supreme Court's decision in Innoventive Industries Ltd. v. ICICI Bank, which emphasized the overriding effect of the IBC and the moratorium on suits against the corporate debtor. Given that the plaintiff's claim in the suit was identical to the claim before the Liquidator, the court held that the suit could not proceed further. The court directed the Registrar to release the bank guarantees submitted by defendant no. 1 to the Liquidator to facilitate the liquidation process. Consequently, the suit (CS No. 1 of 2016) was dismissed, and the application (GA 4 of 2022) was disposed of.

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