2025 (2) TMI 854 - HC - IBC

Liquidator lacks standing to challenge pre-insolvency contract terminations after resolution plan approval under IBC

Pingle Builders Private Limited Versus Union of India.

Bombay HC dismissed petition challenging contract termination by Union of India. Corporate debtor's contracts were terminated by government departments ... Challenge to action of the respondent, Union of India-Directorate General Married Accommodation Project, New Delhi, in cancelling the contract awarded on the ground of delay in its completion - petitioner raise a grievance that the termination of contract by the impugned letter is a unilateral act and is based on false, frivolous and unsubstantiated grounds, and is in complete violation of the contract executed between the parties - HELD THAT:- The Acquisition Agreement is placed on record along with the petition at Exhibit-E, and it record that Mr. Swapnil Waghchoure carrying proprietary business of electric contract in Nashik has agreed to take over the business of the Corporate Debtor under liquidation as a going concern and it extended to all assets of the debtor including but not limited to current assets, deposits, loans and advances, secured to or available with the Corporate Debtor as also all statutory and regulatory approvals, license, agreements, permissions, clearances, registration, plant and machinery, utilities, vehicles, furniture, accessories and related infrastructure as well as all intellectual property and goodwill. In Ghanshyam Mishra [2021 (4) TMI 613 - SUPREME COURT], the dominant object of Insolvency and Bankruptcy Code, 2016 was discerned, to be the revival of the Corporate Debtor, and make it a running concern and this contemplated a preparation of resolution plan based upon the out put of the Company of Creditors (COC) - A clear position of law has emerged from the said decision to the effect that on the date of the approval of the resolution plan by the Adjudicating Authority, all such claims which are not part of the plan shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim which is not part of the resolution plan. The aforesaid decision revolves around the resolution plan and the finality attached to it under the Code and do not deal with the liquidation proceedings. The agreement is signed between the liquidator and Mr. Swapnil Wagchoure as a proprietor of M/s Swapnil Electricals and Contractors, is accompanied with the Schedules as regards the assets and liabilities of the Corporate Debtor and it clearly record that all the contracts in favour of the Corporate Debtor were terminated by the respective Government Department prior to initiation of CIRP, and when the liquidator filed an appeal in the pending IBC proceedings, for revocation of the termination of contract and permission to execute it in favour of the Corporate Debtor, NCLT granted a stay on further action by the respective Government Departments in any of the concerned contract. The Government Departments forwarded recovery notices of more than INR 100 Crore against the terminated contract, which was allowed to be dealt with subsequently - The tribunal directed that the liquidator with respect to the recovery of material on site on the settlement appeal various government departments have issued in favour of Pingle Builders Pvt Ltd, a demand draft of Rs. 15,00,000/-. Conclusion - The Petitioner is no longer in existence, and had been replaced by the acquirer. All the contracts in favour of the Corporate Debtor were terminated by the respective Government Department prior to initiation of CIRP, and when the liquidator filed an appeal in the pending IBC proceedings, for revocation of the termination of contract and permission to execute it in favour of the Corporate Debtor, NCLT granted a stay on further action by the respective Government Departments in any of the concerned contract. Petition dismissed. The Petitioner, engaged in construction works, challenged the cancellation of a contract by the Union of India-Directorate General Married Accommodation Project due to delays in completion. The Petitioner cited various difficulties faced during the project, attributing them to the respondent. The termination was based on alleged lack of diligence by the Petitioner, leading to a standstill in the project. The respondent invited fresh tenders for the incomplete work, prompting the Petitioner's challenge.The Petitioner highlighted the delay as solely the respondent's fault but the contract termination was deemed unilateral and in violation of the executed contract. The termination notice invoked a clause allowing completion by another agency at the Petitioner's cost. Subsequent events included the Petitioner's insolvency proceedings and transfer of its business to an acquirer.The Petitioner pursued legal action, seeking redress for the contract cancellation. The District Court initially granted an interim order restraining the respondent from awarding the tender to others but later rejected the arbitration application, citing potential irreparable losses to the respondent if the contract was stayed.The Petitioner's counsel argued that the Petitioner, now acquired by a new entity, should be allowed to participate in the fresh tender based on principles from a legal precedent. However, the Court found that the Petitioner, no longer in existence, had been replaced by the acquirer. The Court dismissed the petition, stating that it would not entertain the Petitioner's claims given the acquisition and subsequent developments.The Court emphasized the finality of the resolution plan under the Insolvency and Bankruptcy Code, extinguishing claims not part of the plan. The Court questioned the relevance of the legal precedent cited by the Petitioner's counsel, given the Petitioner's replacement by the acquirer. The Court's decision was based on the Petitioner's acquisition and subsequent lack of legal standing, leading to the dismissal of the petition.