2025 (9) TMI 1281 - AT - IBC

Decision upholds refusal to implead appellant and denies challenge to counterclaim during IBC moratorium under Order I Rule 10 CPC

Mr. Kamma Srinivasa Rao Versus National Highways Authority of India, M/s. Trichy Thanjavur Expressway Ltd. and IDBI Bank Ltd., Hyderabad

NCLAT dismissed both appeals and all pending IAs, upholding the Adjudicating Authority's refusal to implead the appellant and its rejection of the ... CIRP - Legality in granting permission to file a counter claim before the Arbitral Tribunal - a rider has been attached to the order that the declaration of the award, as a consequence of the submission of the counter claim would be kept in abeyance - impleadment in the appeal - appellant is not the necessary party - HELD THAT:- It has not been the case of the Appellant that no effective adjudication can be made to the IA No. 1091 / 2024 in the absence of he being impleaded as a party and particularly when he is not a party to the proceedings of the Arbitration proceedings. For the purposes of an effective adjudication of IA No. 1091 / 2024, there was no necessity for the Appellant / Applicant, to be impleaded, wherein only a direction was being issued to permit filing of a counter claim, in an Arbitration proceedings, to which Appellant is not party. What legal bearing will the order passed in IA No. 1091 / 2024, on 09.07.2024, granting permission for filing of a counter claim in a pending Arbitration proceedings, during the operation of moratorium imposed under Section 14 of I & B Code, 2016, is a question which cannot be permitted to be agitated at the behest of the Appellant, when he himself by the documents placed on record has failed to establish that the lis could not have been effectively decided in his absence - The parameters prescribed for impleadment under Order I Rule 10 of the C.P.C., or seen to be not satisfied and therefore the order of Ld. Adjudicating Authority holding the Appellant not to be the necessary party, because, even in his absence the effective adjudication can still be made, does not suffer from any apparent error. Thus the rejection of the Intervention Application i.e. IA No. 21/2024, the Ld. Adjudicating Authority does not suffer from any apparent error, which could call for any interference by this Appellate Tribunal. Accordingly, the Company Appeal (AT) (CH) (INS) No. 304/2024, would stand dismissed. All pending Interlocutory Applications would stand closed. The Company Appeal (AT) (CH) (INS) No. 303/2024, too along with all the pending Interlocutory Applications would stand dismissed, in the light of the Judgment rendered by us in Company Appeal (AT) (CH) (INS) No. 304/2024, this Company Appeal (AT) (CH) (INS) No. 303/2024, too would consequentially stand dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether an order permitting a respondent to file and pursue a counter-claim before an Arbitral Tribunal during the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) is permissible, having regard to authority on the effect of moratorium on institution/continuation of proceedings. 2. Whether a suspended director (who has preferred a pending appeal against admission to CIRP) can be impleaded/intervene in an application before the Adjudicating Authority seeking permission to the Arbitral Tribunal to entertain a counter-claim, i.e., whether the appellant is a necessary party under Order I Rule 10 CPC / Rule 11 NCLT Rules. 3. Whether reliance by the Adjudicating Authority on precedent(s) (including a judgment permitting counter-claims in arbitration during moratorium) involved a failure to apply relevant higher authority to the facts, or was per incuriam such that the order permitting the counter-claim should be set aside. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Permissibility of permitting counter-claim in arbitration during moratorium (Legal framework) Legal framework: Section 14 I&B Code imposes a moratorium prohibiting institution or continuation of suits/ proceedings against the corporate debtor; Sections 17(1)(b) and 17(2) vest powers of board/management in the Interim Resolution Professional (IRP). Procedural principles for impleadment/intervention derive from Order I Rule 10 CPC and Rule 11 NCLT Rules. Precedent treatment: The Adjudicating Authority permitted the counter-claim relying on an earlier line of authority that had allowed arbitration tribunals to entertain counter-claims during moratorium (including a judgment treated as holding permissibility). Higher authority cited by the appellant (decision holding moratorium bars institution/continuation of suits/proceedings) was argued to govern and to displace the permissive approach. Interpretation and reasoning: The Tribunal did not undertake a final determination on the substantive permissibility of counter-claims during moratorium on merits in this appeal. Rather, the Tribunal analyzed whether the appellant had locus to challenge the order permitting the counter-claim. The Tribunal accepted that the question whether counter-claims in arbitration during moratorium are maintainable is a live legal issue subject to existing conflicting authorities, but it declined to adjudicate the merits because the appellant was not a necessary party and lacked a direct enforceable right affected by the order granting permission to an Arbitral Tribunal to entertain a counter-claim to which the appellant was not a party. Ratio vs. Obiter: The Tribunal's operative ratio is procedural: an order permitting a party to press a counter-claim in arbitration during moratorium cannot be challenged by a non-party/suspended director who has not shown that his absence defeats effective adjudication. The Tribunal did not lay down a substantive ratio on the interplay between Section 14 moratorium and arbitration counter-claims; that aspect remains obiter in so far as previous authorities were discussed but not overruled or authoritatively settled. Conclusions: The Tribunal did not set aside the impugned order permitting the counter-claim. On the factual record, and given the appellant's lack of status in the arbitration, the Tribunal refused to adjudicate the broader moratorium question in the appellant's favour. Issue 2 - Whether the suspended director is a necessary party / entitlement to intervention (Legal framework) Legal framework: Rules governing impleadment/intervention: Order I Rule 10 CPC (necessity of party for effective adjudication), Rule 11 NCLT Rules (intervention), and statutory effect of Section 17 I&B Code (suspension of management powers and vesting in IRP). Precedent treatment: Authorities establishing necessity test for impleadment (party whose rights are likely to be affected or without whom no effective order can be made) were considered; the appellant relied on such authority to argue necessity. The Tribunal contrasted that authority with the statutory allocation of rights to the IRP under Section 17 to show lack of individual management rights during CIRP. Interpretation and reasoning: The Tribunal examined whether the appellant (suspended director and appellant in a separate pending appeal against CIRP admission) had demonstrated that his presence was indispensable to adjudicate IA No.1091/2024. The Tribunal found (i) the IA sought only a direction to the Arbitral Tribunal to entertain a counter-claim in arbitration proceedings to which the appellant is not party; (ii) the respondent did not seek any relief against the appellant; (iii) the appellant failed to show any enforceable right that would be affected by the order; (iv) the mere pendency of an appeal against CIRP admission or an interim order in that appeal does not render him a necessary party in proceedings concerning a third party's counter-claim in arbitration; and (v) Section 17 vesting management rights in the IRP implies the appellant in his individual capacity lacks the appropriate statutory management locus to seek intervention in such proceedings on the corporate debtor's behalf. Ratio vs. Obiter: Ratio - An intervention/impleadment application must establish that the applicant is a necessary party under Order I Rule 10 CPC (i.e., absence prevents effective adjudication or the applicant's rights are directly affected); mere apprehension or pendency of unrelated proceedings is insufficient. Obiter - Observations on the interaction of Section 17 with intervention rights and on comparative precedents are explanatory but not expanded into broader rule-making beyond the facts. Conclusions: The Tribunal held the intervention application was rightly dismissed: the appellant was not a necessary party; his pleadings failed to satisfy Order I Rule 10 CPC or Rule 11 NCLT Rules; and the Adjudicating Authority's rejection of impleadment did not suffer any error warranting interference. Accordingly, the appeal challenging rejection of impleadment was dismissed. Issue 3 - Validity of reliance on conflicting precedent(s) and contention of per incuriam (Legal framework) Legal framework: Principles on stare decisis and binding effect of higher court decisions; evaluation of judgments rendered by consent or those later subject to authoritative reversal; duty of adjudicating authority to apply binding higher court precedent. Precedent treatment: The appellant contended that the Adjudicating Authority wrongly relied on a line of authority permitting counter-claims (including a consent judgment) and that that reliance was per incuriam or inconsistent with later Supreme Court authority that moratorium bars institution/continuation of proceedings. The Tribunal acknowledged the existence of conflicting authorities but, in disposing of the appeal, did not adjudicate the conflict or declare any earlier precedent per incuriam. Interpretation and reasoning: The Tribunal's approach was that questions about the correctness or precedential force of conflicting authorities could not be resolved by the appellant who lacked locus to challenge the impugned order; the Tribunal therefore declined to entertain arguments alleging per incuriam reliance because the appellant had not established the requisite standing to impugn the order substantively. The Tribunal implicitly left open the substantive conflict for an appropriate party or forum with proper locus to decide. Ratio vs. Obiter: Ratio - A procedural challenge to an order based on incorrect reliance on precedent must be brought by a person with locus and by meeting the tests for intervention/impleadment; absent such locus, appellate interference is not warranted. Obiter - The Tribunal's refusal to pronounce on whether the earlier decisions were per incuriam or overridden is non-decisive commentary. Conclusions: The Tribunal did not adjudicate or displace the conflicting precedents; it dismissed appeals on procedural grounds. The Tribunal's disposition leaves the substantive legal question of counter-claims during moratorium unresolved in this proceeding. Overall Disposition The Adjudicating Authority's refusal to implead the suspended director was upheld as correct; consequences of that ruling precluded the appellant from maintaining a substantive challenge to the order permitting pursuit of the counter-claim in arbitration. Both appeals challenging (a) rejection of the intervention application and (b) the order permitting the counter-claim were dismissed. The Tribunal confined its decision to procedural/standing grounds and did not decide the substantive question of the interaction between Section 14 moratorium and the adjudication of counter-claims in arbitration.