TaxTMI 
TaxTMI 
2019 (4) TMI 253
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....missal of the suit. The contention raised on behalf of the petitioner rests on the assertion that the IBC has overriding effect over other laws and that the effect of the corporate insolvency resolution process having been triggered in the context of the petitioner in the present case resulted in rendering all proceedings like the suit filed by respondent No.1 as not maintainable and liable to be dismissed. 4. The facts in brief leading to the filing of the present writ petition are that respondent No.1, a proprietary concern, filed a summary suit under Order XXXVII of the Code of Civil Procedure, 1908 (CPC) for recovery of amount of Rs. 38,89,674.14 against M/s. Bhushan Steel Ltd. and General Manager of the said Company. The said defendants were granted conditional leave to defend by furnishing bank guarantee to the tune of the outstanding amount and written statement was filed. Respondent No.1 had filed the suit for recovery of the aforesaid amount as being due from the said M/s. Bhushan Steel Ltd. for supply of magnetite powder to the factory of the said Company at Meramandali, District Dhenkanal, Odisha (formerly Orissa). The payment of the said amount was disputed by the said....
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....any Law Appellate Tribunal passed its order on 10/08/2018 dismissing all such appeals. As a consequence, the resolution plan of the petitioner, being the resolution applicant, stood accepted and the petitioner i.e. M/s.Tata Steel BSL Ltd. took over all the assets and liabilities of M/s. Bhushan Steel Ltd., as per the provisions of the aforesaid resolution plan. 8. In this backdrop, on 11/09/2018, the petitioner filed an application (Exhibit­153) in the aforesaid suit filed by respondent No.1 bearing Regular Civil Suit No.153 of 2011, pending before the Trial Court, claiming that the suit was required to be dismissed in view of the aforesaid orders of the Adjudicating Authority and the Appellate Authority under the provisions of the IBC, finally approving the resolution plan submitted by the resolution professional, whereby the petitioner had come into the picture. It was contended that the resolution plan specifically stipulated that no amount was payable to operational creditors like respondent No.1 herein and that the liability of the petitioner to pay any amount to respondent No.1 stood extinguished. It was contended that when respondent No.1 had participated in the corpora....
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....the objects and reasons for which the IBC was enacted, demonstrated that there was now a paradigm shift in the policy governing cases of insolvency and bankruptcy and that once the corporate insolvency resolution process had run its course under the provisions of the IBC, no litigation before Civil Court could survive. 11. It was further contended that having subjected itself to the aforesaid process under the provisions of the IBC, wherein the resolution plan approved by the Adjudicating Authority and upheld by the Appellate Authority, provided that no amount was due to respondent No.1 as an operational creditor, it could not turn around to prosecute the aforesaid civil suit filed before the Trial Court. Reference was made to various provisions of the IBC to emphasize that the civil suit filed by respondent No.1 could not survive any longer and that the Trial Court had erred in rejecting the application for dismissal of the suit filed by the petitioner. The learned counsel relied upon judgments of the Hon'ble Supreme court in the case of Swiss Ribbons Pvt. Ltd. v. Union of India, 2019 SCC OnLine SC 73, Innoventive Industries Ltd. v. ICICI Bank and another, (2018) 1 SCC 407, K....
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....ioner, which would be a travesty of justice. On this basis, it was contended that the writ petition deserved to be dismissed. Respondent No.1 relied upon judgment of the Hon'ble Supreme Court in the case of Mobilox Innovations Private Limited v. Kirusa Software Private Limited, (2018) 1 SCC 353. 13. Heard learned counsel for the parties and perused the record. In order to appreciate the rival contentions raised on behalf of the parties, it would be necessary to refer to the relevant provisions of the IBC. These, provisions include definitions of specific terms and the scheme that emanates from these provisions. The relevant provisions of the IBC read as follows:­ "3. Definitions.- In this Code, unless the context otherwise requires, - (6) "claim" means- (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured; (8) "corporate debtor....
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....ssional; 7. Initiation of corporate insolvency resolution process by financial creditor.- (1) A financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government, may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation.-For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application furnish- (a) record of the default recorded with the information utility or such other record or evidence of default as may be specified; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. (4) The....
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....property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (3) The provisions of sub-section (1) shall not apply to (a) such transaction as may be notified by the Central Government in consultation with any financial sector regulator. (b) a surety in a contract of guarantee to a corporate debtor. (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. 22. Appointment of resolution professional.- (1) The first meeting of the committee of creditors shall be held within seven days of the constitution of the ....
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.... a liquidation of the corporate debtor under section 53; (c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force; (f) conforms to such other requirements as may be specified by the Board. Explanation-For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 (18 of 2013) or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law. (3) The resolution professional shall present to the committee of creditors for its approval such resolution plans which confirm the conditions referred to in sub-section (2). (4) The committee of creditors may approve a resolution plan by a vote of not less than sixty six percent of voting share of the financial creditors after considering its feasibility and viability, and such other requirements as may be specified by the Board: Provided that the co....
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....esolution plan has provisions for its effective implementation. (2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan. (3) After the order of approval under sub-section(1),- (a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and (b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database. (4) The resolution applicant shall, pursuant to there solution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later: Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the a....
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....sfied that the resolution plan meets the requirements under section 30(2), approves the resolution plan and if any person is aggrieved by the said order, it can file an appeal before the National Company Law Appellate Tribunal under section 32 read with section 61 of the IBC. Upon the resolution plan being approved by the Adjudicating Authority under section 31 of the IBC, the moratorium order passed by the Adjudicating Authority under section 14 of the IBC ceases to have its effect. The said moratorium is initiated on the date when the application under section 7 of the IBC for initiation of the insolvency process is admitted. During this period, institution of fresh suits or proceedings is prohibited and continuance of already instituted suits and proceedings is also suspended. Upon the resolution plan being finally approved or modified by the Appellate Authority, it is to be implemented. 15. In the present case, upon the corporate insolvency resolution process being initiated under section 7 of the IBC by an application made by one of the financial creditors i.e. the State Bank of India, the process of inviting applications and making the process public was undertaken and claim....
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.... Civil Court, where the suit for recovery is pending. Respondent No.1 invited attention of this Court to notice appended to the list of claims of operational creditors. 18. A proper appreciation of the above quoted provisions of the IBC would show that the IBC has been enacted in order to bring about a legislation to revive a corporate debtor and to put it back on its feet and that the IBC is not merely a recovery legislation for creditors. In that sense, the emphasis of the IBC is on creating a situation where a corporate debtor does not spiral into financial destruction, and at the same time resolution of the difficulties of a corporate debtor is achieved while taking care of the interests of creditors. In this balancing act sought to be achieved by the IBC, the scheme that emerges from the provisions is that a creditor, including operational creditor like respondent No.1, is required to approach the resolution professional with details of its claim, including information about pending litigation regarding the same. These aspects are required to be taken into consideration by the resolution professional when it recommends resolution plan of a resolution applicant like the petiti....
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....said list reads as follows:­ "2. Claims which are subject to disputes pending before various authorities have been verified with a notional amount of INR 1 (Indian Rupee One only)". 23. With this backdrop, it would be necessary to refer to relevant portions of the resolution plan dated 03/02/2018, in order to examine the veracity of the contentions raised on behalf of the petitioner that the clauses of the resolution plan lead to only one conclusion that no amount is payable towards the claim of operational creditors like respondent No.1 and that proceedings initiated before the Civil Court stand terminated by implication or extinguished under the resolution plan. 24. The relevant clauses of the aforesaid resolution plan reads as follows:­ "4.2. Term of the Plan and Schedule of implementation 4.2.1. This Plan shall become binding on the Company and its employees, members, creditors, guarantors and other stakeholders involved in this Plan on the date on which this Plan is approved by the Adjudicating Authority (such date being the "Effective Date"). The date on which all the implementation of the steps set out in Annexure 5 are completed shall be the "Closing Date". The....
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....y Creditors NIL Employees and Workmen NIL Total Rs.1,000 crore # It is clarified that the Resolution Applicant shall pay the above mentioned amount at its discretion, to be exercised based on the following criteria: (A) Those required to complete the existing capital projects of the Company or those who may be required during the growth projects of the Company. (B) Those who are supplying essential and critical goods and services and are critical for the continued business viability of the Company. (C) Those who are involved with critical operations and maintenance of the Company. (iv) It is clarified that the amounts proposed to be paid to the Capital Creditors, Sundry Trade Creditors, Statutory Creditors, and the employees and workmen forming part of the Operational Creditors, shall be paid by the Resolution Applicant only to the extent of valid claim amounts. (v) The aggregate amount to be paid to the Operational Creditors (Excluding Operational Creditors being employees and workmen and Related Party Creditors) based on the details set out in this section is Rs. 1,200 crore (Indian Rupees One Thousand Two Hundred Crore) ("Operational Creditors Settlement Amount")....
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....ational Creditors as set out in Annexures 9, 10 and 12, and, including but not limited to any proceedings in relation to Taxes initiated against the Company), are collectively the "Sub Judice Claims". Each such Sub Judice Claim, is a "claim" and "debt" (as defined under the IBC) and therefore the full amount of such Sub Judice Claims shall be deemed to be owed and due as of the Insolvency Commencement Date, the Liquidation Value of which is NIL and therefore no amount is payable in relation thereto other than the payment of Operational Creditors Settlement Amount as set out herein. 8.6.13 No action by Operational Creditors Pending the occurrence of the Closing Date, no Operational Creditor shall be entitled to take, initiate or continue any steps or proceedings against the Company or its assets (whether by way of demand, legal proceedings, alternative determination process (including arbitration or an expert determination process), the levying of distress, execution of judgment or otherwise) in any jurisdiction whatsoever for the purpose of obtaining payment of any Liability, or for the purpose of placing the Company into liquidation or any analogous proceedings. 8.7.3. Extingui....
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....reditors, like respondent No.1 herein, is Rs. 1200 crores and it is earmarked as "operational creditors settlement amount". A proper and harmonious construction of the provisions of the IBC and the aforesaid resolution plan shows that the amount due to operational creditors like respondent No.1 would be paid from the said operational creditors settlement amount, upon the amount being finalized and crystallized in the pending civil suit before the Civil Court. To accept the interpretation sought to be placed by the petitioner on the provisions of the IBC read with the resolution plan, would lead to a travesty of justice and a situation not intended at all by the provisions of the IBC. It would do violence to the entire scheme of the IBC and the regulations framed there under, wherein the dues of the operational creditors have been given priority even above the dues of financial creditors. Clause 8.6.13 of the resolution plan quoted above can only mean that an operational creditor shall not be entitled to obtain orders for execution of decrees or judgments or to take any such steps that would bring distress to the petitioner, but it does not mean that a legal proceeding pending in a ....
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....ner, to be satisfied from the amount of Rs. 1200 crore set apart under the resolution plan as the operational creditors settlement amount. It cannot be held that the Adjudicating Authority or the Appellate Authority under the provisions of the IBC would be equipped to decide the objection raised on behalf of the petitioner before the Trial Court regarding alleged sub­standard quality of goods supplied by respondent No.1 for denying its liability to pay the dues. Therefore, the civil suit pending before the Trial Court cannot be extinguished merely because the resolution plan came into existence, which stood approved by the Adjudicating Authority as well as the Appellate Authority. 29. In this context, 8.7.3(i) of the resolution plan pertaining to extinguishment and waiver of other claims and liabilities assumes significance. The said clause specifically states that the petitioner as the resolution applicant has knowledge only of liabilities or claims that are set out in annexures­8, 9, 10, 11 and 12 of the resolution plan and obligations other than those setout in the said annexures would stand irrevocably and unconditionally extinguished. This makes it very clear that the....
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.... and how the IBC as a complete Code would prevail. In the said judgment, it is relevant that the State Law under consideration pertained to suspension of remedies for enforcement of liabilities for a temporary period when the State Act was applied to the facts of a particular case. In that context, it was held by the Hon'ble Supreme Court that the provisions of the IBC would prevail in view of section 238 of the IBC. It was emphasized that section 238 of the IBC was a non obstante clause of wide dimension so that any right of the corporate debtor under any other law cannot come in the way of the IBC. But, in the present case, the suit filed by respondent No.1 does not come in conflict with the IBC because the resolution plan clearly recognizes sub judice claims like that of respondent No.1 and it indicates that where the dues against the corporate debtor are yet to be crystallized, the payment of such dues would be subject to result of such proceedings, like the suit filed by respondent No.1 in the present case and a corpus of Rs. 1200 crore stands set apart under the resolution plan for satisfaction of such dues of operational creditors like respondent No.1. Therefore, the rat....
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....g professional official liquidator would be kept in abeyance. The facts of the said case and the issue arising therein before this Court do not have relevance for the question raised on behalf of the petitioner in the present case. 35. In the case of Liberty House Group Pte. Ltd. v. State Bank of India and others (supra) the Delhi High Court was concerned with a suit filed for permanent injunction restraining the respondents from invoking or encashing bank guarantees or seeking remittance in the backdrop of proceedings initiated under the IBC. It was held that if conflicting orders were passed by Civil Court and by the National Company Law Tribunal, it would be detrimental to the resolution process and on this basis, it was held that the suits could not be entertained by the Court. In the present case the resolution plan itself recognizes sub judice claims like that of respondent No.1 and there is no question of the proceedings before the Trial Court being in conflict with the resolution plan. As noted above, the resolution plan itself provides for operational creditors settlement amount to take care of the amount due, if any, that would be identified and crystallized in the proce....