TaxTMI 
TaxTMI 
2019 (4) TMI 253
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....e application filed by the petitioner for dismissal 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 paym....
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....al under the provisions of the IBC. The National Company 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 th....
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.... recovery legislation for creditors. It was submitted that 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 I....
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....es like respondent No.1 having genuine claims against the petitioner, 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, mat....
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.... insolvency professional appointed to conduct the corporate insolvency resolution process and includes an interim resolution professional; 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 r....
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....the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (d) the recovery of any 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 ce....
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....oard in priority to the payment of other debts of the corporate debtor; (b) provides for the payment of the debts of operational creditors in such manner as may be specified by the Board which shall not be less than the amount to be paid to the operational creditors in the event of 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 co....
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....all by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution 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 dat....
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....le at the same time providing for a plan to repay the debts of creditors including operational creditors like respondent No.1. The resolution plan is required to be approved by the committee of creditors and then it is to be submitted before the Adjudicating Authority i.e. the National Company Law Tribunal for approval. The Adjudicating Authority, upon being satisfied 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 appro....
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....esolution plan would show that a fund earmarked as the operational creditors settlement amount of Rs. 1200 Crore had been specifically identified in the resolution plan and payment of amount due to the operational creditors like respondent No.1 herein is required to be made from such fund, upon the amount due being finally calculated and crystallized by a decree of the 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 c....
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....ed with a notional amount of INR 1 (Indian Rupee One only) and the liability is subject to the outcome of ongoing proceedings." 22. Similarly, in the list of claims by operational creditors as of 26/07/2017 received up to 20/03/2018, the name of respondent No.1 is at Sr.No.688 with the claim amount as Rs. 1,66,66,707/­ and admitted amount of INR 1. Note '2' appended to the 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 ....
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....onths from the Closing Date. (iii) In addition to (ii) above, the Resolution Applicant, based on the critically vis-a-vis the continued business viability of the Company proposes to pay the following Operational Creditors as stated below within 12 months from the Closing Date. Category of Operational Creditors Amount to be paid within 12 months from the Closing Date. Capital and Sundry Trade Creditors Rs.1,000 crore Related Party Creditors NIL Statutory 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....
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....and Annexure 10, there are claims submitted by certain persons (including Operational Creditors), including but not limited to the claims set out in Annexure 12 hereto, relating to matters which are sub judice before various judicial forums. The matters set out in Annexures 9, 10, and 12 (and the corresponding claims against the Company). Together with all other monetary claims against the Company which may be pending or sub judice before any forum as on the Effective Date (whether or not such claims are included in the list of claims of Operational 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 occ....
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....wn as an admitted amount of INR 1, subject to determination of the amount upon finalization of the proceedings before the Civil Court. It is because the claim of the respondent No.1­operational creditor is yet to be crystallized and it is sub judice that the exact amount has not been stated in the resolution plan, although liability to make payment to respondent No.1 as recognized operational creditor has been preserved. It is in this context that Clause 8.2.2(V) assumes significance as it specifies that the aggregate amount to be paid to operational creditors, 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 situa....
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....sly not encroach upon the same. Section 238 of the IBC is also to be read in that context to mean that when the question of corporate insolvency resolution process arises, IBC would have an overriding effect. As noted above in the present case, respondent No.1 did participate in the resolution process due to which, the claim of respondent No.1 as an operational creditor stood recognized in the resolution plan dated 03/02/2018 and the suit pending before Trial Court would certainly survive and it would be relevant for determining the amount due from the petitioner, 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....
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....resolution plan has been given priority in payment over financial creditors. On this basis, the Constitutional validity of various provisions of the IBC has been upheld. The said judgment would not in any manner assist the petitioner to claim that the suit filed by respondent No.1, in the facts of the present case, was required to be dismissed upon finalization of the resolution plan. 31. In Innoventive Industries Ltd. v. ICICI Bank and another (supra) the Hon'ble Supreme Court was concerned with repugnancy of a State Law in the context of a Parliamentary Law 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 pres....
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....e of Murli Industries Ltd. v. Primo Pick N Pack Private Limited and others (supra), it was held by this Court that the corporate insolvency resolution process would continue wherein the creditors, including operational creditors could submit their respective claims and that if the National Company Law Tribunal failed to revive or successfully implement the resolution plan under the provisions of the IBC, this Court seized with the winding up petitions would proceed to deal with the petitions in accordance with law. It was held that the order passed by this Court appointing 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....