TaxTMI 
TaxTMI 
2019 (12) TMI 242
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.... Adjudicating Authority Prohibiting/Barrig institution of the suits against the Defendant/Respondent. On 28.07.2017 in terms of order dated 26.07.2017, public announcement was made in respect of initiation of Corporate Insolvency Resolution Process (CIRP) of the Applicant. Further announcement called for claims from all the creditors of the applicant including the plaintiff. The Plaintiff has not filed any claim whereas they filed the present suit on 28.11.2017. The suit was numbered on 18.12.2017. Notice was ordered on 20.12.2017. The respondent/Plaintiff filed the suit for recovery of money for supply of goods/services. The alleged amount is an operational Debit and the Respondent/Plaintiff is an Operational Creditor as defined under Section 5(20) and 5(21) of the IBC. It is further stated that the Plaintiff being the Operational Creditor in terms of the public announcement the Respondent/Plaintiff instead of filing its claim before the Resolution professional under the IBC, instead chose to file the present suit which had specifically been barred under the application of the law i.e., Insolvency and Bankruptcy Code. The present suit has been filed after the announcement of CI....
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.... against the adjudicating any valid dispute but only as a standstill period in order to facilitate smooth completion of the resolution process. Intent of legislature is only to restrain the parallel proceedings when the insolvency resolution proceedings is under progress and not to a bar any adjudication after completion of the resolution process. Hence, the application does not satisfy the requirement under Order VII Rule 11 of C.P.C. and the same is liable to be dismissed. The Respondent even prior to filing of the above suit had sent a notice dated 13.2.2017 for which the applicant sent a reply dated 13.06.2017 with false pavements. Hence, prayed for dismissal of the application. 4. Learned counsel Mr.P.V. Balasubramanian appearing for the Applicant submitted that State Bank of India, Financial creditor filed Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) before the Adjudicating Authority of the National Company Law Tribunal, Principal Bench, New Delhi (Adjudicating Authority). The said application was admitted on 26.07.2017 triggering Corporate Insolvency Resolution Process from the said dated. A moratorium under Section 14 of the IBC was declared....
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....ed upon the following Judgments: 1. Alchemist Asset Reconstruction Company Ltd., vs. M/s.Hotel Gaudavan Pvt. Ltd., & Others [Civil Appeal No.16929 of 2017 arising out of S.L.P.(C) No.18195 of 2017 dated 23.10.2017]. 2. M.D., Bhoruka Textiles Limited vs. Kashmiri Rice Industries [(2009) 7 SCC 521] 3. RM.M.Ramanathan Chettiar vs. Ramaswami Pillai and Others [(1957)2 MLJ 267] 4. Alikutty Sahib vs. Cherian and Others [AIR 1961 Ker 138] 7. Hence his contention is that cessation of moratorium cannot revive monetary claim, which was instituted by a pre-existing creditor during moratorium. Hence it is his contention that cessation of moratorium is linked to approval of Resoution Plan under section 31(1) or an order of Liquidation of the CD under Section 33. A resolution Plan will be approved by an Adjudicating Authority only if it is in compliance of the requirements of such a Plaint, as st out in Section 30 of the IBC. In the given case, Resolution Plan submitted by the Resolution Applicant was approved by the Adjudicating Authority and as such the relevant provision is under Section 31(1) of the Code. Hence it is his contention that with the approve....
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....cted only with the averments made in the plaint do not disclose a cause of action or on a reading thereof the suit appears to be barred under any law. It is his further contention that Moratorium came to an end with the completion of the Corporate Insolvency Resolution Process. It has been completed on 15.05.2018. With the approval of the Insolvency resolution process on 15.05.2018 the moratorium automatically comes to an end and there is no restriction in adjudicating the suit further. It is further submitted that the legislation intended to impose a moratorium pending resolution process only to ensure that multiple proceedings are not taken simultaneously to help obviate the possibility of potentially conflicting outcomes of related proceedings and to ensure that the resolution process is a collective one and also to facilitate orderly completion of the process. The moratorium is only to ensure a stand-still period during which creditors cannot resort to individual enforcement action which could frustrate the insolvency resolution process. Therefore, it is submitted that once the period of moratorium comes to an end, adjudication of other legal proceedings can be proceeded. It....
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.... Hence prayed for dismissal of the application. 11. In support of his contention he relied upon the following judgments: 1. RM.M. Ramanathan Chettiar vs. Ramaswami Pillai and Ors. [ MANU/TN/0519/1957] 2. K.L.Kuttayan Chettiar and Ors. vs. K.V.R.Surendranathachary and Ors. [MANU/TN/0374/1982] 3. Alikutty Sahib v. Cherian and Ors. [MANU/KE/0048/1961] 4. State Bank of India vs. Bhushan Steel Limited [C.P.(IB) 201 (PB)/2017] 12. Mr.R. Sankaranarayanan, Learned Amicus Curiae who assisted the Court submitted that the interim resolution profession is required to receive and collate all claims submitted by creditors to him in pursuance of the public advertisement made u/s 13 and 15 of the Code. After collation of all claims, the interim resolution professional shall form the committee of creditors which shall consists of all Financial Creditors. In the event of three being no financial creditors the operational creditors shall constitute the committee of creditors. This shall be followed by appointment of a Interim Resolution Professional (IRP) and IRP may be confirmed as the Resolution Professional or a Resolution Professional (RP) may be appoint....
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....for receiving and collating the claims it can mean only comparing the claim made by the any one creditor with the records of the Corporate Debtor. The IRP has to find out the financial position of the Corporate Debtor. It is inconceivable to presume that the financial position of a Corporate Debtor can be determined by omitting a liability disclosed in the balance sheet including the annual report where normally contingent liabilities are also taken into account. The RP cannot ignore the admitted liabilities according to the balance sheets and this position cannot change or account of any creditor not filing a claim with the IRP or RP. The RP should determine the financial position which is the essential pre-requisite for any resolution plan. 13. It is his further contention that any aspirant Resolution Applicant would have to conduct a due diligence of an entity which he intends to take over. Any such due diligence would disclose this liability. The scheme of the act thus presupposes a simple due diligence being done by the IRP and RP before information memorandum is prepared. The RP cannot ignore any amount due by the Corporate Debtor to a statutory authority and also to those....
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....e debt. An extinguishment of a debt amounts to confiscation of a property rights guaranteed under the Art.300-A of the Constitution of India and without due process of law. Hence it is his contention that mere failure of creditor to submit the claim before the Resolution Professional Right of the Creditor would not extinguish. 14. In support of his contention he relied upon the judgment in State Bank of India vs. ARGL Ltd., [CA-1215(PB)/2019 NCLT New Delhi dated 12.03.2019] 15. The contention of the learned counsel for the applicant/defendant is that by order dated 26.07.2017, the Adjudicating Authority under Section 14 of the Insolvency and Bankruptcy Code, 2016 had declared moratorium prohibiting/barring institution of suit. Whereas, the present suit has been filed during the moratorium period. Hence, his contention is that the suit is barred by law provided under IBC under Order VII Rule 11(d). The above clause mainly applies when the statement in the plaint to be barred by law: General rule that only when the plaint averments indicate without any doubt or dispute the suit is barred by any law in force. At the same time, institution of the suit itself is violation of speci....
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....ce simultaneously and helps obviate the possibility of potentially conflicting outcomes of related proceedings. This also ensures that the resolution process is a collective one. The order under this Clause 14 inter alia, prohibits the institution or continuation of suits or any legal proceedings against the corporate debtor, the disposal of any assets of the corporate debtor and debt enforcement actions under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The moratorium on initiation and continuation of legal proceedings, including debt enforcement action ensures a stand-still period during which creditors cannot resort to individual enforcement action which may frustrate the object of the corporate insolvency resolution process. The prohibition on disposal of the corporate debtor's assets would ensure that the corporate debtor or its management is not able to transfer its assets, thereby stripping the corporate debtor of value during the corporate insolvency resolution process. The moratorium also extends to recovery of any property occupied by or in possession of the corporate debtor. It also prevents the te....
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....red to forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Insolvency and Bankruptcy Board of India to be kept as part of its record-keeping function." 18. Section 14 of the Insolvency and Bankruptcy Code is reads as follows: "14.(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:- (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; The language employed in S.14(1) (a) of the Code is peremptory and there is no option but to enforce a moratorium. This is because the scheme of the code mandates that there will be a 'stand still' period where the assets of the CD stand preserved. This is most critical as a proposed Resolution Applicant will be required to know the CD's total liabilities very clearly before deciding to rehabilitate the Company." 19. Theref....
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.... the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, 3 [including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] creditors, guarantors and other stakeholders involved in the resolution plan." 22. Prior to such resolution, section 15 of Insolvency and Bankruptcy Code mandates public announcement of the corporate insolvency resolution process and Section 18 of IBC deals with the duty of interim resolution professional that he shall perform (a) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to business operations for the previous two years; financial and operational payments for the previous two years; list of assets and liabilities as on the initiation dates; and such....
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....ent passed by this Court in K.L.Kuttayan Chettiar and others Vs. K.V.R.Surendranathachary and others reported in (1982)2 MLJ 1443 pertaining to the relevant agricultural Act (XV of 1976) which was enacted by the State Government. Section 3 of the Act prohibited filing of the suit against the agriculturist for a period of two years and six months from the commencement of Act. This Court held that the institution of suit contravening Section 3 during the moratorium period is liable to be rejected. 26. Similarly the judgment passed by this Court in RM.M.Ramanathan Chettiar Vs. Ramaswami Pillai and others reported in (1957)2 MLJ 267, has held that the suit instituted in controvention of the special Act is liable to be dismissed. From the above judgment since the moratorium is in existence, the suit is filed in contravention of specific law and such suit is liable to be rejected. In this case the resolution plan has been approved by the Adjudicating Authority. The Insolvency and Bankruptcy Code provides for equitable terms of each class of creditors. The approval of the resolution plan by the Adjudicating Authority validates that the plan has provided for dealing with operational cre....
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....e decoded on merits by the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with "undecided" claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainly amounts payable by a prospective resolution applicant who successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knowns exactly what has to be paid in order that it Amy then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate, as has been pointed out by us herein above. For these reasons, the NCLAT judgment must also be set aside on this Court." 30. The above judgment makes it very clear that once the resolution plan approved the applicant cannot face undecided claims mere accepting leads to uncertainty amounts payable by a....