TaxTMI 
TaxTMI 
2023 (1) TMI 306
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.... under the Insolvency and Bankruptcy Code, 2016 ("IBC") pursuant to the order dated 15th May 2018 passed by the National Company Law Tribunal, Mumbai ("NCLT") in C.P. No. (I.B.) 1387 (MB) of 2017. Appellant is being represented in the present proceedings through its Resolution Professional. 3. Respondent in the abovementioned First Appeal, who is applicant in the Interim Application, is a former employee of appellant. 4. LIST OF DATES AND EVENTS : Sr.No. Date Particulars 1. 29th November 2001 Respondent joined appellant as an employee pursuant to an Appointment Letter dated 29th November 2001 issued by appellant. 2. 31st October 2006 Appellant unilaterally terminated respondent's employment. 3. 10th February 2010 Respondent filed Special Civil Suit No. 127/2010 ("Suit") in the Court of Civil Judge, Senior Division, Thane ("Trial Court"), inter alia, challenging the termination of his employment by appellant. 4. 28th April 2010 Appellant filed its written statement in the Suit. 5. March 2011 29th February 2012 Respondent and appellant filed their respective affidavits in lieu of examination-in-chief in the Suit. 6. 30....
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.... of appellant-Corporate Debtor. 16. 18th June 2018 Appeal restored. Appeal again dismissed. 17. 19th September 2018 Appellant's Interim Application No.25147 of 2018 for condonation of delay allowed. 18. 13th January 2020 Respondent filed Interim Application No.1161 of 2020 in the First Appeal seeking, inter alia, the following reliefs: a) Release the sum of Rs.17,16,909/deposited by appellant in the Trial Court and order appellant to pay the balance amount due with applicable interest immediately. b) Discharge the surety for Rs.10,00,000/-. This interim application is under consideration now. 19. 27th September 2022 Appellant filed its affidavit in reply to Interim Application No.1161 of 2020 filed by respondent. 20. 4th October 2022 This Court passed an order in Interim Application No.1161 of 2020, inter alia, observing that "even assuming that the First Appeal fails on merits, so long as there is a moratorium in place, the law does not permit a court to allow Bansal to withdraw the amount deposited pending the CIRP." 5. When the Interim Application No.1161 of 2020 referred to in item 18 of the chronology given abov....
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....SCC 209, has construed this provision narrowly; (d) In Embassy Property (Supra), the Apex Court has held that NCLT does not have general jurisdiction like that of a Civil Court and NCLT cannot, under Section 60(5) of the IBC, exercise jurisdiction over any and every issue concerning the corporate debtor. In Gujarat Urja (Supra), the Apex Court held that NCLT can adjudicate upon only those disputes which arise solely from the insolvency of the corporate debtor under Section 60(5). Therefore, NCLT cannot exercise jurisdiction over every issue concerning the corporate debtor simply because the corporate debtor is in insolvency. Wherever the matter in question falls outside the purview of the IBC, it is the forum which is otherwise vested with jurisdiction in law that is the right forum to adjudicate upon the said matter; (e) Appellant has not established anywhere that the First Appeal and the Interim Application arise solely from the insolvency of the corporate debtor. Since the First Appeal arises out of a challenge against the impugned judgment passed by the Trial Court on the issue of termination of respondent's employment, it has nothing to do with the insolvency....
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....ing withdrawal of monies pending the adjudication does not amount to execution as held by this Court in Nahar Builders Limited V/s. Housing Development and Infrastructure Ltd Unreported Judgment dated 21st January 2020 in Commercial Arbitration Petition No.74 of 2017. Sub-clause (b) of Section 14(1) of IBC also is inapplicable because it applies only to the assets belonging to the corporate debtor and as held by the Calcutta High Court in Chowthmull Maganmull V/s. Calcutta Wheat and Seeds Association 1924 SCC OnLine Cal 335, Apex Court in P.S.L. Ramanathan Chettiar & Ors. V/s. O.R.M.P.R.M. Ramanathan Chettiar (1968) 3 SCR: AIR 1968 SC 1049, Madras High Court in Kamakshi Ammal V/s. Pappathi 1975 SCC Online Mad 23, Apex Court in Roshanlal Kuthalia V/s. R.B. Mohan Singh Oberoi (1975) 4 SCC 628, Apex Court in Bank of India V/s. Vijay Transport & Ors. (2000) 8 SCC 512, this Court in Nahar Builders (Supra) and in Raj Shipping Agencies V/s. Barge Madhwa 2020 SCC Online Bom 651 and Apex Court in Chitra Sharma V/s. Union of India (2018) 18 SCC 575, the monies deposited by appellant in the Trial Court pursuant to the order dated 10th December 2012 do not constitute the asset of appellant.....
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....to walk. The orthopaedic surgeons had advised him to go for knee replacement surgeries in both his knees and hence respondent is in urgent need of money. (b) In addition, respondent in the First Appeal had filed Interim-Application No.1923 of 2017 for early hearing. The said application was allowed on 25th July 2017. The First Appeal was listed on 4th January 2018 when none appeared for appellant and the matter was listed for dismissal. On 15th January 2018, the matter was again listed when none appeared for appellant and the appeal came to be dismissed. Appellant filed an application for restoration which was allowed vide order dated 18th June 2018. However, appellant did not comply and the First Appeal again came to be dismissed. Appellant again filed Interim Application No.25147 of 2018 for condonation of delay, which was allowed vide order dated 19th September 2018. Though the appeal was listed for final hearing, the same could not be taken up due to the weight of the board. That being so, it is clear that the delay has been caused by appellant. (c) All this constitutes a change in facts and circumstances which would warrant respondent/judgment credit....
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....emises, although the money deposited by a judgment debtor in Court is placed beyond its reach, the title in the money remains with the judgment debtor. In other words, the money continues to remain the property of the judgment debtor. The principle that money deposited by a decree holder effectively remains the property of the judgment debtor has been affirmed by the Hon'ble Andhra Pradesh High Court in Kothamasu Venkata Subbaya V/s. Udattha Pitchayya 1959 SCC OnLine AP 216. 15. Relying upon Keshavlal V/s. Chandulal AIR 1935 Bom. 200, the Court said "In my opinion this is the correct way of regarding the deposit in the present case also; it was primarily a deposit of security rather than a deposit of the decretal debt, and the decree-holder cannot claim it as his own unless the judgment-debtor fails to satisfy the decree by the payment of the money due under the decree." The Court held that all that the decree-holder could claim was the sum found due under the decree with interest and that no more could be given to him, while the profit must go to the person who had made the deposit. The amount which had been deposited did not go towards the satisfaction of the decree, and the d....
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.... the appeal does his right to the amount deposited in Court relate back to the date of the deposit. 17. The judgment of the Hon'ble Supreme Court in Roshanlal Kuthalia (Supra) is similarly consistent with the above principle, as it says that a mere security deposit does not become an automatic satisfaction of the decree when the appeal fails is simple enough. The judgment of the Hon'ble Supreme Court in Roshanlal Kuthalia (Supra), therefore, recognises : (i) the principle that the security furnished by the judgment debtor does not automatically amount to satisfaction of the decree upon the failure of the appeal; (ii) the principle that the title to money deposited in Court changes only upon dismissal of the appeal in favour of the decree holder as it is only then that such deposit may not be withdrawn or substituted by the depositor/judgment debtor; and (iii) the principle that there exists equity in favour of the judgment debtor to the extent of the amount deposited by such judgment debtor in Court. In other words, the Hon'ble Supreme Court, in Roshanlal Kuthalia (Supra) recognised the fact that the title in the money deposited in Court remains with t....
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....rned Senior counsel for the Respondent, it is obvious that the amount received by the Respondent would be subject to orders which may be passed by the NCLT." What the Division Bench effectively did was to permit withdrawal of the amount deposited in Court by the award holder upon an undertaking by the award holder that the amount would be subject to orders of the NCLT. This completely militates against the principle that the money deposited is the unfettered property of the award holder. It however upholds the principle that the money remains the property of the corporate debtor since otherwise, there would be no question of the money realised by the award holder being subject to the order of the NCLT. The judgment of the Learned Single Judge cannot be read de hors the judgment of the Division Bench of this Court. 19. Lastly, the judgment of the Hon'ble Calcutta High Court in Chowthmull (Supra), relied upon by the learned Amicus Curiae also does not run contrary to the above submissions. In fact, the judgment of the Hon'ble Supreme Court in P.S.L. Ramanathan Chettiar (Supra) expressly says so in dealing with the judgment in Chowthmull (Supra) "The observations in Chowthmull c....
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....nder, to entertain. This bar is contained in Section 231, which provides : 231. No civil court shall have jurisdiction in respect of any matter in which the Adjudicating Authority is empowered by, or under, this Code to pass any order and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any order passed by such Adjudicating Authority under this Code. 23. Section 60(5) of the IBC also provides for the matters which the NCLT has the jurisdiction to entertain. Section 60(5) is provides : 60.(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of - (a) any application or proceeding by or against the corporate-debtor or corporate person; (b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and (c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of....
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....le Supreme Court in Embassy Property (Supra) has held that the resolution professional cannot by virtue of Section 60(5) of the IBC avoid other fora if they have jurisdiction to hear the concerned matter and go only to the NCLT. The Hon'ble Supreme Court in Gujarat Urja (Supra) has, however, clarified that if the issue arises solely on the ground of the insolvency of the corporate debtor, then it is the NCLT who would adjudicate the same in light of Section 60(5) of the IBC. In cases arising other than on the ground of insolvency of the corporate debtor, the same must be agitated before the relevant fora having jurisdiction to adjudicate such case. In the present case, the main issue is whether or not the judgment creditor (respondent) is entitled to the money deposited by appellant in Court pending the present appeal and pending its ongoing CIRP. The main issue in the present case thus is an issue arising solely on the ground of the insolvency of appellant. In light of the above and in light of Section 60(5) read with Section 231 of the IBC, the NCLT is the appropriate forum to adjudicate the above issue. 28. Therefore, this Court does not have the jurisdiction to entertain and....
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....corporate person, including claims by or against any of its subsidiaries situated in India; and (c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code." (d) Although at first blush, the language of Section 60(5) appears to be all encompassing and gives the impression that it would include within its ambit virtually all matters concerning the corporate debtor, the Hon'ble Supreme Court in Embassy Property (Supra) and Gujarat Urja (Supra) has construed this provision narrowly. (e) In Embassy Property (Supra) after underscoring that the NCLT does not have general jurisdiction like that of a Civil Court, the Hon'ble Supreme Court held that under Section 60(5)(c) of the IBC, the NCLT cannot exercise jurisdiction over any and every issue concerning the corporate debtor. The Court held as follows : "37. ...The only provision which can probably throw light on this question would be sub-section (5) of Section 60, as it speaks about the jurisdiction of the NCLT. Clause (c) of sub-section (5) of Section 60 is very br....
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....Sections 18 and 25 in contrast to the language employed in Section 20. Section 18 speaks about the duties of the interim resolution professional and Section 25 speaks about the duties of resolution professional. These two provisions use the word "assets", while Section 20(1) uses the word "property" together with the word "value". Sections 18 and 25 do not use the expression "property". Another important aspect is that under Section 25(2)(b) of the IBC, 2016, the resolution professional is obliged to represent and act on behalf of the corporate debtor with third parties and exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial and arbitration proceedings. Sections 25(1) and 25(2)(b) reads as follows... This shows that wherever the corporate debtor has to exercise rights in judicial, quasi-judicial proceedings, the resolution professional cannot short-circuit the same and bring a claim before NCLT taking advantage of Section 60(5). 41. Therefore in the light of the statutory scheme as culled out from various provisions of the IBC, 2016 it is clear that wherever the corporate debtor has to exercise a right that falls outside the purview....
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....of the corporate debtor. Such is clearly not the case here, since the First Appeal arises out of a challenge against the Impugned Judgment passed by the Trial Court on the issue of termination of respondent's employment. It has nothing to do with the insolvency of the corporate debtor. The NCLT could never sit in appeal over the judgment/decree of a Civil Court. Such a judgment/decree can only be corrected in appeal and, therefore, the NCLT would not have jurisdiction to hear and decide the First Appeal. (i) Insofar the Interim Application is concerned, it concerns monies deposited by appellant pursuant to an order passed by this Court in the First Appeal as a condition for stay of execution of the Impugned Judgment. By no means is the Interim Application arising solely from the insolvency of the corporate debtor since the monies were deposited much prior to the commencement of CIRP. (j) Appellant has contended that the since the issue in the Interim Application is whether the judgment creditor can withdraw the money deposited by appellant in this Court pending the corporate insolvency resolution process, the issue arises solely from the insolvency of the corporate debtor and....
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....belong to the corporate debtor and (B) the monies deposited by appellant in the Trial Court do not constitute an asset of appellant. A. The scope of moratorium under Section 14 of the IBC (b) The moratorium that is imposed under Section 14 applies only to proceedings against the corporate debtor and only applies qua the assets and properties of the corporate debtor. If monies deposited in court or any other asset/property does not belong to the corporate debtor, the moratorium would not preclude/prevent a creditor from enforcing its rights against the monies/assets/properties. This is clear from a plain reading of Section 14 of the IBC. (c) Sub-section (1) of Section 14 of the IBC 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 judgement, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) ....
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....e owner or in the possession of the lessor. The monies deposited by appellant in the Trial Court are obviously not within the occupation or possession of the corporate debtor. (k) Therefore, the moratorium under Section 14(1) does not have any bearing on the rights of respondent to withdraw the monies deposited in Court. (l) In Embassy Property (Supra), in paragraph 45, the Hon'ble Supreme Court has held that the purpose of Section 14 of IBC is to preserve status quo and not to create a new right in favour of the corporate debtor. Therefore, if it is found, as demonstrated below, that as on the date of the commencement of CIRP, the monies deposited by appellant with the Trial Court did not constitute a part of the assets/property of the corporate debtor, allowing the withdrawal of the deposited sum does not contravene Section 14 of the IBC. B. The monies deposited in the Trial Court do not constitute the assets of Appellant (m) The sum of Rs.32,16,909/- which has been deposited by appellant with the Trial Court as a condition for stay of the execution of the Impugned Judgment does not constitute the asset of appellant. (n) The position o....
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....out on furnishing security which means that the payment was not in satisfaction of the decree and the security could be proceeded against by the judgment-debtor in case of his success in the appeal. Pending The determination of the same, it was beyond the reach of the judgment-debtor." (emphasis supplied) (p) The Hon'ble Madras High Court in Kamakshi Ammal (Supra) has followed the decision of the Hon'ble Calcutta High Court in Chowthmull (Supra) and in paragraph 3 and 7 has held that once monies are deposited, the money does not belong to either the judgment debtor or the decree holder but is custodia legis: "3. In a case like this it is essential to view the subject on a broader perspective, as any other approach to it may lead to inequitable results. When the money was deposited by the judgment-debtor as a condition precedent for the grant of stay at the time when the second appeal was admitted, then such money so deposited into court is in custodia legis and is no longer under the control of either the judgment-debtor or the decree-holder. Once the second appeal has been dismissed, the money so deposited and which is in the custody and control of the court a....
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....of the second appeal. As soon as the second appeal is disposed of against the judgment-debtor eo instanti the decree-holder is the person, who is entitled to the said amount, as on the date when it was deposited it belonged to him and there was only a postponement of the right to collect the money because of the pendency of the civil proceeding." (emphasis supplied) (q) The Hon'ble Supreme Court in Roshanlal Kuthalia (Supra) in paragraphs 37 and 38 has quoted with approval the decision in Chowthmull (Supra). The Court held as under: "37. What are the principles vis-a-vis the problem here? That a mere security deposit does not become an automatic satisfaction of the decree when the appeal fails is simple enough. But when the judgment-debtor has paid into court cash by way of security conditioned by its being made available to discharge the decree on disposal of the appeal and for reasons beyond the control or conduct of the judgment-debtor the money is not forthcoming to liquidate the liability can he be asked to pay over again? In Chowthmull Manganmull v. Calcutta Wheat and Seeds Association [ILR (1930) 51 Cal 1010] , Sanderson, C. J. observed (at p. 1013) : ....
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....orically affirmed the principle that a court holds money deposited before it in trust for the decree holder. In such a situation, the judgment debtor, i.e., appellant herein, cannot claim any rights over the monies deposited with the Court and such monies are left outside the scope of assets of the judgment debtor under the IBC. (s) Similarly, the Hon'ble Supreme Court in Bank of India (Supra) in paragraph 37 has held that monies deposited in Court by way of security and held by the Court is custodia legis to the credit of the party which is ultimately successful. (t) A very recent decision which is on identical facts is the decision of this Hon'ble Court in Nahar Builders (Supra). In this case, Housing Development and Infrastructure Limited ("HDIL") had deposited a sum of Rs. 8 crores in court pursuant to an order passed in a petition filed under Section 9 of the Arbitration and Conciliation Act, 1996 ("1996 Act"). HDIL suffered an award which attained finality. Nahar Builders Limited ("Nahar") sought to withdraw the sum of Rs. 8 crores. At the time of Nahar's request for withdrawal, HDIL had become insolvent. Therefore, HDIL took the defence that in light of the....
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.... a decree-holder/award holder to withdraw monies deposited in court prior to the commencement of CIRP is not affected by the moratorium under Section 14 of the CIRP. (u) It must be noted that the judgment of the learned Single Judge in Nahar Builders (Supra) was challenged before the Hon'ble Division Bench of this Court. This Court, vide its Judgment dated 30th January 2020, passed in HDIL V/s. Nahar Builders (Supra) did not interfere with the order of the learned Single Judge and recorded that there was nothing shown in the appeal which would militate against the legal principle set out in the decision of the Learned Single Judge. (v) A learned Single Judge of this Court has, in Raj Shipping (Supra) held that when a ship is arrested, it becomes custodia legis and if it is sold under the orders of the Court and the money is received by the Court, the interest of the owner is limited to the extent of receiving the balance of the sale proceeds after satisfaction of all claims. By drawing an analogy, the principle can be applied even to the facts of the present case. Once the decretal sum is deposited by the judgment debtor in court, it ceases to be the property of t....
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....ent-debtor in court. It is in this context that the Hon'ble Supreme Court in P.S.L. Ramanathan Chettiar (Supra) held in paragraph 12 that deposit of money in court does not transfer title to the decree-holder. (b) In the paragraph 12, although the Hon'ble Supreme Court has held that the deposit of money in court by a judgment debtor does not pass title to the money to the decree holder, it has also at the same time emphasised (in paragraph 13) that the money deposited in court is beyond the reach of the judgment debtor. There is no finding in the decision of the Hon'ble Supreme Court that the judgment debtor continues to be the owner of the money deposited in court. (y) Appellant has also relied upon the decision of the Hon'ble Andhra Pradesh High Court in K.V. Subbayya (Supra) to contend that the decree holder, i.e., respondent herein does not automatically become the owner of the money deposited in court as a condition for stay of execution of the decree. Reliance on the judgment is inapposite for the following reasons: (a) The judgment related to a case where one judgment debtor-alleged collusion between the judgment creditor and another judgment debto....