TaxTMI 
TaxTMI 
2024 (11) TMI 879
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....n Section 3(8) of the IBC as a corporate person who owes a debt to any person] undergoing a Corporate Insolvency Resolution Process ("CIRP") under the Insolvency and Bankruptcy Code, 2016 ("IBC") since February 22, 2023. This Application has been filed at the behest of the Resolution Professional who is now in charge of running the affairs of the Applicant-Appellant under the oversight of the Committee of Creditors appointed under the IBC. 3. A quick overview of the following facts underlying the Appeal would be in order:- a) Suit No. 2295 of 2002 was disposed of by a learned Single Judge of this Court by a judgment dated June 13, 2016 ("Impugned Judgment"), with a direction to the Appellant to pay to the Respondent, a sum of Rs. 15,00,000/- by way of damages along with interest at the rate of 24% per annum, from the date of institution of the suit until the date of realization; b) In Appeal No. 597 of 2016, challenging the Impugned Judgement, an interim order dated February 15, 2016 came to be passed, the operative part of which reads as follows : 2. Appellants shall deposit Rs. 20 lakhs in this Court and the balance amount shall be secured by giving ....
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....September 1, 2023. Since that date, the Company is without doubt, under CIRP, and the moratorium is firmly in place; j) Meanwhile, the ICICI Guarantee, scheduled to expire on January 6, 2024, was extended for one more year and is now scheduled to expire on January 6, 2025; k) The Applicant-Appellant filed Interim Application No. 7569 of 2024 before the Supreme Court seeking withdrawal of the Special Leave Petition No. 807 of 2020. The premise of such Interim Application was that the CIRP being underway, with the attendant moratorium, there is no scope at all left for the guarantee to be invoked since Section 14 of the IBC prohibits enforcement against any of the assets of a corporate debtor undergoing CIRP. It was submitted by the Applicant-Appellant to the Supreme Court that it is the duty of the Resolution Professional to take control and custody over all the assets of the corporate debtor, and the only option for the judgment creditor is to make his claims before the Committee of Creditors constituted under the IBC. It was submitted that the execution of a decree or judgment is explicitly prohibited under Section 14 of the IBC. Consequently, it was submitted, t....
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....nt, acting through the RP submitted that no useful purpose would be served in requiring the bank guarantee to be kept alive; and n) Upon hearing the parties, the Supreme Court allowed Interim Application No. 7569 of 2024 seeking withdrawal of the Special Leave Petition and permitted the revocation of the ICICI Guarantee. The Supreme Court made the following Order: I.A. No. 7569/2024, seeking withdrawal of the special leave petition, is allowed. The special leave petition is dismissed as withdrawn. The bank guarantee(s) will stand revoked. The respondent, Rajiv Suri, will be entitled to enforce his rights in accordance with law. [Emphasis Supplied] Contentions of the Parties: 4. On the strength of the aforesaid development, the present Application before this Court seeks withdrawal of Appeal No. 597 of 2016 on identical grounds, and to seek release of the cash deposited in this Court, being an asset owned by the corporate debtor. It is noteworthy that the Appellant had undertaken before the Supreme Court, that this Appeal would be withdrawn. 5. The claim of the Respondent has been adjudicated and crystallized in the Impugned Judg....
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....ments on the rights of parties involved in an appeal, when the appellant becomes insolvent. According to him, the absolute proposition laid down in Rajendra Bansal would necessarily require this Application to be dismissed. 10. Pursuant to the aforesaid contention, since the order of the Supreme Court permitting revocation of the ICICI Guarantee was not very detailed, but was a disposal of the pleadings made before the Supreme Court, we called upon the parties to produce before us the pleadings in the Supreme Court. Findings and Analysis: 11. It is from the record so produced, that the aforesaid factual matrix has been extracted. It is clear from a plain reading of the pleadings of the parties before the Supreme Court, and the outcome of permitting the revocation of the ICICI Guarantee, that the implications of the insolvency proceedings on the security interest created in the course of this Appeal, have been decided by the Supreme Court, and that too, inter-parties, taking into account the very contentions that are now raised before this Court. 12. For completeness, we must point out that in our opinion, monies deposited in Court by a corporate debtor are assets that a....
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....orporate debtor in order to identify the asset and conserve them under Section 18 of the IBC. 15. The IBC is a comprehensive and relatively new self-contained code governing insolvency and bankruptcy of, among others, corporate debtors. Even decree holders, who are creditors of the corporate debtor, would be subject to the operation of the IBC's provisions - with the moratorium under Section 14 prohibiting execution and enforcement of the decree; a resolution enabling re-writing the obligation owed to such creditor; and liquidation, enabling distribution and payment from the liquidation estate, including to the decree-holder. 16. The order of the Supreme Court permitting revocation of the ICICI Guarantee constituting the very same security interest, relates to the very same CIRP and the disputes between the very same parties. Therefore, the decision of the Supreme Court would require disposal of this Application (for withdrawal of the cash deposited in this Court too). However, since the Respondent has submitted that Rajendra Bansal presents an absolute proposition of law, namely, that monies deposited in court do not belong to the corporate debtor, although the decision of t....
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....ct 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; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by 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. Explanation.-- ***** [Emphasis Supplied] 20. It will be seen from a plain reading of the foregoing that under Section 14 (1) (a), the moratorium that is triggered at t....
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....r 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; [Emphasis Supplied] 24. It will be seen that the term "claim" means a right to payment regardless of whether such right has been reduced to writing in a judgment. In the matter at hand, the right of the Respondent is a right reduced to writing in the Impugned Judgement, expressed in terms of a crystallised amount, adjudicated as being owed to the judgement creditor. It is the potential performance of the obligation corresponding to such right that has been secured by the deposit made in this Court in appellate proceedings. Consequently, we have no hesitation in holding that the monies deposited in this Court, which are sought to be released for conservation by the Resolution Professional, for eventually being dealt with in accordance with the provisions of the IBC, would, at the highest only constitute a security interest in respect of the claim of the Respondent and can never be held not to be the prop....
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.... a foreign country; (ii) assets that may or may not be in possession of the corporate debtor; (iii) tangible assets, whether movable or immovable; (iv) intangible assets including intellectual property; (v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies; (vi) assets subject to the determination of ownership by a court or authority; (g) to perform such other duties as may be specified by the Board. Explanation.-For the purposes of this 1[section], the term "assets" shall not include the following, namely:- (a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment; (b) assets of any Indian or foreign subsidiary of the corporate debtor; and (c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator. [Emphasis Supplied] 28. It will be seen from Section 18 (1) (f) that the Resolution Professional is required to take control and custody of any asset over which the corporate de....
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....corporate debtors. 32. In Chowthmull, the judgment debtor was not a body corporate. In the course of an appeal, the judgement debtor deposited an amount in Court as security against execution proceedings. The monies deposited had been deposited by consent and the judgment creditor had also been given liberty to withdraw the monies so deposited upon posting security against such withdrawal, to the satisfaction of the Registrar. During pendency of proceedings, the judgement debtor was adjudicated insolvent. The Official Assignee of the insolvent did not proceed with the appeal, and yet claimed that the money deposited belonged to the insolvency estate for the benefit of the general body of creditors of the insolvent. The judgment creditor called upon the Official Assignee to decide whether the estate of the insolvent would pursue the appeal and if so, to post security for the costs of the appeal since the appellant (the judgement debtor) was had become insolvent. 33. The Official Assignee argued that the amounts deposited in Court belonged to the insolvent under the Presidency Towns Insolvency Act, 1909 ("Insolvency Act") at the commencement of the insolvency and that such moni....
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....mited Vs. Housing Development and Infrastructure Ltd. 2020 SCC Online Bom. 2522 (Nahar HDIL Case). Housing Development and Infrastructure Ltd. ("HDIL") had deposited a sum of Rs. 8 Crores pursuant to an interlocutory arrangement under Section 9 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") in a dispute with Nahar Builders Limited ("Nahar") that had been referred to arbitration. Eventually, the arbitration award was in favour of Nahar, which filed an application to withdraw the sum of Rs. 8 Crores deposited under Section 9 of the Arbitration Act. Meanwhile, HDIL become insolvent, and was subject to CIRP, triggering the resultant moratorium under Section 14 of the IBC. 37. A Learned Single Judge of this Court held that once an amount is deposited in Court, it is placed beyond the reach of either party, and that therefore, such amount is not the property of the corporate debtor undergoing CIRP. According to the Learned Single Judge, once the arbitral award came to be passed, it became enforceable as a decree of the Court and no outstanding question remained about ownership of the amount. Since the Learned Single Judge ruled that the amount is not the property of....
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....ly, that monies deposited in court by a corporate debtor prior to commencement of CIRP would cease to be assets of the corporate debtor, and that too as an absolute authoritative position. Chettiar - emphatic declaration: 42. Finally, in our respectful view, a decision of the Supreme Court in the case of P.S.L. Ramanathan Chettiar Vs. O.R.M.P.R.M. Ramanathan Chettiar (1968) 3 SCR 367:AIR 1968 SC 1047 (Chettiar), deserves emphasis. Chettiar has been distinguished in Rajendra Bansal. Paragraphs 12, 13 and 14 of Chettiar are relevant and are extracted below : 12. On principle, it appears to us that the facts of a judgment-debtor's depositing a sum in court to purchase peace by way of stay of execution of the decree on terms that the decree-holder can draw it out on furnishing security, does not pass title to the money to the decree-holder. He can if he likes take the money out in terms of the order; but so long as he does not do it, there is nothing to prevent the judgment debtor from taking it out by furnishing other security, say, of immovable property, if the court allows him to do so and on his losing the appeal putting the decretal amount in court in terms of O....
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....Respondent could not initiate execution proceedings because of the deposit having been made by the Applicant-Appellant. It is an admitted fact that the Respondent never sought to withdraw the monies by furnishing security. Had such withdrawal been made before the commencement of the CIRP, the corporate debtor (through the RP or liquidator, as the case may be), would have had to take action against the Respondent to bring the money back. If the Appeal had been disposed of in favour of the corporate debtor, the monies would have been placed back in possession of the corporate debtor. The CIRP would pose no barrier to such proceedings. 46. In the instant case, the monies indeed remained in the books of the corporate debtor and in the possession of the Court, which is why, in the pleadings in the Supreme Court, the Respondent had itself submitted that the property was "custodia legis" - in contrast with the submission before this Court that the money was not at all an asset of the corporate debtor. If the Appeal had succeeded, the amounts so secured, would have been released to the corporate debtor. If the Appeal had failed, but the insolvency had intervened, the claim of the decree....
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....rsons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. [...] 5. The Code seeks to achieve the above objectives.'" ***** 37. The objectives discernible from the long title and the Statement of Objects and Reasons of the IBC were discussed in a decision of a two-judge bench of this Court in Swiss Ribbons (P) Ltd. v. Union of India. This Court observed that the IBC is a beneficial legislation which attempts to put the Corporate Debtor back on its feet. According to this Court, this would involve considering the interests of all concerned stakeholders rather than viewing the IBC as a mere recovery legislation for individual creditors. This Court, speaki....
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.... used as a money recovery mechanism has been reiterated in a consistent line of precedent by this Court; and d. The interests of the corporate debtor must be detached from those of its promoters/those who are in management. A "recalcitrant management" must be prevented from taking advantage of undue delays and preventing an inevitable insolvency. In other words, as noted by this Court in Arun Kumar Jagatramka (supra), the economic value of corporate structures is broader than the partisan interests of their management. ***** 44. In summary, the scheme of the IBC under Chapter II gives rise to two significant principles: a. Once the petition is admitted, the proceedings are no longer the preserve of the applicant creditor and the debtor. They now become in rem and all creditors of the corporate debtor become stakeholders in the process; and b. Once the petition is admitted, the management of the affairs of the corporate debtor is vested in the IRP and eventually, in the RP. Thus, the corporate debtor no longer exists in the form that it did, before the admission of the petition. Once CIRP is initiated, the interests of the erstwhile manag....
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....depositors, had already appropriated the pre-deposit towards the liability of the borrower, or with the consent, had adjusted the amount towards the dues, or if there be any attachment on the pre-deposit in any proceedings under Section 13(10) of the Act read with Rule 11 of The Security Interest (Enforcement) Rules, 2002, or if there be any attachment in any other proceedings known to law. [Emphasis Supplied] 51. Axis SBS also holds that the deposit of the amount with the appellate tribunal is not a bailment with the secured creditor. The Court noted that Section 171 of the Contract Act, 1872 provides for a statutory bailment over assets kept, among others, with banks, unless there is a contract to the contrary, and that no other person may claim a bailment in the absence of a contract. In the instant case, the terms on which the cash was deposited in this Court is governed by the order of this Court granting a stay on execution subject to the deposit. 52. Meanwhile, under the IBC, a statutory fetter on the deposit has come into operation. In Axis Bank SBS, the Supreme Court has ruled that the pre-deposit not being a bailment must be returned to the borrower unless ....
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.... provisions of the IBC and its implications for decree holders, the monies deposited in this Court are indeed assets under the ownership of the Applicant-Appellant, with possession being in the hands of the Court. No meaningful purpose would be served in continuing with the deposit, since even if the Appeal were to fail, the Respondent would need to be subjected to the CIRP run by the Committee of Creditors through the Resolution Professional. If the resolution attempts fail, the Respondent's rights under the Impugned Judgement would be subject to the waterfall mechanism for distribution of liquidation proceedings, stipulated under the IBC. 55. In the result, in view of the CIRP proceedings pending in relation to the Applicant-Appellant:- A) We hold that monies or any other asset deposited by a corporate debtor in court prior to commencement of CIRP by way of security (to protect against execution of any judgement or decree), would not cease to be the asset of the corporate debtor; B) Consequently, the monies deposited by the Applicant-Appellant in this Court constitute assets owned by the Applicant-Appellant although they are not in possession of the Applicant....