AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (11) TMI 879
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....n 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 security to the satisfaction of the Prothonotary & Senior Master. [....
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....nwhile, 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, there was no question of renewing the bank guarantee, and it was prayed that the bank guarantee which was scheduled to expire on January 6, ....
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....rties, 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 Judgement. The obligation of the corporate debtor to pay the amount would also become final because the present Appeal is also being withdrawn. The bank guarantees have already been revoked and rele....
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....tion 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 are placed out of the possession of the corporate debtor but by no means would the loss of possession eclipse the ownership of title to the monies so deposited. The assets provided to secure the outcome in the j....
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....ers, 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 the Supreme Court inter-parties should put an end to any further controversy, we believe it would be necessary to discuss and deal with the Respondent's contention. Section 14 of IBC is relevant; not Section 231 of IBC....
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....f 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 the commencement of CIRP, prohibits among others, the continuation of proceedings against the corporate debtor, including execution of any judgement or decree in any court of law. In the matter at hand, the Respondent has not filed an application for withdrawal of monies deposite....
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.... 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 property of the corporate debtor. 25. It will also be instructive to examine the import of the terms, "creditor" and "debt" under the IBC. The relevant definitions from Sections 3(10) and 3(11), respectively, are extracted below : (10) "creditor" means any person to whom a debt is owed and includes a financial creditor, an oper....
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....r 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 debtor has ownership rights as recorded in the balance sheet of the corporate debtor. Such assets may include assets that may not be in the possession of the corporate debtor. The cash deposited by the corporate debtor in this Court is an asset whose ownership would indeed be recorded in the balance sheet of the corporate debtor, but without the corporate debtor being in possession of the amount. 29. It must not be forgotten that with the leave of the Court, any asset deposited as security, in consideration of a sta....
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....ignee 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 monies belonged to all the creditors of insolvent. The Official Assignee stated that he would neither prosecute the appeal nor post any security for costs. As a result, the appeal was dismissed and the costs incurred until then, were awarded. The judgment creditor argued that the money did not belong to the insolvent at the commencement of the insolvency and therefore did not vest in the Official Assignee for the benefit of the creditors. Dealing with the personal insolvency law contained in the Insolvency Act, it was ruled by the....
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....ction 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 either HDIL (or even Nahar for that matter), since HDIL had not challenged the arbitral award under Section 34 of the Arbitration Act, the the amount deposited was required to be released to Nahar. 38. When an appeal against the ruling of the Learned Single Judge came up before a Division Bench of this Court, Learned Counsel for Nahar made a with-prejudice statement to Court that since the deposited amount had already been released to Nahar, the amount in Nahar's possession would be subject to outcome of the proceedings under the IBC.....
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....racted 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 Order 21 Rule 1 CPC in satisfaction of the decree. 13. The real effect of deposit of money in court as was done in this case is to put the money beyond the reach of the parties pending the disposal of the appeal. The decree-holder could only take it 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. 14. The observations i....
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.... 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-holder would still be subject to the provisions of the IBC, and the amounts would not be automatically released to the Respondent. 47. In our opinion, it is the judgment in Chettiar that has some relevance to the law on deposit of monies in court, with the caveat that the IBC was not law at that time. Once the IBC came into force, as held by the Division Bench in the case of Nahar HDIL Case, the amounts in the possession of judgement creditor were still be subject to the outcome of the IBC proceedings. 48. Recently, in the case of GLAS Trust Company LLC Vs BYJU Raveendran & Ors. (....
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....e 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, speaking through Justice RF Nariman, observed as follows: "28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution process is not adversarial to the corporate de....
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.... 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 management of the corporate debtor must be distinguished from the interests of the corporate debtor. [Emphasis Supplied] 49. It will therefore be seen from Byju that the introduction of the IBC has clearly been held to be a significant departure from the fragmented legislation governing insolvency and bankruptcy, and into a new regime where enabling the corporate debtor under new ownership and management to be resolved lies at the heart of the legislative objective. 50. Before parting with the analysis, we may also profitably notice how the Supreme Court has dealt with pre-deposit stipulated under Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Inte....
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....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 there is any attachment of the amount under any law. In the instant case, the moratorium on the enforcement of a claim for execution of a decree has commenced, and upon failure of the CIRP, the asset would form part of the liquidation estate. As stated in Byju, the asset is meant to be distributed to the creditors in proportion to what is owed to them, and one of the creditors cannot steal a march over the others by being paid out specially outside the CIRP or the liquidation. Conclusions and Directions: 53. Therefore, the pleadings considered by the Supreme Court in this very case on the very same question, and the resultant outcome of releasing the ICICI Guarantee, make it clear that security interests over the assets of th....