Supreme Court

Anand Rao Korada Vs. Varsha Fabrics (P) Ltd. and Ors.

MANU/SC/1602/2019

18.11.2019

Insolvency

IBC bars jurisdiction of civil courts in respect of any matter in which NCLT or NCLAT is empowered by Code to pass any Order

The present civil appeals have been filed by the Appellant-Resolution Professional appointed by the National Company Law Tribunal for the Corporate Debtor- Hirakud Industrial Works Ltd., to challenge the interim Orders passed by the Odisha High Court .

The Appellant-Resolution Professional filed the present Civil Appeals to challenge the Interim Orders dated 14th August, 2019 and 5th September, 2019 passed by the Odisha High Court on the ground that since the CIRP against Respondent No. 4 had commenced, the proceedings before the High Court in W.P. ought to be stayed.

The Insolvency and Bankruptcy Code, 2016 (IBC) was published in the Gazette of India on 28th May, 2016. It was framed as a complete code to consolidate and amend the laws relating to insolvency resolution of corporate entities, partnership firms, and individuals in a time-bound manner, for maximisation of the value of the assets of such persons, and balance the interest of all the stakeholders. The Corporate Insolvency Resolution Process ("CIRP") could be initiated when a corporate debtor commits a default, either by a financial creditor, or an operational creditor, or the corporate debtor itself.

As per Section 13 of the IBC, the Adjudicating Authority i.e. the National Company Law Tribunal ("NCLT") shall declare a moratorium for the purposes referred to in Section 14 of the IBC. Section 14 provides that, on the insolvency commencement date, the Adjudicating Authority shall by order, declare a moratorium prohibiting 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 any other authority.

Section 238 of the IBC gives an overriding effect to the IBC over all other laws. The provisions of the IBC vest exclusive jurisdiction on the NCLT and the NCLAT to deal with all issues pertaining to the insolvency process of a corporate debtor, and the mode and manner of disposal of its assets. Section 231 of the IBC bars the jurisdiction of civil courts in respect of any matter in which the Adjudicating Authority i.e. the NCLT or the NCLAT is empowered by the Code to pass any Order.

In view of the provisions of the IBC, the High Court ought not to have proceeded with the auction of the property of the Corporate Debtor-Respondent No. 4 herein, once the proceedings under the IBC had commenced, and an Order declaring moratorium was passed by the NCLT. The High Court passed the impugned Interim Orders after the CIRP had commenced in this case.

The moratorium having been declared by the NCLT on 4th June, 2019, the High Court was not justified in passing the Orders dated 14th August, 2019 and 5th September, 2019 for carrying out auction of the assets of the Respondent No. 4-Company i.e. the Corporate Debtor before the NCLT. The subject matter of the auction proceedings before the High Court is a vast chunk of land admeasuring about 330 acres, including Railway lines and buildings. If the assets of the Respondent No. 4-Company are alienated during the pendency of the proceedings under the IBC, it will seriously jeopardise the interest of all the stakeholders.

As a consequence, the impugned Interim Orders dated 14th August, 2019 and 5th September, 2019 passed by the Odisha High Court are set aside, as parallel proceedings with respect to the main issue cannot take place in the High Court. The sale or liquidation of the assets of Respondent No. 4 will now be governed by the provisions of the IBC. It is open for Respondent No. 13-Hirakud Workers' Union to file an application under Regulation 9 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 for payment of arrears, salaries and other dues before the competent authority. The Civil Appeals are allowed.

Tags : Auction Assets Interim order Jurisdiction

Share :