Full Judgment Text
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
nd
% Reserved on: 22 November, 2017
th
Pronounced on: 11 December, 2017
+ O.M.P.(COMM.) 397/2016
POWER GRID CORPORATION
OF INDIA LTD. ..... Petitioner
Through : Mr.K.K.Rai, Sr. Advocate with
Mr.P.K.Mishra and Mr.Anshul
Rai, Advocates
versus
JYOTI STRUCTURES LTD. ..... Respondent
Through : Mr.Ashim Sood, Ms.Payal
Chandra, Mr.Dhruv Sood and
Mr.Rhythm Buaria, Advocates.
CORAM:
HON'BLE MR. JUSTICE YOGESH KHANNA
YOGESH KHANNA, J.
1. This petition is under section 34 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred as „the Act‟) for
setting aside the arbitral award dated 20.05.2016 passed by the
arbitral tribunal in favour of the respondent herein. The award is in
nature of a pure money decree in favour of the respondent.
2. During the pendency of these proceedings under section 34
of the Act, an application under Section 7 of the Insolvency and
Bankruptcy Code 2016 (hereinafter referred as „the Code‟) was
filed by a financial creditor against the respondent company before
O.M.P.(COMM.) 397/2016 Page 1 of 8
the National Company Law Tribunal – Mumbai, (hereinafter
referred as „the NCLT‟) seeking initiation of the corporate
insolvency resolution against the respondent and by an order dated
04.07.2017 the NCLT has admitted such application and has
declared a moratorium in terms of Section 14 of the Code.
3. The question now has arisen is if the present proceedings
under Section 34 of the Act, need to be stayed, per Section 14
(1)(a) of the Code?
4. The respondent‟s case is if the proceedings are stayed, the
respondent would be unable to execute the award given in its
favour for an extended period till the moratorium exists and be
unable to recover its dues thereby further impeding its financial
condition. Hence, the issue is if the word „ proceedings‟ used in
Section 14 (1) (a) of the Code be read to mean „all legal
proceedings‟ or be read restrictively to mean a particular type of
legal proceedings viz., „debt recovery action‟ which may have an
effect of dissipating or diminishing the debtor‟s assets during the
period of its insolvency resolution.
5. Section 14 (1) (a) of the Code runs as under:-
“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
O.M.P.(COMM.) 397/2016 Page 2 of 8
corporate debtor including execution of any
judgment, decree or order in any court of
law, tribunal, arbitration panel or other
authority;”
6. Admittedly the term „proceedings‟ as is mentioned in
Section 14 (1) (a) of the Code is not preceded by the word „all‟ to
indicate the moratorium provisions would apply to all the
proceedings against the corporate debtor.
7. In Canara Bank vs Deccan Chronicle Holdings Limited
Company Appeal No.147/2017, the court has already recognized
the moratorium provision does not apply to all proceedings viz to
proceedings under Article 32 or 226 of the Constitution of India.
8. The object of the Code is to provide relief to the corporate
debtor through „standstill‟ period during which its assets are
protected from dissipation or diminishment, and as a corollary,
during which it can strengthen its financial position, extending of
the unexecutability of the award would rather prevent the corporate
debtor from recovering money due to it and adding to its financial
corpus. Such a consequence would infact be directly contrary to
the object of the Code. To determine the true meaning of the
statute, the provision would have to be construed in the context of
the statute as a whole, for which purpose interpretative criteria may
have to be applied even when the statutory language is apparently
free from any semantic ambiguity.
O.M.P.(COMM.) 397/2016 Page 3 of 8
9. The meaning and purpose of Section 14 (1) (a) of the Code
may also be reliably ascertained from the context of its
surrounding provisions. Sub-clauses (b), (c) and (d) of Section 14
(1) of the Code are reproduced below for ease of reference would
further demonstrate the moratorium provision would apply only to
protect the assets of the corporate debtor. The provisions read as
under:-
“ 14. (1) xxxx
(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;
(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.”
10. In the light of above purpose or object behind the
moratorium, Section 14 of the Code would not apply to the
proceedings which are in the benefit of the corporate debtor, like
the one before this court in as much these proceedings are not a
„ debt recovery action ‟ and its conclusion would not endanger,
diminish, dissipate or impact the assets of the corporate debtor in
any manner whatsoever and hence shall be in sync with the
purpose of moratorium which includes keeping the corporate
O.M.P.(COMM.) 397/2016 Page 4 of 8
debtor‟s assets together during the insolvency resolution process
and facilitating orderly completion of the process envisaged during
the insolvency resolution process and ensuring the company may
continue as a going concern.
11. The report of the Bankruptcy Law Reforms Committee on
the rationale and design of the Code also demonstrates the
moratorium is to apply to recovery actions and filing of new claims
against the corporate debtor and the purpose behind moratorium is
there should be no additional stress on the assets of the corporate
debtor. The report of the Bankruptcy Law Reforms Committee has
been relied upon by the Supreme Court in M/s Innovative
Industries Limited vs. ICICI Bank & another 2017 SCC OnLine
SC 1025.
12. The learned counsel for the respondent has though argued
that once the moratorium comes into effect, no proceedings against
the corporate debtor may continue. No doubt to the said
proposition of law as stated above, but one need to see the nature
of the proceedings; if such proceedings is against the corporate
debtor or is in its favour. Stay of proceedings against an award in
favour of the corporate debtor would rather be stalking the debtor‟s
effort to recover its money and hence would not fall in the
embargo of Section 14 (1) (a) of the Code.
13. The fact the petitioners did file a counter claim before the
learned arbitrator, admittedly, is disallowed. An extreme scenario
O.M.P.(COMM.) 397/2016 Page 5 of 8
would be allowing of such counter claim but in that eventuality
Section 14 (1) (a) of the Code would immediately come into play
and the decree would not be executable against the corporate
debtor. However in apprehension of such an eventuality the
proceedings under Section 34 of the Act cannot be kept in
abeyance, especially when such counter claim has been rejected by
the Learned Arbitrator and the claim of the corporate debtor being
upheld.
14. Hence for following reasons I conclude the present
proceeding would not be hit by the embargo of Section 14(1)(a)
viz., (a) „proceedings‟ do not mean „all proceedings‟; (b)
moratorium under section 14(1)(a) of the code is intended to
prohibit debt recovery actions against the assets of corporate
debtor; (c) continuation of proceedings under section 34 of the
Arbitration Act which do not result in endangering, diminishing,
dissipating or adversely impacting the assets of corporate debtor
are not prohibited under section 14(1)(a) of the code; (d) term
„including‟ is clarificatory of the scope and ambit of the term
„proceedings‟; (e) the term „proceeding‟ would be restricted to the
nature of action that follows it i.e. debt recovery action against
assets of the corporate debtor; (f) the use of narrower term “against
the corporate debtor” in section 14(1)(a) as opposed to the wider
phase “by or against the corporate debtor” used in section 33(5) of
the code further makes it evident that section 14(1)(a) is intended
to have restrictive meaning and applicability; (g) the Arbitration
O.M.P.(COMM.) 397/2016 Page 6 of 8
Act draws a distinction between proceedings under section 34( i.e.
objections to the award) and under section 36(i.e. the
enforceability and execution of the award). The proceedings under
section 34 are a step prior to the execution of an award. Only after
determination of objections under section 34, the party may move
a step forward to execute such award and in case the objections are
settled against the corporate debtor, its enforceability against the
corporate debtor then certainly shall be covered by moratorium of
section 14(1)(a).
15. Hence, the continuation of these proceedings shall cause no
harm to either party‟s rights to seek determination of issues under
section 34 of the Act and object of the code shall be preserved
rather than defeated. The question posed is thus answered.
16. Second limb of objection raised is once the moratorium is
declared the decision to continue with the objections need to be
taken only be the Resolution Professional, since per Section 17 of
the Code from the date of the appointment of the interim resolution
professional, the management of the affairs of the corporate debtor
shall vests with the interim resolution professional and hence in the
peculiar circumstances of this case where a counter claims was
preferred by the objector, though rejected, it would be appropriate
if the interim resolution profession be made aware of these
proceedings and he consents to its continuation.
O.M.P.(COMM.) 397/2016 Page 7 of 8
17. Thus consent/permission of interim resolution professional
be obtained and be filed in this Court within four weeks from
today.
18. List for further orders on 22.03.2018.
YOGESH KHANNA, J
DECEMBER 11, 2017
M/DU
O.M.P.(COMM.) 397/2016 Page 8 of 8