Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 88008801 OF 2019
(Arising out of SLP (Civil) Nos. 2334923350 of 2019)
Mr. Anand Rao Korada
Resolution Professional …Appellant
Versus
M/s. Varsha Fabrics (P) Ltd. & Ors. …Respondents
J U D G M E N T
INDU MALHOTRA, J.
Leave granted.
1. The present Civil Appeals have been filed by the Appellant –
Resolution Professional appointed by the National Company
Law Tribunal for the Corporate Debtor – M/s Hirakud
Signature Not Verified
Industrial Works Ltd., to challenge the interim Orders dated
Digitally signed by
RACHNA
Date: 2019.11.22
16:25:35 IST
Reason:
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14.08.2019 and 05.09.2019 passed by the Odisha High Court
in W.P. (Civil) No. 7939/2011.
2. This Court Order dated 23.09.2019 issued Notice to all
vide
the parties, including the Writ Petitioners i.e. the Hirakud
Workers’ Union – Respondent No. 13 herein. The Appellant
was directed to serve Dasti Notice to all the Respondents, and
the auction proceedings before the High Court were directed
to be stayed.
3.
Pursuant to the issuance of Notice, all the Respondents were
served by the Appellant, and proof of service was filed on
04.11.2019. Respondent No. 13 – Hirakud Workers’ Union
was however not represented by Counsel. The Civil Appeals
were taken up for hearing on 13.11.2019 before this Court.
4. The factual matrix in which the present Civil Appeals have
been filed is as under :–
4.1 M/s Varsha Fabrics Pvt. Ltd. (Respondent No. 1), India
Finance Ltd. (Respondent No. 2), Mudrika Commercial
Pvt. Ltd. (Respondent No. 3), Hirakud Industrial Works
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Ltd. (Respondent No. 4), and Industrial Development
Corporation of Orissa Ltd. (Respondent No. 5) entered
into a Share Purchase Agreement (“SPA”) dated
10.07.2006.
As per the SPA, Respondent No. 5 divested its
100% shareholding in Respondent No. 4 in favour of
Respondent Nos. 1 to 3. Respondent No. 4 shut down
its factory on 08.05.2007.
4.2 Subsequently, Respondent Nos. 1 to 3 sold their stake
in Respondent No. 4 to Indo Wagon Engineering Ltd.
Respondent No. 13 – the Hirakud Workers’ Union
filed W.P. (Civil) No. 12479/2009 before the Odisha
High Court praying inter alia for cancellation of the SPA
dated 10.07.2006, and payment of the arrears and
current salaries of the workmen.
4.3 Respondent No. 13 filed another Writ Petition bearing
W.P. (Civil) No. 7939/2011 on 28.03.2011 for payment
of their dues before the Odisha High Court.
4.4 The High Court vide Order dated 14.03.2012 directed
the Deputy Labour Commissioner, Sambalpur Division
(Respondent No. 10 herein) to recover the workmen’s
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dues by sale of the assets of Respondent No. 4 –
Company through a public auction.
4.5 These proceedings culminated in the Order dated
03.08.2015 passed by this Court, wherein it was
directed that the issue of quantifying the compensation
payable to the workmen should be determined by the
Labour Court. It was further directed that if
Respondent Nos. 1 to 3 fail to make the payment of
compensation to the workmen, the assets of
Respondent No. 4 would be sold through public
auction, and the proceeds would be used for
disbursement of the arrears of the workmen.
4.6 The Labour Court, Sambalpur vide Order dated
11.11.2016 quantified the amount payable to the
workmen as Rs. 45,66,67,133/.
4.7 The High Court vide Order dated 12.01.2017 directed
the Deputy Labour Commissioner, Sambalpur Division
to sell a parcel of Respondent No. 4’s land admeasuring
157.27 acres to the Hirakud Dam Project.
Upon receipt of the sale proceeds of Rs.
10,04,12,105/ from the Government of Orissa, this
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amount was disbursed towards the arrears of the
workmen’s dues.
4.8 During the pendency of proceedings before the High
Court in W.P. (Civil) No. 7939/2011, M/s Nandakini
Contractors Pvt. Ltd – a Financial Creditor filed a
Petition under Section 7 of the IBC, 2016 bearing CP
(IB) No. 01/CTB/2019, before the National Company
Law Tribunal, Cuttack Bench (“NCLT”) for initiation of
the Corporate Insolvency Resolution Process (“CIRP”)
against the Corporate Debtor – Respondent No. 4, since
it had committed a default in paying the financial debt
of Rs. 24,11,975/.
4.9 The NCLT vide Order dated 04.06.2019 admitted the
insolvency petition, and declared a moratorium in
accordance with the provisions of Sections 13 and 15 of
the IBC. The moratorium was declared for the purpose
referred to in Section 14 of the IBC. The Appellant
herein was appointed as the Insolvency Resolution
Professional.
4.10
4.11 During the pendency of the moratorium, W.P.(Civil)
7939/2011 was posted for hearing on 14.08.2019 before
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the High Court. The Additional Government Advocate
submitted that the valuation of the land in Mouza – Tara
Nagar owned by Respondent No. 4 was Rs. 6,05,000/
per acre. The High Court directed the Additional
Government Advocate to file an affidavit with respect to
the valuation conducted.
4.12 The High Court by a further Order dated 05.09.2019,
recorded the submission of the Appellant – Resolution
Professional that there were other companies which
had expressed an interest to participate in the public
auction. The matter was posted for further hearing on
17.09.2019.
4.13 The Appellant – Resolution Professional filed the
present Civil Appeals to challenge the Interim Orders
dated 14.08.2019 and 05.09.2019 passed by the
Odisha High Court in W.P. (Civil) No. 7939/2011 on
the ground that since the CIRP against Respondent No.
4 had commenced, the proceedings before the High
Court in W.P. (Civil) No. 7939/2011 ought to be stayed.
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5. We have heard the learned Counsel appearing for the
Appellant – Resolution Professional, Respondent Nos. 1 to 3,
and Respondent No. 8 – HINDALCO.
6. The IBC was published in the Gazette of India on 28.05.2016.
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 timebound
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.
Section 12 of the IBC provides a timeframe to complete
the CIRP.
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.
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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 14 reads as
follows :
“ 14. Moratorium. –
(1) Subject to provisions of subsections (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) transferring, encumbering, alienating or
disposing off 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.
(2) The supply of essential goods or services to the
corporate debtor as may be specified shall not be
terminated or suspended or interrupted during
moratorium period.
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(3) The provisions of subsection (1) shall not apply
to —
(a) such transaction as may be notified by the
Central Government in consultation with any
financial regulator;
(b) a surety in a contract of guarantee to a
corporate debtor.
(4) The order of moratorium shall have effect from
the date of such order till the completion of the
corporate insolvency resolution process:
Provided that where at any time during the
corporate insolvency resolution process period, if
the Adjudicating Authority approves the resolution
plan under subsection (1) of section 31 or passes
an order for liquidation of corporate debtor under
section 33, the moratorium shall cease to have
effect from the date of such approval or liquidation
order, as the case may be.”
7. Section 238 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 238 reads as
follows :
“ 238. Provisions of this Code to override
other laws. –
The provisions of this Code shall have effect,
notwithstanding anything inconsistent therewith
contained in any other law for the time being in
force or any instrument having effect by virtue of
any such law.”
8. Section 231 of the IBC bars the jurisdiction of civil courts in
respect of any matter in which the Adjudicating Authority i.e.
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the NCLT or the NCLAT is empowered by the Code to pass
any Order. Section 231 is set out hereinbelow for ready
reference :
“ 231. Bar of jurisdiction. –
No civil court shall have jurisdiction in respect of
any matter in which the Adjudicating Authority
or the Board 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 or the Board under this
Code.”
9. 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 dated 14.08.2019
and 05.09.2019 after the CIRP had commenced in this case.
The moratorium having been declared by the NCLT on
04.06.2019, the High Court was not justified in passing the
Orders dated 14.08.2019 and 05.09.2019 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
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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, we set aside the impugned Interim
Orders dated 14.08.2019 and 05.09.2019 passed by the
Odisha High Court, 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.
10. 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.
Regulation 9 reads as follows :–
“ 9. Claims by workmen and employees.
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(1) A person claiming to be a workman or an
employee of the corporate debtor shall submit
claim with proof to the interim resolution
professional in person, by post or by electronic
means in Form D of the Schedule:
Provided that such person may submit
supplementary documents or clarifications in
support of the claim, on his own or if required by
the interim resolution professional, before the
constitution of the committee.
(2) Where there are dues to numerous workmen
or employees of the corporate debtor, an
authorised representative may submit one claim
with proof for all such dues on their behalf in
Form E of the Schedule.
(3) The existence of dues to workmen or
employees may be proved by them, individually
or collectively on the basis of
(a) records available with an information utility,
if any; or
(b) other relevant documents, including
(i) a proof of employment such as contract of
employment for the period for which such
workman or employee is claiming dues;
(ii) evidence of notice demanding payment of
unpaid dues and any documentary or other
proof that payment has not been made; or
(iii) an order of a court or tribunal that has
adjudicated upon the nonpayment of a dues, if
any.”
11.
Mr. C.U. Singh, Senior Advocate appeared for Respondent No.
8 – HINDALCO, which had participated in the public auction
of the aforesaid chunk of land before the High Court. The
Counsel raised serious objections to the stay of the auction
proceedings. He sought permission to file an application before
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the appropriate authority for deciding the objections raised by
Respondent No. 8.
Mr. Siddharth Bhatnagar, Senior Advocate who was
representing the Appellant – Resolution Professional, reserved
his right to raise all pleas and contentions, including the plea
of locus standi , if such an application is filed by Respondent
No. 8.
The parties are granted liberty to pursue whatever
remedies are available in accordance with law.
The Civil Appeals are allowed in the aforesaid terms.
.....................................J.
(INDU MALHOTRA)
.…...............………………J.
(R. SUBHASH REDDY)
New Delhi,
November 18, 2019.
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