In CS(COMM) 151/2017-DEL HC- In terms of Sec.63 of IBC, bar on Civil Court is only to ‘entertain any suit or proceeding in respect of any matter on which NCLT has jurisdiction under Code’ and this would not apply to suits, which were already pending before commencement of liquidation proceedings: Delhi HC
Justice Amit Bansal [13-09-2022]

 

 

Read Order: ELECON ENGINEERING COMPANY LIMITED v. ENERGO ENGINEERING PROJECTS LIMITED & ORS 

Manisrman Kaur

New Delhi, September 15, 2022: Referring to Section 33(5) of the IBC, the Delhi High Court has clarified that the bar/moratorium is only in respect of fresh suits or legal proceedings. Unlike the moratorium u/s 14, where it is clearly noted that the moratorium is in respect of institution of suits, continuation of pending suits or proceedings against corporate debtor, the words “continuation of pending suits or proceedings” are conspicuously absent in Sec.33(5), the Court has further observed.

While noting that the plaintiff cannot pursue two separate remedies in respect of the same claim, the Bench of Justice Amit Bansal decreed the present suit by observing that the bar under Sections 33(5), 63 and 231 of the IBC will not apply to the present suit and therefore, the proceedings sought through the present suit shall continue.

The issue which was posed for consideration was whether upon commencement of liquidation proceedings against the first defendant- company under the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) and Liquidator being appointed, the present suit can proceed or not. 

 The present suit was filed seeking relief of permanent injunction restraining the first defendant-company from encashment of bank guarantees and for recovery of a sum of Rs 10, 69,77,650 against the first defendant. It was the case of the plaintiff that the first defendant had wrongfully and unlawfully invoked/encashed the contract performance bank guarantees and advanced bank guarantees issued by the second and third defendants.

Through an order dated February 27, 2017, while issuing summons in the suit, this Court had granted an ad interim injunction against payments under the bank guarantees being made to the first defendant. In view of the insolvency proceedings initiated against the first defendant the present suit was stayed through order dated November 14, 2017. Subsequently, on August 21, 2018 liquidation proceedings commenced in respect of the first defendant. 

After considering the rival contentions of the parties, the Court took into account the relevant provisions of Section 13, Section 14, Section 33(5), Section 60(5), Section 63 and Section 231 of the IBC. 

The Bench was in agreement with the judgments of the Madras High Court and Kerala High Court in Chennai Metro Rail Limited, Represented By The Chief General Manager v. Lanco Infratech Limited, Represented By the Liquidator Lanco House And Ors., and The Liquidator of The Corporate Debtor, Viz., Orieon Kuries And Loans Private Limited v. The State of Kerala And Ors. 

Further, the Court threw light on the difference in the language of Sections 14 and 33(5) of the IBC. The moratorium under Section 14 of the IBC comes into effect upon the Adjudicating Authority passing an order declaring a moratorium and continues till the completion of the Corporate Insolvency Resolution Process. Upon the approval of the resolution plan by the Adjudicating Authority or upon passing of a liquidation order under Section 33 of the IBC, the moratorium shall cease to have effect. After the Adjudicating Authority (NCLT) passes a liquidation order under section 33(4) of the IBC, a fresh moratorium in terms of Section 33(5) of the IBC comes into place, the Court noted. 

In furtherance of the same, the Court noted that the objective of the liquidation process is to derive the maximum value from the assets of the corporate debtor for the benefit of various creditors and other stakeholders in the company under liquidation. The objective is not the revival of the company.

“A reading of Section 63 of the IBC would reveal that the bar on the Civil Court is only to ‘entertain any suit or proceeding in respect of any matter on which NCLT has the jurisdiction under this Code. This would not apply to suits, which were already pending before the commencement of liquidation proceedings”, the Bench said.

Section 231 of the IBC, inter alia states that no injunction shall be granted by a Court in respect of action taken in pursuance to any order passed by the Adjudicating Authority. The intent is clear that the bar is only in respect of civil suits filed after an order has been passed by the Adjudicating Authority. In my view, the aforesaid bar under Sections 63 and 231 of the IBC would only be in respect of fresh suits. Sections 63 and 231 of the IBC cannot be read in such a manner so as to defeat the provisions of Section 33(5) of the IBC, the Court noted. 

If Sections 63 and 231 of the IBC are interpreted in the manner canvassed by the counsel for the Liquidator, the provision of Section 33(5) of the IBC would be rendered otiose and the moratorium under Section 33(5) of the IBC, which was to apply only in respect of fresh suits, would also apply to pending suits. This cannot be the intention of the legislature. Therefore, I do not find any merit in the submission of the Liquidator that the present suit cannot proceed in view of Sections 63 or 231 of the IBC, the Court further noted. 

Reliance was placed on the cases namely,  Padma Sundara Rao (Dead) And Ors v. State of T.N. And Ors and Rohitash Kumar And Ors v. Om Prakash Sharma And Ors.

In light of the aforesaid legal principles, even if it is assumed that there was an omission on behalf of the legislature in not applying the moratorium under Section 33(5) of the IBC to pending suits, the same cannot be supplied by the Courts. It is for the legislature to amend the statute.

Thus the Bench opined that the bar under Sections 33(5), 63 and 231 of the IBC will not apply to the present suit and therefore, held that the proceedings in the present suit shall continue while