ELECON ENGINEERINGH COMPANY LIMITED Vs. ENERGO ENGINEERING PROJECTS LIMITED
CS(COMM)-151/2017
Facts:
1.Suit was filed seeking relief of permanent injunction restraining the defendant no.1 company from encashment of bank guarantees and for recovery of a sum of Rs.10,69,77,650/- against the defendant no.1.
2.Pliantiff contended that defendant no.1 had wrongfully and unlawfully invoked/encashed the contract performance bank guarantees and advance bank guarantees issued by the defendant no.2 and defendant no.3 respectively.
3.Court issued summons and also granted ad interim injunction against payments under the bank guarantees being made to the defendant no.1 on 27th February 2017. In the meanwhile insolvency proceeding was initiated against the defendant and the court vide order dated 14th November 2017 stayed the proceedings in view of the Insolvency proceedings.
4.Liquidation proceeding was initiated on 21st August 2018 as the CIRP failed.
Issue: Whether the proceedings in the present suit can continue even if liquidation proceedings have commenced ?
Arguments:
For Plaintiff:
1.Counsel on behalf of the plaintiff submits that the proceedings in the present suit shall continue even if liquidation proceedings have commenced and a Liquidator has been appointed in respect of the defendant no.1 company
2.Counsel highlighted the difference in section 14 and Section 33(5) of the IBC to contend that under Section 33(5) of the IBC the moratorium is only in respect of institution of fresh suits and does not apply to pending suits. He further contended that present suit was initiated much before the initiation of proceedings against the defendant no.1 company before the National Company Law Tribunal (NCLT). During the pendency of the resolution proceedings, the moratorium under Section 14 of the IBC was applicable to the present suit. However, once the resolution process failed, the moratorium came to an end and the suit has to proceed
For defendants:
1.Counsel submitted that defendant no.1 is a “corporate debtor in liquidation” in proceedings before the NCLT, Delhi. In terms of Sections 63 and 231 of the IBC, jurisdiction of Civil Courts is barred in respect of any issue for which NCLT is empowered under the IBC to pass any order. He relies upon Section 60(5)(b) of the IBC to contend that NCLT alone has the jurisdiction to entertain „any claim‟ made by or against the corporate debtor
2.He concedes that Section 33(5) of the IBC does not refer to pending suits, it is vehemently contended that the aforesaid provision should be read in a manner or interpreted in a manner that the moratorium that is the subject matter of the aforesaid provision, would also include pending suits.
3.It is submitted that the entire object of the IBC would be defeated unless the moratorium under Section 33(5) of the IBC includes pending suits, as the pendency of a civil suit would result in liquidation proceedings getting delayed
4.He submitted that Court should interpret Section 33(5) of the IBC in a manner that the moratorium provided under the said Section would cover pending suits as well. Counsel for the Liquidator has placed reliance on the Report of the Insolvency Law Committee dated 20th February, 2020 to submit that the omission of „pending suits and legal proceedings‟ under Section 33(5) of the IBC seems to be an error.
Decision: Proceedings in the present suit can continue even if liquidation proceedings have commenced.
Rationale:
1.Court relying on language of Section 33(5) of the IBC, noted that the bar/moratorium is only in respect of fresh suits or legal proceedings. Unlike the moratorium under Section 14 of the IBC, where it is clearly noted that the moratorium is in respect of institution of suits or continuation of pending suits or proceedings against corporate debtor, the words “continuation of pending suits or proceedings” are conspicuously absent in Section 33(5) of the IBC.
2.Court further relied on the judgment in the case of Chennai Metro Rail Limited, Represented By The Chief General Manager v. Lanco Infratech Limited, Represented By the Liquidator Lanco House And Ors. It noted that under Section 446 of the Companies Act, 1956, once the Official Liquidator was appointed as the provisional liquidator, neither a fresh suit nor a pending suit could be proceeded against the company except with the leave of the Company Court/Tribunal. Similar position has been maintained under the Section 279 of the Companies Act, 2013. However, the word „pending‟ is missing in Section 33(5) of the IBC. In paragraph 32, the Madras High Court has given the possible reason for such omission.
3.Court noted that Chapter II of the IBC deals with the Resolution Process in respect of a „corporate debtor‟, where the objective is to revive the corporate debtor by coming out with a resolution plan, which is to be approved by the committee of creditors and thereafter, by the Adjudicating Authority. Chapter III of the IBC deals with the liquidation process which comes into effect upon the failure to come out with a resolution plan within the prescribed time period or a resolution plan not being approved.
4.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. It is perhaps for this reason that unlike Chapter II, no time limits have been provided in Chapter III of the IBC. Therefore, legislature in its wisdom has decided not to include „pending suits or legal proceedings‟ within the scope of moratorium under Section 33(5) of the IBC.
5.Court relying on language of Section 63 of the IBC would noted 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.
6.Court further relied on 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. It noted that 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 manner so as to defeat the provisions of Section 33(5) of the IBC.
7.If Sections 63 and 231 of the IBC are interpreted in the manner canvased 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.
8.It further held that words which are missing from the language of Section 33(5) of the IBC can be added by the Court is completely against the rule of casus omissus, in terms of which, an omission in a statute cannot be supplied by judicial interpretation.
Order copy:
