Ba:r & Bench (,ench.com) IN THE NATIONAL … · 2020. 1. 21. · IN THE NATIONAL COMPANY LAW TRIBUNAL CUTTACK BENCH CUTTACK Misc. A. No. 60lCTBl20l9 Connected with CP 0B) No. 593/KB/2017

IN THE NATIONAL COMPANY LAW TRIBUNALCUTTACK BENCH

CUTTACK

Misc. A. No. 60lCTBl20l9Connected with

CP 0B) No. 593/KB/2017

CORAM: 1. Ms. Sucharltha R. (J)

Iu f,he matter of:INSOLVENCY AND BANKRUPTCY CODE, 2016.

In the matter of:An application under Section 60 (5) of the Insolvency and BankruptcyCode, 2016 and under Rule 11 of the National Company Law TribunalRules, 2016.

.And-

In the Matter of:Ravi Shankar Devarakonda, Liquidator for the Corporate Debtor i.e. IWsCoastal Projects Ltd. residing at D - 602, Prestige St. Johnwood Apartment No.80, Tavarakere Main Road, Chikka Adugodi, Bangalore - 560 029.

... Applicant/Liq uidator

-Versus-

M/s Bharat Heavy Electricals Ltd., a Public Sector Undertaking under theMinistry of Heavy lndustries, Govt. of India, having its Registered Officesituated at BHEL House, Siri Fort, New Delhi - 110 049 and its IndustrialSystems Group at P.B. No. 1249, Prof. C.N. Rao Circle, IISC post,Malleswaram, Bangalore - 560 0I2.

PageroflT gd.-----T-

... ... ... Respondent

.

Ba:r & Bench (www.barandb,ench.com)

-And-

In the Matter of:State Bank of India, having its Head Office situated at State Bank Bhawan,Madam Cama Road, Mumbai - 400 021.

... ... ... Financial Creditor

-Versus-

M/s Coastal Projects Ltd., having its Registered Office situated at Plot No.237 ,2d Floor, Bapuji Nagar, Bhubaneshwar, Khurda, Odisha - 751 009.

... ... ... Corporate Debtor

Counsels appeared for the Liquidator:

1. Mr. Saswat K. Acharya, Adv.2. Mr. S. Pholgu, Adv.3. Mr. Ashish K. Dey, Adv.

Counsels appeared for the Respondent (s):

1. Mr. Ratnanko Banerjee, Sr. Adv.2. Mr. Touseef Ahmed Khan, Adv.3. Mr. Abid Jamal, Adv.

st_--]-

Page2of L7

.


Date of pronouncement of Order: 16th day of January, 2020.

ORDER

Per Ms. Sucharitha R., Member (O:

This application has been filed by the Liquidator under Section 60

(5) of the Insolvency and Bankruptcy Code, 2016 read with Rule 1l of

the National Company Law Tribunal (NCLT) Rules, 2016. The Corporate

Debtor is under liquidation by Order of Hon'ble NCLT, Kolkata Bench

dated 06th December,2018. The Corporate Debtor is kept as a going

concem. Meanwhile, there was an arbitration proceeding between the

Corporate Debtor and the respondent herein i.e. IWs Bharat Heavy

Electricals Ltd.

2. The Corporate Debtor was involved in work execution project at

Yeramarus in Karnataka and Vishakhapatnam in Andhra Pradesh and

dispute arose between the Corporate Debtor and respondent herein. As

per the arbitration clause between them, Sole Arbitrator was appointed.

Arbitration proceedings commenced, the Hon'ble Retired Judge Mr. S.

Patel was appointed as a Sole Arbitrator. The Arbitration Award was

Page 3 of 17 s&.


passed on 30th December, 2Ol8 wherein, the Hon'ble Sole Arbitrator

passed an award, thereby allowed a portion of the amount in favour of the

Corporate Debtor. The other part of claim has been rejected by the

Hon'ble Arbitrator. Aggrieved by this order, the respondent had filed

application under Section 34 of Arbitration and Conciliation Act, 1996

before the Hon'ble City Civil Judge at Bangalore. The Corporate Debtor

also has filed Appeal under Section 34 of Arbitration and Conciliation

Act, 1996 before District City Civil Judge atBangalore on ol.o4.2ol9.

This application has been taken out with the prayer which is as under -

"a) That this Hon'ble Tribunal be

pleased to pass an Order to grant

approval to the applicant to proceed with

the applications bearing A.S. No. 58/2019

and A.S. No. 59/2019 under Section 34 of

the Arbitration and Conciliation Act,

1956 before Hon'ble City Civil Judge at

Bangalore; and

b) For such other Orders as this

Hon'ble Tribunal deems fit and proper in

thefacts and circumstances of the case."

gJ"Page 4 of 17

---T-=-.


3. The respondent has filed objection to this application. The

respondent states that this application ought to be dismissed as

misconceived, false and frivolous. As this application is filed seeking

post-facto leave in view of stipulations contained in Section 33 (5) of the

Insolvency and Bankruptcy Code, 2016. The respondent states that under

Section 33 (5) of Insolvency and Bankruptcy Code, 2016 it is "with prior

approval of the Adjudicating Authority" the same is reproduced below: -

"(5) Subject to Section 52, when a

Liquidation Order has been passed, no

suit or other legal proceeding shall be

instituted by or against the Corporate

Debtor.

Provided that a suit or other legal

proceeding may be instituted by the

Liquidator, on behalf of the Corporate

Debtor, with the prior approval of the

Adjudicating Authoriq). "

4. The enactment clearly provides for prior approval of the

Adjudicating Authority by the Liquidator before initiation of any suit.

However, in this application "prior approval" has not been obtained by

page 5 or 17 EJ=,'....._.


the Liquidator. Hence, the application filed under Section 34 of

Arbitration and Conciliation Act, 1996 is void ab initio. And, therefore,

the present application cannot be fited seeking approval of already done

act. The Insolvency and Bankruptcy Code, 2016 in an equal and clear

statutory provision, prohibits the Liquidator from fiting any

application/suit without prior approval of the Adjudicating Authority.

Hence, the respondent states this apptication ought to be dismissed.

5. Under Section 33 (5), the Liquidator ought to have obtained prior

approval before initiation of the suit. The question before us is, can this

Adjudicating Authority ratiff the Act of the Liquidator subsequently,

when the Act has specifically said that "prior approval" is must. And if so

at what stage the de facto approval can be sanctioned and the effect of the

same on the already filed suit/application? This application has been

taken out under Rule 11 of NCLT Rules, 2016. There is specific

provision under the enactment i.e. under Section 33 (5) for obtaining

prior approval for initiation of the suit. Can an application under Rule 1 1

be invoked? So as to override the existing provision. Inherent jurisdiction

can be applied only in the cases where there is no specific provision

under the statute, where there is the vacuum in the statute. On the larger

Page 5 of 17 Sd-=-.-1-

.


understanding of the law and to give meaning and spirit to the enactment,

inherent power can be used to bridge the gap and do justice to the party.

6. In support of his stand, the petitioner has quoted similar provisions

of various laws. Wherein, under Section 446 of the erstwhile Companies

Act, 1956, where the Courts have held and ratified such Act. The

Liquidator has quoted elaborately in Appeal 270 of 1990 in Vysya Bank

Ltd. Vs. Official Liquidator, Shreeniwas Cotton Mills Ltd., before the

Hon'ble Bombay High court by order dated 09.07.1992. wherein, the

Hon'ble Bombay High court has held at Para No. l0 which is

as follows: -

Quote: -

" 70, The Section does not

expressly provide for nullification of the

proceedings cts a consequence of non-

compliance with the requirement of the

Section. The intention of the Legislature

can be inferred from the omission of the

words to the effect "previous leave of the

Court". Wenever the Legislature wanted

Page 7 of L7 SJ.-\_

.


to make such leave or permission a

condition precedent to the institution of

proceedings, the words "previous

sanction or permission or leave" heve

been used like in Section 92 of the Civil

Procedure Code, 1908, and in Section

197 of the Criminal Procedure Code,

1973, and again the clause 12 of the

Letters Patent. The consequence of

disregarding the necessity of the leave

can also help us find out the legislative

intent. The Section does not expressly

declare what shall be the consequence of

non-compliance with the statutory

injunction. Whenever the Legislature

intended to loy down an absolute

prohibition, the Legislature has expressly

declared its intention in unambiguous

terms. Section 537 of the Act can be

compared with Section 446. Section 537

of the Act reads as follows:

Page 8 of 17gA

.


" 537. Avoidance of certain

attachments, executions, etc., in winding

up by or subject to supervision of Court. -(l) where qny company is being wound up

by or subject to the supervisions of the

Court -(a) Any attachment, distress or

execution put in force, without

leave of the Court, against the

estate or effects of the company,

after the commencement of the

winding up; or

(b) Any sale held, without leave of

the Court, of any of the

properties or effects of the

Company after such

commencement;

Shall be void.

(2) Nothing in this Section applies to any

proceedingsfor the recovery ofany tax or

Page 9 of 17sd.

.


impost or any dues payable to the

Government."

12. Thus from the clear and unambiguous

language of Section 446, it can be seen

thqt the leave required is not a condition

precedent and can be granted ex post

facto. In Bansidhar Shankarlal. [197U 4l

Comp Cas 21 the Supreme Court was

directly concerned with the question as to

whether leave was a condition precedent

or not and held (at page 25):

"Even granting that sanction

under Section 179 does not

dispense with the leave under

Section 171 of the Act, to

institute a proceeding in

execution against a company

ordered to be wound up, we do

not thank that there is anything

in the AM which makes the

leave a condition precedent to

S&,Page 10 of 17

--...-.


the institution of a proceeding

in execution of a decree against

the company and that failure to

obtain leave before institution

of the proceeding entails

dismissal of the proceedings.

The suit or proceeding

instituted without leave of the

Court ffioy, in our judgment, be

regarded as ineffective until

leave is obtained, but once

leuve is obtained the

proceeding will be deemed

instituted on the date of

granting leave. "

14. This takes us to the next question, viz.,

does failure to obtain leave entail

dismissal of the suit and whether as

regards limitation the suit instituted

without leave be regarded ineffective until

leave is granted? This is Mr. Kadam's

SCPage 11 of 17

-l-.


submission which ls based on the

observation, viz., "the suit or proceeding

granting the leave" in Bansidhar

Shankarlal MA|VU/SC/)|06/ 1970:

U97lJ2SCR476. This submission found

favour with the learned Single Judge. The

Supreme Court, after unequivocally

holding that leave ,s not a condition

precedent, observed as above. This

observation has to be read in harmony

with what the Supreme Court held a little

earlier in the some parqgraph, viz., leave

is not a condition precedent. Coruectly

interpreted it would mean that a suit or o

legal proceeding pending at the time of

the winding up order of commencement

thereafter would be "ineffective" unless it

is activated by leave. "Ineffective" would

only meqn ineffective qua the Official

Liquidator only who has power, inter alia,

to defend any suit or other legal

sd.Page 72 of L7

..---r-.


proceeding in order to protect all the

property, effects and actionable claims to

which the company is entitled. Thus, the

observation cannot be stretched to non-

suit a plaintiff whose suit when filed is

otherwise within limitation. To give such

an interpretation to this observation can

result in only setting at naught what is

held by the Supreme Court. The bar of

limitation is a creature of the statute and

cannot be imposed or read into the

otherwise inambiguous language of

Section 446. The observation in question

spealrs of a legal fiction and cannot be

interpreted to read into the said provision

any legal bar. In these circumstances, we

cannot accede to Mr. Kadam's

submission. The learned Single Judge was

clearly in error in holding as he did. "

sdPage 13 of 17

-(Jnquote

.


7. Ld. Liquidator also filed various judgments i.e. (i) osA No. 01 of

2001, in the High Court of Himachal Pradesh at Shimla Order dated

09.08.2012 (ii) cs (coM]|{) 47012016 and cc (coMM) 73t2017, in the

High court of Delhi order dated 18.07.2019 (iii) o.M.p. (comm.)

39712016 in the High Court of Delhi Order dated 11.12.2017 (iv) NCLAT

Company Appeal (AT) (Insolvency) No. 285 of 2018 and the respondent

in support of this claim has also filed Hon'ble Supreme Court judgment

dated 14th July, 1994 in Review petition (c) No. 131 of 1gg4 in Civil

Appeal No. 7456 of 1993, State of U.P. and others vs. Rajiv Gupta and

Another. The question squarely lies then specific provision under the

enactment has not been followed by the Liquidator. Can we set aside the

irregularity under application under Rule 11 of the NCLT Rules, 2016?

Secondly, whether de facto approval of sanction is allowed and up to

what stage can we allow de facto sanction?

8. What ought to be done, if the parties failed to do. It cannot be

ratified by the subsequent Act. However, the petitioner counsels

vehemently argued that sanction of approval is only a formal Act. Hence,

in the interest of justice and the overall view of the enactment for

maximisation of the value of the assets of the Corporate Debtor. An

// ^\page 14 of L7 S&

----"=-.


approval will only amount to regularisation of appeal already filed and

pending. It is only a formality to regularise the application which was

filed before the District Court.

9. The permission to go on Appeal against the company under

liquidation was obtained by the respondent herein and this Adjudicating

Authority by order dated 08.04.2019 has given approval to the

respondent to file Appeal against the Corporate Debtor against the Award

passed by the Hon'ble Sole Arbitrator. By order dated 08th April,2olg

this Adjudicating Authority granted leave, which is as follows -

"CP No. 593/KB/2017 is already

disposed of passing order of Liquidation.

Corporate Debtous already under

process of liquidation. Liquidatons

appointed. TA No. 21/CTB/2019 is filed

by one of the applicants i.e. Bharat Heavy

Electrical Limited. Heard Ld. Senior

Counsel. This application is under Section

33 (5) of IBC for leave of this Authority to

file applications U/s 34 of the Arbitration

& Conciliation Act, 1996, before

Page 15 of 17 Sd.


Debtor is already under the liquidation.

Since this application ,s very formal

nature hence by keeping all points on

facts and law open to be considered in

proper proceeding this application ls

allowed and disposed of.

Main proceeding stands adjourned

for further cons ideration on 2 9. 04. 2 0 I 9. "

The Liquidator also could have taken steps at that stage to obtain

necessary permission for filing the appeal. However, it is the fact that

Liquidator failed to do so.

10. In view of the foregoing judgment, and in the interest of justice,

keeping in mind the spirit of IBC, focus of the company in liquidation is

to "maximisation of the asset". This application is ALLOWED.

11. The application seeking permission to proceed with A.S. No.:

5812019 & A.S. No.: 5912019 under Section 34 of Arbitration and

conciliation Act, pending on the file of the Hon'ble City Civil Court,

Bangalore. The leave is granted ex post facto.

sdPage 16 of 17

\--

.


off.

Santosh_P.5.

Accordingly,

Signed on

t2. s Misc. Application No. 60lCTBl2019 is disposed

the 16th day of January, 2020

Sucharitha R.Member(J)

Page t7 of t7

(' [-tt'r;.

sd.

.


Ba:r & Bench (,ench.com) IN THE NATIONAL … · 2020. 1. 21. · IN THE NATIONAL COMPANY LAW TRIBUNAL CUTTACK BENCH CUTTACK Misc. A. No. 60lCTBl20l9 Connected with CP 0B) No. 593/KB/2017

Documents