Brief Facts:
Defendant no.1 had unlawfully encashed the contract performance and advance bank guarantees. Since insolvency proceedings had been initiated, the present suit was stayed and after that liquidation proceedings had commenced against the Defendant No.1. The present suit is filed for seeking relief of permanent injunction against Defendant no.1 to restrain him from encashment of bank guarantee and to recover dues.
The major issue to be determined is whether the present suit can be continued if liquidation proceedings have been commenced under Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) and appointment of liquidator has been done.
Contentions of the Plaintiff:
It was contended that the present proceedings shall be continued as there is a difference in language of Section 14 and Section 33 (5) of the IBC, the latter only puts moratorium in respect of fresh suits and not pending ones. The moratorium imposed under Section 14 came to an end when the resolution process failed.
Contentions of the Defendant No.1:
It was contended that being a “corporate debtor in liquidation”, in lieu of Section 63 and Section 231 of IBC, the Jurisdiction of Civil Courts is barred as under IBC it is the NCLT which has the powers to pass orders. As per Section 60(5)(b) of the IBC, it is only the NCLT which is empowered to deal with claims by or against the corporate debtor and hence the Plaintiff ought to have filed the claim before the liquidator. It is also submitted that Section 33(5) should be read in a manner to include pending suits as otherwise the very object and purpose of IBC would frustrate as liquidation proceedings will be delayed if court proceedings are allowed.
Observation and finding of the Court:
The Court agreeing with the view taken by the High Court of Madras and Kerala noted that there is a reason why legislature did not mention pending suits in Section 33(5) IBC. It is because the objective of liquidation is not to revive the company rather it is to realize the maximum value of the assets of the corporate debtor which is why there are no limitations placed in terms of using the word “pending” in Section 33(5).
Both Sections 14 and 33(5) belong to different chapters of the IBC, the former deals with Corporate Insolvency Resolution Profession (hereinafter referred to as “CIRP”) and the latter deals with Liquidation Proceedings. The Section 14 moratorium comes into effect upon an order passed by the Adjudicating Authority (hereinafter referred to as “AA”) and is continued till the completion of CIRP. The moratorium ceases to have effect in case resolution plan is approved by AA or if a liquidation order is passed under Section 33(4) of the IBC. After an order of liquidation under Section 33(4) it is the moratorium under Section 33(5) that takes place.
Based on the aforementioned reasons, it was held by the Court that there is no absolute bar under Section 33(5) in a suit or proceedings being continued along with liquidation proceedings.
With respect to the Jurisdiction of Civil Courts being ousted, the Court noted that the bar on jurisdiction is not with respect to pending suits. Bar of Sections 63 and 231 applies only after an order has been passed by the adjudicating authority. The court also noted that even if there is an omission by the legislature the same cannot be supplied by the judiciary.
It was held by the Court that the present suit will be continued as there is no bar under Sections 33(5), 63 and 231 of the IBC. The Court also held that the Plaintiff cannot pursue 2 separate remedies in regard to the same claim and therefore, the liquidator was directed not to adjudicate on the claim filed by the Plaintiff as the same will be the matter in issue in the present case.
Case: Elecon Engineering Company Ltd. V. Energo Engineering Projects Ltd. & Ors.
Bench: Hon’ble Mr. Justice Amit Bansal
Decided on: 13th September 2022
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