The Bombay High Court opined that over every issue concerning the Corporate Debtor, the NCLT would not have jurisdiction. The NCLT can adjudicate when the issue arises solely out of insolvency. In the present case, the issue is regarding the termination of the employee, it had nothing to do with the insolvency of the Corporate Debtor and hence, the NCLT would not have jurisdiction. Further, since monies were deposited much before the corporate insolvency resolution process (hereinafter referred to as “CIRP”), the issue was not solely arising out of insolvency. Hence, it was ruled that the Court has the jurisdiction to decide the 1st appeal and the interim application.
Concerning the moratorium of Section 14 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”), the High Court propounded that the moratorium extends only to the assets belonging to the Corporate Debtor and monies deposited by the Appellant in the Trial Court did not qualify as assets of the Corporate Debtor.
It was expounded that when the assets do not belong to the Corporate Debtor, the creditor cannot be precluded from enforcing its rights against the assets. Section 14 only applies in relation to the assets and properties of the Corporate Debtor. Further, the Bench opined that in the present case, the appeal has been preferred by the Corporate Debtor and hence, the moratorium could never apply to the 1st appeal preferred by the Corporate Debtor. Moreover, the moratorium did not have bearing on the Respondent’s rights to withdraw the monies deposited in the Court.
The Bombay High Court unequivocally stated that the rights of a decree-holder to withdraw monies deposited in the Court before the commencement of CIRP are not hit by the Section 14 moratorium.
Brief Facts:
The primary issue, in this case, was whether the Respondent (Applicant) can be permitted to withdraw monies deposited by the Appellant (Corporate Debtor) under the Court’s order towards the stay of execution of the judgment, given that the Appellant was undergoing CIRP.
Brief Background:
The Appellant is a company and the Respondent joined it as an employee. The employment was terminated unilaterally, because of which a civil suit was preferred by the Respondent. The Appellant was directed to pay a certain sum to the Respondent. Against the said order, the present appeal has been filed by the Appellant.
The present Court passed an order directing a stay of execution of the impugned judgment subject to the Appellant depositing a certain amount with the Trial Court.
Thereafter, the present Court passed an order directing the Respondent to withdraw the amount. However, later, the appeal was dismissed for non-appearance. Later, the NCLT admitted the Appellant into insolvency.
The Appeal was restored and subsequently, an interim application which is the present application was filed by the Respondent seeking the release of the sum which was deposited by the Appellant in the Trial Court. The Court passed an order that since a moratorium is in place, the law cannot allow the Respondent to withdraw the amount now.
Contentions of the Appellant:
The Appellant had objected to the jurisdiction of the Court. It was argued that the interim application was barred by res judicata as partial withdrawal was allowed.
It was argued that the amount deposited was hit by the moratorium under Section 14. It was submitted that the amount deposited was security for the due performance as contemplated under Order 41 Rule 5(3)(c) of the Code of Civil Procedure, 1908. It was submitted that the money deposited is custodial legis to the credit of the party who wins. Further, the money deposited in the Court remains the property of the Judgement Debtor, even though it may be placed beyond its reach pending the appeal.
It was contended that Section 14(1)(a) of the IBC is inclusive in nature and includes a prohibition on all proceedings against the Corporate Debtor. Therefore, even the present proceedings against the Corporate Debtor cannot be continued because of the bar of Section 14(1)(a).
Regarding the jurisdictional objection, it was alleged that the present interim application was both an application and a claim against the Corporate Debtor. Therefore, as per Sections 60(5) and 231 of the IBC, the jurisdiction of the present Court was barred to entertain the interim application.
Contentions of the Respondent (Amicus Curiae):
It was argued that this Court has jurisdiction to entertain the interim application as NCLT does not have general jurisdiction to adjudicate on 1st appeal or interim application in a 1st appeal. It was contended that NCLT cannot assume jurisdiction simply because the issue concerns the Corporate Debtor. The present issue is regarding termination of employment and does not concern insolvency. Therefore, NCLT cannot be said to have jurisdiction.
Further, the bar of Section 21 of the IBC did not apply as NCLT does not have jurisdiction only. Moreover, it was contended that the moratorium of Section 14 would not apply.
Observations of the Court:
Regarding the contention of res judicata, the Court opined that a long time has passed since partial withdrawal was allowed and since then, new facts and circumstances had taken place. Therefore, the Respondent could apply again for the release of the deposited amount.
Moving on to the contention related to jurisdiction, the Bench opined that the NCLT is a statutory tribunal and has no general jurisdiction. Therefore, it can entertain 1st appeal or interim application only if it is statutorily permitted. It was opined that over every issue concerning the Corporate Debtor, the NCLT would not have jurisdiction. The NCLT can adjudicate when the issue arises solely out of insolvency. In the present case, the issue is regarding the termination of the employee, it had nothing to do with the insolvency of the Corporate Debtor and hence, the NCLT would not have jurisdiction. Further, since monies were deposited much before CIRP, the issue was not solely arising out of insolvency. Hence, it was ruled that the Court has the jurisdiction to decide the 1st appeal and the interim application.
Concerning the moratorium of Section 14, the High Court propounded that the moratorium extends only to the assets belonging to the Corporate Debtor and monies deposited by the Appellant in the Trial Court did not qualify as assets of the Corporate Debtor.
It was expounded that when the assets do not belong to the Corporate Debtor, the creditor cannot be precluded from enforcing its rights against the assets. Section 14 only applies in relation to the assets and properties of the Corporate Debtor. Further, the Bench opined that in the present case, the appeal has been preferred by the Corporate Debtor and hence, the moratorium could never apply to the 1st appeal preferred by the Corporate Debtor. Moreover, the moratorium did not have bearing on the Respondent’s rights to withdraw the monies deposited in the Court.
The High Court unequivocally stated that the rights of a decree-holder to withdraw monies deposited in the Court before the commencement of CIRP are not hit by the Section 14 moratorium.
The decision of the Court:
Based on the aforementioned reasons, the Bombay High Court held that this Court was not barred in allowing the withdrawal of the amount by the Respondent if the Court thinks it fit.
Case Title: Rajendra Prasad Bansal in the matter of Reliance Communication Limited v. Rajendra P. Bansal
Coram: Justice Mr. K.R. Shriram, Justice Mr. Kamal Khata
Case No: Interim Application No. 1161 of 2020 in First Appeal No. 1539 of 2012
Advocates for Appellant: Advs. Mr. Cyrus Bharucha, Mr. Tushad Kakalia, Mr. D.J. Kakalia, Ms. Bhavna Singh Jaipuria, Mr. Paresh Patkar
Amicus Curiae: Mr. Nuashad Engineer
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