Reliance Capital Ltd vs Idbi Trusteeship Services Ltd. ...
2022 Latest Caselaw 2223 Bom

                 IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                     ORDINARY ORIGINAL CIVIL JURISDICTION
                              [ COMMERCIAL DIVISION ]

                        INTERIM APPLICATION NO.323 OF 2022
                                               IN
                    COMMERCIAL SUMMARY SUIT NO.84 OF 2021
Reliance Capital Ltd.                                          .. Applicant-Org. Def. 2
In the matter between
IDBI Trusteeship Services Ltd.                                 .. Plaintiff
         Vs.
1. Reliance Broadcast Network Ltd.
2. Reliance Capital Ltd.                                       .. Defendants


Mr. Gaurav Joshi, Sr. Advocate, with Mr. Tushad Kakalia, Ms. Raghavi Sharma
and Mr. D.J. Kakalia, i/by Mulla & Mulla & Craigie Blunt & Caroe, for the
Applicant-Original Defendant No.2.
Dr. Birendra Saraf, Sr. Advocate, with Mr. Rohan Savant, Mr. Sachin
Chandarana, Mr. Mayur Bhojwani and Mr. Reehan Ajmerwalla, i/by Manilal
Kher Ambalal & Co., for the Plaintiff.
Mr. Pranav Desai, with Mr. Hrutvik Patil and Ms. Minal Pawar, i/by India Law
Alliance, for Defendant No.1.

                                                       CORAM : A. K. MENON, J.

                                                       DATE        : 7TH MARCH, 2022.
P.C. :

1. The applicant prays for vacating the ad-interim order passed by this

court on 4th November 2020, by which the court granted ad-interim relief in

terms of prayer clause (e), which reads as follows :-

"(e). That pending the hearing and final disposal of this Suit, this Hon'ble Court be pleased to restrain the defendants, by itself, its agents, and/or any other persons claiming through it, by a temporary order and injunction, from, in any manner transferring, alienating, selling, disposing of and/or dealing with and/or parting with possession and/or encumbering and/or creating any third party right or interest in the all assets, immovable and movable, securities, investments owned by the defendants and/or the assets and securities of which the beneficial ownership or control is enjoyed by the defendants including assets disclosed on oath by the defendants."

2. The order is operating against defendant no.2 and it is the applicant's

case that on 29th November 2021, the Reserve Bank of India by a Press Release

of even date issued under Section 45-IE of the Reserve Bank of India Act, 1934

superseded the Board of Directors of the 2 nd defendant and appointed the

applicant - Mr. Nageswara Rao Y., a former Executive Director of the Bank of

Maharashtra, as Administrator of the 2 nd defendant. It is submitted that the

Reserve Bank of India (RBI) has since constituted a three-member Advisory

Committee to assist the Administrator. It is contended by Mr. Joshi appearing in

support of the IA that on or about 2 nd December 2021, the RBI filed an

application before the National Company Law Tribunal, Mumbai (NCLT) for

initiation of Corporate Insolvency Resolution Process (CIRP) against the 2nd

defendant. The CIRP proceedings were admitted on 6 th December 2021. The

order of the NCLT records that the respondent no.2 was in default of a debt due

and payable and the default was more than the minimum amount contemplated

under Section 4(1) of the Insolvency and Bankruptcy Code, 2016 and hence

there was no reason to deny admission of the petition.

3. Mr. Joshi submitted that the Appropriate Regulator was the RBI in the

instant case and it had initiated the CIRP against defendant no.2 - Reliance Capital Ltd. - a Financial Service Provider (FSP), who is amenable to the

provisions of the Code. Accordingly, a moratorium came into effect as

contemplated under Section 14 of the Code. The moratorium took effect from

the date of the order, i.e. 6 th December 2021, and would continue till

completion of the CIRP or till the Adjudicating Authority approves a Resolution

Plan under Section 31(1) of the Code; alternatively, till an order of liquidation

of the defendant no.2-FSP was passed under Section 33 of the Code. The

Administrator was appointed of the respondent no.2 to carry out functions as

per the Code and was thus required to exercise his powers pursuant to Sections

15, 17, 18, 19 and 20 of the Code. During the CIRP, the management of

defendant no.2 would vest in the Administrator. According to Mr. Joshi, by

virtue of the order passed by the NCLT, read with Section 14(1) of the Code, a

moratorium having been declared, the plaintiff cannot seek to enforce any

rights under the suit contract.

4. Mr. Joshi submitted that in view of commencement of the CIRP, the suit

against the 2nd defendant cannot proceed and by operation of law, viz. Section

14 of the Code, interim relief cannot continue and hence the 2 nd defendant has

approached this court for vacating that order in view of the change in the

circumstances. It is also contended that if the order is not vacated, it would

adversely impact the CIRP. Mr. Joshi has therefore submitted that the

Administrator proposes to make attempts at revival and those efforts cannot be

frustrated on account of the injunction and hence he sought an order vacating

the ad-interim stay dated 4th November 2020.

5. In support of his application, Mr. Joshi has relied on numerous

judgments. In particular, he makes reference to an order passed by the Delhi

High Court in Housing Development Finance Corporation Ltd. Vs. Reliance

Capital Ltd. & Anr.1, in which the court vide an order dated 13 th January 2022

stayed the suit and interim orders passed therein. The suit was adjourned sine

die, granting liberty to the parties to bring on record orders that may be passed

by the NCLT on conclusion of proceedings. This order was made on an

application under Order XXXIX Rule 4 of the Civil Procedure Code, 1908

seeking stay of proceedings and / or vacation of the ad-interim stay that has

been granted by that court on 15 th March 2021. Relying upon the observations

of the court, Mr. Joshi invited me to follow suit and vacate the injunction.

6. Relying on the inherent powers of this court under Section 151, Mr. Joshi

has submitted that given the provisions of the Code, it is obvious that this court

cannot proceed with the hearing of the suit or the applications therein but a

court can recall that order if the proceedings culminate into an order which

suffers from inherent lack of jurisdiction and if lack of jurisdiction is patent. In

support of this submission, he relies upon the decision of the Supreme Court in

Budhia Swain and Ors. Vs. Gopinath Deb and Ors. 2, wherein the court held that

the power to recall a judgment can be exercised by invoking the inherent

powers of the court.

7. Mr. Joshi then submitted that the purpose of a moratorium, as seen from

1 C.S. (COMM) 47 of 2021 2 (1999) 4 SCC 396 the legislative intent of the Insolvency and Bankruptcy Code, 2016 (the Code),

is to ensure that the assets of the Corporate Debtor are preserved during the

Resolution Process and the scope of the moratorium is so wide such that the

Corporate Debtor has sufficient opportunity to manage its affairs in order to

enable the new management to take over and regain its financial health. He

submits that the purpose of the moratorium is to ensure that there should be no

additional stress on the assets of the Corporate Debtor and the Code, being

comprehensive on the aspect of insolvency of companies, provides a unified

umbrella covering all laws relevant for the purposes of insolvency. Mr. Joshi

submits that the entire effort is to ensure that the Corporate Debtor is given a

fair opportunity to resolve its pending issues, duly insulated from multiple

claims that may arise. He submitted that as held by the Supreme Court in

Ghanashyam Mishra and Sons Private Limited, through the Authorized

Signatory Vs. Edelweiss Asset Reconstruction Company Limited, through the

Director and Ors.3, the legislative intent is to freeze all the claims so that a

resolution applicant can get a fair chance in recovering from financial sickness.

He also relies upon the decisions in Embassy Property Developments Pvt. Ltd.

Vs. State of Karnataka and Ors. 4, and Committee of Creditors of Essar Steel India

Ltd., through Authorized Signatory Vs. Satish Kumar Gupta and Ors. 5.

8. Inviting my attention to the decision in Edukanti Kistamma (Dead),

through LRs. and Ors. Vs. S. Venkatareddy (Dead), through LRs. and Ors. 6 and

3 (2021) 9 SCC 657 4 (2020) 13 SCC 308 5 (2020) 8 SCC 531 6 (2010) 1 SCC 756 Indian Handicrafts Emporium and Ors. Vs. Union of India and Ors. 7, Mr. Joshi

urged me to appreciate the fact that provisions of the statute must be construed

in a manner such that it is rendered effective and should not frustrate the

attempt that a party seeks to make in exercise of its rights under the statute. Mr.

Joshi submitted that the statute must be read in its entirety and in that behalf,

the learned counsel canvassed the purposive rules in interpretation of the Code.

Mr. Joshi has also relied upon the decision of the Supreme Court in Alchemist

Asset Reconstruction Company Ltd. Vs. Hotel Gaudavan Private Ltd. and Ors. 8,

which observes that the moratorium expressly interdicts institution and

continuation of pending proceedings against corporate debtors and that the

present suit also cannot proceed. According to Mr. Joshi, if the present suit

cannot proceed, no purpose is served by having the injunction operative since it

obstructs the attempts of the Administrator now appointed to conduct the

affairs of the corporate debtor as a going concern.

9. According to Mr. Joshi, the "going concern" status of the corporate debtor

is now severely affected by the injunction, which has been in operation since

November 2020. Mr. Joshi therefore invites me to hold that since the suit

cannot proceed, the injunction ought not to continue and the same be either

vacated or stayed. Mr. Joshi also relies upon multiple decisions in support of his

contention that no parallel proceedings can be pursued after the moratorium is

ordered. Mr. Joshi further submitted that other financial institutions such as

Franklin Templeton India Ltd. and L & T Finance also have claims against

7 (2003) 7 SCC 589 8 (2018) 16 SCC 94 respondent no.2, but have submitted themselves to the insolvency process. In

the present case, he submitted that the plaintiff has also filed its claim before the

NCLT and the plaintiff's claims would be considered only in accordance with

the law. Mr. Joshi has taken me through the framework of the Insolvency and

Bankruptcy Code including Sections 14, 17 and 18. The Adjudicating Authority

prohibits not only institution of suits but also continuation of pending suits and

proceedings and execution of any decrees, judgments or orders in any court of

law and that includes the High Court. The moratorium prohibits transferring,

encumbering, alienating or disposing assets of the corporate debtor as also

actions to foreclose recovery or enforce any security interest created by the

corporate debtor and recovery of possession of owner or lessor of the property

occupied by having possession of the corporate debtor. Mr. Joshi submitted that

the provisions of section 14 are so wide that even supplies of essential goods

and services cannot be terminated or suspended. The order of moratorium

continues to operate till date of completion of CIRP, provided that, at any time

during the process, if a Resolution Plan is approved by the Adjudicating

Authority, the moratorium will cease to have effect.

10. Mr. Joshi further submitted that management and affairs of the corporate

debtor vests in the Interim Resolution Provision (IRP), given the IRP powers of

the board of directors, which will stand suspended. Managers and officers of

the corporate debtor would report to IRP and provide all records, as required by

the IRP. The financial institutions shall also act on the instructions of the IRP. In

managing the corporate debtor's affairs, the IRP is to act and execute in the name of the debtor all documents and deeds. The duties of the IRP are provided

in Section 18. That includes constitution of a Committee of Creditors (COC)

monitoring the assets of the debtors, managing in operations until the

Resolution Professional is appointed by the creditors. In the present case, Mr.

Joshi submits that the applicant-Mr. Nageswara Rao Y. has been appointed by

RBI in its capacity as the Appropriate Regulator, which is the authority

nominated for appointment of a Resolution Professional, and the Administrator

is now in a position to carry forward his obligations on behalf of the corporate

debtor. The COC has been constituted pursuant to section 18(c) and it was

process of taking control and custody of the assets, as contemplated in Section

18. These obligations include management of operations of the corporate debtor

as a going concern, as contemplated in section 20, and for that purpose, he is

entitled to enter into contracts on behalf of the corporate debtor, amend or

modify contracts, raise finance after prior consent of the creditors, whose debt

is secured unless the value of property is less than twice the amount of debt. In

these circumstances, Mr. Joshi submits that the order of injunction comes in the

way of IRP carrying out his statutory duties of managing operations of the

corporate debtor since section 20(e) empowers the IRP to take all actions as are

necessary to keep the corporate debtor as going concern.

11. Mr. Joshi further submitted that upon a Resolution Plan being passed by

the COC and sanctioned by the NCLT, all further proceedings would cease and

success of the Resolution Plan would result in a clean slate for the debtor and no

claim would survive. If the Resolution Plan does not take place, the company will be ordered to be wound-up. Adverting to the scheme of the Act, Mr. Joshi

submitted that the provisions of the Code would override all other laws

notwithstanding anything inconsistent with the Code in other laws. Under

Sections 22 and 23, the Resolution Professional would, upon his appointment,

require to conduct the CIRP to manage the operations of the corporate debtor

during the entire period taken for the CIRP. The proviso to section 23 requires

the Resolution Professional to conduct the entire process and manage the

operations of the corporate debtor including for the period after expiry of the

CIRP period until the order approving a Resolution Plan or appointing a

Liquidator is passed. Considering the entire gamut of operations that the

Resolution Professional is required to carry out, Mr. Joshi submitted that the ad-

interim order must be vacated.

12. Mr. Joshi further submitted that the plaintiff is an unsecured creditor,

who has exercised a put option against defendants; whereas, the applicant is

seeking an order of recall of the injunction granted in respect of defendant

no.2. He submits that the apprehension expressed while seeking relief, that the

assets of the defendant no.2 may be frittered away, no longer exists in view of

the moratorium ordered pursuant to the NCLT proceedings and the allegation

that the Administrator is misusing security cannot be accepted. Inviting my

attention to Section 33(5) of the Code, Mr. Joshi submitted that even if

liquidation is initiated and an order is passed, no suit or other legal proceedings

can be instituted against the corporate debtor except with the leave of the

Adjudicating Authority, namely, the NCLT. He therefore submits that there is no occasion to now continue the order of injunction. He seeks to persuade me to

exercise the court's powers under Section 151 of the CPC. He emphasized the

fact that it is the Reserve Bank of India which has now appointed the applicant-

Mr. Nageswara Rao Y. and if the injunction continues, it will not be possible for

the applicant to carry out his duties in the manner that the Code envisages. Mr.

Joshi submits that the court must appreciate the completeness of the Code,

reiterating that Sections 14, 17, 18, 21 and 25 all indicate that the Code has

taken into consideration all aspects of claims of creditors against the corporate

debtor. In particular, he submits that the duties of the Administrator under

Section 25 cannot be performed if the injunction continues. Alluding to the

legislative intent, Mr. Joshi submits that it is in the fitness of things that the

injunction is vacated of the order stayed, as was the case in the Delhi High

Court. Mr. Joshi therefore submitted that the application be allowed, as prayed.

13. The application is opposed by Dr. Saraf, who submits that in view of the

moratorium, no further order is required to be passed. Referring to the order

passed by the Delhi High Court in the case of Daiichi Sankyo Company Ltd. Vs.

Malvinder Mohan Singh and Ors. 9, Dr. Saraf submits that no action is required

to be taken in the present case. The plaintiff has obtained an order of injunction

as early as 4th November 2020. The corporate debtor has not challenged that

order. In view of the moratorium now operating, that order should continue to

operate since this court is not required to pass any further order since that

would amount to continuation of pending proceedings.

9 O.M.P.(EFA)(COMM) 6/2016, along with connected matters - Order dt.15-01-2020

14. Dr. Saraf submitted that the IA discloses no reason why the applicant

cannot manage the affairs of the company as a going concern. He invites my

attention to paragraphs 9 and 10 of the IA and submits that nothing whatsoever

has been set out as to how the company is not able to carry on its business as a

going concern. According to Dr. Saraf, the contention of the applicant has no

basis on fact or on law. He further submits that merely because the plaintiff is a

member of the COC is of no avail. The resolution process can end at any time

and if the order is vacated and the resolution process comes to an end, the

plaintiff will be left with no remedy whatsoever. He relies upon the uncertainty

of any conclusion being arrived at during the resolution process. He seeks to

guard against any abrupt closure of the resolution process and submits that if

an order is vacated and the resolution process ends, the plaintiff, who has

secured an order, will be left with no protection whatsoever. He therefore

submits that this court should not entertain the present application. Once a

moratorium is in force, the court ought not to proceed especially since it is the

applicant's case that the order is not executable and not enforceable.

15. Dr. Saraf has invited my attention to the affidavit-in-reply filed by one

Kaustubh Sudame, the Authorized Signatory of the plaintiff, and submits that

the application is filed without the authority of the COC under the Code and

there is not an iota of a reason or any factor that could cause prejudice to the

ongoing affairs of defendant no.2. The affidavit goes on to state that the

application does not disclose any change in circumstances or any need for

vacating the ad-interim order. In the absence of any such pleadings, demonstrating specific change in circumstances or inability to carry on the

affairs of the 2nd respondent there is no occasion to entertain the present

application and modify the order, moreso, since the moratorium is already

operating. It is contended that there are proceedings pending before the Debt

Recovery Tribunal, Mumbai against defendant no.2 and various interim orders

continue to operate. According to Dr. Saraf, the initiation of insolvency

proceedings before the NCLT and the declaration of moratorium cannot be a

ground for vacating the protective orders passed by this court. Thus, apart from

maintainability of the IA for want of specific permission of the NCLT or the

COC, Dr. Saraf submits that the IA has no merit and deserves to be rejected. In

particular, Dr. Saraf has invited my attention to the provisions of Section 12A of

the Code, which empowers the NCLT to permit withdrawal of an application

admitted under Section 7 or 9 or 10 with the approval of 90% of voting share

of the COC. This, he fears, will result in interim protection granted in the suit to

be negated without any opportunity to the plaintiff to seek restoration of an

order or any preventive relief. It is not as if the interim order, if vacated, would

be restored upon withdrawal of proceedings being permitted by the NCLT. In

these circumstances, Dr. Saraf submits that no action requires to be taken. The

court need not pass any orders staying or vacating the injunction and it is for

the applicant to carry out its duties under the Code. He therefore submits that

the application be rejected.

16. Dr. Saraf in support of his contentions has relied upon the decision of the

Supreme Court in Binod Mills Co. Ltd., Ujjain, (M.P.) Vs. Suresh Chandra Mahaveer Prasad Mantri, Bombay10, in which he has invited my attention to the

treatment of execution proceedings pursuant to a decree passed by the Bombay

High Court, which was proposed to be executed in Madhya Pradesh. The decree

was passed in a Summary Suit on the Original Side. There was no contest to the

suit. The decree was transferred to the District Judge, Ujjain and an execution

application was filed. The application was opposed by the respondent

contending that the District Court had no jurisdiction. The respondent took

shelter under the State Relief Undertaking under the M.P. Sahayata Upkram

(Vishesh Upbandh) Adhiniyam, 1978 (M.P. Act), which protected notified relief

undertakings against legal proceedings. Section 5 of the M.P. Act dealt with

suspension of suits and other legal proceedings against relief undertakings and

the Supreme Court, after having considered all aspects, observed that the object

of the M.P. Act was to relieve undertakings from litigative pressures for a period

of time. The court found that not only were suits and other legal proceedings

similar to suits suspended, but execution proceedings were also required to be

suspended. Thus, the definite object of the M.P. Act was to prevent litigation

against the relief undertakings.

17. The instant case also is similar, inasmuch as, no further steps can be

taken in execution or enforcement of orders passed by this court by virtue of

the moratorium and Dr. Saraf submits that there is no warrant to vacate the

order since the law does not provide for such an eventuality merely because a

moratorium has come into effect. He has cited a decision of the Delhi High

10 (1987) 3 SCC 99 Court in Daiichi Sankyo Company Ltd. Vs. Malvinder Mohan Singh and Ors. 11,

in which group of matters dealing with execution applications against the

company which was enjoying a protection of the moratorium. An order dated

15th January 2020 records the various submissions of the parties, recognizes

that a COC has been appointed and observes that due to the moratorium, no

further orders needs to be passed except to state that the execution proceedings

cannot be continued against the applicants during the period of moratorium.

This is the correct approach inasmuch as this court is also not required to take

any further steps, cannot take any further steps and need not pass any orders

vacating injunction or modifying it. He therefore submits that the application is

misconceived and is liable to be rejected.

CONCLUSIONS

18. I have heard the learned counsel at some length. At the outset, I may

observe that the applicant has relied upon 17 judgments, none of which

supports the application made today. None of these judgments are indicative of

the course of action to be taken in applications such as the one at hand. Apart

from the fact that this court has inherent powers, the exercise of inherent

powers would have to be justified by the circumstances of the case and I am of

the view that there are no grounds made out for recall of the order of

injunction passed on 4th November 2020.

19. In Budhia Swain (supra), the Supreme Court observed that a court may

recall its earlier order if proceedings culminating in that order suffer from

11 O.M.P. (EFA) (COMM.) 6/2016, along with connected matters - Order dt. 15-01-2020. inherent lack of jurisdiction and lack of jurisdiction was patent. That is not the

case at hand, nor is it a situation where there was any fraud or collusion in

obtaining the order of injunction or a mistake committed by the court, thereby

prejudicing defendant no.2. The injunction was also not in ignorance of any

fact and it is not even the case of the applicant that the order was passed

ignoring an order of moratorium or any other order. In fact, in paragraph 8,

the Supreme Court also observed that power to recall will not be exercised

when the ground for vacating a judgment was available in some other

proceedings such as by way of appeal or revision, which was not availed of. It

also observes that the right of seeking vacation of a judgment may be lost by

waiver, estoppel or acquiescence.

20. Budhia Swain (supra) also records is that the power to recall will not be

exercised when the ground for reopening the proceedings or vacating the

judgment was available to be pleaded in the original action but was not done or

where a proper remedy is by way of appeal or revision which was not availed

of.

21. In the present case, the ad-interim order passed by this court is dated 4 th

November 2020. No appeal was filed against that order which has been

remained in operation all of this time. The question therefore to be considered is

whether any further orders can be or are required to be passed at all in view of

the moratorium now in place. As far as the decision of the Delhi High Court is

concerned, I find that there was no opposition whatsoever to the order being stayed; whereas in the present case, the application for vacating the stay or

staying the order itself is opposed vehemently by the plaintiff.

22. In the present case, the injunction order has been passed on 4 th

November 2020. No attempt was made to vacate or modify that order. It is only

after the moratorium is being declared that the Administrator of defendant no.2

seeks to vacate that order. The corporate debtor felt no need to do so since the

order is a protective order and preventing them from encumbering and

frittering away assets including to defeat claims of creditors. In the present set

of circumstances, I find no reason to interfere, invoke and exercise inherent

powers. The decisions in the various other judgments that have been relied

upon by the applicant merely record the effect of the IBC, the moratorium and

the need to preserve its assets during the resolution process that is achieved by

the injunction as well. The purpose of the moratorium is not in dispute and thus

reliance upon P. Mohanraj and Ors. Vs. Shah Brothers Ispat Pvt. Ltd. 12 and

Power Grid Corporation of India Ltd. Vs. Jyoti Structures Ltd. 13 is of no

assistance to the applicant. The fact that the IBC is a complete Code is also not

disputed. It deals with insolvency and since it is a unified and a complete Code,

the legislature would certainly have envisaged situations such as the one at

hand and would have provided for vacating of injunctions and orders

appointing Receivers and other orders securing claimants' / plaintiffs' interest,

but that is not the case.

12 (2021) 6 SCC 258 13 2017 SCC OnLine Del 12189

23. There can be no doubt that claims must be submitted to and decided by

the Resolution Professional and that the intention of the Code is to freeze

enforcement of claims and institution of fresh claims. The injunction does not in

any manner frustrate this object. Reading the Code as a whole, there is nothing

in the Code that has been pointed out to me which would require this court to

reverse orders that have already been passed. It simply prevents further orders

from being passed, which would have the effect of continuation of proceedings

and enforcement of orders already in operation. No doubt, as observed in

Alchemist Asset Reconstruction Company Ltd. (supra) , the moratorium

interdicts continuation of proceedings against corporate debtors, including

money suits under original jurisdiction. That would cover the present suit as

well. The purpose was to ensure that no proceedings take place which could

frustrate the attempts at restructuring corporate debtors and the attempts of the

Resolution Professional. If such proceedings were allowed to continue, the

appointment of the Resolution Professional would only make such attempts

more aggressive and therefore frustrate the intention of the Code. No further

action should be taken by courts in continuance of proceedings that would

interfere with the CIRP. This is the view taken in some of the judgments that Mr.

Joshi has cited before me including Hirakud Industrial Works Ltd. Vs. Varsha

Fabrics (P) Ltd.14 and Liberty House Group Pte. Ltd. Vs. State Bank of India and

Ors.15.

24. One other aspect that is to be considered is whether the court needs to

14 (2020) 14 SCC 198 15 2019 SCC OnLine Del. 7256 modify an order of injunction in view of change in circumstances. Change in

circumstances, in effect and in the present context, would mean change in

circumstances affecting rights and obligations as between the parties inter se.

The only change in circumstances that Mr. Joshi has been able to canvass is

coming into effect of the moratorium. There is no order passed by the NCLT or

by the Resolution Professional, nor any steps taken by the COC that cannot be

carried out by virtue of the injunction. In fact, the effect of the injunction is

protective of the assets of the corporate debtor and does not run counter to the

interest of the corporate debtor. It prevents the corporate debtor from alienating

assets. It is not for a moment suggested that alienating assets is the business of

the respondent no.2 and certainly it is not the case of the applicant that

alienation of assets is part of its business as a going concern. The injunction is

protective and is required to be discharged only if change in circumstances so

warrant and in this aspect Mr. Joshi has relied upon the decision of Dover Park

Builders Pvt. Ltd. and Ors. Vs. Smt. Madhuri Jalan and Ors. 16, Padmavati

Paradise, Proprietary Concern of Parashar Arvind and Anr. Vs. Kirtiben

Dhaneshkumar Shah17 and K.P.M. Aboobucker Vs. K. Kunhamoo and Ors. 18.

Alienation was justified in cases where irreparable loss or injury may be caused

to the defendant or if the plaintiff finds that it is not necessary to continue the

same.

25. In the case at hand, save and except for the moratorium, there is no

16 2002 SCC OnLine Cal 413 17 2012 SCC OnLine Guj 471 18 1957 SCC OnLine Mad 349 change in the circumstance whatsoever. The applicant has failed to demonstrate

in what manner the operations of the company are to be prejudiced by

continuation of the order of injunction and by this court in not vacating that

order. The order has been in operation for several months. If the applicant's

contentions are to be accepted, all orders passed by every court and tribunal

would have to be set aside. Clearly, that is not the intention of the Code. If that

was the intention, the enactment would have provided so. The legislature in its

wisdom has not thought it fit to so provide and we cannot read into the

legislation what it does not contemplate in specific terms.

26. In Krishna, son of Bulaji Borate Vs. State of Maharashtra and Ors. 19, the

Supreme Court was considering removal of a nominated trustee under the

Nagpur Improvement Trust Act, 1936 and on the aspect of interpretation of

statutes, the court observed that while determining legislative intent, in the

absence of clear words indicating that in legislative intent, it is open for the

court, when interpreting any provision, to read it with other provisions of the

same statute. Applying this principle in the instant case, I find that nothing in

the Code requires a court to reverse its orders and set aside the order of

injunction in the instant case. Likewise in Arnit Das Vs. State of Bihar20, while

dealing with the legislative intent of the Juvenile Justice Act, 1986, the court

observed that if the language used by the Parliament is ambiguous, the court is

permitted to look into the preamble for construing the provisions of an Act and

the preamble is the key to unlock the legislative intent. In the instant case, there

19 (2001) 2 SCC 441 20 (2000) 5 SCC 488 is no provision which requires or implies that courts are required to vacate

orders or reverse the orders passed. Useful reference may be made to the

UNCITRAL Legislative Guide on Insolvency Law, 2005, which inter alia

considers the effect of a moratorium. A relevant extract is reproduced below.

"B. Protection and preservation of the insolvency estate

1. Introduction

25. Essential objectives of an effective insolvency law are protecting the value of the insolvency estate against diminution by the actions of the various parties to insolvency proceedings and facilitating administration of those pro- ceedings in a fair and orderly manner. The parties from whom the estate needs the greatest protection are the debtor and its creditors.

2. Protection of the estate by application of a stay

26. With regard to creditors, one of the fundamental principles of insolvency law is that insolvency proceedings are collective proceedings, which require the interests of all creditors to be protected against individual action by one of them. Many insolvency laws include a mechanism to protect the value of the insolvency estate that not only prevents creditors from commencing actions to enforce their rights through legal remedies during some or all of the period of the liquidation or reorganization proceedings, but also suspends actions already under way against the debtor. Such a mechanism is variously termed a "moratorium", "suspension" or "stay", depending on the effect of the mechanism. For the purposes of the Legislative Guide, the term "stay" is used in a broad sense to refer to both suspension of existing actions and a moratorium on the commencement of new actions.

(i) Liquidation

27. As a general principle, the emphasis in liquidation is on realizing the assets, in whole or in part, so that creditors' claims can be satisfied from the proceeds of the estate as quickly as possible. Maximizing value is an overriding objective. The imposition of a stay can ensure a fair and orderly administration of the liquidation proceedings, providing the insolvency representative with adequate time to avoid making forced sales that fail to maximize the value of the assets being liquidated and also an opportunity to see if the business can be sold as a going concern, where the collective value of assets may be greater than if the assets were to be sold piecemeal. A stay also allows the insolvency representative to take stock of the debtor's situation, including actions already pending, and provides time for all actions to be fully consi- dered, increasing the possibility of achieving a result that is not prejudicial to the interests of the debtor and creditors. The balance that is difficult to achieve in liquidation proceedings is between the competing interests of secured creditors, who will often hold a security interest in some of the most important assets of the business and wish to enforce that security interest, and unsecured creditors, who may benefit from retention of that asset to facilitate sale of the business as a going concern."

27. These guidelines also do not contemplate reversal of any orders passed by the court. As we have seen from the extract reproduced above, the attempt is to

stay all remedies and proceedings and restrain a corporate debtor from taking

actions with respect to the assets and enforcing the rights including

governments from exercising priority rights. These principles have been

incorporated in the Code. Nothing has been shown to me that requires a court

and judicial authority, before whom an action is pending, to undo its previous

orders. The application to that extent has no merit.

28. In State of Himachal Pradesh and Anr. Vs. Kailashchand Mahajan and

Ors.21, while considering amendments to the Electricity Supply Act, 1948, the

Supreme Court quoted with approval Francis Bennion on statutory

interpretation while dealing with the distinction between legislative intention

and purpose or object of the legislation and in paragraph 82, the Supreme

Court observed that there is a great distinction between legislative intent and

the purpose or object of an enactment. The object of legislation is to provide a

remedy for the malady the legislative intention relates to the meaning from the

exposition of the remedy, as enacted. For determining the purpose of legislation,

it is permissible to look into the circumstances which were prevalent at the time

the law was enacted and which necessitated passing of that enactment. In

Francis Bennions' words, it is expressed as follows :-

"The distinction between the purpose or object of an enactment and the legislative intention governing it is that the former relates to the mischief to which the enactment is directed and its remedy while the later relates to the legal meaning of the enactment."

21 1992 Suppl. 2 SCC 351

29. Considering all of the above, I am of the view that there is no occasion to

read into the Insolvency and Bankruptcy Code, 2016, the requirement that a

court, which passed an order of injunction or appointment of a Court Receiver

for that matter, is required to vacate such an order is in order to sub-serve the

moratorium. Only further proceeding remain suspended. I may observe that not

only was the Code amended after its enactment, but there are numerous rules

and regulations that have since been notified including those pursuant to

powers of the Central Government under Sections 239 and 240. None of these

rules and regulations support the views of the applicant in the present case and

would justify vacating of that order in the face of opposition to that effect. The

moratorium having come into force, there is no occasion to pass any further

order in the suit or pending proceedings and this IA is, in my view, thoroughly

misconceived. For all the aforesaid reasons, I pass the following order :-

                                (i)    Interim Application is dismissed.

                                (ii)   No order as to costs.




                                                                                      (A.K. MENON, J.)




        Digitally
        signed by
        SNEHA
SNEHA   ABHAY
ABHAY   DIXIT
        Date:
DIXIT   2022.03.09
        10:28:12
        +0530