M/S Innovative Studios Pvt Ltd vs Shree Dhanvantri Steels
2024 Latest Caselaw 11519 Kant

Karnataka High Court

M/S Innovative Studios Pvt Ltd vs Shree Dhanvantri Steels on 27 May, 2024

Author: Suraj Govindaraj

Bench: Suraj Govindaraj

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                                                         WP No. 11127 of 2014




                   IN THE HIGH COURT OF KARNATAKA AT BENGALURU

                          DATED THIS THE 27TH DAY OF MAY, 2024

                                            BEFORE
                        THE HON'BLE MR JUSTICE SURAJ GOVINDARAJ
                        WRIT PETITION NO. 11127 OF 2014 (GM-RES)
                   BETWEEN:

                   1.     M/S INNOVATIVE STUDIOS PVT. LTD.,
                          NO.135, OUTER RING ROAD
                          VARTHUR HOBLI, MARATHHALLI JUNCTION
                          BANGALORE, R/BY ITS CHAIRMAN & M.D.
                          MR.SARVANA PRASAD.

                   2.     MR SARVANA PRASAD
                          A/A:40 YEARS
                          CHAIRMAN & MAIANGING DIRECTOR OF
                          M/S INNOVATIVE STUDIOS PVT. LTD.,
                          NO.135, OUTER RING ROAD
                          VARTHUR HOBLI, MARATHAHALLI JUNCTION
                          BANGALORE.
                                                                 ...PETITIONERS
                   (BY SRI.ROHAN TIGADI., ADVOCATE)

Digitally signed
                   AND:
by
NARAYANAPPA        SHREE DHANVANTRI STEELS
LAKSHMAMMA
                   AT NO.42 B, USMAN KHAN ROAD
Location: HIGH
COURT OF           N.R.ROAD, 2ND CROSS
KARNATAKA          BANGALORE-560002
                   REPRSENTD BY ITS PROPRIETOR
                   MR.VIJAYPRAKASH.
                                                                 ... RESPONDENT
                   (BY SRI. M.C. RAVIKUMAR, ADVOCATE)

                         THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227
                   OF THE CONSTITUTION OF INDIA READ WITH SECTION 482 OF
                   CR.PC., PRAYING TO ISSUE A WRIT IN THE NATURE OF CERTIORARI
                   QUASHING THE ORDER DATED 22.12.2011 RECODING THE
                   SETTLEMENT IN LOK ADALAT MARKED AS ANNEXURE-C PASSED BY
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                                           WP No. 11127 of 2014




XIACMM BANGALORE IN CC NO.24453/2011 TO THE WRIT PETITION
AND ETC.

      THIS WRIT PETITION COMING ON FOR FURTHER HEARING
AND HAVING BEEN RESERVED FOR ORDERS ON 24.04.2024, THIS
DAY, THE COURT PRONOUNCED THE FOLLOWING:

                             ORDER

1. The petitioners are before this Court seeking for the

following reliefs;

i. Issue a writ in the nature of certiorari quashing the order dated 22.12.2011 recoding the settlement in Lok Adalat marked as Annexure-C passed by XIACMM Bangalore in CC No.24453/2011 to the writ petition.

ii. Quash the order dated 14.2.2014 and the entire proceedings in Execution Case No.2186/2012 pending on the file of the 19th Addl. City Civil Judge, CCH 18, Bangalore, marked as Annexure- D to the Writ Petition.

iii. Grant such other order/s as this Hon'ble Court may deem fit in the circumstances of the case.

2. The petitioner No.1 is a company incorporated and

registered with the Registrar of Companies, the

petitioner No.2 is the Managing Director of Petitioner

No.1. The respondent is the complainant in PCR

No.16559/2011 filed against the petitioners herein

under Section 138 read with Section 142 of the

Negotiable Instruments Act, 1881. A sworn

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statement being recorded, Magistrate having taken

cognizance on 28.11.2023 issued summons to the

petitioner. Subsequently, thereto, the petitioners

entered appearance.

3. A memo was filed by the complainant wherein the

petitioners have acknowledged the debts and

agreed/ undertaken to make payment of due amount

with 24% interest per annum in monthly instalments.

Subsequent thereto, the matter was adjourned, and

in Lok Adalat, a joint memo was filed and accepted

vide order dated 22.12.2011, recording that after

negotiation, the matter was settled for the cheque

amount with interest at 24% per annum.

4. The first instalment agreed to be paid on

17.12.2012; the entire amount covered by the

cheque was directed to be paid as compensation in

terms of section 357 of the CR.P.C. in default

thereof, the accused was to undergo simple

imprisonment for a period of one year.

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5. The complainant thereafter filed an execution

proceeding in Ex.No.2186/2012 seeking for the

execution of the order, in pursuance of which a

attachment warrant of movables was issued, it is

aggrieved by the same, the petitioners are before

this court seeking for the aforesaid reliefs.

6. The submission of Sri.Rohan Tigadi., learned counsel

for the petitioners is that;

6.1. The Magistrate has converted himself to the Lok

Adalat which is not permissible. The Magistrate

has passed an adjudicatory order which is also

not permissible. In pursuance thereof, the

execution proceedings in Ex.No.2186/2012

could not have been filed.

6.2. The execution court has not taken into

consideration, the submissions of the

petitioners that the Lok Adalat has not passed

an award as per Section 21 of the Legal

Services Authorities Act, 1987 and as such

same could not be executed.

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6.3. The execution Court has without considering

the objections, held the execution petition to be

maintainable and the award executable which is

not sustainable. If the execution Court had

taken into consideration, the aspect in the

proper prospective the impugned order could

not have been passed.

6.4. A settlement was arrived at due to the panic

created by the complainant and his father, who

is a practising advocate. The said father had

represented the petitioners in

CC No.20105/2010, CC No.20107/2010 without

disclosing his interest, the complaint having

been filed against the said father before the Bar

counsel, no action has been taken.

6.5. During the pendency of the execution

proceedings, certain proceedings have been

taken up before the NCLT, Interim Resolution

Professional (IRP) was appointed under

Insolvency and Bankruptcy Code, 2016.

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Thereafter a Resolution Professional (RP) was

appointed, it was therefore for the petitioner to

have placed any claim before the RP and for the

RP to have adjudicated the claim.

6.6. The rehabilitation of the company not having

gone through winding up proceedings having

been initiated, there is a recommendation for

winding up, the sustainability and revival of the

company has been taken into consideration on

the basis of the claims which had been filed

before the Liquidator appointed, the respondent

not having substantiated its claims, the

liquidator has called upon the Respondent to so

substantiate, the same not having been done

the liquidator has rejected the claim of the

Respondent, hence the execution proceedings

cannot continue.

6.7. He relies upon the following decisions:

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6.7.1. Arun Kumar Jagatramka v. Jindal

Steel & Power Ltd.,1 more particularly

para nos.25, 30.23, 69, 78 and 80

thereof, which are reproduced hereunder

for easy reference;

25.NCLAT formulated two principal issues in the first of its judgments in appeal : (Jindal Steel & Power Ltd. case [Jindal Steel & Power Ltd. v. Arun Kumar Jagatramka, 2019 SCC OnLine NCLAT 759] , SCC OnLine NCLAT para 2)

"2. ... (i) Whether in a liquidation proceeding under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "the I&B Code") the Scheme for compromise and arrangement can be made in terms of Sections 230 to 232 of the Companies Act;

(ii) If so permissible, whether the promoter is eligible to file application for compromise and arrangement, while he is ineligible under Section 29-A IBC to submit a resolution plan.

30.13. Section 230 of the 2013 Act is a part of the settlement mechanism and is on a par with the provisions of Section 12-A. The impact of a compromise or arrangement is also that company is restored to the promoters with all its liabilities. While Section 12-A IBC permits withdrawal of an application, Sections 230 and 230-A of the 2013 Act envisage a compromise or arrangement. As such, they both form a part of the settlement mechanism and are not part of the resolution mechanism, to which

(2021) 7 SCC 474

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alone the ineligibility under Section 29-A applies. Hence, this ineligibility cannot now be engrafted into Section 230.

69. The statutory scheme underlying the IBC and the legislative history of its linkage with Section 230 of the 2013 Act, in the context of a company which is in liquidation, has important consequences for the outcome of the controversy in the present case. The first point is that a liquidation under Chapter III IBC follows upon the entire gamut of proceedings contemplated under that statute. The second point to be noted is that one of the modes of revival in the course of the liquidation process is envisaged in the enabling provisions of Section 230 of the 2013 Act, to which recourse can be taken by the liquidator appointed under Section 34 IBC. The third point is that the statutorily contemplated activities of the liquidator do not cease while inviting a scheme of compromise or arrangement under Section

230. The appointment of the liquidator in an IBC liquidation is provided in Section 34 and their duties are specified in Section 35. In taking recourse to the provisions of Section 230 of the 2013 Act, the liquidator appointed under the IBC is, above all, to attempt a revival of the corporate debtor so as to save it from the prospect of a corporate death. The consequence of the approval of the scheme of revival or compromise, and its sanction thereafter by the Tribunal under sub-section (6), is that the scheme attains a binding character upon stakeholders including the liquidator who has been appointed under the IBC. In this backdrop, it is difficult to accept the submission of Mr. Bajaj that Section 230 of the 2013 Act is a standalone provision which has no connect with the provisions of the IBC.

78. There is a fundamental fallacy in the submission. An application for withdrawal under Section 12-A is not intended to be a

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culmination of the resolution process. This, as the statutory scheme would indicate, is at the inception of the process. Rule 8 of the Adjudicating Authority Rules, as we have seen earlier, contemplates a withdrawal before admission. Section 12-A subjects a withdrawal of an application, which has been admitted under Sections 7, 9 and 10, to the requirement of an approval of ninety per cent voting shares of the CoC. The decision of this Court in Swiss Ribbons [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] (para 82 extracted above) stipulates that where the CoC has not yet been constituted, NCLT, functioning as the adjudicating authority, may be moved directly for withdrawal which, in the exercise of its inherent powers under Rule 11 of the Adjudicating Authority Rules, may allow or disallow the application for withdrawal or settlement after hearing the parties and considering the relevant factors on the facts of each case. A withdrawal in other words is by the applicant. The withdrawal leads to a status quo ante in respect of the liabilities of the corporate debtor. A withdrawal under Section 12-A is in the nature of settlement, which has to be distinguished both from a resolution plan which is approved under Section 31 and a scheme which is sanctioned under Section 230 of the 2013 Act. A resolution plan upon approval under Section 31(1) IBC is binding on the corporate debtor, its employees, members, creditors (including the Central and State Governments), local authorities, guarantors and other stakeholders. The approval of a resolution plan under Section 31 results in a "clean slate", as held in the judgment of this Court in Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta [Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531 :

(2021) 2 SCC (Civ) 443] . Rohinton F. Nariman, J. speaking for the three-Judge Bench of this Court, observed : (Essar Steel case [Essar Steel (India) Ltd. (CoC) v. Satish

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Kumar Gupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443] , SCC p. 615, para 105)

"105. Section 31(1) of the Code makes it clear that once a resolution plan is approved by the Committee of Creditors it shall be binding on all stakeholders, including guarantors. This is for the reason that this provision ensures that the successful resolution applicant starts running the business of the corporate debtor on a fresh slate as it were. In SBI v. V. Ramakrishnan [SBI v. V. Ramakrishnan, (2018) 17 SCC 394 : (2019) 2 SCC (Civ) 458] , this Court relying upon Section 31 of the Code has held : (SCC p. 411, para 25)

'25. Section 31 of the Act was also strongly relied upon by the respondents. This section only states that once a resolution plan, as approved by the Committee of Creditors, takes effect, it shall be binding on the corporate debtor as well as the guarantor. This is for the reason that otherwise, under Section 133 of the Contract Act, 1872, any change made to the debt owed by the corporate debtor, without the surety's consent, would relieve the guarantor from payment. Section 31(1), in fact, makes it clear that the guarantor cannot escape payment as the resolution plan, which has been approved, may well include provisions as to payments to be made by such guarantor. This is perhaps the reason that Annexure VI(e) to Form 6 contained in the Rules and Regulation 36(2) referred to above, require information as to personal guarantees that have been given in relation to the debts of the corporate debtor. Far from supporting the stand of the respondents, it is clear that in point of fact, Section 31 is one more factor in favour of a personal guarantor having to pay for debts due without any moratorium applying to save him.'"

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(emphasis supplied)

80. The benefit under Section 31, following upon the approval of the resolution plan, is that the successful resolution applicant starts running the business of the corporate debtor on "a fresh slate". The scheme of compromise or arrangement under Section 230 of the 2013 Act cannot certainly be equated with a withdrawal simpliciter of an application, as is contemplated under Section 12-A IBC. A scheme of compromise or arrangement, upon receiving sanction under sub-section (6) of Section 230, binds the company, its creditors and members or a class of persons or creditors as the case may be as well as the liquidator (appointed under the 2013 Act or the IBC). Both, the resolution plan upon being approved under Section 31 IBC and a scheme of compromise or arrangement upon being sanctioned under sub-section (6) of Section 230, represent the culmination of the process. This must be distinguished from a mere withdrawal of an application under Section 12-A. There is a clear distinction between these processes, in terms of statutory context and its consequences and the latter cannot be equated with the former.

6.7.2. Relying on the above he submits that the

resolution plan now having been approved

and a person having come forward to take

over the assets and liabilities of the

company, the respondent not having

submitted the necessary documents to the

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liquidator cannot once again agitate its

claim in an Execution Proceedings any

claim would have to have been placed

before the liquidator who would have

adjudicated the claim, no documents

having been placed the liquidator has

rejected the claim.

6.7.3. SEBI v. Rajkumar Nagpal2 more

particularly para nos.37, 39 and 40

thereof, which are reproduced hereunder

for easy reference;

37. In terms of sub-section (1) of Section 391, the Company Court (prior to the substitution of the National Company Law Tribunal for the Company Court) could order a meeting of the creditors or a class of creditors or of members or of a class of members. Sub- section (2) of Section 391 required a stipulated majority representing three-fourths in value of the creditors or members or a class of them present and voting to agree to a compromise or arrangement. In that event upon sanction by the judicial body it would be binding on all creditors or members or a class of them, as the case may be. The impact of a compromise or arrangement when approved by the special majority as stipulated in Section 391(2) was that the scheme would bind even

(2023) 8 SCC 274

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those who dissented or abstained from voting. These provisions applied to all kinds of creditors without exception.

39. The impact of Section 391 of the Companies Act, 1956 lay in its ability, in relation to the creditors or members of a company, to bind non-consenting members or creditors where the terms of the compromise or arrangement were approved by a special majority and assented to by the judicial body. Upon the enactment of the Companies Act, Section 230 which forms a part of Chapter XV is titled "Compromises, arrangements and amalgamations". Section 230 contains an analogous provision.

40. Sub-section (6) of Section 230 provides that where at a meeting which is held in pursuance of sub-section (1), the majority of persons representing 3/4th in value of the creditors or class of creditors or members or class of members agree to a compromise or arrangement and upon its sanction by the Tribunal, it shall be binding on the company and all the creditors or class of creditors or members or class of members and the contributories of the company. Section 230 of the Companies Act provides for the manner in which dissenting or abstaining creditors within a class of creditors of the company (such as debenture- holders) can be bound by the terms of the compromise or arrangement upon approval by a special majority and by the NCLT.

6.7.4. By relying on the above judgment he

submits that the majority of the persons

representing 3/4th of the value of the

creditors or class of creditors have agreed

to the compromise or arrangement in

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pursuance of which a new purchaser has

purchased a company as a going concern

and as such the respondent would also be

bound by the said resolution and no

amount is owed or is due to the

respondent.

6.7.5. Shiv Shakti Inter Globe Exports Pvt.

Ltd. Vs. KTC Foods Private Limited3,

more particularly para no.23 thereof,

which is reproduced hereunder for easy

reference;

23. Adverting to the contention of the Learned Counsel for the Appellant that the Adjudicating Authority has erred in denying the sale of the 'Corporate Debtor' as a 'going concern' to the Appellant without including any contingent liabilities, we hold that it is a settled law that when the sale proceeds of a 'Corporate Debtor' are duly distributed in the Order of priority and in the manner prescribed under Section 53 of the Code, claims of any other Creditor cannot be entertained contrary to the provisions entailed under Section 53; subsequent to the distribution of sale proceeds under Section 53 no other entity including any Government

2022 SCC Online NCLAT 85

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entity can claim any past unpaid or outstanding dues against the Appellant who has purchased the 'Corporate Debtor Company' as a 'going concern'. It is significant to mention that the second Respondent/Liquidator has specifically submitted that even these claims by the Uttar Haryana Bijili Vitran Nigam were not submitted in the prescribed form either during the CIRP Process or at the Liquidation stage. We are of the considered view that at this stage subsequent to the sale of the 'Corporate Debtor Company' as a 'going concern', these claims cannot be foisted upon the Appellant. The scope and objective of the Code is to extinguish all claims specifically the ones which were not even made during the CIRP or in the Liquidation stage, to aid the purchaser of the Company as a 'going concern' to start on a 'clean slate'. The Hon'ble Supreme Court in 'Ghanshyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd.', Civil Appeal No. 8129 of 2019 and in 'CoC of Essar Steel India Ltd. v. Satish Gupta' (2020) 8 SCC 531 has laid down the proposition that the purchaser of the Company even in the Liquidation stage cannot be burdened with past liabilities when it is not mentioned in the 'Sale Notice'.

6.7.6. By relying on the above judgment he

submits that, since the respondent did not

furnish the relevant details in the

prescribed format at the liquidation stage

to the liquidator subsequent to the sale of

the Corporate Debtor Company as a going

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concern those claims cannot be foisted

upon the purchaser and as such the

Execution Proceedings in the present

matter would amount to foisting of the

liability and the said proceeding are

required to be quashed.

6.7.7. A. Navinchandra Steels (P) Ltd. v. Srei

Equipment Finance Ltd.,4 more

particularly para nos.16, 25 and 29

thereof, which are reproduced hereunder

for easy reference;

16. Having heard the learned counsel for all the parties, it is important to restate a few fundamentals. Given the object of the IBC as delineated in paras 25 to 28 of Swiss Ribbons (P) Ltd. v. Union of India [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] ["Swiss Ribbons"], it is clear that the IBC is a special statute dealing with revival of companies that are in the red, winding up only being resorted to in case all attempts of revival fail. Vis-à-vis the Companies Act, which is a general statute dealing with companies, including companies that are in the red, the IBC is not only a special statute which must prevail in the event of conflict,

(2021) 4 SCC 435

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but has a non obstante clause contained in Section 238, which makes it even clearer that in case of conflict, the provisions of the IBC will prevail.

25. A conspectus of the aforesaid authorities would show that a petition either under Section 7 or Section 9 IBC is an independent proceeding which is unaffected by winding-up proceedings that may be filed qua the same company. Given the object sought to be achieved by the IBC, it is clear that only where a company in winding up is near corporate death that no transfer of the winding-up proceeding would then take place to NCLT to be tried as a proceeding under the IBC. Short of an irresistible conclusion that corporate death is inevitable, every effort should be made to resuscitate the corporate debtor in the larger public interest, which includes not only the workmen of the corporate debtor, but also its creditors and the goods it produces in the larger interest of the economy of the country. It is, thus, not possible to accede to the argument on behalf of the appellant that given Section 446 of the Companies Act, 1956/Section 279 of the Companies Act, 2013, once a winding-up petition is admitted, the winding-up petition should trump any subsequent attempt at revival of the company through a Section 7 or Section 9 petition filed under the IBC. While it is true that Sections 391 to 393 of the Companies Act, 1956 may, in a given factual circumstance, be availed of to pull the company out of the red, Section 230(1) of the Companies Act, 2013 is instructive and provides as follows:

"230. Power to compromise or make arrangements with creditors and members.--

(1) Where a compromise or arrangement is proposed--

(a) between a company and its creditors or any class of them; or

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(b) between a company and its members or any class of them, the Tribunal may, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up, of the liquidator, appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs.

Explanation.--For the purposes of this sub- section, arrangement includes a reorganisation of the company's share capital by the consolidation of shares of different classes or by the division of shares into shares of different classes, or by both of those methods."

What is clear by this Section is that a compromise or arrangement can also be entered into in an IBC proceeding if liquidation is ordered. However, what is of importance is that under the Companies Act, it is only winding up that can be ordered, whereas under the IBC, the primary emphasis is on revival of the corporate debtor through infusion of a new management.

29. Dr Singhvi and Shri Ranjit Kumar have vehemently argued that SREI has suppressed the winding-up proceeding in its application under Section 7 IBC before NCLT and has resorted to Section 7 only as a subterfuge to avoid moving a transfer application before the High Court in the pending winding-up proceeding. These arguments do not avail the appellant for the simple reason that Section 7 is an independent proceeding, as has been held in a catena of judgments of this Court, which has to be tried on its own merits. Any "suppression" of the winding-up proceeding

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would, therefore, not be of any effect in deciding a Section 7 petition on the basis of the provisions contained in the IBC. Equally, it cannot be said that any subterfuge has been availed of for the same reason that Section 7 is an independent proceeding that stands by itself. As has been correctly pointed out by Shri Sinha, a discretionary jurisdiction under the fifth proviso to Section 434(1)(c) of the Companies Act, 2013 cannot prevail over the undoubted jurisdiction of NCLT under the IBC once the parameters of Section 7 and other provisions of the IBC have been met. For all these reasons, therefore, the appeal is dismissed and the interim order that has been passed by this Court on 18-12-2020 [A. Navinchandra Steels (P) Ltd. v. Srei Equipment Finance Ltd., 2020 SCC OnLine SC 1141] shall stand immediately vacated.

6.7.8. By relying on the above judgment he

submits that the proceeding under Section

7 of the IBC and that under Section 434 of

the Companies Act 2013 are different in

as much as even if a proceedings under

Section 434 were to be pending that

would not deprive the NCLT of its

jurisdiction to exercise its powers under

Section 7, so long as all the requirements

are fulfilled. He further submits that it

should always be the aim and intention of

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the Court to try and revive the company

rather than wind up the company.

6.7.9. State of Punjab v. Jalour Singh,5 more

particularly para no.8 thereof, which is

reproduced hereunder for easy reference;

8. It is evident from the said provisions that the Lok Adalats have no adjudicatory or judicial functions. Their functions relate purely to conciliation. A Lok Adalat determines a reference on the basis of a compromise or settlement between the parties at its instance, and puts its seal of confirmation by making an award in terms of the compromise or settlement. When the Lok Adalat is not able to arrive at a settlement or compromise, no award is made and the case record is returned to the court from which the reference was received, for disposal in accordance with law. No Lok Adalat has the power to "hear" parties to adjudicate cases as a court does. It discusses the subject-matter with the parties and persuades them to arrive at a just settlement. In their conciliatory role, the Lok Adalats are guided by the principles of justice, equity and fair play. When the LSA Act refers to "determination" by the Lok Adalat and "award" by the Lok Adalat, the said Act does not contemplate nor require an adjudicatory judicial determination, but a non-adjudicatory determination based on a compromise or settlement, arrived at by the parties, with guidance and assistance from the Lok Adalat. The "award" of the Lok Adalat does not mean any independent verdict or opinion arrived at by any decision-making

(2008) 2 SCC 660

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process. The making of the award is merely an administrative act of incorporating the terms of settlement or compromise agreed by parties in the presence of the Lok Adalat, in the form of an executable order under the signature and seal of the Lok Adalat.

6.7.10. By relying on the Jalour Singh case he

submits that a Lok Adalat cannot perform

adjudicatory functions it can only record

the terms of settlement or compromise

agreed between the parties.

6.7.11. He relies on the decision of this this court

in Akkubai v. Venkatrao6 more

particularly para no.11 thereof, which is

reproduced hereunder for easy reference;

11. I really wonder, whether the Learned Judge who has entertained this matter was aware of the elementary aspects of judicial functioning and the Lok Adalath. A common order-sheet cannot be maintained by the Court as well as the Lok Adalath. A Court cannot be converted into a Lok Adalath. In the order-sheet maintained by the Court, a portion of the proceedings is referable to the Court proceedings and another portion refers to the proceedings of the Lok Adalath. The Conciliator has no place inside the Court. The very object of accepting this Lok Adalath as

2014 SCC OnLine Kar 10110

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an alternative mode of resolution of dispute is that, all matters do not need adjudication. The matter which could be resolved by persuasion, negotiation and understanding should be taken out of adjudication process and should be resolved by means of LokAdalath satisfactorily, so that the cases are disposed of expeditiously and the Courts will be saving the time of adjudicatory process, and they can utilize that time which is saved, in adjudicating the cases. If on the day the plaint is presented, the parties are also present before the Court, they are ready with the compromise petition and when they are filing an application under Order 23 Rule 3 CPC, when they are admitting the terms of the compromise and execution of the terms and condition, then the Court before which it is presented, is the competent Court to record the compromise and dispose of the suit in terms of the compromise. The question of referring the said dispute to the Lok Adalath would notarise. If it is referred, it is a farce. If this is accepted and encouraged, both the judicial system and this alternative dispute resolution mechanism gets a bad name and would be subjected to redicule in the eyes of public. All persons who are indulging in this process would be doing great injustice and dis-service to the judicial system. They are not conscious of their action and its repercussions and the image of the Judiciary, which would create in the mind of the public. That is not the object with which neither Legal Services Authority Act of 1987 is passed by the Parliament providing for the institution of Lok Adalath nor Section 89 was introduced by the Parliament amending CPC. The essence of these provisions is neither understood by the Learned Judge nor by the Learned Counsels who are appearing for the parties.

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6.7.12. By relying on Akkubai's case he again

submits that there cannot be a common

order sheet maintained before the Lok

Adalat as also before the Court, the order

sheet has to be different. In the present

case the same order sheet having been

maintained, the settlement recorded by

the Lok Adalat is not proper

6.7.13. He submits that the respondent not

having substantiated its claim before the

liquidator the claim not having been

considered and a purchaser having come

forward to purchase the Petitioner No.1 as

a going concern with all assets and

liabilities, the Respondent cannot continue

with the execution proceedings. The

execution proceedings initiated in terms of

the alleged compromise before the Lok

Adalat cannot be continued, as such the

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petition needs to be allowed and the

reliefs granted.

7. Sri.M.C.Ravikumar., learned counsel appearing for

respondent would submit that;

7.1. The petitioners-company is notorious for having

defaulted as regards the payments due, there

are innumerable cases which have been filed

against respondent-company before various

Courts both civil and criminal.

7.2. The petitioners are abusing the process of Court

by filing present petition which is not

sustainable.

7.3. The petitioners having agreed for a settlement

before the Lok Adalat, the settlement having

been recorded in writing is an executable

decree in terms of Section 21 of the Legal

Services Authorities Act, 1987.

7.4. The Liquidator could only adjudicate claims

which have not already been adjudicated, in the

present case a settlement having been arrived

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at, the petitioners having agreed to make

payment of monies, in furtherance of which an

order has been passed by the Lok Adalat, the

same is a Decree, once a decree is passed

there is no further adjudication required to be

made by the Liquidator.

7.5. The execution proceedings having been filed on

the basis of the settlement which has been

arrived upon in a Criminal proceeding in CC

No.24453/2011 arising out of PCR

No.16559/2011, the respondent is entitled to

execute the decree.

7.6. No suitable resolution plan was forthcoming,

hence NCLT ordered liquidation of petitioner

No.1 and one Sri.Balady Shekar Shetty was

appointed as a liquidator. At that stage, the

scheme of compromise submitted by Suresh

Productions having been accepted by NCLT on

8.1.2021. The said acceptance cannot negate

the execution proceedings already filed by

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respondent, whether respondent had

knowledge of the NCLT proceedings or not, the

execution proceedings are in furtherance of a

decree which respondent is entitled to maintain.

7.7. The respondent is not concerned with the

arrangement made before the NCLT by Suresh

Productions and entertainment LLP, that would

only be between the parties to the said

arrangement, the Respondent cannot be

deprived of its rights.

7.8. He submits that the settlement that has been

reached has been partly complied with.

Payments were made during the pendency of

the execution proceedings after the trial Court

had held the execution petition maintainable

vide its order dated 14.2.2014.

7.9. His further submission is that petitioner No.1-

company's name has been changed to Vels

Studio and Entertainment Private Limited,

respondent No.2 is no longer a director or

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Managing Director of petitioner No.1-Company,

and as such, the continuation of the

proceedings by petitioner No.2 without being a

director or the managing director of the

company is a fraudulent act on part of

petitioner No.2. Winding up having been

ordered and subsequently a settlement having

been arrived at, there is no sustainable ground

for the respondent to continue the execution

proceedings. On this basis, he submits that the

above petition is required to be dismissed.

8. On the basis of the submissions made by both the

counsels, the points that would arise for

consideration are:

1. Whether the settlement arrived at between the petitioners and respondent in CC No.24453/2011 arising out of PCR No.16559/2011 is valid and executable in a execution proceedings?

2. Whether the non-inclusion of the claim of respondent in the settlement proposal made by Sri.Balady Shekar Shetty and approved by the NCLT would disentitle respondent from continuing the execution proceedings?

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3. Whether any grounds have been made out for interference at the hands of this Court?

4. What order?

9. I answer the above points as under

10. Answer to point No.1:Whether the settlement arrived at between the petitioners and respondent in CC No.24453/2011 arising out of PCR No.16559/2011 is valid and executable in a execution proceedings?

10.1. As is clear from the order sheet in CC

No.24453/2011, the matter was referred to Lok

Adalat and before the Lok Adalat held on

22.12.2011, the settlement arrived at was

recorded on the basis of the joint memo filed by

the parties. A perusal of the order sheet

indicates that the order sheet is one maintained

by Lok Adalat and not by the Court. Thus, the

contention of the learned counsel for the

petitioner that the Court converted itself to the

Lok Adalat is not sustainable. A perusal of the

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order sheet indicates that a conciliator was also

present and who has signed the order sheet, the

advocate for accused and accused have also

signed the order sheet. Thereafter the matter

came to be closed and in pursuance of the

compromise arrived at not being satisfied, the

Execution Proceedings were filed by respondent.

10.2. A perusal of the order sheet indicates that the

matter was referred by the Court to the Lok

Adalat and in the Lok Adalat not only was a judge

present but a conciliator was also present. The

reference order is a separate order, the

settlement order is a separate order. Thus, both

the orders being different the decision in Jalour

Singh case or Akkubai's case would not be

applicable to the present matter.

10.3. There is a distinct settlement which has been

arrived at between the parties which has been

recorded by the conciliator and the judge who was

also part of the Lok Adalat. Merely a judge who

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had referred the matter to the Lok Adalat being a

member of Lok Adalat would not vitiate the

proceeding before the Lok Adalat. In the present

case, before the Lok Adalat both the judge and

the conciliator were present, the matter was

negotiated between the parties a settlement was

arrived at and settlement recorded.

10.4. Hence, I answer point No.1 by holding that the

settlement arrived at between the petitioner and

the respondents in CC No.24453/2011 arising out

of PCR No.16559/2011 is valid and executable in

an Execution Proceedings, since the settlement

recorded is a decree in terms of Section 21 of the

Legal Services Authorities Act, 1987.

11. Answer to point No.2: Whether the non- inclusion of the claim of respondent in the settlement proposal made by Sri.Balady Shekar Shetty and approved by the NCLT would disentitle respondent from continuing the execution proceedings?

11.1. The submission of Sri.Rohan Tigadi., learned

counsel for the petitioner is that the matter

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relating to the petitioner No.1-Company had

been referred to the NCLT. The IRP having

been appointed, the resolution process did not

end in the positive manner and as such

liquidation of the company being recommended

Sri.Balady Shekar Shetty, had been appointed

as a liquidator.

11.2. The liquidator having called for claims of third

parties as against the company, claims were

received by the liquidator from various persons

one such claimant was with respondent, the

respondent having submitted the claim but

same not being in the proper format and not

accompanied by the relevant documents, the

liquidator had called upon the respondent to

furnish those documents for the purpose of

consideration. The respondent not having

submitted those documents the liquidator could

not adjudicate the claim of the respondent.

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11.3. In the meanwhile, the liquidator had

recommended a scheme of arrangement which

came to be approved by the Board and by the

NCLT. The NCLT having approved the

settlement, the amounts due by the company

being frozen in terms of the said order and as

such the Execution Proceedings cannot continue

and in this regard he has relied upon the

decision in Arun Kumar Jagatramka case,

Rajkumar Nagpal case, KTC Foods Private

Limited case and A. Navinchandra Steels

(P) Ltd case.

11.4. Arun Kumar Jagatramka case was one where

a successful resolution happen under a scheme

of compromise or arrangement was entered

into as regards the claims of the creditors.

What would have to be understood is the

context of the matter in as much as what was

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agreed upon was as regards the claim of the

creditors. Claims remain to be claims until they

are adjudicated. A mere claim is one made by

the creditor as against the company claiming

certain amounts to be due or otherwise.

11.5. In the present case it is not a claim made by

respondent, the respondent had initiated the

proceedings for a dishonour of a cheque which

ended up on the compromise before the Lok

Adalat. In pursuance of which the settlement

was recorded and order passed which is a

decree in terms of Section 21 of the Legal

Services Authorities Act, 1987. Once an order

is passed it no longer remains a claim but

would fructify and crystalize into decree which

could be executed. Thus, a decree would have

to be treated in a different manner than a claim

which was a subject matter for consideration by

the Apex Court in Arun Kumar Jagatramka's

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case and as such the said decision would not be

applicable to the present matter.

11.6. In so far as the decision of the Rajkumar

Nagpal's case is concerned that again was as

regards a compromise in terms of Section 230

of the Companies Act, once again as regards

the claims of the creditors. This again would

not be of relevance in the present matter since

as afore stated what has occurred here is a

adjudication and/or a settlement which has

ended up in a decree.

11.7. The decision in KTC Foods Private Limited

case would also not be applicable in the present

case since in that matter the corporate debtor

was purchased as a going concern without

including contingent liabilities as such it was

held that no further claim including that of the

Government could be lodged or pursued. In

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that case the claim initiated by the Uttar

Haryana Bijili Vitran Nigam for electricity dues

i.e., say the claim for electricity dues was for

power consumed without an adjudication or a

settlement in the matter. As the Uttar Haryana

Bijili Vitran Nigam had only sought to assert a

claim which had not fructified into a decree

which is also not the case here and as such the

decision would also not apply.

11.8. Similarly in A. Navinchandra Steels (P) Ltd

case which dealt with the distinction between

the Section 7 of the IBC and Section 434(1)(c)

of the Companies Act, 2013 the Hon'ble Apex

Court held that at even if a proceeding under

Section 434 was filed and pending, once

proceedings are filed under Section 7, the NCLT

would have jurisdiction as an independent

proceeding to assess whether the company can

be revived or not. The said decision would also

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not apply in as much as the Section 434

proceeding is a claim for an admitted amount

(admitted or not to be decided in the

proceedings) and not a decree for an admitted

amount. In the present case there is a decree

which has been passed and as such the said

decision would also not apply.

11.9. Hence, looked at from all angles and

perspectives the respondents claim is not just a

claim but it is based on a decree which

executable in terms of Section 21 of the Legal

Services Authorities Act, 1987. Once a decree

has been passed by the Lok Adalat and an

execution proceedings had been filed the

respondent having brought it to the notice of

the liquidator, the liquidator ought to have

taken cognizance of the matter since the decree

has not been set aside by any Court. Instead

of doing so the liquidator called upon the

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respondent to furnish details of the so called

claim when in fact the liquidator ought to have

tread it as a decree and not a mere claim. The

liquidator has erred in regarding the claim of

the respondent as a mere claim and not as a

decree and not included it in the amounts due

by the respondent No.1-company. The same in

my considered opinion cannot be held to be

binding on respondent No.1 who has already

initiated proceeding for execution, the

Execution Proceedings pending had been

challenged in these proceedings.

11.10. Thus, I answer point No.2 by holding that the

alleged non-inclusion of the claim of the

respondent in the settlement proposal made by

the liquidator and approved by NCLT would not

disentitle the respondent from continuing the

Execution Proceedings which has already been

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initiated pursuant to a decree passed by the

Lok Adalat.

12. Answer to point No.3: Whether any grounds have been made out for interference at the hands of this Court?

12.1. In view of my answers to point No.1 and 2, a

settlement arrived at between the parties being

a decree and executable under Section 21 of

the Legal Services Authorities Act, 1987 and my

answer to point No.2 that non-inclusion would

not disentitle the respondent from continuing

the Execution Proceedings and also for the

reason that the petitioner is seeking to abuse

the process of Court, I am of the considered

opinion that the petitioner would not be entitled

for any reliefs at the hands of this Court.

12.2. The contention of Sri.Rohan Tigadi., that the

father of a Director of the respondent had

represented the petitioner in another

proceeding without letting them known that he

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was a interested party, he has been dealt with

by me in another matter in WP No. 6468 of

2013 dated 27.03.2024, wherein I have come

to the categorical conclusion that the

respondent-Company was abusing the process

of Court by taking up such a contention and the

Managing Director of the petitioner-Company

was very much aware of the relationship of the

lawyer with the director of respondent in that

matter.

12.3. A settlement having been arrived at between

the parties there being amounts due by the

petitioner No.1 to respondent, which was

accepted before the Lok Adalat, the petitioner

agreed to make payments of the amounts to

the petitioner and on which basis the criminal

proceedings for dishonour of the cheque came

to be closed, recording the settlement. The

respondent who had been prosecuting the

criminal proceedings on the basis of promises

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held out by petitioner No.1 and its director

including petitioner No.2 acceded to the

request to receive the monies and execute the

same as a decree i.e., by way of civil

proceedings is now sought to be defrauded by

taking up the untenantable contentions which

have been raised in the present matter which

has been dealt with above.

12.4. The petitioner admittedly owes money to the

respondent, the respondent agreed to receive

the said monies and the settlement was arrived

at before the Lok Adalat. It was incumbent on

the petitioner to make payment of said monies,

a plethora of documents which have been

produced by respondent indicates a catena of

matters which are pending against the

petitioners before the Magistrate court and the

session courts as also this court many of them

relating to dishonour of cheques.

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12.5. The present proceeding has been pending since

2014 and arises out of a PCR filed in 2011,

which arises out of a transaction between the

petitioner and respondent of much earlier

vintage. The petitioner has successfully

prevented the respondent from receiving the

fruits of the compromise arrived at between the

petitioner and respondent for nearly 14 years.

12.6. The petitioner having agreed for settlement in

December 2011 the amounts are yet to be paid

by the petitioner to the respondent based on

the false frivolous and ex-facie fraudulent an

dishonest contention which has been taken up

by the petitioner.

12.7. A Lok Adalat having passed an order which

amounts to a decree for the amounts due

instead of making payment of the amount the

judgment debtor i.e., the petitioners had

unsuccessfully contested the same before the

Execution Court, the Execution Court by its

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order dated 14.2.2014 had held the execution

proceeding to be maintainable which has been

challenged in the present matter. While the

matter was pending certain subsequent events

having occurred as regards the purchase of the

petitioner No.1-Company as a going concern all

these contention were raised which have been

answered in point No.2 above.

12.8. The manner in which the petitioner has sought to

abuse the process of Court leaves much to be

desired and requires this Court to impose costs

on the petitioner payable to the respondent more

so since the respondent has been deprived of the

amounts from the year 2011 till date despite the

respondent having accepted the compromise

proposed by the petitioner. The respondents have

also been constrained to defend the present

frivolous proceedings, which are an abuse of the

court.

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12.9. In that view of the matter, I am of the considered

opinion that no grounds have been made out by

the petitioner for interference with the impugned

orders and that the petitioner is not entitled for

any reliefs and further that the petition as filed

would be required to be dismissed and as such is

dismissed by imposing exemplary cost against

the petitioner.

13. Answer to point No.4: What order?

The above petition is dismissed by imposing

exemplary cost of Rs.5,00,000/- on the petitioner which

shall be paid by the petitioners jointly or severally to the

Respondent within period of eight weeks from the date

of receipt of a copy of this order. If the said amount is

not paid, recover of the costs shall be made as arrears

of land revenue as expeditiously as possible.

Sd/-

JUDGE