MR. ANAND RAO KORADA RESOLUTION PROFESSIONAL versus M/S. VARSHA FABRICS (P) LTD. & ORS. on 18 November 2019

Conclusion

1. The present Civil Appeals have been filed by the Appellant –Resolution Professional appointed by the National Company LawTribunal for the Corporate Debtor – M/s Hirakud Industrial Works Ltd.,to challenge the interim Orders dated 14.08.2019 and 05.09.2019 passedby the Odisha High Court in W.P. (Civil) No. 7939/2011.

2. This Court vide Order dated 23.09.2019 issued Notice to allthe parties, including the Writ Petitioners i.e. the Hirakud Workers’Union – Respondent No. 13 herein. The Appellant was directed to serveDasti Notice to all the Respondents, and the auction proceedings beforethe High Court were directed to be stayed.

3. Pursuant to the issuance of Notice, all the Respondents wereserved by the Appellant, and proof of service was filed on 04.11.2019.Respondent No. 13 – Hirakud Workers’ Union was however notrepresented by Counsel. The Civil Appeals were taken up for hearingon 13.11.2019 before this Court.

4. The factual matrix in which the present Civil Appeals havebeen filed is as under :–

4.1 M/s Varsha Fabrics Pvt. Ltd. (Respondent No. 1), IndiaFinance Ltd. (Respondent No. 2), Mudrika CommercialPvt. Ltd. (Respondent No. 3), Hirakud Industrial WorksLtd. (Respondent No. 4), and Industrial DevelopmentCorporation of Orissa Ltd. (Respondent No. 5) entered intoa Share Purchase Agreement (“SPA”) dated 10.07.2006.

As per the SPA, Respondent No. 5 divested its 100%shareholding in Respondent No. 4 in favour of RespondentNos. 1 to 3. Respondent No. 4 shut down its factory on08.05.2007.

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A4.2 Subsequently, Respondent Nos. 1 to 3 sold their stake inRespondent No. 4 to Indo Wagon Engineering Ltd.Respondent No. 13 – the Hirakud Workers’ Union filedW.P. (Civil) No. 12479/2009 before the Odisha High Courtpraying inter alia for cancellation of the SPA datedB10.07.2006, and payment of the arrears and current salariesof the workmen.

4.3 Respondent No. 13 filed another Writ Petition bearing W.P.(Civil) No. 7939/2011 on 28.03.2011 for payment of theirdues before the Odisha High Court.

4.4 The High Court vide Order dated 14.03.2012 directed theDeputy Labour Commissioner, Sambalpur Division(Respondent No. 10 herein) to recover the workmen’s duesby sale of the assets of Respondent No. 4 – Companythrough a public auction.

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4.5 These proceedings culminated in the Order datedD03.08.2015 passed by this Court, wherein it was directedthat the issue of quantifying the compensation payable tothe workmen should be determined by the Labour Court.It was further directed that if Respondent Nos. 1 to 3 failto make the payment of compensation to the workmen, theEassets of Respondent No. 4 would be sold through publicauction, and the proceeds would be used for disbursementof the arrears of the workmen.

4.6 The Labour Court, Sambalpur vide Order dated 11.11.2016quantified the amount payable to the workmen as Rs.45,66,67,133/-.F

4.7 The High Court vide Order dated 12.01.2017 directed theDeputy Labour Commissioner, Sambalpur Division to sella parcel of Respondent No. 4’s land admeasuring 157.27acres to the Hirakud Dam Project.

Upon receipt of the sale proceeds of Rs. 10,04,12,105/-Gfrom the Government of Orissa, this amount was disbursedtowards the arrears of the workmen’s dues.

4.8 During the pendency of proceedings before the High Courtin W.P. (Civil) No. 7939/2011, M/s Nandakini ContractorsPvt. Ltd – a Financial Creditor filed a Petition underHSection 7 of the IBC, 2016 bearing CP (IB) No. 01/CTB/

MR. ANAND RAO KORADA RESOLUTION PROFESSIONALv. M/S. VARSHA FABRICS (P) LTD. [INDU MALHOTRA, J.]

2019, before the National Company Law Tribunal, CuttackBench (“NCLT”) for initiation of the Corporate InsolvencyResolution Process (“CIRP”) against the Corporate Debtor– Respondent No. 4, since it had committed a default inpaying the financial debt of Rs. 24,11,975/-.

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4.9 The NCLT vide Order dated 04.06.2019 admitted theinsolvency petition, and declared a moratorium inaccordance with the provisions of Sections 13 and 15 ofthe IBC. The moratorium was declared for the purposereferred to in Section 14 of the IBC. The Appellant hereinwas appointed as the Insolvency Resolution Professional.

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4.10 During the pendency of the moratorium, W.P. (Civil) 7939/2011 was posted for hearing on 14.08.2019 before the HighCourt. The Additional Government Advocate submittedthat the valuation of the land in Mouza – Tara Nagar ownedby Respondent No. 4 was Rs. 6,05,000/- per acre. TheHigh Court directed the Additional Government AdvocateDto file an affidavit with respect to the valuation conducted.

4.11 The High Court by a further Order dated 05.09.2019,recorded the submission of the Appellant – ResolutionProfessional that there were other companies which hadexpressed an interest to participate in the public auction.The matter was posted for further hearing on 17.09.2019.

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4.12 The Appellant – Resolution Professional filed the presentCivil Appeals to challenge the Interim Orders dated14.08.2019 and 05.09.2019 passed by the Odisha HighCourt in W.P. (Civil) No. 7939/2011 on the ground that sincethe CIRP against Respondent No. 4 had commenced, theproceedings before the High Court in W.P. (Civil) No.7939/2011 ought to be stayed.

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5. We have heard the learned Counsel appearing for theAppellant – Resolution Professional, Respondent Nos. 1 to 3, andRespondent No. 8 – HINDALCO.

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6. The IBC was published in the Gazette of India on 28.05.2016.It was framed as a complete code to consolidate and amend the lawsrelating to insolvency resolution of corporate entities, partnership firms,and individuals in a time-bound manner, for maximisation of the valueof the assets of such persons, and balance the interest of all the H

Astakeholders. The Corporate Insolvency Resolution Process (“CIRP”)could be initiated when a corporate debtor commits a default, either bya financial creditor, or an operational creditor, or the corporate debtoritself.

Section 12 of the IBC provides a time-frame to complete theCIRP.BAs per Section 13 of the IBC, the Adjudicating Authority i.e. theNational Company Law Tribunal (“NCLT”) shall declare a moratoriumfor the purposes referred to in Section 14 of the IBC.

Section 14 provides that on the insolvency commencement date,Cthe Adjudicating Authority shall by order, declare a moratoriumprohibiting the institution of suits, or continuation of pending suits or“proceedings” against the corporate debtor, including execution of anyjudgment, decree, or order in any court of law, tribunal, arbitration panel,or any other authority. Section 14 reads as follows :

“14. Moratorium. –D

(1) Subject to provisions of sub-sections (2) and (3), onthe insolvency commencement date, the AdjudicatingAuthority shall by order declare moratorium forprohibiting all of the following, namely: - (a) the institution of suits or continuation of pendingsuits or proceedings against the corporate debtorincluding execution of any judgement, decree ororder in any court of law, tribunal, arbitrationpanel or other authority; E

(b) transferring, encumbering, alienating or disposingFoff by the corporate debtor any of its assets or anylegal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce anysecurity interest created by the corporate debtor inrespect of its property including any action underGthe Securitisation and Reconstruction of FinancialAssets and Enforcement of Security Interest Act,2002 (54 of 2002); (d) the recovery of any property by an owner or lessorwhere such property is occupied by or in theHpossession of the corporate debtor.

(2) The supply of essential goods or services to thecorporate debtor as may be specified shall not beterminated or suspended or interrupted duringmoratorium period.

(3) The provisions of sub-section (1) shall not apply to —

(a) such transaction as may be notified by the CentralGovernment in consultation with any financialregulator; (b) a surety in a contract of guarantee to a corporatedebtor.

(4) The order of moratorium shall have effect from the dateof such order till the completion of the corporateinsolvency resolution process:

Provided that where at any time during the corporateinsolvency resolution process period, if the AdjudicatingAuthority approves the resolution plan under sub-section (1)of section 31 or passes an order for liquidation of corporatedebtor under section 33, the moratorium shall cease to haveeffect from the date of such approval or liquidation order,as the case may be.”

7. Section 238 gives an overriding effect to the IBC over all otherlaws. The provisions of the IBC vest exclusive jurisdiction on the NCLTand the NCLAT to deal with all issues pertaining to the insolvencyprocess of a corporate debtor, and the mode and manner of disposalof its assets. Section 238 reads as follows :

“238. Provisions of this Code to override other laws. –

The provisions of this Code shall have effect, notwithstandinganything inconsistent therewith contained in any other lawfor the time being in force or any instrument having effectby virtue of any such law.”

8. Section 231 of the IBC bars the jurisdiction of civil courts inrespect of any matter in which the Adjudicating Authority i.e. the NCLTor the NCLAT is empowered by the Code to pass any Order. Section231 is set out hereinbelow for ready reference :

“231. Bar of jurisdiction. –

No civil court shall have jurisdiction in respect of any matterin which the Adjudicating Authority or the Board is A

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Aempowered by, or under, this Code to pass any order andno injunction shall be granted by any court or otherauthority in respect of any action taken or to be taken inpursuance of any order passed by such AdjudicatingAuthority or the Board under this Code.”

B9. In view of the provisions of the IBC, the High Court oughtnot to have proceeded with the auction of the property of the CorporateDebtor – Respondent No. 4 herein, once the proceedings under theIBC had commenced, and an Order declaring moratorium was passedby the NCLT. The High Court passed the impugned Interim Ordersdated 14.08.2019 and 05.09.2019 after the CIRP had commenced inCthis case.

The moratorium having been declared by the NCLT on04.06.2019, the High Court was not justified in passing the Orders dated14.08.2019 and 05.09.2019 for carrying out auction of the assets of theRespondent No. 4 – Company i.e. the Corporate Debtor before theDNCLT. The subject matter of the auction proceedings before the HighCourt is a vast chunk of land admeasuring about 330 acres, includingRailway lines and buildings.

If the assets of the Respondent No. 4 – Company are alienatedduring the pendency of the proceedings under the IBC, it will seriouslyjeopardise the interest of all the stakeholders.E

As a consequence, we set aside the impugned Interim Ordersdated 14.08.2019 and 05.09.2019 passed by the Odisha High Court, asparallel proceedings with respect to the main issue cannot take placein the High Court. The sale or liquidation of the assets of RespondentNo. 4 will now be governed by the provisions of the IBC.F

10. It is open for Respondent No. 13 – Hirakud Workers’ Unionto file an application under Regulation 9 of the Insolvency andBankruptcy Board of India (Insolvency Resolution Process forCorporate Persons) Regulations, 2016 for payment of arrears, salariesand other dues before the competent authority. Regulation 9 reads asGfollows :–

“9. Claims by workmen and employees.

(1) A person claiming to be a workman or an employee ofthe corporate debtor shall submit claim with proof to theinterim resolution professional in person, by post or byHelectronic means in Form D of the Schedule:

MR. ANAND RAO KORADA RESOLUTION PROFESSIONALv. M/S. VARSHA FABRICS (P) LTD. [INDU MALHOTRA, J.]

Provided that such person may submit supplementarydocuments or clarifications in support of the claim, on hisown or if required by the interim resolution professional,before the constitution of the committee.

(2) Where there are dues to numerous workmen or employeesof the corporate debtor, an authorised representative maysubmit one claim with proof for all such dues on their behalfin Form E of the Schedule.

(3) The existence of dues to workmen or employees may beproved by them, individually or collectively on the basis of - (a) records available with an information utility, if any; or (b) other relevant documents, including -

(i) a proof of employment such as contract ofemployment for the period for which such workmanor employee is claiming dues;

(ii) evidence of notice demanding payment of unpaiddues and any documentary or other proof thatpayment has not been made; or

(iii) an order of a court or tribunal that has adjudicatedupon the non-payment of a dues, if any.”

11. Mr. C.U. Singh, Senior Advocate appeared for RespondentNo. 8 – HINDALCO, which had participated in the public auction ofthe aforesaid chunk of land before the High Court. The Counsel raisedserious objections to the stay of the auction proceedings. He soughtpermission to file an application before the appropriate authority fordeciding the objections raised by Respondent No. 8.

Mr. Siddharth Bhatnagar, Senior Advocate who was representingthe Appellant – Resolution Professional, reserved his right to raise allpleas and contentions, including the plea of locus standi, if such anapplication is filed by Respondent No. 8.

The parties are granted liberty to pursue whatever remedies areavailable in accordance with law.

The Civil Appeals are allowed in the aforesaid terms.

Ankit Gyan

Appeals allowed.

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