Anand Rao Korada Resolution Professional vs M/S Varsha Fabrics (P) Ltd.

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 8800­8801 OF 2019 (Arising out of SLP (Civil) Nos. 23349­23350 of 2019)

Mr. Anand Rao Korada Resolution Professional …Appellant

Versus

M/s. Varsha Fabrics (P) Ltd. & Ors. …Respondents

JUDGMENT

INDU MALHOTRA, J.

Leave granted.

1. The present Civil Appeals have been filed by the Appellant –

Resolution Professional appointed by the National Company

Law Tribunal for the Corporate Debtor – M/s Hirakud Signature Not Verified

Industrial Works Ltd., to challenge the interim Orders dated Digitally signed by RACHNA Date: 2019.11.22 16:25:35 IST Reason: 1 14.08.2019 and 05.09.2019 passed by the Odisha High Court

in W.P. (Civil) No. 7939/2011.

2. This Court vide Order dated 23.09.2019 issued Notice to all

the parties, including the Writ Petitioners i.e. the Hirakud

Workers’ Union – Respondent No. 13 herein. The Appellant

was directed to serve Dasti Notice to all the Respondents, and

the auction proceedings before the High Court were directed

to be stayed.

3. Pursuant to the issuance of Notice, all the Respondents were

served by the Appellant, and proof of service was filed on

04.11.2019. Respondent No. 13 – Hirakud Workers’ Union

was however not represented by Counsel. The Civil Appeals

were taken up for hearing on 13.11.2019 before this Court.

4. The factual matrix in which the present Civil Appeals have

been filed is as under :–

4.1 M/s Varsha Fabrics Pvt. Ltd. (Respondent No. 1), India

Finance Ltd. (Respondent No. 2), Mudrika Commercial

Pvt. Ltd. (Respondent No. 3), Hirakud Industrial Works

2 Ltd. (Respondent No. 4), and Industrial Development

Corporation of Orissa Ltd. (Respondent No. 5) entered

into a 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

Respondent Nos. 1 to 3. Respondent No. 4 shut down

its factory on 08.05.2007.

4.2 Subsequently, Respondent Nos. 1 to 3 sold their stake

in Respondent No. 4 to Indo Wagon Engineering Ltd.

Respondent No. 13 – the Hirakud Workers’ Union

filed W.P. (Civil) No. 12479/2009 before the Odisha

High Court praying inter alia for cancellation of the SPA

dated 10.07.2006, and payment of the arrears and

current salaries of 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 their dues before the Odisha High Court. 4.4 The High Court vide Order dated 14.03.2012 directed

the Deputy Labour Commissioner, Sambalpur Division

(Respondent No. 10 herein) to recover the workmen’s

3 dues by sale of the assets of Respondent No. 4 –

Company through a public auction.

4.5 These proceedings culminated in the Order dated

03.08.2015 passed by this Court, wherein it was

directed that the issue of quantifying the compensation

payable to the workmen should be determined by the

Labour Court. It was further directed that if

Respondent Nos. 1 to 3 fail to make the payment of

compensation to the workmen, the assets of

Respondent No. 4 would be sold through public

auction, and the proceeds would be used for

disbursement of the arrears of the workmen. 4.6 The Labour Court, Sambalpur vide Order dated

11.11.2016 quantified the amount payable to the

workmen as Rs. 45,66,67,133/­.

4.7 The High Court vide Order dated 12.01.2017 directed

the Deputy Labour Commissioner, Sambalpur Division

to sell a parcel of Respondent No. 4’s land admeasuring

157.27 acres to the Hirakud Dam Project.

Upon receipt of the sale proceeds of Rs.

10,04,12,105/­ from the Government of Orissa, this

4 amount was disbursed towards the arrears of the

workmen’s dues.

4.8 During the pendency of proceedings before the High

Court in W.P. (Civil) No. 7939/2011, M/s Nandakini

Contractors Pvt. Ltd – a Financial Creditor filed a

Petition under Section 7 of the IBC, 2016 bearing CP

(IB) No. 01/CTB/2019, before the National Company

Law Tribunal, Cuttack Bench (“NCLT”) for initiation of

the Corporate Insolvency Resolution Process (“CIRP”)

against the Corporate Debtor – Respondent No. 4, since

it had committed a default in paying the financial debt

of Rs. 24,11,975/­.

4.9 The NCLT vide Order dated 04.06.2019 admitted the

insolvency petition, and declared a moratorium in

accordance with the provisions of Sections 13 and 15 of

the IBC. The moratorium was declared for the purpose

referred to in Section 14 of the IBC. The Appellant

herein was appointed as the Insolvency Resolution

Professional.

4.10 4.11 During the pendency of the moratorium, W.P.(Civil)

7939/2011 was posted for hearing on 14.08.2019 before

5 the High Court. The Additional Government Advocate

submitted that the valuation of the land in Mouza – Tara

Nagar owned by Respondent No. 4 was Rs. 6,05,000/­

per acre. The High Court directed the Additional

Government Advocate to file an affidavit with respect to

the valuation conducted.

4.12 The High Court by a further Order dated 05.09.2019,

recorded the submission of the Appellant – Resolution

Professional that there were other companies which

had expressed an interest to participate in the public

auction. The matter was posted for further hearing on

17.09.2019.

4.13 The Appellant – Resolution Professional filed the

present Civil Appeals to challenge the Interim Orders

dated 14.08.2019 and 05.09.2019 passed by the

Odisha High Court in W.P. (Civil) No. 7939/2011 on

the ground that since the CIRP against Respondent No.

4 had commenced, the proceedings 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 the

Appellant – Resolution Professional, Respondent Nos. 1 to 3,

and Respondent No. 8 – HINDALCO.

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 laws relating to insolvency resolution of corporate

entities, partnership firms, and individuals in a time­bound

manner, for maximisation of the value of the assets of such

persons, and balance the interest of all the stakeholders. The

Corporate Insolvency Resolution Process (“CIRP”) could be

initiated when a corporate debtor commits a default, either by

a financial creditor, or an operational creditor, or the

corporate debtor itself.

Section 12 of the IBC provides a time­frame to complete

the CIRP.

As per Section 13 of the IBC, the Adjudicating Authority

i.e. the National Company Law Tribunal (“NCLT”) shall

declare a moratorium for the purposes referred to in Section

14 of the IBC.

7 Section 14 provides that on the insolvency

commencement date, the Adjudicating Authority shall by

order, declare a moratorium prohibiting the institution of

suits, or continuation of pending suits or “proceedings”

against the corporate debtor, including execution of any

judgment, decree, or order in any court of law, tribunal,

arbitration panel, or any other authority. Section 14 reads as

follows :

“14. Moratorium. – (1) Subject to provisions of sub­sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely: ­

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority;

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

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.

8 (3) The provisions of sub­section (1) shall not apply to —

(a) such transaction as may be notified by the Central Government in consultation with any financial regulator;

(b) a surety in a contract of guarantee to a corporate debtor.

(4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process:

Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub­section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect 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 other

laws. The provisions of the IBC vest exclusive jurisdiction on

the NCLT and the NCLAT to deal with all issues pertaining to

the insolvency process of a corporate debtor, and the mode

and manner of disposal of its assets. Section 238 reads as

follows :

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

The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”

8. Section 231 of the IBC bars the jurisdiction of civil courts in

respect of any matter in which the Adjudicating Authority i.e.

9 the NCLT or the NCLAT is empowered by the Code to pass

any Order. Section 231 is set out hereinbelow for ready

reference :

“231. Bar of jurisdiction. –

No civil court shall have jurisdiction in respect of any matter in which the Adjudicating Authority or the Board is empowered by, or under, this Code to pass any order and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any order passed by such Adjudicating Authority or the Board under this Code.”

9. In view of the provisions of the IBC, the High Court ought not

to have proceeded with the auction of the property of the

Corporate Debtor – Respondent No. 4 herein, once the

proceedings under the IBC had commenced, and an Order

declaring moratorium was passed by the NCLT. The High

Court passed the impugned Interim Orders dated 14.08.2019

and 05.09.2019 after the CIRP had commenced in this case.

The moratorium having been declared by the NCLT on

04.06.2019, the High Court was not justified in passing the

Orders dated 14.08.2019 and 05.09.2019 for carrying out

auction of the assets of the Respondent No. 4–Company i.e.

the Corporate Debtor before the NCLT. The subject matter of

the auction proceedings before the High Court is a vast chunk

10 of land admeasuring about 330 acres, including Railway lines

and buildings.

If the assets of the Respondent No. 4 – Company are

alienated during the pendency of the proceedings under the

IBC, it will seriously jeopardise the interest of all the

stakeholders.

As a consequence, we set aside the impugned Interim

Orders dated 14.08.2019 and 05.09.2019 passed by the

Odisha High Court, as parallel proceedings with respect to

the main issue cannot take place in the High Court. The sale

or liquidation of the assets of Respondent No. 4 will now be

governed by the provisions of the IBC.

10. It is open for Respondent No. 13 – Hirakud Workers’ Union to

file an application under Regulation 9 of the Insolvency and

Bankruptcy Board of India (Insolvency Resolution Process for

Corporate Persons) Regulations, 2016 for payment of arrears,

salaries and other dues before the competent authority.

Regulation 9 reads as follows :–

“9. Claims by workmen and employees.

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

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

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

(3) The existence of dues to workmen or employees may be proved 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 of employment for the period for which such workman or employee is claiming dues;

(ii) evidence of notice demanding payment of unpaid dues and any documentary or other proof that payment has not been made; or

(iii) an order of a court or tribunal that has adjudicated upon the non­payment of a dues, if any.”

11. Mr. C.U. Singh, Senior Advocate appeared for Respondent No.

8 – HINDALCO, which had participated in the public auction

of the aforesaid chunk of land before the High Court. The

Counsel raised serious objections to the stay of the auction

proceedings. He sought permission to file an application before

12 the appropriate authority for deciding the objections raised by

Respondent No. 8.

Mr. Siddharth Bhatnagar, Senior Advocate who was

representing the Appellant – Resolution Professional, reserved

his right to raise all pleas and contentions, including the plea

of locus standi, if such an application is filed by Respondent

No. 8.

The parties are granted liberty to pursue whatever

remedies are available in accordance with law.

The Civil Appeals are allowed in the aforesaid terms.

.....................................J. (INDU MALHOTRA)

.…...............………………J. (R. SUBHASH REDDY)

New Delhi, November 18, 2019.

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