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2019 (1) TMI 1254 - HC - Companies LawPrayer seeking leave to sue under Clause 12 of Letters Patent - whether Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) is attracted? - Duties of resolution profession (RP) - RP Locus standi, authority or power to initiate proceedings assailing the foreign decree of UK Court Held that:- It is for the RP to act on behalf of Corporate debtor i.e., RIPL in this case with third parties and more importantly exercise rights for the benefit of the corporate debtor (second defendant i.e, RIPL in this case) in judicial proceedings. In other words, proposed plaint, which according to the plaintiff is said to be for the benefit of the Corporate Debtor, is a right, which at the highest can be exercised by RP and none else in the light of a conjoint and harmonious reading of Sections 14(1)(a) and 25(2)(b) of IB Code. It is open for RP to initiate suitable proceedings assailing the UK Judgment / decree in tune with the view of NCLAT. In the light of Section 14(1)(a) of IB Code, institution of this suit is prohibited until corporate insolvency resolution process under the IB Code is completed. Though the suit has been styled as a ‘derivative action’, this Commercial Division is unable to accept that the intended suit qua proposed plaint is a derivative action - notwithstanding my conclusion that the intended suit is not a derivative action qua second defendant company, this Commercial Division proceeds with the discussion and deliberation in this regard. the stated position of RP that she does not have locus standi, authority or power to initiate proceedings assailing the foreign decree of UK Court in the light of Section 28 of IB Code and Regulation 25 of IB Code Regulations, is unacceptable. In other words, it is made clear that if the RP were to assail the foreign decree of the UK Court, it will be pursuant to her duty under Section 25(2)(b) of IB Code, which has nothing to do with Section 28 or Regulation 25 of IB Code Regulations. In this regard, it is necessary to mention that this Commercial Division has noticed that there is no mention about Section 25 in the four page counter affidavit of RP dated 27.10.2018 spanning 8 paragraphs. Whether RP can initiate a suit in this Commercial Division assailing the foreign decree of the UK Court in the instant case? - It is the considered view of this Commercial Division that the term/expression 'third parties' occurring in Section 25(2)(b) of IB Code is only to enable RP to interact with any or every other entity on behalf of the corporate debtor without being challenged that the RP does not have statutory backing to do so. As an illustration, if the RP were to take up an issue with a Nationalized Bank on behalf of a corporate debtor, the Nationalized Bank may take the position that it is under no obligation to interact with the RP or interact with the RP as RP does not have legislative backing to embark upon such an action though the RP may have been appointed by NCLT, which is a statutory body. Legislature in its wisdom has brought in the expression ‘third parties’ and built it into Section 25(2)(b) of IB Code as part of adoption of UNCITRAL legislative guide of insolvency, which is the bedrock on which IB Code has been built. As a necessary corollary and inevitable sequitur that RP can act on behalf of corporate debtor against any one. When such an action on behalf of Corporate Debtor runs into the interest of the financial creditor, it necessarily is an issue which has to be looked into, dealt with and decided by NCLT by applying the IB Code. In this regard Section 63 of IB Code kicks in. Once NCLT comes to the conclusion that such a suit has to be filed by RP, the scenario shifts to this Commercial Division without being hit by Section 63 (as rightly held by NCLAT). It is clarified that NCLT will not have to decide about actions of RP in cases where the suit is not against the financial or operational creditor. this Commercial Division deems it appropriate to leave it open to the corporate debtor to assail the stand of the RP that she does not have the locus standi, authority or power to challenge or initiate proceedings before a Court. This can be done by the corporate debtor by taking resort to Section 60(5) of the IB Code. To be noted, the corporate debtor in the instant case is no stranger to Section 60(5) of IB Code, as the corporate debtor has already filed a petition under Section 60(5) being MA 404 of 2018 with regard to the question as to whether guarantee given by RIPL is limited to a particular quantum. This suit is held to be not maintainable, but reserving the rights of corporate debtor (second defendant) to approach NCLT under Section 60(5) of IB Code and further reserving the right of Resolution Professional to file a suit on the same ground with regard to the same issue if the NCLT permits the Resolution Professional to do so.
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