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2025 (6) TMI 1018 - HC - IBCMaintainability of petition in the face of an alternative and efficacious statutory remedy available under the Insolvency and Bankruptcy Code 2016 - relief sought predicated on the order of admission passed by the National Company Law Tribunal - rejection of petitioners claim and for a consequential direction to the Liquidator to settle the petitioners dues in terms of the order passed by the National Company Law Tribunal Chennai - HELD THAT - It must be noted that Section 42 of the IBC 2016 provides a specific statutory mechanism for appeal against an order passed by the Liquidator which must be preferred before the Adjudicating Authority within a period of fourteen days. In the present case the impugned order of the Liquidator is dated 20.01.2021 whereas the writ petition has been filed only on 23.03.2021 beyond the prescribed period of limitation. The petitioners having failed to avail the remedy under Section 42 cannot now invoke the writ jurisdiction of this Court particularly when an efficacious and statutorily prescribed remedy was available. Just as the Recovery of Debts Due to Banks and Financial Institutions Act 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 are recognised as complete and self- contained codes the Insolvency and Bankruptcy Code 2016 is also a comprehensive and exhaustive piece of legislation. The Supreme Court in Embassy Property Developments Pvt. Ltd. v. State of Karnataka 2019 (12) TMI 188 - SUPREME COURT held that Though NCLT and NCLAT would have jurisdiction to enquire into questions of fraud they would not have jurisdiction to adjudicate upon disputes such as those arising under MMDR Act 1957 and the rules issued thereunder especially when the disputes revolve around decisions of statutory or quasijudicial authorities which can be corrected only by way of judicial review of administrative action. Hence the High Court was justified in entertaining the writ petition and we see no reason to interfere with the decision of the High Court. Thus the Insolvency and Bankruptcy Code 2016 being a complete and self-contained code provides a well-structured three-tier remedial mechanism. In view of the same the present writ petition filed by the petitioners by bypassing the statutory framework under the IBC 2016 is not maintainable. In terms of Section 14 of the Insolvency and Bankruptcy Code 2016 once an order of admission is passed initiating CIRP a moratorium is triggered which prohibits the institution or continuation of any legal proceedings against the corporate debtor. Furthermore under Section 33(5) of the Code upon commencement of liquidation no suit or other legal proceeding shall be instituted or continued against the corporate debtor by any creditor or third party without prior approval of the Adjudicating Authority - In the present case the ex parte orders were obtained without apprising the Industrial Tribunal or the Executing Court of the CIRP and liquidation orders passed by the NCLT against the first respondent. In such circumstances the proceedings conducted and orders passed in violation of the express prohibitions under Sections 14 and 33(5) of the IBC 2016 are rendered void and non-est in the eyes of law. Conclusion - The writ petition is liable to be dismissed as not maintainable in view of the availability of an efficacious alternative remedy under the provisions of the Insolvency and Bankruptcy Code 2016. The petitioners by bypassing the statutory mechanism have misused the process of law and unnecessarily consumed valuable judicial time. It must be borne in mind that the IBC 2016 is a codified and time-bound legislation enacted to ensure the expeditious resolution or liquidation of corporate debtors with specific timelines prescribed at each stage. The conduct of the petitioners in prosecuting this writ petition contrary to the statutory scheme frustrates the very object and purpose of the Code. The writ petition is dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court are: (a) Whether the petitioners' claim, premised on the admission order passed by the National Company Law Tribunal (NCLT) under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016, conclusively establishes their entitlement to dues, thereby precluding the Liquidator from rejecting their claims; (b) Whether the writ petition filed under Article 226 of the Constitution is maintainable in the presence of an alternative and efficacious statutory remedy provided under the IBC, specifically the appeal mechanism under Section 42; (c) Whether the ex parte awards and orders passed by the Industrial Tribunal and Executing Court, without disclosure of the ongoing Corporate Insolvency Resolution Process (CIRP) and liquidation proceedings, are valid in light of the moratorium imposed under Sections 14 and 33(5) of the IBC; (d) Whether the petitioners' failure to comply with the tripartite settlement agreement, which included an undertaking to withdraw the writ petition, affects the maintainability and merits of the petition; (e) Whether the petitioners fall within the definition of "workmen" for the purposes of claims under the liquidation proceedings, especially considering resignations prior to initiation of CIRP. 2. ISSUE-WISE DETAILED ANALYSIS (a) Legal Effect of NCLT Admission Order under Section 9 of IBC and Authority of Liquidator to Verify Claims The Court examined the legal framework governing the initiation of CIRP under Section 9 of the IBC, which requires the Adjudicating Authority (NCLT) to admit a petition on prima facie satisfaction of the existence of an operational debt and default. The Court emphasized that such admission is not a final adjudication on the validity or quantum of claims but merely triggers the insolvency process. Precedents including the Supreme Court's rulings in Swiss Ribbons Pvt. Ltd. v. Union of India and M/s. B.K. Educational Services Pvt. Ltd. v. Parag Gupta & Associates were relied upon to reinforce that the Resolution Professional (RP) or Liquidator has statutory authority under Sections 18, 25, and 35 of the IBC to independently verify, admit, or reject claims after due scrutiny. The admission order does not bind the Liquidator on the merits of individual claims. The Court rejected the petitioners' contention that the NCLT admission conclusively establishes their entitlement, holding that the Liquidator's rejection of claims based on lack of documentary evidence or ineligibility under the Code is legally valid. The Court further cited Jignesh Shah v. Union of India to underline that fraudulent or unsubstantiated claims can be rejected notwithstanding admission of CIRP. (b) Maintainability of Writ Petition in View of Alternative Remedy under Section 42 of IBC The Court analyzed the statutory appeal mechanism under Section 42 of the IBC, which mandates that an aggrieved creditor may appeal the Liquidator's rejection of claims before the Adjudicating Authority within fourteen days. The petitioners' writ petition was filed beyond this limitation period and without exhausting the statutory remedy. The Court referred to authoritative Supreme Court decisions, including Embassy Property Developments Pvt. Ltd. v. State of Karnataka and Phr Invent Educational Society v. UCO Bank, which consistently hold that writ jurisdiction under Article 226 is not ordinarily available where a specific statutory remedy exists, except in exceptional circumstances such as lack of jurisdiction, violation of natural justice, or manifest arbitrariness or mala fides. The Court found no such exceptional circumstances present in the instant case. It further cited a Division Bench ruling of the same High Court emphasizing that the writ jurisdiction should not be invoked to bypass the statutory framework of the IBC. Consequently, the writ petition was held not maintainable. (c) Validity of Ex Parte Awards and Orders Passed by Industrial Tribunal and Executing Court The Court noted that petitioners 4 and 5, through their union, had initiated industrial dispute proceedings resulting in ex parte awards and execution orders without disclosing the existence of CIRP and liquidation proceedings. The Court highlighted the moratorium provisions under Section 14 (prohibition on institution or continuation of legal proceedings during CIRP) and Section 33(5) (prohibition on suits or proceedings after liquidation commencement without prior approval) of the IBC. Given the failure to disclose ongoing insolvency proceedings and the consequent violation of the moratorium, the Court held that the ex parte awards and execution orders are void and non-est in law. The Liquidator's challenge to these orders in pending writ petitions was noted but not decided in this judgment. (d) Effect of Breach of Tripartite Settlement Agreement Undertaking The Court observed that the petitioners, along with trade unions, had entered into a tripartite agreement with the Liquidator, expressly agreeing to withdraw the writ petition within fifteen days. The petitioners' failure to honor this undertaking was noted as a breach of the settlement terms. While the Court refrained from imposing costs given the petitioners' limited means and reliance on erroneous legal advice, it underscored that such conduct amounted to misuse of the legal process and unnecessary consumption of judicial time, further diminishing the petitioners' case. (e) Eligibility of Petitioners as "Workmen" and Effect of Prior Resignations The Liquidator rejected the claims of certain petitioners on the ground that they did not fall within the definition of "workmen" under the applicable provisions and that some had resigned years prior to the initiation of liquidation. The Court accepted this reasoning, noting that such factual determinations are within the Liquidator's purview and subject to statutory verification. The petitioners' failure to challenge these factual findings through the prescribed statutory remedies further weakened their position. 3. SIGNIFICANT HOLDINGS "An order of admission under Section 9 of the Insolvency and Bankruptcy Code is not a final adjudication of the claim or its quantum. The Adjudicating Authority merely records a prima facie satisfaction as to the existence of an operational debt, a default thereon, and compliance with the threshold monetary limit. It does not result in a conclusive determination of the validity, extent, or admissibility of individual claims." "The Resolution Professional or the Liquidator is vested with the authority to independently verify, and if necessary, reject claims, notwithstanding the admission of the Corporate Insolvency Resolution Process by the NCLT." "The writ jurisdiction under Article 226 of the Constitution is not ordinarily available where an efficacious statutory remedy exists, except in exceptional circumstances such as lack of jurisdiction, violation of natural justice, or manifest arbitrariness or mala fides." "The moratorium under Sections 14 and 33(5) of the IBC prohibits institution or continuation of legal proceedings against the corporate debtor during CIRP and liquidation, respectively. Proceedings conducted in violation of the moratorium are void and non-est in law." "The Insolvency and Bankruptcy Code, 2016 is a complete and self-contained code providing a three-tier mechanism comprising the NCLT, NCLAT, and the Supreme Court for resolution of insolvency-related disputes. Bypassing this statutory framework by invoking writ jurisdiction is impermissible." Final determinations: - The petitioners' reliance on the NCLT admission order as conclusive proof of entitlement is legally misconceived. - The writ petition is not maintainable due to the availability of an effective statutory remedy under Section 42 of the IBC, which the petitioners failed to exhaust within the prescribed time. - The ex parte awards and execution orders obtained without disclosure of CIRP and liquidation proceedings are void. - The petitioners' breach of the tripartite settlement undertaking further undermines their case. - The Liquidator's rejection of claims based on non-eligibility as "workmen" and prior resignation is valid. Accordingly, the writ petition was dismissed without costs.
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