TMI Blog2019 (1) TMI 1254X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Commer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. - C.S.(Comm. Div.) D.No.41408 of 2018 - - - Dated:- 4-12-2018 - Mr. Justice M. Sundar For the Plaintiffs : Mr.P.H.Arvindh Pandian, Senior Counsel for Mr. S.Aravindan of M/s.Fox Mondal Associates For the Defendants : Mr.Anirudh Krishnan, Mr.Keerthikiran Murali and Ms.Ramya Subramaniam for R1 Mr.R.Venkatavaradhan Asst. by Mr.Chandramouli Prabhakar for R2 (RP) JUDGMENT A proposed plaint has been placed before me along with an application in A.No.7361 of 2018 with a prayer seeking leave to sue under Clause 12 of Letters Patent. A perusal of the proposed plaint reveals that it has been filed in this Court on 25.09.2018 under Diary No.41408. 2.Leave to sue application has been filed primarily owing to the reason that first defendant in the proposed plaint is outside the territorial jurisdiction of this Commercial Division. 3. However, considering the peculiar facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.This Commercial Division heard aforementioned senior counsel and two counsel on the aforesaid question as to whether Section 14(1)(a) of IB Code is attracted in the instant case owing to which institution of the instant suit vide the proposed plaint is prohibited. 11. Before adverting to the submissions made by aforesaid counsel, it may be necessary to set out short facts which are necessary for appreciating this order/proceedings. 12. Two plaintiffs are shareholders and also Directors in second defendant company i.e, RIPL. RIPL is a holding company qua a company which goes by the name 'Rajkumar Impex Ghana Limited' ( RIGL for brevity). To be noted RIGL is a company incorporated under applicable laws of Ghana with Company Registration No.CA41134 having office at Mannet Gardens, Church Close, Tema Ghana and is a subsidiary of RIPL. 13. In a nutshell, RIGL, in the course of its regular business, had approached Stanbic Bank for financial assistance/loan facilities. Stanbic Bank did grant loan facilities to RIGL for which purpose four loan agreements (two dated 24.02.2012 and two more dated 15.04.2014) came to be executed. Suffice to say that first loan agreement i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid judgment of the UK Court is in violation of Section 13 of 'The Code of Civil Procedure, 1908' ( CPC for brevity) and placing reliance on Section 44-A of CPC, the instant suit has been filed by the plaintiffs primarily with prayers for declaration that the aforementioned UK Court judgment is null and void. In the interregnum, it is not in dispute that Stanbic Bank filed a petition under Section 7 of IB Code before the 'National Company Law Tribunal, Chennai' (hereinafter NCLT, Chennai for brevity) vide CP/670/IB/2017 and an order dated 27.04.2018 declaring a moratorium for RIPL came to be passed in these proceedings. It is also not in dispute that this order of NCLT, Chennai was carried in appeal to the National Company Law Appellate Tribunal (Delhi) ('NCLAT' for brevity) and the same came to be disposed of by NCLAT by an order dated 29.08.2018 dismissing the appeal. In other words, the aforesaid order of NCLT, Chennai was confirmed by NCLAT. 19. Learned senior counsel for plaintiffs submitted that the issue of aforesaid UK judgment was raised before NCLAT, the validity of the same was also raised before NCLAT and NCLAT has made certain obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. In support of the submission that Section 14(1)(a) of IB Code is not attracted because it is a derivative action for the benefit of RIPL, which is the corporate debtor qua NCLT proceedings and in an attempt to buttress and bolster this submission, learned senior counsel pressed into service a judgment of a learned single Judge of the Delhi High Court dated 11.12.2017 made in Power Grid Corporation of India Limited Vs. Jyoti Structures Limited Case . In Jyoti Structures case it was held that the object behind moratorium under Section 14 of IB Code would not apply to proceedings which are for the benefit of a Corporate Debtor. It was also held that in Jyoti Structures case for testing the applicability of Section 14 of IB code one has to see the nature of proceedings and see if such proceedings are against the corporate debtor or is in its favour. 24. Besides this Jyoti Structures case, learned senior counsel pressed into service, a judgment of this Court made by a learned single Judge in R.M.V.Vellachi Achi Vs. R.M.A.Ramanathan Chettiar reported in (1972) 2 MLJ 468 . This case turns on Section 44-A of CPC and it is essentially for the proposition that a foreign dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor was not able to launch execution proceedings and realize the monies due under the award / decree. Moreover, a careful perusal of Jyoti Strictures case reveals that proceedings under Section 7 of the IB Code were initiated before the jurisdictional Company Law Tribunal during the pendency of Section 34 petition. None of these factual aspects are present in the instant case. On the contrary, it is a reverse situation in the instant case. Corporate Debtor i.e, RIPL has suffered a foreign decree and the same is likely to be executed against RIPL. Unlike Jyoti Structures case, where if the Corporate debtor realized monies under the award, it will go to the benefit of the creditors, in the instant case it is the creditor who is pitted against the corporate debtor. To be noted, Creditor, namely Stanbic Bank is Defendant No.1 in the proposed plaint. This takes us to the question as to who will examine the Validity or otherwise of the UK Court judgment / decree in the instant case. Learned senior counsel for plaintiffs is correct in referring to Paragraphs 11 and 12 of NCLAT order and saying that UK Court judgment can be challenged only in this Commercial Division which alone has com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolution Professional within the meaning of Section 25 of IB Code. 32. Be that as it may, the transition from Section 18 to Section 25 can at best be only in terms of replacement of the individual concerned depending on the majority view of the committee of creditors. What is of relevance is, duties of the Resolution Professional, which have been adumbrated in Section 25(2) of IB Code. As many as 11 duties/actions to be undertaken by the Resolution Professional have been adumbrated under Section 25(2) of IB Code i.e, Sub-clauses (a) to (k) of Section 25(2). In the considered opinion of this Commercial Division, what is of utmost relevance is sub-clause (b), which reads as follows: '25. Duties of resolution profession (1)...... (2)...... (a)........ (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial quasi-judicial or arbitration proceedings.' 33. Therefore, 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers themselves are in control of the company; or c) when a resolution that requires to be passed by a qualified majority, but has been passed by a simple majority. This has been set out in Palmer's Company Law , which was placed before me. 38. In the backdrop of the factual matrix of the instant case, this Commercial Division does not find any compelling reasons to disagree or deflect from Foss Vs.Harbottle principle and the three exceptions. 39. If Foss Vs.Harbottle principle and the aforesaid three exceptions to the same are corner stones which define the boundaries of a derivative action, there is no reason to believe that the intended suit qua proposed plaint is a derivative action. Reasons are simple, clean and neat. 40. Two plaintiffs constitute the entire set of shareholders in the second defendant company and therefore, there is no scope for construing minority Vs. Majority. When RP under the IB Code is in control of the Corporate Debtor i.e., second defendant company, it is obvious that it cannot be pleaded that the company is in the hands of a wrongdoer. 41. Therefore, though the suit has been styled as a derivative action , this Commercial Division is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debtor; (e) give instructions to financial institutions maintaining accounts of the corporate debtor for a debit transaction from any such accounts in excess of the amount as may be decided by the committee of creditors in their meeting; (f) undertake any related party transaction; (g) amend any constitutional documents of the corporate debtor; (h) delegate its authority to any other person; (i) dispose of or permit the disposal of shares of any shareholders of the corporate debtor or their nominees to third parties; (j) make any change in the management of the corporate debtor or its subsidiary; (k) transfer rights or financial debts or operational debts under material contracts otherwise than in the ordinary course of business; (l) make changes in the appointment or terms of contract of such personnel as specified by the committee of creditors; or (m) make changes in the appointment or terms of contract of statutory auditors or internal auditors of the corporate debtor.' Sub-Regulation (2) of Regulation 25 of IB Code Regulation: '25. Voting by the committee (1)....... (2) Any action other than those listed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion assailing the foreign decree of the UK Court in the instant case. In this regard, before I delve into this aspect of the matter, it is to be noticed that NCLAT in it's order, particularly in Paragraphs 11 and 12 of its order has clearly said that validity of the foreign decree cannot be challenged before NCLAT and that it has to be done before an appropriate forum. There can be no doubt or debate about the obtaining position that this Commercial Division is the appropriate forum. Mr.Anirudh Krishnan submitted that this finding of NCLAT has been wiped out by the Supreme Court owing to the disposal of the appeal being Civil Appeal No.9980 of 2018 on 18.10.2018. The reason advanced by learned counsel is, Civil Appeal in the Supreme Court is a statutory appeal under Section 62 of the IB Code and it is not a regular petition in the Supreme Court invoking residuary powers under Article 136 of the Constitution of India. According to him, the doctrine of merger operates and the order of NCLAT has merged with the Supreme Court order. The Supreme Court order dated 18.10.2018 reads as follows: 'Heard the learned counsel for the appellant. We do not find any reason to inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which explains what the expression 'third parties' occurring in Section 25(2)(b) means and which are the entities which are covered in its sweep. Therefore, in search of an answer, this Commercial Division embarked upon the exercise of looking at the legislative intent behind Section 25(2)(b) of IB Code. The report of the Bankruptcy Law Reforms Committee was placed before this Commercial Division by Mr.Anirudh Krishnan and a careful perusal of the same shows that UNCITRAL Legislative Guide on Insolvency is a useful benchmark to ascertain the principles on which the IB Code has been platformed. 56. This takes us to the Legislative Guide on Insolvency Law of UNCITRAL. That portion of the legislative guide which talks about duties and functions of insolvency representative talks about exercising rights for the benefit of the Insolvency estate in respect of court, arbitration or administration proceedings underway. It can be said that it emerges with reasonable amount of certainty and specificity that Section 25(2)(b) is relatable to one such duty adumbrated in UNCITRAL Legislative Guide. 57. Viewing in aforesaid backdrop, it is the considered view of this Commercial Divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in any other law for the time being in force or any instrument having effect by virtue of any such law.' 61. Therefore, 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, which reads as follows: '60(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of._ (a) any application or proceeding by or against the corporate debtor or corporate person; (b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and (c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.' 62. This Commercial Division has already ..... X X X X Extracts X X X X X X X X Extracts X X X X
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