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TMI Blog2020 (1) TMI 1540X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2; c. Grant stay on the operation of Notice bearing F. No. PD/JPR-IV/2020-21/703 dated 11.08.2020 with respect to Work Order No. 2; d. Grant stay on any action by RSRDC (Respondent No. 1) with respect to the Fresh Tender bearing No. RSRDC NIT No. 068 dated 22.06.2020 and further stay on the W.O. dated 02.07.2020 issued to Mr. Amit Kumar Jain (Respondent No. 4); e. Direct Respondent No. 1 to reverse the amount equivalent to the Bank Guarantee as invoked by the Respondent No. 1 and approved by Punjab National Bank (Respondent No. 3); f. Direct Respondent No. 1, Rajasthan State Road Development and Construction Ltd. (RSRDC), to not take any action prejudicial to the interest of Corporate Debtor and to maintain status quo and allow the present Application to handle business operation of Corporate Debtor; g. Direct Respondent No. 1 to make payment towards the pending dues of Corporate Debtor with respect to the Work Order as per the final meeting dated 12.12.2019. 2. The matter relates to termination, after the initiation of CIRP on 04.03.2020, of certain Work Orders by Respondent No. 1, RSRDC, which it had placed on the Corporate Debtor prior to CIRP commencement, as follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re-existing terms and conditions represent a fresh and novated/updated understanding. 6. It is stated that on 01.03.2020, Respondent No. 1 terminated Work Order No. 3, which is the matter in contention before this Adjudicating Authority in IA 255/JPR/2020 but also in respect of which the Hon'ble High Court of Judicature for Rajasthan (Jaipur Bench) had granted a stay on termination and issuance of fresh tender dated 13.08.2020, vide order dated 16.09.2020. This Adjudicating Authority vide order dated 04.03.2020 had admitted the Insolvency Petition against the Corporate Debtor and appointed Ms. Anuradha Gupta as IRP. Moratorium under Section 14 was imposed, besides directions to IRP to follow IBC provisions. Further, as per Section 15 of IBC, 2016 the IRP made public announcement in two newspapers on 07.03.2020 with respect to the CIRP of the Corporate Debtor and to seek proof of claims from creditors. Respondent No. 1 filed a claim for Rs. 53,27,394/- under the category of creditors other than financial creditors and operational creditors. However, the IRP did not admit the claim on the grounds that the claim was based on tentative loss calculation and was not a crystallized c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). It is seen that these notices were being sent to the registered office of the Corporate Debtor, despite publication of Form A under Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which is information in rem; and also Respondent No. 1 had filed claim, which implies that it was in its knowledge. Despite continued communication of notices in respect of Work Order No. 2 till 30.06.2020, which was only in the nature of supplementary/incremental work in relation to the Work Order No. 1, the main Work order, there were no notices for Work Order No. 1, which perhaps simmered in the background in hidden proceedings without overt correspondence. Sending of notices for Work Order No, 2 indicated administrative proceedings and process for termination thereof. However, Work Order No. 1 was summarily terminated on 11.06.2020 by invisible proceedings. Subsequently, Respondent No. 1 terminated Work Order No. 2 vide termination letter dated 04.08.2020. 10. Moreover, Respondent No. 1 approached Respondent No. 3 (Punjab National Bank) to encash the bank guarantees issued by the Corporate Debtor in favour of Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Valves vs. Energo Engineering Projects Limited (CA 453(PB)/2017 in CP IB-160(ND)/2017) dated 24.08.2018. 13. The Applicant/IRP has filed written submissions and stated the following: a. As per the letter dated 31.12.2019, Respondent No. 1 had granted extension of time period upto 31.03.2020, with respect to work order. However, the work order was still terminated in spite of the fact that the nation was suffering through COVID-19 pandemic. b. Rajasthan Government vide circular dated 08.06.2020 gave extension of 6 months to all contractual obligations due for fulfilment on and beyond 19.02.2020. c. Despite knowledge of initiation of CIRP against the Corporate Debtor and imposition of Section 14, Respondent No. 1 proceeded to terminate the work order, which strikes at the fundamental principle of keeping the Corporate Debtor as a going concern. d. As per order of Hon'ble NCLT, Kolkata Bench in the case of Hemant Khaitan vs. Alex Green Energy Private Limited CA (IB) No. 1184/KB/2018 in CP (IB) No. 1439/KB/2018, while dealing with the application filed by the RP against termination of a Power Purchase Agreement by the Respondent (GRIDCO), the Hon'ble Tribunal vide ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. Overriding effect of IBC stems from the Non-Obstante Section 238 of IBC, 2016 which reads as follows: "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." 18. In light of Section 238, it is pertinent to examine whether Work Order is an instrument for the purpose of Section 238 of IBC, 2016. In a case pertaining to termination of PPA (Power Purchase Agreement), Hon'ble NCLT, New Delhi Bench in the case of Astonfield Solar (Gujarat) Private Ltd. vs. Gujarat Urja Vikas Nigam Limited CA-700/ND/2019 while interpreting the scope of 'instrument' under Section 238 of the Code, held that a PPA is an instrument and consequently any terms of PPA in contravention of the provisions of IBC, 2016 could not be enforced. In the said case, PPA was terminated on the ground of initiation of CIRP which was an event of default under the PPA, which had to be rectified within 30 days from receipt of notice of default. It was held that rectifying the default would cause the CIRP period to reduce from 330 days to 30 days which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contingent interest arising out of or incidental to, property;" The definition of property is an inclusive definition and has wide connotation. It is seen that termination of Work Order No. 1 after moratorium was imposed caused adverse consequences to the Corporate Debtor jeopardizing pending receivables, with abrupt abortion of project without notice in administrative proceedings and invocation of bank guarantees. Moreover, all this was done while the project was admittedly in the extended period. The jolt on sturdiness of the Corporate Debtor as a "going concern" results in hurdle to the entire CIR Process. Value of the property of the Corporate Debtor includes money which has been encashed by Respondent No. 1 in the form of bank guarantees. It also includes receivables or actionable claims which the Corporate Debtor is entitled to in respect of work done by it during the course of work orders. Further, the process of sending notices for Work Order No. 2 and proceeding to terminate Work Order No. 1 without giving due notice to the Corporate Debtor is against principles of natural justice besides appearing as misleading deflection and ploy. Respondent No. 1 has mentioned that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature with regards to moratorium is that there must be a standstill period during which individual enforcement action to disadvantage of a Corporate Debtor cannot be initiated, which would nullify the very object of insolvency proceedings under the Code. This underlying principle of IBC is no longer res integra and has also been reiterated in reports of Bankruptcy Law Reforms Committee and judgments of the Hon'ble Supreme Court. 21. The Hon'ble High Court of Delhi in Power Grid Corporation of India Ltd., vs. Jyoti Structures Ltd. (2018 II AD (Delhi) 569) vide judgment dated 11.12.2017 clarified in para 14 that 'proceedings' is limited to actions against the Corporate Debtor and does not include proceedings for/to its benefit. "14. Hence for following reasons I conclude the present proceeding would not be hit by the embargo of Section 14(1)(a) viz., (a) 'proceedings' do not mean 'all proceedings'; (b) moratorium under section 14(1)(a) of the code is intended to prohibit debt recovery actions against the assets of corporate debtor; (c) continuation of proceedings under section 34 of the Arbitration Act which do not result in endangering, diminishing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 14(1)(a), it would have explicitly stated the same. The word 'proceeding' or 'proceedings' is used in different hues and perspectives in IBC, 2016. Such usage in the Code includes arbitration, disciplinary, legal, bankruptcy, insolvency, liquidation, CoC meetings, under repealed/other acts, before Adjudicating Authority or IBBI or special/other courts, winding-up, in Schedules of amendments, etc.. The term has been construed in wide amplitude by Adjudicating Authority, Appellate Authority and Hon'ble Apex Court, including preventing recovery by stock exchanges or institutions or regulators, high court ordered auctions, arbitration, police action, deregistration of aircrafts, etc. Thus, proceedings under Section 14(1)(a) has a larger canvas and it covers various authorities. 24. While there are some exclusion classes, domain of proceedings' will include courts, tribunals, arbitration, administrative, regulatory, revenue, municipal, empowered agencies, government bodies and authorities, etc. if harmful to the Corporate Debtor during the moratorium period. Respondent No. 1 falls within the parameters of an authority. It is evident from its website that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he instruments of work orders, by Respondent No. 1, after initiation of CIRP and during moratorium period, is/are in conflict with clauses of IBC, 2016, and have a damaging effect on assets of the Corporate Debtor and create an impediment in keeping it as a going concern. Such action is prohibited under the barrier of Section 238 of IBC, 2016, which is a non-obstante clause with overriding effect. In view of the circumstances stated hereinbefore, it is evident that Respondent No. 1 has failed to inter-alia appreciate Sections 14, 20 and 238 of IBC, 2016, as termination stipulations or such associated conditionalities of instruments of work orders inconsistent with the Code, or proceedings initiated or continued by Respondent No. 1 taking effect during moratorium period, are a nullity in law and ipso facto and ab-initio void. This addresses the second issue. Termination action(s) of Respondent No. 1 is/are held to be against letter and spirit of IBC, 2016. 26. This leads us to determination of the third issue pertaining to invocation of bank guarantees by Respondent No. 1, in the above backdrop, after initiation of CIRP. It is settled law that any action taken as a consequence of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal. We are not delving into these issues. Suffice it to say that various timelines were extended in the country due to Covid-19 pandemic. The Hon'ble Supreme Court and Hon'ble NCLAT also recognized the same. We also take judicial notice of 'slowing-down' due to Covid-19 pandemic. 28. Consideration of the foregoing narrative leads to the coherent inference that actions of Respondent No. 1 are in violation of letter and spirit of IBC, 2016. The invocation of bank guarantees to the detriment of Corporate Debtor is also completely unsustainable, which also addresses the third issue before us. This Adjudicating Authority is bound by the doctrine of stare decisis and ratio decidendi of higher judicial fora, which is inherent in our examination of the matter at hand and analysis pointing to clear deductions. Hence, we proceed to dispose of the IAs under consideration. 29. In view of entirety of the foregoing, we hold and order as follows: a. Provisions for termination included in or connected with instruments of Work Orders No. 1 and 2, are inconsistent inter-alia with Section 20 of IBC, 2016 and are invalid and prohibited under Section 238 of the Code. Moreover, ter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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