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TMI Blog2022 (9) TMI 1221X X X X Extracts X X X X X X X X Extracts X X X X ..... fairly pointed out by the Learned Counsel for the Review Petitioner that the Review Petitioner was not a party to the original PIL proceedings. However, it is stated that the observations contained in the paragraphs 8 to 15 of the judgement dated 14.03.2022 passed in the Writ Petition(C)(PIL) No.4 of 2022 ("Impugned Judgement"), prejudicially and adversely affect the Review Petitioner in an on-going highly contested litigation in which it is a party. 3. Before going into the contentions of the parties, the facts may be noted in brief : 3.1 WP(C)(PIL) No.4 of 2022 was filed by the petitioner therein, with, inter alia, the following prayers: "1. Issue an appropriate Writ, Order or Direction more particularly in the nature of WRIT OF CERTIORARI or any other appropriate writ declaring the provisions of Section 3(10) of the Insolvency and Bankruptcy Code, 2016 read with Regulations 9A as ultra vires inasmuch as it fails to define the terms "other creditors" and accordingly, to strike them down on the vice of Article 14 of the Constitution of India, or the impugned provisions may be interpreted harmoniously to include the words "decree holder" as existing in Section 3(10) to be at pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: "3(10) "creditor" means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder;" 9. A reading of the aforesaid section suggests that the Parliament in its wisdom recognized five types of creditors being "financial creditor" or "operational creditor", "secured creditor", "unsecured creditor" and a "decree holder". A further examination of the provisions reveals that the phrases "financial creditor", "operational creditor" and "secured creditor" are defined in sections 5(7), 5(20), and 3(30) respectively. It would also be trite to note that a creditor who does not qualify as a "secured creditor" under Section 3(30), would by necessary implication mean an "unsecured creditor". However, the definitions contained in the IBC do not provide any definition for a "decree holder". 10. At first blush, it seems that the aforesaid, as submitted by the counsel for the petitioner, is an inadvertent omission. However, a closer scrutiny of the provisions of the IBC reveals otherwise. 11. Before proceeding to the same, however, it would be trite to understand the rights of a decree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognized moratorium that commences on the insolvency commencement date. This is because a decree, in a given case may be amenable to challenge by way of an appellate process, and/or by way of objections in the execution process. In that sense, the passing of the decree may be the recognition of a claim of the decree holder, however, the said claim itself is ultimately subject to doubt till the execution proceedings are finalized. For instance, a judgment & decree in a civil suit, may be upheld throughout the appellate chain right up to the Hon'ble Apex Court. However, even that would not automatically entitle the decree holder to the fruits of the decree. The same would still remain, subject to objections in execution proceedings which if allowed, would frustrate the decree. Therefore, whereas the IBC rightly recognizes decree-holders as a class of creditors whose claims need to be acknowledged in a corporate insolvency resolution process, the IBC by express provision of Section 14(1)(a) bars execution of a decree by the same decree holder against the corporate debtor. 14. The aforesaid conclusion also finds force in a conjoint reading of the Section 14(1)(b) and Section 28 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as "Decree Holders Can't be Treated at Par With Financial Creditors Under IBC : Supreme Court Upholds HC Verdict" was flashed on Live Law on 12.04.2022. The Review Petitioner became aware of the order dated 14.03.2022 on 20.04.2022 and thereafter realized that "the PIL namely, WP(C) No.4 of 2022 has been dismissed, but the observations and the conclusions made therein would cause immense loss, damage and prejudice to the Review Petitioner." Being aggrieved by the aforesaid, the Review Petitioner challenged the Impugned Judgement before the Hon'ble Supreme Court by way of SLP (C) Diary No.14856/2022. The said SLP was dismissed as withdrawn by an order dated 21.05.2022, in the following terms : "Against the impugned order a special leave petition already stands dismissed. The petitioner was not a party in those proceedings. Learned senior counsel for the petitioner states that there are some observations from paragraph 13 to 15 which may effect pending litigation relating to the petitioner. If that be the position, it is for the petitioner to approach the High Court to seek appropriate relief. The special leave petition is dismissed with the aforesaid liberty." 4. The present r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the prayers made by the Review Petitioner and directing the IRP to join the execution proceedings. This order dated 08.10.2021 was challenged by a Financial Creditor before the NCLAT and is pending consideration. It was contended that given the aforesaid facts, the Review Petitioner is aggrieved by the observations in the Impugned Order. It is further submitted that none of these facts were brought to the notice of this Court by the PIL Petitioner. 7. There is some merit in the contentions of the Review Petitioner. The Review Petitioner placed reliance on the reasoning contained in the order dated 08.10.2021, passed by the NCLT in its IA No. 1921 of 2021. The facts noted in the said order are telling. From a reading of the order dated 08.10.2021, it seems that pursuant to the MoU dated 28.06.2004 and Addendum thereto dated 10.12.2004, between the Review Petitioner and SRUIL, a sum of Rs. 30 crores was paid by the Review Petitioner as part payment for the sale of decreed property in 2004 itself. Arbitration proceedings for specific performance had to be resorted to in 2005 as the Review Petitioner was ready and willing to perform its part, however SRUIL tried to resile from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r observing, inter alia, that ".......... The challenge to Award having failed and the same now becoming final, it is absolutely necessary and in the interest of all parties............ that the said property is adequately protected." 23.06.2021 In response to the communications of the Review Petitioner, the IRP of SRUIL informed the Review Petitioner that the relevant facts with regard to the said property had been put before the COC. It was also informed that the said property would not form a part of the CIRP. It was acknowledged that SRUIL was entitled to receive Rs. 75,30,00,000/- from the Review Petitioner for execution and registration of the conveyance documents. Further, receipt of this sum would be beneficial to the CIRP as the same could be utilised to reimburse the Liquidator and take over assets of SRUIL. 28.07.2021 The Bombay High Court, considered the Official Liquidator's report No. 42 of 2021, with regard to collapse of boundary wall of the said property. Taking into account the incapacity of the liquidator and the IRP to pay for repairs, the High Court, inter alia directed the Review Petitioner to bear the expenses towards repairs of the collapsed wall on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation. - For the purpose of this sub-section, the term "assets" shall not include the following, namely :- (a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangement including bailment;...." 10. The Case at hand is an example of the interplay between the aforesaid explanation to Section 18 and other provisions of the Code on the peculiar facts of the case, in our considered view, the NCLT correctly found that the decreed property was an asset of the Review Petitioner held in trust by the corporate debtor. In fact, it was even being maintained by the Review Petitioner in terms of orders of the Bombay High Court. The said property was merely in possession of the Provisional Liquidator of SRUIL, held in constructive trust for the Review Petitioner. 11. Another aspect to be kept in mind, is the fact that the NCLT has recorded in its order dated 08.10.2021 that the IRP does not have any funds to run the CIRP. This is also borne out by the orders passed by the Bombay High Court, that acknowledge that neither the Provisional Liquidator, nor the IRP was in a position to maintain the property and carry out repairs on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney is a financial creditor or not, owing to the nature of the debt owed. The same has been upheld by a three Judge Bench of the Hon'ble Supreme Court in the case of Kotak Bank. 14. While we would not normally have commented on the NCLT decision, which is pending consideration of the Hon'ble NCLAT, given the liberty granted to the Review Petitioner by the Hon'ble Supreme Court, we had no choice but to consider the matter on merits. Looking into the facts pertaining to the case of the Review Petitioner, the Impugned Order did not appreciate the need to balance the considerations of Section 18 of the Code viz-a-viz the moratorium under Section 14 of the Code. The Impugned Order is therefore modified to the extent that it shall not effect the rights of the Review Petitioner to the subject property that has been upheld upto the Supreme Court and also stands crystallised by various orders passed by the Hon'ble Bombay High Court which are still in operation. As held by the NCLT, the conveyance however, shall be subject to the payment of the balance consideration by the Review Petitioner. 15. For all these reasons, the Review Petition is allowed to the extent as aforesaid. 16. Pending ..... X X X X Extracts X X X X X X X X Extracts X X X X
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