TMI Blog2023 (1) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 60(5)(c) and held that only those disputes which arise solely from the insolvency of the corporate debtor can be entertained by the NCLT under this provision. It is therefore clear that in order for appellant to establish that this Court is divested of its jurisdiction to entertain the First Appeal or the Interim Application, it would have to be established that the First Appeal and the Interim Application arise solely from the insolvency of the corporate debtor. Such is clearly not the case here, since the First Appeal arises out of a challenge against the Impugned Judgment passed by the Trial Court on the issue of termination of respondent s employment. It has nothing to do with the insolvency of the corporate debtor. The NCLT could never sit in appeal over the judgment/decree of a Civil Court. Such a judgment/decree can only be corrected in appeal and, therefore, the NCLT would not have jurisdiction to hear and decide the First Appeal. It is this Court which is the only appropriate forum to exercise jurisdiction over the First Appeal and the Interim Application, and not the NCLT - Appellant has also sought to rely upon Section 231 of the IBC to contend that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cember 2012 towards stay of execution of the impugned judgment given that appellant is undergoing CIRP. 2. Appellant is a company incorporated under the provisions of the Companies Act, 1956 and is, inter alia, engaged in the business of telecommunication services. Appellant is undergoing Corporate Insolvency Resolution Process ( CIRP ) under the Insolvency and Bankruptcy Code, 2016 ( IBC ) pursuant to the order dated 15th May 2018 passed by the National Company Law Tribunal, Mumbai ( NCLT ) in C.P. No. (I.B.) 1387 (MB) of 2017. Appellant is being represented in the present proceedings through its Resolution Professional. 3. Respondent in the abovementioned First Appeal, who is applicant in the Interim Application, is a former employee of appellant. 4. LIST OF DATES AND EVENTS : Sr.No. Date Particulars 1. 29th November 2001 Respondent joined appellant as an employee pursuant to an Appointment Letter dated 29th November 2001 issued by appellant. 2. 31st October 2006 Appellant unilaterally ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent was entitled to withdraw Rs.5,00,000/- without furnishing any security. b) Respondent was allowed to withdraw Rs.10,00,000/- on furnishing security to the satisfaction of the Executing Court. c) The Executing Court was directed to invest the remaining amount in a fixed deposit scheme of any nationalised bank with renewal clause. NOTE : In terms of the order dated 18th February 2013, respondent has withdrawn Rs.5,00,000/- without furnishing security and Rs.10,00,000/- on furnishing security. The balance sum of Rs.17,16,909/- continues to be deposited with the Trial Court. 12. 4th January 2018 None appeared for appellant and matter listed for dismissal. 13. 15th January 2018 Appeal dismissed as none appeared for appellant. 14. 15th May 2018 The NCLT passed an order admitting appellant into insolvency. 15. 18th May 2018 The NCLT appointed the Interim Resolution Professional of appellant-Corporate Debtor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e must express our appreciation for the assistance rendered and endeavour put forth by Mr. Naushad Engineer, learned Amicus Curiae, for it has been of immense value in rendering the judgment. Submissions of Mr. Engineer, learned Amicus Curiae : 8. The learned Amicus Curiae submitted that this Court will have jurisdiction to entertain and dispose the Interim Application. Mr. Engineer submitted as under : (a) NCLT is a statutory tribunal and, therefore, its powers are circumscribed by the provisions of IBC. Unlike a Civil Court, the NCLT does not have general jurisdiction under Section 9 of the Code. This has been clarified by the Apex Court in Embassy Property Developments Pvt. Ltd. V/s. State of Karnataka (2020) 13 SCC 308; (b) IBC does not confer any such statutory power upon NCLT to adjudicate upon the First Appeal or the Interim Application in First Appeal; (c) Section 60(5) of IBC cannot be stated to divests this Court of its jurisdiction to dispose of the First Appeal and the Interim Application because NCLT s jurisdiction is only to entertain or dispose of any application or proceeding by or against the corporate debtor or corporate person and any c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar the jurisdiction of this Court; (g) The moratorium under Section 14 of the IBC does not prohibit the withdrawal of monies deposited by appellant in the Trial Court. (i) The moratorium extends only to the assets which belong to the corporate debtor and monies deposited by appellant in the Trial Court do not constitute an asset of appellant. (ii) The moratorium that is imposed under Section 14 applies only to proceedings against the corporate debtor and if monies deposited in Court does not belong to the corporate debtor, the moratorium would not preclude a creditor from enforcing its rights against the monies and it is clear from Section 14 of the IBC. Section 14(1) of IBC under sub-clause (a) only prohibits the institution or continuation of suits or proceedings against the corporate debtor and here is a First Appeal that has been filed by the corporate debtor. Hence, moratorium would not apply. (iii) the monies deposited by appellant pursuant to a Court order is a property that is under the custody and control of this Court. Hence, NCLT cannot decide and determine how this Court should deal with the property that is in its control and custody. (iv) whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ought not to be considered as it is barred by the principles of res judicata. This was because applicant had earlier made an application on 18th February 2013 in Civil Application No.405 of 2013 filed by respondent in First Appeal, permitting respondent to withdraw Rs.5,00,000/- without furnishing any security and allowing respondent to withdraw a further sum of Rs.10,00,000/- on furnishing security to the satisfaction of the Executing Court and the Executing Court was directed to invest the remaining amount in a fixed deposit scheme of any nationalised bank with renewal clause. In other words, a similar application has been made earlier and disposed and, therefore, the current application is hit by the principles of res judicata. 10. We could dispose this objection of Mr. Bharucha before going into the other major issues. In our view, the said contention is wholly misconceived and unsustainable, inter alia, for the following reasons : (a) This Court vide order dated 18th February 2013 had allowed the withdrawal of a part of the amount deposited. Thereafter, as can be seen from paragraphs 5 to 15 of the Interim Application, there have been various subsequent events that ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t held that the facts of a judgment-debtor s depositing a sum in Court to purchase peace by way of stay of execution of the decree on terms that the decree holder can draw it out on furnishing security, does not pass title to the money to the decree holder. He can, if he likes, take the money out in terms of the order but so long as he does not do it, there is nothing to prevent the judgment debtor from taking it out by furnishing other security, say, of immovable property. 13. The judgment in P.S.L. Ramanathan Chettiar (Supra) thus unequivocally holds that the title to money deposited by a decree holder in Court to obtain stay of a decree does not pass to the decree holder. This necessarily means that title to the money remains with the judgment debtor. The effect of the deposit of the money in Court, the judgment in P.S.L. Ramanathan Chettiar (Supra) says in paragraph 13 The real effect of deposit of money in court as was done in this case is to put the money beyond the reach of the parties pending the disposal of the appeal. The decree holder could only take it out on furnishing security which means that the payment was not in satisfaction of the decree and the security cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment debtor. The judgment debtor s title in the deposit does not pass till the Court makes an order to apply the same in satisfaction of the decretal debt. The judgments cited by the learned Amicus Curiae do not detract from the above principle at all. In fact, the said judgments will show Courts in India have time and again, affirmed the principle that money deposited in Court is merely placed beyond the reach of the judgment debtor pending the appeal. The principle that the deposited money remains the property of the judgment debtor pending the appeal, as laid down in P.S.L. Ramanathan Chettiar (Supra), has not been disturbed. 16. The judgment of the Hon ble Madras High Court in Kamakshi Ammal (Supra) is not at odds with the judgment of the Hon ble Supreme Court in P.S.L. Ramanathan Chettiar (Supra). A necessary implication of the observation that the decree holder merely has a lien over the amount deposited by the judgment debtor in Court is that the ownership of the money remains with the decree holder. Moreover, the postponement of the vesting of the decree holder s right to the money to a point of time beyond his success in the appeal, once again means th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of this Court in Nahar Builders (Supra) relied upon by the learned Amicus Curiae recognises that neither party can automatically claim a right to money deposited in Court without an adjudication. In any event, it is most pertinent to note in the judgment of this Court in Nahar Builders (Supra) : (a) The award in Nahar Builders (Supra) had attained finality and was not subject to the outcome of any pending challenge. This is a position contrary to the facts as existing in the present case in that the decree in the present case is the subject matter of challenge in a First Appeal filed by appellant; and (b) The judgment of the Learned Single Judge was carried in appeal to a Division Bench of this Court. The appeal culminated in the judgment in HDIL V/s. Nahar Builders Judgment dated 30th January 2020 in Comm. Appeal (L) No.32 of 2020. Although the appeal was dismissed, the Division Bench noted in paragraph 6 of its judgment Learned Senior counsel for the Respondent states that any amount received by the Respondent has to be subject to orders which may be passed by the NCLT and learned counsel for the appellant states that in that view of the matter, the Appeal could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, appellant), although it may be placed beyond its reach pending the appeal. 20. Under Section 14(1)(a) of the IBC, inter alia, the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority from the insolvency commencement date is prohibited. 21. Under Section 14(1)(a) of the IBC, the continuation of any and all proceedings against a corporate debtor is prohibited. The mention of execution proceedings in Section 14(1)(a) is inclusive in nature and does not restrict the prohibition therein merely to such proceedings. In the circumstances, the present Interim Application for withdrawal of the money deposited in Court by appellant, and of which, appellant is even now the owner, cannot be proceeded with in view of the express bar contained in Section 14(1)(a). Section 14(1)(a) is a salutary provision to preserve the insolvency estate of appellant. In the premises, the amount deposited by appellant in the Trial Court pursuant to the order dated 10th December 2012 is covered by the moratorium under Section 14 of the IBC. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on professional, take a bypass and go before the NCLT for the enforcement of such a right. 26. The above principle has been reiterated and further clarified by the Hon ble Supreme Court in Gujarat Urja (Supra), where the Court held Therefore, we hold that the RP can approach the NCLT for adjudication of disputes that are related to the insolvency resolution process. However, for adjudication of disputes that arise dehors the insolvency of the Corporate Debtor, the RP must approach the relevant competent authority. For instance, if the dispute in the present matter related to the non-supply of electricity, the RP would not have been entitled to invoke the jurisdiction of the NCLT under the IBC. However, since the dispute in the present case has arisen solely on the ground of the insolvency of the Corporate Debtor, NCLT is empowered to adjudicate this dispute under Section 60(5)(c) of the IBC. 27. The present Interim Application is an application against the corporate debtor, viz., appellant in the present case. Section 60(5) of the IBC confers power only upon the NCLT to hear such application. Section 60(5) is a non obstante provision and consequently overrides all o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e excepting suits, of which their cognizance is either expressly or impliedly barred. Therefore NCLT can exercise only such powers within the contours of jurisdiction as prescribed by the statute, the law in respect of which, it is called upon to administer. Hence, let us now see the jurisdiction and powers conferred upon NCLT. (emphasis supplied) (c) Therefore, the NCLT can exercise jurisdiction and adjudicate upon the First Appeal or the Interim Application only if it is statutorily empowered to do so. The IBC does not confer any such statutory power upon the NCLT to sit in appeal over a judgment and decree of a Civil Court, nor decide an interim application arising out of such civil appeal. This is a power that is solely vested in a civil court under Section 96 of CPC. Appellant has argued that Section 60(5) of the IBC divests this Court of its jurisdiction to dispose the First Appeal and the Interim Application. This would not be a correct reading of the provision. Section 60(5) 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tretched so far as to bring absurd results. [It will be a different matter, if proceedings under statutes like Income Tax Act had attained finality, fastening a liability upon the corporate debtor, since, in such cases, the dues payable to the Government would come within the meaning of the expression operational debt under Section 5(21), making the Government an operational creditor in terms of Section 5(20). The moment the dues to the Government are crystallised and what remains is only payment, the claim of the Government will have to be adjudicated and paid only in a manner prescribed in the resolution plan as approved by the adjudicating authority, namely, the NCLT.] 40. If NCLT has been conferred with jurisdiction to decide all types of claims to property, of the corporate debtor, Section 18(1)(f)(vi) would not have made the task of the interim resolution professional in taking control and custody of an asset over which the corporate debtor has ownership rights, subject to the determination of ownership by a court or other authority. In fact an asset owned by a third party, but which is in the possession of the corporate debtor under contractual arrangements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely from or relate to the insolvency of the corporate debtor. The nexus with the insolvency of the corporate debtor must exist. (emphasis supplied) (g) Therefore, the position of law which emerges from the decisions in Embassy Property (Supra) and Gujarat Urja (Supra) is that : (i) The NCLT cannot exercise jurisdiction over every issue concerning the corporate debtor simply because the corporate debtor is in insolvency. It is only those issues which arise solely out of the insolvency of the corporate debtor that can be adjudicated upon by the NCLT under Section 60(5)(c) of the IBC. (ii) The Interim Resolution Professional/Resolution Professional cannot short-circuit its obligation under Section 25(2)(b) of the IBC of representing the corporate debtor in judicial/quasi-judicial proceedings by bringing all matters before the NCLT. Wherever the matter in question falls outside the purview of the IBC, it is the forum which is otherwise vested with jurisdiction in law that is the right forum to adjudicate upon the said matter. (h) It is therefore clear that in order for appellant to establish that this Court is divested of its jurisdiction to entertain the First ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), and it is another thing to contend that all legal proceedings would have to be transferred to the NCLT merely because one party is in CIRP/liquidation. This has expressly been negatived in Embassy Property (Supra) and Gujarat Urja (Supra). (k) Therefore, it is this Court which is the only appropriate forum to exercise jurisdiction over the First Appeal and the Interim Application, and not the NCLT. (l) Appellant has also sought to rely upon Section 231 of the IBC to contend that the jurisdiction of this Hon ble Court is barred. Section 231 creates a bar on the jurisdiction of a civil court only where the Adjudicating Authority (i.e., NCLT in this case) has the jurisdiction over a given issue. Since, as held above, the NCLT does not have jurisdiction to adjudicate upon the First Appeal or the Interim Application, Section 231 cannot bar the jurisdiction of this Court. THE MORATORIUM UNDER SECTION 14 OF THE IBC DOES NOT PROHIBIT THE WITHDRAWAL OF MONIES DEPOSITED BY APPELLANT IN THE TRIAL COURT 30 (a) The moratorium that has come into existence under Section 14 of the IBC as a result of appellant going into insolvency does not preclude respondent from seeking withd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets of the corporate debtor, but is property that is under the custody and control of this Hon ble Court pursuant to the order dated 10th December 2012. In that view of the matter, it could hardly be contended that the NCLT is to decide the present Interim Application and determine how this Court should deal with property that is in its custody and control. (f) Since the First Appeal is being decided by this Court, all interlocutory applications would also have to be decided by this Court. (g) The Interim Application seeking withdrawal of monies pending the adjudication does not amount to execution as held by this Court in Nahar Builders (Supra). (h) Sub-clause (b) is also inapplicable because it applies only to the assets belonging to the corporate debtor. As explained later, the monies deposited by appellant in the Trial Court pursuant to the order dated 10th December 2012 do not constitute the asset of appellant. (i) Sub-clause (c) on its own terms is inapplicable since the present proceedings do not constitute enforcement or recovery of any security interest created by the corporate debtor within the meaning of Section 3(31) of the IBC. (j) Sub-clause (d) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeding in the appeal they should obtain the fruits of their success. See Bird v. Barstow [[1892] 1 Q.B. 94.]. It may be put in other words, viz., that the amount paid into Court was the money of the plaintiff respondents subject to their succeeding in the appeal and thereby showing that the decree in their favour by the learned Judge on the Original Side was correct. The words which were used by Lord Justice James in the case of Ex parte Banner, in re Keyworth [(1874) L.R. 9 Ch. App. 379.] are applicable to this case. The learned Lord Justice said that the effect of the order was that the money which was paid into Court belonged to the party who might be eventually found entitled to the sum. (emphasis supplied) (o) Subsequently, the Hon ble Supreme Court in P.S.L. Ramanathan Chettiar (Supra) in paragraph 13, held that once the money has been deposited in court as a condition for stay of execution of appeal, it is put beyond the reach of the judgment-debtor. The Court held as follows: 13. The real effect of deposit of money in court as was done in this case is to put the money beyond the reach of the parties pending the disposal of the appeal. The decree-holder co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained therefor . The question is whether that portion of the amount which has been deposited by the cultivating tenant into Court in legal proceedings pursuant to the orders of court as stated above can any longer be impressed with the badge of rent which can be said to be outstanding and payable by the cultivating tenant. A metamorphosis has come in. The cultivating tenant has paid money into court and this money will find its level and way according to the decision in the second appeal and once the second appeal filed by the judgment-debtor has been dismissed, there is an automatic vesting of a right to collect that money in court deposit in the decree-holder and the said amount can no longer be characterised as arrears of rent or rent which was outstanding on the notified date. . 7. The ratio of the above decisions makes it clear that the plaintiff decree-holder has a lien over the amount deposited in court by the judgment-debtor and the Court holds the said amount in trust for the person who might ultimately succeed in the action. There is only a postponement of the right of the plaintiff to receive the said amount which is necessitated because of the pendency of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal, neither the depositor, nor the judgment-debtor, can afterwards claim to have such deposit refunded or restored to him, notwithstanding that the decree-holder has omitted to draw it out of court for more than three years, and that more than three years have elapsed since any proceedings have been taken in execution of the decree, and that the decree for that reason is now incapable of execution. Semble.- When money or movable property is deposited in court in such a case as the above, the court, upon confirmation of the order for a sale, holds the deposit in trust for the decree-holder, and is at liberty to realise it and pay the proceeds over to him to the extent of his decree. The equity in favour of an obligor, who has deposited the obligated sum into court pending proceedings in which he assails his liability, is underscored by these rulings and the principle cannot be different merely because the obligee who ordinarily would have, without reference to the obligor, drawn the money from court is unable to get it for extra-legal reasons as here (emphasis supplied) (r) Thus, the Supreme Court in Roshanlal Kuthalia (Supra) categorically affirmed the princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s it, within the meaning of Section 14(1)(d), an application for the recovery of any property by an owner or lessor where such property is occupied by or is in the possession of corporate debtor . To read only the words recovery of any property as Ms Patil does, but not to read the rest of clause (d) is materially incorrect. 9. The provisions regarding a moratorium cannot possibly apply to such cash deposits made in this Court. As Mr Dwarkadas for Nahar Builders put it, money has no colour. Once it is deposited in Court no party can automatically claim any right to it without an adjudication by a Court. There is no dispute that there is an unchallenged and unsatisfed award in favour of Nahar Builders against HDIL. There is also no dispute that an amount of Rs. 8 crores is available with this Court. 10. There is no bar to this application for withdrawal. The application for withdrawal cannot be conceivably be considered a suit, proceeding or execution within the meaning of Section 14(1)(a). (emphasis supplied) Therefore, the decision in Nahar Builders (Supra) emphatically holds that the right of a decree-holder/award holder to withdraw monies deposited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount did not belong to appellant. (b) The homebuyers who sought the pro-rata distribution of the sum of Rs. 750 crores did not have any decree in their favour. Nor was there any adjudication of their entitlement to this amount. Therefore, the Court was not holding the amount in trust for the homebuyers. On the other hand, in the present case, respondent has already obtained a decree in his favour and the monies deposited by appellant are being held in trust by the Court for the party that eventually succeeds in the appeal. (x) Further, the observations of the Hon ble Supreme Court in paragraph 12 of P.S.L. Ramanathan Chettiar (Supra) also do not further appellant s case. This is for two reasons : (a) The Court s observation that deposit of money in court by ajudgment debtor does not pass title to the money to the decree holder was made in the background of the facts of Keshavlal (Supra) referred to by the Court in paragraph 11. In that case, this Hon ble Court had rejected the decree-holder s attempt to claim entitlement to the accretions on the money deposited by the judgment-debtor in court. It is in this context that the Hon ble Supreme Court in P.S.L. Ramanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a part of the assets/estate of the judgment debtor upon insolvency. CONCLUSION 31. Therefore, from an overview of the judgments, what is apparent is that the Hon ble Calcutta High Court in the case of Chowthmull (Supra) which was approved by the Hon ble Supreme Court in Roshanlal Kuthalia (Supra) and the Hon ble Bombay High Court in Nahar Builders (Supra) have considered the same fact situation that where the judgment debtor had deposited monies in court as a condition for stay of execution of a decree and subsequently gone into insolvency/ CIRP, the courts have consistently held the money so deposited did not remain the asset of the insolvent/corporate debtor and there was no impediment in the judgment creditor seeking withdrawal of the same. These judgments are squarely applicable to the facts of the present case. 32. The decision of the Hon ble Supreme Court in P.S.L. Ramanathan Chettiar (Supra) as also the decision of the Hon ble Andhra Pradesh High Court in K.V. Subbayya (Supra) also do not further the case of appellant-judgment debtor. None of the judgments lay down that the monies deposited continue to remain the asset of the judgment debtor. The finding t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
