Karnataka High Court
Sri. Hafeez Ur Rahman vs S. A. Rawther Spices (P) Limited on 21 March, 2022
R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 21ST DAY OF MARCH, 2022
BEFORE
THE HON'BLE MR. JUSTICE E.S. INDIRESH
WRIT PETITION NO.10975 OF 2020 (GM-CPC)
BETWEEN:
1. SRI HAFEEZ UR RAHMAN
AGED ABOUT 76 YEARS
S/O LATE ABDUL AZEEZ
2. DR. ZARINA BEGUM
AGED ABOUT 70 YEARS
W/O MR. HAFEEZ UR REHMAN
3. SRI SHOAIB UR RAHMAN
AGED ABOUT 43 YEARS
S/O HAFEEZ UR RAHMAN
PLAINTIFFS NO. 1 TO 3 ARE
PERMANENTLY RESIDING AT
HULKODE ESTATE
AREHALLY, BELUR TALUK
HASSAN DISTRICT-573 101.
4. SMT. NAKHAT MUBEEN @ NAKHAT FATHIMA
AGED ABOUT 49 YEARS
W/O MR. MOHAMMED ASIF MUBEEN
5. SMT. DR. SHABANA PASHA @
SHABANA FATHIMA
AGED ABOUT 46 YEARS
W/O MR. VASIF PASHA
PLAINTIFFS 4 AND 5 ARE RESIDING AT
C/O MR. HAFEEZ UR REHMAN
HULKODE ESTATE
2
AREHALLY, BELUR TALUK
HASSAN DISTRICT-573 101.
...PETITIONERS
(BY SRI POONACHA C M, ADVOCATE)
AND:
1. S A RAWTHER SPICES (P) LIMITED
(GOVT. RECOGNIZED EXPORT HOUSE)
NO.17, II FLOOR, 4TH MAIN
IV BLOCK, GORAGUNTEPALYA
TUMKUR ROAD
BENGALURU-560 022.
KARNATAKA
REPRESENTED BY ITS DIRECTOR
SRI ANISH M RAWTHER @
ANEES MOHAMMED RAWTHER
ALSO REPRESENTED BY
MS. SUBRMANIAM ANEETHA
IBBI/IPA-001/IP-P00376/2017-18/10633
INTERIM RESOLUTION PROFESSIONAL (IRP)
A2 SARADA APARTMENTS
17/6, SRINGERI MUTT ROAD
R A PURAM,MANDAVELI,
CHENNAI
TAMILNADU-600 028.
2. SRI ANISH M RAWTHER @
ANEES MOHAMMED RAWTHER
NO.17, II FLOOR, 4TH MAIN
IV BLOCK, GORAGUNTEPALYA
TUMKUR ROAD
BENGALURU-560 022
KARNATAKA.
....RESPONDENTS
(BY SRI B S GAUTHAM, ADVOCATE FOR R1;
SRI N SURESHA, ADVOCATE FOR R2)
THIS WRIT PETITION IS FILED UNDER ARTICLE 227 OF THE
CONSTITUTION OF INDIA PRAYING TO ISSUE A WRIT IN THE NATURE
OF CERTIORARI OR ANY OTHER APPROPRIATE
WRIT/ORDER/DIRECTION QUASHING THE ORDER DATED 07TH MARCH,
3
2020 PASSED ON THE MEMO DATED 14TH NOVEMBER, 2019 IN
COM.OS.NO.1026 OF 2018 BY THE LXXXIII ADDITIONAL CITY CIVIL
JUDGE, BENGALURU, VIDE ANNEXURE-A AND ETC.,
IN THIS WRIT PETITION ARGUMENTS BEING HEARD,
JUDGMENT RESERVED, COMING ON FOR "PRONOUNCEMENT OF
ORDERS", THIS DAY, THE COURT MADE THE FOLLOWING:
ORDER
This Writ Petition is filed by the plaintiff in Com.OS No.1026 of 2018 on the file of the LXXXIII Additional City Civil and Sessions Judge at Bengaluru, challenging the order dated 07th March, 2020, dismissing the memo dated 14th November, 2019.
2. The factual matrix of the case are that the plaintiff has filed suit under Order XXXVII of Code of Civil Procedure in OS No.1026 of 2018 on the file of the trial Court against the defendants for recovery of Rs.1,04,16,576/- with interest. The respondent entered appearance and filed application in IA.3 under Order XXXVII Rule 3 of the Code of Civil Procedure, seeking leave of the Court to defend the suit. The plaintiffs filed objection to IA.3 and the trial Court, by order dated 19th June, 2019 allowed IA.3 with a direction to the defendants to deposit 50% of the suit claim and the said order was challenged by the 4 defendants before this Court in Writ Petition No.28349 of 2019 and this Court, by order dated 08th August, 2019 dismissed the writ petition. The said order passed by this Court was confirmed by the Hon'ble Apex Court in SLP No.20626 of 2019 dated 06th September, 2019, by passing the following order:
"We are not inclined to interfere with the impugned order passed by the High Court.
The special leave petition, is accordingly, dismissed.
However, it is open for the petitioners to appracoh the High Court within four weeks from today for variation of the order satisfying the High Court that he can provide adequate security in terms of the orders of the High Court."
3. Pursuant to the order passed by the Hon'ble Apex Court, as the defendants did not comply with the order on IA.3, the plaintiffs filed memo dated 14th November, 2019, requesting the Court to decree the suit in terms of Order XXXVII Rule 3(6)(b) of the Code of Civil Procedure (Annexure-B). The defendants filed objections to the said memo. The trial Court, after considering the material on record, by impugned order 5 dated 07th March, 2020, rejected the memo and feeling aggrieved by the same, plaintiff has presented this writ petition. It is also pertinent to mention here that during the pendency of the suit, an Interim Resolution Professional ("IRP" for short) was appointed by the National Company Law Tribunal, Bengaluru ("NCLT" for short) by order dated 21st August, 2019 to initiate Corporate Insolvency Resolution Process (for short "CIRP") in respect of the defendant-company in terms of the provisions under the Insolvency and Bankruptcy Code, 2016 (for short "IBC"). In the light of these undisputed facts, the writ petition was taken up for hearing.
4. Heard Sri Poonacha C.M, learned counsel for the petitioners; Sri B.S. Gautham, learned counsel appearing for respondent No.1; and Sri N. Suresh, learned counsel appearing for respondent No.2.
5. Sri Poonacha C M, learned counsel appearing for the petitioners argued that, the impugned order passed by the trial Court is not a speaking order and the averments made in the memo dated 14th November, 2019 has not been properly 6 appreciated. It is the principal submission of Sri Poonacha that though IRP was appointed to conduct CIRP against the defendant No.1-Company, there is no impediment for the trial Court to decree the suit on the ground of non-compliance of the order dated 19th June, 2019 in the suit. He further contended that the said order dated 19th June 2019 of the trial Court, was confirmed by this Court Writ Petition No.28349 of 2019 and affirmed by the Hon'ble Apex Court in the Special Leave Petition. He further contended that the trial Court has not considered the scope of Order XXXVII Rule 3(6)(b) of Code of Civil Procedure. Emphasising on this aspect, he submitted that XXXVII Rule 3(6)(b) of Code of Civil Procedure is mandatory in nature and despite the order of the NCLT, there is no impediment for the trial Court to proceed under Order XXXVII Rule 3(6)(b) of Code of Civil Procedure. In this regard, he places reliance on the judgments of the Delhi High Court in the case of POWER GRID CORPORATION OF INDIA LTD. V. JYOTI STRUCTURES LTD reported in 2017 SCC OnLine Del. 12189; and in the case of SSMP INDUSTRIES LTD. V. PERKAN FOOD PROCESSORS PVT. LTD reported in 1029 SCC OnLine Del. 9339. Relying upon these 7 facts and law, learned counsel appearing for the petitioners sought interference of this Court.
6. Per contra, Sri B.S. Gautham, learned counsel appearing for the respondent No.1 sought to justify the impugned order passed by the trial Court.
7. Upon perusal of the finding recorded by the trial Court and the pleadings in the Writ Petition, it is not in dispute that the plaintiff has filed a suit for recovery of money against the defendants in Com.OS No.1026 of 2018. Undisputably, the suit is one filed under Order XXXVII of Code of Civil Procedure, requires summary adjudication of the suit. The defendants entered appearance and filed IA.3 seeking leave of the court to defend the suit. The trial Court, by order dated 19th June, 2019, allowed IA.3 filed by the defendants subject to depositing 50% of the suit claim by the plaintiff. The said order was challenged before this Court in Writ Petition No.28349 of 2019, which came to be dismissed by this Court by order dated 08th August, 2019 and same was affirmed by the Hon'ble Apex Court in SLP No.20626 of 2019 dated 06th September, 2019. It is also to be 8 borne in mind that that National Company Law Tribunal, by order dated 21st August, 2019, appointed IRP to conduct CIRP in respect of the first defendant-Company. In the backdrop of these factual aspects, the core question to be answered in this writ petition is as to scope of Order XXXVII Rule 3(6)(b) of Code of Civil Procedure. The said provision reads as under:
"Rule 3 Order XXXVII of Code of Civil Procedure 1908": "Procedure for the appearance of defendant"
(6) At the hearing of such summons for judgment,-
(a) xxx xxx xxx
(b) if the defendant is permitted to defend as to the whole or any part of the claim, the Court or Judge may direct him to give such security and within such time as may be fixed by the Court or Judge and that, on failure to give such security within the time specified by the Court or Judge or to carry out such other directions as may have been given by the Court or Judge, the plaintiff shall be entitled to judgment forthwith."
(emphasis supplied) 9
8. The language employed under Order XXXVII Rule 3(6)(b) of the Code of Civil Procedure is mandatory in nature and the plaintiff shall be entitled to the judgment. Though, Code of Civil Procedure is a procedural law, however, insofar as summary proceedings are concerned, the provisions contained under Order XXXVII of Code of Civil Procedure has to be given effect to in view of the word "shall" contained in the provision. The hallmark of summary proceedings is to pave way for early disposal of the suit and therefore, the said provision has to be construed as mandatory.
9. The main ground on which the trial Court declined to entertain the memo was that the NCLT has passed moratorium order against the defendant No.1. Section 7 of the IBC provides for initiation of Corporate Insolvency Resolution Process by Financial Creditor; Section 13 provides for declaration of moratorium and public announcement; Section 14 provides for moratorium. Section 14(1)(a) of the IBC reads as under:
"Section 14(1)(a) of IBC provides that when an order declaring moratorium is passed, the institution of suits or continuation of pending suits or proceedings 10 against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel will be prohibited."
10. It is pertinent to refer here to the decision of the High Court of Delhi in CS (COMM) 470 of 2016 and connected case in the case of SSMP INDUSTRIES LIMITED v. PERKAN FOOD PROCESSORS PVT. LIMITED decided on 18th July, 2019, wherein it is observed that "A counter claim would be a proceeding against the corporate debtor i.e. the plaintiff, is integral to the recovery sought by the plaintiff and is related to the same transaction. Section 14 has created a piquant situation , i.e. the corporate debtor undergoing insolvency proceedings can continue to pursue its claims but the counter claim would be barred under Section 14(1)(a). When such situations arise, the Court has to see whether the purpose and intent behind the imposition is moratorium is being satisfied or defeated. A blinkered approach cannot be followed and the Court cannot blindly stay the counter claim..."
11. It is also pertinent to refer here the judgment of the Hon'ble Supreme Court in the case of ANJALI RATHI AND 11 OTHERS v. TODAY HOMES AND INFRASTRUCTURE PVT. LTD. AND OTHERS reported in (2021)6 SCC 729, wherein at paragraphs 14 and 15 of the judgment, the Hon'ble Supreme Court observed thus:
"14. Further, since the moratorium declared in respect of the first respondent Corporate Debtor continues to operate under Section 14 of the IBC, no new proceedings can be undertaken or pending ones continued against the Corporate Debtor. Section 14(1) of the IBC reads as follows:
"14. Moratorium.--(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely--
(a) 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;
(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);12
(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor."
15 At this juncture, we must however clarify the right of the petitioners to move against the promoters of the first respondent Corporate Debtor, even though a moratorium has been declared under Section 14 of the IBC. In the judgment in P. Mohanraj v. Shah Bros. Ispat (P) Ltd.12, a three judge Bench of this Court held that proceedings under Section 138 and 141 of the Negotiable Instruments Act 1881 against the Corporate Debtor would be covered by the moratorium provision under Section 14 of the IBC. However, it clarified that the moratorium was only in relation to the Corporate Debtor (as highlighted above) and not in respect of the directors/management of the Corporate Debtor, against whom proceedings could continue. Speaking through Justice Rohinton F Nariman, the Court held:
"102. Since the corporate debtor would be covered by the moratorium provision contained in Section 14 IBC, by which continuation of Sections 138/141 proceedings against the corporate debtor and initiation of Sections 138/141 proceedings against the said debtor during the corporate insolvency resolution process are interdicted, what is stated in paras 51 and 59 in Aneeta Hada [Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 : (2012) 3 SCC (Civ) 350 :
(2012) 3 SCC (Cri) 241] would then become applicable. The legal impediment contained in Section 14 IBC would make it impossible for such proceeding to continue or be instituted against the corporate debtor. Thus, for the period of 13 moratorium, since no Sections 138/141 proceeding can continue or be initiated against the corporate debtor because of a statutory bar, such proceedings can be initiated or continued against the persons mentioned in Sections 141(1) and (2) of the Negotiable Instruments Act. This being the case, it is clear that the moratorium provision contained in Section 14 IBC would apply only to the corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instruments Act."
We thus clarify that the petitioners would not be prevented by the moratorium under Section 14 of the IBC from initiating proceedings against the promoters of the first respondent Corporate Debtor in relation to honoring the settlements reached before this Court. However, as indicated earlier, this Court cannot issue such a direction relying on a Resolution Plan which is still pending approval before any Adjudicating Authority."
12. It is the case of the respondent herein that the proceedings in Com OS No.1026 of 2018 is liable to be stayed in view of Section 14(1)(a) of IBC. It is the object of IBC to provide relief to the debtor through "stand-still" period during which its assets are protected from dissipation or diminishment during the period of moratorium. Taking into consideration the statement of objects of the IBC, it may be inferred that Section 14 14 of the IBC would not apply to the proceedings which are in the benefit of the corporate debtor, however, the creditor has no say in the matter for framing of the moratorium as per Section 14 of the IBC in respect of the corporate debtor. It is Just law that, it is open for the corporate creditor to continue the proceedings seeking claim against such corporate debtors in any of such proceedings, however, such proceedings cannot be executable till the completion of the moratorium period under Section 14 of the IBC. On the other hand, the proceedings against the corporate debtor will be continued before the Courts, adjudicating the rights of the parties to determine the liability of the corporate debtor till the conclusion of framing of moratorium under the Code and therefore, the continuation of the proceedings under Order XXXVII of Code of Civil Procedure shall cause no harm to the petitioners or to the defendant to seek determination of issues in the suit under Order XXXVII of the Code of Civil Procedure. Such proceedings shall continue till the declaration or framing of moratorium under the IBC and therefore, I am of the view that rejection of the memo by the 15 trial Court is incorrect and illegal and requires interference in this writ petition.
13. That apart, looking to the language employed under Section 14 of the IBC, it may be inferred that unless and until the proceedings has the effect of endangering, diminishing, dissipating or adversely impacting the assets of the corporate debtor, it would not be prohibited under Section 14(1)(e) of the IBC. Applying the abovementioned principles to the case on hand, the defendants have entered appearance and have made a defence before the trial Court. Till the said defence is adjudicated in the Suit filed under Order XXXVII of the Code of Civil Procedure, there is no threat to the assets of the corporate debtor/defendant No.1 and continuation of suit proceeding would not adversely impact the assets of the corporate debtor/defendant No.1. Once the trial Court adjudicate the suit on merits, and direct the defendants to satisfy the claim of the plaintiff by way of recovery under Order 37 of the Code of Civil Procedure, and at that stage Section 14 of the IBC steps into motion by stalling further proceedings of recovery of sum 16 pursuant to the adjudication of the suit by the competent court and therefore, I find force in the submission made by the learned counsel appearing for the petitioners to quash the impugned order dated 07th March, 2020 passed on the Memo.
14. In the result, writ petition is allowed. Order dated 07th March, 2020 in Com.OS No.1026 of 2018 on the file of LXXXIII Additional City Civil and Sessions Judge, Bengaluru is hereby quashed and the trial Court is directed to accept the memo dated 14th November, 2019 and pass appropriate orders accordingly.
Sd/-
JUDGE lnn