Himachal Pradesh High Court
M/S Vil Limited vs Il&Fs Transportation Networks Ltd on 30 November, 2018
Author: Vivek Singh Thakur
Bench: Vivek Singh Thakur
IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA CARAP No. 16 of 2018 in CARBC .
No. 2 of 2018
Order reserved on: 30.10.2018
Date of decision: 30.11.2018
M/s VIL Limited. ...Petitioner/Applicant
Versus
IL&FS Transportation Networks Ltd. ...Respondent/non-applicant
Coram
The Hon'ble Mr. Justice Vivek Singh Thakur, Judge. Whether approved for reporting?1 Yes.
For the Petitioner/applicant: Mr.Vivek Singh Attri, Advocate.
For the Respondent/ : Mr.R.L. Sood, Senior Advocate with
Non-applicant. Mr.Arjun Lal, Advocate.
Vivek Singh Thakur, Judge
This application has been filed by petitioner seeking sine die adjournment of proceedings during the existence and operation of order dated 15.10.2018 passed by National Company Law Appellate Tribunal, New Delhi (herein after referred to as "Appellate Tribunal") in Company Appeal (AT) Nos. 346 and 347 of 2018.
2. Petitioner has filed main petition under Section 9 of the Arbitration and Conciliation Act, 1996 (herein after referred to as the "Act") for restraining the respondents from invoking the performance bank guarantee furnished by the petitioner, issued by ICICI Bank in pursuance to construction contract dated 30.8.2018 between the petitioner and respondent.
Whether the reporters of the local papers may be allowed to see the Judgment? Yes ::: Downloaded on - 03/12/2018 22:57:11 :::HCHP 2
3. Pending consideration present main petition in this Court, an interim order has been passed on 15.10.2018 by Appellate Tribunal in Company Appeal (AT) Nos. 346 and 347 of 2018. Petitioner, for .
insisting its prayer to stay present proceedings, has referred directions contained in interim stay order passed by Appellate Tribunal which reads as under:-
"(i) The institution or continuation of suits or any other proceedings by any party or person or Bank or Company, etc. against 'IL&FS' and its 348 group companies in any Court of Law/Tribunal/Arbitration Panel or Arbitration Authority; and
(ii) Any action by any party or person or Bank or Company, etc. to foreclose, recover or enforce any security interest created over the assets of 'IL&FS' and its 348 group companies including any action under the Securitization and Reconstruction of any Financial Assets and Enforcement of Security Interest Act, 2002;
(iii) The acceleration, premature withdrawal r other withdrawal, invocation of any term loan, corporate loan, bridge loan, commercial paper, debentures, fixed deposits, guarantees, letter of support, commitment or comfort and other financial facilities or obligations vailed by 'IL&FS' and its 348 group companies whether in respect of the principal or interest of hedge liability or any other amount contained therein.
(iv) Suspension of temporarily the acceleration of any term loan, corporate loan, bridge loan, commercial paper, debentures fixed deposits and any other financial facility by the 'IL&FS' and its 348 group companies by any party or person or Bank or Company, etc. as the date of first default.
(v) Any and all banks, financial institutions from exercising the right to set off or lien against any amounts lying with any creditor against any dues whether principal or interest or otherwise against the balance lying in any bank accounts and deposits, whether current or savings or otherwise of the 'IL&FS' and its 348 group companies.::: Downloaded on - 03/12/2018 22:57:11 :::HCHP 3
The interim order will continue until further orders and not be applicable to any petition under Article 226 of the Constitution of India before any Hon'ble High Court or under any jurisdiction of the Hon'ble Supreme Court."
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4. On the basis of aforesaid order, by referring provisions of the Insolvency and Bankruptcy Code, 2016 (herein after referred to as the "Code"), sine die adjournment has been sought by the petitioner.
5. No reply has been filed on behalf of respondent, however, application has been opposed on the ground that interim stay order passed by Appellate Tribunal cannot be interpreted and applied in a manner so as to have adverse effect on the financial interest of the respondent. Referring aims and objects of the Code, it is contended that provisions of Section 14 of the Code are for the benefit of corporate debtor under constraint and certainly not for causing loss to the corporate debtor as the provisions meant for protection of corporate debtor cannot be applied for causing prejudice to its interest. Reliance has also been placed on judgment passed by Delhi High Court in OMP (Comm) 397/2016 titled Power Grid Corporation of India Ltd. Vs. Jyoti Structures Ltd. to substantiate the plea raised on behalf of respondent.
6. Main petition under Section 9 of the Act, in brief, has been filed for restraining the respondent from invoking/encashing the performance bank guarantee. Whereas claim of the respondent is that performance bank guarantee is an independent contract between the banker and respondent and petitioner has no right to seek restrain order against the respondent, particularly for non-joinder of bank and the dispute between the parties, if any with respect to the main contract of the work, can be decided independently in terms thereof by the ::: Downloaded on - 03/12/2018 22:57:11 :::HCHP 4 Arbitrator or a Court as the case may be. In nutshell, respondent intends to invoke bank guarantee against the petitioner, which is being opposed by the petitioner till final adjudication of dispute between the .
parties and vide order dated 27.2.2018 respondents have been restrained from invoking/encashing the bank guarantee till further orders. Adjournment of present proceedings sine die will amount to continuation of restraint order for an indefinite period, without adjudication of the petition on merits, which would definitely have an adverse effect on the financial claim of the respondent.
7. Order dated 15.10.2018 passed by Appellate Tribunal is not an order passed under Section 14 of the Code, but this order has been passed pending consideration the issues framed by Appellate Tribunal, which are as under:-
"(i) Whether the Tribunal can pass appropriate order under Section 241 read with Section 242 of the Companies Act, 2013 for resolution of the problems faced by the Company in a time-bound manner for maximization of value of assets of the Company, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders, and in case of failure of resolution pass appropriate order of liquidation; and
(ii) Whether the Tribunal in exercise of powers conferred under Section 242(1)(b) read with Section 242(2)(m) and Section 242(4) of the Companies Act, 2013 read with Rule 11 of the National Company Law Tribunal Rules, 2016, can pass appropriate interim order similar to order under Section 14 of the Insolvency and Bankruptcy Code, 2016."
8. It is observed in para 2 of the order dated15.10.2018 that no petition under any of the provisions of the Code, can be preferred by either party involved the proceedings pending before National Company ::: Downloaded on - 03/12/2018 22:57:11 :::HCHP 5 Law Tribunal for initiation of 'Corporate Insolvency Resolution Process' against 'Infrastructure Leasing and Financial Services Limited' (IL&FS for short) and its 348 Group Companies till the Central Government .
issues appropriate notification with regard to one or other, making the provisions applicable to them. For this reason, National Company Law Tribunal had refused to pass interim order under Section 14 of the Code for declaration of Moratorium.
9. Order dated 15.10.2018 has been passed by Appellate Tribunal under Sections 241 read with 242 of the Companies Act, 2013, but it is similar to the order passed under Section 14 of the Code providing declaration of moratorium, as prima facie the Appellate Tribunal has considered that it has wider power under Sections 241 and 242 of the Companies Act, 2013, than the power vested under provisions of the Code. However, from the questions framed for determination in appeals pending before Appellate Tribunal and from the nature and language of interim order dated 15.10.2018 passed by the Appellate Tribunal, it is apparent this order has been passed on the analogy of provisions of Section 14 of the Code. Therefore, it would also be relevant to consider various provisions of the Code before further discussion, which are as under:-
"3 (8) "corporate debtor" means a corporate person who owes a debt to any person;
3(10 "creditor" means any person to whom a debt is owned and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree- holder;
3(11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;::: Downloaded on - 03/12/2018 22:57:11 :::HCHP 6
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:-
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(a) the institution of suits or continuation of pending suites or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration penal 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 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);
(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.
(2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process:
Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be."::: Downloaded on - 03/12/2018 22:57:11 :::HCHP 7
10. Chapter-II of the Code provides that not only creditors, but corporate debtor itself may initiate corporate insolvency resolution process in respect of the corporate in the circumstances provided under .
the Code.
11. Section 14 of the Code provides protection to the corporate debtor on insolvency commencement date, declaring the moratorium, as provided under this Section.
12. Aim and object of the Code is also relevant to refer for discussing the issue involved in present application, which reads as under:-
"An Act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected herewith or incidental thereto."
13. Considering the aim and object of the provisions of the Code, referred supra, it is clear that provisions of declaration of moratorium under the Code, have been enacted for the benefit of corporate debtor to protect it from debt recovery action, endangering, diminishing, dissipating or having adverse impact on the assets of corporate debtor in any manner and the purpose of moratorium includes the protection of assets of the corporate debtor during insolvency resolution process and facilitating orderly completion of the process envisaged during the insolvency resolution process and ensuring the ::: Downloaded on - 03/12/2018 22:57:11 :::HCHP 8 company to continue. I am in agreement with the view of learned Single Judge of Delhi High Court, expressed in Power Grid Corporation of India Ltd. case referred supra, wherein it is held that moratorium will .
not prohibit proceedings, continuation of which is beneficial to the corporate debtor.
14. In present case, respondent is undisputedly a corporate debtor, as defined in Section 3(8) of the Code, in the proceedings before Appellate Tribunal. But interim order dated 15.10.2018 passed by Appellate Tribunal is not an order passed under Section 14 of the Code. However, it is explicit from the interim order dated 15.10.2018 passed by the Appellate Tribunal that though moratorium has not been declared with respect to respondent Company, but the interim directions are identical to the provisions of Section 14 of the Code. Therefore, the principle that declaration of moratorium will not cause to stay the proceedings beneficial to corporate debtor, are also applicable in the present case.
15. In order dated 15.10.2018, Appellate Tribunal has appreciated the difficulties which are being faced by the IL&FS (respondent herein) and its 348 Group companies and at the time of passing of interim directions, Appellate Tribunal, observing in unambiguous words, has stated that stay order has been passed taking into consideration the interest of larger public and economy of Nation and also for protecting the interest of IL&FS (respondent herein) and its 348 Group Companies. Therefore interim order has been passed in the interest of IL&FS (respondent herein). Present proceeding under Section 9 of the Act are not for recovering any debt from respondent. ::: Downloaded on - 03/12/2018 22:57:11 :::HCHP 9 Interim order prohibits the proceedings against IL&FS (respondent herein) and its 348 Group Companies, which restrains any kind of recovery from the respondent herein, but not the proceedings beneficial .
to IL&FS, entitling it for recovering any amount from other parties. Sine die adjournment of present case would run contrary to the interest of respondent Company herein, as it would amount the interim stay against the interest of respondent Company.
16. From the combined reading of interim directions contained in order dated 15.10.2018, it is evident that stay has been ordered against the proceedings having adverse effect on the financial resources of IL&FS (respondent herein), therefore, interim order dated 15.10.2018 will not be applicable in present proceedings, for the reasons, as discussed above, as sine die adjournment of present proceedings will have adverse effect on the interest of respondent Company. Therefore, present application is dismissed.
17. It is made clear that observations made in this application shall be confined only for the purpose of adjudication of the issues raised in this application and would not amount, at any cost, an expression of view on merit in favour of either party with respect to issues involved in the main petition under Section 9 of the Arbitration and Conciliation Act. Claims and counter claims in the main petition are to be adjudicated on its own merits, independent of any observations made in present application.
(Vivek Singh Thakur) th 30 November, 2018 Judge.
(KRS) ::: Downloaded on - 03/12/2018 22:57:11 :::HCHP