Chandra Prakash And Ors vs Duli Chand And Ors

Sumita Purkayastha, Member (T)

I.A.2361/ND/2020 has been filed by the Applicant (Resolution Professional) in CP(IB) 1689/ND/2018 seeking a declaration that the Civil Suit No. 1339 of 2019 pending before the Gurugram District Court and all consequent orders passed during the corporate insolvency resolution process (CIRP) of the Corporate Debtor therein as non-est.

That an application under section 9 of the code by Sudhir Power Project Limited had been filed before this Adjudicating Authority and vide order dated 24.04.2019, the Adjudicating Authority ordered the commencement of the CIRP of the Corporate Debtor in terms of Section 14 of the code. Mr. Pradeep Kathruria vide the said order, was appointed as the interim resolution professional of the Corporate Debtor. Further pursuant to the resolution passed by the Committee of Creditors during its first meeting on 23.05.2019, the IRP was replaced by the RP (herein the Applicant) and the said decision was also confirmed by this Adjudicating Authority on 11.06.2019.

As mentioned by the Applicant, in September 2019 during the continuation of the CIRP it came to the Applicant`s knowledge that Civil Suit No. 1339 of 2019 seeking Specific Performance of an alleged Agreement to Sell dated 20.04.2005 had been filed against the Corporate Debtor and was pending adjudication in the Gurugram District Court. Upon perusing the orders, the Applicant discovered that vide order dated 06.05.2019. the Hon`ble District Court has restrained the Corporate Debtor, being Defendant No.3 to the Civil Suit, from alienating the suit property to some other person except the Plaintiff. The Applicant entered appearance in the Civil Suit before the Gurugram District Court on 06.11.2019 on behalf of the Corporate Debtor. The Applicant apprised the Gurugram District Court of the initiation of CIRP of Corporate Debtor and also placed on record the orders dated 24.04.2019 and 11.06.2019.

The Applicant states that the Civil Suit was filed on the same date as the date of initiation of the CIRP of the Corporate Debtor i.e 24.04.2019 and a copy of the Civil Suit was never served to the Applicant and the order dated 06.05.2019 restraining the Corporate Debtor from alienating the Suit Property, was passed ex-parte in the absence of any appearance on behalf of the Corporate Debtor. It is pertinent to mention that the suit Property is legally and validly owned by the Corporate Debtor. Further the Applicant after procuring the copy of the Civil Suit, filed an Interim Application before the Gurugram District Court seeking a stay on the pending Civil Suit during the continuation of the CIRP of the Corporate Debtor. On 30.01.2019 a reply of the Interim application was filed by the Plaintiff. However, despite the same being listed various times for arguments the same has not been finally adjudicated by the Gurugram District Court till date.

It has been submitted by the Applicant that various Proposed Resolution Applicants, have also raised an issue regarding the pendency of the said Civil Suit in the Gurugram District Court, and sought further extension in deadlines to submit the resolution plan. Due to the same, the Applicant filed another application, bearing CA. No. 477 of 2020, seeking a further extension/exclusion of 60 days beyond 19.01.2020 for completing the CIRP ending on 19.03.2020. Thereafter on further request of the Proposed Resolution Applicants and approval of the CoC, the Applicant filed another application bearing CA. No. 1813 of 2020, seeking further extension/exclusion of 60 days beyond 19.03.2020 for completion of CIRP. The said application was listed for hearing on 16.03.2020 however, the same could not be taken up due to ongoing Covid-19 pandemic and was adjourned to 14.04.2020. Since the Government of India declared a nation-wide lockdown from 25.03.2020 the said application could not be taken up. It is pertinent to submit that the CIRP of the Corporate Debtor is at an advanced stage where the discussion and negotiation between the CoC and the Proposed Resolution Applicants are actively going on.

The Applicant submits that the Civil suit has been filed for purpose of creating impediments in the resolution process of the Corporate Debtor by:

(a) Suspiciously filing the Civil Suit on the same date as the initiation of the CIRP of the Corporate Debtor;

(b) The Civil Suit was filed by the plaintiff for a specific performance of an agreement which was admittedly executed in 2005;

(c) After keeping quiet for more than 10 years, after the property had been sold to the Corporate Debtor has already started construction of commercial towers on it, the Civil Suit suspiciously came to be filed on the same date as the initiation of CIRP of the Corporate Debtor.

(d) The Applicant has not received any summons of the said Civil Suit and the order was brought to the attention of the Applicant by one of the Proposed Resolution Applicants.

The Applicant has referred to the judgement of the Hon`ble Apex Court in Alchemist Asset Reconstruction Company Limited v. M/S Hotel GaudavanPvt. Ltd &Ors Civil Appeal No. 16929 of 2019 wherein it has been observed that :

"5) The mandate of the new Insolvency Code is that the moment an insolvency petition is admitted, the moratorium that comes into effect under Section 14(1)(a) expressly interdicts institution or continuation of pending suits or proceedings against Corporate Debtors.

6) This being the case, we are surprised that an arbitration proceeding has been purported to be started after the imposition of the said moratorium and appeals under Section 37 of the Arbitration Act are being entertained. Therefore, we set aside the order of the District Judge dated 06.07.2017 and further state that the effect of Section 14(1)(a) is that the arbitration that has been instituted after the aforesaid moratorium is non est in law."

The Applicant has prayed for a declaration of the Civil suit No. 1339 of 2019 pending before the Gurugram District Court as non-est and also to pass such orders as this Adjudicating Authority deems fit. The arguments of the Applicant were heard and the matter was reserved on 24.07.2020.

On perusal of the documents submitted by the Applicant it is observed that the Civil Suit No. 1339 of 2019 had been filed before the Gurugram District Court seeking Specific Performance of an Agreement to sell dated 20.04.2005 with one Shree Radha Madhav Foundation (Defendant No. 1 to the civil suit) who had agreed to sell the Suit Property to the Respondent for a consideration of INR 20,00,000. The Respondent has further alleged he paid INR 2,00,000 to Shree Radha Madhav Foundation however, Shree Radha Madhav Foundation failed to transfer the Suit Property to the Respondent but sold it to one R.S. Infrastructure Pvt. Ltd, who thereafter sold it to the Corporate Debtor. As submitted by the Applicant, as per the revenue records, the Suit Property is legally and validly owned by the Corporate Debtor. Since the Civil Suit has been filed seeking Specific Performance, it is observed that the Corporate Debtor was never a party to the Agreement to Sell for which the relief of Specific Performance has been sought.

It has been observed that no service of the summons of the Civil Suit was actually affected on the Corporate Debtor and due to which the Respondent was able to get an ex-parte order against the Corporate Debtor vide order dated 06.05.2019 of the Gurugram District Court. Further it is observed that the Applicant had filed an application seeking a stay on the Civil Suit bearing No. CS/1339/2019 pending before the Gurugram District Court on 05.12.2019 along with the order of the initiation of the CIRP of the Corporate Debtor dated 24.04.2019 passed by the Hon`ble NCLT. The Respondent filed his reply on 30.01.2020 after being directed by the District Court. The Respondent has denied that any proceeding is pending under the IBC as the Applicant has not filed the certified copies of the order of the Hon`ble NCLT. The Applicant submits that the Stay Application has been put for arguments, however the arguments have not been able to take place on account of outbreak of the Covid-19 pandemic and the consequent lockdown. It is also observed that neither Defendant no.1 nor Defendant no.2 has ever appeared before the District Court for the Civil Suit as well as the hearings on the Stay application on the Civil Suit.

It has been observed that the Civil Suit has been filed by the Respondent on the same date as the commencement of the CIRP i.e. 24.04.2019. On Perusal of the documents and previous order of this Adjudicating Authority it has been observed that vide order dated 15.04.2019 the matter has been proceeded ex-parte and the matter was further listed and reserved on 22.04.2019. On mere perusal of the previous orders dated 15.04.2019 and 22.04.2019 it became an evident fact that the CIRP in the matter of Sudhir Power Projects Limited v Dignity Buildcon Private Limited CP(IB) 1689/ND/2018 shall be initiated. Further it was observed that the Civil Suit No. 1339 of 2019 has been admittedly and strategically filed on the 24.04.2019 in order to cause impediments in the CIRP.

We would like to mention Section 14 (1)(a) and 14(4) and Section 231of the IBC is quoted below:

"14. (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;

14 (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process"

Bar of jurisdiction. -

"No civil court shall have jurisdiction in respect of any matter in which the [Adjudicating Authority or the Board] is empowered by, or under, this Code to pass any order and no injunction shall be granted by any court or other authority in respect of any action taken to be taken in pursuance of any order passed by such [Adjudicating Authority or the Board] under this Code."

On mere plain reading of the provisions of Section 14(4) we find that the moment an insolvency petition is admitted, the moratorium comes into effect on the date of such order. Section14 (1)(a) expressly prohibits institution or continuation of proceedings against Corporate Debtors. In the light of the aforesaid provision contained under Section 14(1)(a) and 14(4) of the IBC it becomes clear that the Respondent cannot seek relief against the Corporate Debtor as it is not permissible in law, since the CIRP has already been initiated against the Corporate Debtor. In view of the Section 231 of the IBC, the Gurugram District Court ought not to have proceeded ex-parte and restrained the Corporate Debtor, being Defendant No.3 to the Civil Suit, from alienating the suit property to some other person except the Plaintiff to the Civil Suit, once the proceedings under the IBC had commenced, and an Order declaring moratorium was passed by the Adjudicating Authority. The Gurugram District Court passed the impugned Orders dated 06.05.2019 after the CIRP had commenced in this case.

Therefore, the Application moved at this stage under Section .60(5) of the I&B Code, 2016 is allowed and the Civil Suit No. 1339 of 2019 pending before the Gurugram District Court and all consequent orders passed during the corporate insolvency resolution process (CIRP) of the Corporate Debtor therein are declared as non-est.