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SUPREME COURT OF INDIA
INDU MALHOTRA, R. SUBHASH REDDY, JJ.
Anand Rao Korada – Appellant
Versus
Varsha Fabrics (P) Ltd. and Others – Respondents
Civil Appeal Nos. 8800-8801 of 2019, SLP (Civil) Nos. 23349-23350 of 2019
Decided On : 18-11-2019
IBC - Corporate Insolvency Resolution Process - Section 12, 13, 14, 238, 231 - The court set aside the interim orders passed by the High Court and held that once the proceedings under the IBC had commenced and a moratorium was declared, the High Court was not justified in carrying out auction of the assets of the Corporate Debtor. The sale or liquidation of the assets will now be governed by the provisions of the IBC.
Fact of the Case:
The Civil Appeals were filed by the Appellant-Resolution Professional appointed by the National Company Law Tribunal to challenge the interim Orders passed by the Odisha High Court in a case related to the Corporate Debtor M/s. Hirakud Industrial Works Ltd. The High Court had directed the sale of the assets of the Corporate Debtor despite the commencement of Corporate Insolvency Resolution Process (CIRP) under the IBC.
Finding of the Court:
The court set aside the interim orders passed by the High Court and held that the High Court was not justified in carrying out auction of the assets of the Corporate Debtor once the CIRP had commenced and a moratorium was declared by the NCLT.
Issues: The main issue was whether the High Court was justified in passing interim orders for auctioning the assets of the Corporate Debtor despite the commencement of CIRP under the IBC.
Ratio Decidendi: The court relied on the provisions of the IBC, particularly Sections 12, 13, 14, 238, and 231, to establish that the High Court should not have proceeded with the auction of the property of the Corporate Debtor once the proceedings under the IBC had commenced and a moratorium was declared.
Final Decision: The Civil Appeals were allowed, and the court set aside the interim orders passed by the High Court. The sale or liquidation of the assets of the Corporate Debtor will now be governed by the provisions of the IBC.
JUDGMENT :
INDU MALHOTRA, J.
Leave granted.
1. The present Civil Appeals have been filed by the Appellant-Resolution Professional appointed by the National Company Law Tribunal for the Corporate Debtor M/s. Hirakud Industrial Works Ltd. to challenge the interim Orders dated 14.08.2019 and 05.09.2019 passed by the Odisha High Court in W.P. (Civil) No. 7939/2011.
2. This Court vide Order dated 23.09.2019 issued Notice to all the parties, including the Writ Petitioners i.e. the Hirakud Workers' Union-Respondent No. 13 herein. The Appellant was directed to serve Dasti Notice to all the Respondents and the auction proceedings before the High Court were directed to be stayed.
3. Pursuant to the issuance of Notice, all the Respondents were served by the Appellant, and proof of service was filed on 04.11.2019. Respondent No. 13-Hirakud Workers' Union was however not represented by Counsel. The Civil Appeals were taken up for hearing on 13.11.2019 before this Court.
4. The factual matrix in which the present Civil Appeals have been filed is as under:
4.1 M/s. Varsha Fabrics Pvt. Ltd. (Respondent No. 1), India Finance Ltd. (Respondent No. 2), Mudrika Commercial Pvt. Ltd. (Respondent No. 3), Hirakud Industrial Works Ltd. (Respondent No. 4) and Industrial Development Corporation of Orissa Ltd. (Respondent No. 5) entered into a Share Purchase Agreement ("SPA") dated 10.07.2006.
As per the SPA, Respondent No. 5 divested its 100% shareholding in Respondent No. 4 in favour of Respondent Nos. 1 to 3. Respondent No. 4 shut down its factory on 08.05.2007.
4.2 Subsequently, Respondent Nos. 1 to 3 sold their stake in Respondent No. 4 to Indo Wagon Engineering Ltd.
Respondent No. 13 the Hirakud Workers' Union filed W.P. (Civil) No. 12479/2009 before the Odisha High Court praying inter alia for cancellation of the SPA dated 10.07.2006, and payment of the arrears and current salaries of the workmen.
4.3 Respondent No. 13 filed another Writ Petition bearing W.P. (Civil) No. 7939/2011 on 28.03.2011 for payment of their dues before the Odisha High Court.
4.4 The High Court vide Order dated 14.03.2012 directed the Deputy Labour Commissioner, Sambalpur Division (Respondent No. 10 herein) to recover the workmen's dues by sale of the assets of Respondent No. 4-Company through a public auction.
4.5 These proceedings culminated in the Order dated 03.08.2015 passed by this Court, wherein it was directed that the issue of quantifying the compensation payable to the workmen should be determined by the Labour Court. It was further directed that if Respondent Nos. 1 to 3 fail to make the payment of compensation to the workmen, the assets of Respondent No. 4 would be sold through public auction, and the proceeds would be used for disbursement of the arrears of the workmen.
4.6 The Labour Court, Sambalpur vide Order dated 11.11.2016 quantified the amount payable to the workmen as Rs. 45,66,67,133/-.
4.7 The High Court vide Order dated 12.01.2017 directed the Deputy Labour Commissioner, Sambalpur Division to sell a parcel of Respondent No. 4's land admeasuring 157.27 acres to the Hirakud Dam Project.
Upon receipt of the sale proceeds of Rs. 10,04,12,105/- from the Government of Orissa, this amount was disbursed towards the arrears of the workmen's dues.
4.8 During the pendency of proceedings before the High Court in W.P. (Civil) No. 7939/2011, M/s. Nandakini Contractors Pvt. Ltd-a Financial Creditor filed a Petition Under Section 7 of the IBC, 2016 bearing CP (IB) No. 01/CTB/2019, before the National Company Law Tribunal, Cuttack Bench ("NCLT") for initiation of the Corporate Insolvency Resolution Process ("CIRP") against the Corporate Debtor-Respondent No. 4, since it had committed a default in paying the financial debt of Rs. 24,11,975/-.
4.9 The NCLT vide Order dated 04.06.2019 admitted the insolvency petition, and declared a moratorium in accordance with the provisions of Sections 13 and 15 of the IBC. The moratorium was declared for the purpose referred to in Section 14 of the
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