How proceedings under S 138 NI Act and Insolvency and Bankruptcy code affects each other?

  Insolvency Proceedings under IBC:

Scope:

• Insolvency Proceedings: These are initiated to resolve cases where companies or individuals are unable to repay their debts. The objective is to either restructure the debt or liquidate the debtor's assets to repay creditors.

Proceeding:

• For corporate debtors, insolvency proceedings are initiated by filing an application with the National Company Law Tribunal (NCLT).
• Once the application is admitted, a moratorium is imposed on the debtor, staying all legal proceedings, including suits and arbitration, against the debtor.

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Whether the Court of Additional Sessions Judge is Empowered To Try Offences Under Insolvency and Bankruptcy code?

 It may also be noted that Section 236(3) of the I.B. Code creates a deeming fiction that the Special Court trying offences under I.B. Code shall be "deemed to be Court of Sessions". If the intention of the legislature was that offences under I.B. Code are to be tried by the Sessions Court, then this subsection would have been unnecessary. According to the Petitioners, this is an indication as to the true and proper interpretation of Section 435 of the Companies Act, 2013 and Section 436 of I.B. Code. Thus for all the above reasons, the impugned proceedings have been instituted by the Respondents (Complainant) in the Court of Additional Sessions Judge, were not sustainable for want of jurisdiction. As a consequence order, 'issue process' passed by the learned Additional Sessions Judge against the Petitioners, in a complaint by the Respondents/Board was without jurisdiction and therefore not sustainable equally. It is therefore to be held that Special Court "which is to try offences under the I.B. Code is the Special Court established under Section 435(2) (b) of the Companies Act, 2013 which consists of Metropolitan Magistrate or Judicial Magistrate First Class. The Petition is therefore allowed in terms of prayer clause (a). {Para 14}

 IN THE HIGH COURT OF BOMBAY

Writ Petition No. 2592 of 2021

Decided On: 14.02.2022

Satyanarayan Bankatlal Malu and Ors. Vs. Insolvency and Bankruptcy Board of India and Ors.

Hon'ble Judges/Coram:

Sandeep K. Shinde, J.

Citation:- MANU/MH/0453/2022

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Whether the borrower can initiate an insolvency proceeding against the corporate person who is a guarantor regarding the loan account given to the partnership firm?

To get over this position, much reliance was placed on

Section 5(5A) of the Code, which defines the expression

“corporate guarantor” to mean a corporate person, who is the

surety in a contract of guarantee to a Corporate debtor. {Para 23}

24. Accepting the aforementioned argument of the appellant

would result in diluting or constricting the expression “corporate

debtor” occurring in Section 7 of the Code, which means a

corporate person, who owes a debt to any person. The “debt” of a corporate person would mean a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. The expression “debt” in Section 3(11) is wide enough to include liability of a corporate person on account of guarantee given by it in relation to a loan account of any person including not being a corporate person in the event of  default committed by the latter. It would still be a “financial debt” of the corporate person, arising from the guarantee given by  it, within the meaning of Section 5(8) of the Code.

25. Notably, the expression “corporate guarantee” is not defined

in the Code. Whereas, expression “corporate guarantor” is

defined in Section 5(5A) of the Code. If the legislature intended to exclude a corporate person offering guarantee in respect of a loan secured by a person not being a corporate person, from the

expression “corporate debtor” occurring in Section 7, it would

have so provided in the Code (at least when Section 5(5A) came to be inserted defining expression “corporate guarantor”). It was

also open to the legislature to amend Section 7 of the Code and

replace the expression “corporate debtor” by a suitable

expression. It could have even amended Section 3(8) to exclude

liability arising from a guarantee given for the loan account of an

entity not being a corporate person. Similarly, it could have also

amended expression “financial debt” in Section 5(8) of the Code,

“claim” in Section 3(6), “debt” in Section 3(11) and “default” in

Section 3(12). There is no indication to that effect in the

contemporaneous legislative changes brought about.

26. The expression “corporate debtor” is defined in Section 3(8)

which applies to the Code as a whole. Whereas, expression

“corporate guarantor” in Section 5(5A), applies only to Part II of

the Code. Upon harmonious and purposive construction of the

governing provisions, it is not possible to extricate the corporate

person from the liability (of being a corporate debtor) arising on

account of the guarantee given by it in respect of loan given to a

person other than corporate person. The liability of the

guarantor is coextensive with that of the principal borrower. 

27. In law, the status of the guarantor, who is a corporate

person, metamorphoses into corporate debtor, the moment

principal borrower (regardless of not being a corporate person)

commits default in payment of debt which had become due and

payable. Thus, action under Section 7 of the Code could be

legitimately invoked even against a (corporate) guarantor being a corporate debtor. The definition of “corporate guarantor” in

Section 5(5A) of the Code needs to be so understood.

28. A priori, we find no substance in the argument advanced

before us that since the loan was offered to a proprietary firm

(not a corporate person), action under Section 7 of the Code

cannot be initiated against the corporate person even though it

had offered guarantee in respect of that transaction. Whereas,

upon default committed by the principal borrower, the liability of the company (corporate person), being the guarantor, instantly triggers the right of the financial creditor to proceed against the corporate person (being a corporate debtor). Hence, the first question stands answered against the appellant. 

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2734 OF 2020

LAXMI PAT SURANA  Vs  UNION BANK OF INDIA 

Author: A.M. Khanwilkar, J.

Bench: A.M. Khanwilkar, Dinesh Maheshwari,B R Gawai JJ

Dated: March 26, 2021.

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Compendium on insolvency and bankruptcy code

 https://drive.google.com/file/d/1STuPrQ5SkrbH_0BFZwSJpQUPcaMWkyIf/view?usp=sharing

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Whether moratorium prohibiting institution of proceeding as provided in S 14 of insolvency Act applies to criminal proceeding?

As can be seen from Clause (a) of Sub Section 1 of Section 14 of the Code, once the adjudicating authority declares moratorium for prohibiting institution of suits or continuation of pending suits or proceeding against the corporate debtor including execution of any judgment, decree or order in any Court of law, Arbitration Tribunal or other authority, the whole emphasis of the arguments of the learned advocate for the respondents 2 to 7 is on the words 'proceedings', 'order' and 'in any Court of law'. It has been submitted that these words do not precisely restrict its operation to only civil proceedings. The words are omnibus and even include a criminal proceeding including the one under Section 138 of the N.I. Act and a criminal revision arising therefrom.

13. As is the principle of interpretation of Statutes, these words would take colour from words preceding thereto. These words will have to be interpreted ejusdem generis with the words 'suits' used earlier thereto. So interpreted, the word 'proceedings' used therein and even the words 'order' and 'in Court of law' will have to be interpreted as a proceeding arising in the nature of a suit and orders passed in such proceedings and suits. Apart from the fact that the Legislature has not conspicuously used the words 'criminal' as an adjective to the word 'proceedings' and as an adjective to the noun 'Court of law', it must be assumed that the Legislature in its wisdom has consciously omitted to use such adjectives since it must have intended to prohibit only the suits and execution of the judgments and decrees or a proceeding of the like nature. Therefore, applying this principle of interpretation, one cannot put any other interpretation on this provision contained in Section 14 of the Code except that it only prohibits a suit or a proceeding of a like nature and does not include any criminal proceeding.

IN THE HIGH COURT OF BOMBAY (AURANGABAD BENCH)

Criminal Writ Petition 1437 of 2017

Decided On: 06.08.2018

 Tayal Cotton Pvt. Ltd.  Vs.  The State of Maharashtra and Ors.

Hon'ble Judges/Coram:

Mangesh S. Patil, J.

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Whether eviction suit filed by landlord should be stayed if moratorium has been declared in Insolvency proceeding?

This G.A. No.2791 of 2017 has been filed by the defendant

in a suit for recovery of khas possession and for mesne profit, praying for

stay of all further proceedings in C.S. No.247 of 2010 on the ground that an

insolvency proceeding has started under Section 10 of the Insolvency and

Bankruptcy Code, 2016 (hereinafter referred to as the ‘said Code’). Although,

no affidavit-in-opposition has been filed to the application filed by the

defendant/petitioner. Mr. Deb Nath Ghosh, Learned Counsel appearing for

the plaintiff/respondent submits that the order passed at the instance of the

defendant/petitioner by the authority under the Insolvency Code (hereinafter

referred to as the ‘said Code’) has no manner of application in the present

case. He submits that according to the provisions of Section 14 of the said

Code where moratorium has been declared, at the highest, the execution of

the proceeding can be stayed. He submits that Section 14(1) (d) of the said

Code is relevant for the present purpose which says that only recovery of any

property by an owner or lessor where the property is occupied by or in the

possession of the corporate debtor, is prohibited. Therefore, according to

him, there can be no order staying further proceeding of the present suit. He

further submits that Section 18 (1) (f) of the said Code which relates to the

duties of interim resolution professional, specifies that the interim resolution

professional shall perform duties amongst other to take control and custody

of any asset over which the corporate debtor has ownership rights as

recorded in the balance-sheet of the corporate debtor. Section 18(1) (f) is set

out below :

“18. Duties of interim resolution professional. – (1) The interim

resolution professional shall perform the following duties, namely:—

…

3

(f) take control and custody of any asset over which the corporate

debtor has ownership rights as recorded in the balance sheet of the

corporate debtor, or with information utility or the depository of

securities or any other registry that records the ownership of assets

including—

(i) assets over which the corporate debtor has ownership

rights which may be located in a foreign country;

(ii) assets that may or may not be in possession of the

corporate debtor;

(iii) tangible assets, whether movable or immovable;

(iv) intangible assets including intellectual property;

(v) securities including shares held in any subsidiary of the

corporate debtor, financial instruments, insurance

policies;

(vi) assets subject to the determination of ownership by a

court or authority;”

Mr. Ghosh, learned Counsel for the plaintiff/respondent submits that

admittedly, the defendant is a corporate debtor, who has got no ownership

right in respect of the suit property for which recovery has been sought for

by the plaintiff/respondent. According to him, if the interim resolution

professional cannot take control and custody of any asset over which the

corporate debtor has no ownership rights, mere appointment of interim

resolution professional cannot stand in the way of proceeding with the suit

where admittedly, the defendant, although, is a corporate debtor but not the

owner of the suit property. According to him, the suit should proceed and

there cannot be any stay. Mr. Ghosh, learned Counsel has also drawn

attention of this Court to the preamble to the Act and submits that the Act is

of very recent origin and there cannot be any provision in the law to interfere

with his independent right for eviction of a tenant guaranteed under some

other law and if that is allowed the same will tantamount to interference with

his Constitutional Right to Property Protected under Article 300A of the

Constitution of India. Therefore, there can be no proposition of law to hold

that an owner or a landlord is debarred from proceeding with a suit against

his tenant in respect of whom an insolvency proceeding is pending.

A question often arises whether the right guaranteed under the rent

legislation by which a landlord is empowered to evict a tenant on certain

given circumstances whether by virtue of the provisions of the Insolvency

Code such rights of the landlord or landlady be allowed to be suspended.

However, in view of the provisions made under Section 238 of the Insolvency

Code such right can obviously be suspended inasmuch as provisions of the

Code shall have effect notwithstanding anything consistent therewith

contained in any other law for the time being in force or any instrument

having effect by virtue of any such law. In that view of the matter it will not

be unreasonable to hold that provisions of the Code will have overriding

effect on the provisions of rent legislation.

 Sub-Section (1) (a) of Section 14 clearly

prohibits institution of suits or continuation of pending suits or proceeding

against the corporate debtor including execution of any judgment, decree or

order in any Court of law, Tribunal, arbitration panel or other authority.

Therefore, when the said Code prohibits institution and/or continuation of a

suit or proceeding, I find no reason to allow the plaintiff to proceed with the

suit. The submission on behalf of the plaintiff that only restriction for stay of

execution has been created under Section 14(1) (d) of the said Code, does not

appear to be logical at all. It depends upon the circumstances where the

parties stand, if it is before the institution of the suit then the suit cannot be

instituted, if it is in the midst of the suit then the suit cannot be continued

and if the suit has been decreed then the execution should not be allowed to

continue. However, it has been clearly submitted by the learned counsel

appearing for the plaintiff/respondent that this Court can proceed with the

trial of the suit but at best the plaintiff can be restrained from proceeding

with the execution. Such submission may be considered to be fair but

cannot be accepted, inasmuch as, before a suit is tried it cannot be

presumed whether the suit will be decreed or dismissed. Such a question

can arise only after the suit is decreed but this Court has not yet reached

such stage and if admittedly a decree cannot be executed there is no reason

to allow the suit to proceed which may lead to multiplicity of proceedings.

IN THE HIGH COURT AT CALCUTTA

ORDINARY ORIGINAL CIVIL JURISDICTION

ORIGINAL SIDE

GA 2791 of 2017

WITH

CS 247 of 2010

KANAK PROJECTS LIMITED VS STEWARTS & LLOYDS OF INDIA LIMITED

BEFORE :

THE HON’BLE JUSTICE SAHIDULLAH MUNSHI

Dated: SEPTEMBER 11,2017

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Whether arbitration proceeding can be initiated after imposition of moratorium as per Insolvency Code?

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.
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 16929 OF 2017
(Arising out of S.L.P. (C) No. 18195/2017)
ALCHEMIST ASSET RECONSTRUTION COMPANY LTD. 
 Vs
M/S. HOTEL GAUDAVAN PVT. LTD. & ORS. 
Dated: 23-10-2017
Citation: AIR 2017 SC 5124

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Whether Registrar of BIFR can dismiss application for reference under SICA Act?

Regulation 19(5) extracted above, requires the
Registrar or the Secretary, as may be, to make an
endorsement of the date of receipt of the
Reference [Regulation 19(4)] and thereafter on
scrutiny thereof to register the same and place
before the Chairman for being referred to the
Bench. When the Regulations framed under the
statute vests in the Registrar or the Secretary of
the Board the power to “scrutinize” an application
prior to registration thereof and thereafter to
register and place the same before the Bench, we
do not see how such power of scrutiny can be
understood to be vesting in any of the said
authorities the power to adjudicate the question
as to whether a company is an industrial company
within the meaning of Section 3(e) read with 3(f)
and 3(n) of the SICA. A claim to come within the
ambit of the aforesaid provisions of the SICA i.e.
to be an industrial company, more often than not,
would be a contentious issue. In the present case,
it certainly was. The specific stand of the
respondent No. 1 company in this regard need not
detain the Court save and except to state that by
a detailed description of the manufacturing
process the respondent No. 1 company had sought to
contend that it is an industrial company. Surely,
the rejection of the above stand could have been
made only by a process of adjudication which power
and jurisdiction clearly and undoubtedly is vested
by the SICA and the Regulations framed thereunder
in a Bench of the Board and not in authorities
like the Registrar and the Secretary.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
 CIVIL APPEAL NO.3055 OF 2017
(Arising out of S.L.P.(C) No.1587 of 2015)
BANK OF NEW YORK MELLON
LONDON BRANCH 
V
ZENITH INFOTECH LIMITED.
Dated:FEBRUARY 21, 2017.
Citation: AIR 2017 SC 1735

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