Object of S.60(2) IBC Is To Group Together CIRP/ Liquidation Proceedings Before Single Forum: Calcutta High Court

The Calcutta High Court on Monday ruled that the object of Section 60(2) of the Insolvency and Bankruptcy Code, 2016 is to group together Corporate Insolvency Resolution process (CIRP) or liquidation proceedings of a corporate debtor and insolvency resolution/ liquidation/ bankruptcy proceedings of the corporate or personal guarantor of the same corporate debtor before a single forum i.e., the National Company Law Tribunal. The Single Judge Bench of Justice Krishna Rao reasoned that the provision intended to ensure both of the said proceedings did not proceed before different fora which may lead to multiplicity of proceedings and conflict of interest. The Court held: "In Sub-Sections (4) and (5) of Section 60 of the IBC, 2016 give an indication respectively about the powers and jurisdiction of the NCLT. Sub-Section 4 of Section 60 of IBC, 2016 states that the NCLT will have the powers of DRT as contemplated under part III of the Code for the purpose of sub Section (2). Sub Section (2) deals with situation where the Insolvency Resolution or Liquidation of Bankruptcy of the corporate guarantor or personal guarantor of a Corporate Debtor is already pending before the NCLT. The object of sub section (2) is to group together (A), the CIRP or liquidation proceedings of a Corporate Debtor, and (B) the Insolvency Resolution or Liquidation or bankruptcy of a corporate guarantor or personal guarantor of a very same Corporate Debtor so that a single forum may deal with both. This is to ensure that the CRIP of the Corporate Debtor and the Insolvency Resolution of the individual guarantors of the very same Corporate Debtor do not proceed on different tracks, before different forum, leading to conflict of interest, situations or decisions." The proceedings arose out of an application filed by the petitioner seeking grant of ad interim relief restraining the respondent company (in liquidation) from taking possession or control of the the petitioner's pledged shares or to interfere with the possession of the physical share certificates in respect thereof. The said application had been filed in connection with a suit against the respondent company (in liquidation) for a decretal sum of Rs. 11,06,15,68/- and for declaration that 77,500 equity shares of in the plaintiff company were held in the name of the respondent company and other reliefs. Within the factual matrix of the case, while the respondent company was undergoing CIRP, one of the suspended Directors thereof had offered to pay to the petitioners the entire claim amount in return for the petitioner company to provide security interest against such loan. The petitioner company gave security interest in the form of 77,500 pledged equity shares and original title deeds of Tajpur land mortgage against the loan. Thereafter, upon initiation of liquidation proceedings against the respondent company, the petitioner filed a claim for recovery of said securities before the liquidator in satisfaction of the claim amount and for realisation of security interest, contending that the pledged shares and the original title deeds could not be part of liquidation estate of the respondent company. However, the liquidator denied the said security interests of the petitioner company. The liquidator was subsequently successful impleaded as a party respondent. Counsels for the petitioner company contended the pledged shares and the original title deeds could not have been made part of the liquidation estate of the respondent and the Liquidator had wrongfully tried to take the properties from the petitioner company. Counsels for the respondent liquidator argued that the communication relied upon by the petitioner was issued by a suspended Director of the respondent company and not the Liquidator thereof, and consequently could not be treated as admission on the part of the respondent liquidator. Respondent liquidator further argued that in terms of Section 52(5) of the Code, the application ought to lie before the adjudicating authority under the Code and the petitioner company was therefore not entitled to seek injunction before the High Court during pendency of liquidation proceedings. It was also submitted that the respondent liquidator was not in position to verify the security interest claimed by the petitioner company and accordingly had not permitted the petitioner company to realise any such security interest in the assets of the corporate debtor as per the Code. On the statutory scheme of the Sections 408 and 410 of the Companies Act as being without any specific defining of the powers and functions of NCLT, the Court held: "NCLT and NCLAT are constituted under Section 408 and 410 of the Companies Act, 2013 but without specifically defining the power and functions of NCLT. Section 408 of the Companies Act states that the Central Government shall constitute a National Company Law Tribunal to...

Object of S.60(2) IBC Is To Group Together CIRP/ Liquidation Proceedings Before Single Forum: Calcutta High Court

Samriddha Sen

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