Once application admitted by NCLT, parallel proceedings with respect to the main issue cannot take place in the High Court

In Anand Rao Korada Vs. Varsha Fabrics (P) Ltd. and Ors., Civil Appeal Nos. 8800-8801 of 2019, 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.

The background of this mater is that, 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.

Respondent No. 4 shut down its factory on 08.05.2007.

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. 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.

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.

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.

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/-.

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 IBC. The Appellant herein was appointed as the Insolvency Resolution Professional.

During the pendency of the moratorium, W.P. (Civil) 7939/2011 was posted for hearing on 14.08.2019 before the High Court. The Additional Government Advocate submitted that the valuation of the land in Mouza-Tara Nagar owned by Respondent No. 4 was Rs. 6,05,000/- per acre. The High Court directed the Additional Government Advocate to file an affidavit with respect to the valuation conducted.

The High Court by a further Order dated 05.09.2019, recorded the submission of the Appellant-Resolution Professional that there were other companies which had expressed an interest to participate in the public auction. The matter was posted for further hearing on 17.09.2019.

The Appellant-Resolution Professional filed the present Civil Appeals 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 on the ground that since the CIRP against Respondent No. 4 had commenced, the proceedings before the High Court in W.P. (Civil) No. 7939/2011 ought to be stayed.

The Supreme Court observed that the Insolvency and Bankruptcy Code was framed as a complete code to consolidate and amend the laws relating to insolvency resolution of corporate entities, partnership firms, and individuals in a time-bound manner, for maximisation of the value of the assets of such persons, and balance the interest of all the stakeholders. In view of the provisions of the IBC, the High Court ought not to have proceeded with the auction of the property of the Corporate Debtor-Respondent No. 4 herein, once the proceedings under the IBC had commenced, and an Order declaring moratorium was passed by the NCLT. The High Court passed the impugned Interim Orders dated 14.08.2019 and 05.09.2019 after the CIRP had commenced in this case.

The moratorium having been declared by the NCLT on 04.06.2019, the High Court was not justified in passing the Orders dated 14.08.2019 and 05.09.2019 for carrying out auction of the assets of the Respondent No. 4-Company i.e. the Corporate Debtor before the NCLT. The subject matter of the auction proceedings before the High Court is a vast chunk of land admeasuring about 330 acres, including Railway lines and buildings.

If the assets of the Respondent No. 4-Company are alienated during the pendency of the proceedings under the IBC, it will seriously jeopardise the interest of all the stakeholders.

As a consequence, the Supreme Court set aside the impugned Interim Orders dated 14.08.2019 and 05.09.2019 passed by the Odisha High Court, as parallel proceedings with respect to the main issue cannot take place in the High Court. The sale or liquidation of the assets of Respondent No. 4 will now be governed by the provisions of the IBC.

It is open for Respondent No. 13-Hirakud Workers' Union to file an application under Regulation 9 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 for payment of arrears, salaries and other dues before the competent authority.