MR. ANAND RAO KORADA RESOLUTION PROFESSIONAL versus M/S. VARSHA FABRICS (P) LTD. & ORS.

Citation: [2019] 14 S.C.R. 695 · Decided: 18-11-2019 · Supreme Court of India · Bench: INDU MALHOTRA · Disposal: Appeal(s) allowed
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Judgment (excerpt)

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MR. ANAND RAO KORADA RESOLUTION PROFESSIONAL
v.
M/S. VARSHA FABRICS (P) LTD. & ORS.
(Civil Appeal Nos. 8800-8801 of 2019)
NOVEMBER 18, 2019
[INDU MALHOTRA AND R. SUBHASH REDDY JJ.]
Insolvency and Bankruptcy Code, 2016 – ss.7, 13, 14, 231
and 238 – 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 – Respondent No.13-Workers’ Union
filed writ petition and sought payment of arrears and current
salaries of the workmen – High Court directed Labour court to
quantify the amount payable to workmen – During the pendency
of the writ petition, a financial creditor filed petition u/s 7 of the
IBC, 2016 before NCLT for initiation of the Corporate Insolvency
Resolution Process (CRPF) against respondent  No.4 – NCLT
declared moratorium u/s.14 of the IBC – During the pendency of
moratorium, in the pending writ petition High Court directed
valuation of a land owned by respondent No.4 and passed the
orders for carrying out auction of the assets of the respondent No.4
– Propriety of – Held: Not proper – In view of the provisions of
the IBC, the High Court was not justified in passing the orders
for carrying out auction of the assets of the respondent No.4, once
the proceedings under the IBC had commenced and an order
declaring moratorium was passed by the NCLT – Alienation of the
assets of the respondent No.4 during the pendency of the
proceedings under the IBC would jeopardise the interest of all the
stakeholders – However, it is open for the respondent No.13 to file
an application u/regulation 9 of the IBC for payment of arrears,
salaries before the competent authority – Therefore, orders passed
by the High Court set aside.
Allowing the appeals, the Court
HELD: 1.  The Insolvency and Bankruptcy Code, 2016 was
published in the Gazette of India on 28.05.2016. It was framed
as a complete code to consolidate and amend the laws relating
to insolvency resolution of corporate entities, partnership firms,
   [2019] 14 S.C.R. 695
695
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SUPREME COURT REPORTS
[2019] 14 S.C.R.
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. The Corporate Insolvency Resolution
Process (“CIRP”) could be initiated when a corporate debtor
commits a default, either by a financial creditor, or an operational
creditor, or the corporate debtor itself.  Section 12 of the IBC
provides a time-frame to complete the CIRP.  As per Section
13 of the IBC, the Adjudicating Authority i.e. the National
Company Law Tribunal (“NCLT”) shall declare a moratorium for
the purposes referred to in Section 14 of the IBC. [Para 6] [699-
G-H; 700-A-B]
2. In view of the provisions ss.14, 231 and 238 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, this Court set aside the impugned Interim
Orders dated 14.08.2019 and 05.09.2019 passed by the 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. [Para 9] [702-B-F]
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos 8800-
8801 of 2019.
From the Judgment and Order  dated  14.08.2019 & 05.09.2019
of the High Court of Orissa at Cuttack in W.P. (C) No. 7939 of 2011.
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Siddharth Bhatnagar, Sr. Adv., Ashok Jain, Pankaj Jain, Amit
Kasera, Bijoy Kumar Jain, Aditya Sidhra,  Advs. for the Appellant.
Vikramjeet Banerjee, ASG, C
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